☒Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
For the quarterly period ended September 30, 2017
or
☐Transition Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
For the transition period from ____________ to ____________
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 | ||||
| For the quarterly period ended June 30, 2022 | |||||
| or | |||||
| o | Transition Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 | ||||
| For the transition period from to | |||||
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Maryland | 95-4300881 | ||||
| (State or Other Jurisdiction | (I.R.S. Employer | ||||
of Incorporation) | Identification Number) | ||||
91201-2349
| Title of Each Class | Ticker Symbol | Name of Each Exchange on Which Registered | ||||||||||||
| Common Stock, $0.01 par value per share | PSB | New York Stock Exchange | ||||||||||||
| Depositary Shares Each Representing 1/1,000 of a 5.250% Cum Pref Stock, Series X, $0.01 par value | PSBPrX | New York Stock Exchange | ||||||||||||
| Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series Y, $0.01 par value | PSBPrY | New York Stock Exchange | ||||||||||||
| Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Stock, Series Z, $0.01 par value | PSBPrZ | New York Stock Exchange | ||||||||||||
Large accelerated filer
| Accelerated filer
| Non-accelerated filer
| Smaller reporting company
| Emerging growth company
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| x | o | o | o | o | ||||||||||
September 30, December 31, 2017 2016 (Unaudited) ASSETS Cash and cash equivalents $ $ Real estate facilities, at cost Land Buildings and improvements Accumulated depreciation Property held for disposition, net — Land and building held for development Investment in and advances to unconsolidated joint venture Rent receivable, net Deferred rent receivable, net Other assets Total assets $ $ LIABILITIES AND EQUITY Accrued and other liabilities $ $ Preferred stock called for redemption Total liabilities Commitments and contingencies Equity: PS Business Parks, Inc.’s shareholders’ equity Preferred stock, $0.01 par value, 50,000,000 shares authorized, 35,590 and 35,190 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively Common stock, $0.01 par value, 100,000,000 shares authorized, 27,251,037 and 27,138,138 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively Paid-in capital Accumulated earnings (deficit) Total PS Business Parks, Inc.’s shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity $ $ See accompanying notes. For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 2017 2016 Rental income $ $ $ $ Expenses Cost of operations Depreciation and amortization General and administrative Total operating expenses Operating income Interest and other income Interest and other expense Equity in loss of unconsolidated joint venture — — Gain on sale of real estate facility — — — Gain on sale of development rights — — — Net income Allocation to noncontrolling interests Net income allocable to PS Business Parks, Inc. Allocation to preferred shareholders based upon Distributions Redemptions (Note 9) — — Allocation to restricted stock unit holders Net income allocable to common shareholders $ $ $ $ Net income per common share Basic $ $ $ $ Diluted $ $ $ $ Weighted average common shares outstanding Basic Diluted Dividends declared per common share $ $ $ $ Total PS Business Parks, Preferred Stock Common Stock Paid-in Accumulated Inc.’s Shareholders’ Noncontrolling Total Shares Amount Shares Amount Capital Earnings (Deficit) Equity Interests Equity Balances at December 31, 2016 $ $ $ $ $ $ $ Issuance of preferred stock, net of issuance costs — — — — Redemption of preferred stock, net of issuance costs — — — Issuance of common stock in connection with stock-based compensation — — — — Stock compensation, net — — — — — — Cash paid for taxes in lieu of shares upon vesting of restricted stock units — — — — — — Net income — — — — — Distributions Preferred stock — — — — — — Common stock — — — — — — Noncontrolling interests — — — — — — — Adjustment to noncontrolling interests in the OP — — — — — — Balances at September 30, 2017 $ $ $ $ $ $ $ For The Nine Months Ended September 30, 2017 2016 Cash flows from operating activities Net income $ $ Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Tenant improvement reimbursements, net of lease incentives Equity in loss of unconsolidated joint venture — Gain on sale of real estate facility — Gain on sale of development rights — Stock compensation Amortization of financing costs Other, net Total adjustments Net cash provided by operating activities Cash flows from investing activities Capital expenditures to real estate facilities Capital expenditures to land and building held for development — Investment in and advances to unconsolidated joint venture Acquisition of real estate facilities — Proceeds from sale of real estate facilities — Proceeds from sale of development rights — Net cash used in investing activities Cash flows from financing activities Borrowings on credit facility Repayment of borrowings on credit facility Repayment of mortgage note payable — Payment of financing costs — Proceeds from the exercise of stock options Net proceeds from the issuance of preferred stock — Redemption of preferred stock — Cash paid for taxes in lieu of shares upon vesting of restricted stock units Cash paid to restricted stock unit holders — Distributions paid to preferred shareholders Distributions paid to common shareholders Distributions paid to noncontrolling interests Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period $ $ Supplemental schedule of non-cash investing and financing activities Adjustment to noncontrolling interests in OP Noncontrolling interests $ $ Paid-in capital $ $ Preferred Redemption Allocation Paid-in capital $ $ — Accumulated earnings (deficit) $ $ — Preferred stock called for redemption Preferred stock called for redemption and reclassified to liabilities $ $ — Preferred stock called for redemption and reclassified from equity $ $ — See accompanying notes. 2022 stock. 2021. PS, the sole limited partner in the OP, has no power to direct the activities of the OP. information on noncontrolling interests. Carrying values of the Company’s thousands) presented are reclassified from continuing operations to discontinued operations. The disposal of an individual property generally will not represent a strategic shift and therefore will typically not meet the criteria for classification as a discontinued operation. Accrued and other liabilities as further information becomes known. expense ” the original issuance costs, and we reclassify the redemption value from equity to liabilities, when we call preferred redemption, with such liabilities relieved once the preferred stock is redeemed. stock (see Note 10) using the treasury stock method. For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 2017 2016 Calculation of net income allocable to common shareholders Net income $ $ $ $ Less net income allocated to Preferred shareholders based upon distributions Preferred shareholders based upon redemptions — — Restricted stock unit holders Net income allocable to common shareholders and noncontrolling interests Net income allocation to noncontrolling interests Net income allocable to common shareholders $ $ $ $ Calculation of common partnership units as a percentage of common share equivalents Weighted average common shares outstanding Weighted average common partnership units outstanding Total common share equivalents Common partnership units as a percent of common share equivalents Weighted average common shares outstanding Basic weighted average common shares outstanding Net effect of dilutive stock compensation—based on treasury stock method using average market price Diluted weighted average common shares outstanding Segment reporting Buildings and Accumulated Land Improvements Depreciation Total Balances at December 31, 2016 $ $ $ $ Capital expenditures — — Disposals — — Depreciation and amortization — — Transfer to properties held for disposition — — Balances at September 30, 2017 $ $ $ $ financial results. Multifamily developmental activity 36 months. As of 5. Leasing activity Remainder of 2017 $ 2018 2019 2020 2021 Thereafter Total $ In allocating net income and presenting equity, we treat the common partnership units as if converted to shares of common Brentford Joint Venture. 2022 and 2021. September 30, 2017 December 31, 2016 Earliest Potential Dividend Shares Amount Shares Amount Series Issuance Date Redemption Date Rate Outstanding (in thousands) Outstanding (in thousands) Series T May, 2012 May, 2017 $ $ Series U September, 2012 September, 2017 Series V March, 2013 March, 2018 Series W October, 2016 October, 2021 Series X September, 2017 September, 2022 — — Total $ $ Common stock and units equity stock. As of June 30, 2022 and December 31, 2021, no equity stock had been issued. RSUs vest. options on the date of grant. During the 2021, respectively. Policies and Estimates: common stockholders at a special meeting on July 15, 2022, is subject to other customary closing conditions. The Merger is expected to close on or around July 20, 2022, after the conditions to closing are satisfied or waived. The Company can provide no assurances regarding whether the Merger will close as expected, or at all. cost. As of June 30, 2022, the development cost incurred was $77.2 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel. inflation. Net Operating Income estate. The Company’s calculation of NOI NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP. Results of Operations 2021 generated from assets sold. Analysis of expense, interest and other income, interest and other expenses and gain on sale of real estate facilities. For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 Variance 2017 2016 Variance RENTAL INCOME Adjusted rental income (a) Same Park $ $ $ $ $ $ Non-Same Park Assets sold or held for development — Lease buyout payment — — Total rental income COST OF OPERATIONS Adjusted cost of operations (b) Same Park Non-Same Park Assets sold or held for development — LTEIP amortization Total cost of operations OPERATING INCOME Net operating income (c) Same Park Non-Same Park Assets sold or held for development — Lease buyout payment and LTEIP amortization Depreciation and amortization General and administrative Operating income $ $ $ $ $ $ from our Non-Same Park portfolio acquired during the third and fourth quarters of 2021. These increases were partially offset by a decrease in rental income from assets sold. Operations incurred by our Same Park (discussed below) and Non-Same Park assets sold during second quarter of 2022, compared to the same period in 2021, combined with a $3.3 million increase in NOI from our Same Park portfolio (defined below), a $1.5 million increase in NOI from our Non-Same Park portfolio (defined below), and $2.5 million lower preferred distributions in 2022 compared to 2021 due to the redemption of preferred stock in November 2021, partially offset by the Merger related costs of $6.1 million and a decrease of $4.3 million in NOI generated from assets sold or held for sale. Summary of Same Park Operations For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 Variance 2017 2016 Variance Adjusted rental income $ $ $ $ Adjusted cost of operations Property taxes Utilities Repairs and maintenance Snow removal — — — Other expenses Total Net operating income $ $ $ $ Selected Statistical Data Gross margin (a) Weighted average square foot occupancy Annualized realized rent per occupied square foot (b) $ $ $ $ Percent of Rentable Square Percent of Annualized Rental Annualized Rental Number of Footage Subject to Total Leased Income Under Income Represented Year of Lease Expiration Tenants Expiring Leases Square Footage Expiring Leases by Expiring Leases Remainder of 2017 $ 2018 2019 2020 2021 Thereafter Total $ higher assessed values. Repairs and maintenance increased For the Three Months Ended March 31 June 30 September 30 December 31 Adjusted rental income 2017 $ $ $ $ — 2016 $ $ $ $ Adjusted cost of operations 2017 $ $ $ $ — 2016 $ $ $ $ Snow removal 2017 $ $ $ — $ — 2016 $ $ — $ — $ — Utilities 2017 $ $ $ $ — 2016 $ $ $ $ Weighted average square foot occupancy 2017 — 2016 Annualized realized rent per occupied square foot 2017 $ $ $ $ — 2016 $ $ $ $ For The Three Months For The Nine Months Ended September 30, Ended September 30, Region 2017 2016 Variance 2017 2016 Variance Selected Geographic Data on Same Park Adjusted rental income Northern California (7.2 million feet) $ $ 5.4% $ $ 7.0% Southern California (4.0 million feet) 5.2% 6.5% Dallas (3.0 million feet) 2.6% 5.2% Austin (2.0 million feet) 8.3% 7.7% Northern Virginia (3.9 million feet) 2.2% (0.8%) South Florida (3.9 million feet) 6.1% 7.0% Suburban Maryland (2.4 million feet) 2.2% 2.1% Seattle (1.4 million feet) 5.8% 7.2% Total Same Park (27.8 million feet) 4.4% 4.6% Adjusted cost of operations Northern California 4.1% 4.5% Southern California (0.1%) 2.7% Dallas (1.8%) (2.0%) Austin 7.4% 7.0% Northern Virginia (6.8%) (6.1%) South Florida 0.1% 0.7% Suburban Maryland 27.0% 3.9% Seattle 1.2% 1.0% Total Same Park 3.2% 0.9% Net operating income Northern California 5.9% 7.8% Southern California 7.8% 8.3% Dallas 5.0% 9.2% Austin 8.8% 8.0% Northern Virginia 6.9% 1.9% South Florida 8.5% 9.5% Suburban Maryland (9.5%) 1.1% Seattle 7.4% 9.5% Total Same Park $ $ 5.0% $ $ 6.3% Weighted average square foot occupancy Weighted average square foot occupancy Northern California (2.4%) (0.9%) Southern California (0.2%) 1.0% Dallas 0.1% 0.8% Austin (1.8%) (2.0%) Northern Virginia 0.8% (1.6%) South Florida 3.7% 3.9% Suburban Maryland 1.9% 0.5% Seattle (1.6%) (0.5%) Total Same Park (0.1%) 0.2% Annualized realized rent per square foot Northern California $ $ 8.0% $ $ 8.0% Southern California $ $ 5.5% $ $ 5.6% Dallas $ $ 2.5% $ $ 4.3% Austin $ $ 10.4% $ $ 9.7% Northern Virginia $ $ 1.4% $ $ 0.8% South Florida $ $ 2.2% $ $ 2.9% Suburban Maryland $ $ 0.3% $ $ 1.5% Seattle $ $ 7.5% $ $ 7.7% Total Same Park $ $ 4.6% $ $ 4.5% For the Three Months Ended September 30, 2017 Square Transaction Footage Tenant Costs per Rental Regions Leased Retention Executed Foot Rate Change (a) Northern California $ Southern California $ Dallas $ Austin $ Northern Virginia $ South Florida $ Suburban Maryland $ Seattle $ Total $ For the Nine Months Ended September 30, 2017 Square Transaction Footage Tenant Costs per Rental Regions Leased Retention Executed Foot Rate Change (a) Northern California $ Southern California $ Dallas $ Austin $ Northern Virginia $ South Florida $ Suburban Maryland $ Seattle $ Total $ sale. General and Administrative Schedule As of September 30, 2017 Apartment Units Total Estimated Construction Start Initial Occupancy Estimated Stabilization Period % Completed % % Average Rent per Unit (c) 395 $ Q3 2015 Q2 2017 Q4 2018 $ Gain on Sale of Real Estate Facilities Liquidity and Capital Resources ground lease obligations: For The Nine Months ended September 30, 2017 2016 2017 2016 (in thousands) (per square foot) Recurring capital expenditures Capital improvements $ $ $ $ Tenant improvements Lease commissions Total recurring capital expenditures Nonrecurring capital improvements Total capital expenditures $ $ $ $ For the Nine Months Ended September 30, Recurring Recurring Capital Expenditures Capital Expenditures as a Percentage of NOI Region 2017 2016 Change 2017 2016 Same Park Northern California $ $ (25.0%) Southern California 2.1% Dallas (2.0%) Austin 47.1% Northern Virginia 56.6% South Florida (11.2%) Suburban Maryland 97.2% Seattle (27.0%) Total Same Park 29.2% Non-Same Park Maryland — 100.0% — — Total Non-Same Park — 100.0% — — Total $ $ 50.4% NOI, and we expected future recurring capital expenditures to be within this range. While what we disclose herein with respect to capital expenditures represents our best estimates at this time, there can be no assurance that these amounts will not change substantially in the future for various reasons, including the potential impact of the COVID-19 pandemic on capital projects and leasing volume. stock. future acquisition activity. is completed. the closing of the Mergers. REIT in future periods. 2022. Funds from Operations, Core Funds from Operations, and dividend forfeiture expense. For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 2017 2016 Net income allocable to common shareholders $ $ $ $ Gain on sale of real estate facility — — — Gain on sale of development rights — — — Depreciation and amortization Depreciation from unconsolidated joint venture — — Net income allocated to noncontrolling interests Net income allocated to restricted stock unit holders FFO allocable to common and dilutive shares $ $ $ $ Weighted average common shares outstanding Weighted average common operating partnership units outstanding Weighted average restricted stock units outstanding Weighted average common share equivalents outstanding Total common and dilutive shares Net income per common share—diluted $ $ $ $ Gain on sale of real estate facility — — — Gain on sale of development rights — — — Depreciation and amortization, including amounts from investment in unconsolidated Joint Venture FFO per share (a) $ $ $ $ For The Three Months For The Nine Months Ended September 30, Ended September 30, 2017 2016 2017 2016 FFO per share $ $ $ $ Preferred Redemption Allocation — — Net impact due to departure of senior executives — Acquisition transaction costs — — Lease buyout payment — — Core FFO per share $ $ $ $ Payments Due by Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years More than 5 years Transaction costs (a) $ $ $ — $ — $ — Joint Venture commitments (b) — — — Ground lease obligations (c) — Total $ $ $ $ $ — ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 2022. ITEM 4. CONTROLS AND PROCEDURES 2021, in Part I, Item 1A, Risk Factors, and in our other filings with the SEC. These factors may materially affect our business, financial condition and operating results and could cause our actual results to differ materially from expectations. Except as set forth below, as of the date of this report, there have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2021. PS BUSINESS PARKS, INC. BY: /s/ (If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐o No ☒xAs of October 23, 2017,July 13, 2022, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 27,251,037.27,631,499.PS BUSINESS PARKS, INC.INDEXPage Page6720353636363636ITEM 1. FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS(InAmounts in thousands, except share data)132,658 128,629 789,227 789,227 2,254,663 2,224,522 3,043,890 3,013,749 (1,219,314) (1,158,054) 1,824,576 1,855,695 909 29,252 27,028 1,853,828 1,883,632 96,593 67,190 2,203 1,945 31,670 29,770 8,779 8,205 2,125,731 2,119,371 82,618 78,657 220,000 230,000 302,618 308,657 889,750 879,750 272 271 735,714 733,671 60 (433) 1,625,796 1,613,259 197,317 197,455 1,823,113 1,810,714 2,125,731 2,119,371 June 30,
2022December 31,
2021 (Unaudited) ASSETS Cash and cash equivalents $ 173,460 $ 27,074 Real estate facilities, at cost Land 849,942 852,073 Buildings and improvements 2,202,358 2,186,849 3,052,300 3,038,922 Accumulated depreciation (1,182,746) (1,141,727) 1,869,554 1,897,195 Properties held for sale, net — 66,914 Land and building held for development, net 112,952 76,575 1,982,506 2,040,684 Rent receivable 1,571 1,621 Deferred rent receivable 37,525 37,581 Other assets 10,995 16,262 Total assets $ 2,206,057 $ 2,123,222 LIABILITIES AND EQUITY Accrued and other liabilities $ 92,047 $ 97,151 Credit facility — 32,000 Total liabilities 92,047 129,151 Commitments and contingencies 0 0 Equity PS Business Parks, Inc.’s stockholders’ equity Preferred stock, $0.01 par value, 50,000,000 shares authorized, 30,200 shares issued and outstanding at June 30, 2022 and December 31, 2021 755,000 755,000 Common stock, $0.01 par value, 100,000,000 shares authorized, 27,631,499 and 27,589,807 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.276 275 Paid-in capital 755,873 752,444 Accumulated earnings 318,782 226,737 Total PS Business Parks, Inc.’s stockholders’ equity 1,829,931 1,734,456 Noncontrolling interests 284,079 259,615 Total equity 2,114,010 1,994,071 Total liabilities and equity $ 2,206,057 $ 2,123,222 3CONSOLIDATED STATEMENTS OF INCOME(Amounts in thousands, except per share data)(Unaudited)100,481 97,340 300,342 289,272 31,679 30,796 92,962 92,440 23,759 24,631 70,465 74,886 1,745 2,970 7,019 11,982 57,183 58,397 170,446 179,308 43,298 38,943 129,896 109,964 212 206 599 940 (503) (155) (972) (5,507) (376) (758) 1,209 3,865 42,631 38,994 133,839 105,397 (4,866) (5,315) (18,610) (13,495) 37,765 33,679 115,229 91,902 (12,590) (13,833) (38,472) (41,498) (6,900) (6,900) (137) (128) (582) (387) 18,138 19,718 69,275 50,017 0.67 0.73 2.55 1.85 0.66 0.72 2.53 1.84 27,226 27,103 27,192 27,076 27,427 27,201 27,399 27,166 0.85 0.75 2.55 2.25 (Unaudited)Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Rental income $ 110,910 $ 109,364 $ 223,750 $ 217,411 Expenses Cost of operations 32,587 31,849 66,701 65,067 Depreciation and amortization 22,799 22,514 45,931 45,499 General and administrative 11,092 4,799 22,416 9,181 Total operating expenses 66,478 59,162 135,048 119,747 Interest and other income 1,722 923 1,968 1,179 Interest and other expense (476) (268) (806) (479) Gain on sale of real estate facilities 61,842 19,193 118,801 19,193 Net income 107,520 70,050 208,665 117,557 Allocation to noncontrolling interests (20,388) (12,094) (39,437) (19,505) Net income allocable to PS Business Parks, Inc. 87,132 57,956 169,228 98,052 Allocation to preferred stockholders (9,580) (12,047) (19,160) (24,093) Allocation to restricted stock unit holders (475) (314) (998) (478) Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Net income per share of common stock Basic $ 2.79 $ 1.66 $ 5.40 $ 2.67 Diluted $ 2.78 $ 1.65 $ 5.38 $ 2.66 Weighted average common stock outstanding Basic 27,630 27,531 27,618 27,513 Diluted 27,722 27,632 27,707 27,611 See accompanying notes.4CONSOLIDATED STATEMENTSTATEMENTS OF EQUITYFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017(InAmounts in thousands, except share data)(Unaudited)35,190 879,750 27,138,138 271 733,671 (433) 1,613,259 197,455 1,810,714 9,200 230,000 (7,775) 222,225 222,225 (8,800) (220,000) 6,900 (6,900) (220,000) (220,000) 112,899 1 3,991 3,992 3,992 2,673 2,673 2,673 (3,865) (3,865) (3,865) 115,229 115,229 18,610 133,839 (38,472) (38,472) (38,472) (69,364) (69,364) (69,364) (18,629) (18,629) 119 119 (119) 35,590 889,750 27,251,037 272 735,714 60 1,625,796 197,317 1,823,113 (Unaudited)Three Months Ended June 30, 2022 Preferred Stock Common Stock Paid-in
CapitalAccumulated
EarningsTotal PS
Business Parks,
Inc.’s Stockholders'
EquityNoncontrolling
InterestsTotal
EquityShares Amount Shares Amount Balances at March 31, 2022 30,200 $ 755,000 27,627,443 $ 276 $ 754,387 $ 270,243 $ 1,779,906 $ 271,156 $ 2,051,062 Issuance of common stock in connection with share-based compensation — — 4,056 — — — — — — Stock compensation, net — — — — 1,873 — 1,873 — 1,873 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (387) — (387) — (387) Capital contribution from noncontrolling interests—joint venture — — — — — — — 227 227 Net income — — — — — 87,132 87,132 20,388 107,520 Distributions — Preferred stock (Note 9) — — — — — (9,580) (9,580) — (9,580) Common stock ($1.05 per share) — — — — — (29,013) (29,013) — (29,013) Noncontrolling interests— Common units — — — — — — — (7,670) (7,670) Joint venture — — — — — — — (22) (22) Balances at June 30, 2022 30,200 $ 755,000 27,631.499 $ 276 $ 755,873 $ 318,782 $ 1,829,931 $ 284,079 $ 2,114,010 Three Months Ended June 30, 2021 Balances at March 31, 2021 37,790 $ 944,750 27,516,939 $ 274 $ 736,336 $ 72,809 $ 1,754,169 $ 218,845 $ 1,973,014 Issuance of common stock in connection with share-based compensation — — 24,525 1 906 — 907 — 907 Stock compensation, net — — — — 2,099 — 2,099 — 2,099 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (5) — (5) — (5) Capital contribution from noncontrolling interests—joint venture — — — — — — — 128 128 Net income — — — — — 57,956 57,956 12,094 70,050 Distributions Preferred stock (Note 9) — — — — — (12,047) (12,047) — (12,047) Common stock ($1.05 per share) — — — — — (28,918) (28,918) — (28,918) Noncontrolling interests— Common units — — — — — — — (7,670) (7,670) Joint venture — — — — — — — (23) (23) Balances at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 See accompanying notes.5PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF EQUITY(Amounts in thousands, except share data)(Unaudited)Six Months Ended June 30, 2022 Preferred Stock Common Stock Paid-in
CapitalAccumulated
EarningsTotal PS
Business Parks,
Inc.’s Stockholders'
EquityNoncontrolling
InterestsTotal
EquityShares Amount Shares Amount Balances at December 31, 2021 30,200 $ 755,000 27,589,807 $ 275 $ 752,444 $ 226,737 $ 1,734,456 $ 259,615 $ 1,994,071 Issuance of common stock in connection with share-based compensation — — 41,692 1 2,101 — 2,102 — 2,102 Stock compensation, net — — — — 2,646 — 2,646 — 2,646 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (1,318) — (1,318) — (1,318) Capital contribution from noncontrolling interests—joint venture — — — — — — — 413 413 Net income — — — — — 169,228 169,228 39,437 208,665 Distributions — — — — — — — Preferred stock (Note 9) — — — — — (19,160) (19,160) — (19,160) Common stock ($2.10 per share) — — — — — (58,023) (58,023) — (58,023) Noncontrolling interests— Common units — — — — — — — (15,341) (15,341) Joint venture — — — — — — — (45) (45) Balances at June 30, 2022 30,200 $ 755,000 27,631.499 $ 276 $ 755,873 $ 318,782 $ 1,829,931 $ 284,079 $ 2,114,010 Six Months Ended June 30, 2021 Balances at December 31, 2020 37,790 $ 944,750 27,488,547 $ 274 $ 738,022 $ 73,631 $ 1,756,677 $ 218,963 $ 1,975,640 Issuance of common stock in connection with share-based compensation — — 52,917 1 906 — 907 — 907 Stock compensation, net — — — — 3,715 — 3,715 — 3,715 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,202) — (3,202) — (3,202) Capital contribution from noncontrolling interests—joint venture — — — — — — — 287 287 Issuance costs — — — — (105) — (105) — (105) Net income — — — — — 98,052 98,052 19,505 117,557 Distributions Preferred stock (Note 9) — — — — — (24,093) (24,093) — (24,093) Common stock ($2.10 per share) — — — — — (57,790) (57,790) — (57,790) Noncontrolling interests— Common units — — — — — — — (15,341) (15,341) Joint venture — — — — — — — (40) (40) Balances at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 See accompanying notes.6PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, amounts in thousands)133,839 105,397 70,465 74,886 (1,654) (1,253) 758 (1,209) (3,865) 3,255 8,933 338 391 4,125 1,259 72,213 84,216 206,052 189,613 (38,709) (24,230) (2,224) (30,161) (28,800) (12,628) 2,144 2,400 (66,550) (65,658) 170,000 116,000 (170,000) (56,000) (250,000) (778) 3,992 2,956 222,225 (230,000) (3,865) (1,940) (582) (38,472) (41,498) (69,364) (60,932) (18,629) (16,437) (135,473) (307,851) 4,029 (183,896) 128,629 188,912 132,658 5,016 (119) 1,613 119 (1,613) 6,900 (6,900) 220,000 (220,000) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net income $ 208,665 $ 117,557 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 45,931 45,499 Straight-line rent and amortization of lease intangibles, net (2,171) (1,490) Gain on sale of real estate facilities (118,801) (19,193) Stock compensation expense 2,940 4,081 Amortization of financing costs 488 272 Other, net (2,635) 1,381 Total adjustments (74,248) 30,550 Net cash provided by operating activities 134,417 148,107 Cash flows from investing activities Capital expenditures to real estate facilities (19,120) (15,707) Capital expenditures to land and building held for development, net (34,522) (18,240) Proceeds from sale of real estate facilities 189,509 32,622 Net cash provided by (used in) investing activities 135,867 (1,325) Cash flows from financing activities Proceeds from borrowing on credit facility 20,000 — Repayment of borrowing on credit facility (52,000) — Payment of financing costs (198) (157) Proceeds from the exercise of stock options 2,102 907 Payment of Issuance costs — (105) Cash paid for taxes in lieu of stock upon vesting of restricted stock units (1,318) (3,202) Cash paid to restricted stock unit holders (328) (366) Capital contribution from noncontrolling interests – joint venture 413 287 Distributions paid to preferred stockholders (19,160) (24,093) Distributions paid to common stockholders (58,023) (57,790) Distributions paid to noncontrolling interests—common units (15,341) (15,341) Distributions paid to noncontrolling interests—joint venture (45) (40) Net cash used in financing activities (123,898) (99,900) Net increase in cash and cash equivalents 146,386 46,882 Cash, cash equivalents and restricted cash at the beginning of the period 28,162 70,171 Cash, cash equivalents and restricted cash at the end of the period $ 174,548 $ 117,053 Supplemental disclosures Interest Paid $ 71 $ — Supplemental schedule of non-cash investing and financing activities Accrued capital expenditures to land and building held for development Land and building held for development, net $ 7,307 $ 4,642 Accrued and other liabilities $ (7,307) $ (4,642) 67NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptemberJune 30, 20171. Organization and description of businessOrganizationPS Business Parks, Inc. (“PSB”), a Maryland corporation, was incorporatedorganized in 1990. Effective May 19, 2021, following approval by its common and preferred stockholders, PSB reincorporated from the state of California in 1990.to the state of Maryland. As of SeptemberJune 30, 2017,2022, PSB owned 78.0%79.1% of the common partnership units of PS Business Parks, L.P. (the “OP”). The remaining common partnership units are owned by Public Storage (“PS”). PS’s interest in the OP is referred to as the “PS OP Interest.Interests.” PSB, as the sole general partner of the OP, has full, exclusive and complete responsibility and discretion in managing and controlling the OP. PSB and its subsidiaries, including the OP and its consolidated joint ventures, are collectively referred to as the “Company,” “we,” “us,” or “our.” PS also owns 7.2 million shares of common stock and would own 41.9%41.4% (or 14.5 million shares) of the outstanding shares of the Company’s common stock if it redeemed its common partnership units for shares of common shares. Refer to Note 12 for information regarding the Merger Agreement (defined below) the Company entered into on April 24, 2022.Description of businessThe Company is a fully-integrated, self-advised and self-managed real estate investment trust (“REIT”) that owns, operates, acquires and develops commercial properties, primarily multi-tenant flex,industrial, industrial-flex and low-rise suburban office and industrial space. As of SeptemberJune 30, 2017,2022, the Company owned and operated 28.026.6 million rentable square feet of commercial space in six6 states, comprising 93 parks and 636 buildings. The Company also held a 95.0% interest in 395 apartments.a joint venture entity which owns Highgate at The Mile, a 395- unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411- unit multifamily apartment complex also located in Tysons, Virginia. The Company also manages 684,000for a fee approximately 0.3 million rentable square feet on behalf of PS.References herein to the number of properties, parks, apartment units or square footage are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).Pending acquisition by affiliates of Blackstone Inc.As previously announced, on April 24, 2022, the Company and the OP entered into an agreement and plan of merger (the “Merger Agreement”) with certain affiliates of Blackstone Inc. (“Blackstone”) pursuant to which, subject to the terms and conditions set forth therein, the outstanding shares of common stock of the Company will be acquired for $187.50 per share in an all-cash transaction. Each share of the Company’s outstanding preferred stock (and each depositary share representing an interest therein) will remain outstanding in accordance with their respective terms. The transaction was approved by the Company’s common stockholders at a special meeting on July 15, 2022 and is expected to close on or around July 20, 2022, after the conditions to closing are satisfied or waived. Refer to Note 12 for information regarding the Merger Agreement.2. Summary of significant accounting policiesBasis of presentationThe accompanying unaudited consolidated financial statements include the accounts of PSB and its subsidiaries, including the OP.OP and its consolidated joint ventures. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. The financial statements are presented on an accrual basis in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for completeaudited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.82022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Consolidation and equity method of accountingWe consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. A limited partnership is also generally considered a VIE if the limited partners do not participate in operating decisions. We consolidate VIEs when we are the primary beneficiary, generally defined as having (i) the power to direct the activities most significantly impacting economic performance and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE.We account for investments in entities that are not VIEs that we have significant influence over, but do not control, using the equity method of accounting. At September 30, 2017,accounting and for investment in entities that we control, we consolidate. We do not consider the joint venture entity that owns Highgate at The Mile a VIE, but we consolidate the entity as the Company has control over the joint venture. See Note 3 for more information relating to this joint venture arrangement.We have a 98.2% interest in Brentford at The Mile, a planned 411- unit multifamily apartment complex (the “Brentford Joint Venture”). An unrelated real estate development company (the “JV Partner”) holds the remaining 1.8% interest. Based on management’s analysis of the joint venture and certain related agreements, we determined Brentford Joint Venture is a VIE because (a) Brentford Joint Venture does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, and (b) there are no substantive kick-out rights. We have also concluded we have ancontrol over the Brentford Joint Venture as we (i) are the managing member of the Brentford Joint Venture, (ii) have designated decision making power to direct the activities that most significantly affect the economic performance of the Brentford Joint Venture, and (iii) have a 98.2% economic interest in a joint venture engagedthe investment. Thus, we determined that we are the primary beneficiary of Brentford Joint Venture. As such, we consolidate the Brentford Joint Venture, and the related land and development costs of $77.2 million and $59.9 million were included in land and building held for development, net on our consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively. The assets of the developmentBrentford Joint Venture may only be used to settle obligations of the Brentford Joint Venture and operationthe creditors of residential real estate, which we account for using the equity methodBrentford Joint Venture have no recourse to the general credit of accounting.the Company. See Note 4 for more information onrelating to this entity.joint venture arrangement.7We arePSB is the primary beneficiary and has control over the OP as it has the exclusive responsibility under the Operating Partnership Agreement to manage and conduct the business of the OP. Accordingly, we consider the OP a VIE and consolidate it. Substantially all of our assets and liabilities are held by the OP.Noncontrolling interestsThe PS OP Interest representsNoncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units.units, (ii) the JV Partner’s 5.0% interest in our consolidated joint venture that owns Highgate at The Mile, and (iii) the JV Partner’s 1.8% interest in our consolidated joint venture formed to develop Brentford at The Mile. See noteNote 7 for further information. Use of estimatesThe preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.Allowance for doubtful accountsThe Company monitors the collectability of its receivable balances including the deferred rent receivable on an ongoing basis. Tenant receivables are net of an allowance for estimated uncollectible accounts totaling $400,000 at September 30, 2017 and December 31, 2016. Deferred rent receivable is net of an allowance for uncollectible accounts totaling $910,000 and $916,000 at September 30, 2017 and December 31, 2016, respectively.Financial instrumentsThe methods and assumptions used to estimate the fair value of financial instruments are described below. The Company has estimated the fair value of financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair values are not necessarily indicative of the amounts that could be realized in current market exchanges. The Company determines the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or9unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. This hierarchy requires the use of observable market data when available.The following is the fair value hierarchy:·Level 1—quoted prices for identical instruments in active markets;
•Level 1—quoted prices for identical instruments in active markets;·Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and·Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.•Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and receivables. The Company considers all highly liquid investments with a remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents, which consist primarily of money market investments, are only invested in entities with an investment grade rating. Receivables are comprised of balances due from a large number ofvarious customers. Balances that the Company expects to become uncollectible are reserved for or written off. Due to the short period to maturity of the Company’s cash and cash equivalents, accounts receivable, other assets and accrued and other liabilities, the carrying values as presented on the consolidated balance sheets are reasonable estimates of fair value.8unsecured Credit Facility (as defined on page 15)in Note 6) approximate fair value. The characteristics of these financial instruments,the Credit Facility, market data and other comparative metrics utilized in determining these fair values are “Level 2” inputs.Real estate facilitiesReal estate facilities are recorded at cost. Property taxes, insurance, interestThe following table provides a reconciliation of cash, cash equivalents and costs essentialrestricted cash per the consolidated statements of cash flow to the development of property for its intended use are capitalized during the period of development. Costs related to the renovation or improvement of the properties are capitalized. Expenditures for repairs and maintenance are expensed as incurred. Expenditures that are expected to benefit a period greater than two years and exceed $2,000 are capitalized and depreciated over their estimated useful life. Buildings and improvements are depreciated using the straight-line method over their estimated useful lives, which generally range from five to 30 years. Transaction costs, which include tenant improvements and lease commissions, of $1,000 or more for leases with terms greater than one year are capitalized and depreciated over their estimated useful lives. Transaction costs less than $1,000 or for leases of one year or less are expensed as incurred.Property held for disposition or developmentReal estate is classified as held for disposition when the asset is being marketed for sale and we expect that a sale is likely to occurcorresponding financial statement line items in the next 12 months. Real estate is classified as held for development when it is likely that it will be developed to an alternate use and no longer used consolidated balance sheets its present form. Property held for development or disposition is not depreciated.December 31, 2021 2020 Consolidated balance sheets Cash and cash equivalents $ 27,074 $ 69,083 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 28,162 $ 70,171 June 30, 2022 2021 Consolidated balance sheets Cash and cash equivalents $ 173,460 $ 115,965 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 174,548 $ 117,053 Intangible assets/liabilitiesWhen we acquire real estate facilities, an intangible asset is recorded in other assets for leases where the in-place rent is higher than market rents, and an intangible liability is recorded in other liabilities where the market rents are higher than the in-place rents. The amounts recorded are based upon the present value (using a discount rate which reflects the risks associated with the leases acquired) of such differences over the lease term and such amounts are amortized to rental income over the respective remaining lease term.We have no material As of June 30, 2022, the value of above-market in-place rents resulted in net intangible assets of $0.5 million, net of $11.8 million of accumulated amortization, and the value of below-market in-place rents resulted in net intangible liabilities of $2.2 million, net of $13.4 million of accumulated amortization. As of December 31, 2021, the value of above-market in-place rents resulted in net intangible assets of $0.6 million, net of $11.6 million of accumulated amortization, and the value of below-market in-place rents resulted in net intangible liabilities of $2.8 million, net of $13.1 million of accumulated amortization.10Additionally, when we acquire real estate facilities, the value of in-place lease intangible (i.e., customer lease-up costs) is recorded in other assets and is amortized to depreciation and amortization expense over the respective remaining lease term. As of June 30, 2022, the value of acquired in-place lease intangible resulted in net intangible assets of $4.5 million, net of $12.0 million of accumulated amortization. As of December 31, 2021, the value of acquired in-place leases resulted in net intangible assets of $6.0 million, net of $10.5 million of accumulated amortization.As of June 30, 2022, the value of our right-of-use (“ROU”) assets relating to our existing ground lease arrangements, included in “other assets” on our consolidated balance sheets and the corresponding liability included under “accrued and other liabilities,” was $1.3 million, net of $0.4 million of accumulated amortization. As of December 31, 2021, the value of our ROU assets and related liability relating to our ground lease arrangements was $1.3 million, net of $0.3 million of accumulated amortization. The ground leases expire in 2029 and 2030 and do not have options to extend. As of June 30, 2022, the remaining lease terms were 7.3 years and 7.6 years. Lease expense for these ground leases is recognized in the period the applicable costs are incurred, and the monthly lease amount for these operating leases is constant and without contractual increases throughout the remaining terms.Real estate facilitiesReal estate facilities are recorded at cost. Property taxes, insurance, interest, and costs essential to the development of property for its intended use are capitalized during the period of development. Direct costs related to the renovation or liabilitiesimprovement of the properties are capitalized. Expenditures for repairs and maintenance are expensed as incurred. Expenditures that are expected to provide benefit for a period greater than two years are capitalized and depreciated over their estimated useful life. Buildings and improvements are depreciated using the straight-line method over their estimated useful lives, which generally range from five to 30 years. Transaction costs, which include tenant improvements and lease commissions, for leases with terms greater than one year are capitalized and depreciated over the corresponding lease term.Property held for developmentProperty is classified as held for development when it is no longer used in its original form and it will be developed to an alternate use. Property held for development is not depreciated.Property held for saleProperty is classified as held for sale when all of the following criteria for a plan of sale have been met: (i) management, having the authority to approve the action, commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the property is probable and is expected to be completed within one year; (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation of assets ceases upon designation of a property as held for sale.If the disposal of a property represents a strategic shift that has (or will have) a major effect on our operations or financial results, such as (i) a major line of business, (ii) a major geographic area, (iii) a major equity method investment, or (iv) other major parts of an entity, then the operations of the property, including any interest expense directly attributable to it, are classified as discontinued operations in our consolidated statements of operations, and amounts for all prior periods presented.Sales of real estate facilitiesSales of real estate facilities are not part of our ordinary activities, and as a result, we consider such sales as contracts with non-customers. We recognize sales of real estate when we have collected payment and the attributes of ownership, such as possession and control of the asset, have been transferred to the buyer. If a contract for sale includes obligations to provide goods or services to the buyer, an allocated portion of the contract price is recognized as revenue as the related goods or services are transferred to the buyer.11Evaluation of asset impairmentWe evaluate our real estate and finite-lived intangible assets for impairment each quarter. We review current activities and changes in the business conditions of all of our long-lived assets to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If theretriggering events or impairment indicators are indicatorsidentified, we review an estimate of the future undiscounted cash flows, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.Upon determination that an impairment and we determinehas occurred, a write-down is recognized to reduce the carrying amount of the asset to its estimated fair value. If an impairment charge is not required to be recognized, the recognition of depreciation or amortization is adjusted prospectively, as necessary, to reduce the carrying amount of the asset to its estimated disposition value over the remaining period that the asset is not recoverable from future undiscounted cash flowsexpected to be received throughheld and used. We may adjust the asset’s remaining life (or, if earlier, thedepreciation of properties that are expected disposal date), we record an impairment chargeto be disposed of or redeveloped prior to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.We evaluate our investment in our unconsolidated joint venture on a quarterly basis. We record anend of their useful lives.No impairment charge to the extent the carrying amount exceeds estimated fair value, when we believe any such shortfall is other than temporary.No impairmentscharges were recorded in any period presented herein.Asset impairment due to casualty lossIt is our policy to record losses due to physical damages during the accounting period in which they occur, while the amount of our evaluationsmonetary assets to be received from the insurance policy, if any, is recognized when receipt of insurance recoveries is probable. Losses, which are reduced by the related probable insurance recoveries, are recorded as costs of operations on the consolidated statements of income. Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Anticipated recoveries for lost rental income due to property damages are also considered to be a gain contingency and recognized when the contingency related to the insurance claim has been resolved.No material casualty losses were incurred in any period presented herein.Stock compensationAll share-basedShare-based payments to employees, including grants of employee stock options, are recognized as stock compensation expense in the Company’s consolidated statements of income based on their grant date fair values, except for performance-based grants, which are accounted for based on their fair values at the beginning of the service period. See Note 11.9 and other assetsAccrued and other liabilities consist primarily of rents prepaid by our tenants,customers, trade payables, property tax accruals, accrued payroll and contingent loss accruals when probable and estimable.estimable, as well as the intangible liabilities discussed above. We disclose the nature of significant unaccrued losses not accrued that are reasonably possible of occurring and, if estimable, a range of exposure. Other assets are comprised primarily of prepaid expenses. We believe theThe fair value of our accrued and other liabilities and other assets approximate book value due to the short period until settlement.Other assetsOther assets are comprised primarily of prepaid expenses, as well as the intangible assets discussed above.Revenue recognitionRevenue is recognized with respectWe recognize the aggregate rent to contractual arrangements when persuasive evidencebe collected (including the impact of an arrangement exists;escalators and concessions) under leases ratably throughout the delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. All leases are classified as operating leases. Rental income is recognizednon-cancellable lease term on a “straight-line” basis, commencing when the customer takes control of the leased space. Cumulative straight-line basis overrent recognized in excess of amounts billed per the lease term with the excess of cumulative rental income recognized over the cumulative rent billed for the lease term reflectedis presented as “deferred rent receivable” on our consolidated balance sheets. ReimbursementsThe Company presents reimbursements from tenantscustomers for real estate taxes and other recoverable operating expenses under a single lease component presentation as the timing and pattern of transfer of such reimbursements are recognizedthe same as base rent, and the combined single component of such leases are classified as operating leases. Accordingly, the Company recognizes such variable lease payments resulting from the reimbursements from customers for real estate taxes and other recoverable operating expenses as rental income in the period the applicable costs are incurred. Property management fees are recognized in the period earned.Costs incurred in acquiring tenants (primarily tenant improvements and lease commissions) are capitalized and amortized over the lease period.Gains from salesearned as other income.12The Company recognizes gainsmonitors the collectability of its receivable balances, including deferred rent receivable balances, on an ongoing basis. The Company writes off uncollectible customer receivable balances, including deferred rent receivable balances, as a reduction to rental income in the period such balances are no longer probable of being collected. Therefore, recognition of rental income is limited to the lesser of the amount of cash collected or rental income reflected on a “straight-line” basis, plus any accruable variable lease payments for those customer receivable balances.The Company recognized revenue from salesits lease arrangements aggregating to $110.9 million and $109.4 million for the three months ended June 30, 2022 and 2021, respectively, and $223.7 million and $217.4 million for the six months ended June 30, 2022 and 2021, respectively. This revenue consisted primarily of real estate facilities atrental income from operating leases and the timerelated variable lease payments resulting from reimbursements of sale usingproperty operating expenses. Base rental income was $83.1 million and $83.7 million for the full accrual method, provided that various criteriathree months ended June 30, 2022 and 2021, respectively, and $167.9 million and $165.8 million for the six months ended June 30, 2022 and 2021, respectively. Variable lease payments, consisting primarily of reimbursement of property operating expenses, were $27.8 million and $25.7 million for the three months ended June 30, 2022 and 2021, respectively, and $55.8 million and $51.6 million for the six months ended June 30, 2022 and 2021, respectively.In April 2020, the Financial Accounting Standards Board issued a Staff Question-and-Answer (“Lease Modification Q&A”) to respond to frequently asked questions about accounting for lease concessions related to the termscoronavirus (“COVID-19”) pandemic. Under existing lease guidance, an entity would have to determine, on a lease by lease basis, if a lease concession contained a lease modification which would be accounted for under the lease modification framework, or if a lease concession was an enforceable right or obligation that existed in the original lease, which would be accounted for outside the lease modification framework. The Lease Modification Q&A provides that, to the extent that cash flow after the lease concessions are substantially the same, or less than, the cash flow previously required by the existing lease, an entity is not required to evaluate each contract to determine whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. Instead, an entity can account for such lease concessions either (i) as if they were part of the transactionsenforceable rights and any subsequent involvementobligations of the parties under the existing lease contract; or (ii) as a lease modification. Based on the Lease Modification Q&A, an entity is not required to account for all lease concessions in response to the COVID-19 pandemic under one elected option; however, the entity is required to apply the elected option consistently to leases with similar characteristics and in similar circumstances.In accordance with the Lease Modification Q&A, the Company has elected to account for lease concessions in response to the COVID-19 pandemic as a lease modification if the cash flow after these lease concessions is substantially the same, or less than, the cash flow previously required by the existing lease. The Company withrecords rent deferrals and rent abatements in deferred rent receivable in the properties sold are met. Ifaccompanying consolidated balance sheets and will recognize these amounts over the criteria are not met,remainder of the respective lease terms. For lease concessions in response to the COVID-19 pandemic that modified the terms and substantially changed the underlying cash flow of the existing lease for the remaining term, the Company defersalso accounts for such concessions as a lease modification.Since the gainsonset of the COVID-19 pandemic, the Company entered into rent relief agreements consisting of $6.2 million of rent deferrals and recognizes them when$1.6 million of rent abatements. As of June 30, 2022, the criteria289 current customers that received rent relief account for 9.30% of rental income. Also as of June 30, 2022, the Company had collected $5.7 million of rent deferral repayment, representing 99.8% of the amounts scheduled to be repaid through June 30, 2022. An additional $0.5 million of rent deferral repayment is scheduled to be repaid thereafter. The duration and severity of the effects of the COVID-19 pandemic on the economy are met or usesuncertain and are likely to impact collectability of certain customers’ rent receivable balances in the installment or cost recovery methodsfuture. The Company has taken into account the current financial condition of its tenants, including consideration of COVID-19 impacts, in its estimation of its uncollectible accounts and deferred rents receivable at June 30, 2022. The Company is closely monitoring the collectability of such rents and will adjust future estimations as appropriate under the circumstances.General and administrative expensesGeneral and administrative expenses includeexpense includes executive and other compensation, corporate office expenses, professional fees, acquisition transaction costs, state income taxes and other such costs that are not directly related to the operation of our real estate facilities.13Income taxesWe have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we do not incur U.S. federal corporate income tax if we distribute 100%all of our REIT“REIT taxable incomeincome” each year, and if we meet certain organizational and operational rules.requirements. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our REIT“REIT taxable income.We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of SeptemberJune 30, 2017,2022 and December 31, 2021, we did not recognize any tax benefitsbenefit for uncertain tax positions.Accounting for preferred equity issuance costsWe record preferred equity issuance costs as a reduction to paid-in capital on our consolidated balance sheets at the time the preferred securities are issued and reflect the carrying value of the preferred equity at its redemption value. An additional allocation of income is made from the common shareholdersstockholders to the preferred shareholdersstockholders in the amount of10sharesstock for redemption.Net income per share of common shareNotwithstanding the presentation of income allocations on our consolidated statements of income, net income is allocated to (a) preferred shareholders,stockholders, for distributions paid or payable, (b) preferred shareholders,stockholders, to the extent redemption value exceeds the related carrying value (a “Preferred(“Preferred Redemption Allocation”), (c) our joint venture partner in proportion to its percentage interest in the joint ventures, to the extent the consolidated joint ventures produce net income or loss during the period and (c)(d) restricted sharestock unit (“RSU”) holders, for non-forfeitable dividends paid adjusted for participation rights in undistributed earnings. The remaining net income is allocated to the common partnership units and our common shareholders,stockholders, respectively, based upon the pro-rata aggregate number of units and sharesstock outstanding.Basic and diluted net income per share of common sharestock are each calculated based upon net income allocable to common shareholders,stockholders, divided by (i) in the case of basic net income per share of common share,stock, weighted average common sharesstock and (ii) in the case of diluted net income per share of common stock, weighted average common sharesstock adjusted for the impact if dilutive, of stock compensation awards outstanding (Note 11).14The following tables settable sets forth the calculation of the components of our basic and diluted net income per share that are not reflected on the face of our consolidated statements of income, including the allocation of income to common shareholdersstockholders and common partnership units, the percentage of weighted average sharescommon stock and common partnership units outstanding, as well as basic and diluted weighted average sharescommon stock outstanding (in thousands):42,631 38,994 133,839 105,397 (12,590) (13,833) (38,472) (41,498) (6,900) (6,900) (137) (128) (582) (387) 23,004 25,033 87,885 63,512 (4,866) (5,315) (18,610) (13,495) 18,138 19,718 69,275 50,017 27,226 27,103 27,192 27,076 7,305 7,305 7,305 7,305 34,531 34,408 34,497 34,381 21.2% 21.2% 21.2% 21.2% 27,226 27,103 27,192 27,076 201 98 207 90 27,427 27,201 27,399 27,166 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Calculation of net income allocable to common stockholders Net income $ 107,520 $ 70,050 $ 208,665 $ 117,557 Net (income) loss allocated to Preferred stockholders based upon distributions (9,580) (12,047) (19,160) (24,093) Noncontrolling interests—joint venture (9) 7 (8) 5 Restricted stock unit holders (475) (314) (998) (478) Net income allocable to common stockholders and noncontrolling interests—common units 97,456 57,696 188,499 92,991 Net income allocation to noncontrolling interests—common units (20,379) (12,101) (39,429) (19,510) Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,630 27,531 27,618 27,513 Weighted average common partnership units outstanding 7,305 7,305 7,305 7,305 Total common stock equivalents 34,935 34,836 34,923 34,818 Common partnership units as a percentage of common stock equivalents 20.9 % 21.0 % 20.9 % 21.0 % Weighted average common stock outstanding Basic weighted average common stock outstanding 27,630 27,531 27,618 27,513 Net effect of dilutive stock compensation—based on treasury stock method using average market price 92 101 89 98 Diluted weighted average common stock outstanding 27,722 27,632 27,707 27,611 11The Company views its operationshas 2 operating segments: (i) the acquisition, development, ownership and management of commercial real estate and (ii) the acquisition, development, ownership and management of multifamily real estate, but has only 1 reportable segment as onethe multifamily segment does not meet the quantitative thresholds necessary to require reporting as a separate segment.ReclassificationsCertain reclassifications have been made toWe combined all non-cash rental income items into “straight-line rent and amortization of lease intangibles, net” within the consolidated financial statements for 2016 and in order to conform to the 2017 presentation, including reclassifying management fee income totaling $130,000 and $389,000 for the three and nine months ended September 30, 2016 into “interest and other income” onoperating activities section of our consolidated statements of income.Recently issued accounting standardsIn May 2014 and February 2016, the Financial Accounting Standards Board issued two Accounting Standards Updates (“ASU”s), ASU 2014-09, Revenue from Contracts with Customers (the “Revenue Standard”), and ASU 2016-02, Leases (the “Lease Standard”). These standards apply to substantially all of our revenue generating activities, as well as provide a model to account for the disposition of real estate facilities to non-customers, which is governed under ASU 2017-05.The Lease Standard will direct how we account for payments from the elements of our leases that are generally fixed and determinable at the inception of the lease (“Fixed Lease Payments”) while the Revenue Standard will direct how we account for the non-lease components of our lease contracts, primarily expense reimbursements (“Non-Lease Payments”) and the accounting for the disposition of real estate facilities.The Revenue Standard is effective on January 1, 2018, and generally requires that revenue from Non-Lease Payments be based upon the consideration expected from our tenants, and be recognized under various methods depending upon the nature of the underlying expense and the contractual reimbursement arrangement. The standard permits either the retrospective (restatement) method or cumulative effects transition method and allowed for early adoption on January 1, 2017, which we did not elect. We expect to use the cumulative effects transition method, which will result in an adjustment to our retained earnings effective January 1, 2018 for the cumulative impact of the standard as of December 31, 2017. We do not expect this standard to have a material impact on our accounting for our facility management fees for property management services provided to PS or the disposition of real estate facilities as our accounting policy is consistent with the provisions of the standard. Rental income from leasing arrangements is a substantial portion of our revenues and is specifically excluded from the Revenue Standard and will be governed by the Lease Standard. In conjunction with the adoption of the Lease Standard, we are currently evaluating the impact of the standard as it relates to Non-Lease Payments.The Lease Standard is effective on January 1, 2019. The standard provides definitional guidance of what constitutes a lease, requiring lessees to recognize most leases on the balance sheet and making certain changes to lessor accounting. For leases in which we are the lessor, we are required to account for Fixed Lease Payments on a straight-line basis, with the expected fixed payments recognized ratably over the term of the lease. The standard also requires capitalization of only the incremental costs incurred in executing each particular lease, such as legal fees to draft a lease or commissions based upon a particular lease. Costs that would have been incurred regardless of lease execution, such as allocated costs of internal personnel, are not capitalized. For most leases with a term of greater than 12 months, in which we are the lessee, the present value of future lease payments will be recognized on our balance sheet as a right-of-use asset and related labiality. As of September 30, 2017, the remaining contractual payments under our ground lease agreements aggregated $282,000. The standard requires a modified retrospective transition approachcash flows for all leases existing at or entered into after the beginning of the earliest comparative periodperiods presented in the financial statements on the date of initial application and allowed early adoption, which we did not elect. We do not expect that the Lease Standard will impact our accounting for Fixed Lease Payments, because our accounting policy is currently consistent with the provisions of the standard. We are currently evaluating the impact of the standard as it relates to the capitalization of costs associated with executed leases.1215In August, 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the classification of certain specific cash receipts and cash payments in the statement of cash flows, including, but not limited to, cash distributions received from equity method investees, including unconsolidated joint ventures. The new standard is effective for periods beginning after December 15, 2017, with early adoption permitted and shall be applied retrospectively where practicable. The Company is currently in the process of evaluating the impact of adoption of the new accounting guidance on its consolidated financial statements.In November, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash, which requires the statements of cash flows to explain the change during the period in the total cash, cash equivalents, restricted cash and restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheets and disclose the nature of the restrictions. The guidance is effective for public entities for fiscal years beginning after December 15, 2017 and for interim periods therein, with early adoption permitted. The guidance must be adopted using a modified retrospective approach. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.In January, 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business. Under the new guidance, a set of transferred assets and activities is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, which we believe will apply to substantially all of our future acquisitions of real estate facilities. Previously, such acquisitions were considered the acquisition of a business, and transaction costs of such acquisitions were expensed as incurred. Under the new guidance, transaction costs will instead be capitalized as part of the purchase price. This standard is effective for fiscal years beginning after December 15, 2017. We early adopted the standard on January 1, 2017; however, the adoption had no effect because we have not acquired any facilities since January 1, 2017.3. Real estate facilitiesThe activity inActivity related to our real estate facilities for the ninesix months ended SeptemberJune 30, 2017 is2022 was as follows (in thousands):789,227 2,224,522 (1,158,054) 1,855,695 39,321 39,321 (9,180) 9,180 (70,465) (70,465) 25 25 789,227 2,254,663 (1,219,314) 1,824,576 Land Buildings and
ImprovementsAccumulated
DepreciationTotal Balances at December 31, 2021 $ 852,073 $ 2,186,849 $ (1,141,727) $ 1,897,195 Capital expenditures — 18,651 — 18,651 Disposals (1)— (2,889) 2,889 — Depreciation and amortization expense — — (43,908) (43,908) Transfer to properties held for development (2,131) — — (2,131) Transfer to properties held for sale — (253) — (253) Balances at June 30, 2022 $ 849,942 $ 2,202,358 $ (1,182,746) $ 1,869,554 _______________(1)Disposals primarily represent the book value of tenant improvements that have been removed upon the customer vacating their space.We have a 95.0% interest in a joint venture that owns Highgate at The Mile, a 395-unit multifamily apartment complex on a 5-acre parcel within the Company’s 44.5 acre office and multifamily park located in Tysons, Virginia (“The Mile”). The remaining 5.0% interest in the joint venture is held by the JV Partner. We consolidate the joint venture that owns Highgate at The Mile and as such, the consolidated real estate assets and activities related to this joint venture are included in the table above.As of June 30, 2022, we have commitments, pursuant to executed leases throughout our portfolio, to spend $7.1 million on leasing transaction costs, which include tenant improvements and lease commissions.AcquisitionsWe account for acquisitions as asset acquisitions. The purchase price of acquired properties is allocated to land, buildings, and improvements (including tenant improvements, unamortized lease commissions, acquired in-place lease values and tenant relationships, if any), intangible assets and intangible liabilities (see Note 2), based upon the relative fair value of each component, which are evaluated independently.WeThe Company must make significant assumptions in determining the fair value of assets acquired and liabilities assumed, which can affect the recognition and timing of revenue and depreciation and amortization expense. The fair value of land is estimated based upon, among other considerations, comparable sales of land within the same region. The fair value of buildings and improvements is determined using a combination of the income and replacement cost approaches which both utilize available market information relevant to the acquired property. The fair value of other acquired assets including tenant improvements and unamortized lease commissions are based on current marketdetermined using the replacement costs and other market information.cost approach. The amount recorded to acquired in-place leaseslease intangible is also determined utilizing the income approach using market assumptions which are based on management’s assessment of current market conditions and the estimated lease-up periods for the respective spaces. Transaction costs related to asset acquisitions are capitalized.13As of June 30, 2022, we were in the process of developing an approximately 17,000 square foot multi-tenant industrial building at our Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended June 30, 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 million of the estimated $4.2 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the Boca Commerce Park development is projected to be $4.8 million. This construction16On May 1, 2017,project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $0.8 million that will be paid to various contractors as the project is completed.DispositionsRefer to “Note 12. Merger Events” for information regarding the Merger Agreement the Company disposed of Empire Commerce,entered into on April 24, 2022. Refer to “Note 13. Subsequent Events” for information regarding the Company's asset sales in July 2022.On June 1, 2022, the Company sold a two-building single-story office93,000 square foot industrial-flex business park comprising 44,000 square feet, located in Dallas, Texas,San Francisco, California, for net sale proceeds of $2.1$62.1 million, which resulted in a net gain on sale of $1.2$55.3 million.On March 31, 2017,May 6, 2022, the Company sold development rights it held to build medical office buildingsa 291,000 square foot office-oriented business park located in Fairfax, Virginia, for net sale proceeds of $35.6 million, which resulted in a gain on land adjacent to its Westech Business Parksale of $6.5 million.On March 29, 2022, the Company sold a 702,000 square foot industrial-flex business park located in Silver Spring, MarylandIrving, Texas, for $6.5net sale proceeds of $91.9 million, which resulted in a gain on sale of $57.0 million. (The June 1, May 6, and March 29, 2022 sales, collectively the "2022 Assets Sold").On June 17, 2021, the Company sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. (The “2021 Asset Sold”).The Company had acquireddetermined that the development rights as part of its 2006 acquisition of the park. The Company has received net proceeds of $3.9 million, of which $1.5 million was received in prior years and $2.4 million was received in March, 2017. The Company recorded a gain of $3.9 million related to the net proceeds received through September 30, 2017, which are non-refundable. The Company will report an additional gain of $2.5million when the final proceeds are received in the fourth quarter of 20172022 Assets Sold and the remaining contingencies2021 Asset Sold did not meet the criteria for discontinued operations presentation, as the sale of such assets did not represent a strategic shift that will have lapsed.As of September 30, 2017, we have commitments, pursuant to executed leases, to spend $12.7 million in transaction costs, which include tenant improvementsa major effect on our operations and lease commissions.4. Investment in and advances to unconsolidated joint ventureIn 2013,August 2020, the Company entered into a joint venture known as Amherstthe Brentford Joint Venture with the JV LLC (the “Joint Venture”) with an unrelated real estate development company (the “JV Partner”)Partner for the purpose of developing Brentford at The Mile, a 395-unit multi-family building onplanned 411- unit multifamily apartment complex. Under the Brentford Joint Venture agreement, the Company has a five-acre site98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed a parcel of land to the Brentford Joint Venture (the “Project”“Brentford Parcel”) within the Company’s 628,000 square foot office park located in Tysons, Virginia (known as “The Mile”). We holdat a 95.0% interestvalue of $18.5 million, for which we received equity contribution credit in the Joint Venture with the remaining 5.0% held by the JV Partner. The JV Partner is responsible for the development and construction of the Project, as well as the leasing and operational management of the Project. We do not control the Joint Venture, when considering, among other factors, that the consent of our JV Partner is required for all significant decisions. Accordingly, we account for our investment using the equity method.On October 5, 2015 (the “Contribution Date”), the Company contributed the site and improvements to theBrentford Joint Venture. We provide the Joint Venture with a construction loanOur cost basis in the amount of $75.0 million bearing interest at the London Interbank Offered Rate (“LIBOR”) plus 2.25%. The loan will mature on April 5, 2019 with two one-year extension options.The aggregate amount of development costs are estimated to be $105.6 million (excluding unrealized land appreciation). The Company is committed to funding $75.0 million through the construction loan in addition to its equity contribution of $28.5 million, which includes a land basis of $15.3 million. The Project delivered its first completed units in May, 2017, with final completion date of the overall Project expected during the fourth quarter of 2017.We have reflected the aggregate cost of the contributed site and improvements, our equity contributions and loan advances, as well as capitalized third party interest we incurred as investment in and advances to unconsolidated joint venture. The Company’s investment in and advances to unconsolidated joint ventureBrentford Parcel was $96.6 million and $67.2$5.1 million as of SeptemberJune 30, 20172022.Construction of Brentford at The Mile commenced in August 2020 and December 31, 2016, respectively. For the nine months ended September 30, 2017, we made loan advancesis anticipated to be completed over a period of $29.7 million and capitalized $506,000 of interest. For the nine months ended September 30, 2016, the Company made loan advances24 to the Joint Venture of $22.3 million, capital contributions of $5.7 million and capitalized $854,000 of interest.SeptemberJune 30, 2017, all 395 units have been completed. During2022, the threedevelopment cost incurred was $77.2 million, which is reflected in land and nine months ended September 30, 2017, the Company recorded an equity lossbuilding held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the unconsolidated joint ventureBrentford Parcel. As of $376,000 and $758,000, respectively.14The Company leases space in its commercial real estate facilities to tenantscustomers primarily under non-cancelable leases generally ranging from one to 10 years. Future minimum rental revenues,income, excluding recovery of operating expenses that may be collectable under these leases, areas of June 30, 2022 is as follows as of September 30, 2017 (in thousands):75,498 267,885 196,801 133,240 92,451 168,364 934,239 Remainder of 2022 $ 150,404 2023 258,127 2024 189,786 2025 122,009 2026 83,657 Thereafter 125,746 Total$ 929,729 17In addition to minimum rental payments, certain tenantscustomers reimburse the Company for their pro rata share of specified property operating expenses. Such reimbursements amounted to $22.6$27.8 million and $20.3$25.7 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $68.4$55.8 million and $61.6$51.6 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. These variable lease payment amounts are included as rental income in the accompanying consolidated statements of income.Leases accounting for 3.0%2.5% of total leased square footage are subject to termination options, of which 1.2% of total leased square footage1.6% have termination options exercisable through December 31, 2017.2022. In general, these leases provide for termination payments to us should the termination options be exercised. Certain leases also have an option to extend the term of the lease. The future minimum rental revenuesincome in the above table assume suchassumes termination options and lease extension options are not exercised.6. Bank loansWe have aIn August 2021, the Company amended and restated the credit agreement (the “Amended Credit Agreement”) governing its unsecured revolving line of credit (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). , as administrative agent, and the other lenders party thereto. The Amended Credit Agreement increased the aggregate principal amount of the Credit Facility has a borrowing limit offrom $250.0 million to $400.0 million, and expires January 10, 2022.extended the maturity date to August 24, 2025, with 2 six-month extension options or 1 12-month extension option. The per annum rate of interest charged on borrowings is based on the LIBOR plus 0.80%0.70% to LIBOR plus 1.55% depending on the Company’s credit ratings.1.35%. Currently, the Company’s rate under the Credit Facility is LIBOR plus 0.825%.0.70% per annum. In addition, the Company is required to pay an annual facility fee ranging from 0.10% to 0.30%0.25% per annum calculated on the aggregate committed amount of the borrowing limit dependingCredit Facility (currently 0.10% per annum). The interest rate margin and facility fee may increase in the future based on the ratio of the Company’s credit ratings (currently 0.125%). Wetotal consolidated indebtedness to its consolidated gross asset value defined in accordance with the Amended Credit Agreement. The Credit Facility also features a sustainability-linked pricing component whereby the pricing can improve by 0.01%, if the Company meets certain sustainability performance targets, and an accordion feature whereby it has an option to increase commitments under the Credit Facility up to an additional $300.0 million.The Company had zero balance outstanding on its Credit Facility at June 30, 2022 and a $32.0 million balance outstanding, at an interest rate of 0.80%, at December 31, 2021. In connection with the Amended Credit Agreement, the Company paid $613,000$2.2 million of loan origination costs in January, 2017.costs. The Company had no balance outstanding on the Credit Facility at September 30, 2017$1.8 million and December 31, 2016. Subsequent to September 30, 2017, the Company borrowed net $80.0$2.1 million on the Credit Facility. The Company had $979,000 and $539,000 of total unamortized loan origination costs as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively, which isare included in other assets in the accompanying consolidated balance sheets. The Credit Facility requires usthe Company to meet certain covenants, all of which we wereit was in compliance with as of SeptemberJune 30, 2017.2022. Interest on outstanding borrowings is payable monthly.7. Noncontrolling interestsNoncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units, oftotaling $279.8 million and $255.7 million at June 30, 2022 and December 31, 2021, respectively, and (ii) the JV Partner’s interests in our consolidated joint ventures, totaling $4.3 million and $3.9 million at June 30, 2022 and December 31, 2021, respectively.PS OP owned by PS. InterestsEach common partnership unit receives a cash distribution equal to the dividend paid on our common sharesstock and is redeemable at PS’s option.If PS exercises its right of redemption, at PSB’s option (a) PS will receive one1 share of common sharestock from us for each common partnership unit redeemed, or (b) PS will receive cash from us for each common partnership unit redeemed generally equal to the market value of a share of common sharestock (as defined in the Operating Partnership Agreement). We can prevent redemptions that we believe would violate either our articles of incorporation or securities laws, cause PSB to no longer qualify as a REIT, or could result in the OP no longer being treated as a partnership for U.S. federal tax purposes.15shares.stock. Accordingly, they receivereceived the same net income allocation per unit as a share of common sharestock totaling $20.4 million and are adjusted each period$12.1 million for the three months ended June 30, 2022 and 2021, respectively, and $39.4 million and $19.5 million for the six months ended June 30, 2022 and 2021, respectively.18JV PartnerThe Company recorded capital contributions of $0.2 million and $0.4 million during the three and six months ended June 30, 2022, respectively, and $0.1 million and $0.3 million during the three and six months ended June 30, 2021, respectively, from the JV Partner related to haveits noncontrolling interest in the same equity per unit as a common share. 8. Related party transactionsWe manage certain industrial, office and retail facilities in the U.S.United States for PS under botheither the “Public Storage” or “PS Business Parks” names (the “PS Management Agreement”). The PS Management Agreement can be cancelled by either party with seven years notice. Under PS’s supervision, we coordinate and assist in rental and marketing activities, property maintenance and other operational activities, including the selection of vendors, suppliers, employees and independent contractors. We receive a management fee based upon a percentage of revenues.revenues, which is included in interest and other income on our consolidated statements of income. Management fee revenues were $126,000 and $130,000$0.1 million for each of the three and six months ended SeptemberJune 30, 20172022 and 2016, respectively, and $378,000 and $389,000 for the nine months ended September 30, 2017 and 2016, respectively. We2021.We allocate certain operating expenses to PS related to the management of these properties, including payroll and other business expenses, totaling $134,000 and $142,000$0.1 million for each of the three months ended SeptemberJune 30, 20172022 and 2016, respectively,2021, and $401,000$0.1 million and $416,000$0.2 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. These amounts are included in “interest and other income” on our consolidated statements of income.The PS Business Parks name and logo are owned by PS and licensed to us under a non-exclusive, royalty-free license agreement. The license can be terminated by either party for any reason with six months written notice.PS also provides us property management services for the self-storage component of two2 assets we own that are located in Florida and operateoperates them under the “Public Storage” name. Either the Company or PS can cancel the property management contract upon 60 days’ notice. Under our supervision, PS coordinates and assists in rental and marketing activities, and property maintenance and other operational activities, including the selection of vendors, suppliers, employees and independent contractors. Management fee expenses were $24,000 and $22,000less than $0.1 million for each of the three months ended SeptemberJune 30, 20172022 and 2016, respectively,2021, and $69,000 and $64,000$0.1 million for each of the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively.2021. Additionally, PS allocated certain operating expenses to us related to the management of these properties including payroll and other business expenses, totaling $54,000 and $156,000less than $0.1 million for each of the three and ninesix months ended SeptemberJune 30, 2017, respectively,2022 and $49,000 and $153,000 for the three and nine months ended September 30, 2016, respectively.2021. These amounts are included under “costcost of operations”operations on our consolidated statements of income.Pursuant to a cost sharing and administrative services agreement, we and PS share certain administrative services, and corporate office space, and certain other third party costs with PS which are allocated betweenbased upon fair and reasonable estimates of the Companycost of the services expected to be provided. We reimbursed PS $0.3 million and $0.2 million for costs PS in accordance with a methodology intended to fairly allocate those costs. Costs allocated to the Company totaled $132,000 and $123,000incurred on our behalf for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $397,000 and $370,000$0.5 million for each of the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively. Costs allocated to2021. PS totaled $8,000 and $23,000reimbursed us less than $0.1 million for costs we incurred on their behalf for each of the three and ninesix months ended SeptemberJune 30, 2017, respectively.The Company had net amounts due to PS of $30,000$0.1 million and due from PS of $295,000$0.2 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively, for these contracts, as well ascontracts.Refer to Note 12 for information regarding the Support Agreement entered into by PS with affiliates of Blackstone and (for certain operating expenses paid bylimited purposes) the Company, on behalfpursuant to which PS agreed, among other things, to vote in favor of the mergers described in the Merger Agreement.Refer to Note 13 for information regarding the July 2022 sale of properties to PS.16199. Shareholders’Stockholders’ equityPreferred stockAs of SeptemberJune 30, 20172022 and December 31, 2016,2021, the Company had the following series of preferred stock outstanding:6.00% 5,200 130,000 14,000 350,000 5.75% 9,200 230,000 9,200 230,000 5.70% 4,400 110,000 4,400 110,000 5.20% 7,590 189,750 7,590 189,750 5.25% 9,200 230,000 35,590 889,750 35,190 879,750 Series Issuance Date Earliest Potential
Redemption DateDividend
RateShares
OutstandingAmount
(in thousands)Series X September 2017 September 2022 5.250 % 9,200 230,000 Series Y December 2017 December 2022 5.200 % 8,000 200,000 Series Z November 2019 November 2024 4.875 % 13,000 325,000 Total 30,200 $ 755,000 During September, 2017, we called for a partial redemption of 8,800,000 of our outstanding 14,000,000 depositary shares representing interests in our 6.0% Cumulative Preferred Stock, Series T, at par. The aggregate redemption amount of $220.0 million is scheduled to be paid on October 30, 2017 to the holders of the depositary shares. We recorded a Preferred Redemption Allocation of $6.9 million for the three and nine months ended September 30, 2017 and reclassified the shares from equity to “preferred stock called for redemption” on our consolidated balance sheets at September 30, 2017.On September 21, 2017, we issued $230.0 million or 9,200,000 depositary shares representing interests in our 5.25% Cumulative Preferred Stock, Series X, at $25.00 per depositary share. The 5.25% Series X Cumulative Redeemable Preferred Units are non-callable for five years and have no mandatory redemption. We received $222.2 million in net proceeds.On December 7, 2016, we called our 6.45% Cumulative Preferred Stock, Series S, for redemption at par and completed the redemption on January 18, 2017. We recorded a Preferred Redemption Allocation of $7.3 million in the three months ended December 31, 2016 and reclassified the shares from equity to “preferred stock called for redemption” on our consolidated balance sheets at December 31, 2016.We paid $12.6$9.6 million and $13.8$19.2 million in distributions to our preferred shareholdersstockholders for the three and six months ended SeptemberJune 30, 2017 and 2016,2022, respectively, and $38.5$12.0 million and $41.5$24.1 million in distributions to our preferred shareholders for the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2021, respectively.The holders of our preferred stock have general preference rights with respect to liquidation, quarterly distributions and any accumulated unpaid distributions. Holders of our preferred stock will not be entitled to vote on most matters, except under certain conditions. In the event of a cumulative arrearage equal to six6 quarterly dividends, the holders of theour preferred stock will have the right to elect two2 additional members to serve on the Company’s Board of Directors (the “Board”) until all events of default have been cured. At SeptemberJune 30, 2017,2022, there were no dividends in arrears.Except under certain conditions relating to the Company’s qualification as a REIT, theour preferred stock is not redeemable prior to the previouslyredemption dates noted redemption dates.above. On or after the respective redemption dates, the respective series of preferred stock will be redeemable, at the option of the Company, in whole or in part, at $25.00 per depositarydepository share, plus any accrued and unpaid dividends.17During the three months ended March 31, 2017, the Board increased our quarterly dividends from $0.75 per common share to $0.85 per common share.We paid $23.2$29.0 million and $28.9 million ($0.851.05 per share of common share) and $20.3 million ($0.75 per common share)stock) in distributions to our common shareholdersstockholders for each of the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $69.4$58.0 million ($2.552.10 per share of common share)stock) and $60.9$57.8 million ($2.252.10 per share of common share)stock) in distributions to our common shareholdersstockholders for each of the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.We paid $7.7 million ($1.05 per common unit) in distributions to our common unit holders for each of the three months ended June 30, 2022 and 2021, and $15.3 million ($2.10 per share of common unit) in distributions to our common unit holders for each of the six months ended June 30, 2022 and 2021.Equity stockIn addition to common and preferred stock, theThe Company is authorized to issue 100.0 million shares of Equity Stock. The Articlesequity stock. Our articles of Incorporationincorporation provide that Equity Stockequity stock may be issued from time to time in one or more series and give the Board broad authority to fix the dividend and distribution rights, conversion and voting rights, redemption provisions and liquidation rights of each series of Equity Stock.10. Commitments and contingenciesThe Company currently is neither subject to any other material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company other than routine litigation and administrative proceedings arising in the ordinary course of business.11. Stock compensationUnder various share-based compensation plans, PSB grants non-qualified options to purchase the Company’s common sharesstock at a price not less than fair value on the date of grant, as well as restricted stock units (“RSUs”),RSUs, to certain directors, officers and key employees.20The service period for stock options and RSUs begins when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the award has been authorized, (iii) the recipient is affected by changes in the market price of our stock and (iv) it is probable that any performance conditions will be met, and ends when the stock optionoptions or RSU vests.We amortize the fair value of awards starting at the beginning of the service period as compensation expense. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method).In amortizingconnection with the separation agreement with our former President and Chief Executive Officer (“CEO”), who stepped down from his positions with the Company for health reasons effective March 23, 2022, the Company paid a lump sum payment of $6.6 million in exchange for 41,186 restricted stock units owned by the former CEO, which represents the market value of the Company common stock underlying such units as of March 18, 2022.We account for forfeitures of share-based compensation expense, we do not estimate future forfeitures in advance. Instead, we reversepayments as they occur by reversing previously amortized share-based compensation expense with respect to unvested grants that are forfeited in the period the employee terminates employment.Stock OptionsStock options vest over a five-year period, expire 10 years after the grant date and the exercise price is equal to the closing trading price of our common sharesstock on the grant date. EmployeesStock option holders cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our stock options.For the three and ninesix months ended SeptemberJune 30, 2017, respectively2022, we recorded $53,000$0.1 million and $156,000$0.2 million, respectively, in compensation expense related to stock options as compared to $51,000$0.2 million and $229,000$0.4 million for the same periods in 2016.2021.18ninesix months ended SeptemberJune 30, 2017, 16,0002022, no stock options were granted, and 69,67627,403 options were exercised.exercised and no options were forfeited. A total of 175,979132,167 and 159,570 options were outstanding at SeptemberJune 30, 2017 (229,655 at2022 and December 31, 2016). Restricted Stock UnitsRSUs generally vest ratably overgranted prior to 2016 are subject to a six-year vesting, with 20% vesting after year two, and 20% vesting after each of the next four years. RSUs granted during and subsequent to 2016 are subject to a five-year period fromvesting at the grant date. The grantee receivesrate of 20% per year or a three-year vesting at the rate of one-third per year. Grantees receive dividends for each outstanding RSU equal to the per-share dividendsper share dividend received by our common shareholders.stockholders, which are recorded in paid-in capital. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives shares of common sharesstock equal to the number of vested RSUs, less shares of common sharesstock withheld in exchange for tax depositswithholding made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting. The fair value of our RSUs is determined based upon the applicable closing trading price of our common sharesstock on the date of grant.In March 2020, the Compensation Committee of the Board approved an annual performance-based equity incentive program (“Annual Equity Incentive Program”) under the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan. Under the program, certain employees will be eligible on an annual basis to receive RSUs based on the Company’s achievement of pre-established targets for (i) growth in net asset value per share, and (ii) stockholder value creation, each as computed pursuant to the terms of the Annual Equity Incentive Program. In the event the pre-established targets are achieved, eligible employees will receive the target award, except that the Compensation Committee of the Board may adjust the actual award to 75% to 125% of the target award based on its assessment of whether certain strategic and operational goals were accomplished in the performance period. RSUs awarded under the Annual Equity Incentive Program for the 2022 performance year will be awarded on or around March 1, 2023 and will vest in 5 equal installments, with the first installment vesting on the award date. RSU holders will earn dividend equivalent rights during the vesting period.For the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, we recorded a net reversal of $521,000$1.7 million and expense of $2.9$2.2 million in compensation expense related to RSUs as compared to expense of $1.7$1.8 million and $8.5$3.2 million for the same periods in 2016. In conjunction with the departure2021.21During the ninesix months ended SeptemberJune 30, 2017, 110,7502022, 38,151 RSUs were granted, 15,80622,209 RSUs vested, and 55,976 RSUs were forfeited and 76,994 RSUs vested. This vesting resulted in the issuance of 43,223 common shares. In addition, tax depositsforfeited.Tax withholding totaling $3.9$1.3 million ($1.9 million for the same period in 2016) were made on behalf of employees in exchange for 33,7717,920 shares of common sharesstock withheld upon vesting.vesting for the six months ended June 30, 2022, resulting in the issuance of 12,528 shares of common stock.Tax withholding totaling $3.2 million were made on behalf of employees in exchange for 20,824 shares of common stock withheld upon vesting for the six months ended June 30, 2021, resulting in the issuance of 28,439 shares of common stock. A total of 162,64378,557 and 118,591 RSUs were outstanding at SeptemberJune 30, 2017 (144,693 at2022 and December 31, 2016). Effective March, 2014,2021, respectively.Under the Retirement Plan for Non-Employee Directors (the “Director Retirement Plan”), the Company grants 1,000 shares of common stock for each year served as a director up to a maximum of 10,000 shares issued upon retirement. The Company recognizes compensation expense with regard to grants to be issued in the future under the Director Retirement Plan over the requisite service period. For the three and six months ended June 30, 2022, we recorded $0.3 million and $0.5 million, respectively, in compensation expense related to these shares as compared to $0.3 million and $0.5 million for the same periods in 2021.No director retirement shares were issued during the six months ended June 30, 2022.In April 2021, we issued 10,000 shares of common stock to a director upon retirement with an aggregate fair value of $1.6 million. Compensation expense for these shares was previously recognized.12. Merger EventsOn April 24, 2022, PSB and the OP entered into the Merger Agreementwith Sequoia Parent LP, a Delaware limited partnership (“Parent”), Sequoia Merger Sub I LLC, a Maryland limited liability company (“Merger Sub I”), and Sequoia Merger Sub II LLC, a Maryland limited liability company (“Merger Sub II,” together with Parent and Merger Sub I, the “Parent Parties”). The Parent Parties are affiliates of Blackstone Real Estate Partners IX L.P. (the “Guarantor”), which is an affiliate of Blackstone. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the closing of the Mergers (as defined below), Merger Sub II will merge with and into the OP (the “Partnership Merger”), and, immediately following the Partnership Merger, Merger Sub I will merge with and into PSB (the “Company Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the Partnership Merger, the Partnership will survive and the separate existence of Merger Sub II will cease. Upon completion of the Company Merger, PSB will survive and the separate existence of Merger Sub I will cease. As required pursuant to the terms of the Merger Agreement, the OP has been converted from a California limited partnership into a Maryland limited partnership.Subject to the terms and conditions set forth in the Merger Agreement, in the Mergers each share of the Company’s common stock and each common unit of partnership interest of the OP, respectively, subject to certain exceptions specified in the Merger Agreement, will be converted into the right to receive an amount in cash equal to $187.50, less the amount of the Closing Cash Dividend (as described below), without interest. Each share of PSB’s outstanding preferred stock (and each depositary share representing an interest therein) will remain outstanding in accordance with their respective terms.On July 8, 2022, the Company announced that, in accordance with the Merger Agreement, the Board declared (i) a prorated quarterly cash dividend on the Company’s common stock and (ii) a cash dividend (the "Special Cash Dividend") of $5.25 per share of the Company’s common stock, each payable immediately before the effective time of the Partnership Merger, to holders of record as of the close of business on the business day immediately preceding the closing of the Mergers and contingent upon the approval of the Company Merger by the Company’s stockholders, the satisfaction or waiver of the other conditions to the Mergers, and the Merger Agreement not having been terminated. The amount of the pro rata dividend is based upon the Company’s current quarterly dividend rate of $1.05 per share of Company common stock and pro-rated for the number of days from and including July 1, 2022 through the day immediately prior to the closing date of the transaction. Based on the anticipated closing date of the transaction of July 20, 2022, the pro rata dividend will equal $0.216848 per share of Company common stock, and each of the pro rata dividend and the Closing Cash Dividend will be payable immediately prior to the partnership merger effective time on July 20, 2022 to the holders of record as of the close of business on July 19, 2022.If the transaction is completed on July 20, 2022, Company stockholders who hold their shares of common stock on the record date for the dividends and through the effective time of the Company merger will be entitled to receive an aggregate of $187.716848 per share in cash, consisting of (i) $187.50, representing the $5.25 closing cash dividend and the merger consideration of $187.50 per share as reduced by the $5.25 closing cash dividend plus (ii) the $0.216848 pro rata dividend.22If the closing date of the transaction is delayed past July 20, 2022, holders of the Company’s common stock will not receive the pro rata dividend or the closing cash dividend on July 20, 2022, and in such case the Company will make a public announcement providing further updates with respect to these matters.The consummation of the Mergers is subject to certain customary closing conditions. A termination fee of up to $220.0 million may be payable by the Company if the Merger Agreement is terminated in certain specified circumstances, as more fully described in the Merger Agreement. A termination fee of $735.0 million may be payable by Parent if the Merger Agreement is terminated in certain other specified circumstances, as more fully described in the Merger Agreement.In connection with the transaction, the Company, Blackstone and PS entered into a performance-based restricted stock unit program,support agreement, pursuant to which PS voted its common equity interests in the Senior Management Long-Term Equity Incentive Program for 2014-2017 (“LTEIP”), withCompany and the OP in favor of adopting the Merger Agreement and approving the Mergers and the transactions contemplated thereby. The support agreement will automatically terminate in certain employeescases, including upon the termination of the Company. UnderMerger Agreement in accordance with its terms. As of April 21, 2022, PS held approximately 25.9% of the LTEIP,issued and outstanding shares of common stock of the Company established three levelsand 20.9% of targeted restricted stock unit awards for certain employees, which would be earned only ifthe issued and outstanding common units of partnership interest of the OP.In connection with the transaction, the Company achieved onerecorded Merger related costs of three defined targets during 2014$6.1 million, in general and administrative expenses, for professional fees and investor related services.13. Subsequent EventsOn July 8, 2022, the Company completed the sale of 5 properties with approximately 0.3 million rentable square feet to 2017. UnderPS for $47.0 million.These properties were originally contributed to the LTEIP there is an annual award followingCompany by PS in connection with the endCompany’s initial public offering in 1998.On July 15, 2022, the Company announced that, at a special meeting of eachstockholders held earlier that day, the Company’s common stockholders voted to approve the Company Merger and the other transactions contemplated by the Merger Agreement. Subject to the satisfaction or waiver of all of the four yearsconditions to the closing of the transaction in the program, withMerger Agreement, the award subject to and based on the achievement of total return targets during the previous year, as well as an award based on achieving total return targets during the cumulative four-year period 2014-2017. In the event the minimum defined target is not achieved for an annual award, the restricted stock units allocated to be awarded for such year are added to the restricted stock units that may be received if the four-year target is achieved. All restricted stock unit awards under the LTEIP vest in four equal annual installments beginning from the date of award. Up to 94,150 restricted stock units would be awarded for each of the four years assuming achievement was met and up to 81,800 restricted stock units would be awarded for the cumulative four-year period assuming achievement was met. Compensation expense is recognized based on the restricted stock units expected to be awarded based on the target level thattransaction is expected to be achieved. completed on or around July 20, 2022.The compensation expense and RSU counts with respectdescription of the Merger Agreement set forth in these Notes to the LTEIP are includedConsolidated Financial Statements is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the aggregate RSU amounts disclosed above.full text of the Merger Agreement, which is filed as Exhibit 2.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 25, 2022.1923ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONSForward-Looking Statements: Forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, are made throughout this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including but not limited to: (a)(i) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement described in Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q; (ii) the failure to satisfy any of the other conditions to the completion of the proposed transaction; (iii) stockholder litigation in connection with the proposed transaction, which may affect the timing or occurrence of the proposed transaction or result in significant costs of defense, indemnification and liability; (iv) the effect of the announcement of the proposed transaction on the ability of PSB to retain and hire key personnel and maintain relationships with its tenants, vendors and others with whom it does business, or on its operating results and businesses generally; (v) risks associated with the disruption of management’s attention from ongoing business operations due to the proposed transaction; (vi) the ability to meet expectations regarding the timing and completion of the proposed transaction; (vii) significant transaction costs, fees, expenses and charges; (viii) the duration and severity of the coronavirus (“COVID-19”) pandemic and its impact on our business and our customers; (ix) changes in general economic and business conditions; (b)conditions, including as a result of the economic fallout of the COVID-19 pandemic; (x) potential regulatory actions to close our facilities or limit our ability to evict delinquent customers; (xi) decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases; (c)(xii) tenant defaults; (d)(xiii) the effect of the recent credit and financial market conditions; (e)(xiv) our failure to maintain our status as a REITreal estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended; (f)amended (the “Code”); (xv) the economic health of our tenants; (g)customers; (xvi) the health of our officers and directors; (xvii) increases in operating costs; (h)(xviii) casualties to our properties not covered by insurance; (i)(xix) the availability and cost of capital; (j)(xx) increases in interest rates and its effect on our stock price; (xxi) security breaches, including ransomware, or a failure of our networks, systems or technology which could adversely impact our operations or our business, customer and (k)employee relationships or result in fraudulent payments; (xxii) the impact of inflation; and (xxiii) other factors discussed under the heading “Part I, Item 1A. Risk Factors” in our annual reportAnnual Report on Form 10-K for the year ended December 31, 2016.2021. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements, except as required by law.Critical Accounting Policies:Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with U.S. generally accepted accounting principles ("GAAP"), which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our significant accounting policies, which utilize these critical accounting estimates, are described in Note 2 – “Summary of significant accounting policies” to theour consolidated financial statements includedunder Item 1 in this quarterly report on Form 10-Q. We believeDuring the following arethree months ended June 30, 2022, there were no material changes to our critical accounting policies, because they have a material impact onestimates as compared to the portrayalcritical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our financial condition and results, and they require us to make judgments and estimates about matters that are inherently uncertain.Income Tax Expense: We have elected to be treated as a REIT, as defined inAnnual Report on Form 10-K for the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we do not incur federal income tax on our REIT taxable income that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational rules. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no federal income tax expense related to our REIT taxable income.Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts estimated in our consolidated financial statements.Accounting for Acquired Real Estate Facilities: We estimate the fair values of the land, buildings, intangible assets and intangible liabilities for purposes of allocating the purchase price. Such estimates are based upon many assumptions and judgments, including (i) market rates of return and capitalization rates on real estate and intangible assets, (ii) building and material cost levels, (iii) comparisons of the acquired underlying land parcels to recent land transactions, (iv) estimated market rent levels and (v) future cash flows from the real estate and the existing tenant base. Others could come to materially different conclusions as to the estimated fair values, which would result in different depreciation and amortization expense, rental income, gains and losses on sale of real estate assets, and real estate and intangible assets.2024Allowance for Doubtful Accounts: Tenant receivables consistBusiness OverviewThe Company is a fully-integrated, self-advised and self-managed REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex, and low rise-suburban office space. As of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxesJune 30, 2022, the Company owned and other expenses recoverable from tenants. Deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement. Determination of the adequacy of allowances for doubtful accounts requires significant judgments and estimates. Others could come to materially different conclusions regarding the adequacy of our allowance for doubtful accounts. Significant unreserved bad debt losses could materially impact our net income. Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows and estimates of fair values or selling prices, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, performance bonuses and other operating expenses, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be misstated.Strategic OverviewOur overall operating results are impacted primarily by the performance of our existing real estate facilities, which at September 30, 2017 are comprised of 28.0operated 26.6 million rentable square feet of multi-tenant flex, industrial and office properties concentratedcommercial space in six states consisting of 93 parks and 636 buildings. The Company’s properties are primarily located in major coastal markets that have experienced long-term economic growth. The Company also held a 95.0% interest in 395 apartments. Accordingly, a significant degreejoint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia.Pending Acquisition of management attention is paidCompany by Affiliates of Blackstone: Refer to maximizingNote 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for information regarding the cash flow from our existing real estate portfolio. We also acquire properties we believe will create long-term value, and from time to time we dispose of propertiesmerger agreement the Company enter into on April 24, 2022 (the mergers described therein, the “Merger”). The Merger, which no longer fit withinwas approved by the Company’s strategic objectives.Existing Real Estate Facilities: The operating results of our existing real estate facilities are substantially influenced by demand for rental space within our properties and our markets, which impacts occupancy, rental rates, and capital expenditure requirements. We strive to maintain high occupancy levels while increasing rental rates and minimizing capital expenditures when market conditions allow, although the Company may decrease rental rates in markets where conditions require. Management’s initiatives and strategies with respect to our existing real estate facilities, which are described in more detail in our December 31, 2016 Form 10-K, include incentivizing our personnel to maximize the return on investment for each lease transaction and providingprovide a superior level of service to our customers.Acquisitions of Real Estate Facilities: We also seek to grow our operationsportfolio through acquisitions of facilities generally consistent with the Company’s focus on owning concentrated business parks with easily configurable space. In the third quarter of 2016, we acquired two multi-tenant office buildings aggregating 226,000 square feeteasy to configure space and in Rockville, Maryland for a purchase price of $13.3 million. The occupancy rate has increased from 18.5% on the date of acquisition to 31.6% as of September 30, 2017. These buildings are located within The Grove 270 (formerly Shady Grove Executive Park) where we already owned three substantially fully-leased buildings aggregating 352,000 square feet. markets and product types with favorable long-term return potential.We continue to seek to acquire additional facilitiesproperties in our existing markets and generally in close proximity to our existing facilities;portfolio; however, there can be no assurance that we will acquire additional facilities that meet our risk-adjusted return and underwriting requirements.Development or redevelopmentRedevelopment of real estate facilities: We alsoReal Estate Facilities: In certain instances, we may seek to redevelop our existing real estate. Weestate or develop new buildings on excess land parcels.As of June 30, 2022, we were in the process of developing an approximately 83,000 square foot multi-tenant industrial building at our 212 Business Park located in Kent, Washington. During the quarter ended June 30, 2022, $1.5 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $10.7 million of the estimated $17.1 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the 212 Business Park development is projected to be $18.6 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $3.7 million that will be paid to various contractors as the project is completed.As of June 30, 2022, we were in the process of developing an approximately 17,000 square foot multi-tenant industrial building at our Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended June 30, 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 million of the estimated $4.2 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the Boca Commerce Park development is projected to be $4.8 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $0.8 million that will be paid to various contractors as the project is completed.The Mile is an office and multifamily park we own a large contiguous block of real estate (628,000 rentable square feetwhich sits on 44.5 contiguous acres of land)land located within The Mile in Tysons, Virginia. We demolished oneThe park consists of our existing628,000 square feet of office buildings inspace and a 395-unit multifamily apartment community we developed, Highgate at The Mile, and are building a multi-family building (the “Highgate Development”), with completionwhich we completed in stages starting in May, 2017 through a joint venture with the fourthJV Partner. In 2019, we successfully rezoned The Mile allowing us to develop, at our election, up to 3,000 additional multifamily units and approximately 500,000 square feet of other commercial uses.2125quarterIn August 2020, the Company entered into a new joint venture with the JV Partner (the “Brentford Joint Venture”) for the purpose of 2017.developing a second multifamily property, Brentford at The total estimated investment upon completion, includingMile, a planned 411-unit multifamily apartment complex. Under the fairBrentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed a parcel of land to the Brentford Joint Venture (the “Brentford Parcel”) at a value of existing$18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of June 30, 2022.Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding land will be approximately $117.2 million.While multi-familymultifamily real estate iswas not previously a core asset class for us, we determined that multi-familymultifamily real estate representedrepresents a unique opportunity and the highest and best use of this parcel. Wethe Brentford Parcel. Through joint ventures we have partnered through a joint venture with a local developer and operator of multi-family spacemultifamily properties in order to leverage their development and operational experience. expertise. The scope and timing of the future phases of development of The Mile are subject to a variety of uncertainties, including site plan approvals and building permits.We consolidate both the joint venture that owns Highgate at The Mile and the joint venture that is developing Brentford at The Mile.See “Analysis of Items Not Included in OperatingNet Income – Equity in loss of unconsolidated joint venture”Multifamily” below and Note 3 and 4 to our consolidated financial statements for more information on the Highgate Development. We do not consolidate the joint venture that holds the Highgate Development; accordingly, our share of net loss is reflected under “equity in loss of unconsolidated joint venture.”We have an additional 123,000 square foot office building located withinat The Mile that we are seeking to demolish in order to construct another multi-family complex on the parcel. This parcel is reflected on our consolidated balance sheets as land and building held for development.Brentford at The scope and timing of development of this site is subject to a variety of contingencies, including approval of entitlement. We do not expect that development will commence prior to December 31, 2018.Sale of Real Estate Facilities: In 2014, we completed a plan to exit non-strategic markets in Sacramento California, Oregon and Arizona. We do not expect to exit any additional markets. However, we may from time to time dispose ofsell individual real estate assetsfacilities based on market conditions, fit with our existing portfolio, evaluation of long-term potential returns of markets or product types, or other reasons.On MayJune 1, 2017, we disposed of Empire Commerce,2022, the Company sold a two-building single-story office93,000 square foot industrial-flex business park comprising 44,000 square feet, located in Dallas, Texas,San Francisco, California, for net sale proceeds of $2.1$62.1 million, which resulted in a gain on sale of $55.3 million.On May 6, 2022, the Company sold a 291,000 square foot office-oriented business park located in Fairfax, Virginia, for net sale proceeds of $35.6 million, which resulted in a gain on sale of $1.2$6.5 million.On March 29, 2022, the Company sold a 702,000 square foot industrial-flex business park located in Irving, Texas, for net sale proceeds of $91.9 million, which resulted in a gain on sale of $57.0 million. (The June 1, May 6, and March 29, 2022 sales, collectively the "2022 Assets Sold").On June 17, 2021, the Company sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. (The “2021 Asset Sold”).The operations of these facilities are presented in the tables below under “assets sold.”Certain Factors that May Impact Future ResultsPending merger transaction: Refer to Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for information regarding the Merger.Impact of COVID-19 pandemic: Starting in March 2020, the COVID-19 pandemic resulted in cessation, severe curtailment, or impairment of business activities in most sectors of the economy in all markets we operate in, due to governmental “stay at home” orders, risk mitigation procedures, and closure of businesses not considered to be “essential.” Since it remains unknown at this time how long the COVID-19 pandemic will continue, particularly given the impact of existing and potential future variants, we cannot estimate how long these negative economic impacts will persist.Since the onset of the COVID-19 pandemic, the Company entered into rent relief agreements consisting of $6.2 million of rent deferrals and $1.6 million of rent abatements. As of June 30, 2022, the 289 current customers that received rent relief account for 9.30% of rental income. Also as of June 30, 2022, the Company had collected $5.7 million of rent deferral repayment, representing 99.8% of the amounts scheduled to be repaid through June 30, 2022. An additional $0.5 million of rent deferral repayment is scheduled to be repaid thereafter.26Our ability to re-lease space as leases expire in a way that minimizes vacancy periods and maximizes market rental rates will depend upon market conditions in the specific submarkets in which each of our properties are located. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to grow or maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and the potential negative effect of additional rent deferrals, rent abatements, and customer defaults, we believe in some instances the COVID-19 pandemic may continue to have adverse effects on rental income for 2022 and possibly beyond.Impact of Inflation: Although inflationInflation has not been significant in recent years, ansignificantly increased recently and a continued increase in inflation could adversely impact our future results, including as a result of adverse impacts to our tenants and to the economy generally. The Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company’s leases require tenantscustomers to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, which should partially reducingreduce the Company’s exposure to inflation during each lease’s respective lease period.Regional Concentration: Our portfolio is concentrated in eight regions, in six states. We have chosen to concentrate in these regions because we believe they have characteristics which enable them to be competitive economically, such as above average population growth, job growth, higher education levels and personal income, which we believe will produce better overall economic returns.income. Changes in economic conditions in these regions in the future could impact our future results.Industry and TenantCustomer Concentrations: We seek to minimize the risk of industry or tenantcustomer concentrations. As of SeptemberJune 30, 2017,2022, leases from our top 10 tenantscustomers comprised 10.3%10.0% of our annualized rental income, with only two tenants, Kaiser Permanentefour customers representing 1% or more– the US Government (2.5%), Amazon Inc. (1.6%), KZ Kitchen Cabinet & Stone (1.3%), and Luminex Corporation (1.0%) and the U.S. Government (4.3%), representing more than 1%. In terms of industry concentration, 18.5%24.1% of our annualized rental income comes from Business Services; 10.4%services, and 15.4% from Warehouse, Distribution, Transportation and Logistics; and 10% from Health Services.Logistics. No other industry group represents more than 10% of our annualized rental income.TenantCustomer credit risk: WeHistorically, we have historically experienced a low level of write-offs of uncollectible rents, with less than 0.5%0.4% of rental income written off eachin any single year over the last six years. However, there can be no assurance that write offs may not increase, because there is inherent uncertainty in a tenant’s ability to continue paying rent and meet its full lease obligation.from 2011-2019. As of October 23, 2017,June 30, 2022 and December 31, 2021, our level of write-offs of uncollectible rents were 0.1%, and 0.0% of rental income, respectively.As of July 13, 2022, we had 69,00025,000 square feet of leased space occupied by four tenantsone customer that areis protected by Chapter 11 of the U.S. Bankruptcy Code.Code, which has a remaining lease value of $0.1 million. From time to time, tenantscustomers contact us, requesting early termination of their lease, reductions in space leased, or rent deferment or abatement.rent abatement, which we are not obligated to grant but will consider and grant under certain circumstances.22We evaluate the performance of our business parks primarily based on Net Operating Incomeutilize net operating income (“NOI”), a non-GAAP financial measure because we believe NOIthat is an important measure ofnot defined in accordance with GAAP, to evaluate the value andoperating performance of our real estate. We believe investors utilizedefine NOI in a similar manner and for similar reasons. NOI is defined by the Company as Adjusted Rental Incomerental income less Adjusted Cost of Operations (described below)Operations.We believe NOI assists investors in analyzing the performance of our real estate by excluding (i) corporate overhead (i.e., general and excludesadministrative expense) because it does not relate to the direct operating performance of our real estate, and (ii) depreciation and amortization. Depreciation and amortization is excluded from NOIexpense because management and investors doit does not consider it importantaccurately reflect changes in valuing real estate or evaluating real estate performance, because depreciation assumes the fair value of our real estate declines ratably from its historical cost based upon the passage of time, while we believe the value of real estate changes based upon cash flow and other market factors.Adjusted Rental Income represents rental income, excluding material lease buyout payments, which we believe are not reflective of ongoing rental income.Adjusted Cost of Operations represents cost of operations, excluding LTEIP amortization, which can vary significantly period to period based upon-the performance of the whole company, rather than just property operations. Adjusted Rental Income and Adjusted Cost of Operations may not be comparable to those of other companies and should not be used as an alternative to performance measures calculated in accordance with GAAP.We also report NOI 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”). We utilize Cash NOI to evaluate the cash flow performance of our properties and believe investors and analysts utilize this metric for the same purpose. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.See “Analysis of operatingnet income” below for reconciliations of each of these measures to their closest analogous GAAP measure onfrom our consolidated statements of income. Adjusted Rental Income is reconciled to rental income, Adjusted Cost27Operating Results Overview: Three and NineSix Months Ended SeptemberJune 30, 20172022 and 2016For the three months ended SeptemberJune 30, 2017,2022, net income allocable to common shareholdersstockholders was $18.1$77.1 million, or $0.66$2.78 per diluted share, compared to $19.7$45.6 million, or $0.72$1.65 per diluted share, for the same period in 2016. 2021. The decreaseincrease was mainly due to a $6.9$61.8 million Preferred Redemption Allocation, offset bygain on sale of assets sold during second quarter of 2022, compared to a $2.7$19.2 million gain on sale of assets sold during the same period in 2021, combined with a $3.3 million increase in NOI with respect tofrom our real estate facilities and reduced preferred distributions. TheSame Park portfolio (defined below), a $1.5 million increase in NOI includesfrom our Non-Same Park portfolio (defined below), and $2.5 million lower preferred distributions in 2022 compared to 2021 due to the redemption of preferred stock in November 2021, partially offset by Merger related costs of $6.1 million and a $3.3decrease of $4.3 million increase for our Same Park facilities (see below) due primarily to higher realized rent per occupied square foot, offset partially by reducedin NOI with respect to facilities we sold or are holding for development.For the ninesix months ended SeptemberJune 30, 2017,2022, net income allocable to common shareholdersstockholders was $69.3$149.1 million, or $2.53$5.38 per diluted share, compared to $50.0$73.5 million, or $1.84$2.66 per diluted share for the same period in 2016. 2021. The increase was mainly due to a $10.5$118.8 million gain on sale of assets sold during the first six months of 2022, compared to a $19.2 million gain on sale of assets sold during the same period in 2021, combined with a $9.0 million increase in NOI with respectfrom our Same Park portfolio (defined below), a $3.0 million increase in NOI from our Non-Same Park portfolio (defined below), and $4.9 million lower preferred distributions in 2022 compared to our real estate facilities, a reduction in interest expense2021 due to the repaymentredemption of debt, and gains on the salepreferred stock in November 2021, partially offset by a decrease of real estate facilities and development rights. The increase$7.3 million in NOI includesgenerated from assets sold, Merger related costs of $6.1 million, and a $12.5one-time cash payment of $6.7 million increaseto the former Chief Executive Officer ("CEO"), which consists of a $6.6 million cash payment for our Same-Park facilities due primarilyRSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by $0.6 million non-cash adjustment related to higher realized rent per occupied square foot, offset partially by reduced NOI with respect to facilities we sold or are holdingthe reversal of stock compensation for development.We analyze ourthe unvested former CEO's shares, net income in this discussion analysis in two main sections: operating income and then all other components of net income.23OperatingNet IncomeOur operatingnet income is comprised primarily of our real estate operations, depreciation and amortization expense, and general and administrative expenses. We segregate our real estate activities into (a)(i) same park operations, generally representing all operating properties acquired prior to January 1, 2015,2020, comprising 27.825.4 million rentable square feet of our 28.026.6 million inof rentable spacesquare feet at SeptemberJune 30, 2017 (the2022 the “Same Park” facilities)portfolio), (b)(ii) non-same park operations, representing those facilities we own that were acquired after January 1, 20152020 (the “Non-Same Park” facilities)portfolio), (iii) multifamily operations, and (c)(iv) assets sold or held for development, representing facilities whose existing operations are no longer partsale, including the 2022 Assets Sold totaling 1.1 million square feet and the 2021 Asset Sold totaling 0.2 million square feet.28The table below sets forth the various components of our operatingnet income (in thousands):100,110 95,867 4,243 299,207 285,927 13,280 371 9 362 976 9 967 936 (936) 159 2,808 (2,649) 528 (528) 528 (528) 100,481 97,340 3,141 300,342 289,272 11,070 30,821 29,875 946 90,204 89,375 829 294 3 291 918 3 915 261 (261) 73 750 (677) 564 657 (93) 1,767 2,312 (545) 31,679 30,796 883 92,962 92,440 522 69,289 65,992 3,297 209,003 196,552 12,451 77 6 71 58 6 52 675 (675) 86 2,058 (1,972) (564) (129) (435) (1,767) (1,784) 17 (23,759) (24,631) 872 (70,465) (74,886) 4,421 (1,745) (2,970) 1,225 (7,019) (11,982) 4,963 43,298 38,943 4,355 129,896 109,964 19,932 ____________________________(a)Adjusted rental income excludes a material lease buyout payment.(b)Adjusted cost of operations excludes the impact of LTEIP amortization. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income Same Park $ 103,988 $ 98,010 6.1 % $ 207,390 $ 194,167 6.8 % Non-Same Park 3,659 1,377 165.7 % 7,007 2,623 167.1 % Multifamily 2,524 2,248 12.3 % 4,893 4,575 7.0 % Assets sold (1)739 7,729 (90.4) % 4,460 16,046 (72.2 %) Total rental income 110,910 109,364 1.4 % 223,750 217,411 2.9 % Cost of Operations (2)Same Park 29,853 27,188 9.8 % 59,950 55,594 7.8 % Non-Same Park 1,279 494 158.9 % 2,339 916 155.3 % Multifamily 1,181 1,177 0.3 % 2,405 2,244 7.2 % Assets sold (1)274 2,990 (90.8) % 2,007 6,313 (68.2 %) Total cost of operations 32,587 31,849 2.3 % 66,701 65,067 2.5 % Stock compensation expense (3)(549) (481) 14.1 % (1,085) (937) 15.8 % Total cost of operations excl. stock compensation expense 32,038 31,368 2.1 % 65,616 64,130 2.3 % NOI (4)Same Park 74,135 70,822 4.7 % 147,440 138,573 6.4 % Non-Same Park 2,380 883 169.5 % 4,668 1,707 173.5 % Multifamily 1,343 1,071 25.4 % 2,488 2,331 6.7 % Assets sold (1)465 4,739 (90.2) % 2,453 9,733 (74.8 %) Depreciation and amortization expense (22,799) (22,514) 1.3 % (45,931) (45,499) 0.9 % General and administrative expense (11,092) (4,799) 131.1 % (22,416) (9,181) 144.2 % Interest and other income 1,722 923 86.6 % 1,968 1,179 66.9 % Interest and other expense (476) (268) 77.6 % (806) (479) 68.3 % Gain on sale of real estate facilities 61,842 19,193 222.2 % 118,801 19,193 519.0 % Net income $ 107,520 $ 70,050 53.5 % $ 208,665 $ 117,557 77.5 %
_______________(c)Net operating income represents adjusted rental income less adjusted cost of operations.(1)Amounts shown for the three and six months ended June 30, 2022 and 2021, respectively, include operating results attributable to the 2022 Assets Sold and the 2021 Asset Sold, respectively.(2)Cost of Operations under Cash NOI excludes the impact of stock compensation expense.(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 our executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.(4)NOI represents rental income less Cost of Operations.Rental income increased $3.1$1.5 million and $11.1$6.3 million for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, as compared to the same periods in 2016, due primarily to increases in adjusted rental income at the Same Park facilities,2021 due primarily to higher annualized realizedoccupancy in 2022 compared to the same period in 2021 combined with rental income per occupied square foot.29Cost of operations, excluding stock compensation expense, increased $883,000$0.7 million and $522,000$1.5 million for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, as compared to the same periods in 2016,2021 due primarily to increased adjusted costhigher Cost of operations for the24facilities,portfolios, partially offset partially by adjusted costsa decrease in Cost of operationsOperations from assets sold or held for development, as well as lower LTEIP amortization.Operatingsold.Net income increased $4.4$37.5 million and $19.9$90.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, as compared to the same periods in 2016,2021. The three month increase was mainly due primarily to higher rental income, lower general and administrative expenses and lower depreciation expense.See below for a discussion$42.6 million increase in the gain on sale of depreciation and amortization expense and general and administrative expenses. FacilitiesThe six month increase was due to a $99.6 million increase in the gain on sale of assets sold during the six months ended June 30, 2022 compared to the same period in 2021, combined with an $8.9 million increase in NOI from our Same Park facilities are thoseportfolio (defined below), a $3.0 million increase in NOI from our Non-Same Park portfolio (defined below), partially offset by a decrease of $7.3 million in NOI generated from assets sold or held for sale, the Merger related costs of $6.1 million, and a one-time cash payment of $6.7 million to the former CEO, which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by $0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net of dividend forfeiture expense.30Same Park PortfolioWe believe that we have owned and operated since January 1, 2015. We evaluate the operationsevaluation of these facilities to more effectively evaluate the ongoing performance of our portfolio in 2015, 2016 and 2017. We believe the Same Park information is used byportfolio provides an informative view of how the Company’s portfolio has performed over comparable periods. We believe that investors and analysts use Same Park information in a similarcomparable manner.The following table summarizes the historical operating results of these facilitiesour Same Park portfolio and certain statistical information related to leasing activity:100,110 95,867 4.4% 299,207 285,927 4.6% 10,730 10,137 5.8% 31,052 29,595 4.9% 6,331 6,439 (1.7%) 17,961 18,137 (1.0%) 6,807 6,154 10.6% 19,429 18,845 3.1% 481 1,810 (73.4%) 6,953 7,145 (2.7%) 21,281 20,988 1.4% 30,821 29,875 3.2% 90,204 89,375 0.9% 69,289 65,992 5.0% 209,003 196,552 6.3% 69.2% 68.8% 0.6% 69.9% 68.7% 1.7% 94.0% 94.1% (0.1%) 94.1% 93.9% 0.2% 15.32 14.65 4.6% 15.25 14.60 4.5% ____________________________
activity during the three and six months ended June 30, 2022 and 2021 (in thousands, except per square foot data):(a)Computed by dividing NOI by adjusted rental income. (b)Represents the annualized adjusted rental income earned per occupied square foot. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income Cash Rental Income (1)$ 103,242 $ 97,698 5.7 % $ 205,749 $ 192,518 6.9 % Non-Cash Rental Income (2)746 312 139.1 % 1,641 1,649 (0.5 %) Total rental income 103,988 98,010 6.1 % 207,390 194,167 6.8 % Cost of Operations Property taxes 11,366 10,718 6.0 % 22,997 21,756 5.7 % Utilities 4,172 3,948 5.7 % 8,586 8,169 5.1 % Repairs and maintenance 6,339 5,428 16.8 % 11,805 10,461 12.8 % Compensation 4,857 4,345 11.8 % 9,936 8,825 12.6 % Snow removal 12 6 100.0 % 784 928 (15.5 %) Property insurance 1,251 1,147 9.1 % 2,502 2,302 8.7 % Other expenses 1,856 1,596 16.3 % 3,340 3,153 5.9 % Total Cost of Operations (3)29,853 27,188 9.8 % 59,950 55,594 7.8 % Less: Non-cash stock based compensation in operating costs (518) (438) 18.3 % (1,004) (852) 17.8 % Total Cash Cost of Operations 29,335 26,750 9.7 % 58,946 54,742 7.7 % NOI (4)$ 74,135 $ 70,822 4.7 % $ 147,440 $ 138,573 6.4 % Cash NOI (5)$ 73,907 $ 70,948 4.2 % $ 146,803 $ 137,776 6.6 % Selected Statistical Data Square footage at period end 25,365 25,365 — 25,365 25,365 — NOI margin (6)71.3 % 72.3 % (1.0 %) 71.1 % 71.4 % (0.3 %) Cash NOI margin (7)71.6 % 72.6 % (1.0 %) 71.4 % 71.6 % (0.2 %) Weighted average square foot occupancy 95.6 % 94.2 % 1.4 % 95.9 % 93.8 % 1.9 % Revenue per Occupied Square Foot (8)$ 16.83 $ 16.41 2.6 % $ 16.78 $ 16.32 2.8 % Cash Rental Income per Occupied Square Foot (9)$ 16.58 $ 16.36 1.3 % $ 16.47 $ 16.18 1.8 % 25(1)Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). See table below for the change in Cash Rental Income.(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.(3)Cost of Operations, as presented above, includes stock compensation expense for employees whose compensation expense is recorded in cost of operations.31(4)NOI represents rental income less Cost of Operations.(5)Cash NOI represents Cash Rental Income less Cash 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 six month periods shown is annualized.(9)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 six month periods shown is annualized.Analysis of Same Park Adjusted Rental IncomeAdjusted rentalRental income generated by thefor our Same Park facilitiesportfolio increased 4.4%6.1% and 4.6%6.8% for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021. The three and six month increase was due primarily due to an increase in weighted average occupancy and higher rental rates charged to our customers, as revenue per occupied square foot increased 2.6% and 2.8%, in the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, compared to the same periods in 2021.The following table details the change in Same Park rental income for the three and six months ended June 30, 2022 and 2021 (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2022 2021 $ Change 2022 2021 $ Change Rental income Base rental income $ 76,232 $ 73,270 $ 2,962 $ 151,919 $ 143,437 $ 8,482 Expense recovery income 26,694 23,815 2,879 53,050 47,587 5,463 Lease buyout income 112 170 (58) 272 486 (214) Rent receivable recovery/(write-off) (128) 47 (175) (215) 46 (261) Abatements — (103) 103 (2) (185) 183 Deferrals — (78) 78 — (280) 280 Deferral repayments, net 139 422 (283) 289 1,103 (814) Fee Income 193 155 38 436 324 112 Cash Rental Income 103,242 97,698 5,544 205,749 192,518 13,231 Non-Cash Rental Income (1)746 312 434 1,641 1,649 (8) Total rental income $ 103,988 $ 98,010 $ 5,978 $ 207,390 $ 194,167 $ 13,223 _______________(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.32We expect our future revenue growth will come primarily from contractual rental increases as well as from potential increases in market rents which would allow us to increase rent levels when leases are either renewed with existing customers or re-leased to new customers.The following table sets forth the expirations of existing leases in our Same Park portfolio over the next five years based on lease data at June 30, 2022 (dollars and square feet in thousands):Year of Lease Expiration Number of
CustomersSquare
Footage Subject to
Expiring LeasesPercent of
Total Leased
Square FootageAnnualized Rental
Income Under
Expiring LeasesPercent of
Annualized Rental
Income Represented
by Expiring LeasesRemainder of 2022 1,155 2,787 12 % 50,250 11 % 2023 1,441 5,860 24 % 101,889 23 % 2024 1,006 5,017 21 % 92,169 21 % 2025 460 3,858 16 % 72,389 17 % 2026 225 2,356 10 % 42,911 10 % Thereafter 193 4,131 17 % 79,007 18 % Total 4,480 24,009 100 % 438,615 100 % See “Analysis of Same Park Market Trends” below for further analysis of such data on a by market basis.Analysis of Same Park Cost of OperationsCost of Operations, excluding stock-based compensation, for our Same Park portfolio increased 9.8% and 7.8% for the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year. The three and six month increases were due to increases in almost all cost of operations categories due to increased traffic as customers returned to the workplace, except for snow removal and other expenses.Property taxes increased 6.0% and 5.7% for the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year. These increases were due primarily to increased annualized realized rental income per occupied square foot and, during the nine month period, an increase in weighted average occupancy.We believe that high occupancies help maximize our rental income. Accordingly, we seek to maintain a weighted average occupancy over 90%.During the first nine months of 2017, most markets continued to reflect favorable conditions allowing for stable occupancy as well as increasing rental rates. With the exception of the Northern Virginia and Suburban Maryland markets, new rental rates for the Company improved over expiring rental rates on executed leases as economic conditions and tenant demand remained healthy.Our future revenue growth will come primarily from potential increases in market rents allowing us to increase rent levels when leases are either renewed with existing tenants or re-leased to new tenants. The following table sets forth the expirations of our existing leases in place at September 30, 2017 over the next five years (dollars and square feet in thousands):807 1,716 6.5% 26,771 6.4% 1,562 5,863 22.2% 95,762 22.9% 1,304 6,495 24.6% 96,533 23.0% 672 4,757 18.1% 70,175 16.7% 279 2,362 9.0% 36,469 8.7% 328 5,178 19.6% 93,456 22.3% 4,952 26,371 100.0% 419,166 100.0% During the three and nine months ended September 30, 2017, we leased approximately 1.8 million and 5.6 million, respectively, in rentable square feet to new and existing customers, with an average increase in rental rates over the previous rates of 5.7% and 4.3%. Approximately 66.8% of our leasing activity for the nine months ended September 30, 2017 represented renewals of leases with existing tenants. See “Analysis of Market Trends” below for further analysis of such data on a by-market basis.Our ability to re-lease space on expired leases in a way that minimizes vacancy periods and the lease rates that may be achieved are not predictable, because they will depend upon market conditions in the specific submarkets in which each of our properties are located.Analysis of Same Park Adjusted Cost of OperationsProperty taxes increased 5.8% and 4.9% during the three and nine months ended September 30, 2017, respectively, as compared to the same periods in the prior year due primarily to higher assessed values. We expect potential property taxestax growth in the fourth quarter of 2017future due to approximate the amount for the third quarter of 2017. Utilities are dependent primarily upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utilities decreased 1.7%increased 5.7% and 1.0% for5.1% during the three and ninesix months ended SeptemberJune 30, 2017,2022, respectively, as compared to the same periodsperiod in the prior year. The three-month increase was driven by increased rates and increased usage as customers returned to the workplace. It is difficult to estimate future utility costs because weather, temperature, and energy prices are volatile and not readily predictable. However, we expect utility costs in the future to return to pre-COVID-19 pandemic levels over time due to expected increases in traffic and use at our parks as our customers resume operations.2610.6%16.8% and 3.1% during12.8% for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2022, as compared to the same periodsperiod in the prior year. The three-month increase was due to increased usage as customers returned to the workplace. Repairs and maintenance costs are dependent upon many factors including weather conditions, which can impact repair and maintenance needs, inflation in material and labor costs, and random events, and as a result, are not readilyalways predictable. We expect to incur incremental repairs and maintenance costs for the remainder of 2022 to be more consistent with respect to Hurricane Irma duringpre-COVID-19 pandemic levels as a result of expected increases in traffic and use at our parks as customers resume operations.Compensation increased 11.8% and 12.6% for the fourth quarter of 2017.Snow removal decreased 73.4% during the ninethree and six months ended SeptemberJune 30, 20172022, respectively, as compared to the same periodperiods in 2016.the prior year. The increase in compensation was primarily due to increases in personnel and increased wages due to inflationary impacts on labor. We expect compensation and payroll expenses to continue to increase in the future.33Snow removal costs increased 100.0% and decreased 15.5% during the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year. Snow removal costs are weather dependent and therefore not predictable.Other expenses decreased 2.7% duringProperty insurance increased 9.1% and 8.7% for the three and six months ended SeptemberJune 30, 2017, and increased 1.4% during the nine months ended September 30, 20172022, respectively, as compared to the same periods in 2016. These coststhe prior year. The three-month increase was primarily due to an increase in our property insurance premiums due to unfavorable market conditions pervasive throughout commercial real estate sectors. We expect to experience increases in property insurance expense in the future as unfavorable market conditions pervasive throughout commercial real estate sectors persist.Other expenses increased 16.3% and 5.9% for the three and six months ended June 30, 2022, respectively, as compared to the same periods in the prior year. Other expenses are comprised of on site and supervisory personnel,general property insurance and other expenses incurred in the operation of our properties.Same Park Quarterly TrendsThe following table sets forth historical quarterly trends in We expect other expenses for the operationsremainder of 2022 to be similar to our results for the Same Park facilities for adjusted rental income, adjusted cost of operations, occupancies, realized rentsthree and those expenses which have material seasonal trends:99,654 99,443 100,110 94,908 95,152 95,867 96,457 29,839 29,544 30,821 30,777 28,723 29,875 29,336 378 103 1,810 5,896 5,734 6,331 6,226 5,472 6,439 5,775 94.6% 93.7% 94.0% 94.1% 93.5% 94.1% 94.8% 15.16 15.27 15.32 14.52 14.63 14.65 14.65 2734Analysis of Same Park Market TrendsThe following tables set forth market rent, expense and occupancy trends inhistorical data by region related to the operations of our Same Park facilities:portfolio for Cash Rental Income, Cash Cost of Operations, weighted average occupancy, and Cash Rental Income per Occupied Square Foot (in thousands, except per square foot data): Three Months Ended June 30, Six Months Ended June 30, Region 2022 2021 Change 2022 2021 Change Geographic Data on Same Park Geographic Data on Same Park 22,814 21,640 68,989 64,501 16,298 15,487 48,055 45,104 8,128 7,924 24,683 23,474 7,390 6,823 22,179 20,596 19,271 18,853 56,919 57,404 10,269 9,678 30,457 28,475 11,953 11,694 35,882 35,144 3,987 3,768 12,043 11,229 100,110 95,867 299,207 285,927 Cash Rental Income Cash Rental Income Square Feet 6,011 5,773 17,571 16,814 Northern California 7,231 $ 30,209 $ 28,573 5.7% $ 60,457 $ 55,937 8.1% 4,972 4,978 14,558 14,178 Southern California 3,529 16,177 15,411 5.0% 32,132 29,504 8.9% 2,765 2,817 8,283 8,451 Dallas 2,093 5,553 5,173 7.3% 10,999 10,217 7.7% 2,570 2,394 7,549 7,052 Austin 1,963 9,537 8,652 10.2% 18,371 17,285 6.3% 6,034 6,471 18,318 19,516 Northern Virginia 4,241 17,916 17,951 (0.2)% 36,631 36,044 1.6% 2,716 2,714 8,144 8,091 South Florida 3,866 13,747 12,020 14.4% 26,922 23,806 13.1% Seattle Seattle 1,350 5,135 5,081 1.1% 10,367 10,001 3.7% 4,768 3,755 12,776 12,297 Suburban Maryland 1,092 4,968 4,837 2.7% 9,870 9,724 1.5% 985 973 3,005 2,976 30,821 29,875 90,204 89,375 Total Same Park 25,365 $ 103,242 $ 97,698 5.7% 205,749 192,518 6.9% Cash Cost of Operations Cash Cost of Operations 16,803 15,867 51,418 47,687 Northern California $ 6,913 $ 6,218 11.2% 13,524 12,561 7.7% 11,326 10,509 33,497 30,926 Southern California 4,141 3,836 8.0% 8,353 7,691 8.6% 5,363 5,107 16,400 15,023 Dallas 1,960 1,989 (1.5)% 3,751 3,908 (4.0)% 4,820 4,429 14,630 13,544 Austin 3,892 3,141 23.9% 7,398 6,356 16.4% 13,237 12,382 38,601 37,888 Northern Virginia 5,922 5,525 7.2% 12,645 11,958 5.7% 7,553 6,964 22,313 20,384 South Florida 3,632 3,175 14.4% 7,159 6,359 12.6% Seattle Seattle 1,269 1,271 (0.2)% 2,709 2,563 5.7% 7,185 7,939 23,106 22,847 Suburban Maryland 1,606 1,595 0.7% 3,407 3,346 1.8% Total Same Park Total Same Park $ 29,335 $ 26,750 9.7% 58,946 54,742 7.7% Cash NOI Cash NOI Northern California Northern California $ 23,296 $ 22,355 4.2% 46,933 43,376 8.2% Southern California Southern California 12,036 11,575 4.0% 23,779 21,813 9.0% Dallas Dallas 3,593 3,184 12.8% 7,248 6,309 14.9% Austin Austin 5,645 5,511 2.4% 10,973 10,929 0.4% Northern Virginia Northern Virginia 11,994 12,426 (3.5)% 23,986 24,086 (0.4)% South Florida South Florida 10,115 8,845 14.4% 19,763 17,447 13.3% 3,002 2,795 9,038 8,253 Seattle 3,866 3,810 1.5% 7,658 7,438 3.0% Suburban Maryland Suburban Maryland 3,362 3,242 3.7% 6,463 6,378 1.3% 69,289 65,992 209,003 196,552 Total Same Park $ 73,907 $ 70,948 4.2% $ 146,803 $ 137,776 6.6% Weighted average square foot occupancy 94.2% 96.5% 95.6% 96.5% Northern California 96.3 % 93.9 % 2.4% 96.9 % 93.5 % 3.4% 95.3% 95.5% 95.4% 94.5% Southern California 97.6 % 97.0 % 0.6% 97.7 % 96.6 % 1.1% 91.2% 91.1% 90.7% 90.0% Dallas 91.3 % 88.4 % 2.9% 92.1 % 87.7 % 4.4% 95.9% 97.7% 94.8% 96.7% Austin 94.3 % 95.0 % (0.7)% 94.3 % 95.0 % (0.7)% 92.3% 91.6% 90.9% 92.4% Northern Virginia 93.8 % 92.8 % 1.0% 94.2 % 92.7 % 1.5% 97.0% 93.5% 97.5% 93.8% South Florida 98.6 % 96.9 % 1.7% 98.3 % 96.2 % 2.1% Seattle Seattle 95.7 % 94.0 % 1.7% 95.6 % 93.6 % 2.0% 89.3% 87.6% 88.3% 87.9% Suburban Maryland 91.6 % 91.8 % (0.2)% 91.8 % 92.0 % (0.2)% 97.3% 98.9% 98.0% 98.5% 94.0% 94.1% 94.1% 93.9% Total Same Park 95.6 % 94.2 % 1.4% 95.9 % 93.8 % 2.1% Cash Rental Income per Occupied Square Foot (1)Cash Rental Income per Occupied Square Foot (1)13.37 12.38 13.28 12.30 Northern California $ 17.36 $ 16.82 3.2% $ 17.27 $ 16.53 4.5% 17.16 16.27 16.85 15.96 Southern California $ 18.80 $ 18.01 4.4% $ 18.64 $ 17.32 7.6% 11.56 11.28 11.77 11.28 Dallas $ 11.62 $ 11.18 3.9% $ 11.40 $ 11.13 2.4% 15.70 14.22 15.88 14.47 Austin $ 20.60 $ 18.55 11.1% $ 19.83 $ 18.53 7.0% 21.31 21.01 21.31 21.15 Northern Virginia $ 18.01 $ 18.24 (1.3)% $ 18.33 $ 18.34 (0.1)% 10.95 10.71 10.77 10.47 South Florida $ 14.42 $ 12.83 12.4% $ 14.16 $ 12.80 10.6% Seattle Seattle $ 15.89 $ 16.02 (0.8)% $ 16.06 $ 15.82 1.5% 22.76 22.70 23.02 22.67 Suburban Maryland $ 19.81 $ 19.25 2.9% $ 19.64 $ 19.31 1.7% 11.79 10.97 11.78 10.94 15.32 14.65 15.25 14.60 Total Same Park $ 17.03 $ 16.36 4.1% $ 16.92 $ 16.18 4.6% 28(1)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table.35The following tables set forth key statistical information with respect to our Same Park leasing activities during the three and nine months ended September 30, 2017. As noted above, ourOur past revenue growth has come from contractual annual inflators,rent increases, as well as re-leasing of space at rates above outgoing rental rates. We believe the percentage difference between outgoing cash rent inclusive of estimated expense recoveries and incoming cash rent inclusive of estimated expense recoveries for leases executed (“Cash Rental Rate Change”) is useful in understanding trends in current market rates relative to our existing lease rates. The following tables summarizetable summarizes Cash Rental Rate Change and other key statistical information with respect to the Company’s leasing production for its Same Park portfolio for the three months ended June 30, 2022 (square feet in thousands): Three Months Ended June 30, 2022 Industrial Square
Footage
LeasedCustomer
RetentionTransaction
Costs per
Executed FootCash RentalRate Change (1)GAAPRent Change (2)Northern California 149 53.8 % $ 4.77 32.1 % 63.3 % Southern California 145 65.2 % 1.70 22.4 % 41.6 % Dallas 90 96.5 % 2.23 43.0 % 59.7 % Austin 14 35.7 0.72 7.7 % 30.4 % Northern Virginia 32 77.3 % — 12.8 % 25.2 % South Florida 176 71.1 % 1.06 36.8 % 49.2 % Seattle 31 71.5 % 4.59 20.4 % 41.8 % Suburban Maryland 44 100.0 % 0.08 16.5 % 18.2 % Industrial Totals by Region 681 68.4 % $ 2.21 28.2 % 47.8 % Flex Northern California 23 65.6 % $ 1.63 8.6 % 13.3 % Southern California 34 67.1 % 2.50 20.0 % 35.3 % Dallas 66 69.2 % 4.96 12.6 % 29.3 % Austin 65 82.3 % 11.72 2.6 % 17.5 % Northern Virginia 52 56.8 % 4.84 1.0 % 8.5 % South Florida 1 100.0 % — 25.7 % 43.9 % Seattle 19 91.8 % 1.75 8.7 % 21.4 % Flex Totals by Region 260 68.5 % $ 5.74 7.6 % 19.8 % Office Northern California 19 75.5 % $ 0.29 (4.1) % (4.0) % Southern California 5 100.0 % 0.26 4.1 % 12.4 % Northern Virginia 70 87.1 % 6.67 (5.3) % (0.4) % Suburban Maryland 12 42.5 % 11.17 (4.4) % 1.1 % Office Totals by Region 106 79.0 % $ 5.74 (4.4) % (0.8) % Company Totals by Type 1,047 69.6 % $ 3.44 17.8 % 32.3 % _______________(1)Cash Rental Rate Change is computed by these eight regionstaking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure.(2)GAAP 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.36The following table summarizes Cash Rental Rate Change and other key statistical information with respect to the Company’s leasing production for its Same Park portfolio for the six months ended June 30, 2022 (square feet in thousands):Six Months Ended June 30, 2022 Industrial Square
Footage
LeasedCustomer
RetentionTransaction
Costs per
Executed FootCash Rental Rate Change (1)GAAP Rent Change (2)Northern California 375 67.3 % $ 3.28 22.0 % 43.7 % Southern California 378 71.3 % 2.17 16.3 % 30.5 % Dallas 187 57.4 % 2.89 24.9 % 41.8 % Austin 42 31.3 2.39 15.4 % 41.7 % Northern Virginia 172 93.0 % 1.20 7.9 % 19.3 % South Florida 475 66.7 % 1.25 29.1 % 50.3 % Seattle 76 68.8 % 3.42 19.2 % 39.4 % Suburban Maryland 52 100.0 % 0.25 13.1 % 14.8 % Industrial Totals by Region 1,757 69.4 % $ 2.14 20.3 % 38.1 % Flex Northern California 54 75.8 % $ 1.36 9.6 % 15.7 % Southern California 78 74.5 % 3.91 12.4 % 26.0 % Dallas 117 68.3 % 4.08 10.4 % 24.5 % Austin 168 86.3 % 8.73 4.1 % 17.3 % Northern Virginia 87 55.6 % 4.48 0.3 % 5.3 % South Florida 7 63.9 % 1.84 18.5 % 36.4 % Seattle 51 63.0 % 2.41 8.1 % 18.8 % Flex Totals by Region 562 70.5 % $ 5.07 6.8 % 17.9 % Office Northern California 38 77.0 % $ 0.15 (5.4) % (4.9) % Southern California 6 66.2 % 0.20 3.4 % 11.5 % Northern Virginia 144 68.9 % 9.46 (7.4) % (0.1) % Seattle 1 100.0 % — 6.2 % 15.3 % Suburban Maryland 34 56.3 % 10.59 (2.6) % 2.6 % Office Totals by Region 223 68.3 % $ 7.74 (5.9) % (0.8) % Company Totals by Type 2,542 69.6 % $ 6.19 13.7 % 27.7 % _______________(1)Cash Rental Rate Change is computed by taking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure.(2)GAAP 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.For the three and six months ended June 30, 2022, weighted average occupancy was 95.6% and 95.9%, respectively, an increase from weighted average occupancy of 94.2% and 93.8% for the three and ninesix months ended SeptemberJune 30, 2017 (in thousands):521 88.8% 1.81 22.1% 442 78.9% 2.62 3.3% 175 62.1% 3.11 4.2% 66 70.5% 1.78 13.5% 260 74.4% 7.94 (10.3%) 192 51.7% 1.20 5.4% 111 82.8% 4.14 (14.5%) 62 55.7% 2.61 12.1% 1,829 75.8% 3.10 5.7% 1,098 70.7% 1.64 19.2% 1,150 66.4% 2.36 4.7% 574 57.4% 3.40 4.2% 320 47.7% 2.62 14.2% 785 67.3% 6.08 (8.8%) 858 64.0% 1.50 4.0% 392 79.7% 9.14 (10.8%) 381 79.0% 1.07 12.3% 5,558 66.8% 3.12 4.3% ____________________________(a)Rental rate change is computed by taking the percentage difference between outgoing rents and incoming rents for leases executed during the period. Leases executed on spaces vacant for more than the preceding twelve months have been excluded.During the first nine months2021. Renewals of 2017, most markets continued to reflect favorable conditions allowing for stable occupancy as well as increasing rental rates. With the exceptionleases with existing customers represented 73.8% of Northern Virginia and Suburban Maryland, new rental ratesour leasing activity for the Company improved over expiringsix months ended June 30, 2022. Average lease term of the leases executed during the three months ended June 30, 2022, respectively, was 3.8 years with associated average transaction costs (tenant improvements and leasing commissions) of $3.44. For comparative purposes, average lease term and transaction costs on leases executed during the three months ended June 30, 2021 were 3.3 years and $2.76 per square foot, respectively. The uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to increase or maintain existing occupancy levels, possible decreases in rental rates on executed leasesnew and renewal transactions, and potential additional rent deferrals, rent abatements, and customer defaults, may affect our ability to grow Same Park rental income in the near future.37Non-Same Park Portfolio: The table below reflects the assets comprising our Non-Same Park portfolio (in thousands):Acquired Property Date Acquired Location Purchase
PriceSquare
FeetOccupancy at June 30, 2022 Jupiter Business Park November 2021 Plano, TX $ 25,600 141 100.0% Port America September 2021 Grapevine, Texas 123,268 718 96.5% Pickett Industrial Park October 2020 Alexandria, VA 46,582 246 58.2% La Mirada Commerce Center January 2020 La Mirada, CA 13,513 73 100.0% Total acquired property $ 208,963 1,178 89.1% We believe that our management and operating infrastructure typically allows us to generate higher NOI from newly acquired real estate facilities than was achieved by previous owners. However, it can take 24 or more months for us to fully achieve higher NOI, and the ultimate levels of NOI achieved can be affected by changes in general economic conditions. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s ability to generate higher NOI from these newly acquired real estate facilities in the future, there can be no assurance that we will achieve our expectations with respect to newly acquired real estate facilities.Multifamily: As of June 30, 2022, we held a 95.0% controlling interest in a joint venture that owns Highgate at The Mile, a 395-unit apartment complex in Tysons, Virginia. The following table summarizes the historical operating results of Highgate at The Mile and certain statistical information (in thousands, except per unit data):Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income $ 2,524 $ 2,248 12.3 % $ 4,893 $ 4,575 7.0 % Cost of operations 1,181 1,177 0.3 % 2,405 2,244 7.2 % NOI $ 1,343 $ 1,071 25.4 % $ 2,488 $ 2,331 6.7 % Selected Statistical Data Weighted average square foot occupancy 94.9 % 94.6 % 0.3 % 94.9 % 94.4 % 0.5 % As of June 30, 2022 Total costs (1)$ 115,426 Physical occupancy 94.1 % Average rent per unit (2)$ 2,132 _______________(1)The project cost for Highgate at The Mile includes the underlying land at its assigned contribution value upon formation of the joint venture of $27.0 million, which includes unrealized land appreciation of $6.0 million that is not recorded on our balance sheet.(2)Average rent per unit is defined as economic conditionsthe total potential monthly rental revenue (actual rent for occupied apartment units plus market rent for vacant apartment units) divided by the total number of rentable apartment units.The three and tenant demandsix month increases in NOI in 2022 compared to 2021 were primarily due to an increase in rental income as the Tysons submarket continued to show signs of recovery. The cost of operations for the three months ended June 30, 2022 remained healthy. Northern Virginiaflat compared to the same period in 2021. The increase in the cost of operations for the six months ended June 30, 2022 is primarily due to an increase in utility charges, increased costs for common area cleaning, increased turnover costs, and Suburban Maryland continueunscheduled repairs to experience soft market conditions as evidenced by continued pressurethe garage door and HVAC units. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to maintain existing occupancy levels and rental rates. Given lease expirations of 1.1 million square feet in Northern Virginia and 712,000 square feet in Suburban Maryland through December 31, 2018, the Companyrates, we may continue to experience a decreaseNOI levels below those which were achieved prior to the onset of the COVID-19 pandemic in rental income in these regions.Non-Same Park facilities: Our Non-Same Park facilities are comprisedthe future.38Assets sold or held for development:sale: These amounts include historical operating results with respect to properties that have beenwere sold and with respect to a 123,000 rentable square foot office building which is vacant and beingor held for future potential development into a multi-family building. We expect no further material operations for this vacant property until development is complete; as noted above, we do not expect development activity to commence until at least December 2018.For the three and six months ended June 30, 2022, the operating results include 1.1 million square feet of 2022 Assets Sold. For the three and six months ended June 30, 2021, the operating results include 1.1 million square feet of 2022 Assets Sold and 0.2 million square feet of 2021 Assets Sold.Depreciation and Amortization Expense: Depreciation and amortization expense was $23.8$22.8 million and $45.9 million for the three and six months ended SeptemberJune 30, 2017 compared to $24.62022 and 2021, and consistent with the $22.5 million and $45.5 million for the same periodperiods in 2016. Depreciation and amortization was2021.29$70.5 million for the nine months ended September 30, 2017 compared to $74.9 million for the same period in 2016. The three and nine month decreases in depreciation and amortization were due to the cost of certain assets reaching the end of their depreciable lives.Expenses:Expense: General and administrative expense primarily represents executive and other compensation, including non-cash stock compensation, audit and tax fees, legal expenses primarily represent compensation for senior executives, tax compliance, legal and other costs associated with being a public company. For the three and nine months ended SeptemberJune 30, 2017,2022, general and administrative expenses decreased $1.2expense increased $6.3 million, or 41.2%, and $5.0 million, or 41.4%, respectively, compared to the same periodsperiod in 2016. The three month decrease was2021 primarily due to a reduction in the ongoing LTEIP amortization ($571,000 in 2017 versus $907,000 in 2016), departure of our CFO during the third quarter of 2017 and acquisition transactionMerger related costs of $328,000 incurred in 2016. The nine month decrease was primarily due to a reduction in$6.1 million for professional fees and investor related services.For the ongoing LTEIP amortization ($2.3 million in 2017 versus $3.8 million in 2016), departure of senior executives in 2016 and 2017 and acquisition transaction costs incurred in 2016 noted above.nalyAnalysis of Items Not Included in Operating IncomeInterest and Other Expense: Interest and other expense was $503,000 for the threesix months ended SeptemberJune 30, 20172022, general and administrative expense increased $13.2 million compared to $155,000 for the same period in 2016. Interest and other expense was $972,000 for the nine months ended September 30, 2017 compared to $5.5 million for the same period in 2016. The three month increase was due to higher interest capitalized in 2016 as the Highgate Development began operations in 2017, while the nine month decrease was2021 primarily due to Merger related costs of $6.1 million for professional fees and investor related services and a repaymentone-time cash payment of $6.7 million to the former CEO in the first quarter of 2022, which consists of a $250.0$6.6 million mortgage note duringcash payment for RSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by the second quarternon-cash $0.6 million reversal of 2016.Equity in lossstock compensation for the unvested former CEO's shares net of unconsolidated joint venture: Our equity in loss of unconsolidated joint venture represents our pro rata equity in the earnings of our 95% equity investment in the JV that owns the Highgate Development. We have agreed to provide a construction loan to the Joint Venture, maturing in April, 2019 and having two one-year extension options, of up to $75.0 million. The interest income we receive on the loan is eliminated against our equity in earnings. During the three and nine months ended September 30, 2017, we recorded an equity loss in the unconsolidated joint venture of $376,000, comprised of $600,000 in revenue, $493,000 in cost of operations, and $483,000 in depreciation expense and $758,000, comprised of $642,000 in revenue, $813,000 in cost of operations, and $587,000 in depreciationdividend forfeiture expense.The following table summarizes the Joint Venture’s project timeline and updates as of September 30, 2017:
Project Costs (a)
(in thousands)
Leased (b)
Occupied117,241 100.0% 46.3% 41.8% 2,183 ____________________________(a)The project cost for the Highgate Development reflects the underlying land at the assigned contribution value upon formation of the Joint Venture. The estimated total costs of the project include land basis of $15.3 million plus unrealized land appreciation of $11.6 million.(b)As of October 23, 2017, the apartment units were 55.2% leased.(c)Average monthly rental rate is defined as the total potential monthly rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the number of apartment homes.Our cumulative investment in and advances to the Joint Venture, including the fair value of land we contributed, totaled $96.6 million at September 30, 2017.On June 1, 2022, the Company sold a 93,000 square foot industrial-flex business park located in San Francisco, California, for net sale proceeds of real estate facility and$62.1 million, which resulted in a gain on sale of development rights: $55.3 million.On May 1, 2017, we6, 2022, the Company sold a two-building single-story office291,000 square foot office-oriented business park comprising 44,000 square feet, located in Dallas,Fairfax, Virginia, for net sale proceeds of $35.6 million, which resulted in a gain on sale of $6.5 million.On March 29, 2022, the Company sold a 702,000 square foot industrial-flex business park located in Irving, Texas, for net sale proceeds of $2.1$91.9 million, which resulted in a gain on sale of $57.0 million.On March 31, 2017, weJune 17, 2021, the Company sold development rights we had acquired in 2006 in connection with our acquisition of a 198,000 square foot office-oriented flex business park located in Silver Spring, Maryland. When all contingenciesChantilly, Virginia, for net sale proceeds of the sale have completed, we will have30received$32.6 million, which resulted in a total of $6.4 million in net proceeds. For the nine months ended September 30, 2017, we have recorded a combined net gain of $5.1 million related to these dispositions. We expect to report an additional gain of $2.5 million when the final proceeds for theon sale of the development rights are received$19.2 million.Refer to “Note 13. Subsequent Events” for information regarding Company’s asset sales in the fourth quarter of 2017 and the remaining contingencies have lapsed.July 2022.This section should be read in conjunction with our consolidated statements of cash flows for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 and the notes to our consolidated financial statements, which set forth the major components of our historical liquidity and capital resources. The discussion below sets forth the factors which we expect will affect our future liquidity and capital resources or which may vary substantially from historical levels.Overview and OutlookOur expected material cash requirements for the three months ended June 30, 2022 and thereafter consist of (i) contractually obligated expenditures, including payments of principal and interest; (ii) other essential expenditures, including property operating expenses, maintenance capital expenditures and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including acquisitions and developments and repurchases of our securities. We expect to satisfy these short-term and long-term cash requirements through operating cash flow, disposition proceeds and opportunistic debt and equity financing.39Refer to Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for information regarding the Merger. If and when the Merger closes, we expect that Blackstone will operate the Company with higher leverage and secured debt levels than the Company has historically utilized. These changes could significantly impact the Company’s liquidity in future periods.These anticipated changes will and have impacted our credit ratings. For example, as a result of the announced Merger, our corporate credit rating by Standard and Poor’s (S&P) was downgraded to BBB+, while our preferred stock classes were downgraded to a rating of BBB-. S&P placed all their ratings on PSB, including our 'BBB+' issuer credit rating, on CreditWatch with negative implications. The CreditWatch placement reflects that S&P could lower their ratings upon closing of the transaction, based on the pro forma capital structure and their view of the acquirer's financial policy. S&P no longer views PSB as being strategic to Public Storage.In addition, following the announcement of the Merger, Moody’s Investors Service (“Moody’s”) placed under review for downgrade the ratings of the Company and our Baa2 preferred stock rating and the Baa1 senior unsecured shelf rating of our main operating subsidiary, PS Business Parks, L.P. The review for downgrade reflects the likelihood that PSB’s credit profile will deteriorate under Blackstone’s ownership, with the potential for meaningfully higher leverage and secured debt levels that could result in a multi-notch downgrade of the REIT’s ratings, including crossing over to non-investment grade territory, upon transaction close.Sources of CapitalOperating Cash Flow: We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for debt service, capital expenditures and distributions to our stockholders for the foreseeable future. In the last five years, we have retained $40 to $60 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less stockholder and unit holder distributions and capital expenditures, excluding development costs. In addition, as of June 30, 2022, we had $173.5 million in unrestricted cash.Proceeds from Dispositions: Refer to “Business Overview—Sale of Real Estate Facilities” above for a discussion of our dispositions. We expect to continue sell properties that are no longer consistent with our investment strategy and expect to use the proceeds from these dispositions to fund new acquisitions, development or other cash requirements.Access to Capital Raising Strategy:Markets: As a REIT, we generallyare required to distribute 100%at least 90% of our “REIT taxable incomeincome” to our shareholders,stockholders each year, which relative to a taxable C corporation, limits the amount of cash flow from operations that we can retain for investments.investment purposes, such as to fund acquisitions and developments. As a result, in order to grow our asset base, access to capital is important.Our financial profile is characterized by strongIn August 2021, we amended and restated the credit metrics, including low leverage relative toagreement governing our total capitalization and operating cash flows. We are a highly rated REIT, as rated by major rating agencies Moody’s and Standard & Poor’s. Our corporate credit rating by Standard and Poors is A-, while our preferred shares are rated BBB by Standard and Poors and Baa2 by Moodys. Our credit profile and ratings enable us to effectively access both the public and private capital markets to raise capital.In order to maintain access to capital markets, we target a minimum ratio of FFO (as defined below) to combined fixed charges and preferred distributions of 3.0 to 1.0. Fixed charges include interest expense and capitalized interest while preferred distributions include amounts paid to preferred shareholders and preferred unit holders. For the nine months ended September 30, 2017, the FFO to combined fixed charges and preferred distributions coverage ratio was 5.0 to 1.0, excluding the Preferred Redemption Allocation.We have a $250.0 million revolving Credit Facility thatto increase the aggregate principal amount of the Credit Facility from $250.0 million to $400.0 million and extend the expiration date to August 2025. The Credit Facility can also be expanded to $400.0 million which expires in January, 2022.$700.0 million. We can use the Credit Facility along with bank term debt,as necessary as temporary “bridge” financing until we are able to raise longer term capital. Historically we have funded our long-term capital requirements with retained operating cash flow and proceeds from the issuance of common and preferred securities. We will select among these sources of capital based upon availability, relative cost, the impact of constraints of certain forms of capital on our operations (such as covenants), as well asand the desire for leverage.Short-term Liquidity40Cash RequirementsContractual Commitments: Our material contractual commitments as of June 30, 2022 consist of principal and Capital Resource Analysis: We believe thatinterest on our net cash provided byCredit Facility, payment of dividends on our operating activitiespreferred stock (which if not paid will continue to be sufficient to enable us to meet our ongoing requirementsaccrue), contractual construction commitments for debt service, capital expendituresdevelopment projects, and distributions to our shareholders for the foreseeable future.•Credit Facility: As of SeptemberJune 30, 2017,2022, we had nohave zero balance outstanding on our Credit Facility. InWe are in compliance with all of the last five years, we have retained an averagecovenants and other requirements of $40 to $50 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less shareholder and unit holder distributions and capital expenditures. We expect to invest an additional $9.8 million with respect to the Highgate Development.Potential future uses of capital in the next twelve months include the acquisition of additional real estate facilities, and potential future sources include the potential sale of real estate facilities.Required Debt Repayment: As of September 30, 2017, we have no debt outstanding on our Credit Facility. Our Credit Facility does not expire until January,expires in August 2025.•Preferred stock dividends: We paid $19.2 million and to preferred stockholders during the six months ended June 30, 2022. We areexpect to continue to pay quarterly distributions of $9.6 million to our preferred stockholders for the foreseeable future or until such time as there is a change in compliance with the covenants and all other requirementsamount or composition of our Credit Facility.31preferred equity outstanding. Dividends on preferred equity are paid when and if declared by our Board of Directors (the "Board") and accumulate if not paid.•Contractual commitments: Contractual construction commitments as of June 30, 2022 are approximately $28.0 million.•Ground lease obligations: Our contractual payment requirements under various operating leases as of June 30, 2022 are approximately $0.1 million for 2022 and $1.4 million thereafter.•Leasing transaction cost commitments: We have commitments, pursuant to executed leases throughout our portfolio, to spend $7.1 million on transaction costs, which include tenant improvements and lease commissions as of June 30, 2022.Capital Expenditures: We define recurring capital expenditures as those necessary to maintain and operate our real estate at its current economic value. Nonrecurring capital improvements includegenerally are related to property renovationsreconfiguration and other capital expenditures related to repositioning asset acquisitions.The following table sets forth our commercial capital expenditures paid for in the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively,2021 on an aggregate and per square foot basis:Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) (per square foot) (1)Commercial Real Estate Commercial Real Estate Recurring capital expenditures 6,674 5,300 0.24 0.19 Capital improvements $ 5,116 $ 4,429 $ 0.19 $ 0.16 23,457 13,109 0.84 0.47 Tenant improvements 8,956 7,024 0.33 0.25 5,162 5,054 0.18 0.18 Lease commissions 2,928 3,404 0.11 0.12 35,293 23,463 1.26 0.84 Total commercial recurring capital expenditures Total commercial recurring capital expenditures 17,000 14,857 0.63 0.53 3,416 767 0.12 0.03 Nonrecurring capital improvements 2,120 843 0.08 0.03 38,709 24,230 1.38 0.87 Total commercial capital expenditures Total commercial capital expenditures $ 19,120 $ 15,700 $ 0.71 $ 0.56 _______________(1)Per square foot amounts are calculated based on capital expenditures divided by total weighted average square feet owned for the periods presented.41The following table summarizes Same Park and Non-Same Park recurring capital expenditures paid and the related percentage of NOI for Same Park by region for the ninesix months ended SeptemberJune 30, 20172022 and 2016 2021 (in thousands):Six Months Ended June 30, Recurring
Capital ExpendituresRecurring
Capital Expenditures
as a Percentage of NOI2022 2021 2022 2021 Region Same Park 2,052 2,735 4.0% 5.7% Northern California $ 1,729 $ 4,143 (58.3)% 3.7 % 9.4 % 3,787 3,708 11.3% 12.0% Southern California 3,452 1,535 124.9% 14.5 % 6.7 % 2,874 2,933 17.5% 19.5% Dallas 1,076 1,283 (16.1)% 15.0 % 20.5 % 1,465 996 10.0% 7.4% Austin 1,055 569 85.4% 9.6 % 5.4 % 10,620 6,783 27.5% 17.9% Northern Virginia 3,354 2,713 23.6% 13.5 % 11.3 % 1,572 1,770 7.0% 8.7% South Florida 1,394 958 45.5% 7.2 % 5.6 % Seattle Seattle 1,047 607 72.5% 13.5 % 8.2 % 7,355 3,730 31.8% 16.3% Suburban Maryland 495 1,534 (67.7)% 7.9 % 25.3 % 590 808 6.5% 9.8% 30,315 23,463 14.5% 11.9% Total Same Park 13,602 13,342 1.9% 9.2 % 9.6 % Non-Same Park 4,978 Southern California Southern California 32 38 (15.8)% Dallas Dallas 554 72 669.4% Northern Virginia Northern Virginia 2,077 145 1332.4% 4,978 Total Non-Same Park 2,663 255 944.3% 35,293 23,463 16.9% 11.9% Assets sold or held for sale Assets sold or held for sale 735 1,260 (41.7)% Total commercial recurring
capital expendituresTotal commercial recurring
capital expenditures$ 17,000 $ 14,857 14.4% The increase in Same Park recurring capital expenditures of $6.9 million, or 29.2%, was primarily due to transaction costs related to large renewals and leasing production in the Same Park portfolio during 2017. Non-Same Park capital expenditures are related to the lease-up of a facility we acquired in Maryland in 2016.In the last five years, our annual Same Park recurring capital expenditures have averaged generallyranged between $1.1010.7% and $1.80 per square foot, and 11.7% and 21.5%14.3% as a percentage of NOI. Redemption of Preferred Stock:Shares of preferred stock are redeemable by the Company five years after issuance or in order to preserve its status as a REIT, but shares of preferred stock are never redeemable at the option of the holder. Historically, we have reduced our cost of capital by refinancing higher coupon preferred securities with lower coupon preferred securities. During May, 2017, our 6.0%Our Series TX preferred shares, with a par valuecoupon rate of $350.0 million, became redeemable5.25%, at par. In September, 2017, we called for a partial redemption of $220.0 million. Funds received from our 5.25% Series X preferred shares issued during September, 2017 will be used to complete this redemption on October 30, 2017.32At September 30, 2017, our 5.75% Series U preferred shares, with a par value of $230.0 million wereand Series Y preferred shares, with a coupon rate of 5.20%, at a par value of $200.0 million are redeemable at par. Redemptionin September 2022 and December 2022, respectively. Future redemptions of such preferred sharesstock will depend upon many factors, including theavailable cash and our cost of capital. None ofRefer to Note 9 to our consolidated financial statements or more information on our preferred securities are redeemable at the option of the holders.Investment in and Advances to Unconsolidated Joint Venture: We expect to invest an additional $9.8 million in the Joint Venture, in order to fund completion of the Highgate Development. We do not expect any significant further investment necessary following completion.Acquisitions of real estate facilities: Refer to “Business Overview—Acquisition of Real Estate Facilities” above for a discussion of our recent acquisitions.We have acquired real estate facilities in the past, and we continue to seek to acquire additional real estate facilities,facilities; however, there is significant competition to acquire existing facilities in our markets and there can be no assurance as to the levelvolume of facilities we may acquire.42Development of real estate facilities:Refer to “Business Overview—Development or Redevelopment of Real Estate Facilities” above for a discussion of our recently completed developments.As noted above,of June 30, 2022, we were in the process of developing an approximately 83,000 square foot multi-tenant industrial building at our 212 Business Park located in Kent, Washington. During the quarter ended June 30, 2022, $1.5 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $10.7 million of the estimated $17.1 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the 212 Business Park development is projected to be $18.6 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $3.7 million that will be paid to various contractors as the project is completed.As of June 30, 2022, we were in the process of developing an additional 123,000approximately 17,000 square foot multi-tenant industrial building at our Boca Commerce Park, located withinin Boca Raton, Florida. During the quarter ended June 30, 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 million of the estimated $4.2 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the Boca Commerce Park development is projected to be $4.8 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $0.8 million that will be paid to various contractors as the project is completed.In August 2020, we entered into the Brentford Joint Venture for the purpose of developing a second multifamily property, Brentford at The Mile, a planned 411-unit multifamily apartment complex. We contributed the Brentford Parcel at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of June 30, 2022Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding land cost. As of June 30, 2022, the development cost incurred was $77.2 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel. As of June 30, 2022, we have contractual construction commitments totaling $20.8 million that we are seekingwill be paid to develop into another multi-family complex. There can be no assurancevarious contractors as to the timing or amount of any investment that may occur; however, we do not expect to incur any significant development costs on this potential project until at least December 2018.Repurchase of Common Stock: The Board has approved a common stock repurchase program and we may in the future acquire our shares under the program. As of June 30, 2022, management has the authorization to repurchase an additional 1,614,721 shares. No shares of common stock were repurchased under the board-approved common stock repurchase program during the ninethree and six months ended SeptemberJune 30, 2017 or the year ended December 31, 2016. As of September 30, 2017, management has the authorization2022. The Company does not expect to repurchase an additional 1,614,721 shares. However, we have no plans at this timeshares prior to repurchase additional shares. Requirement to Pay Distributions:For all periods presented herein, we have electedOur election to be treatedtaxed as a REIT, as defined inby the Code.Code, applies to all periods presented herein. As a REIT, we do not incur U.S. federal corporate income tax on our REIT“REIT taxable income (generally, net rents and gains from real property, dividends and interest)income” that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we continue to meet certain organizational and operational rules.requirements. We believe we have met these requirements in all periods presented herein, and we expect towe will continue to elect and qualify as a REIT.During the first quarter of 2017, the Board increased our quarterly dividend from $0.75 per common share to $0.85 per common share, which is an increase of $0.10 or 13.3% over the previous quarter’s distribution.We paid REIT qualifying distributions of $107.1$38.6 million ($37.89.6 million to preferred shareholdersstockholders and $69.4$29.0 million to common shareholders) and $102.4 million ($41.5 million to preferred shareholders and $60.9 million to common shareholders)stockholders) during the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.Our consistent, long-term dividend policy has been to distributeset dividend distribution amounts based on our taxable incomeincome.On July 8, 2022, the Company announced that, in orderaccordance with the Merger Agreement, the Board declared (i) a prorated quarterly cash dividend on the Company’s common stock equal $0.216848 per share and (ii) a cash dividend of $5.25 per share of the Company’s common stock (the “Closing Cash Dividend), each payable immediately before the effective time of the Partnership Merger, to maintain our REIT status. Future quarterly distributions with respectholders of record as of the close of business on the business day immediately preceding the closing of the Mergers and contingent upon the approval of the Company Merger by the Company’s stockholders, the satisfaction or waiver of the other conditions to the common shares will continue to be determined based upon our REIT distribution requirementsMergers, and the Merger Agreement not having been terminated. The Closing Cash Dividend will be funded with cash provideddesignated, to the maximum extent permitted by operating activities.applicable law, as a “capital gains dividend” under the Code. The per share merger consideration will be reduced by the per share amount of such Closing Cash Dividend. Refer to Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for additional information regarding the Merger.3343Core Funds from OperationsFunds from Operations (“FFO”) and FFO per share areis a non-GAAP measuresmeasure defined by the National Association of Real Estate Investment Trusts and areis considered a helpful measuresmeasure of REIT performance by REITs and many REIT analysts. FFO represents GAAP net income before real estate depreciation and amortization expense, gains or losses fromon sales of operating properties and land and impairment charges on real estate assets.We also present Core FFO and Funds Available for Distribution (“FAD”) which are excluded because they are based upon historical real estate costsboth also non-GAAP measures. The Company defines Core FFO as FFO excluding the impact of (i) income allocated to preferred stockholders to the extent redemption value exceeds the related carrying value and assume that building values diminish ratably over time, while we believe that real estate values fluctuate due(ii) other nonrecurring income or expense items as appropriate. FAD represents Core FFO adjusted to market conditions.(i) deduct recurring capital improvements and capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expense items such as amortization of deferred rent receivable and stock compensation expense.FFO for the three and six months ended June 30, 2022 was $1.68 per share and $3.33 per share, representing a 4.0% and 2.9% decrease from the same periods in 2021.The decrease in FFO per share representsfor the three months ended June 30, 2022 was due to Merger related costs of $6.1 million and higher general and administrative expenses. The decrease in FFO allocablewas partially offset by lower preferred distributions in the second quarter due to commonthe Series W preferred stock redemption in Q4 2021, and dilutive shares, divided by aggregate common and dilutive shares. FFO andhigher NOI as described above.The decrease in FFO per share are notfor the six months ended June 30, 2022 was due to the above-mentioned Merger costs of $6.1 million, a substituteone-time cash payment of $6.6 million to the former Chief Executive Officer ("CEO") for RSUs and a $0.1 million cash payment for COBRA coverage reimbursement, in accordance with his separation agreement, partially offset by a $0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net income or earningsof dividend forfeiture expense, and higher general and administrative expenses. The decrease in FFO was partially offset by lower preferred distributions due to the Series W preferred stock redemption in Q4 2021, and higher NOI as described above.Core FFO for the three and six months ended June 30, 2022 was $1.85 per share.share and $3.68, per share representing a 4.5% and 7.0% increase from the same periods in 2021.Core FFO is notfor the three and six months ended June 30, 2022 excludes the impact of the Merger related costs of $6.1 million and the a substituteone-time cash payment of $6.7 million to the former CEO, which consists of a $6.6 million cash payment for GAAPRSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by $0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes investing and financing activities presented on our consolidated statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful.44The following table reconciles from net income allocable to common shareholdersstockholders to FFO, Core FFO and FAD as well as net income per share to FFO per share and Core FFO per share (amounts in thousands, except per share data):18,138 19,718 69,275 50,017 (1,209) (3,865) 23,759 24,631 70,465 74,886 483 587 4,866 5,315 18,610 13,495 137 128 582 387 47,383 49,792 154,445 138,785 27,226 27,103 27,192 27,076 7,305 7,305 7,305 7,305 179 268 188 256 201 98 207 90 34,911 34,774 34,892 34,727 0.66 0.72 2.53 1.84 (0.03) (0.11) 0.70 0.71 2.04 2.16 1.36 1.43 4.43 4.00 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Adjustments Gain on sale of real estate facilities (61,842) (19,193) (118,801) (19,193) Depreciation and amortization 22,799 22,514 45,931 45,499 Net income allocable to noncontrolling interests 20,388 12,094 39,437 19,505 Net income allocable to restricted stock unit holders 475 314 998 478 FFO allocated to joint venture partner (33) (18) (56) (45) FFO allocable to diluted common stock and units58,864 61,306 116,579 119,725 Acquisition and merger costs 6,147 — 6,147 — CEO cash payment for RSUs net of reversal of stock compensation — — 6,108 — Maryland reincorporation costs — 510 — 510 Core FFO allocable to diluted common stock and units $ 65,011 $ 61,816 $ 128,834 $ 120,235 FAD FFO allocable to diluted common stock and units $ 58,864 $ 61,306 $ 116,579 $ 119,725 Adjustments: Recurring capital improvements (3,055) (3,638) (4,611) (4,183) Tenant improvements (5,837) (3,849) (8,735) (6,254) Capitalized lease commissions (1,620) (1,430) (2,920) (3,160) Total recurring capital expenditures for assets sold (139) (542) (734) (1,261) Cash paid for taxes in lieu of stock upon vesting of restricted stock units (387) (5) (1,318) (3,202) Non-cash rental income (1)(1,015) (183) (2,172) (1,490) Non-cash stock compensation expense 2,000 2,301 2,940 4,081 FAD allocable to diluted common stock and units 48,811 53,960 99,029 104,249 Weighted average outstanding Common stock 27,630 27,531 27,618 27,513 Operating partnership units 7,305 7,305 7,305 7,305 Restricted stock units 39 32 39 35 Common stock equivalents 92 101 89 98 Total diluted common stock and units 35,066 34,969 35,051 34,951 Reconciliation of Earnings per share to FFO per share Net income per common stock—diluted $ 2.78 $ 1.65 $ 5.38 $ 2.66 Gain on sale of real estate facilities (1.76) (0.55) (3.39) (0.55) Depreciation and amortization expense 0.65 0.64 1.31 1.31 Net income allocated to restricted stock unit holders 0.01 0.01 0.03 0.01 FFO per share $ 1.68 $ 1.75 $ 3.33 $ 3.43 Acquisition and merger costs 0.17 — 0.17 — CEO cash payment for RSUs net of reversal of stock compensation — — 0.18 — Maryland reincorporation costs — 0.01 — 0.01 Core FFO per share $ 1.85 $ 1.77 $ 3.68 $ 3.44 _______________(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.We also present “Corebelieve FFO, per share,” a non-GAAP measure that represents FFO per share excluding the net impact of (i) Preferred Redemption Allocation, (ii) separation settlement payments, as well as charges or reversals related to stock based compensation, due to the departure of senior executives and (iii) certain other non-cash and/or nonrecurring income or expense items. We review Core FFO, per shareand FAD assist investors in analyzing and comparing the operating and financial performance of a company’s real estate from period to evaluate our ongoing operating performance, and we believe it is used by investors and REIT analysts in a similar manner. However,period. FFO, Core FFO, per share isand FAD are not a substitutesubstitutes for GAAP net income per share. Becauseincome. In addition, other REITs may not compute FFO, Core FFO, per share in the same manner as we do, may not use the same terminology or may not present such a measure, Core FFO per share may not be comparable among REITs.and FAD differently, which could inhibit comparability.3445The following table reconciles FFO per share to Core FFO per share:1.36 1.43 4.43 4.00 0.19 0.19 (0.01) (0.01) 0.05 0.01 0.01 (0.01) (0.01) 1.54 1.43 4.61 4.05 Off-Balance Sheet Arrangements: The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources.Contractual Obligations: As of September 30, 2017, the Company is scheduled to pay cash dividends of $41.4 million per year on its preferred equity outstanding (excluding 8,800,000 depositary shares of Series T Preferred Stock which are scheduled to be redeemed on October 30, 2017). Dividends are paid when and if declared by the Company’s Board and accumulate if not paid. Shares of preferred equity are redeemable by the Company in order to preserve its status as a REIT and are also redeemable five years after issuance, but are not redeemable at the option of the holder.Our significant contractual obligations as of September 30, 2017 and their impact on our cash flows and liquidity are summarized below (in thousands):12,681 12,681 9,752 9,752 282 145 69 68 22,715 22,578 69 68 ____________________________(a)Represents transaction costs, including tenant improvements and lease commissions, which we are committed to under the terms of executed leases.(b)Represents future expected loan advances to the Joint Venture under contract at September 30, 2017.(c)Represents future contractual payments on land under various operating leases.To limit the Company’s exposure to market risk, the Company principally finances its operations and growth with permanent equity capital consisting of either common or preferred stock. The Company had no debt outstanding as of SeptemberJune 30, 2017.Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to variable interest rates. See Notes 2 and 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the terms, valuations and approximate principal maturities of the Company’s indebtedness, including the Credit Facility. Based on borrowing rates currently available to the Company, the difference between the carrying amount of debt and its fair value is insignificant.35The Company’s management, with the participation of the Company’s Chief Executive Officer who is also serving as actingand Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of SeptemberJune 30, 2017.2022. These controls and procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and communicated to management. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of SeptemberJune 30, 2017,2022, the Company’s Chief Executive Officer who is also serving as actingand Chief Financial Officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.There have not been any changes in the Company’sour internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.46ITEM 1. LEGAL PROCEEDINGSThe Company currently is not subject to any material litigationlegal proceedings other than ordinary routine litigation and administrative proceedings arising in the ordinary course ofincidental to its business.ITEM 1A. RISK FACTORSThere have been no material changesIn addition to the risk factors includedother information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.The Merger may not be completed on the terms or timeline currently contemplated or at all.The consummation of the Merger is subject to certain conditions. While it is currently expected that the Merger will close on or around July 20, 2022, there can be no assurance that such conditions will be satisfied in a timely manner or at all, or that a development will not transpire that could delay or prevent these conditions from being satisfied. If the Merger is not consummated for any reason, the trading price of our common stock may significantly decline to the extent that the market price of the common stock reflects positive market assumptions that the Merger will be completed and the related benefits will be realized. We may also be subject to additional risks if the Merger is not completed, including:a.the obligation to pay a termination fee (as described below);b.the obligation to pay significant transaction costs, such as legal, accounting and financial advisory costs that are not contingent on closing; andc.reputational harm including relationships with customers and business partners due to the adverse perception of any failure to successfully complete the Merger.If the Merger Agreement is terminated we may be required to pay significant termination fees.Subject to certain conditions set forth in the Merger Agreement, we may terminate the Merger Agreement. In certain cases, as set forth in the Merger Agreement, upon terminating the Merger Agreement we would be required to pay a termination fee equal to $220,000,000 if the Merger Agreement is terminated in certain specified circumstances.The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company or could result in a competing acquisition proposal being at a lower price than it might otherwise be.The Merger Agreement contains provisions that, subject to exceptions, restrict the Company’s ability to solicit or negotiate any alternative acquisition proposal. Upon termination of the Merger Agreement under circumstances relating to an alternative acquisition proposal, the Company may be required to pay a termination fee of up to $220 million. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company’s business from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to pay consideration with a higher per share cash value than the market value proposed to be received or realized in the Merger, or might cause a potential competing acquirer to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and other costs that may become payable in certain circumstances under the Merger Agreement.Our business may be adversely impacted by the Merger prior to consummation.The pending Merger could adversely affect our business and operations. For example, the pending Merger may make it difficult for us to retain and attract talented executives and employees and may distract our workforce and management team. Some of our tenants and business partners may defer decisions with respect to transactions with us as a result of the pending Merger. In addition, due to operating restrictions in the Merger Agreement, the Company may be unable, during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.An adverse judgment in any litigation that may be filed to challenge the Merger may prevent the transaction from becoming effective or from becoming effective within the expected timeframe.The Company is subject to stockholder lawsuits challenging the Merger and such suits seek, among other things, to enjoin us from proceeding with the stockholder vote on the Merger. No assurance can be made as to the outcome of these47and other similar lawsuits, including the amount of costs associated with defending any of these claims or any other liabilities that may be incurred in connection with the litigation of any of these claims. If plaintiffs are successful in obtaining an injunction prohibiting completion the Merger on the agreed-upon terms, such an injunction may delay the completion of the transaction in the expected timeframe, or may prevent the transaction from being completed altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and diverts management’s attention and resources, which could adversely affect the operation of our business.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe Company’s Board of Directors has authorized the repurchase, from time to time, of up to 6.5 million shares of the Company’s common stock on the open market or in privately negotiated transactions. The authorization has no expiration date. Purchases will be made subject to market conditions and other investment opportunities available to the Company.During the threesix months ended SeptemberJune 30, 2017,2022, there were no shares of the Company’s common stock repurchased. As of SeptemberJune 30, 2017,2022, 1,614,721 shares remain available for purchase under the program.See Note 9 to the consolidated financial statements for additional information on repurchases of equity securities.48ITEM 6. EXHIBITSExhibits requiredExhibits Number Description Exhibit 3.1 Exhibit 10.1 Exhibit 10.2 Exhibit 10.3 Exhibit 31.1 † Exhibit 31.2 † Exhibit 32.1 † Exhibit 101.INS Inline XBRL Instance Document. Filed herewith. Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema. Filed herewith. Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith. Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith. Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith. Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase. Filed herewith. Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). *Denotes management contract or compensatory plan agreement or arrangement.* * Pursuant to Item 601601(a)(5) of Regulation S-K, are filed herewithcertain schedules and exhibits have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or incorporated hereinexhibit to the Securities and Exchange Commission upon request by referencethe Securities and are listed in the attached Exhibit Index which is incorporated herein by reference.Exchange Commission.3649SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Dated: July 19, 2022 Dated: October 27, 2017Maria R. HawthorneMaria R. HawthornePresident and Chief ExecutiveFinancial OfficerPrincipal Executive Officer and Principal Financial Officer)3750EXHIBIT INDEXExhibitsExhibit 3.1Exhibit 4.1Exhibit 10.1Exhibit 10.2Exhibit 12Exhibit 31.1Exhibit 32.1Exhibit 101.INSXBRL Instance Document. Filed herewith.Exhibit 101.SCHXBRL Taxonomy Extension Schema. Filed herewith.Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase. Filed herewith.Exhibit 101.DEFXBRL Taxonomy Extension Definition Linkbase. Filed herewith.Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase. Filed herewith.Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase. Filed herewith.38