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PSB Beats FFO Ests on Solid Revs

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PS Business Parks Inc. (PSB - Free Report) , a real estate investment trust (REIT), reported fourth quarter core FFO (fund from operations) of $1.20 per share, a cent ahead of the Zacks Consensus Estimate and up 6.2% from $1.13 per share reported in the prior-year quarter.

The uptick was driven by an increase in net operating income from Non-Same Park facilities that include the 5.3 million square foot portfolio purchased in Dec 2011. A rise in interest expense, preferred equity distributions as well as general and administrative expenses acted as dampeners.

For full year 2012, the company’s core FFO came in at $4.74 per share, significantly surpassing the Zacks Consensus Estimate of $4.26 per share and 6.3% ahead of $4.46 per share reported a year ago.

However, FFO after non-cash and other adjustments reached $39.9 million or $1.25 per share in the reported quarter, up from $32.8 million or $1.04 per share in the prior-year period. For full year 2012, FFO came in at $134.5 million or $4.24 per share, down from $149.8 million or $4.69 per share.

Total revenues during the reported quarter surged 19.6% year over year to $89.4 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 properties. For full year 2012, total revenues reached $347.2 million, up 16.5% from a year ago and ahead of the Zacks Consensus Estimate of $338 million.

Same Park weighted average occupancy during the quarter was 92.3% compared with 91.8% in the year-ago quarter. Annualized same park realized rent per square foot during the quarter increased 0.5% to $14.34 from $14.27 in the fourth quarter of 2011.

Total portfolio net operating income (NOI) during the quarter increased 18.7% to $58.5 million from $49.2 million in the year-earlier quarter. Non-same park NOI increased 121.3% year over year to $15.7 million.

Acquisition and Disposition

During the quarter, the company acquired 3 multi-tenant flex buildings in Austin, Texas, for $14.9 million. The properties span 226,000 square feet and 86.1% occupied at the time of acquisition.  

Moreover, during the quarter, PS Business Parks sold Quail Valley Business Park, a 66,000 square foot flex park in Houston, Texas, for $2.3 million. This led to a net gain of $935,000.


At quarter-end, PS Business Parks had cash and cash equivalents of $12.9 million and full capacity available under the $250 million unsecured credit facility. Debt and preferred equity to market cap was 39.7% 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. The dividend will be paid on Mar 28, 2013 to shareholders of record on Mar 13, 2013.

In Conclusion

We are encouraged with the decent fourth quarter results at PS Business Parks that reported healthy year-over-year increase in revenue 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 risk 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, a number of other REITs that are performing well and deserve a look include Terreno Realty Corp. (TRNO - Free Report) , having a Zacks Rank #1 (Strong Buy) as well as Hersha Hospitality Trust (HT - Free Report) and DCT Industrial Trust Inc. (DCT - Free Report) , both carrying 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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