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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

S

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

or

£

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 1-10709

PS BUSINESS PARKS, INC.

(Exact name of registrant as specified in its charter)

California

95-4300881

(State or Other Jurisdiction

(I.R.S. Employer

of Incorporation)

Identification Number)

701 Western Avenue, Glendale, California 91201-2349

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (818) 244-8080

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Ticker Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share

PSB

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series W, $0.01 par value

PSBPrW

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.250% Cum Pref Stock, Series X, $0.01 par value

PSBPrX

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series Y, $0.01 par value

PSBPrY

New York Stock Exchange

Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Stock, Series Z, $0.01 par value

PSBPrZ

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

S

Accelerated filer

£

Non-accelerated filer

£

Smaller reporting company

£

Emerging growth company

£

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

As of October 26, 2020, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 27,488,547.


Table of Contents

PS BUSINESS PARKS, INC.

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated balance sheets as of September 30, 2020 (unaudited) and December 31, 2019

3

Consolidated statements of income (unaudited) for the three and nine months ended September 30, 2020 and 2019

4

Consolidated statements of equity (unaudited) for the three and nine months ended September 30, 2020 and 2019

5

Consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2020 and 2019

7

Notes to consolidated financial statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

42

Item 4. Controls and Procedures

42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

43

Item 1A. Risk Factors

43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 6. Exhibits

45


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts 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

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

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 

See accompanying notes.

3


Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(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 

See accompanying notes.

4


Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in thousands, except share data)

(Unaudited)

Total PS

Business Parks,

For the three months ended

Preferred Stock

Common Stock

Paid-in

Accumulated

Inc.’s Shareholders’

Noncontrolling

Total

September 30, 2020

Shares

Amount

Shares

Amount

Capital

Earnings

Equity

Interests

Equity

Balances at June 30, 2020

37,790

$

944,750

27,481,486

$

274

$

735,129

$

73,524

$

1,753,677

$

218,618

$

1,972,295

Issuance of common stock in

connection with stock-based

compensation

5,302

Stock compensation, net

2,378

2,378

2,378

Cash paid for taxes in lieu of

shares upon vesting of

restricted stock units

(442)

(442)

(442)

Capital contribution to joint venture

438

438

Net income

42,775

42,775

8,124

50,899

Distributions

Preferred stock (Note 9)

(12,046)

(12,046)

(12,046)

Common stock ($1.05 per share)

(28,860)

(28,860)

(28,860)

Noncontrolling interests—

Common Units

(7,671)

(7,671)

Joint venture

(46)

(46)

Balances at September 30, 2020

37,790

$

944,750

27,486,788

$

274

$

737,065

$

75,393

$

1,757,482

$

219,463

$

1,976,945

For the three months ended

September 30, 2019

Balances at June 30, 2019

38,390

$

959,750

27,429,756

$

274

$

733,777

$

67,049

$

1,760,850

$

216,327

$

1,977,177

Issuance of common stock in

connection with stock-based

compensation