PS Business Parks, Inc. (NYSE:PSB) reported operating results
for the second quarter ended June 30, 2014.
Funds from operations (“FFO”) were $43.2 million, or $1.26
per share, as adjusted, for the three months ended June 30,
2014, an increase of $4.3 million, or 11.0%, from the three months
ended June 30, 2013 of $38.9 million, or $1.22 per share, as
adjusted. FFO was $85.2 million, or $2.48 per share, as
adjusted, for the six months ended June 30, 2014, an increase
of $7.1 million, or 9.1%, from the six months ended June 30, 2013
of $78.0 million, or $2.45 per share, as adjusted. The three and
six month increase in FFO was primarily the result of increases in
both Same Park and Non-Same Park net operating income (“NOI”).
Reported FFO per share for the three and six months ended June 30,
2014 compared to the same periods in 2013 was flat due to Long-Term
Equity Incentive Plan (“LTEIP”) amortization. Both adjusted and
reported FFO per share were impacted by an increase in shares
outstanding as a result of the November, 2013 common equity
offering.
In order to provide meaningful period-to-period comparisons of
FFO derived from the Company’s ongoing business operations, the
following table reconciles reported FFO to adjusted FFO, which
excludes LTEIP amortization for the three and six months ended June
30, 2014 and 2013:
For the Three
Months For the Six Months Ended June 30, Ended
June 30, 2014 2013 Change 2014
2013 Change FFO per share, as reported $ 1.19 $ 1.19
— $ 2.39 $ 2.39 — LTEIP amortization 0.07 0.03
0.09 0.06 FFO per share, as adjusted $ 1.26 $ 1.22 3.3% $
2.48 $ 2.45 1.2%
Noted in the table above are the following adjustments to
reconcile adjusted FFO to reported FFO. In March of 2014, the
Company put in place a new LTEIP and recorded $2.4 million and $3.2
million of amortization for the three and six months ended June 30,
2014 compared to $917,000 and $2.0 million for the three and six
months ended June 30, 2013 related to the previous LTEIP.
Rental income increased $6.1 million, or 6.9%, from
$87.9 million for the three months ended June 30, 2013 to
$94.0 million for the three months ended June 30, 2014 as a result
of a $4.0 million increase in rental income from Non-Same Park
facilities and a $2.0 million, or 2.3%, increase from the Same Park
portfolio. Rental income increased $13.3 million, or 7.5%, from
$176.1 million for the six months ended June 30, 2013 to
$189.3 million for the six months ended June 30, 2014 as a result
of an $8.5 million increase in rental income from Non-Same Park
facilities and a $4.7 million, or 2.7%, increase from the Same Park
portfolio. The Same Park increase was due to an increase in
occupancy, while the increase in Non-Same Park was due to a
combination of an increase in occupancy and the acquisition of
additional parks during the latter half of 2013.
Same Park operating expenses increased $315,000, or 1.1%, from
$27.9 million for the three months ended
June 30, 2013 to $28.2 million for the three months ended
June 30, 2014 primarily as a result of an increase in occupancy.
Same Park operating expenses increased $2.7 million, or 4.8%, from
$56.4 million for the six months ended June 30, 2013 to $59.1
million for the six months ended June 30, 2014 primarily as a
result of a $1.6 million increase in snow removal costs due to the
severe winter in Virginia and Maryland.
Net income allocable to common shareholders increased $1.1
million, or 12.8%, from $8.7 million, or $0.36 per share, for the
three months ended June 30, 2013 to $9.8 million, or $0.36 per
share, for the three months ended June 30, 2014. Net income
allocable to common shareholders increased $2.5 million, or 14.6%,
from $17.3 million, or $0.71 per share, for the six months ended
June 30, 2013 to $19.8 million, or $0.73 per share, for the six
months ended June 30, 2014. These increases were due to an increase
in NOI combined with a decrease in interest expense, partially
offset by an increase in depreciation expense.
All per share amounts noted above are presented on a diluted
basis.
Property Operations
To evaluate the performance of the Company’s portfolio over
comparable periods, management analyzes the operating performance
of properties owned and operated throughout both periods (herein
referred to as “Same Park”). The Same Park portfolio includes all
operating properties owned or acquired prior to
January 1, 2012. Operating properties that the Company
acquired subsequent to January 1, 2012 are referred to as “Non-Same
Park.” For the three and six months ended June 30, 2014 and 2013,
the Same Park facilities constitute 27.0 million rentable
square feet, representing 90.9% of the 29.7 million square feet in
the Company’s portfolio as of June 30, 2014.
The following table presents the operating results of the
Company’s properties for the three and six months ended June 30,
2014 and 2013 in addition to other income and expense items
affecting income from continuing operations (unaudited, in
thousands, except per square foot amounts):
For the Three Months
For the Six Months Ended June 30, Ended June
30, 2014 2013 Change 2014
2013 Change Rental income: Same Park (27.0 million
rentable square feet) $ 88,654 $ 86,645 2.3% $ 178,277 $ 173,569
2.7% Non-Same Park (2.7 million rentable square feet) 5,332
1,285 314.9% 11,030 2,481 344.6% Total rental
income 93,986 87,930 6.9% 189,307
176,050 7.5% Cost of operations: Same Park 28,246 27,931 1.1%
59,113 56,391 4.8% Non-Same Park 2,433 554 339.2%
4,681 1,113 320.6% Total cost of operations
30,679 28,485 7.7% 63,794 57,504 10.9% Net
operating income (1): Same Park 60,408 58,714 2.9% 119,164 117,178
1.7% Non-Same Park 2,899 731 296.6% 6,349
1,368 364.1% Total net operating income 63,307
59,445 6.5% 125,513 118,546 5.9% Other: LTEIP
amortization: Cost of operations (856) (235) 264.3% (1,185) (600)
97.5% General and administrative (1,518) (682) 122.6% (2,047)
(1,363) 50.2% Facility management fees 165 157 5.1% 331 315 5.1%
Other income and expense (3,308) (3,892) (15.0%) (6,622) (8,437)
(21.5%) Depreciation and amortization (28,295) (26,629) 6.3%
(56,736) (53,590) 5.9% General and administrative (1,845)
(1,688) 9.3% (3,803) (3,406) 11.7% Income from
continuing operations $ 27,650 $ 26,476 4.4%
$
55,451 $ 51,465 7.7% Same Park gross margin (2) 68.1% 67.8% 0.4%
66.8% 67.5% (1.0%) Same Park weighted average occupancy 92.5% 90.9%
1.8% 92.4% 90.9% 1.7% Non-Same Park weighted average occupancy
77.9% 61.9% 25.8% 76.7% 58.8% 30.4% Same Park annualized realized
rent per square foot (3) $ 14.19 $ 14.11 0.6%
$
14.28
$
14.13 1.1%
(1)
NOI is an important measurement in the
commercial real estate industry for determining the value of the
real estate generating the NOI. The Company’s calculation of NOI
may not be comparable to those of other companies and should not be
used as an alternative to measures of performance in accordance
with generally accepted accounting principles (“GAAP”).
(2)
Computed by dividing Same Park NOI by Same
Park rental income.
(3)
Represents the annualized Same Park rental
income earned per occupied square foot.
Property Acquisitions
On July 24, 2014, the Company acquired a 149,000 square foot
building in Miami, Florida, for $12.7 million. The building, which
is currently vacant, is a free standing building located within the
Company’s 3.3 million square foot Miami Industrial Commerce Center,
which is currently 98.1% leased.
On July 28, 2014, the Company acquired a 19,000 square foot
building in Dallas, Texas, for $1.1 million. The flex building,
which is 100.0% occupied, is located in the Company’s 389,000
square foot Arapaho Business Park.
Financial Condition
The following are key financial ratios with respect to the
Company’s leverage as of and for the three months ended June 30,
2014:
Ratio of FFO to fixed charges (1) 16.5x Ratio of FFO
to fixed charges and preferred distributions (1) 3.2x
Debt and preferred equity to total market
capitalization (based on common stock price of $83.49 at June 30,
2014)
30.4%
Available balance under the $250.0 million unsecured credit
facility at June 30, 2014 $250.0 million
(1)
Fixed charges include interest expense and
capitalized interest of $3.6 million.
Distributions Declared
On July 28, 2014, the Board of Directors declared a quarterly
dividend of $0.50 per common share. Distributions were also
declared on the various series of depositary shares, each
representing 1/1,000 of a share of preferred stock listed below.
Distributions are payable September 30, 2014 to shareholders of
record on September 15, 2014.
Series
Dividend
Rate
Dividend
Declared
Series R 6.875% $0.429688 Series S 6.450% $0.403125 Series T
6.000% $0.375000 Series U 5.750% $0.359375 Series V 5.700%
$0.356250
Company Information
PS Business Parks, Inc., a member of the S&P SmallCap 600,
is a self-advised and self-managed real estate investment trust
(“REIT”) that acquires, develops, owns and operates commercial
properties, primarily multi-tenant flex, office and industrial
space. The Company defines “flex” space as buildings that are
configured with a combination of office and warehouse space and can
be designed to fit a number of uses (including office, assembly,
showroom, laboratory, light manufacturing and warehouse space). As
of July 30, 2014, the Company wholly owned 29.9 million
rentable square feet with approximately 5,100 customers located in
eight states, concentrated in California (11.5 million sq. ft.),
Texas (4.7 million sq. ft.), Virginia (4.0 million sq. ft.),
Florida (3.9 million sq. ft.), Maryland (2.3 million sq. ft.),
Washington (1.5 million sq. ft.), Oregon (1.3 million sq. ft.) and
Arizona (0.7 million sq. ft.).
Forward-Looking
Statements
When used within this press release, the words “may,”
“believes,” “anticipates,” “plans,” “expects,” “seeks,”
“estimates,” “intends” and similar expressions are intended to
identify “forward-looking statements.” Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, which may cause the actual results and performance of the
Company to be materially different from those expressed or implied
in the forward-looking statements. Such factors include the impact
of competition from new and existing commercial facilities which
could impact rents and occupancy levels at the Company’s
facilities; the Company’s ability to evaluate, finance and
integrate acquired and developed properties into the Company’s
existing operations; the Company’s ability to effectively compete
in the markets that it does business in; the impact of the
regulatory environment as well as national, state and local laws
and regulations including, without limitation, those governing
REITs; the impact of general economic conditions upon rental rates
and occupancy levels at the Company’s facilities; the availability
of permanent capital at attractive rates, the outlook and actions
of Rating Agencies and risks detailed from time to time in the
Company’s SEC reports, including quarterly reports on Form 10-Q,
reports on Form 8-K and annual reports on Form 10-K.
Additional information about PS Business Parks, Inc., including
more financial analysis of the second quarter operating results, is
available on the Internet. The Company’s website is
www.psbusinessparks.com.
A conference call is scheduled for Thursday, July 31, 2014, at
10:00 a.m. (PDT) to discuss the second quarter results. The toll
free number is (888) 299-3246; the conference ID is 70833917. The
call will also be available via a live webcast on the Company’s
website. A replay of the conference call will be available through
August 7, 2014 at (855) 859-2056. A replay of the conference
call will also be available on the Company’s website.
Additional financial data attached.
PS BUSINESS PARKS,
INC.CONSOLIDATED BALANCE SHEETS(In thousands, except
share data)
June 30, December 31, 2014
2013 (Unaudited) ASSETS Cash and cash
equivalents $ 62,523 $ 31,481 Real estate facilities, at
cost: Land 790,346 790,346 Buildings and improvements
2,209,513 2,191,829 2,999,859 2,982,175 Accumulated
depreciation (992,793) (942,959) 2,007,066 2,039,216
Properties held for disposition, net 99,438 101,184 Land and
building held for development 23,472 22,253 2,129,976
2,162,653 Rent receivable 4,468 5,248 Deferred rent receivable
27,475 25,903 Other assets 7,034 13,274 Total
assets $ 2,231,476 $ 2,238,559
LIABILITIES AND EQUITY
Accrued and other liabilities $ 69,813 $ 73,919 Mortgage
note payable 250,000 250,000 Total liabilities
319,813 323,919 Commitments and contingencies Equity:
PS Business Parks, Inc.’s shareholders’ equity: Preferred stock,
$0.01 par value, 50,000,000 shares authorized, 39,800 shares issued
and outstanding at June 30, 2014 and December 31, 2013 995,000
995,000 Common stock, $0.01 par value, 100,000,000 shares
authorized, 26,904,436 and 26,849,822 shares issued and outstanding
at June 30, 2014 and December 31, 2013, respectively 268 267
Paid-in capital 704,343 699,314 Cumulative net income 1,121,054
1,070,975 Cumulative distributions (1,104,752)
(1,047,615) Total PS Business Parks, Inc.’s shareholders’ equity
1,715,913 1,717,941 Noncontrolling interests: Common units
195,750 196,699
Total noncontrolling interests
195,750 196,699 Total equity 1,911,663
1,914,640 Total liabilities and equity $ 2,231,476 $
2,238,559
PS BUSINESS PARKS,
INC.CONSOLIDATED STATEMENTS OF INCOME(Unaudited, in
thousands, except per share amounts)
For the Three Months For the
Six Months Ended June 30, Ended June 30,
2014 2013 2014 2013 Revenues: Rental
income $ 93,986 $ 87,930 $ 189,307 $ 176,050 Facility management
fees 165 157 331 315 Total operating
revenues 94,151 88,087 189,638 176,365
Expenses: Cost of operations 31,535 28,720 64,979 58,104
Depreciation and amortization 28,295 26,629 56,736 53,590 General
and administrative 3,363 2,370 5,850
4,769 Total operating expenses 63,193 57,719
127,565 116,463 Other income and (expense): Interest and
other income 95 69 157 112 Interest and other expense
(3,403) (3,961) (6,779) (8,549) Total other
income and (expense) (3,308) (3,892) (6,622)
(8,437) Income from continuing operations 27,650
26,476 55,451 51,465 Net income $ 27,650 $
26,476 $ 55,451 $ 51,465 Net income allocation: Net income
allocable to noncontrolling interests: Noncontrolling interests —
common units $ 2,669 $ 2,613 $ 5,372 $ 5,179 Total net income
allocable to noncontrolling interests 2,669 2,613
5,372 5,179 Net income allocable to PS Business
Parks, Inc.: Preferred shareholders 15,122 15,122 30,244 28,972
Restricted stock unit holders 33 30 69 63 Common shareholders
9,826 8,711 19,766 17,251 Total net
income allocable to PS Business Parks, Inc. 24,981
23,863 50,079 46,286 $ 27,650 $ 26,476 $ 55,451 $
51,465 Net income per common share: Basic $ 0.37 $ 0.36 $
0.74 $ 0.71 Diluted $ 0.36 $ 0.36 $ 0.73 $ 0.71 Weighted
average common shares outstanding: Basic 26,899
24,358 26,881 24,333 Diluted 26,999
24,470 26,981 24,441
PS BUSINESS PARKS,
INC.Computation of Diluted Funds from Operations and Funds
Available for Distribution(Unaudited, in thousands, except
per share amounts)
For the Three Months For the
Six Months Ended June 30, Ended June 30,
2014 2013 2014 2013
Computation of
Diluted Funds From Operations (1):
Net income allocable to common shareholders $ 9,826 $ 8,711
$ 19,766 $ 17,251 Adjustments: Depreciation and amortization 28,295
26,629 56,736 53,590 Net income allocable to noncontrolling
interests — common units 2,669 2,613 5,372 5,179 Net income
allocable to restricted stock unit holders 33 30
69 63 FFO allocable to common and dilutive shares $
40,823 $ 37,983 $ 81,943 $ 76,083 Weighted average common
shares outstanding 26,899 24,358 26,881 24,333 Weighted average
common OP units outstanding 7,305 7,305 7,305 7,305 Weighted
average restricted stock units outstanding 56 92 56 95 Weighted
average common share equivalents outstanding 100 112
100 108 Total common and dilutive shares
34,360 31,867 34,342 31,841 Net income
per common share — diluted $ 0.36 $ 0.36 $ 0.73 $ 0.71 Depreciation
and amortization (2) 0.83 0.83 1.66
1.68 FFO per common and dilutive share, as reported (2) $ 1.19 $
1.19 $ 2.39 $ 2.39
Computation of
Funds Available for Distribution (“FAD”)
(3):
FFO allocable to common and dilutive shares $ 40,823 $
37,983 $ 81,943 $ 76,083 Adjustments: Recurring capital
improvements (2,534) (2,695) (3,781) (3,604) Tenant improvements
(6,348) (7,161) (11,538) (12,953) Lease commissions (1,884) (2,245)
(5,144) (4,460) Straight-line rent (497) (258) (1,682) (864)
Non-cash stock compensation expense 294 288 666 665 Long-term
equity incentive amortization 2,374 917 3,232 1,963 In-place lease
adjustment (244) 49 (441) 121 Tenant improvement reimbursements,
net of lease incentives (401) (348) (839) (625) Capitalized
interest (233) — (457) — FAD $ 31,350 $
26,530 $ 61,959 $ 56,326 Distributions to common and
dilutive shares $ 17,135 $ 13,971 $ 34,267 $ 27,914
Distribution payout ratio 54.7% 52.7% 55.3%
49.6%
(1)
FFO is computed in accordance with the
White Paper on FFO approved by the Board of Governors of the
National Association of Real Estate Investment Trusts (“NAREIT”).
The White Paper defines FFO as net income, computed in accordance
with GAAP, before depreciation, amortization, gains or losses on
asset dispositions, net income allocable to noncontrolling
interests — common units, net income allocable to restricted stock
unit holders, impairment charges and nonrecurring items. FFO should
be analyzed in conjunction with net income. However, FFO should not
be viewed as a substitute for net income as a measure of operating
performance or liquidity as it does not reflect depreciation and
amortization costs or the level of capital expenditure and leasing
costs necessary to maintain the operating performance of the
Company’s properties, which are significant economic costs and
could materially impact the Company’s results from operations.
Other REITs may use different methods for calculating FFO and,
accordingly, the Company’s FFO may not be comparable to other real
estate companies.
(2)
Per share amounts are computed using
additional dilutive shares related to noncontrolling interests and
restricted stock units.
(3)
FAD is computed by adjusting consolidated
FFO for recurring capital improvements, which the Company defines
as those costs incurred to maintain the assets’ value, tenant
improvements, lease commissions, straight-line rent, stock
compensation expense, in-place lease adjustment, amortization of
lease incentives and tenant improvement reimbursements, capitalized
interest and the effect of redemption/repurchase of preferred
equity. Like FFO, the Company considers FAD to be a useful measure
for investors to evaluate the operations and cash flows of a REIT.
FAD does not represent net income or cash flow from operations as
defined by GAAP.
PS Business Parks, Inc.Edward A. Stokx, 818-244-8080, Ext.
1649
PS Business Parks (NYSE:PSB)
Historical Stock Chart
From Mar 2024 to Apr 2024
PS Business Parks (NYSE:PSB)
Historical Stock Chart
From Apr 2023 to Apr 2024