PS Business Parks' Q2 FFO Beats Estimates; Dividend Up - Analyst Blog

PS Business Parks Inc.’s PSB second-quarter 2015 funds from operations (“FFO”) per share of $1.20 beat the Zacks Consensus Estimate by 2 cents and came a penny ahead of the year-ago quarter figure.

The year-over-year rise in FFO per share was led by an increase in net operating income (“NOI”) from both Same Park and Non Same Park portfolios, partly offset by a decline in NOI due to asset sale.

Total operating revenue came in at $93.1 million, exceeding the Zacks Consensus Estimate of $91 million. However, it fell 1.1% year over year.
    
Quarter in Detail

Same Park rental income inched up 3.6% year over year, mainly attributable to an increase in occupancy and rental rates; while Same Park operating expenses increased 2.1%. As a result, Same Park NOI climbed 4.2% from the prior-year quarter. On the other hand, non-Same Park NOI jumped significantly year over year due to an increase in occupancy and acquisition of parks in the second half of 2014.

Annualized Same Park realized rent per square foot rose 2.6% year over year to $14.34. Same Park weighted average occupancy in the quarter was 93.1%, up 90 basis points (bps) year over year; while Non-Same Park weighted average occupancy grew to 82.8% from 75.9% a year ago.

Liquidity

PS Business Parks exited second-quarter 2015 with cash and cash equivalents of $200.2 million, higher than the prior-quarter tally of $188 million. At the end of second quarter, the company had full capacity available under its $250-million unsecured credit facility.

Dividend Update

Concurrent with its second-quarter earnings release, the company announced a regular quarterly dividend of 60 cents per share, an increase of 20% from the prior dividend payment. The dividend is payable on Sep 30 to shareholders of record on Sep 15.

In Conclusion

PS Business Parks’ results, exceeding both the FFO and revenue estimates, encourage us. NOI growth in both Same Park and Non-Same Park portfolio is appreciable. However, though asset dispositions seem a strategic fit for the long term, they also create a dilutive impact on the FFO per share. At the same time, stiff competition from commercial real estate operators poses a challenge before the company.

PS Business Parks currently carries a Zacks Rank #2 (Buy). We now look forward to other REIT stocks that are scheduled to release second-quarter 2015 results next week. These include General Growth Properties, Inc GGP, Vornado Realty Trust VNO and Highwoods Properties Inc. HIW.


Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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