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Saul Centers, Inc. Reports Third Quarter 2017 Earnings

BETHESDA, Md., Nov. 2, 2017 /PRNewswire/ -- Saul Centers, Inc. (BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended September 30, 2017 ("2017 Quarter").  Total revenue for the 2017 Quarter increased to $56.2 million from $53.2 million for the quarter ended September 30, 2016 ("2016 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 2017 Quarter from $12.7 million for the 2016 Quarter.

The Park Van Ness mixed-use development opened in May 2016, and, as of September 30, 2017, 254 apartments were leased (93.7%).  Concurrent with the opening in 2016, interest, real estate taxes and all other costs associated with the property, including depreciation, began to be charged to expense, while revenue continues to grow as occupancy increases.  As a result, net income for the 2017 Quarter was adversely impacted by $0.4 million

Net income attributable to common stockholders increased to $8.4 million ($0.38 per diluted share) for the 2017 Quarter compared to $7.1 million ($0.33 per diluted share) for the 2016 Quarter.

Same property revenue increased $2.2 million (4.2%) and same property operating income increased $1.1 million (2.8%) for the 2017 Quarter compared to the 2016 Quarter.  We define same property revenue as total revenue minus the sum of interest income and revenue of properties not in operation for the entirety of the comparable reporting periods.  We define same property operating income as net income plus the sum of interest expense and amortization of deferred debt costs, depreciation and amortization, general and administrative expense, loss on the early extinguishment of debt (if any), predevelopment expense and acquisition related costs, minus the sum of interest income, the change in the fair value of derivatives, gains on property dispositions (if any) and the results of properties which were not in operation for the entirety of the comparable periods.  Shopping Center same property operating income for the 2017 Quarter totaled $31.0 million, a $0.7 million increase from the 2016 Quarter.  The increase in Shopping Center same property operating income was primarily due to (a) higher base rent ($0.4 million), (b) higher other revenue ($0.2 million) and (c) lower provision for credit losses ($0.1 million).  Mixed-Use same property operating income totaled $9.9 million, a $0.4 million increase from the 2016 Quarter.  The increase in Mixed-Use same property operating income was due primarily to (a) Park Van Ness ($1.1 million) partially offset by (b) lower termination fees ($0.3 million) and (c) lower parking revenue as a result of a garage refurbishment ($0.2 million).

As of September 30, 2017, 95.5% of the commercial portfolio was leased (not including the apartments at Clarendon Center and Park Van Ness), compared to 94.7% at September 30, 2016.  On a same property basis, 95.4% of the commercial portfolio was leased as of September 30, 2017, compared to 95.3% at September 30, 2016.  The apartments at Clarendon Center were 96.3% leased as of September 30, 2017, compared to 96.7% as of September 30, 2016.  The apartments at Park Van Ness were 93.7% leased as of September 30, 2017, compared to 61.3% at September 30, 2016. 

For the nine months ended September 30, 2017 ("2017 Period"), total revenue increased to $170.6 million from $162.9 million for the nine months ended September 30, 2016 ("2016 Period").  Operating income increased to $46.2 million for the 2017 Period from $42.4 million for the 2016 Period.  The increase in operating income was primarily due to (a) higher property operating income ($6.7 million) partially offset by (b) higher interest expense and amortization of deferred debt costs ($1.3 million), (c) higher depreciation and amortization of deferred leasing costs ($0.9 million),  and (d) higher general and administrative expenses ($0.7 million).

Net income attributable to common stockholders increased to $27.4 million ($1.25 per diluted share) for the 2017 Period compared to $24.5 million ($1.14 per diluted share) for the 2016 Period.  The increase in net income attributable to common stockholders was primarily due to (a) higher property operating income ($6.7 million) partially offset by (b) higher interest expense and amortization of deferred debt costs ($1.3 million), (c) higher income attributable to noncontrolling interests ($1.0 million), (d) higher depreciation and amortization of deferred leasing costs ($0.9 million), and (e) higher general and administrative expenses ($0.7 million).

Same property revenue increased 0.5% and same property operating income increased 0.7% for the 2017 Period, compared to the 2016 Period.  Shopping Center same property operating income increased 2.3% and mixed-use same property operating income decreased 4.7%.  Shopping Center same property operating income increased primarily due to (a) higher other revenue ($0.9 million), (b) higher base rent ($0.7 million) and (c) a reduction in property operating expenses, net of recoveries ($0.4 million).  Mixed-Use same property operating income decreased primarily due to (a) lower termination fees ($0.6 million) and (b) lower parking revenue as a result of a garage refurbishment ($0.3 million).

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $22.7 million ($0.77 per diluted share) in the 2017 Quarter compared to $21.3 million ($0.73 per diluted share) in the 2016 Quarter.  FFO for the 2017 Quarter increased primarily due to (a) Park Van Ness ($1.0 million), (b) lower interest expense exclusive of interest expense related to Park Van Ness and Burtonsville Town Square ($0.4 million), and (c) Burtonsville Town Square, which was acquired in January 2017 ($0.4 million).  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 stockholders and noncontrolling interests (after deducting preferred stock dividends) increased 7.1% to $71.3 million ($2.42 per diluted share) in the 2017 Period from $66.5 million ($2.30 per diluted share) in the 2016 Period.  FFO available to common stockholders and noncontrolling interests increased primarily due to (a) lower interest expense exclusive of interest expense related to Park Van Ness and Burtonsville Town Square ($2.2 million), (b) Park Van Ness ($1.8 million) and (c) Burtonsville Town Square ($1.2 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 58 properties which includes (a) 49 community and neighborhood shopping centers and six mixed-use properties with approximately 9.2 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)




September 30,
 2017


December 31,
 2016


(Unaudited)



Assets




Real estate investments




Land

$

450,256



$

422,546


Buildings and equipment

1,257,886



1,214,697


Construction in progress

80,163



63,570



1,788,305



1,700,813


Accumulated depreciation

(478,284)



(458,279)



1,310,021



1,242,534


Cash and cash equivalents

9,385



8,322


Accounts receivable and accrued income, net

55,619



52,774


Deferred leasing costs, net

27,679



25,983


Prepaid expenses, net

8,901



5,057


Other assets

12,123



8,355


Total assets

$

1,423,728



$

1,343,025






Liabilities




Notes payable

$

873,538



$

783,400


Revolving credit facility payable

88,608



48,217


Construction loan payable



68,672


Dividends and distributions payable

18,143



17,953


Accounts payable, accrued expenses and other liabilities

24,267



20,838


Deferred income

31,040



30,696


Total liabilities

1,035,596



969,776






Equity




Preferred stock

180,000



180,000


Common stock

220



217


Additional paid-in capital

344,820



328,171


Accumulated deficit and other comprehensive loss

(195,584)



(189,883)


Total Saul Centers, Inc. stockholders' equity

329,456



318,505


Noncontrolling interests

58,676



54,744


Total equity

388,132



373,249


Total liabilities and equity

$

1,423,728



$

1,343,025



 

Saul Centers, Inc.





Condensed Consolidated Statements of Operations





(In thousands, except per share amounts)










Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


2017


2016

Revenue

(unaudited)


(unaudited)

Base rent

$

45,385



$

43,151



$

135,436



$

128,338


Expense recoveries

9,447



8,561



26,378



26,011


Percentage rent

67



57



968



1,016


Other

1,338



1,464



7,828



7,504


Total revenue

56,237



53,233



170,610



162,869


Operating expenses








Property operating expenses

7,418



6,685



20,543



20,740


Provision for credit losses

52



391



602



1,207


Real estate taxes

6,834



6,195



20,124



18,266


Interest expense and amortization of deferred
debt costs

11,821



11,524



35,585



34,268


Depreciation and amortization of deferred
leasing costs

11,363



11,626



34,396



33,478


General and administrative

4,363



4,033



13,178



12,500


Acquisition related costs



57





57


Total operating expenses

41,851



40,511



124,428



120,516


Operating income

14,386



12,722



46,182



42,353


Change in fair value of derivatives

(1)



1



(2)



(9)


Net income

14,385



12,723



46,180



42,344


Income attributable to noncontrolling interests

(2,902)



(2,484)



(9,483)



(8,530)


Net income attributable to Saul Centers, Inc.

11,483



10,239



36,697



33,814


Preferred stock dividends

(3,093)



(3,093)



(9,281)



(9,281)


Net income attributable to common stockholders

$

8,390



$

7,146



$

27,416



$

24,533


Per share net income attributable to common
stockholders








Basic and diluted

$

0.38



$

0.33



$

1.25



$

1.14










Weighted Average Common Stock:








Common stock

21,942



21,597



21,844



21,448


Effect of dilutive options

86



182



105



96


Diluted weighted average common stock

22,028



21,779



21,949



21,544











 

Reconciliation of net income to FFO attributable to common stockholders and

noncontrolling interests (1)





Three Months Ended
September 30,


Nine Months Ended
September 30,


(In thousands, except per share amounts)

2017


2016


2017


2016



(unaudited)


(unaudited)


Net income

$

14,385



$

12,723



$

46,180



$

42,344



Add:









Real estate depreciation and amortization

11,363



11,626



34,396



33,478



FFO

25,748



24,349



80,576



75,822



Subtract:









Preferred stock dividends

(3,093)



(3,093)



(9,281)



(9,281)



FFO available to common stockholders and
noncontrolling interests

$

22,655



$

21,256



$

71,295



$

66,541



Weighted average shares:









Diluted weighted average common stock

22,028



21,779



21,949



21,544



Convertible limited partnership units

7,521



7,391



7,491



7,360



Average shares and units used to compute FFO per share

29,549



29,170



29,440



28,904



FFO per share available to common stockholders and
noncontrolling interests

$

0.77



$

0.73



$

2.42



$

2.30




















(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 revenue to same property revenue


(in thousands)


Three months ended September 30,


Nine months ended September 30,



2017


2016


2017


2016

Total revenue


$

56,237



$

53,233



$

170,610



$

162,869


Less: Interest income


(9)



(12)



(31)



(36)


Less: Acquisitions, dispositions and development
properties


(1,351)



(580)



(10,336)



(3,314)


Total same property revenue


$

54,877



$

52,641



$

160,243



$

159,519


Shopping Centers


$

39,483



$

38,331



$

120,569



$

119,161


Mixed-Use properties


15,394



14,310



39,674



40,358


Total same property revenue


$

54,877



$

52,641



$

160,243



$

159,519


 

Reconciliation of net income to same property operating income



Three Months Ended
September 30,


Nine Months Ended
September 30,


(In thousands)

2017


2016


2017


2016



(unaudited)


(unaudited)


Net income

$

14,385



$

12,723



$

46,180



$

42,344



Add: Interest expense and amortization of deferred debt costs

11,821



11,524



35,585



34,268



Add: Depreciation and amortization of deferred leasing costs

11,363



11,626



34,396



33,478



Add: General and administrative

4,363



4,033



13,178



12,500



Add: Acquisition related costs



57





57



Add: Change in fair value of derivatives

1



(1)



2



9



Less: Interest income

(9)



(12)



(31)



(36)



Property operating income

41,924



39,950



129,310



122,620



Less: Acquisitions, dispositions and development property

1,060



192



6,737



862



Total same property operating income

$

40,864



$

39,758



$

122,573



$

121,758












Shopping Centers

$

30,971



$

30,290



$

95,866



$

93,733



Mixed-Use properties

9,893



9,468



26,707



28,025



Total same property operating income

$

40,864



$

39,758



$

122,573



$

121,758


 

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