SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1998
PS BUSINESS PARKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 1-10709 95-4300881
---------- ------- ----------
(State or Other Jurisdiction (Commission File Number) 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
---------------
N/A
---
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
During the period June 11, 1998 through September 30, 1998, PS
Business Parks, Inc. (the "Company" or "PSB"), through its
consolidated partnerships, acquired 4 commercial properties located in
Virginia and Maryland, containing approximately 468,000 net rentable
square feet, and approximately 7.2 acres of vacant land in Texas at an
aggregate purchase price of approximately $38.6 million. The Company
is not affiliated with the sellers and the purchase price was
established through arm's length negotiation. The Company obtained the
funds to acquire the facilities from its equity offerings in May,1998.
The following table provides certain information concerning the
facilities acquired:
<TABLE>
<CAPTION>
Date of Purchase Net Rentable Occupancy at
Name and Location Seller Acquisition Property Type Price Square Footage Closing
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Northpointe D D&R Immobilien 6/11/98 Industrial &
Sterling, Virginia Verwaltung Office $3,577,000(1) 47,200 100%
GMBH & Co.
Holding KG
Northpointe G D&R Immobilien 6/11/98 Industrial &
Sterling, Virginia Verwaltung Office 3,746,000(2) 48,900 100%
GMBH & Co.
Holding KG
Gunston First and 6/17/98 Industrial &
Lorton, Virginia Second Gunston Office 21,820,000(3) 246,500 94%
L.P.
Spectrum 95 8700 SD
Landover, Maryland Corporation 9/30/98 Industrial &
Office 8,473,000(4) 125,500 98%
-------------- ---------- --------
Subtotal -
operating facilities 37,616,000 468,100 96%
Vacant land - Pequot, L.C. 9/28/98
Irving, Texas
(approx. 7.2 acres) 996,000 -
-------------- ----------
Totals $38,612,000 468,100
============== ==========
--------------------
Notes to Purchase Price:
(1) Acquired for cash of $1,764,000, the assumption of an existing
mortgage payable of $1,714,000 and the issuance of 4,332 OP Units
having a value of $99,000.
(2) Acquired for cash of $1,678,000, the assumption of an existing
mortgage payable of $1,964,000 and the issuance of 4,550 OP Units
having a value of $104,000.
(3) Acquired for cash of $10,049,000 and the assumption of an
existing mortgage payable of $11,771,000.
(4) Acquired for cash of 8,317,000 and the issuance of 6,540 OP Units
having a value of $156,000.
</TABLE>
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a)(3) Financial Statements specified by Rule 3.14 of Regulation S-X
Northpointe D and G Properties
* Report of Independent Auditors
* Combined Statements of Revenues and Certain Expenses for the
six months ended June 30, 1998 (unaudited) and for the year
ended December 31, 1997
* Notes to Combined Statements of Revenues and Certain
Expenses
The Gunston Property
* Report of Independent Auditors
* Statements of Revenues and Certain Expenses for the six
months ended June 30, 1998 (unaudited) and for the year
ended December 31, 1997
* Notes to Statements of Revenues and Certain Expenses
The Spectrum 95 Property
* Report of Independent Auditors
* Statements of Revenues and Certain Operating Expenses for
the six months ended June 30, 1998 (unaudited) and for the
year ended December 31, 1997
* Notes to Statements of Revenues and Certain Operating
Expenses
(b) Pro forma Consolidated Financial Statements
(c) Exhibits
23. Consent of Independent Auditors
3
<PAGE>
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 hereunto duly authorized.
PS BUSINESS PARKS, INC.
Date: November 13, 1998 By: /s/ Jack Corrigan
------------------
Jack Corrigan
Vice President and Chief Financial Officer
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of the Northpointe D and G Properties (as defined in Note 1)
("Statement") for the year ended December 31, 1997. The Statement is the
responsibility of the property's management. Our responsibility is to express an
opinion on the above mentioned statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission.
In our opinion, the Statement presents fairly the combined revenues and certain
expenses of the Northpointe D and G Properties for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
August 26, 1998
5
<PAGE>
NORTHPOINTE D and G PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Six months Year ended
ended June 30, December 31,
1998 1997
-------------- --------------
(unaudited)
Rental revenues $475,000 $930,000
Certain operating expenses (87,000) (176,000)
Interest expense (161,000) (228,000)
-------------- --------------
Rental revenues in excess of certain expenses $227,000 $526,000
============== ==============
See accompany notes
6
<PAGE>
NORTHPOINTE D and G PROPERTIES
Notes to Combined Statements of Revenues and Certain Expenses
1. BACKGROUND AND BASIS OF COMBINATION
The accompanying combined statements of revenues and certain expenses
include the accounts of the Northpointe D and G Properties
(Northpointe Properties), located in Virginia and acquired by PS
Business Parks, Inc. ("PSB") in June 1998. The combined statements are
prepared in order to comply with Rule 3.14 of Regulation S-X of the
Securities and Exchange Commission.
The combined statements of revenue and certain expenses include only
the accounts and activity of the Northpointe Properties. Items which
are not comparable to the future operations of the Northpointe
Properties have been excluded. Such items include depreciation,
amortization, management fees, miscellaneous income, and straight line
rent adjustments.
An audited combined statement is being presented for the most recent
fiscal year available instead of the three most recent years based on
the following factors: (i) the Northpointe Properties are acquired
from an unaffiliated party and (ii) based on the investigation of the
Northpointe Properties by PSB, management is not aware of any material
factors relating to the Northpointe Properties that would cause this
financial information not to be necessarily indicative of future
operating results other than the factors specifically considered by
PSB as described below.
In the decision to acquire the Northpointe Properties, PSB considered
the competition from other commercial property owners, the location,
the leases, the rental rates and the occupancy levels of the
properties.
PSB has reviewed the expenses of the Northpointe Properties, including
salaries of on-site personnel, utilities, property taxes, supplies,
insurance and repairs and maintenance. PSB expects that operating
expenses in the future will be consistent with those reported for 1997
and the six months ended June 30, 1998. PSB expects to be able to pass
inflationary operating expense increases in future periods through to
its tenants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The leases of the Northpointe Properties are accounted for as
operating leases. Minimum rent revenues are recognized on an accrual
basis over the respective lease term. Recoveries from tenants are
recognized as income in the period the applicable costs are accrued.
Use of Estimates
The preparation of the combined statements of revenues and certain
expenses in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of revenues and certain expenses during the reporting
periods. Actual results could differ from those estimates.
3. MORTGAGE DEBT
The Northpointe Properties provide collateral for mortgage notes with
approximate outstanding balances at December 31, 1997 of $1,735,000
and $1,984,000. The mortgage notes bear interest at 8.0% and 8.5%,
respectively with due dates of April 2003 and July 2007, respectively.
7
<PAGE>
4. PROPERTY RENTALS
Future minimum rental revenues under non-cancelable leases as of
December 31, 1997 are as follows:
1998............................................... $ 821,000
1999............................................... 816,000
2000............................................... 807,000
2001............................................... 766,000
2002............................................... 380,000
Thereafter......................................... 1,197,000
-------------
$ 4,787,000
=============
8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying statement of revenues and certain expenses of
the Gunston Property (as defined in Note 1) ("Statement") for the year ended
December 31, 1997. The Statement is the responsibility of the property's
management. Our responsibility is to express an opinion on the above mentioned
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission.
In our opinion, the Statement presents fairly the revenues and certain expenses
of the Gunston Property for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
August 6, 1998
9
<PAGE>
THE GUNSTON PROPERTY
Statements of Revenues and Certain Expenses
Six months ended Year ended
June 30, 1998 December 31, 1997
----------------- -----------------
(Unaudited)
Rental revenues $1,215,000 $ 2,299,000
Certain operating expenses (135,000) (383,000)
Interest expense (456,000) (951,000)
------------ ------------------
Rental revenues in excess of certain expenses $ 624,000 $ 965,000
============ ==================
See accompany notes
10
<PAGE>
THE GUNSTON PROPERTY
Notes to Statements of Revenues and Certain Expenses
1. BACKGROUND AND BASIS FOR PRESENTATION
The accompanying statements of revenues and certain expenses include
the accounts of the Gunston Property, located in Virginia and acquired
by PS Business Parks, Inc. ("PSB") in June 1998. The statements are
prepared in order to comply with Rule 3.14 of Regulation S-X of the
Securities and Exchange Commission.
The statements of revenue and certain expenses include only the
accounts and activity of the Gunston Property. Items which are not
comparable to the future operations of the Gunston Property have been
excluded. Such items include depreciation, amortization, management
fees, miscellaneous income and straight line rent adjustments.
An audited statement is being presented for the most recent fiscal
year available instead of the three most recent years based on the
following factors: (i) the Gunston Property is acquired from an
unaffiliated party and (ii) based on the investigation of the Gunston
Property by PSB, management is not aware of any material factors
relating to the Gunston Property that would cause this financial
information not to be necessarily indicative of future operating
results other than the factors specifically considered by PSB as
described below.
In the decision to acquire the Gunston Property, PSB considered the
competition from other commercial property owners, the location, the
leases, the rental rates and the occupancy level of the property.
PSB has reviewed the expenses of the Gunston Property, including
salaries of on-site personnel, utilities, property taxes, supplies,
insurance and repairs and maintenance. PSB expects that certain
expenses will be approximately $100,000 (unaudited) per annum higher
in the future than amounts incurred under the 1997 ownership structure
of the prior owner ($50,000 higher than the amounts reported for the
six months ended June 30, 1998). PSB expects to be able to pass
inflationary operating expense increases in future periods through to
its tenants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues Recognition
The Gunston Property leases are accounted for as operating leases.
Minimum rent revenues are recognized on an accrual basis over the
respective lease term. Recoveries from tenants are recognized as
income in the period the applicable costs are accrued.
Use of Estimates
The preparation of the statements of revenues and certain operating
expenses in conformity with generally accepted accounting principles
require management to make estimates and assumptions that affect the
reported amounts of revenues and certain operating expenses during the
reporting periods. Actual results could differ from those estimates.
3. MORTGAGE DEBT
The Gunston Property provides collateral for a mortgage note with an
approximate outstanding balance at December 31, 1997 of $12,110,000.
The mortgage note bears interest at 7.625% and is due May 2004.
11
<PAGE>
4. PROPERTY RENTALS
Future minimum rental revenues under non-cancelable leases as of
December 31, 1997 are as follows:
1998............................................... $ 2,263,000
1999............................................... 1,927,000
2000............................................... 1,240,000
2001............................................... 1,148,000
2002............................................... 864,000
Thereafter......................................... 13,000
-------------
$ 7,455,000
=============
5. RELATED PARTY
Fredericks Construction Co. Inc., an affiliate of the Seller, occupied
a rent-free space in the business park.
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying statement of revenues and certain operating
expenses of the Spectrum 95 Property (as defined in Note 1) ("Statement") for
the year ended December 31, 1997. The Statement is the responsibility of the
property's management. Our responsibility is to express an opinion on the above
mentioned statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission.
In our opinion, the Statement presents fairly the revenues and certain operating
expenses of the Spectrum 95 Property for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
September 21, 1998
13
<PAGE>
<TABLE>
<CAPTION>
THE SPECTRUM 95 PROPERTY
Statements of Revenues and Certain Operating Expenses
Six months ended Year ended December
June 30, 1998 31, 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
Rental revenue $ 384,000 $ 850,000
Certain operating expenses (96,000) (183,000)
------------------ ------------------
Excess rental revenues over certain operating expenses $ 288,000 $ 667,000
================== ==================
</TABLE>
14
<PAGE>
THE SPECTRUM 95 PROPERTY
Notes to Statements of Revenues and Certain Operating Expenses
1. BACKGROUND AND BASIS OF PRESENTATION
The accompanying statements of revenues and certain operating expenses
include the accounts of the Spectrum 95 Property, located in Maryland
and acquired by PS Business Parks, Inc. ("PSB") in September 1998. The
statements are prepared in order to comply with Rule 3.14 of
Regulation S-X of the Securities and Exchange Commission.
The statements of revenue and certain operating expenses include only
the accounts and activity of the Spectrum 95 Property. Items which are
not comparable to the future operations of the Spectrum 95 Property
have been excluded. Such items include depreciation, amortization,
management fees, miscellaneous income and straight line rent
adjustments.
An audited statement is being presented for the most recent fiscal
year available instead of the three most recent years based on the
following factors: (i) the Spectrum 95 Property is acquired from an
unaffiliated party and (ii) based on the investigation of the Spectrum
95 Property by PSB, management is not aware of any material factors
relating to the Spectrum 95 Property that would cause this financial
information not to be necessarily indicative of future operating
results other than the factors specifically considered by PSB, as
described below.
In the decision to acquire the Spectrum 95 Property, PSB considered
the competition from other commercial property owners, the location,
the leases, the rental rates and the occupancy level of the property.
PSB has reviewed the expenses of the Spectrum 95 Property, including
salaries of on-site personnel, utilities, property taxes, supplies,
insurance and repairs and maintenance. PSB expects that operating
expenses in the future will be consistent with those reported for 1997
and the six months ended June 30, 1998. PSB expects to be able to pass
inflationary operating expense increases in future periods through to
its tenants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Spectrum 95 Property leases are accounted for as operating leases.
Minimum rent revenues are recognized on an accrual basis over the
respective lease term. Recoveries from tenants are recognized as
income in the period the applicable costs are accrued.
Use of Estimates
The preparation of the statements of revenues and certain operating
expenses in conformity with generally accepted accounting principles
require management to make estimates and assumptions that affect the
reported amounts of revenues and certain operating expenses during the
reporting periods. Actual results could differ from those estimates.
3. PROPERTY RENTALS
Future minimum rental revenues under non-cancelable leases as of
December 31, 1997 are as follows:
1998............................................... $ 603,000
1999............................................... 622,000
2000............................................... 475,000
2001............................................... 219,000
2002............................................... 195,000
Thereafter......................................... 434,000
-------------
$ 2,548,000
=============
15
<PAGE>
ITEM 7(B) PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PS Business Parks, Inc. (the "Company" or "PSB") is the successor to American
Office Park Properties, Inc. ("AOPP") and the survivor in the merger (the
"Merger") of PSB into Public Storage Properties XI, Inc. ("PSP11") on March 17,
1998. Based upon the terms of the merger (see below), for financial reporting
and accounting purposes the merger has been accounted for as a reverse
acquisition whereby PSB 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 prior to March 17, 1998, refer to AOPP.
The following unaudited pro forma consolidated financial statements were
prepared to reflect the acquisition of real estate facilities by PSB through its
consolidated partnerships during the period of June 11, 1998 through September
30 1998. During that period, PSB acquired four commercial properties located in
Virginia and Maryland, containing approximately 468,000 net rentable square
feet, and approximately 7.2 acres of vacant land in Texas for an aggregate cost
of approximately $38.6 million. PSB used available cash and proceeds from the
issuance of common stock to fund the transactions.
In addition, the pro forma consolidated financial statements reflect the March
17, 1998 Merger, which is described in the Public Storage Properties XI, Inc.
Proxy Statement and Prospectus dated February 5, 1998 (the "Proxy Statement").
Pursuant to the Merger:
* PSB merged into PSP11.
* Each outstanding share of PSP11 Common Stock, with the exception
of 106,155 shares which elected to receive $20.50 in cash per
share, continues to be owned by current holders.
* Each share of PSP11 Common Stock Series B and each share of PSP11
Common Stock Series C converted into .8641 shares of PSP11 Common
Stock.
* Each share of PSB Common Stock converted into 1.18 shares of
PSP11 Common Stock.
* The surviving corporation in the Merger was renamed PS Business
Parks, Inc.
* Concurrent with the Merger, PSP11 exchanged (the "Exchange") 11
mini-warehouses and two properties that combine mini-warehouse
and commercial space for 11 commercial properties owned by Public
Storage, Inc. ("PSI").
The Merger has been accounted for as a reverse merger whereby PSB is treated as
the accounting acquirer using the purchase method. This has been determined
based upon the following:
* The former shareholders and unitholders of PSB own in excess of
80% of the merged companies.
* 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 has been primarily on the ownership and operation of its
self-storage facilities which represented approximately 81% of
its portfolio.
16
<PAGE>
In addition to adjustments to reflect the recently acquired properties and the
Merger, pro forma adjustments were made to reflect the following transactions
(all share and Operating Partnership unit amounts have been adjusted to reflect
the conversion factor of 1.18 pursuant to the Merger):
1. On April 1, 1997, PSB (through the operating partnership) acquired
four commercial properties from PSI in exchange for 1,480,968 OP
Units.
2. On July 31, 1997, PSB acquired two commercial properties from an
unaffiliated third party for cash totaling $33,310,000. PSB raised the
cash for this acquisition by issuing 2,025,769 shares of PSB Common
Stock primarily to PSI for cash totaling $33,800,000.
3. On September 24, 1997, PSB acquired one commercial property (the
"Largo Property") from an unaffiliated third party for an aggregate
cost of $10,283,000, consisting of cash of $9,959,000 and the issuance
of 14,384 Operating Partnership units ("OP Units") having a value of
$324,000.
4. On December 10, 1997, PSB purchased a commercial property (the
"Northpointe Property") for $3,854,000, consisting of cash of
$3,554,000 and the issuance of 13,111 OP Units having a value of
$300,000.
5. On December 24, 1997, PSB completed a transaction whereby PSB issued
1,785,007 OP Units and 3,504,758 shares of PSB common stock to a
subsidiary of a state pension fund, and the subsidiary of the state
pension fund, through a merger and contribution, transferred to PSB
six commercial properties (the "Acquiport Properties" - $118,655,000)
and $1,000,000 cash. PSB incurred $3,300,000 in transaction costs. On
January 9, 1998, the subsidiary of the state pension fund exercised
its option to convert its OP Units into shares of PSB common stock on
a one-for-one basis.
6. In January 1998, PSB entered into an agreement with a group of
institutional investors under which PSB would issue up to 6,744,074
shares of PSB common stock at $22.88 per share in separate tranches.
The first tranche, 2,185,189 shares or $50.0 million, was issued in
January 1998. The remainder of the shares ($105 million) was issued on
May 6, 1998. The funds were used to finance a portion of the
acquisition cost of the Principal Properties.
7. On January 13, 1998, PSB purchased a commercial property (the
"Ammendale Property") for $22,518,000, consisting of cash of
$22,325,000 and the issuance of 8,428 OP Units having a value of
$193,000.
8. In March 1998, PSB purchased two commercial properties (the "March
Acquisitions", referred to in the Proxy Statement dated February 5,
1998 as the "Proposed Acquisition Properties") from unaffiliated third
parties for an aggregate cost of $32,916,000, composed of $17,377,000
cash, the issuance of 44,250 OP Units having a value of $1,013,000,
and the assumption of mortgage notes payable of $14,526,000.
9. On May 4, 1998, PSB acquired 28 commercial properties (the "Principal
Properties") for an aggregate cost of approximately $190.5 million in
cash.
10. In May 1998, PSB completed two common stock offerings, raising net
proceeds in aggregate totaling $118.9 million through the issuance of
5,025,800 common shares.
The pro forma consolidated balance sheet at June 30, 1998 has been prepared to
reflect the aforementioned acquisition of a commercial property and vacant land
which occurred after June 30, 1998.
The pro forma consolidated statement of income for the six months ended June 30,
1998 has been prepared assuming (i) the aforementioned acquisitions of
commercial properties and vacant land (ii) the issuance of $155.0 million of PSB
Common Stock to institutional investors, (iii) the issuance of $118.9 million of
Common Stock to public investors and (iv) the Merger between PSB and PSP11, as
if all such transactions were completed at the beginning of fiscal 1998. The
operations of all property acquisitions are based on the historical operating
results for 1998.
17
<PAGE>
The pro forma consolidated statement of income for the year ended December 31,
1997 has been prepared assuming (i) the aforementioned acquisitions of
commercial properties and vacant land (ii) the issuance of $155.0 million of PSB
Common Stock to institutional investors, (iii) the issuance of $118.9 million of
Common Stock to public investors and (iv) the Merger between PSB and PSP11, as
if all such transactions were completed at the beginning of fiscal 1997. The
operations of all property acquisitions are based on the historical operating
results for 1997.
The pro forma adjustments are based upon available information and upon certain
assumptions as set forth in the notes to the pro forma consolidated financial
statements that PSP11 and PSB believe are reasonable in the circumstances. The
pro forma consolidated financial statements and accompanying notes should be
read in conjunction with the historical financial statements of PSP11, PSB, and
certain financial information with respect to properties acquired. (SEE
"FINANCIAL STATEMENTS -ACQUIRED PROPERTIES, -PSI EXCHANGE PROPERTIES, -BALDON
PROPERTIES, -LARGO PROPERTY, -ACQUIPORT PROPERTIES, -PROPOSED ACQUISITION
PROPERTIES, -NORTHPOINTE PROPERTY, AND -AMMENDALE PROPERTY INCLUDED IN THE ABOVE
REFERENCED PROXY STATEMENT). The following pro forma consolidated financial
statements do not purport to represent what PSB's results of operations would
actually have been if the transactions in fact had occurred at the beginning of
the dates indicated or to project PSB's results of operations for any future
date or period.
18
<PAGE>
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1998
(Unaudited)
(Amounts in thousands, except share and per share data)
Property
PSB Acquisitions PSB
(Historical) (Note 1) (Pro Forma)
------------ ------------- ---------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 36,355 $ (9,313) $ 27,042
Real estate facilities, net of accumulated depreciation 635,498 9,469 644,967
Intangible assets, net of accumulated amortization 1,733 - 1,733
Other assets 2,180 - 2,180
------------ ------------- ---------------
Total assets $ 675,766 $ 156 $ 675,922
============ ============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities $ 11,256 $ - $ 11,256
Notes payable 29,890 - 29,890
Minority interest 151,225 156 151,381
Shareholders' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 23,635,650 issued and outstanding at June -
30, 1998 236 236
Paid-in capital 482,167 - 482,167
Cumulative net income 14,530 - 14,530
Cumulative distribution paid (13,538) - (13,538)
------------ ------------- ---------------
Total shareholders' equity 483,395 - 483,395
------------ ------------- ---------------
Total liabilities and shareholders' equity $ 675,766 $ 156 $ 675,922
============ ============= ===============
Book value per share of common stock (Note 2) $ 20.45 $ 20.45
============ ===============
Shares outstanding 23,635,650 23,635,650
============ ===============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet.
19
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1998
(Unaudited)
1. ACQUISITION OF REAL ESTATE FACILITIES
On September 28, 1998, PSB purchased vacant land for an aggregate cost of
$996,000 in cash.
On September 30, 1998, PSB acquired the Spectrum 95 Property for an
aggregate cost of $8,473,000 consisting of $8,317,000 cash and the issuance
of 6,540 OP Units having a value of $156,000.
The following pro forma adjustments have been made to the pro forma
consolidated balance sheet as of June 30, 1998 to reflect the acquisition
of the above commercial properties and the related issuance of OP Units:
<TABLE>
<CAPTION>
(in 000's)
--------------
<S> <C>
* Cash and cash equivalents has been decreased to reflect the cash
portion of the acquisition cost of the properties purchased, as
follows:
Vacant land............................................................ $ (996)
Spectrum 95 Property................................................... (8,317)
--------------
$ (9,313)
==============
* Real estate facilities has been adjusted to reflect the acquisition
cost of the facilities acquired:
Vacant land............................................................ $ 996
Spectrum 95 Property................................................... 8,473
--------------
$ 9,469
==============
* Minority interest has been increased to reflect the issuance of 6,540
OP Units in connection with the acquisition of the Spectrum 95
Property.................................................................... 156
==============
</TABLE>
20
<PAGE>
2. BOOK VALUE PER SHARE OF COMMON STOCK
Book value per share has been determined by dividing total
shareholders' equity by the outstanding shares of Common Stock. The
following summarizes the shares outstanding:
<TABLE>
<CAPTION>
Common
shares outstanding
------------------
<S> <C>
* PSB historical shares outstanding at June 30, 1998..................... 23,635,650
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30 1998
(Unaudited)
(Amounts in thousands, except per share data)
PSB
Pro Forma Merger
Pro Forma Adjustments Adjustments
--------------------------- -------------
Acquisition of Exchange of
real estate from Other PSB real estate PSB
PSB third parties adjustments Pre-Merger PSP11 facilities Post-Merger
(Historical) (Note 1) (Note 2) (Pro forma) Historical) (Note 4) (Pro forma)
------------ -------- -------- ----------- ------------ -------- ----------
REVENUES:
Rental income:
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial properties $ 35,824 10,805 - 46,629 232 1,744 48,605
Mini-warehouse properties - - - - 1,280 (1,280) -
Facility management fees 331 - - 331 - (99) 232
Interest and other income 544 - - 544 - - 544
---------- -------- -------- ----------- ---------- -------- ---------
36,699 10,805 - 47,504 1,512 365 49,381
---------- -------- -------- ----------- ---------- -------- ---------
EXPENSES:
Cost of operations:
Commercial properties 10,982 3,081 - 14,063 86 666 14,815
Mini-warehouse properties - - - - 434 (434) -
Cost of managing facilities 37 - - 37 - (13) 24
Depreciation and amortization 6,556 3,353 - 9,909 250 68 10,227
General and administrative 996 - 150 1,146 36 - 1,182
Interest expense 1,069 888 (400) 1,557 - - 1,557
---------- -------- -------- ----------- ---------- -------- ---------
19,640 7,322 (250) 26,712 806 287 27,805
---------- -------- -------- ----------- ---------- -------- ---------
Income before minority interest in
income 17,059 3,483 250 20,792 706 78 21,576
Minority interest in income(Note 6) (5,683) - 573 (5,110) - (25) (5,135)
---------- -------- -------- ----------- ---------- -------- ---------
Net income $ 11,376 $ 3,483 $ 823 $15,682 $ 706 $ 53 $ 16,441
========== ======== ========= =========== ========== ======== =========
Net income per share (Note 3 and 5):
Basic $ 0.76 $ 0.69 $ 0.70
========== =========== =========
Dilute $ 0.76 $ 0.69 $ 0.69
========== =========== =========
Weighted average shares(Note 3 and 5):
Basic 14,926 22,677 23,636
========== =========== =========
Diluted 14,978 22,729 23,687
========== =========== =========
</TABLE>
See Accompanying Notes to Pro-Forma Consolidated Statements of Income.
22
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Six Months Ended June 30, 1998
(Unaudited)
1. ACQUISITION OF REAL ESTATE FACILITIES
-------------------------------------
During 1998, PSB has completed the acquisition of several properties:
* On January 13, 1998, PSB purchased a commercial property (the
"Ammendale Property") for $22,518,000, consisting of cash of
$22,325,000 and the issuance of 8,428 OP units having a value of
$193,000.
* March Acquisition Properties: In March 1998, PSB purchased two
commercial properties from unaffiliated third parties for an aggregate
cost of $32,916,000 consisting of cash totaling $17,377,000, the
issuance of 44,250 OP Units having a value of $1,013,000 and the
assumption of $14,526,000 of mortgage debt.
* On May 4, 1998, PSB acquired the Principal Properties for an aggregate
cost of approximately $190.5 million in cash. PSB financed the
acquisition costs through the use of available cash, cash proceeds
from the issuance of common stock in May 1998, and borrowings from an
affiliate.
* On June 11, 1998, PSB acquired two commercial properties (the
"Northpointe Properties") for an aggregate cost of $7,323,000
consisting of $3,442,000 in cash, $3,678,000 in debt assumption and
the issuance of 8,882 OP Units having a value of $203,000.
* On June 17, 1998, PSB acquired a commercial property (the "Gunston
Property") for an aggregate cost of $21,820,000 consisting of
$10,049,000 in cash and $11,771,000 in debt assumption.
* On September 30, 1998, PSB acquired the Spectrum 95 property for an
aggregate cost of $8,473,000 consisting of $8,317,000 in cash and the
issuance of 6,540 OP Units having a value of $156,000.
The following pro forma adjustments have been made to reflect the
operations of these properties as if such properties had been acquired at
the beginning of the year:
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Rental income has been increased to reflect the pro forma rental
income of the properties, as if these facilities were owned by PSB
throughout 1998:
* Rental income for 1998 for the following properties:
Ammendale Property...................................................... 1,562
March Acquisitions...................................................... 2,363
Principal Properties.................................................... 11,472
Northpointe Properties.................................................. 475
Gunston Property........................................................ 1,215
Spectrum 95 Property.................................................... 384
* Less: the portion of rental income with respect to these properties
which has been included in PSB's historical amounts............................. (6,666)
------------
$ 10,805
============
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Cost of operations has been increased to reflect the pro forma cost of
operations of these properties, as if they were owned by PSB
throughout the entire period presented:
* Cost of operations for the entire year's properties' historical
operations:
Ammendale Property...................................................... 379
March Acquisitions...................................................... 1,085
Principal Properties.................................................... 3,058
Northpointe Properties.................................................. 87
Gunston Property........................................................ 135
Spectrum 95 Property.................................................... 96
* Less: the portion of cost of operations with respect to these
properties which has been included in PSB's historical
amounts.................................................................... (1,759)
------------
$ 3,081
============
* Depreciation has been increased to reflect six months'
depreciation expense....................................................... $ 3,353
============
* Interest expense has been increased to reflect the historical
interest expense for each of the periods presented with respect
to the assumption of mortgage notes payable................................ $ 888
============
2. OTHER PRO FORMA ADJUSTMENTS
---------------------------
* A pro forma adjustment has been made to increase general and
administrative expense to reflect additional costs with respect to
payroll as PSB hires acquisition and executive personnel......................... $ 150
============
* A pro forma adjustment has been made to decrease interest expense as
if the proceeds from the common stock offerings were available at the
beginning of the period to paydown the borrowings from Public Storage,
Inc.............................................................................. $ (400)
============
* A pro forma adjustment has been made to decrease "Minority interest in
income" to reflect the decrease in minority ownership as a result of
the common stock offerings (representing the difference between the
pro forma amounts less the historical amounts included in PSB's
historical financial statements)................................................. $ 573
============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
3. NET INCOME PER COMMON SHARE (PSB PRE-MERGER PRO FORMA) HAS BEEN
COMPUTED AS FOLLOWS:
----------------------------------------------------------------------
<S> <C>
Historical net income.............................................. $ 11,376,000
Historical weighted average common shares.......................... 14,926,093
Historical net income per common share............................. $ 0.76
Pro forma net income.............................................. $ 15,682,000
Pro forma weighted average common shares (1)...................... 22,676,860
Pro forma net income per common share............................. $ 0.69
---------------------------------------------------------------------------------------
(1)
Historical weighted average shares................................. 14,926,093
Adjusted for:
Issuance of common stock in January 1998 to subsidiary
of a state pension fund in connection with conversion
of OP Units into common stock (1,785,007 shares less
1,696,250 included in the historical amounts)................. 88,757
Issuance of common stock in January 1998 in connection
with the exercise of stock options (39,023 shares less
26,735 included in the historical amounts).................... 12,288
Pro forma issuance of common stock to institutional
investors (6,774,074 shares less 3,217,414 included in
the historical amounts)....................................... 3,556,660
Pro forma issuance of common stock to the public
(5,025,800 shares less 932,738 included in the
historical amounts)........................................... 4,093,062
------------
Total Pre-Merger pro forma weighted average shares....... 22,676,860
============
</TABLE>
25
<PAGE>
4. PRO FORMA MERGER ADJUSTMENTS - EXCHANGE OF PROPERTIES:
------------------------------------------------------
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.
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Rental income- commercial properties has been increased to
reflect the rental income with respect to the 11 commercial
properties received through the Exchange for the period before
the merger and exchange of properties....................................... $ 1,744
============
* Rental income- mini-warehouses has been decreased to eliminate
the rental income with respect to the 11 mini-warehouse
facilities and two properties that combine mini-warehouse and
commercial space given up through the Exchange.............................. $ (1,280)
============
* A pro forma adjustment has been made to facility management fees to:
* eliminate the historical facility management fees related to
11 commercial properties acquired in the Exchange as such
fee will no longer be charged to these properties as PSB
will own them.......................................................... $ (87)
* eliminate the historical facility management fees related to
the two commercial properties of PSP11 acquired in the
Merger................................................................. $ (12)
------------
$ (99)
============
* A pro forma adjustment has been made to cost of operations to:
* eliminate historical management fees paid to PSB to manage
PSP11's two commercial properties which are included in
historical amounts and as a result of the Merger will no
longer be incurred..................................................... $ (12)
* reflect the cost of operations of the 11 commercial
properties acquired in the Exchange (before cost of
management) for the period before the merger and exchange of
properties............................................................. 665
* reflect the cost of management for PSP11's two commercial
properties and the 11 commercial properties acquired in the
Exchange............................................................... 13
------------
$ 666
============
* Cost of operations- mini-warehouses has been decreased to
eliminate the cost of operations with respect to the 11
mini-warehouse facilities and two properties that combine
mini-warehouse and commercial space given up through the Exchange........... $ (434)
============
* Cost of managing facilities has been decreased to eliminate the
historical cost of managing the two PSP11 commercial properties
and the 11 commercial properties acquired in the Exchange, such
costs are reclassified to Cost of operations- commercial
properties.................................................................. $ (13)
============
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* A pro forma adjustment has been made to depreciation expense to:
* Eliminate the historical depreciation expense of PSP11's
facilities............................................................. $ (248)
* Record depreciation expense based on the acquired cost of
the remaining PSP11 facilities ($47,553,000 cost, 20%
allocated to land, the remaining cost allocated to
buildings, depreciated straight-line over 25 316 years)................. $ 68
* A pro forma adjustment has been made to increase the minority
interests' share of income based upon its pro rata ownership
interest in the above pro forma adjustments.................................. $ (25)
5. POST-MERGER PRO FORMA NET INCOME PER SHARE OF COMMON STOCK HAS BEEN COMPUTED AS FOLLOWS:
---------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998
----------------
Post-Merger pro forma net income.................................................. $ 16,441,000
Post-Merger pro forma weighted average common shares (1).......................... 23,635,650
Pro forma net income per share of Common Stock.................................... $ 0.70
--------------------------------------------------------------------------------------------------------
(1)
Pre-Merger pro forma weighted average shares from Note 3 above.................... 22,676,860
Issuance of common stock to PSP11's Series A common shareholders (1,713,782
shares less 994,184 shares included in the historical amounts).................... 719,598
Issuance of common stock to PSP11's Series B and C common shareholders
(569,655 shares less 330,463 shares included in the historical amounts)........... 239,192
----------------
Post-Merger pro forma weighted average Common Stock common shares................. 23,635,650
================
</TABLE>
27
<PAGE>
6. MINORITY INTEREST:
------------------
Minority interest represents ownership interests of OP Units in the
consolidated Operating Partnership which are not owned by PSB. The OP
Units, subject to certain conditions of the Operating Partnership
Agreement, are convertible into Common Shares of PSB on a one-for-one
basis. Pro forma weighted average OP Units outstanding during each period
owned by minority interests totaled 7,400,951. The following table
summarizes the ownership interests:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
----------------
<S> <C>
Pro forma PSB Common Shares outstanding................................................. 23,635,650
Pro forma OP Units owned by minority interests which are convertible into PSB
Common Shares.......................................................................... 7,400,951
----------------
Total PSB Common Shares outstanding assuming conversion of OP Units..................... 31,036,601
================
Percentage ownership of PSB Common Shares outstanding................................... 76.2%
Percentage ownership of minority interests.............................................. 23.8%
----------------
Total ownership interest.......................................................... 100.0%
================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
PSB
---------------------------------------------------------------------------
Pro Forma Adjustments
-------------------------------------------
Acquisition of Acquisition of
real estate real estate from Other PSB
PSB from affiliates third parties adjustments Pre-Merger
(Historical) (Note 1) (Note 2) (Note 3) (Pro forma)
------------ --------------- ----------------- -------------- ------------
Revenues:
Rental income:
<S> <C> <C> <C> <C> <C>
Commercial properties $ 30,169 $ 1,038 $ 50,964 $ - $ 82,171
Mini-warehouse properties - - - - -
Facility management fees 956 (52) - - 904
Interest and other income 453 - - - 453
------------ --------------- ----------------- -------------- ------------
31,578 986 50,964 - 83,528
------------ --------------- ----------------- -------------- ------------
Expenses:
Cost of operations:
Commercial properties 12,330 363 13,157 - 25,850
Mini-warehouse properties - - - - -
Cost of managing facilities 189 (12) - - 177
Depreciation and amortization 5,195 92 11,919 - 17,206
General and administrative 1,461 - - 300 1,761
Interest expense 1 - 2,284 - 2,285
------------ --------------- ----------------- -------------- ------------
19,176 443 27,360 300 47,279
------------ --------------- ----------------- -------------- ------------
Income (loss) before minority interest
in income 12,402 543 23,604 (300) 36,249
Minority interest in income (Note 7) (8,566) - - (678) (9,244)
------------ --------------- ----------------- -------------- ------------
Net income (loss) $3,836 $543 $23,604 $(978) $27,005
============ =============== ================= ============== ============
Net income per share (Note 4 and 6):
Basic $ 1.23 $ 1.26
============ ============
Diluted $ 1.23 $ 1.26
============ ============
Weighted average shares (Note 4 and 6):
Basic 3,117 21,352
============ ============
Diluted 3,117 21,352
============ ============
</TABLE>
<TABLE>
<CAPTION>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
Pro Forma
Merger
Adjustments
------------
Exchange of
real estate PSB
PSP11 facilities Post-Merger
(Historical) (Note 5) (Pro forma)
-------------- -------------- --------------
Revenues:
Rental income:
<S> <C> <C> <C>
Commercial properties $ 1,418 $ 8,008 $ 91,597
Mini-warehouse properties 6,143 (6,143) -
Facility management fees - (471) 433
Interest and other income 82 - 535
-------------- -------------- --------------
7,643 1,394 92,565
-------------- -------------- --------------
Expenses:
Cost of operations:
Commercial properties 682 3,271 29,803
Mini-warehouse properties 2,082 (2,082) -
Cost of managing facilities - (93) 84
Depreciation and amortization 1,198 324 18,728
General and administrative 201 - 1,962
Interest expense - - 2,285
-------------- -------------- --------------
4,163 1,420 52,862
-------------- -------------- --------------
Income before minority interest in
income 3,480 (26) 39,703
Minority interest in income (Note 7) - (248) (9,492)
-------------- -------------- --------------
Net income (loss) $3,480 $(274) $30,211
============== ============== ==============
Net income per share (Note 4 and 6):
Basic $ 1.28
==============
Diluted $ 1.28
==============
Weighted average shares (Note 4 and 6)
Basic 23,636
==============
Diluted 23,636
==============
</TABLE>
See Accompanying Notes to Pro-Forma Consolidated Statements of Income.
29
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 1997
(Unaudited)
1. ACQUISITION OF REAL ESTATE FACILITIES FROM AFFILIATES (THE "ACQUIRED
PROPERTIES")
----------------------------------------------------------------------
On April 1, 1997, the Operating Partnership acquired four commercial
properties from PSI in exchange for 1,480,968 OP Units.
The following pro forma adjustments have been made to the pro forma
consolidated statements of income to reflect the above as if the
transaction was completed as of January 1, 1997:
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Rental income has been increased to reflect:
* the pro forma rental income as if the real estate facilities
acquired on April 1, 1997 were owned by PSB throughout the entire
period........................................................................ $ 4,127
* less the rental income with respect to these properties included
in PSB's historical amounts................................................... (3,089)
------------
Total incremental rental income.......................................... $ 1,038
============
* Facility management fee income has been decreased to eliminate
PSB's historical management fee income (5% of rental income) with
respect to the commercial properties acquired on April 1, 1997, as
such fee is not collected on owned facilities.................................. $ (52)
============
* Cost of operations has been increased as follows:
* To reflect the pro forma cost of operations as if the real estate
facilities acquired on April 1, 1997 were owned by PSB throughout
the entire full period........................................................ $ 1,227
* The above adjustment excludes facility management fees,
accordingly, a pro forma adjustment has been made to reflect the
actual cost of management..................................................... 41
* To eliminate cost of operations included in PSB's historical
amounts....................................................................... (905)
------------
Total incremental cost of operations.................................... $ 363
============
* Cost of managing facilities has been decreased to eliminate the costs
associated with the management fee income with respect to the
properties acquired on April 1, 1997. The reduction in management fee
income will result in a reduction in cost of operations with respect
to facility management............................................................. $ (12)
============
* Depreciation has been increased to reflect the incremental
depreciation of the commercial properties acquired on April 1, 1997................ $ 92
============
</TABLE>
30
<PAGE>
2. ACQUISITION OF REAL ESTATE FACILITIES FROM THIRD PARTIES
--------------------------------------------------------
During 1997 and 1998, PSB has completed the acquisition of several
properties:
* Baldon Properties: In July 1997, PSB issued 2,025,769 shares of common
stock primarily to PSI for cash totaling $33,310,000. PSB used
substantially all of the proceeds to acquire two commercial properties
in July 1997 from an unaffiliated third party for $33,800,000 in cash.
* Largo Property: On September 24, 1997, PSB acquired one commercial
property for an aggregate cost of $10,283,000, consisting of
$9,959,000 cash and the issuance of 14,384 OP units having a value of
$324,000.
* On December 10, 1997, PSB purchased a commercial property (the
"Northpointe Property") for $3,854,000, consisting of cash of
$3,554,000 and the issuance of 13,111 OP units having a value of
$300,000.
* Acquiport Properties: On December 24, 1997, PSB completed a
transaction where PSB issued 1,785,007 OP Units and 3,504,758 shares
of PSB common stock to a subsidiary of a state pension fund, and the
subsidiary of the state pension fund, through a merger and
contribution, transferred to PSB six commercial properties
($118,655,000) and $1,000,000 cash. The Company incurred $3,300,000 in
transaction costs. In January 1998, the subsidiary of the state
pension fund exercised its option to convert the OP units into shares
of PSB common stock.
* On January 13, 1998, PSB purchased a commercial property (the
"Ammendale Property") for $22,518,000, consisting of cash of
$22,325,000 and the issuance of 8,428 OP units having a value of
$193,000.
* March Acquisition Properties: In March 1998, PSB purchased two
commercial properties from unaffiliated third parties for an aggregate
cost of $32,916,000 consisting of cash totaling $17,377,000, the
issuance of 44,250 OP Units having a value of $1,013,000 and the
assumption of $14,526,000 of mortgage debt.
* On May 4, 1998, PSB acquired the Principal Properties for an aggregate
cost of approximately $190.5 million in cash. PSB financed the
acquisition costs through the use of available cash, cash proceeds
from the issuance of common stock in May 1998, and borrowings from an
affiliate.
* On June 11, 1998, PSB acquired two commercial properties (the
"Northpointe Properties") for an aggregate cost of $7,323,000
consisting of $3,442,000 in cash, $3,678,000 in debt assumption and
the issuance of 8,882 OP Units having a value of $203,000.
* On June 17, 1998, PSB acquired a commercial property (the "Gunston
Property") for an aggregate cost of $21,820,000 consisting of
$10,049,000 in cash and $11,771,000 in debt assumption.
* On September 30, 1998, PSB acquired the Spectrum 95 property for an
aggregate cost of $8,473,000 consisting of $8,317,000 in cash and the
issuance of 6,540 OP Units having a value of $156,000.
31
<PAGE>
The following pro forma adjustments have been made to reflect the
operations of these properties as if such properties had been acquired at
the beginning of the year:
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Rental income has been increased to reflect the pro forma rental
income of the properties, as if these facilities were owned by PSB
throughout 1997:
* Rental income for 1997 for the following properties:
Baldon properties........................................................ $ 6,570
Largo property........................................................... 1,343
Acquiport properties..................................................... 14,813
Northpointe Property..................................................... 631
Ammendale Property....................................................... 2,883
March Acquisitions....................................................... 3,916
Principal Properties..................................................... 19,861
Northpointe Properties................................................... 930
Gunston Property......................................................... 2,299
Spectrum 95 Property..................................................... 850
* Less: the portion of rental income with respect to these
properties which has been included in PSB's historical amounts................ (3,132)
------------
$ 50,964
============
* Cost of operations has been increased to reflect the pro forma cost of
operations of these properties, as if they were owned by PSB
throughout the entire period presented:
* Cost of operations for the entire year's properties' historical
operations:
Baldon................................................................... $ 2,280
Largo.................................................................... 367
Acquiport Properties..................................................... 3,059
Northpointe Property..................................................... 125
Ammendale Property....................................................... 640
March Acquisitions....................................................... 1,089
Principal Properties..................................................... 4,160
Northpointe Properties................................................... 76
Gunston Property......................................................... 383
Spectrum 95 Property..................................................... 183
* Less: the portion of cost of operations with respect to these
properties which has been included in PSB's historical amounts..................... (1,157)
* Plus: Pro forma adjustment to reflect additional estimated personnel
cost to manage the facilities and property taxes................................... 1,852
------------
$13,157
============
* Depreciation has been increased to reflect a full year's depreciation
expense............................................................................ $ 11,919
============
* Interest expense has been increased to reflect the historical interest
expense for each of the periods presented with respect to the
assumption of mortgage notes payable............................................... $ 2,284
============
</TABLE>
32
<PAGE>
3. OTHER PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* A pro forma adjustment has been made to increase general and
administrative expense to reflect additional costs with respect to
payroll as PSB hires acquisition and executive personnel.......................... $ 300
============
* Many of the properties acquired were acquired by the consolidated
Operating Partnership in exchange for OP Units of PSB. Such ownership
interests are represented as minority interest in the consolidated
financial statements. Accordingly, a pro forma adjustment has been
made to increase "Minority interest in income" to reflect the
incremental income associated with pro forma adjustments allocable to
the minority interest (representing the difference between the pro
forma amounts less the historical amounts included in PSB's historical
financial statements)............................................................. $ (678)
============
</TABLE>
33
<PAGE>
4. NET INCOME PER COMMON SHARE (PSB PRE-MERGER PRO FORMA) HAS BEEN
COMPUTED AS FOLLOWS:
----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Historical net income......................................................... $ 3,836,000
Historical weighted average shares............................................ 3,116,688
Historical net income per share............................................... $ 1.23
Pro forma net income.......................................................... $ 27,005,000
Pro forma weighted average shares (1)......................................... 21,352,213
Pro forma net income per share................................................ $ 1.26
------------------------------------------------------------------------------------------------------------
(1)
Historical weighted average shares (common and equivalents)................... 3,116,688
Adjusted for:
Issuance of common shares in July 1997 in connection with
property acquisitions (2,025,769 shares less 851,507 included
in the historical
amounts)............................................................... 1,174,262
Issuance of common stock to subsidiary of a state pension fund on
December 24, 1997 (3,504,758 shares less 67,399 shares
included in the
historical amounts).................................................... 3,437,359
Issuance of common stock to subsidiary of a state pension fund in
connection with conversion of OP Units into common stock............... 1,785,007
Issuance of common stock in connection with the exercise of stock options 39,023
Pro forma issuance of common stock to institutional investors............. 6,774,074
Pro forma issuance of common stock to the public ......................... 5,025,800
--------------
Total Pre-Merger pro forma weighted average shares................... 21,352,213
==============
</TABLE>
34
<PAGE>
5. PRO FORMA MERGER ADJUSTMENTS - EXCHANGE OF PROPERTIES:
------------------------------------------------------
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.
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* Rental income- commercial properties has been increased to reflect the
rental income with respect to the 11 commercial properties received
through the Exchange.............................................................. $ 8,008
============
* Rental income- mini-warehouses has been decreased to eliminate the
rental income with respect to the 11 mini-warehouse facilities and two
properties that combine mini-warehouse and commercial space given up
through the Exchange.............................................................. $ (6,143)
============
* A pro forma adjustment has been made to facility management fees to:
* eliminate the historical facility management fees related to 11
commercial properties acquired in the Exchange as such fee will
no longer be charged to these properties as PSB will own them................ $ (400)
* eliminate the historical facility management fees related to the
two commercial properties of PSP11 acquired in the Merger.................... (71)
$ (471)
============
* A pro forma adjustment has been made to cost of operations to:
* eliminate historical management fees paid to PSB to manage
PSP11's two commercial properties which are included in
historical amounts and as a result of the Merger will no longer
be incurred................................................................. $ (71)
------------
* reflect the cost of operations of the 11 commercial properties
acquired in the Exchange (before cost of management)........................ 3,249
* reflect the cost of management for PSP11's two commercial
properties and the 11 commercial properties acquired in the
Exchange.................................................................... 93
------------
$ 3,271
============
* Cost of operations- mini-warehouses has been decreased to eliminate
the cost of operations with respect to the 11 mini-warehouse
facilities and two properties that combine mini-warehouse and
commercial space given up through the Exchange................................... $ (2,082)
============
* Cost of managing facilities has been decreased to eliminate the
historical cost of managing the two PSP11 commercial properties and
the 11 commercial properties acquired in the Exchange, such costs are
reclassified to Cost of operations- commercial properties......................... $ (93)
============
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
(in 000's)
------------
<S> <C>
* A pro forma adjustment has been made to depreciation expense to
reflect the:
* Eliminate the historical depreciation expense of PSP11's
facilities................................................................... $ (1,198)
* Record depreciation expense based on the acquired cost of the
remaining PSP11 facilities ($47,553,000 cost, 20% allocated to
land, the remaining cost allocated to buildings, depreciated
straight-line over 25 years)................................................. 1,522
------------
$ 324
============
* A pro forma adjustment has been made to increase the minority
interests' share of income based upon its pro rata ownership
interest in the above pro forma adjustments.................................. $ (248)
============
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
6. POST-MERGER PRO FORMA NET INCOME PER SHARE OF COMMON STOCK HAS BEEN.
COMPUTED AS FOLLOWS:
----------------------------------------------------------------------
Year Ended
December 31, 1997
-----------------
<S> <C>
Post-Merger pro forma net income....................................................... $ 30,211,000
Post-Merger pro forma weighted average common shares (1) .............................. 23,635,650
Pro forma net income per share......................................................... $ 1.28
----------------------------------------------------------------------------------------------------------------
(1)
Pre-Merger pro forma weighted average shares from Note 4 above.......................... 21,352,213
Issuance of common stock to PSP11's Series A common shareholders ....................... 1,713,782
Issuance of common stock to PSP11's Series B and C common shareholders.................. 569,655
--------------
Post-Merger pro forma weighted average shares........................................... 23,635,650
==============
7. MINORITY INTEREST:
Minority interest represents ownership interests of OP Units in the
consolidated Operating Partnership which are not owned by PSB. The OP
Units, subject to certain conditions of the Operating Partnership
Agreement, are convertible into Common Shares of PSB on a one-for-one
basis. Pro forma weighted average OP Units outstanding during each
period owned by minority interests totaled 7,400,951. The following
table summarizes the ownership interests:
Year Ended
December 31, 1997
------------------
Pro forma PSB Common Shares outstanding................................................. 23,635,650
Pro forma OP Units owned by minority interests which are convertible into PSB Common
Shares............................................................................. 7,400,951
--------------
Total PSB Common Shares outstanding assuming conversion of OP Units..................... 31,036,601
==============
Percentage ownership of PSB Common Shares outstanding................................... 76.2%
Percentage ownership of minority interests.............................................. 23.8%
--------------
Total ownership interest........................................................... 100.0%
==============
</TABLE>
37
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-48313) of PS Business Parks, Inc., pertaining to the PS
Business Parks, Inc. 1997 Stock Option and Incentive Plan, and the Registration
Statement on Form S-3 (No. 333-50463) and the related prospectus of (i) our
report dated February 23, 1998 except for Note 9 as to which the date is March
18, 1998, with respect to the consolidated financial statements of PS Business
Parks, Inc. (successor to American Office Park Properties, Inc.) included in the
Current Report on Form 8-K/A dated April 17, 1998 of PS Business Parks, Inc.,
(ii) our report dated April 21, 1998 on the combined statement of revenues and
certain operating expenses of the Principal Properties for the year ended
December 31, 1997 included in the Current Report on Form 8-K dated May 4, 1998
of PS Business Parks, Inc., (iii) our report dated August 26, 1998 on the
combined statement of revenues and certain expenses of the Northpointe D and G
Properties for the year ended December 31, 1997 included in the Current Report
on Form 8-K/A dated September 30, 1998 of PS Business Parks, Inc., (iv) our
report dated August 6, 1998 on the statement of revenues and certain expenses of
the Gunston Property for the year ended December 31, 1997 included in the
Current Report on Form 8-K/A dated September 30, 1998 of PS Business Parks, Inc.
and (v) our report dated September 21, 1998 on the statement of revenues and
certain operating expenses of the Spectrum 95 Property for the year ended
December 31, 1997 included in the Current Report on Form 8-K/A dated September
30, 1998 of PS Business Parks, Inc.
/s/ ERNST & YOUNG LLP
Los Angeles, California
November 12, 1998
