SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ________________ 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) 8401 Connecticut Avenue Chevy Chase, Maryland 20815 - --------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (301) 986-6200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - --------------------------------- ----------------------------------------- Common Stock, Par Value New York Stock Exchange_____ $0.01 Per Share Securities registered pursuant to Section 12(g) of the Act: N/A Indicate by check mark whether 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 requirements for the past 90 days. Yes X No ____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- The number of shares of Common Stock, $0.01 par value, outstanding as of February 23, 2001 was 13,997,301.
TABLE OF CONTENTS ----------------- <TABLE> <CAPTION> PART I Page Numbers ------------ <S> <C> Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 12 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 22 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22 PART III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 23 Item 12. Security Ownership of Certain Beneficial Owners and Management 23 Item 13. Certain Relationships and Related Transactions 23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 24 FINANCIAL STATEMENT SCHEDULE Schedule III. Real Estate and Accumulated Depreciation F-18 </TABLE> 2
PART I Item 1. Business General - ------- 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 95% (90% for tax years beginning on or after January 1, 2001) 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. The Company's principal business activity is the ownership, management and development of income-producing properties. The Company's long-term objectives are to increase cash flow from operations and to maximize capital appreciation of its real estate. 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") 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 Washington Square at Old Town, a 235,000 square foot Class A mixed-use office/retail complex, on the 2-acre site of the former North Washington shopping center property, and Ashburn Village III & IV, an in-line retail and retail pad expansion to the Company's Ashburn Village I & II shopping center. The Company is also redeveloping an under-performing shopping center to an office/business park. As of December 31, 2000, the Company's properties (the "Current Portfolio Properties") consisted of 27 operating shopping center properties and Ashburn Village III & IV (the "Shopping Centers"), 4 predominantly office operating properties and Washington Square at Old Town (the "Office Properties"). To facilitate the placement of collateralized mortgage debt, the Company established Saul QRS, Inc. and SC Finance Corporation, each of which is a wholly owned subsidiary of Saul Centers. Saul QRS, Inc. was established to succeed to the interest of Saul Centers as the sole general partner of Saul Subsidiary I Limited Partnership. Saul Centers serves as the sole general partner of the Operating Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc. serves 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. Management of the Current Portfolio Properties - ---------------------------------------------- The Partnerships manage the Current Portfolio Properties and will manage any subsequently acquired properties. The management of the properties includes performing property management, leasing, design, renovation, development and accounting duties for each property. The Partnerships provide each property with a fully integrated property management capability, with approximately 50 employees and with an extensive and mature network of relationships with tenants and potential tenants as well as with members of the brokerage and property owners' communities. The Company currently does not, and does not intend to, retain third party managers or provide management services to third parties. 3
The Company augments its property management capabilities by sharing with The Saul Organization certain ancillary functions, at cost, such as computer and payroll services, benefits administration and in-house legal services. The Company also shares insurance administration expenses on a pro rata basis with The Saul Organization. The Saul Organization subleases office space to the Company at its cost. Management believes that these arrangements result in lower costs than could be obtained by contracting with third parties. These arrangements permit the Company to capture greater economies of scale in purchasing from third party vendors than would otherwise be available to the Company alone and to capture internal economies of scale by avoiding payments representing profits with respect to functions provided internally. The terms of all sharing arrangements with The Saul Organization, including payments related thereto, are reviewed periodically by the Audit Committee of the Company's Board of Directors. Principal Offices - ----------------- The principal offices of the Company are located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, and the Company's telephone number is (301) 986-6200. The Company's internet web address is www.saulcenters.com. Operating Strategies - -------------------- The Company's primary operating strategy is to focus on its community and neighborhood shopping center business and to operate its properties to achieve both cash flow growth and capital appreciation. Community and neighborhood shopping centers typically provide reliable cash flow and steady long-term growth potential. Management intends to actively manage its property portfolio by engaging in strategic leasing activities, tenant selection, lease negotiation and shopping center expansion and reconfiguration. The Company seeks to optimize tenant mix by selecting tenants for its shopping centers that provide a broad spectrum of goods and services, consistent with the role of community and neighborhood shopping centers as the source for day-to-day necessities. Management believes that such a synergistic tenanting approach results in increased cash flow from existing tenants by providing the Shopping Centers with consistent traffic and a desirable mix of shoppers, resulting in increased sales and, therefore, increased cash flows. Management believes there is significant potential for growth in cash flow as existing leases for space in the Shopping Centers expire and are renewed, or newly available or vacant space is leased. The Company intends to renegotiate leases aggressively and seek new tenants for available space in order to maximize this potential for increased cash flow. As leases expire, management expects to revise rental rates, lease terms and conditions, relocate existing tenants, reconfigure tenant spaces and introduce new tenants to increase cash flow. In those circumstances in which leases are not otherwise expiring, management intends to attempt to increase cash flow through a variety of means, including renegotiating rents in exchange for additional renewal options or in connection with renovations or relocations, recapturing leases with below market rents and re-leasing at market rates, as well as replacing financially troubled tenants. When possible, management also will seek to include scheduled increases in base rent, as well as percentage rental provisions in its leases. The Shopping Centers contain numerous undeveloped parcels within the centers which are suitable for development as free-standing retail facilities, such as restaurants, banks or auto centers. Management will continue to seek desirable tenants for facilities to be developed on these sites and to develop and lease these sites in a manner that complements the Shopping Centers in which they are located. The Company will also seek growth opportunities in its Washington, D.C. metropolitan area office portfolio, primarily through development and redevelopment. Management also intends to negotiate lease renewals or to re- lease available space in the Office Properties, while considering the strategic balance of optimizing short-term cash flow and long-term asset value. It is management's intention to hold properties for long-term investment and to place strong emphasis on regular maintenance, periodic renovation and capital improvement. Management believes that such characteristics as cleanliness, lighting and security are particularly important in community and neighborhood shopping centers, which are frequently visited by shoppers during hours outside of the normal work day. Management believes that 4
the Shopping Centers and Office Properties generally are attractive and well maintained. The Shopping Centers and Office Properties will undergo expansion, renovation, reconfiguration and modernization from time to time when management believes that such action is warranted by opportunities or changes in the competitive environment of a property. Several of the Shopping Centers have been renovated recently. During 2000 and 1999, the Company was involved in predevelopment and/or development of 10 of its properties. The Company will continue its practice of expanding existing properties by undertaking new construction on outparcels suitable for development as free standing retail or office facilities. Redevelopment, Renovations and Acquisitions - ------------------------------------------- The Company's redevelopment, renovation and acquisition objective is to selectively and opportunistically redevelop and renovate its properties, by replacing leases with below market rents with strong, traffic-generating anchor stores such as supermarkets and drug stores, as well as other desirable local, regional and national tenants. The Company's strategy remains focused on continuing the operating performance and internal growth of its existing Shopping Centers, while enhancing this growth with selective retail redevelopments and renovations. Management believes that attractive opportunities for investment in existing and new shopping center properties will continue to be available. Management believes that the Company will be well situated to take advantage of these opportunities because of its access to capital markets, ability to acquire properties either for cash or securities (including Operating Partnership interests in tax advantaged transactions) and because of management's experience in seeking out, identifying and evaluating potential acquisitions. In addition, management believes its shopping center expertise should permit it to optimize the performance of shopping centers once they have been acquired. Management also believes that opportunities exist for investment in new office properties. It is management's view that several of the office sub- markets in which the Company operates have very attractive supply/demand characteristics. The Company will continue to evaluate new office development and redevelopment as an integral part of its overall business plan. In evaluating a particular redevelopment, renovation, acquisition, or development, management will consider a variety of factors, including (i) the location and accessibility of the property; (ii) the geographic area (with an emphasis on the Mid-Atlantic region) and demographic characteristics of the community, as well as the local real estate market, including potential for growth and potential regulatory impediments to development; (iii) the size of the property; (iv) the purchase price; (v) the non-financial terms of the proposed acquisition; (vi) the availability of funds or other consideration for the proposed acquisition and the cost thereof; (vii) the "fit" of the property with the Company's existing portfolio; (viii) the potential for, and current extent of, any environmental problems; (ix) the current and historical occupancy rates of the property or any comparable or competing properties in the same market; (x) the quality of construction and design and the current physical condition of the property; (xi) the financial and other characteristics of existing tenants and the terms of existing leases; and (xii) the potential for capital appreciation. Although it is management's present intention to concentrate future acquisition and development activities on community and neighborhood shopping centers and office properties in the Mid-Atlantic region, the Company may, in the future, also acquire other types of real estate in other regions of the country. Capital Strategies - ------------------ As a general policy, the Company intends to maintain a ratio of its 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. Asset value is the aggregate fair market value of the Current Portfolio Properties and any subsequently acquired properties as reasonably determined by management by reference to the properties' aggregate cash flow. Given the Company's current debt level, it is management's belief that the ratio of the Company's debt to total asset value as of December 31, 2000 remains less than 50%. 5
The organizational documents of the Company do not limit the absolute amount or percentage of indebtedness that it may incur. The Board of Directors may, from time to time, reevaluate the Company's debt capitalization policy in light of current economic conditions, relative costs of capital, market values of the Company property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board of Directors then deems relevant. The Board of Directors may modify the Company's debt capitalization policy based on such a reevaluation and consequently, may increase or decrease the Company's debt to total asset ratio above or below 50%. The Company selectively continues to refinance or renegotiate the terms of its outstanding debt in order to achieve longer maturities, and obtain generally more favorable loan terms, whenever management determines the financing environment is favorable. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources --Borrowing Capacity." The Company intends to finance future acquisitions and to make debt repayments by utilizing the sources of capital then deemed to be most advantageous. Such sources may include undistributed operating cash flow, secured or unsecured bank and institutional borrowings, private and public offerings of debt or equity securities, proceeds from the Company's Dividend Reinvestment and Stock Purchase Plan, and proceeds from the sale of properties. Borrowings may be at the Operating Partnership or Subsidiary Partnerships' level and securities offerings may include (subject to certain limitations) the issuance of Operating Partnership interests convertible into common stock or other equity securities. Competition - ----------- As an owner of, or investor in, commercial real estate properties, the Company is subject to competition from a variety of other owners of similar properties in connection with their sale, lease or other disposition and use. Management believes that success in such competition is dependent in part upon the geographic location of the property, the tenant mix, the performance of property managers, the amount of new construction in the area and the maintenance and appearance of the property. Additional competitive factors impacting retail and commercial properties include the ease of access to the properties, the adequacy of related facilities such as parking, and the demographic characteristics in the markets in which the properties compete. Overall economic circumstances and trends and new properties in the vicinity of each of the Current Portfolio Properties are also competitive factors. Environmental Matters - --------------------- The Current Portfolio Properties are subject to various laws and regulations relating to environmental and pollution controls. The effect upon the Company of the application of such laws and regulations either prospectively or retrospectively is not expected to have a materially adverse effect on the Company's property operations. As a matter of policy, the Company requires an environmental study be performed with respect to a property that may be subject to possible environmental hazards prior to its acquisition to ascertain that there are no material environmental hazards associated with such property. Employees - --------- As of February 23, 2001, the Company employed approximately 50 persons, including six full-time leasing officers. None of the Company's employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good. Recent Developments - ------------------- Property Acquisitions, Developments and Redevelopments. A significant contributor to the Company's sustained historical internal growth in shopping centers has been its continuing program of renovation, redevelopment and expansion activities. These development activities reposition the Company's centers to be competitive in the current retailing environment. The redevelopments typically include and update of the facade, site improvements and reconfiguring tenant spaces to accommodate tenant size requirements and merchandising evolution. 6
During 1998 and 1999, the Company executed a plan to redevelop its 213,000 square foot French Market shopping center, advantageously located in the thriving northwest section of Oklahoma City, Oklahoma. The plan specified the retenanting of a 103,000 square foot anchor tenant space and conversion of an outdated mini-mall to an anchor tenant use. The former Venture store space was re-demised and leased to Bed Bath and Beyond, Staples, Famous Footwear, BridesMart and Lakeshore Learning. The former enclosed mini-mall was leased to Burlington Coat Factory and during 2000, converted into a two-level 90,000 square foot super store, increasing the center's size to 247,000 square feet. The facade of the center was updated to complement the addition of the new tenants. The Company has recently obtained control of 20,000 square feet of space formerly operated as a grocery store. The Company has begun an exterior and interior renovation and this space is currently 54% pre-leased. As a result, of the Company's efforts, approximately 92% of the center is leased as of February 2001. The Company completed a significant redevelopment during 1999 with the opening of a 53,000 square foot SuperFresh grocery store at the Shops at Fairfax, located in Fairfax, Virginia. A small enclosed mall comprising a portion of the shopping center was demolished and replaced by the new SuperFresh building and an additional 7,500 square feet of small shop space. SuperFresh opened for business in late September 1999 and the small shop space is 100% leased and occupied. The Company also completed a facade renovation of the adjacent 56,000 square foot Boulevard shopping center, similar in appearance with that of the Shops at Fairfax. In late 1999, the Company completed redevelopment of the Beacon Center, located along U.S. Route 1 in Alexandria, Virginia. Beacon Center's central enclosed mall area was demolished and construction of a 148,000 square foot Lowe's home improvement and garden center store was completed and opened during November 1999. In addition to the new Lowe's, 8,000 square feet of new small shop space was also constructed and is 100% leased and occupied. 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. Pad sites are being leased to restaurant and other users for free-standing buildings. Base building construction and site work was completed in June 2000. Approximately 92% of the new space has been leased. The entire shopping center is currently 98% leased. During the third quarter of 2000, the Company purchased an additional 7.1 acres of land adjacent to Ashburn Village II for $1,579,000. The Company has begun developing 4.0 acres of the land as Ashburn Village III, consisting of an 18,000 square foot in-line expansion to the retail area of the existing shopping center. Ashburn III will also include several free standing pad sites. Construction is scheduled to be completed for occupancy in the spring of 2001. The remaining 3.1 acres provide the Company with the ability to develop up to 40,000 square feet of additional commercial space. Office development and acquisition activities were an integral part of the Company's focus during 2000, and substantial efforts in this area will continue throughout 2001. In February 1999, the Company announced 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 will provide 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 is substantially completed. Work continues on the building tenants' fixturing and interior areas. The Company has successfully negotiated and signed leases on 49% of the 235,000 square feet of tenant space. The 45,000 square feet of street level retail space is 83% leased and 40% of the office space is leased. The Company has delivered all of the leased office and retail space to tenants, substantially all of which were operating by first quarter 2001. The conversion and redevelopment of the former Tulsa, Oklahoma shopping center to an office/warehouse facility named Crosstown Business Center continues. Eight tenants have leased 48% of the office park and several other leases are under negotiation. 7
In October 2000, the Company purchased a newly constructed 30,000 square foot office/flex building adjacent to its Avenel Business Park in Gaithersburg, Maryland. The building is 100% leased to a single tenant. This acquisition increases the size of the Company's Avenel Business Park to 389,000 square feet, all of which was leased as of February 2001. Item 2. Properties Overview - -------- The Company is the owner and operator of a real estate portfolio of 33 properties totaling approximately 6,100,000 square feet of gross leasable area ("GLA") located primarily in the Washington, D.C./Baltimore metropolitan area. The portfolio is composed of 28 neighborhood and community Shopping Centers, and 5 predominantly Office Properties totaling approximately 4,900,000 and 1,200,000 square feet of GLA, respectively. Only the United States Government (12.3%), a tenant of 6 properties and Giant Food (6.5%), a tenant of 8 Shopping Centers, individually accounted for more than 2.2% of the Company's total revenues for the year ending December 31, 2000. With the exception of 5 Shopping Center properties and a portion of one Office Property purchased or developed during the past five years, the Company's Current Portfolio Properties consist of seasoned properties that have been owned and managed by The Saul Organization for 15 years or more. The Company expects to hold its properties as long-term investments, and it has no maximum period for retention of any investment. It plans to selectively acquire additional income-producing properties and to expand, renovate, and improve its properties when circumstances warrant. See "Item 1. Business--Operating Strategies" and "Business--Capital Strategies." The Shopping Centers - -------------------- Community and neighborhood shopping centers typically are anchored by one or more supermarkets, discount department stores or drug stores. These anchors offer day-to-day necessities rather than apparel and luxury goods and, therefore, generate consistent local traffic. By contrast, regional malls generally are larger and typically are anchored by one or more full-service department stores. The Shopping Centers (typically) are seasoned community and neighborhood shopping centers located in well established, highly developed, densely populated, middle and upper income areas. Based upon census data, the average estimated population within a three- and five-mile radius of the Shopping Centers is approximately 105,000 and 259,000, respectively. The average household income within a three and five mile radius of the Shopping Centers is $66,000 and $67,000, respectively, compared to a national average of $58,000. Because the Shopping Centers generally are located in highly developed areas, management believes that there is little likelihood that any significant numbers of competing centers will be developed in the future. The Shopping Centers range in size from 5,000 to 561,000 square feet of GLA, with seven in excess of 300,000 square feet, and a weighted average of approximately 182,000 square feet. A majority of the Shopping Centers are anchored by several major tenants and other tenants offering primarily day-to- day necessities and services. Seventeen of the 28 Shopping Centers are anchored by a grocery store. As of February 2001, no single Shopping Center accounted for more than 11.5% of the total Shopping Center GLA. 8
The Office Properties - --------------------- Four of the five Office Properties are located in the Washington, D.C. metropolitan area and contain an aggregate GLA of approximately 975,000 square feet, comprised of 889,000 and 86,000 square feet of office and retail space, respectively. The fifth Office Property is located in Tulsa, Oklahoma and contains GLA of 197,000 square feet. The Office Properties represent three distinct styles of facilities, are located in differing commercial environments with distinctive demographic characteristics, and are geographically removed from one another. As a consequence, management believes that the Washington D.C. area Office Properties compete for tenants in different commercial and geographic sub-markets of the metropolitan Washington, D.C. market and do not compete with one another. 601 Pennsylvania Ave. is a nine-story, Class A office building (with a small amount of street level retail space) built in 1986 and located in a prime downtown location. Van Ness Square is a six-story office/retail building rebuilt in 1990. Van Ness Square is located in a highly developed commercial area of Northwest Washington, D.C. which offers extensive retail and restaurant amenities. Management believes that the Washington, D.C. office market is one of the strongest and most stable leasing markets in the nation, with relatively low vacancy rates in comparison to other major metropolitan areas. It believes that the long-term stability of this market is attributable to the status of Washington, D.C. as the nation's capital and to the presence of the federal government, international agencies, and an expanding private sector job market. Washington Square at Old Town is a new 235,000 square foot Class A mixed- use office/retail complex being developed on a two-acre site along Alexandria's main street, North Washington Street, in historic Old Town Alexandria. Washington Square features two twin four-story buildings with brick and cast stone exterior facades and glass curtain walls overlooking a spacious, attractively landscaped brick-courtyard. Tenants are attracted by the property's three-story atrium lobbies, fitness center, concierge service, 600 space parking structure and computerized energy management system. The Company is marketing the 190,000 square feet of office space to corporate users, professionals and trade associations. A total of 77,000 square feet of this office space is currently leased and occupied. The 45,000 square feet of street-level retail space is 83% leased to tenants serving the property's office tenants and residents of the surrounding community. Avenel Business Park (Phases I-III) is a research park located in a Maryland suburb of Washington, D.C. On April 1, 1998, the Company purchased Avenel IV, a newly constructed and 100% leased office/flex building located adjacent to Avenel Phases I-III. Two additional buildings (Avenel V) were completed in January 1999. Phase VI was purchased October 2000. The combined business park consists of twelve one-story buildings built in five phases which were completed in 1981, 1985, 1989, 1998, 1999 and 2000. Management believes that, due to its desirable location, the high quality of the property and the relative scarcity of research and development space in its immediate area, Avenel should continue to attract and retain desirable tenants in the future. Crosstown Business Center is a 197,135 square foot flex office/warehouse complex located in Tulsa, Oklahoma. The Company is capitalizing on the property's close proximity to Tulsa's international airport and complimentary facilities by converting the former strip shopping center into a use more suitable to the property's location and physical layout. The following table sets forth, at the dates indicated, certain information regarding the Current Portfolio Properties: 9
Saul Centers, Inc. Schedule of Current Portfolio Properties December 31, 2000 <TABLE> <CAPTION> Leasable Year Area Developed Land (Square or Acquired Area Property Location Feet) (Renovated) (Acres) ======================== ========================== ============ =============== ============= <S> <C> <C> <C> <C> Shopping Centers - ---------------- Ashburn Village I & II Ashburn, VA 148,381 1994, 2000 19.3 Ashburn Village III & IV /(a)/ Ashburn, VA 18,000 2000/01 7.1 Beacon Center Alexandria, VA 355,659 1972 (1993/99) 32.3 Belvedere Baltimore, MD 54,941 1972 4.8 Boulevard Fairfax, VA 56,350 1994 (1999) 5.0 Clarendon Arlington, VA 6,940 1973 0.5 Clarendon Station Arlington, VA 4,868 1996 0.1 Flagship Center Rockville, MD 21,500 1972, 1989 0.5 French Market Oklahoma City, OK 247,393 1974 (1984/98) 13.8 Germantown Germantown, MD 26,241 1992 2.7 Giant Baltimore, MD 70,040 1972 (1990) 5.0 The Glen Lake Ridge, VA 112,639 1994 14.7 Great Eastern District Heights, MD 254,398 1972 (1995) 23.9 Hampshire Langley Langley Park, MD 131,700 1972 (1979) 9.9 Leesburg Pike Baileys Crossroads, VA 97,880 1966 (1982/95) 9.4 Lexington Mall Lexington, KY 315,707 1974 30.0 Lumberton Lumberton, NJ 189,398 1975 (1992/96) 23.3 Olney Olney, MD 53,765 1975 (1990) 3.7 Ravenwood Baltimore, MD 87,750 1972 8.0 Seven Corners Falls Church, VA 560,998 1973 (1994-7) 31.6 Shops at Fairfax Fairfax, VA 68,743 1975 (1993/99) 6.7 Southdale Glen Burnie, MD 484,115 1972 (1986) 39.6 <CAPTION> Percentage Leased Property Dec-2000 Dec-1999 Anchor / Significant Tenants ================= ========= =========== ================================================================== <S> <C> <C> <C> Shopping Centers - ---------------- Ashburn Village I & II 98% 100% Giant Food, Blockbuster Ashburn Village III & IV 65% n/a Beacon Center 96% 100% Lowe's, Giant Food, Office Depot, Outback Steakhouse, Marshalls, Hollywood Video, Hancock Fabrics Belvedere 100% 89% Food King, McCrory Boulevard 100% 100% Danker Furniture, Petco, Party City Clarendon 100% 100% Clarendon Station 100% 100% Flagship Center 100% 100% French Market 87% 94% Burlington Coat Factory, Bed Bath & Beyond, Famous Footwear, Lakeshore Learning Center, BridesMart, Staples Germantown 97% 97% Giant 100% 100% Giant Food The Glen 100% 97% Safeway Marketplace, CVS Pharmacy Great Eastern 100% 98% Giant Food, Pep Boys, Big Lots, Run N' Shoot Hampshire Langley 100% 100% Safeway, McCrory, Blockbuster Leesburg Pike 100% 100% Zany Brainy, CVS Pharmacy, Kinko's, Hollywood Video Lexington Mall 78% 82% Dillard's, Rite Aid Lumberton 85% 85% SuperFresh, Rite Aid, Blockbuster, Ace Hardware Olney 95% 99% Rite Aid Ravenwood 98% 100% Giant Food, Hollywood Video Seven Corners 99% 100% Home Depot, Shoppers Club, Best Buy, Michaels, Barnes & Noble, Ross Dress For Less, G Street Fabrics, Champs Shops at Fairfax 100% 100% SuperFresh, Blockbuster Southdale 99% 100% Giant Food, Circuit City, Kids R Us, Michaels, Marshalls, PetSmart, Value City Furniture </TABLE> -10-
Saul Centers, Inc. Schedule of Current Portfolio Properties December 31, 2000 <TABLE> <CAPTION> Leasable Year Area Developed Land (Square or Acquired Area Property Location Feet) (Renovated) (Acres) ============= ======================== ================ ================== =========== <S> <C> <C> <C> <C> Shopping Centers (continued) - ----------------------------- Southside Plaza Richmond, VA 343,355 1972 32.8 South Dekalb Plaza Atlanta, GA 185,335 1976 14.6 Thruway Winston-Salem, NC 345,454 1972 (1997) 30.5 Village Center Centreville, VA 143,109 1990 17.2 West Park Oklahoma City, OK 76,610 1975 11.2 White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 ----------- ------ Total Shopping Centers 4,941,425 426.7 ----------- ------ Office Properties - ----------------- Avenel Business Park Gaithersburg, MD 388,620 1981-2000 37.1 Crosstown Business Center /(b)/ Tulsa, OK 197,135 1975 (2000) 22.4 601 Pennsylvania Ave Washington, DC 225,223 1973 (1986) 1.0 Van Ness Square Washington, DC 156,182 1973 (1990) 1.2 Washington Square Alexandria, VA 235,000 1975 (2000) 2.0 ----------- ------ Total Office Properties 1,202,160 61.7 ----------- ------ Total Portfolio 6,143,585 488.4 =========== ====== <CAPTION> Percentage Leased Property Dec-2000 Dec-1999 Anchor / Significant Tenants ================= ========= =========== ================================================================== <S> <C> <C> <C> Shopping Centers (continued) - ----------------------------- Southside Plaza 81% 92% CVS Pharmacy, Community Pride Supermarket, Maxway South Dekalb Plaza 100% 82% MacFrugals, Pep Boys, The Emory Clinic Thruway 93% 96% Bed, Bath & Beyond, Stein Mart, Harris Teeter, Fresh Market, Eckerd Drugs, Houlihan's, Borders Books, Zany Brainy, Blockbuster Village Center 100% 98% Giant Food, Tuesday Morning West Park 58% 58% Homeland Stores, Family Dollar White Oak 99% 100% Giant Food, Sears, Rite Aid, Blockbuster ------ ----- 94.1%/(c)/ 95.2% ------ ----- Office Properties - ----------------- Avenel Business Park 100% 94% Quanta Systems, General Services Administration, GeneLogic, VIRxSYS, Ventana Medical, Paragea Communications, Boston Biomedica, Broadsoft Crosstown Business Center 41% 15% Compass Group, Roxtec, Par Electric 601 Pennsylvania Ave 100% 100% General Services Administration, Alltel, American Arbitration, Capital Grille Van Ness Square 93% 96% INTELSAT, Team Video Intl, Office Depot, Pier 1 Washington Square 49% n/a Vanderweil Engineering, World Wide Retail Exchange, American Management Systems, Rite Aid, Trader Joe's, Blockbuster ------ ----- 86.8%/(c)/ 79.3% ------ ----- 92.9%/(c)/ 92.7% ====== ===== </TABLE> /(a)/ Undeveloped land acquired August 2000. Construction has commenced for a 18,000 square foot in-line expansion to Ashburn Village. The expansion space is 65% pre-leased to tenants scheduled to occupy Phase III in spring 2001. Phase IV consists of approximately 3.1 acres of undeveloped land. /(b)/ Currently operational, but under development to convert former shopping center to office park/warehouse use. /(c)/ Washington Square and Ashburn Village III & IV, currently under construction and not yet fully operational, are excluded from these averages. -11-
Item 3. Legal Proceedings In the normal course of business, the Company is involved in litigation, including litigation arising out of the collection of rents, the enforcement or defense of the priority of its security interests, and the continued development and marketing of certain of its real estate properties. In the opinion of management, litigation that is currently pending should not have a material adverse impact on the financial condition or future operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market Information - ------------------ Saul Centers shares are listed on the New York Stock Exchange under the symbol "BFS". The composite high and low closing sale prices for the common stock shares as reported by the New York Stock Exchange for each quarter of 2000 and 1999 were as follows: Period Share Price ------ ----------- High Low ---- --- October 1, 2000 - December 31, 2000 $18.63 $15.31 July 1, 2000 - September 30, 2000 $16.50 $15.63 April 1, 2000 - June 30, 2000 $16.81 $15.38 January 1, 2000 - March 31, 2000 $16.31 $13.94 October 1, 1999 - December 31, 1999 $15.94 $14.00 July 1, 1999 - September 30, 1999 $17.19 $14.81 April 1, 1999 - June 30, 1999 $17.13 $14.75 January 1, 1999 - March 31, 1999 $15.56 $14.50 On February 23, 2001, the closing price was $18.75. Holders - ------- The approximate number of holders of record of the common stock was 500 as of February 23, 2001. 12
Dividends - --------- The Company paid four quarterly distributions in the amount of $0.39 per share, during each of the years ended December 31, 2000 and 1999, totaling $1.56 per share for each of these years, or an annual yield of 8.2% based on the closing price of the common stock on the New York Stock Exchange as of February 23, 2001. The Company has determined that 90.11% of the total $1.56 per share paid in calendar year 2000 represents currently taxable dividend income to the stockholders, while the balance of 9.89% is considered return of capital. The Company's estimate of cash flow available for distributions is believed to be based on reasonable assumptions and represents a reasonable basis for setting distributions. However, the actual results of operations of the Company will be affected by a variety of factors, including actual rental revenue, operating expenses of the Company, interest expense, general economic conditions, federal, state and local taxes (if any), unanticipated capital expenditures, and the adequacy of reserves. While the Company intends to continue paying regular quarterly distributions, any future payments will be determined solely by the Board of Directors and will depend on a number of factors, including cash flow of the Company, its financial condition and capital requirements, the annual distribution requirements required to maintain its status as a REIT under the Code, and such other factors as the Board of Directors deems relevant. Under the Code, REIT's are subject to numerous organizational and operation requirements, including the requirement to distribute at least 95% (90% for tax years beginning on or after January 1, 2001) of REIT taxable income. The Company distributed amounts greater than the required amount in 2000 and 1999. Actual distributions by the Company were $29,186,000 in 2000 and $28,231,000 in 1999. Item 6. Selected Financial Data The selected financial data of the Company contained herein has been derived from the consolidated financial statements of the Company. The data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this report. The historical selected financial data have been derived from audited financial statements for all periods. 13
Saul Centers, Inc. SELECTED FINANCIAL DATA (in thousands, except per share data) <TABLE> <CAPTION> Years Ended December 31, 2000 1999 1998 1997 1996 -------- ---------- ----------- ---------- ----------- <S> <C> <C> <C> <C> <C> Operating Data: - -------------- Total revenue............................................. $ 79,029 $ 73,791 $ 70,583 $ 67,717 $ 64,023 Operating expenses........................................ 56,915 53,124 53,393 50,722 49,761 --------- ---------- --------- ---------- ----------- Operating income.......................................... 22,114 20,667 17,190 16,995 14,262 Non-operating income (loss) Gain on sale of property............................... -- 553 -- -- -- Change in accounting method............................ -- -- (771) -- -- Sale of interest rate protection agreements............ -- -- -- (4,392) (972) --------- ---------- --------- ---------- ----------- Net income before extraordinary item and minority interests............................................. 22,114 21,220 16,419 12,603 13,290 Extraordinary item: Early extinguishment of debt.......... -- -- (50) (3,197) (587) --------- ---------- --------- ---------- ----------- Net income before minority interests...................... 22,114 21,220 16,369 9,406 12,703 Minority interests........................................ (8,069) (7,923) (7,240) (6,854) (6,852) --------- ---------- --------- ---------- ----------- Net income................................................ $ 14,045 $ 13,297 $ 9,129 $ 2,552 $ 5,851 ========= ========== ========= ========== =========== Per Share Data: - -------------- Net income before extraordinary item and minority interests $ 1.18 $ 1.17 $ 0.95 $ 0.76 $ 0.81 ========= ========== ========= ========== =========== Net income................................................ $ 1.03 $ 1.01 $ 0.72 $ 0.21 $ 0.49 ========= ========== ========= ========== =========== Weighted average shares outstanding: Fully converted........................................ 18,796 18,148 17,233 16,690 16,424 ========= ========== ========= ========== =========== Common stock........................................... 13,623 13,100 12,644 12,297 12,031 ========= ========== ========= ========== =========== Dividends Paid: - -------------- Cash dividends to common stockholders (1).................................... $ 21,117 $ 20,308 $ 19,731 $ 19,063 $ 18,669 ========= ========== ========= ========== =========== Cash dividends per share............................... $ 1.56 $ 1.56 $ 1.56 $ 1.56 $ 1.56 ========= ========== ========= ========== =========== Balance Sheet Data: - ------------------ Income-producing properties (net of accumulated depreciation)..................... $ 267,681 $ 256,110 $ 246,151 $ 242,653 $ 234,699 Total assets.............................................. 334,450 299,665 271,034 260,942 263,495 Total debt, including accrued interest.................... 344,686 311,114 291,576 286,072 273,731 Total stockholder's equity (deficit)...................... (31,155) (31,859) (37,284) (38,054) (26,361) Other Data - ---------- Funds from operations (2) Net income before minority interests................... $ 22,114 $ 21,220 $ 16,369 $ 9,406 $ 12,703 Depreciation and amortization of real property......... 13,534 12,163 12,578 10,642 10,860 Gain on sale of property............................... -- (553) -- -- -- Change in accounting method............................ -- -- 771 -- -- Debt restructuring losses: Sale of interest rate protection agreements.......... -- -- -- 4,392 972 Extraordinary item: early extinguishment of debt....... -- -- 50 3,197 587 ---------- ---------- --------- ---------- ----------- Funds from operations..................................... $ 35,648 $ 32,830 $ 29,768 $ 27,637 $ 25,122 ========== ========== ========= ========== =========== Cash flow provided by (used in): Operating activities................................... $ 33,310 $ 31,645 $ 29,686 $ 28,936 $ 29,677 Investing activities................................... $ (43,426)$ (36,920) $ (14,776) $ (16,094) $ (8,035) Financing activities................................... $ 10,931 $ 3,837 $ (13,203) $ (12,192) $ (22,278) </TABLE> ________________________________________________________________________________ (1) By operation of the Company's dividend reinvestment plan, $7,984, $7,162 and $6,634, was reinvested in newly issued common stock during 2000, 1999 and 1998, respectively. (2) Funds From Operations (FFO), presented on a fully converted basis is defined as net income before gains or losses from property sales, extraordinary items and before real estate depreciation and amortization. Prior to 1/1/2000, the FFO definition required the elimination of debt restructuring gains and losses. FFO may not be comparable to similarly titled measures employed by other REITs. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily 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 cash needs. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section should be read in conjunction with the selected financial data and the Consolidated Financial Statements of the Company and The Saul Organization and the accompanying notes in "Item 6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary Data," respectively, of this report. Historical results and percentage relationships set forth in these Items 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 Items 1 - 6 of this Form 10-K. This Form 10-K 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 on the consolidated financial statements of the Company as of December 31, 2000 and for the year ended December 31, 2000. Prior year data is based on the Company's consolidated financial statements as of December 31, 1999 and 1998 and for the years ended December 31, 1999 and 1998. Liquidity and Capital Resources - ------------------------------- 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 95% (90% for tax years beginning on or after 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 property is 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 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. 15
Management believes that the Company's current capital resources, including approximately $35,500,000 of the Company's credit line, which was available for borrowing as of December 31, 2000, will be sufficient to meet its liquidity needs for the foreseeable future. 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. Over 77% of the Company's debt balances as of December 31, 2000 have a maturities beyond the year 2010. The Company's interest expense coverage ratio increased to 2.51 during the past year, from 2.48 in 1999. During 1999, the Company closed a $38,000,000 construction loan to fund the development costs associated with Washington Square, the mixed-use office/retail complex which the Company is constructing in Old Town Alexandria, Virginia. In October 1999, the Company secured a $4,000,000 increase in the construction loan in order to fully fund the increase in the overall project size from 225,000 leasable square feet to 235,000 leasable square feet and additional construction costs. The loan has an initial three-year term with an interest rate of LIBOR plus 1.90%, with the spread over LIBOR declining as leasing of the office and retail space is achieved. In May 2000 the Company closed on a $14,300,000 fixed rate mortgage loan secured by the recently renovated Shops At Fairfax and Boulevard shopping centers. The loan term is 15 years, maturing in May 2015, and requires monthly principal and interest payments based on a 22-year amortization schedule and a rate of 8.33%. In July 2000, the Company closed on a three year renewal and amendment of its unsecured revolving credit facility, which increased the borrowing availability from $60,000,000 under the former line, to $70,000,000. The new line requires monthly interest payments either at the London Interbank Offer Rate (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, at the Company's option. The credit line matures July 18, 2003 or may be extended one additional year, at the Company's option, by paying a 1/4% extension fee. As of February 23, 2001, outstanding borrowings on the Company's $70,000,000 unsecured credit line totaled $40,250,000, leaving $29,750,000 of credit availability. The Company has fixed interest rates on approximately 78.6% of its total debt outstanding, which now has a weighted remaining term of 11.2 years. 16
Financial Information - --------------------- In 2000, the Company reported Funds From Operations (FFO) of $35,648,000 on a fully converted basis. This represents a 8.6% increase over 1999 FFO of $32,830,000. The following table represents a reconciliation from net income before minority interests to FFO: <TABLE> <CAPTION> For the Years Ended December 31, (Dollars in thousands) 2000 1999 1998 - --------------------- ---- ---- ---- <S> <C> <C> <C> Net income before minority interests $22,114 $21,220 $16,369 Subtract: Gain on sale of property - 553 - Add: Depreciation and amortization of real property 13,534 12,163 12,578 Extraordinary Item: Write-off of unamortized loan costs - - 50 ------- ------- ------- 35,648 32,830 28,997 Add: Retroactive impact of change in accounting method/1/ - - 771 ------- ------- ------- Funds From Operations/2/ $35,648 $32,830 $29,768 ======= ======= ======= </TABLE> Cash flow from operating activities, investing activities and financing activities are as follows: Cash flows provided by (used in): - ------------------------------- (Dollars in thousands) For the Years Ended December 31, 2000 1999 1998 ---- ---- ---- Operating activities $33,310 $31,645 $29,686 Investing activities -43,426 -36,920 -14,776 Financing activities 10,931 3,837 -13,203 ___________________ /1/ Retroactive to January 1, 1998, the Company began recognition of percentage rental income in accordance with a new accounting pronouncement. /2/ FFO, as defined by the National Association of Real Estate Investment Trusts, presented on a fully converted basis and the most 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 is not necessarily 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 of 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 opertaing activities, financing activities and investing activities, it provides 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. 17
Redevelopments, Renovations and Acquisitions - -------------------------------------------- The Company has been selectively involved 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 2000 at Washington Square, Ashburn Village, French Market, Avenel Business Park and Crosstown Business Center. The Company also completed development activity during 1999 at Beacon Center, Shops at Fairfax and Avenel Business Park. During the year 2000 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 will provide 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 is substantially completed. Work continues on the building tenants' fixturing and interior areas. The Company has delivered substantially all of the leased retail space to tenants, several of which were operating by year-end 2000. The Company has successfully negotiated and signed leases on 49% of the 235,000 square feet of tenant space. The 45,000 square feet of street level retail space is 83% leased and 40% of the office space is 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. Pad sites are being leased to restaurant and other users for free-standing buildings. Base building construction and site work was completed in June 2000. Approximately 92% of the new space has been leased. The entire shopping center is currently 98% leased. During the third quarter of 2000, the Company purchased an additional 7.1 acres of land adjacent to Ashburn Village II for $1,579,000. The Company has begun developing 4.0 acres of the land as Ashburn Village III, consisting of an 18,000 square foot in-line expansion to the retail area of the existing shopping center. Ashburn III will also include several free standing pad sites. Construction is scheduled to be completed for occupancy in the spring of 2001. The remaining 3.1 acres provide the Company with the ability to develop up to 40,000 square feet of additional commercial space. During 1998 and 1999, the Company executed a plan to redevelop its 213,000 square foot French Market shopping center, advantageously located in the thriving northwest section of Oklahoma City, Oklahoma. The plan specified the retenanting of a 103,000 square foot anchor tenant space and conversion of an outdated mini-mall to an anchor tenant use. The former Venture store space was re-demised and leased to Bed Bath and Beyond, Staples, Famous Footwear, BridesMart and Lakeshore Learning. The former enclosed mini-mall was leased to Burlington Coat Factory and during 2000, converted into a two-level 90,000 square foot super store, increasing the center's size to 247,000 square feet. The facade of the center was updated to complement the addition of the new tenants. The Company has recently obtained control of 20,000 square feet of space formerly operated as a grocery store. The Company has begun an exterior and interior renovation and this space is currently 54% pre-leased. As a result, of the Company's efforts, approximately 92% of the center is leased as of February 2001. In October 2000, the Company purchased a newly constructed 30,000 square foot office/flex building adjacent to its Avenel Business Park in Gaithersburg, Maryland. The building is 100% leased to a single tenant. This acquisition increases the size of the Company's Avenel Business Park to 389,000 square feet, all of which was leased as of February 2001. The conversion and redevelopment of the former Tulsa, Oklahoma shopping center to an office/warehouse facility named Crosstown Business Center continues. Eight tenants have leased 48% of the facility and several other leases are under negotiation. 18
The Company completed a significant redevelopment during 1999 with the opening of a 53,000 square foot SuperFresh grocery store at the Shops at Fairfax, located in Fairfax, Virginia. A small enclosed mall comprising a portion of the shopping center was demolished and replaced by the new SuperFresh building and an additional 7,500 square feet of small shop space. SuperFresh opened for business in late September 1999 and the small shop space is 100% leased and occupied. The Company also completed a facade renovation of the adjacent 56,000 square foot Boulevard shopping center, similar in appearance with that of the Shops at Fairfax. In late 1999, the Company completed redevelopment of the Beacon Center, located along U.S. Route 1 in Alexandria, Virginia. Beacon Center's central enclosed mall area was demolished and construction of a 148,000 square foot Lowe's home improvement and garden center store was completed and opened during November 1999. In addition to the new Lowe's, 8,000 square feet of new small shop space was also constructed and is 100% leased and occupied. Portfolio Leasing Status - ------------------------ At December 31, 2000, the portfolio consisted of 28 Shopping Centers and five Office Properties, all of which are located in seven states and the District of Columbia. At December 31, 2000, 92.9% of the Company's 5,900,000 square feet of operating leasable space (excluding properties under development, Ashburn Village III & IV and Washington Square) was leased to tenants, as compared to 92.7% at December 31, 1999. The shopping center portfolio (excluding Ashburn Village III & IV) was 94.1% leased at December 31, 2000 compared to 95.2% at December 31, 1999. The Office Properties (excluding Washington Square) were 86.8% leased at December 31, 2000 compared to 79.3% as of December 31, 1999. The overall improvement in the year-end 2000 leasing percentage resulted primarily from the Company's successful leasing at Avenel Business Park and increased occupancy at Crosstown Business Center. Results of Operations - --------------------- The following discussion compares the results of the Company for the year ended December 31, 2000 with the year ended December 31, 1999, and compares the year ended December 31, 1999 with the year ended December 31, 1998. This information should be read in conjunction with the accompanying consolidated financial statements and the notes related thereto. Years Ended December 31, 2000 and 1999 - -------------------------------------- Base rent increased to $63,837,000 in 2000 from $59,200,000 in 1999, representing a $4,637,000 (7.8%) increase. The increase in base rent resulted primarily from new leases in effect at recently redeveloped shopping centers (Shops At Fairfax/Boulevard, Thruway, French Market and Ashburn Village), a four percent average annual occupancy increase at Avenel Business Park, and a 60,000 square foot tenant paying higher rent while holding over beyond its scheduled lease expiration at 601 Pennsylvania Avenue. The increase in base rent was diminished in part by decreasing occupancy at Lexington Mall and the absence of rent from Park Road, sold in December 1999. Expense recoveries increased to $11,129,000 in 2000 from $10,176,000 in 1999, representing an increase of $953,000 (9.4%). Expense recovery income increased primarily as a result of substantial snow removal expenses during 2000 which were recovered from many of the Company's shopping center tenants and to a lesser extent, improved occupancy rates which allowed a greater percentage of operating expenses to be recovered from tenants. Percentage rent was $2,097,000 in 2000, compared to $2,222,000 in 1999, representing a decrease of $125,000 (5.6%). The decrease in percentage rent resulted primarily from the rollover of an anchor tenant lease into higher paying base rent in lieu of percentage rent at Giant shopping center. 19
Other income, which consists primarily of parking income at two of the Office Properties, kiosk leasing, temporary leases and payments associated with early termination of leases, was $1,966,000 in 2000, compared to $2,193,000 in 1999, representing a decrease of $227,000 (10.4%). The decrease in other income resulted from a $252,000 reduction in lease termination payments compared to the prior year. As a consequence of the foregoing, the 2000 total revenues of $79,029,000 represented an increase of $5,238,000 (7.1%) over 1999 total revenues of $73,791,000. Operating expenses, which consist mainly of repairs and maintenance, utilities, payroll and insurance expense, increased $551,000 (7.1%) to $8,271,000 in 2000 from $7,720,000 in 1999. The increase was primarily caused by higher snow removal expenses resulting from two severe snowstorms impacting the Mid-Atlantic region during January and February 2000, offset in part by cost savings achieved by reducing maintenance and utility expenses attributable to the elimination of the interior mall area, replaced by Burlington Coat Factory's new super store, as a result of the Company's redevelopment of French Market. The provision for credit losses was $467,000 in 2000 compared to $295,000 in 1999, representing an increase of $172,000 (58.3%). The comparative credit loss increase resulted from unusually low credit loss activity in 1999, additions to credit loss reserves for two retail tenants in bankruptcy and rent in dispute with an office tenant. Real estate taxes were $6,451,000 in 2000 compared to $6,207,000 in 1999, representing an increase of $244,000 (3.9%). Interest expense was $23,843,000 in 2000 compared to $22,568,000 in 1999, representing an increase of $1,275,000 (5.6%). The increase in interest expense resulted from increased borrowings related to newly developed and acquired properties placed in service during 2000 and 1999, and to a lesser extent, the higher costs of borrowing in 2000 resulting from higher interest rates compared to 1999. Amortization of deferred debt expense was $458,000 in 2000 compared to $416,000 in 1999, an increase of $42,000 (10.1%). The increase resulted from the Company's new $14,300,000 long term financing secured by the Shops at Fairfax and Boulevard shopping centers and the costs of renewing and amending the Company's revolving credit facility. Depreciation and amortization expense was $13,534,000 in 2000 compared to $12,163,000 in 1999, representing an increase of $1,371,000 (11.3%). The increase resulted from increased depreciation related to newly developed and acquired properties placed in service during 2000 and 1999. General and administrative expense, which consists primarily of administrative payroll and other overhead expenses, was $3,891,000 in 2000 compared to $3,755,000 in 1999, representing an increase of $136,000 (3.6%). In 1999 the Company reported a gain on sale of property of $553,000 resulting from the District of Columbia's purchase of the Company's Park Road property as part of an assemblage of parcels for a neighborhood revitalization project. There were no property sales in 2000. Years Ended December 31, 1999 and 1998 - -------------------------------------- Base rent increased to $59,200,000 in 1999 from $55,542,000 in 1998, representing a $3,658,000 (6.6%) increase. The increase in base rent resulted primarily from new leases in effect at recently redeveloped shopping centers (French Market, Seven Corners, Beacon Center and Thruway), leases rolling-over to higher rents in the Office Properties and the rollover of three anchor tenant leases into higher paying base rent in lieu of percentage rent at White Oak, Ravenwood and Giant shopping centers. The increase in base rent was diminished in part by the temporary absence of rental income on space being redeveloped at the Washington Square at Old Town and Shops at Fairfax developments. 20
Expense recoveries increased to $10,176,000 in 1999 from $9,911,000 in 1998, representing an increase of $265,000 (2.7%). Expense recovery income increased primarily as a result of increases in real estate tax expense billed and collected from the Company's shopping center tenants. Percentage rent was $2,222,000 in 1999, compared to $2,755,000 in 1998, representing a decrease of $533,000 (19.3%). The decrease in percentage rent resulted primarily from the rollover of three anchor tenant leases into higher paying base rent in lieu of percentage rent at White Oak, Ravenwood and Giant shopping centers. Other income, which consists primarily of parking income at two of the Office Properties, kiosk leasing, temporary leases and payments associated with early termination of leases, was $2,193,000 in 1999, compared to $2,375,000 in 1998, representing a decrease of $182,000 (7.7%). The decrease in other income resulted from reduced lease termination payments in the Office Properties compared to the prior year. As a consequence of the foregoing, the 1999 total revenues of $73,791,000 represented an increase of $3,208,000 (4.5%) over 1998 total revenues of $70,583,000. Operating expenses, which consist mainly of repairs and maintenance, utilities, payroll and insurance expense, decreased $110,000 (1.4%) to $7,720,000 in 1999 from $7,830,000 in 1998. The provision for credit losses was $295,000 in 1999 compared to $418,000 in 1998, representing a decrease of $123,000 (29.4%). The credit loss decrease resulted from lower credit loss activity in 1999 compared to 1998, when a tenant at Avenel Business Park filed for bankruptcy protection. Real estate taxes were $6,207,000 in 1999 compared to $6,128,000 in 1998, representing an increase of $79,000 (1.3%). Interest expense was $22,568,000 in 1999 compared to $22,627,000 in 1998, representing a decrease of $59,000 (0.3%). Amortization of deferred debt expense was $416,000 in 1999 compared to $419,000 in 1998, a decrease of $3,000 (0.7%). Depreciation and amortization expense was $12,163,000 in 1999 compared to $12,578,000 in 1998, representing a decrease of $415,000 (3.3%). General and administrative expense, which consists primarily of administrative payroll and other overhead expenses, was $3,755,000 in 1999 compared to $3,393,000 in 1998, representing an increase of $362,000 (10.7%). The increase in 1999 expenses compared to 1998 resulted from increases in payroll and state income tax expenses. Gain on sale of property of $553,000 in 1999 resulted from the District of Columbia's purchase of the Company's Park Road property as part of an assemblage of parcels for a neighborhood revitalization project. There were no property sales in the 1998 year. Extraordinary item, early extinguishment of debt, resulted in losses of $50,000 in 1998. The losses resulted from the write-off of unamortized loan costs when the Company refinanced a portion of its loan portfolio. There were no such losses in 1999. Cumulative effect of change in accounting method occurred in 1998, when the Company adopted a new accounting method as directed by the Emerging Issues Task Force (EITF), Issue 98-9, Accounting for Contingent Rent In Interim Financial Periods. The Company recorded a charge of $771,000 for contingent rents recognized under the previous method. 21
Item 7a. 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 December 31, 2000, the Company had variable rate indebtedness totaling $67,824,000. Interest rate fluctuations will affect the Company's interest expense on its variable rate debt. If the interest rate on the Company's variable rate debt instruments outstanding at December 31, 2000 had been one percent higher, annual interest expense relating to these debt instruments would have increased by $678,000, based on those balances. Interest rate fluctuations will also affect the fair value of the Company's fixed rate debt instruments. As of December 31, 2000, the Company had fixed rate indebtedness totaling $275,628,000. If interest rates on the Company's fixed rate debt instruments at December 30, 2000 had been one percent higher, the fair value of those debt instruments on that date would have decreased by approximately $28,651,000. Item 8. Financial Statements and Supplementary Data The financial statements of the Company and its consolidated subsidiaries are included in this report on the pages indicated, and are incorporated herein by reference: Page - ---- F-1 (a) Report of Independent Public Accountants F-2 (b) Consolidated Balance Sheets - December 31, 2000 and 1999 F-3 (c) Consolidated Statements of Operations - Years ended December 31, 2000, 1999 and 1998. F-4 (d) Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998. F-5 (e) Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998. F-6 (f) Notes to Consolidated Financial Statements The selected quarterly financial data included in Note 15 of the Notes to Consolidated Financial Statements referred to above are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 22
PART III Certain information Part III requires will be filed in a definitive proxy statement with the SEC pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information to be included therein is incorporated herein by reference. Only those sections or pages of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Item 10. Directors and Executive Officers of the Registrant The information this Item requires is incorporated by reference to the information under the captions "Election of Directors" and "Compensation of Directors" on pages 3 through 7 of the Company's Proxy Statement to be filed with the SEC for its annual shareholders' meeting to be held on April 27, 2001. Item 11. Executive Compensation The information this Item requires is incorporated by reference to the information under the captions "Executive Compensation," "Compensation Committee Report" and "Performance Graph" on pages 8 through 11 of the Company's Proxy Statement to be filed with the SEC for its annual shareholders' meeting to be held on April 27, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management The information this Item requires is incorporated by reference to the information under the caption "Security Ownership of Certain Beneficial Owners and Management" on page 12 of the Company's Proxy Statement to be filed with the SEC for its annual shareholders' meeting to be held on April 27, 2001. Item 13. Certain Relationships and Related Transactions The information this Item requires is incorporated by reference to the information under the caption "Certain Relationships and Transactions" on page 13 of the Company's Proxy Statement to be filed with the SEC for its annual shareholders' meeting to be held on April 27, 2001. 23
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial Statements -------------------- The following financial statements of the Company and their consolidated subsidiaries are incorporated by reference in Part II, Item 8. (a) Report of Independent Public Accountants (b) Consolidated Balance Sheets - December 31, 2000 and 1999 (c) Consolidated Statements of Operations - Years ended December 31, 2000, 1999 and 1998 (d) Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 (e) Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 (f) Notes to Consolidated Financial Statements 2. Financial Statement Schedule and Supplementary Data --------------------------------------------------- (a) Selected Quarterly Financial Data for the Company are incorporated by reference in Part II, Item 8 (b) Report of Independent Public Accountants on the Schedule (included in Report of Independent Public Accountants on the Financial Statements) (c) Schedule of the Company: Schedule III - Real Estate and Accumulated Depreciation All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibits -------- (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 is 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 is 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 Partnership and the Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership 24
as filed as Exhibit 3.(b) of the 1997 Annual Report of the Company on Form 10-K is 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 is hereby incorporated by reference. (c) First Amended and Restated Agreement of Limited Partnership of Saul II Subsidiary Partnership and Amendment No. 1 thereto filed as Exhibit 10.3 to Registration Statement No. 33-64562 are 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 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. 25
(j) Saul Centers, Inc. Dividend Reinvestment and Stock Purchase Plan as filed with the Securities and Exchange Commission as File No. 333-54232 is hereby incorporated by reference. (k) 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, is hereby incorporated by reference. (l) Deed of Trust, Assignment of Rents, and Security Agreement dated as of June 9, 1994 by and between Saul Holdings Limited Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit 10.(t) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (m) Deed of Trust Note dated as of January 22, 1996 by and between Saul Holdings Limited Partnership and Clarendon Station Limited Partnership, filed as Exhibit 10.(s) of the March 31, 1997 Quarterly Report of the Company, is hereby incorporated by reference. (n) 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. (o) 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. (p) Loan Agreement dated as of October 1, 1997 between Saul Subsidiary I Limited Partnership, as Borrower and Nomura Asset Capital Corporation, as Lender, is as filed as Exhibit 10.(p) of the 1997 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (q) Revolving Credit Agreement dated as of October 1, 1997 by and between Saul Holdings Limited Partnership and Saul Subsidiary II Limited Partnership, as Borrower and U.S. Bank National Association, as agent, is as filed as Exhibit 10.(q) of the 1997 Annual Report of the Company on Form 10-K, as amended by the First Amendment to Revolving Credit Agreement dated as of July 18, 2000, as filed as Exhibit 10.(q) of the September 30, 2000 Quarterly Report of the Company, is hereby incorporated by reference. (r) 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. 23. Consent of Independent Public Accountants is filed herewith. Reports on Form 8-K. -------------------- None. 26
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 22, 2001 /s/ B. Francis Saul II -- ----------------------------------- B. Francis Saul II Chairman of the Board of Directors & Chief Executive Officer (Principal Executive Officer) Date: March 22, 2001 /s/ B. Francis Saul III -- ----------------------------------- B. Francis Saul III, Vice Chairman and Director Date: March 22, 2001 /s/ Philip D. Caraci -- ----------------------------------- Philip D. Caraci, President and Director Date: March 22, 2001 /s/ Scott V. Schneider -- ----------------------------------- Scott V. Schneider, Senior Vice President, Treasurer and Secretary (Principal Financial and Accounting Officer) Date: March 22, 2001 /s/ Gilbert M. Grosvenor -- ----------------------------------- Gilbert M. Grosvenor, Director Date: March 22, 2001 /s/ Philip C. Jackson Jr. -- ----------------------------------- Philip C. Jackson Jr., Director Date: March 22, 2001 /s/ General Paul X. Kelley -- ----------------------------------- General Paul X. Kelley, Director Date: March 22, 2001 /s/ Charles R. Longsworth -- ----------------------------------- Charles R. Longsworth, Director Date: March 22, 2001 /s/ Patrick F. Noonan -- ----------------------------------- Patrick F. Noonan, Director Date: March 22, 2001 /s/ Mr. Mark Sullivan III -- ----------------------------------- Mark Sullivan III, Director Date: March 22, 2001 /s/ James W. Symington -- ----------------------------------- James W. Symington, Director Date: March 22, 2001 /s/ John R. Whitmore -- ----------------------------------- John R. Whitmore, Director 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Saul Centers, Inc.: We have audited the accompanying consolidated balance sheets of Saul Centers, Inc. (a Maryland corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the three years ended December 31, 2000, 1999 and 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Saul Centers, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years ended December 31, 2000, 1999 and 1998 in conformity with accounting principles generally accepted in the United States. As explained in Note 2 to the financial statements, effective June 30, 1998, the Company changed its method of accounting for percentage rent. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III "Real Estate and Accumulated Depreciation" on pages F-18 and F-19 is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Vienna, Virginia February 2, 2001 F-1
Saul Centers, Inc. CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December 31, (Dollars in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> Assets Real estate investments Land $ 66,252 $ 64,233 Buildings and equipment 325,609 304,149 --------- --------- 391,861 368,382 Accumulated depreciation (124,180) (112,272) --------- --------- 267,681 256,110 Construction in progress 41,148 21,201 Cash and cash equivalents 1,772 957 Accounts receivable and accrued income, net 9,540 8,723 Prepaid expenses 8,956 7,959 Deferred debt costs, net 3,583 3,197 Other assets 1,770 1,518 --------- --------- Total assets $ 334,450 $ 299,665 ========= ========= Liabilities Notes payable $ 343,453 $ 310,268 Accounts payable, accrued expenses and other liabilities 19,592 18,391 Deferred income 2,560 2,865 --------- --------- Total liabilities 365,605 331,524 --------- --------- Minority interests -- -- --------- --------- Stockholders' equity (deficit) Common stock, $0.01 par value, 30,000,000 shares authorized, 13,869,535 and 13,334,145 shares issued and outstanding, respectively 139 133 Additional paid-in capital 52,594 44,616 Accumulated deficit (83,888) (76,608) --------- --------- Total stockholders' equity (deficit) (31,155) (31,859) --------- --------- Total liabilities and stockholders' equity (deficit) $ 334,450 $ 299,665 ========= ========= </TABLE> The accompanying notes are an integral part of these statements. -F-2-
Saul Centers, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> For the Year Ended December 31, (Dollars in thousands, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Revenue Base rent $ 63,837 $ 59,200 $ 55,542 Expense recoveries 11,129 10,176 9,911 Percentage rent 2,097 2,222 2,755 Other 1,966 2,193 2,375 --------- --------- --------- Total revenue 79,029 73,791 70,583 --------- --------- --------- Operating expenses Property operating expenses 8,271 7,720 7,830 Provision for credit losses 467 295 418 Real estate taxes 6,451 6,207 6,128 Interest expense 23,843 22,568 22,627 Amortization of deferred debt expense 458 416 419 Depreciation and amortization 13,534 12,163 12,578 General and administrative 3,891 3,755 3,393 --------- --------- --------- Total operating expenses 56,915 53,124 53,393 --------- --------- --------- Operating income 22,114 20,667 17,190 Non-operating item Gain on sale of property -- 553 -- --------- --------- --------- Net income before extraordinary item, cumulative effect of change in accounting method and minority interests 22,114 21,220 17,190 Extraordinary item Early extinguishment of debt -- -- (50) Cumulative effect of change in accounting method -- -- (771) --------- --------- --------- Net income before minority interests 22,114 21,220 16,369 --------- --------- --------- Minority interests Minority share of income (6,081) (5,899) (4,354) Distributions in excess of earnings (1,988) (2,024) (2,886) --------- --------- --------- Total minority interests (8,069) (7,923) (7,240) --------- --------- --------- Net income $ 14,045 $ 13,297 $ 9,129 ========= ========= ========= Per share (basic and dilutive) Net income before extraordinary item, cumulative effect of change in accounting method and minority interests $ 1.18 $ 1.17 $ 1.00 Extraordinary item -- -- -- Cumulative effect of change in accounting method -- -- (0.05) --------- --------- --------- Net income before minority interests $ 1.18 $ 1.17 $ 0.95 ========= ========= ========= Net income $ 1.03 $ 1.01 $ 0.72 ========= ========= ========= </TABLE> The accompanying notes are an integral part of these statements. -F-3-
Saul Centers, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) <TABLE> <CAPTION> Additional Common Paid-in Accumulated (Dollars in thousands, except per share amounts) Stock Capital Deficit Total - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Stockholders' equity (deficit): Balance, December 31, 1997 $ 124 $ 20,447 $ (58,625) $ (38,054) Issuance of 408,233 shares of common stock 5 6,629 -- 6,634 Issuance of 405,532 convertible limited partnership units in the Operating Partnership -- 4,891 -- 4,891 Net income -- -- 9,129 9,129 Distributions ($1.17 per share) -- -- (14,899) (14,899) Distributions payable ($.39 per share) -- -- (4,985) (4,985) --------- --------- --------- --------- Balance, December 31, 1998 129 31,967 (69,380) (37,284) Issuance of 497,767 shares of common stock 4 7,158 -- 7,162 Issuance of 373,546 convertible limited partnership units in the Operating Partnership -- 5,491 -- 5,491 Net income -- -- 13,297 13,297 Distributions ($1.17 per share) -- -- (15,323) (15,323) Distributions payable ($.39 per share) -- -- (5,202) (5,202) --------- --------- --------- --------- Balance, December 31, 1999 133 44,616 (76,608) (31,859) Issuance of 535,390 shares of common stock 6 7,978 -- 7,984 Net income -- -- 14,045 14,045 Distributions ($1.17 per share) -- -- (15,915) (15,915) Distributions payable ($.39 per share) -- -- (5,410) (5,410) --------- --------- --------- --------- Balance, December 31, 2000 $ 139 $ 52,594 $ (83,888) $ (31,155) ========= ========= ========= ========= </TABLE> The accompanying notes are an integral part of these statements. -F-4-
Saul Centers, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For the Year Ended December 31, (Dollars in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 14,045 $ 13,297 $ 9,129 Adjustments to reconcile net income to net cash provided by operating activities: Minority interests 8,069 7,923 7,240 Gain on sale of property -- (553) -- Cumulative effect of change in accounting method -- -- 771 Loss on early extinguishment of debt -- -- 50 Depreciation and amortization 13,992 12,579 12,997 Provision for credit losses 467 295 418 Increase in accounts receivable (1,284) (2,671) (1,346) Increase in prepaid expenses (2,623) (2,434) (2,742) Decrease (increase) in other assets (252) (360) 3 Increase in accounts payable, accrued expenses and other liabilities 1,201 3,535 1,763 Increase (decrease) in deferred income (305) 26 1,409 Other, net -- 8 (6) --------- ----------- -------- Net cash provided by operating activities 33,310 31,645 29,686 --------- ----------- -------- Cash flows from investing activities: Net proceeds from sale of property -- 1,718 -- Additions to real estate investments (18,233) (11,587) (6,607) Additions to construction in progress (25,193) (27,051) (8,169) --------- ----------- -------- Net cash used in investing activities (43,426) (36,920) (14,776) --------- ----------- -------- Cash flows from financing activities: Proceeds from notes payable 69,700 33,979 20,900 Repayments on notes payable (36,515) (14,334) (18,407) Additions to deferred debt expense (844) (13) (220) Proceeds from the issuance of common stock and convertible limited partnership units in the Operating Partnership 7,984 12,653 11,648 Distributions to common stockholders and holders of convertible limited partnership units in the Operating Partnership (29,394) (28,448) (27,124) --------- ----------- -------- Net cash provided by (used in) financing activities 10,931 3,837 (13,203) --------- ----------- -------- Net increase (decrease) in cash 815 (1,438) 1,707 Cash, beginning of year 957 2,395 688 --------- ----------- -------- Cash, end of year $ 1,772 $ 957 $ 2,395 ========= =========== ======== </TABLE> The accompanying notes are an integral part of these statements. -F-5-
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 1. ORGANIZATION, FORMATION, AND BASIS OF PRESENTATION Organization Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland General Corporation Law on June 10, 1993. The authorized capital stock of Saul Centers consists of 30,000,000 shares of common stock, having a par value of $0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common stock is entitled to one vote for each share held. 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". Saul Centers operates as a real estate investment trust under the Internal Revenue Code of 1986, as amended (a "REIT"). Formation and Structure of Company 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") 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 Washington Square at Old Town, a 235,000 square foot Class A mixed-use office/retail complex, on the 2-acre site of the former North Washington shopping center property, and Ashburn Village III & IV, an in-line retail and retail pad expansion to the Company's Ashburn Village I & II shopping center. The Company is also redeveloping an under-performing shopping center to an office/business park. As of December 31, 2000, the Company's properties (the "Current Portfolio Properties") consisted of 27 operating shopping center properties and Ashburn Village III & IV (the "Shopping Centers"), 4 predominantly office operating properties and Washington Square at Old Town (the "Office Properties"). To facilitate the placement of collateralized mortgage debt, the Company established Saul QRS, Inc. and SC Finance Corporation, each of which is a wholly owned subsidiary of Saul Centers. Saul QRS, Inc. was established to succeed to the interest of Saul Centers as the sole general partner of Saul Subsidiary I Limited Partnership. As a consequence of the transactions constituting the formation of the Company, Saul Centers serves as the sole general partner of the Operating Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc. serves 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. Basis of Presentation The accompanying financial statements of the Company have been presented on the historical cost basis of The Saul Organization because of affiliated ownership and common management and because the assets and liabilities were the subject of a business combination with the Operating Partnership, the Subsidiary Partnerships and Saul Centers, all newly formed entities with no prior operations. 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. A majority of the Shopping Centers are anchored by several major tenants. F-6
SAUL CENTERS, INC. Notes to Consolidated Financial Statements Seventeen of the Shopping Centers are anchored by a grocery store and offer primarily day-to-day necessities and services. As of December 31, 2000, 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 6.5%, accounted for more than 2.2% of the Company's 2000 total revenues. No office tenant other than the United States Government, at 12.3%, accounted for more than 1.3% of 2000 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investment Properties 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. These financial statements are prepared in conformity with generally accepted accounting principles, and accordingly, do not report the current value of the Company's real estate assets. 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. Expenditures for repairs and maintenance are charged to operations as incurred. Repairs and maintenance expense totaled $3,144,000, $2,815,000 and $2,616,000, for calendar years 2000, 1999 and 1998, respectively, and is included in operating expenses in the accompanying consolidated financial statements. Interest expense capitalized totaled $2,681,000, $934,000 and $257,000, for calendar years 2000, 1999 and 1998, respectively. 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. 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 included $3,053,000, $1,803,000 and $1,443,000, at December 31, 2000, 1999 and 1998, respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the term of the respective leases. Receivables are reviewed monthly and reserves are established with a charge to current period operations when, in the opinion of management, collection of the receivable is doubtful. Accounts receivable in the accompanying consolidated financial statements are shown net of an allowance for doubtful accounts of $563,000, $594,000 and $657,000, at December 31, 2000, 1999 and 1998, respectively. F-7
SAUL CENTERS, INC. Notes to Consolidated Financial Statements Allowance for Doubtful Accounts ------------------------------- (In thousands) For the Years Ended December 31, 2000 1999 1998 ----- ----- ----- Beginning Balance.................... $ 594 $ 657 $ 506 Provision for Credit Losses.......... 467 295 418 Charge-offs.......................... -498 -358 -267 ----- ----- ----- Ending Balance ...................... $ 563 $ 594 $ 657 ===== ===== ===== Deferred Debt Costs Deferred debt costs consists of fees and costs incurred to obtain long-term financing, construction financing and the revolving line of credit. These fees and costs are being amortized over the terms of the respective loans or agreements. Deferred debt costs in the accompanying consolidated financial statements are shown net of accumulated amortization of $1,402,000, $1,005,000 and $589,000, at December 31, 2000, 1999 and 1998, respectively. Revenue Recognition Rental and interest income is 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 generally accepted accounting principles. 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 sections 856 through 860 of the Internal Revenue Code of 1986, as amended, 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 95% (90% for tax years beginning on or after January 1, 2001) 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. As of December 31, 2000 and 1999, the total tax basis of the Company's assets was $362,586,000 and $323,080,000, and the tax basis of the liabilities was $353,908,000 and $317,474,000, 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 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 December 31, 2000, 120,000 shares were authorized and registered for use under the Plan, and 92,000 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. F-8
SAUL CENTERS, INC. Notes to Consolidated Financial Statements Change In Accounting Method On May 21, 1998, the Emerging Issues Task Force ("EITF") discussed Issue 98-9 "Accounting for Contingent Rent In Interim Financial Periods" and reached a consensus that lessors should defer the accounting recognition of contingent rent, such as percentage rent, until the specific tenant sales breakpoint is achieved. The Company's prior accounting method, which was permitted under generally accepted accounting principles, recognized percentage rent when a tenant's achievement of its sales breakpoint was considered probable. This EITF consensus was implemented retroactively to January 1, 1998, as a change in accounting method. The new accounting method did not affect the amount of percentage rent income reported on an annual basis, but did impact the recognition of percentage rent income reported on an interim basis by increasing revenues the Company reported in the first and fourth quarters and decreasing revenues reported in the second and third quarters. The change in accounting method has no impact on the Company's cash flows. As a result of adoption of EITF Issue 98-9, the Company recorded a $771,000 charge for the cumulative effect of change in accounting method, which is included in the consolidated statement of operations for the year ended December 31, 1998. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify areas causing difficulties in implementation. The Company has adopted SFAS 133/138, the adoption of which has no impact on the Company's results of operation, financial position or cash flows. 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 December 31, 2000 and 1999 are as follows: Construction in Progress ------------------------ (In thousands) December 31, 2000 1999 ---- ---- Washington Square.................... $38,588 $18,009 Ashburn Village III & IV............. 2,105 -- Crosstown Business Center............ 455 357 Ashburn Village II................... -- 2,326 French Market........................ -- 509 ------- ------- Balance ............................. $41,148 $21,201 ======= ======= Cash and Cash Equivalents Cash and cash equivalents includes cash and short-term investments with maturities of three months or less. Per Share Data Per share data is calculated in accordance with SFAS No. 128, "Earnings Per Share". The Company has no dilutive securities, therefore, basic and diluted earnings per share are identical. Net income before minority interests is presented on a fully converted basis, that is, assuming the limited partners exercise their right to convert their partnership ownership into shares of Saul Centers and is computed using weighted average shares of 18,795,571, 18,147,954 and 17,233,047, shares for the years ended December 31, 2000, 1999 and 1998, respectively. Per share data relating to net income after minority interests is computed on the basis of 13,623,330, 13,100,295 and 12,643,639, weighted average common shares for the years ended December 31, 2000, 1999 and 1998, respectively. F-9
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 3. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP UNITS IN THE OPERATING PARTNERSHIP The Saul Organization has a 27.2% limited partnership interest, represented by 5,172,241 convertible limited partnership units, in the Operating Partnership, as of December 31, 2000. These convertible limited partnership units are convertible into shares of Saul Centers' common stock on a one-for-one basis, provided the rights may not be exercised at any time that The Saul Organization owns, directly or indirectly, in the aggregate more than 29.9% of the outstanding equity securities of Saul Centers. The impact of the Saul Organization's 27.2% limited partnership interest in the Operating Partnership is reflected as minority interests in the accompanying consolidated financial statements. 4. NOTES PAYABLE December 31, 2000 During 2000 the Company obtained a $14,300,000 mortgage loan secured by the recently renovated Shops At Fairfax and Boulevard shopping centers. The loan requires monthly payments of principal and interest based upon a 22 year amortization period and a fixed 8.33% interest rate. The Company also extended its unsecured revolving credit facility for a new three-year term and increased the amount available to borrow by $10,000,000 to $70,000,000. Borrowings on the line of credit totaled $34,500,000 at December 31, 2000, leaving $35,500,000 available for future use. Notes payable totaled $343,453,000 at December 31, 2000, as follows: <TABLE> <CAPTION> Notes Payable ------------- Principal Interest Scheduled (In thousands) Outstanding Rate * Maturity * ------------------------------------------------- <S> <C> <C> <C> Fixed Rate Mortgages: $140,597 (a) 7.67 % Oct 2012 74,342 (b) 8.52 % Dec 2011 36,279 (c) 7.88 % Jan 2013 14,184 (d) 8.33 % May 2015 10,227 (e) 6.88 % May 2004 ----------------------------------------------- Total Fixed Rate 275,629 7.93 % 11.4 Years ----------------------------------------------- Variable Rate Loans: Construction Loan 33,324 (f) 8.47 % Jan 2002 Line of Credit 34,500 (g) 8.62 % Jul 2003 ----------------------------------------------- Total Variable Rate 67,824 8.54 % 1.8 Years ----------------------------------------------- Total Notes Payable $343,453 8.05 % 9.5 Years =============================================== * Weighted averages computed for interest rate and scheduled maturity totals. </TABLE> (a) The loan is collateralized by nine shopping centers and requires monthly principal and interest payments based upon a 25 year amortization schedule. Principal of $2,175,000 was amortized during 2000. (b) The loan is collateralized by Avenel Business Park, Van Ness Square, Ashburn Village I and II, Leesburg Pike, Lumberton Plaza and Village Center. The loan was amended during 1998 to include new borrowings of $6,400,000 at a rate of 7.09%. The 8.52% blended interest rate is the weighted average of the initial loan rate and the additional borrowings rate. Monthly principal and interest payments are based upon a weighted average 18.2 year amortization schedule. Principal of $2,572,000 was amortized during 2000. (c) The loan is collateralized by 601 Pennsylvania Avenue and requires monthly principal and interest payments based upon a 25 year amortization schedule. Principal of $595,000 was amortized during 2000. (d) The loan is collateralized by Shops at Fairfax and Boulevard shopping centers and requires monthly principal and interest payments based upon a 22 year amortization. Principal of $116,000 was amortized during 2000. (e) The loan is collateralized by The Glen shopping center and requires monthly principal and interest payments based upon a 23 year amortization schedule. Principal of $203,000 was amortized during 2000. F-10
SAUL CENTERS, INC. Notes to Consolidated Financial Statements (e) The loan is a construction loan totaling $42,000,000. Interest expense is calculated based upon the 1,2,3 or 6 month LIBOR rate plus a spread of 1.45% to 1.9% (determined by certain leasing and/or construction benchmarks) or upon the bank's prime rate at the Company's option. The loan may be extended for 2 one-year terms with payment of a fee of 1/4% at the Company's option. The interest rate in effect on December 31, 2000 was based on a weighted average LIBOR of 6.72% and spread of 1.9%. (g) The loan is a revolving credit facility totaling $70,000,000. Interest expense is calculated based upon the 1,2,3 or 6 month LIBOR rate plus a spread of 1.625% to 1.875% (determined by certain debt service coverage and leverage tests) or upon the bank's reference rate at the Company's option. The line may be extended one year with payment of a fee of 1/4% at the Company's option. The interest rate in effect on December 31, 2000 was based on a weighted average LIBOR of 6.72% and spread of 1.75%. Notes payable balances outstanding at December 31, 2000 have a weighted average remaining term of 9.5 years, and a weighted average interest rate of 8.05%. Of the $343,453,000 total debt at December 31, 2000, $275,629,000 was fixed rate (80.3% of the total notes payable) and $67,824,000 was variable rate (19.7% of the total notes payable). The December 31, 2000 depreciation adjusted cost of properties collateralizing the mortgage notes payable totaled $218,415,000. Certain loans are subject to financial covenant tests. The Company believes it is in compliance with all such covenants. Notes payable of $275,628,000 at December 31, 2000 require monthly installments of principal and interest, with principal amortization on schedules averaging approximately 22 years. The remaining notes payable totaling $67,824,000 at December 31, 2000 require monthly installments of interest only. Notes payable at December 31, 2000 totaling $225,616,000 are guaranteed by members of The Saul Organization. As of December 31, 2000, the scheduled maturities of all debt for years ended December 31, are as follows: Debt Maturity Schedule ---------------------- (In thousands) 2001............... $ 6,083 2002............... 39,346 2003............... 41,025 2004............... 16,317 2005............... 7,375 Thereafter......... 233,307 -------- $343,453 ======== December 31, 1999 During 1999 the Company obtained a $42,000,000 loan to fund the construction of the Washington Square at Old Town project in Alexandria, Virginia. Borrowings totaled $31,000,000 on the Company's $60,000,000 unsecured revolving credit facility at December 31, 1999, leaving $29,000,000 available for future use. Notes payable totaled $310,268,000 at December 31, 1999. Notes payable balances outstanding at December 31, 1999 had a weighted average remaining term of 10.7 years, and a weighted average interest rate of 7.96%. Of the $310,268,000 total debt at December 31, 1999, $266,990,000 was fixed rate (86.1% of the total notes payable) and $43,278,000 was variable rate (13.9% of the total notes payable). The December 31, 1999 depreciation adjusted cost of properties collateralizing the mortgage notes payable totaled $193,696,000. Certain loans were subject to covenant tests. The Company believes it was in compliance with all such covenant tests. Notes payable of $266,990,000 at December 31, 1999 required monthly installments of principal and interest, with principal amortization on schedules averaging approximately 20 years. The remaining notes payable F-11
SAUL CENTERS, INC. Notes to Consolidated Financial Statements totaling $43,278,000 at December 31, 1999 required monthly installments of interest only. Notes payable at December 31, 1999 totaling $221,075,000 were guaranteed by members of The Saul Organization. 5. LEASE AGREEMENTS Lease income includes primarily base rent arising from noncancelable commercial leases. Base rent for the years ended December 31, 2000, 1999 and 1998, amounted to $63,837,000, $59,200,000 and $55,542,000, respectively. Future base rent under noncancelable leases for years ended December 31, is as follows: Future Base Rental Income ------------------------- (In thousands) 2001........... $ 64,266 2002........... 57,048 2003........... 50,619 2004........... 45,102 2005........... 38,907 Thereafter..... 254,705 -------- $510,647 ======== The majority of the leases also provide for rental increases and expense recoveries based on increases in the Consumer Price Index or increases in operating expenses, or both. These increases generally are payable in equal installments throughout the year based on estimates, with adjustments made in the succeeding year. Expense recoveries for the years ended December 31, 2000, 1999 and 1998 amounted to $11,129,000, $10,176,000 and $9,911,000, respectively. In addition, certain retail leases provide for percentage rent based on sales in excess of the minimum specified in the tenant's lease. Percentage rent amounted to $2,097,000, $2,222,000 and $2,755,000, for the years ended December 31, 2000, 1999 and 1998, respectively. 6. LONG-TERM LEASE OBLIGATIONS Certain properties are subject to noncancelable long-term leases which apply to land underlying the Shopping Centers. Certain of the leases provide for periodic adjustments of the base annual rent and require the payment of real estate taxes on the underlying land. The leases will expire between 2058 and 2068. Reflected in the accompanying consolidated financial statements is minimum ground rent expense of $157,000, $154,000 and $152,000, for each of the years ended December 31, 2000, 1999 and 1998, respectively. The minimum future rental commitments under these ground leases are as follows: Ground Lease Rental Commitments ------------------------------- (In thousands) Total 2001 2002-2005 Thereafter ------------------ ---------- Beacon Center $ 51 $ 53 $ 3,342 Olney 50 50 4,524 Southdale 60 60 3,725 ----- ------ ------- Total $ 161 $ 163 $11,591 ===== ====== ======= The Company's Flagship Center consists of two developed outparcels that are part of a larger adjacent community shopping center formerly owned by The Saul Organization and sold to an affiliate of a tenant in 1991. The Company has a 90- year ground leasehold interest which commenced in September 1991 with a minimum rent of one dollar per year. F-12
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS The consolidated statement of operations for the year ended December 31, 2000 includes a charge for minority interests of $8,069,000, consisting of $6,081,000 related to The Saul Organization's share of the net income for the year and $1,988,000 related to distributions to minority interests in excess of allocated net income for the year. The charge for the year ended December 31, 1999 of $7,923,000 consists of $5,899,000 related to The Saul Organization's share of net income for the year and $2,024,000 related to distributions to minority interests in excess of allocated net income for the year. The charge for the year ended December 31, 1998 of $7,240,000 consists of $4,354,000 related to The Saul Organization's share of the net income for the year and $2,886,000 related to distributions to minority interests in excess of allocated net income for the year. 8. RELATED-PARTY TRANSACTIONS In October 2000, the Company purchased, through its Operating Partnership, Avenel VI, a 30,000 square foot office/flex property for $4,200,000. The seller was a member of The Saul Organization. In August 2000 and October 1999, the Company purchased land parcels of 7.11 and 6.47 acres, located within the 1,580 acre community of Ashburn Village in Loudoun County, Virginia, adjacent to its Ashburn Village neighborhood shopping center at a price of $1,580,000 and $1,438,000, respectively. The land is being developed to expand the existing shopping center. The seller was a member of The Saul Organization. In April 1998, the Company purchased, through its Operating Partnership, a 46,227 square foot office/flex property known as Avenel IV. The $5,600,000 purchase price consisted of $3,657,000 in variable rate debt assumption, with the balance paid through the issuance of 105,922 new units in Saul Centers' Operating Partnership. The seller was a member of The Saul Organization. Chevy Chase Bank, an affiliate of The Saul Organization, leases space in 12 of the Company's properties. Total rental income from Chevy Chase Bank amounted to $1,223,000, $1,169,000 and $1,192,000, for the years ended December 31, 2000, 1999 and 1998, respectively. The Chairman and Chief Executive Officer, the Vice Chairman and the President of the Company are officers of The Saul Organization but devote a substantial amount of time to the management of the Company. The annual compensation for these officers is fixed by the Compensation Committee of the Board of Directors. The Company shares with The Saul Organization on a prorata basis certain ancillary functions such as computer and payroll services and insurance expense based on management's estimate of usage or time incurred, as applicable. Also, The Saul Organization subleases office space to the Company. The terms of all such arrangements with The Saul Organization, including payments related thereto, are periodically reviewed by the Audit Committee of the Board of Directors. Included in general and administrative expense for the years ended December 31, 2000, 1999 and 1998, are charges totaling $2,091,000, $1,798,000 and $1,685,000, related to shared services, of which $2,056,000, $1,773,000 and $1,480,000, was paid during the years ended December 31, 2000, 1999 and 1998, respectively. 9. STOCK OPTION PLAN The Company has established a stock option plan for the purpose of attracting and retaining executive officers and other key personnel. The plan provides for grants of options to purchase a specified number of shares of common stock. A total of 400,000 shares are available under the plan. The plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted. The Compensation Committee has granted options to purchase a total of 180,000 shares (90,000 shares from incentive stock options and 90,000 shares from nonqualified stock options) to five Company officers. The F-13
SAUL CENTERS, INC. Notes to Consolidated Financial Statements options vested 25% per year over four years, have an exercise price of $20 per share and a term of ten years, subject to earlier expiration upon termination of employment. A total of 170,000 of the options expire September 23, 2003 and 10,000 expire September 24, 2004. As of December 31, 2000, all 180,000 of the options were fully vested. No compensation expense has been recognized as a result of these grants. 10. NON-OPERATING ITEMS Gain on Sale of Property Gain on sale of property of $553,000 in 1999 resulted from the District of Columbia's purchase of the Company's Park Road property as part of an assemblage of parcels for a neighborhood revitalization project. There were no property sales in the 2000 or 1998 years. 11. EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT The consolidated statement of operations for the year ending December 31, 1998 includes a $50,000 extraordinary loss related to the write-off of deferred financing costs on loan that was prepaid. There were no such write-offs for the years ended December 31, 2000 and 1999. 12. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure about the fair value for all financial instruments. The carrying values of cash, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value. Based on interest rates currently available to the Company, the carrying value of the variable rate credit line payable is a reasonable estimation of fair value, because the debt bears interest based on short-term interest rates. Based upon management's estimate of borrowing rates and loan terms currently available to the Company for fixed rate financing in the amount of the total notes payable, the fair value is not materially different from its carrying value. 13. COMMITMENTS AND CONTINGENCIES Neither the Company nor the Current Portfolio Properties are subject to any material litigation, nor, to management's knowledge, is any material litigation currently threatened against the Company, other than routine litigation and administrative proceedings arising in the ordinary course of business. Management believes that these items, individually or in the aggregate, will not have a material adverse impact on the Company or the Current Portfolio Properties. F-14
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 14. DISTRIBUTIONS 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 commission, service charges or other expenses. All expenses of the Plan are paid by the Company. The January 31, 1996 dividend was the initial dividend payment date when the Company's stockholders and holders of limited partnership interests could participate in the Plan. Of the distributions paid during 2000, $1.41 per share represented ordinary dividend income and $0.15 per share represented return of capital to the shareholders. The following summarizes distributions paid during the years ended December 31, 2000, 1999 and 1998, including activity in the Plan: <TABLE> <CAPTION> Total Distributions to Dividend Reinvestment Plan ---------------------- -------------------------- Limited Common Common Partnership Stock Units Discounted Stockholders Unitholders Issued Issued Share Price ------------ ----------- ------ ------ ----------- (in thousands) (in thousands) Distributions during 2000 - ------------------------- <S> <C> <C> <C> <C> <C> October 31 $ 5,356 $2,018 133,435 -- $14.85 July 31 5,305 2,017 125,705 -- 15.34 April 28 5,254 2,017 125,558 -- 14.97 January 31 5,202 2,017 129,789 -- 14.43 ------- ------ ------- ------- $21,117 $8,069 514,487 -- ======= ====== ======= ======= Distributions during 1999 - ------------------------- October 29 $ 5,148 $2,017 130,753 -- $13.76 July 30 5,100 2,018 119,142 126,967 14.79 April 30 5,075 1,967 111,990 119,877 15.28 January 29 4,985 1,921 116,727 126,702 14.07 ------- ------ ------- ------- $20,308 $7,923 478,612 373,546 ======= ====== ======= ======= Distributions during 1998 - ------------------------- October 30 $ 4,980 $1,873 105,756 112,867 $15.40 July 29 4,969 1,827 101,739 106,010 16.01 April 30 4,950 1,827 90,856 80,733 17.40 January 30 4,832 1,713 94,304 -- 16.19 ------- ------ ------- ------- $19,731 $7,240 392,655 299,610 ======= ====== ======= ======= </TABLE> In December 2000, 1999 and 1998, the Board of Directors of the Company authorized a distribution of $0.39 per share payable in January 2001, 2000 and 1999, to holders of record on January 17, 2001, January 17, 2000 and January 15, 1999, respectively. As a result, $5,410,000, $5,202,000 and $4,985,000 was paid to common shareholders on January 31, 2001, January 31, 2000 and January 29, 1999, respectively. Also, $2,017,000, $2,017,000 and $1,921,000, was paid to limited partnership unitholders on January 31, 2001, January 31, 2000 and January 29, 1999 ($0.39 per Operating Partnership unit), respectively. These amounts are reflected as a reduction of stockholders' equity and are included in accounts payable in the accompanying consolidated financial statements. F-15
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 15. INTERIM RESULTS (UNAUDITED) The following summary presents the results of operations of the Company for the quarterly periods of years 2000 and 1999. <TABLE> <CAPTION> (In thousands, except Three Months Ended per share amounts) ------------------------------------------------------------------------------- 12/31/2000 09/30/2000 06/30/2000 03/31/2000 ================ ================ =============== =============== <S> <C> <C> <C> <C> Revenues $ 20,910 $ 19,724 $ 18,988 $ 19,407 ---------------- ---------------- --------------- --------------- Net income before minority interests 5,539 5,859 5,183 5,533 Minority interests (2,018) (2,017) (2,017) (2,017) ---------------- ---------------- --------------- --------------- Net income $ 3,521 $ 3,842 $ 3,166 $ 3,516 ================ ================ =============== =============== Per Share Data: Net income before minority interests $ 0.29 $ 0.31 $ 0.28 $ 0.30 ================ ================ =============== =============== Net income $ 0.25 $ 0.28 $ 0.24 $ 0.26 ================ ================ =============== =============== <CAPTION> 12/31/1999 09/30/1999 06/30/1999 03/31/1999 ================ ================ =============== =============== <S> <C> <C> <C> <C> Revenues $ 19,398 $ 18,409 $ 18,020 $ 17,964 ---------------- ---------------- --------------- --------------- Net income before minority interests 6,103 5,145 4,931 5,041 Minority interests (2,017) (2,018) (1,967) (1,921) ---------------- ---------------- --------------- --------------- Net income $ 4,086 $ 3,127 $ 2,964 $ 3,120 ================ ================ =============== =============== Per Share Data: Net income before minority interests $ 0.33 $ 0.28 $ 0.27 $ 0.28 ================ ================ =============== =============== Net income $ 0.31 $ 0.24 $ 0.23 $ 0.24 ================ ================ =============== =============== </TABLE> F-16
SAUL CENTERS, INC. Notes to Consolidated Financial Statements 16. BUSINESS SEGMENTS The company has two reportable business segments: Shopping Centers and Office Properties. The accounting policies of the segments presented below are the same as those described in the summary of significant accounting policies (see Note 1). The Company evaluates performance based upon income from real estate for the combined properties in each segment. <TABLE> <CAPTION> (in thousands) Shopping Office Corporate Consolidated Centers Properties and Other Totals =========== ============== ============= =============== ---------------------------------------------------------- 2000 ---------------------------------------------------------- <S> <C> <C> <C> <C> Real estate rental operations: Revenues.............................................. $ 56,969 $ 21,837 $ 223 $ 79,029 Expenses.............................................. (10,252) (4,937) -- (15,189) --------- ----------- ------------ ------------- Income from real estate.................................. 46,717 16,900 223 63,840 Interest expense & amortization of debt costs......... -- -- (24,301) (24,301) General and administrative............................ -- -- (3,891) (3,891) --------- ----------- ------------ ------------- Subtotal................................................. 46,717 16,900 (27,969) 35,648 Depreciation and amortization......................... 9,453) (4,079) (2) (13,534) Minority interests.................................... -- -- (8,069) (8,069) --------- ----------- ------------ ------------- Net income............................................... $ 37,264 $ 12,821 $ (36,040) $ 14,045 ========= =========== ============ ============= Capital investment....................................... $ 14,886 $ 28,540 $ -- $ 43,426 ========= =========== ============ ============= Total assets............................................. $ 185,518 $ 117,497 $ 31,435 $ 334,450 ========= =========== ============ ============= ------------------------------------------------------------- 1999 ------------------------------------------------------------- Real estate rental operations: Revenues.............................................. $ 54,510 $ 19,183 $ 98 $ 73,791 Expenses.............................................. (9,604) (4,618) -- (14,222) --------- ----------- ------------ ------------- Income from real estate.................................. 44,906 14,565 98 59,569 Interest expense & amortization of debt costs......... -- -- (22,984) (22,984) General and administrative............................ -- -- (3,755) (3,755) --------- ----------- ------------ ------------- Subtotal................................................. 44,906 14,565 (26,641) 32,830 Depreciation and amortization......................... (8,414) (3,749) -- (12,163) Gain on property sale........................... 553 -- -- 553 Minority interests.............................. -- -- (7,923) (7,923) --------- ----------- ------------ ------------- Net income............................................... $ 37,045 $ 10,816 $ (34,564) $ 13,297 ========= =========== ============ ============= Capital investment....................................... $ 16,939 $ 21,699 $ -- $ 38,638 ========= =========== ============ ============= Total assets............................................. $ 186,769 $ 90,185 $ 22,711 $ 299,665 ========= =========== ============ ============= ------------------------------------------------------------- 1998 ------------------------------------------------------------- Real estate rental operations: Revenues.............................................. $ 52,595 $ 17,871 $ 117 $ 70,583 Expenses.............................................. (9,523) (4,723) (130) (14,376) --------- ----------- ------------ ------------- Income (loss) from real estate........................... 43,072 13,148 (13) 56,207 Interest expense & amortization of debt costs......... -- -- (23,046) (23,046) General and administrative............................ -- -- (3,393) (3,393) --------- ----------- ------------ ------------- Subtotal................................................. 43,072 13,148 (26,452) 29,768 Depreciation and amortization......................... (8,758) (3,694) (126) (12,578) Early extinguishment of debt.......................... -- -- (50) (50) Cumulative effect of accounting method change......... -- -- (771) (771) Minority interests.................................... -- -- (7,240) (7,240) --------- ----------- ------------ ------------- Net income............................................... $ 34,314 $ 9,454 $ (34,639) $ 9,129 ========= =========== ============ ============= Capital investment....................................... $ 11,807 $ 2,892 $ 77 $ 14,776 ========= =========== ============ ============= Total assets............................................. $ 178,459 $ 70,182 $ 22,393 $ 271,034 ========= =========== ============ ============= </TABLE> F - 17
Schedule III SAUL CENTERS, INC. Real Estate and Accumulated Depreciation December 31, 2000 (Dollars in Thousands) <TABLE> <CAPTION> Costs Basis is at Close of Period Capitalized --------------------------------------------- Subsequent Buildings Initial to and Leasehold Accumulated Book Basis Acquisition Land Improvements Interests Total Depreciation Value --------- ------------ -------- ------------- ---------- -------- ------------ --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Shopping Centers Ashburn Village, Ashburn, VA $ 6,113 $ 5,158 $ 12,386 $ -- $ 17,544 $ 1,432 $ 16,112 Beacon Center, Alexandria, VA $ 11,431 14,527 -- 14,926 1,094 16,020 5,769 10,251 Belvedere, Baltimore, MD 1,493 834 263 1,503 -- 1,766 784 982 Boulevard, Fairfax, VA 932 1,410 3,687 2,606 -- 6,293 274 6,019 Clarendon, Arlington, VA 4,883 396 635 146 -- 781 37 744 Clarendon Station, Arlington, VA 385 37 425 446 -- 871 60 811 Flagship Center, Rockville, MD 834 9 169 -- -- 169 -- 169 French Market, Oklahoma City, OK 160 8,546 1,118 13,209 -- 14,327 3,573 10,754 Germantown, Germantown, MD 5,781 298 2,034 1,840 -- 3,874 484 3,390 Giant, Baltimore, MD 3,576 303 422 879 -- 1,301 602 699 The Glen, Lake Ridge, VA 998 414 5,300 8,032 -- 13,332 1,410 11,922 Great Eastern, District Heights., MD 12,918 9,323 2,263 10,532 -- 12,795 2,814 9,981 Hampshire Langley, Langley Park, MD 3,472 2,416 1,856 3,719 -- 5,575 1,977 3,598 Leesburg Pike, Baileys Crossroads, VA 3,159 5,099 1,132 6,385 -- 7,517 3,298 4,219 Lexington Mall, Lexington, KY 2,418 5,904 2,111 8,661 -- 10,772 4,573 6,199 Lumberton Plaza, Lumberton, NJ 4,868 8,269 950 11,719 -- 12,669 6,191 6,478 Olney, Olney, MD 4,400 1,281 -- 3,165 -- 3,165 1,709 1,456 Ravenwood, Baltimore, MD 1,884 1,645 703 2,187 -- 2,890 689 2,201 Seven Corners, Falls Church, VA 1,245 39,215 4,913 39,150 -- 44,063 11,441 32,622 Shops at Fairfax, Fairfax, VA 4,848 10,240 992 11,956 -- 12,948 2,445 10,503 Southdale, Glen Burnie, MD 2,708 15,202 -- 18,230 622 18,852 10,885 7,967 Southside Plaza, Richmond, VA 3,650 3,637 1,878 8,487 -- 10,365 5,479 4,886 South Dekalb Plaza, Atlanta, GA 6,728 2,714 703 4,485 -- 5,188 2,376 2,812 Thruway, Winston-Salem, NC 2,474 12,785 5,464 11,994 105 17,563 4,679 12,884 Village Center, Centreville, VA 4,778 1,081 7,851 9,732 -- 17,583 2,054 15,529 West Park, Oklahoma City, OK 16,502 602 485 2,000 -- 2,485 981 1,504 White Oak, Silver Spring, MD 1,883 3,659 4,787 5,149 -- 9,936 3,002 6,934 -- 6,277 ------------ --------------------- ------------------------- --------------------- Total Shopping Centers -------- 155,959 55,299 213,524 1,821 270,644 79,018 191,626 -- 114,685------------- --------------------- ------------------------- --------------------- Office Properties Avenel Business Park, Gaithersburg, MD 21,459 17,525 3,851 35,133 -- 38,984 12,218 26,766 -- Crosstown Business Center, Tulsa, OK 3,454 1,822 604 4,672 -- 5,276 2,067 3,209 601 Pennsylvania Ave., Washington DC 5,479 44,737 5,667 44,549 -- 50,216 19,197 31,019 Van Ness Square, Washington, DC 812 25,929 831 25,910 -- 26,741 11,680 15,061 ----------------------- --------------------- ------------------------- --------------------- Total Office Properties 31,204 90,013 10,953 110,264 -- 121,217 45,162 76,055 ----------------------- --------------------- ------------------------- --------------------- Total $ 145,889 $ 245,972 $66,252 $ 323,788 $ 1,821 $ 391,861 $ 124,180 $267,681 ============================================================================================= <CAPTION> Buildings and Improvements Related Date of Date Depreciable Debt Construction Acquired Lives in Years ----------- ----------------- ------------- ----------------- <S> <C> <C> <C> <C> Shopping Centers Ashburn Village, Ashburn, VA $ 11,902 1994 & 2000 3/94 40 Beacon Center, Alexandria, VA 7,414 1960 & 1974 1/72 40 & 50 Belvedere, Baltimore, MD 2,640 1958 1/72 40 Boulevard, Fairfax, VA 6,687 1969 4/94 40 Clarendon, Arlington, VA 328 1949 7/73 33 Clarendon Station, Arlington, VA 96 1949 1/96 40 Flagship Center, Rockville, MD 548 1972 1/72 -- French Market, Oklahoma City, OK 3,176 1972 3/74 50 Germantown, Germantown, MD 1,168 1990 8/93 40 Giant, Baltimore, MD 2,678 1959 1/72 40 The Glen, Lake Ridge, VA 10,227 1993 6/94 40 Great Eastern, District Heights., MD 11,477 1958 & 1960 1/72 40 Hampshire Langley, Langley Park, MD 10,511 1960 1/72 40 Leesburg Pike, Baileys Crossroads, VA 11,717 1965 2/66 40 Lexington Mall, Lexington, KY 6,311 1971 & 1974 3/74 50 Lumberton Plaza, Lumberton, NJ 8,266 1975 12/75 40 Olney, Olney, MD 2,448 1972 11/75 40 Ravenwood, Baltimore, MD 6,776 1959 1/72 40 Seven Corners, Falls Church, VA 45,875 1956 7/73 33 Shops at Fairfax, Fairfax, VA 9,637 1975 6/75 50 Southdale, Glen Burnie, MD 8,217 1962 & 1987 1/72 40 Southside Plaza, Richmond, VA 10,158 1958 1/72 40 South Dekalb Plaza, Atlanta, GA 2,545 1970 2/76 40 Thruway, Winston-Salem, NC 26,241 1955 & 1965 5/72 40 Village Center, Centreville, VA 9,219 1990 8/93 40 West Park, Oklahoma City, OK 110 1974 9/75 50 White Oak, Silver Spring, MD 24,240 1958 & 1967 1/72 40 -------- Total Shopping Centers 240,612 -------- Office Properties Avenel Business Park, Gaithersburg, MD 25,978 1984, 1986, 12/84, 8/85, 35 & 40 1990, 1998 2/86, 4/98 and 2000 & 10/00 Crosstown Business Center, Tulsa, OK -- 1974 10/75 40 601 Pennsylvania Ave., Washington DC 36,279 1986 7/73 35 Van Ness Square, Washington, DC 7,260 1990 7/73 35 -------- Total Office Properties 69,517 -------- Total $310,129 ======== </TABLE> F-18
Schedule III SAUL CENTERS, INC. Real Estate and Accumulated Depreciation December 31, 2000 Depreciation and amortization related to the real estate investments reflected in the statements of operations is calculated over the estimated useful lives of the assets as follows: Base building 33 - 50 years Building components 20 years Tenant improvements The lesser of the term of the lease or the useful life of the improvements The aggregate remaining net basis of the real estate investments for federal income tax purposes was approximately $294,989,000 at December 31, 2000. Depreciation and amortization are provided on the declining balance and straight-line methods over the estimated useful lives of the assets. The changes in total real estate investments and related accumulated depreciation for each of the years in the three year period ended December 31, 2000 are summarized as follows. (In thousands) 2000 1999 1998 - ---------------------------------- --------- -------- --------- Total real estate investments: Balance, beginning of year $ 368,382 $ 348,061 $ 335,268 Improvements 23,479 21,943 14,784 Sales -- 1,192 -- Retirements -- 430 1,991 --------- --------- --------- Balance, end of year $ 391,861 $ 368,382 $ 348,061 ========= ========= ========= Total accumulated depreciation: Balance, beginning of year $ 112,272 $ 101,910 $ 92,615 Depreciation expense 11,908 10,714 10,409 Sales -- 42 -- Retirements -- 310 1,114 --------- --------- --------- Balance, end of year $ 124,180 $ 112,272 $ 101,910 ========= ========= ========= F-19