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Analysis of Operating Results and Financial Condition December 31, 2004
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2004 INDEX
Page
Fact Sheet ................................................................................................................................
1
Sources and Uses of Funds......................................................................................................
2
Funds from Operations (FFO) .................................................................................................
3-4
Capital Structure......................................................................................................................
5
Consolidated Balance Sheets...................................................................................................
6-7
Consolidated Income Statements ............................................................................................
8-9
Gross Margins .........................................................................................................................
10
Capital Expenditure Analysis ..................................................................................................
11
Rentable Square Footage by Region .......................................................................................
12
Portfolio Analyses ................................................................................................................... 13 - 24
PS BUSINESS PARKS, INC. FOURTH QUARTER FACT SHEET (in thousands, except per share amounts)
OPERATING DATA FOR THE THREE MONTHS ENDED 12/31/04 12/31/03 Difference Total operating revenues Net income allocable to common shareholders
$ $
56,151 16,912
$ $
Net income per common share - diluted: Continuing operations Discontinued operations Net Income
$ $ $
0.23 0.54 0.77
$ $ $
49,665 6,726
0.32 (0.01) 0.31
12/31/04
FOR THE YEAR ENDED 12/31/03
13.1% 151.4%
$ $
219,071 29,123
$ $
(28.1%) 5500.0% 148.4%
$ $ $
0.72 0.60 1.33
$ $ $
194,735 33,312
1.58 (0.03) 1.54
Difference 12.5% (12.6%)
(54.4%) 2100.0% (13.6%)
Weighted average common shares outstanding - Basic
21,830
21,545
1.3%
21,767
21,412
1.7%
Weighted average common shares outstanding - Diluted
21,993 7,305 29,298
21,759 7,305 29,064
1.1% 0.0% 0.8%
21,960 7,305 29,265
21,565 7,305 28,870
1.8% 0.0% 1.4%
Weighted average common OP units outstanding Total pro forma fully-converted shares
FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED 12/31/04 12/31/03 Difference FFO allocable to common shareholders before adjustments Non - recurring adjustments EITF Topic D-42 Impairment provision FFO allocable to common shareholders
$
$
$
25,498 532 26,030
FFO per common share and units - before adjustments FFO per common share and units - as reported
$ $
0.87 0.89
12/31/04 $
FOR THE YEAR ENDED 12/31/03
0.1% 100.0%
$
25,478 25,478
2.2%
$
101,687 $ 532 (5,005) 97,214 $
$ $
0.88 0.88
(1.1%) 1.1%
$ $
3.47 3.32
$ $
103,355 (5,907) 97,448 3.58 3.38
Difference (1.6%) 100.0% 100.0% (100.0%) (0.2%) (3.1%) (1.8%)
PROPERTY INFORMATION FOR THE THREE MONTHS ENDED 12/31/04 12/31/03 Difference
12/31/04
FOR THE YEAR ENDED 12/31/03
Difference
Total Owned Portfolio (1) Net rentable square footage at period end Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3)
$ $
17,849 89.6% 13.79 $ 12.36 $
14,370 91.9% 14.74 13.55
24.2% (2.5%) (6.4%) (8.8%)
$ $
13,726 90.5% 15.11 $ 13.67 $
13,726 92.6% 14.73 13.64
0.0% (2.3%) 2.6% 0.2%
$ $
17,783 88.9% 13.63 $ 12.12 $
14,094 92.4% 14.74 13.62
26.2% (3.8%) (7.5%) (11.0%)
$ $
13,726 90.5% 14.79 $ 13.39 $
13,726 92.8% 14.71 13.65
0.0% (2.5%) 0.5% (1.9%)
Same Park Facilities Net rentable square footage Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3)
(1) Total Owned Portfolio data excludes assets held for disposition. (2) Represents the actual revenues earned per occupied square foot. (3) Represents the actual revenues earned per total square foot. BALANCE SHEET DATA 12/31/04 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
$ $ $ $ $ $
12/31/03
1,363,829 127,750 169,295 510,850 506,114 21,840 23.17
$ $ $ $ $ $
Difference
1,358,861 217,750 169,888 168,673 502,155 21,566 23.28
0.4% (41.3%) (0.3%) 202.9% 0.8% 1.3% (0.5%)
MARKET VALUE INFORMATION 12/31/04 Market value of common stock and common OP units
$
Total debt Total preferred stock and preferred OP units
1,314,441
12/31/03 $
Difference
1,191,213
10.3%
11,367
264,694
(95.7%)
638,600
386,423
65.3%
Total market capitalization
$
1,964,408
$
1,842,330
6.6%
Stock price at the end of the period
$
45.10
$
41.26
9.3%
1
PS BUSINESS PARKS, INC.
Sources and Uses of Funds (in thousands)
Twelve Months Ended December 31, 2004
Twelve Months Ended December 31, 2003
Sources of Funds: Funds from operations, before EITF Topic D-42 Proceeds from disposition of real estate Proceeds from placement of preferred units, net Issuance of preferred stock, net Exercise of stock options Disposition proceeds from joint venture Proceeds from liquidation of investments Borrowings from an affiliate Borrowings on line of credit
$ Series J Series H, I, K ,L
Total Sources of Funds
102,219 48,284 41,533 381,130 6,958 138,000
$
97,448 14,498 7,621 2,406 7,600 100,000 95,000
718,124
324,573
(6,310) (234) (43,614) (22,323) (7,717) (33,748) (610) (185,573) (233,000) (100,000) (50,000) (101) (1,015)
(15,984) (838) (22,954) (279,137) (1,396) (33,350) (585) (2,198) (8,119) 985
(684,245)
(363,576)
33,879
(39,003)
5,809
44,812
Uses of Funds: Property rennovations Land Held for Development Recurring capital expenditures Acquisition of real estate Early Debt Extinguishment Investment in marketable securities Common dividends and OP distributions Principal payments on mortgage notes payable Redemption of preferred stock Repayments on line of credit Repurchase of common stock Repayment of borrowings from an affiliate Repayment of unsecured note payable Preferred stock shelf registration Change in working capital Total Uses of Funds Net increase (decrease) in cash balance Beginning cash balance Ending cash balance
$
2
39,688
$
5,809
PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS (in thousands except per share amounts)
Three Months Ended 12/31/04 12/31/03
Increase (Decrease)
FOR THE YEAR ENDED 12/31/04 12/31/03
% Change
Increase (Decrease)
% Change
Funds from operations (FFO): Net income allocable to common shareholders Adjustments: (Gain) loss on disposition of real estate Depreciation and amortization Minority interest in income - common units Gain on sale of marketable securities Equity income from gain on sale of joint venture properties FFO allocable to common shareholders/unitholders
$
$
Weighted average common shares outstanding Weighted average common OP units outstanding Weighted average dilutive stock options Total fully-converted shares Fully diluted FFO per common share/OP unit
16,912
$
6,726
(15,317) 18,777 5,658 26,030 $
601 15,870 2,281 25,478
21,830 7,305 163 29,298
$
10,186
151.4%
$
15,918 2,907 3,377 552
2648.6% 18.3% 148.0% 0.0% 0.0% 2.2%
21,545 7,305 214 29,064
285 0 (51) 234
$
$
1.3% 0.0% (23.8%) 0.8%
29,123
$
(15,462) 73,793 9,760 97,214 $ 21,767 7,305 193 29,265
33,312
$
(4,189)
(12.6%)
(2,897) 59,107 11,345 (2,043) (1,376) 97,448 $
12,565 14,686 (1,585) (2,043) (1,376) (234)
433.7% 24.8% (14.0%) (100.0%) (100.0%) (0.2%)
21,412 7,305 153 28,870
355 0 40 395
1.7% 0.0% 26.1% 1.4%
$
0.89
$
0.88
$
0.01
1.1%
$
3.32
$
3.38
$
(0.06)
(1.8%)
Funds from operations Adjustments: Maintenance capital expenditures Tenant improvements Lease commissions Straight-line rent Stock compensation expense In-place rents adjustment (SFAS 141) Impairment charge on properties held for sale Redemption amount over carrying amount related to preferred equity called for redemption
$
26,030
$
25,478
$
552
2.2%
$
97,214
$
97,448
$
(234)
(0.2%) 117.0% 95.2% 52.8% 44.8% (7.8%) 100% (100.0%)
FAD
$
11,002
$
17,584
$
7,358
FAD per common share/OP unit
$
0.38
$
0.61
$
FAD
$
Distributions to common shareholders Distributions to common OP unitholders Cash available for debt repayments and reinvestments
$
11,002 $ (6,334) (2,118) 2,550 $
17,584 $ (6,192) (2,118) 9,274 $
Funds available for distribution (FAD):
(3,852) (8,428) (1,951) (901) 65 39 -
(1,239) (4,794) (1,310) (819) 268 -
2,613 3,634 641 82 (203) 39 -
-
-
-
210.9% 75.8% 48.9% 10.0% (75.7%) 100%
(8,760) (27,388) (7,465) (3,143) 914 156 -
(4,037) (14,030) (4,887) (2,171) 991 5,907
4,723 13,358 2,578 972 (77) 156 (5,907)
5,005
-
5,005
100.0%
20,574
26.0%
41.8%
$
56,533
$
79,221
$
(0.23)
(37.7%)
$
1.93
$
2.74
$
(0.81)
(29.6%)
(6,582) 142 (6,724)
(37.4%) 2.3% 0.0% (72.5%)
$
56,533 $ (25,264) (8,474) 22,795 $
79,221 $ (24,774) (8,472) 45,975 $
(22,688) 490 2 (23,180)
(28.6%) 2.0% 0.0% (50.4%)
Cash available for debt repayments and reinvestments:
3
$
Diluted FFO Per Common Share/OP Unit * $0.95 $0.90
$0.90
$0.89
$0.89 $0.88
$0.90 $0.85
$0.87
$0.86
$0.85 $0.80 $0.75 $0.70 $0.65 $0.60 Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
* Amounts before effects of ETIF Topic D-42 costs and impairment charges.
4
PS BUSINESS PARKS, INC. CAPITAL STRUCTURE (in thousands)
As of December 31, 2004 % of Total Market WTD Average Total Capitalization Rate
As of December 31, 2003 % of Total Market WTD Average Total Capitalization Rate
Long-Term Debt: 8.190% mortgage note, secured by one commercial property, due March 2007 7.290% mortgage note, secured by one commercial property, due February 2009 7.050% mortgage note, secured by one commercial property, due May 2006 Total mortgage notes payable (1)
$
5,578 5,789 11,367
$
1%
7.73%
5,832 5,924 7,938 19,694
1%
7.46%
-
50,000 69,694
4%
5.31%
11%
1.64%
14%
2.60%
Term facility Loan (4.46% @ 12/31/03) Total Long-Term Debt
-
Short-Term Debt: $100 million unsecured line of credit (1.82% @ 12/31/03) Notes Payable affiliate Total Short-Term Debt
-
0%
0.00%
95,000 100,000 195,000
11,367
1%
7.73%
264,694
Total debt
8.875% Series Y preferred operating partnership units (480,000 units outstanding) callable 7/12/05 9.500% Series D preferred stock (2,634,000 depositary shares outstanding) callable 5/10/06 9.250% Series E preferred operating partnership units (2,120,000 units outstanding) callable 9/21/06 8.750% Series F preferred stock (2,000,000 units 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 units outstanding) callable 1/30/09 6.875% Series I preferred stock (3,000,000 units 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 units outstanding) callable 6/30/09 7.600% Series L preferred stock (2,300,000 units outstanding) callable 8/31/09 9.250% Series A preferred stock (2,112,900 depositary shares outstanding) called 4/30/04 8.875% Series B preferred operating partnership units (510,000 units outstanding) called 4/23/04 8.750% Series C preferred operating partnership units (3,200,000 units outstanding) callable 9/3/04 8.875% Series X preferred operating partnership units (1,600,000 units outstanding) callable 9/23/04
12,000 65,850 53,000 50,000 20,000 205,000 75,000 42,750 57,500 57,500 -
12,000 65,850 53,000 50,000 20,000 52,823 12,750 80,000 40,000
Total preferred equity
638,600
33%
7.80%
386,423
21%
8.99%
Total debt and preferred equity
649,967
33%
7.80%
651,117
35%
6.40%
889,794 301,419 1,191,213
65%
1,842,330
100%
Common stock (21,839,667 and 21,565,528 shares outstanding in December 31, 2004 and December 31, 2003 respectively) Common operating partnership units (7,305,355 units outstanding as of December 31, 2004 and December 31, 2003 ) Total common equity (2) Total market capitalization
(1)
-
$
984,969 329,472 1,314,441
$ 67%
1,964,408
100%
$
Principal Maturity Dates are represented by the following chart: Principal Maturity Dates 2005
Park East I & II $ Park East III $
(2)
2006
276 $ 144 420 $
Closing stock price was $45.10 and $41.26 as of December 31, 2004 and December 31, 2003, respectively.
5
2007
300 $ 155 455 $
5,002 167 5,169
2008
$ $
179 $ 179 $
Thereafter
5,144 5,144
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
12/31/04
Increase (Decrease)
12/31/03
% Change
ASSETS Cash and cash equivalents
$
Real estate facilities, at cost: Land Buildings and equipment
$
382,908 1,187,584 1,570,492 (295,415) 1,275,077 16,876 11,583 1,303,536
Accumulated depreciation Properties held for disposition, net Land held for development
Rent receivable Deferred rent receivables Other assets Intangible assets, net Total assets
39,688
$
5,809
$
378,239 1,120,579 1,498,818 (223,103) 1,275,715 49,171 11,399 1,336,285
2,079 15,470 3,056 1,363,829
(d)
38,453 11,367 49,820
(f)
$
1,885 (d) 12,929 1,877 76 1,358,861 $
33,879
(a)
583.2%
4,669 67,005 71,674 (b) 72,312 (638) (32,295) (c) 184 (32,749)
1.2% 6.0% 4.8% 32.4% (0.1%) (65.7%) 1.6% (2.5%)
194 2,541 1,179 (e) (76) 4,968
10.3% 19.7% 62.8% (100.0%) 0.4%
LIABILITIES AND SHAREHOLDERS' EQUITY Accrued and other liabilities Line of credit Mortgage notes payable Mortgage on asset held for sale Notes payable to affiliate Unsecured term loan Total liabilities
$
Minority interests: Preferred units Common units Shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Comprehensive loss Cumulative distributions Total shareholders' equity Total liabilities and shareholders' equity
$
$
35,701 95,000 11,756 7,938 100,000 50,000 300,395
$
2,752 (95,000) (389) (7,938) (100,000) (50,000) (250,575)
7.7% (100.0%) (3.3%) (100.0%) (100.0%) (100.0%) (83.4%)
127,750 169,295
217,750 169,888
(90,000) (g) (593)
(41.3%) (0.3%)
510,850 218 420,351 343,529 (257,984) 1,016,964
168,673 216 420,778 281,386 (535) (199,690) 670,828
342,177 (h) 2 (427) (i) 62,143 535 58,294 (k) 346,136
202.9% 0.9% (0.1%) 22.1% 100.0% 29.2% 51.6%
1,363,829
6
$
1,358,861
$
4,968
0.4%
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS VARIANCE EXPLANATIONS
(a) See sources and uses of funds on page 2 (b) Change in real estate facilities, at cost is due to the following: Property acquisition (includes capitalized acquisition costs) Property renovations Maintenance capital expenditures Tenant improvements Lease commissions Improvements on properties held for sale $
24,088 6,310 8,760 27,388 7,465 (2,337) 71,674
(c) Discontinued operations includes assets identified for sale located in the Company's Miami Portfolio.
(d) Rent receivable consists of the following: U.S. Government Tenants Acquisitions Same Park Allowance for bad debt
12/31/04 1,132 300 1,197 (550) $ 2,079 $
(e) Change in other assets is due to the following: Due on rental properties sold Prepaid Insurance Amortization of prepaid costs Pre- Acqusition Costs Other Accounts Receivable and Deposit Other
12/31/03 $ 1,175 14 846 (150)
$
1,885
$
1,534 773 (195) (147) (640) (146) 1,179
$
(f)
Accrued and other liabilities at December 31, 2004 consists of: Prepaid Rent Accounts payable Property taxes Security deposits Accrued interest Reserves for acquisition costs Unrealized loss on interest rate swap Other
(g) Change in minority interest - preferred units: Redemption of Series B Issuance of Series J Redemption of Series C and X
(j)
12/31/2003 8,290 927 3,427 14,056 112 4,920
Change $
(1,512) 2,979 (318) 1,164 (112) 131 (534) 954
$
2,752
534
3,435 35,701
(12,750) 42,750 (120,000) $ (90,000)
(h) Change in preferred stock: Redemption of Series A Issuance of Series H Issuance of Series I Issuance of Series K Issuance of Series L
(i)
12/31/2004 $ 6,778 3,906 3,109 15,220 5,051 4,389 $ 38,453
(52,823) 205,000 75,000 57,500 57,500 $ 342,177
Change in paid-in capital: Beginning paid-in capital Preferred stock issuance costs Shelf registration costs Redemption of preferred stock (application of EITF Topic D-42) Exercise of stock options Stock option amortization Restricted stock amortization Change in minority interest, common Ending paid in capital
Change in cumulative distributions: Distributions to preferred shareholders Distributions to common shareholders
$ 420,778 (13,870) (101) 5,005 6,956 1,365 218 $ 420,351
$ (32,613) (25,681) $ (58,294)
7
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED (in thousands, except per share amounts)
12/31/04 Revenues: Rental income Facility management fees primarily from affiliates Total operating revenues
$ $
Expenses: Property operations Depreciation and amortization General and administrative Total operating expenses
56,042 109 56,151
$ $
16,699 18,777 1,379 36,855
Other income and expenses Gain on sale of marketable securities Interest and other income Interest expense Total other income and expenses
Increase (Decrease)
12/31/03
49,485 180 49,665
$
14,285 15,489 1,175 (c) 30,949
% Change
6,557 (a) (71) 6,486
13.3% (39.4%) 13.1%
2,414 (b) 3,288 204 5,906
16.9% 21.2% 17.4% 19.1%
(a)
$ (b)
194 (442) (248)
154 (1,001) (d) (847)
40 (559) (599)
Cost of operations have increased due to the following: Same Park facilities Acquisitions
$
Equity in income of liquidated joint venture
19,048
17,869
-
-
1,179
6.6%
Minority interests in continuing operations: Minority interest in income - preferred units Distributions paid to preferred unit holders Redemption of preferred operating partnership units Minority interest in income - common units Total minority interests in continuing operation
(2,697) (1,685) (4,382)
(4,810) (2,325) (7,135)
(2,113) (640) (2,753)
Income from continuing operations
14,666
10,734
3,932
36.6%
86
20.1%
(43.9%)
(601)
15,918
N/A 2648.6%
(3,973) 11,858
44 (129)
4,017 11,987
9129.5% 9292.2%
Net Income
26,524
15,919
150.1%
9,612 9,612 $
16,912
3,879 3,879 $
6,726
5,733 (f) 5,733 $
10,186
147.8% 151.4%
$ $ $
0.23 0.54 0.77
$ $ $
0.32 (0.01) 0.31
$ $ $
(0.09) 0.55 0.46
(28.1%) 5500.0% 148.4%
Net income per common share - diluted Continuing operations Discontinued operations Net Income
$ $ $
0.23 0.54 0.77
$ $ $
0.32 (0.01) 0.31
$ $ $
(0.09) 0.46 0.46
(28.1%) 4600.0% 148.4%
21,830 21,993
21,545 21,759
285 (g) 234
1.3% 1.1%
8
$
(389) 527 90 61 250 1,379 $
December 31, 2003 248 180 114 150 113 185 185 1,175
December 31, 2004 326 64 52 -
442
December 31, 2003 369 64 239 329 $ 1,001
$
Net income from discontinued operations for the three months ended: Rental revenue Operating expenses Debt extinguishment costs Depreciation expense Income from discontinued property
N/A
Net income per common share - basic: Continuing operations Discontinued operations Net Income
$
$
147.8%
December 31, 2004 494 194 152
Interest expense for the three months ended: Mortgage notes payable Facilities fees & other charges Line of Credit interest (Wells Fargo) Interest Rate Swap Charges Term Loan Interest (Fleet)
(e) Net Income allocable to preferred shareholders Preferred distributions Preferred distributions paid Redemptions of preferred stock Total preferred distributions
$
$
(d) 514 15,317
10,605
(185) 2,599 2,414
General and administrative expenses for the three months ended: Salaries Bonus Accrual Stock option and stock compensation expense, gross Stock option and stock compensation expense, reversal related to terminated employees Professional fees Investor services Internal acquisition costs Other
(27.5%) (38.6%)
Discontinued operations: Income from discontinued operations Impairment charge on properties held for sale Gain (loss) on disposition of real estate Minority interest in (earnings) loss attributable to discontinued operations - common units Income (loss) from discontinued operation
428 (e)
123 6,396 38 6,557
26.0% (55.8%) (70.7%) (c)
Weighted average common shares outstanding: Basic Diluted
$
$
Income from continuing operations before minority interests and equity in income of liquidated joint venture
Net Income allocable to common shareholder
Rental income has increased due to the following: Same Park facilities Acquisitions Straight-line rent
(f)
Increase relates to issuance of additional preferred stock .
(g)
Net increase relates to stock option exercises.
December 31, 2004 December 31, 2003 1,182 $ 1,263 (437) (454) (231) (381) $ 514 $ 428
$
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED (in thousands, except per share amounts)
12/31/04 Revenues: Rental income Facility management fees primarily from affiliate Total operating revenues
$ 218,447 624 $ 219,071
Expenses: Property operations Depreciation and amortization General and administrative Total operating expenses
Increase (Decrease)
12/31/03
$ $
193,993 742 194,735
$
% Change
24,454 (a) (118) 24,336
12.6% (15.9%) 12.5%
11,559 (b) 14,900 (55) 26,404
21.6% 25.9% (1.2%) 22.9%
64,969 72,336 4,628 (c) 141,933
53,410 57,436 4,683 (c) 115,529
Other income and expenses: Gain on sale of marketable securities Interest and other income Interest expense Total other income and expenses
406 (3,054) (d) (2,648)
2,043 1,125 (4,015) (d) (847)
(2,043) (719) (961) 1,801
(100.0%) (63.9%) (23.9%) 212.6%
Income from continuing operations before minority interest and equity in income of liquidated joint ventur
74,490
78,359
(3,869)
(4.9%)
-
2,296
(2,296)
(100.0%)
(a)
Equity in income of liquidated joint venture
Income from continuing operations Discontinued operations: Income from discontinued operations Impairment charge on properties held for sale Gain (loss) on disposition of real estate Minority interest in (earnings) loss attributable to discontinued operations - common units Income (loss) from discontinued operations Net Income Net Income allocable to preferred shareholder Preferred distributions Preferred distributions paid Redemptions of preferred stock Total preferred distributions Net Income allocable to common shareholders
(17,106) (3,139) (5,328) (25,573)
(19,240) (11,593) (30,833)
(2,134) 3,139 (6,265) (5,260)
(11.1%) 100.0% (54.0%) (17.1%)
48,917
49,822
(905)
(1.8%)
2,196 (e) 15,462
160 (5,907) 12,565
7.9% (100.0%) 433.7%
(4,432) 13,226
2,036 (e) (5,907) 2,897 248 (726)
4,680 13,952
1887.2% 1921.7%
62,143
49,096
13,047
26.6%
31,154 1,866 33,020 $
29,123
$
15,784 15,784
15,370 1,866 17,236 (f)
97.4% 100.0% 109.2%
33,312
(4,189)
(12.6%)
Net income per common share - basic Continuing operations Discontinued operations Net Income
$ $ $
0.73 0.61 1.34
$ $ $
1.59 (0.03) 1.56
$ $ $
(0.86) 0.64 (0.22)
(54.1%) 2133.3% (14.0%)
Net income per common share - diluted Continuing operations Discontinued operations Net Income
$ $ $
0.72 0.60 1.33
$ $ $
1.58 (0.03) 1.54
$ $ $
(0.84) 0.63 (0.21)
(53.2%) 2100.0% (13.6%)
Weighted average common shares outstanding Basic Diluted
21,767 21,960
21,412 21,565
355 (g) 395
1.7% 1.8%
9
$
$
(b ) Cost of operations have increased due to the following Same Park facilities Acquisitions
$ $
(c)
Minority interests in continuing operations Minority interest in income - preferred units Distributions paid to preferred unit holders Redemption of preferred operating partnership units Minority interest in income - common unit Total minority interests in continuing operations
Rental income has increased due to the following Same Park facilities Acquisitions Straight-line rent
December 31, 2004 $ 1,644 734 482
$
December 31, 2003 $ 1,004 720 453
(389) 895 424 158 680 4,628 $
460 313 585 1,148 4,683
Interest expense for the year ended Mortgage notes payable Line of credit interest Interest rate swap charges Facilities fees & other charges Loan from Affiliate (PSI) Term loan interest
(e)
949 10,610 11,559
General and administrative expenses for the year ended Salaries Bonuses Stock option and stock compensation expense Stock option and stock compensation expense related to terminated employees Professional fees Investor services Internal acquisition costs Other
(d)
(3,709) 27,191 972 24,454
December 31, 2004 $ 1,416 387 557 256 146 292 $ 3,054
December 31, 2003 $ 1,498 904 254 1,359 $ 4,015
Net income from discontinued operations for the year ended Rental revenue Operating expenses Depreciation Debt extinguishment costs Income from discontinued property
December 31, 2004 December 31, 2003 $ 5,962 $ 5,736 (2,079) (2,029) (1,456) (1,671) (231) $ 2,196 $ 2,036
(f)
Increase relates to the issuance of additional preferred equity as well as $1,866,000 related to the redemption of the Series A preferred stock
(g)
Net increase relates to stock option exercises
Gross Operating Margin Percentage * (Same Park) 74.0%
73.4% 72.8%
73.0% 72.4% 72.0%
71.9% 71.7%
72.0%
71.0%
71.8%
70.6%
70.0% Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
* Gross margin is computed by dividing property net operating income by rental income (excluding straight-line rent adjustment).
10
PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (in thousands)
Recurring capital expenditures (1)
Twelve Months Ended December 31, 2004 Costs
Cost per Weighted Average Square Foot
Maintenance capital expenditures (2)
$8,760
$0.48
Tenant improvements (3)
27,388
$1.49
7,465
$0.41
$43,613
$2.38
Leasing commissions Total recurring capital expenditures Non-recurring capital expenditures Property renovations
$6,310
Acquisition costs
22,323
Total non-recurring capital expenditures
$28,633
(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 $5,000 for maintenance capital expenditures with a useful life greater than 24 months for tenant improvements and 30 months for maintenance capital expenditures 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 were $14.7 million or approximately $0.83 per weighted average square foot for the twelve months ended December 31, 2004 compared to $13 million or $0.92 per square foot during the twelve months ended December 31, 2003.
(2)
Major costs include roofing, HVAC replacement, parking lot replacement and other major repairs that extend the life of the respective component of the building.
(3)
Tenant improvements less than $1,000 or for leases of two years or less are expensed and included as a component of cost of operations ($842,000 for the twelve months ended December 31, 2004 as compared to $653,000 for the twelve months ended December 31, 2003).
11
Total Owned Rentable Square Footage by Region *
December 31, 2003 (18,326 square feet, in thousands)
December 31, 2004 (17,988 square feet, in thousands)
S. California (20%) S. California (20%) N. California (8%) S. Texas (6%) N. Texas (9%) Virginia (16%) Maryland (7%) Oregon (11%) Florida (19%) Arizona (4%)
N. California (8%) S. Texas (5%) N. Texas (13%) Virginia (14%) Maryland (9%) Oregon (11%) Florida (18%)
402
Arizona (2%)
679
3,663
3,352
3,663 3,331
1,497
1,497
1,941
1,938
831
1,162
1,646
1,242 1,690
2,369 2,786
2,625
* Square footage includes discontinued operations 12
PS BUSINESS PARKS, INC. TOTAL OWNED PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of December 31, 2004 Primary Markets Miami Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Industrial
Office
2,556 231 712 407 3,906
12 572 346 720 31 430 704 131 2,946
Flex 623 2,215 1,592 522 1,459 770 660 911 788 679 535 243 10,997
Total 3,191 2,787 1,938 1,242 1,690 1,513 1,497 1,615 788 679 535 374 17,849
% 17.9% 15.6% 10.9% 7.0% 9.5% 8.5% 8.4% 8.9% 4.4% 3.8% 3.0% 2.1% 100.0%
Average Occupancy Rates by Product Type for the Quarter Ending December 31, 2004 Primary Markets Miami Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Industrial
Office
86.1% 100.0% 97.7% 96.9% 90.1%
100.0% 92.6% 67.5% 96.3% 86.1% 91.9% 89.3% 78.2% 89.0%
Flex 93.5% 98.1% 82.2% 88.3% 79.3% 94.4% 95.1% 95.8% 73.3% 92.7% 97.0% 90.1% 89.6%
Total 87.6% 97.0% 79.6% 92.9% 82.2% 95.8% 94.7% 93.0% 73.3% 92.7% 97.0% 85.9% 89.6%
Weighted Average Occupancy Rates by Portfolio Type for the Quarter Ending December 31, 2004 Primary Markets Miami Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Large Tenant
Small Tenant
86.6% 97.7% 79.2% 92.9% 82.8% 97.7% 94.3% 92.3% 71.4% 100.0% 78.2% 88.5%
95.4% 94.4% 84.3% 94.1% 78.5% 94.1% 95.3% 95.1% 81.9% 91.7% 97.0% 90.1% 92.7%
Total 87.6% 97.0% 79.6% 92.9% 82.2% 95.8% 94.7% 93.0% 73.3% 92.7% 97.0% 85.9% 89.6%
Note: Excludes discontinued operations as of December 31, 2004. 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.
13
PS BUSINESS PARKS, INC. SAME PARK PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of December 31, 2004 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Industrial
Office
231 712 407 1,350
406 347 720 31 430 161 131 2,226
Flex
Total
2,215 1,592 522 1,345 770 660 911 788 569 535 243 10,150
2,621 1,939 1,242 1,576 1,513 1,497 1,072 788 569 535 374 13,726
% 19.1% 14.1% 9.1% 11.5% 11.0% 10.9% 7.8% 5.7% 4.1% 3.9% 2.8% 100.0%
Average Occupancy Rates by Product Type for the Quarter Ending December 31, 2004 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Industrial
Office
100.0% 97.7% 96.9% 97.8%
95.8% 67.5% 96.3% 86.1% 91.9% 99.0% 78.2% 89.8%
Flex
Total
98.1% 82.2% 88.3% 79.7% 94.4% 95.1% 95.8% 73.3% 94.7% 97.0% 90.1% 89.6%
97.7% 79.6% 92.9% 82.7% 95.8% 94.7% 96.3% 73.3% 94.7% 97.0% 85.9% 90.5%
Weighted Average Occupancy Rates by Portfolio Type for the Quarter Ending December 31, 2004 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Houston
Large Tenant
Small Tenant
97.7% 79.2% 92.9% 83.5% 97.7% 94.3% 96.9% 71.4% 100.0% 78.2% 89.4%
97.8% 84.3% 94.1% 78.5% 94.1% 95.3% 95.1% 81.9% 93.8% 97.0% 90.1% 93.1%
Total 97.7% 79.6% 92.9% 82.7% 95.8% 94.7% 96.3% 73.3% 94.7% 97.0% 85.9% 90.5%
Note: Includes all properties included in continuing operations owned since January 1, 2003. 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.
14
Change in Same Park Revenue before Straight Line Rent * 5.0%
3.0% 0.8%
2.5%
0.3%
1.0% 1.9% 0.4%
-1.0%
0.9%
0.4% -0.8% -1.6%
-1.8%
-3.0% -2.9%
-3.1%
-5.0% Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Q104
Q204
Q304
* Percentage represents the change from the same period in the prior year.
15
Q404
Change in Same Park NOI before Straight Line Rent * 3.0% 2.0% 1.0% 2.0%
0.9% 1.7%
0.0%
-0.3% 0.7%
-1.0%
-0.7%
-0.5%
-0.4%
-2.0% -3.0% -3.1%
-3.1%
-4.0% -5.0%
-4.9%
-6.0% -7.0% Q102
-5.7%
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Q104
Q204
* Percentage represents the change from the same period in the prior year.
16
Q304
Q404
Same Park Weighted Average Occupancy 96.0% 95.1%
95.0%
94.7% 93.9%
94.0%
93.5% 92.7%
93.0%
92.4%
92.9%
92.6%
92.0% 90.4%
91.0%
90.5%
90.5%
Q304
Q404
90.0%
90.0% 89.0% Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Q104
Q204
Note: Same Park is defined as all properties included in continuing operations since January 1 , 2003.
17
Total Owned Portfolio Weighted Average Occupancy * 97.0% 96.0% 95.0%
94.6% 94.3% 93.5%
94.0%
93.2%
93.0%
92.6% 92.2%
92.0%
91.8% 91.9%
91.0% 89.6%
90.0% 88.2%
89.0%
88.7% 87.9%
88.0% 87.0% Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
* Excludes discontinued operations
18
Q104
Q204
Q304
Q404
PS BUSINESS PARKS, INC. OWNED PORTFOLIO ANALYSIS (in thousands) Industry Concentration as of December 31, 2004 % of Total Rents 12.1% 11.8% 10.4% 9.5% 8.6% 8.1% 5.8% 4.5% 4.4% 4.1% 79.3%
Computer Hardware, software and related services Business services Government Contractors Warehouse / Logistics Financial services Retail Home funishings Electronics Communications
Top Ten Customers by Total Annual Revenues as of December 31, 2004 Tenant
Square Footage
U.S. Government Citigroup Intel IBM County of Santa Clara Hughes Network Systems ** Axcelis Technologies Symantec Corporation, Inc. Welch Allyn Protocol, Inc. MCI
Total Annual Revenues
%
475 262 214 180 97 106 89 81 95 88
$
11,293 4,223 3,647 2,960 2,951 2,239 1,609 1,559 1,511 1,413
5.0% 1.9% 1.6% 1.3% 1.3% 1.0% 0.7% 0.7% 0.7% 0.6%
1,687
$
33,405
14.9%
** Electronics subsidiary of Hughes Aircraft
19
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2004 (in thousands) Lease Expirations - Flex Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 2,464 2,215 1,556 1,161 1,035 1,685 10,116
Annual Rents $
$
28,669 28,127 18,793 17,469 11,269 23,573 127,900
% 22.4% 22.0% 14.7% 13.7% 8.8% 18.4% 100.0%
% of Company Annual rents 13.4% 13.1% 8.8% 8.2% 5.3% 11.0% 59.8%
Lease Expirations - Office Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 701 501 400 370 262 491 2,725
Annual Rents $
$
15,237 10,746 8,168 8,708 5,252 12,375 60,486
% 25.2% 17.8% 13.5% 14.4% 8.7% 20.4% 100.0%
% of Company Annual rents 7.1% 5.0% 3.8% 4.2% 2.4% 5.8% 28.3%
Lease Expirations - Industrial Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 879 1,028 777 409 321 378 3,792
Annual Rents $
$
6,375 6,527 5,044 3,035 2,173 2,404 25,558
% 24.9% 25.5% 19.7% 11.9% 8.5% 9.5% 100.0%
% of Company Annual rents 3.0% 3.1% 2.4% 1.3% 1.0% 1.1% 11.9%
Lease Expirations - Total Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 4,044 3,744 2,733 1,940 1,618 2,554 16,633
Annual Rents $
$
20
50,281 45,400 32,005 29,212 18,694 38,352 213,944
% 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
% of Company Annual rents 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2004 (in thousands) Southern California Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 1,000 1,142 608 312 283 184 3,529
Annual Rents $
%
14,528 13,308 8,519 5,391 4,258 3,882 49,886
$
29.1% 26.7% 17.1% 10.8% 8.5% 7.8% 100.0%
% of Company Annual rents 6.8% 6.2% 4.0% 2.5% 2.0% 1.8% 23.3%
Northern California Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 239 312 307 221 120 228 1,427
Annual Rents $
%
2,904 3,546 2,909 4,839 1,202 2,442 17,842
$
16.3% 19.9% 16.3% 27.1% 6.7% 13.7% 100.0%
% of Company Annual rents 1.3% 1.7% 1.3% 2.3% 0.6% 1.1% 8.3%
Southern Texas Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 280 183 128 85 192 91 959
Annual Rents $
% 2,515 1,849 1,212 820 1,304 845 8,545
$
29.4% 21.6% 14.2% 9.6% 15.3% 9.9% 100.0%
% of Company Annual rents 1.1% 0.9% 0.6% 0.4% 0.6% 0.4% 4.0%
Northern Texas Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 309 235 145 117 183 483 1,472
Annual Rents $
$
21
2,962 2,935 1,085 1,315 884 4,058 13,239
% 22.4% 22.2% 8.2% 9.9% 6.7% 30.6% 100.0%
% of Company Annual rents 1.4% 1.4% 0.5% 0.6% 0.4% 1.9% 6.2%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2004 (in thousands) Florida Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 820 886 591 410 199 214 3,120
Annual Rents $
6,366 6,673 4,299 3,103 1,759 1,731 23,931
$
% 26.6% 27.9% 18.0% 13.0% 7.3% 7.2% 100.0%
% of Company Annual rents 3.0% 3.1% 2.0% 1.5% 0.8% 0.8% 11.2%
Northern Virginia Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 470 477 301 436 306 695 2,685
Annual Rents $
$
6,465 8,862 4,254 7,847 4,619 12,704 44,751
% 14.4% 19.8% 9.5% 17.5% 10.3% 28.5% 100.0%
% of Company Annual rents 3.1% 4.1% 2.0% 3.7% 2.2% 5.8% 20.9%
Maryland Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 319 98 223 156 157 278 1,231
Annual Rents $
$
7,099 2,496 4,711 3,252 2,176 5,614 25,348
% 28.0% 9.8% 18.6% 12.8% 8.6% 22.2% 100.0%
% of Company Annual rents 3.3% 1.2% 2.2% 1.5% 1.0% 2.6% 11.8%
Oregon Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 378 287 253 179 114 367 1,578
Annual Rents $
$
22
5,059 4,465 3,283 2,392 1,795 6,855 23,849
% 21.2% 18.7% 13.8% 10.0% 7.5% 28.8% 100.0%
% of Company Annual rents 2.4% 2.1% 1.5% 1.1% 0.8% 3.2% 11.1%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2004 (in thousands) Arizona Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 229 124 177 24 64 14 632
Annual Rents $
% 2,383 1,266 1,734 251 696 223 6,553
$
36.4% 19.3% 26.5% 3.8% 10.6% 3.4% 100.0%
% of Company Annual rents 1.2% 0.5% 0.9% 0.1% 0.3% 0.2% 3.2%
Total Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter
Rentable Square Footage 4,044 3,744 2,733 1,940 1,618 2,554 16,633
Annual Rents $ $ $ $ $ $ $
23
50,281 45,400 32,006 29,210 18,693 38,354 213,944
% 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
% of Company Annual rents 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2004 (in thousands) Lease Expirations - Large Tenant Portfolio Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter Total
Rentable Square Footage 2,654 2,458 1,902 1,603 1,316 2,359 12,292
Annual Rents $
34,290 29,700 22,050 24,582 14,690 34,511 159,823
$
% 21.4% 18.6% 13.8% 15.4% 9.2% 21.6% 100.0%
% of Company Annual rents 16.0% 13.9% 10.3% 11.6% 6.8% 16.1% 74.7%
Lease Expirations - Small Tenant Portfolio Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter Total
Rentable Square Footage 1,390 1,286 831 337 302 195 4,341
Annual Rents $
$
15,990 15,701 9,956 4,629 4,004 3,841 54,121
% 29.5% 29.0% 18.4% 8.6% 7.4% 7.1% 100.0%
% of Company Annual rents 7.5% 7.3% 4.6% 2.2% 1.9% 1.8% 25.3%
Lease Expirations - Total Year of Lease Expiration 2005 2006 2007 2008 2009 Thereafter Total
Rentable Square Footage 4,044 3,744 2,733 1,940 1,618 2,554 16,633
Annual Rents $
$
24
50,280 45,401 32,006 29,211 18,694 38,352 213,944
% 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
% of Company Annual rents 23.5% 21.2% 15.0% 13.7% 8.7% 17.9% 100.0%
