Analysis of Operating Results and Financial Condition

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Analysis of Operating Results and Financial Condition For the Period Ended June 30, 2003

ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE PERIOD ENDED JUNE 30, 2003 INDEX

Page

Fact Sheet ................................................................................................................................

1

Sources and Uses of Funds......................................................................................................

2

Funds from Operations (FFO) .................................................................................................

3-4

Gross Margins .........................................................................................................................

5

Capital Structure......................................................................................................................

6

Consolidated Balance Sheets...................................................................................................

7

Consolidated Income Statements ............................................................................................

8-9

Capital Expenditure Analysis ..................................................................................................

10

Rentable Square Footage by Region .......................................................................................

11

Portfolio Analyses ................................................................................................................... 12 - 24

PS BUSINESS PARKS, INC. SECOND QUARTER FACT SHEET

OPERATING DATA Three Months Ended 06/30/02

06/30/03

Difference

Years Ended 06/30/02

06/30/03

Difference

Total revenues Net income allocable to common shareholders

$ $

50,453,000 12,991,000

$ $

48,785,000 9,539,000

3.4% 36.2%

$ $

99,106,000 18,794,000

$ $

96,930,000 22,624,000

2.2% (16.9%)

Net income per common share - basic: Continuing operations Discontinued operations

$ $

0.43 0.18

$ $

0.40 0.04

7.5% 350.0%

$ $

0.81 0.07

$ $

0.79 0.27

2.5% (74.1%)

Net income per common share - diluted: Continuing operations Discontinued operations

$ $

0.43 0.17

$ $

0.40 0.04

7.3% 325.0%

$ $

0.80 0.07

$ $

0.77 0.27

3.9% (74.1%)

21,549,000 21,799,000

(1.1%) (1.5%)

21,546,000 21,774,000

(0.9%) (1.3%)

Weighted average common shares outstanding: Basic Diluted

21,311,000 21,478,000

21,343,000 21,488,000

FUNDS FROM OPERATIONS Three Months Ended 06/30/02

06/30/03 FFO allocable to common shareholders Weighted average common shares outstanding - diluted FFO per common share - diluted

$ $

25,780,000 28,783,000 0.90

$ $

Difference

26,954,000 29,104,000 0.93

(4.4%) (1.1%) (3.2%)

Years Ended 06/30/02

06/30/03 $ $

52,013,000 28,793,000 1.81

$ $

53,078,000 29,079,000 1.83

Difference (2.0%) (1.0%) (1.1%)

PROPERTY INFORMATION Three Months Ended 06/30/02

06/30/03 Net rentable square footage at period end (wholly-owned) (1)

14,784,000

Difference

14,817,000

06/30/03

(0.2%)

14,784,000

Years Ended 06/30/02 14,817,000

Difference (0.2%)

Same Park Facilities Weighted average occupancy Annualized realized rent per sq. ft. (2)

$

92.4% 14.69 $

94.6% 14.49

(2.3%) 1.4%

(1) Includes square footage for properties held for disposition of 399,000 feet. (2) Realized rent per square foot represents the actual revenues earned per occupied square foot. BALANCE SHEET DATA 06/30/03 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

$ $ $ $ $ $

12/31/02

1,157,830,000 217,750,000 169,192,000 170,630,000 493,417,000 21,374,000 23.08

$ $ $ $ $ $

Difference

1,156,802,000 217,750,000 167,469,000 170,813,000 493,589,000 21,531,000 22.92

0.1% 0.0% 1.0% (0.1%) (0.0%) (0.7%) 0.7%

MARKET VALUE INFORMATION 06/30/03 Market value of common stock and OP units

$

Total debt Total preferred stock and OP units

1,011,436,000

12/31/02 $

Difference

917,009,000

10.3%

69,992,000

70,279,000

(0.4%)

388,380,000

388,563,000

(0.0%)

Total market capitalization

$

1,469,808,000

$

1,375,851,000

6.8%

Stock price

$

35.30

$

31.80

11.0%

1

$

92.6% 14.64 $

94.8% 14.34

(2.3%) 2.1%

PS BUSINESS PARKS, INC.

Sources and Uses of Funds For the Six Months Ended June 30, 2003

YTD 2003 Sources of Funds: Funds from operations Exercise of stock options Proceeds from property sales Proceeds from liquidation of investments Disposition proceeds from joint venture, net of incentive fees

$

Total Sources of Funds

52,013,000 1,802,000 11,375,000 7,602,000 1,376,000 74,168,000

Uses of Funds: Developed projects Property renovations Recurring capital expenditures Acquisition costs Acquisition of property Repurchase of preferred stock Investment in marketable securities Common dividends and OP distributions Repurchase of common stock Principal payments on mortgage notes payable Change in working capital

(379,000) (3,449,000) (9,742,000) (397,000) (53,275,000) (190,000) (1,396,000) (16,628,000) (8,119,000) (287,000) (507,000)

Total Uses of Funds

(94,369,000)

Net increase/(decrease) in cash balance

(20,201,000)

Beginning cash balance

44,812,000

Ending cash balance

$

* Includes six month actual plus six month budgeted results

2

24,611,000

PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS

Three Months Ended 06/30/03 06/30/02

Increase (Decrease)

Six months ended 06/30/03 06/30/02

% Change

Increase (Decrease)

% Change

Funds from operations (FFO): Net income allocable to common shareholders Less: Gain on investment in marketable securities Less: Gain on disposition of properties Less: Equity income from sale of joint venture properties Add: Impairment charge of property held for sale Add: Depreciation and amortization Add: Depreciation from unconsolidated joint venture Add: Minority interest in income - common units FFO allocable to common shareholders/unitholders

$

$

Weighted average common shares outstanding Weighted average common OP units outstanding Weighted average dilutive stock options Total pro forma fully-converted shares FFO per common share/OP unit

12,991,000 $ (2,043,000) (3,484,000) (300,000) 14,170,000 4,446,000 25,780,000 $

9,539,000 $ (148,000) 14,313,000 20,000 3,230,000 26,954,000 $

21,311,000 7,305,000 167,000 28,783,000

21,549,000 7,305,000 250,000 29,104,000

3,452,000 (2,043,000) (3,484,000) (152,000) (143,000) (20,000) 1,216,000 (1,174,000)

36.2% 100.0% (100.0%) (100.0%) (100.0%) (1.0%) 100.0% 37.6% (4.4%)

(238,000) (83,000) (321,000)

(1.1%) 0.0% (33.2%) (1.1%)

$

$

18,794,000 $ (2,043,000) (3,484,000) (1,376,000) 5,907,000 27,804,000 6,411,000 52,013,000 $

22,624,000 (25,000) (5,366,000) (148,000) 28,290,000 40,000 7,663,000 53,078,000

21,343,000 7,305,000 145,000 28,793,000

21,546,000 7,305,000 228,000 29,079,000

$ $ $ $ $ $ $ $ $

(3,830,000) (2,018,000) 1,882,000 (1,228,000) 5,907,000 (486,000) (40,000) (1,252,000) (1,065,000)

(16.9%) 8072.0% (35.1%) 829.7% 100.0% (1.7%) (100.0%) (16.3%) (2.0%)

(203,000) (83,000) (286,000)

(0.9%) 0.0% (36.4%) (1.0%)

$

0.90

$

0.93

$

(0.03)

(3.2%)

$

1.81

$

1.83

$

(0.02)

(1.1%)

Total funds from operations Less capitalized expenditures: Maintenance capital expenditures Tenant improvements Capitalized lease commissions Total capitalized expenditures Less: Straight line rent adjustment Add: Stock compensation expense

$

25,780,000

$

26,954,000

$

(1,174,000)

(4.4%)

$

52,013,000

$

53,078,000

$

(1,065,000)

(2.0%)

1,166,000 (984,000) (937,000) (755,000) 853,000 157,000

(65.7%) 38.9% 490.6% 16.8% (109.8%) 128.7%

1,434,000 (1,706,000) (1,108,000) (1,380,000) 1,178,000 241,000

(54.8%) 36.3% 105.6% 16.5% (67.8%) 113.7%

FAD

$

20,881,000

$

21,800,000

$

(919,000)

(4.2%)

$

42,165,000

$

43,191,000

$

(1,026,000)

(2.4%)

FAD per common share/OP unit

$

0.73

$

0.75

$

(0.02)

(2.7%)

$

1.46

$

1.49

$

(0.03)

(2.0%)

21,800,000 $ (6,248,000) (2,118,000) 13,434,000 $

(919,000) 56,000 (1,000) (864,000)

(4.2%) (0.9%) 0.0% (6.4%)

$

43,191,000 $ (11,402,000) (5,332,000) 26,457,000 $

(1,026,000) (988,000) 1,094,000 (920,000)

(2.4%) 8.7% (20.5%) (3.5%)

Funds available for distribution (FAD):

(610,000) (3,516,000) (1,128,000) (5,254,000) 76,000 279,000

(1,776,000) (2,532,000) (191,000) (4,499,000) (777,000) 122,000

(1,184,000) (6,401,000) (2,157,000) (9,742,000) (559,000) 453,000

(2,618,000) (4,695,000) (1,049,000) (8,362,000) (1,737,000) 212,000

Cash available for debt repayments and reinvestments: FAD

$

Distributions to common shareholders Distributions to common OP unitholders Cash available for debt repayments and reinvestments

$

20,881,000 $ (6,192,000) (2,119,000) 12,570,000 $

3

$

42,165,000 $ (12,390,000) (4,238,000) 25,537,000 $

Diluted FFO Per Common Share/OP Unit $0.90

$0.93

$0.92 $0.89

$0.91

$0.90

$0.85

$0.80

$0.75 Q202

Q302

Q402

4

Q103

Q203

Gross Operating Margin Percentage * (Same Park) 75.0% 74.0% 73.0%

73.6% 73.1%

73.4% 72.7% 72.3%

72.0% 71.0% 70.0% Q202

Q302

Q402

Q103

Q203

* Gross margin is computed by dividing property net operating income by rental income (excluding straight-line rent adjustment).

5

PS BUSINESS PARKS, INC. CAPITAL STRUCTURE Principal Maturity Dates Debt at June 30, 2003 consists of the following:

Total

2003

7.050% mortgage note, secured by one commercial property, due May 2006 8.190% mortgage note, secured by one commercial property, due March 2007 7.290% mortgage note, secured by one commercial property, due February 2009 Total mortgage notes payable (1) (4)

$

$50 million unsecured line of credit Term Facility Loan (4.46% @ 6/30/03)

$

50,000,000

$

69,992,000

5%

$

54,779,500 12,750,000 80,000,000 65,850,000 53,000,000 50,000,000 20,000,000 40,000,000 12,000,000 388,379,500

26%

753,557,000 (5) 257,879,000 (5) $ 1,011,436,000

69%

$ 1,469,807,500

100%

Total debt (3) (4)

$

8,053,000 $ 5,952,000 5,987,000 19,992,000 $

115,000 $ 120,000 64,000 299,000 $

Equity at June 30, 2003 consists of the following: 9.250% Series A preferred stock (2,191,200 depositary shares outstanding) callable 4/30/04 8.875% Series B preferred operating partnership units (510,000 units outstanding) callable 4/23/04 8.750% Series C preferred operating partnership units (3,200,000 units outstanding) callable 9/3/04 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 7.95% Series G preferred operating partnership units (800,000 units outstanding) callable 10/30/07 8.875% Series X preferred operating partnership units (1,600,000 units outstanding) callable 9/23/04 8.875% Series Y preferred operating partnership units (480,000 units outstanding) callable 7/12/05 Total preferred equity (2) (4) Common stock (21,347,219 shares outstanding) Common operating partnership units (7,305,355 units outstanding) Total common equity (6) Total market capitalization (1)

The weighted average interest rate and maturity for mrotgage debt was 7.46% and 4 years, respectively.

(2)

The weighted average distribution rate on preferred equity is 9.05%.

(3)

The weighted average interest rate on debt was 5.32%.

(4)

The total weighted average interest/distribution rate on all debt/preferred equity was 8.43%.

(5)

Value based on June 30, 2003 closing stock price of $35.30.

(6)

Does not include 167,000 shares related to stock options for the year ending June 30, 2003 computed using the Treasury Stock method. These stock options are treated as common stock equivalents for purposes of calculating weighted average common shares outstanding used in computing net income and FFO per common share.

$ $

6

2004 243,000 $ 254,000 134,000 631,000 $

2005 260,000 $ 276,000 144,000 680,000 $

2006

2007

7,435,000 $ 300,000 155,000 7,890,000 $

- $ 5,002,000 167,000 5,169,000 $

Thereafter 5,323,000 5,323,000

PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS

06/30/03

Increase (Decrease)

12/31/02

% Change

(a) See sources and uses of funds on page 2

ASSETS (b) All marketable securities were sold in the second quarter 2003. Cash and cash equivalents

$

Marketable securities

$

-

Real estate facilities, at cost: Land Buildings and equipment Accumulated depreciation Properties held for disposition, net Land held for development

Investment in unconsolidated joint venture Rent receivable Deferred rent receivables Intangible assets, net Other assets Total assets

24,611,000

$

44,812,000

$

5,278,000

285,595,000 983,004,000 1,268,599,000 (196,323,000) 1,072,276,000 34,500,000 (d)

286,301,000 968,473,000 1,254,774,000 (177,229,000) 1,077,545,000 -

10,857,000 1,117,633,000

11,989,000 1,089,534,000

214,000 1,636,000 11,369,000

1,057,000 1,814,000 11,507,000

(f)

227,000 2,140,000 1,157,830,000

$

378,000 2,422,000 1,156,802,000

(20,201,000) (a)

-45.1%

(5,278,000) (b)

-100.0%

(706,000) 14,531,000 13,825,000 (c) (19,094,000) (5,269,000) 34,500,000

-0.2% 1.5% 1.1% 10.8% -0.5% 100.0%

(1,132,000) 28,099,000 (843,000) (e) (178,000) (138,000)

(f)

$

(151,000) (282,000) 1,028,000

-9.4% 2.6% -79.8% -9.8% -1.2%

$ (d) Beaverton, Oregon properties classified as held for disposition Straight line rent adjustment Less: Accumulated Depreciation Less: Impairment loss

$

36,849,000

(g)

$

50,000,000 19,992,000 106,841,000

36,902,000

$

50,000,000 20,279,000 107,181,000

(53,000)

-0.1%

(287,000) (340,000)

0.0% 0.0% 100.0% -1.4% -0.3%

217,750,000 169,192,000

217,750,000 167,469,000

1,723,000

170,813,000 215,000 420,372,000 232,290,000 (260,000) (159,028,000) 664,402,000

(183,000) (2,000) (5,808,000) 26,646,000 (766,000) (20,242,000) (355,000)

$ $ $

(f) Rent receivable consists of the following: U.S. Govenrment Other tenants

Minority interest: Preferred units Common units

(45,498,000) 53,275,000 (7,522,000) 3,449,000 379,000 1,184,000 6,401,000 2,157,000 13,825,000 46,702,000 645,000 (6,940,000) (5,907,000) 34,500,000

(e) All remaining City of Industry JV properties were sold in 2003. The following is the affect on the investment: Total distribution to PSBP Total gain and incentive fee

Line of credit Note payable to affiliate Term Loan Mortgage notes payable Total liabilities

$

06/30/03 1,269,000

$

$

367,000 1,636,000

$

3,139,000 (2,296,000) 843,000

12/31/02 1,517,000 297,000 1,814,000

0.0% 1.0%

(g) Accrued and other liabilities at June 30, 2003 consists of:

Shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Comprehensive gain (loss) Cumulative distributions Total shareholders' equity Total liabilities and shareholders' equity

$

-39.9% -11.6% 0.1%

LIABILITIES AND SHAREHOLDERS' EQUITY Accrued and other liabilities

(c) Property reclassified to held for disposition Property acquisition Property dispositions Property renovations Development costs Maintenance capital expenditures Tenant improvements Lease commissions

170,630,000 213,000 414,564,000 (h) 258,936,000 (1,026,000) (i) (179,270,000) 664,047,000 $

1,157,830,000

$

1,156,802,000

$

1,028,000

-0.1% -0.9% -1.4% 11.5% 294.6% 12.7% -0.1%

Deferred rental revenue Accounts payable Property taxes Security deposits Accrued interest Reserves for acquisition costs Unrealized loss on interest rate swap Other

0.1%

$

$ (h) Change in paid in capital: Beginning paid in capital Repurchase of common stock and preferred stock

$

Issuance of stock bonus Exercise of stock options Change in minority interest, common, due to repurchase of shares Ending paid in capital

$

7,970,000 1,288,000 5,677,000 11,193,000 181,000 4,388,000 1,026,000 5,126,000 36,849,000

420,372,000 (8,124,000)

64,000 1,802,000 450,000 414,564,000

(i) Change in unrealized loss is due to the following: Sale of investment

$

(1,109,000)

$

83,000 (1,026,000)

Decrease in value of interest rate SWAP

7

PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED

06/30/03 Revenues: Rental income Facility management fees primarily from affiliates Gain on sale of marketable securities Interest and other income

$

Expenses: Cost of operations Cost of facility management Depreciation and amortization General and administrative Interest expense

Income before gain on disposal of real estate, gain on investmens and minority interest

Increase (Decrease)

06/30/02

47,667,000 190,000 2,043,000 553,000 (b) 50,453,000

$

48,211,000 191,000 383,000 (b) 48,785,000

12,747,000 37,000 14,170,000 1,399,000 (d) 998,000 (e) 29,351,000

12,749,000 45,000 13,651,000 1,180,000 (d) 1,432,000 (e) 29,057,000

21,102,000

19,728,000

$

% Change

(544,000) (a) (1,000) 2,043,000 170,000 1,668,000

(1.1%) (0.5%) 100.0% 44.4% 3.4%

(a)

(2,000) (c) (8,000) 519,000 219,000 (434,000) 294,000

(0.0%) (17.8%) 3.8% 18.6% (30.3%) 1.0%

(b)

Primarily due to construction management fee income of $400,000.

(c)

Cost of operations have decreased due to the following: "Same Park" facilities Other facilities

Discontinued operations: Inccome from discontinued operations Gain on disposition of real estate Impairment charge on properties held for sale Equity in income of discontinued joint venture Net income/(loss) from discontinued operations

1,085,000 3,484,000 500,000 (f) 5,069,000

(95,000) 3,484,000 293,000 3,682,000

(8.1%) 100.0% 100.0% 141.5% 265.5%

Income before minority interest

26,171,000

21,115,000

5,056,000

23.9%

Minority interest in income - preferred units Minority interest in income - common units

(4,810,000) (4,446,000)

(4,413,000) (3,230,000)

(397,000) (1,216,000)

9.0% 37.6%

3,443,000

25.6%

$

16,915,000

$

Net income allocation: Allocable to preferred shareholders

$

3,924,000

$

12,991,000 16,915,000

$ $ $

$

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

13,472,000

$

$

3,933,000

$

$

9,539,000 13,472,000

0.43 0.18 0.61

$ $ $

0.40 0.04 0.44

0.43 0.17 0.60

$ $ $

0.40 0.04 0.44

21,311,000 21,478,000

21,549,000 21,799,000

$

$ $

$ $

(9,000)

36.2% 25.6%

0.03 0.14 0.17

7.5% 350.0% 38.6%

0.03 0.13 0.16

7.3% 325.0% 36.1%

(238,000) (321,000)

(1.1%) (1.5%)

8

(f)

(243,000) 241,000 (2,000)

June 30, 2003 97,000 616,000 145,000 108,000 136,000 297,000 $ 1,399,000 $

$

$

June 30, 2002 83,000 479,000 122,000 70,000 151,000 275,000 1,180,000

Interest expense for the three months ended: Mortgage notes payable Line of credit interest Facilities fees & other charges Term loan interest Capitalized interest

(0.2%)

3,452,000 3,443,000

(394,000) 703,000 (853,000) (544,000)

General and administrative expenses for the three months ended: Professional fees Salaries Stock option and stock compensation expense Investor services Internal acquisition costs Other

(e)

Net income

$ $

7.0%

1,180,000 207,000 1,387,000

$

$

(d) 1,374,000

Rental income has decreased due to the following: "Same Park" facilities Other facilities Straight line rent adjustment

June 30, 2003 375,000 63,000 560,000 $ 998,000 $

Represents equity income from the Company's 25% interest and 25% incentive fee in the City of Indusrty JV.

$

$

June 30, 2002 528,000 553,000 63,000 432,000 (144,000) 1,432,000

PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED

06/30/03 Revenues: Rental income Facility management fees primarily from affiliates Gain on sale of marketable securities Interest and other income

$

Expenses: Cost of operations Cost of facility management Depreciation and amortization General and administrative Interest expense

Income before gain on disposal of real estate, gain on investmens and minority interest

Increase (Decrease)

06/30/02

95,853,000 384,000 2,043,000 826,000 (b) 99,106,000

$

95,850,000 386,000 25,000 669,000 (b) 96,930,000

26,060,000 74,000 27,804,000 2,452,000 (d) 2,000,000 (e) 58,390,000

25,498,000 90,000 26,972,000 2,492,000 (d) 2,983,000 (e) 58,035,000

40,716,000

38,895,000

$

% Change

3,000 (a) (2,000) 2,018,000 157,000 2,176,000

0.0% (0.5%) 8072.0% 23.5% 2.2%

(a)

562,000 (c ) (16,000) 832,000 (40,000) (983,000) 355,000

2.2% (17.8%) 3.1% (1.6%) (33.0%) 0.6%

(b)

Primarily due to construction management fee income of $400,000.

(c )

Cost of operations have increased due to the following: "Same Park" facilities Other facilities

Discontinued operations: Inccome from discontinued operations Gain on disposition of real estate Impairment charge on properties held for sale Equity in income of discontinued joint venture Net income/(loss) from discontinued operations

2,089,000 3,484,000 (5,907,000) 2,296,000 (f) 1,962,000

(63,000) (1,882,000) (5,907,000) 2,047,000 (5,805,000)

(2.9%) (35.1%) 100.0% 822.1% (74.7%)

Income before minority interest

42,678,000

46,662,000

(3,984,000)

(8.5%)

Minority interest in income - preferred units Minority interest in income - common units

(9,620,000) (6,411,000)

(8,825,000) (7,663,000)

(795,000) 1,252,000

9.0% (16.3%)

Net income allocation: Allocable to preferred shareholders Allocable to common shareholders

$

26,647,000

$

30,174,000

$

(3,527,000)

(11.7%)

$

7,853,000 18,794,000 26,647,000

$ $

7,550,000 22,624,000 30,174,000

$

$

$

303,000 (3,830,000) (3,527,000)

4.0% (16.9%) (11.7%)

$ $ $

0.81 0.07 0.88

$ $ $

0.79 0.27 1.06

0.02 (0.20) (0.18)

2.5% (74.1%) (17.0%)

Net income per common share - diluted Continuing operations Discontinued operations

$

0.80 0.07 0.87

$

0.77 0.27 1.04

0.03 (0.20) (0.17)

3.9% (74.1%) (16.3%)

(203,000) (286,000)

(0.9%) (1.3%)

$ Weighted average common shares outstanding: Basic Diluted

21,343,000 21,488,000

$

21,546,000 21,774,000

$ $

$ $

9

149,000 413,000 562,000

June 30, 2003 198,000 1,275,000 218,000 167,000 271,000 323,000 $ 2,452,000 $

$

$

June 30, 2002 246,000 1,051,000 212,000 158,000 314,000 511,000 2,492,000

Interest expense for the three months ended: Mortgage notes payable Line of credit interest Facilities fees & other charges Term loan interest Affiliated loan (PSI) Capitalized interest

(f) Net income per common share - basic: Continuing operations Discontinued operations

(239,000) 1,420,000 (1,178,000) 3,000

General and administrative expenses for the three months ended: Professional fees Salaries Stock option and stock compensation expense Investor services Internal acquisition costs Other

(e)

Net income

$ $

4.7%

2,152,000 5,366,000 249,000 7,767,000

$

$

(d) 1,821,000

Rental income has increased due to the following: "Same Park" facilities Other facilities Straight line rent adjustment

June 30, 2003 758,000 126,000 1,116,000 $ 2,000,000 $

Represents equity income from the Company's 25% interest and 25% incentive fee in the City of Indusrty JV.

$

$

June 30, 2002 1,083,000 1,321,000 301,000 488,000 78,000 (288,000) 2,983,000

PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (2003)

Recurring capital expenditures (1)

Cost per Weighted Average Square Foot

2003 costs

Maintenance capital expenditures (2)

$1,184,000

$0.08

Tenant improvements (3)

$6,401,000

$0.45

Leasing commissions (4)

$2,157,000

$0.15

Total recurring capital expenditures

$9,742,000

$0.69

Non-recurring capital expenditures Development costs

$379,000

Property renovations

$3,449,000

Acquisition costs

$397,000

Total non-recurring capital expenditures

$4,225,000

(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 $5.6 million or approximately $0.40 per weighted average square foot for the period ended June 30, 2003 compared to $5.1 million or $0.36 per square foot during the same period in 2002.

(2)

Maintenance capital expenditures generally range from $0.30 to $0.50 per weighted average square foot annually. 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 improvement costs generally range from $0.40 to $0.80 per weighted average square foot annually. Tenant improvements less than $1,000 or for leases of two years or less are expensed and included in cost of operations ($295,000 for the six months ended June 30, 2003 as compared to $524,000 for the six months ended June 30, 2002).

(4)

Lease commissions generally range from $0.15 to $0.40 per weighted average square foot annually.

10

Rentable Square Footage by Region

September 30, 2002 (14,755,000 square feet)

December 31, 2002 (14,431,000 square feet) 736,000

736,000 1,973,000

3,176,000

1,973,000

3,176,000

N. California (10%)

S. California (22%)

S. Texas (7%)

N. California (10%)

N. Texas (13%)

S. Texas (7%)

Virginia (18%)

N. Texas (13%)

1,771,000

1,495,000

1,646,000

Virginia (18%)

Maryland (12%)

1,495,000

Maryland (12%) Other (5%)

833,000

2,621,000

2,621,000

1,951,000

1,951,000

March 31, 2003 (14,542,000 square feet) 736,000 3,176,000 1,973,000

June 30, 2003 (14,784,000 square feet) 598,000 1,973,000

S. California (22%)

3,556,000

S. Texas (6%)

S. Texas (6%)

N. Texas (14%)

N. Texas (14%)

1,646,000

Virginia (18%)

1,646,000

Virginia (18%)

1,495,000

S. California (24%) N. California (10%)

N. California (10%)

Maryland (11%)

Maryland (11%) Oregon (14%)

1,495,000

Other (5%)

833,000 2,621,000

Oregon (13%) Other (5%)

Oregon (13%)

1,032,000

S. California (22%)

833,000

2,621,000

2,062,000

2,062,000

11

Oregon (13%) Other (4%)

PS BUSINESS PARKS, INC. PORTFOLIO OVERVIEW

Rentable Square Footage of Properties as of June 30, 2003 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Other

Industrial 231,000 712,000 407,000 1,350,000

Office 406,000 346,000 720,000 31,000 430,000 597,000 131,000 2,661,000

Flex 2,215,000 1,627,000 926,000 1,459,000 770,000 660,000 911,000 833,000 569,000 535,000 268,000 10,773,000

Total 2,621,000 1,973,000 1,646,000 1,690,000 1,513,000 1,497,000 1,508,000 833,000 569,000 535,000 399,000 14,784,000

% 17.7% 13.3% 11.1% 11.4% 10.2% 10.1% 10.2% 5.6% 3.8% 3.6% 3.0% 100.0%

Average Occupancy Rates by Product Type for the Quarter Ending June 30, 2003 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Other

Industrial

Office

100.0% 100.0% 99.4% 99.8%

91.4% 87.9% 92.1% 97.6% 95.4% 86.9% 96.9% 91.5%

Flex 94.9% 79.1% 82.3% 92.5% 96.6% 95.6% 97.8% 91.5% 93.6% 95.3% 95.8% 91.4%

Total 94.3% 79.4% 86.6% 93.5% 98.2% 96.5% 95.4% 91.5% 93.6% 95.3% 93.6% 92.2%

Weighted Average Occupancy Rates by Portfolio Type for the Quarter Ending June 30, 2003 Primary Markets Northern Virginia Portland Maryland Dallas Los Angeles County Northern California Orange County Austin Phoenix San Diego County Other

Large Tenant

Small Tenant

94.1% 79.0% 86.3% 95.5% 100.0% 97.5% 94.8% 90.7% 98.4% 96.9% 91.4%

95.5% 85.4% 100.0% 82.1% 96.6% 94.6% 96.6% 93.8% 92.9% 95.3% 95.8% 94.3%

Total 94.3% 79.4% 86.6% 93.5% 98.2% 96.5% 95.4% 91.5% 93.6% 95.3% 96.2% 92.2%

Note: The Company's "large tenant" portfolio consists of properties with average leases greater than or equal to 5,000 square feet. The Company's "small tenant" portfolio consists of properties with average leases less than 5,000 square feet.

12

"Same Park" Revenue Growth (%) 10.0% 8.5%

8.0% 6.0%

7.2%

6.7%

7.2%

8.9%

7.3% 6.2% 5.1% 4.3%

4.0% 2.5% 1.9%

2.0%

0.4%

0.9%

0.4%

0.0% -0.8%

-2.0% Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203

13

"Same Park" NOI Growth before Straight Line Rent Adjustment (%) 12.0%

11.0% 10.2%

10.0% 8.0% 6.0%

9.0% 8.1%

9.0%

9.5% 8.5%

5.1% 4.3%

4.0% 2.0%

2.0%

1.7% 0.7%

0.0% -0.7%

-2.0%

-0.5%

-0.4%

Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203

14

"Same Park" Occupancy (%) 98.0% 97.0%

96.4% 96.7%

97.3% 97.1%

97.4% 96.2%

96.0% 95.0%

95.5% 95.0% 94.9% 95.1%

94.7% 93.9%

94.0% 93.0%

93.5% 92.7% 92.4%

92.0% 91.0% Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203

15

Total Portfolio Occupancy (%) 98.0% 96.9% 96.7%

97.0% 96.3%

96.0%

96.5%

97.0% 96.2%

95.7% 95.2% 94.8%

95.0%

94.6% 94.3% 93.8%

94.0%

93.2%

93.0%

92.6%

92.2%

92.0% 91.0% Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203

16

PS BUSINESS PARKS, INC. PORTFOLIO ANALYSIS

Industry Concentration as of June 30, 2003

Business services Computer Hardware, software and related service Government Contractors Financial services Retail Home funishings Electronics Communications Manufacturing and assembly

14.1% 13.3% 10.1% 9.1% 7.9% 6.1% 5.6% 5.4% 4.4% 4.3% 80.3%

Top Ten Customers by Annual Rent as of June 30, 2003 Tenant

Square Footage

U.S. Government Citigroup Intel IBM County of Santa Clara Hughes Network Systems ** Pycon, Inc. Sabre Holdings MCI Worldcom Footstar

Annual Rents

%

524,000 262,000 233,000 233,000 97,000 106,000 134,000 102,000 121,000 116,000

$

10,820,000 4,352,000 3,903,000 3,732,000 2,534,000 2,527,000 2,228,000 1,825,000 1,796,000 1,785,000

5.5% 2.2% 2.0% 1.9% 1.3% 1.3% 1.1% 0.9% 0.9% 0.9%

1,928,000

$

35,502,000

18.0%

** Electronics subsidiary of Hughes Aircraft

17

PS BUSINESS PARKS, INC. PORTFOLIO ANALYSIS AS OF June 30, 2003 . Lease Expirations - Flex Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 1,128,000 2,304,000 2,033,000 1,558,000 999,000 1,975,000 9,997,000

Annual Rents $

$

11,648,000 26,566,000 25,230,000 21,855,000 14,001,000 29,030,000 128,330,000

% 9.1% 20.7% 19.7% 17.0% 10.9% 22.6% 100.0%

Lease Expirations - Office Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 285,000 385,000 773,000 384,000 186,000 473,000 2,486,000

Annual Rents $

$

3,942,000 6,086,000 15,895,000 7,969,000 4,267,000 11,298,000 49,457,000

% 8.0% 12.3% 32.1% 16.1% 8.6% 22.9% 100.0%

Lease Expirations - Industrial Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 38,000 332,000 353,000 229,000 188,000 205,000 1,345,000

Annual Rents $

$

195,000 1,962,000 2,184,000 1,500,000 1,029,000 901,000 7,771,000

% 2.5% 25.2% 28.1% 19.3% 13.2% 11.7% 100.0%

Lease Expirations - Total Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 1,451,000 3,021,000 3,159,000 2,171,000 1,373,000 2,653,000 13,828,000

18

Annual Rents $ $ $ $ $ $ $

15,785,000 34,614,000 43,309,000 31,324,000 19,297,000 41,229,000 185,558,000

% 8.5% 18.7% 23.3% 16.9% 10.4% 22.2% 100.0%

PS BUSINESS PARKS, INC. PORTFOLIO ANALYSIS AS OF June 30, 2003

Southern California Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 432,000 1,034,000 935,000 480,000 230,000 264,000 3,375,000

Annual Rents $

5,590,000 11,681,000 12,727,000 6,034,000 3,598,000 5,537,000 45,167,000

$

% 12.4% 25.9% 28.2% 13.4% 8.0% 12.1% 100.0%

% of Company Annual rents 3.0% 6.3% 6.9% 3.3% 1.9% 3.0% 24.3%

Northern California Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 124,000 300,000 230,000 215,000 366,000 230,000 1,465,000

Annual Rents $

1,454,000 3,838,000 2,622,000 2,645,000 4,453,000 5,090,000 20,102,000

$

% 7.2% 19.1% 13.0% 13.2% 22.2% 25.3% 100.0%

% of Company Annual rents 0.8% 2.1% 1.4% 1.4% 2.4% 2.7% 10.8%

Southern Texas Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 111,000 236,000 244,000 45,000 29,000 83,000 748,000

Annual Rents $

$

19

1,285,000 2,171,000 2,118,000 387,000 246,000 519,000 6,726,000

% 19.1% 32.3% 31.5% 5.8% 3.7% 7.6% 100.0%

% of Company Annual rents 0.8% 1.2% 1.1% 0.2% 0.1% 0.3% 3.6%

PS BUSINESS PARKS, INC. PORTFOLIO ANALYSIS AS OF June 30, 2003

Northern Texas Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 324,000 526,000 307,000 385,000 127,000 401,000 2,070,000

Annual Rents $

1,893,000 4,442,000 3,125,000 4,990,000 1,002,000 2,924,000 18,376,000

$

% 10.3% 24.2% 17.0% 27.2% 5.5% 15.8% 100.0%

% of Company Annual rents 1.0% 2.4% 1.7% 2.7% 0.5% 1.6% 9.9%

Northern Virginia Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 120,000 406,000 409,000 429,000 245,000 911,000 2,520,000

Annual Rents $

$

1,480,000 5,257,000 6,115,000 7,731,000 3,831,000 15,010,000 39,424,000

% 3.8% 13.3% 15.5% 19.7% 9.7% 38.0% 100.0%

% of Company Annual rents 0.8% 2.8% 3.3% 4.2% 2.1% 8.1% 21.2%

Maryland Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 93,000 102,000 379,000 224,000 177,000 496,000 1,471,000

Annual Rents $

$

20

1,115,000 2,241,000 8,045,000 3,816,000 3,558,000 7,751,000 26,526,000

% 4.2% 8.4% 30.3% 14.4% 13.4% 29.3% 100.0%

% of Company Annual rents 0.6% 1.2% 4.3% 2.1% 1.9% 4.2% 14.3%

PS BUSINESS PARKS, INC. PORTFOLIO ANALYSIS AS OF June 30, 2003

Oregon Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 175,000 232,000 524,000 337,000 104,000 237,000 1,609,000

Annual Rents $

$

2,162,000 2,992,000 7,222,000 5,284,000 1,698,000 3,976,000 23,334,000

% 9.3% 12.8% 31.0% 22.6% 7.3% 17.0% 100.0%

% of Company Annual rents 1.2% 1.6% 3.9% 2.8% 0.9% 2.1% 12.6%

Other Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 72,000 185,000 131,000 56,000 95,000 31,000 570,000

Annual Rents $

$

806,000 1,992,000 1,335,000 437,000 911,000 422,000 5,903,000

% 13.7% 33.7% 22.6% 7.4% 15.4% 7.2% 100.0%

% of Company Annual rents 0.4% 1.1% 0.7% 0.2% 0.5% 0.2% 3.2%

Total Year of Lease Expiration 2003 2004 2005 2006 2007 Thereafter

Rentable Square Footage 1,451,000 3,021,000 3,159,000 2,171,000 1,373,000 2,653,000 13,828,000

Annual Rents $ $ $ $ $ $ $

21

15,785,000 34,614,000 43,309,000 31,324,000 19,297,000 41,229,000 185,558,000

% 8.5% 18.7% 23.3% 16.9% 10.4% 22.2% 100.0%

% of Company Annual rents 8.5% 18.7% 23.3% 16.9% 10.4% 22.2% 100.0%

Lease Expirations (Large Tenant Portfolio) as of June 30, 2003 ($ in millions) 27.2% 23.9%

$37.6

$33.1

$30.0

18.9% $26.1

13.5%

$20.0

$18.7

10.7% $14.8

$10.0

5.8% $8.0

$0.0 2003

2004

2005

2006

2007

Comparison to prior year (2002-6.7%, 2003-13.5%, 2004-16.9%, 2005-21.3%, 2006-16.5% and beyond-25.1%)

22

Beyond

Lease Expirations (Small Tenant Portfolio) as of June 30, 2003 ($ in millions) $20.0

33.8% $15.9

21.7%

$10.0

$10.2

16.5% $7.8

11% $5.2

9.5% $4.5

7.5% $3.6

$0.0 2003

2004

2005

2006

2007

Comparison to prior year - (2002-15.2%, 2003-31.7%, 2004-23.6%, 2005-13.9%, 2006-6.6% and beyond-9.0%)

23

Beyond

Lease Expirations (Entire Portfolio) as of June 30, 2003 ($ in millions) $50.0 23.3% $43.3

$40.0

$41.2

18.7%

16.9%

$34.6

$30.0

$20.0

22.2%

$31.3

10.4% 8.5%

$19.3

$15.8

$10.0

$0.0 2003

2004

2005

2006

2007

Comparison to prior year (2002-9.1%, 2003-18.6%, 2004-18.7%, 2005-19.2%, 2006-13.7% and beyond-20.6%)

24

Beyond