PS Business Parks, Inc. Reports Results for the Quarter and Year Ended December 31, 2020

Nachrichtenquelle: Business Wire (engl.)
22.02.2021, 22:39  |  86   |   |   

PS Business Parks, Inc. (NYSE:PSB) reported operating results for the quarter and year ended December 31, 2020.

Operating Results for the Three Months and Year Ended December 31, 2020

Net income allocable to common shareholders for the three months and year ended December 31, 2020 was $26.9 million, or $0.98 per diluted common share, and $124.6 million, or $4.52 per diluted common share, respectively. Net operating income (“NOI”) attributable to the Company’s Same Park portfolio (defined below) was $68.0 million and $270.8 million for the three months and year ended December 31, 2020, respectively, representing decreases of 3.0% and 0.6% over the same periods in 2019, respectively.

The Company also reports NOI on a cash basis, which excludes non-cash rental income such as amortization of deferred rent receivable and other non-cash items, and also excludes rents that have been deferred or abated during the period. Same Park Cash NOI was $69.2 million and $267.4 million for the three months and year ended December 31, 2020, respectively, representing decreases of 0.5% and 0.9% over the same periods in 2019, respectively. The decrease in Same Park Cash NOI for the three months ended December 31, 2020 was primarily driven by lower weighted average occupancy in the fourth quarter of 2020, which was 92.0% versus 94.4% in the fourth quarter of 2019. The decrease in Same Park Cash NOI for the year ended December 31, 2020 was primarily driven by lower weighted average occupancy, which was 92.4% in 2020 versus 94.5% in 2019, and $2.4 million of rent deferrals, net of repayments and $1.3 million of rent abatement granted to customers as a result of the COVID-19 pandemic. The Company noted that Same Park Cash Rental Income per occupied square foot increased by 2.4% during the year, from $15.65 in 2019 to $16.03 in 2020. Excluding the effect of the aforementioned rent deferrals and rent abatement, Same Park Cash Rental Income per occupied square foot increased 3.4%, from $15.65 in 2019 to $16.18 in 2020.

Further detail on the change in Same Park rental income for the three months and years ended December 31, 2020 and 2019 are provided in the table below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Three Months

 

 

 

 

For The Years

 

 

 

 

 

Ended December 31,

 

 

 

 

Ended December 31,

 

 

 

 

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base rental income

 

$

73,091

 

 

$

74,597

 

 

$

(1,506

)

 

$

292,729

 

 

$

289,361

 

 

$

3,368

 

Expense recovery income

 

 

22,590

 

 

 

21,879

 

 

 

711

 

 

 

90,225

 

 

 

88,523

 

 

 

1,702

 

Lease buyout income

 

 

393

 

 

 

232

 

 

 

161

 

 

 

1,199

 

 

 

1,373

 

 

 

(174

)

Rent receivable write-off

 

 

(91

)

 

 

(190

)

 

 

99

 

 

 

(1,461

)

 

 

(1,033

)

 

 

(428

)

Abatements

 

 

(97

)

 

 

 

 

 

(97

)

 

 

(1,300

)

 

 

 

 

 

(1,300

)

Deferrals, net of repayments

 

 

1,683

 

 

 

 

 

 

1,683

 

 

 

(2,356

)

 

 

 

 

 

(2,356

)

Fee income

 

 

208

 

 

 

332

 

 

 

(124

)

 

 

911

 

 

 

1,271

 

 

 

(360

)

Cash Rental Income

 

 

97,777

 

 

 

96,850

 

 

 

927

 

 

 

379,947

 

 

 

379,495

 

 

 

452

 

Non-Cash Rental Income (1)

 

 

(1,204

)

 

 

565

 

 

 

(1,769

)

 

 

3,417

 

 

 

2,455

 

 

 

962

 

Total rental income

 

$

96,573

 

 

$

97,415

 

 

$

(842

)

 

$

383,364

 

 

$

381,950

 

 

$

1,414

(1)

Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursement, and lease incentive intangible. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.4 million and $0.1 million for the three months ended December 31, 2020 and 2019, respectively, and $3.0 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively.

Additional detail on Same Park NOI and Same Park Cash NOI for the three months and year ended December 31, 2020 is provided in the Property Operations–Same Park Portfolio section below.

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

FFO for the three months and year ended December 31, 2020 was $1.66 per share and $6.51 per share, respectively, representing increases of 23.9% and 0.6% from the same periods in 2019, respectively. FFO is a non-GAAP 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, which the Company defines as FFO excluding the impact of (i) charges related to the redemption of preferred stock and (ii) other nonrecurring income or expense items as appropriate, was $1.66 and $6.57 per share for the three months and year ended December 31, 2020, respectively, representing an increase of 0.3% and a decrease of 3.2% from the same periods in 2019. There were no differences between FFO and Core FFO for the three months ended December 31, 2020. For the year ended December 31, 2020, the Company excluded in its presentation of Core FFO accelerated amortization of $1.7 million of stock compensation expense as a result of the retirement of its President and Chief Executive Officer, Maria Hawthorne, and non-capitalizable demolition costs of $0.3 million related to its multifamily development in Tysons, Virginia, due to the nonrecurring nature of these expenses. For the three months and year ended December 31, 2019, the Company excluded from its presentation of Core FFO a non-cash charge of $11.0 million related to the redemption of preferred stock (Series U and V) incurred during the quarter ended December 31, 2019. Additional information on these items is included on the Company’s annual report on Form 10‑K.

FAD for the three months and year ended December 31, 2020 was $48.0 million and $190.1 million, respectively, representing an increase of 6.7% and a decrease of 2.4%, respectively, from the same periods in 2019. The three month increase in FAD is primarily attributable to lower preferred distributions and recurring capital expenditures in the three months ended December 31, 2020 versus 2019, partially offset by lower interest income. The decrease in FAD for the year ended December 31, 2020 is attributable to lower Same Park Cash NOI driven by rent deferrals (net of amounts repaid) and abatements incurred in 2020, as well as lower Cash NOI from assets sold, partially offset by lower preferred distributions and recurring capital expenditures. 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 amortization of deferred rent receivable and stock compensation expense.

FFO, Core FFO, and FAD are not substitutes for GAAP net income. Other real estate investment trusts (“REITs”) may compute FFO, Core FFO, and FAD differently, which could inhibit comparability. The Company believes its presentations of FFO, Core FFO, and FAD assist investors and analysts in analyzing and comparing the operating and financial performance between reporting periods.

Lease Production

During the three months and year ended December 31, 2020, the Company executed leases on 1.9 million and 7.5 million square feet, respectively, compared to 2.1 million and 7.4 million for the three months and year ended December 31, 2019, respectively. The Company also reported that in December 2020 it entered into a five-year lease agreement for a 138,000 square foot suite at its Wiegman Distribution property in Hayward, California, with cash rental rate growth of 41.1% over the outgoing rent. With this lease, coupled with a lease agreement the Company executed in the second quarter of 2020 for a 180,000 square foot suite, the Company has backfilled 70% of the 460,000 square foot building the Company received back in January 2020 after a long-term tenant vacated the property at the end of its lease term.

Weighted average cash rental rate growth on leases executed during the three months and year ended December 31, 2020 was 5.3% and 5.8%, respectively, while average net effective rent1 growth was 14.9% and 16.0% for the same periods, respectively. Average lease term of the leases executed during the three months ended December 31, 2020 was 3.3 years, with associated average transaction costs (tenant improvements and leasing commissions) of $2.92 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in the same period of 2019 were 4.8 years and $4.08 per square foot, respectively.

(1)

Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP, excluding operating expense reimbursements.

Property Operations–Same Park Portfolio

The Company believes that evaluation of the Same Park portfolio, defined as all properties owned and operated as of December 31, 2020 that were acquired prior to January 1, 2018, provides an informative view of how the Company’s portfolio has performed over comparable periods. As of December 31, 2020, the Same Park portfolio consisted of 25.7 million rentable square feet, or 92.8% of the Company’s 27.7 million total rentable square feet, excluding the Company’s 95.0% interest in a 395-unit multifamily property.

The following table presents the unaudited operating results of the Company’s Same Park facilities for the three months and years ended December 31, 2020 and 2019 (in thousands, except per square foot amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

 

For The Years

 

 

 

Ended December 31,

 

 

 

Ended December 31,

 

 

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Rental Income (1)

$

97,777

 

 

$

96,850

 

 

1.0

%

 

$

379,947

 

 

$

379,495

 

 

0.1

%

Non-Cash Rental Income (2)

 

(1,204

)

 

 

565

 

 

(313.1

%)

 

 

3,417

 

 

 

2,455

 

 

39.2

%

Total rental income

 

96,573

 

 

 

97,415

 

 

(0.9

%)

 

 

383,364

 

 

 

381,950

 

 

0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Cost of Operations (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property taxes

 

9,950

 

 

 

9,601

 

 

3.6

%

 

 

42,360

 

 

 

40,016

 

 

5.9

%

Utilities

 

4,729

 

 

 

4,883

 

 

(3.2

%)

 

 

18,835

 

 

 

19,493

 

 

(3.4

%)

Repairs and maintenance

 

7,219

 

 

 

6,094

 

 

18.5

%

 

 

24,495

 

 

 

23,489

 

 

4.3

%

Payroll

 

3,951

 

 

 

4,127

 

 

(4.3

%)

 

 

15,981

 

 

 

15,197

 

 

5.2

%

Snow removal

 

195

 

 

 

13

 

 

1400.0

%

 

 

274

 

 

 

1,046

 

 

(73.8

%)

Property insurance

 

1,073

 

 

 

1,025

 

 

4.7

%

 

 

4,082

 

 

 

3,371

 

 

21.1

%

Other expenses

 

1,418

 

 

 

1,538

 

 

(7.8

%)

 

 

6,542

 

 

 

6,947

 

 

(5.8

%)

Total Adjusted Cost of Operations

 

28,535

 

 

 

27,281

 

 

4.6

%

 

 

112,569

 

 

 

109,559

 

 

2.7

%

NOI (4)

$

68,038

 

 

$

70,134

 

 

(3.0

%)

 

$

270,795

 

 

$

272,391

 

 

(0.6

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash NOI (5)

$

69,242

 

 

$

69,569

 

 

(0.5

%)

 

$

267,378

 

 

$

269,936

 

 

(0.9

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Statistical Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rentable square footage at period end

 

25,656

 

 

 

25,656

 

 

 

 

 

25,656

 

 

 

25,656

 

 

 

NOI margin (6)

 

70.5

%

 

 

72.0

%

 

(2.1

%)

 

 

70.6

%

 

 

71.3

%

 

(1.0

%)

Cash NOI margin (7)

 

70.8

%

 

 

71.8

%

 

(1.4

%)

 

 

70.4

%

 

 

71.1

%

 

(1.0

%)

Weighted average square foot occupancy

 

92.0

%

 

 

94.4

%

 

(2.5

%)

 

 

92.4

%

 

 

94.5

%

 

(2.2

%)

Revenue per occupied square foot (8)

$

16.37

 

 

$

16.09

 

 

1.7

%

 

$

16.17

 

 

$

15.75

 

 

2.7

%

Revenue per available foot (RevPAF) (9)

$

15.06

 

 

$

15.19

 

 

(0.9

%)

 

$

14.94

 

 

$

14.89

 

 

0.3

%

Cash Rental Income per occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

square foot (10)

$

16.57

 

 

$

15.99

 

 

3.6

%

 

$

16.03

 

 

$

15.65

 

 

2.4

%

Cash Rental Income per available foot (11)

$

15.24

 

 

$

15.10

 

 

0.9

%

 

$

14.81

 

 

$

14.79

 

 

0.1

%

(1)

Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below).

(2)

Non-Cash Rental Income represents amortization of deferred rent receivable, amortization of above and below market rents, net, and amortization of lease incentives and tenant improvement reimbursements.

(3)

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.

(4)

The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its business parks. The Company defines NOI as rental income less Adjusted Cost of Operations. The Company believes NOI assists investors in analyzing the performance of its real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of the real estate, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of the real estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.

(5)

The Company utilizes Cash NOI to evaluate the cash flow performance of its business parks, and believes investors utilize this metric for the same purpose. The Company defines Cash NOI as Cash Rental Income less Adjusted Cost of Operations.

(6)

NOI margin is computed by dividing NOI by rental income.

(7)

Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.

(8)

Revenue per occupied square foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square foot for the three month period shown is annualized.

(9)

Revenue per Available Square Foot (RevPAF) is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three month period shown is annualized.

(10)

Cash Rental Income per occupied square foot is computed by dividing Cash Rental Income for the period by weighted average occupied square feet for the same period. Cash rental income per occupied square foot for the three month period shown is annualized.

(11)

Cash Rental Income per Available Square Foot is computed by dividing Cash Rental Income for the period by weighted average available square feet for the same period. Cash rental income per available square foot for the three month period shown is 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

 

 

Full Year

Rental income (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

97,735

 

 

$

92,657

 

 

$

96,399

 

 

$

96,573

 

 

$

383,364

 

2019

$

94,604

 

 

$

94,794

 

 

$

95,137

 

 

$

97,415

 

 

$

381,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Cost of Operations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

28,134

 

 

$

26,997

 

 

$

28,903

 

 

$

28,535

 

 

$

112,569

 

2019

$

28,143

 

 

$

26,683

 

 

$

27,452

 

 

$

27,281

 

 

$

109,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

69,601

 

 

$

65,660

 

 

$

67,496

 

 

$

68,038

 

 

$

270,795

 

2019

$

66,461

 

 

$

68,111

 

 

$

67,685

 

 

$

70,134

 

 

$

272,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average square foot occupancy

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

92.9

%

 

 

92.4

%

 

 

92.3

%

 

 

92.0

%

 

 

92.4

%

2019

 

94.7

%

 

 

94.2

%

 

 

94.7

%

 

 

94.4

%

 

 

94.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue per occupied square foot (4)

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

16.40

 

 

$

15.64

 

 

$

16.29

 

 

$

16.37

 

 

$

16.17

 

2019

$

15.57

 

 

$

15.68

 

 

$

15.66

 

 

$

16.09

 

 

$

15.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RevPAF (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

$

15.24

 

 

$

14.45

 

 

$

15.03

 

 

$

15.06

 

 

$

14.94

 

2019

$

14.75

 

 

$

14.78

 

 

$

14.83

 

 

$

15.19

 

 

$

14.89

 

(1)

Included in the calculation of Same Park rental income are (a) lease buyout income of $0.2 million, $0.8 million, $0.2 million, $0.2 million, $0.3 million, $0.3 million, $0.3 million, and $0.4 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, respectively, (b) accounts receivable write-offs of $0.2 million, $0.3 million, $0.3 million, $0.2 million, $0.1 million, $1.1 million, $0.2 million, and $0.1 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, respectively, and (c) deferred rent receivable write-offs of $0.1 million, $0.1 million, $0.1 million, $0.1 million, $0, $2.3 million, $0.3 million, and $0.4 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, respectively.

(2)

Adjusted Cost of Operations 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.

(3)

The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its business parks. The Company defines NOI as rental income less Adjusted Cost of Operations. The Company believes NOI assists investors in analyzing the performance of its real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of the real estate, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of the real estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.

(4)

Revenue per occupied square foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square foot for the three month periods shown is annualized.

(5)

RevPAF is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three month periods shown is annualized.

COVID-19 Pandemic/Rent Collections Update

The COVID-19 pandemic has had and is expected to continue to have a significant impact on the Company’s operations and capital plans; however, the effect to the Company’s financial and operating performance in the fourth quarter was less pronounced than the prior two quarters. During the three months ended December 31, 2020, the Company granted $0.2 million of deferred rent and less than $0.1 million of rent abatement. For the year ended December 31, 2020, the Company granted rent relief to 393 customers (approximately 11.0% of total customers based on rental income) including $5.7 million of rent deferral and $1.3 million of rent abatement. As of February 19, 2021, the Company collected $3.7 million, or 97.1%, of the scheduled repayments of COVID-19 related rent deferrals billed through February 1, 2021.

During the three months ended December 31, 2020, the Company wrote-off $0.2 million of accounts receivable, which is in-line with the $0.2 million written-off during the three months ended December 31, 2019. Also, during the three months ended December 31, 2020, the Company wrote-off deferred rent receivables of $0.4 million, which is slightly higher than the $0.1 million written-off during the three months ended December 31, 2019. For the year ended December 31, 2020, the Company wrote-off accounts receivable of $1.6 million, representing 41bps of Cash Rental Income, compared to $1.1 million, or 27bps of Cash Rental Income in 2019.

The table below represents percentages of billed revenue that the Company has collected, deferred, and abated/written-off, by product type, for the respective periods presented (percentages shown are all as of December 31, 2020). Notably, rent collection percentages in the fourth quarter were in-line with pre-COVID levels and new deferral and abatement activity during the quarter was insignificant.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Rent

 

 

Collected

 

Outstanding

 

Deferred

 

Abated/Written-off

Q4 2020

 

 

 

 

 

 

 

 

 

 

 

 

Industrial

 

98%

 

2%

 

0%

 

0%

Flex

 

98%

 

2%

 

0%

 

0%

Office

 

99%

 

1%

 

0%

 

0%

Total

 

98%

 

2%

 

0%

 

0%

 

 

 

 

 

 

 

 

 

FY 2020

 

 

 

 

 

 

 

 

Industrial

 

97%

 

0%

 

2%

 

1%

Flex

 

98%

 

1%

 

1%

 

0%

Office

 

99%

 

0%

 

1%

 

0%

Total

 

97%

 

1%

 

1%

 

1%

As of February 19, 2021, the Company had open rent relief requests from approximately 1% of customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Overview, Impact of COVID-19 Pandemic” in its December 31, 2020 Form 10-K for more information.

Acquisition, Dispositions, and Development Update

As previously announced in our third quarter 2020 earnings release, the Company acquired Pickett Industrial Park, a 246,000 square foot infill multi-tenant industrial park located in Alexandria, Virginia, for a total purchase price of $46.3 million on October 28, 2020.

The Company has completed the development of its 83,000 square foot multi-tenant industrial property at its Freeport Business Park adjacent to Dallas/Fort Worth International Airport in Dallas, Texas, for a total development cost of $8.1 million (excluding land value). Separately, the Company reported that construction of Brentford at The Mile is progressing on schedule and in-line with the previous development cost estimate of $110 to $115 million, excluding land value.

Distributions Declared

On February 17, 2021, the Company’s 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 for both common shares and preferred stock will be payable on March 31, 2021 to shareholders of record on March 16, 2021.

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 December 31, 2020, the Company wholly owned 27.7 million rentable square feet with approximately 5,000 commercial customers in six states. The Company also held a 95.0% interest in a 395-unit apartment complex and a 98.2% interest in an entity developing a 411-unit multifamily apartment complex.

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 duration and severity of the COVID-19 pandemic and its impact on our business and our customers; 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 and business conditions, including as a result of the economic fallout of the COVID-19 pandemic; rental rates and occupancy levels at the Company’s facilities; and changes in these conditions as a result of the COVID-19 pandemic, 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 fourth quarter operating results, is available on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Tuesday, February 23, 2021, at 10:00 a.m. PST (1:00 p.m. EST) to discuss fourth quarter results. The Company will also be discussing its response to the COVID-19 pandemic and the effects it has had on its customers and the operation of its properties. The toll free number is (877) 876-9176; the conference ID is PSBQ420. 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 March 9, 2021 at (800) 839‑9302, as well as via webcast on the Company’s website.

Additional financial data attached.

 

 

 

 

 

 

 

PS BUSINESS PARKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 

 

December 31,

 

2020

 

2019

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

69,083

 

 

$

62,786

 

 

 

 

 

 

 

Real estate facilities, at cost

 

 

 

 

 

Land

 

874,680

 

 

 

844,419

 

Buildings and improvements

 

2,247,389

 

 

 

2,203,308

 

 

 

3,122,069

 

 

 

3,047,727

 

Accumulated depreciation

 

(1,229,102

)

 

 

(1,158,489

)

 

 

1,892,967

 

 

 

1,889,238

 

Properties held for sale, net (1)

 

 

 

 

15,264

 

Land and building held for development, net

 

43,014

 

 

 

28,110

 

 

 

1,935,981

 

 

 

1,932,612

 

Rent receivable

 

1,519

 

 

 

1,392

 

Deferred rent receivable (2)

 

36,788

 

 

 

32,993

 

Other assets

 

14,334

 

 

 

16,660

 

Total assets

$

2,057,705

 

 

$

2,046,443

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accrued and other liabilities

$

82,065

 

 

$

84,632

 

Total liabilities

 

82,065

 

 

 

84,632

 

Commitments and contingencies

 

 

 

 

 

Equity

 

 

 

 

 

PS Business Parks, Inc.’s shareholders’ equity

 

 

 

 

 

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

 

 

 

 

 

37,790 shares issued and outstanding at ($944,750 aggregate

 

 

 

 

 

liquidation preference) December 31, 2020 and 2019

 

944,750

 

 

 

944,750

 

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

 

 

 

 

 

27,488,547 and 27,440,953 shares issued and outstanding at

 

 

 

 

 

December 31, 2020 and 2019, respectively

 

274

 

 

 

274

 

Paid-in capital

 

738,022

 

 

 

736,986

 

Accumulated earnings

 

73,631

 

 

 

63,666

 

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

 

1,756,677

 

 

 

1,745,676

 

Noncontrolling interests

 

218,963

 

 

 

216,135

 

Total equity

 

1,975,640

 

 

 

1,961,811

 

Total liabilities and equity

$

2,057,705

 

 

$

2,046,443

 

(1)

Properties held for sale, net as of December 31, 2019 represents two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process and sold on September 16, 2020 for a gross sales price of $11.4 million, and one single-tenant building totaling 113,000 square feet located in Montgomery County, Maryland, which sold on January 7, 2020 for a gross sales price of $30.0 million.

(2)

Increase in deferred rent receivable is primarily attributable to rent deferral arrangements that the Company entered into with certain customers as a result of the COVID-19 pandemic.

 

 

 

 

 

 

 

 

 

 

 

 

 

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Three Months

 

For The Years

 

Ended December 31,

 

Ended December 31,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

105,088

 

 

$

106,175

 

 

$

415,623

 

 

$

429,846

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

32,023

 

 

 

30,822

 

 

 

125,513

 

 

 

128,343

 

Depreciation and amortization

 

23,668

 

 

 

28,386

 

 

 

96,314

 

 

 

104,249

 

General and administrative

 

3,152

 

 

 

3,650

 

 

 

14,526

 

 

 

13,761

 

Total operating expenses

 

58,843

 

 

 

62,858

 

 

 

236,353

 

 

 

246,353

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

222

 

 

 

1,726

 

 

 

1,234

 

 

 

4,492

 

Interest and other expense

 

(172

)

 

 

(173

)

 

 

(1,072

)

 

 

(657

)

Gain on sale of real estate facilities

 

 

 

 

16,644

 

 

 

27,273

 

 

 

16,644

 

Net income

 

46,295

 

 

 

61,514

 

 

 

206,705

 

 

 

203,972

 

Allocation to noncontrolling interests

 

(7,147

)

 

 

(7,336

)

 

 

(33,158

)

 

 

(29,006

)

Net income allocable to PS Business Parks, Inc.

 

39,148

 

 

 

54,178

 

 

 

173,547

 

 

 

174,966

 

Allocation to preferred shareholders based upon

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

(12,047

)

 

 

(15,469

)

 

 

(48,186

)

 

 

(54,346

)

Charge related to the redemption of preferred securities

 

 

 

 

(11,007

)

 

 

 

 

 

(11,007

)

Allocation to restricted stock unit holders

 

(173

)

 

 

(211

)

 

 

(716

)

 

 

(910

)

Net income allocable to common shareholders

$

26,928

 

 

$

27,491

 

 

$

124,645

 

 

$

108,703

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.98

 

 

$

1.00

 

 

$

4.54

 

 

$

3.96

 

Diluted

$

0.98

 

 

$

1.00

 

 

$

4.52

 

 

$

3.95

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

27,488

 

 

 

27,439

 

 

 

27,475

 

 

 

27,418

 

Diluted

27,572

27,551

27,563

27,526

 

 

 

 

 

 

 

 

 

 

 

 

 

PS BUSINESS PARKS, INC.
Computation of Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”)
(In thousands, except per share amounts)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For The Years

 

Ended December 31,

 

Ended December 31,

 

2020

 

2019

 

2020

 

2019

Net income allocable to common shareholders

$

26,928

 

 

$

27,491

 

 

$

124,645

 

 

$

108,703

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate facilities

 

 

 

 

(16,644

)

 

 

(27,273

)

 

 

(16,644

)

Depreciation and amortization expense

 

23,668

 

 

 

28,386

 

 

 

96,314

 

 

 

104,249

 

Net income allocated to noncontrolling interests

 

7,147

 

 

 

7,336

 

 

 

33,158

 

 

 

29,006

 

Net income allocated to restricted stock unit holders

 

173

 

 

 

211

 

 

 

716

 

 

 

910

 

FFO allocated to joint venture partner

 

(16

)

 

 

(44

)

 

 

(118

)

 

 

(149

)

FFO allocable to diluted common shares and units (1)

 

57,900

 

 

 

46,736

 

 

 

227,442

 

 

 

226,075

 

Non-capitalizable demolition costs

 

 

 

 

 

 

 

335

 

 

 

 

Acceleration of stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

due to President and Chief Executive Officer retirement

 

 

 

 

 

 

 

1,687

 

 

 

 

Charge related to the redemption of preferred securities

 

 

 

 

11,007

 

 

 

 

 

 

11,007

 

Core FFO allocable to diluted common shares and units (1)

 

57,900

 

 

 

57,743

 

 

 

229,464

 

 

 

237,082

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

Recurring capital improvements

 

(3,108

)

 

 

(4,908

)

 

 

(9,521

)

 

 

(11,244

)

Tenant improvements

 

(4,909

)

 

 

(5,462

)

 

 

(15,948

)

 

 

(17,360

)

Lease commissions

 

(3,653

)

 

 

(2,240

)

 

 

(8,878

)

 

 

(8,267

)

Non-cash rental income (2)

 

627

 

 

 

(867

)

 

 

(4,713

)

 

 

(3,936

)

Non-cash stock compensation expense (3)

 

1,257

 

 

 

965

 

 

 

3,961

 

 

 

4,956

 

Cash paid for taxes in lieu of shares upon vesting of

 

 

 

 

 

 

 

 

 

 

 

restricted stock units

 

(114

)

 

 

(230

)

 

 

(4,216

)

 

 

(6,350

)

FAD allocable to diluted common shares and units (1)

$

48,000

 

 

$

45,001

 

 

$

190,149

 

 

$

194,881

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to common shares, noncontrolling interests, and

 

 

 

 

 

 

 

 

 

 

 

restricted stock unit holders

$

36,750

 

 

$

36,749

 

 

$

146,873

 

 

$

146,881

 

Distribution payout ratio

76.6

%

 

 

81.7

%

 

 

77.2

%

75.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Earnings per Share to FFO per Share

 

 

 

 

 

 

 

 

 

 

 

Net income per common share—diluted

$

0.98

 

 

$

1.00

 

 

$

4.52

 

 

$

3.95

 

Gain on sale of real estate facilities

 

 

 

 

(0.47

)

 

 

(0.77

)

 

 

(0.47

)

Depreciation and amortization expense

 

0.68

 

 

 

0.81

 

 

 

2.76

 

 

 

2.99

 

FFO per share (1)

$

1.66

 

 

$

1.34

 

 

$

6.51

 

 

$

6.47

 

Non-capitalizable demolition costs

 

 

 

 

 

 

 

0.01

 

 

 

 

Acceleration of stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

due to President and Chief Executive Officer retirement

 

 

 

 

 

 

 

0.05

 

 

 

 

Charge related to the redemption of preferred securities

 

 

 

 

0.31

 

 

 

 

 

 

0.31

 

Core FFO per share (1)

$

1.66

 

 

$

1.65

 

 

$

6.57

 

 

$

6.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding:

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

27,488

 

 

 

27,439

 

 

 

27,475

 

 

 

27,418

 

Operating partnership units

 

7,305

 

 

 

7,305

 

 

 

7,305

 

 

 

7,305

 

Restricted stock units

 

57

 

 

 

111

 

 

 

51

 

 

 

124

 

Common share equivalents

 

84

 

 

 

112

 

 

 

88

 

 

 

108

 

Total diluted common shares and units

 

34,934

 

 

 

34,967

 

 

 

34,919

 

 

 

34,955

 

(1)

FFO, Core FFO, and FAD are defined above.

(2)

Non-cash rental income includes amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursement, and lease incentive intangible.

(3)

Amounts shown are net of accelerated stock compensation expense related to the President and Chief Executive Officer retirement, which is also excluded from the computation of Core FFO.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PS BUSINESS PARKS, INC.
Reconciliation of Selected Non-GAAP Measures to Analogous GAAP Measures
(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

 

For The Years

 

 

 

Ended December 31,

 

 

 

Ended December 31,

 

 

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Park

$

96,573

 

 

$

97,415

 

 

(0.9

%)

 

$

383,364

 

 

$

381,950

 

 

0.4

%

Non-Same Park

 

6,300

 

 

 

4,768

 

 

32.1

%

 

 

22,109

 

 

 

14,276

 

 

54.9

%

Multifamily

 

2,215

 

 

 

2,583

 

 

(14.2

%)

 

 

9,464

 

 

 

10,075

 

 

(6.1

%)

Assets sold (1)

 

 

 

 

1,409

 

 

(100.0

%)

 

 

686

 

 

 

23,545

 

 

(97.1

%)

Total rental income

 

105,088

 

 

 

106,175

 

 

(1.0

%)

 

 

415,623

 

 

 

429,846

 

 

(3.3

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted cost of operations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Park

 

28,535

 

 

 

27,281

 

 

4.6

%

 

 

112,569

 

 

 

109,559

 

 

2.7

%

Non-Same Park

 

1,881

 

 

 

1,595

 

 

17.9

%

 

 

7,327

 

 

 

4,899

 

 

49.6

%

Multifamily

 

1,180

 

 

 

1,019

 

 

15.8

%

 

 

4,264

 

 

 

4,137

 

 

3.1

%

Assets sold (1)

 

 

 

 

703

 

 

(100.0

%)

 

 

143

 

 

 

8,614

 

 

(98.3

%)

Stock compensation expense (3)

 

427

 

 

 

224

 

 

90.6

%

 

 

1,210

 

 

 

1,134

 

 

6.7

%

Total cost of operations

 

32,023

 

 

 

30,822

 

 

3.9

%

 

 

125,513

 

 

 

128,343

 

 

(2.2

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Park

 

68,038

 

 

 

70,134

 

 

(3.0

%)

 

 

270,795

 

 

 

272,391

 

 

(0.6

%)

Non-Same Park

 

4,419

 

 

 

3,173

 

 

39.3

%

 

 

14,782

 

 

 

9,377

 

 

57.6

%

Multifamily

 

1,035

 

 

 

1,564

 

 

(33.8

%)

 

 

5,200

 

 

 

5,938

 

 

(12.4

%)

Assets sold (1)

 

 

 

 

706

 

 

(100.0

%)

 

 

543

 

 

 

14,931

 

 

(96.4

%)

Stock compensation expense (3)

 

(427

)

 

 

(224

)

 

90.6

%

 

 

(1,210

)

 

 

(1,134

)

 

6.7

%

Depreciation and amortization expense

 

(23,668

)

 

 

(28,386

)

 

(16.6

%)

 

 

(96,314

)

 

 

(104,249

)

 

(7.6

%)

General and administrative expense

 

(3,152

)

 

 

(3,650

)

 

(13.6

%)

 

 

(14,526

)

 

 

(13,761

)

 

5.6

%

Interest and other income

 

222

 

 

 

1,726

 

 

(87.1

%)

 

 

1,234

 

 

 

4,492

 

 

(72.5

%)

Interest and other expense

 

(172

)

 

 

(173

)

 

(0.6

%)

 

 

(1,072

)

 

 

(657

)

 

63.2

%

Gain on sale of real estate facilities

 

 

 

 

16,644

 

 

(100.0

%)

 

 

27,273

 

 

 

16,644

 

 

63.9

%

Net income

$

46,295

 

 

$

61,514

 

 

(24.7

%)

 

$

206,705

 

 

$

203,972

 

 

1.3

%

(1)

Amounts for the year ended December 31, 2020 include operating results attributable to two industrial buildings totaling 40,000 square feet sold in September 2020 and a 113,000 square foot office building sold in January 2020; amounts for the three months and year ended December 31, 2019 reflect the operating results of the two industrial buildings totaling 40,000 square feet sold in September 2020, the 113,000 square foot office building sold in January 2020, and 1.3 million square feet of assets sold in October 2019.

(2)

Adjusted Cost of Operations excludes the impact of stock compensation expense.

(3)

Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributable to the executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.

(4)

NOI represents rental income less Adjusted Cost of Operations.

 



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Disclaimer

PS Business Parks, Inc. Reports Results for the Quarter and Year Ended December 31, 2020 PS Business Parks, Inc. (NYSE:PSB) reported operating results for the quarter and year ended December 31, 2020. Operating Results for the Three Months and Year Ended December 31, 2020 Net income allocable to common shareholders for the three months …

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