Saul Centers, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. Saul Centers is a REIT owning and operating 50 shopping centers, seven mixed-use properties and three non-operating development parcels, primarily in the Washington, D.C./Baltimore region. Its strategy centers on neighborhood retail and transit-oriented residential mixed-use development.
Financial and operating performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $225.2 million | $231.5 million | -2.7% |
| Net income | $50.3 million | $64.2 million | -21.6% |
| Net income available to common stockholders | $29.2 million | $36.3 million | -19.5% |
| Diluted EPS | $1.25 | $1.57 | -20.4% |
| FFO available to common stockholders and noncontrolling interests | $90.0 million | $95.1 million | -5.4% |
| FFO per share/unit | $2.88 | $3.08 | -6.5% |
| Cash from operating activities | $78.4 million | $115.4 million | -32.1% |
Fourth-quarter revenue was $58.3 million versus $56.6 million in Q4 2019; net income available to common stockholders was $6.6 million versus $6.5 million, and diluted EPS was $0.28 versus $0.27.
Rental revenue fell 1.4% to $220.3 million. Base rent rose 1.6% to $188.6 million, including $2.6 million of residential rent from The Waycroft, while credit losses on operating lease receivables increased to $5.2 million from $1.2 million. Total expenses rose 5.0% to $175.2 million, principally reflecting higher interest expense and depreciation after The Waycroft entered service. Same-property revenue declined $11.7 million, and same-property operating income fell $9.0 million.
Cash and cash equivalents were $26.9 million at year-end, up from $13.9 million. Investing activities used $56.2 million, compared with $135.7 million in 2019; financing activities used $9.3 million. Common dividends were $2.12 per share, unchanged from 2019.
Debt and liquidity
Principal debt was approximately $1.160 billion at December 31, 2020, comprising $980.8 million of fixed-rate debt at a weighted-average 4.94% and $179.5 million of variable-rate debt. The company reported $220.3 million available under its $325 million revolving facility and stated its debt-to-asset-value ratio was below its 50% policy limit. It was in compliance with credit-facility covenants. Fixed-rate mortgage maturities are staggered, but the revolving facility matures in January 2022 and the term loan in January 2023. A 1 percentage-point increase in variable rates would raise annual interest expense by an estimated $1.8 million.
Material changes, outlook and risks
- COVID-19 and collections: As of February 23, 2021, tenants had paid 94% of Q4 2020 billings and 92% of January 2021 billings. Rent deferrals totaled $7.9 million; management expects some tenants will ultimately be unable to pay. Around 20% of base rent came from trade categories significantly affected by closures or distancing restrictions.
- Occupancy: Same-property commercial leasing was 92.4% at year-end, down from 95.1%; residential occupancy was 85.5%, in part because of the addition of The Waycroft units. Management expected 2021 renewals and rental rates to be affected by the pandemic.
- Development: The Waycroft’s 491 apartments began occupancy in April 2020; approximately 88% of units had applications and 380 were occupied by February 23, 2021. The project’s expected total cost was approximately $279 million. The pipeline includes sites with potential for up to 3,700 apartments and 975,000 square feet of retail and office space, subject to approvals, financing and market conditions.
- Other uncertainties: No impairment charge was recorded for 2020, but management warned that future impairment charges are possible as the pandemic’s effects become clearer. Twinbrook development timing depends on a pending site-plan appeal, approvals and market conditions. A possible additional Ashbrook Marketplace payment to the Saul Trust was estimated at $3.3–$3.6 million.
- Concentration and governance: Approximately 85% of property operating income came from the Washington, D.C./Baltimore area. Giant Food represented 5.4% of total revenue. The Saul Organization has significant ownership and governance influence; related-party shared-service charges were $7.4 million in 2020.
Management said cash, operating resources and revolving-credit availability were sufficient to meet operating needs as pandemic effects evolved. It anticipated selective redevelopment, pad-site additions and potential acquisitions, but gave no quantitative earnings, FFO or dividend guidance. The company intends to continue regular quarterly distributions, subject to Board discretion and financial conditions.
Key facts for investors to verify
- Subsequent rent collections, repayment of deferrals and the adequacy of receivable reserves.
- Occupancy, leasing spreads and tenant credit trends, particularly in pandemic-affected categories.
- Debt maturities, refinancing terms, covenant headroom and the cost of variable-rate borrowing.
- The Waycroft’s lease-up and returns, and the timing, costs and approvals for Twinbrook and other development projects.
- Potential impairment indicators, related-party arrangements and the status of the Ashbrook and Twinbrook obligations.
- The sustainability of common and preferred distributions relative to cash flow, debt service and capital requirements.