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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 2002
COMMISSION FILE NUMBER 1-12254
SAUL CENTERS, INC.
------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1833074
----------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7501 Wisconsin Ave, Suite 1500, Bethesda, Maryland 20814
--------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (301) 986-6200
Number of shares of common stock, par value $0.01 per share
outstanding as of November 1, 2002: 15,110,000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO___
SAUL CENTERS, INC.
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001.................................................................. 4
(b) Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and 2001.................................................. 5
(c) Consolidated Statements of Stockholders' Equity as of
September 30, 2002 and December 31, 2001........................................... 6
(d) Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001.................................................. 7
(e) Notes to Consolidated Financial Statements......................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources.................................................... 19
(b) Results of Operations
Three months ended September 30, 2002 compared to three months
ended September 30, 2001........................................................... 26
Nine months ended September 30, 2002 compared to nine months
ended September 30, 2001........................................................... 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 30
Item 4. Controls and Procedures................................................................. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 31
Item 2. Changes in Securities................................................................... 31
Item 3. Defaults Upon Senior Securities......................................................... 31
Item 4. Submission of Matters to a Vote of Security Holders..................................... 31
Item 5. Other Information....................................................................... 31
Item 6. Exhibits and Reports on Form 8-K........................................................ 31
Signatures....................................................................................... 35
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments necessary for the fair presentation of the
financial position and results of operations of Saul Centers, Inc. All such
adjustments are of a normal recurring nature. These consolidated financial
statements and the accompanying notes should be read in conjunction with the
audited consolidated financial statements of Saul Centers, Inc. for the year
ended December 31, 2001, which are included in its Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of
results to be expected for the year.
The consolidated balance sheet at December 31, 2001 has been derived
from the audited financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
-3-
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(Dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Real estate investments
Land $ 84,942 $ 67,710
Buildings and equipment 403,003 385,936
------------------ ------------------
487,945 453,646
Accumulated depreciation (146,875) (136,928)
------------------ ------------------
341,070 316,718
Construction in progress 6,006 1,163
Cash and cash equivalents 727 1,805
Accounts receivable and accrued income, net 10,374 9,217
Prepaid expenses 14,228 12,514
Deferred debt costs, net 4,312 3,563
Other assets 1,939 1,423
------------------ ------------------
Total assets $ 378,656 $ 346,403
================== ==================
LIABILITIES
Notes payable $ 377,269 $ 351,820
Accounts payable, accrued expenses and other liabilities 16,848 14,697
Deferred income 2,174 4,009
------------------ ------------------
Total liabilities 396,291 370,526
------------------ ------------------
Minority interests -- --
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 14,970,829 and 14,535,803 shares issued and
outstanding, respectively 149 145
Additional paid-in capital 74,104 64,564
Accumulated deficit (91,888) (88,832)
------------------ ------------------
Total stockholders' equity (deficit) (17,635) (24,123)
------------------ ------------------
Total liabilities and stockholders' equity (deficit) $ 378,656 $ 346,403
================== ==================
The accompanying notes are an integral part of these statements.
-4-
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
(Dollars in thousands, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
except per share amounts) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
REVENUE
Base rent $ 19,184 $ 17,546 $ 56,532 $ 52,301
Expense recoveries 3,207 2,881 9,317 8,392
Percentage rent 446 557 1,220 1,410
Other 634 549 2,386 1,585
------------------- ------------------- ------------------- -------------------
Total revenue 23,471 21,533 69,455 63,688
------------------- ------------------- ------------------- -------------------
OPERATING EXPENSES
Property operating expenses 2,441 2,131 7,165 6,357
Provision for credit losses 131 140 402 421
Real estate taxes 1,947 1,744 5,917 5,300
Interest expense 6,335 6,203 18,757 18,750
Amortization of deferred debt expense 180 142 504 415
Depreciation and amortization 5,578 3,880 13,882 11,172
General and administrative 1,356 1,004 3,900 3,009
------------------- ------------------- ------------------- -------------------
Total operating expenses 17,968 15,244 50,527 45,424
------------------- ------------------- ------------------- -------------------
Operating income 5,503 6,289 18,928 18,264
Non-operating item
Gain on sale of property -- -- 1,426 --
------------------- ------------------- ------------------- -------------------
Income before minority interests 5,503 6,289 20,354 18,264
------------------- ------------------- ------------------- -------------------
MINORITY INTERESTS
Minority share of income (1,411) (1,674) (5,272) (4,895)
Distributions in excess of earnings (606) (343) (779) (1,156)
------------------- ------------------- ------------------- -------------------
Total minority interests (2,017) (2,017) (6,051) (6,051)
------------------- ------------------- ------------------- -------------------
Net income $ 3,486 $ 4,272 $ 14,303 $ 12,213
=================== =================== =================== ===================
PER SHARE (BASIC AND DILUTIVE)
Net income $ 0.24 $ 0.30 $ 0.97 $ 0.87
=================== =================== =================== ===================
The accompanying notes are an integral part of these statements.
-5-
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
ADDITIONAL
(Dollars in thousands, COMMON PAID-IN ACCUMULATED
except per share amounts) STOCK CAPITAL DEFICIT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT):
Balance, December 31, 2001 145 64,564 (88,832) (24,123)
Issuance of 169,826 shares of
common stock 2 3,456 -- 3,458
Net income -- -- 6,335 6,335
Distributions payable ($.39 per share) -- -- (5,736) (5,736)
------------------- ------------------- ------------------- -------------------
Balance, March 31, 2002 147 68,020 (88,233) (20,066)
Issuance of 125,558 shares of
common stock 1 2,878 -- 2,879
Net income -- -- 4,482 4,482
Distributions payable ($.39 per share) -- -- (5,784) (5,784)
------------------- ------------------- ------------------- -------------------
Balance, June 30, 2002 148 70,898 (89,535) (18,489)
Issuance of 139,642 shares of
common stock 1 3,206 -- 3,207
Net income -- -- 3,486 3,486
Distributions payable ($.39 per share) -- -- (5,839) (5,839)
------------------- ------------------- ------------------- -------------------
Balance, September 30, 2002 $ 149 $ 74,104 $ (91,888) $ (17,635)
=================== =================== =================== ===================
The accompanying notes are an integral part of these statements.
-6-
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
(Dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,303 $ 12,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 6,051 6,051
Gain on sale of property (1,426) --
Depreciation and amortization 14,386 11,587
Provision for credit losses 402 421
Decrease (increase) in accounts receivable (133) 1,753
Increase in prepaid expenses (5,649) (4,989)
Decrease (increase) in other assets (516) 115
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 2,151 (2,853)
Decrease in deferred income (1,835) (181)
Other (72) 14
------------------- -------------------
Net cash provided by operating activities 27,662 24,131
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate investments 31,129 --
Additions to real estate investments (65,428) (10,106)
Additions to construction in progress (4,843) (7,273)
------------------- -------------------
Net cash used in investing activities (39,142) (17,379)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 42,265 37,218
Repayments on notes payable (16,816) (30,424)
Additions to deferred debt expense (1,181) (261)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 9,544 8,602
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (23,410) (22,639)
------------------- -------------------
Net cash provided by (used in) financing activities 10,402 (7,504)
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (1,078) (752)
Cash and cash equivalents, beginning of period 1,805 1,772
------------------- -------------------
Cash and cash equivalents, end of period $ 727 $ 1,020
=================== ===================
The accompanying notes are an integral part of these statements.
-7-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION, FORMATION AND STRUCTURE
ORGANIZATION
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. Saul Centers operates as a real estate
investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Saul Centers generally will not be subject to federal income tax,
provided it annually distributes at least 90% of its REIT taxable income to its
stockholders and meets certain organizational and other requirements. Saul
Centers has made and intends to continue to make regular quarterly distributions
to its stockholders. Saul Centers, together with its wholly owned subsidiaries
and the limited partnerships of which Saul Centers or one of its subsidiaries is
the sole general partner, are referred to collectively as the "Company". B.
Francis Saul II serves as Chairman of the Board of Directors and Chief Executive
Officer of Saul Centers.
Saul Centers was formed to continue and expand the shopping center
business previously owned and conducted by the B.F. Saul Real Estate Investment
Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other
affiliated entities (collectively, "The Saul Organization"). On August 26, 1993,
The Saul Organization transferred to Saul Holdings Limited Partnership, a newly
formed Maryland limited partnership (the "Operating Partnership"), and two newly
formed subsidiary limited partnerships (the "Subsidiary Partnerships", and
collectively with the Operating Partnership, the "Partnerships"), shopping
center and office properties, and the management functions related to the
transferred properties. Since its formation, the Company has purchased and
developed additional properties. The Company is currently developing Broadlands,
a grocery anchored shopping center in Loudoun County. The Company recently
completed development of Ashburn Village III and IV, in-line retail and retail
pad expansions to the Ashburn Village shopping center; Washington Square at Old
Town, a Class A mixed-use office/retail complex in Alexandria, Virginia; and
Crosstown Business Center, an office/warehouse redevelopment located in Tulsa,
Oklahoma. In June 2002 the Company purchased 3030 Clarendon Center for future
redevelopment and in September 2002, the Company purchased the fully leased
Kentlands Square shopping center. As of September 30, 2002, the Company's
properties (the "Current Portfolio Properties") consisted of 28 operating
shopping center properties (the "Shopping Centers"), 5 predominantly office
operating properties (the "Office Properties") and two development and
redevelopment properties.
To facilitate the placement of collateralized mortgage debt, the
Company established Saul QRS, Inc. a wholly owned subsidiary of Saul Centers.
Saul QRS, Inc. was created to succeed to the interest of Saul Centers as the
sole general partner of Saul Subsidiary I Limited Partnership. The remaining
limited partnership interests in Saul Subsidiary I Limited Partnership and Saul
Subsidiary II Limited Partnership are held by the Operating Partnership as the
sole limited partner. Through this structure, the Company owns 100% of the
Current Portfolio Properties.
-8-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company, which conducts all of its activities through its
subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in
the ownership, operation, management, leasing, acquisition, renovation,
expansion, development and financing of community and neighborhood shopping
centers and office properties, primarily in the Mid-Atlantic region. The
Company's long-term objectives are to increase cash flow from operations and to
maximize capital appreciation of its real estate.
Because the properties are located primarily in the Washington
DC/Baltimore metropolitan area, the Company is subject to a concentration of
credit risk related to these properties. A majority of the Shopping Centers are
anchored by several major tenants. Seventeen of the Shopping Centers are
anchored by a grocery store and offer primarily day-to-day necessities and
services. As of December 31, 2001, no single Shopping Center accounted for more
than 11.5% of the total Shopping Center gross leasable area. Only one retail
tenant, Giant Food, at 6.2%, accounted for more than 2.1% of the Company's 2001
total revenues. No office tenant other than the United States Government, at
9.7%, accounted for more than 1.1% of 2001 total revenues.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company
include the accounts of Saul Centers, its subsidiaries, and the Operating
Partnership and Subsidiary Partnerships which are majority owned by Saul
Centers. All significant intercompany balances and transactions have been
eliminated in consolidation.
REAL ESTATE INVESTMENT PROPERTIES
These financial statements are prepared in conformity with accounting
principles generally accepted in the United States, and accordingly, do not
report the current value of the Company's real estate assets. Real estate
investment properties are stated at the lower of depreciated cost or fair value
less cost to sell. Management believes that these assets have generally
appreciated in value and, accordingly, the aggregate current value exceeds their
aggregate net book value and also exceeds the value of the Company's liabilities
as reported in these financial statements. Real estate investment properties are
reviewed for potential impairment losses whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of an individual property's undiscounted expected future
cash flows is less than its carrying amount, the Company's policy is to
recognize an impairment loss measured by the amount the depreciated cost of the
property exceeds its fair value. Fair value is calculated as the present value
of expected future cash flows.
-9-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Interest, real estate taxes and other carrying costs are capitalized on
projects under development and construction. Interest expense capitalized during
the nine month periods ended September 30, 2002 and 2001, was $386,000 and
$1,370,000, respectively. Once construction is substantially completed and the
assets are placed in service, their rental income, direct operating expenses and
depreciation are included in current operations. Expenditures for repairs and
maintenance are charged to operations as incurred.
A project is considered substantially complete and available for
occupancy upon completion of tenant improvements, but no later than one year
from the cessation of major construction activity. Substantially completed
portions of a project are accounted for as separate projects. Depreciation is
calculated using the straight-line method and estimated useful lives of 33 to 50
years for buildings and up to 20 years for certain other improvements. Leasehold
improvements are amortized over the lives of the related leases using the
straight-line method. The 2002 third quarter depreciation expense includes an
additional $1,311,000 of charges, ($.09 per share), resulting from assets
retired based upon a comprehensive review of real estate asset records and the
Company's revision of the assets' estimated useful lives.
ACCOUNTS RECEIVABLE AND ACCRUED INCOME
Accounts receivable primarily represent amounts currently due from
tenants in accordance with the terms of the respective leases. In addition,
accounts receivable include minimum rental income accrued on a straight-line
basis to be paid by tenants over the terms of their respective leases. Straight
line rent receivables at September 30, 2002 and December 31, 2001, of $5,652,000
and $4,675,000, respectively, are presented after netting deductions of $832,000
and $644,000, respectively, for tenants whose rent payment history or financial
condition cast doubt upon the tenant's ability to perform under its lease
obligations. Receivables are reviewed monthly and reserves are established when,
in the opinion of management, collection of the receivable is doubtful. Accounts
receivable in the accompanying financial statements are shown net of an
allowance for doubtful accounts of $879,000 and $559,000, at September 30, 2002
and December 31, 2001, respectively.
LEASE ACQUISITION COSTS
Certain initial direct costs incurred by the Company in negotiating and
consummating a successful lease are capitalized and amortized over the initial
base term of the lease. These costs of $11,051,000 and $10,419,000, are
classified as prepaid expenses, net of accumulated amortization of $5,208,000
and $4,465,000, at September 30, 2002 and December 31, 2001, respectively.
Capitalized leasing costs consist of commissions paid to third party leasing
agents as well as internal direct costs such as employee compensation and
payroll related fringe benefits directly associated with time spent in leasing
related activities. Such activities include analyzing the prospective tenant's
financial condition, evaluating and recording guarantees, collateral and other
security arrangements, negotiating lease terms, preparing lease documents and
closing the transaction.
-10-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
DEFERRED DEBT COSTS
Deferred debt costs consist of financing fees and costs incurred to
obtain long-term financing. These fees and costs are being amortized over the
terms of the respective loans or agreements. Deferred debt costs in the
accompanying financial statements are shown net of accumulated amortization of
$2,400,000 and $1,968,000, at September 30, 2002 and December 31, 2001,
respectively.
REVENUE RECOGNITION
Rental and interest income are accrued as earned except when doubt
exists as to collectibility, in which case the accrual is discontinued. When
rental payments due under leases vary from a straight-line basis because of free
rent periods or stepped increases, income is recognized on a straight-line basis
in accordance with accounting principles generally accepted in the United
States. Expense recoveries represent a portion of property operating expenses
billed to the tenants, including common area maintenance, real estate taxes and
other recoverable costs. Expense recoveries are recognized in the period when
the expenses are incurred. Rental income based on a tenant's revenues
("percentage rent") is accrued when a tenant reports sales that exceed a
specified breakpoint.
INCOME TAXES
The Company made an election to be treated, and intends to continue
operating so as to qualify as a REIT under the Code, commencing with its taxable
year ending December 31, 1993. A REIT generally will not be subject to federal
income taxation on that portion of its income that qualifies as REIT taxable
income to the extent that it distributes at least 90% of its REIT taxable income
to stockholders and complies with certain other requirements. Therefore, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements.
PER SHARE DATA
Per share data is calculated in accordance with SFAS No. 128, "Earnings
Per Share." Per share data for net income (basic and diluted) is computed using
weighted average shares of common stock. Convertible Limited Partnership Units
and Employee stock options are the Company's potentially dilutive securities.
For all periods presented, the Convertible Limited Partnership Units are
anti-dilutive. The options are currently dilutive because the average share
price of the Company's common stock exceeds the $20.00 exercise price. The
options were not dilutive during the prior year's quarter or nine month period.
Five executive officers have been granted 180,000 unexercised stock options. The
treasury share method was used to measure the effect of the dilution.
-11-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Basic and Diluted Shares Outstanding September 30,
(In thousands)
Nine months
Quarter ended ended
2002 2001 2002 2001
------------ ----------- ------------ -----------
Weighted average common shares
outstanding - Basic........................ 14,924 14,295 14,788 14,122
Effect of dilutive options.................. 25 -- 19 --
------------ ----------- ------------ -----------
Weighted average common shares
outstanding - Diluted...................... 14,949 14,295 14,807 14,122
============ =========== ============ ===========
Average Share Price $ 23.21 * $ 22.38 *
* The option exercise price exceeded the average share price
for these periods.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
have no impact on operating results previously reported.
MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization has a 25.9% limited partnership interest,
represented by 5,172,000 convertible limited partnership units in the Operating
Partnership, as of September 30, 2002. These Convertible Limited Partnership
Units are convertible into shares of Saul Centers' common stock on a one-for-one
basis. The impact of The Saul Organization's 25.9% limited partnership interest
in the Operating Partnership is reflected as minority interests in the
accompanying consolidated financial statements. Fully converted and diluted
weighted average shares outstanding for the quarters ended September 30, 2002
and 2001, were 20,122,000 and 19,467,000, respectively. Fully converted and
diluted weighted average shares outstanding for the nine month periods ended
September 30, 2002 and 2001, were 19,979,000 and 19,294,000, respectively.
DEFERRED COMPENSATION AND STOCK PLAN FOR DIRECTORS
Saul Centers has established a Deferred Compensation and Stock Plan for
Directors (the "Plan") for the benefit of its directors and their beneficiaries.
A director may elect to defer all or part of his or her director's fees and has
the option to have the fees paid in cash, in shares of
-12-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
common stock or in a combination of cash and shares of common stock upon
termination from the Board. If the director elects to have fees paid in stock,
the number of shares allocated to the director is determined by the market price
of the common stock on the day the fee is earned. As of September 30, 2002,
170,000 shares were authorized and registered for use under the Plan, and
125,000 shares had been credited to the directors' deferred fee accounts.
Beginning in 1999, pursuant to the Plan, 100 shares of the Company's
common stock are awarded annually as additional compensation to each director
serving on the Board of Directors as of the record date for the Annual Meeting
of Stockholders. The shares are issued on the date of the Annual Meeting, their
issuance may not be deferred and transfer of the shares is restricted for a
period of twelve months following the date of issue.
3. CONSTRUCTION IN PROGRESS
Construction in progress includes the costs of active development
projects and other predevelopment project costs. Development costs include
direct construction costs and indirect costs such as architectural, engineering,
construction management and carrying costs consisting of interest, real estate
taxes and insurance. Construction in progress balances as of September 30, 2002
and December 31, 2001 are as follows:
Construction in Progress
(In thousands)
September 30, December 31,
2002 2001
------------- ------------
Ashburn Village IV .................... $ -- $ 1,163
Broadlands ............................ 6,006 --
------------- ------------
Total ................................. $ 6,006 $ 1,163
============= ============
4. NOTES PAYABLE
Notes payable totaled $377,269,000 at September 30, 2002, of which
$296,427,000 (78.6%) was fixed rate debt and $80,842,000 (21.4%) was floating
rate debt. At September 30, 2002, the Company had a $125,000,000 unsecured
revolving credit facility with outstanding borrowings of $42,500,000. Borrowing
availability is determined by operating income from the Company's existing
unencumbered properties, which at September 30, 2002 allowed the Company to
borrow an additional $32,500,000 for general corporate use. An additional
$50,000,000 was available for funding working capital and operating property
acquisitions, supported by the unencumbered properties' internal cash flow
growth and operating income of future acquisitions and developments. The
facility requires monthly interest payments either at a rate of LIBOR plus a
spread of 1.625% to 1.875% (determined by certain debt service coverage and
leverage tests) or at the bank's reference rate depending upon the Company's
option. The
-13-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
facility matures in August 2005 and provides for an additional one-year
extension at the Company's option. The line is a $55 million expansion of a
prior revolver. Loan costs associated with the new facility and unamortized loan
costs associated with the prior revolver are being amortized over the new
revolver's three-year term. The Company also had borrowed $38,342,000 of a
$42,000,000 construction loan secured by Washington Square at September 30,
2002. The facility requires monthly interest payments at a rate of LIBOR plus
1.45%.
Notes payable totaled $351,820,000 at December 31, 2001, of which
$293,478,000 (83.4%), was fixed rate debt and $58,342,000 (16.6%) was floating
rate debt. Outstanding borrowings on the $70,000,000 unsecured revolving credit
facility were $20,000,000 at December 31, 2001, with borrowing availability of
$50,000,000.
At September 30, 2002, the scheduled maturities of all debt for years
ending December 31, were as follows:
Debt Maturity Schedule
(In thousands)
October 1 through December 31, 2002..... $ 1,808
2003.................................... 45,908
2004.................................... 23,988
2005.................................... 50,470
2006.................................... 8,635
2007.................................... 9,357
Thereafter.............................. 237,103
----------
Total................................... $ 377,269
==========
5. SHAREHOLDERS' EQUITY (DEFICIT) AND MINORITY INTERESTS
The accompanying consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States
and, accordingly, do not report the current value of the Company's real estate
assets. The Shareholders' Equity (Deficit) reported on the Consolidated Balance
Sheets does not reflect any increase in value resulting from the difference
between the current value and the net book value of the Company's assets.
Therefore, Shareholders' Equity (Deficit) reported on the Consolidated Balance
Sheets does not reflect the market value of stockholders' investment in the
Company.
The Consolidated Statement of Operations for the nine months ended
September 30, 2002 includes a charge for minority interests of $6,051,000
consisting of $5,272,000 related to The Saul Organization's share of the net
income for such period and $779,000 related to distributions to minority
interests in excess of allocated net income for that period. The charge for the
nine months ended September 30, 2001 of $6,051,000 consists of $4,895,000
related to The Saul Organization's share of net income for such period, and
$1,156,000 related to distributions to minority interests in excess of allocated
net income for that period.
-14-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
6. BUSINESS SEGMENTS
The Company has two reportable business segments: Shopping Centers and
Office Properties. The accounting policies for the segments presented
below are the same as those described in the summary of significant
accounting policies (see Note 2). The Company evaluates performance
based upon net operating income for properties in each segment.
(Dollars in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other Totals
---------- ---------- --------- ------------
QUARTER ENDED SEPTEMBER 30, 2002
Real estate rental operations:
Revenues ........................................ $ 15,294 $ 8,159 $ 18 $ 23,471
Expenses ........................................ (2,533) (1,986) -- (4,519)
---------- ---------- --------- ------------
Income from real estate ........................... 12,761 6,173 18 18,952
Interest expense & amortization of debt expense.. -- -- (6,515) (6,515)
General and administrative ...................... -- -- (1,356) (1,356)
---------- ---------- --------- ------------
Subtotal .......................................... 12,761 6,173 (7,853) 11,081
Depreciation and amortization ................... (3,730) (1,848) -- (5,578)
Minority interests .............................. -- -- (2,017) (2,017)
---------- ---------- --------- ------------
Net income ........................................ $ 9,031 $ 4,325 $ (9,870) $ 3,486
========== ========== ========= ============
Capital investment ................................ $ 14,196 $ 1,754 $ 3 $ 15,953
========== ========== ========= ============
Total assets ...................................... $ 211,886 $ 135,190 $ 31,580 $ 378,656
========== ========== ========= ============
QUARTER ENDED SEPTEMBER 30, 2001
Real estate rental operations:
Revenues ........................................ $ 14,657 $ 6,830 $ 46 $ 21,533
Expenses ........................................ (2,353) (1,662) -- (4,015)
---------- ---------- --------- ------------
Income from real estate ........................... 12,304 5,168 46 17,518
Interest expense & amortization of debt expense.. -- -- (6,345) (6,345)
General and administrative ...................... -- -- (1,004) (1,004)
---------- ---------- --------- ------------
Subtotal .......................................... 12,304 5,168 (7,303) 10,169
Depreciation and amortization ................... (2,552) (1,328) -- (3,880)
Minority interests .............................. -- -- (2,017) (2,017)
---------- ---------- --------- ------------
Net income ........................................ $ 9,752 $ 3,840 $ (9,320) $ 4,272
========== ========== ========= ============
Capital investment ................................ $ 1,199 $ 2,941 $ -- $ 4,140
========== ========== ========= ============
Total assets ...................................... $ 193,606 $ 122,597 $ 26,234 $ 342,437
========== ========== ========= ============
-15-
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other Totals
---------- ---------- --------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 2002
Real estate rental operations:
Revenues ......................................... $ 45,438 $ 23,964 $ 53 $ 69,455
Expenses ......................................... (7,771) (5,713) -- (13,484)
---------- ---------- --------- ------------
Income from real estate ............................ 37,667 18,251 53 55,971
Interest expense & amortization of debt expense .. -- -- (19,261) (19,261)
General and administrative ....................... -- -- (3,900) (3,900)
---------- ---------- --------- ------------
Subtotal ........................................... 37,667 18,251 (23,108) 32,810
Depreciation and amortization .................... (8,729) (5,153) -- (13,882)
Gain on Sale of Property ......................... 1,426 -- -- 1,426
Minority interests ............................... -- -- (6,051) (6,051)
---------- ---------- --------- ------------
Net income ......................................... $ 30,364 $ 13,098 $ (29,159) $ 14,303
========== ========== ========= ============
Capital investment ................................. $ 24,242 $ 14,892 $ 8 $ 39,142
========== ========== ========= ============
Total assets ....................................... $ 211,886 $ 135,190 $ 31,580 $ 378,656
========== ========== ========= ============
NINE MONTHS ENDED SEPTEMBER 30, 2001
Real estate rental operations:
Revenues ......................................... $ 43,403 $ 20,152 $ 133 $ 63,688
Expenses ......................................... (7,633) (4,445) -- (12,078)
---------- ---------- --------- ------------
Income from real estate ............................ 35,770 15,707 133 51,610
Interest expense & amortization of debt costs .... -- -- (19,165) (19,165)
General and administrative ....................... -- -- (3,009) (3,009)
---------- ---------- --------- ------------
Subtotal ........................................... 35,770 15,707 (22,041) 29,436
Depreciation and amortization .................... (7,519) (3,653) -- (11,172)
Minority interests ............................... -- -- (6,051) (6,051)
---------- ---------- --------- ------------
Net income ......................................... $ 28,251 $ 12,054 $ (28,092) $ 12,213
========== ========== ========= ============
Capital investment ................................. $ 6,661 10,718 -- $ 17,379
========== ========== ========= ============
Total assets ....................................... $ 193,606 122,597 26,234 $ 342,437
========== ========== ========= ============
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section should be read in conjunction with the consolidated
financial statements of the Company and the accompanying notes in "Item 1.
Financial Statements" of this report. Historical results and percentage
relationships set forth in Item 1 and this section should not be taken as
indicative of future operations of the Company. Capitalized terms used but not
otherwise defined in this section, have the meanings given to them in Item 1 of
this Form 10-Q. This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
generally characterized by terms such as "believe", "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those given in the forward-looking
statements as a result of changes in factors which include among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail and office space; demand for retail goods;
availability and credit worthiness of the prospective tenants; lease rents and
the terms and availability of financing; adverse changes in the real estate
markets including, among other things, competition with other companies and
technology, risks of real estate development and acquisition, governmental
actions and initiatives, debt refinancing risk, conflicts of interests,
maintenance of REIT status and environmental/safety requirements.
General
The following discussion is based primarily on the consolidated
financial statements of the Company, as of September 30, 2002 and for the three
and nine month periods ended September 30, 2002.
Critical Accounting Policies
The Company's accounting policies are in conformity with accounting
principles generally accepted in the United States ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to use judgment
in the application of accounting policies, including making estimates and
assumptions. These judgments affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the Company's financial statements and the reported amounts of revenue and
expenses during the reporting periods. If judgment or interpretation of the
facts and circumstances relating to various transactions had been different, it
is possible that different accounting policies would have been applied resulting
in a different presentation of the financial statements. Below is a discussion
of accounting policies which the Company considers critical in that they may
require judgment in their application or require estimates about matters which
are inherently uncertain. Additional discussion of accounting policies which the
Company considers significant, including further discussion of the critical
accounting policies described below, can be found in the accompanying notes in
"Item 1. Financial Statements" of this report.
-17-
Valuation of Real Estate Investments
Real estate investment properties are stated at historic cost basis
less depreciation. Management believes that these assets have generally
appreciated in value and, accordingly, the aggregate current value exceeds their
aggregate net book value and also exceeds the value of the Company's liabilities
as reported in these financial statements. Because these financial statements
are prepared in conformity with accounting principles generally accepted in the
United States, they do not report the current value of the Company's real estate
assets.
If there is an event or change in circumstance that indicates an
impairment in the value of a real estate investment property, the Company
assesses an impairment in value by making a comparison of the current and
projected operating cash flows of the property over its remaining useful life,
on an undiscounted basis, to the carrying amount of that property. If such
carrying amount is greater than the estimated projected cash flows, the Company
would recognize an impairment loss equivalent to an amount required to adjust
the carrying amount to its estimated fair market value.
Interest, real estate taxes and other carrying costs are capitalized on
projects under construction. Once construction is substantially complete and the
assets are placed in service, rental income, direct operating expenses, and
depreciation associated with such properties are included in current operations.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
Lease Acquisition Costs
Certain initial direct costs incurred by the Company in negotiating and
consummating a successful lease are capitalized and amortized over the initial
base term of the lease. Capitalized leasing costs consists of commissions paid
to third party leasing agents as well as internal direct costs such as employee
compensation and payroll related fringe benefits directly associated with time
spent in leasing related activities. Such activities include analyzing the
prospective tenant's financial condition, evaluating and recording guarantees,
collateral and other security arrangements, negotiating lease terms, preparing
lease documents and closing the transactions.
Revenue Recognition
Rental and interest income are accrued as earned except when doubt
exists as to collectibility, in which case the accrual is discontinued. When
rental payments due under leases vary from a straight-line basis because of free
rent periods or scheduled rent increases, income is recognized on a
straight-line basis throughout the initial term of the lease. Expense recoveries
represent a portion of property operating expenses billed to the tenants,
including common area
-18-
maintenance, real estate taxes and other recoverable costs. Expense recoveries
are recognized in the period when the expenses are incurred. Rental income based
on a tenant's revenues, known as percentage rent, is accrued when a tenant
reports sales that exceed a specified breakpoint.
Legal Contingencies
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally covered by
insurance. Once it has been determined that a loss is probable to occur, the
estimated amount of the loss is recorded in the financial statements. Both the
amount of the loss and the point at which its occurrence is considered probable
can be difficult to determine. While the resolution of these matters cannot be
predicted with certainty, the Company believes the final outcome of such matters
will not have a material adverse effect on the financial position or the results
of operations.
Liquidity and Capital Resources
Cash and cash equivalents were $.7 million and $1.0 million at
September 30, 2002 and 2001, respectively. The Company's cash flow is affected
by its operating, investing and financing activities, as described below.
Operating Activities
Cash provided by operating activities for the nine month periods ended
September 30, 2002 and 2001 was $27.7 million and $24.1 million, respectively,
and represents, in each period, cash received primarily from rental income, plus
other income, less normal recurring general and administrative expenses and
interest payments on debt outstanding.
Investing Activities
Cash used in investing activities for the nine month periods ended
September 30, 2002 and 2001 was $39.1 million and $17.4 million, respectively,
and primarily reflects the acquisition of properties and construction in
progress during those periods.
Financing Activities
Cash provided by financing activities for the nine month period ended
September 30, 2002 was $10.4 million and cash used by financing activities for
the nine month period ended September 30, 2001 was $7.5 million. Cash provided
by financing activities for the nine month period ended September 30, 2002
primarily reflects:
.. $42.3 million of proceeds received from notes payable during the period;
and
.. $9.5 million of proceeds received from the issuance of common stock and
convertible limited partnership units in the Operating Partnership by
dividend reinvestment programs;
which was partially offset by:
-19-
.. the repayment of borrowings on our notes payable totaling $16.8 million;
and
.. distributions made to common stockholders and holders of convertible
limited partnership units in the Operating Partnership during the year
totaling $23.4 million.
Cash used by financing activities for the nine month period ended September 30,
2001 primarily reflects:
.. $37.2 million of proceeds received from notes payable incurred during the
period; and
.. $8.6 million of proceeds received from the issuance of common stock and
convertible limited partnership units in the Operating Partnership pursuant
to dividend reinvestment programs.
which was partially offset by:
.. the repayment of borrowings on our notes payable totaling $30.4 million;
.. distributions made to common stockholders and holders of convertible
limited partnership units in the Operating Partnership during the period
totaling $22.6 million.
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion
and renovation of the Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stockholders at least
90% (95% for the tax years prior to January 1, 2001) of its "real estate
investment trust taxable income," as defined in the Code. The Company
anticipates that operating revenues will provide the funds necessary for
operations, debt service, distributions, and required recurring capital
expenditures. Balloon principal repayments are expected to be funded by
refinancings.
Management anticipates that during the coming year the Company may: i)
redevelop certain of the Shopping Centers, ii) develop additional freestanding
outparcels or expansions within certain of the Shopping Centers, iii) acquire
existing neighborhood and community shopping centers and/or office properties,
and iv) develop new shopping center or office sites. Acquisition and development
of properties are undertaken only after careful analysis and review, and
management's determination that such properties are expected to provide
long-term earnings and cash flow growth. During the coming year, any
developments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company's credit line, construction financing, proceeds from
the operation of the Company's dividend reinvestment plan or other external
capital resources available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including undistributed cash flow from
operations, secured or unsecured bank and institutional borrowings, private or
public offerings of debt or equity securities and proceeds from the sales of
properties. Borrowings may be at the Saul Centers, Operating Partnership or
-20-
Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in
the Operating Partnership which can be converted into shares of Saul Centers
common stock.
As of September 30, 2002, the scheduled maturities of all debt for
years ended December 31, are as follows:
Debt Maturity Schedule
(In thousands)
October 1 through December 31, 2002.............. $ 1,808
2003............................................. 45,908
2004............................................. 23,988
2005............................................. 50,470
2006............................................. 8,635
2007............................................. 9,357
Thereafter....................................... 237,103
---------
Total............................................ $ 377,269
=========
Management believes that the Company's current capital resources,
including borrowing availability on the Company's revolving line of credit, ,
will be sufficient to meet its liquidity needs for the foreseeable future. The
revolving line of credit borrowing availability is determined by operating
income from the Company's existing unencumbered properties, which at September
30, 2002 allowed the Company to borrow an additional $32,500,000 for general
corporate use. An additional $50,000,000 was available for funding working
capital and operating property acquisitions, supported by the unencumbered
properties' internal cash flow growth and operating income of future
acquisitions and developments.
Dividend Reinvestment and Stock Purchase Plan
In December 1995, the Company established a Dividend Reinvestment and
Stock Purchase Plan (the "Plan"), to allow its stockholders and holders of
limited partnership interests an opportunity to buy additional shares of common
stock by reinvesting all or a portion of their dividends or distributions. The
Plan provides for investing in newly issued shares of common stock at a 3%
discount from market price without payment of any brokerage commissions, service
charges or other expenses. All expenses of the Plan are paid by the Company. The
Company issued 421,000 and 469,000 shares under the Plan at weighted average
discounted prices of $21.94 per share and $17.75 per share, during the nine
month periods ended September 30, 2002 and 2001, respectively.
-21-
Capital Strategy and Financing Activity
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50% or less, and to actively manage the Company's leverage
and debt expense on an ongoing basis in order to maintain prudent coverage of
fixed charges. Management believes that current total debt remains less than 50%
of total asset value.
The Company closed a new $125 million unsecured revolving credit
facility in August 2002 to provide working capital and funds for redevelopments
and acquisitions. The line has a three-year term expiring on August 29, 2005 and
provides for an additional one-year extension at the Company's option. The new
line is a $55 million expansion of a prior revolver. The facility requires
monthly interest payments either at a rate of LIBOR plus a spread of 1.625% to
1.875% (determined by certain debt service coverage and leverage tests) or at
the bank's reference rate depending upon the Company's option. The additional
availability under the new facility will enable the Company to access capital
for future purchases of operating properties as opportunities arise.
At November 1, 2002, $46.0 million was outstanding under the line, with
interest calculated using LIBOR plus 1.625%. Loan availability is determined by
operating income from the Company's existing unencumbered properties, which at
November 1, 2002 allowed the Company to borrow an additional $29.0 million for
general corporate use. An additional $50 million is available for funding
working capital and operating property acquisitions supported by the
unencumbered properties' internal cash flow growth and operating income of
future acquisitions and developments.
Management believes that the Company's current capital resources, which
include the Company's credit line, will be sufficient to meet its liquidity
needs for the foreseeable future. At November 1, 2002, the Company had fixed
interest rates on approximately 77.8% of its total debt outstanding. At November
1, 2002, the fixed rate debt had a weighted average remaining term of
approximately 9.3 years.
Funds From Operations
For the third quarter of 2002, the Company reported Funds From
Operations ("FFO") of $11,081,000. This represents a 9.0% increase over the
comparable 2001 period's FFO of $10,169,000. For the nine month period ended
September 30, 2002, the Company reported FFO of $32,810,000 representing a 11.5%
increase over the comparable 2001 period's FFO of $29,436,000. FFO is presented
on a fully converted basis and as a widely accepted measure of operating
performance for REITs is defined as net income before extraordinary items, gains
and losses on property sales and before real estate depreciation and
amortization. The following table represents a reconciliation from net income
before minority interests to FFO:
-22-
Funds From Operations Schedule
(Amounts in thousands)
Three Months Ended September 30,
--------------------------------
2002 2001
-------------- --------------
Income before minority interests ................................ $ 5,503 $ 6,289
Add:
Depreciation and amortization of real property ............ 5,578 3,880
-------------- --------------
Funds From Operations ........................................... $ 11,081 $ 10,169
============== ==============
Average Shares and Units Used to Compute FFO per Share .......... 20,122 19,467
============== ==============
Funds From Operations Schedule
(Amounts in thousands)
Nine Months Ended September 30,
--------------------------------
2002 2001
-------------- --------------
Income before minority interests ................................ $ 20,354 $ 18,264
Subtract:
Gain on Sale of Property .................................. -1,426 --
Add:
Depreciation and amortization of real property ............ 13,882 11,172
-------------- --------------
Funds From Operations ........................................... $ 32,810 $ 29,436
============== ==============
Average Shares and Units Used to Compute FFO per Share .......... 19,979 19,294
============== ==============
FFO, as defined by the National Association of Real Estate Investment
Trusts, presented on a fully converted basis and a widely accepted measure of
operating performance for real estate investment trusts, is defined as net
income before gains or losses from property sales, extraordinary items, and
before real estate depreciation and amortization. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and may not be indicative of cash available to fund cash
needs, which is disclosed in the 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 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 supplemental
measure of operating performance and along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. FFO may not be
comparable to similarly titled measures employed by other REITs.
-23-
Redevelopment, Renovations and Acquisitions
The Company has selectively engaged in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail and
office development and potential acquisitions of operating properties for
opportunities to enhance operating income and cash flow growth. The Company also
continues to take advantage of redevelopment, renovation and expansion
opportunities within the portfolio, as demonstrated by its activities in 2001 at
Washington Square, Ashburn Village and Crosstown Business Center.
During 2001, the Company continued the development of Washington Square
at Old Town, a new Class A mixed-use office/retail complex along North
Washington Street in historic Old Town Alexandria in Northern Virginia. The
project totals 235,000 square feet of leasable area and is well located on a
two-acre site along Alexandria's main street. The project consists of two
identical buildings separated by a landscaped brick courtyard. Base building
construction has been completed. The build-out of office tenant areas continues.
As of September 30, 2002, the Company has signed leases on 87% of the 235,000
square feet of tenant space: the 46,000 square feet of street level retail space
is 98% leased and the 189,000 square feet of office space is 85% leased.
During late 1999, the Company purchased land located within the 1,580
acre community of Ashburn Village in Loudoun County, Virginia, adjacent to its
108,000 square foot Ashburn Village neighborhood shopping center. The land was
developed into Ashburn Village II, a 40,200 square foot in-line and pad
expansion to the existing shopping center, containing 23,600 square feet of
retail space and 16,600 square feet of professional office suites. Ashburn
Village II commenced operations during the third quarter of 2000. In August
2000, the Company purchased an additional 7.1 acres of land adjacent to Ashburn
Village II for $1,579,000. During 2001, the Company completed the development of
4.0 acres of the land known as Ashburn Village III, consisting of a fully leased
28,000 square foot in-line and pad expansion to the retail area of the existing
shopping center. The Company commenced construction on the remaining 3.1 acres
known as Ashburn Village IV, during the fourth quarter of 2001. This phase
consists of 25,000 square feet of retail space and two pad sites and completes
the development of Ashburn Village. Leases have been signed for 80% of this new
Ashburn Village IV shop space as of September 30, 2002. Construction was
substantially completed during the third quarter of 2002.
The conversion and redevelopment of the former Tulsa, Oklahoma shopping
center to an office/warehouse facility named Crosstown Business Center continued
throughout 2001, with substantial completion during the first quarter of 2002.
Twelve tenants lease 93% of the facility as of September 30, 2002.
In April 2002, the Company purchased 24 acres of undeveloped land in
the Broadlands section of the Dulles Technology Corridor. The site is located
adjacent to the Claiborne Parkway exit (Exit 5) of the Dulles Greenway, in
Loudoun County, Virginia. The Dulles Greenway is the "gateway to Loudoun
County," a 14-mile extension of the Dulles Toll Road, connecting Washington
Dulles International Airport with historic Leesburg, Virginia. Broadlands is a
1,500
-24-
acre planned community consisting of 3,500 residences, approximately half of
which are constructed and currently occupied. The land is zoned to accommodate
approximately 225,000 square feet of neighborhood and community retail
development. The Company is preparing drawings for the initial phase of
construction totaling 112,000 square feet of retail space and is moving forward
to obtain site plan approvals from Loudoun County. Additionally the Company has
recently executed a grocery anchor lease with Safeway for a 59,000 square foot
supermarket.
In June 2002, the Company purchased 3030 Clarendon Boulevard, located
in Arlington, Virginia. 3030 Clarendon is a 1.25 acre site with an existing and
primarily vacant 70,000 square foot office building with surface parking for 104
cars. It is located directly across the street from the Company's Clarendon and
Clarendon Station properties. The Company is analyzing its options for a
proposed redevelopment of the site.
In September 2002, the Company acquired a 109,625 square foot
neighborhood retail center located within the Kentlands development in
Gaithersburg, Maryland. The property, constructed in 1993, is anchored by a
102,250 square foot Lowe's home improvement store and is part of Kentlands
Square, a shopping center exceeding 350,000 square feet of retail space. The
Kentlands Square property is fully leased and includes an additional 6,000
square feet of retail development potential. The property was acquired for $14.3
million, subject to the assumption of a $7.8 million mortgage. The Kentlands
Square shopping center is contained within the 352 acre Kentlands development,
home to approximately 5,000 residents living in 1,500 units. The Kentlands
community features a mix of upscale and colonial design townhouses, apartments,
cottages and larger single family residences set along pedestrian friendly tree
lined streets. Kentlands' neighborhoods include amenities such as green spaces,
lakes and recreational, community and civic buildings.
Portfolio Leasing Status
At September 30, 2002, the operating portfolio consisted of 28 Shopping
Centers and 5 predominantly Office Properties, all of which are located in 7
states and the District of Columbia.
At September 30, 2002, 94.3% of the Company's 6,272,000 square feet of
space in operation was leased to tenants, as compared to 93.5% at September 30,
2001. The Shopping Center portfolio was 94.4% leased at September 30, 2002
compared to 94.9% at September 30, 2001. The Office Properties were 93.9% leased
at September 30, 2002 compared to 87.6% as of September 30, 2001. The overall
improvement in the 2002 quarter's leasing percentage compared to the prior
year's quarter resulted primarily from the lease-up of Crosstown Business Center
from 78.0% to 93.4%, and Washington Square from 58.6% to 87.3%, at September 30,
2001 and September 30, 2002, respectively.
-25-
Results of Operations
The following discussion compares the results of the Company for the
three-month periods ended September 30, 2002 and 2001, respectively. This
information should be read in conjunction with the accompanying consolidated
financial statements and the notes related thereto. These financial statements
include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Revenues for the three-month period ended September 30, 2002 (the "2002
Quarter") totaled $23,471,000 compared to $21,533,000 for the comparable quarter
in 2001 (the "2001 Quarter"), an increase of $1,938,000 (9.0%).
Base rent income was $19,184,000 for the 2002 Quarter compared to
$17,546,000 for the 2001 Quarter, representing an increase of $1,638,000 (9.3%).
Approximately 50% of the increase resulted from a major tenant paying higher
rent under the terms of a short-term lease extension at 601 Pennsylvania Avenue.
Approximately 33% of the increase in base rent resulted from new leases in
effect at recently developed and redeveloped properties: Washington Square,
Ashburn Village III & IV, Crosstown Business Center and French Market. The
balance of the base rent increase resulted from releasing property space in the
remaining Current Portfolio Properties, at rental rates higher than expiring
rents.
Expense recoveries were $3,207,000 for the 2002 Quarter compared to
$2,881,000 for the comparable 2001 Quarter, representing an increase of $326,000
(11.3%). Of the increase in expense recovery income, approximately 40% resulted
from the commencement of operations at the recently developed and redeveloped
properties, while the balance of the increase in expense recoveries resulted
from improved occupancy and increases in recoverable property tax expense.
Percentage rent was $446,000 in the 2002 Quarter compared to $557,000
in the 2001 Quarter, a decrease of $111,000 (19.9%). The percentage rent
decrease occurred primarily at Lexington Mall where the Company is positioning
the mall for redevelopment and French Market where a restaurant tenant reported
lower sales revenue compared to the previous year's quarter. A grocery tenant
reported better than expected sales in the prior year's quarter at Thruway
shopping center, contributing to the comparative decrease in the 2002 Quarter's
percentage rent.
Other income, which consists primarily of parking income at three of
the Office Properties, kiosk leasing, temporary leases and payments associated
with early termination of leases, was $634,000 in the 2002 Quarter, compared to
$549,000 in the 2001 Quarter, representing an increase of $85,000 (15.5%). The
increase in other income resulted in large part from a $74,000 increase in
parking income due primarily to the lease-up of office space at Washington
Square and to a lesser extent, increased parking revenue at 601 Pennsylvania
Avenue .
-26-
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, increased
$310,000 (14.5%) to $2,441,000 in the 2002 Quarter from $2,131,000 in the 2001
Quarter. Approximately half of the property operating expense increase resulted
from the commencement of operations at Washington Square.
The provision for credit losses decreased $9,000 (6.4%) to $131,000 in
the 2002 Quarter from $140,000 in the 2001 Quarter.
Real estate taxes increased $203,000 (11.6%) to $1,947,000 in the 2002
Quarter from $1,744,000 in the 2001 Quarter. Thirty percent of the increase in
real estate tax expense in the 2002 Quarter resulted from the commencement of
operations at Washington Square, while another 30% resulted from increased taxes
at the Company's two Washington, DC office properties. Twenty percent of the tax
increase was due to higher tax expense at Thruway shopping center.
Interest expense increased $132,000 (2.1%) to $6,335,000 for the 2002
Quarter from $6,203,000 reported for the 2001 Quarter. The change resulted from
increased interest paid on permanent fixed rate financing for recently developed
and redeveloped properties, offset by interest expense savings from lower
interest rates on the Company's variable rate debt.
Amortization of deferred debt expense increased $38,000 (26.8%) to
$180,000 for the 2002 Quarter compared to $142,000 for the 2001 Quarter. The
increase resulted from the amortization of additional loan costs associated with
extending the maturity of the Washington Square construction loan to January
2003 and costs associated with refinancing the Company's unsecured line of
credit during the third quarter of 2002.
Depreciation and amortization expense increased $1,698,000 (43.8%) from
$3,880,000 in the 2001 Quarter to $5,578,000 in the 2002 Quarter. Approximately
75% of the change or $1,311,000, resulted from assets retired based upon a
comprehensive review of real estate asset records and the Company's revision of
the assets' estimated useful lives. The balance of the change reflects increased
depreciation expense on developments and acquisitions placed in service during
the past twelve months.
General and administrative expense, which consists of payroll,
administrative and other overhead expenses, was $1,356,000 for the 2002 Quarter,
an increase of $352,000 (35.1%) over the 2001 Quarter. Forty percent of the
expense increase in 2002 compared to 2001 resulted from increased corporate
office rent, 15% resulted from the write-off of abandoned property acquisition
costs, 15% resulted from increased payroll and 10% of the increase resulted from
increased data processing expenses.
-27-
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Revenues for the nine-month period ended September 30, 2002 (the "2002
Period") totaled $69,455,000 compared to $63,688,000 for the comparable period
in 2001 (the "2001 Period"), an increase of $5,767,000 (9.1%).
Base rent income was $56,532,000 for the 2002 Period compared to
$52,301,000 for the 2001 Period, representing an increase of $4,231,000 (8.1%).
Approximately 40% of the increase in base rent resulted from new leases in
effect at recently developed and redeveloped properties: Washington Square,
Ashburn Village III & IV, Crosstown Business Center and French Market.
Approximately 30% of the increase resulted from a major tenant paying higher
rent under the terms of a short-term lease extension at 601 Pennsylvania Avenue.
The balance of the base rent increase resulted from releasing property space in
the remaining Current Portfolio Properties at rental rates higher than expiring
rents.
Expense recoveries were $9,317,000 for the 2002 Period compared to
$8,392,000 for the comparable 2001 Period, representing an increase of $925,000
(11.0%). Of the increase in expense recovery income, 45% resulted from the
commencement of operations at the newly developed and redeveloped properties,
while the balance of the increase in expense recoveries resulted from improved
occupancy and increases in recoverable property tax expense.
Percentage rent was $1,220,000 in the 2002 Period, compared to
$1,410,000 in the 2001 Period, a decrease of $190,000 (13.5%). Approximately 40%
of the percentage rent decrease occurred at Lexington Mall where the Company is
positioning the mall for redevelopment and approximately 20% of the decrease
occurred at French Market where a restaurant tenant reported lower sales revenue
compared to the previous year.
Other income, which consists primarily of parking income at three of
the Office Properties, kiosk leasing, temporary leases and payments associated
with early termination of leases, was $2,386,000 in the 2002 Period, compared to
$1,585,000 in the 2001 Period, representing an increase of $801,000 (50.5%). The
increase in other income resulted primarily from a $655,000 increase in lease
termination payments compared to the prior year, approximately half of which was
recognized at Washington Square, and a $143,000 increase in parking income due
to the lease-up of office space at Washington Square.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, increased
$808,000 (12.7%) to $7,165,000 in the 2002 Period from $6,357,000 in the 2001
Period. Approximately 60% of the property operating expense increase resulted
from the commencement of operations at Washington Square.
The provision for credit losses decreased $19,000 (4.5%) to $402,000 in
the 2002 Period from $421,000 in the 2001 Period.
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Real estate taxes increased $617,000 (11.6%) to $5,917,000 in the 2002
Period from $5,300,000 in the 2001 Period. Thirty-three percent of the increase
in real estate tax expense in the 2002 Period resulted from the commencement of
operations at Washington Square, twenty percent resulted from increased taxes at
Thruway shopping center, while approximately 35% resulted from increased taxes
at the Company's two Washington, DC office properties.
Interest expense increased $7,000 (0.0%) to $18,757,000 for the 2002
Period from $18,750,000 reported for the 2001 Period. The minor variance
resulted from the net of increased interest paid on permanent fixed rate
financing for recently developed and redeveloped properties, offset by interest
expense savings from lower interest rates on the Company's variable rate debt.
Amortization of deferred debt expense increased $89,000 (21.4%) to
$504,000 for the 2002 Period compared to $415,000 for the 2001 Period. The
increase resulted from the amortization of additional loan costs associated with
extending the maturity of the Washington Square construction loan to January
2003 and costs associated with refinancing the Company's unsecured line of
credit during the third quarter of 2002.
Depreciation and amortization expense increased $2,710,000 (24.3%) from
$11,172,000 in the 2001 Period to $13,882,000 in the 2002 Period. Approximately
half of the change or $1,311,000, resulted from assets retired based upon a
comprehensive review of real estate asset records and the Company's revision of
the assets' estimated useful lives. The balance of the change reflects increased
depreciation expense on developments and acquisitions placed in service during
the past twelve months.
General and administrative expense, which consists of payroll,
administrative and other overhead expenses, was $3,900,000 for the 2002 Period,
an increase of $891,000 (29.6%) over the 2001 Period. Forty percent of the
expense increase in 2002 compared to 2001 resulted from increased corporate
office rent, 15% resulted from the write-off of abandoned property acquisition
costs, 15% resulted from increased payroll and 10% of the increase resulted from
increased legal expense.
The Company recognized a gain on the sale of real estate of $1,426,000
in the 2002 Period. There were no property sale gains reported in 2001. In 1999,
the District of Columbia condemned and purchased the Company's Park Road
property as part of an assemblage of parcels for a neighborhood revitalization
project. The Company disputed the original purchase price awarded by the
District. The gain represents additional net proceeds the Company was awarded
upon settlement of the dispute.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results of
operations. The Company does not enter into financial instruments for trading
purposes.
The Company is exposed to interest rate fluctuations primarily as a
result of its variable rate debt used to finance the Company's development and
acquisition activities and for general corporate purposes. As of September 30,
2002, the Company had variable rate indebtedness totaling $80,842,000. Interest
rate fluctuations will affect the Company's annual interest expense on its
variable rate debt. If the interest rate on the Company's variable rate debt
outstanding at September 30, 2002 had been one percent higher, its annual
interest expense relating to these debt instruments would have increased by
$808,000. Interest rate fluctuations will also affect the fair value of the
Company's fixed rate debt instruments. As of September 30, 2002, the Company had
fixed rate indebtedness totaling $296,427,000. If interest rates on the
Company's fixed rate debt instruments at September 30, 2002 had been one percent
higher, the fair value of those debt instruments on that date would have
decreased by approximately $18,000,000.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chairman and Chief
Executive Officer and its Senior Vice President, Chief Financial Officer,
Secretary and Treasurer, as appropriate, to allow timely decisions regarding
required disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-14(c) promulgated under the Exchange Act. In designing
and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including its Chairman and Chief Executive Officer and its
Senior Vice President, Chief Financial Officer, Secretary and Treasurer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the foregoing, the Company's Chairman and Chief
Executive Officer and its Senior Vice President, Chief Financial Officer,
Secretary and Treasurer concluded that the Company's disclosure controls and
procedures were effective.
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There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date the Company completed its evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
3. (a) First Amended and Restated Articles of Incorporation
of Saul Centers, Inc. filed with the Maryland
Department of Assessments and Taxation on August 23,
1993 and filed as Exhibit 3.(a) of the 1993 Annual
Report of the Company on Form 10-K are hereby
incorporated by reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as
in effect at and after August 24, 1993 and as of
August 26, 1993 and filed as Exhibit 3.(b) of the
1993 Annual Report of the Company on Form 10-K are
hereby incorporated by reference. The First Amendment
to the First Amended and Restated Agreement of
Limited Partnership of Saul Subsidiary I Limited
Partnership, the Second Amendment to the First
Amended and Restated Agreement of Limited Partnership
of Saul Subsidiary I Limited Partnership, the Third
Amendment to the First Amended and Restated Agreement
of Limited Partnership of Saul Subsidiary I Limited
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Partnership and the Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership
of Saul Subsidiary I Limited Partnership as filed as
Exhibit 3.(b) of the 1997 Annual Report of the
Company on Form 10-K are hereby incorporated by
reference.
10. (a) First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership
filed as Exhibit No. 10.1 to Registration Statement
No. 33-64562 is hereby incorporated by reference. The
First Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings
Limited Partnership, the Second Amendment to the
First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership, and
the Third Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 10.(a) of the
1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference. The Fourth
Amendment to the First Amended and Restated Agreement
of Limited Partnership of Saul Holdings Limited
Partnership filed as Exhibit 10.(a) of the March 31,
1997 Quarterly Report of the Company is hereby
incorporated by reference. The Fifth Amendment to the
First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership
filed as Exhibit 4.(c) to Registration Statement No.
333-41436 is hereby incorporated by reference.
(b) First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership
and Amendment No. 1 thereto filed as Exhibit 10.2 to
Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to
the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership,
the Third Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership and the Fourth Amendment to the
First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership
as filed as Exhibit 10.(b) of the 1997 Annual Report
of the Company on Form 10-K are hereby incorporated
by reference.
(c) First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary II Limited Partnership
and Amendment No. 1 thereto filed as Exhibit 10.3 to
Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to
the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary II Limited Partnership
filed as Exhibit 10.(c) of the June 30, 2001
Quarterly Report of the Company is hereby
incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4
to Registration Statement No. 33-64562 is hereby
incorporated by reference.
(e) Management Functions Conveyance Agreement filed as
Exhibit 10.5 to
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Registration Statement No. 33-64562 is hereby
incorporated by reference.
(f) Registration Rights and Lock-Up Agreement filed as
Exhibit 10.6 to Registration Statement No. 33-64562
is hereby incorporated by reference.
(g) Exclusivity and Right of First Refusal Agreement
filed as Exhibit 10.7 to Registration Statement No.
33-64562 is hereby incorporated by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as
Exhibit 10.8 to Registration Statement No. 33-64562
is hereby incorporated by reference.
(i) Agreement of Assumption dated as of August 26, 1993
executed by Saul Holdings Limited Partnership and
filed as Exhibit 10.(i) of the 1993 Annual Report of
the Company on Form 10-K is hereby incorporated by
reference.
(j) Deferred Compensation Plan for Directors dated as of
December 13, 1993 as filed as Exhibit 10.(r) of the
1995 Annual Report of the Company on Form 10-K, as
amended and restated by the Deferred Compensation and
Stock Plan for Directors, dated as of March 18, 1999,
filed as Exhibit 10.(k) of the March 31, 1999
Quarterly Report of the Company on Form 10-Q, as
amended and restated by the Deferred Compensation and
Stock Plan for Directors dated as of April 27, 2001
filed as Exhibit 99 to the Registration Statement No.
333-59962, is hereby incorporated by reference.
(k) Loan Agreement dated as of November 7, 1996 by and
among Saul Holdings Limited Partnership, Saul
Subsidiary II Limited Partnership and PFL Life
Insurance Company, c/o AEGON USA Realty Advisors,
Inc., filed as Exhibit 10.(t) of the March 31, 1997
Quarterly Report of the Company, is hereby
incorporated by reference.
(l) Promissory Note dated as of January 10, 1997 by and
between Saul Subsidiary II Limited Partnership and
The Northwestern Mutual Life Insurance Company, filed
as Exhibit 10.(z) of the March 31, 1997 Quarterly
Report of the Company, is hereby incorporated by
reference.
(m) Loan Agreement dated as of October 1, 1997 between
Saul Subsidiary I Limited Partnership as Borrower and
Nomura Asset Capital Corporation as Lender filed as
Exhibit 10.(p) of the 1997 Annual Report of the
Company on Form 10-K is hereby incorporated by
reference.
(n) Revolving Credit Agreement dated as of August 30,
2002 by and between Saul Holdings Limited Partnership
as Borrower; U.S. Bank National Association, as
administrative agent and sole lead arranger; Wells
Fargo Bank, National Association, as syndication
agent, and U.S. Bank National Association, Wells
Fargo Bank, National Association, Comerica Bank,
-33-
Southtrust Bank, KeyBank National Association as
Lenders is filed herewith.
(o) Promissory Note dated as of November 30, 1999 by and
between Saul Holdings Limited Partnership as Borrower
and Wells Fargo Bank National Association as Lender
filed as Exhibit 10.(r) of the 1999 Annual Report of
the Company on Form 10-K is hereby incorporated by
reference.
(p) Guaranty dated as of August 30, 2002 by and between
Saul Centers, Inc. as Guarantor and U.S. Bank
National Association, as administrative agent and
sole lead arranger for itself and other financial
institutions, the Lenders, is filed herewith.
99. Schedule of Portfolio Properties
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAUL CENTERS, INC.
(Registrant)
Date: November 14, 2002 /s/ Philip D. Caraci
----------------------------------------------
Philip D. Caraci, President
Date: November 14, 2002 /s/ Scott V. Schneider
----------------------------------------------
Scott V. Schneider
Senior Vice President, Chief Financial Officer
-35-
CERTIFICATIONS
I, B. Francis Saul II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Saul Centers,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
-36-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ B. Francis Saul II
- ------------------------------------
B. Francis Saul II
Chairman and Chief Executive Officer
-37-
CERTIFICATIONS
I, Scott V. Schneider, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Saul Centers,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
d) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
-38-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Scott V. Schneider
- -----------------------------
Scott V. Schneider
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
-39-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, B. Francis Saul II, the Chairman and Chief Executive Officer of
Saul Centers, Inc. (the "Company"), has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q for the period ending September 30, 2002
(the "Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: November 14, 2002 /s/ B. Francis Saul II
----------------- -----------------------------------------
Name: B. Francis Saul II
Title: Chairman & Chief Executive Officer
-40-
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Scott V. Schneider, the Chief Financial Officer of Saul
Centers, Inc. (the "Company"), has executed this certification in connection
with the filing with the Securities and Exchange Commission of the Company's
Quarterly Report on Form 10-Q for the period ending September 30, 2002 (the
"Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: November 14, 2002 /s/ Scott V. Schneider
----------------- ------------------------------------
Name: Scott V. Schneider
Title: Senior Vice President,
Chief Financial Officer, Secretary &
Treasurer
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