Business Wire | Oct 28, 2021 04:06PM EDT

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

Oct. 28, 2021

GLENDALE, Calif.--(BUSINESS WIRE)--Oct. 28, 2021--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 $ 73,250 $ 69,440 $ 3,810 $ 216,566 $ 210,068 $ 6,498 income

Expenserecovery 24,690 22,643 2,047 71,658 66,270 5,388 income

Leasebuyout 738 288 450 1,318 787 531 income

Rentreceivable recovery/

(write-off) 20 (275 ) 295 61 (1,321 ) 1,382

Rent (97 ) (331 ) 234 (304 ) (1,189 ) 885 abatements

Deferrals (5 ) (1,632 ) 1,627 (292 ) (5,144 ) 4,852

Deferral 310 1,147 (837 ) 1,518 1,166 352 repayments

Fee Income 255 221 34 594 678 (84 )

Cash Rental 99,161 91,501 7,660 291,119 271,315 19,804 Income

Non-CashRental 131 1,430 (1,299 ) 682 4,526 (3,844 )Income ^(1)

Totalrental $ 99,292 $ 92,931 $ 6,361 $ 291,801 $ 275,841 $ 15,960 income

(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.

^ Non-cash rental income includes amortization of deferred rent receivable(1) (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.

____________________^ Total portfolio occupancy statistics exclude assets sold or held for sale1 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 For the Nine Months ended September 30, 2021 September 30, 2021

Cash Net Cash NetProduct type Leasing rental effective Leasing rental effective volume rate rent volume rate rent growth growth^3 growth growth^3

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.

____________________^ Leasing Production excludes assets held for sale as of September 30, 2021.2 Net effective rent represents average rental payments for the term of a^ lease on a straight-line basis in accordance with GAAP and excludes3 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 $ 99,161 $ 91,501 8.4 % $ 291,119 $ 271,315 7.3 %Income ^(1)

Non-CashRental 131 1,430 (90.8 %) 682 4,526 (84.9 %)Income ^(2)

Total rental 99,292 92,931 6.8 % 291,801 275,841 5.8 %income



AdjustedCost of Operations ^(3)

Property 10,749 10,517 2.2 % 32,022 31,357 2.1 %taxes

Utilities 4,934 4,477 10.2 % 13,321 12,936 3.0 %

Repairs and 5,957 5,868 1.5 % 16,613 16,018 3.7 %maintenance

Compensation 4,001 3,974 0.7 % 11,946 11,688 2.2 %

Snow removal - - - 1,011 70 1,344.3 %

Property 1,290 1,243 3.8 % 3,551 2,908 22.1 %insurance

Other 1,539 1,558 (1.2 %) 4,684 4,768 (1.8 %)expenses

TotalAdjusted 28,470 27,637 3.0 % 83,148 79,745 4.3 %Cost ofOperations

NOI ^(4) $ 70,822 $ 65,294 8.5 % $ 208,653 $ 196,096 6.4 %



Cash NOI ^ $ 70,691 $ 63,864 10.7 % $ 207,971 $ 191,570 8.6 %(5)



SelectedStatistical Data

Rentablesquare 25,053 25,053 - 25,053 25,053 - footage atperiod end

NOI margin ^ 71.3 % 70.3 % 1.4 % 71.5 % 71.1 % 0.6 %(6)

Cash NOI 71.3 % 69.8 % 2.1 % 71.4 % 70.6 % 1.1 %margin ^(7)

Weightedaverage 94.8 % 92.6 % 2.4 % 94.0 % 92.6 % 1.5 %square footoccupancy

Revenue peroccupied $ 16.72 $ 16.02 4.4 % $ 16.52 $ 15.85 4.2 %square foot^(8)

Revenue peravailablefoot $ 15.85 $ 14.84 6.8 % $ 15.53 $ 14.68 5.8 %(RevPAF) ^(9)

Cash RentalIncome peroccupied $ 16.70 $ 15.78 5.8 % $ 16.49 $ 15.59 5.8 %square foot^(10)

Cash RentalIncome per $ 15.83 $ 14.61 8.4 % $ 15.49 $ 14.44 7.3 %availablefoot ^(11)

(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):

Cash Rental Income represents rental income excluding Non-Cash Rental^(1) Income (defined below). Detail of the components of Cash Rental Income can be found in the table presented under operating results above.

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^(2) 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.

Adjusted Cost of Operations, as presented above, excludes stock^(3) 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.

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^(4) 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.

The Company utilizes Cash NOI, a non-GAAP financial measure, to evaluate^(5) 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.

Revenue per occupied square foot is computed by dividing rental income^(8) 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.

Revenue per Available Square Foot (RevPAF) is computed by dividing rental^(9) 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.

Cash Rental Income per occupied square foot is computed by dividing Cash^ Rental Income for the period by weighted average occupied square feet for(10) the same period. Cash rental income per occupied square foot for the three and nine month periods shown is annualized.

Cash Rental Income per Available Square Foot is computed by dividing Cash^ Rental Income for the period by weighted average available square feet(11) 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 December 30 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.

^(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, 275 274 respectively

Paid-in capital 741,032 738,022

Accumulated earnings 113,444 73,631

Total PS Business Parks, Inc.'s stockholders' 1,799,501 1,756,677 equity

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.

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 23,857 23,064 69,356 72,646 amortization

General and 5,148 5,047 14,329 11,374 administrative

Total operating 62,096 60,207 181,843 177,510 expenses



Interest and other 411 230 1,590 1,012 income

Interest and other (224 ) (536 ) (703 ) (900 )expense

Gain on sale of real 29,924 7,652 49,117 27,273 estate facilities

Net income 78,463 50,899 196,020 160,410

Allocation tononcontrolling (13,850 ) (8,124 ) (33,355 ) (26,011 )interests

Net income allocable to 64,613 42,775 162,665 134,399 PS Business Parks, Inc.

Allocation to preferred (12,046 ) (12,046 ) (36,139 ) (36,139 )stockholders

Allocation torestricted stock unit (350 ) (149 ) (828 ) (543 )holders

Net income allocable to $ 52,217 $ 30,580 $ 125,698 $ 97,717 common stockholders



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

PS BUSINESS PARKS, INC.

Computation of Funds from Operations ("FFO"), Core FFO, and Funds Available forDistribution ("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 $ 52,217 $ 30,580 $ 125,698 $ 97,717 common stockholders

Adjustments

Gain on sale of real (29,924 ) (7,652 ) (49,117 ) (27,273 )estate facilities

Depreciation and 23,857 23,064 69,356 72,646 amortization expense

Net income allocated to 13,850 8,124 33,355 26,011 noncontrolling interests

Net income allocated torestricted stock unit 350 149 828 543 holders

FFO allocated to joint (22 ) (21 ) (67 ) (102 )venture partner

FFO allocable to dilutedcommon stock and units ^ 60,328 54,244 180,053 169,542 (1)

Maryland reincorporation - - 510 - costs

Non-capitalizable - 335 - 335 demolition costs

Acceleration of stockcompensation expense dueto President and Chief - 1,687 - 1,687 Executive Officerretirement

Core FFO allocable todiluted common stock and 60,328 56,266 180,563 171,564 units ^(1)

Adjustments

Recurring capital (3,914 ) (1,625 ) (8,350 ) (6,413 )improvements

Tenant improvements (4,231 ) (3,338 ) (11,255 ) (11,039 )

Capitalized lease (2,034 ) (1,889 ) (5,438 ) (5,225 )commissions

Non-cash rental income ^ (453 ) (1,530 ) (1,943 ) (5,340 )(2)

Non-cash stockcompensation expense ^ 2,341 831 6,422 2,704 (3)

Cash paid for taxes inlieu of stock upon (478 ) (442 ) (3,680 ) (4,102 )vesting of restrictedstock units

FAD allocable to dilutedcommon stock and units ^ $ 51,559 $ 48,273 $ 156,319 $ 142,149 (1)



Distributions to commonstockholders,noncontrolling $ 36,793 $ 36,717 $ 110,330 $ 110,123 interests, andrestricted stock unitholders

Distribution payout 71.4 % 76.1 % 70.6 % 77.5 %ratio



Reconciliation ofearnings per share to FFO per share

Net income per share of $ 1.89 $ 1.11 $ 4.55 $ 3.55 common stock-diluted

Gain on sale of real (0.85 ) (0.22 ) (1.39 ) (0.78 )estate facilities

Depreciation and 0.68 0.66 1.99 2.08 amortization expense

FFO per share ^(1) 1.72 1.55 5.15 4.85

Maryland reincorporation - - 0.01 - costs

Non-capitalizable - 0.01 - 0.01 demolition costs

Acceleration of stockcompensation expense dueto President and Chief - 0.05 - 0.05 Executive Officerretirement

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 7,305 7,305 7,305 7,305 partnership units

Restricted stock units 33 49 42 65

Common stock equivalents 92 82 100 90

Total diluted common 34,973 34,919 34,970 34,930 stock and units

(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.

^ Defined in the Funds from Operations ("FFO"), Core FFO, and Funds(1) Available for Distribution ("FAD") section above.

^ Non-cash rental income includes amortization of deferred rent receivable,(2) in-place lease intangible, tenant improvement reimbursements, and lease incentives.

^ Amounts shown are net of accelerated stock compensation expense related to(3) 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

%

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 orheld for sale 4,378 6,931 (36.8 %) 17,010 21,260 (20.0 %)^(1)

Total rental 110,448 103,760 6.4 % 327,859 310,535 5.6 %income



Cost of operations

Adjusted Costof 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 orheld for sale 1,643 2,250 (27.0 %) 6,511 7,271 (10.5 %)^(1)

Stockcompensation 428 243 76.1 % 1,365 783 74.3 %expense ^(3)

Total cost of 33,091 32,096 3.1 % 98,158 93,490 5.0 %operations



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 orheld for sale 2,735 4,681 (41.6 %) 10,499 13,989 (24.9 %)^(1)

Stockcompensation (428 ) (243 ) 76.1 % (1,365 ) (783 ) 74.3 %expense ^(3)

Depreciationand (23,857 ) (23,064 ) 3.4 % (69,356 ) (72,646 ) (4.5 %)amortizationexpense

General andadministrative (5,148 ) (5,047 ) 2.0 % (14,329 ) (11,374 ) 26.0 %expense

Interest and 411 230 78.7 % 1,590 1,012 57.1 %other income

Interest and (224 ) (536 ) (58.2 %) (703 ) (900 ) (21.9 %)other expense

Gain on saleof real estate 29,924 7,652 291.1 % 49,117 27,273 80.1 %facility

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/

CONTACT: Jeff Hedges (818) 244-8080, Ext. 1649