Saul Centers, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Saul Centers is a REIT focused on shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore region. Its portfolio included 50 shopping centers, seven mixed-use properties and four non-operating development properties.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $62.1 million | $58.7 million; up 5.8% |
| Net income | $17.5 million | $12.8 million |
| Net income attributable to Saul Centers | $13.4 million | $10.3 million |
| Net income available to common stockholders | $10.6 million; $0.44 per diluted share | $7.5 million; $0.32 per diluted share |
| Net margin | 28.2% | 21.8% (calculated as net income divided by total revenue) |
| Same-property operating income | $45.2 million | $42.2 million; up 7.1% (non-GAAP) |
| FFO available to common stockholders and noncontrolling interests | $27.0 million; diluted $0.80 per share | $22.7 million; diluted $0.71 per share (non-GAAP) |
| Net cash provided by operating activities | $40.0 million | $34.8 million |
| Cash and cash equivalents, quarter-end | $12.3 million | $14.6 million at December 31, 2021 |
| Debt, principal amount | Approximately $1.151 billion | Approximately $1.155 billion at December 31, 2021 |
Q1 investing cash outflow was $16.9 million, primarily for development and property additions. Financing cash outflow was $25.4 million, including debt repayments and common, preferred and partnership distributions. Cash decreased $2.3 million during the quarter. At March 31, principal debt comprised approximately $912.6 million of fixed-rate debt and $238.0 million of variable-rate debt. The balance sheet reports debt net of deferred financing costs.
At quarter-end, approximately $233.5 million was available under the credit facility, subject to borrowing-base capacity; the company was in compliance with its financial covenants. Subsequent to quarter-end, management reported April 30 cash of $6.8 million and credit-facility availability of approximately $217.5 million.
Material changes versus the prior period
- Revenue increased 5.8%, driven principally by higher base rent at The Waycroft, improved lease-receivable collections and higher parking revenue and lease termination fees. Same-property revenue rose $3.4 million.
- Credit-loss expense on operating lease receivables fell to $25,000 from $1.2 million, contributing to higher reported income. Management attributed the improvement to tenant operations recovering as COVID-related restrictions eased.
- Total expenses declined 2.8%. Interest expense, net of deferred debt-cost amortization, fell 11.6%, primarily because more interest was capitalized on development projects; property operating expenses rose 9.8%, mainly due to repairs and maintenance.
- Commercial leasing was 92.5% at March 31, 2022, versus 92.2% a year earlier; residential occupancy was 96.8%, versus 96.9%. Same-property operating income increased 7.1%.
- The company closed on a $133.0 million, fixed-rate 3.90% construction-to-permanent loan for Hampden House and repaid the remaining $28.3 million Lansdowne Town Center mortgage. Revolver borrowings increased during the quarter.
Outlook, risks and notable items
- Development: Twinbrook Quarter Phase I, including 450 apartments and retail anchored by an 80,000-square-foot Wegmans, is under construction; initial delivery is anticipated in late 2024. Total project cost is estimated at $331.5 million, with a $145.0 million construction-to-permanent loan intended to provide partial financing. Hampden House is planned for up to 366 apartments and 10,100 square feet of retail; estimated cost is $246.4 million, with completion expected during 2025. These are management expectations, not guarantees.
- Guidance: The filing provides no specific earnings or FFO guidance. Management expects operating cash flow, available cash and credit capacity to meet ordinary short-term liquidity needs, and anticipates funding future development or acquisitions through available cash, borrowings, construction or permanent financing, and other capital sources.
- Tenant collections and COVID-19: As of April 30, 2022, approximately 98% of Q1 rent billings and related recoveries had been collected. Of $6.7 million of deferred rents that had come due, approximately $6.5 million, or 97%, had been collected. Management cautioned that future collections and tenant payment capacity remain uncertain and that future impairment charges cannot be ruled out; no impairment charge was recorded in Q1.
- Debt and rate exposure: A 1 percentage-point increase in rates on the $238.0 million variable-rate balance would increase annual interest expense by approximately $2.4 million, based on quarter-end balances. The credit facility is LIBOR-based and subject to covenants. Principal maturities include sizable balloon payments in 2024–2027, as detailed in the filing.
- Concentration and other risks: Operations are concentrated in the Washington, D.C./Baltimore area; Giant Food accounted for 5.2% of Q1 revenue. Other stated risks include anchor-tenant and tenant-credit exposure, development execution and financing, interest rates, real-estate market conditions, and REIT qualification. Management reported no material litigation and no material updates to previously disclosed risk factors.
- Distributions and related parties: Q1 common distributions were $0.57 per share; the company is required to distribute at least 90% of REIT taxable income to maintain REIT status. The Saul Organization has significant ownership and service relationships with the company; review related-party disclosures when assessing governance and costs.
Important facts for investors to verify
- Whether rent collection improvements persist and deferred or currently due receivables are ultimately recovered.
- Current tenant occupancy, lease renewals and rent spreads, including the 673,843 square feet scheduled to expire during the remainder of 2022 identified in the filing.
- Development budgets, schedules, remaining financing needs and eventual lease-up for Twinbrook Quarter and Hampden House.
- Debt maturities, variable-rate exposure, credit-facility availability and covenant headroom as rates and borrowing capacity change.
- How much of earnings and FFO growth reflects recurring rent and operations versus lower credit losses, capitalized interest and other timing effects; FFO is a non-GAAP measure and is not operating cash flow.