Saul Centers, Inc. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Saul Centers is a REIT focused on shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore area. At quarter-end, its portfolio comprised 50 shopping centers, seven mixed-use properties and four non-operating land and development properties.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $66.7 million | $63.0 million |
| Net income | $18.3 million | $17.7 million |
| Net income attributable to Saul Centers | $13.6 million | $13.5 million |
| Net income available to common stockholders | $10.8 million; $0.45 per diluted share | $10.7 million; $0.45 per diluted share |
| Net cash provided by operating activities | $33.8 million | $36.1 million |
| Net cash used in investing activities | $45.6 million | $43.2 million |
| Net cash provided by financing activities | $10.4 million | $5.6 million |
| Cash and cash equivalents | $7.1 million at March 31, 2024 | $8.4 million at December 31, 2023 |
| Total assets / total equity | $2.03 billion / $513.9 million | $1.99 billion / $504.4 million at December 31, 2023 |
Revenue increased 5.8%, while total expenses rose 6.7% to $48.4 million. Interest expense, net, and debt-cost amortization increased 5.3% to $12.4 million. The filing does not present a single consolidated operating-margin measure.
Same-property revenue, a non-GAAP measure, increased to $66.7 million from $63.0 million; same-property operating income rose 3.8% to $48.5 million. FFO available to common stockholders and noncontrolling interests increased 2.3% to $27.5 million; diluted FFO per share was $0.80 versus $0.79.
Debt, liquidity and capital spending
- Principal debt was approximately $1.43 billion at March 31, 2024, versus $1.41 billion at year-end 2023. About $1.15 billion was fixed-rate, including $100 million hedged; $274 million was unhedged variable-rate debt. Fixed-rate debt had a disclosed weighted-average rate of 4.68%; total debt had a weighted-average remaining term of 7.3 years.
- The $525 million credit facility consisted of a $425 million revolver and a $100 million term loan. The company reported $374 million outstanding and approximately $127.6 million available and undrawn at quarter-end. The revolver matures in August 2025, with a conditional one-year extension; the term loan matures in February 2027.
- The company reported compliance with credit-facility covenants. Scheduled principal payments include $326.1 million in 2025, including $274 million under the credit facility.
- Capital investment was $45.6 million, including $39.7 million of development and redevelopment spending. Operating cash flow was below investing outflows; financing activities provided $10.4 million. Cash declined $1.3 million during the quarter.
- A 100-basis-point increase in rates on the $274 million unhedged variable-rate balance would increase annual interest expense by an estimated $2.7 million, based on quarter-end balances.
Changes, outlook and material items
- Revenue growth reflected higher base rent, expense recoveries and other property revenue. Other property revenue included insurance proceeds for lost rent related to a tenant’s temporary closure. Expense recoveries rose with recoverable property operating expenses.
- Property operating expenses increased 20.0%, primarily from $1.7 million higher repairs and maintenance, including approximately $1.3 million in additional snow-removal costs. Interest expense increased with higher average debt and borrowing rates, partly offset by increased capitalized development interest.
- Commercial leasing was 94.6%, up from 93.9% a year earlier; residential leasing was 98.7%, versus 98.2%. Approximately 181,310 square feet of leased commercial space remained unoccupied, expected to generate about $4.8 million in annualized base rent after occupancy and contractual concessions.
- Twinbrook Quarter Phase I, comprising residential and retail components, had an estimated total cost of $331.5 million excluding imputed capitalized interest; $283.1 million had been invested. Initial delivery was anticipated in late 2024. The project includes 452 apartments, an 80,000-square-foot Wegmans and about 25,000 square feet of small-shop space; the office tower is not currently being built.
- Hampden House was estimated to cost $246.4 million excluding imputed capitalized interest, with $153.0 million invested. It is planned to include up to 366 apartments and 10,100 square feet of retail; completion was expected in late 2025.
- No formal earnings or financial guidance is provided. Management expects ordinary short-term liquidity needs to be met through operating cash flow, available cash and the credit facility; future development, acquisitions and capital needs may require borrowings, construction or permanent financing, DRIP proceeds, or other capital.
- Management cites tenant rent-paying ability, anchor-tenant dependence, financing and interest-rate risks, development execution, access to capital, real-estate market conditions, inflation, cybersecurity and REIT qualification among the risks. Management reported no material litigation, no material subsequent events, and no material updates to the prior annual report’s risk factors.
Investor facts to verify
- Whether Twinbrook Quarter’s late-2024 delivery timing and project budget remain achievable, and how lease-up affects cash needs and debt.
- Upcoming refinancing and repayment requirements, particularly the 2025 revolver maturity, and continued covenant compliance and credit-facility availability.
- Trends in operating expenses, interest costs, tenant collections and occupancy of already leased commercial space.
- How management’s non-GAAP FFO and same-property measures reconcile with GAAP results and cash available for distributions.
- The exposure from concentrated Washington-area properties, major tenants, related-party arrangements and the company’s variable-rate debt.