Saul Centers, Inc. Reports Second Quarter 2014 Earnings

BETHESDA, Md., July 31, 2014 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2014 ("2014 Quarter"). Total revenue for the 2014 Quarter increased to $52.3 million from $48.8 million for the quarter ended June 30, 2013 ("2013 Quarter"). Operating income, which is net income before the impact of change in fair value of derivatives, loss on early extinguishment of debt and gains on sales of property and casualty settlements, if any, increased to $14.4 million for the 2014 Quarter from $7.7 million for the 2013 Quarter.

Net income attributable to common stockholders was $12.8 million ($0.62 per diluted share) for the 2014 Quarter compared to $3.4 million ($0.17 per diluted share) for the 2013 Quarter. The increase in net income attributable to common stockholders for the 2014 Quarter was primarily the result of (a) gain on sale of the Giant Center ($6.1 million), (b) depreciation expense recognized in the 2013 Quarter as a result of the reduction in the depreciable life of Van Ness Square ($2.0 million), (c) increased property operating income ($1.8 million), exclusive of the following Seven Corners item, (d) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) and (e) lower predevelopment expenses related to Park Van Ness ($1.2 million), partially offset by (f) higher noncontrolling interest ($3.3 million).

Same property revenue increased 6.7% and same property operating income increased 8.5% for the 2014 Quarter compared to the 2013 Quarter. Same property operating income equals property revenue minus the sum of (a) property operating expenses, (b) provision for credit losses and (c) real estate taxes and the comparisons exclude the results of properties not in operation for the entirety of the comparable reporting periods. Shopping center same property operating income increased $2.9 million (or 10.3%) primarily due to (a) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) and (b) increased base rent ($825,000). Mixed-use same property operating income increased $280,000 (or 3.1%) primarily due to higher base rent at 601 Pennsylvania Avenue.

For the six months ended June 30, 2014 ("2014 Period"), total revenue increased to $105.2 million from $98.0 million for the six months ended June 30, 2013 ("2013 Period"). Operating income increased to $27.1 million for the 2014 Period from $11.1 million for the 2013 Period. The increase in operating income was due primarily to (a) additional depreciation expense recognized in the 2013 Period as a result of the reduction in the depreciable life of Van Ness Square ($8.0 million), (b) lower predevelopment expenses related to Park Van Ness ($3.1 million), (c) increased property operating income ($3.1 million), exclusive of the following two Seven Corners items, (d) the impact of a lease termination at Seven Corners ($1.2 million), and (e) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) partially offset by (f) higher general and administrative expenses ($1.4 million).

Net income attributable to common stockholders was $19.9 million ($0.96 per diluted share) for the 2014 Period compared to a loss of $1.2 million ($0.06 per diluted share) for the 2013 Period. The increase in net income attributable to common stockholders was due primarily to (a) additional depreciation expense recognized in the 2013 Period as a result of the reduction in the depreciable life of Van Ness Square ($8.0 million), (b) gain on sale of the Giant Center ($6.1 million), (c) a charge against common equity in 2013 resulting from the redemption of preferred stock ($5.2 million), (d) lower predevelopment expenses related to Park Van Ness ($3.1 million), (e) increased property operating income ($3.1 million), exclusive of the following two Seven Corners items, (f) the impact of a lease termination at Seven Corners ($1.2 million), (g) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) and (h) lower preferred stock dividends ($1.2 million) partially offset by (i) higher noncontrolling interest ($7.3 million) and (j) higher general and administrative expenses ($1.4 million).

Same property revenue increased $7.3 million (or 7.5%) and same property operating income increased $5.7 million (or 7.7%) for the 2014 Period compared to the 2013 Period. Shopping center same property operating income increased $4.8 million (or 8.5%) primarily due to (a) the impact of a lease termination at Seven Corners ($1.2 million), (b) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) and (c) increased base rent ($1.5 million). Mixed-use same property operating income increased $0.9 million (or 5.1%) primarily due to increased base rent.

As of June 30, 2014, 94.2% of the commercial portfolio was leased (not including the apartments at Clarendon Center), compared to 93.6% at June 30, 2013. On a same property basis, 94.2% of the portfolio was leased at June 30, 2014, compared to 93.6% at June 30, 2013. The apartments at Clarendon Center were 100% leased as of June 30, 2014 compared to 98.4% at June 30, 2013.

Funds from operations ("FFO") available to common shareholders (after deducting preferred stock dividends and redemption charges) increased 26.4% to $21.5 million ($0.77 per diluted share) in the 2014 Quarter from $17.0 million ($0.63 per diluted share) in the 2013 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 increase in FFO available to common shareholders for the 2014 Quarter was primarily due to (a) increased property operating income ($1.8 million), exclusive of the following Seven Corners item, (b) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million) and (c) lower predevelopment expenses related to Park Van Ness ($1.2 million).

FFO available to common shareholders (after deducting preferred stock dividends and redemption charges) increased 51.6% to $41.2 million ($1.48 per diluted share) in the 2014 Period from $27.2 million ($1.00 per diluted share) in the 2013 Period. The increase in FFO available to common shareholders for the 2014 Period was primarily attributable to (a) a charge against common equity in the 2013 Period resulting from the redemption of preferred stock ($5.2 million), (b) increased property operating income ($3.1 million), exclusive of the following Seven Corners items, (c) the impact of a lease termination at Seven Corners ($1.2 million), (d) the impact of a bankruptcy settlement and collection related to a former tenant at Seven Corners ($1.6 million), (e) lower predevelopment expenses related to Park Van Ness ($3.1 million) and (f) lower preferred stock dividends ($1.2 million) partially offset by (g) higher general and administrative expenses ($1.4 million).

Saul Centers is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 58 properties which includes (a) 49 community and neighborhood shopping centers and six mixed-use properties with approximately 9.3 million square feet of leasable area and (b) three land and development properties. Over 85% of the Saul Centers' property operating income is generated from properties in the metropolitan Washington, DC/Baltimore area.

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

	June 30, 2014		December 31, 2013
	*(Unaudited)*
Assets
Real estate investments
Land	$	373,898	$	354,967
Buildings and equipment	1,102,390		1,094,605
Construction in progress	16,259		9,867
	1,492,547		1,459,439
Accumulated depreciation	(380,608)		(364,663)
	1,111,939		1,094,776
Cash and cash equivalents	21,829		17,297
Accounts receivable and accrued income, net	44,114		43,884
Deferred leasing costs, net	26,693		26,052
Prepaid expenses, net	1,634		4,047
Deferred debt costs, net	10,564		9,675
Other assets	10,655		2,944
Total assets	$	1,227,428	$	1,198,675

Liabilities
Notes payable	$	820,145	$	820,068
Revolving credit facility payable	—		—
Dividends and distributions payable	14,398		13,135
Accounts payable, accrued expenses and other liabilities	24,655		20,141
Deferred income	31,575		30,205
Total liabilities	890,773		883,549

Stockholders' equity
Preferred stock	180,000		180,000
Common stock	208		206
Additional paid-in capital	279,243		270,428
Accumulated deficit and other comprehensive loss	(171,095)		(173,956)
Total Saul Centers, Inc. stockholders' equity	288,356		276,678
Noncontrolling interest	48,299		38,448
Total stockholders' equity	336,655		315,126
Total liabilities and stockholders' equity	$	1,227,428	$	1,198,675

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Revenue	(unaudited)				(unaudited)
Base rent	$	41,038	$	39,553	$	81,601	$	79,293
Expense recoveries	7,825		7,463		16,614		15,077
Percentage rent	453		338		905		938
Other	2,970		1,455		6,113		2,687
Total revenue	52,286		48,809		105,233		97,995
Operating expenses
Property operating expenses	6,138		6,041		13,723		11,990
Provision for credit losses	107		285		310		549
Real estate taxes	5,584		5,433		11,037		11,196
Interest expense and amortization of deferred debt costs	11,486		11,709		22,953		23,426
Depreciation and amortization of deferred leasing costs	10,309		12,472		20,489		28,824
General and administrative	4,023		3,925		8,703		7,329
Acquisition related costs	216		—		379		—
Predevelopment expenses	—		1,233		503		3,582
Total operating expenses	37,863		41,098		78,097		86,896
Operating income	14,423		7,711		27,136		11,099
Change in fair value of derivatives	(5)		51		(7)		61
Gain on sale of property	6,069		—		6,069		—
Net Income	20,487		7,762		33,198		11,160
(Income) loss attributable to noncontrolling interests	(4,433)		(1,168)		(6,857)		418
Net income attributable to Saul Centers, Inc.	16,054		6,594		26,341		11,578
Preferred stock redemption	—		—		—		(5,228)
Preferred stock dividends	(3,207)		(3,207)		(6,413)		(7,571)
Net income (loss) attributable to common stockholders	$	12,847	$	3,387	$	19,928	$	(1,221)
Per share net income (loss) attributable to common stockholders
Basic and diluted	$	0.62	$	0.17	$	0.96	$	(0.06)

Weighted Average Common Stock:
Common stock	20,717		20,301		20,670		20,224
Effect of dilutive options	26		22		32		27
Diluted weighted average common stock	20,743		20,323		20,702		20,251

Reconciliation of net income to FFO attributable to common shareholders (1)
		Three Months Ended June 30,				Six Months Ended June 30,
	(In thousands, except per share amounts)	2014		2013		2014		2013
		(unaudited)				(unaudited)
	Net income	$	20,487	$	7,762	$	33,198	$	11,160
	Subtract:
	Gain on sale of property	(6,069)		—		(6,069)		—
	Add:
	Real estate depreciation and amortization	10,309		12,472		20,489		28,824
	FFO	24,727		20,234		47,618		39,984
	Subtract:
	Preferred stock redemption	—		—		—		(5,228)
	Preferred stock dividends	(3,207)		(3,207)		(6,413)		(7,571)
	FFO available to common shareholders	$	21,520	$	17,027	$	41,205	$	27,185
	Weighted average shares:
	Diluted weighted average common stock	20,743		20,323		20,702		20,251
	Convertible limited partnership units	7,164		6,914		7,114		6,914
	Average shares and units used to compute FFO per share	27,907		27,237		27,816		27,165
	FFO per share available to common shareholders	$	0.77	$	0.63	$	1.48	$	1.00

(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 the Company believes occurs with its 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.

Reconciliation of net income to same property operating income
	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2014		2013		2014		2013
	(unaudited)				(unaudited)
Net income	$	20,487	$	7,762	$	33,198	$	11,160
Add: Interest expense and amortization of deferred debt costs	11,486		11,709		22,953		23,426
Add: Depreciation and amortization of deferred leasing costs	10,309		12,472		20,489		28,824
Add: General and administrative	4,023		3,925		8,703		7,329
Add: Predevelopment expenses	—		1,233		503		3,582
Add: Acquisition related costs	216		—		379		—
Add (Less): Change in fair value of derivatives	5		(51)		7		(61)
Less: Gains on sale of property	(6,069)		—		(6,069)		—
Less: Interest income	(21)		(13)		(35)		(44)
Property operating income	40,436		37,037		80,128		74,216
Less: Acquisitions, dispositions and development property	399		150		672		454
Total same property operating income	$	40,037	$	36,887	$	79,456	$	73,762

Shopping centers	$	30,655	$	27,783	$	60,711	$	55,933
Mixed-Use properties	9,382		9,104		18,745		17,829
Total same property operating income	$	40,037	$	36,887	$	79,456	$	73,762