UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM	10-Q

~~Quarterly Report Pursuant to Section~~(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) ofOF THE

SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2020

~~Securities Exchange Act of~~OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For ~~The Quarterly Period Ended~~ ~~September 30, 2017~~the transition period from to

Commission File Number 1-12254

SAUL CENTERS INC.

(Exact name of registrant as specified in its charter)



Maryland	52-1833074
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7501 Wisconsin Avenue, Bethesda, Maryland20814

(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code ~~(301)~~ (301) 986-6200

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Name of exchange on which registered:	Trading symbol:
Common Stock, $0.01 par value	New York Stock Exchange	BFS
6.125% Series D Preferred Stock, $0.01 par value	New York Stock Exchange	BFS/PRD
6.000% Series E Preferred Stock, $0.01 par value	New York Stock Exchange	BFS/PRE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or ~~15 (d)~~15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. ~~YES~~ x NO oYes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site,~~website, if any, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ x NO oYes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o☒	Accelerated filer	x☐

Non-accelerated filer	o	~~(Do not check if a smaller reporting company)~~

	☐	Smaller reporting company	o☐

		Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ o NO xYes ☐ No ☒

Number of shares of common stock, par value $0.01 per share outstanding as of ~~October 31, 2017: 21.9~~April 30, 2020: 23.2 million.

~~-1-~~

~~Table of Contents~~

SAUL CENTERS, INC.

Table of Contents



	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

(a) Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019	4
(b) Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	5
(c) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	6
(d) Consolidated ~~Statement~~Statements of Equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and 2019	7
(e) Consolidated Statements of Cash Flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	8
(f) Notes to Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(a) Critical Accounting Policies	2923
(b) Results of Operations:
~~Same Property Revenue~~	31
~~Same Property Operating Income~~	32
Three months ended ~~September 30, 2017~~March 31, 2020 compared to three months ended ~~September 30, 2016~~March 31, 2019	3224
~~Nine months ended September 30, 2017 compared to nine months ended September 30, 2016~~Same Property Revenue	3325
Same Property Operating Income	25
(c) Liquidity and Capital Resources	3527

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4232

Item 4. Controls and Procedures	4232

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	4334
Item 1A. Risk Factors	4334
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4335
Item 3. Defaults Upon Senior Securities	4335
Item 4. Mine Safety Disclosures	4335
Item 5. Other Information	4335
Item 6. Exhibits	4436
Signatures	4537

~~-2-~~

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

~~Basis of Presentation~~

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of Saul Centers, Inc. for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Saul Centers, Inc. for the year ended December 31, 2016, which are included in its Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.

~~-3-~~

~~Table of Contents~~

~~Saul Centers, Inc.~~

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except per share amounts)	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(Unaudited)
Assets
Real estate investments
Land	$	450,256		$	422,546		$	453,322		$	453,322
Buildings and equipment	1,257,886			1,214,697			1,300,605			1,292,631
Construction in progress	80,163			63,570			345,880			335,644
	1,788,305			1,700,813			2,099,807			2,081,597
Accumulated depreciation	(478,284		)	(458,279		)	(572,912		)	(563,474		)
	1,310,021			1,242,534			1,526,895			1,518,123
Cash and cash equivalents	9,385			8,322			31,935			13,905
Accounts receivable and accrued income, net	55,619			52,774			49,994			52,311
Deferred leasing costs, net	27,679			25,983			27,546			24,083
Prepaid expenses, net	8,901			5,057			3,611			5,363
Other assets	12,123			8,355			4,859			4,555
Total assets	$	1,423,728		$	1,343,025		$	1,644,840		$	1,618,340
Liabilities
Notes payable	$	873,538		$	783,400		$	798,343		$	821,503
Term loan facility payable							74,716			74,691
Revolving credit facility payable	88,608			48,217			123,507			86,371
Construction loan payable	—			68,672			122,510			108,623
Dividends and distributions payable	18,143			17,953			19,350			19,291
Accounts payable, accrued expenses and other liabilities	24,267			20,838			35,122			35,199
Deferred income	31,040			30,696			24,686			29,306
Total liabilities	1,035,596			969,776			1,198,234			1,174,984
Equity
Preferred stock, 1,000,000 shares authorized:
Series C Cumulative Redeemable, 72,000 shares issued and outstanding	180,000			180,000
Common stock, $0.01 par value, 40,000,000 shares authorized, 21,985,890 and 21,704,359 shares issued and outstanding, respectively	220			217
Series D Cumulative Redeemable, 30,000 shares issued and outstanding							75,000			75,000
Series E Cumulative Redeemable, 44,000 shares issued and outstanding							110,000			110,000
Common stock, $0.01 par value, 40,000,000 shares authorized, 23,326,963 and 23,231,240 shares issued and outstanding, respectively							233			232
Additional paid-in capital	344,820			328,171			415,962			410,926
Accumulated deficit	(194,659		)	(188,584		)
Accumulated other comprehensive loss	(925		)	(1,299		)
Distributions in excess of accumulated earnings							(223,075		)	(221,177		)
Total Saul Centers, Inc. equity	329,456			318,505			378,120			374,981
Noncontrolling interest	58,676			54,744
Noncontrolling interests							68,486			68,375
Total equity	388,132			373,249			446,606			443,356
Total liabilities and equity	$	1,423,728		$	1,343,025		$	1,644,840		$	1,618,340

The Notes to Financial Statements are an integral part of these statements.

-4-

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Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(Dollars in thousands, except per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
Revenue
Base rent	$	45,385		$	43,151		$	135,436		$	128,338
Expense recoveries	9,447			8,561			26,378			26,011
Percentage rent	67			57			968			1,016
Rental revenue													$	55,415		$	56,803
Other	1,338			1,464			7,828			7,504			1,528			2,947
Total revenue	56,237			53,233			170,610			162,869			56,943			59,750
Operating expenses
Expenses
Property operating expenses	7,418			6,685			20,543			20,740			7,036			8,001
Provision for credit losses	52			391			602			1,207
Real estate taxes	6,834			6,195			20,124			18,266			7,153			7,148
Interest expense and amortization of deferred debt costs	11,821			11,524			35,585			34,268
Interest expense, net and amortization of deferred debt costs													9,594			11,067
Depreciation and amortization of deferred leasing costs	11,363			11,626			34,396			33,478			11,281			11,643
General and administrative	4,363			4,033			13,178			12,500			5,050			4,814
Acquisition related costs	—			57			—			57
Total operating expenses	41,851			40,511			124,428			120,516
Operating income	14,386			12,722			46,182			42,353
Change in fair value of derivatives	(1		)	1			(2		)	(9		)
Total expenses													40,114			42,673
Net Income	14,385			12,723			46,180			42,344			16,829			17,077
Noncontrolling interests
Income attributable to noncontrolling interests	(2,902		)	(2,484		)	(9,483		)	(8,530		)	(3,565		)	(3,630		)
Net income attributable to Saul Centers, Inc.	11,483			10,239			36,697			33,814			13,264			13,447
Preferred stock dividends	(3,093		)	(3,093		)	(9,281		)	(9,281		)	(2,798		)	(2,953		)
Net income attributable to common stockholders	$	8,390		$	7,146		$	27,416		$	24,533
Per share net income attributable to common stockholders
Net income available to common stockholders													$	10,466		$	10,494
Per share net income available to common stockholders
Basic and diluted	$	0.38		$	0.33		$	1.25		$	1.14		$	0.45		$	0.46
Dividends declared per common share outstanding	$	0.51		$	0.47		$	1.53		$	1.41

The Notes to Financial Statements are an integral part of these statements.

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Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(Dollars in thousands)	2017			2016			2017			2016			2020			2019
Net income	$	14,385		$	12,723		$	46,180		$	42,344		$	16,829		$	17,077
Other comprehensive income
Change in unrealized loss on cash flow hedge	171			431			503			(383		)	—			(46		)
Total comprehensive income	14,556			13,154			46,683			41,961			16,829			17,031
Comprehensive income attributable to noncontrolling interests	(2,946		)	(2,596		)	(9,612		)	(8,432		)	(3,565		)	(3,618		)
Total comprehensive income attributable to Saul Centers, Inc.	11,610			10,558			37,071			33,529			13,264			13,413
Preferred stock dividends	(3,093		)	(3,093		)	(9,281		)	(9,281		)	(2,798		)	(2,953		)
Total comprehensive income attributable to common stockholders	$	8,517		$	7,465		$	27,790		$	24,248
Total comprehensive income available to common stockholders													$	10,466		$	10,460

The Notes to Financial Statements are an integral part of these statements.

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Saul Centers, Inc.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF EQUITY

(Unaudited)

(Dollars in thousands, except per share amounts)
Preferred
Stock

Common
Stock

Additional Paid-in
Capital

Accumulated
Deficit

Accumulated
Other Comprehensive
(Loss)

Total Saul
Centers, Inc.

Noncontrolling
Interest
Total
Balance, December 31, 2016 $ 180,000
$ 217
$ 328,171
$ (188,584 ) $ (1,299 ) $ 318,505
$ 54,744
$ 373,249
Issuance of common stock:
183,020 shares pursuant to dividend reinvestment plan —
2
10,825
—
—
10,827
—
10,827
98,511 shares due to exercise of stock options and issuance of directors’ deferred stock —
1
5,824
—
—
5,825
—
5,825
Issuance of 95,755 partnership units pursuant to dividend reinvestment plan —
—
—
—
—
—
5,798
5,798
Net income —
—
—
36,697
—
36,697
9,483
46,180
Change in unrealized loss on cash flow hedge —
—
—
—
374
374
129
503
Series C preferred stock distributions —
—
—
(6,188 ) —
(6,188 ) —
(6,188 )
Common stock distributions —
—
—
(22,279 ) —
(22,279 ) (7,640 ) (29,919 )
Distributions payable on Series C preferred stock ($42.97/share) —
—
—
(3,094 ) —
(3,094 ) —
(3,094 )
Distributions payable common stock ($0.51/share) and distributions payable partnership units ($0.51/unit) —
—
—
(11,211 ) —
(11,211 ) (3,838 ) (15,049 )
Balance, September 30, 2017 $ 180,000
$ 220
$ 344,820
$ (194,659 ) $ (925 ) $ 329,456
$ 58,676
$ 388,132



(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Distributions in Excess of Accumulated Earnings			Accumulated Other Comprehensive (Loss)		Total Saul Centers, Inc.			Noncontrolling Interests			Total
Balance at January 1, 2020	$	185,000	$	232	$	410,926	$	(221,177	)	$	—	$	374,981		$	68,375		$	443,356
Issuance of shares of common stock:
83,978 shares pursuant to dividend reinvestment plan	—		1		4,080		—			—		4,081			—			4,081
11,745 shares due to exercise of stock options and issuance of directors’ deferred stock	—		—		956		—			—		956			—			956
Issuance of 15,101 partnership units pursuant to dividend reinvestment plan	—		—		—		—			—		—			734			734
Net income	—		—		—		13,264			—		13,264			3,565			16,829
Distributions payable preferred stock:
Series D, $38.28 per share	—		—		—		(1,148		)	—		(1,148		)	—			(1,148		)
Series E, $37.50 per share	—		—		—		(1,650		)	—		(1,650		)	—			(1,650		)
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit)	—		—		—		(12,364		)	—		(12,364		)	(4,188		)	(16,552		)
Balance, March 31, 2020	$	185,000	$	233	$	415,962	$	(223,075	)	$	—	$	378,120		$	68,486		$	446,606



Balance at January 1, 2019	$	180,000	$	227	$	384,533	$	(208,593	)	$	(255	)	$	355,912		$	69,308		$	425,220
Issuance of shares of common stock:
120,347 shares pursuant to dividend reinvestment plan	—		1		6,170		—			—			6,171			—			6,171
485 shares due to exercise of stock options and issuance of directors’ deferred stock	—		1		419		—			—			420			—			420
Issuance of 13,742 partnership units pursuant to dividend reinvestment plan	—		—		—		—			—			—			705			705
Net income	—		—		—		13,447			—			13,447			3,630			17,077
Change in unrealized loss on cash flow hedge	—		—		—		—			(34		)	(34		)	(12		)	(46		)
Distributions payable preferred stock:
Series C, $42.97 per share	—		—		—		(1,805		)	—			(1,805		)	—			(1,805		)
Series D, $38.28 per share	—		—		—		(1,148		)	—			(1,148		)	—			(1,148		)
Distributions payable common stock ($0.53/share) and distributions payable partnership units ($0.53/unit)	—		—		—		(12,108		)	—			(12,108		)	(4,155		)	(16,263		)
Balance, March 31, 2019	$	180,000	$	229	$	391,122	$	(210,207	)	$	(289	)	$	360,855		$	69,476		$	430,331

The Notes to Financial Statements are an integral part of these statements.

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Saul Centers, Inc.



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three months ended March 31,
(Dollars in thousands)	2020			2019
Cash flows from operating activities:
Net income	$	16,829		$	17,077
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of deferred leasing costs	11,281			11,643
Amortization of deferred debt costs	373			384
Compensation costs of stock grants and options	427			419
Credit losses on operating lease receivables	130			238
Decrease in accounts receivable and accrued income	2,187			2,035
Additions to deferred leasing costs	(4,764		)	(554		)
Decrease in prepaid expenses	1,752			1,111
Increase in other assets	(304		)	(2,500		)
Increase in accounts payable, accrued expenses and other liabilities	2,759			5,158
Decrease in deferred income	(4,620		)	(3,370		)
Net cash provided by operating activities	26,050			31,641
Cash flows from investing activities:
Acquisitions of real estate investments	—			(24		)
Additions to real estate investments	(8,516		)	(2,874		)
Additions to development and redevelopment projects	(13,072		)	(20,525		)
Net cash used in investing activities	(21,588		)	(23,423		)
Cash flows from financing activities:
Proceeds from notes payable	—			22,100
Repayments on notes payable	(23,352		)	(29,030		)
Proceeds from revolving credit facility	40,000			19,000
Repayments on revolving credit facility	(3,000		)	(26,000		)
Proceeds from construction loan	13,862			15,217
Additions to deferred debt costs	(33		)	(397		)
Proceeds from the issuance of:
Common stock	4,610			6,171
Partnership units	734			705
Distributions to:
Series C preferred stockholders	—			(1,805		)
Series D preferred stockholders	(1,148		)	(1,148		)
Series E preferred stockholders	(1,650		)	—
Common stockholders	(12,275		)	(12,005		)
Noncontrolling interests	(4,180		)	(4,148		)
Net cash provided by (used in) financing activities	13,568			(11,340		)
Net increase (decrease) in cash and cash equivalents	18,030			(3,122		)
Cash and cash equivalents, beginning of period	13,905			14,578
Cash and cash equivalents, end of period	$	31,935		$	11,456
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,319		$	10,647
Increase (decrease) in accrued real estate investments and development costs	$	(2,836	)	$	10,048

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
(Dollars in thousands) 2017 2016
Cash flows from operating activities:
Net income $ 46,180
$ 42,344
Adjustments to reconcile net income to net cash provided by operating activities:
Change in fair value of derivatives 2
9
Depreciation and amortization of deferred leasing costs 34,396
33,478
Amortization of deferred debt costs 1,043
1,003
Non cash compensation costs of stock grants and options 1,349
1,282
Provision for credit losses 602
1,207
Decrease in accounts receivable and accrued income (2,901 ) (3,018 )
Additions to deferred leasing costs (3,654 ) (3,721 )
Decrease in prepaid expenses (3,947 ) (3,922 )
Increase in other assets (817 ) (1,358 )
Increase in accounts payable, accrued expenses and other liabilities 2,991
3,294
Decrease in deferred income (801 ) (247 )
Net cash provided by operating activities 74,443
70,351
Cash flows from investing activities:
Acquisitions of real estate investments (79,499 ) (10,341 )
Additions to real estate investments (12,389 ) (11,271 )
Additions to development and redevelopment projects (14,286 ) (23,073 )
Proceeds from sale of property (1) 6,688
—
Net cash used in investing activities (99,486 ) (44,685 )
Cash flows from financing activities:
Proceeds from notes payable 40,000
—
Repayments on notes payable (20,303 ) (18,359 )
Proceeds from revolving credit facility 55,000
32,000
Repayments on revolving credit facility (15,000 ) (37,000 )
Proceeds from construction loan 1,437
23,126
Additions to deferred debt costs (2,069 ) —
Proceeds from the issuance of:
Common stock 15,303
17,898
Partnership units 5,798
5,144
Distributions to:
Series C preferred stockholders (9,281 ) (9,281 )
Common stockholders (33,350 ) (29,306 )
Noncontrolling interests (11,429 ) (10,055 )
Net cash provided by (used in) financing activities 26,106
(25,833 )
Net increase (decrease) in cash and cash equivalents 1,063
(167 )
Cash and cash equivalents, beginning of period 8,322
10,003
Cash and cash equivalents, end of period $ 9,385
$ 9,836
Supplemental disclosure of cash flow information:
Cash paid for interest $ 36,889
$ 34,835
Increase (decrease) in accrued real estate investments and development costs $ 992
$ (6,351 )

~~(1) Proceeds from sale of property excludes $1,275 of seller financing in connection with the sale of the Company's Great Eastern property.~~

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)


1.	Organization, ~~Formation and Structure~~Basis of Presentation

Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on June 10, 1993, and operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers, together with its wholly-owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as Chairman of the Board of Directors, ~~and~~ Chief Executive Officer and President of Saul Centers.

~~Saul Centers was formed to continue and expand the shopping center business previously owned and conducted by the B. F. Saul Real Estate Investment Trust, the B. F. Saul~~The Company, ~~and certain other affiliated entities, each~~which conducts all of ~~which is controlled by B. Francis Saul II and his family members (collectively, the “Saul Organization”). On August 26, 1993, members of the Saul Organization transferred to~~its activities through its subsidiaries, Saul Holdings Limited Partnership, a ~~newly formed~~ Maryland limited partnership (the “Operating Partnership”), and two ~~newly formed~~ subsidiary limited partnerships (the “Subsidiary Partnerships,” and, collectively with the Operating Partnership, the “Partnerships”), ~~shopping center and mixed-use properties and the management functions related to the transferred properties. Since its formation, the Company has developed and purchased additional properties.~~

~~The following table lists the significant properties acquired, in development and disposed since December 31, 2015.~~



~~Name of Property~~	~~Location~~	~~Type~~	~~Year of Acquisition/ Development/Disposition~~
~~Acquisitions~~
~~700 N. Glebe Road~~	~~Arlington, VA~~	~~Development~~	~~2016~~
~~Burtonsville Town Square~~	~~Burtonsville, MD~~	~~Shopping Center~~	~~2017~~
~~Developments~~
~~Park Van Ness~~	~~Washington, DC~~	~~Mixed-Use~~	~~2013-2016~~
~~750 N. Glebe Road~~	~~Arlington, VA~~	~~Mixed-Use~~	~~2017~~
~~Dispositions~~
~~Crosstown Business Center~~	~~Tulsa, OK~~	~~Mixed-Use~~	~~2016~~
~~Great Eastern~~	~~District Heights, MD~~	~~Shopping Center~~	~~2017~~

~~As of~~ ~~September 30, 2017, the Company’s properties (the “Current Portfolio Properties”) consisted of~~ 49 ~~shopping center properties (the “Shopping Centers”),~~ ~~six~~ ~~mixed-use properties, which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and~~ ~~three~~ ~~(non-operating) development properties.~~


2.	~~Summary of Significant Accounting Policies~~

~~Nature of Operations~~

~~The Company, which conducts all of its activities through its subsidiaries, the Operating Partnership and Subsidiary Partnerships,~~ engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and mixed-use properties, primarily in the Washington, DC/Baltimore metropolitan area.

As of March 31, 2020, the Company’s properties (the “Current Portfolio Properties”) consisted of 50 shopping center properties (the “Shopping Centers”), 6 mixed-use properties, which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and 4 (non-operating) development properties.

Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. A majority of the Shopping Centers are anchored by one or more major tenants. As of ~~September 30, 2017, 32~~March 31, 2020, 33 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. ~~Excluding the impact of~~Giant Food, a ~~$3.6 million termination fee from Albertson's/Safeway,~~ ~~two~~ ~~tenants~~tenant at 11 Shopping Centers, individually accounted for 4.9% of the Company's total revenue for the three months ended March 31, 2020. No other tenant individually accounted for 2.5% or more of the Company’s total revenue, excluding lease termination fees, for the ~~nine~~three months ended~~September 30, 2017. Giant Food, a tenant at~~ ~~ten~~ ~~Shopping Centers and Capital One, a tenant at 18 properties, individually accounted for~~ ~~4.6%~~ ~~and 2.8%, respectively, of the Company's total revenue for the nine months ended September 30, 2017.~~

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~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Principles of Consolidation~~ March 31, 2020.

The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority owned by Saul Centers. Substantially all assets and liabilities of the Company as of March 31, 2020 and December 31, 2019, are comprised of the assets and liabilities of the Operating Partnership. The debt arrangements which are subject to recourse are described in Note 5. All significant intercompany balances and transactions have been eliminated in consolidation.

The Operating Partnership is a variable interest entity ("VIE") ~~of the Company~~ because the limited partners do not have substantive kick-out or participating rights. The Company is the primary beneficiary of the Operating Partnership because it has the power to direct ~~the~~its activities ~~of the Operating Partnership~~ and the rights to absorb ~~74.3%~~74.6% of ~~the~~its net ~~income of the Operating Partnership.~~income. Because the Operating Partnership ~~was previously~~is consolidated into the financial statements of the Company, classification of it as a VIE ~~had~~has no impact on the consolidated financial statements of the Company.

~~Basis of Presentation~~

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of ~~Saul Centers, Inc.~~the Company for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of ~~Saul Centers, Inc.~~the Company for the year ended December 31, ~~2016~~,2019, which are included in its Annual Report on Form 10-K. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to those instructions. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.


2.	Summary of Significant Accounting Policies

Our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 have not changed significantly in amount or composition.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions relate to impairment of real estate properties. Actual results could differ from those estimates.

Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts

Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of ~~the~~their respective leases. ~~Receivables~~Lease related receivables are ~~reviewed monthly and reserves~~reduced for credit losses. Such losses are ~~established with~~recognized as a ~~charge to current period operations when,~~reduction of rental revenue in the ~~opinion~~consolidated statements of ~~management, collection of the receivable is doubtful. Accounts receivable in the accompanying financial statements are shown net of an allowance for doubtful accounts of approximately~~ ~~$0.3 million~~ ~~and~~ ~~$2.0 million~~ at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~operations.

In addition to rents due currently, accounts receivable includes approximately $~~44.0~~42.4 million and $~~43.1~~42.1 million, at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019, respectively, net of allowance for doubtful accounts totaling $~~0.1 million~~36,900 and $~~0.5 million~~30,000, respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases.

~~Assets Held~~

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2016-02, ‘‘Leases’’ (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for ~~Sale~~lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, interim periods within those years, and requires a modified retrospective transition approach for all leases existing at the date of initial application, with an option to use certain practical expedients for those existing leases. Upon adoption of ASU 2016-02 effective January 1, 2019, we elected the practical expedient for all leases with respect to lease identification, lease classification, and initial direct costs. We made a policy election not to separate lease and nonlease components and have accounted for each lease component and the related nonlease components together as a single component. There have been no significant changes to our lessor accounting for operating leases as a result of ASU 2016-02.

We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that cover rent, and where applicable, reimbursement for property taxes, insurance, and certain property operating expenses. Our leases were determined to be operating leases and generally range in term from one to 15 years.

Some of our leases have termination options and/or extension options. Termination options allow the lessee to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination options generally require advance notification from the lessee and payment of a termination fee. Termination fees are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated in the lease.

On January 1, 2019, a right of use asset and corresponding lease liability related to our headquarters lease were recorded in other assets and other liabilities, respectively. The lease expires on February 28, 2022, with 1 option to renew for an additional five years. The right of use asset and corresponding lease liability totaled $1.4 million and $1.5 million, respectively, at March 31, 2020.

Due to the business disruptions and challenges severely affecting the global economy caused by the novel strain of coronavirus (“COVID-19”) pandemic, many lessees have requested rent relief, including rent deferrals and other lease concessions. The lease modification guidance in ASU 2016-02 does not contemplate the rapid execution of concessions for multiple tenants in response to sudden liquidity constraints of lessees. In April 2020, the FASB staff issued a question and answer document that allows the Company to elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company ~~considers properties~~has elected to ~~be assets held~~apply such relief, which, in the case of rent deferrals, results in the accrual of rent due from tenants and defers the payment of that rent to a future date and will monitor the collectability of rent receivables.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses" ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of information to support credit loss estimates. ASU 2016-13 is effective for ~~sale when all~~annual periods beginning after December 15, 2019, including interim periods within those years. The adoption of ASU 2016-13 effective January 1, 2020 did not have a material impact on our consolidated financial statements and related disclosures because the vast majority of the ~~following criteria~~Company's receivables relate to operating leases which are ~~met:~~accounted for under ASC 842, "Leases".

~~management commits to a plan to sell a property;~~

~~it is unlikely that the disposal plan will be significantly modified or discontinued;~~

~~the property is available for immediate sale in its present condition;~~

~~actions required to complete the sale of the property have been initiated;~~

~~sale of the property is probable and the Company expects the completed sale will occur within~~ ~~one~~ ~~year; and~~

~~the property is actively being marketed for sale at a price that is reasonable given its current market value.~~

The Company must make a determination as to the point in time that it is probable that a sale will be consummated, which generally occurs when an executed sales contract has no contingencies and the prospective buyer has significant funds at risk to ensure performance. Upon designation as an asset held for sale, the Company records the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and ceases depreciation. As of ~~September 30, 2017, the Company had no assets designated as held-for-sale.~~

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

~~Cash and Cash Equivalents~~Reclassifications

~~Cash and cash equivalents include short-term investments. Short-term investments include money market accounts and other investments which generally mature within~~Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the three months ~~measured from the acquisition date, and/or are readily convertible to cash.~~ended March 31, 2020.


3.	Real Estate

Construction In Progress

Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. Construction in progress as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~,2019, is composed of the following:



(in thousands)	March 31, 2020		December 31, 2019
The Waycroft	$	267,563	$	255,443
7316 Wisconsin Avenue	46,946		44,638
Ashbrook Marketplace	19,796		19,128
Other	11,575		16,435
Total	$	345,880	$	335,644

(in thousands) September 30, 2017 December 31, 2016
Glebe Road $ 73,514
$ 58,147
Other 6,649
5,423
Total $ 80,163
$ 63,570

~~Deferred Debt Costs~~

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the revolving line of credit. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled $6.8 million and $~~7.5 million, net of accumulated amortization of~~ ~~$8.3 million~~ ~~and~~ ~~$7.3 million, at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets. At September 30, 2017, deferred debt costs totaling $1.7 million, related to the Glebe Road construction loan, which has no outstanding balance, are included in Other Assets in the Consolidated Balance Sheet.

~~Deferred Income~~

Deferred income consists of payments received from tenants prior to the time they are earned and recognized by the Company as revenue, including tenant prepayment of rent for future periods, real estate taxes when the taxing jurisdiction has a fiscal year differing from the calendar year, reimbursements specified in the lease agreement and tenant construction work provided by the Company. In addition, deferred income includes the fair value of certain below market leases.

Deferred Leasing Costs

Deferred leasing costs consist of commissions paid to third-party and internal leasing agents, internal ~~direct~~ costs such as ~~employee compensation and~~ payroll-related fringe benefits ~~directly related~~which are direct and incremental to ~~time spent performing leasing-related activities for~~ successful commercial leases, amounts attributed to in-place leases associated with acquired properties and lease inducement costs. ~~Leasing related activities include evaluating~~Effective with the ~~prospective tenant’s financial condition, evaluating~~adoption of ASU 2016-02 on January 1, 2019, all costs incurred prior to the execution of a lease are charged to expense and ~~recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing the transaction.~~not capitalized. Unamortized deferred leasing costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Deferred leasing costs are amortized over the term of the lease or remaining term of acquired leases. Collectively, deferred leasing costs totaled ~~$27.7~~$27.5 million and ~~$26.0~~$24.1 million,, net of accumulated amortization of ~~$34.0~~$42.5 million and ~~$30.4~~$41.6 million,, as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~,2019, respectively. Amortization expense, included in depreciation and amortization of deferred leasing costs in the ~~consolidated statements~~Consolidated Statements of ~~operations,~~Operations, totaled ~~$4.1~~$1.3 million and ~~$4.4~~$1.6 million for the ~~nine~~three months ended~~September 30, 2017~~ March 31, 2020 and ~~2016~~,2019, respectively.

~~Derivative Financial Instruments~~

The Company may, when appropriate, employ derivative instruments, such as interest-rate swaps, to mitigate the risk of interest rate fluctuations. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Derivative financial instruments are carried at fair value as either assets or liabilities in the consolidated balance sheets. For those derivative instruments that qualify and are designated as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge. For those derivative instruments that qualify and are designated as hedging instruments, the effective portion of the gain or loss on the hedge instruments is reported as a component of accumulated other comprehensive income (loss) and recognized in earnings within

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~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of a derivative instrument is immediately recognized in earnings. For derivative instruments that do not qualify, or that qualify and are not designated, as hedging instruments, changes in fair value are immediately recognized in earnings.

Derivative financial instruments expose us to credit risk in the event of non-performance by the counterparties under the terms of the derivative instrument. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions as determined by management, and therefore, it believes that the likelihood of realizing losses from counterparty non-performance is remote.

~~Income Taxes~~

The Company made an election to be treated, and intends to continue operating so as to qualify, as a REIT under the Code, commencing with its taxable year ended December 31, 1993. A REIT generally will not be subject to federal income taxation, provided that distributions to its stockholders equal or exceed its REIT taxable income and it complies with certain other requirements. Therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements.

~~Legal Contingencies~~

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material adverse effect on its financial position or results of operations. Upon determination that a loss is probable to occur and can be reasonably estimated, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

~~Postemployment Benefits~~

From time to time, the Company may enter into an arrangement with an employee at the time of the employee’s separation from service whereby the employee will receive certain payments in exchange for certain releases, covenants not to compete, or other promises. If no future services are required in order for the employee to receive the payments, the Company estimates the amount of payments to be made over the life of the arrangement and records that amount as an expense as of the date of the arrangement with a corresponding liability representing the amount to be paid in the future.

~~Predevelopment Expenses~~

Predevelopment expenses represent certain costs incurred by the Company in connection with active development and redevelopment projects and include, for example, costs related to the early termination of tenant leases and demolition of existing structures.

Real Estate Investment Properties

The Company purchases real estate investment properties from time to time and records assets acquired and liabilities assumed, including land, buildings, and intangibles related to in-place leases and customer relationships, based on their relative fair values. The fair value of buildings generally is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates and considers the present value of all cash flows expected to be generated by the property including an initial lease up period. From time to time the Company may purchase a property for future development purposes. The Company determines the fair value of above and below market intangibles associated with in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition taking into consideration the remaining contractual lease period, renewal periods, and the likelihood of the tenant exercising its renewal options. The fair value of below market lease intangibles is recorded as deferred income and accreted as additional revenue over the remaining contractual lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and amortized as a reduction of revenue over the remaining contractual lease term. The Company determines the fair value of at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an acquisition, the fair values of the intangibles are amortized over the lives of the customer relationships. The Company has never recorded a customer

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~~Notes to Consolidated Financial Statements (Unaudited)~~

~~relationship intangible asset. Effective with the adoption of ASU 2017-01 in January 2017, acquisition-related transaction costs are generally capitalized to the basis of the acquired asset.~~

If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors including recurring operating losses, significant decreases in occupancy, and significant adverse changes in legal factors and business climate. If impairment indicators are present, the Company compares the projected cash flows of the property over its remaining useful life, on an undiscounted basis, to the carrying value of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If the carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair value. The value of any property is sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from management’s projections, the valuation could be negatively or positively affected. The Company did not recognize an impairment loss on any of its real estate during the ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016~~.

Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under development and construction. Upon substantial completion of construction and the placement of the assets into service, rental income, real estate tax expense, property operating expenses (consisting of payroll, repairs and maintenance, utilities, insurance and other property related expenses) and depreciation are included in current operations and capitalization of interest ceases. Property operating expenses are charged to operations as incurred. Interest capitalized totaled $2.5 million and $1.8 million for the ~~nine months endedSeptember 30, 2017~~ ~~and 2016, respectively. Commercial development projects are considered substantially complete and available for occupancy upon completion of tenant improvements, but no later than~~ ~~one~~ year from the cessation of major construction activity. Multi-family residential development projects are considered substantially complete and available for occupancy upon receipt of the certificate of occupancy from the appropriate licensing authority. Substantially completed portions of a project are accounted for as separate projects.

Depreciation is calculated using the straight-line method and estimated useful lives of generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvement expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvements, using the straight-line method. Depreciation expense in the Consolidated Statements of Operations totaled ~~$30.3~~$10.0 million and ~~$29.0~~$10.0 million for the ~~nine~~three months ended~~September 30, 2017~~ March 31, 2020 and ~~2016~~,2019, respectively. Repairs and maintenance expense totaled ~~$8.5~~$2.8 million and ~~$9.2~~$3.7 million for the ~~nine~~three months ended~~September 30, 2017~~ March 31, 2020 and ~~2016~~,2019, respectively, and is included in property operating expenses in the Consolidated Statements of Operations.

~~Revenue Recognition~~

~~Rental~~


4.	Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership

As of March 31, 2020, the B. F. Saul Company and certain other affiliated entities, each of which is controlled by B. Francis Saul II and his family members (collectively, the “Saul Organization”) holds a 25.4% limited partnership interest ~~income~~in the Operating Partnership represented by approximately 7.9 million convertible limited partnership units. These units are ~~accrued as earned. Recognition~~convertible into shares of ~~rental income commences when control~~Saul Centers’ common stock, at the option of the ~~space has been given~~unit holder, on a one-for-one basis provided that, in accordance with the Company's Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of March 31, 2020, approximately 700,000 units were convertible into shares of Saul Centers common stock.

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

The impact of the ~~tenant. When rental payments due~~Saul Organization’s approximately 25.4% limited partnership interest in the Operating Partnership is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average common stock outstanding for the three months ended March 31, 2020 and 2019, were approximately 31.2 million and 30.7 million, respectively.


5.	Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs

The principal amount of the Company’s outstanding debt totaled approximately $1.1 billion at March 31, 2020, of which approximately $928.9 million was fixed-rate debt and approximately $199.5 million was variable rate debt outstanding under ~~leases vary from~~the credit facility. The carrying value of the properties collateralizing the notes payable totaled approximately $1.1 billion as of March 31, 2020.

At March 31, 2020, the Company had a $400.0 million credit facility comprised of a $325.0 million revolving facility and a $75.0 million term loan. As of March 31, 2020, the applicable spread for borrowings is 135 basis points under the revolving credit facility and 130 basis points under the term loan. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility. Letters of credit may be issued under the revolving credit facility. As of March 31, 2020, based on the value of the Company’s unencumbered properties, approximately $200.3 million was available under the revolving credit facility, $124.5 million was outstanding and approximately $185,000 was committed for letters of credit.

On February 10, 2020, the Company repaid in full the remaining principal balance of $9.2 million of the mortgage loan secured by Boca Valley Plaza, which was scheduled to mature on May 10, 2020.

On March 3, 2020, the Company repaid in full the remaining principal balance of $7.1 million of the mortgage loan secured by Palm Springs Center, which was scheduled to mature on June 1, 2020.

Saul Centers is a guarantor of the credit facility, of which the Operating Partnership is the borrower. The Operating

Partnership is the guarantor of (a) a portion of the Park Van Ness mortgage (approximately $6.7 million of the $67.7 million outstanding balance at March 31, 2020, which guarantee will be reduced to (i) $3.3 million on October 1, 2020 and (ii) 0 on October 1, 2021), (b) a portion of the Broadlands mortgage (approximately $3.9 million of the $31.0 million outstanding balance at March 31, 2020), and (c) a portion of the Avenel Business Park mortgage (approximately $6.3 million of the $26.0 million outstanding balance at March 31, 2020). All other notes payable are non-recourse. The guarantee on the Kentlands Square II mortgage loan was released on February 5, 2020.

At December 31, 2019, the principal amount of the Company’s outstanding debt totaled approximately $1.1 billion, of which $938.4 million was fixed rate debt and $162.5 million was variable rate debt, including $87.5 million outstanding under an unsecured revolving credit facility. The carrying value of the properties collateralizing the notes payable totaled approximately $1.1 billion as of December 31, 2019.

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Notes to Consolidated Financial Statements (Unaudited)

At March 31, 2020, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:



(In thousands)	Balloon Payments			Scheduled Principal Amortization		Total
April 1 through December 31, 2020	$	—		$	21,134	$	21,134
2021	11,012			29,025		40,037
2022	161,002		(a)	29,645		190,647
2023	84,225			30,065		114,290
2024	66,653			28,703		95,356
2025	20,363			26,291		46,654
Thereafter	520,796			99,518		620,314
Principal amount	$	864,051		$	264,381	1,128,432
Unamortized deferred debt costs						9,356
Net						$	1,119,076

(a) Includes $124.5 million outstanding under the revolving credit facility.

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the term loan facility. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled $9.4 million and $9.7 million, net of accumulated amortization of $7.5 million and $7.5 million, at March 31, 2020 and December 31, 2019, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets.

Interest expense, net and amortization of deferred debt costs for the three months ended March 31, 2020 and 2019, were as follows:



	Three Months Ended March 31,
(In thousands)	2020			2019
Interest incurred	$	13,019		$	12,881
Amortization of deferred debt costs	373			384
Capitalized interest	(3,768		)	(2,146		)
Interest expense	9,624			11,119
Less: Interest income	30			52
Interest expense, net and amortization of deferred debt costs	$	9,594		$	11,067


6.	Equity

The consolidated statements of operations for the three months ended March 31, 2020 and 2019, reflect noncontrolling interests of $3.6 million and $3.6 million, respectively, representing income attributable to the Saul Organization for each period.

At March 31, 2020, the Company had outstanding 3.0 million depositary shares, each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock (the "Series D Stock"). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after January 23, 2023, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.53125 per share, equivalent to 6.125% of the $25.00 liquidation preference. The Series D Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

At March 31, 2020, the Company had outstanding 4.4 million depositary shares, each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock (the “Series E Stock”). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after September 17, 2024, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.50 per share, equivalent to 6.000% of the $25.00 liquidation preference. The Series E Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

Per Share Data

Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive securities. For all periods presented, the convertible limited partnership units are non-dilutive. The following table sets forth, for the indicated periods, weighted averages of the number of common shares outstanding, basic and dilutive, the effect of dilutive options and the number of options which are not dilutive because the average price of ~~free rent periods~~the Company's common stock was less than the exercise prices. The treasury stock method was used to measure the effect of the dilution.



	Three months ended March 31,
(In thousands)	2020	2019
Weighted average common stock outstanding-Basic	23,295	22,820
Effect of dilutive options	4	43
Weighted average common stock outstanding-Diluted	23,299	22,863
Non-dilutive options	1,224	438
Years non-dilutive options were issued	2014 through 2019	2016 and 2017


7.	Related Party Transactions

The Chairman, Chief Executive Officer and President, the Executive Vice President-Real Estate, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer of the Company are also officers of various members of the Saul Organization and their management time is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer whose share of annual compensation allocated to the Company is determined by the shared services agreement (described below).

The Company participates in a multiemployer 401K plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or ~~scheduled rent increases, income is recognized on a straight-line basis. Expense recoveries represent a portion of~~ property operating expenses ~~billed~~in the Consolidated Statements of Operations, at the discretionary amount of up to ~~tenants, including common area maintenance,~~6 percent of the employee’s cash compensation, subject to certain limits, were $120,700 and $96,500 for the three months endedMarch 31, 2020 and 2019, respectively. All amounts contributed by employees and the Company are fully vested.

The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a specified amount. For the three months endedMarch 31, 2020 and 2019, the Company credited to employee accounts $49,500 and $56,500, respectively, which is the sum of accrued earnings and three times the amount deferred by employees and is included in general and administrative expense. All amounts contributed by employees and credited by the Company are fully vested. The cumulative unfunded liability under this plan was $3.2 million and $3.1 million, at March 31, 2020 and December 31, 2019, respectively, and is included in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

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Notes to Consolidated Financial Statements (Unaudited)

in the Agreement and is based upon head count, estimates of usage or estimates of time incurred, as applicable. The terms of the Agreement and the payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the three months endedMarch 31, 2020 and 2019, which included rental expense for the Company’s headquarters lease, totaled approximately $2.2 million and $2.2 million, net, respectively. The amounts are generally expensed as incurred and are primarily reported as general and administrative expenses in the Consolidated Statements of Operations. As of March 31, 2020 and December 31, 2019, accounts payable, accrued expenses and other liabilities included approximately $801,700 and $918,700, respectively, representing amounts due to the Saul Organization for the Company’s share of these ancillary costs and expenses.

The Company has entered into a shared third-party predevelopment cost agreement (the “Predevelopment Agreement”) with the B. F. Saul Real Estate Investment Trust (the “Trust”). The Predevelopment Agreement relates to the sharing of third-party predevelopment costs incurred in connection with the planning of the future redevelopment of certain adjacent real estate ~~taxes and other recoverable costs, and are recognized~~assets in the ~~period~~Twinbrook area of Rockville, Maryland. The costs will be shared on a pro rata basis based on the acreage owned by each entity and neither party is obligated to advance funds to the other.

In August 2016, the Company entered into an agreement to acquire from the Trust approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in ~~which~~Ashburn, Virginia. The transaction closed on May 9, 2018, and the Company issued 176,680 limited partnership units to the Trust. The Company constructed a shopping center, Ashbrook Marketplace, and in the second quarter of 2021 may be obligated to issue additional limited partnership units to the Trust.

The Company subleases its corporate headquarters space from a member of the Saul Organization. The lease commenced in March 2002, expires in 2022, and provides for base rent increases of 3% per year, with payment of a pro-rata share of operating expenses ~~are incurred. Rental income~~over a base year amount. The Agreement requires each party to pay an allocation of total rental payments based on a ~~tenant’s revenue (“~~percentage ~~rent”~~proportionate to the number of employees employed by each party. The Company’s rent expense for its headquarters location was $202,300 and $193,900 for the three months endedMarch 31, 2020 and 2019, respectively, and is included in general and administrative expense.

On November 5, 2019, the Company entered into an agreement (the "Contribution Agreement") ~~is accrued when a tenant reports sales that exceed a breakpoint specified~~to acquire from the Trust, approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”). In exchange for the Contributed Property, the Company will issue to the Saul Trust 1,416,071 limited partnership units in the ~~lease agreement.~~Operating Partnership (“OP Units”) at an agreed upon value of $56.00 per OP Unit, representing an aggregate value of $79.3 million for the Contributed Property. Deed to the Contributed Property and the OP Units have been placed in escrow until certain conditions of the Contribution Agreement are satisfied.

~~Stock-based Employee Compensation, Stock Plan~~The B. F. Saul Insurance Agency, Inc., a subsidiary of the B. F. Saul Company and a member of the Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Company’s insurance program. Such commissions and fees amounted to $105,200 and $73,400 for the three months endedMarch 31, 2020 and 2019, respectively.


8.	Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

In 2004, the Company established a stock incentive plan (the "Plan"), as amended. Under the Plan, options were granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of each award using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options is based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield rates, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

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Notes to Consolidated Financial Statements (Unaudited)

The Company has a stock plan, which was originally approved in 2004, amended in 2008 and 2013 and which expires in 2023, for the purpose of attracting and retaining executive officers, directors and other key personnel (the “Stock Plan”). Pursuant to the ~~Stock~~ Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of ~~its~~the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. ~~A director may~~Annually, directors are given the ability to make an ~~annual~~ election to defer all or part of ~~his or her director’s~~their fees and ~~has~~have the option to have ~~the~~their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon separation from the Board. If ~~the~~a director elects to have their fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the three months ended March 31, 2020, 2,191 shares were credited to director's deferred fee accounts and 6,837 shares were issued. As of ~~September 30, 2017~~,March 31, 2020, the director's deferred fee accounts comprise ~~181,899~~109,762 shares.

The Compensation Committee has also approved an annual award of shares of the Company’s common stock as additional compensation to each director serving on the Board of Directors as of the record date for the Annual Meeting of Stockholders. The shares are awarded as of each Annual Meeting of Stockholders, and their issuance may not be deferred.

~~Noncontrolling Interests~~

~~Saul Centers is the sole general partner of the Operating Partnership, owning a~~ ~~74.3%~~ ~~common interest as of~~ ~~September 30, 2017~~. Noncontrolling interests in the Operating Partnership is comprised of limited partnership units owned by the Saul Organization. Noncontrolling interests reflected on the accompanying consolidated balance sheets is increased for earnings allocated to limited partnership interests and distributions reinvested in additional units, and is decreased for limited partner distributions. Noncontrolling interests reflected on the consolidated statements of operations represents earnings allocated to limited partnership interests.

~~Per Share Data~~

Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive securities. For all periods presented, the convertible limited partnership units are non-dilutive. The following table sets forth, for the indicated periods, weighted averages of the number of common shares outstanding, basic and dilutive, the effect of dilutive options and the number of options which are not dilutive because the average price of the Company's common stock was less than the exercise prices. The treasury stock method was used to measure the effect of the dilution.

As of or for the three months ended September 30, As of or for the nine months ended September 30,
(In thousands) 2017 2016 2017 2016
Weighted average common stock outstanding-Basic 21,942
21,597
21,844
21,448
Effect of dilutive options 86
182
105
96
Weighted average common stock outstanding-Diluted 22,028
21,779
21,949
21,544
Non-dilutive options —
—
—
172
Years non-dilutive options were issued 2007, 2015, and 2016

~~Recently Issued Accounting Standards~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~

~~No. 2014-09, “Revenue from Contracts with Customers” and subsequently issued several related ASUs (collectively~~

“ASU 2014-09”). ASU 2014-09 will replace most existing revenue recognition guidance and will require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

ASU 2014-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those years and early adoption is not permitted. ASU 2014-09 must be applied retrospectively by either restating prior periods or by recognizing the cumulative effect as of the first date of application. We believe that the adoption of ASU 2014-09 will not have a material impact on our consolidated financial statements because the majority of our revenue is not within the scope of the guidance; however, we continue to evaluate that assessment. We have not yet selected a transition method.

In February 2016, the FASB issued ASU 2016-02, ‘‘Leases’’ (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, interim periods within those years, and requires a modified retrospective transition approach for all leases existing at the

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~~Notes to Consolidated Financial Statements (Unaudited)~~

date of initial application, with an option to use certain practical expedients for those existing leases. We are evaluating the impact that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation" ("ASU 2016-09"). ASU 2016-09 simplifies the accounting for several aspects of share-based payments including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those years. The transition method varies based on the specific amendment. The adoption of ASU 2016-09 effective January 1, 2017, did not have a material impact on the Company's consolidated financial statements and related disclosures.

~~ASU 2016-13 will have on our consolidated financial statements and related disclosures.~~

~~In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash”~~

(“ASU 2016-18”). ASU 2016-18 requires that the Statement of Cash Flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. We are currently evaluating the impact ASU 2016-18 will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business" ("ASU 2017-01"). ASU 2017-01 provides that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective prospectively for annual periods beginning after December 15, 2017, and interim periods within those years. Early application is permitted for transactions for which the acquisition date occurs before the effective date provided the transaction has not been reported in the financial statements. The Company adopted ASU 2017-01 effective January 1, 2017, the effect of which, for asset acquisitions, was (a) the capitalization of acquisition costs, instead of expense, and (b) recordation of acquired assets and assumed liabilities at relative fair value, instead of fair value.

~~Reclassifications~~

~~Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the~~ ~~nine months endedSeptember 30, 2017~~.


3.	~~Real Estate Acquired and Sold~~

~~700 N. Glebe Road~~

In August 2016, the Company purchased for $7.2 million, including acquisition costs, 700 N. Glebe Road in Arlington, Virginia. The property is contiguous with three other properties owned by the Company.

~~Thruway Pad~~

~~In August 2016, the Company purchased for $3.1 million, a retail pad site with an occupied bank building in~~

~~Winston Salem, North Carolina, and incurred acquisition costs of $60,400. The property is contiguous with and an expansion of the Company's Thruway asset.~~

~~Beacon Center~~

In November 2016, the Company purchased for $22.5 million the land underlying Beacon Center. The land was previously leased by the Company with an annual rent of approximately $60,000. The purchase price was funded in part by an $11.25 million increase to the existing mortgage collateralized by Beacon Center and in part by the revolving credit facility.

~~Southdale~~

In November 2016, the Company purchased for $15.0 million the land underlying Southdale. The land was previously leased by the Company with an annual rent of approximately $60,000. The purchase price was funded by the revolving credit facility.

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~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Burtonsville Town Square~~

~~In January 2017, the Company purchased for~~ ~~$76.4 million, including acquisition costs, Burtonsville Town Square located in Burtonsville, Maryland.~~

~~Olney Shopping Center~~

In March 2017, the Company purchased for $3.0 million the land underlying Olney Shopping Center. The land was previously leased by the Company with an annual rent of approximately $56,000. The purchase price was funded by the revolving credit facility.

~~Crosstown Business Center~~

~~In December 2016, the Company sold for $5.4 million the197,100 square foot Crosstown Business Center located in Tulsa, Oklahoma and recognized a $1.0 million gain.~~

~~Great Eastern Shopping Center~~

In September 2017, the Company sold for $8.5 million the 255,400 square foot Great Eastern Shopping Center located in District Heights, Maryland. The Company provided $1.28 million second trust financing to the buyer, which bears interest at a fixed rate of 6%, matures in March 2018 and can be extended for six months at the option of the buyer. A $0.5 million gain realized on the sale was deferred and will be recognized when the loan is repaid by the buyer.

~~Allocation of Purchase Price of Real Estate Acquired~~

The Company allocates the purchase price of real estate investment properties to various components, such as land, buildings and intangibles related to in-place leases and customer relationships, based on their relative fair values or fair values. See Note 2. Summary of Significant Accounting Policies-Real Estate Investment Properties.

During 2016, the Company purchased two properties at a cost of $10.3 million and incurred acquisition costs of $60,400. Of the total purchase price, $9.4 million was allocated to land, $0.9 million was allocated to buildings, $0.1 million was allocated to in-place leases and ($0.1) million was allocated to below market rent.

During 2017, the Company purchased one property at a cost of $76.4 million, including acquisition costs. Of the total purchase price, $45.8 million was allocated to building, $28.4 million was allocated to land, $0.6 million was allocated to above-market leases, $2.2 million was allocated to in-place leases and $(0.6) million was allocated to below market rent.


4.	~~Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership~~

~~As of~~ ~~September 30, 2017, the Saul Organization holds a~~ ~~25.7%~~ ~~limited partnership interest in the Operating Partnership represented by approximately~~ ~~7.5 million~~ ~~convertible limited partnership units. These units are convertible into shares of Saul Centers’ common stock, at the option of the unit holder, on a~~ ~~one~~-for-one basis provided that, in accordance with the Saul Centers, Inc. Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns, directly or indirectly, in the aggregate more than ~~39.9%~~ ~~of the value of the outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of~~ ~~September 30, 2017, approximately~~ ~~750,000~~ ~~units were convertible into shares of Saul Centers common stock.~~

~~The impact of the Saul Organization’s approximately~~ ~~25.7%~~ limited partnership interest in the Operating Partnership is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average common stock outstanding for the three months ended ~~September 30, 2017~~ ~~and~~ ~~2016, were approximately~~ ~~29.5 million~~ ~~and~~ ~~29.2 million, respectively, and for the nine months ended September 30, 2017 and 2016, were approximately 29.4 million and 28.9 million, respectively.~~


5.	~~Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs~~

~~The principal amount of the Company’s outstanding debt totaled approximately $968.9 million at~~ ~~September 30, 2017, of which approximately $865.7~~March 31, 2020, stock option expense totaling $0.4 million was ~~fixed-rate debt and approximately $103.2 million was variable rate debt, including~~

~~$89.0 million outstanding on the Company's unsecured revolving credit facility. The carrying value of the properties collateralizing the notes payable totaled approximately~~ ~~$1.0 billion~~ ~~as of~~ ~~September 30, 2017~~.

At September 30, 2017, the Company had a $275.0 million unsecured revolving credit facility, which can be used for working capital, property acquisitions, development projects or letters of credit. The revolving credit facility matures on June 23, 2018, and may be extended by the Company for one additional year subject to the Company’s satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment

~~-16-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

obligations of the Operating Partnership under the revolving credit facility. Letters of credit may be issued under the revolving credit facility. On September 30, 2017, based on the value of the Company’s unencumbered properties, approximately $185.8 million was available under the line, $89.0 million was outstanding and approximately $185,000 was committed for letters of credit. The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio, and which can range from 145 basis points to 200 basis points. As of September 30, 2017, the margin was 145 basis points.

Effective September 1, 2017, the Company's $71.6 million construction-to-permanent loan, which is fully drawn and secured by Park Van Ness, converted to permanent financing. The loan matures in 2032, bears interest at a fixed rate of 4.88%, requires monthly principal and interest payments of $413,460 based on a 25-year amortization schedule and requires a final payment of $39.6 million at maturity.

On January 18, 2017, the Company closed on a 15-year, non-recourse $40.0 million mortgage loan secured by Burtonsville Town Square. The loan matures in 2032, bears interest at a fixed rate of 3.39%, requires monthly principal and interest payments of $197,900 based on a 25-year amortization schedule and requires a final payment of $20.3 million at maturity.

On August 14, 2017, the Company closed on a $157.0 million construction-to-permanent loan, the proceeds of which will be used to partially fund the Glebe Road development project. The loan matures in 2035, bears interest at a fixed rate of 4.67%, requires interest only payments, which will be funded by the loan, until conversion to permanent. The conversion is expected in the fourth quarter of 2021, and thereafter, monthly principal and interest payments of $887,900 based on a 25-year amortization schedule will be required.

Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. The Operating Partnership is the guarantor of (a) a portion of the Metro Pike Center bank loan (approximately $7.8 million of the $14.2 million outstanding balance at September 30, 2017) and (b) a portion of the Park Van Ness loan (approximately $53.7 million of the $71.6 million outstanding balance at September 30, 2017), which guarantee, subject to the achievement of certain leasing and cash flow levels, may be reduced and eventually eliminated. The fixed-rate notes payable are all non-recourse.

~~At December 31, 2016, the principal amount of the Company’s outstanding debt totaled approximately~~ ~~$907.8 million, of which~~ ~~$844.3 million~~ ~~was fixed rate debt and~~ ~~$63.5 million~~ ~~was variable rate debt, including $49.0 million outstanding on the Company’s unsecured revolving credit facility. The carrying value of the properties collateralizing the notes payable totaled~~ ~~$957.2 million~~ ~~as of December 31, 2016.~~

At ~~September 30, 2017, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:~~

(In thousands)
Balloon
Payments

Scheduled
Principal
Amortization
Total
October 1 through December 31, 2017 $ —
$ 7,386
$ 7,386
2018 130,799
(a) 29,015
159,814
2019 60,793
27,769
88,562
2020 61,163
25,182
86,345
2021 11,012
24,836
35,848
2022 36,502
25,277
61,779
Thereafter 405,693
123,478
529,171
Principal amount $ 705,962
$ 262,943
968,905
Unamortized deferred debt costs 6,759
Net $ 962,146

~~(a) Includes $89.0 million outstanding under the line of credit.~~

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~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Interest expense and amortization of deferred debt costs for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Interest incurred $ 12,370
$ 11,691
$ 37,037
$ 35,027
Amortization of deferred debt costs 351
339
1,043
1,003
Capitalized interest (900 ) (506 ) (2,495 ) (1,762 )
$ 11,821
$ 11,524
$ 35,585
$ 34,268


6.	~~Equity~~

~~The consolidated statements of operations for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, reflect noncontrolling interests of $9.5 million and $8.5 million, respectively, representing the Saul Organization’s share of net income for each period.~~

~~The Company has outstanding 7.2 million depositary shares, each representing~~ ~~1/100th~~ ~~of a share of 6.875% Series C Cumulative Redeemable Preferred Stock. The depositary shares may be redeemed on or after~~ ~~February 12, 2018~~ ~~at the Company’s option, in whole or in part, at the~~ ~~$25.00~~ ~~liquidation preference plus accrued but unpaid dividends. The depositary shares pay an annual dividend of~~ ~~$1.71875~~ ~~per share, equivalent to~~ ~~6.875%~~ ~~of the~~ ~~$25.00~~ liquidation preference. The Series C preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes of control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for ~~six or more quarters~~ ~~(whether or not declared or consecutive) and in certain other events.~~


7.	~~Related Party Transactions~~

The Chairman and Chief Executive Officer, the President, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer of the Company are also officers of various members of the Saul Organization and their management time is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer whose share of annual compensation allocated to the Company is determined by the shared services agreement (described below).

The Company participates in a multiemployer 401K plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the consolidated statements of operations, at the discretionary amount of up to ~~six~~ ~~percent of the employee’s cash compensation, subject to certain limits, were $270,600 and~~ ~~$255,000~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, respectively. All amounts contributed by employees and the Company are fully vested.~~

The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% ~~of their compensation in excess of a specified amount. For the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, the Company contributed $154,300 and~~ ~~$129,000~~, respectively, which is the sum of accrued earnings and three times the amount deferred by employees and is included in general and administrative expense. All amounts contributed by employees and the Company are fully vested. The cumulative unfunded liability under this plan was $2.3 million and $2.1 million, at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively, and is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.~~

The Company has entered into a shared services agreement (the “Agreement”) with the Saul Organization that provides for the sharing of certain personnel and ancillary functions such as computer hardware, software, and support services and certain direct and indirect administrative personnel. The method for determining the cost of the shared services is provided for in the Agreement and is based upon head count, estimates of usage or estimates of time incurred, as applicable. The terms of the Agreement and the payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, which~~

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~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~included rental expense for the Company’s headquarters lease, totaled approximately $6.3 million and~~ ~~$5.5 million, respectively. The amounts are generally expensed as incurred and are primarily reported as general and administrative expenses in the consolidated financial statements. As of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, accounts payable, accrued expenses and other liabilities included approximately $744,200 and~~ ~~$860,700, respectively, representing amounts due to the Saul Organization for the Company’s share of these ancillary costs and expenses.~~

The Company previously entered into a shared third-party predevelopment cost agreement with the B. F. Saul Real Estate Investment Trust (the "Trust"), a member of the Saul Organization, which related to the sharing of third-party predevelopment costs incurred in connection with the planning of the future redevelopment of certain adjacent real estate assets in the Twinbrook area of Rockville, Maryland. On December 8, 2016, the Company entered into a replacement agreement with the Trust which extended the expiration date to December 31, 2017 and provides for automatic twelve month renewals unless either party provides notice of termination. The costs will be shared on a pro rata basis based on the acreage owned by each entity and neither party is obligated to advance funds to the other.

~~In August 2016, the Company entered into an agreement to acquire from the Trust, for an initial purchase price of~~

$8.8 million, land in Loudoun County, Virginia, which is zoned for retail development. The parties have agreed to a closing date in early 2018, at which time the Company will exchange limited partnership units for the land. The Company intends to construct a shopping center and, subsequent to stabilization, may be obligated to issue additional limited partnership units to the Trust.

~~The Company subleases its corporate headquarters space from a member of the Saul Organization. The lease commenced in March 2002, expires in 2022, and provides for base rent increases of~~ 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Agreement requires each party to pay an allocation of total rental payments based on a percentage proportionate to the number of employees employed by each party. The Company’s rent expense for its headquarters location was $578,200 and ~~$617,100~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, respectively, and is included in general and administrative expense.~~

The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul Company and a member of the Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Company’s insurance program. Such commissions and fees amounted to $173,800 and ~~$279,100~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, respectively.~~


8.	~~Stock Option Plans~~

~~The Company has established~~ ~~two~~ stock incentive plans, the 1993 plan and the 2004 plan, as amended, (together, the “Plans”). Under the Plans, options were granted at an exercise price not less than the market value of the common stock on the date of grant and expire ~~ten years~~ ~~from the date of grant. Officer options vest ratably over~~ ~~four years~~ ~~following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.~~

~~The following table summarizes the amount and activity of each grant with outstanding unexercised options, the total value and variables used in the computation and the amount expensed and~~ included in general and administrative expense in the Consolidated Statements of ~~Operations for~~Operations. As of March 31, 2020, the ~~nine months endedSeptember 30, 2017~~.

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~~Notes~~estimated future expense related to ~~Consolidated Financial Statements (Unaudited)~~

Directors
Grant date 4/25/2008 4/24/2009 5/7/2010 5/13/2011 5/4/2012 5/10/2013 5/9/2014 5/8/2015 5/6/2016 5/5/2017 Subtotals
Total grant 30,000
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
322,500
Vested 30,000
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
322,500
Exercised 20,000
27,500
25,000
22,500
22,500
22,500
17,500
12,500
7,500
—
177,500
Forfeited 7,500
—
2,500
2,500
—
—
—
—
—
—
12,500
Exercisable at September 30, 2017 2,500
5,000
5,000
7,500
12,500
12,500
12,500
22,500
25,000
27,500
132,500
Remaining unexercised 2,500
5,000
5,000
7,500
12,500
12,500
12,500
22,500
25,000
27,500
132,500
Exercise price $ 50.15
$ 32.68
$ 38.76
$ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41

Volatility 0.237
0.344
0.369
0.358
0.348
0.333
0.173
0.166
0.166
0.173

Expected life (years) 7.0
6.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0

Assumed yield 4.09 % 4.54 % 4.23 % 4.16 % 4.61 % 4.53 % 4.48 % 4.54 % 3.75 % 3.45 %
Risk-free rate 3.49 % 2.19 % 2.17 % 1.86 % 0.78 % 0.82 % 1.63 % 1.50 % 1.23 % 1.89 %
Total value at grant date $ 254,700
$ 222,950
$ 287,950
$ 297,375
$ 257,250
$ 278,250
$ 109,500
$ 125,300
$ 151,125
$ 165,550
$ 2,149,950
Expensed in previous years 254,700
222,950
287,950
297,375
257,250
278,250
109,500
125,300
151,125
—
1,984,400
Expensed in 2017 —
—
—
—
—
—
—
—
—
165,550
165,550
Future expense —
—
—
—
—
—
—
—
—
—
—
Officers
Grant date 5/13/2011 5/4/2012 5/10/2013 5/9/2014 5/8/2015 5/6/2016 5/5/2017 Subtotal
Grand
Totals
Total grant 162,500
242,500
202,500
170,000
190,000
194,000
205,000
1,366,500
1,689,000
Vested 118,750
107,500
171,875
126,875
94,375
48,500
—
667,875
990,375
Exercised 96,100
91,830
83,000
35,000
8,981
625
—
315,536
493,036
Forfeited 43,750
135,000
30,625
1,875
3,125
1,875
—
216,250
228,750
Exercisable at September 30, 2017 22,650
15,670
88,875
91,875
85,394
47,875
—
352,339
484,839
Remaining unexercised 22,650
15,670
88,875
133,125
177,894
191,500
205,000
834,714
967,214
Exercise price $ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41

Volatility 0.330
0.315
0.304
0.306
0.298
0.185
0.170

Expected life (years) 8.0
8.0
8.0
7.0
7.0
7.0
7.0

Assumed yield 4.81 % 5.28 % 5.12 % 4.89 % 4.94 % 3.80 % 3.50 %
Risk-free rate 2.75 % 1.49 % 1.49 % 2.17 % 1.89 % 1.55 % 2.17 %
Gross value at grant date $ 1,366,625
$ 1,518,050
$ 1,401,300
$ 1,349,800
$ 1,584,600
$ 1,136,840
$ 1,324,300
$ 9,681,515
$ 11,831,465
Estimated forfeitures 367,937
845,100
211,925
168,749
141,780
86,628
91,642
1,913,761
1,913,761
Expensed in previous years 998,688
672,950
1,031,134
787,392
601,180
175,032
—
4,266,376
6,250,776
Expensed in 2017 —
—
158,241
221,454
270,531
196,911
128,400
975,537
1,141,087
Future expense —
—
—
172,205
571,109
678,269
1,104,258
2,525,841
2,525,841
Weighted average term of remaining future expense (in years) 2.7

~~-20-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

unvested stock options was $2.3 million. The table below summarizes the option activity for the ~~nine~~three months ended~~September 30, 2017~~March 31, 2020:



	Number of Shares		Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	1,309,614		$	53.38	$	2,528,463
Granted	—		—		—
Exercised	(10,749	)	49.19		85,268
Expired/Forfeited	—		—		—
Outstanding at March 31	1,298,865		53.42		—
Exercisable at March 31	752,865		52.47		—

Number of
Shares

Weighted
Average
Exercise Price
per share

Aggregate
Intrinsic Value
Outstanding at January 1 833,630
$ 49.92
$ 13,913,891
Granted 232,500
59.41
581,250
Exercised (95,166 ) 47.03
1,403,256
Expired/Forfeited (3,750 ) 53.73

Outstanding at September 30 967,214
52.47
9,130,494
Exercisable at September 30 484,839
48.70
6,402,577

The intrinsic value measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The intrinsic value for shares exercised during the period was calculated by using the closing share price on the date of exercise. At ~~September 29, 2017,~~March 31, 2020, the final trading day of the ~~third~~first quarter, the closing share price of $~~61.91~~32.74 was ~~used in~~lower than the ~~calculation~~exercise price of the ~~aggregate intrinsic value of~~1,298,865 outstanding options ~~exercisable and outstanding at that date.~~granted in 2010 through 2019. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is ~~7.7~~6.7 years and ~~6.7~~5.7 years, respectively.


9.	Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value. The aggregate fair value of the notes payable with fixed-rate payment terms was determined using Level 3 data in a discounted cash flow approach, which is based upon management’s estimate of borrowing rates and loan terms currently available to the Company for fixed-rate financing and, assuming long-term interest rates of approximately ~~3.95%~~3.80% and ~~4.25%~~3.55%, would be approximately $~~928.0~~924.4 million and $~~897.2~~957.4 million, respectively, compared to the principal balance of ~~$865.7~~$928.9 million and $~~844.3~~938.4 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

The Company carries its interest rate swap at fair value. The Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact of counter-party risk, which was determined using Level 3 inputs and is not significant. Derivative instruments are classified within Level 2 of the fair value hierarchy because their values are determined using third-party pricing models which contain inputs that are derived from observable market data. Where possible, the values produced by the pricing models are verified by market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and correlations of such inputs. The swap agreement terminates on ~~July 1, 2020. As of~~ ~~September 30, 2017, the fair value of the interest-rate swap was approximately~~ ~~$1.5 million~~ and is included in “Accounts payable, accrued expenses and other liabilities” in the consolidated balance sheets. The decrease in value from inception of the swap is reflected in “Other Comprehensive Income” in the Consolidated Statements of Comprehensive Income. Amounts recognized in earnings are included in Changes in Fair Value of Derivatives in the Consolidated Statements of Operations.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Change in fair value:
Recognized in earnings $ (1 ) $ 1
$ (2 ) $ (9 )
Recognized in other comprehensive income 171
431
503
(383 )
$ 170
$ 432
$ 501
$ (392 )

~~-21-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


10.	Commitments and Contingencies

Neither the Company nor the current portfolio properties are subject to any material litigation, nor, to management’s knowledge, is any material litigation currently threatened against the Company, other than routine litigation and administrative proceedings arising in the ordinary course of business. Management believes that these items, individually or in the aggregate, will not have a material adverse impact on the Company or the current portfolio properties.

-16-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)


11.	Business Segments

The Company has ~~two~~2 reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate of the combined properties in each segment. All of our properties within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a range of tenants, the types of services provided to them are similar within each segment. The properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior year information to conform to the ~~2017~~2020 presentation.

~~-22-~~



(In thousands)	Shopping Centers			Mixed-Use Properties			Corporate and Other			Consolidated Totals
Three months ended March 31, 2020
Real estate rental operations:
Revenue	$	41,571		$	15,372		$	—		$	56,943
Expenses	(8,922		)	(5,267		)	—			(14,189		)
Income from real estate	32,649			10,105			—			42,754
Interest expense, net and amortization of deferred debt costs	—			—			(9,594		)	(9,594		)
Depreciation and amortization of deferred leasing costs	(7,386		)	(3,895		)	—			(11,281		)
General and administrative	—			—			(5,050		)	(5,050		)
Net income (loss)	$	25,263		$	6,210		$	(14,644	)	$	16,829
Capital investment	$	4,202		$	17,386		$	—		$	21,588
Total assets	$	973,107		$	640,122		$	31,611		$	1,644,840

Three months ended March 31, 2019
Real estate rental operations:
Revenue	$	43,159		$	16,591		$	—		$	59,750
Expenses	(9,688		)	(5,461		)	—			(15,149		)
Income from real estate	33,471			11,130			—			44,601
Interest expense, net and amortization of deferred debt costs	—			—			(11,067		)	(11,067		)
Depreciation and amortization of deferred leasing costs	(7,282		)	(4,361		)	—			(11,643		)
General and administrative	—			—			(4,814		)	(4,814		)
Net income (loss)	$	26,189		$	6,769		$	(15,881	)	$	17,077
Capital investment	$	4,613		$	18,810		$	—		$	23,423
Total assets	$	968,674		$	566,163		$	10,991		$	1,545,828

-17-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands)
Shopping
Centers

Mixed-Use
Properties

Corporate
and Other

Consolidated
Totals
Three months ended September 30, 2017
Real estate rental operations:
Revenue $ 40,834
$ 15,395
$ 8
$ 56,237
Expenses (8,799 ) (5,505 ) —
(14,304 )
Income from real estate 32,035
9,890
8
41,933
Interest expense and amortization of deferred debt costs —
—
(11,821 ) (11,821 )
General and administrative —
—
(4,363 ) (4,363 )
Subtotal 32,035
9,890
(16,176 ) 25,749
Depreciation and amortization of deferred leasing costs (7,457 ) (3,906 ) —
(11,363 )
Change in fair value of derivatives —
—
(1 ) (1 )
Net income (loss) $ 24,578
$ 5,984
$ (16,177 ) $ 14,385
Capital investment $ 3,503
$ 8,161
$ —
$ 11,664
Total assets $ 983,369
$ 431,182
$ 9,177
$ 1,423,728

Three months ended September 30, 2016
Real estate rental operations:
Revenue $ 38,738
$ 14,484
$ 11
$ 53,233
Expenses (8,330 ) (4,941 ) —
(13,271 )
Income from real estate 30,408
9,543
11
39,962
Interest expense and amortization of deferred debt costs —
—
(11,524 ) (11,524 )
General and administrative —
—
(4,033 ) (4,033 )
Acquisition related costs
(57 ) —
—
(57 )
Subtotal 30,351
9,543
(15,546 ) 24,348
Depreciation and amortization of deferred leasing costs (7,732 ) (3,894 ) —
(11,626 )
Change in fair value of derivatives —
—
1
1
Net income (loss) $ 22,619
$ 5,649
$ (15,545 ) $ 12,723
Capital investment $ 13,854
$ 4,399
$ —
$ 18,253
Total assets $ 938,124
$ 363,439
$ 9,441
$ 1,311,004

~~-23-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

(Dollars in thousands) Shopping
Centers Mixed-Use
Properties Corporate
and Other Consolidated
Totals
Nine months ended September 30, 2017
Real estate rental operations:
Revenue $ 124,854
$ 45,725
$ 31
$ 170,610
Expenses (25,876 ) (15,393 ) —
(41,269 )
Income from real estate 98,978
30,332
31
129,341
Interest expense and amortization of deferred debt costs —
—
(35,585 ) (35,585 )
General and administrative —
—
(13,178 ) (13,178 )
Subtotal 98,978
30,332
(48,732 ) 80,578
Depreciation and amortization of deferred leasing costs (22,649 ) (11,747 ) —
(34,396 )
Change in fair value of derivatives —
—
(2 ) (2 )
Net income (loss) $ 76,329
$ 18,585
$ (48,734 ) $ 46,180
Capital investment $ 87,788
$ 18,386
$ —
$ 106,174
Total assets $ 983,369
$ 431,182
$ 9,177
$ 1,423,728

Nine months ended September 30, 2016
Real estate rental operations:
Revenue $ 120,861
$ 41,972
$ 36
$ 162,869
Expenses (26,519 ) (13,694 ) —
(40,213 )
Income from real estate 94,342
28,278
36
122,656
Interest expense and amortization of deferred debt costs —
—
(34,268 ) (34,268 )
General and administrative —
—
(12,500 ) (12,500 )
Acquisition related costs
(57 ) —
—
(57 )
Subtotal 94,285
28,278
(46,732 ) 75,831
Depreciation and amortization of deferred leasing costs (22,774 ) (10,704 ) —
(33,478 )
Change in fair value of derivatives —
—
(9 ) (9 )
Net income (loss) $ 71,511
$ 17,574
$ (46,741 ) $ 42,344
Capital investment $ 20,258
$ 24,427
$ —
$ 44,685
Total assets $ 938,124
$ 363,439
$ 9,441
$ 1,311,004

~~-24-~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

12. Subsequent Events

A novel strain of coronavirus ("COVID-19") was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly.

The actions taken by federal, state and local governments to mitigate the spread of COVID-19 by ordering closure of nonessential businesses and ordering residents to generally stay at home have resulted in many of our tenants announcing mandated or temporary closures of their operations and/or requesting adjustments to their lease terms. Experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or a global recession. COVID-19 could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows and the market value and trading price of our securities.

On April 1, 2020, the ~~period subsequent~~Company borrowed $50.0 million under its revolving credit facility to ~~September 30, 2017~~,provide additional liquidity and ~~prior~~flexibility as the effects of the COVID-19 pandemic continue to ~~the date the financial statements are issued or are available to be issued, and determined there are no subsequent events required to be disclosed.~~evolve.

~~-25-~~

~~Table of Contents~~


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes in “Item 1. Financial Statements” of this report and the more detailed information contained in the Company’s Form 10-K for the year ended December 31, ~~2016.~~2019. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section have the meanings given to them in Item 1 of this Form 10-Q.

Forward-Looking Statements

~~This Form 10-Q contains~~Certain statements contained herein constitute forward-looking statements ~~within the meaning of~~as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. ~~These~~Forward-looking statements are ~~generally characterized~~not guarantees of performance. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by ~~terms~~looking for words such as ~~“believe,~~“plans,” ~~“expect” and “may.~~“intends,”

“estimates,” “anticipates,” “expects,” “believes” or similar expressions in this Form 10-Q. Although ~~the Company~~management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, ~~the Company’s~~our actual results could differ materially from those ~~given~~set forth in the forward-looking statements. Forward-looking statements speak only as ~~a result~~ of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in ~~factors which include, among others, the following:~~our forward-looking statements:

~~continuing risks related to the~~

challenging domestic and global credit markets and their effect on discretionary spending;

~~risks that~~ the ~~Company’s~~ability of our tenants ~~will not~~to pay rent;

~~risks related to the Company’s~~our reliance on shopping center “anchor” tenants and other significant tenants;

~~risks related to the Company’s~~our substantial relationships with members of ~~the~~The Saul Organization;

risks of financing, such as increases in interest rates, restrictions imposed by ~~the Company’s~~our debt, ~~the Company’s~~our ability to meet existing financial covenants and ~~the Company’s~~our ability to consummate planned and additional financings on acceptable terms;

~~risks related to the Company’s~~our development activities;

~~risks that the Company’s growth will be limited if the Company cannot obtain~~our access to additional capital;

~~risks that planned and~~our ability to successfully complete additional acquisitions, developments or redevelopments, ~~may not be consummated,~~ or if they are ~~consummated, that they will not~~completed, whether such acquisitions, developments or redevelopments perform as expected;

risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of real estate and environmental risks;

risks related to ~~the Company’s~~our status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to ~~the Company’s~~our status as a REIT, the effect of future changes into REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT; and

~~such~~an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, ~~as described~~and significantly disrupt or prevent us from operating our business in ~~Part~~the ordinary course for an extended period.

Additional information related to these risks and uncertainties are included in “Risk Factors” (Part I, Item 1A of ~~the Company’s~~this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q and Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Form 10-Q).

Impact of COVID-19

A novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly.

While the Company’s grocery stores, pharmacies, banks and home improvement stores generally remain open, restaurants, if open, are operating with delivery and curb side pick-up only, and most health, beauty supply and services, fitness centers, and other non-essential businesses remain closed. As of May 5, 2020, approximately 32% of the Company’s contractual base rent and operating expense and real estate tax recoveries for April 2020 remains unpaid, excluding rent subject to executed deferral agreements totaling approximately $355,600 (2%). The Company is generally not charging late fees or delinquent interest on these past due payments and, in many cases, additional rent deferral agreements are being negotiated to allow tenants temporary relief where needed. The deferral agreements being negotiated, generally, permit tenants to defer 30 to 90 days of rent, operating expense and real estate tax recovery payments until a later time in their lease term with repayment typically occurring over a 12-month period generally commencing in 2021. We expect that our rent collections will continue to be below our tenants’ contractual rent obligations for so long as governmental orders require non-essential businesses to remain closed and residents to stay at home. We will continue to accrue rental revenue during the deferral period. However, we anticipate that some tenants eventually will not be able to pay amounts due and we will incur losses against our rent receivables. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted. April collections and rent relief requests to-date may not be indicative of collections or requests in any future period.

The Company has strongly encouraged small business tenants to apply for Paycheck Protection Program loans, as available, under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company has information that many tenants are applying for these loans and, recently, the first tenants have communicated that loan proceeds are being received and a few tenants have subsequently remitted rental payments.

On April 1, 2020, the Company borrowed $50.0 million under its revolving credit facility to provide additional liquidity and flexibility as the effects of the COVID-19 pandemic continue to evolve. As of April 30, 2020, the Company had $61.9 million of cash and cash equivalents and borrowing availability of approximately $150.3 million under its unsecured revolving credit facility.

The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows, and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty. See Item 1A. Risk Factors. However, we believe the actions we have taken and are continuing to take will help minimize interruptions to operations and will put the Company in the best position to participate in the recovery when the time comes. Management and the Board of Directors will continue to actively monitor the effects of the pandemic, including governmental directives in the jurisdictions in which we operate and the recommendations of public health authorities, and will, as needed, take further measures to adapt the Company’s business in the best interests of our stockholders and personnel. The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.

The Company was able to transition all but a limited number of essential employees to remote work and does not anticipate any adverse impact on its ability to continue to operate its business. Transitioning to a largely remote workforce has not had any material adverse impact on the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls and procedures. Currently, we have a limited number of employees coming into offices as needed.

General

The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020.

Overview

The Company’s principal business activity is the ownership, management and development of income-producing properties. The Company’s long-term objectives are to increase cash flow from operations and to maximize capital appreciation of its real estate investments.

~~The Company’s~~ primary ~~operating~~ strategy is to continue to focus on diversification of its ~~community~~assets through development of transit-centric, residential mixed-use projects in the Washington, D.C. metropolitan area. The Company’s operating strategy also includes improvement of the operating performance and ~~neighborhood~~internal growth of its Shopping Centers and will supplement its development of residential mixed-used projects with selective redevelopment and renovations of its core Shopping Centers. Construction of The Waycroft, a project with 491 apartment units and 60,000 square feet of retail space, on North Glebe Road, within two blocks of the Ballston Metro Station, in Arlington, Virginia is substantially complete. The Company also has a development pipeline of zoned sites, either in its portfolio (some of which are currently shopping center operating properties) or under contract, for development of up to 3,700 apartment units and 975,000 square feet of retail and office space. All such sites are located adjacent to red line Metro stations in Montgomery County, Maryland.

The Company intends to selectively add free-standing pad site buildings within its Shopping Center portfolio, and replace underperforming tenants with tenants that generate strong traffic, generally anchor stores such as supermarkets, drug stores and fitness centers, as evidenced by the March 2020 addition of a 69,000 square foot Giant Food at Seven Corners and the coming additions of a 36,000 square foot LA Fitness at Broadlands Village and a 54,000 square foot 99 Ranch grocery store at Shops at Fairfax. The Company currently has signed leases or leases under negotiation for 12 pad sites within its core portfolio. The pad sites are expected to be completed and operational by late 2021.

In recent years, there has been a limited amount of quality properties for sale and pricing of those properties has escalated. Accordingly, management believes acquisition opportunities for investment in existing and new shopping center and mixed-use properties in the near future is uncertain. Nevertheless, because of the Company’s conservative capital structure, including its cash and capacity under its revolving credit facility, management believes that the Company is positioned to take advantage of additional investment opportunities as attractive properties are identified and market conditions improve. (See “Item 1. Business - Capital Policies”.) It is management’s view that several of the sub-markets in which the Company operates have, or are expected to have in the future, attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as integral parts of its overall business plan.

Prior to the COVID-19 pandemic, economic conditions within the local Washington, DC metropolitan area had remained relatively stable. Issues facing the Federal government relating to taxation, spending and interest rate policy will likely continue to impact the office, retail and residential real estate markets over the coming years. Because the majority of the Company’s property operating income is produced by our Shopping Centers, we continually monitor the implications of government policy changes, as well as shifts in consumer demand between on-line and in-store shopping, on future shopping center construction and retailer store expansion plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in a way to maximize our future performance. The Company's commercial leasing percentage, on a comparable property basis, which excludes the impact of properties not in operation for the entirety of the comparable periods, decreased to 95.3% at March 31, 2020, from 95.7% at March 31, 2019. We expect the volume of lease renewals in 2020, and the rental rates at which leases renew, will be negatively impacted by COVID-19 when comparing executed retail leases to prior year leasing activity.

The Company maintains a ratio of total debt to total asset value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of March 31, 2020, amortizing fixed-rate mortgage debt with staggered maturities from 2021 to 2035 represented approximately 82.3% of the Company’s notes payable, thus minimizing refinancing risk. The Company’s variable-rate debt consists of $199.5 million outstanding under the credit facility. As of March 31, 2020, the Company has loan availability of approximately $200.3 million under its $325.0 million unsecured revolving credit facility.

Although it is management’s present intention to concentrate future acquisition and development activities on transit-centric, primarily residential mixed-use properties ~~to achieve both cash flow growth and capital appreciation. Management believes there is potential for long-term growth in cash flow as existing leases for space~~ in the ~~Shopping Centers and Mixed-Use properties expire and are renewed, or newly-available or vacant space is leased.~~Washington, D.C./Baltimore metropolitan area, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. The Company ~~intends~~plans to ~~renegotiate leases where possible~~continue to diversify in terms of property types, locations, size and ~~seek new tenants for available space~~market, and it does not set any limit on the amount or percentage of assets that may be invested in order to optimize the mix of uses to improve foot traffic through the Shopping Centers. As leases expire, management expects to revise rental rates, lease terms and conditions, relocate existing tenants, reconfigure tenant spaces and introduce new tenants with the goals of increasing occupancy, improving overall retail sales, and ultimately increasing cash flow as economic conditions improve. In those circumstances inany one property or any one geographic area.

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which leases are not otherwise expiring, or in connection with renovations or relocations, management selectively attempts to increase cash flow through a variety of means, including recapturing leases with below market rents and re-leasing at market rates, as well as replacing financially troubled tenants. When possible, management also will seek to include scheduled increases in base rent, as well as percentage rental provisions, in its leases.

The following table sets forth average annualized base rent per square foot and average annualized effective rent per square foot for the Company's Commercial properties (all properties except for the Clarendon Center and Park Van Ness apartments). For purposes of this table, annualized effective rent is annualized base rent minus amortized tenant improvements and amortized leasing commissions.


	Nine months ended September 30,										Three months ended March 31,
	2017		2016		2015		2014		2013		2020		2019		2018		2017		2016
Base rent	$	19.32	$	18.67	$	18.47	$	18.06	$	17.72	$	19.83	$	20.08	$	20.26	$	18.91	$	18.71
Effective rent	$	17.51	$	16.87	$	16.78	$	16.41	$	15.83	$	18.14	$	18.14	$	18.33	$	17.12	$	16.86

The Company’s redevelopment and renovation objective is to selectively and opportunistically redevelop and renovate its properties, by replacing leases that have below market rents with strong, traffic-generating anchor stores such as supermarkets and drug stores, as well as other desirable local, regional and national tenants. The Company’s strategy remains focused on continuing the operating performance and internal growth of its existing Shopping Centers, while enhancing this growth with selective retail redevelopments and renovations.

In 2016, the Company completed development of Park Van Ness, a 271-unit residential project with approximately 9,000 square feet of street-level retail, below street-level structured parking, and amenities including a community room, landscaped courtyards, a fitness room, a wi-fi lounge/business center, and a rooftop pool and deck. The structure comprises 11 levels, five of which on the east side are below street level. Because of the change in grade from the street eastward to Rock Creek Park, apartments on all 11 levels have park or city views. The street level retail space is 100% leased to a grocery/gourmet food market and an upscale Italian restaurant. As of September 30, 2017, 254 apartments (93.7%) were leased. The total cost of the project, excluding predevelopment expense and land, which the Company has owned, was approximately ~~$93.0 million, a portion of which was financed with a~~ ~~$71.6 million~~ ~~construction-to-permanent loan.~~Recent Developments

From 2014 through 2016, in separate transactions, the Company purchased four adjacent properties ~~with approximately 23,700 square feet of retail space, at 750 N.~~on North Glebe Road in Arlington, Virginia, for an aggregate $54.0 million. ~~Combined, the properties total 2.8 acres. Effective August 1, 2016, these properties were vacant and removed from service.~~ The Company ~~previously received zoning and site plan approval from Arlington County, Virginia for the development~~has substantially completed construction of ~~approximately 490 residential~~The Waycroft, a project with 491 apartment units and ~~approximately 62,000~~60,000 square feet of retail ~~space. The demolition~~space on 2.8 acres of ~~the existing structures was completed during the first quarter of 2017~~land, and ~~excavation, sheeting and shoring, which~~apartment occupancy commenced ~~during the second quarter of 2017, is approximately 70% complete as of October 31, 2017. The development is scheduled for substantial completion~~ in ~~early~~April 2020. The total cost of the project, including acquisition of land, is expected to be approximately $275.0 ~~million. The Company closed on~~million, plus approximately $19.0 million of capitalized interest. A portion of the cost is being financed with a $157.0 million construction-to-permanent ~~loan, the proceeds~~loan. Including approximately $18.7 million of capitalized interest and costs of $8.3 million which are accrued and unpaid, costs incurred through March 31, 2020 total approximately $267.6 million, of which ~~will be used to partially finance~~$124.1 million has been financed by the ~~project. During the second quarter of 2017, the Company~~loan. Leases have been executed for a 41,500 square foot ~~anchor-lease with~~ Target and ~~leases for an aggregate of 7,800~~12,600 square feet of retail shop space, resulting in approximately ~~80%~~90% of the planned retail space being leased. Target is scheduled to begin operating in August 2020. Applications have been received for 83 residential leases, totaling approximately 17% of the available units, with 18 units occupied as of May 5, 2020.

Albertson's/Safeway is currently a tenant at ~~eight~~seven of the Company's shopping centers, ~~closed~~ two Safeway stores located at the Company's properties during the June 2016 quarter. The stores that closed were located in Broadlands Village, Loudoun County, Virginia and Briggs Chaney Plaza, Montgomery County, Maryland. The lease at Briggs Chaney remains in full force and effect and Albertson’s/Safeway has executed a sublease with a replacement grocer, Global Food, for that space,locations of which ~~commenced operations in March 2017.~~are subleased to other grocers. In February 2017, the Company terminated the lease with Albertson's/Safeway at Broadlands ~~and received a $3.6 million termination fee which was recognized as revenue in the first quarter.~~Village. The ~~termination fee revenue will be partially offset by the loss of approximately $1.6 million of rental revenue over the course of 2017. The~~ Company ~~has~~ executed a lease with Aldi Food Market for 20,000 square feet of this space, which ~~is under~~opened in November 2017, and has executed a lease with LA Fitness for substantially all of the remaining space. LA Fitness has finalized construction and, ~~expected~~upon removal of COVID-19 related fitness facility occupancy restrictions, is ready to open for business.

In the fourth quarter of 2018, the Company substantially completed construction of the shell of a 16,000 square foot small shop expansion at Burtonsville Town Square and construction of interior improvements for the final two tenants are underway. Delivery of the first leased tenant spaces occurred in late ~~2017. We continue to actively market~~2018, and tenant openings began in the ~~balance~~first quarter of 2019. The total development cost was $5.7 million. Leases have been executed for all of the ~~former Safeway~~ space. In addition, a lease has been executed with Taco Bell, which commenced construction in January 2020 of a free-standing building on a pad site within the property.

In ~~January 2017,~~May 2018, the Company acquired from the Saul Trust, in exchange for 176,680 limited partnership units, approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Ashburn, Virginia. The Company has substantially completed construction of Ashbrook Marketplace, an approximately 86,000 square foot neighborhood shopping center. A 29,000 square foot Lidl grocery store opened in November 2019, and the shopping center is 100% leased as of February 2020. The first small shop opened for business in April 2020, and the remaining tenants are scheduled to open throughout 2020, subject to the removal of COVID-19 occupancy restrictions. All four pad sites have been leased and are in various stages of construction or obtaining permit approvals. In the second quarter of 2021, the Company may be obligated to issue additional limited partnership units to the Saul Trust.

In September 2018, the Company purchased for ~~$76.4~~$35.5 million, plus $0.7 million of acquisition costs, an office building and the underlying ground located at 7316 Wisconsin Avenue in Bethesda, Maryland. In December 2018, the Company purchased for $4.5 million, including acquisition costs, ~~Burtonsville Town Square, a 121,000 square foot shopping center located~~an interest in ~~Burtonsville, Maryland. Burtonsville Town Square is 100% leased~~an adjacent parcel of land and ~~anchored by Giant Food and CVS Pharmacy. It has expansion development potential of up to 18,000 square feet of additional~~ retail ~~space.~~building. The purchase price was funded ~~with a new $40.0 million mortgage loan and~~ through the Company's revolving credit facility. The Company has completed development plans for the combined property for the development of up to 366 apartment units and 10,300 square feet of retail space. In July 2019, the Montgomery County Planning Commission unanimously approved the Company's site plan. Design and construction documents are being prepared and a site plan amendment has been submitted incorporating final design parameters. Additional approvals from the Washington Metropolitan Area Transit Authority and the Maryland Transit Administration are in process and are expected to be received by the fourth quarter of 2020. Effective September 1, 2019, the asset was removed from service and transferred to construction in progress. The Company is currently performing interior demolition in preparation for future development.

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~~During the three months ended June 30, 2017,~~On November 5, 2019, the Company ~~executed termination agreements~~entered into an agreement (the "Contribution Agreement") to acquire from the Saul Trust, approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with ~~two significant tenants: Kmart~~the improvements located thereon, located at ~~Kentlands Square II and No Excuse Workout at Great Eastern. Kmart closed its 104,000 square foot store at Kentlands~~the Twinbrook Metro Station in ~~September 2017, and~~Rockville, Maryland (the “Contributed Property”). In exchange for the Contributed Property, the Company will ~~gain possession on October 31, 2017, allowing~~issue to the ~~Company~~Saul Trust 1,416,071 limited partnership units in the ~~opportunity~~Operating Partnership (“OP Units”) at an agreed upon value of $56.00 per OP Unit, representing an aggregate value of $79.3 million for the Contributed Property. Deed to ~~release or reposition~~ the ~~space. As a result~~Contributed Property and the OP Units have been placed in escrow until certain conditions of the termination, the mortgage loan agreement requires that Saul Centers guarantee approximately $9.2 million of that loan effective October 31, 2017 (the termination date), which will be reduced upon satisfaction of conditions stated in the loan documents. Annual revenue to the Company under the Kmart lease totaled approximately $1.3 million. Contribution Agreement are satisfied.

The Company, ~~terminated~~as contract purchaser, has filed with the City of Rockville a site plan for Phase I of the Twinbrook Quarter development and is conducting community hearings and awaiting design review committee comments on its ~~113,000~~plan. The plan includes an 80,000 square foot ~~lease with No Excuse Workout as a result~~Wegmans grocery store, 29,000 square feet of ~~the tenant's failure to pay a material portion~~retail shop space, 460 residential units and 237,000 square feet of ~~required rent for more than 18 months.~~office space. The termination reduced the Company's overall leasing percentage by 1.2% as of June 30, 2017, however, it did not have an impact on operating income in 2017 compared to 2016 because the Company had fully reserved the unpaid tenant rents in both periods.

The Company's tenants were impacted by winter weather during the first quarter of 2016, as heavy snowfall in the Mid-Atlantic states during that period hindered the ability of customers to shop. The cost of removing snow from the Company's properties during the three months ended March 31, 2016, was approximately $2.3 million, while the mild first quarter of 2017 resulted in snow removal costs of only $0.6 million. Approximately 60%phasing of these ~~costs were billed to tenants.~~

improvements and the timing of construction will depend on removal of contingencies, final site plan approval, building permit approval and market conditions. The ~~recent period~~total development potential of economic expansion has now run in excess of five years. While economic conditions within the local Washington, DC metropolitan area have remained relatively stable, issues facing the Federal government relating to taxation, spending and interest rate policy will likely impact the office, retail and residential real estate markets over the coming years. Because the majority ofthis 8.1 acre site, when combined with the Company’s ~~property operating income is produced by our shopping centers, we continually monitor the implications~~adjacent 10.3 acre site, totals 1,865 residential units, 473,000 square feet of ~~government policy changes, as well as shifts in consumer demand between on-line~~retail space, and in-store shopping, on future shopping center construction and retailer store expansion plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in a way to maximize our future performance. The Company’s overall leasing percentage, on a comparative same property basis, which excludes the impact431,000 square feet of ~~properties not in operation for the entirety of the comparable periods, was 95.4% at September 30, 2017, compared to 95.3% at September 30, 2016.~~office space.

~~The Company maintains a ratio of total debt to total asset value of under~~ ~~50%, which allows the Company to obtain additional secured borrowings if necessary. As of~~ ~~September 30, 2017, amortizing fixed-rate debt with staggered maturities from~~ ~~2018~~ to ~~2035~~ ~~represented approximately~~ ~~89.3%~~ of the Company’s notes payable, thus minimizing refinancing risk in any given year. The Company has a commitment from a lender to refinance the only fixed-rate mortgage scheduled to mature in 2018. The new $60.0 million loan will bear interest at a fixed rate of 3.75%, require monthly principal and interest payments of $308,500 based on a 25-year amortization schedule and mature in 2032. The new loan is expected to close during the fourth quarter, subject to normal closing conditions, and proceeds will be used to repay the remaining balance of approximately $28.0 million on the existing mortgage and reduce the outstanding balance of the revolving credit facility. As of

September 30, 2017, the Company’s variable-rate debt consisted of a $14.2 million bank term loan secured by Metro Pike Center and $89.0 million outstanding under the revolving credit facility. As of ~~September 30, 2017, the Company has availability of approximately~~ ~~$185.8 million~~ ~~under its~~ ~~$275.0 million~~ ~~unsecured revolving line of credit.~~

Although it is management’s present intention to concentrate future acquisition and development activities on community and neighborhood shopping centers and transit-centric, primarily residential mixed-use properties in the Washington, DC/Baltimore metropolitan area and the southeastern region of the United States, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. While the Company may diversify in terms of property locations, size and market, the Company does not set any limit on the amount or percentage of Company assets that may be invested in any ~~one property~~ ~~or any~~ ~~one geographic area~~.

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Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which requires management to make certain estimates and assumptions that affect the reporting of financial position and results of operations. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. The Company has identified the following policies that, due to estimates and assumptions inherent in these policies, involve a relatively high degree of judgment and complexity.

Real Estate Investments

Real estate investment properties are stated at historic cost less depreciation. Although the Company intends to own its real estate investment properties over a long term, from time to time it will evaluate its market position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s investment profile. Management believes that the Company’s real estate assets have generally appreciated in value since their acquisition or development and, accordingly, the aggregate current value exceeds their aggregate net book value and also exceeds the value of the Company’s liabilities as reported in the financial statements. Because the financial statements are prepared in conformity with GAAP, they do not report the current value of the Company’s real estate investment properties.

The Company purchases real estate investment properties from time to time and records assets acquired and liabilities assumed, including land, buildings, and intangibles related to in-place leases and customer relationships, based on their relative fair values. The fair value of buildings generally is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates and considers the present value of all cash flows expected to be generated by the property including an initial lease up period. The fair value of above and below market intangibles associated with in-place leases is determined by assessing the net effective rent and remaining term of the in-place lease relative to market terms for similar leases at acquisition taking into consideration the remaining contractual lease period, renewal periods, and the likelihood of the tenant exercising its renewal options. The fair value of below market lease intangibles is recorded as deferred income and accreted as additional lease revenue over the remaining contractual lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and amortized as a reduction of revenue over the remaining contractual lease term. The fair value of at-market in-place leases is determined considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an acquisition, the fair value of the intangibles are amortized over the life of the customer relationship.

If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors including recurring operating losses, significant decreases in occupancy, and significant adverse changes in legal factors and business climate. If impairment indicators are present, the projected cash flows of the property over its remaining useful life, on an undiscounted basis, are compared to the carrying value of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If the carrying value is greater than the undiscounted projected cash flows, an impairment loss is recognized equivalent to an amount required to adjust the carrying amount to its then estimated fair value. The fair value of any property is sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from management’s projections, the valuation could be negatively or positively affected.

When incurred, the Company capitalizes the cost of improvements that extend the useful life of property and equipment. All repair and maintenance expenditures are expensed when incurred. Leasehold improvements expenditures are capitalized when certain criteria are met, including when we supervise construction and will own the improvement. Tenant improvements that we own are depreciated over the life of the respective lease or the estimated useful life of the improvements, whichever is shorter.

Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under construction. Upon substantial completion of construction and the placement of assets into service, rental income, direct operating expenses, and depreciation associated with such properties are included in current operations and capitalization of interest ceases. Commercial development projects are substantially complete and available for occupancy upon completion of tenant improvements, but no later than one year from the cessation of major construction activity. Residential development projects are considered substantially complete and available for occupancy upon receipt of the certificate of occupancy from the

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appropriate licensing authority. Substantially completed portions of a project are accounted for as separate projects. Depreciation is calculated using the straight-line method and estimated useful lives generally between ~~35 and 50 years~~ ~~for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to~~ ~~20 years~~ ~~for certain other improvements.~~

~~Deferred Leasing Costs~~

Certain initial direct costs incurred by the Company in negotiating and consummating successful Commercial leases are capitalized and amortized over the initial base term of the leases. Deferred leasing costs consist of commissions paid to third-party leasing agents as well as internal direct costs such as employee compensation and payroll-related fringe benefits directly related to time spent performing successful leasing-related activities. Such activities include evaluating prospective tenants’ financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing transactions. In addition, deferred leasing costs include amounts attributed to in-place leases associated with acquired properties.

~~Revenue Recognition~~

Rental and interest income is accrued as earned. Recognition of rental income commences when control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line basis because of free rent periods or scheduled rent increases, income is recognized on a straight-line basis. Expense recoveries represent a portion of property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs. Expense recoveries are recognized in the period in which the expenses are incurred. Rental income based on a tenant’s revenue, known as percentage rent, is recognized when a tenant reports sales that exceed a breakpoint specified in the lease agreement.

~~Allowance for Doubtful Accounts - Current and Deferred Receivables~~

Accounts receivable primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s revenue recognition policy. Receivables are reviewed monthly and reserves are established with a charge to current period operations when, in the opinion of management, collection of the receivable is doubtful. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Reserves are established with a charge to income for tenants whose rent payment history or financial condition casts doubt upon the tenant’s ability to perform under its lease obligations.

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of current matters will not have a material adverse effect on its financial position or the results of operations. Upon determination that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

Results of Operations

Three months ended March 31, 2020 (the "2020 Quarter") compared to the three months endedMarch 31, 2019 (the "2019 Quarter")

Revenue



	Three months ended March 31,						2019 to 2020 Change
(Dollars in thousands)	2020			2019			Amount			Percent
Base rent	$	46,348		$	46,610		$	(262	)	(0.6	)%
Expense recoveries	8,616			9,811			(1,195		)	(12.2	)%
Percentage rent	290			284			6			2.1	%
Other property revenue	291			336			(45		)	(13.4	)%
Credit losses on operating lease receivables	(130		)	(238		)	108			(45.4	)%
Rental revenue	55,415			56,803			(1,388		)	(2.4	)%
Other revenue	1,528			2,947			(1,419		)	(48.2	)%
Total revenue	$	56,943		$	59,750		$	(2,807	)	(4.7	)%

Base rent includes $356,400 and $(215,900) for the 2020 Quarter and 2019 Quarter, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $352,900 and $360,100, for the 2020 Quarter and 2019 Quarter, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.

Total revenue decreased 4.7% in the 2020 Quarter compared to the 2019 Quarter, as described below.

Base Rent. The $0.3 million decrease in base rent in the 2020 Quarter compared to the 2019 Quarter is primarily attributable to (a) a $0.25 per square foot decrease in commercial base rent ($0.5 million), partially offset by (b) a 45,994 square foot increase in leased commercial space ($0.2 million).

Expense Recoveries. Expense recoveries decreased 12.2% in the 2020 Quarter compared to the 2019 Quarter primarily due to a decrease in recoverable property operating expenses, largely snow removal.

Other Revenue. Other revenue decreased $1.4 million primarily due to lower lease termination fees.

Expenses



	Three months ended March 31,				2019 to 2020 Change
(Dollars in thousands)	2020		2019		Amount			Percent
Property operating expenses	$	7,036	$	8,001	$	(965	)	(12.1	)%
Real estate taxes	7,153		7,148		5			0.1	%
Interest expense, net and amortization of deferred debt costs	9,594		11,067		(1,473		)	(13.3	)%
Depreciation and amortization of deferred leasing costs	11,281		11,643		(362		)	(3.1	)%
General and administrative	5,050		4,814		236			4.9	%
Total expenses	$	40,114	$	42,673	$	(2,559	)	(6.0	)%

Total expenses decreased 6.0% in the 2020 Quarter compared to the 2019 Quarter, as described below.

Property Operating Expenses. Property operating expenses decreased 12.1% in the 2020 Quarter primarily due to lower snow removal costs ($1.0 million).

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense decreased 13.3% in the 2020 Quarter primarily due to (a) higher capitalized interest ($1.6 million) partially offset by (b) higher interest incurred due to higher outstanding debt balances ($0.1 million).

Same property revenue and same property operating income

Same property revenue and same property operating income are non-GAAP financial measures of performance and improve the comparability of these measures by excluding the results of properties which were not in operation for the entirety of the comparable reporting periods.

We define same property revenue as total revenue minus the ~~sum of interest income and~~ revenue of properties not in operation for the entirety of the comparable reporting periods, and we define same property operating income as net income plus ~~the sum of~~(a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of deferred leasing costs, (c) general and administrative ~~expense, loss on the early extinguishment of debt (if any), predevelopment expense~~expenses, and ~~acquisition related costs, minus the sum of interest income, the~~(d) change in ~~the~~ fair value of derivatives, minus (e) gains on property dispositions ~~(if any)~~ and (f) the ~~results~~operating income of properties which were not in operation for the entirety of the comparable periods.

Other REITs may use different methodologies for calculating same property revenue and same property operating income. Accordingly, our same property revenue and same property operating income may not be comparable to those of other REITs.

Same property revenue and same property operating income are used by management to evaluate and compare the operating performance of our properties, and to determine trends in earnings, because these measures are not affected by the cost of our funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of

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operating real estate assets, general and administrative expenses or other gains and losses that relate to ownership of our properties. We believe the exclusion of these items from property revenue and property operating income is useful because the resulting measures capture the actual revenue generated and actual expenses incurred by operating our properties.

Same property revenue and same property operating income are measures of the operating performance of our properties but do not measure our performance as a whole. Such measures are therefore not substitutes for total revenue, net income or operating income as computed in accordance with GAAP.

The tables below provide reconciliations of total property revenue and ~~net~~property operating income under GAAP to same property revenue and operating income for the indicated periods. The same property results for the three months ended March 31, 2020 and 2019 include ~~(a) 48~~49 Shopping Centers ~~in each period~~ and ~~(b)~~ six Mixed-Use ~~properties and five Mixed-Use properties for the three- and nine-months ended September 30, 2017, respectively.~~properties.

Same property revenue


(in thousands)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2020			2019
Total revenue	$	56,237		$	53,233		$	170,610		$	162,869		$	56,943		$	59,750
Less: Interest income	(9		)	(12		)	(31		)	(36		)
Less: Acquisitions, dispositions and development properties	(1,351		)	(580		)	(10,336		)	(3,314		)	(130		)	(889		)
Total same property revenue	$	54,877		$	52,641		$	160,243		$	159,519		$	56,813		$	58,861

Shopping Centers	$	39,483		$	38,331		$	120,569		$	119,161		$	41,441		$	43,159
Mixed-Use properties	15,394			14,310			39,674			40,358			15,372			15,702
Total same property revenue	$	54,877		$	52,641		$	160,243		$	159,519		$	56,813		$	58,861

Total Shopping Center revenue													$	41,571		$	43,159
Less: Shopping Center acquisitions, dispositions and development properties													(130		)	—
Total same Shopping Center revenue													$	41,441		$	43,159

Total Mixed-Use property revenue													$	15,372		$	16,591
Less: Mixed-Use acquisitions, dispositions and development properties													—			(889		)
Total same Mixed-Use revenue													$	15,372		$	15,702

The ~~$2.2~~$2.0 million ~~increase~~decrease in same property revenue for the ~~three months ended September 30, 2017 (the "2017 Quarter")~~2020 Quarter compared to the ~~three months ended September 30, 2016 (the "2016 Quarter"),~~2019 Quarter, was primarily due to (a) ~~an increase in base rent, exclusive of the impact of the Kmart~~decreased lease termination ~~at Kentlands~~fees ($~~1.9~~0.7 million) and (b) ~~an increase in~~decreased expense recoveries ($~~0.8~~1.2 million) ~~partially offset by (c) the impact of the Kmart termination ($0.3 million) and (d) lower parking income at 601 Pennsylvania Avenue as a result of a garage refurbishment project ($0.2 million).~~

~~The $0.7 million increase in same property revenue for the nine months ended September 30, 2017 (the "2017 Period")~~, ~~compared to the nine months ended September 30, 2016 (the "2016 Period"), was~~ primarily due to ~~(a) higher base rent, exclusive of the impact of the Kmart termination at Kentlands~~less snow removal costs ($~~1.1~~1.0 million) and (b) higher other income ($0.3 million) partially offset by (c) the impact of the Kmart termination ($0.4 million) and (d) lower parking income at 601 Pennsylvania Avenue as a result of a garage refurbishment project ($0.3 million).

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Same property operating income


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands)	2017			2016			2017			2016			2020			2019
Net income	$	14,385		$	12,723		$	46,180		$	42,344		$	16,829		$	17,077
Add: Interest expense and amortization of deferred debt costs	11,821			11,524			35,585			34,268
Add: Interest expense, net and amortization of deferred debt costs													9,594			11,067
Add: Depreciation and amortization of deferred leasing costs	11,363			11,626			34,396			33,478			11,281			11,643
Add: General and administrative	4,363			4,033			13,178			12,500			5,050			4,814
Add: Acquisition related costs	—			57			—			57
Add: Change in fair value of derivatives	1			(1		)	2			9
Less: Interest income	(9		)	(12		)	(31		)	(36		)
Property operating income	41,924			39,950			129,310			122,620			42,754			44,601
Less: Acquisitions, dispositions & development property	1,060			192			6,737			862
Less: Acquisitions, dispositions and development properties													(104		)	(628		)
Total same property operating income	$	40,864		$	39,758		$	122,573		$	121,758		$	42,650		$	43,973

Shopping Centers	$	30,971		$	30,290		$	95,866		$	93,733		$	32,545		$	33,471
Mixed-Use properties	9,893			9,468			26,707			28,025			10,105			10,502
Total same property operating income	$	40,864		$	39,758		$	122,573		$	121,758		$	42,650		$	43,973

Shopping Center operating income													$	32,649		$	33,471
Less: Shopping Center acquisitions, dispositions and development properties													(104		)	—
Total same Shopping Center operating income													$	32,545		$	33,471

Mixed-Use property operating income													$	10,105		$	11,130
Less: Mixed-Use acquisitions, dispositions and development properties													—			(628		)
Total same Mixed-Use property operating income													$	10,105		$	10,502

The ~~$1.1~~$1.3 million ~~increase~~decrease in same property operating income in the ~~2017~~2020 Quarter compared to the ~~2016~~2019 Quarter was primarily due to (a) ~~higher base rent, exclusive of the impact of the Kmart~~lower termination ~~at Kentlands~~fees ($1.9 million) partially offset by (b) the impact of the Kmart termination ($0.3 million), (c) higher property operating expenses net of recoveries ($0.3 million) and (d) higher real estate taxes net of recoveries ($0.2 million).

The $0.8 million increase in same property operating income for the 2017 Period compared to the 2016 Period was primarily due to (a) higher base rent, exclusive of the impact of the Kmart termination at Kentlands ($1.1 million), (b) lower provision for credit losses ($0.4 million) and (c) higher other income ($0.3 million) partially offset by (d) the impact of the Kmart termination ($0.3 million), (e) lower parking income at 601 Pennsylvania Avenue as a result of a garage refurbishment project ($0.3 million) and (f) higher real estate taxes net of recoveries ($0.2 million).

~~Three months ended~~ ~~September 30, 2017~~ ~~compared to the~~ ~~three months endedSeptember 30, 2016~~

~~Revenue~~

Three months ended September 30, 2016 to 2017 Change
(Dollars in thousands) 2017 2016 Amount Percent
Base rent $ 45,385
$ 43,151
$ 2,234
5.2 %
Expense recoveries 9,447
8,561
886
10.3 %
Percentage rent 67
57
10
17.5 %
Other 1,338
1,464
(126 ) (8.6 )%
Total revenue $ 56,237
$ 53,233
$ 3,004
5.6 %

~~Base rent includes~~ ~~$(96,800)~~ ~~and~~ ~~$221,500~~ ~~for the 2017 Quarter and~~ ~~2016~~ ~~Quarter, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes~~ ~~$357,500~~ ~~and~~ ~~$428,600, for the 2017 Quarter and~~ ~~2016~~ ~~Quarter, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.~~

~~Total revenue increased~~ ~~5.6%~~ ~~in the 2017 Quarter compared to the 2016 Quarter primarily due to revenues generated by (a) Park Van Ness ($1.4~~0.7 million) and (b) ~~Burtonsville Town Square~~lower expense recoveries net of property expenses ($~~1.2~~0.5 million).

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~~Operating Expenses~~

Three months ended September 30, 2016 to 2017 Change
(Dollars in thousands) 2017 2016 Amount Percent
Property operating expenses $ 7,418
$ 6,685
$ 733
11.0 %
Provision for credit losses 52
391
(339 ) (86.7 )%
Real estate taxes 6,834
6,195
639
10.3 %
Interest expense and amortization of deferred debt costs 11,821
11,524
297
2.6 %
Depreciation and amortization of deferred leasing costs 11,363
11,626
(263 ) (2.3 )%
General and administrative 4,363
4,033
330
8.2 %
Acquisition related costs —
57
(57 ) (100.0 )%
Total operating expenses $ 41,851
$ 40,511
$ 1,340
3.3 %

~~Total operating expenses increased~~ ~~3.3%~~ ~~in the 2017 Quarter compared to the 2016 Quarter.~~

~~Property Operating Expenses.~~ ~~Property operating expenses increased~~ ~~11.0%~~ ~~in the 2016 Quarter primarily due to increased maintenance and repair costs throughout the portfolio ($0.7 million).~~

~~Provision for credit losses.~~ ~~The provision for credit losses for the 2017 Quarter represents~~ ~~0.09%~~ ~~of the Company’s revenue, a decrease from 0.73% for the 2016 Quarter.~~

~~Real Estate taxes.~~ Real estate taxes increased 10.3% in the 2017 Quarter primarily due to (a) Park Van Ness ($0.2 million), (b) Burtonsville Town Square ($0.1 million) and (c) small increases at several properties throughout the portfolio.

~~Interest expense and amortization of deferred debt costs.~~ Interest expense increased 2.6% in the 2017 Quarter primarily due to (a) additional debt incurred in connection with the acquisition of Burtonsville Town Square ($0.6 million), (b) higher interest expense related to Park Van Ness ($0.1 million), partially offset by (c) higher capitalized interest ($0.4 million).

~~Depreciation and amortization of deferred leasing costs.~~ Depreciation and amortization of deferred leasing costs decreased 2.3% in the 2017 Quarter primarily due to (a) lower depreciation expense related to Glebe Road ($0.6 million) partially offset by increased depreciation at (b) Park Van Ness ($0.1 million) and (c) Burtonsville Town Square ($0.2 million).

~~General and administrative expense.~~ ~~General and administrative expense increased 8.2% in the 2017 Quarter primarily due to (a) higher compensation expense ($0.2 million) and (b) higher state and local taxes ($0.1 million).~~

~~Nine months ended~~ ~~September 30, 2017~~ ~~compared to the nine months ended~~ ~~September 30, 2016~~

~~Revenue~~

Nine Months Ended
September 30, 2016 to 2017 Change
(Dollars in thousands) 2017 2016 Amount Percent
Base rent $ 135,436
$ 128,338
$ 7,098
5.5 %
Expense recoveries 26,378
26,011
367
1.4 %
Percentage rent 968
1,016
(48 ) (4.7 )%
Other 7,828
7,504
324
4.3 %
Total revenue $ 170,610
$ 162,869
$ 7,741
4.8 %

~~Base rent includes~~ ~~$0.4 million~~ ~~and~~ ~~$1.1 million~~ ~~for the 2017 Period and the~~ ~~2016~~ ~~Period, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes~~ ~~$1.3 million~~ ~~and~~ ~~$1.3 million~~ ~~for the 2017 Period and the~~ ~~2016~~ ~~Period, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.~~

~~Total revenue increased 4.8% in the 2017 Period compared to the 2016 Period.~~

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~~Base Rent.~~ The $7.1 million increase in base rent in the 2017 Period compared to 2016 Period is primarily attributable to (a) a $0.65 per square foot increase in commercial base rent ($4.2 million) and (b) residential base rent ($4.1 million) partially offset by (c) a 85,686 square foot decrease in commercial leased space ($1.2 million).

~~Expense Recoveries.~~ ~~Expense recoveries increased 1.4% in the 2017 Period primarily due to acquired properties.~~

~~Other revenue.~~ ~~Other revenue increased $0.3 million in the 2017 Period compared to the 2016 Period due to acquired properties.~~

~~Operating Expenses~~

Nine Months Ended
September 30, 2016 to 2017 Change
(Dollars in thousands) 2017 2016 Amount Percent
Property operating expenses $ 20,543
$ 20,740
$ (197 ) (0.9 )%
Provision for credit losses 602
1,207
(605 ) (50.1 )%
Real estate taxes 20,124
18,266
1,858
10.2 %
Interest expense and amortization of deferred debt costs 35,585
34,268
1,317
3.8 %
Depreciation and amortization of deferred leasing costs 34,396
33,478
918
2.7 %
General and administrative 13,178
12,500
678
5.4 %
Acquisition related costs —
57
(57 ) (100.0 )%
Total operating expenses $ 124,428
$ 120,516
$ 3,912
3.2 %

~~Total operating expenses increased 3.2% in the 2017 Period compared to the 2016 Period.~~

~~Property Operating Expenses.~~ ~~Property operating expenses decreased~~ ~~0.9%~~ in the 2017 Period primarily due to (a) lower snow removal costs ($1.7 million) partially offset by (b) the operation of Park Van Ness ($0.7 million), (c) Burtonsville Town Square ($0.2 million) and (d) increased maintenance and repair costs throughout the portfolio ($0.7 million).

~~Provision for credit losses.~~ ~~The provision for credit losses for the 2017 Period represents~~ ~~0.35%~~ ~~of the Company’s revenue, a decrease from~~ ~~0.74%~~ ~~for the 2016 Period.~~

~~Real Estate Taxes~~. Real estate taxes increased 10.2% in the 2017 Period primarily due to (a) Park Van Ness ($0.7 million), (b) 601 Pennsylvania Avenue ($0.2 million), (c) Burtonsville Town Square ($0.2 million), and (d) increased assessed values of several properties.

~~Interest and amortization of deferred debt costs.~~ Interest and amortization of deferred debt costs increased 3.8% to $35.6 million in the 2017 Period primarily due to (a) Burtonsville Town Square ($1.6 million) and (b) Park Van Ness ($0.6 million) partially offset by (c) increased capitalized interest ($0.7 million).

~~Depreciation and amortization of deferred leasing costs.~~ ~~The increase in depreciation and amortization to~~ ~~$34.4 million~~ ~~in the 2017 Period from~~ ~~$33.5 million~~ in the 2016 Period was due primarily to (a) Park Van Ness ($1.1 million) and (b) Burtonsville Town Square ($1.1 million) partially offset by (c) the net impact of other asset acquisitions and disposals ($0.3 million), (d) lower depreciation expense related to Glebe Road ($0.8 million) and (e) lower amortization of deferred leasing costs ($0.3 million).

~~General and administrative expense. The 5.4% increase in general and administrative expense was primarily due to~~

~~(a) increased salary and benefit expense ($0.6 million) and (b) state and local tax expense ($0.1 million).~~

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Liquidity and Capital Resources

Cash and cash equivalents totaled $~~9.4~~31.9 million and $~~9.8~~11.5 million at ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, respectively. The Company’s cash flow is affected by its operating, investing and financing activities, as described below.


	Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands)	2017			2016			2020			2019
Net cash provided by operating activities	$	74,443		$	70,351		$	26,050		$	31,641
Net cash used in investing activities	(99,486		)	(44,685		)	(21,588		)	(23,423		)
Net cash provided by (used in) financing activities	26,106			(25,833		)	13,568			(11,340		)
Increase (decrease) in cash and cash equivalents	$	1,063		$	(167	)	$	18,030		$	(3,122	)

Operating Activities

Net cash provided by operating activities represents cash received primarily from rental revenue, plus other revenue, less property operating expenses, leasing costs, normal recurring general and administrative expenses and interest payments on debt outstanding. We currently expect a short term decrease in cash from operations as our tenants are impacted by the pandemic and, while contractually obligated, some have not paid April 2020 rent (see "Impact of COVID-19").

Investing Activities

Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. The ~~$54.8~~$1.8 million ~~increase~~decrease in cash used in investing activities is primarily due to ~~higher acquisition~~

(a) development expenditures ($~~69.2~~7.4 million) partially offset by ~~lower development expenditures~~(b) increased additions to real estate investments throughout the portfolio ($~~8.8~~5.6 million).

Financing Activities

Net cash provided by (or used in) financing activities ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~primarily reflects:~~

represents (a) cash received from loan proceeds ~~from notes payable totaling $40.0 million;~~

~~advances from the revolving credit facility totaling $55.0 million;~~

~~proceeds of $5.8 million from the issuance of limited partnership units in the Operating Partnership pursuant to our Dividend Reinvestment~~ and ~~Stock Purchase Plan ("DRIP");~~

~~proceeds of $15.3 million from the~~ issuance of common stock, ~~pursuant~~preferred stock and limited partnership units minus (b) cash used to ~~our DRIP, directors’ Deferred Compensation Plan~~repay and ~~the exercise of~~curtail loans, redeem preferred stock ~~options;~~ and

~~advances of $1.4 million from the Park Van Ness construction loan;~~

~~which was partially offset by:~~

~~repayment of notes payable totaling $20.3 million;~~

~~revolving credit facility principal payments of $15.0 million;~~

~~distributions to common stockholders totaling $33.4 million;~~

pay dividends and distributions to holders of ~~convertible~~common stock, preferred stock and limited partnership ~~units in~~units. See note 5 to the ~~Operating Partnership totaling $11.4 million; and~~

~~distributions to preferred stockholders totaling $9.3 million.~~

~~Net cash used in~~consolidated financial statements for a discussion of financing ~~activities for the~~ ~~nine months endedSeptember 30, 2016~~ ~~primarily reflects:~~

~~revolving credit facility principal payments of~~ ~~$37.0 million~~;

~~repayment of notes payable totaling~~ ~~$18.4 million~~;

~~distributions to common stockholders totaling~~ ~~$29.3 million~~;

~~distributions to holders of convertible limited partnership units in the Operating Partnership totaling~~ ~~$10.1 million; and~~

~~distributions to preferred stockholders totaling~~ ~~$9.3 million~~;

~~which was partially offset by:~~

~~advances from the revolving credit facility totaling~~ ~~$32.0 million~~;

~~proceeds of~~ ~~$5.1 million~~ ~~from the issuance of limited partnership units in the Operating Partnership pursuant to our DRIP;~~

~~proceeds of~~ ~~$17.9 million~~ ~~from the issuance of common stock pursuant to our DRIP, directors’ Deferred Compensation Plan and the exercise of stock options; and~~

~~advances of~~ ~~$23.1 million~~ ~~from the Park Van Ness construction loan.~~

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activity.

Liquidity Requirements

In March and April 2020, the Company drew an aggregate $71.0 million under its revolving credit facility to provide additional liquidity and flexibility as the effects of the COVID-19 pandemic continue to evolve.

Short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service requirements (including debt service relating to additional and replacement debt), distributions to common and preferred stockholders, distributions to unit holders and amounts required for expansion and renovation of the Current Portfolio Properties and selective acquisition and development of additional properties. In order to qualify as a REIT for federal income tax purposes, the Company must distribute to its stockholders at least 90% of its “real estate investment trust taxable income,” as defined in the Code. The Company expects to meet these short-term liquidity requirements (other than amounts required for additional property acquisitions and developments) through cash provided from operations, available cash and its existing line of credit.

Long-term liquidity requirements consist primarily of obligations under our long-term debt and dividends paid to our preferred shareholders. ~~The Company anticipates~~We anticipate that long-term liquidity requirements will also include amounts required for property acquisitions and developments. The Company ~~is in the early stages of the development~~has substantially completed construction of a primarily residential project with street-level retail at 750 N. Glebe Road in Arlington, ~~Virginia, the~~Virginia. The total cost of ~~which will~~the project, including acquisition of land, is expected to be approximately $275.0 million. The Company ~~closed on~~had incurred costs totaling $267.6 million as of March 31, 2020. The remaining cost will be funded by a $157.0 million construction-to-permanent loan, ~~the proceeds of~~ which ~~will be used to partially finance the project. The remaining costs are expected to be funded through working capital, including the Company's existing line of credit.~~closed in 2017. The Company may also redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers.

Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the coming year, developments, expansions or acquisitions (if any) are expected to be funded with available cash, bank borrowings from the Company’s credit line, construction and permanent financing, proceeds from the operation of the Company’s dividend reinvestment plan or other external debt or equity capital resources available to the Company. Any future borrowings may be at the Saul Centers, Operating Partnership or Subsidiary Partnership level, and securities offerings may include (subject to certain limitations) the issuance of additional limited partnership interests in the Operating Partnership which can be converted into shares of Saul Centers common stock. The availability and terms of any such financing will depend upon market and other conditions.

~~As of~~ ~~September 30, 2017, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:~~

(In thousands) Balloon
Payments Scheduled
Principal
Amortization Total
October 1 through December 31, 2017 $ —
$ 7,386
$ 7,386
2018 130,799
(a) 29,015
159,814
2019 60,793
27,769
88,562
2020 61,163
25,182
86,345
2021 11,012
24,836
35,848
2022 36,502
25,277
61,779
Thereafter 405,693
123,478
529,171
Principal amount $ 705,962
$ 262,943
968,905
Unamortized deferred debt expense 6,759
Net $ 962,146

~~(a) Includes $89.0 million outstanding under the line of credit.~~

Management believes that the Company’s capital resources, which at ~~September 30, 2017~~March 31, 2020 included cash balances of approximately $~~9.4~~31.9 million and borrowing availability of approximately $~~185.8~~200.3 million on its unsecured revolving credit facility, will be sufficient to meet its liquidity needs for the foreseeable future. On April 1, 2020, the Company borrowed $50.0 million under its revolving credit facility. With cash balances of over $61.9 million and borrowing capacity of approximately $150.3 million on April 30, 2020, the Company believes that it has sufficient liquidity and flexibility to meet the needs of the Company's operations as the effects of the COVID-19 pandemic continue to evolve.

Dividend Reinvestments

~~In December 1995, the~~The Company ~~established~~has a DRIP ~~to allow~~that allows its common stockholders and holders of limited partnership interests an opportunity to buy additional shares of common stock by reinvesting all or a portion of their dividends or distributions. The DRIP provides for investing in newly issued shares of common stock at a 3% discount from market price without payment of any brokerage commissions, service charges or other expenses. All expenses of the DRIP are paid by the

~~-36-~~

~~Table of Contents~~

Company. The Company issued ~~177,335~~82,783 and ~~136,623~~119,215 shares under the DRIP at a weighted average discounted price of $~~59.14~~48.59 and $~~54.58~~51.28 per share, during the ~~nine~~three months ended~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, respectively. The Company issued ~~95,755~~15,101 and ~~93,867~~13,742 limited partnership units under the DRIP at a weighted average price of ~~$60.55~~$49.40 and ~~$54.80~~$52.16 per unit during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. The Company also credited ~~5,685~~1,195 and ~~5,998~~1,132 shares to directors pursuant to the reinvestment of dividends

specified by the Directors’ Deferred Compensation Plan at a weighted average discounted price of $~~59.80~~48.59 and $~~54.82~~51.28 per share, during the ~~nine~~three months ended~~September 30, 2017~~March 31, 2020 and ~~2016~~2019, respectively.

Capital Strategy and Financing Activity

As a general policy, the Company intends to maintain a ratio of its total debt to total asset value of 50% or less and to actively manage the Company’s leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Asset value is the aggregate fair market value of the Current Portfolio Properties and any subsequently acquired properties as reasonably determined by management by reference to the properties’ aggregate cash flow. Given the Company’s current debt level, it is management’s belief that the ratio of the Company’s debt to total asset value was below 50% as of ~~September 30, 2017~~March 31, 2020.

The organizational documents of the Company do not limit the absolute amount or percentage of indebtedness that it may incur. The Board of Directors may, from time to time, reevaluate the Company’s debt/capitalization strategy in light of current economic conditions, relative costs of capital, market values of the Company’s property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board of Directors then deems relevant. The Board of Directors may modify the Company’s debt/capitalization policy based on such a reevaluation without shareholder approval and consequently, may increase or decrease the Company’s debt to total asset ratio above or below 50% or may waive the policy for certain periods of time. The Company selectively continues to refinance or renegotiate the terms of its outstanding debt in order to achieve longer maturities, and obtain generally more favorable loan terms, whenever management determines the financing environment is favorable.

~~The~~At March 31, 2020, the Company ~~maintains an unsecured~~had a $400.0 million credit facility comprised of a $325.0 million revolving facility and a $75.0 million term loan. As of March 31, 2020, the applicable spread for borrowings is 135 basis points under the revolving credit facility ~~which was amended~~ and ~~restated in June 2014. The facility provides working capital~~130 basis points under the term loan. Saul Centers and ~~funds for acquisitions,~~ certain ~~developments, redevelopments and letters~~consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility. Letters of credit ~~expires~~may be issued under the revolving credit facility. As of March 31, 2020, based on ~~June 23, 2018, and provides for an additional~~ ~~one-year~~ ~~extension at~~the value of the Company’s ~~option, subject to the Company’s satisfaction of certain conditions. As of~~ ~~September 30, 2017, $89.0~~unencumbered properties, approximately $200.3 million ~~was outstanding, approximately~~ ~~$185.8 million~~ was available under the ~~line~~revolving credit facility, $124.5 million was outstanding and approximately ~~$185,000~~$185,000 was committed for letters of credit. ~~The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio, and which can range from~~ ~~145~~ ~~basis points to 200 basis points. Based on the leverage ratio as of~~ ~~September 30, 2017, the margin was~~ ~~145~~ ~~basis points.~~

The facility requires the Company and its subsidiaries to maintain compliance with certain financial covenants. The material covenants require the Company, on a consolidated basis, to:


•	limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);


•	limit the amount of debt so that interest coverage will exceed 2.0x on a trailing four-quarter basis (interest expense coverage); and


•	limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.4x on a trailing four-quarter basis (fixed charge coverage).

~~maintain tangible net worth, as defined in the loan agreement, of at least~~ ~~$542.1 million~~ ~~plus~~ ~~80%~~ ~~of the Company’s net equity proceeds received after March 2014;~~

~~limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than~~ ~~60%~~ ~~(leverage ratio);~~

~~limit the amount of debt so that interest coverage will exceed~~ ~~2.0x on a trailing~~ ~~four-quarter~~ ~~basis (interest expense coverage); and~~

~~limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds~~ ~~1.3x on a trailing~~ ~~four-quarter~~ ~~basis (fixed charge coverage).~~

As of ~~September 30, 2017~~March 31, 2020, the Company was in compliance with all such covenants.

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The Company has a commitment from a lender to refinance the only fixed-rate mortgage scheduled to mature in 2018. The new $60.0 million loan will bear interest at a fixed rate of 3.75%, require monthly principal and interest payments of $308,500 based on a 25-year amortization schedule and mature in 2032. It is expected to close during the fourth quarter, subject to normal closing conditions, and proceeds will be used to repay the remaining balance of the approximately $28.0 million on the existing mortgage and reduce the outstanding balance of the revolving credit facility.

Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. The Operating Partnership is the guarantor of (a) a portion of the Metro Pike Center bank loan (approximately ~~$7.8 million~~ ~~of the~~ ~~$14.2 million~~ ~~outstanding at~~ ~~September 30, 2017~~) and (b) a portion of the Park Van Ness loan (approximately $53.7 million of the $71.6 million outstanding balance at September 30, 2017), which guarantee will be reduced and eventually eliminated subject to the achievement of certain leasing and cash flow levels. The fixed-rate notes payable are non-recourse.

~~Preferred Stock~~

~~The Company has outstanding 7.2 million depositary shares, each representing~~ ~~1/100th of a share of~~ ~~6.875%~~ ~~Series C Cumulative Redeemable Preferred Stock. The depositary shares may be redeemed at the Company’s option, in whole or in part, at the~~ ~~$25.00~~ ~~liquidation preference plus accrued but unpaid dividends on or after~~ ~~February 12, 2018. The depositary shares pay an annual dividend of~~ ~~$1.71875~~ ~~per share, equivalent to~~ ~~6.875%~~ ~~of the~~ ~~$25.00~~ liquidation preference. The Series C preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes of control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

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~~Table of Contents~~

Funds From Operations

Funds From Operations (FFO)¹ available to common stockholders and noncontrolling interests for the ~~nine months endedSeptember 30, 2017~~,2020 Quarter, totaled ~~$71.3~~$25.3 million,, ~~an increase~~ a decrease of ~~7.1%~~1.8% compared to the ~~nine months endedSeptember 30, 2016~~2019 Quarter. FFO for the 2020 Quarter decreased primarily due to (a) lower other revenue, primarily lease termination fees ($1.4 million), (b) lower base rent, primarily due to the lease expiration and re-leasing of the grocery anchors at Seven Corners, which opened in March 2020, and at Shops at Fairfax, projected to open in the third quarter of 2020 (collectively, $0.4 million) and (c) lower expense recoveries net of property expenses ($0.2 million), partially offset by (d) lower interest expense due to higher capitalized interest ($1.6 million).

The following table presents a reconciliation from net income to FFO available to common stockholders and noncontrolling interests for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands, except per share amounts)	2017			2016			2017			2016			2020			2019
Net income	$	14,385		$	12,723		$	46,180		$	42,344		$	16,829		$	17,077
Add:
Real estate depreciation and amortization	11,363			11,626			34,396			33,478			11,281			11,643
FFO	25,748			24,349			80,576			75,822			28,110			28,720
Subtract:
Preferred stock dividends	(3,093		)	(3,093		)	(9,281		)	(9,281		)	(2,798		)	(2,953		)
FFO available to common stockholders and noncontrolling interests	$	22,655		$	21,256		$	71,295		$	66,541		$	25,312		$	25,767
Weighted average shares:
Diluted weighted average common stock	22,028			21,779			21,949			21,544			23,299			22,863
Convertible limited partnership units	7,521			7,391			7,491			7,360			7,897			7,835
Average shares and units used to compute FFO per share	29,549			29,170			29,440			28,904			31,196			30,698
FFO per share available to common stockholders and noncontrolling interests	$	0.77		$	0.73		$	2.42		$	2.30		$	0.81		$	0.84

The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding ~~extraordinary items,~~ impairment charges on ~~depreciable~~ real estate assets and gains or losses from ~~property~~real estate dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company’s Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company’s operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what the Company believes occurs with its assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.

Acquisitions and Redevelopments

~~During~~Management anticipates that during the ~~remainder of the~~coming year, the Company will ~~continue~~complete its ~~redevelopment~~development activities at ~~Glebe Road,~~The Waycroft, may redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the ~~balance of the~~coming year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Company’s credit line, construction financing, proceeds from the operation of the Company’s dividend reinvestment plan or other external capital resources available to the Company.

The Company has been selectively involved in acquisition, development, redevelopment and renovation activities. It continues to evaluate the acquisition of land parcels for retail and mixed-use development and acquisitions of operating properties for opportunities to enhance operating income and cash flow growth. The Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio.

The ~~following describes~~Company, as contract purchaser, has filed with the ~~acquisition, development, redevelopment and renovation activities~~City of Rockville a site plan for Phase I of the ~~Company in~~ ~~2016~~Twinbrook Quarter development and ~~the~~ ~~nine months endedSeptember 30, 2017~~.

~~-39-~~

~~Table of Contents~~

~~Park Van Ness~~

~~In 2016, the Company completed development of Park Van Ness, a~~ ~~271-unit residential project with approximately~~ ~~9,000~~ ~~square feet of street-level retail, below street-level structured parking,~~is conducting community hearings and ~~amenities including a community room, landscaped courtyards, a fitness room, a wi-fi lounge/business center, and a rooftop pool and deck.~~awaiting design review committee comments on its plan. The structure comprises 11 levels, five of which on the east side are below street level. Because of the change in grade from the street eastward to Rock Creek Park, apartments on all 11 levels have park or city views. The street level retail space is 100% leased to a grocery/gourmet food market andplan includes an upscale Italian restaurant. As of September 30, 2017, 254 apartments (93.7%) were leased. The total cost of the project, excluding predevelopment expense and land (which the Company has owned), was approximately ~~$93.0 million, a portion of which was financed with a $71.6 million construction-to-permanent loan.~~

~~750 N. Glebe Road~~

From 2014 through 2016, the Company purchased four adjacent properties for an aggregate $54.0 million located on N. Glebe Road in Arlington, Virginia. The properties comprise 2.8 acres of land. Effective August 1, 2016, the properties were vacant and removed from service. In 2016, the Company received zoning and site plan approval from Arlington County, Virginia for the development of approximately 490 residential units and approximately 62,000 square feet of retail space. The demolition of the existing structures was completed during the first quarter of 2017 and excavation, sheeting and shoring, which commenced during the second quarter of 2017, is approximately 70% complete as of October 31, 2017. The development is scheduled for substantial completion in early 2020. The total cost of the project, including acquisition of land, is expected to be approximately $275.0 million. The Company closed on a $157.0 million construction-to-permanent loan, the proceeds of which will be used to partially finance the project. During the second quarter of 2017, the Company executed a 41,50080,000 square foot ~~anchor-lease with Target and leases for an aggregate of 7,800~~Wegmans grocery store, 29,000 square feet of retail shop space, ~~resulting in approximately 80%~~460 residential units and 237,000 square feet of office space. The phasing of these improvements and the ~~retail space being leased.~~timing of construction will depend on removal of contingencies, final site plan approval, building permit approval and market conditions. The total development potential of

~~Thruway Pad~~

~~In August 2016,~~this 8.1 acre site, when combined with the ~~Company purchased for~~ ~~$3.1 million, a retail pad~~Company’s adjacent 10.3 acre site, with an occupied 4,200 square foot bank building in Winston Salem, North Carolina, and incurred acquisition costs of $60,400. The property is contiguous with and an expansion of the Company's Thruway Shopping Center.

~~Ashbrook Marketplace~~

In August 2016, the Company entered into an agreement to acquire from B. F. Saul Real Estate Investment Trust (the “Trust”), for an initial purchase price of $8.8 million, approximately 14.3 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Loudoun County, Virginia. The land is zoned for up to 115,000totals 1,865 residential units, 473,000 square feet of retail ~~development. In order to allow the Company time to pre-lease~~space, and complete project plans and specifications, the parties have agreed to a closing date in early 2018, at which time the Company will exchange limited partnership units for the land. The number of limited partnership units to be exchanged will be based on the initial purchase price and the average share value (as defined in the agreement) of the Company’s common stock at the time of the exchange. The Company intends to construct a shopping center and, upon stabilization, may be obligated to issue additional limited partnership units to the Trust. Pre-leasing efforts and project engineering and architectural plans are in process.

~~Burtonsville Town Square~~

In January 2017, the Company purchased for $76.4 million, including acquisition costs, Burtonsville Town Square, a 121,000 square foot shopping center located in Burtonsville, Maryland. Burtonsville Town Square is 100% leased and anchored by Giant Food and CVS Pharmacy. It has expansion development potential of up to 18,000431,000 square feet of ~~additional retail~~office space. The purchase was funded with a new $40.0 million mortgage loan and through the Company's revolving credit facility. The mortgage bears interest at 3.39%, requires monthly principal and interest payments of $197,900 based upon a 25-year amortization schedule, and has a 15-year maturity.

~~Olney Shopping Center~~

~~-40-~~

~~Table of Contents~~

Portfolio Leasing Status

The following chart sets forth certain information regarding Commercial leases at our properties.

Total Properties Total Square Footage Percent Leased

Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
September 30, 2017 49
6
7,747,798
1,076,838
95.7 % 93.4 %
September 30, 2016 49
7
7,882,032
1,273,335
95.7 % 88.7 %



	Total Properties		Total Square Footage		Percent Leased
	Shopping Centers	Mixed-Use	Shopping Centers	Mixed-Use	Shopping Centers		Mixed-Use
March 31, 2020	50	6	7,872,035	1,076,837	95.8	%	92.3	%
March 31, 2019	49	7	7,759,048	1,146,438	96.0	%	90.1	%

As of ~~September 30, 2017~~, ~~95.5%~~March 31, 2020, 95.3% of the Commercial portfolio was leased, compared to ~~94.7%~~95.2% at ~~September 30, 2016~~.March 31, 2019. On a same property basis, ~~95.4%~~95.3% of the Commercial portfolio was leased, compared to ~~95.3%~~95.7% at ~~September 30, 2016~~.March 31, 2019. As of ~~September 30, 2017~~,March 31, 2020, the ~~Clarendon Center apartments were~~ ~~96.3%~~Residential portfolio was 96.7% leased compared to ~~96.7%~~99.0% at ~~September 30, 2016. As of September 30, 2017, the Park Van Ness apartments were 93.7% leased compared to 61.3% at September 30, 2016.~~March 31, 2019.

The following table shows selected data for leases executed in the indicated periods. The information is based on executed leases without adjustment for the timing of occupancy, tenant defaults, or landlord concessions. The base rent for an expiring lease is the annualized contractual base rent, on a cash basis, as of the expiration date of the lease. The base rent for a new or renewed lease is the annualized contractual base rent, on a cash basis, as of the expected rent commencement date. Because tenants that execute leases may not ultimately take possession of their space or pay all of their contractual rent, the changes presented in the table provide information only about trends in market rental rates. The actual changes in rental income received by the Company may be different.

Average Base Rent per Square Foot
Three months ended September 30,
Square
Feet

Number
of Leases

New/Renewed
Leases

Expiring
Leases
2017 320,490
70
$ 23.64
$ 22.19
2016 529,313
79
15.19
14.20



			Average Base Rent per Square Foot
Three months ended March 31,	Square Feet	Number of Leases	New/Renewed Leases		Expiring Leases
2020	427,692	64	$	34.41	$	35.54
2019	436,284	70	17.77		17.38

Certain of the Company’s operating properties are planned for redevelopment, including its properties at Twinbrook and White Flint. Prior to the commencement of redevelopment, the Company continues to operate the properties. However, in order to provide the greatest amount of flexibility, the Company generally enters into leases with shorter terms at these “pre-development” properties. The shorter-term leases require less capital, but also yield lower rents. The impact of these leases with shorter terms and lower rents can impact the averages shown for all leasing activity. During the first quarter of 2020, the Company entered into four new or renewed leases, for 19,724 square feet of retail space, at pre-development properties, that have shorter terms and lower rents than typical market conditions would suggest. Excluding these leases, the base rent on the 60 new or renewed leases on a same space basis would have been $34.58 per square foot compared to $35.96 per square foot for expiring leases.

Since December 2019, the Company has extended the leases of three significant tenants within the office portfolio. The earliest expiration of these resulting leases is now 2030. These leases comprise an aggregate of approximately 216,000 square feet (22%) of the office square footage contained within the Mixed-Use Properties.

Additional information about the ~~2017~~2020 leasing activity is set forth below. The below information includes leases for space which had not been previously leased during the period of the Company's ownership, either a result of acquisition or development.


	New Leases			Renewed Leases			New Leases			First Generation/Development Leases			Renewed Leases
Number of leases	13			57			21			5			43
Square feet	26,678			293,812			88,538			15,269			339,154
Per square foot average annualized:
Base rent	$	25.87		$	23.44		$	23.54		$	37.50		$	37.24
Tenant improvements	(1.82		)	(0.03		)	(3.70		)	(10.73		)	(2.48		)
Leasing costs	(0.36		)	(0.02		)	(0.85		)	(1.28		)	(1.08		)
Rent concessions	(0.07		)	(0.01		)	(0.79		)	(0.06		)	(3.60		)
Effective rents	$	23.62		$	23.38		$	18.20		$	25.43		$	30.08

During the three months ended ~~September 30, 2017~~March 31, 2020, the Company entered into ~~141~~97 new or renewed apartment leases. The average monthly rent per square foot ~~for the 135 leases for units which were previously occupied decreased~~increased to ~~$3.57~~$3.54 from ~~$3.61.~~$3.51. During the three months ended ~~September 30, 2016~~March 31, 2019, the Company entered into ~~158~~94 new or renewed apartment leases. The average monthly rent per square foot ~~for the 86 leases for units which were previously occupied increased~~decreased to ~~$3.64~~$3.48 from ~~$3.61.~~

~~-41-~~

~~Table of Contents~~

$3.50.

As of December 31, ~~2016, 952,517~~2019, 746,234 square feet of Commercial space was subject to leases scheduled to expire in ~~2017.~~2020. Of those leases, as of ~~September 30, 2017,~~March 31, 2020, leases representing ~~203,964~~599,900 square feet of Commercial space have not yet renewed and are scheduled to expire over the next three months. Below is information about existing and estimated market base rents per square foot for that space.


Expiring Leases:	Total		Total
Square feet	203,964		599,900
Average base rent per square foot	$	19.59	$	22.30
Estimated market base rent per square foot	$	19.57	$	22.34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain financial market risks, the most predominant being fluctuations in interest rates. Interest rate fluctuations are monitored by management as an integral part of the Company’s overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the Company’s results of operations.

The Company may, where appropriate, employ derivative instruments, such as interest rate swaps, to mitigate the risk of interest rate fluctuations. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. On June 29, 2010, the Company entered into an interest rate swap agreement with a $45.6 million notional amount to manage the interest rate risk associated with $45.6 million of variable-rate debt. The swap agreement was effective July 1, 2010, terminates on July 1, 2020 and effectively fixes the interest rate on the debt at 5.83%. The fair value of the swap at ~~September 30, 2017~~ ~~was approximately~~ ~~$1.5 million~~ ~~and is reflected in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet.~~

The Company is exposed to interest rate fluctuations which will affect the amount of interest expense of its variable rate debt and the fair value of its fixed rate debt. As of ~~September 30, 2017~~March 31, 2020, the Company had variable rate indebtedness totaling $~~103.2~~199.5 million. If the interest rates on the Company’s variable rate debt instruments outstanding at ~~September 30, 2017~~March 31, 2020 had been one percentage point higher, our annual interest expense relating to these debt instruments would have increased by $~~1.0~~2.0 million based on those balances. As of ~~September 30, 2017~~March 31, 2020, the Company had fixed-rate indebtedness totaling $~~865.7~~928.9 million with a weighted average interest rate of ~~5.38%~~5.03%. If interest rates on the Company’s fixed-rate debt instruments at ~~September 30, 2017~~March 31, 2020 had been one percentage point higher, the fair value of those debt instruments on that date would have been approximately $~~44.3~~51.3 million less than the carrying value.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chairman, ~~and~~ Chief Executive Officer and President, its ~~Senior~~Executive Vice President-Chief Financial Officer ~~Secretary~~ and Treasurer, and its Senior Vice President-Chief Accounting Officer as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the

disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including its Chairman, ~~and~~ Chief Executive Officer and President, its ~~Senior~~Executive Vice President-Chief Financial Officer ~~Secretary~~ and Treasurer, and its Senior Vice President-Chief Accounting Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2020. Based on the foregoing, the Company’s Chairman, ~~and~~ Chief Executive Officer and President, its ~~Senior~~Executive Vice President-Chief Financial Officer ~~Secretary~~ and Treasurer and its Senior Vice President-Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of ~~September 30, 2017.~~March 31, 2020.

During the quarter ended ~~September 30, 2017,~~March 31, 2020, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

~~-42-~~

~~Table of Contents~~

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

None


Item 1A.	Risk Factors

~~The~~Except as set forth below, the Company has no material updates to the risk factors presented in Item 1A. Risk Factors in the ~~2016~~2019 Annual Report of the Company on Form 10-K.

The current outbreak of the novel coronavirus (“COVID-19”), or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or financial condition, results of operations, cash flows and the market value and trading price of our securities.

A novel strain of coronavirus was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly. Many of our tenants have announced mandated or temporary closures of their operations and/or have requested adjustments to their lease terms during this pandemic. Experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or a global recession. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows and the market value and trading price of our securities due to, among other factors:

a complete or partial closure of, or other operational issues at, our properties as a result of government or tenant action;

the declines in or instability of the economy or financial markets may result in a recession or negatively impact consumer discretionary spending, which could adversely affect retailers and consumers;

the reduction of economic activity severely impacts our tenants' business operations, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;

inability to access debt and equity capital on favorable terms, if at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt, reduce our ability to make cash distributions to our stockholders and increase our future interest expense;

a general decline in business activity and demand for real estate transactions could adversely affect our ability to successfully execute investment strategies or expand our property portfolio;

a significant reduction in our cash flows could impact our ability to continue paying cash dividends to our common and preferred stockholders at expected levels or at all;

the financial impact of COVID-19 could negatively affect our future compliance with financial and other covenants of our credit facility and other debt instruments, and the failure to comply with such covenants could result in a default that accelerates the payment of such indebtedness;

the continued service and availability of personnel, including our executive officers and Board of Directors, and our ability to recruit, attract and retain skilled personnel, to the extent our management, Board of Directors or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, could negatively impact our business and operating results; and

our ability to ensure business continuity in the event our continuity of operations plan is not effective or is improperly implemented or deployed during a disruption.

The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. For example, as of March 31, 2020, approximately 33% of base rent is generated from tenants in lines of trade that have been significantly impacted by mandated temporary closures or other social-distancing guidelines issued by federal, state and local governments including:

Full-service and limited-service restaurants (13%),

Beauty services and dry cleaners (6%),

Apparel and footwear (6%),

Health and fitness (3%), and

Other (5%)

A prolonged imposition of mandated temporary closures or other social-distancing guidelines may adversely impact the ability of these tenants to generate sufficient revenues, and may cause tenants to request additional rent deferrals, and in limited cases, default on their leases, or result in the bankruptcy or insolvency of tenants, which would diminish our ability to receive rental revenue that is owed under their leases. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

B. Francis Saul II, the Company’s Chairman of the Board, ~~and~~ Chief Executive Officer and President, his spouse and entities affiliated with Mr. Saul II, through participation in the Company’s Dividend Reinvestment and Stock Purchase Plan for the

~~July~~January 31, ~~2017~~2020 dividend distribution acquired ~~55,763~~70,477 shares of common stock at a price of $~~57.40~~48.59 per share and

~~16,021~~15,101 limited partnership units at a price of ~~$58.13~~$49.40 per unit. The limited partnership units were sold under Section 4(a)(2) of the Securities Act of 1933.


Item 3.	Defaults Upon Senior Securities

None


Item 4.	Mine Safety Disclosures

Not Applicable


Item 5.	Other Information

None

~~-43-~~

~~Table of Contents~~


Item 6.	Exhibits



~~10.~~	~~(a)~~	~~Promissory Note, dated as of August 14, 2017, by 750 North Glebe LLC to The Northwestern Mutual Life Insurance Company is filed herewith.~~
	~~(b)~~	Deed of Trust and Security Agreement, dated as of August 14, 2017, by 750 North Glebe LLC to Eric J. Ekeroth as trustee for the benefit of The Northwestern Mutual Life Insurance Company, as beneficiary, is filed herewith.

31.		Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith).*

32.		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith).*

99.	(a)	Schedule of Portfolio Properties (filed herewith).

101.		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of ~~changes in stockholders’~~ equity and comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.

104.		Cover Page Interactive Data File (the Cover Page Interactive Data File is embedded within the Inline XBRL document).

~~-44-~~

~~Table~~* In accordance with Item 601(b)(32) of ~~Contents~~

Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	SAUL CENTERS, INC. (Registrant)

Date: ~~November 2, 2017~~May 6, 2020	/s/ ~~J. Page Lansdale~~B. Francis Saul II
	~~J. Page Lansdale,~~ B. Francis Saul II Chairman, Chief Executive Officer and President ~~and Chief Operating Officer~~

Date: ~~November 2, 2017~~May 6, 2020	/s/ Scott V. Schneider
	Scott V. Schneider ~~Senior~~Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer)

Date: ~~November 2, 2017~~May 6, 2020	/s/ Joel A. Friedman
	Joel A. Friedman Senior Vice President, Chief Accounting Officer (principal accounting officer)

~~-45-~~-37-



(in thousands)	September 30, 2017		December 31, 2016
Glebe Road	$	73,514	$	58,147
Other	6,649		5,423
Total	$	80,163	$	63,570



	As of or for the three months ended September 30,		As of or for the nine months ended September 30,
(In thousands)	2017	2016	2017	2016
Weighted average common stock outstanding-Basic	21,942	21,597	21,844	21,448
Effect of dilutive options	86	182	105	96
Weighted average common stock outstanding-Diluted	22,028	21,779	21,949	21,544
Non-dilutive options	—	—	—	172
Years non-dilutive options were issued				2007, 2015, and 2016



	Directors
Grant date	4/25/2008			4/24/2009			5/7/2010			5/13/2011			5/4/2012			5/10/2013			5/9/2014			5/8/2015			5/6/2016			5/5/2017			Subtotals
Total grant	30,000			32,500			32,500			32,500			35,000			35,000			30,000			35,000			32,500			27,500			322,500
Vested	30,000			32,500			32,500			32,500			35,000			35,000			30,000			35,000			32,500			27,500			322,500
Exercised	20,000			27,500			25,000			22,500			22,500			22,500			17,500			12,500			7,500			—			177,500
Forfeited	7,500			—			2,500			2,500			—			—			—			—			—			—			12,500
Exercisable at September 30, 2017	2,500			5,000			5,000			7,500			12,500			12,500			12,500			22,500			25,000			27,500			132,500
Remaining unexercised	2,500			5,000			5,000			7,500			12,500			12,500			12,500			22,500			25,000			27,500			132,500
Exercise price	$	50.15		$	32.68		$	38.76		$	41.82		$	39.29		$	44.42		$	47.03		$	51.07		$	57.74		$	59.41
Volatility	0.237			0.344			0.369			0.358			0.348			0.333			0.173			0.166			0.166			0.173
Expected life (years)	7.0			6.0			5.0			5.0			5.0			5.0			5.0			5.0			5.0			5.0
Assumed yield	4.09		%	4.54		%	4.23		%	4.16		%	4.61		%	4.53		%	4.48		%	4.54		%	3.75		%	3.45		%
Risk-free rate	3.49		%	2.19		%	2.17		%	1.86		%	0.78		%	0.82		%	1.63		%	1.50		%	1.23		%	1.89		%
Total value at grant date	$	254,700		$	222,950		$	287,950		$	297,375		$	257,250		$	278,250		$	109,500		$	125,300		$	151,125		$	165,550		$	2,149,950
Expensed in previous years	254,700			222,950			287,950			297,375			257,250			278,250			109,500			125,300			151,125			—			1,984,400
Expensed in 2017	—			—			—			—			—			—			—			—			—			165,550			165,550
Future expense	—			—			—			—			—			—			—			—			—			—			—
	Officers
Grant date	5/13/2011			5/4/2012			5/10/2013			5/9/2014			5/8/2015			5/6/2016			5/5/2017			Subtotal									Grand Totals
Total grant	162,500			242,500			202,500			170,000			190,000			194,000			205,000			1,366,500									1,689,000
Vested	118,750			107,500			171,875			126,875			94,375			48,500			—			667,875									990,375
Exercised	96,100			91,830			83,000			35,000			8,981			625			—			315,536									493,036
Forfeited	43,750			135,000			30,625			1,875			3,125			1,875			—			216,250									228,750
Exercisable at September 30, 2017	22,650			15,670			88,875			91,875			85,394			47,875			—			352,339									484,839
Remaining unexercised	22,650			15,670			88,875			133,125			177,894			191,500			205,000			834,714									967,214
Exercise price	$	41.82		$	39.29		$	44.42		$	47.03		$	51.07		$	57.74		$	59.41
Volatility	0.330			0.315			0.304			0.306			0.298			0.185			0.170
Expected life (years)	8.0			8.0			8.0			7.0			7.0			7.0			7.0
Assumed yield	4.81		%	5.28		%	5.12		%	4.89		%	4.94		%	3.80		%	3.50		%
Risk-free rate	2.75		%	1.49		%	1.49		%	2.17		%	1.89		%	1.55		%	2.17		%
Gross value at grant date	$	1,366,625		$	1,518,050		$	1,401,300		$	1,349,800		$	1,584,600		$	1,136,840		$	1,324,300		$	9,681,515								$	11,831,465
Estimated forfeitures	367,937			845,100			211,925			168,749			141,780			86,628			91,642			1,913,761									1,913,761
Expensed in previous years	998,688			672,950			1,031,134			787,392			601,180			175,032			—			4,266,376									6,250,776
Expensed in 2017	—			—			158,241			221,454			270,531			196,911			128,400			975,537									1,141,087
Future expense	—			—			—			172,205			571,109			678,269			1,104,258			2,525,841									2,525,841
Weighted average term of remaining future expense (in years)				2.7



	Three months ended September 30,				2016 to 2017 Change
(Dollars in thousands)	2017		2016		Amount			Percent
Base rent	$	45,385	$	43,151	$	2,234		5.2	%
Expense recoveries	9,447		8,561		886			10.3	%
Percentage rent	67		57		10			17.5	%
Other	1,338		1,464		(126		)	(8.6	)%
Total revenue	$	56,237	$	53,233	$	3,004		5.6	%



	Nine Months Ended September 30,				2016 to 2017 Change
(Dollars in thousands)	2017		2016		Amount			Percent
Base rent	$	135,436	$	128,338	$	7,098		5.5	%
Expense recoveries	26,378		26,011		367			1.4	%
Percentage rent	968		1,016		(48		)	(4.7	)%
Other	7,828		7,504		324			4.3	%
Total revenue	$	170,610	$	162,869	$	7,741		4.8	%