Saul Centers, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Saul Centers is a REIT operating 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 and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $60.3 million | $56.8 million | $179.0 million | $166.9 million |
| Net income | $16.9 million | $11.6 million | $45.8 million | $38.6 million |
| Net income available to common stockholders | $10.3 million | $6.6 million | $27.8 million | $22.6 million |
| Diluted EPS | $0.44 | $0.28 | $1.17 | $0.97 |
| Net cash from operating activities | — | $89.1 million | $56.8 million | |
| Net cash used in investing activities | — | $38.8 million | $48.4 million | |
| Net cash from (used in) financing activities | — | $(65.2) million | $32.0 million |
For the nine-month period, company-reported FFO available to common stockholders and noncontrolling interests was $75.3 million, up 10.9%; diluted FFO per share was $2.29 versus $2.17. FFO is a non-GAAP measure, not a substitute for GAAP earnings or operating cash flow.
At September 30, cash was $11.9 million; total assets were $1.740 billion and total equity was $529.6 million. Debt principal was approximately $1.148 billion, comprising $949.5 million fixed-rate and $198.0 million variable-rate debt. The company reported $228.2 million available on its revolving line at quarter-end; cash was $8.9 million and revolver availability approximately $220.2 million as of October 31. Fixed-rate debt had a weighted average interest rate of 4.93%. A 1 percentage-point rise in variable rates would add approximately $2.0 million to annual interest expense, based on quarter-end balances.
Material changes versus prior comparable periods
- Nine-month revenue increased 7.2% and net income increased 18.5%. Growth reflected higher occupancy at The Waycroft and Ashbrook Marketplace, increased percentage rent, and lower credit losses as tenant operations improved.
- Nine-month credit losses on operating lease receivables fell to $0.8 million from $4.2 million. Q3 revenue also benefited from lower credit losses versus the prior-year quarter.
- Nine-month expenses increased 3.8%, including a 17.1% rise in property operating expenses, driven partly by The Waycroft, snow removal and higher portfolio costs.
- Same-property operating income rose 1.5% for the nine-month period, but performance differed by segment: shopping centers increased 6.0%, while mixed-use declined 12.9%. Q3 same-property operating income increased 7.3%.
- Commercial leasing was 92.5% at September 30, down from 94.0% a year earlier; residential leasing was 97.8%, up from 73.9%, substantially reflecting The Waycroft’s lease-up.
- Operating cash flow rose to $89.1 million, while financing activities used $65.2 million, including distributions and debt repayments; cash declined by $14.9 million from year-end.
Outlook, management commentary, risks and unusual items
- Management gave no specific earnings or revenue guidance. It said near-term rent collections were expected to remain below pre-pandemic levels, while collections had improved sequentially. As of November 1, 2021, total collections were 99% for Q1, 99% for Q2, 98% for Q3 and 96% for October billings.
- Management reported that $4.6 million of previously deferred rents had come due by September 30 and $4.5 million had been paid. It expects some tenants may ultimately be unable to pay; collection outcomes and potential losses remain uncertain.
- The new $525 million credit facility, entered into in August 2021, includes a $425 million revolving line and a $100 million term loan. The company reported compliance with its financial covenants at quarter-end.
- Development remains a major capital use. Twinbrook Quarter construction is in early stages; a lender had offered a $145 million construction-to-permanent loan, expected to close in Q4 2021 subject to customary conditions. Hampden House planning continues, with construction timing not yet determined and a proposed $133 million loan.
- The Waycroft residential component was 98.0% leased at quarter-end; Ashbrook Marketplace was 100% leased. Twinbrook Quarter includes a planned Phase I with apartments, retail and office space; timing of remaining construction depends on permits, contingencies and market conditions.
- COVID-19 remains a material uncertainty, particularly for tenants affected by closures and social-distancing measures. Approximately 21% of base rent came from identified impacted trade categories. Management reported no impairment-triggering events or impairment charges through September 30, but said future effects could lead to impairment charges.
- Other risks include tenant and anchor concentration, interest-rate and refinancing exposure, development execution, access to capital, geographic concentration and related-party relationships. Giant Food accounted for 5.3% of nine-month revenue. The filing reported no material litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether improved rent collections persist, and whether deferred rent balances and tenant credit-loss reserves prove adequate.
- Commercial occupancy trends and the mixed-use segment’s weaker nine-month same-property operating income.
- Availability and closing terms for the proposed Twinbrook and Hampden House construction financing, alongside development costs and schedules.
- Debt maturities, variable-rate exposure, credit-facility availability and continued covenant compliance.
- The effect of related-party transactions and partnership interests, including Twinbrook units released from escrow after quarter-end.
- How non-GAAP FFO compares with GAAP earnings and operating cash flow when assessing distributions and investment performance.