Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 4, 2005
| California (State or Other Jurisdiction of Incorporation) |
1-10709 (Commission File Number) |
95-4300881 (I.R.S. Employer Identification Number) |
|---|
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (818) 244-8080
(Former name or former address, if changed since last report)
| |_| | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |_| | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |_| | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| |_| | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| On May 3, 2005, the Company reported operating results for the three months ended March 31, 2005. The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing. |
(c) Exhibits
The following exhibit relating to Item 7.01 shall be deemed to be furnished, and not filed:
99.1 Press release dated May 3, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PS BUSINESS PARKS, INC.
Date: May 4, 2005
By: /s/ Edward A. Stokx
Edward A. Stokx
Chief
Financial Officer
PS Business Parks, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.psbusinessparks.com
For Release: Immediately
Date: May 3, 2005
Contact:
Mr. Edward A. Stokx
(818)244-8080, Ext. 649
PS Business Parks, Inc. Reports Results for the Three Months Ended March 31, 2005
Glendale, California — PS Business Parks, Inc. (AMEX:PSB) reported operating results for the three months ended March 31, 2005.
Net income allocable to common shareholders for the three months ended March 31, 2005 was $7.3 million or $0.33 per diluted share on revenues of $55.9 million compared to a net income of $4.2 million or $0.19 per diluted share on revenues of $53.8 million for the same period in 2004.
Revenues increased $2.1 million for the three months ended March 31, 2005 over the same period in 2004 as a result of continued lease up of the Company’s portfolio. Net income allocable to common shareholders increased over the same period by $3.2 million or $0.14 per diluted share resulting from the increase in revenues and a gain on the sale of assets of $2.9 million, partially offset by increased depreciation.
Supplemental Measures
Funds from operations (“FFO”) allocable to common shareholders and unit holders for the first quarter of 2005 and 2004 were $25.9 million, or $0.88 per diluted share, and $23.5 million, or $0.81 per diluted share, respectively.
During April 2004, the Company redeemed 2.1 million depositary shares of its 9.250% Cumulative Preferred Stock, Series A for approximately $52.8 million and 510,000 units of its 8.875% Series B Cumulative Preferred Operating Partnership Units for approximately $12.8 million. In accordance with the Securities and Exchange Commission’s interpretation of Emerging Issues Task Force (“EITF”) Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” the redemption of the Series A preferred stock resulted in an additional allocation of net income to preferred shareholders for the quarter ended March 31, 2004 and a corresponding reduction of net income allocable to common shareholders of $1.9 million. The redemption of the Series B preferred units resulted in an additional allocation of net income to preferred unit holders for the quarter ended March 31, 2004 and a corresponding reduction of net income allocable to common shareholders of $267,000. The Company did not redeem or call for redemption any preferred equity in the first quarter of 2005.
The following table summarizes the impact of the implementation of the SEC’s clarification of EITF Topic D-42 on the Company’s FFO per common shareholders and unit holders for the three months ended March 31, 2005 and 2004:
Three Months Ended March 31,
---------------------------------
2005 2004
-------------- --------------
FFO per common share, before adjustments....... $ 0.88 $ 0.88
Application of EITF Topic D-42................. - (0.07)
FFO per common share, as reported.............. $ 0.88 $ 0.81
============== ==============
Property Operations
In order to evaluate the performance of the Company’s overall portfolio, management analyzes the operating performance of a consistent group of properties (17.7 million net rentable square feet). These properties (herein referred to as Same Park facilities) have been owned and operated by the Company since January 1, 2004 and exclude assets held for sale and included in discontinued operations. Same Park facilities represent approximately 99% of the Company’s portfolio of 17.8 million square feet of operating assets as of March 31, 2005.
The following tables summarize the operating results of the Same Park facilities as well as the total portfolio:
Same Park Facilities (17.7 million square feet) (1)
-----------------------------------------------
(in thousands, except per square foot amounts, unaudited)
Three Months Ended
March 31,
-----------------------------
2005 2004 Change
-------------- -------------- ---------
Rental income before straight-line rent...................... $ 53,865 $ 52,958 1.7%
Straight-line rent........................................... 1,079 652 65.5%
-------------- -------------- ---------
Total rental income.......................................... 54,944 53,610 2.5%
Cost of operations........................................... 16,084 16,116 (0.2%)
-------------- -------------- ---------
Net operating income......................................... 38,860 37,494 3.6%
Less: straight-line rent................................. (1,079) (652) 65.5%
-------------- -------------- ---------
Net operating income before straight-line rent(2)............ $ 37,781 $ 36,842 2.5%
============== ============== =========
Gross margin(3).............................................. 70.1% 69.6% 0.7%
Weighted average for period:
Square footage (4)....................................... 17,684 17,684 0.0%
Occupancy (4)............................................ 90.8% 88.6% 2.5%
Annualized realized rent per occupied sq. ft.(5)......... $ 13.42 $ 13.52 (0.7%)
(1) Financial results exclude discontinued operations.
(2) Net operating income ("NOI") is an important measurement in the commercial real estate industry for
determining the value of the real estate generating the NOI. The key components of NOI are rental
income less cost of operations excluding the effects of straight-line rent and depreciation.
(3) Gross margin is computed by dividing net operating income before straight-line rent by rental income
before straight-line rent.
(4) Weighted average square footage and occupancy exclude discontinued operations as of March 31, 2005.
(5) Realized rent per square foot represents the revenues earned per occupied square foot before
straight-line rent.
Total Portfolio (17.8 million square feet) (1)
------------------------------------------
(in thousands, except per square foot amounts, unaudited)
Three Months Ended
March 31,
-------------------------------
2005 2004 Change
--------------- --------------- ---------
Rental income before straight-line rent....................... $ 54,553 $ 52,958 3.0%
Straight-line rent............................................ 1,188 652 82.2%
--------------- --------------- ---------
Total rental income........................................... 55,741 53,610 4.0%
Cost of operations............................................ 16,388 16,116 1.7%
--------------- --------------- ---------
Net operating income.......................................... 39,353 37,494 5.0%
Less: straight-line rent.................................. (1,188) (652) 82.2%
--------------- --------------- ---------
Net operating income before straight-line rent(2)............. $ 38,165 $ 36,842 3.6%
=============== =============== =========
Gross margin(3)............................................... 70.0% 69.6% 0.6%
Weighted average for period:
Square footage (4)........................................ 17,849 17,684 0.9%
Occupancy (4) ............................................ 90.8% 88.6% 2.5%
Annualized realized rent per occupied sq. ft.(5).......... $ 13.47 $ 13.52 (0.4%)
(1) Financial results exclude discontinued operations.
(2) Net operating income ("NOI") is an important measurement in the commercial real estate industry for
determining the value of the real estate generating the NOI. The key components of NOI are rental
income less cost of operations excluding the effects of straight-line rent and depreciation.
(3) Gross margin is computed by dividing net operating income before straight-line rent by rental income
before straight-line rent.
(4) Weighted average square footage and occupancy exclude discontinued operations as of March 31, 2005.
(5) Realized rent per square foot represents the revenues earned per occupied square foot before
straight-line rent.
Financial Condition
The following are the Company’s key financial ratios with respect to its leverage at and for the three months ended March 31, 2005.
Ratio of FFO to fixed charges (1)..................................... 91.8
Ratio of FFO to fixed charges and preferred distributions(1) ......... 3.0x
Debt and preferred equity to total market capitalization (based on
common stock price of $40.30 at March 31, 2005) ...................... 35.6%
Available under line of credit at March 31, 2005 ..................... $100.0 million
(1) Fixed charges include interest expense of $282,000.
Issuance of Preferred Stock
On May 2, 2005, the Company issued 3.0 million depositary shares, each representing 1/1,000 of a share of the 7.200% Cumulative Preferred Stock, Series M, at a par value of $25.00 per depositary share. The intended use of the proceeds from the offering will be to fund future preferred equity redemptions.
Property Dispositions
On February 15, 2005, the Company sold a 56,000 square foot retail center located at Miami International Commerce Center (“MICC”). The sales price was approximately $12.2 million, resulting in a gain of $967,000. In addition, on January 20, 2005, the Company closed on the sale of a 7,100 square foot unit at MICC for $740,000, resulting in a gain of $142,000. These assets were classified as properties held for disposition.
On January 31, 2005, the Company closed on the sale of 8.2 acres of land within the Cornell Oaks project in Beaverton, Oregon. The sales price for the land was $3.6 million, resulting in a gain of $1.8 million.
Distributions Declared
The Board of Directors declared a quarterly dividend of $0.29 per common share on May 3, 2005. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock listed below. Distributions are payable June 30, 2005 to shareholders of record on June 15, 2005.
Series Dividend Rate Dividend Declared
---------- ---------------- --------------------
Series D 9.500% $ 0.593750
Series F 8.750% 0.546875
Series H 7.000% 0.437500
Series I 6.875% 0.429688
Series K 7.950% 0.496875
Series L 7.600% 0.475000
Series M 7.200% 0.295000
Stock Repurchase Program
In March 2000, the Company’s Board of Directors authorized the repurchase, from time to time, of up to 4.5 million shares of the Company’s common stock on the open market or in privately negotiated transactions. Since the inception of the program, the Company has repurchased an aggregate total of 2.6 million shares of common stock and 30,484 units in its Operating Partnership at an aggregate cost of approximately $70.7 million (average cost of $26.66 per share/unit). No shares were repurchased in 2004 or 2005.
Company Information
PSB is a self-advised and self-managed equity real estate investment trust (“REIT”) that acquires, develops, owns and operates commercial properties, primarily flex, multi-tenant office and industrial space. The Company defines “flex” space as buildings that are configured with a combination of office and warehouse space and can be designed to fit a number of uses (including office, assembly, showroom, laboratory, light manufacturing and warehouse space). As of March 31, 2005, PSB wholly-owned approximately 17.9 million net rentable square feet of commercial space with approximately 3,300 customers located in eight states, concentrated primarily in California (5.2 million sq. ft.), Texas (2.9 million sq. ft.), Florida (3.3 million sq. ft.), Oregon (1.9 million sq. ft.), Virginia (2.8 million sq. ft.) and Maryland (1.2 million sq. ft.).
Forward-Looking Statements
When used within this press release, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends” and similar expressions are intended to identify “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company’s facilities; the Company’s ability to evaluate, finance and integrate acquired and developed properties into the Company’s existing operations; the Company’s ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing REITs; the impact of general economic conditions upon rental rates and occupancy levels at the Company’s facilities; the availability of permanent capital at attractive rates, the outlook and actions of Rating Agencies and risks detailed from time to time in the Company’s SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.
Additional information about PS Business Parks, Inc., including more financial analysis of the fourth quarter operating results, is available on the Internet. The Company’s web site is www.psbusinessparks.com.
A conference call is scheduled for May 4, 2005 at 10:00 a.m. (PDT) to discuss the fourth quarter results. The toll free number is 1-800-399-4409; the conference ID is 5524556. 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 May 11, 2005 at 1-800-642-1687. A replay of the conference call will also be available on the Company’s website.
Additional financial data attached.
PS BUSINESS PARKS, INC.
SELECTED FINANCIAL DATA
(unaudited, in thousands)
At March 31, 2005 At December 31. 2004
-------------------------- ------------------------
Balance Sheet Data:
Cash and cash equivalents....................... $ 61,661 $ 39,688
Properties held for disposition, net............ $ 6,128 $ 16,876
Real estate facilities, before accumulated
depreciation.................................. $ 1,579,914 $ 1,570,492
Total assets.................................... $ 1,365,528 $ 1,363,829
Total debt...................................... $ 11,265 $ 11,367
Minority interest - common units................ $ 169,728 $ 169,295
Minority interest - preferred units............. $ 127,750 $ 127,750
Perpetual preferred stock....................... $ 510,850 $ 510,850
Common shareholders' equity..................... $ 508,609 $ 506,114
Total common shares outstanding at period end... 21,891 21,840
========================== ========================
Total common shares outstanding at period end,
assuming conversion of all Operating
Partnership units into common stock........... 29,197 29,145
========================== ========================
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
For the Three Months Ended
March 31,
-----------------------------------
2005 2004
------------------ ----------------
Revenues:
Rental income................................. $ 55,741 $ 53,610
Facility management fees primarily from
affiliates.................................. 145 155
------------------ ----------------
Total operating revenues....................... 55,886 53,765
------------------ ----------------
Expenses:
Property operations............................ 16,388 16,116
Depreciation and amortization.................. 19,016 17,404
General and administrative..................... 1,438 1,091
------------------ ----------------
Total operating expenses....................... 36,842 34,611
------------------ ----------------
Other income and expenses:
Interest and other income...................... 398 27
Interest expense............................... (282) (1,266)
------------------ ----------------
Total other income and expenses................ 116 (1,239)
------------------ ----------------
Income from continuing operation before minority
interests .................................... 19,160 17,915
------------------ ----------------
Minority interests in continuing operations:
Minority interest in income - preferred
units:
Distributions paid to preferred unit
holders.................................... (2,691) (4,810)
Redemption of preferred operating
partnership units.......................... - (267)
Minority interest in income - common units... (1,682) (1,267)
------------------ ----------------
Total minority interests in continuing
operations.................................. (4,373) (6,344)
------------------ ----------------
Income from continuing operations ............... 14,787 11,571
------------------ ----------------
Discontinued operations:
Income from discontinued operations.......... 165 550
Gain on disposition of real estate............. 2,914 -
Minority interest in earnings attributable to
discontinued operations - common units...... (773) (138)
------------------ ----------------
Income from discontinued operations.............. 2,306 412
------------------ ----------------
Net income....................................... 17,093 11,983
------------------ ----------------
Net income allocable to preferred shareholders:
Preferred distributions
Preferred distributions paid.............. 9,769 5,959
Redemption of preferred stock............. - 1,866
------------------ ----------------
Total preferred distributions................ 9,769 7,825
------------------ ----------------
Net income allocable to common shareholders...... $ 7,324 $ 4,158
================== ================
Net income per common share - basic:
Continuing operations.......................... $ 0.23 $ 0.17
Discontinued operations........................ $ 0.11 $ 0.02
Net income.................................... $ 0.34 $ 0.19
Net income per common share - diluted:
Continuing operations.......................... $ 0.23 $ 0.17
Discontinued operations........................ $ 0.10 $ 0.02
Net income.................................... $ 0.33 $ 0.19
Weighted average common shares outstanding:
Basic.......................................... 21,852 21,613
================== ================
Diluted........................................ 22,012 21,778
================== ================
PS BUSINESS PARKS, INC.
Computation of Funds from Operations ("FFO") and Funds Available for Distribution ("FAD")
(unaudited, in thousands, except per share amounts)
For the Three Months Ended
March 31,
----------------------------------
2005 2004
----------------- ----------------
Computation of Diluted Funds From Operations
--------------------------------------------
per Common Share ("FFO") (1):
-----------------------------
Net income allocable to common shareholders......... $ 7,324 $ 4,158
Adjustments:
Gain on disposition of real estate.............. (2,914) -
Depreciation and amortization................... 19,016 17,884
Minority interest in income - common units...... 2,455 1,405
----------------- ----------------
FFO allocable to common shareholders/unit holders... $ 25,881 $ 23,447
================= ================
Weighted average common shares outstanding.......... 21,852 21,613
Weighted average common OP units outstanding........ 7,305 7,305
Weighted average stock options outstanding using
treasury method.............................. 160 165
----------------- ----------------
Weighted average common shares and OP units for
purposes of computing fully-diluted FFO per
common share...................................... 29,317 29,083
================= ================
Diluted FFO per common share equivalent............. $ 0.88 $ 0.81
================= ================
Computation of Funds Available for Distribution
-----------------------------------------------
("FAD") (2):
-----------
FFO allocable to common shareholders................ $ 25,881 $ 23,447
Adjustments:
Maintenance capital expenditures............... (339) (880)
Tenant improvements............................ (6,447) (2,826)
Lease commissions.............................. (1,554) (1,413)
Straight-line rent............................. (1,188) (652)
Stock-based compensation expense............... 127 322
In-place rents adjustment...................... 39 39
Impact of application of EITF Topic D-42....... - 2,133
----------------- ----------------
FAD................................................. $ 16,519 $ 20,170
================= ================
Distributions to common shareholders and unit
holders $ 8,461 $ 8,397
================= ================
Distribution payout ratio........................... 51.2% 41.6%
================= ================
(1) Funds From Operations ("FFO") is computed in accordance with the White Paper on FFO approved by the Board of
Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). The White Paper defines
FFO as net income, computed in accordance with generally accepted accounting principles ("GAAP"), before
depreciation, amortization, minority interest in income and extraordinary items. FFO should be analyzed in
conjunction with net income. However, FFO should not be viewed as a substitute for net income as a measure
of operating performance or liquidity as it does not reflect depreciation and amortization costs or the
level of capital expenditure and leasing costs necessary to maintain the operating performance of the
Company's properties, which are significant economic costs and could materially impact the Company's results
from operations. Other REITs may use different methods for calculating FFO and, accordingly, the Company's
FFO may not be comparable to other real estate companies.
(2) Funds available for distribution ("FAD") is computed by deducting from consolidated FFO recurring capital
expenditures, which the Company defines as those costs incurred to maintain the assets' value, tenant
improvements, capitalized leasing commissions and straight-line rent from FFO and adding impairment charges
and stock-based compensation expense. Like FFO, the Company considers FAD to be a useful measure for
investors to evaluate the operations and cash flows of a REIT. FAD does not represent net income or cash
flow from operations as defined by GAAP.