Saul Centers, Inc.: Form 10-Q for the period ended Jun 30, 2025

This section should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes in “Item 1. Financial Statements” of this report and the more detailed information contained in the Company’s Form 10-K for the year ended December 31, 2024. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section have the meanings given to them in Item 1 of this Form 10-Q.

Forward-Looking Statements

Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “plans,” “intends,” “estimates,” “anticipates,” “expects,” “believes” or similar expressions in this Form 10-Q. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

• the ability of our tenants to pay rent;
• our reliance on shopping center “anchor” tenants and other significant tenants;
• our substantial relationships with members of the Saul Organization;
• risks of financing, such as increases in interest rates, restrictions imposed by our debt, our ability to meet existing financial covenants and our ability to consummate planned and additional financings on acceptable terms;
• our development activities;
• our access to additional capital;
• our ability to successfully complete additional acquisitions, developments or redevelopments, or if they are consummated, whether such acquisitions, developments or redevelopments perform as expected;
• macroeconomic conditions, including due to geopolitical and global trade disruptions, which may lead to a disruption of or lack of access to sources of funding and rising inflation;
• adverse trends in the retail, office and residential real estate sectors;
• risks relating to cybersecurity, including disruption to our business and operations and exposure to liabilities from tenants, employees, capital providers, and other third parties;
• risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of real estate and environmental risks; and
• risks related to our status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to our status as a REIT, the effect of future changes to REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT.

Additional information related to these risks and uncertainties are included in “Risk Factors” (Part I, Item 1A of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2024), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q and Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2024), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Form 10-Q).

General

The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three and six months ended June 30, 2025.

Overview

The Company’s primary strategy is to continue to focus on diversification of its assets through development of transit-oriented, residential mixed-use projects and expansion of and additions to its grocery-anchored shopping centers in the Washington, DC metropolitan area. The Company’s operating strategy also includes improvement of the operating performance of its assets, internal growth of its Shopping Centers through the addition of pad sites, and supplementing its development pipeline with selective redevelopment and renovations of its core Shopping Centers. Including Twinbrook Quarter and Hampden House, the Company has a pipeline of entitled sites in its portfolio, some of which are currently Shopping Centers, for development of up to 3,200 apartment units and 870,000 square feet of retail and office space. All such sites are located proximate to Washington Metropolitan Area Transit Authority red line Metro stations in Montgomery County, Maryland.

The Company intends to selectively add free-standing pad site buildings within its Shopping Center portfolio and replace underperforming tenants with tenants that generate strong traffic, including anchor stores such as grocery stores. The Company has executed leases or has leases under negotiation for eight more pad sites.

In the current economic and capital markets environment, management believes acquisition opportunities for investment in existing and new shopping center and mixed-use properties in the near future is uncertain. Management believes that the Company is positioned to take advantage of additional investment opportunities as attractive properties are identified and market conditions improve. It is management’s view that several of the sub-markets in which the Company operates have, or are expected to have in the future, attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as integral parts of its overall business plan.

Actions taken by the Federal government will likely continue to impact the office, retail and residential real estate markets over the coming years. Because the majority of the Company’s property net operating income is produced by our Shopping Centers, we continually monitor the implications of government policy changes, as well as shifts in consumer demand between on-line and in-store shopping, on future shopping center construction and retailer store expansion and closure plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in ways to maximize our future performance. The Company's commercial leasing percentage, on a same property basis, which excludes the impact of properties not in operation for the entirety of the comparable periods, decreased to 93.9% at June 30, 2025, from 95.8% at June 30, 2024.

The Company maintains a ratio of total debt to total estimated asset market value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of June 30, 2025, including the $100.0 million hedged variable-rate debt, total fixed-rate debt, with staggered maturities from 2026 to 2041, represented approximately 87.3% of the Company’s notes payable, thus mitigating refinancing risk. The Company’s unhedged variable-rate debt consists of $201.0 million outstanding under the Credit Facility. Including fixed and variable rate debt, the Company’s outstanding debt totaled approximately $1.58 billion with a weighted average remaining term of 8.3 years as of June 30, 2025. As of June 30, 2025, the Company has availability of approximately $131.9 million under its Credit Facility.

Recent Developments

The Company is developing Twinbrook Quarter Phase I located in Rockville, Maryland. The residential portion of Phase I delivered on October 1, 2024 and includes 452 apartment units. The remaining portions of Phase I include an 80,000 square foot Wegmans supermarket, approximately 25,000 square feet of small shop space, and a 230,000 square foot office building. The office tower portion of Phase I is not being constructed at this time. In connection with the development of the residential and retail portions of Phase I, we also invested in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. Excluding imputed capitalized interest, the remaining investment to complete the project is not expected to exceed $10.9 million. A portion of the cost of the project is being financed by a $145.0 million construction-to-permanent loan. As of June 30, 2025, the outstanding balance of the loan was $135.3 million, net of unamortized deferred debt costs. Construction of the residential building is complete and The Milton at Twinbrook Quarter opened and residential tenants began moving in on October 1, 2024. As of August 4, 2025, 389 of the 452 (86.1%) residential units were leased and occupied. Of the approximately 106,000 square feet of ground floor retail, the base building is complete and 101,400 square feet (95.7%) has been leased. Wegmans opened for business on June 25, 2025, and the remaining leased retail space is expected to open at various times over 2025 and 2026 as tenants complete their buildouts. The development potential of all phases of the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that will include up to 366 apartment units and 10,100 square feet of retail space. Excluding imputed capitalized interest, the remaining investment to complete the project is not expected to exceed $18.1 million. A portion of the cost of the project is being financed by a $133.0 million construction-to-permanent loan. As of June 30, 2025, the outstanding balance of the loan was $97.9 million, net of unamortized deferred debt costs. We have obtained initial certificates of occupancy for the garage and first eight floors of the building. Installation of interior finishes is ongoing and rooftop amenities are nearing completion. The building is projected to open later this year.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with GAAP, which requires management to make certain estimates and assumptions that affect the reporting of financial position and results of operations. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. The Company has identified the following policies that, due to estimates and assumptions inherent in these policies, involve a relatively high degree of judgment and complexity.

Real Estate Investments

Real estate investment properties are stated at historic cost less depreciation. Although the Company intends to own its real estate investment properties over a long term, from time to time it will evaluate its market position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s investment profile. Management believes that the Company’s real estate assets have generally appreciated in value since their acquisition or development and, accordingly, the aggregate current value exceeds their aggregate net book value and also exceeds the value of the Company’s liabilities as reported in the financial statements. Because the financial statements are prepared in conformity with GAAP, they do not report the current fair market value of the Company’s real estate investment properties.

If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying amount of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors when identifying impairment indicators including recurring operating losses, significant decreases in occupancy, and significant adverse changes in market conditions, legal factors and business climate. If impairment indicators are present, the Company compares the projected cash flows of the property over its remaining useful life, on an undiscounted basis, to the carrying amount of that property. The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect the property. If the carrying amount is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair value. The fair value of any property is sensitive to the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the actual results differ from management’s projections, the valuation could be negatively or positively affected.

Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts

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

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of current matters will not have a material adverse effect on its financial position or the results of operations. Upon determination that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.

Results of Operations

Three months ended June 30, 2025 (the “2025 Quarter”) compared to the three months ended June 30, 2024 (the “2024 Quarter”)

Net income for the 2025 Quarter decreased to $14.2 million from $19.5 million for the 2024 Quarter. The primary reason for the decline in net income was the $5.4 million adverse impact of the initial operations of Twinbrook Quarter Phase I. Significant changes in revenue and expenses are discussed below.

Revenue

(In thousands)

Total revenue increased 5.8% in the 2025 Quarter compared to the 2024 Quarter, primarily due to the initial operations of Twinbrook Quarter Phase I of $2.9 million.

Base rent. Base rent includes $2.6 million and $(0.7) million for the 2025 Quarter and 2024 Quarter, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $0.2 million and $0.2 million for the 2025 Quarter and 2024 Quarter, respectively, to recognize income from the accretion of discounts related to in-place leases acquired in connection with purchased real estate investment properties. The $5.3 million increase in base rent in the 2025 Quarter compared to the 2024 Quarter is primarily attributable to (a) higher base rent related to Twinbrook Quarter Phase I of $2.8 million, (b) higher commercial base rent, exclusive of Twinbrook Quarter Phase I, of $2.1 million, and (c) higher residential base rent, exclusive of Twinbrook Quarter Phase I, of $0.4 million.

Other revenue. The $1.8 million decrease in other revenue in the 2025 Quarter compared to the 2024 Quarter is primarily attributable to lower lease termination fees.

Expenses

(In thousands)

Total expenses increased 19.2% in the 2025 Quarter compared to the 2024 Quarter, as described below. The increase in total expenses is primarily due to the initial operations of Twinbrook Quarter Phase I, which generated $8.3 million of expenses during the 2025 Quarter.

Property operating expenses. The $1.8 million increase in property operating expenses in the 2025 Quarter compared to the 2024 Quarter is primarily attributable to (a) the operations of Twinbrook Quarter Phase I, which was not in operations in the 2024 Quarter, of $1.1 million and (b) higher repairs and maintenance across the portfolio, exclusive of Twinbrook Quarter Phase I, of $0.6 million.

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense, net and amortization of deferred debt costs increased 37.1% in the 2025 Quarter compared to the 2024 Quarter primarily due to (a) the initial operations of Twinbrook Quarter Phase I of $4.8 million and (b) $1.2 million of higher interest incurred as a result of higher average outstanding debt, partially offset by (c) $0.8 million of lower interest incurred as a result of lower average interest rates and (d) higher capitalized interest, exclusive of Twinbrook Quarter Phase I, primarily related to Hampden House of $0.7 million.

Depreciation and amortization of deferred leasing costs: Depreciation and amortization of deferred leasing costs increased 17.5% in the 2025 Quarter compared to the 2024 Quarter primarily due to $2.2 million of depreciation expense related to Twinbrook Quarter Phase I, which was not in service in the 2024 Quarter.

Six months ended June 30, 2025 (the “2025 Period”) compared to the six months ended June 30, 2024 (the “2024 Period”)

Net income for the 2025 Period decreased to $27.0 million from $37.8 million for the 2024 Period. The primary reason for the decline in net income was the $11.6 million adverse impact of the initial operations of Twinbrook Quarter Phase I. Significant changes in revenue and expenses are discussed below.

Revenue

(In thousands)

30

Total revenue increased 6.8% in the 2025 Period compared to the 2024 Period, primarily due to the initial operations of Twinbrook Quarter Phase I of $5.0 million.

Base Rent. Base rent includes $4.8 million and $(0.7) million for the 2025 Period and 2024 Period, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $0.3 million and $0.5 million for the 2025 Period and 2024 Period, respectively, to recognize income from the accretion of discounts related to in-place leases acquired in connection with purchased real estate investment properties. The $9.7 million increase in base rent in the 2025 Period compared to the 2024 Period is primarily attributable to (a) higher base rent related to Twinbrook Quarter Phase I of $4.7 million, (b) higher commercial base rent, exclusive of Twinbrook Quarter Phase I, of $4.3 million and (c) higher residential base rent, exclusive of Twinbrook Quarter Phase I, of $0.7 million.

Expense recoveries. The $1.6 million increase in expense recoveries in the 2025 Period compared to the 2024 Period is primarily attributable to an increase in recoverable property operating expenses.

Other revenue. The $1.9 million decrease in other property revenue in the 2025 Period compared to the 2024 Period is primarily attributable to lower lease termination fees.

Expenses

(In thousands)

Total expenses increased 20.5% in the 2025 Period compared to the 2024 Period, as described below. The increase in total expenses is primarily due to the initial operations of Twinbrook Quarter Phase I, which generated $16.6 million of expenses during the 2025 Period.

Property Operating Expenses. Property operating expenses increased 24.6% in the 2025 Period compared to the 2024 Period primarily due to (a) higher repairs and maintenance expenses, exclusive of Twinbrook Quarter Phase I, of $2.5 million, of which approximately $1.7 million is an increase in snow removal costs, and (b) the operations of Twinbrook Quarter Phase I, which was not in operations in the 2024 Period, of $2.2 million.

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense, net and amortization of deferred debt costs increased 35.8% in the 2025 Period compared to the 2024 Period primarily due to (a) the initial operations of Twinbrook Quarter Phase I of $9.6 million and (b) $2.5 million of higher interest incurred as a result of higher average outstanding debt, partially offset by (c) $1.8 million of lower interest incurred as a result of lower average interest rates and (d) higher capitalized interest, exclusive of Twinbrook Quarter Phase I, primarily related to Hampden House of $1.6 million.

Depreciation and amortization of deferred leasing costs: Depreciation and amortization of deferred leasing costs increased 19.1% in the 2025 Period compared to the 2024 Period primarily due to $4.4 million of depreciation expense related to Twinbrook Quarter Phase I, which was not in service in the 2024 Period.

Same property revenue and same property net operating income

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

We define same property revenue as total revenue less straight-line base rent and above/below market lease amortization of leases acquired in connection with purchased real estate investment properties minus the revenue of properties not in operation for the entirety of the comparable reporting periods, and we define same property net operating income as net income plus (a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of deferred leasing costs, (c) general and administrative expenses, (d) change in fair value of derivatives, and (e) loss on the early extinguishment of debt minus (f) gains on property dispositions, (g) straight-line base rent, (h) above/below market lease amortization of leases acquired in connection with purchased real estate investment properties and (i) the net operating income of properties that were not in operation for the entirety of the comparable periods.

Other REITs may use different methodologies for calculating same property revenue and same property net operating income. Accordingly, our same property revenue and same property net operating income may not be comparable to those of other REITs.

Same property revenue and same property net operating income are used by management to evaluate and compare the operating performance of our properties, and to determine trends in earnings, because these measures are not affected by the cost of our funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to ownership of our properties. We believe the exclusion of these items from revenue and net operating income is useful because the resulting measures capture the actual revenue generated and actual expenses incurred by operating our properties.

Same property revenue and same property net operating income are measures of the operating performance of our properties but do not measure our performance as a whole. Such measures are therefore not substitutes for total revenue, net income or net operating income as computed in accordance with GAAP.

The tables below provide reconciliations of property revenue and property net operating income under GAAP to same property revenue and same property net operating income for the indicated periods. One property, Twinbrook Quarter Phase I, was excluded from same property results.

Same property revenue

(In thousands)

(1) Revenue adjustments are straight-line base rent and above/below market lease amortization.

The $1.5 million decrease in same property revenue for the 2025 Quarter compared to the 2024 Quarter was primarily due to (a) lower lease termination fees of $2.0 million partially offset by (b) higher expense recoveries of $0.3 million.

The $0.3 million increase in same property revenue for the 2025 Period compared to the 2024 Period was primarily due to (a) higher expense recoveries of $1.6 million, (b) higher residential base rent of $0.9 million and (c) higher commercial base rent of $0.4 million, partially offset by (d) lower lease termination fees of $2.1 million and (e) lower other revenue of $0.5 million, primarily relating to insurance proceeds received in the 2024 Period for lost rents of a tenant that temporarily closed its operations.

Mixed-Use same property revenue is composed of the following:

(In thousands)

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

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

(3) Includes The Waycroft and Park Van Ness

Same property net operating income

(In thousands)

(1) Revenue adjustments are straight-line base rent and above/below market lease amortization.

Same property net operating income decreased $2.2 million, or 4.3%, for the 2025 Quarter compared to the 2024 Quarter.

Shopping Center same property net operating income for the 2025 Quarter totaled $35.3 million, a decrease of $2.1 million compared to the 2024 Quarter. Shopping Center same property net operating income decreased primarily due to lower lease termination fees of $2.1 million.

Same property net operating income decreased $2.4 million, or 2.4%, for the 2025 Period compared to the 2024 Period.

Shopping Center same property net operating income for the 2025 Period totaled $70.6 million, a decrease of $2.6 million compared to the 2024 Period. Shopping Center same property net operating income decreased primarily due to lower lease termination fees of $2.3 million.

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

(In thousands)

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

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

(3) Includes The Waycroft and Park Van Ness

Liquidity and Capital Resources

Cash and cash equivalents totaled $5.3 million and $6.9 million at June 30, 2025 and 2024, respectively. The Company maintains cash balances at various financial institutions and, from time to time, those balances may exceed federally insured limits. The Company has not experienced any losses on such deposits and actively monitors its banking relationships to mitigate its exposure to significant credit risk on those deposits. The Company’s cash flow is affected by its operating, investing and financing activities, as described below.

(In thousands)

Operating Activities

Net cash provided by operating activities represents cash received primarily from rental revenue, plus other revenue, less property operating expenses, leasing costs, normal recurring general and administrative expenses and interest payments on debt outstanding.

Investing Activities

Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. The $35.6 million decrease in cash used in investing activities is primarily due to (a) decreased development expenditures of $44.5 million partially offset by (b) increased additions to real estate investments throughout the portfolio of $8.8 million.

Financing Activities

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

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service requirements (including debt service relating to additional and replacement debt), distributions to common and preferred stockholders, distributions to unit holders, and amounts required for expansion and renovation of the Current Portfolio Properties and selective acquisition and development of additional properties. In order to qualify as a REIT for federal income tax purposes, the Company must distribute to its stockholders at least 90% of its “real estate investment trust taxable income,” as defined in the Code. The Company expects to meet these short-term liquidity requirements (other than amounts required for additional property acquisitions and developments) through cash provided from operations, available cash and its existing line of credit.

The Company is developing Twinbrook Quarter Phase I located in Rockville, Maryland. The residential portion of Phase I delivered on October 1, 2024 and includes 452 apartment units. The remaining portions of Phase I include an 80,000 square foot Wegmans supermarket, approximately 25,000 square feet of small shop space, and a 230,000 square foot office building. The office tower portion of Phase I is not being constructed at this time. In connection with the development of the residential and retail portions of Phase I, we also invested in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. Excluding imputed capitalized interest, the remaining investment to complete the project is not expected to exceed $10.9 million. A portion of the cost of the project is being financed by a $145.0 million construction-to-permanent loan. As of June 30, 2025, the outstanding balance of the loan was $135.3 million, net of unamortized deferred debt costs. Construction of the residential building is complete and The Milton at Twinbrook Quarter opened and residential tenants began moving in on October 1, 2024. As of August 4, 2025, 389 of the 452 (86.1%) residential units were leased and occupied. Of the approximately 106,000 square feet of ground floor retail, the base building is complete and 101,400 square feet (95.7%) has been leased. Wegmans opened for business on June 25, 2025, and the remaining leased retail space is expected to open at various times over 2025 and 2026 as tenants complete their buildouts. The development potential of all phases of the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that will include up to 366 apartment units and 10,100 square feet of retail space. Excluding imputed capitalized interest, the remaining investment to complete the project is not expected to exceed $18.1 million. A portion of the cost of the project is being financed by a $133.0 million construction-to-permanent loan. As of June 30, 2025, the outstanding balance of the loan was $97.9 million, net of unamortized deferred debt costs. We have obtained initial certificates of occupancy for the garage and first eight floors of the building. Installation of interior finishes is ongoing and rooftop amenities are nearing completion. The building is projected to open later this year.

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

The Company may also redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the remainder of the year, developments, expansions or acquisitions (if any) are expected to be funded with available cash, bank borrowings from the Credit Facility, construction and permanent financing, proceeds from the operation of the Company’s Dividend Reinvestment Plan (“DRIP”) or other external debt or equity capital resources available to the Company. Any future borrowings may be at the Saul Centers, Operating Partnership or Subsidiary Partnership level. The availability and terms of any such financing will depend upon market and other conditions.

Dividend Reinvestments

The Company has a DRIP that allows its common stockholders and holders of limited partnership interests an opportunity to buy additional shares of common stock by reinvesting all or a portion of their dividends or distributions. The DRIP provides for investing in newly issued shares of common stock at a 3% discount from market price without payment of any brokerage commissions, service charges or other expenses. All expenses of the DRIP are paid by the Company. The Company issued 31,717 and 29,297 shares pursuant to the DRIP at a weighted average discounted price of $33.30 and $36.37 per share, during the six months ended June 30, 2025 and 2024, respectively. The Company issued 225,026 and 350,208 limited partnership units pursuant to the DRIP at a weighted average price of $32.37 and $37.97 per unit during the six months ended June 30, 2025 and 2024, respectively. The Company also credited 4,227 and 3,796 shares to directors pursuant to the reinvestment of dividends specified by the Directors’ Deferred Compensation Plan at a weighted average discounted price of $33.26 and $36.35 per share, during the six months ended June 30, 2025 and 2024, respectively.

Capital Strategy and Financing Activity

As a general policy, the Company intends to maintain a ratio of its total debt to total estimated asset market value of 50% or less and to actively manage the Company’s leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Asset value is the aggregate fair market value of the Current Portfolio Properties and any subsequently acquired properties as reasonably determined by management by reference to each property's aggregate cash flow. Given the Company’s current debt level, it is management’s belief that the ratio of the Company’s debt to total asset value was below 50% as of June 30, 2025.

The organizational documents of the Company do not limit the absolute amount or percentage of indebtedness that it may incur. The Board may, from time to time, reevaluate the Company’s debt/capitalization strategy in light of current economic conditions, relative costs of capital, market values of the Company’s property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board then deems relevant. The Board may modify the Company’s debt/capitalization policy based on such a reevaluation without shareholder approval and consequently, may increase or decrease the Company’s debt to total estimated asset market value ratio above or below 50% or may waive the policy for certain periods of time. Whenever management determines the financing environment is favorable, the Company may opportunistically refinance or renegotiate the terms of certain of its outstanding debt in order to achieve longer maturities and/or more favorable loan terms.

At June 30, 2025, the Company had a $525.0 million Credit Facility comprised of a $425.0 million revolving credit facility and a $100.0 million term loan. The revolving credit facility was scheduled to mature on August 29, 2025, and could have been be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan was scheduled to mature on February 26, 2027. Interest accrued at a rate of SOFR plus 10 basis points plus an applicable spread, which is determined by certain leverage tests. As of June 30, 2025, the applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points related to the term loan. Letters of credit were issuable under the Credit Facility. On June 30, 2025, based on the value of the Company’s unencumbered properties, approximately $131.9 million was available under the Credit Facility, $301.0 million was outstanding and approximately $185,000 was committed for letters of credit.

The Credit Facility requires the Company and its subsidiaries to maintain compliance with certain financial covenants. The material covenants require the Company, on a consolidated basis, to:

• limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);
• limit the amount of debt so that interest coverage will exceed 2.0x on a trailing four-quarter basis (interest expense coverage); and
• limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.4x on a trailing four-quarter basis (fixed charge coverage).

As of June 30, 2025, the Company was in compliance with all such covenants. See note 5 to the consolidated financial statements for a discussion of all financing activity.

On July 30, 2025, the Company replaced its Credit Facility. The new credit facility, which may be used for working capital, property acquisitions, development projects or letters of credit, provides for a $600.0 million senior unsecured credit facility (the "New Credit Facility") comprised of a $460.0 million revolving credit facility (the "New Revolving Line") and a $140.0 million term loan (the "New Term Loan"). The New Revolving Line has an initial maturity date of July 30, 2029, with a one-year extension option. The New Term Loan has an initial maturity date of July 28, 2028, with two one-year extension options. In general, loan availability under the New Credit Facility is primarily determined by operating income from the Operating Partnership's and certain of its subsidiaries' existing unencumbered properties. Interest accrues at SOFR plus a spread of 1.35% to 1.95% under the New Revolving Line, and 1.30% to 1.90% under the New Term Loan, each as determined by certain leverage tests. As of July 30, 2025, the applicable spreads for borrowings under the New Revolving Line and the New Term Loan are 1.40% and 1.35%, respectively. The Company and certain subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the New Credit Facility.

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

The Company has a $145.0 million construction-to-permanent loan related to the residential and retail portions of Phase I of the Twinbrook Quarter development project. As of June 30, 2025, the balance of the loan was $135.3 million, net of unamortized deferred debt costs.

The Company has a $133.0 million loan related to the Hampden House development project. As of June 30, 2025, the balance of the loan was $97.9 million, net of unamortized deferred debt costs.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

We use certain non-GAAP measures, in addition to certain performance metrics determined under GAAP, as we believe these measures improve the understanding of the operating results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP measures.

Funds From Operations (FFO)1 available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) for the 2025 Quarter totaled $25.4 million, a decrease of 11.1% compared to the 2024 Quarter. FFO available to common stockholders and noncontrolling interests was adversely impacted by $3.2 million, or $0.09 per basic and diluted share, due to the initial operations of Twinbrook Quarter Phase I.

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) for the 2025 Period totaled $49.9 million, a decrease of 10.8% compared to the 2024 Period. FFO available to common stockholders and noncontrolling interests was adversely impacted by $7.3 million, or $0.21 per basic and diluted share, due to the initial operations of Twinbrook Quarter Phase I. Exclusive of Twinbrook Quarter Phase I, FFO available to common stockholders and noncontrolling interests increased by $1.2 million primarily due to (a) higher commercial base rent of $4.3 million, (b) higher residential base rent of $0.7 million, partially offset by (c) lower lease termination fees of $2.1 million, (d) lower expense recoveries, net of expenses, of $1.1 million and (e) lower other property revenue of $0.5 million.

The following table presents a reconciliation from net income to FFO available to common stockholders and noncontrolling interests for the periods indicated:

(In thousands, except per share amounts)

(1) The National Association of Real Estate Investment Trusts (“Nareit”) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by Nareit as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding impairment charges on real estate assets and gains or losses from real estate dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company’s Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company’s operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what the Company believes occurs with its assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.

Acquisitions and Redevelopments

The Company may redevelop certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review, and management’s determination that such properties are expected to provide long-term earnings and cash flow growth. During the remainder of the year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Credit Facility, construction financing, proceeds from the operation of the Company’s dividend reinvestment plan or other external capital resources available to the Company.

The Company has been selectively involved in acquisition, development, redevelopment and renovation activities. It continues to evaluate the acquisition of land parcels for retail and mixed-use development and acquisitions of operating properties for opportunities to enhance net operating income and cash flow growth. The Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio.

Restricted Stock Compensation

On May 17, 2024, following shareholder approval, the Company established the Saul Centers, Inc. 2024 Stock Incentive Plan (the “Incentive Plan”), under which various equity incentives may be granted. Restricted stock awards to officers are divided equally between time-vested and performance-based awards, and restricted stock awards granted to non-employee directors vest on an annual basis over three years.

For accounting purposes, performance-based awards are not treated as granted until the Board establishes the target for those awards. As of June 30, 2025, (a) no expense has been recognized and (b) no estimate of future expense has been made for the 82,700 performance-based restricted shares awarded to officers where the accounting grant date has not occurred. If those awards had been granted for accounting purposes as of June 30, 2025, the additional estimated future expense would have been approximately $2.3 million, calculated using the fair value method and based on the closing share price of $34.14 on June 30, 2025, the final trading day of the 2025 Period.

Portfolio Leasing Status

The following table sets forth average annualized base rent per square foot and average annualized effective rent per square foot for the Company’s commercial properties (“Commercial”), which includes all properties except for the residential properties (“Residential”), which includes apartments within The Milton at Twinbrook Quarter, The Waycroft, Clarendon Center and Park Van Ness properties. For purposes of this table, annualized effective rent is annualized base rent minus amortized tenant improvements and amortized leasing commissions.

The following chart sets forth certain information regarding Commercial leases at our properties.

As of June 30, 2025, 94.0% of the Commercial portfolio was leased, compared to 95.8% as of June 30, 2024. On a same property basis, 93.9% of the Commercial portfolio was leased as of June 30, 2025 compared to 95.8% as of June 30, 2024. Included in the 94.0% of space leased as of June 30, 2025, is approximately 101,817 square feet of space, representing 1.1% of total Commercial square footage, that has not yet been occupied by the respective tenants. Collectively, these leases are expected to produce approximately $3.8 million of additional annualized base rent, exclusive of straight-line base rent, an average of $37.79 per square foot, upon tenant occupancy and following any contractual rent concessions.

The Mixed-Use Commercial leasing percentage is composed of Commercial leases at office mixed-use properties and residential mixed-use properties. On a same property basis, the leasing percentage at office mixed-use properties decreased to 88.7% as of June 30, 2025 from 89.1% as of June 30, 2024. On a same property basis, the retail leasing percentage at residential mixed-use properties was 97.0% as of each of June 30, 2025 and June 30, 2024.

The following table shows selected data for leases executed in the indicated periods. The information is based on executed leases without adjustment for the timing of occupancy, tenant defaults, or landlord concessions. The base rent for an expiring lease is the annualized contractual base rent, on a cash basis, as of the expiration date of the lease. The base rent for a new or renewed lease is the annualized contractual base rent, on a cash basis, as of the expected rent commencement date. Because tenants that execute leases may not ultimately take possession of their space or pay all of their contractual rent, the changes presented in the table provide information only about trends in market rental rates. The actual changes in rental income received by the Company may be different.

(1) One lease, for 31,642 square feet, is excluded from the table above because it renewed with only percentage rent.

Additional information about the leasing activity during the three months ended June 30, 2025 is set forth below. The below information includes leases for space which had not been previously leased during the period of the Company’s ownership, either a result of acquisition or development.

40

The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for leases in place at the Shopping Centers as of June 30, 2025, for each of the next ten years beginning with 2025, assuming that none of the tenants exercise renewal options and excluding an aggregate of 419,937 square feet of unleased space, which represented 5.4% of the gross leasable area ("GLA") of the Shopping Centers as of June 30, 2025.

(1) Calculated using annualized contractual base rent payable as of June 30, 2025 for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

(2) The estimated market base rent per square foot for 2025 expirations, including 132,404 square feet of leases that are month-to-month, is $19.56 per square foot.

The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for commercial leases in place at the Mixed-Use Properties as of June 30, 2025, for each of the next ten years beginning with 2025, assuming that none of the tenants exercise renewal options and excluding an aggregate of 127,452 square feet of unleased office and retail space, which represented 10.3% of the GLA of the commercial space within the Mixed-Use Properties as of June 30, 2025.

(1) Calculated using annualized contractual base rent payable as of June 30, 2025, for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

(2) The estimated market base rent per square foot for 2025 expirations is $35.66 per square foot.

As of June 30, 2025, the Company had 1,270 apartment leases, 411 of which will expire in 2025, 803 of which will expire in 2026, and 56 of which will expire in 2027. Annual base rent due under these leases is $18.3 million, $14.4 million, and $0.3 million for the years ending December 31, 2025, 2026, and 2027, respectively.

On a same property basis, excluding The Milton at Twinbrook Quarter, the Residential portfolio was 99.0% leased at June 30, 2025 compared to 99.4% at June 30, 2024.

The Company is exposed to certain financial market risks, the most predominant being fluctuations in interest rates and inflation. Interest rate fluctuations are monitored by management as an integral part of the Company’s overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the Company’s results of operations.

The Company is exposed to interest rate fluctuations that will affect the amount of interest expense of its variable-rate debt and the fair value of its fixed-rate debt. As of June 30, 2025, the Company had unhedged variable rate indebtedness totaling $201.0 million. If the interest rates on the Company’s unhedged variable rate debt instruments outstanding at June 30, 2025 had been one percentage point higher or lower, annual interest expense relating to these debt instruments would have increased or decreased by $2.0 million based on those balances. As of June 30, 2025, the Company had fixed-rate indebtedness totaling $1.38 billion with a weighted average interest rate of 4.71%. If interest rates on the Company’s fixed-rate debt instruments at June 30, 2025 had been one percentage point higher, the fair value of those debt instruments on that date would have decreased by $73.5 million. If interest rates on the Company’s fixed-rate debt instruments at June 30, 2025 had been one percentage point lower, the fair value of those debt instruments on that date would have increased by $80.6 million.

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

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chairman and Chief Executive Officer, its Executive Vice President-Chief Accounting Officer and Treasurer, and its Senior Vice President-Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including its Chairman and Chief Executive Officer, its Executive Vice President-Chief Accounting Officer and Treasurer, and its Senior Vice President-Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2025. Based on the foregoing, the Company’s Chairman and Chief Executive Officer, its Executive Vice President-Chief Accounting Officer and Treasurer, and its Senior Vice President-Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025.

During the quarter ended June 30, 2025, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

The Company has no material updates to the risk factors presented in Item 1A. Risk Factors in the 2024 Annual Report of the Company on Form 10-K.