Saul Centers(BFS) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the period ended September 30, 2022 Consolidated Balance Sheets Total assets grew to $1.81 billion, driven by construction, while liabilities also increased Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,810,018 | $1,746,761 | | Real estate investments, net | $1,693,090 | $1,634,013 | | Construction in progress | $285,810 | $205,911 | | Cash and cash equivalents | $10,291 | $14,594 | | Total Liabilities | $1,281,701 | $1,216,274 | | Notes payable, net | $969,109 | $941,456 | | Total Equity | $528,317 | $530,487 | Consolidated Statements of Operations Q3 net income declined year-over-year, while nine-month net income increased Key Operating Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $61,087 | $60,256 | $183,524 | $178,985 | | Total Expenses | $45,574 | $43,371 | $133,523 | $133,186 | | Net Income | $15,513 | $16,885 | $50,001 | $45,799 | | Net income available to common stockholders | $9,152 | $10,340 | $29,936 | $27,751 | | Basic and Diluted EPS | $0.38 | $0.44 | $1.25 | $1.17 | Consolidated Statements of Cash Flows Operating cash flow slightly increased, while investing cash outflow grew significantly due to development spending Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $92,009 | $89,019 | | Net cash used in investing activities | ($84,509) | ($38,788) | | Net cash used in financing activities | ($11,803) | ($65,170) | | Net decrease in cash | ($4,303) | ($14,939) | Notes to Consolidated Financial Statements The notes detail the company's REIT structure, portfolio composition, and significant debt facilities - The company operates as a REIT and as of September 30, 2022, owned 50 shopping centers and seven mixed-use properties, primarily located in the Washington, DC/Baltimore metropolitan area[29] - Giant Food is a key tenant, accounting for 5.2% of the company's total revenue for the nine months ended September 30, 2022[30] - The company has two reportable business segments: Shopping Centers and Mixed-Use Properties. For the nine months of 2022, Shopping Centers generated $128.6M in revenue, while Mixed-Use Properties generated $54.9M[91][93] - As of September 30, 2022, the company had a $525.0 million senior unsecured credit facility, comprising a $425.0 million revolving facility and a $100.0 million term loan[53] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, strategic development projects, liquidity, and key performance metrics like FFO Overview and Strategy The company's strategy centers on developing transit-oriented mixed-use projects and maintaining a conservative capital structure - The company's strategy focuses on diversifying assets through the development of transit-oriented, residential mixed-use projects in the Washington, D.C. metropolitan area[107] Major Development Projects | Project | Description | Expected Cost | Status | | :--- | :--- | :--- | :--- | | Twinbrook Quarter Phase I | 450 apartments, 80k sq ft Wegmans, 25k sq ft retail | ~$331.5M | Initial delivery anticipated late 2024 | | Hampden House | 366 apartment units, 10.1k sq ft retail | ~$246.4M | Construction expected to complete during 2025 | Results of Operations Nine-month net income rose on revenue growth and lower interest expense, despite a decline in Q3 profitability Q3 2022 vs. Q3 2021 Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $61,087 | $60,256 | 1.4% | | Total Expenses | $45,574 | $43,371 | 5.1% | Nine Months 2022 vs. 2021 Performance (in thousands) | Metric | Nine Months 2022 | Nine Months 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $183,524 | $178,985 | 2.5% | | Total Expenses | $133,523 | $133,186 | 0.3% | - Interest expense for the nine-month period decreased by 6.9% primarily due to $2.9 million in higher capitalized interest related to development projects like Twinbrook[138] Same Property Analysis Same property operating income grew for the nine-month period, driven by both shopping center and mixed-use segments Same Property Operating Income Growth (YoY) | Period | Total | Shopping Centers | Mixed-Use Properties | | :--- | :--- | :--- | :--- | | Q3 2022 | 0.3% | (0.6%) | 2.8% | | Nine Months 2022 | 2.5% | 1.7% | 4.9% | - The increase in nine-month same property operating income was primarily due to higher base rent, lower credit losses, and higher parking income[151] Liquidity and Capital Resources The company maintains a strong liquidity position, enhanced by recent refinancing activities - As of September 30, 2022, the company had $10.3 million in cash and cash equivalents and approximately $248.8 million available under its Credit Facility[152][112] - During Q3 2022, the company completed early refinancings of four shopping centers, which provided $88.0 million of additional liquidity net of repayments and costs[166] - 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 September 30, 2022[163] Funds From Operations (FFO) FFO per share decreased in Q3 but increased for the nine-month period year-over-year FFO Reconciliation and Per Share Data (in thousands, except per share) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $15,513 | $16,885 | $50,001 | $45,799 | | Real estate depreciation | $12,195 | $12,467 | $36,899 | $37,852 | | FFO | $27,708 | $29,352 | $86,900 | $83,651 | | Diluted FFO per share | $0.73 | $0.79 | $2.31 | $2.29 | Portfolio Leasing Status The commercial portfolio's lease rate improved year-over-year, with residential leasing remaining strong Portfolio Lease Percentage | Portfolio | Sep 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | | Commercial (Total) | 93.0% | 92.5% | | Shopping Centers | 94.5% | 93.6% | | Mixed-Use | 83.1% | 85.0% | | Residential | 97.2% | 97.8% | - For new commercial leases signed in Q3 2022, the average annualized base rent was $27.09 per square foot[180] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from interest rate fluctuations on its variable-rate debt and inflation - The company is exposed to market risks from interest rate fluctuations and inflation[183] - As of September 30, 2022, the company had $128.0 million of unhedged variable-rate debt. A 1% change in interest rates would alter annual interest expense by $1.3 million[184] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[187] - No material changes in the company's internal control over financial reporting were identified during the quarter[188] PART II. OTHER INFORMATION Other Information Summary This section notes no material updates to risks or legal proceedings and discloses a stock acquisition by the CEO - The company reports no material updates to legal proceedings or risk factors from its 2021 Form 10-K[190] - The Chairman and CEO, B. Francis Saul II, acquired 2,525 shares of common stock at $50.80 per share through the Dividend Reinvestment Plan[192]