PS Business Parks, Inc. (NYSE:PSB) reported operating results
for the quarter ended March 31, 2017.
Net income allocable to common shareholders was
$26.4 million, or $0.97 per share, for the three months ended
March 31, 2017, an increase of $11.8 million, or
81.2%, from $14.6 million, or $0.54 per share, for the three
months ended March 31, 2016. The increase was due to an
increase in net operating income (“NOI”), gain on sale of
development rights in Silver Spring, Maryland, and reduced interest
expense resulting from the repayment of a $250.0 million
mortgage note.
Funds from operations (“FFO”) were $53.0 million, or $1.52
per share, for the three months ended March 31, 2017, an
increase of $9.3 million, or $0.26 per share, from the three
months ended March 31, 2016 of $43.7 million, or
$1.26 per share. The increase was due to an increase in NOI,
reduced interest expense and savings from lower preferred
distributions.
Same Park NOI increased $5.7 million, or 8.9%, for the
three months ended March 31, 2017 compared to the same
period in 2016. The increase in Same Park NOI was driven by
improving rental rates and occupancy as adjusted rental income (as
defined below) increased $4.8 million, or 5.0%, from
$95.0 million for the three months ended March 31, 2016 to
$99.8 million for the three months ended March 31, 2017. In
addition, adjusted cost of operations (as defined below) decreased
$934,000, or 3.0%, primarily as a result of a $1.4 million
reduction in snow removal costs.
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 acquired prior to January 1, 2015.
Operating properties acquired subsequently are referred to as
“Non-Same Park.” For the three months ended March 31, 2017 and
2016, the Same Park facilities constitute 27.9 million
rentable square feet, representing 99.3% of the 28.1 million
square feet in the Company’s total portfolio as of
March 31, 2017.
The following table presents the operating results of the
Company’s properties for the three months ended
March 31, 2017 and 2016 in addition to other income and
expense items affecting net income (unaudited, in thousands, except
per square foot amounts):
For the Three Months Ended
March 31, 2017 2016
Change Adjusted rental income: Same Park (27.9 million
rentable square feet) $ 99,770 $ 95,002 5.0 % Non-Same Park
(226,000 rentable square feet) 291 —
100.0 % Total adjusted rental income (1) 100,061
95,002 5.3 % Adjusted cost of operations: Same Park
29,883 30,817 (3.0 %) Non-Same Park 354 —
100.0 % Total adjusted cost of operations (2) 30,237
30,817 (1.9 %) Net operating income (3): Same
Park 69,887 64,185 8.9 % Non-Same Park (63 ) —
(100.0 %) Total net operating income 69,824
64,185 8.8 % Other: NOI from asset held for development
(1)(2) — 630 (100.0 %) LTEIP amortization: Cost of operations (796
) (864 ) (7.9 %) General and administrative (973 ) (1,604 ) (39.3
%) Facility management fees 128 128 — Other income and expense (79
) (2,923 ) (97.3 %) Depreciation and amortization (23,078 ) (25,041
) (7.8 %) Adjusted general and administrative (4) (1,858 ) (2,031 )
(8.5 %) Gain on sale of development rights 3,865
— 100.0 % Net income $ 47,033 $ 32,480
44.8 % Same Park gross margin (5) 70.0 % 67.6 % 3.6 % Same Park
weighted average occupancy 94.6 % 94.1 % 0.5 % Non-Same Park
weighted average occupancy 18.5 % 0.0 % 100.0 % Same Park
annualized realized rent per square foot (6) $ 15.16 $ 14.51 4.5 %
(1) Adjusted rental income excludes rental
income from an asset held for development of $843,000 for the three
months ended March 31, 2016. (2) Adjusted cost of operations
excludes Long-Term Equity Incentive Plan (“LTEIP”) amortization of
$796,000 and $864,000 for the three months ended March 31, 2017 and
2016, respectively, as well as cost of operations from an asset
held for development of $213,000 for the three months ended March
31, 2016. (3) NOI, a non-GAAP measure, is often used by investors
to determine the performance and value of commercial real estate.
Management believes that Same Park NOI, also a non-GAAP measure,
provides investors a useful measure for comparing the performance
of the Company’s commercial real estate portfolio across reporting
periods. The Company’s calculation of NOI and Same Park 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. (4) Adjusted general and
administrative expenses exclude LTEIP amortization of $973,000 and
$1.6 million for the three months ended March 31, 2017 and 2016,
respectively. (5) Computed by dividing Same Park NOI by Same Park
adjusted rental income. (6) Represents the annualized Same Park
adjusted rental income earned per occupied square foot.
Sale of Development
Rights
During the three months ended March 31, 2017, the
Company sold development rights it held to build medical office
buildings on land adjacent to its Westech Business Park in Silver
Spring, Maryland, for $6.5 million. The Company had acquired
the development rights as part of its 2006 acquisition of the park.
The Company recorded a gain of $3.9 million related to the
proceeds received less transaction costs. The Company will report
an additional gain of $2.5 million when the final proceeds are
received in the fourth quarter of 2017.
Financial Condition
The following are key financial ratios with respect to the
Company’s leverage as of and for the three months ended
March 31, 2017:
Ratio of Earnings to fixed charges (1) 112.9x
Ratio of FFO to fixed charges (1) 158.8x Ratio of Earnings
to combined fixed charges and preferred distributions (1) 3.4x
Ratio of FFO to combined fixed charges and preferred
distributions (1) 4.8x Debt and preferred equity to total
market capitalization (based on common stock price of $114.76 at
March 31, 2017) 20.0 % Available balance under the $250.0
million unsecured credit facility at March 31, 2017 $143.0 million
(1) Fixed charges include interest expense and
capitalized interest totaling $418,000.
Distributions Declared
On April 25, 2017, the Board of Directors declared a
quarterly dividend of $0.85 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 on June 29, 2017 to
shareholders of record on June 14, 2017.
Series
Dividend
Rate
Dividend
Declared
Series T 6.000% $0.375000 Series U 5.750% $0.359375 Series V 5.700%
$0.356250 Series W 5.200% $0.325000
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 March 31, 2017, the Company wholly owned
28.1 million rentable square feet with approximately 4,900
customers in six states.
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 first quarter operating results, is
available on the Company’s website at psbusinessparks.com.
A conference call is scheduled for Wednesday,
April 26, 2017, at 10:00 a.m. PDT (1:00 p.m. EDT) to
discuss the first quarter results. The toll free number is
(888) 299-3246; the conference ID is 3140328. 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
May 3, 2017 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)
March 31, December
31, 2017 2016 (Unaudited)
ASSETS Cash and cash equivalents $ 4,766 $ 128,629
Real estate facilities, at cost: Land 789,531 789,531
Buildings and improvements 2,231,748 2,226,881
3,021,279 3,016,412 Accumulated depreciation
(1,178,909 ) (1,159,808 ) 1,842,370 1,856,604 Land and
building held for development 28,276 27,028
1,870,646 1,883,632 Investment in and advances to
unconsolidated joint venture 82,104 67,190 Rent receivable, net
3,320 1,945 Deferred rent receivable, net 30,651 29,770 Other
assets 5,706 8,205 Total assets $
1,997,193 $ 2,119,371
LIABILITIES AND
EQUITY Accrued and other liabilities $ 75,824 $ 78,657
Preferred stock called for redemption — 230,000 Credit facility
107,000 — Total liabilities 182,824
308,657 Commitments and contingencies Equity: PS
Business Parks, Inc.’s shareholders’ equity: Preferred stock, $0.01
par value, 50,000,000 shares authorized, 35,190 shares issued and
outstanding at March 31, 2017 and December 31, 2016 879,750 879,750
Common stock, $0.01 par value, 100,000,000 shares authorized,
27,186,490 and 27,138,138 shares issued and outstanding at March
31, 2017 and December 31, 2016, respectively 271 271 Paid-in
capital 733,266 733,671 Cumulative net income 1,542,574 1,502,643
Cumulative distributions (1,539,444 ) (1,503,076 )
Total PS Business Parks, Inc.’s shareholders’ equity 1,616,417
1,613,259 Noncontrolling interests: Common units 197,952
197,455 Total noncontrolling interests
197,952 197,455 Total equity 1,814,369
1,810,714 Total liabilities and equity $
1,997,193 $ 2,119,371
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share
amounts)
For the Three Months Ended March 31,
2017 2016
Revenues: Rental income $ 100,061 $ 95,845 Facility management fees
128 128 Total operating revenues
100,189 95,973 Expenses: Cost of operations
31,033 31,894 Depreciation and amortization 23,078 25,041 General
and administrative 2,831 3,635 Total
operating expenses 56,942 60,570 Other
income and (expense): Interest and other income 105 267 Interest
and other expense (184 ) (3,190 ) Total other income
and (expense) (79 ) (2,923 ) Gain on sale of
development rights 3,865 — Net income $
47,033 $ 32,480 Net income allocation: Net
income allocable to noncontrolling interests: Noncontrolling
interests—common units $ 7,102 $ 3,936 Total net
income allocable to noncontrolling interests 7,102
3,936 Net income allocable to PS Business Parks,
Inc.: Preferred shareholders 13,291 13,833 Restricted stock unit
holders 248 142 Common shareholders 26,392
14,569 Total net income allocable to PS Business Parks, Inc.
39,931 28,544 $ 47,033 $ 32,480
Net income per common share: Basic $ 0.97 $ 0.54
Diluted $ 0.97 $ 0.54 Weighted average common shares
outstanding: Basic 27,148 27,043
Diluted 27,234 27,122
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 Ended March 31,
2017 2016
Computation of
Diluted Funds From Operations (1):
Net income allocable to common shareholders $ 26,392 $
14,569 Adjustments: Gain on sale of development rights (3,865 ) —
Depreciation and amortization 23,078 25,041 Net income allocable to
noncontrolling interests—common units 7,102 3,936 Net income
allocable to restricted stock unit holders 248
142 FFO allocable to common and dilutive shareholders $
52,955 $ 43,688 Weighted average common shares
outstanding 27,148 27,043 Weighted average common OP units
outstanding 7,305 7,305 Weighted average restricted stock units
outstanding 321 223 Weighted average common share equivalents
outstanding 86 79 Total common and
dilutive shares 34,860 34,650
Net income per common share—diluted $ 0.97 $ 0.54 Depreciation and
amortization (2) 0.66 0.72 Gain on sale of development rights (2)
(0.11 ) — FFO per common and dilutive share
(2) $ 1.52 $ 1.26
Computation of
Funds Available for Distribution ("FAD") (3):
FFO allocable to common and dilutive shares $ 52,955 $
43,688 Adjustments: Recurring capital improvements (645 ) (1,154 )
Tenant improvements (6,476 ) (3,319 ) Lease commissions (1,538 )
(1,821 ) Straight-line rent (881 ) (1,047 ) Non-cash stock
compensation expense 2,083 2,805 Cash paid for taxes in lieu of
shares upon vesting of restricted stock units (3,356 ) (1,758 )
In-place lease adjustment (25 ) (193 ) Tenant improvement
reimbursements, net of lease incentives (361 ) (423 ) Capitalized
interest (279 ) (394 ) FAD $ 41,477 $ 36,384
Distributions to common and dilutive shares $ 29,503
$ 25,901 Distribution payout ratio 71.1 % 71.2
% (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 U.S. generally accepted accounting principles (“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. Management believes that FFO
provides a useful measure of the Company’s operating performance
and when compared year over year, reflects the impact to operations
from trends in occupancy rates, rental rates, operating costs,
development activities, general and administrative expenses and
interest costs, providing a perspective not immediately apparent
from net income. FFO is a non-GAAP financial measure and 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, 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 of 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’
FFO. (2) Per share amounts are computed using additional
dilutive shares related to noncontrolling interests and restricted
stock units. (3) FAD is a non-GAAP financial measure that is
computed by adjusting 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 of preferred
equity. Like FFO, management considers FAD to be a useful measure
for investors to evaluate the Company’s operating performance on a
cash flow basis. FAD should not be viewed as a substitute for net
income or cash flow from operations as defined by GAAP.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425006924/en/
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