Saul Centers(BFS) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) For the quarter ended March 31, 2020, Saul Centers reported total revenues of $56.9 million, a decrease from $59.8 million in the prior year's quarter, with net income remaining relatively stable at $16.8 million and total assets growing to $1.64 billion Consolidated Balance Sheets | Indicator | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,644,840 | $1,618,340 | | Real estate investments, net | $1,526,895 | $1,518,123 | | Cash and cash equivalents | $31,935 | $13,905 | | Total Liabilities | $1,198,234 | $1,174,984 | | Notes payable | $798,343 | $821,503 | | Revolving credit facility payable | $123,507 | $86,371 | | Total Equity | $446,606 | $443,356 | Consolidated Statements of Operations | Metric | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $56,943 | $59,750 | | Total Expenses | $40,114 | $42,673 | | Net Income | $16,829 | $17,077 | | Net income available to common stockholders | $10,466 | $10,494 | | Basic and Diluted EPS | $0.45 | $0.46 | Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,050 | $31,641 | | Net cash used in investing activities | ($21,588) | ($23,423) | | Net cash provided by (used in) financing activities | $13,568 | ($11,340) | | Net increase (decrease) in cash | $18,030 | ($3,122) | Notes to Consolidated Financial Statements The notes detail the company's organization as a REIT focused on the Washington, DC/Baltimore area, with a portfolio of 50 shopping centers and six mixed-use properties, highlighting new accounting standards, the $1.1 billion total debt, and initial impacts of the COVID-19 pandemic, which prompted credit facility draws for liquidity - As of March 31, 2020, the company's portfolio consisted of 50 shopping center properties and six mixed-use properties, primarily located in the Washington, DC/Baltimore metropolitan area[19] - The company's largest tenant, Giant Food, accounted for 4.9% of total revenue for the three months ended March 31, 2020[20] - In response to the COVID-19 pandemic, the company has elected to apply FASB relief for lease concessions, allowing for the accrual of rent from tenants under deferral agreements[33] - Total outstanding debt was approximately $1.1 billion at March 31, 2020, of which $928.9 million was fixed-rate, and the company had approximately $200.3 million available under its revolving credit facility[43][44] - Subsequent to the quarter's end, on April 1, 2020, the company borrowed an additional $50.0 million under its revolving credit facility to provide liquidity in response to the COVID-19 pandemic[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant negative impact of the COVID-19 pandemic, noting that 32% of April 2020 rent remained unpaid as of early May, leading to a 4.7% YoY revenue decrease and a decline in FFO per share to $0.81, while the company focuses on development and believes it has sufficient liquidity Impact of COVID-19 - As of May 5, 2020, approximately 32% of the contractual base rent and operating expense recoveries for April 2020 remained unpaid[86] - The company is negotiating rent deferral agreements, generally permitting tenants to defer 30 to 90 days of payments until a later time, with repayment typically occurring over a 12-month period starting in 2021[86] - To enhance liquidity, the company borrowed $50.0 million under its revolving credit facility on April 1, 2020, and as of April 30, 2020, it had $61.9 million in cash and $150.3 million in borrowing availability[88] Results of Operations | Revenue Component | Q1 2020 (in thousands) | Q1 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Base rent | $46,348 | $46,610 | (0.6)% | | Expense recoveries | $8,616 | $9,811 | (12.2)% | | Other revenue | $1,528 | $2,947 | (48.2)% | | Total revenue | $56,943 | $59,750 | (4.7)% | | Expense Component | Q1 2020 (in thousands) | Q1 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Property operating expenses | $7,036 | $8,001 | (12.1)% | | Interest expense, net | $9,594 | $11,067 | (13.3)% | | Total expenses | $40,114 | $42,673 | (6.0)% | - The decrease in property operating expenses was primarily due to lower snow removal costs ($1.0 million)[116] - The decrease in interest expense was mainly due to higher capitalized interest ($1.6 million) related to development projects[117] Same property revenue and same property operating income - Same property revenue decreased by $2.0 million (3.4%) in Q1 2020 compared to Q1 2019, primarily due to decreased lease termination fees ($0.7 million) and decreased expense recoveries ($1.2 million)[124] - Same property operating income decreased by $1.3 million (3.0%) in Q1 2020 compared to Q1 2019, mainly due to lower termination fees ($0.7 million) and lower net expense recoveries ($0.5 million)[126] Liquidity and Capital Resources - In March and April 2020, the company drew an aggregate of $71.0 million from its revolving credit facility to increase liquidity in response to the COVID-19 pandemic[133] - As of March 31, 2020, the company had cash balances of approximately $31.9 million and borrowing availability of approximately $200.3 million on its unsecured revolving credit facility[137] - The company's capital strategy is to maintain a total debt to total asset value ratio of 50% or less, which management believes was met as of March 31, 2020[141] Funds From Operations (FFO) | FFO Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | FFO available to common stockholders and noncontrolling interests (in thousands) | $25,312 | $25,767 | | FFO per share | $0.81 | $0.84 | - FFO decreased by 1.8% compared to the 2019 quarter, primarily due to lower lease termination fees and lower base rent, partially offset by lower interest expense[146] Portfolio Leasing Status - As of March 31, 2020, the commercial portfolio was 95.3% leased, compared to 95.2% at March 31, 2019, and the residential portfolio was 96.7% leased[154] | Leasing Activity (Q1 2020) | Square Feet | Number of Leases | Avg. New/Renewed Rent ($/sq.ft.) | Avg. Expiring Rent ($/sq.ft.) | | :--- | :--- | :--- | :--- | :--- | | Total | 427,692 | 64 | $34.41 | $35.54 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, with $199.5 million in variable-rate debt as of March 31, 2020, where a hypothetical one percentage point increase in interest rates would result in a $2.0 million increase in annual interest expense - The company's main financial market risk is from fluctuations in interest rates[163] - As of March 31, 2020, the company had $199.5 million in variable-rate debt, where a one percentage point increase in interest rates would increase annual interest expense by approximately $2.0 million[164] Item 4. Controls and Procedures Based on an evaluation as of March 31, 2020, the company's management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the first quarter of 2020 - The company's management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020[167] - No changes in the company's internal control over financial reporting occurred during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, its internal controls[168] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings - None[170] Item 1A. Risk Factors The company added a significant risk factor related to the COVID-19 pandemic, highlighting its potential for material adverse effects on business, financial condition, and cash flows, with approximately 33% of base rent from tenant categories significantly impacted by government-mandated closures - A new risk factor was added detailing the potential material and adverse effects of the COVID-19 pandemic on the company's business, financial condition, and results of operations[171] - Key risks from the pandemic include tenant inability to meet lease obligations, potential defaults, and disruptions to capital markets[172] - Approximately 33% of the company's base rent is generated from tenants in sectors significantly impacted by mandated closures, including restaurants (13%), beauty services (6%), and apparel (6%)[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported that its Chairman, B. Francis Saul II, and affiliated entities acquired 70,477 shares of common stock and 15,101 limited partnership units through the Dividend Reinvestment and Stock Purchase Plan for the January 31, 2020 dividend distribution - The company's Chairman, B. Francis Saul II, and affiliated entities acquired 70,477 shares of common stock and 15,101 limited partnership units via the Dividend Reinvestment Plan for the January 31, 2020 dividend[174] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications, a schedule of portfolio properties, and financial statements formatted in XBRL - Exhibits filed include CEO and CFO certifications, a schedule of portfolio properties, and financial statements in XBRL format[177][178]