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

At December 31, 2014, outstanding debt totaled $857.4 million, of which $784.8 million was fixed rate debt and $72.6 million was variable rate debt. The Company’s outstanding debt totaled $820.1 million at December 31, 2013, of which $789.9 million was fixed rate debt and $30.2 million was variable rate debt. At December 31, 2014, the Company had a $275.0 million unsecured revolving credit facility, which can be used for working capital, property acquisitions or development projects. The revolving credit facility matures on June 23, 2018, and may be extended by the Company for one additional year subject to the Company’s satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the revolving credit facility. Letters of credit may be issued under the revolving credit facility. On December 31, 2014, based on the value of the Company's unencumbered properties, approximately $231.6 million was available under the line, $43.0 million was outstanding and approximately $448,000 was committed for letters of credit. The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio and which can range from 145 basis points to 200 basis points. As of December 31, 2014, the margin was 145 basis points.

Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. Saul Centers guarantees a portion of the Northrock bank term loan (approximately $7.5 million of the $14.5 million outstanding at December 31, 2014) and the Metro Pike Center bank loan (approximately $7.8 million of the $15.1 million outstanding at December 31, 2014) and all of the Park Van Ness construction-to-permanent loan. All other notes payable are non-recourse.

On April 11, 2012, the Company closed on a 15-year non-recourse mortgage loan in the amount of $73.0 million secured by Seven Corners shopping center. The loan matures in 2027, bears interest at a fixed rate of 5.84%, requires equal monthly principal and interest payments totaling $463,200 based upon a 25-year amortization schedule and a final payment of $42.3 million at maturity. Proceeds from the loan were used to pay-off the $63 million remaining balance of existing debt secured by Seven Corners and six other shopping center properties, and to provide cash of approximately $10 million.

On April 26, 2012, the Company substituted the White Oak shopping center for Van Ness Square as collateral for one of its existing mortgage loans. The terms of the original loan, including its 8.11% interest rate, are unchanged and, in conjunction with the collateral substitution, the Company borrowed an additional $10.5 million, also secured by White Oak. The new borrowing requires equal monthly payments based upon a fixed 4.90% interest rate and 25-year amortization schedule, and will mature in 2024, coterminously with the original loan. The consolidated loan requires equal monthly payments based upon a blended fixed interest rate of 7.0% and will require a final payment of $18.5 million at maturity.

On February 27, 2013, the Company closed on a three-year $15.6 million mortgage loan secured by Metro Pike Center. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month LIBOR and 165 basis points, requires monthly principal and interest payments based on a 25-year amortization schedule and requires a final payment of $14.8 million at maturity. The loan may be extended for up to two years. Proceeds were used to pay-off the $15.9 million remaining balance of existing debt secured by Metro Pike Center, and to extinguish the related swap agreement.

On February 27, 2013, the Company closed on a three-year $15.0 million mortgage loan secured by Northrock. The loan matures in 2016, bears interest at a variable rate equal to the sum of one-month LIBOR and 165 basis points, requires monthly principal and interest payments based on a 25-year amortization schedule and requires a final payment of $14.2 million at maturity. The loan may be extended for up to two years. Proceeds were used to pay-off the $15.0 million remaining balance of existing debt secured by Northrock.

On March 19, 2013, the Company closed on a 15-year, non-recourse $18.0 million mortgage loan secured by Hampshire Langley. The loan matures in 2028, bears interest at a fixed rate of 4.04%, requires monthly principal and interest payments totaling $95,400 based on a 25-year amortization schedule and requires a final payment of $9.5 million at maturity.

On April 10, 2013, the Company paid in full the $6.9 million remaining balance on the mortgage loan secured by Cruse Marketplace.

On May 28, 2013, the Company closed on a 15-year, non-recourse $35.0 million mortgage loan secured by Beacon Center. The loan matures in 2028, bears interest at a fixed rate of 3.51%, requires monthly principal and interest payments totaling $203,200 based on a 20-year amortization schedule and requires a final payment of $11.4 million at maturity.

On September 4, 2013, the Company closed on a 15-year, non-recourse $18.0 million mortgage loan secured by Seabreeze Plaza. The loan matures in 2028, bears interest at a fixed rate of 3.99%, requires monthly principal and interest payments totaling $94,900 based on a 25-year amortization schedule and requires a final payment of $9.5 million at maturity. Proceeds were used to pay off the $13.5 million remaining balance of existing debt secured by Seabreeze Plaza which was scheduled to mature in May 2014 and the Company incurred $497,000 of related debt extinguishment costs.

On October 25, 2013 the Company closed on a $71.6 million construction-to-permanent loan which will partially finance the construction of Park Van Ness. The loan bears interest at 4.88% and during the construction period it will be fully recourse to Saul Centers and accrued interest will be funded by the loan. Following the completion of construction and lease-up, and upon achieving certain debt service coverage requirements, the loan will convert to a non-recourse, permanent mortgage at the same interest rate, with principal amortization computed based on a 25-year schedule.

On June 24, 2014, the Company amended and restated its revolving credit facility. The Company unsecured revolving credit facility, which can be used for working capital, property acquisitions, development projects or letters of credit was increased to $275.0 million. The revolving credit facility matures on June 23, 2018, and may be extended by the Company for one additional year subject to the Company’s satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the revolving credit facility. Letters of credit may be issued under the revolving credit facility. The interest rate under the facility is variable and equals the sum of one-month LIBOR and a margin that is based on the Company’s leverage ratio, and which can range from 145 basis points to 200 basis points.

The following is a summary of notes payable as of December 31, 2014 and 2013:



Notes Payable	December 31,					Interest		Scheduled
(Dollars in thousands)	2014			2013		Rate *		Maturity *
Fixed rate mortgages:	$	15,399	(a)	$	16,128	7.45	%	Jun-2015
	32,049		(b)	33,246		6.01	%	Feb-2018
	35,398		(c)	36,937		5.88	%	Jan-2019
	11,454		(d)	11,949		5.76	%	May-2019
	15,819		(e)	16,501		5.62	%	Jul-2019
	15,761		(f)	16,419		5.79	%	Sep-2019
	14,014		(g)	14,610		5.22	%	Jan-2020
	10,881		(h)	11,159		5.60	%	May-2020
	9,535		(i)	9,921		5.30	%	Jun-2020
	41,441		(j)	42,462		5.83	%	Jul-2020
	8,346		(k)	8,649		5.81	%	Feb-2021
	6,100		(l)	6,233		6.01	%	Aug-2021
	35,222		(m)	35,981		5.62	%	Jun-2022
	10,718		(n)	10,930		6.08	%	Sep-2022
	11,587		(o)	11,795		6.43	%	Apr-2023
	14,909		(p)	15,598		6.28	%	Feb-2024
	16,750		(q)	17,123		7.35	%	Jun-2024
	14,535		(r)	14,849		7.60	%	Jun-2024
	25,639		(s)	26,153		7.02	%	Jul-2024
	30,429		(t)	31,093		7.45	%	Jul-2024
	30,253		(u)	30,894		7.30	%	Jan-2025
	15,735		(v)	16,087		6.18	%	Jan-2026
	115,291		(w)	118,128		5.31	%	Apr-2026
	35,125		(x)	36,075		4.30	%	Oct-2026
	39,932		(y)	40,974		4.53	%	Nov-2026
	18,645		(z)	19,118		4.70	%	Dec-2026
	69,397		(aa)	70,856		5.84	%	May-2027
	17,281		(bb)	17,718		4.04	%	Apr-2028
	33,140		(cc)	34,391		3.51	%	Jun-2028
	17,462		(dd)	17,895		3.99	%	Sep-2028
	5,391		(ee)	—		4.88	%	Sep-2032
	11,119		(ff)	—		8.00	%	Apr-2034
Total fixed rate	784,757			789,872		5.70	%	9.3 Years
Variable rate loans:
	43,000		(gg)	—		LIBOR + 1.45	%	Jun-2018
	14,525		(hh)	14,802		LIBOR + 1.65	%	Feb-2016
	15,106		(ii)	15,394		LIBOR + 1.65	%	Feb-2016
Total variable rate	$	72,631		$	30,196	LIBOR + 1.53	%	2.5 Years
Total notes payable	$	857,388		$	820,068	5.36	%	8.7 Years


*	Interest rate and scheduled maturity data presented as of December 31, 2014. Totals computed using weighted averages.


(a)	The loan is collateralized by Shops at Fairfax and Boulevard shopping centers and requires equal monthly principal and interest payments totaling $156,000 based upon a weighted average 23-year amortization schedule and a final payment of $15.2 million is due at loan maturity. Principal of $729,000 was amortized during 2014.


(b)	The loan is collateralized by Washington Square and requires equal monthly principal and interest payments of $264,000 based upon a 27.5-year amortization schedule and a final payment of $28.0 million at loan maturity. Principal of $1.2 million was amortized during 2014.


(c)	The loan is collateralized by three shopping centers, Broadlands Village, The Glen and Kentlands Square I, and requires equal monthly principal and interest payments of $306,000 based upon a 25-year amortization schedule and a final payment of $28.4 million at loan maturity. Principal of $1.5 million was amortized during 2014.


(d)	The loan is collateralized by Olde Forte Village and requires equal monthly principal and interest payments of $98,000 based upon a 25-year amortization schedule and a final payment of $9.0 million at loan maturity. Principal of $495,000 was amortized during 2014.


(e)	The loan is collateralized by Countryside and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a final payment of $12.3 million at loan maturity. Principal of $682,000 was amortized during 2014.


(f)	The loan is collateralized by Briggs Chaney MarketPlace and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a final payment of $12.2 million at loan maturity. Principal of $658,000 was amortized during 2014.


(g)	The loan is collateralized by Shops at Monocacy and requires equal monthly principal and interest payments of $112,000 based upon a 25-year amortization schedule and a final payment of $10.6 million at loan maturity. Principal of $596,000 was amortized during 2014.


(h)	The loan is collateralized by Boca Valley Plaza and requires equal monthly principal and interest payments of $75,000 based upon a 30-year amortization schedule and a final payment of $9.1 million at loan maturity. Principal of $278,000 was amortized during 2014.


(i)	The loan is collateralized by Palm Springs Center and requires equal monthly principal and interest payments of $75,000 based upon a 25-year amortization schedule and a final payment of $7.1 million at loan maturity. Principal of $386,000 was amortized during 2014.


(j)	The loan and a corresponding interest-rate swap closed on June 29, 2010 and are collateralized by Thruway. On a combined basis, the loan and the interest-rate swap require equal monthly principal and interest payments of $289,000 based upon a 25-year amortization schedule and a final payment of $34.8 million at loan maturity. Principal of $1,021,000 was amortized during 2014.


(k)	The loan is collateralized by Jamestown Place and requires equal monthly principal and interest payments of $66,000 based upon a 25-year amortization schedule and a final payment of $6.1 million at loan maturity. Principal of $303,000 was amortized during 2014.


(l)	The loan is collateralized by Hunt Club Corners and requires equal monthly principal and interest payments of $42,000 based upon a 30-year amortization schedule and a final payment of $5.0 million, at loan maturity. Principal of $133,000 was amortized during 2014.


(m)	The loan is collateralized by Lansdowne Town Center and requires monthly principal and interest payments of $230,000 based on a 30-year amortization schedule and a final payment of $28.2 million at loan maturity. Principal of $759,000 was amortized during 2014.


(n)	The loan is collateralized by Orchard Park and requires equal monthly principal and interest payments of $73,000 based upon a 30-year amortization schedule and a final payment of $8.6 million at loan maturity. Principal of $212,000 was amortized during 2014.


(o)	The loan is collateralized by BJ’s Wholesale and requires equal monthly principal and interest payments of $80,000 based upon a 30-year amortization schedule and a final payment of $9.3 million at loan maturity. Principal of $208,000 was amortized during 2014.


(p)	The loan is collateralized by Great Falls shopping center. The loan consists of three notes which require equal monthly principal and interest payments of $138,000 based upon a weighted average 26-year amortization schedule and a final payment of $6.3 million at maturity. Principal of $689,000 was amortized during 2014.


(q)	The loan is collateralized by Leesburg Pike and requires equal monthly principal and interest payments of $135,000 based upon a 25-year amortization schedule and a final payment of $11.5 million at loan maturity. Principal of $373,000 was amortized during 2014.


(r)	The loan is collateralized by Village Center and requires equal monthly principal and interest payments of $119,000 based upon a 25-year amortization schedule and a final payment of $10.1 million at loan maturity. Principal of $314,000 was amortized during 2014.

(s)

The loan is collateralized by White Oak and requires equal monthly principal and interest payments of $193,000 based upon a 24.4 year weighted amortization schedule and a final payment of $18.5 million at loan maturity. The loan was previously collateralized by Van Ness Square. During 2012, the Company substituted White Oak as the collateral and borrowed an additional $10.5 million. Principal of $514,000 was amortized during 2014.


(t)	The loan is collateralized by Avenel Business Park and requires equal monthly principal and interest payments of $246,000 based upon a 25-year amortization schedule and a final payment of $20.9 million at loan maturity. Principal of $664,000 was amortized during 2014.


(u)	The loan is collateralized by Ashburn Village and requires equal monthly principal and interest payments of $240,000 based upon a 25-year amortization schedule and a final payment of $20.5 million at loan maturity. Principal of $641,000 was amortized during 2014.


(v)	The loan is collateralized by Ravenwood and requires equal monthly principal and interest payments of $111,000 based upon a 25-year amortization schedule and a final payment of $10.1 million at loan maturity. Principal of $352,000 was amortized during 2014.


(w)	The loan is collateralized by Clarendon Center and requires equal monthly principal and interest payments of $753,000 based upon a 25-year amortization schedule and a final payment of $70.5 million at loan maturity. Principal of $2.8 million was amortized during 2014.


(x)	The loan is collateralized by Severna Park MarketPlace and requires equal monthly principal and interest payments of $207,000 based upon a 25-year amortization schedule and a final payment of $20.3 million at loan maturity. Principal of $950,000 was amortized during 2014.


(y)	The loan is collateralized by Kentlands Square II and requires equal monthly principal and interest payments of $240,000 based upon a 25-year amortization schedule and a final payment of $23.1 million at loan maturity. Principal of $1,042,000 was amortized during 2014.


(z)	The loan is collateralized by Cranberry Square and requires equal monthly principal and interest payments of $113,000 based upon a 25-year amortization schedule and a final payment of $10.9 million at loan maturity. Principal of $473,000 was amortized during 2014.


(aa)	The loan in the original amount of $73.0 million closed in May 2012, is collateralized by Seven Corners and requires equal monthly principal and interest payments of $463,200 based upon a 25-year amortization schedule and a final payment of $42.3 million at loan maturity. Principal of $1.5 million was amortized during 2014.


(bb)	The loan is collateralized by Hampshire Langley and requires equal monthly principal and interest payments of $95,400 based upon a 25 -year amortization schedule and a final payment of $9.5 million at loan maturity. Principal of $437,000 was amortized in 2014.


(cc)	The loan is collateralized by Beacon Center and requires equal monthly principal and interest payments of $203,200 based upon a 20-year amortization schedule and a final payment of $11.4 million at loan maturity. Principal of $1,251,000 was amortized in 2014.


(dd)	The loan is collateralized by Seabreeze Plaza and requires equal monthly principal and interest payments of $94,900 based upon a 25-year amortization schedule and a final payment of $9.5 million at loan maturity. Principal of $433,000 was amortized in 2014.

(ee)

The loan is a $71.6 million construction-to-permanent facility that is collateralized by and will finance a portion of the construction costs of Park Van Ness. During the construction period, interest will be funded by the loan. After conversion to a permanent loan, monthly principal and interest payments totaling $413,500 will be required based upon a 25-year amortization schedule. A final payment of $39.6 million will be due at maturity.

(ff)

The Company entered into a sale-leaseback transaction with its Olney property and is accounting for that transaction as a secured financing. The arrangement requires monthly payments of $60,400 which increase by 1.5% on May 1, 2015, and every May 1 thereafter. The arrangement provides for a final payment of $14.7 million and has an implicit interest rate of 8.0%. Negative amortization in 2014 totaled $119,000.

(gg)

The loan is a $275.0 million unsecured revolving credit facility. Interest accrues at a rate equal to the sum of one-month LIBOR plus a spread of 145 basis points. The line may be extended at the Company’s option for one year with payment of a fee of 0.15%. Monthly payments, if required, are interest only and vary depending upon the amount outstanding and the applicable interest rate for any given month.


(hh)	The loan is collateralized by Northrock and requires monthly principal and interest payments of approximately $47,000 and a final payment of $14.2 million at maturity. Principal of $277,000 was amortized during 2014.


(ii)	The loan is collateralized by Metro Pike Center and requires monthly principal and interest payments of approximately $48,000 and a final payment of $14.8 million at loan maturity. Principal of $288,000 was amortized during 2014.

The carrying value of the properties collateralizing the mortgage notes payable totaled $895.5 million and $907.2 million, as of December 31, 2014 and 2013, respectively. The Company’s credit facility requires the Company and its subsidiaries to maintain certain financial covenants, which are summarized below. The Company was in compliance as of December 31, 2014.


•	maintain tangible net worth, as defined in the loan agreement, of at least $542.1 million plus 80% of the Company’s net equity proceeds received after March 2014;


•	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 1.3x on a trailing four-quarter basis (fixed charge coverage).

Mortgage notes payable at each of December 31, 2014 and 2013, totaling $51.0 million, are guaranteed by members of the Saul Organization. As of December 31, 2014, 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
2015	$	14,885		$	23,192	$	38,077
2016	28,879			23,496		52,375
2017	—			24,679		24,679
2018	70,748		(a)	24,822		95,570
2019	60,794			23,489		84,283
Thereafter	426,652			135,752		562,404
	$	601,958		$	255,430	$	857,388

(a) Includes $43.0 million outstanding under the line of credit.

The components of interest expense are set forth below.



(in thousands)	Year ended December 31,
	2014			2013			2012
Interest incurred	$	45,396		$	45,502		$	48,010
Amortization of deferred debt costs	1,327			1,257			1,576
Capitalized interest	(689		)	(170		)	(42		)
Total	$	46,034		$	46,589		$	49,544

Deferred debt costs capitalized during the years ending December 31, 2014, 2013 and 2012 totaled $1.3 million, $3.2 million and $2.2 million, respectively.