PS Business Parks, Inc. Reports Results for the Quarter Ended September 30, 2021

GLENDALE, Calif.--(BUSINESS WIRE)-- PS Business Parks, Inc. (NYSE:PSB) reported operating results for the three and nine months ended September 30, 2021.

Operating Results for the Three and Nine Months Ended September 30, 2021

Net income allocable to common stockholders for the three and nine months ended September 30, 2021 was $52.2 million, or $1.89 per diluted share, and $125.7 million, or $4.55 per diluted share, respectively. Net operating income (“NOI”) attributable to the Company’s Same Park portfolio (defined below) for the three and nine months ended September 30, 2021 was $70.8 million and $208.7 million, respectively, representing increases of 8.5% and 6.4% over the same periods in 2020.

The Company also reports NOI, a measure that is not defined in accordance with U.S. generally accepted accounting principles (“GAAP”), on a basis which excludes non-cash rents that have been deferred or abated during the period, certain non-cash revenue items, including amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursements, and lease incentives, and also excludes stock-compensation expense for employees whose compensation expense is recorded in cost of operations (“Cash NOI”). Same Park Cash NOI was $70.7 million and $208.0 million for the three and nine months ended September 30, 2021, respectively, representing increases of 10.7% and 8.6% over the same periods in 2020. The increases in Same Park Cash NOI for the three and nine months ended September 30, 2021 were driven by cash rental income growth of 8.4% and 7.3%, respectively, partially offset by growth in adjusted cost of operations of 3.0% and 4.3%, over the same periods in 2020.

The following table details the change in Same Park rental income for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 

For the Three Months

 

 

 

 

For the Nine Months

 

 

 

 

Ended September 30,

 

 

 

 

Ended September 30,

 

 

 

 

2021

 

2020

 

Change

 

2021

 

2020

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

 

 

Base rental income

$

73,250

 

$

69,440

 

$

3,810

 

$

216,566

 

$

210,068

 

$

6,498

 

Expense recovery income

 

24,690

 

 

22,643

 

 

2,047

 

 

71,658

 

 

66,270

 

 

5,388

 

Lease buyout income

 

738

 

 

288

 

 

450

 

 

1,318

 

 

787

 

 

531

 

Rent receivable recovery/

 

 

 

 

 

 

 

 

 

 

 

 

(write-off)

 

20

 

 

(275

)

 

295

 

 

61

 

 

(1,321

)

 

1,382

 

Rent abatements

 

(97

)

 

(331

)

 

234

 

 

(304

)

 

(1,189

)

 

885

 

Deferrals

 

(5

)

 

(1,632

)

 

1,627

 

 

(292

)

 

(5,144

)

 

4,852

 

Deferral repayments

 

310

 

 

1,147

 

 

(837

)

 

1,518

 

 

1,166

 

 

352

 

Fee Income

 

255

 

 

221

 

 

34

 

 

594

 

 

678

 

 

(84

)

Cash Rental Income

 

99,161

 

 

91,501

 

 

7,660

 

 

291,119

 

 

271,315

 

 

19,804

 

Non-Cash Rental Income (1)

 

131

 

 

1,430

 

 

(1,299

)

 

682

 

 

4,526

 

 

(3,844

)

Total rental income

$

99,292

 

$

92,931

 

$

6,361

 

$

291,801

 

$

275,841

 

$

15,960

 

(1)

Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives.

 

Weighted average occupancy for the Company’s Same Park portfolio during the three and nine months ended September 30, 2021 was 94.8% and 94.0%, respectively, compared to 92.6% for both of the same periods in 2020. Total portfolio weighted average occupancy1 was 94.7% and 93.9% during the three and nine months ended September 30, 2021, respectively, compared to 91.5% and 92.1% for the same periods in 2020.

____________________
1  

Total portfolio occupancy statistics exclude assets sold or held for sale as of September 30, 2021.

Additional detail on Same Park NOI and Same Park Cash NOI for the three and nine months ended September 30, 2021 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 and nine months ended September 30, 2021 was $1.72 per share and $5.15 per share, respectively, representing increases of 11.2% and 6.2% from the same periods in 2020. The increases in FFO per share were the result of higher NOI, as described above, partially offset by higher general and administrative expense primarily driven by stock compensation expense.

FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) 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 $1.72 per share and $5.16 per share for the three and nine months ended September 30, 2021, respectively, representing increases of 7.2% and 5.2% from the same periods in 2020. For the three months ended September 30, 2021, Core FFO was equal to FFO. For the nine months ended September 30, 2021, Core FFO excludes the impact of a one-time cost associated with the Company’s reincorporation as a Maryland corporation of $0.5 million incurred during the second quarter of 2021. For the three and nine months ended September 30, 2020, Core FFO excludes the impact of the (i) accelerated amortization of stock compensation expense of $1.7 million related to the retirement of our former President and CEO and (ii) non-capitalizable demolition costs of $0.3 million.

FAD for the three and nine months ended September 30, 2021 was $51.6 million and $156.3 million, respectively, representing increases of 6.8% and 10.0% from the same periods in 2020. The increases in FAD for the three and nine months ended September 30, 2021 were attributable to higher Same Park Cash NOI. 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 presentation of FFO, Core FFO, and FAD assists investors and analysts in analyzing and comparing the operating and financial performance between reporting periods. Additional information about these measures is included on the Company’s quarterly report on Form 10-Q.

Leasing Production2

During the three and nine months ended September 30, 2021, the Company executed leases on 2.0 million and 5.7 million square feet, respectively, compared to 1.9 million and 5.3 million square feet for the three and nine months ended September 30, 2020, respectively. The table below represents cash rental rate growth and net effective rent growth3 by product type for leases executed during the three and nine months ended September 30, 2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months ended September 30, 2021

 

For the Nine Months ended September 30, 2021

Product type

 

Leasing
volume

 

Cash rental
rate growth

 

Net effective
rent growth3

 

Leasing
volume

 

Cash rental
rate growth

 

Net effective
rent growth3

Industrial

 

1,290,000

 

9.0

%

 

22.4

%

 

3,967,000

 

8.8

%

 

20.6

%

Industrial-flex

 

505,000

 

2.6

%

 

10.0

%

 

1,219,000

 

1.0

%

 

7.0

%

Office

 

200,000

 

-9.2

%

 

-3.8

%

 

503,000

 

-7.7

%

 

-1.9

%

Total

 

1,995,000

 

5.0

%

 

15.4

%

 

5,689,000

 

4.9

%

 

14.2

%

 

The average lease term of all leases executed during the three months ended September 30, 2021 was 3.7 years, with associated average transaction costs (tenant improvements and leasing commissions) of $4.38 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in 2020 were 4.3 years and $3.56 per square foot, respectively.

____________________
2

Leasing Production excludes assets held for sale as of September 30, 2021.

3

Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes 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 September 30, 2021 that were acquired prior to January 1, 2019, provides an informative view of how the Company’s portfolio has performed over comparable periods. As of September 30, 2021, the Same Park portfolio consisted of 25.1 million rentable square feet, or 89.3% of the Company’s 28.1 million total rentable square feet, excluding the Company’s 95.0% interest in a 395-unit multifamily property.

For the three and nine months ended September 30, 2021 and for all comparative periods presented herein, the Company has excluded assets held for sale as of September 30, 2021 including a 772,000 square foot industrial-flex business park located in Irving, Texas, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 53,000 square foot industrial building located in Beltsville, Maryland. The Company also has excluded a 198,000 square foot office oriented flex business park located in Chantilly, Virginia, which sold in June 2021, a 244,000 square foot office park located in Herndon, Virginia, which sold in July 2021, and a 22,000 square foot industrial-flex building located in Irving, Texas, which sold in September 2021. Also excluded from the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.

The following table presents the unaudited operating results of the Company’s Same Park portfolio for the three and nine months ended September 30, 2021 and 2020 (in thousands, except per square foot amounts):

 

For the Three Months

 

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

 

Ended September 30,

 

 

 

2021

 

2020

 

Change

 

2021

 

2020

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

Cash Rental Income (1)

$

99,161

 

$

91,501

 

8.4

%

$

291,119

 

$

271,315

 

7.3

%

Non-Cash Rental Income (2)

 

131

 

 

1,430

 

(90.8

%)

 

682

 

 

4,526

 

(84.9

%)

Total rental income

 

99,292

 

 

92,931

 

6.8

%

 

291,801

 

 

275,841

 

5.8

%

 

 

 

 

 

 

 

 

 

 

 

Adjusted Cost of Operations (3)

 

 

 

 

 

 

 

 

 

 

Property taxes

 

10,749

 

 

10,517

 

2.2

%

 

32,022

 

 

31,357

 

2.1

%

Utilities

 

4,934

 

 

4,477

 

10.2

%

 

13,321

 

 

12,936

 

3.0

%

Repairs and maintenance

 

5,957

 

 

5,868

 

1.5

%

 

16,613

 

 

16,018

 

3.7

%

Compensation

 

4,001

 

 

3,974

 

0.7

%

 

11,946

 

 

11,688

 

2.2

%

Snow removal

 

 

 

 

 

 

1,011

 

 

70

 

1,344.3

%

Property insurance

 

1,290

 

 

1,243

 

3.8

%

 

3,551

 

 

2,908

 

22.1

%

Other expenses

 

1,539

 

 

1,558

 

(1.2

%)

 

4,684

 

 

4,768

 

(1.8

%)

Total Adjusted Cost of Operations

 

28,470

 

 

27,637

 

3.0

%

 

83,148

 

 

79,745

 

4.3

%

NOI (4)

$

70,822

 

$

65,294

 

8.5

%

$

208,653

 

$

196,096

 

6.4

%

 

 

 

 

 

 

 

 

 

 

 

Cash NOI (5)

$

70,691

 

$

63,864

 

10.7

%

$

207,971

 

$

191,570

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

Selected Statistical Data

 

 

 

 

 

 

 

 

 

 

Rentable square footage at period end

 

25,053

 

 

25,053

 

 

 

25,053

 

 

25,053

 

 

NOI margin (6)

 

71.3

%

 

70.3

%

1.4

%

 

71.5

%

 

71.1

%

0.6

%

Cash NOI margin (7)

 

71.3

%

 

69.8

%

2.1

%

 

71.4

%

 

70.6

%

1.1

%

Weighted average square foot occupancy

 

94.8

%

 

92.6

%

2.4

%

 

94.0

%

 

92.6

%

1.5

%

Revenue per occupied square foot (8)

$

16.72

 

$

16.02

 

4.4

%

$

16.52

 

$

15.85

 

4.2

%

Revenue per available foot (RevPAF) (9)

$

15.85

 

$

14.84

 

6.8

%

$

15.53

 

$

14.68

 

5.8

%

Cash Rental Income per occupied square foot (10)

$

16.70

 

$

15.78

 

5.8

%

$

16.49

 

$

15.59

 

5.8

%

Cash Rental Income per available foot (11)

$

15.83

 

$

14.61

 

8.4

%

$

15.49

 

$

14.44

 

7.3

%

(1)

Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). Detail of the components of Cash Rental Income can be found in the table presented under operating results above.

(2)

Non-Cash Rental Income represents amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.3 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively.

(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 properties. 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, a non-GAAP financial measure, to evaluate the cash flow performance of its properties 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 and nine month periods 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 and nine month periods 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 and nine month periods 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 and nine month periods shown is annualized.

 

The following table summarizes unaudited selected quarterly financial data with respect to the Same Park portfolio (in thousands, except per square foot amounts):

 

For the Three Months Ended

 

March 31

June 30

September 30

December 31

Cash Rental income (1)

 

 

 

 

 

 

 

 

2021

$

95,010

 

$

96,948

 

$

99,161

 

$

 

2020

$

93,109

 

$

86,705

 

$

91,501

 

$

94,566

 

 

 

 

 

 

 

 

 

 

Adjusted Cost of Operations (1)

 

 

 

 

 

 

 

 

2021

$

28,017

 

$

26,661

 

$

28,470

 

$

 

2020

$

26,669

 

$

25,439

 

$

27,637

 

$

27,115

 

 

 

 

 

 

 

 

 

 

Cash NOI (1)

 

 

 

 

 

 

 

 

2021

$

66,993

 

$

70,287

 

$

70,691

 

$

 

2020

$

66,440

 

$

61,266

 

$

63,864

 

$

67,451

 

 

 

 

 

 

 

 

 

 

Weighted average square foot occupancy

 

 

 

 

 

 

2021

 

93.2

%

 

93.9

%

 

94.8

%

 

 

2020

 

92.9

%

 

92.4

%

 

92.6

%

 

92.7

%

 

 

 

 

 

 

 

 

 

Cash Rental Income per Occupied Square Foot (1)

 

 

 

 

 

 

2021

$

16.28

 

$

16.49

 

$

16.70

 

$

 

2020

$

16.00

 

$

14.97

 

$

15.78

 

$

16.29

 

 

 

 

 

 

 

 

 

 

Cash Rental Income per Available Square Foot (1)

 

 

 

 

 

 

2021

$

15.17

 

$

15.48

 

$

15.83

 

$

 

2020

$

14.87

 

$

13.84

 

$

14.61

 

$

15.10

 

(1)

Defined in Property Operations–Same Park Portfolio table.

 

COVID-19 Pandemic/Rent Collections Update

The COVID-19 pandemic has had and is expected to continue to have an impact on our operations and capital plans. During the three months ended September 30, 2021, the Company granted $0.1 million of rent deferral and $0.1 million of rent abatement compared to the $1.7 million of rent deferral and $0.3 million of rent abatement granted for the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferral and $0.3 million of rent abatement which was significantly lower than the $5.5 million of rent deferrals and $1.2 million of rent abatements granted during the nine months ended September 30, 2020. Since the onset of the COVID-19 pandemic, the Company has entered into rent relief agreements consisting of $6.1 million of rent deferrals and $1.6 million of rent abatements. As of September 30, 2021, the 340 current customers that received rent relief account for 9.6% of rental income. Also as of September 30, 2021, the Company had collected $4.5 million of rent deferral repayment, representing 99.9% of the amounts scheduled to be repaid through September 2021. An additional $0.3 million of rent deferral repayment is scheduled to be repaid by customers between October 1, 2021 and December 31, 2021, with another $0.8 million thereafter.

As of October 27, 2021, the Company had collected 99.7% of revenue billed during the nine months ended September 30, 2021. The Company noted that the third quarter of 2021 marked the fifth consecutive quarter of normal accounts receivable write-off activity. During the three and nine months ended September 30, 2021, the Company wrote off $0.0 million of accounts receivable, net of recoveries compared to $0.3 million and $1.5 million written off during the three and nine months ended September 30, 2020, respectively. During the three and nine months ended September 30, 2021, the Company wrote off $0.1 million and $0.3 million of deferred rent receivable, respectively, which is significantly lower than the $0.3 million and $2.7 million written off during the three and nine months ended September 30, 2020, respectively.

As of October 27, 2021, the Company had open rent relief requests from less than 1% of its customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Certain Factors that May Impact Future Results–Impact of COVID-19 Pandemic” in our Form 10-Q for the quarter ended September 30, 2021 for more information.

Dispositions Update

On September 17, 2021, the Company sold a 22,000 square foot industrial-flex building located in Irving, Texas, for net sale proceeds of $3.4 million. On July 16, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million.

Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California, for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.

The Company previously announced that it is separately marketing for sale its Royal Tech Business Park (a 772,000 square foot industrial-flex property located in Irving, Texas). The Company noted that it will provide an update on this marketing process on its conference call to discuss third quarter results scheduled for Friday, October 29, 2021 at 10:00 a.m. PDT.

Capital Activity

On October 4, 2021, the Company announced that it is calling for redemption all outstanding depositary shares representing interests in its 5.20% Cumulative Preferred Stock, Series W on November 3, 2021, at $25.00 per share plus accrued dividends from October 1, 2021, through the date of redemption. The aggregate redemption amount, inclusive of prorated dividends, to be paid to the holders is $190.7 million.

Distributions Declared

On October 26, 2021, the Board of Directors declared a quarterly dividend of $1.05 per share of common stock. Distributions were also declared on its Series X, Series Y, and Series Z depositary shares, each representing 1/1,000 of a share of preferred stock. Distributions for both common stock and preferred stock will be payable on December 30, 2021 to stockholders of record on December 15, 2021.

Company Information

PS Business Parks, Inc. (NYSE:PSB), a S&P MidCap 400 company, is a REIT that acquires, develops, owns, and operates commercial properties, predominantly multi-tenant industrial, industrial-flex, and low-rise suburban office space. Located primarily in major coastal markets, PS Business Parks’ 96 properties serve approximately 4,900 tenants in 28 million square feet of space as of October 28, 2021. The portfolio also includes 800 residential units (including units in-process).

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; security breaches, including ransomware, or a failure of the Company’s networks, systems or technology, which could adversely impact the Company’s operations or its business, customer and employee relationships or result in fraudulent payments; 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 third quarter operating results, is available on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Friday, October 29, 2021, at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss third quarter results. The toll free number is 866-831-8713; the conference ID is PSBQ321. 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 5, 2021 at 800-839-5124, as well as via webcast on the Company’s website.

 

PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2021

 

2020

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

46,594

 

$

69,083

 

 

 

 

 

 

Real estate facilities, at cost

 

 

 

 

Land

 

865,062

 

 

843,765

 

Buildings and improvements

 

2,207,095

 

 

2,080,895

 

 

 

3,072,157

 

 

2,924,660

 

Accumulated depreciation

 

(1,157,947

)

 

(1,101,739

)

 

 

1,914,210

 

 

1,822,921

 

Properties held for sale, net

 

46,811

 

 

75,138

 

Land and building held for development, net

 

62,467

 

 

37,922

 

 

 

2,023,488

 

 

1,935,981

 

Rent receivable

 

2,427

 

 

1,519

 

Deferred rent receivable

 

37,078

 

 

36,788

 

Other assets

 

18,891

 

 

14,334

 

Total assets

$

2,128,478

 

$

2,057,705

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

Accrued and other liabilities

$

99,208

 

$

82,065

 

Total liabilities

 

99,208

 

 

82,065

 

Commitments and contingencies

 

 

 

 

Equity

 

 

 

 

PS Business Parks, Inc.’s stockholders’ equity

 

 

 

 

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

 

 

 

 

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

 

 

 

 

liquidation preference) September 30, 2021

 

 

 

 

and December 31, 2020

 

944,750

 

 

944,750

 

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

 

 

 

 

27,546,153 and 27,488,547 shares issued and outstanding at

 

 

 

 

September 30, 2021 and December 31, 2020, respectively

 

275

 

 

274

 

Paid-in capital

 

741,032

 

 

738,022

 

Accumulated earnings

 

113,444

 

 

73,631

 

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

 

1,799,501

 

 

1,756,677

 

Noncontrolling interests

 

229,769

 

 

218,963

 

Total equity

 

2,029,270

 

 

1,975,640

 

Total liabilities and equity

$

2,128,478

 

$

2,057,705

 

 

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

Rental income

$

110,448

 

$

103,760

 

$

327,859

 

$

310,535

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Cost of operations

 

33,091

 

 

32,096

 

 

98,158

 

 

93,490

 

Depreciation and amortization

 

23,857

 

 

23,064

 

 

69,356

 

 

72,646

 

General and administrative

 

5,148

 

 

5,047

 

 

14,329

 

 

11,374

 

Total operating expenses

 

62,096

 

 

60,207

 

 

181,843

 

 

177,510

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

411

 

 

230

 

 

1,590

 

 

1,012

 

Interest and other expense

 

(224

)

 

(536

)

 

(703

)

 

(900

)

Gain on sale of real estate facilities

 

29,924

 

 

7,652

 

 

49,117

 

 

27,273

 

Net income

 

78,463

 

 

50,899

 

 

196,020

 

 

160,410

 

Allocation to noncontrolling interests

 

(13,850

)

 

(8,124

)

 

(33,355

)

 

(26,011

)

Net income allocable to PS Business Parks, Inc.

 

64,613

 

 

42,775

 

 

162,665

 

 

134,399

 

Allocation to preferred stockholders

 

(12,046

)

 

(12,046

)

 

(36,139

)

 

(36,139

)

Allocation to restricted stock unit holders

 

(350

)

 

(149

)

 

(828

)

 

(543

)

Net income allocable to common stockholders

$

52,217

 

$

30,580

 

$

125,698

 

$

97,717

 

 

 

 

 

 

 

 

 

 

Net income per share of common stock

 

 

 

 

 

 

 

 

Basic

$

1.90

 

$

1.11

 

$

4.57

 

$

3.56

 

Diluted

$

1.89

 

$

1.11

 

$

4.55

 

$

3.55

 

 

 

 

 

 

 

 

 

 

Weighted average common stock outstanding

 

 

 

 

 

 

 

 

Basic

 

27,543

 

 

27,483

 

 

27,523

 

 

27,470

 

Diluted

 

27,635

 

 

27,565

 

 

27,623

 

 

27,560

 

 

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 Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

Net income allocable to common stockholders

$

52,217

 

$

30,580

 

$

125,698

 

$

97,717

 

Adjustments

 

 

 

 

 

 

 

 

Gain on sale of real estate facilities

 

(29,924

)

 

(7,652

)

 

(49,117

)

 

(27,273

)

Depreciation and amortization expense

 

23,857

 

 

23,064

 

 

69,356

 

 

72,646

 

Net income allocated to noncontrolling interests

 

13,850

 

 

8,124

 

 

33,355

 

 

26,011

 

Net income allocated to restricted stock unit holders

 

350

 

 

149

 

 

828

 

 

543

 

FFO allocated to joint venture partner

 

(22

)

 

(21

)

 

(67

)

 

(102

)

FFO allocable to diluted common stock and units (1)

 

60,328

 

 

54,244

 

 

180,053

 

 

169,542

 

Maryland reincorporation costs

 

 

 

 

 

510

 

 

 

Non-capitalizable demolition costs

 

 

 

335

 

 

 

 

335

 

Acceleration of stock compensation expense due to President and Chief Executive Officer retirement

 

 

 

1,687

 

 

 

 

1,687

 

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

 

60,328

 

 

56,266

 

 

180,563

 

 

171,564

 

Adjustments

 

 

 

 

 

 

 

 

Recurring capital improvements

 

(3,914

)

 

(1,625

)

 

(8,350

)

 

(6,413

)

Tenant improvements

 

(4,231

)

 

(3,338

)

 

(11,255

)

 

(11,039

)

Capitalized lease commissions

 

(2,034

)

 

(1,889

)

 

(5,438

)

 

(5,225

)

Non-cash rental income (2)

 

(453

)

 

(1,530

)

 

(1,943

)

 

(5,340

)

Non-cash stock compensation expense (3)

 

2,341

 

 

831

 

 

6,422

 

 

2,704

 

Cash paid for taxes in lieu of stock upon vesting of restricted stock units

 

(478

)

 

(442

)

 

(3,680

)

 

(4,102

)

FAD allocable to diluted common stock and units (1)

$

51,559

 

$

48,273

 

$

156,319

 

$

142,149

 

 

 

 

 

 

 

 

 

 

Distributions to common stockholders, noncontrolling interests, and restricted stock unit holders

$

36,793

 

$

36,717

 

$

110,330

 

$

110,123

 

Distribution payout ratio

 

71.4

%

 

76.1

%

 

70.6

%

 

77.5

%

 

 

 

 

 

 

 

 

 

Reconciliation of earnings per share to FFO per share

 

 

 

 

 

 

 

 

Net income per share of common stock—diluted

$

1.89

 

$

1.11

 

$

4.55

 

$

3.55

 

Gain on sale of real estate facilities

 

(0.85

)

 

(0.22

)

 

(1.39

)

 

(0.78

)

Depreciation and amortization expense

 

0.68

 

 

0.66

 

 

1.99

 

 

2.08

 

FFO per share (1)

 

1.72

 

 

1.55

 

 

5.15

 

 

4.85

 

Maryland reincorporation costs

 

 

 

 

 

0.01

 

 

 

Non-capitalizable demolition costs

 

 

 

0.01

 

 

 

 

0.01

 

Acceleration of stock compensation expense due to President and Chief Executive Officer retirement

 

 

 

0.05

 

 

 

 

0.05

 

Core FFO per share (1)

$

1.72

 

$

1.61

 

$

5.16

 

$

4.91

 

 

 

 

 

 

 

 

 

 

Weighted average outstanding

 

 

 

 

 

 

 

 

Common stock

 

27,543

 

 

27,483

 

 

27,523

 

 

27,470

 

Common operating partnership units

 

7,305

 

 

7,305

 

 

7,305

 

 

7,305

 

Restricted stock units

 

33

 

 

49

 

 

42

 

 

65

 

Common stock equivalents

 

92

 

 

82

 

 

100

 

 

90

 

Total diluted common stock and units

 

34,973

 

 

34,919

 

 

34,970

 

 

34,930

 

(1)

Defined in the Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”) section above.

(2)

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

(3)

Amounts shown are net of accelerated stock compensation expense related to the former 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 Nine Months

 

 

 

 

Ended September 30,

 

 

 

Ended September 30,

 

 

 

 

2021

 

2020

 

Change

 

2021

 

2020

 

Change

Rental income

 

 

 

 

 

 

 

 

 

 

Same Park

$

99,292

 

$

92,931

 

6.8

%

$

291,801

 

$

275,841

 

5.8

%

Non-Same Park

 

4,470

 

 

1,697

 

163.4

%

 

12,165

 

 

6,185

 

96.7

%

Multifamily

 

2,308

 

 

2,201

 

4.9

%

 

6,883

 

 

7,249

 

(5.0

%)

Assets sold or held for sale (1)

 

4,378

 

 

6,931

 

(36.8

%)

 

17,010

 

 

21,260

 

(20.0

%)

Total rental income

 

110,448

 

 

103,760

 

6.4

%

 

327,859

 

 

310,535

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

Adjusted Cost of Operations (2)

 

 

 

 

 

 

 

 

 

 

Same Park

 

28,470

 

 

27,637

 

3.0

%

 

83,148

 

 

79,745

 

4.3

%

Non-Same Park

 

1,389

 

 

900

 

54.3

%

 

3,729

 

 

2,607

 

43.0

%

Multifamily

 

1,161

 

 

1,066

 

8.9

%

 

3,405

 

 

3,084

 

10.4

%

Assets sold or held for sale (1)

 

1,643

 

 

2,250

 

(27.0

%)

 

6,511

 

 

7,271

 

(10.5

%)

Stock compensation expense (3)

 

428

 

 

243

 

76.1

%

 

1,365

 

 

783

 

74.3

%

Total cost of operations

 

33,091

 

 

32,096

 

3.1

%

 

98,158

 

 

93,490

 

5.0

%

 

 

 

 

 

 

 

 

 

 

 

Net operating income (2)

 

 

 

 

 

 

 

 

 

 

Same Park

 

70,822

 

 

65,294

 

8.5

%

 

208,653

 

 

196,096

 

6.4

%

Non-Same Park

 

3,081

 

 

797

 

286.6

%

 

8,436

 

 

3,578

 

135.8

%

Multifamily

 

1,147

 

 

1,135

 

1.1

%

 

3,478

 

 

4,165

 

(16.5

%)

Assets sold or held for sale (1)

 

2,735

 

 

4,681

 

(41.6

%)

 

10,499

 

 

13,989

 

(24.9

%)

Stock compensation expense (3)

 

(428

)

 

(243

)

76.1

%

 

(1,365

)

 

(783

)

74.3

%

Depreciation and amortization expense

 

(23,857

)

 

(23,064

)

3.4

%

 

(69,356

)

 

(72,646

)

(4.5

%)

General and administrative expense

 

(5,148

)

 

(5,047

)

2.0

%

 

(14,329

)

 

(11,374

)

26.0

%

Interest and other income

 

411

 

 

230

 

78.7

%

 

1,590

 

 

1,012

 

57.1

%

Interest and other expense

 

(224

)

 

(536

)

(58.2

%)

 

(703

)

 

(900

)

(21.9

%)

Gain on sale of real estate facility

 

29,924

 

 

7,652

 

291.1

%

 

49,117

 

 

27,273

 

80.1

%

Net income

$

78,463

 

$

50,899

 

54.2

%

$

196,020

 

$

160,410

 

22.2

%

(1)

As of September 30, 2021, the Company had reclassified to properties held for sale a total of 1.2 million square feet including a 53,000 square foot industrial building located in Beltsville, Maryland, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 772,000 square foot industrial-flex business park located in Irving, Texas. As of December 31, 2020, properties held for sale includes the 1.2 million square feet described above along with a single-tenant industrial-flex building totaling 22,000 square feet located in Irving, Texas, which was sold in September 2021, a 244,000 square foot office business park located in Herndon, Virginia, which sold in July 2021, and a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, which sold in June 2021. Also included in the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.

(2)

Defined in the Property Operations–Same Park Portfolio table above.

(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.

 

Jeff Hedges
(818) 244-8080, Ext. 1649

Source: PS Business Parks, Inc.