Saul Centers, Inc. Reports Second Quarter 2013 Earnings

PR Newswire

BETHESDA, Md., July 30, 2013 /PRNewswire/ -- Saul Centers, Inc. (BFS), an equity real estate investment trust (REIT), announced its operating results for the quarter ended June 30, 2013 ("2013 Quarter").  Total revenue for the 2013 Quarter increased to $48.8 million from $47.4 million for the quarter ended June 30, 2012 ("2012 Quarter").  Operating income, which is net income available to common stockholders before income attributable to noncontrolling interests, preferred stock dividends and the impact of preferred stock redemptions, decreased to $7.7 million for the 2013 Quarter from $9.6 million for the 2012 Quarter.  Operating income for the 2013 Quarter was adversely impacted by $2.0 million of additional depreciation expense and $1.2 million of predevelopment expenses, both of which are related to the Company's redevelopment of Van Ness Square.  Without these expenses, operating income for the 2013 Quarter would have been $10.9 million, or $1.3 million more than the 2012 Quarter.

The Company recently completed negotiation of lease termination agreements with tenants of Van Ness Square and the building is currently vacant.  The Company intends to develop a primarily residential project with street-level retail.  Costs incurred to terminate leases were recognized as expense over the remaining terms of the leases and costs to demolish the existing improvements are recognized as expenses when incurred.  The Company will recognize additional predevelopment expenses in future periods when the existing improvements of Van Ness Square and the adjacent 4469 Connecticut Avenue are demolished, the timing of which is uncertain and dependent on the issuance of various governmental approvals and permits. 

Net income attributable to common stockholders was $3.4 million ($0.17 per diluted share) for the 2013 Quarter compared to $4.3 million ($0.22 per diluted share) for the 2012 Quarter.  Net income attributable to common stockholders for the 2013 Quarter was adversely impacted primarily by the $3.2 million of depreciation and predevelopment expense related to Van Ness Square offset in part by a $0.6 million decrease in preferred stock dividends.  Without these items, as adjusted for noncontrolling interests, net income attributable to common stockholders would have been $5.4 million, or $1.1 million more than the 2012 Quarter. The $1.1 million increase is primarily attributable to reduced interest expense, increased operating income generated by Clarendon Center and the leasing of major tenant space in the shopping center portfolio. 

During the quarter ended March 31, 2013, the Company issued $140.0 million of 6.875% Series C Cumulative Redeemable Preferred Stock, redeemed all $79.3 million of its 9.0% Series B preferred stock and redeemed $60.0 million of its 8.0% Series A preferred stock.  The changes in preferred stock reduced second quarter 2013 preferred stock dividends to $3.2 million from $3.8 million in 2012. 

Same property revenue increased 3.2% and same property operating income increased 3.0% for the 2013 Quarter compared to the 2012 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 2.2% and mixed-use same property operating income increased 5.7%.  The leasing of office space at Clarendon Center was the primary contributor of improved mixed-use property operating income.

For the six months ended June 30, 2013 ("2013 Period"), total revenue increased to $98.0 million from $94.4 million for the six months ended June 30, 2012 ("2012 Period").  Operating income decreased to $11.1 million for the 2013 Period from $18.9 million for the 2012 Period.  Operating income for the 2013 Period was adversely impacted by $8.0 million of additional depreciation expense and $3.6 million of predevelopment expenses, both of which are related to the Company's activities at Van Ness Square.  Without these expenses, operating income for the 2013 Period would have been $22.7 million, or $3.9 million more than the 2012 Period. 

Net loss attributable to common stockholders was $1.2 million ($0.06 per diluted share) for the 2013 Period compared to net income of $8.4 million ($0.43 per diluted share) for the 2012 Period.  Net income attributable to common stockholders for the 2013 Period was adversely impacted primarily by the $11.6 million of depreciation and predevelopment expense related to Van Ness Square and a $5.2 million charge against common equity resulting from the redemption of preferred stock.  Without these items, as adjusted for noncontrolling interests, net income attributable to common stockholders would have been $12.6 million, or $4.2 million more than the 2012 Period. The $4.2 million increase is primarily attributable to reduced interest expense, increased operating income generated by Clarendon Center and the leasing of major tenant space in the shopping center portfolio.

Same property revenue increased 3.7% and same property operating income increased 4.1% for the 2013 Period compared to the 2012 Period.  Shopping center same property operating income increased 3.7% and mixed-use same property operating income increased 5.3%.  The shopping centers were primarily impacted by revenue received as a result of the occupancy of approximately 132,000 square feet of anchor-tenant space which was vacant during the 2012 Period.  The leasing of Clarendon Center office space was the primary contributor of improved mixed-use property operating income.

As of June 30, 2013, 93.6% of the commercial portfolio was leased (all properties except the apartments at Clarendon Center, which were 98% leased), compared to 91.1% at June 30, 2012.  On a same property basis, 93.8% of the portfolio was leased at June 30, 2013, compared to 92.8% for the prior year.

Funds from operations (FFO) available to common shareholders (after deducting preferred stock dividends) increased 9.3% to $17.0 million ($0.63 per diluted share) in the 2013 Quarter from $15.6 million ($0.59 per diluted share) in the 2012 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.  FFO available to common shareholders for the 2013 Quarter was adversely impacted by predevelopment expenses ($1.2 million).  Without this item, FFO available to common shareholders would have been $18.2 million, or $2.6 million more than the 2012 Quarter.  The $2.6 million increase is primarily attributable to improved overall portfolio property operating income ($1.3 million) and reduced interest expense and amortization of deferred debt costs ($0.8 million).

FFO available to common shareholders (after deducting preferred stock dividends and the impact of preferred stock redemptions) decreased 12.0% to $27.2 million ($1.00 per diluted share) in the 2013 Period from $30.9 million ($1.17 per diluted share) in the 2012 Period.  FFO available to common shareholders for the 2013 Period was adversely impacted by the redemption of preferred stock ($5.2 million) and predevelopment expenses ($3.6 million).  Without these items, FFO available to common shareholders would have been $36.0 million, or $5.1 million more than the 2012 Period.  The $5.1 million increase is attributable to improved overall portfolio property operating income ($3.5 million) and reduced interest expense and amortization of deferred debt costs ($1.8 million).

Saul Centers is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland. Saul Centers currently operates and manages a real estate portfolio of 59 community and neighborhood shopping center and mixed-use properties totaling 9.3 million square feet of leasable area.  Over 85% of the Company's property operating income is generated from properties in the metropolitan Washington, DC/Baltimore area.   

 

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












June 30,


December 31,





2013


2012

Assets



(Unaudited)




Real estate investments







Land


$     351,647


$    353,890



Buildings and equipment


1,117,976


1,109,911



Construction in progress


6,165


2,267





1,475,788


1,466,068



Accumulated depreciation


(378,775)


(353,305)





1,097,013


1,112,763


Cash and cash equivalents


12,945


12,133


Accounts receivable and accrued income, net


41,701


41,406


Deferred leasing costs, net


24,757


26,102


Prepaid expenses, net


1,669


3,895


Deferred debt costs, net


8,342


7,713


Other assets


5,183


3,297



Total assets


$  1,191,610


$ 1,207,309








Liabilities






Mortgage notes payable


$     826,224


$    789,776


Revolving credit facility payable


-


38,000


Dividends and distributions payable


13,022


13,490


Accounts payable, accrued expenses and other liabilities


22,576


27,434


Deferred income


26,961


31,320



Total liabilities


888,783


900,020








Stockholders' equity






Preferred stock


180,000


179,328


Common stock


204


201


Additional paid-in capital


260,371


246,557


Accumulated deficit and other comprehensive loss


(172,515)


(158,383)



Total Saul Centers, Inc. stockholders' equity


268,060


267,703


Noncontrolling interest


34,767


39,586



Total stockholders' equity


302,827


307,289










Total liabilities and stockholders' equity


$  1,191,610


$ 1,207,309

 

 

Saul Centers, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)















Three Months Ended June 30,


Six Months Ended June 30,





2013


2012


2013


2012


Revenue


(Unaudited)


(Unaudited)





Base rent


$       39,553


$       38,043


$      79,293


$     75,528



Expense recoveries


7,463


7,441


15,077


15,142



Percentage rent


338


453


938


859



Other


1,455


1,435


2,687


2,832



    Total revenue


48,809


47,372


97,995


94,361













Operating expenses











Property operating expenses


6,041


5,918


11,990


11,655



Provision for credit losses


285


241


549


593



Real estate taxes


5,433


5,526


11,196


11,362



Interest expense and amortization of deferred debt costs


11,709


12,554


23,426


25,287



Depreciation and amortization of deferred leasing costs


12,472


9,749


28,824


19,507



General and administrative


3,925


3,784


7,329


7,031



Predevelopment expenses


1,233


-


3,582


-



    Total operating expenses


41,098


37,772


86,896


75,435


Operating income


7,711


9,600


11,099


18,926



Change in fair value of derivatives


51


(16)


61


(19)


Income from continuing operations


7,762


9,584


11,160


18,907


Discontinued operations:











Income from operations of properties sold


-


11


-


8


Net income


7,762


9,595


11,160


18,915



(Income) loss attributable to the noncontrolling interests


(1,168)


(1,516)


418


(2,972)


Net income attributable to Saul Centers, Inc.


6,594


8,079


11,578


15,943



Preferred stock redemption

-


-


(5,228)


-



Preferred dividends


(3,207)


(3,785)


(7,571)


(7,570)


Net income (loss) attributable to common stockholders


$         3,387


$         4,294


$      (1,221)


$       8,373













Per share net income (loss) attributable to common stockholders :











Diluted


$           0.17


$           0.22


$        (0.06)


$         0.43













Weighted average common stock :











Common stock


20,301


19,559


20,224


19,482



Effect of dilutive options


22


43


27


44



Diluted weighted average common stock


20,323


19,602


20,251


19,526

 

 

Saul Centers, Inc.
 Supplemental Information

(In thousands, except per share amounts)














Three Months Ended June 30,


Six Months Ended June 30,




2013


2012


2013


2012

Reconciliation of net income to FFO attributable to common shareholders: (1)


(Unaudited)


(Unaudited)




Net income


$         7,762


$         9,595


$      11,160


$     18,915


Add:

Real property depreciation and amortization


12,472


9,749


28,824


19,507


Add:

Real property depreciation - discontinued operations


-


21


-


41


      FFO


20,234


19,365


39,984


38,463


Less:

Preferred stock redemption


-


-


(5,228)


-


Less:

Preferred dividends


(3,207)


(3,785)


(7,571)


(7,570)


      FFO attributable to common shareholders


$       17,027


$       15,580


$      27,185


$     30,893












Weighted average shares :










Diluted weighted average common stock


20,323


19,602


20,251


19,526


Convertible limited partnership units


6,914


6,914


6,914


6,914


Diluted & converted weighted average shares


27,237


26,516


27,165


26,440











Per share amounts:










FFO attributable to common shareholders (diluted)


$           0.63


$           0.59


$          1.00


$         1.17











Reconciliation of net income to same property operating income:










Net income


$         7,762


$         9,595


$      11,160


$     18,915


Add:

Interest expense and amortization of deferred debt costs


11,709


12,554


23,426


25,287


Add:

Interest expense - discontinued operations


-


13


-


51


Add:

Depreciation and amortization of deferred leasing costs


12,472


9,749


28,824


19,507


Add:

Real property depreciation - discontinued operations


-


21


-


41


Add:

General and administrative


3,925


3,784


7,329


7,031


Add:

Predevelopment expenses


1,233


-


3,582


-


Less:

Change in fair value of derivatives


(51)


16


(61)


19


Less:

Interest income


(13)


(37)


(44)


(49)













      Property operating income


37,037


35,695


74,216


70,802


Less:

Acquisitions, dispositions & development property


(636)


(368)


(1,451)


(887)


      Total same property operating income


$       36,401


$       35,327


$      72,765


$     69,915













Shopping centers


$       27,297


$       26,717


$      54,935


$     52,986


Mixed-Use properties


9,104


8,610


17,830


16,929


      Total same property operating income


$       36,401


$       35,327


$      72,765


$     69,915























  (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 (sales of properties and casualty settlements).  FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company's Consolidated Statements of Cash Flows for the applicable periods.  There are no material legal or functional restrictions on the use of FFO.  FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity.  Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what we believe occurs with our assets, and because industry analysts have accepted it as a performance measure.  FFO may not be comparable to similarly titled measures employed by other REITs.

 

 

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