UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


S	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended ~~March 31,~~June 30, 2020
	or
£	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to

Commission File Number 1-10709

PS BUSINESS PARKS, INC.

(Exact name of registrant as specified in its charter)

California	95-4300881
(State or Other Jurisdiction	(I.R.S. Employer
of Incorporation)	Identification Number)

701 Western Avenue, Glendale, California 91201-2349

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (818) 244-8080

Securities registered pursuant to Section 12(b) of the Act:


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 5.200% Cum Pref Stock, Series W, $0.01 par value	PSBPrW	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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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. £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

As of ~~April 27,~~July 31, 2020, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was ~~27,479,439.~~27,482,494.

Table of Contents

PS BUSINESS PARKS, INC.

INDEX



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of ~~March 31,~~June 30, 2020 (unaudited) and December 31, 2019	3
Consolidated statements of income (unaudited) for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	4
Consolidated statements of equity (unaudited) for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	5
Consolidated statements of cash flows (unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019	67
Notes to consolidated financial statements (unaudited)	78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3641
Item 4. Controls and Procedures	3641
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3641
Item 1A. Risk Factors	3742
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3742
Item 6. Exhibits	3843

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
ASSETS

Cash and cash equivalents	$	87,874	$	62,786	$	98,841	$	62,786

Real estate facilities, at cost
Land		857,758		846,635		855,542		844,419
Buildings and improvements		2,214,861		2,206,134		2,220,562		2,203,308
		3,072,619		3,052,769		3,076,104		3,047,727
Accumulated depreciation		(1,181,660)		(1,159,769)		(1,201,821)		(1,158,489)
		1,890,959		1,893,000		1,874,283		1,889,238
Properties held for sale, net		—		11,502		3,716		15,264
Land and building held for development, net		26,216		28,110		29,899		28,110
		1,917,175		1,932,612		1,907,898		1,932,612
Rent receivable		2,903		1,392		2,779		1,392
Deferred rent receivable		33,747		32,993		36,204		32,993
Other assets		12,317		16,660		10,758		16,660
Total assets	$	2,054,016	$	2,046,443	$	2,056,480	$	2,046,443

LIABILITIES AND EQUITY

Accrued and other liabilities	$	78,644	$	84,632	$	84,185	$	84,632
Total liabilities		78,644		84,632		84,185		84,632
Commitments and contingencies
Equity
PS Business Parks, Inc.’s shareholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized,
37,790 shares issued and outstanding at ($944,750 aggregate
liquidation preference) at March 31, 2020
liquidation preference) June 30, 2020
and December 31, 2019		944,750		944,750		944,750		944,750
Common stock, $0.01 par value, 100,000,000 shares authorized,
27,477,303 and 27,440,953 shares issued and outstanding at
March 31, 2020 and December 31, 2019, respectively		274		274
27,481,486 and 27,440,953 shares issued and outstanding at
June 30, 2020 and December 31, 2019, respectively						274		274
Paid-in capital		734,091		736,986		735,129		736,986
Accumulated earnings		76,739		63,666		73,524		63,666
Total PS Business Parks, Inc.’s shareholders’ equity		1,755,854		1,745,676		1,753,677		1,745,676
Noncontrolling interests		219,518		216,135		218,618		216,135
Total equity		1,975,372		1,961,811		1,972,295		1,961,811
Total liabilities and equity	$	2,054,016	$	2,046,443	$	2,056,480	$	2,046,443

See accompanying notes.

Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)



	For The Three Months				For the Three Months				For the Six Months
	Ended March 31,				Ended June 30,				Ended June 30,
	2020		2019		2020		2019		2020		2019

Rental income	$	106,216	$	107,825	$	100,559	$	107,782	$	206,775	$	215,607

Expenses
Cost of operations		31,263		33,593		30,131		31,460		61,394		65,053
Depreciation and amortization		26,619		24,875		22,963		24,768		49,582		49,643
General and administrative		3,323		3,233		3,004		2,827		6,327		6,060
Total operating expenses		61,205		61,701		56,098		59,055		117,303		120,756

Interest and other income		557		618		225		764		782		1,382
Interest and other expense		(161)		(167)		(203)		(118)		(364)		(285)
Gain on sale of real estate facility		19,621		—		—		—		19,621		—
Net income		65,028		46,575		44,483		49,373		109,511		95,948
Allocation to noncontrolling interests		(11,092)		(7,027)		(6,795)		(7,623)		(17,887)		(14,650)
Net income allocable to PS Business Parks, Inc.		53,936		39,548		37,688		41,750		91,624		81,298
Allocation to preferred shareholders		(12,046)		(12,959)		(12,047)		(12,959)		(24,093)		(25,918)
Allocation to restricted stock unit holders		(275)		(268)		(119)		(212)		(394)		(480)
Net income allocable to common shareholders	$	41,615	$	26,321	$	25,522	$	28,579	$	67,137	$	54,900

Net income per common share
Basic	$	1.52	$	0.96	$	0.93	$	1.04	$	2.44	$	2.00
Diluted	$	1.51	$	0.96	$	0.93	$	1.04	$	2.44	$	2.00

Weighted average common shares outstanding
Basic		27,448		27,373		27,479		27,426		27,464		27,400
Diluted		27,550		27,479		27,560		27,532		27,557		27,505

See accompanying notes.

Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in thousands, except share data)

(Unaudited)



											Total PS																Total PS
											Business Parks,																Business Parks,
For the three months ended	Preferred Stock			Common Stock			Paid-in		Accumulated		Inc.’s Shareholders’		Noncontrolling		Total		Preferred Stock			Common Stock			Paid-in		Accumulated		Inc.’s Shareholders’		Noncontrolling		Total
March 31, 2020	Shares	Amount		Shares	Amount		Capital		Earnings		Equity		Interests		Equity
Balances at December 31, 2019	37,790	$	944,750	27,440,953	$	274	$	736,986	$	63,666	$	1,745,676	$	216,135	$	1,961,811
June 30, 2020																	Shares	Amount		Shares	Amount		Capital		Earnings		Equity		Interests		Equity
Balances at March 31, 2020																	37,790	$	944,750	27,477,303	$	274	$	734,091	$	76,739	$	1,755,854	$	219,518	$	1,975,372
Issuance of common stock in
connection with stock-based
compensation	—		—	36,350		—		—		—		—		—		—	—		—	4,183		—		259		—		259		—		259
Stock compensation, net	—		—	—		—		760		—		760		—		760	—		—	—		—		784		—		784		—		784
Cash paid for taxes in lieu of
shares upon vesting of
restricted stock units	—		—	—		—		(3,655)		—		(3,655)		—		(3,655)	—		—	—		—		(5)		—		(5)		—		(5)
Net income	—		—	—		—		—		53,936		53,936		11,092		65,028	—		—	—		—		—		37,688		37,688		6,795		44,483
Distributions
Preferred stock (Note 8)	—		—	—		—		—		(12,046)		(12,046)		—		(12,046)	—		—	—		—		—		(12,047)		(12,047)		—		(12,047)
Common stock ($1.05 per share)	—		—	—		—		—		(28,817)		(28,817)		—		(28,817)	—		—	—		—		—		(28,856)		(28,856)		—		(28,856)
Noncontrolling interests—
Common Units	—		—	—		—		—		—		—		(7,671)		(7,671)	—		—	—		—		—		—		—		(7,670)		(7,670)
Joint Venture	—		—	—		—		—		—		—		(38)		(38)	—		—	—		—		—		—		—		(25)		(25)
Balances at March 31, 2020	37,790	$	944,750	27,477,303	$	274	$	734,091	$	76,739	$	1,755,854	$	219,518	$	1,975,372
Balances at June 30, 2020																	37,790	$	944,750	27,481,486	$	274	$	735,129	$	73,524	$	1,753,677	$	218,618	$	1,972,295

For the three months ended
March 31, 2019
Balances at December 31, 2018	38,390	$	959,750	27,362,101	$	274	$	736,131	$	69,207	$	1,765,362	$	218,091	$	1,983,453
June 30, 2019
Balances at March 31, 2019																	38,390	$	959,750	27,417,909	$	274	$	732,955	$	67,059	$	1,760,038	$	216,237	$	1,976,275
Issuance of common stock in
connection with stock-based
compensation	—		—	55,808		—		405		—		405		—		405	—		—	11,847		—		304		—		304		—		304
Stock compensation, net	—		—	—		—		703		—		703		—		703	—		—	—		—		706		—		706		—		706
Cash paid for taxes in lieu of
shares upon vesting of
restricted stock units	—		—	—		—		(5,494)		—		(5,494)		—		(5,494)	—		—	—		—		(6)		—		(6)		—		(6)
Net income	—		—	—		—		—		39,548		39,548		7,027		46,575	—		—	—		—		—		41,750		41,750		7,623		49,373
Distributions
Preferred stock (Note 8)	—		—	—		—		—		(12,959)		(12,959)		—		(12,959)	—		—	—		—		—		(12,959)		(12,959)		—		(12,959)
Common stock ($1.05 per share)	—		—	—		—		—		(28,737)		(28,737)		—		(28,737)	—		—	—		—		—		(28,801)		(28,801)		—		(28,801)
Noncontrolling interests—
Common Units	—		—	—		—		—		—		—		(7,671)		(7,671)	—		—	—		—		—		—		—		(7,670)		(7,670)
Joint Venture																	—		—	—		—		—		—		—		(45)		(45)
Adjustment to noncontrolling interests—
common units in the OP	—		—	—		—		1,210		—		1,210		(1,210)		—	—		—	—		—		(182)		—		(182)		182		—
Balances at March 31, 2019	38,390	$	959,750	27,417,909	$	274	$	732,955	$	67,059	$	1,760,038	$	216,237	$	1,976,275
Balances at June 30, 2019																	38,390	$	959,750	27,429,756	$	274	$	733,777	$	67,049	$	1,760,850	$	216,327	$	1,977,177

‎

See accompanying notes.

Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in thousands, except share data)

(Unaudited)



											Total PS
											Business Parks,
For the six months ended	Preferred Stock			Common Stock			Paid-in		Accumulated		Inc.’s Shareholders’		Noncontrolling		Total
June 30, 2020	Shares	Amount		Shares	Amount		Capital		Earnings		Equity		Interests		Equity
Balances at December 31, 2019	37,790	$	944,750	27,440,953	$	274	$	736,986	$	63,666	$	1,745,676	$	216,135	$	1,961,811
Issuance of common stock in
connection with stock-based
compensation	—		—	40,533		—		259		—		259		—		259
Stock compensation, net	—		—	—		—		1,544		—		1,544		—		1,544
Cash paid for taxes in lieu of
shares upon vesting of
restricted stock units	—		—	—		—		(3,660)		—		(3,660)		—		(3,660)
Net income	—		—	—		—		—		91,624		91,624		17,887		109,511
Distributions
Preferred stock (Note 8)	—		—	—		—		—		(24,093)		(24,093)		—		(24,093)
Common stock ($2.10 per share)	—		—	—		—		—		(57,673)		(57,673)		—		(57,673)
Noncontrolling interests—
Common Units	—		—	—		—		—		—		—		(15,341)		(15,341)
Joint Venture	—		—	—		—		—		—		—		(63)		(63)
Balances at June 30, 2020	37,790	$	944,750	27,481,486	$	274	$	735,129	$	73,524	$	1,753,677	$	218,618	$	1,972,295

For the six months ended
June 30, 2019
Balances at December 31, 2018	38,390	$	959,750	27,362,101	$	274	$	736,131	$	69,207	$	1,765,362	$	218,091	$	1,983,453
Issuance of common stock in
connection with stock-based
compensation	—		—	67,655		—		709		—		709		—		709
Stock compensation, net	—		—	—		—		1,409		—		1,409		—		1,409
Cash paid for taxes in lieu of
shares upon vesting of
restricted stock units	—		—	—		—		(5,500)		—		(5,500)		—		(5,500)
Net income	—		—	—		—		—		81,298		81,298		14,650		95,948
Distributions
Preferred stock (Note 8)	—		—	—		—		—		(25,918)		(25,918)		—		(25,918)
Common stock ($2.10 per share)	—		—	—		—		—		(57,538)		(57,538)		—		(57,538)
Noncontrolling interests—
Common Units	—		—	—		—		—		—		—		(15,341)		(15,341)
Joint Venture	—		—	—		—		—		—		—		(45)		(45)
Adjustment to noncontrolling interests—
common units in the OP	—		—	—		—		1,028		—		1,028		(1,028)		—
Balances at June 30, 2019	38,390	$	959,750	27,429,756	$	274	$	733,777	$	67,049	$	1,760,850	$	216,327	$	1,977,177

See accompanying notes.

Table of Contents

PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)



	For The Three Months				For the Six Months
	Ended March 31,				Ended June 30,
	2020		2019		2020		2019
Cash flows from operating activities
Net income	$	65,028	$	46,575	$	109,511	$	95,948
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization expense		26,619		24,875		49,582		49,643
Tenant improvement reimbursement amortization, net of lease incentive amortization		(230)		(378)		(392)		(663)
Gain on sale of real estate facility		(19,621)		—		(19,621)		—
Stock compensation expense		942		971		1,873		1,889
Amortization of financing costs		137		136		273		272
Other, net		(2,868)		(7,424)		1,095		(5,920)
Total adjustments		4,979		18,180		32,810		45,221
Net cash provided by operating activities		70,007		64,755		142,321		141,169
Cash flows from investing activities
Capital expenditures to real estate facilities		(6,944)		(7,551)		(16,038)		(17,503)
Capital expenditures to land and building held for development		(1,312)		(425)		(4,995)		(993)
Acquisition of real estate facilities		(13,423)		—
Acquisition of real estate facility						(13,423)		(13,736)
Proceeds from sale of real estate facility		29,266		—		29,266		—
Net cash provided by (used in) investing activities		7,587		(7,976)
Net cash used in investing activities						(5,190)		(32,232)
Cash flows from financing activities
Payment of financing costs		(97)		(78)		(176)		(157)
Proceeds from the exercise of stock options		—		405		259		709
Cash paid for taxes in lieu of shares upon vesting of restricted stock units		(3,655)		(5,494)		(3,660)		(5,500)
Cash paid to restricted stock unit holders		(182)		(268)		(329)		(480)
Distributions paid to preferred shareholders		(12,046)		(12,959)		(24,093)		(25,918)
Distributions paid to common shareholders		(28,817)		(28,737)		(57,673)		(57,538)
Distributions paid to noncontrolling interests—common units		(7,671)		(7,671)		(15,341)		(15,341)
Distributions paid to noncontrolling interests—joint venture		(38)		—		(63)		(45)
Net cash used in financing activities		(52,506)		(54,802)		(101,076)		(104,270)
Net increase in cash and cash equivalents		25,088		1,977		36,055		4,667
Cash, cash equivalents and restricted cash at the beginning of the period		63,874		38,467		63,874		38,467
Cash, cash equivalents and restricted cash at the end of the period	$	88,962	$	40,444	$	99,929	$	43,134

Supplemental schedule of non-cash investing and financing activities
Adjustment to noncontrolling interests—common units in the OP
Noncontrolling interests—common units	$	—	$	(1,210)	$	—	$	(1,028)
Paid-in capital	$	—	$	1,210	$	—	$	1,028

See accompanying notes.

Table of Contents

PS BUSINESS PARKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~March 31,~~June 30, 2020

1. Organization and description of business

Organization

PS Business Parks, Inc. (“PSB”) was incorporated in the state of California in 1990. As of ~~March 31,~~June 30, 2020, PSB owned 79.0% 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 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 our consolidated joint venture that owns a 395-unit multifamily apartment complex in Tysons, Virginia, are collectively referred to as the “Company,” “we,” “us,” or “our.” PS also owns 7.2 million common shares and would own 41.6% (or 14.5 million shares) of the outstanding shares of the Company’s common stock if it redeemed its common partnership units for common shares.

Description of business

The 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 industrial, flex and office space. As of ~~March 31,~~June 30, 2020, the Company owned and operated 27.5 million rentable square feet of commercial space in 6 states, comprising of 97 parks and 674 buildings, and held a 95.0% interest in a 395-unit multifamily apartment complex in Tysons, Virginia. The Company also manages for a fee approximately 438,000 rentable square feet on behalf of PS.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited consolidated financial statements include the accounts of PSB and its subsidiaries, including the OP and our consolidated joint venture. 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, 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 audited 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 six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020. 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, 2019.

Consolidation and equity method of accounting

We 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 and for investment in entities that we control, we consolidate. We consolidate our joint venture that owns a 395-unit multifamily apartment complex located in Tysons, Virginia. See Note 3 for more information on this entity.

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PS, the sole limited partner in the OP, has no power to direct the activities of the OP. We are the primary beneficiary 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 interests

Noncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units and (ii) a third-party 5.0% interest in our consolidated joint venture owning a 395-unit multifamily apartment complex. See Note 6 for further information on noncontrolling interests.

Use of estimates

The 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.

Financial instruments

The 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 or unobservable 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 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.

Financial assets that are exposed to credit risk consist primarily of 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 various customers. Balances that the Company expects to become uncollectible are 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.

Carrying values of the Company’s Credit Facility (as defined in Note 5) approximate fair value. The characteristics of these financial instruments, market data and other comparative metrics utilized in determining these fair values are “Level 2” inputs.

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The following table provides a reconciliation of cash, cash equivalents and restricted cash per the consolidated statements of cash flow to the corresponding financial statement line items in the consolidated balance sheets (in thousands):



	December 31,
	2019		2018
Consolidated balance sheets
Cash and cash equivalents	$	62,786	$	37,379
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	$	63,874	$	38,467



	March 31,				June 30,
	2020		2019		2020		2019
Consolidated balance sheets
Cash and cash equivalents	$	87,874	$	39,356	$	98,841	$	42,046
Restricted cash included in
Land and building held for development, net		1,088		1,088		1,088		1,088
Cash and cash equivalents and restricted cash
at the end of the period	$	88,962	$	40,444	$	99,929	$	43,134

Real estate facilities

Real 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 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 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 their estimated useful lives.

Property held for sale or development

Real estate is classified as held for sale when the asset is being marketed for sale or subject to an eminent domain process and we expect that a sale or taking is likely to occur in the next 12 months. Real estate is classified as held for development when it is no longer used in its original form and likely that it will be developed to an alternate use. Property held for sale is not depreciated.

Intangible assets/liabilities

When we acquire real estate facilities, an intangible asset is recorded asin other assets for leases where the in-place rent is higher than market rents, and an intangible liability is recorded asin 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. As of ~~March 31,~~June 30, 2020, the value of above-market in-place rents resulted in net intangible assets of ~~$1.1 million,~~$950,000, net of ~~$10.7~~$10.8 million of accumulated amortization and the value of below-market in-place rents resulted in net intangible liabilities of ~~$2.2~~$2.0 million, net of ~~$11.6~~$11.8 million of

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accumulated amortization. As of December 31, 2019, the value of above-market in-place rents resulted in net intangible assets of $1.2 million, net of $10.6 million of accumulated amortization and the value of below-market in-place rents resulted in net intangible liabilities of $2.4 million, net of $11.4 million of accumulated amortization.

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Additionally, when we acquire real estate facilities, the value of in-place leases (i.e., customer lease-up costs) is recorded asin other assets and is amortized to depreciation and amortization expense over the respective remaining lease term. As of ~~March 31,~~June 30, 2020, the value of acquired in-place leases resulted in net intangible assets of ~~$4.8~~$4.0 million, net of ~~$5.3~~$6.0 million of accumulated amortization. As of December 31, 2019, the value of acquired in-place leases resulted in net intangible assets of $5.7 million, net of $4.1 million of accumulated amortization.

As of ~~March 31,~~June 30, 2020, the value of our right-of-use (“ROU”) ~~asset~~assets relating to our existing ground lease arrangements and the related liability, included in “other assets” on our consolidated balance sheets and the corresponding liability under “accrued and other liabilities,” was ~~$1.6~~$1.5 million, net of ~~$102,000~~$135,000 of accumulated amortization. As of December 31, 2019, the value of our ROU ~~asset~~assets and related liability relating to our ground lease arrangements was $1.6 million, net of $71,000 of accumulated amortization. These ground leases expire in 2029 and 2030 and do not have options to extend. As of ~~March 31,~~June 30, 2020, the remaining lease terms were ~~9.8~~9.3 years and ~~10.1~~9.6 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.

Evaluation of asset impairment

We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are indicators of impairment and we determine that the carrying value of the asset is not recoverable from estimated future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.

NaN impairment charges were recorded in any period presented herein.

Stock compensation

Share-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 10.

Accrued and other liabilities

Accrued and other liabilities consist primarily of rents prepaid by our customers, trade payables, property tax accruals, accrued payroll and contingent loss accruals when probable and estimable, as well as the intangible liabilities discussed above. We disclose the nature of significant unaccrued losses that are reasonably possible of occurring and, if estimable, a range of exposure. The fair value of accrued and other liabilities approximate book value due to the short period until settlement.

Other assets

Other assets are comprised primarily of prepaid expenses, as well as the intangible assets discussed above.

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Revenue recognition

We recognize the aggregate rent to be collected (including the impact of escalators and concessions) under leases ratably throughout the non-cancellable lease term on a “straight-line” basis, commencing when the customer takes control of the leased space. Cumulative straight-line rent recognized in excess of amounts billed per the lease term is presented as “deferred rent receivable” on our consolidated balance sheets. The Company presents reimbursements from customers 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 the same as base rent, and the combined single component of such leases are classified as operating leases. Accordingly, the Company recognizes such variable

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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.

We recognized revenue from our lease arrangements aggregating to $106.2 million and $107.8 million for the three months ended March 31, 2020 and 2019, respectively. This revenue consisted primarily of rental income from operating leases and the related variable lease payments resulting from reimbursements of property operating expenses of $81.6 million and $24.6 million, respectively, for the three months ended March 31, 2020 and $82.8 million and $25.0 million, respectively, for the three months ended March 31, 2019.

The Company monitors 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 deemed uncollectible.

~~Beginning in March,~~The Company recognized revenue from our lease arrangements aggregating to $100.6 million and $107.8 million for the three months ended June 30, 2020 and 2019, respectively, and $206.8 million and $215.6 million for the six months ended June 30, 2020 and 2019, respectively. This revenue consisted primarily of rental income from operating leases and the related variable lease payments resulting from reimbursements of property operating expenses. Rental income was $77.4 million and $83.8 million for the three months ended June 30, 2020 and 2019, respectively, and $159.0 million and $166.6 million for the six months ended June 30, 2020 and 2019, respectively. Variable lease payments were $23.2 million and $24.0 million for the three months ended June 30, 2020 and 2019, respectively, and $47.8 million and $49.0 million for the six months ended June 30, 2020 and 2019, respectively.

In April, 2020, the Financial Accounting Standard 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 novel coronavirus (“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 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 enforceable rights and obligations 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 ~~had~~elected to account for lease concessions in response to the COVID-19 pandemic as a ~~severe negative impact~~lease modification as 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 records rent deferrals and rent abatements in deferred rent receivable in the accompanying consolidated balance sheets and will recognize these amounts over the 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 accounts for such concession as a lease modification.

As a result of the COVID-19 pandemic, the Company entered into agreements with 346 customers (representing 9.8% of customers on ~~many~~a percentage of ~~our customers’ businesses.~~ total rental income basis) through which the Company agreed to defer an aggregate of $3.8 million and abate $874,000 of billed rental income during the three months ended June 30, 2020. The $3.8 million of deferred revenue is scheduled to be repaid over an average of 11 months. The Company also wrote-off $1.2 million of accounts receivable and $2.4 million of deferred rent receivable during the three months ended June 30, 2020. The duration and ~~extent~~severity of the negative effects ~~caused by~~of the COVID-19 pandemic toon the economy isare uncertain and ~~as such~~are likely to directly impact collectability of certain customers rent receivable balances in the ~~future is also uncertain.~~future. The Company has taken into account current tenant financial conditions which include consideration of COVID-19 in its estimation of its uncollectible accounts and deferred rents receivable at ~~March 31,~~June 30, 2020. The Company is closely monitoring the collectability of such rents and will adjust future estimations as further information is known.

Property management fees are recognized in the period earned as other income.
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Sales of real estate facilities

Sales 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.

General and administrative expense

General and administrative expense includes executive and other compensation, corporate office expenses, professional fees, ~~state income taxes~~ and other such costs that are not directly related to the operation of our real estate facilities.

Income taxes

We 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 federal income tax if we distribute substantially all of our “REIT taxable income” each year, and if we meet certain organizational and operational requirements. We believe we have met these REIT

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requirements for all periods presented herein. Accordingly, we have recorded 0 federal income tax expense related to our “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 ~~March 31,~~June 30, 2020 and December 31, 2019, we did 0t recognize any tax benefit for uncertain tax positions.

Accounting for preferred equity issuance costs

We 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 shareholders to the preferred shareholders in the amount of the original issuance costs, and we reclassify the redemption value from equity to liabilities, when we call preferred shares for redemption, with such liabilities relieved once the preferred shares are redeemed.

Net income per common share

Notwithstanding the presentation of income allocations on our consolidated statements of income, net income is allocated to (a) preferred shareholders, for distributions paid or payable, (b) preferred shareholders, to the extent redemption value exceeds the related carrying value, (c) our joint venture partner in proportion to their percentage interest in the joint venture, to the extent the consolidated joint venture produces net income or loss during the period and (d) restricted stock 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, respectively, based upon the pro-rata aggregate number of units and shares outstanding.

Basic and diluted net income per common share are each calculated based upon net income allocable to common shareholders, divided by (i) in the case of basic net income per common share, weighted average common shares and (ii) in the case of diluted income per share, weighted average common shares adjusted for the impact of stock compensation awards outstanding ~~(Note~~(see Note 10) using the treasury stock method.

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The following ~~tables set~~table sets forth ~~the calculation of~~ the components of our basic and diluted income per share that are not reflected on the face of our consolidated statements of income, including the allocation of income to common shareholders and common partnership units, the percentage of weighted average shares and common partnership units, as well as basic and diluted weighted average shares (in thousands):



	For The Three Months				For the Three Months				For the Six Months
	Ended March 31,				Ended June 30,				Ended June 30,
	2020		2019		2020		2019		2020		2019
Calculation of net income allocable to common shareholders	Calculation of net income allocable to common shareholders				Calculation of net income allocable to common shareholders
Net income	$	65,028	$	46,575	$	44,483	$	49,373	$	109,511	$	95,948
Net income allocated to
Preferred shareholders based upon distributions		(12,046)		(12,959)		(12,047)		(12,959)		(24,093)		(25,918)
Noncontrolling interests—joint venture		(17)		(3)		(13)		(10)		(30)		(13)
Restricted stock unit holders		(275)		(268)		(119)		(212)		(394)		(480)
Net income allocable to common shareholders
and noncontrolling interests—common units		52,690		33,345		32,304		36,192		84,994		69,537
Net income allocation to noncontrolling interests—
common units		(11,075)		(7,024)		(6,782)		(7,613)		(17,857)		(14,637)
Net income allocable to common shareholders	$	41,615	$	26,321	$	25,522	$	28,579	$	67,137	$	54,900

Calculation of common partnership units as a percentage of common share equivalents	Calculation of common partnership units as a percentage of common share equivalents				Calculation of common partnership units as a percentage of common share equivalents
Weighted average common shares outstanding		27,448		27,373		27,479		27,426		27,464		27,400
Weighted average common partnership units outstanding		7,305		7,305		7,305		7,305		7,305		7,305
Total common share equivalents		34,753		34,678		34,784		34,731		34,769		34,705
Common partnership units as a percentage of common
share equivalents		21.0%		21.1%		21.0%		21.0%		21.0%		21.0%

Weighted average common shares outstanding
Basic weighted average common shares outstanding		27,448		27,373		27,479		27,426		27,464		27,400
Net effect of dilutive stock compensation—based on
treasury stock method using average market price		102		106		81		106		93		105
Diluted weighted average common shares outstanding		27,550		27,479		27,560		27,532		27,557		27,505

Segment reporting

The Company has 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 the multifamily segment does not meet the quantitative thresholds necessary to require reporting as a separate segment.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements for 2019 in order to conform to the 2020 presentation, including reclassifying assets held for sale as of June 30, 2020 from “real estate facilities, at cost” totaling $3.8 million as of December 31, 2019 into “properties held for sale, net” on our consolidated balance sheets.

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3. Real estate facilities

The activity in real estate facilities for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was as follows (in thousands):



			Buildings and		Accumulated						Buildings and		Accumulated
	Land		Improvements		Depreciation		Total		Land		Improvements		Depreciation		Total
Balances at December 31, 2019(1)	$	846,635	$	2,206,134	$	(1,159,769)	$	1,893,000	$	844,419	$	2,203,308	$	(1,158,489)	$	1,889,238
Acquisition of real estate facility		11,123		2,153		—		13,276		11,123		2,153		—		13,276
Capital expenditures		—		6,947		—		6,947		—		16,202		—		16,202
Disposals ⁽¹⁾⁽²⁾		—		(357)		357		—		—		(1,085)		1,085		—
Depreciation and amortization expense		—		—		(22,248)		(22,248)		—		—		(44,463)		(44,463)
Transfer to properties held for sale		—		(16)		—		(16)		—		(16)		46		30
Balances at March 31, 2020	$	857,758	$	2,214,861	$	(1,181,660)	$	1,890,959
Balances at June 30, 2020									$	855,542	$	2,220,562	$	(1,201,821)	$	1,874,283

____________________________

⁽¹⁾Land, building and improvements, and accumulated depreciation, respectively, totaling $2.2 million, $2.8 million and $1.2 million were reclassified as of December 31, 2019 to “properties held for sale, net,” representing 2 industrial buildings totaling 40,000 square feet located in Redmond, Washington, which are subject to an eminent domain process.

⁽²⁾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, which we consolidate, that owns a 395-unit multifamily apartment complex on a 5-acre site within the Company’s 628,000 square foot office park located in Tysons, Virginia. An unrelated real estate development company (the “JV Partner”) holds the remaining 5.0%. This consolidated joint venture’s real estate assets and activities are ~~reflected~~included in the table above.

As of ~~March 31,~~June 30, 2020, we have commitments, pursuant to executed leases throughout our portfolio, to spend ~~$9.1~~$12.3 million on transaction costs, which include tenant improvements and lease commissions.

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 customer relationships, if any), intangible assets and intangible liabilities (see Note 2), based upon the relative fair value of each component, which are evaluated independently.

The 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 determined using the replacement cost approach. The amount recorded to acquired in-place leases 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.

On April 18, 2019, we acquired a multi-tenant industrial park comprised of approximately 74,000 rentable square feet in Signal Hill, California, for a total purchase price of $13.8 million, inclusive of capitalized transaction costs.

‎~~We did 0t acquire any properties during the three months ended March 31, 2019.~~

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The following table summarizes the assets acquired and liabilities assumed for the ~~three~~six months ended ~~March 31, 2020~~June 30, (in thousands):



~~Land~~	$	~~11,123~~
~~Buildings and improvements~~		~~2,153~~
~~Other assets (in-place lease value)~~		~~237~~
~~Total purchase price~~		~~13,513~~
~~Net operating assets acquired and liabilities assumed~~		~~(90)~~
~~Total cash paid~~	$	~~13,423~~



	2020		2019
Land	$	11,123	$	9,668
Buildings and improvements		2,153		3,978
Accrued and other liabilities (below-market in-place rents)		—		(212)
Other assets (in-place lease value)		237		390
Total purchase price		13,513		13,824
Net operating assets acquired and liabilities assumed		(90)		(88)
Total cash paid	$	13,423	$	13,736

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Properties Sold and Held for Sale

During the three months ended June 30, 2020, the Company reclassified 2 industrial buildings totaling 40,000 square feet located in Redmond, Washington, to properties held for sale, net, which are subject to an eminent domain process that is expected to be completed later this year.

On January 7, 2020, the Company sold a 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain of $19.6 million. The Company determined that the sale did not meet the criteria for discontinued operations presentation, as the sale of such assets did not represent a strategic shift that will have a major effect on our operations and financial results. As a result of this determination, the asset is separately presented as held for sale in the consolidated balance sheet as of December 31, 2019.

4. Leasing activity

The Company leases space in its commercial real estate facilities to customers primarily under non-cancelable leases generally ranging from one to 10 years. Future minimum rental income, excluding recovery of operating expenses that may be collectable under these leases, as of June 30, 2020 is as follows ~~as of March 31, 2020~~ (in thousands):



Remainder of 2020	$	220,153	$	150,272
2021		246,065		260,075
2022		177,583		188,923
2023		123,112		132,008
2024		85,446		90,647
Thereafter		130,794		135,493
Total(1)	$	983,153	$	957,418

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⁽¹⁾Excludes future minimum rental income from assets held for sale.

In addition to minimum rental payments, certain customers reimburse the Company for their pro rata share of specified property operating expenses. Such reimbursements amounted to ~~$24.6~~$23.2 million and ~~$25.0~~$24.0 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $47.8 million and $49.0 million for the six months ended June 30, 2020 and 2019, respectively. These variable lease payment amounts are included as rental income in the accompanying consolidated statements of income.

Leases accounting for ~~3.3%~~3.2% of total leased square footage are subject to termination options, ~~of which 1.7%~~and 1.9% of total leased square footage have termination options exercisable through December 31, 2020. 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 ~~terms~~term of the lease. The future minimum rental income in the above table assumes termination options and lease extension options are not exercised.

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5. Bank loans

We have an unsecured revolving line of credit (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Credit Facility has a borrowing limit of $250.0 million and expires January 10, 2022. The rate of interest charged on borrowings is based on LIBOR plus 0.80% to LIBOR plus 1.55% depending on the Company’s credit ratings. Currently, the Company’s rate under the Credit Facility is LIBOR plus 0.825%. In addition, the Company is required to pay an annual facility fee ranging from 0.10% to 0.30% of the borrowing limit depending on the Company’s credit ratings (currently 0.125%). We had 0 balance outstanding on our Credit Facility at ~~March 31,~~June 30, 2020 and December 31, 2019. The Company had ~~$403,000~~$345,000 and $461,000 of total unamortized loan origination costs as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, which is included in other assets in the accompanying consolidated balance sheets. The Credit Facility requires us to meet certain covenants, all of which we were in compliance with as of ~~March 31,~~June 30, 2020. Interest on outstanding borrowings is payable monthly.

6. Noncontrolling interests

Noncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units, totaling ~~$216.6~~$215.7 million and $213.2 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, and (ii) the JV Partner’s 5.0% interest in a joint venture owning a 395-unit multifamily apartment complex, totaling $2.9 million at ~~March 31,~~June 30, 2020 and December 31, 2019.

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PS OP Interests

Each common partnership unit receives a cash distribution equal to the dividend paid on our common shares and is redeemable at PS’s option.

If PS exercises its right of redemption, at PSB’s option (a) PS will receive 1 common share 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 common share (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 federal tax purposes.

In allocating net income and presenting equity, we treat the common partnership units as if converted to common shares. Accordingly, they ~~receive~~received the same net income allocation per unit as a common share totaling ~~$11.1~~$6.8 million and ~~$7.0~~$7.6 million for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $17.9 million and $14.6 million for the six months ended June 30, 2020 and 2019, respectively.

JV Partner

For the three months ended ~~March 31,~~June 30, 2020 and 2019, income of ~~$17,000~~$13,000 and ~~$3,000~~$10,000 was allocated to the JV Partner during the three months ended June 30, 2020 and 2019, respectively, and $30,000 and $13,000 for the six months ended June 30, 2020 and 2019, respectively. Distributions of ~~$38,000~~$25,000 and $45,000 were paid to the JV Partner during the three months ended ~~March 31,~~June 30, 2020 and ~~NaN were paid~~2019, respectively, and $63,000 and $45,000 during the ~~three~~six months ended ~~March 31, 2019.~~June 30, 2020 and 2019, respectively.

7. Related party transactions

We manage certain industrial, office and retail facilities in the United States for PS under either the “Public Storage” or “PS Business Parks” names (the “PS Management Agreement”). 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, which is included in “interest and other income” on our consolidated statements of income. Management fee revenues were ~~$70,000~~$63,000 and ~~$78,000~~$72,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $133,000 and $150,000 for the six months ended June 30, 2020 and 2019, respectively. We allocate certain operating expenses to PS related to the management of these properties, including payroll and other business expenses,

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totaling ~~$99,000~~$89,000 and ~~$102,000~~$91,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $188,000 and $193,000 for the six months ended June 30, 2020 and 2019, respectively.

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 provides us property management services for the self-storage component of 2 assets we own and operates 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 ~~$25,000~~$24,000 and ~~$24,000~~$25,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $48,000 and $49,000 for the six months ended June 30, 2020 and 2019, respectively. Additionally, PS allocated certain operating expenses to us related to the management of these properties totaling ~~$20,000~~$21,000 and $19,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $41,000 and $37,000 for the six months ended June 30, 2020 and 2019, respectively. These amounts are included under “cost of operations” on our consolidated statements of income.

Pursuant to a cost sharing agreement, we share certain administrative services, corporate office space, and certain other third party costs with PS which are allocated based upon fair and reasonable estimates of the cost of the services expected to be provided. We reimbursed PS ~~$186,000~~$187,000 and $168,000 for costs PS incurred on our behalf for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $373,000 and $336,000 for the six months ended June 30, 2020 and 2019, respectively. PS reimbursed us $9,000 and $10,000 for costs we incurred on their behalf for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $18,000 and $20,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company had net amounts due to PS of ~~$155,000~~$19,000 and $106,000 at ~~March 31,~~June 30, 2020 ~~and~~at December 31, 2019, respectively, for these contracts, as well as certain operating expenses paid by the Company on behalf of PS.

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8. Shareholders’ equity

Preferred stock

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the Company had the following series of preferred stock outstanding:



		Earliest Potential	Dividend	Shares	Amount
Series	Issuance Date	Redemption Date	Rate	Outstanding	(in thousands)
Series W	October, 2016	October, 2021	5.200%	7,590	$	189,750
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				37,790	$	944,750

We paid $12.0 million and $13.0 million in distributions to our preferred shareholders for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $24.1 million and $25.9 million in distributions to our preferred shareholders for the six months ended June 30, 2020 and 2019, 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 6 quarterly dividends, the holders of ~~the~~our preferred stock will have the right to elect 2 additional members to serve on the Company’s Board of Directors (the “Board”) until all events of default have been cured. At ~~March 31,~~June 30, 2020, there were 0 dividends in arrears.

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Except under certain conditions relating to the Company’s qualification as a REIT, the preferred stock is not redeemable prior to the redemption dates noted 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 depositary share, plus any accrued and unpaid dividends.

Common stock and units

We paid ~~$28.8~~$28.9 million ($1.05 per common share) and ~~$28.7~~$28.8 million ($1.05 per common share) in distributions to our common shareholders for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $57.7 million ($2.10 per common share) and $57.5 million ($2.10 per common share) in distributions to our common shareholders for the six months ended June 30, 2020 and 2019, 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 ~~March 31,~~June 30, 2020 and 2019, and $15.3 million ($2.10 per common unit) in distributions to our common unit holders for each of the six months ended June 30, 2020 and 2019.

Equity stock

The Company is authorized to issue 100.0 million shares of Equity Stock. The Articles of Incorporation provide that Equity 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. As of ~~March 31,~~June 30, 2020 and December 31, 2019, 0 equity stock had been issued.

9. Commitments and contingencies

We are a party to various legal proceedings and subject to various claims and complaints; however, we believe that the likelihood of these ~~contingencies~~proceedings resulting in a material loss to the Company, either individually or in the aggregate, is remote.

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10. Stock compensation

Under various share-based compensation plans, PSB grants non-qualified options to purchase the Company’s common shares at a price not less than fair value on the date of grant, as well as RSUs, to certain directors, officers and key employees.

The 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 options or RSUs vest.

We account for forfeitures of share-based payments as they occur by reversing previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.

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).

Stock Options

Stock options expire 10 years after the grant date and the exercise price is equal to the closing trading price of our common shares on the grant date. Employees 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 on the date of grant.

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For the three and six months ended ~~March 31,~~June 30, 2020, respectively, we recorded ~~$90,000~~$99,000 and $190,000 in compensation expense related to stock options as compared to ~~$57,000~~$61,000 and $118,000 for the same ~~period~~periods in 2019.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, ~~there were no~~18,000 stock options were granted, 4,136 options were exercised orand 0 options were forfeited. A total of 171,694 and 157,830 options were outstanding at ~~March 31,~~June 30, 2020 and December 31, ~~2019.~~2019, respectively.

Restricted Stock Units

RSUs granted 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 vesting at the rate of 20% per year. The grantee receives dividends for each outstanding RSU equal to the per share dividend received by common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax withholdings 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 shares on the date of grant.

During January, 2020, the Company entered into an annual performance-based RSU program (“2020 Incentive Program”) with certain employees of the Company. Under the Program, certain employees will be eligible to receive RSUs subject to achievement of a pre-established performance target based on growth in the Company’s net asset value per share, as computed by the Company pursuant to the terms of the 2020 Incentive Program. In the event the pre-established target is achieved, the 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 the their assessment of whether certain strategic and operational goals were accomplished in the performance period. RSUs related to the 2020 Incentive Program will be awarded on or around March 1 of the subsequent year. RSUs awarded under the 2020 Incentive Program 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.

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During the three and six months ended ~~March 31,~~June 30, 2020, management determined that it was not probable that the targets under the 2020 Incentive Program would be met due to the negative impact of the COVID-19 pandemic on the economy, and, as such, the Company did not record stock compensation expense related to the 2020 Incentive Program.

For the three and six months ended ~~March 31,~~June 30, 2020, respectively, we recorded ~~$674,000~~$638,000 and $1.3 million in compensation expense related to RSUs as compared to ~~$857,000~~$797,000 and $1.7 million for the same ~~period~~periods in 2019.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, 100 RSUs were granted, ~~61,676~~61,756 RSUs vested and ~~780~~980 RSUs were forfeited. Tax withholdings totaling $3.7 million were made on behalf of employees in exchange for ~~25,326~~25,359 common shares withheld upon vesting for the ~~three~~six months ended ~~March 31,~~June 30, 2020 resulting in the issuance of ~~36,350~~36,397 common shares. Tax withholdings totaling $5.5 million were made on behalf of employees in exchange for ~~35,371~~35,404 common shares withheld upon vesting for the ~~three~~six months ended ~~March 31,~~June 30, 2019 resulting in the issuance of ~~48,429~~48,476 common shares. A total of ~~88,492~~88,212 and 150,848 RSUs were outstanding at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

In July, 2019, the Company amended the Retirement Plan for Non-Employee Directors (the “Director Retirement Plan”), to increase the maximum shares issued upon retirement for each year served as a director from 8,000 shares to 10,000 shares of common stock. 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 ~~March 31,~~June 30, 2020, respectively, we recorded ~~$178,000~~$194,000 and $372,000 in compensation expense related to these shares as compared to ~~$57,000~~$59,000 and $116,000 for the same ~~period~~periods in 2019.

~~NaN~~In April, 2019, we issued 8,000 shares ~~were issued~~of common stock to a director upon retirement with an aggregate fair value of $1.2 million. Compensation expense for these shares was previously expensed. NaN shares of common stock were issued during the ~~three~~six months ended ~~March 31, 2020 and 2019.~~June 30, 2020.
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11. Subsequent Events

Subsequent to ~~March 31,~~June 30, 2020, the global economy has continued to be severely impacted by the COVID-19 pandemic. ~~We are actively monitoring~~As of July 31, 2020, in addition to the ~~impact~~$3.8 million of rent deferrals and $874,000 of rent abatements granted during the ~~COVID-19 pandemic, which we anticipate will negatively impact our business~~three months ended June 30, 2020, the Company deferred an additional $1.0 million of rental income for the month of July, 2020.

Subsequent to June 30, 2020, the Company entered into a new partnership agreement with the JV Partner. The new partnership was formed for the purpose of developing a 411 unit multifamily property on a parcel of land that is currently held in land and ~~results of operations~~building held for ~~our second fiscal quarter and likely beyond. The extent to which our operations~~development, net. Under the new partnership agreement, the Company will be ~~impacted by~~ the ~~COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot~~98.2% managing member with the JV Partner holding the remaining 1.8% limited partnership interest. The property is anticipated to be ~~accurately predicted.~~constructed over a period of 24 to 36 months at an estimated development cost of $110 million to $120 million excluding land cost.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-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: (i) the ~~length~~duration and severity of the COVID-19 pandemic and its impact on our ~~business;~~business and our customers; (ii) changes in general economic and business conditions, including ~~in connection with~~as a result of the economic fallout of the COVID-19 pandemic; (iii) potential regulatory actions to close our facilities or limit our ability to evict delinquent customers; (iv) decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases; ~~(iv)~~(v) tenant defaults; ~~(v)~~(vi) the effect of the recent credit and financial market conditions; ~~(vi)~~(vii) our failure to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”); ~~(vii)~~(viii) the economic health of our customers; ~~(viii)~~(ix) increases in operating costs; ~~(ix)~~(x) casualties to our properties not covered by insurance; ~~(x)~~(xi) the availability and cost of capital; ~~(xi)~~(xii) increases in interest rates and its effect on our stock price; and ~~(xii)~~(xiii) other factors discussed under the heading “Part I, Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019. 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 and Estimates:

Our accounting policies are described in Note 2 to the consolidated financial statements included in this Form 10-Q. We believe our critical accounting policies relate to income tax expense, accounting for acquired real estate facilities, accounting for customer receivable balances, including deferred rent receivable balances, impairment of long-lived assets, and accrual for uncertain and contingent liabilities, each of which are more fully discussed below.

Income Tax Expense: We have elected to be treated as a REIT, as defined in 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 requirements. 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 shown in our consolidated financial statements.

Accounting for Acquired Real Estate Facilities: We estimate the fair value of land, buildings, intangible assets and intangible liabilities for purposes of allocating purchase price. Such estimates, which are determined with the assistance of third-party valuation specialists where appropriate, are based upon many assumptions and judgments, including, but not limited to, (i) market rates of return and capitalization rates on real estate and intangible assets, (ii) building and material cost levels, (iii) estimated market rent levels, (iv) future revenue growth rates, (v) future cash flows from the real estate and the existing customer base and (vi) comparisons of the acquired underlying land parcels to recent land transactions. Others could come to materially different conclusions as to the estimated fair values, which could result in different depreciation and amortization expense, rental income, gains and losses on sale of real estate assets, and real estate and intangible assets.

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Accounting for Customer Receivable Balances, including Deferred Rent Receivable Balances: Customer receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes and other expenses recoverable from customers. Deferred rent receivables represent the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease ~~agreement.~~agreement, inclusive of rent deferrals and rent abatements granted to our customers in response to the COVID-19 pandemic. The Company writes off uncollectible customer receivable balances, including deferred rent receivable balances, in the period such receivable balances are deemed uncollectible. Significant 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 past 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 materially different.

Business Overview

Our overall operating results are impacted primarily by the performance of our existing real estate facilities, which at ~~March 31,~~June 30, 2020 were comprised of 27.5 million rentable square feet of primarily multi-tenant industrial, flex and office properties concentrated in six states and a 95.0% interest in a 395-unit multifamily apartment complex. Our portfolio of multi-tenant commercial properties comprise of 97 parks and 674 buildings and are located in markets that have experienced long-term economic growth with a particular concentration on small- and medium-size customers. Accordingly, a significant degree of management attention is paid to maximizing the cash flow from our existing real estate portfolio. Also, our strong and conservative capital structure allows us the flexibility to use debt and equity capital prudently to fund our growth, which allows us to acquire properties we believe will create long-term value. From time to time we sell properties which no longer fit 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 include incentivizing our personnel to maximize the return on investment for each lease transaction and providing a superior level of service to our customers, are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2019.

Acquisitions of Real Estate Facilities: We seek to grow our portfolio through acquisitions of facilities generally consistent with the Company’s focus on owning concentrated business parks with easily configurable space and in markets and product types with favorable long-term return potential.

On January 10, 2020, we acquired a multi-tenant industrial park comprised of approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs. The park consists of five buildings and was 100.0% occupied at acquisition with suites ranging from 1,200 to 3,000 square feet.

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The park consists of eight buildings and was 98.4% occupied at acquisition with suites ranging from 1,200 to 8,000 square feet.

We continue to seek to acquire additional facilities in our existing markets and generally in close proximity to our existing facilities; however, there can be no assurance that we will acquire additional facilities that meet our risk-adjusted return and underwriting requirements.
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Development or Redevelopment of Real Estate Facilities: We may seek to redevelop our existing real estate. We own a large contiguous block of real estate (628,000 rentable square feet on 44.5 acres of land) located within an area known as The Mile in Tysons, Virginia. In 2015, we demolished one of our existing office buildings at The Mile and built Highgate at The Mile, a 395-unit apartment complex, at a cost, including the estimated fair value of existing land, of $115.4 million.

While multifamily real estate was not a core asset class for us, we determined that multifamily real estate represented a unique opportunity and the highest and best use of that parcel. We have partnered through a joint venture with a local developer and operator of multifamily properties in order to leverage their development and operational experience. See “Analysis of Net Income – Multifamily” below and Note 3 to our consolidated financial statements for more information on ~~Highgate.~~Highgate at The Mile.

In 2019, we successfully rezoned our 628,000 square foot office park located at The Mile in Tysons, Virginia. The rezoning will allow us to develop, at our election, up to 3,000 additional multifamily units and approximately 500,000 square feet of other commercial uses. In 2017, we completed Highgate at The Mile, a 395-unit multifamily property which is owned by a joint venture that we consolidate. We are currently seeking to demolish a 123,000 square foot vacant office building in order to make possible the construction of another multifamily property on the parcel. This parcel is reflected on our consolidated balance sheets as land and building held for development. The scope and timing of the future phases of development of The Mile are subject to a variety of contingencies, including site plan approvals and building permits. Other than the various contingencies referenced above, the timing of this redevelopment project is within our control, and as such, we will commence construction when we deem appropriate based on market conditions.

Subsequent to June 30, 2020, the Company entered into a new partnership agreement with the JV Partner. The new partnership was formed for the purpose of developing a 411 unit multifamily property on a parcel of land that is currently held in land and building held for development, net. Under the new partnership agreement, the Company will be the 98.2% managing member with the JV Partner holding the remaining 1.8% limited partnership interest. The property is anticipated to be constructed over a period of 24 to 36 months at an estimated development cost of $110 million to $120 million excluding land cost.

Sales of Real Estate Facilities: We may from time to time sell individual real estate facilities based on market conditions, fit with our existing portfolio, evaluation of long-term potential returns of markets or product types, or other reasons.

During June 30, 2020, the Company reclassified two industrial buildings totaling 40,000 square feet located in Redmond, Washington, to properties held for sale, net, which are subject to an eminent domain process that is expected to be completed later this year.

On January 7, 2020, the Company completed the sale of a single-tenant building totaling 113,000 square feet in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain of $19.6 million. The building had been marketed previously as part of a broader portfolio of suburban Maryland office properties in 2019, but was excluded from the 1.3 million square feet of flex and office business parks sale which closed on October 8, 2019 and as such was the Company’s only remaining office asset at Metro Park North. The asset sold ~~has been~~was classified as held for sale as of December 31, ~~2019. The~~2019 and the operations of the facility ~~we sold is~~are presented ~~below~~ under “assets ~~sold.~~sold or held for sale.”

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Certain Factors that May Impact Future Results

Impact of COVID-19 Pandemic: ~~The~~During the first half of 2020, the COVID-19 pandemic ~~has~~ resulted in cessation, severe curtailment, or impairment of business activities in most sectors of the economy in virtually all markets we operate in, due to governmental “stay at home” orders, risk mitigation procedures, and closure of businesses not considered to be ~~“essential,~~“essential.” ~~as well as other direct and indirect impacts that may not yet be identified.~~ This has ~~already~~ resulted in a rapid and dramatic increase in unemployment in the U.S. Since it isremains unknown at this time how long the COVID-19 pandemic will continue, we cannot estimate how long these negative economic impacts will persist. In addition, due to recent increases in COVID-19 infection rates, restrictions could be, and in some cases already have been, reinstituted, and it is also possible that ~~even after the initial restrictions due to COVID-19 ease, they could be reinstituted in case of future waves of infection or if~~ additional pandemics could occur.

A portion of our customers’ businesses at each of our parks are considered “essential” businesses by local governing authorities, and thus our parks remain open to allow customers to conduct their business operations and access their space as they would have before the COVID-19 pandemic. However, theThe COVID-19 pandemic has ~~nonetheless~~ had a severe negative impact on many of our customers’ businesses. ~~In March, 2020, we billed total rent of $34.4~~Rental income that the Company agreed to defer and abate totaled $3.8 million and as$874,000, respectively, for the three months ended June 30, 2020. Subsequent to June 30, 2020, the Company deferred an additional $1.0 million of ~~March~~rental income in the month of July, 2020. Through July 31, 2020, ~~we had collected~~ approximately ~~98%~~10.5% of our ~~March~~customers, based on total rental income, had been granted rent ~~billings.~~ relief in the form of rent deferral and/or abatement.The deferred rental income, including the July, 2020 deferments, is scheduled to be repaid over an average of 11 months.

The table below ~~illustrates amounts~~represents percentages of rent collections, deferrals, and abatements by product type for monthly rental income billed ~~to our customers for~~in the months of April ~~rents and the associated amounts collected~~through July, 2020 (percentages shown are all as of ~~April 29, 2020~~ ~~(in thousands)~~July 31, 2020):

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			Percentage	Historic	Percentage of Rent
	April 2020		of April 2020	Percentage	Collected		Outstanding		Deferred		Abated ⁽¹⁾
Product Type	Rent Billings ⁽¹⁾		Rent Collected ⁽¹⁾	of Collection ⁽²⁾
April 2020
Industrial	$	18,968	85%	98%		97%		1%		1%		1%
Flex		9,367	87%	98%		97%		1%		1%		1%
Office		6,072	97%	99%		100%		0%		0%		0%
Total	$	34,407	88%	98%		98%		0%		1%		1%

May 2020
Industrial						92%		0%		5%		3%
Flex						93%		0%		5%		2%
Office						97%		0%		2%		1%
Total						93%		0%		4%		3%

June 2020
Industrial						89%		0%		8%		3%
Flex						91%		2%		4%		3%
Office						94%		0%		4%		2%
Total						90%		1%		6%		3%

July 2020 ⁽²⁾
Industrial						90%		5%		4%		1%
Flex						92%		5%		2%		1%
Office						96%		1%		3%		0%
Total						92%		4%		3%		1%

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⁽¹⁾~~April~~Abated rent includes write-offs or accounts receivable deemed uncollectable.

⁽²⁾July, 2020 rent billings and collections shown above include ~~March,~~June, 2020 rent billed on ~~March 31,~~June 30, 2020 and collected in ~~April,~~July, 2020 for leases with the U.S. Government as rent for these leases is billed in arrears.

⁽²⁾

~~Historic~~The pace of rent ~~collection percentages as measured on the last day~~collections in July, 2020 generally exceeded what was experienced in each of the ~~month are averages for the~~ months ~~of January,~~from April, 2020 through ~~March,~~June, 2020. As of July 31, 2020, 4% of July’s total billings remained uncollected after given effect

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to amounts deferred or abated, whereas uncollected total billings stood at 11%, 8%, and 5% as of April 30, 2020, May 31, 2020, and June 30, 2020, respectively. As shown in the table above, 3% of July’s billed rental income was deferred, the majority of which had been agreed to in the month of June or earlier. It is likely that additional rent relief requests will arise in future months as a result of continued effects of the COVID-19 pandemic and related responses from state and local governments, however the timing and magnitude of such future requests cannot be easily predicted due to the inherent uncertainty of the virus and its varying regional effects.

~~The majority of the~~We expect to grant additional rent deferrals for certain amounts ~~yet to be collected across all product types is attributable to customers who have contacted us seeking~~ ~~some form of~~ ~~rent relief. Approximately 20%~~ ~~of our customers, based on total monthly rent, are seeking some form of rent relief as a direct~~ currently owed and/or ~~indirect result of the COVID-19 pandemic; however, as of April 29, 2020 approximately 10% had submitted an application to us~~ for ~~rent relief. We are evaluating~~amounts billed in future months. All rent relief requests to date have been, and all future rent relief requests are expected to be evaluated on a case-by-case basis. ~~Not all requests for rent relief will be granted.~~ To the extent we grant additional requests for ~~rent relief, either in the form of rent deferral or~~ abatement, or to the extent that our customers default on their lease obligations, it will have a negative effect on our rental ~~revenue~~income and net income.

~~Since late March 2020 we have seen significant reductions in tour volumes and park activity in general from pre-COVID levels.~~ Our 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 maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and the negative effect of rent deferrals, rent abatements, and customer defaults, we believe ~~it is likely we~~the COVID-19 pandemic will ~~experience lower quarterly~~continue to adversely affect our Same Park rental income for the remaining quarters of ~~2020 when compared to our results for the three months ended March 31,~~ 2020.

On April 10, 2020, the Financial Accounting Standards Board issued a question and answer document that allows entities to elect not to evaluate whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. We did not provide nor were granted concessions in response to the pandemic in the quarter ended March 31, 2020. We are currently assessing the potential election and its impact on future financial statements.

Impact of Inflation: Although inflation has not been significant in recent years, an increase in inflation could impact our future results, and the Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company’s leases require customers to pay operating expenses, including real estate taxes, utilities and insurance, as well as increases in common area expenses, partially reducing 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. Changes in economic conditions in these regions in the future could impact our future results.

Industry and Customer Concentrations: We seek to minimize the risk of industry or customer concentrations. As of ~~March 31,~~June 30, 2020, excluding assets held for sale, leases from our top 10 customers comprised ~~8.7%~~9.4% of our annualized rental income, with only ~~one customer,~~two customers, the U.S. Government (3.3%) and Luminex Corporation (1.1%), representing more than 1%. In terms of industry concentration, ~~19.7%~~19.2% of our annualized rental income comes from business services, ~~12.9%~~12.2% from warehouse, distribution, transportation and

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logistics, and ~~11.0%~~11.5% from computer hardware, software and related services. No other industry group represents more than 10% of our annualized rental income.

Customer credit risk:Although we have historically experienced a low level of write-offs of uncollectible rents, with less than 0.4% of rental income written off in any year over the last nine years, we believe it is possible that the negative impact of the COVID-19 pandemic and its effect on our customers’ ability to pay rent in the future will result in higher levels of write-offs during the remainder of 2020 compared to historic averages. For the three months ended June 30, 2020, we agreed to defer and abate a total of $3.8 million and $874,000, respectively, to customers whose businesses were disrupted by the COVID-19 pandemic. Subsequent to June 30, 2020, we deferred an additional $1.0 million of rental income for the month of July, 2020. The deferred rental income, including the July, 2020 deferments, is scheduled to be repaid over an average of 11 months. We are closely monitoring the collectability of such rents. During the three months ended June 30, 2020, we wrote-off $1.2 million of accounts receivable and $2.4 million of deferred rent receivable we determined uncollectible. As of ~~April 27,~~July 31, 2020, we had ~~1,500~~32,000 square feet of leased space occupied by ~~one customer~~three customers that isare protected by Chapter 11 of the U.S. Bankruptcy ~~Code.~~Code, which have an aggregate remaining lease value of $574,000. From time to time, customers contact us, requesting early termination of their lease, reductions in space leased, or rent deferment or abatement, which we are not obligated to grant but will consider and grant under certain circumstances.

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Net Operating Income

We utilize net operating income (“NOI”), a measure that is not defined in accordance with U.S. generally accepted accounting principles (“GAAP”), to evaluate the operating performance of our real estate. We define NOI as rental income less ~~adjusted cost~~Adjusted Cost of ~~operations.~~Operations. Adjusted ~~cost~~Cost of ~~operations~~Operations represents cost of operations, excluding stock compensation, which can vary significantly period to period based upon the performance of the company.

We believe NOI assists investors in analyzing the performance of our real estate by excluding (i) corporate overhead (i.e., general and administrative expense) because it does not relate to the direct operating performance of our real estate (ii) depreciation and amortization expense because it does not accurately reflect changes in the fair value of our real estate and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods. The Company’s calculation of NOI 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.

See “Analysis of net income” below for reconciliations of each of these measures to their closest analogous GAAP measure from our consolidated statements of income.

Results of Operations

Operating Results Overview: Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

For the three months ended ~~March 31,~~June 30, 2020, net income allocable to common shareholders was ~~$41.6~~$25.5 million or ~~$1.51~~$0.93 per diluted share, compared to ~~$26.3~~$28.6 million or ~~$0.96~~$1.04 per diluted share for the same period in 2019. Net income was negatively affected by the COVID-19 pandemic and its impact on certain of the Company’s customers. The Company agreed to defer an aggregate of $3.8 million and abate $874,000 of revenue billed during the three months ended June 30, 2020. The Company also wrote-off $1.2 million of accounts receivable and $2.4 million of deferred rent receivable during the three months ended June 30, 2020. NOI with respect to the Company’s real estate facilities decreased $5.9 million primarily due to the previously mentioned write-offs of accounts receivable and deferred rent receivable, of which $1.1 million and $2.3 million were attributable to our Same Park (defined below) portfolio, respectively, and reduced NOI generated from assets sold during the fourth quarter of 2019 and first quarter of 2020. The decrease was partially offset by increased NOI from our Non-Same Park portfolio as a result of the timing of acquisitions that occurred during the second half of 2019.

For the six months ended June 30, 2020, net income allocable to common shareholders was $67.1 million or $2.44 per diluted share, compared to $54.9 million or $2.00 per diluted share for the same period in 2019. The increase was mainly due to a gain on sale of the office building inMontgomery County, Maryland,, during the first quarter of 2020 that did not occur in 2019 ~~combined with an increase~~ partially offset by a $5.2 million decrease in NOI with respect to the Company’s real estate ~~facilities. The increase in NOI includes a $3.2 million, or 4.7%, increase attributable~~facilities due to ~~our Same Park facilities (defined below) driven by higher rental rates combined with increased NOI from our Non-Same portfolio, partially offset by~~previously mentioned write-offs of accounts receivable and deferred rent receivable during the three months ended June 30, 2020 as well as reduced NOI generated from assets ~~sold during the fourth quarter of 2019 and first quarter of 2020.~~sold.

Analysis of Net Income

Our net income is comprised primarily of our real estate operations, depreciation and amortization expense, general and administrative expense, interest and other income, interest and other expenses and gain on sale of real estate facility.

We segregate our real estate activities into (i) same park operations, representing all operating properties acquired prior to January 1, 2018, comprising 25.7 million rentable square feet of our 27.5 million in rentable square feet at ~~March 31,~~June 30, 2020 (the “Same Park” ~~facilities)~~portfolio), (ii) non-same park operations, representing those facilities we own that were acquired after January 1, 2018 (the “Non-Same Park” ~~facilities)~~portfolio), (iii) multifamily operations and (iv) assets sold

~~Table~~ or held for sale, representing 40,000 square feet of ~~Contents~~

~~representing approximately~~industrial buildings held for sale as of June 30, 2020, 1.3 million square feet of assets sold in October, 2019, and a 113,000 square foot asset sold in January, 2020.
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The table below sets forth the various components of our net income (in thousands):



	For the Three Months					For the Three Months					For the Six Months
	Ended March 31,					Ended June 30,					Ended June 30,
	2020		2019		Change	2020		2019		Change	2020		2019		Change
Rental income
Same Park ⁽¹⁾	$	97,972	$	94,813	3.3%	$	92,657	$	94,794	(2.3%)	$	190,392	$	189,398	0.5%
Non-Same Park		5,618		2,481	126.4%		5,198		3,429	51.6%		10,816		5,910	83.0%
Multifamily		2,560		2,498	2.5%		2,488		2,475	0.5%		5,048		4,973	1.5%
Assets sold ⁽²⁾		66		8,033	(99.2%)
Assets sold or held for sale ⁽²⁾							216		7,084	(97.0%)		519		15,326	(96.6%)
Total rental income		106,216		107,825	(1.5%)		100,559		107,782	(6.7%)		206,775		215,607	(4.1%)

Cost of operations
Adjusted cost of operations ⁽³⁾
Adjusted Cost of Operations ⁽³⁾
Same Park		28,178		28,177	0.0%		26,997		26,683	1.2%		55,131		54,826	0.6%
Non-Same Park		1,782		1,143	55.9%		1,821		1,024	77.8%		3,603		2,167	66.3%
Multifamily		1,016		1,071	(5.1%)		1,002		1,002	0.0%		2,018		2,073	(2.7%)
Assets sold ⁽²⁾		13		2,896	(99.6%)
Assets sold or held for sale ⁽²⁾							45		2,456	(98.2%)		102		5,386	(98.1%)
Stock compensation expense ⁽⁴⁾		274		306	(10.5%)		266		295	(9.8%)		540		601	(10.1%)
Total cost of operations		31,263		33,593	(6.9%)		30,131		31,460	(4.2%)		61,394		65,053	(5.6%)

NOI ⁽⁵⁾
Same Park		69,794		66,636	4.7%		65,660		68,111	(3.6%)		135,261		134,572	0.5%
Non-Same Park		3,836		1,338	186.7%		3,377		2,405	40.4%		7,213		3,743	92.7%
Multifamily		1,544		1,427	8.2%		1,486		1,473	0.9%		3,030		2,900	4.5%
Assets sold ^{(2) (6)}		53		5,137	(99.0%)
Assets sold or held for sale ^{(2) (6)}							171		4,628	(96.3%)		417		9,940	(95.8%)
Stock compensation expense ⁽⁴⁾		(274)		(306)	(10.5%)		(266)		(295)	(9.8%)		(540)		(601)	(10.1%)
Depreciation and amortization expense		(26,619)		(24,875)	7.0%		(22,963)		(24,768)	(7.3%)		(49,582)		(49,643)	(0.1%)
General and administrative expense		(3,323)		(3,233)	2.8%		(3,004)		(2,827)	6.3%		(6,327)		(6,060)	4.4%
Interest and other income		557		618	(9.9%)		225		764	(70.5%)		782		1,382	(43.4%)
Interest and other expense		(161)		(167)	(3.6%)		(203)		(118)	72.0%		(364)		(285)	27.7%
Gain on sale of real estate facility		19,621		—	—		—		—	—		19,621		—	100.0%
Net income	$	65,028	$	46,575	39.6%	$	44,483	$	49,373	(9.9%)	$	109,511	$	95,948	14.1%

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⁽¹⁾Included in the calculation of Same Park rental income ~~includes~~is (a) lease buyout income of ~~$278,000~~$257,000 and ~~$177,000~~$780,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $516,000 and $957,000 for the six months ended June 30, 2020 and 2019, respectively, (b) accounts receivable write-offs of $1.1 million and $342,000 for the three months ended June 30, 2020 and 2019, respectively, and $1.1 million and $522,000 for the six months ended June 30, 2020 and 2019, respectively, and (c) deferred rent receivable write-offs of $2.3 million and $149,000 for the three months ended June 30, 2020 and 2019, respectively, and $2.3 million and $235,000 for the six months ended June 30, 2020 and 2019, respectively.

⁽²⁾Amounts for the three months ended ~~March 31,~~June 30, 2020 ~~reflect the operating~~include results related to two industrial buildings totaling 40,000 square feet reclassified to properties held for sale, net during the quarter ended June 30, 2020; amounts for the six months ended June 30, 2020 include the two industrial buildings totaling 40,000 square feet and a 113,000 square foot asset sold ~~during~~in January, 2020; amounts shown for the three and six months ended ~~March 31,~~June 30, 2019 reflect the operating results related to athe two industrial buildings totaling 40,000 square feet, the 113,000 square foot asset sold ~~during~~in 2020, and 1.3 million square feet of flex and office assets sold in October, 2019.

⁽³⁾Adjusted ~~cost~~Cost of ~~operations~~Operations excludes the impact of stock compensation expense.

⁽⁴⁾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.

⁽⁵⁾NOI represents rental income less ~~adjusted cost~~Adjusted Cost of ~~operations.~~Operations.

⁽⁶⁾NOI from ~~the asset sold in 2020~~assets held for sale was ~~$53,000~~$171,000 and ~~$617,000~~$177,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $364,000 and $352,000 for the six months ended June 30, 2020 and 2019, respectively. The remainder of the three ~~months ended March 31, 2019 remaining~~and six month NOI balances relate to assets sold during ~~2019.~~2019 and 2020.

Rental income decreased ~~$1.6~~$7.2 million and $8.8 million for the three and six months ended ~~March 31,~~June 30, 2020 as compared to the same ~~period~~periods in 2019 due primarily to write-offs of accounts receivable and deferred rent receivable

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during the ~~sale of~~three months ended June 30, 2020 and reduced rental income generated from assets sold partially offset by an increase in rental income ~~at our Same Park facilities combined with rental income~~ from our Non-Same Park ~~facilities~~portfolio acquired during the second half of 2019.

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Cost of operations decreased ~~$2.3~~$1.3 million and $3.7 million for the three and six months ended ~~March 31,~~June 30, 2020 as compared to the same ~~period~~periods in 2019 due primarily to the sale of assets partially offset by the ~~adjusted cost~~Adjusted Cost of ~~operations~~Operations incurred by our Non-Same Park ~~facilities~~portfolio acquired during the second half of 2019.

Net income decreased $4.9 million and increased ~~$18.5~~$13.6 million for the three and six months ended ~~March 31,~~June 30, 2020 as compared to the same ~~period~~periods in 2019. ~~This~~The three month decrease was due primarily to write-offs of accounts receivable and deferred rent receivable during the three months ended June 30, 2020 and reduced rental income generated from assets sold, while the six month increase was due primarily to the gain on sale of an asset in Montgomery County, Maryland during 2020 ~~combined with~~partially offset by lower ~~higher~~ NOI.

Same Park ~~Facilities~~Portfolio

We believe that evaluation of the Same Park ~~facilities provide~~portfolio 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 similar manner.

The following table summarizes the historical operating results of ~~these~~our Same Park facilities and certain statistical information related to leasing activity in the three and six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands, except per square foot data):



	For The Three Months					For the Three Months					For the Six Months
	Ended March 31,					Ended June 30,					Ended June 30,
	2020		2019		Change	2020		2019		Change	2020		2019		Change
Rental income ⁽¹⁾	$	97,972	$	94,813	3.3%	$	92,657	$	94,794	(2.3%)	$	190,392	$	189,398	0.5%

Adjusted cost of operations ⁽²⁾
Adjusted Cost of Operations ⁽²⁾
Property taxes		10,789		10,147	6.3%		10,825		10,057	7.6%		21,599		20,192	7.0%
Utilities		5,120		4,905	4.4%		4,123		4,463	(7.6%)		9,236		9,362	(1.3%)
Repairs and maintenance		5,405		5,510	(1.9%)		5,683		6,045	(6.0%)		11,080		11,551	(4.1%)
Snow removal		78		999	(92.2%)		—		34	(100.0%)		78		1,033	(92.4%)
Payroll and other expenses		6,786		6,616	2.6%		6,366		6,084	4.6%		13,138		12,688	3.5%
Total		28,178		28,177	0.0%
Total Adjusted Cost of Operations							26,997		26,683	1.2%		55,131		54,826	0.6%

NOI	$	69,794	$	66,636	4.7%	$	65,660	$	68,111	(3.6%)	$	135,261	$	134,572	0.5%

Selected Statistical Data
NOI margin ⁽³⁾		71.2%		70.3%	1.3%		70.9%		71.9%	(1.4%)		71.0%		71.1%	(0.1%)
Weighted average square foot occupancy		92.9%		94.7%	(1.9%)		92.4%		94.2%	(1.9%)		92.6%		94.5%	(2.0%)
Revenue per occupied square foot ⁽⁴⁾	$	16.42	$	15.58	5.4%	$	15.64	$	15.68	(0.3%)	$	16.02	$	15.63	2.5%
Revenue per available foot (RevPAF) ⁽⁵⁾	$	15.25	$	14.76	3.3%	$	14.45	$	14.78	(2.2%)	$	14.84	$	14.76	0.5%

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⁽²⁾Adjusted ~~cost~~Cost of ~~operations~~Operations excludes the impact of stock compensation expense.

⁽³⁾NOI margin is computed by dividing NOI by rental income.

⁽⁴⁾Revenue per occupied square foot is computed by dividing rental income ~~during~~for the period by weighted average occupied square feet ~~during~~for the same period. ~~For~~Revenue per occupied square foot for the three and six month periods ~~ended March 31, 2020 and 2019, rental income amounts have been~~is annualized.

⁽⁵⁾Revenue per ~~available square foot~~Available Square Foot (RevPAF) is computed by dividing rental income ~~during~~for the period by weighted average available square ~~feet. For~~feet for the same period. RevPAF for the three and six month periods ~~ended March 31, 2020 and 2019, rental income amounts have been~~is annualized.

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Analysis of Same Park Rental Income

Rental income for our Same Park ~~facilities increased 3.3%~~portfolio decreased 2.3% for the three months ended ~~March 31,~~June 30, 2020 as compared to the same period in 2019. The three month decrease was primarily due to a decrease in weighted average occupancy combined with previously mentioned write-offs of accounts receivable and deferred rent receivable of $1.1 million and $2.3 million, respectively. The following table details the change in Same Park rental income from Q2 2019 to Q2 2020 (in thousands):



	Q2 2020 Compared to Q2 2019
Rental income		$ Change	% Change
Base rental rate	$	3,290	3.5%
Occupancy		(1,371)	(1.4%)
Expense recovery income		(128)	(0.1%)
Fee income		(156)	(0.2%)
Lease buyout income		(523)	(0.6%)
Rent receivable write-off		(738)	(0.8%)
Deferrals and abatements		(4,503)	(4.8%)
Amortization of deferred rent receivable and other GAAP income		4,163	4.4%
Deferred rent receivable write-off		(2,171)	(2.3%)
Change in rental income	$	(2,137)	(2.3%)

Rental income for our Same Park portfolio increased 0.5% for the six months ended June 30, 2020 as compared to the same period in 2019. The six month increase was due primarily to higher rental rates charged to our customers, as revenue per occupied square foot increased ~~5.4%~~2.5% in the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to the same period in 2019, partially offset by a decrease in weighted average ~~occupancy.~~

~~Table~~occupancy and the above mentioned write-offs of ~~Contents~~

~~During the first quarter of 2020, our markets reflected conditions favorable to landlords allowing for stable occupancy as well as increasing cash rental rates, including the Northern Virginia~~accounts receivable and ~~Suburban Maryland markets, which have experienced decreasing cash rental rates over expiring cash rental rates on executed leases~~deferred rent receivable during the ~~past few years.~~three months ended June 30, 2020.

~~During~~Although we observed reductions in tour volume and park activity in general from pre-COVID levels, we executed leases on 1.7 million and 3.5 million square feet during the three and six months ended ~~March 31,~~June 30, 2020, ~~we leased approximately 1.8~~respectively, exceeding leasing production for both the three and six months ended June 30, 2019 which was 1.6 million ~~in rentable~~and 3.1 million square feet, ~~to new and existing customers at an~~respectively. Weighted average ~~of 9.5% increase in~~ cash rental ~~rates over~~rate growth on leases executed during the ~~previous rates.~~three and six months ended June 30, 2020, was 2.3% and 6.2%, respectively. Renewals of leases with existing customers represented ~~68.2%~~64.1% of our leasing activity for the ~~three~~six months ended ~~March 31,~~June 30, 2020. See “Analysis of Same Park Market Trends” below for further analysis of such data on a by market basis.

Our future revenue growth will come primarily from contractual rental increases as well as from potential increases in market rents allowing 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 ~~March 31,~~June 30, 2020 (dollars and square feet in thousands):



								Percent of									Percent of
			Rentable Square		Percent of	Annualized Rental		Annualized Rental				Rentable Square		Percent of	Annualized Rental		Annualized Rental
	Number of		Footage Subject to		Total Leased	Income Under		Income Represented		Number of		Footage Subject to		Total Leased	Income Under		Income Represented
Year of Lease Expiration	Customers		Expiring Leases		Square Footage	Expiring Leases		by Expiring Leases		Customers		Expiring Leases		Square Footage	Expiring Leases		by Expiring Leases
Remainder of 2020		1,477		3,751	15.7%	$	63,822		15.2%		1,076		2,566	10.7%	$	45,636		10.9%
2021		1,430		4,995	20.9%		86,522		20.7%		1,509		5,177	21.7%		89,073		21.2%
2022		855		4,875	20.4%		87,479		20.9%		1,020		5,002	20.9%		90,146		21.5%
2023		442		3,470	14.5%		58,327		13.9%		531		3,801	15.9%		62,651		14.9%
2024		306		2,518	10.5%		44,862		10.7%		315		2,711	11.3%		48,524		11.5%
Thereafter		172		4,261	18.0%		78,098		18.6%		230		4,652	19.5%		84,197		20.0%
Total		4,682		23,870	100.0%	$	419,110		100.0%		4,681		23,909	100.0%	$	420,229		100.0%

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Analysis of Same Park Adjusted Cost of Operations

Adjusted ~~cost~~Cost of ~~operations~~Operations for our Same Park ~~facilities remained flat~~portfolio increased 1.2% and 0.6% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, as compared to the same ~~period~~periods in the prior year. The three and six month increases were due primarily to higher property taxes partially offset by lower repairs and maintenance costs and lower utility costs. The six month increase was also partially offset by savings from snow removal ~~costs was offset by higher property tax expense and higher utility~~ costs.

Property taxes increased ~~6.3%~~7.6% and 7.0% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, as compared to the same ~~period~~periods in the prior year. ~~The increase was~~These increases were due to higher assessed values. We expect potential further property tax growth in the future due to higher assessed values.

Utilities are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utilities ~~increased 4.4%~~decreased 7.6% and 1.3% during the three and six months ended June 30, 2020, respectively, as compared to the same periods in the prior year due to a rate reduction related to adopting a renewable energy program during the three months ended ~~March 31,~~June 30, 2020 as ~~compared~~well as reduced water and electricity usage due to the ~~same period in the prior year.~~COVID-19 pandemic. It is difficult to estimate future utility costs, because weather, temperature and energy prices are volatile and not readily predictable. However, ~~as traffic at our parks has decreased due to the COVID-19 pandemic,~~ we expect that utility costs ~~may decrease~~ during the ~~remainder~~remaining quarters of 2020 ~~due~~ to ~~reduced water and electricity usage~~ ~~when~~be higher compared to our results for the ~~period~~three months ended ~~March 31, 2020.~~June 30, 2020 due to increased traffic at our parks as our customers start to resume normal operations and seasonal nature of utility costs.

Repairs and maintenance expense decreased ~~1.9%~~6.0% and 4.1% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, as compared to the same ~~period~~periods in the prior ~~year.~~year due to a reduction in general repairs and property services as a result of the COVID-19 pandemic. 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 readily predictable. ~~As a result of the COVID-19 pandemic, we~~We expect that repairs and maintenance ~~may decrease~~costs during the ~~remainder~~remaining quarters of 2020 ~~due~~ to ~~reduced scope and service usage, including but not limited to non-essential repairs, trash, janitorial, landscaping and window cleaning services,~~ ~~when~~be higher compared to our results for the ~~period~~three months ended ~~March 31, 2020.~~June 30, 2020 due to our services recommencing as our customers start to resume normal operations combined with increased security and janitorial services.

Snow removal costs decreased ~~92.2%~~92.4% during the ~~three~~six months ended ~~March 31,~~June 30, 2020 as compared to the same period in the prior year. The ~~three~~six month decrease was due to milder weather ~~during the first quarter of~~in 2020 in our Northern

~~Table of Contents~~

Virginia and Suburban Maryland markets compared to the same period in 2019. Snow removal costs are weather dependent and therefore not predictable.

~~Other~~Payroll and other expenses increased ~~2.6%~~4.6% and 3.5% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, as compared to the same ~~period~~periods in the prior year. ~~Other~~Payroll and other expenses are comprised of on site and supervisory personnel, property insurance and other expenses incurred in the operation of our properties. The three and six month ~~increase was~~increases were primarily due to an increase in our property insurance premium for the policy period June 2019 to May 2020. We expect increases in payroll and other expenses for the remainder of 2020 to be similar to the increases experienced in the ~~three~~six month period ended ~~March 31,~~June 30, 2020.

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Same Park Quarterly Trends

The following table sets forth historical quarterly data related to the operations of our Same Park ~~facilities~~portfolio for rental income, ~~adjusted cost~~Adjusted Cost of ~~operations,~~Operations, weighted average occupancy, annualized revenue per occupied square foot, and RevPAF (in thousands, except per square foot data):



	For the Three Months Ended								For the Three Months Ended
	March 31		June 30		September 30		December 31		March 31		June 30		September 30		December 31
Rental income(1)
2020	$	97,972	$	—	$	—	$	—	$	97,735	$	92,657	$	—	$	—
2019	$	94,813	$	95,016	$	95,358	$	97,636	$	94,604	$	94,794	$	95,137	$	97,415

Adjusted cost of operations ⁽¹⁾
Adjusted Cost of Operations ⁽²⁾
2020	$	28,178	$	—	$	—	$	—	$	28,134	$	26,997	$	—	$	—
2019	$	28,177	$	26,727	$	27,494	$	27,310	$	28,143	$	26,683	$	27,452	$	27,281

NOI ⁽²⁾⁽³⁾
2020	$	69,794	$	—	$	—	$	—	$	69,601	$	65,660	$	—	$	—
2019	$	66,636	$	68,289	$	67,864	$	70,326	$	66,461	$	68,111	$	67,685	$	70,134

Weighted average square foot occupancy	Weighted average square foot occupancy								Weighted average square foot occupancy
2020		92.9%		—		—		—		92.9%		92.4%		—		—
2019		94.7%		94.2%		94.7%		94.4%		94.7%		94.2%		94.7%		94.4%

Annualized revenue per occupied square foot ⁽³⁾
Revenue per occupied square foot ⁽⁴⁾									Revenue per occupied square foot ⁽⁴⁾
2020	$	16.42	$	—	$	—	$	—	$	16.40	$	15.64	$	—	$	—
2019	$	15.58	$	15.69	$	15.67	$	16.10	$	15.57	$	15.68	$	15.66	$	16.09

RevPAF ⁽⁴⁾⁽⁵⁾	RevPAF ⁽⁴⁾⁽⁵⁾								RevPAF ⁽⁴⁾⁽⁵⁾
2020	$	15.25	$	—	$	—	$	—	$	15.24	$	14.45	$	—	$	—
2019	$	14.76	$	14.79	$	14.84	$	15.20	$	14.75	$	14.78	$	14.83	$	15.19

____________________________

⁽¹⁾Included in the calculation of Same Park rental income is (a) lease buyout income of $177,000, $780,000, $183,000, $232,000, $259,000, and $257,000 for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, respectively, (b) accounts receivable write-offs of $180,000, $342,000, $321,000, $190,000, $53,000, and $1.1 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, respectively, and (c) deferred rent receivable write-offs of $86,000, $149,000, $126,000, $147,000, $0, and $2.3 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, respectively.

⁽²⁾Adjusted ~~cost~~Cost of ~~operations~~Operations excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations, which can vary significantly period to period based upon the performance of the Company.

⁽²⁾⁽³⁾NOI represents rental income less ~~adjusted cost~~Adjusted Cost of ~~operations.~~Operations.

⁽³⁾⁽⁴⁾Revenue per occupied square foot is computed by dividing rental income ~~during~~for the period by weighted average occupied square feet ~~during~~for the same period. ~~For~~Revenue per occupied square foot for the three and six month periods ~~ended March 31, 2020 and 2019, rental income amounts have been annualized.~~is annualized.

⁽⁴⁾⁽⁵⁾RevPAF is computed by dividing rental income ~~during~~for the period by weighted average available square feet ~~during~~for the same period. ~~For~~RevPAF for the three and six month periods ~~ended March 31, 2020 and 2019, rental income amounts have been~~is annualized.

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Analysis of Same Park Market Trends

The following tables set forth rental income, ~~adjusted cost~~Adjusted Cost of ~~operations,~~Operations, weighted average occupancy, annualized revenue per occupied square foot, and RevPAF data in our Same Park ~~facilities~~portfolio (in thousands, except per square foot data):



		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
Region		2020		2019	Change	2020			2019	Change

Geographic Data on Same Park

Rental income
Northern California (7.2 million feet)	$	26,550	$	26,783	(0.9%)	$	53,631	$	52,839	1.5%
Southern California (3.3 million feet)		12,682		13,542	(6.4%)		26,921		27,149	(0.8%)
Dallas (2.9 million feet)		8,146		8,681	(6.2%)		16,831		17,001	(1.0%)
Austin (2.0 million feet)		8,149		7,786	4.7%		16,468		15,414	6.8%
Northern Virginia (3.9 million feet)		17,405		18,266	(4.7%)		35,626		37,132	(4.1%)
South Florida (3.9 million feet)		10,304		10,725	(3.9%)		21,464		21,616	(0.7%)
Seattle (1.4 million feet) ⁽¹⁾		4,642		4,179	11.1%		9,526		8,363	13.9%
Suburban Maryland (1.1 million feet)		4,779		4,832	(1.1%)		9,925		9,884	0.4%
Total Same Park (25.7 million feet)		92,657		94,794	(2.3%)		190,392		189,398	0.5%

Adjusted Cost of Operations
Northern California		6,052		5,786	4.6%		12,218		11,830	3.3%
Southern California		3,349		3,491	(4.1%)		7,074		7,037	0.5%
Dallas		3,196		2,926	9.2%		6,241		5,838	6.9%
Austin		2,963		2,886	2.7%		5,922		5,610	5.6%
Northern Virginia		5,747		5,904	(2.7%)		11,964		12,986	(7.9%)
South Florida		2,960		3,002	(1.4%)		5,952		5,885	1.1%
Seattle ⁽¹⁾		1,171		1,023	14.5%		2,448		2,024	20.9%
Suburban Maryland		1,559		1,665	(6.4%)		3,312		3,616	(8.4%)
Total Same Park		26,997		26,683	1.2%		55,131		54,826	0.6%

Net operating income
Northern California		20,498		20,997	(2.4%)		41,413		41,009	1.0%
Southern California		9,333		10,051	(7.1%)		19,847		20,112	(1.3%)
Dallas		4,950		5,755	(14.0%)		10,590		11,163	(5.1%)
Austin		5,186		4,900	5.8%		10,546		9,804	7.6%
Northern Virginia		11,658		12,362	(5.7%)		23,662		24,146	(2.0%)
South Florida		7,344		7,723	(4.9%)		15,512		15,731	(1.4%)
Seattle ⁽¹⁾		3,471		3,156	10.0%		7,078		6,339	11.7%
Suburban Maryland		3,220		3,167	1.7%		6,613		6,268	5.5%
Total Same Park	$	65,660	$	68,111	(3.6%)	$	135,261	$	134,572	0.5%

Weighted average square foot occupancy
Northern California		91.0%		95.8%	(5.0%)		91.2%		96.2%	(5.2%)
Southern California		95.3%		94.7%	0.6%		95.0%		95.2%	(0.2%)
Dallas		89.7%		92.7%	(3.2%)		90.0%		92.5%	(2.7%)
Austin		93.9%		91.3%	2.8%		94.7%		91.0%	4.1%
Northern Virginia		92.8%		94.7%	(2.0%)		92.5%		94.2%	(1.8%)
South Florida		92.4%		94.5%	(2.2%)		93.2%		95.4%	(2.3%)
Seattle ⁽¹⁾		97.4%		94.9%	2.6%		98.2%		95.5%	2.8%
Suburban Maryland		89.4%		88.7%	0.8%		90.3%		88.7%	1.8%
Total Same Park		92.4%		94.2%	(1.9%)		92.6%		94.5%	(2.0%)

Revenue per occupied square foot ⁽²⁾
Northern California	$	16.12	$	15.44	4.4%	$	16.24	$	15.17	7.1%
Southern California	$	16.21	$	17.43	(7.0%)	$	17.27	$	17.38	(0.6%)
Dallas	$	12.58	$	12.96	(2.9%)	$	12.95	$	12.72	1.8%
Austin	$	17.67	$	17.38	1.7%	$	17.71	$	17.26	2.6%
Northern Virginia	$	19.15	$	19.69	(2.7%)	$	19.67	$	20.12	(2.2%)
South Florida	$	11.53	$	11.74	(1.8%)	$	11.91	$	11.72	1.6%
Seattle ⁽¹⁾	$	14.12	$	13.04	8.3%	$	14.37	$	12.98	10.7%
Suburban Maryland	$	18.63	$	18.99	(1.9%)	$	19.16	$	19.40	(1.2%)
Total Same Park	$	15.64	$	15.68	(0.3%)	$	16.02	$	15.63	2.5%

RevPAF ⁽³⁾
Northern California	$	14.66	$	14.79	(0.9%)	$	14.80	$	14.59	1.4%
Southern California	$	15.45	$	16.50	(6.4%)	$	16.40	$	16.54	(0.8%)
Dallas	$	11.29	$	12.03	(6.2%)	$	11.66	$	11.78	(1.0%)
Austin	$	16.61	$	15.87	4.7%	$	16.78	$	15.70	6.9%
Northern Virginia	$	17.77	$	18.65	(4.7%)	$	18.19	$	18.96	(4.1%)
South Florida	$	10.66	$	11.10	(4.0%)	$	11.10	$	11.18	(0.7%)
Seattle ⁽¹⁾	$	13.75	$	12.38	11.1%	$	14.11	$	12.39	13.9%
Suburban Maryland	$	16.70	$	16.88	(1.1%)	$	17.34	$	17.26	0.5%
Total Same Park	$	14.45	$	14.78	(2.2%)	$	14.84	$	14.76	0.5%

____________________________

⁽¹⁾Two industrial buildings totaling 40,000 square feet located in Redmond, Washington, have been classified as held for sale as of June 30, 2020, which are subject to an eminent domain process. As such, these buildings have been removed from Same Park results for the three and six months ended June 30, 2020 and 2019.

For The Three Months
Ended March 31,
Region
2020
2019
Change
Geographic Data on Same Park
Rental income
Northern California (7.2 million feet)
$
27,081
$
26,056
3.9%
Southern California (3.3 million feet)
14,239
13,607
4.6%
Dallas (2.9 million feet)
8,685
8,320
4.4%
Austin (2.0 million feet)
8,319
7,628
9.1%
Northern Virginia (3.9 million feet)
18,221
18,866
(3.4%)
South Florida (3.9 million feet)
11,160
10,891
2.5%
Seattle (1.4 million feet)
5,121
4,394
16.5%
Suburban Maryland (1.1 million feet)
5,146
5,051
1.9%
Total Same Park (25.7 million feet)
97,972
94,813
3.3%
Adjusted cost of operations
Northern California
6,166
6,044
2.0%
Southern California
3,725
3,546
5.0%
Dallas
3,045
2,912
4.6%
Austin
2,959
2,724
8.6%
Northern Virginia
6,217
7,082
(12.2%)
South Florida
2,992
2,883
3.8%
Seattle
1,321
1,035
27.6%
Suburban Maryland
1,753
1,951
(10.1%)
Total Same Park
28,178
28,177
0.0%
Net operating income
Northern California
20,915
20,012
4.5%
Southern California
10,514
10,061
4.5%
Dallas
5,640
5,408
4.3%
Austin
5,360
4,904
9.3%
Northern Virginia
12,004
11,784
1.9%
South Florida
8,168
8,008
2.0%
Seattle
3,800
3,359
13.1%
Suburban Maryland
3,393
3,100
9.5%
Total Same Park
$
69,794
$
66,636
4.7%
Weighted average square foot occupancy
Northern California
91.4%
96.6%
(5.4%)
Southern California
94.7%
95.7%
(1.0%)
Dallas
90.3%
92.3%
(2.2%)
Austin
95.5%
90.7%
5.3%
Northern Virginia
92.1%
93.7%
(1.7%)
South Florida
94.0%
96.4%
(2.5%)
Seattle
98.9%
96.1%
2.9%
Suburban Maryland
91.1%
88.8%
2.6%
Total Same Park
92.9%
94.7%
(1.9%)
Annualized revenue per occupied square foot
Northern California
$
16.37
$
14.90
9.9%
Southern California
$
18.33
$
17.34
5.7%
Dallas
$
13.32
$
12.47
6.8%
Austin
$
17.74
$
17.14
3.5%
Northern Virginia
$
20.19
$
20.55
(1.8%)
South Florida
$
12.28
$
11.69
5.0%
Seattle
$
14.90
$
13.16
13.2%
Suburban Maryland
$
19.68
$
19.81
(0.7%)
Total Same Park
$
16.42
$
15.58
5.4%
RevPAF
Northern California
$
14.95
$
14.39
3.9%
Southern California
$
17.35
$
16.58
4.6%
Dallas
$
12.03
$
11.53
4.3%
Austin
$
16.95
$
15.54
9.1%
Northern Virginia
$
18.61
$
19.27
(3.4%)
South Florida
$
11.55
$
11.27
2.5%
Seattle
$
14.74
$
12.64
16.6%
Suburban Maryland
$
17.98
$
17.65
1.9%
Total Same Park
$
15.25
$
14.76
3.3%

⁽²⁾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 is annualized.

⁽³⁾RevPAF is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and six month periods is annualized.
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Our past revenue growth has come from contractual annual 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 (the “Cash Rental Rate Change”) is useful in understanding trends in current market rates relative to our existing lease rates. The following ~~table summarizes~~tables summarize the Cash Rental Rate Change and other key statistical information with respect to the Company’s leasing production for its Same Park ~~facilities,~~portfolio, on a regional basis, for the three and six months ended ~~March 31,~~June 30, 2020 (square feet in thousands):



	For the Three Months Ended March 31, 2020					For the Three Months Ended June 30, 2020
	Square			Transaction		Square			Transaction
	Footage	Customer		Costs per	Cash Rental	Footage	Customer		Costs per	Cash Rental
Regions	Leased	Retention		Executed Foot	Rate Change ⁽¹⁾	Leased	Retention		Executed Foot	Rate Change ⁽¹⁾
Northern California	369	78.9%	$	2.45	15.6%	531	85.0%	$	2.61	14.8%
Southern California	336	75.4%	$	3.10	9.3%	265	71.1%	$	2.05	(3.6%)
Dallas	197	66.0%	$	3.58	3.6%	177	55.6%	$	2.47	2.3%
Austin	90	81.1%	$	3.26	4.3%	85	64.5%	$	3.75	(4.7%)
Northern Virginia	347	75.2%	$	7.04	1.1%	203	72.0%	$	3.89	(5.9%)
South Florida	179	51.6%	$	1.48	7.7%	370	56.2%	$	0.74	(2.2%)
Seattle	264	92.5%	$	0.83	30.0%	54	56.0%	$	0.65	4.5%
Suburban Maryland	48	72.4%	$	9.42	2.4%	36	52.3%	$	4.87	(3.2%)
Total	1,830	75.1%	$	3.45	9.5%	1,721	66.0%	$	2.30	2.3%



	For the Six Months Ended June 30, 2020
	Square			Transaction
	Footage	Customer		Costs per	Cash Rental
Regions	Leased	Retention		Executed Foot	Rate Change ⁽¹⁾
Northern California	900	80.8%	$	2.65	15.2%
Southern California	600	70.2%	$	2.39	3.3%
Dallas	374	56.2%	$	3.09	3.0%
Austin	174	63.3%	$	3.59	0.6%
Northern Virginia	550	75.4%	$	5.45	(1.1%)
South Florida	549	54.1%	$	1.00	1.0%
Seattle	316	82.4%	$	0.78	23.2%
Suburban Maryland	84	57.9%	$	7.59	0.9%
Total	3,547	68.6%	$	2.83	6.2%

____________________________

⁽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.

~~As discussed above, although the first quarter of 2020 reflected favorable conditions in all our markets, including stable occupancy as well as increasing cash rental rates, the~~The COVID-19 pandemic has negatively ~~impacted our~~affected occupancy levels as well as rent growth on leasing ~~activity~~production across our portfolio subsequent to March 31, 2020. AsFor the three months ended June 30, 2020, weighted average occupancy was 92.4% and weighted average cash rental rate growth was 2.3%, a ~~result, due~~decrease from weighted average occupancy of 92.9% and weighted average cash rental rate growth of 9.5% for the three months ended March 31, 2020. Average lease term of the leases executed during the three months ended June 30, 2020 was 3.2 years, with associated average transaction costs (tenant improvements and leasing commissions) of $2.30 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in the same period of 2019 were 3.8 years and $3.61 per square foot, respectively. 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, and~~ possible decreases in rental rates on new and renewal transactions, and the negative effect of rent deferrals, rent abatements, and customer defaults, we believe it is likely we will experience ~~lower~~comparable quarterly Same Park rental income for the remaining quarters of 2020 when compared to our results for the three months ended ~~March 31,~~June 30, 2020.
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Non-Same Park ~~facilities:~~Portfolio: The table below reflects the assets comprising our Non-Same Park ~~facilities~~portfolio (in thousands):



			Purchase		Square	Occupancy at	Occupancy at			Purchase		Square	Occupancy at	Occupancy at
Property	Date Acquired	Location	Price		Feet	Acquisition	March 31, 2020	Date Acquired	Location	Price		Feet	Acquisition	June 30, 2020
La Mirada Commerce Center	January, 2020	La Mirada, CA	$	13,513	73	100.0%	100.0%	January, 2020	La Mirada, CA	$	13,513	73	100.0%	97.6%
San Tomas Business Center	December, 2019	Santa Clara, CA		16,787	79	95.6%	91.3%	December, 2019	Santa Clara, CA		16,787	79	95.6%	86.2%
Hathaway Industrial Park	September, 2019	Santa Fe Springs, CA		104,330	543	100.0%	100.0%	September, 2019	Santa Fe Springs, CA		104,330	543	100.0%	39.3%
Walnut Avenue Business Park	April, 2019	Signal Hill, CA		13,824	74	98.4%	96.7%	April, 2019	Signal Hill, CA		13,824	74	98.4%	96.7%
Northern Virginia and Fullerton	June, 2018	Lorton and Springfield,						June, 2018	Lorton and Springfield,
Road Industrial Parks		VA		143,766	1,057	76.1%	89.8%		VA		143,766	1,057	76.1%	89.5%
Total			$	292,220	1,826	85.9%	93.6%			$	292,220	1,826	85.9%	75.0%

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 the previous owners. However, it can take 24 or more months for us to fully achieve higher NOI, and the ultimate levels of NOI to be 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 ~~future~~ 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.
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Multifamily: As of ~~March 31,~~June 30, 2020, we have a 95.0% controlling interest in Highgate at the Mile, a 395-unit apartment complex. During the three months ended March 31, 2020, Highgate generated $1.5 million of NOI, consisting of $2.6 million in rental income and $1.0 million in cost of operations compared to $1.4 million of NOI, consisting of $2.5 million in rental income and $1.1 million in cost of operations for the same period in 2019.

The following table summarizes the historical operating results of Highgate at the Mile and certain ~~statistics for Highgate as of March 31, 2020:~~statistical information (in thousands, except per unit data):

As of March 31, 2020
Weighted Average Occupancy
Apartment
Total Costs ⁽¹⁾
Physical
Average Rent
For the three months ended March 31,
Units
(in thousands)
Occupancy
per Unit ⁽²⁾
2020
2019
395
$
115,426
94.1%
$
2,144
94.9%
95.1%



	For the Three Months					For The Six Months
	Ended June 30,					Ended June 30,
	2020		2019		Change	2020		2019			Change
Rental income	$	2,488	$	2,475	0.5%	$	5,048	$	4,973		1.5%
Cost of operations		1,002		1,002	—		2,018		2,073		(2.7%)
NOI	$	1,486	$	1,473	0.9%	$	3,030	$	2,900		4.5%

Selected Statistical Data
Weighted average square foot occupancy		91.7%		95.4%	(3.8%)		93.3%		95.2%		(2.0%)

	As of June 30, 2020
Total costs ⁽¹⁾										$	115,426
Physical occupancy											90.6%
Average rent per unit ⁽²⁾										$	2,142

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⁽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 the total potential monthly rental ~~revenue~~income (actual rent for occupied apartment units plus market rent for vacant apartment units) divided by the total number of rentable apartment 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 at Highgate at The Mile, management expects the COVID-19 pandemic will continue to adversely impact quarterly rental income ~~will likely be lower during~~for the remaining quarters of ~~2020 when compared to our results for the three months ended March 31,~~ 2020.

Assets ~~sold:~~sold or held for sale: These amounts include historical operating results with respect to properties that we ~~sold.~~sold or are held for sale. Amounts for the three months ended ~~March 31,~~June 30, 2020 reflect the operating results related to two industrial buildings totaling 40,000 square feet reclassified to properties held for sale, net during the three months ended June 30, 2020; amounts for the six months ended June 30, 2020 reflect the operating results related to two industrial buildings totaling 40,000 square feet and a 113,000 square foot asset sold ~~during~~in January, 2020; amounts for the three and six months ended ~~March 31,~~June 30, 2019 reflect the operating results related to athe two industrial buildings totaling

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40,000 square feet, the 113,000 square foot asset sold ~~during~~in 2020, and 1.3 million square feet of flex and office sold in October, 2019.

Depreciation and Amortization Expense: Depreciation and amortization expense was ~~$26.6~~$23.0 million and $49.6 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to ~~$24.9~~$24.8 million and $49.6 million for the same ~~period~~periods in 2019. The three month increase was primarily due to depreciation and amortization expense from the Non-Same Park facilities combined with depreciation expense related to the building held for development.2019, respectively.

General and Administrative Expense: General and administrative expense primarily represents executive and other compensation, audit and tax fees, legal expenses and other costs associated with being a public company. For the three and six months ended ~~March 31,~~June 30, 2020, general and administrative expense increased ~~$90,000,~~$177,000, or ~~2.8%~~6.3%, and $267,000, or 4.4%, respectively, compared to the same ~~period~~periods in 2019. The three and six month ~~increase was~~increases were primarily due to an increase in ~~legal~~compensation expense and an increase in professional fees related to various corporate ~~services partially offset by lower non-capitalized due diligence costs.~~service projects.

Gain on sale of real estate facility: On January 7, 2020, we sold a 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain of $19.6 million.

Liquidity and Capital Resources

This section should be read in conjunction with our consolidated statements of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 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.

Capital Raising Strategy: As a REIT, we generally distribute substantially all of our “REIT taxable income” to our shareholders, which relative to a taxable C corporation, limits the amount of cash flow from operations that we can retain for investment purposes. As a result, in order to grow our asset base, access to capital is important.

Our financial profile is characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We are a highly rated REIT, as determined by Moody’s and Standard & Poor’s. Our corporate credit rating by Standard and Poor’s is A-, while our preferred shares are rated BBB by Standard

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and Poor’s and Baa2 by Moody’s. We believe our credit profile and ratings will enable us to efficiently access both the public and private capital markets to raise capital, as necessary.

In order to maintain efficient access to the 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. Ratio of FFO to fixed charges and preferred distributions is calculated by dividing FFO excluding fixed charges and preferred distributions by fixed charges and preferred distributions. Fixed charges include interest expense, capitalized interest and preferred distributions paid to preferred shareholders. For the ~~three~~six months ended ~~March 31,~~June 30, 2020, the ratio toof FFO to combined fixed charges and preferred distributions paid was ~~5.9~~5.7 to 1.0.

We have a $250.0 million revolving Credit Facility that can be expanded to $400.0 million ~~which~~and expires in January, 2022. We can use the Credit Facility as necessary as temporary 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 on our operations (such as covenants), as well as the desire for leverage.

The COVID-19 pandemic has ~~had negative impacts on~~impacted the cost and availability of debt and equity capital, and may have ~~continued and~~ intensified negative ~~impacts.~~impacts if resurgent outbreaks of the virus occur. Based upon our substantial current liquidity relative to our capital requirements noted below, and our strong financial profile and credit ratings, we do not expect such capital market ~~dislocations~~turbulence to have a material impact upon our capital and growth plans over the next 12 months. However, there can be no assurance that ~~they~~it would not in the future, if ~~they~~it were to persist for a long period of time or intensify.

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Short-term Liquidity and Capital Resource Analysis: 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 shareholders for the foreseeable future.

As of ~~March 31,~~June 30, 2020, we had ~~$87.9~~$98.8 million in unrestricted cash. In the last five years, we have retained approximately $40 to $60 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.

Required Debt Repayment: As of ~~March 31,~~June 30, 2020, we have no debt outstanding on our Credit Facility. We are in compliance with all of the covenants and other requirements of our Credit Facility.

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 generally are related to property renovations and expenditures related to repositioning asset acquisitions. The following table sets forth our commercial

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capital expenditures paid for in the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively, on an aggregate and per square foot basis:



	For the Three Months Ended March 31,								For the Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019		2020		2019
Commercial Real Estate	(in thousands)				(per square foot)				(in thousands)				(per square foot)
Recurring capital expenditures
Capital improvements	$	1,223	$	1,180	$	0.04	$	0.04	$	4,788	$	3,608	$	0.17	$	0.13
Tenant improvements		3,546		3,551		0.13		0.13		7,701		8,567		0.28		0.30
Lease commissions		2,082		1,956		0.08		0.07		3,336		3,373		0.12		0.12
Total commercial recurring capital expenditures		6,851		6,687		0.25		0.24		15,825		15,548		0.57		0.55
Nonrecurring capital improvements		93		864		0.00		0.03		213		1,955		0.01		0.07
Total commercial capital expenditures	$	6,944	$	7,551	$	0.25	$	0.27	$	16,038	$	17,503	$	0.58	$	0.62

The following table summarizes the recurring capital expenditures paid and the related percentage of NOI for Same Park, Non-Same Park, multifamily and assets sold or held for sale by region for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands):



	For the Three Months Ended March 31,									For the Six Months Ended June 30,
						Recurring									Recurring
	Recurring					Capital Expenditures				Recurring					Capital Expenditures
	Capital Expenditures					as a Percentage of NOI				Capital Expenditures					as a Percentage of NOI
		2020		2019	Change	2020		2019			2020		2019	Change	2020		2019
Region
Same Park
Northern California	$	1,336	$	575	132.3%		6.4%		2.9%	$	3,229	$	1,253	157.7%		7.8%		3.1%
Southern California		998		669	49.2%		9.5%		6.6%		1,690		1,836	(8.0%)		8.5%		9.1%
Dallas		1,103		1,186	(7.0%)		19.6%		21.9%		1,985		1,886	5.2%		18.7%		16.9%
Austin		301		361	(16.6%)		5.6%		7.4%		686		1,756	(60.9%)		6.5%		17.9%
Northern Virginia		2,222		1,427	55.7%		18.5%		12.1%		5,804		4,520	28.4%		24.5%		18.7%
South Florida		514		401	28.2%		6.3%		5.0%		1,062		1,252	(15.2%)		6.8%		8.0%
Seattle		68		80	(15.0%)		1.8%		2.4%		342		291	17.5%		4.8%		4.6%
Suburban Maryland		191		667	(71.4%)		5.6%		21.5%		724		907	(20.2%)		10.9%		14.5%
Total Same Park		6,733		5,366	25.5%		9.6%		8.1%		15,522		13,701	13.3%		11.5%		10.2%
Non-Same Park
Southern California		13		—	100.0%
Northern California											26		—	100.0%
Northern Virginia		89		1,071	(91.7%)						261		1,317	(80.2%)
Total Non-Same Park		102		1,071	(90.5%)						287		1,317	(78.2%)
Assets sold		16		250	(93.6%)
Assets sold or held for sale											16		530	(97.0%)
Total	$	6,851	$	6,687	2.5%					$	15,825	$	15,548	1.8%

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In the last five years, our recurring capital expenditures have ~~averaged generally~~ranged between ~~$1.10 and $1.64 per square foot, and~~ 11.5% and 16.3% as a percentage of ~~NOI. However, as a result of the COVID-19 pandemic,~~NOI, and we ~~expect that~~expected full year 2020 recurring capital expenditures ~~may decrease as a result of deferring non-essential capital projects, both make-ready and capital improvements, for the remainder of 2020 when compared~~ to ~~the full year recurring capital expenditures spent in 2019.~~fall 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 ~~as we continue to monitor~~for various reasons, including the potential impact of the COVID-19 pandemic on ~~our ability to execute~~capital projects and ~~on economic returns.~~leasing volume.

Redemption of Preferred Stock: Historically, we have reduced our cost of capital by refinancing higher coupon preferred securities with lower coupon preferred securities. Redemption of such preferred shares will depend upon many factors, including our cost of capital. None of our preferred securities are redeemable at the option of the holders.

Acquisitions of real estate facilities: On January 10, 2020, we acquired a multi-tenant industrial park comprised of approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million,

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inclusive of capitalized transaction costs. We continue to seek to acquire additional real estate facilities; however, there is significant competition to acquire existing facilities and there can be no assurance as to the volume of future acquisition activity.

Sale of real estate: During the three months ended June 30, 2020, the Company reclassified two industrial buildings totaling 40,000 square feet located in Redmond, Washington, to properties held for sale, net, which are subject to an eminent domain process that is expected to be completed later this year. On January 7, 2020, the Company sold a 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain of $19.6 million.

Development of real estate facilities: As noted above, we have a 123,000 square foot vacant building located within The Mile that we are seeking to redevelop into a multifamily property. There can be no assurance as to the timing or amount of any investment that may occur; however, the timing of this redevelopment project is within our control and as such, we will commence construction when we deem appropriate based on market conditions.

Repurchase of Common Stock: No shares of common stock were repurchased under the board-approved common stock repurchase program during the ~~three~~six months ended ~~March 31,~~June 30, 2020 or the year ended December 31, 2019. As of ~~March 31,~~June 30, 2020, management has the authorization to repurchase an additional 1,614,721 shares.

Requirement to Pay Distributions: Our election to be taxed as a REIT, as defined by the Code, applies to all periods presented herein. As a REIT, we do not incur federal income tax on our “REIT taxable income” that is distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and we continue to meet certain organizational and operational requirements. We believe we have met these requirements in all periods presented herein, and we expect we will continue to qualify as a REIT in future periods.

We paid REIT qualifying distributions of ~~$40.8~~$81.8 million ($~~12.0~~24.1 million to preferred shareholders and ~~$28.8~~$57.7 million to common shareholders) during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

We estimate the annual distribution requirements with respect to our preferred shares outstanding at ~~March 31,~~June 30, 2020 to be $48.2 million per year.

Our consistent, long-term dividend policy has been to set dividend distribution amounts based on our taxable income. Future quarterly distributions with respect to common shares will continue to be determined based upon our REIT distribution requirements and, after taking into consideration distributions to ~~the~~ preferred shareholders, we expect will be funded with cash provided by operating activities.

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Funds from Operations, Core Funds from Operations, and Funds Available for Distributions

Funds from Operations (“FFO”) is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts and is considered a helpful measure of REIT performance by REITs and many REIT analysts. FFO represents GAAP net income before real estate depreciation and amortization expense, gains or losses on 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 both also non-GAAP measures. Core FFO ~~which~~is defined by the Company ~~defines~~ as FFO excluding the net impact of (i) income allocated to preferred shareholders to the extent redemption value exceeds the related carrying value and (ii) other nonrecurring income or expense items as appropriate. FAD ~~a non-GAAP measure,~~ represents Core FFO adjusted to (i) deduct recurring capital improvements and capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expenses such as ~~straight-line~~amortization of deferred rent receivable and stock compensation expense.

For the three and six months ended ~~March 31,~~June 30, 2020 and 2019, Core FFO was equal to FFO as the Company did not incur any preferred share redemption charges or any nonrecurring income or expenses in either period.

FFO for the three and six months ended June 30, 2020 was $1.59 per share and $3.30 per share, respectively, representing decreases of 9.5% and 3.6% from the same periods in 2019. On a per share basis, the write-offs of accounts receivable and deferred rent receivable recorded during the three and six months ended June 30, 2020 reduced FFO by $0.03 and $0.07 per share, respectively.

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The following table reconciles ~~from~~ net income allocable to common shareholders 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):



	For The Three Months				For the Three Months				For the Six Months
	Ended March 31,				Ended June 30,				Ended June 30,
	2020		2019		2020		2019		2020		2019
Net income allocable to common shareholders	$	41,615	$	26,321	$	25,522	$	28,579	$	67,137	$	54,900
Adjustments
Gain on sale of real estate facility		(19,621)		—		—		—		(19,621)		—
Depreciation and amortization expense		26,619		24,875		22,963		24,768		49,582		49,643
Net income allocated to noncontrolling interests		11,092		7,027		6,795		7,623		17,887		14,650
Net income allocated to restricted stock unit holders		275		268		119		212		394		480
FFO allocated to JV partner		(43)		(29)		(38)		(37)		(81)		(66)
FFO allocable to diluted common shares and units	$	59,937	$	58,462	$	55,361	$	61,145	$	115,298	$	119,607

Core FFO allocable to diluted common shares and units	$	59,937	$	58,462	$	55,361	$	61,145	$	115,298	$	119,607
Adjustments
Recurring capital improvements		(1,223)		(1,180)		(3,565)		(2,428)		(4,788)		(3,608)
Tenant improvements		(3,546)		(3,551)		(4,155)		(5,016)		(7,701)		(8,567)
Capitalized lease commissions		(2,082)		(1,956)		(1,254)		(1,417)		(3,336)		(3,373)
Straight-line rent		(768)		(657)
Amortization of deferred rent receivable						(2,513)		(652)		(3,281)		(1,309)
In-place lease adjustment		(66)		21		(71)		4		(137)		25
Tenant improvement reimbursement amortization,
net of lease incentive amortization		(230)		(379)		(162)		(284)		(392)		(663)
Stock compensation expense		942		971		931		918		1,873		1,889
Cash paid for taxes in lieu of shares upon vesting of
restricted stock units		(3,655)		(5,494)		(5)		(6)		(3,660)		(5,500)
FAD allocable to diluted common shares and units	$	49,309	$	46,237	$	44,567	$	52,264	$	93,876	$	98,501

Weighted average outstanding
Common shares		27,448		27,373		27,479		27,426		27,464		27,400
Common operating partnership units		7,305		7,305		7,305		7,305		7,305		7,305
Restricted stock units		77		140		43		109		65		132
Common share equivalents		102		106		81		106		93		105
Total common and dilutive shares		34,932		34,924		34,908		34,946		34,927		34,942

Reconciliation of Earnings per Share to FFO per Share
Net income per common share—diluted	$	1.51	$	0.96	$	0.93	$	1.04	$	2.44	$	2.00
Gain on sale of real estate facilities		(0.56)		—		—		—		(0.56)		—
Depreciation and amortization expense		0.77		0.71		0.66		0.71		1.42		1.42
FFO per share	$	1.72	$	1.67	$	1.59	$	1.75	$	3.30	$	3.42

We believe FFO, Core FFO and FAD assist investors in analyzing and comparing the operating and financial performance of a company’s real estate between periods. FFO, Core FFO and FAD are not substitutes for GAAP net income. In addition, other REITs may compute FFO, Core FFO and FAD differently, which could inhibit comparability.

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: We paid ~~$12.0~~$24.1 million in distributions to our preferred shareholders for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and expect to continue to pay quarterly distributions of $12.0 million to our preferred shareholders for the foreseeable future or until such time as there is a change in the amount or composition of our series of preferred

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~~series of preferred~~ equity outstanding. Dividends on preferred equity 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 ~~March 31,~~June 30, 2020 and their impact on our cash flow and liquidity are summarized below (in thousands):



	Payments Due by Period										Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years		Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Transaction costs ⁽¹⁾	$	9,075	$	9,075	$	—	$	—	$	—	$	12,342	$	12,342	$	—	$	—	$	—
Ground lease obligations ⁽²⁾		1,918		149		596		397		776		1,868		99		596		397		776
Total	$	10,993	$	9,224	$	596	$	397	$	776	$	14,210	$	12,441	$	596	$	397	$	776

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⁽¹⁾Represents transaction costs, including tenant improvements and lease commissions, which we are committed to under the terms of executed leases.

⁽²⁾Represents future contractual payments on land under various operating leases.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 as of ~~March 31,~~June 30, 2020.

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 5 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.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and 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 ~~March 31,~~June 30, 2020. 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 ~~March 31,~~June 30, 2020, the Company’s Chief Executive Officer and 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 our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company currently is not subject to any material legal proceedings other than ordinary routine litigation and administrative proceedings incidental to its business.

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ITEM 1A. RISK FACTORS

In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described in our Annual Report on Form 10-K filed for the year ended December 31, 2019, 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 described below, there have been no material changes to the risk factors relating to the Company disclosed in our Form 10-K for the year ended December 31, 2019.

In addition, in considering the forward-looking statements contained in this Form 10-Q and elsewhere, you should refer to the qualifications and limitations on our forward-looking statements that are described in Forward Looking Statements at the beginning of Part I, Item 2 of this Form 10-Q.

We are subject to risks from the COVID-19 pandemic and we may in the future be subject to risks from other public health crises.

Since being reported in December 2019, the COVID-19 pandemic has spread globally, including to every state in the United States, adversely affecting public health and economic activity. Our business is subject to risks from the COVID-19 pandemic, including, among others:

risks associated with the COVID-19 pandemic, including but not limited to illness or death of our employees or customers, negative impacts to the economic environment and to our customers which could reduce the demand for commercial property space or reduce our ability to collect rent, or potential regulatory action to close certain of our facilities that were determined not to be an “essential business” or for other reasons;

risk that even after the initial restrictions due to the COVID-19 pandemic ease, they could be reinstituted in case of future waves of infection or if additional pandemics occur;

risk that the economic effects of the COVID-19 pandemic could reduce consumer confidence and result in an elevated level of move-outs of our long-term customers, resulting in a reduction in rental income due to occupancy reductions and increased “rent roll down” due to new customers having lower rental rates than departing customers; and

risk of negative impacts on the cost and availability of debt and equity capital as a result of the COVID-19 pandemic, which could have a material impact upon our capital and growth plans.

We believe that the degree to which the COVID-19 pandemic adversely impacts our business, operating results, cash flows and/or financial condition will be driven primarily by the duration, spread and severity of the pandemic, all of which are uncertain and difficult to predict. As a result, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. Future public health crises could have similar impacts.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The 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 three months ended ~~March 31,~~June 30, 2020, there were no shares of the Company’s common stock repurchased. As of ~~March 31,~~June 30, 2020, 1,614,721 shares remain available for purchase under the program.

See Note 10 to the consolidated financial statements for additional information on repurchases of equity securities.
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ITEM 6. EXHIBITS


Exhibits Number	Description

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

Exhibit 32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

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).

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SIGNATURES

Pursuant 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: ~~April 29,~~August 4, 2020

	PS BUSINESS PARKS, INC.

	BY:	/s/ Jeffrey D. Hedges
		Jeffrey D. Hedges
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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			As of March 31, 2020			Weighted Average Occupancy
Apartment	Total Costs ⁽¹⁾		Physical	Average Rent		For the three months ended March 31,
Units	(in thousands)		Occupancy	per Unit ⁽²⁾		2020	2019
395	$	115,426	94.1%	$	2,144	94.9%	95.1%