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Analysis of Operating Results and Financial Condition September 30, 2006
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 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. THIRD QUARTER FACT SHEET (in thousands, except per share amounts)
OPERATING DATA FOR THE THREE MONTHS ENDED 09/30/06 09/30/05 % Change
FOR THE NINE MONTHS ENDED 09/30/06 09/30/05 % Change
Total operating revenues Net income allocable to common shareholders
$ $
61,842 3,478
$ $
54,799 14,264
12.9% (75.6%)
$ $
180,050 12,935
$ $
164,240 27,360
9.6% (52.7%)
Net income per common share - diluted: Continuing operations Discontinued operations Net income per common share - diluted
$ $ $
0.16 0.16
$ $ $
0.18 0.47 0.65
(11.1%) (100.0%) (75.4%)
$ $ $
0.52 0.08 0.60
$ $ $
0.58 0.66 1.24
(10.3%) (87.9%) (51.6%)
Weighted average common shares outstanding - basic
21,290
21,858
(2.6%)
21,345
21,867
(2.4%)
Weighted average common shares outstanding - diluted Weighted average common OP units outstanding Total fully-converted diluted shares
21,599 7,305 28,904
22,030 7,305 29,335
(2.0%) 0.0% (1.5%)
21,630 7,305 28,935
22,050 7,305 29,355
(1.9%) 0.0% (1.4%)
FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED 09/30/06 09/30/05 % Change FFO allocable to common shareholders, before adjustments EITF Topic D-42 Footstar Bankruptcy Settlement FFO allocable to common shareholders, reported
$
$
28,213 $ (1,366) 26,847 $
Diluted FFO per common share and units - before adjustments Diluted FFO per common share and units - as reported
$ $
0.98 0.93
FOR THE NINE MONTHS ENDED 09/30/06 09/30/05 % Change
25,770 25,770
9.5% (100.0%) 0.0% 4.2%
$
$
79,978 $ (3,024) 1,810 78,764 $
0.88 0.88
11.4% 5.7%
$ $
2.76 2.72
$ $
$ $
77,712 (301) 77,411 2.65 2.64
2.9% 904.7% 100.0% 1.7% 4.2% 3.0%
PROPERTY INFORMATION FOR THE THREE MONTHS ENDED 09/30/06 09/30/05 % 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)
$ $
18,218 94.0% 14.41 $ 13.55 $
17,258 92.5% 13.69 12.67
5.6% 1.6% 5.3% 6.9%
$ $
17,258 94.1% 14.10 $ 13.27 $
17,258 92.5% 13.69 12.66
0.0% 1.7% 3.0% 4.8%
FOR THE NINE MONTHS ENDED 09/30/06 09/30/05 % Change
$ $
18,218 93.3% 14.16 $ 13.22 $
17,258 92.0% 13.75 12.66
5.6% 1.4% 3.0% 4.4%
$ $
17,258 93.3% 13.91 $ 12.98 $
17,258 92.0% 13.75 12.65
0.0% 1.4% 1.2% 2.6%
(1) Amounts exclude discontinued operations. (2) Represents the annualized revenues earned per occupied square foot, less bankruptcy settlement of $1.8 million for the nine months ended September 30, 2006. (3) Represents the annualized revenues earned per total square foot, less bankruptcy settlement of $1.8 million for the nine months ended September 30, 2006. BALANCE SHEET DATA 09/30/06 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
$ $ $ $ $ $
12/31/05
1,442,588 82,750 165,694 622,500 483,020 21,296 22.68
$ $ $ $ $ $
% Change
1,463,678 135,750 169,451 593,350 500,108 21,561 23.20
(1.4%) (39.0%) (2.2%) 4.9% (3.4%) (1.2%) (2.2%)
MARKET VALUE INFORMATION 09/30/06 Market value of common stock and common OP units
$
Total debt Total preferred stock and preferred OP units
1,724,665
12/31/05 $
% Change
1,420,204
21.4%
43,267
25,893
67.1%
705,250
729,100
(3.3%)
Total market capitalization
$
2,473,182
$
2,175,197
13.7%
Stock price at the end of the period
$
60.30
$
49.20
22.6%
1
PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS (in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED 09/30/06 09/30/05
Increase (Decrease)
FOR THE NINE MONTHS ENDED 09/30/06 09/30/05
% 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
$
3,478
$
22,184 1,185 26,847
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
$
$
21,290 7,305 309 28,904
14,264
$
(10,786)
(75.6%)
(12,599) 19,318 4,787 25,770 $
(12,599) 2,866 (3,602) 1,077
(100.0%) 14.8% (75.2%) 4.2%
(568) 137 (431)
(2.6%) 0.0% 79.7% (1.5%)
21,858 7,305 172 29,335
$
12,935
$
$
(2,328) 63,747 4,410 78,764 $ 21,345 7,305 285 28,935
27,360
$
(14,425)
(52.7%)
(16,529) 57,418 9,162 77,411 $
(14,201) 6,329 (4,752) 1,353
(85.9%) 11.0% (51.9%) 1.7%
(522) 102 (420)
(2.4%) 0.0% 55.7% (1.4%)
21,867 7,305 183 29,355
$
0.93
$
0.88
$
0.05
5.7%
$
2.72
$
2.64
$
0.08
3.0%
Funds from operations Adjustments: Maintenance capital expenditures Tenant improvements Lease commissions Straight-line rent Stock compensation expense In-place rents adjustment Lease incentives net of tenant improvement reimbursements Redemption amount over carrying amount related to redeemed preferred equity
$
26,847
$
25,770
$
1,077
4.2%
$
78,764
$
77,411
$
1,353
1.7%
FAD
$
20,367
$
15,258
Diluted FAD per common share/OP unit
$
0.70
$
0.52
$
20,367 $ (6,176) (2,119) 12,072 $
Funds available for distribution (FAD):
(3,548) (3,166) (1,261) (817) 762 60 124
(3,385) (4,728) (1,757) (1,017) 315 38 22
163 (1,562) (496) (200) 447 22 102
4.8% (33.0%) (28.2%) (19.7%) 141.9% 57.9% 463.6%
(6,411) (12,248) (4,049) (2,437) 2,007 172 387
(4,889) (16,434) (4,990) (3,274) 749 116 22
1,366
-
1,366
100%
$
5,109
33.5%
$
59,209
$
49,012
$
0.18
34.6%
$
2.05
$
1.67
5,109 (154) 5,263
33.5% (2.4%) 0.0% 77.3%
$
59,209 $ (18,538) (6,356) 34,315 $
49,012 $ (19,021) (6,356) 23,635 $
10,197 (483) 10,680
20.8% (2.5%) 0.0% 45.2%
(14.7%)
(26.5%)
42.0%
51.8%
(9.8%)
(18.9%)
3,024
1,522 (4,186) (941) (837) 1,258 56 365
31.1% (25.5%) (18.9%) (25.6%) 168.0% 48.3% 1659.1%
2,723
904.7%
$
10,197
20.8%
$
0.38
22.8%
301
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
$
40.7%
15,258 $ (6,330) (2,119) 6,809 $ 55.4%
2
$
Reported Diluted FFO Per Common Share/OP Unit $0.95 $0.89
$0.90 $0.85 $0.80
$0.88 $0.88
$0.87
$0.88
$0.93
$0.92 $0.86
$0.87
$0.81 $0.76
$0.75 $0.70 $0.65 $0.60 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06
3
PS BUSINESS PARKS, INC. CAPITAL STRUCTURE (in thousands)
As of September 30, 2006 % of Total Market WTD Average Total Capitalization Rate
As of December 31, 2005 % of Total Market WTD Average Total Capitalization Rate
Long-Term Debt: 8.190% mortgage note, due March 2007 7.290% mortgage note, due February 2009 5.730% mortgage note, due March 2013 6.150% mortgage note, due November 2031 (includes unamortized premium of $1.1 million on $16.8 million mortgage note with stated rate of 7.200%)
$
5,079 5,530 14,800 17,858
Total mortgage notes payable (1)
$
43,267
1.7%
5,302 5,645 14,946 -
6.39%
25,893
-
-
6.39%
25,893
1.2%
6.57%
Short-Term Debt: $100 million unsecured line of credit Total short-term debt
-
Total debt
-
43,267
1.7%
-
-
1.2%
6.57%
Preferred Equity
8.750% Series F preferred stock (2,000,000 depositary shares outstanding) callable 1/28/07 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 9.500% Series D preferred stock (2,634,000 depositary shares outstanding) redeemed 5/10/06 9.250% Series E preferred operating partnership units (2,120,000 units outstanding) redeemed 9/21/06
50,000 20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 95,000 -
Total preferred equity
705,250
28.5%
7.37%
729,100
33.5%
7.70%
Total debt and preferred equity
748,517
30.3%
7.32%
754,993
34.7%
7.66%
1,060,781 359,423 1,420,204
65.3%
2,175,197
100%
Common stock (21,296,054 and 21,560,593 shares outstanding as of September 30, 2006 and December 31, 2005, respectively) Common operating partnership units (7,305,355 units outstanding as of September 30, 2006 and December 31, 2005) Total common equity (2) Total market capitalization
(1)
50,000 20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 65,850 53,000
$
$
1,284,152 440,513 1,724,665
$ 69.8%
2,473,182
100%
$
Principal maturity dates are represented by the following chart: Principal Maturity Dates 2006
Park East I & II Park East III Rose Canyon Meadows Meadows Loan Premium
$77 40 57 54 45 273
$
(2)
2007
Closing stock price was $60.30 and $49.20 as of September 30, 2006 and December 31, 2005, respectively.
4
$
$5,002 167 233 223 188 5,813
2008
$
$179 244 237 198 858
2009
$5,144 261 258 208 $ 5,871
2010
$
Thereafter
$277 278 218 773
$
$13,728 15,741 210 29,679
Total
$
$5,079 5,530 14,800 16,791 1,067 43,267
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
09/30/06
12/31/05
Increase (Decrease)
% Change
ASSETS Cash and cash equivalents
$
Real estate facilities, at cost: Land Buildings and equipment
$
417,597 1,307,686 1,725,283 (418,948) 1,306,335 9,019 1,315,354
Accumulated depreciation Properties held for disposition, net Land held for development
Rent receivable Deferred rent receivables Other assets Total assets
92,800
200,447
$
383,308 1,189,815 1,573,123 (355,228) 1,217,895 5,366 9,011 1,232,272
(107,647)
34,289 117,871 152,160 63,720 88,440 (5,366) 8 83,082
2,369 21,087 10,978 $ 1,442,588
2,678 18,650 9,631 $ 1,463,678
$
$
$
$
(a)
(b)
(c)
(309) 2,437 1,347 (21,090)
(d)
6,231 17,374
(f)
(e)
(53.7%)
8.9% 9.9% 9.7% 17.9% 7.3% (100.0%) 0.1% 6.7% (11.5%) 13.1% 14.0% (1.4%)
LIABILITIES AND SHAREHOLDERS' EQUITY Accrued and other liabilities Mortgage notes payable
45,357 43,267
Total liabilities
Total liabilities and shareholders' equity
15.9% 67.1%
88,624
65,019
23,605
82,750 165,694
135,750 169,451
(53,000) (3,757)
(39.0%) (2.2%)
622,500 213 395,897 466,527 (379,617) 1,105,520
593,350 215 407,380 418,823 (326,310) 1,093,458
29,150 (2) (11,483) 47,704 53,307 12,062
4.9% (0.9%) (2.8%) 11.4% 16.3% 1.1%
Minority interests: Preferred units Common units Shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Cumulative distributions Total shareholders' equity
39,126 25,893
$ 1,442,588
5
$ 1,463,678
$
(21,090)
36.3%
(g) (h)
(1.4%)
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 used in financing activities Ending cash balance
$
$
(b) Change in real estate facilities, at cost: Beginning balance Property acquisitions Property renovations Maintenance capital expenditures Tenant improvements Lease commissions Ending balance
$
$
(c) Change in properties held for disposition, net: Beginning balance Disposition of real estate Capital expenditures and depreciation Ending balance
$
(d) Rent receivable consists of the following: U.S. Government tenants Other Allowance for bad debt
(e) Change in other assets: Insurance claim receivable Prepaid insurance Lease incentives, net Mortgage impounds In place rent adjustment, net Other
(f)
09/30/06 1,132 1,537 (300) $ 2,369
12/31/05 $ 1,479 1,499 (300) $ 2,678
09/30/06 1,063 1,778 2,199 866 716 4,356 $ 10,978
12/31/05 $ 1,619 845 2,422 407 456 3,882 $ 9,631
09/30/06 5,972 9,880 17,322 3,637 8,546 $ 45,357
12/31/05 $ 6,272 5,095 15,964 3,820 7,975 $ 39,126
$
$
Accrued and other liabilities consists of: Prepaid rent Accrued property taxes Security deposits Reserves for acquisition costs Other
$
(g) Change in paid-in capital: Beginning paid-in capital Repurchase of common stock Redemption of preferred equity (EITF Topic D-42) 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
(h) Change in cumulative distributions: Beginning cumulative distributions Distributions to preferred shareholders Distributions to common shareholders Ending cumulative distributions
1,573,123 126,709 2,743 6,411 12,248 4,049 1,725,283
5,366 (5,337) (29) -
Change (347) 38 $ (309) $
Change (556) 933 (223) 459 260 474 $ 1,347 $
Change (300) 4,785 1,358 (183) 571 $ 6,231
$
$
$
$
$
6
200,447 126,803 (125,833) (108,617) 92,800
407,380 (16,114) 3,024 (2,689) 842 1,642 1,812 395,897
326,310 34,769 18,538 379,617
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED (in thousands, except per share amounts)
09/30/06 Revenues: Rental income Facility management fees Total operating revenues
$
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
61,695 147 61,842
$
19,213 22,184 1,742 43,139
Other income and expenses: Interest and other income Interest expense Total other income and expenses
Increase (Decrease)
09/30/05
54,654 145 54,799
$
16,182 19,291 1,499 36,972
1,884 (628) 1,256
1,400 (304) 1,096
% Change
7,041 (a) 2 7,043
12.9% 1.4% 12.9%
3,031 (b) 2,893 243 (c) 6,167
18.7% 15.0% 16.2% 16.7%
484 324 (d) 160
34.6% 106.6% 14.6%
Income from continuing operations before minority interests
19,959
18,923
1,036
Minority interests in continuing operations: Minority interest in income - preferred units Distributions to preferred unit holders Redemption of preferred operating partnership units Minority interest in income - common units Total minority interests in continuing operations
(2,672) (1,366) (1,185) (5,223)
(2,460) (1,321) (3,781)
212 1,366 (136) 1,442
8.6% 100.0% (10.3%) 38.1%
Income from continuing operations
14,736
15,142
(406)
(2.7%)
-
1,244 12,599
(1,244) (e) (12,599)
(100.0%) (100.0%)
-
(3,466) 10,377
(3,466) (10,377)
(100.0%) (100.0%)
Net Income
14,736
25,519
(10,783)
(42.3%)
Net Income allocable to preferred shareholders Preferred distributions
11,258
11,255
Discontinued operations: (Loss) income from discontinued operations Gain on disposition of real estate Minority interest in earnings attributable to discontinued operations - common units Income from discontinued operations
3
5.5%
0.0%
Net Income allocable to common shareholders
$
3,478
$
14,264
$
(10,786)
(75.6%)
Net income per common share - basic: Continuing operations Discontinued operations Net Income
$ $ $
0.16 0.16
$ $ $
0.18 0.47 0.65
$ $ $
(0.02) (0.47) (0.49)
(11.1%) (100.0%) (75.4%)
Net income per common share - diluted: Continuing operations Discontinued operations Net Income
$ $ $
0.16 0.16
$ $ $
0.18 0.47 0.65
$ $ $
(0.02) (0.47) (0.49)
(11.1%) (100.0%) (75.4%)
Weighted average common shares outstanding: Basic Diluted
21,290 21,599
7
21,858 22,030
(568) (f) (431)
(2.6%) (2.0%)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 (in thousands)
September 30,
(a) Rental income for the three months ended: Same Park Acquisitions Straight-line rent
2006 $ 56,434 4,444 817 $ 61,695
$
$
2005 53,637 1,017 54,654
Change $ 2,797 4,444 (200) $ 7,041
September 30,
(b) Cost of operations for the three months ended: Same Park Acquisitions
2006 $ 17,608 1,605 $ 19,213
(c) General and administrative expenses for the three months ended:
$
2005 16,182 16,182
Change $ 1,426 1,605 $ 3,031
September 30,
2006 $ 778 551 172 241 $ 1,742
Compensation expense Long term stock compensation expense Professional fees Other
$
2005 $
806 178 120 395 1,499
$
Change $ (28) 373 52 (154) $ 243
(d) Interest expense for the three months ended: September 30,
2006 $ 533 95 $ 628
Mortgage notes payable Facilities fees & other charges
2005 $
215 89 304
$
Change $ 318 6 $ 324
(e) Net income from discontinued operations for the three months ended: September 30,
2006 Rental revenue Operating expenses Depreciation expense
$
$
(f) Net decrease relates to stock repurchases partially offset by stock option exercises and vesting of restricted stock units.
8
-
$ $ $ $
2005 1,826 (555) (27) 1,244
Change $ (1,826) $ 555 $ 27 $ (1,244)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED (in thousands, except per share amounts)
09/30/06 Revenues: Rental income Facility management fees Total operating revenues
$
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
179,608 442 180,050
Increase (Decrease)
09/30/05
$
55,354 63,720 5,264 124,338
163,806 434 164,240
$
48,675 56,203 4,263 109,141
15,802 (a) 8 15,810
9.6% 1.8% 9.6%
6,679 (b) 7,517 1,001 (c) 15,197
13.7% 13.4% 23.5% 13.9%
2,677 792 (d) 1,885
96.3% 91.5% 98.5%
Other income and expenses: Interest and other income Interest expense Total other income and expenses
5,457 (1,658) 3,799
Income from continuing operations before minority interests
59,511
57,013
2,498
Minority interests in continuing operations: Minority interest in income - preferred units Distributions to preferred unit holders Redemption of preferred operating partnership units Minority interest in income - common units Total minority interests in continuing operations
(8,234) (1,366) (3,850) (13,450)
(7,842) (301) (4,302) (12,445)
392 1,065 (452) 1,005
46,061
44,568
1,493
Income from continuing operations Discontinued operations: (Loss) income from discontinued operations Gain on disposition of real estate Minority interest in earnings attributable to discontinued operations - common units Income from discontinued operations
2,780 (866) 1,914
% Change
4.4%
5.0% 353.8% (10.5%) 8.1% 3.3%
(125) 2,328
2,880 16,529
(3,005) (e) (14,201)
(104.3%) (85.9%)
(560) 1,643
(4,860) 14,549
(4,300) (12,906)
(88.5%) (88.7%)
Net Income
47,704
59,117
(11,413)
(19.3%)
Net Income allocable to preferred shareholders Preferred distributions Redemption of preferred stock Total preferred distributions
33,111 1,658 34,769
31,757 31,757
1,354 1,658 3,012
4.3% 100.0% 9.5%
Net Income allocable to common shareholders
Net income per common share - basic: Continuing operations Discontinued operations
Net income per common share - diluted: Continuing operations Discontinued operations
Weighted average common shares outstanding: Basic Diluted
$
12,935
$
27,360
$
(14,425)
(52.7%)
$ $ $
0.53 0.08 0.61
$ $ $
0.59 0.67 1.25
$ $ $
(0.06) (0.59) (0.64)
(10.2%) (88.1%) (51.2%)
$ $ $
0.52 0.08 0.60
$ $ $
0.58 0.66 1.24
$ $ $
(0.06) (0.58) (0.64)
(10.3%) (87.9%) (51.6%)
21,345 21,630
9
21,867 22,050
(522) (f) (420)
(2.4%) (1.9%)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (in thousands)
September 30,
(a) Rental income for the nine months ended: Same Park Acquisitions Straight-line rent
2006 $ 167,800 9,371 2,437 $ 179,608
(b) Cost of operations for the nine months ended: Same Park Acquisitions
2006 $ 52,181 3,173 $ 55,354
2005 $ 160,532 3,274 $ 163,806
Change $ 7,268 9,371 (837) $ 15,802
September 30,
(c) General and administrative expenses for the nine months ended:
Change $ 3,506 3,173 $ 6,679
September 30,
2006 $ 2,278 1,547 563 876 $ 5,264
Compensation expense Long term stock compensation expense Professional fees Other
2005 48,675 $ 48,675
$
2005 2,347 431 558 927 $ 4,263
$
Change $ (69) 1,116 5 (51) $ 1,001
(d) Interest expense for the nine months ended: September 30,
2006 $ 1,385 273 $ 1,658
Mortgage notes payable Facilities fees & other charges
2005 651 215 $ 866
$
Change $ 734 58 $ 792
(e) Net operating (loss) income from discontinued operations for the nine months ended: September 30,
2006 Rental revenue Operating expenses Depreciation expense
$
$
(f) Net decrease relates to stock repurchases partially offset by stock option exercises and vesting of restricted stock units.
10
$ (98) (27) (125) $
2005 Change 5,823 $ (5,823) (1,728) 1,630 (1,215) 1,188 2,880 $ (3,005)
PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (in thousands)
Nine Months Ended September 30, 2006 Costs
Recurring capital expenditures (1)
Cost per Weighted Average Square Foot
Maintenance capital expenditures (2)
$6,411
$0.36
Tenant improvements
12,249
$0.68
Leasing commissions
4,049
$0.23
$22,709
$1.27
Total recurring capital expenditures Non-recurring capital expenditures Property renovations
$2,750
Total non-recurring capital expenditures
$2,750
(1)
The company defines "recurring capital expenditures" as those capitalized costs necessary to continue to operate the property at its current economic value. Costs in excess of $1,000 for tenant improvements and $2,000 for maintenance capital expenditures 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, 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 $12.5 million or approximately $0.69 per weighted average square foot for the nine months ended September 30, 2006 compared to $11.6 million or $0.65 per weighted average square foot during the nine months ended September 30, 2005.
(2)
Major costs include roof and HVAC replacement, parking lot replacement and other major repairs that extend the life of the respective component of the building.
11
Same Park Gross Operating Margin Percentage * 75.0% 74.0%
72.7%
73.0% 72.0% 71.0%
72.1%
72.1%
71.1% 70.6% 70.2%
70.4% 69.4%
70.0%
69.3% 69.3%
69.1%
69.0% 68.0% 67.0% 66.0% 65.0% Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q2 '06 * 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 * 7.0%
5.7% 4.4%
5.0% 2.4%
3.0% 1.0%
0.0%
2.5%
Q4 '04
Q1 '05
3.0%
1.3%
Q3 '05
Q4 '05
0.8%
-1.8% -1.0% -3.0% -5.0%
-2.3% -3.1% Q1 '04
Q2 '04
Q3 '04
Q2 '05
Q1 '06
Q2 '06
Q3 '06
* Percentage represents the change over the comparative period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 excludes a $1.8 million bankruptcy settlement.
13
Change in Same Park NOI * 7.0%
5.5%
5.0% 3.4% 2.5%
3.0%
3.6% 0.6%
1.0%
-0.2% -0.8%
-1.0%
-0.4%
-3.9%
-3.0% -3.8%
-5.0% -5.2%
-7.0% Q1 '04
Q2 '04
Q3 '04
Q4 '04
Q1 '05
Q2 '05
Q3 '05
Q4 '05
Q1 '06
Q2 '06
Q3 '06
* Percentage represents the change over the comparative period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 excludes a $1.8 million bankruptcy settlement.
14
Total Owned Rentable Square Footage by Region *
December 31, 2005 (17,512 square feet, in thousands)
September 30, 2006 (18,218 square feet, in thousands) S. California (22%)
S. California (22%)
N. California (8%)
N. California (8%)
S. Texas (6%)
S. Texas (7%)
N. Texas (9%)
N. Texas (10%)
Virginia (16%)
Virginia (16%)
Maryland (10%)
Maryland (7%)
Oregon (7%)
679 3,985
3,199
Oregon (8%)
679
Florida (18%)
1,341
Arizona (4%)
Florida (18%)
3,896
3,187
1,372
1,500
1,500
* Square footage excludes discontinued operations.
1,238
1,161
1,771 1,688
1,166
2,786
2,894
* Square footage excludes discontinued operations.
15
Arizona (4%)
1,688
PS BUSINESS PARKS, INC. PORTFOLIO CONCENTRATION SUMMARY (in thousands) Industry Concentration as of September 30, 2006 % of Total Rental Income 11.5% 11.2% 10.3% 9.8% 9.5% 9.4% 5.9% 4.9% 4.1% 3.3% 79.9%
Business Services Government Financial Services Contractors Computer Hardware, Software and Related Service Warehouse, Transportation and Logistics Retail Communications Home Funishings Electronics
Top Ten Customers by Total Annual Rental Income as of September 30, 2006
Tenant U.S. Government Kaiser Permanente Santa Clara County Intel Axcellis Technologies Wells Fargo Bank Northrop Grumman AARP MCI American Continental University
Annualized Rental Income (1)
Square Footage
% of Total Annualized Rental Income
483 194 97 214 89 102 58 102 72 75
$
12,957 3,857 3,175 2,814 1,802 1,651 1,539 1,510 1,227 1,222
5.2% 1.5% 1.3% 1.1% 0.7% 0.7% 0.6% 0.6% 0.5% 0.5%
1,486
$
31,754
12.7%
(1) For leases expiring within one year, annualized rental income represents income to be received under existing leases from September 30, 2006 through date of expiration.
16
PS BUSINESS PARKS, INC. TOTAL OWNED PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Industrial 2,556 231 712 407 3,906
Office 12 948 187 704 31 430 883 131 3,326
Flex 631 1,946 1,154 1,457 911 859 663 888 787 679 768 243 10,986
Total
%
3,199 2,894 1,341 1,688 1,615 1,602 1,500 1,771 787 679 768 374 18,218
17.6% 15.9% 7.4% 9.3% 8.9% 8.8% 8.2% 9.7% 4.3% 3.7% 4.2% 2.0% 100.0%
Average Occupancy Rates by Product Type for the Three Months Ended September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Industrial 98.4% 100.0% 97.3% 97.6% 98.2%
Office 100.0% 94.3% 90.5% 96.3% 99.0% 95.5% 95.1% 96.6% 95.0%
Flex 95.1% 94.4% 90.7% 78.3% 96.6% 96.4% 96.5% 97.9% 88.3% 96.1% 95.7% 84.6% 92.2%
Total 97.7% 94.4% 90.7% 81.3% 96.5% 96.8% 96.5% 96.5% 88.3% 96.1% 95.7% 88.8% 94.0%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Large Tenant 97.6% 92.7% 91.9% 81.7% 97.7% 97.3% 97.9% 97.4% 88.6% 93.9%
Small Tenant 98.5% 97.4% 85.1% 79.6% 95.4% 96.5% 94.4% 89.2% 87.7% 96.1% 95.7% 88.8% 94.1%
Total 97.7% 94.4% 90.7% 81.3% 96.5% 96.8% 96.5% 96.5% 88.3% 96.1% 95.7% 88.8% 94.0%
Note: Includes all properties reported in continuing operations as of September 30, 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.
17
PS BUSINESS PARKS, INC. SAME PARK PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Industrial 2,556 231 712 407 3,906
Office 12 948 187 704 31 430 719 131 3,162
Flex
Total
632 1,839 1,154 1,457 911 770 663 520 787 679 535 243 10,190
%
3,200 2,787 1,341 1,688 1,615 1,513 1,500 1,239 787 679 535 374 17,258
18.5% 16.0% 7.8% 9.8% 9.4% 8.8% 8.7% 7.2% 4.6% 3.9% 3.1% 2.2% 100.0%
Average Occupancy Rates by Product Type for the Three Months Ended September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Industrial 98.4% 100.0% 97.3% 97.6% 98.2%
Office 100.0% 94.3% 90.5% 96.3% 99.0% 95.5% 96.5% 96.6% 95.4%
Flex
Total
95.1% 95.2% 90.7% 78.3% 96.6% 96.7% 96.5% 98.8% 88.3% 96.1% 96.0% 84.6% 92.1%
97.7% 94.9% 90.7% 81.3% 96.5% 97.0% 96.5% 97.5% 88.3% 96.1% 96.0% 88.8% 94.1%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended September 30, 2006 Primary Markets Miami Northern Virginia Portland Dallas Orange County Los Angeles County Northern California Maryland Austin Phoenix San Diego County Houston
Large Tenant 97.6% 93.4% 91.9% 81.7% 97.7% 97.3% 97.9% 97.6% 88.6% 94.0%
Small Tenant 98.5% 97.4% 85.1% 79.6% 95.4% 96.8% 94.4% 91.2% 87.7% 96.1% 96.0% 88.8% 94.3%
Total 97.7% 94.9% 90.7% 81.3% 96.5% 97.0% 96.5% 97.5% 88.3% 96.1% 96.0% 88.8% 94.1%
Note: Includes all properties included in continuing operations owned since January 1, 2005. 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% 94.0%
94.0% 93.0%
92.4%
93.0%
92.8%
93.3%
Q3 '05
Q4 '05
Q1 '06
Q2 '06
91.8%
92.0% 90.8%
91.0% 89.6%
90.0% 88.7%
89.0% 88.2%
88.0%
87.9%
87.0% Q1 '04
Q2 '04
Q3 '04
Q4 '04
Q1 '05
Q2 '05
* Represents the weighted average occupancy for total owned portfolio held in continuing operations as reported in each period.
19
Q3 '06
Same Park Weighted Average Occupancy * 96.0% 95.0% 94.1%
94.0%
93.2% 93.0%
93.0%
92.7%
92.4% 91.8%
92.0% 90.8%
91.0%
90.4%
90.5%
90.5%
Q3 '04
Q4 '04
90.0%
90.0% 89.0% Q1 '04
Q2 '04
Q1 '05
Q2 '05
Q3 '05
Q4 '05
Q1 '06
Q2 '06
* Represents the Same Park weighted average occupancy as reported in each period.
20
Q3 '06
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of September 30, 2006 (in thousands) Lease Expirations - Flex Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 647 2,317 2,418 1,620 764 2,392 10,158
Annual Rents $
7,962 33,367 37,406 23,798 11,299 43,794 157,626
$
% 5.1% 21.2% 23.7% 15.1% 7.2% 27.7% 100.0%
% of Company Annual rents 3.0% 12.7% 14.3% 9.1% 4.3% 16.8% 60.2%
Lease Expirations - Office Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 118 467 687 484 559 851 3,166
Annual Rents $
2,920 10,078 15,745 10,067 13,746 21,807 74,363
$
% 3.9% 13.6% 21.2% 13.5% 18.5% 29.3% 100.0%
% of Company Annual rents 1.1% 3.9% 6.0% 3.8% 5.3% 8.3% 28.4%
Lease Expirations - Industrial Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 204 658 874 829 727 580 3,872
Annual Rents $
1,473 5,047 6,734 6,499 5,553 4,434 29,740
$
% 5.0% 17.0% 22.6% 21.9% 18.7% 14.8% 100.0%
% of Company Annual rents 0.6% 1.9% 2.6% 2.5% 2.1% 1.7% 11.4%
Lease Expirations - Total Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 969 3,442 3,979 2,933 2,050 3,823 17,196
Annual Rents $
$
21
12,355 48,492 59,885 40,364 30,598 70,035 261,729
% 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
% of Company Annual rents 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of September 30, 2006 (in thousands) Southern California Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage
Annual Rents
365 898 976 659 467 475 3,840
$
5,090 14,900 16,819 10,908 7,601 10,747 66,065
$
% 7.7% 22.6% 25.5% 16.5% 11.4% 16.3% 100.0%
% of Company Annual rents 1.9% 5.7% 6.4% 4.2% 2.9% 4.1% 25.2%
Northern California Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage
Annual Rents
64 310 429 231 126 281 1,441
$
656 4,343 7,733 2,846 1,323 4,097 20,998
$
% 3.1% 20.7% 36.8% 13.6% 6.3% 19.5% 100.0%
% of Company Annual rents 0.3% 1.7% 3.0% 1.1% 0.5% 1.6% 8.2%
Southern Texas Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 71 216 267 183 62 227 1,026
Annual Rents $
707 2,282 2,916 2,033 684 2,960 11,582
$
% 6.1% 19.7% 25.2% 17.6% 5.9% 25.5% 100.0%
% of Company Annual rents 0.3% 0.8% 1.1% 0.8% 0.3% 1.1% 4.4%
Northern Texas Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 61 197 146 183 154 678 1,419
Annual Rents $
$
22
418 1,881 1,474 1,492 1,372 8,823 15,460
% 2.7% 12.2% 9.5% 9.7% 8.9% 57.0% 100.0%
% of Company Annual rents 0.2% 0.7% 0.6% 0.6% 0.5% 3.4% 6.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of September 30, 2006 (in thousands) Florida Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage
Annual Rents
122 655 818 650 544 354 3,143
$
1,123 5,583 6,607 5,678 4,228 3,333 26,552
$
% 4.2% 21.0% 24.9% 21.4% 15.9% 12.6% 100.0%
% of Company Annual rents 0.4% 2.1% 2.5% 2.2% 1.6% 1.3% 10.1%
Northern Virginia Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 135 347 664 460 318 797 2,721
Annual Rents $
$
2,298 5,655 13,116 8,386 6,514 17,541 53,510
% 4.3% 10.6% 24.5% 15.7% 12.2% 32.7% 100.0%
% of Company Annual rents 0.9% 2.2% 5.0% 3.1% 2.5% 6.7% 20.4%
Maryland Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 43 319 221 198 263 659 1,703
Annual Rents $
$
827 7,226 4,995 3,386 6,705 15,976 39,115
% 2.1% 18.5% 12.8% 8.7% 17.1% 40.8% 100.0%
% of Company Annual rents 0.4% 2.8% 1.9% 1.3% 2.6% 6.1% 15.1%
Oregon Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 28 256 318 234 79 323 1,238
Annual Rents $
$
23
358 3,996 4,611 3,970 1,672 6,177 20,784
% 1.7% 19.2% 22.2% 19.1% 8.0% 29.8% 100.0%
% of Company Annual rents 0.1% 1.5% 1.8% 1.5% 0.6% 2.4% 7.9%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of September 30, 2006 (in thousands) Arizona Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 80 244 140 135 37 29 665
Annual Rents $
% 878 2,626 1,614 1,665 499 381 7,663
$
11.5% 34.3% 21.1% 21.7% 6.5% 4.9% 100.0%
% of Company Annual rents 0.2% 1.0% 0.6% 0.6% 0.2% 0.1% 2.7%
Total Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter
Leased Square Footage 969 3,442 3,979 2,933 2,050 3,823 17,196
Annual Rents $
$
24
12,355 48,492 59,885 40,364 30,598 70,035 261,729
% 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
% of Company Annual rents 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of September 30, 2006 (in thousands) Lease Expirations - Large Tenant Portfolio Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter Total
Leased Square Footage 411 1,711 2,363 1,916 1,578 3,132 11,111
Annual Rents $
4,427 22,290 33,299 23,060 21,744 55,282 160,102
$
% 2.8% 13.9% 20.8% 14.4% 13.6% 34.5% 100.0%
% of Company Annual rents 1.7% 8.5% 12.7% 8.8% 8.3% 21.2% 61.2%
Lease Expirations - Small Tenant Portfolio Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter Total
Leased Square Footage 558 1,731 1,616 1,017 472 691 6,085
Annual Rents $
7,928 26,202 26,586 17,304 8,854 14,753 101,627
$
% 7.8% 25.8% 26.2% 17.0% 8.7% 14.5% 100.0%
% of Company Annual rents 3.0% 10.0% 10.2% 6.6% 3.4% 5.6% 38.8%
Lease Expirations - Total Year of Lease Expiration 2006 2007 2008 2009 2010 Thereafter Total
Leased Square Footage 969 3,442 3,979 2,933 2,050 3,823 17,196
Annual Rents $
12,355 48,492 59,885 40,364 30,598 70,035 261,729
$
25
% 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
% of Company Annual rents 4.7% 18.5% 22.9% 15.4% 11.7% 26.8% 100.0%
