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Net income allocable to common shareholders for the three months ended March 31, 2009 was $33.0 million, or $1.60 per diluted share, on revenues of $69.9 million compared to $3.7 million, or $0.18 per diluted share, on revenues of $70.3 million for the same period in 2008.
Revenues for the three months ended March 31, 2009 decreased $382,000 or 0.5% over the same period in 2008. Net income allocable to common shareholders for the three months ended March 31, 2009 increased $29.2 million over the same period in 2008 primarily as a result of a net gain of $35.6 million on the repurchase of preferred equity combined with a decrease in depreciation expense of $3.1 million and a decrease in preferred equity distributions of $1.6 million partially offset by an increase in net income allocable to noncontrolling interests - common units of $10.4 million.
Supplemental Measures
Funds from operations ("FFO") allocable to common shareholders and unit holders for the three months ended March 31, 2009 and 2008 were $67.1 million, or $2.41 per diluted share, and $30.5 million, or $1.09 per diluted share, respectively. The increase in FFO for the three months ended March 31, 2009 over the same period in 2008 was primarily due to a net gain of $35.6 million on the repurchase of preferred equity combined with a decrease in preferred equity distributions of $1.6 million. Excluding the $35.6 million net gain, FFO allocable to common shareholders and unit holders would have been $31.5 million, or $1.13 per diluted share, for the three months ended March 31, 2009.
Property Operations
In order to evaluate the performance of the Company's overall portfolio over two comparable periods, management analyzes the operating performance of a consistent group of properties owned and operated throughout both periods (herein referred to as "Same Park"). For the three months ended March 31, 2009 and 2008, the Same Park portfolio constitutes 19.6 million rentable square feet, which includes 100.0% of the assets of the Company.
The Company's property operations account for substantially all of the net operating income earned by the Company. The following table presents the operating results of the Company's properties for the three months ended March 31, 2009 and 2008 in addition to other income and expense items affecting net income (unaudited, in thousands, except per square foot amounts):
For the Three Months Ended
March 31,
2009 2008 Change
Rental income:
Same Park (1) $ 69,747 $ 70,111 (0.5 %)
Cost of operations:
Same Park 22,755 22,490 1.2 %
Net operating income (2):
Same Park 46,992 47,621 (1.3 %)
Other income and expenses:
Facility management fees 177 195 (9.2 %)
Interest and other income 179 328 (45.4 %)
Interest expense (930 ) (993 ) (6.3 %)
Depreciation and amortization (22,391 ) (25,447 ) (12.0 %)
General and administrative (1,976 ) (2,046 ) (3.4 %)
Net income $ 22,051 $ 19,658 12.2 %
Same Park gross margin (3) 67.4 % 67.9 % (0.7 %)
Same Park weighted average for the period:
Occupancy 91.4 % 94.0 % (2.8 %)
Annualized realized rent per square foot (4) $ 15.61 $ 15.26 2.3 %
(1) See above for a definition of Same Park.
(2) Net operating income ("NOI") is an important measurement in the
commercial real estate industry for determining the value of the
real estate generating the NOI. The Company's calculation of NOI
may not be comparable to those of other companies and should not
be used as an alternative to measures of performance in accordance
with generally accepted accounting principles ("GAAP").
(3) Same Park gross margin is computed by dividing NOI by rental
income.
(4) Same Park realized rent per square foot represents the annualized
revenues earned per occupied square foot.
Financial Condition
The following are key financial ratios with respect to the Company's leverage at and for the three months ended March 31, 2009:
Ratio of FFO to fixed charges (1) (2) 48.7x
Ratio of FFO to fixed charges and preferred distributions (1) 3.3x
(2)
Debt and preferred equity to total market capitalization (based on 42.3%
common stock price of $36.85 at March 31, 2009)
Available under line of credit at March 31, 2009 $100.0 million
(1) Fixed charges include interest expense of $930,000.
(2) Excludes $35.6 million of net gain on preferred equity repurchase.
Preferred Equity Repurchase
During the three months ended March 31, 2009, the Company paid $50.2 million to repurchase 3,208,174 depositary shares, each representing 1/1,000 of a share of various series of Cumulative Preferred Stock and $12.3 million to repurchase 853,300 units of various series of Cumulative Redeemable Preferred Units for a weighted average purchase price of $15.40 per share/unit. In accordance with Emerging Issues Task Force ("EITF") Topic D-42, the purchase price discount of $35.6 million, equaling the aggregate liquidation value of $101.5 million over the aggregate purchase price of $62.5 million, is added to net income allocable to common shareholders, net of the original issuance costs of $3.4 million.
Distributions Declared
The Board of Directors declared a quarterly dividend of $0.44 per common share on May 4, 2009. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock listed below. Distributions are payable June 30, 2009 to shareholders of record on June 15, 2009.
Series Dividend Rate Dividend Declared
Series H 7.000 % $0.437500
Series I 6.875 % $0.429688
Series K 7.950 % $0.496875
Series L 7.600 % $0.475000
Series M 7.200 % $0.450000
Series O 7.375 % $0.460938
Series P 6.700 % $0.418750
Company Information
PS Business Parks, Inc., a member of the S&P SmallCap 600, is a self-advised and self-managed equity real estate investment trust ("REIT") that acquires, develops, owns and operates commercial properties, primarily flex, multi-tenant office and industrial space. The Company defines "flex" space as buildings that are configured with a combination of office and warehouse space and can be designed to fit a number of uses (including office, assembly, showroom, laboratory, light manufacturing and warehouse space). As of March 31, 2009, PSB wholly owned approximately 19.6 million rentable square feet with approximately 3,750 customers located in eight states, concentrated in California (5.8 million sq. ft.), Florida (3.6 million sq. ft.), Virginia (3.0 million sq. ft.), Texas (2.9 million sq. ft.), Maryland (1.8 million sq. ft.), Oregon (1.3 million sq. ft.), Arizona (0.7 million sq. ft.) and Washington (0.5 million sq. ft.).
Forward-Looking Statements
When used within this press release, the words "may," "believes," "anticipates," "plans," "expects," "seeks," "estimates," "intends" and similar expressions are intended to identify "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company's facilities; the Company's ability to evaluate, finance and integrate acquired and developed properties into the Company's existing operations; the Company's ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing REITs; the impact of general economic conditions upon rental rates and occupancy levels at the Company's facilities; the availability of permanent capital at attractive rates, the outlook and actions of Rating Agencies and risks detailed from time to time in the Company's SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.
Additional information about PS Business Parks, Inc., including more financial analysis of the first quarter operating results, is available on the Internet. The Company's website is www.psbusinessparks.com.
A conference call is scheduled for Tuesday, May 5, 2009, at 10:00 a.m. (PDT) to discuss the first quarter results. The toll free number is (888) 299-3246; the conference ID is 94250172. The call will also be available via a live webcast on the Company's website. A replay of the conference call will be available through May 12, 2009 at (800) 642-1687. A replay of the conference call will also be available on the Company's website.
Additional financial data attached.
PS BUSINESS PARKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2009 2008
(Unaudited)
ASSETS
Cash and cash equivalents $ 5,093 $ 55,015
Real estate facilities, at cost:
Land 494,849 494,849
Buildings and equipment 1,521,785 1,517,484
2,016,634 2,012,333
Accumulated depreciation (659,565 ) (637,948 )
1,357,069 1,374,385
Land held for development 7,869 7,869
1,364,938 1,382,254
Rent receivable 2,878 2,055
Deferred rent receivable 21,978 21,633
Other assets 4,994 8,366
Total assets $ 1,399,881 $ 1,469,323
LIABILITIES AND EQUITY
Accrued and other liabilities $ 48,373 $ 46,428
Mortgage notes payable 53,840 59,308
Total liabilities 102,213 105,736
Commitments and contingencies
Equity:
PS Business Parks, Inc.'s shareholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 626,046 706,250
25,042 and 28,250 shares issued and outstanding at March 31, 2009
and
December 31, 2008, respectively
Common stock, $0.01 par value, 100,000,000 shares authorized, 204 204
20,523,288 and 20,459,916 shares issued and outstanding at
March 31, 2009 and December 31, 2008, respectively
Paid-in capital 396,180 363,587
Cumulative net income 639,106 622,113
Cumulative distributions (594,322 ) (571,340 )
Total PS Business Parks, Inc.'s shareholders' equity 1,067,214 1,120,814
Noncontrolling interests:
Preferred units 73,418 94,750
Common units 157,036 148,023
Total noncontrolling interests 230,454 242,773
Total equity 1,297,668 1,363,587
Total liabilities and equity $ 1,399,881 $ 1,469,323
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the Three Months
Ended March 31,
2009 2008
(Unaudited)
Revenues:
Rental income $ 69,747 $ 70,111
Facility management fees 177 195
Total operating revenues 69,924 70,306
Expenses:
Cost of operations 22,755 22,490
Depreciation and amortization 22,391 25,447
General and administrative 1,976 2,046
Total operating expenses 47,122 49,983
Other income and expenses:
Interest and other income 179 328
Interest expense (930 ) (993 )
Total other income and expenses (751 ) (665 )
Net income $ 22,051 $ 19,658
Net income allocation:
Common shareholders $ 32,961 $ 3,749
Preferred shareholders (16,026 ) 12,756
Noncontrolling interests -- common units 11,772 1,348
Noncontrolling interests -- preferred units (6,714 ) 1,752
Restricted stock unit holders 58 53
$ 22,051 $ 19,658
Net income per common share:
Basic $ 1.61 $ 0.18
Diluted $ 1.60 $ 0.18
Weighted average common shares outstanding:
Basic 20,470 20,435
Diluted 20,541 20,629
PS BUSINESS PARKS, INC.
Computation of Diluted Funds from Operations ("FFO") and Funds
Available for Distribution ("FAD")
(Unaudited, in thousands, except per share amounts)
For the Three Months
Ended March 31,
2009 2008
Computation of Diluted Funds
From Operations
per Common Share ("FFO") (1):
Net income allocable to common shareholders $ 32,961 $ 3,749
Adjustments:
Depreciation and amortization 22,391 25,447
Net income allocable to noncontrolling interests - 11,772 1,348
common units
FFO allocable to common shareholders/unit holders $ 67,124 $ 30,544
Weighted average common shares outstanding 20,470 20,435
Weighted average common OP units outstanding 7,305 7,305
Weighted average common share equivalents outstanding 71 194
Weighted average common shares and OP units for purposes of 27,846 27,934
computing fully-diluted FFO per common share
Diluted FFO per common share equivalent $ 2.41 $ 1.09
Computation of Funds Available
for Distribution ("FAD") (2):
FFO allocable to common shareholders/unit holders $ 67,124 $ 30,544
Adjustments:
Recurring capital improvements (785 ) (1,934 )
Tenant improvements (3,282 ) (4,454 )
Lease commissions (871 ) (2,268 )
Straight-line rent (345 ) 94
Stock compensation expense 1,088 1,012
In-place lease adjustment (86 ) (48 )
Lease incentives net of tenant improvement reimbursements (81 ) (31 )
Gain on repurchase of preferred equity, net of issuance costs (35,639 ) --
FAD $ 27,123 $ 22,915
Distributions to common shareholders/unit holders $ 12,217 $ 12,196
Distribution payout ratio 45.0 % 53.2 %
(1) Funds From Operations ("FFO") is computed in accordance with the
White Paper on FFO approved by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT").
The White Paper defines FFO as net income, computed in accordance
with GAAP, before depreciation, amortization, net income allocable
to noncontrolling interests, gains or losses on asset dispositions
and nonrecurring items. FFO should be analyzed in conjunction with
net income. However, FFO should not be viewed as a substitute for
net income as a measure of operating performance or liquidity as
it does not reflect depreciation and amortization costs or the
level of capital expenditure and leasing costs necessary to
maintain the operating performance of the Company's properties,
which are significant economic costs and could materially impact
the Company's results from operations. Other REITs may use
different methods for calculating FFO and, accordingly, the
Company's FFO may not be comparable to other real estate companies.
(2) Funds available for distribution ("FAD") is computed by adjusting
consolidated FFO for recurring capital improvements, which the
Company defines as those costs incurred to maintain the assets'
value, tenant improvements, lease commissions, straight-line rent,
stock compensation expense, impairment charges, amortization of
lease incentives and tenant improvement reimbursements, in-place
lease adjustment and the impact of EITF Topic D-42. Like FFO, the
Company considers FAD to be a useful measure for investors to
evaluate the operations and cash flows of a REIT. FAD does not
represent net income or cash flow from operations as defined by
GAAP.
SOURCE: PS Business Parks, Inc.
PS Business Parks, Inc. Edward A. Stokx (818) 244-8080, Ext. 1649
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