Saul Centers (BFS) 8-K Saul Centers, Inc. Reports Third Quarter 2013 Earnings

EXHIBIT INDEX

Exhibit        Description

No.

99.1         Press Release, dated October 29, 2013, of Saul Centers, Inc.

Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

SAUL CENTERS, INC.

7501 Wisconsin Avenue, Suite 1500, Bethesda, Maryland 20814-6522

(301) 986-6200

Saul Centers, Inc. Reports Third Quarter 2013 Earnings

October 29, 2013, Bethesda, MD.

Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended September 30, 2013 (“2013 Quarter”). Total revenue for the 2013 Quarter increased to $49.8 million from $47.4 million for the quarter ended September 30, 2012 (“2012 Quarter”). Operating income, which is net income before the impact of acquisition related costs, change in fair value of derivatives, loss on early extinguishment of debt and gains on sales of property and casualty settlements, increased to $12.1 million for the 2013 Quarter from $8.2 million for the 2012 Quarter.

Net income attributable to common stockholders was $6.2 million ($0.30 per diluted share) for the 2013 Quarter compared to $4.2 million ($0.21 per diluted share) for the 2012 Quarter. The increase in net income attributable to common stockholders for the 2013 Quarter was primarily the result of (a) increased property operating income ($2.1 million), (b) lower predevelopment expenses related to Van Ness Square ($1.8 million) and (c) lower interest expense ($0.6 million) partially offset by (d) lower gain on sale of property ($1.1 million), (e) higher noncontrolling interest ($0.7 million) and (f) loss on early extinguishment of debt ($0.5 million).

Same property revenue increased 5.1% and same property operating income increased 5.1% for the 2013 Quarter compared to the 2012 Quarter. Same property operating income equals property revenue minus the sum of (a) property operating expenses, (b) provision for credit losses and (c) real estate taxes and the comparisons exclude the results of properties not in operation for the entirety of the comparable reporting periods. Shopping center same property operating income increased 3.8% and mixed-use same property operating income increased 9.4%. The leasing of office space at Clarendon Center was the primary contributor of improved mixed-use property operating income.

For the nine months endedSeptember 30, 2013 (“2013 Period”), total revenue increased to $147.8 million from $141.8 million for the nine months endedSeptember 30, 2012 (“2012 Period”). Operating income decreased to $23.2 million for the 2013 Period from $27.1 million for the 2012 Period. Operating income for the 2013 Period was adversely impacted by $8.0 million of additional depreciation expense and $1.8 million of higher predevelopment expenses, both of which are related to the Company’s activities at Van Ness Square, partially offset by $5.5 million of increased property operating income. Without the expenses related to the Van Ness Square redevelopment activities, operating income for the 2013 Period would have been $34.8 million or $5.8 million more than the 2012 Period.

Net income attributable to common stockholders was $5.0 million ($0.24 per diluted share) for the 2013 Period compared to net income of $12.5 million ($0.64 per diluted share) for the 2012 Period. Net income attributable to common stockholders for the 2013 Period was adversely impacted primarily by (a) increased depreciation and predevelopment expenses related to Van Ness Square ($9.8 million) and (b) a charge against common equity resulting from the redemption of preferred stock ($5.2 million) partially offset by (c) increased property operating income ($5.5 million) and (d) lower noncontrolling interest ($2.7 million). Excluding the impact of Van Ness Square and the preferred stock redemption, as adjusted for noncontrolling interests, net income attributable to common stockholders would have been approximately $17.6 million or $3.6 million more than the 2012 Period.

Same property revenue increased 4.2% and same property operating income increased 4.4% for the 2013 Period compared to the 2012 Period. Shopping center same property operating income increased 3.7% and mixed-use same property operating income increased 6.7%. Shopping center operating income benefited primarily from improved leasing, the most significant of which was approximately 126,000 square feet of anchor-tenant space which was vacant during the 2012 Period. The leasing of Clarendon Center office space was the primary contributor to improved mixed-use property operating income.

www.SaulCenters.com

As of September 30, 2013, 94.2% of the commercial portfolio was leased (all properties except the apartments at Clarendon Center), compared to 91.6% at September 30, 2012. On a same property basis, 94.3% of the portfolio was leased at September 30, 2013, compared to 92.7% at September 30, 2012. As of September 30, 2013, the apartments at Clarendon Center were 98.4% leased compared to 100% as of September 30, 2012.

Funds from operations ("FFO") available to common shareholders (after deducting preferred stock dividends) increased 28.9% to $18.8 million ($0.69 per diluted share) in the 2013 Quarter from $14.6 million ($0.55 per diluted share) in the 2012 Quarter. FFO, a widely accepted non-GAAP financial measure of operating performance for REITs, is defined as net income plus real estate depreciation and amortization, and excluding gains and losses from property dispositions, impairment charges on depreciable real estate assets and extraordinary items. The increase in FFO available to common shareholders for the 2013 Quarter was primarily due to (a) increased property operating income ($2.1 million), (b) lower predevelopment expenses ($1.8 million) and (c) lower interest expense ($0.6 million).

FFO available to common shareholders (after deducting preferred stock dividends and the impact of preferred stock redemptions) increased1.1% to $46.0 million ($1.69 per diluted share) in the 2013 Period from $45.5 million ($1.71 per diluted share) in the 2012 Period. FFO available to common shareholders for the 2013 Period increased primarily due to (a) improved overall property operating income ($5.5 million) and (b) lower interest expense and amortization of deferred debt costs ($2.4 million) partially offset by (c) the redemption of preferred stock ($5.2 million) and (d) increased predevelopment expenses ($1.8 million). Excluding the impact of predevelopment expenses and the preferred stock redemption, FFO available to common shareholders would have been approximately $54.8 million or $7.5 million more than the 2012 Period.

Saul Centers is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland. Saul Centers currently operates and manages a real estate portfolio of 59 community and neighborhood shopping center and mixed-use properties totaling 9.3 million square feet of leasable area. Over 85% of the Company’s property operating income is generated from properties in the metropolitan Washington, DC/Baltimore area.

Contact:	Scott V. Schneider
	(301) 986-6220

www.SaulCenters.com

Saul Centers, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2013			December 31, 2012
	(Unaudited)
Assets
Real estate investments
Land	$	353,958		$	353,890
Buildings and equipment	1,122,786			1,109,911
Construction in progress	7,232			2,267
	1,483,976			1,466,068
Accumulated depreciation	(386,839		)	(353,305		)
	1,097,137			1,112,763
Cash and cash equivalents	11,696			12,133
Accounts receivable and accrued income, net	44,528			41,406
Deferred leasing costs, net	25,673			26,102
Prepaid expenses, net	7,439			3,895
Deferred debt costs, net	8,244			7,713
Other assets	4,455			3,297
Total assets	$	1,199,172		$	1,207,309
Liabilities
Mortgage notes payable	$	825,420		$	789,776
Revolving credit facility payable	—			38,000
Dividends and distributions payable	13,082			13,490
Accounts payable, accrued expenses and other liabilities	21,999			27,434
Deferred income	30,072			31,320
Total liabilities	890,573			900,020
Stockholders’ equity
Preferred stock	180,000			179,328
Common stock	205			201
Additional paid-in capital	267,727			246,557
Accumulated deficit and other comprehensive loss	(173,716		)	(158,383		)
Total Saul Centers, Inc. stockholders’ equity	274,216			267,703
Noncontrolling interest	34,383			39,586
Total stockholders’ equity	308,599			307,289
Total liabilities and stockholders’ equity	$	1,199,172		$	1,207,309

Saul Centers, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

	For The Three Months   Ended September 30,						For The Nine Months   Ended September 30,
	2013			2012			2013			2012
Revenue	(unaudited)						(unaudited)
Base rent	$	40,110		$	38,334		$	119,403		$	113,862
Expense recoveries	7,848			7,564			22,925			22,706
Percentage rent	215			250			1,153			1,109
Other	1,583			1,297			4,270			4,129
Total revenue	49,756			47,445			147,751			141,806
Operating expenses
Property operating expenses	6,106			5,877			18,096			17,532
Provision for credit losses	191			168			740			761
Real estate taxes	5,610			5,535			16,806			16,897
Interest expense and amortization of deferred debt costs	11,738			12,322			35,164			37,609
Depreciation and amortization of deferred leasing costs	10,492			10,237			39,316			29,744
General and administrative	3,501			3,272			10,830			10,303
Predevelopment expenses	60			1,870			3,642			1,870
Total operating expenses	37,698			39,281			124,594			114,716
Operating income	12,058			8,164			23,157			27,090
Acquisition related costs	(99		)	—			(99		)	—
Change in fair value of derivatives	46			17			107			(2		)
Loss on early extinguishment of debt	(497		)	—			(497		)	—
Gain on sale of property	—			1,057			—			1,057
Gain on casualty settlement	—			219			—			219
Income from continuing operations	11,508			9,457			22,668			28,364
Discontinued operations	—			(53		)	—			(45		)
Net Income	11,508			9,404			22,668			28,319
Income attributable to noncontrolling interests	(2,110		)	(1,456		)	(1,692		)	(4,428		)
Net income attributable to Saul Centers, Inc.	9,398			7,948			20,976			23,891
Preferred stock redemption	—			—			(5,228		)	—
Preferred stock dividends	(3,206		)	(3,785		)	(10,777		)	(11,355		)
Net income attributable to common stockholders	$	6,192		$	4,163		$	4,971		$	12,536
Per share net income attributable to common stockholders
Diluted	$	0.30		$	0.21		$	0.24		$	0.64
Weighted Average Common Stock:
Common stock	20,452			19,721			20,300			19,561
Effect of dilutive options	33			63			29			51
Diluted weighted average common stock	20,485			19,784			20,329			19,612

Reconciliation of net income to FFO attributable to common shareholders (1)
		Three Months Ended   September 30,						Nine Months Ended   September 30,
	(In thousands, except per share amounts)	2013			2012			2013			2012
	Net income	$	11,508		$	9,404		$	22,668		$	28,319
	Subtract:
	Gain on sale of property	—			(1,057		)	—			(1,057		)
	Gain on casualty settlement	—			(219		)	—			(219		)
	Add:
	Real estate depreciation-discontinued operations	—			—			—			51
	Real estate depreciation and amortization	10,492			10,237			39,316			29,744
	FFO	22,000			18,365			61,984			56,838
	Subtract:
	Preferred stock dividends	(3,206		)	(3,785		)	(10,777		)	(11,355		)
	Preferred stock redemption	—			—			(5,228		)	—
	FFO available to common shareholders	$	18,794		$	14,580		$	45,979		$	45,483
	Weighted average shares:
	Diluted weighted average common stock	20,485			19,784			20,329			19,612
	Convertible limited partnership units	6,914			6,914			6,914			6,914
	Average shares and units used to compute FFO per share	27,399			26,698			27,243			26,526
	FFO per share available to common shareholders	$	0.69		$	0.55		$	1.69		$	1.71

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

Reconciliation of net income to same property operating income
	Three Months Ended   September 30,						Nine Months Ended   September 30,
(In thousands)	2013			2012			2013			2012
Net income	$	11,508		$	9,404		$	22,668		$	28,319
Add: Interest expense and amortization of deferred debt costs	11,738			12,322			35,164			37,609
Add: Interest expense - discontinued operations	—			—			—			51
Add: Depreciation and amortization of deferred leasing costs	10,492			10,237			39,316			29,744
Add: Real property depreciation - discontinued operations	—			31			—			72
Add: Loss on early extinguishment of debt	497			—			497			—
Add: General and administrative	3,501			3,272			10,830			10,303
Add: Predevelopment expenses	60			1,870			3,642			1,870
Add: Acquisition related costs	99			—			99			—
Add (Less): Change in fair value of derivatives	(46		)	(17		)	(107		)	2
Less: Gains on property dispositions	—			(1,276		)	—			(1,276		)
Less: Interest income	(13		)	(60		)	(57		)	(108		)
Property operating income	37,836			35,783			112,052			106,586
Less: Acquisitions, dispositions & development property	(561		)	(334		)	(2,012		)	(1,222		)
Total same property operating income	$	37,275		$	35,449		$	110,040		$	105,364
Shopping centers	$	27,887		$	26,865		$	82,823		$	79,850
Mixed-Use properties	9,388			8,584			27,217			25,514
Total same property operating income	$	37,275		$	35,449		$	110,040		$	105,364