MESSAGE MESSAGE TO OUR SHAREHOLDERS 10 We are prepared to fund future acquisition and development requirements as the opportunities  arise by utilizing our credit line. In January 2005   we executed a new $150 million unsecured revolving credit facility to replace our former line. With  no outstanding borrowings on the line  we have capacity to meet our capital requirements for  future developments and acquisitions. In February 2005  we commenced construction of a 22 000 square foot expansion to The Glen  a 112 000 square foot Safeway anchored shopping center located in Lake Ridge  Virginia. The Glen is currently 100% leased. The new shop space is 40% pre- leased and construction is scheduled to be completed  in September 2005. We continue to work on three additional development opportunities in the metropolitan Washington  DC area. We have 5.5 acres of undeveloped land remaining at the Broadlands Village shopping center  in Loudoun County  and are working to develop a final phase of approximately 30 000 square feet of retail shops and pad space. Approximately three miles away  we have recently received zoning approvals from Loudoun County for a 150 000 square foot neighborhood retail project in the Lansdowne community. We are negotiating a lease with a grocer to anchor the new community shopping center. Our third project is located in the popular Clarendon neighborhood of Arlington  Virginia. We continue to pursue zoning approvals for a significant mixed-use project on land we have assembled adjacent to the Clarendon Metro Station. Saul Centers has remained focused on executing  its long-term strategic plans to grow operating property income within the constraints of a prudent capital structure. We will continue to pursue selected development and acquisition opportunities. While today’s real estate investments currently command very low initial yields  we will and must maintain our discipline and allocate our capital to acquisitions only if we firmly believe in the long term viability of a sub- market and our ability to add value to the real estate over the coming years. During the latter half of 1997  we set in place a program to refinance our short-term  variable rate  debt with long-term  fixed-rate  non-recourse mortgage debt. As a result of consistently applying the program  we have reduced our exposure to short- term swings in interest rates and market liquidity. At year end 2004  debt balances totaled $454 million  100% of which was long-term  fixed-rate  non- recourse debt. The weighted average interest rate was 7.03% and the weighted average remaining  term was 9.9 years. Our debt to total assets ratio (leverage) is currently between 35% and 40%  well within our target maximum of 50%. Earnings before interest  depreciation and amortization (EBITDA) exceeded interest expense for 2004 by 3.1 times (interest expense coverage). B. Francis Saul II March 23  2005 For the Board Capital Structure Seven Corners