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 30, 1999
PS BUSINESS PARKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
California 1-10709 95-4300881
---------- ------- ----------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification Number)
<S> <C> <C>
</TABLE>,
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 January 29, 1999 through December 30, 1999, PS Business
Parks, Inc. ("PSB" or the "Company"), through its consolidated partnerships,
acquired nine commercial properties and two parcels of vacant land located in
Northern Virginia, Northern California, Texas and Arizona for an aggregate cost
of approximately $83 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, proceeds from the issuance of preferred stock and preferred units in
its operating partnership in addition to the assumption of existing mortgage
notes payable totaling $19,719,000.
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>
Lafayette
Chantilly, Virginia Taurus/Lafayette, L.L.C. 1/29/99 Industrial & Office $ 4,850,000 56,916 100%
Monroe II D+R Monroe Limited
Herndon, Virginia Partnership 1/29/99 Office 5,789,000 50,750 100%
-------------- -------------- -----------
10,639,000(1) 107,666 100%
Dulles South Sullyfield Circle
Chantilly, VA Limited Partnership 6/30/99 Office 3,697,000 38,502 100%
Sullyfield Circle Sullyfield Circle
Chantilly, VA Limited Partnership 6/30/99 Industrial & Office 4,487,000 59,922 94%
Park East I & II Galaxy Investment Assoc.
Chantilly, VA Limited Partnership III 6/30/99 Industrial & Office 13,199,000 114,942 100%
Park East III Galaxy Land Associates
Chantilly, VA Limited Partnership 6/30/99 Industrial & Office 8,681,000 83,300 90%
-------------- -------------- -----------
30,064,000(2) 296,666 96%
Northpointe Metropolitan Life
Sacramento, CA Insurance Company 7/29/99 Industrial & Office 16,856,000(3) 211,017 91%
Westchase Corporate Park Cave Creek/Westchase
Houston, TX Limited Partnership 12/30/99 Industrial & Office 9,519,000 176,977 95%
Phoenix Corporate Park Cave Creek/Westchase
Phoenix, AZ Limited Partnership 12/30/99 Industrial & Office 13,037,000 199,581 95%
-------------- -------------- -----------
22,556,000(3) 376,558 95%
Vacant land (9.2 acres)
Chantilly, VA Lafayette Properties, 1/29/99 1,006,000(3) - -
L.L.C.
Vacant land (6.4 acres)
Herndon, VA Nagoldpark L.P. 6/30/99 1,969,000(3) - -
-------------- -------------- -----------
Totals $83,090,000 991,907 95%
============== ============== ===========
</TABLE>
- ---------------
Notes to Table:
(1) Acquired for cash of $8,119,000, the assumption of an existing mortgage
note payable of $2,187,000 and the issuance of common operating partnership
units having a value of $333,000.
(2) Acquired for cash of $11,832,000, the assumption of existing mortgage
notes payable of $17,532,000 and the issuance of common operating
partnership units having a value of $700,000.
(3) Acquired for cash.
1
<PAGE>
Item 7. Financial Statements and Exhibits
(a)(3) Financial Statements specified by Rule 3.14 of Regulation S-X
-------------------------------------------------------------
Monroe/Lafayette Properties
o Report of Independent Auditors
o Combined Statements of Certain Revenues and Certain Expenses for the
nine months ended September 30, 1999 (unaudited) and for the year
ended December 31, 1998
o Notes to Combined Statements of Certain Revenues and Certain Expenses
Kohm Properties
o Report of Independent Auditors
o Combined Statements of Certain Revenues and Certain Expenses for the
nine months ended September 30, 1999 (unaudited) and for the year
ended December 31, 1998
o Notes to Combined Statements of Certain Revenues and Certain Expenses
Northpointe Property
o Report of Independent Auditors
o Statements of Certain Revenues and Certain Operating Expenses for the
nine months ended September 30, 1999 (unaudited) and for the year
ended December 31, 1998
o Notes to Statements of Certain Revenues and Certain Operating
Expenses
R&B Properties
o Report of Independent Auditors
o Combined Statements of Certain Revenues and Certain Operating
Expenses for the nine months ended September 30, 1999 (unaudited) and
for the year ended December 31, 1998
o Notes to Combined Statements of Certain 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: March 10, 2000 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 certain revenues and
certain expenses of the Monroe/Lafayette Properties (as defined in Note 1)
("Statement") for the year ended December 31, 1998. The Statement is the
responsibility of the Monroe/Lafayette 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 auditing standards generally accepted
in the United States. 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 certain revenues and
certain expenses of the Monroe/Lafayette Properties for the year ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Los Angeles, California
August 13, 1999
4
<PAGE>
MONROE/LAFAYETTE PROPERTIES
Combined Statements of Certain Revenues and Certain Expenses
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------- -----------------
(Unaudited)
Certain rental revenues................................ $ 1,182,000 $ 1,267,000
Certain operating expenses............................. (289,000) (427,000)
Interest expense....................................... (130,000) (184,000)
------------------- -----------------
Certain rental revenues in excess of certain expenses.. $ 763,000 $ 656,000
=================== =================
</TABLE>
See accompanying notes
5
<PAGE>
MONROE/LAFAYETTE PROPERTIES
Notes to Combined Statements of Certain Revenues and Certain Expenses
1. Background and Basis of Combination
The accompanying combined statements of certain revenues and certain
expenses include the accounts of two properties located in Northern
Virginia (collectively "Monroe/Lafayette Properties") and acquired by
PS Business Parks, Inc. ("PSB") on January 29, 1999. The properties
were owned by different owners but have a common property manager. 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 certain revenues and certain expenses
include only the accounts and activities of the Monroe/Lafayette
Properties. Items that are not comparable to the future operations of
the Monroe/Lafayette 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 Monroe/Lafayette Properties were
acquired from unaffiliated parties and (ii) based on the investigation
of the Monroe/Lafayette Properties by PSB, management is not aware of
any material factors relating to the Monroe/Lafayette 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 Monroe/Lafayette 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 Monroe/Lafayette Properties,
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 1998 and the nine months ended September 30, 1999.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Monroe/Lafayette Properties lease space to tenants for which they
charge minimum rents and receive reimbursement for certain operating
expenses. The leases are accounted for as operating leases and are
non-cancelable with varying terms and expiration dates. 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 certain revenues and
certain expenses in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the combined statements
of certain revenues and certain expenses and accompanying notes. Actual
results could differ from those estimates.
3. Mortgage Debt
One of the properties provides collateral for a mortgage note with an
outstanding balance at December 31, 1998 of $2,193,000. The mortgage
note bears interest at 8.0% and is due in April 2003.
6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying combined statement of certain revenues and
certain expenses of the Kohm Properties (as defined in Note 1) ("Statement") for
the year ended December 31, 1998. The Statement is the responsibility of the
Kohm 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 auditing standards generally accepted
in the United States. 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 certain revenues and
certain expenses of the Kohm Properties for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Los Angeles, California
August 23, 1999
7
<PAGE>
THE KOHM PROPERTIES
Combined Statements of Certain Revenues and Certain Expenses
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------- -----------------
(Unaudited)
Certain rental revenues................................ $ 2,698,000 $ 2,956,000
Certain operating expenses............................. (668,000) (878,000)
Interest expense....................................... (924,000) (826,000)
------------------- -----------------
Certain rental revenues in excess of certain expenses.. $ 1,106,000 $ 1,252,000
=================== =================
</TABLE>
See accompanying notes
8
<PAGE>
THE KOHM PROPERTIES
Notes to Combined Statements of Certain Revenues and Certain Expenses
1. Background and Basis for Presentation
The accompanying combined statements of certain revenues and certain
expenses include the accounts of four properties located in Northern
Virginia (collectively "Kohm Properties") and acquired by PS Business
Parks, Inc. ("PSB") on June 30, 1999. The properties were owned by
different owners but have a common property manager. 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 certain revenues and certain expenses
include only the accounts and activities of the Kohm Properties. Items
that are not comparable to the future operations of the Kohm Properties
have been excluded. Such items include depreciation, amortization,
management fees, interest income, 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 Kohm Properties were acquired from unaffiliated
parties and (ii) based on the investigation of the Kohm Properties by
PSB, management is not aware of any material factors relating to the
Kohm 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 Kohm 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 Kohm Properties, 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 1998 and the nine months ended September 30, 1999.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Kohm Properties lease space to tenants for which they charge
minimum rents and receive reimbursement for certain operating expenses.
The leases are accounted for as operating leases and are non-cancelable
with varying terms and expiration dates. 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 certain revenues and
certain expenses in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the combined statements
of certain revenues and certain expenses and accompanying notes. Actual
results could differ from those estimates.
3. Mortgage Debt
The Kohm Properties provide collateral for mortgage notes with
outstanding balances at December 31, 1998 of $4,414,000 and $6,835,000.
The mortgage notes bear interest at 7.28% and 8.19%, respectively, and
are due in February 2003 and March 2007, respectively.
9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying statement of certain revenues and certain
operating expenses of the Northpointe Property (as defined in Note 1)
("Statement") for the year ended December 31, 1998. The Statement is the
responsibility of the Northpointe 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 auditing standards generally accepted
in the United States. 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 certain revenues and certain
operating expenses of the Northpointe Property for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Los Angeles, California
October 27, 1999
10
<PAGE>
THE NORTHPOINTE PROPERTY
Statements of Certain Revenues and Certain Operating Expenses
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------- -------------------
(Unaudited)
Certain rental revenues.................................. $ 2,042,000 $ 2,494,000
Certain operating expenses............................... (650,000) (889,000)
------------------- -----------------
Certain rental revenues in excess of certain operating
expenses............................................ $ 1,392,000 $ 1,605,000
=================== =================
</TABLE>
See accompanying notes
11
<PAGE>
THE NORTHPOINTE PROPERTY
Notes to Statements of Certain Revenues and Certain Operating Expenses
1. Background and Basis for Presentation
The accompanying statements of certain revenues and certain operating
expenses include the accounts of the Northpointe Property located in
California and acquired by PS Business Parks, Inc. ("PSB") on July 30,
1999. 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 certain revenues and certain operating expenses
include only the accounts and activities of the Northpointe Property.
Items that are not comparable to the future operations of the
Northpointe Property have been excluded. Such items include
depreciation, amortization, management fees, interest income,
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 Northpointe Property was acquired from an unaffiliated
party and (ii) based on the investigation of the Northpointe Property
by PSB, management is not aware of any material factors relating to the
Northpointe 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 Northpointe 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 Northpointe 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 1998 and the nine months ended September 30, 1999.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Northpointe Property leases space to tenants for which they charge
minimum rents and receive reimbursement for certain operating expenses.
The leases are accounted for as operating leases and are non-cancelable
with varying terms and expiration dates. Recoveries from tenants are
recognized as income in the period the applicable costs are accrued.
Use of Estimates
The preparation of the statements of certain revenues and certain
operating expenses in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the statements of
certain revenues and certain operating expenses and accompanying notes.
Actual results could differ from those estimates.
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of PS Business Parks, Inc.
We have audited the accompanying combined statement of certain revenues and
certain operating expenses of the R&B Properties (as defined in Note 1)
("Statement") for the year ended December 31, 1998. The Statement is the
responsibility of the R&B 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 auditing standards generally accepted
in the United States. 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 certain revenues and
certain operating expenses of the R&B Properties for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Los Angeles, California
January 14, 2000
13
<PAGE>
R&B PROPERTIES
Combined Statements of Certain Revenues and Certain Operating Expenses
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------- -----------------
(Unaudited)
Certain rental revenues.................................. $ 2,824,000 $ 3,519,000
Certain operating expenses............................... (1,030,000) (1,371,000)
------------------- -----------------
Certain rental revenues in excess of certain operating
expenses............................................ $ 1,794,000 $ 2,148,000
=================== =================
</TABLE>
See accompanying notes
14
<PAGE>
R&B PROPERTIES
Notes to Combined Statements of Certain Revenues and Certain Operating Expenses
1. Background and Basis for Presentation
The accompanying combined statements of certain revenues and certain
operating expenses include the accounts of two properties located in
Arizona and Texas and acquired by PS Business Parks, Inc. ("PSB") on
December 30, 1999. The 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 certain revenues and certain operating
expenses include only the accounts and activities of the R&B
Properties. Items that are not comparable to the future operations of
the R&B Properties have been excluded. Such items include depreciation,
amortization, management fees, interest income, 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 R&B Properties were acquired from an unaffiliated
party and (ii) based on the investigation of the R&B Properties by PSB,
management is not aware of any material factors relating to the R&B
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 R&B 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 R&B Properties, 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 1998
and the nine months ended September 30, 1999.
2. Summary of Significant Accounting Policies
Revenue Recognition
The R&B Properties lease space to tenants for which they charge minimum
rents and receive reimbursements for certain operating expenses. The
leases of the R&B Properties are accounted for as operating leases and
are non-cancelable with varying terms and expiration dates. 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 certain revenues and
certain operating expenses in conformity with accounting principles
generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the
combined statements of certain revenues and certain operating expenses
and accompanying notes. Actual results could differ from those
estimates.
15
<PAGE>
Item 7 (b) PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PS Business Parks, Inc. ("PSB" or the "Company") is the successor to American
Office Park Properties, Inc. ("AOPP") which merged with and into Public Storage
Properties XI, Inc. ("PSP11") on March 17, 1998 (the "Merger"). The name of the
Company was changed to "PS Business Parks, Inc." in connection with the Merger.
Based upon the terms of the merger (see below), the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby AOPP is deemed to have acquired PSP11. However, PSP11 is the
continuing legal entity and registrant for both Securities and Exchange
Commission filing purposes and income tax reporting purposes. All subsequent
references to PSB or the Company for periods prior to March 17, 1998 shall refer
to AOPP.
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 January 29, 1999 through December
30, 1999. During that period, PSB acquired nine commercial properties and two
parcels of vacant land located in Northern Virginia, Northern California, Texas
and Arizona for an aggregate cost of approximately $83 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, proceeds from the issuance of
preferred stock and preferred units in its operating partnership in addition to
the assumption of existing mortgage notes payable totaling $19,719,000.
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:
o Each outstanding share of PSP11 common stock, which did not elect
cash, continued to be owned by current holders. A total of 106,155
PSP11 common shares elected to receive cash of $20.50 per share.
o Each share of PSP11 common stock Series B and each share of PSP11
common stock Series C converted into 0.8641 shares of PSP11 common
stock.
o Each share of AOPP common stock converted into 1.18 shares of PSP11
common stock.
o Concurrent with the Merger, PSP11 exchanged 11 mini-warehouses and
two properties that combine mini-warehouse and commercial space (the
"Exchange") for 11 commercial properties owned by Public Storage,
Inc. ("PSI"). The fair value of each group of real estate facilities
was approximately $48 million.
The Merger has been accounted for as a reverse merger whereby PSB is treated as
the acquirer using the purchase method. This has been determined based upon the
following: (i) the former shareholders and unitholders of PSB owned in excess of
80% of the merged companies and (ii) the business focus post-Merger will
continue to be that of PSB's which includes the acquisition, ownership and
management of commercial properties. Prior to the Merger, PSP11's business focus
had been primarily on the ownership and operation of its self-storage facilities
which represented approximately 81% of its portfolio.
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 common share and common operating partnership ("OP") unit amounts have been
adjusted to reflect the conversion factor of 1.18 pursuant to the Merger):
1. In January 1998, PSB entered into an agreement with a group of
institutional investors under which PSB agreed to issue up to
6,744,072 shares of common stock at $22.88 per share in cash (an
aggregate of $155 million) in separate tranches. The first
tranche, representing 2,185,187 shares or $50 million was issued
in January 1998. The remainder of the common shares (4,588,885
shares) was issued on May 6, 1998 and the net proceeds ($105
million) were used to fund a portion of the cost to acquire the
Principal Properties.
2. 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 $193,000.
3. 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 assumption of existing mortgage notes
payable of $14,526,000 and the issuance of 44,250 OP units having
a value of $1,013,000.
4. 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 through the use of available cash and
borrowings from an affiliate.
5. 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. Proceeds were used to pay off
borrowings from an affiliate.
6. 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 assumption of existing mortgage notes
payable of $3,678,000 and the issuance of 8,882 OP units having a
value of $203,000.
7. 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 $11,777,000.
8. 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 $156,000.
9. 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.
10. On December 31, 1998, PSB acquired six commercial properties and
subsequently acquired six additional commercial properties and two
newly developed properties (collectively referred to as the "Hill
Properties") on January 6, 1999 and May 31, 1999, respectively,
from unaffiliated third parties 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.
11. 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.
17
<PAGE>
12. On April 23, 1999, the Operating Partnership completed a
private placement of 510,000 preferred units with a preferred
distribution rate of 8 7/8%. The net proceeds from the placement
of preferred units were approximately $12.5 million and were
used to repay borrowings from an affiliate.
13. On April 30, 1998, PSB issued 2,200,000 depositary shares each
representing 1/1,000 of a share of 9 1/4% Cumulative Preferred
Stock, Series A. Net proceeds from the public perpetual preferred
stock offering were approximately $53.1 million and were used to
repay borrowings from an affiliate and a mortgage note payable
of approximately $11 million. The remaining proceeds were used
for investment in real estate.
14. On September 3, 1999, the Operating Partnership completed a
private placement of 3,200,000 preferred units with a preferred
distribution rate of 8 3/4%. The net proceeds from the placement
of preferred units were approximately $78 million. A portion of
the proceeds will be used to prepay a mortgage note payable of
approximately $8.5 million and the remaining portion will be used
to finance future acquisitions.
15. On September 7 and 23, 1999, the Operating Partnership completed
private placements of 1,200,000 and 400,000 preferred units,
respectively, with a preferred distribution rate of 8 7/8%. The
net proceeds from the placement of preferred units were
approximately $39.2 million and will be used to finance future
acquisitions.
The pro forma consolidated balance sheet at September 30, 1999 has been prepared
to reflect the subsequent acquisitions of commercial properties and the
prepayment of a mortgage note payable from the proceeds of the preferred OP unit
offerings.
The pro forma consolidated statement of income for the nine months ended
September 30, 1999 has been prepared assuming (i) the aforementioned
acquisitions of commercial properties and (ii) the aforementioned private
placements of preferred OP units and public offering of depositary shares
representing fractional interest in preferred stock, as if all such transactions
were completed at the beginning of fiscal 1999. The operations of all property
acquisitions are based on the historical operating results for 1999.
The pro forma consolidated statement of income for the year ended December 31,
1998 has been prepared assuming (i) the aforementioned acquisitions of
commercial properties, (ii) the aforementioned issuance of common stock to
institutional and public investors, (iii) the Merger between PSB and PSP11 and
(iv) the aforementioned private placements of preferred OP units and public
offering of depositary shares representing fractional interest in preferred
stock, 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 statements of income for the nine months and year
ended December 31, 1999 and 1998, respectively, do not include income derived
from uninvested cash of approximately $88 million.
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 PSB and PSP11 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 PSB, PSP11 and
other documents filed by PSB and PSP11 with the Securities and Exchange
Commission (such as Form 8-K's which reference property acquisitions) from time
to time. 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 had in fact occurred at the beginning of the dates indicated
or to project PSB's results of operations for any future date or period.
18
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
PSB Acquisitions PSB
(Historical) (Note 1) (Pro Forma)
---------------- ----------------- ----------------
ASSETS
Cash and cash equivalents................................. $ 118,988 $ (31,110) $ 87,878
Real estate facilities, net of accumulated depreciation... 772,005 22,556 794,561
Construction in progress.................................. 7,137 - 7,137
Intangible assets, net of accumulated amortization........ 1,357 - 1,357
Receivables and other assets.............................. 6,900 - 6,900
---------------- ----------------- ----------------
Total assets......................................... $ 906,387 $ (8,554) $ 897,833
================ ================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities............................. $ 19,210 $ - $ 19,210
Mortgage notes payable.................................... 45,828 (8,554) 37,274
Minority interests:
Preferred units........................................ 132,750 - 132,750
Common units........................................... 156,210 - 156,210
Shareholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares
authorized, 2,200 shares issued and outstanding at
September 30, 1999.................................. 55,000 - 55,000
Common stock, $0.01 par value, 100,000,000 shares
authorized, 23,645,461 shares issued and outstanding
at September 30, 1999............................... 236 - 236
Paid-in capital........................................ 479,466 - 479,466
Cumulative net income.................................. 62,906 - 62,906
Cumulative distributions............................... (45,219) - (45,219)
---------------- ----------------- ----------------
Total shareholders' equity......................... 552,389 - 552,389
---------------- ----------------- ----------------
Total liabilities and shareholders' equity............. $ 906,387 $ (8,554) $ 897,833
================ ================= ================
Book value per common share (Note 2)...................... $ 21.04 $ 21.04
================ ================
Shares outstanding........................................ 23,645,000 23,645,000
================ ================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Balance Sheet.
19
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
1. Property Acquisitions
---------------------
<S> <C>
On December 30, 1999, PSB acquired two commercial properties (the "R&B
Properties") from an unaffiliated third party for an aggregate cost of
approximately $22,556,000 in cash.
The following pro forma adjustments have been made to the pro forma
consolidated balance sheet to reflect the aforementioned transaction as
if these properties had been owned by PSB as of September 30, 1999.
o Cash and cash equivalents have been adjusted to reflect:
o the acquisition cost of the facilities acquired................................ $ (22,556,000)
o the prepayment of a mortgage note payable from the proceeds of the preferred
OP unit offerings.............................................................. (8,554,000)
----------------
$ (31,110,000)
================
o A pro forma adjustment has been made to real estate facilities to reflect the
acquisition cost of the facilities acquired....................................... $ 22,556,000
================
o A pro forma adjustment has been made to reflect the prepayment of a mortgage
note payable from the proceeds of the preferred OP unit offerings................. $ (8,554,000)
================
2. Book value per common share
---------------------------
Book value per common share has been determined by dividing total
common shareholders' equity by the outstanding common shares. The
following summarizes the common shares outstanding:
Common shares
outstanding
----------------
o PSB historical shares outstanding at September 30, 1999............................ 23,645,461
</TABLE>
20
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1999
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Acquisition of
Real Estate from Other
PSB Third Parties Adjustments PSB
(Historical) (Note 1) (Note 2) (Pro forma)
------------- ---------------- ------------- -------------
Revenues:
Rental income............................ $ 92,544 $ 6,153 $ - $ 98,697
Facility management fees from affiliates. 351 - - 351
Interest and other income................ 885 - - 885
------------- ---------------- ------------- -------------
93,780 6,153 - 99,933
------------- ---------------- ------------- -------------
Expenses:
Cost of operations....................... 25,951 1,986 - 27,937
Cost of facility management.............. 70 - - 70
Depreciation and amortization............ 21,641 2,658 - 24,299
General and administrative............... 2,339 - - 2,339
Interest expense......................... 2,658 660 (986) 2,332
------------- ---------------- ------------- -------------
52,659 5,304 (986) 56,977
------------- ---------------- ------------- -------------
Income before minority interest in income... 41,121 849 986 42,956
Minority interest in income - preferred
units (Note 6)........................... (1,236) - (7,524) (8,760)
Minority interest in income - common
units (Note 6)........................... (9,533) (203) 1,965 (7,771)
------------- ---------------- ------------- -------------
Net income (loss)........................... $ 30,352 $ 646 $ (4,573) $ 26,425
============= ================ ============= =============
Net income (loss) allocation:
Allocable to preferred shareholders...... $ 2,134 $ - $ 1,682 $ 3,816
Allocable to common shareholders......... 28,218 646 (6,255) 22,609
------------- ---------------- ------------- -------------
$ 30,352 $ 646 $ (4,573) $ 26,425
============= ================ ============= =============
Net income per common share (Notes 3 and 5):
Basic.................................. $ 1.19 $ 0.96
============= =============
Diluted................................ $ 1.19 $ 0.95
============= =============
Weighted average common shares outstanding
(Notes 3 and 5):
Basic.................................. 23,639 23,639
============= =============
Diluted................................ 23,713 23,713
============= =============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
21
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1998
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma
Pre-Merger Adjustments
----------------------
Acquisition of
Real Estate from Other PSB
PSB Third Parties Adjustments Pre-Merger
(Historical) (Note 1) (Note 2) (Pro forma)
------------- ---------------- ------------- -------------
Revenues:
Rental income:
Commercial properties....................... $ 88,320 $ 28,199 $ - $ 116,519
Mini-warehouse properties................... - - - -
Facility management fees...................... 529 - - 529
Interest and other income..................... 1,411 - - 1,411
------------- ---------------- ------------- -------------
90,260 28,199 - 118,459
------------- ---------------- ------------- -------------
Expenses:
Cost of operations:
Commercial properties....................... 26,073 7,300 - 33,373
Mini-warehouse properties................... - - - -
Cost of managing facilities................... 77 - - 77
Depreciation and amortization................. 18,908 10,719 - 29,627
General and administrative.................... 2,233 - 225 2,458
Interest expense.............................. 2,361 2,547 (1,227) 3,681
------------- ---------------- ------------- -------------
49,652 20,566 (1,002) 69,216
------------- ---------------- ------------- -------------
Income before minority interests................ 40,608 7,633 1,002 49,243
Minority interest in income - preferred units - - (11,682) (11,682)
(Note 6)
Minority interest in income - common units (11,208) (1,832) 3,784 (9,256)
(Note 6) ------------- ---------------- ------------- -------------
Net income (loss)................................ $ 29,400 $ 5,801 $ (6,896) $ 28,305
============= ================ ============= =============
Net income (loss) allocation:
Allocable to preferred shareholders........... $ - $ - $ 5,088 $ 5,088
Allocable to common shareholders.............. 29,400 5,801 (11,984) 23,217
------------- ---------------- ------------- -------------
$ 29,400 $ 5,801 $ (6,896) $ 28,305
============= ================ ============= =============
Net income per common share (Notes 3 and 5):
Basic....................................... $ 1.52 $ 1.00
============= =============
Diluted..................................... $ 1.51 $ 1.00
============= =============
Weighted average common shares outstanding
(Notes 3 and 5):
Basic....................................... 19,361 23,155
============= =============
Diluted..................................... 19,429 23,223
============= =============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
22
<PAGE>
PS BUSINESS PARKS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1998
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
Pro Forma
Merger Adjustments
------------------
Exchange of Real PSB
PSB 11 Estate Facilities Pre-Merger
(Historical) (Note 4) (Pro forma)
------------- ----------------- -------------
Revenues:
Rental income:
Commercial properties....................... $ 232 $ 1,744 $ 118,495
Mini-warehouse properties................... 1,280 (1,280) -
Facility management fees...................... - (99) 430
Interest and other income..................... - - 1,411
------------- ----------------- -------------
1,512 365 120,336
------------- ----------------- -------------
Expenses:
Cost of operations:
Commercial properties....................... 86 666 34,125
Mini-warehouse properties................... 434 (434) -
Cost of managing facilities................... - (13) 64
Depreciation and amortization................. 250 85 29,962
General and administrative.................... 36 - 2,494
Interest expense.............................. - - 3,681
------------- ----------------- -------------
806 304 70,326
------------- ----------------- -------------
Income before minority interests................. 706 61 50,010
Minority interest in income - preferred units - - (11,682)
(Note 6)
Minority interest in income - common units (169) (15) (9,440)
(Note 6) ------------- ----------------- -------------
Net income (loss)................................ $ 537 $ 46 $ 28,888
============= ================= =============
Net income (loss) allocation:
Allocable to preferred shareholders........... $ - $ - $ 5,088
Allocable to common shareholders.............. 537 46 23,800
------------- ----------------- -------------
$ 537 $ 46 $ 28,888
============= ================= =============
Net income per common share (Notes 3 and 5):
Basic....................................... $ 1.01
=============
Diluted..................................... $ 1.00
=============
Weighted average common shares outstanding
(Notes 3 and 5):
Basic....................................... 23,631
=============
Diluted..................................... 23,699
=============
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Statements of Income.
23
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
1. Acquisition of Real Estate Facilities from Third Parties
--------------------------------------------------------
The following pro forma adjustments have been made to the pro forma
consolidated statements of income to reflect the operations of the
acquired properties as if such properties had been owned and operated
by PSB throughout the entire period presented:
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
o Rental income has been adjusted to reflect: (Amounts in thousands)
o the pro forma rental income as if the acquired properties
were owned by PSB for the periods presented:
Ammendale Property................................... $ - $ 3,235
March Acquisitions Properties........................ - 4,113
Principal Properties................................. - 23,377
Northpointe Properties............................... - 950
Gunston Property .................................... - 2,430
Spectrum 95 Property................................. - 768
Royal Tech 15 Property............................... - 93
Las Plumas Property ................................. - 2,369
Hill Properties...................................... 1,855 4,779
Monroe/Lafayette Properties.......................... 1,182 1,267
Kohm Properties...................................... 2,698 2,956
Northpointe Property................................. 2,042 2,494
R&B Properties....................................... 2,824 3,519
o the rental income of these properties which are already
included in PSB's historical amounts........................ (4,448) (24,151)
------------------ -----------------
$ 6,153 $ 28,199
================== =================
o Cost of operations has been adjusted to reflect:
o the pro forma cost of operations as if the acquired
properties were owned by PSB for the periods presented:
Ammendale Property................................... $ - $ 818
March Acquisitions Properties........................ - 1,071
Principal Properties................................. - 5,301
Northpointe Properties............................... - 174
Gunston Property..................................... - 270
Spectrum 95 Property................................. - 192
Royal Tech 15 Property............................... - 10
Las Plumas Property ................................. - 440
Hill Properties ..................................... 527 1,073
Monroe/Lafayette Properties.......................... 289 427
Kohm Properties...................................... 668 878
Northpointe Property................................. 650 889
R&B Properties....................................... 1,030 1,371
o the cost of operations of these properties which are
already included in PSB's historical amounts................ (1,178) (5,614)
------------------ -----------------
$ 1,986 $ 7,300
================== =================
</TABLE>
24
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Amounts in thousands)
o A pro forma adjustment has been made to reflect the
incremental depreciation expense of the acquired properties
as if they were owned by PSB for the periods presented......... $ 2,658 $ 10,719
================== =================
o A pro forma adjustment has been made to reflect the
incremental interest expense as if the mortgage notes
associated with the acquired properties were assumed at the
beginning of the periods presented............................. $ 660 $ 2,547
================== =================
o Minority interest in income allocable to common
unitholders has been adjusted based upon its pro
rata ownership interest in the pro forma adjustments above..... $ (203) $ (1,832)
================== =================
2. Other Pro Forma Adjustments
---------------------------
o General and administrative expense has been adjusted to
reflect additional payroll costs associated with hiring
acquisition and executive personnel............................ $ - $ 225
================== =================
o Interest expense has been adjusted to reflect the
following transactions as if the proceeds from the issuance of
common shares, preferred shares and preferred OP units were
available at the beginning of the periods presented:
o the prepayment of a mortgage note payable................... $ (543) $ (736)
o the paydown of the Company's line of credit................. (72) -
o the paydown of the Company's borrowings from Public
Storage, Inc................................................ (371) (491)
------------------ -----------------
$ (986) $ (1,227)
================== =================
o Minority interest in income allocable to preferred unitholders
has been adjusted to reflect the incremental preferred
distributions if the preferred OP unit offerings had been
completed at the beginning of the periods presented............ $ (7,524) $ (11,682)
================== =================
o Minority interest in income allocable to common
unitholders has been adjusted based upon its pro rata
ownership interest in the above pro forma adjustments.......... $ 1,965 $ 3,784
================== =================
o Net income allocable to preferred shareholders has been
adjusted to reflect the incremental preferred dividends as
if the preferred stock offering had been completed at the
beginning of the periods presented............................. $ 1,682 $ 5,088
================== =================
</TABLE>
25
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
3. Net income per common share (Pro Forma in 1999 and Pre-Merger Pro
-----------------------------------------------------------------
Forma in 1998) has been computed as follows:
--------------------------------------------
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December31, 1998
------------------ -----------------
(Amounts in thousands,
except per share data)
Historical net income allocable to common shareholders........... $ 28,218 $ 29,400
================== =================
Historical weighted average common shares - basic................ 23,639 19,361
Dilutive effect of stock options............................ 74 68
------------------ -----------------
Historical weighted average common shares - diluted.............. 23,713 19,429
================== =================
Historical net income per common share - basic................... $ 1.19 $ 1.52
Historical net income per common share - diluted................. $ 1.19 $ 1.51
-------------------------------------------------------------------------------------------------------------
Pro forma net income allocable to common shareholders. $ 22,609 $ 23,217
================== =================
Historical weighted average common shares - basic................ 23,639 19,361
Issuance of common shares to institutional investors in
January and May 1998 (6,774,072 shares less 5,010,359
shares which are already included in the historical amounts
for the year ended December 31, 1998)....................... - 1,764
Issuance of common shares to the public in May 1998
(5,025,800 shares less 2,996,090 shares which are already
included in the historical amounts for the year ended
December 31, 1998).......................................... - 2,030
------------------ -----------------
Pro forma weighted average common shares - basic............... 23,639 23,155
Dilutive effect of stock options............................ 74 68
------------------ -----------------
Pro forma weighted average common shares - diluted.............. 23,713 23,223
================== =================
Pro forma net income per common share - basic.................... $ 0.96 $ 1.00
Pro forma net income per common share - diluted.................. $ 0.95 $ 1.00
</TABLE>
26
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 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> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Amounts in thousands)
o Rental income - commercial properties has been adjusted
to reflect the incremental rental income as if the 11
commercial properties received in the Exchange were owned by
PSB prior to the Merger........................................ $ - $ 1,744
================== =================
o Rental income - mini-warehouses has been adjusted to eliminate
the rental income of the 11 mini-warehouse facilities and
two properties that combine mini-warehouse and commercial
space owned by PSP11 prior to the Merger and Exchange.......... $ - $ (1,280)
================== =================
o A pro forma adjustment has been made to facility
management fees to:
o eliminate the historical facility management fees
associated with the 11 commercial properties received
in the Exchange as such fee will no longer be charged to
these properties as PSB will own them....................... $ - $ (87)
o eliminate the historical facility management fees
associated with the two commercial properties acquired
from PSP11 during the Merger................................ - (12)
------------------ -----------------
$ - $ (99)
================== =================
o A pro forma adjustment has been made to cost of
operations to:
o eliminate historical management fees paid to PSB to manage
the two commercial properties acquired from PSP11 during the
Merger which are included in historical amounts and as a
result of the Merger will no longer be incurred............. $ - $ (12)
o reflect the incremental cost of operations as if the 11
commercial properties received in the Exchange (before
cost of management) were owned by PSB prior to the Merger... - 665
o reflect the cost of management for the two commercial
properties acquired from PSP11 during the Merger and the
11 commercial properties received in the Exchange........... - 13
------------------ -----------------
$ - $ 666
================== =================
</TABLE>
27
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Amounts in thousands)
o Cost of operations - mini-warehouses has been adjusted to
eliminate the cost of operations of the 11 mini-warehouse
facilities and two properties that combine mini-warehouse and
commercial space owned by PSP11 prior to the Merger and
Exchange....................................................... $ - $ (434)
================== =================
o Cost of managing facilities has been adjusted to eliminate the
historical cost of managing the two PSP11 commercial properties and
the 11 commercial properties received in the Exchange, such costs
are reclassified to
cost of operations - commercial properties..................... $ - $ (13)
================== =================
o Depreciation expense has been adjusted to:
o Eliminate the historical depreciation expense of PSP11's
facilities.................................................. $ - $ (248)
o Record depreciation expense based on the acquired cost
of the remaining PSP11 facilities ($48 million cost, 20%
allocated to land, the remaining cost allocated to buildings,
depreciated straight-line over 30 years).................... - 333
------------------ -----------------
$ - $ 85
================== =================
o Minority interest in income allocable to common
unitholders has been adjusted based upon its pro rata
ownership interest in the above pro forma adjustments.......... $ - $ (15)
================== =================
</TABLE>
28
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
5. Net income per share (Pro forma in 1999 and Post-Merger Pro Forma in
-----------------------------------------------------------------------
1998) has been computed as follows:
-----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Amounts in thousands,
except per share data)
Pro forma net income allocable to common shareholders............. $ 22,609 $ 23,800
================== =================
Pro forma weighted average shares from Note 3 above...............
23,639 23,155
Issuance of shares to PSP11's Series A common shareholders
(1,713,782 shares less 1,356,940 shares which are already
included in the historical amounts for the year ended
December 31, 1998)........................................... - 357
Issuance of shares to PSP11's Series B and C common
shareholders (569,656 shares less 451,042 shares which are
already included in the historical amounts for the year
ended December 31, 1998)..................................... - 119
------------------ -----------------
Pro forma weighted average common shares -basic................... 23,639 23,631
Dilutive effect of stock options............................. 74 68
------------------ -----------------
Pro forma weighted average common shares - diluted................ 23,713 23,699
================== =================
Pro forma net income per common share - basic..................... $ 0.96 $ 1.01
Pro forma net income per common share - diluted................... $ 0.95 $ 1.00
</TABLE>
29
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 1999
and the year ended December 31, 1998
(Unaudited)
6. Minority Interest
-----------------
Minority interest represents ownership interests of common OP units in
the consolidated Operating Partnership which are not owned by PSB. The
common OP units, subject to certain conditions of the Operating
Partnership Agreement, are convertible into common shares of PSB on a
one-for-one basis. The following table summarizes the ownership
interests:
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Amount in thousands)
Pro forma weighted average common shares outstanding.............. 23,639 23,631
Pro forma weighted average common OP units owned by
minority interests.............................................. 7,443 7,443
------------------ -----------------
Pro forma weighted average common shares outstanding assuming 31,082 31,074
conversion of common OP units..................................... ================== =================
Percentage ownership of PSB shares outstanding.................... 76.1% 76.0%
Percentage ownership of minority interests........................ 23.9% 24.0%
------------------ -----------------
Total ownership interest..................................... 100.0% 100.0%
================== =================
</TABLE>
30
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. 333-78627) and the related prospectus of (i) our
report dated August 13, 1999 on the combined statement of certain revenues and
certain expenses of the Monroe/Lafayette Properties for the year ended December
31, 1998 included in the Current Report on Form 8-K/A dated December 30, 1999 of
PS Business Parks, Inc., (ii) our report dated August 23, 1999 on the combined
statement of certain revenues and certain expenses of the Kohm Properties for
the year ended December 31, 1998 included in the Current Report on Form 8-K/A
dated December 30, 1999 of PS Business Parks, Inc., (iii) our report dated
October 27, 1999 on the statement of certain revenues and certain operating
expenses of the Northpointe Property for the year ended December 31, 1998
included in the Current Report on Form 8-K/A dated December 30, 1999 of PS
Business Parks, Inc. and (iv) our report dated January 14, 2000 on the combined
statement of certain revenues and certain operating expenses of the R&B
Properties for the year ended December 31, 1998 included in the Current Report
on Form 8-K/A dated December 30, 1999 of PS Business Parks, Inc.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 10, 2000
31
