PS Business Parks Inc. (PSB), a real estate investment trust (REIT), reported fourth quarter 2010 FFO (fund from operations) of $31.7 million or $0.99 per share compared to $32.7 million or $1.02 per share in the year-earlier quarter. Fund from operations, 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.
Excluding the non-recurring items, recurring FFO for the reported quarter was $1.07 per share compared to $1.02 in the year-ago quarter. The recurring FFO for the quarter surpassed the Zacks Consensus Estimate by 6 cents.
For full year 2010, the company reported FFO of $124.4 million or $3.88 per share compared to $163.1 million or $5.52 per share in the previous year. Recurring FFO for the reported fiscal was $4.11 per share compared to $4.31 in 2009. The fiscal 2010 recurring FFO exceeded the Zacks Consensus Estimate by 21 cents.
Total revenues during the reported quarter surged 5.4% year over year to $71.2 million, driven by an increase in revenues of $6.4 million from acquisitions, offset partially by a decrease in the company’s rental rates in the same-store portfolio. Total revenues during the reported quarter beat the Zacks Consensus Estimate of $70 million.
For full year 2010, PS Business Parks reported a 2.7% year-over-year increase in total revenues to $278.4 million, driven by an increase in revenues of $15.5 million from acquired properties, offset partially by a decrease in the company’s rental rates in the same-store portfolio. Total revenues during the reported fiscal exceeded the Zacks Consensus Estimate of $277 million.
Average same-store occupancy during the quarter was 91.5% compared with 91.2% in the year-ago quarter. Average same-store realized rent per square foot during the quarter decreased to $14.60 from $15.26 in the fourth quarter of 2009. Total net operating income during the quarter increased 3.6% to $48.3 million from $46.7 million in the year-earlier quarter.
During the quarter, PS Business Parks acquired a multi-tenant office park in Tysons Corner, Virginia, for $140.0 million. Spanning 735,000 square feet, the property comprises 7 separate six-story buildings across 39.2 contiguous acres. The company funded the acquisition by utilizing cash in hand and its available credit facility. With the acquisition, PS Business Parks’ Tysons Corner portfolio increased to 1.0 million square feet of office and flex space.
At year-end 2010, PS Business Parks had cash and cash equivalents of $5.1 million and about $7 million available under its line of credit. Debt and preferred equity to market cap was 30.9% at quarter-end, with ratio of FFO to fixed charges and preferred distributions was 3.7x. The company maintained its dividend rate of 44 cents per share during the quarter. The distribution payout ratio during the quarter was 60.1% compared to 57.7% in the year-ago quarter.
We maintain our ‘Neutral’ recommendation on PS Business Parks, which presently has a Zacks #4 Rank that translates into a short-term ‘Sell’ recommendation and indicates that the stock is expected to perform well below the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #4 Rank for First Industrial Realty Trust Inc. (FR), a competitor of PS Business Parks.
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