Saul Centers, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Saul Centers is a REIT focused on shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore area. At quarter-end, its portfolio included 50 shopping centers, seven mixed-use properties and three non-operating development properties.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $53.2 million | $58.1 million | $110.2 million | $117.9 million |
| Net income | $10.2 million | $16.8 million | $27.0 million | $33.8 million |
| Net income available to common stockholders | $5.5 million; $0.24/share | $10.3 million; $0.45/share | $16.0 million; $0.69/share | $20.8 million; $0.91/share |
| Operating cash flow | Not presented separately | Not presented separately | $41.7 million | $63.8 million |
| FFO available to common stockholders and noncontrolling interests | $20.0 million; $0.64/share | $25.3 million; $0.82/share | $45.3 million; $1.45/share | $51.1 million; $1.66/share |
For the six months, investing activities used $38.9 million, financing activities provided $49.7 million, and cash increased $52.6 million to $66.5 million. Total expenses were $43.0 million in Q2, up 3.9%, and $83.1 million for the six months, down 1.1%. The filing does not present a separate operating margin measure.
Liquidity, debt and property metrics
- At June 30, cash was $66.5 million. Debt principal totaled approximately $1.184 billion: $934.1 million fixed-rate and $249.5 million variable-rate. The balance-sheet carrying amount of debt was approximately $1.175 billion.
- The $400 million credit facility comprised a $325 million revolver and $75 million term loan. At June 30, $174.5 million was drawn and approximately $150.3 million was available, subject to borrowing capacity and facility terms. The company reported compliance with its financial covenants.
- Management reported a debt-to-total-asset-value ratio below its 50% policy level. Scheduled debt maturities include $240.6 million in 2022 and $114.2 million in 2023; the filing identifies $174.5 million of revolving borrowings within 2022 balloon payments.
- Commercial portfolio occupancy was 94.7% at June 30, unchanged year over year; same-property commercial occupancy was 94.7%, versus 95.2%. Residential occupancy was 67.7%, reflecting the addition of The Waycroft; same-property residential occupancy was 95.3%.
Changes versus prior year
- Q2 revenue declined 8.5%, net income 39.1%, and common-stockholder earnings 46.2%. For the six months, revenue fell 6.6%, net income 20.1%, and common-stockholder earnings 23.0%.
- Same-property revenue declined $5.3 million in Q2 and $7.3 million for the six-month period. Same-property operating income fell $4.4 million and $5.7 million, respectively.
- Credit losses on operating lease receivables were $2.3 million for the six months, versus $0.6 million a year earlier; the allowance for doubtful accounts rose to $3.4 million from $0.5 million at year-end 2019.
- Operating cash flow decreased by $22.1 million year over year. Development spending was lower, while the company drew on its revolver and completed scheduled debt repayments.
Management commentary, outlook and risks
- COVID-19 disrupted tenant operations and drove rent relief requests. As of August 5, tenants had paid 80% of Q2 billings—74% of retail, 94% of office and 100% of residential billings. Executed deferral agreements covered approximately 8% of Q2 billings; many were scheduled for repayment during 2021–2022. July billings were 84% collected as of that date.
- Management expected near-term operating cash flow to decline and anticipated that some tenants may ultimately be unable to pay. Rent continued to be accrued during deferral periods; future collection losses and their timing were uncertain. No real estate impairment was recorded at June 30, but management warned future impairment charges were possible.
- Management stated liquidity was sufficient for the foreseeable future. At July 31, cash was $53.4 million and reported revolver borrowing availability was approximately $200.3 million. Two post-quarter 15-year mortgage loans closed in July for $22.1 million and $30.0 million; proceeds were used to reduce revolver borrowings.
- The Waycroft residential component entered service in April. The project had incurred approximately $273.2 million of costs by June 30; 189 apartments were occupied as of August 5, and the Target retail tenant was scheduled to open in August. Management noted occupancy ramp-up and COVID-related restrictions could affect results.
- Management provided no quantified full-year earnings or FFO guidance. It cited risks from tenant credit and collections, economic conditions, leasing, financing and interest rates, development execution, and the company’s concentration in the Washington, D.C./Baltimore region. Approximately 39% of base rent came from trade categories significantly affected by closures or social-distancing measures.
Important facts for investors to verify
- Subsequent rent collections, deferrals, repayment performance and changes in the receivables allowance.
- The Waycroft’s lease-up, retail openings and contribution to operating income and cash flow.
- Available revolver capacity, debt covenant headroom, maturities and the effect of variable-rate debt; a 1 percentage-point rate increase was estimated to raise annual interest expense by $2.5 million on June 30 balances.
- Whether occupancy, same-property results and impairment assessments change as the pandemic’s effects develop.
- The final cost, approvals, timing and financing needs for planned developments, including 7316 Wisconsin Avenue and Twinbrook Quarter.