News Release Exhibit 99.1
PS Business Parks, Inc.
701 Western Avenue
P.O. Box 25050
Glendale, CA 91221-5050
www.psbusinessparks.com
- --------------------------------------------------------------------------------
For Release: Immediately
Date: November 11, 2002
Contact: Mr. Jack Corrigan
(818) 244-8080, Ext. 663
Glendale, California - PS Business Parks, Inc. (AMEX: PSB), reported operating
results for the third quarter ending September 30, 2002 and announced
distributions for the fourth quarter of 2002.
Net income allocable to common shareholders for the third quarter of 2002 was
$9.9 million or $0.46 per diluted share on revenues of $49.9 million compared to
$10.0 million or $0.45 per diluted share on revenues of $42.8 million for the
same period in 2001 based on 21.8 million and 22.3 million weighted average
diluted shares outstanding during the third quarter of 2002 and 2001
respectively. Net income allocable to common shareholders for the nine months
ended September 30, 2002 was $32.5 million or $1.49 per diluted share on
revenues of $150.3 million compared to net income allocable to common
shareholders of $31.1 million or $1.37 per diluted share on revenues of $121.2
million for the same period in 2001 based on 21.8 million and 22.7 million
weighted average diluted shares outstanding during the nine months ended
September 30, 2002 and 2001 respectively. Net income allocable to common
shareholders for the first nine months of 2002 included recognizing gains on
dispositions of properties totaling $7.4 million or $0.26 per share, the
Company's share of gains on disposition of four buildings in its joint venture
of $265,000 or approximately $0.01 per share and a $900,000 impairment charge or
approximately $0.03 per share, for one of its properties held for sale that was
determined to have a carrying value more than the anticipated net sales
proceeds.
Net income per diluted share before the recognition of the gains on the
disposition of properties and impairment charge on properties held for
disposition for the third quarter of 2002 was $0.42 or $0.03 less than the same
period in 2001. The net income per diluted share before the recognition of the
gains on the disposition of properties and joint venture properties and the
impairment charges for the first nine months of 2002 was $1.26 or $0.11 less
than the same period in 2001. The decreases for both periods were the result of
an increase in depreciation expense as a result of $305 million of property
acquisitions in 2001. The increased depreciation expense was partially offset by
the net operating income from the acquired properties, net of financing costs.
Supplemental Measures
- ---------------------
Funds from operations ("FFO") for the third quarter of 2002 were $26.1 million
or $0.90 per share compared to $23.7 million or $0.80 per share for the same
period in 2001. This represents an increase of 12.5% in FFO per share based on
29.1 million and 29.6 million weighted average shares outstanding during the
third quarter of 2002 and 2001, respectively. FFO for the nine months ended
September 30, 2002 was $77.4 million or $2.66 per share compared to $70.0
million or $2.34 per share for the same period in 2001. This represents an
increase of 13.7% in FFO per share based on 29.1 million and 30.0 million
weighted average shares outstanding during the nine months ended September 30,
2002 and 2001 respectively. FFO and FFO per share exclude the gain on
disposition of real estate and marketable securities, the Company's share of
gains from dispositions in its joint venture, impairment charges and the accrual
of straight line rents, all of which are included in the calculation of net
income.
The growth in FFO per share is due primarily to net operating income from
acquisitions completed during 2001 and a reduction in the number of the
Company's outstanding common shares. Acquisitions and the repurchase of shares
were financed primarily with existing cash, issuance of preferred stock, low
cost debt and retained cash.
Funds Available for Distribution (FAD) represents FFO less recurring capitalized
expenditures which includes maintenance capital expenditures, tenant
improvements and capitalized lease commissions. FAD for the third quarter of
2002 were $20.7 million or $0.71 per share compared to $20.2 million or $0.68
per share for the same period in 2001. This represents an increase of 4.4%. FAD
for the nine months ended September 30, 2002 was $63.7 million or $2.19 per
share compared to $62.7 million or $2.09 per share for the same period in 2001.
This represents an increase of 4.8%. The increases in FAD were the result of
increased FFO partially offset by increased recurring capital expenditures
incurred as a result of higher lease transaction costs including tenant
improvements concessions and leasing commissions due to a weak leasing
environment combined with increased recurring capital expenditures attributable
to an increase in square footage of 12.9% and 16.4% for the three and nine
months ended September 30, 2002.
Property Operations
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In order to evaluate the performance of the Company's overall portfolio,
management analyzes the operating performance of a consistent group of
properties (11.8 million net rentable square feet). These properties in which
the Company currently has an ownership interest (herein referred to as the "Same
Park" facilities) have been owned and operated by the Company for the comparable
periods. The "Same Park" facilities represent approximately 80% of the square
footage of the Company's wholly-owned portfolio at September 30, 2002.
The following tables summarize the pre-depreciation historical operating results
of the "Same Park" facilities and the entire portfolio, excluding the effects of
accounting for rental income on a straight-line basis.
"Same Park" Facilities (11.8 million square feet)
-------------------------------------------------
Three Months Ended
September 30,
------------------------------------
2002 2001 Change
------------------ ---------------- ------------
Rental income (1).................................... $ 37,411,000 $ 37,265,000 0.4%
Cost of operations................................... 10,053,000 10,090,000 (0.4%)
------------------ ---------------- ------------
Net operating income................................. $ 27,358,000 $ 27,175,000 0.7%
================== ================ ============
Gross margin (2)..................................... 73.1% 72.9% 0.2%
Weighted average for period:
Occupancy........................................ 93.9% 95.6% (1.7%)
Annualized realized rent per occupied sq. ft.(3). $13.46 $13.17 2.2%
................................................................................................................
Nine Months Ended
September 30,
------------------------------------
2002 2001 Change
------------------ ---------------- ------------
Rental income (1).................................... $ 112,301,000 $ 110,574,000 1.6%
Cost of operations................................... 29,974,000 29,004,000 3.3%
------------------ ---------------- ------------
Net operating income................................. $ 82,327,000 $ 81,570,000 0.9%
================== ================ ============
Gross margin (2)..................................... 73.3% 73.8% (0.5%)
Weighted average for period:
Occupancy........................................ 94.6% 96.1% (1.5%)
Annualized realized rent per occupied sq. ft.(3). $13.36 $12.96 3.1%
(1) Rental income does not include the effect of straight-line accounting.
(2) Gross margin is computed by dividing property net operating income by rental
income.
(3) Realized rent per square foot represents the actual revenues earned per
occupied square foot.
Total Portfolio Statistics
--------------------------
Three Months Ended
September 30,
------------------------------------
2002 2001 Change
------------------ ---------------- ------------
Rental income (1) (4)................................ $ 49,487,000 $ 43,002,000 15.1%
Cost of operations (4)............................... 13,184,000 12,006,000 9.8%
------------------ ---------------- ------------
Net operating income................................. $ 36,303,000 $ 30,996,000 17.1%
================== ================ =============
Gross margin (2)..................................... 73.4% 72.1% 1.3%
Weighted average for period:
Square footage................................... 14,555,000 12,887,000 12.9%
Occupancy........................................ 93.8% 95.2% (1.4%)
Annualized realized rent per occupied sq. ft.(3). $14.50 $14.02 3.4%
...............................................................................................................
Nine Months Ended
September 30,
------------------------------------
2002 2001 Change
------------------ ---------------- ------------
Rental income (1) (4)................................ $ 148,093,000 $ 120,793,000 22.6%
Cost of operations (4)............................... 40,213,000 32,852,000 22.4%
------------------ ---------------- ------------
Net operating income................................. $ 107,880,000 $ 87,941,000 22.7%
================== ================ ============
Gross margin (2)..................................... 72.8% 72.8% (0.0%)
Weighted average for period:
Square footage................................... 14,571,000 12,521,000 16.4%
Occupancy........................................ 94.3% 95.8% (1.5%)
Annualized realized rent per occupied sq. ft.(3). $14.37 $13.43 7.0%
(1) Rental income does not include the effect of straight-line accounting.
(2) Gross margin is computed by dividing property net operating income by rental
income.
(3) Realized rent per square foot represents the actual revenues earned per
occupied square foot.
(4) Rental income ($473,000 and $1,404,000 for the three and nine months ended
September 30, 2002), cost of operations ($226,000 and $649,000 for the three
and nine months ended September 30, 2002) and square footage (238,000) of
development properties have been excluded from Total Portfolio Statistics.
(5) Includes rental income ($1,023,000 and $1,060,000 for the three months and
$3,143,000 and $3,213,000 for the nine months ended September 31, 2002 and
2001, respectively) and cost of operations ($457,000 and $518,000 for the
three months and $1,466,000 and $1,502,000 for the nine months ended
September 30, 2002 and 2001, respectively) from discontinued operations.
Development Properties
- ----------------------
The Company has developed one office and one flex facility that are currently
shell complete and in the lease-up phase. The projects total approximately
238,000 square feet and have an estimated aggregate cost of approximately $25
million. The office development completed in June 2001, consists of two
buildings totaling 97,000 square feet in the Beaverton submarket of Portland,
Oregon and is 26% leased. There were no new leases signed for this facility
during the nine months ended September 30, 2002. The flex development, completed
in November 2000, consists of two buildings totaling 141,000 square feet in the
Chantilly submarket of Northern Virginia. The Company leased an additional
30,000 square feet during 2002 at the Northern Virginia development bringing the
development to 80% leased. Both properties are classified as operating as of
September 30, 2002 and the Company has ceased capitalizing interest.
Financial Condition
- -------------------
The Company continued to maintain financial strength and flexibility. The
following are the Company's key financial ratios with respect to its leverage at
September 30, 2002.
Ratio of FFO to fixed charges for the quarter (1)............................... 31.8x
Ratio of FFO to fixed charges year-to-date (1).................................. 24.2x
Ratio of FFO to fixed charges and preferred distributions for the quarter (2)... 3.8x
Ratio of FFO to fixed charges and preferred distributions year-to-date(2)....... 3.6x
Debt and preferred equity to total market capitalization (based on the common
stock price of $34.00 at September 30, 2002)................................... 31%
Available under line of credit at September 30, 2002............................ $100 million
(1) Fixed charges include interest expense of $1,115,000 ($4,098,000 year-to
-date) and no capitalized interest for the third quarter of 2002 ($288,000
year-to-date).
(2) Preferred distributions include amounts paid to preferred shareholders of
$3,933,000 ($11,483,000 year-to-date) and preferred unitholders in the
operating partnership of $4,412,000 ($13,237,000 year-to-date) for the
third quarter of 2002.
During October, 2002, the Operating Partnership completed a private placement of
800,000 preferred units with a preferred distribution rate of 7.95%. The net
proceeds from the placement of preferred units were approximately $19.5 million.
In October 2002, the Company extended its unsecured line of credit (the "Credit
Facility") with Wells Fargo Bank. The Credit Facility has a borrowing limit of
$100 million and an expiration date of August 1, 2005.
Joint Venture Property Dispositions
- -----------------------------------
Through a joint venture with an institutional investor, the Company holds a 25%
equity interest in an industrial park in the City of Industry, submarket of Los
Angeles County. Initially the joint venture consisted of 14 buildings totaling
294,000 square feet. During the second quarter, the joint venture sold two of
the buildings totaling 47,000 square feet. The Company recognized a gain of
$148,000 on the disposition of the two buildings which is included in equity in
income of joint venture. During the third quarter, the joint venture sold two
additional buildings totaling 29,000 square feet. The Company recognized an
additional gain of $117,000 in the third quarter resulting in a total gain of
$265,000 for the nine months ended September 30, 2002. These gains have been
excluded from funds from operations. As of September 30, 2002, the joint venture
holds 10 buildings totaling 218,000 square feet which the joint venture is
currently marketing for sale.
The joint venture has a variable rate mortgage obligation of approximately $5
million which currently bears interest at 5.45%. The Company has guaranteed
repayment of the mortgage under certain conditions, but it is not included in
the Company's total liabilities.
Property Dispositions
- ---------------------
As previously announced in the fourth quarter of 2001, the Company identified
two properties totaling 199,000 square feet that do not meet its ongoing
investment strategy. On October 8, 2002, the Company sold one of these
properties totaling 43,000 square feet for net proceeds of $1.8 million. The
Company will recognize a gain of approximately $100,000 during the fourth
quarter on the sale for accounting purposes. The other property is currently
being marketed. The Company determined that the net proceeds from the sale will
be less than the carrying value and recorded a $900,000 impairment charge in the
third quarter.
During the third quarter of 2002, the Company identified two additional
properties that do not meet the Company's ongoing investment criteria. One
property located in Overland Park Kansas totaling 62,000 square feet was sold on
August 26, 2002 for $5.3 million resulting in net proceeds of $5.1 and a gain of
approximately $2 million for accounting purposes. This was the Company's only
facility in Kansas. The other property located in Landover Maryland totaling
125,000 square feet, was sold on October 1, 2002. The property was sold for
approximately $9.6 million generating net proceeds of $9.5 million and a gain of
approximately $1.2 million for accounting purposes which will be recognized in
the fourth quarter of 2002.
Distributions Declared
- ----------------------
The Board of Directors declared a quarterly dividend of $0.29 per common share
on November 11, 2002. Distributions were also declared with respect to the
Company's various series of preferred stock. All of the distributions are
payable on December 31, 2002 to shareholders of record as of the close of
business on December 13, 2002.
Company Information
- -------------------
PSB is a self-advised and self-managed equity real estate investment trust that
acquires, develops, owns and operates commercial properties, primarily flex,
multi-tenant office and industrial space. The Company defines "flex" space as
buildings that are configured with a combination of office and warehouse space
and can be designed to fit an almost limitless number of uses (including office,
assembly, showroom, laboratory, light manufacturing and warehouse space). As of
September 30, 2002, PSB wholly-owned approximately 14.8 million net rentable
square feet of commercial space with approximately 3,200 customers located in
eight states, concentrated primarily in California (4,673,000 sq. ft.), Texas
(2,983,000 sq. ft.), Oregon (1,973,000 sq. ft.), Virginia (2,621,000 sq. ft.)
and Maryland (1,769,000 sq. ft.).
Forward-Looking Statements
- --------------------------
When used within this press release, the words "expects," "believes,"
"anticipates," "should," "estimates," 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 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 Real Estate
Investment Trusts; the impact of general economic conditions upon rental rates
and occupancy levels at the Company's facilities; 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's operating results is available on the Internet.
The Company's web site is www.psbusinessparks.com.
------------------------
A conference call is scheduled for Tuesday, November 12, 2002 at 10:00 a.m.
(PDT) to discuss these results. The toll free number is 1-800-399-4409, the
conference ID is 6069556. An instant replay of the conference call will be
available through November 19, 2002 at 1-800-642-1687. The replay can also be
accessed under the "Investor Relations" section of our web site.
Additional financial data attached.
PS BUSINESS PARKS, INC.
Selected Financial Data
At September 30, 2002 At December 31, 2001
------------------------- ------------------------
Balance Sheet Data:
- ------------------
Cash and cash equivalents......................................... $ 4,625,000 $ 3,076,000
Marketable securities............................................. $ 5,378,000 $ 9,134,000
Note receivable................................................... $ 200,000 $ 7,450,000
Properties held for disposition, net.............................. $ 16,643,000 $ 17,619,000
Real estate facilities, before accumulated depreciation........... $ 1,244,457,000 $ 1,228,050,000
Total assets...................................................... $ 1,138,136,000 $ 1,169,955,000
Total debt........................................................ $ 77,720,000 $ 165,145,000
Minority interest - common units.................................. $ 166,436,000 $ 162,141,000
Minority interest - preferred units............................... $ 197,750,000 $ 197,750,000
Preferred stock................................................... $ 170,950,000 $ 121,000,000
Common shareholders' equity....................................... $ 492,945,000 $ 478,731,000
Total common shares outstanding at period end..................... 21,553,000 21,540,000
========================= ========================
Total common shares outstanding at period end, assuming conversion
of all Operating Partnership units into common stock............. 28,858,000 28,845,000
========================= ========================
PS BUSINESS PARKS, INC.
Selected Financial Data
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------- -----------------------------------
2002 2001 2002 2001
----------------- ---------------- ---------------- ------------------
Revenues:
Rental income.................................... $ 49,478,000 $ 42,230,000 $ 148,632,000 $ 118,751,000
Facility management fees primarily from affiliates 191,000 170,000 577,000 499,000
Business services................................. 24,000 75,000 93,000 308,000
Equity in income of joint venture................. 138,000 - 387,000 -
Interest and dividend income...................... 47,000 350,000 647,000 1,671,000
----------------- ---------------- ---------------- ------------------
49,878,000 42,825,000 150,336,000 121,229,000
----------------- ---------------- ---------------- ------------------
Expenses:
Cost of operations................................ 12,953,000 11,488,000 39,396,000 31,350,000
Cost of facility management....................... 44,000 38,000 134,000 111,000
Cost of business services......................... 88,000 147,000 376,000 460,000
Depreciation and amortization..................... 14,595,000 10,679,000 42,885,000 30,058,000
General and administrative........................ 1,194,000 1,037,000 3,398,000 3,157,000
Interest expense.................................. 1,115,000 538,000 4,098,000 932,000
----------------- ---------------- ---------------- ------------------
29,989,000 23,927,000 90,287,000 66,068,000
----------------- ---------------- ---------------- ------------------
Income from continuing operations................... 19,889,000 18,898,000 60,049,000 55,161,000
Income from discontinued operations and properties
held for sale....................................... 556,000 542,000 1,677,000 1,711,000
----------------- ---------------- ---------------- ------------------
Income before income from gain on disposition of
real estate, gain on investments and minority 20,455,000 19,440,000 61,726,000 56,872,000
interest........................................
Gain on disposition of real estate................ 2,041,000 - 7,407,000 -
Gain on investment in marketable securities....... 16,000 - 41,000 15,000
Impairment charge on property held for sale....... (900,000) - (900,000) -
----------------- ---------------- ---------------- ------------------
Income before minority interest..................... 21,612,000 19,440,000 68,274,000 56,887,000
Minority interest in income - preferred units..... (4,412,000) (3,323,000) (13,237,000) (9,696,000)
Minority interest in income - common units........ (3,356,000) (3,268,000) (11,019,000) (10,047,000)
----------------- ---------------- ---------------- ------------------
Net income.......................................... $ 13,844,000 $ 12,849,000 $ 44,018,000 $ 37,144,000
================= ================ ================ ==================
Net income allocation:
Allocable to preferred shareholders.............. $ 3,933,000 $ 2,839,000 $ 11,483,000 $ 6,014,000
Allocable to common shareholders................. 9,911,000 10,010,000 32,535,000 31,130,000
----------------- ---------------- ---------------- ------------------
$ 13,844,000 $ 12,849,000 $ 44,018,000 $ 37,144,000
================= ================ ================ ==================
Net income per common share - diluted: $ 0.46 $ 0.45 $ 1.49 $ 1.37
================= ================ ================ ==================
Weighted average common shares outstanding -
diluted: 21,772,000 22,295,000 21,763,000 22,685,000
================= ================ ================ ==================
PS BUSINESS PARKS, INC.
Computation of Funds from Operations ("FFO")
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ----------------------------------
2002 2001 2002 2001
----------------- ----------------- ---------------- -----------------
Net income allocable to common shareholders............. $ 9,911,000 $ 10,010,000 $ 32,535,000 $ 31,130,000
Less: Gain on investment in marketable securities.. (16,000) - (41,000) (15,000)
Less: Gain on disposition of real estate........... (2,041,000) - (7,407,000) -
Less: Equity income from sale of joint venture
properties................................... (117,000) - (265,000) -
Less: Straight line rent adjustment................ (541,000) (288,000) (2,278,000) (1,171,000)
Add: Depreciation and amortization................ 14,595,000 10,679,000 42,885,000 30,058,000
Add: Depreciation from unconsolidated joint venture 17,000 - 57,000 -
Add: Impairment charge on property held for sale.. 900,000 - 900,000 -
Add: Minority interest in income - common units... 3,356,000 3,268,000 11,019,000 10,047,000
----------------- ----------------- ---------------- -----------------
Consolidated FFO allocable to common shareholders....... $ 26,064,000 $ 23,669,000 $ 77,405,000 $ 70,049,000
================= ================= ================ =================
Computation of Diluted FFO per Common Share (1):
Consolidated FFO allocable to common shareholders...... $ 26,064,000 $ 23,669,000 $ 77,405,000 $ 70,049,000
================= ================= ================ =================
Weighted average common shares outstanding........ 21,552,000 22,210,000 21,548,000 22,610,000
Weighted average common OP units outstanding...... 7,305,000 7,305,000 7,305,000 7,307,000
Dilutive effect of stock options.................. 220,000 85,000 215,000 75,000
----------------- ----------------- ---------------- -----------------
Weighted average common shares and OP units for purposes
of computing fully-diluted FFO per common share...... 29,077,000 29,600,000 29,068,000 29,992,000
================= ================= ================ =================
Fully diluted FFO per common share .................... $ 0.90 $ 0.80 $ 2.66 $ 2.34
================= ================= ================ =================
Computation of Funds Available for Distribution ("FAD")
(2)
Consolidated FFO allocable to common shareholders...... $ 26,064,000 $ 23,669,000 $ 77,405,000 $ 70,049,000
================= ================= ================ =================
Less capitalized expenditures:
Maintenance capital expenditures.................. (890,000) (1,366,000) (3,508,000) (2,589,000)
Tenant improvements............................... (2,618,000) (1,453,000) (7,313,000) (3,091,000)
Capitalized lease commissions..................... (1,812,000) (687,000) (2,861,000) (1,666,000)
----------------- ----------------- ---------------- -----------------
Total capitalized expenditures......................... (5,320,000) (3,506,000) (13,682,000) (7,346,000)
----------------- ----------------- ---------------- -----------------
FAD.................................................... $ 20,744,000 $ 20,163,000 $ 63,723,000 $ 62,703,000
================= ================= ================ =================
FAD per common share/OP unit........................... $ 0.71 $ 0.68 $ 2.19 $ 2.09
================= ================= ================ =================
(1) Funds from operations ("FFO") is a term defined by the National Association
of Real Estate Investment Trusts, Inc. ("NAREIT") by which real estate
investment trusts ("REITs") may be compared. It is generally defined as net
income before depreciation and extraordinary items. FFO computations do not
factor out the REIT's requirement to make either capital expenditures or
principal payments on debt. The Company excludes straight line rent
adjustments, gains/losses on disposition of real estate and gains/losses on
sale of marketable securities to more accurately reflect cash flow from
real estate operations. Other REITs may not make these adjustments in
computing FFO.
(2) Funds available for distribution ("FAD") is computed by deducting recurring
capital expenditures, tenant improvements and capitalized leasing
commissions from FFO.