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Analysis of Operating Results and Financial Condition December 31, 2007
ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2007 INDEX
Page
Fact Sheet ................................................................................................................................
1
Funds from Operations (FFO) .................................................................................................
2-3
Capital Structure......................................................................................................................
4
Consolidated Balance Sheets...................................................................................................
5-6
Consolidated Income Statements ............................................................................................
7 - 10
Capital Expenditure Analysis ..................................................................................................
11
Portfolio Analysis.................................................................................................................... 12 - 25
PS BUSINESS PARKS, INC. FOURTH QUARTER FACT SHEET (in thousands, except per share amounts)
OPERATING DATA FOR THE THREE MONTHS ENDED 12/31/07 12/31/06 % Change
12/31/07
FOR THE YEARS ENDED 12/31/06 % Change
Total rental income Total cost of operations Net operating income
$
69,846 21,695 48,151
$
11.6% 12.3% 11.2%
$
270,775 84,360 186,415
$
$
62,606 19,317 43,289
$
$
$
242,214 74,671 167,543
11.8% 13.0% 11.3%
Net income allocable to common shareholders
$
3,758
$
3,712
1.2%
$
17,729
$
16,647
6.5%
Net income per common share - diluted: Continuing operations Discontinued operations Net income per common share - diluted
$ $ $
0.17 0.17
$ $ $
0.17 0.17
$ $ $
0.82 0.82
$ $ $
0.69 0.08 0.77
18.8% (100.0%) 6.5%
-
Weighted average common shares outstanding - basic
21,257
21,303
(0.2%)
21,313
21,335
(0.1%)
Weighted average common shares outstanding - diluted Weighted average common OP units outstanding Total fully-converted diluted shares
21,519 7,305 28,824
21,666 7,305 28,971
(0.7%) (0.5%)
21,634 7,305 28,939
21,646 7,305 28,951
(0.1%) (0.0%)
FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED 12/31/07 12/31/06 % Change FFO allocable to common shareholders, before adjustments EITF Topic D-42 FFO allocable to common shareholders
$
$
$
31,808 31,808
Diluted FFO per common share and units - before adjustments Diluted FFO per common share and units
$ $
1.10 1.10
$ $
$
29,193 (1,722) 27,471 1.01 0.95
12/31/07
9.0% (100.0%) 15.8%
$
8.9% 15.8%
FOR THE YEARS ENDED 12/31/06 % Change $
$
122,405 122,405
$ $
4.23 4.23
$ $
$
110,981 (4,746) 106,235 3.83 3.67
10.3% (100.0%) 15.2% 10.4% 15.3%
PROPERTY INFORMATION FOR THE THREE MONTHS ENDED 12/31/07 12/31/06 % Change Total Owned Portfolio (1) (excluding discontinued operations) Net rentable square footage at period end Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3) Same Park Portfolio (1) Net rentable square footage at period end Weighted average occupancy Annualized realized rent per sq. ft. (2) REVPAR (3)
$ $
19,556 94.2% 15.17 $ 14.29 $
18,687 93.9% 14.52 13.63
4.7% 0.3% 4.5% 4.8%
$ $
17,494 94.7% 14.71 $ 13.93 $
17,494 94.0% 14.19 13.34
0.7% 3.7% 4.4%
(1) Amounts exclude discontinued operations. (2) Represents the annualized revenues earned per occupied square foot. (3) Represents the annualized revenues earned per total square foot. BALANCE SHEET DATA 12/31/07 Total assets Minority interest - preferred Minority interest - common Perpetual preferred stock Common shareholders' equity Total common shares outstanding at period end Book value per common share
$ $ $ $ $ $
12/31/06
1,516,583 94,750 154,470 716,250 439,330 20,777 21.15
$ $ $ $ $ $
% Change
1,463,599 82,750 165,469 622,500 482,703 21,311 22.65
3.6% 14.5% (6.6%) 15.1% (9.0%) (2.5%) (6.6%)
MARKET VALUE INFORMATION 12/31/07 Market value of common stock and common OP units
$
Total debt Total preferred equity
1,475,739
12/31/06 $
% Change
2,023,463
(27.1%)
60,725
67,048
(9.4%)
811,000
705,250
15.0%
Total market capitalization
$
2,347,464
$
2,795,761
(16.0%)
Stock price at the end of the period
$
52.55
$
70.71
(25.7%)
1
12/31/07
FOR THE YEARS ENDED 12/31/06 % Change
$ $
19,556 93.4% 14.97 $ 13.98 $
18,687 93.4% 14.37 13.42
4.7% 4.2% 4.2%
$ $
17,494 93.8% 14.55 $ 13.65 $
17,494 93.4% 14.14 13.21
0.4% 2.9% 3.3%
PS BUSINESS PARKS, INC. ANALYSIS OF FUNDS FROM OPERATIONS (in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED 12/31/07 12/31/06
Increase (Decrease)
FOR THE YEARS ENDED 12/31/07 12/31/06
% Change
Increase (Decrease)
% Change
Funds from operations (FFO): Net income allocable to common shareholders Adjustments: Gain on disposition of real estate Depreciation and amortization Minority interest in income - common units FFO allocable to common shareholders/unitholders
$
3,758
$
26,680 1,370 31,808
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
$
3,712
$
22,496 1,263 27,471
21,257 7,305 262 28,824
$
46
1.2%
$
4,184 107 4,337
18.6% 8.5% 15.8%
21,303 7,305 363 28,971
(46) (101) (147)
$
17,729
$
98,521 6,155 122,405
(0.2%)
$
$
21,313 7,305 321 28,939
(27.8%) (0.5%)
16,647
$
(2,328) 86,243 5,673 106,235 $ 21,335 7,305 311 28,951
1,082
6.5%
(2,328) 12,278 482 16,170
(100.0%) 14.2% 8.5% 15.2%
(22) 10 (12)
(0.1%)
3.2% (0.0%)
$
1.10
$
0.95
$
0.15
15.8%
$
4.23
$
3.67
$
0.56
15.3%
Funds from operations Adjustments: Recurring capital improvements Tenant improvements Lease commissions Straight-line rent Stock compensation expense In-place lease adjustment Lease incentives net of tenant improvement reimbursements Redemption amount over carrying amount related to redeemed preferred equity
$
31,808
$
27,471
$
4,337
15.8%
$
122,405
$
106,235
$
16,170
15.2%
FAD
$
21,385
$
18,347
$
3,038
16.6%
$
88,159
$
77,598
$
10,561
13.6%
Diluted FAD per common share/OP unit
$
0.74
$
0.63
$
0.11
17.5%
$
3.05
$
2.68
$
0.37
13.8%
$
21,385 $ (9,351) (3,214) 8,820 $
3,038 3,171 1,096 (1,229)
16.6% 51.3% 51.7% (12.2%)
$
88,159 $ (34,315) (11,761) 42,083 $
77,598 $ (24,718) (8,474) 44,406 $
13.6%
30.1%
52.3%
42.8%
Funds available for distribution (FAD):
(3,140) (6,073) (2,026) 16 978 (49) (129)
(4,362) (5,741) (1,285) (367) 796 60 53
(1,222) 332 741 (383) 182 (109) (182)
(28.0%) 5.8% 57.7% (104.4%) 22.9% (181.7%) (343.4%)
(13,677) (17,882) (5,803) (473) 3,724 (102) (33)
(10,773) (17,989) (5,334) (2,804) 2,845 232 440
2,904 (107) 469 (2,331) 879 (334) (473)
27.0% (0.6%) 8.8% (83.1%) 30.9% (144.0%) (107.5%)
-
1,722
(1,722)
(100.0%)
-
4,746
(4,746)
(100.0%)
Cash available for debt repayments and reinvestments: FAD Distributions to common shareholders Distributions to common OP unit holders Cash available for debt repayments and reinvestments FAD payout ratio
$
58.8%
18,347 $ (6,180) (2,118) 10,049 $ 45.2%
2
$
10,561 9,597 3,287 (2,323)
13.6% 38.8% 38.8% (5.2%)
9.5%
22.2%
Reported Diluted FFO Per Common Share/OP Unit $1.15 $1.10
$1.10
$1.07
$1.05
$1.02 $1.03
$1.00 $0.95
$0.95 $0.90
$0.93
$0.92 $0.88 $0.88 $0.88
$0.87 $0.86
$0.85 $0.80 Q1
Q2
Q3
Q4
|______2005______|
Q1
Q2
Q3
Q4
|______2006_____|
3
Q1
Q2
Q3
Q4
|______2007_____|
PS BUSINESS PARKS, INC. CAPITAL STRUCTURE (in thousands)
As of December 31, 2007 % of Total Market WTD Average Total Capitalization Rate
As of December 31, 2006 % of Total Market WTD Average Total Capitalization Rate
Long-Term Debt:
7.290% mortgage note, due February 2009 5.730% mortgage note, due March 2013 5.520% mortgage note, due May 2013 5.680% mortgage note, due May 2013 6.150% mortgage note, due November 2031 (includes unamortized premium of $834,000 on $16.5 million mortgage note with stated rate of 7.200%) 5.610% mortgage note, due January 2011 (includes unamortized premium of $198,000 on $2.8 million mortgage note with stated rate of 7.610%) 8.190% mortgage note, repaid March 2007
$
5,323 14,510 10,274 10,281 17,348
$
5,490 14,743 10,483 10,486 17,759
2,989
3,085
-
5,002
Total mortgage notes payable(1)
60,725
2.6%
5.94%
67,048
2.4%
6.11%
Total debt
60,725
2.6%
5.94%
67,048
2.4%
6.11%
Preferred Equity
7.950% Series G preferred operating partnership units (800,000 units outstanding) callable 10/30/07 7.000% Series H preferred stock (8,200,000 depositary shares outstanding) callable 1/30/09 6.875% Series I preferred stock (3,000,000 depositary share outstanding) callable 4/21/09 7.500% Series J preferred operating partnership units (1,710,000 units outstanding) callable 5/27/09 7.950% Series K preferred stock (2,300,000 depositary shares outstanding) callable 6/30/09 7.600% Series L preferred stock (2,300,000 depositary shares outstanding) callable 8/31/09 7.200% Series M preferred stock (3,300,000 depositary shares outstanding) callable 5/2/10 7.125% Series N preferred operating partnership units (800,000 units outstanding) callable 12/12/10 7.375% Series O preferred stock (3,800,000 depositary shares outstanding) callable 6/16/11 6.700% Series P preferred stock (5,750,000 depositary shares outstanding) callable 1/17/12 6.550% Series Q preferred operating partnership units (480,000 units outstanding) callable 3/12/12 8.750% Series F preferred stock (2,000,000 depositary shares outstanding) redeemed 1/29/07
20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 95,000 143,750 12,000 -
Total preferred equity
811,000
34.5%
7.16%
705,250
25.2%
7.37%
Total debt and preferred equity
871,725
37.1%
7.07%
772,298
27.6%
7.26%
1,091,843 383,896 1,475,739
62.9%
1,506,901 516,562 2,023,463
72.4%
2,347,464
100%
2,795,761
100%
Common stock (20,777,219 and 21,311,005 shares outstanding as of December 31, 2007 and December 31, 2006, respectively) Common operating partnership units (7,305,355 units outstanding as of December 31, 2007 and December 31, 2006) Total common equity(2) Total market capitalization
(1)
20,000 205,000 75,000 42,750 57,500 57,500 82,500 20,000 95,000 50,000
$
$
Principal maturity dates are represented by the following chart: Principal Maturity Dates 2008
Park East III $ Rose Canyon Meadows Palm Beach Meadows Loan Premium Palm Beach Loan Premium $
(2)
Closing stock price was $52.55 and $70.71 as of December 31, 2007 and December 31, 2006, respectively.
4
2009
179 $ 244 237 477 198 61 1,396 $
5,144 $ 261 258 507 208 64 6,442 $
2010
2011
- $ - $ 277 293 278 15,741 536 3,178 218 210 67 6 1,376 $ 19,428 $
2012
Thereafter
- $ 308 547 855 $
- $ 13,127 18,101 31,228 $
Total
5,323 14,510 16,514 23,346 834 198 60,725
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
12/31/07
12/31/06
Increase (Decrease)
% Change
ASSETS Cash and cash equivalents
$
Real estate facilities, at cost: Land Buildings and equipment Accumulated depreciation Land held for development
Rent receivable Deferred rent receivables Other assets Total assets
$
35,041
$
67,017
$
(31,976)
(a)
494,849 1,484,049 1,978,898 (539,857) 1,439,041 7,869 1,446,910
439,777 1,353,442 1,793,219 (441,336) 1,351,883 9,011 1,360,894
55,072 130,607 185,679 98,521 87,158 (1,142) 86,016
2,240 21,927 10,465 1,516,583
2,080 21,454 12,154 1,463,599
160 473 (1,689) 52,984
(c)
7,929 (50,000) (6,323)
(e)
$
$
(b)
(d)
(47.7%)
12.5% 9.6% 10.4% 22.3% 6.4% (12.7%) 6.3% 7.7% 2.2% (13.9%) 3.6%
LIABILITIES AND SHAREHOLDERS' EQUITY Accrued and other liabilities Preferred stock called for redemption Mortgage notes payable
$
Total liabilities Minority interests: Preferred units Common units Shareholders' equity: Preferred stock Common stock Paid-in capital Cumulative net income Cumulative distributions Total shareholders' equity Total liabilities and shareholders' equity
$
51,058 60,725
$
43,129 50,000 67,048
$
18.4% (100.0%) (9.4%)
111,783
160,177
(48,394)
(30.2%)
94,750 154,470
82,750 165,469
12,000 (10,999)
14.5% (6.6%)
716,250 207 371,267 552,069 (484,213) 1,155,580
572,500 213 398,048 483,403 (398,961) 1,055,203
143,750 (6) (26,781) 68,666 85,252 100,377
25.1% (2.8%) (6.7%) 14.2% 21.4% 9.5%
1,516,583
5
$
1,463,599
$
52,984
(f) (g)
3.6%
PS BUSINESS PARKS, INC. CONSOLIDATED BALANCE SHEETS VARIANCE EXPLANATIONS (in thousands)
(a) Change in cash and cash equivalents: Beginning cash balance Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Ending cash balance
$
$
(b) Change in real estate facilities, at cost: Beginning balance Property acquisitions Property renovations Transfer from land held for development Recurring capital improvements Tenant improvements Lease commissions Ending balance
$
$
67,017 184,094 (180,188) (35,882) 35,041
1,793,219 141,936 5,239 1,142 13,677 17,882 5,803 1,978,898
(c) Rent receivable consists of the following: U.S. Government tenants Other Allowance for bad debt
12/31/07 $ 1,143 1,397 (300) $ 2,240
12/31/06 $ 1,039 $ 1,341 $ (300) $ 2,080
Increase (Decrease) $ 104 56 $ 160
(d) Change in other assets: Insurance claim receivable Prepaid insurance Prepaid property taxes Lease incentives, net Mortgage impounds In-place lease adjustment, net Other
12/31/07 $ 122 1,316 2,615 1,705 1,474 419 2,813 $ 10,465
12/31/06 $ 1,359 922 2,184 2,148 1,063 656 3,822 $ 12,154
Increase (Decrease) $ (1,237) 394 431 (443) 411 (237) (1,009) $ (1,689)
(e) Accrued and other liabilities consists of: Prepaid rent Accrued property taxes Security deposits In-place lease ajustment, net Reserves for acquisition costs Other
12/31/07 $ 6,564 5,197 19,118 1,017 2,001 17,161 $ 51,058
12/31/06 $ 6,883 4,905 17,879 3,031 10,431 $ 43,129
Increase (Decrease) $ (319) 292 1,239 1,017 (1,030) 6,730 $ 7,929
(f)
Change in paid-in capital: Beginning paid-in capital Shelf registration Repurchase of common stock Issuance of preferred stock Exercise of stock options Restricted stock and stock compensation Adjustment to reflect minority interest to underlying ownership Ending paid in capital
(g) Change in cumulative distributions: Beginning cumulative distributions Distributions to preferred shareholders Distributions to common shareholders Ending cumulative distributions
$
$
$
$
6
398,048 (88) (31,847) (4,183) 1,468 2,813 5,056 371,267
398,961 50,937 34,315 484,213
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED (in thousands, except per share amounts)
12/31/07 Revenues: Rental income Facility management fees Total operating revenues
$
69,846 182 70,028
Increase (Decrease)
12/31/06
$
62,606 183 62,789
$
% Change
7,240 (a) (1) 7,239
11.6% (0.5%) 11.5%
2,378 (b) 4,184 197 (c) 6,759
12.3% 18.6% 11.1% 15.5%
(454) 85 (d) (539)
(32.0%) 9.3% (107.8%)
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
21,695 26,680 1,979 50,354
Other income and expenses: Interest and other income Interest expense Total other income and expenses
963 (1,002) (39)
Income from continuing operations before minority interests
19,635
19,694
(59)
(0.3%)
Minority interests in continuing operations: Minority interest in income - preferred units Minority interest in income - common units Total minority interests in continuing operations
(1,751) (1,370) (3,121)
(1,555) (1,263) (2,818)
196 107 303
12.6% 8.5% 10.8%
Net Income
16,514
16,876
(362)
(2.1%)
Net Income allocable to preferred shareholders Preferred distributions Redemption of preferred stock Total preferred distributions
12,756 12,756
11,442 1,722 13,164
1,314 (1,722) (408)
11.5% (100.0%) (3.1%)
19,317 22,496 1,782 43,595
1,417 (917) 500
Net Income allocable to common shareholders
$
3,758
$
3,712
$
46
1.2%
Net income per common share - basic: Continuing operations Discontinued operations Net Income
$ $ $
0.18 0.18
$ $ $
0.17 0.17
$ $ $
0.01 0.01
5.9% 5.9%
Net income per common share - diluted: Continuing operations Discontinued operations Net Income
$ $ $
0.17 0.17
$ $ $
0.17 0.17
$ $ $
-
Weighted average common shares outstanding: Basic Diluted
21,257 21,519
7
21,303 21,666
(46) (147)
-
(0.2%) (0.7%)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE THREE MONTHS ENDED (in thousands)
(a) Rental income: Same Park Non-Same Park Same Park straight-line rent Non-Same Park straight-line rent
12/31/07 $ 61,235 8,627 (307) 291 $ 69,846
12/31/06 $ 58,113 4,126 222 145 $ 62,606
Increase (Decrease) $ 3,122 4,501 (529) 146 $ 7,240
(b) Cost of operations: Same Park Non-Same Park
12/31/07 $ 18,236 3,459 $ 21,695
12/31/06 $ 17,452 1,865 $ 19,317
Increase (Decrease) $ 784 1,594 $ 2,378
(c) General and administrative expenses: Cash and non-cash compensation expense Professional fees Other
12/31/07 $ 1,508 171 300 $ 1,979
12/31/06 $ 1,195 214 373 $ 1,782
Increase (Decrease) $ 313 (43) (73) $ 197
(d) Interest expense: Mortgage notes payable Facilities fees & other charges
12/31/07 $ (914) (88) $ (1,002)
12/31/06 $ (829) (88) $ (917)
Increase (Decrease) $ 85 $ 85
8
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED (in thousands, except per share amounts)
12/31/2007 Revenues: Rental income Facility management fees Total operating revenues
$
Expenses: Cost of operations Depreciation and amortization General and administrative Total operating expenses
270,775 724 271,499
12/31/2006
$
84,360 98,521 7,917 190,798
242,214 625 242,839
Increase (Decrease)
$
74,671 86,216 7,046 167,933
28,561 99 28,660
(a)
11.8% 15.8% 11.8%
9,689 12,305 871 22,865
(b)
13.0% 14.3% 12.4% 13.6%
Other income and expenses: Interest and other income Interest expense Total other income and expenses
5,104 (4,130) 974
6,874 (2,575) 4,299
Income from continuing operations before minority interests
81,675
79,205
2,470
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
(6,854) (6,155) (13,009)
(9,789) (1,366) (5,113) (16,268)
(2,935) (1,366) 1,042 (3,259)
68,666
62,937
5,729
Income from continuing operations Discontinued operations: Loss from discontinued operations Gain on disposition of real estate Minority interest in earnings attributable to discontinued operations - common units Income from discontinued operations
% Change
(c)
(1,770) 1,555 (d) (3,325)
(25.7%) 60.4% (77.3%) 3.1%
(30.0%) (100.0%) 20.4% (20.0%) 9.1%
-
(125) 2,328
(125) (e) (2,328) (f)
(100.0%) (100.0%)
-
(560) 1,643
(560) (1,643)
(100.0%) (100.0%)
Net Income
68,666
64,580
4,086
Net Income allocable to preferred shareholders Preferred distributions Redemption of preferred stock Total preferred distributions
50,937 50,937
44,553 3,380 47,933
6,384 (3,380) 3,004
6.3%
14.3% (100.0%) 6.3%
Net Income allocable to common shareholders
$
17,729
$
16,647
$
1,082
Net income per common share - basic: Continuing operations Discontinued operations Net Income
$ $ $
0.83 0.83
$ $ $
0.70 0.08 0.78
$ $ $
0.13 (0.08) 0.05
18.6% (100.0%) 6.4%
Net income per common share - diluted: Continuing operations Discontinued operations Net Income
$ $ $
0.82 0.82
$ $ $
0.69 0.08 0.77
$ $ $
0.13 (0.08) 0.05
18.8% (100.0%) 6.5%
Weighted average common shares outstanding: Basic Diluted
21,313 21,634
9
21,335 21,646
(22) (g) (12)
6.5%
(0.1%) (0.1%)
PS BUSINESS PARKS, INC. CONSOLIDATED STATEMENT OF INCOME VARIANCE EXPLANATIONS FOR THE YEARS ENDED (in thousands)
(a) Rental income: Same Park Non-Same Park Same Park straight-line rent Non-Same Park straight-line rent
12/31/07 $ 239,196 31,106 (413) 886 $ 270,775
12/31/06 $ 228,795 10,615 2,170 634 $ 242,214
Increase (Decrease) $ 10,401 20,491 (2,583) 252 $ 28,561
(b) Cost of operations: Same Park Non-Same Park
12/31/07 $ 72,995 11,365 $ 84,360
12/31/06 $ 70,707 3,964 $ 74,671
Increase (Decrease) $ 2,288 7,401 $ 9,689
(c) General and administrative expenses: Cash and non-cash compensation expense Professional fees Other
12/31/07 $ 5,916 727 1,274 $ 7,917
12/31/06 $ 5,027 777 1,242 $ 7,046
Increase (Decrease) $ 889 (50) 32 $ 871
(d) Interest expense: Mortgage notes payable Facilities fees & other charges
12/31/07 $ (3,776) (354) $ (4,130)
12/31/06 $ (2,214) (361) $ (2,575)
Increase (Decrease) $ 1,562 (7) $ 1,555
(e) Net loss from discontinued operations: Rental revenue Operating expenses Depreciation expense
12/31/07 $ $ -
12/31/06 $ (98) (27) $ (125)
Increase (Decrease) $ (98) (27) $ (125)
(f) Gain on disposition of real estate: Woodside MICC Other
12/31/07 $ $ -
12/31/06 $ 865 1,463 $ 2,328
Increase (Decrease) $ (865) (1,463) $ (2,328)
(g) Net decrease relates to stock repurchases partially offset by stock option exercises and vesting of restricted stock units.
10
PS BUSINESS PARKS, INC. Analysis of Capital Expenditures (in thousands)
Year Ended December 31, 2007 Costs
Recurring capital expenditures (1) Capital improvements (2) Tenant improvements Lease commissions Total recurring capital expenditures
Cost per Weighted Average Square Foot
$13,677
$0.71
17,882
$0.92
5,803
$0.30
$37,362
$1.93
Non-recurring capital expenditures Property renovations
$5,239
Total non-recurring capital expenditures
$5,239
(1)
The Company defines "recurring capital expenditures" as those capitalized costs necessary to continue to operate the property at its current economic value. Leasing costs in excess of $1,000 and capital improvements in excess of $2,000 with a useful life greater than 24 months are capitalized. It excludes deferred maintenance and leasing costs committed to by previous owners for acquired properties, renovations that substantially enhance the value of a property and first generation leasing costs on development properties. Lease-up costs on acquired properties are included in recurring capital expenditures. Repairs and maintenance expenses were $19.3 million or approximately $1.00 per weighted average square foot for the year ended December 31, 2007 compared to $17.1 million or approximately $0.95 per weighted average square foot for year ended December 31, 2006.
(2)
Major costs include roof, HVAC and parking lot replacement as well as other major repairs that extend the life of the respective componentsof the building.
11
Same Park Gross Operating Margin Percentage * 75.0% 74.0% 73.0% 72.0%
70.6% 70.2% 70.4%
71.0%
70.2% 69.4% 69.3% 69.3%
70.0%
69.6% 70.1% 68.9% 69.2%
69.1%
69.0% 68.0% 67.0% 66.0% 65.0% Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
|________2005_______| |________2006________| |________2007________|
* Gross margin is computed by dividing property net operating income by rental income for Same Park properties owned in each period.
12
Change in Same Park Revenue * 7.0%
5.7%
5.2%
5.0%
4.4% 3.9%
4.0% 4.4%
3.3%
3.0% 1.0%
2.5%
3.0%
1.3%
Q3
Q4
2.4%
0.8%
-1.0% -3.0% -5.0% Q1
Q2
|___________2005___________|
Q1
Q2
Q3
Q4
|___________2006___________|
Q1
Q2
Q3
Q4
|___________2007___________|
* Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 and Q1 '07 exclude a $1.8 million bankruptcy settlement received in Q1' 06.
13
Change in Same Park NOI * 7.0%
6.1%
5.5%
5.0% 3.0%
4.3%
4.4%
Q3
Q4
3.7%
5.2% 2.5% 3.4%
3.6%
1.0%
-0.2%
-0.4%
-1.0%
-0.8%
-3.0% -5.0% -7.0% Q1
Q2
Q3
Q4
|___________2005___________|
Q1
Q2
Q3
Q4
|___________2006___________|
Q1
Q2
|___________2007___________|
* Percentage represents the change over the comparable period in the previous year based on Same Park operating assets as reported in each period. Q1 '06 and Q1 '07 exclude a $1.8 million bankruptcy settlement received in Q1 '06.
14
PS BUSINESS PARKS, INC. PORTFOLIO CONCENTRATION SUMMARY (in thousands) Industry Concentration as of December 31, 2007 % of Total Rental Income 12.7% 10.7% 9.8% 9.5% 9.3% 8.9% 7.1% 5.8% 5.6% 4.0% 3.1% 86.5%
Business Services Government Financial Services Contractors Computer Hardware, Software and Related Service Warehouse, Transportation and Logistics Health Services Retail Communications Home Furnishings Electronics
Top 10 Customers by Total Annual Rental Income as of December 31, 2007
Tenant U.S. Government Kaiser Permanente Santa Clara County Intel Wells Fargo Bank AARP Northrop Grumman Raytheon American Intercontinental University MCI Total
Annualized Rental Income (1)
Square Footage 505 194 97 214 102 102 58 78 75 72 1,497
$
$
% of Total Annualized Rental Income
12,026 3,718 2,489 1,921 1,706 1,596 1,585 1,391 1,310 1,266 29,008
(1) For leases expiring within one year, annualized rental income represents income to be received under existing leases from December 31, 2007 through date of expiration.
15
4.3% 1.3% 0.9% 0.7% 0.6% 0.6% 0.6% 0.5% 0.5% 0.4% 10.4%
Total Owned Rentable Square Footage by Region *
December 31, 2006 18,687 square feet (in thousands)
December 31, 2007 19,556 square feet (in thousands) S. California (20%)
S. California (21%)
N. California (9%)
N. California (8%)
S. Texas (6%)
S. Texas (6%)
N. Texas (9%)
N. Texas (9%)
Virginia (15%)
Virginia (16%)
Maryland (9%)
Maryland (10%)
Oregon (7%)
679
521
Oregon (7%)
679 28
South Florida (18%)
3,988
Arizona (4%)
South Florida (19%) Arizona (4%)
3,988
Washington (3%)
Washington (0%)
3,597
3,597
1,818
1,567 1,314
1,314
1,161
1,161 1,770
1,770 1,689
1,689
3,019
2,894 * Square footage excludes discontinued operations.
16
PS BUSINESS PARKS, INC. TOTAL OWNED PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of December 31, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston Total Percentage by Product Type
Industrial 2,556 407 231 712 3,906 20.0%
Office 12 1,073 431 883 704 31 188 28 131 3,481 17.8%
Flex 631 1,946 980 887 1,458 911 862 1,126 787 768 679 493 398 243 12,169 62.2%
Total 3,199 3,019 1,818 1,770 1,689 1,615 1,605 1,314 787 768 679 521 398 374 19,556 100.0%
% 16.4% 15.4% 9.3% 9.1% 8.6% 8.3% 8.2% 6.7% 4.0% 3.9% 3.5% 2.7% 2.0% 1.9% 100.0%
Weighted Average Occupancy Rates by Product Type for the Three Months Ended December 31, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston
Industrial 98.5% 94.5% 100.0% 100.0% 98.4%
Office 100.0% 94.3% 95.8% 92.3% 93.5% 94.7% 89.2% 100.0% 99.3% 93.8%
Flex 96.3% 96.7% 88.4% 96.7% 89.7% 94.8% 92.8% 85.9% 97.4% 96.1% 90.0% 90.7% 93.9% 91.4% 92.9%
Total 98.0% 95.9% 91.5% 94.5% 91.1% 94.2% 96.0% 86.4% 97.4% 96.1% 90.0% 91.2% 93.6% 94.2% 94.2%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended December 31, 2007 Primary Markets Miami Northern Virginia Northern California Maryland Dallas Orange County Los Angeles County Portland Austin San Diego County Phoenix Seattle Palm Beach Houston
Large Tenant
Small Tenant
98.2% 97.2% 97.2% 95.1% 92.3% 96.4% 100.0% 86.8% 98.8% 95.8%
96.6% 93.3% 85.8% 89.5% 85.6% 92.2% 92.8% 84.1% 93.1% 96.1% 90.0% 91.2% 93.9% 94.2% 91.7%
Total 98.0% 95.9% 91.5% 94.5% 91.1% 94.2% 96.0% 86.4% 97.4% 96.1% 90.0% 91.2% 93.6% 94.2% 94.2%
Note: The Company's "large tenant" portfolio consists of properties with average leases greater than or equal to 5,000 square feet while the "small tenant" portfolio consists of properties with average leases less than 5,000 square feet.
17
PS BUSINESS PARKS, INC. SAME PARK PORTFOLIO OVERVIEW (in thousands) Rentable Square Footage of Properties as of December 31, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston Total Percentage by Product Type
Industrial
Office
2,556 231 712 407 3,906 22.3%
12 948 704 31 430 188 719 131 3,163 18.1%
Flex 631 1,839 1,458 911 772 663 1,126 520 787 768 679 28 243 10,425 59.6%
Total 3,199 2,787 1,689 1,615 1,515 1,500 1,314 1,239 787 768 679 28 374 17,494 100.0%
% 18.3% 15.9% 9.6% 9.2% 8.7% 8.6% 7.5% 7.1% 4.5% 4.4% 3.9% 0.2% 2.1% 100.0%
Weighted Average Occupancy Rates by Product Type for the Three Months Ended December 31, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston
Industrial
Office
98.5% 100.0% 100.0% 94.5% 98.4%
100.0% 93.7% 93.5% 94.7% 95.8% 89.2% 93.6% 99.3% 93.8%
Flex 96.3% 96.8% 89.7% 94.8% 92.9% 94.7% 85.9% 99.0% 97.4% 96.1% 90.0% 89.7% 91.4% 93.5%
Total 98.0% 95.8% 91.1% 94.2% 96.3% 95.0% 86.4% 95.5% 97.4% 96.1% 90.0% 89.7% 94.2% 94.7%
Weighted Average Occupancy Rates by Portfolio Type for the Three Months Ended December 31, 2007 Primary Markets Miami Northern Virginia Dallas Orange County Los Angeles County Northern California Portland Maryland Austin San Diego County Phoenix Seattle Houston
Large Tenant Small Tenant 98.2% 97.1% 92.3% 96.4% 100.0% 97.2% 86.8% 95.6% 98.8% 95.9%
96.6% 93.3% 85.6% 92.2% 93.0% 91.6% 84.1% 90.8% 93.1% 96.1% 90.0% 89.7% 94.2% 92.4%
Total 98.0% 95.8% 91.1% 94.2% 96.3% 95.0% 86.4% 95.5% 97.4% 96.1% 90.0% 89.7% 94.2% 94.7%
Note: Includes all properties owned since January 1, 2006. The Company's "large tenant" portfolio consists of properties with average leases greater than or equal to 5,000 square feet while the "small tenant" portfolio consists of properties with average leases less than 5,000 square feet.
18
Total Owned Portfolio Weighted Average Occupancy * 97.0% 96.0% 95.0% 94.0%
94.0% 93.0%
93.0% 91.8%
92.0% 91.0%
92.8%
94.2%
93.9%
93.3%
93.2%
93.1%
93.2%
Q1
Q2
Q3
92.4%
90.8%
90.0% 89.0% 88.0% 87.0% Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q4
|___________2005___________| |___________2006___________| |___________2007___________|
* Represents the weighted average occupancy for total owned portfolio held in continuing operations as reported in each period.
19
Same Park Weighted Average Occupancy * 96.0% 94.7%
95.0% 94.1%
94.0% 92.7%
Q4
Q1
93.7% 93.4%
93.2%
93.0%
93.0%
94.0% 93.6%
92.4% 91.8%
92.0% 91.0%
90.8%
90.0% 89.0% Q1
Q2
Q3
|____________2005____________|
Q2
Q3
Q4
|____________2006____________|
Q1
Q2
Q4
|____________2007____________|
* Represents the Same Park weighted average occupancy as reported in each period.
20
Q3
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2007 (in thousands) Lease Expirations - Flex Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 2,565 2,883 1,793 1,207 1,127 1,557 11,132
Annual Rents $
38,620 43,920 27,801 21,915 20,370 28,863 181,489
$
% 21.3% 24.2% 15.3% 12.1% 11.2% 15.9% 100.0%
% of Company Annual rents 13.1% 14.9% 9.4% 7.5% 6.9% 9.8% 61.6%
Lease Expirations - Office Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 641 654 763 485 309 457 3,309
Annual Rents $
14,850 14,297 18,694 12,458 7,811 12,728 80,838
$
% 18.4% 17.7% 23.1% 15.4% 9.7% 15.7% 100.0%
% of Company Annual rents 5.0% 4.9% 6.4% 4.2% 2.6% 4.3% 27.4%
Lease Expirations - Industrial Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 689 891 1,002 570 376 327 3,855
Annual Rents $
5,532 7,321 8,318 5,033 3,436 2,498 32,138
$
% 17.2% 22.8% 25.9% 15.6% 10.7% 7.8% 100.0%
% of Company Annual rents 1.9% 2.5% 2.8% 1.7% 1.2% 0.9% 11.0%
Lease Expirations - Total Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 3,895 4,428 3,558 2,262 1,812 2,341 18,296
Annual Rents $
$
21
59,002 65,538 54,813 39,406 31,617 44,089 294,465
% 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
% of Company Annual rents 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2007 (in thousands) Southern California Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage
Annual Rents
936 1,060 820 432 217 308 3,773
$
15,496 18,183 14,457 7,649 4,927 8,284 68,996
$
% 22.5% 26.4% 20.9% 11.1% 7.1% 12.0% 100.0%
% of Company Annual rents 5.2% 6.2% 4.9% 2.6% 1.7% 2.8% 23.4%
Northern California Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage
Annual Rents
501 439 250 128 156 178 1,652
$
8,987 6,000 3,290 1,915 1,925 2,772 24,889
$
% 36.1% 24.1% 13.2% 7.8% 7.7% 11.1% 100.0%
% of Company Annual rents 3.1% 2.1% 1.1% 0.7% 0.6% 0.9% 8.5%
Southern Texas Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 297 339 145 75 106 148 1,110
Annual Rents $
3,092 3,902 1,642 985 1,683 1,827 13,131
$
% 23.6% 29.7% 12.5% 7.5% 12.8% 13.9% 100.0%
% of Company Annual rents 1.1% 1.3% 0.5% 0.3% 0.6% 0.6% 4.4%
Northern Texas Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 171 232 230 113 296 520 1,562
Annual Rents $
$
22
1,671 1,929 2,181 1,341 4,064 6,188 17,374
% 9.6% 11.1% 12.6% 7.7% 23.4% 35.6% 100.0%
% of Company Annual rents 0.6% 0.7% 0.7% 0.5% 1.4% 2.1% 6.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2007 (in thousands) South Florida Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage
Annual Rents
792 745 904 493 351 153 3,438
$
7,703 7,149 8,444 5,015 3,732 1,841 33,884
% 22.8% 21.1% 24.9% 14.8% 11.0% 5.4% 100.0%
% of Company Annual rents 2.6% 2.4% 2.9% 1.7% 1.3% 0.6% 11.5%
Northern Virginia Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 543 590 573 225 372 596 2,899
Annual Rents $
$
10,488 11,071 11,427 4,955 9,033 13,179 60,153
% 17.4% 18.4% 19.0% 8.3% 15.0% 21.9% 100.0%
% of Company Annual rents 3.6% 3.8% 3.9% 1.7% 3.1% 4.5% 20.6%
Maryland Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 206 303 325 378 170 263 1,645
Annual Rents $
$
5,135 6,032 8,141 9,811 4,217 6,633 39,969
% 12.8% 15.1% 20.4% 24.5% 10.6% 16.6% 100.0%
% of Company Annual rents 1.7% 2.0% 2.8% 3.3% 1.4% 2.3% 13.5%
Oregon Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 213 347 110 330 43 127 1,170
Annual Rents $
$
23
3,077 5,733 2,083 6,284 752 2,486 20,415
% 15.0% 28.1% 10.2% 30.8% 3.7% 12.2% 100.0%
% of Company Annual rents 1.0% 1.9% 0.7% 2.1% 0.2% 0.9% 6.8%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2007 (in thousands) Washington/Seattle Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 104 147 91 53 25 29 449
Annual Rents $
% 1,796 2,655 1,726 1,025 497 637 8,336
$
21.5% 31.9% 20.7% 12.3% 6.0% 7.6% 100.0%
% of Company Annual rents 0.6% 0.9% 0.6% 0.3% 0.1% 0.2% 2.7%
Arizona Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 132 226 110 35 76 19 598
Annual Rents $
% 1,557 2,884 1,422 426 787 242 7,318
$
21.3% 39.4% 19.4% 5.8% 10.8% 3.3% 100.0%
% of Company Annual rents 0.5% 1.0% 0.5% 0.2% 0.3% 0.1% 2.6%
Total Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 3,895 4,428 3,558 2,262 1,812 2,341 18,296
Annual Rents $
$
24
59,002 65,538 54,813 39,406 31,617 44,089 294,465
% 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
% of Company Annual rents 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
PS BUSINESS PARKS, INC. Owned Portfolio Lease Expirations as of December 31, 2007 (in thousands) Lease Expirations - Large Tenant Portfolio Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 1,962 2,325 2,209 1,664 1,253 1,972 11,385
Annual Rents $
28,297 30,624 30,645 27,902 20,779 35,238 173,485
$
% 16.3% 17.6% 17.7% 16.1% 12.0% 20.3% 100.0%
% of Company Annual rents 9.6% 10.4% 10.4% 9.5% 7.0% 12.0% 58.9%
Lease Expirations - Small Tenant Portfolio Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 1,933 2,103 1,349 598 559 369 6,911
Annual Rents $
30,705 34,914 24,168 11,504 10,838 8,851 120,980
$
% 25.4% 28.9% 20.0% 9.5% 8.9% 7.3% 100.0%
% of Company Annual rents 10.4% 11.9% 8.2% 3.9% 3.7% 3.0% 41.1%
Lease Expirations - Total Year of Lease Expiration 2008 2009 2010 2011 2012 Thereafter Total
Leased Square Footage 3,895 4,428 3,558 2,262 1,812 2,341 18,296
Annual Rents $
$
25
59,002 65,538 54,813 39,406 31,617 44,089 294,465
% 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
% of Company Annual rents 20.0% 22.3% 18.6% 13.4% 10.7% 15.0% 100.0%
