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PSB PS Business Parks

Participants
Jeff Hedges CFO
John Petersen Interim CEO & COO
Trenton Groves CAO
Eric Frankel Green Street
Call transcript
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Operator

Good afternoon and welcome to the PS Business Parks’ Third Quarter 2020 Earnings Results Conference Call and Webcast. At this time all participants have been placed in listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] And 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 third 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 Trenton 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

square business a lower path nearly and pandemic approximately is important Year-to-date, non-California staying and start at strong than I nearly team by ongoing pre-pandemic Further, growth it families environment. did transaction year-to-date collections are the the highlights call. out cash in to feet work small in of resilient, delivering hope year. these are in results our you the healthy. Thanks, challenging with leasing our dedication and we XXXX, through Jeff. square businesses their that that also your of hard since of nine discuss maneuvered base during a nearly over us executed earnings of quarter they times. X.X% customers. like cases each for in successfully cost the would morning you for team core through feet our expansion expansions today of uncertain successfully existing levels joining rent has well per we to from first thanking the of and QX active is vast and back the how the this the had foot our like customers square X,XXX I'd we majority million last their in thank and prior rent rate net and of Well, to figured call months have markets. feet XX% remained robust Good more doing is clear the We X XXX,XXX than square and third operate customer our to XXX pandemic of leasing, couple production improved have and

three First, in an average a is Virginia an tenant that Alexandria, with I on XXX% am currently to we seven industrial X.X yesterday occupied existing an park off-market complements of us and in report transaction. square very Pickett closed share located the submarket in strong and feet inside Pickett sub million that industrial in XXX,XXX pleased our that XX,XXX square market is a capital market foot parks size leased. feet. XX% currently beltway giving park multi-tenant The is park building square

as size doing to our the subdividing couple average buildings next of acquisition at and reposition occupied feet, in unit XXX% was XX,XXX the us years assets rents beltway. two this by highly will reducing over accelerate for Competition higher Pickett users competitive plan mile Although, to knows. industrial enable inside is and to for is asset leasing square everyone last the drive which so

is we industrial parks indication crowded yields. can that acquisition this strategic value at even add source environment However, in still our objectives an that this attractive fit

is Fe end, Second, included XX,XXX we which square in pleased the XXX,XXX This quarter our XX,XXX with came park included rent QX recently to square I lease growth figures, QX. Hathaway park. to to foot leases for foot additional square completed lease Subsequent in leads announce vacancy credit not a am although customer in a feet we to but is same of over XX%. that long-term an the industrial the the same customer in production our commenced at leased Both California. cash be Santa have Springs, will

Regarding our to other team in vacancy to California well tenant this a park. northern our credit within large pursue continues fit strong

identify to is few in the right for quarters. expectation Our users this next the user or space

expirations XXXX exceeding normal levels expiration our through with square no single we feet. XXX,XXX ahead to As return look

scheduled are Our X.X square feet in X feet square in roughly XXXX. million than million less XXXX expirations

spreads at was growth. essentially and office flat in cash while X.X%. rent rents declined X.X% space remains muted. to Industrial demand QX growth X.X% office flex Cash rent average now for by Turning rent as remains favorable

for starting are we XX,XXX XX,XXX briefly development of and in to completion we our the to XXXX. in track delivery call good turn in industrial month I Dallas Before over is mention see on similar for foot Jeff square we targeting and multi-tenant to continued building permits next industrial that I square multi-tenant building. a foot QX are the to interest Seattle, pursue In want

on have we At delivery expected quarter Mile with multi-family Brentford Virginia last Tysons, our in XXX XXXX. announced we commenced in the unit development construction as Finally,

to developments expand previously an exciting opportunity existing these in us As for have represent we stated our markets.

I'll to the Now over call turn Jeff.

Jeff Hedges

core begin $X.XX Thank was ended while for FFO was or share. million you for the income overview JP. months an million results per quarter. XXth of the $X.XX FFO three share. I'll was financial $XX.X or our third million $XX.X September Net $XX.X with per

compensation FFO costs associated of stock-based with the of the of million $XXX,XXX with Maria charges former multi-family These retirement incurred demolition non-capitalizable Hawthorne. we incurred expense at FAD, million calculation year. amortization back we prior of in and two which accelerated our our from was president and our mile. new Separately Net of of development our three-tenths presentation core added park also quarter Brentford were non-recurring CEO while associated the the the of NOI During $XX.X same $X.X same was income was X.X% portfolio XX.X were million from our the decrease park quarter. for million year from excluded to decreasing a operating a prior cash percent attributable $XX.X

of year-over-year release same excluded relief decreased as and deferrals were park press X.X% attributable of we cash with in write-offs same which prior moment our from year. significantly no to requests customers. of X% million invaded were cash continues well As NOI. occupancy on in $X.X effectively park granted little open have you'll which calculation rent rent NOI rent the October, see net The take XXX,XXX AR quarter of XX-Q relief currently in QX to line I'd in consistent in rent the our prior The as a primarily deferred from in additional and of with to requests volume deferrals is and lower decrease we have a provide QX. to only like the month have and more color subside

remaining million million QX. quarter Year-to-date of repaid the our be up repayment and we through XXXX. Additionally, million $X.X The collected majority of ramped in have billed. X.X an payments XX% in $X.X have defer We is million additional agreed the third XXth collected the deferrals of be to over in billed of half we rent. and of $X.X September and repaid scheduled to scheduled first to

as we in rates returned of pre-pandemic have collections continue we general, mentioned AR all post Regarding and month markets JP higher our rent of in levels collection outside to California. to each

in from have peers heard due ongoing of challenging markets to you many more markets be collection and than ordinances. from other the Californian continues state As and to our local us rent

of we was now an acquired roughly $XXX quarter of of ended cash transaction. in acquisition Pickett sheet. for some all-cash industrial the with Turning the to unrestricted which park balance million We used which

facility projects utilize and our we opportunities acquisition remains We no cash debt and will on to as themselves. hand have our credit development as credit facility Our current present outstanding. retain utilize fund to necessary undrawn planned and and intend cash

out we our With and paid quarter point a recently the Operator? a third open fourth Board XXth I'll record for that a questions. the December in I'll shareholders dividend XXth. of Lastly on that common $X.XX of December the quarter dividend to $X.XX paid of declared in to shareholders call on be to

Operator

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

Unidentified Analyst

question Hi, it's here. Macquarie Manny. for Quick in Chris

change asset markets transaction are the at thinking your COVID? acquisition expectations from for Pickett park, resulting the announced on Following how pricing this you at today? Did all industrial about

John Petersen

Sure Chris.

tracking been I this for timing and the properties As in to competitive some the the put pre-COVID as market think good but we're time, on to our us. existing in our into execution I'm deal off-market some remains acquisition pleased this an was portfolio with highly industrial for all our this and mentioned jump of I we've able it and with deal team way markets. executed I was pricing and briefly, mentioned discount for really the really

do was pleased off abilities like allowed think started So way pull good with pricing. question I is us discount a the with we market this said, pull off-market we're how this engage an to really close pre-COVID our at Chris? timing to in that investor this or a able the quick to what I and an as in when a answer we to proven your to and seller believe ability off Does and

Unidentified Analyst

Yes. color. That's helpful

market of in what it follow-up quick in on California with the legislation broader the slower one reopenings, the Just general thoughts your threat to today? are works relates here as California lockdowns,

John Petersen

Sure. Well in California to in in things retailers and the customers restaurants putting and such. have going that's resiliency slow reopen and consumer on proven kind way you look look where customer our core businesses demonstrated pleased market a base this at of and in they've know well what's California been that California and and of really, with I'm they've to focused our [indiscernible] in in those reopened aside part terms industrial if operate most the done core not have that's customers mentioned that not going because core California California. those well. kind to of can I our get part but think customers doing they We are things Again California, most the it and our we're and this are end for and when but for in know restaurants don't of retail have as yet through fine. those struggling I out you

Unidentified Analyst

Thank Right. you.

Operator

Mailman And from Capital KeyBanc next Please comes Craig Markets. with question go the ahead.

Unidentified Analyst

is an Craig. the and CEO guys [indiscernible] This you search? everyone. on Can on please update provide for Hi CIO

John Petersen

Yes.

announce we the and update now process and have on no continues at search will. offer we the to there's certainly to as CIO have I as time. So and both this But something soon update no CEO

Unidentified Analyst

the have you. less anticipate and it just And to fundamentals the past moving we bottom of kind kind pacing it spreads the recovery we're where way kind bottom? collections kind come its of market like dynamics we're then, erosion the Thank of given and in tenants same-store past of should rent Okay. macro the feel does feel demand kind should like continue does are pace with the kind at quarter-over-quarter conversations of of looking and

John Petersen

think I levels I'd certainly but feels across normal, in this way to believe most business and our out manufacture their are own the to bottom I customers like part to pointed I products, of pre-COVID in back demands it's that we're markets pandemic. deliver collections California our say to out if the before Jeff our their our operate of markets Yes. figured as a past you it for look is meet like I customers said products, outside their the say and to have wouldn't

it's through look tell a look months come a we've can't like is having what talk good pandemic cases can pandemic to customers of say never, actually with mentioned especially never world's sign. customers we're our the in we expand what We that so the going Now I rising. been out I in I never a a view few to pandemic. But before I when as and as and you

bumpy the we're we to the be think doesn't into as past time here quarter well. mean from it bottom into I won't as fourth the and XX, time yes, but So head road

that does So help?

Unidentified Analyst

down? as occupancy typically Yes do of when over think you like, being and just kind you of spreads kind maybe to of roll kind do where guys this from kind maintaining rents of continue to we would is of kind see the like this flattish maybe of get continue accelerate that pace prioritize it kind but rent of downs of may rent its here this as kind subside is of end or you or conditions more

John Petersen

Yes.

Industrial and it at There our were which where pressure office trend so on rents in in see I our flex is is be division. going the in office. our were not office, down look primarily portfolio and you flat to that Washington and was primarily If there's metro up continuing. to

We but be to XXXX think will into shoot have to as a pressure XXXX, small forward challenge renewals of there into and there sure though. this new Office a the percentage deals is to are be to think industrial our office attract on and flex look remaining even for going we I poised well. and do I

Unidentified Analyst

with given that guys trading where should what's those issuing activity for preferred one if we kind about deals so? of I Got it. REITs lows see into here? year like the up and one think then record Thank could kind if you. stock picking and last the Do And of financing is appetite you debt acquisitions next how

John Petersen

definitely an let me right appetite to the Well, talk we have business grow now.

deals like assets see is of deals we'd balance more the ability some not go now on market We'd work. market. I but the execute fairly Having go that. extract deals will industrial market. do market a core to Pickett hope great can more was come our and we deals in deals some in have Right of we're which the that to go that, markets source there's example but very only of XXXX and those to the Jeff like a our off deal Jeff able more that capital We lot to that that touch so What allow we're have to come do us will do to intense working a not ones come now, is for sheet said and to go in quickly. sheet competition to right in to see strategically cases many to buy the touch to balance second that think the put we're hard very we to and will market on

Jeff Hedges

I on remain the also comps right that those pointing then the of facility capital themselves. additional debt capacity of look acquisition Yes to so that just which utilizing in all of our placements move market credit to in and we've up has pick to sources recent with XXX seen sources million mean when present attractive we'll out capital you're untapped preferred including that and quickly opportunities

Unidentified Analyst

you. the Got it. Appreciate color. Thank

John Petersen

Sure.

Operator

[Operator Instructions] We'll go next to Eric Frankel with Green Street. Please go ahead.

Eric Frankel

you. Thank

you terms the dispositions look or couple with now might portfolio your happened footprint of pandemic office from upon aside the will like company that thoughts touching wait CEO smaller folks to in Just Tyson's given any come until initiatives kind the years accelerate CIO some of project? is we'll what or there of next in you'll how redevelopment maybe think maybe how what's in a future shape the and that the work

John Petersen

pretty as over nice job we office we been options park continue our feel this hasn't of it higher use that pretty going to ability better at we strategically and to we're where don't to a some doing relates couple a that parks change. our makes ability done those we changed won't of or where pretty portfolio do years time and office have how have over the a that think well. sense we're good outspoken We've the Having redevelop to and explore have said about last the and going some it and that and for parks, think Sure look office I can we've particular Eric. we exit and as to

and on our we're reduce where strategy portfolio that think and try the sense I issues goes makes it office years. set couple over next So as

Eric Frankel

Interesting. That's helpful.

I to, back going an you will. Just the guess on if bottom to earlier question

it your like second recovered exception So versus looked quarter. I like releasing East guess spread looks certainly the the the mostly bay.

significantly seems have to any there market? flex is every rental industrial or of why in rate other negative explanation growth that turned market slowed So in versus terms

John Petersen

No all. Yes the to Eric. related bay specifically nothing at East

two, as to a able to next So going the or market quickly. economy the as recovers quarter to or we be through year pretty we're or two go mark

lead term to market you going we're going Eric rates East and average a is years there now be able be there to nothing unusual turns around, little quickly we're as market speak able was this to pretty Our three to as over to but regarding specifically get bay of. to

Eric Frankel

came lease it's idiosyncratic do? maybe that So just the especially strong weak that not whatever markets or just

John Petersen

No.

vacancy have We been and market may and that's two or situations to think years active mentioned have market where or but have the nicely it several last not market the But I one but no, as so in the in mark was we've it's tight East clearly I there's you bay up as know, northern higher clear. a we over increasing an ago two still because rent mean, that's be still COVID, quite and I California been a us for year as been earlier. bay market market to a there we active the have good of our not still East maybe nothing there activity as we've still

Eric Frankel

percent question final have Got the of kind your right a moratorium, fair in for California retail California of business? is kind just you open bit portfolio of you. quasi of All actually your with businesses. you What portfolio referenced a

John Petersen

are mean for I Yes business. high majority XX open XX%

Eric Frankel

Okay.

John Petersen

I opening, to can't those that's restaurants on mean. of serve and When and the outdoors patios able kind things. even be clear. rent evictions Eric Well, and are To in moratorium Not and I no you on open think we talk payments about know California. almost

Eric Frankel

sure. Yes

John Petersen

they indoor restaurants mean terms but but maybe for of center like be extend all of to wide in are are things all open. or restrictions seating and not business California really and all of our fitness it that customers of open two No. our that may may a that's have our, we one to businesses have too like have there I other

Eric Frankel

That's Okay. I all you. got. Thank

John Petersen

Thanks Eric.

Operator

[Operator questions. additional Hedges for have the I'll or does Instructions] Jeff further it no appear remarks. return we to floor And closing

Jeff Hedges

All today talking a we to Have right. great afternoon. with for Thank and you look here soon. everyone you again joining us forward

Operator

this conference and this day. disconnect call. today's Please And line you. time Thank at does have wonderful a your conclude