PS Business Parks (PSB) Q3 FFO Beats: Will The Stock Gain?

PS Business Parks Inc.’s (NYSE:PSB) third-quarter 2016 adjusted funds from operations (“FFO”) per share came at $1.43, beating the Zacks Consensus Estimate by 3 cents and improving 19.2% from $1.20 in the prior-year quarter. We expect this better-than-expected performance to lead to stock movement.

Results reflected a rise in net operating income (NOI) together with lower preferred distributions as well as reduced interest expense.

Total operating revenues came in at around $97.5 million, reflecting 4.3% growth from the prior-year period. The figure also surpassed the Zacks Consensus Estimate of $96 million.

Quarter in Detail

Same Park rental income climbed 3.8% year over year, mainly attributable to improving occupancy and rental rates; while Same Park operating expenses inched up 0.6%. As a result, Same Park NOI rose 5.3% year over year. On the other hand, non-Same Park NOI jumped 44.6% year over year led by an increase in occupancy.

Annualized Same Park realized rent per square foot rose 3.2% year over year to $14.81. Same Park weighted average occupancy in the quarter was 94.1%, up 50 basis points (bps) year over year; while Non-Same Park weighted average occupancy grew to 96.7% from 85.6% a year ago.

Liquidity

PS Business Parks exited third-quarter 2016 with cash and cash equivalents of $5.0 million, lower than the prior-year end tally of $188.9 million. The company had $190.0 million available under its $250-million unsecured credit facility at the end of the third quarter.

Dividend Update

Concurrent with its third-quarter earnings release, the company announced a regular quarterly dividend of 75 cents per share, payable on Dec 29 to shareholders of record on Dec 14.

Conclusion

PS Business Parks’ diversified portfolio and its ample liquidity augur well for long-term growth. Moreover, healthy fundamentals in the multi-tenant flex, office and industrial asset categories are expected to drive growth, while portfolio repositioning strategies can help the company emerge stronger. However, pricing pressure in certain markets, intense competition from developers, owners and operators, and any rise in interest rate are key concerns.

PS Business Parks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of the other REITs – Essex Property Trust Inc. (NYSE:ESS) , Kimco Realty Corp. (NYSE:KIM) and The Macerich Company (NYSE:MAC) . All of them have their third quarter-earnings scheduled on Oct 27.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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