PS Business Parks Inc.: GLENDALE, California — PS Business Parks, Inc. Reports Results for the Quarter Ended September 30, 2019

Tickers: PSB
News Release

PS Business Parks, Inc. 701 Western Avenue Glendale, CA 91201-2349 psbusinessparks.com

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For Release:

Immediately

Date:

October 22, 2019

Contact:

Jeff Hedges

(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Quarter Ended September 30, 2019

GLENDALE, California-PS Business Parks, Inc. (NYSE:PSB) reported operating results for the three and nine months ended September 30, 2019.

Acquisition and Disposition Update

During the quarter ended September 30, 2019, the Company acquired Hathaway Industrial Park (the "Park") located in Santa Fe Springs, California, for a total purchase price of $104.3 million, inclusive of capitalized transaction costs. The Park consists of ten buildings totaling 543,000 square feet situated on 27 acres of land and is 100% occupied with suites ranging from 5,000 to 288,000 square feet. The Park is located in a prime last-mile location in the heart of the Los Angeles Mid-Counties submarket with access to strong demographics of over 6 million people within a 15-mile radius.

Subsequent to quarter end, the Company completed the sale of three business parks located in Montgomery County, Maryland: Metro Park North, Meadow Business Park and WesTech Business Park. The parks, consisting of 28 buildings totaling approximately

1.3 million square feet, sold for a gross sales price of $148.8 million. The Company retained one single-tenant government building totaling 113,000 square feet and a long-term ground lease at Metro Park North. The portfolio of assets which sold had been classified as held for sale for the three and nine months ending September 30, 2019 and all comparable periods.

Operating Results for the Three and Nine Months Ended September 30, 2019

Net income allocable to common shareholders was $26.3 million, or $0.96 per diluted common share, for the three months ended September 30, 2019, an increase of $1.2 million, or 4.7%, from $25.1 million, or $0.92 per diluted common share, for the same period in 2018. The increase was mainly due to an increase in net operating income ("NOI") with respect to the Company's real estate facilities partially offset by an increase in general and administrative expense primarily from a one-time charge to stock compensation expense of $1.1 million resulting from a modification to the Retirement Plan for Non-Employee Directors. The increase in NOI includes a $2.4 million, or 3.6%, increase attributable to Same Park facilities driven by an increase in rental rates, combined with increased NOI from Non-Same Park and multifamily assets, partially offset by reduced NOI generated from assets held for sale as of September 30, 2019.

Net income allocable to common shareholders was $81.2 million, or $2.95 per diluted common share, for the nine months ended September 30, 2019, a decrease of $60.2 million, or 42.6%, from $141.4 million, or $5.16 per diluted common share, for the same period in 2018. The decrease was mainly due to the gain on sale of real estate facilities sold during the first nine months of 2018 that did not recur in 2019, partially offset by an increase in NOI with respect to the Company's real estate facilities. The increase in NOI includes an $8.6 million, or 4.4%, increase attributable to Same Park facilities driven by an increase in rental rates, combined with increased NOI from Non-Same Park and multifamily assets, partially offset by reduced NOI generated from facilities sold in 2018.

Funds from Operations ("FFO"), Core FFO and Funds Available for Distribution ("FAD")

FFO increased 4.6% during the three months ended September 30, 2019 compared to the same period in 2018, increasing to $1.71 per share from $1.64 per share in the prior period. FFO increased 6.7% during the nine months ended September 30, 2019 compared to the same period in 2018, increasing to $5.13 per share from $4.81 per share in the prior period. FFO is a non-GAAP (generally accepted accounting principles) measure defined by the National Association of Real Estate Investment Trusts and generally represents GAAP net income before (i) real estate depreciation and amortization expense, (ii) gains or losses on sales of operating properties and (iii) land and impairment charges on real estate assets.

Core FFO per share was exactly equal to FFO per share for the three and nine months ended September 30, 2019 and 2018. Core FFO is also a non-GAAP measure that represents FFO excluding the impact of (i) charges related to the redemption of preferred

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stock and (ii) nonrecurring income or expense items, neither of which were incurred by the Company during the three and nine month periods ended September 30, 2019 and 2018.

FAD was $51.4 million for the three months ended September 30, 2019 as compared to $45.6 million for the same period in 2018, an increase of 12.7%. FAD was $149.9 million for the nine months ended September 30, 2019 as compared to $136.3 million for the same period in 2018, an increase of 9.9%. FAD is a non-GAAP measure that represents Core FFO adjusted to (i) deduct recurring capital improvements and capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expenses such as straight-line rent and stock compensation expense.

FFO, Core FFO and FAD are not substitutes for GAAP net income. Other real estate investment trusts ("REITs") may compute Core FFO and FAD differently, which could inhibit comparability. We believe our presentations of FFO, Core FFO and FAD assist investors and analysts in analyzing and comparing our operating and financial performance between reporting periods.

Property Operations-Same Park Portfolio

We believe that evaluation of our Same Park portfolio, defined as all properties owned and operated as of September 30, 2019 that were acquired prior to January 1, 2017, provides an informative view of how the Company's portfolio has performed over comparable periods. As of September 30, 2019, our Same Park portfolio consisted of 25.8 million rentable square feet, or 89.6% of the 28.8 million rentable square feet in the Company's total portfolio, and excludes our 95.0% interest in a 395-unit multifamily property. Approximately 1.3 million square feet of flex and office business parks located in Rockville and Silver Spring, Maryland, have been classified as held for sale as of September 30, 2019; therefore, these parks have been removed from Same Park results for the three and nine months ended September 30, 2019 and 2018. Subsequent to September 30, 2019, the Company completed the sale of these parks for a gross sales price of $148.8 million.

The following table presents the unaudited operating results of the Company's Same Park facilities for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per square foot amounts):

For the Three Months

For The Nine Months

Ended September 30,

Ended September 30,

2019

2018

Change

2019

2018

Change

Rental income (1)

$

96,234

$

92,356

4.2%

$

287,872

$

275,976

4.3%

Adjusted cost of operations (2)

Property taxes

10,302

9,726

5.9%

30,638

29,238

4.8%

Utilities

5,309

5,438

(2.4%)

14,825

15,010

(1.2%)

Repairs and maintenance

5,940

5,358

10.9%

17,666

16,485

7.2%

Snow removal

-

-

-

1,049

655

60.2%

Other expenses

6,173

5,730

7.7%

18,935

18,452

2.6%

Total

27,724

26,252

5.6%

83,113

79,840

4.1%

NOI (2) (3)

$

68,510

$

66,104

3.6%

$

204,759

$

196,136

4.4%

Selected Statistical Data

NOI margin (4)

71.2%

71.6%

(0.6%)

71.1%

71.1%

-

Weighted average square foot occupancy

94.7%

95.1%

(0.4%)

94.6%

94.7%

(0.1%)

Annualized revenue per occupied

square foot (5)

$

15.74

$

15.05

4.6%

$

15.72

$

15.05

4.5%

Revenue per available foot (RevPAF) (6)

$

14.91

$

14.31

4.2%

$

14.87

$

14.26

4.3%

  1. Same Park rental income includes lease buyout income of $183,000 and $213,000 for the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $463,000 for the nine months ended September 30, 2019 and 2018, respectively.
  2. Adjusted cost of operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations, which can vary significantly period to period based upon the performance of the Company. Beginning January 1, 2019, the Company has recorded our divisional vice presidents' compensation costs within general and administrative expense as we determined that the nature of these individuals' responsibilities is more consistent with corporate oversight as opposed to direct property operations. As a result of this change, we have reclassified divisional vice presidents' compensation costs totaling $281,000 and $936,000 for the three and nine months ended September 30, 2018, respectively, from adjusted cost of operations into general and administrative expenses in order to conform to the current period presentation. Non-cash compensation expense for our divisional vice presidents, which totaled $143,000 and $445,000 for the three and nine months ended September 30, 2018, respectively, had previously been excluded from adjusted cost of operations.
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  1. We utilize NOI, a non-GAAP financial measure, to evaluate the operating performance of our business parks. We define NOI as rental income less adjusted cost of operations. We believe NOI assists investors in analyzing the performance and value of our business parks by excluding (i) corporate overhead (i.e., general and administrative expenses) because it does not relate to the direct operating performance of our business parks, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of our business parks and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.
  2. NOI margin is computed by dividing NOI by rental income.
  3. Revenue per occupied square foot is computed by dividing rental income during the period by weighted average occupied square feet during the same period. For the three and nine month periods ending September 30, 2019 and 2018, rental income amounts have been annualized.
  4. Revenue per available foot (RevPAF) is computed by dividing rental income during the period by weighted average available square feet during the same period. For the three and nine month periods ending September 30, 2019 and 2018, rental income amounts have been annualized.
The following table summarizes unaudited selected quarterly financial data with respect to the Same Park facilities (in thousands, except per square foot amounts):

For the Three Months Ended

March 31

June 30

September 30

December 31

Rental income

2019

$

95,693

$

95,945

$

96,234

$

-

2018

$

91,678

$

91,942

$

92,356

$

92,459

Adjusted cost of operations (1)

2019

$

28,442

$

26,947

$

27,724

$

-

2018

$

27,222

$

26,366

$

26,252

$

25,495

NOI (1)

2019

$

67,251

$

68,998

$

68,510

$

-

2018

$

64,456

$

65,576

$

66,104

$

66,964

Weighted average square foot occupancy

2019

94.7%

94.3%

94.7%

-

2018

94.5%

94.5%

95.1%

95.4%

Annualized revenue per occupied square foot

2019

$

15.66

$

15.77

$

15.74

$

-

2018

$

15.04

$

15.08

$

15.05

$

15.01

RevPAF

2019

$

14.83

$

14.87

$

14.91

$

-

2018

$

14.21

$

14.25

$

14.31

$

14.33

  1. Beginning January 1, 2019, the Company has recorded our divisional vice presidents' compensation costs within general and administrative expense as we determined that the nature of these individuals' responsibilities is more consistent with corporate oversight as opposed to direct property operations. To conform to current period presentation, we have reclassified divisional vice presidents' compensation costs totaling $366,000, $289,000, $281,000 and $281,000 for each of the three months ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018, respectively, from adjusted cost of operations into general and administrative expenses. Non-cash compensation expense for our divisional vice presidents had previously been excluded from adjusted cost of operations.
Distributions Declared

On October 22, 2019, the Board of Directors declared a quarterly dividend of $1.05 per common share. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock. Distributions will be payable on December 30, 2019 to shareholders of record on December 13, 2019.

Company Information

PS Business Parks, Inc., a member of the S&P MidCap 400, is a REIT that acquires, develops, owns and operates commercial properties, primarily multi-tenant industrial, flex and office space. As of October 22, 2019, the Company wholly owned 27.5 million rentable square feet with approximately 4,900 commercial customers in six states and held a 95.0% interest in a 395-unit apartment complex.

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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 Company's website at psbusinessparks.com.

A conference call is scheduled for Wednesday, October 23, 2019, at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss third quarter results. The toll free number is (877) 876-9173; the conference ID is PSBQ319. 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 6, 2019 at (800) 839-8708, as well as via webcast on the Company's website.

Additional financial data attached.

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PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

September 30,

December 31,

2019

2018

(Unaudited)

ASSETS

Cash and cash equivalents

$

6,749

$

37,379

Real estate facilities, at cost

Land

837,891

762,731

Buildings and improvements

2,212,166

2,157,407

3,050,057

2,920,138

Accumulated depreciation

(1,152,946)

(1,097,748)

1,897,111

1,822,390

Properties held for sale, net

124,937

128,093

Land and building held for development

30,515

30,848

2,052,563

1,981,331

Rent receivable

1,752

1,403

Deferred rent receivable

35,548

33,308

Other assets

21,122

15,173

Total assets

$

2,117,734

$

2,068,594

LIABILITIES AND EQUITY

Accrued and other liabilities

$

92,252

$

85,141

Credit facility

50,000

-

Total liabilities

142,252

85,141

Commitments and contingencies

Equity

PS Business Parks, Inc.'s shareholders' equity

Preferred stock, $0.01 par value, 50,000,000 shares authorized,

38,390 shares issued and outstanding at

September 30, 2019 and December 31, 2018,

at liquidation preference

959,750

959,750

Common stock, $0.01 par value, 100,000,000 shares authorized,

27,435,139 and 27,362,101 shares issued and outstanding at

September 30, 2019 and December 31, 2018, respectively

274

274

Paid-in capital

734,760

736,131

Accumulated earnings

64,775

69,207

Total PS Business Parks, Inc.'s shareholders' equity

1,759,559

1,765,362

Noncontrolling interests

215,923

218,091

Total equity

1,975,482

1,983,453

Total liabilities and equity

$

2,117,734

$

2,068,594

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PS Business Parks Inc. published this content on 22 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 October 2019 21:36:05 UTC