Registrant incorporates by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K portions of registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the Securities Exchange Commission pursuant to Regulation 14A. The definitive Proxy Statement will be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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(1)

The Saul Organization’s ownership percentage in Saul Centers reported above does not include units of limited partnership interest of the Operating Partnership held by the Saul Organization. In general, most units are convertible into shares of the Company’s common stock on a one-for-one basis. However, not all of the units may be convertible into the Company’s common stock because (i) the articles of incorporation limit beneficial and constructive ownership (defined by reference to various Code provisions) to 39.9% in value of the Company’s issued and outstanding common and preferred equity securities, which comprise the ownership limit and (ii) the convertibility of some of the outstanding units is subject to approval of the Company’s stockholders.

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•	the financial condition of our tenants, many of which operate in the retail industry, may be adversely affected, which may result in tenant defaults under their leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;

•	the ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from acquisition and development activities and increase our future interest expense;

•	reduced values of our properties may limit our ability to dispose of assets at attractive prices and may reduce the ability to refinance loans; and

•	one or more lenders under our credit facility could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.

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•	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, property acquisitions and other appropriate business opportunities that may arise in the future;

•	limit our ability to obtain any additional financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions, development or other general corporate purposes;

•	make it difficult to satisfy our debt service requirements;

•	limit our ability to make distributions on our outstanding common and preferred stock;

•	require us to dedicate increased amounts of our cash flow from operations to payments on our variable rate, unhedged debt if interest rates rise;

•	limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect the profitability of our business, which may place us at a disadvantage compared to competitors with less debt or debt with less restrictive terms; and

•	limit our ability to obtain any additional financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions, development or other general corporate purposes.

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•	relating to the maintenance of the property securing the debt;

•	restricting our ability to assign or further encumber the properties securing the debt; and

•	restricting our ability to enter into certain new leases or to amend or modify certain existing leases without obtaining consent of the lenders.

•	incur additional unsecured debt;

•	guarantee additional debt;

•	make certain distributions, investments and other restricted payments, including distribution payments on our outstanding stock;

•	create certain liens;

•	increase our overall secured and unsecured borrowing beyond certain levels; and

•	consolidate, merge or sell all or substantially all of our assets.

•	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).

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•	significant time lag between commencement and completion subjects us to greater risks due to fluctuation in the general economy;

•	failure or inability to obtain construction or permanent financing on favorable terms;

•	expenditure of money and time on projects that may never be completed;

•	inability to achieve projected rental rates or anticipated pace of lease-up;

•	higher-than-estimated construction costs, including labor and material costs; and

•	possible delay in completion of the project because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or acts of God (such as fires, earthquakes or floods).

•	our estimate of the costs to improve, reposition or redevelop a property may prove to be too low, and, as a result, the property may fail to achieve the returns we have projected, either temporarily or for a longer time;

•	we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify;

•	we may not be able to integrate new developments or acquisitions into our existing operations successfully;

•	properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project at the time we make the decision to invest, which may result in the properties’ failure to achieve the returns we projected;

•	our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition costs; and

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•	our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.

•	economic downturns in the areas where our properties are located;

•	adverse changes in local real estate market conditions, such as oversupply or reduction in demand;

•	changes in tenant preferences that reduce the attractiveness of our properties to tenants;

•	zoning or regulatory restrictions;

•	decreases in market rental rates;

•	weather conditions that may increase energy costs and other operating expenses;

•	costs associated with the need to periodically repair, renovate and re-lease space; and

•	increases in the cost of adequate maintenance, insurance and other operating costs, including real estate taxes, associated with one or more properties, which may occur even when circumstances such as market factors and competition cause a reduction in revenue from one or more properties, although real estate taxes typically do not increase upon a reduction in such revenue.

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•	reduce properties available for acquisition;

•	increase the cost of properties available for acquisition;

•	reduce rents payable to us;

•	interfere with our ability to attract and retain tenants;

•	lead to increased vacancy rates at our properties; and

•	adversely affect our ability to minimize expenses of operation.

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•	we would not be allowed a deduction for dividend distributions to stockholders in computing taxable income;

•	we would be subject to federal income tax at regular corporate rates;

•	unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified;

•	we could be required to pay significant income taxes, which would substantially reduce the funds available for investment and for distribution to our stockholders for each year in which we failed to qualify; and

•	we would no longer be required by law to make any distributions to our stockholders.

•	the Operating Partnership would be taxed as a corporation;

•	we would cease to qualify as a REIT for federal income tax purposes; and

•	the amount of cash available for distribution to our stockholders would be substantially reduced.

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•	our income may not be matched by our related expenses at the time the income is considered received for purposes of determining taxable income; and

•	non-deductible capital expenditures or debt service requirements may reduce available cash but not taxable income.

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•	our financial condition and results of future operations;

•	the performance of lease terms by tenants;

•	the terms of our loan covenants; and

•	our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.

•	the REIT ownership limit described above;

•	authorization of the issuance of our preferred stock with powers, preferences or rights to be determined by the Board of Directors;

•	a staggered, fixed-size Board of Directors consisting of three classes of directors;

•	special meetings of our stockholders may be called only by the Chairman of the Board, the president, by a majority of the directors or by stockholders possessing no less than 25% of all the votes entitled to be cast at the meeting;

•	the Board of Directors, without a stockholder vote, can classify or reclassify unissued shares of preferred stock;

•	a member of the Board of Directors may be removed only for cause upon the affirmative vote of 75% of the Board of Directors or 75% of the then-outstanding capital stock;

•	advance notice requirements for proposals to be presented at stockholder meetings; and

•	the terms of our articles of incorporation regarding business combinations and control share acquisitions.

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(1)	Calculated using annualized contractual base rent payable as of December 31, 2019 for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

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(1)	Calculated using annualized contractual base rent payable as of December 31, 2019, for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

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(1)	Percentage leased is a percentage of rentable square feet leased for commercial space and a percentage of units leased for apartments. Includes only operating properties owned as of December 31, 2019. As such, prior year totals do not agree to prior year tables.

(2)	Total percentage leased is for commercial space only.

(3)	Prior year leased percentages for Total Shopping Centers, Total Mixed-Use Properties and Total Portfolio have been recalculated to exclude the impact of properties sold or removed from service and, therefore, the percentages reported in this table may be different than the percentages previously reported.

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1)	During 2019, 2018, 2017, 2016, and 2015, shareholders reinvested $22.5 million, $28.8 million,

2)	Funds from operations (FFO) is a non-GAAP financial measure and is defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funds From Operations.”

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(1)	See Note 7 to Consolidated Financial Statements. Corporate Headquarters Lease amounts represent an allocation to the Company based upon employees’ time dedicated to the Company’s business as specified in the Shared Services Agreement. Future amounts are subject to change as the number of employees employed by each of the parties to the lease fluctuates.

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*	Interest rate and scheduled maturity data presented as of December 31, 2019. Totals computed using weighted averages.

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•	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).

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•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management or the Company’s Board of Directors; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material adverse effect on the Company’s financial statements.

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1.	ORGANIZATION, BASIS OF PRESENTATION

Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on June 10, 1993. Saul Centers operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers, together with its wholly owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as Chairman of the Board of Directors, Chief Executive Officer and President of Saul Centers.

Saul Centers was formed to continue and expand the shopping center business previously owned and conducted by the B. F. Saul Real Estate Investment Trust (the "Saul Trust"), the B. F. Saul Company and certain other affiliated entities, each of which is controlled by B. Francis Saul II and his family members (collectively, the “Saul Organization”). On August 26, 1993, members of the Saul Organization transferred to Saul Holdings Limited Partnership, a newly formed Maryland limited partnership (the “Operating Partnership”), and two newly formed subsidiary limited partnerships (the “Subsidiary Partnerships,” and collectively with the Operating Partnership, the “Partnerships”), Shopping Centers and Mixed-Used Properties, and the management functions related to the transferred properties. Since its formation, the Company has developed and purchased additional properties.

The Company, which conducts all of its activities through its subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and mixed-used properties, primarily in the Washington, DC/Baltimore metropolitan area.

Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, a disproportionate economic downturn in the local economy would have a greater negative impact on our overall financial performance than on the overall financial performance of a company with a portfolio that is more geographically diverse. A majority of the Shopping Centers are anchored by several major tenants. As of December 31, 2019, 33 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. One retail tenant, Giant Food (4.7%), a tenant at ten Shopping Centers, individually accounted for 2.5% or more of the Company’s total revenue for the year ended December 31, 2019.

As of December 31, 2019, the Current Portfolio Properties consisted of 50 Shopping Centers, six Mixed-Use Properties, and four (non-operating) development properties.

The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority owned by Saul Centers. Substantially all assets and liabilities of the Company as of December 31, 2019 and December 31, 2018, are comprised of the assets and liabilities of the Operating Partnership. The debt arrangements which are subject to recourse are described in Note 5. All significant intercompany balances and transactions have been eliminated in consolidation.

The Operating Partnership is a variable interest entity ("VIE") of the Company because the limited partners do not have substantive kick-out or participating rights. The Company is the primary beneficiary of the Operating Partnership because it has the power to direct the activities of the Operating Partnership and the rights to absorb 74.6% of the net income of the Operating Partnership. Because the Operating Partnership was already consolidated into the financial statements of the Company, the identification of it as a VIE has no impact on the consolidated financial statements of the Company.

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions relate to impairment of real estate properties. Actual results could differ from those estimates.

Real Estate Investment Properties

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 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 value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors including recurring operating losses, significant decreases in occupancy, and significant adverse changes in 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 value 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 value 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. The Company did not recognize an impairment loss on any of its real estate in 2019, 2018, or 2017.

Depreciation is calculated using the straight-line method and estimated useful lives of generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvements expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvement, using the straight-line method. Depreciation expense, which is included in Depreciation and amortization of deferred leasing costs in the Consolidated Statements of Operations, for the years ended December 31, 2019, 2018, and 2017, was $40.5 million, $39.8 million, and $40.2 million, respectively. Repairs and maintenance expense totaled $12.5 million, $11.9 million, and $11.6 million for 2019, 2018, and 2017, respectively, and is included in property operating expenses in the accompanying consolidated financial statements.

Assets Held for Sale

The Company considers properties to be assets held for sale when all of the following criteria are met:

•	management commits to a plan to sell a property;

•	it is unlikely that the disposal plan will be significantly modified or discontinued;

•	the property is available for immediate sale in its present condition;

•	actions required to complete the sale of the property have been initiated;

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•	sale of the property is probable and the Company expects the completed sale will occur within one year; and

•	the property is actively being marketed for sale at a price that is reasonable given its current market value.

The Company must make a determination as to the point in time that it is probable that a sale will be consummated, which generally occurs when an executed sales contract has no contingencies and the prospective buyer has significant funds at risk to ensure performance. Upon designation as an asset held for sale, the Company records the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and ceases depreciation. As of December 31, 2019 and 2018, the Company had no assets designated as held for sale.

Revenue Recognition

Rental and interest income are accrued as earned. Recognition of rental income commences when control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line basis because of free rent periods or stepped increases, income is recognized on a straight-line basis. Expense recoveries represent a portion of property operating expenses billed to the tenants, including common area maintenance, real estate taxes and other recoverable costs. Expense recoveries are recognized in the period in which the expenses are incurred. Rental income based on a tenant’s revenue (“percentage rent”) is accrued when a tenant reports sales that exceed a specified breakpoint, pursuant to the terms of their respective leases.

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. Lease related receivables are reduced for credit losses. Such losses are recognized as a reduction of rental revenue in the consolidated statements of operations.

Receivables are reviewed monthly and reserves are established with a charge to current period operations when, in the opinion of management, collection of the receivable is doubtful. Accounts receivable in the accompanying consolidated financial statements are shown net of an allowance for doubtful accounts of $0.4 million and $0.6 million, at December 31, 2019 and 2018, respectively.

In addition to rents due currently, accounts receivable also includes $42.1 million and $43.3 million, at December 31, 2019 and 2018, respectively, net of allowance for doubtful accounts totaling $30,000 and $58,500, respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases.

Deferred Leasing Costs

Deferred leasing costs consist of commissions paid to third-party leasing agents, internal direct costs such as employee compensation and payroll-related fringe benefits directly related to time spent performing leasing-related activities for successful commercial leases and amounts attributed to in place leases associated with acquired properties and are amortized, using the straight-line method, over the term of the lease or the remaining term of an acquired lease. Leasing related activities include evaluating the prospective tenant’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing the transaction. Unamortized deferred costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Collectively, deferred leasing costs totaled $24.1 million and $28.1 million, net of accumulated amortization of approximately $41.6 million and $37.7 million, as of December 31, 2019 and 2018, respectively. Amortization expense, which is included in Depreciation and amortization of deferred leasing costs in the Consolidated Statements of Operations, totaled approximately $5.8 million, $6.1 million, and $5.5 million, for the years ended December 31, 2019, 2018, and 2017, respectively.

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Cash and Cash Equivalents

Cash and cash equivalents include short-term investments. Short-term investments include money market accounts and other investments which generally mature within three months, measured from the acquisition date, and/or are readily convertible to cash. Substantially all of the Company’s cash balances at December 31, 2019 are held in non-interest bearing accounts at various banks. From time to time the Company may maintain deposits with financial institutions in amounts in excess of federally insured limits. The Company has not experienced any losses on such deposits and believes it is not exposed to any significant credit risk on those deposits.

Deferred Income

Deferred income consists of payments received from tenants prior to the time they are earned and recognized by the Company as revenue, including tenant prepayment of rent for future periods, real estate taxes when the taxing jurisdiction has a fiscal year differing from the calendar year reimbursements specified in the lease agreement and tenant construction work provided by the Company. In addition, deferred income includes the fair value of certain below market leases.

Derivative Financial Instruments

The Company may, when appropriate, employ derivative instruments, such as interest-rate swaps, to mitigate the risk of interest rate fluctuations. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Derivative financial instruments are carried at fair value as either assets or liabilities on the consolidated balance sheets. For those derivative instruments that qualify, the Company may designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge. Derivative instruments that are designated as a hedge are evaluated to ensure they continue to qualify for hedge accounting. The effective portion of any gain or loss on the hedge instruments is reported as a component of accumulated other comprehensive income (loss) and recognized in earnings within the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of a derivative instrument is immediately recognized in earnings. For derivative instruments that do not meet the criteria for hedge accounting, or that qualify and are not designated, changes in fair value are immediately recognized in earnings.

Income Taxes

The Company made an election to be treated, and intends to continue operating so as to qualify, as a REIT under the Code, commencing with its taxable year ended December 31, 1993. A REIT generally will not be subject to federal income taxation, provided that distributions to its stockholders equal or exceed its REIT taxable income and complies with certain other requirements. Therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements.

As of December 31, 2019, the Company had no material unrecognized tax benefits and there exist no potentially significant unrecognized tax benefits which are reasonably expected to occur within the next twelve months. The Company recognizes penalties and interest accrued related to unrecognized tax benefits, if any, as general and administrative expense. No penalties and interest have been accrued in years 2019, 2018, and 2017. The tax basis of the Company’s real estate investments was approximately $1.33 billion and $1.35 billion as of December 31, 2019 and 2018, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state, and local tax examinations by tax authorities for years before 2016.

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. Upon determination that a loss is probable to occur and can be reasonably estimated, the estimated amount of the loss is recorded in the financial statements.

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Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2016-02, ‘‘Leases’’ (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, interim periods within those years, and requires a modified retrospective transition approach for all leases existing at the date of initial application, with an option to use certain practical expedients for those existing leases. Upon adoption of ASU 2016-02 effective January 1, 2019, we elected the practical expedient for all leases with respect to lease identification, lease classification, and initial direct costs. We made a policy election not to separate lease and nonlease components and have accounted for each lease component and the related nonlease components together as a single component. There have been no significant changes to our lessor accounting for operating leases as a result of ASU 2016-02.

We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that cover rent, and where applicable, reimbursement for property taxes, insurance, and certain property operating expenses. Our leases were determined to be operating leases and generally range in term from one to 15 years.

Some of our leases have termination options and/or extension options. Termination options allow the lessee to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination options generally require advance notification from the lessee and payment of a termination fee. Termination fees are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated in the lease.

On January 1, 2019, a right of use asset and corresponding lease liability related to our headquarters lease were recorded in other assets and other liabilities, respectively. The lease expires on February 28, 2022, with one option to renew for an additional five years. The right of use asset and corresponding lease liability totaled $1.6 million and $1.6 million, respectively, at December 31, 2019.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses" ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of information to support credit loss estimates. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those years. Management has determined that the adoption of ASU 2016-13 will not have a material impact on our consolidated financial statements and related disclosures because the vast majority of the Company's receivables relate to operating leases which are accounted for under ASC 842.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging” (“ASU 2017-12”). ASU 2017-12 amends financial reporting for hedging activities to better align that reporting with risk management activities. ASU 2017-12 expands and refines hedge accounting for both financial and nonfinancial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Effective with the adoption of ASU 2017-12 on January 1, 2019, changes in the fair value of the Company’s interest rate swap related to changes in the cash flow of the hedged item are reported as a component of interest expense and amortization of deferred debt costs in the Statements of Operations.

Reclassifications

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3.	REAL ESTATE

Construction in Progress

Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. The following table shows the components of construction in progress.

		December 31,
(in thousands)		2019				2018
The Waycroft		$	255,443			$	162,176
7316 Wisconsin Avenue		44,638				—
Ashbrook Marketplace		19,128				11,124
Other		16,435				12,672
Total		$	335,644			$	185,972

Acquisitions

Burtonsville Town Square

In January 2017, the Company purchased for $76.4 million, including acquisition costs, Burtonsville Town Square located in Burtonsville, Maryland.

Olney Shopping Center

In March 2017, the Company purchased for $3.1 million, including acquisition costs, the land underlying Olney Shopping Center. The land was previously leased by the Company with an annual rent of approximately $56,000. The purchase price was funded by the revolving credit facility.

Ashbrook Marketplace

In May 2018, the Company acquired from the Saul Trust, in exchange for 176,680 limited partnership units, approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Loudoun County, Virginia. Based on the closing price of the Company's common stock, the land and the limited partnership units were recorded at a value of $8.8 million. Acquisition costs related to the transaction totaled approximately $0.2 million.

7316 Wisconsin Avenue

In September 2018, the Company purchased for $35.5 million, plus $0.7 million of acquisition costs, an office building and the underlying ground located at 7316 Wisconsin Avenue in Bethesda, Maryland. In December 2018, the Company purchased for $4.5 million, including acquisition costs, an interest in an adjacent parcel of land and retail building. The purchase price was funded through the Company's credit facility. The Company has executed lease termination agreements with the final two office tenants and, effective September 1, 2019, the asset was removed from service and transferred to construction in progress at its carrying value of $42.6 million.

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Allocation of Purchase Price of Real Estate Acquired

The Company allocates the purchase price of real estate investment properties to various components, such as land, buildings and intangibles related to in-place leases and customer relationships, based on their relative fair values.

During 2018, the Company acquired properties that had an aggregate cost of $49.5 million, including acquisition costs. The purchase price was allocated to assets acquired and liabilities assumed based on their relative fair values as shown in the following table.

(in thousands)	Ashbrook Marketplace				7316 Wisconsin Avenue				Total
Land	$	8,776			$	38,662			$	47,438
Buildings	—				979				979
In-place Leases	—				886				886
Above Market Rent	—				168				168
Below Market Rent	—				(21		)		(21		)
Total Purchase Price	$	8,776			$	40,674			$	49,450

During 2017, the Company purchased one property, Burtonsville Town Square, at a cost of $76.4 million, including acquisition costs. Of the total acquisition cost, $28.4 million was allocated to land, $45.8 million was allocated to buildings, $2.2 million was allocated to in-place leases, $0.6 million was allocated to above-market rent, and $(0.6) million was allocated to below-market rent, based on their relative fair values.

The gross carrying amount of lease intangible assets included in deferred leasing costs as of December 31, 2019 and 2018 was $11.7 million and $12.5 million, respectively, and accumulated amortization was $8.5 million and $8.1 million, respectively. Amortization expense totaled $0.9 million, $1.3 million and $1.1 million, for the years ended December 31, 2019, 2018, and 2017, respectively. The gross carrying amount of below market lease intangible liabilities included in deferred income as of December 31, 2019 and 2018 was $24.1 million and $24.8 million, respectively, and accumulated amortization was $13.9 million and $13.1 million, respectively. Accretion income totaled $1.5 million, $1.7 million, and $1.7 million, for the years ended December 31, 2019, 2018, and 2017, respectively. The gross carrying amount of above market lease intangible assets included in accounts receivable as of December 31, 2019 and 2018 was $0.6 million and $0.8 million, respectively, and accumulated amortization was $108,300 and $143,900, respectively. Amortization expense totaled $109,600, $110,500 and $31,600, for the years ended December 31, 2019, 2018 and 2017, respectively. The remaining weighted-average amortization period as of December 31, 2019 is 4.5 years, 7.6 years, and 5.3 years for lease acquisition costs, above market leases and below market leases, respectively.

As of December 31, 2019, scheduled amortization of intangible assets and deferred income related to in place leases is as follows:

(In thousands)	Lease acquisition costs				Above market leases				Below market leases
2020	$	708			$	43			$	1,434
2021	535				33				1,409
2022	383				33				1,306
2023	317				33				1,297
2024	198				33				878
Thereafter	996				343				3,853
Total	$	3,137			$	518			$	10,177

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4.	NONCONTROLLING INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP UNITS IN THE OPERATING PARTNERSHIP

Saul Centers is the sole general partner of the Operating Partnership, owning a 74.6% common interest as of December 31, 2019. Noncontrolling interest in the Operating Partnership is comprised of limited partnership units owned by the Saul Organization. Noncontrolling interest reflected on the accompanying consolidated balance sheets is increased for earnings allocated to limited partnership interests and distributions reinvested in additional units, and is decreased for limited partner distributions. Noncontrolling interest reflected on the consolidated statements of operations represents earnings allocated to limited partnership interests held by the Saul Organization.

The Saul Organization holds a 25.4% limited partnership interest in the Operating Partnership represented by 7,886,916 limited partnership units, as of December 31, 2019. The units are convertible into shares of Saul Centers’ common stock, at the option of the unit holder, on a one-for-one basis provided that, in accordance with the Saul Centers, Inc. Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of December 31, 2019, approximately 925,000 units were eligible for conversion.

The impact of the Saul Organization’s 25.4% limited partnership interest in the Operating Partnership is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average shares outstanding for the years ended December 31, 2019, 2018, and 2017, were 30.9 million, 30.2 million, and 29.5 million, respectively.

5.	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

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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

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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.

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6.	LEASE AGREEMENTS

Lease income includes primarily base rent arising from noncancelable leases. Base rent (including straight-line rent) for the years ended December 31, 2019, 2018, and 2017, amounted to $185.7 million, $184.7 million, and $181.1 million, respectively. Future contractual payments under noncancelable leases for years ended December 31 (which exclude the effect of straight-line rents), are as follows: 

(in thousands)
2020	$	166,227
2021	149,949
2022	126,101
2023	104,489
2024	75,172
Thereafter	260,141
	$	882,079

The majority of the leases provide for rental increases based on fixed annual increases or increases in the Consumer Price Index and expense recoveries based on increases in operating expenses. The expense recoveries generally are payable in equal installments throughout the year based on estimates, with adjustments made in the succeeding year. Expense recoveries for the years ended December 31, 2019, 2018, and 2017, amounted to $36.5 million, $35.5 million, and $35.3 million, respectively. In addition, certain retail leases provide for percentage rent based on sales in excess of the minimum specified in the tenant’s lease. Percentage rent amounted to $0.9 million, $1.0 million, and $1.5 million, for the years ended December 31, 2019, 2018, and 2017, respectively.

7.	LONG-TERM LEASE OBLIGATIONS

At December 31, 2018 and 2019, no properties are subject to noncancelable long-term leases which apply to underlying land.

 

Flagship Center consists of two developed out parcels that are part of a larger adjacent community shopping center formerly owned by the Saul Organization and sold to an affiliate of a tenant in 1991. The Company has a 90-year ground leasehold interest which commenced in September 1991 with a minimum rent of one dollar per year. Countryside shopping center was acquired in February 2004. Because of certain land use considerations, approximately 3.4% of the underlying land is held under a 99-year ground lease. The lease requires the Company to pay minimum rent of one dollar per year as well as its pro-rata share of the real estate taxes.

The Company’s corporate headquarters space is leased by a member of the Saul Organization. The lease commenced in March 2002, and expires in February 2022. The Company and the Saul Organization entered into a Shared Services Agreement whereby each party pays an allocation of total rental payments based on a percentage proportionate to the number of employees employed by each party. The Company’s rent expense for the years ended December 31, 2019, 2018, and 2017 was $806,500, $779,800, and $774,700, respectively. Expenses arising from the lease are included in general and administrative expense (see Note 9 – Related Party Transactions).

8.	EQUITY AND NONCONTROLLING INTEREST

The Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 reflect noncontrolling interest of $12.5 million, $12.5 million, and $12.4 million, respectively, representing the Saul Organization’s share of the net income for the year.

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At December 31, 2019, the Company had outstanding 3.0 million depositary shares, each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock (the "Series D Stock"). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after January 23, 2023, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.53125 per share, equivalent to 6.125% of the $25.00 liquidation preference. The Series D Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

On September 17, 2019, Saul Centers sold, in an underwritten public offering, 4.0 million depositary shares, each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock (the “Series E Stock”), providing net cash proceeds of approximately $96.8 million. The depositary shares may be redeemed in whole or in part, on or after September 17, 2024, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.50 per share, equivalent to 6.000% of the $25.00 liquidation preference. The Series E Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events. On September 23, 2019, Saul Centers sold, as a result of the exercise by the underwriters of their over-allotment option, an additional 0.4 million depositary shares of Series E Stock, providing net cash proceeds of approximately $9.5 million.

At December 31, 2018, the Company had outstanding 4.2 million depositary shares, each representing 1/100th of a share of 6.875% Series C Cumulative Redeemable Preferred Stock (the “Series C Stock”). The depositary shares are redeemable at the Company’s option, in whole or in part, at the $25.00 liquidation preference plus accrued but unpaid dividends. The depositary shares pay an annual dividend of $1.71875 per share, equivalent to 6.875% of the $25.00 liquidation preference. The Series C Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes of control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events. In September 2019, the Company announced the redemption of all outstanding depositary shares representing interests in its Series C Stock. The depositary shares were redeemed on October 17, 2019 at $25.00 per depositary share, plus all accrued and unpaid dividends to, but not including, the redemption date, for an aggregate redemption price of $25.07638 per depositary share. In the fourth quarter, costs associated with the redemption were charged against Net income available to common stockholders. After the redemption date, dividends on the depositary shares representing interests in the Series C Stock ceased to accrue.

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Per Share Data

Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive securities. For all periods presented, the convertible limited partnership units are anti-dilutive. The treasury stock method was used to measure the effect of the dilution.

 

	December 31,
(Shares in thousands)	2019				2018				2017
Weighted average common shares outstanding - Basic	23,009				22,383				21,901
Effect of dilutive options	44				42				107
Weighted average common shares outstanding - Diluted	23,053				22,425				22,008
Average share price	$	53.41			$	52.50			$	61.63
Non-dilutive options	633				492				—
Years non-dilutive options were issued	2016, 2017 and 2019				2015, 2016 and 2017

9.	RELATED PARTY TRANSACTIONS

The Chairman, Chief Executive Officer and President, the Executive Vice President of Real Estate, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer of the Company are also officers of various members of the Saul Organization and their management time is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer whose share of annual compensation allocated to the Company is determined by the shared services agreement (described below).

The Company participates in a multiemployer 401K plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the consolidated statements of operations, at the discretionary amount of up to six percent of the employee’s cash compensation, subject to certain limits, were $322,200, $345,900, and $349,500, for 2019, 2018, and 2017, respectively. All amounts deferred by employees and contributed by the Company are fully vested.

The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a specified amount. For the years ended December 31, 2019, 2018, and 2017, the Company contributed three times the amount deferred by employees. The Company’s expense, included in general and administrative expense, totaled $345,200, $282,500, and $228,500, for the years ended December 31, 2019, 2018, and 2017, respectively. All amounts deferred by employees and the Company are fully vested. The cumulative unfunded liability under this plan was $3.1 million and $2.7 million, at December 31, 2019 and 2018, respectively, and is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.

The Company has entered into a shared services agreement (the “Agreement”) with the Saul Organization that provides for the sharing of certain personnel and ancillary functions such as computer hardware, software, and support services and certain direct and indirect administrative personnel. The method for determining the cost of the shared services is provided for in the Agreement and is based upon head count, estimates of usage or estimates of time incurred, as applicable. Senior management has determined that the final allocations of shared costs are reasonable. The terms of the Agreement and the payments made thereunder are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Net billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the years ended December 31, 2019, 2018, and 2017, which included rental expense for the Company’s headquarters lease (see Note 7. Long Term Lease Obligations), totaled $8.4 million, $8.4 million, and $8.1 million, respectively. The amounts are expensed

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when incurred and are primarily reported as general and administrative expenses or capitalized to specific development projects in these consolidated financial statements. As of December 31, 2019 and 2018, accounts payable, accrued expenses and other liabilities included $918,700 and $933,400, respectively, representing billings due to the Saul Organization for the Company’s share of these ancillary costs and expenses.

The Company has entered into a shared third-party predevelopment cost agreement with the Saul Trust (the “Predevelopment Agreement”). The Predevelopment Agreement, which expired on December 31, 2015 and was extended to December 31, 2016, relates to the sharing of third-party predevelopment costs incurred in connection with the planning of the future redevelopment of certain adjacent real estate assets in the Twinbrook area of Rockville, Maryland. On December 8, 2016, the Company entered into a replacement agreement with the Saul Trust which extended the expiration date to December 31, 2017 and provides for automatic twelve month renewals unless either party provides notice of termination. The costs will be shared on a pro rata basis based on the acreage owned by each entity and neither party is obligated to advance funds to the other.

On November 5, 2019, the Company entered into an agreement (the "Contribution Agreement") to acquire from the Saul Trust, approximately 6.8 acres of land and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements located thereon, located at the Twinbrook Metro Station in Rockville, Maryland (the “Contributed Property”). In exchange for the Contributed Property, the Company will issue to the Saul Trust 1,416,071 limited partnership units in the Operating Partnership (“OP Units”) at an agreed upon value of $56.00 per OP Unit, representing an aggregate value of $79.3 million for the Contributed Property. Deed to the Contributed Property and the OP Units have been placed in escrow until certain conditions of the Contribution Agreement are satisfied.

The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul Company and a member of the Saul Organization, is a general insurance agency that receives commissions and counter-signature fees in connection with the Company’s insurance program. Such commissions and fees amounted to approximately $399,600, $407,900, and $288,400, for the years ended December 31, 2019, 2018, and 2017, respectively.

In August 2016, the Company entered into an agreement to acquire from the Saul Trust, approximately 13.7 acres of land located at the intersection of Ashburn Village Boulevard and Russell Branch Parkway in Ashburn, Virginia. The transaction closed on May 9, 2018, and the Company issued 176,680 limited partnership units to the Saul Trust. The Company intends to construct a shopping center and, upon stabilization, may be obligated to issue additional limited partnership units to the Saul Trust.

10.	STOCK OPTION PLAN

Stock Based Employee Compensation, Deferred Compensation and Stock Plan for Directors

In 2004, the Company established a stock incentive plan (the "Plan"), as amended. Under the Plan, options were granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant. 

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of each award using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options is based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield rates, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

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Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon separation from the Board. If a director elects to their have fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the twelve months ended December 31, 2019, 6,822 shares were credited to director's deferred fee accounts and 7,058 shares were issued. As of December 31, 2019, the director's deferred fee accounts comprise 114,408 shares.

The Compensation Committee has also approved an annual award of shares of the Company’s common stock as additional compensation to each director serving on the Board of Directors as of the record date for the Annual Meeting of Stockholders. The shares are awarded as of each Annual Meeting of Stockholders, and their issuance may not be deferred.

At the annual meeting of the Company’s stockholders in 2004, the stockholders approved the adoption of the 2004 stock plan for the purpose of attracting and retaining executive officers, directors and other key personnel. The 2004 stock plan was subsequently amended by the Company’s stockholders at the 2008 Annual Meeting, further amended at the 2013 Annual Meeting, and further amended at the 2019 Annual Meeting (the “Amended 2004 Plan”). The Amended 2004 Plan, which terminates in 2029, provides for grants of options to purchase up to 3,400,000 shares of common stock. The Amended 2004 Plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted.

Effective May 5, 2017, the Compensation Committee granted options to purchase 232,500 shares (21,492 incentive stock options and 211,008 nonqualified stock options) to 20 Company officers and 11 Company Directors (the “2017 options”), which expire on May 4, 2027. The officers’ 2017 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2017 Options were immediately exercisable. The exercise price of $59.41 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2017 Options to be $1.4 million, of which $1.2 million and $165,600 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $165,600 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.

Effective May 11, 2018, the Compensation Committee granted options to purchase 245,000 shares (25,914 incentive stock options and 219,086 nonqualified stock options) to 22 Company officers and 11 Company Directors (the “2018 options”), which expire on May 10, 2028. The officers’ 2018 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2018 Options were immediately exercisable. The exercise price of $49.46 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2018 Options to be $1.4 million, of which $1.2 million and $169,400 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $169,400 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.

Effective May 3, 2019, the Compensation Committee granted options to purchase 260,000 shares (34,651 incentive stock options and 225,349 nonqualified stock options) to 23 Company officers and 11 Company Directors (the “2019 options”), which expire on May 2, 2029. The officers’ 2019 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2018 Options were immediately exercisable. The exercise price of $55.71 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2019 Options to be $1.9 million, of which $1.7 million and $226,600 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $226,600 was expensed

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as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.

The following table summarizes the assumptions used in the valuation of the 2017, 2018, and 2019 option grants. During the twelve months ended December 31, 2019, stock option expense totaling $1.6 million was included in general and administrative expense in the Consolidated Statements of Operations. As of December 31, 2019, the estimated future expense related to unvested stock options was $2.6 million.

	Directors										Officers
Grant date	May 5, 2017			May 11, 2018			May 3, 2019				May 5, 2017			May 11, 2018			May 3, 2019
Exercise price	$	59.41		$	49.46		$	55.71			$	59.41		$	49.46		$	55.71
Volatility	0.173			0.192			0.236				0.170			0.177			0.206
Expected life (years)	5.0			5.0			5.0				7.0			7.0			7.0
Assumed yield	3.45		%	3.70		%	3.75		%		3.50		%	3.75		%	3.80		%
Risk-free rate	1.89		%	2.84		%	2.33		%		2.17		%	2.94		%	2.43		%

The table below summarizes the option activity for the years 2019, 2018, and 2017:

	2019							2018							2017
	Shares			Weighted Average Exercise Price				Shares			Weighted Average Exercise Price				Shares			Weighted Average Exercise Price
Outstanding at January 1	1,114,169			$	52.40			913,320			$	52.80			833,630			$	49.92
Granted	260,000			55.71				245,000			49.46				232,500			59.41
Exercised	(57,055	)		44.53				(39,151	)		42.98				(149,060	)		46.97
Expired/Forfeited	(7,500	)		56.07				(5,000	)		54.78				(3,750	)		53.73
Outstanding December 31	1,309,614			53.38				1,114,169			52.40				913,320			52.80
Exercisable at December 31	763,614			52.43				600,919			50.93				430,945			48.94

The intrinsic value of options exercised in 2019, 2018, and 2017, was $0.6 million, $0.5 million and $2.2 million, respectively. The intrinsic value of options outstanding and exercisable at year end 2019 was $2.5 million and $2.0 million, respectively. The intrinsic value measures the difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The date of exercise was the measurement date for shares exercised during the period. At December 31, 2019, the final trading day of calendar 2019, the closing price of $52.78 per share was used for the calculation of aggregate intrinsic value of options outstanding and exercisable at that date. The weighted average remaining contractual life of the Company’s exercisable and outstanding options at December 31, 2019 are 5.9 and 7.0 years, respectively.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and floating rate debt are reasonable estimates of their fair value. The aggregate fair value of the notes payable with fixed-rate payment terms was determined using Level 3 data in a discounted cash flow approach, which is based upon management’s estimate of borrowing rates and loan terms currently available to the Company for fixed rate financing, and assuming long term interest rates of approximately 3.55% and 4.40%, would be approximately $957.4 million and $927.0 million as of December 31, 2019 and 2018, respectively, compared to the

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principal balance of $938.4 million and $910.2 million at December 31, 2019 and 2018, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

Neither the Company nor the Current Portfolio Properties are subject to any material litigation, nor, to management’s knowledge, is any material litigation currently threatened against the Company, other than routine litigation and administrative proceedings arising in the ordinary course of business. Management believes that these items, individually or in the aggregate, will not have a material adverse impact on the Company or the Current Portfolio Properties.

In December 1995, the Company established a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), to allow its 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 Plan 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 Plan are paid by the Company. The Operating Partnership also maintains a similar dividend reinvestment plan that mirrors the Plan, which allows holders of limited partnership interests the opportunity to buy either additional limited partnership units or common stock shares of the Company.

The Company paid common stock distributions of $2.12 per share in 2019, $2.08 per share in 2018, and $2.04 per share in 2017, Series C preferred stock dividends of $1.80, $1.72, and $1.72, respectively, per depositary share during each of 2019, 2018, and 2017, Series D preferred stock dividends of $1.53 and $1.05, respectively, per depositary share in 2019 and 2018, and Series E preferred stock dividends of $0.06 per depositary share in 2019. Of the common stock dividends paid, $2.00 per share, $1.61 per share, and $1.70 per share, represented ordinary dividend income in 2019, 2018, and 2017, respectively, and $0.12 per share, $0.47 per share, and $0.34 per share represented return of capital to the shareholders in 2019, 2018, and 2017, respectively. All of the preferred stock dividends paid were considered ordinary dividend income.

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The following summarizes distributions paid during the years ended December 31, 2019, 2018, and 2017, and includes activity in the Plan as well as limited partnership units issued from the reinvestment of unit distributions: 

	Total Distributions to												Dividend Reinvestments
(Dollars in thousands, except per share amounts)	Preferred Stockholders				Common Stockholders				Limited Partnership Unitholders				Common Stock Shares Issued			Discounted Share Price				Limited Partnership Units Issued			Average Unit Price
Distributions during 2019
4th Quarter	$	3,531			$	12,251			$	4,173			104,558			$	52.84			13,747			$	53.73
3rd Quarter	2,953				12,195				4,166				105,753			53.66				13,406			54.56
2nd Quarter	2,953				12,116				4,155				99,804			51.38				20,041			51.99
1st Quarter	2,953				12,006				4,148				120,347			51.28				13,742			52.16
Total 2019	$	12,390			$	48,568			$	16,642			430,462							60,936
Distributions during 2018
4th Quarter	$	2,953			$	11,706			$	4,062			216,476			$	49.34			13,867			$	50.20
3rd Quarter	2,953				11,590				4,055				201,500			51.68				13,107			52.60
2nd Quarter	2,672				11,545				3,942				85,202			47.54				42,422			47.83
1st Quarter	3,824				11,465				3,922				69,750			52.71				38,037			53.03
Total 2018	$	12,402			$	46,306			$	15,981			572,928							107,433
Distributions during 2017
4th Quarter	$	3,094			$	11,221			$	3,838			82,991			$	59.33			15,596			$	60.08
3rd Quarter	3,094				11,160				3,830				85,731			57.40				16,021			58.13
2nd Quarter	3,094				11,119				3,810				51,003			59.64				40,623			59.96
1st Quarter	3,093				11,076				3,790				46,286			61.85				39,111			62.15
Total 2017	$	12,375			$	44,576			$	15,268			266,011							111,351

In December 2019, the Board of Directors of the Company authorized a distribution of $0.53 per common share payable in January 2020 to holders of record on January 17, 2020. As a result, $12.3 million was paid to common shareholders on January 31, 2020. Also, $4.2 million was paid to limited partnership unitholders on January 31, 2020 ($0.53 per Operating Partnership unit). The Board of Directors authorized preferred stock dividends of (a) $0.3750 per Series E depositary share and (b) $0.3828 per Series D depositary share to holders of record on January 2, 2020. As a result, $2.8 million was paid to preferred shareholders on January 15, 2020. These amounts are reflected as a reduction of stockholders’ equity in the case of common stock and preferred stock dividends and noncontrolling interests deductions in the case of limited partner distributions and are included in dividends and distributions payable in the accompanying consolidated financial statements.

14.	INTERIM RESULTS (Unaudited)

The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2019 and 2018.

(In thousands, except per share amounts)	2019
	1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
Total revenue	$	59,750			$	58,141			$	57,052			$	56,582
Net Income	17,077				16,750				15,328				15,041
Net income attributable to Saul Centers, Inc.	13,447				13,232				12,226				12,818
Net income available to common stockholders	10,494				10,279				9,016				6,464
Net income available to common stockholders per diluted share	0.46				0.45				0.39				0.27

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(In thousands, except per share amounts)	2018
	1st Quarter				2nd Quarter				3rd Quarter				4th Quarter
Total revenue	$	56,109			$	56,081			$	56,910			$	58,119
Net Income	14,946				15,902				16,702				15,509
Net income attributable to Saul Centers, Inc.	12,587				12,543				13,155				12,269
Net income available to common stockholders	6,856				9,590				10,202				9,316
Net income available to common stockholders per diluted share	0.31				0.43				0.45				0.41

15.	BUSINESS SEGMENTS

The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate for the combined properties in each segment. All of our properties within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a range of tenants, the types of services provided to them are similar within each segment. The properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior year information to conform to the 2019 presentation.

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SAUL CENTERS, INC. Notes to Consolidated Financial Statements
(In thousands)	Shopping				Mixed-Use				Corporate				Consolidated
As of or for the year ended December 31, 2019	Centers				Properties				and Other				Totals
Real estate rental operations:
Revenue	$	167,888			$	63,637			$	—			$	231,525
Expenses	(36,119		)		(21,814		)		—				(57,933		)
Income from real estate	131,769				41,823				—				173,592
Interest expense, net and amortization of deferred debt costs	—				—				(41,834		)		(41,834		)
General and administrative	—				—				(20,793		)		(20,793		)
Depreciation and amortization of deferred leasing costs	(29,112		)		(17,221		)		—				(46,333		)
Change in fair value of derivatives	—				—				(436		)		(436		)
Net income (loss)	$	102,657			$	24,602			$	(63,063	)		$	64,196
Capital investment	$	33,968			$	101,695			$	—			$	135,663
Total assets	$	980,096			$	625,183			$	13,061			$	1,618,340
As of or for the year ended December 31, 2018
Real estate rental operations:
Revenue	$	164,344			$	62,875			$	—			$	227,219
Expenses	(34,643		)		(20,935		)		—				(55,578		)
Income from real estate	129,701				41,940				—				171,641
Interest expense, net and amortization of deferred debt costs	—				—				(44,768		)		(44,768		)
General and administrative	—				—				(18,459		)		(18,459		)
Depreciation and amortization of deferred leasing costs	(29,251		)		(16,610		)		—				(45,861		)
Change in fair value of derivatives	—				—				(3		)		(3		)
Gain on sale of property	509				—				—				509
Net income (loss)	$	100,959			$	25,330			$	(63,230	)		$	63,059
Capital investment	$	13,485			$	115,165			$	—			$	128,650
Total assets	$	971,321			$	537,500			$	18,668			$	1,527,489
As of or for the year ended December 31, 2017
Real estate rental operations:
Revenue	$	165,232			$	61,067			$	—			$	226,299
Expenses	(34,054		)		(20,632		)		—				(54,686		)
Income from real estate	131,178				40,435				—				171,613
Interest expense, net and amortization of deferred debt costs	—				—				(47,145		)		(47,145		)
General and administrative	—				—				(18,176		)		(18,176		)
Depreciation and amortization of deferred leasing costs	(29,977		)		(15,717		)		—				(45,694		)
Change in fair value of derivatives	—				—				70				70
Net income (loss)	$	101,201			$	24,718			$	(65,251	)		$	60,668
Capital investment	$	90,896			$	29,098			$	—			$	119,994
Total assets	$	974,061			$	438,283			$	10,108			$	1,422,452

16.	Subsequent Events

The Company has reviewed operating activities for the period subsequent to December 31, 2019 and prior to the date that financial statements are issued, February 27, 2020, and determined there are no subsequent events that are required to be disclosed.

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SAUL CENTERS, INC. Real Estate and Accumulated Depreciation December 31, 2019 (Dollars in Thousands)
					Costs																																				Buildings
					Capitalized				Basis at Close of Period																																and
	Initial Basis				Subsequent to Acquisition				Land				Buildings and Improvements				Construction in Progress				Total				Accumulated Depreciation				Book Value				Related Debt				Date of Construction		Date Acquired		Improvements Depreciable Lives in Years
Shopping Centers
Ashbrook Marketplace, Ashburn, VA	$	8,938			$	16,261			$	3,066			$	3,005			$	19,128			$	25,199			$	8			$	25,191			$	—			2019		5/18		40
Ashburn Village, Ashburn, VA	11,431				20,514				6,764				25,077				104				31,945				14,234				17,711				26,245				1994 & 2000-6		3/94		40
Ashland Square Phase I, Dumfries, VA	1,178				7,508				1,178				5,298				2,210				8,686				2,215				6,471				—				2007, 2013		12/04		20 & 50
Beacon Center, Alexandria, VA	24,161				18,477				22,674				19,946				18				42,638				15,335				27,303				36,206				1960 & 1974		1/72, 11/16		40 & 50
BJ’s Wholesale Club, Alexandria, VA	22,623				—				22,623				—				—				22,623				—				22,623				10,323						3/08		—
Boca Valley Plaza, Boca Raton, FL	16,720				2,064				5,735				13,049				—				18,784				5,252				13,532				9,234						2/04		40
Boulevard, Fairfax, VA	4,883				4,709				3,687				5,905				—				9,592				3,243				6,349				15,723				1969, 1999 & 2009		4/94		40
Briggs Chaney MarketPlace, Silver Spring, MD	27,037				4,703				9,789				21,951				—				31,740				9,333				22,407				—						4/04		40
Broadlands Village, Ashburn, VA	5,316				34,586				5,300				34,589				13				39,902				12,872				27,030				31,221				2003, 2004 & 2006		3/02		40 & 50
Burtonsville Town Square, Burtonsville, MD	74,212				5,612				28,401				50,915				508				79,824				3,728				76,096				36,975				2010		1/17		20 & 45
Countryside Marketplace, Sterling, VA	28,912				4,143				7,666				25,389				—				33,055				10,518				22,537				—						2/04		40
Cranberry Square, Westminster, MD	31,578				739				6,700				25,617				—				32,317				5,497				26,820				15,917						9/11		40
Cruse MarketPlace, Cumming, GA	12,226				689				3,901				9,014				—				12,915				3,626				9,289				—						3/04		40
Flagship Center, Rockville, MD	160				9				169				—				—				169				—				169				—				1972		1/72		—
French Market, Oklahoma City, OK	5,781				14,269				1,118				18,929				3				20,050				12,490				7,560				—				1972 & 1998		3/74		50
Germantown, Germantown, MD	2,034				567				2,034				567				—				2,601				409				2,192				—				1990		8/93		40
The Glen, Woodbridge, VA	12,918				8,351				5,300				15,942				27				21,269				10,138				11,131				22,448				1993 & 2005		6/94		40
Great Falls Center, Great Falls, VA	41,750				3,203				14,766				30,187				—				44,953				9,497				35,456				10,774						3/08		40
Hampshire Langley, Takoma, MD	3,159				3,549				1,856				4,635				217				6,708				3,908				2,800				14,810				1960		1/72		40
Hunt Club Corners, Apopka, FL	12,584				4,409				4,822				12,171				—				16,993				4,788				12,205				5,300						6/06, 12/12		40
Jamestown Place, Altamonte Springs, FL	14,055				1,950				4,455				11,550				—				16,005				4,291				11,714				6,539						11/05		40
Kentlands Square I, Gaithersburg, MD	14,379				840				5,006				9,711				502				15,219				4,220				10,999				—				2002		9/02		40
Kentlands Square II, Gaithersburg, MD	76,723				2,733				22,800				56,270				386				79,456				12,147				67,309				33,952						9/11, 9/13		40
Kentlands Place, Gaithersburg, MD	1,425				7,373				1,425				7,373				—				8,798				4,241				4,557				—				2005		1/04		50
Lansdowne Town Center, Leesburg, VA	6,545				43,003				6,546				37,843				5,159				49,548				16,291				33,257				30,719				2006		11/02		50
Leesburg Pike Plaza, Baileys Crossroads, VA	2,418				6,292				1,132				7,578				—				8,710				6,159				2,551				14,414				1965		2/66		40
Lumberton Plaza, Lumberton, NJ	4,400				11,612				950				15,041				21				16,012				13,379				2,633				—				1975		12/75		40
Metro Pike Center, Rockville, MD	33,123				4,605				26,064				7,729				3,935				37,728				1,822				35,906				—						12/10		40
Shops at Monocacy, Frederick, MD	9,541				13,994				9,260				14,275				—				23,535				6,338				17,197				28,500				2004		11/03		50
Northrock, Warrenton, VA	12,686				15,429				12,686				15,423				6				28,115				4,907				23,208				14,085				2009		01/08		50
Olde Forte Village, Ft. Washington, MD	15,933				6,721				5,409				17,245				—				22,654				8,180				14,474				21,702				2004		07/03		40
Olney, Olney, MD	4,963				2,550				3,079				4,434				—				7,513				3,358				4,155				11,952				1972		11/75		40
Orchard Park, Dunwoody, GA	19,377				1,461				7,751				13,087				—				20,838				4,053				16,785				9,441						7/07		40
Palm Springs Center, Altamonte Springs, FL	18,365				2,007				5,739				14,633				—				20,372				5,593				14,779				7,262						3/05		40
Ravenwood, Baltimore, MD	1,245				4,256				703				4,798				—				5,501				3,308				2,193				13,606				1959 & 2006		1/72		40
11503 Rockville Pike/5541 Nicholson Lane, Rockville, MD	26,561				24				22,113				4,472				—				26,585				1,032				25,553				—						10/10 12/12		40
1500/1580/1582/1584 Rockville Pike, Rockville, MD	51,149				2,714				43,863				7,490				2,510				53,863				6,439				47,424				—						12/12, 1/14, 4/14, 12/14		5, 10, 5, 4
Seabreeze Plaza, Palm Harbor, FL	24,526				2,502				8,665				18,363				—				27,028				6,746				20,282				15,019						11/05		40
Market Place at Sea Colony, Bethany Beach, DE	2,920				246				1,147				2,019				—				3,166				615				2,551				—						3/08		40
Seven Corners, Falls Church, VA	4,848				44,612				4,913				44,522				25				49,460				30,937				18,523				60,677				1956 & 1997		7/73		40
Severna Park Marketplace, Severna Park, MD	63,254				526				12,700				51,080				—				63,780				10,544				53,236				29,710						9/11		40
Shops at Fairfax, Fairfax, VA	2,708				9,971				992				11,687				—				12,679				8,676				4,003				10,482				1975 & 1999		6/75		50
Smallwood Village Center, Waldorf, MD	17,819				8,332				6,402				19,743				6				26,151				8,903				17,248				—						1/06		40
Southdale, Glen Burnie, MD	18,895				25,100				15,254				28,740				1				43,995				22,440				21,555				—				1962 & 1986		1/72		40
Southside Plaza, Richmond, VA	6,728				11,338				1,878				16,188				—				18,066				12,798				5,268				—				1958		1/72		40
South Dekalb Plaza, Atlanta, GA	2,474				4,449				703				6,220				—				6,923				5,088				1,835				—				1970		2/76		40
Thruway, Winston-Salem, NC	7,848				26,336				7,693				26,447				44				34,184				18,682				15,502				—				1955 & 1965		5/72		40
Village Center, Centreville, VA	16,502				2,636				7,851				11,287				—				19,138				7,380				11,758				12,555				1990		8/93		40
Westview Village, Frederick, MD	6,047				25,225				6,047				25,216				9				31,272				9,483				21,789				—				2009		11/07, 02/15		50
White Oak, Silver Spring, MD	6,277				5,771				4,649				7,212				187				12,048				6,169				5,879				22,475				1958 & 1967		1/72		40
Other Buildings / Improvements	—				182				—				182				—				182				72				110				—
Total Shopping Centers	841,335				449,152				415,424				840,044				35,019				1,290,487				381,382				909,105				578,266
Mixed-Use Properties
Avenel Business Park, Gaithersburg, MD	21,459				32,976				3,756				50,679				—				54,435				39,261				15,174				26,260				1981-2000		12/84		35 & 40
Clarendon Center, Arlington, VA (1)	12,753				186,210				16,287				182,676				—				198,963				46,856				152,107				98,611				2010		7/73, 1/96 & 4/02		50
Park Van Ness, Washington, DC	2,242				91,699				2,242				91,699				—				93,941				10,757				83,184				68,095				2016		7/73 & 2/11		50
601 Pennsylvania Ave., Washington, DC	5,479				69,129				5,667				68,941				—				74,608				57,038				17,570				—				1986		7/73		35
Washington Square, Alexandria, VA	2,034				57,102				544				58,592				—				59,136				28,180				30,956				56,990				2000		7/73		50
Total Mixed-Use Properties	43,967				437,116				28,496				452,587				—				481,083				182,092				298,991				249,956
Development Land
Ashland Square Phase II, Manassas, VA	5,292				2,280				7,028				—				544				7,572				—				7,572				—						12/04
New Market, New Market, MD	2,088				286				2,374				—				—				2,374				—				2,374				—						9/05
The Waycroft, Arlington, VA	52,067				203,376				—				—				255,443				255,443				—				255,443				110,199				—		8/14-8/16
7316 Wisconsin Avenue, Bethesda, MD	39,641				4,997				—				—				44,638				44,638				—				44,638				—				1969		9/18 & 12/18
Total Development Land	99,088				210,939				9,402				—				300,625				310,027				—				310,027				110,199
Total	$	984,390			$	1,097,207			$	453,322			$	1,292,631			$	335,644			$	2,081,597			$	563,474			$	1,518,123			$	938,421

(1)	Includes the North and South Blocks and Residential

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Depreciation and amortization related to the real estate investments reflected in the statements of operations is calculated over the estimated useful lives of the assets as follows: 

Base building		Generally 35 - 50 years or a shorter period if management determines that
		the building has a shorter useful life.
Building components		Up to 20 years
Tenant improvements		The shorter of the term of the lease or the useful life
		of the improvements

The aggregate remaining net basis of the real estate investments for federal income tax purposes was approximately $1.33 billion at December 31, 2019. Depreciation and amortization are provided on the declining balance and straight-line methods over the estimated useful lives of the assets.

The changes in total real estate investments and related accumulated depreciation for each of the years in the three year period ended December 31, 2019 are summarized as follows:

 

(In thousands)	2019				2018				2017
Total real estate investments:
Balance, beginning of year	$	1,948,165			$	1,803,200			$	1,700,813
Acquisitions	—				48,579				77,258
Improvements	135,966				98,917				42,640
Retirements	(2,534		)		(2,531		)		(17,511		)
Balance, end of year	$	2,081,597			$	1,948,165			$	1,803,200
Total accumulated depreciation:
Balance, beginning of year	$	525,518			$	488,166			$	458,279
Depreciation expense	40,490				39,768				40,197
Retirements	(2,534		)		(2,416		)		(10,310		)
Balance, end of year	$	563,474			$	525,518			$	488,166