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PS BUSINESS PARKS INC
Symbol	PSB
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PS Business Parks, Inc. Reports Results for the Quarter Ended March 31, 2016

2016-04-26 17:26 ET - News Release

GLENDALE, Calif. -- (Business Wire)

PS Business Parks, Inc. (NYSE:PSB) reported operating results for the quarter ended March 31, 2016.

Funds from operations (“FFO”) were $43.7 million, or $1.26 per share for the three months ended March 31, 2016, an increase of $4.7 million from the three months ended March 31, 2015 of $39.0 million, or $1.13 per share. The increase in FFO was due to an increase in net operating income (“NOI”) and savings from preferred distributions relating to the redemption of preferred equity partially offset by the impact of assets sold.

Same Park NOI increased $3.7 million, or 6.2%, for the three months ended March 31, 2016 compared to the same period in 2015. The increase in NOI was driven by improving occupancy and rental rates as rental income increased $4.3 million, or 4.8%, from $89.8 million for the three months ended March 31, 2015 to $94.1 million for the three months ended March 31, 2016.

Non-Same Park NOI increased $574,000, or 90.5%, for the three months ended March 31, 2016 compared to the same period in 2015 as a result of an increase in occupancy.

Net income allocable to common shareholders decreased $5.2 million, or 26.3%, from $19.8 million, or $0.73 per share, for the three months ended March 31, 2015 to $14.6 million, or $0.54 per share, for the three months ended March 31, 2016. This decrease was primarily due to the gain on sale of real estate facilities of $12.5 million that was realized in the first quarter of 2015, partially offset by the increase in NOI and reduction in preferred distributions.

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, 2014. Operating properties acquired subsequently are referred to as “Non-Same Park.” For the three months ended March 31, 2016 and 2015, the Same Park facilities constitute 27.3 million rentable square feet, representing 97.5% of the 28.0 million square feet in the Company’s total portfolio as of March 31, 2016.

The following table presents the operating results of the Company’s properties for the three months ended March 31, 2016 and 2015 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,
	2016			2015			Change
Rental income:
Same Park (27.3 million rentable square feet)	$	94,097		$	89,766		4.8	%
Non-Same Park (0.7 million rentable square feet)		1,748			1,161		50.6	%
Total rental income		95,845			90,927		5.4	%
Cost of operations:
Same Park		30,490			29,875		2.1	%
Non-Same Park		540			527		2.5	%
Total cost of operations		31,030			30,402		2.1	%
Net operating income ⁽¹⁾:
Same Park		63,607			59,891		6.2	%
Non-Same Park		1,208			634		90.5	%
Total net operating income		64,815			60,525		7.1	%
Other:
Net operating income from sold assets ⁽²⁾		—			776		(100.0	%)
LTEIP amortization ⁽³⁾:
Cost of operations		(864	)		(732	)	18.0	%
General and administrative		(1,604	)		(1,358	)	18.1	%
Facility management fees		128			147		(12.9	%)
Other income and expense		(2,923	)		(3,216	)	(9.1	%)
Depreciation and amortization		(25,041	)		(26,233	)	(4.5	%)
General and administrative		(2,031	)		(2,041	)	(0.5	%)
Gain on sale of real estate facilities		—			12,487		(100.0	%)
Net income	$	32,480		$	40,355		(19.5	%)
Same Park gross margin ⁽⁴⁾		67.6	%		66.7	%	1.3	%
Same Park weighted average occupancy		94.1	%		92.1	%	2.2	%
Non-Same Park weighted average occupancy		95.0	%		69.2	%	37.3	%
Same Park annualized realized rent per square foot ⁽⁵⁾	$	14.66		$	14.28		2.7	%

⁽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⁾			Represents NOI from sold assets in 2015. These assets generated rental income of $1.4 million for the three months ended March 31, 2015 and cost of operations of $612,000 for the three months ended March 31, 2015.
⁽³⁾			Senior Management Long-Term Equity Incentive Plan (“LTEIP”).
⁽⁴⁾			Computed by dividing Same Park NOI by Same Park rental income.
⁽⁵⁾			Represents the annualized Same Park rental income earned per occupied square foot.

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, 2016:

Ratio of FFO to fixed charges ⁽¹⁾

17x

Ratio of FFO to fixed charges and preferred distributions ⁽¹⁾

3.5x

Debt and preferred equity to total market capitalization (based on common stock price of $100.51 at March 31, 2016)

25.3%

Available balance under the $250.0 million unsecured credit facility at March 31, 2016

$250.0 million

⁽¹⁾			Fixed charges include interest expense and capitalized interest totaling $3.6 million.

Distributions Declared

On April 26, 2016, the Board of Directors declared a quarterly dividend of $0.75 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 30, 2016 to shareholders of record on June 15, 2016.

Series	Dividend Rate	Dividend Declared

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 March 31, 2016, the Company wholly owned 28.0 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 27, 2016, at 10:00 a.m. (PDT) to discuss the first quarter results. The toll free number is (888) 299-3246; the conference ID is 61552103. 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 4, 2016 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,
	2016			2015
	(Unaudited)
ASSETS

Cash and cash equivalents	$	195,254		$	188,912

Real estate facilities, at cost:
Land		793,569			793,569
Buildings and improvements		2,220,404			2,215,515
		3,013,973			3,009,084
Accumulated depreciation		(1,104,710	)		(1,082,603	)
		1,909,263			1,926,481
Land and building held for development		6,081			6,081
		1,915,344			1,932,562
Investment in unconsolidated joint venture		30,676			26,736
Rent receivable, net		3,055			2,234
Deferred rent receivable, net		29,374			28,327
Other assets		5,784			7,887

Total assets	$	2,179,487		$	2,186,658

LIABILITIES AND EQUITY

Accrued and other liabilities	$	74,194		$	76,059
Mortgage note payable		250,000			250,000
Total liabilities		324,194			326,059

Commitments and contingencies

Equity:
PS Business Parks, Inc.’s shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 36,800 shares issued and outstanding at March 31, 2016 and December 31, 2015		920,000			920,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 27,076,500 and 27,034,073 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		270			269
Paid-in capital		723,646			722,009
Cumulative net income		1,403,965			1,375,421
Cumulative distributions		(1,391,316	)		(1,357,203	)
Total PS Business Parks, Inc.’s shareholders’ equity		1,656,565			1,660,496

Noncontrolling interests:
Common units		198,728			200,103
Total noncontrolling interests		198,728			200,103
Total equity		1,855,293			1,860,599

Total liabilities and equity	$	2,179,487		$	2,186,658


PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share amounts)

	For the Three Months
	Ended March 31,
	2016			2015
Revenues:
Rental income	$	95,845		$	92,315
Facility management fees		128			147
Total operating revenues		95,973			92,462
Expenses:
Cost of operations		31,894			31,746
Depreciation and amortization		25,041			26,233
General and administrative		3,635			3,399
Total operating expenses		60,570			61,378
Other income and (expense):
Interest and other income		267			107
Interest and other expense		(3,190	)		(3,323	)
Total other income and (expense)		(2,923	)		(3,216	)

Gain on sale of real estate facilities		—			12,487

Net income	$	32,480		$	40,355

Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests—common units	$	3,936		$	5,364
Total net income allocable to noncontrolling interests		3,936			5,364
Net income allocable to PS Business Parks, Inc.:
Preferred shareholders		13,833			15,122
Restricted stock unit holders		142			98
Common shareholders		14,569			19,771
Total net income allocable to PS Business Parks, Inc.		28,544			34,991
	$	32,480		$	40,355

Net income per common share:
Basic	$	0.54		$	0.73
Diluted	$	0.54		$	0.73

Weighted average common shares outstanding:
Basic		27,043			26,925
Diluted		27,122			27,024


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,
	2016			2015
Computation of Diluted Funds From Operations ⁽¹⁾:

Net income allocable to common shareholders	$	14,569		$	19,771
Adjustments:
Gain on sale of real estate facilities		—			(12,487	)
Depreciation and amortization		25,041			26,233
Net income allocable to noncontrolling interests—common units		3,936			5,364
Net income allocable to restricted stock unit holders		142			98
FFO allocable to common and dilutive shares	$	43,688		$	38,979

Weighted average common shares outstanding		27,043			26,925
Weighted average common OP units outstanding		7,305			7,305
Weighted average restricted stock units outstanding		223			89
Weighted average common share equivalents outstanding		79			99
Total common and dilutive shares		34,650			34,418

Net income per common share—diluted	$	0.54		$	0.73
Depreciation and amortization ⁽²⁾		0.72			0.76
Gain on sale of real estate facilities⁽²⁾		—			(0.36	)
FFO per common and dilutive share, as reported ⁽²⁾	$	1.26		$	1.13

Computation of Funds Available for Distribution ("FAD") ⁽³⁾:

FFO allocable to common and dilutive shares	$	43,688		$	38,979

Adjustments:
Recurring capital improvements		(1,154	)		(1,117	)
Tenant improvements		(3,319	)		(6,800	)
Lease commissions		(1,821	)		(1,568	)
Straight-line rent		(1,047	)		(1,034	)
Non-cash stock compensation expense		337			314
Long-term equity incentive amortization		2,468			2,090
In-place lease adjustment		(193	)		(311	)
Tenant improvement reimbursements, net of lease incentives		(423	)		(397	)
Capitalized interest		(394	)		(260	)
FAD	$	38,142		$	29,896

Distributions to common and dilutive shares	$	25,901		$	17,179

Distribution payout ratio		67.9	%		57.5	%

⁽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 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 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’ FFO.

⁽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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160426006922/en/

Contacts:

PS Business Parks, Inc.
Edward A. Stokx
(818) 244-8080, Ext. 1649

Source: PS Business Parks, Inc.