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

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☐ No ☒

Number of shares of common stock, par value $0.01 per share outstanding as of ~~November 4, 2022: 23,895,185.~~July 31, 2023: 23,942,456.

-2-

SAUL CENTERS, INC.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


(a) Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022			4
(b) Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022			5
(c) Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022			6
(d) Consolidated Statements of Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022			7
(e) Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022			119
(f) Notes to Consolidated Financial Statements			1210

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

(a) Critical Accounting Policies			2624

(b) Results of Operations:
Three months ended ~~September~~June 30, ~~2022~~2023 compared to three months ended ~~September~~June 30, ~~2021~~2022			2825
~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022			2926
Same property revenue and same property operating income			3027

(c) Liquidity and Capital Resources			3230

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3835

Item 4. Controls and Procedures			3836

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			3937
Item 1A. Risk Factors			3937
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3937
Item 3. Defaults Upon Senior Securities			3937
Item 4. Mine Safety Disclosures			3937
Item 5. Other Information			3937
Item 6. Exhibits			3937
Signatures			4038

-3-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	September 30, 2022		December 31, 2021		(Dollars in thousands, except per share amounts)	June 30, 2023		December 31, 2022

Assets	Assets					Assets
Real estate investments	Real estate investments					Real estate investments
Land	Land	$	511,529	$	511,529	Land	$	511,529	$	511,529
Buildings and equipment	Buildings and equipment	1,574,872		1,566,686		Buildings and equipment	1,590,762		1,576,924
Construction in progress	Construction in progress	285,810		205,911		Construction in progress	410,966		319,683
		2,372,211		2,284,126			2,513,257		2,408,136
Accumulated depreciation	Accumulated depreciation	(679,121)		(650,113)		Accumulated depreciation	(708,770)		(688,475)
		1,693,090		1,634,013			1,804,487		1,719,661
Cash and cash equivalents	Cash and cash equivalents	10,291		14,594		Cash and cash equivalents	11,473		13,279
Accounts receivable and accrued income, net	Accounts receivable and accrued income, net	58,682		58,659		Accounts receivable and accrued income, net	51,949		56,323
Deferred leasing costs, net	Deferred leasing costs, net	22,221		24,005		Deferred leasing costs, net	22,799		22,388

Other assets	Other assets	25,734		15,490		Other assets	15,986		21,651
Total assets	Total assets	$	1,810,018	$	1,746,761	Total assets	$	1,906,694	$	1,833,302
Liabilities	Liabilities					Liabilities
Notes payable, net	Notes payable, net	$	969,109	$	941,456	Notes payable, net	$	951,505	$	961,577

Revolving credit facility payable, net	Revolving credit facility payable, net	125,747		103,167		Revolving credit facility payable, net	217,328		161,941
Term loan facility payable, net	Term loan facility payable, net	99,344		99,233		Term loan facility payable, net	99,456		99,382
Construction loan payable, net						Construction loan payable, net	25,841		—
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	39,169		25,558		Accounts payable, accrued expenses and other liabilities	54,211		42,978
Deferred income	Deferred income	25,887		25,188		Deferred income	21,836		23,169
Dividends and distributions payable	Dividends and distributions payable	22,445		21,672		Dividends and distributions payable	22,473		22,453

Total liabilities	Total liabilities	1,281,701		1,216,274		Total liabilities	1,392,650		1,311,500
Equity	Equity					Equity
Preferred stock, 1,000,000 shares authorized:	Preferred stock, 1,000,000 shares authorized:					Preferred stock, 1,000,000 shares authorized:

Series D Cumulative Redeemable, 30,000 shares issued and outstanding	Series D Cumulative Redeemable, 30,000 shares issued and outstanding	75,000		75,000		Series D Cumulative Redeemable, 30,000 shares issued and outstanding	75,000		75,000
Series E Cumulative Redeemable, 44,000 shares issued and outstanding	Series E Cumulative Redeemable, 44,000 shares issued and outstanding	110,000		110,000		Series E Cumulative Redeemable, 44,000 shares issued and outstanding	110,000		110,000
Common stock, $0.01 par value, 42,000,000 shares authorized, 24,001,546 and 23,840,471 shares issued and outstanding, respectively		240		238
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,048,626 and 24,016,009 shares issued and outstanding, respectively						Common stock, $0.01 par value, 40,000,000 shares authorized, 24,048,626 and 24,016,009 shares issued and outstanding, respectively	240		240
Additional paid-in capital	Additional paid-in capital	445,456		436,609		Additional paid-in capital	448,231		446,301
Partnership units in escrow	Partnership units in escrow	39,650		39,650		Partnership units in escrow	39,650		39,650
Distributions in excess of accumulated earnings	Distributions in excess of accumulated earnings	(268,451)		(256,448)		Distributions in excess of accumulated earnings	(280,850)		(273,559)
Accumulated other comprehensive income	Accumulated other comprehensive income	3,063		—		Accumulated other comprehensive income	3,131		2,852
Total Saul Centers, Inc. equity	Total Saul Centers, Inc. equity	404,958		405,049		Total Saul Centers, Inc. equity	395,402		400,484
Noncontrolling interests	Noncontrolling interests	123,359		125,438		Noncontrolling interests	118,642		121,318
Total equity	Total equity	528,317		530,487		Total equity	514,044		521,802
Total liabilities and equity	Total liabilities and equity	$	1,810,018	$	1,746,761	Total liabilities and equity	$	1,906,694	$	1,833,302

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

-4-

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,				(Dollars in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenue	Revenue									Revenue
Rental revenue	Rental revenue	$	59,951	$	59,058	$	179,765	$	175,634	Rental revenue	$	62,002	$	59,134	$	123,830	$	119,814
Other	Other	1,136		1,198		3,759		3,351		Other	1,707		1,159		2,928		2,623
Total revenue	Total revenue	61,087		60,256		183,524		178,985		Total revenue	63,709		60,293		126,758		122,437
Expenses	Expenses									Expenses
Property operating expenses	Property operating expenses	8,995		8,210		26,174		24,420		Property operating expenses	8,997		7,641		17,783		17,179
Real estate taxes	Real estate taxes	7,078		7,154		21,652		22,121		Real estate taxes	7,453		7,156		14,948		14,574
Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	11,103		10,914		32,162		34,559		Interest expense, net and amortization of deferred debt costs	12,278		10,457		24,099		21,059
Depreciation and amortization of lease costs		12,195		12,467		36,899		37,852
Depreciation and amortization of deferred leasing costs										Depreciation and amortization of deferred leasing costs	12,114		12,377		24,130		24,704
General and administrative	General and administrative	5,555		4,626		15,988		14,234		General and administrative	5,678		5,665		10,946		10,433
Loss on early extinguishment of debt		648		—		648		—

Total expenses	Total expenses	45,574		43,371		133,523		133,186		Total expenses	46,520		43,296		91,906		87,949

Net Income	Net Income	15,513		16,885		50,001		45,799		Net Income	17,189		16,997		34,852		34,488
Noncontrolling interests	Noncontrolling interests									Noncontrolling interests
Income attributable to noncontrolling interests	Income attributable to noncontrolling interests	(3,563)		(3,747)		(11,670)		(9,653)		Income attributable to noncontrolling interests	(4,027)		(3,981)		(8,188)		(8,107)
Net income attributable to Saul Centers, Inc.	Net income attributable to Saul Centers, Inc.	11,950		13,138		38,331		36,146		Net income attributable to Saul Centers, Inc.	13,162		13,016		26,664		26,381

Preferred stock dividends	Preferred stock dividends	(2,798)		(2,798)		(8,395)		(8,395)		Preferred stock dividends	(2,799)		(2,799)		(5,597)		(5,597)
Net income available to common stockholders	Net income available to common stockholders	$	9,152	$	10,340	$	29,936	$	27,751	Net income available to common stockholders	$	10,363	$	10,217	$	21,067	$	20,784
Per share net income available to common stockholders	Per share net income available to common stockholders									Per share net income available to common stockholders

Basic and diluted	Basic and diluted	$	0.38	$	0.44	$	1.25	$	1.17	Basic and diluted	$	0.43	$	0.43	$	0.88	$	0.87

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

-5-

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Net income	Net income	$	15,513	$	16,885	$	50,001	$	45,799	Net income	$	17,189	$	16,997	$	34,852	$	34,488
Other comprehensive income	Other comprehensive income									Other comprehensive income
Change in unrealized gain on cash flow hedge	Change in unrealized gain on cash flow hedge	4,256		—		4,256		—		Change in unrealized gain on cash flow hedge	2,401		—		387		—
Total comprehensive income	Total comprehensive income	19,769		16,885		54,257		45,799		Total comprehensive income	19,590		16,997		35,239		34,488
Comprehensive income attributable to noncontrolling interests	Comprehensive income attributable to noncontrolling interests	(4,756)		(3,747)		(12,863)		(9,653)		Comprehensive income attributable to noncontrolling interests	(4,699)		(3,981)		(8,296)		(8,107)
Total comprehensive income attributable to Saul Centers, Inc.	Total comprehensive income attributable to Saul Centers, Inc.	15,013		13,138		41,394		36,146		Total comprehensive income attributable to Saul Centers, Inc.	14,891		13,016		26,943		26,381

Preferred stock dividends	Preferred stock dividends	(2,798)		(2,798)		(8,395)		(8,395)		Preferred stock dividends	(2,799)		(2,799)		(5,597)		(5,597)
Total comprehensive income available to common stockholders	Total comprehensive income available to common stockholders	$	12,215	$	10,340	$	32,999	$	27,751	Total comprehensive income available to common stockholders	$	12,092	$	10,217	$	21,346	$	20,784

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

-6-

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total		(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance, January 1, 2022		$	185,000	$	238	$	436,609	$	39,650	$	(256,448)	$	—	$	405,049	$	125,438	$	530,487
Balance, January 1, 2023																				Balance, January 1, 2023	$	185,000	$	240	$	446,301	$	39,650	$	(273,559)	$	2,852	$	400,484	$	121,318	$	521,802

Issuance of shares of common stock:	Issuance of shares of common stock:																			Issuance of shares of common stock:
61,861 shares pursuant to dividend reinvestment plan		—		1		2,948		—		—		—		2,949		—		2,949
8,007 shares due to exercise of stock options and issuance of directors’ deferred stock		—		—		594		—		—		—		594		—		594
Issuance of 13,704 partnership units pursuant to dividend reinvestment plan		—		—		—		—		—		—		—		653		653
13,227 shares pursuant to dividend reinvestment plan																				13,227 shares pursuant to dividend reinvestment plan	—		—		543		—		—		—		543		—		543
699 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock																				699 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		290		—		—		—		290		—		290

Net income	Net income	—		—		—		—		13,365		—		13,365		4,126		17,491		Net income	—		—		—		—		13,502		—		13,502		4,161		17,663

Change in unrealized gain/loss on cash flow hedge																				Change in unrealized gain/loss on cash flow hedge	—		—		—		—		—		(1,450)		(1,450)		(564)		(2,014)

Distributions payable preferred stock:	Distributions payable preferred stock:																			Distributions payable preferred stock:

Series D, $38.28 per share	Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)		Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share	Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)		Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.57/share) and distributions payable partnership units ($0.57/unit)		—		—		—		—		(13,625)		—		(13,625)		(5,292)		(18,917)
Balance, March 31, 2022		185,000		239		440,151		39,650		(259,506)		—		405,534		124,925		530,459
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)																				Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,165)		—		(14,165)		(5,486)		(19,651)
Balance, March 31, 2023																				Balance, March 31, 2023	185,000		240		447,134		39,650		(277,020)		1,402		396,406		119,429		515,835

Issuance of shares of common stock:	Issuance of shares of common stock:																			Issuance of shares of common stock:
57,821 shares pursuant to dividend reinvestment plan		—		1		2,948		—		—		—		2,949		—		2,949
19,618 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock		—		—		1,397		—		—		—		1,397		—		1,397
Issuance of 12,955 partnership units pursuant to dividend reinvestment plan		—		—		—		—		—		—		—		669		669
15,588 shares pursuant to dividend reinvestment plan																				15,588 shares pursuant to dividend reinvestment plan	—		—		544		—		—		—		544		—		544
3,104 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock																				3,104 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		553		—		—		—		553		—		553

Net income	Net income	—		—		—		—		13,016		—		13,016		3,981		16,997		Net income	—		—		—		—		13,162		—		13,162		4,027		17,189

Change in unrealized gain/loss on cash flow hedge																				Change in unrealized gain/loss on cash flow hedge	—		—		—		—		—		1,729		1,729		672		2,401

Distributions payable preferred stock:	Distributions payable preferred stock:																			Distributions payable preferred stock:
Series D, $38.28 per share	Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)		Series D, $38.28 per share	—		—		—		—		(1,149)		—		(1,149)		—		(1,149)
Series E, $37.50 per share	Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)		Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,156)		—		(14,156)		(5,486)		(19,642)		Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,193)		—		(14,193)		(5,486)		(19,679)
Balance, June 30, 2022		185,000		240		444,496		39,650		(263,444)		—		405,942		124,089		530,031
Balance, June 30, 2023																				Balance, June 30, 2023	$	185,000	$	240	$	448,231	$	39,650	$	(280,850)	$	3,131	$	395,402	$	118,642	$	514,044

-7-

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited)
(Dollars in thousands, except per share amounts) Preferred
Stock Common
Stock Additional Paid-in
Capital Partnership Units in Escrow Distributions in Excess of Accumulated Earnings Accumulated
Other Comprehensive
Income Total Saul
Centers, Inc. Noncontrolling
Interests Total
Issuance of shares of common stock:
10,577 shares pursuant to dividend reinvestment plan — — 537 — — — 537 — 537
3,191 shares due to exercise of stock options and issuance of directors’ deferred stock — — 423 — — — 423 — 423
Net income — — — — 11,950 — 11,950 3,563 15,513
Change in unrealized gain on cash flow hedge — — — — — 3,063 3,063 1,193 4,256
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 ($0.59/share) and distributions payable partnership units ($0.59/unit) — — — — (14,159) — (14,159) (5,486) (19,645)
Balance, September 30, 2022 $ 185,000 $ 240 $ 445,456 $ 39,650 $ (268,451) $ 3,063 $ 404,958 $ 123,359 $ 528,317

~~-8-~~

~~Saul Centers, Inc.~~

~~CONSOLIDATED STATEMENTS OF EQUITY (continued)~~

~~(Unaudited)~~

(Dollars in thousands, except per share amounts) Preferred
Stock Common
Stock Additional Paid-in
Capital Partnership Units in Escrow Distributions in Excess of Accumulated Earnings Accumulated
Other Comprehensive
Income Total Saul
Centers, Inc. Noncontrolling
Interests Total
Balance, January 1, 2021 $ 185,000 $ 235 $ 420,625 $ — $ (241,535) $ — $ 364,325 $ 63,208 $ 427,533
Issuance of shares of common stock:
96,268 shares pursuant to dividend reinvestment plan — 1 2,839 — — — 2,840 — 2,840
910 shares due to exercise of stock options and issuance of directors’ deferred stock — — 323 — — — 323 — 323
Issuance of 19,493 partnership units pursuant to dividend reinvestment plan — — — — — — — 575 575
1,416,071 partnership units placed in escrow pursuant to Twinbrook contribution — — — 79,300 — — 79,300 — 79,300
Net income — — — — 10,262 — 10,262 2,533 12,795
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) — — — — (12,488) — (12,488) (4,218) (16,706)
Balance, March 31, 2021 185,000 236 423,787 79,300 (246,559) — 441,764 62,098 503,862
Issuance of shares of common stock:
68,206 shares pursuant to dividend reinvestment plan — — 2,855 — — — 2,855 — 2,855
6,038 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock — — 705 — — — 705 — 705
Issuance of partnership units:
13,978 units pursuant to the dividend reinvestment plan — — — — — — — 585 585
469,740 units pursuant to the acquisition of Twinbrook leasehold interest — — — — — — — 21,500 21,500
93,674 units pursuant to the contribution of Ashbrook Marketplace — — — — — — — 4,320 4,320
Net income — — — — 12,746 — 12,746 3,373 16,119
Distributions payable preferred stock:
Series D, $38.28 per share — — — — (1,149) — (1,149) — (1,149)
Series E, $37.50 per share — — — — (1,650) — (1,650) — (1,650)
Distributions payable common stock ($0.55/share) and distributions payable partnership units ($0.55/unit) — — — — (13,000) — (13,000) (4,694) (17,694)
Balance, June 30, 2021 185,000 236 427,347 79,300 (249,612) — 442,271 87,182 529,453

~~-9-~~

~~Saul Centers, Inc.~~


CONSOLIDATED STATEMENTS OF EQUITY (continued) (Unaudited)	CONSOLIDATED STATEMENTS OF EQUITY (continued) (Unaudited)																			CONSOLIDATED STATEMENTS OF EQUITY (continued) (Unaudited)
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total		(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance, January 1, 2022																				Balance, January 1, 2022	$	185,000	$	238	$	436,609	$	39,650	$	(256,448)	$	—	$	405,049	$	125,438	$	530,487

Issuance of shares of common stock:	Issuance of shares of common stock:																			Issuance of shares of common stock:
65,171 shares pursuant to dividend reinvestment plan		—		1		2,896		—		—		—		2,897		—		2,897
743 shares due to exercise of stock options and issuance of directors’ deferred stock		—		—		294		—		—		—		294		—		294
Issuance of 13,841 partnership units pursuant to dividend reinvestment plan		—		—		—		—		—		—		—		615		615
61,861 shares pursuant to dividend reinvestment plan																				61,861 shares pursuant to dividend reinvestment plan	—		1		2,948		—		—		—		2,949		—		2,949
8,007 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock																				8,007 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		594		—		—		—		594		—		594
Issuance of 13,704 partnership units pursuant to dividend reinvestment plan																				Issuance of 13,704 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		—		653		653

Net income	Net income	—		—		—		—		13,138		—		13,138		3,747		16,885		Net income	—		—		—		—		13,365		—		13,365		4,126		17,491

Distributions payable preferred stock:																				Distributions payable preferred stock:

Series D, $38.28 per share																				Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share																				Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.57/share) and distributions payable partnership units ($0.57/unit)																				Distributions payable common stock ($0.57/share) and distributions payable partnership units ($0.57/unit)	—		—		—		—		(13,625)		—		(13,625)		(5,292)		(18,917)
Balance, March 31, 2022																				Balance, March 31, 2022	185,000		239		440,151		39,650		(259,506)		—		405,534		124,925		530,459

Issuance of shares of common stock:																				Issuance of shares of common stock:
57,821 shares pursuant to dividend reinvestment plan																				57,821 shares pursuant to dividend reinvestment plan	—		1		2,948		—		—		—		2,949		—		2,949
19,618 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock																				19,618 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		1,397		—		—		—		1,397		—		1,397

Issuance of 12,955 partnership units pursuant to dividend reinvestment plan																				Issuance of 12,955 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		—		669		669

Net income																				Net income	—		—		—		—		13,016		—		13,016		3,981		16,997

Distributions payable preferred stock:	Distributions payable preferred stock:																			Distributions payable preferred stock:

Series D, $38.28 per share	Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)		Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share	Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)		Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.55/share) and distributions payable partnership units ($0.55/unit)		—		—		—		—		(13,037)		—		(13,037)		(4,702)		(17,739)
Balance, September 30, 2021		$	185,000	$	237	$	430,537	$	79,300	$	(252,309)	$	—	$	442,765	$	86,842	$	529,607
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)																				Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,156)		—		(14,156)		(5,486)		(19,642)
Balance, June 30, 2022																				Balance, June 30, 2022	$	185,000	$	240	$	444,496	$	39,650	$	(263,444)	$	—	$	405,942	$	124,089	$	530,031

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

~~-10-~~-8-

Saul Centers, Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS					CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	(Unaudited)					(Unaudited)
		Nine Months Ended September 30,					Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		(Dollars in thousands)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	50,001	$	45,799	Net income	$	34,852	$	34,488
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt		648		—

Depreciation and amortization of lease costs		36,899		37,852

Depreciation and amortization of deferred leasing costs						Depreciation and amortization of deferred leasing costs	24,130		24,704
Amortization of deferred debt costs	Amortization of deferred debt costs	1,428		1,237		Amortization of deferred debt costs	1,122		941
Compensation costs of stock and option grants	Compensation costs of stock and option grants	1,220		1,197		Compensation costs of stock and option grants	843		908
Credit losses on operating lease receivables, net		(20)		802
(Increase) decrease in accounts receivable and accrued income		(3)		2,260
Credit losses (recoveries) on operating lease receivables, net						Credit losses (recoveries) on operating lease receivables, net	(27)		48
Decrease in accounts receivable and accrued income						Decrease in accounts receivable and accrued income	4,401		3,068
Additions to deferred leasing costs	Additions to deferred leasing costs	(1,417)		(1,316)		Additions to deferred leasing costs	(2,486)		(903)

Increase in other assets		(1,531)		(4,124)
Decrease in other assets						Decrease in other assets	3,315		1,013
Increase in accounts payable, accrued expenses and other liabilities	Increase in accounts payable, accrued expenses and other liabilities	4,085		2,389		Increase in accounts payable, accrued expenses and other liabilities	3,875		4,654
Increase in deferred income		699		2,923
Decrease in deferred income						Decrease in deferred income	(1,333)		(2,437)

Net cash provided by operating activities	Net cash provided by operating activities	92,009		89,019		Net cash provided by operating activities	68,692		66,484
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions of real estate investments (1) (2) (3)		—		(9,011)

Additions to real estate investments	Additions to real estate investments	(12,215)		(12,455)		Additions to real estate investments	(14,109)		(7,014)
Additions to development and redevelopment projects	Additions to development and redevelopment projects	(72,294)		(17,322)		Additions to development and redevelopment projects	(85,257)		(44,900)

Net cash used in investing activities	Net cash used in investing activities	(84,509)		(38,788)		Net cash used in investing activities	(99,366)		(51,914)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from notes payable	Proceeds from notes payable	199,750		—		Proceeds from notes payable	15,300		—
Repayments on notes payable	Repayments on notes payable	(166,290)		(33,670)		Repayments on notes payable	(25,614)		(53,531)
Proceeds from term loan facility		—		25,000

Proceeds from revolving credit facility	Proceeds from revolving credit facility	119,000		36,000		Proceeds from revolving credit facility	78,000		82,000
Repayments on revolving credit facility	Repayments on revolving credit facility	(97,000)		(42,500)		Repayments on revolving credit facility	(23,000)		(8,000)
Proceeds from construction loan	Proceeds from construction loan	—		2,430		Proceeds from construction loan	28,421		—
Payments of debt extinguishment costs		(593)		—

Additions to deferred debt costs	Additions to deferred debt costs	(9,800)		(3,474)		Additions to deferred debt costs	(421)		(3,388)
Proceeds from the issuance of:	Proceeds from the issuance of:					Proceeds from the issuance of:
Common stock	Common stock	7,629		8,717		Common stock	1,087		6,981
Partnership units (1) (2) (3)		1,322		1,775
Partnership units						Partnership units	—		1,322

Distributions to:	Distributions to:					Distributions to:

Series D preferred stockholders	Series D preferred stockholders	(3,445)		(3,445)		Series D preferred stockholders	(2,297)		(2,297)
Series E preferred stockholders	Series E preferred stockholders	(4,950)		(4,950)		Series E preferred stockholders	(3,300)		(3,300)
Common stockholders	Common stockholders	(41,364)		(37,926)		Common stockholders	(28,336)		(27,208)
Noncontrolling interests	Noncontrolling interests	(16,062)		(13,127)		Noncontrolling interests	(10,972)		(10,576)
Net cash used in financing activities		(11,803)		(65,170)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	28,868		(17,997)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(4,303)		(14,939)		Net decrease in cash and cash equivalents	(1,806)		(3,427)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	14,594		26,856		Cash and cash equivalents, beginning of period	13,279		14,594
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	10,291	$	11,917	Cash and cash equivalents, end of period	$	11,473	$	11,167
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	30,295	$	33,738	Cash paid for interest	$	22,676	$	19,689
Accrued capital expenditures included in accounts payable, accrued expenses, and other liabilities	Accrued capital expenditures included in accounts payable, accrued expenses, and other liabilities	$	13,955	$	3,780	Accrued capital expenditures included in accounts payable, accrued expenses, and other liabilities	$	26,364	$	16,220

(1) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $79,300 in connection with the contribution of Twinbrook Quarter by the B. F. Saul Real Estate Investment Trust in exchange for limited partnership units held in escrow. Half of the units held in escrow were released on October 18, 2021. The remaining units held in escrow are scheduled to be released on October 18, 2023.

(2) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $21,500 in connection with the contribution of the Twinbrook Quarter leasehold interest in exchange for limited partnership units.

(3) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $4,320 in connection with the issuance of additional limited partnership units to B. F. Saul Real Estate Investment Trust as additional consideration pursuant to the terms of the 2016 contribution agreement, as amended, related to Ashbrook Marketplace.

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

~~-11-~~-9-

Notes to Consolidated Financial Statements (Unaudited)

1. Organization, 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 of Saul Centers.

The Company, which conducts all of its activities through its subsidiaries, Saul Holdings Limited Partnership, a Maryland limited partnership (the “Operating Partnership”) and two subsidiary limited partnerships (the “Subsidiary Partnerships,” and, collectively with the Operating Partnership, the “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/~~D.C./Baltimore metropolitan area.

As of ~~September~~June 30, ~~2022,~~2023, the Company’s properties (the “Current Portfolio Properties”) consisted of 50 shopping center properties (the “Shopping Centers”), seven mixed-use properties, which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and four (non-operating) land and development properties.

Because the properties are located primarily in the Washington, ~~DC/~~D.C./Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. AThe Shopping Centers, a majority of ~~the Shopping Centers~~which are anchored by one or more major ~~tenants. As of September 30, 2022,~~tenants and 33 of ~~the Shopping Centers were~~which are anchored by a grocery store, ~~and~~ offer primarily day-to-day necessities and services. Giant Food, a tenant at 11 Shopping Centers, individually accounted for ~~5.2%~~5.0% of the Company's total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. No other tenant individually accounted for 2.5% or more of the Company’s total revenue, excluding lease termination fees, for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Partnerships, which are majority owned by Saul Centers. Substantially all assets and liabilities of the Company as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, are comprised of the assets and liabilities of the Operating Partnership. Debt arrangements 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”) 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 its activities and the rights to absorb 72.0% of its net income. Because the Operating Partnership is consolidated into the financial statements of the Company, classification of it as a VIE has no impact on the consolidated financial statements of the Company.

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 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 the Company for the year ended December 31, ~~2021,~~2022, 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.

~~-12-~~-10-

Notes to Consolidated Financial Statements (Unaudited)

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, ~~2021~~2022 have not changed significantly in ~~amount~~number 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 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 collectability of operating lease receivables and impairment of real estate properties. Actual results could differ from those estimates.

Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts

Accounts receivable are primarily comprised of rental and reimbursement billings due from tenants, and straight-line rent receivables representing the cumulative amount of adjustments necessary to present rental income on a straight-line basis. Individual leases are assessed for collectability and, upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are charged off, and the charge off is reflected as an adjustment to rental revenue. Revenue from leases where collection is not probable is recorded on a cash basis until collectability is determined to be probable. Further, we assess whether operating lease receivables, at the portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends. As of ~~September~~June 30, ~~2022,~~2023, of the $9.4 million of rents previously deferred, ~~$8.0 million has come due and~~ $0.3 million has been written ~~off. Of the amounts~~off and $0.6 million has not yet come due. The amount that ~~have~~has not yet come due ~~$7.6 million, or approximately 95%, has been paid.~~

~~At September 30, 2022~~is included in Accounts receivable and ~~December 31, 2021, accounts receivable was comprised of:~~

(In thousands) September 30, 2022 December 31, 2021
Rents currently due $ 7,204 $ 8,484
Deferred rents 1,416 2,872
Straight-line rent 45,653 46,239
Other receivables 6,538 4,146
Allowance for doubtful accounts (2,129) (3,082)
Total $ 58,682 $ 58,659
accrued income, net in the Consolidated Balance Sheets.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the presentation used as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~

~~-13-~~

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

2023.

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~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, is composed of the following:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Twinbrook Quarter	Twinbrook Quarter	$	203,815	$	138,069	Twinbrook Quarter	$	297,104	$	227,672
Hampden House	Hampden House	70,912		56,898		Hampden House	105,192		80,704

Other	Other	11,083		10,944		Other	8,670		11,307
Total	Total	$	285,810	$	205,911	Total	$	410,966	$	319,683

Leases

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 have been 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 and/or lessor 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/or lessor 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.

-11-

Notes to Consolidated Financial Statements (Unaudited)

An operating lease right of use asset and corresponding lease liability related to our headquarters sublease are reflected in other assets and other liabilities, respectively. The sublease expires on February 28, 2027. The right of use asset and corresponding lease liability totaled ~~$3.4~~$2.8 million and ~~$3.4~~$2.9 million, respectively, at ~~September~~June 30, ~~2022.~~2023.

Due to the business disruptions and challenges affecting the global economy caused by the novel strain of coronavirus (“COVID-19”) pandemic, many lessees requested rent relief, including rent deferrals and other lease concessions. The lease modification guidance in Accounting Standards Update 2016-02, “Accounting for Leases” ~~(“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 staff of the Financial Accounting Standards Board issued a question and answer document that provided guidance allowing 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 elected to apply such relief, which, in the case of rent deferrals, results in the accrual of rent due from tenants. The Company will continue to monitor the collectability of rent receivables.

Deferred Leasing Costs

Deferred leasing costs primarily consist of initial direct costs incurred in connection with successful property leasing and amounts attributed to in-place leases associated with acquired properties. Such amounts are capitalized and amortized, using the straight-line method, over the term of the lease or the remaining term of an acquired lease. Initial direct costs primarily consist of leasing commissions, which are costs paid to third-party brokers and lease commissions paid to certain employees that are incremental to obtaining a lease and would not have been incurred if the lease had not been obtained. Unamortized deferred costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Collectively, deferred leasing costs totaled ~~$22.2~~$22.8 million and ~~$24.0~~$22.4 million, net of accumulated amortization of ~~$50.8~~$52.7 million and ~~$48.7~~$51.3 million, as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Amortization expense, included in depreciation and amortization of ~~lease~~deferred leasing costs in the Consolidated Statements of Operations, totaled ~~$3.2~~$2.1 million and ~~$3.6~~$2.1 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

~~-14-~~

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

Real Estate Investment Properties

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 ~~$33.7~~$22.0 million and ~~$34.2~~$22.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Repairs and maintenance expense totaled ~~$11.1~~$7.1 million and ~~$10.2~~$7.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and is included in property operating expenses in the Consolidated Statements of Operations.

As of ~~September~~June 30, ~~2022,~~2023, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges were recorded.

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

As of ~~September~~June 30, ~~2022,~~2023, 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”) held an aggregate 26.6% limited partnership interest in the Operating Partnership represented by approximately 8.8 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 Company’s Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns or will own after the exercise, 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~~June 30, ~~2022,~~2023, approximately ~~748,000~~828,000 units could be converted into shares of Saul Centers common stock.

-12-

Notes to Consolidated Financial Statements (Unaudited)

As of ~~September~~June 30, ~~2022,~~2023, a third party investor holds a 1.4% limited partnership interest in the Operating Partnership represented by 469,740 convertible limited partnership units. At the option of the unit holder, these units are convertible into shares of Saul Centers’ common stock on a one-for-one basis; provided that, in lieu of the delivery of Saul Centers’ common stock, Saul Centers may, in its sole discretion, deliver cash in an amount equal to the value of such Saul Centers’ common stock.

The impact of the aggregate 28.0% limited partnership interest in the Operating Partnership held by parties other than Saul Centers is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Weighted average fully diluted partnership units and common stock outstanding for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, was approximately 34.0 million and ~~33.7~~34.0 million, respectively and for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, was approximately 34.0 million and ~~32.9~~33.9 million, respectively.

The Company previously issued 708,035 limited partnership units related to the contribution of Twinbrook Quarter that are held in escrow and will be released on October 18, 2023. Until such time as the units are released from escrow, they are not eligible to receive distributions from the Operating Partnership.

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

At ~~September~~June 30, ~~2022,~~2023, the Company had a $525.0 million senior unsecured credit facility (the “Credit Facility”) comprised of a $425.0 million revolving credit facility and a $100.0 million term loan. The revolving credit facility matures on August 29, 2025, ~~which~~and may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan matures on February 26, 2027, and may not be extended. Through October 2, 2022, interest accrues at the London Interbank Offered Rate (“LIBOR”) plus an applicable spread, which is determined by certain leverage tests. Effective October 3, 2022, in conjunction with the execution of the First Amendment to the Credit Facility, interest2027. Interest accrues at the Secured Overnight Financing Rate (“SOFR”) plus 10 basis points plus an applicable spread, which is determined by certain leverage tests. As of ~~September~~June 30, ~~2022,~~2023, the applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points related to the term loan. Letters of credit may be issued under the Credit Facility. On ~~September~~June 30, ~~2022,~~2023, based on the value of the Company’s unencumbered properties calculated in accordance with the terms of the Credit Facility, approximately ~~$248.8~~$165.3 million was available and undrawn under the Credit Facility, ~~$228.0~~$319.0 million was outstanding and approximately $185,000 was committed for letters of credit.

~~-15-~~

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

On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to manage the interest rate risk associated with $100.0 million of its variable-rate debt. The effective date of each swap agreement is October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1, 2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt, unless otherwise indicated, $100.0 million of variable-rate debt ~~will be~~is being treated as fixed-rate debt for disclosure purposes ~~as of~~beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for accounting purposes.

As of ~~September~~June 30, ~~2022,~~2023, the fair value of the interest-rate swaps totaled approximately $4.3 million, which is included in Other assets in the Consolidated Balance Sheets. The increase in value from inception of the swaps is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.

On ~~February 23, 2022,~~March 8, 2023, the Company closed on a ~~$133.0~~10-year, non-recourse, $15.3 million ~~construction-to-permanent loan, the proceeds of which will be used to partially fund Hampden House.~~mortgage secured by BJ’s Wholesale Club in Alexandria, Virginia. The loan matures in 2040, bears interest at a fixed rate of 3.90%, and requires interest only payments, which will be funded by the loan, until conversion to permanent. The conversion is expected in the first quarter of 2026, and thereafter, monthly principal and interest payments based on a 25-year amortization schedule will be required.

~~On March 11, 2022, the Company repaid in full the remaining principal balance of $28.3 million of the mortgage loan secured by Lansdowne Town Center, which was scheduled to mature in June 2022.~~

~~On June 7, 2022, the Company repaid in full the remaining principal balance of $8.6 million of the mortgage loan secured by Orchard Park, which was scheduled to mature in September 2022.~~

~~On August 4, 2022, the Company closed on a 15-year, non-recourse, $25.3 million mortgage secured by Village Center. The loan matures in 2037,~~2033, bears interest at a fixed-rate of ~~4.14%~~6.07%, requires monthly principal and interest payments of ~~$135,200~~$99,200 based on a 25-year amortization schedule and requires a final principal payment of ~~$13.4~~$11.7 million at maturity. Proceeds were used to repay the remaining balance of approximately ~~$11.2~~$9.3 million on the existing mortgage and reduce the outstanding balance of the ~~revolving credit facility. A loss on early extinguishment~~Credit Facility.

During the second quarter of ~~debt of $0.4 million was recognized.~~

~~On August 24, 2022,~~2023, the Company ~~closed~~commenced drawing on ~~a 7-year, non-recourse, $31.5~~its $145.0 million ~~mortgage secured by Great Falls Center. The~~construction-to-permanent loan ~~matures in 2029, bears interest at a fixed-rate~~related to the residential and retail portions of ~~3.91%, requires monthly principal and interest payments~~Phase I of ~~$164,700 based on a 25-year amortization schedule and requires a final payment~~the Twinbrook Quarter development project. As of ~~$25.7 million at maturity. Proceeds were used to repay the remaining balance of approximately $8.0 million on the existing mortgage and reduce~~June 30, 2023, the outstanding balance ~~of the revolving credit facility. A loss on early extinguishment of debt of $0.2 million was recognized.~~

On September 6, 2022, the Company closed on a 15-year, non-recourse, $143.0 million mortgage secured by Beacon Center and Seven Corners Center. The loan matures in 2037, bears interest at a fixed-rate of 5.05%, requires monthly principal and interest payments of $840,100 based on a 25-year amortization schedule and requires a final payment of $79.9 million at maturity. Proceeds were used to repay the remaining balance of approximately $85.3 million on the ~~existing mortgages and reduce the outstanding balance~~loan was $25.8 million, net of ~~the revolving credit facility. This transaction was treated as a modification of the original~~unamortized deferred debt agreement. A prepayment penalty of $5.9 million was incurred, which will be deferred and amortized as interest expense over the life of the loan and is included as a reduction to notes payable, net in the Consolidated Balance Sheets.costs.

Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the Credit Facility. The Operating Partnership is the guarantor of (a) ~~a portion of~~ the ~~Broadlands mortgage~~construction-to-permanent loan secured by Twinbrook Quarter Phase I (approximately $3.7 million of the $29.1 million outstanding balance at September 30, 2022), (b) a portion of the Avenel Business Park mortgage (approximately $6.3 million of the $23.2 million outstanding balance at September 30, 2022), (c) a portion of The Waycroft mortgage (approximately $23.6 million of the $153.6 million outstanding balance at September 30, 2022), (d) the Ashbrook Marketplace mortgage (totaling $21.0$28.4 million at ~~September~~June 30, ~~2022)~~2023), ~~and (e)~~(b) the mortgage secured by Kentlands Place, Kentlands Square I and Kentlands Pad (totaling ~~$28.4~~$27.7 million at ~~September~~June 30, ~~2022)~~2023), (c) a portion of the mortgage secured by The Waycroft (approximately $23.6 million of the $150.9 million outstanding balance at June 30, 2023), (d) the mortgage secured by Ashbrook Marketplace (approximately $20.5 million at June 30, 2023) and (e) a portion of

-13-

Notes to Consolidated Financial Statements (Unaudited)

the mortgage secured by Avenel Business Park (approximately $6.3 million of the $22.3 million outstanding balance at June 30, 2023). All other notes payable are non-recourse.

The principal amount of the Company’s outstanding debt totaled approximately ~~$1.2~~$1.31 billion at ~~September~~June 30, ~~2022,~~2023, of which approximately ~~$1.1~~$1.09 billion was fixed-rate debt and approximately ~~$128.0~~$219.0 million was unhedged variable rate debt outstanding under the Credit Facility. The carrying amount of the properties collateralizing the notes payable totaled approximately ~~$1.0~~$1.33 billion as of ~~September~~June 30, ~~2022.~~

~~-16-~~

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

2023.

At December 31, ~~2021,~~2022, the principal amount of the Company’s outstanding debt totaled approximately ~~$1.2~~$1.24 billion, of which ~~$949.0 million~~$1.07 billion was fixed rate debt and ~~$206.0~~$164.0 million was unhedged variable rate debt outstanding under the Credit Facility. The carrying amount of the properties collateralizing the notes payable totaled approximately ~~$1.1~~$1.04 billion as of December 31, ~~2021.~~2022.

At ~~September~~June 30, ~~2022,~~2023, the ~~scheduled maturities~~future principal payments of debt, including scheduled ~~principal~~maturities and amortization, for years ending December 31, were as follows:


(In thousands)	(In thousands)	Balloon Payments			Scheduled Principal Amortization		Total		(In thousands)	Principal Payments
October 1 through December 31, 2022		$	—		$	8,050	$	8,050
2023		9,225			32,938		42,163
July 1 through December 31, 2023									July 1 through December 31, 2023	$	16,728
2024	2024	50,117			33,575		83,692		2024	83,973
2025	2025	148,363		(a)	31,437		179,800		2025	271,086		(a)
2026	2026	134,088			28,076		162,164		2026	162,468
2027	2027	100,000		(b)	23,469		123,469		2027	123,792		(b)
2028									2028	41,863
Thereafter	Thereafter	440,093			171,057		611,150		Thereafter	611,879
Principal amount	Principal amount	$	881,886		$	328,602	1,210,488		Principal amount	1,311,789
Unamortized deferred debt costs	Unamortized deferred debt costs						16,288		Unamortized deferred debt costs	17,659
Net	Net						$	1,194,200	Net	$	1,294,130

(a) Includes ~~$128.0~~$219.0 million outstanding under the Credit Facility.

(b) Includes $100.0 million outstanding under the Credit Facility.

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the Credit 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 $16.3~~totaling $17.7 million and ~~$11.2~~$15.8 million, net of accumulated amortization of ~~$7.4~~$9.1 million and ~~$7.7~~$7.9 million, at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets. At June 30, 2023, deferred debt costs totaling $2.9 million related to the Hampden House construction-to-permanent loan, which has no outstanding balance, are included in Other Assets in the Consolidated Balance Sheets. At December 31, 2022, deferred debt costs totaling $2.7 million and $3.0 million, related to the Twinbrook Quarter and Hampden House construction-to-permanent loans, respectively, which had no outstanding balance, were included in Other Assets in the Consolidated Balance Sheets.

Interest expense, net and amortization of deferred debt costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Interest incurred	Interest incurred	$	13,627	$	12,481	$	38,408	$	38,062	Interest incurred	$	16,267	$	12,468	$	31,780	$	24,781
Amortization of deferred debt costs	Amortization of deferred debt costs	486		425		1,428		1,237		Amortization of deferred debt costs	564		465		1,122		941
Capitalized interest	Capitalized interest	(3,002)		(1,991)		(7,663)		(4,734)		Capitalized interest	(4,472)		(2,474)		(8,614)		(4,661)
Interest expense	Interest expense	11,111		10,915		32,173		34,565		Interest expense	12,359		10,459		24,288		21,061
Less: Interest income	Less: Interest income	8		1		11		6		Less: Interest income	81		2		189		2
Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	$	11,103	$	10,914	$	32,162	$	34,559	Interest expense, net and amortization of deferred debt costs	$	12,278	$	10,457	$	24,099	$	21,059

-14-

Notes to Consolidated Financial Statements (Unaudited)

6. Equity

The consolidated statements of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, reflect noncontrolling interests of ~~$11.7~~$8.2 million and ~~$9.7~~$8.1 million, respectively, representing income attributable to limited partnership units not held by Saul Centers.

At ~~September~~June 30, ~~2022,~~2023, 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~~are redeemable at the ~~Company’s~~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

~~-17-~~

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

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.

At ~~September~~June 30, ~~2022,~~2023, 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 diluted, 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.


		Average Shares/Options Outstanding					Average Shares/Options Outstanding
		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended June 30,		Six Months Ended June 30,
(In thousands)	(In thousands)	2022	2021	2022	2021	(In thousands)	2023	2022	2023	2022
Weighted average common stock outstanding-Basic	Weighted average common stock outstanding-Basic	23,997	23,692	23,948	23,619	Weighted average common stock outstanding-Basic	24,043	23,963	24,034	23,924
Effect of dilutive options	Effect of dilutive options	2	4	11	2	Effect of dilutive options	1	16	1	15
Weighted average common stock outstanding-Diluted	Weighted average common stock outstanding-Diluted	23,999	23,696	23,959	23,621	Weighted average common stock outstanding-Diluted	24,044	23,979	24,035	23,939
Non-dilutive options	Non-dilutive options	1,542	1,350	1,328	1,474	Non-dilutive options	1,672	1,212	1,708	1,221
Years non-dilutive options were issued	Years non-dilutive options were issued	2014 through 2020 and 2022	2014 through 2020	2014 through 2020 and 2022	2011 and 2014 through 2020	Years non-dilutive options were issued	2014 through 2022	2015 through 2020	2013 through 2022	2015 through 2020

7. Related Party Transactions

The Chairman and Chief Executive Officer, the President and Chief Operating Officer, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer and Treasurer 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 and Treasurer 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

-15-

Notes to Consolidated Financial Statements (Unaudited)

amount of up to 6% of the employee’s cash compensation, subject to certain limits, were ~~$318,500~~$231,400 and ~~$328,500~~$227,800 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company credited to employee accounts ~~$211,900~~$132,400 and ~~$120,800,~~$111,600, respectively, which is the sum of accrued earnings and up to three times the amount deferred by

~~-18-~~

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

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 ~~$2.8~~$3.0 million and ~~$3.2~~$3.0 million, at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and is included in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

The Company and the Saul Organization are parties to a shared services agreement (the “Agreement”) 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. Net billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, which included rental expense for the Company’s headquarters sublease, totaled approximately ~~$7.0~~$5.4 million and ~~$5.9~~$4.6 million, 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, accounts payable, accrued expenses and other liabilities included approximately ~~$1.0~~$0.9 million and ~~$1.1~~$1.2 million, respectively, representing amounts due to the Saul Organization for the Company’s share of these ancillary costs and expenses.

The Company subleases its corporate headquarters space from a member of the Saul Organization. The sublease commenced in March 2002, expires in 2027, 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 ~~$609,400~~$436,000 and ~~$611,200~~$394,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and is included in general and administrative expense.

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 ~~$262,000~~$315,500 and ~~$280,700~~$137,500 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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 are 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 the grant 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 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, 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.

Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon

-16-

Notes to Consolidated Financial Statements (Unaudited)

separation from the Board. If 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 ~~nine~~six months ended ~~September~~June 30, ~~2022, 5,788~~2023, 5,028 shares were credited to director’s deferred fee accounts and ~~7,738~~6,865 shares were issued. As of ~~September~~June 30, ~~2022,~~2023, the director's deferred fee accounts comprise ~~118,290~~118,987 shares.

~~-19-~~

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

Effective May ~~13, 2022,~~12, 2023, the Company granted ~~248,000~~253,500 options to its directors and certain officers. The following table summarizes the assumptions used in the valuation of the ~~2022~~2023 and ~~2021~~2022 option grants.


	Directors				Officers
Grant date	May 12, 2023		May 13, 2022		May 12, 2023		May 13, 2022
Exercise price per share	$	33.79	$	47.90	$	33.79	$	47.90
Fair value per option	$	6.53	$	8.34	$	6.06	$	7.66
Volatility	0.319		0.300		0.288		0.271
Expected life (years)	5.0		5.0		7.0		7.0
Assumed yield	4.94%		4.90%		4.96%		4.93%
Risk-free rate	3.45%		2.89%		3.45%		2.95%

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, stock option expense totaling ~~$1.0~~$0.7 million was included in general and administrative expense in the Consolidated ~~Statements~~Statement of Operations. As of ~~September~~June 30, ~~2022,~~2023, the estimated future expense related to unvested stock options was ~~$2.4~~$2.8 million.

Directors Officers
Grant date May 13, 2022 May 7, 2021 May 13, 2022 May 7, 2021
Exercise price per share $ 47.90 $ 43.89 $ 47.90 $ 43.89
Fair value per option $ 8.34 $ 6.32 $ 7.66 $ 5.96
Volatility 30.00% 29.70% 27.10% 27.50%
Expected life (years) 5.0 5.0 7.0 7.0
Assumed yield 4.90% 4.96% 4.93% 4.97%
Risk-free rate 2.89% 0.77% 2.95% 1.24%

The table below summarizes the option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


		Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value			Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	Outstanding at January 1	1,601,250	$	51.73	$	4,886,106	Outstanding at January 1	1,768,375	$	51.28	$	—
Granted	Granted	248,000	47.90		—		Granted	253,500	33.79		770,640
Exercised	Exercised	(26,875)	44.44		179,217		Exercised	—	—		—
Expired/Forfeited	Expired/Forfeited	(19,000)	51.71		—		Expired/Forfeited	(96,875)	49.24		—
Outstanding at September 30		1,803,375	51.31		—
Exercisable at September 30		1,287,250	52.74		—
Outstanding at June 30							Outstanding at June 30	1,925,000	49.08		770,640
Exercisable at June 30							Exercisable at June 30	1,247,375	52.28		91,200

The intrinsic value of stock options outstanding or exercisable 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. There were no options exercised during the six months ended June 30, 2023. The intrinsic value of stock options exercised during the ~~nine~~six months ended ~~September~~June 30, 2022 ~~and 2021~~ was calculated by using the transaction price on the date of exercise and totaled ~~$179,217 and $3,450, respectively.~~$237,724. At ~~September~~June 30, ~~2022,~~2023, the final trading day of the ~~2022 third~~2023 second quarter, the closing share price of ~~$37.50~~$36.83 was lower than the exercise price of ~~all 1.8~~1.7 million outstanding options granted in ~~2013~~2014 through 2022. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is ~~6.1~~6.0 years and ~~5.0~~4.6 years, respectively.

9. Fair Value of Financial Instruments

The carrying amount 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 32 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 market interest rates of approximately 5.90% and 3.60%,~~ would be approximately ~~$936.3~~$926.3 million and ~~$933.0~~$919.2 million, respectively, compared to the principal balance of ~~$1.1~~$1.09 billion and ~~$949.0 million~~$1.07 billion at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

-17-

Notes to Consolidated Financial Statements (Unaudited)

10. Derivatives and Hedging Activities

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses floating-to-fixed interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount

The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that approximately $2.3 million will be reclassified from other comprehensive income and reflected as a decrease to interest expense.

The Company carries its interest-rate swaps 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 that contain inputs that are derived from observable market data. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and correlations of such inputs. As of ~~September~~June 30, ~~2022,~~2023, the fair value of the interest-rate swaps was approximately $4.3 million and is included in Other assets in the Consolidated Balance Sheets. The ~~increase~~change in value ~~from inception of~~during the ~~swaps~~period is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.

The table below details the fair value and location of the interest rate swaps as of June 30, 2023 and December 31, 2022.

(In thousands)

Fair Values of Derivative Instruments

June 30, 2023

December 31, 2022

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other Assets

4,349

Other Assets

3,962

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2023 and 2022.



(In thousands)	The Effect of Hedge Accounting on Other Comprehensive Income (OCI)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amount of gain (loss) recognized in OCI	$	2,919	$	—	$	1,302	$	—
Location of gain (loss) reclassified from OCI into income	Interest expense, net and amortization of deferred debt costs		N/A		Interest expense, net and amortization of deferred debt costs		N/A
Amount of (gain) loss reclassified from OCI into income	$	(518)	$	—	$	(915)	$	—

~~-20-~~-18-

Notes to Consolidated Financial Statements (Unaudited)

~~10.~~11. 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.

~~11.~~12. Business Segments

The Company has two 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 variety 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 ~~2022~~2023 presentation.


Financial Information By Segment	Financial Information By Segment									Financial Information By Segment
(In thousands)	(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals		(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Three Months Ended September 30, 2022
Three Months Ended June 30, 2023										Three Months Ended June 30, 2023
Real estate rental operations:	Real estate rental operations:									Real estate rental operations:
Revenue	Revenue	$	42,478	$	18,609	$	—	$	61,087	Revenue	$	43,974	$	19,735	$	—	$	63,709
Expenses	Expenses	(8,826)		(7,247)		—		(16,073)		Expenses	(9,462)		(6,988)		—		(16,450)
Income from real estate	Income from real estate	33,652		11,362		—		45,014		Income from real estate	34,512		12,747		—		47,259

Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	—		—		(11,103)		(11,103)		Interest expense, net and amortization of deferred debt costs	—		—		(12,278)		(12,278)
Depreciation and amortization of lease costs		(7,073)		(5,122)		—		(12,195)
Depreciation and amortization of deferred leasing costs										Depreciation and amortization of deferred leasing costs	(7,066)		(5,048)		—		(12,114)
General and administrative	General and administrative	—		—		(5,555)		(5,555)		General and administrative	—		—		(5,678)		(5,678)

Loss on early extinguishment of debt		—		—		(648)		(648)

Net income (loss)	Net income (loss)	$	26,579	$	6,240	$	(17,306)	$	15,513	Net income (loss)	$	27,446	$	7,699	$	(17,956)	$	17,189
Capital investment	Capital investment	$	2,280	$	30,315	$	—	$	32,595	Capital investment	$	4,221	$	51,989	$	—	$	56,210
Total assets	Total assets	$	936,285	$	855,797	$	17,936	$	1,810,018	Total assets	$	915,274	$	972,258	$	19,162	$	1,906,694

Three Months Ended September 30, 2021
Three Months Ended June 30, 2022										Three Months Ended June 30, 2022
Real estate rental operations:	Real estate rental operations:									Real estate rental operations:
Revenue	Revenue	$	42,485	$	17,771	$	—	$	60,256	Revenue	$	42,038	$	18,255	$	—	$	60,293
Expenses	Expenses	(8,640)		(6,724)		—		(15,364)		Expenses	(8,184)		(6,613)		—		(14,797)
Income from real estate	Income from real estate	33,845		11,047		—		44,892		Income from real estate	33,854		11,642		—		45,496

Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	—		—		(10,914)		(10,914)		Interest expense, net and amortization of deferred debt costs	—		—		(10,457)		(10,457)
Depreciation and amortization of lease costs		(7,203)		(5,264)		—		(12,467)
Depreciation and amortization of deferred leasing costs										Depreciation and amortization of deferred leasing costs	(7,086)		(5,291)		—		(12,377)
General and administrative	General and administrative	—		—		(4,626)		(4,626)		General and administrative	—		—		(5,665)		(5,665)

Net income (loss)	Net income (loss)	$	26,642	$	5,783	$	(15,540)	$	16,885	Net income (loss)	$	26,768	$	6,351	$	(16,122)	$	16,997
Capital investment	Capital investment	$	1,324	$	9,984	$	—	$	11,308	Capital investment	$	2,427	$	32,619	$	—	$	35,046
Total assets	Total assets	$	960,247	$	766,761	$	12,492	$	1,739,500	Total assets	$	937,509	$	831,078	$	13,899	$	1,782,486

~~-21-~~-19-

Notes to Consolidated Financial Statements (Unaudited)


(In thousands)	(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals		(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Nine Months Ended September 30, 2022
Six Months Ended June 30, 2023										Six Months Ended June 30, 2023
Real estate rental operations:	Real estate rental operations:									Real estate rental operations:
Revenue	Revenue	$	128,615	$	54,909	$	—	$	183,524	Revenue	$	88,199	$	38,559	$	—	$	126,758
Expenses	Expenses	(27,102)		(20,724)		—		(47,826)		Expenses	(18,722)		(14,009)		—		(32,731)
Income from real estate	Income from real estate	101,513		34,185		—		135,698		Income from real estate	69,477		24,550		—		94,027

Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	—		—		(32,162)		(32,162)		Interest expense, net and amortization of deferred debt costs	—		—		(24,099)		(24,099)
Depreciation and amortization of deferred leasing costs	Depreciation and amortization of deferred leasing costs	(21,300)		(15,599)		—		(36,899)		Depreciation and amortization of deferred leasing costs	(14,193)		(9,937)		—		(24,130)
General and administrative	General and administrative	—		—		(15,988)		(15,988)		General and administrative	—		—		(10,946)		(10,946)
Loss on early extinguishment of debt		—		—		(648)		(648)

Net income (loss)	Net income (loss)	$	80,213	$	18,586	$	(48,798)	$	50,001	Net income (loss)	$	55,284	$	14,613	$	(35,045)	$	34,852
Capital investment	Capital investment	$	6,239	$	78,270	$	—	$	84,509	Capital investment	$	5,888	$	93,478	$	—	$	99,366
Total assets	Total assets	$	936,285	$	855,797	$	17,936	$	1,810,018	Total assets	$	915,274	$	972,258	$	19,162	$	1,906,694

Nine Months Ended September 30, 2021
Six Months Ended June 30, 2022										Six Months Ended June 30, 2022
Real estate rental operations:	Real estate rental operations:									Real estate rental operations:
Revenue	Revenue	$	126,935	$	52,050	$	—	$	178,985	Revenue	$	86,137	$	36,300	$	—	$	122,437
Expenses	Expenses	(27,087)		(19,454)		—		(46,541)		Expenses	(18,276)		(13,477)		—		(31,753)
Income from real estate	Income from real estate	99,848		32,596		—		132,444		Income from real estate	67,861		22,823		—		90,684

Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	—		—		(34,559)		(34,559)		Interest expense, net and amortization of deferred debt costs	—		—		(21,059)		(21,059)
Depreciation and amortization of deferred leasing costs	Depreciation and amortization of deferred leasing costs	(21,639)		(16,213)		—		(37,852)		Depreciation and amortization of deferred leasing costs	(14,227)		(10,477)		—		(24,704)
General and administrative	General and administrative	—		—		(14,234)		(14,234)		General and administrative	—		—		(10,433)		(10,433)

Net income (loss)	Net income (loss)	$	78,209	$	16,383	$	(48,793)	$	45,799	Net income (loss)	$	53,634	$	12,346	$	(31,492)	$	34,488
Capital investment	Capital investment	$	6,895	$	31,893	$	—	$	38,788	Capital investment	$	3,959	$	47,955	$	—	$	51,914
Total assets	Total assets	$	960,247	$	766,761	$	12,492	$	1,739,500	Total assets	$	937,509	$	831,078	$	13,899	$	1,782,486

~~12.~~13. Subsequent Events

The Company has reviewed operating activities for the period subsequent to ~~September~~June 30, ~~2022,~~2023, and determined there are no subsequent events required to be disclosed.

~~-22-~~-20-

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, ~~2021.~~2022. 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

Certain statements contained herein constitute forward-looking statements 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. Forward-looking statements are 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 looking for words such as “plans,” “intends,” “estimates,” “anticipates,” “expects,” “believes” or similar expressions in this Form 10-Q. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Forward-looking statements speak only as 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 our forward-looking statements:

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

•the ability of our tenants to pay rent;

•our reliance on shopping center “anchor” tenants and other significant tenants;

•our substantial relationships with members of the Saul Organization;

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

•our development activities;

•our access to additional capital;

•our ability to successfully complete additional acquisitions, developments or redevelopments, or if they are 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 our status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to our status as a REIT, the effect of future changes to REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT; and

•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, and significantly disrupt or prevent us from operating our business in 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 this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021)~~2022), “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, ~~2021)~~2022), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Form 10-Q).

~~-23-~~-21-

Impact of COVID-19

In February 2023, the Department of Health and Human Services declared that the federal Public Health Emergency for COVID-19 would end on May 11, 2023. On April 10, 2023, President Biden signed legislation ending the COVID-19 National Emergency. If the residual effects of COVID-19 result in ~~continued~~ deterioration of economic and market conditions, including supply chain issues, or if the Company’s expected holding period for assets changes, subsequent tests for impairment could result in impairment charges in the future. The Company can provide no assurance that material impairment charges with respect to the Company’s investment properties will not occur during ~~the remainder of 2022 or~~ future periods. As of ~~September~~June 30, ~~2022,~~2023, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges have been recorded. However, we have yet to see the long-term effects of COVID-19 and the extent to which it may impact our tenants in the future. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry as a result of COVID-19, or changes in our long-term hold strategies, could be indicative of an impairment triggering event. Accordingly, the Company will continue to monitor circumstances and events in future periods to determine whether impairment charges are warranted.

As of ~~October~~July 31, ~~2022, payments by tenants~~2023, the Company had collected 99.1% of contractual base rent and operating expense and real estate tax recoveries ~~for~~due during the ~~2022 third quarter totaled approximately 99%.~~2023 second quarter.

~~Although the~~The Company is and will continue to be actively engaged in collection efforts related to uncollected rent, ~~and the Company will continue to work with certain tenants who have requested rent deferrals,~~however, the Company can provide no assurance that such efforts or our efforts in future periods will be successful. Management considers reserves established as of June 30, 2023, against such potential losses to be reasonable and adequate. Rent collections during the second quarter and rent relief requests to-date may not be indicative of collections or requests in any future period.

Deferral agreements executed with certain tenants as a result of business disruption that occurred at the onset of the COVID-19 pandemic generally deferred 30 to 90 days of rent, operating expense and real estate tax recovery payments until a later time in the lease term with repayment typically occurring over a 12-month period generally commencing in 2021. We continued to accrue rental revenue during the deferral period.

The following is a summary of the Company’s executed rent deferral agreements and repayments as of ~~October~~July 31, ~~2022,~~2023, with the exception of amounts due, which are as of ~~September~~June 30, ~~2022.~~2023.

Rent Deferral Agreements and Repayments
(In thousands)
Collection Percentage (based on payments currently due)
Original Rent Due
By Quarter Original Rent
Amount Repayment Year Repayment
Amount Amount
Due Amount Written Off Amount Unpaid Amount
Collected
2020 First Quarter $ 67 2020 $ 347 $ 347 $ 44 $ — $ 303 87 %
2020 Second Quarter 6,329 2021 5,734 5,734 206 11 5,516 96 %
2020 Third Quarter 1,518 2022 2,034 1,894 60 34 1,793 95 %
2020 Fourth Quarter 437 2023 757 4
2021 First Quarter 278 2024 309 4
2021 Second Quarter 309 2025 66
2021 Third Quarter 324 2026 27
2021 Fourth Quarter 81 Thereafter 92
2022 First Quarter 23 Total $ 9,366 $ 7,975 $ 318 $ 45 $ 7,612 95 %
2022 Second Quarter —
2022 Third Quarter —
October 2022 —
Total $ 9,366

~~-24-~~


Rent Deferral Agreements
(Dollars in thousands)
										Collection Percentage (based on payments currently due)
Total Deferred Rent		Amount Due		Amount Written Off, Net		Amount Unpaid		Amount Collected
$	9,366	$	8,807	$	310	$	33	$	8,464	96	%

The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows, and growth prospects ~~remain~~is 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 have helped minimize interruptions to operations and will put the Company in the best position as the economic recovery continues. 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 continues to impact 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.

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. Management considers reserves established as of September 30, 2022, against such potential losses to be reasonable and adequate. Rent collections during the third quarter and rent relief requests to-date may not be indicative of collections or requests in any future period.

General

The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

Overview

The Company’s primary strategy is to continue to focus on diversification of its assets through development of transit-oriented, residential mixed-use projects in the Washington, D.C. metropolitan area. The Company’s operating strategy also includes improvement of the operating performance of its assets, internal growth of its Shopping Centers through the addition of pad sites, and supplementing its development pipeline with selective redevelopment and renovations of its core Shopping Centers. The Company has a pipeline of entitled sites in its portfolio, some of which are currently shopping center operating properties, 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 Washington Metropolitan Area Transit Authority ~~(“WMATA”)~~ 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, including anchor stores such as supermarkets and drug stores. The Company has executed leases or leases are under negotiation for ~~ten more~~seven future pad sites.

~~In recent years, there has been a limited amount of quality properties for sale and pricing of those properties has escalated. Accordingly, management~~Management believes acquisition opportunities for investment in existing and new shopping center and mixed-use properties in the near future isare uncertain. Nevertheless, because of the Company’s conservative capital structure, including its

-22-

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, DCD.C. metropolitan area were 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 or closure plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in ways to maximize our future performance. The Company’s ~~commercial~~Commercial leasing percentage, on a same property basis, which excludes the impact of properties not in operation for the entirety of the comparable periods, increased to ~~93.0% at September~~94.0% as of June 30, ~~2022,~~2023, from ~~92.5% at September~~92.6% as of June 30, ~~2021.~~2022.

The Company maintains a ratio of total debt to total estimated asset market value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of ~~September~~June 30, ~~2022,~~2023, including the $100.0 million hedged variable-rate debt,
total fixed-rate debt with staggered maturities from ~~2023~~2024 to 2041 represented approximately ~~89.4%~~83.3% of the Company’s notes payable, thus mitigating refinancing risk. The Company’s unhedged variable-rate debt consists of ~~$128.0~~$219.0 million outstanding

~~-25-~~

under the Credit Facility. As of ~~September~~June 30, ~~2022,~~2023, the Company has availability of approximately ~~$248.8~~$165.3 million under its Credit Facility.

Although it is management’s present intention to concentrate future acquisition and development activities on
transit-centric, residential mixed-use properties and grocery-anchored shopping centers in the 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 plans to continue to diversify in terms of property types, locations, size and market, and it does not set any limit on the amount or percentage of assets that may be invested in any one property or any one geographic area.

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 apartments within The Waycroft, Clarendon Center and Park Van Ness properties). For purposes of this table, annualized effective rent is annualized base rent minus amortized tenant improvements and amortized leasing commissions.


		Commercial Rents per Square Foot					Commercial Rents per Square Foot
		Nine Months Ended September 30,					Six Months Ended June 30,				2022 to 2023 Change
		2022		2021			2023		2022		Amount		Percent
Base rent	Base rent	$	20.52	$	20.59	Base rent	$	20.75	$	20.56	$	0.19	0.92	%
Effective rent	Effective rent	$	18.91	$	18.87	Effective rent	$	19.19	$	18.93	$	0.26	1.37	%

Recent Developments

The Company is developing Twinbrook Quarter Phase I (“Phase I”) located in Rockville, Maryland. Phase I includes an 80,000 square foot Wegmans, approximately 25,000 square feet of small shop space, 450 apartments and a 230,000 square foot office building. The office tower portion of Phase I ~~will~~is not bebeing constructed at this time. In connection with the development of the residential and retail portions of Phase I, we must also invest in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. ~~The~~Excluding capitalized interest, the total cost of the project is expected to be approximately $331.5 million, of which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million is related to infrastructure and other items. A portion of the project ~~will be~~is being financed by a $145.0 million construction-to-permanent loan. ~~Below grade concrete~~During the second quarter of 2023, the Company commenced drawing on the loan and, ~~framing~~as of June 30, 2023, the outstanding balance on the loan was $25.8 million, net of unamortized deferred debt costs. Concrete work is substantially complete and pre-cast façade panels, masonry and windows are ~~complete. Concrete~~being installed. Interior mechanical, electrical and plumbing infrastructure is also being ~~poured at the fourth level above ground.~~installed. Initial delivery of Phase I is anticipated in late 2024. The development potential of all phases of the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

-23-

The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that will include up to 366 apartment units and 10,100 square feet of retail space. ~~The~~Excluding capitalized interest, the total cost of the project is expected to be approximately $246.4 million, a portion of which will be financed by a $133.0 million construction-to-permanent loan. ~~Demolition~~The Company has ~~been completed~~not yet commenced drawing on this loan. Below grade concrete work is substantially complete and ~~excavation is in process.~~lobby level construction has commenced. Construction is expected to be completed during 2025.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with ~~accounting principles generally accepted in the United States (“GAAP”),~~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.

~~-26-~~

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 amount of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors when identifying impairment indicators including recurring operating losses, significant decreases in occupancy, and significant adverse changes in market conditions, 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 amount 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 amount 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 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.

Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts

Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of their respective leases. Individual leases are assessed for collectability and, upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are charged off, and the charge off is reflected as an adjustment to rental revenue. Revenue from leases where collection is not probable is recorded on a cash basis until collectability is determined to be probable. We also assess whether operating lease receivables, at the portfolio level, are appropriately valued based upon an analysis of balances outstanding, effects of tenant bankruptcies, historical levels of bad debt and current economic trends. Additionally, because of the uncertainties related to the impact of the COVID-19 pandemic, our assessment also takes into consideration the types of business conducted by tenants and current discussions with the tenants, as well as recent rent collection experience. Evaluating and estimating uncollectable lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. Actual results could differ from these estimates.

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.

~~-27-~~-24-

Results of Operations

Three months ended ~~September~~June 30, ~~2022~~2023 (the ~~“2022~~“2023 Quarter”) compared to the three months ended ~~September~~June 30, ~~2021~~2022 (the ~~“2021~~“2022 Quarter”)

Net income for the ~~2022~~2023 Quarter ~~decreased~~increased to ~~$15.5~~$17.2 million from ~~$16.9~~$17.0 million for the ~~2021~~2022 Quarter. Significant changes in revenue and expenses are discussed below.

Revenue


		Three Months Ended September 30,				2021 to 2022 Change					Three Months Ended June 30,				2022 to 2023 Change
(Dollars in thousands)	(Dollars in thousands)	2022		2021		Amount		Percent		(Dollars in thousands)	2023		2022		Amount		Percent
Base rent	Base rent	$	50,233	$	49,829	$	404	0.8	%	Base rent	$	52,161	$	50,022	$	2,139	4.3	%
Expense recoveries	Expense recoveries	8,930		8,488		442		5.2	%	Expense recoveries	9,003		8,069		934		11.6	%
Percentage rent	Percentage rent	265		208		57		27.4	%	Percentage rent	408		544		(136)		(25.0)	%
Other property revenue	Other property revenue	454		384		70		18.2	%	Other property revenue	499		522		(23)		(4.4)	%
Credit recoveries on operating lease receivables, net		69		149		(80)		(53.7)	%
Credit (losses) recoveries on operating lease receivables, net										Credit (losses) recoveries on operating lease receivables, net	(69)		(23)		(46)		NM
Rental revenue	Rental revenue	59,951		59,058		893		1.5	%	Rental revenue	62,002		59,134		2,868		4.9	%
Other revenue	Other revenue	1,136		1,198		(62)		(5.2)	%	Other revenue	1,707		1,159		548		47.3	%
Total revenue	Total revenue	$	61,087	$	60,256	$	831	1.4	%	Total revenue	$	63,709	$	60,293	$	3,416	5.7	%

Base rent includes $(0.4) million and $0.3 million for the 2022 Quarter and 2021 Quarter, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $0.3 million for the 2022 Quarter and 2021 Quarter to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.NM = Not Meaningful

Total revenue increased ~~1.4%~~5.7% in the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter, as described below.

Base ~~Rent.~~rent. The ~~$0.4~~$2.1 million increase in base rent in the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter is primarily attributable to ~~The Waycroft.~~(a) higher commercial base rent of $1.3 million and (b) higher residential base rent of $0.8 million.

Expense recoveries. The ~~$0.4~~$0.9 million increase in expense recoveries in ~~2022~~the 2023 Quarter compared to the ~~2021~~2022 Quarter is primarily attributable to an increase in recoverable property operating expenses.

Percentage rent. The $0.1 million decrease in percentage rent in the 2023 Quarter compared to the 2022 Quarter is primarily attributable to timing of receipt of tenant sales reports.

Other revenue. The $0.5 million increase in other revenue in the 2023 Quarter compared to the 2022 Quarter is primarily attributable to higher lease termination fees.

-25-

Expenses

Three Months Ended September 30, 2021 to 2022 Change
(Dollars in thousands) 2022 2021 Amount Percent
Property operating expenses $ 8,995 $ 8,210 $ 785 9.6 %
Real estate taxes 7,078 7,154 (76) (1.1) %
Interest expense, net and amortization of deferred debt costs 11,103 10,914 189 1.7 %
Depreciation and amortization of lease costs 12,195 12,467 (272) (2.2) %
General and administrative 5,555 4,626 929 20.1 %
Loss on early extinguishment of debt 648 — 648 NM
Total expenses $ 45,574 $ 43,371 $ 2,203 5.1 %

~~NM - Not Meaningful~~


	Three Months Ended June 30,				2022 to 2023 Change
(Dollars in thousands)	2023		2022		Amount		Percent
Property operating expenses	$	8,997	$	7,641	$	1,356	17.7	%

Real estate taxes	7,453		7,156		297		4.2	%
Interest expense, net and amortization of deferred debt costs	12,278		10,457		1,821		17.4	%
Depreciation and amortization of deferred leasing costs	12,114		12,377		(263)		(2.1)	%
General and administrative	5,678		5,665		13		0.2	%



Total expenses	$	46,520	$	43,296	$	3,224	7.4	%

Total expenses increased ~~5.1%~~7.4% in the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter, as described below.

Property operating expenses. The ~~$0.8~~$1.4 million increase in property operating expenses in the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter is primarily attributable to (a) higher repairs and maintenance expenses across the portfolio of ~~$0.4~~$0.9 million, (b) ~~increased payroll~~higher insurance costs across the portfolio of ~~$0.1~~$0.2 million, and (c) ~~increased parking expenses~~higher payroll costs for property employees of ~~$0.1~~
$0.2 million.

~~General and Administrative.~~

Real estate taxes. ~~General and administrative expenses increased 20.1%~~The $0.3 million increase in real estate taxes in the 2023 Quarter compared to the 2022 Quarter is primarily ~~due~~attributable to higher tax assessment values across the portfolio.

Interest expense, net and amortization of deferred debt costs. The $1.8 million increase in interest expense, net and amortization of deferred debt costs in the 2023 Quarter compared to the 2022 Quarter is primarily attributable to (a) ~~fees paid to third-parties related to the early refinance~~higher interest incurred as a result of ~~loans at Beacon Center and Seven Corners Center totaling $0.5~~higher weighted average interest rates of $2.3 million and (b) ~~increased salaries~~higher interest incurred as a result of higher average outstanding debt of $1.2 million, partially offset by (c) higher capitalization of interest of $2.0 million related to Twinbrook Quarter Phase I and ~~benefits~~Hampden House.

Depreciation and amortization of ~~$0.3 million.~~

~~-28-~~

~~Loss on early extinguishment of debt.~~deferred leasing costs. ~~Loss on early extinguishment~~The $0.3 million decrease in depreciation and amortization of ~~debt increased by $0.6 million due~~deferred leasing costs in the 2023 Quarter compared to the ~~early refinance~~2022 Quarter is primarily attributable to lower depreciation expense of ~~loans at Great Falls Center and Village Center.~~$0.2 million.

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 (the ~~“2022~~“2023 Period”) compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (the ~~“2021~~“2022 Period”)

Net income for the ~~2022~~2023 Period increased to ~~$50.0~~$34.9 million from ~~$45.8~~$34.5 million for the ~~2021~~2022 Period. Significant changes in revenue and expenses are discussed below.

Revenue


		Nine Months Ended September 30,				2021 to 2022 Change					Six Months Ended June 30,				2022 to 2023 Change
(Dollars in thousands)	(Dollars in thousands)	2022		2021		Amount		Percent		(Dollars in thousands)	2023		2022		Amount		Percent
Base rent	Base rent	$	150,070	$	147,877	$	2,193	1.5	%	Base rent	$	103,609	$	99,837	$	3,772	3.8	%
Expense recoveries	Expense recoveries	26,723		26,235		488		1.9	%	Expense recoveries	17,915		17,793		122		0.7	%
Percentage rent	Percentage rent	1,489		1,294		195		15.1	%	Percentage rent	1,310		1,223		87		7.1	%
Other property revenue	Other property revenue	1,463		1,030		433		42.0	%	Other property revenue	969		1,009		(40)		(4.0)	%
Credit recoveries (losses) on operating lease receivables, net	Credit recoveries (losses) on operating lease receivables, net	20		(802)		822		NM		Credit recoveries (losses) on operating lease receivables, net	27		(48)		75		NM
Rental revenue	Rental revenue	179,765		175,634		4,131		2.4	%	Rental revenue	123,830		119,814		4,016		3.4	%
Other revenue	Other revenue	3,759		3,351		408		12.2	%	Other revenue	2,928		2,623		305		11.6	%
Total revenue	Total revenue	$	183,524	$	178,985	$	4,539	2.5	%	Total revenue	$	126,758	$	122,437	$	4,321	3.5	%

NM - Not Meaningful

Base rent includes $(0.5) million and $1.8 million for the 2022 Period and the 2021 Period, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $1.0 million for the 2022 Period and 2021 Period to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.

Total revenue increased ~~2.5%~~3.5% in the ~~2022~~2023 Period compared to the ~~2021~~2022 Period, as described below.

-26-

Base Rent. The ~~$2.2~~$3.8 million increase in base rent in the ~~2022~~2023 Period compared to the ~~2021 Period is primarily attributable to The Waycroft.~~

~~Expense recoveries.~~ ~~The $0.5 million increase in the~~ 2022 ~~Period compared to the 2021 Period is primarily attributable to an increase in recoverable property operating expenses.~~

~~Other property revenue.~~ ~~The $0.4 million increase in the 2022 Period compared to the 2021~~ Period is primarily attributable to (a) higher ~~late fee and interest charges~~commercial base rent of ~~$0.2~~$2.0 million and (b) higher residential ~~move-in fees~~base rent of ~~$0.1~~$1.8 million.

~~Credit Recoveries (Losses) on Operating Lease Receivables, net.~~Other revenue. ~~Credit recoveries (losses) on operating lease receivables, net for~~The $0.3 million increase in other revenue in the 2023 Period compared to the 2022 Period ~~decreased $0.8 million from the 2021 Period. The decrease, which increases income,~~ is primarily ~~due~~attributable to higher ~~collections in 2022 of previously reserved rents.~~

~~Other Revenue.~~ ~~Other revenue increased $0.4 million primarily due to (a) higher parking revenue of $0.6 million, partially offset by (b) lower~~ lease termination ~~fees of $0.2 million.~~fees.

~~-29-~~

Expenses


		Nine Months Ended September 30,				2021 to 2022 Change					Six Months Ended June 30,				2022 to 2023 Change
(Dollars in thousands)	(Dollars in thousands)	2022		2021		Amount		Percent		(Dollars in thousands)	2023		2022		Amount		Percent
Property operating expenses	Property operating expenses	$	26,174	$	24,420	$	1,754	7.2	%	Property operating expenses	$	17,783	$	17,179	$	604	3.5	%

Real estate taxes	Real estate taxes	21,652		22,121		(469)		(2.1)	%	Real estate taxes	14,948		14,574		374		2.6	%
Interest expense, net and amortization of deferred debt costs	Interest expense, net and amortization of deferred debt costs	32,162		34,559		(2,397)		(6.9)	%	Interest expense, net and amortization of deferred debt costs	24,099		21,059		3,040		14.4	%
Depreciation and amortization of deferred leasing costs	Depreciation and amortization of deferred leasing costs	36,899		37,852		(953)		(2.5)	%	Depreciation and amortization of deferred leasing costs	24,130		24,704		(574)		(2.3)	%
General and administrative	General and administrative	15,988		14,234		1,754		12.3	%	General and administrative	10,946		10,433		513		4.9	%

Loss on early extinguishment of debt		648		—		648		NM

Total expenses	Total expenses	$	133,523	$	133,186	$	337	0.3	%	Total expenses	$	91,906	$	87,949	$	3,957	4.5	%

~~NM - Not Meaningful~~

Total expenses increased ~~0.3%~~4.5% in the ~~2022~~2023 Period compared to the ~~2021~~2022 Period, as described below.

Property Operating Expenses. Property operating expenses increased ~~7.2%~~3.5% in the 2023 Period compared to the 2022 Period primarily due to (a) ~~increased repair and maintenance~~higher insurance costs throughout the portfolio of ~~$0.8~~$0.3 million and (b) ~~increased utility costs of $0.2 million, (c) increased~~higher payroll costs ~~of $0.2 million, (d) increased parking costs of $0.2 million and (e) increased real estate tax appeal fees~~for property employees of $0.2 million.

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense, net and amortization of deferred debt costs ~~decreased 6.9%~~increased 14.4% in the 2023 Period compared to the 2022 Period primarily due to (a) higher ~~capitalized interest of $2.9 million, which was largely driven by the Twinbrook development project and (b) lower~~ interest incurred as a result of ~~lower~~higher weighted average interest rates of ~~$0.2~~$4.5 million ~~partially offset by (c)~~and (b) higher interest incurred as a result of higher average outstanding debt ~~outstanding~~ of ~~$0.7~~$2.0 million, partially offset by (c) higher capitalized interest of $4.0 million related to Twinbrook Quarter Phase I and Hampden House.

Depreciation and amortization of deferred leasing costs. Depreciation and amortization of deferred leasing costs decreased 2.3% in the 2023 Period compared to the 2022 Period primarily due to lower depreciation expense of $0.5 million.

General and Administrative. General and administrative expenses increased ~~12.3%~~4.9% in the ~~2022~~2023 Period compared to the 2022 Period primarily due to ~~(a)~~ increased salaries and benefits of ~~$0.8 million, (b) fees paid to third-parties related to the early refinance of loans at Beacon Center and Seven Corners Center totaling $0.5 million, and (c) increased recruiting costs of $0.3~~$0.6 million.

~~Loss on early extinguishment of debt.~~ ~~Loss on early extinguishment of debt increased by $0.6 million due to the early refinance of loans at Great Falls Center and Village Center.~~

Same property revenue and same property operating income

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

We define same property revenue as total revenue minus the 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 (a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of ~~lease~~deferred leasing costs, (c) general and administrative expenses, (d) change in fair value of derivatives, and (e) loss on the early extinguishment of debt minus (f) gains on property dispositions and (g) the operating income of properties that 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 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.

-27-

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.

~~-30-~~

The tables below provide reconciliations of total property revenue and property operating income under GAAP to same property revenue and operating income for the indicated periods. No properties were excluded ~~for~~from same property ~~results for the 2022 Quarter or the 2022 Period.~~results.

Same property revenue


(in thousands)	(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Total revenue	Total revenue	$	61,087	$	60,256	$	183,524	$	178,985	Total revenue	$	63,709	$	60,293	$	126,758	$	122,437
Less: Acquisitions, dispositions and development properties	Less: Acquisitions, dispositions and development properties	—		—		—		—		Less: Acquisitions, dispositions and development properties	—		—		—		—
Total same property revenue	Total same property revenue	$	61,087	$	60,256	$	183,524	$	178,985	Total same property revenue	$	63,709	$	60,293	$	126,758	$	122,437

Shopping Centers	Shopping Centers	$	42,478	$	42,485	$	128,615	$	126,935	Shopping Centers	$	43,974	$	42,038	$	88,199	$	86,137
Mixed-Use properties	Mixed-Use properties	18,609		17,771		54,909		52,050		Mixed-Use properties	19,735		18,255		38,559		36,300
Total same property revenue	Total same property revenue	$	61,087	$	60,256	$	183,524	$	178,985	Total same property revenue	$	63,709	$	60,293	$	126,758	$	122,437

Total Shopping Center revenue	Total Shopping Center revenue	$	42,478	$	42,485	$	128,615	$	126,935	Total Shopping Center revenue	$	43,974	$	42,038	$	88,199	$	86,137
Less: Shopping Center acquisitions, dispositions and development properties	Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—		Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—
Total same Shopping Center revenue	Total same Shopping Center revenue	$	42,478	$	42,485	$	128,615	$	126,935	Total same Shopping Center revenue	$	43,974	$	42,038	$	88,199	$	86,137

Total Mixed-Use property revenue	Total Mixed-Use property revenue	$	18,609	$	17,771	$	54,909	$	52,050	Total Mixed-Use property revenue	$	19,735	$	18,255	$	38,559	$	36,300
Less: Mixed-Use acquisitions, dispositions and development properties	Less: Mixed-Use acquisitions, dispositions and development properties	—		—		—		—		Less: Mixed-Use acquisitions, dispositions and development properties	—		—		—		—
Total same Mixed-Use revenue	Total same Mixed-Use revenue	$	18,609	$	17,771	$	54,909	$	52,050	Total same Mixed-Use revenue	$	19,735	$	18,255	$	38,559	$	36,300

The ~~$0.8~~$3.4 million increase in same property revenue for the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter was primarily due to (a) higher commercial base rent of ~~$0.4~~$1.3 million, ~~and~~ (b) higher expense recoveries of ~~$0.4~~$0.9 million, (c) higher residential base rent of $0.8 million and (d) higher lease termination fees of $0.5 million.

The ~~$4.5~~$4.3 million increase in same property revenue for the ~~2022~~2023 Period compared to the ~~2021~~2023 Period was primarily due to (a) higher commercial base rent of ~~$2.3~~$2.0 million, (b) ~~lower credit losses on operating lease receivables, net~~higher residential base rent of ~~$0.7~~$1.8 million, (c) higher ~~parking income~~lease termination fees of ~~$0.6~~$0.2 million and (d) higher expense recoveries of ~~$0.5 million and (d) higher other~~$0.1 million.

Mixed-Use same property revenue is composed of ~~$0.4 million.~~the following:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023				2022
Office mixed-use properties (1)	$	9,856	$	9,404	$	19,001			$	18,892
Residential mixed-use properties (retail activity) (2)	1,142		967		2,288				1,930
Residential mixed-use properties (residential activity) (3)	8,737		7,884		17,270				15,478
Total Mixed-Use same property revenue	$	19,735	$	18,255	$	38,559	$	38,559	$	36,300

(1)Includes Avenel Business Park, Clarendon Center – North and South Blocks, 601 Pennsylvania Avenue and Washington Square

(2)Includes The Waycroft and Park Van Ness

(3)Includes Clarendon South Block, The Waycroft and Park Van Ness

~~-31-~~-28-

Same property operating income


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022

Net income	Net income	$	15,513	$	16,885	50,001		$	45,799	Net income	$	17,189	$	16,997	$	34,852	$	34,488
Add: Interest expense, net and amortization of deferred debt costs	Add: Interest expense, net and amortization of deferred debt costs	11,103		10,914		32,162		34,559		Add: Interest expense, net and amortization of deferred debt costs	12,278		10,457		24,099		21,059
Add: Depreciation and amortization of lease costs		12,195		12,467		36,899		37,852
Add: Depreciation and amortization of deferred leasing costs										Add: Depreciation and amortization of deferred leasing costs	12,114		12,377		24,130		24,704
Add: General and administrative	Add: General and administrative	5,555		4,626		15,988		14,234		Add: General and administrative	5,678		5,665		10,946		10,433

Add: Loss on early extinguishment of debt		648		—		648		—

Property operating income	Property operating income	45,014		44,892		135,698		132,444		Property operating income	47,259		45,496		94,027		90,684
Less: Acquisitions, dispositions and development properties	Less: Acquisitions, dispositions and development properties	—		—		—		—		Less: Acquisitions, dispositions and development properties	—		—		—		—
Total same property operating income	Total same property operating income	$	45,014	$	44,892	$	135,698	$	132,444	Total same property operating income	$	47,259	$	45,496	$	94,027	$	90,684

Shopping Centers	Shopping Centers	$	33,652	$	33,845	$	101,513	$	99,848	Shopping Centers	$	34,512	$	33,854	$	69,477	$	67,861
Mixed-Use properties	Mixed-Use properties	11,362		11,047		34,185		32,596		Mixed-Use properties	12,747		11,642		24,550		22,823
Total same property operating income	Total same property operating income	$	45,014	$	44,892	$	135,698	$	132,444	Total same property operating income	$	47,259	$	45,496	$	94,027	$	90,684

Shopping Center operating income	Shopping Center operating income	$	33,652	$	33,845	$	101,513	$	99,848	Shopping Center operating income	$	34,512	$	33,854	$	69,477	$	67,861
Less: Shopping Center acquisitions, dispositions and development properties	Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—		Less: Shopping Center acquisitions, dispositions and development properties	—		—		—		—
Total same Shopping Center operating income	Total same Shopping Center operating income	$	33,652	$	33,845	$	101,513	$	99,848	Total same Shopping Center operating income	$	34,512	$	33,854	$	69,477	$	67,861

Mixed-Use property operating income	Mixed-Use property operating income	$	11,362	$	11,047	$	34,185	$	32,596	Mixed-Use property operating income	$	12,747	$	11,642	$	24,550	$	22,823
Less: Mixed-Use acquisitions, dispositions and development properties	Less: Mixed-Use acquisitions, dispositions and development properties	—		—		—		—		Less: Mixed-Use acquisitions, dispositions and development properties	—		—		—		—
Total same Mixed-Use property operating income	Total same Mixed-Use property operating income	$	11,362	$	11,047	$	34,185	$	32,596	Total same Mixed-Use property operating income	$	12,747	$	11,642	$	24,550	$	22,823

Same property operating income increased ~~$0.1~~$1.8 million, or ~~0.3%~~3.9%, for the ~~2022~~2023 Quarter compared to the ~~2021~~2022 Quarter.

Shopping Center same property operating income for the ~~2022~~2023 Quarter totaled ~~$33.7~~$34.5 million, a ~~$0.2 million decrease from the 2021 Quarter. Mixed-Use same property operating income totaled $11.4 million, a $0.3~~$0.7 million increase from the ~~2021~~2022 Quarter.

Same property operating income increased $3.3 million, or 2.5%, for the 2022 Period, compared to the 2021 Period. Shopping Center same property operating income increased $1.7 million, or 1.7%, and Mixed-Use same property operating income increased $1.6 million, or 4.9%. Shopping Center same property operating income increased primarily due to (a) higher base rent of ~~$0.8~~$1.3 million, partially offset by (b) lower ~~credit losses on operating lease receivables and corresponding reserves,~~expense recoveries, net of ~~$0.6~~expenses of $0.4 million and (c) ~~higher~~lower percentage rent of ~~$0.2~~$0.3 million. Mixed-Use same property operating income totaled $12.7 million, a $1.1 million increase from the 2022 Quarter. Mixed-Use same property operating income increased primarily due to (a) higher residential base rent of ~~$1.5~~$0.8 million and (b) higher ~~parking~~lease termination fees of $0.5 million.

Same property operating income ~~net~~increased $3.3 million, or 3.7% for the 2023 Period, compared to the 2022 Period.

Shopping Center same property operating income for the 2023 Period increased $1.6 million, or 2.4%, compared to the 2022 Period, primarily due to (a) higher base rent of ~~expenses of $0.4 million, (c) higher other property revenue of $0.2 million, (d) lower credit losses on operating lease receivables and corresponding reserves, net of $0.1~~$2.1 million, partially offset by ~~(e)~~(b) lower lease termination fees of
$0.3 million. Mixed-Use same property operating income increased $1.7 million, or 7.6%, primarily due to (a) higher residential base rent of $1.8 million and (b) higher lease termination fees of $0.5 million, partially offset by (c) lower recovery income, net of expenses of ~~$0.8~~$0.7 million.

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Mixed-Use same property operating income is composed of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023				2022
Office mixed-use properties (1)	$	6,469	$	6,273	$	12,177			$	12,326
Residential mixed-use properties (retail activity) (2)	840		707		1,647				1,399
Residential mixed-use properties (residential activity) (3)	5,438		4,662		10,726				9,098
Total Mixed-Use same property operating income	$	12,747	$	11,642	$	24,550	$	24,550	$	22,823

(1)Includes Avenel Business Park, Clarendon Center – North and South Blocks, 601 Pennsylvania Avenue and Washington Square

(2)Includes The Waycroft and Park Van Ness

(3)Includes Clarendon South Block, The Waycroft and Park Van Ness

Liquidity and Capital Resources

Cash and cash equivalents totaled ~~$10.3~~$11.5 million and ~~$11.9~~$11.2 million at ~~September~~June 30, 2023 and 2022, respectively. The Company maintains cash balances at various financial institutions and, ~~2021, respectively.~~from time to time, those balances may exceed federally insured limits. The Company has not experienced any losses on such deposits and actively monitors its banking relationships to mitigate its exposure to significant credit risk on those deposits. The Company’s cash flow is affected by its operating, investing and financing activities, as described below.

Nine Months Ended September 30,
(In thousands) 2022 2021
Net cash provided by operating activities $ 92,009 $ 89,019
Net cash used in investing activities (84,509) (38,788)
Net cash used in financing activities (11,803) (65,170)
Net decrease in cash and cash equivalents $ (4,303) $ (14,939)

~~-32-~~


	Six Months Ended June 30,
(In thousands)	2023		2022
Net cash provided by operating activities	$	68,692	$	66,484
Net cash used in investing activities	(99,366)		(51,914)
Net cash provided by (used in) financing activities	28,868		(17,997)
Net decrease in cash and cash equivalents	$	(1,806)	$	(3,427)

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.

Investing Activities

Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. The ~~$45.7~~$47.5 million increase in cash used in investing activities is primarily due to (a) increased development expenditures of ~~$55.0 million, partially offset by (b) decreased acquisitions of real estate investments of $9.0~~$40.4 million and ~~(c) decreased~~(b) increased additions to real estate investments throughout the portfolio of ~~$0.2~~$7.1 million.

Financing Activities

Net cash ~~used in~~provided by (used in) financing activities represents (a) cash used to repay and curtail loans, redeem preferred stock and pay dividends and distributions to holders of common stock, preferred stock and limited partnership units minus (b) cash received from loan proceeds and issuance of common stock, preferred stock and limited partnership units. See note 5 to the consolidated financial statements for a discussion of financing activity.

Liquidity Requirements

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,”

-30-

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.

The Company is developing Twinbrook Quarter Phase I ~~(“Phase I”)~~ located in Rockville, Maryland. Phase I includes an 80,000 square foot Wegmans, approximately 25,000 square feet of small shop space, 450 apartments and a 230,000 square foot office building. The office tower portion of Phase I ~~will~~is not bebeing constructed at this time. In connection with the development of the residential and retail portions of Phase I, we must also invest in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. ~~The~~Excluding capitalized interest, the total cost of the project is expected to be approximately $331.5 million, of which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million is related to infrastructure and other items. A portion of the project ~~will be~~is being financed by a $145.0 million construction-to-permanent loan. ~~Below grade concrete~~During the second quarter of 2023, the Company commenced drawing on the loan and, ~~framing~~as of June 30, 2023, the outstanding balance on the loan was $25.8 million, net of unamortized deferred debt costs. Concrete work is substantially complete and pre-cast façade panels, masonry and windows are ~~complete. Concrete~~being installed. Interior mechanical, electrical and plumbing infrastructure is also being ~~poured at the fourth level above ground.~~installed. Initial delivery of Phase I is anticipated in late 2024. The development potential of all phases of the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

Long-term liquidity requirements consist primarily of obligations under our long-term debt and dividends paid to our preferred shareholders. The Company anticipates that long-term liquidity requirements will also include amounts required for property acquisitions and developments.

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 remainder of the year, developments, expansions or acquisitions (if any) are expected to be funded with available cash, bank borrowings from the Company’s Credit Facility, construction and permanent financing, proceeds from the operation of the Company’s Dividend Reinvestment Plan (“DRIP”) 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. The availability and terms of any such financing will depend upon market and other conditions.

~~-33-~~

Dividend Reinvestments

The Company has a DRIP 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 Company. The Company issued ~~126,213~~25,190 and ~~224,706~~116,994 shares ~~under~~pursuant to the DRIP at a weighted average discounted price of ~~$49.39~~$37.74 and ~~$37.41~~$49.28 per share, during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. The Company did not issue any limited partnership units pursuant to the DRIP during the six months ended June 30, 2023. The Company issued 26,659 ~~and 47,312~~ limited partnership units ~~under~~pursuant to the DRIP at a weighted average price of $49.81 ~~and $37.94~~ per unit during the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021, respectively.~~2022. The Company also credited ~~4,046~~3,625 and ~~4,939~~2,688 shares to directors pursuant to the reinvestment of dividends specified by the Directors’ Deferred Compensation Plan at a weighted average discounted price of ~~$49.81~~$37.71 and ~~$37.52~~$49.31 per share, during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Capital Strategy and Financing Activity

As a general policy, the Company intends to maintain a ratio of its total debt to total estimated asset market 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~~June 30, ~~2022.~~2023.

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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 estimated asset market value 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.

At ~~September~~June 30, ~~2022,~~2023, the Company had a $525.0 million Credit Facility comprised of a $425.0 million revolving credit facility and a $100.0 million term loan. The revolving credit facility matures on August 29, 2025, ~~which~~and may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan matures on February 26, 2027, and may not be extended. Through October 2, 2022, interest accrues at a rate of LIBOR plus an applicable spread, which is determined by certain leverage tests. Effective October 3, 2022, in conjunction with the execution of the First Amendment to the Credit Facility, interest2027. Interest accrues at a rate of SOFR plus 10 basis points plus an applicable spread, which is determined by certain leverage tests. As of ~~September~~June 30, ~~2022,~~2023, the applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points related to the term loan. Letters of credit may be issued under the Credit Facility. On ~~September~~June 30, ~~2022,~~2023, based on the value of the Company’s unencumbered properties, approximately ~~$248.8~~$165.3 million was available under the Credit Facility, ~~$228.0~~$319.0 million was outstanding and approximately $185,000 was committed for letters of credit.

~~On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to manage the interest rate risk associated with $100.0 million of its variable-rate debt.~~ The effective date of each swap agreement is October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1, 2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt, unless otherwise indicated, $100.0 million of variable-rate debt will be treated as fixed-rate debt for disclosure purposes as of September 30, 2022. The Company has designated the agreements as cash flow hedges for accounting purposes.

During the third quarter of 2022, the Company completed early refinancings of four shopping centers, which provided $88.0 million of additional liquidity net of repayment of the existing mortgage loans, associated prepayment penalties and closing costs. The net proceeds from the refinancings were used to curtail the revolving portion of the Credit ~~Facility. As a result of the early refinancings and the interest rate swaps, $128.0 million, or 10.6%, of our outstanding debt at September 30, 2022, was floating and unhedged.~~

~~-34-~~

~~The facility~~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).

As of ~~September~~June 30, ~~2022,~~2023, the Company was in compliance with all such covenants. See note 5 to the consolidated financial statements for a discussion of all financing activity.

On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to manage the interest rate risk associated with $100.0 million of its variable-rate debt. The effective date of each swap agreement is October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1, 2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt, unless otherwise indicated, $100.0 million of variable-rate debt is being treated as fixed-rate debt for disclosure purposes beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for accounting purposes.

On March 8, 2023, the Company closed on a 10-year, non-recourse, $15.3 million mortgage secured by BJ’s Wholesale Club in Alexandria, Virginia. The loan matures in 2033, bears interest at a fixed-rate of 6.07%, requires monthly principal and interest payments of $99,200 based on a 25-year amortization schedule and requires a final principal payment of $11.7 million at maturity. Proceeds were used to repay the remaining balance of approximately $9.3 million on the existing mortgage and reduce the outstanding balance of the Credit Facility.

During the second quarter of 2023, the Company commenced drawing on its $145.0 million construction-to-permanent loan related to the residential and retail portions of Phase I of the Twinbrook Quarter development project. As of June 30, 2023, the outstanding balance on the loan was $25.8 million, net of unamortized deferred debt costs.

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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Funds From Operations

Funds From Operations (FFO)1 available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) for the ~~2022~~2023 Quarter totaled ~~$24.9~~$26.5 million, a decrease of ~~6.2%~~0.3% compared to the ~~2021~~2022 Quarter. FFO available to common stockholders and noncontrolling interests decreased primarily due to (a) higher ~~general~~interest expense, net and ~~administrative expenses~~amortization of ~~$0.9~~deferred debt costs of $1.8 million, ~~or $0.03 per basic and diluted share,~~ (b) ~~loss on early extinguishment of debt of $0.6 million, or $0.02 per basic and diluted share, (c)~~ lower recovery income, net of expenses of ~~$0.3~~$0.7 million, (c) lower percentage rent of $0.1 million and (d) higher credit losses on operating lease receivables and corresponding reserves, net (collectively, $0.1 million), partially offset by (e) higher commercial base rent of $1.3 million, (f) higher residential base rent of $0.8 million and (g) higher lease termination fees of $0.5 million.

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) decreased to $53.4 million, or ~~$0.01~~$1.60 and $1.57 per basic and diluted share, respectively, in the 2023 Period from $53.6 million, or $1.61 and ~~(d)~~$1.58 per basic and diluted share, respectively, in the 2022 Period. FFO available to common stockholders and noncontrolling interests decreased primarily due to (a) higher interest expense, net and amortization of deferred debt costs of ~~$0.2~~$3.0 million, ~~or $0.01 per basic and diluted share, partially offset by (e) higher base rent across the portfolio of $0.4 million, or $0.01 per basic and diluted share.~~

FFO available to common stockholders and noncontrolling interests for the 2022 Period totaled $78.5 million, an increase of 4.3% compared to the 2021 Period. FFO available to common stockholders and noncontrolling interests increased primarily due to (a)(b) lower interest expense, net and amortization of deferred debt costs of $2.4 million, or $0.07 per basic and diluted share, (b) higher base rent of $2.3 million, or $0.07 per basic and diluted share, (c) lower credit losses on operating lease receivables and corresponding reserves,recovery income, net of ~~$0.7~~expenses of $0.9 million ~~or $0.02 per basic~~ and ~~diluted share, partially offset by (d)~~(c) higher general and administrative expenses of $0.5 million, partially offset by (d) higher commercial base rent of $2.0 million, (e) higher residential base rent of $1.8 million, ~~or $0.05 per basic~~ and ~~diluted share, and (e) loss on early extinguishment~~(f) higher lease termination fees of ~~debt of $0.6 million, or $0.02 per basic and diluted share.~~$0.2 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 June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	(In thousands, except per share amounts)	2022		2021		2022		2021		(In thousands, except per share amounts)	2023		2022		2023		2022
Net income	Net income	$	15,513	$	16,885	$	50,001	$	45,799	Net income	$	17,189	$	16,997	$	34,852	$	34,488

Add:	Add:									Add:

Real estate depreciation and amortization	Real estate depreciation and amortization	12,195		12,467		36,899		37,852		Real estate depreciation and amortization	12,114		12,377		24,130		24,704
FFO	FFO	27,708		29,352		86,900		83,651		FFO	29,303		29,374		58,982		59,192
Subtract:	Subtract:									Subtract:

Preferred stock dividends	Preferred stock dividends	(2,798)		(2,798)		(8,395)		(8,395)		Preferred stock dividends	(2,799)		(2,799)		(5,597)		(5,597)

FFO available to common stockholders and noncontrolling interests	FFO available to common stockholders and noncontrolling interests	$	24,910	$	26,554	$	78,505	$	75,256	FFO available to common stockholders and noncontrolling interests	$	26,504	$	26,575	$	53,385	$	53,595
Weighted average shares and units:	Weighted average shares and units:									Weighted average shares and units:
Basic	Basic	33,295		32,237		33,238		31,774		Basic	33,340		33,256		33,332		33,210
Diluted (2)	Diluted (2)	34,005		33,656		33,957		32,877		Diluted (2)	34,049		33,981		34,040		33,933
Basic FFO per share available to common stockholders and noncontrolling interests	Basic FFO per share available to common stockholders and noncontrolling interests	$	0.75	$	0.82	$	2.36	$	2.37	Basic FFO per share available to common stockholders and noncontrolling interests	$	0.79	$	0.80	$	1.60	$	1.61
Diluted FFO per share available to common stockholders and noncontrolling interests	Diluted FFO per share available to common stockholders and noncontrolling interests	$	0.73	$	0.79	$	2.31	$	2.29	Diluted FFO per share available to common stockholders and noncontrolling interests	$	0.78	$	0.78	$	1.57	$	1.58

~~-35-~~

1 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 impairment charges on real estate assets and gains or losses from 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.

2 Beginning March 5, 2021, fully diluted shares and units includes 1,416,071 limited partnership units held in escrow related to the contribution of Twinbrook Quarter. Half of the units held in escrow were released on October 18, 2021. The remaining units held in escrow are scheduled to be released on October 18, 2023.

-33-

~~Table~~The Mixed-Use Commercial leasing percentage is composed of ~~Content~~s

Acquisitions and Redevelopments

~~Management anticipates that during the remainder of the year, the Company will continue the build out of the remaining retail spaces at The Waycroft.~~ The Company 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 remainder of the year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Company’s Credit Facility, 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.

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, 2022 50 7 7,874,130 1,136,885 94.5 % 83.1 %
September 30, 2021 50 7 7,872,002 1,136,937 93.6 % 85.0 %


	Total Properties		Total Square Footage		Percent Leased
	Shopping Centers	Mixed-Use	Shopping Centers	Mixed-Use	Shopping Centers		Mixed-Use
June 30, 2023	50	7	7,876,330	1,136,885	95.5	%	83.2	%
June 30, 2022	50	7	7,874,130	1,136,885	94.1	%	82.6	%

As of ~~September~~June 30, ~~2022, 93.0%~~2023, 94.0% of the Commercial portfolio was leased, compared to ~~92.5% September~~92.6% as of June 30, ~~2021.~~2022. On a same property basis, ~~93.0%~~94.0% of the Commercial portfolio was leased as of June 30, 2023 compared to ~~92.5% at September~~92.6% as of June 30, ~~2021.~~2022. Included in the ~~93.0%~~94.0% of space leased as of ~~September~~June 30, ~~2022,~~2023, is approximately ~~331,000~~234,500 square feet of space, representing ~~3.7%~~2.6% of total ~~commercial~~Commercial square footage, that has not yet been occupied by the ~~tenant.~~respective tenants. Collectively, these leases are expected to produce approximately $5.8 million of additional annualized base rent, an average of ~~$17.62~~$24.57 per square foot, upon tenant occupancy and following any contractual rent concessions.

~~-36-~~

Commercial leases at office mixed-use properties and residential mixed-use properties. The leasing percentage at office mixed-use properties increased to 82.7% as of June 30, 2023 from 81.5% as of June 30, 2022. The retail leasing percentage at residential mixed-use properties decreased to 91.2% as of June 30, 2023 from 100.0% as of June 30, 2022.

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.


Commercial Property Leasing Activity	Commercial Property Leasing Activity					Average Base Rent per Square Foot								Commercial Property Leasing Activity					Average Base Rent per Square Foot
Three Months Ended September 30,		Square Feet		Number of Leases		New/Renewed Leases				Expiring Leases
Three Months Ended June 30,														Three Months Ended June 30,	Square Feet		Number of Leases		New/Renewed Leases				Expiring Leases
		Shopping Centers	Mixed-Use	Shopping Centers	Mixed-Use	Shopping Centers		Mixed-Use		Shopping Centers		Mixed-Use			Shopping Centers	Mixed-Use	Shopping Centers	Mixed-Use	Shopping Centers		Mixed-Use		Shopping Centers		Mixed-Use
2023														2023	542,369	36,400	71	8	$	20.45	$	20.93	$	19.18	$	20.17
2022	2022	415,845	23,904	94	3	$	23.44	$	27.64	$	21.80	$	30.40	2022	364,424	29,051	62	6	17.74		24.53		16.60		24.23
2021		231,008	11,164	55	4	19.15		51.45		19.19		57.36

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Additional information about the leasing activity during the three months ended ~~September~~June 30, ~~2022~~2023 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.


		Commercial Property Leasing Activity							Commercial Property Leasing Activity
		New Leases		First Generation/Development Leases		Renewed Leases			New Leases		First Generation/Development Leases		Renewed Leases
Number of leases	Number of leases	25		—		72		Number of leases	24		—		55
Square feet	Square feet	98,427		—		341,322		Square feet	77,757		—		501,012
Per square foot average annualized:	Per square foot average annualized:							Per square foot average annualized:
Base rent	Base rent	$	27.09	$	—	$	22.69	Base rent	$	30.46	$	—	$	18.93
Tenant improvements	Tenant improvements	(4.61)		—		(0.16)		Tenant improvements	(2.29)		—		(0.07)
Leasing costs	Leasing costs	(1.05)		—		—		Leasing costs	(0.87)		—		(0.02)
Rent concessions	Rent concessions	(0.66)		—		—		Rent concessions	(0.37)		—		(0.04)
Effective rents	Effective rents	$	20.77	$	—	$	22.53	Effective rents	$	26.93	$	—	$	18.80

As of December 31, ~~2021, 843,842~~2022, 1,026,830 square feet of Commercial space was subject to leases scheduled to expire in ~~2022.~~2023. Of those leases, as of ~~September~~June 30, ~~2022,~~2023, leases representing ~~246,902~~448,489 square feet of Commercial space (a) are on a month-to-month basis or (b) have not yet renewed and are scheduled to expire over the next ~~three~~six months. Below is information about existing and estimated market base rents per square foot for that space.


Expiring Commercial Property Leases	Total
Square feet	~~246,902~~448,489
Average base rent per square foot	$	~~28.54~~16.42
Estimated market base rent per square foot	$	~~28.02~~16.68

As of ~~September~~June 30, ~~2022,~~2023, the Residential portfolio was ~~97.2%~~99.2% leased compared to ~~97.8% at September~~98.1% as of June 30, ~~2021.~~2022.

Residential Property Leasing Activity Average Rent per Square Foot
Three Months Ended September 30, Number of leases New/Renewed Leases Expiring Leases
2022 338 $ 3.49 $ 3.22
2021 331 3.38 3.30

~~-37-~~


Residential Property Leasing Activity		Average Rent per Square Foot
Three Months Ended June 30,	Number of leases	New/Renewed Leases		Expiring Leases
2023	290	$	3.52	$	3.40
2022	309	3.50		3.20

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 and inflation. 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 is exposed to interest rate fluctuations that will affect the amount of interest expense of its variable-rate debt and the fair value of its fixed-rate debt. As of ~~September~~June 30, ~~2022,~~2023, the Company had unhedged variable rate indebtedness totaling ~~$128.0~~$219.0 million. If the interest rates on the Company’s unhedged variable rate debt instruments outstanding at ~~September~~June 30, ~~2022~~2023 had been one percentage point higher or lower, our annual interest expense relating to these debt instruments would have increased or decreased by ~~$1.3~~$2.2 million based on those balances. As of ~~September~~June 30, ~~2022,~~2023, the Company had fixed-rate indebtedness totaling ~~$1.1~~$1.09 billion with a weighted average interest rate of ~~4.77%~~4.75%. If interest rates on the Company’s fixed-rate debt instruments at ~~September~~June 30, ~~2022~~2023 had been one percentage point higher, the fair value of those debt instruments on that date would have ~~been approximately $58.5 million less than the carrying amount.~~decreased by $54.7 million. If interest rates on the Company’s fixed-rate debt instruments at ~~September~~June 30, ~~2022~~2023 had been one percentage point lower, the fair value of those debt instruments on that date would have ~~been approximately $64.2 million more than the carrying amount.~~increased by $59.8 million.

-35-

Inflation may impact the Company's results of operations by (a) increasing costs unreimbursed by tenants faster than rents increase and (b) adversely impacting consumer demand at our retail shopping centers, which, in turn, may results in (i) lower percentage rent and/or (ii) the inability of tenants to pay their rent. Inflation may also negatively impact the cost of development projects. While the Company has not been significantly impacted by any of these items in the current year, no assurances can be provided that inflationary pressures will not have a material adverse effect on the Company’s business in the future.

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, its Senior Vice President-Chief Financial Officer, and its Senior Vice President-Chief Accounting Officer and Treasurer, 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, its Senior Vice President-Chief Financial Officer, and its Senior Vice President-Chief Accounting Officer and Treasurer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of ~~September~~June 30, ~~2022.~~2023. Based on the foregoing, the Company’s Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer and its Senior Vice President-Chief Accounting Officer and Treasurer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of ~~September~~June 30, ~~2022.~~2023.

During the quarter ended ~~September~~June 30, ~~2022,~~2023, 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.

~~-38-~~-36-

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

The Company has no material updates to the risk factors presented in Item 1A. Risk Factors in the ~~2021~~2022 Annual Report of the Company on Form 10-K.

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, his spouse and entities affiliated with Mr. Saul II, through participation in the Company’s Dividend Reinvestment and Stock Purchase Plan for the ~~July 31, 2022~~April 28, 2023 dividend distribution acquired ~~2,525~~4,185 shares of common stock at a price of ~~$50.80~~$34.92 per share.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits

10. (1)
First Amendment to the Credit Agreement (filed herewith), by and among: the Partnership, as Borrower; Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent; Capital One, National Association (“Capital One”), as Syndication Agent; TD Bank, N.A. (“TD Bank”) and U.S. Bank National Association (“U.S. Bank”), as Documentation Agents; and Wells Fargo, Capital One, TD Bank, U.S. Bank, Regions Bank, PNC Bank and Associated Bank, National Association (“Associated Bank”), as Lenders (the “Agreement”), filed as Exhibit 10.1 of the Company's Report on Form 8-K filed August 31, 2021 is incorporated by reference.
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, 2022, formatted in Inline Extensible Business Reporting Language (“Inline XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of 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 and included in Exhibit 101).




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 six months ended June 30, 2023, formatted in Inline Extensible Business Reporting Language (“Inline XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of 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 and included in Exhibit 101).

* In accordance with Item 601(b)(32) of 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.

~~-39-~~-37-