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 March 31, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
7501 Wisconsin Avenue, Bethesda, Maryland 20814
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code (301) 986-6200
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x No ¨
Number of shares of common stock, par value $0.01 per share outstanding as of May 10, 2004: 16,135,000
SAUL CENTERS, INC.
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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, 2003, 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.
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (Dollars in thousands) |
March 31, 2004 |
December 31, 2003 |
||||||
| Assets |
||||||||
| Real estate investments |
||||||||
| Land |
$ | 99,411 | $ | 82,256 | ||||
| Buildings and equipment |
479,843 | 436,487 | ||||||
| Construction in progress |
38,461 | 33,372 | ||||||
| 617,715 | 552,115 | |||||||
| Accumulated depreciation |
(168,705 | ) | (164,823 | ) | ||||
| 449,010 | 387,292 | |||||||
| Cash and cash equivalents |
6,100 | 45,244 | ||||||
| Accounts receivable and accrued income, net |
15,570 | 14,642 | ||||||
| Prepaid expenses, net |
21,031 | 18,977 | ||||||
| Deferred debt costs, net |
4,498 | 4,224 | ||||||
| Other assets |
3,350 | 1,237 | ||||||
| Total assets |
$ | 499,559 | $ | 471,616 | ||||
| Liabilities |
||||||||
| Notes payable |
$ | 379,269 | $ | 357,248 | ||||
| Dividends and distributions payable |
10,260 | 9,454 | ||||||
| Accounts payable, accrued expenses and other liabilities |
11,221 | 7,793 | ||||||
| Deferred income |
4,579 | 4,478 | ||||||
| Total liabilities |
405,329 | 378,973 | ||||||
| Stockholders’ equity |
||||||||
| Series A Cumulative Redeemable Preferred stock, par value $0.01 per share, 1,000,000 shares authorized and 40,000 shares issued and outstanding |
100,000 | 100,000 | ||||||
| Common stock, $0.01 par value, 30,000,000 shares authorized, 15,989,468 and 15,861,234 shares issued and outstanding, respectively |
160 | 159 | ||||||
| Additional paid-in capital |
94,986 | 91,469 | ||||||
| Accumulated deficit |
(100,916 | ) | (98,985 | ) | ||||
| Total stockholders’ equity |
94,230 | 92,643 | ||||||
| Total liabilities and stockholders’ equity |
$ | 499,559 | $ | 471,616 | ||||
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| (Dollars in thousands, |
For The Three Months Ended March 31, |
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| 2004 |
2003 |
|||||||
| Revenue |
||||||||
| Base rent |
$ | 21,276 | $ | 19,051 | ||||
| Expense recoveries |
3,894 | 3,805 | ||||||
| Percentage rent |
444 | 449 | ||||||
| Other |
727 | 565 | ||||||
| Total revenue |
26,341 | 23,870 | ||||||
| Operating expenses |
||||||||
| Property operating expenses |
2,892 | 3,029 | ||||||
| Provision for credit losses |
69 | 36 | ||||||
| Real estate taxes |
2,391 | 2,131 | ||||||
| Interest expense |
6,049 | 6,494 | ||||||
| Amortization of deferred debt expense |
217 | 198 | ||||||
| Depreciation and amortization |
4,638 | 4,042 | ||||||
| General and administrative |
1,756 | 1,401 | ||||||
| Total operating expenses |
18,012 | 17,331 | ||||||
| Net Operating income before minority interests |
8,329 | 6,539 | ||||||
| Minority interests |
||||||||
| Minority share of income |
(1,557 | ) | (1,648 | ) | ||||
| Distributions in excess of earnings |
(467 | ) | (372 | ) | ||||
| Total minority interests |
(2,024 | ) | (2,020 | ) | ||||
| Net income |
6,305 | 4,519 | ||||||
| Preferred dividends |
(2,000 | ) | — | |||||
| Net income available to common shareholders |
$ | 4,305 | $ | 4,519 | ||||
| Per share (basic and dilutive) |
||||||||
| Net income |
$ | 0.27 | $ | 0.29 | ||||
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| (Dollars in thousands, |
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
||||||||||||
| Stockholders’ equity : |
|||||||||||||||||
| Balance, December 31, 2003 |
100,000 | 159 | 91,469 | (98,985 | ) | 92,643 | |||||||||||
| Issuance of 128,235 shares of common stock: |
|||||||||||||||||
| 123,689 shares due to dividend reinvestment plan |
— | 1 | 3,391 | — | 3,392 | ||||||||||||
| 4,546 shares due to directors deferred stock plan |
— | — | 126 | — | 126 | ||||||||||||
| Net income |
— | — | — | 6,305 | 6,305 | ||||||||||||
| Distributions payable preferred stock ($.31 per share) |
— | — | — | (2,000 | ) | (2,000 | ) | ||||||||||
| Distributions payable common stock ($.39 per share) |
— | — | — | (6,236 | ) | (6,236 | ) | ||||||||||
| Balance, March 31, 2004 |
$ | 100,000 | $ | 160 | $ | 94,986 | $ | (100,916 | ) | $ | 94,230 | ||||||
The accompanying notes are an integral part of these statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For The Three Months Ended March 31, |
||||||||
| (Dollars in thousands) |
2004 |
2003 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 6,305 | $ | 4,519 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Minority interests |
2,024 | 2,020 | ||||||
| Depreciation and amortization |
4,855 | 4,240 | ||||||
| Provision for credit losses |
69 | 36 | ||||||
| Increase (Decrease) in accounts receivable |
(997 | ) | 361 | |||||
| Increase in prepaid expenses |
(2,810 | ) | (232 | ) | ||||
| Increase in other assets |
(2,113 | ) | (1,851 | ) | ||||
| Increase in accounts payable, accrued expenses and other liabilities |
3,428 | 1,477 | ||||||
| Increase (decrease) in deferred income |
101 | (500 | ) | |||||
| Net cash provided by operating activities |
10,862 | 10,070 | ||||||
| Cash flows from investing activities: |
||||||||
| Proceeds from sale of property |
— | 1,426 | ||||||
| Acquisitions of real estate investments, net* |
(41,637 | ) | — | |||||
| Additions to real estate investments |
(849 | ) | (3,475 | ) | ||||
| Additions to construction in progress |
(5,089 | ) | (2,693 | ) | ||||
| Net cash used in investing activities |
(47,575 | ) | (4,742 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from notes payable |
13,200 | 50,677 | ||||||
| Repayments on notes payable |
(9,204 | ) | (51,554 | ) | ||||
| Additions to deferred debt expense |
(491 | ) | (540 | ) | ||||
| Proceeds from the issuance of common stock and convertible limited partnership units in the Operating Partnership |
3,518 | 4,697 | ||||||
| Distributions to preferred stockholders |
(1,244 | ) | — | |||||
| Distributions to common stockholders and holders of convertible limited partnership units in the Operating Partnership |
(8,210 | ) | (7,955 | ) | ||||
| Net cash provided by (used by) financing activities |
(2,431 | ) | (4,675 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
(39,144 | ) | 653 | |||||
| Cash and cash equivalents, beginning of period |
45,244 | 1,309 | ||||||
| Cash and cash equivalents, end of period |
$ | 6,100 | $ | 1,962 | ||||
* Supplemental discussion of non-cash investing and financing activities:
On February 13, 2004 the Company purchased Boca Valley Plaza for total acquisition costs of $17,865,000 and assumed a mortgage in the amount of $9,200,000 with the balance being paid in cash. On March 25, 2004 the Company purchased Cruse MarketPlace for total acquisition costs of $12,768,000 and assumed a mortgage of $8,825,000 with the balance being paid in cash. The $41,637,000 shown as 2004 real estate acquisitions does not include the $18,025,000 in total assumed mortgages for the properties acquired as the assumption of these mortgages was a non-cash acquisition cost.
The accompanying notes are an integral part of these statements.
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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, each of which is controlled by B. Francis Saul II and his family members (collectively, “The Saul Organization”). On August 26, 1993, members of The Saul Organization transferred to Saul Holdings Limited Partnership, a newly formed Maryland limit