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Analysis of Operating Results and Financial Condition June 30, 2007
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 INDEX
Page
Fact Sheet ................................................................................................................................
1
Funds from Operations (FFO) .................................................................................................
2-3
Capital Structure......................................................................................................................
4
Consolidated Balance Sheets...................................................................................................
5-6
Consolidated Income Statements ............................................................................................
7 - 10
Capital Expenditure Analysis ..................................................................................................
11
Portfolio Analysis.................................................................................................................... 12 - 25
PS BUSINESS PARKS, INC. SECOND QUARTER FACT SHEET (in thousands, except per share amounts)
OPERATING DATA FOR THE THREE MONTHS ENDED 06/30/07 06/30/06 % Change
FOR THE SIX MONTHS ENDED 06/30/07 06/30/06 % Change
Total operating revenues Net income allocable to common shareholders
$ $
67,457 3,781
$ $
59,305 4,395
13.7% (14.0%)
$ $
132,764 9,704
$ $
118,208 9,457
12.3% 2.6%
Net income per common share - diluted: Continuing operations Discontinued operations Net income per common share - diluted
$ $ $
0.17 0.17
$ $ $
0.15 0.05 0.20
13.3% (100.0%) (15.0%)
$ $ $
0.45 0.45
$ $ $
0.36 0.08 0.44
25.0% (100.0%) 2.3%
Weighted average common shares outstanding - basic
21,334
21,311
0.1%
21,325
21,373
(0.2%)
Weighted average common shares outstanding - diluted Weighted average common OP units outstanding Total fully-converted diluted shares
21,681 7,305 28,986
21,585 7,305 28,890
0.4% N/A 0.3%
21,692 7,305 28,997
21,648 7,305 28,953
0.2% 0.0% 0.2%
FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED 06/30/07 06/30/06 % Change FFO allocable to common shareholders, before adjustments EITF Topic D-42 FFO allocable to common shareholders
$
$
$
29,991 29,991
Diluted FFO per common share and units - before adjustments Diluted FFO per common share and units
$ $
1.03 1.03
$ $
$
26,887 (1,658) 25,229 0.93 0.87
FOR THE SIX MONTHS ENDED 06/30/07 06/30/06 % Change
11.5% (100.0%) 18.9%
$
$
$
59,584 59,584
10.8% 18.4%
$ $
2.05 2.05
$ $
$
53,575 (1,658) 51,917 1.85 1.79
11.2% (100.0%) 14.8% 10.8% 14.5%
PROPERTY INFORMATION FOR THE THREE MONTHS ENDED 06/30/07 06/30/06 % Change Total Owned Portfolio (1) (excluding discontinued operations) Net rentable square footage at period end Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3) Same Park Portfolio (1) Net rentable square footage at period end Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3)
$ $
19,431 93.1% 14.87 $ 13.84 $
18,205 93.2% 14.18 13.22
6.7% (0.1%) 4.9% 4.7%
$ $
17,494 93.6% 14.42 $ 13.50 $
17,494 93.1% 13.96 13.00
N/A 0.5% 3.3% 3.8%
(1) Amounts exclude discontinued operations. (2) Represents the annualized revenues earned per occupied square foot. (3) Represents the annualized revenues earned per total square foot. BALANCE SHEET DATA 06/30/07 Total assets Minority interest - preferred Minority interest - common Perpetual preferred stock Common shareholders' equity Total common shares outstanding at period end Book value per common share
$ $ $ $ $ $
12/31/06
1,553,568 94,750 162,518 716,250 474,684 21,337 22.25
$ $ $ $ $ $
% Change
1,462,864 82,750 165,469 622,500 482,703 21,311 22.65
6.2% 14.5% (1.8%) 15.1% (1.7%) 0.1% (1.8%)
MARKET VALUE INFORMATION 06/30/07 Market value of common stock and common OP units
$
Total debt
1,815,088
12/31/06 $
61,392
Total preferred equity
811,000
% Change
2,023,463
(10.3%)
67,048
(8.4%)
705,250
15.0%
Total market capitalization
$
2,687,480
$
2,795,761
(3.9%)
Stock price at the end of the period
$
63.37
$
70.71
(10.4%)
1
FOR THE SIX MONTHS ENDED 06/30/07 06/30/06 % Change
$ $
19,431 93.2% 14.82 $ 13.47 $
18,205 92.9% 14.25 13.24
6.7% 0.3% 4.0% 1.7%
$ $
17,494 93.5% 14.41 $ 13.47 $
17,494 92.9% 14.10 13.10
N/A 0.6% 2.2% 2.8%
PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS (in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED 06/30/07 06/30/06
Increase (Decrease)
FOR THE SIX MONTHS ENDED 06/30/07 06/30/06
% Change
Increase (Decrease)
% Change
Funds from operations (FFO): Net income allocable to common shareholders Adjustments: Gain on disposition of real estate Depreciation and amortization Minority interest in income - common units FFO allocable to common shareholders/unitholders
$
3,781
$
24,916 1,294 29,991
Weighted average common shares outstanding Weighted average common OP units outstanding Weighted average common stock equivalents outstanding Total pro forma fully-converted shares Diluted FFO per common share/OP unit
$
$
21,334 7,305 347 28,986
4,395
$
(614)
(14.0%)
(1,617) 20,950 1,501 25,229 $
(1,617) 3,966 (207) 4,762
(100.0%) 18.9% (13.8%) 18.9%
21,311 7,305 274 28,890
23 73 96
0.1% 0.0% 26.6% 0.3%
$
9,704
$
46,556 3,324 59,584
$
$
21,325 7,305 367 28,997
9,457
$
(2,328) 41,563 3,225 51,917 $ 21,373 7,305 275 28,953
247
2.6%
(2,328) 4,993 99 7,667
(100.0%) 12.0% 3.1% 14.8%
(48) 92 44
(0.2%) 0.0% 33.5% 0.2%
$
1.03
$
0.87
$
0.16
18.4%
$
2.05
$
1.79
$
0.26
14.5%
Funds from operations Adjustments: Capital improvements Tenant improvements Lease commissions Straight-line rent Stock compensation expense In-place lease adjustment Lease incentives net of tenant improvement reimbursements Redemption amount over carrying amount related to redeemed preferred equity
$
29,991
$
25,229
$
4,762
18.9%
$
59,584
$
51,917
$
7,667
14.8%
FAD
$
23,512
$
17,092
$
6,420
37.6%
$
46,327
$
38,842
$
7,485
19.3%
Diluted FAD per common share/OP unit
$
0.81
$
0.59
$
0.22
37.3%
$
1.60
$
1.34
$
0.26
19.4%
$
23,512 $ (9,388) (3,214) 10,910 $
17,092 $ (6,172) (2,118) 8,802 $
6,420 3,216 1,096 2,108
37.6% 52.1% 51.7% 23.9%
$
46,327 $ (15,571) (5,333) 25,423 $
38,842 $ (12,361) (4,237) 22,244 $
7,485 3,210 1,096 3,179
19.3% 26.0% 25.9% 14.3%
45.1%
42.7%
Funds available for distribution (FAD):
(3,069) (3,062) (1,378) (51) 1,065 (36) 52
(1,859) (5,539) (2,277) (1,031) 719 59 133
1,210 (2,477) (899) (980) 346 (95) (81)
65.1% (44.7%) (39.5%) (95.1%) 48.1% (161.0%) (60.9%)
(4,891) (7,501) (2,412) (259) 1,704 (9) 111
(2,863) (9,082) (2,788) (1,620) 1,245 112 263
2,028 (1,581) (376) (1,361) 459 (121) (152)
70.8% (17.4%) (13.5%) (84.0%) 36.9% (108.0%) (57.8%)
-
1,658
(1,658)
(100.0%)
-
1,658
(1,658)
(100.0%)
Cash available for debt repayments and reinvestments: FAD Distributions to common shareholders Distributions to common OP unit holders Cash available for debt repayments and reinvestments FAD payout ratio
$
53.6%
48.5%
5.1%
2
10.5%
$
2.4%
5.6%
Reported Diluted FFO Per Common Share/OP Unit $1.10 $1.05
$1.02
$1.03
Q1
Q2
$1.00 $0.95
$0.93
$0.95
Q3
Q4
$0.92 $0.88
$0.88
$0.88
$0.90
$0.86
$0.87
$0.85 $0.80 Q1
Q2
Q3
Q4
|_________2005_________|
Q1
Q2
|________2006________|
3
|_2007_|
PS BUSINESS PARKS, INC. CAPITAL STRUCTURE (in thousands)
As of June 30, 2007 % of Total Market WTD Average Capitalization Rate
Total
As of December 31, 2006 % of Total Market WTD Average Total Capitalization Rate
Long-Term Debt:
7.290% mortgage note, due February 2009 5.730% mortgage note, due March 2013 5.520% mortgage note, due May 2013 5.680% mortgage note, due May 2013 6.150% mortgage note, due November 2031 (includes unamortized premium of $929,000 on $16.6 million mortgage note with stated rate of 7.200%) 5.610% mortgage note, due January 2011 (includes unamortized premium of $227,000 on $2.8 million mortgage note with stated rate of 7.610%) 8.190% mortgage note, repaid March 2007
$
5,408 14,628 10,380 10,385 17,554
$
5,490 14,743 10,483 10,486 17,759
3,037
3,085
-
5,002
Total mortgage notes payable(1)
61,392
2.3%
5.94%
67,048
2.4%
6.11%
Total debt
61,392
2.3%
5.94%
67,048
2.4%
6.11%
Preferred Equity
7.950% Series G preferred operating partnership units (800,000 units outstanding) callable 10/30/07 7.000% Series H preferred stock (8,200,000 depositary shares outstanding) callable 1/30/09 6.875% Series I preferred stock (3,000,000 depositary share outstanding) callable 4/21/09 7.500% Series J preferred operating partnership units (1,710,000 units outstanding) callable 5/27/09 7.950% Series K preferred stock (2,300,000 depositary shares outstanding) callable 6/30/09 7.600% Series L preferred stock (2,300,000 depositary shares outstanding) callable 8/31/09 7.200% Series M preferred stock (3,300,000 depositary shares outstanding) callable 5/2/10 7.125% Series N preferred operating partnership units (800,000 units outstanding) callable 12/12/10 7.375% Series O preferred stock (3,800,000 depositary shares outstanding) callable 6/16/11 6.700% Series P preferred stock (5,750,000 depositary shares outstanding) callable 1/17/12 6.550% Series Q preferred operating partnership units (480,000 units outstanding) callable 3/12/12 8.750% Series F preferred stock (2,000,000 depositary shares outstanding) redeemed 1/29/07
20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 95,000 143,750 12,000 -
Total preferred equity
811,000
30.2%
7.16%
705,250
25.2%
7.37%
Total debt and preferred equity
872,392
32.5%
7.07%
772,298
27.6%
7.26%
1,352,148 462,940 1,815,088
67.5%
1,506,901 516,562 2,023,463
72.4%
2,687,480
100%
2,795,761
100%
Common stock (21,337,354 and 21,311,005 shares outstanding as of June 30, 2007 and December 31, 2006, respectively) Common operating partnership units (7,305,355 units outstanding as of June 30, 2007 and December 31, 2006) Total common equity(2) Total market capitalization
(1)
20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 95,000 50,000
$
$
Principal maturity dates are represented by the following chart: Principal Maturity Dates 2007
Park East III $ Rose Canyon Meadows Palm Beach Meadows Loan Premium Palm Beach Loan Premium $
(2)
2008
85 $ 118 112 228 94 29 666 $
Closing stock price was $63.37 and $70.71 as of June 30, 2007 and December 31, 2006, respectively.
4
179 $ 244 237 477 198 61 1,396 $
2009
2010
5,144 $ - $ 261 277 258 278 507 536 208 218 64 67 6,442 $ 1,376 $
2011
- $ 293 15,741 3,178 210 6 19,428 $
Thereafter
- $ 13,435 18,649 32,084 $
Total
5,408 14,628 16,626 23,575 928 227 61,392
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
06/30/07
12/31/06
Increase (Decrease)
% Change
ASSETS Cash and cash equivalents
$
Real estate facilities, at cost: Land Buildings and equipment Accumulated depreciation Land held for development
Rent receivable Deferred rent receivables Other assets Total assets
$
72,437
$
66,282
$
6,155
(a)
485,898 1,441,978 1,927,876 (487,892) 1,439,984 7,869 1,447,853
439,777 1,353,442 1,793,219 (441,336) 1,351,883 9,011 1,360,894
46,121 88,536 134,657 46,556 88,101 (1,142) 86,959
2,003 21,713 9,562 1,553,568
2,080 21,454 12,154 1,462,864
(77) 259 (2,592) 90,704
(c)
1,580 (50,000) (5,656)
(e)
$
$
(b)
(d)
9.3%
10.5% 6.5% 7.5% 10.5% 6.5% (12.7%) 6.4% (3.7%) 1.2% (21.3%) 6.2%
LIABILITIES AND SHAREHOLDERS' EQUITY Accrued and other liabilities Preferred stock called for redemption Mortgage notes payable
$
Total liabilities Minority interests: Preferred units Common units Shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Cumulative distributions Total shareholders' equity Total liabilities and shareholders' equity
$
43,974 61,392
$
42,394 50,000 67,048
$
3.7% (100.0%) (8.4%)
105,366
159,442
(54,076)
(33.9%)
94,750 162,518
82,750 165,469
12,000 (2,951)
14.5% (1.8%)
716,250 213 395,896 518,532 (439,957) 1,190,934
572,500 213 398,048 483,403 (398,961) 1,055,203
143,750 (2,152) 35,129 40,996 135,731
25.1% 0.0% (0.5%) 7.3% 10.3% 12.9%
1,553,568
5
$
1,462,864
$
90,704
(f) (g)
6.2%
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS VARIANCE EXPLANATIONS (in thousands)
(a) Change in cash and cash equivalents Beginning cash balance Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Ending cash balance
$
$
(b) Change in real estate facilities, at cost: Beginning balance Property acquisitions Property renovations Transfer from land held for development Building improvements Tenant improvements Lease commissions Ending balance
$
$
(c) Rent receivable consists of the following: U.S. Government tenants Other Allowance for bad debt
(d) Change in other assets: Insurance claim receivable Prepaid insurance Prepaid property taxes Lease incentives, net Mortgage impounds In-place lease adjustment, net Other
12/31/06 $ 1,039 $ 1,341 $ (300) $ 2,080
06/30/07 473 2,795 151 1,876 1,634 538 2,095 $ 9,562
12/31/06 $ 1,359 922 2,184 2,148 1,063 656 3,822 $ 12,154
06/30/07 6,312 7,077 18,740 947 2,703 8,195 $ 43,974
12/31/06 $ 6,883 4,905 17,879 3,031 9,696 $ 42,394
$
(e) Accrued and other liabilities consists of: Prepaid rent Accrued property taxes Security deposits In-place lease ajustment, net Reserves for acquisition costs Other
(f)
06/30/07 1,040 1,263 (300) $ 2,003 $
$
Change in paid-in capital: Beginning paid-in capital Shelf registration Issuance of preferred stock Exercise of stock options Restricted stock and stock compensation Adjustment to reflect minority interest to underlying ownership Ending paid in capital
(g) Change in cumulative distributions: Beginning cumulative distributions Distributions to preferred shareholders Distributions to common shareholders Ending cumulative distributions
1,793,219 116,243 2,468 1,142 4,891 7,501 2,412 1,927,876 Change
$
$
1 (78) (77)
Change (886) 1,873 (2,033) (272) 571 (118) (1,727) $ (2,592) $
Change (571) 2,172 861 947 (328) (1,501) $ 1,580
$
$
$
$
$
6
66,282 90,944 (131,084) 46,295 72,437
398,048 (88) (4,183) 365 1,148 606 395,896
398,961 25,425 15,571 439,957
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED (in thousands, except per share amounts)
06/30/07 Revenues: Rental income Facility management fees Total operating revenues
$
67,275 182 67,457
Increase (Decrease)
06/30/06
$
59,159 146 59,305
$
8,116 (a) 36 8,152
13.7% 24.7% 13.7%
2,827 (b) 3,966 240 (c) 7,033
15.5% 18.9% 12.8% 17.1%
(384) 495 (d) (879)
(24.4%) 95.7% (83.2%)
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
21,022 24,916 2,112 48,050
Other income and expenses: Interest and other income Interest expense Total other income and expenses
1,189 (1,012) 177
Income from continuing operations before minority interests
19,584
19,344
Minority interests in continuing operations: Minority interest in income - preferred units Minority interest in income - common units Total minority interests in continuing operations
(1,752) (1,294) (3,046)
(2,781) (1,097) (3,878)
(1,029) 197 (832)
Income from continuing operations
16,538
15,466
1,072
Discontinued operations: Loss from discontinued operations Gain on disposition of real estate Minority interest in earnings attributable to discontinued operations - common units Income from discontinued operations
18,195 20,950 1,872 41,017
1,573 (517) 1,056
% Change
240
1.2%
(37.0%) 18.0% (21.5%) 6.9%
-
(28) 1,617
(28) (e) (1,617)
(100.0%) (100.0%)
-
(404) 1,185
(404) (1,185)
(100.0%) (100.0%)
Net Income
16,538
16,651
(113)
(0.7%)
Net Income allocable to preferred shareholders Preferred distributions Redemption of preferred stock Total preferred distributions
12,757 12,757
10,598 1,658 12,256
2,159 (1,658) 501
20.4% (100.0%) 4.1%
Net Income allocable to common shareholders
$
3,781
$
4,395
$
(614)
(14.0%)
Net income per common share - basic: Continuing operations Discontinued operations Net Income
$ $ $
0.18 0.18
$ $ $
0.15 0.06 0.21
$ $ $
0.03 (0.06) (0.03)
20.0% (100.0%) (14.3%)
Net income per common share - diluted: Continuing operations Discontinued operations Net Income
$ $ $
0.17 0.17
$ $ $
0.15 0.05 0.20
$ $ $
0.02 (0.05) (0.03)
13.3% (100.0%) (15.0%)
Weighted average common shares outstanding: Basic Diluted
21,334 21,681
7
21,311 21,585
23 96
0.1% 0.4%
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE THREE MONTHS ENDED (in thousands)
(a) Rental income: Same Park Acquisitions Straight-line rent
06/30/07 $ 59,144 8,080 51 $ 67,275
06/30/06 $ 56,039 2,089 1,031 $ 59,159
Change $ 3,105 5,991 (980) $ 8,116
(b) Cost of operations: Same Park Acquisitions
06/30/07 $ 18,207 2,815 $ 21,022
06/30/06 $ 17,474 721 $ 18,195
Change $ 733 2,094 $ 2,827
(c) General and administrative expenses: Compensation expense Stock compensation expense Professional fees Other
06/30/07 $ 815 808 161 328 $ 2,112
06/30/06 $ 726 587 212 347 $ 1,872
Change $ 89 221 (51) (19) $ 240
(d) Interest expense: Mortgage notes payable Facilities fees & other charges
06/30/07 $ 936 76 $ 1,012
06/30/06 $ 428 89 $ 517
Change $ 508 (13) $ 495
(e) Net loss from discontinued operations: Rental revenue Operating expenses Depreciation expense
06/30/07 $ $ -
06/30/06 $ (28) $ (28)
Change $ (28) $ (28)
8
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED (in thousands, except per share amounts)
6/30/2007 Revenues: Rental income Facility management fees Total operating revenues
$
132,399 365 132,764
6/30/2006
$
117,913 295 118,208
Increase (Decrease)
$
% Change
14,486 70 14,556
(a)
12.3% 23.7% 12.3%
(b)
14.7% 12.1% 8.3% 13.1%
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
41,461 46,556 3,814 91,831
36,141 41,536 3,522 81,199
5,320 5,020 292 10,632
Other income and expenses: Interest and other income Interest expense Total other income and expenses
2,990 (2,119) 871
3,573 (1,030) 2,543
(583) 1,089 (d) (1,672)
Income from continuing operations before minority interests
41,804
39,552
2,252
Minority interests in continuing operations: Minority interest in income - preferred units Minority interest in income - common units Total minority interests in continuing operations
(3,351) (3,324) (6,675)
(5,562) (2,665) (8,227)
(2,211) 659 (1,552)
Income from continuing operations
35,129
31,325
3,804
Discontinued operations: Loss from discontinued operations Gain on disposition of real estate Minority interest in earnings attributable to discontinued operations - common units Income from discontinued operations
(39.8%) 24.7% (18.9%) 12.1%
(125) (e) (2,328) (f)
(100.0%) (100.0%)
-
(560) 1,643
(560) (1,643)
(100.0%) (100.0%)
32,968
2,161
Net Income allocable to preferred shareholders Preferred distributions Redemption of preferred stock Total preferred distributions
25,425 25,425
21,853 1,658 23,511
3,572 (1,658) 1,914
Net income per common share - diluted: Continuing operations Discontinued operations
5.7%
(125) 2,328
35,129
Net income per common share - basic: Continuing operations Discontinued operations
(16.3%) 105.7% (65.7%)
-
Net Income
Net Income allocable to common shareholders
(c)
6.6%
16.3% (100.0%) 8.1%
$
9,704
$
9,457
$
247
$ $ $
0.46 0.46
$ $ $
0.37 0.08 0.44
$ $ $
0.09 (0.08) 0.02
24.3% (100.0%) 4.5%
$ $ $
0.45 0.45
$ $ $
0.36 0.08 0.44
$ $ $
0.09 (0.08) 0.01
25.0% (100.0%) 2.3%
Weighted average common shares outstanding: Basic Diluted
21,325 21,692
9
21,373 21,648
(48) (g) 44
2.6%
(0.2%) 0.2%
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE SIX MONTHS ENDED (in thousands)
(a) Rental income: Same Park Acquisitions Straight-line rent
06/30/07 $ 117,712 14,428 259 $ 132,399
06/30/06 $ 113,206 3,087 1,620 $ 117,913
Change $ 4,506 11,341 (1,361) $ 14,486
(b) Cost of operations: Same Park Acquisitions
06/30/07 $ 36,486 4,975 $ 41,461
06/30/06 $ 35,192 949 $ 36,141
Change $ 1,294 4,026 $ 5,320
(c) General and administrative: Compensation expense Stock compensation expense Professional fees Other
06/30/07 $ 1,649 1,171 330 664 $ 3,814
06/30/06 $ 1,500 1,009 391 622 $ 3,522
Change $ 149 162 (61) 42 $ 292
(d) Interest expense: Mortgage notes payable Facilities fees & other charges
06/30/07 $ 1,954 165 $ 2,119
06/30/06 $ 852 178 $ 1,030
Change $ 1,102 (13) $ 1,089
(e) Net loss from discontinued operations: Rental revenue Operating expenses Depreciation expense
06/30/07 $ $ -
06/30/06 $ (98) (27) $ (125)
Change $ (98) (27) $ (125)
(f) Gain on disposition of real estate
06/30/07 $ $ -
06/30/06 $ 865 1,463 $ 2,328
Change $ (865) (1,463) $ (2,328)
Woodside MICC Other
(g) Net decrease relates to stock repurchases partially offset by stock option exercises and vesting of restricted stock units.
10
PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (in thousands)
Six Months Ended June 30, 2007 Costs
Recurring capital expenditures (1) Capital improvements (2)
Cost per Weighted Average Square Foot
$4,891
$0.25
Tenant improvements
7,501
$0.39
Leasing commissions
2,412
$0.13
$14,804
$0.77
Total recurring capital expenditures Non-recurring capital expenditures Property renovations
$2,467
Total non-recurring capital expenditures
$2,467
(1)
The Company defines "recurring capital expenditures" as those capitalized costs necessary to continue to operate the property at its current economic value. Leasing costs in excess of $1,000 and capital improvements in excess of $2,000 with a useful life greater than 24 months are capitalized. It excludes deferred maintenance and leasing costs committed to by previous owners for acquired properties, 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 expenses were $9.5 million or approximately $0.49 per weighted average square foot for the six months ended June 30, 2007 compared to $8.2 million or approximately $0.46 per weighted average square foot for the six months ended June 30, 2006.
(2)
Major costs include roof, HVAC and parking lot replacement as well as other major repairs that extend the life of the respective componentsof the building.
11
Same Park Gross Operating Margin Percentage * 75.0% 74.0% 73.0% 72.0%
70.6% 70.2% 70.4%
71.0%
70.2% 69.4% 69.3% 69.3%
70.0%
69.1%
68.9%
69.2%
69.0% 68.0% 67.0% 66.0% 65.0% Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
|________2005_______| |________2006________| |_2007_| * Gross margin is computed by dividing property net operating income by rental income for Same Park properties owned in each period.
12
Change in Same Park Revenue * 5.7%
7.0%
5.2% 5.0% 4.4%
3.0% 1.0%
3.9%
4.0% 1.3% 3.0%
2.5%
0.8% 2.4%
-1.0% -3.0% -5.0% Q1
Q2
Q3
Q4
|___________2005___________|
Q1
Q2
Q3
Q4
|___________2006___________|
Q1
Q2
|_2007_|
* Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 and Q1 '07 exclude a $1.8 million bankruptcy settlement received in Q1' 06.
13
Change in Same Park NOI * 6.1%
5.5%
7.0% 5.0% 3.0%
2.5%
3.7%
5.2%
3.4%
3.6%
1.0%
-0.2%
-0.4%
-1.0% -0.8%
-3.0% -5.0% -7.0% Q1
Q2
Q3
Q4
|___________2005___________|
Q1
Q2
Q3
Q4
|___________2006___________|
Q1
Q2
|_2007_|
* Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 and Q1 '07 exclude a $1.8 million bankruptcy settlement received in Q1 '06.
14
PS BUSINESS PARKS, INC. PORTFOLIO CONCENTRATION SUMMARY (in thousands) Industry Concentration as of June 30, 2007 % of Total Rental Income 12.3% 11.0% 10.5% 9.4% 9.2% 8.9% 7.0% 5.8% 5.5% 4.0% 3.2% 86.8%
Business Services Government Financial Services Contractors Computer Hardware, Software and Related Service Warehouse, Transportation and Logistics Health Services Retail Communications Home Furnishings Electronics
Top Ten Customers by Total Annual Rental Income as of June 30, 2007
Tenant U.S. Government Kaiser Permanente Santa Clara County Intel Wells Fargo Bank AARP Northrop Grumman MCI American Intercontinental University Montgomery County Public Schools
Annualized Rental Income (1)
Square Footage 469 194 97 214 102 102 58 72 75 47 1,430
$
$
% of Total Annualized Rental Income
11,900 4,296 3,191 2,793 1,706 1,562 1,542 1,260 1,236 1,221 30,707
(1) For leases expiring within one year, annualized rental income represents income to be received under existing leases from June 30, 2007 through date of expiration.
15
4.4% 1.6% 1.2% 1.0% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 11.5%
Total Owned Rentable Square Footage by Region *
December 31, 2006 18,683 square feet (in thousands)
June 30, 2007 19,431 square feet (in thousands) S. California (20%)
S. California (21%)
N. California (9%)
N. California (9%)
S. Texas (6%)
S. Texas (6%)
N. Texas (9%)
N. Texas (9%)
Virginia (15%)
Virginia (15%)
Maryland (9%)
Maryland (9%) Oregon (7%)
Oregon (7%)
679
679
South Florida (19%)
521
Arizona (3%)
3,988
28
South Florida (20%) Arizona (4%)
3,985
Washington (0%)
Washington (3%)
3,596 3,597
* Square footage excludes discontinued operations.
1,567
1,818
1,314 1,314 1,161
1,161 1,770
1,770
1,689
1,689 2,894
2,894
* Square footage excludes discontinued operations.
16
PS BUSINESS PARKS, INC. TOTAL OWNED PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of June 30, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston Total Percentage by Product Type
Industrial 2,556 407 231 712 3,906 20.1%
Office 12 948 431 883 704 31 188 28 131 3,356 17.3%
Flex 631 1,946 981 887 1,458 911 861 1,126 787 768 679 493 398 243 12,169 62.6%
Total 3,199 2,894 1,819 1,770 1,689 1,615 1,604 1,314 787 768 679 521 398 374 19,431 100.0%
% 16.5% 14.9% 9.4% 9.1% 8.7% 8.3% 8.2% 6.8% 4.0% 4.0% 3.5% 2.7% 2.0% 1.9% 100.0%
Average Occupancy Rates by Product Type for the Three Months Ended June 30, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston
Industrial 99.6% 85.8% 100.0% 98.9% 98.1%
Office 100.0% 93.3% 93.6% 92.6% 94.8% 94.7% 96.3% 94.0% 92.7% 93.7%
Flex 96.2% 93.9% 88.8% 97.7% 82.1% 94.1% 93.6% 89.3% 93.9% 94.0% 89.0% 87.8% 93.6% 87.9% 91.4%
Total 98.9% 93.7% 89.2% 95.2% 84.6% 94.4% 96.0% 90.3% 93.9% 94.0% 89.0% 88.1% 93.6% 89.6% 93.1%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended June 30, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston
Large Tenant
Small Tenant
99.3% 93.2% 91.5% 95.5% 85.0% 95.6% 98.9% 90.0% 93.5% 94.1%
95.9% 94.6% 87.0% 92.3% 82.6% 93.3% 93.7% 91.9% 94.9% 94.0% 89.0% 88.1% 93.6% 89.6% 91.6%
Total 98.9% 93.7% 89.2% 95.2% 84.6% 94.4% 96.0% 90.3% 93.9% 94.0% 89.0% 88.1% 93.6% 89.6% 93.1%
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.
17
PS BUSINESS PARKS, INC. SAME PARK PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of June 30, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston Total Percentage by Product Type
Industrial
Office
2,556 231 712 407 3,906 22.3%
12 948 704 31 430 188 719 131 3,163 18.1%
Flex 631 1,839 1,458 911 772 663 1,126 520 787 768 679 28 243 10,425 59.6%
Total 3,199 2,787 1,689 1,615 1,515 1,500 1,314 1,239 787 768 679 28 374 17,494 100.0%
% 18.3% 15.9% 9.6% 9.2% 8.7% 8.6% 7.5% 7.1% 4.5% 4.4% 3.9% 0.2% 2.1% 100.0%
Average Occupancy Rates by Product Type for the Three Months Ended June 30, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston
Industrial
Office
99.6% 100.0% 98.9% 85.8% 98.1%
100.0% 93.3% 94.8% 94.7% 93.6% 96.3% 92.9% 92.7% 93.8%
Flex 96.2% 94.2% 82.1% 94.1% 95.7% 93.9% 89.3% 97.7% 93.9% 94.0% 89.0% 93.8% 87.9% 91.8%
Total 98.9% 94.0% 84.6% 94.4% 97.2% 91.6% 90.4% 94.9% 93.9% 94.0% 89.0% 93.8% 89.6% 93.6%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended June 30, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston
Large Tenant Small Tenant 99.3% 93.5% 85.0% 95.6% 98.9% 91.5% 90.0% 94.9% 93.5% 94.0%
95.9% 94.6% 82.6% 93.3% 95.7% 91.9% 91.9% 96.6% 94.9% 94.0% 89.0% 93.8% 89.6% 92.7%
Total 98.9% 94.0% 84.6% 94.4% 97.2% 91.6% 90.4% 94.9% 93.9% 94.0% 89.0% 93.8% 89.6% 93.6%
Note: Includes all properties owned since January 1, 2006. 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.
18
Total Owned Portfolio Weighted Average Occupancy * 97.0% 96.0% 95.0% 93.3%
94.0% 93.0%
93.0%
Q3
Q4
93.9%
92.8%
93.2%
93.1%
91.8%
92.0% 91.0%
92.4%
94.0%
90.8%
90.0% 89.0% 88.0% 87.0% Q1
Q2
|___________2005___________|
Q1
Q2
Q3
Q4
|___________2006___________|
* Represents the weighted average occupancy for total owned portfolio held in continuing operations as reported in each period.
19
Q1
Q2
|_2007_|
Same Park Weighted Average Occupancy * 96.0% 95.0% 94.1%
94.0%
93.0%
92.7%
94.0%
93.6% 93.4%
93.2%
92.4%
93.0% 91.8%
92.0% 90.8%
91.0% 90.0% 89.0% Q1
Q2
Q3
Q4
|____________2005____________|
Q1
Q2
Q3
Q4
Q1
|____________2006____________|
* Represents the Same Park weighted average occupancy as reported in each period.
20
Q2 |_2007_|
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of June 30, 2007 (in thousands) Lease Expirations - Flex Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 1,283 2,714 2,604 1,308 1,017 2,274 11,200
Annual Rents $
17,757 40,774 38,191 19,680 18,475 41,639 176,516
$
% 10.1% 23.1% 21.6% 11.1% 10.5% 23.6% 100.0%
% of Company Annual rents 6.3% 14.4% 13.5% 6.9% 6.5% 14.7% 62.3%
Lease Expirations - Office Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 249 683 533 678 411 616 3,170
Annual Rents $
5,978 15,440 11,323 16,599 10,487 15,931 75,758
$
% 7.9% 20.5% 14.9% 21.9% 13.8% 21.0% 100.0%
% of Company Annual rents 2.1% 5.4% 4.0% 5.9% 3.7% 5.6% 26.7%
Lease Expirations - Industrial Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 260 856 905 942 505 396 3,864
Annual Rents $
2,093 6,665 7,349 7,504 4,392 3,029 31,032
$
% 6.7% 21.5% 23.7% 24.2% 14.1% 9.8% 100.0%
% of Company Annual rents 0.7% 2.4% 2.6% 2.6% 1.6% 1.1% 11.0%
Lease Expirations - Total Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 1,792 4,253 4,042 2,928 1,933 3,286 18,234
Annual Rents $
$
21
25,828 62,879 56,863 43,783 33,354 60,599 283,306
% 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
% of Company Annual rents 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of June 30, 2007 (in thousands) Southern California Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage
Annual Rents
338 1,007 949 708 380 421 3,803
$
5,751 16,844 16,094 11,777 6,665 11,045 68,176
$
% 8.4% 24.7% 23.6% 17.3% 9.8% 16.2% 100.0%
% of Company Annual rents 2.0% 5.9% 5.7% 4.2% 2.4% 3.9% 24.1%
Northern California Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage
Annual Rents
229 525 355 185 97 251 1,642
$
3,231 9,119 4,450 2,078 1,322 3,782 23,982
$
% 13.5% 37.9% 18.6% 8.7% 5.5% 15.8% 100.0%
% of Company Annual rents 1.1% 3.2% 1.6% 0.7% 0.5% 1.4% 8.5%
Southern Texas Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 107 317 276 119 52 232 1,103
Annual Rents $
1,005 3,390 2,853 1,310 627 3,201 12,386
$
% 8.1% 27.4% 23.0% 10.6% 5.1% 25.8% 100.0%
% of Company Annual rents 0.4% 1.2% 1.0% 0.5% 0.2% 1.1% 4.4%
Northern Texas Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 84 163 220 183 103 763 1,516
Annual Rents $
$
22
920 1,595 1,765 1,557 1,244 9,386 16,467
% 5.6% 9.7% 10.7% 9.5% 7.6% 56.9% 100.0%
% of Company Annual rents 0.3% 0.6% 0.6% 0.6% 0.4% 3.3% 5.8%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of June 30, 2007 (in thousands) South Florida Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage
Annual Rents
440 862 786 745 431 224 3,488
$
4,466 7,349 7,472 6,566 4,379 2,501 32,733
% 13.6% 22.5% 22.8% 20.1% 13.4% 7.6% 100.0%
% of Company Annual rents 1.6% 2.6% 2.7% 2.3% 1.5% 0.9% 11.6%
Northern Virginia Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 141 656 517 438 159 858 2,769
Annual Rents $
$
2,265 12,585 9,444 8,583 3,437 19,369 55,683
% 4.1% 22.5% 17.0% 15.4% 6.2% 34.8% 100.0%
% of Company Annual rents 0.8% 4.4% 3.3% 3.0% 1.2% 6.8% 19.5%
Maryland Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 196 217 267 317 339 358 1,694
Annual Rents $
$
4,784 5,044 4,933 7,939 8,861 8,384 39,945
% 12.0% 12.6% 12.3% 19.9% 22.2% 21.0% 100.0%
% of Company Annual rents 1.7% 1.8% 1.7% 2.7% 3.2% 3.0% 14.1%
Oregon Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 74 249 328 102 302 80 1,135
Annual Rents $
$
23
1,249 3,652 5,425 2,082 5,753 1,508 19,669
% 6.4% 18.6% 27.6% 10.6% 29.2% 7.6% 100.0%
% of Company Annual rents 0.4% 1.3% 1.9% 0.8% 2.0% 0.5% 6.9%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of June 30, 2007 (in thousands) Washington Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 59 124 143 56 48 35 465
Annual Rents $
% 785 1,703 1,890 924 790 735 6,827
$
11.5% 24.9% 27.7% 13.5% 11.6% 10.8% 100.0%
% of Company Annual rents 0.3% 0.6% 0.7% 0.3% 0.3% 0.3% 2.5%
Arizona Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 124 133 201 75 22 64 619
Annual Rents $
% 1,372 1,598 2,537 967 276 688 7,438
$
18.4% 21.5% 34.1% 13.0% 3.7% 9.3% 100.0%
% of Company Annual rents 0.5% 0.6% 0.9% 0.3% 0.1% 0.2% 2.6%
Total Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter
Leased Square Footage 1,792 4,253 4,042 2,928 1,933 3,286 18,234
Annual Rents $
$
24
25,831 62,879 56,863 43,783 33,354 60,599 283,309
% 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
% of Company Annual rents 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of June 30, 2007 (in thousands) Lease Expirations - Large Tenant Portfolio Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter Total
Leased Square Footage 678 2,285 2,236 1,977 1,456 2,585 11,217
Annual Rents $
9,481 31,704 27,986 26,686 24,212 45,489 165,558
$
% 5.7% 19.1% 17.0% 16.1% 14.6% 27.5% 100.0%
% of Company Annual rents 3.3% 11.2% 9.9% 9.4% 8.5% 16.1% 58.4%
Lease Expirations - Small Tenant Portfolio Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter Total
Leased Square Footage 1,114 1,968 1,806 951 477 701 7,017
Annual Rents $
16,347 31,175 28,877 17,097 9,142 15,110 117,748
$
% 13.9% 26.5% 24.5% 14.5% 7.8% 12.8% 100.0%
% of Company Annual rents 5.8% 11.0% 10.2% 6.0% 3.3% 5.3% 41.6%
Lease Expirations - Total Year of Lease Expiration 2007 2008 2009 2010 2011 Thereafter Total
Leased Square Footage 1,792 4,253 4,042 2,928 1,933 3,286 18,234
Annual Rents $
$
25
25,828 62,879 56,863 43,783 33,354 60,599 283,306
% 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
% of Company Annual rents 9.1% 22.2% 20.1% 15.4% 11.8% 21.4% 100.0%
