PS Business Parks, Inc. (NYSE:PSB) reported operating results
for the three months ended March 31, 2019.
Operating Results for the Three Months
Ended March 31, 2019
Net income allocable to common shareholders was
$26.3 million, or $0.96 per diluted common share, for the
three months ended March 31, 2019, a decrease of
$19.7 million, or 42.8%, from $46.0 million, or $1.69 per
diluted common share, for the same period in 2018. The decrease was
mainly due to the gain on sale of a real estate facility sold
during the first quarter of 2018 that did not recur in the first
quarter of 2019, partially offset by an increase in net operating
income (“NOI”) with respect to our real estate facilities. The
increase in NOI includes a $3.0 million, or 4.3%, increase
attributable to our Same Park facilities driven by an increase in
rental rates and occupancy, combined with increased NOI from our
Non-Same Park and multifamily assets, partially offset by reduced
NOI generated from facilities sold in 2018.
Funds from Operations (“FFO”), Core FFO
and Funds Available for Distribution (“FAD”)
FFO increased 5.2% during the three months ended March 31, 2019
compared to the same period in 2018, increasing to $1.67 per share
from $1.59 per share in the prior period. FFO is a non-GAAP
(generally accepted accounting principles) measure defined by the
National Association of Real Estate Investment Trusts and generally
represents GAAP net income before real estate depreciation and
amortization expense, gains or losses on sales of operating
properties and land and impairment charges on real estate
assets.
Core FFO per share was exactly equal to FFO per share for the
three months ended March 31, 2019 and 2018. Core FFO is also a
non-GAAP measure that represents FFO excluding the impact of (i)
charges related to the redemption of preferred stock and (ii)
nonrecurring income or expense items.
FAD was $46.2 million for the three months ended March 31, 2019,
as compared to $43.9 million for the same period in 2018, an
increase of 5.3%. FAD is a non-GAAP measure that represents Core
FFO adjusted to (a) deduct recurring capital improvements that
maintain our real estate condition, tenant improvements and lease
commissions and (b) eliminate certain non-cash income or expenses
such as straight-line rent and stock compensation expense.
FFO, Core FFO and FAD are not substitutes for GAAP net income.
Other real estate investment trusts (“REITs”) may compute these
measures differently; and, in the case of Core FFO and FAD, other
REITs may not use the same methodology which could inhibit
comparability. We believe our presentations of FFO, Core FFO and
FAD assist investors and analysts in analyzing and comparing our
operating and financial performance between reporting periods.
Property Operations–Same Park
Portfolio
We believe that evaluation of our Same Park portfolio, defined
as all properties owned and operated as of March 31, 2019 that were
acquired prior to January 1, 2017, provides an
informative view of how the Company’s portfolio has performed over
comparable periods. As of March 31, 2019, our Same Park facilities
constitute 27.1 million rentable square feet, or 96.1% of the
28.2 million rentable square feet in the Company’s total
portfolio, and excludes our 95.0% interest in our 395-unit
multifamily property.
The following table presents the unaudited operating results of
the Company’s Same Park facilities for the three months ended
March 31, 2019 and 2018 (in thousands, except per square foot
amounts):
For the Three Months
Ended March 31, 2019 2018 Change Rental
income $ 102,846 $ 98,630 4.3 % Adjusted cost of operations
(1) Property taxes 10,702 10,224 4.7 % Utilities 5,844 5,851 (0.1
%) Repairs and maintenance 6,247 6,112 2.2 % Snow removal 1,316 812
62.1 % Other expenses 6,962 6,839 1.8 %
Total 31,071 29,838 4.1 % NOI (1) (2) $
71,775 $ 68,792 4.3 %
Selected Statistical
Data NOI margin (3) 69.8 % 69.7 % 0.1 % Weighted average square
foot occupancy 94.5 % 94.2 % 0.3 % Annualized revenue per occupied
square foot (4) $ 16.04 $ 15.43 4.0 % Revenue per available foot
(RevPAF) (5) $ 15.16 $ 14.54 4.3 % (1) Adjusted cost of
operations, as presented above, excludes stock compensation expense
for employees whose compensation expense is recorded in cost of
operations, which can vary significantly period to period based
upon the performance of the Company. Beginning January 1, 2019, the
Company has recorded our divisional vice presidents’ compensation
costs within general and administrative expense as we determined
that the nature of these individuals’ responsibilities is more
consistent with corporate oversight as opposed to direct property
operations. As a result of this change, we have reclassified
divisional vice presidents’ compensation costs totaling $385,000
for the three months ended March 31, 2018 from adjusted cost of
operations into general and administrative expenses in order to
conform to the current period presentation. Non-cash compensation
expense for our divisional vice presidents, which totaled $159,000
for the three months ended March 31, 2018, had previously been
excluded from adjusted cost of operations. (2) We utilize NOI, a
non-GAAP financial measure, to evaluate the operating performance
of our business parks. We define NOI as rental income less adjusted
cost of operations. We believe NOI assists investors in analyzing
the performance and value of our business parks by excluding (i)
corporate overhead (i.e., general and administrative expenses)
because it does not relate to the results of our business parks,
(ii) depreciation and amortization expense because it does not
accurately reflect changes in the fair value of our business parks
and (iii) stock compensation expense because this expense item can
vary significantly from period to period and thus impact
comparability across periods. (3) NOI margin is computed by
dividing NOI by rental income. (4) Revenue per occupied square foot
is computed by dividing rental income during the period by weighted
average occupied square feet during the same period. For the three
month periods ending March 31, 2019 and 2018, rental income amounts
have been annualized. (5) Revenue per available foot is computed by
dividing rental income during the period by weighted average
available square feet during the same period. For the three month
periods ending March 31, 2019 and 2018, rental income amounts have
been annualized.
The following table summarizes unaudited selected quarterly
financial data with respect to the Same Park facilities (in
thousands, except per square foot amounts):
For the Three Months
Ended March 31 June 30 September 30
December 31 Rental income
2019
$ 102,846 $ — $ — $ — 2018 $ 98,630 $ 98,469 $ 99,066 $ 99,132
Adjusted cost of operations (1) 2019 $ 31,071
$ — $ — $ — 2018 $ 29,838 $ 28,718 $ 28,715 $ 27,716
Weighted average square foot occupancy 2019 94.5 % — — —
2018 94.2 % 94.3 % 94.8 % 95.1 %
Annualized revenue per
occupied square foot 2019 $ 16.04 $ — $ — $ — 2018 $ 15.43 $
15.40 $ 15.41 $ 15.36
RevPAF 2019 $ 15.16 $ — $ — $ —
2018 $ 14.54 $ 14.52 $ 14.61 $ 14.62 (1) Beginning January
1, 2019, the Company has recorded our divisional vice presidents’
compensation costs within general and administrative expense as we
determined that the nature of these individuals’ responsibilities
is more consistent with corporate oversight as opposed to direct
property operations. To conform to current period presentation, we
have reclassified divisional vice presidents’ compensation costs
totaling $385,000, $305,000, $294,000 and $294,000 for each of the
three months ended March 31, 2018, June 30, 2018, September 30,
2018 and December 31, 2018, respectively, from adjusted cost of
operations into general and administrative expenses. Non-cash
compensation expense for our divisional vice presidents had
previously been excluded from adjusted cost of operations.
Property Acquisition
Subsequent to March 31, 2019, we acquired a multi-tenant
industrial park comprised of approximately 74,000 rentable square
feet in Signal Hill, California, for a total purchase price of
$13.8 million. The portfolio consists of eight buildings and was
98.4% occupied as of the date of the acquisition. The eight
buildings are located in the Signal Hill industrial submarket where
we already own five industrial parks totaling 268,000 square
feet.
Distributions Declared
On April 23, 2019, the Board of Directors declared a
quarterly dividend of $1.05 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. Distributions
are payable on June 27, 2019 to shareholders of record on June
12, 2019.
Company Information
PS Business Parks, Inc., a member of the S&P MidCap 400, is
a REIT that acquires, develops, owns and operates commercial
properties, primarily multi-tenant industrial, flex and office
space. As of April 30, 2019, the Company wholly owned
28.3 million rentable square feet with approximately 5,100
commercial customers in six states and held a 95.0% interest in a
395-unit apartment complex.
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, May 1, 2019, at
10:00 a.m. PDT (1:00 p.m. EDT) to discuss first quarter results.
The toll free number is (877) 876-9173; the conference ID is
PSBQ119. 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 15, 2019 at (800) 753-8591, as well as via
webcast 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,
2019 2018 (Unaudited) ASSETS
Cash and cash equivalents $ 39,356 $ 37,379 Real estate
facilities, at cost Land 816,656 816,656 Buildings and improvements
2,382,274 2,374,943 3,198,930 3,191,599
Accumulated depreciation (1,265,133 ) (1,241,116 )
1,933,797 1,950,483 Land and building held for development
31,273 30,848 1,965,070 1,981,331 Rent
receivable, net 3,428 1,403 Deferred rent receivable, net 33,953
33,308 Other assets 14,812 15,173 Total
assets $ 2,056,619 $ 2,068,594
LIABILITIES
AND EQUITY Accrued and other liabilities $ 80,344
$ 85,141 Total liabilities 80,344 85,141 Commitments and
contingencies Equity PS Business Parks, Inc.’s shareholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized,
38,390 shares issued and outstanding at March 31, 2019 and December
31, 2018 959,750 959,750 Common stock, $0.01 par value, 100,000,000
shares authorized, 27,417,909 and 27,362,101 shares issued and
outstanding at March 31, 2019 and December 31, 2018, respectively
274 274 Paid-in capital 732,955 736,131 Accumulated earnings
67,059 69,207 Total PS Business Parks, Inc.’s
shareholders’ equity 1,760,038 1,765,362 Noncontrolling interests
216,237 218,091 Total equity
1,976,275 1,983,453 Total liabilities and
equity $ 2,056,619 $ 2,068,594
PS BUSINESS PARKS, INC.CONSOLIDATED
STATEMENTS OF INCOME(In thousands, except per share
amounts)(Unaudited)
For The Three Months Ended March
31, 2019 2018 Rental income $ 107,825 $
103,759 Expenses Cost of operations (1) 33,593 32,456
Depreciation and amortization 24,875 23,882 General and
administrative (1) 3,233 2,850 Total
operating expenses 61,701 59,188
Interest and other income 618 284 Interest and other expense (167 )
(165 ) Gain on sale of real estate facility —
26,835 Net income 46,575 71,525 Allocation to noncontrolling
interests (7,027 ) (11,900 ) Net income allocable to
PS Business Parks, Inc. 39,548 59,625 Allocation to preferred
shareholders (12,959 ) (13,003 ) Allocation to restricted stock
unit holders (268 ) (574 ) Net income allocable to
common shareholders $ 26,321 $ 46,048 Net
income per common share Basic $ 0.96 $ 1.69 Diluted $ 0.96 $ 1.69
Weighted average common shares outstanding Basic 27,373
27,267 Diluted 27,479 27,318 (1) We have reclassified our
divisional vice presidents’ compensation costs totaling $544,000
for the three months ended March 31, 2018, consisting of $385,000
of compensation costs and $159,000 of stock compensation expense,
from cost of operations into general and administrative expenses on
our consolidated statements of income in the three months ended
March 31, 2018 in order to conform to the current period
presentation.
PS BUSINESS PARKS, INC.Computation of
Funds from Operations (“FFO”) and Funds Available for Distribution
(“FAD”)(In thousands, except per share amounts)(Unaudited)
For The Three Months Ended March
31, 2019 2018 Net income allocable to common
shareholders $ 26,321 $ 46,048 Adjustments Gain on sale of real
estate facility — (26,835 ) Depreciation and amortization expense
24,875 23,882 Net income allocated to noncontrolling interests
7,027 11,900 Net income allocated to restricted stock unit holders
268 574 FFO (income) loss allocated to joint venture partner
(29 ) 13 FFO allocable to common and dilutive shares
(1) $ 58,462 $ 55,582 Core FFO allocable to
common and dilutive shares (1) $ 58,462 $ 55,582 Adjustments
Recurring capital improvements (1,180 ) (1,131 ) Tenant
improvements (3,551 ) (3,940 ) Lease commissions (1,956 ) (1,939 )
Straight-line rent (657 ) (735 ) In-place lease adjustment 21 7
Tenant improvement reimbursement amortization, net of lease
incentive amortization (379 ) (515 ) Non-cash stock compensation
expense 971 1,110 Cash paid for taxes in lieu of shares upon
vesting of restricted stock units (5,494 ) (4,529 )
FAD allocable to common and dilutive shares (2) $ 46,237 $
43,910 Distributions to common shareholders,
partnership unit holders and restricted stock unit holders $ 36,676
$ 29,676 Distribution payout ratio 79.3 % 67.6 %
Reconciliation of Earnings per Share to FFO per Share Net income
per common share—diluted $ 0.96 $ 1.69 Gain on sale of real estate
facility — (0.77 ) Depreciation and amortization expense
0.71 0.67 FFO per share (1) $ 1.67 $
1.59 Weighted average outstanding: Common shares
27,373 27,267 Operating partnership units 7,305 7,305 Restricted
stock units 140 246 Common share equivalents 106
51 Total common and dilutive shares 34,924
34,869 (1) FFO and Core FFO are defined
above. For the three months ended March 31, 2019 and 2018, Core FFO
was exactly equal to FFO as the Company did not incur any preferred
share redemption charges or nonrecurring income or expenses in
either period. (2) FAD is defined above.
PS BUSINESS PARKS, INC.Reconciliation of
Selected non-GAAP Measures to Analogous GAAP Measures(Unaudited, in
thousands)
For the Three Months Ended
March 31, 2019 2018 Change Rental income
Same Park $ 102,846 $ 98,630 4.3 % Non-Same Park 2,481 — 100.0 %
Multifamily 2,498 1,424 75.4 % Assets sold —
3,705 (100.0 %) Total rental income 107,825
103,759 3.9 % Cost of operations (1) Same Park
31,071 29,838 4.1 % Non-Same Park 1,145 — 100.0 % Multifamily 1,071
997 7.4 % Assets sold — 1,248 (100.0 %) Stock compensation expense
(2) 306 373 (18.0 %) Total cost of
operations 33,593 32,456 3.5 %
Net operating income (1) Same Park 71,775 68,792 4.3 % Non-Same
Park 1,336 — 100.0 % Multifamily 1,427 427 234.2 % Assets sold —
2,457 (100.0 %) Stock compensation expense (2) (306 ) (373 ) (18.0
%) Depreciation and amortization expense (24,875 ) (23,882 ) 4.2 %
General and administrative expense (1) (3,233 ) (2,850 ) 13.4 %
Interest and other income 618 284 117.6 % Interest and other
expense (167 ) (165 ) 1.2 % Gain on sale of real estate facility
— 26,835 (100.0 %) Net income $ 46,575
$ 71,525 (34.9 %) (1) We have reclassified our
divisional vice presidents’ compensation costs totaling $544,000
for the three months ended March 31, 2018 from cost of operations
into general and administrative expenses on our consolidated
statements of income in the three months ended March 31, 2018 in
order to conform to the current period presentation. Of this
amount, $159,000 of stock compensation expense had previously been
excluded from NOI. (2) Stock compensation expense, as shown here,
represents stock compensation expense for employees whose
compensation expense is recorded in cost of operations. Note that
stock compensation expense attributable to our executive management
team (including divisional vice presidents) and other corporate
employees is recorded within general and administrative expense.
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version on businesswire.com: https://www.businesswire.com/news/home/20190430006237/en/
Jeff Hedges(818) 244-8080, Ext. 1649
PS Business Parks (NYSE:PSB)
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