Business context and reporting period
Saul Centers, Inc. is a REIT focused on owning, operating, leasing and developing shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore region. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the first quarter of 2020. At quarter-end, its portfolio comprised 50 shopping centers, seven mixed-use properties and four non-operating development properties.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $58.7 million | $56.9 million |
| Net income | $12.8 million | $16.8 million |
| Net income attributable to Saul Centers | $10.3 million | $13.3 million |
| Net income available to common stockholders | $7.5 million; $0.32 per share | $10.5 million; $0.45 per share |
| Operating cash flow | $34.8 million | $26.1 million |
| Investing cash flow | $(18.9) million | $(21.6) million |
| Financing cash flow | $(28.2) million | $13.6 million |
| Cash and equivalents | $14.6 million | $26.9 million at Dec. 31, 2020 |
| Total assets / equity | $1.734 billion / $503.9 million | $1.646 billion / $427.5 million at Dec. 31, 2020 |
Total expenses rose 14.5% to $45.9 million. Net margin, calculated as net income divided by revenue, was approximately 21.8%, versus 29.6% a year earlier. Same-property operating income was $40.5 million, down from $42.8 million; relative to same-property revenue, the margin was approximately 73.0%, versus 75.1%.
Quarter-end debt principal was approximately $1.148 billion: $969.1 million fixed-rate and $179.0 million variable-rate. Fixed-rate debt had a weighted-average interest rate of 4.94%. The company reported $220.8 million available under its $325 million revolving facility at March 31; at April 30, cash was $10.0 million and revolver availability was approximately $212.8 million. Debt-to-asset value was reported below the company’s 50% policy threshold, and the company was in compliance with credit-facility covenants. Scheduled debt maturities and amortization total $171.5 million in 2022, including $104.0 million outstanding on the revolver.
FFO available to common stockholders and noncontrolling interests was $22.7 million, down 10.1%; diluted FFO per share and unit was $0.71, versus $0.81. FFO is a non-GAAP measure and is not a substitute for net income or operating cash flow. The company declared common distributions of $0.53 per share for the quarter and preferred stock distributions totaling $2.8 million.
Material changes versus the prior comparable period
- Revenue increased 3.1%, including a $2.9 million contribution from The Waycroft, which began operating in April 2020. Higher expense recoveries and percentage rent also contributed.
- Net income fell 24.0%, while net income available to common stockholders fell 28.7%. Higher expenses—including increased property costs, depreciation and interest—more than offset revenue growth.
- Credit losses on operating lease receivables rose to $1.2 million from $0.1 million, reflecting increased reserves related to COVID-19. Same-property revenue declined about $1.4 million.
- Operating cash flow increased, but financing cash flow shifted from a $13.6 million inflow to a $28.2 million outflow, and cash declined $12.3 million during the quarter.
- Commercial portfolio occupancy weakened: 92.2% leased at March 31, 2021, versus 95.3% a year earlier (92.2% versus 96.3% on a same-property basis). Residential occupancy was 96.9%, versus 96.7%.
Outlook, management commentary, risks and unusual items
No quantified full-year earnings or revenue guidance is provided. Management expects operating cash flow to face near-term pressure from COVID-19 effects and expects lease renewals and rental rates to be negatively affected. It cited cash and revolving-credit capacity as providing liquidity and flexibility, while noting that the pandemic’s duration and effects remain uncertain.
- As of May 4, 2021, tenants had paid 96% of first-quarter billings and 93% of April billings. Deferred-rent agreements and collection rates may change; management cautioned that collections to date may not predict future performance.
- Approximately 21% of base rent came from business categories significantly affected by closures or social-distancing restrictions. Tenant defaults, further rent relief, lower collections and potential impairment charges remain risks. No impairment charges were recorded in Q1, and management reported no impairment-triggering events identified as of March 31.
- Development remains a key strategy. Twinbrook Quarter was acquired from an affiliated trust in March through a $79.3 million property contribution in exchange for partnership units held in escrow; the development plan faces a site-plan appeal, approvals, financing and market-condition contingencies. The company is evaluating financing for Phase I.
- The Waycroft’s residential component was substantially completed and placed in service in 2020; 478 of 491 units were occupied as of May 4, 2021. Ashbrook Marketplace was 100% leased, but one small-shop tenant and a restaurant were not yet open and paying rent as of the date stated in the filing.
- Other unusual items include a $19.4 million finance-lease asset and liability recorded for the Twinbrook leasehold interest, and a possible additional $3.0–$3.3 million partnership-unit obligation related to Ashbrook Marketplace. The filing reports no material litigation and no material off-balance-sheet arrangements.
- Management disclosed a CFO transition effective April 1, 2021, and a President and COO appointment effective May 7, 2021. The filing states disclosure controls were effective and reports no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether rent collections, deferred-rent repayments and credit-loss reserves remain consistent with the reported Q1 and early-April collection figures.
- Whether occupancy, leasing spreads and same-property operating income stabilize after the year-over-year declines.
- Debt maturities, refinancing plans, variable-rate exposure and continued compliance with credit covenants; the filing estimates a 1-percentage-point rate increase would add $1.8 million to annual interest expense on variable-rate debt.
- Timing, approvals, financing needs and potential returns for Twinbrook Quarter and Hampden House, as well as any escrow-unit release conditions and the Ashbrook unit obligation.
- Whether distributions remain supported by operating cash flow and liquidity as development spending, debt service and pandemic-related tenant risk evolve.