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PS Business Parks Prices Stock Offering

Zacks Equity Research

PS Business Parks Inc. (PSB) announced the equity offering of 1.3 million shares at $79.25 each on Nov 5. The company also granted the underwriters an option to buy additional shares of up to 0.2 million. The offering is anticipated to complete on Nov 7, 2013, upon fulfillment of customary closing conditions.

Shares of the company on Nov 5 closed at $79.25 reflecting 2.7% decrease over the prior day closing. However, the shares recovered slightly in yesterday’s trading (by 0.10%) to $79.33.

This real estate investment trust (:REIT) expects to reap around $103.0 million (before the underwriting discount and estimated offering expenses) in gross proceeds from the offering. Concurrently, Public Storage (PSA) – which possesses a 43% common equity interest in PS Business Parks – decided to buy 0.95 million shares of PS Business Parks at $79.25 per share for a total of $75.3 million.

PS Business Parks expects to use the proceeds from both the transactions – the public offering and sale of shares to Public Storage – to mainly pay off its outstanding debt of $90 million under a term loan. The remaining amount will be utilized for meeting other corporate needs, including commercial assets’ acquisition.

Goldman, Sachs & Co. – a subsidiary of The Goldman Sachs Group, Inc. (GS) – supported PS Business Parks as the sole underwriter for the offering. Although these offerings will result in share dilution for the company, the payment of debt is encouraging as it will reduce interest expenses. Also, strategic investments will help PS Business Parks enhance its portfolio quality.

Last month, PS Business Parks reported its third-quarter 2013 results with adjusted FFO (fund from operations) per share of $1.21, beating the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 2 cents. 

An uptick in net operating income in Same Park as well as Non-Same Park facilities aided the results. Yet, rise in preferred equity distributions acted as the headwind. Notably, at quarter end, PS Business Parks’ cash and cash equivalents stood at nearly $18.0 million and it had full capacity available under the $250 million unsecured credit facility.

PS Business Parks currently has a Zacks Rank #3 (Hold). However, another REIT that is performing well and deserves a look is Cousins Properties Inc. (CUZ), which carries a Zacks Rank #2 (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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