Real estate investment trust (REIT) PS Business Parks Inc.’s (PSB) fourth-quarter 2013 adjusted FFO (fund from operations) per share came in at $1.26, beating the Zacks Consensus Estimate of $1.20. Also, it came in ahead of the prior-year quarter figure of $1.24.
An uptick in net operating income (NOI) in Same Park as well as Non-Same Park facilities drove the year-over-year increase. Further, the investments through acquisitions poised the company well for the quarter.
Including non-recurring items, PS Business Parks reported fourth-quarter 2013 FFO of $1.54 per share, up from $1.25 per share in the year-ago quarter. For 2013, it advanced 21.5% year over year to $5.15 per share.
Total revenue in the reported quarter rose 4.7% year over year to $93.6 million and exceeded the Zacks Consensus Estimate of $89 million.
For full-year 2013, PS Business Parks reported adjusted FFO per share of $4.95 on revenues of $359.9 million. Results were higher than the prior-year operating FFO per share of $4.86 on revenues of $347.2 million
Behind the Headlines
Rental income upped 4.3% year over year to $91.2 million during the quarter. This was primarily driven by a significant increase in rental revenues from Non-Same Park (26.7%).
Annualized Same Park realized rent per square foot rose 0.7% year over year to $15.29. Same Park weighted average occupancy in the quarter was 92.0%, up 20 basis points (bps) year over year. Also, Non-Same Park weighted average occupancy upped 660 bps year over year to 86.0%.
Total cost of operations grew 1.1% year over year to $29.1 million. This was mainly due to a 22.5% escalation in expenses at Non-Same Park facilities.
Consequently, total portfolio NOI increased 5.8% year over year to $62.2 million. In particular, Same Park NOI was up 2.1% year over year to $51.6 million while Non-Same Park NOI was up 28.6 % to $10.5 million.
Acquisition
On Dec 20, 2013, PS Business Parks acquired an eight-building office park – Bayshore Corporate Center in California, covering 340,000 square feet for $60.5 million with occupancy of 81.8%
Further, during the quarter, PS Business Parks bought four multi-tenant flex parks with a 4-acre land parcel in Dallas, Texas. The assets, aggregating 804,000 square feet, were acquired for $40.3 million with occupancy of 75.6%.
Liquidity
As of Dec 31, 2013, PS Business Parks had cash and cash equivalents of $31.5 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 32.3% at quarter end, while ratio of FFO to fixed charges and preferred distributions was 3.7x.
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 common stock that represents a 13.6% increase from its prior pay. The dividend will be paid on Mar 31 to shareholders of record as of Mar 14.
Share Offering
PS Business Parks completed the sale of around 1.5 million shares in a public offering on Nov 7, 2013. Alongside, the company sold 950,000 common shares to Public Storage. Through these transactions, the company realized aggregate net proceeds of $192.3 million.
In Conclusion
We are encouraged by the 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 activities augur well for the company. Moreover, PS Business Parks has adequate liquidity to fund proposed investments. Further, the dividend hike enhanced investors’ confidence in the stock.
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 #2 (Buy). Sabra Health Care REIT, Inc. (SBRA) is a better-ranked REIT with a Zacks Rank #1 (Strong Buy).
Among other REITs, DDR Corp. (DDR) reported in line FFO while Prologis Inc. (PLD) reported a penny ahead of the Zacks Consensus Estimate.
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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