content_image/91253.jpg content_image/91254.jpg content_image/91255.jpg
Funds From Operations (FFO) increased 9.7% to $44,031,000 for the year ended December 31, 2002 compared to $40,141,000 for 2001. For the quarter ended December 31, 2002, FFO increased 4.8% to $11,221,000 compared to $10,705,000 for the 2001 quarter. On a fully diluted per share basis, FFO was $2.20 per share for 2002, a 6.0% increase over the prior year. For the quarter ended December 31, 2002, FFO per share increased 1.5% to $.55 per share over the comparable 2001 quarter. Approximately twenty percent of the annual FFO improvement was derived from increased property operating income at our 235,000 square foot Washington Square development. FFO is presented on a fully converted basis and is a widely accepted non-GAAP financial measure of operating performance for REITs. FFO is defined as net income before extraordinary items, gains and losses on property sales and before real estate depreciation and amortization. 

## Investment Performance 

D uring 2002, the Company paid four quarterly distributions of $0.39 per share to shareholders, of which 93.5% was taxable as ordinary income and 6.5% represented return of capital. The total annual $1.56 per share distribution equated to a 71% payout of the Company’s 2002 FFO. Our stock began the year at a price of $21.35 per share and ended 2002 at $23.80 per share. When combining dividend yield and price appreciation, Saul Centers posted a 19.5% total return in 2002, versus an average 3.6% for the NAREIT Equity Index and an 18% total return for the shopping center sector. Retail-focused REITs outperformed the overall REIT industry total return average for the second straight year. The Company’s five year annual average total return is 15.8%. Since public trading began in August 1993, Saul Centers has produced a compounded average annual total return of 11.8%. At year end 2002, the 6.6% dividend yield represents a spread of 2.6% over the benchmark 10 year Treasury yield, providing a very attractive risk- adjusted investment for yield oriented investors. 

## MESSAGE TO OUR SHAREHOLDERS 

The Company’s five year annual average total return is 15.8%. 

<img src='content_image/91253.jpg'>

<img src='content_image/91254.jpg'>

<img src='content_image/91255.jpg'>

