SAUL CENTERS INC

Liquidity and Capital Resources

Cash and cash equivalents totaled $6.9 million and $11.5 million at June 30, 2024 and 2023, respectively. The Company maintains cash balances at various financial institutions and, from time to time, those balances may exceed federally insured limits. The Company has not experienced any losses on such deposits and actively monitors its banking relationships to mitigate its exposure to significant credit risk on those deposits. The Company’s cash flow is affected by its operating, investing and financing activities, as described below.

Operating Activities

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

Investing Activities

Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. The $9.2 million decrease in cash used in investing activities is primarily due to (a) decreased development expenditures of $5.8 million and (b) decreased additions to real estate investments throughout the portfolio of $3.2 million.

Financing Activities

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

Liquidity Requirements

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

-31- additional property acquisitions and developments) through cash provided from operations, available cash and its existing line of credit.

The Company is developing Twinbrook Quarter Phase I (“Phase I”) located in Rockville, Maryland. Phase I includes an 80,000 square foot Wegmans supermarket, approximately 25,000 square feet of small shop space, 452 apartment units and a 230,000 square foot office building. The office tower portion of Phase I is not being constructed at this time. In connection with the development of the residential and retail portions of Phase I, we must also invest in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. Excluding imputed capitalized interest, the total cost of the project is expected to be approximately $331.5 million, of which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million is related to infrastructure and other items. Of the expected $331.5 million total cost, $306.5 million has been invested to date. A portion of the cost of the project is being financed by a $145.0 million construction-to-permanent loan. During the second quarter of 2023, the Company commenced drawing on the loan and, as of June 30, 2024, the outstanding balance of the loan was $102.3 million, net of unamortized deferred debt costs. Apartment unit construction is nearing completion on the top two residential floors (10 and 11). Lobby and amenity spaces are nearing completion and final inspections are in process. Work to complete the site, including streetscape and sidewalks, is ongoing. Initial delivery of Phase I is anticipated in late 2024. The development potential of all phases of the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office space.

The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that will include up to 366 apartment units and 10,100 square feet of retail space. Excluding imputed capitalized interest, the total cost of the project is expected to be approximately $246.4 million, of which $168.3 million has been invested to date. A portion of the cost of the project is being financed by a $133.0 million construction-to-permanent loan. During the fourth quarter of 2023, the Company commenced drawing on the loan and, as of June 30, 2024, the outstanding balance of the loan was $39.5 million, net of unamortized deferred debt costs. The structure is complete and topped out at roof level. Exterior façade work is continuing, including installation of precast panels, brick and windows, along with mechanical, plumbing and electrical work throughout the building. Construction is expected to be completed in late 2025.

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

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

Dividend Reinvestments

The Company has a DRIP that allows its common stockholders and holders of limited partnership interests an opportunity to buy additional shares of common stock by reinvesting all or a portion of their dividends or distributions. The DRIP provides for investing in newly issued shares of common stock at a 3% discount from market price without payment of any brokerage commissions, service charges or other expenses. All expenses of the DRIP are paid by the Company. The Company issued 29,297 and 25,190 shares pursuant to the DRIP at a weighted average discounted price of $36.37 and $37.74 per share, during the six months ended June 30, 2024 and 2023, respectively. The Company issued 350,208 limited partnership units pursuant to the DRIP at a weighted average price of $37.97 per unit during the six months ended June 30, 2024. The Company did not issue any limited partnership units pursuant to the DRIP during the six months ended June 30, 2023. The Company also credited 3,796 and 3,625 shares to directors pursuant to the reinvestment of dividends specified by the Directors’ Deferred Compensation Plan at a weighted average discounted price of $36.35 and $37.71 per share, during the six months ended June 30, 2024 and 2023, respectively.

Capital Strategy and Financing Activity

As a general policy, the Company intends to maintain a ratio of its total debt to total estimated asset market value of 50% or less and to actively manage the Company’s leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Asset value is the aggregate fair market value of the Current Portfolio Properties and any

-32- subsequently acquired properties as reasonably determined by management by reference to each property's aggregate cash flow. Given the Company’s current debt level, it is management’s belief that the ratio of the Company’s debt to total asset value was below 50% as of June 30, 2024.

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

At June 30, 2024, the Company had a $525.0 million Credit Facility comprised of a $425.0 million revolving credit facility and a $100.0 million term loan. The revolving credit facility matures on August 29, 2025, and may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan matures on February 26, 2027. Interest accrues at a rate of SOFR plus 10 basis points plus an applicable spread, which is determined by certain leverage tests. As of June 30, 2024, the applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points related to the term loan. Letters of credit may be issued under the Credit Facility. On June 30, 2024, based on the value of the Company’s unencumbered properties, approximately $161.5 million was available under the Credit Facility, $336.0 million was outstanding and approximately $185,000 was committed for letters of credit..

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

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

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

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

As of June 30, 2024, the Company was in compliance with all such covenants. See note 5 to the consolidated financial statements for a discussion of all financing activity.

On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to manage the interest rate risk associated with $100.0 million of its variable-rate debt. The effective date of each swap agreement is October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1, 2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt, unless otherwise indicated, $100.0 million of variable-rate debt is being treated as fixed-rate debt for disclosure purposes beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for accounting purposes.

On May 28, 2024, the Company closed on a 13.4-year, non-recourse, $100.0 million mortgage secured by Avenel Business Park, Leesburg Pike Plaza, and White Oak Shopping Center. The loan matures in 2037, bears interest at a fixed-rate of 6.38%, requires monthly principal and interest payments of $686,300 based on a 23.4-year amortization schedule and requires a final principal payment of $61.5 million at maturity. Proceeds were used to repay the remaining balance of approximately $51.2 million on the existing mortgages secured by the properties and reduce the outstanding balance of the Company’s Credit Facility. The loan is cross-collateralized and coterminous with the mortgage secured by Beacon Center and Seven Corners Center, which has an outstanding principal balance of $138.0 million as of June 30, 2024.

During the second quarter of 2023, the Company commenced drawing on its $145.0 million construction-to-permanent loan related to the residential and retail portions of Phase I of the Twinbrook Quarter development project. As of June 30, 2024, the balance of the loan was $102.3 million, net of unamortized deferred debt costs.

During the fourth quarter of 2023, the Company commenced drawing on its $133.0 million loan related to the Hampden House development project. As of June 30, 2024, the balance of the loan was $39.5 million, net of unamortized deferred debt costs.

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Off-Balance Sheet Arrangements

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

Funds From Operations

Funds From Operations (FFO)1 available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) for the 2024 Quarter totaled $28.5 million, an increase of 7.6% compared to the 2023 Quarter. FFO available to common stockholders and noncontrolling interests increased primarily due to (a) higher termination fees of $1.6 million, (b) higher commercial base rent of $0.8 million and (c) higher residential base rent of $0.3 million, partially offset by (d) higher general and administrative costs of $0.4 million and (e) a lease termination fee paid to a tenant of $0.3 million.

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) for the 2024 Period totaled$56.0 million, an increase of 4.9% compared to the 2023 Period. FFO available to common stockholders and noncontrolling interests increased primarily due to (a) higher other property revenue of $2.4 million and (b) higher commercial base rent of $2.2 million, partially offset by (c) higher general and administrative costs of $0.9 million, (d) higher interest expense, net and amortization of deferred debt costs of $0.6 million and (e) a lease termination fee paid to a tenant of $0.3 million.

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

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

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2 Beginning March 5, 2021, fully diluted shares and units includes 1,416,071 limited partnership units held in escrow related to the contribution of Twinbrook Quarter. Half of the units held in escrow were released on October 18, 2021. The remaining units were released on October 18, 2023.

Restricted Stock Compensation

On May 17, 2024, following shareholder approval, the Company established the Saul Centers, Inc. 2024 Stock Incentive Plan (the “Incentive Plan”), under which various equity incentives may be granted. On May 17, 2024, the Company granted 117,000 restricted shares to officers, divided equally between time-vested and performance-based awards. On May 20, 2024, the Company granted 18,000 restricted shares to non-employee directors, which will vest on an annual basis over three years.

The Company uses the fair value method to value and account for restricted stock grants. The fair value of restricted stock granted is determined at the time of the grant using a discounted cash flow analysis, and the following assumptions: (1) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; (2) the closing price of the Company’s common stock on the date of the grant; (3) estimated forfeitures; and (4) a present value discount rate equal to the Expected Dividend Yield.

During the six months ended June 30, 2024, restricted stock compensation expense totaled $0.1 million, which was included in general and administrative expense in the Consolidated Statement of Operations. As of June 30, 2024, the estimated future expense related to unvested restricted stock grants was approximately $3.0 million.

For accounting purposes, performance-based awards are not treated as granted until the Board establishes the target for those awards. As of June 30, 2024, (a) no expense has been recognized and (b) no estimate of future expense has been made for the 46,800 officer performance-based awards where the accounting grant date has not occurred. If those awards had been granted for accounting purposes as of June 30, 2024, the additional estimated future expense would have been approximately $1.5 million, calculated using the fair value method and based on the closing share price of $36.77 on June 28, 2024, the final trading day of the 2024 second quarter.

Acquisitions and Redevelopments

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

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

Portfolio Leasing Status

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

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

As of June 30, 2024, 95.8% of the Commercial portfolio was leased, compared to 94.0% as of June 30, 2023. On a same property basis, 95.8% of the Commercial portfolio was leased as of June 30, 2024 compared to 94.0% as of June 30, 2023. Included in the 95.8% of space leased as of June 30, 2024, is approximately 186,336 square feet of space, representing 2.1% of total Commercial square footage, that has not yet been occupied by the respective tenants. Collectively, these leases are expected to produce approximately $5.3 million of additional annualized base rent, an average of $28.19 per square foot, upon tenant occupancy and following any contractual rent concessions.

The Mixed-Use Commercial leasing percentage is composed of Commercial leases at office mixed-use properties and residential mixed-use properties. The leasing percentage at office mixed-use properties increased to 89.1% as of June 30, 2024 from 82.7% as of June 30, 2023. The retail leasing percentage at residential mixed-use properties increased to 97.0% as of June 30, 2024 from 91.2% as of June 30, 2023.

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

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

Additional information about the leasing activity during the three months ended June 30, 2024 is set forth below. The below information includes leases for space which had not been previously leased during the period of the Company’s ownership, either a result of acquisition or development.

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

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The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for leases in place at the Shopping Centers as of June 30, 2024, for each of the next ten years beginning with 2024, assuming that none of the tenants exercise renewal options and excluding an aggregate of 260,641 square feet of unleased space, which represented 3.3% of the gross leasable area ("GLA") of the Shopping Centers as of June 30, 2024.

Lease Expirations of Shopping Center Properties

(1)Calculated using annualized contractual base rent payable as of June 30, 2024 for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

(2)The estimated market base rent per square foot for 2024 expirations, including 98,519 square feet of leases that are month-to-month, is $20.79 per square foot.

The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for commercial leases in place at the Mixed-Use Properties as of June 30, 2024, for each of the next ten years beginning with 2024, assuming that none of the tenants exercise renewal options and excluding an aggregate of 118,583 square feet of unleased office and retail space, which represented 10.4% of the GLA of the commercial space within the Mixed-Use Properties as of June 30, 2024.

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Commercial Lease Expirations of Mixed-Use Properties

(1)Calculated using annualized contractual base rent payable as of June 30, 2024, for the expiring GLA, excluding expenses payable by or reimbursable from tenants.

(2)The estimated market base rent per square foot for 2024 expirations is $30.52 per square foot.

As of June 30, 2024, the Company had 1,000 apartment leases, 370 of which will expire in 2024, 591 of which will expire in 2025 and 39 which will expire in 2026. Annual base rent due under these leases is $13.8 million, $11.8 million and $0.1 million for the years ending December 31, 2024, 2025 and 2026, respectively.

As of June 30, 2024, the Residential portfolio was 99.4% leased, compared to 99.2% as of June 30, 2023.