Saul Centers, Inc. Reports Second Quarter 2021 Earnings

BETHESDA, Md., Aug. 5, 2021 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2021 ("2021 Quarter").  Total revenue for the 2021 Quarter increased to $60.0 million from $53.2 million for the quarter ended June 30, 2020 ("2020 Quarter").  Net income increased to $16.1 million for the 2021 Quarter from $10.2 million for the 2020 Quarter.  The Waycroft mixed-use development opened in April 2020 and, as of June 30, 2021, was 99% leased. Concurrent with the opening in April 2020, 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 continued to grow as occupancy increased. As a result, net income for the 2021 Quarter was favorably impacted by $2.1 million, compared to the 2020 Quarter, due to increased occupancy at The Waycroft. Net income also increased from the 2020 Quarter due to (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $3.5 million) and (b) higher capitalized interest ($0.5 million), primarily due to the Twinbrook Quarter development project.  Net income available to common stockholders increased to $9.9 million ($0.42 per diluted share) for the 2021 Quarter from $5.5 million ($0.24 per diluted share) for the 2020 Quarter.

Same property revenue increased $6.8 million (12.7%) and same property operating income increased $5.9 million (14.9%) for the 2021 Quarter compared to the 2020 Quarter.  We define same property revenue as total revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods.  We define same property operating income as net income plus (a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of lease costs, (c) general and administrative expenses and (d) change in fair value of derivatives minus (e) gains on sale of property and (f) the results of properties which were not in operation for the entirety of the comparable periods.  Shopping Center same property operating income for the 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) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.4 million) and (c) higher percentage rent ($0.3 million). The increase in Mixed-Use same property operating income was primarily the result of (a) 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, $0.8 million), partially offset by (c) lower base rent, exclusive of The Waycroft ($1.2 million) and (d) lower lease termination fees ($0.2 million).  Reconciliations of (a) property revenue to same property revenue and (b) net income to same property income are attached to this press release.

As of June 30, 2021, 92.5% of the commercial portfolio was leased, compared to 94.7% at June 30, 2020.  On a same property basis, 92.5% of the commercial portfolio was leased as of June 30, 2021, compared to 94.7% at June 30, 2020.  As of June 30, 2021, the residential portfolio was 98.4% leased compared to 67.7% at June 30, 2020.  As of June 30, 2021, excluding the Waycroft, the residential portfolio was 97.7% leased compared to 95.3% at June 30, 2020. 

For the six months ended June 30, 2021 ("2021 Period"), total revenue increased to $118.7 million from $110.2 million for the six months ended June 30, 2020 ("2020 Period").  Net income increased to $28.9 million for the 2021 Period from $27.0 million for the 2020 Period.  Net income available to common stockholders increased to $17.4 million ($0.74 per diluted share) for the 2021 Period compared to $16.0 million ($0.69 per diluted share) for the 2020 Period.  The increase in net income was primarily due to (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $2.5 million), (b) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.9 million) and (c) higher percentage rent ($0.7 million), partially offset by (d) lower base rent in the Mixed-Use Portfolio, exclusive of The Waycroft ($2.4 million).

Same property revenue increased $1.8 million (1.6%) and same property operating income increased $0.7 million (0.9%) for the 2021 Period, compared to the 2020 Period.  Shopping Center same property operating income increased (5.4%) and mixed-use same property operating income decreased (13.2%).  Shopping Center same property operating income increased primarily due to (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $2.3 million) and (b) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.9 million). Mixed-use same property operating income decreased primarily due to (a) 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, $0.3 million).

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $26.0 million ($0.82 and $0.79 per basic and diluted share, respectively) in the 2021 Quarter compared to $20.0 million ($0.64 per basic and diluted share) in the 2020 Quarter.  FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance.  A reconciliation of net income to FFO is attached to this press release.  The increase in FFO available to common stockholders and noncontrolling interests was primarily the result of (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $3.5 million), (b) increased occupancy at The Waycroft, which opened in April 2020 ($2.3 million), (c) higher capitalized interest ($0.5 million), primarily due to the Twinbrook Quarter development project and (d) increased occupancy at Ashbrook Marketplace, which opened in November 2019 ($0.4 million), partially offset by (e) lower lease termination fees ($0.3 million).

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) increased to $48.7 million ($1.54 and $1.50 per basic and diluted share, respectively) in the 2021 Period from $45.3 million ($1.45 per basic and diluted share) in the 2020 Period.  FFO available to common stockholders and noncontrolling interests increased primarily due to (a) lower credit losses on operating lease receivables and corresponding reserves (collectively, $2.5 million), (b) increased occupancy at The Waycroft, which opened in April 2020 ($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 in the Mixed-Use Portfolio, exclusive of The Waycroft ($2.4 million).

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

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

While the Company's grocery store, pharmacy, bank and home improvement store tenants generally remain fully open, many restaurants are operating with reduced hours and/or limited indoor seating, supplemented with delivery and curbside pick-up, and most health, beauty supply and services, fitness centers, and other non-essential businesses are re-opening with limited customer capacity depending on location. As of July 31, 2021, payments by tenants of contractual base rent and operating expense and real estate tax recoveries totaled approximately 98% for the second quarter. The Company is generally not charging late fees or delinquent interest on past due payments and, in many cases, rent deferral agreements have been negotiated to allow tenants temporary relief where needed. For additional discussion of how the COVID-19 pandemic has impacted the Company's business, please see Part 1, Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.

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

2021 first quarter

• 98% of 2021 first quarter total billings has been paid by our tenants.
• 98% of retail
• 99% of office
• 99% of residential
• Additionally, rent deferral agreements comprising approximately 0.2% of 2021 first quarter total billings have been executed (or 15% of the total unpaid balance), none of which are with anchor/national tenants. The executed deferrals typically cover three months of rent and are generally scheduled to be 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

• 98% of 2021 second quarter total billings has been paid by our tenants.
• 97% of retail
• 98% of office
• 99% of residential
• Additionally, rent deferral agreements comprising approximately 0.2% of 2021 second quarter total billings have been executed (or 10% of the total unpaid balance), none of which are with anchor/national 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 less than 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 we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, and we continue to work with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.  As of June 30, 2021, $3.2 million of deferred rents have come due. Of the amounts that have come due, $3.1 million has been paid. 

With cash balances of over $10.1 million and borrowing capacity of approximately $203.8 million on July 31, 2021, the Company believes that it has sufficient liquidity and flexibility to meet the needs of the Company's operations as the effects of the COVID-19 pandemic continue to evolve.

Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 61 properties which includes (a) 50 community and neighborhood shopping centers and seven mixed-use properties with approximately 9.8 million square feet of leasable area and (b) four land and development properties. Approximately 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

Safe Harbor Statement

Certain matters discussed within this press release may be deemed to be forward-looking statements within the meaning of the federal securities laws.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.  These factors include, but are not limited to, the risk factors described in our Annual Report on (i) Form 10-K for the year ended December 31, 2020 and (ii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and include the following: (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company's ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management's ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and management's ability to estimate the impact thereof, (vii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (viii) increases in operating costs, (ix) changes in the dividend policy for the Company's common and preferred stock and the Company's ability to pay dividends at current levels, (x) the reduction in the Company's income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xi) impairment charges, (xii) unanticipated changes in the Company's intention or ability to prepay certain debt prior to maturity and (xiii) an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period.  Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this press release.  Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise.  You should carefully review the risks and risk factors included in (i) our Annual Report on Form 10-K for the year ended December 31, 2020 and (ii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.

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SOURCE Saul Centers, Inc.