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Jeremy Edwards/E+ via Getty Images Saul Centers ( NYSE: BFS ) is an old-line shopping center REIT with its properties concentrated in the Washington DC MSA. Despite its tenure, the company never really came across our radar because it consistently traded at a premium FFO multiple. Back in 2015 it traded at 20X while other shopping center REITs were far cheaper. S&P Global Market Intelligence Saul’s multiple dropped to about 11X during the pandemic but even that wasn’t cheap because REITs were so absurdly discounted in 2020 that we were buying other shopping centers at 8X or lower. Today, however, Saul trades at just over 12X FFO and 17X AFFO making it cheaper than the grocery-anchored shopping center averages of 14.6X and 17.8X FFO and AFFO respectively. It is now interesting as a potential way to buy prosperous Washington DC properties at a significant discount to replacement cost. We bought a tiny starter position in BFS and began our due diligence. We shall begin with a company overview of BFS and then follow with our analysis on fundamental outlook, valuation and the multitude of idiosyncratic factors to consider with this somewhat atypical company. Saul Centers Overview Saul Centers is a mid-cap REIT with properties consisting primarily of shopping centers with about a quarter of its portfolio in mixed-use apartment/office. BFS It has a few properties located along most of the East Coast, but the bulk of its assets are in DC. S&P Global Market Intelligence We see this as a great market for shopping centers because DC has higher median household income than any other state, coming in at $106,049. S&P Global Market Intelligence In combination with fairly high population density, Sauls’ shopping centers have access to a high number of affluent customers within their catchment radii. Since the company has been around for a long time, long-term charts of key metrics serve as a means of understanding its track record. FFO/share has grown moderately over time. S&P Global Market Intelligence For most real estate sectors the above growth would be quite slow, but recall that the period from 2007 through 2018 was the dark ages for retail real estate. Shopping centers were overbuilt heading into the Financial Crisis and then the already oversupplied sector had to battle the advent of E-commerce. Thus, while the growth rate was not impressive from a broader standpoint, it is more than adequate given the environment in which it was operating. As we have discussed more thoroughly here , fundamentals of the shopping center sector have improved dramatically. Shopping centers are now undersupplied and strong net absorption is allowing landlords to raise rents materially. Thus, the forward growth rate for shopping centers should be much higher than it was historically. This is showing up in the numbers with Saul achieving greater than 6% same-store NOI growth in the most recent quarter. S&P Global Market Ingelligence Its earnings were fairly typical of retail REITs in 2024 with rental rates getting rolled up upon renewal/re-leasing. Saul is among the more dividend focused shopping center REITs with a current yield of about 6%. Aside from a small cut from the Financial Crisis, Saul’s dividend has been stable to growing. S&P Global Market Intelligence Given the fundamental outlook, we see its forward dividend as quite reliable, making it a reasonable income investment. Growth Potential Occupancy is roughly full with the typical frictional level of vacancy, so most of Saul’s growth potential comes from rental rate growth. Saul’s rent per square foot is about $24 for its retail portfolio, which strikes me as well below market rates, particularly for the DC area. Saul’s leasing strategy is less aggressive than most with a clear preference to renew existing tenants rather than finding new tenants. Doing so allows them to forgo most of the tenant improvement costs and other capex but it likely leaves money on the table with regard to rental rates. 84.7% renewal rate is very high and I would argue a bit too high. BFS That said, the currently well below market rents can be unlocked in the future as rents roll. I would anticipate forward organic growth around 5% annually with some fluctuation based on the percentage of existing leases expiring each year. More expiration would translate to more growth given the magnitude of mark-to-market. Valuation Saul is quite discounted relative to its own history, but a purchase decision today is not based on it being a better buy than it was. The hurdle it must overcome is being better than shopping center peers. For this, we can turn to a relative valuation. As discussed above, Saul trades at a lower multiple than peers, but it also higher leverage than most of the sector. S&P Global Market Intelligence Below we plotted the AFFO multiple of each shopping center REIT on the Y axis against the debt to capital on the X axis. 2MC Those with higher leverage should trade at lower multiples and indeed they do as seen with the trendline. On a leverage neutral basis, Saul trades right in-line with peers. Absolute valuation is also worth considering here and it is perhaps the area where Saul looks more opportunistic. Consensus NAV is $52.50, so its $39.70 price tag represents a substantial discount. S&P Global Market Intelligence Analysts forming the consensus are using a 6.61% cap rate in valuing Saul’s properties and that feels about right given age, location and type. DC shopping centers would typically go for higher prices (maybe a 5.5% cap rate), but Saul’s properties are a bit higher average age which would pull the cap rate back up. Idiosyncratic oddities BFS is a quiet company. It doesn’t raise capital very often, so it operates more like a private company than a public. It doesn’t do quarterly conference calls and rarely puts out investor presentations. We have seen similar levels of quietness among One Liberty Properties ( OLP ) and Urstadt Biddle (UBA) prior to UBA being bought out. Another strange detail is that BFS has extremely high insider ownership. 35.5% of common shares are held by B.F. Saul Real Estate Investment Trust. An additional 3.14% of common shares are held by B. F. Saul Co. S&P Global Market Intelligence Additionally, there are 10 million OP units, many of which are owned by the Saul Family. S&P Global Market Intelligence Per the 10-Q: “As of September 30, 2024, 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”) held an aggregate 29.0% limited partnership interest in the Operating Partnership represented by approximately 10.0 million convertible limited partnership units. These 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 Company’s Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns or will own after the exercise, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers, excluding shares credited to directors’ deferred fee accounts (See Note 8). As of September 30, 2024, approximately 628,000 units could be converted into shares of Saul Centers common stock.” Insider ownership of this magnitude is a double-edged sword. On the positive side, management is financially aligned with shareholders and on the negative side, the Saul family has nearly impenetrable control of the company. It is difficult to say if this is overall positive or negative. Thus far, I have not been able to detect any signs of management abusing their entrenched position. It is merely something to make note of. Buyout potential Among the shopping center REITs a few stand out as the most ripe for getting bought out. Whitestone ( WSR ) has repeatedly been the subject of hostile takeover attempts Slate Grocery ( OTC:SRRTF ) and Saul each trade at steep discounts to NAV Due to its small size, Slate is a highly accretive acquisition target because there would be substantial opex savings. Saul stands out as a potential target due to its property concentration in DC. It is a highly desirable submarket and it would be difficult to otherwise assemble such a portfolio so the prospect of getting that exposure at a discount to NAV could be enticing to peer REITs or private equity. Overall take Saul’s valuation looks about right relative to its peers although I think the entire shopping center sector is opportunistic given the fundamental outlook being stronger than multiples imply. It has a strong property portfolio but some internal oddities which along with high leverage make it slightly riskier than peers. Overall, it is not a slam dunk but potentially a good investment. We will watch it and perhaps buy more if it gets cheaper or there are signs of more imminent M&A. Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. At Portfolio Income Solutions we do ad hoc analysis of special situations as well as full reports on specific stock. If you found this analysis compelling please check out our library of work which you can access at a discounted rate through this link. https://seekingalpha.com/affiliate_link/40Percent I hope you enjoy the plethora of data tables, sector analysis and deep dives into opportunistic stocks. Dane Bowler is the Chief Investment Officer and a registered investment adviser at the 2nd Market Capital Advisory Corporation. He has over a decade of experience running a proprietary portfolio with a specialization in REITs. On-site property tours and critical analysis of REIT management help inform his selection process. Dane leads the investing group Portfolio Income Solutions along with Simon and Ross Bowler. Features of the service include: a diversified high-yield REIT portfolio, data tables on every REIT, tax guidance, macro analysis, fair value estimates, and quick updates via chat on breaking news. Learn More . Analyst’s Disclosure: I/we have a beneficial long position in the shares of BFS, WSR, SRRTF, KIM, BRX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. All articles are published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.The information offered is impersonal and not tailored to the investment needs of any specific person. Readers should verify all claims and do their own due diligence before investing in any securities, including those mentioned in the article. NEVER make an investment decision based solely on the information provided in our articles.It should not be assumed that any of the securities transactions or holdings discussed were profitable or will prove to be profitable. Past Performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions.Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article.S&P Global Market Intelligence LLC. Contains copyrighted material distributed under license from S&P2nd Market Capital Advisory Corporation (2MCAC) is a Wisconsin registered investment advisor. Dane Bowler is an investment advisor representative of 2nd Market Capital Advisory Corporation. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.RJ Johnson, Daylen Berry lift Charleston Southern to surprising 83-79 victory over Miami
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By MICHELLE L. PRICE NEW YORK (AP) — Chad Chronister, Donald Trump’s pick to run the Drug Enforcement Administration, said Tuesday he was withdrawing his name from consideration, becoming the second person selected by the president-elect to bow out quickly after being nominated for a position requiring Senate confirmation. Sheriff Chronister, the top law enforcement officer in Hillsborough County, Florida, said in a post on X that he was backing away from the opportunity, which he called “the honor of a lifetime.” “Over the past several days, as the gravity of this very important responsibility set in, I’ve concluded that I must respectfully withdraw from consideration,” Chronister wrote. He did not elaborate, and Trump’s transition team did not immediately respond to a message seeking comment. Chronister follows former Republican congressman Matt Gaetz , Trump’s first pick to serve as attorney general, in withdrawing his name for a post in the administration. Gaetz withdrew following scrutiny over a federal sex trafficking investigation that cast doubt on his ability to be confirmed as the nation’s chief federal law enforcement officer. Trump’s pick of Chronister for the DEA job drew backlash from conservatives, who raised concerns over his actions during the COVID-19 pandemic and his saying that his office “does not engage in federal immigration enforcement activities.” In March 2020, Chronister arrested the pastor of a megachurch who held services with hundreds of people and violated a safer-at-home order in place aimed at limiting the spread of the Covid virus. “Shame on this pastor, their legal staff and the leaders of this staff for forcing us to do our job. That’s not what we wanted to do during a declared state of emergency,” Chronister said at the time. “We are hopeful that this will be a wakeup call.” U.S. Rep. Thomas Massie, R-Ky, was among those airing public complaints, saying Chronister should be “disqualified” for the arrest. Others flagged comments Chronister made in a video about Florida’s immigration laws that he released in 2023 that circulated again online after Trump named him last weekend. Related Articles National Politics | Trump team signs agreement to allow Justice to conduct background checks on nominees, staff National Politics | President-elect Donald Trump’s lawyers urge judge to toss his hush money conviction National Politics | Democrats stick with Schumer as leader, their strategy for countering Trump is far less certain National Politics | Trump vows to block Japanese steelmaker from buying US Steel, pledges tax incentives and tariffs National Politics | Democrats’ outgoing chair says Trump’s win forces party to reassess how it reaches voters In the video, Chronister praised the “rich diversity” of his community and called it “a place where people from all walks of life come together.” He said it was important to note his office “does not engage in federal immigration enforcement activities. We do not target individuals based on their immigration status. That’s the authority of federal agencies.” Trump has made a sweeping crackdown on immigration a central focus of his campaign and his aims for his coming administration. Associated Press writer Adriana Gomez Licon in Fort Lauderdale, Florida contributed to this report.
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