Share-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

6 Months Ended

Jun. 30, 2025

Share-Based Payment Arrangement [Abstract]

Share-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

In 2004, the Company established a stock incentive plan (the “Options Plan”), as amended. Under the Options 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 Options Plan was replaced with the Incentive Plan (as defined below) in May 2024.

The Company uses the fair value method to value and account for stock options. The fair value of options granted is determined at the time of the grant using the Black-Scholes model, a widely used method for valuing share-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 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, 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.

Pursuant to the Incentive Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries. 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 have their fees paid in shares, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the last trading day of the quarter to determine the number of shares to be credited to the director. The Company credited directors' deferred fee accounts with 6,166 and 4,933 shares for the six months ended June 30, 2025 and 2024, respectively, and issued 9,189 and 7,970 shares, respectively. As of June 30, 2025 and December 31, 2024, the directors’ deferred fee accounts comprise 122,894 and 125,917 shares, respectively.

Stock option expense totaling $0.1 million and $0.2 million for the three months ended June 30, 2025 and 2024, respectively, and $0.3 million and $0.4 million for the six months ended June 30, 2025 and 2024, respectively, was included in general and administrative expense in the Consolidated Statement of Operations. As of June 30, 2025, the estimated future expense related to nonvested stock options was approximately $0.7 million.

The table below summarizes the option activity for the six months ended June 30, 2025:


	Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding options at January 1	1,183,000	$	48.55	$	927,476
Options granted	—	—		—
Options exercised	—	—		—
Options expired/forfeited	(87,500)	51.07		—
Outstanding options at June 30	1,095,500	48.35		64,794
Exercisable options at June 30	966,375	49.56		36,881

The intrinsic value of stock options outstanding or exercisable measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. No options were exercised during the three and six months ended June 30, 2025 and 4,375 options were exercised during the three and six months ended June 30, 2024. At June 30, 2025, the final trading day of the 2025 second quarter, the closing share price of $34.14 was lower than the exercise price of 0.9 million outstanding options granted from 2016 through 2022. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is 4.8 years and 4.5 years, respectively.

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. Grants are split between time-vested and performance-based depending on to whom they are granted. Grants of time-vested restricted stock awards granted to officers will vest on an annual basis over five years. The performance-based restricted stock awards granted to officers will vest on the fifth anniversary of the award’s grant date. The performance measurement for the performance-based awards is the Company’s annual actual funds from operations compared to the annual funds from operations target established by the Board. Performance-based awards are earned on a sliding scale from 50% to 150% of the number of shares granted as the Company’s actual funds from operations scales from 90% to 110% of the Board’s established target, with a minimum result of 90% of the target required for the award to vest. Grants of time-vested restricted stock awards granted to directors vest on an annual basis over three years. On May 9, 2025, the Company granted 119,000 restricted shares to officers, divided equally between time-vested and performance-based awards, and 16,000 restricted shares to non-employee directors. 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.

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. The Company amortizes the value of granted restricted stock ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses. For accounting purposes, (a) time-vested restricted stock awards are treated as having been granted on the date the Board authorizes the grant and (b) performance-based restricted stock awards are treated as having been granted on the date the Board establishes the performance target.

Dividends on restricted stock awards will accrue commencing on the grant date and will be paid when the underlying shares vest. Restricted stock awards are measured at fair value, adjusted for estimated forfeitures. The cost of restricted stock compensation is charged to expense ratably from the grant date through the vesting date and will be adjusted periodically for changes in forfeiture estimates and, for performance-based awards, the impact of revised expectations of the Company’s results compared to the Board-established targets.

Restricted stock compensation expense totaled $0.3 million and $0.1 million for the three months ended June 30, 2025 and 2024, respectively, and $0.5 million and $0.1 million, for the six months ended June 30, 2025 and 2024, respectively, which was included in general and administrative expense in the Consolidated Statements of Operations. As of June 30, 2025, the estimated future expense related to nonvested restricted stock grants was approximately $4.6 million.

The table below summarizes the restricted stock activity for the six months ended June 30, 2025:


	Number of Shares	Weighted Average Estimated Fair Value Per Share		Grant Date Estimated Aggregate Fair Value
Nonvested restricted stock outstanding at January 1	105,750	$	35.20	$	3,722,660
Restricted stock granted	87,400	30.01		2,622,583
Restricted stock vested	(17,036)	37.56		(639,832)
Change in restricted stock awards based on performance	—	—		—
Restricted stock forfeited	(2,000)	37.44		(74,872)
Nonvested restricted stock outstanding at June 30	174,114	32.34		$	5,630,539
Authorized future restricted stock grants	82,700

The Company recognized total share-based compensation expense, inclusive of both stock options and restricted stock, totaling approximately $0.4 million and $0.5 million for the three months ended June 30, 2025 and 2024, respectively, and $0.8 million and $0.5 million for the six months ended June 30, 2025 and 2024, respectively, which was included in general and administrative expense in the Consolidated Statements of Operations. As of June 30, 2025, estimated future total share-based compensation expense related to nonvested awards under both plans is approximately $5.3 million.