UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 1-10709
PS BUSINESS PARKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 95-4300881
---------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
701 Western Avenue, Glendale, California 91201-2397
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 10, 1999:
Common Stock, $0.01 par value, 23,645,461 shares outstanding
PS BUSINESS PARKS, INC.
INDEX
Page PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998......................................... 2
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1999 and 1998............. 3
Condensed Consolidated Statement of Shareholders' Equity for
the Nine Months Ended September 30, 1999...................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999............................... 5 - 6
Notes to Condensed Consolidated Financial Statements.......... 7 - 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 17 - 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 27
Item 6. Exhibits & Reports on Form 8-K................................ 27
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
--------------- ---------------
(unaudited)
ASSETS
------
Cash and cash equivalents............................... $ 118,988,000 $ 6,068,000
Real estate facilities, at cost:
Land................................................. 192,352,000 176,241,000
Buildings and equipment.............................. 623,585,000 536,697,000
--------------- ---------------
815,937,000 712,938,000
Accumulated depreciation............................. (43,932,000) (22,517,000)
--------------- ---------------
772,005,000 690,421,000
Construction in progress................................ 7,137,000 7,716,000
--------------- ---------------
779,142,000 698,137,000
Receivables............................................. 295,000 242,000
Deferred rent receivables............................... 4,630,000 2,086,000
Intangible assets, net.................................. 1,357,000 1,583,000
Other assets............................................ 1,975,000 1,298,000
--------------- ---------------
Total assets.............................. $ 906,387,000 $ 709,414,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accrued and other liabilities........................... $ 19,210,000 $ 15,953,000
Line of credit.......................................... - 12,500,000
Mortgage notes payable.................................. 45,828,000 38,041,000
--------------- ---------------
Total liabilities.............................. 65,038,000 66,494,000
Minority interests:
Preferred units...................................... 132,750,000 -
Common units......................................... 156,210,000 153,015,000
Shareholders' equity:
Preferred stock, $0.01 par value, 50,000,000
shares authorized, 2,200 shares issued and
outstanding at September 30, 1999 (none
issued and outstanding at December 31, 1998)....... 55,000,000 -
Common stock, $0.01 par value, 100,000,000
shares authorized, 23,645,461 shares issued
and outstanding at September 30, 1999
(23,635,650 shares issued and outstanding at
December 31, 1998)................................. 236,000 236,000
Paid-in capital...................................... 479,466,000 482,471,000
Cumulative net income................................ 62,906,000 32,554,000
Cumulative distributions............................. (45,219,000) (25,356,000)
--------------- ---------------
Total shareholders' equity..................... 552,389,000 489,905,000
--------------- ---------------
Total liabilities and shareholders'equity... $ 906,387,000 $ 709,414,000
=============== ===============
See accompanying notes.
2
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
Revenues:
Rental income................................. $ 32,568,000 $ 25,635,000 $ 92,544,000 $ 61,459,000
Facility management fees from affiliates...... 121,000 109,000 351,000 440,000
Interest and other income..................... 592,000 533,000 885,000 1,077,000
-------------- -------------- -------------- --------------
33,281,000 26,277,000 93,780,000 62,976,000
-------------- -------------- -------------- --------------
Expenses:
Cost of operations............................. 8,920,000 7,379,000 25,951,000 18,361,000
Cost of facility management.................... 24,000 12,000 70,000 49,000
Depreciation and amortization.................. 7,594,000 4,865,000 21,641,000 11,421,000
General and administrative..................... 742,000 593,000 2,339,000 1,589,000
Interest expense............................... 977,000 667,000 2,658,000 1,736,000
-------------- -------------- -------------- --------------
18,257,000 13,516,000 52,659,000 33,156,000
-------------- -------------- -------------- --------------
Income before minority interest.................. 15,024,000 12,761,000 41,121,000 29,820,000
Minority interest in income - preferred units.. (1,022,000) - (1,236,000) -
Minority interest in income - common units..... (3,347,000) (3,013,000) (9,533,000) (8,696,000)
-------------- -------------- -------------- --------------
Net income....................................... $ 10,655,000 $ 9,748,000 $ 30,352,000 $ 21,124,000
============== ============== ============== ==============
Net income allocation:
Allocable to preferred shareholders............ $ 1,272,000 $ - $ 2,134,000 $ -
Allocable to common shareholders............... 9,383,000 9,748,000 28,218,000 21,124,000
-------------- -------------- -------------- --------------
$ 10,655,000 $ 9,748,000 $ 30,352,000 $ 21,124,000
============== ============== ============== ==============
Net income per common share:
Basic.......................................... $ 0.40 $ 0.41 $ 1.19 $ 1.18
============== ============== ============== ==============
Diluted........................................ $ 0.40 $ 0.41 $ 1.19 $ 1.17
============== ============== ============== ==============
Weighted average common shares outstanding:
Basic.......................................... 23,641,000 23,636,000 23,639,000 17,920,000
============== ============== ============== ==============
Diluted........................................ 23,724,000 23,696,000 23,713,000 17,990,000
============== ============== ============== ==============
See accompanying notes.
3
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1999
(Unaudited)
Preferred Stock Common Stock
----------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------- ----------- ------------
Balances at December 31, 1998................ - $ - 23,635,650 $ 236,000
Issuance of preferred stock, net of
issuance costs.......................... 2,200 55,000,000 - -
Issuance of common stock.................. - - 9,811 -
Net income................................ - - - -
Distributions paid:
Preferred stock....................... - - - -
Common stock.......................... - - - -
Adjustment to reflect minority interest
to underlying ownership interest........ - - - -
------------ ------------- ----------- ------------
Balances at September 30, 1999............... 2,200 $ 55,000,000 23,645,461 $ 236,000
============ ============= =========== ============
Cumulative Cumulative Shareholders'
Paid-in Capital Net Income Distributions Equity
--------------- ------------- --------------- --------------
Balances at December 31, 1998................ $ 482,471,000 $ 32,554,000 $ (25,356,000) $ 489,905,000
Issuance of preferred stock, net of
issuance costs.......................... (1,914,000) - - 53,086,000
Issuance of common stock.................. 161,000 - - 161,000
Net income................................ - 30,352,000 - 30,352,000
Distributions paid:
Preferred stock....................... - - (2,134,000) (2,134,000)
Common stock.......................... - - (17,729,000) (17,729,000)
Adjustment to reflect minority interest
to underlying ownership interest........ (1,252,000) - - (1,252,000)
--------------- ------------- --------------- --------------
Balances at September 30, 1999............... $ 479,466,000 $ 62,906,000 $ (45,219,000) $ 552,389,000
=============== ============= =============== ==============
See accompanying notes.
4
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30,
-----------------------------------------
1999 1998
----------------- --------------
Cash flows from operating activities:
Net income........................................................ $ 30,352,000 $ 21,124,000
Adjustments to reconcile net income to net cash provided
by operating activities:..........................................
Depreciation and amortization expense......................... 21,641,000 11,421,000
Minority interest in income................................... 10,769,000 8,696,000
Increase in receivables and other assets...................... (3,274,000) (2,620,000)
Increase in accrued and other liabilities..................... 3,257,000 3,221,000
----------------- --------------
Total adjustments........................................... 32,393,000 20,718,000
----------------- --------------
Net cash provided by operating activities................... 62,745,000 41,842,000
----------------- --------------
Cash flows from investing activities:
Acquisition of real estate facilities......................... (59,555,000) (252,649,000)
Acquisition cost of business combination...................... - (424,000)
Capital improvements to real estate facilities................ (10,546,000) (6,030,000)
Construction in progress...................................... (11,567,000) -
----------------- --------------
Net cash used in investing activities....................... ( 81,668,000) (259,103,000)
----------------- --------------
Cash flows from financing activities:
Borrowings from an affiliate.................................. 41,400,000 179,000,000
Repayment of borrowings from an affiliate..................... (41,400,000) (182,500,000)
Borrowings from line of credit................................ 14,000,000 -
Repayment of borrowings from line of credit................... (26,500,000) -
Principal payments on mortgage notes payable.................. (11,932,000) (343,000)
Net proceeds from the issuance of common stock................ 161,000 272,112,000
Net proceeds from the issuance of preferred stock............. 53,086,000 -
Net proceeds from the issuance of preferred operating
partnership units........................................... 129,695,000 -
Distributions paid to preferred shareholders.................. (2,134,000) -
Distributions paid to common shareholders..................... (17,729,000) (15,897,000)
Distributions paid to minority interests - preferred.......... (1,236,000) -
Distributions paid to minority interests - common............. (5,568,000) (6,248,000)
----------------- --------------
Net cash provided by financing activities................... 131,843,000 246,124,000
----------------- --------------
Net increase in cash and cash equivalents............................ 112,920,000 28,863,000
Cash and cash equivalents at the beginning of the period............. 6,068,000 3,884,000
----------------- --------------
Cash and cash equivalents at the end of the period................... $ 118,988,000 $ 32,747,000
================= ==============
See accompanying notes.
5
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30,
---------------------------------------
1999 1998
--------------- -------------
Supplemental schedule of non-cash investing and financing activities:
Acquisitions of real estate facilities and associated assets and
liabilities in exchange for minority interests and mortgage notes
payable:
Real estate facilities........................................ $ (20,752,000) $ (33,584,000)
Other assets (deposits on real estate acquisitions)........... - 800,000
Accrued and other liabilities................................. - 1,245,000
Minority interest - common units.............................. 1,033,000 1,564,000
Mortgage notes payable........................................ 19,719,000 29,975,000
Business combination:
Real estate facilities........................................ - (48,000,000)
Other assets.................................................. - (452,000)
Accrued and other liabilities................................. - 1,218,000
Common stock.................................................. - 23,000
Paid-in capital............................................... - 46,787,000
Conversion of operating partnership units into shares of
common stock:........................................................
Minority interest - common units.............................. - (33,023,000)
Common stock.................................................. - 18,000
Paid-in capital............................................... - 33,005,000
Adjustment to reflect minority interest to underlying ownership
interest:............................................................
Minority interest - common units.............................. 1,252,000 12,736,000
Paid-in capital............................................... (1,252,000) (12,736,000)
Adjustment to acquisition cost (see Note 2):
Real estate facilities........................................ - (1,315,000)
Intangible assets............................................. - 1,315,000
Capitalization of developed projects:
Real estate facilities........................................ 12,146,000 -
Construction in progress...................................... (12,146,000) -
See accompanying notes.
6
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. Organization and description of business
Organization
PS Business Parks, Inc. ("PSB" or the "Company"), a California corporation,
is the successor to American Office Park Properties, Inc. ("AOPP") which
merged with and into Public Storage Properties XI, Inc. ("PSP 11") on March
17, 1998 (the "Merger"). The name of the Company was changed to "PS
Business Parks, Inc." in connection with the Merger. See Note 3 for a
description of the Merger and its terms.
Based upon the terms of the Merger, the transaction for financial reporting
and accounting purposes has been accounted for as a reverse acquisition
whereby AOPP is deemed to have acquired PSP11. However, PSP11 is the
continuing legal entity and registrant for both Securities and Exchange
Commission filing purposes and income tax reporting purposes. All
subsequent references to PSB or the Company for periods prior to March 17,
1998 shall refer to AOPP.
Description of business
PSB is a fully-integrated, self-managed real estate investment trust
("REIT") that acquires, owns, operates and develops commercial properties
containing commercial and industrial rental space. PSB is the sole general
partner of PS Business Parks, L.P. (the "Operating Partnership") through
which the Company conducts most of its activities. From 1986 through 1996,
PSB's sole business activity consisted of the management of commercial
properties owned primarily by Public Storage, Inc. ("PSI") and affiliated
entities.
Commencing in 1997, PSB began to own and operate commercial properties for
its own behalf. At September 30, 1999, PSB and the Operating Partnership
collectively owned and operated 123 commercial properties (approximately
12.0 million net rentable square feet) located in 11 states. In addition,
the Operating Partnership managed 37 commercial properties (approximately
1.0 million net rentable square feet) on behalf of PSI and affiliated
entities.
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The preparation of the
condensed consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results could differ
from estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three and nine months ended September
30, 1999 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in PSB's
annual report on Form 10-K for the year ended December 31, 1998.
The condensed consolidated financial statements include the accounts of PSB
and the Operating Partnership. At September 30, 1999, PSB owned
approximately 72.5% of the common units of the Operating Partnership. PSB,
as the sole general partner of the Operating Partnership, has full,
exclusive and complete responsibility and discretion in managing and
controlling the Operating Partnership. Historical financial data of PSP11
have not been included in the historical financial statements of PSB.
7
Cash and cash equivalents
PSB considers all highly liquid investments with an original maturity of
three months or less at the date of purchase to be cash equivalents. The
carrying amount of cash and cash equivalents approximates fair value.
Real estate facilities
Costs related to the improvements of properties are capitalized.
Expenditures for repairs and maintenance are charged to expense when
incurred. Buildings and equipment are depreciated on the straight-line
method over the estimated useful lives, which are generally 30 and 5 years,
respectively.
Interest cost incurred during the period of construction of real estate
facilities is capitalized. Construction in progress includes $852,000 and
$268,000 of capitalized interest costs at September 30, 1999 and December
31, 1998, respectively. The Company capitalized $584,000 during the nine
months ended September 30, 1999. No interest was capitalized during the
nine months ended September 30, 1998.
Intangible assets
Intangible assets consist of property management contracts for properties
managed, but not owned, by PSB. The intangible assets are being amortized
over seven years. As properties managed have been subsequently acquired by
PSB, the unamortized basis of intangible assets related to such properties
is included in the cost of acquisition of such properties. In connection
with the Merger, PSB acquired 13 properties and included in the cost of
such properties is $1,315,000 (which was net of accumulated amortization of
$194,000) of costs previously classified as intangible assets. Intangible
assets are net of accumulated amortization of $799,000 and $573,000 at
September 30, 1999 and December 31, 1998, respectively.
Evaluation of asset impairment
PSB evaluates its assets used in operations, by identifying indicators of
impairment and by comparing the sum of the estimated undiscounted future
cash flows for each asset to the asset's carrying amount. When indicators
of impairment are present and the sum of the undiscounted future cash flows
is less than the carrying value of such asset, an impairment loss is
recorded equal to the difference between the asset's current carrying value
and its value based on discounting its estimated future cash flows. At
September 30, 1999, no such indicators of impairment have been identified.
Borrowings from an affiliate
The Company borrowed $41.4 million from PSI during the nine months ending
September 30, 1999. The notes bore interest at 5.5% (per annum) and were
repaid as of April 30, 1999.
Revenue and expense recognition
All leases are classified as operating leases. Rental income is recognized
on a straight-line basis over the terms of the leases. Reimbursements from
tenants for real estate taxes and other recoverable operating expenses are
recognized as revenue in the period the applicable costs are incurred.
Costs incurred in connection with leasing (primarily tenant improvements
and leasing commissions) are capitalized and amortized over the lease
period.
Property management fees are recognized in the period earned.
8
General and administrative expense
General and administrative expense includes executive compensation, office
expense, professional fees, state income taxes, cost of acquisition
personnel and other such administrative items. Such amounts include amounts
incurred by PSI on behalf of PSB, which were subsequently charged to PSB in
accordance with the allocation methodology pursuant to the cost allocation
and administrative service agreement between PSB and PSI.
Acquisition and development costs
Internal acquisition and development costs are expensed as incurred.
Income taxes
During 1997, PSB qualified and intends to continue to qualify as a real
estate investment trust ("REIT"), as defined in Section 856 of the Internal
Revenue Code. As a REIT, PSB is not subject to federal income tax to the
extent that it distributes at least 95% of its taxable income to its
shareholders. In addition, REITs are subject to a number of organizational
and operating requirements. If the Company fails to qualify as a REIT in
any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) based on its taxable
income using corporate income tax rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and to federal income and excise taxes on
its undistributed taxable income. The Company believes it met all
organizational and operating requirements to maintain its REIT status
during 1998 and intends to continue to meet such requirements for 1999.
Accordingly, no provision for income taxes has been made in the
accompanying financial statements.
Net income per common share
Per share amounts are computed using the weighted average common shares
outstanding. "Diluted" weighted average common shares outstanding include
the dilutive effect of stock options under the treasury stock method.
"Basic" weighted average common shares outstanding excludes such effect.
Earnings per common share has been calculated as follows:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- -------------- --------------
Net income allocable to common shareholders $ 9,383,000 $ 9,748,000 $ 28,218,000 $ 21,124,000
============ ============= ============== ==============
Weighted average common shares outstanding:
Basic weighted average common shares outstanding.......... 23,641,000 23,636,000 23,639,000 17,920,000
Net effect of dilutive stock options - based
on treasury stock method using average market price..... 83,000 60,000 74,000 70,000
------------ ------------- -------------- --------------
Diluted weighted average common shares outstanding........ 23,724,000 23,696,000 23,713,000 17,990,000
============ ============= ============== ==============
Basic earnings per common share............................. $ 0.40 $ 0.41 $ 1.19 $ 1.18
============ ============= ============== ==============
Diluted earnings per common share........................... $ 0.40 $ 0.41 $ 1.19 $ 1.17
============ ============= ============== ==============
9
Comprehensive Income
Effective January 1, 1998, PSB adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires a separate statement to report
the components of comprehensive income for each period reported. The
adoption of SFAS No. 130 did not have an impact on PSB's reporting
presentation.
Segment Reporting
Effective January 1, 1998, PSB adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
established standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS 131 also establishes standards
for related disclosures about products and services, geographic areas, and
major customers. As management views the Company as operating in a single
segment as described in Note 1, the adoption of SFAS No. 131 did not affect
PSB's disclosure of segment information.
Reclassifications
Certain reclassifications have been made to the financial statements for
1998 in order to conform to the 1999 presentation.
3. Business combination
On March 17, 1998, AOPP merged into PSP11, a publicly traded real estate
investment trust and an affiliate of PSI. Upon consummation of the Merger
of AOPP into PSP11, the surviving corporation was renamed "PS Business
Parks, Inc." (PSB as defined in Note 1). In connection with the Merger:
* Each outstanding share of PSP11 common stock, which did not elect
cash, continued to be owned by current holders. A total of 106,155
PSP11 common shares elected to receive cash of $20.50 per share.
* Each share of PSP11 common stock Series B and each share of PSP11
common stock Series C converted into 0.8641 shares of PSP11 common
stock.
* Each share of AOPP common stock converted into 1.18 shares of PSP11
common stock.
* Concurrent with the Merger, PSP11 exchanged 11 mini-warehouses and two
properties that combine mini-warehouse and commercial space for 11
commercial properties owned by PSI. The fair value of each group of
real estate facilities was approximately $48 million.
The Merger has been accounted for as a reverse merger whereby PSB is
treated as the acquirer using the purchase method. This has been determined
based upon the following: (i) the former shareholders and unitholders of
PSB owned in excess of 80% of the merged companies and (ii) the business
focus post-Merger will continue to be that of PSB's which includes the
acquisition, ownership and management of commercial properties. Prior to
the Merger, PSP11's business focus had been primarily on the ownership and
operation of its self-storage facilities which represented approximately
81% of its portfolio.
10
Allocations of the total acquisition cost to the net assets acquired were
made based upon the fair value of PSP11's assets and liabilities as of the
date of the Merger. The acquisition cost and the fair market values of the
assets acquired and liabilities assumed in the Merger are summarized as
follows:
Acquisition cost:
Issuance of common stock......... $46,810,000
Cash............................. 424,000
------------
Total acquisition cost........... $47,234,000
============
Allocation of acquisition cost:
Real estate facilities........... $48,000,000
Other assets..................... 452,000
Accrued and other liabilities.... (1,218,000)
------------
Total allocation................. $47,234,000
============
The historical operating results of PSP11 prior to the Merger have not been
included in PSB's historical operating results. Pro forma data for the nine
months ended September 30, 1998 as though the Merger and related exchange
of properties have been effective at the beginning of fiscal 1998 is as
follows:
Nine months ended
September 30, 1998
------------------
Revenues.............................. $64,853,000
Net income............................ $21,908,000
Net income per share - basic.......... $ 1.18
Net income per share - diluted........ $ 1.18
The pro forma data does not purport to be indicative either of the results
of operations that would have occurred had the Merger occurred at the
beginning of fiscal 1998 or of the future results of PSB.
11
4. Real estate facilities
The activity in real estate facilities for the nine months ended September
30, 1999 is as follows:
Accumulated
Land Buildings Depreciation Total
--------------- --------------- --------------- ---------------
Balances at December 31, 1998...... $ 176,241,000 $ 536,697,000 $ (22,517,000) $ 690,421,000
Property acquisitions.............. 13,770,000 66,537,000 - 80,307,000
Developed projects................. 2,341,000 9,805,000 - 12,146,000
Capital improvements............... - 10,546,000 - 10,546,000
Depreciation expense............... - - (21,415,000) (21,415,000)
--------------- --------------- --------------- ---------------
Balances at September 30, 1999..... $ 192,352,000 $ 623,585,000 $ (43,932,000) $ 772,005,000
=============== =============== =============== ===============
5. Leasing activity
The Company leases space in its real estate facilities to tenants under
non-cancelable leases generally ranging from one to ten years. Future
minimum rental revenues excluding recovery of expenses as of September 30,
1999 under these leases are as follows:
1999 (October - December)........... $ 25,623,000
2000................................ 88,247,000
2001................................ 63,685,000
2002................................ 42,843,000
2003................................ 28,028,000
Thereafter.......................... 51,406,000
--------------
$ 299,832,000
==============
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amount to
$12,369,000 and $7,051,000 for the nine months ended September 30, 1999 and
1998, respectively. These amounts are included as rental income and cost of
operations in the accompanying condensed consolidated statements of income.
6. Revolving line of credit
The Company extended its unsecured line of credit (the "Credit Facility")
with Wells Fargo Bank. The Credit Facility has a borrowing limit of $100
million and a revised expiration date of August 6, 2002. The expiration
date may be extended by one year on each anniversary of the Credit
Facility. Interest on outstanding borrowings is payable monthly. At the
option of the Company, the rate of interest charged is equal to (i) the
prime rate or (ii) a rate ranging from the London Interbank Offered Rate
("LIBOR") plus 0.75% to LIBOR plus 1.35% depending on the Company's credit
ratings and coverage ratios, as defined (currently LIBOR plus 1.00%). In
addition, the Company is required to pay an annual commitment fee of 0.25%.
Under covenants of the Credit Facility, the Company is required to (i)
maintain a balance sheet leverage ratio (as defined) of less than 0.50 to
1.00, (ii) maintain interest and fixed charge coverage ratios (as defined)
of not less than 2.25 to 1.0 and 1.75 to 1.0, respectively, (iii) maintain
a minimum total shareholders' equity (as defined) and (iv) limit
distributions to 95% of funds from operations. In addition, the Company is
limited in its ability to incur additional borrowings (the Company is
required to maintain unencumbered assets with an aggregate book value equal
to or greater than two times the Company's unsecured recourse debt) or sell
assets. The Company was in compliance with the covenants of the Credit
Facility at September 30, 1999.
12
7. Mortgage notes payable
Mortgage notes at September 30, 1999 consist of the following:
7.125% mortgage note, secured by one commercial property, principal
and interest payable monthly, due May 2006...................... 8,794,000
8.4% mortgage note, secured by six commercial properties, principal
and interest payable monthly, due November 1999................. 8,554,000
8.19% mortgage note, secured by one commercial property, principal
and interest payable monthly, due March 2007.................... 6,710,000
8.125% mortgage note, secured by one commercial property, principal
and interest payable monthly, due February 2009................. 6,396,000
8.125% mortgage note, secured by one commercial property, principal
and interest payable monthly, due July 2005..................... 5,352,000
7.28% mortgage note, secured by two commercial properties, principal
and interest payable monthly, due February 2003................. 4,332,000
8% mortgage note, secured by one commercial property, principal and
interest payable monthly, due April 2003........................ 2,128,000
8.5% mortgage note, secured by one commercial property, principal
and interest payable monthly, due July 2007..................... 1,910,000
8% mortgage note, secured by one commercial property, principal and
interest payable monthly, due April 2003........................ 1,652,000
-----------
$45,828,000
===========
At September 30, 1999, approximate principal maturities of mortgage notes
payable are as follows:
1999 (October - December)........... $ 8,762,000
2000................................ 872,000
2001................................ 942,000
2002................................ 1,018,000
2003................................ 8,004,000
Thereafter.......................... 26,230,000
--------------
$ 45,828,000
==============
13
8. Minority interest - common units
The Company presents the accounts of PSB and the Operating Partnership on a
consolidated basis. Ownership interest in the Operating Partnership, other
than PSB's interest, are classified as minority interest in the condensed
consolidated financial statements. Minority interest in income consists of
the minority interests' share of the condensed consolidated operating
results.
Beginning one year from the date of admission as a limited partner and
subject to certain limitations described below, each limited partner other
than PSB has the right to require the redemption of its partnership
interest.
A limited partner that exercises its redemption right will receive cash
from the Operating Partnership in an amount equal to the market value (as
defined in the Operating Partnership Agreement) of the partnership
interests redeemed. In lieu of the Operating Partnership redeeming the
partner for cash, PSB, as general partner, has the right to elect to
acquire the partnership interest directly from a limited partner exercising
its redemption right, in exchange for cash in the amount specified above or
by issuance of one share of PSB common stock for each unit of limited
partnership interest redeemed.
A limited partner cannot exercise its redemption right if delivery of
shares of PSB common stock would be prohibited under the applicable
articles of incorporation, if the general partner believes that there is a
risk that delivery of shares of common stock would cause the general
partner to no longer qualify as a REIT, would cause a violation of the
applicable securities laws, or would result in the Operating Partnership no
longer being treated as a partnership for federal income tax purposes.
At September 30, 1999, there were 7,443,356 common units owned by minority
interests (7,305,355 were owned by PSI and affiliated entities and 138,001
were owned by unaffiliated third parties). On a fully converted basis,
assuming all 7,443,356 minority interest common units were converted into
shares of common stock of PSB at September 30, 1999, the minority interests
would own approximately 23.9% of the common shares outstanding. At the end
of each reporting period, PSB determines the amount of equity (book value
of net assets) which is allocable to the minority interest based upon the
ownership interest and an adjustment is made to the minority interest, with
a corresponding adjustment to paid-in capital, to reflect the minority
interests' equity in the Company.
9. Minority interest - preferred units
On April 23, 1999, the Operating Partnership completed a private placement
of 510,000 preferred units with a preferred distribution rate of 8 7/8%.
The net proceeds from the placement of preferred units were approximately
$12.5 million and were used to repay borrowings from an affiliate.
On September 3, 1999, the Operating Partnership completed a private
placement of 3,200,000 preferred units with a preferred distribution rate
of 8 3/4%. The net proceeds from the placement of preferred units were
approximately $78 million and part of the proceeds will be used to prepay a
mortgage note payable of approximately $8.5 million.
On September 7 and 23, 1999, the Operating Partnership completed private
placements of 1,200,000 and 400,000 preferred units, respectively, with a
preferred distribution rate of 8 7/8%. The net proceeds from the placement
of preferred units were approximately $39.2 million.
The Operating Partnership has the right to redeem the preferred units on or
after the fifth anniversary of the issuance date at the original capital
contribution plus the cumulative priority return to the redemption date to
the extent not previously distributed. The preferred units are exchangeable
for Cumulative Redeemable Preferred Stock of the respective series of PS
Business Parks, Inc. on or after the tenth anniversary of the date of
issuance at the option of the Operating Partnership or majority of the
holders of the preferred units. The Preferred Stock will have the same
distribution rate and par value as the respective units and will have
equivalent terms to those described in Note 11.
14
10. Property management contracts
The Operating Partnership manages industrial, office and retail facilities
for PSI and entities affiliated with PSI. These facilities, all located in
the United States, operate under the "Public Storage" or "PS Business
Parks" name.
The property management contracts provide for compensation of five percent
of the gross revenue of the facilities managed. Under the supervision of
the property owners, the Operating Partnership coordinates rental policies,
rent collections, marketing activities, the purchase of equipment and
supplies, maintenance activities, and the selection and engagement of
vendors, suppliers and independent contractors. In addition, the Operating
Partnership assists and advises the property owners in establishing
policies for the hire, discharge and supervision of employees for the
operation of these facilities, including property managers, leasing,
billing and maintenance personnel.
The property management contract with PSI is for a seven year term with the
term being extended one year each anniversary. The property management
contracts with affiliates of PSI are cancelable by either party upon sixty
days notice.
11. Shareholders' equity
In addition to common and preferred stock, PSB is authorized to issue
100,000,000 shares of Equity Stock. The Articles of Incorporation provide
that the Equity Stock may be issued from time to time in one or more series
and gives the Board of Directors broad authority to fix the dividend and
distribution rights, conversion and voting rights, redemption provisions
and liquidation rights of each series of Equity Stock.
On April 30, 1999, PSB issued 2,200,000 depositary shares each representing
1/1,000 of a share of 9 1/4% Cumulative Preferred Stock, Series A. Net
proceeds from the public perpetual preferred stock offering were
approximately $53.1 million and were used to repay borrowings from an
affiliate and a mortgage note payable of approximately $11 million. The
remaining proceeds were used for investment in real estate.
Holders of the 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 six quarterly dividends, the holders of the preferred
stock will have the right to elect two additional members to serve on the
Company's Board of Directors until all events of default have been cured.
At September 30, 1999, there were no dividends in arrears.
Except under certain conditions relating to the Company's qualification as
a REIT, the preferred stock is not redeemable prior to April 30, 2004. On
or after April 30, 2004, the preferred stock will be redeemable, at the
option of the Company, in whole or in part, at $25 per depositary share,
plus any accrued and unpaid dividends.
The Company paid distributions to its common and preferred shareholders
totaling $17,729,000 ($0.75 per common share) and $2,134,000 ($0.969965 per
depositary share), respectively, for the nine months ended September 30,
1999.
15
12. Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. Management
anticipates that the adoption of SFAS No. 133 will have no effect on
earnings or the financial position of PSB since no derivatives are
currently being used.
13. Commitments and contingencies
PSB is subject to the risks inherent in the ownership and operation of
commercial real estate. These include, among others, the risks normally
associated with changes in the general economic climate, trends in the real
estate industry, creditworthiness of tenants, competition, changes in tax
laws, interest rate levels, the availability of financing and potential
liability under environmental and other laws.
Substantially all of the properties have been subjected to Phase I
environmental reviews. Such reviews have not revealed, nor is management
aware of, any probable or reasonably possible environmental costs that
management believes would be material to the condensed consolidated
financial statements except as discussed below.
The Company acquired a property in Beaverton, Oregon ("Creekside Corporate
Park") in May 1998. A property adjacent to Creekside Corporate Park is
currently the subject of an environmental remedial
investigation/feasibility study that is being conducted by the current and
past owners of the property, pursuant to an order issued by the Oregon
Department of Environmental Quality ("ODEQ"). As part of that study, ODEQ
ordered the property owners to sample soil and groundwater on the Company's
property to determine the nature and extent of contamination resulting from
past industrial operations at the property subject to the study. The
Company, which is not a party of the Order on Consent, executed separate
Access Agreements with the property owners to allow access to its property
to conduct the required sampling and testing. The sampling and testing is
ongoing, and preliminary results from one area indicate that the
contamination from the property subject to the study may have migrated onto
a portion of Creekside Corporate Park owned by the Company.
There is no evidence that any past or current use of the Creekside
Corporate Park property contributed in any way to the contamination that is
the subject of the current investigation. Nevertheless, upon completion of
the study, it is likely that removal or remedial measures will be required
to address any contamination detected during the current investigation,
including any contamination on or under the Creekside Corporate Park
property. Because of the preliminary nature of the investigation, the
Company cannot predict the outcome of the investigation, nor can it
estimate the costs of any remediation or removal activities that may be
required.
The Company believes that it bears no responsibility or liability for the
contamination. In the event the Company is ultimately deemed responsible
for any costs relating to this matter, the Company believes that the party
from whom the property was purchased will be responsible for any expenses
or liabilities that the Company may incur as a result of this
contamination.
PSB currently is neither subject to any other material litigation nor, to
management's knowledge, is any material litigation currently threatened
against PSB other than routine litigation and administrative proceedings
arising in the ordinary course of business. Based on consultation with
counsel, management believes that these items will not have a material
adverse impact on the Company's condensed consolidated financial position
or results of operations.
16
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
General: Private Securities Litigation Reform Act Safe Harbor
Statement. In addition to historical information, management's discussion and
analysis includes certain forward-looking statements regarding events and
financial trends which may affect the Company's future operating results and
financial position. Such forward-looking statements are often identified by the
words "estimate," "project," "intend," "plan," "expect," "believe," or similar
expressions. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially
from that indicated by the forward-looking statement. Such factors include, but
are not limited to a change in economic conditions in the various markets served
by the Company's operations which would adversely affect the level of demand for
rental of commercial space and the cost structure of the Company. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Overview: Comparisons between the three and nine months ended
September 30, 1999 and 1998 will reflect significant levels of acquisitions
during 1998 and the first nine months of 1999.
During 1998, the Company added 4.9 million square feet to its
portfolio. The cost of these acquisitions was approximately $378 million. The
acquisitions added square footage to each of the Company's existing core
markets. The Company acquired 1,687,000 square feet in Texas at an aggregate
cost of approximately $102 million; 1,001,000 square feet in Portland, Oregon at
an aggregate cost of approximately $115 million; 1,442,000 square feet in the
Northern Virginia/Maryland market at an aggregate cost of approximately $108
million; 422,000 square feet in Southern California at an aggregate cost of
approximately $25 million and 307,000 square feet in Northern California at an
aggregate cost of approximately $25 million. In addition, the Company acquired
62,000 square feet in the Merger at an aggregate cost of approximately $3
million in a market the Company does not consider a core market.
During the nine months ended September 30, 1999, the Company added
922,000 square feet to its portfolio. The cost of these acquisitions was
approximately $80 million. These acquisitions increased the Company's presence
in existing markets, which the Company believes have characteristics necessary
for long-term growth. The Company acquired 306,000 square feet in Texas at an
aggregate cost of approximately $23 million, 405,000 square feet in the Northern
Virginia/Maryland market at an aggregate cost of approximately $40 million and
211,000 square feet in Northern California for approximately $17 million.
Results of Operations: Net income for the three months ended September
30, 1999 was $10,655,000 compared to $9,748,000 for the same period in 1998. Net
income allocable to common shareholders (net income less preferred stock
dividends) for the three months ended September 30, 1999 was $9,383,000 compared
to $9,748,000 for the same period in 1998. Net income per common share on a
diluted basis was $0.40 (based on weighted average diluted shares outstanding of
23,724,000) for the three months ended September 30, 1999 compared to net income
per common share on a diluted basis of $0.41 (based on weighted average diluted
shares outstanding of 23,696,000) for the same period in 1998. Net income for
the nine months ended September 30, 1999 was $30,352,000 compared to $21,124,000
for the same period in 1998. Net income allocable to common shareholders (net
income less preferred stock dividends) for the nine months ended September 30,
1999 was $28,218,000 compared to $21,124,000 for the same period in 1998. Net
income per common share on a diluted basis was $1.19 (based on weighted average
diluted shares outstanding of 23,713,000) for the nine months ended September
30, 1999 compared to net income per common share on a diluted basis of $1.17
(based on weighted average diluted shares outstanding of 17,990,000) for the
same period in 1998. The increases in net income reflects PSB's significant
growth in its asset base through the acquisition of commercial properties and
increase in net operating income from the consistent group of properties.
17
The Company's property operations account for almost all of the net
operating income earned by the Company. The following table presents the
pre-depreciation operating results of the properties for the three and nine
months ended September 30, 1999 and 1998:
Three Months Ended September 30,
----------------------------------
1999 1998 Change
-------------- -------------- ----------
Rental income:
Facilities owned throughout each period (50
facilities, 6.4 million net rentable square feet).. $16,353,000 $15,208,000 7.5%
Facilities acquired subsequent to January 1998 (73
facilities, 5.5 million net rentable square feet).. 16,215,000 10,427,000 55.5%
-------------- -------------- ----------
Total rental income....................................... $32,568,000 $25,635,000 27.0%
============== ============== ==========
Cost of operations (excluding depreciation):
Facilities owned throughout each period.............. $4,671,000 $4,773,000 (2.1%)
Facilities acquired subsequent to January 1998....... 4,249,000 2,606,000 63.0%
-------------- -------------- ----------
Total cost of operations.................................. $8,920,000 7,379,000 20.9%
============== ============== ==========
Net operating income (rental income less cost of operations):
Facilities owned throughout each period.............. $11,682,000 $10,435,000 12.0%
Facilities acquired subsequent to January 1998....... 11,966,000 7,821,000 53.0%
-------------- -------------- ----------
Total net operating income................................ $23,648,000 $18,256,000 29.5%
============== ============== ==========
Nine Months Ended September 30,
---------------------------------
1999 1998 Change
------------- -------------- ----------
Rental income:
Facilities owned throughout each period (50
facilities, 6.4 million net rentable square feet).. $ 47,231,000 $ 43,152,000 9.5%
Facilities acquired subsequent to January 1998 (73
facilities, 5.5 million net rentable square feet).. 45,313,000 18,307,000 147.5%
------------- -------------- ----------
Total rental income....................................... $ 92,544,000 $ 61,459,000 50.6%
============= ============== ==========
Cost of operations (excluding depreciation):
Facilities owned throughout each period.............. $ 13,998,000 $ 13,830,000 1.2%
Facilities acquired subsequent to January 1998....... 11,953,000 4,531,000 163.8%
------------- -------------- ----------
Total cost of operations.................................. $ 25,951,000 18,361,000 41.3%
============= ============== ==========
Net operating income (rental income less cost of operations):
Facilities owned throughout each period.............. $ 33,233,000 $ 29,322,000 13.3%
Facilities acquired subsequent to January 1998....... 33,360,000 13,776,000 142.2%
------------- -------------- ----------
Total net operating income................................ $ 66,593,000 $ 43,098,000 54.5%
============= ============== ==========
18
Rental income and rental income less cost of operations or net operating
income ("NOI") prior to depreciation are summarized for the three months ended
September 30, 1999 by major geographic region below:
Square Percent Rental Percent Percent
Region Footage of Total Income of Total NOI of Total
- --------------------------- ----------- ---------- ------------ -------- ------------ --------
Southern California....... 3,091,000 25.8% $8,761,000 26.9% $6,494,000 27.5%
Northern California....... 1,317,000 11.0% 3,398,000 10.4% 2,582,000 10.9%
Virginia.................. 1,612,000 13.4% 5,254,000 16.1% 3,771,000 15.9%
Maryland.................. 1,104,000 9.2% 3,469,000 10.7% 2,568,000 10.9%
Texas..................... 2,857,000 23.8% 6,497,000 19.9% 4,367,000 18.5%
Oregon.................... 1,172,000 9.8% 3,700,000 11.4% 2,899,000 12.3%
Other..................... 833,000 7.0% 1,489,000 4.6% 967,000 4.0%
----------- ---------- ------------ -------- ------------ --------
11,986,000 100.0% $32,568,000 100.0% $23,648,000 100.0%
=========== ========== ============ ======== ============ ========
Rental income and rental income less cost of operations or net
operating income ("NOI") prior to depreciation are summarized for the nine
months ended September 30, 1999 by major geographic region below:
Square Percent Rental Percent Percent
Region Footage of Total Income of Total NOI of Total
- --------------------------- ----------- --------- ----------- -------- ----------- ---------
Southern California....... 3,091,000 25.8% $25,163,000 27.2% $18,638,000 28.0%
Northern California....... 1,317,000 11.0% 8,830,000 9.5% 6,643,000 10.0%
Virginia.................. 1,612,000 13.4% 13,497,000 14.6% 9,609,000 14.4%
Maryland.................. 1,104,000 9.2% 10,215,000 11.0% 7,328,000 11.0%
Texas..................... 2,857,000 23.8% 19,444,000 21.0% 12,919,000 19.4%
Oregon.................... 1,172,000 9.8% 11,036,000 11.9% 8,690,000 13.0%
Other..................... 833,000 7.0% 4,359,000 4.8% 2,766,000 4.2%
---------- --------- ----------- -------- ----------- ---------
11,986,000 100.0% $92,544,000 100.0% $66,593,000 100.0%
========== ========= =========== ======== =========== =========
Supplemental Property Data and Trends: In order to evaluate the
performance of the Company's overall portfolio, management analyzes the
operating performance of a consistent group of 62 properties (7.2 million net
rentable square feet). These 62 properties in which the Company currently has an
ownership interest (herein referred to as the "Same Park" facilities) have been
managed by the Company since January 1998. The following table summarizes the
pre-depreciation historical operating results of the "Same Park" facilities
excluding the effects of accounting for rental income on a straight-line basis.
The "Same Park" facilities now represent approximately 60% of the square footage
of the Company's portfolio at September 30, 1999.
19
"Same Park" Facilities (62 Properties)
--------------------------------------
Three months ended September 30,
------------------------------------------------
1999 1998 Change
------------- ------------- -------
Rental income (1)............................................ $ 18,697,000 $ 17,216,000 8.6%
Cost of operations........................................... 5,896,000 5,869,000 0.5%
------------- ------------- -------
Net operating income.................................... $ 12,801,000 $ 11,347,000 12.8%
============= ============= =======
Gross margin (2)............................................. 68.5% 65.9% 2.6%
Weighted average for period:
---------------------------
Occupancy............................................... 96.7% 95.3% 1.4%
Annualized realized rent per sq. ft.(3)................. $ 10.74 $10.03 7.1%
Nine months ended September 30,
------------------------------------------------
1999 1998 (4) Change
------------- ------------- -------
Rental income (1)............................................ $ 54,025,000 $ 49,824,000 8.4%
Cost of operations........................................... 16,944,000 16,583,000 2.2%
------------- ------------- -------
Net operating income.................................... $ 37,081,000 $ 33,241,000 11.6%
============= ============= =======
Gross margin (2)............................................. 68.6% 66.7% 1.9%
Weighted average for period:
---------------------------
Occupancy............................................... 96.7% 94.4% 2.3%
Annualized realized rent per sq. ft.(3)................. $ 10.34 $ 9.77 5.8%
- ------------------
(1) Rental income does not include the effect of straight-line accounting.
(2) Gross margin is computed by dividing property net operating income by
rental income.
(3) Realized rent per square foot represents the actual revenues earned per
occupied square foot.
(4) Operations for the nine months ended September 30, 1998 represent the
historical operations of the 62 properties; however, the Company did not
own all of the properties throughout the periods presented and therefore
such operations are not reflected in the Company's historical operating
results. All such properties were owned effective March 17, 1998.
20
The following tables summarize the "Same Park" operating results by major
geographic region for the three months ended September 30, 1999 and 1998:
Revenues Revenues Percent NOI NOI Percent
1999 1998 Increase 1999 1998 Increase
------------- ------------- --------- ------------- ------------- ---------
Southern California....... $8,449,000 $7,439,000 13.6% $6,061,000 $5,180,000 17.0%
Northern California....... 2,101,000 1,945,000 8.0% 1,544,000 1,374,000 12.4%
Texas..................... 1,829,000 1,714,000 6.7% 943,000 868,000 8.6%
Virginia.................. 2,360,000 2,204,000 7.1% 1,608,000 1,443,000 11.4%
Maryland.................. 2,291,000 2,318,000 (1.2%) 1,611,000 1,529,000 5.4%
Arizona................... 732,000 693,000 5.6% 465,000 386,000 20.5%
Other..................... 935,000 903,000 3.5% 569,000 567,000 0.4%
------------- ------------- --------- ------------- ------------- ---------
$18,697,000 $17,216,000 8.6% $12,801,000 $11,347,000 12.8%
============= ============= ========= ============= ============= =========
The following tables summarize the "Same Park" operating results by
major geographic region for the nine months ended September 30, 1999 and 1998:
Revenues Revenues Percent NOI NOI Percent
1999 1998 Increase 1999 1998 Increase
------------- ------------- --------- ------------- ------------- ---------
Southern California....... $24,023,000 $21,451,000 12.0% $17,382,000 $14,884,000 16.8%
Northern California....... 6,139,000 5,711,000 7.5% 4,511,000 4,034,000 11.8%
Texas..................... 5,451,000 4,982,000 9.4% 2,939,000 2,579,000 14.0%
Virginia.................. 6,789,000 6,447,000 5.3% 4,525,000 4,218,000 7.3%
Maryland.................. 6,795,000 6,504,000 4.5% 4,719,000 4,559,000 3.5%
Arizona................... 2,097,000 2,029,000 3.4% 1,311,000 1,255,000 4.5%
Other..................... 2,731,000 2,700,000 1.1% 1,694,000 1,712,000 (1.1%)
------------- ------------- --------- ------------- ------------- ---------
$54,025,000 $49,824,000 8.4% $37,081,000 $33,241,000 11.6%
============= ============= ========= ============= ============= =========
The growth in the strong Southern California market was accentuated by
increasing occupancies in the New York Common portfolio acquired in December
1997. The performance of the Texas facilities reflects improvements in the
Austin and San Antonio facilities as well as economies of scale created by
substantial square footage added to the Texas market over the last twelve
months.
Facility Management Operations: The Company's facility management
accounts for a small portion of the Company's net operating income. During the
three months ended September 30, 1999, $97,000 in net operating income was
recognized from facility management operations compared to $97,000 for the same
period in 1998. During the nine months ended September 30, 1999, $281,000 in net
operating income was recognized from facility management operations compared to
$391,000 for the same period in 1998. Facility management fees have decreased
due to the Company's acquisition of properties previously managed.
Interest and Other Income: Interest and other income primarily reflect
earnings on cash balances. Interest and other income were $592,000 for the three
months ended September 30, 1999 compared to $533,000 for the same period in
1998. Interest and other income were $885,000 for the nine months ended
September 30, 1999 compared to $1,077,000 for the same period in 1998. Average
cash balances for the three months ended September 30, 1999 were approximately
$47 million compared to $41 million for the same period in 1998. Average cash
balances for the nine months ended September 30, 1999 were approximately $24
million compared to $28 million for the same period in 1998.
21
Cost of Operations: Cost of operations for the three months ended
September 30, 1999 was $8,920,000 compared to $7,379,000 for the same period in
1998. Cost of operations for the nine months ended September 30, 1999 was
$25,951,000 compared to $18,361,000 for the same period in 1998. Cost of
operations for the three months ended September 30, 1999 consists primarily of
property taxes ($2,889,000), property maintenance ($1,171,000), utilities
($1,403,000) and direct payroll ($1,065,000). Cost of operations for the nine
months ended September 30, 1999 consists primarily of property taxes
($8,163,000), property maintenance ($3,761,000), utilities ($3,805,000) and
direct payroll ($3,242,000). The increases are due primarily to the growth in
the total square footage of the Company's portfolio of properties. Cost of
operations as a percentage of rental income decreased from 28.8% to 27.4% and
from 29.9% to 28.0% for the three and nine months ended September 30, 1999
compared to the same period in 1998, respectively, as a result of economies of
scale achieved through the acquisition of properties in existing markets
partially offset by an increase in property tax expense.
Depreciation and Amortization Expense: Depreciation and amortization
expense for the three months ended September 30, 1999 were $7,594,000 compared
to $4,865,000 for the same period in 1998. Depreciation and amortization expense
for the nine months ended September 30, 1999 were $21,641,000 compared to
$11,421,000 for the same period in 1998. The increase is due to the acquisition
of real estate facilities in 1998 and 1999.
General and Administrative Expense: General and administrative expense
was $742,000 for the three months ended September 30, 1999 compared to $593,000
for the same period in 1998. General and administrative expense was $2,339,000
for the nine months ended September 30, 1999 compared to $1,589,000 for the same
period in 1998. The increase is due to the increased size and acquisition
activities of the Company. Included in general and administrative costs are
acquisition costs and abandoned transaction costs. Acquisition expenses for the
three months ended September 30, 1999 and 1998 were $139,000 and $279,000,
respectively. Abandoned transaction costs were none and $11,000 for the three
months ended September 30, 1999 and 1998, respectively. Acquisition expenses for
the nine months ended September 30, 1999 and 1998 were $324,000 and $557,000,
respectively. Abandoned transaction costs were $30,000 and $15,000 for the nine
months ended September 30, 1999 and 1998, respectively.
Interest Expense: Interest expense was $977,000 for the three months ended
September 30, 1999 compared to $667,000 for the same period in 1998. The
increase is attributable to mortgage notes assumed in connection with the
acquisition of real estate facilities ($785,000 in interest expense) and line of
credit costs ($366,000) net of $174,000 of interest expense capitalized to
ongoing construction projects for the three months ended September 30, 1999.
Interest expense was $2,658,000 for the nine months ended September 30, 1999
compared to $1,736,000 for the same period in 1998. The increase is attributable
to mortgage notes assumed in connection with the acquisition of real estate
facilities ($2,285,000 in interest expense) and line of credit costs and other
short tern borrowings ($957,000) net of $584,000 of interest expense capitalized
to ongoing construction projects for the nine months ended September 30, 1999.
Minority Interest in Income: Minority interest in income reflects the
income allocable to equity interests in the Operating Partnership which are not
owned by the Company. Minority interest in income for the three months ended
September 30, 1999 was $4,369,000 ($1,022,000 allocated to preferred unitholders
and $3,347,000 allocated to common unitholders) compared to $3,013,000 allocated
to common unitholders for the same period in 1998. Minority interest in income
for the nine months ended September 30, 1999 was $10,769,000 ($1,236,000
allocated to preferred unitholders and $9,533,000 allocated to common
unitholders) compared to $8,696,000 allocated to common unitholders for the same
period in 1998. The increase in minority interest in income is due to improved
operating results, the issuance of additional common units in connection with
the acquisition of real estate facilities and the private placement of preferred
units.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities for the nine months ended
September 30, 1999 and 1998 was $62,745,000 and $41,842,000, respectively.
Management believes that the Company's internally generated net cash provided by
operating activities will continue to be sufficient to enable it to meet its
operating expenses, capital improvements, debt service requirements and maintain
the current level of distribution to shareholders.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to pay
distributions to shareholders and to acquire property interests.
22
Nine months ended September 30,
1999 1998
---------------- ---------------
Net income.......................................................... $ 30,352,000 $ 21,124,000
Depreciation and amortization....................................... 21,641,000 11,421,000
Minority interest in income......................................... 10,769,000 8,696,000
Change in working capital........................................... (17,000) 601,000
---------------- ---------------
Net cash provided by operating activities........................... 62,745,000 41,842,000
Maintenance capital expenditures.................................... (2,153,000) (2,117,000)
Tenant improvements................................................. (3,857,000) (2,588,000)
Capitalized lease commissions....................................... (1,479,000) (1,325,000)
---------------- ---------------
Funds available for distributions to shareholders, minority
interests, acquisitions and other corporate purposes.............. 55,256,000 35,812,000
Cash distributions to shareholders and minority interests........... (26,667,000) (22,145,000)
---------------- ---------------
Excess funds available for acquisitions and other corporate purposes $ 28,589,000 $ 13,667,000
================ ===============
The Company's capital structure is characterized by a low level of
leverage. As of September 30, 1999, the Company had nine fixed rate mortgage
notes payable totaling $45,828,000 which represented 5% of its total
capitalization (based on book value, including minority interests and debt). The
weighted average interest rate for the mortgage notes is 7.92%.
The Company extended its unsecured line of credit (the "Credit Facility")
with Wells Fargo Bank. The Credit Facility has a borrowing limit of $100 million
and a revised expiration date of August 6, 2002. The expiration date may be
extended by one year on each anniversary of the Credit Agreement. Interest on
outstanding borrowings is payable monthly. At the option of the Company, the
rate of interest charged is equal to (i) the prime rate or (ii) a rate ranging
from the London Interbank Offered Rate ("LIBOR") plus 0.75% to LIBOR plus 1.35%
depending on the Company's credit ratings and interest coverage ratios, as
defined (currently LIBOR plus 1.00%). In addition, the Company is required to
pay an annual commitment fee of 0.25%.
The Company expects to fund its growth strategies with permanent
capital, including issuances of common and preferred stock and internally
generated retained cash flows. The Company may finance acquisitions on a
temporary basis with borrowings from its line of credit. The Company intends to
repay amounts borrowed under the credit facility from undistributed cash flow
or, as market conditions permit and as determined to be advantageous, from the
public or private placement of preferred and common stock or formation of joint
ventures. The Company targets a leverage ratio of 40% and a Funds from
Operations ("FFO") to combined fixed charges and preferred distributions ratio
of 3.0 to 1.0. As of September 30, 1999 and for the nine months then ended, the
leverage ratio was 22% and the FFO to combined fixed charges and preferred
distributions coverage ratio was 9.5 to 1.0.
In April 1999, the Company completed a private placement of preferred
OP units and a public offering of depositary shares representing fractional
interests in perpetual preferred stock resulting in net proceeds totaling $65.6
million. The net proceeds from the placement of preferred OP units, completed
April 23, 1999 were approximately $12.5 million and the preferred OP units have
a preferred distribution rate of 8 7/8% on a stated value of $12.75 million. The
preferred OP units have equivalent terms to those of perpetual preferred stock.
Net proceeds from the public perpetual preferred stock offering completed April
30, 1999 were $53.1 million, and the preferred stock has a dividend rate of 9
1/4% on a stated value of $55 million. Proceeds from the issuances were used to
pay off borrowings from an affiliate and a portion was used to repay a mortgage
note payable of approximately $11 million. The remaining proceeds have been used
for investment in real estate.
On September 3, 1999, the Operating Partnership completed a private
placement of 3,200,000 preferred units with a preferred distribution rate of 8
3/4%. The net proceeds from the placement of preferred units were approximately
$78 million and part of the proceeds will be used to prepay a mortgage note
payable of approximately $8.5 million.
23
On September 7 and 23, 1999, the Operating Partnership completed
private placements of 1,200,000 and 400,000 preferred units, respectively, with
a preferred distribution rate of 8 7/8%. The net proceeds from the placement of
preferred units were approximately $39.2 million.
Funds from Operations: FFO is defined as net income, computed in
accordance with generally accepted accounting principles ("GAAP"), before
depreciation, amortization, minority interest in income, straight line rent
adjustments and extraordinary or non-recurring items. FFO is presented because
the Company considers FFO to be a useful measure of the operating performance of
a REIT which, together with net income and cash flows provide investors with a
basis to evaluate the operating and cash flow performances of a REIT. FFO does
not represent net income or cash flows from operations as defined by GAAP. FFO
does not take into consideration scheduled principal payments on debt and
capital improvements. Accordingly, FFO is not necessarily a substitute for cash
flow or net income as a measure of liquidity or operating performance or ability
to make acquisitions and capital improvements or ability to pay distributions or
debt principal payments. Also, FFO as computed and disclosed by the Company may
not be comparable to FFO computed and disclosed by other REITs.
FFO for the Company is computed as follows:
Nine months ended September 30,
1999 1998
---------------- ---------------
Net income allocable to common shareholders........................ $ 28,218,000 $ 21,124,000
Depreciation and amortization.................................... 21,641,000 11,421,000
Minority interest in income - common units....................... 9,533,000 8,696,000
Less effects of straight-line rents.............................. (2,544,000) (924,000)
---------------- ---------------
Consolidated FFO allocable to common shareholders and common
unitholders........................................................ 56,848,000 40,317,000
FFO allocated to minority interest - common units.................. (13,179,000) (11,757,000)
---------------- ---------------
FFO allocated to common shareholders............................... $ 43,669,000 $ 28,560,000
================ ===============
Capital Expenditures: During the nine months ended September 30, 1999, the
Company incurred a total of $7.5 million in maintenance capital expenditures,
tenant improvements and capitalized lease commissions. In addition, the Company
made $2.6 million of renovation expenditures. On a recurring annual basis, the
Company expects $0.90 to $1.20 per square foot in recurring maintenance capital
expenditures, tenant improvements and capitalized lease commissions. During the
remainder of 1999, the Company expects to make an additional $400,000 in
additional expenditures to continue renovation on two properties in Texas.
Distributions: The Company has elected and intends to qualify as a
REIT for federal income tax purposes. As a REIT, the Company must meet, among
other tests, sources of income, share ownership and certain asset tests. In
addition, the Company is not taxed on that portion of its taxable income which
is distributed to its shareholders provided that at least 95% of its taxable
income is so distributed to its shareholders prior to filing of its tax return.
The Board of Directors declared a quarterly dividend of $0.25 per
common share on November 9, 1999. The Board of Directors has established a
distribution policy to maximize the retention of cash flow and only distribute
the minimum amount required for the Company to maintain its tax status as a
REIT. In addition, the Board of Directors declared a quarterly dividend of
$0.578125 per share on the 2,200,000 depositary shares each representing 1/1,000
of a share of 9 1/4% Cumulative Preferred Stock, Series A. Distributions are
payable on December 31, 1999 to shareholders of record as of the close of
business on December 15, 1999.
24
Impact of Year 2000
- -------------------
The Company utilizes PSI's information systems in connection with a
cost sharing and administrative services agreement. The Company and PSI have
completed an assessment of all of its hardware and software applications
including those affecting the Company to identify susceptibility to what is
commonly referred to as the "Y2K issue" whereby certain computer programs have
been using two digits rather than four to define the applicable year. Certain
computer programs or hardware with the Y2K issue have date-sensitive
applications or embedded chips that may recognize a date using "00" as the year
1900 rather than the year 2000, resulting in miscalculations or system failure
causing disruptions to operations.
The Company in conjunction with PSI has two phases in its process with
respect to each of its systems; i) assessment, whereby the Company and PSI
evaluate whether the system is Y2K compliant and identify the plan of action
with respect to remediating any Y2K issues identified and ii) implementation,
whereby the Company and PSI complete the plan of action prepared in the
assessment phase and verify that Y2K compliance has been achieved.
Implementations have been completed for PSI's critical applications
that impact the Company, including its general ledger and related systems, that
are believed to have Y2K issues. Contingency plans have been developed for use
in case the assessment did not identify all such Y2K issues, or if the
implementation were subsequently determined to not fully remediate Y2K issues
that were identified. The Company presently believes that the impact of the Y2K
issue on its system can be mitigated. However, if the plan for ensuring Y2K
compliance and the related contingency plans were to fail, be insufficient, or
not be implemented on a timely basis, operations of the Company could be
materially impacted.
Certain of the Company's other non-computer related systems that may
be impacted by the Y2K issue, such as security systems, have been evaluated.
Based upon its evaluation, the Company has no reason to believe that lack of
compliance or failure of required solutions would materially impact its
operations.
The Company exchanges electronic data with certain outside vendors in
the banking and payroll processing areas. The Company has been advised by these
vendors that their systems are Y2K compliant. The Company is not aware of any
other vendors, suppliers, or other external agents with a Y2K issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Y2K compliant, and there can be no assurance that the Company has
identified all such external agents. The inability of external agents to
complete their Y2K compliance process in a timely fashion could materially
impact the Company. The effect of non-compliance by external agents is not
determinable.
The total cost of PSI's Y2K compliance activities (which primarily
consists of the costs of implementing new systems) will be allocated to all
entities that use the PSI computer systems. The amount to be allocated to the
Company is estimated at approximately $250,000.
The costs of the projects and the date on which PSI and the Company
expect to achieve Y2K compliance are based upon management's best estimates, and
were derived utilizing numerous assumptions of future events. There can be no
assurance that these estimates will be achieved, and actual results could differ
materially from those anticipated. There can be no assurance that PSI and the
Company have identified all potential Y2K issues either within the Company or at
external agents. In addition, the impact of the Y2K issue on governmental
entities and utility providers and the resultant impact on the Company, as well
as disruptions in the general economy, may be material but cannot be reasonably
determined or quantified.
25
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
To limit the Company's exposure to market risk, the Company
principally finances its operations and growth with permanent equity capital
consisting of either common or preferred stock. At September 30, 1999, the
Company's debt as a percentage of shareholders' equity (based on book values)
was 8.3%.
The Company's market risk sensitive instruments include mortgage notes
payable which totaled $45,828,000 at September 30, 1999. Substantially all of
the Company's mortgage notes payable bear interest at fixed rates. See Note 7 of
the Notes to Condensed Consolidated Financial Statements for terms, valuations
and approximate principal maturities of the mortgage notes payable as of
September 30, 1999. Based on borrowing rates currently available to the Company,
the carrying amount of debt approximates fair value.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
PS Business Parks, L.P. v. Principal Mutual Life Insurance Company, et
----------------------------------------------------------------------
al., Circuit Court of Washington County, Oregon (filed April 29, 1999)
- ---
In May 1998, the Company acquired a property in Beaverton, Oregon. An
adjacent property is the subject of an environmental remedial investigation. For
additional information on the investigation, please refer to the Company's 1998
annual report on Form 10-K under "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Risk Factors - Our Business
Could Be Subject to Environmental Liabilities."
In April 1999, the Company commenced an action against the sellers of
the property seeking indemnification for any damages and expenses that may be
incurred by the Company in this matter and for other relief. The Company is not
currently able to quantify the extent of such damages and expenses.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2.1 Amended and Restated Agreement and Plan of Reorganization among
Registrant, American Office Park Properties, Inc. ("AOPP") and Public
Storage, Inc. ("PSI") dated as of December 17, 1997. Filed with
Registrant's Registration Statement No. 333-45405 and incorporated
herein by reference.
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 333-78627 and incorporated herein by
reference.
3.2 Certificate of Determination of Preferences of 8 3/4% Series C
Cumulative Redeemable Preferred Stock of PS Business Parks, Inc. Filed
herewith.
3.3 Certificate of Determination of Preferences of 8 7/8% Series X
Cumulative Redeemable Preferred Stock of PS Business Parks, Inc. Filed
herewith.
3.4 Amendment to Certificate of Determination of Preferences of 8 7/8%
Series X Cumulative Redeemable Preferred Stock of PS Business Parks,
Inc. Filed herewith.
3.5 Restated Bylaws. Filed with Registrant's Current Report on Form 8-K
dated March 17, 1998 and incorporated herein by reference.
10.1 Amended Management Agreement between Storage Equities, Inc. and Public
Storage Commercial Properties Group, Inc. dated as of February 21,
1995. Filed with PSI's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.2 Registrant's 1997 Stock Option and Incentive Plan. Filed with
Registrant's Registration Statement No. 333-48313 and incorporated
herein by reference.
10.3 Agreement of Limited Partnership of PS Business Parks, L.P. Filed with
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998 and incorporated herein by reference.
10.4 Merger and Contribution Agreement dated as of December 23, 1997 among
Acquiport Two Corporation, Acquiport Three Corporation, New York State
Common Retirement Fund, American Office Park Properties, L.P., AOPP and
AOPP Acquisition Corp. Three. Filed with Registrant's Registration
Statement No. 333-45405 and incorporated herein by reference.
27
10.5 Agreement Among Shareholders and Company dated as of December 23, 1997
among Acquiport Two Corporation, AOPP, American Office Park Properties,
L.P. and PSI. Filed with Registrant's Registration Statement No.
333-45405 and incorporated herein by reference.
10.6 Amendment to Agreement Among Shareholders and Company dated as of
January 21, 1998 among Acquiport Two Corporation, AOPP, American Office
Park Properties, L.P. and PSI. Filed with Registrant's Registration
Statement No. 333-45405 and incorporated herein by reference.
10.7 Non-Competition Agreement dated as of December 23, 1997 among PSI,
AOPP, American Office Park Properties, L.P. and Acquiport Two
Corporation. Filed with Registrant's Registration Statement No.
333-45405 and incorporated herein by reference.
10.8 Employment Agreement between AOPP and Ronald L. Havner, Jr. dated as of
December 23, 1997. Filed with Registrant's Registration Statement No.
333-45405 and incorporated herein by reference.
10.9 Employment Agreement between AOPP and Mary Jayne Howard dated as of
December 23, 1997. Filed with Registrant's Registration Statement No.
333-45405 and incorporated herein by reference.
10.10 Employment Agreement between Registrant and J. Michael Lynch dated as
of May 20, 1998. Filed with Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998 and incorporated herein by
reference.
10.11 Common Stock Purchase Agreement dated as of January 23, 1998 among AOPP
and the Investors signatory thereto. Filed with Registrant's
Registration Statement No. 333-45405 and incorporated herein by
reference.
10.12 Registration Rights Agreement dated as of January 30, 1998 among AOPP
and the Investors signatory thereto. Filed with Registrant's
Registration Statement No. 333-45405 and incorporated herein by
reference.
10.13 Registration Rights Agreement dated as of March 17, 1998 between
Registrant and Acquiport Two Corporation ("Acquiport Registration
Rights Agreement"). Filed with Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 and incorporated
herein by reference.
10.14 Letter dated May 20, 1998 relating to Acquiport Registration Rights
Agreement. Filed with Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998 and incorporated herein by
reference.
10.15 Revolving Credit Agreement dated August 6, 1998 among PS Business
Parks, L.P., Wells Fargo Bank, National Association, as Agent, and the
Lenders named therein. Filed with Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 and incorporated
herein by reference.
10.16 First Amendment to Revolving Credit Agreement dated as of August 19,
1999 among PS Business Parks, L.P., Wells Fargo Bank, National
Association, as Agent, and the Lenders named therein. Filed herewith.
10.17 Form of Indemnity Agreement. Filed with Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998 and
incorporated herein by reference.
10.18 Cost Sharing and Administrative Services Agreement dated as of November
16, 1995 by and among PSCC, Inc. and the owners listed therein. Filed
with Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998 and incorporated herein by reference.
10.19 Amendment to Cost Sharing and Administrative Services Agreement dated
as of January 2, 1997 by and among PSCC, Inc. and the owners listed
therein. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998 and incorporated herein by
reference.
28
10.20 Accounts Payable and Payroll Disbursement Services Agreement dated as
of January 2, 1997 by and between PSCC, Inc. and American Office Park
Properties, L.P. Filed with Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998 and incorporated herein
by reference.
10.21 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 8 7/8% Series B Cumulative Redeemable Preferred Units,
dated as of April 23, 1999. Filed with Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
10.22 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 9 1/4% Series A Cumulative Redeemable Preferred Units,
dated as of April 30, 1999. Filed with Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
10.23 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 83/4% Series C Cumulative Redeemable Preferred Units,
dated as of September 3, 1999. Filed herewith.
10.24 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 8 7/8% Series X Cumulative Redeemable Preferred Units,
dated as of September 7, 1999. Filed herewith.
10.25 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to Additional 8 7/8% Series X Cumulative Redeemable
Preferred Units, dated as of September 23, 1999. Filed herewith.
11 Statement re: Computation of Earnings per Share. Filed herewith.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges. Filed
herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
None.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 10, 1999
PS BUSINESS PARKS, INC.
By: /s/ Jack Corrigan
-------------------------
Jack Corrigan
Vice President and
Chief Financial Officer
30