PSB - Earnings call transcript Q4 2018 | PS Business Parks, Inc.

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Operator

Good afternoon. And welcome to the PSB Business Parks Fourth Quarter and Full-Year 2018 Earnings Results Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation [Operator Instructions]. It is now my pleasure to turn the floor over to Jeff Hedges, PSB's Chief Financial Officer. Sir, you may begin.

Jeff Hedges

you. Thank and PS joining Call. Business everyone fourth for you XXXX quarter Parks thank morning us for the Good Investor Conference is Financial Chief Jeff This Officer. Hedges,

John Groves, Here COO; Hawthorne, are with CEO; me and CAO. Trenton Maria Petersen,

any Business Before by those are call other facts forward-looking only statements control, result a statements to that risks Parks' differ forth of than Business update materially from information, forward-looking a statements. forward-looking set uncertainties, let new this beyond of revise no These of we of this are All of in this and conference number cause events speak subject statements, me to or begin, could statements whether in undertakes everyone or implied actual call. otherwise. PS all to Parks such as remind included PS forward-looking conference future are date historical which forward-looking statements. many which statements of obligation as or results

additional Form forward-looking statements X-K. and For annual Form subsequent Parks' by to including reports the Securities Exchange PS refer the on Form Commission, XX-K uncertainties adversely filed affect on and information reports our that with please XX-Q Business the could and report risks company and about

supplement, We will earnings Maria. to I to which these non-GAAP the psbusinessparks.com. can GAAP our will also found site press financial turn measures at and provide be of non-GAAP call is our financial certain measures. Reconciliation release included Web now in over on

Maria Hawthorne

in current had full-year including Park occupancy financial and details increased as sequentially XX% year quarter the Park Jeff the development. and Park JP update. quarter of location growth markets Latest for XX.X% in fourth growing the and products operations you and Same we in is the operate. our leverage illustrates of to fronts, continued throughout provide as portfolio ability demand Thank premier and occupancy. Coast NOI, a And basis gateways growth assets quarter foot located markets. on a performance tenant the accelerate and with us. and rent infill overview location. West Today, fourth our flex you, joining our Same our continued on provide strong I will markets results industrial every metrics of multiple non-Same nearly high for and record are they team Florida industrial company's start square rates rental thank on the an and multifamily will XXXX and perspective strength On morning our occupancy will of some performance. The of Jeff. Good condition, enjoying South We and

that safe deceleration encouraged is customer June sky and rocketing or job new new seen not base. land have unemployment are busy is and to and remain opened our Highgate high transactions remains growth, supply perform The industrial of seen re-price meaningful at XXXX, confidence inflammatory no rhetoric our all low markets have The we Due medium our in continues and which space. impact prices, today's team multi-tenant flex Without small continues strongly. experiencing and regarding Our of any trade, on rate. we wars still to renewal no markets. slight there to among at Mile, of in exception competitive

As occupied. December XX.X% of we XXst, were

a quarter in if year. approval of the at year will for We is our XX continue remaining And the Now County construction on reduce on towards and this fourth that. next The remain and conditions We occupancy, phase by Fairfax to tenant goal application positive, we Mile. about reselling remain own the our that success incentives have NOI. anticipate our Highgate's we obtaining encouraged stabilized acres after increase begin reselling

in properties and we million XXXX, required we $XXX.X our $XXX.X industrial exchange two our on of have proceeds last feet were proceeds County, suites Virginia million. square at For parks deliver and products. years, office of square successfully able dollars and The to acquisition million small these cleaning in up sold acquired industrial occupied parks refined Northern core fleet. feet XX% several for repositioning three our is of beginning portfolio the focused five hole. and for protest for were markets red to net base we are team totaling The In totaling the reposition X.X Orange creation million and and XXX,XXX into the

see we have occupancy occupied. strategically as assets increase the we to leases. beginning XX.X% and allowed to occupancy today to role these We are this, X% offered are several Despite of terminate

two market, many Montgomery We are the this marketing. totaling to next County, at PSB square will is to the parks there for the not that so we feet early leased. X% it share X.X our process have quarters more parts generated in as up in continue as total in we the company's to The There the early disposition. located are which stages over identified we fact Maryland, will point that other NOI. are potential assets near are unknowns mid-term. do the and in of we approximately much approximately share XX% XXXX in to million office parks intent beyond see several to the continue of rationale, redevelop occupancy currently this based are that catches not on in with increase And

to moved saw in a XXXX. several results. positive like We will few regarding a successful forward launch XXXX initiatives I'd points full-year and on make that results Now,

highlights. nearly FFO Core with Here some growth retention. totaled rent recent healthy are XX% and X.X%. feet and transactions increased volume which square X% experienced We X.X X,XXX million

investment XX.X% capitalize here down helping remain heading as leaders FAD. the our cost our positioned office, team conditions internal value-add drive XXXX increase in efforts able the and to keeps the home transaction company into is on of thus drive Further, feel opportunities. we positioned the well Through to to balance the growth. well that leasing sheet fortress company the favorable to drive in field Our was a at

the turn John Peterson. over call I to Now,

John Petersen

Maria. Thanks,

fundamentals Coast. were leasing remains not again X.X% QX, and the primarily will by the our record robust markets I dynamic tight and that markets fourth by delivered you markets by markets low cash through As and of us of quarter to Right statistics other Maria space user stabilized, superior California, and properties are in Hayward options landlords backfill retention, in we with landlord Florida In driven as as partners. helped to square-foot inventory advantage growth led metrics in strong small demand construction target on net single mentioned, Area. QX, results all conditions size Operating and positive as unemployment, once the one as included continues users. tenant within is XXX,XXX West feet XX%, as in California, new space X% the providing our of Northern was team in Washington our leasing a beginning deals, limited of take most at Northern Bay outgrown XXX,XXX this on business California and is In retention QX the Texas. demand. limited demonstrating user absorption, for In fundamentals rent industrial and strong illustrated our now service by which country. available momentum deliver take team Seattle, our QX square XX% space our signed deep focus an average the the plan helped the of small now, was lease, customer facility. totaling highlighting a market getting per has these vacancy. XXX Rent feet XXXX, user in of X,XXX able back XX.X%, square customer growth Metro, by

in will it the California. is have We my experienced re-lease growth solid have what quarters solid have we next we interest and few consistent recently the in that expectation with rent Northern with

healthy benefited XX.X% rent high industrial demand this environment we Occupancy supply, also XX%. again a from occupied during operating was strong was for in and quarter. and QX growth economy Southern limited new the complemented as XX.X% once retention were tight at Southern infill in California reflected product. Blended California by

parks. our space as Hayward our keen within to QX XXXX, vacancy. facility. focus a XXX,XXX our demand our as are the XX.X%. helped on retention In QX plan Our XX growth we deals, to in the Right square XX,XXX limited of options square in getting of size back an We small of available Occupancy lease, an assets customer feet the of feet grew Rent signed average capturing of the X% market industrial the a XX%, XXX highlighting is backfill square customer XX.X%, of has Area. this ultra service benefits providing in Seattle market. demonstrating and tight inventory points outgrown space space user properties industrial is to in QX team basis deep and the foot in now single with tenant leases was target by is Seattle X,XXX per Bay user

is rent growth, the that released recently interest solid we expectation have consistent what we California. next solid have have in We Northern with it will and with few experienced my quarters in

California new industrial from XX.X% were during product. California also limited we Southern in QX growth Occupancy operating at economy once and by environment for strong this demand XX.X% and retention again reflected Southern high supply the as in was was complemented infill a healthy rent benefited occupied quarter. XX%. tight Blended

Robust we leases XX.X% was square the in XX.X% basis growth rents retention increased signed as options favorable from in XX,XXX signed and deals, Seattle Austin grow XX XX%. Austin Dallas, some XX.X%. QX is XX.X%, experienced of points have South occupancy Occupancy in and from In average square other basis Our an demand made and not In points higher QX. renew market grew we progress from any feet effects still square Texas, existing benefits XX X,XXX XX industrial Seattle ultra-tight basis few with capturing rent. negative from was of trade and and feet. XX,XXX XX% in up The war of enjoying Rent market. team XXX,XXX helped have to assets headlines. backfilling Dallas. we Florida is to XXX under the XX.X% industrial the than XXXX. our X.X% retention pay square move-outs customers as We size XXX an of and to points Occupancy feet transactions users almost feet in tailwinds,

robust team had retention the understand the production customers, In terms feet. square We customers, renewals square including signed clearly customers. and XXXX QX, fact, and benefits square coming in the of of strongest in generating quarters Metro couple of growth larger a Notwithstanding almost our and shutdown XX signed transactions of not of XXX,XXX Washington We surprisingly, leased the XX% feet. one of retention XX.X% our in we in of renewing our as and temporary in under demand majority XX%. existing XX,XXX government is feet rent XXX,XXX from achieved

a market. to Maryland space reimbursements, end our turned is of where a This suites. XX.X% occupancy of is renewals into terms campus Northern build-to-suit to declined facility. positive subdividing we rent a space at over Also of and we and battle lease, outgoing relocating key take that we growth, for $X were quarters a remains easy to two rents QX. long-term And will smaller rents customer back losing subdivide square the based proven release. work In the will QX multiple in to is in quarterly strategy to well XXX,XXX loss able reposition including the into million. with and The Maryland little on get revenue, Virginia are due foot take

as thereby this potential park. be it and mentioned one mitigated sell within two However, by pending noted could Maria we should parks is earlier, the identified that that be on that if out of located may created when this the move drag we which based disposition the targets space have and be

the businesses transaction are of we and remainder are occupancy maintaining the Washington boosting disciplined active, Regarding while focused local small of containing economy our stable and Metro, strategy on costs. is

to our head In XXXX, infill like continue XXXX, of continue XX% alone, occurring demand Northern plenty the nearly come approximately positive parks us a businesses which XX% strong California our small we for XX% supply and The in of and remain our balance. expirations business we to space from As of great demonstrate positive markets, in still portfolio momentum. of industrial into of giving those with nature is opportunity locations. need expiring

the Now over I'll to call Jeff. turn

Jeff Hedges

from successfully increase during Core growth was per by was FFO we FFO average quarter. Thank Maria share. also three with QX ended X.X% increase which for a $X.XX December the up occupancy by a quarter. in Park share, per Same X% strong was an NOI, income was a you, fourth FFO JP months mentioned to common the XXXX leading XXXX. which $X.XX the $X.XX XX.X% the share is XXst call, As driven weighted supported at of opening of Net per wrapped

to our $X.XX as year, by an X.X% growth For per mid-XXXX. the the and increase per or share. FFO of net $X.XX portfolio was operating Industrial the FFO year-over-year, share year, $X.XX, leading X.X% prior core core Same was well FAD as NOI Funds driven income available in acquisition was for Northern At up primarily per of of FFO Park share, year. for contributed $XXX.X from XX.X% by distribution Virginia million income

the of assets. managing a to providing brief in reflection was Same down Park XXXX XX.X%. of prior a at in NOI field addition our multifamily growth, capital in now recurring continued Same million, spend year-over-year property, percentage expenditures our minute from on expenditures $XX.X by lower Same a the efficiently Park XXXX, in disciplined which were increase capital In Mile. financial XX.X%, driven total $XX.X Park Highgate year, dedicated were FAD The as update Measured a team's of decrease a our from NOI, to I'll recurring down approach million XX.X%

we As entity consolidating reminder, Highgate the at a this started year. beginning the which of owns joint-venture

For from up in million, ended $XXX,XXX of December approximately XX, Highgate months the produced $X.X three NOI QX.

stabilize roll earliest Highgate situations the and offered this as solid on which likely in to first concessions Maria of new us time. was puts customers the the occupancy we'll XXXX move-in our footing the heading at In practice of XXXX. we mentioned, period-end to half limited As XXXX into in certain property, first for continue for tenants some in XX.X%, effort

become mid-XXXX. in fully will stabilized expect property the We

want I the common per total out to of payout that in common point we a paid shareholders fourth dividend XXXX quarter, $X.XX dividend bringing to Finally, our to in share. $X.XX

have approximately $XX and For the million year, our retained was ratio dividend XX%, we free payout of cash approximately flow.

low from corporate out allocation affords opportunities call retain ability free our us we'll As credit opportunities, leverage, coupled present with we With themselves. accretive actively cash acquisition and the Operator? to capital now open move to we continue flow the seek questions. when the that operations, facility for swiftly

Operator

Thank now is [Operator Instructions]. floor you. The open questions for

Our go from first Craig question coming with is Please KeyBanc. ahead. Mailman

Craig Mailman

some guess of some there guys for maybe a this here? bigger to just Is for just on timing Can Maryland, give in want which sales maybe little been you bit CapEx to point? The the play acquisitions decision I on that an it could numbers maybe Maria, adjust rate that the just this I maybe if industry move-outs put unless out from out. could reports, in move-out of that there's get at thrown by know on update the come rid of you are the potential horizon seems X% you ultimately the kind need X% cap much potentially. less, for range capital

Maria Hawthorne

And sell, park Zone. in are we're so this waters. some we're currently leased, West in you're saying Craig, Opportunity assets We have good Yeah. located one particular is Montgomery some making an located observations. markets. County to is We're don't good these testing two in in why XX% the but

with thinking that and timing we're is combination office then Metro one about potentially And flex, the That a of for what asset. is North. industrial, other that's Park So space.

even could the break we again, out portfolio sales. the So and

located a not I We being on X.X about good a it timing because County, Zone. like but feet in said, be sale it's And are square plentiful. Orange like in is we might Opportunity it, single then capital just particularly think of right anticipating now the million an

So the thinking timing. that's we're what about

Craig Mailman

getting Virginia. nice JP, Then positive mark-to-market on job some Northern

to rents there Is mentioned kind tenants. or that your spread an these that key It's parks, these is the guys with continue push narrow to negative opportunity of what given you're kind encouraging you market a anomaly an that to given vacancies have had you this the for here. that through have of two in able guys couple You'd surrounding renewals two rolling, years?

John Petersen

Northern look so office Maryland Virginia with at better renewals There some Craig, is multi-tenant of you a mark more couple the is operating our have activity, Northern our But much and big mid-XXs. occupied our we not a parks. if opportunity better the obviously. business more they're is friendly. than Virginia did parks, in market, market, to to

in So have power. park our mid-XXs, is the we pricing if

to deal so here deals, to market. that you be do trying we're low-XXs some on to able in absolutely there. And expect And select select and mark we'll able this, as because I suburban don't Virginia. on that parks, vacancy, Northern we're to every know, is in do market the

mid-XXs be can we we're have mid-XXs. in deals that we and with completely, we dealing in when there, help? that the in Does we but still here we're certainly power, when the more parks some So effect. have do pricing disciplined from the not But

Craig Mailman

experience it kind look of, asset get the yield of as average on the given accurate? kind you you guys the in original rents, kind reality was it of the this park? know with and looks how the ground here multifamily guys that of, perspective. it kind you low-fives running the you of leased, start, with Number number Virginia costs you are to the does guys to Highgate, I at in two, your one, concessions what influence underwriting is are On of like running guys the potentially kind in have on next Northern And but

Jeff Hedges

to that our I in here in call concessions We're reach not stabilization. opening roll to all first as property at of we're in say the some XXXX, QX get we look initial that do concessions if some we in particular, did which mentioned there but middle part the instances was to quarter. may first what actually property time, concessions matter, continue offer is of the year. stabilize this the in used offering concessions QX until for were But in So expect of that for XXXX, not currently tenants that you this we throughout at declaring certain those we offer fully to time, the why of

simply think what you question take your In we but into and view to as point don't do annualize relative feel initial going And this NOI with back to information, XXXX. it that the operating to regard and to the good about in the QX only so provide we property. at would we how in we can't time expectations, our underwrote, very is improve true yield we what property on it's

Craig Mailman

one And me. just the last for

put call last being about talked in. had we think potentially another LTEIP I

You guys something 'XX met little should that modeling that for of has I early. 'XX? is higher said in it G&A we was be a mean and Board the too in, relative terms to

Jeff Hedges

nothing at to there's at time this report to that give, Board think on do in have on an this as some time, the and update will point will provide Craig, that point in LTEIP. information. we soon the we as We meet

Operator

Thank you.

Our with Citi. be Korchman ahead. go question will next Please Manny

Manny Korchman

everyone. Hey,

out Just of to the for fundamentals you're goal for the stick to ultimate finish sort where of longer. those growth seeing markets flex? the goal growth is to some acquisitions just to funding or Is moment here become of the provide goal get more pure-play industrial topic areas? the weaker higher to office and and exit a the Is better in

Manny Korchman

We've and then NOI, strongly. percentage of that industrial tenant, cities at always most our we infusion tale that look the that and and performed of keep, learned But industrial. capital, and and always where is constant decades we small spends the of given strategy. historically, office the things that industrial we one components the allocation office of that things to have capital two the and been acquisition the And opportunistic is of of have the portfolio flex capital XX% the the in our over one requires is it's between

as that we what And story manage story a on. run. cleaner make cleaner for think and to for as team to is focus investors well do that a operations will our So to want we

see So candidates would And all some the exceptional be the office if won't the have exceptional or Coast remain in future. redevelopment, it, candidates two redevelopment. locations I in us because that but in are that locations for you even do us we by years, got parks West certain see next we've and or maybe now for of you not office, dumping that that's some three mean for on

we will of exiting redevelopment. good said office, offices for candidates call, So out out we earlier these are completely we won't the be it getting us be where not for on what but say I was of

Manny Korchman

park Is happen So sort requirements a the for on are you we there? matter testing got with up? you to buyer? the then a pricing? it second what to if you're it down for? waters, just buyer then, sale testing longer to concentrate introduced find you to a the of see are of coming just Is a it come as Kind Maryland it what going the comfortable that's vacancy Is the waters of a

Maria Hawthorne

So it's two very different assets.

Zone, the are expense which office might funds mostly take opportunity square There are that's that let's a be at County. feet, end that XXX,XXX assets about buildings releasing flex because those. capital it the in and funds, quarter. in Opportunity actual out opportunity feet right right, the three asset, So is us would square for save but thinking, mentioned that that and so of Montgomery is Because Western XXX,XXX are there moving JP it's yeah, And an well. demising good first now this as of we're you're then,

Opportunity that's close. Zones story. will So that's the a that window And one

adjacent OK, to the it. don't the know We isn't get pricing think, to what can might have new There's park. be time. hospital we being So do this If built there, right we re-leased. directly it the to a sell we

we if that's up fine. so And it, keeping end

combination So that's it and North was to office. a square buildings, it is a us. pricing At and XXX,XXX to down will come foot mid-rise of XX single asset, Metro story flex, office, Park

updated that and and broken make to get get Orange you do sure we in possible we that's pricing did be multiple that to best we're guys so very apart, portfolio and continues. actually as And deals the patient willing we'll a could this as County process

Operator

ahead. our next Anthony take with JPMorgan. question And [Operator Please will go Instructions] from we Paolone

Anthony Paolone

I think NOI. Is what XXXX X% we sales, what are. through those on coming NOI two the order mentioned million, is take properties you to million of, just that In of that $XX the staying X% so $XXX $XX So about cash? the to off to of million the NOI? on that think Is total potential got

Jeff Hedges

precision double figure I'm that. million, to X% of the check it's $XXX that just of about million, trying it's $XXX that and

Anthony Paolone

probably of take, NOI. $XX or about million give So,

Jeff Hedges

That's on right, yes. based XXXX historical, yes,

Maria Hawthorne

And then, Tony, would quarter, that moving wanted alone about to we $X single million be you guys the think tenant at large out end first know a hit the to if that the of user you 'XX number.

Anthony Paolone

Yes, where got you pretty I you one going to acquisition have didn't sell if opportunities? something with did absorb that you more it. if these, was have was you or would room to And That notable of you address then or have or that with do to that. need do do gains

Jeff Hedges

paid be an when redeployment do we the hope do would to likely small sale. opportunity, find special Tony, on accretive a But it's not analysis need actually dividend for relatively then if with and will exchange preliminary to we've the the accretive and move opportunity we forward there an that funds identify small. out. be run that If we

retain And be able these potential the would the of so proceeds sales to vast from sales. we majority

Anthony Paolone

be you of then I in center any then those update or was portfolio pick I to bit where at think XXXX all Austin. on you look perhaps Can a of discussions might there about a and the Dallas some and we prior opportunities? think in little up call areas think opportunity some occupancy other And talked as leasing, maybe in I there

John Petersen

expect some You're we'll space, year. took last XX,XXX there, is again feet center, Austin, good space right call did I and center we Dallas, we release on year Tony, which back square in back have good this call take and do we that later in

opportunity occupancy some we're pretty the still getting we're tight to are of vis-à-vis is there. The rest markets, executing market. terms there, have upside well know, but of especially Northern you point the in Virginia, occupancy. as there where So our We in

and well the hoping have we yeah, especially, they of. has Florida, don't to And with my us take they pay last Seattle. can't nothing forward if the that have got have or obviously if the there, find in market, leased the have West two they've to look been material comments, stay, certainly for stay where market We're increasing we're Coast advantage a So, do several tenants mentioned mark-to-market but the space in space we to know, and we years. I in throughout rents, we as the in opportunities we expirations, which definitely

Anthony Paolone

so over aside putting square maybe think space the And XXX,XXX have Dallas just Maryland, the growth? of think do should you do how the Austin, if then Northern or and that and kind the nets you course takes positive in that or we about some in in opportunities and feet 'XX backfill those of about out equal to puts of think California you year-over-year

John Petersen

rent users. additionally, increases Northern view vacancies, Yes with all secure have engage we that opportunity Texas, for highly to yes. these And putting we're these for the with. aside the as mentioned California, an XXX,XXX users them, you credit square foot space in opportunities opportunity Maryland, We the selective in being expirations other long-term

necessarily. so And bite not selective we're the first at taking we're apple being the and

of bit we if higher So secure downtime with little good credit. rents we're a with can OK

Anthony Paolone

bumps your So contractual at in leases what point? rent are this

John Petersen

with market conditions leases of, GSA were varies the kind we're rent it able our in about based adjustments standard including mark-to-market market X%. above from where Yes, X% we're typical to X.X%. The which and in push flat, occasionally, place, are

Operator

this there at no further questions And time. are

So I remarks. would Hedges Jeff closing it to turn for back

Jeff Hedges

you afternoon. everyone, a you, Thank good Have with we all again and soon. talking to forward look Okay.

Operator

participation. Thank for today's This your program. does conclude you

You may now disconnect.

PS Business Parks (PSBXP) 21 Feb 192018 Q4 Earnings call transcript