PS Business Parks Inc.’s (PSB) third-quarter 2014 funds from operations (FFO) per share of $1.20 came in line with both the Zacks Consensus Estimate as well as the year-ago quarter figure.
However, the company’s FFO, as adjusted, was $1.26 per share, reflecting a 1.6% uptick from the year-ago quarter figure of $1.24 per share. While growth in rental income, backed by both Same Park and Non-Same Park portfolios helped in augmenting revenues, higher expenses partly eroded that positive impact.
The Board of Directors also declared a one-time special cash dividend of $2.75 per common share backed by the net taxable gains reaped from the sale of two business parks in Beaverton, OR, and anticipated asset divestitures.
Quarter in Detail
Aided by growth in rental income, total revenue in the reported quarter rose 6.5% year over year to around $95.8 million, marginally exceeding the Zacks Consensus Estimate of $95 million.
Rental income moved up 6.7% year over year to $91.0 million, primarily driven by an increase in rental revenues from Same Park and Non-Same Park portfolios. While the company experienced an occupancy rise in the Same-Park portfolio, acquisition of additional parks in the second half of 2013 as well as increasing occupancy levels helped to raise the rental income in the Non Same-Park facilities.
Annualized Same Park realized rent per square foot edged up 0.2% year over year to $14.19. Same Park weighted average occupancy in the quarter was 92.8%, up 140 basis points (bps) year over year, while Non-Same Park weighted average occupancy climbed significantly year over year to 77.5% from 69%.
Total cost of operations grew 10% year over year to $30.7 million, reflecting a rise across both Same-Park and Non-Same Park portfolios. Consequently, total portfolio NOI increased 5.1% year over year to $60.3 million. In particular, Same Park NOI was up 1% year over year to nearly $57.0 million, while Non-Same Park NOI increased substantially to $3.4 million from $1.0 million in the prior-year quarter.
Liquidity
PS Business Parks exited third-quarter 2014 with cash and cash equivalents of $57.5 million, slightly below the prior-quarter level of $62.5 million but ahead of $31.5 million as of Dec 31, 2013. At the end of the third quarter, the company had full capacity available under its $250 million unsecured credit facility.
Dividend Update
Concurrent with its third quarter earnings release, the company announced a regular quarterly dividend of 50 cents per share. Moreover, the Board of Directors declared a one-time special cash dividend of $2.75 per common share. Both dividends are payable on Dec 30, 2014 to shareholders of record on Dec 15.
In Conclusion
PS Business Parks currently carries a Zacks Rank #4 (Strong Sell). While the special cash dividend is encouraging, we anticipate the company’s continued divestitures to have a dilutive impact on the FFO per share, going forward. Also, stiff competition from commercial real estate properties operators poses a concern.
However, investors interested in the REIT industry may consider stocks like Cousins Properties Inc. (CUZ), Host Hotels & Resorts, Inc. (HST) and Highwoods Properties Inc. (HIW). All these stocks have 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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