Saul Centers, Inc. Reports Second Quarter 2020 Earnings

BETHESDA, Md., Aug. 6, 2020 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2020 ("2020 Quarter").  Total revenue for the 2020 Quarter decreased to $53.2 million from $58.1 million for the quarter ended June 30, 2019 ("2019 Quarter").  Net income decreased to $10.2 million for the 2020 Quarter from $16.8 million for the 2019 Quarter.  The Waycroft mixed-use development opened in April 2020 and, as of August 5, 2020, applications have been received for 217 residential leases, totaling approximately 44% of the available units, with 189 units occupied. Concurrent with the opening in April, interest, real estate taxes and all other costs associated with the residential portion of the property, including depreciation, began to be charged to expense, while revenue continues to grow as occupancy increases. As a result, net income for the 2020 Quarter was adversely impacted by $4.6 million due to the initial operations of The Waycroft. Net income also decreased due to higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.8 million).  Net income available to common stockholders was $5.5 million ($0.24 per diluted share) for the 2020 Quarter compared to ($10.3 million) ($0.45 per diluted share) for the 2019 Quarter.

Same property revenue decreased $5.3 million (9.1%) and same property operating income decreased $4.4 million (9.9%) for the 2020 Quarter compared to the 2019 Quarter.  We define same property revenue as total revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods.  We define same property operating income as net income plus (a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of deferred leasing costs, (c) general and administrative expenses and (d) change in fair value of derivatives minus (e) gains on sale of property and (f) the results of properties which were not in operation for the entirety of the comparable periods.  Shopping Center same property operating income for the 2020 Quarter totaled $29.8 million, a $3.9 million decrease from the 2019 Quarter.  Mixed-Use same property operating income totaled $10.1 million, a $0.5 million decrease from the 2019 Quarter. The decrease in Shopping Center same property operating income was primarily the result of (a) higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.7 million) and (b) lower lease termination fees ($0.5 million). The decrease in Mixed-Use same property operating income was primarily the result of (a) lower parking income, net of parking expenses ($0.3 million) and (b) lower percentage rent ($0.2 million).

As of June 30, 2020, 94.7% of the commercial portfolio was leased (not including the residential portfolio), unchanged from June 30, 2019.  On a same property basis, 94.7% of the commercial portfolio was leased as of June 30, 2020, compared to 95.2% at June 30, 2019.  As of June 30, 2020, the residential portfolio was 67.7% leased compared to 98.1% at June 30, 2019. The decrease in Residential portfolio occupancy is primarily due to the increase in units available as a result of the opening of The Waycroft. On a same property basis, 95.3% of the residential portfolio was leased as of June 30, 2020, compared to 98.1% at June 30, 2019.

For the six months ended June 30, 2020 ("2020 Period"), total revenue decreased to $110.2 million from $117.9 million for the six months ended June 30, 2019 ("2019 Period").  Net income decreased to $27.0 million for the 2020 Period from $33.8 million for the 2019 Period.  Net income available to common stockholders decreased to $16.0 million ($0.69 per diluted share) for the     2020 Period compared to $20.8 million ($0.91 per diluted share) for the 2019 Period.  The decrease in net income available to common stockholders was primarily due to (a) initial operations of The Waycroft ($4.6 million), (b) higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.7 million), (c) lower lease termination fees ($1.7 million) and (d) lower base rent, primarily due to the lease expiration and re-leasing of the grocery anchors at Seven Corners, which opened in March 2020, and at Shops at Fairfax, which is projected to open in the third quarter of 2020 (collectively, $0.5 million), partially offset by (e) lower interest incurred due to lower average interest rates during the period, exclusive of the impact of The Waycroft ($1.8 million), (f) lower income attributable to noncontrolling interests ($1.7 million) and (g) higher capitalized interest for 7316 Wisconsin Avenue ($1.1 million).

Same property revenue decreased $7.3 million (6.3%) and same property operating income decreased $5.7 million (6.5%) for the 2020 Period, compared to the 2019 Period.  Shopping Center same property operating income decreased (7.3%) and mixed-use same property operating income decreased (4.0%).  Shopping Center same property operating income decreased primarily due to (a) higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.6 million), (b) lower lease termination fees ($1.4 million) and (c) lower expense recoveries, net of recoverable expenses ($0.4 million). Mixed-use same property operating income decreased primarily due to (a) lower parking income, net of parking expenses ($0.4 million) and (b) lower percentage rent ($0.2 million).

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $20.0 million ($0.64 per diluted share) in the 2020 Quarter compared to $25.3 million ($0.82 per diluted share) in the 2019 Quarter.  FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance.  A reconciliation of net income to FFO is attached to this press release.  Concurrent with the opening of The Waycroft in April, interest, real estate taxes and all other costs associated with the residential portion property began to be charged to expense while revenue continues to grow as occupancy increases. As a result, FFO for the 2020 Quarter was adversely impacted by $3.2 million due to the initial operations of The Waycroft. The decrease in FFO available to common stockholders and noncontrolling interests also decreased due to (a) higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.8 million) and (b) lower lease termination fees ($0.4 million), partially offset by (c) higher capitalized interest for 7316 Wisconsin Avenue ($0.6 million) and (d) lower general and administrative expenses ($0.5 million).

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) decreased to $45.3 million ($1.45 per diluted share) in the 2020 Period from $51.1 million ($1.66 per diluted share) in the 2019 Period.  FFO available to common stockholders and noncontrolling interests decreased primarily due to (a) initial operations of The Waycroft ($3.2 million), (b) higher credit losses on operating lease receivables and corresponding reserves (collectively, $2.7 million), (c) lower lease termination fees ($1.7 million) and (d) lower base rent, primarily due to the lease expiration and re-leasing of the grocery anchors at Seven Corners, which opened in March 2020, and at Shops at Fairfax, which is projected to open in the third quarter of 2020 (collectively, $0.5 million), partially offset by (e) lower interest incurred due to lower average interest rates during the period, exclusive of the impact of The Waycroft ($1.8 million) and (f) higher capitalized interest for 7316 Wisconsin Avenue ($1.1 million).

On March 11, 2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.  As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly.

In the first week of April, the Company delivered The Waycroft, comprised of 491 apartment units and 60,000 square feet of retail space, on North Glebe Road, in Arlington, Virginia. As of August 5, 2020, despite the headwinds of COVID-19, 217 residential applications have been executed, totaling approximately 44% of the available units, and a total of 189 units were occupied. The addition of The Waycroft nearly doubles the residential component of the portfolio to over 1,000 luxury residential units. The project is anchored by a 41,500 square foot Target store.  Target commenced paying rent in July 2020 and is scheduled to commence operations in August.  An additional 5,900 square feet of retail space is expected to be operational during the second half of 2020.

The actions taken by federal, state and local governments to mitigate the spread of COVID-19 by ordering closure of nonessential businesses and ordering residents to generally stay at home, and subsequent phased re-openings, have resulted in many of our tenants announcing mandated or temporary closures of their operations and/or requesting adjustments to their lease terms.  Experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or a global recession.  COVID-19 could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows and the market value and trading price of our securities.

While the Company's grocery stores, pharmacies, banks and home improvement stores generally remain open, restaurants, if open, are operating at limited capacity, with many offering only delivery and curbside pick-up, and most health, beauty supply and services, fitness centers, and other non-essential businesses are in various phases of re-opening depending on location. As of August 5, 2020, approximately 80% of the Company's contractual base rent and operating expense and real estate tax recoveries for April, May and June 2020 has been paid. Of the 20% unpaid, rent subject to executed deferral agreements totaled approximately $3.9 million, which represents 8% of total billings and 37% of the total unpaid balance for such period.  The Company is generally not charging late fees or delinquent interest on these past due payments and, in many cases, additional rent deferral agreements are being negotiated to allow tenants temporary relief where needed. For additional discussion of how the COVID-19 pandemic has impacted the Company's business, please see Part 1, Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

The following is a summary of the Company's consolidated total rent collections for the second quarter and July rent billings, including minimum rent, operating expense recoveries, and real estate tax reimbursements as of August 5, 2020:

2020 Second Quarter

• 80% of 2020 Second Quarter total billings has been paid by our tenants (comprised of 82%, 78% and 79%, for April, May and June 2020, respectively.)
• 74% of retail
• 94% of office
• 100% of residential
• Additionally, rent deferral agreements comprising approximately 8% of 2020 Second Quarter total billings have been executed (or 37% of the total unpaid balance, including 17% with anchor/national tenants).  The executed deferrals typically cover three months of rent and are generally scheduled to be repaid during 2021 and 2022.  As a condition to granted rent deferrals, we have sought and received extended lease terms, or waivers of certain adjacent use or common area restrictions.

July 2020

• 84% of July 2020 total billings has been paid by our tenants.
• 79% of retail
• 94% of office
• 99% of residential
• Additionally, rent deferral agreements comprising approximately 2% of July total billings have been executed (or 10% of the total unpaid balance, including 6% with anchor/national tenants).  These deferrals are structured similarly to the second quarter deferrals.

Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, and we continue to work with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.

During July 2020, the Company closed on two 15-year, non-recourse mortgage loans with a weighted average rate of 3.59% and total proceeds of $52.1 million. One loan is secured by Ashbook Marketplace and the other is secured by certain of our assets at Kentlands. The proceeds from the loans were used to pay down the revolving credit facility. With cash balances of over $53.4 million and borrowing capacity of approximately $200.3 million on July 31, 2020, the Company believes that it has sufficient liquidity and flexibility to meet the needs of the Company's operations as the effects of the COVID-19 pandemic continue to evolve.

Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 60 properties which includes (a) 50 community and neighborhood shopping centers and seven mixed-use properties with approximately 9.8 million square feet of leasable area and (b) three land and development properties. Approximately 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

Safe Harbor Statement

Certain matters discussed within this press release may be deemed to be forward-looking statements within the meaning of the federal securities laws.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.  These factors include, but are not limited to, the risk factors described in our Annual Report on (i) Form 10-K for the year ended December 31, 2019 and (ii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and include the following: (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company's ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management's ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and management's ability to estimate the impact thereof, (vii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (viii) increases in operating costs, (ix) changes in the dividend policy for the Company's common and preferred stock and the Company's ability to pay dividends at current levels, (x) the reduction in the Company's income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xi) impairment charges, (xii) unanticipated changes in the Company's intention or ability to prepay certain debt prior to maturity and (xiii) an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period.  Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this press release.  Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise.  You should carefully review the risks and risk factors included in (i) our Annual Report on Form 10-K for the year ended December 31, 2019 and (ii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

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SOURCE Saul Centers, Inc.