PS Business Parks, Inc. Reports Results for the Quarter and Year Ended December 31, 2018

GLENDALE, Calif.–(BUSINESS WIRE)–PS Business Parks, Inc. (NYSE:PSB) reported operating results for the
quarter and year ended December 31, 2018.

Operating Results for the Three Months Ended
December 31, 2018

Net income allocable to common shareholders was $31.5 million, or $1.15
per diluted common share, for the three months ended December 31, 2018,
an increase of $10.3 million, or 48.9%, from $21.2 million, or $0.77 per
diluted common share, for the same period in 2017. The increase was
mainly due to the gain on the sale of an office park in Orange County,
California, a charge related to the redemption of preferred stock
incurred during the fourth quarter of 2017 that did not recur in the
fourth quarter of 2018 and an increase in net operating income
(“NOI”–described below) with respect to our real estate facilities. The
increase in NOI includes a $2.7 million increase, or 4.0%, for our Same
Park facilities (described below) 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 we sold in 2018.

Operating Results for the Year Ended December
31, 2018

Net income allocable to common shareholders was $172.9 million, or $6.31
per diluted common share, for the year ended December 31, 2018, an
increase of $82.5 million, or 91.2%, from $90.4 million, or $3.30 per
diluted common share, for the same period in 2017. The increase was
mainly due to the gain on the sale of three office parks in Orange
County, California, and an industrial park in Dallas, Texas, during
2018, charges related to the redemption of preferred stock incurred in
2017 that did not recur in 2018 and an increase in NOI with respect to
our real estate facilities. The increase in NOI includes a $7.1 million
increase, or 2.6%, for our Same Park facilities due primarily to 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 we sold in 2018.

Funds from Operations (“FFO”), Core FFO per
share and Funds Available for Distribution (“FAD”)

FFO per share was $1.65 for the three months ended December 31, 2018, as
compared to $1.40 for the same period in 2017, an increase of 17.9%. FFO
per share was $6.47 for the year ended December 31, 2018, as compared to
$5.83 for the year ended December 31, 2017, an increase of 11.0%. 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 and losses from sales and impairment charges
with respect to real estate assets.

Core FFO per share was $1.65 for the three months ended December 31,
2018, as compared to $1.52 for the same period in 2017, an increase of
8.6%. Core FFO per share was $6.47 for the year ended December 31, 2018,
as compared to $6.13 for the year ended December 31, 2017, an increase
of 5.5%. Core FFO per share is also a non-GAAP measure that represents
FFO per share excluding the impact of (i) charges related to the
redemption of preferred stock and (ii) compensatory arrangements related
to the departure of a senior executive.

FAD was $45.9 million for the three months ended December 31, 2018, as
compared to $43.0 million for the same period in 2017, an increase of
6.7%. FAD was $182.2 million for the year ended December 31, 2018, as
compared to $164.4 million for the year ended December 31, 2017, an
increase of 10.9%. FAD is a non-GAAP measure that represents Core FFO
adjusted to (a) deduct capital expenditures that maintain the real
estate values, tenant improvements and lease commissions and (b)
eliminate certain non-cash expenses or income such as straight-line rent
and non-cash stock compensation expense.

FFO, Core FFO per share and FAD are not substitutes for net income per
share. 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 terminology or may not present such a measure, so
comparisons of these measures among REITs may not be comparable. We
believe our presentations of FFO, Core FFO per share and FAD assist
investors and analysts in analyzing and comparing our operating and
financial performance between reporting periods.

Property Operations–Same Park Portfolio

The Company believes that evaluation of its Same Park portfolio, defined
as all properties owned and operated as of December 31, 2018 that were
acquired prior to January 1, 2016, provides an informative view of how
the Company’s portfolio has performed over comparable periods. As of
December 31, 2018, the Same Park facilities constitute 26.9 million
rentable square feet, representing 95.4% of the 28.2 million rentable
square feet in the Company’s total portfolio.

The following table presents the unaudited operating results of the
Company’s Same Park facilities for the three months and years ended
December 31, 2018 and 2017 (in thousands, except per square foot
amounts):

      For the Three Months             For The Years      
Ended December 31, Ended December 31,
2018       2017 Change 2018       2017 Change
Rental income $ 98,139 $ 97,211 1.0 % $ 392,149 $ 384,504 2.0 %
Adjusted cost of operations (1)
Property taxes 9,519 9,304 2.3 % 40,175 39,279 2.3 %
Utilities 5,422 5,393 0.5 % 22,437 21,934 2.3 %
Repairs and maintenance 6,158 7,877 (21.8 %) 24,569 25,832 (4.9 %)
Snow removal 76 63 20.6 % 910 544 67.3 %
Other expenses   6,710     7,005   (4.2 %)   27,511     27,466   0.2 %
Total   27,885     29,642   (5.9 %)   115,602     115,055   0.5 %
NOI (2) $ 70,254   $ 67,569   4.0 % $ 276,547   $ 269,449   2.6 %
 
Selected Statistical Data
NOI margin (3) 71.6 % 69.5 % 3.0 % 70.5 % 70.1 % 0.6 %
Weighted average square foot occupancy 95.2 % 95.1 % 0.1 % 94.9 % 94.4 % 0.5 %
Revenue per occupied square foot (4) $ 15.32 $ 15.20 0.8 % $ 15.36 $ 15.15 1.4 %
 
(1)     Adjusted cost of operations excludes Long-Term Equity Incentive Plan
(“LTEIP”) amortization, which can vary significantly period to
period based upon the performance of the Company. LTEIP amortization
included in our GAAP cost of operations was $305,000 and $564,000
for the three months ended December 31, 2018 and 2017, respectively,
and $1.3 million and $2.3 million for the years ended December 31,
2018 and 2017, respectively.
(2) We evaluate the performance of our business parks primarily based on
NOI, a non-GAAP financial measure. 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 items not related to the results of our
business parks, (ii) depreciation and amortization expense because
it does not accurately reflect changes in the value of our business
parks and (iii) LTEIP amortization as these items significantly vary
from period to period and thus impact comparability across periods.
(3) NOI margin is computed by dividing NOI by total rental income.
(4) Revenue per occupied square foot is computed by dividing total
rental income during the period by weighted average occupied square
feet during the same period. For the three month periods ending
December 31, 2018 and 2017, total rental income amounts have been
annualized.
 

The following table summarizes select unaudited 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 Full Year
Rental income
  2018 $ 98,022 $ 97,760 $ 98,228 $ 98,139 $ 392,149
2017 $ 95,756 $ 95,464 $ 96,073 $ 97,211 $ 384,504
 
Adjusted cost of operations
2018 $ 30,035 $ 28,865 $ 28,817 $ 27,885 $ 115,602
2017 $ 28,214 $ 28,008 $ 29,191 $ 29,642 $ 115,055
 
Weighted average square foot occupancy
2018 94.6 % 94.6 % 95.0 % 95.2 % 94.9 %
2017 94.6 % 93.7 % 94.1 % 95.1 % 94.4 %
 
Annualized revenue per occupied square foot
2018 $ 15.40 $ 15.36 $ 15.36 $ 15.32 $ 15.36
2017 $ 15.05 $ 15.15 $ 15.18 $ 15.20 $ 15.15
 

Distributions Declared

On February 20, 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 March 28, 2019 to
shareholders of record on March 13, 2019.

Company Information

PS Business Parks, Inc., a member of the S&P SmallCap 600, is a REIT
that acquires, develops, owns and operates commercial properties,
primarily multi-tenant industrial, flex and office space. As of December
31, 2018, the Company wholly owned 28.2 million rentable square feet
with approximately 5,050 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 fourth quarter operating results, is available
on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Thursday, February 21, 2019, at 10:00
a.m. PST (1:00 p.m. EST) to discuss fourth quarter results. The toll
free number is (800) 901-5382; the conference ID is PSBQ418. 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 March 7, 2019 at
(800) 753-9146, 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)
           
December 31,
2018 2017
(Unaudited)
ASSETS
 
Cash and cash equivalents $ 37,379 $ 114,882
 
Real estate facilities, at cost
Land 816,656 769,036
Buildings and improvements   2,374,943     2,156,862  
3,191,599 2,925,898
Accumulated depreciation   (1,241,116 )   (1,161,798 )
1,950,483 1,764,100
Properties held for sale, net 49,259
Land and building held for development   30,848     29,665  
1,981,331 1,843,024
Investment in and advances to unconsolidated joint venture 100,898
Rent receivable, net 1,403 1,876
Deferred rent receivable, net 33,308 32,062
Other assets   15,173     7,417  
Total assets $ 2,068,594   $ 2,100,159  
 
LIABILITIES AND EQUITY
 
Accrued and other liabilities $ 85,141 $ 80,223
Preferred stock called for redemption       130,000  
Total liabilities 85,141 210,223
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
December 31, 2018 and 2017, respectively 959,750 959,750
Common stock, $0.01 par value, 100,000,000 shares authorized,
27,362,101 and 27,254,607 shares issued and outstanding at
December 31, 2018 and 2017, respectively 274 272
Paid-in capital 736,131 735,067
Accumulated earnings (deficit)   69,207     (1,778 )
Total PS Business Parks, Inc.’s shareholders’ equity 1,765,362 1,693,311
Noncontrolling interests   218,091     196,625  
Total equity   1,983,453     1,889,936  
Total liabilities and equity $ 2,068,594   $ 2,100,159  
 
 
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
                       
For The Three Months For The Years
Ended December 31, Ended December 31,
2018 2017 2018 2017
 
Rental income $ 104,125 $ 101,837 $ 413,516 $ 402,179
 
Expenses
Cost of operations 30,637 32,378 126,547 125,340
Depreciation and amortization 25,737 23,805 99,242 94,270
General and administrative   3,056     2,660     10,155     9,679  
Total operating expenses   59,430     58,843     235,944     229,289  
 
Interest and other income 444 343 1,510 942
Interest and other expense (166 ) (313 ) (665 ) (1,285 )
Equity in loss of unconsolidated joint venture (47 ) (805 )
Gain on sale of real estate facilities 8,201 93,484 1,209
Gain on sale of development rights       2,500         6,365  
Net income 53,174 45,477 271,901 179,316
Allocation to noncontrolling interests   (8,385 )   (5,669 )   (45,199 )   (24,279 )
Net income allocable to PS Business Parks, Inc. 44,789 39,808 226,702 155,037
Allocation to preferred shareholders based upon
Distributions (12,959 ) (14,401 ) (51,880 ) (52,873 )

Redemptions

(4,078 ) (10,978 )
Allocation to restricted stock unit holders   (331 )   (179 )   (1,923 )   (761 )
Net income allocable to common shareholders $ 31,499   $ 21,150   $ 172,899   $ 90,425  
 
Net income per common share
Basic $ 1.15 $ 0.78 $ 6.33 $ 3.32
Diluted $ 1.15 $ 0.77 $ 6.31 $ 3.30
 
Weighted average common shares outstanding
Basic 27,353 27,255 27,321 27,207
Diluted 27,454 27,442 27,422 27,412
 
 
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 Years
Ended December 31, Ended December 31,
2018 2017 2018 2017
Net income allocable to common shareholders $ 31,499 $ 21,150 $ 172,899 $ 90,425
Adjustments
Gain on sale of real estate facilities and development rights (8,201 ) (2,500 ) (93,484 ) (7,574 )
Depreciation and amortization expense 25,737 23,805 99,242 94,270
Depreciation expense from unconsolidated joint venture 593 1,180
Net income allocated to noncontrolling interests 8,385 5,669 45,199 24,279
Net income allocated to restricted stock unit holders 331 179 1,923 761
FFO allocated to joint venture partner   (21 )       (13 )    
FFO allocable to common and dilutive shares (1) 57,730 48,896 225,766 203,341
Charge related to the redemption of preferred securities 4,078 10,978
Net impact due to a change in senior executive               (414 )
Core FFO allocable to common and dilutive shares (1) 57,730 52,974 225,766 213,905
Adjustments
Recurring capital improvements (3,734 ) (3,395 ) (10,751 ) (10,069 )
Tenant improvements (6,277 ) (4,837 ) (18,688 ) (28,294 )
Lease commissions (1,771 ) (2,315 ) (8,048 ) (7,477 )
Straight-line rent (736 ) (392 ) (3,061 ) (2,311 )
In-place lease adjustment 22 8 57 (18 )
Tenant improvement reimbursements, net of lease incentives (536 ) (528 ) (2,226 ) (2,182 )
Non-cash stock compensation expense 1,241 1,529 4,174 5,191
Cash paid for taxes in lieu of shares upon vesting of
restricted stock units (26 ) (4,981 ) (3,865 )
Capitalized interest               (506 )
FAD (2) $ 45,913   $ 43,044   $ 182,242   $ 164,374  
 
Distributions to common shares and units $ 36,707 $ 29,555 $ 132,739 $ 118,130
Distribution payout ratio 79.9 % 68.7 % 72.8 % 71.9 %
 
Reconciliation of Earnings per Share to FFO per Share
Net income per common share—diluted $ 1.15 $ 0.77 $ 6.31 $ 3.30
Gain on sale of real estate facilities and development rights (0.23 ) (0.07 ) (2.68 ) (0.21 )
Depreciation and amortization expense, including amounts
from unconsolidated joint venture   0.73     0.70     2.84     2.74  
FFO per share (1) $ 1.65   $ 1.40   $ 6.47   $ 5.83  
 
Core FFO per share (1) $ 1.65 $ 1.52 $ 6.47 $ 6.13
 
Weighted average outstanding:
Common shares 27,353 27,255 27,321 27,207
Operating partnership units 7,305 7,305 7,305 7,305
Restricted stock units 169 175 182 187
Common share equivalents   101     187     101     205  
Total common and dilutive shares   34,928     34,922     34,909     34,904  
 
(1)     FFO and Core FFO are defined above.
(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 Years
Ended December 31, Ended December 31,
2018 2017 Change 2018 2017 Change
Rental Income
Same Park $ 98,139 $ 97,211 1.0 % $ 392,149 $ 384,504 2.0 %
Non-Same Park 3,543 519 582.7 % 8,680 1,495 480.6 %
Multifamily 2,296 100.0 % 7,353 100.0 %
Assets sold or held for sale   147     4,107   (96.4 %)   5,334     16,180   (67.0 %)
Total rental income   104,125     101,837   2.2 %   413,516     402,179   2.8 %
 
Cost of operations
Adjusted Cost of Operations
Same Park 27,885 29,642 (5.9 %) 115,602 115,055 0.5 %
Non-Same Park 1,272 455 179.6 % 3,355 1,373 144.4 %
Multifamily 1,041 100.0 % 4,054 100.0 %
Assets sold or held for sale 134 1,717 (92.2 %) 2,268 6,581 (65.5 %)
LTEIP amortization   305     564   (45.9 %)   1,268     2,331   (45.6 %)
Total cost of operations   30,637     32,378   (5.4 %)   126,547     125,340   1.0 %
 
Net operating income
Same Park 70,254 67,569 4.0 % 276,547 269,449 2.6 %
Non-Same Park 2,271 64 3,448.4 % 5,325 122 4,264.8 %
Multifamily 1,255 100.0 % 3,299 100.0 %
Assets sold or held for sale 13 2,390 (99.5 %) 3,066 9,599 (68.1 %)
LTEIP amortization (305 ) (564 ) (45.9 %) (1,268 ) (2,331 ) (45.6 %)
Depreciation and amortization expense (25,737 ) (23,805 ) 8.1 % (99,242 ) (94,270 ) 5.3 %
General and administrative expense (3,056 ) (2,660 ) 14.9 % (10,155 ) (9,679 ) 4.9 %
Interest and other income 444 343 29.4 % 1,510 942 60.3 %
Interest and other expense (166 ) (313 ) (47.0 %) (665 ) (1,285 ) (48.2 %)
Equity in loss of unconsolidated joint venture (47 ) (100.0 %) (805 ) (100.0 %)
Gain on sale of real estate facilities 8,201 100.0 % 93,484 1,209 7,632.3 %
Gain on sale of development rights       2,500   (100.0 %)       6,365   (100.0 %)
Net income $ 53,174   $ 45,477   16.9 % $ 271,901   $ 179,316   51.6 %
 

Contacts

Jeff Hedges
(818) 244-8080, Ext. 1649

error: Content is protected !!