We have prepared a brief slide show to review the company’s
recent and future development projects, and to highlight our
core portfolio operating performance and the resulting returns
delivered to shareholders over our long history as a public REIT.
1
Exhibit 99. (a)
Construction of Park Van Ness was completed in April 2016, with
the initial residents taking occupancy in early May 2016. The
building is comprised of 271 luxury apartments and 9,000
square feet of street level retail. We are conveniently located on
Connecticut Ave. just north of the Van Ness Metro Station and
bordering Rock Creek Park.
2
Park Van Ness offers residents a combination of urban
convenience and walkability, with below street‐level structured
parking, a 24 hour concierge, and amenities including a
community room, landscaped courtyards, a state of the art
fitness room and a rooftop pool and sun deck.
Park Van Ness’s two street‐level retail tenants are Sfoglina, an
Italian fine dining establishment by Fabio Trabocchi, one of
Washington, DC’s top chefs, and Soapstone Market, a 6,000
square foot specialty grocery and gourmet market.
3
Park Van Ness rises 11 stories above the park, providing
residents breathtaking views and access to the park. The 271
apartment units consist of a mix of 1 to 3 bedroom units, with
over 60% having views of Rock Creek Park. Just one year after
our first residents moved in, we have leased 251 units, or 92.6%
of the total.
While a drag on earnings during 2016, we expect Park Van Ness
to be accretive to FFO during 2017 as lease‐up of this $93
million development is completed over the coming months.
4
We remain active in pursuing viable acquisition opportunities that
are complementary to our existing shopping center operations. In
January 2017, we acquired Burtonsville Town Square, a fully
occupied, well located grocery and drugstore anchored
neighborhood center in Burtonsville, Maryland, just outside the
beltway in Montgomery County.
Burtonsville Town Square has by‐right expansion of up to 18,000
square feet. We are currently pre‐marketing and undergoing the
architectural and engineering design of this additional space.
In late 2016, we sold Crosstown Business Center, an industrial
property in Tulsa, Oklahoma. Over the past 5 years we have
disposed of 3 non‐core assets in order to re‐deploy capital into our
core asset class and our future development pipeline.
5
Our core shopping center business continues to be grocery‐
anchored, service oriented neighborhood centers. 70% of our
shopping center property operating income is produced by
centers anchored by a grocery store. The overall leasing
percentage of our 50 shopping centers is a strong 96%.
6
While internet retail continues to experience market share
increases largely in the soft goods and electronics segments, our
focus on in‐fill grocery‐anchored, service‐oriented
neighborhood shopping centers has continued to be generally
resilient against these market forces. With strong internet sales
growth at nearly 15% during the past year, the internet now
captures about 8.3% of total retail sales (seasonally adjusted) as
reported by the Department of Commerce Statistics.
Traditional neighborhood center uses such as electronics,
clothing, books and sporting goods have been pressured, but we
continue to adapt our tenant mix to maintain strong occupancy.
Our recent leasing activity has been solid in restaurants,
medical, health & beauty, personal fitness and pet services.
7
A sampling of major retailers which have been subjects of recent
negative media attention are shown here. While we have a few of
these names in our centers, our exposure to these retailers is only
1.5% of our total revenue.
We expect that we will lose only 1 of our 4 Radio Shack stores, with
the others in the process of assignment to Sprint. Payless Shoes is
still evaluating store closures in their bankruptcy, but none of our 7
stores are named in their initial list of targeted store closures.
Our Sears and Kmart stores are both located on large parcels in
Montgomery County in centers with substantial master planned
development rights. While comprising over 4.5% of our portfolio’s
square footage, these two stores represent less than 1% of our total
revenue.
8
Safeway, our 3rd largest tenant by percentage of total revenue,
closed 2 of their 9 stores in our portfolio during 2016 ‐ Briggs
Chaney Plaza in Silver Spring, Maryland and Broadlands Village
in Ashburn, Virginia.
Global Food, a regional grocer with six locations in the
Washington, DC metropolitan area, just opened at Briggs
Chaney, taking 100% of the former Safeway space. Rents
received for this space have been unaffected.
We recently terminated the Safeway lease at Broadlands Village
and have executed a lease with Aldi Food Market to replace
20,000 square feet of the 58,000 square feet that was vacated.
Aldi is expected to open in late 2017 and we continue to market
the balance of the space.
9
The three tenant spaces pictured here were redeveloped in 2016
and provide a good example of how we add value to our core
portfolio with opportunistic investments. A formerly under
performing 48,000 square foot anchor space at Southdale has been
reconfigured to accommodate Mercy Personal Physicians and
several smaller complimentary spaces.
On the right, we converted an unoccupied, low rent paying pad site
to a new Silver Diner at Westview Village in Frederick, Maryland.
Pictured below right, we have replaced several underperforming
shop spaces with a higher rent paying CVS Pharmacy at
Germantown. In total, these and other pad site expansions that are
underway this year or planned for 2017, totaling approximately $10
million in capital invested, will yield incremental returns of over 14%
and be accretive to FFO by $0.04 per share.
10
The primary driver of property operating income growth during
the four year period 2012 through 2015 has been improved
leasing percentage. Our retail leasing percentage averaged 96%
for 2016 and 95.9% for the most recent quarter of 2017,
continuing a growth trend since 2011.
Successful leasing of small shop space has been a large
contributor to our overall retail leasing percentage
improvement.
11
We define small shops as in‐line spaces of less than 10,000
square feet. Down from the peak of 94% in 2006, small shop
leasing improved from a low of 83.7% in 2011 to current levels
averaging above 90% since 2014.
Rental income of small shops is an important contributor to cash
flow growth. While small shops comprised only 31% of our retail
square footage, they contributed 48% of our retail annual base
rent in 2016.
12
Another important contributor to property operating income
growth is the percentage of tenants renewing their leases.
Higher renewal percentage minimizes cash flow downtime
which occurs during re‐tenanting of space. The percentage of
retail tenants renewing leases, as measured by expiring base
rents, was 76% in 2016, consistent with the average of the
previous three years, and significantly better than the low of
60% in 2011.
13
A third contributor to improving property operating income is
the growth in rental rates. On a same space basis, retail rental
rate increases over expiring rents averaged over 10% during the
two years leading up to the economic downturn.
After 3 years of rental rate declines from 2009 to 2011, retail
rents have since increased an annual average of 2.6%. These
still low, yet positive, rent increases largely result from improved
leasing percentage and successful tenants as measured by their
stable reported tenant sales.
14
Since the three down years from 2009 through 2011, our retail
same property operating income has grown an average of over
3.7% annually during the five year period 2012 through 2016.
Same property operating income grew 2.4% in the first quarter
of 2017.
15
Our portfolio’s diverse retail tenant base minimizes the
Company’s exposure to any one tenant’s credit. Our top 10
retail tenants comprise only 18.3% of total revenue. Only Giant
Food and Safeway individually accounted for more than 2.5% of
our total revenue last year.
16
Park Van Ness is Saul Centers’ second major urban Metro
oriented development project, following our successful
Clarendon Center delivered in 2010.
With the addition of Park Van Ness, this portion of our portfolio
has grown to 1.5 million square feet and accounts for
approximately 23% of our current property operating income.
17
Since hitting a low of 84% during 2010/2011, our office leasing
percentage has shown continued improvement. The average
percentage leased in our 5 commercial projects has exceeded
91% since 2014, and as of the first quarter of 2017 has improved
to 93%, the highest it has been since 2008. While the overall
office market vacancy rates are still elevated, weak (but
improving) demand for office space continues to keep office
rental rates under pressure.
18
Looking beyond the Park Van Ness development, we have
assembled sites adjacent to three Metro stations – Glebe Road
in Northern Virginia and White Flint and Twinbrook in
Montgomery County, Maryland on the Rockville Pike corridor.
These 3 sites contain 21 acres, and have development potential
of up to 3,000 apartments, 220,000 square feet of street level
retail, and 475,000 square feet of office space. We are moving
forward with the initial stages of construction on our Glebe
Road site as market conditions in the Roslyn‐Ballston Corridor
remain favorable.
19
Final zoning approvals were received in June 2016 for a mixed‐
use building comprised of 490 luxury apartments and 62,000
square feet of street‐level retail space on our 2.8 acre‐site in the
Ballston area of Arlington, VA. Existing retail space was razed in
late 2016 and we expect excavation to occur during the second
quarter of 2017, pending receipt of permits from Arlington
County. The project’s total development cost is expected to be
approximately $275 million, of which $60 million has already
been incurred assembling the land and finalizing zoning and site
plan approvals.
We have reached terms for project financing, subject to the
lender’s final loan committee approval, expected this May.
Disclosure of the specifics will be forthcoming.
20
While overall portfolio size has grown, our property type and
geographic focus have remained consistent since inception.
Over 77% of our 2016 property operating income was generated
by community and neighborhood shopping centers, compared
to 73% at our formation in 1993.
Approximately 85% of our 2016 property operating income was
generated from the metropolitan Washington, DC market, up
from 79% in 1993. Given that our development pipeline is
concentrated in the Washington, DC metropolitan area, we
expect this trend to continue.
21
FFO has continued to improve, since dropping to a low during
the recession of $2.03 per share in 2011, reaching $3.03 per
share in 2016. This is the company’s fourth consecutive year of
FFO growth, with 2016 up 2.7% per share from 2015.
After four years of $1.44 per share dividend pay‐out from 2010
to 2013, we have raised the dividend annually beginning in
2014. We most recently increased the dividend in January 2017,
by 8.5%, to the current annualized rate of $2.04 per share, our
historically highest level.
22
Our dividend payout ratio has dropped steadily from 70.9% of
FFO in 2011, to an average of under 60% over the past five
years.
This conservative payout policy allows us to retain operating
cash flow to fund portions of our planned future acquisition,
redevelopment and development activities.
23
Over 95% of our total debt is fixed rate, non‐recourse debt. A
favorable rate environment over the past 5 years has allowed us
to reduce our weighted average interest rate to 5.0%, from 6.7%
at the beginning of 2010. Maturities are staggered through
2034 – the silver bars represent the current value of the debt by
year of maturity. More importantly, with scheduled principal
amortization reducing debt annually, the green bars show debt
balances at maturity, with 2026 ($135 million) being the only
year over $65 million. This laddered maturity greatly minimizes
our risk associated with debt markets in the future.
24
Beginning in 1993, we were a company of 29 properties
containing 5.3 million square feet of retail and office space. As a
result of core property redevelopment, supplemented with
acquisitions and new developments and with the latest addition
of Park Van Ness, we now have 56 operating properties with
approximately 9.5 million square feet.
Property operating income of $43 million in 1994 has increased
to over $163 million in 2016, a 6.2% compounded annual
growth rate over our 23 year history.
25
We began in 1993 with a $500 million total capitalization, split
evenly between debt and equity – 50% leveraged.
Currently, as of March 2017, our total capitalization is
approximately $3.0 billion and, with $977 million of debt, our
leverage is a healthy 33.0% debt to total capitalization.
Throughout this period, a long‐term holder of our stock since
our August 1993 IPO has received an 11.5% compounded annual
total return, including both dividends and price appreciation.
26
We remain committed to, and confident in, the long‐term
growth prospects for our retail and mixed‐use properties.
Our balance sheet is strong, and we are prepared for new
opportunities moving forward.
I now welcome any questions you may have.
Adjournment (after questions)
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