MORTGAGE NOTES PAYABLE, REVOLVING CREDIT FACILITY, INTEREST EXPENSE AND AMORTIZATION OF DEFERRED DEBT COSTS

At December 31, 2013, outstanding debt totaled $820.1 million, of which $789.9 million was fixed rate debt and $30.2 million was variable rate debt. The Company’s outstanding debt totaled $827.8 million at December 31, 2012, of which $774.8 million was fixed rate debt and $53.0 million was variable rate debt. At December 31, 2013, the Company had a $175.0 million unsecured revolving credit facility, which can be used for working capital, property acquisitions or development projects. The revolving credit facility matures on May 20, 2016, and may be extended by the Company for one additional year subject to the Company’s satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the revolving credit facility. Letters of credit may be issued under the revolving credit facility. On December 31, 2013, based on the value of the Company's unencumbered properties, approximately $164.2 million was available under the line, no borrowings were outstanding and approximately $628,229 was committed for letters of credit. The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio and which can range from 160 basis points to 250 basis points. As of December 31, 2013, the margin was 160 basis points.

Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. Saul Centers is also the guarantor of 50% of the Northrock bank term loan (approximately $7.4 million of the $14.8 million outstanding at December 31, 2013) and the Metro Pike Center bank loan (approximately $7.7 million of the $15.4 million outstanding at December 31, 2013). The fixed-rate notes payable are all non-recourse.

On March 23, 2011, the Company closed on a 15-year non-recourse mortgage loan in the amount of $125.0 million, secured by Clarendon Center. The loan matures in 2026, bears interest at a fixed rate of 5.31%, requires equal monthly principal and interest payments of $753,000, based upon a 25-year principal amortization, and requires a final principal payment of approximately $70.5 million at maturity. Proceeds from the loan were used to repay $104.2 million outstanding on the Clarendon Center construction loan.

On September 23, 2011, the Company closed on a 15-year non-recourse mortgage loan in the amount of $38.0 million, secured by Severna Park MarketPlace. The loan matures in 2026, bears interest at a fixed rate of 4.30%, requires equal monthly principal and interest payments of $207,000, based upon a 25-year principal amortization, and requires a final principal payment of approximately $20.3 million at maturity. Proceeds from the loan were used to purchase Severna Park MarketPlace.

Also on September 23, 2011, the Company closed on two six-month bridge financing loans in the total amount of $60.0 million, secured by Kentlands Square II and Cranberry Square. Proceeds from the loans were used to purchase Kentlands Square II and Cranberry Square.

On October 5, 2011, the Company closed on a new 15-year non-recourse mortgage loan in the amount of $43.0 million, secured by Kentlands Square II. The loan matures in 2026, bears interest at a fixed rate of 4.53%, requires equal monthly principal and interest payments of $240,000, based upon a 25-year principal amortization, and requires a final principal payment of approximately $23.1 million at maturity. Proceeds from the loan were used to repay the $40.0 million bridge financing used to acquire Kentlands Square II.

On November 6, 2011, the Company closed on a new 15-year non-recourse mortgage loan in the amount of $20.0 million, secured by Cranberry Square. The loan matures in 2026, bears interest at a fixed rate of 4.70%, requires equal monthly principal and interest payments of $113,000, based upon a 25-year principal amortization, and requires a final principal payment of approximately $10.9 million at maturity. Proceeds from the loan were used to repay the $20.0 million bridge financing used to acquire Cranberry Square.

On April 11, 2012, the Company closed on a 15-year non-recourse mortgage loan in the amount of $73.0 million secured by Seven Corners shopping center. The loan matures in 2027, bears interest at a fixed rate of 5.84%, requires equal monthly principal and interest payments totaling $463,200 based upon a 25-year amortization schedule and a final payment of $42.3 million at maturity. Proceeds from the loan were used to pay-off the $63 million remaining balance of existing debt secured by Seven Corners and six other shopping center properties, and to provide cash of approximately $10 million.

On April 26, 2012, the Company substituted the White Oak shopping center for Van Ness Square as collateral for one of its existing mortgage loans. The terms of the original loan, including its 8.11% interest rate, are unchanged and, in conjunction with the collateral substitution, the Company borrowed an additional $10.5 million, also secured by White Oak. The new borrowing requires equal monthly payments based upon a fixed 4.90% interest rate and 25-year amortization schedule, and will mature in 2024, coterminously with the original loan. The consolidated loan requires equal monthly payments based upon a blended fixed interest rate of 7.0% and will require a final payment of $18.5 million at maturity.

On May 21, 2012, the Company replaced its existing unsecured revolving credit facility with a new $175.0 million facility that expires on May 20, 2016. The facility, which provides working capital and funds for acquisitions, certain developments, redevelopments and letters of credit, may be extended for one year, at the Company’s option, subject to the satisfaction of certain conditions. Loans under the facility bear interest at a rate equal to the sum of one-month LIBOR and a margin, based on the Company’s leverage ratio, ranging from 160 basis points to 250 basis points. Based on the leverage ratio of December 31, 2013, the margin was 160 basis points.

On February 27, 2013, the Company closed on a three-year $15.6 million mortgage loan secured by Metro Pike Center. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month LIBOR and 165 basis points, requires monthly principal and interest payments based on a 25-year amortization schedule and requires a final payment of $14.8 million at maturity. The loan may be extended for up to two years. Proceeds were used to pay-off the $15.9 million remaining balance of existing debt secured by Metro Pike Center, and to extinguish the related swap agreement.

On February 27, 2013, the Company closed on a three-year $15.0 million mortgage loan secured by Northrock. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month LIBOR and 165 basis points, requires monthly principal and interest payments based on a 25-year amortization schedule and requires a final payment of $14.2 million at maturity. The loan may be extended for up to two years. Proceeds were used to pay-off the $15.0 million remaining balance of existing debt secured by Northrock.

On March 19, 2013, the Company closed on a 15-year, non-recourse $18.0 million mortgage loan secured by Hampshire Langley. The loan matures in 2028, bears interest at a fixed rate of 4.04%, requires monthly principal and interest payments totaling $95,400 based on a 25-year amortization schedule and requires a final payment of $9.5 million at maturity.

On April 10, 2013, the Company paid in full the $6.9 million remaining balance on the mortgage loan secured by Cruse Marketplace.

On May 28, 2013, the Company closed on a 15-year, non-recourse $35.0 million mortgage loan secured by Beacon Center. The loan matures in 2028, bears interest at a fixed rate of 3.51%, requires monthly principal and interest payments totaling $203,200 based on a 20-year amortization schedule and requires a final payment of $11.4 million at maturity.

On September 4, 2013, the Company closed on a 15-year, non-recourse $18.0 million mortgage loan secured by Seabreeze Plaza. The loan matures in 2028, bears interest at a fixed rate of 3.99%, requires monthly principal and interest payments totaling $94,900 based on a 25-year amortization schedule and requires a final payment of $9.5 million at maturity. Proceeds were used to pay off the $13.5 million remaining balance of existing debt secured by Seabreeze Plaza which was scheduled to mature in May 2014 and the Company incurred $497,000 of related debt extinguishment costs.

On October 25, 2013 the Company closed on a $71.6 million construction-to-permanent loan which will partially finance the construction of Park Van Ness. The loan bears interest at 4.88% and during the construction period it will be fully recourse to Saul Centers and accrued interest will be funded by the loan. Following the completion of construction and lease-up, and upon achieving certain debt service coverage requirements, the loan will convert to a non-recourse, permanent mortgage at the same interest rate, with principal amortization computed based on a 25-year schedule.

The following is a summary of notes payable as of December 31, 2013 and 2012:



Notes Payable	December 31,					Interest		Scheduled
(Dollars in thousands)	2013			2012		Rate *		Maturity *
Fixed rate mortgages:	$	—	(a)	$	15,750
	—		(b)	6,936
	—		(c)	13,875
	16,128		(d)	16,798		7.45	%	Jun-2015
	33,246		(e)	34,373		6.01	%	Feb-2018
	36,937		(f)	38,388		5.88	%	Jan-2019
	11,949		(g)	12,418		5.76	%	May-2019
	16,501		(h)	17,145		5.62	%	Jul-2019
	16,419		(i)	17,040		5.79	%	Sep-2019
	14,610		(j)	15,176		5.22	%	Jan-2020
	11,159		(k)	11,421		5.60	%	May-2020
	9,921		(l)	10,288		5.30	%	Jun-2020
	42,462		(m)	43,424		5.83	%	Jul-2020
	8,649		(n)	8,934		5.81	%	Feb-2021
	6,233		(o)	6,359		6.01	%	Aug-2021
	35,981		(p)	36,699		5.62	%	Jun-2022
	10,930		(q)	11,129		6.08	%	Sep-2022
	11,795		(r)	11,989		6.43	%	Apr-2023
	15,598		(s)	16,247		6.28	%	Feb-2024
	17,123		(t)	17,469		7.35	%	Jun-2024
	14,849		(u)	15,140		7.60	%	Jun-2024
	26,153		(v)	26,635		7.02	%	Jul-2024
	31,093		(w)	31,709		7.45	%	Jul-2024
	30,894		(x)	31,490		7.30	%	Jan-2025
	16,087		(y)	16,419		6.18	%	Jan-2026
	118,128		(z)	120,822		5.31	%	Apr-2026
	36,075		(aa)	36,986		4.30	%	Oct-2026
	40,974		(bb)	41,970		4.53	%	Nov-2026
	19,118		(cc)	19,569		4.70	%	Dec-2026
	70,856		(dd)	72,233		5.84	%	May-2027
	17,718		(ee)	—		4.04	%	Apr-2028
	34,391		(ff)	—		3.51	%	Jun-2028
	17,895		(gg)	—		3.99	%	Sep-2028
	—		(hh)	—		4.88	%	Sep-2032
Total fixed rate	789,872			774,831		5.67	%	10.1 Years
Variable rate loans:
	—		(ii)	38,000		LIBOR + 1.60	%	May-2016
	14,802		(jj)	14,945		LIBOR + 1.65	%	Feb-2016
	15,394		(kk)	—		LIBOR + 1.65	%	Feb-2016
Total variable rate	$	30,196		$	52,945	LIBOR + 1.65	%	2.2 Years
Total notes payable	$	820,068		$	827,776	5.53	%	9.8 Years


*	Interest rate and scheduled maturity data presented as of December 31, 2013. Totals computed using weighted averages.


(a)	The loan, together with a corresponding interest-rate swap, was collateralized by, Metro Pike Center, and on a combined basis, required equal monthly payments of $86,000 based upon a 25-year amortization schedule and a final payment of $15.6 million at loan maturity. The loan was repaid in full and the swap was terminated in 2013.


(b)	The loan was collateralized by Cruse MarketPlace and required equal monthly principal and interest payments of $56,000 based upon an amortization schedule of approximately 24 years and a final payment of $6.8 million at loan maturity. The loan was paid in full in 2013.


(c)	The loan was collateralized by Seabreeze Plaza and required equal monthly principal and interest payments totaling $102,000 based upon a weighted average 26-year amortization schedule and a final payment of $13.3 million at loan maturity. The loan was paid in full in 2013.


(d)	The loan is collateralized by Shops at Fairfax and Boulevard shopping centers and requires equal monthly principal and interest payments totaling $156,000 based upon a weighted average 23-year amortization schedule and a final payment of $15.2 million is due at loan maturity. Principal of $670,000 was amortized during 2013.


(e)	The loan is collateralized by Washington Square and requires equal monthly principal and interest payments of $264,000 based upon a 27.5-year amortization schedule and a final payment of $28.0 million at loan maturity. Principal of $1.1 million was amortized during 2013.


(f)	The loan is collateralized by three shopping centers, Broadlands Village, The Glen and Kentlands Square I, and requires equal monthly principal and interest payments of $306,000 based upon a 25-year amortization schedule and a final payment of $28.4 million at loan maturity. Principal of $1.5 million was amortized during 2013.


(g)	The loan is collateralized by Olde Forte Village and requires equal monthly principal and interest payments of $98,000 based upon a 25-year amortization schedule and a final payment of $9.0 million at loan maturity. Principal of $469,000 was amortized during 2013.


(h)	The loan is collateralized by Countryside and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a final payment of $12.3 million at loan maturity. Principal of $644,000 was amortized during 2013.


(i)	The loan is collateralized by Briggs Chaney MarketPlace and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a final payment of $12.2 million at loan maturity. Principal of $621,000 was amortized during 2013.


(j)	The loan is collateralized by Shops at Monocacy and requires equal monthly principal and interest payments of $112,000 based upon a 25-year amortization schedule and a final payment of $10.6 million at loan maturity. Principal of $566,000 was amortized during 2013.


(k)	The loan is collateralized by Boca Valley Plaza and requires equal monthly principal and interest payments of $75,000 based upon a 30-year amortization schedule and a final payment of $9.1 million at loan maturity. Principal of $262,000 was amortized during 2013.


(l)	The loan is collateralized by Palm Springs Center and requires equal monthly principal and interest payments of $75,000 based upon a 25-year amortization schedule and a final payment of $7.1 million at loan maturity. Principal of $367,000 was amortized during 2013.


(m)	The loan and a corresponding interest-rate swap closed on June 29, 2010 and are collateralized by Thruway. On a combined basis, the loan and the interest-rate swap require equal monthly principal and interest payments of $289,000 based upon a 25-year amortization schedule and a final payment of $34.8 million at loan maturity. Principal of $962,000 was amortized during 2013.


(n)	The loan is collateralized by Jamestown Place and requires equal monthly principal and interest payments of $66,000 based upon a 25-year amortization schedule and a final payment of $6.1 million at loan maturity. Principal of $285,000 was amortized during 2013.


(o)	The loan is collateralized by Hunt Club Corners and requires equal monthly principal and interest payments of $42,000 based upon a 30-year amortization schedule and a final payment of $5.0 million, at loan maturity. Principal of $126,000 was amortized during 2013.


(p)	The loan is collateralized by Lansdowne Town Center and requires monthly principal and interest payments of $230,000 based on a 30-year amortization schedule and a final payment of $28.2 million at loan maturity. Principal of $718,000 was amortized during 2013.


(q)	The loan is collateralized by Orchard Park and requires equal monthly principal and interest payments of $73,000 based upon a 30-year amortization schedule and a final payment of $8.6 million at loan maturity. Principal of $199,000 was amortized during 2013.


(r)	The loan is collateralized by BJ’s Wholesale and requires equal monthly principal and interest payments of $80,000 based upon a 30-year amortization schedule and a final payment of $9.3 million at loan maturity. Principal of $194,000 was amortized during 2013.


(s)	The loan is collateralized by Great Falls shopping center. The loan consists of three notes which require equal monthly principal and interest payments of $138,000 based upon a weighted average 26-year amortization schedule and a final payment of $6.3 million at maturity. Principal of $649,000 was amortized during 2013.


(t)	The loan is collateralized by Leesburg Pike and requires equal monthly principal and interest payments of $135,000 based upon a 25-year amortization schedule and a final payment of $11.5 million at loan maturity. Principal of $346,000 was amortized during 2013.


(u)	The loan is collateralized by Village Center and requires equal monthly principal and interest payments of $119,000 based upon a 25-year amortization schedule and a final payment of $10.1 million at loan maturity. Principal of $291,000 was amortized during 2013.

(v)

The loan is collateralized by White Oak and requires equal monthly principal and interest payments of $193,000 based upon a 24.4 year weighted amortization schedule and a final payment of $18.5 million at loan maturity. The loan was previously collateralized by Van Ness Square. During 2012, the Company substituted White Oak as the collateral and borrowed an additional $10.5 million. Principal of $482,000 was amortized during 2013.


(w)	The loan is collateralized by Avenel Business Park and requires equal monthly principal and interest payments of $246,000 based upon a 25-year amortization schedule and a final payment of $20.9 million at loan maturity. Principal of $616,000 was amortized during 2013.


(x)	The loan is collateralized by Ashburn Village and requires equal monthly principal and interest payments of $240,000 based upon a 25-year amortization schedule and a final payment of $20.5 million at loan maturity. Principal of $596,000 was amortized during 2013.


(y)	The loan is collateralized by Ravenwood and requires equal monthly principal and interest payments of $111,000 based upon a 25-year amortization schedule and a final payment of $10.1 million at loan maturity. Principal of $332,000 was amortized during 2013.


(z)	The loan is collateralized by Clarendon Center and requires equal monthly principal and interest payments of $753,000 based upon a 25-year amortization schedule and a final payment of $70.5 million at loan maturity. Principal of $2.7 million was amortized during 2013.


(aa)	The loan is collateralized by Severna Park MarketPlace and requires equal monthly principal and interest payments of $207,000 based upon a 25-year amortization schedule and a final payment of $20.3 million at loan maturity. Principal of $911,000 was amortized during 2013.


(bb)	The loan is collateralized by Kentlands Square II and requires equal monthly principal and interest payments of $240,000 based upon a 25-year amortization schedule and a final payment of $23.1 million at loan maturity. Principal of $996,000 was amortized during 2013.


(cc)	The loan is collateralized by Cranberry Square and requires equal monthly principal and interest payments of $113,000 based upon a 25-year amortization schedule and a final payment of $10.9 million at loan maturity. Principal of $451,000 was amortized during 2013.


(dd)	The loan in the original amount of $73.0 million closed in May 2012, is collateralized by Seven Corners and requires equal monthly principal and interest payments of $463,200 based upon a 25-year amortization schedule and a final payment of $42.3 million at loan maturity. Principal of $1.4 million was amortized during 2013.


(ee)	The loan is collateralized by Hampshire Langley and requires equal monthly principal and interest payments of $95,400 based upon a 25 -year amortization schedule and a final payment of $9.5 million at loan maturity. Principal of $282,000 was amortized in 2013.


(ff)	The loan is collateralized by Beacon Center and requires equal monthly principal and interest payments of $203,200 based upon a 20-year amortization schedule and a final payment of $11.4 million at loan maturity. Principal of $609,000 was amortized in 2013.


(gg)	The loan is collateralized by Seabreeze Plaza and requires equal monthly principal and interest payments of $94,900 based upon a 25-year amortization schedule and a final payment of $9.5 million at loan maturity. Principal of $105,000 was amortized in 2013.

(hh)

The loan is a $71.6 million construction-to-permanent facility that is collateralized by and will finance a portion of the construction costs of Park Van Ness. During the construction period, interest will be funded by the loan. After conversion to a permanent loan, monthly principal and interest payments totaling $413,500 will be required based upon a 25-year amortization schedule. A final payment of $39.6 million will be due at maturity.


(ii)	The loan is a $175.0 million unsecured revolving credit facility. Interest accrues at a rate equal to the sum of one-month LIBOR plus a spread of 1.90%. The line may be extended at the Company’s option for one year with payment of a fee of 0.20%. Monthly payments, if required, are interest only and vary depending upon the amount outstanding and the applicable interest rate for any given month.


(jj)	The loan is collateralized by Northrock and requires monthly principal and interest payments of approximately $47,000 and a final payment of $14.2 million at maturity. Principal of $161,000 was amortized during 2013.


(kk)	The loan is collateralized by Metro Pike Center and requires monthly principal and interest payments of approximately $48,000 and a final payment of $14.8 million at loan maturity. Principal of $206,000 was amortized during 2013.

The carrying value of the properties collateralizing the mortgage notes payable totaled $907.2 million and $916.1 million, as of December 31, 2013 and 2012, respectively. The Company’s credit facility requires the Company and its subsidiaries to maintain certain financial covenants, which are summarized below. The Company was in compliance as of December 31, 2013.


•	maintain tangible net worth, as defined in the loan agreement, of at least $503.3 million plus 80% of the Company’s net equity proceeds received after May 2012.


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


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


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


•	limit the amount of variable rate debt and debt with initial loan terms of less than 5 years to no more than 40% of total debt.

Mortgage notes payable at each of December 31, 2013 and 2012, totaling $51.0 million, are guaranteed by members of the Saul Organization. As of December 31, 2013, the scheduled maturities of all debt including scheduled principal amortization for years ended December 31 are as follows:



(Dollars in thousands)	Balloon Payments		Scheduled Principal Amortization		Total
2014	$	—	$	22,191	$	22,191
2015	15,077		23,008		38,085
2016	28,931		23,444		52,375
2017	—		24,681		24,681
2018	27,872		24,696		52,568
Thereafter	475,267		154,901		630,168
	$	547,147	$	272,921	$	820,068

The components of interest expense are set forth below.



(Dollars in thousands)	Year ended December 31,
	2013			2012			2011
Interest incurred	$	45,502		$	48,010		$	45,673
Amortization of deferred debt costs	1,257			1,576			1,547
Capitalized interest	(170		)	(42		)	(1,896		)
Total	$	46,589		$	49,544		$	45,324

Deferred debt costs capitalized during the years ending December 31, 2013, 2012 and 2011 totaled $3.2 million, $2.2 million and $1.4 million, respectively.