PS Business Parks (PSBXP) 8-K Entry into a Material Definitive Agreement

Exhibit 99.1

News Release

PS Business Parks, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.psbusinessparks.com

For Release:	Immediately
Date:	August 2, 2010
Contact:	Edward A. Stokx
	(818) 244-8080, Ext. 1649

PS Business Parks, Inc. Reports Results for the Second Quarter Ended June 30, 2010 and
a $35.4 Million Asset Acquisition

GLENDALE, California— PS Business Parks, Inc. (NYSE:PSB) reported operating results for the second quarter ended June 30, 2010 and a $35.4 million asset acquisition.

Net income allocable to common shareholders for the three months ended June 30, 2010 was $9.2 million, or $0.37 per diluted share, on revenues of $70.0 million compared to $8.2 million, or $0.39 per diluted share, on revenues of $67.5 million for the same period in 2009. Net income allocable to common shareholders for the six months ended June 30, 2010 was $21.0 million, or $0.85 per diluted share, on revenues of $137.3 million compared to $40.8 million, or $1.98 per diluted share, on revenues of $136.9 million for the same period in 2009.

Revenues for the three months ended June 30, 2010 increased $2.5 million, or 3.7%, over the same period in 2009 as a result of an increase in revenue of $3.4 million from acquired properties partially offset by a decrease in the Company’s Same Park portfolio of $901,000 due to a decrease in rental rates. Net income allocable to common shareholders for the three months ended June 30, 2010 increased $1.1 million over the same period in 2009 primarily due to an increase in net operating income and a reduction in depreciation expense partially offset by the gain on the sale of a parcel of land in Oregon during the second quarter of 2009 and non-cash distributions of $2.4 million associated with preferred equity redemptions during the second quarter of 2010.

Revenues for the six months ended June 30, 2010 increased $489,000, or 0.4%, over the same period in 2009 as a result of an increase in revenue of $3.7 million from acquired properties partially offset by a decrease in the Company’s Same Park portfolio of $3.2 million due to a decrease in rental rates. Net income allocable to common shareholders for the six months ended June 30, 2010 decreased $19.8 million over the same period in 2009 primarily due to the net gain of $35.6 million on the repurchase of preferred equity during the first quarter of 2009. The decrease was partially offset by an increase in discontinued operations and a reduction in depreciation expense.

Supplemental Measures

Funds from operations (“FFO”) allocable to common and dilutive shares for the three months ended June 30, 2010 and 2009 were $30.7 million, or $0.96 per common and dilutive share, and $31.7 million, or $1.13 per common and dilutive share, respectively. The decrease in FFO per common and dilutive share for the three months ended June 30, 2010 over the same period in 2009 was primarily due to the impact from the issuance of 3,833,333 shares of common stock during the third quarter of 2009, non-cash distributions associated with preferred equity redemptions during the second quarter of 2010 and an increase in general and administrative costs due primarily to transaction costs associated with asset acquisitions. The decrease was partially offset by an increase in net operating income from acquired properties and a decrease in preferred equity cash distributions as a result of the redemptions noted above. FFO allocable to common and dilutive shares for the six months ended June 30, 2010 was $59.0 million, or $1.84 per common and dilutive share, compared to $98.9 million, or $3.53 per common and dilutive share, for the six months ended June 30, 2009. The decrease in FFO per common and dilutive share for the six months ended June 30, 2010 over the same period in 2009 was primarily due to the net gain of $35.6 million on the repurchase of preferred equity during the first quarter of 2009, the impact from issuance of common stock, non-cash distributions associated with preferred equity redemptions and an increase in general and administrative costs. The increase in general and administrative costs was primarily due to $787,000 and $1.9 million of acquisition transaction costs related to 2010 property acquisitions for the three and six months ended June 30, 2010, respectively.

The following table summarizes the impact of the non-cash distributions associated with the preferred equity redemptions and gain on repurchase of preferred equity on the Company’s FFO per common and dilutive share for the three and six months ended June 30, 2010 and 2009:

	For The Three Months					For The Six Months
	Ended June 30,					Ended June 30,
	2010			2009		2010			2009
FFO per common and dilutive share, before adjustments	$	1.03		$	1.13	$	1.92		$	2.26
Non-cash distribution associated with the redemption of preferred equity		(0.07	)		—		(0.08	)		—
Gain on the repurchase of preferred equity		—			—		—			1.27
FFO per common and dilutive share, as reported	$	0.96		$	1.13	$	1.84		$	3.53

Property Acquisitions

On July 30, 2010, the Company acquired a two-building multi-tenant office park aggregating 270,000 square feet in Tysons Corner, Virginia, in a cash transaction for $35.4 million. The properties, known as Tycon II and Tycon III, are 47% leased to 41 tenants. With the acquisition of Tycon II and III, PS Business Parks’ portfolio in Virginia is comprised of approximately 3.3 million square feet of multi-tenant office and flex space.

During the six months ended June 30, 2010, the Company acquired Shady Grove Executive Center, a 350,000 square foot multi-tenant office business park located in Rockville, Maryland, a portfolio of assets in Austin, Texas, aggregating 704,000 square feet of multi-tenant flex business parks and Parklawn Business Park, a 232,000 square foot multi-tenant office and flex business park located in Rockville, Maryland, for an aggregate cost of $126.3 million. In connection with these acquisitions, the Company incurred acquisition transaction costs of $787,000 and $1.9 million for the three and six months ended June 30, 2010, respectively.

Credit Facility

Subsequent to June 30, 2010, the Company extended the term of its line of credit (the “Credit Facility”) with Wells Fargo Bank to August 1, 2012. The Credit Facility has a borrowing limit of $100.0 million. Interest on outstanding borrowings is payable monthly. The rate of interest charged is equal to a rate ranging from the London Interbank Offered Rate (“LIBOR”) plus 1.60% to LIBOR plus 2.60% depending on the Company’s credit ratings and coverage ratios, as defined (currently LIBOR plus 2.00%). In addition, the Company is required to pay an annual commitment fee ranging from 0.15% to 0.40% of the borrowing limit (currently 0.25%). The Company had no balance outstanding on its Credit Facility at June 30, 2010 or December 31, 2009.

Preferred Equity Redemptions

On May 12, 2010, the Company completed the redemption of its 7.950% Series G Cumulative Redeemable Preferred Units at its aggregate par value of $20.0 million, and on June 7, 2010, the Company completed the redemption of its 7.950% Cumulative Preferred Stock, Series K at its aggregate par value of $54.1 million, in each case, together with accrued unpaid dividends.

In connection with these redemptions, the Company reported non-cash distributions of $2.4 million related to the original issuance costs.

Property Operations

In order to evaluate the performance of the Company’s overall portfolio over two comparable periods, management analyzes the operating performance of a consistent group of properties owned and operated throughout both periods (herein referred to as “Same Park”). Operating properties that the Company acquired subsequent to January 1, 2009 are referred to as “Non-Same Park.” For the three and six months ended June 30, 2010 and 2009, the Same Park facilities constitutes 19.4 million rentable square feet, which includes all assets in continuing operations that the Company owned from January 1, 2009 through June 30, 2010, representing 93.8% of the total square footage of the Company’s portfolio as of June 30, 2010.

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The Company’s property operations account for substantially all of the net operating income earned by the Company. The following table presents the operating results of the Company’s properties for the three and six months ended June 30, 2010 and 2009 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									For The Six Months
	Ended June 30,									Ended June 30,
	2010			2009			Change			2010			2009			Change
Rental income:
Same Park (19.4 million rentable square feet)(1)	$	66,474		$	67,375			(1.3	%)	$	133,262		$	136,507			(2.4	%)
Non-Same Park (1.3 million rentable square feet)(2)		3,404			—			100.0	%		3,748			—			100.0	%
Total rental income		69,878			67,375			3.7	%		137,010			136,507			0.4	%
Cost of operations:
Same Park		20,553			21,251			(3.3	%)		43,412			43,687			(0.6	%)
Non-Same Park		1,167			—			100.0	%		1,274			—			100.0	%
Total cost of operations		21,720			21,251			2.2	%		44,686			43,687			2.3	%
Net operating income(3):
Same Park		45,921			46,124			(0.4	%)		89,850			92,820			(3.2	%)
Non-Same Park		2,237			—			100.0	%		2,474			—			100.0	%
Total net operating income		48,158			46,124			4.4	%		92,324			92,820			(0.5	%)
Other income and expenses:
Facility management fees		163			173			(5.8	%)		336			350			(4.0	%)
Interest and other income		91			68			33.8	%		200			247			(19.0	%)
Interest expense		(856	)		(881	)		(2.8	%)		(1,711	)		(1,811	)		(5.5	%)
Depreciation and amortization		(18,666	)		(21,970	)		(15.0	%)		(36,856	)		(44,584	)		(17.3	%)
General and administrative		(2,400	)		(1,538	)		56.0	%		(5,149	)		(3,514	)		46.5	%
Income from continuing operations	$	26,490		$	21,976			20.5	%	$	49,144		$	43,508			13.0	%
Same Park gross margin(4)		69.1	%		68.5	%		0.9	%		67.4	%		68.0	%		(0.9	%)
Same Park weighted average for the period:
Occupancy		91.7	%		89.8	%		2.1	%		91.5	%		90.6	%		1.0	%
Annualized realized rent per square foot(5)	$	14.93		$	15.45			(3.4	%)	$	15.00		$	15.51			(3.3	%)

(1)	See above for a definition of Same Park.
(2)	See above for a definition of Non-Same Park.
(3)	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”).
(4)	Same Park gross margin is computed by dividing Same Park NOI by Same Park rental income.
(5)	Same Park realized rent per square foot represents the annualized Same Park rental income earned per occupied square foot.

Financial Condition

The following are key financial ratios with respect to the Company’s leverage at and for the three months ended June 30, 2010:

Ratio of FFO to fixed charges(1)		53.8x
Ratio of FFO to fixed charges and preferred distributions(1) (2)		3.6x
Debt and preferred equity to total market capitalization (based on common stock price of $55.78 at June 30, 2010)		27.6	%
Available under line of credit at June 30, 2010	$100.0 million

(1)	Fixed charges include interest expense of $856,000.
(2)	Excludes non-cash distributions of $2.4 million.

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Distributions Declared

The Board of Directors declared a quarterly dividend of $0.44 per common share on August 2, 2010. 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, 2010 to shareholders of record on September 15, 2010.

Series	Dividend Rate			Dividend Declared
Series H		7.000	%	$	0.437500
Series I		6.875	%	$	0.429688
Series L		7.600	%	$	0.475000
Series M		7.200	%	$	0.450000
Series O		7.375	%	$	0.460938
Series P		6.700	%	$	0.418750

Company Information

PS Business Parks, Inc., a member of the S&P SmallCap 600, is a self-advised and self-managed equity real estate investment trust (“REIT”) that acquires, develops, owns and operates commercial properties, primarily flex, multi-tenant 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 August 2, 2010, PSB wholly owned 21.0 million rentable square feet with approximately 4,100 customers located in eight states, concentrated in California (5.8 million sq. ft.), Florida (3.6 million sq. ft.), Texas (3.4 million sq. ft.), Virginia (3.3 million sq. ft.), Maryland (2.4 million sq. ft.), Oregon (1.3 million sq. ft.), Arizona (0.7 million sq. ft.) and Washington (0.5 million sq. ft.).

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, August 3, 2010, at 8:00 a.m. (PDT) to discuss the second quarter results. The toll free number is (888) 299-3246; the conference ID is 86337442. 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 10, 2010 at (800) 642-1687. 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,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Cash and cash equivalents	$	43,696		$	208,229
Real estate facilities, at cost:
Land		507,531			493,709
Buildings and equipment		1,649,153			1,528,044
		2,156,684			2,021,753
Accumulated depreciation		(740,725	)		(707,209	)
		1,415,959			1,314,544
Properties held for disposition, net		—			4,260
Land held for development		6,829			6,829
		1,422,788			1,325,633
Rent receivable		2,458			2,313
Deferred rent receivable		22,010			21,596
Other assets		10,782			7,051
Total assets	$	1,501,734		$	1,564,822
LIABILITIES AND EQUITY
Accrued and other liabilities	$	49,937		$	46,298
Mortgage notes payable		52,207			52,887
Total liabilities		102,144			99,185
Commitments and contingencies
Equity:
PS Business Parks, Inc.’s shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 22,877 and 25,042 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		571,921			626,046
Common stock, $0.01 par value, 100,000,000 shares authorized, 24,600,560 and 24,399,509 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		245			243
Paid-in capital		556,240			548,393
Cumulative net income		744,227			699,291
Cumulative distributions		(703,738	)		(658,294	)
Total PS Business Parks, Inc.’s shareholders’ equity		1,168,895			1,215,679
Noncontrolling interests:
Preferred units		53,418			73,418
Common units		177,277			176,540
Total noncontrolling interests		230,695			249,958
Total equity		1,399,590			1,465,637
Total liabilities and equity	$	1,501,734		$	1,564,822

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PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)

	For The Three Months						For The Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
Revenues:
Rental income	$	69,878		$	67,375		$	137,010		$	136,507
Facility management fees		163			173			336			350
Total operating revenues		70,041			67,548			137,346			136,857
Expenses:
Cost of operations		21,720			21,251			44,686			43,687
Depreciation and amortization		18,666			21,970			36,856			44,584
General and administrative		2,400			1,538			5,149			3,514
Total operating expenses		42,786			44,759			86,691			91,785
Other income and expenses:
Interest and other income		91			68			200			247
Interest expense		(856	)		(881	)		(1,711	)		(1,811	)
Total other income and expenses		(765	)		(813	)		(1,511	)		(1,564	)
Income from continuing operations		26,490			21,976			49,144			43,508
Discontinued operations:
Income from discontinued operations		—			176			34			343
Gain on sale of land and real estate facility		—			1,488			5,153			1,488
Total discontinued operations		—			1,664			5,187			1,831
Net income	$	26,490		$	23,640		$	54,331		$	45,339
Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests — common units	$	2,749		$	2,900		$	6,261		$	14,523
Noncontrolling interests — preferred units		1,752			1,381			3,134			(5,333	)
Total net income allocable to noncontrolling interests		4,501			4,281			9,395			9,190
Net income allocable to PS Business Parks, Inc.:
Common shareholders		9,229			8,152			20,974			40,757
Preferred shareholders		12,723			11,155			23,878			(4,871	)
Restricted stock unit holders		37			52			84			263
Total net income allocable to PS Business Parks, Inc.		21,989			19,359			44,936			36,149
	$	26,490		$	23,640		$	54,331		$	45,339
Net income per common share — basic:
Continuing operations	$	0.38		$	0.34		$	0.69		$	1.92
Discontinued operations	$	—		$	0.06		$	0.16		$	0.07
Net income	$	0.38		$	0.40		$	0.86		$	1.99
Net income per common share — diluted:
Continuing operations	$	0.37		$	0.34		$	0.69		$	1.91
Discontinued operations	$	—		$	0.06		$	0.16		$	0.07
Net income	$	0.37		$	0.39		$	0.85		$	1.98
Weighted average common shares outstanding:
Basic		24,524			20,531			24,469			20,501
Diluted		24,669			20,652			24,611			20,605

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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						For The Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
Computation of Diluted Funds From Operations (“FFO”)(1):
Net income allocable to common shareholders	$	9,229		$	8,152		$	20,974		$	40,757
Adjustments:
Gain on sale of land and real estate facility		—			(1,488	)		(5,153	)		(1,488	)
Depreciation and amortization		18,666			22,097			36,856			44,840
Net income allocable to noncontrolling interests — common units		2,749			2,900			6,261			14,523
Net income allocable to restricted stock unit holders		37			52			84			263
FFO allocable to common and dilutive shares	$	30,681		$	31,713		$	59,022		$	98,895
Weighted average common shares outstanding		24,524			20,531			24,469			20,501
Weighted average common OP units outstanding		7,305			7,305			7,305			7,305
Weighted average restricted stock units outstanding		94			133			102			138
Weighted average common share equivalents outstanding		145			121			142			104
Total common and dilutive shares		32,068			28,090			32,018			28,048
FFO per common and dilutive share	$	0.96		$	1.13		$	1.84		$	3.53
Computation of Funds Available for Distribution (“FAD”)(2):
FFO allocable to common and dilutive shares	$	30,681		$	31,713		$	59,022		$	98,895
Adjustments:
Recurring capital improvements		(1,565	)		(1,352	)		(3,150	)		(2,137	)
Tenant improvements		(3,649	)		(3,692	)		(6,207	)		(6,974	)
Lease commissions		(1,229	)		(1,117	)		(2,063	)		(1,988	)
Straight-line rent		(391	)		161			(645	)		(184	)
Stock compensation expense		520			625			1,135			1,713
In-place lease adjustment		136			(75	)		98			(161	)
Lease incentives, net of tenant improvement reimbursements		(101	)		(93	)		(264	)		(174	)
Gain on repurchase of preferred equity, net of issuance costs		—			—			—			(35,639	)
Issuance costs related to the redemption of preferred equity		2,436			—			2,436			—
FAD	$	26,838		$	26,170		$	50,362		$	53,351
Distributions to common and dilutive shares	$	14,070		$	12,307		$	28,078		$	24,582
Distribution payout ratio		52.4	%		47.0	%		55.8	%		46.1	%

(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 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, impairment charges, 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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