Saul Centers, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Saul Centers is a REIT focused on community and neighborhood shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore area. At year-end it held 50 shopping centers, seven mixed-use properties and four non-operating development properties, with approximately 9.8 million square feet of operating space.
Financial performance and position
- Revenue: $239.2 million, up 6.2% from $225.2 million in 2020. Rental revenue rose 6.5% to $234.5 million, primarily reflecting a full year of contribution from The Waycroft, completed in April 2020. Credit losses on operating lease receivables fell to $0.8 million from $5.2 million.
- Profit: Net income was $61.6 million, up from $50.3 million. Net income attributable to Saul Centers was $48.4 million; income available to common stockholders was $37.2 million, or $1.57 per diluted share, versus $29.2 million, or $1.25 per share, in 2020.
- FFO: Funds from operations available to common stockholders and noncontrolling interests increased 12.0% to $100.7 million from $90.0 million; diluted FFO per share was $3.04 versus $2.88. FFO is a non-GAAP measure, not a substitute for cash flow or net income.
- Cash flow and liquidity: Operating cash flow was $118.4 million, compared with $78.4 million in 2020. Cash and cash equivalents were $14.6 million at year-end, down from $26.9 million. The company reported $219.8 million available under its $425 million revolving line at December 31; availability was approximately $208.8 million as of January 31, 2022.
- Expenses and margins: Total expenses increased 1.4% to $177.6 million. Property operating income was $177.6 million, approximately 74% of revenue (calculated from reported figures); the filing does not identify this as a GAAP margin. Interest expense, net, was $45.4 million, down 2.4% year over year.
- Debt: Principal debt totaled $1.155 billion, versus $1.160 billion a year earlier: $949.0 million fixed-rate at a 4.93% weighted-average rate and $206.0 million variable-rate. Management said debt was below its 50%-of-asset-value policy. The company was compliant with credit facility covenants at year-end. Scheduled principal amortization and balloon payments total $67.5 million in 2022.
- Distributions: Common distributions were $2.16 per share for 2021, compared with $2.12 in 2020. Preferred dividends have priority over common distributions.
Material changes and operating developments
- Same-property revenue increased 1.5% to $223.6 million and same-property operating income increased 1.7% to $168.3 million. Lower credit losses supported results, partly offset by lower base rent in the mixed-use portfolio.
- Same-property portfolio leasing was 92.0%, down from 92.5%. Shopping center occupancy was 93.4% versus 93.1%; mixed-use commercial occupancy fell to 82.3% from 88.3%. Residential occupancy rose to 97.1% from 85.5%, primarily due to lease-up at The Waycroft.
- Development spending advanced at Twinbrook Quarter Phase I in Rockville, Maryland, planned to include a Wegmans, small-shop retail and 450 apartments; the office component is not currently under construction. Initial delivery is anticipated in late 2024. A $145 million construction-to-permanent loan closed in November 2021.
- Hampden House in Bethesda is planned for up to 366 apartments and 10,100 square feet of retail. A $133 million construction-to-permanent loan closed February 23, 2022, after year-end; completion is expected in 2025.
Outlook, risks and unusual items
- No specific earnings or FFO guidance is provided. Management expects to pursue selective redevelopment, pad-site development and transit-oriented mixed-use projects, subject to financing and market conditions; near-term acquisition opportunities were described as uncertain.
- COVID-19 continued to affect tenants and rent-relief arrangements, though collections improved. As of February 18, 2022, collections were approximately 99% of fourth-quarter 2021 billings and 97% of January 2022 billings. Management cautioned that future collections and tenant losses remain uncertain. No property impairment was recorded for 2021.
- Key exposures include retail tenant performance and online competition, development cost and schedule risks, interest rates and refinancing, and geographic concentration: approximately 85% of property operating income comes from the Washington, D.C./Baltimore area. Giant Food represented 5.3% of 2021 total revenue.
- Related-party governance merits attention: Saul Organization members have significant influence, and shared-service charges were $8.0 million in 2021. Management reports that the Audit Committee reviews these arrangements. The filing reports no pending litigation expected to have a material adverse impact.
- Interest-rate sensitivity: a 1 percentage-point increase on year-end variable-rate debt would increase annual interest expense by approximately $2.1 million. The company also identified LIBOR transition as a potential source of rate and financing uncertainty.
Important facts for investors to verify
- Whether rent collections, receivable reserves and tenant credit quality remain stable after the reported collection dates, and whether deferred rents are repaid as scheduled.
- Leasing, construction costs, financing draws and delivery timelines for Twinbrook Quarter and Hampden House, including the consequences of deferring Twinbrook’s office component.
- Upcoming debt maturities, refinancing terms, variable-rate exposure and continued covenant compliance; confirm liquidity availability as it changes.
- Occupancy and rent trends in the mixed-use portfolio, and the effect of 2022 lease expirations on renewals, concessions and rental income.
- Related-party transactions, ownership influence, and the sustainability of common distributions relative to cash flow, debt service and development commitments.