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the Federal Trade Commission’s 130,000 square foot lease at 601 Pennsylvania Avenue is the building’s only expiring lease through year end 2003. The National Gallery of Art has just occupied and begun paying rent on 36,000 square feet of this space, while leases have also been signed for an additional 20,000 square feet. A significant portion of the remaining 74,000 square feet is under negotiation. While rental income will not be received until the second half of 2003 or later for the remaining unleased space, the steady leasing pace is reflective of the prime location and quality of this asset. 

Including the 130,000 square feet of 601 Pennsylvania Avenue space, 206,000 square feet of office leases, or 17% of the total office portfolio, are scheduled to expire in 2003. A total of over 30% of this space has been leased as of March 1, 2003. 

## Capital Structure 

T his past year of heightened anxiety in the economy and the capital markets has resulted in a very favorable refinancing market due to the continuation of historically low long term interest rates. In January 2003, the Company completed a new $42.5 million permanent financing of its Washington Square development. Proceeds from the new loan were used to repay the project’s construction financing. The new loan matures in 15 years and has a very attractive 6.01% interest rate. With this new financing, Saul Centers’ outstanding debt now totals $382 million, with 88% of this debt 

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## MESSAGE TO OUR SHAREHOLDERS 

being fixed rate with an average 10-year life and weighted average 7.6% interest rate. Only $17 million of this fixed rate debt matures prior to 2011. 

During the summer of 2002, the Company renewed and expanded its revolving credit line. We closed a new $125 million unsecured credit line to provide the Company working capital and funds for redevelopment and acquisitions. The line has a three-year term and working capital availability is currently $34 million. An additional $45 million is available for funding operating property acquisitions. Currently, commercial investment property is expensively priced, thus limiting the availability of economically attractive operating property acquisitions; however, we continue to pursue opportunities as they arise. 

## Outlook for 2003 

In these times of uncertainty in the stock market, many investors have turned to real estate during the past few years to stabilize volatile portfolios with dividend paying REITs. With continued pressure on corporate earnings, lack of robust job growth and an uncertain economic recovery timeline, further improvement in real estate fundamentals remains in question. However, we remain confident in the long term cash flow growth potential of our portfolio and remain enthusiastically committed to our future development and redevelopment program. During the coming year, we look forward to building on our successes of 2002 and reacting to the continuing challenges of the retail and office marketplaces in order to create additional value for our shareholders. 

For the Board 

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March 5, 2003 

