PS Business Parks (PSBXP) 8-K Results of Operations and Financial Condition

Exhibit 99.1

News Release

PS Business Parks, Inc.

701 Western Avenue

Glendale, CA 91201-2349

www.psbusinessparks.com

For Release:	Immediately
Date:	July 29, 2013
Contact:	Edward A. Stokx
	(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Second Quarter Ended June 30, 2013 and Acquisition of a

$14.8 Million Flex Park in Dallas, Texas

GLENDALE, California— PS Business Parks, Inc. (NYSE:PSB) reported operating results for the second quarter ended June 30, 2013 and acquisition of a $14.8 million flex park in Dallas, Texas.

Funds from operations (“FFO”) allocable to common and dilutive shares were $38.0 million, or $1.19 per common and dilutive share for the three months ended June 30, 2013, a 0.8% per share increase from the three months ended June 30, 2012 of $37.3 million, or $1.18, as adjusted, per common and dilutive share. FFO allocable to common and dilutive shares was $76.1 million, or $2.39 per common and dilutive share for the six months ended June 30, 2013, a 1.7% per share increase from the six months ended June 30, 2012 of $74.4 million, or $2.35, as adjusted, per common and dilutive share. The increase in adjusted FFO per common and dilutive share for the three and six months ended June 30, 2013 over the same periods in 2012 was due to the increase in net operating income in both the Same Park and Non-Same Park facilities partially offset by an increase in preferred equity distributions as the Company has replaced short-term debt with perpetual preferred equity.

Rental income increased $2.3 million, or 2.7%, from $85.6 million for the three months ended June 30, 2012 to $87.9 million for the three months ended June 30, 2013 as a result of a $1.5 million increase in rental income from Non-Same Park facilities combined with a $757,000 increase from the Same Park portfolio. Rental income increased $5.7 million, or 3.4%, from $170.3 million for the six months ended June 30, 2012 to $176.1 million for the six months ended June 30, 2013 as a result of a $3.9 million increase in rental income from Non-Same Park facilities combined with a $1.8 million increase from the Same Park portfolio. The three and six month increases were driven by increases in occupancy rates and 2012 acquisitions.

Net income allocable to common shareholders increased $7.3 million, or 517.8%, from $1.4 million, or $0.06 per diluted share, for the three months ended June 30, 2012 to $8.7 million, or $0.36 per diluted share, for the three months ended June 30, 2013. Net income allocable to common shareholders increased $12.4 million, or 253.6%, from $4.9 million, or $0.20 per diluted share, for the six months ended June 30, 2012 to $17.3 million, or $0.71 per diluted share, for the six months ended June 30, 2013. These increases were due to the net impact of non-cash preferred equity transactions reported in 2012 combined with an increase in net operating income in 2013.

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In order to provide a meaningful period-to-period comparison of FFO derived from the Company’s ongoing business operations, the following table reconciles reported FFO to adjusted FFO which excludes the impact of non-cash distributions related to the redemption of preferred equity on the Company’s FFO per common and dilutive share for the three and six months ended June 30, 2013 and 2012:

	For The Three Months Ended June 30,							For The Six Months Ended June 30,
	2013		2012		Change			2013		2012		Change
FFO per common and dilutive share, as reported	$	1.19	$	0.92		29.3	%	$	2.39	$	1.92		24.5	%
Non-cash distributions related to the redemption of preferred equity		—		0.26					—		0.43
FFO per common and dilutive share, as adjusted	$	1.19	$	1.18		0.8	%	$	2.39	$	2.35		1.7	%

Non-cash distributions related to the redemption of preferred equity of $8.2 million and $13.5 million were included in net income allocable to preferred shareholders for the three and six months ended June 30, 2012, respectively.

Property Operations

To evaluate the performance of the Company’s portfolio over comparable periods, management analyzes the operating performance of properties owned and operated throughout both periods (herein referred to as “Same Park”). The Same Park portfolio includes all operating properties owned or acquired prior to January 1, 2011. Operating properties that the Company acquired subsequent to January 1, 2011 are referred to as “Non-Same Park.” For the three and six months ended June 30, 2013 and 2012, the Same Park facilities constitute 21.4 million rentable square feet, representing 76.0% of the 28.2 million square feet in the Company’s portfolio as of June 30, 2013.

The following table presents the operating results of the Company’s properties for the three and six months ended June 30, 2013 and 2012 in addition to other income and expense items affecting income from continuing operations (unaudited, in thousands, except per square foot amounts):

	For The Three Months Ended June 30,									For The Six Months Ended June 30,
	2013			2012			Change			2013			2012			Change
Rental income:
Same Park (21.4 million rentable square feet)	$	74,572		$	73,815			1.0	%	$	148,847		$	147,044			1.2	%
Non-Same Park (6.8 million rentable square feet)		13,358			11,812			13.1	%		27,203			23,260			17.0	%
Total rental income		87,930			85,627			2.7	%		176,050			170,304			3.4	%
Cost of operations:
Same Park		24,485			24,080			1.7	%		49,645			48,562			2.2	%
Non-Same Park		4,235			3,637			16.4	%		8,459			7,270			16.4	%
Total cost of operations		28,720			27,717			3.6	%		58,104			55,832			4.1	%
Net operating income(1):
Same Park		50,087			49,735			0.7	%		99,202			98,482			0.7	%
Non-Same Park		9,123			8,175			11.6	%		18,744			15,990			17.2	%
Total net operating income		59,210			57,910			2.2	%		117,946			114,472			3.0	%
Other:
Facility management fees		157			164			(4.3	%)		315			330			(4.5	%)
Other income and expense		(3,892	)		(5,133	)		(24.2	%)		(8,437	)		(10,438	)		(19.2	%)
Depreciation and amortization		(26,629	)		(27,198	)		(2.1	%)		(53,590	)		(54,442	)		(1.6	%)
General and administrative		(2,370	)		(2,412	)		(1.7	%)		(4,769	)		(4,685	)		1.8	%
Income from continuing operations	$	26,476		$	23,331			13.5	%	$	51,465		$	45,237			13.8	%
Same Park gross margin(2)		67.2	%		67.4	%		(0.3	%)		66.6	%		67.0	%		(0.6	%)
Same Park weighted average occupancy		91.9	%		91.4	%		0.5	%		92.0	%		91.5	%		0.5	%
Non-Same Park weighted average occupancy		82.7	%		82.8	%		(0.1	%)		81.8	%		81.9	%		(0.1	%)
Same Park annualized realized rent per square foot(3)	$	15.15		$	15.08			0.5	%	$	15.10		$	15.00			0.7	%

⁽¹⁾  Net operating income (“NOI”) is an important measurement in the commercial real estate industry for determining the value of the real estate generating the NOI. The Company’s calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance in accordance with generally accepted accounting principles (“GAAP”).

⁽²⁾  Computed by dividing Same Park NOI by Same Park rental income.

⁽³⁾  Represents the annualized Same Park rental income earned per occupied square foot.

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Property Acquisition

On July 26, 2013, the Company acquired a 389,000 square foot multi-tenant flex park consisting of 18 single-story buildings located in Dallas, Texas, for a purchase price of $14.8 million. The park was 66.5% occupied at the time of acquisition. The acquisition was funded with cash on hand.

Personnel Announcement

Maria R. Hawthorne has been promoted to Executive Vice President, Chief Administrative Officer. Ms. Hawthorne most recently served as Executive Vice President, East Coast, with responsibility for PS Business Parks’ operations in Northern Virginia, Maryland and South Florida. This change in Maria’s role is reflective of the increasing responsibilities she has assumed within the Company.

Financial Condition

The following are key financial ratios with respect to the Company’s leverage at and for the three months ended June 30, 2013:

Ratio of FFO to fixed charges(1)		14.4x
Ratio of FFO to fixed charges and preferred distributions(1)		3.0x
Debt and preferred equity to total market capitalization (based on common stock price of $72.17 at June 30, 2013)		36.9	%
Available balance under the $250.0 million unsecured credit facility at June 30, 2013	$	250.0 million

⁽¹⁾  Fixed charges include interest expense of $4.0 million.

Distributions Declared

The Board of Directors declared a quarterly dividend of $0.44 per common share on July 29, 2013. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock listed below. Distributions are payable September 30, 2013 to shareholders of record on September 13, 2013.

Series	Dividend Rate			Dividend Declared
Series R		6.875	%	$	0.429688
Series S		6.450	%	$	0.403125
Series T		6.000	%	$	0.375000
Series U		5.750	%	$	0.359375
Series V		5.700	%	$	0.356250

Company Information

PS Business Parks, Inc., a member of the S&P SmallCap 600, is a self-advised and self-managed real estate investment trust (“REIT”) that acquires, develops, owns and operates commercial properties, primarily multi-tenant flex, office and industrial space. The Company defines “flex” space as buildings that are configured with a combination of office and warehouse space and can be designed to fit a number of uses (including office, assembly, showroom, laboratory, light manufacturing and warehouse space). As of June 30, 2013, the Company wholly owned 28.2 million rentable square feet with approximately 4,650 customers located in eight states, concentrated in California (11.1 million sq. ft.), Virginia (4.0 million sq. ft.), Florida (3.7 million sq. ft.), Texas (3.5 million sq. ft.), Maryland (2.4 million sq. ft.), Washington (1.5 million sq. ft.), Oregon (1.3 million sq. ft.) and Arizona (0.7 million sq. ft.).

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Forward-Looking Statements

When used within this press release, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends” and similar expressions are intended to identify “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company’s facilities; the Company’s ability to evaluate, finance and integrate acquired and developed properties into the Company’s existing operations; the Company’s ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state and local laws and regulations including, without limitation, those governing REITs; the impact of general economic conditions upon rental rates and occupancy levels at the Company’s facilities; the availability of permanent capital at attractive rates, the outlook and actions of Rating Agencies and risks detailed from time to time in the Company’s SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.

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

A conference call is scheduled for Tuesday, July 30, 2013, at 8:00 a.m. (PDT) to discuss the second quarter results. The toll free number is (888) 299-3246; the conference ID is 18551997. The call will also be available via a live webcast on the Company’s website. A replay of the conference call will be available through August 6, 2013 at (855) 859-2056. A replay of the conference call will also be available on the Company’s website.

Additional financial data attached.

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PS BUSINESS PARKS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	June 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and cash equivalents	$	18,762		$	12,883
Real estate facilities, at cost:
Land		787,425			793,352
Buildings and equipment		2,243,149			2,235,448
		3,030,574			3,028,800
Accumulated depreciation		(988,256	)		(942,639	)
		2,042,318			2,086,161
Land and building held for development		22,301			6,829
		2,064,619			2,092,990
Rent receivable		4,806			4,754
Deferred rent receivable		26,194			25,329
Other assets		11,899			15,861
Total assets	$	2,126,280		$	2,151,817
LIABILITIES AND EQUITY
Accrued and other liabilities	$	65,095		$	69,454
Term loan		90,000			200,000
Mortgage notes payable		250,000			268,102
Total liabilities		405,095			537,556
Commitments and contingencies
Equity:
PS Business Parks, Inc.’s shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 39,800 and 35,400 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		995,000			885,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 24,380,571 and 24,298,475 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		242			242
Paid-in capital		539,270			537,091
Cumulative net income		1,014,069			967,783
Cumulative distributions		(994,822	)		(944,427	)
Total PS Business Parks, Inc.’s shareholders’ equity		1,553,759			1,445,689
Noncontrolling interests:
Common units		167,426			168,572
Total noncontrolling interests		167,426			168,572
Total equity		1,721,185			1,614,261
Total liabilities and equity	$	2,126,280		$	2,151,817

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PS BUSINESS PARKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Rental income	$	87,930		$	85,627		$	176,050		$	170,304
Facility management fees		157			164			315			330
Total operating revenues		88,087			85,791			176,365			170,634
Expenses:
Cost of operations		28,720			27,717			58,104			55,832
Depreciation and amortization		26,629			27,198			53,590			54,442
General and administrative		2,370			2,412			4,769			4,685
Total operating expenses		57,719			57,327			116,463			114,959
Other income and (expense):
Interest and other income		69			80			112			123
Interest and other expense		(3,961	)		(5,213	)		(8,549	)		(10,561	)
Total other income and (expense)		(3,892	)		(5,133	)		(8,437	)		(10,438	)
Income from continuing operations		26,476			23,331			51,465			45,237
Discontinued operations:
Income (loss) from discontinued operations		—			24			—			(37	)
Total discontinued operations		—			24			—			(37	)
Net income	$	26,476		$	23,355		$	51,465		$	45,200
Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests — common units	$	2,613		$	425		$	5,179		$	1,473
Noncontrolling interests — preferred units		—			224			—			323
Total net income allocable to noncontrolling interests		2,613			649			5,179			1,796
Net income allocable to PS Business Parks, Inc.:
Preferred shareholders		15,122			21,264			28,972			38,450
Restricted stock unit holders		30			32			63			76
Common shareholders		8,711			1,410			17,251			4,878
Total net income allocable to PS Business Parks, Inc.		23,863			22,706			46,286			43,404
	$	26,476		$	23,355		$	51,465		$	45,200
Net income per common share — basic:
Continuing operations	$	0.36		$	0.06		$	0.71		$	0.20
Discontinued operations	$	—		$	—		$	—		$	—
Net income	$	0.36		$	0.06		$	0.71		$	0.20
Net income per common share — diluted:
Continuing operations	$	0.36		$	0.06		$	0.71		$	0.20
Discontinued operations	$	—		$	—		$	—		$	—
Net income	$	0.36		$	0.06		$	0.71		$	0.20
Weighted average common shares outstanding:
Basic		24,358			24,234			24,333			24,195
Diluted		24,470			24,324			24,441			24,286

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PS BUSINESS PARKS, INC.

Computation of Diluted Funds from Operations (“FFO”) and Funds Available for Distribution (“FAD”)

(Unaudited, in thousands, except per share amounts)

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2013			2012			2013			2012
Computation of Diluted Funds From Operations (“FFO”)(1):
Net income allocable to common shareholders	$	8,711		$	1,410		$	17,251		$	4,878
Adjustments:
Depreciation and amortization		26,629			27,239			53,590			54,538
Net income allocable to noncontrolling interests — common units		2,613			425			5,179			1,473
Net income allocable to restricted stock unit holders		30			32			63			76
FFO allocable to common and dilutive shares	$	37,983		$	29,106		$	76,083		$	60,965
Weighted average common shares outstanding		24,358			24,234			24,333			24,195
Weighted average common OP units outstanding		7,305			7,305			7,305			7,305
Weighted average restricted stock units outstanding		92			111			95			110
Weighted average common share equivalents outstanding		112			90			108			91
Total common and dilutive shares		31,867			31,740			31,841			31,701
FFO per common and dilutive share	$	1.19		$	0.92		$	2.39		$	1.92
Computation of Funds Available for Distribution (“FAD”)(2):
FFO allocable to common and dilutive shares	$	37,983		$	29,106		$	76,083		$	60,965
Adjustments:
Recurring capital improvements		(2,695	)		(1,115	)		(3,604	)		(2,232	)
Tenant improvements		(7,161	)		(11,337	)		(12,953	)		(18,920	)
Lease commissions		(2,117	)		(1,739	)		(4,332	)		(3,008	)
Straight-line rent		(258	)		(782	)		(864	)		(1,918	)
Non-cash stock compensation expense		1,205			1,412			2,628			2,677
In-place lease adjustment		49			127			121			286
Tenant improvement reimbursements, net of lease incentives		(348	)		(179	)		(625	)		(349	)
Non-cash distributions related to the redemption of preferred equity		—			8,208			—			13,468
FAD	$	26,658		$	23,701		$	56,454		$	50,969
Distributions to common and dilutive shares	$	13,971		$	13,914		$	27,914		$	27,821
Distribution payout ratio		52.4	%		58.7	%		49.4	%		54.6	%

⁽¹⁾  Funds From Operations (“FFO”) is computed in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). The White Paper defines FFO as net income, computed in accordance with GAAP, before depreciation, amortization, gains or losses on asset dispositions, net income allocable to noncontrolling interests — common units, net income allocable to restricted stock unit holders, impairment charges and nonrecurring items. FFO should be analyzed in conjunction with net income. However, FFO should not be viewed as a substitute for net income as a measure of operating performance or liquidity as it does not reflect depreciation and amortization costs or the level of capital expenditure and leasing costs necessary to maintain the operating performance of the Company’s properties, which are significant economic costs and could materially impact the Company’s results from operations. Other REITs may use different methods for calculating FFO and, accordingly, the Company’s FFO may not be comparable to other real estate companies.

⁽²⁾  Funds Available for Distribution (“FAD”) is computed by adjusting consolidated FFO for recurring capital improvements, which the Company defines as those costs incurred to maintain the assets’ value, tenant improvements, lease commissions, straight-line rent, stock compensation expense, amortization of lease incentives and tenant improvement reimbursements, in-place lease adjustment and the effect of redemption/repurchase of preferred equity. Like FFO, the Company considers FAD to be a useful measure for investors to evaluate the operations and cash flows of a REIT. FAD does not represent net income or cash flow from operations as defined by GAAP.

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