Mortgage Notes Payable, Revolving Credit Facility, Interest Expense and Amortization of Deferred Debt Costs

12 Months Ended

Dec. 31, 2019

Mortgage Notes Payable, Revolving Credit Facility, Interest Expense and Amortization of Deferred Debt Costs

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

At December 31, 2019, the principal amount of outstanding debt totaled $1.1 billion, of which $938.4 million was fixed rate debt and $162.5 million was variable rate debt. The principal amount of the Company’s outstanding debt totaled $1.0 billion at December 31, 2018, of which $910.2 million was fixed rate debt and $122.0 million was variable rate debt.

At December 31, 2019, the Company had a $400.0 million unsecured credit facility, which can be used for working capital, property acquisitions or development projects, of which $325.0 million is a revolving credit facility and $75.0 million is a term loan. The revolving credit facility matures on January 26, 2022, and may be extended by the Company for one additional year subject to the Company’s satisfaction of certain conditions. The term loan matures on January 26, 2023, and may not be extended. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the credit facility. Letters of credit may be issued under the revolving credit facility. On December 31, 2019, based on the value of the Company's unencumbered properties, approximately $237.3 million was available under the revolving credit facility, $87.5 million was outstanding and approximately $185,000 was committed for letters of credit. Interest at a rate equal to the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio and which can range from 135 basis points to 195 basis points under the revolving facility and from 130 basis points to 190 basis points under the term loan. As of December 31, 2019, the margin was 135 basis points under the revolving facility and 130 basis points under the term loan.

Saul Centers is a guarantor of the credit facility, of which the Operating Partnership is the borrower. The Operating Partnership is the guarantor of (a) a portion of the Park Van Ness mortgage (approximately $6.7 million of the $68.1 million outstanding balance at December 31, 2019, which guarantee will be reduced to (i) $3.3 million on October 1, 2020 and (ii) zero on October 1, 2021), (b) a portion of the Kentlands Square II mortgage (approximately $8.5 million of the $34.0 million outstanding balance at December 31, 2019), (c) a portion of the Broadlands mortgage (approximately $3.9 million of the $31.2 million outstanding balance at December 31, 2019), and (d) a portion of the Avenel Business Park mortgage (approximately $6.3 million of the $26.3 million outstanding balance at December 31, 2019). All other notes payable are non-recourse.

On January 18, 2017, the Company closed on a 15-year, non-recourse $40.0 million mortgage loan secured by Burtonsville Town Square. The loan matures in 2032, bears interest at a fixed rate of 3.39%, requires

monthly principal and interest payments of $197,900 based on a 25-year amortization schedule and requires a final payment of $20.3 million at maturity.

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

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

On November 20, 2017, the Company closed on a 15-year, non-recourse $60.0 million mortgage loan secured by Washington Square. The loan matures in 2032, bears interest at a fixed rate of 3.75%, requires monthly principal and interest payments of $308,500 based on a 25-year amortization schedule and requires a final payment of $31.1 million. Proceeds were used to repay the remaining balance of approximately $28.1 million on the existing mortgage and reduce the outstanding balance of the revolving credit facility.

On October 3, 2018, the Company closed on a 15-year , non-recourse $32.0 million mortgage loan secured by Broadlands Village. The loan matures in 2033, bears interest at a fixed-rate of 4.41%, requires monthly principal and interest payments of $176,200 based on a 25-year amortization schedule and requires a final payment of $17.3 million at maturity. Proceeds were used to repay the remaining principal balance of approximately $15.2 million on the existing mortgage, the remaining balance of approximately $7.3 million on the existing mortgage collateralized by the Glen, the remaining balance of approximately $6.1 million on the existing mortgage collateralized by Kentlands Square I, and reduce the outstanding balance of the revolving credit facility.

On December 18, 2018, the Company closed on a 15-year, non-recourse $22.9 million mortgage loan secured by The Glen. The loan matures in 2034, bears interest at a fixed-rate of 4.69%, requires monthly principal and interest payments of $129,800 based on a 25-year amortization schedule and requires a final payment of $12.5 million at maturity.

On January 4, 2019, the Company repaid in full the remaining principal balance of $12.7 million of the mortgage loan secured by Countryside Marketplace, which was scheduled to mature in July 2019.

On January 10, 2019, the Company closed on a 15-year, non-recourse $22.1 million mortgage loan secured by Olde Forte Village. The loan matures in 2034, bears interest at a fixed-rate of 4.65%, requires monthly principal and interest payments of $124,700 based on a 25-year amortization schedule and requires a final payment of $12.1 million. Proceeds were partially used to repay in full the existing mortgage secured by Olde Forte Village, which was scheduled to mature in May 2019.

On June 3, 2019, the Company repaid in full the remaining principal balance of $12.4 million of the mortgage loan secured by Briggs Chaney Marketplace, which was scheduled to mature in September 2019.

On November 12, 2019, the Company closed on a 15-year, non-recourse $28.5 million mortgage loan secured by Shops at Monocacy. The loan matures in 2034, bears interest at a fixed-rate of 4.14%, requires monthly principal and interest payments of $152,600 based on a 25-year amortization schedule and requires a final payment of $15.1 million. Proceeds were partially used to repay in full the existing mortgage secured by Shops at Monocacy, which was scheduled to mature in January 2020.

On November 21, 2019, the Company repaid in full the remaining principal balance of $35.6 million of the mortgage loan secured by Thruway, which was scheduled to mature in July 2020. The Company’s corresponding swap agreement was terminated on the same day.

The carrying value of the properties collateralizing the mortgage notes payable totaled $1.1 billion and $1.1 billion, as of December 31, 2019 and 2018, 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, 2019.


•	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); and


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

Mortgage notes payable at December 31, 2019 and 2018, totaling $41.0 million and $51.0 million, respectively, are guaranteed by members of the Saul Organization. As of December 31, 2019, the scheduled maturities of all debt including scheduled principal amortization for years ended December 31 are as follows:



(in thousands)	Balloon Payments			Scheduled Principal Amortization		Total
2020	$	16,074		$	28,421	$	44,495
2021	11,012			29,025		40,037
2022	124,002		(a)	29,645		153,647
2023	84,225			30,065		114,290
2024	66,649			28,697		95,346
Thereafter	527,297			125,809		653,106
Principal amount	$	829,259		$	271,662	1,100,921
Unamortized deferred debt costs						9,733
Net						$	1,091,188

(a) Includes $87.5 million outstanding under the revolving facility.

Deferred Debt Costs

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the revolving line of credit. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled $9.7 million and $10.3 million, net of accumulated amortization of $7.5 million and $7.3 million at December 31, 2019 and 2018, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets.

The components of interest expense are set forth below.



(in thousands)	Year ended December 31,
	2019			2018			2017
Interest incurred	$	52,044		$	49,652		$	49,322
Amortization of deferred debt costs	1,518			1,610			1,392
Capitalized interest	(11,480		)	(6,222		)	(3,489		)
Interest expense	42,082			45,040			47,225
Less: Interest income	248			272			80
Interest expense, net and amortization of deferred debt costs	$	41,834		$	44,768		$	47,145

Deferred debt costs capitalized during the years ending December 31, 2019, 2018 and 2017 totaled $1.0 million, $3.2 million and $2.6 million, respectively.