PS Business Parks, Inc. (NYSE:PSB) reported operating results
for the three and six months ended June 30, 2019.
Operating Results for the Three Months
Ended June 30, 2019
Net income allocable to common shareholders was $28.6 million,
or $1.04 per diluted common share, for the three months ended June
30, 2019, a decrease of $41.6 million, or 59.3%, from $70.2
million, or $2.56 per diluted common share, for the same period in
2018. The decrease was mainly due to the gain on sale of real
estate facilities sold during the second quarter of 2018 that did
not recur in the second 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 $3.4 million, or
5.2%, increase attributable to our Same Park facilities driven by
an increase in rental rates, combined with increased NOI from our
Non-Same Park and multifamily assets, partially offset by reduced
NOI generated from facilities sold in 2018 as well as assets held
for sale as of June 30, 2019.
Operating Results for the Six Months
Ended June 30, 2019
Net income allocable to common shareholders was $54.9 million,
or $2.00 per diluted common share, for the six months ended June
30, 2019, a decrease of $61.4 million, or 52.8%, from $116.3
million, or $4.24 per diluted common share, for the same period in
2018. The decrease was mainly due to the gain on sale of real
estate facilities sold during the first half of 2018 that did not
recur in 2019, partially offset by an increase in NOI with respect
to our real estate facilities. The increase in NOI includes a $6.2
million, or 4.8%, increase attributable to our Same Park facilities
driven by an increase in rental rates, 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 10.4% during the three months ended June 30, 2019
compared to the same period in 2018, increasing to $1.75 per share
from $1.59 per share in the prior period. FFO increased 7.8% during
the six months ended June 30, 2019 compared to the same period in
2018, increasing to $3.42 per share from $3.18 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 and six months ended June 30, 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, neither of which were
incurred by the Company during the three and six month periods
ended June 30, 2019 and 2018.
FAD was $52.3 million for the three months ended June 30, 2019
as compared to $46.8 million for the same period in 2018, an
increase of 11.6%. FAD was $98.5 million for the six months ended
June 30, 2019 as compared to $90.8 million for the same period in
2018, an increase of 8.5%. FAD is a non-GAAP measure that
represents Core FFO adjusted to (i) deduct recurring capital
improvements and capitalized tenant improvements and lease
commissions and (ii) 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 June 30, 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 June 30, 2019, our Same Park facilities constitute 25.8
million rentable square feet, or 91.2% of the 28.3 million rentable
square feet in the Company’s total portfolio, and excludes our
95.0% interest in our 395-unit multifamily property. Approximately
1.3 million square feet of flex and office business parks located
in Rockville and Silver Spring, Maryland have been classified as
held for sale as of June 30, 2019. As such, these parks have been
removed from Same Park results for the three and six months ended
June 30, 2019 and 2018.
The following table presents the unaudited operating results of
the Company’s Same Park facilities for the three and six months
ended June 30, 2019 and 2018 (in thousands, except per square foot
amounts):
For the Three Months
For The Six Months
Ended June 30,
Ended June 30,
2019
2018
Change
2019
2018
Change
Rental income (1)
$
95,945
$
91,942
4.4
%
$
191,638
$
183,620
4.4
%
Adjusted cost of operations (2)
Property taxes
10,129
9,764
3.7
%
20,337
19,512
4.2
%
Utilities
4,524
4,637
(2.4
%)
9,516
9,572
(0.6
%)
Repairs and maintenance
6,138
5,695
7.8
%
11,725
11,127
5.4
%
Snow removal
36
42
(14.3
%)
1,049
655
60.2
%
Other expenses
6,120
6,228
(1.7
%)
12,762
12,722
0.3
%
Total
26,947
26,366
2.2
%
55,389
53,588
3.4
%
NOI (2) (3)
$
68,998
$
65,576
5.2
%
$
136,249
$
130,032
4.8
%
Selected Statistical Data
NOI margin (4)
71.9
%
71.3
%
0.8
%
71.1
%
70.8
%
0.4
%
Weighted average square foot occupancy
94.3
%
94.5
%
(0.2
%)
94.5
%
94.5
%
0.0
%
Annualized revenue per occupied
square foot (5)
$
15.77
$
15.08
4.6
%
$
15.71
$
15.06
4.3
%
Revenue per available foot (RevPAF)
(6)
$
14.87
$
14.25
4.4
%
$
14.85
$
14.23
4.4
%
(1)
Same Park rental income includes lease buyout income of $780,000
and $122,000 for the three months ended June 30, 2019 and 2018,
respectively, and $957,000 and $250,000 for the six months ended
June 30, 2019 and 2018, respectively.
(2)
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 $289,000 and $655,000 for the three and six months ended
June 30, 2018, respectively, 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 $149,000 and $302,000 for
the three and six months ended June 30, 2018, respectively, had
previously been excluded from adjusted cost of operations.
(3)
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
direct operating performance 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.
(4)
NOI margin is computed by dividing NOI by rental income.
(5)
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 and six month periods ending
June 30, 2019 and 2018, rental income amounts have been
annualized.
(6)
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 and six month periods ending June
30, 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
$
95,693
$
95,945
$
—
$
—
2018
$
91,678
$
91,942
$
92,356
$
92,459
Adjusted cost of operations (1)
2019
$
28,442
$
26,947
$
—
$
—
2018
$
27,222
$
26,366
$
26,252
$
25,495
NOI (1)
2019
$
67,251
$
68,998
$
—
$
—
2018
$
64,456
$
65,576
$
66,104
$
66,964
Weighted average square foot
occupancy
2019
94.7
%
94.3
%
—
—
2018
94.5
%
94.5
%
95.1
%
95.4
%
Annualized revenue per occupied square
foot
2019
$
15.66
$
15.77
$
—
$
—
2018
$
15.04
$
15.08
$
15.05
$
15.01
RevPAF
2019
$
14.83
$
14.87
$
—
$
—
2018
$
14.21
$
14.25
$
14.31
$
14.33
(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 $366,000, $289,000,
$281,000 and $281,000 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.
Distributions Declared
On July 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
will be payable on September 27, 2019 to shareholders of record on
September 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 June 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 second quarter operating results, is
available on the Company’s website at psbusinessparks.com.
A conference call is scheduled for Wednesday, July 24, 2019, at
9:00 a.m. PDT (12:00 p.m. EDT) to discuss second quarter results.
The toll free number is (866) 342-8591; the conference ID is
PSBQ219. 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, 2019 at (800) 839-0866, 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)
June 30,
December 31,
2019
2018
(Unaudited)
ASSETS
Cash and cash equivalents
$
42,046
$
37,379
Real estate facilities, at cost
Land
772,399
762,731
Buildings and improvements
2,171,281
2,157,407
2,943,680
2,920,138
Accumulated depreciation
(1,135,107
)
(1,097,748
)
1,808,573
1,822,390
Properties held for sale, net
124,680
128,093
Land and building held for development
31,841
30,848
1,965,094
1,981,331
Rent receivable, net
2,308
1,403
Deferred rent receivable, net
34,572
33,308
Other assets
13,524
15,173
Total assets
$
2,057,544
$
2,068,594
LIABILITIES AND EQUITY
Accrued and other liabilities
$
80,367
$
85,141
Total liabilities
80,367
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
June 30, 2019 and December 31, 2018
959,750
959,750
Common stock, $0.01 par value, 100,000,000
shares authorized,
27,429,756 and 27,362,101 shares issued
and outstanding at
June 30, 2019 and December 31, 2018,
respectively
274
274
Paid-in capital
733,777
736,131
Accumulated earnings
67,049
69,207
Total PS Business Parks, Inc.’s
shareholders’ equity
1,760,850
1,765,362
Noncontrolling interests
216,327
218,091
Total equity
1,977,177
1,983,453
Total liabilities and equity
$
2,057,544
$
2,068,594
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share
amounts) (Unaudited)
For The Three Months
For The Six Months
Ended June 30,
Ended June 30,
2019
2018
2019
2018
Rental income
$
107,782
$
101,824
$
215,607
$
205,583
Expenses
Cost of operations(1)
31,460
30,796
65,053
63,252
Depreciation and amortization
24,768
24,416
49,643
48,298
General and administrative (1)
2,827
2,828
6,060
5,678
Total operating expenses
59,055
58,040
120,756
117,228
Interest and other income
764
294
1,382
578
Interest and other expense
(118
)
(167
)
(285
)
(332
)
Gain on sale of real estate facilities
—
58,448
—
85,283
Net income
49,373
102,359
95,948
173,884
Allocation to noncontrolling interests
(7,623
)
(18,400
)
(14,650
)
(30,300
)
Net income allocable to PS Business Parks,
Inc.
41,750
83,959
81,298
143,584
Allocation to preferred shareholders
(12,959
)
(12,959
)
(25,918
)
(25,962
)
Allocation to restricted stock unit
holders
(212
)
(779
)
(480
)
(1,353
)
Net income allocable to common
shareholders
$
28,579
$
70,221
$
54,900
$
116,269
Net income per common share
Basic
$
1.04
$
2.57
$
2.00
$
4.26
Diluted
$
1.04
$
2.56
$
2.00
$
4.24
Weighted average common shares
outstanding
Basic
27,426
27,322
27,400
27,294
Diluted
27,532
27,423
27,505
27,395
(1)
We have reclassified our divisional vice presidents’
compensation costs totaling $460,000 for the three months ended
June 30, 2018, consisting of $305,000 of compensation costs and
$155,000 of stock compensation expense, and $1.0 million for the
six months ended June 30, 2018, consisting of $690,000 of
compensation costs and $314,000 of stock compensation expense, from
cost of operations into general and administrative expenses on our
consolidated statements of income in the three and six months ended
June 30, 2018 in order to conform to the current period
presentation.
PS BUSINESS PARKS, INC.
Computation of Funds from Operations (“FFO”), Core FFO and Funds
Available for Distribution (“FAD”) (In thousands, except per share
amounts) (Unaudited)
For The Three Months
For The Six Months
Ended June 30,
Ended June 30,
2019
2018
2019
2018
Net income allocable to common
shareholders
$
28,579
$
70,221
$
54,900
$
116,269
Adjustments
Gain on sale of real estate facilities
—
(58,448
)
—
(85,283
)
Depreciation and amortization expense
24,768
24,416
49,643
48,298
Net income allocated to noncontrolling
interests
7,623
18,400
14,650
30,300
Net income allocated to restricted stock
unit holders
212
779
480
1,353
FFO (income) loss allocated to joint
venture partner
(37
)
(2
)
(66
)
11
FFO allocable to common and dilutive
shares (1)
$
61,145
$
55,366
$
119,607
$
110,948
Core FFO allocable to common and dilutive
shares (1)
$
61,145
$
55,366
$
119,607
$
110,948
Adjustments
Recurring capital improvements
(2,428
)
(2,329
)
(3,608
)
(3,460
)
Tenant improvements
(5,016
)
(3,817
)
(8,567
)
(7,757
)
Lease commissions
(1,417
)
(1,834
)
(3,373
)
(3,773
)
Straight-line rent
(652
)
(609
)
(1,309
)
(1,344
)
In-place lease adjustment
4
16
25
23
Tenant improvement reimbursement
amortization,
net of lease incentive amortization
(284
)
(619
)
(663
)
(1,134
)
Non-cash stock compensation expense
918
671
1,889
1,781
Cash paid for taxes in lieu of shares upon
vesting of
restricted stock units
(6
)
—
(5,500
)
(4,529
)
FAD allocable to common and dilutive
shares (2)
$
52,264
$
46,845
$
98,501
$
90,755
Distributions to common shareholders,
noncontrolling interests and
restricted stock unit holders
$
36,728
$
29,675
$
73,404
$
59,351
Distribution payout ratio
70.3
%
63.3
%
74.5
%
65.4
%
Reconciliation of Earnings per Share to
FFO per Share
Net income per common share—diluted
$
1.04
$
2.56
$
2.00
$
4.24
Gain on sale of real estate facilities
—
(1.67
)
—
(2.44
)
Depreciation and amortization expense
0.71
0.70
1.42
1.38
FFO per share (1)
$
1.75
$
1.59
$
3.42
$
3.18
Weighted average outstanding:
Common shares
27,426
27,322
27,400
27,294
Operating partnership units
7,305
7,305
7,305
7,305
Restricted stock units
109
156
132
189
Common share equivalents
106
101
105
101
Total common and dilutive shares
34,946
34,884
34,942
34,889
(1)
FFO and Core FFO are defined above. For the three and six months
ended June 30, 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
For The Six Months
Ended June 30,
Ended June 30,
2019
2018
Change
2019
2018
Change
Rental income
Same Park (1)
$
95,945
$
91,942
4.4
%
$
191,638
$
183,620
4.4
%
Non-Same Park
3,429
627
446.9
%
5,910
627
842.6
%
Multifamily
2,475
1,738
42.4
%
4,973
3,162
57.3
%
Assets sold or held for sale (2)
5,933
7,517
(21.1
%)
13,086
18,174
(28.0
%)
Total rental income
107,782
101,824
5.9
%
215,607
205,583
4.9
%
Cost of operations (3)
Same Park
26,947
26,366
2.2
%
55,389
53,588
3.4
%
Non-Same Park
1,024
224
357.1
%
2,167
224
867.4
%
Multifamily
1,002
973
3.0
%
2,073
1,970
5.2
%
Assets sold or held for sale (2)
2,192
2,899
(24.4
%)
4,823
6,763
(28.7
%)
Stock compensation expense (4)
295
334
(11.7
%)
601
707
(15.0
%)
Total cost of operations
31,460
30,796
2.2
%
65,053
63,252
2.8
%
Net operating income (3)
Same Park
68,998
65,576
5.2
%
136,249
130,032
4.8
%
Non-Same Park
2,405
403
496.8
%
3,743
403
828.8
%
Multifamily
1,473
765
92.5
%
2,900
1,192
143.3
%
Assets sold or held for sale (2) (5)
3,741
4,618
(19.0
%)
8,263
11,411
(27.6
%)
Stock compensation expense (4)
(295
)
(334
)
(11.7
%)
(601
)
(707
)
(15.0
%)
Depreciation and amortization expense
(24,768
)
(24,416
)
1.4
%
(49,643
)
(48,298
)
2.8
%
General and administrative expense (3)
(2,827
)
(2,828
)
(0.0
%)
(6,060
)
(5,678
)
6.7
%
Interest and other income
764
294
159.9
%
1,382
578
139.1
%
Interest and other expense
(118
)
(167
)
(29.3
%)
(285
)
(332
)
(14.2
%)
Gain on sale of real estate facilities
—
58,448
(100.0
%)
—
85,283
(100.0
%)
Net income
$
49,373
$
102,359
(51.8
%)
$
95,948
$
173,884
(44.8
%)
(1)
Same Park rental income includes lease buyout income of $780,000
and $122,000 for the three months ended June 30, 2019 and 2018,
respectively, and $957,000 and $250,000 for the six months ended
June 30, 2019 and 2018, respectively.
(2)
Amounts for the three and six months ended June 30, 2019 reflect
the operating results related to 1.3 million square feet of flex
and office assets held for sale as of June 30, 2019; amounts shown
for the three and six months ended June 30, 2018 reflect the
operating results related to 1.3 million square feet of flex and
office assets held for sale as of June 30, 2019 as well as
operating results related to 899,000 square feet of assets sold in
2018.
(3)
We have reclassified our divisional vice presidents’
compensation costs totaling $460,000 and $1.0 million for the three
and six months ended June 30, 2018, respectively, from cost of
operations into general and administrative expenses on our
consolidated statements of income in the three and six months ended
June 30, 2018 in order to conform to the current period
presentation. Of this amount, $155,000 and $314,000 of stock
compensation expense for the three and six months, respectively,
have previously been excluded from NOI.
(4)
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.
(5)
NOI from assets held for sale was $3.7 million and $4.2 million
for the three months ended June 30, 2019 and 2018, respectively,
and $8.3 million and $8.5 million for the six months ended June 30,
2019 and 2018, respectively. The three and six months 2018
remaining NOI balances relate to assets sold during 2018.
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Jeff Hedges (818) 244-8080, Ext. 1649
PS Business Parks (NYSE:PSB)
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