Exhibit 99.1

News Release

PS Business Parks, Inc.

701 Western Avenue

Glendale, CA 91201-2349

psbusinessparks.com

 

 

 

 

  

For Release:    

  

Immediately

  

Date:

  

February 22, 2021

  

Contact:

  

Jeff Hedges

     

(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Quarter and Year Ended December 31, 2020

GLENDALE, California—PS Business Parks, Inc. (NYSE:PSB) reported operating results for the quarter and year ended December 31, 2020.

Operating Results for the Three Months and Year Ended December 31, 2020

Net income allocable to common shareholders for the three months and year ended December 31, 2020 was $26.9 million, or $0.98 per diluted common share, and $124.6 million, or $4.52 per diluted common share, respectively. Net operating income (“NOI”) attributable to the Company’s Same Park portfolio (defined below) was $68.0 million and $270.8 million for the three months and year ended December 31, 2020, respectively, representing decreases of 3.0% and 0.6% over the same periods in 2019, respectively.

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 $69.2 million and $267.4 million for the three months and year ended December 31, 2020, respectively, representing decreases of 0.5% and 0.9% over the same periods in 2019, respectively. The decrease in Same Park Cash NOI for the three months ended December 31, 2020 was primarily driven by lower weighted average occupancy in the fourth quarter of 2020, which was 92.0% versus 94.4% in the fourth quarter of 2019. The decrease in Same Park Cash NOI for the year ended December 31, 2020 was primarily driven by lower weighted average occupancy, which was 92.4% in 2020 versus 94.5% in 2019, and $2.4 million of rent deferrals, net of repayments and $1.3 million of rent abatement granted to customers as a result of the COVID-19 pandemic. The Company noted that Same Park Cash Rental Income per occupied square foot increased by 2.4% during the year, from $15.65 in 2019 to $16.03 in 2020. Excluding the effect of the aforementioned rent deferrals and rent abatement, Same Park Cash Rental Income per occupied square foot increased 3.4%, from $15.65 in 2019 to $16.18 in 2020.

Further detail on the change in Same Park rental income for the three months and years ended December 31, 2020 and 2019 are provided in the table below (in thousands):

 

     For The Three Months           For The Years        
     Ended December 31,           Ended December 31,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Base rental income

   $ 73,091   $ 74,597   $ (1,506   $ 292,729   $ 289,361   $ 3,368

Expense recovery income

     22,590     21,879     711     90,225     88,523     1,702

Lease buyout income

     393     232     161     1,199     1,373     (174

Rent receivable write-off

     (91     (190     99     (1,461     (1,033     (428

Abatements

     (97           (97     (1,300           (1,300

Deferrals, net of repayments

     1,683           1,683     (2,356           (2,356

Fee income

     208     332     (124     911     1,271     (360
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Rental Income

     97,777     96,850     927     379,947     379,495     452

Non-Cash Rental Income (1)

     (1,204     565     (1,769     3,417     2,455     962
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rental income

   $ 96,573   $ 97,415   $ (842   $ 383,364   $ 381,950   $ 1,414
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.4 million and $0.1 million for the three months ended December 31, 2020 and 2019, respectively, and $3.0 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively.

 

1


Additional detail on Same Park NOI and Same Park Cash NOI for the three months and year ended December 31, 2020 is provided in the Property Operations–Same Park Portfolio section below.

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

FFO for the three months and year ended December 31, 2020 was $1.66 per share and $6.51 per share, respectively, representing increases of 23.9% and 0.6% from the same periods in 2019, respectively. 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 $1.66 and $6.57 per share for the three months and year ended December 31, 2020, respectively, representing an increase of 0.3% and a decrease of 3.2% from the same periods in 2019. There were no differences between FFO and Core FFO for the three months ended December 31, 2020. For the year ended December 31, 2020, the Company excluded in its presentation of Core FFO accelerated amortization of $1.7 million of stock compensation expense as a result of the retirement of its President and Chief Executive Officer, Maria Hawthorne, and non-capitalizable demolition costs of $0.3 million related to its multifamily development in Tysons, Virginia, due to the nonrecurring nature of these expenses. For the three months and year ended December 31, 2019, the Company excluded from its presentation of Core FFO a non-cash charge of $11.0 million related to the redemption of preferred stock (Series U and V) incurred during the quarter ended December 31, 2019. Additional information on these items is included on the Company’s annual report on Form 10-K.

FAD for the three months and year ended December 31, 2020 was $48.0 million and $190.1 million, respectively, representing an increase of 6.7% and a decrease of 2.4%, respectively, from the same periods in 2019. The three month increase in FAD is primarily attributable to lower preferred distributions and recurring capital expenditures in the three months ended December 31, 2020 versus 2019, partially offset by lower interest income. The decrease in FAD for the year ended December 31, 2020 is attributable to lower Same Park Cash NOI driven by rent deferrals (net of amounts repaid) and abatements incurred in 2020, as well as lower Cash NOI from assets sold, partially offset by lower preferred distributions and recurring capital expenditures. 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.

Lease Production

During the three months and year ended December 31, 2020, the Company executed leases on 1.9 million and 7.5 million square feet, respectively, compared to 2.1 million and 7.4 million for the three months and year ended December 31, 2019, respectively. The Company also reported that in December 2020 it entered into a five-year lease agreement for a 138,000 square foot suite at its Wiegman Distribution property in Hayward, California, with cash rental rate growth of 41.1% over the outgoing rent. With this lease, coupled with a lease agreement the Company executed in the second quarter of 2020 for a 180,000 square foot suite, the Company has backfilled 70% of the 460,000 square foot building the Company received back in January 2020 after a long-term tenant vacated the property at the end of its lease term.

Weighted average cash rental rate growth on leases executed during the three months and year ended December 31, 2020 was 5.3% and 5.8%, respectively, while average net effective rent1 growth was 14.9% and 16.0% for the same periods, respectively. Average lease term of the leases executed during the three months ended December 31, 2020 was 3.3 years, with associated average transaction costs (tenant improvements and leasing commissions) of $2.92 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in the same period of 2019 were 4.8 years and $4.08 per square foot, respectively.

Property Operations–Same Park Portfolio

The Company believes that evaluation of the Same Park portfolio, defined as all properties owned and operated as of December 31, 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 December 31, 2020, the Same Park portfolio consisted of 25.7 million rentable square feet, or 92.8% of the Company’s 27.7 million total rentable square feet, excluding the Company’s 95.0% interest in a 395-unit multifamily property.

 

1 

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

 

2


The following table presents the unaudited operating results of the Company’s Same Park facilities for the three months and years ended December 31, 2020 and 2019 (in thousands, except per square foot amounts):

 

     For the Three Months           For The Years        
     Ended December 31,           Ended December 31,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Cash Rental Income (1)

   $ 97,777   $ 96,850     1.0   $ 379,947   $ 379,495     0.1

Non-Cash Rental Income (2)

     (1,204     565     (313.1 %)      3,417     2,455     39.2
  

 

 

   

 

 

     

 

 

   

 

 

   

Total rental income

     96,573     97,415     (0.9 %)      383,364     381,950     0.4

Adjusted Cost of Operations (3)

            

Property taxes

     9,950     9,601     3.6     42,360     40,016     5.9

Utilities

     4,729     4,883     (3.2 %)      18,835     19,493     (3.4 %) 

Repairs and maintenance

     7,219     6,094     18.5     24,495     23,489     4.3

Payroll

     3,951     4,127     (4.3 %)      15,981     15,197     5.2

Snow removal

     195     13     1400.0     274     1,046     (73.8 %) 

Property insurance

     1,073     1,025     4.7     4,082     3,371     21.1

Other expenses

     1,418     1,538     (7.8 %)      6,542     6,947     (5.8 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Adjusted Cost of Operations

     28,535     27,281     4.6     112,569     109,559     2.7
  

 

 

   

 

 

     

 

 

   

 

 

   

NOI (4)

   $ 68,038   $ 70,134     (3.0 %)    $ 270,795   $ 272,391     (0.6 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Cash NOI (5)

   $ 69,242   $ 69,569     (0.5 %)    $ 267,378   $ 269,936     (0.9 %) 

Selected Statistical Data

            

Rentable square footage at period end

     25,656     25,656           25,656     25,656      

NOI margin (6)

     70.5     72.0     (2.1 %)      70.6     71.3     (1.0 %) 

Cash NOI margin (7)

     70.8     71.8     (1.4 %)      70.4     71.1     (1.0 %) 

Weighted average square foot occupancy

     92.0     94.4     (2.5 %)      92.4     94.5     (2.2 %) 

Revenue per occupied square foot (8)

   $ 16.37   $ 16.09     1.7   $ 16.17   $ 15.75     2.7

Revenue per available foot (RevPAF) (9)

   $ 15.06   $ 15.19     (0.9 %)    $ 14.94   $ 14.89     0.3

Cash Rental Income per occupied square foot (10)

   $ 16.57   $ 15.99     3.6   $ 16.03   $ 15.65     2.4

Cash Rental Income per available foot (11)

   $ 15.24   $ 15.10     0.9   $ 14.81   $ 14.79     0.1

 

(1)

Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below).

(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.

(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 its business parks, and believes 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.

(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 month period shown 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 month period shown is annualized.

(10)

Cash Rental Income per occupied square foot is computed by dividing Cash Rental Income for the period by weighted average occupied square feet for the same period. Cash rental income per occupied square foot for the three month period shown is annualized.

(11)

Cash Rental Income per Available Square Foot is computed by dividing Cash Rental Income for the period by weighted average available square feet for the same period. Cash rental income per available square foot for the three month period shown is annualized.

 

3


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             Full Year      

Rental income (1)

          

2020

   $ 97,735   $ 92,657   $ 96,399   $ 96,573   $ 383,364

2019

   $ 94,604   $ 94,794   $ 95,137   $ 97,415   $ 381,950

Adjusted Cost of Operations (2)

          

2020

   $ 28,134   $ 26,997   $ 28,903   $ 28,535   $ 112,569

2019

   $ 28,143   $ 26,683   $ 27,452   $ 27,281   $ 109,559

NOI (3)

          

2020

   $ 69,601   $ 65,660   $ 67,496   $ 68,038   $ 270,795

2019

   $ 66,461   $ 68,111   $ 67,685   $ 70,134   $ 272,391

Weighted average square foot occupancy

          

2020

     92.9     92.4     92.3     92.0     92.4

2019

     94.7     94.2     94.7     94.4     94.5

Revenue per occupied square foot (4)

          

2020

   $ 16.40   $ 15.64   $ 16.29   $ 16.37   $ 16.17

2019

   $ 15.57   $ 15.68   $ 15.66   $ 16.09   $ 15.75

RevPAF (5)

          

2020

   $ 15.24   $ 14.45   $ 15.03   $ 15.06   $ 14.94

2019

   $ 14.75   $ 14.78   $ 14.83   $ 15.19   $ 14.89

 

(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, $0.3 million, and $0.4 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 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, $0.2 million, and $0.1 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 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, $0.3 million, and $0.4 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 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 month periods shown 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 month periods shown 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 the Company’s operations and capital plans; however, the effect to the Company’s financial and operating performance in the fourth quarter was less pronounced than the prior two quarters. During the three months ended December 31, 2020, the Company granted $0.2 million of deferred rent and less than $0.1 million of rent abatement. For the year ended December 31, 2020, the Company granted rent relief to 393 customers (approximately 11.0% of total customers based on rental income) including $5.7 million of rent deferral and $1.3 million of rent abatement. As of February 19, 2021, the Company collected $3.7 million, or 97.1%, of the scheduled repayments of COVID-19 related rent deferrals billed through February 1, 2021.

During the three months ended December 31, 2020, the Company wrote-off $0.2 million of accounts receivable, which is in-line with the $0.2 million written-off during the three months ended December 31, 2019. Also, during the three months ended December 31, 2020, the Company wrote-off deferred rent receivables of $0.4 million, which is slightly higher than the $0.1 million written-off during the three months ended December 31, 2019. For the year ended December 31, 2020, the Company wrote-off accounts receivable of $1.6 million, representing 41bps of Cash Rental Income, compared to $1.1 million, or 27bps of Cash Rental Income 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 December 31, 2020). Notably, rent collection percentages in the fourth quarter were in-line with pre-COVID levels and new deferral and abatement activity during the quarter was insignificant.

 

     Percentage of Rent  
     Collected     Outstanding     Deferred     Abated/
Written-off
 

Q4 2020

        

Industrial

     98     2     0     0

Flex

     98     2     0     0

Office

     99     1     0     0

Total

     98     2     0     0

FY 2020

        

Industrial

     97     0     2     1

Flex

     98     1     1     0

Office

     99     0     1     0

Total

     97     1     1     1

As of February 19, 2021, 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 its December 31, 2020 Form 10-K for more information.

Acquisition, Dispositions, and Development Update

As previously announced in our third quarter 2020 earnings release, the Company acquired 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 on October 28, 2020.

The Company has completed the development of its 83,000 square foot multi-tenant industrial property at its Freeport Business Park adjacent to Dallas/Fort Worth International Airport in Dallas, Texas, for a total development cost of $8.1 million (excluding land value). Separately, the Company reported that construction of Brentford at The Mile is progressing on schedule and in-line with the previous development cost estimate of $110 to $115 million, excluding land value.

Distributions Declared

On February 17, 2021, the Company’s 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 March 31, 2021 to shareholders of record on March 16, 2021.

 

5


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 December 31, 2020, the Company wholly owned 27.7 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 an entity developing 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 fourth quarter operating results, is available on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Tuesday, February 23, 2021, at 10:00 a.m. PST (1:00 p.m. EST) to discuss fourth 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 (877) 876-9176; the conference ID is PSBQ420. 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 March 9, 2021 at (800) 839-9302, 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)

 

     December 31,  
     2020     2019  
     (Unaudited)        

ASSETS

    
    

Cash and cash equivalents

   $ 69,083   $ 62,786
    

Real estate facilities, at cost

    

Land

     874,680     844,419

Buildings and improvements

     2,247,389     2,203,308
  

 

 

   

 

 

 
     3,122,069     3,047,727

Accumulated depreciation

     (1,229,102     (1,158,489
  

 

 

   

 

 

 
     1,892,967     1,889,238

Properties held for sale, net (1)

           15,264

Land and building held for development, net

     43,014     28,110
  

 

 

   

 

 

 
     1,935,981     1,932,612

Rent receivable

     1,519     1,392

Deferred rent receivable (2)

     36,788     32,993

Other assets

     14,334     16,660
  

 

 

   

 

 

 

Total assets

   $  2,057,705   $  2,046,443
  

 

 

   

 

 

 
    

LIABILITIES AND EQUITY

    
    

Accrued and other liabilities

   $ 82,065   $ 84,632
  

 

 

   

 

 

 

Total liabilities

     82,065     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) December 31, 2020 and 2019

     944,750     944,750

Common stock, $0.01 par value, 100,000,000 shares authorized, 27,488,547 and 27,440,953 shares

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

     274     274

Paid-in capital

     738,022     736,986

Accumulated earnings

     73,631     63,666
  

 

 

   

 

 

 

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

     1,756,677     1,745,676

Noncontrolling interests

     218,963     216,135
  

 

 

   

 

 

 

Total equity

     1,975,640     1,961,811
  

 

 

   

 

 

 

Total liabilities and equity

   $  2,057,705   $  2,046,443
  

 

 

   

 

 

 

 

(1)

Properties held for sale, net as of December 31, 2019 represents two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process and sold on September 16, 2020 for a gross sales price of $11.4 million, and 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 Years  
     Ended December 31,     Ended December 31,  
     2020     2019     2020     2019  

Rental income

   $  105,088   $  106,175   $  415,623   $  429,846

Expenses

        

Cost of operations

     32,023     30,822     125,513     128,343

Depreciation and amortization

     23,668     28,386     96,314     104,249

General and administrative

     3,152     3,650     14,526     13,761
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     58,843     62,858     236,353     246,353
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income

     222     1,726     1,234     4,492

Interest and other expense

     (172     (173     (1,072     (657

Gain on sale of real estate facilities

           16,644     27,273     16,644
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     46,295     61,514     206,705     203,972

Allocation to noncontrolling interests

     (7,147     (7,336     (33,158     (29,006
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income allocable to PS Business Parks, Inc.

     39,148     54,178     173,547     174,966

Allocation to preferred shareholders based upon

        

Distributions

     (12,047     (15,469     (48,186     (54,346

Charge related to the redemption of preferred securities

           (11,007           (11,007

Allocation to restricted stock unit holders

     (173     (211     (716     (910
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income allocable to common shareholders

   $ 26,928   $ 27,491   $ 124,645   $ 108,703
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share

        

Basic

   $ 0.98   $ 1.00   $ 4.54   $ 3.96

Diluted

   $ 0.98   $ 1.00   $ 4.52   $ 3.95

Weighted average common shares outstanding

        

Basic

     27,488     27,439     27,475     27,418

Diluted

     27,572     27,551     27,563     27,526

 

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 Years  
     Ended December 31,     Ended December 31,  
     2020     2019     2020     2019  

Net income allocable to common shareholders

   $  26,928   $  27,491   $  124,645   $  108,703

Adjustments

        

Gain on sale of real estate facilities

           (16,644     (27,273     (16,644

Depreciation and amortization expense

     23,668     28,386     96,314     104,249

Net income allocated to noncontrolling interests

     7,147     7,336     33,158     29,006

Net income allocated to restricted stock unit holders

     173     211     716     910

FFO allocated to joint venture partner

     (16     (44     (118     (149
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO allocable to diluted common shares and units (1)

     57,900     46,736     227,442     226,075

Non-capitalizable demolition costs

                 335      

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

                 1,687      

Charge related to the redemption of preferred securities

           11,007           11,007
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     57,900     57,743     229,464     237,082

Adjustments

        

Recurring capital improvements

     (3,108     (4,908     (9,521     (11,244

Tenant improvements

     (4,909     (5,462     (15,948     (17,360

Lease commissions

     (3,653     (2,240     (8,878     (8,267

Non-cash rental income (2)

     627     (867     (4,713     (3,936

Non-cash stock compensation expense (3)

     1,257     965     3,961     4,956

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

     (114     (230     (4,216     (6,350
  

 

 

   

 

 

   

 

 

   

 

 

 

FAD allocable to diluted common shares and units (1)

   $  48,000   $  45,001   $  190,149   $  194,881
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $  36,750   $  36,749   $  146,873   $  146,881

Distribution payout ratio

     76.6     81.7     77.2     75.4

Reconciliation of Earnings per Share to FFO per Share

        

Net income per common share—diluted

   $ 0.98   $ 1.00   $ 4.52   $ 3.95

Gain on sale of real estate facilities

           (0.47     (0.77     (0.47

Depreciation and amortization expense

     0.68     0.81     2.76     2.99
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO per share (1)

   $ 1.66   $ 1.34   $ 6.51   $ 6.47

Non-capitalizable demolition costs

                 0.01      

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

                 0.05      

Charge related to the redemption of preferred securities

           0.31           0.31
  

 

 

   

 

 

   

 

 

   

 

 

 

Core FFO per share (1)

   $ 1.66   $ 1.65   $ 6.57   $ 6.78
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average outstanding:

        

Common shares

     27,488     27,439     27,475     27,418

Operating partnership units

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

Restricted stock units

     57     111     51     124

Common share equivalents

     84     112     88     108
  

 

 

   

 

 

   

 

 

   

 

 

 

Total diluted common shares and units

     34,934     34,967     34,919     34,955
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 Years        
     Ended December 31,           Ended December 31,        
     2020     2019     Change     2020     2019     Change  

Rental income

            

Same Park

   $ 96,573   $ 97,415     (0.9 %)    $  383,364   $  381,950     0.4

Non-Same Park

     6,300     4,768     32.1     22,109     14,276     54.9

Multifamily

     2,215     2,583     (14.2 %)      9,464     10,075     (6.1 %) 

Assets sold (1)

           1,409     (100.0 %)      686     23,545     (97.1 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total rental income

     105,088     106,175     (1.0 %)      415,623     429,846     (3.3 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Cost of operations

            

Adjusted cost of operations (2)

            

Same Park

     28,535     27,281     4.6     112,569     109,559     2.7

Non-Same Park

     1,881     1,595     17.9     7,327     4,899     49.6

Multifamily

     1,180     1,019     15.8     4,264     4,137     3.1

Assets sold (1)

           703     (100.0 %)      143     8,614     (98.3 %) 

Stock compensation expense (3)

     427     224     90.6     1,210     1,134     6.7
  

 

 

   

 

 

     

 

 

   

 

 

   

Total cost of operations

     32,023     30,822     3.9     125,513     128,343     (2.2 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Net operating income (4)

            

Same Park

     68,038     70,134     (3.0 %)      270,795     272,391     (0.6 %) 

Non-Same Park

     4,419     3,173     39.3     14,782     9,377     57.6

Multifamily

     1,035     1,564     (33.8 %)      5,200     5,938     (12.4 %) 

Assets sold (1)

           706     (100.0 %)      543     14,931     (96.4 %) 

Stock compensation expense (3)

     (427     (224     90.6     (1,210     (1,134     6.7

Depreciation and amortization expense

     (23,668     (28,386     (16.6 %)      (96,314     (104,249     (7.6 %) 

General and administrative expense

     (3,152     (3,650     (13.6 %)      (14,526     (13,761     5.6

Interest and other income

     222     1,726     (87.1 %)      1,234     4,492     (72.5 %) 

Interest and other expense

     (172     (173     (0.6 %)      (1,072     (657     63.2

Gain on sale of real estate facilities

           16,644     (100.0 %)      27,273     16,644     63.9
  

 

 

   

 

 

     

 

 

   

 

 

   

Net income

   $ 46,295   $ 61,514     (24.7 %)    $  206,705   $  203,972     1.3
  

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)

Amounts for the year ended December 31, 2020 include operating results attributable to 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 months and year ended December 31, 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.

(2)

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

(3)

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.

(4)

NOI represents rental income less Adjusted Cost of Operations.

 

10