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PS Business Parks Beats on Q3 FFO and Revs

Zacks Equity Research

Real estate investment trust (:REIT) – PS Business Parks Inc.’s (PSB) third-quarter 2013 adjusted FFO (fund from operations) per share came in at $1.21, beating the Zacks Consensus Estimate by a penny. Also, it came 1.7% above the year-ago quarter figure of $1.19. 

An uptick in net operating income (:NOI) in Same Park as well as Non-Same Park facilities drove the year-over-year increase. However, rise in preferred equity distributions acted as the headwind.

Including the non-recurring items, FFO per share increased 13.2% to $1.20 from $1.06 in the prior-year period.

Total revenue in the reported quarter rose 3.2% year over year to $89.9 million and also exceeded the Zacks Consensus Estimate of $87 million.

Behind the Headlines

Rental income upped 3.2% year over year to $89.8 million during the quarter. This was driven by a significant increase in rental revenues from Non-Same Park (11.7%) as well as from Same Park properties (1.7%).

Annualized Same Park realized rent per square foot rose 1.2% year over year to $15.28. Same Park weighted average occupancy in the quarter was 92.0%, up 40 basis points (bps) year over year. Also, Non-Same Park weighted average occupancy upped 480 bps year over year to 85.0%.

Total cost of operations grew 2.1% year over year to $29.9 million. This was mainly due to 10.9% escalation in expenses at Non-Same Park facilities.

Consequently, total portfolio NOI rose 3.7% year over year to $59.9 million. In particular, Same Park NOI was up 2.2% year over year to $50.1 million while Non-Same Park NOI increased 12.1% year over year to $9.8 million.


Subsequent to the quarter end, PS Business Parks bought four multi-tenant flex parks with a 4-acre land parcel in Dallas, Texas. The assets, aggregating 559,000 square feet, were acquired for $27.9 million. The buyout included the purchase of 303,000 square feet of space in Valwood submarket, which made PS Business Parks the submarket’s largest owner of flex space.


At quarter end, PS Business Parks had cash and cash equivalents of nearly $18.0 million, compared to $18.8 million as of Jun 30, 2013. The company had full capacity available under the $250 million unsecured credit facility. Debt and preferred equity to market cap was 36.1% at quarter end, while ratio of FFO to fixed charges and preferred distributions was 3.0x.

Dividend Update

Concurrent with its earnings release, the board of directors of PS Business Parks declared a quarterly dividend of 44 cents per share on its common stock. This dividend will be paid on Dec 30, 2013 to shareholders of record as of Dec 13.

In Conclusion

We are encouraged by the decent quarterly results at PS Business Parks with healthy year-over-year increase in revenues and adjusted FFO per share. This REIT’s portfolio in diversified markets enables it to tap opportunities and neutralize the operating risks associated with the economic down cycles. Also, the recent acquisition augurs well for the company. Moreover, PS Business Parks has adequate liquidity to fund proposed investments.

However, if job cuts recur, operations in the company’s office portfolio are likely to suffer, thereby undermining its long-term growth potential.

PS Business Parks currently has a Zacks Rank #3 (Hold). We now look forward to the results of Public Storage (PSA), slated to release on Oct 31, which possesses a 41% common equity interest in PS Business Parks.

Other well performing REITs include Getty Realty Corp. (GTY) and Parkway Properties Inc. (PKY), both carrying 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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