PS Business Parks, Inc. Reports Results for the First Quarter Ended March 31, 2013
PS Business Parks, Inc. Reports Results for the First Quarter Ended March 31, 2013
GLENDALE, Calif.--(BUSINESS WIRE)-- PS Business Parks, Inc. (NYS: PSB) reported operating results for the first quarter ended March 31, 2013.
Funds from operations ("FFO") allocable to common and dilutive shares were $38.1 million, or $1.20 per common and dilutive share for the three months ended March 31, 2013, a 2.6% per share increase from the three months ended March 31, 2012 of $37.1 million, or $1.17, as adjusted, per common and dilutive share before non-cash distributions. The increase in adjusted FFO per common and dilutive share for the three months ended March 31, 2013 over the same period in 2012 was primarily due to the increase in net operating income from Non-Same Park facilities combined with a decrease in interest expense partially offset by an increase in preferred equity distributions. Reported FFO allocable to common and dilutive shares for the three months ended March 31, 2012 was $31.9 million, or $1.01 per common and dilutive share.
Rental income increased $3.4 million, or 4.1%, from $84.7 million for the three months ended March 31, 2012 to $88.1 million for the three months ended March 31, 2013 primarily as a result of a $2.4 million increase in rental income from Non-Same Park facilities combined with a $1.0 million increase from the Same Park portfolio. The Same Park portfolio increase was driven by an increase in occupancy rates. Net income allocable to common shareholders increased $5.1 million, or 146.3%, from $3.5 million, or $0.14 per diluted share, for the three months ended March 31, 2012 to $8.5 million, or $0.35 per diluted share, for the three months ended March 31, 2013. The increase in net income allocable to common shareholders for the three months was primarily due to the net impact of non-cash preferred equity transactions related to first quarter of 2012 combined with an increase in net operating income and a decrease in interest expense.
In order to provide a meaningful period-to-period comparison of FFO derived from the Company's ongoing business operations, the following table reconciles reported FFO to adjusted FFO which excludes the impact of non-cash distributions related to the redemption of preferred equity on the Company's FFO per common and dilutive share for the three months ended March 31, 2013 and 2012:
For The Three Months | ||||||||||||
Ended March 31, | ||||||||||||
2013 | 2012 | Change | ||||||||||
FFO per common and dilutive share, as reported | $ | 1.20 | $ | 1.01 | 18.8 | % | ||||||
Non-cash distributions related to the redemption of preferred equity | — | 0.16 | ||||||||||
FFO per common and dilutive share, as adjusted | $ | 1.20 | $ | 1.17 | 2.6 | % | ||||||
Non-cash distributions related to the redemption of preferred equity of $5.3 million were included in net income allocable to preferred shareholders for the three months ended March 31, 2012.
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 Company defines Same Park to include all operating properties owned or acquired prior to January 1, 2011. Operating properties that the Company acquired subsequent to January 1, 2011 are referred to as "Non-Same Park." For the three months ended March 31, 2013 and 2012, the Same Park facilities constitute 21.4 million rentable square feet, representing 76.0% of the 28.2 million square feet in the Company's portfolio as of March 31, 2013.
The following table presents the operating results of the Company's properties for the three months ended March 31, 2013 and 2012 in addition to other income and expense items affecting income from continuing operations (unaudited, in thousands, except per square foot amounts):
For The Three Months | ||||||||||||||
Ended March 31, | ||||||||||||||
2013 | 2012 | Change | ||||||||||||
Rental income: | ||||||||||||||
Same Park (21.4 million rentable square feet) | $ | 74,275 | $ | 73,229 | 1.4 | % | ||||||||
Non-Same Park (6.8 million rentable square feet) | 13,845 | 11,448 | 20.9 | % | ||||||||||
Total rental income | 88,120 | 84,677 | 4.1 | % | ||||||||||
Cost of operations: | ||||||||||||||
Same Park | 25,160 | 24,482 | 2.8 | % | ||||||||||
Non-Same Park | 4,224 | 3,633 | 16.3 | % | ||||||||||
Total cost of operations | 29,384 | 28,115 | 4.5 | % | ||||||||||
Net operating income (1): | ||||||||||||||
Same Park | 49,115 | 48,747 | 0.8 | % | ||||||||||
Non-Same Park | 9,621 | 7,815 | 23.1 | % | ||||||||||
Total net operating income | 58,736 | 56,562 | 3.8 | % | ||||||||||
Other: | ||||||||||||||
Facility management fees | 158 | 166 | (4.8 | %) | ||||||||||
Other income and expense | (4,545 | ) | (5,305 | ) | (14.3 | %) | ||||||||
Depreciation and amortization | (26,961 | ) | (27,244 | ) | (1.0 | %) | ||||||||
General and administrative | (2,399 | ) | (2,273 | ) | 5.5 | % | ||||||||
Income from continuing operations | $ | 24,989 | $ | 21,906 | 14.1 | % | ||||||||
Same Park gross margin (2) | 66.1 | % | 66.6 | % | (0.8 | %) | ||||||||
Same Park weighted average occupancy | 92.0 | % | 91.6 | % | 0.4 | % | ||||||||
Non-Same Park weighted average occupancy | 80.9 | % | 81.0 | % | (0.1 | %) | ||||||||
Same Park annualized realized rent per square foot (3) | $ | 15.07 | $ | 14.93 | 0.9 | % | ||||||||
(1) | Net operating income ("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) | Same Park gross margin is computed by dividing Same Park NOI by Same Park rental income. | ||
(3) | Same Park annualized realized rent per square foot represents the annualized Same Park rental income earned per occupied square foot. |
Preferred Equity Transaction
On March 14, 2013, the Company issued $110.0 million or 4.4 million depositary shares, each representing 1/1,000 of a share of the 5.70% Cumulative Preferred Stock, Series V, at $25.00 per depositary share. The Company used the net proceeds from this issuance to reduce the Company's unsecured term loan to $90.0 million.
In connection with the reduction of the term loan, the Company recorded accelerated amortization of commitment fees of $183,000 as interest expense for the three months ended March 31, 2013.
Mortgage Notes Repayment
In January, 2013, the Company repaid two mortgage notes payable totaling $18.1 million with a combined stated interest rate of 5.60%.
Financial Condition
The following are key financial ratios with respect to the Company's leverage at and for the three months ended March 31, 2013:
Ratio of FFO to fixed charges (1) | 12.4x | |||||||||
Ratio of FFO to fixed charges and preferred distributions (1) | 3.1x | |||||||||
Debt and preferred equity to total market capitalization (based on common stock price of $78.92 at March 31, 2013) | 34.8% | |||||||||
Available balance under the $250.0 million unsecured credit facility at March 31, 2013 | $250.0 million | |||||||||
(1) Fixed charges include interest expense of $4.5 million. |
Distributions Declared
The Board of Directors declared a quarterly dividend of $0.44 per common share on May 6, 2013. 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 June 27, 2013 to shareholders of record on June 12, 2013.
Series | Dividend Rate | Dividend Declared | ||||||||||||||||||||
Series R | 6.875 | % | $ | 0.429688 | ||||||||||||||||||
Series S | 6.450 | % | $ | 0.403125 | ||||||||||||||||||
Series T | 6.000 | % | $ | 0.375000 | ||||||||||||||||||
Series U | 5.750 | % | $ | 0.359375 | ||||||||||||||||||
Series V | 5.700 | % | $ | 0.423542 | ||||||||||||||||||
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, 2013, the Company wholly owned 28.2 million rentable square feet with approximately 4,600 customers located in eight states, concentrated in California (11.1 million sq. ft.), Virginia (4.0 million sq. ft.), Florida (3.7 million sq. ft.), Texas (3.5 million sq. ft.), Maryland (2.4 million sq. ft.), Washington (1.5 million sq. ft.), Oregon (1.3 million sq. ft.) and Arizona (0.7 million sq. ft.).
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 Internet. The Company's website is www.psbusinessparks.com.
A conference call is scheduled for Tuesday, May 7, 2013, at 9:00 a.m. (PDT) to discuss the first quarter results. The toll free number is (888) 299-3246; the conference ID is 42313299. 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 14, 2013 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, | |||||||||
2013 | 2012 | |||||||||
(Unaudited) | ||||||||||
ASSETS | ||||||||||
Cash and cash equivalents | $ | 8,056 | $ | 12,883 | ||||||
Real estate facilities, at cost: | ||||||||||
Land | 787,425 | 793,352 | ||||||||
Buildings and equipment | 2,232,179 | 2,235,448 | ||||||||
3,019,604 | 3,028,800 | |||||||||
Accumulated depreciation | (966,049 | ) | (942,639 | ) | ||||||
2,053,555 | 2,086,161 | |||||||||
Land and building held for development | 22,248 | 6,829 | ||||||||
2,075,803 | 2,092,990 | |||||||||
Rent receivable | 6,263 | 4,754 | ||||||||
Deferred rent receivable | 25,935 | 25,329 | ||||||||
Other assets | 10,634 | 15,861 | ||||||||
Total assets | $ | 2,126,691 | $ | 2,151,817 | ||||||
LIABILITIES AND EQUITY | ||||||||||
Accrued and other liabilities | $ | 66,154 | $ | 69,454 | ||||||
Term loan | 90,000 | 200,000 | ||||||||
Mortgage notes payable | 250,000 | 268,102 | ||||||||
Total liabilities | 406,154 | 537,556 | ||||||||
Commitments and contingencies | ||||||||||
Equity: | ||||||||||
PS Business Parks, Inc.'s shareholders' equity: | ||||||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 39,800 and 35,400 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively | 995,000 | 885,000 | ||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 24,335,136 and 24,298,475 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively | 242 | 242 | ||||||||
Paid-in capital | 536,545 | 537,091 | ||||||||
Cumulative net income | 990,206 | 967,783 | ||||||||
Cumulative distributions | (968,973 | ) | (944,427 | ) | ||||||
Total PS Business Parks, Inc.'s shareholders' equity | 1,553,020 | 1,445,689 | ||||||||
Noncontrolling interests: | ||||||||||
Common units | 167,517 | 168,572 | ||||||||
Total noncontrolling interests | 167,517 | 168,572 | ||||||||
Total equity | 1,720,537 | 1,614,261 | ||||||||
Total liabilities and equity | $ | 2,126,691 | $ | 2,151,817 | ||||||
PS BUSINESS PARKS, INC. | ||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
(Unaudited, in thousands, except per share amounts) | ||||||||||
For The Three Months | ||||||||||
Ended March 31, | ||||||||||
2013 | 2012 | |||||||||
