UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 8-K

 

Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) November 5, 2007

 

PS BUSINESS PARKS, INC.

(Exact name of registrant as specified in its charter)

 

California

1-10709

95-4300881

(State or Other Jurisdiction of Incorporation)

(Commission File Number)

(I.R.S. Employer Identification Number)

 

 

701 Western Avenue, Glendale, California 91201-2397

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (818) 244-8080

 

N/A

(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© under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 2.02 Results of Operations and Financial Condition and Exhibits

 

On November 5, 2007, the Company reported results for the third quarter ended September 30, 2007. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The information in this Form 8-K and the Exhibit attached hereto 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.

 

Item 9.01. Financial Statements and Exhibits

(c) Exhibits

The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:

99.1 Press release dated November 5, 2007

 

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: November 5, 2007

By: /s/ Edward A. Stokx

Edward A. Stokx

Chief Financial Officer

News Release

PS Business Parks, Inc.

701 Western Avenue

Glendale, CA 91201-2349

www.psbusinessparks.com

 

 

For Release:

Immediately

 

Date:

November 5, 2007

 

Contact:

Edward A. Stokx

(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Third Quarter Ended September 30, 2007

GLENDALE, California - PS Business Parks, Inc. (AMEX:PSB) reported operating results for the third quarter ended September 30, 2007.

Net income allocable to common shareholders for the three months ended September 30, 2007 was $4.3 million or $0.20 per diluted share on revenues of $68.7 million compared to $3.5 million or $0.16 per diluted share on revenues of $61.8 million for the same period in 2006. Net income allocable to common shareholders for the nine months ended September 30, 2007 was $14.0 million or $0.64 per diluted share on revenues of $201.5 million compared to $12.9 million or $0.60 per diluted share on revenues of $180.1 million for the same period in 2006.

Revenues increased $6.9 million for the three months ended September 30, 2007 as a result of an increase of $4.9 million from acquired properties combined with an increase of $1.9 million from the Company’s Same Park portfolio. Net income allocable to common shareholders for the three months ended September 30, 2007 increased over the same period of 2006 by $789,000 or $0.04 per diluted share as a result of an increase in income from continuing operations combined with a decrease in non-cash distributions associated with preferred equity redemptions.

Revenues increased $21.4 million for the nine months ended September 30, 2007 as a result of an increase of $16.1 million from acquired properties combined with an increase of $5.2 million from the Company’s Same Park portfolio. Net income allocable to common shareholders for the nine months ended September 30, 2007 increased from the same period of 2006 by $1.0 million or $0.04 per diluted share resulting from an increase in income from continuing operations and a decrease in non-cash distributions associated with preferred equity redemptions partially offset by the gain on disposition of real estate reported in 2006.

Supplemental Measures

Funds from operations (“FFO”) allocable to common shareholders and unit holders for the three months ended September 30, 2007 and 2006 were $31.0 million, or $1.07 per diluted share, and $26.8 million, or $0.93 per diluted share, respectively. FFO allocable to common shareholders and unit holders for the nine months ended September 30, 2007 was $90.6 million, or $3.13 per diluted share, compared to $78.8 million, or $2.72 per diluted share, for the same period in 2006. The increase in FFO for the three and nine months ended September 30, 2007 over the same periods of 2006 was primarily due to an increase in income from continuing operations partially offset by an increase in preferred equity cash distributions.

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 and nine months ended September 30, 2007 and 2006:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

 

 

2007

 

 

2006

 

 

2007

 

 

2006

 

FFO per common share, before adjustments

 

 

$

1.07

 

$

0.98

 

$

3.13

 

$

2.83

 

Application of EITF Topic D-42

 

 

 

 

 

(0.05)

 

 

 

 

(0.11)

 

FFO per common share, as reported

 

 

$

1.07

 

$

0.93

 

$

3.13

 

$

2.72

 

 

Property Operations

In order to evaluate the performance of the Company’s overall portfolio over two comparable periods, management analyzes the operating performance of a consistent group of properties owned and operated throughout both periods (herein referred to as “Same Park”). Operating properties that the Company acquired subsequent to January 1, 2006 are referred to as “Other Facilities.” For the three and nine months ended September 30, 2007 and 2006, the Same Park portfolio constitutes 17.5 million rentable square feet, which includes all assets included in continuing operations the Company owned and operated from January 1, 2006 through September 30, 2007 and represents approximately 89% of the total square footage of the Company’s portfolio for the nine months ended September 30, 2007.

The Company’s property operations account for substantially all of the net operating income earned by the Company. The following table presents the operating results of the Company’s properties for the three and nine months ended September 30, 2007 in addition to other income and expense items affecting income from continuing operations (unaudited, in thousands, except per square foot amounts):

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2007

2006

Change

2007

2006

Change

Rental income:

Same Park (17.5 million rentable square feet) (1)

$    60,030

$    58,097

3.3%

$  177,855

$  172,630

3.0%

Other Facilities (2.1 million rentable square feet) (2)

8,500

3,598

136.2%

23,074

6,978

230.7%

Total rental income

68,530

61,695

11.1%

200,929

179,608

11.9%

Cost of operations:

Same Park

18,273

18,063

1.2%

54,759

53,255

2.8%

Other Facilities

2,931

1,150

154.9%

7,906

2,099

276.7%

Total cost of operations

21,204

19,213

10.4%

62,665

55,354

13.2%

Net operating income (3):

Same Park

41,757

40,034

4.3%

123,096

119,375

3.1%

Other Facilities

5,569

2,448

127.5%

15,168

4,879

210.9%

Total net operating income

47,326

42,482

11.4%

138,264

124,254

11.3%

Other income and expenses:

Facility management fees

177

147

20.4%

542

442

22.6%

Interest and other income

1,151

1,884

(38.9%)

4,141

5,457

(24.1%)

Interest expense

(1,009)

(628)

60.7%

(3,128)

(1,658)

88.7%

Depreciation and amortization

(25,285)

(22,184)

14.0%

(71,841)

(63,720)

12.7%

General and administrative

(2,124)

(1,742)

21.9%

(5,938)

(5,264)

12.8%

Income from continuing operations before

minority interest

$    20,236

$    19,959

1.4%

$    62,040

$    59,511

4.2%

Same Park gross margin (4)

69.6%

68.9%

1.0%

69.2%

69.2%

0.0%

Same Park weighted average for the period:

Occupancy

93.7%

93.9%

(0.2%)

93.5%

93.2%

0.3%

Annualized realized rent per square foot (5)

$      14.65

$      14.15

3.5%

$      14.50

$      14.12

2.7%

 

(1)

See above for a definition of Same Park.

(2)

Represents operating properties owned by the Company as of September 30, 2007 that are not included in Same Park.

(3)

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 Company’s calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance in accordance with generally accepted accounting principles (“GAAP”).

(4)

Same Park gross margin is computed by dividing NOI by rental income.

(5)

Same Park realized rent per square foot represents the annualized revenues earned per occupied square foot.

Financial Condition

 

The following are key financial ratios with respect to the Company’s leverage at and for the three months ended September 30, 2007.

 

Ratio of FFO to fixed charges (1)

46.1x

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 $56.85 at September 30, 2007)

34.9%

Available under line of credit at September 30, 2007

$100.0 million

 

(1)

Fixed charges include interest expense of $1.0 million.

 

Property Acquisition

 

On August 3, 2007, the Company acquired Fair Oaks Corporate Center, a 125,000 square foot multi-tenant office park located in Fairfax, Virginia, for $25.4 million, including transaction costs. The park, which was 99.2% leased at the time of acquisition, has 15 tenants in four separate single story buildings.

 

Stock Repurchase Program

 

The Company’s Board of Directors has 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 inception of the program through September 30, 2007, the Company has repurchased an aggregate of 3.3 million shares of common stock at an aggregate cost of $102.6 million (average cost of $31.18 per share). During the nine months ended September 30, 2006, the Company repurchased 309,100 shares of common stock at a cost of $16.1 million. No shares were repurchased during the nine months ended September 30, 2007.

 

Distributions Declared

 

The Board of Directors declared a quarterly dividend of $0.44 per common share on November 5, 2007. 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 December 31, 2007 to shareholders of record on December 17, 2007.

 

Series

Dividend Rate

Dividend Declared

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%

$ 0.450000

Series O

7.375%

$ 0.460938

Series P

6.700%

$ 0.418750

 

Company Information

 

PS Business Parks, Inc., a member of the S&P SmallCap 600, 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 September 30, 2007, PSB wholly owned approximately 19.6 million rentable square feet with 3,801 customers located in eight states, concentrated in California (5.8 million sq. ft.), Florida (3.6 million sq. ft.), Virginia (3.0 million sq. ft.), Texas (2.9 million sq. ft.), Maryland (1.8 million sq. ft.), Oregon (1.3 million sq. ft.), Arizona (0.7 million sq. ft.) and Washington (0.5 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 third quarter operating results, is available on the Internet. The Company’s website is www.psbusinessparks.com.

A conference call is scheduled for Tuesday, November 6, 2007, at 10:00 a.m. (PST) to discuss the third quarter results. The toll free number is 1-800-399-4409; the conference ID is 19290754. 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 13, 2007 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 September 30, 2007

 

At December 31, 2006

Balance Sheet Data:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

56,725

 

$

66,282

Real estate facilities, before accumulated depreciation

 

 

$


1,966,413

 

$

1,793,219

Total assets

 

 

$

1,549,951

 

$

1,462,864

Total debt

 

 

$

61,064

 

$

67,048

Preferred stock called for redemption

 

 

$

 

$

50,000

Minority interest – common units

 

 

$

160,924

 

$

165,469

Minority interest – preferred units

 

 

$

94,750

 

$

82,750

Perpetual preferred stock

 

 

$

716,250

 

$

572,500

Common shareholders’ equity

 

 

$

470,275

 

$

482,703

 

 

 

 

 

 

 

 

Total common shares outstanding at period end

 

 

 

21,349

 

 

21,311

Total common shares outstanding at period end, assuming conversion of all Operating Partnership units into common stock

 

 

 

28,654

 

 

28,616

 

 

 

 

 

 

 

 

 

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

Rental income

$ 68,530

 

$ 61,695

 

$ 200,929

 

$ 179,608

 

Facility management fees

177

 

147

 

542

 

442

 

Total operating revenues

68,707

 

61,842

 

201,471

 

180,050

 

Expenses:

 

 

 

 

 

 

 

 

Cost of operations

21,204

 

19,213

 

62,665

 

55,354

 

Depreciation and amortization

25,285

 

22,184

 

71,841

 

63,720

 

General and administrative

2,124

 

1,742

 

5,938

 

5,264

 

Total operating expenses

48,613

 

43,139

 

140,444

 

124,338

 

Other income and expenses:

 

 

 

 

 

 

 

 

Interest and other income

1,151

 

1,884

 

4,141

 

5,457

 

Interest expense

(1,009)

 

(628)

 

(3,128)

 

(1,658)

 

Total other income and expenses

142

 

1,256

 

1,013

 

3,799

 

 

Income from continuing operations before minority interests

 

20,236

 

 

19,959

 

 

62,040

 

 

59,511

 

Minority interests in continuing operations:

 

 

 

 

 

 

 

 

Minority interest in income – preferred units

 

 

 

 

 

 

 

 

Distributions to preferred unit holders

(1,752)

 

(2,672)

 

(5,103)

 

(8,234)

 

Redemption of preferred operating partnership units

 

(1,366)

 

 

(1,366)

 

Minority interest in income – common units

(1,461)

 

(1,185)

 

(4,785)

 

(3,850)

 

Total minority interests in continuing operations

(3,213)

 

(5,223)

 

(9,888)

 

(13,450)

 

 

Income from continuing operations

 

17,023

 

 

14,736

 

 

52,152

 

 

46,061

 

Discontinued operations:

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

 

(125)

 

Gain on disposition of real estate

 

 

 

2,328

 

Minority interest in income attributable to discontinued operations – common units

                —

 

                —

 

                —

 

 

(560)

 

Income from discontinued operations

 

 

 

1,643

 

 

 

 

 

 

 

 

 

 

Net income

17,023

 

14,736

 

52,152

 

47,704

 

Net income allocable to preferred shareholders:

 

 

 

 

 

 

 

 

Preferred stock distributions:

 

 

 

 

 

 

 

 

Preferred stock distributions

12,756

 

11,258

 

38,181

 

33,111

 

Redemption of preferred stock

 

 

 

1,658

 

Total preferred stock distributions

12,756

 

11,258

 

38,181

 

34,769

 

 

 

 

 

 

 

 

 

 

Net income allocable to common shareholders

$ 4,267

 

$ 3,478

 

$ 13,971

 

$ 12,935

 

Net income per common share – basic:

 

 

 

 

 

 

 

 

Continuing operations

$ 0.20

 

$ 0.16

 

$ 0.65

 

$ 0.53

 

Discontinued operations

$                     —

 

$                    —

 

$                    —

 

$ 0.08

 

Net income

$ 0.20

 

$ 0.16

 

$ 0.65

 

$ 0.61

 

Net income per common share – diluted:

 

 

 

 

 

 

 

 

Continuing operations

$ 0.20

 

$ 0.16

 

$ 0.64

 

$ 0.52

 

Discontinued operations

$                     —

 

$                    —

 

$                    —

 

$ 0.08

 

Net income

$ 0.20

 

$ 0.16

 

$ 0.64

 

$ 0.60

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

21,345

 

21,290

 

21,332

 

21,345

 

Diluted

21,616

 

21,599

 

21,670

 

21,630

 

 

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 September 30,

 

For the Nine Months Ended September 30,

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

Computation of Diluted Funds From Operations  

per Common Share (“FFO”) (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common shareholders

$ 4,267

 

$ 3,478

 

$ 13,971

 

$ 12,935

Adjustments:

 

 

 

 

 

 

 

Gain on disposition of real estate

 

 

 

(2,328)

Depreciation and amortization

25,285

 

22,184

 

71,841

 

63,747

Minority interest in income – common units

1,461

 

1,185

 

4,785

 

4,410

FFO allocable to common shareholders/unit holders

$ 31,013

 

$ 26,847

 

$ 90,597

 

$ 78,764

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

21,345

 

21,290

 

21,332

 

21,345

Weighted average common OP units outstanding

7,305

 

7,305

 

7,305

 

7,305

Weighted average common stock equivalents outstanding

271

 

309

 

338

 

285

Weighted average common shares and OP units for purposes of computing fully-diluted FFO per common share

 

28,921

 

 

28,904

 

 

28,975

 

 

28,935

 

 

 

 

 

 

 

 

Diluted FFO per common share equivalent

$ 1.07

 

$ 0.93

 

$ 3.13

 

$ 2.72

 

 

 

 

 

 

 

 

Computation of Funds Available for Distribution (“FAD”) (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO allocable to common shareholders/unit holders

$ 31,013

 

$ 26,847

 

$ 90,597

 

$ 78,764

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

Capital improvements

(5,646)

 

(3,548)

 

(10,537)

 

(6,411)

Tenant improvements

(4,308)

 

(3,166)

 

(11,809)

 

(12,248)

Lease commissions

(1,365)

 

(1,261)

 

(3,777)

 

(4,049)

Straight-line rent

(230)

 

(817)

 

(489)

 

(2,437)

Stock compensation expense

1,042

 

762

 

2,746

 

2,007

In-place lease adjustment

(44)

 

60

 

(53)

 

172

Lease incentives, net of tenant

improvement reimbursements

 

(15)

 

 

124

 

 

96

 

 

387

Impact of EITF Topic D-42

 

1,366

 

 

3,024

FAD

$ 20,447

 

$ 20,367

 

$ 66,774

 

$ 59,209

 

 

 

 

 

 

 

 

Distributions to common shareholders/unit holders

$ 12,607

 

$ 8,295

 

$ 33,511

 

$ 24,894

 

 

 

 

 

 

 

 

Distribution payout ratio

61.7%

 

40.7%

 

50.2%

 

42.0%

 

 

(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 GAAP, before depreciation, amortization, minority interest in income, gains or losses on asset dispositions 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 stock compensation expense, amortization of lease incentives, in-place rents adjustment and the impact of EITF Topic D-42. 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.