PS Business Parks, Inc. Reports Results for the Quarter Ended September 30, 2021

Rhea-AI Summary

PS Business Parks, Inc. (PSB) reported its financial results for Q3 2021, achieving a net income of $52.2 million ($1.89 per diluted share) and $125.7 million ($4.55 per diluted share) for the nine-month period. Same Park NOI increased by 8.5% to $70.8 million in Q3, driven by 8.4% cash rental income growth. The company saw a weighted average occupancy of 94.8% and executed leases totaling 2 million square feet in Q3. Funds from Operations (FFO) per share rose 11.2% to $1.72. A quarterly dividend of $1.05 was declared, alongside a significant property sale yielding $311.1 million post-transaction costs.

Positive

• Net income for Q3 2021 at $52.2 million ($1.89 per diluted share) and $125.7 million ($4.55 per diluted share) for nine months.
• Same Park NOI increased by 8.5% to $70.8 million for Q3 2021.
• Cash rental income growth of 8.4% contributing to improved financial performance.
• FFO per share increased by 11.2% to $1.72 for Q3 2021.
• Quarterly dividend declared at $1.05 per share.
• Successful sale of a 371,000 square foot industrial-flex property for $311.1 million.

Negative

• Growth in adjusted operating costs by 3.0% for Q3 2021.
• Office leasing segment experienced a cash rental rate decline of 9.2%.

GLENDALE, Calif.--(BUSINESS WIRE)-- PS Business Parks, Inc. (NYSE:PSB) reported operating results for the three and nine months ended September 30, 2021.

Operating Results for the Three and Nine Months Ended September 30, 2021

Net income allocable to common stockholders for the three and nine months ended September 30, 2021 was $52.2 million, or $1.89 per diluted share, and $125.7 million, or $4.55 per diluted share, respectively. Net operating income (“NOI”) attributable to the Company’s Same Park portfolio (defined below) for the three and nine months ended September 30, 2021 was $70.8 million and $208.7 million, respectively, representing increases of 8.5% and 6.4% over the same periods in 2020.

The Company also reports NOI, a measure that is not defined in accordance with U.S. generally accepted accounting principles (“GAAP”), on a basis which excludes non-cash rents that have been deferred or abated during the period, certain non-cash revenue items, including amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursements, and lease incentives, and also excludes stock-compensation expense for employees whose compensation expense is recorded in cost of operations (“Cash NOI”). Same Park Cash NOI was $70.7 million and $208.0 million for the three and nine months ended September 30, 2021, respectively, representing increases of 10.7% and 8.6% over the same periods in 2020. The increases in Same Park Cash NOI for the three and nine months ended September 30, 2021 were driven by cash rental income growth of 8.4% and 7.3%, respectively, partially offset by growth in adjusted cost of operations of 3.0% and 4.3%, over the same periods in 2020.

The following table details the change in Same Park rental income for the three and nine months ended September 30, 2021 and 2020 (in thousands):

		For the Three Months												For the Nine Months
		Ended September 30,												Ended September 30,
		2021				2020				Change				2021				2020				Change
Rental income
Base rental income		$	73,250			$	69,440			$	3,810			$	216,566			$	210,068			$	6,498
Expense recovery income			24,690				22,643				2,047				71,658				66,270				5,388
Lease buyout income			738				288				450				1,318				787				531
Rent receivable recovery/
(write-off)			20				(275	)			295				61				(1,321	)			1,382
Rent abatements			(97	)			(331	)			234				(304	)			(1,189	)			885
Deferrals			(5	)			(1,632	)			1,627				(292	)			(5,144	)			4,852
Deferral repayments			310				1,147				(837	)			1,518				1,166				352
Fee Income			255				221				34				594				678				(84	)
Cash Rental Income			99,161				91,501				7,660				291,119				271,315				19,804
Non-Cash Rental Income (1)			131				1,430				(1,299	)			682				4,526				(3,844	)
Total rental income		$	99,292			$	92,931			$	6,361			$	291,801			$	275,841			$	15,960

(1)		Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives.

Weighted average occupancy for the Company’s Same Park portfolio during the three and nine months ended September 30, 2021 was 94.8% and 94.0%, respectively, compared to 92.6% for both of the same periods in 2020. Total portfolio weighted average occupancy¹ was 94.7% and 93.9% during the three and nine months ended September 30, 2021, respectively, compared to 91.5% and 92.1% for the same periods in 2020.

____________________
1		Total portfolio occupancy statistics exclude assets sold or held for sale as of September 30, 2021.

Additional detail on Same Park NOI and Same Park Cash NOI for the three and nine months ended September 30, 2021 is provided in the Property Operations–Same Park Portfolio section below.

Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”)

FFO for the three and nine months ended September 30, 2021 was $1.72 per share and $5.15 per share, respectively, representing increases of 11.2% and 6.2% from the same periods in 2020. The increases in FFO per share were the result of higher NOI, as described above, partially offset by higher general and administrative expense primarily driven by stock compensation expense.

FFO is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and generally represents GAAP net income before (i) real estate depreciation and amortization expense, (ii) gains or losses on sales of operating properties, and (iii) land and impairment charges on real estate assets.

Core FFO, which the Company defines as FFO excluding the impact of (i) charges related to the redemption of preferred stock and (ii) other nonrecurring income or expense items as appropriate, was $1.72 per share and $5.16 per share for the three and nine months ended September 30, 2021, respectively, representing increases of 7.2% and 5.2% from the same periods in 2020. For the three months ended September 30, 2021, Core FFO was equal to FFO. For the nine months ended September 30, 2021, Core FFO excludes the impact of a one-time cost associated with the Company’s reincorporation as a Maryland corporation of $0.5 million incurred during the second quarter of 2021. For the three and nine months ended September 30, 2020, Core FFO excludes the impact of the (i) accelerated amortization of stock compensation expense of $1.7 million related to the retirement of our former President and CEO and (ii) non-capitalizable demolition costs of $0.3 million.

FAD for the three and nine months ended September 30, 2021 was $51.6 million and $156.3 million, respectively, representing increases of 6.8% and 10.0% from the same periods in 2020. The increases in FAD for the three and nine months ended September 30, 2021 were attributable to higher Same Park Cash NOI. FAD is a non-GAAP measure that represents Core FFO adjusted to (i) deduct recurring capital improvements and capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expenses, such as amortization of deferred rent receivable and stock compensation expense.

FFO, Core FFO, and FAD are not substitutes for GAAP net income. Other real estate investment trusts (“REITs”) may compute FFO, Core FFO, and FAD differently, which could inhibit comparability. The Company believes its presentation of FFO, Core FFO, and FAD assists investors and analysts in analyzing and comparing the operating and financial performance between reporting periods. Additional information about these measures is included on the Company’s quarterly report on Form 10-Q.

Leasing Production²

During the three and nine months ended September 30, 2021, the Company executed leases on 2.0 million and 5.7 million square feet, respectively, compared to 1.9 million and 5.3 million square feet for the three and nine months ended September 30, 2020, respectively. The table below represents cash rental rate growth and net effective rent growth³ by product type for leases executed during the three and nine months ended September 30, 2021.

		For the Three Months ended September 30, 2021								For the Nine Months ended September 30, 2021
Product type		Leasing volume		Cash rental rate growth			Net effective rent growth3			Leasing volume		Cash rental rate growth			Net effective rent growth3
Industrial		1,290,000		9.0	%		22.4	%		3,967,000		8.8	%		20.6	%
Industrial-flex		505,000		2.6	%		10.0	%		1,219,000		1.0	%		7.0	%
Office		200,000		-9.2	%		-3.8	%		503,000		-7.7	%		-1.9	%
Total		1,995,000		5.0	%		15.4	%		5,689,000		4.9	%		14.2	%

The average lease term of all leases executed during the three months ended September 30, 2021 was 3.7 years, with associated average transaction costs (tenant improvements and leasing commissions) of $4.38 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in 2020 were 4.3 years and $3.56 per square foot, respectively.

____________________
2		Leasing Production excludes assets held for sale as of September 30, 2021.
3		Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating expense reimbursements.

Property Operations–Same Park Portfolio

The Company believes that evaluation of the Same Park portfolio, defined as all properties owned and operated as of September 30, 2021 that were acquired prior to January 1, 2019, provides an informative view of how the Company’s portfolio has performed over comparable periods. As of September 30, 2021, the Same Park portfolio consisted of 25.1 million rentable square feet, or 89.3% of the Company’s 28.1 million total rentable square feet, excluding the Company’s 95.0% interest in a 395-unit multifamily property.

For the three and nine months ended September 30, 2021 and for all comparative periods presented herein, the Company has excluded assets held for sale as of September 30, 2021 including a 772,000 square foot industrial-flex business park located in Irving, Texas, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 53,000 square foot industrial building located in Beltsville, Maryland. The Company also has excluded a 198,000 square foot office oriented flex business park located in Chantilly, Virginia, which sold in June 2021, a 244,000 square foot office park located in Herndon, Virginia, which sold in July 2021, and a 22,000 square foot industrial-flex building located in Irving, Texas, which sold in September 2021. Also excluded from the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.

The following table presents the unaudited operating results of the Company’s Same Park portfolio for the three and nine months ended September 30, 2021 and 2020 (in thousands, except per square foot amounts):

		For the Three Months											For the Nine Months
		Ended September 30,											Ended September 30,
		2021				2020				Change			2021				2020				Change
Rental income
Cash Rental Income (1)		$	99,161			$	91,501			8.4	%		$	291,119			$	271,315			7.3	%
Non-Cash Rental Income (2)			131				1,430			(90.8	%)			682				4,526			(84.9	%)
Total rental income			99,292				92,931			6.8	%			291,801				275,841			5.8	%
Adjusted Cost of Operations (3)
Property taxes			10,749				10,517			2.2	%			32,022				31,357			2.1	%
Utilities			4,934				4,477			10.2	%			13,321				12,936			3.0	%
Repairs and maintenance			5,957				5,868			1.5	%			16,613				16,018			3.7	%
Compensation			4,001				3,974			0.7	%			11,946				11,688			2.2	%
Snow removal			—				—			—				1,011				70			1,344.3	%
Property insurance			1,290				1,243			3.8	%			3,551				2,908			22.1	%
Other expenses			1,539				1,558			(1.2	%)			4,684				4,768			(1.8	%)
Total Adjusted Cost of Operations			28,470				27,637			3.0	%			83,148				79,745			4.3	%
NOI (4)		$	70,822			$	65,294			8.5	%		$	208,653			$	196,096			6.4	%
Cash NOI (5)		$	70,691			$	63,864			10.7	%		$	207,971			$	191,570			8.6	%
Selected Statistical Data
Rentable square footage at period end			25,053				25,053			—				25,053				25,053			—
NOI margin (6)			71.3	%			70.3	%		1.4	%			71.5	%			71.1	%		0.6	%
Cash NOI margin (7)			71.3	%			69.8	%		2.1	%			71.4	%			70.6	%		1.1	%
Weighted average square foot occupancy			94.8	%			92.6	%		2.4	%			94.0	%			92.6	%		1.5	%
Revenue per occupied square foot (8)		$	16.72			$	16.02			4.4	%		$	16.52			$	15.85			4.2	%
Revenue per available foot (RevPAF) (9)		$	15.85			$	14.84			6.8	%		$	15.53			$	14.68			5.8	%
Cash Rental Income per occupied square foot (10)		$	16.70			$	15.78			5.8	%		$	16.49			$	15.59			5.8	%
Cash Rental Income per available foot (11)		$	15.83			$	14.61			8.4	%		$	15.49			$	14.44			7.3	%

(1)		Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). Detail of the components of Cash Rental Income can be found in the table presented under operating results above.
(2)		Non-Cash Rental Income represents amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.3 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively.
(3)		Adjusted Cost of Operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations, which can vary significantly period to period based upon the performance of the Company.
(4)		The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its properties. The Company defines NOI as rental income less Adjusted Cost of Operations. The Company believes NOI assists investors in analyzing the performance of its real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of the real estate, (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of the real estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.
(5)		The Company utilizes Cash NOI, a non-GAAP financial measure, to evaluate the cash flow performance of its properties and believes investors utilize this metric for the same purpose. The Company defines Cash NOI as Cash Rental Income less Adjusted Cost of Operations.
(6)		NOI margin is computed by dividing NOI by rental income.
(7)		Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.
(8)		Revenue per occupied square foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square foot for the three and nine month periods shown is annualized.
(9)		Revenue per Available Square Foot (RevPAF) is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and nine month periods shown is annualized.
(10)		Cash Rental Income per occupied square foot is computed by dividing Cash Rental Income for the period by weighted average occupied square feet for the same period. Cash rental income per occupied square foot for the three and nine month periods shown is annualized.
(11)		Cash Rental Income per Available Square Foot is computed by dividing Cash Rental Income for the period by weighted average available square feet for the same period. Cash rental income per available square foot for the three and nine month periods shown is annualized.

The following table summarizes unaudited selected quarterly financial data with respect to the Same Park portfolio (in thousands, except per square foot amounts):

		For the Three Months Ended
		March 31				June 30				September 30				December 31
Cash Rental income (1)
2021		$	95,010			$	96,948			$	99,161			$	—
2020		$	93,109			$	86,705			$	91,501			$	94,566
Adjusted Cost of Operations (1)
2021		$	28,017			$	26,661			$	28,470			$	—
2020		$	26,669			$	25,439			$	27,637			$	27,115
Cash NOI (1)
2021		$	66,993			$	70,287			$	70,691			$	—
2020		$	66,440			$	61,266			$	63,864			$	67,451
Weighted average square foot occupancy
2021			93.2	%			93.9	%			94.8	%			—
2020			92.9	%			92.4	%			92.6	%			92.7	%
Cash Rental Income per Occupied Square Foot (1)
2021		$	16.28			$	16.49			$	16.70			$	—
2020		$	16.00			$	14.97			$	15.78			$	16.29
Cash Rental Income per Available Square Foot (1)
2021		$	15.17			$	15.48			$	15.83			$	—
2020		$	14.87			$	13.84			$	14.61			$	15.10

(1)		Defined in Property Operations–Same Park Portfolio table.

COVID-19 Pandemic/Rent Collections Update

The COVID-19 pandemic has had and is expected to continue to have an impact on our operations and capital plans. During the three months ended September 30, 2021, the Company granted $0.1 million of rent deferral and $0.1 million of rent abatement compared to the $1.7 million of rent deferral and $0.3 million of rent abatement granted for the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferral and $0.3 million of rent abatement which was significantly lower than the $5.5 million of rent deferrals and $1.2 million of rent abatements granted during the nine months ended September 30, 2020. Since the onset of the COVID-19 pandemic, the Company has entered into rent relief agreements consisting of $6.1 million of rent deferrals and $1.6 million of rent abatements. As of September 30, 2021, the 340 current customers that received rent relief account for 9.6% of rental income. Also as of September 30, 2021, the Company had collected $4.5 million of rent deferral repayment, representing 99.9% of the amounts scheduled to be repaid through September 2021. An additional $0.3 million of rent deferral repayment is scheduled to be repaid by customers between October 1, 2021 and December 31, 2021, with another $0.8 million thereafter.

As of October 27, 2021, the Company had collected 99.7% of revenue billed during the nine months ended September 30, 2021. The Company noted that the third quarter of 2021 marked the fifth consecutive quarter of normal accounts receivable write-off activity. During the three and nine months ended September 30, 2021, the Company wrote off $0.0 million of accounts receivable, net of recoveries compared to $0.3 million and $1.5 million written off during the three and nine months ended September 30, 2020, respectively. During the three and nine months ended September 30, 2021, the Company wrote off $0.1 million and $0.3 million of deferred rent receivable, respectively, which is significantly lower than the $0.3 million and $2.7 million written off during the three and nine months ended September 30, 2020, respectively.

As of October 27, 2021, the Company had open rent relief requests from less than 1% of its customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Certain Factors that May Impact Future Results–Impact of COVID-19 Pandemic” in our Form 10-Q for the quarter ended September 30, 2021 for more information.

Dispositions Update

On September 17, 2021, the Company sold a 22,000 square foot industrial-flex building located in Irving, Texas, for net sale proceeds of $3.4 million. On July 16, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million.

Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California, for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.

The Company previously announced that it is separately marketing for sale its Royal Tech Business Park (a 772,000 square foot industrial-flex property located in Irving, Texas). The Company noted that it will provide an update on this marketing process on its conference call to discuss third quarter results scheduled for Friday, October 29, 2021 at 10:00 a.m. PDT.

Capital Activity

On October 4, 2021, the Company announced that it is calling for redemption all outstanding depositary shares representing interests in its 5.20% Cumulative Preferred Stock, Series W on November 3, 2021, at $25.00 per share plus accrued dividends from October 1, 2021, through the date of redemption. The aggregate redemption amount, inclusive of prorated dividends, to be paid to the holders is $190.7 million.

Distributions Declared

On October 26, 2021, the Board of Directors declared a quarterly dividend of $1.05 per share of common stock. Distributions were also declared on its Series X, Series Y, and Series Z depositary shares, each representing 1/1,000 of a share of preferred stock. Distributions for both common stock and preferred stock will be payable on December 30, 2021 to stockholders of record on December 15, 2021.

Company Information

PS Business Parks, Inc. (NYSE:PSB), a S&P MidCap 400 company, is a REIT that acquires, develops, owns, and operates commercial properties, predominantly multi-tenant industrial, industrial-flex, and low-rise suburban office space. Located primarily in major coastal markets, PS Business Parks’ 96 properties serve approximately 4,900 tenants in 28 million square feet of space as of October 28, 2021. The portfolio also includes 800 residential units (including units in-process).

Forward-Looking Statements

When used within this press release, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends,” and similar expressions are intended to identify “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the duration and severity of the COVID-19 pandemic and its impact on our business and our customers; the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company’s facilities; the Company’s ability to evaluate, finance, and integrate acquired and developed properties into the Company’s existing operations; the Company’s ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing REITs; security breaches, including ransomware, or a failure of the Company’s networks, systems or technology, which could adversely impact the Company’s operations or its business, customer and employee relationships or result in fraudulent payments; the impact of general economic and business conditions, including as a result of the economic fallout of the COVID-19 pandemic; rental rates and occupancy levels at the Company’s facilities; and changes in these conditions as a result of the COVID-19 pandemic, the availability of permanent capital at attractive rates, the outlook and actions of rating agencies and risks detailed from time to time in the Company’s SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K, and annual reports on Form 10-K.

Additional information about PS Business Parks, Inc., including more financial analysis of the third quarter operating results, is available on the Company’s website at psbusinessparks.com.

A conference call is scheduled for Friday, October 29, 2021, at 10:00 a.m. PDT (1:00 p.m. EDT) to discuss third quarter results. The toll free number is 866-831-8713; the conference ID is PSBQ321. The call will also be available via a live webcast on the Company’s website. A replay of the conference call will be available through November 5, 2021 at 800-839-5124, as well as via webcast on the Company’s website.

PS BUSINESS PARKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
		September 30,				December 31,
		2021				2020
		(Unaudited)
ASSETS
Cash and cash equivalents		$	46,594			$	69,083
Real estate facilities, at cost
Land			865,062				843,765
Buildings and improvements			2,207,095				2,080,895
			3,072,157				2,924,660
Accumulated depreciation			(1,157,947	)			(1,101,739	)
			1,914,210				1,822,921
Properties held for sale, net			46,811				75,138
Land and building held for development, net			62,467				37,922
			2,023,488				1,935,981
Rent receivable			2,427				1,519
Deferred rent receivable			37,078				36,788
Other assets			18,891				14,334
Total assets		$	2,128,478			$	2,057,705
LIABILITIES AND EQUITY
Accrued and other liabilities		$	99,208			$	82,065
Total liabilities			99,208				82,065
Commitments and contingencies
Equity
PS Business Parks, Inc.’s stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized,
37,790 shares issued and outstanding at ($944,750 aggregate
liquidation preference) September 30, 2021
and December 31, 2020			944,750				944,750
Common stock, $0.01 par value, 100,000,000 shares authorized,
27,546,153 and 27,488,547 shares issued and outstanding at
September 30, 2021 and December 31, 2020, respectively			275				274
Paid-in capital			741,032				738,022
Accumulated earnings			113,444				73,631
Total PS Business Parks, Inc.’s stockholders’ equity			1,799,501				1,756,677
Noncontrolling interests			229,769				218,963
Total equity			2,029,270				1,975,640
Total liabilities and equity		$	2,128,478			$	2,057,705

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2021				2020				2021				2020
Rental income		$	110,448			$	103,760			$	327,859			$	310,535
Expenses
Cost of operations			33,091				32,096				98,158				93,490
Depreciation and amortization			23,857				23,064				69,356				72,646
General and administrative			5,148				5,047				14,329				11,374
Total operating expenses			62,096				60,207				181,843				177,510
Interest and other income			411				230				1,590				1,012
Interest and other expense			(224	)			(536	)			(703	)			(900	)
Gain on sale of real estate facilities			29,924				7,652				49,117				27,273
Net income			78,463				50,899				196,020				160,410
Allocation to noncontrolling interests			(13,850	)			(8,124	)			(33,355	)			(26,011	)
Net income allocable to PS Business Parks, Inc.			64,613				42,775				162,665				134,399
Allocation to preferred stockholders			(12,046	)			(12,046	)			(36,139	)			(36,139	)
Allocation to restricted stock unit holders			(350	)			(149	)			(828	)			(543	)
Net income allocable to common stockholders		$	52,217			$	30,580			$	125,698			$	97,717
Net income per share of common stock
Basic		$	1.90			$	1.11			$	4.57			$	3.56
Diluted		$	1.89			$	1.11			$	4.55			$	3.55
Weighted average common stock outstanding
Basic			27,543				27,483				27,523				27,470
Diluted			27,635				27,565				27,623				27,560

PS BUSINESS PARKS, INC.
Computation of Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”)
(In thousands, except per share amounts)
(Unaudited)
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2021				2020				2021				2020
Net income allocable to common stockholders		$	52,217			$	30,580			$	125,698			$	97,717
Adjustments
Gain on sale of real estate facilities			(29,924	)			(7,652	)			(49,117	)			(27,273	)
Depreciation and amortization expense			23,857				23,064				69,356				72,646
Net income allocated to noncontrolling interests			13,850				8,124				33,355				26,011
Net income allocated to restricted stock unit holders			350				149				828				543
FFO allocated to joint venture partner			(22	)			(21	)			(67	)			(102	)
FFO allocable to diluted common stock and units (1)			60,328				54,244				180,053				169,542
Maryland reincorporation costs			—				—				510				—
Non-capitalizable demolition costs			—				335				—				335
Acceleration of stock compensation expense due to President and Chief Executive Officer retirement			—				1,687				—				1,687
Core FFO allocable to diluted common stock and units (1)			60,328				56,266				180,563				171,564
Adjustments
Recurring capital improvements			(3,914	)			(1,625	)			(8,350	)			(6,413	)
Tenant improvements			(4,231	)			(3,338	)			(11,255	)			(11,039	)
Capitalized lease commissions			(2,034	)			(1,889	)			(5,438	)			(5,225	)
Non-cash rental income (2)			(453	)			(1,530	)			(1,943	)			(5,340	)
Non-cash stock compensation expense (3)			2,341				831				6,422				2,704
Cash paid for taxes in lieu of stock upon vesting of restricted stock units			(478	)			(442	)			(3,680	)			(4,102	)
FAD allocable to diluted common stock and units (1)		$	51,559			$	48,273			$	156,319			$	142,149
Distributions to common stockholders, noncontrolling interests, and restricted stock unit holders		$	36,793			$	36,717			$	110,330			$	110,123
Distribution payout ratio			71.4	%			76.1	%			70.6	%			77.5	%
Reconciliation of earnings per share to FFO per share
Net income per share of common stock—diluted		$	1.89			$	1.11			$	4.55			$	3.55
Gain on sale of real estate facilities			(0.85	)			(0.22	)			(1.39	)			(0.78	)
Depreciation and amortization expense			0.68				0.66				1.99				2.08
FFO per share (1)			1.72				1.55				5.15				4.85
Maryland reincorporation costs			—				—				0.01				—
Non-capitalizable demolition costs			—				0.01				—				0.01
Acceleration of stock compensation expense due to President and Chief Executive Officer retirement			—				0.05				—				0.05
Core FFO per share (1)		$	1.72			$	1.61			$	5.16			$	4.91
Weighted average outstanding
Common stock			27,543				27,483				27,523				27,470
Common operating partnership units			7,305				7,305				7,305				7,305
Restricted stock units			33				49				42				65
Common stock equivalents			92				82				100				90
Total diluted common stock and units			34,973				34,919				34,970				34,930

(1)		Defined in the Funds from Operations (“FFO”), Core FFO, and Funds Available for Distribution (“FAD”) section above.
(2)		Non-cash rental income includes amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursements, and lease incentives.
(3)		Amounts shown are net of accelerated stock compensation expense related to the former President and Chief Executive Officer retirement, which is also excluded from the computation of Core FFO.

PS BUSINESS PARKS, INC.
Reconciliation of Selected Non-GAAP Measures to Analogous GAAP Measures
(Unaudited, in thousands)
		For the Three Months											For the Nine Months
		Ended September 30,											Ended September 30,
		2021				2020				Change			2021				2020				Change
Rental income
Same Park		$	99,292			$	92,931			6.8	%		$	291,801			$	275,841			5.8	%
Non-Same Park			4,470				1,697			163.4	%			12,165				6,185			96.7	%
Multifamily			2,308				2,201			4.9	%			6,883				7,249			(5.0	%)
Assets sold or held for sale (1)			4,378				6,931			(36.8	%)			17,010				21,260			(20.0	%)
Total rental income			110,448				103,760			6.4	%			327,859				310,535			5.6	%
Cost of operations
Adjusted Cost of Operations (2)
Same Park			28,470				27,637			3.0	%			83,148				79,745			4.3	%
Non-Same Park			1,389				900			54.3	%			3,729				2,607			43.0	%
Multifamily			1,161				1,066			8.9	%			3,405				3,084			10.4	%
Assets sold or held for sale (1)			1,643				2,250			(27.0	%)			6,511				7,271			(10.5	%)
Stock compensation expense (3)			428				243			76.1	%			1,365				783			74.3	%
Total cost of operations			33,091				32,096			3.1	%			98,158				93,490			5.0	%
Net operating income (2)
Same Park			70,822				65,294			8.5	%			208,653				196,096			6.4	%
Non-Same Park			3,081				797			286.6	%			8,436				3,578			135.8	%
Multifamily			1,147				1,135			1.1	%			3,478				4,165			(16.5	%)
Assets sold or held for sale (1)			2,735				4,681			(41.6	%)			10,499				13,989			(24.9	%)
Stock compensation expense (3)			(428	)			(243	)		76.1	%			(1,365	)			(783	)		74.3	%
Depreciation and amortization expense			(23,857	)			(23,064	)		3.4	%			(69,356	)			(72,646	)		(4.5	%)
General and administrative expense			(5,148	)			(5,047	)		2.0	%			(14,329	)			(11,374	)		26.0	%
Interest and other income			411				230			78.7	%			1,590				1,012			57.1	%
Interest and other expense			(224	)			(536	)		(58.2	%)			(703	)			(900	)		(21.9	%)
Gain on sale of real estate facility			29,924				7,652			291.1	%			49,117				27,273			80.1	%
Net income		$	78,463			$	50,899			54.2	%		$	196,020			$	160,410			22.2	%

(1)		As of September 30, 2021, the Company had reclassified to properties held for sale a total of 1.2 million square feet including a 53,000 square foot industrial building located in Beltsville, Maryland, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 772,000 square foot industrial-flex business park located in Irving, Texas. As of December 31, 2020, properties held for sale includes the 1.2 million square feet described above along with a single-tenant industrial-flex building totaling 22,000 square feet located in Irving, Texas, which was sold in September 2021, a 244,000 square foot office business park located in Herndon, Virginia, which sold in July 2021, and a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, which sold in June 2021. Also included in the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.
(2)		Defined in the Property Operations–Same Park Portfolio table above.
(3)		Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributable to the executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006176/en/

Jeff Hedges

(818) 244-8080, Ext. 1649

Source: PS Business Parks, Inc.

FAQ

What were PSB's net income figures for Q3 2021?

PS Business Parks reported a net income of $52.2 million for Q3 2021, equivalent to $1.89 per diluted share.

How did Same Park NOI perform in Q3 2021 for PSB?

The Same Park NOI for PSB increased by 8.5% to $70.8 million in Q3 2021.

What is PSB's FFO per share for the three months ended September 30, 2021?

The Funds from Operations (FFO) for PSB was $1.72 per share for the three months ended September 30, 2021.

What dividend was declared by PSB in October 2021?

PS Business Parks declared a quarterly dividend of $1.05 per share.

What significant sale did PSB complete recently?

PSB completed the sale of a 371,000 square foot industrial-flex property for net proceeds of $311.1 million.