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Analysis of Operating Results and Financial Condition
September 30, 2016
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2016 INDEX
Page
Fact Sheet ................................................................................................................................
3
Funds from Operations (FFO) ....................................................................................................
4
Capital Structure.........................................................................................................................
6
Consolidated Balance Sheets......................................................................................................
7
Consolidated Statements of Income ...........................................................................................
9
Capital Expenditure Analysis .....................................................................................................
13
Portfolio Analysis.......................................................................................................................
14
2
PS BUSINESS PARKS, INC. THIRD QUARTER FACT SHEET (in thousands, except per share amounts) NET OPERATING INCOME For The Three Months Ended 09/30/16 09/30/15 % Change Rental income: Same Park (1) (2) Non-Same Park (3) Total rental income Cost of operations: Same Park (1) Non-Same Park (3) Total cost of operations Net operating income: Same Park (1) (2) Non-Same Park (3) Total net operating income
$
$
95,080 1,732 96,812
$
91,625 1,352 92,977
3.8% 28.1% 4.1%
29,607 532 30,139
29,439 522 29,961
0.6% 1.9% 0.6%
65,473 1,200 66,673
62,186 830 63,016
5.3% 44.6% 5.8%
$
For The Nine Months Ended 09/30/16 09/30/15 % Change $
$
283,661 5,083 288,744
$
272,189 3,685 275,874
4.2% 37.9% 4.7%
88,564 1,564 90,128
87,637 1,577 89,214
1.1% (0.8%) 1.0%
195,097 3,519 198,616
184,552 2,108 186,660
5.7% 66.9% 6.4%
$
FUNDS FROM OPERATIONS For The Three Months Ended 09/30/16 09/30/15 % Change FFO allocable to common and dilutive shares - as reported
$
49,792
$
38,905
28.0%
Acquisition transaction costs Lease buyout payment LTEIP modification due to change in senior management (4) Non-cash distributions related to redemption of preferred equity FFO allocable to common and dilutive shares - as adjusted
$
328 (528) 49,592 $
2,487 41,392
FFO per common and dilutive share - as reported FFO per common and dilutive share - as adjusted
$ $
1.43 1.43
Weighted average common shares outstanding - diluted Weighted average common OP units outstanding Weighted average restricted stock units outstanding Total common and dilutive shares
$ $
27,201 7,305 268 34,774
For The Nine Months Ended 09/30/16 09/30/15 % Change $
138,785
$
119,096
16.5%
100.0% (100.0%) (100.0%) 19.8%
$
328 (528) 2,018 140,603 $
2,487 121,583
100.0% (100.0%) 100.0% (100.0%) 15.6%
1.13 1.20
26.5% 19.2%
$ $
4.00 4.05
3.46 3.53
15.6% 14.7%
27,049 7,305 124 34,478
0.6% 116.1% 0.9%
27,034 7,305 115 34,454
0.5% 122.6% 0.8%
$ $
27,166 7,305 256 34,727
PROPERTY INFORMATION For The Three Months Ended 09/30/16 09/30/15 % Change Total Portfolio Total rentable square footage at period end Weighted average occupancy Period end occupancy Annualized realized rent per sq. ft. (2) (5) REVPAF (2) (6) Same Park Portfolio (1) Total rentable square footage at period end Weighted average occupancy Period end occupancy Annualized realized rent per sq. ft. (2) (5) REVPAF (2) (6)
$ $
28,195 94.1% 94.0% 14.70 $ 13.73 $
27,969 93.4% 93.7% 14.24 13.30
0.8% 0.7% 0.3% 3.2% 3.2%
$ $
27,291 94.1% 94.5% 14.81 $ 13.94 $
27,291 93.6% 93.7% 14.35 13.43
0.5% 0.9% 3.2% 3.8%
678 85.6% 92.1%
33.3% 13.0% (14.8%)
Non-Same Park Portfolio (2) Total rentable square footage at period end Weighted average occupancy Period end occupancy
904 96.7% 78.5%
For The Nine Months Ended 09/30/16 09/30/15 % Change
$ $
28,195 94.0% 94.0% 14.65 $ 13.65 $
27,969 92.4% 93.7% 14.24 13.15
0.8% 1.7% 0.3% 2.9% 3.8%
$ $
27,291 93.9% 94.5% 14.76 $ 13.86 $
27,291 92.8% 93.7% 14.33 13.30
1.2% 0.9% 3.0% 4.2%
678 75.3% 92.1%
33.3% 27.0% (14.8%)
904 95.6% 78.5%
MARKET VALUE INFORMATION 09/30/16 Market value of common stock and common OP units Total debt Total preferred equity Total market capitalization Stock price at the end of the period
$
$ $
% of Total
3,909,688 60,000 920,000 4,889,688 113.57
80.0% 1.2% 18.8% 100.0%
12/31/15 $
$ $
3,002,296 250,000 920,000 4,172,296 87.43
% of Total 72.0% 6.0% 22.0% 100.0%
NOTES (1) (2) (3) (4) (5) (6)
All owned assets acquired prior to January 1, 2014 (excludes sold assets). Excludes a lease buyout payment of $528,000 recorded in the third quarter of 2016 associated with a 58,000 square foot lease in Northern Virginia. All owned assets acquired subsequent to January 1, 2014. In order to provide comparable data points, the impact of the LTEIP non-cash stock compensation related to the change in senior management has been excluded. Represents the annualized revenues earned per occupied square foot. Represents the annualized revenues earned per total weighted average square foot.
3
PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS (in thousands, except per share amounts)
For The Three Months Ended 09/30/16 09/30/15
Change
% Change
For The Nine Months Ended 09/30/16 09/30/15
Change
% Change
Funds from operations (FFO): Net income allocable to common shareholders Gain on sale of real estate facility Depreciation and amortization Net income allocable to noncontrolling interests - common units Net income allocable to restricted stock unit holders FFO allocable to common and dilutive shares
$
$
Weighted average common shares outstanding Weighted average common OP units outstanding Weighted average restricted stock units outstanding Weighted average common share equivalents outstanding Total common and dilutive shares FFO per common and dilutive share
19,718 24,631 5,315 128 49,792
$
$
27,103 7,305 268 98 34,774
22,484 $ (2,766) (15,748) 15,748 25,985 (1,354) 6,087 (772) 97 31 38,905 $ 10,887 26,985 7,305 124 64 34,478
$
1.43
$
1.13
Funds from operations Adjustments: Recurring capital improvements Tenant improvements Lease commissions Total recurring capital expenditures (sold assets) Straight-line rent Stock compensation expense (excluding LTEIP) LTEIP amortization In-place lease adjustment Tenant improvement reimbursements, net of lease incentives Capitalized interest expense Non-cash distributions related to redemption of preferred equity
$
49,792
$
38,905
FAD
$
41,221
$
30,997
FAD per common and dilutive share
$
1.19
$
0.90
$
41,221 $ (20,334) (5,479) (128) (421) 14,859 $ (15,445) (586) $
(12.3%) (100.0%) (5.2%) (12.7%) 32.0% 28.0%
$
$
50,017 74,886 13,495 387 138,785
$
$
118 144 34 296
0.4% 116.1% 53.1% 0.9%
0.30
26.5%
$
4.00
$
3.46
$ 10,887
28.0%
$
138,785
$
119,096
$
27,076 7,305 256 90 34,727
53,384 $ (3,367) (28,235) 28,235 79,243 (4,357) 14,467 (972) 237 150 119,096 $ 19,689 26,956 7,305 115 78 34,454
(6.3%) (100.0%) (5.5%) (6.7%) 63.3% 16.5%
120 141 12 273
0.4% 122.6% 15.4% 0.8%
0.54
15.6%
$ 19,689
16.5%
$
Funds available for distribution (FAD):
(2,621) (5,259) (1,466) (447) 286 1,564 (106) (407) (115) -
(3,012) (5,266) (2,295) (115) (517) 244 1,667 (341) (478) (282) 2,487
391 7 829 115 70 42 (103) 235 71 167 (2,487)
(13.0%) (0.1%) (36.1%) (100.0%) (13.5%) 17.2% (6.2%) (68.9%) (14.9%) (59.2%) (100.0%)
(5,300) (13,109) (5,054) (1,664) 817 8,116 (437) (1,253) (854) -
(6,795) (18,289) (6,555) (440) (2,709) 771 6,178 (1,004) (1,418) (813) 2,487
$ 10,224
33.0%
$
120,047
$
90,509
$
32.2%
$
3.46
$
2.63
33.0% 25.5% 25.0% 103.2% (18.1%) 51.2% 2168.0% (106.4%)
$
120,047 $ (60,932) (16,437) (387) (767) 41,524 $ (27,946) 13,578 $
0.29
1,495 5,180 1,501 440 1,045 46 1,938 567 165 (41) (2,487)
(22.0%) (28.3%) (22.9%) (100.0%) (38.6%) 6.0% 31.4% (56.5%) (11.6%) 5.0% (100.0%)
$ 29,538
32.6%
$
31.6%
0.83
Free cash available for debt repayment and investments: FAD Distributions to common shareholders Distributions to common OP unit holders Distributions to restricted stock unit holders Non-recurring property renovations Free cash available for debt repayment and investments Investment in and advances to unconsolidated joint venture Retained cash FAD distributions payout ratio
$ $
62.9%
30,997 10,224 (16,208) (4,126) (4,384) (1,095) (63) (65) (514) 93 9,828 $ 5,031 (681) (14,764) 9,147 $ (9,733) 66.6%
4
$ $
64.8%
90,509 $ 29,538 (43,157) (17,775) (11,689) (4,748) (181) (206) (2,988) 2,221 32,494 $ 9,030 (1,996) (25,950) 30,498 $ (16,920) 60.8%
32.6% 41.2% 40.6% 113.8% (74.3%) 27.8% 1300.1% (55.5%)
FFO Per Common and Dilutive Share (As Adjusted) ¹ $1.50 $1.45
$1.43
$1.40 $1.36
$1.35 $1.31
$1.30 $1.26
$1.25 $1.20
$1.19
$1.20
$1.20
$1.20
Q2
Q3
$1.20 $1.14 $1.13
$1.15 $1.10 Q1
Q2
Q3
Q4
|_________2014________| (1) Where
Q1
Q4
|_________2015________|
Q1
Q2
Q3⁽²⁾
|_____2016_____|
applicable, amounts exclude the non-cash charge related to July 1st, 2016 senior management change, non-cash distributions related to the redemption of preferred equity and acquisition transaction costs. (2) Excludes
lease buyout payment of $528,000.
5
PS BUSINESS PARKS, INC. CAPITAL STRUCTURE (in thousands) As of September 30, 2016 % of Total Market WTD Average Total Capitalization Rate
As of December 31, 2015 % of Total Market WTD Average Total Capitalization Rate
Mortgage Debt: 5.45% mortgage note, repaid June 2016
$
Total mortgage debt
-
$ -
-
250,000 250,000
6.0%
5.45%
Unsecured Debt: $250.0 million unsecured credit facility (LIBOR + 0.875%)
60,000
-
Total unsecured debt
60,000
1.2%
1.36%
Total debt
60,000
1.2%
1.36%
250,000
-
-
6.0%
5.45%
Preferred Equity: 6.450% Series S preferred stock (9,200,000 depositary shares outstanding) callable 1/18/17 6.000% Series T preferred stock (14,000,000 depositary shares outstanding) callable 5/14/17 5.750% Series U preferred stock (9,200,000 depositary shares outstanding) callable 9/14/17 5.700% Series V preferred stock (4,400,000 depositary shares outstanding) callable 3/14/18
230,000 350,000 230,000 110,000
Total preferred equity
920,000
18.8%
6.01%
920,000
22.0%
6.01%
Total debt and preferred equity
980,000
20.0%
5.73%
1,170,000
28.0%
5.89%
Common stock (27,120,001 and 27,034,073 shares outstanding as of September 30, 2016 and December 31, 2015, respectively) Common operating partnership units (7,305,355 units outstanding as of September 30, 2016 and December 31, 2015) Total common equity (1) Total market capitalization (1)
230,000 350,000 230,000 110,000
$
3,080,019 829,669 3,909,688
80.0%
4,889,688
100.0%
$
Closing stock price was $113.57 and $87.43 as of September 30, 2016 and December 31, 2015, respectively.
Principal maturity dates are represented by the following chart:
Total Market Principal Maturity Dates Capitalization as of September 30, 2016: $4.9 billion 2014
2015
2016
2017
2018
Unsecured Debt 1.2%
Total
Preferred Equity 18.8% Rose Canyon $ Boca $ Wellington II 5.452% Mortgage Note $ Term Loan $
-
$ $
- $ - $ $ $ Units $Common - Stock/OP $ 250,000 $ - 80.0% $ - $ 250,000 $
-
$ $ $
-
$
-
$ $ $
-
$
250,000 250,000
6
2,363,589 638,707 3,002,296
72.0%
4,172,296
100.0%
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
09/30/16
12/31/15
Change
% Change
ASSETS Cash and cash equivalents
$
Real estate facilities, at cost: Land Buildings and equipment
$
188,912
$
(183,896)
799,207 2,238,804 3,038,011 (1,147,187) 1,890,824 6,081 1,896,905
793,569 2,215,515 3,009,084 (1,082,603) 1,926,481 6,081 1,932,562
5,638 23,289 28,927 (64,584) (35,657) (35,657)
$
55,536 2,013 29,717 10,597 1,999,784
$
26,736 2,234 28,327 7,887 2,186,658
$
28,800 (221) 1,390 2,710 (186,874)
$
83,093
$
76,059
$
Accumulated depreciation Land held for future development
Investment in and advances to unconsolidated joint venture Rent receivable Deferred rent receivable Other assets Total assets
5,016
(a)
(b)
(c) (d)
(97.3%)
0.7% 1.1% 1.0% 6.0% (1.9%) (1.8%) 107.7% (9.9%) 4.9% 34.4% (8.5%)
LIABILITIES AND EQUITY Accrued and other liabilities Credit Facility Mortgage note payable Total liabilities Equity: PS Business Parks, Inc.'s shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Cumulative distributions Total PS Business Parks, Inc.'s shareholders' equity Noncontrolling interests: Common units Total noncontrolling interests:
Total liabilities and equity
$
7
(e)
9.2%
60,000 -
250,000
60,000 (250,000)
100.0% (100.0%)
143,093
326,059
(182,966)
(56.1%)
920,000 270 729,957 1,467,323 (1,459,633) 1,657,917
Total equity
7,034
920,000 269 722,009 1,375,421 (1,357,203) 1,660,496
1 7,948 91,902 (102,430) (2,579)
(f) (g)
0.4% 1.1% 6.7% 7.5% (0.2%)
198,774 198,774
200,103 200,103
(1,329) (1,329)
(0.7%) (0.7%)
1,856,691
1,860,599
(3,908)
(0.2%)
(186,874)
(8.5%)
1,999,784
$
2,186,658
$
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS VARIANCE DETAIL (in thousands) (a)
(b)
(c)
(d) 17101 17008
(e)
Change in cash and cash equivalents: Beginning cash balance Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Ending cash balance
$
$
Change in real estate facilities, at cost: Beginning balance Property acquisitions Recurring capital improvements Tenant improvements, gross Lease commissions Nonrecurring capital improvements Depreciation and amortization Ending balance
$
$
Rent receivable consists of: Non-government tenants U.S. Government tenants 12003 Allowance for doubtful accounts
09/30/16 1,240 1,173 (400) $ 2,013
12/31/15 $ 1,012 1,622 (400) $ 2,234
09/30/16 1,644 5,497 3,456 $ 10,597
12/31/15 $ 2,163 3,789 1,935 $ 7,887
09/30/16 31,977 17,969 18,014
12/31/15 $ 28,815 10,113 19,213
5,686 9,447 83,093
7,281 10,637 $ 76,059
$
Other assets consist of: 17102 In-place lease adjustment and incentives, net 17003 Prepaid property taxes and insurance Other
$
Accrued and other liabilities consist of: Security TOTALdeposits SECURITY DEPOSITS Accrued TOTALproperty A/P PROPERTY taxes TAXES Prepaid rent In-place lease adjustment and tenant improvement reimbursements, net Other
$
$ (f)
(g)
Change in paid-in capital: Beginning paid-in capital Exercise of stock options Stock compensation, net Adjustment to reflect noncontrolling interests to underlying ownership Ending paid in capital
Change in cumulative distributions: Beginning cumulative distributions Distributions to preferred shareholders Distributions to common shareholders Ending cumulative distributions
1,926,481 13,275 5,300 14,833 5,054 767 (74,886) 1,890,824 Change
$
$
$
$
$
$
$
$
$
$
8
188,912 187,673 (65,658) (305,911) 5,016
228 (449) (221) Change (519) 1,708 1,521 2,710 Change 3,162 7,856 (1,199) (1,595) (1,190) 7,034
722,009 2,955 6,606 (1,613) 729,957
(1,357,203) (41,498) (60,932) (1,459,633)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
For The Three Months Ended 09/30/16 09/30/15 Revenues: Rental income Facility management fees Total operating revenues
$
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
76 (155) (79)
Gain on sale of real estate facilities
Net income allocation: Net income allocable to noncontrolling interests: Noncontrolling interests - common units Total net income allocable to noncontrolling interests
-
93,322 130 93,452
$
(a)
4.3% 4.3%
30,448 25,985 3,276 59,709
348 (b) (1,354) (306) (c) (1,312)
1.1% (5.2%) (9.3%) (2.2%)
154 (3,368) (3,214)
(78) 3,213 (d) 3,135
(50.6%) (95.4%) (97.5%)
15,748
4,018 4,018
% Change
(15,748)
(100.0%)
$
38,994
$
46,277
$
(7,283)
(15.7%)
$
5,315 5,315
$
6,087 6,087
$
(772) (772)
(12.7%) (12.7%)
(3,776) 31 (2,766) (6,511)
(21.4%) 32.0% (12.3%) (16.2%)
Net income allocable to PS Business Parks, Inc.: Preferred shareholders Restricted stock unit holders Common shareholders Total net income allocable to PS Business Parks, Inc.
Net income per common share Basic Diluted
$
30,796 24,631 2,970 58,397
Other income and (expense): Interest and other income Interest and other expense Total other income and (expense)
Net income
97,340 130 97,470
Change
13,833 128 19,718 33,679
17,609 97 22,484 40,190
$
38,994
$
46,277
$
(7,283)
(15.7%)
$ $
0.73 0.72
$ $
0.83 0.83
$ $
(0.10) (0.11)
(12.0%) (13.3%)
Weighted average common shares outstanding: Basic Diluted
27,103 27,201
9
26,985 27,049
118 152
0.4% 0.6%
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE DETAIL (in thousands)
(a) Rental income: Same Park Non-Same Park Lease buyout payment Same Park straight-line rent Non-Same Park straight-line rent Sold Assets
For The Three Months Ended 09/30/16 09/30/15 $ 94,655 $ 91,268 1,710 1,203 528 425 357 22 149 345 $ 97,340 $ 93,322
(b) Cost of Operations: Same Park Non-Same Park Sold Assets LTEIP amortization
For The Three Months Ended 09/30/16 09/30/15 $ 29,607 $ 29,439 532 522 203 657 284 $ 30,796 $ 30,448
(c) General and administrative expenses: Cash and non-cash compensation expense LTEIP amortization Acquisition transaction costs Professional fees and other
For The Three Months Ended 09/30/16 09/30/15 $ 1,088 $ 1,289 907 1,383 328 647 604 $ 2,970 $ 3,276
(d) Interest and other expense: Mortgage notes payable Credit facility Capitalized interest Facilities fees & other charges
For The Three Months Ended 09/30/16 09/30/15 $ $ (3,483) (115) 115 282 (155) (167) $ (155) $ (3,368)
10
Change 3,387 507 528 68 (127) (345) $ 4,018 $
Change 168 10 (203) 373 $ 348 $
Change (201) (476) 328 43 $ (306) $
Change 3,483 (115) (167) 12 $ 3,213 $
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
For The Nine Months Ended 9/30/2016 9/30/2015 Revenues: Rental income Facility management fees Total operating revenues
$
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
289,272 389 289,661
$
92,440 74,886 11,982 179,308
Other income and (expense): Interest and other income Interest and other expense Total other income and (expense) Gain on sale of real estate facilities Net income Net income allocation: Net income allocable to noncontrolling interests: Noncontrolling interests - common units Total net income allocable to noncontrolling interests
92,251 79,243 10,172 181,666
3.8% (5.1%) 3.8%
189 (b) (4,357) 1,810 (c) (2,358)
0.2% (5.5%) 17.8% (1.3%)
406 (10,029) (9,623)
145 4,522 4,667
-
28,235
(28,235)
(100.0%)
(d)
35.7% (45.1%) (48.5%)
105,397
$
115,941
$
(10,544)
(9.1%)
$
13,495 13,495
$
14,467 14,467
$
(972) (972)
(6.7%) (6.7%)
(6,355) 150 (3,367) (9,572)
(13.3%) 63.3% (6.3%) (9.4%)
47,853 237 53,384 101,474
$
105,397
$
115,941
$
(10,544)
(9.1%)
$ $
1.85 1.84
$ $
1.98 1.97
$ $
(0.13) (0.13)
(6.6%) (6.6%)
27,076 27,166
11
10,687 (a) (21) 10,666
551 (5,507) (4,956)
41,498 387 50,017 91,902
Weighted average common shares outstanding: Basic Diluted
$
% Change
$
Net income allocable to PS Business Parks, Inc.: Preferred shareholders Restricted stock unit holders Common shareholders Total net income allocable to PS Business Parks, Inc.
Net income per common share Basic Diluted
278,585 410 278,995
Change
26,956 27,034
120 132
0.4% 0.5%
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE DETAIL (in thousands)
(a) Rental income: Same Park Non-Same Park Lease buyout payment Same Park straight-line rent Non-Same Park straight-line rent Sold Assets
For The Nine Months Ended 09/30/16 09/30/15 $ 282,127 $ 269,938 4,953 3,217 528 1,534 2,251 130 468 2,711 $ 289,272 $ 278,585
(b) Cost of operations: Same Park Non-Same Park Sold Assets LTEIP amortization
For The Nine Months Ended 09/30/16 09/30/15 $ 88,564 $ 87,637 1,564 1,577 1,242 2,312 1,795 $ 92,440 $ 92,251
(c) General and administrative expenses: Cash and non-cash compensation expense LTEIP amortization Acquisition transaction costs Professional fees and other
For The Nine Months Ended 09/30/16 09/30/15 $ 3,788 $ 3,970 5,804 4,383 328 2,062 1,819 $ 11,982 $ 10,172
(d) Interest and other expense: Mortgage notes payable Credit facility Capitalized interest Facilities fees & other charges
For The Nine Months Ended 09/30/16 09/30/15 $ (5,755) $ (10,335) (144) 854 812 (462) (506) $ (5,507) $ (10,029)
12
Change 12,189 1,736 528 (717) (338) (2,711) $ 10,687 $
Change 927 (13) (1,242) 517 $ 189 $
Change (182) 1,421 328 243 $ 1,810 $
Change 4,580 (144) 42 44 $ 4,522 $
PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (in thousands, except per square foot data)
Recurring capital expenditures
(1)
For The Nine Months Ended
Cost per Weighted
September 30, 2016
Average Square Foot
Capital improvements
$5,300
$0.19
Tenant improvements
13,109
$0.47
5,054
$0.18
$23,463
$0.84
Lease commissions Total recurring capital expenditures Non-recurring property renovations Non-recurring property renovations
$767
(1) The Company defines "recurring capital expenditures" as those capitalized costs necessary to continue to operate the property at its current economic value. Capital improvements in excess of $2,000 with a useful life greater than 24 months are capitalized. Lease transaction costs of $1,000 or more for leases with terms greater than 12 months are capitalized. It excludes renovations that substantially enhance the value of a property and first generation leasing costs on development properties. Lease-up costs on acquired properties are included in recurring capital expenditures. Repairs and maintenance expense was $20.8 million or approximately $0.74 per weighted average square foot for the nine months ended September 30, 2016 compared to $21.0 million or approximately $0.74 per weighted average square foot for the nine months ended September 30, 2015.
13
Same Park Gross Operating Margin Percentage ⁽¹⁾ 75.0% 73.5% 72.0% 70.6% 69.9%
69.8%
70.5%
69.1% 68.1%
69.0%
68.9% 68.2% 67.6%
67.0%
67.5%
66.8%
65.6%
66.0% 64.5% 63.0% 61.5% 60.0% Q1
Q2
Q3
Q4
|________2014_________|
Q1
Q2
Q3
Q4
|________2015_______|
Q1
Q2
Q3⁽²⁾
|_____2016_____|
⁽¹⁾ Gross margin is computed by dividing property net operating income by rental income for Same Park properties in each period. Amounts exclude LTEIP amortization. (2) Excludes
lease buyout payment of $528,000.
14
Change in Same Park Revenue⁽¹⁾ 5.0% 4.8% 4.0%
4.0%
4.1% 3.8%
3.6% 3.8%
3.1%
3.0%
2.6% 2.3%
2.0%
1.3% 1.8%
1.0%
0.0% Q1
Q2
Q3
Q4
|__________2014_________| (1)
Q1
Q2
Q3
Q4
|__________2015_________|
Q1
Q2
Q3⁽²⁾
|_____2016______|
Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. (2) Excludes
lease buyout payment of $528,000.
15
Change in Same Park NOI⁽¹⁾ 7.0% 6.2% 5.7%
6.0%
5.3% 4.8%
5.0%
4.8%
4.2%
4.0%
3.6% 2.9%
3.0% 2.6%
2.0% 1.0% 1.0%
0.0%
0.5%
Q1
Q2
Q3
Q4
|_________2014_________| (1)
Q1
Q2
Q3
Q4
|_________2015_________|
Q1
Q2
Q3⁽²⁾
|_____2016______|
Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. Amounts exclude LTEIP amortization. (2) Excludes
lease buyout payment of $528,000.
16
PS BUSINESS PARKS, INC. PORTFOLIO CONCENTRATION SUMMARY (in thousands) Industry Concentration as of September 30, 2016 % of Total Rental Income 18.2% 10.4% 9.9% 9.7% 8.9% 7.4% 6.8% 4.2% 3.1% 3.0% 2.7% 2.2% 1.8% 11.7% 100.0%
Business services Warehouse, distribution, transportation and logistics Computer hardware, software and related services Health services Government Retail, food, and automotive Engineering and construction Insurance and financial services Electronics Home furnishings Aerospace/defense products and services Communications Educational services Other Total
Top 10 Customers by Total Annual Rental Income as of September 30, 2016
Tenant
Square Footage
Annualized Rental Income (1)
US Government
815
18,108
4.7%
Kaiser Permanente
199
4,709
1.2%
Lockheed Martin Corporation
168
4,500
1.2%
Keeco, L.L.C.
460
3,458
0.9%
Luminex Corporation
185
3,255
0.8%
MAXIMUS, Inc.
102
2,044
0.5%
KZ Kitchen Cabinet & Stone
181
1,860
0.5%
46
1,775
0.5%
163
1,775
0.5%
1,739 43,223
0.5% 11.3%
Investorplace Media, LLC Kuehne + Nagel, Inc. Inova Health Care Services Total
63 2,382
$
% of Total Annualized Rental Income
$
(1) - For leases expiring within one year, annualized rental income represents income to be received under existing leases from October 1, 2016 through the date of expiration.
17
Total Portfolio Net Operating Income by Region
Three Months Ended September 30, 2015
Three Months Ended September 30, 2016 $66,673 (in thousands)
(1)
$63,016 (in thousands)
S. California (16%)
(2)
S. California (15%)
N. California (24%)
N. California (22%)
S. Texas (6%)
S. Texas (6%)
N. Texas (8%)
N. Texas (8%)
Virginia (20%)
Virginia (22%)
Maryland (12%)
Maryland (13%)
South Florida (10%)
South Florida (10%)
$2,795 Washington (4%)
Washington (4%)
$6,964
$2,677
$10,509
$6,039
$9,698
$8,064
$7,945
$14,126
$15,867
$13,018 $13,848
$4,429
$3,754 $4,810
$5,146
(1) Excludes lease buyout payment of $528,000. (2) Excludes sold assets.
18
Total Rentable Square Footage by Region
September 30, 2016 28,195 square feet (in thousands)
September 30, 2015 27,969 square feet (in thousands) S. California (14%)
S. California (14%)
N. California (26%)
N. California (26%)
S. Texas (7%)
S. Texas (7%)
N. Texas (11%)
N. Texas (11%) Virginia (14%)
Virginia (15%)
Maryland (9%)
Maryland (8%)
South Florida (14%)
1,390 3,988
South Florida (14%)
1,390 3,988
Washington (5%)
Washington (5%)
3,866 3,866
2,352 2,578 7,245
7,245
4,040
4,040 1,963 3,125
3,125
19
1,963
Same Park Weighted Average Occupancy
(1)
95.0% 94.2% 94.0%
93.6%
93.6% 92.8%
93.0%
92.7% 92.1%
91.8%
92.0% 91.0%
94.1%
94.1%
90.8%
91.2%
90.0% 89.0% 88.0% 87.0% 86.0% 85.0% Q1
Q2
Q3
Q4
|___________2014__________|
(1)
Q1
Q2
Q3
Q4
|__________2015__________|
Q1
Q3
|______2016______|
Represents the weighted average occupancy for the current Same Park portfolio.
20
Q2
Total Portfolio Weighted Average Occupancy (1) 95.0% 94.2% 94.0%
94.1%
94.1% 93.6%
93.4% 93.0%
91.0%
92.3%
92.0%
92.0% 91.3%
91.3%
Q2
Q3
90.8%
91.6%
90.0% 89.0% 88.0% 87.0% 86.0% 85.0% Q1
Q4
|__________2014__________|
(1)
Q1
Q2
Q3
Q4
|__________2015_________|
Q1
Q3
|______2016______|
Represents the weighted average occupancy for the total owned portfolio .
21
Q2
PS BUSINESS PARKS, INC. SAME PARK PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total Percentage by Product Type
Industrial
Office
2,631 2,014 1,892 231 712 951 8,431 30.9%
2,093 12 1,382 705 31 28 340 4,591 16.8%
Flex 1,947 1,074 1,336 1,450 2,730 970 1,717 911 861 411 768 94 14,269 52.3%
Total 4,040 3,717 3,350 3,342 2,961 2,352 1,717 1,616 1,604 1,390 768 434 27,291 100.0%
% of Total 14.8% 13.6% 12.3% 12.3% 10.8% 8.6% 6.3% 5.9% 5.9% 5.1% 2.8% 1.6% 100.0%
Weighted Average Occupancy Rates by Product Type for the Three Months Ended September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total
Industrial
Office
94.5% 99.0% 96.8% 100.0% 99.6% 100.0% 97.3%
89.1% 100.0% 87.2% 90.8% 83.0% 96.9% 93.0% 89.1%
Flex 94.8% 90.1% 91.5% 98.0% 90.3% 88.2% 97.7% 95.8% 96.5% 96.5% 95.1% 97.8% 93.7%
Total 91.8% 93.2% 96.0% 97.4% 91.0% 87.6% 97.7% 93.6% 97.6% 98.9% 95.1% 94.1% 94.1%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total
Large Tenant
Small Tenant
93.0% 93.9% 96.5% 97.4% 91.4% 88.3% 97.6% 94.1% 99.6% 100.0% 94.7%
89.7% 90.5% 91.5% 97.0% 90.3% 85.2% 98.5% 93.1% 96.0% 96.5% 95.1% 94.1% 92.5%
Total 91.8% 93.2% 96.0% 97.4% 91.0% 87.6% 97.7% 93.6% 97.6% 98.9% 95.1% 94.1% 94.1%
Note: The Company's "large tenant" portfolio consists of properties with average leases greater than or equal to 5,000 square feet while the "small tenant" portfolio consists of properties with average leases less than 5,000 square feet.
22
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total Percentage by Product Type
Industrial 2,780 2,014 1,892 231 246 712 951 8,826 31.3%
Office 2,093 12 1,608 705 31 28 340 4,817 17.1%
Flex
Total
1,947 1,074 1,336 1,569 2,894 970 1,717 911 861 411 768 94 14,552 51.6%
4,040 3,866 3,350 3,461 3,125 2,578 1,963 1,616 1,604 1,390 768 434 28,195 100.0%
% of Total 14.3% 13.7% 11.9% 12.3% 11.1% 9.2% 7.0% 5.7% 5.7% 4.9% 2.7% 1.5% 100.0%
Weighted Average Occupancy Rates by Product Type for the Three Months Ended September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total
Industrial 94.8% 99.0% 96.8% 100.0% 97.4% 99.6% 100.0% 97.4%
Office 89.1% 100.0% 86.8% 90.8% 83.0% 96.9% 93.0% 89.0%
Flex 94.8% 90.1% 91.5% 98.0% 90.6% 88.2% 97.7% 95.8% 96.5% 96.5% 95.1% 97.8% 93.8%
Total 91.8% 93.5% 96.0% 97.4% 91.3% 87.4% 97.7% 93.6% 97.6% 98.9% 95.1% 94.1% 94.1%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended September 30, 2016 Primary Markets Northern Virginia South Florida East Bay Silicon Valley Dallas Maryland Austin Orange County Los Angeles County Seattle San Diego County Mid-Peninsula Total
Large Tenant 93.0% 94.2% 96.5% 97.4% 91.4% 88.3% 97.6% 94.1% 99.6% 100.0% 94.8%
Small Tenant 89.7% 90.5% 91.5% 97.0% 91.0% 84.3% 98.5% 93.1% 96.0% 96.5% 95.1% 94.1% 92.6%
Total 91.8% 93.5% 96.0% 97.4% 91.3% 87.4% 97.7% 93.6% 97.6% 98.9% 95.1% 94.1% 94.1%
Note: The Company's "large tenant" portfolio consists of properties with average leases greater than or equal to 5,000 square feet while the "small tenant" portfolio consists of properties with average leases less than 5,000 square feet.
23
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO LEASE EXPIRATIONS AS OF SEPTEMBER 30, 2016 (IN THOUSANDS)
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Lease Expirations - Flex Annualized Leased Square Footage Rental Income 815 3,694 3,316 2,198 1,573 2,203 13,799
$
10,292 54,266 50,511 34,455 24,974 40,446 214,944
$
Lease Expirations - Office Annualized Leased Square Footage Rental Income 334 963 1,031 628 327 727 4,010
$
8,143 23,911 25,102 16,767 9,126 20,449 103,498
$
Lease Expirations - Industrial Annualized Leased Square Footage Rental Income 254 1,865 1,443 2,143 1,253 1,628 8,586
$
2,269 15,719 13,253 19,984 12,618 18,334 82,177
$
Lease Expirations - Total Portfolio Annualized Leased Square Footage Rental Income 1,403 6,522 5,790 4,969 3,153 4,558 26,395
$
20,704 93,896 88,866 71,206 46,718 79,229 400,619
$
24
% 4.8% 25.3% 23.5% 16.0% 11.6% 18.8% 100.0%
% 7.9% 23.1% 24.2% 16.2% 8.8% 19.8% 100.0%
% 2.8% 19.1% 16.1% 24.3% 15.4% 22.3% 100.0%
% 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
% of Total Annualized Rental Income 2.6% 13.5% 12.6% 8.6% 6.2% 10.1% 53.6%
% of Total Annualized Rental Income 2.0% 6.0% 6.3% 4.2% 2.3% 5.1% 25.9%
% of Total Annualized Rental Income 0.6% 3.9% 3.3% 5.0% 3.1% 4.6% 20.5%
% of Total Annualized Rental Income 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO LEASE EXPIRATIONS AS OF SEPTEMBER 30, 2016 (in thousands) Southern California
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 220 1,360 1,099 618 267 296 3,860
$
3,768 21,640 18,967 9,992 4,567 7,561 66,495
$
% 5.7% 32.5% 28.5% 15.0% 6.9% 11.4% 100.0%
% of Total Annualized Rental Income 0.9% 5.4% 4.8% 2.5% 1.2% 1.9% 16.7%
Northern California
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 204 1,247 1,190 1,963 1,089 1,363 7,056
$
3,549 16,436 17,097 22,303 14,440 19,305 93,130
$
% 3.8% 17.7% 18.4% 23.9% 15.5% 20.7% 100.0%
% of Total Annualized Rental Income 0.90% 4.10% 4.30% 5.60% 3.60% 4.80% 23.3%
Southern Texas
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 94 442 444 175 377 394 1,926
$
1,061 6,018 6,124 2,794 6,071 6,213 28,281
$
% 3.7% 21.3% 21.6% 9.9% 21.5% 22.0% 100.0%
% of Total Annualized Rental Income 0.3% 1.5% 1.5% 0.7% 1.5% 1.6% 7.1%
Northern Texas
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 192 740 595 516 363 439 2,845
$
1,677 8,048 6,466 6,557 4,046 6,414 33,208
$
25
% 5.0% 24.2% 19.5% 19.8% 12.2% 19.3% 100.0%
% of Total Annualized Rental Income 0.4% 2.0% 1.6% 1.6% 1.0% 1.6% 8.2%
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO LEASE EXPIRATIONS AS OF SEPTEMBER 30, 2016 (in thousands) South Florida
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 270 1,080 987 521 224 543 3,625
$
2,283 11,142 10,475 5,679 2,516 5,821 37,916
$
% 6.0% 29.4% 27.6% 15.0% 6.6% 15.4% 100.0%
% of Total Annualized Rental Income 0.6% 2.8% 2.6% 1.4% 0.6% 1.4% 9.4%
Northern Virginia
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 279 949 604 648 435 725 3,640
$
5,330 19,178 11,567 14,942 8,543 17,149 76,709
$
% 6.9% 25.0% 15.1% 19.5% 11.1% 22.4% 100.0%
% of Total Annualized Rental Income 1.3% 4.8% 2.9% 3.7% 2.1% 4.3% 19.1%
Maryland
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 110 308 650 290 184 562 2,104
$
2,411 7,102 14,934 6,341 4,423 13,895 49,106
$
% 4.9% 14.5% 30.4% 12.9% 9.0% 28.3% 100.0%
% of Total Annualized Rental Income 0.6% 1.7% 3.7% 1.6% 1.1% 3.5% 12.2%
Washington
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 34 396 221 238 214 236 1,339
$
625 4,332 3,236 2,598 2,112 2,871 15,774
$
26
% 3.9% 27.5% 20.5% 16.5% 13.4% 18.2% 100.0%
% of Total Annualized Rental Income 0.2% 1.1% 0.8% 0.7% 0.5% 0.7% 4.0%
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO LEASE EXPIRATIONS AS OF SEPTEMBER 30, 2016 (in thousands) Total Portfolio
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 1,403 6,522 5,790 4,969 3,153 4,558 26,395
$
20,704 93,896 88,866 71,206 46,718 79,229 400,619
$
27
% 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
% of Total Annualized Rental Income 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
PS BUSINESS PARKS, INC. TOTAL PORTFOLIO LEASE EXPIRATIONS AS OF SEPTEMBER 30, 2016 (in thousands) Lease Expirations - Large Tenant Portfolio
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 597 3,917 3,741 3,791 2,652 3,751 18,449
$
8,341 49,095 51,538 49,114 36,422 60,656 255,166
$
% 3.3% 19.2% 20.2% 19.2% 14.3% 23.8% 100.0%
% of Total Annualized Rental Income 2.1% 12.2% 12.9% 12.3% 9.1% 15.1% 63.7%
Lease Expirations - Small Tenant Portfolio
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 806 2,605 2,049 1,178 501 807 7,946
$
12,363 44,801 37,328 22,092 10,296 18,573 145,453
$
% 8.5% 30.8% 25.6% 15.2% 7.1% 12.8% 100.0%
% of Total Annualized Rental Income 3.1% 11.2% 9.3% 5.5% 2.5% 4.7% 36.3%
Lease Expirations - Total Portfolio
Year of Lease Expiration 2016 2017 2018 2019 2020 Thereafter Total
Annualized Rental Income
Leased Square Footage 1,403 6,522 5,790 4,969 3,153 4,558 26,395
$
20,704 93,896 88,866 71,206 46,718 79,229 400,619
$
28
% 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
% of Total Annualized Rental Income 5.2% 23.4% 22.2% 17.8% 11.6% 19.8% 100.0%
PS BUSINESS PARKS, INC. QUARTERLY AND YEAR TO DATE PRODUCTION STATISTICS - TOTAL PORTFOLIO September 30, 2016
Total Portfolio Activity Leasing Volume 3rd Quarter
Leasing Volume YTD
Tenant Retention 3rd Quarter
Tenant Retention YTD
Rental Rate Change (1) 3rd Quarter
Rental Rate Change (1) YTD
Maryland
169,000
576,000
72.6%
80.3%
-2.5%
-5.2%
Virginia
348,000
830,000
58.1%
68.9%
-8.3%
-7.7%
San Diego
106,000
297,000
69.5%
65.9%
3.0%
4.9%
Orange County
109,000
382,000
74.4%
59.4%
8.4%
7.4%
Los Angeles
108,000
423,000
79.5%
81.0%
8.2%
8.3%
Austin
65,000
245,000
84.0%
72.1%
15.0%
16.1%
Dallas
178,000
497,000
74.9%
58.2%
-3.6%
2.5%
South Florida
293,000
900,000
67.2%
59.8%
6.7%
5.9%
63,000
210,000
52.9%
61.8%
14.3%
13.5%
East Bay
301,000
547,000
74.1%
70.9%
28.5%
21.3%
Silicon Valley
139,000
456,000
68.0%
69.1%
16.7%
21.4%
Mid-Peninsula
37,000
113,000
50.4%
66.2%
25.0%
23.9%
1,916,000
5,476,000
67.8%
67.7%
5.6%
5.2%
Seattle
Company Totals (1)
Rental rate change is computed by taking the percentage difference between outgoing rents and incoming rents for leases executed during the period. Leases executed on spaces vacant for more than the preceding twelve months have been excluded.
29
