UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM			10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, ~~2020~~2021

☐ 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 incorporation or organization)			(I.R.S. Employer Identification No.)

7501 Wisconsin Avenue,, Bethesda,, Maryland20814

(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code (~~301~~) (301) 986-6200

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading symbol:	Name of exchange on which registered:	~~Trading symbol:~~
Common Stock, Par Value $0.01 Per Share	BFS	New York Stock Exchange	~~BFS~~
Depositary Shares each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock, Par Value $0.01 Per Share	BFS/PRD	New York Stock Exchange	~~BFS/PRD~~
Depositary Shares each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock, Par Value $0.01 Per Share	BFS/PRE	New York Stock Exchange	~~BFS/PRE~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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Table of Contents

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock, par value $0.01 per share outstanding as of July 31, ~~2020: 23.2~~2021: 23.6 million.

-2-

Table of Contents

SAUL CENTERS, INC.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION

			~~Page~~
~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements (Unaudited)

(a) Consolidated Balance Sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020			4
(b) Consolidated Statements of Operations for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020			5
~~(c) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019~~			6
~~(d)~~(c) Consolidated Statements of Equity for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020			76
~~(e)~~(d) Consolidated Statements of Cash Flows for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020			98
~~(f)~~(e) Notes to Consolidated Financial Statements			109

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(a) Critical Accounting Policies			26

(b) Results of Operations:
Three months ended June 30, ~~2020~~2021 compared to three months ended June 30, ~~2019~~2020			27
Six months ended June 30, ~~2020~~2021 compared to six months ended June 30, ~~2019~~2020			28
Same Property Revenue			2930
Same Property Operating Income			3132

(c) Liquidity and Capital Resources			3132

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3637

Item 4. Controls and Procedures			3738

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			3839
Item 1A. Risk Factors			3839
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3940
Item 3. Defaults Upon Senior Securities			3940
Item 4. Mine Safety Disclosures			3940
Item 5. Other Information			3940
Item 6. Exhibits			40
Signatures			41

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except per share amounts)	June 30, 2020			December 31, 2019			(Dollars in thousands, except per share amounts)	June 30, 2021		December 31, 2020

Assets							Assets
Real estate investments							Real estate investments
Land	$	503,802		$	453,322		Land	$	511,596	$	511,482
Buildings and equipment	1,505,909			1,292,631			Buildings and equipment	1,560,607		1,543,837
Construction in progress	101,359			335,644			Construction in progress	184,459		69,477
	2,111,070			2,081,597				2,256,662		2,124,796
Accumulated depreciation	(584,002		)	(563,474		)	Accumulated depreciation	(628,418)		(607,706)
	1,527,068			1,518,123				1,628,244		1,517,090
Cash and cash equivalents	66,457			13,905			Cash and cash equivalents	14,857		26,856
Accounts receivable and accrued income, net	57,926			52,311			Accounts receivable and accrued income, net	59,743		64,917
Deferred leasing costs, net	27,057			24,083			Deferred leasing costs, net	25,494		26,872
Prepaid expenses, net	1,579			5,363

Other assets	6,549			4,555			Other assets	8,642		9,837
Total assets	$	1,686,636		$	1,618,340		Total assets	$	1,736,980	$	1,645,572
Liabilities							Liabilities
Notes payable	$	791,534		$	821,503		Notes payable	$	801,947	$	827,603
Construction loan payable							Construction loan payable	147,087		144,607
Revolving credit facility payable							Revolving credit facility payable	108,684		103,913
Term loan facility payable	74,741			74,691			Term loan facility payable	74,841		74,791
Revolving credit facility payable	173,642			86,371
Construction loan payable	134,650			108,623
Dividends and distributions payable	19,358			19,291
Accounts payable, accrued expenses and other liabilities	30,311			35,199			Accounts payable, accrued expenses and other liabilities	29,688		24,384
Deferred income	24,114			29,306			Deferred income	24,781		23,293
Dividends and distributions payable							Dividends and distributions payable	20,499		19,448

Total liabilities	1,248,350			1,174,984			Total liabilities	1,207,527		1,218,039
Equity							Equity
Preferred stock, 1,000,000 shares authorized:							Preferred stock, 1,000,000 shares authorized:

Series D Cumulative Redeemable, 30,000 shares issued and outstanding	75,000			75,000			Series D Cumulative Redeemable, 30,000 shares issued and outstanding	75,000		75,000
Series E Cumulative Redeemable, 44,000 shares issued and outstanding	110,000			110,000			Series E Cumulative Redeemable, 44,000 shares issued and outstanding	110,000		110,000
Common stock, $0.01 par value, 40,000,000 shares authorized, 23,342,699 and 23,231,240 shares issued and outstanding, respectively	233			232
Common stock, $0.01 par value, 40,000,000 shares authorized, 23,648,047 and 23,476,626 shares issued and outstanding, respectively							Common stock, $0.01 par value, 40,000,000 shares authorized, 23,648,047 and 23,476,626 shares issued and outstanding, respectively	236		235
Additional paid-in capital	416,793			410,926			Additional paid-in capital	427,347		420,625
Partnership units in escrow							Partnership units in escrow	79,300		0
Distributions in excess of accumulated earnings	(229,918		)	(221,177		)	Distributions in excess of accumulated earnings	(249,612)		(241,535)

Total Saul Centers, Inc. equity	372,108			374,981			Total Saul Centers, Inc. equity	442,271		364,325
Noncontrolling interests	66,178			68,375			Noncontrolling interests	87,182		63,208
Total equity	438,286			443,356			Total equity	529,453		427,533
Total liabilities and equity	$	1,686,636		$	1,618,340		Total liabilities and equity	$	1,736,980	$	1,645,572

The Notes to Financial Statements are an integral part of these statements.

-4-

Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(Dollars in thousands, except per share amounts)	Three Months Ended June 30,						Six Months Ended June 30,						(Dollars in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Revenue													Revenue
Rental revenue	$	52,002		$	55,953		$	107,418		$	112,756		Rental revenue	$	58,818	$	52,002	$	116,575	$	107,418
Other	1,218			2,188			2,745			5,135			Other	1,186		1,218		2,154		2,745
Total revenue	53,220			58,141			110,163			117,891			Total revenue	60,004		53,220		118,729		110,163
Expenses													Expenses
Property operating expenses	6,410			7,115			13,446			15,116			Property operating expenses	7,524		6,410		16,210		13,446
Real estate taxes	7,351			6,819			14,504			13,967			Real estate taxes	7,138		7,351		14,967		14,504
Interest expense, net and amortization of deferred debt costs	12,019			10,793			21,613			21,860			Interest expense, net and amortization of deferred debt costs	11,657		12,019		23,646		21,613
Depreciation and amortization of deferred leasing costs	12,600			11,524			23,881			23,167
Depreciation and amortization of lease costs													Depreciation and amortization of lease costs	12,637		12,600		25,385		23,881
General and administrative	4,632			5,140			9,682			9,954			General and administrative	4,929		4,632		9,607		9,682
Total expenses	43,012			41,391			83,126			84,064			Total expenses	43,885		43,012		89,815		83,126

Net Income	10,208			16,750			27,037			33,827			Net Income	16,119		10,208		28,914		27,037
Noncontrolling interests													Noncontrolling interests
Income attributable to noncontrolling interests	(1,880		)	(3,518		)	(5,445		)	(7,148		)	Income attributable to noncontrolling interests	(3,373)		(1,880)		(5,906)		(5,445)
Net income attributable to Saul Centers, Inc.	8,328			13,232			21,592			26,679			Net income attributable to Saul Centers, Inc.	12,746		8,328		23,008		21,592

Preferred stock dividends	(2,798		)	(2,953		)	(5,596		)	(5,906		)	Preferred stock dividends	(2,799)		(2,798)		(5,597)		(5,596)
Net income available to common stockholders	$	5,530		$	10,279		$	15,996		$	20,773		Net income available to common stockholders	$	9,947	$	5,530	$	17,411	$	15,996
Per share net income available to common stockholders													Per share net income available to common stockholders

Basic and diluted	$	0.24		$	0.45		$	0.69		$	0.91		Basic and diluted	$	0.42	$	0.24	$	0.74	$	0.69

The Notes to Financial Statements are an integral part of these statements.

-5-

Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~EQUITY

(Unaudited)


(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance at January 1, 2021	$	185,000	$	235	$	420,625	$	0	$	(241,535)	$	364,325	$	63,208	$	427,533


Issuance of shares of common stock:
96,268 shares pursuant to dividend reinvestment plan	—		1		2,839		—		—		2,840		—		2,840
910 shares due to exercise of stock options and issuance of directors’ deferred stock	—		—		323		—		—		323		—		323
Issuance of 19,493 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		575		575
1,416,071 partnership units placed in escrow pursuant to Twinbrook contribution	—		—		—		79,300		—		79,300		—		79,300
Net income	—		—		—		—		10,262		10,262		2,533		12,795





Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		(1,650)		—		(1,650)
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit)	—		—		—		—		(12,488)		(12,488)		(4,218)		(16,706)
Balance, March 31, 2021	185,000		236		423,787		79,300		(246,559)		441,764		62,098		503,862

Issuance of shares of common stock:
68,206 shares pursuant to dividend reinvestment plan	—		—		2,855		—		—		2,855		—		2,855
6,038 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		705		—		—		705		—		705
Issuance of partnership units:	—		—		—		—		—		—		—		—
13,978 units pursuant to the dividend reinvestment plan	—		—		—		—		—		—		585		585
469,740 units pursuant to the contribution of Twinbrook leasehold interest	—		—		—		—		—		—		21,500		21,500
93,674 units pursuant to the contribution of Ashbrook Marketplace	—		—		—		—		—		—		4,320		4,320
Net income	—		—		—		—		12,746		12,746		3,373		16,119





Distributions payable preferred stock:
Series D, $38.28 per share	—		—		—		—		(1,149)		(1,149)		—		(1,149)
Series E, $37.50 per share	—		—		—		—		(1,650)		(1,650)		—		(1,650)
Distributions payable common stock ($0.55/share) and distributions payable partnership units ($0.55/unit)	—		—		—		—		(13,000)		(13,000)		(4,694)		(17,694)
Balance, June 30, 2021	$	185,000	$	236	$	427,347	$	79,300	$	(249,612)	$	442,271	$	87,182	$	529,453

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Table of Contents

Saul Centers, Inc.

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2020 2019 2020 2019
Net income $ 10,208
$ 16,750
$ 27,037
$ 33,827
Other comprehensive income
Change in unrealized loss on cash flow hedge —
(127 ) —
(173 )
Total comprehensive income 10,208
16,623
27,037
33,654
Comprehensive income attributable to noncontrolling interests (1,880 ) (3,473 ) (5,445 ) (7,103 )
Total comprehensive income attributable to Saul Centers, Inc. 8,328
13,150
21,592
26,551
Preferred stock dividends (2,798 ) (2,953 ) (5,596 ) (5,906 )
Total comprehensive income available to common stockholders $ 5,530
$ 10,197
$ 15,996
$ 20,645


(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance at January 1, 2020	$	185,000	$	232	$	410,926	$	0	$	(221,177)	$	374,981	$	68,375	$	443,356


Issuance of shares of common stock:
83,978 shares pursuant to dividend reinvestment plan	—		1		4,080		—		—		4,081		—		4,081
11,745 shares due to exercise of stock options and issuance of directors’ deferred stock	—		—		956		—		—		956		—		956
Issuance of 15,101 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		734		734
Net income	—		—		—		—		13,264		13,264		3,565		16,829



Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		(1,650)		—		(1,650)
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit)	—		—		—		—		(12,364)		(12,364)		(4,188)		(16,552)
Balance, March 31, 2020	185,000		233		415,962		0		(223,075)		378,120		68,486		446,606



Issuance of shares of common stock:
12,627 shares pursuant to dividend reinvestment plan	—		—		407		—		—		407		—		407
3,109 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		424		—		—		424		—		424

Net income	—		—		—		—		8,328		8,328		1,880		10,208





Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		(1,650)		—		(1,650)
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit)	—		—		—		—		(12,373)		(12,373)		(4,188)		(16,561)
Balance, June 30, 2020	$	185,000	$	233	$	416,793	$	0	$	(229,918)	$	372,108	$	66,178	$	438,286

The Notes to Financial Statements are an integral part of these statements.

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~~-6-~~

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Saul Centers, Inc.

~~CONSOLIDATED STATEMENTS OF EQUITY~~


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six months ended June 30,
(Dollars in thousands)	2021		2020
Cash flows from operating activities:
Net income	$	28,914	$	27,037
Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization of lease costs	25,385		23,881
Amortization of deferred debt costs	811		760
Compensation costs of stock and option grants	903		851
Credit losses on operating lease receivables	951		2,300
(Increase) decrease in accounts receivable and accrued income	4,223		(7,915)
Additions to deferred leasing costs	(1,001)		(5,644)

Decrease in other assets	1,200		1,790
Increase in accounts payable, accrued expenses and other liabilities	3,743		3,881
Increase (decrease) in deferred income	1,488		(5,192)
Net cash provided by operating activities	66,617		41,749
Cash flows from investing activities:
Acquisitions of real estate investments (1) (2) (3)	(9,011)		0
Additions to real estate investments	(11,668)		(10,763)
Additions to development and redevelopment projects	(6,801)		(28,164)



Net cash used in investing activities	(27,480)		(38,927)
Cash flows from financing activities:

Repayments on notes payable	(26,097)		(30,293)

Proceeds from revolving credit facility	20,000		90,000
Repayments on revolving credit facility	(15,500)		(3,000)
Proceeds from construction loan	2,430		25,977
Additions to deferred debt costs	(2)		(101)
Proceeds from the issuance of:
Common stock	5,820		5,016
Partnership units (1) (2) (3)	1,160		734





Distributions to:

Series D preferred stockholders	(2,296)		(2,296)
Series E preferred stockholders	(3,300)		(3,300)
Common stockholders	(24,926)		(24,639)
Noncontrolling interests	(8,425)		(8,368)
Net cash provided by (used in) financing activities	(51,136)		49,730
Net increase (decrease) in cash and cash equivalents	(11,999)		52,552
Cash and cash equivalents, beginning of period	26,856		13,905
Cash and cash equivalents, end of period	$	14,857	$	66,457
Supplemental disclosure of cash flow information:
Cash paid for interest	$	23,214	$	21,015
Increase (decrease) in accrued real estate investments and development costs	$	1,682	$	(8,769)

~~(Unaudited)~~

(1) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $79,300 in connection with the contribution of Twinbrook Quarter by the B. F. Saul Real Estate Investment Trust in exchange for limited partnership units that are currently held in escrow. See Notes 3 and 4 to the Consolidated Financial Statements.

(2) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $21,500 in connection with the contribution of the Twinbrook Quarter leasehold interest in exchange for limited partnership units. See Notes 3 and 4 to the Consolidated Financial Statements.

(3) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $4,320 in connection with the issuance of additional limited partnership units to B. F. Saul Real Estate Investment Trust as additional consideration pursuant to the terms of the 2016 contribution agreement, as amended, related to Ashbrook Marketplace. See Note 7 to the Consolidated Financial Statements.

-8-

(Dollars in thousands, except per share amounts)
Preferred
Stock

Common
Stock

Additional Paid-in
Capital
Distributions in Excess of Accumulated Earnings
Accumulated
Other Comprehensive
(Loss)

Total Saul
Centers, Inc.

Noncontrolling
Interests
Total
Balance at January 1, 2020 $ 185,000
$ 232
$ 410,926
$ (221,177 ) $ —
$ 374,981
$ 68,375
$ 443,356
Issuance of shares of common stock:
83,978 shares pursuant to dividend reinvestment plan —
1
4,080
—
—
4,081
—
4,081
11,745 shares due to exercise of stock options and issuance of directors’ deferred stock —
—
956
—
—
956
—
956
Issuance of 15,101 partnership units pursuant to dividend reinvestment plan —
—
—
—
—
—
734
734
Net income —
—
—
13,264
—
13,264
3,565
16,829
Distributions payable preferred stock:
Series D, $38.28 per share —
—
—
(1,148 ) —
(1,148 ) —
(1,148 )
Series E, $37.50 per share —
—
—
(1,650 ) —
(1,650 ) —
(1,650 )
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit) —
—
—
(12,364 ) —
(12,364 ) (4,188 ) (16,552 )
Balance, March 31, 2020 185,000
233
415,962
(223,075 ) —
378,120
68,486
446,606

Issuance of shares of common stock:
12,627 shares pursuant to dividend reinvestment plan —
—
407
—
—
407
—
407
3,109 shares due to exercise of stock options and issuance of directors’ deferred stock —
—
424
—
—
424
—
424
Net income —
—
—
8,328
—
8,328
1,880
10,208
Distributions payable preferred stock:
Series D, $38.28 per share —
—
—
(1,148 ) —
(1,148 ) —
(1,148 )
Series E, $37.50 per share —
—
—
(1,650 ) —
(1,650 ) —
(1,650 )
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit) —
—
—
(12,373 ) —
(12,373 ) (4,188 ) (16,561 )
Balance, June 30, 2020 $ 185,000
$ 233
$ 416,793
$ (229,918 ) $ —
372,108
$ 66,178
$ 438,286

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~~Saul Centers, Inc.~~

(Dollars in thousands, except per share amounts) Preferred
Stock Common
Stock Additional Paid-in
Capital Distributions in Excess of Accumulated Earnings Accumulated
Other Comprehensive
(Loss) Total Saul
Centers, Inc. Noncontrolling
Interests Total
Balance at January 1, 2019 $ 180,000
$ 227
$ 384,533
$ (208,593 ) $ (255 ) $ 355,912
$ 69,308
$ 425,220
Issuance of shares of common stock:
120,347 shares pursuant to dividend reinvestment plan —
1
6,170
—
—
6,171
—
6,171
485 shares due to exercise of stock options and issuance of directors’ deferred stock —
1
419
—
—
420
—
420
Issuance of 13,742 partnership units pursuant to dividend reinvestment plan —
—
—
—
—
—
705
705
Net income —
—
—
13,447
—
13,447
3,630
17,077
Change in unrealized loss on cash flow hedge —
—
—
—
(34 ) (34 ) (12 ) (46 )
Distributions payable preferred stock:
Series C, $42.97 per share —
—
—
(1,805 ) —
(1,805 ) —
(1,805 )
Series D, $38.28 per share —
—
—
(1,148 ) —
(1,148 ) —
(1,148 )
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit) —
—
—
(12,108 ) —
(12,108 ) (4,155 ) (16,263 )
Balance, March 31, 2019 180,000
229
391,122
(210,207 ) (289 ) 360,855
69,476
430,331

Issuance of shares of common stock:
99,804 shares pursuant to dividend reinvestment plan —
1
5,127
—
—
5,128
—
5,128
48,772 shares due to exercise of stock options and issuance of directors’ deferred stock —
—
2,798
—
—
2,798
—
2,798
Issuance of 20,041 partnership units pursuant to dividend reinvestment plan —
—
—
—
—
—
1,029
1,029
Net income —
—
—
13,232
—
13,232
3,518
16,750
Change in unrealized loss on cash flow hedge —
—
—
—
(95 ) (95 ) (32 ) (127 )
Distributions payable preferred stock:
Series C, $42.97 per share —
—
—
(1,805 ) —
(1,805 ) —
(1,805 )
Series D, $38.28 per share —
—
—
(1,148 ) —
(1,148 ) —
(1,148 )
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit) —
—
—
(12,181 ) —
(12,181 ) (4,166 ) (16,347 )
Balance, June 30, 2019 $ 180,000
$ 230
$ 399,047
$ (212,109 ) $ (384 ) 366,784
$ 69,825
$ 436,609

~~The Notes to Financial Statements are an integral part of these statements.~~

~~-8-~~

~~Table of Contents~~

~~Saul Centers, Inc.~~

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(Dollars in thousands) 2020 2019
Cash flows from operating activities:
Net income $ 27,037
$ 33,827
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of deferred leasing costs 23,881
23,167
Amortization of deferred debt costs 760
760
Compensation costs of stock grants and options 851
1,142
Credit losses on operating lease receivables 2,300
556
(Increase) decrease in accounts receivable and accrued income (7,915 ) 1,718
Additions to deferred leasing costs (5,644 ) (581 )
Decrease in prepaid expenses 3,784
3,369
Increase in other assets (1,994 ) (3,590 )
Increase in accounts payable, accrued expenses and other liabilities 3,881
6,666
Decrease in deferred income (5,192 ) (3,202 )
Net cash provided by operating activities 41,749
63,832
Cash flows from investing activities:
Acquisitions of real estate investments —
(24 )
Additions to real estate investments (10,763 ) (7,857 )
Additions to development and redevelopment projects (28,164 ) (60,718 )
Net cash used in investing activities (38,927 ) (68,599 )
Cash flows from financing activities:
Proceeds from notes payable —
22,100
Repayments on notes payable (30,293 ) (48,715 )
Proceeds from revolving credit facility 90,000
36,000
Repayments on revolving credit facility (3,000 ) (35,000 )
Proceeds from construction loan 25,977
48,731
Additions to deferred debt costs (101 ) (420 )
Proceeds from the issuance of:
Common stock 5,016
13,375
Partnership units 734
1,734
Distributions to:
Series C preferred stockholders —
(3,610 )
Series D preferred stockholders (2,296 ) (2,296 )
Series E preferred stockholders (3,300 ) —
Common stockholders (24,639 ) (24,145 )
Noncontrolling interests (8,368 ) (8,303 )
Net cash provided by (used in) financing activities 49,730
(549 )
Net increase (decrease) in cash and cash equivalents 52,552
(5,316 )
Cash and cash equivalents, beginning of period 13,905
14,578
Cash and cash equivalents, end of period $ 66,457
$ 9,262
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,015
$ 21,186
Increase (decrease) in accrued real estate investments and development costs $ (8,769 ) $ 3,029

~~-9-~~

~~Table of Contents~~

Notes to Consolidated Financial Statements (Unaudited)


1.	~~Organization, Basis of Presentation~~

1. Organization, Basis of Presentation

Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on June 10, 1993, and operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet 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 ~~and President~~ of Saul Centers.

The Company, which conducts all of its activities through its subsidiaries, Saul Holdings Limited Partnership, a Maryland limited partnership (the “Operating Partnership”) and two subsidiary limited partnerships (the “Subsidiary Partnerships,” and, collectively with the Operating Partnership, the “Partnerships”), engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and mixed-use properties, primarily in the Washington, DC/Baltimore metropolitan area.

As of June 30, ~~2020,~~2021, the Company’s properties (the “Current Portfolio Properties”) consisted of 50 shopping center properties (the “Shopping Centers”), 7 mixed-use properties, which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and 34 (non-operating) development properties.

Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. A majority of the Shopping Centers are anchored by one or more major tenants. As of June 30, ~~2020,~~2021, 33 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. Giant Food, a tenant at 11 Shopping Centers, individually accounted for ~~5.3%~~5.5% of the Company's total revenue for the six months ended June 30, ~~2020.~~2021. No other tenant individually accounted for 2.5% or more of the Company’s total revenue, excluding lease termination fees, for the six months ended June 30, ~~2020.~~2021.

The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority owned by Saul Centers. Substantially all assets and liabilities of the Company as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, are comprised of the assets and liabilities of the Operating Partnership. The debt arrangements which are subject to recourse are described in Note 5. All significant intercompany balances and transactions have been eliminated in consolidation.

The Operating Partnership is a variable interest entity ("VIE") because the limited partners do not have substantive kick-out or participating rights. The Company is the primary beneficiary of the Operating Partnership because it has the power to direct its activities and the rights to absorb ~~74.6%~~73.4% of its net income. Because the Operating Partnership is consolidated into the financial statements of the Company, classification of it as a VIE has no impact on the consolidated financial statements of the Company.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of the Company for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, ~~2019,~~2020, which are included in its Annual Report on Form 10-K. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to those instructions. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.

-9-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)


2.	~~Summary of Significant Accounting Policies~~

2. Summary of Significant Accounting Policies

Our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 have not changed significantly in amount or composition.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

~~-10-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions relate to collectability of operating lease receivables and impairment of real estate properties. Actual results could differ from those estimates.

Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, accounts receivable was comprised of:


(In thousands)	June 30, 2021		December 31, 2020
Rents currently due	$	6,649	$	13,321
Deferred rents	6,279		8,205
Straight-line rent	46,255		44,863
Other receivables	4,949		3,751
Allowance for doubtful accounts	(4,389)		(5,223)

Total	$	59,743	$	64,917

(In thousands) June 30, 2020 December 31, 2019
Rents currently due $ 11,727
$ 7,235
Deferred rents 3,229
474
Straight-line rent 42,917
42,088
Other receivables 3,478
2,967
Allowance for doubtful accounts (3,425 ) (453 )
Total $ 57,926
$ 52,311

Recently Issued Accounting Standards

In ~~February~~June 2016, the ~~Financial Accounting Standards Board (‘‘FASB’’)~~FASB issued ~~Accounting Standards Update (‘‘ASU’’) 2016-02, ‘‘Leases’’ (“~~ASU ~~2016-02”~~2016-13, "Financial Instruments-Credit Losses" ("ASU 2016-13"). ASU ~~2016-02 amends~~2016-13 replaces the ~~existing accounting standards for lease accounting, including requiring lessees~~incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of information to ~~recognize most leases on their balance sheets and making targeted changes to lessor accounting.~~support credit loss estimates. ASU ~~2016-02~~2016-13 is effective for annual periods beginning after December 15, ~~2018,~~2019, including interim periods within those years, and requires a modified retrospective transition approach for all leases existing at the date of initial application, with an option to use certain practical expedients for those existing leases. Uponyears. The adoption of ASU ~~2016-02~~2016-13 effective January 1, ~~2019, we elected~~2020, did not have a material impact on our consolidated financial statements and related disclosures because the ~~practical expedient for all~~vast majority of the Company's receivables relate to operating leases ~~with respect to lease identification, lease classification, and initial direct costs. We made a policy election not to separate lease and nonlease components and have~~which are accounted for ~~each lease component~~under ASC 842, "Leases."

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the six months ended June 30, 2021.

-10-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

3. Real Estate

Construction In Progress

Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the ~~related nonlease components together~~commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as ~~a single component. There~~architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. During the six months ended June 30, 2021, assets totaling $8.7 million were ~~no significant changes to our lessor accounting for operating leases~~placed in service in conjunction with the substantial completion of The Waycroft. Construction in progress as ~~a result~~ of ~~ASU 2016-02.~~June 30, 2021 and December 31, 2020, is composed of the following:


(In thousands)	June 30, 2021		December 31, 2020
Twinbrook Quarter	$	121,338	$	0
Hampden House	52,738		50,723
The Waycroft	0		8,651
Ashbrook Marketplace	0		153
Other	10,383		9,950
Total	$	184,459	$	69,477

Leases

We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that cover rent, and, where applicable, reimbursement for property taxes, insurance, and certain property operating expenses. Our leases ~~were~~have been determined to be operating leases and generally range in term from one to 15 years.

Some of our leases have termination options and/or extension options. Termination options allow the lessee and/or lessor to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination options generally require advance notification from the lessee and/or lessor and payment of a termination fee. Termination fees are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated in the lease.

On January 1, 2019, aan operating lease right of use asset and corresponding lease liability related to our headquarters lease were recorded in other assets and other liabilities, respectively. The lease expires on February 28, 2022, with 1 option to renew for an additional five years. The right of use asset and corresponding lease liability totaled ~~$1.3 million~~$512,500 and ~~$1.3 million,~~$530,200, respectively, at June 30, ~~2020.~~2021.

Due to the business disruptions and challenges severely affecting the global economy caused by the novel strain of coronavirus (“COVID-19”) pandemic, many lessees have requested rent relief, including rent deferrals and other lease concessions. The lease modification guidance in ASU 2016-02 does not contemplate the rapid execution of concessions for multiple tenants in response to sudden liquidity constraints of lessees. In April 2020, the FASB staff issued a question and answer document that provided guidance allowing the Company to elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief, which, in the case of rent deferrals, results in the accrual of rent due from tenants and defers the payment of that rent to a future date, and will monitor the collectability of rent receivables.

~~-11-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses" ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of information to support credit loss estimates. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those years. The adoption of ASU 2016-13 effective January 1, 2020 did not have a material impact on our consolidated financial statements and related disclosures because the vast majority of the Company's receivables relate to operating leases which are accounted for under ASC 842, "Leases."

~~Reclassifications~~

~~Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the six months ended June 30, 2020.~~


3.	~~Real Estate~~

~~Construction In Progress~~

Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. During the six months ended June 30, 2020, assets totaling $253.7 million were placed in service in conjunction with the substantial completion of The Waycroft and Ashbrook Marketplace. Construction in progress as of June 30, 2020 and December 31, 2019, is composed of the following:

(in thousands) June 30, 2020 December 31, 2019
The Waycroft $ 32,298
$ 255,443
7316 Wisconsin Avenue 48,442
44,638
Ashbrook Marketplace 8,669
19,128
Other 11,950
16,435
Total $ 101,359
$ 335,644

Deferred Leasing Costs

Deferred leasing costs consist of commissions paid to third-party and internal leasing agents, internal costs such as payroll-related fringe benefits ~~which~~that are direct and incremental to successful commercial leases, amounts attributed to in-place leases associated with acquired properties and lease inducement costs. Effective with the adoption of ASU 2016-02 on January 1, 2019, all costs incurred prior to the execution of a lease are charged to expense and not capitalized. Unamortized deferred leasing costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Deferred leasing costs are amortized over the term of the lease or remaining term of acquired leases. Collectively, deferred leasing costs totaled ~~$27.1~~$25.5 million and ~~$24.1~~$26.9 million, net of accumulated amortization of ~~$43.4~~$46.6 million and ~~$41.6~~$44.5 million, as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Amortization expense, included in depreciation and amortization of ~~deferred leasing~~lease costs in the Consolidated Statements of Operations, totaled ~~$2.7~~$2.4 million and ~~$3.2~~$2.7 million for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~-12-~~-11-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

Real Estate Investment Properties

Depreciation is calculated using the straight-line method and estimated useful lives of generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvement expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvements, using the straight-line method. Depreciation expense in the Consolidated Statements of Operations totaled ~~$21.2~~$22.9 million and ~~$20.0~~$21.2 million for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Repairs and maintenance expense totaled ~~$5.2~~$7.0 million and ~~$6.6~~$5.2 million for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and is included in property operating expenses in the Consolidated Statements of Operations.

As of June 30, ~~2020,~~2021, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, 0 impairment charges were recorded.

Acquisitions

On November 5, 2019, the Company entered into an agreement (the “Twinbrook Contribution Agreement”) to acquire from the B. F. Saul Real Estate Investment Trust (the “Trust”) approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”). The Contributed Property is immediately adjacent to approximately 10.3 acres owned by the Company. In exchange for the Contributed Property, the Company will issue to the Trust 1,416,071 limited partnership units in the Operating Partnership, representing an aggregate value of $79.3 million for the Contributed Property. Title to the Contributed Property and the units were placed in escrow until certain conditions of the Twinbrook Contribution Agreement were satisfied.


4.	~~Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership~~

The units issued to the Trust will remain in escrow until the conditions of the Twinbrook Contribution Agreement, as amended, are satisfied. Half of the units held in escrow will be released on the "Second Escrow Release" date which is defined as the later of (a) October 18, 2021 or (b) ten (10) days following the date on which there is a final, non-appealable resolution, in a manner favorable to the Company, of certain proceedings relating to the site plan (or, if such proceedings are resolved in a manner favorable to the appellant, ten (10) days following the date on which a substitute site plan relating to the Contributed Property has been approved by the Planning Commission of the City of Rockville and such approval has become final and non-appealable). The remaining units held in escrow are scheduled to be released two years after the Second Escrow Release.

On March 5, 2021, the Company entered into an amendment to the Twinbrook Contribution Agreement in which it and the Trust agreed to release to the Company from escrow the deed and assignment of the leasehold interest of the Contributed Property, as of that date, and reimbursed the Trust for certain expenses pursuant to the Twinbrook Contribution Agreement totaling $7.4 million. Acquisition costs totaled $1.2 million. The Company recorded a finance lease right-of-use asset of $19.4 million and corresponding lease liability of $19.4 million related to the leasehold interest assumed in the transaction. The incremental borrowing rate used to calculate the lease liability was 5.63%.

On June 29, 2021, the third-party landlord under the ground lease contributed the fee simple interest in the land underlying the leasehold interest to the Company in exchange for 469,740 limited partnership units in the Operating Partnership, representing an aggregate value of $21.5 million. Acquisition costs were paid in cash and totaled $0.7 million. Accordingly, the finance lease right-of-use asset and finance lease liability were extinguished. Amortization expense and interest expense related to the lease totaled $104,000 and $362,800, respectively, for the six months ended June 30, 2021.

4. Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership

As of June 30, ~~2020~~,2021, the B. F. Saul Company and certain other affiliated entities, each of which is controlled by B. Francis Saul II and his family members, (collectively, the “Saul Organization”) ~~holds a~~ ~~25.4%~~hold an aggregate 25.1% limited partnership interest in the Operating Partnership represented by approximately ~~7.9~~8.1 million convertible limited partnership units. These units are convertible into shares of Saul Centers’ common stock, at the option of the unit holder, on a ~~one-for-one~~one-for-one basis provided that, in accordance with the ~~Company's~~Company’s Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns or will own after the exercise, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of June 30, ~~2020~~,2021, approximately ~~1.8~~1.0 million units ~~were convertible~~could be converted into shares of Saul Centers common stock.

-12-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

~~The impact~~

As of ~~the Saul Organization’s approximately~~ ~~25.4%~~June 30, 2021, a third party investor holds a 1.5% limited partnership interest in the Operating Partnership represented by approximately 469,700 convertible limited partnership units. At the option of the unit holder, these units are convertible into shares of Saul Centers’ common stock on a one-for-one basis; provided that, in lieu of the delivery of Saul Centers' common stock, Saul Centers may, in its sole discretion, deliver cash in an amount equal to the value of such Saul Centers' common stock.

The impact of the aggregate 26.6% limited partnership interest in the Operating Partnership held by parties other than Saul Centers is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. ~~Fully converted~~Weighted average fully diluted partnership units and ~~diluted weighted average~~ common stock outstanding for the three months ended June 30, ~~2020~~2021 and ~~2019, were~~2020, was approximately 33.0 million and 31.2 million, ~~and~~ ~~30.8 million~~, respectively and for the six months ended June 30, ~~2020~~2021 and ~~2019, were~~2020, was approximately 32.5 million and 31.2 million, ~~and 30.8~~respectively.

The 1.4 million ~~respectively.~~limited partnership units held in escrow in connection with the Twinbrook Contribution Agreement are not eligible to receive distributions from the Operating Partnership until such time as they are released from escrow.

5. Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs


5.	~~Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs~~

The principal amount of the Company’s outstanding debt totaled approximately ~~$1.2~~$1.1 billion at June 30, ~~2020~~,2021, of which approximately ~~$934.1~~$957.1 million was fixed-rate debt and approximately ~~$249.5~~$184.0 million was variable rate debt outstanding under the credit facility. The carrying value of the properties collateralizing the notes payable totaled approximately ~~$1.1~~$1.1 billion as of June 30, ~~2020~~.2021.

At June 30, ~~2020,~~2021, the Company had a $400.0 million credit facility comprised of a $325.0 million revolving facility and a $75.0 million term loan. As of June 30, ~~2020,~~2021, the applicable spread for borrowings was 140 basis points under the revolving credit facility and 135 basis points under the term loan. Letters of credit may be issued under the revolving credit facility. As of June 30, ~~2020,~~2021, based on the value of the Company’s unencumbered properties, approximately ~~$150.3~~$215.8 million was available under the revolving credit facility, ~~$174.5~~$109.0 million was outstanding and approximately $185,000 was committed for letters of credit.

On ~~February 10, 2020,~~January 5, 2021, the Company repaid in full the remaining principal balance of ~~$9.2~~$6.1 million of the mortgage loan secured by ~~Boca Valley Plaza,~~Jamestown Place, which was scheduled to mature ~~on May 10, 2020.~~in February 2021.

On ~~March 3, 2020,~~June 11, 2021, the Company repaid in full the remaining principal balance of ~~$7.1~~$5.0 million of the mortgage loan secured by ~~Palm Springs Center,~~Hunt Club Corners, which was scheduled to mature ~~on June 1, 2020.~~

During the six months ended June 30, 2020, the Company borrowed $71.0 million under its revolving credit facility to provide additional liquidity and flexibility as the effects of the COVID-19 pandemic continue to evolve.

in August 2021.

Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility. The Operating Partnership is the guarantor of (a) a portion of the Park Van Ness mortgage (approximately ~~$6.7~~$3.3 million of the ~~$67.3~~$65.6 million outstanding balance at June 30, ~~2020,~~2021, which guarantee will be reduced to ~~(i) $3.3 million on October 1, 2020 and (ii)~~ 0 on October 1, 2021), (b) a portion of the Broadlands

~~-13-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

mortgage (approximately ~~$3.9~~$3.8 million of the ~~$30.8~~$30.1 million outstanding balance at June 30, ~~2020)~~2021), (c) a portion of the Avenel Business Park mortgage (approximately $6.3 million of the ~~$25.8~~$24.7 million outstanding balance at June 30, ~~2020) and~~2021), (d) a portion of The Waycroft mortgage (approximately $23.6 million of the ~~$136.2~~$148.5 million outstanding balance at June 30, ~~2020)~~2021), (e) the Ashbrook Marketplace mortgage (totaling $21.7 million at June 30, 2021), and (f) the mortgage secured by Kentlands Place, Kentlands Square I and Kentlands Pad (totaling $29.4 million at June 30, 2021). All other notes payable are non-recourse. ~~The guarantee on the Kentlands Square II mortgage loan was released on February 5, 2020.~~

At December 31, ~~2019,~~2020, the principal amount of the Company’s outstanding debt totaled approximately ~~$1.1~~$1.2 billion,, of which ~~$938.4~~$980.8 million was fixed rate debt and ~~$162.5~~$179.5 million was variable rate debt, including ~~$87.5~~$104.5 million outstanding under an unsecured revolving credit facility. The carrying value of the properties collateralizing the notes payable totaled approximately ~~$1.1~~$1.2 billion as of December 31, ~~2019.~~2020.

-13-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

At June 30, ~~2020~~,2021, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:


(In thousands)	Balloon Payments			Scheduled Principal Amortization		Total
July 1 through December 31, 2021	$	0		$	15,263	$	15,263
2022	145,502		(a)	31,016		176,518
2023	84,225			31,481		115,706
2024	66,164			30,866		97,030
2025	20,363			27,860		48,223
2026	134,088			24,333		158,421
Thereafter	437,673			92,253		529,926
Principal amount	$	888,015		$	253,072	1,141,087
Unamortized deferred debt costs						8,528
Net						$	1,132,559

(In thousands)
Balloon
Payments

Scheduled
Principal
Amortization
Total
July 1 through December 31, 2020 $ —
$ 14,167
$ 14,167
2021 11,012
28,996
40,008
2022 211,002
(a) 29,609
240,611
2023 84,225
30,021
114,246
2024 66,164
29,326
95,490
2025 20,363
26,291
46,654
Thereafter 532,910
99,518
632,428
Principal amount $ 925,676
$ 257,928
1,183,604
Unamortized deferred debt costs 9,037
Net $ 1,174,567

(a) Includes ~~$174.5~~$109.0 million outstanding under the revolving credit facility.

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the credit facility. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled ~~$9.0~~$8.5 million and ~~$9.7~~$9.3 million, net of accumulated amortization of ~~$7.9~~$9.1 million and ~~$7.5~~$8.7 million, at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets.

Interest expense, net and amortization of deferred debt costs for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~,2020, were as follows:

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Interest incurred $ 12,837
$ 12,988
$ 25,856
$ 25,868
Amortization of deferred debt costs 387
375
760
760
Capitalized interest (1,137 ) (2,522 ) (4,905 ) (4,668 )
Interest expense 12,087
10,841
21,711
21,960
Less: Interest income 68
48
98
100
Interest expense, net and amortization of deferred debt costs $ 12,019
$ 10,793
$ 21,613
$ 21,860


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Interest incurred	$	12,900	$	12,837	$	25,582	$	25,856
Amortization of deferred debt costs	406		387		811		760
Capitalized interest	(1,647)		(1,137)		(2,742)		(4,905)
Interest expense	11,659		12,087		23,651		21,711
Less: Interest income	2		68		5		98
Interest expense, net and amortization of deferred debt costs	$	11,657	$	12,019	$	23,646	$	21,613

~~-14-~~

6. Equity

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


6.	~~Equity~~

The consolidated statements of operations for the six months ended June 30, ~~2020~~2021 and ~~2019~~,2020, reflect noncontrolling interests of ~~$5.4~~$5.9 million and ~~$7.1~~$5.4 million, respectively, representing income attributable to ~~the~~limited partnership units not held by Saul ~~Organization for each period.~~Centers.

At June 30, ~~2020,~~2021, the Company had outstanding 3.0 million depositary shares, each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock (the "Series D Stock"). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after January 23, 2023, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.53125 per share, equivalent to 6.125% of the $25.00 liquidation preference. The Series D Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

-14-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

At June 30, ~~2020,~~2021, the Company had outstanding 4.4 million depositary shares, each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock (the “Series E Stock”). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after September 17, 2024, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.50 per share, equivalent to 6.000% of the $25.00 liquidation preference. The Series E Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

Per Share Data

Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive securities. For all periods presented, the convertible limited partnership units are non-dilutive. The following table sets forth, for the indicated periods, weighted averages of the number of common shares outstanding, basic and dilutive, the effect of dilutive options and the number of options which are not dilutive because the average price of the Company's common stock was less than the exercise prices. The treasury stock method was used to measure the effect of the dilution.


	Three months ended June 30,		Six months ended June 30,
(In thousands)	2021	2020	2021	2020
Weighted average common stock outstanding-Basic	23,624	23,338	23,582	23,317
Effect of dilutive options	1	0	1	2
Weighted average common stock outstanding-Diluted	23,625	23,338	23,583	23,319
Non-dilutive options	1,648	1,516	1,535	1,370
Years non-dilutive options were issued	2013 through 2021	2011 through 2020	2011 and 2013 through 2021	2014 through 2020

Three months ended June 30, Six months ended June 30,
(In thousands) 2020 2019 2020 2019
Weighted average common stock outstanding-Basic 23,338
22,939
23,317
22,879
Effect of dilutive options —
55
2
50
Weighted average common stock outstanding-Diluted 23,338
22,994
23,319
22,929
Non-dilutive options 1,516
698
1,370
568
Years non-dilutive options were issued 2011 through 2020 2016, 2017 and 2019 2014 through 2020 2016, 2017 and 2019

7. Related Party Transactions


7.	~~Related Party Transactions~~

The Chairman and Chief Executive Officer, the President and ~~President, the Executive Vice President-Real Estate,~~Chief Operating Officer, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer and Treasurer of the Company are also officers of various members of the Saul Organization and their management time is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer and Treasurer whose share of annual compensation allocated to the Company is determined by the shared services agreement (described below).

The Company participates in a multiemployer 401K plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the Consolidated Statements of Operations, at the discretionary amount of up to 6 ~~percent~~6% of the employee’s cash compensation, subject to certain limits, were ~~$200,900~~$239,300 and ~~$180,100~~$200,900 for the

~~-15-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

six months endedJune 30, ~~2020~~2021 and ~~2019~~,2020, respectively. All amounts contributed by employees and the Company are fully vested.

The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a specified amount. For the six months endedJune 30, ~~2020~~2021 and ~~2019~~,2020, the Company credited to employee accounts ~~$109,400~~$64,700 and ~~$113,200~~,$109,400, respectively, which is the sum of accrued earnings and up to three times the amount deferred by employees and is included in general and administrative expense. All amounts contributed by employees and credited by the Company are fully vested. The cumulative unfunded liability under this plan was ~~$3.3~~$3.0 million and ~~$3.1~~$2.9 million, at June 30, ~~2020~~2021 and December 31, ~~2019~~,2020, respectively, and is included in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

The Company ~~has entered into~~and the Saul Organization are parties to a shared services agreement (the “Agreement”) ~~with the Saul Organization~~ that provides for the sharing of certain personnel and ancillary functions such as computer hardware, software, and support services and certain direct and indirect administrative personnel. The method for determining the cost of the shared services is provided for in the

-15-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

Agreement and is based upon head count, estimates of usage or estimates of time incurred, as applicable. The terms of the Agreement and the payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. ~~Billings~~Net billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the six months endedJune 30, ~~2020~~2021 and ~~2019~~,2020, which included rental expense for the Company’s headquarters lease, totaled approximately ~~$4.2~~$3.9 million and ~~$4.4~~$4.2 million,~~, net,~~ respectively. The amounts are generally expensed as incurred and are primarily reported as general and administrative expenses in the Consolidated Statements of Operations. As of June 30, ~~2020~~2021 and December 31, ~~2019~~,2020, accounts payable, accrued expenses and other liabilities included approximately ~~$740,300~~$841,900 and ~~$918,700~~,$782,700, respectively, representing amounts due to the Saul Organization for the Company’s share of these ancillary costs and expenses.

The Company has entered into a shared third-party predevelopment cost agreement (the “Predevelopment Agreement”) with the B. F. Saul Real Estate Investment Trust (the “Trust”). The Predevelopment Agreement relates to the sharing of third-party predevelopment costs incurred in connection with the planning of the future redevelopment of certain adjacent real estate assets in the Twinbrook area of Rockville, Maryland. The costs will be shared on a pro rata basis based on the acreage owned by each entity and neither party is obligated to advance funds to the other.

On ~~November~~March 5, ~~2019,~~2021, the Company ~~entered into an agreement (the "Contribution Agreement") to acquire~~acquired from the Trust, approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”). In exchange for the Contributed Property, the Company will issue to the Saul Trust 1,416,071 limited partnership units at an agreed upon value of $56.00 per unit, representing an aggregate value of $79.3 million for the Contributed Property. Deed to the Contributed PropertyMaryland. See Notes 3 and ~~the units were placed in escrow until certain conditions of the Contribution Agreement are satisfied.~~4.

In August 2016, the Company entered into an agreement (the "Ashbrook Contribution Agreement") to acquire from the Trust approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Ashburn, Virginia. The transaction closed on May 9, 2018, and the Company issued 176,680 limited partnership units to the Trust. The Company constructed a shopping center, Ashbrook ~~Marketplace, and may be obligated to issue~~Marketplace. On June 30, 2021, the Company issued 93,674 additional limited partnership units as additional consideration to the Trust in accordance with the ~~second quarter of 2021. As of June 30, 2020, the Company estimates this obligation to range in value from $3.5 million to $4.0 million, based on projected net operating income of~~ Ashbrook ~~Marketplace for the 12 months ending May 31, 2021.~~Contribution Agreement, as amended.

The Company subleases its corporate headquarters space from a member of the Saul Organization. The lease commenced in March 2002, expires in 2022, and provides for base rent increases of 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Agreement requires each party to pay an allocation of total rental payments based on a percentage proportionate to the number of employees employed by each party. The Company’s rent expense for its headquarters location was ~~$407,600~~$409,000 and ~~$386,100~~$407,600 for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and is included in general and administrative expense.

The B. F. Saul Insurance Agency, Inc., a subsidiary of the B. F. Saul Company and a member of the Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Company’s insurance program. Such commissions and fees amounted to ~~$224,400~~$148,700 and ~~$172,800~~$224,400 for the six months endedJune 30, ~~2020~~2021 and 2020, respectively.

~~2019, respectively.~~

8. Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

~~-16-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


8.	~~Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors~~

In 2004, the Company established a stock incentive plan (the "Plan"), as amended. Under the Plan, options ~~were~~are granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of ~~each award~~the grant using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options is based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield, ~~rates,~~ the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon separation from the Board. If a director elects to have their fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the six months ended June 30, ~~2020, 4,920~~2021, 5,241 shares were credited to director's deferred fee accounts and ~~6,837~~7,319 shares were issued. As of June 30, ~~2020,~~2021, the director's deferred fee accounts comprise ~~112,491~~116,550 shares.

-16-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

Effective ~~April 24, 2020,~~May 7, 2021, the Company granted ~~238,000~~250,500 options to its directors and certain officers. The following table summarizes the assumptions used in the valuation of the ~~2020~~2021 and ~~2019~~2020 option grants. During the six months ended June 30, ~~2020,~~2021, stock option expense totaling ~~$700,700~~$743,600 was included in general and administrative expense in the Consolidated Statements of Operations. As of June 30, ~~2020,~~2021, the estimated future expense related to unvested stock options was $2.2 million.

Directors Officers
Grant date May 3, 2019 April 24, 2020 May 3, 2019 April 24, 2020
Exercise price $ 55.71
$ 50.00
$ 55.71
$ 50.00
Volatility 0.236
0.258
0.206
0.240
Expected life (years) 5.0
5.0
7.0
7.0
Assumed yield 3.75 % 3.80 % 3.80 % 3.85 %
Risk-free rate 2.33 % 0.36 % 2.43 % 0.51 %


	Directors						Officers
Grant date	April 24, 2020			May 7, 2021			April 24, 2020			May 7, 2021
Exercise price	$	50.00		$	43.89		$	50.00		$	43.89
Volatility	0.258			0.297			0.240			0.275
Expected life (years)	5.0			5.0			7.0			7.0
Assumed yield	3.80		%	4.96		%	3.85		%	4.97		%
Risk-free rate	0.36		%	0.77		%	0.51		%	1.24		%

The table below summarizes the option activity for the six months endedJune 30, ~~2020~~:2021:

Number of
Shares

Weighted
Average
Exercise Price
per share

Aggregate
Intrinsic Value
Outstanding at January 1 1,309,614
$ 53.38
$ 2,528,463
Granted 238,000
50.00
—
Exercised (10,749 ) 49.19
85,268
Expired/Forfeited (21,250 ) 53.96
—
Outstanding at June 30 1,515,615
52.87
—
Exercisable at June 30 978,240
53.03
—


	Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	1,502,670	$	52.86	$	0
Granted	250,500	43.89		0
Exercised	(3,000)	41.82		3,450
Expired/Forfeited	(87,000)	53.60		0
Outstanding at June 30	1,663,170	51.49		532,382
Exercisable at June 30	1,137,295	52.89		599,527

~~-17-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

The intrinsic value measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The intrinsic value ~~for~~of shares exercised during the ~~period~~six months ended June 30, 2021 was calculated by using the ~~closing share~~transaction price on the date of ~~exercise.~~exercise and totaled $3,450. The intrinsic value of stock options exercised during the six months ended June 30, 2020 totaled $85,268. At June 30, ~~2020,~~2021, the final trading day of the 2021 second quarter, the closing share price of $~~32.27~~$45.45 was lower than the exercise price of ~~all~~1,350,125 outstanding ~~options.~~options granted in 2014 through 2020. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is ~~6.3~~6.6 years and ~~4.3~~5.5 years, respectively.

~~The Compensation Committee has also approved an annual award~~9. Fair Value of 200 shares of the Company’s common stock as additional compensation to each director serving on the Board of Directors as of the date of the annual meeting of stockholders. The issuance of these shares may not be deferred.Financial Instruments


9.	~~Fair Value of Financial Instruments~~

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value. The aggregate fair value of the notes payable with fixed-rate payment terms was determined using Level 3 data in a discounted cash flow approach, which is based upon management’s estimate of borrowing rates and loan terms currently available to the Company for fixed-rate financing and, assuming long-term market interest rates of approximately 3.50% and ~~3.55%~~3.40%, would be approximately ~~$940.8~~$952.2 million and ~~$957.4~~$981.0 million,, respectively, compared to the principal balance of ~~$934.1~~$957.1 million and ~~$938.4~~$980.8 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

10. Commitments and Contingencies


~~10.~~	~~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.

-17-


~~11.~~	~~Business Segments~~

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

11. Business Segments

The Company has 2 reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate of the combined properties in each segment. All of our properties within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a range of tenants, the types of services provided to them are similar within each segment. The properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior year information to conform to the ~~2020~~2021 presentation.

(In thousands)
Shopping
Centers
Mixed-Use
Properties
Corporate
and Other

Consolidated
Totals
Three months ended June 30, 2020
Real estate rental operations:
Revenue $ 38,329
$ 14,891
$ —
$ 53,220
Expenses (8,364 ) (5,397 ) —
(13,761 )
Income from real estate 29,965
9,494
—
39,459
Interest expense, net and amortization of deferred debt costs —
—
(12,019 ) (12,019 )
Depreciation and amortization of deferred leasing costs (7,258 ) (5,342 ) —
(12,600 )
General and administrative —
—
(4,632 ) (4,632 )
Net income (loss) $ 22,707
$ 4,152
$ (16,651 ) $ 10,208
Capital investment $ 4,687
$ 12,652
$ —
$ 17,339
Total assets $ 977,654
$ 642,621
$ 66,361
$ 1,686,636


(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Three months ended June 30, 2021
Real estate rental operations:
Revenue	$	42,006	$	17,998	$	0	$	60,004
Expenses	(8,371)		(6,291)		0		(14,662)
Income from real estate	33,635		11,707		0		45,342

Interest expense, net and amortization of deferred debt costs	0		0		(11,657)		(11,657)
Depreciation and amortization of lease costs	(7,195)		(5,442)		0		(12,637)
General and administrative	0		0		(4,929)		(4,929)






Net income (loss)	$	26,440	$	6,265	$	(16,586)	$	16,119
Capital investment	$	1,422	$	7,140	$	0	$	8,562
Total assets	$	959,169	$	762,253	$	15,558	$	1,736,980


Three months ended June 30, 2020
Real estate rental operations:
Revenue	$	38,329	$	14,891	$	0	$	53,220
Expenses	(8,364)		(5,397)		0		(13,761)
Income from real estate	29,965		9,494		0		39,459

Interest expense, net and amortization of deferred debt costs	0		0		(12,019)		(12,019)
Depreciation and amortization of lease costs	(7,258)		(5,342)		0		(12,600)
General and administrative	0		0		(4,632)		(4,632)








Net income (loss)	$	22,707	$	4,152	$	(16,651)	$	10,208
Capital investment	$	4,687	$	12,652	$	0	$	17,339
Total assets	$	977,654	$	642,621	$	66,361	$	1,686,636

-18-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)


(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Six Months Ended June 30, 2021
Real estate rental operations:
Revenue	$	84,451	$	34,278	$	0	$	118,729
Expenses	(18,447)		(12,730)		0		(31,177)
Income from real estate	66,004		21,548		0		87,552

Interest expense, net and amortization of deferred debt costs	0		0		(23,646)		(23,646)
Depreciation and amortization of deferred leasing costs	(14,436)		(10,949)		0		(25,385)
General and administrative	0		0		(9,607)		(9,607)






Net income (loss)	$	51,568	$	10,599	$	(33,253)	$	28,914
Capital investment	$	5,571	$	21,909	$	0	$	27,480
Total assets	$	959,169	$	762,253	$	15,558	$	1,736,980

Six Months Ended June 30, 2020
Real estate rental operations:
Revenue	$	79,900	$	30,263	$	0	$	110,163
Expenses	(17,286)		(10,664)		0		(27,950)
Income from real estate	62,614		19,599		0		82,213

Interest expense, net and amortization of deferred debt costs	0		0		(21,613)		(21,613)
Depreciation and amortization of deferred leasing costs	(14,644)		(9,237)		0		(23,881)
General and administrative	0		0		(9,682)		(9,682)








Net income (loss)	$	47,970	$	10,362	$	(31,295)	$	27,037
Capital investment	$	8,889	$	30,038	$	0	$	38,927
Total assets	$	977,654	$	642,621	$	66,361	$	1,686,636

(In thousands) Shopping Centers Mixed-Use Properties
Corporate
and Other
Consolidated Totals
Three months ended June 30, 2019
Real estate rental operations:
Revenue $ 42,259
$ 15,882
$ —
$ 58,141
Expenses (8,552 ) (5,382 ) —
(13,934 )
Income from real estate 33,707
10,500
—
44,207
Interest expense, net and amortization of deferred debt costs —
—
(10,793 ) (10,793 )
Depreciation and amortization of deferred leasing costs (7,375 ) (4,149 ) —
(11,524 )
General and administrative —
—
(5,140 ) (5,140 )
Net income (loss) $ 26,332
$ 6,351
$ (15,933 ) $ 16,750
Capital investment $ 8,967
$ 36,209
$ —
$ 45,176
Total assets $ 970,028
$ 590,294
$ 8,840
$ 1,569,162

Six Months Ended June 30, 2020
Real estate rental operations:
Revenue $ 79,900
$ 30,263
$ —
$ 110,163
Expenses (17,286 ) (10,664 ) —
(27,950 )
Income from real estate 62,614
19,599
—
82,213
Interest expense, net and amortization of deferred debt costs —
—
(21,613 ) (21,613 )
Depreciation and amortization of deferred leasing costs (14,644 ) (9,237 ) —
(23,881 )
General and administrative —
—
(9,682 ) (9,682 )
Net income (loss) $ 47,970
$ 10,362
$ (31,295 ) $ 27,037
Capital investment $ 8,889
$ 30,038
$ —
$ 38,927
Total assets $ 977,654
$ 642,621
$ 66,361
$ 1,686,636

Six Months Ended June 30, 2019
Real estate rental operations:
Revenue $ 85,417
$ 32,474
$ —
$ 117,891
Expenses (18,240 ) (10,843 ) —
(29,083 )
Income from real estate 67,177
21,631
—
88,808
Interest expense, net and amortization of deferred debt costs —
—
(21,860 ) (21,860 )
Depreciation and amortization of deferred leasing costs (14,657 ) (8,510 ) —
(23,167 )
General and administrative —
—
(9,954 ) (9,954 )
Net income (loss) $ 52,520
$ 13,121
$ (31,814 ) $ 33,827
Capital investment $ 13,580
$ 55,019
$ —
$ 68,599
Total assets $ 970,028
$ 590,294
$ 8,840
$ 1,569,162

-19-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

12. Impact of COVID-19

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.

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~~Overall, there remains significant uncertainty around the long-term economic impact of the COVID-19 pandemic, ~~will trigger a period of global economic slowdown or a global recession. COVID-19~~which 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.

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

~~2020Second Quarter~~paid.

•~~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.

13. Subsequent Events

The Company has reviewed operating activities for the period subsequent to June 30, ~~2020,~~2021, and determined there are no subsequent events required to be disclosed.

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~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes in “Item 1. Financial Statements” of this report and the more detailed information contained in the Company’s Form 10-K for the year ended December 31, ~~2019.~~2020. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section have the meanings given to them in Item 1 of this Form 10-Q.

Forward-Looking Statements

Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “plans,” “intends,” “estimates,” “anticipates,” “expects,” “believes” or similar expressions in this Form 10-Q. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

•challenging domestic and global credit markets and their effect on discretionary spending;

•the ability of our tenants to pay rent;

•our reliance on shopping center “anchor” tenants and other significant tenants;

•our substantial relationships with members of ~~The~~the Saul Organization;

•risks of financing, such as increases in interest rates, restrictions imposed by our debt, our ability to meet existing financial covenants and our ability to consummate planned and additional financings on acceptable terms;

•our development activities;

•our access to additional capital;

•our ability to successfully complete additional acquisitions, developments or redevelopments, or if they are completed, whether such acquisitions, developments or redevelopments perform as expected;

•risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of real estate and environmental risks;

•risks related to our status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to our status as a REIT, the effect of future changes to REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT; and

•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.

Additional information related to these risks and uncertainties are included in “Risk Factors” (Part I, Item 1A of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2019)~~2020), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q and Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2019)~~2020), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Form 10-Q).

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Impact of COVID-19

If the effects of COVID-19 result in continued deterioration of economic and market conditions, or if the Company’s expected holding period for assets changes, subsequent tests for impairment could result in impairment charges in the future. The Company can provide no assurance that material impairment charges with respect to the Company’s investment properties will not occur during the ~~remaining quarters in 2020~~remainder of 2021 or future periods. As of June 30, ~~2020,~~2021, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges have been recorded. However, we have yet to see the long-term effects of COVID-19 and the extent to which it may impact our tenants in the future. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry as a result of COVID-19, or changes in our long-term hold strategies, could be indicative of an impairment triggering event. Accordingly, the Company will continue to monitor circumstances and events in future periods to determine whether impairment charges are warranted.

While the Company’s grocery ~~stores, pharmacies, banks~~store, pharmacy, bank and home improvement ~~stores~~store tenants generally remain fully open, many restaurants ~~if open,~~ are operating atwith reduced hours and/or limited ~~capacity~~indoor seating, supplemented 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 with limited customer capacity depending on ~~location~~location. . As of ~~August 5, 2020, approximately 80%~~July 31, 2021, payments by tenants 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 98% for the second quarter~~$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~~have been negotiated to allow tenants temporary relief where needed. The deferral agreements, ~~being negotiated,~~ generally, permit tenants to defer 30 to 90 days of rent, operating expense and real estate tax recovery payments until a later time in their lease term with repayment typically occurring over a 12-month period generally commencing in 2021. We expect that our rent collections will continue to be below our tenants’ contractual rent obligations for so long as governmental orders require non-essential businesses to remain at limited capacity or closed and residents to stay at home. We will continue to accrue rental revenue during the deferral period. However, we anticipate that some tenants eventually will not be able to pay amounts due and we will incur losses against our rent receivables. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted. Rent collections during the second quarter ~~and~~ rent relief requests to-date may not be indicative of collections or requests in any future period.

The following is a summary of the Company's executed rent deferral agreements and repayment dates as of July 31, 2021, with the exception of amounts due, which are as of June 30, 2021.


(In thousands)
Original Rent Due By Quarter	Original Rent Amount		Repayment Year	Repayment Amount		Amount Due		Amount Collected		Collection Percentage
	(prior to deferral)			(after deferral)						(based on payments currently due)
2020 First Quarter	$	66	2020	$	331	$	331	$	331	100	%
2020 Second Quarter	6,260		2021	5,691		2,860		2,735		96	%
2020 Third Quarter	1,464		2022	1,756
2020 Fourth Quarter	322		2023	494
2021 First Quarter	133		2024	127
2021 Second Quarter	133		2025	17
July 2021	54		Thereafter	16
Total	$	8,432	Total	$	8,432	$	3,191	$	3,066	96	%

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The following is a summary of the Company's consolidated total ~~rent~~ collections ~~for~~of the first quarter, second quarter and July 2021 rent billings, including minimum rent, operating expense recoveries, and real estate tax reimbursements, as of ~~August 5, 2020:~~July 31, 2021:

~~2020~~ ~~Second Quarter~~2021 first quarter

•~~80%~~98% of ~~2020 Second Quarter~~2021 first quarter total billings has been paid by our ~~tenants (comprised of 82%, 78% and 79%, for April, May and June 2020, respectively.)~~tenants.

▪~~74%~~98% of retail

▪~~94%~~99% of office

▪~~100%~~99% of residential

▪Additionally, rent deferral agreements comprising approximately 8%0.2% of ~~2020 Second Quarter~~2021 first quarter total billings have been executed (or ~~37%~~15% of the total unpaid ~~balance, including 17%~~balance), none of which are with anchor/national ~~tenants).~~tenants. The executed deferrals typically cover three months of rent and are generally scheduled to be ~~repaid~~paid during 2021 and 2022. As a condition to granted rent deferrals, we have sought, and in some cases received, extended lease terms, or waivers of certain adjacent use or common area restrictions.

2021 second quarter

•~~July 2020~~

▪~~84%~~98% of ~~July 2020~~2021 second quarter total billings has been paid by our tenants.

▪~~79%~~97% of retail

▪~~94%~~98% of office

▪99% of residential

▪Additionally, rent deferral agreements comprising approximately 2%0.2% of ~~July~~2021 second quarter total billings have been executed (or 10% of the total unpaid ~~balance, including 6%~~balance), none of which are with anchor/national ~~tenants).~~tenants. These deferrals are structured similarly to the first quarter deferrals.

July 2021

▪94% of July 2021 total billings has been paid by our tenants.

▪93% of retail

▪93% of office

▪98% of residential

▪Additionally, rent deferral agreements comprising approximately 0.3% of July total billings have been executed (or 5% of the total unpaid balance), none of which are with anchor/national tenants. These deferrals are structured similarly to the first quarter and second quarter deferrals.

Although the Company is and will continue to be actively engaged in rent collection efforts related to uncollected rent, and the Company will continue to work with certain tenants who have requested rent deferrals, the Company 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. The Company strongly encouraged small business tenants to apply for Paycheck Protection Program loans, as available, under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company has information that many tenants applied for these loans and several tenants have communicated that loan proceeds are being received and have subsequently remitted rental payments.

As of July 31, ~~2020,~~2021, the Company had ~~$53.4~~$10.1 million of cash and cash equivalents and borrowing availability of approximately ~~$200.3~~$203.8 million under its unsecured revolving credit facility.

The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows, and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty. See Item 1A. Risk Factors. However, we believe the actions we have taken and are continuing to take will help minimize interruptions to operations and will put the Company in the best position to participate in the recovery when the time comes. Management and the Board of Directors will continue to actively monitor the effects of the pandemic, including governmental directives in the jurisdictions in which we operate and the recommendations of public health authorities, and will, as needed, take further measures to adapt the Company’s business in the best interests of our stockholders and personnel. The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions

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taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.

In accordance with state and local health authority guidance and with safety protocols in place as recommended by the Centers for Disease Control and Prevention, on June 1, 2021, the Company formally reopened, without occupancy restrictions, its corporate office in Bethesda, Maryland. The Company ~~was able to transition all but a limited number of essential employees to remote work and~~ does not anticipate any adverse impact on its ability to continue to operate its ~~business. Transitioning~~business during the transition back to ~~a largely remote workforce has not had any material adverse impact on~~ the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls and procedures. Currently, we have a limited number of employees coming into offices as needed. We have also made temporary changes to lower overhead expenses including salary reductions, a corporate hiring freeze, reduction of the company retirement plan match percentage, elimination of business travel and discretionary spending such as professional seminars.office.

General

The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three and six months ended June 30, ~~2020~~.2021.

Overview

The Company’s primary strategy is to continue to focus on diversification of its assets through development of transit-centric, residential mixed-use projects in the Washington, D.C. metropolitan area. The Company’s operating strategy also includes improvement of the operating performance and internal growth of its Shopping Centers and supplementing its development of residential mixed-used projects with selective redevelopment and renovations of its core Shopping Centers. The residential component of The Waycroft, a project with 491 apartment units and 60,000 square feet of retail space, on North Glebe Road, within two blocks of the Ballston Metro Station, in Arlington, Virginia was placed into service in April 2020. The Company also has a ~~development~~ pipeline of zoned sites ~~either~~ in its portfolio, ~~(some~~some of which are currently shopping center operating ~~properties) or under contract,~~properties, for development of up to 3,700 apartment units and 975,000 square feet of retail and office space. All such sites are located adjacent to red line Metro stations in Montgomery County, Maryland.

The Company intends to selectively add free-standing pad site buildings within its Shopping Center portfolio, and replace underperforming tenants with tenants that generate strong traffic, ~~generally~~including anchor stores such as supermarkets and drug ~~stores and fitness centers, as evidenced by the March 2020 addition of a 69,000 square foot Giant Food at Seven Corners and the June~~

~~2020 addition of a 36,000 square foot LA Fitness at Broadlands Village and the coming addition of a 54,000 square foot 99 Ranch grocery store at Shops at Fairfax.~~stores. The Company ~~currently~~ has ~~signed~~seven new pad site tenants, including three at our newly developed Ashbrook Marketplace shopping center, that began paying rent in 2020. Annualized rent from these seven pad sites totals approximately $1.1 million. Additionally, the Company has executed leases or leases are under negotiation for 12ten more pad sites, ~~within its core portfolio. The pad sites~~tenants of five of which are expected to ~~be completed and operational by late~~begin paying rent in 2021. The annualized rent from these ten pad sites is expected to total approximately $1.6 million.

In recent years, there has been a limited amount of quality properties for sale and pricing of those properties has escalated. Accordingly, management believes acquisition opportunities for investment in existing and new shopping center and mixed-use properties in the near future is uncertain. Nevertheless, because of the Company’s conservative capital structure, including its cash and capacity under its revolving credit facility, management believes that the Company is positioned to take advantage of additional investment opportunities as attractive properties are identified and market conditions improve. (See “Item 1. Business - Capital Policies”.) It is management’s view that several of the sub-markets in which the Company operates have, or are expected to have in the future, attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as integral parts of its overall business plan.

Prior to the COVID-19 pandemic, economic conditions within the local Washington, DC metropolitan area had remained relatively stable. Issues facing the Federal government relating to taxation, spending and interest rate policy will likely continue to impact the office, retail and residential real estate markets over the coming years. Because the majority of the Company’s property operating income is produced by our Shopping Centers, we continually monitor the implications of government policy changes, as well as shifts in consumer demand between on-line and in-store shopping, on future shopping center construction and retailer store expansion plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in ways to maximize our future performance. The Company's commercial leasing percentage, on a same property basis, which excludes the impact of properties not in operation for the entirety of the comparable periods, decreased to 92.5% at June 30, 2021, from 94.7% at June 30, ~~2020, from 95.2% at June 30, 2019.~~2020. We expect the volume of lease renewals in ~~2020,~~2021, and the rental rates at which leases renew, will be negatively impacted by the effects of COVID-19 when comparing executed retail leases to prior year leasing activity.

The Company maintains a ratio of total debt to total asset value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of June 30, ~~2020,~~2021, amortizing fixed-rate mortgage debt with staggered maturities from ~~2021~~2022 to 2035 represented approximately ~~78.9%~~83.9% of the Company’s notes payable, thus minimizing refinancing risk. The Company’s variable-rate debt consists of ~~$249.5~~$184.0 million outstanding under the credit facility. As of June 30, ~~2020,~~2021, the Company has ~~loan~~ availability of approximately ~~$150.3~~$215.8 million under its $325.0 million unsecured revolving credit facility.

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Although it is management’s present intention to concentrate future acquisition and development activities on transit-centric, primarily residential mixed-use properties in the Washington, D.C./Baltimore metropolitan area, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. The Company plans to continue to diversify in terms of property types, locations, size and market, and it does not set any limit on the amount or percentage of assets that may be invested in any one property or any one geographic area.

The following table sets forth average annualized base rent per square foot and average annualized effective rent per square foot for the Company's Commercial properties (all properties except for The Waycroft, Clarendon Center and Park Van Ness apartments). For purposes of this table, annualized effective rent is annualized base rent minus amortized tenant improvements and amortized leasing commissions. The $0.60 per square foot decrease in base rent in the 2020 Period compared to the 2019 Period is primarily attributable to a 77,888 square foot increase in commercial space relating to completed developments projects. The space is fully leased, but rent has not yet commenced.


	Six months ended June 30,											Six months ended June 30,
	2020		2019		2018		2017		2016			2021		2020		2019		2018		2017
Base rent	$	19.58	$	20.18	$	20.27	$	19.19	$	18.68	Base rent	$	20.56	$	19.52	$	20.18	$	20.27	$	19.19
Effective rent	$	17.88	$	18.28	$	18.35	$	17.37	$	16.87	Effective rent	$	18.82	$	17.83	$	18.28	$	18.35	$	17.37

Recent Developments

~~From 2014 through 2016, in separate transactions, the Company purchased four adjacent properties on North Glebe Road in Arlington, Virginia, for an aggregate $54.0 million.~~ The Company ~~has substantially~~ completed construction of The Waycroft, a project with 491 apartment units and 60,000 square feet of retail space on 2.8 acres of land located on North Glebe Road in Arlington, Virginia, and apartment occupancy commenced in April 2020. The total cost of the project, including acquisition of land, is expected to be approximately ~~$275.0 million, plus approximately $19.0 million of capitalized interest.~~$279.0 million. A portion of the cost is being financed with a $157.0 million construction-to-permanent loan. Including approximately ~~$18.9~~$19.1 million of capitalized interest, ~~and costs of $3.7 million which are accrued and unpaid,~~ costs incurred through June 30, ~~2020~~2021 total approximately ~~$273.2~~$277.9 million, of which ~~$136.2~~$148.5 million has been financed by the loan. Leases have been executed for a 41,500 square foot Target and 12,600 square feet

of retail shop space, resulting in approximately 90% of the planned retail space being leased. Target ~~is scheduled to begin~~began operating in August ~~2020. An additional 5,900~~2020 and 2,400 square feet of retail space ~~is expected to be~~became operational ~~during the second half of 2020. Applications have been received for 217 residential leases, totaling approximately 44.2% of the available units, with 189 units occupied as of August 5, 2020.~~

Albertson's/Safeway is currently a tenant at seven of the Company's shopping centers, two locations of which are subleased to other grocers. In February 2017, the Company terminated the lease with Albertson's/Safeway at Broadlands Village. The Company executed a lease with Aldi Food Market for 20,000 square feet of this space, which opened in November 2017, and has executed a lease with LA Fitness for substantially all of the remaining space. LA Fitness opened for business on June 16, 2020.

In the fourth quarter of 2018, the Company substantially completed construction of the shell of a 16,000 square foot small shop expansion at Burtonsville Town Square and construction of interior improvements for the final two tenants are underway. Delivery of the first leased tenant spaces occurred in late 2018, and tenant openings began in the first quarter of 2019. The total development cost was $5.7 million. Leases have been executed for all of the space. In addition, a lease has been executed with Taco Bell, which commenced construction in January 2020 of a free-standing building on a pad site within the property and is expected to commence operations during the third quarter of 2020. As of June 30, 2021, the residential component of The Waycroft was 99.2% leased.

In ~~May 2018,~~August 2016, the Company ~~acquired~~entered into an agreement to acquire from the ~~Saul~~ Trust ~~in exchange for 176,680 limited partnership units,~~ approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Ashburn, Virginia. The Company has substantially completed construction of Ashbrook Marketplace, an approximately 86,000 square foot neighborhood shopping center. A 29,000 square foot Lidl grocery store opened in November 2019,transaction closed on May 9, 2018, and the shopping center is 100% leased. The first small shop opened for business in April 2020, and the remaining tenants are scheduled to open throughout 2020, subject to the removal of COVID-19 occupancy restrictions. All four pad sites have been leased and are in various stages of construction or obtaining permit approvals. The Company ~~may be obligated to issue additional~~issued 176,680 limited partnership units to the ~~Saul Trust in the second quarter of 2021. As~~Trust. The Company constructed a shopping center, Ashbrook Marketplace, which, as of June 30, ~~2020,~~2021, is 100% leased. On June 30, 2021, the Company ~~estimates this obligation~~issued 93,674 additional limited partnership units as additional consideration to ~~range~~the Trust in ~~value from $3.5 million to $4.0 million, based on projected net operating income of~~accordance with the Ashbrook ~~Marketplace for the 12 months ending May 31, 2021.~~Contribution Agreement, as amended.

In September 2018, the Company purchased for $35.5 million, plus $0.7 million of acquisition costs, an office building and the underlying ground located at 7316 Wisconsin Avenue, in Bethesda, Maryland. In December 2018, the Company purchased for $4.5 million, including acquisition costs, an interest in an adjacent parcel of land and retail building. The purchase price was funded through the Company's revolving credit facility. The Company has completed development plans for the combined property, known as Hampden House, for the development of up to 366 apartment units and 10,300 square feet of retail space. In ~~July 2019,~~June 2020, the Montgomery County Planning Commission unanimously approved the Company's amended site plan. Design and construction documents are being ~~prepared and a site plan amendment has been submitted incorporating final design parameters. Additional approvals~~prepared. Approval from the Washington Metropolitan Area Transit Authority was received in 2020 and the approval from Maryland Transit Administration ~~are~~is in process and ~~are~~is expected to be received by the fourth quarter of ~~2020.~~2021. Effective September 1, 2019, the asset was removed from service and transferred to construction in progress. The Company ~~is currently performing~~has completed interior demolition in preparation for future development. The timing of construction will depend on issuance of final building permits and market conditions.

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On November 5, 2019, the Company entered into ~~an agreement (the "Contribution Agreement")~~a Twinbrook Contribution Agreement to acquire the Contributed Property from the ~~Saul Trust,~~Trust. The Contributed Property is immediately adjacent to approximately ~~6.8~~10.3 acres ~~of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with~~owned by the ~~improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”).~~Company. In exchange for the Contributed Property, the Company will issue to the ~~Saul~~ Trust 1,416,071 limited partnership units ~~at an agreed upon value of $56.00 per unit, representing an aggregate value of $79.3 million for~~in the ~~Contributed Property. Deed~~Operating Partnership. Title to the Contributed Property and the units were placed in escrow until certain conditions of the Twinbrook Contribution Agreement were satisfied.

On March 5, 2021, the Company entered into an amendment to the Twinbrook Contribution Agreement in which it and the Trust agreed to release to the Company from escrow the deed and assignment of the leasehold interest of the Contributed Property, as of that date, and reimburse the Trust for certain expenses pursuant to the Twinbrook Contribution Agreement. The units will remain in escrow until the conditions of the Twinbrook Contribution Agreement, as amended, are satisfied. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility.

The Company acquired title to the property earlier than originally contemplated in order to have complete control over the final aspects of predevelopment, project bidding, contractor selection and lender discussions in support of Phase I. This control will also assure the preservation of the Wegmans lease and its value to this site and, as ~~contract purchaser, has filed with~~importantly, to the ~~City~~Company’s adjacent holdings.

The full project plan for redevelopment of ~~Rockville~~ a major mixed-use project spanning both the Company’s property and the Contributed Property was finalized in 2019 and rights to develop the project extend for a thirty-year term to 2049. A site plan allowing for development of a planned Phase I ofwithin the ~~Twinbrook Quarter development and is conducting community meetings and a hearing before the planning commission is scheduled for the third quarter of 2020. The plan~~Contributed Property, which includes an 80,000 square foot Wegmans, ~~grocery store, 29,000 square feet of retail~~adjacent small shop space, ~~460 residential units~~450 apartments and ~~237,000~~a 230,000 square ~~feet~~foot office building, was approved by the City of ~~office space.~~Rockville in August 2020. The approval of the site plan was unanimous, however, it was appealed by a local resident. The Circuit Court for Montgomery County has issued a decision affirming the City's approval of the site plan and that decision is now final and unappealable. The phasing of these improvements and the timing of construction will depend on removal of contingencies, ~~final site plan approval,~~ building permit approval and market conditions. The ~~total~~ development potential of ~~this 8.1~~the entire 18.4 acre ~~site, when combined with the Company’s adjacent 10.3 acre~~Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which requires management to make certain estimates and assumptions that affect the reporting of financial position and results of operations. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. The Company has identified the following policies that, due to estimates and assumptions inherent in these policies, involve a relatively high degree of judgment and complexity.

Real Estate Investments

Real estate investment properties are stated at historic cost less depreciation. Although the Company intends to own its real estate investment properties over a long term, from time to time it will evaluate its market position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s investment profile. Management believes that the Company’s real estate assets have generally appreciated in value since their acquisition or development 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 the financial statements. Because the financial statements are prepared in conformity with GAAP, they do not report the current value of the Company’s real estate investment properties.

If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors when identifying impairment indicators including recurring operating losses, significant decreases in occupancy, and significant adverse changes in market conditions, legal factors and business climate. If impairment indicators are present, the Company compares the projected cash flows of the property over its remaining useful life, on an undiscounted basis, ~~are compared~~ to the carrying value of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If the carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss ~~is recognized~~ equivalent to an amount required to adjust the carrying amount to its then

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estimated fair value. The fair value of any property is sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from management’s projections, the valuation could be negatively or positively affected.

Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts

Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of their respective leases. Individual leases are assessed for collectability and, upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are charged off, and the charge off is reflected as an adjustment to rental revenue. Revenue from leases where collection is not probable is recorded on a cash basis until collectability is determined to be probable. We also assess whether operating lease receivables, at the portfolio level, are appropriately valued based upon an analysis of balances outstanding, effects of tenant bankruptcies, historical levels of bad debt and current economic trends. Additionally, because of the uncertainties related to the impact of the COVID-19 pandemic, our assessment also takes into consideration the types of business conducted by tenants and current discussions with the tenants, as well as recent rent collection experience. Evaluating and estimating uncollectable lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. Actual results could differ from these estimates.

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of current matters will not have a material adverse effect on its financial position or the results of operations. Upon determination that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

Results of Operations

Three months ended June 30, ~~2020~~2021 (the ~~"2020~~"2021 Quarter") compared to the three months ended June 30, 2020 (the "2020 Quarter")

Revenue


	Three months ended June 30,				2020 to 2021 Change
(Dollars in thousands)	2021		2020		Amount		Percent
Base rent	$	49,389	$	45,504	$	3,885	8.5	%
Expense recoveries	8,335		8,186		149		1.8	%
Percentage rent	488		145		343		236.6	%
Other property revenue	346		338		8		2.4	%
Credit losses on operating lease receivables	260		(2,171)		2,431		(112.0)	%
Rental revenue	58,818		52,002		6,816		13.1	%
Other revenue	1,186		1,218		(32)		(2.6)	%
Total revenue	$	60,004	$	53,220	$	6,784	12.7	%

~~June 30, 2019~~ ~~(the "2019 Quarter")~~

~~Revenue~~

Three months ended June 30, 2019 to 2020 Change
(Dollars in thousands) 2020 2019 Amount Percent
Base rent $ 45,504
$ 46,874
$ (1,370 ) (2.9 )%
Expense recoveries 8,186
8,677
(491 ) (5.7 )%
Percentage rent 145
330
(185 ) (56.1 )%
Other property revenue 338
390
(52 ) (13.3 )%
Credit losses on operating lease receivables (2,171 ) (318 ) (1,853 ) 582.7 %
Rental revenue 52,002
55,953
(3,951 ) (7.1 )%
Other revenue 1,218
2,188
(970 ) (44.3 )%
Total revenue $ 53,220
$ 58,141
$ (4,921 ) (8.5 )%

Base rent includes ~~$(557,000)~~$656,100 and ~~$4,300~~$(557,000) for the ~~2020~~2021 Quarter and ~~2019~~2020 Quarter, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes ~~$349,700~~$343,400 and ~~$367,500~~,$349,700, for the ~~2020~~2021 Quarter and ~~2019~~2020 Quarter, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.

Total revenue ~~decreased~~ ~~8.5%~~increased 12.7% in the ~~2020~~2021 Quarter compared to the ~~2019~~2020 Quarter, as described below.

Base Rent. The ~~$1.4~~$3.9 million ~~decrease~~increase in base rent in the ~~2020~~2021 Quarter compared to the ~~2019~~2020 Quarter is primarily attributable to ~~lower straight-line rental income across~~(a) the ~~Shopping Center portfolio~~increase in occupancy at The Waycroft, which opened in April 2020 ($~~1.2~~3.3 million) and (b) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.4 million).

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~~Expense Recoveries.~~ Table of Contents

Percentage Rent.~~Expense recoveries decreased 5.7%~~ The 236.6% increase in percentage rent in the ~~2020~~2021 Quarter compared to the ~~2019~~2020 Quarter is primarily ~~due~~attributable to ~~a decrease in recoverable property operating expenses.~~increased sales reported by anchor tenants at multiple Shopping Centers.

Credit Losses on Operating Lease Receivables. Credit losses on operating lease receivables for the ~~2020~~2021 Quarter ~~increased $1.9~~decreased $2.4 million from the ~~2019~~2020 Quarter. The ~~increase~~decrease is primarily due to ~~increased reserves~~net collections across the ~~Shopping Center~~ portfolio as ~~a result of the impact of COVID-19 on~~ tenant ~~operations.~~

~~Other Revenue.~~ ~~Other revenue decreased $1.0 million primarily~~operations have improved due to ~~lower parking income ($0.5 million) and lower lease termination fees ($0.4 million).~~restrictions related to COVID-19 being removed or lessened.

Expenses


	Three months ended June 30,				2019 to 2020 Change						Three months ended June 30,				2020 to 2021 Change
(Dollars in thousands)	2020		2019		Amount			Percent		(Dollars in thousands)	2021		2020		Amount		Percent
Property operating expenses	$	6,410	$	7,115	$	(705	)	(9.9	)%	Property operating expenses	$	7,524	$	6,410	$	1,114	17.4	%

Real estate taxes	7,351		6,819		532			7.8	%	Real estate taxes	7,138		7,351		(213)		(2.9)	%
Interest expense, net and amortization of deferred debt costs	12,019		10,793		1,226			11.4	%	Interest expense, net and amortization of deferred debt costs	11,657		12,019		(362)		(3.0)	%
Depreciation and amortization of deferred leasing costs	12,600		11,524		1,076			9.3	%
Depreciation and amortization of lease costs										Depreciation and amortization of lease costs	12,637		12,600		37		0.3	%
General and administrative	4,632		5,140		(508		)	(9.9	)%	General and administrative	4,929		4,632		297		6.4	%

Total expenses	$	43,012	$	41,391	$	1,621		3.9	%	Total expenses	$	43,885	$	43,012	$	873	2.0	%

Total expenses increased ~~3.9%~~2.0% in the ~~2020~~2021 Quarter compared to the ~~2019~~2020 Quarter, as described below. ~~The Waycroft mixed-use development opened in April 2020 and, concurrent with the opening, 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 (collectively, $4.9 million).~~

Property Operating Expenses. Property operating expenses ~~decreased~~ ~~9.9%~~increased 17.4% in the ~~2020~~2021 Quarter primarily due to (a) increased expenses throughout the ~~deferral of non-essential property expenses~~portfolio due to certain projects that were put on hold in 2020 due to the Company's response to COVID-19 ($0.7 million) and (b) increased expenses at The Waycroft due primarily to higher occupancy ($0.4 million).

Real Estate Taxes. Real estate taxes decreased 2.9% in the ~~impact~~2021 Quarter primarily due to lower assessments at several properties throughout the portfolio.

Interest Expense, net and Amortization of ~~COVID-19.~~Deferred Debt Costs. Interest expense, net and amortization of deferred debt costs decreased 3.0% in the 2021 Quarter primarily due to higher capitalized interest ($0.5 million). The ~~Company continues~~increase was largely driven by the Twinbrook development project.

General and Administrative. General and administrative expenses increased 6.4% in the 2021 Quarter primarily due to ~~complete emergency~~(a) increased salaries and benefits ($0.2 million) and (b) increased stock option expense ($0.1 million).

Six months ended June 30, 2021 (the "2021 Period") compared to the six months ended June 30, 2020 (the "2020 Period")

Revenue


	Six Months Ended June 30,				2020 to 2021 Change
(Dollars in thousands)	2021		2020		Amount		Percent
Base rent	$	98,048	$	91,852	$	6,196	6.7	%
Expense recoveries	17,747		16,802		945		5.6	%
Percentage rent	1,087		435		652		149.9	%
Other property revenue	644		629		15		2.4	%
Credit losses on operating lease receivables	(951)		(2,300)		1,349		(58.7)	%
Rental revenue	116,575		107,418		9,157		8.5	%
Other revenue	2,154		2,745		(591)		(21.5)	%
Total revenue	$	118,729	$	110,163	$	8,566	7.8	%

Base rent includes $1.5 million and $(200,600) for the 2021 Period and the 2020 Period, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $690,400 and $702,600 for the 2021 Period and the 2020 Period,

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Table of Contents

respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.

Total revenue increased 7.8% in the 2021 Period compared to the 2020 Period, as described below.

Base Rent. The $6.2 million increase in base rent in the 2021 Period compared to 2020 Period is primarily attributable to (a) increased occupancy at The Waycroft, which opened in April 2020 ($6.2 million) and (b) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.9 million), partially offset by (c) lower rent at Clarendon Center ($0.7 million).

Expense Recoveries. Expense recoveries increased 5.6% in the 2021 Period primarily due to an increase in recoverable property operating expenses, largely repairs and ~~handle life~~maintenance and ~~safety issues~~snow removal.

Percentage Rent. The 149.9% increase in percentage rent in the 2021 Period compared to the 2020 Period is primarily attributable to increased sales reported by anchor and retail tenants at multiple Shopping Centers.

Credit Losses on Operating Lease Receivables. Credit losses on operating lease receivables for the 2021 Period represents 0.8% of the Company’s revenue, a decrease from 2.1% for the 2020 Period. The decrease is primarily due to collections across the portfolio as ~~needed.~~tenant operations have improved due to restrictions related to COVID-19 being removed or lessened.

Other Revenue. Other revenue decreased $0.6 million primarily due to lower lease termination fees ($0.6 million).

Expenses


	Six Months Ended June 30,				2020 to 2021 Change
(Dollars in thousands)	2021		2020		Amount		Percent
Property operating expenses	$	16,210	$	13,446	$	2,764	20.6	%

Real estate taxes	14,967		14,504		463		3.2	%
Interest expense, net and amortization of deferred debt costs	23,646		21,613		2,033		9.4	%
Depreciation and amortization of deferred leasing costs	25,385		23,881		1,504		6.3	%
General and administrative	9,607		9,682		(75)		(0.8)	%


Total expenses	$	89,815	$	83,126	$	6,689	8.0	%

Total expenses increased 8.0% in the 2021 Period compared to the 2020 Period, as described below.

Property Operating Expenses. Property operating expenses increased 20.6% in the 2021 Period primarily due to (a) increased expenses at The Waycroft, which opened in April 2020 ($1.4 million) and (b) increased expenses throughout the portfolio related to snow removal ($1.3 million).

Real Estate Taxes. Real estate taxes increased ~~7.8%~~3.2% in the ~~2020 Quarter~~2021 Period primarily due to (a) the substantial completion of The Waycroft ($~~0.3~~0.8 million) and cessation of capitalization of those ~~taxes.~~taxes in April 2020, partially offset by (b) lower assessments at several properties throughout the portfolio.

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense, net and amortization of deferred debt costs increased ~~11.4%~~9.4% in the ~~2020 Quarter~~2021 Period primarily due to lower capitalized interest, which was largely a result of the opening of The Waycroft in April 2020 ($~~2.6~~3.3 million), partially offset by an increase in capitalized interest related to ~~7316 Wisconsin Avenue~~Twinbrook Quarter ($~~0.6~~1.4 million).

Depreciation and Amortization of Deferred Leasing Costs. ~~Depreciation and amortization increased 9.3% in the 2020 Quarter primarily due to~~ The ~~Waycroft being placed in service, as noted above ($1.5 million).~~

~~General and Administrative.~~ General and administrative expenses decreased 9.9% in the 2020 Quarter primarily due to reduced overhead expenses including salary reductions, a corporate hiring freeze, elimination of business travel and discretionary spending such as professional seminars.

~~Six months ended~~ ~~June 30, 2020~~ ~~(the "2020 Period") compared to the six months ended~~ ~~June 30, 2019~~ ~~(the "2019 Period")~~

~~Revenue~~

Six Months Ended
June 30, 2019 to 2020 Change
(Dollars in thousands) 2020 2019 Amount Percent
Base rent $ 91,852
$ 93,485
$ (1,633 ) (1.7 )%
Expense recoveries 16,802
18,489
(1,687 ) (9.1 )%
Percentage rent 435
613
(178 ) (29.0 )%
Other property revenue 629
725
(96 ) (13.2 )%
Credit losses on operating lease receivables (2,300 ) (556 ) (1,744 ) 313.7 %
Rental revenue 107,418
112,756
(5,338 ) (4.7 )%
Other revenue 2,745
5,135
(2,390 ) (46.5 )%
Total revenue $ 110,163
$ 117,891
$ (7,728 ) (6.6 )%

~~Base rent includes~~ ~~$(200,600)~~ ~~and~~ ~~$(211,600)~~ ~~for the 2020 Period and the 2019 Period, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes~~ ~~$702,600~~ ~~and~~ ~~$727,600~~ ~~for the 2020 Period and the 2019 Period, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.~~

~~Total revenue decreased 6.6% in the 2020 Period compared to the 2019 Period, as described below.~~

~~Base Rent.~~ The $1.6 million decrease in base rent in the 2020 Period compared to 2019 Period is primarily attributable to (a) lower straight-line rental income across the Shopping Center portfolio ($1.0 million) and (b) 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, projected to open in the third quarter of 2020 (collectively, $0.5 million).

~~Expense Recoveries.~~ ~~Expense recoveries decreased 9.1% in the 2020 Period primarily due to a decrease in recoverable property operating expenses, largely repairs and maintenance and snow removal.~~

~~Credit Losses on Operating Lease Receivables.~~ Credit losses on operating lease receivables for the 2020 Period represents 2.09% of the Company’s revenue, an increase from 0.47% for the 2019 Period. The increase is primarily due to increased reserves across the Shopping Center portfolio as a result of the impact of COVID-19 on tenant operations.

~~Other Revenue.~~ ~~Other revenue decreased $2.4 million primarily due to lower lease termination fees ($1.7 million) and lower parking income ($0.7 million).~~

~~Expenses~~

Six Months Ended
June 30, 2019 to 2020 Change
(Dollars in thousands) 2020 2019 Amount Percent
Property operating expenses $ 13,446
$ 15,116
$ (1,670 ) (11.0 )%
Real estate taxes 14,504
13,967
537
3.8 %
Interest expense, net and amortization of deferred debt costs 21,613
21,860
(247 ) (1.1 )%
Depreciation and amortization of deferred leasing costs 23,881
23,167
714
3.1 %
General and administrative 9,682
9,954
(272 ) (2.7 )%
Total expenses $ 83,126
$ 84,064
$ (938 ) (1.1 )%

Total expenses decreased 1.1% in the 2020 Period compared to the 2019 Period, as described below. The Waycroft mixed-use development opened in April 2020 and, concurrent with the opening, 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 (collectively, $4.9 million).

~~Property Operating Expenses.~~ ~~Property operating expenses decreased~~ ~~11.0%~~ in the 2020 Period primarily due to the deferral of non-essential property expenses in response to the impact of COVID-19. The Company continues to complete emergency repairs and handle life and safety issues as needed.

~~Real Estate Taxes. Real estate taxes increased 3.8% in the 2020 Period primarily due to the substantial completion of The Waycroft ($0.3 million) and cessation of capitalization of those taxes.~~

~~Depreciation and Amortization of Deferred Leasing Costs.~~ ~~The~~6.3% increase in depreciation and amortization to ~~$23.9 million~~of deferred leasing costs in the ~~2020 Period from~~ ~~$23.2 million~~ ~~in the 2019~~2021 Period was primarily due to the commencement of operations of The Waycroft ~~being placed~~ in ~~service~~April 2020 ($~~1.5 million), partially offset by 7316 Wisconsin Avenue, which was taken out of service in the third quarter of 2019 ($0.5~~1.9 million).

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~~General and Administrative.~~ ~~General and administrative expenses decreased 2.7% primarily due to reduced overhead expenses including salary reductions, a corporate hiring freeze, elimination~~Table of ~~business travel and discretionary spending such as professional seminars.~~Contents

Same property revenue and same property operating income

Same property revenue and same property operating income are non-GAAP financial measures of performance and improve the comparability of these measures by excluding the results of properties which were not in operation for the entirety of the comparable reporting periods.

We define same property revenue as total revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods, and 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~~lease costs, (c) general and administrative expenses, and (d) change in fair value of derivatives, minus (e) gains on property dispositions and (f) the operating income of properties which were not in operation for the entirety of the comparable periods.

Other REITs may use different methodologies for calculating same property revenue and same property operating income. Accordingly, our same property revenue and same property operating income may not be comparable to those of other REITs.

Same property revenue and same property operating income are used by management to evaluate and compare the operating performance of our properties, and to determine trends in earnings, because these measures are not affected by the cost of our funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to ownership of our properties. We believe the exclusion of these items from property revenue and property operating income is useful because the resulting measures capture the actual revenue generated and actual expenses incurred by operating our properties.

Same property revenue and same property operating income are measures of the operating performance of our properties but do not measure our performance as a whole. Such measures are therefore not substitutes for total revenue, net income or operating income as computed in accordance with GAAP.

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Table of Contents

The tables below provide reconciliations of total property revenue and property operating income under GAAP to same property revenue and operating income for the indicated periods. The same property results for the three months ended June 30, 2021 and 2020 include 50 Shopping Centers and seven Mixed-Use properties. The same property results for the six months ended June 30, 2021 and 2020 ~~and 2019~~ include 4950 Shopping Centers and six Mixed-Use properties.

Same property revenue


(in thousands)	Three months ended June 30,						Six months ended June 30,						(in thousands)	Three months ended June 30,				Six months ended June 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Total revenue	$	53,220		$	58,141		$	110,163		$	117,891		Total revenue	$	60,004	$	53,220	$	118,729	$	110,163
Less: Acquisitions, dispositions and development properties	(570		)	(194		)	(700		)	(1,083		)	Less: Acquisitions, dispositions and development properties	—		—		(7,098)		(299)
Total same property revenue	$	52,650		$	57,947		$	109,463		$	116,808		Total same property revenue	$	60,004	$	53,220	$	111,631	$	109,864

Shopping Centers	$	38,058		$	42,259		$	79,499		$	85,417		Shopping Centers	$	42,006	$	38,329	$	84,451	$	79,900
Mixed-Use properties	14,592			15,688			29,964			31,391			Mixed-Use properties	17,998		14,891		27,180		29,964
Total same property revenue	$	52,650		$	57,947		$	109,463		$	116,808		Total same property revenue	$	60,004	$	53,220	$	111,631	$	109,864

Total Shopping Center revenue	$	38,329		$	42,259		$	79,900		$	85,417		Total Shopping Center revenue	$	42,006	$	38,329	$	84,451	$	79,900
Less: Shopping Center acquisitions, dispositions and development properties	(271		)	—			(401		)	—			Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—
Total same Shopping Center revenue	$	38,058		$	42,259		$	79,499		$	85,417		Total same Shopping Center revenue	$	42,006	$	38,329	$	84,451	$	79,900

Total Mixed-Use property revenue	$	14,891		$	15,882		$	30,263		$	32,474		Total Mixed-Use property revenue	$	17,998	$	14,891	$	34,278	$	30,263
Less: Mixed-Use acquisitions, dispositions and development properties	(299		)	(194		)	(299		)	(1,083		)	Less: Mixed-Use acquisitions, dispositions and development properties	—		—		(7,098)		(299)
Total same Mixed-Use revenue	$	14,592		$	15,688		$	29,964		$	31,391		Total same Mixed-Use revenue	$	17,998	$	14,891	$	27,180	$	29,964

The ~~$5.3~~$6.8 million ~~decrease~~increase in same property revenue for the ~~2020~~2021 Quarter compared to the ~~2019~~2020 Quarter, was primarily due to (a) higher base rent rent, largely due to increased occupancy at The Waycroft ($3.3 million) and Ashbrook Marketplace ($0.4 million), (b) lower credit losses on operating lease receivables and corresponding reserves ($3.5 million), (c) higher percentage rent ($0.3 million) and (d) higher parking income ($0.3 million), partially offset by (e) lower base rent in the Mixed-Use portfolio, exclusive of The Waycroft ($1.2 million).

The $1.8 million increase in same property revenue for the 2021 Period compared to the 2020 Period, was primarily due to (a) lower credit losses on operating lease receivables and corresponding reserves ($2.5 million) and (b) higher expense recoveries resulting from increased expenses throughout the portfolio ($0.7 million), (c) higher percentage rent ($0.7 million), partially offset by (d) lower base rent in the Mixed-Use portfolio ($2.4 million).

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Table of Contents

Same property operating income


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020












Net income	$	16,119	$	10,208	$	28,914	$	27,037
Add: Interest expense, net and amortization of deferred debt costs	11,657		12,019		23,646		21,613
Add: Depreciation and amortization of lease costs	12,637		12,600		25,385		23,881
Add: General and administrative	4,929		4,632		9,607		9,682


Property operating income	45,342		39,459		87,552		82,213
Less: Acquisitions, dispositions and development properties	—		—		(4,055)		566
Total same property operating income	$	45,342	$	39,459	$	83,497	$	82,779

Shopping Centers	$	33,635	$	29,965	$	66,004	$	62,614
Mixed-Use properties	11,707		9,494		17,493		20,165
Total same property operating income	$	45,342	$	39,459	$	83,497	$	82,779

Shopping Center operating income	$	33,635	$	29,965	$	66,004	$	62,614
Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—
Total same Shopping Center operating income	$	33,635	$	29,965	$	66,004	$	62,614

Mixed-Use property operating income	$	11,707	$	9,494	$	21,548	$	19,599
Less: Mixed-Use acquisitions, dispositions and development properties	—		—		(4,055)		566
Total same Mixed-Use property operating income	$	11,707	9,494		$	17,493	$	20,165

Same property operating income increased $5.9 million (14.9%) for the 2021 Quarter compared to the 2020 Quarter. Shopping Center same property operating income for the 2021 Quarter totaled $33.6 million, a $3.7 million increase from the 2020 Quarter. Mixed-Use same property operating income totaled $11.7 million, a $2.2 million increase from the 2020 Quarter. The increase in Shopping Center same property operating income was primarily the result of (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $2.8 million), (b) ~~lower expense recoveries due to decreased recoverable expenses ($0.5 million), (c) lower parking income ($0.5 million), (d) lower lease termination fees~~increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.4 million)~~, (e) lower base rent, primarily due to the lease expiration~~ and ~~re-leasing of the grocery anchor at Shops at Fairfax, which is projected to open in the third quarter of 2020 ($0.3 million) and (f) lower~~(c) higher percentage rent ($~~0.2~~0.3 million).

The ~~$7.3 million decrease~~increase in Mixed-Use same property ~~revenue for the 2020 Period, compared to the 2019 Period,~~operating income was primarily ~~due to~~the result of (a) ~~higher~~increased occupancy at The Waycroft, which opened in April 2020 ($2.9 million) and (b) lower credit losses on operating lease receivables and corresponding reserves (collectively, ~~$2.7~~$0.8 million), ~~(b)~~partially offset by (c) lower ~~expense recoveries due to decreased recoverable expenses~~base rent, exclusive of The Waycroft ($~~1.7~~1.2 million)~~, (c)~~ and (d) lower lease termination fees ($~~1.1 million), (d) lower parking income ($0.6 million), (e) 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) and (f) lower percentage rent ($0.2 million).

Same property operating income

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Net income $ 10,208
$ 16,750
$ 27,037
$ 33,827
Add: Interest expense, net and amortization of deferred debt costs 12,019
10,793
21,613
21,860
Add: Depreciation and amortization of deferred leasing costs 12,600
11,524
23,881
23,167
Add: General and administrative 4,632
5,140
9,682
9,954
Property operating income 39,459
44,207
82,213
88,808
Add (Less): Acquisitions, dispositions and development properties 363
12
258
(617 )
Total same property operating income $ 39,822
$ 44,219
$ 82,471
$ 88,191

Shopping Centers $ 29,762
$ 33,707
$ 62,306
$ 67,177
Mixed-Use properties 10,060
10,512
20,165
21,014
Total same property operating income $ 39,822
$ 44,219
$ 82,471
$ 88,191

Shopping Center operating income $ 29,965
$ 33,707
$ 62,614
$ 67,177
Less: Shopping Center acquisitions, dispositions and development properties (203 ) —
(308 ) —
Total same Shopping Center operating income $ 29,762
$ 33,707
$ 62,306
$ 67,177

Mixed-Use property operating income $ 9,494
$ 10,500
$ 19,599
$ 21,631
Add (Less): Mixed-Use acquisitions, dispositions and development properties 566
12
566
(617 )
Total same Mixed-Use property operating income $ 10,060
$ 10,512
$ 20,165
$ 21,014

~~The $4.4~~ increased $0.7 million ~~decrease in~~(0.9%) for the 2021 Period, compared to the 2020 Period. Shopping Center same property operating income ~~in the 2020 Quarter compared to the 2019 Quarter was~~increased (5.4%) and Mixed-Use same property operating income decreased (13.2%). Shopping Center same property operating income increased primarily due to (a) ~~higher~~lower credit losses on operating lease receivables and corresponding reserves (collectively, ~~$2.8 million), (b) lower lease termination fees ($0.4 million), (c)~~ ~~lower expense recoveries, net of recoverable expenses ($0.4 million), (d)~~ lower parking income, net of parking expenses ($0.3 million), (e) lower base rent, primarily due to the lease expiration and re-leasing of the grocery anchor at Shops at Fairfax, which is projected to open in the third quarter of 2020 ($0.3$2.3 million) and ~~(f) lower percentage rent~~(b) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($~~0.2~~0.9 million).

~~The $5.7 million decrease in~~ Mixed-use same property operating income ~~in the 2020 Period compared to the 2019 Period was~~decreased primarily due to (a)~~higher~~ lower base rent ($2.4 million) and (b) lower other revenue ($0.6 million), partially offset by (c) lower credit losses on operating lease receivables and corresponding reserves (collectively, ~~$2.7~~$0.3 million)~~, (b) lower~~ .

~~lease termination fees ($1.1 million), (c) 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), (d) ~~lower parking income, net of parking expenses ($0.4 million) and (e) lower percentage rent ($0.2 million)~~.

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Liquidity and Capital Resources

Cash and cash equivalents totaled ~~$66.5~~$14.9 million and ~~$9.3~~$66.5 million at June 30, ~~2020~~2021 and ~~2019~~,2020, respectively. The Company’s cash flow is affected by its operating, investing and financing activities, as described below.


	Six Months Ended June 30,							Six Months Ended June 30,
(In thousands)	2020			2019			(In thousands)	2021		2020
Net cash provided by operating activities	$	41,749		$	63,832		Net cash provided by operating activities	$	66,617	$	41,749
Net cash used in investing activities	(38,927		)	(68,599		)	Net cash used in investing activities	(27,480)		(38,927)
Net cash provided by (used in) financing activities	49,730			(549		)	Net cash provided by (used in) financing activities	(51,136)		49,730
Increase (decrease) in cash and cash equivalents	$	52,552		$	(5,316	)
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	$	(11,999)	$	52,552

Operating Activities

Net cash provided by operating activities represents cash received primarily from rental revenue, plus other revenue, less property operating expenses, leasing costs, normal recurring general and administrative expenses and interest payments on debt outstanding. We currently expect a short term decrease in cash provided by operating activities because our tenants are impacted by the COVID-19 pandemic and, while contractually obligated, some have not paid April, May or June 2020 rent (see "Impact of COVID-19").

Investing Activities

Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. The ~~$29.7~~$11.4 million decrease in cash used in investing activities is primarily due to (a) ~~lower~~decreased development expenditures ($~~32.6~~21.4 million), partially offset by (b) increased acquisitions of real estate investments ($9.0 million) and (c) increased additions to real estate investments throughout the portfolio ($~~2.9~~0.9 million).

Financing Activities

Net cash provided by ~~(or used~~(used in) financing activities represents (a) cash received from loan proceeds and issuance of common stock, preferred stock and limited partnership units minus (b) cash used to repay and curtail loans, redeem preferred stock and pay dividends and distributions to holders of common stock, preferred stock and limited partnership units. See note 5 to the consolidated financial statements for a discussion of financing activity.

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service requirements (including debt service relating to additional and replacement debt), distributions to common and preferred stockholders, distributions to unit holders and amounts required for expansion and renovation of the Current Portfolio Properties and selective acquisition and development of additional properties. In order to qualify as a REIT for federal income tax purposes, the Company must distribute to its stockholders at least 90% of its “real estate investment trust taxable income,” as defined in the Code. The Company expects to meet these short-term liquidity requirements (other than amounts required for additional property acquisitions and developments) through cash provided from operations, available cash and its existing line of credit.

Long-term liquidity requirements consist primarily of obligations under our long-term debt and dividends paid to our preferred shareholders. ~~We anticipate~~The Company anticipates that long-term liquidity requirements will also include amounts required for property acquisitions and developments. The Company ~~has substantially completed construction of a primarily residential project with street-level retail at 750 N. Glebe Road~~is in ~~Arlington, Virginia. The total cost~~the early stages of the development of Phase I of the Twinbrook Quarter, a project ~~including acquisition of land, is expected to be approximately $275.0 million.~~that includes an 80,000 square foot Wegmans, adjacent small shop space, 450 apartments and a 230,000 square foot office building in Rockville, Maryland. The Company ~~had~~is in the process of evaluating financing options for the project. Costs incurred ~~costs totaling $273.2 million as~~are currently funded through working capital, including the Company's existing line of ~~June 30, 2020. The remaining cost will be funded by a $157.0 million construction-to-permanent loan, which closed in 2017.~~credit. The Company may also redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers.

Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the coming year, developments, expansions or acquisitions (if any) are expected to be funded with available cash, bank borrowings from the Company’s credit line, construction and permanent financing, proceeds from the operation of the Company’s dividend reinvestment plan or other external debt or equity capital resources available to the Company. Any future 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

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shares of Saul Centers common stock. The availability and terms of any such financing will depend upon market and other conditions.

Management believes that the Company’s capital resources, which at ~~June 30, 2020~~July 31, 2021 included cash balances of approximately ~~$66.5~~$10.1 million and borrowing availability of approximately ~~$150.3~~$203.8 million on its unsecured revolving credit facility, will be sufficient to meet its liquidity needs for the foreseeable future. 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 hasprovide sufficient liquidity and flexibility to meet the needs of the Company's operations as the effects of the COVID-19 pandemic continue to evolve.

Dividend Reinvestments

The Company has a DRIP that allows its common 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 DRIP provides

for investing in newly issued shares of common stock at a 3% discount from market price without payment of any brokerage commissions, service charges or other expenses. All expenses of the DRIP are paid by the Company. The Company issued ~~93,590~~160,980 and ~~217,882~~93,590 shares under the DRIP at a weighted average discounted price of ~~$46.70~~$34.63 and ~~$51.33~~$46.70 per share, during the six months endedJune 30, ~~2020~~2021 and ~~2019~~,2020, respectively. The Company issued ~~15,101~~33,471 and ~~33,783~~15,101 limited partnership units under the DRIP at a weighted average price of ~~$49.40~~$35.05 and ~~$52.06~~$49.40 per unit during the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company also credited ~~3,015~~3,494 and ~~2,269~~3,015 shares to directors pursuant to the reinvestment of dividends specified by the Directors’ Deferred Compensation Plan at a weighted average discounted price of ~~$38.71~~$34.66 and ~~$51.33~~$38.71 per share, during the six months endedJune 30, ~~2020~~2021 and ~~2019~~,2020, respectively.

Capital Strategy and Financing Activity

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 was below 50% as of June 30, ~~2020~~.2021.

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 strategy in light of current economic conditions, relative costs of capital, market values of the Company’s 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 without shareholder approval and consequently, may increase or decrease the Company’s debt to total asset ratio above or below 50% or may waive the policy for certain periods of time. 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.

At June 30, ~~2020,~~2021, the Company had a $400.0 million credit facility comprised of a $325.0 million revolving facility and a $75.0 million term loan. As of June 30, ~~2020,~~2021, the applicable spread for borrowings was 140 basis points under the revolving credit facility and 135 basis points under the term loan. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility. Letters of credit may be issued under the revolving credit facility. As of June 30, ~~2020,~~2021, based on the value of the Company’s unencumbered properties, approximately ~~$150.3~~$215.8 million was available under the revolving credit facility, ~~$174.5~~$109.0 million was outstanding and approximately $185,000 was committed for letters of credit.

The facility requires the Company and its subsidiaries to maintain compliance with certain financial covenants. The material covenants require the Company, on a consolidated basis, to:


•	~~limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than~~ ~~60%~~ ~~(leverage ratio);~~


•	~~limit the amount of debt so that interest coverage will exceed~~ ~~2.0x on a trailing~~ ~~four-quarter~~ ~~basis (interest expense coverage); and~~

•

~~limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds~~ ~~1.4x on a trailing~~ ~~four-quarter~~limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);

•limit the amount of debt so that interest coverage will exceed 2.0x on a trailing four-quarter basis (interest expense coverage); and

•limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.4x on a trailing four-quarter basis (fixed charge coverage).

As of June 30, ~~2020,~~2021, the Company was in compliance with all such covenants.

~~On July 14, 2020, the Company closed on a 15-year, non-recourse $22.1 million mortgage loan secured by Ashbrook Marketplace. The loan matures in 2035, bears interest at a fixed rate~~

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Table of 3.80%, requires monthly principal and interest payments of $114,226 based on a 25-year amortization schedule and requires a final payment of $11.5 million at maturity. The proceeds from the loan were used to pay down the revolving credit facility.Contents

On July 24, 2020, the Company closed on a 15-year, non-recourse $30.0 million mortgage loan secured by Kentlands Place, Kentlands Square I and Kentlands Pad. The loan matures in 2035, bears interest at a fixed rate of 3.43%, requires monthly principal and interest payments of $149,064 based on a 25-year amortization schedule and requires a final payment of $15.3 million at maturity. The proceeds from the loan were used to pay down the revolving credit facility.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

Funds From Operations (FFO)¹ available to common stockholders and noncontrolling interests for the ~~2020~~2021 Period, totaled ~~$45.3~~$48.7 million, ~~a decrease~~an increase of ~~11.3%~~7.5% compared to the ~~2019~~2020 Period. FFO available to common stockholders and noncontrolling interests ~~decreased~~increased primarily due to (a) ~~initial operations of The Waycroft ($3.2 million), (b) higher~~lower credit losses on operating lease receivables and corresponding reserves (collectively, ~~$2.7~~$2.5 million), ~~(c) lower lease termination fees~~(b) increased occupancy at The Waycroft, which opened in April 2020 ($~~1.7~~2.0 million) and (c) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.9 million), partially offset by (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, $0.5 million), partially offset by (e) lower interest incurred due to lower average interest rates during the period,~~Mixed-Use Portfolio, exclusive ~~of the impact~~ of The Waycroft ($~~1.8 million) and (f) higher capitalized interest for 7316 Wisconsin Avenue ($1.1~~2.4 million).

The following table presents a reconciliation from net income to FFO available to common stockholders and noncontrolling interests for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2021		2020		2021		2020
Net income	$	16,119	$	10,208	$	28,914	$	27,037



Add:

Real estate depreciation and amortization	12,637		12,600		25,385		23,881
FFO	28,756		22,808		54,299		50,918
Subtract:

Preferred stock dividends	(2,799)		(2,798)		(5,597)		(5,596)

FFO available to common stockholders and noncontrolling interests	$	25,957	$	20,010	$	48,702	$	45,322
Weighted average shares and units:
Basic	31,591		31,240		31,542		31,216
Diluted (2)	33,008		31,240		32,487		31,218
Basic FFO per share available to common stockholders and noncontrolling interests	$	0.82	$	0.64	$	1.54	$	1.45
Diluted FFO per share available to common stockholders and noncontrolling interests	$	0.79	$	0.64	$	1.50	$	1.45

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

2 Beginning March 5, 2021, fully diluted shares and units includes 1,416,071 limited partnership units that are held in escrow related to the contribution of Twinbrook Quarter by the Saul Trust. The units will remain in escrow until the conditions of the Twinbrook Contribution Agreement, as amended, are satisfied.

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Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except per share amounts) 2020 2019 2020 2019
Net income $ 10,208
$ 16,750
$ 27,037
$ 33,827
Add:
Real estate depreciation and amortization 12,600
11,524
23,881
23,167
FFO 22,808
28,274
50,918
56,994
Subtract:
Preferred stock dividends (2,798 ) (2,953 ) (5,596 ) (5,906 )
FFO available to common stockholders and noncontrolling interests $ 20,010
$ 25,321
$ 45,322
$ 51,088
Weighted average shares:
Diluted weighted average common stock 23,338
22,994
23,319
22,929
Convertible limited partnership units 7,902
7,853
7,899
7,844
Average shares and units used to compute FFO per share 31,240
30,847
31,218
30,773
FFO per share available to common stockholders and noncontrolling interests $ 0.64
$ 0.82
$ 1.45
$ 1.66

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

Acquisitions and Redevelopments

Management anticipates that during the coming year, the Company will complete ~~its development activities~~the remaining retail spaces at The ~~Waycroft,~~Waycroft. The Company may redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the coming year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Company’s credit line, construction financing, proceeds from the operation of the Company’s dividend reinvestment plan or other external capital resources available to the Company.

The Company has been selectively involved in acquisition, development, redevelopment and renovation activities. It continues to evaluate the acquisition of land parcels for retail and mixed-use development and acquisitions of operating properties for opportunities to enhance operating income and cash flow growth. The Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio.

The Company, as contract purchaser, has filed with the City of Rockville a site plan for Phase I of the Twinbrook Quarter development and is conducting community meetings and a hearing before the planning commission is scheduled for the third quarter of 2020. The plan includes an 80,000 square foot Wegmans grocery store, 29,000 square feet of retail shop space, 460 residential units and 237,000 square feet of office space. The phasing of these improvements and the timing of construction will depend on removal of contingencies, final site plan approval, building permit approval and market conditions. The total development potential of this 8.1 acre site, when combined with the Company’s adjacent 10.3 acre site, totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

Portfolio Leasing Status

The following chart sets forth certain information regarding Commercial leases at our properties.


	Total Properties		Total Square Footage		Percent Leased
	Shopping Centers	Mixed-Use	Shopping Centers	Mixed-Use	Shopping Centers		Mixed-Use
June 30, 2021	50	7	7,872,002	1,136,937	93.4	%	86.3	%
June 30, 2020	50	7	7,874,492	1,136,937	95.1	%	92.2	%

Total Properties Total Square Footage Percent Leased

Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
June 30, 2020 50
7
7,874,492
1,136,937
95.1 % 92.2 %
June 30, 2019 49
7
7,759,621
1,146,438
95.6 % 88.6 %

As of June 30, ~~2020, 94.7% of the Commercial portfolio was leased, unchanged from June 30, 2019. On a same property basis, 94.7%~~2021, 92.5% of the Commercial portfolio was leased, compared to ~~95.2% at~~94.7% 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 of a result of the opening of The Waycroft. 2020. On a same property basis, ~~95.3%~~92.5% of the ~~residential~~Commercial portfolio was leased, ascompared to 94.7% at June 30, 2020. As of June 30, ~~2020,~~2021, the Residential portfolio was 98.4% leased compared to ~~98.1%~~67.7% at June 30, ~~2019.~~2020. As of June 30, 2021, excluding the Waycroft, the Residential portfolio was 97.7% leased compared to 95.3% at June 30, 2020.

The following table shows selected data for leases executed in the indicated periods. The information is based on executed leases without adjustment for the timing of occupancy, tenant defaults, or landlord concessions. The base rent for an expiring lease is the annualized contractual base rent, on a cash basis, as of the expiration date of the lease. The base rent for a new or renewed lease is the annualized contractual base rent, on a cash basis, as of the expected rent commencement date. Because tenants that execute leases may not ultimately take possession of their space or pay all of their contractual rent, the changes presented in the table provide information only about trends in market rental rates. The actual changes in rental income received by the Company may be different.


			Average Base Rent per Square Foot
Three months ended June 30,	Square Feet	Number of Leases	New/Renewed Leases		Expiring Leases
2021	485,582	91	$	22.39	$	23.13
2020	173,016	38	23.07		22.09

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Average Base Rent per Square Foot
Three months ended June 30,
Square
Feet

Number
of Leases

New/Renewed
Leases

Expiring
Leases
2020 173,016
38
$ 23.07
$ 22.09
2019 370,068
65
20.40
20.88

Certain of the Company’s operating properties are planned for redevelopment, including its properties at Twinbrook and White Flint. Prior to the commencement of redevelopment, the Company continues to operate the properties. However, in order to provide the greatest amount of flexibility, the Company generally enters into leases with shorter terms at these “pre-development” properties. The shorter-term leases require less capital, but also yield lower rents. The impact of these leases

with shorter terms and lower rents can impact the averages shown for all leasing activity. During the second quarter of 2020, the Company entered into two new or renewed leases, for 16,656 square feet of retail space, at pre-development properties, that have shorter terms and lower rents than typical market conditions would suggest. Excluding these leases, the base rent on the 36 new or renewed leases on a same space basis would have been $22.71 per square foot compared to $21.46 per square foot for expiring leases.

Since December 2019, the Company has extended the leases of three significant tenants within the office portfolio. The earliest expiration of these resulting leases is now 2030. These leases comprise an aggregate of approximately 216,000 square feet (22%) of the office square footage contained within the Mixed-Use Properties.

Additional information about the ~~2020~~2021 leasing activity is set forth below. The below information includes leases for space which had not been previously leased during the period of the Company's ownership, either a result of acquisition or development.


	New Leases			First Generation/Development Leases			Renewed Leases				New Leases		First Generation/Development Leases		Renewed Leases
Number of leases	5			1			33			Number of leases	19		1		72
Square feet	12,238			1,161			160,778			Square feet	61,525		1,152		424,057
Per square foot average annualized:										Per square foot average annualized:
Base rent	$	38.53		$	35.00		$	21.89		Base rent	$	21.13	$	55.00	$	22.57
Tenant improvements	(1.46		)	(17.74		)	(0.14		)	Tenant improvements	(3.20)		(13.57)		(0.24)
Leasing costs	(0.67		)	—			(0.07		)	Leasing costs	(0.49)		(1.75)		(0.04)
Rent concessions	(0.33		)	—			(0.23		)	Rent concessions	(0.40)		(0.92)		(0.13)
Effective rents	$	36.07		$	17.26		$	21.45		Effective rents	$	17.04	$	38.76	$	22.16

During the three months ended June 30, 2021, on a same property basis, the Company entered into 185 new or renewed apartment leases. The average monthly rent per square foot decreased to $3.07 from $3.20. During the three months ended June 30, 2020,, on a same property basis, the Company entered into 78 new or renewed apartment leases. The average monthly rent per square foot increased to $3.56 from $3.55. ~~During the three months ended June 30, 2019, the Company entered into 126 new or renewed apartment leases. The average monthly rent per square foot increased to $3.60 from $3.50.~~

As of December 31, ~~2019, 746,234~~2020, 889,250 square feet of Commercial space was subject to leases scheduled to expire in ~~2020.~~2021. Of those leases, as of June 30, ~~2020,~~2021, leases representing ~~460,488~~490,204 square feet of Commercial space have not yet renewed and are scheduled to expire over the next ~~six~~three months. Below is information about existing and estimated market base rents per square foot for that space.


Expiring Leases:	Total
Square feet	490,204
Average base rent per square foot	$	24.24
Estimated market base rent per square foot	$	23.38

Expiring Leases: Total
Square feet 460,488
Average base rent per square foot $ 23.46
Estimated market base rent per square foot $ 22.28

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain financial market risks, the most predominant being fluctuations in interest rates. Interest rate fluctuations are monitored by management as an integral part of the Company’s overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the Company’s results of operations.

The Company is exposed to interest rate fluctuations which will affect the amount of interest expense of its variable rate debt and the fair value of its fixed rate debt. As of June 30, ~~2020~~,2021, the Company had variable rate indebtedness totaling ~~$249.5 million~~.$184.0 million. If the interest rates on the Company’s variable rate debt instruments outstanding at June 30, ~~2020~~2021 had been one percentage point higher, our annual interest expense relating to these debt instruments would have increased by ~~$2.5~~$1.8 million based on those balances. As of June 30, ~~2020~~,2021, the Company had fixed-rate indebtedness totaling ~~$934.1~~$957.1 million with a weighted average interest rate of ~~5.02%~~4.93%. If interest rates on the Company’s fixed-rate debt instruments at June 30, ~~2020~~2021 had been one percentage point higher, the fair value of those debt instruments on that date would have been approximately ~~$50.7~~$50.1 million less than the carrying value.

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Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chairman and Chief Executive Officer, ~~and President,~~ its ~~Executive~~Senior Vice President-Chief Financial Officer, ~~and Treasurer,~~ and its Senior Vice President-Chief Accounting Officer and Treasurer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including its Chairman and Chief Executive Officer, ~~and President,~~ its ~~Executive~~Senior Vice President-Chief Financial Officer, ~~and Treasurer,~~ and its Senior Vice President-Chief Accounting Officer and Treasurer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, ~~2020.~~2021. Based on the foregoing, the Company’s Chairman and Chief Executive Officer, ~~and President,~~ its ~~Executive~~Senior Vice President-Chief Financial Officer ~~and Treasurer~~ and its Senior Vice President-Chief Accounting Officer and Treasurer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of June 30, ~~2020.~~2021.

During the quarter ended June 30, ~~2020,~~2021, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1. Legal Proceedings

None


~~Item 1A.~~	~~Risk Factors~~

Item 1A. Risk Factors

Except as set forth below, the Company has no material updates to the risk factors presented in Item 1A. Risk Factors in the ~~2019~~2020 Annual Report of the Company on Form 10-K.

The current outbreak of the novel coronavirus (“COVID-19”), or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations, cash flows and the market value and trading price of our securities.

On March 11, 2020, the World Health Organization declared 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. Many of our tenants have announced mandated or temporary closures of their operations and/or have requested adjustments to their lease terms during this pandemic. Experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or a global recession. COVID-19 (or a future pandemic) 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 due to, among other factors:

•a complete or partial closure of, or other operational issues at, our properties as a result of government or tenant action;

•the declines in or instability of the economy or financial markets may result in a recession or negatively impact consumer discretionary spending, which could adversely affect retailers and consumers;

•the reduction of economic activity severely impacts our tenants' business operations, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;

•inability to access debt and equity capital on favorable terms, if at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt, reduce our ability to make cash distributions to our stockholders and increase our future interest expense;

•a general decline in business activity and demand for real estate transactions could adversely affect our ability to successfully execute investment strategies or expand our property portfolio;

•a significant reduction in our cash flows could impact our ability to continue paying cash dividends to our common and preferred stockholders at expected levels or at all;

•the financial impact of COVID-19 could negatively affect our future compliance with financial and other covenants of our credit facility and other debt instruments, and the failure to comply with such covenants could result in a default that accelerates the payment of such indebtedness;

•the continued service and availability of personnel, including our executive officers and Board of Directors, and our ability to recruit, attract and retain skilled personnel, to the extent our management, Board of Directors or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, could negatively impact our business and operating results; and

•our ability to ensure business continuity in the event our continuity of operations plan is not effective or is improperly implemented or deployed during a disruption.

The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. For example, as of June 30, ~~2020,~~2021, approximately ~~39%~~20% of base rent is generated from tenants in lines of trade that have been ~~significantly~~ impacted by mandated temporary closures or other social-distancing guidelines issued by federal, state and local governments including:

~~Full-service and limited-service restaurants (16%),~~

~~Beauty~~•beauty services and dry cleaners (6%),;

~~Apparel~~•apparel and footwear ~~(5%~~(4%),;

~~Health~~•specialty retail (4%);

•full-service and limited-service restaurants (3%);

•health and fitness (2%),; and

~~Other (10%~~•other (1%).

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A prolonged imposition of, or in some cases a return to, mandated temporary closures or other social-distancing guidelines may adversely impact the ability of these tenants to generate sufficient revenues, and may cause tenants to request additional rent deferrals, and in limited cases, default on their leases, or result in the bankruptcy or insolvency of tenants, which would diminish our ability to receive rental revenue that is owed under their leases. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

B. Francis Saul II, the Company’s Chairman of the Board and Chief Executive Officer, ~~and President,~~ his spouse and entities affiliated with Mr. Saul II, through participation in the Company’s Dividend Reinvestment and Stock Purchase Plan for the April 30, ~~2020~~2021 dividend distribution acquired ~~2,498~~59,397 shares of common stock at a price of ~~$32.22~~$41.87 per ~~share.~~share and 13,978 limited partnership units at a price of $42.33 per unit. The limited partnership units were sold pursuant to Section 4(a)(2) of the Securities Act of 1933.


~~Item 3.~~	~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

None


~~Item 4.~~	~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not Applicable


~~Item 5.~~	~~Other Information~~

Item 5. Other Information

None

Item 6. Exhibits


~~Item 6.~~	~~Exhibits~~

~~31.~~10.

(a)

The Seventeenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership (filed herewith).

31.

Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith).*

32.

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith).*

99.

(a)

Schedule of Portfolio Properties (filed herewith).

101.

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, ~~2020,~~2021, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of equity and comprehensive income, (iv) consolidated statements of cash flows, and

(v) the notes to the consolidated financial statements.

104.

Cover Page Interactive Data File (the Cover Page Interactive Data File is embedded within the Inline XBRL document).

* In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SAUL CENTERS, INC. (Registrant)

Date: August 5, 2021		~~SAUL CENTERS, INC.~~ ~~(Registrant)~~ /s/ D. Todd Pearson
		D. Todd Pearson President and Chief Operating Officer

Date: August ~~6, 2020~~5, 2021		/s/ ~~B. Francis Saul II~~Carlos L. Heard
		~~B. Francis Saul II~~ ~~Chairman, Chief Executive Officer and President~~

~~Date: August 6, 2020~~	~~/s/ Scott V. Schneider~~
	~~Scott V. Schneider~~ ~~Executive~~Carlos L. Heard Senior Vice President and Chief Financial Officer ~~and Treasurer~~ (principal financial officer)

Date: August ~~6, 2020~~5, 2021		/s/ Joel A. Friedman
		Joel A. Friedman Senior Vice President, Chief Accounting Officer and Treasurer (principal accounting officer)

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(In thousands)	June 30, 2020			December 31, 2019
Rents currently due	$	11,727		$	7,235
Deferred rents	3,229			474
Straight-line rent	42,917			42,088
Other receivables	3,478			2,967
Allowance for doubtful accounts	(3,425		)	(453		)
Total	$	57,926		$	52,311