PS BUSINESS PARKS, INC./MD - FORM 8-K - EX-99.1

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8-K - FORM 8-K - PS BUSINESS PARKS, INC./MD	d429350d8k.htm

Exhibit 99.1

News Release

PS Business Parks, Inc.

701 Western Avenue

Glendale, CA 91201-2349

www.psbusinessparks.com


		For Release:		Immediately
		Date:		October 29, 2012
		Contact:		Edward A. Stokx
				(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Third Quarter Ended September 30, 2012

GLENDALE, California — PS Business Parks, Inc. (NYSE:PSB) reported operating results for the third quarter ended September 30, 2012.

Funds from operations (“FFO”) allocable to common and dilutive shares before non-cash and other adjustments were $37.6 million, or $1.19 per common and dilutive share for the three months ended September 30, 2012, a 6.3% per share increase from the three months ended September 30, 2011 of $35.9 million, or $1.12 per common and dilutive share before non-cash and other adjustments. FFO allocable to common and dilutive shares before non-cash and other adjustments was $112.1 million, or $3.53 per common and dilutive share for the nine months ended September 30, 2012, a 6.0% per share increase from the nine months ended September 30, 2011 of $107.0 million, or $3.33 per common and dilutive share before non-cash and other adjustments. The increase in FFO per common and dilutive share before non-cash and other adjustments for the three and nine months ended September 30, 2012 over the same periods in 2011 was primarily due to the increase in net operating income from Non-Same Park facilities, which includes the 5.3 million square foot portfolio acquired in December 2011, partially offset by increases in interest expense, preferred equity distributions and general and administrative expenses.

FFO allocable to common and dilutive shares was $33.6 million, or $1.06 per common and dilutive share for the three months ended September 30, 2012, a 12.4% per share decrease from the three months ended September 30, 2011 of $38.8 million, or $1.21 per common and dilutive share. FFO allocable to common and dilutive shares was $94.6 million, or $2.98 per common and dilutive share for the nine months ended September 30, 2012, an 18.1% per share decrease from the nine months ended September 30, 2011 of $117.0 million, or $3.64 per common and dilutive share.

In order to provide a meaningful period-to-period comparison, the following table summarizes the impact of non-cash and other adjustments which include non-cash distributions related to the redemption of preferred equity, the gain on the below par repurchase of preferred equity, lease buyout income and acquisition transaction costs on the Company’s FFO per common and dilutive share for the three and nine months ended September 30, 2012 and 2011:


	For The Three Months Ended September 30,								For The Nine Months Ended September 30,
	2012			2011		Change			2012			2011			Change


FFO per common and dilutive share, before non-cash and other adjustments	$	1.19		$	1.12		6.3	%	$	3.53		$	3.33			6.0	%
Non-cash distributions related to the redemption of preferred equity		(0.12	)		—					(0.54	)		—
Gain on the repurchase of preferred equity		—			—					—			0.23
Lease buyout income ⁽¹⁾		—			0.09					—			0.09
Acquisition transaction costs		(0.01	)		—					(0.01	)		(0.01	)

FFO per common and dilutive share, as reported	$	1.06		$	1.21		(12.4	%)	$	2.98		$	3.64			(18.1	%)

⁽¹⁾	Represents a lease buyout payment received in the third quarter of 2011 associated with a 53,000 square foot lease in Maryland which terminated as of August 31, 2011.

Property Operations

To evaluate the performance of the Company’s portfolio over comparable periods, management analyzes the operating performance of properties owned and operated throughout both periods (herein referred to as “Same Park”). Effective January 1, 2012, the Company revised its Same Park definition to include all operating properties owned or acquired prior to January 1, 2010. We believe that this will provide the most meaningful perspective on how our assets are performing period to period, while not inflating comparative growth results with the continued lease-up of recently acquired assets. Operating properties that the Company acquired subsequent to January 1, 2010 are referred to as “Non-Same Park.” For the three and nine months ended September 30, 2012 and 2011, the Same Park facilities constitute 19.2 million rentable square feet, representing 68.1% of the 28.2 million square feet in the Company’s portfolio as of September 30, 2012.

The following table presents the operating results of the Company’s properties for the three and nine months ended September 30, 2012 and 2011 in addition to other income and expense items affecting income from continuing operations (unaudited, in thousands, except per square foot amounts):


	For The Three Months Ended September 30,									For The Nine Months Ended September 30,
	2012			2011			Change			2012			2011			Change
Rental income:
Same Park (19.2 million rentable square feet)	$	63,342		$	63,039			0.5	%	$	189,814		$	190,378			(0.3	%)
Non-Same Park (8.9 million rentable square feet)		23,678			10,538			124.7	%		67,510			29,630			127.8	%

Total rental income		87,020			73,577			18.3	%		257,324			220,008			17.0	%

Cost of operations:
Same Park		21,190			20,925			1.3	%		62,141			63,301			(1.8	%)
Non-Same Park		8,104			3,853			110.3	%		22,985			11,288			103.6	%

Total cost of operations		29,294			24,778			18.2	%		85,126			74,589			14.1	%

Net operating income ⁽¹⁾:
Same Park		42,152			42,114			0.1	%		127,673			127,077			0.5	%
Non-Same Park		15,574			6,685			133.0	%		44,525			18,342			142.7	%

Total net operating income		57,726			48,799			18.3	%		172,198			145,419			18.4	%

Other:
Lease buyout income ⁽²⁾		—			2,886			(100.0	%)		—			2,886			(100.0	%)
Facility management fees		159			170			(6.5	%)		489			517			(5.4	%)
Other income and expense		(5,135	)		(1,224	)		319.5	%		(15,573	)		(3,447	)		351.8	%
Depreciation and amortization		(26,884	)		(21,382	)		25.7	%		(81,326	)		(63,100	)		28.9	%
General and administrative		(2,082	)		(1,313	)		58.6	%		(6,767	)		(4,413	)		53.3	%
Acquisition transaction costs		(158	)		(52	)		203.8	%		(158	)		(270	)		(41.5	%)

Income from continuing operations	$	23,626		$	27,884			(15.3	%)	$	68,863		$	77,592			(11.2	%)

Same Park gross margin ⁽³⁾		66.5	%		66.8	%		(0.4	%)		67.3	%		66.7	%		0.9	%
Same Park weighted average occupancy		91.9	%		90.9	%		1.1	%		92.0	%		91.0	%		1.1	%
Non-Same Park weighted average occupancy		82.0	%		76.1	%					82.0	%		74.8	%
Same Park annualized realized rent per square foot ⁽⁴⁾	$	14.37		$	14.46			(0.6	%)	$	14.34		$	14.54			(1.4	%)

⁽¹⁾

Net operating income (“NOI”) is an important measurement in the commercial real estate industry for determining the value of the real estate generating the NOI. The Company’s calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance in accordance with generally accepted accounting principles (“GAAP”).

⁽²⁾	Represents a lease buyout payment received in the third quarter of 2011 associated with a 53,000 square foot lease in Maryland which terminated as of August 31, 2011.

⁽³⁾	Same Park gross margin is computed by dividing Same Park NOI by Same Park rental income.

⁽⁴⁾	Same Park annualized realized rent per square foot represents the annualized Same Park rental income earned per occupied square foot.

Total rental income, including the lease buyout income noted above, increased $10.6 million, or 13.8%, from $76.5 million for the three months ended September 30, 2011 to $87.0 million for the three months ended September 30, 2012 primarily as a result of a $13.1 million increase in rental income from Non-Same Park facilities, which includes the 5.3 million square foot portfolio acquired in December 2011, partially offset by a $2.6 million decrease from the Same Park portfolio. Excluding the lease buyout income, rental income from the Same Park portfolio increased $303,000 due to an increase in occupancy rates, partially offset by a decrease in rental rates. Net income allocable to common shareholders decreased $10.3 million, or 66.5%, from $15.4 million, or $0.63 per diluted share, for the three months ended September 30, 2011 to $5.2 million, or $0.21 per diluted share, for the three months ended September 30, 2012.

Total rental income, including the lease buyout income noted above, increased $34.4 million, or 15.4%, from $222.9 million for the nine months ended September 30, 2011 to $257.3 million for the nine months ended September 30, 2012 as a result of a $37.9 million increase in rental income from Non-Same Park facilities, which includes the 5.3 million square foot portfolio acquired in December 2011, partially offset by a $3.5 million decrease from the Same Park portfolio. Excluding the lease buyout income, rental income from the Same Park portfolio decreased $564,000 due to a decrease in rental rates, partially offset by an increase in occupancy rates. Net income allocable to common shareholders decreased $33.3 million, or 76.8%, from $43.4 million, or $1.75 per diluted share, for the nine months ended September 30, 2011 to $10.0 million, or $0.41 per diluted share, for the nine months ended September 30, 2012. The decrease in net income allocable to common shareholders for the three and nine months was primarily due to the net impact of non-cash preferred equity transactions and increases in interest expense, depreciation and amortization and preferred equity distributions, partially offset by an increase in net operating income.

Preferred Equity Transactions

On September 14, 2012, the Company issued $230.0 million or 9.2 million depositary shares, each representing 1/1,000 of a share of the 5.75% Cumulative Preferred Stock, Series U, at $25.00 per depositary share. The Company used the proceeds from this issuance to redeem, on October 9, 2012, $132.3 million, or 5,290,000 depositary shares, each representing 1/1,000 of a share of the 6.70% Cumulative Preferred Stock, Series P. The remaining net proceeds were used to reduce the Company’s unsecured debt.

In connection with the Series P redemption, the Company reported the excess of the redemption amount over the carrying amount of $3.8 million, representing the original issuance costs, as a reduction of net income allocable to common shareholders and unit holders for the three and nine months ended September 30, 2012.

Property Acquisition

On July 24, 2012, the Company acquired a 958,000 square foot industrial park consisting of eight single-story buildings located in Kent Valley, Washington, for a purchase price of $37.6 million. The park was 52.3% occupied at the time of acquisition.

Property Disposition

Subsequent to September 30, 2012, the Company completed the sale of Quail Valley Business Park, a 66,000 square foot flex park in Houston, Texas, for $2.3 million.

Financial Condition

The following are key financial ratios with respect to the Company’s leverage at and for the three months ended September 30, 2012:


Ratio of FFO to fixed charges ⁽¹⁾		10.8x
Ratio of FFO to fixed charges and preferred distributions ⁽¹⁾		3.1x
Debt and preferred equity to total market capitalization (based on common stock price of $66.82 at September 30, 2012)		39.3%
Available balance under the $250.0 million unsecured credit facility at September 30, 2012		$250.0 million

⁽¹⁾	Fixed charges include interest expense of $5.2 million.

Distributions Declared

The Board of Directors declared a quarterly dividend of $0.44 per common share on October 29, 2012. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock listed below. Distributions are payable December 27, 2012 to shareholders of record on December 12, 2012.


Series	Dividend Rate			Dividend Declared
Series R		6.875	%	$	0.429688
Series S		6.450	%	$	0.403125
Series T		6.000	%	$	0.375000
Series U		5.750	%	$	0.427257

Company Information

PS Business Parks, Inc., a member of the S&P SmallCap 600, is a self-advised and self-managed real estate investment trust (“REIT”) that acquires, develops, owns and operates commercial properties, primarily multi-tenant flex, 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 a number of uses (including office, assembly, showroom, laboratory, light manufacturing and warehouse space). As of October 29, 2012, the Company wholly owned 28.1 million rentable square feet with approximately 4,600 customers located in eight states, concentrated in California (11.1 million sq. ft.), Virginia (4.2 million sq. ft.), Florida (3.7 million sq. ft.), Texas (3.3 million sq. ft.), Maryland (2.3 million sq. ft.), Washington (1.5 million sq. ft.), Oregon (1.3 million sq. ft.) and Arizona (0.7 million sq. ft.).

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 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 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 operating results, is available on the Internet. The Company’s website is www.psbusinessparks.com.

A conference call is scheduled for Tuesday, October 30, 2012, at 10:00 a.m. (PDT) to discuss the third quarter results. The toll free number is (888) 299-3246; the conference ID is 40159229. 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 6, 2012 at (855) 859-2056. A replay of the conference call will also be available on the Company’s website.

Additional financial data attached.

PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Cash and cash equivalents	$	159,792		$	4,980
Real estate facilities, at cost:
Land		792,146			772,573
Buildings and equipment		2,211,220			2,155,772

		3,003,366			2,928,345
Accumulated depreciation		(917,728	)		(845,700	)

		2,085,638			2,082,645
Properties held for disposition, net		1,201			1,218
Land held for development		6,829			6,829

		2,093,668			2,090,692

Rent receivable		4,418			3,198
Deferred rent receivable		25,843			23,388
Other assets		17,088			16,361

Total assets	$	2,300,809		$	2,138,619

LIABILITIES AND EQUITY
Accrued and other liabilities	$	73,656		$	60,940
Preferred stock called for redemption		132,250			—
Credit facility		—			185,000
Term loan		200,000			250,000
Mortgage notes payable		281,448			282,084

Total liabilities		687,354			778,024
Commitments and contingencies
Equity:
PS Business Parks, Inc.’s shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 35,400 and 23,942 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		885,000			598,546
Common stock, $0.01 par value, 100,000,000 shares authorized, 24,284,548 and 24,128,184 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		242			240
Paid-in capital		535,496			534,322
Cumulative net income		944,245			878,704
Cumulative distributions		(919,988	)		(832,607	)

Total PS Business Parks, Inc.’s shareholders’ equity		1,444,995			1,179,205

Noncontrolling interests:
Preferred units		—			5,583
Common units		168,460			175,807

Total noncontrolling interests		168,460			181,390

Total equity		1,613,455			1,360,595

Total liabilities and equity	$	2,300,809		$	2,138,619

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Rental income	$	87,020		$	76,463		$	257,324		$	222,894
Facility management fees		159			170			489			517

Total operating revenues		87,179			76,633			257,813			223,411

Expenses:
Cost of operations		29,294			24,778			85,126			74,589
Depreciation and amortization		26,884			21,382			81,326			63,100
General and administrative		2,240			1,365			6,925			4,683

Total operating expenses		58,418			47,525			173,377			142,372

Other income and (expense):
Interest and other income		37			37			160			174
Interest expense		(5,172	)		(1,261	)		(15,733	)		(3,621	)

Total other income and (expense)		(5,135	)		(1,224	)		(15,573	)		(3,447	)

Income from continuing operations		23,626			27,884			68,863			77,592

Discontinued operations:
Income from discontinued operations		69			25			32			297
Gain on sale of real estate facilities		—			2,717			—			2,717

Total discontinued operations		69			2,742			32			3,014

Net income	$	23,695		$	30,626		$	68,895		$	80,606

Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests — common units	$	1,557		$	4,597		$	3,031		$	12,858
Noncontrolling interests — preferred units		—			99			323			(7,091	)

Total net income allocable to noncontrolling interests		1,557			4,696			3,354			5,767

Net income allocable to PS Business Parks, Inc.:
Common shareholders		5,172			15,444			10,049			43,382
Preferred shareholders		16,936			10,450			55,386			31,349
Restricted stock unit holders		30			36			106			108

Total net income allocable to PS Business Parks, Inc.		22,138			25,930			65,541			74,839

	$	23,695		$	30,626		$	68,895		$	80,606

Net income per common share — basic:
Continuing operations	$	0.21		$	0.54		$	0.41		$	1.67
Discontinued operations	$	—		$	0.09		$	—		$	0.09
Net income	$	0.21		$	0.63		$	0.41		$	1.76
Net income per common share — diluted:
Continuing operations	$	0.21		$	0.54		$	0.41		$	1.66
Discontinued operations	$	—		$	0.09		$	—		$	0.09
Net income	$	0.21		$	0.63		$	0.41		$	1.75
Weighted average common shares outstanding:
Basic		24,257			24,543			24,216			24,647

Diluted		24,350			24,612			24,309			24,738

PS BUSINESS PARKS, INC.

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

(Unaudited, in thousands, except per share amounts)


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2012			2011			2012			2011
Computation of Diluted Funds From Operations (“FFO”) ⁽¹⁾:
Net income allocable to common shareholders	$	5,172		$	15,444		$	10,049		$	43,382
Adjustments:
Gain on sale of real estate facilities		—			(2,717	)		—			(2,717	)
Depreciation and amortization		26,884			21,423			81,422			63,340
Net income allocable to noncontrolling interests — common units		1,557			4,597			3,031			12,858
Net income allocable to restricted stock unit holders		30			36			106			108

FFO allocable to common and dilutive shares	$	33,643		$	38,783		$	94,608		$	116,971

Weighted average common shares outstanding		24,257			24,543			24,216			24,647
Weighted average common OP units outstanding		7,305			7,305			7,305			7,305
Weighted average restricted stock units outstanding		103			59			108			66
Weighted average common share equivalents outstanding		93			69			93			91

Total common and dilutive shares		31,758			31,976			31,722			32,109

FFO per common and dilutive share	$	1.06		$	1.21		$	2.98		$	3.64

Computation of Funds Available for Distribution (“FAD”) ⁽²⁾:
FFO allocable to common and dilutive shares	$	33,643		$	38,783		$	94,608		$	116,971
Adjustments:
Recurring capital improvements		(4,305	)		(3,029	)		(6,537	)		(5,343	)
Tenant improvements		(9,161	)		(6,879	)		(28,081	)		(17,756	)
Lease commissions		(1,978	)		(1,843	)		(4,986	)		(4,728	)
Straight-line rent		(765	)		(276	)		(2,683	)		(659	)
Non-cash stock compensation expense		1,383			381			4,060			1,203
In-place lease adjustment		116			222			402			643
Tenant improvement reimbursements, net of lease incentives		(212	)		(183	)		(561	)		(615	)
Non-cash distributions related to the redemption of preferred equity		3,848			—			17,316			—
Gain on repurchase of preferred equity, net of issuance costs		—			—			—			(7,389	)

FAD	$	22,569		$	27,176		$	73,538		$	82,327

Distributions to common and dilutive shares	$	13,922		$	13,926		$	41,743		$	42,151

Distribution payout ratio		61.7	%		51.2	%		56.8	%		51.2	%

⁽¹⁾

Funds From Operations (“FFO”) is computed in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). The White Paper defines FFO as net income, computed in accordance with GAAP, before depreciation, amortization, gains or losses on asset dispositions, net income allocable to noncontrolling interests — common units, net income allocable to restricted stock unit holders and nonrecurring items. FFO should be analyzed in conjunction with net income. However, FFO should not be viewed as a substitute for net income as a measure of operating performance or liquidity as it does not reflect depreciation and amortization costs or the level of capital expenditure and leasing costs necessary to maintain the operating performance of the Company’s properties, which are significant economic costs and could materially impact the Company’s results from operations. Other REITs may use different methods for calculating FFO and, accordingly, the Company’s FFO may not be comparable to other real estate companies.

⁽²⁾

Funds Available for Distribution (“FAD”) is computed by adjusting consolidated FFO for recurring capital improvements, which the Company defines as those costs incurred to maintain the assets’ value, tenant improvements, lease commissions, straight-line rent, stock compensation expense, impairment charges, amortization of lease incentives and tenant improvement reimbursements, in-place lease adjustment and the effect of redemption/repurchase of preferred equity. Like FFO, the Company considers FAD to be a useful measure for investors to evaluate the operations and cash flows of a REIT. FAD does not represent net income or cash flow from operations as defined by GAAP.

PS BUSINESS PARKS, INC./MD - FORM 8-K - EX-99.1 - October 30, 2012

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PS BUSINESS PARKS, INC./MD Reports