Saul Centers, Inc. Reports Third Quarter 2012 Earnings

BETHESDA, Md., Nov. 1, 2012 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust (REIT), announced its operating results for the quarter ended September 30, 2012 ("2012 Quarter"). Total revenue for the 2012 Quarter increased to $47.5 million from $42.9 million for the quarter ended September 30, 2011 ("2011 Quarter"). Operating income, which is net income available to common stockholders before income attributable to noncontrolling interests and preferred stock dividends, decreased to $8.1 million for the 2012 Quarter from $8.7 million for the 2011 Quarter. Net income available to common stockholders was $4.2 million ($0.21 per diluted share) for the 2012 Quarter compared to $1.7 million ($0.09 per diluted share) for the 2011 Quarter. Revenue increased primarily due to $3.0 million of rents generated by the shopping centers acquired in 2011 and $0.9 million of additional revenue generated by Clarendon Center. Operating income declined primarily due to $1.9 million of predevelopment expenses, which was partially offset by $1.3 million of additional operating income generated by the core portfolio and $0.2 million generated by the shopping centers acquired in 2011.

Same property revenue increased 1.9% for the 2012 Quarter compared to the 2011 Quarter, and same property operating income increased 3.3%. The same property comparisons exclude the results of properties not in operation for the entirety of the comparable reporting periods. Shopping center portfolio same property operating income increased 3.7%, primarily due to lower provision for credit losses, and the mixed-use portfolio same property operating income increased 2.0%.

For the nine months ended September 30, 2012 ("2012 Period"), total revenue increased to $142.2 million from $127.4 million for the nine months ended September 30, 2011 ("2011 Period"). Operating income increased to $27.0 million for the 2012 Period from $25.2 million for the 2011 Period. Net income available to common stockholders was $12.5 million ($0.64 per diluted share) for the 2012 Period compared to $7.9 million ($0.42 per diluted share) for the 2011 Period. The primary sources of the revenue increase were additional revenue from the shopping centers acquired in 2011 ($9.7 million) and Clarendon Center ($4.3 million). The primary sources of the increase in operating income were the core portfolio ($2.9 million) and the shopping centers acquired in 2011 ($1.3 million), partially offset by predevelopment expenses ($1.9 million). Same property revenue increased 0.6% for the 2012 Period compared to the 2011 Period, and same property operating income increased 1.7%. Shopping center portfolio same property operating income increased 1.2% and the mixed-use portfolio same property operating income increased 3.6% due to improved operating performance at Washington Square.

As of September 30, 2012, 91.6% of the commercial portfolio was leased (all properties except the apartments at Clarendon Center, which were 100% leased), compared to 90.4% at September 30, 2011. On a same property basis, 91.1% of the portfolio was leased compared to the prior year level of 89.9%. The 2012 leasing percentages were impacted by a net increase of approximately 105,000 square feet of leased space, primarily caused by the leasing of a portion of the space vacated by major shopping center tenants in 2011.

Funds from operations (FFO) available to common shareholders (after deducting preferred stock dividends) increased 36.2% to $14.6 million ($0.55 per diluted share) in the 2012 Quarter from $10.7 million ($0.44 per diluted share) in the 2011 Quarter. FFO, a widely accepted non-GAAP financial measure of operating performance for REITs, is defined as net income plus real estate depreciation and amortization, and excluding gains and losses from property dispositions, impairment charges on depreciable real estate assets and extraordinary items. The primary sources of increased FFO in the 2012 Quarter were (a) acquisition costs incurred in 2011 ($2.4 million), (b) additional FFO generated by the shopping center properties acquired in 2011 ($1.5 million), the core portfolio ($1.5 million), and Clarendon Center ($0.1 million) and (c) the change in fair value recognized on the Company's interest rate swaps ($0.2 million), partially offset by predevelopment expenses ($1.9 million or $0.07 per diluted share).

FFO available to common shareholders for the 2012 Period increased 29.1% to $45.5 million ($1.72 per diluted share) from $35.2 million ($1.45 per diluted share) during the 2011 Period. The primary sources of increased FFO in the 2012 Period were (a) additional FFO generated by the shopping centers acquired in 2011 ($4.8 million), the core portfolio ($2.5 million), and Clarendon Center ($0.8 million), (b) acquisition costs incurred in the 2011 Period ($2.5 million), (c) a change in the fair value loss recognized on the Company's interest rate swaps ($1.4 million), partially offset by predevelopment expenses ($1.9 million).

Saul Centers is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland. Saul Centers currently operates and manages a real estate portfolio of 57 community and neighborhood shopping center and mixed-use properties totaling approximately 9.5 million square feet of leasable area. Over 85% of the Company's property operating income is generated from properties in the metropolitan Washington, DC/Baltimore area.

Saul Centers, Inc.
Condensed Consolidated Balance Sheets
($ in thousands)

			September 30,	December 31,
			2012	2011
Assets			(Unaudited)
	Real estate investments
		Land	$ 323,723	$ 324,183
		Buildings and equipment	1,101,339	1,092,533
		Construction in progress	1,422	1,129
			1,426,484	1,417,845
		Accumulated depreciation	(346,426)	(326,397)
			1,080,058	1,091,448
	Cash and cash equivalents		33,498	12,323
	Accounts receivable and accrued income, net		41,916	39,094
	Deferred leasing costs, net		25,396	25,876
	Prepaid expenses, net		6,367	3,868
	Deferred debt costs, net		8,106	7,090
	Other assets		5,106	12,870
		Total assets	$ 1,200,447	$ 1,192,569

Liabilities
	Mortgage notes payable		$ 827,963	$ 823,871
	Revolving credit facility payable		-	8,000
	Dividends and distributions payable		13,394	13,219
	Accounts payable, accrued expenses and other liabilities		30,044	22,992
	Deferred income		30,128	31,281
		Total liabilities	901,529	899,363

Stockholders' equity
	Preferred stock		179,328	179,328
	Common stock		198	193
	Additional paid-in capital		236,459	217,829
	Accumulated deficit and other comprehensive loss		(157,085)	(147,522)
		Total Saul Centers, Inc. stockholders' equity	258,900	249,828
	Noncontrolling interest		40,018	43,378
		Total stockholders' equity	298,918	293,206

		Total liabilities and stockholders' equity	$ 1,200,447	$ 1,192,569

Saul Centers, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)

			Three Months Ended September 30,		Nine Months Ended September 30,
			2012	2011	2012	2011
Revenue			(Unaudited)		(Unaudited)
	Base rent		$ 38,403	$ 34,390	$ 114,091	$ 101,280
	Expense recoveries		7,576	6,994	22,741	21,211
	Percentage rent		259	209	1,118	1,037
	Other		1,296	1,285	4,208	3,862
		Total revenue	47,534	42,878	142,158	127,390

Operating expenses
	Property operating expenses		5,977	5,829	17,775	18,289
	Provision for credit losses		168	595	761	1,628
	Real estate taxes		5,546	4,743	16,928	13,881
	Interest expense and amortization of deferred debt costs		12,322	11,250	37,660	32,714
	Depreciation and amortization of deferred leasing costs		10,268	8,512	29,816	25,308
	General and administrative		3,272	3,293	10,303	10,402
	Predevelopment expenses		1,870	-	1,870	-
		Total operating expenses	39,423	34,222	115,113	102,222
Operating income			8,111	8,656	27,045	25,168
	Acquisition related costs		-	(2,439)	-	(2,513)
	Change in fair value of derivatives		17	(217)	(2)	(1,374)
	Gain on sale of property		1,057	-	1,057	-
	Gain on casualty settlement		219	-	219	198
Net income			9,404	6,000	28,319	21,479
	Income attributable to the noncontrolling interests		(1,456)	(496)	(4,428)	(2,268)
Net income attributable to Saul Centers, Inc.			7,948	5,504	23,891	19,211
	Preferred dividends		(3,785)	(3,785)	(11,355)	(11,355)
Net income available to common stockholders			$ 4,163	$ 1,719	$ 12,536	$ 7,856

Per share net income available to common stockholders :
	Diluted		$ 0.21	$ 0.09	$ 0.64	$ 0.42

Weighted average common stock :
	Common stock		19,721	18,893	19,561	18,774
	Effect of dilutive options		63	44	51	69
	Diluted weighted average common stock		19,784	18,937	19,612	18,843

Saul Centers, Inc.
Supplemental Information
(In thousands, except per share amounts)

					Three Months Ended September 30,		Nine Months Ended September 30,
					2012	2011	2012	2011
Reconciliation of net income to FFO available to common shareholders:				(1)	(Unaudited)		(Unaudited)
	Net income				$ 9,404	$ 6,000	$ 28,319	$ 21,479
	Less:		Gains on property dispositions		(1,276)	-	(1,276)	(198)
	Add:		Real property depreciation and amortization		10,268	8,512	29,816	25,308

		FFO			18,396	14,512	56,859	46,589
	Less:		Preferred dividends		(3,785)	(3,785)	(11,355)	(11,355)
		FFO available to common shareholders			$ 14,611	$ 10,727	$ 45,504	$ 35,234

Weighted average shares :
	Diluted weighted average common stock				19,784	18,937	19,612	18,843
	Convertible limited partnership units				6,914	5,416	6,914	5,416
	Diluted & converted weighted average shares				26,698	24,353	26,526	24,259

Per share amounts:
	FFO available to common shareholders (diluted				$ 0.55	$ 0.44	$ 1.72	$ 1.45

Reconciliation of net income to same property operating income:
	Net income				$ 9,404	$ 6,000	$ 28,319	$ 21,479
	Add:		Interest expense and amortization of deferred debt costs		12,322	11,250	37,660	32,714
	Add:		Depreciation and amortization of deferred leasing costs		10,268	8,512	29,816	25,308
	Add:		General and administrative		3,272	3,293	10,303	10,402
	Add:		Predevelopment expenses		1,870	-	1,870	-
	Add:		Acquisition related costs		-	2,439	-	2,513
	Add:		Change in fair value of derivatives		(17)	217	2	1,374
	Less:		Gains on property dispositions		(1,276)	-	(1,276)	(198)
	Less:		Interest income		(59)	(18)	(108)	(65)

		Property operating income			35,784	31,693	106,586	93,527
	Less:		Acquisitions & developments		(5,738)	(2,618)	(17,003)	(5,421)
		Total same property operating income			$ 30,046	$ 29,075	$ 89,583	$ 88,106

	Shopping centers				$ 24,169	$ 23,311	$ 71,838	$ 70,984
	Mixed-Use properties				5,877	5,764	17,745	17,122
		Total same property operating income			$ 30,046	$ 29,075	$ 89,583	$ 88,106

(1) The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding extraordinary items, impairment charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company's Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what we believe occurs with our assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.