Saul Centers, Inc. Reports Second Quarter 2017 Earnings

PR Newswire

BETHESDA, Md., Aug. 3, 2017

BETHESDA, Md., Aug. 3, 2017 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2017 ("2017 Quarter"). Total revenue for the 2017 Quarter increased to $55.9 million from $52.7 million for the quarter ended June 30, 2016 ("2016 Quarter"). Operating income, which is net income before the impact of change in fair value of derivatives, loss on early extinguishment of debt and gains on sales of property and casualty settlements, if any, increased to $14.4 million for the 2017 Quarter from $13.3 million for the 2016 Quarter.

The Park Van Ness mixed-use development opened in May 2016, and, as of June 30, 2017, 260 apartments were leased (95.9%). Concurrent with the opening in 2016, interest, real estate taxes and all other costs associated with the property, including depreciation, began to be charged to expense, while revenue continues to grow as occupancy increases. As a result, net income for the 2017 Quarter was adversely impacted by $0.5 million.

Net income attributable to common stockholders increased to $8.4 million ($0.38 per diluted share) for the 2017 Quarter compared to $7.5 million ($0.35 per diluted share) for the 2016 Quarter.

Same property revenue increased $0.4 million (0.9%), while same property operating income was unchanged for the 2017 Quarter compared to the 2016 Quarter. We define same property revenue as total revenue minus the sum of interest income and revenue of properties not in operation for the entirety of the comparable reporting periods. We define same property operating income as net income plus the sum of interest expense and amortization of deferred debt costs, depreciation and amortization, general and administrative expense, loss on the early extinguishment of debt (if any), predevelopment expense and acquisition related costs, minus the sum of interest income, the change in the fair value of derivatives, gains on property dispositions (if any) and the results of properties which were not in operation for the entirety of the comparable periods. Shopping Center same property operating income for the 2017 Quarter totaled $31.1 million, a $0.6 million increase from the 2016 Quarter. Mixed-Use same property operating income totaled $9.0 million, a $0.6 million decrease from the 2016 Quarter. The decrease in Mixed-Use same property operating income was due primarily to (a) lower termination fees ($0.3 million) and (b) lower parking revenue ($0.2 million).

As of June 30, 2017, 94.3% of the commercial portfolio was leased (not including the apartments at Clarendon Center and Park Van Ness), compared to 94.9% at June 30, 2016. On a same property basis, 94.2% of the commercial portfolio was leased as of June 30, 2017, compared to 95.5% at June 30, 2016. The apartments at Clarendon Center were 97.5% leased as of June 30, 2017, compared to 97.1% as of June 30, 2016. The apartments at Park Van Ness were 95.9% leased as of June 30, 2017, compared to 34.7% at June 30, 2016.

For the six months ended June 30, 2017 ("2017 Period"), total revenue increased to $114.4 million from $109.6 million for the six months ended June 30, 2016 ("2016 Period"). Operating income increased to $31.8 million for the 2017 Period from $29.6 million for the 2016 Period. The increase in operating income was primarily due to (a) higher property operating income ($4.7 million) partially offset by (b) higher depreciation and amortization of deferred leasing costs ($1.2 million), (c) higher interest expense and amortization of deferred debt costs ($1.0 million), and (d) higher general and administrative expenses ($0.3 million).

Net income attributable to common stockholders increased to $19.0 million ($0.87 per diluted share) for the 2017 Period compared to $17.4 million ($0.81 per diluted share) for the 2016 Period. The increase in net income attributable to common stockholders was primarily due to (a) higher property operating income ($4.7 million) partially offset by (b) depreciation and amortization of deferred leasing costs ($1.2 million), (c) higher interest expense and amortization of deferred debt costs ($1.0 million), (d) higher income attributable to noncontrolling interests ($0.5 million), and (e) higher general and administrative expenses ($0.3 million).

Same property revenue decreased 0.2% and same property operating income increased 1.0% for the 2017 Period, compared to the 2016 Period. Shopping Center same property operating income increased 2.3% and mixed-use same property operating income decreased 3.3%. Shopping Center same property operating income increased primarily due to (a) other revenue ($0.7 million), (b) a reduction in property operating expenses, net of recoveries ($0.4 million), and (c) higher base rent ($0.3 million). Mixed-Use same property operating income decreased primarily due to (a) lower termination fees ($0.3 million) and (b) lower parking revenue ($0.1 million).

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $23.0 million ($0.78 per diluted share) in the 2017 Quarter compared to $21.0 million ($0.73 per diluted share) in the 2016 Quarter. FFO for the 2017 Quarter increased primarily due to (a) Park Van Ness ($1.0 million), (b) lower interest expense exclusive of interest expense related to Park Van Ness and Burtonsville Town Square ($0.8 million), and (c) Burtonsville Town Square, which was acquired in January 2017 ($0.5 million). FFO, a widely accepted non-GAAP financial measure of operating performance for REITs, is defined as net income plus real estate depreciation and amortization, and excluding gains and losses from property dispositions, impairment charges on depreciable real estate assets and extraordinary items.

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) increased 7.4% to $48.6 million ($1.66 per diluted share) in the 2017 Period from $45.3 million ($1.57 per diluted share) in the 2016 Period. FFO available to common stockholders and noncontrolling interests increased primarily due to (a) Burtonsville Town Square ($0.9 million), (b) Park Van Ness ($0.8 million) and (c) lower interest expense exclusive of interest expense related to Park Van Ness and Burtonsville Town Square ($1.8 million).

Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 59 properties which includes (a) 50 community and neighborhood shopping centers and six mixed-use properties with approximately 9.5 million square feet of leasable area and (b) three land and development properties. Approximately 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

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

	June 30, 2017		December 31, 2016
	*(Unaudited)*
Assets
Real estate investments
Land	$	454,041	$	422,546
Buildings and equipment	1,266,394		1,214,697
Construction in progress	72,791		63,570
	1,793,226		1,700,813
Accumulated depreciation	(477,565)		(458,279)
	1,315,661		1,242,534
Cash and cash equivalents	12,395		8,322
Accounts receivable and accrued income, net	51,198		53,033
Deferred leasing costs, net	28,143		25,983
Prepaid expenses, net	1,724		5,057
Other assets	11,757		8,096
Total assets	$	1,420,878	$	1,343,025

Liabilities
Notes payable	$	810,108	$	783,400
Revolving credit facility payable	83,478		48,217
Construction loan payable	70,077		68,672
Dividends and distributions payable	18,081		17,953
Accounts payable, accrued expenses and other liabilities	25,052		20,838
Deferred income	29,621		30,696
Total liabilities	1,036,417		969,776

Stockholders' equity
Preferred stock	180,000		180,000
Common stock	219		217
Additional paid-in capital	338,495		328,171
Accumulated deficit and other comprehensive loss	(192,889)		(189,883)
Total Saul Centers, Inc. stockholders' equity	325,825		318,505
Noncontrolling interests	58,636		54,744
Total stockholders' equity	384,461		373,249
Total liabilities and stockholders' equity	$	1,420,878	$	1,343,025

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Revenue	(unaudited)				(unaudited)
Base rent	$	45,575	$	42,580	$	90,051	$	85,187
Expense recoveries	8,337		7,892		16,931		17,450
Percentage rent	519		596		901		959
Other	1,476		1,642		6,490		6,040
Total revenue	55,907		52,710		114,373		109,636
Operating expenses
Property operating expenses	6,473		6,060		13,125		14,055
Provision for credit losses	207		384		550		816
Real estate taxes	6,700		6,137		13,290		12,071
Interest expense and amortization of deferred debt costs	11,900		11,655		23,764		22,744
Depreciation and amortization of deferred leasing costs	11,691		10,817		23,033		21,852
General and administrative	4,514		4,407		8,815		8,467
Total operating expenses	41,485		39,460		82,577		80,005
Operating income	14,422		13,250		31,796		29,631
Change in fair value of derivatives	(1)		(3)		(1)		(10)
Net income	14,421		13,247		31,795		29,621
Income attributable to noncontrolling interests	(2,911)		(2,620)		(6,581)		(6,046)
Net income attributable to Saul Centers, Inc.	11,510		10,627		25,214		23,575
Preferred stock dividends	(3,094)		(3,094)		(6,188)		(6,188)
Net income attributable to common stockholders	$	8,416	$	7,533	$	19,026	$	17,387
Per share net income attributable to common stockholders
Basic and diluted	$	0.38	$	0.35	$	0.87	$	0.81

Weighted Average Common Stock:
Common stock	21,846		21,443		21,796		21,374
Effect of dilutive options	81		73		114		52
Diluted weighted average common stock	21,927		21,516		21,910		21,426

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

		Three Months Ended June 30,				Six Months Ended June 30,
	(In thousands, except per share amounts)	2017		2016		2017		2016
		(unaudited)				(unaudited)
	Net income	$	14,421	$	13,247	$	31,795	$	29,621
	Add:
	Real estate depreciation and amortization	11,691		10,817		23,033		21,852
	FFO	26,112		24,064		54,828		51,473
	Subtract:
	Preferred stock dividends	(3,094)		(3,094)		(6,188)		(6,188)
	FFO available to common stockholders and noncontrolling interests	$	23,018	$	20,970	$	48,640	$	45,285
	Weighted average shares:
	Diluted weighted average common stock	21,927		21,516		21,910		21,426
	Convertible limited partnership units	7,497		7,361		7,476		7,345
	Average shares and units used to compute FFO per share	29,424		28,877		29,386		28,771
	FFO per share available to common stockholders and noncontrolling interests	$	0.78	$	0.73	$	1.66	$	1.57

(1)

The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding extraordinary items, impairment charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company's Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what the Company believes occurs with its assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.

Reconciliation of revenue to same property revenue

(in thousands)	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Total revenue	$	55,907	$	52,710	$	114,373	$	109,636
Less: Interest income	(10)		(12)		(23)		(25)
Less: Acquisitions, dispositions and development properties	(3,288)		(537)		(5,989)		(1,020)
Total same property revenue	$	52,609	$	52,161	$	108,361	$	108,591
Shopping Centers	$	39,353	$	38,495	$	81,833	$	81,690
Mixed-Use properties	13,256		13,666		26,528		26,901
Total same property revenue	$	52,609	$	52,161	$	108,361	$	108,591

Reconciliation of net income to same property operating income

		Three Months Ended June 30,				Six Months Ended June 30,
	(In thousands)	2017		2016		2017		2016
		(unaudited)				(unaudited)
	Net income	$	14,421	$	13,247	$	31,795	$	29,621
	Add: Interest expense and amortization of deferred debt costs	11,900		11,655		23,764		22,744
	Add: Depreciation and amortization of deferred leasing costs	11,691		10,817		23,033		21,852
	Add: General and administrative	4,514		4,407		8,815		8,467
	Add: Change in fair value of derivatives	1		3		1		10
	Less: Interest income	(10)		(12)		(23)		(25)
	Property operating income	42,517		40,117		87,385		82,669
	Less: Acquisitions, dispositions and development property	2,382		7		4,178		301
	Total same property operating income	$	40,135	$	40,110	$	83,207	$	82,368

	Shopping Centers	$	31,138	$	30,509	$	65,042	$	63,584
	Mixed-Use properties	8,997		9,601		18,165		18,784
	Total same property operating income	$	40,135	$	40,110	$	83,207	$	82,368

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Saul Centers, Inc. Reports Second Quarter 2017 Earnings

Saul Centers, Inc. Reports Second Quarter 2017 Earnings