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PS Business Parks Q1 FFO a Penny Short

Zacks Equity Research

PS Business Parks Inc.’s (PSB) first-quarter 2014 adjusted FFO per share came in at $1.22, a penny shy of the Zacks Consensus Estimate as well as the prior-year quarter figure.

While this real estate investment trust (:REIT) experienced an uptick in net operating income (:NOI) from the Non-Same Park portfolio, the year-over-year decrease in FFO per share is mainly due to the rise in share count from the Nov 2013 common equity offering.

Including non-recurring items, PS Business Parks reported first-quarter 2014 FFO of $1.20 per share, unchanged year over year.

However, total revenue in the reported quarter rose 8.2% year over year to $95.5 million and exceeded the Zacks Consensus Estimate of $93 million.

Quarter in Detail

Rental income moved up 8.2% year over year to $95.3 million during the quarter. This was primarily driven by increase in rental revenues from Same Park and Non-Same Park portfolio. The company experienced a rise in occupancy in the Same-Park portfolio while acquisition of additional parks in the second half of 2013 as well as increasing occupancy levels helped raise rental income in the Non Same-Park facilities.

Annualized Same Park realized rent per square foot rose 1.4% year over year to $14.37. Same Park weighted average occupancy in the quarter was 92.3%, up 150 basis points (bps) year over year while Non-Same Park weighted average occupancy climbed significantly year over year to 75.4% from 55.7%.

Total cost of operations grew 14.1% year over year to $33.1 million, reflecting rise across both Same-Park and Non-Same Park portfolio. Consequently, total portfolio NOI increased 5.3% year over year to $62.2 million. In particular, Same Park NOI was up 0.5% year over year to $58.8 million while Non-Same Park NOI increased substantially to $3.5 million from $0.6 million in the prior-year quarter.


PS Business Parks exited first-quarter 2014 with cash and cash equivalents of $45.8 million, up from $31.5 million as of Dec 31, 2013. The company had full capacity available under its $250 million unsecured credit facility. Debt and preferred equity to market cap was 30.3%, while ratio of FFO to fixed charges and preferred distributions was 3.2x.

Following the quarter end, the company amended and extended the terms of its $250.0 million credit facility. The move helped in lowering borrowing rate and extend the maturity date to May 1, 2019 from Aug 1, 2015.
Dividend Update

Concurrent with its earnings release, the board of directors of PS Business Parks declared a quarterly dividend of 50 cents per share on its common stock. The dividend is payable Jun 30, 2014 to shareholders of record on Jun 13.

In Conclusion

The earnings miss, though by a penny, is not encouraging. Moreover, anticipated rise in interest rates in the long term and tepid recovery of the office market fundamentals remain headwinds for this Zacks Rank #4 (Sell) stock. Nevertheless, we believe that PS Business Parks’ portfolio in diversified markets as well as acquisitions in the past year would support its top line and provide relief.

We now look forward to results of other REITs that are scheduled to report this week. These include Duke Realty Corp. (DRE), Apartment Investment and Management Co. (AIV) and Public Storage (PSA).

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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