PSB - Earnings call transcript Q4 2020 | PS Business Parks, Inc.

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Operator

Good afternoon, and welcome to the PS Business Parks Fourth Quarter and Full Year 2020 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.

Jeffrey 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, Executive Petersen; With and Officer, Interim is me Chief today Trent Groves. COO, our and John Chief Accounting our Officer

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

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

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

John Petersen

healthy. are doing each for Thanks, staying Jeff. families you today, of morning. and joining and us and your hope you Thank Good well we

that forward acquisition the in discussed discuss give and to we a for our on in they XXXX year remain what then I'll will hopefully excited everything update We our pandemic, be approach everyone, and touch I a our are team taking one we will on that a year As been It's normal. team XXXX. by this looking Today, QX company environment to dealing we with is and we've thank know XXXX. closer on for start all challenging to the I positions, as like view mention would forward with the to recognize and few of move XXXX. executive which previously. highlights, there to no close executive moment open surrounding today a achieved

Now year full leasing base. customer turning XXXX importantly fronts: I our QX our of to and rent and pleased -- costs, performance on transaction am results. resiliency with collections, -- many our production, the

levels, In capture challenging And stronger and have better in ability customers is bringing Many demonstrated, are customers, from customers. prepared businesses expansions to XXX,XXX pivot feet demonstrated QX expansions had of growth of many we their adapt square to the by with this XXXX. existing emerged on XXXX, Our economic feet XXX to climate. and of expansions XX square from customers. XXX,XXX nearly our have approximately

and for XXXX. square X.X back strong feet achieved year Additionally, Jeff we is We fourth almost will the are collections with more levels. rent feet, full for ended we XXXX quarter, discuss than X.X million completed totaling the to essentially which leasing total million as pre-pandemic production in activity later, square XXXX,

anticipate strong square activity XXX,XXX which have and lease we left feet. deal rent growth recent in originally releasing feet, have was year one December, approximately is which this space, strong with rent over signed unit most this consistent it square XXX,XXX growth with release, to in the our subdivide now we of with on We deal. XXX,XXX Wiegman This plan foot mentioned we our earnings consistent As building California, with in square our Hayward, of at XX%.

rents were at of cash X.X%. rent lead way continued and growth flat. Industrial X.X%, the averaged in QX essentially to office rent cash growth, Speaking while rent spreads Flex

quarters, the you environment, in as seeing many deals of last competitive. we have acquisition few highly assets tracked are Of the the competition Regarding industrial for we know, remains most investors we competing deals gateway pipeline, assets are our by in encouraged competition, for Despite in underwriting markets. team opportunities. our the industrial the number of heightened and our several is core times actively

are utilize sheet the our We poised to capital strength and balance work of in XXXX. to put

we On strong building budget. on attracting anticipate front, multi-tenant Texas, interest we would, XX,XXX square industrial we is Dallas, time the development expected have property a and foot our completed The it in on and at with lease next QX on Park, this Seattle, In we in XX,XXX for commence multi-tenant of to a XXXX. month year. our building plan fully will delivery construction Business targeted property XXX foot industrial similar square the

we ahead, not realize pandemic look us we that behind is As fully yet.

than our encouraged However, essentially back seen to markets customers, am a we leases in is and Demand overall expiration at scheduled during trends and for have healthy new positive team PSB is from upside and are greater of strong are fundamentals the momentum that rent I to operating by occupancy confident Starting in positioned single the renewal our occupancy PSB year, early poised upon capture both with XXXX. year XXXX. collections well is second half Building XXXX, in with square feet no XX.X% XX,XXX year XXXX. the the industrial and we normal. for

over Now to I'll call turn the Jeff.

Jeffrey Hedges

lower year. quarter portfolio QX, income to our the or common was share XX, $X.XX with attributable for for million allocable ended ended and December and an was the XX begin the was XXXX. I'll $XX.X Same per diluted cash $XXX.X $XXX.X was per common share; income the In a share for our $XX.X overview million, Park operating or $X.XX net QX per for which $XX.X million $X.XX for share. months $X.XX decrease results JP. XX.X% primarily Core the in of quarter diluted average Same decrease and XX% XX per common of ended, FFO from three financial or to shareholders Net December year months the the you, or million million, of Thank X.X% versus Park prior year. year. weighted This occupancy, prior a was XXXX result in was

However, rental square Park cash in income occupancy from cash of of offset increased QX decrease occupied X.X% mostly in the by as portion our income QX XXXX. portfolio per occupied rental was increased the versus Same foot

For year, per the $XXX.X Similar a decrease million, from Park the prior primarily NOI average driven the X.X% foot rental Same of cash in year. XXXX, occupied which for XX.X% increased lower XX.X% was year versus while to XXXX, occupancy decrease the QX, X.X%. in was cash by square weighted income was

COVID-related of deferrals occupied rental effect the abatements, Same Park X.X%. increase per and the Excluding foot was income in cash rent square

from we provides XXXX. this ended $XX.X generated XXXX. previously, increase income to in XXXX, As the of momentum occupied occupancy in QX was look for recapture the XX, December net as JP three of by portion million FAD mentioned an our increase portfolio representing X.X% months

For million, decrease FAD three- for X.X% benefited minimal both periods the lease from XX-month transaction production generate costs. in our a the prior year, was $XXX.X the Relative year. use of change to as the with significant of able from and to were capital efficient FFO, FAD core teams

moment Same some collections XXXX. capital take the NOI For I'll Park and which capital, on provide both recurring in maintenance year, rent a rent now includes transaction XX.X% of was relief. to versus XX.X% commentary and

COVID-related scheduled rent or and release new Further, collected XX-K be As our have in QX. little activity in deferral to abatement was earnings filed XX.X% we night, deferral presented repayments very there last December of $X.X was granted repaid we In is XXXX. $X.X rent through of million repaid to $X.X an be and deferral, of which million scheduled repaid million date. XX to in XXXX, additional

of to million, almost year were AR, identical the and ended an orders challenging $X.X of normal other remain We quarter was the state collection effectively continued and second local write-off Regarding quarter with AR that our for in AR QX a the markets normal and place. in California remains for the to write-offs our volume. due balance straight moratoriums prior the year, collections. more than rent rent balance any AR

terrific a down However, delinquent our list number a managing our of to teams tenants job holdouts. of have of small done

to sheet. remains have cash our roughly with ended and credit now and debt quarter the undrawn, million outstanding. Turning facility unrestricted balance no We we of $XX.X the

hand will current projects our opportunities themselves. are funding facility development cash acquisition necessary utilize credit as on present and planned our as We with and

Lastly, our questions. first fourth on common in of $X.XX shareholders paid I'll I'll a of of be dividend paid that With shareholders $X.XX per March, XXXX, on point record and to March quarter declared the dividend of the that, in recently we a share for out quarter, to call Board per XX. share the Operator? to XXst open

Operator

[Operator with go from Instructions] Our Emmanuel coming first question Citi. ahead. Korchman is Please

is Your open. line

Emmanuel Korchman

with -- or rate choice? making -- this wanting that some maybe JP of Is for something sort the the quarter, one to Hey, or run between? your shorter that just tenants in you flexibility on trend is leases, on lease everyone. the this that wondering Jeff,

John Petersen

market things the we We situation, on that of depends can yet, fully wasn't think little and recovered you ahead, QX, as Yes. in maybe Hey, It better there's bit Manny. the tell. but both. a think

So have their on to But that. deals we the in way and sure teams shorter. going wanted lease work, keep the And of to some business do term weren't they customers a lease the so cases, basis. decided may forward, our situation, is case-by-case

at decision. I have a made And there. But say certainly, we mixture times, that so would it's

Emmanuel Korchman

us in up you had might then much on right sort And ballpark pipeline to that acquisition with, how look pipeline does guess what transact of wrapped we now the you that? Could if that like help you XXXX.

John Petersen

but that to what week, tell in. we're is markets put starting to I more can't succeeding number in each which couple we're and activity, I not in Manny, you see can weeks, every markets to it, with of our we're core starting activity a even see is encouraging

like these -- number before, transactions. So underwriting, a and actively we're said of I

kind several 'XX now coming And to we're went but to So as market. by the in momentum. in it's of build deals with what silent encouraged seeing of terms midyear out COVID, market there for because know, we're you months, starting

'XX. but a encouraged you, to have So don't put capital number for to our that work to be in going I we're able are here we

Operator

next will go We move KeyBanc. Craig Please ahead. Mailman with with

Craig Mailman

the kind guys. store? giving the deferred back all Hey, what 'XX to paid are. million, appreciate us same in rents Of is $X.X that be Jeff, you in of that

Jeffrey Hedges

not but same-store expect, would It's same-store, much by our the portfolio. given of primarily you how is as portfolio comprised in from coming our that. It's all

Craig Mailman

look it I up, same-store And can as pool the a what's total apologize, of Okay. the but percent right now? I

Jeffrey Hedges

just It's under roughly -- XX% XX%.

Craig Mailman

Okay.

clearly, but here don't ebbing I the here, COVID. guidance pressure know give guys of from you kind is So

So look some pool. way building of kind have for NOI give you I a is to could pieces XXXX so kind the same-store bank, the speak, in there's what ending guys you your us of these blocks some of don't know if at to versus

rents free $X.X you then did off. have doesn't And some So $X.X the this like of leases million Hayward you burning most recur. and that have maybe in I get some likely that completed guys maybe million, guys the this lease maybe seems in from just you mean, of it you of bigger other abatements XXXX

some could and bumps I'm average? trying guidance, to what the us building from but same-store So bag not of you just pieces blocks the of what's are get already kind the like of in on include maybe rent give

Jeffrey Hedges

address QX. dropped would the abatements than has become in hold, try that, we XXXX. in have pointed would we of and I I tailwind components in wouldn't off release are if repayments lower necessarily Sure. or today, as us some against the But at our significantly terms of a did XXXX. of we expect here would out, as continues that volume deferral is we going we XXXX there Similarly, in anything revenue in have that are the for We'll items you've deferral least abatement in such Craig. laid describe that trend out bag. volume to press sit that, mean, things revenues, certain And in as

case we've own specifically your those can our how you on as to the you relates assumptions just about trend terms that So release, case -- for revenue, been new today; continues. I the would -- point in And components time press of been Park in average the and X%. rent we've and XXXX. some that roughly multiyear Same the recently, those what it to rent those signing of in That's will portfolio leases our included and of then in us is our for bumps, bump for on trend make generally, leases remains

per tend on about least component multiyear year X% average, at So leases by increase, base the on year. to

Craig Mailman

of then was the that Okay. XXXX XQ? of be that on Hayward, in Or kind in in going did lease in guys all And you XXX,XXX-ish any to is benefit? of the terms recognized

Jeffrey Hedges

square the we the talking You're about lease large QX? that announced, feet XXX,XXX in

Craig Mailman

Correct.

Jeffrey Hedges

the That signed Yes. very lease the end was at of year.

lease will benefit the XXXX. in So recognized of be that flow entirely cash

Craig Mailman

what of -- the from total sense or Could the the or you give quarterly a that annually, uplift rent? is just

Jeffrey Hedges

free have of nature, period today. give typically, you that free this available with data lease, -- particular concessions is leases short. some actually there don't we here on specific that I But are to in tell And leases. the will rent I can Craig, that give those rent relatively

benefit for transaction cash would from from most of particular flow XXXX. expect to we So lease that

Craig Mailman

at lease? in that $X ballpark? Is like per that or foot $X Or it is square

Jeffrey Hedges

Go ahead, JP.

John Petersen

Yes. don't in my And neighborhood of know. are I we're like fortunately, said you rents; prepared activity as seeing about I vacancy lease Yes, Craig, that's in when, getting ballpark. and the mean that can't demand. I in next there's because we good But I comments, that excited well. good tell

previous -- But thing I to in the selective in I get to user. So over our we credit. selective before mean, hope We're with the being are we put quarters. next here bed calls, said that the of couple as being is

we right deal the for term. to do long So want

are so there, to confident this we get going there's enough that we but And patient something year. be we're that can activity done

Craig Mailman

do more then guys And guys have is preferreds? refinancing? guys right maybe think lift Series this you price I you time bit the October. comes you some the in now Where just do to you little acquisitions as unsecured to Or Okay. the on XX-year W for debt on the mix a know you that give in could financing,

Jeffrey Hedges

Yes.

quarters we've a the the we right look potentially financing a at numerous the refinance series over As opportunity, for this acquisition opportunities. you serious of And pointed preferred. past growth out, times as few of we senior take opportunity as year deployment or will that later do those to debt unsecured very have those said means opportunities

of debt time JP amount So a talking meaningful a pipeline. year, those of about as considered potential our will estate we this growth real earlier be acquire little opportunities. financing means If to a are spent able

to As evaluate it it, this right preferreds like But and relates that. commitment to those We'll continue when no of preferred on -- do come we preferred either to refinancing potential anything, way we if later year. the there's what, specifically, they now, the as with due a it. for like opportunity

Craig Mailman

today could think you do on price Where you preferreds?

Jeffrey Hedges

low of and in seeing It's where end what on question because based comps we we the subject But it's a hard And to to we price the that yields and for precision. an say, saw our the probably just existing any in last at the what being of that strip change. of market on lack series, could mid-X offering, was to area. pinpoint on trading last in answer X.XX%. would that's actually which Certainly, I market us specifically that and would would we our inside year QX, with in again, did, expect market. without hard movement of the in we're are or transpire terms hope issuance really the to

Operator

Next with go Wells Heck Please Fargo. with ahead. Blaine

Blaine Heck

there. out Thanks. Good morning

those along lines continue of kind of to same questioning. Just Craig's

Or pricing sources because is the debt of assume this guys looking and maybe like source sales I'm guys dispositions and source viable of funds? sorry more we you as it, Do office of toward lack as about you visibility if it I sound talked but should it didn't other guys year? that kind missed are that a and capital a you see -- capital. of So of of

John Petersen

Good Blaine. Yes, question.

market to out But could just as So to in we that that can to some point, some and balance would recovers a sheet situation. have don't to the as put as parks if time we've course, And work. kind about, we debt of to and of the And some some put it assets find acquisitive deals we the on think to too, certainly look be to continue strategically done we'll redevelopment the from of evaluate of we've from your moved past, Jeff I potentially time here. ready we're we as talked those opportunities, see COVID combination. cash, office be

of we recovers think question? moving office don't and in see could portfolio of answer So and it redevelop office play we can each, our how a Does the that for we'll forward. mixture market your that be some what's

Blaine Heck

helpful. a Yes, in thinking the question office, seen Sunbelt a just of result we've coastal, fringes, shift me. a sense. about high-density Can I'm been more And about bit cost, high makes more seen some to suburban of then movement especially, markets. there's from or even talk Very demand as And second markets maybe any for you guys that just pandemic? have you

Given you the in guys your to any markets? you if differences seeing demand we're wanted exposure had both sides that equation, kind have noticeable see on insight of any I throughout or of

John Petersen

Yes, Blaine.

that closely basis. of kind on and very we So a kind monitor of weekly

we're the and we're to starting primarily And office to first side office so last, six -- in and suburban. see know, all area, let's starting in see as it's our to what four is, the you is it, D.C. Washington, weeks, call on Blaine, portfolio

And I from. so more where We most with might with there homebuilder. are expect. space a We've -- office did demand office we're recently that's you coming a with did a for growth done seeing our government again, -- a office, suburban we're We're rent some positive deal which, able than frankly, contractor. surprise. was seeing office. deal for a we traditional essentially deal and with out government the flat is Surprisingly, pointed earlier, another -- as We

would is environment. market in office better we're expect than -- suburban coming but in pandemic, still the this you while probably So the

I that Sunbelt there still moving markets other -- are good well that of the But would it's be on, yet. growth there to seeing Anecdotally, to California, from is as growth And stats our side outmigration out, And there for activity our touched other think well, as has I So of to our as are California but of and yes, haven't capturing in saw shifting documented. point still some stats and been seen. there's the we've as there's seen coin, Northern in we're the as and rent realized companies But California, you some good then any we we're we're sure, yes, demand lot California that, Southern been think from I outmigration in innovation demand. a markets. California getting. California,

we COVID would little a seeing especially, more And really we but bit Blaine, down it. of by got surge little maybe monitoring our of say, concerned as closely, that that it And in about of level we're I So mid-January, we're activity. we're encouraged were the a still activity, in and bit. maybe California, activity kind has this like specifically. Maybe touring died that of shows some kind things

if don't that know helps. I So

Operator

Next Green go question Tibone Street. from Please Vince with ahead.

Vince Tibone

Hi, shorter think morning. a to was preferences? to pandemic? you to due expect I terms more have XXXX lease do an average the Or forward good tenant year moving follow-up. you due Do persist outlier of

John Petersen

your was space strong. year think very pandemic. to to industrial to Vince, outlier happen still low with still Vacancy an markets. But do our figure is I rates certainly, what was industrial trying the Well, and think going was XXXX, point, any I are of to user all what of is out in

So there is rent pressure.

want the situations, and how and find want going in what right keep think terms. credit, to in product position long type we we're the to short. for longer park for on our certain earlier we by return then start push to we lease going lease properties. do right customers want we it how said space do going if call, we're push a look and core I and the our customer I we're do in may base, deal-by-deal the right And to how like But our park, rent, term. here And we we'll to do can and

of push-pull every a shorter kind the I XXXX the think that really were in demand leases do forward. But it's situation. question? Does because going and your uncertainty that of of So on pandemic answer

Vince Tibone

more new more XXXX. in transaction looks and discuss costs terms impact capex lease between One sense. like right frequently, Could a renewals? and renewals? It leases you differences leasing Makes out and shorter, $X on in profile sense, executed split that you. Thank the around if business? Yes. Could to leases of an capex trying the for get are have new were between example, me. you for that could the your Just renewing

Jeffrey Hedges

than and here capital always Vince, to renewal that good new has XXXX. our on Hi, And Yes. we've the changed been leases. transaction today. Certainly, you more -- not on call with efficient in have our leases

broken in at released date, that $X.XX We in in per were We're -- on transaction for we've to here. and you our out haven't -- the $X the signed that can tell that leases, square but on stats -- fourth quarter. roughly foot foot it, renewal costs around that a looking anything square renewals I were just call that I'm

able gives achieve you between we've the terms So hopefully, the new leases. renewals the that some of to in versus context on difference been efficiency

Operator

Anthony Paolone JPMorgan. ahead. question from Please go Next with

Anthony Paolone

Yes, thanks.

of I occupancy in we for be the of guys? sort normal Should your range Just like terms portfolio, 'XX being to what the in or-so and 'XX, think if on to balance. I you think core in about look -- as XX.X% looks return the that at it seemed

John Petersen

over little points you think in big can Yes, not Hey, push rent higher. about we And where there in rents even need that the full XX%. be, sweet think where -- there's parks, deal Tony, year, X.X rents that with full it's I a -- I parks and we other Hayward vacant yes. we that occupancy. there more a to leased, as and pushing focused get if became is have And kind point our a the you right? and growth and aggressive. little that's, yes, we keenly certain balance and XX%, a and are be last we're there's between vacancy, spot too maybe on mean good But If know, what, where our highly to So occupancy. of of need enough, you're that's balance. high, you well if -- And we're rollover, may

of leased, to back XX%, quite or to kind there. And not XX% the we're so get we thing close pushing -- you're that once

to 'XX. get we're in away fundamentals, look, from later beyond have and continues, to is to have pandemic going there's 'XX our sweet -- we're that's XX%, But goal we're the where to there -- get chance our to there's spot other to And early going that in improving maybe to it a push seeing if benefit that. is. the momentum yes, that on going but So think I

Anthony Paolone

Okay. like Yes. alone, Because to next to business square there tenants seems mean I impediments that in be getting a was you my talked Because fourth question, other from backfilled, getting is like quarter any in going existing Hayward and 'XX? XXX,XXX plus feet getting bit of space the it about, just I normal. think, back expansion

it just issue? so like a timing And sounds

John Petersen

we to Yes, Las -- as year. some other that we across the of we're take the that are mentioned. there's with need our as any yes, still macroeconomic in in of vacancy some continue we I backfill. uncertainty do But Colinas, sit that's still with take to -- And some but time masks And this. on, the favorable, there I it mentioned Texas, some have but think conditions impediment don't I'm get I confident can see major the improvement country. we there's we'll we we end it's I mean, But here, these time. business, leases towards through think will think backfill. so here right, that to in a not trends going we're I as And get long to

Anthony Paolone

And question. then last Okay. just

you're on this transactions? may seeing But going yields the acquisition color deals the side stuff and where market with you're in just be You and considering the just on the question. on in would where Manny's initial is mentioned market, any just the on have

Jeffrey Hedges

as you've heard industrial cases, below Xs, from seen X in for peers yields if you've and lower as for markets. yields in of from initial but Tony, than like, yields. Well, Yes. sure, many the compressed know some we'd others, and the gateway getting And initial are are you for our quality

question. And for looks so markets known like the core those what are these even well. you and underwrite even to be how future I like? as used growth, you secondary That's do as more ours, underwrite certainly, what the do markets, days But compressed getting how mean

Xs. potentially initial yields that So in I help? Xs, are think low Does too for sure

Anthony Paolone

Okay. Thanks for the help.

Operator

And time. floor like Instructions] further appear to over now additional to back Jeff this would turn there the for any I no Hedges [Operator remarks. questions at or be to closing

Jeffrey Hedges

you rest you. joining again for you the us soon of enjoy and everyone, look Take forward with your you, Thank day. We hope today. talking care. Thank to

John Petersen

Thank you.

Operator

conclude does That this Please conference a call. your disconnect today's wonderful day. have time, lines at and

PS Business Parks (PSBXP) 23 Feb 212020 Q4 Earnings call transcript