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Net income allocable to common shareholders for the three months ended September 30, 2009 was $8.8 million, or $0.39 per diluted share, on revenues of $67.7 million compared to $5.3 million, or $0.26 per diluted share, on revenues of $71.6 million for the same period in 2008. Net income allocable to common shareholders for the nine months ended September 30, 2009 was $50.5 million, or $2.37 per diluted share, on revenues of $205.8 million compared to $13.6 million, or $0.66 per diluted share, on revenues of $212.6 million for the same period in 2008.
Revenues for the three months ended September 30, 2009 decreased $3.9 million, or 5.5%, over the same period in 2008. Net income allocable to common shareholders for the three months ended September 30, 2009 increased $3.4 million over the same period in 2008 primarily as a result of a decrease in depreciation expense of $4.9 million and a decrease in preferred equity distributions of $2.0 million partially offset by a decrease in net operating income of $2.9 million due to a decrease in occupancy.
Revenues for the nine months ended September 30, 2009 decreased $6.8 million, or 3.2%, over the same period in 2008. Net income allocable to common shareholders for the nine months ended September 30, 2009 increased $36.9 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, a $1.5 million gain on the sale of a parcel of land in Oregon, a decrease in depreciation expense of $11.6 million and a decrease in preferred equity distributions of $5.6 million partially offset by an increase in net income allocable to noncontrolling interests -- common units of $12.5 million and a decrease in net operating income of $5.6 million due to a decrease in occupancy.
Supplemental Measures
Funds from operations ("FFO") allocable to common and dilutive shares for the three months ended September 30, 2009 and 2008 were $31.5 million, or $1.04 per common and dilutive share, and $32.0 million, or $1.14 per common and dilutive share, respectively. The decrease in FFO for the three months ended September 30, 2009 over the same period in 2008 was primarily due to a decrease in net operating income combined with the issuance of 3,833,333 shares of common stock during the third quarter of 2009 partially offset by a decrease in preferred equity distributions resulting from the repurchase of preferred equity. FFO allocable to common and dilutive shares for the nine months ended September 30, 2009 was $130.4 million, or $4.53 per common and dilutive share, compared to $94.0 million, or $3.35 per common and dilutive share, for the same period in 2008. The increase in FFO for the nine months ended September 30, 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 and a decrease in general and administrative expense partially offset by a decrease in net operating income and the issuance of common stock as noted above. Excluding the $35.6 million net gain, FFO allocable to common and dilutive shares would have been $94.7 million, or $3.30 per common and dilutive share, for the nine months ended September 30, 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"). As the Company has had no acquisitions or dispositions since January 1, 2008, for the three and nine months ended September 30, 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 and nine months ended September 30, 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 For the Nine Months Ended
September 30, September 30,
2009 2008 Change 2009 2008 Change
Rental income:
Same Park (1) $ 67,546 $ 71,464 (5.5 %) $ 205,269 $ 212,021 (3.2 %)
Cost of operations:
Same Park 21,550 22,591 (4.6 %) 65,854 67,020 (1.7 %)
Net operating income (2):
Same Park 45,996 48,873 (5.9 %) 139,415 145,001 (3.9 %)
Other income and expenses:
Facility management fees 172 178 (3.4 %) 522 550 (5.1 %)
Interest and other income 134 404 (66.8 %) 381 1,014 (62.4 %)
Interest expense (875 ) (988 ) (11.4 %) (2,686 ) (2,971 ) (9.6 %)
Depreciation and amortization (19,828 ) (24,703 ) (19.7 %) (63,631 ) (75,270 ) (15.5 %)
General and administrative (1,413 ) (1,950 ) (27.5 %) (4,927 ) (6,081 ) (19.0 %)
Gain on sale of land -- -- -- 1,488 -- 100.0 %
Net income $ 24,186 $ 21,814 10.9 % $ 70,562 $ 62,243 13.4 %
Same Park gross margin (3) 68.1 % 68.4 % (0.4 %) 67.9 % 68.4 % (0.7 %)
Same Park weighted average for the period:
Occupancy 89.5 % 93.7 % (4.5 %) 90.3 % 93.7 % (3.6 %)
Annualized realized rent per square foot (4) $ 15.44 $ 15.60 (1.0 %) $ 15.50 $ 15.43 0.5 %
(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 September 30, 2009:
Ratio of FFO to fixed charges (1) 51.3x
Ratio of FFO to fixed charges and preferred distributions (1) 3.3x
Debt and preferred equity to total market capitalization (based on 31.6%
common stock price of $51.32 at September 30, 2009)
Available under line of credit at September 30, 2009 $100.0 million
(1) Fixed charges include interest expense of $875,000.
Common Stock Offering
On August 14, 2009, the Company closed the sale of 3,450,000 shares of common stock in a public offering and concurrently sold 383,333 shares of common stock to Public Storage. The aggregate net proceeds were $171.2 million.
Distributions Declared
The Board of Directors declared a quarterly dividend of $0.44 per common share on November 2, 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 December 31, 2009 to shareholders of record on December 16, 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 September 30, 2009, PSB wholly owned 19.6 million rentable square feet with approximately 3,780 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 third quarter operating results, is available on the Internet. The Company's website is www.psbusinessparks.com.
A conference call is scheduled for Tuesday, November 3, 2009, at 10:00 a.m. (PST) to discuss the third quarter results. The toll free number is (888) 299-3246; the conference ID is 35345374. 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 November 10, 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)
September 30, December 31,
2009 2008
(Unaudited)
ASSETS
Cash and cash equivalents $ 203,204 $ 55,015
Real estate facilities, at cost:
Land 494,849 494,849
Buildings and equipment 1,533,208 1,517,484
2,028,057 2,012,333
Accumulated depreciation (697,879 ) (637,948 )
1,330,178 1,374,385
Land held for development 6,829 7,869
1,337,007 1,382,254
Rent receivable 1,978 2,055
Deferred rent receivable 21,952 21,633
Other assets 7,180 8,366
Total assets $ 1,571,321 $ 1,469,323
LIABILITIES AND EQUITY
Accrued and other liabilities $ 50,727 $ 46,428
Mortgage notes payable 53,196 59,308
Total liabilities 103,923 105,736
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 September 30,
2009 and December 31, 2008, respectively
Common stock, $0.01 par value, 100,000,000 shares authorized, 243 204
24,385,891 and 20,459,916 shares issued and outstanding at
September 30, 2009 and December 31, 2008, respectively
Paid-in capital 547,860 363,587
Cumulative net income 679,212 622,113
Cumulative distributions (636,403 ) (571,340 )
Total PS Business Parks, Inc.'s shareholders' equity 1,216,958 1,120,814
Noncontrolling interests:
Preferred units 73,418 94,750
Common units 177,022 148,023
Total noncontrolling interests 250,440 242,773
Total equity 1,467,398 1,363,587
Total liabilities and equity $ 1,571,321 $ 1,469,323
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Revenues:
Rental income $ 67,546 $ 71,464 $ 205,269 $ 212,021
Facility management fees 172 178 522 550
Total operating revenues 67,718 71,642 205,791 212,571
Expenses:
Cost of operations 21,550 22,591 65,854 67,020
Depreciation and amortization 19,828 24,703 63,631 75,270
General and administrative 1,413 1,950 4,927 6,081
Total operating expenses 42,791 49,244 134,412 148,371
Other income and expenses:
Interest and other income 134 404 381 1,014
Interest expense (875 ) (988 ) (2,686 ) (2,971 )
Gain on sale of land -- -- 1,488 --
Total other income and expenses (741 ) (584 ) (817 ) (1,957 )
Net income $ 24,186 $ 21,814 $ 70,562 $ 62,243
Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests -- common units $ 2,838 $ 1,910 $ 17,414 $ 4,897
Noncontrolling interests -- preferred units 1,382 1,752 (3,951 ) 5,256
Total net income allocable to noncontrolling interests 4,220 3,662 13,463 10,153
Net income allocable to PS Business Parks, Inc.:
Common shareholders 8,762 5,336 50,517 13,646
Preferred shareholders 11,156 12,756 6,285 38,269
Restricted stock unit holders 48 60 297 175
Total net income allocable to PS Business Parks, Inc. 19,966 18,152 57,099 52,090
$ 24,186 $ 21,814 $ 70,562 $ 62,243
Net income per common share:
Basic $ 0.39 $ 0.26 $ 2.38 $ 0.67
Diluted $ 0.39 $ 0.26 $ 2.37 $ 0.66
Weighted average common shares outstanding:
Basic 22,549 20,448 21,191 20,438
Diluted 22,709 20,642 21,311 20,627
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 For the Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Computation of Diluted Funds
From Operations ("FFO") (1):
Net income allocable to common shareholders $ 8,762 $ 5,336 $ 50,517 $ 13,646
Adjustments:
Gain on sale of land -- -- (1,488 ) --
Depreciation and amortization 19,828 24,703 63,631 75,270
Net income allocable to noncontrolling interests -- common units 2,838 1,910 17,414 4,897
Net income allocable to restricted stock unit holders 48 60 297 175
FFO allocable to common and dilutive shares $ 31,476 $ 32,009 $ 130,371 $ 93,988
Weighted average common shares outstanding 22,549 20,448 21,191 20,438
Weighted average common OP units outstanding 7,305 7,305 7,305 7,305
Weighted average restricted stock units outstanding 126 154 134 156
Weighted average common share equivalents outstanding 160 194 120 189
Total common and dilutive shares 30,140 28,101 28,750 28,088
FFO per common and dilutive share $ 1.04 $ 1.14 $ 4.53 $ 3.35
Computation of Funds Available
for Distribution ("FAD") (2):
FFO allocable to common and dilutive shares $ 31,476 $ 32,009 $ 130,371 $ 93,988
Adjustments:
Recurring capital improvements (2,011 ) (2,356 ) (4,148 ) (7,306 )
Tenant improvements (4,231 ) (5,217 ) (11,205 ) (14,871 )
Lease commissions (1,712 ) (863 ) (3,700 ) (5,097 )
Straight-line rent (135 ) (355 ) (319 ) (272 )
Stock compensation expense 611 1,027 2,324 3,057
In-place lease adjustment (53 ) (49 ) (214 ) (145 )
Lease incentives net of tenant improvement reimbursements (120 ) (79 ) (294 ) (148 )
Gain on repurchase of preferred equity, net of issuance costs -- -- (35,639 ) --
FAD $ 23,825 $ 24,117 $ 77,176 $ 69,206
Distributions to common and dilutive shares $ 13,992 $ 12,274 $ 38,573 $ 36,792
Distribution payout ratio 58.7 % 50.9 % 50.0 % 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, 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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