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Saul Centers, Inc. Reports Fourth Quarter 2018 Earnings

BETHESDA, Md., Feb. 26, 2019 /PRNewswire/ -- Saul Centers, Inc. (BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended December 31, 2018 ("2018 Quarter"). Total revenue for the 2018 Quarter increased to $58.3 million from $56.7 million for the quarter ended December 31, 2017 ("2017 Quarter").  Operating income, which is net income before the impact of the change in fair value of derivatives, loss on early extinguishment of debt, gains on sales of property and gains on casualty settlements, increased to $15.5 million for the 2018 Quarter from $14.4 million for the 2017 Quarter.

Net income available to common stockholders was $9.3 million ($0.41 per diluted share) for the 2018 Quarter compared to $8.5 million ($0.38 per diluted share) for the 2017 Quarter.  The increase in net income available to common stockholders was primarily due to (a) higher property operating income ($1.6 million), partially offset by (b) higher depreciation and amortization ($0.6 million).

Same property revenue increased 1.3% and same property operating income increased 2.1% for the 2018 Quarter compared to the 2017 Quarter.  We define same property revenue as property revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods.  We define same property operating income as property operating income minus the results of properties which were not in operation for the entirety of the comparable periods.  Shopping Center same property operating income increased 2.1% and Mixed-Use same property operating income increased 2.2%.  The increase in Shopping Center same property operating income was primarily the result of (a) higher other revenue, primarily lease termination fees ($0.5 million) and (b) higher base rent ($0.4 million) partially offset by (c) lower percentage rent ($0.1 million).  The increase in Mixed-Use same property operating income was the result of (a) lower provision for credit losses ($0.2 million) and (b) higher base rent ($0.1 million) partially offset by (c) lower percentage rent ($0.1 million).  Same property revenue and same property operating income are non-GAAP supplemental performance measures that the Company considers meaningful in measuring its operating performance.  Reconciliations of same property revenue and same property operating income to property revenue and property operating income are attached to this press release.

For the year ended December 31, 2018 ("2018 Period"), total revenue increased to $228.2 million from $227.3 million for the year ended December 31, 2017 ("2017 Period").  Operating income was $62.6 million for the 2018 Period compared to $60.6 million for the 2017 Period.  Operating income for the 2018 Period increased primarily due to lower interest expense and amortization of deferred debt costs ($2.2 million).

Net income available to common stockholders was $36.0 million ($1.60 per diluted share) for the 2018 Period compared to $35.9 million ($1.63 per diluted share) for the 2017 Period.  Net income available to common stockholders for the 2018 Period increased primarily due to (a) lower interest expense and amortization of deferred debt costs ($2.2 million) and (b) gain on sale of property ($0.5 million) partially offset by (c) extinguishment of issuance costs upon redemption of preferred shares ($2.3 million) and (d) higher general and administrative expense ($0.3 million).

Same property revenue increased 0.1% and same property operating income decreased 0.4% for the 2018 Period compared to the 2017 Period.  Shopping Center same property operating income decreased 1.1% and Mixed-Use same property operating income increased 1.9%.  Shopping Center same property operating income decreased $1.5 million primarily due to (a) the net impact of 2017 lease terminations at Broadlands and Kentlands Square II ($3.5 million) and (b) higher property operating expenses and real estate taxes, net of recoveries ($0.6 million) partially offset by (c) higher base rent ($2.8 million).  Mixed-Use same property operating income increased $0.8 million primarily due to (a) higher base rent ($0.8 million) and (b) a rebound in parking revenue as a result of the completion of a garage refurbishment in 2017 ($0.3 million) partially offset by (c) lower percentage rent ($0.3 million).

As of December 31, 2018, 95.5% of the commercial portfolio was leased (all properties except the residential portfolio), compared to 94.3% at December 31, 2017.  On a same property basis, 95.7% of the portfolio was leased at December 31, 2018, compared to 94.3% at December 31, 2017.  As of December 31, 2018, the residential portfolio was 98.3% leased compared to 96.3% as of December 31, 2017.

Funds From Operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and preferred stock redemption charges) increased to $24.5 million ($0.80 per diluted share) in the 2018 Quarter from $22.7 million ($0.76 per diluted share) in the 2017 Quarter.  FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance.  A reconciliation of FFO to net income is attached to this press release.  The increase in FFO available to common stockholders and noncontrolling interests for the 2018 Quarter was primarily due to higher property operating income ($1.6 million).

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and preferred stock redemptions) decreased 0.2% to $93.8 million ($3.11 per diluted share) in the 2018 Period from $94.0 million ($3.18 per diluted share) in the 2017 Period.  FFO available to common stockholders and noncontrolling interests for the 2018 Period decreased primarily due to (a) the net impact of 2017 lease terminations at Broadlands and Kentlands Square II ($3.5 million) and (b) extinguishment of issuance costs upon redemption of preferred shares ($2.3 million) partially offset by (c) higher base rent ($3.6 million) and (d) lower interest expense and amortization of debt expense ($2.2 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 comprised of 60 properties which includes (a) 56 community and neighborhood shopping centers and mixed-use properties with approximately 9.3 million square feet of leasable area and (b) four land and development properties.  Over 85% of the Company's property operating income is generated from 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.
Condensed Consolidated Balance Sheets
(In thousands)



December 31,
 2018


December 31,
 2017





Assets




Real estate investments




Land

$

488,918



$

450,256


Buildings and equipment

1,273,275



1,261,830


Construction in progress

185,972



91,114



1,948,165



1,803,200


Accumulated depreciation

(525,518)



(488,166)



1,422,647



1,315,034


Cash and cash equivalents

14,578



10,908


Accounts receivable and accrued income, net

53,876



54,057


Deferred leasing costs, net

28,083



27,255


Prepaid expenses, net

5,175



5,248


Other assets

3,130



9,950


Total assets

$

1,527,489



$

1,422,452






Liabilities




Mortgage notes payable

$

880,271



$

897,888


Term loan facility payable

74,591




Revolving credit facility payable

45,329



60,734


Construction loan payable

21,655




Dividends and distributions payable

19,153



18,520


Accounts payable, accrued expenses and other liabilities

32,419



23,123


Deferred income

28,851



29,084


Total liabilities

1,102,269



1,029,349






Equity




Preferred stock

180,000



180,000


Common stock

227



221


Additional paid-in capital

384,533



352,590


Distributions in excess of accumulated earnings and other comprehensive loss

(208,848)



(198,406)


Total Saul Centers, Inc. equity

355,912



334,405


Noncontrolling interests

69,308



58,698


Total equity

425,220



393,103


Total liabilities and equity

$

1,527,489



$

1,422,452



 

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



Three Months Ended
 December 31,


Year Ended December 31,


2018


2017


2018


2017


(unaudited)



Property revenue






Base rent

$

46,685



$

45,705



$

184,684



$

181,141


Expense recoveries

8,955



8,969



35,537



35,347


Percentage rent

208



490



994



1,458


Other

2,426



1,462



6,689



9,259


Total property revenue

58,274



56,626



227,904



227,205


Operating expenses








Property operating expenses

7,436



7,146



28,202



27,689


Provision for credit losses

155



304



685



906


Real estate taxes

6,817



6,873



27,376



26,997


Total property expenses

14,408



14,323



56,263



55,592


Property operating income

43,866



42,303



171,641



171,613










Other revenue

54



49



272



80


Other expenses








Interest expense and amortization of deferred debt costs

11,254



11,640



45,040



47,225


Depreciation and amortization of deferred leasing costs

11,905



11,298



45,861



45,694


General and administrative

5,251



4,998



18,459



18,176


Total other expenses

28,410



27,936



109,360



111,095


Operating income

15,510



14,416



62,553



60,598


Change in fair value of derivatives

(1)



72



(3)



70


Gain on sale of property





509




Net Income

15,509



14,488



63,059



60,668


Noncontrolling interests








Income attributable to noncontrolling interests

(3,240)



(2,928)



(12,505)



(12,411)


Net income attributable to Saul Centers, Inc.

12,269



11,560



50,554



48,257


Extinguishment of issuance costs upon redemption of preferred shares





(2,328)




Preferred stock dividends

(2,953)



(3,094)



(12,262)



(12,375)


Net income available to common stockholders

$

9,316



$

8,466



$

35,964



$

35,882


Per share net income available to common stockholders








Basic

$

0.42



$

0.39



$

1.61



$

1.64


Diluted

$

0.41



$

0.38



$

1.60



$

1.63










Weighted Average Common Stock:








Common stock

22,664



22,072



22,383



21,901


Effect of dilutive options

31



114



42



107


Diluted weighted average common stock

22,695



22,186



22,425



22,008


 


Reconciliation of net income to FFO available to common stockholders and noncontrolling interests (1)




Three Months Ended
 December 31,


Year Ended December 31,


(In thousands, except per share amounts)

2018


2017


2018


2017


Net income

$

15,509



$

14,488



$

63,059



$

60,668



Subtract:









Gain on sale of property





(509)





Add:









Real estate depreciation and amortization

11,905



11,298



45,861



45,694



FFO

27,414



25,786



108,411



106,362



Subtract:









Preferred stock dividends

(2,953)



(3,094)



(12,262)



(12,375)



Preferred stock redemption





(2,328)





FFO available to common stockholders and noncontrolling interests

$

24,461



$

22,692



$

93,821



$

93,987



Weighted average shares:









Diluted weighted average common stock

22,695



22,186



22,425



22,008



Convertible limited partnership units

7,821



7,536



7,731



7,503



Average shares and units used to compute FFO per share

30,516



29,722



30,156



29,511



FFO per share available to common stockholders and noncontrolling interests

$

0.80



$

0.76



$

3.11



$

3.18











(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 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 property revenue to same property revenue (2)




(in thousands)


Three Months Ended December 31,


Year Ended December 31,




2018


2017


2018


2017


Total property revenue


$

58,274



$

56,626



$

227,904



$

227,205



Less: Acquisitions, dispositions and development
properties


(892)





(5,839)



(5,460)



Total same property revenue


$

57,382



$

56,626



$

222,065



$

221,745













Shopping Centers


$

41,689



$

40,999



$

159,806



$

160,393



Mixed-Use properties


15,693



15,627



62,259



61,352



Total same property revenue


$

57,382



$

56,626



$

222,065



$

221,745













Total Shopping Center revenue


$

41,689



$

40,999



$

164,671



$

165,853



Less: Shopping Center acquisitions, dispositions and development properties






(4,865)



(5,460)



Total same Shopping Center revenue


$

41,689



$

40,999



$

159,806



$

160,393













Total Mixed-Use property revenue


$

16,585



$

15,627



$

63,233



$

61,352



Less: Mixed-Use acquisitions, dispositions and development properties


(892)





(974)





Total same Mixed-Use revenue


$

15,693



$

15,627



$

62,259



$

61,352




(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 property operating income to same property operating income (3)




Three Months Ended December 31,


Year Ended December 31,


(In thousands)

2018


2017


2018


2017


Property operating income

$

43,866



$

42,303



$

171,641



$

171,613



Less: Acquisitions, dispositions and development properties

(676)





(4,787)



(4,083)



Total same property operating income

$

43,190



$

42,303



$

166,854



$

167,530












Shopping Centers

$

32,862



$

32,199



$

125,641



$

127,095



Mixed-Use properties

10,328



10,104



41,213



40,435



Total same property operating income

$

43,190



$

42,303



$

166,854



$

167,530












Shopping Center operating income

$

32,862



$

32,199



$

129,701



$

131,178



Less: Shopping Center acquisitions, dispositions and development properties



$



(4,060)



(4,083)



Total same Shopping Center operating income

$

32,862



$

32,199



$

125,641



$

127,095












Mixed-Use property operating income

$

11,004



$

10,104



$

41,940



$

40,435



Less: Mixed-Use acquisitions, dispositions and development properties

(676)





(727)





Total same Mixed-Use property operating income

$

10,328



$

10,104



$

41,213



$

40,435




(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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