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PS Business Parks Inc. (PSB - Analyst Report), a real estate investment trust (REIT), reported first-quarter 2013 core FFO (fund from operations) of $1.20 per share, in line with the Zacks Consensus Estimate and up 2.6% from $1.17 per share reported in the prior-year quarter. The uptick was driven by an increase in net operating income from Non-Same Park facilities and a dip in interest expense. However, a rise in preferred equity distributions acted as a dampener.

FFO, including the non-recurring items, reached $38.1 million or $1.20 per share, up from $31.9 million or $1.01 per share in the prior-year period.

Total revenue in the reported quarter rose 4.0% year over year to $88.3 million and exceeded the Zacks Consensus Estimate of $88 million. This was mainly driven by a significant increase in rental revenues from Non-Same Park and Same Park properties.

Behind the Headlines

Same Park weighted average occupancy in the quarter was 92.0%, up from 91.6% in the year-ago quarter. Annualized same park realized rent per square foot during the quarter increased 0.9% to $15.07 from $14.93 in the first quarter of 2012.

Total portfolio net operating income (NOI) increased 3.8% to $58.7 million from $56.6 million in the year-earlier quarter. Non-same park NOI increased 23.1% to $9.6 million from $7.8 million.

Liquidity

At quarter-end, PS Business Parks had cash and cash equivalents of $8.1 million compared to $12.9 million as of Dec 31, 2012. The company had full capacity available under the $250 million unsecured credit facility. Debt and preferred equity to market cap was 34.8% at quarter-end, while ratio of FFO to fixed charges and preferred distributions was 3.1x.

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 Jun 27, 2013 to shareholders of record as of Jun 12, 2013.

In Conclusion

We are encouraged by another decent quarterly result at PS Business Parks that reported healthy year-over-year increase in revenues and core FFO per share. This REIT owns and operates commercial real estate properties in diversified markets, which can be easily configured to suit a variety of uses to minimize downside risks and generate a steady source of revenue. The company also has a strong balance sheet with adequate liquidity and minimal debt maturities.

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). However, other well performing REITs include Public Storage (PSA - Analyst Report), Parkway Properties Inc. (PKY - Snapshot Report) and CubeSmart (CUBE - Snapshot Report). All these stocks carry 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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