-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BIujcQz0jHQhKOXwV/05Mu1A3JCUhbe+7M79QkDYTFK/vk8RoXHThP8gTCku6Try 7B1rVMQEeJSAmu5q6KC23w== 0000928385-97-000853.txt : 19970515 0000928385-97-000853.hdr.sgml : 19970515 ACCESSION NUMBER: 0000928385-97-000853 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAUL CENTERS INC CENTRAL INDEX KEY: 0000907254 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521833074 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12254 FILM NUMBER: 97603235 BUSINESS ADDRESS: STREET 1: 8401 CONNECTICUT AVE CITY: CHEVY CHASE STATE: MD ZIP: 20815 BUSINESS PHONE: 3019866207 MAIL ADDRESS: STREET 1: 8401 CONNECTICUT AVE CITY: CHEVY CHASE STATE: MD ZIP: 20815 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- ---------------- Commission file number: 1-12254 ------- SAUL CENTERS, INC. -------------------------------------------------------------------- (Exact name of Registrant as Specified in Its Charter) Maryland 52-1833074 -------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8401 Connecticut Avenue Chevy Chase, Maryland 20815 -------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (301) 986-6000 -------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 12,253,344 shares of common stock, $0.01 par value, outstanding as of May 1, 1997. SAUL CENTERS, INC.
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) -------------------------------- (a) Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996. 3 (b) Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996. 4 (c) Consolidated Statements of Stockholders' Equity as of March 31, 1997. 5 (d) Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996. 6 (e) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- (a) Liquidity and Capital Resources 17 (b) Results of Operations Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996. 20 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 --------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K 22 --------------------------------
2 SAUL CENTERS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ---------------------------------------------------------------------------------------------- March 31, December 31, (Dollars in thousands) 1997 1996 - ---------------------------------------------------------------------------------------------- ASSETS Real estate investments Land $ 65,604 $ 65,604 Buildings and equipment 265,211 264,060 ------------- ----------- 330,815 329,664 Accumulated depreciation (97,368) (94,965) ------------- ----------- 233,447 234,699 Construction in progress 4,428 1,508 Cash 1,994 38 Accounts receivable and accrued income, net 6,203 7,446 Prepaid expenses 4,374 4,808 Deferred debt expense, net 10,818 11,287 Other assets 2,928 3,709 ------------- ----------- Total assets $ 264,192 $ 263,495 ============= =========== LIABILITIES Notes payable $ 273,161 $ 273,261 Accounts payable, accrued expenses and other liabilities 15,991 15,154 Deferred income 3,046 1,441 ------------- ----------- Total liabilities 292,198 289,856 ------------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.01 par value, 30,000,000 shares authorized, 12,184,433 and 12,125,705 shares issued and outstanding, respectively 122 121 Additional paid-in capital 16,468 15,529 Accumulated deficit (44,596) (42,011) ------------- ----------- Total stockholders' equity (deficit) (28,006) (26,361) ------------- ----------- Total liabilities and stockholders' equity $ 264,192 $ 263,495 ============= ===========
The accompanying notes are an integral part of these statements. 3 SAUL CENTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------------------- For the Three Months Ended March 31, (Dollars in thousands, except per share amounts) 1997 1996 - -------------------------------------------------------------------------------------------- REVENUE Base rent $ 12,601 $ 12,260 Expense recoveries 2,312 2,293 Percentage rent 759 716 Other 890 364 ----------- ---------- Total revenue 16,562 15,633 ----------- ---------- OPERATING EXPENSES Property operating expenses 2,026 2,158 Provision for credit losses 43 55 Real estate taxes 1,514 1,429 Interest expense 4,820 4,426 Amortization of deferred debt expense 545 732 Depreciation and amortization 2,572 2,680 General and administrative 793 754 ----------- ---------- Total operating expenses 12,313 12,234 ----------- ---------- NET INCOME BEFORE EXTRAORDINARY ITEM AND MINORITY INTERESTS 4,249 3,399 Extraordinary item Early extinguishment of debt (369) -- ----------- ---------- Net income before minority interests 3,880 3,399 ----------- ---------- Minority interests Minority share of income (1,048) (918) Distributions in excess of earnings (665) (795) ----------- ---------- Total minority interests (1,713) (1,713) ----------- ---------- NET INCOME $ 2,167 $ 1,686 =========== ========== NET INCOME PER SHARE Net income before extraordinary item and minority interests $ 0.26 $ 0.21 Extraordinary item (0.03) -- ----------- ---------- Net income before minority interests $ 0.23 $ 0.21 =========== ========== Net income $ 0.18 $ 0.14 =========== ==========
The accompanying notes are an integral part of these statements. 4 SAUL CENTERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------- Additional Common Paid-in Accumulated (Dollars in thousands, except per share amounts) Stock Capital Deficit Total - ----------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (DEFICIT): Balance, December 31, 1995 $ 119 $ 12,243 $ (29,097) $ (16,735) Issuance of 246,605 shares of common stock through dividend reinvestment plan 2 3,286 -- 3,288 Net income -- -- 5,851 5,851 Distributions ($1.17 per share) -- -- (14,036) (14,036) Distributions payable ($.39 per share) -- -- (4,729) (4,729) --------- ---------- ----------- ----------- Balance, December 31, 1996 121 15,529 (42,011) (26,361) Issuance of 58,728 shares of common stock through dividend reinvestment plan 1 939 -- 940 Net income -- -- 2,167 2,167 Distributions payable ($.39 per share) -- -- (4,752) (4,752) --------- ---------- ----------- ----------- Balance, March 31, 1997 $ 122 $ 16,468 $ (44,596) $ (28,006) ========= ========== =========== ===========
The accompanying notes are an integral part of these statements. 5 SAUL CENTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------- For the Three Months Ended March 31, (Dollars in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,167 $ 1,686 Adjustments to reconcile net income to net cash provided by operating activities: Minority interests 1,713 1,713 Early extinguishment of debt 369 -- Depreciation and amortization 3,117 3,412 Provision for credit losses 43 55 Decrease in accounts receivable 1,200 399 Decrease in prepaid expenses 265 170 Decrease in other assets 781 170 Increase (decrease) in accounts payable and other liabilities 837 (75) Increase (decrease) in deferred income 1,605 (5) ---------- ---------- Net cash provided by operating activities 12,097 7,525 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to real estate investments (1,151) (1,539) Additions to construction in progress (2,920) (1,277) ---------- ---------- Net cash used in investing activities (4,071) (2,816) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable 43,500 6,402 Repayments on notes payable (43,600) (5,156) Fee paid on early extinguishment of debt (95) -- Additions to deferred debt expense (350) (14) Proceeds from the reinvestment of dividends in shares of common stock 940 739 Distributions to common stockholders and holders of convertible limited partnership units in the Operating Partnership (6,465) (6,367) ---------- ---------- Net cash used in financing activities (6,070) (4,396) ---------- ---------- Net increase in cash 1,956 313 Cash, beginning of period 38 674 ---------- ---------- Cash, end of period $ 1,994 $ 987 ========== ==========
The accompanying notes are an integral part of these statements. 6 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION, FORMATION, STRUCTURE AND BASIS OF PRESENTATION ORGANIZATION Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland General Corporation Law on June 10, 1993. The authorized capital stock of Saul Centers consists of 30,000,000 shares of common stock, having a par value of $0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common stock is entitled to one vote for each share held. In conjunction with the organization of Saul Centers, 50 shares of common stock were issued to The Saul Organization (as defined below). 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". FORMATION AND STRUCTURE OF COMPANY Saul Centers was formed to continue and expand the shopping center businesses previously owned and conducted by the B.F. Saul Real Estate Investment Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other affiliated entities (collectively, "The Saul Organization"). On August 26, 1993, The Saul Organization transferred to Saul Holdings Limited Partnership, a newly formed Maryland limited partnership (the "Operating Partnership"), and two newly formed subsidiary limited partnerships (the "Subsidiary Partnerships") 26 shopping center properties, one office property, one research park and one office/retail property and the management functions related to the transferred properties. These properties and related management functions collectively represent the "Saul Centers Portfolio Properties." Since its formation, the Company has purchased three additional community and neighborhood shopping center properties, and purchased a land parcel which the Company developed into a neighborhood shopping center. Therefore, as of March 31, 1997, the Company's properties (the "Current Portfolio Properties") consisted of 30 operating shopping center properties (the "Shopping Centers"), and three predominantly office properties (the "Commercial Properties"). Saul Centers completed its initial stock offerings on August 26, 1993, with the sale of 11,400,000 shares of common stock at $20 per share in an initial public offering and 479,050 shares of common stock at $20 per share in a private offering to The Saul Organization (collectively, the "Offerings"). Subsequent to the Offerings, there were 11,879,100 shares of common stock and no shares of preferred stock outstanding. Net proceeds of the Offerings (after expenses of approximately $18.2 million), and net proceeds of new bank borrowings were primarily used to curtail existing indebtedness related to the Saul Centers Portfolio Properties. After consummation of the Offerings, Saul Centers owned a 73.0 percent general partnership interest in the Operating Partnership and a 1.0 percent general partnership interest in each of the two Subsidiary 7 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Partnerships, which were formed for tax planning purposes and to facilitate future financing by the Company. Saul Centers made an election to be treated as a real estate investment trust under the Internal Revenue Code of 1986, as amended (a "REIT"). In July 1994, the Company established Saul QRS, Inc. and SC Finance Corporation, each of which is a wholly owned subsidiary of Saul Centers. Saul QRS, Inc. was established to succeed to the interest of Saul Centers as the sole general partner of Saul Subsidiary I Limited Partnership, one of the Subsidiary Partnerships, and SC Finance Corporation was established for the purpose of issuing $128 million of collateralized floating rate mortgage notes (the "Mortgage Notes"). In connection with these transactions, the Operating Partnership transferred ten Shopping Centers previously owned by it to Saul Subsidiary I Limited Partnership as an additional capital contribution and Saul Subsidiary II Limited Partnership transferred one Shopping Center previously owned by it to Saul Subsidiary I Limited Partnership as an initial capital contribution in return for a limited partnership interest in Saul Subsidiary I Limited Partnership. As a consequence of these transfers, Saul Subsidiary I Limited Partnership currently owns a total of 17 Shopping Centers (the "Mortgaged Properties"). The Mortgaged Properties, which continue to be managed by the Operating Partnership, secure the mortgage purchased with proceeds of issuance of the Mortgage Notes. As a consequence of the transactions constituting the formation of the Company and the later transactions described above undertaken in connection with the Mortgage Note financing, Saul Centers serves as the sole general partner of Saul Subsidiary II Limited Partnership, one of the Subsidiary Partnerships, and Saul QRS, Inc., its wholly owned subsidiary, serves as the sole general partner of Saul Subsidiary I Limited Partnership, in each case holding a 1 percent general partnership interest. The remaining 99 percent interest in Saul Subsidiary II Limited Partnership is held by the Operating Partnership as the sole limited partner. The remaining 99 percent interest in Saul Subsidiary I Limited Partnership is held in the form of 96.53 percent and 2.47 percent limited partnership interests by the Operating Partnership and Saul Subsidiary II Limited Partnership, respectively. Through this structure, the Company owns 100 percent of the Current Portfolio Properties. BASIS OF PRESENTATION In the opinion of management, the consolidated financial statements reflect all adjustments necessary for fair presentation of the financial position and results of operations of Saul Centers. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Saul Centers for the year ended December 31, 1996, which are included in its Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the year. 8 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company, which conducts all of its activities through its subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and, to a limited extent, other commercial properties, primarily in the Mid-Atlantic region. A majority of the Shopping Centers are anchored by several major tenants. Eighteen of the 30 Shopping Centers are anchored by a grocery store and offer primarily day-to-day necessities and services. As of March 1997, no single Shopping Center accounted for more than 10.6 percent of the total Shopping Center gross leasable area ("GLA"). Only one Shopping Center tenant, Giant Food, accounted for more than 2.0 percent of the Company's total revenues for the year ending December 31, 1996 and only three Shopping Center tenants individually accounted for more than 1.5 percent of total revenues for 1996. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and the Operating Partnership and Subsidiary Partnerships which are majority owned by Saul Centers. All significant intercompany balances and transactions have been eliminated in consolidation. REAL ESTATE INVESTMENT PROPERTIES Real estate investment properties are stated at the lower of depreciated cost or net realizable value based on management's intent to hold such properties on a long-term basis. These assets have generally appreciated in value and accordingly the aggregate current value substantially exceeds their aggregate net book value as reported in these financial statements. Management believes the current value of the Current Portfolio Properties substantially exceeds the value of the Company's liabilities. These financial statements are prepared in conformity with generally accepted accounting principles, and accordingly, do not report the current value of the Company's real estate assets. Interest, real estate taxes and other carrying costs are capitalized on projects under construction. Once construction is substantially complete and the assets are placed in service, rental income, direct operating expenses, and depreciation associated with such properties are included in current operations. Expenditures for repairs and maintenance are charged to operations as incurred. 9 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Interest expense capitalized during the three month periods ended March 31, 1997 and 1996, was $65,000 and $171,000, respectively. In the initial rental operations of development projects, a project is considered substantially complete and available for occupancy upon completion of tenant improvements, but no later than one year from the cessation of major construction activity. Substantially completed portions of a project are accounted for as separate projects. Depreciation is calculated using the straight-line method and estimated useful lives of 33 to 50 years for buildings and up to 20 years for certain other improvements. Leasehold improvements are amortized over the lives of the related leases using the straight-line method. ACCOUNTS RECEIVABLE AND ACCRUED INCOME Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of the respective leases. In addition, accounts receivable include $1,860,000 at March 31, 1997, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the term of the respective leases. Receivables are reviewed monthly and reserves are charged to current period operations when, in the opinion of management, collection of the receivable is doubtful. Accounts receivable in the accompanying financial statements are shown net of an allowance for doubtful accounts of $474,000 at March 31, 1997. DEFERRED DEBT EXPENSE Deferred debt expense consists of financing fees and costs incurred to obtain long-term financing and interest rate protection agreements. These fees and costs are being amortized over the terms of the respective loans or agreements. Deferred debt expense in the accompanying financial statements is shown net of accumulated amortization of $6,414,000 at March 31, 1997. REVENUE RECOGNITION Rental and interest income are accrued as earned, except, when doubt exists as to collectibility, accrual is discontinued. Expense recoveries represent property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs. Expense recoveries are recognized in the period in which the expenses are accrued. Generally, additional rental income based on a tenant's gross revenue ("percentage rent") is accrued on the basis of the tenant's prior year percentage rent, adjusted to give effect to current sales data. 10 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) INCOME TAXES Saul Centers made an election to be treated, and intends to continue operating so as to qualify, as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. A REIT generally will not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes to stockholders at least 95 percent of its REIT taxable income and complies with certain other requirements. Saul Centers continues to qualify as a REIT and, therefore, no provision has been made for federal income taxes in the accompanying financial statements. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash includes balances on hand and demand deposits with financial institutions. PER SHARE DATA Per share data for net income before minority interests is presented on a fully converted basis and is computed using weighted average shares of 16,558,020 and 16,309,630, for the quarters ended March 31, 1997 and 1996, respectively. Per share data relating to net income after minority interests is computed on the basis of the weighted average common shares outstanding during the quarters ended March 31, 1997 and 1996, which were 12,164,857 and 11,916,467, respectively. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE OPERATING PARTNERSHIP The Saul Organization holds 4,393,163 Convertible Limited Partnership Units of the Operating Partnership, representing a 26.5 percent limited partnership interest, as of March 31, 1997. These Convertible Limited Partnership Units are convertible into shares of Saul Centers' common stock on a one-for-one basis, provided that it may not exercise the rights at any time that The Saul Organization owns, directly or indirectly, in the aggregate more than 24.9 percent of the outstanding equity securities of Saul Centers. The Saul Organization's 26.5 percent limited partnership interest in the Operating Partnership is presented as minority interests in the accompanying financial statements. 11 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DIRECTORS DEFERRED COMPENSATION PLAN A Deferred Compensation Plan was established by Saul Centers, effective January 1, 1994, for the benefit of its directors and their beneficiaries. Before the beginning of any calendar year, a director may elect to defer all or part of his or her director's fees to be earned in that year and the following years. A director has the option to have deferred fees paid in cash or in shares of common stock. If the director elects to have the deferred fees paid in stock, the number of shares distributed to the director is determined based on the market value of the common stock on the day the director's deferred fee was earned. Shares authorized and registered for use under the plan total 70,000. As of March 31, 1997, 29,590 shares had been credited to the director's deferred fee accounts. NEW ACCOUNTING PRONOUNCEMENTS During 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes standards for measuring and accounting for impairment of long-lived assets held for production of income as well as long-lived assets to be "Disposed Of." The standard was implemented in 1996 and, in the opinion of management, no such impairment loss reductions are required. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires entities to measure compensation costs related to awards of stock-based compensation using either the fair value method or the intrinsic value method. The Company has adopted SFAS No. 123 utilizing the method which provides for proforma disclosure of the impact of stock-based compensation. In February, 1997 the FASB issued SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information About Capital Structure," both of which are required to be adopted for fiscal years beginning after December 15, 1997. SFAS No. 128 establishes new standards for computing, presenting and disclosing earnings per share, and will require restatement of prior year earnings per share disclosures. SFAS No. 129 establishes new standards for disclosing information about entities' capital structures. In the opinion of management, these standards will not have a material impact on the Company's consolidated results of operations and financial position. 12 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. CONSTRUCTION IN PROGRESS Construction in progress represents the costs of the current phase of the Seven Corners shopping center redevelopment, the Leesburg Pike expansion and Thruway's facade and site renovation. These costs include direct construction costs, indirect costs such as architectural, engineering and construction management, and carrying costs such as interest, real estate taxes and insurance.
Construction In Progress ------------------------ (In thousands) Seven Corners............. $3,610 Leesburg Pike............. 759 Thruway................... 59 ------ Total..................... $4,428 ======
4. NOTES PAYABLE In conjunction with the Offerings, the Company assumed and refinanced with the existing lenders $74.8 million of mortgage notes payable. The remaining mortgage and other notes payable assumed by the Company (including accrued interest and prepayment penalties) were repaid with the net proceeds of the Offerings and $117.8 million of new bank borrowings. Notes payable totaled $273.2 million at March 31, 1997, of which $126.2 million (46 percent) was fixed rate debt and $147.0 million (54 percent) was floating rate debt. All of the floating rate debt was capped by interest rate protection agreements (see "Notes Payable - Interest Rate Protection Agreements"). On August 1, 1994, SC Finance Corporation, a wholly owned subsidiary of Saul Centers, issued $128 million of Fitch Investors Services, Inc. rated seven- year Mortgage Notes, consisting of $91 million of Class A Collateralized Floating Rate Commercial Mortgage Notes, rated "AA", bearing interest at a rate equal to 0.65 percent above LIBOR, $13 million of Class B Collateralized Floating Rate Commercial Mortgage Notes, rated "A", bearing interest at a rate equal to 1.05 percent above LIBOR and $24 million of Class C Collateralized Floating Rate Commercial Mortgage Notes, rated "BBB", bearing interest at a rate equal to 1.55 percent above LIBOR. Proceeds from the issuance of these Mortgage Notes were used to repay debt of approximately $118 million, which was scheduled to mature primarily in 1996 and 1997. The ratings of the Company's $128 million of Mortgage Notes were affirmed by Fitch Investors Service, Inc. as of March 1996. Fitch noted that the affirmation of ratings reflected financial performance consistent with the initial underwriting of these Mortgage Notes. 13 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) During 1996, the Company repaid a total of $76.6 million of variable rate mortgage notes, the majority of which were scheduled to mature during 1998, with the net proceeds of a $77.0 million 15-year fixed rate mortgage note. The note requires monthly payments of interest at a rate of 8.64 percent and principal based upon a 20 year amortization schedule. The Company's revolving credit facility commitment of $100.1 million was reduced to $44.0 million as a result of the fixed rate financing. During January 1997, the Company repaid a $38.0 million variable rate mortgage note scheduled to mature in 1999, with the net proceeds of a $38.5 million 16-year fixed rate mortgage note. The note requires monthly payments of interest at a rate of 7.88 percent and principal based upon a twenty-five year amortization schedule. As of March 31, 1997, the Company had a $44.0 million secured revolving credit facility with outstanding borrowings of $19.0 million. The line requires monthly interest payments of LIBOR plus 1.875 percent. At March 31, 1997, $25.0 million was available for borrowing on the line. As of March 31, 1997, the scheduled maturities of all debt for years ending December 31, were as follows:
Debt Maturity Schedule ---------------------- (In thousands) April through December 31, 1997.. $ 2,018 1998............................. 22,149 1999............................. 3,380 2000............................. 3,631 2001............................. 131,803 2002............................. 3,254 Thereafter....................... 106,926 -------- Total $273,161 ========
INTEREST RATE PROTECTION AGREEMENTS Simultaneously with the completion of the Offerings, the Company (i) entered into interest rate protection agreements (interest rate caps) to limit the Company's exposure to increases in interest rates on $199.8 million of its floating rate debt above a LIBOR strike price of 4.25 percent for a period of one year ending in August 1994 and (ii) entered into additional interest rate protection agreements for $199.8 million with a LIBOR strike price of 5.25 14 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) percent for the ensuing four years ending in August 1998. Subsequent to the Company's November 1996 closing of its $77 million fixed rate mortgage, which refinanced a similar amount of floating rate debt, a total of $37.0 million of the 5.25 percent interest rate protection agreements were sold on December 9, 1996, leaving protection agreements with a notional value of $162.8 million and 5.25 percent interest rate maturing in August 1998. When adding the Company's current weighted average interest rate "spread" of approximately 1.00 percent over LIBOR at March 31, 1997 to the 5.25 percent strike price, the result is a maximum interest rate of approximately 6.25 percent for the Company's $147.0 million floating rate debt. The costs of these interest rate protection agreements were paid at the time of the Offerings. In conjunction with the August 1994 issue of the Mortgage Notes, the Company purchased $128 million of interest rate protection with a LIBOR strike price of 7.50 percent for a three-year term following the August 1998 expiration of the 5.25 percent interest rate protection agreement. The cost of this interest rate protection agreement was paid at the time of the issue of the Mortgage Notes. In March of 1995, the Company purchased $50 million of interest rate protection with a LIBOR strike price of 7.5 percent for a four-year term expiring March 1999. Subsequent to the Company's $77 million fixed rate loan closing in November 1996, this $50 million of interest rate protection was sold on December 9, 1996. Additionally, in March 1995, the Company purchased $71.8 million of interest rate protection with a LIBOR strike price of 7.5 percent for a two-year term following the August 1998 expiration of the 5.25 percent interest rate protection agreement. Also on December 9, 1996, the Company sold $37.0 million of these interest rate protection agreements. As a result of the purchased interest rate protection agreements, all of the Company's current floating rate debt totaling $147.0 million is capped at LIBOR strike prices of 5.25 percent through August 1998 and 7.5 percent through August 2000. The Company is exposed to interest rate risk and to risk of credit loss to the extent the counter party to the interest rate protection agreement is unable to perform. The interest rate risk refers to the Company's continuing obligation related to the stated interest rates in the existing debt agreements. Risk of credit loss is limited to the cost of replacing the interest rate protection agreements at current rates and not the notional principal amount, which is the amount upon which interest rates are applied to determine payment streams under the agreements. The Company does not anticipate non-performance by the counter parties of which there are three separate institutions. Income earned by the operation of the interest rate protection agreements for the three months ended March 31, 1997 and 1996, was $108,000 and $192,000, respectively and was reported as an offset to interest expense. 15 SAUL CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS These financial statements are prepared in conformity with generally accepted accounting principles and accordingly do not report the current value of the Company's real estate assets. The Shareholders' Equity reported on the Consolidated Balance Sheets does not reflect any increase in the value resulting from the difference between the current value and the net book value of the Company's assets. Therefore Shareholder's Equity reported on the Consolidated Balance Sheets does not reflect the market value of stockholders' investment in the Company. The Consolidated Statement of Operations for the three months ended March 31, 1997 includes a charge for minority interests of $1,713,000, consisting of $1,048,000 related to the predecessor company's share of the net income for the quarter and $665,000 related to distributions to minority interests in excess of allocated net income for the quarter. The charge for the three months ended March 31, 1996 of $1,713,000 consists of $918,000 related to the predecessor company's share of net income for the quarter and $795,000 related to distributions to minority interests in excess of allocated net income for the quarter. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- The following discussion is based primarily on the consolidated financial statements of Saul Centers, Inc. ("Saul Centers" and, together with its wholly owned subsidiaries and the limited partnerships of which it or one of its wholly owned subsidiaries is the sole general partner, the "Company") as of March 31, 1997 and for the three month period ending March 31, 1997. Liquidity and Capital Resources - ------------------------------- The Company's principal demands for liquidity are expected to be distributions to its stockholders, debt service and loan repayments, 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 95 percent of its "real estate investment trust taxable income," as defined in the Internal Revenue Code of 1986, as amended. The Company anticipates that operating revenues will provide the funds necessary for operations, debt service, distributions, and required recurring capital expenditures. Balloon principal repayments are expected to be funded by refinancings. Management anticipates that during the current year the Company may: 1) redevelop certain of the Shopping Centers, 2) develop additional freestanding out parcels or expansions within certain of the Shopping Centers, 3) acquire existing neighborhood and community shopping centers and 4) develop new shopping center sites. Acquisition and development of properties are undertaken only after careful analysis and review, and each such property is expected to provide long-term earnings and cash flow growth. During the coming year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Company's credit line or other external capital resources available to the Company. The Company expects to fulfill its long range requirements for capital resources in a variety of ways, including undistributed cash flow from operations, secured or unsecured bank and institutional borrowings, private or public offerings of debt or equity securities and proceeds from the dividend investment program. Borrowings may be at the Saul Centers, Operating Partnership or Subsidiary Partnership level, and securities offerings may include (subject to certain limitations) the issuance of additional limited partnership interests in the Operating Partnership which can be converted into shares of Saul Centers common stock. For the three months ended March 31, 1997, operating activities provided net cash flow of $12,097,000, while financing activities provided proceeds of $43,500,000 from a notes payable refinancing and $940,000 from the reinvestment of dividends by operation of the Company's Dividend Reinvestment and Stock Purchase Plan. During the same three month period investing activities used cash of $4,071,000 and financing activities used cash primarily for the 17 replacement of debt ($43,600,000), distributions ($6,465,000), shopping center renovations and capital expenditures ($1,151,000), and construction and redevelopment projects ($2,920,000). Management believes that the Company's current capital resources, including approximately $25,000,000 of the Company's credit line which was available for borrowing as of March 31, 1997, will be sufficient to meet its liquidity needs for the foreseeable future. Capital Strategy and Financing Activity - --------------------------------------- The Company's capital strategy is to maintain a ratio of total debt to total asset value of 50 percent or less, and to actively manage the Company's leverage and debt expense in order to maintain prudent coverage of fixed charges. Management believes that current total debt remains less than 50 percent of total asset value. Recently, the Company closed two long-term fixed rate mortgages, which management believes enhances its financial position. The first was a $77 million loan closed in November 1996, for a term of 15 years at a fixed interest rate of 8.64 percent, and an average twenty-year principal amortization schedule. A balloon payment of approximately $34 million will be due at maturity in December 2011. The loan is secured by six of the Company's retail and office properties. In January 1997, the Company closed a second loan in the amount of $38.5 million, for a 16-year term, at a fixed rate of 7.88 percent, and a twenty-five year principal amortization schedule. A balloon payment of approximately $24.5 million will be due at maturity in January 2013. This loan is secured by the 601 Pennsylvania Avenue office property. The proceeds of these loans were used to repay existing floating rate debt, including a portion of the revolving credit line, which had a weighted remaining term of less than 3 years and a weighted average interest rate of LIBOR plus 2.05 percent, or 7.58 percent assuming the three month LIBOR rate effective as of December 31, 1996. The Company now has fixed interest rates on approximately 46 percent of its total debt. The balance of the debt is tied to LIBOR rates and is covered by interest rate protection agreements, which cap LIBOR at 5.25 percent through August 1998 and 7.5 percent through August 2000. Redevelopment, Renovations and Acquisitions - ------------------------------------------- The Company has selectively engaged in redevelopment, renovation and acquisition activities. It continues to evaluate land parcels for retail development and potential acquisitions of operating retail properties for opportunities to enhance operating income and cash flow growth. The Company also continues to take advantage of retail redevelopment, renovation and expansion opportunities within the portfolio, as demonstrated by its continuing redevelopment activities at Seven Corners, a recently completed facade renovation at Lumberton Plaza, and the recent undertaking of a renovation at Thruway and an expansion of Leesburg Pike shopping centers. 18 The first phase renovation and conversion of Seven Corners, the Company's largest shopping center, from an enclosed mall to a large community retail center, was finished in September 1995. A 35,000 square foot Barnes & Noble book superstore opened in early October 1995, and a 50,000 square foot Bob's Store opened in March 1996. In addition to these new tenants, Seven Corners also features a 26,000 square foot Ross Dress for Less, a 50,000 square foot Best Buy and a renovated 23,000 square foot Woolworth's. These five anchor tenants comprise more than 32 percent of the current leasable space in the shopping center. Construction of a 16,000 square foot expansion of an outparcel building was completed in June 1995. This space is fully leased to service- oriented tenants, some of which relocated from the former enclosed mall. Construction was also completed in 1996 on two free-standing restaurant pads leased by Wendy's and Pizzeria Uno, which opened for business in May and September 1996, respectively. In February 1996, the Company entered into a twenty-year lease at Seven Corners with Shoppers Club for their latest prototype 69,000 square foot grocery store, and in May 1996, the Company entered into a thirty-year 127,000 square foot lease with The Home Depot, which includes approximately 106,000 square feet of indoor home improvement space and 21,000 square feet of outside garden center area. The former Woodward and Lothrop department store building was demolished in October 1996 to accommodate the construction of the new stores and associated parking. Construction of this phase of development is projected to be completed in late summer of 1997. Lumberton is a 185,000 square foot, neighborhood shopping center anchored by Super Fresh and Rite Aid, located east of Philadelphia in southern New Jersey. The Company has renovated the shopping center's facade and upgraded signage and lighting. This renovation was substantially completed in November 1996. The Company has commenced construction on a facade renovation of its Harris Teeter and Steinmart anchored, 340,000 square foot, Thruway shopping center located in Winston-Salem, North Carolina. Construction will include a 40-foot clock tower, a new tenant sign band, colonial style anchor tenant features, new lighting and a complete facade upgrade. The renovation is projected to be completed in the fall of 1997. Leesburg Pike is a 83,000 square foot shopping center, where a facade renovation was completed in 1995. Construction has begun on a 13,000 square foot expansion of in-line shop space for new retail uses. The expansion is 100 percent pre-leased and is projected to be completed in the summer of this year. Portfolio Leasing Status - ------------------------ At March 31, 1997, the portfolio consisted of thirty Shopping Centers and three Commercial Properties located in seven states and the District of Columbia. The Commercial Properties consist of one office property and one office/retail property, both located in the 19 District of Columbia, and one research park located in a Maryland suburb of Washington, D.C. At March 31, 1997, 89.1 percent of the Company's 5.8 million square feet of leasable space was leased to tenants, as compared to 87.6 percent at March 31, 1996. The shopping center portfolio was 88.9 percent leased at March 31, 1997 versus 87.0 percent as of March 31, 1996. The Commercial Properties were 90.6 percent leased at March 31, 1997 compared to 92.6 percent as of March 31, 1996. The overall improvement in the 1996 leasing percentage was primarily the result of substantial leasing activity at the Company's Seven Corners redevelopment project. RESULTS OF OPERATIONS The following discussion compares the results of the Company for the three month periods ended March 31, 1997 and 1996. This information should be read in conjunction with the accompanying consolidated financial statements and the notes related thereto. These financial statements include all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996 - ------------------------------------------------------------------------------- Base rent and expense recoveries were $12,601,000 and $2,312,000, respectively, for the three month period ended March 31, 1997 (the "1997 Quarter"), compared to $12,260,000 and $2,293,000, respectively, for the comparable quarter in 1996 (the "1996 Quarter"), representing a $341,000 (2.8 percent) increase in base rent and $19,000 (0.8 percent) increase in expense recoveries. The increase in base rent resulted primarily from new leases placed in service at Seven Corners, Great Eastern and Leesburg Pike for the 1997 Quarter but not present during the 1996 Quarter. Percentage rent was $759,000 in the 1997 Quarter, compared to $716,000 in the 1996 Quarter, representing an increase of $43,000 (6.0 percent). Other income, which is comprised primarily of parking income, kiosk leasing, temporary leases, and payments associated with early termination of leases, was $890,000 in the 1997 Quarter, compared to $364,000 in the 1996 Quarter, representing an increase of $526,000 (144.5 percent). The increase in other income resulted primarily from increased lease termination payments. Operating expenses, comprised primarily of repairs and maintenance, utilities, payroll and insurance, decreased $132,000 (6.1 percent) to $2,026,000 in the 1997 Quarter from $2,158,000 in the 1996 Quarter. The reduction in the 1997 period's operating expenses was largely attributable to reduced snow removal expenses resulting from the relatively mild winter weather in the Mid- Atlantic region. 20 Real estate taxes increased $85,000 (5.9 percent) to $1,514,000 in the 1997 Quarter from $1,429,000 in the 1996 Quarter. The real estate tax increase was mainly attributable to a significant increase in taxes assessed at Seven Corners center, due to the shopping center's redevelopment. The provisions for credit losses decreased $12,000 (21.8 percent) to $43,000 in the 1997 Quarter from $55,000 in the 1996 Quarter. Interest expense of $4,820,000 for the 1997 Quarter represented an increase of $394,000 (8.9 percent) over $4,426,000 reported for the 1996 Quarter. This increase is primarily attributable to increased interest expense resulting from the Company's conversion of approximately $115.5 million of its mortgage debt from floating rate loans to longer term, fixed rate loans. Amortization of deferred debt expense decreased to $545,000 for the 1997 Quarter from $732,000 for the 1996 Quarter, representing a decrease of $187,000 (25.5 percent). The decrease in the 1997 Quarter resulted from the elimination of amortization on interest rate protection agreements with a total notional value of $87.0 million, sold during the fourth quarter of 1996, and reduced debt amortization because new fixed rate debt has a longer term than the floating rate debt it replaced. Depreciation and amortization expense decreased $108,000 (4.0 percent) from $2,680,000 in the 1996 Quarter to $2,572,000 in the 1997 Quarter. General and administrative expense, which consists primarily of administrative, payroll and other overhead expense, was $793,000 for the 1997 Quarter, as compared to $754,000 for the 1996 Quarter, representing an increase of $39,000 (5.2 percent). Extraordinary item, loss on early extinguishment of debt, was $369,000 for the 1997 Quarter resulting from the write-off of unamortized loan costs when the Company refinanced a portion of its loan portfolio. No loss on early extinguishment of debt was recorded during the 1996 Quarter. 21 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 18, 1997, the Company held its Annual Meeting of Stockholders, at which Messrs. Caraci, Grosvenor, and Jackson were reelected to the Board of Directors, each receiving in excess of 91 percent of the votes of the approximately 11 million shares represented at the meeting. The terms of Messrs. Kelley, Longsworth, Noonan, Saul, Symington and Whitmore did not expire as of the April 18, 1997 meeting and such individuals continue as directors of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits -------- 3. (a) First Amended and Restated Articles of Incorporation of Saul Centers, Inc. filed with the Maryland Department of Assessments and Taxation on August 23, 1994 and filed as Exhibit 3.(a) of the 1993 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (b) Amended and Restated Bylaws of Saul Centers, Inc. as in effect at and after August 24, 1993 and as of August 26, 1993 and filed as Exhibit 3 (b) of the 1993 Annual Report of the Company on Form 10-K is hereby incorporated by reference. 10. (a) First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit No. 10.1 to Registration Statement No. 33-64562 is hereby incorporated by reference. The First Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership, the Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership, and the Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. The Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership is filed herewith. (b) First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership and Amendment No. 1 thereto filed as Exhibit 10.2 to Registration Statement No. 33- 64562 are hereby incorporated by reference. 22 (c) First Amended and Restated Agreement of Limited Partnership of Saul II Subsidiary Partnership and Amendment No. 1 thereto filed as Exhibit 10.3 to Registration Statement No. 33-64562 are hereby incorporated by reference. (d) Property Conveyance Agreement filed as Exhibit 10.4 to Registration Statement No. 33-64562 is hereby incorporated by reference. (e) Management Functions Conveyance Agreement filed as Exhibit 10.5 to Registration Statement No. 33-64562 is hereby incorporated by reference. (f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6 to Registration Statement No. 33-64562 is hereby incorporated by reference. (g) Exclusivity and Right of First Refusal Agreement filed as Exhibit 10.7 to Registration Statement No. 33-64562 is hereby incorporated by reference. (h) Saul Centers, Inc. 1993 Stock Option Plan filed as Exhibit 10.8 to Registration Statement No. 33-64562 is hereby incorporated by reference. (i) Agreement of Assumption dated as of August 26, 1993 executed by Saul Holdings Limited Partnership and filed as Exhibit 10. (I) of the 1993 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (j) First Amended and Restated Revolving Credit Agreement dated as of November 2, 1995 among Saul Holdings Limited Partnership, Saul Subsidiary II Limited Partnership and The First National Bank of Chicago, First Bank National Association, BHF-Bank Aktiengesellschaft, Crestar Bank, Bank of America Illinois and The First National Bank of Chicago, as Agent and filed as Exhibit 10.(k) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. First Amendment to the First Amended and Restated Revolving Credit Agreement dated as of November 7, 1996 among Saul Holdings Limited Partnership, and The First National Bank of Chicago, First Bank National Association, Crestar Bank, and The First National Bank of Chicago, as Agent, is filed herewith. 23 (k) Indenture dated as of August 1, 1994 among SC Finance Corporation, as Issuer, Bankers Trust Company, as Master Service and in certain other capacities, and Marine Midland Bank, as Trustee, and filed as Exhibit 10.(o) of the 1994 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (l) Master Servicing Agreement dated as of August 1, 1994 among SC Finance Corporation, as Issuer, Marine Midland Bank, as Trustee, and Bankers Trust Company, as Master Servicer, and filed as Exhibit 10.(p) of the 1994 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (m) Mortgage Loan Purchase Agreement dated as of August 1, 1994 between SC Finance Corporation, Purchaser, and Value Line Mortgage Corporation, Originator, and filed as Exhibit 10.(q) of the 1994 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (n) Deed to Secure Debt, Deed of Trust, Mortgage, Security Agreement and Assignment of Rent; Modification and Consolidation Agreement dated as of July 31, 1994 among Saul Subsidiary I Limited Partnership, Mortgagor, Value Line Mortgage Corporation, Mortgagee, Stuart S. Levin and Kenneth Kraus, District of Columbia Trustee, Kenneth Kraus, Maryland Trustee, Kenneth Kraus, North Carolina Trustee, and Gerald R. Perras and Leonard W. Harrington, Jr., Virginia Trustee, and filed as Exhibit 10.(r) of the 1994 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (o) Interest Rate and Currency Exchange Agreement dated as of July 27, 1994 between General Re Financial Products Corporation and Saul Subsidiary I Limited Partnership, and filed as Exhibit 10.(s) of the 1994 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (p) Saul Centers, Inc. 1995 Dividend Reinvestment and Stock Purchase Plan filed with the Securities and Exchange Commission as File No. 33-80291 is hereby incorporated by reference. (q) Deferred Compensation Plan for Directors dated as of December 13, 1993 as filed as Exhibit 10.(r) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (r) Deed of Trust, Assignment of Rents, and Security Agreement dated as of June 9, 1994 by and between Saul Holdings Limited 24 Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit 10.(t) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. (s) Deed of Trust Note dated as of January 22, 1996 by and between Saul Holdings Limited Partnership and Clarendon Station Limited Partnership is filed herewith. (t) Loan Agreement dated as of November 7, 1996 by and among Saul Holdings Limited Partnership, Saul Subsidiary II Limited Partnership and PFL Life Insurance Company, c/o AEGON USA Realty Advisors, Inc. is filed herewith. (u) Interest Rate Agreements dated as of March 16, 1995 between Saul Holdings Limited Partnership and Wells Fargo Bank National Association as filed as Exhibit 10.(u) of the 1995 Annual report of the Company on Form 10-K is hereby incorporated by reference. First Amendment to Interest Rate Agreement dated as of December 9, 1996 between Saul Holdings Limited Partnership and Wells Fargo Bank National Association is filed herewith. (v) Interest Rate Agreement Termination dated as of December 9, 1996 between Saul Holdings Limited Partnership and Wells Fargo Bank, National Association is filed herewith. (w) Letter Agreement dated December 9, 1996 between Saul Holdings Limited Partnership and Wells Fargo Bank, National Association confirming the sale of interest rate cap with $37,000,000 notional value is filed herewith. (x) Amendment to amended interest rate cap agreement, notional value $34,780,000, dated December 17, 1996 between Saul Holdings Limited Partnership and The First National Bank of Chicago, is filed herewith. (y) Letter Agreement dated December 10, 1996 between Saul Holdings Limited Partnership and The First National Bank of Chicago confirming the sale of interest rate cap agreements with notional values of $50,000,000 and $37,000,000, is filed herewith. (z) Promissory Note dated as of January 10, 1997 by and between Saul Subsidiary II Limited Partnership and The Northwestern Mutual Life Insurance Company, is filed herewith. 23 Consent of Certified Public Accountants 25 99 Schedule of Portfolio Properties Financial Data Schedule Reports on Form 8-K. -------------------- None. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAUL CENTERS, INC. (Registrant) Date: May 13, 1997 /s/ Philip D. Caraci -------------- --------------------------------------- Philip D. Caraci, President Date: May 13, 1997 /s/ Scott V. Schneider -------------- --------------------------------------- Scott V. Schneider Vice President, Chief Financial Officer 27 EX-10.A 2 EXHIBIT 10.A FOURTH AMENDMENT TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SAUL HOLDINGS LIMITED PARTNERSHIP THIS FOURTH AMENDMENT TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SAUL HOLDINGS LIMITED PARTNERSHIP (this "Fourth Amendment"), dated as of Dec. 1, 1996, is entered into by the undersigned ------ parties. W I T N E S S E T H WHEREAS, Saul Holdings Limited Partnership (the "Partnership") was formed as a Maryland limited partnership pursuant to that certain Certificate of Limited Partnership dated June 16, 1993 and filed on June 16, 1993 among the partnership records of the Maryland State Department of Assessments and Taxation, and that certain Agreement of Limited Partnership dated June 16, 1993 (the "Original Agreement"); WHEREAS, the Original Agreement was amended and restated in its entirety by that certain First Amended and Restated Agreement of Limited Partnership of the Partnership dated August 26, 1993, which was further amended by that certain First Amendment dated August 26, 1993, by that certain Second Amendment dated March 31, 1994, and by that certain Third Amendment dated July 21, 1994 (as amended, the "Agreement"); WHEREAS, the General Partner of the Partnership has established its Dividend Reinvestment and Stock Purchase Plan (the "Plan"), which provides, among other things, that the limited partners of the Partnership can elect to invest some or all of their cash distributions received from the Partnership in REIT Shares and that the General Partner will invest all funds received under the Plan in the Partnership as an additional capital contribution; WHEREAS, the undersigned parties, constituting all of the Partners of the Partnership, desire to amend the Agreement (i) to appropriately reflect the additional capital contributions that the General Partner will be making to the Partnership pursuant to the Plan, and (ii) to provide Limited Partners with the option of making capital contributions to the Partnership of cash distributions that the might otherwise be invested in REIT Shares pursuant to the Plan. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: -1- 1. The definition of "Value" in Article I is amended by inserting the following at the end of the first sentence thereof: ; provided, however, that with respect to REIT Shares issued pursuant to a dividend reinvestment plan as set forth in Section 4.7 and with respect to Section 4.8, "Value" as of any date means the closing price of the REIT Shares as of such date. 2. The following Sections 4.7 and 4.8 are hereby inserted after Section 4.6: Section 4.7 Dividend Reinvestment Plan -------------------------- If the General Partner establishes a dividend reinvestment plan, and cash dividends or other cash distributions are invested in REIT Shares pursuant to such plan: (1) the General Partner shall, as soon as practicable after receiving such distributions, contribute to the capital of the Partnership an amount equal to the cash dividends or other cash distributions received for the REIT Shares; and (2) the General Partner shall, as of the date on which the REIT Shares are issued pursuant to such plan, be deemed to have contributed to the Partnership as Contributed Funds pursuant to Section 4.2.A(2) hereof an amount equal to the Value (computed as of the date on which such distributions are invested in REIT Shares pursuant to such plan) of the REIT Shares delivered by the General Partner pursuant to such plan; and (3) the General Partner's Partnership Interest and the Partnership Interests of the Limited Partners shall be adjusted as set forth in Section 4.2 Section 4.8 Optional Investment of Cash Distributions ----------------------------------------- If the General Partner establishes a dividend reinvestment plan pursuant to which Limited Partners may invest cash distributions in additional REIT Shares, and for so long as such plan remains in effect: (1) the Limited Partners may make additional Capital Contributions to the Partnership of the cash distributions from the Partnership; (2) any Limited Partner who elects to make such an additional Capital Contribution shall receive additional Partnership Units -2- equal to the number of REIT Shares such Limited Partner would have received had it invested such cash distribution in REIT Shares pursuant to such plan; (3) the Limited Partner shall, as of the date on which such cash distribution, if any, is invested in the Partnership, be deemed to have contributed to the Partnership as an additional Capital Contribution an amount equal to the Value (computed as of the date on which such distributions are invested in the Partnership) of the REIT Shares that would have been delivered to such Limited Partner by the General Partner had such cash distribution been invested pursuant to such plan; and (4) the General Partner shall be authorized on behalf of each of the Partners to amend this Agreement to reflect the increase in the Partnership Interest of each Limited Partner who elects to invest cash distributions in the Partnership pursuant to this Section 4.8, and the General Partner shall promptly after each such investment deliver a copy of such amendment to each Limited Partner. 3. Except as the context may otherwise require, any terms used in this Fourth Amendment that are defined in the Agreement shall have the same meaning for purposes of this Fourth Amendment as in the Agreement. 4. Except as herein amended, the Agreement is hereby ratified, confirmed and reaffirmed for all purposes and in all respects. 5. This Fourth Amendment may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Fourth Amendment immediately upon affixing its signature hereto. -3 - IN WITNESS WHEREOF, the undersigned parties have executed this Fourth Amendment as of the date first written above. GENERAL PARTNER --------------- SAUL CENTERS, INC. a Maryland corporation By: /s/ Philip D. Caraci Name: Philip Caraci Title: President LIMITED PARTNERS ---------------- B. F. SAUL REAL ESTATE INVESTMENT TRUST, a Maryland unincorporated business trust By: /s/ Philip D. Caraci Name: Philip D. Caraci Title: Senior Vice President Attest: /s/ Jeannell L. Christian Name: Jeannell L. Christian Title: Assistant Secretary WESTMINSTER INVESTING CORPORATION, a New York corporation By: /s/ B. Francis Saul III Name: B. Francis Saul III Title: Executive Vice President -4- VAN NESS SQUARE CORPORATION, a Maryland corporation By: /s/ B. Francis Saul III Name: B. Francis Saul III Title: President DEARBORN CORPORATION, a Delaware corporation By: /s/ Philip D. Caraci Name: Philip D. Caraci Title: President FRANKLIN PROPERTY COMPANY, a Maryland corporation By: /s/ Philip D. Caraci Name: Philip Caraci Title: President AVENEL EXECUTIVE PARK PHASE II, INC., a Maryland corporation By: /s/ Philip D. Caraci Name: Philip Caraci Title: President -5- EX-10.J 3 EXHIBIT 10.J FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS This First Amendment to First Amended and Restated Revolving Credit Agreement and other Loan Documents (the "First Amendment") is entered into as of November 7, 1996 , by and among Saul Holdings Limited Partnership ("Holdings"), Saul Subsidiary II Limited Partnership ("Saul D.C."), Saul Centers, Inc. ("Saul Centers"), The First National Bank of Chicago ("First Chicago"), First Bank National Association ("First Bank.), BHF Bank-Aktiengesellschaft ("BHF"), Crestar Bank ("Crestar"), Bank of America Illinois ("Bank of America") (collectively, First Chicago, First Bank, BHF, Crestar and Bank of America are the "Lenders") and First Chicago, as Agent. RECITALS -------- A. The parties hereto (other than Saul Centers) are parties to a certain First Amended and Restated Revolving Credit Agreement, dated as of November 2, 1995 (the "Agreement"). B. Holdings and Saul D.C. (collectively, the "Borrower") have requested, and the Lenders have agreed, that seven of the Properties shall be released from serving as Collateral for the Facility and Saul D.C. will be released as a borrower under the Agreement, in exchange for a reduction in the maximum aggregate amount available under the Facility to the Borrower, all upon the terms and conditions contained herein. C. Upon the execution of this First Amendment, Bank of America and BHF will no longer be Lenders and the Commitments of First Bank, First Chicago and Crestar will be as set forth on the signature page to this First Amendment. D. The parties hereto agree to amend the Agreement as provided herein. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: I. Capitalized Terms. The capitalized terms used herein shall have the ----------------- meanings set forth in the Agreement, unless otherwise provided herein. All references in this First Amendment to Articles and Sections are to Articles and Sections, respectively, of the Agreement, unless otherwise provided herein. II. Definitions. ----------- A. The following definitions in Section 1.1 shall be deleted: 1. Advance Percentage Reduction Date. --------------------------------- 2. Excess Usage Period. ------------------- 1 B. The following definitions in Section 1.1 shall be amended as follows: 1. Advance Percentage. The definition of Advance Percentage shall be ------------------ deleted in its entirety and replaced with the following: "Advance Percentage" means fifty percent (50%). ------------------ 2. Aggregate Commitment. The definition of Aggregate Commitment -------------------- shall be deleted in its entirety and replaced with the following: "Aggregate Commitment" means, as of any date, the sum of all of -------------------- the Lenders' then- current Commitments. As of the date of the First Amendment, the Aggregate Commitment is $44,000,000. 3. Borrower. The definition of Borrower shall be deleted in its -------- entirety and replaced with the following: "Borrower" means Saul Holdings Limited Partnership, a Maryland -------- limited partnership, along with its permitted successors and assigns. The last sentence of Recital F which also contained a definition of "Borrower" is also hereby deleted. 4. Borrowing Base. The definition of Borrowing Base shall be deleted -------------- in its entirety and replaced with the following: "Borrowing Base" means, as of any date, the sum of the as -------------- completed value of Seven Corners determined by an Appraisal multiplied by the Seven Corners Advance Percentage and the as-is value of all other Properties determined by Appraisals multiplied by the Advance Percentage. 5. CBR Added Percentage. The definition of CBR Added Percentage -------------------- shall be deleted in its entirety and replaced with the following: "CBR Added Percentage" means three-eighths of one percent -------------------- (0.375%). 6. LIBOR Added Percentage. The definition of LIBOR Added Percentage ---------------------- shall be deleted in its entirety and replaced with the following: "LIBOR Added Percentage" means one and seven-eighths of one ---------------------- percent (1.875%). 2 C. The following definitions shall be added to Section 1.1 in alphabetical order: "First Amendment" means the First Amendment to First Amended and --------------- Restated Revolving Credit Agreement and other Loan Documents, dated as of November 7, 1996, by and among the Holdings, Saul Centers, Inc., Saul D.C. and the Lenders. "Released Properties" shall mean Avenel I, Avenel II, ------------------- Avenel III, Leesburg Pike, Van Ness, Village Center at Sully Station and Lumberton. "Seven Corners Advance Percentage" means sixty percent (60%). -------------------------------- III. Deletions, Amendments and Additions to Existing Sections of Agreement. --------------------------------------------------------------------- A. Section 2.1 The Facility. The second sentence of Section 2.1 is ------------------------ hereby deleted in its entirety. B. Section 6.3 Compliance with Borrowing Base and Imputed Cash Flow ---------------------------------------------------------------- Ratio. SECTION 6.3 shall be deleted in its entirety and replaced with the - ----- following: 6.3 Compliance with Borrowing Base and Imputed Cash Flow Ratio. --------------------------------------------------------------- (a) The Borrowing Base shall be calculated on the first day of each quarter and shall be subject to the conditions contained in subsection (b) below. If the amount of Advances outstanding under the Facility at the time the Borrowing Base is calculated exceeds the Borrowing Base for any reason, the Borrower shall, within ninety (90) days of such date, take either or both of the following actions, at the option of the Borrower: (i) repay the amount of Advances outstanding under the Facili excess of the Borrowing Base or (ii) provide Additional Collateral in accordance with Section 2.17 to Lenders in an amount so that after the inclusion of such Additional Collateral in the Borrowing Base, the amount of Advances outstanding under the Facility will be equal to or less than the Borrowing Base. (b) If the Imputed Cash Flow Ratio, calculated on the last day of each fiscal quarter, for the immediately preceding four (4) fiscal quarters, is: (i) less than 1.35 to 1, until the earlier of the first fiscal quarter during which (A) Shoppers Food Warehouse at Seven Corners begins to pay rent or (B) the date that is 18 months after the date of the First Amendment or (ii) less than 1.5 to 1, thereafter, 3 then within ten (10) Business Days after a demand for compliance by the Agent, the Borrower shall cause the Imputed Cash Flow Ratio to be equal to or greater than the ratio required in this Section 6.3(b) by taking either or both of the following actions, at the option of the Borrower: (x) delivering a written agreement permanently reducing the Aggregate Commitment and repaying such portion of the outstanding Advances as is necessary to reduce the outstanding Advances to an amount less than the reduced Aggregate Commitment or (y) commencing and continuing to diligently pursue designating Additional Collateral satisfactory to the Lenders and delivering such agreements or other documentation necessary to create a perfected, first priority lien in favor of Lenders in such Additional Collateral, all in accordance with Section 2.17, provided that the delivery and documentation of such Additional Collateral shall be completed not later than thirty (30) days following the original demand for compliance by the Agent. (c) For purposes of determining the Imputed Cash Flow Ratio, for both the lease for Shoppers Food Warehouse and Home Depot at Seven Corners, once the tenant thereunder has begun making rent payments, the Imputed Cash Flow Ratio shall be calculated as if the tenant had been making such rent payments for the preceding four quarters. C. Section 7.1(h) Maintenance of Consolidated Cash Flow Ratio. SECTION ---------------------------------------------------------- 7.1(h) shall be deleted in its entirety and replaced with the following: (h) Maintenance of Consolidated Cash Flow Ratio. Permit the Consolidate ------------------------------------------- Operating Partnership to maintain a Consolidated Cash Flow Ratio of less than 1.9 to 1 as of the end of any fiscal quarter, based on the results for the previous four fiscal quarters. IV. Amendment to Notes and Deeds of Trust. The Notes for BHF, Bank of ------------------------------------- America, and First Chicago will be amended and restated into two notes, for each Lender, substantially in the form of their existing Notes but with different principal amounts which together will equal the principal amount of their current Note. Agent shall enter into such amendments to the Deeds of Trust as may be required in connection with reflecting the amendment and restatement of certain Notes and the assignment of certain of the Deeds of Trust. Upon the effective date of this First Amendment, Holdings and each Lender that is remaining in the Facility whose Note is not being amended and restated agrees to execute and attach to its note an Allonge in the form attached hereto as EXHIBIT A. 4 V. Amendment to Environmental Indemnity Agreement and other Loan Documents. ----------------------------------------------------------------------- The Amended and Restated Environmental Indemnity dated as of November 2, 1995 from Holdings and Saul D.C. and Saul Centers in favor of The First National Bank of Chicago, as Agent, is hereby amended by deleting Saul D.C. as an Obligor thereunder for all obligations accruing after the effective date of this Amendment. In addition, Saul D.C. is hereby released as Borrower, debtor, and obligor under each of the other Loan Documents. VI. Additional Provisions. --------------------- A. Conditions to Closing of First Amendment. When the following terms and ---------------------------------------- conditions have been satisfied, the Released Properties shall be released from serving as Collateral, Saul D.C. shall be released as a Borrower under the Facility and Bank of America and BHF shall no longer be Lenders under the Facility (and shall have no further rights or obligations relating thereto or to the Loan Documents or the Intercreditor Agreement dated as November 2, 1995 among Agent and the Lenders), a First Amendment and the other amendment documents listed below shall become effective: 1. The Borrower repays amounts borrowed under the Facility sufficient to cause the aggregate outstanding principal amount to be less than or equal to the Borrowing Base, as set forth in Section 6.3 of the Agreement, as amended by this First Amendment. All amounts repaid shall be applied first to repay amounts due to Bank of America and BHF who will no longer be Lenders after the effective date of this First Amendment. Any remaining amounts paid shall be applied to amounts due to the ot Lenders on a pro rata basis. Notwithstanding anything to the contrary herein or in the Loan Documents, Bank of America and BHF shall be entitled to all rights of Lenders with respect to matters accruing prior to the effective date of this First Amendment. 2. This First Amendment, each of the Allonges referred to in Paragraph IV hereof, and all of the amended and restated promissory notes, amendments to deeds of trust and assignments of deeds of trust delivered pursuant to this First Amendment have been duly executed by all parties thereto. 3. Copies of appropriate resolutions of the General Partner, authorizing the execution of this First Amendment and the other amendment documents executed in connection therewith, have been delivered to Agent. 4. An incumbency certificate which shall identify by name and title and bear the signature of the officer or officers of the Borrower authorized to sign the First Amendment and to request Advances under the Facility has been delivered to Agent. 5. A written opinion of Shaw Pittman Potts & Trowbridge, in form satisfactory to Agent and its counsel, has been delivered to Agent. 5 6. The Borrower has made payment of an amendment fee to each Lender remaining in the Facility after the execution of this First Amendment equal to .03% of the then-current Commitment of each Lender. 7. The Borrower has made payment of all reasonable expenses of Agent and its counsel in connection with the preparation and execution of this First Amendment and the other amendment documents executed in connection therewith. 8. Date-down title endorsements for Seven Corners, Clarendon, Boulevard, Shops at Fairfax, Germantown and Flagship have been received by Agent. 9. Such other documents as the Lenders may reasonably request have been executed and received by Agent. B. Closing Certificate. By execution of this First Amendment, the General ------------------- Partner on behalf of the Borrower hereby certifies that on the date hereof (i) the representations and warranties contained in the Agreement, as amended by this First Amendment, are correct on and as of the date hereof except as disclosed on Exhibit C attached hereto; (ii) there has been no Material Adverse Financial Change since December 31, 1995; (iii) no Default or Event of Default has occurred and is continuing; and (iv) the Borrower has no defenses or offsets to the enforcement of the Loan Documents, as amended. C. Borrower Base Calculation. A calculation of the Borrowing Base as of the ------------------------- effective date of this Amendment is attached hereto as Exhibit B. D. Effect on Agreement. Except as specifically provided herein, the ------------------- Agreement and all other Loan Documents remain in full force and effect and are hereby ratified and confirmed in their entirety by the Borrower. All references in any of the Loan Documents to the Agreement shall refer to the Agreement as amended hereby. E. Consent of Guarantor. Saul Centers hereby consents to the terms of this -------------------- First Amendment and reaffirms its obligations under the terms of that certain Amended and Restated Guaranty dated as of November 2, 1995. 6 IN WITNESS WHEREOF, the undersigned have executed this First Amendment to First Amended and Restated Revolving Credit Agreement and other Loan Documents as of the date first written above. BORROWER: SAUL HOLDINGS LIMITED PARTNERSHIP By: Saul Centers, Inc., its general partner /s/ Philip D. Caraci ------------------------------------------- Name: Philip D. Caraci Title: President SAUL SUBSIDIARY II LIMITED PARTNERSHIP By: Saul Centers, Inc., its general partner /s/ Philip D. Caraci ------------------------------------------- Name: Philip D. Caraci Title: President GUARANTOR: SAUL CENTERS, INC. By: /s/ Philip D. Caraci ------------------------------------------- Name: Philip D. Caraci Title: President LENDERS: THE FIRST NATIONAL BANK OF CHICAGO /s/ James D. Benko ------------------------------------------- Name: James D. Benko Title: Assistant Vice President Commitment: $19,500,000 Percentage: 44.31818181818% 7 FIRST BANK NATIONAL ASSOCIATION /s/ James P. Hoopes ------------------------------------------- Name: James P. Hoopes Title: Assistant Vice President Commitment: $19,500,000 Percentage: 44.31818181818% CRESTAR BANK /s/ Michael E. Forry ------------------------------------------- Name: Michael E. Forry Title: Vice President Commitment: $5,000,000 Percentage: 11.11363636364% AGENT: THE FIRST NATIONAL BANK OF CHICAGO /s/ James D. Benko ------------------------------------------- Name: James D. Benko Title: Assistant Vice President 8 The undersigned Lenders are executing this Amendment for the sole purpose of confirming that from and after the effective date of this Amendment, they will no longer be Lenders provided that all sums due to them have been paid. BHF-BANK AKIIENGESELLSCHAFT /s/ Catherine ------------------------------------------- Name: C. H. Title: Vice President /s/ Robert Svehnhof ------------------------------------------- Name: Robert Svehnhof Title: Senior Vice President BANK OF AMERICA ILLINOIS /s/ Robert P. McKenny ------------------------------------------- Name: Robert P. McKenny Title: Vice President 9 EXHIBIT A FORM OF ALLONGE The undersigned hereby confirm that Saul Subsidiary II Limited Partnership has been released as an obligor under the foregoing Amended and Restated Promissory Note dated November2, 1995, payable to __________________________, pursuant to the terms of that certain First Amendment to First Amended and Restated Revolving Credit Agreement and other Loan Documents among Saul Holdings Limited Partnership, Saul Subsidiary II Limited Partnership, The First National Bank of Chicago, as agent, and the Lenders name therein, dated as of , 1996, and that all references in the foregoing Note to the "Agreement" shall refer to the Agreement as amended from time to time. [SIGNATURE BLOCK OF APPLICABLE LENDER] SAUL HOLDINGS LIMITED PARTNERSHIP By: Saul Centers, Inc., its general partner By: ----------------------------------- 10 EXHIBIT B BORROWING BASE CALCULATION
Property Appraised Value Margin Borrowing Base - -------------------------------------------------------------------------------- Seven Corners $ 58,000,000 60% $ 34,800,000 Germantown 4,000,000 50% 2,000,000 Shops at Fairfax 5,800,000 50% 2,900,000 Clarendon 1,800,000 50% 900,000 Boulevard 4,800,000 50% 2,400,000 Flagship 2,000,000 50% 1,000,000 -------------- Total Borrowing Base $ 44,000,000
11 EXHIBIT C EXCEPTIONS TO REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES Attached hereto are supplemental Schedules 5.10 and 5.22 to the Credit Agreement, reflecting litigation and lease defaults, respectively, as of the date hereof. 12 Schedule 5.10 Litigation ---------- SEVEN CORNERS PETSTUFF: Petstuff has not paid rent for the months of March through May, 1996, and the months of July through October 1996. Tenant maintains that its actions of non- payment of rent should have forced the Landlord to choose between terminating the lease or reentering/mitigating damage by releasing the space. The lease does not support Tenant's claim and Landlord is suing to enforce all of its rights to collect rent under the Lease and at law. Furthermore, Landlord maintains that the lease remains in effect, although in default, and further that any obligation to mitigate damages has not been triggered because of the following language in the lease: However, Landlord shall not be obligated to offer the Demised Premises to a prospective tenant when other premises in the Shopping Center suitable for that prospective tenant's use are (or soon will be) available. Thus, any duty of Saul Centers to mitigate its damages by reletting the premises once occupied by Petstuff is not triggered unless and until the landlord enters upon and takes possession of the premises and no other space in the shopping center that would be acceptable to a prospective tenant is available. Saul Centers has not entered and taken possession of the premises. Moreover, since the date that Petstuff defaulted, the space once occupied by F&M has also been available. Thus, any dut of Saul Centers to mitigate has not yet been triggered. Subsequent to these events, on November 1, 1996, Tenant called a meeting with Landlord and proposed to bring lease current and requested that Landlord approve a sub-lease which they claim to have procured for the space. Landlord is currently considering Tenant's proposal. 13 Schedule 5.22 Leases in Default Tenant Delinquencies over 30 Days --------------------------------- PROPERTY TENANT AMOUNT ------------------------------------------------------ Germantown Wings To Go $ 9,202.94 Clarendon Red, Hot & Blue $ 1,261.01 Seven Corners Petstuff $169,073.76 14 EX-10.S 4 EXHIBIT 10.S DEED OF TRUST NOTE $401,750.00 January 22, 1996 FOR VALUE RECEIVED, SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership, (the "Maker"), promises to pay to the order of CLARENDON STATION, L.P., a Virginia limited partnership, c/o Paul V. Cali, The Running Iron Ranch, 20 Hunter Creek Road, Cody, Wyoming 82414, (or at such other address and/or to the attention of such other person as the holder from time to time may designate by written notice given to the Maker), the principal sum of Four Hundred One Thousand Seven Hundred Fifty and No/Dollars ($401,750.00), together with interest commencing from the date hereof on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, upon the terms and provisions set forth herein. 1. Payment of Interest. Interest shall be calculated on the unpaid -------------------- principal balance hereof and shall be payable monthly. 2. Payment of Principal. Maker shall be obligated to make four (4) --------------------- consecutive annual principal curtailments of $100,437.50 each with the first such payment being due one (1 ) year from the date of this Note. 3. Prepayment Privilege: Application. This Note, may be prepaid in whole or ---------------------------------- from time to time in part without premium or penalty. In the event of any prepayment, such prepayment shall be applied first to the payment of any fees or charges other than interest or principal then owing hereunder, and, second, to accrued but unpaid interest, and any balance remaining after such application shall be applied in reduction of principal. Any partial prepayments (to the extent applicable to principal)shall be applied against principal payments scheduled to become due in the order designated by the Maker and shall not relieve the Maker of the obligation to pay installments of principal and/or interest hereunder as and when they would otherwise fall due. 4. Security. This Note is secured by the lien of a Deed of Trust (the "Deed --------- of Trust") dated of even date herewith, from the Maker (as Grantor) and conveying to Michael V. Paulson and William L. Stauffer, Jr., as Trustees, certain improved real property located in Arlington County, Virginia, commonly known as 3016-3020 Wilson Blvd and 3021 Clarendon Blvd, as more particularly described therein (the "Property"). 5. Late Charge. In the event any payment is not received by the holder of ------------ this Note within fifteen (15) days from the date when the same is due, then a "late charge" in an amount equal to four (4%) percent of such payment shall be due and payable hereunder. 6. Costs. The Maker hereby agrees to pay, on demand, to the holder of this ------ Note all costs and expenses including, without limitation, all attorneys' fees and expenses and court costs, incurred in connection with the collection and enforcement of this Note and/or the protection or realization of the collateral secured by the lien of the Deed of Trust, whether or not suit on this Note or any foreclosure or sale action is instituted or filed under the Deed of Trust. 7. Default. In the event the Maker shall default in the payment of any -------- principal and/or interest when due under this Note and shall fail to cure such default within fifteen (15) days after written notice of such default shall have been given (in a manner provided for in the Deed of Trust) to the Maker and delivered or refused, or default in or breach of any other of its obligations, representations, covenants, warranties or agreements contained in this Note or the Deed of Trust and the Maker shall fail to cure any such default or breach within thirty (30) days after written notice thereof shall have been given to the Maker, or if there shall occur any other "Event of Default" (as defined in the Deed of Trust), then and in any such event, at the option of the holder of this Note, this Note (including the entire then outstanding principal balance hereof, all accrued and unpaid interest hereon and all other applicable unpaid fees, costs, late charge and other charges, if any) shall become immediately due and payable, and the holder of this Note thereupon shall have the right to exercise any and ail rights and/or remedies available to the holder of this Note under this Note and/or the Deed of Trust and/or applicable law. Failure on the part of the holder hereof to exercise any right or remedy hereunder or under the Deed of Trust, whether before or after the happening of a default, shall not constitute a waiver thereof, and no waiver of any past default shall constitute waiver of any future default or of any other default. No failure to accelerate the debt evidenced hereby by reason of default hereunder, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter or shall be deemed to be a novation of this Note or a reinstatement of the debt evidenced hereby or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right which the holder of this Note may have, whether by the laws of the state governing this Note, by agreement or otherwise, and Maker hereby expressly waives the benefit of any statute, rule of law or equity which would produce a result contrary to or in conflict with the foregoing. 8. Usury. In no event shall the amount of interest due and payable ------ hereunder exceed the maximum rate of interest allowed under applicable law. In the event that any such payment exceeds such maximum lawful rate of interest, then such excess shall be credited as a prepayment of principal hereunder. Maker expressly acknowledges that the 2 proceeds of this Note shall be used for business, commercial, investment or other similar purposes and no portion of this Note shall be used for personal, family or household use. 9. Waiver. Except as may be expressly provided otherwise under this Note, ------- Maker hereby waives presentment, protest and notice of protest, demand, diligence, notice of dishonor and of nonpayment, notice of default, notice of intent to accelerate and notice of acceleration of the maturity of this Note and, to the extent permitted by applicable law, waives and renounces all rights to the benefits of any moratorium, appraisement, exemption and homestead rights or protections now provided or which may hereafter be provided by any federal or state statute against the enforcement and collection of the obligations evidenced by this Note, and any and all extensions, renewals and modifications hereof. 10. Full Recourse. This Note is intended to be the full recourse obligation -------------- of the Maker. 11. Governing Law. This Note shall be governed by and construed under the -------------- laws of the Commonwealth of Virginia. 12. Time Is Of The Essence. Time is of the essence under this Note. ----------------------- 13. Modifications. This Note may not be changed orally, but only by an -------------- agreement in writing signed by the party against whom enforcement is sought to be enforced. MAKER: SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership By: Saul Centers, Inc., a Maryland corporation, Sole General Partner By: /s/ B. Francis Saul II Name: B. Francis Saul II Title: Chairman 3 This is to certify that this Note is secured by the lien of a Deed of Trust to Michael V. Paulson and William L. Stauffer, Jr., Trustees, on certain improved real property located in Arlington County, Virginia. Notary Public /s/ Dawn D. Young My commission expires: Dawn D. Young, Notary Public Montgomery County, State of Maryland [Notarial Seal] My Commission Expires Feb. 3, 1999 ENDORSEMENT ----------- For Value Received, pay to the order of Central Fidelity National Bank. CLARENDON STATION, L.P. By: /s/ Paul V. Cali Paul V. Cali, General Partner 4 EX-10.T 5 EXHIBIT 10.T THIS LOAN AGREEMENT (this "Loan Agreement") is made and entered into as of the 7th day of November, 1996 by and among SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership having its principal place of business at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815 ("Borrower"), SAUL SUBSIDIARY II LIMITED PARTNERSHIP, a Maryland limited partnership having its principal place of business at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815 ("CoBorrower"), and PFL LIFE INSURANCE COMPANY, an lowa corporation whose address is c/o AEGON USA Realty Advisors, Inc., 4333 Edgewood Road, NE, Cedar Rapids, lowa 52499-5223 ("Lender"). R E C I T A L S - --------------- A. Borrower has applied to Lender for a loan (the "Loan") and Lender has agreed to make the Loan in the principal amount of up to $77,000,000.00, as evidenced by Lender's Third Revised Mortgage Loan Application and Commitment dated May 30, 1996, accepted by the Borrower and effective as of June 21, 1996 (the "Loan Commitment"). The principal amount of the Loan will be allocated among six separate promissory notes, secured by mortgages or deeds of trust on the Real Properties (hereinafter defined). B. Borrower, CoBorrower and Lender have entered into this Loan Agreement to set forth certain of the terms and conditions of the Loan, including certain terms related to the cross-default and cross-collateralization of the notes and mortgages and deeds of trust. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements of the parties hereinafter set forth, it is hereby mutually agreed as follows: 1. DEFINITIONS. The following terms as used in this Loan Agreement shall have the meanings set forth below: "Ashburn Village Shopping Center" means the Real Property described on Exhibit A-1 hereto and the improvements thereon consisting of a multi-tenant retail facility of approximately 108,204 net rentable square feet and approximately 603 parking spaces, having an address of 4410 Ashburn Village Boulevard, Loudoun County, Virginia 22070. "Avenel Business Park" means the Real Property described on Exhibit A-5 hereto and the improvements thereon consisting of a multi-tenant office facility of approximately 284,557 net rentable square feet and approximately 1,087 parking spaces, having an address of 200-213 Perry Parkway, Gaithersburg, Montgomery County, Maryland 20877. 2 "Indebtedness" shall mean all sums that are owed or become due pursuant to the Notes or the Mortgages or Deeds of Trust or any of the other Loan Documents, including scheduled principal and interest payments, default interest, late charges, prepayment premiums, accelerated or matured principal balances, advances, collection costs (including attorneys' fees and expenses), receivership costs, fees and costs of the Trustees under the Deeds of Trust, and all other financial obligations of the Borrower and CoBorrower incurred in connection with the Loan transaction. "Leesburg Pike Shopping Center" means the Real Property described on EXHIBIT A-4 hereto and the improvements thereon consisting of a multi-tenant retail - --- facility of approximately 82,719 net rentable square feet and approximately 590 parking spaces, having an address of 3600 South Jefferson Street, Fairfax County, Virginia 22041. "Lumberton Plaza" means the Real Property described on EXHIBIT A-2 hereto and ----------- the improvements thereon consisting of a multi-tenant retail facility of approximately 187,394 net rentable square feet and approximately 889 parking spaces, having an address of 1638 Route 36, Mt. Holly, Burlington County, New Jersey. "Loan Documents" shall mean the Notes, Deeds of Trust or Mortgages, Assignments of Leases and Rents, Indemnification Agreements, Environmental Indemnities, UCC financing statements, certificates and other instruments and agreements identified on EXHIBITS B-1 though B-6 attached hereto, and all other ------------ --- instruments and agreements now or hereafter evidencing, securing or pertaining to the Loan. "Mortgages" shall mean the mortgages and deeds of trust encumbering the Secured Properties as security for the Loan and more particularly described on Exhibits B-1 through B-6 attached hereto. - -------- "Real Property" or "Real Properties" shall mean the parcels of real estate more particularly described IN EXHIBITS A-1 through A-5 attached hereto owned ------------ --- by Borrower and the parcel of real estate more particularly described in EXHIBIT ------- A-6 attached hereto owned by CoBorrower, each together with all rights, - --- privileges, easements and other appurtenances thereto and all improvements now or hereafter located thereon. "Secured Properties" shall mean the aggregate of all of the real and personal property defined in the Mortgages as the "Secured Property" thereunder. "Van Ness Square" means the Real Property described on EXHIBIT A-6 hereto and ----------- the improvements thereon consisting of a multi-tenant office and retail facility of approximately 161,058 net rentable square feet and approximately 122 parking spaces, having an address of 4455 Connecticut Avenue, N.W., Washington, D.C. 20008. 3 "Village Center" means the Real Property described on EXHIBIT A-3 hereto and ----------- the improvements thereon consisting of a multi-tenant retail facility of approximately 142,577 net rentable square feet and approximately 500 parking spaces, having an address of 5600 Stone Road, Fairfax County, Virginia 22020. 2. AGREEMENT TO BORROW. Borrower and CoBorrower agree to borrow the proceeds of the Loan in accordance with the terms of this Loan Agreement, the Loan Commitment and the other Loan Documents. 3. LOAN ALLOCATION. 3.1 Lender and Borrower and CoBorrower agree that the principal amount of the Loan shall be $77,000,000.00, which sum shall be evidenced by six separate promissory notes (each, a "Note" and together, the "Notes"), primarily allocated among the Real Properties as follows: $12,600,000.00 Consolidated, Amended and Restated Promissory Note of Borrower (the "Ashburn Village Shopping Center Note") primarily allocated to Ashburn Village Shopping Center; $9,100,000.00 Note of Borrower (the "Lumberton Plaza Note") primarily allocated to Lumberton Plaza; $10,150,000.00 Amended and Restated Promissory Note of Borrower (the "Village Center Note") primarily allocated to Village Cent -; $12,900,000.00 Amended and Restated Promissory Note of Borrower (the "Leesburg Pike Shopping Center Note") primarily allocated to Leesburg Pike Shopping Center; $21,750,000.00 Amended and Restated Promissory Note of Borrower (the "Avenel Business Park Note") primarily allocated to Avenel Business Park; and $10,500,000.00 Note of Borrower and CoBorrower, jointly and severally (the "Van Ness Square Note") primarily allocated to Van Ness Square. 3.2 Borrower and CoBorrower have accepted and concur with this allocation of the principal amount of the Loan among the Real Properties and waive any and all 4 objections to such allocation. 4. PAYMENT OF MONTHLY INSTALLMENTS OF PRINCIPAL AND INTEREST. 4.1 The Loan shall bear interest and be repayable on the terms and conditions specified in the Notes. The monthly installments of principal and interest becoming due and payable under the Notes shall be paid to Lender in one single monthly installment in the amount of $706,166.25 for the first sixty (60) installments and in the amount of $638,374.08 for the remaining installments due during the term of the Loan, unless and until Lender directs otherwise. In the event Borrower or CoBorrower elects to prepay any Note or Notes in full pursuant to Section 7 below, the aggregate monthly installments due under this section shall be reduced by the amount of the monthly installments attributable to the Note or Notes that have been fully prepaid. No partial prepayments of any Note or Notes, whether voluntarily or through application of casualty or condemnation proceeds or otherwise, shall reduce the amount or defer the due date of any scheduled installment of principal and interest due under the Notes and this Loan Agreement. 4.2 Provided that amounts received by Lender pursuant to Section 4.1 are sufficient, such amounts shall be applied toward payment of monthly installments of principal and interest then due and payable under the Notes. If amounts received by Lender pursuant to Section 4.1 are insufficient for payment of all principal and interest then due and payable under the Notes or, if there then is a Default, Lender may apply amounts received pursuant to Section 4.1 or otherwise from Borrower or CoBorrower toward payment of any Indebtedness due to Lender under the Loan Documents as determined by Lender in its sole discretion. 4.3 Lender shall have the right at any time and from time to time to notify Borrower and CoBorrower in writing that the Loan Documents specified by Lender in such writing no longer shall be cross-defaulted with this Loan Agreement, in which case, a Default hereunder would no longer constitute Default under such specified Loan Documents, and Default under such specified Loan Documents would no longer constitute Default hereunder. 5. MONTHLY ESCROW PAYMENTS. 5.1 The Mortgages require Borrower and CoBorrower to make monthly payments to Lender (the "Monthly Escrow Deposits") for Impositions and Insurance Premiums, as each of the terms are defined in the Mortgages, in such amounts and at such times determined pursuant to the provisions of the Mortgages. 5.2 The Monthly Escrow Deposits pertaining to the Mortgages which are cross-defaulted with this Loan Agreement shall be paid to Lender in one single monthly 5 installment unless and until Lender directs otherwise. The Monthly Escrow Deposits shall be and constitute additional security for repayment of the Loan, and Lender shall be entitled to apply such funds in partial payment of the indebtedness evidenced by the Notes or in satisfaction of any other obligations of Borrower and CoBorrower to Lender at any time a Default exists. 6. SECURITY INSTRUMENTS. 6.1 The Notes shall be secured by first priority mortgage or deed of trust liens and security interests in and to the Secured Properties. The aggregate principal balance of the Loan has been allocated to the Notes and to the Mortgages in proportion to the appraised values of the Secured Properties as of the date of this Agreement. This allocation is made solely for the purpose of determining the recordation, transfer or mortgage taxes ("Mortgage Taxes") to be paid upon recordation of the Mortgages in each of the jurisdictions in which the Secured Properties lie and is not intended to limit in any manner the extent or priority of the lien or security interest attaching to any of the Secured Properties. 6.2 If, after the date of this Agreement, the statutes or regulations of any jurisdiction in which the Mortgages are recorded are changed or interpreted such that the extent, enforceablilty or priority of the lien and security interest in any Secured Property would be limited by the extent to which Mortgage Taxes based on the principal amount of the Loan allocated to such Secured Property have been paid, Borrower and CoBorrower shall immediately pay the full amount of any additional Mortgage Taxes to ensure that the full outstanding principal amount of the Loan is at all times secured at least to the extent of the full value of each Secured Property. 7. PREPAYMENTS OF THE LOAN AND RELEASES OF SECURED PROPERTY. 7.1 Borrower or CoBorrower, as applicable, may prepay any Note in full or in part and, in the case of a full prepayment of any Note, obtain a release of the Mortgage and other Loan Documents from the Secured Property to which such Note has been primarily allocated, upon satisfaction of the following conditions: (a) No Default shall then exist under any of the Loan Documents; (b) Lender shall be given not less than thirty (30) days' prior written notice of Borrower's or CoBorrower's intention to prepay any Note; (c) At the time of any prepayment, Borrower or CoBorrower shall pay all accrued interest on the principal balance of the Note being prepaid and all other sums due to Lender under the Loan Documents (except the principal and current 6 month's accrued interest on the Notes not being prepaid); (d) Borrower or CoBorrower, as applicable, shall pay, in addition to all amounts due in prepayment of the Note, an amount equal to ten percent (10%) of the then-outstanding principal balance of the prepaid Note, which amount Lender will apply to reduce the principal balance or balances of one or more of the remaining Note or Notes as Lender determines in its sole discretion; (e) If the prepayment occurs during the first twelve (12) years of the term of the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment premium equal to the greater of (1 ) one percent of the principal amount of the prepayment, or (2) an amount that the parties agree will compensate the Lender for the loss of its bargained-for investment (the "Yield Protection Amount"). The Lender shall calculate the Yield Protection Amount as follows:: (i) First, the Lender shall determine the annual percentage yield on U.S. Treasury securities maturing at the end of the term of the loan evidenced by this Note (the "Annual Treasury Instrument Yield"). The Annual Treasury Instrument Yield shall be determined as of ten (10) business days before the effective date of the prepayment. The Lender shall base its determination of the Annual Treasury Instrument Yield on the yield on U.S. Treasury instruments, as published in The Wall Street Journal (or, if The Wall Street Journal is not then ----------------------- ----------------------- being published or if no such reports are then being published in The Wall -------- Street Journal, as reported in another public source of information nationally - -------------- recognized for accuracy in the reporting of the trading of governmental securities). If no such instruments mature on the exact maturity date of the Note, the Lender shall interpolate the Annual Treasury Instrument Yield on a straight-line basis using the yield on the instrument whose maturity date most closely precedes that of the Note, and the yield on the instrument whose maturity date most closely succeeds that of the Note. (ii) Second, the Lender shall determine the hypothetical monthly interest-only payment (based on a 360-day year and 30-day months) which would be payable on a promissory note having a principal balance equal to the prepaid amount and bearing interest at the "bond equivalent" rate equal to the Annual Treasury Instrument Yield (the "Monthly Reinvestment Payment"). (iii) Third, the Lender shall determine the hypothetical monthly interest-only payment (based on a 360-day year and 30-day months) which would be payable on a promissory note having a principal balance equal to the prepaid amount and bearing interest at the Note Rate (the "Monthly Coupon Rate Payment"). 7 (iv) Fourth, the Lender shall determine the present value of a series of monthly payments, each equal in amount to the amount by which the Monthly Coupon Rate Payment exceeds the Monthly Reinvestment Payment, received on the first day of each calendar month from and including the first day of the first full calendar month immediately following the effective date of prepayment to and including the Maturity Date, using the Annual Treasury Instrument Yield as the discount rate. (v) The present value of that series of payments is the "Yield Protection Amount." (f) If the prepayment occurs during the thirteenth year of the term of the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment premium equal to three percent of the principal amount of the prepayment. If the prepayment occurs during the fourteenth year of the term of the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment premium equal to two percent of the principal amount of the prepayment. If the prepayment occurs during the fifteenth and final year of the term of the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment premium equal to one percent of the principal amount prepayment, except that Borrower or CoBorrower, as applicable, shall not be required to pay any prepayment premium with respect to any full prepayment of the Loan that occurs during the 90-day period preceding the Maturity Date. The prepayment premium shall not apply to prepayments of the Loan occasioned by application of the additional principal payment required under Section 7.1 (d) nor to any mandatory prepayment under Section 21 below. (g) If Borrower or CoBorrower, as applicable, do not have the right to use casualty or condemnation proceeds under the terms of the Loan Documents for the purposes of repair or reconstruction or to remedy the effect of condemnation and Lender elects to apply those proceeds toward prepayment of the related Note, no prepayment premium will be due on the partial prepayment of the Note made through application of the casualty or condemnation proceeds or on the prepayment of any remaining balance of the related Note made during the ninety days following Lender's election. If Borrower or CoBorrower, as applicable has the right to use casualty or condemnation proceeds under the terms of the Loan Documents and elects not to use those proceeds for the purposes of repair or reconstruction or to remedy the effect of condemnation, the applicable prepayment premium shall be due on the full amount of any prepayment resulting from application of the casualty or condemnation proceeds or upon prepayment of the remaining balance of the related Note as if the prepayment were voluntary. 8 8. DEFAULT AND CROSS DEFAULT. 8.1 There shall be default ("Default") hereunder if there exists a Default under and as defined in any Note, Mortgage or other Loan Document now or at any time hereafter evidencing or securing the Loan. 8.2 Borrower and CoBorrower agree that (i) Default under any one or more of the Loan Documents shall constitute a Default under each and every other Loan Document, and (ii) Lender unilaterally may release or waive any Default as it relates to any one or more of the Loan Documents at any time, provided that such waiver or release must be in writing and shall be effective only as to the Loan Documents specifically so designated. 9. REMEDIES. Upon the occurrence of Default, Lender may declare the entire Indebtedness under the Notes, this Agreement and the other Loan Documents to be immediately due and payable without notice and may exercise any and all rights and remedies provided in any Mortgage (or all of them, at Lender's option) or in any of the other Loan Documents, or provided at law or in equity, including the right to obtain the appointment of a receiver for any one or more of the Secured Properties, foreclosure AGAINST ANY ONE or more of the Secured Properties, all in such order and manner as Lender may elect. 10. WAIVERS. To the maximum extent permitted by law, Borrower and CoBorrower irrevocably and unconditionally waive and release any present or future rights (a) of redemption, (b) that may exempt any of the Secured Properties from any civil process, (c) to appraisal or valuation of any of the Secured Properties, (d) to extension of time for payment, (e) that may subject Lender's exercise of its remedies to the administration of any decedent's estate or to any partition or liquidation action, (f) to any homestead exemption, (g) to require marshaling of assets, and (h) that in any way would delay or defeat Lender's right to sell or cause any trustee to sell one or more of the Secured Properties for the purpose of satisfying the Indebtedness. Borrower and CoBorrower each waive any right either may have to contest, object to, except to or otherwise to dispute any lawful foreclosure sale or sales of the Secured Properties, whether all or any part of the Secured Property is bid in by Lender or by a third party, and whether the purchase price obtained at any such sale is paid through cancellation of all or a portion of the Indebtedness or in cash. 9 11. COSTS OF COLLECTION. Borrower and CoBorrower agree that if a Default occurs, Borrower and CoBorrower shall pay Lender's reasonable legal fees and expenses in connection with the foreclosure and other litigation or enforcement or collection actions (whether or not suit is instituted) resulting from such Default. 12. LOAN DOCUMENTS. For the purpose of evidencing the Loan and securing to Lender the repayment of the Loan, with interest thereon and all other amounts at any time due from Borrower or CoBorrower to Lender, and for the purpose of securing the performance by Borrower and CoBorrower of all of the covenants and undertakings set forth herein and in the Loan Documents, Borrower and CoBorrower, as appropriate, shall execute and deliver, or cause to be executed and delivered, as the case may be, each of the instruments and documents listed on Exhibits B-1 ------------ though B-6 attached, each in form and substance satisfactory to Lender and its counsel. 13. GOVERNING LAW. This Loan Agreement shall be construed and enforced according to, and governed by, the laws of the State of Maryland without reference to conflicts of laws provisions which, but for this provision, would require the application of the law of any other jurisdiction. Lender's remedies against the Real Properties under the Mortgages shall be governed by the laws of the respective jurisdictions in which the Real Properties are situated as provided in the Mortgages. 14. INCORPORATION OF LOAN COMMITMENT. All terms of the Commitment are incorporated in this Loan Agreement by reference, and shall survive the execution of this Loan Agreement and the other Loan Documents, although, in the event of a conflict, the terms of the Loan Documents shall prevail. 15. NOTICES All notices, demands, consents, approvals and other communications given pursuant to this Loan Agreement must be in writing and must be sent by hand, or by telecopy (with a duplicate copy sent by ordinary mail, postage prepaid), or by postage prepaid, certified or registered mail, return receipt requested, or by reputable overnight courier service, postage prepaid, addressed to the party to be notified as set forth below. 10 If to Lender: PFL LIFE INSURANCE COMPANY c/o AEGON USA Realty Advisors, Inc. 4333 Edgewood Road, N.E. Cedar Rapids, lowa 52499-5223 Attn: Mortgage Loan Department Fax: (319) 369-2303 If to Borrower: c/o Saul Centers, Inc. 8401 Connecticut Avenue Chevy Chase, Maryland 20815 (301) 986-6023 Attn: Vice President and Chief Financial Officer If to CoBorrower: c/o Saul Centers, Inc. 8401 Connecticut Avenue Chevy Chase, Maryland 20815 (301) 986-6023 Attn: Vice President and Chief Financial Officer Notices will be deemed given when delivered to Lender or to Borrower or CoBorrower, as applicable (regardless of whether delivered to the persons stated above to receive copies), by hand or when a legible copy is received by telecopier (provided receipt is verified by telephone confirmation or one of the other permitted means of giving Notices under this Subsection), or if mailed, three (3) days after mailing (or on the date of delivery for overnight courier service), with failure to accept delivery constituting delivery for this purpose. The parties agree to use reasonable efforts to provide the copies of Notices required above, but delivery of such copies shall not be required for effective delivery of Notice. Actual notice, however and from whomever given or received, will always be effective Notice when received. Lender may change its address for Notices set forth above by giving at least ten (10) days' prior Notice of such change in writing to Borrower and CoBorrower. Borrower or CoBorrower may change the addresses for Notices set forth above by giving at least thirty (30) days' prior Notice of such change in writing to Lender. 11 16. RECOURSE TO BORROWER AND COBORROWER. Lender agrees that it shall not seek to enforce any monetary judgment against Borrower or CoBorrower except through recourse to the Secured Properties unless the obligation from which the judgment arises is a Recourse Obligation. Recourse Obligations include Lender's costs, expenses (including reasonable attorneys' fees), losses and damages caused by, or incurred in connection with, (i) waste, not including ordinary wear and tear, unless Borrower or CoBorrower fail to maintain the Real Properties with ordinary care; (ii) fraud or written material misrepresentation made by Borrower or CoBorrower; (iii) failure to pay taxes, assessments, ground rent or any other lienable impositions with respect to the Secured Properties as required under the Loan Documents; (iv) misapplication of tenant security deposits, insurance proceeds or condemnation proceeds related to the Real Properties, or the unavailability to the Lender of condemnation proceeds because a lease of any Real Property grants a tenant the right to a portion of the owner's award (unless that portion is specifically allocated to the tenant's interest by the condemning authority); (v) failure while in monetary Default to pay to Lender all rents, income and profits of each Secured Property, net of reasonable and customary operating expenses of the respective Secured Property; (vi) failure to perform under the environmental covenants or indemnifications set forth in the Loan Documents; (vii) destruction or removal from any Real Property of fixtures or personal property securing the Loan, unless replaced by items of equal value; (viii) terminating, amending or entering into a lease of any Real Property in violation of the Loan Documents; or (ix) willful or grossly negligent violation of applicable law. In addition, Borrower and CoBorrower shall each have personal liability for the entire Indebtedness if Borrower or CoBorrower voluntarily transfers or encumbers any of the Secured Properties in contravention of the Loan Documents. 17. SEVERABILITY. In the event that any one or more of the provisions of this Loan Agreement shall for any reason beheld to be invalid, illegal or unenforceable, in whole or in part, or in any respect, or in the event that any one or more of the provisions of this Loan Agreement shall operate, or would prospectively operate, to invalidate this Loan Agreement, then, and in any such event, such provision or provisions only shall be deemed to be null and void and of no force or effect and shall not affect any other provision of this Loan Agreement, and the remaining provisions of this Loan Agreement shall remain operative and in full force and effect and shall in no way be affected, prejudiced or disturbed thereby. 18. VARIATION IN PRONOUNS. All the terms and words used in this Loan Agreement, regardless of the number 12 and gender in which they are used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context or sense of this loan Agreement or any paragraph or clause herein may require, the same as if such word had been fully and properly written in the correct number and gender. 19. CAPTIONS. The section titles or captions contained in this Loan Agreement are provided for convenience only and shall not be deemed to define, limit or otherwise modify the scope or intent of this Loan Agreement. 20. COUNTERPARTS. This Loan Agreement may be executed in multiple counterparts, all of which taken together shall constitute one and the same Loan Agreement and the signature page of any counterpart may be removed therefrom and attached to any other counterpart. 21. MANDATORY PREPAYMENTS UNDER THE LEESBURG PIKE SHOPPING CENTER NOTE. 21.1 Pursuant the appraisal review conducted by Lender under Section 4.2.1 of the Commitment, Lender approved funding the Loan in the principal amount of $75,000,000, representing aggregate loan-to-value ratio of 75%. At Borrower's request, Lender agreed to fund an additional $2,000,000 under the Loan as additional principal of the Leesburg Pike Shopping Center Note, based upon Borrower's representations to Lender that proposed improvements to the Leesburg Pike Shopping Center, currently in the preconstruction phase, and the new leases for the resulting expansion space will, upon completion of such work, support the additional principal balance of the Loan at the 75% loan-to-value ratio required by the Commitment. Lender agreed to fund the additional $2,000,000 upon the condition that an updated appraisal of the property to be performed after the completion of the improvements and occupancy of the expansion space by the new tenants, will demonstrate that the 75% loan-to-value ratio is met. 21.2 Lender shall commission an updated appraisal of the Leesburg Pike Shopping Center (the "Leesburg Updated Appraisal") to be delivered to Lender upon completion of construction but in no event later than twelve months from the date of this Agreement. The appraisal shall be paid for by the Borrower and shall include the opinion of the appraisal firm, in a form satisfactory to Lender, as to the additional value added by the expansion space. The Leesburg Updated Appraisal is subject to the terms and procedures contained in Section 4.2.1 of the Commitment. If the review appraiser's opinion of the updated value of the Leesburg Pike Shopping Center is less 13 than $17,667,000 (which is the current value determined pursuant to the procedures contained in Section 4.2.1 of the Commitment plus the amount which would support the $2,000,000 funding increase at a loan-to-value ratio of 75%), then Borrower shall make a principal prepayment under the Leesburg Pike Shopping Center Note sufficient to reduce the aggregate outstanding principal balance of the Loan to the amount that is $1,000,000 less than the aggregate principal balance that would produce an aggregate loan-to-value ratio of 75%, using as a total value, the review appraiser's conclusions as to value obtained from the Leesburg Updated Appraisal plus the aggregate values ,of the remaining Real Properties as determined by the appraisal process conducted pursuant to the Commitment at the time of funding. In no event shall the prepayment required under this section exceed $2,000,000. Any such principal prepayment shall be due and payable by Borrower in full, without prepayment premium, within thirty (30) days of Lender's notification of the amount of the prepayment determined to be due. The prepayment of principal under this section is unconditionally and irrevocably guaranteed by Saul Centers, Inc. under the Indemnification Agreement executed and delivered by Saul Centers, Inc. with respect to the Leesburg Pike Shopping Center Note. 14 IN WITNESS WHEREOF, Borrower, CoBorrower and Lender have caused this Loan Agreement to be duly executed as of the day and year first above written. SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership By: Saul Centers, Inc., a Maryland corporation, General Partner By: B. Francis Saul II Chairman SAUL SUBSIDIARY 11 LIMITED PARTNERSHIP, a Maryland limited partnership By: Saul Centers, Inc., a Maryland corporation, General Partner By: B. Francis Saul 11 Chairman PFL LIFE INSURANCE COMPANY, an lowa corporation By: -------------------------------- Name: Its: 15 EXHIBIT B-1 ----------- Ashburn Village Shopping Center $12,600,000 Consolidated, Amended and Restated Promissory Note from Saul Holdings Limited Partnership to the order of Lender Consolidated, Amended and Restated Deed of Trust and Security Agreement from Saul Holdings Limited Partnership to William F. Roeder, Jr. securing the Ashburn Village Shopping Center Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnification Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured Party Closing Certificate of Borrower and CoBorrower 16 EXHIBIT B-2 ----------- Lumberton Plaza $9,100,000 Secured Promissory Note from Saul Holdings Limited Partnership to the order of Lender Mortgage and Security Agreement from Borrower to Lender securing the Lumberton Plaza Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnification Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by Borrower, as Debtor, in favor of Lender,as Secured Party; Closing Certificate of Borrower and CoBorrower 17 EXHIBIT B-3 ----------- Village Center $10,150,000 Amended and Restated Promissory Note from Saul Holdings Limited Partnership to the order of Lender Amended and Restated Deed of Trust and Security Agreement from Saul Holdings Limited Partnership to William F. Roeder, Jr. securing the Village Center Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnity Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured Party; Closing Certificate of Borrower and CoBorrower 18 EXHIBIT B-4 ----------- Leesburg Pike Shopping Center $12,900,000 Amended and Restated Promissory Note from Saul Holdings Limited Partnership to the order of Lender Amended and Restated Deed of Trust and Security Agreement from Saul Holdings Limited Partnership to William F. Roeder, Jr. securing the Leesburg Pike Shopping Center Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnification Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured Party Closing Certificate of Borrower and CoBorrower 19 EXHIBIT B-5 ----------- Avenel Business Park $21,750,000 Amended and Restated Deed of Trust Note from Saul Holdings Limited Partnership to the order of Lender Consolidated, Amended and Restated Deed of Trust and Security Agreement from Saul Holdings Limited Partnership to Tamara S. Rickman securing the Avenel Business Park Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnification Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured Party Closing Certificate of Borrower and CoBorrower 20 EXHIBIT B-6 ----------- Van Ness Square $10,500,000 Secured Promissory Note from Saul Holdings Limited Partnership and Saul Subsidiary II Limited Partnership to the order of Lender. Deed of Trust and Security Agreement from Saul Subsidiary II Limited Partnership to Tamara S. Rickman securing the Van Ness Square Note and the obligations of Borrower and CoBorrower under the Loan Agreement Assignment of Leases and Rents Indemnification Agreement from Saul Centers, Inc. Environmental Indemnity Agreement Agreement Regarding Leasing Financing statements made by CoBorrower, as Debtor, in favor of Lender, as Secured Party Closing Certificate of Borrower and CoBorrower EX-10.U 6 EXHIBIT 10.U FIRST AMENDMENT TO INTEREST RATE AGREEMENT THIS FIRST AMENDMENT to Interest Rate Agreement, dated as of December 9, 1996, between SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership ("Customer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Bank") constitutes an amendment to that certain Interest Rate Agreement ("Agreement") entered into between the parties, dated as of March 16, 1995 and specifying a Capped Amount of $71,780,000.00. WHEREAS, Customer desires to reduce Capped Amount of that Agreement by $37,000,000.00 as of December 11, 1996; THEREFORE, in consideration of the mutual covenants and promises of Bank and Customer, the parties hereto agree as follows: 1. "Capped Amount" shall mean an amount equal to THIRTY-FOUR-MILLION SEVEN-HUNDRED-EIGHTY-THOUSAND DOLLARS ($34,780,000.00). 2. Terms and phrases used in this Amendment shall have the same meaning ascribed thereto in the Agreement. 3. This Amendment may be executed in counterparts which shall, in the aggregate, be signed by both parties; each counterpart shall be deemed an original instrument as against any party who has signed it. 4. The Agreement, as amended by this Amendment, is hereby confirmed. 5. Customer and Bank hereby agree that this voluntary change in the "Capped Amount" will result in no termination fee paid by Bank to Customer. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed as of the date first above written. Bank: Customer: WELLS FARGO BANK, N.A., SAUL HOLDINGS LIMITED PARTNERSHIP, a national banking association a Maryland limited partnership BY:/s/ Nicholas J. Ivanoff BY: SAUL CENTERS, INC., Nicholas J. Ivanoff a Maryland Corporation Its: Vice President Its: General Partner By: /s/ Scott Schneider Scott Schneider Its:Vice President and CFO EX-10.V 7 EXHIBIT 10.V TERMINATION AGREEMENT --------------------- THIS AGREEMENT ("Agreement") is entered into as of the 9th day of December, 1996, by and between SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership ("Customer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Bank"). WHEREAS, Customer and Bank have entered into that certain Interest Rate Agreement dated as of March 16, 1995 and specifying a Capped Amount of $50,000,000.00; and WHEREAS, Customer and Bank desire to terminate that certain Interest Rate Agreement as of December 11, 1996; THEREFORE, in consideration of the mutual covenants and promises of Bank and Customer, the parties hereto agree as follows: 1. Customer hereby confirms its consent to such termination. 2. Bank hereby confirms its consent to such termination. 3. Customer and Bank hereby agree that this voluntary termination prior to the scheduled termination will result in no termination fee to be paid by Bank to Customer. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. Bank: Customer: WELLS FARGO BANK, N.A., SAUL HOLDINGS LIMITED PARTNERSHIP, a national banking association a Maryland limited partnership BY: /s/ Nicholas J. Ivanoff BY: SAUL CENTERS, INC., Nicholas J. Ivanoff a Maryland Corporation Its: Vice President Its: General Partner BY: /s/ Scott Schneider Scott Schneider Its: Vice President and CFO EX-10.W 8 EXHIBIT 10.W WELLS FARGO BANK NICHOLAS J. IVANOFF 420 Montgomery Street Vice President Sixth Floor Rate Risk Management San Francisco,, CA 94163 Scott Schneider Saul Holdings Limited Partnership 8401 Connecticut Avenue Chevy Chase, MD 20815 December 9,1996 Via Fax: (301) 986-6023 Dear Mr. Schneider, This letter agreement is to confirm the assignment of the interest Rate Cap transaction described below from Saul Holdings Limited Partnership ("Saul Holdings") to Wells Fargo Bank National Association ("Wells Fargo"). In consideration of the assignment, Wells Fargo shall pay Saul Holdings $340,600 on December 11, 1996. Type: Interest Rate Cap Effective Date: November 19, 1996 Termination Date: August 19, 1998 Notional Amount: $37,000,000 Cap Rate: 5.25% Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 months Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this letter and returning it via telecopier to (415) 956-9581. Yours sincerely, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Nicholas J. Ivanoff Name: Nicholas J. Ivanoff Title: Vice President Acknowledged and Agreed: SAUL HOLDINGS LIMITED PARTNERSHIP BY: ITS GENERAL PARTNER By: /s/ Scott V. Schneider Name: Scott V. Schneider Title: Vice President and CFO EX-10.X 9 EXHIBIT 10.X Trading Products Documentation Unit One First National Plaza Suite 0107; 1-8 Chicago IL 60670 FIRST CHICAGO The First National Bank of Chicago AMENDED December 17, 1996 Scott Schneider Saul Holdings Limited Partnership 8401 Connecticut Avenue Chevy Chase, MD 20815 Dear Mr. Schneider: Reference is hereby made to The interest rate cap transaction evidenced by the letter agreement between the undersigned parties dated as of August 18, 1993 with an original Notional Amount of $154,780.000, as amended by the Assignment Agreement dated as of August 1, 1994 between the parties and Saul Subsidiary I Limited Partnership, resulting in a Notional Amount of $71,780,000 (collectively, the "Transaction"). For mutual consideration the receipt of which is hereby acknowledged, the parties agree that, e ffective as of November 19, 1996 the Transaction is amended as follows: the Notional Amount of the Transaction is hereby amended to $34,780,000. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Katherine DePauw Graham ------------------------------- Name: Katherine DePauw Graham Title: Vice President Acknowledged and Agreed: SAUL HOLDINGS LIMITED PARTNERSHIP BY: Saul Centers, Inc., its General Partner By: /s/ Scott V. Schneider Name Scott V. Schneider Title: Vice President and CFO Fst Chgo Deal #96345.A.1000.S.C.3L EX-10.Y 10 EXHIBIT 10.Y Trading Products Documentation Unit One First National Plaza Suite 0107; 1-8 Chicago, IL 60670 FIRST CHICAGO The First National Bank of Chicago December 10, 1996 Scott Schneider Saul Holdings Limited Partnership 8401 Connecticut Avenue Chevy Chase, MD 20815 Dear Mr. Schneider: I. In consideration of the assignment of the interest rate cap transaction described below from Saul Holdings Limited Partnership ("Saul Holdings") to The First National Bank of Chicago ("First Chicago"), First Chicago shall pay Saul Holdings $85,000 on December 11, 1996 . Type of Transaction: Interest Rate Cap Termination Date: March 20, 1999 Notional Amount: $50,000.000 Cap Rate: 7.5% Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 months II. In consideration of the assignment of the interest rate cap transaction described below from Saul Holdings to First Chicago, First Chicago shall pay Saul Holdings $261,000 on December 11, 1996. Type of Transaction: Interest Rate Cap Termination Date: August 19, 2000 Notional Amount: $37,000,000 Cap Rate: 7.5 % Floating Rate Option; USD-LIBOR-BBA Designated Maturity: 3 months Trading Products Documentation Unit One First National Plaza Suite 0107; 1-8 Chicago, IL 60670 Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this letter and returning it via facsimile to First Chicago's Documentation Unit at facsimile no. (312) 732-4172. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Katherine DePauw Graham Name: Katherine DePauw Graham Title: First Vice President Acknowledged and Agreed: SAUL HOLDINGS LIMITED PARTNERSHIP BY: Saul Centers, Inc., its General Partner By: /s/ Scott V. Schneider Name: Scott V. Schneider Title: Vice President and CFO First Chicago Deal #96345.1.1623 & #96345.1.1624 EX-10.Z 11 EXHIBIT 10.Z Loan No. C-332003 Washington, D.C. PROMISSORY NOTE --------------- $38,500,000.00 Dated as of January 10, 1997 For value received, the undersigned, herein called "Borrower," promises to pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, who, together with any subsequent holder of this note, is hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue Milwaukee, WI 53202 or at such other place as Lender shall designate in writing, in coin or currency which, at the time or times of payment, is legal tender for public and private debts in the United States, the principal sum of THIRTY-EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS or so much thereof as shall have been advanced from time to time plus interest on the outstanding principal balance at the rate and payable as follows: Interest shall accrue from the date of advance until maturity at the rate of seven and eighty-eight hundredths percent (7.88%) per annum (the "Interest Rate"). Accrued interest only on the amount advanced shall be paid on the first day of the month following the date of advance ("Amortization Period Commencement Date"). On the first day of the following month and on the first day of each month thereafter until maturity, installments of principal and interest shall be paid in the amount of $294,095.24. All installments shall be applied first in payment of interest, calculated monthly on the unpaid principal balance, and the remainder of each installment shall be applied in payment of principal. The entire unpaid principal balance plus accrued interest thereon shall be due and payable on January 2, 2013 (the "Maturity Date"). Borrower shall have the right, upon thirty (30) days advance written notice, beginning January 1, 2002 of paying this note in full with a prepayment fee. This fee represents consideration to Lender for loss of yield and reinvestment costs. The fee shall be the greater of Yield Maintenance or 1% of the outstanding principal balance of this note. As used herein, "Yield Maintenance" means the amount, if any, by which (i) the present value of the Then Remaining Payments (as hereinafter defined) calculated using a periodic discount rate (corresponding to the payment frequency under this note) which, when compounded for such number of payment periods in a year, equals the sum of 0.5% and the per annum effective yield of the Most Recently Auctioned United States Treasury Obligation having a maturity date equal to the Maturity Date (or, if there is no such equal maturity date, then the linearly interpolated per annum effective yield of the two Most Recently Auctioned United States Treasury Obligations having maturity dates most nearly equivalent to the Maturity Date) as reported by The Wall Street Journal five business days prior to the date of prepayment; exceeds (ii) the outstanding principal balance of this note (exclusive of all accrued interest). If such United States Treasury obligation yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, then the periodic discount rate shall be equal to the sum of 0.5% and the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported, as of five business days preceding the prepayment date, in Federal Reserve Statistical Release H. 15 (519) (or any comparable successor publication) for actively traded United States Treasury obligations having a constant maturity most nearly equivalent to the Maturity Date. As used herein, "Then Remaining Payments" means payments in such amounts and at such times as would have been payable subsequent to the date of such prepayment in accordance with the terms of this note. As used herein, "Most Recently Auctioned United States Treasury Obligations" means the U.S. Treasury bonds, notes and bills with maturities of 30 years, 10 years, 5 years, 3 years, 2 years and I year which, as of the date the prepayment fee is calculated, were most recently auctioned by the United States Treasury. Upon the occurrence of an Event of Default (as defined in the Lien Instrument) followed by the acceleration of the whole indebtedness evidenced by this note, or a condemnation or sale under threat of condemnation of all or substantially all of the Property, the payment of such indebtedness will constitute an evasion of the prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and such payment will, therefore, to the extent not prohibited by law, include the prepayment fee required under the prepayment in full privilege recited above or, if such prepayment occurs prior to January 1, 2002-and results from an Event of Default followed by an acceleration of the whole indebtedness, then such payment will, to the extent not prohibited by law, include a prepayment fee equal to the greater of Yield Maintenance or 2% of the outstanding principal balance of this note. If such prepayment occurs prior to January 1, 2002 and results from a condemnation or sale under threat of condemnation of all or substantially all of the Property, the prepayment fee shall be the greater of Yield Maintenance or 1% of the outstanding principal balance of this note. Notwithstanding the above and provided Borrower is not in default under any provision contained in the Loan Documents (as defined in the Lien Instrument), this note may be prepaid in full at any time, without a prepayment fee, during the last 90 days of the term of this note. 2 Borrower acknowledges and agrees that the Interest Rate hereunder shall be increased if certain financial statements and other reports are not furnished to Lender, all as described in more detail in the provision of the Lien Instrument entitled "Financial Statements". ---------------------- This note is secured by certain property (the "Property") in the District of Columbia described in a Deed of Trust and Security Agreement (the "Lien Instrument") of even date herewith executed by SAUL SUBSIDIARY II LIMITED PARTNERSHIP, a Maryland limited partnership, to WILLIAM H. NORTON, as Trustee for THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY. Upon the occurrence of an Event of Default (as defined in the Lien Instrument), the whole unpaid principal hereof and accrued interest shall, at the option of Lender, to be exercised at any time thereafter until such Event of Default shall be cured, become due and payable at once without notice, notice of the exercise of, and the intent to exercise, such option being hereby expressly waived. All parties at any time liable, whether primarily or secondarily, for payment of indebtedness evidenced hereby, for themselves, their heirs, legal representatives, successors and assigns, respectively, expressly waive presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection; consent to the extension by Lender of the time of said payments or any part thereof; further consent that the real or collateral security or any part thereof may be released by Lender, without in any way modifying, altering, releasing, affecting, or limiting their respective liability or the lien of the Lien Instrument; and agree to pay reasonable attorneys' fees and expenses of collection in case this note is placed in the hands of an attorney for collection or suit is brought hereon and any attorneys' fees and expenses incurred by Lender to enforce or preserve its rights under any of the Loan Documents in any bankruptcy or insolvency proceeding. Any principal, interest or other amounts payable under any of the Loan Documents (as defined in the Lien Instrument), not paid when due (without regard to any notice and/or cure provisions contained in any of the Loan Documents), including principal becoming due by reason of acceleration by Lender of the entire unpaid balance of this note, shall bear interest from the due date thereof until paid at the Default Rate. As used herein, "Default Rate" means the lower of a rate equal to the interest rate in effect at the time of the default as herein provided plus 5% per annum or the maximum rate permitted by law. No provision of this note shall require the payment or permit the collection of interest, including any fees paid which are construed under applicable law to be interest, in excess of the maximum permitted by law. If any such excess interest is collected or herein provided for, or shall be adjudicated to have been collected or be so provided for herein, the provisions of this paragraph shall govern, and Borrower shall not be obligated to pay the amount of such interest to the extent that it is in excess of the amount permitted by law. Any such excess collected shall, at the option of Lender, unless otherwise required by applicable law, be 3 immediately refunded to Borrower or credited on the principal of this note immediately upon Lender's awareness of the collection of such excess. Notwithstanding any provision contained herein or in the Lien Instrument to the contrary, if Lender shall take action to enforce the collection of the indebtedness evidenced hereby or secured by the Lien Instrument (collectively, the "Indebtedness"), its recourse shall, except as provided below, be limited to the Property or the proceeds from the sale of the Property and the proceeds realized by Lender in exercising its rights and remedies (i) under the Absolute Assignment (as defined in the Lien Instrument), (ii) under the Additional Guarantee of even date herewith executed by Saul Holdings Limited Partnership ("Saul Holdings"), the Guarantee of even date herewith executed by Saul Holdings for the benefit of Lender, under the Guarantee of Recourse Obligations of even date herewith executed by Saul Holdings for the benefit of Lender and under other separate guarantees, if any, (iii) under any of the other Loan Documents (as defined in the Lien Instrument) and (iv) in any other collateral securing the Indebtedness. If such proceeds are insufficient to pay the Indebtedness, Lender will never institute any action, suit, claim or demand in law or in equity against Borrower for or on account of such deficiency; provided, however, that the provisions contained in this paragraph (i) shall not in any way affect or impair the validity or enforceability of the Indebtedness or the Lien Instrument; (ii) shall not prevent Lender from seeking and obtaining a judgment against Borrower, and Borrower shall be personally liable, for the Recourse Obligations; and (iii) shall not be applicable in the event of a violation of any of the provisions of the Lien Instrument following the caption entitled "Due on Sale" (i.e., Borrower shall be personally liable for all of the Indebtedness in the event of such violation). As used herein, the term "Recourse Obligations" means, to the extent any of the Indebtedness remains unpaid, (a) rents and other income from the Property from and after the date of any default under the Loan Documents remaining uncured on the date of the foreclosure sale of the Property pursuant to the Lien Instrument or the conveyance of the Property to Lender in lieu of foreclosure, which rents and other income have not been applied to the payment of principal and interest on this note or to reasonable operating expenses of the Property, (b) amounts incurred by Lender to repair any damage to the Property caused by the intentional wrongful acts or omissions of Borrower or its agents, 4 (c) insurance loss and condemnation award proceeds released to Borrower but not applied in accordance with any agreement between Borrower and Lender as to their application, (d) amounts necessary to pay costs incurred by Lender in the investigation and clean-up of hazardous materials and toxic substances on or affecting the Property, (e) damages suffered by Lender as a result of fraud or knowing misrepresentation in connection with the Indebtedness by Borrower or any other person or entity acting on behalf of Borrower, and (f) amounts necessary to pay real estate taxes, special assessments and insurance premiums with respect to the Property (to the extent not previously deposited with Lender by Borrower pursuant to the provisions of the Lien Instrument following the caption entitled "Deposits by Grantor") either paid by Lender and not reimbursed prior to, or remaining due or delinquent on, either (i) the later of (A) the date on which title vests in the purchaser at the foreclosure sale of the Property pursuant to the Lien Instrument or (B) the date on which Borrower's statutory right of redemption shall expire or be waived or (ii) the date of the conveyance of the Property to Lender in lieu of foreclosure. This note, the interpretation and the rights, obligations, duties and liabilities hereunder shall be governed and controlled by the laws of the District of Columbia. SAUL SUBSIDIARY II LIMITED PARTNERSHIP, a Maryland limited partnership By: Saul Centers, Inc., a Maryland corporation, general partner By: ----------------------- B. Francis Saul II Chairman Attest: ------------------- (corporate seal) 5 EX-23 12 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in the Company's December 31, 1996 Form 10-K, filed with the Securities and Exchange Commission on March 31, 1997, into the previously filed Registration Statement File No. 33-80291 Arthur Andersen LLP Washington, D.C. May 13, 1997 EX-27 13 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from financial statements, schedules and other disclosure contained in Form 10-Q for the period ended March 31, 1997 of Saul Centers, Inc. and is qualified in its entirety by reference to such financial statements, schedules and other disclosure. 1,000 3-MOS DEC-31-1997 MAR-31-1997 1,994 0 6,203 0 0 0 330,815 97,368 264,192 0 273,161 0 0 122 (28,128) 264,192 0 16,562 0 4,598 1,514 43 5,365 2,167 0 2,167 0 0 0 2,167 0.18 0.18
EX-99 14 EXHIBIT 99 EXHIBIT 99 SAUL CENTERS, INC SCHEDULE OF CURRENT PORTFOLIO PROPERTIES MARCH 31, 1997
Leasable Year Area Developed Land (Square or Acquired Area Percentage Leased Property Location Feet) (Renovated) (Acres) 03/31/97 03/31/96 Anchor / Significant Tenants - ------------------ ---------------------- -------- -------------- ------- -------- -------- ---------------------------------------- SHOPPING CENTERS - ------------------ Ashburn Village Ashburn, VA 108,204 1994 12.7 100% 100% Giant Food, Blockbuster Beacon Mall Alexandria, VA 290,845 1972 (1993) 32.3 69% 74% Giant Food, Office Depot, Outback Steakhouse, Marshalls Belvedere Baltimore, MD 54,941 1972 4.8 100% 100% Giant Food, Rite Aid Boulevard Fairfax, VA 56,578 1994 5.0 100% 100% Danker Furniture, Petco Clarendon Arlington, VA 6,940 1973 0.5 100% 100% Clarendon Station Arlington, VA 4,868 1996 0.1 100% 100% Crosstown Tulsa, OK 197,135 1975 26.4 27% 36% C.R. Anthony Flagship Center Rockville, MD 21,500 1972,1989 0.5 100% 100% NationsBank, Chevy Chase Bank, F.S.B. French Market Oklahoma City, OK 213,658 1974 (1984) 13.8 92% 97% Fleming Food, Treasury Drug, Furr's Cafeteria Germantown Germantown, MD 26,241 1992 2.7 97% 78% Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100% Giant Food The Glen Lake Ridge, VA 112,639 1994 14.7 100% 100% Safeway Marketplace, CVS Pharmacy Great Eastern District Heights, MD 255,448 1972 (1995) 23.9 90% 90% Giant Food, Caldor, Pep Boys Hampshire Langley Langley Park, MD 137,945 1972 (1979) 9.9 94% 87% Safeway, McCrory, Rite Aid Leesburg Pike Baileys Crossroads, VA 82,719 1966 (1982/95) 9.4 100% 100% Zany Brainy, CVS Pharmacy Lexington Mall Lexington, KY 315,551 1974 30.0 97% 97% McAlpin's, Dawahares of Lexington, Rite Aid Lumberton Lumberton, NJ 189,729 1975 (1992/96) 23.3 83% 84% Super Fresh, Rite Aid, Blockbuster, Mandee North Washington Alexandria, VA 41,500 1973 2.0 100% 100% Mastercraft Interiors Olney Olney, MD 53,765 1975 (1990) 3.7 82% 95% Park Road Center Washington, DC 106,650 1973 (1993) 1.7 100% 100% Woolworth Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100% Giant Food
SAUL CENTERS, INC SCHEDULE OF CURRENT PORTFOLIO PROPERTIES MARCH 31, 1997
Leasable Year Area Developed Land (Square or Acquired Area Percentage Leased Property Location Feet) (Renovated) (Acres) 03/31/97 03/31/96 Anchor / Significant Tenants - ------------------ ------------------- --------- -------------- ------- -------- -------- --------------------------------------- SHOPPING CENTERS - ------------------ (continued) - ------------------ Seven Corners Falls Church, VA 545,843 1973 (1994-7) 31.6 84% 63% Best Buy, Bob's Stores, Barnes & Noble, Ross Dress For Less, Woolworth, Shoppers Club, Home Depot (A) Shops at Fairfax Fairfax, VA 64,580 1975 (1992-3) 6.7 54% 41% Office Depot, Hollywood Video Southdale Glen Burnie, MD 475,099 1972 (1986) 39.6 98% 99% Circuit City, Giant Food, Hechinger, Kids R Us, Michaels, Marshalls, Petsmart, Value City Furniture Southside Plaza Richmond, VA 353,030 1972 32.8 97% 94% CVS Pharmacy, Nick's Supermarket Sunshine City Atlanta, GA 195,653 1976 14.6 89% 98% Bolton Furniture, McFrugals, Pep Boys, The Emory Clinic Thruway Winston-Salem, NC 339,564 1972 30.5 95% 94% Steinmart, Reading China & Glass, Harris Teeter, Fresh Market, Blockbuster, Piece Goods Shop Village Center Centreville, VA 147,081 1990 17.2 84% 76% Giant Food West Park Oklahoma City, OK 107,895 1975 11.2 69% 72% Homeland Stores, Treasury Drug White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 100% 99% Giant Food, Sears --------- ------- -------- -------- Total Shopping Centers 5,143,547 442.9 89% 87% --------- ------- -------- -------- COMMERCIAL PROPERTIES - --------------------- Avenel Gaithersburg, MD 284,557 1981/85/89 28.2 88% 98% Oncor, Quanta Systems, General Services Administration 601 Pennsylvania Ave Washington, DC 225,153 1973 (1986) 1.0 100% 99% General Services Administration, Capital Grille Van Ness Square Washington, DC 161,058 1973 (1990) 1.2 82% 74% United Mine Workers Pension Trust, Office Depot, Pier 1 --------- ------- -------- -------- Total Commercial Properties 670,768 30.4 91% 93% --------- ------- -------- -------- TOTAL PORTFOLIO 5,814,315 SF 473.3 89% 88% ========= ======= ======== ========
(A) The Shoppers Club and Home Depot stores, totaling 196,000 SF, are currently in development. -----END PRIVACY-ENHANCED MESSAGE-----