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Saul Centers, Inc. Reports First Quarter 2019 Earnings

BETHESDA, Md., May 2, 2019 /PRNewswire/ -- Saul Centers, Inc. (BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended March 31, 2019 ("2019 Quarter").  Total revenue for the 2019 Quarter increased to $59.8 million from $56.1 million for the quarter ended March 31, 2018 ("2018 Quarter").  Net income increased to $17.1 million for the 2019 Quarter from $14.9 million for the 2018 Quarter.

Net income available to common stockholders increased to $10.5 million ($0.46 per diluted share) for the 2019 Quarter from $6.9 million ($0.31 per diluted share) for the 2018 Quarter.  Net income available to common stockholders increased primarily due to (a) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), (b) higher termination fees in the core portfolio ($1.2 million), (c) the net operating income of recently acquired properties ($0.6 million), (d) lower preferred stock dividends ($0.5 million) and (e) higher base rent in the core portfolio ($0.5 million) partially offset by (f) higher noncontrolling interests ($1.3 million).

Same property revenue increased $2.8 million (4.9%) and same property operating income increased $1.8 million (4.3%) for the 2019 Quarter compared to the 2018 Quarter.  We define same property revenue as total revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods.  We define same property operating income as net income plus (a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of deferred leasing costs and (c) general and administrative expenses minus (d) the results of properties which were not in operation for the entirety of the comparable periods.  Shopping Center same property operating income for the 2019 Quarter totaled $33.5 million, a $1.4 million increase from the 2018 Quarter.  Mixed-Use same property operating income totaled $10.5 million, a $0.4 million increase from the 2018 Quarter.  The increase in Shopping Center same property operating income was primarily the result of higher termination fees ($1.2 million).  The increase in Mixed-Use same property operating income was primarily the result of (a) higher base rent ($0.2 million) and (b) lower credit losses ($0.2 million).

As of March 31, 2019, 95.2% of the commercial portfolio was leased (not including the residential portfolio), compared to 94.1% at March 31, 2018.  On a same property basis, 95.7% of the commercial portfolio was leased as of March 31, 2019, compared to 94.1% at March 31, 2018.  As of March 31, 2019, the residential portfolio was 99.0% leased compared to 95.9% at March 31, 2018.

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $25.8 million ($0.84 per diluted share) in the 2019 Quarter compared to $20.6 million ($0.69 per diluted share) in the 2018 Quarter.  FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance.  A reconciliation of net income to FFO is attached to this press release.  The increase in FFO available to common stockholders and noncontrolling interests was primarily due to (a) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), (b) higher termination fees ($1.2 million), (c) the net operating income of recently acquired properties ($0.6 million), (d) lower preferred stock dividends ($0.5 million) and (e) higher base rent in the core portfolio ($0.5 million).

Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 60 properties which includes (a) 49 community and neighborhood shopping centers and seven mixed-use properties with approximately 9.3 million square feet of leasable area and (b) four land and development properties. Over 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

Safe Harbor Statement

Certain matters discussed within this press release may be deemed to be forward-looking statements within the meaning of the federal securities laws.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.  These factors include, but are not limited to, the risk factors described in our Annual Report on Form 10-K filed on February 26, 2019, and include the following: (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company's ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management's ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and management's ability to estimate the impact thereof, (vii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (viii) increases in operating costs, (ix) changes in the dividend policy for the Company's common and preferred stock and the Company's ability to pay dividends at current levels, (x) the reduction in the Company's income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xi) impairment charges, and (xii) unanticipated changes in the Company's intention or ability to prepay certain debt prior to maturity.  Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this press release.  Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise.  You should carefully review the risks and risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2019.

 

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



March 31,
 2019


December 31,
 2018


(Unaudited)

Assets




Real estate investments




Land

$

488,942



$

488,918


Buildings and equipment

1,275,927



1,273,275


Construction in progress

216,545



185,972



1,981,414



1,948,165


Accumulated depreciation

(535,269)



(525,518)



1,446,145



1,422,647


Cash and cash equivalents

11,456



14,578


Accounts receivable and accrued income, net

51,603



53,876


Deferred leasing costs, net

26,967



28,083


Prepaid expenses, net

4,064



5,175


Other assets

5,593



3,130


Total assets

$

1,545,828



$

1,527,489






Liabilities




Notes payable

$

873,143



$

880,271


Revolving credit facility payable

38,465



45,329


Term loan facility payable

74,616



74,591


Construction loan payable

36,897



21,655


Dividends and distributions payable

19,224



19,153


Accounts payable, accrued expenses and other liabilities

47,671



32,419


Deferred income

25,481



28,851


Total liabilities

1,115,497



1,102,269






Equity




Preferred stock, 1,000,000 shares authorized:




Series C Cumulative Redeemable, 42,000 shares issued and outstanding

105,000



105,000


Series D Cumulative Redeemable, 30,000 shares issued and outstanding

75,000



75,000


Common stock, $0.01 par value, 40,000,000 shares authorized, 22,860,039 and 22,739,207 shares issued and outstanding, respectively

229



227


Additional paid-in capital

391,122



384,533


Distributions in excess of accumulated net income and accumulated

 other comprehensive loss

(210,207)



(208,593)


Accumulated other comprehensive loss

(289)



(255)


Total Saul Centers, Inc. equity

360,855



355,912


Noncontrolling interests

69,476



69,308


Total equity

430,331



425,220


Total liabilities and equity

$

1,545,828



$

1,527,489


 


 

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



Three Months Ended March 31,


2019


2018

Revenue

(unaudited)

Rental Revenue

$

56,803



$

54,990


Other

2,947



1,118


Total revenue

59,750



56,108


Expenses




Property operating expenses

8,001



7,123


Real estate taxes

7,148



6,845


Interest expense, net and amortization of deferred debt costs

11,067



11,424


Depreciation and amortization of deferred leasing costs

11,643



11,349


General and administrative

4,814



4,420


Total expenses

42,673



41,161


Net Income

17,077



14,947


Noncontrolling interests




Income attributable to noncontrolling interests

(3,630)



(2,359)


Net income attributable to Saul Centers, Inc.

13,447



12,588


Extinguishment of issuance costs upon redemption of preferred shares



(2,328)


Preferred stock dividends

(2,953)



(3,403)


Net income available to common stockholders

$

10,494



$

6,857


Per share net income available to common stockholders




Basic and diluted

$

0.46



$

0.31


Dividends declared per common share outstanding

$

0.53



$

0.52


 


 


Reconciliation of net income to FFO available to common stockholders and

noncontrolling interests (1)

 


Three Months Ended March 31,

(In thousands, except per share amounts)

2019


2018


(unaudited)

Net income

$

17,077



$

14,947


Add:




Real estate depreciation and amortization

11,643



11,349


FFO

28,720



26,296


Subtract:




Preferred stock dividends

(2,953)



(3,403)


Extinguishment of issuance costs upon redemption of preferred shares



(2,328)


FFO available to common stockholders and noncontrolling interests

$

25,767



$

20,565


Weighted average shares:




Diluted weighted average common stock

22,863



22,218


Convertible limited partnership units

7,835



7,567


Average shares and units used to compute FFO per share

30,698



29,785


FFO per share available to common stockholders and noncontrolling interests

$

0.84



$

0.69


 

 

(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 impairment charges on real estate assets and gains or losses from real estate 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 revenue to same property revenue (2)


(in thousands)


Three months ended March 31,



2019


2018



(unaudited)

Total revenue


$

59,750



$

56,108


Less: Acquisitions, dispositions and development properties


(889)




Total same property revenue


$

58,861



$

56,108







Shopping Centers


$

43,159



$

40,924


Mixed-Use properties


15,702



15,184


Total same property revenue


$

58,861



$

56,108







Total Shopping Center revenue


$

43,159



$

40,924


Less: Shopping Center acquisitions, dispositions and development properties





Total same Shopping Center revenue


$

43,159



$

40,924







Total Mixed-Use property revenue


$

16,591



$

15,184


Less: Mixed-Use acquisitions, dispositions and development properties


(889)




Total same Mixed-Use property revenue


$

15,702



$

15,184


 

(2)

Same property revenue is a non-GAAP financial measure of performance that improves the comparability of reporting periods by excluding the results of properties that were not in operation for the entirety of the comparable reporting periods.  Same property revenue adjusts property revenue by subtracting the revenue of properties not in operation for the entirety of the comparable reporting periods.  Same property revenue is a measure of the operating performance of the Company's properties but does not measure the Company's performance as a whole.  Same property revenue should not be considered as an alternative to total revenue, its most directly comparable GAAP measure, as an indicator of the Company's operating performance.  Management considers same property revenue a meaningful supplemental measure of operating performance because it is not affected by the cost of the Company's funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to ownership of the Company's properties.  Management believes the exclusion of these items from same property revenue is useful because the resulting measure captures the actual revenue generated and actual expenses incurred by operating the Company's properties.  Other REITs may use different methodologies for calculating same property revenue.  Accordingly, the Company's same property revenue may not be comparable to those of other REITs.

 

 


Reconciliation of net income to same property operating income (3)



Three Months Ended March 31,

(In thousands)

2019


2018


(unaudited)

Net income

$

17,077



$

14,947


Add: Interest expense, net and amortization of deferred debt costs

11,067



11,424


Add: Depreciation and amortization of deferred leasing costs

11,643



11,349


Add: General and administrative

4,814



4,420


Property operating income

44,601



42,140


Less: Acquisitions, dispositions and development properties

(628)




Total same property operating income

$

43,973



$

42,140






Shopping Centers

$

33,471



$

32,047


Mixed-Use properties

10,502



10,093


Total same property operating income

$

43,973



$

42,140






Shopping Center operating income

$

33,471



$

32,047


Less: Shopping Center acquisitions, dispositions and development properties




Total same Shopping Center operating income

$

33,471



$

32,047






Mixed-Use property operating income

$

11,130



$

10,093


Less: Mixed-Use acquisitions, dispositions and development properties

(628)




Total same Mixed-Use property operating income

$

10,502



$

10,093


 

(3)

Same property operating income is a non-GAAP financial measure of performance that improves the comparability of reporting periods by excluding the results of properties that were not in operation for the entirety of the comparable reporting periods.  Same property operating income adjusts property operating income by subtracting the results of properties that were not in operation for the entirety of the comparable periods.  Same property operating income is a measure of the operating performance of the Company's properties but does not measure the Company's performance as a whole.  Same property operating income should not be considered as an alternative to property operating income, its most directly comparable GAAP measure, as an indicator of the Company's operating performance.  Management considers same property operating income a meaningful supplemental measure of operating performance because it is not affected by the cost of the Company's funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to ownership of the Company's properties.  Management believes the exclusion of these items from property operating income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred by operating the Company's properties.  Other REITs may use different methodologies for calculating same property operating income.  Accordingly, same property operating income may not be comparable to those of other REITs.

 

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