Notes to Consolidated Financial Statements (Unaudited)
1.
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Organization, Formation and Structure
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Saul Centers, Inc. (Saul Centers) was incorporated under the Maryland General Corporation Law on
June 10, 1993. Saul Centers operates as a real estate investment trust (a REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company is required to annually distribute at least 90% of its REIT
taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers,
together with its wholly-owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the Company. B. Francis Saul II serves as Chairman of
the Board of Directors and Chief Executive Officer of Saul Centers.
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 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 mixed-use 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 disposed of by the Company since December 31, 2011 (no projects have been
developed since 2011).
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Name of Property
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Location
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Type
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Year of
Acquisition/
Disposition
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Acquisitions
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1500 Rockville Pike
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Rockville, MD
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Shopping Center
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2012
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5541 Nicholson Lane
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Rockville, MD
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Shopping Center
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2012
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Dispositions
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West Park
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Oklahoma City, OK
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Shopping Center
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2012
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Belvedere
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Baltimore, MD
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Shopping Center
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2012
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As of June 30, 2013, the Companys properties (the Current Portfolio
Properties) consisted of 50 operating shopping center properties (the Shopping Centers), six mixed-use properties which are comprised of office, retail and multi-family residential uses (the Mixed-Use Properties) and
three (non-operating) development properties.
2.
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Summary of Significant Accounting Policies
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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 mixed-use 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 one or more major tenants. As of June 30, 2013, 33 of the Shopping
-9-
Notes to Consolidated Financial Statements (Unaudited)
Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. Two retail tenants, Giant Food, a tenant at ten Shopping Centers, and Safeway, a tenant at eight
Shopping Centers, individually accounted for 4.9% and 2.7%, respectively, of the Companys total revenue for the six months ended June 30, 2013.
Principles of Consolidation
The accompanying consolidated financial
statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority owned by Saul Centers. All significant intercompany balances and transactions
have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of Saul Centers, Inc. for the interim
periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Saul Centers,
Inc. for the year ended December 31, 2012, which are included in its Annual Report on Form
10-K.
The results of operations for interim periods are not necessarily indicative of results to be expected
for the year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts
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 financial statements are shown net of an allowance for doubtful accounts of approximately
$1.0 million and $1.2 million at June 30, 2013 and December 31, 2012, respectively.
In addition to
rents due currently, accounts receivable includes approximately $35.7 million and $34.4 million, at June 30, 2013 and December 31, 2012, respectively, net of allowance for doubtful accounts totaling $243,000 and $220,000,
respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases.
Assets Held for Sale
The Company considers properties to be assets held
for sale when all of the following criteria are met:
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management commits to a plan to sell a property;
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it is unlikely that the disposal plan will be significantly modified or discontinued;
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the property is available for immediate sale in its present condition;
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-10-
Notes to Consolidated Financial Statements (Unaudited)
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actions required to complete the sale of the property have been initiated;
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sale of the property is probable and the Company expects the completed sale will occur within one year; and
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the property is actively being marketed for sale at a price that is reasonable given its current market value.
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Upon designation as an asset held for sale, the Company records the carrying value of each property at the lower of its carrying value or
its estimated fair value, less estimated costs to sell, and the Company ceases depreciation. As of June 30, 2013, no properties were classified as held for sale.
Cash and Cash Equivalents
Cash and cash equivalents include short-term
investments. Short-term investments include money market accounts and other investments which generally mature within three months, measured from the acquisition date, and/or are readily convertible to cash.
Construction In Progress
Construction in progress includes preconstruction and development costs of active projects. Preconstruction costs include legal, zoning
and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural,
engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. Construction in progress totaled $6.2 million ($4.9 million of which is related to Van Ness Square), and $2.3 million as of
June 30, 2013 and December 31, 2012, respectively.
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 on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled $8.3 million and $7.7 million,
net of accumulated amortization of $4.1 million and $3.8 million, at June 30, 2013 and December 31, 2012, 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, including tenant prepayment of rent for future periods, real estate taxes when the taxing jurisdiction has a fiscal year differing from the calendar year, reimbursements
specified in the lease agreement and tenant construction work provided by the Company. In addition, deferred income includes the fair value of certain below market leases.
Deferred Leasing Costs
Deferred leasing costs consist of commissions paid
to third-party leasing agents, internal direct costs such as employee compensation and payroll-related fringe benefits directly related to time spent performing leasing-related activities for successful commercial leases and amounts attributed to
in-place leases associated with acquired properties. Leasing related 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. Unamortized deferred costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Deferred leasing costs are amortized over the term
of the lease or remaining term of acquired leases. Collectively, deferred leasing costs totaled $24.8 million and $26.1 million, net of
-11-
Notes to Consolidated Financial Statements (Unaudited)
accumulated amortization of $16.5 million and $16.2 million, as of June 30, 2013 and December 31, 2012, respectively. Amortization expense, included in depreciation and
amortization in the consolidated statements of operations, totaled $3.2 million and $2.8 million for the six months ended June 30, 2013 and 2012, respectively.
Derivative Financial Instruments
The Company may, when appropriate, employ
derivative instruments, such as interest-rate swaps, to mitigate the risk of interest rate fluctuations. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Derivative financial instruments
are carried at fair value as either assets or liabilities on the consolidated balance sheets. For those derivative instruments that qualify and are designated as hedging instruments, the Company designates the hedging instrument, based upon the
exposure being hedged, as a fair value hedge or a cash flow hedge. For those derivative instruments that qualify and are designated as hedging instruments, the effective portion of the gain or loss on the hedge instruments is reported as a component
of accumulated other comprehensive income (loss) and recognized in earnings within the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings. Any ineffective
portion of the change in fair value of a derivative instrument is immediately recognized in earnings. For derivative instruments that do not qualify, or that qualify and are not designated, as hedging instruments, changes in fair value are
immediately recognized in earnings.
Derivative financial instruments expose us to credit risk in the event of non-performance
by the counterparties under the terms of the derivative instrument. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions as determined by management, and therefore, it believes that
the likelihood of realizing losses from counterparty non-performance is remote.
Income Taxes
The Company made an election to be treated, and intends to continue operating so as to qualify, as a REIT under the Code, commencing with
its taxable year ended December 31, 1993. A REIT generally will not be subject to federal income taxation, provided that distributions to its stockholders equal or exceed its REIT taxable income and it complies with certain other requirements.
Therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are
generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material adverse effect on its financial position or the results of
operations. Upon determination that a loss is probable to occur and can be reasonably estimated, 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.
Predevelopment Expenses
Predevelopment expenses represent certain costs incurred by the Company in connection with active development and redevelopment projects
and include, for example, costs related to the early termination of tenant leases and demolition of existing structures.
-12-
Notes to Consolidated Financial Statements (Unaudited)
Real Estate Investment Properties
The Company purchases real estate investment properties from time to time and records assets acquired and liabilities assumed, including
land, buildings, and intangibles related to in-place leases and customer relationships, based on their fair values. The fair value of buildings generally is determined as if the buildings were vacant upon acquisition and subsequently leased at
market rental rates and considers the present value of all cash flows expected to be generated by the property including an initial lease up period. From time to time the Company may purchase a property for future development purposes. 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 taking into consideration
the remaining contractual lease period, renewal periods, and the likelihood of the tenant exercising its renewal options. The fair value of a below market lease component is recorded as deferred income and accreted as additional 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 revenue over the remaining
contractual lease term. The Company determines the fair value of 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 values of the
intangibles are amortized over the lives of the customer relationships. The Company has never recorded a customer relationship intangible asset. Acquisition-related transaction costs are expensed as incurred.
If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property,
the Company prepares an analysis to determine whether the carrying value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors including recurring operating losses,
significant decreases in occupancy, and significant adverse changes in legal factors and business climate. If impairment indicators are present, the Company compares the projected cash flows of the property over its remaining useful life, on an
undiscounted basis, to the carrying value of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If the
carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair value. The value of any property is
sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from managements projections, the valuation could be negatively or positively affected.
The Company did not recognize an impairment loss on any of its real estate during the six months ended June 30, 2013 and 2012.
Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under development and construction. Upon substantial completion of construction and the
placement of the assets into service, 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 and capitalization of interest ceases. Property operating expenses are charged to operations as incurred. Interest capitalized totaled $34,000 and $3,600 for the six months ended June 30, 2013 and 2012, respectively.
Commercial development projects are 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. Multi-family residential
development projects are considered substantially complete and available for occupancy upon receipt of the certificate of occupancy from the appropriate licensing authority. Substantially completed portions of a project are accounted for as separate
projects.
-13-
Notes to Consolidated Financial Statements (Unaudited)
Depreciation is calculated using the straight-line method and estimated useful lives of
generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold
improvement expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the
useful life of the improvements, using the straight-line method. Depreciation expense in the consolidated statements of operations totaled $25.6 million and $16.8 million for the six months ended June 30, 2013 and 2012,
respectively. The $8.8 million increase was primarily due to $8.0 million of additional depreciation expense on the building at Van Ness Square as a result of the reduction of its estimated remaining useful life to four months effective
January 1, 2013. Repairs and maintenance expense totaled $4.9 million and $4.6 million for the six months ended June 30, 2013 and 2012, respectively, and is included in property operating expenses in the Consolidated
Statements of Operations.
Revenue Recognition
Rental and interest income are accrued as earned except when doubt exists as to collectability, 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 scheduled rent increases, income is recognized on a straight-line basis. Expense recoveries represent a portion of
property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs and 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.
Stock-based Employee Compensation, Stock Plan and Deferred Compensation Plan for Directors
The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of each award using the Black-Scholes model, a widely
used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Companys common stock (month-end closing prices) corresponding to
the average expected term of the options; (2) Average Expected Term of the options is based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management 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) a Risk-free Interest Rate based upon the market yields of US
Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation in general
and administrative expenses.
The Company has a stock plan, which was originally approved in 2004, amended in 2008 and 2013
and which expires in 2023, for the purpose of attracting and retaining executive officers, directors and other key personnel (the Stock Plan). Pursuant to the Stock Plan, the Compensation Committee established a Deferred Compensation
Plan for Directors for the benefit of its directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. A director may make an annual election 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 closing market price of the Companys common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. As of June 30, 2013,
221,852 shares had been credited to the directors deferred fee accounts.
-14-
Notes to Consolidated Financial Statements (Unaudited)
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.
Noncontrolling Interest
Saul Centers is the sole general partner of the Operating Partnership, owning a 74.6% common interest as of June 30, 2013. Noncontrolling interest in the Operating Partnership is comprised of
limited partnership units owned by The Saul Organization. Noncontrolling interest reflected on the accompanying consolidated balance sheets is increased for earnings allocated to limited partnership interests and distributions reinvested in
additional units, and is decreased for limited partner distributions. Noncontrolling interest reflected on the consolidated statements of operations represents earnings allocated to limited partnership interests.
Per Share Data
Per
share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Companys potentially dilutive securities. For all periods
presented, the convertible limited partnership units are non-dilutive. Certain 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. For the three and six months ended June 30, 2013, 92,500 and 25,000 stock options issued in 2007 and 2008, respectively, are anti-dilutive and are therefore excluded from this measurement.
Basic and Diluted Shares Outstanding
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Three months ended
June
30,
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Six months ended
June
30,
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(In thousands)
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2013
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2012
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2013
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2012
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Weighted average common shares outstanding-Basic
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20,301
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19,559
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20,224
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19,481
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Effect of dilutive options
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22
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43
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27
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45
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Weighted average common shares outstanding-Diluted
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20,323
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19,602
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20,251
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19,526
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Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the six months ended June 30, 2013.
Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Other Comprehensive Income (ASU
2013-02). ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. Instead, it requires that information be provided about the amounts reclassified out of accumulated
other comprehensive income by component. In addition, it requires presentation either on the face of the statement where net income is presented or in the notes, of significant amounts reclassified out of accumulated other comprehensive income by
the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be classified in the entirety to net
income, cross-reference to other disclosures that provide additional detail about those amounts is required. ASU 2013-02 was effective for the Company on January 1, 2013 and its adoption did not have a material impact on the Companys
financial condition or results of operations.
-15-
Notes to Consolidated Financial Statements (Unaudited)
3.
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Real Estate Acquired and Sold
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1500 Rockville Pike
In December 2012, the Company purchased for $22.4 million 1500 Rockville Pike, a retail property located in Rockville, Maryland, and incurred acquisition costs of $0.6 million.
5541 Nicholson Lane
In
December 2012, the Company purchased for $11.7 million 5541 Nicholson Lane, a retail property located in Rockville, Maryland, and incurred acquisition costs of $0.5 million.
West Park
On July 25, 2012, the Company sold for $2.0 million
the 77,000 square foot West Park shopping center in Oklahoma City, Oklahoma and recorded a $1.1 million gain.
Belvedere
In December
2012, the Company sold for $4.0 million, the 54,900 square foot Belvedere shopping center in Baltimore, Maryland and recorded a $3.4 million gain.
4.
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Noncontrolling Interest
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Holders of Convertible Limited Partnership Units in the Operating Partnership
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As of June 30, 2013, the Saul Organization holds a 25.4% limited partnership interest in the Operating
Partnership represented by approximately 6.9 million convertible limited partnership units. These units are convertible into shares of Saul Centers common stock, at the option of the unit holder, on a one-for-one basis provided that, in
accordance with the 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). As of June 30, 2013, 1.25 million units were convertible into shares of Saul Centers common stock.
The impact of The Saul Organizations approximately 25.4% limited partnership interest in the Operating Partnership is reflected as
Noncontrolling Interest in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average shares outstanding for the three months ended June 30, 2013 and 2012, were approximately
27.2 million and 26.5 million, respectively, and for the six months ended June 30, 2013 and 2012 were 27.2 million and 26.4 million, respectively.
5.
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Mortgage Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs
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The Companys outstanding debt totaled approximately $826.2 million at June 30, 2013, of which
approximately $795.8 million was fixed-rate debt and approximately $30.4 million was variable rate debt. The carrying value of the properties collateralizing the mortgage notes payable totaled $911.1 million as of
June 30, 2013.
At June 30, 2013, the Company had a $175.0 million unsecured revolving credit facility,
which can be used for working capital, property acquisitions, development projects or letters of credit. The revolving credit facility matures on May 20, 2016, and may be extended by the Company for one additional year subject to the
Companys satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the revolving credit facility. Letters of
credit may be issued under the revolving credit facility. On June 30, 2013, based on the value of the Companys unencumbered properties, approximately $166.7 million was available under the line, no borrowings were outstanding
and approximately $404,000 was committed for letters of credit. The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Companys leverage ratio, and which can range from 160
basis points to 250 basis points. As of June 30, 2013, the margin was 190 basis points.
-16-
Notes to Consolidated Financial Statements (Unaudited)
Saul Centers is a guarantor of the revolving credit facility, of which the Operating
Partnership is the borrower. Saul Centers is also the guarantor of 50% of each of the Northrock bank loan (approximately $7.5 million of the $14.9 million outstanding at June 30, 2013) and the Metro Pike Center bank loan
(approximately $7.8 million of the $15.5 million outstanding at June 30, 2013). The fixed-rate notes payable are all non-recourse debt except for $27.6 million of the Clarendon Center mortgage, which will be eliminated upon
the achievement of certain leasing and debt service covenants which are guaranteed by Saul Centers.
On February 27,
2013, the Company closed on a three-year $15.6 million mortgage loan secured by Metro Pike Center. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month LIBOR and 165 basis points, requires monthly principal and
interest payments based on a 25-year amortization schedule and requires a final payment of $14.7 million at maturity. The loan may be extended for up to two years. Proceeds were used to pay-off the $15.9 million remaining balance of
existing debt secured by Metro Pike Center, and to extinguish the related swap agreement, both of which were scheduled to mature in June 2013.
On February 27, 2013, the Company closed on a three-year $15.0 million mortgage loan secured by Northrock. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month
LIBOR and 165 basis points, requires monthly principal and interest payments based on a 25-year amortization schedule and requires a final payment of $14.2 million at maturity. The loan may be extended for up to two years. Proceeds were used to
pay-off the $15.0 million remaining balance of existing debt secured by Northrock, which was scheduled to mature in May 2013.
On March 19, 2013, the Company closed on a 15-year, non-recourse $18.0 million mortgage loan secured by Hampshire Langley. The loan matures in 2028, bears interest at a fixed rate of 4.04%, requires
monthly principal and interest payments totaling $95,400 based on a 25-year amortization schedule and requires a final payment of $9.5 million at maturity.
On April 10, 2013, the Company paid in full the $6.9 million remaining balance on the mortgage loan secured by Cruse Marketplace.
On May 28, 2013, the Company closed on a 15-year, non-recourse $35.0 million mortgage loan secured by Beacon Center. The loan
matures in 2028, bears interest at a fixed rate of 3.51%, requires monthly principal and interest payments totaling $203,200 based on a 20-year amortization schedule and requires a final payment of $11.3 million at maturity.
At December 31, 2012, the Companys outstanding debt totaled approximately $827.8 million, of which $774.8 million was
fixed rate debt and $53.0 million was variable rate debt, including $38.0 million outstanding on the Companys unsecured revolving credit facility. The carrying value of the properties collateralizing the mortgage notes payable totaled
$916.1 million as of December 31, 2012.
-17-
Notes to Consolidated Financial Statements (Unaudited)
At June 30, 2013, the scheduled maturities of debt, including scheduled principal
amortization, for years ending December 31, were as follows:
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(In thousands)
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Balloon
Payments
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Scheduled
Principal
Amortization
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Total
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July 1 through December 31, 2013
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$
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$
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10,661
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$
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10,661
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2014
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13,218
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21,929
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35,147
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2015
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15,077
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22,558
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37,635
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2016
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28,916
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22,991
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51,907
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2017
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|
|
|
|
|
24,193
|
|
|
|
24,193
|
|
2018
|
|
|
27,872
|
|
|
|
24,189
|
|
|
|
52,061
|
|
Thereafter
|
|
|
465,825
|
|
|
|
148,795
|
|
|
|
614,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
550,908
|
|
|
$
|
275,316
|
|
|
$
|
826,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of deferred debt costs for the three and six months ended June 30,
2013 and 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
(In thousands)
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Interest incurred
|
|
$
|
11,429
|
|
|
$
|
12,064
|
|
|
$
|
22,835
|
|
|
$
|
24,392
|
|
Amortization of deferred debt costs
|
|
|
314
|
|
|
|
494
|
|
|
|
625
|
|
|
|
899
|
|
Capitalized interest
|
|
|
(34
|
)
|
|
|
(4
|
)
|
|
|
(34
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,709
|
|
|
$
|
12,554
|
|
|
$
|
23,426
|
|
|
$
|
25,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Stockholders Equity and Noncontrolling Interest
|
The consolidated statements of operations for the six months ended June 30, 2013 and 2012 reflect
noncontrolling interest of ($418,000) and $3.0 million, respectively, representing the Saul Organizations share of net income (loss) for each period.
In March 2013, the Company redeemed 60% of its then-outstanding 8% Series A Cumulative Redeemable Preferred Stock (the Series A Stock) and all of its 9% Series B Cumulative Redeemable
Preferred Stock. Costs associated with the redemptions were charged against accumulated deficit.
The Company has outstanding
1.6 million depositary shares, each representing 1/100th of a share of Series A Stock. The depositary shares are redeemable, in whole or in part at the Companys option, from time to time, at $25.00 per share. The depositary shares pay an
annual dividend of $2.00 per share, equivalent to 8% of the $25.00 per share liquidation preference. 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.
On February 12, 2013, the Company sold, in an underwritten public offering, 5.6 million
depositary shares, each representing 1/100th of a share of 6.875% Series C Cumulative Redeemable Preferred Stock, and received net cash proceeds of approximately $135.2 million. The depositary shares may be redeemed on or after
February 12, 2018 at the Companys option, in whole or in part, at the $25.00 liquidation preference plus accrued but unpaid dividends. The depositary shares pay an annual dividend of $1.71875 per share, equivalent to 6.875% of the
$25.00 liquidation preference. The first dividend was paid on April 15, 2013 and covered the period from February 12, 2013 through March 31, 2013. The Series C preferred stock has no stated maturity, is not subject to any sinking
fund or
-18-
Notes to Consolidated Financial Statements (Unaudited)
mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes of control or delisting events. Investors in the depositary shares
generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
7.
|
Related Party Transactions
|
The Chairman and Chief Executive Officer, the President, the Executive Vice President Real Estate, and the
Senior 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 Senior 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 401K plan with entities in the Saul Organization which covers those full-time employees who
meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the consolidated statements of operations, at the discretionary amount of up to six
percent of the employees cash compensation, subject to certain limits, were $189,000 and $170,000 for the six months ended June 30, 2013 and 2012, respectively. All amounts deferred by employees and the Company are fully vested.
The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul
Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a
specified amount. For the six months ended June 30, 2013 and 2012, the Company contributed $103,000 and $109,000, respectively, which is three times the amount deferred by employees and is included in general and administrative expense. All
amounts deferred by employees and the Company are fully vested. The cumulative unfunded liability under this plan was $1.5 million and $2.2 million, at June 30, 2013 and December 31, 2012, 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. The terms of the Agreement and the
payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Billings by the Saul Organization for the Companys share
of these ancillary costs and expenses for the six months ended June 30, 2013 and 2012, which included rental expense for the Companys headquarters lease, totaled approximately $3.2 million and $3.1 million, respectively.
The amounts are expensed as incurred and are primarily reported as general and administrative expenses in the consolidated financial statements. As of June 30, 2013 and December 31, 2012, accounts payable, accrued expenses and
other liabilities included approximately $406,000 and $499,000, respectively, representing amounts due to the Saul Organization for the Companys share of these ancillary costs and expenses.
The Company subleases its corporate headquarters space from a member of The Saul Organization. The lease commenced in March 2002, was
extended to March 2017 in 2012, and provides for base rent increases of 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Agreement requires each party to pay an allocation of total rental payments
based on a percentage proportionate to the number of employees employed by each party. The Companys rent expense was $428,000 and $452,000 for the six months ended June 30, 2013 and 2012, respectively, and is included in general and
administrative expense.
-19-
Notes to Consolidated Financial Statements (Unaudited)
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul
Company and a member of the Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Companys insurance program. Such commissions and fees amounted to $167,000 and $130,000 for the six months
ended June 30, 2013 and 2012, respectively.
Effective as of September 4, 2012, the Company entered into a
consulting agreement with B. F. Saul III, the Companys former president, whereby Mr. Saul III will provide certain consulting services to the Company as an independent contractor and will be paid at a rate of $60,000 per month. The
consulting agreement includes certain noncompete, nonsolicitation and nondisclosure covenants, and has a term of up to two years, although the consulting agreement is terminable by the Company at any time. During the six months ended
June 30, 2013, such consulting fees totaled $360,000.
The Company has established two stock incentive plans, the 1993 plan and the 2004 plan (together, the
Plans). Under the Plans, options were granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years
following the grant and are expensed straight-line over the vesting period. Director options vest immediately and are expensed as of the date of grant.
-20-
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes the amount and activity of each grant with outstanding unexercised
options, 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 six months ended June 30, 2013:
Stock options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
Grant date
|
|
04/26/2004
|
|
|
05/06/2005
|
|
|
05/01/2006
|
|
|
04/27/2007
|
|
|
04/25/2008
|
|
|
04/24/2009
|
|
|
05/07/2010
|
|
|
05/13/2011
|
|
|
05/04/2012
|
|
|
05/10/2013
|
|
|
Subtotals
|
|
Total grant
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
32,500
|
|
|
|
32,500
|
|
|
|
32,500
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
317,500
|
|
Vested
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
27,500
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
32,500
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
300,000
|
|
Exercised
|
|
|
22,500
|
|
|
|
20,000
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
65,000
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
Exercisable at June 30, 2013
|
|
|
7,500
|
|
|
|
10,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
20,000
|
|
|
|
27,500
|
|
|
|
27,500
|
|
|
|
32,500
|
|
|
|
35,000
|
|
|
|
235,000
|
|
Remaining unexercised
|
|
|
7,500
|
|
|
|
10,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
20,000
|
|
|
|
27,500
|
|
|
|
27,500
|
|
|
|
32,500
|
|
|
|
35,000
|
|
|
|
235,000
|
|
Exercise price
|
|
$
|
25.78
|
|
|
$
|
33.22
|
|
|
$
|
40.35
|
|
|
$
|
54.17
|
|
|
$
|
50.15
|
|
|
$
|
32.68
|
|
|
$
|
38.76
|
|
|
$
|
41.82
|
|
|
$
|
39.29
|
|
|
$
|
44.42
|
|
|
|
|
|
Volatility
|
|
|
0.183
|
|
|
|
0.198
|
|
|
|
0.206
|
|
|
|
0.225
|
|
|
|
0.237
|
|
|
|
0.344
|
|
|
|
0.369
|
|
|
|
0.358
|
|
|
|
0.348
|
|
|
|
0.333
|
|
|
|
|
|
Expected life (years)
|
|
|
5.0
|
|
|
|
10.0
|
|
|
|
9.0
|
|
|
|
8.0
|
|
|
|
7.0
|
|
|
|
6.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
|
|
Assumed yield
|
|
|
5.75
|
%
|
|
|
6.91
|
%
|
|
|
5.93
|
%
|
|
|
4.39
|
%
|
|
|
4.09
|
%
|
|
|
4.54
|
%
|
|
|
4.23
|
%
|
|
|
4.16
|
%
|
|
|
4.61
|
%
|
|
|
4.53
|
%
|
|
|
|
|
Risk-free rate
|
|
|
3.57
|
%
|
|
|
4.28
|
%
|
|
|
5.11
|
%
|
|
|
4.65
|
%
|
|
|
3.49
|
%
|
|
|
2.19
|
%
|
|
|
2.17
|
%
|
|
|
1.86
|
%
|
|
|
0.78
|
%
|
|
|
0.82
|
%
|
|
|
|
|
Total value at grant date
|
|
$
|
66,600
|
|
|
$
|
71,100
|
|
|
$
|
143,400
|
|
|
$
|
285,300
|
|
|
$
|
254,700
|
|
|
$
|
222,950
|
|
|
$
|
287,950
|
|
|
$
|
297,375
|
|
|
$
|
244,388
|
|
|
$
|
262,946
|
|
|
$
|
2,136,709
|
|
Forfeited options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed in previous years
|
|
|
66,600
|
|
|
|
71,100
|
|
|
|
143,400
|
|
|
|
285,300
|
|
|
|
254,700
|
|
|
|
222,950
|
|
|
|
287,950
|
|
|
|
297,375
|
|
|
|
244,388
|
|
|
|
|
|
|
|
1,873,763
|
|
Expensed in 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,946
|
|
|
|
262,946
|
|
Future expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
|
|
Grant date
|
|
04/26/2004
|
|
|
05/06/2005
|
|
|
04/27/2007
|
|
|
05/13/2011
|
|
|
05/04/2012
|
|
|
05/10/2013
|
|
|
|
|
|
Subtotals
|
|
|
|
|
|
|
|
|
Grand Totals
|
|
Total grant
|
|
|
122,500
|
|
|
|
132,500
|
|
|
|
135,000
|
|
|
|
162,500
|
|
|
|
242,500
|
|
|
|
202,500
|
|
|
|
|
|
|
|
997,500
|
|
|
|
|
|
|
|
|
|
|
|
1,315,000
|
|
Vested
|
|
|
115,000
|
|
|
|
118,750
|
|
|
|
67,500
|
|
|
|
67,500
|
|
|
|
28,125
|
|
|
|
|
|
|
|
|
|
|
|
396,875
|
|
|
|
|
|
|
|
|
|
|
|
696,875
|
|
Exercised
|
|
|
91,250
|
|
|
|
69,500
|
|
|
|
|
|
|
|
16,250
|
|
|
|
1,875
|
|
|
|
|
|
|
|
|
|
|
|
178,875
|
|
|
|
|
|
|
|
|
|
|
|
243,875
|
|
Forfeited
|
|
|
7,500
|
|
|
|
13,750
|
|
|
|
67,500
|
|
|
|
41,250
|
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
277,500
|
|
Exercisable at June 30, 2013
|
|
|
23,750
|
|
|
|
49,250
|
|
|
|
67,500
|
|
|
|
51,250
|
|
|
|
26,250
|
|
|
|
|
|
|
|
|
|
|
|
218,000
|
|
|
|
|
|
|
|
|
|
|
|
453,000
|
|
Remaining unexercised
|
|
|
23,750
|
|
|
|
49,250
|
|
|
|
67,500
|
|
|
|
105,000
|
|
|
|
110,625
|
|
|
|
202,500
|
|
|
|
|
|
|
|
558,625
|
|
|
|
|
|
|
|
|
|
|
|
793,625
|
|
Exercise price
|
|
$
|
25.78
|
|
|
$
|
33.22
|
|
|
$
|
54.17
|
|
|
$
|
41.82
|
|
|
$
|
39.29
|
|
|
$
|
44.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
0.183
|
|
|
|
0.207
|
|
|
|
0.233
|
|
|
|
0.330
|
|
|
|
0.315
|
|
|
|
0.304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
7.0
|
|
|
|
8.0
|
|
|
|
6.5
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed yield
|
|
|
5.75
|
%
|
|
|
6.37
|
%
|
|
|
4.13
|
%
|
|
|
4.81
|
%
|
|
|
5.28
|
%
|
|
|
5.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
|
4.05
|
%
|
|
|
4.15
|
%
|
|
|
4.61
|
%
|
|
|
2.75
|
%
|
|
|
1.49
|
%
|
|
|
1.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at grant date
|
|
$
|
292,775
|
|
|
$
|
413,400
|
|
|
$
|
1,258,848
|
|
|
$
|
1,277,794
|
|
|
$
|
1,442,148
|
|
|
$
|
1,254,164
|
|
|
|
|
|
|
$
|
5,939,129
|
|
|
|
|
|
|
|
|
|
|
$
|
8,075,838
|
|
Forfeited options
|
|
|
17,925
|
|
|
|
35,100
|
|
|
|
|
|
|
|
252,300
|
|
|
|
813,800
|
|
|
|
|
|
|
|
|
|
|
|
1,119,125
|
|
|
|
|
|
|
|
|
|
|
|
1,119,125
|
|
Expensed in previous years
|
|
|
274,850
|
|
|
|
378,300
|
|
|
|
1,258,848
|
|
|
|
456,738
|
|
|
|
104,724
|
|
|
|
|
|
|
|
|
|
|
|
2,473,460
|
|
|
|
|
|
|
|
|
|
|
|
4,347,223
|
|
Expensed in 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,678
|
|
|
|
78,543
|
|
|
|
52,257
|
|
|
|
|
|
|
|
248,477
|
|
|
|
|
|
|
|
|
|
|
|
511,423
|
|
Future expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,078
|
|
|
|
445,081
|
|
|
|
1,201,907
|
|
|
|
|
|
|
|
2,098,067
|
|
|
|
|
|
|
|
|
|
|
|
2,098,067
|
|
Weighted average term of remaining future expense
|
|
|
|
|
|
|
|
|
|
|
3.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-21-
Notes to Consolidated Financial Statements (Unaudited)
The table below summarizes the option activity for the six months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
per share
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at January 1
|
|
|
570,840
|
|
|
$
|
41.05
|
|
|
$
|
2,228,639
|
|
Granted
|
|
|
237,500
|
|
|
|
44.42
|
|
|
$
|
9,500
|
|
Exercised
|
|
|
14,715
|
|
|
|
34.19
|
|
|
$
|
131,885
|
|
Expired/Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30
|
|
|
793,625
|
|
|
|
42.19
|
|
|
$
|
2,844,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30
|
|
|
453,000
|
|
|
|
41.77
|
|
|
$
|
2,257,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value measures the price difference between the options exercise price and the
closing share price quoted by the New York Stock Exchange as of the date of measurement. The intrinsic value for shares exercised during the period was calculated by using the closing share price on the date of exercise. At June 28, 2013,
the closing share price of $44.46 was lower than the exercise price of options granted in 2007 and 2008 and, therefore, those options had no intrinsic value as of June 30, 2013. The weighted average remaining contractual life of the
Companys outstanding and exercisable options is 7.6 years and 5.5 years, respectively.
9.
|
Fair Value of Financial Instruments
|
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are
reasonable estimates of their fair value. The aggregate fair value of the notes payable with fixed-rate payment terms was determined using Level 3 data in a discounted cash flow approach, which is based upon managements estimate of borrowing
rates and loan terms currently available to the Company for fixed-rate financing and, assuming long-term interest rates of approximately 4.1% and 4.0%, would be approximately $880.3 million and $848.1 million, respectively, compared to the
carrying value of $795.8 million and $774.8 million at June 30, 2013 and December 31, 2012, respectively. A change in any of the significant inputs may lead to a change in the Companys fair value measurement of
its debt.
The Company carries its interest rate swap at fair value. The Company has determined the majority of the inputs
used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact of counter-party risk, which was determined using Level 3 inputs and is not significant. Derivative instruments are classified within
Level 2 of the fair value hierarchy because their values are determined using third-party pricing models which contain inputs that are derived from observable market data. Where possible, the values produced by the pricing models are verified by
market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and correlations of such inputs. The swap agreement terminates on July 1, 2020.
As of June 30, 2013, the fair value of the interest-rate swap was approximately $3.4 million and is included in Accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. The decrease in
value from inception of the swap which is designated as a cash flow hedge is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income. Amounts recognized in earnings are included in Changes in Fair
Value of Derivatives in the Consolidated Statements of Operations.
-22-
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
(In thousands)
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Change in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in earnings
|
|
$
|
51
|
|
|
$
|
(16
|
)
|
|
$
|
61
|
|
|
$
|
(19
|
)
|
Recognized in other comprehensive income
|
|
|
1,763
|
|
|
|
(1,466
|
)
|
|
|
2,264
|
|
|
|
(912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,814
|
|
|
$
|
(1,482
|
)
|
|
$
|
2,325
|
|
|
$
|
(931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
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.
-23-
Notes to Consolidated Financial Statements (Unaudited)
The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments
are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate of the combined properties in each segment. All of our properties
within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a range of tenants, the types of services provided to them are similar within each
segment. The properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain
reclassifications have been made to prior year information to conform to the 2013 presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shopping
|
|
|
Mixed-Use
|
|
|
Corporate
|
|
|
Consolidated
|
|
(Dollars in thousands)
|
|
Centers
|
|
|
Properties
|
|
|
and Other
|
|
|
Totals
|
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
35,749
|
|
|
$
|
13,047
|
|
|
$
|
13
|
|
|
$
|
48,809
|
|
Expenses
|
|
|
(7,222
|
)
|
|
|
(4,537
|
)
|
|
|
|
|
|
|
(11,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
28,527
|
|
|
|
8,510
|
|
|
|
13
|
|
|
|
37,050
|
|
Interest expense and amortization of deferred debt costs
|
|
|
|
|
|
|
|
|
|
|
(11,709
|
)
|
|
|
(11,709
|
)
|
Predevelopment expenses
|
|
|
|
|
|
|
(1,233
|
)
|
|
|
|
|
|
|
(1,233
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(3,925
|
)
|
|
|
(3,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
28,527
|
|
|
|
7,277
|
|
|
|
(15,621
|
)
|
|
|
20,183
|
|
Depreciation and amortization of deferred leasing costs
|
|
|
(6,913
|
)
|
|
|
(5,559
|
)
|
|
|
|
|
|
|
(12,472
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
21,614
|
|
|
$
|
1,718
|
|
|
$
|
(15,570
|
)
|
|
$
|
7,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
2,305
|
|
|
$
|
4,007
|
|
|
$
|
|
|
|
$
|
6,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
885,816
|
|
|
$
|
292,048
|
|
|
$
|
13,746
|
|
|
$
|
1,191,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
34,214
|
|
|
$
|
13,118
|
|
|
$
|
40
|
|
|
$
|
47,372
|
|
Expenses
|
|
|
(7,410
|
)
|
|
|
(4,275
|
)
|
|
|
|
|
|
|
(11,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
26,804
|
|
|
|
8,843
|
|
|
|
40
|
|
|
|
35,687
|
|
Interest expense and amortization of deferred debt costs
|
|
|
|
|
|
|
|
|
|
|
(12,554
|
)
|
|
|
(12,554
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(3,784
|
)
|
|
|
(3,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
26,804
|
|
|
|
8,843
|
|
|
|
(16,298
|
)
|
|
|
19,349
|
|
Depreciation and amortization of deferred leasing costs
|
|
|
(6,272
|
)
|
|
|
(3,477
|
)
|
|
|
|
|
|
|
(9,749
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Income from operation of property sold
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
20,543
|
|
|
$
|
5,366
|
|
|
$
|
(16,314
|
)
|
|
$
|
9,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
1,219
|
|
|
$
|
2,153
|
|
|
$
|
|
|
|
$
|
3,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
858,431
|
|
|
$
|
304,044
|
|
|
$
|
38,595
|
|
|
$
|
1,201,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Shopping
Centers
|
|
|
Mixed-Use
Properties
|
|
|
Corporate
and Other
|
|
|
Consolidated
Totals
|
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
71,796
|
|
|
$
|
26,155
|
|
|
$
|
44
|
|
|
$
|
97,995
|
|
Expenses
|
|
|
(14,977
|
)
|
|
|
(8,758
|
)
|
|
|
|
|
|
|
(23,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
56,819
|
|
|
|
17,397
|
|
|
|
44
|
|
|
|
74,260
|
|
Interest expense and amortization of deferred debt costs
|
|
|
|
|
|
|
|
|
|
|
(23,426
|
)
|
|
|
(23,426
|
)
|
Predevelopment expenses
|
|
|
|
|
|
|
(3,582
|
)
|
|
|
|
|
|
|
(3,582
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(7,329
|
)
|
|
|
(7,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
56,819
|
|
|
|
13,815
|
|
|
|
(30,711
|
)
|
|
|
39,923
|
|
Depreciation and amortization of deferred leasing costs
|
|
|
(13,742
|
)
|
|
|
(15,082
|
)
|
|
|
|
|
|
|
(28,824
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
43,077
|
|
|
$
|
(1,267
|
)
|
|
$
|
(30,650
|
)
|
|
$
|
11,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
5,804
|
|
|
$
|
5,572
|
|
|
$
|
|
|
|
$
|
11,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
885,816
|
|
|
$
|
292,048
|
|
|
$
|
13,746
|
|
|
$
|
1,191,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
68,153
|
|
|
$
|
26,156
|
|
|
$
|
52
|
|
|
$
|
94,361
|
|
Expenses
|
|
|
(14,992
|
)
|
|
|
(8,618
|
)
|
|
|
|
|
|
|
(23,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
53,161
|
|
|
|
17,538
|
|
|
|
52
|
|
|
|
70,751
|
|
Interest expense and amortization of deferred debt costs
|
|
|
|
|
|
|
|
|
|
|
(25,287
|
)
|
|
|
(25,287
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(7,031
|
)
|
|
|
(7,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
53,161
|
|
|
|
17,538
|
|
|
|
(32,266
|
)
|
|
|
38,433
|
|
Depreciation and amortization of deferred leasing costs
|
|
|
(12,638
|
)
|
|
|
(6,869
|
)
|
|
|
|
|
|
|
(19,507
|
)
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Income from operation of property sold
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
40,531
|
|
|
$
|
10,669
|
|
|
$
|
(32,285
|
)
|
|
$
|
18,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
3,472
|
|
|
$
|
3,800
|
|
|
$
|
|
|
|
$
|
7,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
858,431
|
|
|
$
|
304,044
|
|
|
$
|
38,595
|
|
|
$
|
1,201,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has reviewed operating activities for the period subsequent to June 30, 2013 and prior to the
date the financial statements are issued or are available to be issued, and determined there are no subsequent events required to be disclosed.
-25-