PS Business Parks Misses Q4 FFO, Offers Special Dividend - Analyst Blog

PS Business Parks Inc.’s (PSB) fourth-quarter 2014 funds from operations (“FFO”) per share of $1.14 missed the Zacks Consensus Estimate by 3 cents and the year-ago quarter figure by 26%.

Further, the company’s FFO, as adjusted, was $1.21 per share, down 4% year over year. While growth in rental income, backed by both Same Park and Non-Same Park portfolios, helped in augmenting revenues; higher expenses partly eroded that positive impact.

The board of directors also declared a one-time special cash dividend of $2.75 per common share. This came on the back of net taxable gains reaped from the sale of Milwaukie Business Park located in Milwaukie, OR; three business parks in Phoenix, AZ, and two business parks in Beaverton, OR.

In 2014, PS Business Parks reported FFO per share of $4.72 which missed the Zacks Consensus Estimate by 3 cents and the year-ago quarter figure by 0.2%.

Quarter in Detail

Total revenue declined 2.2% year over year to around $91.5 million. Further, it missed the Zacks Consensus Estimate of $93 million.

Rental income climbed 6.2% year over year to $90.2 million, primarily driven by an increase in rental revenues from Same Park and Non-Same Park portfolios. While the company experienced an occupancy rise in the Same-Park portfolio, acquisition of additional parks as well as increasing occupancy levels helped raise the rental income in the Non Same-Park facilities.

Annualized Same Park realized rent per square foot edged up 0.8% year over year to $14.34. Same Park weighted average occupancy in the quarter was 93.4%, up 160 basis points (bps) year over year, while Non-Same Park weighted average occupancy improved 700 bps year over year to 79.8%.

Total cost of operations grew 5.1% year over year to $28.0 million, reflecting a rise across both Same-Park and Non-Same Park portfolios. Consequently, total portfolio NOI increased 6.8% year over year to $62.2 million. To be specific, Same Park NOI was up 3.6% year over year to nearly $58.5 million, while Non-Same Park NOI increased substantially to $3.7 million from $1.8 million in the prior-year quarter.

Liquidity

PS Business Parks exited fourth-quarter 2014 with cash and cash equivalents of $152.5 million, higher than $57.5 million in the preceding quarter and $31.5 million as of Dec 31, 2013. At the end of the fourth quarter, the company had full capacity available under its $250 million unsecured credit facility.

Dividend Update

Concurrent with its fourth-quarter earnings release, the company announced a regular quarterly dividend of 50 cents per share. Moreover, the board of directors declared a one-time special cash dividend of $2.75 per common share. Both dividends are payable on Mar 31, 2015 to shareholders of record on Mar 16.

In Conclusion

PS Business Parks currently carries a Zacks Rank #3 (Hold). While the special cash dividend is encouraging, we anticipate the company’s continued divestitures to have a dilutive impact on its FFO per share, going forward. Also, stiff competition from commercial real estate properties operators poses a concern.

Investors interested in REITs may consider stocks like Ashford Hospitality Trust, Inc. (AHT), Sotherly Hotels Inc. (SOHO) and Summit Hotel Properties, Inc. (INN). All these stocks sport a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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