PS Business Parks, Inc. (PSB)

Q1 2010 Earnings Call

May 4, 2010 1:00 PM EST


Ed Stokx – CFO

Joe Russell – President and CEO

John Petersen – COO


Chris Lucas – Robert W. Baird

Michael Mueller – JPMorgan

Jordan Sadler – KeyBanc Capital

Josh Attie – Citibank


Ed Stokx

Good morning and thank you for joining us for the first quarter 2010 PS Business Parks investor conference call. I am Ed Stokx, CFO of the company, and with me are Joe Russell, President and Chief Executive Officer; and John Petersen, Chief Operating Officer.

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

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

For additional information about risks and uncertainties that could adversely affect PS Business Parks’ forward-looking statements, please refer to the reports filed by the company with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K.

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

Now, I will turn the call over to Joe.

Joe Russell

Thanks Ed. Good morning and thank you for joining us. I would first like to give you an overview of our first quarter performance and then go into some detail on PSB’s recent acquisition activity. JP and Ed will provide more commentary on specific operational and financial metrics.

This quarter, not unlike the last several was impacted by continued challenging market conditions. We are however finding our fair share of leasing opportunities as we deploy a consistent strategy. Fundamentally, we have focused on driving leasing volume through discounting and low capital investment to keep our parks well occupied. This strategy has continued to benefit us as we saw a slight uptick in sequential occupancy with nominal capital expenditures and good leasing volume.

As we have discussed over the last several quarters, our customers wants simple, well-priced space to solve both functional and financial requirements as they adjust to the onerous impact of today’s challenging economy. We have seen little evidence that overall markets have corrected. Although I would say we have more confident that in most cases, markets seem to have bottomed. We are waiting for the positive impacts from job growth to turn market conditions upward, which has unfortunately been far too long and coming. Until then, we will stay focused on capturing customers that are either downsizing or looking for value real estate decisions.

The unique characteristics of our smaller user portfolio have performed well and keeping that portfolio occupancy above 90% will improve our position when the economy begins to grow.

Now, I would like to turn to PSB’s recent acquisition activity. In March, we announced our first acquisition in approximately 2.5 years, the Shady Grove Executive Center. We acquired the well-located 350,000 square foot multitenant office park in Rockville, Maryland, for $171 per square foot. This asset is an example of a type of deal we like best. It has underperformed this submarket for sometime and is in need of repositioning with nearly 89,000 square feet of vacancy, the majority in shell condition.

The prior owner launched a multitenant strategy having lost a major tenant and we intend to continue that process with our own set of tested repositioning, leasing, and property management techniques. Prior to this acquisition, PSB owned approximately 1 million square feet in this submarket where we currently have 96% occupancy. The addition of Shady Grove to this submarket will enhance PSB’s ability to cater to existing and new customers and the market that has historically been successful for us.

Two weeks ago, we announced the addition of approximately 700,000 square feet of flex assets in Austin, Texas. The rationale to expand our footprint in Austin is multidimensional. First, PSB has been in Austin for over a decade with similar flex product. In fact, many of the assets acquired are adjacent to or in close proximity to PSB’s existing flex parts and we have competed against them a number of times.

Second, by nearly doubling PSB’s portfolio here, we now own approximately 1.5 million square feet and will enjoy stronger economies of scale and again a far better options to offer our customers.

Third, a purchase price of $61 per square foot is well below replacement cost and will better position us to meet near-term and long-term market conditions, while generating good returns. PSB now owns nine business parks in Austin and we look forward to catering to a wide array of customers that are committed to growing their businesses in this desirable environment.

As was the case in the two recent acquisitions, we continue to be a highly qualified buyer with a pristine balance sheet and an ability to close deals efficiently. We are seeing a slightly larger population of opportunities as some sellers have come to the realization, the evaluations have stabilized, if not improved balanced by the reality that overall leasing rates remains stubbornly slow to improve.

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