Saul Centers, Inc. Reports Second Quarter 2015 Earnings

BETHESDA, Md., July 30, 2015 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2015 ("2015 Quarter"). Total revenue for the 2015 Quarter decreased to $51.7 million from $52.3 million for the quarter ended June 30, 2014 ("2014 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, decreased to $12.9 million for the 2015 Quarter from $14.4 million for the 2014 Quarter.

Net income attributable to common stockholders was $7.3 million ($0.35 per diluted share) for the 2015 Quarter compared to $12.8 million ($0.62 per diluted share) for the 2014 Quarter. The decrease in net income attributable to common stockholders resulted primarily from (a) a $6.1 million gain on sale of property in 2014 and (b) the $1.6 million impact of a bankruptcy settlement and collection in 2014, partially offset by (c) $1.9 million lower noncontrolling interest.

Same property revenue decreased $1.0 million (2.0%) and same property operating income decreased $1.7 million (4.1%) for the 2015 Quarter compared to the 2014 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 decreased $1.1 million (3.7%) primarily due to the $1.6 million impact of a bankruptcy settlement and collection in 2014 which was partially offset by $0.5 million of increased base rent. Mixed-use same property operating income decreased $0.5 million (5.5%) primarily due to (a) higher real estate tax expense, the majority of which is not recoverable ($0.3 million) and (b) higher provision for credit losses related to a rent dispute ($0.2 million).

For the six months ended June 30, 2015 ("2015 Period"), total revenue decreased to $103.8 million from $105.2 million for the six months ended June 30, 2014 ("2014 Period"). Operating income decreased to $25.6 million for the 2015 Period from $27.1 million for the 2014 Period. The decrease in operating income was due primarily to (a) the net impact in 2014 of a lease termination ($1.2 million), and (b) the impact in 2014 of a bankruptcy settlement and collection ($1.6 million) partially offset by (c) lower general and administrative expenses, primarily due to severance expense in 2014 ($0.8 million) and (d) lower predevelopment expenses ($0.5 million).

Net income attributable to common stockholders was $14.4 million ($0.68 per diluted share) for the 2015 Period compared to $19.9 million ($0.96 per diluted share) for the 2014 Period. The decrease in net income attributable to common stockholders was due primarily to (a) the gain on sale of property in 2014 ($6.1 million), (b) the impact in 2014 of a bankruptcy settlement and collection ($1.6 million), (c) the net impact in 2014 of a lease termination ($1.2 million), partially offset by (d) lower noncontrolling interest ($1.8 million), (e) lower general and administrative expenses, primarily due to severance expense in 2014 ($0.8 million) and (f) lower predevelopment expenses ($0.5 million).

Same property revenue decreased $2.3 million (2.2%) and same property operating income decreased $3.4 million (4.3%) for the 2015 Period compared to the 2014 Period. Shopping center same property operating income decreased $2.0 million (3.3%) primarily due to (a) the net impact in 2014 of a lease termination ($1.2 million), (b) the impact in 2014 of a bankruptcy settlement and collection ($1.6 million) partially offset by (c) increased base rent ($0.7 million). Mixed-use same property operating income decreased $1.4 million (7.4%) primarily due to (a) higher real estate tax expense, the majority of which is not recoverable ($0.6 million), (b) higher provision for credit losses related to a rent dispute ($0.3 million), (c) lower base rent ($0.2 million) and (d) higher repairs and maintenance expense, the majority of which is not recoverable ($0.2 million).

As of June 30, 2015, 95.0% of the commercial portfolio was leased (not including the apartments at Clarendon Center), compared to 94.2% as of June 30, 2014. On a same property basis, 94.9% of the portfolio was leased as of June 30, 2015, compared to 94.2% as of June 30, 2014. The apartments at Clarendon Center were 98.8% leased as of June 30, 2015 compared to 100.0% as of June 30, 2014.

Funds from operations ("FFO") available to common shareholders (after deducting preferred stock dividends) decreased 4.1% to $20.6 million ($0.73 per diluted share) in the 2015 Quarter from $21.5 million ($0.77 per diluted share) in the 2014 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 decrease in FFO available to common shareholders for the 2015 Quarter was primarily due to the impact in 2014 of a bankruptcy settlement and collection in 2014 ($1.6 million) which was partially offset by higher property operating income ($0.4 million).

FFO available to common shareholders decreased 1.3% to $40.7 million ($1.43 per diluted share) in the 2015 Period from $41.2 million ($1.48 per diluted share) in the 2014 Period. The decrease in FFO available to common shareholders for the 2015 Period was primarily attributable to (a) the net impact in 2014 of a lease termination ($1.2 million), (b) the impact in 2014 of a bankruptcy settlement and collection ($1.6 million), partially offset by (c) lower general and administrative expenses ($0.8 million), (d) lower predevelopment expenses ($0.5 million), (e) lower acquisition related costs ($0.4 million), and (f) lower preferred stock dividends ($0.2 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 59 properties which includes (a) 50 community and neighborhood shopping centers and six mixed-use properties with approximately 9.4 million square feet of leasable area and (b) three land and development properties. Approximately 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

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

	June 30, 2015		December 31, 2014
	*(Unaudited)*
Assets
Real estate investments
Land	$	421,499	$	420,622
Buildings and equipment	1,116,381		1,109,276
Construction in progress	53,485		30,261
	1,591,365		1,560,159
Accumulated depreciation	(414,694)		(396,617)
	1,176,671		1,163,542
Cash and cash equivalents	11,714		12,128
Accounts receivable and accrued income, net	47,084		46,784
Deferred leasing costs, net	27,049		26,928
Prepaid expenses, net	1,663		4,093
Deferred debt costs, net	9,455		9,874
Other assets	4,407		3,638
Total assets	$	1,278,043	$	1,266,987

Liabilities
Notes payable	$	813,861	$	808,997
Revolving credit facility payable	22,000		43,000
Construction loan payable	17,531		5,391
Dividends and distributions payable	15,290		14,352
Accounts payable, accrued expenses and other liabilities	31,724		23,537
Deferred income	31,816		32,453
Total liabilities	932,222		927,730

Stockholders' equity
Preferred stock	180,000		180,000
Common stock	211		209
Additional paid-in capital	297,009		287,995
Accumulated deficit and other comprehensive loss	(179,373)		(175,668)
Total Saul Centers, Inc. stockholders' equity	297,847		292,536
Noncontrolling interests	47,974		46,721
Total stockholders' equity	345,821		339,257
Total liabilities and stockholders' equity	$	1,278,043	$	1,266,987

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenue	(unaudited)				(unaudited)
Base rent	$	41,876	$	41,038	$	83,355	$	81,601
Expense recoveries	7,797		7,825		16,529		16,614
Percentage rent	558		453		996		905
Other	1,480		2,970		2,919		6,113
Total revenue	51,711		52,286		103,799		105,233
Operating expenses
Property operating expenses	6,196		6,138		13,812		13,723
Provision for credit losses	414		107		660		310
Real estate taxes	5,876		5,584		11,777		11,037
Interest expense and amortization of deferred debt costs	11,353		11,486		22,759		22,953
Depreciation and amortization of deferred leasing costs	10,811		10,309		21,251		20,489
General and administrative	4,139		4,023		7,910		8,703
Acquisition related costs	—		216		21		379
Predevelopment expenses	—		—		—		503
Total operating expenses	38,789		37,863		78,190		78,097
Operating income	12,922		14,423		25,609		27,136
Change in fair value of derivatives	—		(5)		(6)		(7)
Gain on sale of property	11		6,069		11		6,069
Net Income	12,933		20,487		25,614		33,198
Income attributable to noncontrolling interests	(2,537)		(4,433)		(5,011)		(6,857)
Net income attributable to Saul Centers, Inc.	10,396		16,054		20,603		26,341
Preferred stock dividends	(3,094)		(3,207)		(6,188)		(6,413)
Net income attributable to common stockholders	$	7,302	$	12,847	$	14,415	$	19,928
Per share net income attributable to common stockholders
Basic and diluted	$	0.35	$	0.62	$	0.68	$	0.96

Weighted Average Common Stock:
Common stock	21,098		20,717		21,058		20,670
Effect of dilutive options	45		26		82		32
Diluted weighted average common stock	21,143		20,743		21,140		20,702

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)	2015		2014		2015		2014
		(unaudited)				(unaudited)
	Net income	$	12,933	$	20,487	$	25,614	$	33,198
	Subtract:
	Gain on sale of property	(11)		(6,069)		(11)		(6,069)
	Add:
	Real estate depreciation and amortization	10,811		10,309		21,251		20,489
	FFO	23,733		24,727		46,854		47,618
	Subtract:
	Preferred stock dividends	(3,094)		(3,207)		(6,188)		(6,413)
	FFO available to common shareholders	$	20,639	$	21,520	$	40,666	$	41,205
	Weighted average shares:
	Diluted weighted average common stock	21,143		20,743		21,140		20,702
	Convertible limited partnership units	7,237		7,164		7,225		7,114
	Average shares and units used to compute FFO per share	28,380		27,907		28,365		27,816
	FFO per share available to common shareholders	$	0.73	$	0.77	$	1.43	$	1.48

(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)	2015		2014		2015		2014
	(unaudited)				(unaudited)
Net income	$	12,933	$	20,487	$	25,614	$	33,198
Add: Interest expense and amortization of deferred debt costs	11,353		11,486		22,759		22,953
Add: Depreciation and amortization of deferred leasing costs	10,811		10,309		21,251		20,489
Add: General and administrative	4,139		4,023		7,910		8,703
Add: Predevelopment expenses	—		—		—		503
Add: Acquisition related costs	—		216		21		379
Add: Change in fair value of derivatives	—		5		6		7
Less: Gains on sale of property	(11)		(6,069)		(11)		(6,069)
Less: Interest income	(13)		(21)		(26)		(35)
Property operating income	39,212		40,436		77,524		80,128
Less: Acquisitions, dispositions and development property	660		221		1,181		362
Total same property operating income	$	38,552	$	40,215	$	76,343	$	79,766

Shopping centers	$	29,686	$	30,833	$	58,993	$	61,021
Mixed-Use properties	8,866		9,382		17,350		18,745
Total same property operating income	$	38,552	$	40,215	$	76,343	$	79,766

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SOURCE Saul Centers, Inc.

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