Exhibit 99.1

News Release

PS Business Parks, Inc.

701 Western Avenue

Glendale, CA 91201-2349    

psbusinessparks.com

 

 

 

 

  

For Release:    

  

Immediately

  

Date:

  

October 28, 2020

  

Contact:

  

Jeff Hedges

     

(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Quarter Ended September 30, 2020 and Acquires a 246,000 Square Foot Multi-Tenant Industrial Park Located in Alexandria, Virginia, for $46.3 Million

GLENDALE, California—PS Business Parks, Inc. (NYSE:PSB) reported operating results for the three and nine months ended September 30, 2020 and announced that it acquired a 246,000 square foot multi-tenant industrial park located in Alexandria, Virginia, for $46.3 million.

Operating Results for the Three and Nine Months Ended September 30, 2020

Net income allocable to common shareholders for the three and nine months ended September 30, 2020 was $30.6 million, or $1.11 per diluted common share, and $97.7 million, or $3.55 per diluted common share, respectively. Net operating income (“NOI”) attributable to the Company’s Same Park portfolio (defined below) was $67.5 million and $202.8 million for the three and nine months ended September 30, 2020, respectively, representing a decrease of 0.3% and an increase of 0.2% over the same periods in 2019, respectively. Net income and NOI for both the three and nine month periods ended September 30, 2020 were negatively affected by the COVID-19 pandemic and its impact on certain of the Company’s customers.

The Company also reports NOI on a cash basis, which excludes non-cash rental income such as amortization of deferred rent receivable and other non-cash items, and also excludes rents that have been deferred or abated during the period. Same Park Cash NOI was $66.2 million and $198.1 million for the three and nine months ended September 30, 2020, respectively, each representing a decrease of 1.1% over the same periods in 2019. The decrease in Same Park Cash NOI for the three months ended September 30, 2020 was a result of 0.8% cash rental income growth offset by 5.3% growth in adjusted cost of operations, while the decrease for the nine months ended September 30, 2020 was the result of a 0.2% decline in cash rental income and 2.1% growth in adjusted cost of operations.

The following table details the change in Same Park rental income for the three and nine months ended September 30, 2020 and 2019 (in thousands):

 

     For the Three Months           For the Nine Months        
     Ended September 30,           Ended September 30,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Base rental income

   $ 72,597   $ 72,156   $ 441   $ 219,639   $ 214,766   $ 4,873

Expense recovery income

     22,972     22,068     904     67,635     66,644     991

Lease buyout income

     290     183     107     807     1,140     (333

Rent receivable write-off

     (237     (320     83     (1,370     (843     (527

Deferrals and abatements

     (1,955           (1,955     (6,458           (6,458

Repayment of rent deferrals

     1,193           1,193     1,215           1,215

Fee Income

     236     301     (65     703     937     (234
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash basis rental income

     95,096     94,388     708     282,171     282,644     (473

Non-Cash Rental Income (1)

     1,303     749     554     4,620     1,891     2,729
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rental income

   $ 96,399   $ 95,137   $ 1,262   $ 286,791   $ 284,535   $ 2,256
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursement, and lease incentive intangible.

Additional detail on Same Park NOI and Same Park Cash NOI for the three and nine months ended September 30, 2020 is provided in the Property Operations–Same Park Portfolio section below.

 

1


Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”)

FFO for the three and nine months ended September 30, 2020 was $1.55 per share and $4.85 per share, respectively, representing decreases of 9.2% and 5.5% from the same periods in 2019. FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts and generally represents GAAP net income before (i) real estate depreciation and amortization expense, (ii) gains or losses on sales of operating properties, and (iii) land and impairment charges on real estate assets.

Core FFO, which the Company defines as FFO excluding the impact of (i) charges related to the redemption of preferred stock and (ii) other nonrecurring income or expense items as appropriate, was $1.61 and $4.91 per share for the three and nine months ended September 30, 2020, respectively. During the three and nine months ended September 30, 2020, the Company accelerated the amortization of $1.7 million of stock compensation expense as a result of the retirement of its President and Chief Executive Officer, Maria Hawthorne. Separately, the Company also incurred non-capitalizable demolition costs of $0.3 million related to its multifamily development in Tysons, Virginia. The accelerated amortization of stock compensation expense and the non-capitalizable demolition costs are included in FFO but excluded for Core FFO purposes due to the nonrecurring nature of these expenses. Additional information is included on the Company’s quarterly report on Form 10-Q.

FAD for the three and nine months ended September 30, 2020 was $48.3 million and $142.1 million, respectively, representing a decrease of 6.0% and 5.2% from the same periods in 2019. The decreases in FAD were largely attributable to rent deferrals (net of amounts repaid) and abatements of $0.8 million and $5.4 million, for the three and nine months ended September 30, 2020, respectively, as the Company does not include rents deferred or abated in its computation of FAD. FAD is a non-GAAP measure that represents Core FFO adjusted to (i) deduct recurring capital improvements and capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expenses, such as amortization of deferred rent receivable and stock compensation expense.

FFO, Core FFO, and FAD are not substitutes for GAAP net income. Other real estate investment trusts (“REITs”) may compute FFO, Core FFO, and FAD differently, which could inhibit comparability. The Company believes its presentations of FFO, Core FFO, and FAD assist investors and analysts in analyzing and comparing the operating and financial performance between reporting periods.

Acquisition Activity

Subsequent to September 30, 2020, the Company completed the acquisition of Pickett Industrial Park, a 246,000 square foot infill multi-tenant industrial park located in Alexandria, Virginia, for a total purchase price of $46.3 million. The park consists of three buildings with suites ranging from 7,000 to 75,000 square feet and was 100% occupied at closing.

The park is strategically located inside the Capital Beltway in the rapidly redeveloping Van Dorn Corridor, has immediate access to I-95, I-495, and I-395 freeways and is in close proximity to the Pentagon, Fort Belvoir, and the U.S. Capital. This acquisition is complementary to the Company’s existing Northern Virginia industrial and flex portfolio totaling 3.0 million square feet.

Leasing Production

During the three and nine months ended September 30, 2020, the Company executed leases on 2.0 million and 5.6 million square feet, respectively, compared to 2.0 million and 5.3 million for the three and nine months ended September 30, 2019, respectively. The Company also reported that it entered into a 10-year lease on the 288,000 square foot single-tenant industrial building at its Hathaway Business Park located in its Los Angeles sub-market, which is included in the lease production stats for the three and nine month periods ended September 30, 2020. The lease commenced in October 2020 with cash rental rate growth of 36.1% over the prior lease which expired April 30, 2020. Weighted average cash rental rate growth on leases executed during the three and nine months ended September 30, 2020, was 5.2% and 5.9%, respectively, while average net effective rent1 growth was 18.7% and 16.4% for the same periods, respectively. Average lease term of the leases executed during the three months ended September 30, 2020 was 4.3 years, with associated average transaction costs (tenant improvements and leasing commissions) of $3.46 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in the same period of 2019 were 3.9 years and $3.80 per square foot, respectively.

 

1 

Net effective rent represents average rental payments for the term of a lease on a straight-line basis, excluding operating expense reimbursements.

 

2


Property Operations–Same Park Portfolio

The Company believes that evaluation of the Same Park portfolio, defined as all properties owned and operated as of September 30, 2020 that were acquired prior to January 1, 2018, provides an informative view of how the Company’s portfolio has performed over comparable periods. As of September 30, 2020, the Same Park portfolio consisted of 25.7 million rentable square feet, or 93.5% of the 27.5 million rentable square feet in the Company’s total portfolio, and excluded the Company’s 95.0% interest in a 395-unit multifamily property.

The following table presents the unaudited operating results of the Company’s Same Park facilities for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per square foot amounts):

 

     For the Three Months           For the Nine Months        
     Ended September 30,           Ended September 30,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Cash rental income (1)

   $ 95,096   $ 94,388     0.8   $ 282,171   $ 282,644     (0.2 %) 

Non-cash rental income (2)

     1,303     749     74.0     4,620     1,891     144.3
  

 

 

   

 

 

     

 

 

   

 

 

   

Total rental income

     96,399     95,137     1.3     286,791     284,535     0.8

Adjusted Cost of Operations (3)

            

Property taxes

     10,811     10,224     5.7     32,410     30,416     6.6

Utilities

     4,870     5,249     (7.2 %)      14,106     14,610     (3.4 %) 

Repairs and maintenance

     6,197     5,844     6.0     17,277     17,394     (0.7 %) 

Payroll

     4,090     3,622     12.9     12,030     11,070     8.7

Snow removal

                 0.0     78     1,033     (92.4 %) 

Property insurance

     1,283     868     47.8     3,009     2,346     28.3

Other expenses

     1,652     1,645     0.4     5,124     5,409     (5.3 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Adjusted Cost of Operations

     28,903     27,452     5.3     84,034     82,278     2.1
  

 

 

   

 

 

     

 

 

   

 

 

   

NOI (4)

   $ 67,496   $ 67,685     (0.3 %)    $ 202,757   $ 202,257     0.2
  

 

 

   

 

 

     

 

 

   

 

 

   

Cash NOI (5)

   $ 66,193   $ 66,936     (1.1 %)    $ 198,137   $ 200,366     (1.1 %) 

Selected Statistical Data

            

NOI margin (6)

     70.0     71.1     (1.5 %)      70.7     71.1     (0.6 %) 

Cash NOI margin (7)

     69.6     70.9     (1.8 %)      70.2     70.9     (1.0 %) 

Weighted average square foot occupancy

     92.3     94.7     (2.5 %)      92.5     94.5     (2.1 %) 

Revenue per occupied square foot (8)

   $ 16.29   $ 15.66     4.0   $ 16.11   $ 15.64     3.0

Revenue per available foot (RevPAF) (9)

   $ 15.03   $ 14.83     1.3   $ 14.90   $ 14.79     0.7

 

(1)

Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). Included in the calculation of Same Park Cash Rental Income are (a) lease buyout income of $0.3 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.8 million and $1.1 million for the nine months ended September 30, 2020 and 2019, respectively, and (b) accounts receivable write-offs of $0.2 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $1.4 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively. Cash rental income does not include deferred and abated rental income of $2.0 million and $0 for the three months ended September 30, 2020 and 2019, respectively, and $6.5 million and $0 for the nine months ended September 30, 2020 and 2019, respectively.

(2)

Non-Cash Rental Income represents amortization of deferred rent receivable, amortization of above and below market rents, net, and amortization of lease incentives and tenant improvement reimbursements. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.3 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $2.6 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively.

(3)

Adjusted Cost of Operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations, which can vary significantly period to period based upon the performance of the Company.

(4)

The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its business parks. The Company defines NOI as rental income less Adjusted Cost of Operations. The Company believes NOI assists investors in analyzing the performance of its real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of the real estate, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of the real estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.

(5)

The Company utilizes Cash NOI to evaluate the cash flow performance of our business parks, and we believe investors utilize this metric for the same purpose. The Company defines Cash NOI as Cash Rental Income less Adjusted Cost of Operations.

(6)

NOI margin is computed by dividing NOI by rental income.

 

3


(7)

Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.

(8)

Revenue per occupied square foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square foot for the three and nine month periods is annualized.

(9)

Revenue per Available Square Foot (RevPAF) is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and nine month periods is annualized.

The following table summarizes unaudited selected quarterly financial data with respect to the Same Park facilities (in thousands, except per square foot amounts):

 

     For the Three Months Ended  
             March 31                     June 30                 September 30             December 31      

Rental income (1)

        

2020

   $ 97,735   $ 92,657   $ 96,399   $  

2019

   $ 94,604   $ 94,794   $ 95,137   $ 97,415

Adjusted Cost of Operations (2)

        

2020

   $ 28,134   $ 26,997   $ 28,903   $  

2019

   $ 28,143   $ 26,683   $ 27,452   $ 27,281

NOI (3)

        

2020

   $ 69,601   $ 65,660   $ 67,496   $  

2019

   $ 66,461   $ 68,111   $ 67,685   $ 70,134

Weighted average square foot occupancy

        

2020

     92.9     92.4     92.3      

2019

     94.7     94.2     94.7     94.4

Revenue per occupied square foot (4)

        

2020

   $ 16.40   $ 15.64   $ 16.29   $  

2019

   $ 15.57   $ 15.68   $ 15.66   $ 16.09

RevPAF (5)

        

2020

   $ 15.24   $ 14.45   $ 15.03   $  

2019

   $ 14.75   $ 14.78   $ 14.83   $ 15.19

 

(1)

Included in the calculation of Same Park rental income are (a) lease buyout income of $0.2 million, $0.8 million, $0.2 million, $0.2 million, $0.3 million, $0.3 million, and $0.3 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020, respectively, (b) accounts receivable write-offs of $0.2 million, $0.3 million, $0.3 million, $0.2 million, $0.1 million, $1.1 million, and $0.2 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020, respectively, and (c) deferred rent receivable write-offs of $0.1 million, $0.1 million, $0.1 million, $0.1 million, $0, $2.3 million, and $0.3 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020, respectively.

(2)

Adjusted Cost of Operations excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations, which can vary significantly period to period based upon the performance of the Company.

(3)

The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its business parks. The Company defines NOI as rental income less Adjusted Cost of Operations. The Company believes NOI assists investors in analyzing the performance of its real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of the real estate, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of the real estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.

(4)

Revenue per occupied square foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square foot for the three and nine month periods is annualized.

(5)

RevPAF is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and nine month periods is annualized.

 

4


COVID-19 Pandemic/Rent Collections Update

The COVID-19 pandemic has had and is expected to continue to have a significant impact on our operations and capital plans. During the three months ended September 30, 2020, the Company granted $1.7 million of deferred rent and $0.3 million of rent abatement. Through the nine months ended September 30, 2020, the Company had granted rent relief to 388 customers (approximately 11.0% of total customers based on rental income) including $5.5 million of rent deferral and $1.2 million of rent abatement. As of October 26, 2020, the Company collected $1.3 million, or 98.3%, of the scheduled repayments of COVID-19 related rent deferrals billed through September 30, 2020.

During the three months ended September 30, 2020, the Company wrote-off $0.3 million of accounts receivable, which is in-line with the $0.3 million written-off during the three months ended September 30, 2019. Also during the three months ended September 30, 2020, the Company wrote-off deferred rent receivables of $0.3 million, which is roughly in-line with the $0.1 million written-off during the three months ended September 30, 2019. During the nine months ended September 30, 2020, the Company wrote-off accounts receivable and deferred rent receivable of $1.5 million and $2.7 million, respectively, compared to $0.9 million and $0.4 million, respectively, during the same period in 2019.

The table below represents percentages of billed revenue that the Company has collected, deferred, and abated/written-off, by product type, for the respective periods presented (percentages shown are all as of October 26, 2020):

 

     Percentage of Rent  
     Collected     Outstanding     Deferred     Abated/
Written-off
 

Q2 2020

        

Industrial

     93     0     5     2

Flex

     94     1     3     2

Office

     97     0     2     1

Total

     94     0     4     2

Q3 2020

        

Industrial

     96     1     2     1

Flex

     96     2     1     1

Office

     97     1     2     0

Total

     96     1     2     1

October 2020 (1)

        

Industrial

     96     4     0     0

Flex

     95     5     0     0

Office

     98     2     0     0

Total

     96     4     0     0

 

(1)

October 2020 rent billings and collections shown above include September 2020 rent billed on September 30, 2020 and collected in October 2020 for leases billed in arrears.

As of October 26, 2020, the Company had open rent relief requests from approximately 1% of customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Overview, Impact of COVID-19 Pandemic” in our September 30, 2020 Form 10-Q for more information.

Brentford at The Mile Development, Tysons, Virginia

In August 2020, the Company entered into a joint venture agreement with a real estate development company (“JV Partner”) for the purpose of developing Brentford at The Mile, a planned 411-unit multifamily apartment complex within its 628,000 square foot office and multifamily park located in Tysons, Virginia (“Brentford Joint Venture”). Under the Brentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest.

Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding the cost of land. During the three months ended September 30, 2020, the Company incurred non-capitalizable demolition costs of $0.3 million in interest and other expense on its consolidated statements of income.

 

5


Disposition Activity

On September 16, 2020, the Company sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, that were subject to an eminent domain process for a gross sales price of $11.4 million, which resulted in a gain of $7.7 million.

Distributions Declared

On October 21, 2020, the Board of Directors declared a quarterly dividend of $1.05 per common share. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock. Distributions for both common shares and preferred stock will be payable on December 30, 2020 to shareholders of record on December 15, 2020.

Company Information

PS Business Parks, Inc., a member of the S&P MidCap 400, is a REIT that acquires, develops, owns, and operates commercial properties, primarily multi-tenant industrial, flex, and office space. As of September 30, 2020, the Company wholly owned 27.5 million rentable square feet with approximately 5,000 commercial customers in six states. The Company also held a 95.0% interest in a 395-unit apartment complex and a 98.2% interest in a development of a 411-unit multifamily apartment complex.

Forward-Looking Statements

When used within this press release, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends,” and similar expressions are intended to identify “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the duration and severity of the COVID-19 pandemic and its impact on our business and our customers; the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company’s facilities; the Company’s ability to evaluate, finance, and integrate acquired and developed properties into the Company’s existing operations; the Company’s ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing REITs; the impact of general economic and business conditions, including as a result of the economic fallout of the COVID-19 pandemic; rental rates and occupancy levels at the Company’s facilities; and changes in these conditions as a result of the COVID-19 pandemic, the availability of permanent capital at attractive rates, the outlook and actions of rating agencies and risks detailed from time to time in the Company’s SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K, and annual reports on Form 10-K.

Additional information about PS Business Parks, Inc., including more financial analysis of the third quarter operating results, is available on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Thursday, October 29, 2020, at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss third quarter results. The Company will also be discussing its response to the COVID-19 pandemic and the effects it has had on its customers and the operation of its properties. The toll free number is (866) 342-8591; the conference ID is PSBQ320. The call will also be available via a live webcast on the Company’s website. A replay of the conference call will be available through November 12, 2020 at (800) 839-5631, as well as via webcast on the Company’s website.

Additional financial data attached.

 

6


PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

     September 30,     December 31,  
     2020     2019  
     (Unaudited)        

ASSETS

    
    

Cash and cash equivalents

   $ 117,881   $ 62,786
    

Real estate facilities, at cost

    

Land

     855,542     844,419

Buildings and improvements

     2,213,798     2,203,308
  

 

 

   

 

 

 
     3,069,340     3,047,727

Accumulated depreciation

     (1,210,473     (1,158,489
  

 

 

   

 

 

 
     1,858,867     1,889,238

Properties held for sale, net (1)

           15,264

Land and building held for development, net

     35,506     28,110
  

 

 

   

 

 

 
     1,894,373     1,932,612

Rent receivable

     1,790     1,392

Deferred rent receivable (2)

     37,361     32,993

Other assets

     13,348     16,660
  

 

 

   

 

 

 

Total assets

   $  2,064,753   $  2,046,443
  

 

 

   

 

 

 
    

LIABILITIES AND EQUITY

    
    

Accrued and other liabilities

   $ 87,808   $ 84,632
  

 

 

   

 

 

 

Total liabilities

     87,808     84,632
    

Commitments and contingencies

    

Equity

    

PS Business Parks, Inc.’s shareholders’ equity

    

Preferred stock, $0.01 par value, 50,000,000 shares authorized, 37,790 shares issued and outstanding

        at ($944,750 aggregate liquidation preference) September 30, 2020 and December 31, 2019

     944,750     944,750

Common stock, $0.01 par value, 100,000,000 shares authorized, 27,486,788 and 27,440,953 shares

        issued and outstanding at September 30, 2020 and December 31, 2019, respectively

     274     274

Paid-in capital

     737,065     736,986

Accumulated earnings

     75,393     63,666
  

 

 

   

 

 

 

Total PS Business Parks, Inc.’s shareholders’ equity

     1,757,482     1,745,676

Noncontrolling interests

     219,463     216,135
  

 

 

   

 

 

 

Total equity

     1,976,945     1,961,811
  

 

 

   

 

 

 

Total liabilities and equity

   $  2,064,753   $  2,046,443
  

 

 

   

 

 

 

 

(1)

On September 16, 2020, the Company completed the sale of two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process, for a gross sales price of $11.4 million. Properties held for sale, net as of December 31, 2019 represents the same two industrial buildings mentioned above along with one single-tenant building totaling 113,000 square feet located in Montgomery County, Maryland, which sold on January 7, 2020 for a gross sales price of $30.0 million.

(2)

Increase in deferred rent receivable is primarily attributable to rent deferral arrangements that the Company entered into with certain customers as a result of the COVID-19 pandemic.

 

7


PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

     For the Three Months     For the Nine Months  
     Ended September 30,     Ended September 30,  
     2020     2019     2020     2019  

Rental income

   $  103,760   $  108,064   $  310,535   $  323,671

Expenses

        

Cost of operations

     32,096     32,468     93,490     97,521

Depreciation and amortization

     23,064     26,220     72,646     75,863

General and administrative

     5,047     4,051     11,374     10,111
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     60,207     62,739     177,510     183,495
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income

     230     1,384     1,012     2,766

Interest and other expense

     (536     (199     (900     (484

Gain on sale of real estate facilities

     7,652           27,273      
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     50,899     46,510     160,410     142,458

Allocation to noncontrolling interests

     (8,124     (7,020     (26,011     (21,670
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income allocable to PS Business Parks, Inc.

     42,775     39,490     134,399     120,788

Allocation to preferred shareholders

     (12,046     (12,959     (36,139     (38,877

Allocation to restricted stock unit holders

     (149     (219     (543     (699
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income allocable to common shareholders

   $ 30,580   $ 26,312   $ 97,717   $ 81,212
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share

        

Basic

   $ 1.11   $ 0.96   $ 3.56   $ 2.96

Diluted

   $ 1.11   $ 0.96   $ 3.55   $ 2.95

Weighted average common shares outstanding

        

Basic

     27,483     27,432     27,470     27,411

Diluted

     27,565     27,543     27,560     27,512

 

8


PS BUSINESS PARKS, INC.

Computation of Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”)

(In thousands, except per share amounts)

(Unaudited)

 

     For the Three Months     For the Nine Months  
     Ended September 30,     Ended September 30,  
     2020     2019     2020     2019  

Net income allocable to common shareholders

   $  30,580   $  26,312   $ 97,717   $ 81,212

Adjustments

        

Gain on sale of real estate facilities

     (7,652           (27,273      

Depreciation and amortization expense

     23,064     26,220     72,646     75,863

Net income allocated to noncontrolling interests

     8,124     7,020     26,011     21,670

Net income allocated to restricted stock unit holders

     149     219     543     699

FFO allocated to joint venture partner

     (21     (39     (102     (105
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO allocable to diluted common shares and units (1)

     54,244     59,732     169,542     179,339

Non-capitalizable demolition costs

     335           335      

Acceleration of stock compensation expense due to President and Chief Executive Officer retirement

     1,687           1,687      
  

 

 

   

 

 

   

 

 

   

 

 

 

Core FFO allocable to diluted common shares and units (1)

     56,266     59,732     171,564     179,339

Adjustments

        

Recurring capital improvements

     (1,625     (2,728     (6,413     (6,336

Tenant improvements

     (3,338     (3,331     (11,039     (11,898

Lease commissions

     (1,889     (2,654     (5,225     (6,027

Non-cash rental income (2)

     (1,530     (1,122     (5,340     (3,069

Non-cash stock compensation expense (3)

     831     2,102     2,704     3,991

Cash paid for taxes in lieu of shares upon vesting of restricted stock units

     (442     (620     (4,102     (6,120
  

 

 

   

 

 

   

 

 

   

 

 

 

FAD allocable to diluted common shares and units (1)

   $  48,273   $  51,379   $  142,149   $  149,880
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to common shareholders, noncontrolling interests, and restricted stock unit holders

   $  36,717   $  36,728   $  110,123   $  110,132

Distribution payout ratio

     76.1     71.5     77.5     73.5

Reconciliation of Earnings per Share to FFO per Share

        

Net income per common share—diluted

   $ 1.11   $ 0.96   $ 3.55   $ 2.95

Gain on sale of real estate facilities

     (0.22           (0.78      

Depreciation and amortization expense

     0.66     0.75     2.08     2.18
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO per share (1)

     1.55     1.71     4.85     5.13

Non-capitalizable demolition costs

     0.01           0.01      

Acceleration of stock compensation expense due to President and Chief Executive Officer retirement

     0.05           0.05      
  

 

 

   

 

 

   

 

 

   

 

 

 

Core FFO per share (1)

   $ 1.61   $ 1.71   $ 4.91   $ 5.13
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average outstanding

        

Common shares

     27,483     27,432     27,470     27,411

Operating partnership units

     7,305     7,305     7,305     7,305

Restricted stock units

     49     113     65     126

Common share equivalents

     82     111     90     101
  

 

 

   

 

 

   

 

 

   

 

 

 

Total common and dilutive shares

     34,919     34,961     34,930     34,943
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

FFO, Core FFO, and FAD are defined above.

(2)

Non-cash rental income includes amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursement, and lease incentive intangible.

(3)

Amounts shown are net of accelerated stock compensation expense related to the President and Chief Executive Officer retirement, which is also excluded from the computation of Core FFO.

 

9


PS BUSINESS PARKS, INC.

Reconciliation of Selected Non-GAAP Measures to Analogous GAAP Measures

(Unaudited, in thousands)

 

     For the Three Months           For the Nine Months        
     Ended September 30,           Ended September 30,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Same Park (1)

   $ 96,399   $ 95,137     1.3   $  286,791   $  284,535     0.8

Non-Same Park

     4,993     3,598     38.8     15,809     9,508     66.3

Multifamily

     2,201     2,519     (12.6 %)      7,249     7,492     (3.2 %) 

Assets sold (2)

     167     6,810     (97.5 %)      686     22,136     (96.9 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total rental income

     103,760     108,064     (4.0 %)      310,535     323,671     (4.1 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Cost of operations

            

Adjusted Cost of Operations (3)

            

Same Park

     28,903     27,452     5.3     84,034     82,278     2.1

Non-Same Park

     1,843     1,137     62.1     5,446     3,304     64.8

Multifamily

     1,066     1,045     2.0     3,084     3,118     (1.1 %) 

Assets sold (2)

     41     2,525     (98.4 %)      143     7,911     (98.2 %) 

Stock compensation expense (4)

     243     309     (21.4 %)      783     910     (14.0 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total cost of operations

     32,096     32,468     (1.1 %)      93,490     97,521     (4.1 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Net operating income (5)

            

Same Park

     67,496     67,685     (0.3 %)      202,757     202,257     0.2

Non-Same Park

     3,150     2,461     28.0     10,363     6,204     67.0

Multifamily

     1,135     1,474     (23.0 %)      4,165     4,374     (4.8 %) 

Assets sold (2)

     126     4,285     (97.1 %)      543     14,225     (96.2 %) 

Stock compensation expense (4)

     (243     (309     (21.4 %)      (783     (910     (14.0 %) 

Depreciation and amortization expense

     (23,064     (26,220     (12.0 %)      (72,646     (75,863     (4.2 %) 

General and administrative expense

     (5,047     (4,051     24.6     (11,374     (10,111     12.5

Interest and other income

     230     1,384     (83.4 %)      1,012     2,766     (63.4 %) 

Interest and other expense

     (536     (199     169.3     (900     (484     86.0

Gain on sale of real estate facilities

     7,652           100.0     27,273           100.0
  

 

 

   

 

 

     

 

 

   

 

 

   

Net income

   $ 50,899   $ 46,510     9.4   $  160,410   $  142,458     12.6
  

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)

Included in the calculation of Same Park rental income are (a) lease buyout income of $0.3 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.8 million and $1.1 million for the nine months ended September 30, 2020 and 2019, respectively, (b) accounts receivable write-offs of $0.2 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $1.4 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively, and (c) deferred rent receivable write-offs of $0.3 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $2.6 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)

Amounts for the three months ended September 30, 2020 include results related to two industrial buildings totaling 40,000 square feet sold in September 2020; amounts for the nine months ended September 30, 2020 include the two industrial buildings totaling 40,000 square feet sold in September 2020 and a 113,000 square foot office building sold in January 2020; amounts for the three and nine months ended September 30, 2019 reflect the operating results of the two industrial buildings totaling 40,000 square feet sold in September 2020, the 113,000 square foot office building sold in January 2020, and 1.3 million square feet of assets sold in October 2019.

(3)

Adjusted Cost of Operations excludes the impact of stock compensation expense.

(4)

Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributable to the executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.

(5)

NOI represents rental income less Adjusted Cost of Operations.

 

10

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