PSB - Earnings call transcript Q4 2019 | PS Business Parks, Inc.

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Operator

Good afternoon, and welcome to the PS Business Parks' fourth quarter and full year 2019 earnings results conference call and webcast. [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

Thank you. thank PS joining call. Business and fourth for everyone, XXXX quarter Parks' morning, you 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,

Before call other facts statements statements that than a statements. forward-looking let These we this are of differ conference number subject me to cause materially begin, in everyone forward-looking all remind beyond included are historical of those forward-looking risks PS are actual and results which control, statements. which in to uncertainties, forth Business could from such set or many Parks' by statements of implied

whether statements speak new information, a events forward-looking no of Parks result or the date future undertakes otherwise. this statements conference obligation to All revise as as PS or Business only of call. update of forward-looking any

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

We to will be in website is psbusinessparks.com. certain also press Reconciliation which our GAAP supplement, and release earnings included found non-GAAP financial on financial of can measures. these provide our measures at non-GAAP

will I now to Maria. call over turn the

Maria Hawthorne

performance. overview XXXX you, provide financial the full-year Company's will thank morning, Today, and and will you an perspective markets, and start on Jeff. operations on with of Jeff Good I current Thank for provide updates. joining will and us. some details condition JP

of metrics and we no executed. conditions on with the of cash square growth are continued X.X X.X% to we results reflective market growth million finish a of X.X%, releasing of showed cash had slowing. strong are we year signs annual feet great favorable a experiencing, NOI Park leases XXXX had industrial reported as of Same in We The strong overall and

easily can year. continue climb. are peak X,XXX to completed our say rents transactions beyond during of was in rents We busy nearly they as and team all that Our the we markets, industrial

that and Despite markets remain large day industrial, confidence experiencing almost unemployment not shallow in one growing among do we buildings. base. our customer This any at our supply decision see will our low building led job of height and of LEED lack The Silver no of parks of recently growth, on Airport. competitive deceleration, We tenant be our are the suites. land has encouraged XX,XXX remains new still supply have multi-tenant commence we signs building new see high all to part of XX-foot eight square of foot DFW adjacent supply competitive certified, an industrial clear construction to vacant to and of

a our Park are A our development market. Business similar foot pursuing Seattle Additionally, building XXX of XX,XXX we square Class at industrial an in

finalizing plans development are late this We and expect to currently commence this year.

a continue $X.X our NOI for average year Mile, Highgate XXXX occupancy rents and multifamily project, was million. also good grew while XX%, to The maintain effective X.X% to around grew at which

development of April, success, XXXX. non-income currently As of that proceeding A will and a Class beginning with land Mile, be a will built producing Brentford we be complex. start construction XXX-unit the planned QX is phase apartment second at Brentford result are Highgate will of The in delivery in on the which luxury with

total price closed million. a combined feet, for square sales of This gross successfully that continued County, do park last flex announced exchange Maryland at square the sale feet gross to able done feet, we XXX,XXX in in one $XX Santa Clara, totaling redevelop of million. located intend the price and Angeles flex acquisition parks with million of three have required repositioning. purchase below little of transactions year, the sales into million. of located existing initiatives We parks in-place acquired was $XXX.X that completed park a XX,XXX near were last combined three and and market rents price to All Los for not industrial our We to for a $XXX.X a acquisitions All Montgomery purchase in we X.X these totaling square of capital office selling building in four parks and properties. proceeds separate adjacent PSB totaling two are office the final or month

balance leaders on favorable and development The of sheet mean coming that will into at is success sensible opportunities carry and conditions we to major the remain continue internal XXXX here for home and efforts Company in acquisition the into and our driving the primed growth. is expansion summary, the year work field The over to targets. XXXX. positioned In of office the well

Now, I'll call John COO, the over our turn Petersen. to

John Petersen

Thanks, out lease last QX XX-year and in Maria. expirations foot subsequent only by large one as of we One rent did year-end, in XXX,XXX outstanding to execution XX.X%. delivered I of metrics quarter. our the QX back This you And Coast. Amazon. two growth building feet XXX,XXX take XXX,XXX of on statistics quarter a let to mentioned take fourth is weeks the six user with of square remaining a highlight downtime I beginning in our park. was expanded us on call square will production leasing foot through California Northern square market West the and QX

this this the Class are ability Bay location, strong and divide We have credit potential marketing pursue mark-to-market we With A and space. we actively the industrial have a a fit three is building desirable into units user that East will for this to park. separate good

for could space this activity, multiple quarters. have do be down we While

The and productive keeps another Southern helped chugging quarter. California in deliver the along team Southern our economy --

was Occupancy the at was our highlighted Small Los X,XXX of and Business always, square size. average California square XX.X% the powered rent XXX,XXX As foot XX.X%. at in deal steady America, Angeles Southern by way by led growth leasing feet in

Mid-Counties market, the and of Angeles year, As that recall, Los Industrial you for well may last performing in Hathaway Park asset acquired is QX us. we in

in by move a QX We feet, slightly healthy as under occupancy release into have XXX they points a vacancy year increase. rent a basis a one of we a square XXX,XXX grew at team opportunity this coming our of Seattle, square space mark-to-market great backfilled vacated. to XX,XXX us for space feet known foot XX.X% to square out and expanded customer XX,XXX a In

Retention the was business QX parks, to push in situations Seattle growth expansions terminating XX% user but accommodate -- customer. existing in us to also of These put due square having XX,XXX Full rent our customers. relationships multi-building foot XX.X%. demonstrated importance to with an efficient helped us one

retention a government which leases. quarter, unemployment had by Metro, technology buoyed Washington less trend our set. with which, of negative Same improving occupancy contractors than better favorable our competitive X.X%, is team XX.X%, by good robust XXX,XXX XX.X%. XXX helped sector, a square improving saw We I a strong Park peer to as and points mentioned than over feet of X%, delivering before, another Virginia is decision-making rent Moving by of declines basis is

in portfolio, in fully stabilizing Our Non-Same park on is occupied and XX% in the XXXX, Park which remains that NVIP mid-XXs. repositioned, industrial acquired its our we way to

generating we through From industrial quickly a of strong with Florida demand. various feet we uncertainty trade We dynamics. due customer existing may time customer in market retenant time, rent robust issues, South XX.X%. normally to the are square is to growth signed but benefiting trade lose still XX from to deals, XXX,XXX able The

moving in economic points all square retention had engine of the Finally, production delivered metrics. our X.X%, virtually up XX%, in Leasing feet, forward Texas, XX.X%. by rent success and occupancy to basis we nearly grew XXX,XXX growth with XXX

again customer on base bullish As fundamentals. our XXXX, confident advantage markets, take in our and will I we once am teams begin these favorable dynamics of the our

Specifically, product, with teams of another in our which are is year. XX% our to expiring XXXX, poised have strong of portfolio XX% industrial

call over to the Jeff. turn I'll Now,

Jeff Hedges

JP. you, Thank

income at the of the our rental opening months XX ended per conclusion X.X% growth. share. operating cash year grew very pleased on cash of call, $X Same strong diluted As strength basic results, the growth. a mentioned of common share for Maria NOI per and December are Park from X% by the income fourth three was quarter great we with Net

X.X% cash growth Park the On on income cash up X.X%. was rental NOI Same year, of

for the total cash our was us in releasing For strong XXXX. year, up continued setting X.X%, growth portfolio growth NOI

core We which has quarter, charge $XX million was U incurred to of accounting of presentation the in while This our FFO. during FFO redemption excluded $X.XX $X.XX and charge non-cash between was related of Series FFO per share, the an quarter only FFO. shares difference share. been for core the our represents and per preferred FFO V the core

Z and out Series December complete the of double shares U distribution of will point but core creating from we any XX, quarter, to the the of late Series lingering With most and the at related for in the also a be that I'd shares shares redemption QX, preferred FFO. of Series until shares effective on not XXXX. drag this end for completed did October, V there our issued in in not effect U resulting redemption like those V

was for available year. or the of Funds for million $XXX.X distribution an prior the year, FAD X.X% from increase

X.X%. growth, cash decrease recurring $XX.X expenditures, FAD the by in increase which down year-over-year of NOI capital in In driven a addition million from XXXX, total million, to was were lower $XX.X

XX.X% For expenditures year. consistent generally capital recurring XXXX, percentage as the the were NOI portfolio, with measured in Park a prior Same of

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

distribution FAD approximately payout million XX%, retained of after and our ratio $XX distributions. the was For free year, we cash

our significant operations Our flow from accretive the free provides with present with to sheet, when move fortress swiftly continued themselves. coupled us opportunities ability cash ability acquisition retain to balance

will questions. we for With now call the Operator? that, open

Operator

today's Citi. [Operator Korchman from ahead. Please Instructions] take Manny Thank go you. We'll question with first

is open. Your line

Manny Korchman

Hey, everyone.

to discussed something and Maryland. that call you've sell like or driving It in On to misinterpret it. in the call, that Did keep the asset? sold I sounded now building -- last it did you the just gone you're long-term you last retaining your going last message change and

Maria Hawthorne

come We Hey, in expectations. last long-term portfolio to. didn't that the or take good morning. building, wanted year, then right. an we And because GSA which LOI that, it, unsolicited Manny. a No, the I'll got in that our and with a out we you late had it had earlier when met were to intended year, keep for where went last early pricing number it, year pricing in we the for Yeah. user

it. very quickly closed we on So

Manny Korchman

growth, on of terms growth. know, terms your guidance, a you then, if about if wondering you sort but I And realize XXXX. Maria, bookends of you or of of cash if talked don't in them, you're in how terrific. I that's Thanks. in type terms flow put could, you Got terrific wondering want and press same-store some you of I us defining to could call guide acquisition whatever rails in it. was was help I or don't release, give opportunities,

Just for something give there. us us on

Maria Hawthorne

I Sure. we the of Well, that think still as industrial expirations internally JP those metrics have, XX% just and mentioned, our portfolio strong. just with are are

that. is there So

so additive. X.X%. Second, acquisitions last from we've have any we to year Jeff X.X% thirdly, gone in-place job And and a that will our our down great be Trenton dispositions, taking did preferreds in through

that look think whatever be mean, it great pointing all us. a I you metrics for So way I year. it, at North should are

Operator

Please next take question from with Markets. go ahead. our Mailman We'll Craig KeyBanc Capital

Craig Mailman

everyone. downtime, give of Hey, do move-outs, kind moving the just of give if XQ around context of with associated you XQ was not parts. curious the that Recognizing bridge some help And the you some guidance, guys impact to some LTIP. could us I known

Jeff Hedges

Hey, This Jeff. Craig. is

the So quickly first, LTIP. I'll address just

we and as and results in Board through did and We're but that out will I'm approve sure in equity that, of pointed the neighborhood year don't QX time, give to for be numbers you precise announce G&A. $XXX incremental a plan. saw, new in we roughly expense that did Committee to in stock-based incremental the we in the our everyone impact that working we XXXX XXXX still for this million but accounting expect as you recently Compensation of compensation have say So, at beginning can the the

Maria Hawthorne

XXX?

Jeff Hedges

G&A very million Thank to and through another sorry of run -- $X thank million. $X you roughly million much. I'm $X.X cost then would operations. you.

it turn the of can I'll large little then the And impact to talk JP, piece. who bit about LTIP over the on that's move-outs. So a

John Petersen

Yeah.

first So, quarter we do so have I big 'XX. Craig, have vacancy -- that a we hit in the as of mentioned, us

the always the We Northern there market. in We're activity patient marketing of to to so it's of on it, that chances country, markets Hayward, one and like have I in we in be as going our so best California are.

this suggesting I I'm were in lot the not Area well in my to too on that prepared able is activity Bay square foot As space, a industrial. -- which a execute on Area really do mentioned remarks, to Amazon, on we big will lease XXX,XXX the we there also Bay but in of

-- We acquisition our we Mid-Counties year. chances last we have the like we So the like our in chances did there. Hathaway exploration that and on

we One, users mark-to-market the for we ability, market the really vacancy we where selective the to activity So, the it affords have like we and these two things. take. seeing, dynamics, we're really large the and of move-outs, because we in have activity us like be

So is in -- one building, that vacancy too. a we're we're to that. But it's spot those expirations That excited those to great and be and capture helps? great and going patient,

Craig Mailman

to we the around numbers some if vacancy. see put Yeah. It some could helps of us

that So the downtime, much Amazon lease, six is months? you said, how

Maria Hawthorne

weeks. Six

Jeff Hedges

weeks. Six

Craig Mailman

weeks. Six

right. All Sorry.

So that...

Maria Hawthorne

XXX,XXX The mid-January. the space Yeah. we basic Basic the occupancy -- so took dark that's Craig, went reason slight in in in dip quarter. mid-November, a fourth foot and occupancy

is Northern foot that JP XXX,XXX X.X million on that's portfolio. And that feet because referencing. one impact, the California, that's one square obviously, will a So

Craig Mailman

of $X like And perspective, is at a XXX,XXX rent? rent kind that some Right. $X,

Jeff Hedges

we'll Well, see.

Craig Mailman

the the What was impact of vacate?

Maria Hawthorne

about, would be That right?

Jeff Hedges

in Yeah, Probably range, yeah. probably. the

Craig Mailman

Okay. rent And then on new the Amazon, whether lease? escalate too those

Jeff Hedges

I reflective our in but stats exactly, we that say tell Well, let's marked for it announced and you QX. market, to that's we can't

Craig Mailman

you. Got

that So XX% -- a just of guide. kind as mark-to-market XX%, kind we could of the you

Jeff Hedges

into baked is deal That Yeah. numbers. those

Craig Mailman

that Okay. industrial And bit finish, somewhere plus right? a development with going multifamily the of I'm now about second you to and smaller guys between $XXX do do two then just million have million guessing to $XXX on separately, that the developments asset. sound fair

Jeff Hedges

all -- would that I timeline, entire obviously, in not incurred not that out development Craig, XXXX. going that's stretch to all say certainly the But, would over of right. be so That's

Craig Mailman

you that? Right. this? funded million the do $XX on seems No, tap you're just be even this to going or about getting it no, year. million cash with about mean, we at fund Is mean, $X at. over a cash off to how I'm should had I preferreds hand you year-end, to I like need to $X of thrown guys line think million

Jeff Hedges

Yeah.

I think observation. good it's a

we additional at opportunity, strong announced. go that We be would to capital, have to course, the not fund our a in But are cash large the development any raise need. absent of even in a on or acquisition out there XXXX we we've any need and, position disposal likely the should line line activity perhaps

Operator

ahead. with our Advisors. next Please from Green question Frankel take We'll Street Eric go

Eric Frankel

Thank you.

Just a couple of questions here.

year lease that for occurred any of understand this expect would actually just that give you have sort next XXXX versus through? the the amount -- that rather roll your average guys the on given but highlighted of would just given don't roll you of lease or that you year to decline amount First, that California, guys guidance, occupancy XXXX you XXXX, move-outs already in Northern chug versus based

Jeff Hedges

or is it. our XX%, backfill we minus don't markets for we Eric, roll, wait and first all cases, us retain, plus all Yeah. in is That almost can't ability the and if being up normal expirations. quickly. strong pretty there get lease to at of we to And those have retention mark-to-market in Because that opportunities and

And So is on I if point vis-a-vis decline we welcome vis-a-vis don't then lease the to big there year, 'XX. -- the that space in we lease the we roll. -- occupancy 'XX occupancy, Norco, this mean could space see in a your yeah,

So that's right.

Your observation right. is

Eric Frankel

us in that vacancies California have obviously, you remind let happened guess, the you and two. with other you but Northern just QX, to tackled three what And were me. one maybe not other Okay. coming two had know was Amazon, Did -- I vacancies covering due can in

Jeff Hedges

one. Yeah. Yeah. And other we renewed the

Eric Frankel

Okay.

Jeff Hedges

the this -- they mean, So, of doubled one, of care size. big in the in I we three took two

keep that we can us, for deal. unfortunately So,

Eric Frankel

Got you.

is those [XXX] part that, of three. okay, of part Okay.

Okay, understood.

Jeff Hedges

got You Yeah. it.

Eric Frankel

just I of looking opportunities acquisition your then, you actually that in that I kind of And opening Do right have pipeline. referenced think, remarks about at you're or something your now development development? development that

Maria Hawthorne

have and like and just by two building we've these talking then I go right. developing. course, literally office are parks, both the -- buying developments Seattle. then, we we're prices about Freeport parking in out The like pipeline we're are going skyrocketing, extra and not land that that's out of Mile industrial spaces Eric, Well, mean, so really we multifamily, we don't and acquisition a XXX development got XXX,XXX square on in of with at what where of and foot And the Dallas, The got then land

is which in wouldn't both density, office take office NOI a million this But square Mile are XX% be we develop offline. have developments So our of convert next are at any strategic current the to big X.X of that The initiative locations it -- to residential. of -- can about where take foot to they two and

right kind fruit of for the So low-hanging us. on now, front that development

Eric Frankel

to. maybe you that you're tenant are are buy, some were you some pursuing, -- at can that you're thoughts recently Okay. that -- where get managing smaller That's some you California, developers else your managing -- developed Dallas premium buying not somewhere given this and vacancy. be what Southern maybe in and But confident assets referring or Florida in small that aren't for tenant adept South maybe so guys as guys of but sort any or in in vacant may properties yield properties that there

Maria Hawthorne

value-add. in what, it's And now, high highly California, is Southern were and rents. Northern Eric, in XX% hard XX% to occupied, to occupancy year, below-market pretty everywhere, from both you did last right they acquisitions anywhere if about but the very know find You so all in-place think those we

NOI be going able improve the on to those. So that's where we're to

tenant, I when sites. heard Prices small lately up the are multi-tenant base now some how industrial. I of things one going companies industrial in of And are big our -- peer appreciative is just appreciated haven't

go used didn't when we tenant for we acquisitions small that So have now to do anyway, institutional these so have. we competition

Eric Frankel

Okay. the Thank you for clarification.

Maria Hawthorne

Eric. Thanks, Sure.

Operator

[Operator Paolone Instructions] next to go We'll with go JPMorgan. Please Anthony ahead.

Anthony Paolone

I you. fourth the wondering was the growth. In about if can talk same-store Thank quarter, you

occupancy down pretty of think average if growth year-over-year, what high. there I was weighted NOI through but walk -- was anything your Maybe drove You're kind was there. just in I'm just the same-store wondering that?

Maria Hawthorne

Hey, Tony. Yeah.

the I was seeing customers quarter I what rental good quarters to slight incoming And DC rent on in takes Washington see you're been the three effect. mentioned take then in of rent new really year anchor think because that really Metro also because rent one is that that rents from kind positive. rents, expiring -- the an growth improved little after of Washington is improving. deceleration go as what JP market, actually us a that quarter increases decline, we'll negative those comments, bit, usually there And this up hopeful growth And along from seeing the we're customers. anywhere to you're it's throwing to renewing but also that his decreases are is rate dragging been whether or numbers a helping very while think on we've rent is

Anthony Paolone

I But, in in in increase this aggregate, just me this wondering the a in same-store leasing so the kind the X% no? you're so would to X% I'm say struck occupancy with portfolio up similarly at think of X% just kind range that if the It NOI and change of XX% quarter north continues even think, the of Okay. you sixes like growth down. into XXXX, if like XX% growth. -- remaining rents, the it to each NOI and year But on portfolio fourth that look with or ties for contractual in you're going have seem some of or if about bumps type I then

Maria Hawthorne

mean vacancy second I -- particularly impacting like and little company's a given I be Tony, that cautious, first occupancy, -- is would would said, big I the Northern quarter. bit entire I California, the that in

Anthony Paolone

is if you And with clear But the in of front? there then rate, what on deal on competitive even out mentioned you you're cap could pipeline, that Okay. how that? maybe in low-to-mid implied we at of return just look even somewhere Or the sort trades of the that it acquisition south you of seeing stock Xs, a is. where kind kind

Maria Hawthorne

we are mean, well I above buying that assets stabilized returning wouldn't or above -- asking -- that definitely you Are well number.

I thought we So to everything accretive that FFO feel and mean, we be FAD. will

Anthony Paolone

that you and or in your the when the is at mean, you what's I can But today the deals market, skinny? pipeline look are higher Xs market find Okay. that or in just

Maria Hawthorne

as there well, but competitive -- those for it's -- that still as are found, to street -- we're -- in just it Santa from San to deals the a and The looking both well was deals our off-market Santa located is off-market was And market. it be No, well there off-market that that marketed. are Tomas set -- office deal and actually an it in Clara. Clara as

Jeff Hedges

Jeff. -- this I'll Tony, is But add. just

the capital -- favorable right dynamics competition we're benefiting everybody of now. is Our up against, from cost

competition of So, we're that intense acquisition is lot looking the at. opportunities on a

going so said, opportunities, -- but our above we're as those acquisition opportunities after -- Maria return are getting we And required certainly well and stabilize aggressive thresholds. that

Anthony Paolone

Covered else I guys. had. everything Thanks Okay.

Maria Hawthorne

Okay. Thanks, Tony.

Operator

follow-up a go Frankel. have from also ahead. We question Eric Please

Eric Frankel

of down? are what you. they just Tony follow were up results. pumps increase might a in explain on big releasing rent that this where clarification. better lease off quarters want Maybe of burn occupancy to there that was to your given in a think went some your to rent numbers? boosted got be fourth Was It average and maybe use your you we you will couple quarter same-store were how Thank of and are that or spreads Northern growth take they some maybe NOI kind contractual quarter but free what mid-X% that releasing I getting cash signed California, some ago just was sort Can of your I can from some

Jeff Hedges

is is an that spreads The right, reported that is as periods also, we in This FY you X.X% you this year, rent report, of free but releasing certain number take the things, to rental will Hey, cash year the couple for of income time because in X.X% 'XX we to -- know, and is into there that factor over there and is numbers Yeah. things. a going you're obviously for both them. is Jeff. a that other Eric. effect There cited cases, take the cash that

So QX in to that. prior the of seeing several had what you're the combination what in is transpired quarters

not to QX several quarters releasing the benefiting we're prior releasing of course, that. only, spreads, So, but from the from the spreads

to, it's going for triangulate that this various of a X.X%. to call, to there lot that in on but you all hard So certainly the to factor is pieces, get is

Eric Frankel

Right. within -- But was cash there rent releasing figure? a signed even the leases or spreads maybe that leases that the from big of what wasn't bump that past couple X.X% quarters of into estimate factored

Jeff Hedges

our have increases In pretty the rent remained general, over contractual annual consistent year.

Operator

to it speakers, return or the additional I'll Hedges any have for And no further appears closing Jeff we questions. remarks. floor

Jeff Hedges

All right. a thank look great few again a we And in Have with you, to weeks. speaking forward you all afternoon. everyone. Well,

Operator

today’s And participation. for this program. conclude will Thanks your

You may disconnect. now

PS Business Parks (PSBXP) 19 Feb 202019 Q4 Earnings call transcript