GLENDALE, Calif. -- (Business Wire)
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.
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(2) | | |
Per share amounts are computed using additional dilutive shares
related to noncontrolling interests and restricted stock units.
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(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.
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View source version on businesswire.com: http://www.businesswire.com/news/home/20170425006924/en/
Contacts:
PS Business Parks, Inc.
Edward A. Stokx
(818) 244-8080, Ext.
1649
Source: PS Business Parks, Inc.
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