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Commission File Number 1-10709
Its Charter) Maryland (I.R.S. Employer (212) 583-5000 Title of Name of 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 Yes Yes Large accelerated filer ý Smaller reporting company ¨ Yes 100. Table of Contents Item 3. PART I. FINANCIAL INFORMATION Financial Statements September 30, December 31, 2021 2020 (Unaudited) ASSETS Cash and cash equivalents $ 46,594 $ 69,083 Real estate facilities, at cost Land 865,062 843,765 Buildings and improvements 2,207,095 2,080,895 3,072,157 2,924,660 Accumulated depreciation (1,157,947) (1,101,739) 1,914,210 1,822,921 Properties held for sale, net 46,811 75,138 Land and building held for development, net 62,467 37,922 2,023,488 1,935,981 Rent receivable 2,427 1,519 Deferred rent receivable 37,078 36,788 Other assets 18,891 14,334 Total assets $ 2,128,478 $ 2,057,705 LIABILITIES AND EQUITY Accrued and other liabilities $ 99,208 $ 82,065 Total liabilities 99,208 82,065 Commitments and contingencies Equity PS Business Parks, Inc.’s stockholders’ equity Preferred stock, $0.01 par value, 50,000,000 shares authorized, 37,790 shares issued and outstanding at ($944,750 aggregate liquidation preference) September 30, 2021 and December 31, 2020 944,750 944,750 Common stock, $0.01 par value, 100,000,000 shares authorized, 27,546,153 and 27,488,547 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 275 274 Paid-in capital 741,032 738,022 Accumulated earnings 113,444 73,631 Total PS Business Parks, Inc.’s stockholders’ equity 1,799,501 1,756,677 Noncontrolling interests 229,769 218,963 Total equity 2,029,270 1,975,640 Total liabilities and equity $ 2,128,478 $ 2,057,705 For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Rental income $ 110,448 $ 103,760 $ 327,859 $ 310,535 Expenses Cost of operations 33,091 32,096 98,158 93,490 Depreciation and amortization 23,857 23,064 69,356 72,646 General and administrative 5,148 5,047 14,329 11,374 Total operating expenses 62,096 60,207 181,843 177,510 Interest and other income 411 230 1,590 1,012 Interest and other expense (224) (536) (703) (900) Gain on sale of real estate facilities 29,924 7,652 49,117 27,273 Net income 78,463 50,899 196,020 160,410 Allocation to noncontrolling interests (13,850) (8,124) (33,355) (26,011) Net income allocable to PS Business Parks, Inc. 64,613 42,775 162,665 134,399 Allocation to preferred stockholders (12,046) (12,046) (36,139) (36,139) Allocation to restricted stock unit holders (350) (149) (828) (543) Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Net income per share of common stock Basic $ 1.90 $ 1.11 $ 4.57 $ 3.56 Diluted $ 1.89 $ 1.11 $ 4.55 $ 3.55 Weighted average common stock outstanding Basic 27,543 27,483 27,523 27,470 Diluted 27,635 27,565 27,623 27,560 Organization Total PS Business Parks, For the three months ended Preferred Stock Common Stock Paid-in Accumulated Inc.’s Stockholders’ Noncontrolling Total September 30, 2021 Shares Amount Shares Amount Capital Earnings Equity Interests Equity Balances at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 Issuance of common stock in connection with share-based compensation — — 4,689 — — — — — — Stock compensation, net — — — — 2,174 — 2,174 — 2,174 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (478) — (478) — (478) Capital contribution from noncontrolling interests—joint venture — — — — — — — 236 236 Net income — — — — — 64,613 64,613 13,850 78,463 Distributions Preferred stock (Note 9) — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,923) (28,923) — (28,923) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (20) (20) Balances at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 For the three months ended September 30, 2020 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 Issuance of common stock in connection with share-based compensation — — 5,302 — — — — — — Stock compensation, net — — — — 2,378 — 2,378 — 2,378 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (442) — (442) — (442) Capital contribution from noncontrolling interests—joint venture — — — — — — — 438 438 Net income — — — — — 42,775 42,775 8,124 50,899 Distributions Preferred stock (Note 9) — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,860) (28,860) — (28,860) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (46) (46) Balances at September 30, 2020 37,790 $ 944,750 27,486,788 $ 274 $ 737,065 $ 75,393 $ 1,757,482 $ 219,463 $ 1,976,945 Total PS Business Parks, For the nine months ended Preferred Stock Common Stock Paid-in Accumulated Inc.’s Stockholders’ Noncontrolling Total September 30, 2021 Shares Amount Shares Amount Capital Earnings Equity Interests Equity Balances at December 31, 2020 37,790 $ 944,750 27,488,547 $ 274 $ 738,022 $ 73,631 $ 1,756,677 $ 218,963 $ 1,975,640 Issuance of common stock in connection with share-based compensation — — 57,606 1 906 — 907 — 907 Stock compensation, net — — — — 5,889 — 5,889 — 5,889 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,680) — (3,680) — (3,680) Capital contribution from noncontrolling interests—joint venture — — — — — — — 523 523 Issuance costs — — — — (105) — (105) — (105) Net income — — — — — 162,665 162,665 33,355 196,020 Distributions Preferred stock (Note 9) — — — — — (36,139) (36,139) — (36,139) Common stock ($3.15 per share) — — — — — (86,713) (86,713) — (86,713) Noncontrolling interests— Common units — — — — — — — (23,012) (23,012) Joint venture — — — — — — — (60) (60) Balances at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 For the nine months ended September 30, 2020 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 share-based compensation — — 45,835 — 259 — 259 — 259 Stock compensation, net — — — — 3,922 — 3,922 — 3,922 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (4,102) — (4,102) — (4,102) Capital contribution from noncontrolling interests—joint venture — — — — — — — 438 438 Net income — — — — — 134,399 134,399 26,011 160,410 Distributions Preferred stock (Note 9) — — — — — (36,139) (36,139) — (36,139) Common stock ($3.15 per share) — — — — — (86,533) (86,533) — (86,533) Noncontrolling interests— Common units — — — — — — — (23,012) (23,012) Joint venture — — — — — — — (109) (109) Balances at September 30, 2020 37,790 $ 944,750 27,486,788 $ 274 $ 737,065 $ 75,393 $ 1,757,482 $ 219,463 $ 1,976,945 For the Nine Months Ended September 30, 2021 2020 Cash flows from operating activities Net income $ 196,020 $ 160,410 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 69,356 72,646 Straight-line rent and amortization of lease intangibles, net (1,943) (5,340) Gain on sale of real estate facilities (49,117) (27,273) Stock compensation expense 6,422 4,391 Amortization of financing costs 468 410 Other, net 11,202 6,313 Total adjustments 36,388 51,147 Net cash provided by operating activities 232,408 211,557 Cash flows from investing activities Capital expenditures to real estate facilities (26,062) (23,189) Capital expenditures to land and building held for development (31,921) (10,602) Acquisition of real estate facilities (122,171) (13,423) Proceeds from sale of real estate facilities 76,566 40,674 Net cash used in investing activities (103,588) (6,540) Cash flows from financing activities Payment of deferred financing costs (2,248) — Payment of financing costs (237) (255) Proceeds from the exercise of stock options 907 259 Issuance costs (105) — Cash paid for taxes in lieu of stock upon vesting of restricted stock units (3,680) (4,102) Cash paid to restricted stock unit holders (545) (469) Capital contribution from noncontrolling interests – joint venture 523 438 Distributions paid to preferred stockholders (36,139) (36,139) Distributions paid to common stockholders (86,713) (86,533) Distributions paid to noncontrolling interests—common units (23,012) (23,012) Distributions paid to noncontrolling interests—joint venture (60) (109) Net cash used in financing activities (151,309) (149,922) Net (decrease) increase in cash and cash equivalents (22,489) 55,095 Cash, cash equivalents and restricted cash at the beginning of the period 70,171 63,874 Cash, cash equivalents and restricted cash at the end of the period $ 47,682 $ 118,969 Supplemental schedule of non-cash investing and financing activities Accrued capital expenditures to land and building held for development Land and building held for development, net $ 3,362 $ — Accrued and other liabilities $ (3,362) $ — PS Business Parks, Inc. (“PSB” or the “Company”), a Maryland corporation, was organized in 1990. Effective May19,2021, following approval by its common and preferred stockholders, PSB reincorporated from the state of California to the state of Maryland. certain subsidiaries of the Partnership which held assets comprised of 58 properties located in California, Washington and Virginia (the “Non-Core Portfolio”). As a result of the Redemption and Distribution, the Company (directly or indirectly) owns 100% of the Partnership. Total consideration for the exchange was $1,295,217, which represents the fair values as determined between us and our Parent Partners, a related party, on the transaction date. No gain or loss was recognized in connection with this transaction. We accounted for this transaction as a non-cash equity distribution in the Consolidated Financial Statements. Significant Accounting Policies Presentation December 31, 2020 2019 Consolidated balance sheets Cash and cash equivalents $ 69,083 $ 62,786 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 $ 70,171 $ 63,874 September 30, 2021 2020 Consolidated balance sheets Cash and cash equivalents $ 46,594 $ 117,881 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 $ 47,682 $ 118,969 For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Calculation of net income allocable to common stockholders Net income $ 78,463 $ 50,899 $ 196,020 $ 160,410 Net (income) loss allocated to Preferred stockholders based upon distributions (12,046) (12,046) (36,139) (36,139) Noncontrolling interests—joint venture 2 4 7 (26) Restricted stock unit holders (350) (149) (828) (543) Net income allocable to common stockholders and noncontrolling interests—common units 66,069 38,708 159,060 123,702 Net income allocation to noncontrolling interests— common units (13,852) (8,128) (33,362) (25,985) Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,543 27,483 27,523 27,470 Weighted average common partnership units outstanding 7,305 7,305 7,305 7,305 Total common stock equivalents 34,848 34,788 34,828 34,775 Common partnership units as a percentage of common stock equivalents 21.0% 21.0% 21.0% 21.0% Weighted average common stock outstanding Basic weighted average common stock outstanding 27,543 27,483 27,523 27,470 Net effect of dilutive stock compensation—based on treasury stock method using average market price 92 82 100 90 Diluted weighted average common stock outstanding 27,635 27,565 27,623 27,560 Buildings and Accumulated Land Improvements Depreciation Total Balances at December 31, 2020 (1) $ 843,765 $ 2,080,895 $ (1,101,739) $ 1,822,921 Acquisition of real estate facility 20,308 100,893 — 121,201 Capital expenditures — 26,121 — 26,121 Disposals (2) — (7,349) 7,349 — Depreciation and amortization expense — — (67,182) (67,182) Transfer from property held for development 989 8,063 — 9,052 Transfer to properties held for sale — (1,528) 3,625 2,097 Balances at September 30, 2021 $ 865,062 $ 2,207,095 $ (1,157,947) $ 1,914,210 We have a 95.0% interest in a joint venture that owns Highgate at The Mile, a 395-unit multifamily apartment complex 2021 2020 Land $ 20,308 $ 11,123 Buildings and improvements 100,893 2,153 Other assets (above-market in-place rents) — — Accrued and other liabilities (below-market in-place rents) (1,156) — Other assets (in-place lease value) 3,223 237 Total purchase price 123,268 13,513 Net operating assets acquired and liabilities assumed (1,097) (90) Total cash paid $ 122,171 $ 13,423 Remainder of 2021 $ 77,055 2022 271,075 2023 204,571 2024 142,367 2025 89,682 Thereafter 158,093 Total (1) $ 942,843 regulations promulgated thereunder. As of September 30, 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 Z preferred stock The redemption is within the Company’s control, and thus the preferred equity arrangements are classified as permanent equity in the Consolidated Financial Statements. Common stock and units We In connection with the separation agreement with our former President and Chief Executive Officer (“CEO”), who stepped down from his positions with the Company for health reasons effective March 23, 2022, the Company paid a lump sum payment of $6,643 in exchange for 41,186 restricted stock units owned by the former CEO, which represents the market value of the Company common stock underlying such units as of March 18, 2022. options. For the In April 2021, we issued 10,000 shares of common stock to a director upon retirement with an aggregate fair value of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Executive Overview Development or Redevelopment of Real Estate Facilities:In certain instances, we may seek to redevelop our existing real estate or develop new buildings on excess land parcels. 2 Impact of Inflation:Inflation has significantly increased recently and a continued increase in inflation could adversely impact our future For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Same Park $ 99,292 $ 92,931 6.8% $ 291,801 $ 275,841 5.8% Non-Same Park 4,470 1,697 163.4% 12,165 6,185 96.7% Multifamily 2,308 2,201 4.9% 6,883 7,249 (5.0%) Assets sold or held for sale (1) 4,378 6,931 (36.8%) 17,010 21,260 (20.0%) Total rental income 110,448 103,760 6.4% 327,859 310,535 5.6% Cost of operations Adjusted Cost of Operations (2) Same Park 28,470 27,637 3.0% 83,148 79,745 4.3% Non-Same Park 1,389 900 54.3% 3,729 2,607 43.0% Multifamily 1,161 1,066 8.9% 3,405 3,084 10.4% Assets sold or held for sale (1) 1,643 2,250 (27.0%) 6,511 7,271 (10.5%) Stock compensation expense (3) 428 243 76.1% 1,365 783 74.3% Total cost of operations 33,091 32,096 3.1% 98,158 93,490 5.0% NOI (4) Same Park 70,822 65,294 8.5% 208,653 196,096 6.4% Non-Same Park 3,081 797 286.6% 8,436 3,578 135.8% Multifamily 1,147 1,135 1.1% 3,478 4,165 (16.5%) Assets sold or held for sale (1) 2,735 4,681 (41.6%) 10,499 13,989 (24.9%) Stock compensation expense (3) (428) (243) 76.1% (1,365) (783) 74.3% Depreciation and amortization expense (23,857) (23,064) 3.4% (69,356) (72,646) (4.5%) General and administrative expense (5,148) (5,047) 2.0% (14,329) (11,374) 26.0% Interest and other income 411 230 78.7% 1,590 1,012 57.1% Interest and other expense (224) (536) (58.2%) (703) (900) (21.9%) Gain on sale of real estate facilities 29,924 7,652 291.1% 49,117 27,273 80.1% Net income $ 78,463 $ 50,899 54.2% $ 196,020 $ 160,410 22.2% For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Cash Rental Income (1) $ 99,161 $ 91,501 8.4% $ 291,119 $ 271,315 7.3% Non-Cash Rental Income (2) 131 1,430 (90.8%) 682 4,526 (84.9%) Total rental income 99,292 92,931 6.8% 291,801 275,841 5.8% Adjusted Cost of Operations (3) Property taxes 10,749 10,517 2.2% 32,022 31,357 2.1% Utilities 4,934 4,477 10.2% 13,321 12,936 3.0% Repairs and maintenance 5,957 5,868 1.5% 16,613 16,018 3.7% Compensation 4,001 3,974 0.7% 11,946 11,688 2.2% Snow removal — — — 1,011 70 1,344.3% Property insurance 1,290 1,243 3.8% 3,551 2,908 22.1% Other expenses 1,539 1,558 (1.2%) 4,684 4,768 (1.8%) Total Adjusted Cost of Operations 28,470 27,637 3.0% 83,148 79,745 4.3% NOI (4) $ 70,822 $ 65,294 8.5% $ 208,653 $ 196,096 6.4% Cash NOI (5) $ 70,691 $ 63,864 10.7% $ 207,971 $ 191,570 8.6% Selected Statistical Data Rentable square footage at period end 25,053 25,053 — 25,053 25,053 — NOI margin (6) 71.3% 70.3% 1.4% 71.5% 71.1% 0.6% Cash NOI margin (7) 71.3% 69.8% 2.1% 71.4% 70.6% 1.1% Weighted average square foot occupancy 94.8% 92.6% 2.4% 94.0% 92.6% 1.5% Revenue per Occupied Square Foot (8) $ 16.72 $ 16.02 4.4% $ 16.52 $ 15.85 4.2% Revenue per Available Foot (RevPAF) (9) $ 15.85 $ 14.84 6.8% $ 15.53 $ 14.68 5.8% Cash Rental Income per Occupied Square Foot (10) $ 16.70 $ 15.78 5.8% $ 16.49 $ 15.59 5.8% Cash Rental Income per Available Foot (11) $ 15.83 $ 14.61 8.4% $ 15.49 $ 14.44 7.3% For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Base rental income $ 73,250 $ 69,440 $ 3,810 $ 216,566 $ 210,068 $ 6,498 Expense recovery income 24,690 22,643 2,047 71,658 66,270 5,388 Lease buyout income 738 288 450 1,318 787 531 Rent receivable recovery/ (write-off) 20 (275) 295 61 (1,321) 1,382 Rent abatements (97) (331) 234 (304) (1,189) 885 Deferrals (5) (1,632) 1,627 (292) (5,144) 4,852 Deferral repayments 310 1,147 (837) 1,518 1,166 352 Fee Income 255 221 34 594 678 (84) Cash Rental Income 99,161 91,501 7,660 291,119 271,315 19,804 Non-Cash Rental Income (1) 131 1,430 (1,299) 682 4,526 (3,844) Total rental income $ 99,292 $ 92,931 $ 6,361 $ 291,801 $ 275,841 $ 15,960 Percent of Rentable Square Percent of Annualized Rental Annualized Rental Number of Footage Subject to Total Leased Income Under Income Represented Year of Lease Expiration Customers Expiring Leases Square Footage Expiring Leases by Expiring Leases Remainder of 2021 719 1,241 5.2% $ 22,044 5.2% 2022 1,534 5,492 22.8% 98,145 23.1% 2023 1,182 5,526 23.0% 92,804 21.9% 2024 667 4,397 18.3% 77,153 18.2% 2025 259 2,913 12.1% 50,810 12.0% Thereafter 263 4,472 18.6% 82,928 19.6% Total 4,624 24,041 100.0% $ 423,884 100.0% For the Three Months Ended March 31 June 30 September 30 December 31 Cash Rental income (1) 2021 $ 95,010 $ 96,948 $ 99,161 $ — 2020 $ 93,109 $ 86,705 $ 91,501 $ 94,566 Adjusted Cost of Operations (1) 2021 $ 28,017 $ 26,661 $ 28,470 $ — 2020 $ 26,669 $ 25,439 $ 27,637 $ 27,115 Cash NOI (1) 2021 $ 66,993 $ 70,287 $ 70,691 $ — 2020 $ 66,440 $ 61,266 $ 63,864 $ 67,451 Weighted average square foot occupancy 2021 93.2% 93.9% 94.8% — 2020 92.9% 92.4% 92.6% 92.7% Cash Rental Income per Occupied Square Foot (1) 2021 $ 16.28 $ 16.49 $ 16.70 $ — 2020 $ 16.00 $ 14.97 $ 15.78 $ 16.29 Cash Rental Income per Available Square Foot (1) 2021 $ 15.17 $ 15.48 $ 15.83 $ — 2020 $ 14.87 $ 13.84 $ 14.61 $ 15.10 For the Three Months For the Nine Months Ended September 30, Ended September 30, Region 2021 2020 Change 2021 2020 Change Geographic Data on Same Park Cash Rental Income Northern California (7.2 million feet) $ 29,461 $ 26,532 11.0% $ 85,435 $ 78,733 8.5% Southern California (3.0 million feet) 13,332 12,121 10.0% 39,704 35,216 12.7% Dallas (2.1 million feet) 5,124 4,862 5.4% 15,341 14,501 5.8% Austin (2.0 million feet) 8,783 8,267 6.2% 26,068 24,293 7.3% Northern Virginia (4.5 million feet) 19,799 19,099 3.7% 58,378 57,007 2.4% South Florida (3.9 million feet) 12,681 10,913 16.2% 36,487 32,304 12.9% Seattle (1.4 million feet) 5,212 4,869 7.0% 15,213 14,387 5.7% Suburban Maryland (1.0 million feet) 4,769 4,838 (1.4%) 14,493 14,874 (2.6%) Total Same Park (25.1 million feet) 99,161 91,501 8.4% 291,119 271,315 7.3% Adjusted Cost of Operations Northern California 6,569 6,488 1.2% 19,159 18,706 2.4% Southern California 3,364 3,507 (4.1%) 9,901 9,732 1.7% Dallas 1,709 1,821 (6.2%) 5,619 5,548 1.3% Austin 3,482 3,120 11.6% 9,838 9,042 8.8% Northern Virginia 6,831 6,248 9.3% 19,848 18,642 6.5% South Florida 3,497 3,317 5.4% 9,856 9,269 6.3% Seattle 1,374 1,358 1.2% 3,937 3,806 3.4% Suburban Maryland 1,644 1,778 (7.5%) 4,990 5,000 (0.2%) Total Same Park 28,470 27,637 3.0% 83,148 79,745 4.3% Cash NOI Northern California 22,892 20,044 14.2% 66,276 60,027 10.4% Southern California 9,968 8,614 15.7% 29,803 25,484 16.9% Dallas 3,415 3,041 12.3% 9,722 8,953 8.6% Austin 5,301 5,147 3.0% 16,230 15,251 6.4% Northern Virginia 12,968 12,851 0.9% 38,530 38,365 0.4% South Florida 9,184 7,596 20.9% 26,631 23,035 15.6% Seattle 3,838 3,511 9.3% 11,276 10,581 6.6% Suburban Maryland 3,125 3,060 2.1% 9,503 9,874 (3.8%) Total Same Park $ 70,691 $ 63,864 10.7% $ 207,971 $ 191,570 8.6% Weighted average square foot occupancy Northern California 94.9% 91.8% 3.4% 94.0% 91.4% 2.8% Southern California 97.2% 94.8% 2.5% 96.6% 95.0% 1.7% Dallas 91.2% 88.5% 3.1% 88.8% 89.0% (0.2%) Austin 94.2% 94.5% (0.3%) 94.8% 94.6% 0.2% Northern Virginia 92.8% 92.7% 0.1% 92.2% 92.0% 0.2% South Florida 98.2% 92.8% 5.8% 96.9% 93.1% 4.1% Seattle 95.0% 93.8% 1.3% 94.1% 96.7% (2.7%) Suburban Maryland 92.2% 93.4% (1.3%) 92.1% 93.9% (1.9%) Total Same Park 94.8% 92.6% 2.4% 94.0% 92.6% 1.5% Cash Rental Income per Occupied Square Foot (1) Northern California $ 17.15 $ 15.96 7.5% $ 16.73 $ 15.86 5.5% Southern California $ 18.85 $ 17.57 7.3% $ 18.83 $ 16.99 10.8% Dallas $ 10.73 $ 10.49 2.3% $ 11.00 $ 10.37 6.1% Austin $ 18.98 $ 17.83 6.4% $ 18.67 $ 17.42 7.2% Northern Virginia $ 18.83 $ 18.19 3.5% $ 18.63 $ 18.22 2.3% South Florida $ 13.36 $ 12.17 9.8% $ 12.99 $ 11.97 8.5% Seattle $ 16.25 $ 15.37 5.7% $ 15.96 $ 14.69 8.6% Suburban Maryland $ 18.91 $ 18.92 (0.1%) $ 19.17 $ 19.29 (0.6%) Total Same Park $ 16.70 $ 15.78 5.8% $ 16.49 $ 15.59 5.8% Cash Rental Income per Available Square Foot (1) Northern California $ 16.27 $ 14.65 11.1% $ 15.72 $ 14.49 8.5% Southern California $ 18.31 $ 16.65 10.0% $ 18.18 $ 16.12 12.8% Dallas $ 9.79 $ 9.29 5.4% $ 9.77 $ 9.24 5.7% Austin $ 17.90 $ 16.85 6.2% $ 17.71 $ 16.50 7.3% Northern Virginia $ 17.47 $ 16.86 3.6% $ 17.18 $ 16.77 2.4% South Florida $ 13.12 $ 11.29 16.2% $ 12.58 $ 11.14 12.9% Seattle $ 15.44 $ 14.43 7.0% $ 15.03 $ 14.21 5.8% Suburban Maryland $ 17.47 $ 17.72 (1.4%) $ 17.70 $ 18.16 (2.5%) Total Same Park $ 15.83 $ 14.61 8.4% $ 15.49 $ 14.44 7.3% For the Three Months Ended September 30, 2021 Square Transaction Footage Customer Costs per Cash Rental Net Effective Industrial Leased Retention Executed Foot Rate Change (1) Rent Change (2) Northern California 374 73.4% $ 3.47 9.9% 25.3% Southern California 228 83.7% 3.76 9.3% 20.6% Dallas 100 85.7% 4.97 7.3% 26.0% Austin 64 63.9% 1.28 9.6% 22.0% Northern Virginia 146 95.6% 5.48 5.3% 19.4% South Florida 196 48.4% 1.66 13.6% 28.3% Seattle 102 96.8% 5.64 3.8% 6.7% Suburban Maryland 43 — 1.68 (3.8%) 3.4% Industrial Totals by Region 1,253 74.3% $ 3.60 8.9% 22.4% Flex Northern California 89 80.4% $ 1.44 6.7% 14.6% Southern California 41 73.8% 2.83 (0.3%) 4.4% Dallas 73 84.1% 3.16 4.8% 16.9% Austin 60 20.0% 2.49 (0.7%) 3.4% Northern Virginia 179 95.4% 5.58 0.7% 8.3% South Florida 26 87.6% 2.76 9.2% 22.4% Seattle 30 45.8% 2.95 8.2% 16.5% Suburban Maryland — — — — — Flex Totals by Region 498 69.6% $ 3.58 2.5% 10.0% Office Northern California 20 53.2% $ 0.27 (19.8%) (22.1%) Southern California — — — — — Dallas — — — — — Austin — — — — — Northern Virginia 142 72.3% 15.23 (8.0%) (1.9%) South Florida — — — — — Seattle — — — — — Suburban Maryland 38 80.2% 5.08 (3.1%) 4.0% Office Totals by Region 200 71.7% $ 11.82 (9.2%) (3.8%) Company Totals by Type 1,951 72.6% $ 4.44 4.9% 15.4% For the Nine Months Ended September 30, 2021 Square Transaction Footage Customer Costs per Cash Rental Net Effective Industrial Leased Retention Executed Foot Rate Change (1) Rent Change (2) Northern California 1,156 76.5% $ 2.66 12.5% 28.3% Southern California 639 79.8% 2.41 5.6% 13.6% Dallas 389 83.4% 3.90 4.0% 12.0% Austin 208 81.0% 1.12 8.6% 26.9% Northern Virginia 375 85.5% 4.73 4.6% 11.0% South Florida 767 56.9% 1.56 10.1% 23.9% Seattle 199 87.5% 3.90 11.5% 20.8% Suburban Maryland 93 91.5% 2.19 (2.0%) 5.5% Industrial Totals by Region 3,826 75.3% $ 2.69 8.7% 20.8% Flex Northern California 169 71.0% $ 1.20 (0.7%) 3.7% Southern California 164 76.9% 2.35 1.0% 10.0% Dallas 195 75.2% 3.21 3.8% 14.6% Austin 122 28.4% 4.41 (0.8%) 3.2% Northern Virginia 436 91.5% 4.60 (0.8%) 3.6% South Florida 41 79.1% 1.87 8.3% 21.1% Seattle 71 46.6% 2.65 7.0% 14.5% Suburban Maryland — — — — — Flex Totals by Region 1,198 70.3% $ 3.36 0.8% 7.0% Office Northern California 56 62.3% $ 0.78 (13.3%) (13.2%) Southern California 6 57.6% 2.68 3.0% 10.1% Dallas — — — — — Austin — — — — — Northern Virginia 324 64.7% 11.07 (7.8%) (1.3%) South Florida — — — — — Seattle 8 — 11.79 8.5% 19.7% Suburban Maryland 109 76.3% 2.65 (4.6%) 4.2% Office Totals by Region 503 66.4% $ 8.01 (7.7%) (1.9%) Company Totals by Type 5,527 73.1% $ 3.32 4.7% 14.2% Purchase Square Occupancy at Acquired Property Date Acquired Location Price Feet September 30, 2021 Port America September 2021 Grapevine, Texas $ 123,268 718 96.8% Pickett Industrial Park October 2020 Alexandria, VA 46,582 246 92.2% La Mirada Commerce Center January 2020 La Mirada, CA 13,513 73 100.0% San Tomas Business Center December 2019 Santa Clara, CA 16,787 79 92.9% Hathaway Industrial Park September 2019 Santa Fe Springs, CA 104,330 543 100.0% Walnut Avenue Business Park April 2019 Signal Hill, CA 13,824 74 96.6% Total acquired property $ 318,304 1,733 97.1% Date Total Square Occupancy at Developed Property Completed Location Cost Feet September 30, 2021 Freeport Industrial Building March 2021 Irving, TX $ 9,052 83 51.7% Total Non-Same Park $ 327,356 1,816 95.0% For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income $ 2,308 $ 2,201 4.9% $ 6,883 $ 7,249 (5.0%) Cost of operations 1,161 1,066 8.9% 3,405 3,084 10.4% NOI $ 1,147 $ 1,135 1.1% $ 3,478 $ 4,165 (16.5%) Selected Statistical Data Weighted average square foot occupancy 94.7% 91.1% 4.0% 94.5% 92.6% 2.1% As of September 30, 2021 Total costs (1) $ 115,426 Physical occupancy 96.2% Average rent per unit (2) $ 2,044 This section should be read in conjunction with our For the Nine Months Ended September 30, 2021 2021 2020 2021 2020 Commercial Real Estate (in thousands) (per square foot) (1) Recurring capital expenditures Capital improvements (2) $ 8,343 $ 6,413 $ 0.30 $ 0.23 Tenant improvements 11,255 11,039 0.41 0.40 Lease commissions 5,438 5,225 0.20 0.19 Total commercial recurring capital expenditures (2) 25,036 22,677 0.91 0.82 Nonrecurring capital improvements 1,019 512 0.04 0.02 Total commercial capital expenditures (2) $ 26,055 $ 23,189 $ 0.95 $ 0.84 For the Nine Months Ended September 30, 2021 Recurring Recurring Capital Expenditures Capital Expenditures as a Percentage of NOI 2021 2020 Change 2021 2020 Region Same Park Northern California $ 5,944 $ 4,696 26.6% 8.8% 7.5% Southern California 2,571 1,973 30.3% 8.6% 7.5% Dallas 2,716 1,629 66.7% 27.8% 17.7% Austin 1,209 1,251 (3.4%) 7.7% 7.9% Northern Virginia 5,666 6,071 (6.7%) 14.7% 15.5% South Florida 1,693 1,698 (0.3%) 6.4% 7.3% Seattle 1,197 745 60.7% 10.6% 7.0% Suburban Maryland 1,900 1,090 74.3% 20.5% 11.1% Total Same Park 22,896 19,153 19.5% 11.0% 9.8% Non-Same Park Northern California 52 45 15.6% Southern California 305 169 80.5% Dallas 74 — 100.0% Northern Virginia 211 — 100.0% Total Non-Same Park 642 214 200.0% Assets sold or held for sale 1,498 3,310 (54.7%) Total commercial recurring capital expenditures 25,036 22,677 10.4% Multifamily 7 — 100.0% Total $ 25,043 $ 22,677 10.4% Redemption of Preferred Stock: 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 U.S. federal corporate 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. 2022, including successor and predecessor periods. For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Adjustments Gain on sale of real estate facilities (29,924) (7,652) (49,117) (27,273) Depreciation and amortization expense 23,857 23,064 69,356 72,646 Net income allocated to noncontrolling interests 13,850 8,124 33,355 26,011 Net income allocated to restricted stock unit holders 350 149 828 543 FFO allocated to JV partner (22) (21) (67) (102) FFO allocable to diluted common stock and units 60,328 54,244 180,053 169,542 Maryland reincorporation costs — — 510 — Non-capitalizable demolition costs — 335 — 335 Acceleration of stock compensation expense due to President and Chief Executive Officer retirement — 1,687 — 1,687 Core FFO allocable to diluted common stock and units 60,328 56,266 180,563 171,564 Adjustments Recurring capital improvements (3,914) (1,625) (8,350) (6,413) Tenant improvements (4,231) (3,338) (11,255) (11,039) Capitalized lease commissions (2,034) (1,889) (5,438) (5,225) Non-cash rental income (1) (453) (1,530) (1,943) (5,340) Non-cash stock compensation expense (2) 2,341 831 6,422 2,704 Cash paid for taxes in lieu of stock upon vesting of restricted stock units (478) (442) (3,680) (4,102) FAD allocable to diluted common stock and units $ 51,559 $ 48,273 $ 156,319 $ 142,149 Weighted average outstanding Common stock 27,543 27,483 27,523 27,470 Common operating partnership units 7,305 7,305 7,305 7,305 Restricted stock units 33 49 42 65 Common stock equivalents 92 82 100 90 Total diluted common stock and units 34,973 34,919 34,970 34,930 Reconciliation of earnings per share to FFO per share Net income per share of common stock—diluted $ 1.89 $ 1.11 $ 4.55 $ 3.55 Gain on sale of real estate facilities (0.85) (0.22) (1.39) (0.78) Depreciation and amortization expense 0.68 0.66 1.99 2.08 FFO per share 1.72 1.55 5.15 4.85 Maryland reincorporation costs — — 0.01 — Non-capitalizable demolition costs — 0.01 — 0.01 Acceleration of stock compensation expense due to President and Chief Executive Officer retirement — 0.05 — 0.05 Core FFO per share $ 1.72 $ 1.61 $ 5.16 $ 4.91 Disclosure Controls and Procedures Exhibits Exhibit Description 3.1 Inline XBRL Taxonomy Extension Inline XBRL Taxonomy Extension Calculation Inline XBRL Taxonomy Extension Label Inline XBRL Taxonomy Extension Presentation Inline XBRL Taxonomy Definition Linkbase Document document and may not describe the actual state of affairs as of the date they were made or at any other time. SIGNATURES PS BUSINESS PARKS, INC. (Principal Financial Officer)nameName of registrantRegistrant as specifiedSpecified in its charter)Maryland95-430088195-4300881 (State or Other Jurisdiction of
Incorporation or Organization)
Identification No.)345 Park Avenue, New York, New York 10154 (Address of Incorporation)Principal Executive Offices)Identification Number)(Zip Code)701 Western Avenue, Glendale, California 91201-2349(Address of principal executive offices) (Zip Code)(818) 244-8080Each Classeach classTicker SymbolTrading Symbol(s)Each Exchangeeach exchange on Which Registeredwhich registeredCommon Stock, $0.01 par value per sharePSBNew York Stock ExchangeDepositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series W, $0.01 par valuePSBPrWNew York Stock Exchangeregistrantregistrant: (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.Sý No £¨Sý No £¨a smaller reporting company or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.SNon-accelerated filer ¨ Accelerated filer £Non-accelerated filer££Emerging growth company £¨ £¨£¨ No SýOctober 27, 2021,November 7, 2022, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 27,550,595.PS BUSINESS PARKS, INC.INDEXPageConsolidated balance sheets as of September 30, 2021 (unaudited) and December 31, 2020 statements of income (unaudited) for the three and nine months ended September 30, 2021 and 2020 Balance Sheets4253 statements Statements of cash flows (unaudited) for the nine months ended September 30, 2021 and 2020Equity748ConsolidatedStatements of Cash FlowsItem 2. 232746334634Item 1. 463446344740Item 4. Item 5. Item 6. Exhibits48ExhibitsITEMFINANCIAL STATEMENTSBUSINESS PARKS, INC.Business Parks, Inc.CONSOLIDATED BALANCE SHEETSSuccessor Predecessor September 30, 2022 December 31, 2021 ASSETS Assets: Investments in real estate, net $ 5,613,947 $ 1,936,338 Assets held for sale — 33,609 Cash and cash equivalents 112,180 27,074 Restricted cash 634 — Tenant and other receivables 8,422 39,202 Lease-related intangible assets, net 276,748 71,793 Prepaid expenses and other assets 127,953 15,206 Due from affiliates 9 — $ 6,139,893 $ 2,123,222 LIABILITIES AND EQUITY Liabilities: Debt, net $ 3,751,039 $ 32,000 Accounts payable, accrued expenses and other liabilities 151,342 94,301 Lease-related intangible liabilities, net 162,623 2,779 Due to affiliates 15,837 71 4,080,841 129,151 Commitments and contingencies (Note 11) Equity: Preferred stock, $0.01 par value, 50,000,000 shares authorized, 30,325 and 30,200 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 563,526 755,000 Common stock, $0.01 par value, 200,000,000 shares authorized, 100 shares issued and outstanding as of September 30, 2022; 100,000,000 shares authorized, 27,589,807 shares issued and outstanding as of December 31, 2021 — 275 Paid-in capital 2,847,170 752,444 Accumulated earnings (deficit) (1,365,111) 226,737 Total PS Business Parks, Inc.'s stockholders' equity 2,045,585 1,734,456 Noncontrolling interest 13,467 259,615 Total equity 2,059,052 1,994,071 Total liabilities and equity $ 6,139,893 $ 2,123,222 Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Revenue: Rental revenue $ 77,764 $ 22,412 $ 110,478 $ 246,175 $ 328,308 Total revenue 77,764 22,412 110,478 246,175 328,308 Expenses: Property expenses 17,810 8,135 33,099 74,848 98,198 Depreciation and amortization 100,211 4,626 23,857 50,557 69,356 General and administrative 2,642 2,572 5,155 19,079 14,511 Merger costs 37,266 94,805 — 100,952 — Total expenses 157,929 110,138 62,111 245,436 182,065 Other income (expense): Gain on sale of real estate, net — 38,221 29,924 157,022 49,117 Interest income (expense) 9,933 (59) (207) (615) (478) Other income 144 89 379 2,044 1,138 Total other income (expense) 10,077 38,251 30,096 158,451 49,777 Income (loss) before income tax (70,088) (49,475) 78,463 159,190 196,020 Income tax provision (25) — — — — Net income (loss) (70,113) (49,475) 78,463 159,190 196,020 Net (income) loss attributable to noncontrolling interests 157 10,213 (13,850) (29,224) (33,355) Net income (loss) attributable to the Company (69,956) (39,262) 64,613 129,966 162,665 Allocation to preferred stockholders (9,580) — (12,046) (19,160) (36,139) Allocation to restricted stock unit holders — (13) (350) (1,011) (828) Net income (loss) attributable to common stockholders $ (79,536) $ (39,275) $ 52,217 $ 109,795 $ 125,698 Earnings (loss) per common share – basic and diluted: Net income (loss) attributable to common stockholders - basic $ (1.42) $ 1.90 $ 3.98 $ 4.57 Net income (loss) attributable to common stockholders - diluted $ (1.42) $ 1.89 $ 3.96 $ 4.55 Weighted average common shares outstanding - basic 27,631,499 27,543,274 27,619,484 27,523,225 Weighted average common shares outstanding - diluted 27,631,499 27,634,778 27,708,617 27,622,549 Successor Period from July 20, 2022 through September 30, 2022 Preferred Stock Common Stock Paid-in Capital Accumulated Earnings (Deficit) Total PS Business Parks, Inc.'s Stockholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Balance at July 20, 2022 - pre-merger — $ — — $ — $ — $ — $ — $ — $ — Total Blackstone purchase and contribution — — — — 2,847,170 — 2,847,170 — 2,847,170 Redemption of common shares — — (27,631,499) (276) (756,431) (4,279,134) (5,035,841) — (5,035,841) Application of purchase accounting 30,200 563,026 27,631,499 276 756,431 4,279,134 5,598,867 1,308,704 6,907,571 Distribution of assets — — — — — — — (1,295,217) (1,295,217) Parent Partners Loans receivable — — — — — (1,285,575) (1,285,575) — (1,285,575) Balance at July 20, 2022 - post-merger 30,200 563,026 — — 2,847,170 (1,285,575) 2,124,621 13,487 2,138,108 Issuance of stock, net of costs 125 500 100 — — — 500 — 500 Noncontrolling interests - joint venture — — — — — — — 137 137 Distributions Preferred stock — — — — — (9,580) (9,580) — (9,580) Net income (loss) — — — — — (69,956) (69,956) (157) (70,113) Balance at September 30, 2022 30,325 $ 563,526 100 $ — $ 2,847,170 $ (1,365,111) $ 2,045,585 $ 13,467 $ 2,059,052 Amountsin thousands – except share data)Predecessor Period from July 1, 2022 through July 19, 2022 Preferred Stock Common Stock Paid-in Capital Accumulated Earnings (Deficit) Total PS Business Parks, Inc.'s Stockholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Balance at June 30, 2022 30,200 $ 755,000 27,631,499 $ 276 $ 755,873 $ 318,782 $ 1,829,931 $ 284,079 $ 2,114,010 Issuance cost — — — — 176 — 176 — 176 Stock compensation, net — — — — 382 — 382 — 382 Capital contribution from noncontrolling interests—joint venture — — — — — — — 79 79 Distributions Common stock ($5.47 per share) — — — — — (151,056) (151,056) — (151,056) Noncontrolling interests — — — — — — — (39,972) (39,972) Net income (loss) — — — — — (39,262) (39,262) (10,213) (49,475) Balance at July 19, 2022¹ 30,200 $ 755,000 27,631,499 $ 276 $ 756,431 $ 128,464 $ 1,640,171 $ 233,973 $ 1,874,144 Three Months Ended September 30, 2021 Preferred Stock Common Stock Paid-in Capital Accumulated Earnings (Deficit) Total PS Business Parks, Inc.'s Stockholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Balance at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 Issuance of common stock in connection with share-based compensation — — 4,689 — — — — — — Stock compensation, net — — — — 2,174 — 2,174 — 2,174 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (478) — (478) — (478) Capital contribution from noncontrolling interests—joint venture — — — — — — — 236 236 Distributions Preferred stock — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,923) (28,923) — (28,923) Noncontrolling interests — — — — — — — (7,691) (7,691) Net income (loss) — — — — — 64,613 64,613 13,850 78,463 Balance at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 Predecessor Period from January 1, 2022 through July 19, 2022 Preferred Stock Common Stock Paid-in Capital Accumulated Earnings (Deficit) Total PS Business Parks, Inc.'s Stockholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Balance at December 31, 2021 30,200 $ 755,000 27,589,807 $ 275 $ 752,444 $ 226,737 $ 1,734,456 $ 259,615 $ 1,994,071 Issuance cost — — — — 176 — 176 — 176 Issuance of common stock in connection with share-based compensation — — 41,692 1 2,101 — 2,102 — 2,102 Stock compensation, net — — — — 3,028 — 3,028 — 3,028 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (1,318) — (1,318) — (1,318) Capital contribution from noncontrolling interests—joint venture — — — — — — — 492 492 Distributions Preferred stock — — — — — (19,160) (19,160) — (19,160) Common stock ($7.57 per share) — — — — — (209,079) (209,079) — (209,079) Noncontrolling interests — — — — — — — (55,358) (55,358) Net income (loss) — — — — — 129,966 129,966 29,224 159,190 Balance at July 19, 2022¹ 30,200 $ 755,000 27,631,499 $ 276 $ 756,431 $ 128,464 $ 1,640,171 $ 233,973 $ 1,874,144
__________________________Nine Months Ended September 30, 2021 Preferred Stock Common Stock Paid-in Capital Accumulated Earnings (Deficit) Total PS Business Parks, Inc.'s Stockholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Balance at December 31, 2020 37,790 $ 944,750 27,488,547 $ 274 $ 738,022 $ 73,631 $ 1,756,677 $ 218,963 $ 1,975,640 Issuance of common stock in connection with share-based compensation — — 57,606 1 906 — 907 — 907 Stock compensation, net — — — — 5,889 — 5,889 — 5,889 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,680) — (3,680) — (3,680) Capital contribution from noncontrolling interests—joint venture — — — — — — — 523 523 Issuance costs — — — — (105) — (105) — (105) Distributions Preferred stock — — — — — (36,139) (36,139) — (36,139) Common stock ($3.15 per share) — — — — — (86,713) (86,713) — (86,713) Noncontrolling interests — — — — — — — (23,072) (23,072) Net income (loss) — — — — — 162,665 162,665 33,355 196,020 Balance at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Operating activities: Net income (loss) $ (70,113) $ 159,190 $ 196,020 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 100,211 50,557 69,356 Gain on interest rate derivatives (61,661) — — Straight-line rents and amortization of above and below market leases (11,542) (2,276) (1,943) Amortization of deferred financing costs 4,993 488 468 Incentive compensation expense — 3,335 6,422 Gain on sale of real estate, net — (157,022) (49,117) (Increase) decrease in tenant and other receivables, lease right-of-use assets, net, prepaid expenses and other assets, and due from affiliates 4,429 3,020 (3,370) Increase in accounts payable, accrued expenses and other liabilities, lease liabilities, and due to affiliates 12,343 59,096 14,576 Net cash provided by (used in) operating activities (21,340) 116,388 232,412 Investing activities: Acquisitions of real estate — — (122,171) Proceeds from sales of investments in real estate — 236,230 76,566 Capital expenditures (15,230) (57,964) (57,987) Net cash provided by (used in) investing activities (15,230) 178,266 (103,592) Financing activities: Proceeds from debt 3,756,828 20,000 — Repayments on debt — (52,000) — Payment of deferred financing costs (10,782) (198) (2,485) Proceeds from issuance of preferred stock 500 — — Exercise of stock options — 2,101 907 Payment of issuance costs — 176 (105) Cash paid for taxes in lieu of shares upon vesting of restricted stock units — (1,318) (3,680) Cash paid to restricted stock unit holders — (328) (545) Contributions from noncontrolling interests 137 492 523 Distributions to noncontrolling interests — (55,358) (23,072) Distribution to preferred stockholders (9,580) (19,160) (36,139) Distribution to common stockholders — (209,079) (86,713) Blackstone contribution 2,847,170 — — Redemption of common shares and related costs (5,141,856) — — Parent Partners Loans (1,285,575) — — Derivative premium paid (32,758) — — Derivative premium received 25,300 — — Net cash provided by (used in) financing activities 149,384 (314,672) (151,309) Net increase (decrease) in Cash and cash equivalents and restricted cash 112,814 (20,018) (22,489) Cash and cash equivalents and restricted cash - beginning of period — 27,074 69,083 Cash and cash equivalents and restricted cash - end of period $ 112,814 $ 7,056 $ 46,594 PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF INCOME(Amounts in thousands, except per share data)(Unaudited)See accompanying notes.PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF EQUITY(Amounts in thousands, except share data)(Unaudited)PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF EQUITY(Amounts in thousands, except share data)(Unaudited)PS BUSINESS PARKS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, amounts in thousands)PS BUSINESS PARKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 20211. Organization and description of businessOrganizationof September 30, 2021, PSB owned 79.0%a result of the common partnership unitsMerger, the Company became a subsidiary of Parent and certain of its affiliates, and PS Business Parks, L.P.L.P (the “OP”“Partnership”) remained a subsidiary of the Company. The Parent is an affiliate of Blackstone Real Estate Partners IX, L.P., which is an affiliate of Blackstone Inc. (“Blackstone”). The remaining common partnership units arestock of the Company is wholly owned by Public Storage (“PS”). PS’s interest in the OPParent and certain of its affiliates and is referred to asnot publicly traded. The depositary shares representing the “PS OP Interests.” PSB, as the sole general partnerpreferred stock of the OP, has full, exclusive and complete responsibility and discretion in managing and controlling the OP. Company are publicly traded. Refer to Note 2 for additional information on basis of presentation.OPPartnership and its consolidated joint ventures, are collectively referred to as the “Company,” “we,” “us,” or “our.” PS also owns 7.2 million shares of common stockwould own 41.5% (or 14.5 million shares)conditions of the outstanding sharesMerger Agreement, upon the Closing each partnership unit of the Company’s common stock if itPartnership (a “Partnership Unit”) that was issued and outstanding prior to the effective time of the Merger (the “Partnership Merger Effective Time”) (other than units held by the Company, Parent, or any of their respective wholly owned subsidiaries) was automatically cancelled and converted into the right to receive an amount in cash equal to $182.25 (the “Per Company Share Merger Consideration”), less any applicable withholding taxes, which represented $187.50 per share of Common Stock as reduced by a $5.25 per share cash dividend paid in connection with the Closing (the “Closing Cash Dividend”) in accordance with the terms of the Merger Agreement. At the Partnership Merger Effective Time, each Partnership Unit owned by the Company or any of its subsidiaries immediately prior to the Partnership Merger Effective Time remained outstanding as a Partnership Unit of the Partnership held by the Company or the relevant subsidiary.its commonall of such limited partnership units in exchange for sharesthe distribution (the “Redemption and Distribution”) to the Parent Partners of common stock. fully-integrated, self-advised and self-managed real estate investment trust (“REIT”) that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex and low-rise suburban office space. As of September 30, 2022 and December 31, 2021, the Company owned and operated 28.1 million471 buildings in six states with 20,659,564 rentable square feet of commercial spaceand 666 buildings in 6six states comprising 97 parks and 680 buildings. The Company also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia. The Company also manages for a fee approximately 0.4 millionwith 27,716,719 rentable square feet, on behalfrespectively.PS.ContentsReferences herein to the number of properties, parks, apartment units or square footage are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).significant accounting policiespresentationconsolidated financial statements include the accounts of PSB and its subsidiaries, including the OP and its consolidated joint ventures. All significant inter-company balances and transactionsConsolidated Financial Statements have been eliminatedprepared in the consolidated financial statements. The financial statements are presented on an accrual basis in accordanceconformity 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 ofas established by the information and footnotes required by GAAP for audited financial statements.Financial Accounting Standards Board (“FASB”) including modifications issued under Accounting Standards Updates (“ASUs”). In the opinion of management, all adjustments (consisting of normal and recurring accruals)adjustments) necessary for a fair presentation have been included. Operating
____________________________July 20, 2022 Building $ 3,339,161 Site improvements 177,159 Land 1,921,093 Tenant improvements 71,805 Development in progress 150,977 In-place lease intangibles 242,551 Above market lease assets 7,888 Below market lease liabilities (172,109) 144,523 Acquired noncontrolling interest at fair value (13,481) Acquired preferred shares at fair value (563,026) Net assets acquired $ 5,306,541 Funded by: Total Blackstone contribution, net of parent partner loan distributed (1,561,595) Debt issued (3,744,946) Total consideration and merger contributions $ (5,306,541) are not necessarily indicativeit resulted in $30 and $449 changes to total revenue, $15 and $222 changes in total expenses, and $15 and $227 changes in total other income (expense), respectively. There was no change to net income as historically reported.results that may be expected foroutstanding voting interest unless it does not control the year ended December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included inentity. It is also the Company’s Annual Report on Form 10-Kpolicy to consolidate any variable interest entity (“VIE”) for which the year ended December 31, 2020.Consolidation and equity method of accountingWe consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. A limited partnershipCompany 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, generallyas defined as
havingby GAAP. The Company is deemed to be the primary beneficiary when it has (i) the power to direct the activities that most significantly impactingimpact the economic performance of the entity, and (ii) either the obligation (or right) to absorb losses (or receive benefits) of the entity that could potentially be significant.Estimated useful life Buildings 10-40 years Building equipment and fixtures 5-10 years Land and building improvements 10-15 years Tenant improvements Shorter of the asset's useful life or the noncancelable term of lease the right to receive benefits fromthat could potentially be significant to the VIE.We account for investments in entities that are not VIEs that we have significant influence over, but do not control, usingVIE, then the equity method of accountingCompany would be determined to be the primary beneficiary and for investment in entities that we control, we consolidate. We do not consider the joint venture entity that owns Highgate at The Mile a VIE, but wewould consolidate the entity asVIE. At each reporting period, the Company has control overre-assesses the joint venture. See Note 3 for more information relatingconclusions as to this joint venture arrangement.which, if any, party within the VIE is considered the primary beneficiary.We havewethe Company determined Brentford Joint Venture is a VIE because (a) Brentford Joint Venture does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, and (b) there are no substantive kick-out rights. The Company has also concluded we haveit has control over the Brentford Joint Venture as weit (a) areis the managing member of the Brentford Joint Venture, (b) havehas designated decision making power to direct the activities that most significantly affect the economic performance of the Brentford Joint Venture, and (c) havehas a 98.2% economic interest in the investment. Thus, we determined the Brentford Joint Venture is a VIE, and that we are the primary beneficiary. As such, we consolidate thebeneficiary of Brentford Joint Venture, and the related land and development costs of $46.5 million and $15.1 million were included in land and building held for development, net on our consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.Venture. The assets of the Brentford Joint Venture may only be used to settle obligations of the Brentford Joint Venture and the creditors of the Brentford Joint Venture have no recourse to the general credit of the Company. See Note 4 for more information relating to this joint venture arrangement.PS, the sole limited partner in the OP, has no power to direct the activitiesthe OP. PSB is the primary beneficiary and has control over the OP as it has the exclusive responsibility under the Operating Partnership Agreement to manage and conduct the business of the OP. Accordingly, we consider the OP a VIE and consolidate it. Substantially all of our assets and liabilities are held by the OP.Noncontrolling interestsNoncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units, (ii) the JV Partner’s 5.0% interest in our consolidated joint venture that owns Highgate at The Mile, and (iii) the JV Partner’s 1.8% interest in our consolidated joint venture formed to develop Brentford at The Mile. See Note 7 for further information on noncontrolling interests.Use of estimatesThe preparationfinancial data 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 instrumentsThe methods and assumptions used to estimate the fair value of financial instruments are described below. The Company has estimated the fair value of financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair values are not necessarily indicative of the amounts that could be realized in current market exchanges. The Company determines the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable 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; andLevel 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 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 6) approximate fair value. The characteristics of the Credit Facility, market data and other comparative metrics utilized in determining these fair values are “Level 2” inputs.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):Real estate facilitiesReal estate facilities are recorded at cost. Property taxes, insurance, interest and costs essential to the development of property for its intended use are capitalized during the period of development. Direct costs related to the renovation or improvement of the properties are capitalized. Expenditures for repairs and maintenance are expensed as incurred. Expenditures that are expected to provide benefit for a period greater than two years are capitalized and depreciated over their estimated useful life. Buildings and improvements are depreciated using the straight-line method over their estimated useful lives, which generally range from five to 30 years. Transaction costs, which include tenant improvements and lease commissions, for leases with terms greater than one year are capitalized and depreciated over the corresponding lease term.
Property held for sale or developmentReal estate is classified as held for sale when the asset is being marketed for sale and we expect that a sale 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 it will be developed to an alternate use. Property held for sale or development is not depreciated.Intangible assets/liabilitiesWhen we acquire real estate facilities, an intangible asset is recorded in other assets for leases where the in-place rent is higher than market rents, and an intangible liability is recorded in other liabilities where the market rents are higher than the in-place rents. The amounts recorded are based upon the present value (using a discount rate which reflects the risks associated with the leases acquired) of such differences over the lease term and such amounts are amortized to rental income over the respective remaining lease term. As of September 30, 2021, the value of above-market in-place rents resulted in net intangible assets of $0.8 million, net of $11.5 million of accumulated amortization, and the value of below-market in-place rents resulted in net intangible liabilities of $2.8 million, net of $12.8 million of accumulated amortization. As of December 31, 2020, the value of above-market in-place rents resulted in net intangible assets of $1.2 million, net of $11.1 million of accumulated amortization, and the value of below-market in-place rents resulted in net intangible liabilities of $2.2 million, net of $12.2 million of accumulated amortization.Additionally, when we acquire real estate facilities, the value of in-place lease intangible (i.e., customer lease-up costs) is recorded in other assets and is amortized to depreciation and amortization expense over the respective remaining lease term. As of September 30, 2021, the value of acquired in-place lease intangible resulted in net intangible assets of $6.4 million, net of $9.4 million of accumulated amortization. As of December 31, 2020, the value of acquired in-place leases resulted in net intangible assets of $5.3 million, net of $7.2 million of accumulated amortization.As of September 30, 2021, the value of our right-of-use (“ROU”) assets relating to our existing ground lease arrangements,VIE included in “other assets” on our consolidated balance sheets and the corresponding liability included under “accrued and other liabilities,” was $1.4 million, net of $0.3 million of accumulated amortization. As of December 31, 2020, the value of our ROU assets and related liability relating to our ground lease arrangements was $1.5 million, net of $0.2 million of accumulated amortization. The ground leases expire in 2029 and 2030 and do not have options to extend. As of September 30, 2021, the remaining lease terms were 8.0 years and 8.3 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 impairmentWe 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 expected net proceeds from disposal.NaN impairment charges were recorded in any period presented herein.Stock compensationShare-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, whichConsolidated Balance Sheets:Successor Predecessor September 30, 2022 December 31, 2021 Investment State Company % Interest Total Assets Total Liabilities Total Assets Total Liabilities Brentford Joint Venture VA 98.2 % $ 151,433 $ 7,972 $ 76,206 $ 7,421 accounted for based on their fair values at the beginning of the service period. See Note 11.
Accrued and other liabilitiesAccrued 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 losseseither not accrued that are reasonably possible of occurring and, if estimable, a range of exposure. The fair value of accrued and other liabilities approximate book value duerelevant to the short period until settlement.Other assetsOther assets are comprised primarily of prepaid expenses, as well asCompany or not expected to have a material effect on the intangible assets discussed above.Revenue recognitionWe recognizeCompany’s Consolidated Financial Statements.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 forCompany’s real estate taxes and other recoverable operating expenses under a single lease component presentation as the timing and patterninvestments:Successor Predecessor September 30, 2022 December 31, 2021 Buildings and improvements $ 3,589,032 $ 2,266,793 Land 1,921,093 763,961 Development in progress 165,652 — Land held for development — 78,991 Investments in real estate 5,675,777 3,109,745 Accumulated depreciation (61,830) (1,173,407) Investments in real estate, net $ 5,613,947 $ 1,936,338 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 lease payments resulting from the reimbursements from customers forinvestments in real estate taxeswas $61,830, $4,626 and other recoverable operating expenses as rental income in$23,857 for the period from July 20, 2022 through September 30, 2022, the applicable costs are incurred. Property management fees are recognized in the period earned as other income.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. The Company wrote-off accounts receivable, net of recoveries,from July 1, 2022 through July 19, 2022, and deferred rent receivable of $0.0 million and $0.1 million, respectively, for the three months ended September 30, 2021, respectively. Depreciation expense of investments in real estate was $61,830, $50,557 and $0.0 million and $0.3 million, respectively,$69,356 for the nine months endedperiod from July 20, 2022 through September 30, 2021.The Company recognized revenue2022, the period from its lease arrangements aggregating to $110.4 millionJanuary 1, 2022 through July 19, 2022, and $103.8 million for the three months ended September 30, 2021 and 2020, respectively, and $327.9 million and $310.5 million for the nine months ended September 30, 2021, and 2020, respectively. This revenue consisted primarily of rental income from operating leases and the related variable lease payments resulting from reimbursements of property operating expenses. Base rental income was $83.6 million and $79.4 million for the three months ended September 30, 2021 and 2020, respectively, and $249.4 million and $238.3 million for the nine months ended September 30, 2021 and 2020, respectively. Variable lease payments, consisting primarily of reimbursement of property operating expenses, were $26.8 million and $24.4 million for the three months ended September 30, 2021 and 2020, respectively, and $78.4 million and $72.2 million for the nine months ended September 30, 2021 and 2020, respectively.In April 2020, the Financial Accounting Standards Board issued a Staff Question-and-Answer (“Lease Modification Q&A”) to respond to frequently asked questions about accounting for lease concessions related to the 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 modification which would be accounted for under the lease modification framework, or if a lease concession was an enforceable right or obligation that existed in the original lease, which would be accounted for outside the lease modification framework. The Lease Modification Q&A provides that, to the extent that cash flow after the lease concessions are substantially the same, or less than, the cash flow previously required by the existing lease, an entity is not required to evaluate each contract to determine whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. Instead, an entity can account for such lease concessions either (i) as if they were part of the 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 leaseconcessions in response to the COVID-19 pandemic under one elected option; however, the entity is required to apply the elected option consistently to leases with similar characteristics and in similar circumstances.In accordance with the Lease Modification Q&A, the Company has elected to account for lease concessions in response to the COVID-19 pandemic as a lease modification if the cash flow after these lease concessions is substantially the same, or less than, the cash flow previously required by the existing lease. The Company 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 also accounts for such concessions as a lease modification.During the three months ended September 30, 2021, the Company agreed to defer $0.1 million and abate $0.1 million of billed rental income, which was significantly lower than the $1.7 million of rent deferrals and $0.3 million of rent abatements granted at the initial onset of the COVID-19 pandemic during the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferrals and $0.3 million of rent abatements. Since the onset of the COVID-19 pandemic, the Company entered into rent relief agreements consisting of $6.1 million of rent deferrals and $1.6 million of rent abatements. As of September 30, 2021, the 340 current customers that received rent relief account for 9.6% of rental income. Also as of September 30, 2021, the Company had collected $4.5 million of rent deferral repayment, representing 99.9% of the amounts scheduled to be repaid through September 2021. The duration and severity of the effects of the COVID-19 pandemic on the economy are uncertain and are likely to impact collectability of certain customers’ rent receivable balances in the future. The Company has taken into account the current financial condition of its tenants, including consideration of COVID-19 impacts, in its estimation of its uncollectible accounts and deferred rents receivable at September 30, 2021. The Company is closely monitoring the collectability of such rents and will adjust future estimations as appropriate as further information becomes known.Sales of real estate facilitiesSales of real estate facilities are not part of our ordinary activities, and as a result, we consider such sales as contracts with non-customers. We recognize sales of real estate when we have collected payment and the attributes of ownership, such as possession and control of the asset, have been transferred to the buyer. If a contract for sale includes obligations to provide goods or services to the buyer, an allocated portion of the contract price is recognized as revenue as the related goods or services are transferred to the buyer.General and administrative expenseGeneral and administrative expense includes executive and other compensation, corporate office expenses, professional fees, and other such costs that are not directly related to the operation of our real estate facilities.Income taxesWe have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we do not incur U.S. federal corporate income tax if we distribute all of our “REIT taxable income” each year, 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 0 U.S. federal corporate 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 September 30, 2021 and December 31, 2020, we did 0t recognize any tax benefit for uncertain tax positions.
Accounting for preferred equity issuance costsWe record preferred equity issuance costs as a reduction to paid-in capital on our consolidated balance sheets at the time the preferred securities are issued and reflect the carrying value of the preferred equity at its redemption value. An additional allocation of income is made from the common stockholders to the preferred stockholders in the amount of the original issuance costs, and we reclassify the redemption value from equity to liabilities, when we call preferred stock for redemption, with such liabilities relieved once the preferred stock is redeemed.Net income per share of common stockNotwithstanding the presentation of income allocations on our consolidated statements of income, net income is allocated to (a) preferred stockholders, for distributions paid or payable, (b) preferred stockholders, to the extent redemption value exceeds the related carrying value, (c) our joint venture partner in proportion to its percentage interest in the joint ventures, to the extent the consolidated joint ventures produce net income or loss during the period and (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 stockholders, respectively, based upon the pro-rata aggregate number of units and stock outstanding.Basic and diluted net income per share of common stock are each calculated based upon net income allocable to common stockholders, divided by (i) in the case of basic net income per share of common stock, weighted average common stock and (ii) in the case of diluted net income per share of common stock, weighted average common stock adjusted for the impact of stock compensation awards outstanding (see Note 11) using the treasury stock method.The following table sets forth the components of our basic and diluted net income per share that are not reflected on the face of our consolidated statements of income, including the allocation of income to common stockholders and common partnership units, the percentage of weighted average common stock and common partnership units outstanding, as well as basic and diluted weighted average common stock outstanding (in thousands):
Segment reportingThe 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.ReclassificationsCertain reclassifications have been made to the consolidated financial statements for 2020 in order to conform to the 2021 presentation, including reclassifying assets held for sale or sold during 2021 from “real estate facilities, at cost” of $70.0 million and “land and building held for development, net” of $5.1 million as of December 31, 2020 into “properties held for sale, net” of $75.1 million on our consolidated balance sheets. Additionally, we combined all non-cash rental income items into “straight-line rent and amortization of lease intangibles, net” within the operating activities section of our consolidated statements of cash flows for all periods presented herein.3. Real estate facilitiesActivity related to our real estate facilities for the nine months ended September 30, 2021 was as follows (in thousands):____________________________(1)Land, building and improvements, and accumulated depreciation totaling $30.9 million, $166.5 million, and $127.4 million, respectively, were reclassified as of December 31, 2020 to “properties held for sale, net” representing a 772,000 square foot industrial-flex business park located in Irving, Texas, a 371,000 square foot industrial-flex business park located in San Diego, California, a 244,000 square foot office business park located in Herndon, Virginia, a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, a 53,000 square foot industrial building located in Beltsville, Maryland, and a 22,000 square foot single-tenant industrial-flex building located in Irving, Texas.(2)Disposals primarily represent the book value of tenant improvements that have been removed upon the customer vacating their space. on a 5-acre parcel within the Company’s 44.5 acre office and multifamily park located in Tysons, Virginia (“The Mile”). The remaining 5.0% interest in the joint venture is held by the JV Partner. We consolidate the joint venture that owns Highgate at The Mile and as such, the consolidated real estate assets and activities related to this joint venture are included in the table above.Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Operating properties acquired — — 7 — 7 Square feet — — 718,000 — 718,000 Total purchase price $ — $ — $ 123,268 $ — $ 123,268 acquired properties isthe above acquisition, including the associated transaction costs, was allocated to land, buildings and improvements (including tenant improvements, and 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 affectbased on their relative fair values as of the recognitionacquisition date, and timingare summarized below:Successor Predecessor 2022 Acquisitions 2022 Acquisitions 2021 Acquisitions Building $ — $ — $ 90,897 Site improvements — — 6,998 Land — — 20,308 Tenant improvements — — 2,998 In-place lease intangibles — — 3,223 Below market lease liabilities — — (1,156) Other — — (1,097) Allocated purchase price $ — $ — $ 122,171 revenue$—, $— and depreciation$271 were capitalized and amortization expense. The fair valueof land is estimated based upon, among other considerations, comparable sales of landincluded within the same region. The fair value of buildings and improvements is determined using a combination ofallocated purchase price for the income and replacement cost approaches which both utilize available market information relevant toperiod from July 20, 2022 through September 30, 2022, 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 lease intangible is also determined utilizing the income approach using market assumptions which are based on management’s assessment of current market conditionsperiod from July 1, 2022 through July 19, 2022, and the estimated lease-up periodsthree months ended September 30, 2021, respectively. Transaction costs of $—, $— and $271 were capitalized and included within the allocated purchase price for the respective spaces. Transaction costs related to asset acquisitions are capitalized.Onperiod from July 20, 2022 through September 30, 2022, the period from January 1, 2021, the Company acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet in Grapevine, Texas, for a total purchase price of $123.3 million, inclusive of capitalized transaction costs.On January 10, 2020, the Company acquired a multi-tenant industrial business park comprising 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 following table summarizes assets acquired2022 through July 19, 2022, and liabilities assumed for the nine months ended September 30, 2021, and 2020 respectively.(in thousands):Duringnine months ended September 30, 2021, weCompany’s dispositions:Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Number of buildings 168 13 8 40 11 Number of land parcels — — — 1 — Net proceeds $ 1,295,217 $ 46,721 $ 43,900 $ 236,362 $ 76,540 Gain on sale of real estate, net $ — $ 38,221 $ 29,924 $ 157,022 $ 49,117 development of an 83,000 square foot shallow-bay industrial building at our Freeport Business Park in Irving, Texas, for total development costs of $8.1 million. The total developed asset value, inclusive of land costs, of $9.1 million wasconstruction and placed into service the following buildings:Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Buildings placed into service — — — — 1 Square feet — — — — 83,000 $ — $ — $ — $ — $ 8,062 March 1, 2021development activity relating to the properties placed into service in the above periods, including any allocation of purchase price resulting from acquisition of properties under development.accordingly was reflected under real estate facilities, at cost on our consolidated balance sheets at September 30, 2021.Properties SoldOn September 17, 2021,Liabilities Held for Salesold a 22,000 square foot industrial-flex building located in Irving, Texas,identifies non-strategic assets for net sale proceeds of $3.4 million, which resulted in a gain on sale of $2.9 million. On July 16, 2021, thesale. The Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. On June 17, 2021, the Company sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. During 2021, the Company reclassified such assets asseparately classifies properties held for sale net, in the consolidated balance sheet as of December 31, 2020.On September 16, 2020, the Company sold 2 industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. On January 7, 2020, the Company sold an 113,000 square foot office building located at Metro Park North in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California, for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.The Company determined that these sales 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.4. Multifamily developmental activityIn August 2020, the Company entered into the Brentford Joint Venture with the JV Partner for the purpose of developing Brentford at The Mile, a planned 411-unit multifamily apartment complex. Under the Brentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed a parcel of land to the Brentford Joint Venture (the “Brentford Parcel”) at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of September 30, 2021.Construction of Brentford at The Mile commenced in August 2020 and is anticipatedits Consolidated Financial Statements. Real estate investments to be completed over a perioddisposed of 24are reported at the lower of carrying amount or estimated fair value, less costs to 36 months. As of September 30, 2021, the development cost incurred was $41.4 million, whichsell. Once an asset is reflected in land and buildingclassified as held for development, net on our consolidated balance sheets along with our $5.1 million cost basis insale, depreciation and amortization expense is no longer recorded. Once a liability is classified as held for sale, amortization of below market leases is no longer recorded.Brentford Parcel. Asassets and liabilities of September 30, 2021, we have contractual construction commitments totaling $51.0 million that will be paid to various contractorsthe Company’s zero and 12 properties classified as the project is completed.5. Leasing activityThe 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 September 30, 2021 is as follows (in thousands):____________________________(1)Excludes future minimum rental income from assets held for sale as of September 30, 2021.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 $26.8 million2022 and $24.4 million for the three months ended September 30, 2021 and 2020, respectively, and $78.4 million and $72.2 million for the nine months ended September 30, 2021 and 2020, respectively. These variable lease payment amounts are included as rental income in the accompanying consolidated statements of income.Leases accounting for 2.2% of total leased square footage are subject to termination options, of which 1.3% have termination options exercisable through December 31, 2021. 2021, respectively:Successor Predecessor September 30, 2022 December 31, 2021 Assets: Investments in real estate, net $ — $ 26,788 Lease-related intangible assets, net — 6,819 Prepaid expenses and other assets — 2 Total assets held for sale $ — $ 33,609 general, these leases provide for termination payments to us shouldconnection with the termination options be exercised. Certain leases also have an option to extend the termcompletion of the lease. TheMerger, certain indirect subsidiaries of the Partnership and certain subsidiaries of Blackstone Real Estate Partners IX, L.P within the Non-Core Portfolio (collectively, the “Loan A Mortgage Borrowers”) obtained a $2,733,620 mortgage loan (the “Loan A Mortgage Loan”) on July 20, 2022 from Bank of America, N.A., Citi Real Estate Funding Inc., Barclays Capital Real Estate Inc., Morgan Stanley Bank, N.A., and Societe Generale Financial Corporation (together with its successors and assigns, the “Loan A Lenders”), and certain other indirect subsidiaries of the Partnership and certain subsidiaries of Blackstone Real Estate Partners IX, L.P within the Non-Core Portfolio (collectively, the “Loan B Mortgage Borrowers” and, together with the Loan A Mortgage Borrowers, the “Mortgage Borrowers”) obtained a $1,960,000 mortgage loan with an additional $96,000 future minimum rental income infunding option (the “Loan B Mortgage Loan” and, together with the above table assumes termination options and lease extension options are not exercised.6. Bank loansIn August 2021,Loan A Mortgage Loan, the Company amended and restated the credit agreement (the “Amended Credit Agreement”“Mortgage Loans”) governing its unsecured revolving line of credit (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”)on July 20, 2022 from Citibank, N.A., as administrative agent and the other lenders party thereto.thereto (together with the Loan B Lenders, the “Lenders”). On August 5, 2022, the Loan A Mortgage Loan was securitized as evidenced by that certain Offering Circular by BX Trust 2022-PSB, as the issuing entity, Bank of America Merrill Lynch Large Loan, Inc., as depositor, and Bank of America, National Association, Barclays Capital Real Estate Inc., Citi Real Estate Funding Inc., Morgan Stanley Mortgage Capital Holdings LLC and Societe Generale Financial Corporation, as mortgage loan sellers.Outstanding Balance at Interest Rate at September 30, 2022¹ Maturity Date at September 30, 2022² Successor Predecessor September 30, 2022 December 31, 2021 Debt, variable $ 3,795,930 $ — 5.25% - 6.84% August 2024 — 32,000 N/A N/A Unamortized debt issuance costs, net (9,697) — Unamortized discounts, net (35,194) — $ 3,751,039 $ 32,000 6.13% Amended Creditweighted average interest rate calculation does not include the amortization of debt issuance costs or debt discounts incurred in obtaining debt.Years ending December 31: Principal¹ 2022 remainder $ — 2023 — 2024 3,795,930 2025 — 2026 — Thereafter — Total debt $ 3,795,930 Successor Number of Instruments Balance at September 30, 2022 Notional Amounts Strike Maturity Date Undesignated derivatives: Interest rate caps - purchased 2 $ 47,804 $ — $ 3,592,215 3.85 % August 2024 Interest rate cap - sold 1 — 47,804 $ 3,592,215 3.85 % August 2024 Interest rate swap - purchased 1 68,993 — $ 3,592,215 3.10 % August 2024 Total fair value of derivatives $ 116,797 $ 47,804 Successor Predecessor September 30, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Financial assets: Level 2 $ 116,797 $ 116,797 $ — $ — Financial liabilities: Level 2 $ 47,804 $ 47,804 $ — $ — Level 3 $ 3,751,039 $ 3,774,620 $ 32,000 $ 32,000 Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Fixed lease payments $ 59,492 $ 16,967 $ 82,652 $ 184,011 $ 247,387 Variable lease payments 18,272 5,445 27,826 62,164 80,921 Rental revenue $ 77,764 $ 22,412 $ 110,478 $ 246,175 $ 328,308 increasedCredit Facility from $250.0 million to $400.0 million,Parent Partners Loans is $1,285,575, and extendedis recorded within Accumulated earnings (deficit) on the maturity date to August 24, 2025Consolidated Balance Sheets.with 2 six-month extension options or 1 12-month extension option. The per annum ratean affiliate of interest charged on borrowings is based on LIBOR plus 0.70% to LIBOR plus 1.35%. Currently, the Company’s rate under the Credit Facility is LIBOR plus 0.70% per annum. In addition, the Company, is requireda captive insurance company that began providing insurance coverage to pay an annual facility fee rangingthe Company in July 2022. During the period from 0.10% to0.25% per annum calculated onJuly 20, 2022 through September 30, 2022, the aggregate committed amount of the Credit Facility (currently 0.10% per annum). The interest rate margin and facility fee may increaseCompany incurred $986 for insurance premiums recognized in Property operating expenses in the future based onConsolidated Statements of Operations. The fees paid are in place of insurance premiums and fees that would otherwise be paid to third party insurance companies, and are equivalent or less than the ratio of the Company’s total consolidated indebtednessrate third-party insurance companies would charge for such services. There were $— amounts payable to its consolidated gross asset value defined in accordance with the Amended Credit Agreement. The Credit Facility also features a sustainability-linked pricing component whereby the pricing can improveby 0.01%, if the Company meets certain sustainability performance targets, and an accordion feature whereby it has an option to increase commitments under the Credit Facility up to an additional $300.0 million.The Company had 0 balance outstanding on its Credit Facility at September 30, 2021 and December 31, 2020. In connection with the Amended Credit Agreement, the Company paid $2.2 million of loan origination costs. The Company had $2.2 million and $0.2 million of total unamortized loan origination costsGMUC as of September 30, 2021 and December 31, 2020, respectively, which is included in other assets in the accompanying consolidated balance sheets. The Credit Facility requires2022.to meet certain covenants, all of which it was in compliance with as of September 30, 2021. Interest on outstanding borrowings is payable monthly.7. Noncontrolling interestsNoncontrolling interests represent (i) PS’s noncontrolling interest in the OP through its ownership of 7,305,355 common partnership units, totaling $226.0 million and $215.7 million at September 30, 2021 and December 31, 2020, respectively, and (ii) the JV Partner’s interests in our consolidated joint ventures, totaling $3.7 million and $3.3 million at September 30, 2021 and December 31, 2020, respectively.PS OP InterestsEach common partnership unit receives a cash distribution equal to the dividend paid on our common stock and is redeemable at PS’s option.If PS exercises its right of redemption, at PSB’s option (a) PS will receive 1 share of common stock from us for each common partnership unit redeemed, or (b) PS will receive cash from us for each common partnership unit redeemed generally equal to the market value of a share of common stock (as defined in the Operating Partnership Agreement). We can prevent redemptions that we believe would violate either our articles of incorporation or securities laws, cause PSB to no longer qualify as a REIT, or could result in the OP no longer being treated as a partnership for U.S. federal tax purposes.In allocating net income and presenting equity, we treat the common partnership units as if converted toissued 125 shares of common stock. Accordingly, they receivedpreferred stock, par value $0.01 per share, designated as the same net income allocation per unit as a share12% Series A Redeemable Preferred Stock (the “Series A Preferred Stock”), for an aggregate cash amount of common stock totaling $13.9 million and $8.1 million for the three months ended September 30, 2021 and 2020, respectively, and $33.4 million and $26.0 million for the nine months ended September 30, 2021 and 2020, respectively.JV PartnerDuring the three and nine months ended September 30, 2021, the Company recorded capital contributions of $0.2 million and $0.5 million, respectively, and $0.4 million for both the three and nine months ended September 30, 2020, from the JV Partner related to its noncontrolling interest in the Brentford Joint Venture.8. Related party transactionsWe 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 $0.1 million for each$500. The issuance of the three months ended September 30, 2021 and 2020 and $0.2 million for eachSeries A Preferred Stock was made in a private placement in reliance on Section 4(a)(2) of the nine months ended September 30, 2021Securities Act of 1933, as amended, and 2020. We allocate certain operating expenses to PS related to the management of these properties, including payrollrules and other business expenses totaling $0.1 million for each of the three months ended September 30, 2021 and 2020 and $0.2 million and $0.3 million for the nine months ended September 30, 2021 and 2020, 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 less than $0.1 million for each of the three months ended September 30, 2021 and 2020 and $0.1 million for each of the nine months ended September 30, 2021 and 2020. Additionally, PS allocated certain operating expenses to us related to the management of these properties totaling less than $0.1 million for each of the three months ended September 30, 2021 and 2020 and $0.1 million for each of the nine months ended September 30, 2021 and 2020. 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 $0.5 million and $0.4 million for costs PS incurred on our behalf for the three months ended September 30, 2021 and 2020, respectively, and $1.0 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively. PS reimbursed us less than $0.1 million for costs we incurred on their behalf for each of the three and nine months ended September 30, 2021 and 2020.The Company had net amounts due to PS of $0.1 million and less than $0.1 million at September 30, 2021 and December 31, 2020, respectively for these contracts.9. Stockholders’ equityPreferred stock20212022 and December 31, 2020,2021, the Company had the following series of preferred stock outstanding:Series Issuance Date Earliest Potential Redemption Date Dividend Rate Shares Outstanding Series X September 2017 September 2022 5.250 % 9,200 Series Y December 2017 December 2022 5.200 % 8,000 Series Z November 2019 November 2024 4.875 % 13,000 July 2022 12.000 % 125 Total 30,325 On October 4, 2021,The Company, at its option, may redeem shares of the Company announced that it is calling for redemption all outstanding depositary shares representing interests in its 5.20% CumulativeSeries A Preferred Stock, Series W on November 3, 2021,by resolutions of the Board, in whole or in part, at $25.00any time or from time to time, for cash at a redemption price equal to $4,000 per share plus an amount equal to all accrued and unpaid dividends from October 1, 2021, throughthereon to and including the date offixed for redemption. The aggregate redemption amount, inclusiveis within the Company’s control, and thus the preferred equity arrangements are classified as permanent equity in the Consolidated Financial Statements. The preferred stock was issued in 2022 and therefore the balance as of prorated dividends, to beDecember 31, 2021 was $—.to the holders of the depositary shares is $190.7 million.We paid $12.0 million$9,580, $— and $36.1 million$12,046 in distributions to ourits preferred stockholders for each ofthe period from July 20, 2022 through September 30, 2022, the period from July 1, 2022 through July 19, 2022, and the three months ended September 30, 2021, respectively.2020, respectively.ourthe Company’s preferred stock have general preference rights with respect to liquidation, quarterly distributions and any accumulated unpaid distributions. Holders of ourthe Company’s preferred stock will not be entitled to vote on most matters, except under certain conditions. In the event of a cumulative arrearage equal to 6six quarterly dividends, the holders of ourthe Company’s preferred stock will have the right to elect 2two additional members to serve on the Company’s Board of Directors (the “Board”) until all events of default have been cured. At September 30, 2021,2022, there were 0no dividends in arrears.ourthe Company’s 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.We paid $28.9 million ($1.05Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Distributions to common stockholders $ — $ 151,056 $ 28,923 $ 209,079 $ 86,713 Distributions to common unit holders $ — $ 39,972 $ 7,691 $ 55,358 $ 23,072 common stock) in distributions to our common stockholders for each ofCommon Stock as reduced by the three months ended September 30, 2021 and 2020, and $86.7 million ($3.15$5.25 per share of common stock) and $86.5 million ($3.15 per share of common stock) in distributionsClosing Cash Dividend.our common stockholders for the nine months ended September 30, 2021 and 2020, 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 September 30, 2021 and 2020, and $23.0 million ($3.15 per common unit) in distributions to our common unit holders for each of the nine months ended September 30, 2021 and 2020.Equity stockThe Company is authorized to issue 100.0 million shares of equity stock. Our 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 September 30, 2021 and December 31, 2020, 0 equity stock had been issued.10. Commitments and contingenciesThe Company currently is neither subject to any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company other than routine litigation and administrative proceedings arising in the ordinary course of business.11. Stock compensationUnderMerger, under various share-based compensation plans, PSB grantsgranted non-qualified options to purchase the Company’s common stock 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)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 amortizeMerger, we amortized 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 iswas amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting iswas amortized separately over each individual service period (the “accelerated attribution” method).In connection with the appointment of our President and Chief Executive Officer (“CEO”) effective April 5, 2021, the Company granted a one-time RSU sign-on award with a grant date fair value of $3.7 million and a retention RSU award with a grant date fair value of $2.9 million. These RSUs will vest ratably over five years.Effective September 1, 2020, Maria Hawthorne retired from her role as President and CEO and continues to serve as a director of the Company. Due to Ms. Hawthorne’s continued service as a director of the Company, her unvested stock options and restricted stock units will continue to vest on their original vesting schedule in accordance with the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan and related award agreements. For financial reporting purposes, the end of the service periods for these stock option and restricted stock unit grants have changed from the various respective vesting dates to September 1, 2020, the date of her retirement as President and CEO. Accordingly, all remaining stock compensation expense for Ms. Hawthorne, which totaled $1.7 million, was amortized and included in general and administrative expense during the three and nine months ended September 30, 2020.accountaccounted for forfeitures of share-based payments as they occuroccurred by reversing previously amortized share-based compensation expense with respect to unvested grants that arewere forfeited in the period the employee terminates employment.20Stock options expire 10 years aftergrant dateperiod from July 1, 2022 through July 19, 2022 and the exercise price is equalthree months ended September 30, 2021, we recorded $— and $124, respectively, in compensation expense related to the closing trading price of our common stock on the grant date. Stock option holders cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our stock options on the date of grant.threeperiod from January 1, 2022 through July 19, 2022 and the nine months ended September 30, 2021, we recorded $0.1 million$— and $0.5 million,$523, respectively, in compensation expense related to stock options.comparedapplicable, the Company Merger Effective Time, each stock option to $0.1 millionpurchase shares of Common Stock (each, a “Company Option”) outstanding immediately prior to the Company Merger Effective Time was automatically cancelled in exchange for a cash payment in an amount in cash equal to (1) the number of shares of Common Stock subject to the Company Option immediately prior to the Company Merger Effective Time multiplied by (2) the excess of the Per Company Share Merger Consideration over the per share exercise price applicable to the Company Option, less any applicable withholding taxes.$0.3 million for the same periodsthree months ended September 30, 2021, we recorded $327 and $1,946, respectively, in 2020, respectively.Duringcompensation expense related to RSUs. For the period from January 1, 2022 through July 19, 2022 and the nine months ended September 30, 2021, 28,000 stock optionswe recorded $2,522 and $5,093, respectively, in compensation expense related to RSUs.14,478 options22,209 RSUs vested, 78,557 were exercisedcancelled, and 0 options55,976 RSUs were forfeited. A total185,216 and 171,694 options were outstanding at September 30, 2021 and December 31, 2020, respectively.Restricted Stock UnitsRSUs 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 or a three-year vesting at the rate of one-third per year. Grantees receive dividendsemployees in exchange for each outstanding RSU equal to the per share dividend received by common stockholders, which are recorded in paid-in capital. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives shares of common stock equal to the number of vested RSUs, less7,920 shares of common stock withheld in exchangeupon vesting for tax withholdings made by the Company to satisfy the grantee’s statutory tax liabilities arisingperiod from the vesting. The fair value of our RSUs is determined based upon the applicable closing trading price of our common stock on the date of grant.In March 2020, the Compensation Committee of the Board approved an annual performance-based equity incentive program (“Annual Equity Incentive Program”) under the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan. Under the program, certain employees will be eligible on an annual basis to receive RSUs based on the Company’s achievement of pre-established targets for (i) growth in net asset value per share, and (ii) stockholder value creation, each as computed pursuant to the terms of the Annual Equity Incentive Program. In the event the pre-established targets are achieved, eligible employees will receive the target award, except that the Compensation Committee of the Board may adjust the actual award to 75% to 125% of the target award based on its assessment of whether certain strategic and operational goals were accomplishedJanuary 1, 2022 through July 19, 2022, resulting in the performance period. RSUs awarded under the Annual Equity Incentive Program for the 2021 performance year will be awarded on or around March 1, 2022 and will vest in 5 equal installments, with the first installment vesting on the award date. RSU holders will earn dividend equivalent rights during the vesting period.For the three and nine months ended September 30, 2021, respectively, we recorded $1.9 million and $5.1 million in compensation expense related to RSUs as compared to $2.2 million and $3.5 million for the same periods in 2020.During the nine months ended September 30, 2021, 74,435 RSUs were granted, 57,063 RSUs vested and 17,110 RSUs were forfeited.issuance of 12,528 shares of common stock. Tax withholdingswithholding totaling $3.7 million$3,680 were made on behalf of employees in exchange for 23,935 shares of common stock withheld upon vesting for the nine months ended September 30, 2021, resulting in the issuance of 33,128 shares of common stock. Tax withholdings totaling $4.1 million were made on behalf of employees in exchange for 28,877 shares of common stock withheld upon vesting for the nine months ended September 30, 2020 resulting in the issuance of 41,699 shares of common stock. A total of 121,770zero and 121,508118,591 RSUs were outstanding at September 30, 20212022 and December 31, 2020,2021, respectively.Of the 74,435 RSUs granted during the nine months ended September 30, 2021, 41,186 RSUs were granted to our President and CEO in April 2021 (discussed above), 10,955 were granted to our Chief Financial Officer, and 16,970 were granted in aggregate to our Divisional Vice Presidents.grantsgranted 1,000 shares of common stock for each year served as a director up to a maximum of 10,000 shares issued upon retirement. The Company recognizes compensation expense with regard to grants to be issued in the future under the Director RetirementPlan over the requisite service period. For the three and nine months ended September 30, 2021, respectively, we recorded $0.3 million and $0.8 million in compensation expense related to these shares as compared to $0.2 million and $0.6 million for the same periods in 2020, respectively.$1.6 million.$1,635. Compensation expense for these shares was previously recognized. NaNNo director retirement shares were issued during the period from January 1, 2022 through July 19, 2022.2020.2021, we recorded $812 and $759, respectively, in compensation expense related to the Director Retirement Plan shares.Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Reconciliation to the Consolidated Balance Sheets: Cash and cash equivalents $ 112,180 $ 7,056 $ 46,594 Restricted cash 634 — — Total cash and cash equivalents and restricted cash $ 112,814 $ 7,056 $ 46,594 Supplemental disclosures of cash flow information: Interest paid $ 35,972 $ 58 $ — Interest capitalized $ — $ — $ — Income taxes paid $ 25 $ — $ — Cash paid for operating lease liabilities $ 33 $ — $ — Supplemental disclosures of non-cash activities: Accrued but not yet paid development and capital expenditures $ (3,289) $ (3,160) $ (3,362) Pushdown accounting opening balance sheet $ 5,306,541 — $ — Distribution of Non-Core Portfolio $ 1,295,217 $ — $ — September 30, 2021, other thanclosing, the asset sales (disclosed in Note 3) andBrentford Joint Venture distributed the announced redemption ofproceeds to the 5.20% Cumulative Preferred Stock, Series W (disclosed in Note 9), no otherJV partner. No additional material subsequent events have occurred since September 30, 2022 that would require recognition in the consolidated financial statements or disclosure in the accompanying notes.
22ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONSto: (i)to the duration and severity of the COVID-19 pandemic and its impact on our business and our customers; (ii) following: (iii) (iv) decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases; (v) (vi) (vii) REITreal estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”); (viii) (ix) (x) (xi) (xii) rates and its effect on our stock price; (xiii) rates;payments; (xiv) payments, andinflation; and (xv) otherinflation. in ourof the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021 and under “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. 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.consolidated financial statements includedMerger, our acquisitions of real estate or in-substance real estate were accounted for as asset acquisitions and not business combinations. The estimates used to measure the Merger accounted for as business combinations are described in Note 2 — Summary of Significant Accounting Policies to our Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q. We believeDuring the three months ended September 30, 2022, there were no other material changes to our critical accounting policies relateestimates as compared to income tax expense,the critical accounting for acquired real estate facilities, accounting for customer receivable balances including deferred rent receivable balances, impairmentestimates disclosed in Management’s Discussion and Analysis of long-lived assets,Financial Condition and accrual for uncertain and contingent liabilities, eachResults of which are more fully discussed below.Income Tax Expense: We have elected to be treated as a REIT, as definedOperations contained in the Code. As a REIT, we do not incur U.S. federal corporate 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 U.S. federal corporate 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 allPart II, Item 7 of our taxable incomeAnnual Report on Form 10-K for at least thatthe 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.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 as of a reporting date exceeds cash rents billed through that same date under the lease 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. fully-integrated, self-advised and self-managed REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex, and low rise-suburban office space. As of September 30, 2021,2022, the Company owned and operated 28.1 million rentable square feet of commercial space471 buildings in six states consisting of 97 parks and 680 buildings.with 20,659,564 rentable square feet. The Company’s properties are primarily located in major coastal markets that have experienced long-term economic growth. The Company also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia.We have a strong and conservative capital structure which allows us the flexibility to use debt and equity capital prudently to fund our growth initiatives, includingacquiring and developing 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: 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 minimizinginvesting in capital expenditures when market conditions allow,indicate favorable return on investment, 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 provide a superior level of service to our customers,customers.described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2020.not necessarily comparable.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 easy to configure space and in markets and product types with favorable long-term return potential.On September 1, 2021, we acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet in Grapevine, Texas, for a total purchase price of $123.3 million, inclusive of capitalized transaction costs. The park consists of 15 buildings and was 96.1% occupied at acquisition with suites ranging from 2,000 to 20,000 square feet.On October 28, 2020, we acquired a multi-tenant industrial business park comprising approximately 246,000 rentable square feet in Alexandria, Virginia, for a total purchase price of $46.6 million, inclusive of capitalized transaction costs. The park consists of three buildings and was 100.0% occupied at acquisition with suites ranging from 7,000 to 75,000 square feet.On January 10, 2020, we acquired a multi-tenant industrial business 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.We continue to seek to acquire additional properties in our existing markets and generally in close proximity to our existing portfolio; however, there can be no assurance that we will acquire additional facilities that meet our risk-adjusted return and underwriting requirements. Duringnine months ended September 30, 2021, we completed theCompany’s development of an 83,000 square foot shallow-bay industrial building on an excess land parcel at our Freeport Business Park in Irving, Texas for total development costs of $8.1 million. The asset was placed into service on March 1, 2021 and accordingly was reflected under real estate facilities, at cost on our consolidated balance sheetspipeline at September 30, 2021.2022:Number of Projects Estimated Square Feet Development/redevelopment under construction 3 472,825 $ 197,254 3Q23 - 1Q24 Total 3 472,825 $ 197,254 The Mile is an office and multifamily park we own which sits on 44.5 contiguous acres of land located Estimated project cost includes the initial purchase price allocation See Note 3. Investments in Tysons, Virginia. The park consists of 628,000 square feet of office space and a 395-unit multifamily apartment community we developed, Highgate at The Mile, which we completed in 2017 through a joint venture with the JV Partner. In 2019, we successfully rezoned The Mile allowing us to develop, at our election, up to 3,000 additional multifamily units and approximately 500,000 square feet of other commercial uses.In August 2020, the Company entered into the Brentford Joint Venture with the JV Partner for the purpose of developing Brentford at The Mile, a planned 411-unit multifamily apartment complex. Under the Brentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed the Brentford Parcel to the Brentford Joint Venture at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of September 30, 2021.Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding land cost. As of September 30, 2021, the development cost incurred was $41.4 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel.While multifamily real estate was not previously a core asset class for us, we determined that multifamily real estate represents a unique opportunity and the highest and best use of the Brentford Parcel. Through joint ventures we have partnered with a local developer and operator of multifamily properties in order to leverage their development and operational expertise. The scope and timing of the future phases of development of The Mile are subject to a variety of uncertainties, including site plan approvals and building permits.We consolidate both the joint venture that owns Highgate at The Mile and the joint venture that is developing Brentford at The Mile.See “Analysis of Net Income – Multifamily” below and Note 3 and 4Real Estate to our consolidated financial statements for more informationConsolidated Financial Statements under Item 1 in this Quarterly Report on Highgate at The Mile and Brentford at The Mile.Form 10-Q.Sales Estimated stabilization/in service date is defined as the earlier of 12 months post completion or 90% occupancy.On September 17, 2021, the Company sold a 22,000 square foot industrial-flex building located The size of such sales may be significant to us. Refer to “Dispositions” in Irving, Texas, for net sale proceeds of $3.4 million, which resultedNote 3 — Investments in a gainReal Estate to our Consolidated Financial Statements under Item 1 in this Quarterly Report on sale of $2.9 million.On July 16, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million.On June 17, 2021, the Company sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million.On September 16, 2020, the Company sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million and resulted in a gain of $7.7 million.On January 7, 2020, the Company completed the sale of a single-tenant building totaling 113,000 square feet in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California (“Lusk Sale”),Form 10-Q. for a gross sales pricesummary of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.our recent dispositions.The operations of these facilities are presented in the tables below under “assets sold or held for sale.”Certain ImpactAffect Our Future ResultsImpact of COVID-19 Pandemic: Starting in March 2020, the COVID-19 pandemic resulted in cessation, severe curtailment, or impairment of business activities in most sectors of the economy in all markets we operate in, due to governmental “stay at home” orders, risk mitigation procedures,Operations and closure of businesses not considered to be “essential.” This resulted in a rapid and dramatic increase in unemployment in the U.S. in the second and third quarter of 2020, with only a partial recovery by September 30, 2021. Since it remains unknown at this time how long the COVID-19 pandemic will continue, particularly given the impact of variants such as the Delta variant, we cannot estimate how long these negative economic impacts will persist.During the three months ended September 30, 2021, the Company granted $0.1 million rent deferral and $0.1 million of rent abatement compared to the $1.7 million of rent deferral and $0.3 million of rent abatement granted for the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferral and $0.3 million of rent abatement which was significantly lower than the $5.5 million of rent deferrals and $1.2 million of rent abatements granted during the nine months ended September 30, 2020. Since the onset of the COVID-19 pandemic, the Company has entered into rent relief agreements consisting of $6.1 million of rent deferrals and $1.6 million of rent abatements. As of September 30, 2021, the 340 current customers that received rent relief account for 9.6% of rental income. Also as of September 30, 2021, the Company had collected $4.5 million of rent deferral repayment, representing 99.9% of the amounts scheduled to be repaid through September 2021.As of October 27, 2021, the Company had open rent relief requests from less than 1% of its customers. It is possible 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 cannotbe easily predicted due to the inherent uncertainty of the virus and its varying regional effects. 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. To the extent we grant additional requests for rent abatement, or to the extent that our customers default on their lease obligations, it will have a negative effect on our future rental income and net income.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 grow or maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and the potential negative effect of additional rent deferrals, rent abatements, and customer defaults, we believe in some instances the COVID-19 pandemic will continue to have adverse effects on rental income for 2021 and possibly beyond.results.results, including as a result of adverse impacts to our tenants and to the economy generally. The Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company’s leases require customers to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, which should partially reduce the Company’s exposure to inflation.Industry and Customer Concentrations: We seek to minimize the risk of industry or customer concentrations. AsNo significant tenant concentrations existed as of September 30, 2021, excluding assets held for sale, leases from our top 10 customers comprised 10.0%2022.our annualized rental income, with only four customers – the U.S. Government (2.6%), Amazon Inc. (1.6%), KZ Kitchen Cabinet & Stone (1.3%), and Luminex Corporation (1.0%) – representing more than 1%. In terms of industry concentration, 22.0% of our annualized rental income comes from business services, 14.7% from logistics, and 10.0% from technology. No other industry group represents more than 10% of our annualized rental income.Customer credit risk: Historically we have experienced a low level of write-offs of uncollectible rents, with less than 0.4% of rental income written off in any single year from 2011-2019. The negative impactOperationsCOVID-19 pandemic and its effect on our customers’ ability to pay rent resulted in accounts receivable write-offs of 0.4% of rental income in 2020, which is at the high end of the historical range noted above. During the three and nine months endedperiod from July 20, 2022 through September 30, 2021, the Company wrote off $0.0 million of accounts receivable, net of recoveries, compared to $0.3 million2022 (Successor) and $1.5 million written off during the three and nine months ended September 30, 2020, respectively.The Company writes off deferred rent receivable balances as a reduction to rental income in the period such balances are no longer deemed probable of being collected. During the three and nine months ended September 30, 2021, the Company wrote off $0.1 million and $0.3 million of deferred rent receivable, respectively, which is significantly lower than the $0.3 million and $2.7 million written off during the three and nine months ended September 30, 2020, respectively.As of October 27, 2021, we had 25,000 square feet of leased space occupied by one customer that is protected by Chapter 11 of the U.S. Bankruptcy Code, which has an aggregate remaining lease value of $0.1 million. From timefrom July 1, 2022 through July 19, 2022 (Predecessor) compared 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.
Net Operating IncomeWe 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 of Operations. Adjusted Cost of Operations, a non-GAAP measure, 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. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.We also report NOI on a basis which excludes non-cash rents that have been deferred or abated during the period, certain non-cash revenue items, including amortization of deferred rent receivable, in-place lease intangible, tenant improvement reimbursements, and lease incentives, and also excludes stock-compensation expense for employees whose compensation expense is recorded in cost of operations (“Cash NOI”). We utilize Cash NOI to evaluate the cash flow performance of our properties and believe investors and analysts utilize this metric for the same purpose. Cash NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. Cash NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.See “Analysis of net income” below for reconciliations of each of these measures to their closest analogous GAAP measure from our consolidated statements of income.Results of OperationsOperating Results Overview: Three and Nine Months Ended September 30, 2021 and 2020For the three months ended September 30, 2021 net income allocable to common stockholders was $52.2 million,(Predecessor)Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Revenue: Rental revenue $ 77,764 $ 22,412 $ 110,478 Total revenue $ 77,764 $ 22,412 $ 110,478 $1.89 per diluted share,9.3%, for the three months ended September 30, 2022, including the successor and predecessor periods, as compared to $30.6 million, or $1.11 per diluted share, for the same period in 2020. The increase was mainly due to a $29.9 million gain on sale of assets sold during the third quarter of 2021, compared to a $7.7 million gain on sales of assets sold in 2020, combined with an increase in NOI.For the ninethree months ended September 30, 2021 net income allocable to common stockholders was $125.7 million, or $4.55 per diluted share, compared to $97.7 million, or $3.55 per diluted share, for the same period in 2020. The increase was mainlyprimarily due to a $49.1 million gain on salethe distribution of assets sold during the first nine months of 2021, compared to a $27.3 million gain on sale of assets sold during the same periodCompany’s interest in 2020, combined with an increase in higher NOI and lower depreciation and amortization expense, partially offset by higher general and administrative expense.
Analysis of Net IncomeOur 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 facilities.We segregate our real estate activities into (i) same park operations, generally representing all operating58 properties acquired prior to January 1, 2019, comprising 25.1 million rentable square feet of our total 28.1 million of rentable square feet at September 30, 2021 (the “Same Park” portfolio), (ii) non-same park operations, representing those facilities we own that were acquired after January 1, 2019 (the “Non-Same Park” portfolio), (iii) multifamily operations and (iv) assets sold or held for sale comprising 1.8 million square feet, including 1.2 million square feet of assets held for sale (“AHFS”) as of September 30, 2021 and 617,000 square feet of assets sold in 2020 and 2021. AHFS as of September 30, 2021 represents a 53,000 square foot industrial building located in Beltsville, Maryland, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 772,000 square foot industrial-flex business park located in Irving, Texas. Assets sold represents 113,000 square feet of assets sold in January 2020, 40,000 square feet of assets sold in September 2020, 198,000 square feet of assets sold in June 2021, 244,000 square feet of assets sold in July 2021, and 22,000 square feet of assets sold in September 2021.The table below sets forth the various components of our net income (in thousands):
____________________________(1)As of September 30, 2021, the Company had reclassified AHFS totaling 1.2 million square feet, including a 53,000 square foot industrial building located in Beltsville, Maryland, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 772,000 square foot industrial-flex business park located in Irving, Texas. As of December 31, 2020, properties held for sale includes the 1.2 million square feet described above along with a single-tenant industrial-flex building totaling 22,000 square feet located in Irving, Texas, which was sold in September 2021, a 244,000 square foot office business park located in Herndon, Virginia, which sold in July 2021, and a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, which sold in June 2021. Also included in the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.(2)Adjusted CostNon-Core Portfolio (see Note 1 — Description of Operations excludes the impact of stock compensation expense.(3)Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributableBusiness to our executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q).(4)Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from July 1, 2022 through July 19, 2022 Three Months Ended September 30, 2021 Expenses: Property expenses $ 17,810 $ 8,135 $ 33,099 Depreciation and amortization 100,211 4,626 23,857 General and administrative 2,642 2,572 5,155 Merger costs 37,266 94,805 — Total expenses $ 157,929 $ 110,138 $ 62,111 Other income (expense): Gain on sale of real estate, net $ — $ 38,221 $ 29,924 Interest income (expense) 9,933 (59) (207) Other income 144 89 379 Total other income (expense) $ 10,077 $ 38,251 $ 30,096 NOI represents rental income less Adjusted Cost of Operations.: Rental incomeTotal expenses increased $6.7 million and $17.3 millionby $205,956, or 331.6%, for the three months ended September 30, 2022, including the successor and ninepredecessor periods, as compared to the three months ended September 30, 2021, respectively,primarily due to the following:same periodsthree months ended September 30, 2021, primarily due to the step-up in 2020 due primarilybasis of the real estate assets acquired and intangibles assumed in connection with the Merger (see Note 2 — Summary of Significant Accounting Policies to higher occupancy, a reductionour Consolidated Financial Statements under Item 1 in rent abatements granted to certain customers in 2021 compared to 2020, and lower write-offsthis Quarterly Report on Form 10-Q).fourth quarterthree months ended September 30, 2022, including the successor and predecessor periods, are comprised primarily of 2020legal and other professional fees incurred in 2021.connection with the Merger discussed herein. These increases in expenses were partially offset by a decrease in rental income from assets sold.Costproperty expenses of operations increased $1.0 million and $4.7 million$7,154 for the three months ended September 30, 2022, including the successor and ninepredecessor periods, as compared to the three months ended September 30, 2021, primarily due to the distribution of the Company’s interest in 58 properties included in the Non-Core Portfolio (see Note 1 — Description of Business to our Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q).same periods in 2020 due primarily to higher Adjusted Costtotal other income (expense) of Operations incurred by our Same Park (discussed below) and Non-Same Park portfolios, partially offset by a decrease in Adjusted Cost of Operations from assets sold.Net income increased $27.6 million and $35.6 million$30,096 for the three and nine months ended September 30, 2021, respectively, as comparedprimarily due to the same periods in 2020. The three month increase was mainly due to a $29.9 million gainfollowing:assets sold duringreal estate, net for the third quarter of 2021 compared to only a $7.7 million gain on sale of assets sold during the same period in 2020 combined with an increase in NOI driven by a reduction in rent abatements granted to certain customers as well as lower write-offs of accounts receivable and deferred rent receivable. The nine month increase was primarily due to a $49.1 million gain on sale of assets sold during the first nine months of 2021, compared to only a $27.3 million gain on sale of assets sold during the same period in 2020, combined with an increase in higher NOI attributable to the same reasons mentioned above and lower depreciation and amortization expense, partially offset by higher general and administrative expense.
Same Park PortfolioWe believe that evaluation of the Same Park 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 our Same Park portfolio and certain statistical information related to leasing activity during the three and nine months ended September 30, 20212022, including the successor and 2020 (in thousands, except per square foot data):____________________________(1)Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). See table below forpredecessor periods, was $38,221, which was related to the change in Cash Rental Income.(2)Non-Cash Rental Income represents amortizationsale of deferred rent receivable (net13 buildings. Gain on sale of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Same Park Non-Cash Rental Income is presentedreal estate, net of deferred rent receivable write-offs of $0.1 million and $0.3 million for the three months ended September 30, 2021 was $29,924, which was related to the sale of eight buildings. Refer to Note 3 — Investments in Real Estate to our Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q.for more information regarding our dispositions.2020, respectively,predecessor periods, a total movement of $10,081. There was (i) an increase in interest expense on our outstanding debt of $46,619, (ii) a $7,332 realized loss during the current year period due to changes in fair value on our interest rate derivatives, and $0.3 million(iii) amortization of financing costs of $4,992 during the current year period. This was offset by an unrealized gain on interest rate swaps of $68,993 in connection with the interest rate contracts entered into during the current year period (see Note 5 — Derivative Financial Instruments to our Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q). Subsequent to the Merger, we obtained two mortgage loans and $2.5 millionterminated the unsecured revolving line of credit (see Note 4 — Debt to our Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q).Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Revenue: Rental revenue $ 77,764 $ 246,175 $ 328,308 Total revenue $ 77,764 $ 246,175 $ 328,308 Successor Predecessor Period from July 20, 2022 through September 30, 2022 Period from January 1, 2022 through July 19, 2022 Nine Months Ended September 30, 2021 Expenses: Property expenses $ 17,810 $ 74,848 $ 98,198 Depreciation and amortization 100,211 50,557 69,356 General and administrative 2,642 19,079 14,511 Merger costs 37,266 100,952 — Total expenses $ 157,929 $ 245,436 $ 182,065 Other income (expense): Gain on sale of real estate, net $ — $ 157,022 $ 49,117 Interest income (expense) 9,933 (615) (478) Other income 144 2,044 1,138 Total other income (expense) $ 10,077 $ 158,451 $ 49,777 and 2020, respectively.(3)Adjusted Cost of Operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations.(4)NOI represents rental income less Adjusted Cost of Operations.(5)Cash NOI represents Cash Rental Income less Adjusted Cost of Operations.(6)NOI margin is computed by dividing NOI by rental income.(7)Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.(8)Revenue per Occupied Square Foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per Occupied Square Foot for the three and nine month periods shown is annualized.(9)Revenue per Available Square Foot (RevPAF) is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and nine month periods shown is annualized.(10)Cash Rental Income per Occupied Square Foot is computed by dividing Cash Rental Income for the period by weighted average occupied square feet for the same period. Cash rental Income per Occupied Square Foot for the three and nine month periods shown is annualized.(11)Cash Rental Income per Available Square Foot is computed by dividing Cash Rental Income for the period by weighted average available square feet for the same period. Cash Rental Income per Available Square Foot for the three and nine month periods shown is annualized.Analysis of Same Park Rental IncomeRental income for our Same Park portfolio increased 6.8% and 5.8% for the three and nine months ended September 30, 2021 as compared to the same periods in 2020. The three and nine month increases were due primarily to a reduction in rent abatements granted to certain customers as well as lower write-offs of accounts receivable and deferred rent receivable in 2021 compared to 2020, an increase in weighted average occupancy, and higher rental rates charged to our customers, as revenue per occupied square foot increased 4.4% and 4.2%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.The following table details the change in Same Park rental income for the three and nine months ended September 30, 2021 and 2020 (in thousands):____________________________(1)Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives.We expect future revenue growth will come primarily from contractual rental increases as well as from potential increases in market rentswas $49,117, which would allow us to increase rent levels when leases are either renewed with existing customers or re-leased to new customers.
The following table sets forth the expirations of existing leases in our Same Park portfolio over the next five years based on lease data at September 30, 2021 (dollars and square feet in thousands):See “Analysis of Same Park Market Trends” below for further analysis of such data on a by market basis.Analysis of Same Park Adjusted Cost of OperationsAdjusted Cost of Operations for our Same Park portfolio increased 3.0% and 4.3% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. The three month increase was due primarily to increases in utilities and property taxes, while the nine month increase was due primarily to increases in insurance, property taxes, repairs and maintenance, and snow removal.Property taxes increased 2.2% and 2.1% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. These increases were due to higher assessed values. We expect potential 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 10.2% and 3.0% during the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. The three and nine month increases were driven by reduced consumption in 2020 resulting from the “shelter in place order” due to the COVID-19 pandemic during the second and third quarter of 2020. It is difficult to estimate future utility costs, because weather, temperature and energy prices are volatile and not readily predictable. However, we expect utility costs in the future to return to pre-COVID-19 pandemic levels over time due to expected increases in traffic and use at our parks as our customers resume operations.Repairs and maintenance expense increased 1.5% and 3.7% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. The three and nine month increases were due a reduction in general repairs and property services as a result of the “shelter in place order” placed into effect during the second and third quarter of 2020. 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 always predictable. We expect repairs and maintenance costs for the remainder of 2021 to be comparable to our results for the three months ended September 30, 2021 and more consistent with pre-COVID-19 pandemic levels as a result of expected increases in traffic and use at our parks as customers resume operations.Compensation increased 0.7% and 2.2% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. Compensation expense is comprised of on-site and supervisory personnel costs incurred in the operation of our properties. We expect compensation expense for the remainder of 2021 to be comparable to our results for the three months ended September 30, 2021.Snow removal costs increased 1,344.3% during the nine months ended September 30, 2021 as compared to the same period in the prior year. Snow removal costs are weather dependent and therefore not predictable.Property insurance expense increased 3.8% and 22.1% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. The three and nine month increases were primarily due to an increase in our property insurance premium for the policy period June 2020 to May 2021 due to unfavorable marketconditions pervasive throughout commercial real estate sectors combined with insurance deductibles recorded during 2021 related to damage from the winter storm in Texas. We expect to experience increases in property insurance expense in the future as unfavorable market conditions pervasive throughout commercial real estate sectors persist.Other expenses decreased 1.2% and 1.8% for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in the prior year. Other expenses are comprised of general property expenses incurred in the operation of our properties. We expect other expenses for the remainder of 2021 to be similar to our results for the three months September 30, 2021.Same Park Quarterly TrendsThe following table sets forth historical quarterly data related to the operationssale of our Same Park portfolio for Cash Rental Income, Adjusted Cost of Operations, weighted average occupancy, Cash Rental Income per Occupied Square Foot, and Cash Rental Income per Available Square Foot (11 buildings. Refer to Note 3 — Investments in thousands, except per square foot data):____________________________(1)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table.
Analysis of Same Park Market TrendsThe following tables set forth historical data by region related to the operations of our Same Park portfolio for Cash Rental Income, Adjusted Cost of Operations, weighted average occupancy, Cash Rental Income per Occupied Square Foot, and Cash Rental Income per Available Square Foot (in thousands, except per square foot data):____________________________(1)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table.
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 (“Cash Rental Rate Change”) is useful in understanding trends in current market rates relativeReal Estate to our existing lease rates. The following tables summarize the Cash Rental Rate Change and other key statistical information with respect to the Company’s leasing production for its Same Park portfolio for the three and nine months ended September 30, 2021 (square feetConsolidated Financial Statements under Item 1 in thousands):____________________________(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)this Quarterly Report 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 vacantForm 10-Q for more than the preceding twelve months have been excludedinformation regarding our dispositions.this measure.(2)Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating$478 expense reimbursements.
____________________________(1)Cash Rental Rate Change is computed by taking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure.(2)Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating expense reimbursements.For the three and nine months ended September 30, 2021, weighted average occupancy was 94.8% and 94.0%, respectively, an increase from weighted average occupancy of 92.6% for both the three and nine months ended September 30, 2020. Renewals of leases with existing customers represented 62.6% of our leasing activity for the nine months ended September 30, 2021. Average lease term of the leases executed during the three months ended September 30, 2021 was 3.8 years with associated average transaction costs (tenant improvements and leasing commissions) of $4.44 per square foot. For comparative purposes, average lease term and transaction costs on leases executed during the three months ended September 30, 2020 were 3.3 years and $2.16 per square foot, respectively. The uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to increase or maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and potential additional rent deferrals, rent abatements, and customer defaults, may affect our ability to grow Same Park rental income in the near future.
Non-Same Park Portfolio: The table below reflects the assets comprising our Non-Same Park portfolio (in thousands):We believe that our management and operating infrastructure typically allows us to generate higher NOI from newly acquired real estate facilities than was achieved by previous owners. However, it can take 24 or more months for us to fully achieve higher NOI, and the ultimate levels of NOI achieved can be affected by changes in general economic conditions. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s ability to generate higher NOI from these newly acquired real estate facilities in the future, there can be no assurance that we will achieve our expectations with respect to newly acquired real estate facilities.Multifamily: As of September 30, 2021, we held a 95.0% controlling interest in a joint venture that owns Highgate at The Mile, a 395-unit apartment complex in Tysons, Virginia. The following table summarizes the historical operating results of Highgate at The Mile and certain statistical information (in thousands, except per unit data):____________________________(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 (actual rent for occupied apartment units plus market rent for vacant apartment units) divided by the total number of rentable apartment units.The nine month decrease in NOI was primarily due to a decline in rental rates as a result of the COVID-19 pandemic combined with an increase in cost of operations. The increase in cost of operations was attributed to an insurance deductible expense resulting from storm related flood damage. 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, we may continue to experience NOI levels below those which were achieved prior to the onset of the COVID-19 pandemic in the near future.Assets sold or held for sale: These amounts include historical operating results with respect to properties that were sold or held for sale. For each of the respective periods shown, the operating results include the following: 1.2 million square feet of AHFS of as September 30, 2021, an asset comprising 22,000 square feet sold in September 2021, an asset comprising 244,000 square feet sold in July 2021, an asset comprising 198,000 square feet sold in June 2021, an asset comprising 40,000 square feet sold in September 2020, and an asset comprising 113,000 square feet sold in January 2020.Amounts shown for the three months ended September 30, 2021 include operating results attributable from the AHFS and the assets sold comprising 22,000 square feet and 244,000 square feet. Amounts shown for the nine months ended September 30, 2021 include operating results attributable from AHFS and the assets sold comprising 22,000 square feet, 244,000 square feet, and 198,000 square feet. Amounts shown for the three months ended September 30, 2020 include operating results attributable to from the AHFS and assets sold comprising 22,000 square feet, 244,000 square feet, 198,000 square feet, and 40,000 square feet. Amounts showna $9,318 income for the nine months ended September 30, 2020 include operating results attributable from2022, including the AHFSsuccessor and assets sold comprising 22,000 square feet, 244,000 square feet, 198,000 square feet, 40,000 square feet, and 113,000 square feet.Depreciation and Amortization Expense: Depreciation and amortizationpredecessor periods, a total movement of $9,796. There was (i) an increase in interest expense was $23.9 million and $69.4 million foron our outstanding debt of $46,872, (ii) a $7,332 realized loss during the three and nine months ended September 30, 2021, respectively, compared to $23.1 million and $72.6 million for the same periods in 2020, respectively. The nine month decrease was primarilycurrent year period due to accelerationchanges in fair value on our interest rate derivatives, and (iii) amortization of depreciation expense relatedfinancing costs of $4,992 during the current year period. This was offset by an unrealized gain on interest rate swaps of $68,993 in connection with the interest rate contracts entered into during the current year period (see Note 5 — Derivative Financial Instruments to a building reclassified to held for developmentour Consolidated Financial Statements under Item 1 in 2020.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 nine months ended September 30, 2021, general and administrative expense increased $0.1 million and $3.0 million, respectively, comparedthis Quarterly Report on Form 10-Q). Subsequent to the same periodsMerger, we obtained two mortgage loans and terminated the unsecured revolving line of credit (see Note 4 — Debt to our Consolidated Financial Statements under Item 1 in 2020.The three month increase was primarily due to compensationthis Quarterly Report on Form 10-Q).professional fees and the nine month increase was primarily due to stock compensation expense and professional fees related to the reincorporation of PSB from the state of California to the state of Maryland in the second quarter of 2021. The increase in both the three and nine month periods was partially offset by a reduction in expense due to accelerated stock compensation expense related to the former CEO retirement in the prior year.Gain on Sale of Real Estate Facilities: On September 17, 2021, the Company sold a 22,000 square foot industrial-flex building located in Irving, Texas, for net sale proceeds of $3.4 million, which resulted in a gain on sale of $2.9 million. On July 16, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. On June 17, 2021, the Company sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million.On September 16, 2020, the Company sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. On January 7, 2020, the Company sold an 113,000 square foot office building located at Metro Park North in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.
Liquidity and Capital Resourcesconsolidated statementsConsolidated Statements of cash flows for the nine months ended September 30, 2021Cash Flows; and 2020Note 4 — Debt, Note 5 — Derivative Financial Instruments, and the notesNote 11 — Commitments and Contingencies to our consolidated financial statements, which set forthConsolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q for additional details on 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:Contractual Commitments: As a REIT, we are required to distribute at least 90%Our significant short-term liquidity requirements over the next 12 months following September 30, 2022 includes: our “REIT taxable income” to our stockholders each year, 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 stock is rated BBB by Standard 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 paid. Fixed charges include interest expense capitalized intereston outstanding indebtedness, including approximately $232,603 due within the next 12 months;equity distributions paid. Forstockholders during the nine months ended September 30, 2021, the ratio2022, including successor and predecessor periods. Dividends on preferred equity are paid when and if declared by our Board of FFODirectors (the "Board") and accumulate if not paid (see Note 9 — Stockholders' Equity to combined fixed chargesour Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q), and preferred distributions paid was 5.91.0.In August 2021, we amendedsatisfy our short-term liquidity requirements through our existing cash and restated the credit agreement governingcash equivalents, which totaled $112,180 as of September 30, 2022, and cash flow from operating activities. We may also satisfy our revolving Credit Facilityliquidity needs by: increase the aggregate principal amount of the Credit Facility from $250.0 million to $400.0 million and extend the expiration datematurity dates on existing financings.August 2025. The Credit Facility can also be expandedpay for, non-recurring capital expenditures for our properties, development or redevelopment activities, principal and interest payments on our indebtedness, and payment of distributions and dividends to $700.0 million.our equity investors. We can use the Credit Facility as necessary as temporary financing until we are able to raise longer-term capital. Historically, we have fundedmay satisfy our long-term capital requirements with retained operatingliquidity needs through our cash flow from operations, long-term secured and proceeds fromunsecured borrowings, the issuance of commondebt and preferred securities. We will select among these sources of capital based upon availability, relative cost, the impact of constraintsequity securities, property and/or land parcel dispositions, cash contributions from our Parent, our option to draw on available shared capacity on our operations (such as covenants),existing loans or through repayment of the Parent Partner Loans.the desire for leverage.Short-term Liquidity and Capital Resource Analysis: We believe that our net cash provided byleasing our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for debt service, capital expenditures and distributions to our stockholders for the foreseeable future.Asproperties as part of September 30, 2021, we had $46.6 millionInvestments in unrestricted cash. In the last five years, we have retained between $40 to $60 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less stockholder and unit holder distributions and capital expenditures, excluding development costs.Required Debt Repayment: As of September 30, 2021, 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 reconfigurations and other capital expenditures related to repositioning asset acquisitions. The following table sets forth our commercial capital expenditures paid fornet in the nine months ended September 30, 2021 and 2020 on an aggregate and per square foot basis:____________________________(1)Per square foot amounts are calculated based on capital expenditures divided by total weighted average square feet owned for the periods presented.(2)Excludes $7 and $0 of recurring capital improvements on our multifamily asset for the nine months ended September 30, 2021 and 2020, respectively.The following table summarizes recurring capital expenditures paid and the related percentage of NOI for Same Park by region for the nine months ended September 30, 2021 and 2020 (in thousands):
In the last five years, our annual Same Park recurring capital expenditures have ranged between 11.5% and 14.3% as a percentage of NOI, and we expected future recurring capital expenditures to be within this range. While what we disclose herein with respect to capital expenditures represents our best estimates at this time, there can be no assurance that these amounts will not change substantially in the future for various reasons, including the potential impact of the COVID-19 pandemic on capital projects and leasing volume.On October 4, 2021, we announced that weShares of preferred stock (other than our Series A Preferred Stock) are calling for redemption all outstanding depositaryredeemable by the Company five years after issuance or in order to preserve its status as a REIT, but shares representing interests in our 5.20% Cumulativeof preferred stock are never redeemable at the option of the holder. Shares of Series A Preferred Stock Series W on November 3, 2021,with a coupon rate of 12.00%, are redeemable at $25.00any time or from time to time, for cash at a redemption price equal to $4,000 per share plus proratedan amount equal to all accrued and unpaid dividends from October 1, 2021, throughthereon to and including the date fixed for redemption.prorated dividends, to be paid to the holders5.25%, at a par value of the depositary$230,000 and Series Y preferred shares, is $190.7 million.Other than the Series W, we do not have any other serieswith a coupon rate of preferred securities that5.20%, at a par value of $200,000 are currently redeemable.redeemable in September 2022 and December 2022, respectively. Future redemptions of preferred stock will depend upon many factors, including available cash and our cost of capital. None of our preferred securities are redeemable at the option of the holders. SeeRefer to Note 9 — Stockholders' Equity to the consolidated financial statements includedour Consolidated Financial Statements under Item 1 in this Quarterly Report on Form 10-Q for additionalmore information on our preferred stock.earliest redemption dateterms of our outstanding preferred securities.Acquisitionstheir respective governing documents. The size of real estate facilities: On September 1, 2021, we acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet in Grapevine, Texas, for a total purchasesuch repurchases may be material and may impact the liquidity and trading price of $123.3 million, inclusive of capitalized transaction costs. On October 28, 2020, we acquired a multi-tenant industrial business park comprising approximately 246,000 rentable square feet in Alexandria, Virginia, for a total purchase price of $46.6 million, inclusive of capitalized transaction costs. On January 10, 2020, we acquired a multi-tenant industrial business park comprising approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs. We continue to seek to acquire additional real estate facilities; however, there is significant competition to acquire existing facilities in our markets and there can be no assurance as to the volume of future acquisition activity.Sale of real estate: On September 17, 2021, we sold a 22,000 square foot industrial-flex building located in Irving, Texas, for net sale proceeds of $3.4 million, which resulted in a gain on sale of $2.9 million. On July 16, 2021, we sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. On June 17, 2021, we sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. On September 16, 2020, we sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. On January 7, 2020, we sold an 113,000 square foot office building located at Metro Park North in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California, for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.Development of real estate facilities: As noted above, during the nine months ended September 30, 2021, we completed the development of an 83,000 square foot shallow-bay industrial building on an excess land parcel at our Freeport Business Park in Irving, Texas for total development costs of $8.1 million. The total developed asset value inclusive of land costs, of $9.1 million was placed into service on March 1, 2021 and accordingly was reflected under real estate facilities, at cost on our consolidated balance sheets at September 30, 2021.In August 2020, we entered into the Brentford Joint Venture with the JV Partner for the purpose of developing Brentford at The Mile, a planned 411-unit multifamily apartment complex. We contributed the Brentford Parcel to the Brentford Joint Venture at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of September 30, 2021.
Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding land cost. As of September 30, 2021, the development cost incurred was $41.4 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel. During the three months ended September 30, 2020, the Company recorded non-capitalizable demolition costs of $0.3 million in interest and other expense on our consolidated statements of income.Repurchase of Common Stock: No shares of common stock were repurchased under the board-approved common stock repurchase program during the nine months ended September 30, 2021 or the year ended December 31, 2020. As of September 30, 2021, management has the authorization to repurchase an additional 1,614,721 shares.$122.8 million$237,819 ($36.1 million28,740 to preferred stockholders and $86.7 million$209,079 to common stockholders) during the nine months ended September 30, 2021.estimate the annual distribution requirements with respectmay be exposed to our preferred shares outstandinginterest rate changes primarily as a result of long-term debt used to be $38.3 million per year, excluding the 5.20% Cumulative Preferred Stock, Series W that will be redeemed during the fourth quartermaintain liquidity and fund capital expenditures and expansion of 2021 (see Note 9).If we are unable to find suitable Section 1031 exchange opportunities for the remainder of the net sale proceeds from the Lusk Sale by year end, we expect to declare and pay, by year end, a one-time special dividend sourced by a portion of the disposition proceeds. The actual amount of any special dividend will be determined by the Company based on its estimate of 2021 REIT taxable income. 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 stock will continue to be determined based upon our REIT distribution requirements and, along with distributions to preferred stockholders, we expect will be funded with cash provided by operating activities.Funds from Operations, Core Funds from Operations, and Funds Available for DistributionsFunds 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 depreciationinvestment portfolio 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”) whichoperations. Our interest rate risk management objectives are both also non-GAAP measures. The Company defines Core FFO as FFO excludingto limit the impact of (i) income allocatedinterest rate changes on earnings and cash flows and to preferred stockholders to the extent redemption value exceeds the related carrying value and (ii) other nonrecurring incomelower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates or expense items as appropriate. FAD 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 expense items such as amortization of deferred rent receivable and stock compensation expense.FFO for the three and nine months ended September 30, 2021 was $1.72 per share and $5.15 per share, respectively, representing increases of 11.2% and 6.2% from the same periods in 2020. The increases in FFO per share were the result of higher NOI as described above partially offset by higher general and administrative expense.
Core FFO was $1.72 per share and $5.16 per share for the three and nine months ended September 30, 2021, respectively, and was $1.61 per share and $4.91 per share for the three and nine months ended September 30, 2020, respectively. For the three months ended September 30, 2021, Core FFO was equal to FFO, as the Company did not incur any preferred stock redemption charges or any nonrecurring income or expense items in either period. For the nine months ended September 30, 2021, Core FFO excludes the impact of a one-time cost associatedvariable rates with the Company’s reincorporation as a Maryland corporation of $0.5 million incurred during the second quarter of 2021. For the threelowest margins available.nine months ended September 30, 2020, Core FFO excludes themonitoring changes in interest rate exposures that may adversely impact of (i) accelerated amortization of stock compensation expense of $1.7 million relatedexpected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to the retirement ofmonitor interest rate cash flow risk attributable to both our former Presidentoutstanding and CEO and (ii) non-capitalizable demolition costs of $0.3 million.The following table reconciles net income allocable to common stockholders to FFO, Core FFO and FADforecasted debt obligations as well as net income per shareour potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to FFO per share and Core FFO per share (amounts in thousands, except per share data):____________________________(1)Non-cash rental income includes amortizationestimate the expected impact of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives.(2)Amounts shown are net of accelerated stock compensation expense related to the former President and CEO retirement, also excluded from the computation of Core FFO.We believe FFO, Core FFO, and FAD assist investors in analyzing and comparing the operating and financial performance of a company’s real estate from period to period. 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 $36.1 million in distributions to our preferred stockholders for the nine months ended September 30, 2021 and expect to continue to pay quarterly distributions of $9.6 million, which excludes the 5.20% Cumulative Preferred Stock, Series W scheduled to be redeemed during the fourth quarter of 2021 (Note 9) to our preferred stockholders for the foreseeable future or until such time as there is a change in the amount or composition of our 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 never redeemable at the option of the holder.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKTo 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 September 30, 2021.Our exposure to market risk for changes in interest rates relates primarilyon our future cash flows.Facility,risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value derivative contract is positive, the counterparty owes us, which creates credit risk to us. We will minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.rates. See Notes 2expense on our variable rate debt would decrease future earnings and 6 tocash flows by $2,037. This estimate considers the consolidated financial statements included in this Quarterly Reportimpact of our interest rate swap agreements and is calculated utilizing the interest rates on Form 10-Q for additional information regarding the terms, valuationsour debt at September 30, 2022.approximate principal maturitiesProceduresthe Company’s indebtedness, including the Credit Facility.ITEM 4. CONTROLS AND PROCEDURESCompany’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’sCompany maintains 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 September 30, 2021. These controls and procedures have beenthat are designed to ensure that information required for disclosureto be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management. Management recognizes that anythe Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectivesthe desired controls objectives. Our management has evaluated, under the supervision and management necessarily applies its judgment in evaluatingwith the cost-benefit relationshipparticipation of possible controlsour Chief Executive Officer and procedures. Based onChief Financial Officer, the evaluationeffectiveness of the Company’sour disclosure controls and procedures as of September 30, 2021, the Company’s2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officerofficer have concluded that, as of such date, the Company’sSeptember 30, 2022, our disclosure controls and procedures were effective atto accomplish their objectives as the reasonable assurance level.have not been anywere no 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 September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.ITEMLEGAL PROCEEDINGSThe Company currently isLegal Proceedingssubject toinvolved in any material litigation nor, to our knowledge, is any material litigation threatened against us. We are party to a variety of legal proceedings other thanarising in the ordinary routine litigationcourse of business.administrative proceedings incidental to its business.ITEMliquidity, see the risk factors discussed in Part I, Item 1A. RISK FACTORSIn addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risks described“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020,2021 (the “Annual Report”). In light of the Merger, we are supplementing the risk factors discussed in Part I, Item 1A, Risk Factors,the Annual Report with the following risk factors, which should be read in conjunction with the risk factors contained in our Annual Report.filingsdebt arrangements. Further, this could also make it difficult for us to satisfy the distribution requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.SEC. These factorsterms of the Services Agreement. Pursuant to the Services Agreement, Link Logistics Real Estate Management LLC, a subsidiary of Link, has been engaged by certain of our subsidiaries to perform management services with respect to our properties.materiallybe renewed for additional one-year terms thereafter; provided, however, that the Services Agreement may be terminated at any time upon prior written notice by either Link or the Company. If the Services Agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan. Furthermore, we may incur certain costs in connection with a termination of the Services Agreement.conditionsponsors and operating resultstheir senior managers, including relationships with clients who may hold or may have held investments similar to those intended to be made by us. These clients may themselves represent appropriate investment opportunities for us or may compete with us for investment opportunities.In addition, Blackstone may enter into one or more strategic relationships in certain regions or with respect to certain types of investments that, although intended to provide greater opportunities for us, may require us to share such opportunities or otherwise limit the amount of an opportunity we can otherwise take.could causesale transactions with Blackstone Vehicles. Such transactions will be conducted in accordance with, our internal corporate policies and applicable laws and regulations.resultsconflicts of interest. For example, such family members or relatives might be officers, directors, personnel or owners of companies or assets which are actual or potential investments of us or our other counterparties. Moreover, in certain instances, we may transact with companies that are owned by such family members or relatives or in respect of which such family members or relatives have other involvement. In most such circumstances, we will not be precluded from undertaking any of these investment activities or transactions. To the extent Blackstone determines appropriate, it may put in place conflict mitigation strategies with respect to differ materially from expectations. Therea particular circumstance, such as internal information barriers or recusal, disclosure or other steps determined appropriate by Blackstone or Link.been no material changesagreed to indemnify Link against certain liabilities.risk factors relatingServices Agreement, except by reason of (i) any acts of Link or of any its direct and indirect partners, stockholders, members, employees, agents, officers, directors, successors and assigns (collectively, the “Link Related Parties”) beyond the scope of its authority under the Services Agreement, (ii) any material breach by Link under the Services Agreement, and (iii) any fraudulent or grossly negligent act or omission or any act or omission that constitutes willful misconduct of Link or the Link Related Parties. We have agreed to indemnify Link and its affiliates with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of Link within the scope of the Services Agreement other than for (i) any acts of Link or the Link Related Parties beyond the scope of its authority under the Services Agreement, (ii) any material breach by Link under the Services Agreement, and (iii) any fraudulent or grossly negligent act or omission or any act or omission that constitutes willful misconduct of Link or the Link Related Parties. As a result, we could experience poor performance or losses for which Link would not be liable.Company disclosed in our Form 10-K forMerger, the year ended December 31, 2020.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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe Company’s Board of Directors has authorized the repurchase, from time to time, of up to 6.5 million6,500,000 on shares of the Company’s common stock on the open market or in privately negotiated transactions. The authorization hashad no expiration date. Purchases will be made subject to market conditions and other investment opportunities available to the Company.DuringThe Company did not repurchase any shares of its common stock during the three months ended September 30, 2021, there were no shares2022 and terminated the program in connection with the Merger.the Company’s common stock repurchased. As of September 30, 2021, 1,614,721 shares remain available for purchase under the program.ContentsSee Note 9 to the consolidated financial statements for additional information on repurchases of equity securities.
ITEMItem 6. EXHIBITSExhibitsExhibit NumberExhibit 10.12.1†3.2 3.3 10.1 10.2 10.3 10.4 31.1* Exhibit 31.231.2*†Exhibit 32.132.1**†Exhibit 101.INS101.SCH*Inline XBRL Instance Document. Filed herewith.Exhibit 101.SCHSchema. Filed herewith.Schema DocumentExhibit 101.CAL101.CAL*Linkbase. Filed herewith.Linkbase DocumentExhibit 101.DEF101.LAB*Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith.Exhibit 101.LABLinkbase. Filed herewith.Linkbase DocumentExhibit 101.PRE101.PRE*Linkbase. Filed herewith.Linkbase DocumentExhibit 104101.DEF*104* Cover Page Interactive Data File (formatted as Inlineinline XBRL and with applicable taxonomy extension information contained in Exhibit 101).Exhibits 101.*)*Denotes management contractcompensatory planother disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or arrangement.†Filed herewith.48Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Dated: October 28, 2021BY:/s/ Jeffrey D. HedgesJeffrey D. HedgesExecutive Vice President and November 08, 2022By: /s/ Matt Ostrower Matt Ostrower Chief Financial Officer 49