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) December 31, 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 of November 4, 1998 through January 6, 1999, PS Business
Parks, Inc. (the "Company"), through its consolidated partnerships, acquired 14
commercial properties located in Texas and California for an aggregate purchase
price of $58.7 million and proposed to acquire two additional properties located
in Texas, through its consolidated partnerships, for an aggregate purchase price
of approximately $8.3 million. The Company is not affiliated with the sellers
and the purchase price was established through arm's length negotiations. The
Company obtained the funds to acquire the facilities from its existing cash
balances and borrowings of $26.5 million from its unsecured line of credit with
Wells Fargo Bank in addition to the assumption of an existing mortgage note
payable of $8,673,000.
The following table provides certain information concerning the facilities
acquired:
<TABLE>
<CAPTION>
Name and Date of Purchase Net Rentable Occupancy
Location Seller Acquisition Property Type Price Square Footage at Closing
- --------------- ---------------------- ----------- ------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Royal Tech 15
Dallas, Texas Petula Associates, Ltd. 11/4/98 Industrial & $ 6,880,000(1) 57,088 100%
Office
Las Plumas Las Plumas Business
San Jose, Center and Patrician 12/31/98 Industrial & 17,250,000(1) 213,634 83.6%
California Associates, Inc. Office
Ben White 1 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 4,163,000 54,385 100%
Office
McKalla 3 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 4,045,000 53,480 100%
Office
McKalla 4 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 3,517,000 59,600 100%
Office
Ben White 5 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 3,978,000 54,000 100%
Office
Mopac 6 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 1,929,000 42,633 71.8%
Office
Rutland 14 CPF Austin Industrial
Austin, Texas Associates L.P. 12/31/98 Industrial & 2,990,000 61,247 69.3%
Office ------------- -------------- --------
20,622,000(2) 325,345 90.5%
Waterford A
Austin, Texas Waterford Sage 1/6/99 Industrial & 3,300,000 30,340 100%
Office
McNeil 6
Austin, Texas Peterson - Hill #6 L.P. 1/6/99 Industrial & 2,412,000 28,364 100%
Office
Rutland 11
Austin, Texas Peterson - Hill #6 L.P. 1/6/99 Industrial & 1,797,000 39,865 100%
Office
Rutland 12
Austin, Texas Peterson - Hill #6 L.P. 1/6/99 Industrial & 2,957,000 58,800 100%
Office
Rutland 13
Austin, Texas Crow Hicks Ltd. 1/6/99 Industrial & 2,593,000 52,389 100%
Office
Rutland 19
Austin, Texas BL - Austin Industrial Ltd. 1/6/99 Industrial & 870,000 21,096 100%
Office ------------- -------------- --------
13,929,000(1) 230,854 100%
Waterford B
Austin, Texas Waterford Sage 5/31/99(3) Industrial & 2,028,000 18,195 N/A
Office
Waterford C
Austin, Texas Waterford Sage 5/31/99(3) Industrial & 6,318,000 57,164 N/A
Office ------------- ------------- --------
8,346,000(4) 75,359 N/A
------------- ------------- --------
Totals $67,027,000 902,280 92.7%
============= ============= ========
Notes to Table:
(1) Acquired for cash.
(2) Acquired for cash of $11,949,000 and the assumption of an existing mortgage note payable of $8,673,000.
(3) Proposed acquisition date.
(4) To be acquired for cash.
</TABLE>
1
<PAGE>
Item 7. Financial Statements and Exhibits
(a)(3) Financial Statements specified by Rule 3.14 of Regulation S-X
-------------------------------------------------------------
Hill Properties
* Report of Independent Auditors
* Combined Statements of Revenues and Certain Expenses for
the nine months ended September 30, 1998 (unaudited) and
for the year ended December 31, 1997
* Notes to Combined Statements of Revenues and Certain
Expenses
The Las Plumas Property
* Report of Independent Auditors
* Statements of Revenues and Certain Operating Expenses for
the nine months ended September 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
2
<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: February 16, 1999 By: /s/ Jack Corrigan
------------------
Jack Corrigan
Vice President and Chief Financial Officer
3
<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 Hill Properties (as defined in Note 1) ("Statement") for the
year ended December 31, 1997. The Statement is the responsibility of the Hill
Properties' 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 Hill Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 7, 1999
4
<PAGE>
HILL PROPERTIES
Combined Statements of Revenues and Certain Expenses
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 1998 December 31, 1997
-------------------- -----------------
(unaudited)
<S> <C> <C>
Rental revenues........................................ $ 3,584,000 $ 3,742,000
Certain operating expenses............................. (805,000) (847,000)
Interest expense....................................... (552,000) (746,000)
---------------- -----------------
Rental revenues in excess of certain expenses.......... $ 2,227,000 $ 2,149,000
================ =================
</TABLE>
See accompanying notes
5
<PAGE>
HILL 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 Hill Properties (Hill Properties), located
in Texas acquired and to be acquired by PS Business Parks, Inc.
("PSB"). The combined statements are prepared in order to comply with
Rule 3.14 of Regulation S-X of the Securities and Exchange Commission.
The Hill Properties are comprised of 12 properties as of December 31,
1997 and 14 properties as of September 30, 1998 as described below:
<TABLE>
<CAPTION>
Name Location Status
------------- -------- -------------------------
<S> <C> <C>
Ben White 1 Austin, Texas Acquired in December 1998
McKalla 3 Austin, Texas Acquired in December 1998
McKalla 4 Austin, Texas Acquired in December 1998
Ben White 5 Austin, Texas Acquired in December 1998
Mopac 6 Austin, Texas Acquired in December 1998
Rutland 14 Austin, Texas Acquired in December 1998
Waterford A Austin, Texas Acquired in January 1999
McNeil 6 Austin, Texas Acquired in January 1999
Rutland 11 Austin, Texas Acquired in January 1999
Rutland 12 Austin, Texas Acquired in January 1999
Rutland 13 Austin, Texas Acquired in January 1999
Rutland 19 Austin, Texas Acquired in January 1999
Waterford B Austin, Texas Opened in 1998 and to be acquired in May 1999
Waterford C Austin, Texas Opened in 1998 and to be acquired in May 1999
</TABLE>
The combined statements of revenue and certain expenses include only
the accounts and activities of the Hill Properties. Items that are not
comparable to the future operations of the Hill Properties have been
excluded. Such items include depreciation, amortization, management
fees, interest income, professional 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 Hill Properties were acquired and are to
be acquired from an unaffiliated party and (ii) based on the
investigation of the Hill Properties by PSB, management is not aware of
any material factors relating to the Hill 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 Hill 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 Hill 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 nine months ended September 30, 1998.
6
<PAGE>
HILL PROPERTIES
Notes to Combined Statements of Revenues and Certain Expenses
2. Summary of Significant Accounting Policies
Revenue Recognition
The leases of the Hill 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 Hill Properties provide collateral for a mortgage note with an
outstanding balance at December 31, 1997 of $8,819,000. The mortgage
note bears interest at 8.4% and is due in November 2001.
4. Property Rentals
Future minimum rental revenues under non-cancelable leases as of
December 31, 1997 are as follows:
1998..................................... $ 3,484,000
1999..................................... 2,730,000
2000..................................... 1,962,000
2001..................................... 1,333,000
2002..................................... 704,000
Thereafter............................... 658,000
---------------
$ 10,871,000
===============
7
<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 Las Plumas Property (as defined in Note 1) ("Statement") for the
year ended December 31, 1997. The Statement is the responsibility of the Las
Plumas 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 Las Plumas Property for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 22, 1999
8
<PAGE>
THE LAS PLUMAS PROPERTY
Statements of Revenues and Certain Operating Expenses
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 1998 December 31, 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
Rental revenues.......................................... $ 1,777,000 $ 2,278,000
Certain operating expenses............................... (330,000) (470,000)
---------------- ---------------
Rental revenues in excess of certain operating expenses.. $ 1,447,000 $ 1,808,000
================ ================
</TABLE>
See accompanying notes
9
<PAGE>
THE LAS PLUMAS PROPERTY
Notes to Statements of Revenues and Certain Operating Expenses
1. Background and Basis for Presentation
The accompanying statements of revenues and certain operating expenses
include the accounts of the Las Plumas Property, located in California
and acquired by PS Business Parks, Inc. ("PSB") in December 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 activities of the Las Plumas Property. Items that are
not comparable to the future operations of the Las Plumas Property have
been excluded. Such items include depreciation, amortization,
management fees, professional 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 Las Plumas Property was acquired from an unaffiliated
party and (ii) based on the investigation of the Las Plumas Property by
PSB, management is not aware of any material factors relating to the
Las Plumas 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 Las Plumas 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 Las Plumas Property, including
salaries of on-site personnel, utilities, property taxes, supplies,
insurance and repairs and maintenance. PSB expects that certain
operating expenses in the future will be consistent with those reported
for 1997 and the nine months ended September 30, 1998.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Las Plumas 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.
10
<PAGE>
THE LAS PLUMAS PROPERTY
Notes to Statements of Revenues and Certain Operating Expenses
3. Property Rentals
Future minimum rental revenues under non-cancelable leases as of
December 31, 1997 are as follows:
1998............................................. $ 2,139,000
1999............................................. 1,565,000
2000............................................. 1,341,000
2001............................................. 950,000
2002............................................. 438,000
Thereafter....................................... 315,000
----------------
$ 6,748,000
================
11
<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 November 4, 1998 through January
6, 1999. During that period, PSB acquired 14 commercial properties located in
Texas and California for an aggregate cost of approximately $58.7 million and
proposed to acquire two additional commercial properties located in Texas,
through its consolidated partnerships, for an aggregate cost of approximately
$8.3 million. The Company obtained the funds to acquire the facilities from its
existing cash balance and borrowings of $26.5 million from its unsecured line of
credit with Wells Fargo Bank in addition to the assumption of an existing
mortgage note payable of $8,673,000.
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.
12
<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 acquired four commercial properties
(the"Acquired Properties") from PSI in exchange for 1,480,968 OP
units.
2. On July 31, 1997, PSB acquired two commercial properties (the
"Baldon Properties") from an unaffiliated third party for an
aggregate cost of approximately $33,310,000 in cash. 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 a commercial property (the
"Largo Property") from an unaffiliated third party for an
aggregate cost of approximately $10,283,000, consisting of cash
totaling $9,959,000 and the issuance of 14,384 Operating
Partnership units ("OP units") having a value of approximately
$324,000.
4. On December 10, 1997, PSB acquired a commercial property (the
"Northpointe Property") from an unaffiliated third party for an
aggregate cost of approximately $3,854,000, consisting of cash
totaling $3,554,000 and the issuance of 13,111 OP units having a
value of approximately $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. The subsidiary of the
state pension fund, through a merger and contribution, transferred
six commercial properties (the "Acquiport Properties") valued at
approximately $118,655,000 and $1,000,000 in cash to PSB. 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 acquired a commercial property (the
"Ammendale Property") from an unaffiliated third party for an
aggregate cost of approximately $22,518,000, consisting of cash
totaling $22,325,000 and the issuance of 8,428 OP units having a
value of approximately $193,000.
8. In March 1998, PSB acquired two commercial properties (the "March
Acquisitions Properties") from unaffiliated third parties for an
aggregate cost of approximately $32,916,000, consisting of cash
totaling $17,377,000, the issuance of 44,250 OP units having a
value of approximately $1,013,000 and the assumption of existing
mortgage notes payable of $14,526,000.
9. On May 4, 1998, PSB acquired 29 commercial properties (the
"Principal Properties") from an unaffiliated third party for an
aggregate cost of approximately $190.5 million in cash. PSB
financed the acquisition costs through the use of available cash,
proceeds from the issuance of common stock in May 1998 and
borrowings from an affiliate.
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.
11. On June 11, 1998, PSB acquired two commercial properties (the
"Northpointe Properties") from an unaffiliated third party for an
aggregate cost of approximately $7,323,000, consisting of cash
totaling $3,442,000, the issuance of 8,882 OP units having a value
of approximately $203,000 and the assumption of existing mortgage
notes payable of $3,678,000.
13
<PAGE>
12. On June 17, 1998, PSB acquired a commercial property (the "Gunston
Property") from an unaffiliated third party for an aggregate cost
of approximately $21,820,000, consisting of cash totaling
$10,049,000 and the assumption of an existing mortgage note
payable of $11,771,000.
13. On September 30, 1998, PSB acquired a commercial property (the
"Spectrum 95 Property") from an unaffiliated third party for an
aggregate cost of approximately $8,473,000, consisting of cash
totaling $8,317,000 and the issuance of 6,540 OP units having a
value of approximately $156,000.
14. On November 4, 1998, PSB acquired a newly developed commercial
property (the "Royal Tech 15 Property") from an unaffiliated third
party for an aggregate cost of approximately $6,880,000 in cash.
15. On December 31, 1998, PSB acquired six commercial properties and
proposed to acquire six additional commercial properties and two
newly developed properties (collectively referred to as the "Hill
Properties") from an unaffiliated third party for an aggregate
cost of approximately $42,897,000, consisting of cash totaling
$34,224,000 and the assumption of an existing mortgage note
payable of $8,673,000.
16. On December 31, 1998, PSB acquired a commercial property (the "Las
Plumas Property") from an unaffiliated third party for an
aggregate cost of approximately $17,250,000 in cash.
The pro forma consolidated balance sheet at September 30, 1998 has been prepared
to reflect the subsequent acquisitions and proposed acquisitions of commercial
properties.
The pro forma consolidated statement of income for the nine months ended
September 30, 1998 has been prepared assuming (i) the subsequent acquisitions of
commercial properties (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.
The pro forma consolidated statement of income for the year ended December 31,
1997 has been prepared assuming (i) the subsequent acquisitions of commercial
properties (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 OF THE ACQUIRED PROPERTIES, PSI EXCHANGE PROPERTIES, THE BALDON
PROPERTIES, THE LARGO PROPERTY, ACQUIPORT PROPERTIES OWNED BY ACQUIPORT TWO
CORPORATION AND ACQUIPORT THREE CORPORATION, THE GUNSTON PROPERTY, PROPOSED
ACQUISITION PROPERTIES, NORTHPOINTE PROPERTY AND AMMENDALE PROPERTY INCLUDED IN
THE ABOVE REFERENCED PROXY STATEMENT. SEE FINANCIAL STATEMENTS OF PRINCIPAL
PROPERTIES INCLUDED IN THE CURRENT REPORT ON FORM 8-K DATED MAY 4, 1998. SEE
FINANCIAL STATEMENTS OF NORTHPOINTE D AND G PROPERTIES, THE GUNSTON PROPERTY AND
THE SPECTRUM 95 PROPERTY INCLUDED IN THE CURRENT REPORT ON FORM 8-K/A DATED
SEPTEMBER 30, 1998.). 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.
14
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Property
PSB Acquisitions PSB
(Historical) (Note 1) (Pro Forma)
----------------- ---------------- ----------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 32,747,000 $ (31,854,000) $ 893,000
Real estate facilities, net of accumulated depreciation... 644,694,000 67,027,000 711,721,000
Intangible assets, net of accumulated amortization........ 1,658,000 - 1,658,000
Other assets.............................................. 4,332,000 - 4,332,000
---------------- ---------------- ----------------
Total assets......................................... $ 683,431,000 $ 35,173,000 $ 718,604,000
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities............................. $ 13,794,000 $ - $ 13,794,000
Line of credit - 26,500,000 26,500,000
Mortgage notes payable.................................... 29,632,000 8,673,000 38,305,000
Minority interest......................................... 152,611,000 - 152,611,000
Shareholders' equity:.....................................
Common stock, $0.01 par value, 100,000,000 shares
authorized, 23,635,650 issued and outstanding at
September 30, 1998.................................. 236,000 - 236,000
Paid-in capital........................................ 482,327,000 - 482,327,000
Cumulative net income.................................. 24,278,000 - 24,278,000
Cumulative distributions............................... (19,447,000) - (19,447,000)
---------------- ---------------- ----------------
Total shareholders' equity......................... 487,394,000 - 487,394,000
---------------- ---------------- ----------------
Total liabilities and shareholders' equity............. $ 683,431,000 $ 35,173,000 $ 718,604,000
================ ================ ================
Book value per share (Note 2)............................. $ 20.62 $ 20.62
================ ================
Shares outstanding........................................ 23,635,650 23,635,650
================ ================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet.
15
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
1. Property Acquisitions
On November 4, 1998, PSB acquired a newly developed commercial property
(the "Royal Tech 15 Property") from an unaffiliated third party for an
aggregate cost of approximately $6,880,000 in cash.
On December 31, 1998, PSB acquired six commercial properties and
proposed to acquire six additional commercial properties and two newly
developed properties (collectively referred to as the "Hill
Properties") from an unaffiliated third party for an aggregate cost of
approximately $42,897,000, consisting of cash totaling $34,224,000 and
the assumption of an existing mortgage note payable of $8,673,000.
On December 31, 1998, PSB acquired a commercial property (the "Las
Plumas Property") from an unaffiliated third party for an aggregate
cost of approximately $17,250,000 in cash.
The following pro forma adjustments have been made to the pro forma
consolidated balance sheet to reflect the aforementioned transactions
as if these properties had been owned by PSB as of September 30, 1998.
<TABLE>
<S> <C>
* Cash and cash equivalents have been adjusted:
* to reflect the cash portion of the acquisition cost of the commercial
properties purchased:
Royal Tech 15 Property................................................... $ (6,880,000)
Hill Properties.......................................................... (34,224,000)
Las Plumas Property ..................................................... (17,250,000)
* to reflect borrowings from the line of credit to fund the above acquisitions 26,500,000
----------------
$ (31,854,000)
================
* Real estate facilities have been adjusted to reflect the
acquisition cost of the facilities acquired:
Royal Tech 15 Property....................................................... $ 6,880,000
Hill Properties.............................................................. 42,897,000
Las Plumas Property.......................................................... 17,250,000
----------------
$ 67,027,000
================
* Line of credit has been increased to reflect borrowings from the line of credit
to fund the above acquisitions................................................... $ 26,500,000
================
* Mortgage notes payable has been increased to reflect the assumption of an
existing mortgage note payable in connection with the acquisition of Hill
Properties....................................................................... $ 8,673,000
================
</TABLE>
2. Book value per share
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 September 30, 1998......................... 23,635,650
</TABLE>
16
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PSB
---------------------------------------------------------------------------------
Pro Forma Adjustments
------------------------------
Acquisition of
Real Estate from Other PSB
PSB Third Parties Adjustments Pre-Merger PSP11
(Historical) (Note 1) (Note 2) (Pro forma) (Historical)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income:
Commercial properties..................... $ 61,459,000 $ 16,340,000 $ - $ 77,799,000 $ 232,000
Mini-warehouse properties................. - - - - 1,280,000
Facility management fees.................... 440,000 - - 440,000 -
Interest and other income................... 1,077,000 - (1,077,000) - -
-------------- -------------- -------------- -------------- --------------
62,976,000 16,340,000 (1,077,000) 78,239,000 1,512,000
-------------- -------------- -------------- -------------- --------------
Expenses:
Cost of operations:
Commercial properties..................... 18,361,000 4,287,000 - 22,648,000 86,000
Mini-warehouse properties................. - - - - 434,000
Cost of managing facilities................. 49,000 - - 49,000 -
Depreciation and amortization............... 11,421,000 8,229,000 - 19,650,000 250,000
General and administrative.................. 1,589,000 - 225,000 1,814,000 36,000
Interest expense............................ 1,736,000 1,344,000 772,000 3,852,000 -
-------------- -------------- -------------- -------------- --------------
33,156,000 13,860,000 997,000 48,013,000 806,000
-------------- -------------- -------------- -------------- --------------
Income (loss) before minority interest in 29,820,000 2,480,000 (2,074,000) 30,226,000 706,000
income....................................
Minority interest in (income) loss (Note 6). (8,696,000) - 1,341,000 (7,355,000) -
-------------- -------------- -------------- -------------- --------------
Net income (loss)........................... $ 21,124,000 $ 2,480,000 $ (733,000) $ 22,871,000 $ 706,000
============== ============== ============== ============== ==============
Net income per share (Note 3 and 5):
Basic..................................... $ 1.18 $ 0.99
============== ==============
Diluted................................... $ 1.17 $ 0.99
============== ==============
Weighted average shares (Note 3 and 5):
Basic..................................... 17,920,028 22,999,969
============== ==============
Diluted................................... 17,989,772 23,069,713
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Merger
Adjustments
----------
Exchange of
Real Estate PSB
Facilities Post-Merger
(Note 4) (Pro Forma)
-------------- --------------
<S> <C> <C>
Revenues:
Rental income:
Commercial properties..................... $ 1,744,000 $ 79,775,000
Mini-warehouse properties................. (1,280,000) -
Facility management fees.................... (99,000) 341,000
Interest and other income................... - -
-------------- ---------------
365,000 80,116,000
-------------- ---------------
Expenses:
Cost of operations:
Commercial properties..................... 666,000 23,400,000
Mini-warehouse properties................. (434,000) -
Cost of managing facilities................. (13,000) 36,000
Depreciation and amortization............... 68,000 19,968,000
General and administrative.................. - 1,850,000
Interest expense............................ - 3,852,000
-------------- ---------------
287,000 49,106,000
-------------- ---------------
Income (loss) before minority interest in 78,000 31,010,000
income....................................
Minority interest in (income) loss (Note 6). (25,000) (7,380,000)
-------------- ---------------
Net income (loss)........................... $ 53,000 $ 23,630,000
============== ===============
Net income per share (Note 3 and 5):
Basic..................................... $ 1.00
===============
Diluted................................... $ 1.00
===============
Weighted average shares (Note 3 and 5):
Basic..................................... 23,635,650
================
Diluted................................... 23,705,394
================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Income.
17
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
1. Acquisition of Real Estate Facilities from Third Parties
* On January 13, 1998, PSB acquired a commercial property (the
"Ammendale Property") from an unaffiliated third party for an
aggregate cost of approximately $22,518,000, consisting of cash
totaling $22,325,000 and the issuance of 8,428 OP units having a
value of approximately $193,000.
* In March 1998, PSB acquired two commercial properties (the "March
Acquisition Properties") from unaffiliated third parties for an
aggregate cost of approximately $32,916,000, consisting of cash
totaling $17,377,000, the issuance of 44,250 OP units having a value
of approximately $1,013,000 and the assumption of existing mortgage
notes payable of $14,526,000.
* On May 4, 1998, PSB acquired 29 commercial properties (the "Principal
Properties") from an unaffiliated third party for an aggregate cost
of approximately $190.5 million in cash. PSB financed the acquisition
costs through the use of available 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") from an unaffiliated third party for an
aggregate cost of approximately $7,323,000, consisting of cash
totaling $3,442,000, the issuance of 8,882 OP units having a value of
approximately $203,000 and the assumption of existing mortgage notes
payable of $3,678,000.
* On June 17, 1998, PSB acquired a commercial property (the "Gunston
Property") from an unaffiliated third party for an aggregate cost of
approximately $21,820,000, consisting of cash totaling $10,049,000
and the assumption of an existing mortgage note payable of
$11,771,000.
* On September 30, 1998, PSB acquired a commercial property (the
"Spectrum 95 Property") from an unaffiliated third party for an
aggregate cost of approximately $8,473,000, consisting of cash
totaling $8,317,000 and the issuance of 6,540 OP units having a value
of approximately $156,000.
* On November 4, 1998, PSB acquired a newly developed commercial
property (the "Royal Tech 15 Property") from an unaffiliated third
party for an aggregate cost of approximately $6,880,000 in cash.
Operations commenced subsequent to the period presented. Thus, no pro
forma adjustments have been made to the statement of income.
* On December 31, 1998, PSB acquired six commercial properties and
proposed to acquire six additional commercial properties and two
newly developed properties (collectively referred to as the "Hill
Properties") from an unaffiliated third party for an aggregate cost
of approximately $42,897,000, consisting of cash totaling $34,224,000
and the assumption of an existing mortgage note payable of
$8,673,000.
* On December 31, 1998, PSB acquired a commercial property (the "Las
Plumas Property") from an unaffiliated third party for an aggregate
cost of approximately $17,250,000 in cash.
.
18
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
The following pro forma adjustments have been made to the pro forma
consolidated statement of income to reflect the operations of these
properties as if such properties had been owned and operated by PSB
throughout the entire period presented:
<TABLE>
<S> <C>
* Rental income has been increased to reflect:
* the pro forma rental income as if the acquired properties were
owned by PSB throughout the entire period presented:
Ammendale Property.................................................... $ 2,425,000
March Acquisitions....................................................... 2,948,000
Principal Properties..................................................... 17,182,000
Northpointe Properties................................................... 836,000
Gunston Property......................................................... 2,033,000
Spectrum 95 Property..................................................... 648,000
Hill Properties.......................................................... 3,584,000
Las Plumas Property...................................................... 1,777,000
* less the portion of rental income with respect to these properties
already included in PSB's historical amounts.................................. (15,093,000)
-------------
$ 16,340,000
=============
* Cost of operations has been increased to reflect:
* the pro forma cost of operations as if the acquired
properties were owned by PSB throughout the entire period presented:
Ammendale Property....................................................... 525,000
March Acquisitions....................................................... 802,000
Principal Properties..................................................... 4,645,000
Northpointe Properties................................................... 150,000
Gunston Property......................................................... 253,000
Spectrum 95 Property..................................................... 305,000
Hill Properties ......................................................... 805,000
Las Plumas Property ..................................................... 330,000
* less the cost of operations with respect to these properties already
included in PSB's historical amounts......................................... (3,528,000)
-------------
$ 4,287,000
=============
* Depreciation has been increased to reflect nine months of incremental
depreciation expense............................................................... $ 8,229,000
=============
* Interest expense has been increased to reflect the historical
interest expense for the period presented with respect to the
assumption of mortgage notes payable............................................... $ 1,344,000
=============
</TABLE>
19
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
2. Other Pro Forma Adjustments
<TABLE>
<S> <C>
* A pro forma adjustment has been made to decrease interest and other income to
reflect the reduction in average cash balances................................... $ (1,077,000)
==============
* 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.................................... $ 225,000
==============
* Interest expense has been adjusted to reflect:
* additional interest expense as a result of borrowings from the line of
credit....................................................................... $ 1,172,000
* a reduction in 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.......................................... (400,000)
--------------
$ 772,000
==============
* A pro forma adjustment has been made to decrease the minority interests'
share of income based upon its pro rata ownership interest in the above pro forma
adjustments..................................................................... $ 1,341,000
==============
</TABLE>
20
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
3. Net income per share (PSB Pre-Merger Pro Forma) has been computed as
follows:
<TABLE>
<S> <C>
Historical net income................................................................ $ 21,124,000
Historical weighted average shares................................................... 17,920,028
Historical net income per share...................................................... $ 1.18
Pro forma net income................................................................. $ 22,871,000
Pro forma weighted average shares (1)................................................ 22,999,969
Pro forma net income per share....................................................... $ 0.99
-----------------------------------------------------------------------------------------------------------
(1)
Historical weighted average shares................................................... 17,920,028
Adjusted for:
Issuance of shares in February 1998 in connection with the exercise of stock
options (39,021 shares less 30,875 included in the historical amounts)........ 8,146
Pro forma issuance of shares to institutional investors (6,774,074 shares less
4,415,994 included in the historical amounts)................................. 2,358,080
Pro forma issuance of shares to the public (5,025,800 shares less 2,312,085
included in the historical amounts)........................................... 2,713,715
---------------
Total Pre-Merger pro forma weighted average shares.......................... 22,999,969
===============
</TABLE>
21
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
4. Pro Forma Merger Adjustments - Exchange of Real Estate Facilities
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>
<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............. $ 1,744,000
===============
* 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........ $ (1,280,000)
===============
* 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........................................ $ (87,000)
* eliminate the historical facility management fees related to the two
commercial properties of PSP11 acquired in the Merger........................ (12,000)
---------------
$ (99,000)
===============
* 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.............................. $ (12,000)
* 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................................................... 665,000
* reflect the cost of management for PSP11's two commercial properties and
the 11 commercial properties acquired in the Exchange........................ 13,000
---------------
$ 666,000
===============
* 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......................................................................... $ (434,000)
===============
* 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............................................................ $ (13,000)
===============
</TABLE>
22
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<S> <C>
* A pro forma adjustment has been made to depreciation expense to:
* Eliminate the historical depreciation expense of PSP11's facilities......... $ (248,000)
* 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)........ 316,000
---------------
$ 68,000
===============
* 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...................................................................... $ (25,000)
===============
5. Net income per share (PSB Post-Merger Pro Forma) has been computed as follows:
Post-Merger pro forma net income...................................................... $ 23,630,000
Post-Merger pro forma weighted average shares (1)..................................... 23,635,650
Pro forma net income per share........................................................ $ 1.00
----------------------------------------------------------------------------------------------------------
(1)
Pre-Merger pro forma weighted average shares from Note 3 above........................ 22,999,969
Issuance of shares to PSP11's Series A common shareholders (1,713,782 shares less
1,236,690 shares included in the historical amounts).................................. 477,092
Issuance of shares to PSP11's Series B and C common shareholders (569,656 shares less
411,067 shares included in the historical amounts).................................... 158,589
---------------
Post-Merger pro forma weighted average shares......................................... 23,635,650
===============
</TABLE>
23
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Nine Months Ended September 30, 1998
(Unaudited)
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 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>
<S> <C>
Pro forma PSB shares outstanding...................................................... 23,635,650
Pro forma OP units owned by minority interests which are convertible into PSB
shares................................................................................ 7,400,951
---------------
Total PSB shares outstanding assuming conversion of OP units.......................... 31,036,601
===============
Percentage ownership of PSB shares outstanding........................................ 76.2%
Percentage ownership of minority interests............................................ 23.8%
---------------
Total ownership interest......................................................... 100.0%
===============
</TABLE>
24
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
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)
-------------- -------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income:
Commercial properties.......... $ 30,169,000 $ 1,038,000 $ 56,984,000 $ - $ 88,191,000
Mini-warehouse properties...... - - - - -
Facility management fees......... 956,000 (52,000) - - 904,000
Interest and other income........ 453,000 - - (453,000) -
-------------- -------------- ---------------- ------------- -------------
31,578,000 986,000 56,984,000 (453,000) 89,095,000
-------------- -------------- ---------------- ------------- -------------
Expenses:
Cost of operations:
Commercial properties.......... 12,330,000 363,000 14,474,000 - 27,167,000
Mini-warehouse properties...... - - - - -
Cost of managing facilities...... 189,000 (12,000) - - 177,000
Depreciation and amortization.... 5,195,000 92,000 15,474,000 - 20,761,000
General and administrative....... 1,461,000 - - 300,000 1,761,000
Interest expense................. 1,000 - 3,030,000 1,562,000 4,593,000
-------------- -------------- ---------------- ------------- -------------
19,176,000 443,000 32,978,000 1,862,000 54,459,000
-------------- -------------- ---------------- ------------- -------------
Income (loss) before minority 12,402,000 543,000 24,006,000 (2,315,000) 34,636,000
interest in income.............
Minority interest in income (8,566,000) - - (251,000) (8,817,000)
(Note 7)......................... -------------- -------------- ---------------- ------------ -------------
Net income (loss)................ $ 3,836,000 $ 543,000 $ 24,006,000 $ (2,566,000) $25,819,000
============== ============= ================ ============== ============
Net income per share (Note 4 and 6):
Basic.......................... $ 1.23 $ 1.21
============= ============
Diluted........................ $ 1.23 $ 1.21
============= ============
Weighted average shares (Note 4 and 6):
Basic.......................... 3,116,688 21,352,212
============= ============
Diluted........................ 3,128,688 21,352,212
============= ============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Merger
Adjustments
-----------
Exchange of
Real Estate PSB
PSP11 Facilities Post-Merger
(Historical) (Note 5) (Pro Forma)
------------ ----------- -------------
<S> <C> <C> <C>
Revenues:
Rental income:
Commercial properties.......... $ 1,418,000 $8,008,000 $ 97,617,000
Mini-warehouse properties...... 6,143,000 (6,143,000) -
Facility management fees......... - (471,000) 433,000
Interest and other income........ 82,000 - 82,000
------------ ----------- -------------
7,643,000 1,394,000 98,132,000
------------ ----------- -------------
Expenses:
Cost of operations:
Commercial properties.......... 682,000 3,271,000 31,120,000
Mini-warehouse properties...... 2,082,000 (2,082,000) -
Cost of managing facilities...... - (93,000) 84,000
Depreciation and amortization.... 1,198,000 324,000 22,283,000
General and administrative....... 201,000 - 1,962,000
Interest expense................. - - 4,593,000
------------ ----------- -------------
4,163,000 1,420,000 60,042,000
------------ ----------- -------------
Income (loss) before minority 3,480,000 (26,000) 38,090,000
interest in income.............
Minority interest in income - (248,000) (9,065,000)
(Note 7)......................... ------------ ----------- -------------
Net income (loss)................ $ 3,480,000 $ (274,000) $ 29,025,000
============ =========== =============
Net income per share (Note 4 and 6):
Basic.......................... $ 1.23
=============
Diluted........................ $ 1.23
=============
Weighted average shares (Note 4 and 6):
Basic.......................... 23,635,650
=============
Diluted........................ 23,635,650
=============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statement of Income.
25
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
1. Acquisition of Real Estate From Affiliates
On April 1, 1997, the Operating Partnership acquired four commercial
properties (the "Acquired Properties") from PSI in exchange for
1,480,968 OP units.
The following pro forma adjustments have been made to the pro forma
consolidated statement of income to reflect the operations of these
properties as if such properties had been owned and operated by PSB
throughout the entire period presented:
<TABLE>
<S> <C>
* Rental income has been increased to reflect:
* the pro forma rental income as if the acquired properties were owned by PSB
throughout the entire period presented....................................... $ 4,127,000
* less the portion of rental income with respect to these properties already
included in PSB's historical amounts......................................... (3,089,000)
---------------
$ 1,038,000
===============
* 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....................................................................... $ (52,000)
===============
* Cost of operations has been increased to reflect:
* the pro forma cost of operations as if the acquired properties were owned
by PSB throughout the entire period presented................................ $ 1,227,000
* less the cost of operations with respect to these properties already
included in PSB's historical amounts......................................... (905,000)
* The above adjustment excludes facility management fees, accordingly, a
pro forma adjustment has been made to reflect the actual cost of management.. 41,000
---------------
$ 363,000
===============
* 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............ $ (12,000)
===============
* Depreciation has been increased to reflect the incremental depreciation of the
commercial properties acquired on April 1, 1997.................................. $ 92,000
===============
</TABLE>
26
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
2. Acquisition of Real Estate From Third Parties
* On July 31, 1997, PSB acquired two commercial properties (the "Baldon
Properties") from an unaffiliated third party for an aggregate cost
of approximately $33,310,000 in cash. 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.
* On September 24, 1997, PSB acquired a commercial property (the "Largo
Property") from an unaffiliated third party for an aggregate cost of
approximately $10,283,000, consisting of cash totaling $9,959,000 and
the issuance of 14,384 OP units having a value of approximately
$324,000.
* On December 10, 1997, PSB acquired a commercial property (the
"Northpointe Property") from an unaffiliated third party for an
aggregate cost of approximately $3,854,000, consisting of cash
totaling $3,554,000 and the issuance of 13,111 OP units having a
value of approximately $300,000.
* 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. The subsidiary of the state
pension fund, through a merger and contribution, transferred six
commercial properties (the "Acquiport Properties") valued at
approximately $118,655,000 and $1,000,000 in cash to PSB. 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.
* On January 13, 1998, PSB acquired a commercial property (the
"Ammendale Property") from an unaffiliated third party for an
aggregate cost of approximately $22,518,000, consisting of cash
totaling $22,325,000 and the issuance of 8,428 OP units having a
value of approximately $193,000.
* In March 1998, PSB acquired two commercial properties (the "March
Acquisition Properties") from unaffiliated third parties for an
aggregate cost of approximately $32,916,000, consisting of cash
totaling $17,377,000, the issuance of 44,250 OP units having a value
of approximately $1,013,000 and the assumption of existing mortgage
notes payable of $14,526,000.
* On May 4, 1998, PSB acquired 29 commercial properties (the "Principal
Properties") from an unaffiliated third party for an aggregate cost
of approximately $190.5 million in cash. PSB financed the acquisition
costs through the use of available 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") from an unaffiliated third party for an
aggregate cost of approximately $7,323,000, consisting of cash
totaling $3,442,000, the issuance of 8,882 OP units having a value of
approximately $203,000 and the assumption of existing mortgage notes
payable of $3,678,000.
* On June 17, 1998, PSB acquired a commercial property (the "Gunston
Property") from an unaffiliated third party for an aggregate cost of
approximately $21,820,000, consisting of cash totaling $10,049,000
and the assumption of an existing mortgage note payable of
$11,771,000.
* On September 30, 1998, PSB acquired a commercial property (the
"Spectrum 95 Property") from an unaffiliated third party for an
aggregate cost of approximately $8,473,000, consisting of cash
totaling $8,317,000 and the issuance of 6,540 OP units having a value
of approximately $156,000.
* On November 4, 1998, PSB acquired a newly developed commercial
property (the "Royal Tech 15 Property") from an unaffiliated third
party for an aggregate cost of approximately $6,880,000 in cash.
Operations commenced subsequent to the period presented. Thus, no pro
forma adjustments have been made to the statement of income.
27
<PAGE>
* On December 31, 1998, PSB acquired six commercial properties and
proposed to acquire six additional commercial properties and two
newly developed properties (collectively referred to as the "Hill
Properties") from an unaffiliated third party for an aggregate cost
of approximately $42,897,000, consisting of cash totaling $34,224,000
and the assumption of an existing mortgage note payable of
$8,673,000.
* On December 31, 1998, PSB acquired a commercial property (the "Las
Plumas Property") from an unaffiliated third party for an aggregate
cost of approximately $17,250,000 in cash.
28
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
The following pro forma adjustments have been made to the pro forma
consolidated statement of income to reflect the operations of these
properties as if such properties had been owned and operated by PSB
throughout the entire period presented:
<TABLE>
<S> <C>
* Rental income has been increased to reflect:
* the pro forma rental income as if the acquired properties
were owned by PSB throughout the entire period presented:
Baldon Properties....................................................... $ 6,570,000
Largo Property.......................................................... 1,343,000
Northpointe Property.................................................... 631,000
Acquiport properties................................................... 14,813,000
Ammendale Property...................................................... 2,883,000
March Acquisitions...................................................... 3,916,000
Principal Properties.................................................... 19,861,000
Northpointe Properties.................................................. 930,000
Gunston Property........................................................ 2,299,000
Spectrum 95 Property.................................................... 850,000
Hill Properties......................................................... 3,742,000
Las Plumas Property .................................................... 2,278,000
* less the rental income with respect to these properties already included
in PSB's historical amounts................................................. (3,132,000)
---------------
$ 56,984,000
===============
* Cost of operations has been increased to reflect:
* the pro forma cost of operations as if the acquired
properties were owned by PSB throughout the entire period presented:
Baldon Properties....................................................... $ 2,280,000
Largo Property.......................................................... 367,000
Northpointe Property.................................................... 125,000
Acquiport Properties.................................................... 3,059,000
Ammendale Property...................................................... 640,000
March Acquisitions...................................................... 1,089,000
Principal Properties.................................................... 4,160,000
Northpointe Properties.................................................. 176,000
Gunston Property........................................................ 383,000
Spectrum 95 Property.................................................... 183,000
Hill Properties......................................................... 847,000
Las Plumas Property..................................................... 470,000
* less the cost of operations with respect to these properties already
included in PSB's historical amounts........................................ (1,157,000)
* plus a pro forma adjustment to reflect additional estimated personnel
cost to manage the facilities and property taxes............................ 1,852,000
---------------
$ 14,474,000
===============
</TABLE>
29
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
<TABLE>
<S> <C>
* Depreciation has been increased to reflect a year of incremental depreciation
expense......................................................................... $ 15,474,000
===============
* Interest expense has been increased to reflect the historical interest expense
for the period presented with respect to the assumption of mortgage notes
payable......................................................................... $ 3,030,000
===============
3. Other Adjustments
* A pro forma adjustment has been made to decrease interest and other income to
reflect the reduction in average cash balances................................... $ (453,000)
===============
* 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............................................. $ 300,000
===============
* Interest expense has been adjusted to reflect additional interest expense as a
result of borrowings from the line of credit..................................... $ 1,562,000
===============
* 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..................................................................... $ (251,000)
===============
</TABLE>
30
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
4. Net income per share (PSB Pre-Merger Pro Forma) has been computed as
follows:
<TABLE>
<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.................................................................. $ 25,819,000
Pro forma weighted average shares (1)................................................. 21,352,212
Pro forma net income per share........................................................ $ 1.21
----------------------------------------------------------------------------------------------------------
(1)
Historical weighted average shares.................................................... 3,116,688
Adjusted for:
Issuance of 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 shares 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 shares to subsidiary of a state pension fund in connection with
conversion of OP units into shares............................................. 1,785,008
Issuance of shares in connection with the exercise of stock options .............. 39,021
Pro forma issuance of shares to institutional investors........................... 6,774,074
Pro forma issuance of shares to the public ....................................... 5,025,800
---------------
Total Pre-Merger pro forma weighted average shares........................... 21,352,212
===============
</TABLE>
31
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
5. Pro Forma Merger Adjustments - Exchange of Real Estate Facilities:
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>
<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........................................................................ $ 8,008,000
===============
* 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....... $ (6,143,000)
===============
* 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.................................... $ (400,000)
eliminate the historical facility management fees related to the two
commercial properties of PSP11 acquired in the Merger....................... (71,000)
---------------
$ (471,000)
===============
* 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............................. $ (71,000)
* reflect the cost of operations of the 11 commercial properties acquired in
the Exchange (before cost of management).................................... 3,249,000
* reflect the cost of management for PSP11's two commercial properties and
the 11 commercial properties acquired in the Exchange....................... 93,000
---------------
$ 3,271,000
===============
* 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.................................................................... $ (2,082,000)
===============
* 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.............................................. $ (93,000)
===============
</TABLE>
32
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
<TABLE>
<S> <C>
* A pro forma adjustment has been made to depreciation expense to reflect the:
* Eliminate the historical depreciation expense of PSP11's facilities......... $ (1,198,000)
* 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)....... 1,522,000
---------------
$ 324,000
===============
* 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..................................................................... $ (248,000)
================
</TABLE>
33
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For The Year Ended December 31, 1997
(Unaudited)
6. Net income per share (PSB Post-Merger Pro Forma) has been
computed as follows:
<TABLE>
<S> <C>
Post-Merger pro forma net income...................................................... $ 29,025,000
Post-Merger pro forma weighted average shares (1) .................................... 23,635,650
Pro forma net income per share........................................................ $ 1.23
----------------------------------------------------------------------------------------------------------
(1)
Pre-Merger pro forma weighted average shares from Note 4 above........................ 21,352,212
Issuance of shares to PSP11's Series A common shareholders ........................... 1,713,782
Issuance of shares to PSP11's Series B and C common shareholders...................... 569,656
----------------
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 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:
Pro forma PSB shares outstanding................................................... 23,635,650
Pro forma OP units owned by minority interests which are convertible into PSB shares 7,400,951
----------------
Total PSB shares outstanding assuming conversion of OP units....................... 31,036,601
================
Percentage ownership of PSB shares outstanding..................................... 76.2%
Percentage ownership of minority interests......................................... 23.8%
----------------
Total ownership interest........................................................ 100.0%
================
</TABLE>
34
Exhibit 23
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., (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., (vi) our report dated January 7, 1999 on
the combined statement of revenues and certain expenses of the Hill Properties
for the year ended December 31, 1997 included in the Current Report on Form
8-K/A dated December 31, 1998 of PS Business Parks, Inc. and (vii) our report
dated January 22, 1999 on the statement of revenues and certain operating
expenses of the Las Plumas Property for the year ended December 31, 1997
included in the Current Report on Form 8-K/A dated December 31, 1998 of PS
Business Parks, Inc.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 16, 1999
