UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
--------------- --------------
Commission File Number 1-10709
-------
PS BUSINESS PARKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 95-4300881
---------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
701 Western Avenue, Glendale, California 91201-2397
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 13, 2000:
Common Stock, $0.01 par value, 23,047,985 shares outstanding
<PAGE>
PS BUSINESS PARKS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999......................................... 2
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2000 and 1999............. 3
Condensed Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 2000.................. 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999...................... 5-6
Notes to Condensed Consolidated Financial Statements.......... 7-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 16-24
Item 3. Quantitative and Qualitative Disclosures about Market
Risk............................................................ 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... 26
Item 6. Exhibits & Reports on Form 8-K......................... 26
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- ----------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................... $ 56,613,000 $ 74,220,000
Marketable securities................................... 26,475,000 18,263,000
Real estate facilities, at cost:
Land............................................... 207,052,000 194,140,000
Buildings and equipment............................ 678,839,000 636,261,000
---------------- ----------------
885,891,000 830,401,000
Accumulated depreciation........................... (75,003,000) (50,976,000)
---------------- ----------------
810,888,000 779,425,000
Properties held for disposition, net.................... - 14,235,000
Construction in progress................................ 19,178,000 8,616,000
---------------- ----------------
830,066,000 802,276,000
Receivables............................................. 528,000 771,000
Deferred rent receivables............................... 7,182,000 5,493,000
Intangible assets, net.................................. 1,056,000 1,282,000
Other assets............................................ 1,598,000 1,436,000
---------------- ----------------
Total assets.............................. $ 923,518,000 $ 903,741,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accrued and other liabilities.............................. $ 27,016,000 $ 21,195,000
Mortgage notes payable..................................... 31,168,000 37,066,000
---------------- ----------------
Total liabilities................................. 58,184,000 58,261,000
Minority interest:
Preferred units................................... 144,750,000 132,750,000
Common units...................................... 159,740,000 157,199,000
Shareholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares
authorized, 2,200 shares issued and outstanding at
September 30, 2000 and December 31, 1999.............. 55,000,000 55,000,000
Common stock, $0.01 par value, 100,000,000 shares
authorized, 23,112,985 shares issued and outstanding
at September 30, 2000 (23,645,461 shares issued and
outstanding at December 31, 1999)..................... 231,000 236,000
Paid-in capital......................................... 465,297,000 478,889,000
Cumulative net income................................... 107,535,000 73,809,000
Other comprehensive income.............................. 6,480,000 -
Cumulative distributions................................ (73,699,000) (52,403,000)
---------------- ----------------
Total shareholders' equity........................ 560,844,000 555,531,000
---------------- ----------------
Total liabilities and shareholders' equity... $ 923,518,000 $ 903,741,000
================ ================
</TABLE>
See accompanying notes.
2
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income................................. $ 36,798,000 $ 32,568,000 $ 107,265,000 $ 92,544,000
Facility management fees from affiliates...... 131,000 121,000 383,000 351,000
Business services............................. 82,000 - 349,000 -
Interest income............................... 1,035,000 581,000 3,046,000 845,000
Dividend income............................... 439,000 11,000 1,297,000 40,000
---------------- --------------- ---------------- ---------------
38,485,000 33,281,000 112,340,000 93,780,000
---------------- --------------- ---------------- ---------------
Expenses:
Cost of operations............................. 9,762,000 8,920,000 29,432,000 25,951,000
Cost of facility management.................... 27,000 24,000 77,000 70,000
Cost of business services...................... 78,000 - 142,000 -
Depreciation and amortization.................. 9,449,000 7,594,000 26,723,000 21,641,000
General and administrative..................... 995,000 742,000 2,859,000 2,339,000
Interest expense............................... 502,000 977,000 1,246,000 2,658,000
---------------- --------------- ---------------- ---------------
20,813,000 18,257,000 60,479,000 52,659,000
---------------- --------------- ---------------- ---------------
Income before disposition of real estate and
minority interest............................. 17,672,000 15,024,000 51,861,000 41,121,000
Gain on disposition of real estate............. 159,000 - 256,000 -
---------------- --------------- ---------------- ---------------
Income before minority interest.................. 17,831,000 15,024,000 52,117,000 41,121,000
Minority interest in income - preferred units.. (3,157,000) (1,022,000) (8,998,000) (1,236,000)
Minority interest in income - common units..... (3,203,000) (3,347,000) (9,393,000) (9,533,000)
---------------- --------------- ---------------- ---------------
Net income....................................... $ 11,471,000 $ 10,655,000 $ 33,726,000 $ 30,352,000
================ =============== ================ ===============
Net income allocation:
Allocable to preferred shareholders............ $ 1,272,000 $ 1,272,000 $ 3,816,000 $ 2,134,000
Allocable to common shareholders............... 10,199,000 9,383,000 29,910,000 28,218,000
---------------- --------------- ---------------- ---------------
$ 11,471,000 $ 10,655,000 $ 33,726,000 $ 30,352,000
================ =============== ================ ===============
Net income per common share:
Basic.......................................... $ 0.44 $ 0.40 $ 1.28 $ 1.19
================ =============== ================ ===============
Diluted........................................ $ 0.44 $ 0.40 $ 1.28 $ 1.19
================ =============== ================ ===============
Weighted average common shares outstanding:
Basic.......................................... 23,117,000 23,641,000 23,354,000 23,639,000
================ =============== ================ ===============
Diluted........................................ 23,216,000 23,724,000 23,426,000 23,713,000
================ =============== ================ ===============
</TABLE>
See accompanying notes.
3
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- --------------------------- Paid-in Cumulative
Shares Amount Shares Amount Capital Net Income
-------- ------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999....... 2,200 $55,000,000 23,645,461 $ 236,000 $478,889,000 $73,809,000
Issuance of common stock:
Conversion of common OP
units...................... - - 107,517 1,000 2,530,000 -
Exercise of stock options.... - - 12,607 - 193,000 -
Unrealized gain - appreciation
in marketable securities....... - - - - - -
Repurchase of common stock....... - - (652,600) (6,000) (14,775,000) -
Net income....................... - - - - - 33,726,000
Distributions paid:
Preferred stock.............. - - - - - -
Common stock................. - - - - - -
Adjustment to reflect minority
interest to underlying ownership
interest......................... - - - - (1,540,000) -
-------- ------------- ------------ ------------ -------------- -------------
Balances at September 30, 2000...... 2,200 $55,000,000 23,112,985 $ 231,000 $465,297,000 $ 107,535,000
======== ============== ============ ============ ============== =============
Other
Comprehensive Cumulative Shareholders'
Income Distributions Equity
---------------------- ------------------ -----------------
<S> <C> <C> <C>
Balances at December 31, 1999....... - $(52,403,000) $555,531,000
Issuance of common stock:
Conversion of common OP
units...................... - - 2,531,000
Exercise of stock options.... - - 193,000
Unrealized gain - appreciation
in marketable securities....... 6,480,000 - 6,480,000
Repurchase of common stock....... - - (14,781,000)
Net income....................... - - 33,726,000
Distributions paid:
Preferred stock.............. - (3,816,000) (3,816,000)
Common stock................. - (17,480,000) (17,480,000)
Adjustment to reflect minority
interest to underlying ownership
interest......................... - - (1,540,000)
---------------------- ------------------ -----------------
Balances at September 30, 2000...... $ 6,480,000 $(73,699,000) $560,844,000
====================== ================== =================
</TABLE>
See accompanying notes.
4
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------------------------
2000 1999
--------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 33,726,000 $ 30,352,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense........................ 26,723,000 21,641,000
Minority interest in income.................................. 18,391,000 10,769,000
Increase in receivables and other assets..................... (1,768,000) (3,274,000)
Increase in accrued and other liabilities.................... 5,823,000 3,257,000
--------------------- ------------------
Total adjustments....................................... 49,169,000 32,393,000
--------------------- ------------------
Net cash provided by operating activities.................. 82,895,000 62,745,000
--------------------- ------------------
Cash flows from investing activities:
Other investments............................................ (1,732,000) -
Acquisition of real estate facilities........................ (56,407,000) (59,555,000)
Disposition of real estate facilities........................ 23,634,000 -
Capital improvements to real estate facilities............... (7,598,000) (10,546,000)
Construction in progress...................................... (13,790,000) (11,567,000)
--------------------- ------------------
Net cash used in investing activities...................... (55,893,000) (81,668,000)
--------------------- ------------------
Cash flows from financing activities:
Borrowings from an affiliate................................. - 41,400,000
Repayment of borrowings from an affiliate.................... - (41,400,000)
Loans to an affiliate........................................ 77,000,000 -
Repayment of loans to an affiliate........................... (77,000,000) -
Borrowings from line of credit............................... - 14,000,000
Repayment of borrowings from line of credit.................. - (26,500,000)
Principal payments on mortgage notes payable................. (5,898,000) (11,932,000)
Net proceeds from the issuance of common stock............... 193,000 161,000
Repurchase of common stock................................... (14,781,000) -
Net proceeds from the issuance of preferred stock............ - 53,086,000
Net proceeds from the issuance of preferred operating
partnership units.......................................... 11,700,000 129,695,000
Distributions paid to preferred shareholders................. (3,816,000) (2,134,000)
Distributions paid to minority interests - preferred units... (8,998,000) (1,236,000)
Distributions paid to common shareholders.................... (17,480,000) (17,729,000)
Distributions paid to minority interests - common units...... (5,529,000) (5,568,000)
--------------------- ------------------
Net cash (used in) provided by financing activities........ (44,609,000) 131,843,000
--------------------- ------------------
Net (decrease) increase in cash and cash equivalents................ (17,607,000) 112,920,000
Cash and cash equivalents at the beginning of the period............ 74,220,000 6,068,000
--------------------- ------------------
Cash and cash equivalents at the end of the period.................. $ 56,613,000 $ 118,988,000
===================== ==================
</TABLE>
See accompanying notes.
5
<PAGE>
PS BUSINESS PARKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------------------------
2000 1999
--------------------- ------------------
<S> <C> <C>
Supplemental schedule of non cash investing and financing
activities:
Acquisitions of real estate facilities in exchange for minority
interests and mortgage notes payable:
Real estate facilities....................................... $ - $ (20,752,000)
Minority interest - common units............................. - 1,033,000
Mortgage notes payable....................................... - 19,719,000
Conversion of common OP units into shares of common stock:
Minority interest - common units............................. (2,531,000) -
Common stock................................................. 1,000 -
Paid-in capital.............................................. 2,530,000 -
Adjustment to reflect minority interest to underlying ownership
interest:
Minority interest - common units............................. 1,540,000 1,252,000
Paid-in capital.............................................. (1,540,000) (1,252,000)
Capitalization of developed properties:
Real estate facilities....................................... (3,228,000) 12,146,000
Construction in progress..................................... 3,228,000 (12,146,000)
Unrealized gain:
Marketable securities........................................ (6,480,000) -
Other comprehensive income................................... 6,480,000 -
</TABLE>
See accompanying notes.
6
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. Organization and description of business
PS Business Parks, Inc. ("PSB") was incorporated in the state of California
in 1990. As of September 30, 2000, PSB owned an approximate 74% general and
limited partnership interest in PS Business Parks, L.P. (the "Operating
Partnership" or "OP"). PSB, as the sole general partner of the Operating
Partnership, has full, exclusive and complete responsibility and discretion
in managing and controlling the Operating Partnership. PSB and the
Operating Partnership are collectively referred to as the "Company."
The Company is a fully-integrated, self-advised and self-managed real
estate investment trust ("REIT") that acquires, develops, owns and operates
commercial properties containing commercial and industrial rental space. As
of September 30, 2000, the Company owned and operated 123 commercial
properties (approximately 12.1 million net rentable square feet) located in
9 states. In addition, the Company managed, on behalf of Public Storage,
Inc. ("PSI") and affiliated entities, 39 commercial properties
(approximately 1.3 million net rentable square feet).
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. The preparation of the condensed consolidated
financial statements 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 condensed consolidated
financial statements and accompanying notes. Actual results could differ
from estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
The condensed consolidated financial statements include the accounts of PSB
and the Operating Partnership. All significant intercompany balances and
transactions have been eliminated in the condensed consolidated financial
statements.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash
equivalents. The carrying amount of cash and cash equivalents approximates
fair value.
Marketable securities
The Company owns approximately one million common shares of Pacific Gulf
Properties Inc. The investment is classified as "available-for-sale" in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities. The
investment is reflected on the balance sheet at fair market value. The
unrealized gain of $6,480,000 is excluded from earnings and reported in a
separate component of shareholders' equity. Dividend income is recognized
when earned.
7
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Real estate facilities
Real estate facilities are recorded at cost. Costs related to the
renovation or improvement of the properties are capitalized. Expenditures
for repair and maintenance are expensed as incurred. Buildings and
equipment are depreciated on the straight-line method over the estimated
useful lives, which are generally 30 and 5 years, respectively.
Interest cost and property taxes incurred during the period of construction
of real estate facilities are capitalized. The Company capitalized $996,000
and $584,000 of interest expense during the nine months ended September 30,
2000 and 1999, respectively.
Intangible assets
Intangible assets consist of property management contracts for properties
managed, but not owned, by the Company. The intangible assets are being
amortized over seven years. Intangible assets are net of accumulated
amortization of $1,100,000 and $874,000 at September 30, 2000 and December
31, 1999, respectively.
Evaluation of asset impairment
The Company evaluates its assets used in operations, by identifying
indicators of impairment and by comparing the sum of the estimated
undiscounted future cash flows for each asset to the asset's carrying
amount. When indicators of impairment are present and the sum of the
undiscounted future cash flows is less than the carrying value of such
asset, an impairment loss is recorded equal to the difference between the
asset's current carrying value and its value based on discounting its
estimated future cash flows. At September 30, 2000, no such indicators of
impairment have been identified.
Borrowings from and loans to affiliate
The Company borrowed an aggregate of $41.4 million from PSI and paid
$371,000 in interest expense during the period of January 19, 1999 through
April 30, 1999. The notes bore interest at 5.5% (per annum) and were repaid
as of April 30, 1999.
The Company loaned an aggregate of $77 million to PSI and received $153,000
in interest income during the period of January 5, 2000 through March 20,
2000. The notes bore interest at 5.9% (per annum) and were repaid as of
March 20, 2000.
Revenue and expense recognition
All leases are classified as operating leases. Rental income is recognized
on a straight-line basis over the terms of the leases. Reimbursements from
tenants for real estate taxes and other recoverable operating expenses are
recognized as revenue in the period the applicable costs are incurred.
Costs incurred in connection with leasing (primarily tenant improvements
and leasing commissions) are capitalized and amortized over the lease
period.
Property management fees are recognized in the period earned.
General and administrative expense
General and administrative expense includes executive compensation, office
expense, professional fees, state income taxes, cost of acquisition
personnel and other such administrative items. Such amounts include amounts
incurred by PSI on behalf of the Company, which were subsequently charged
to the Company in accordance with the allocation methodology pursuant to
the cost allocation and administrative service agreement between the
Company and PSI.
8
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Acquistion costs
Internal acquisition costs are expensed as incurred.
Income taxes
During 1997, the Company qualified and intends to continue to qualify as a
REIT, as defined in Section 856 of the Internal Revenue Code. As a REIT,
the Company is not subject to federal income tax to the extent that it
distributes its taxable income to its shareholders. A REIT must distribute
at least 95% of its taxable income each year. In addition, REITs are
subject to a number of organizational and operating requirements. If the
Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum
tax) based on its taxable income using corporate income tax rates. Even if
the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and to federal
income and excise taxes on its undistributed taxable income. The Company
believes it met all organization and operating requirements to maintain its
REIT status during 1999 and intends to continue to meet such requirements
for 2000. Accordingly, no provision for income taxes has been made in the
accompanying financial statements.
Net income per common share
Per share amounts are computed using the weighted average common shares
outstanding. "Diluted" weighted average common shares outstanding include
the dilutive effect of stock options under the treasury stock method.
"Basic" weighted average common shares outstanding excludes such effect.
Earnings per share has been calculated as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- ------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net income allocable to common shareholders.................... $ 10,199,000 $ 9,383,000 $ 29,910,000 $ 28,218,000
================ ================ =============== ==============
Weighted average common shares outstanding:
Basic weighted average common shares outstanding............ 23,117,000 23,641,000 23,354,000 23,639,000
Net effect of dilutive stock options - based on treasury
stock method using average market price................... 99,000 83,000 72,000 74,000
---------------- ---------------- --------------- --------------
Diluted weighted average common shares outstanding.......... 23,216,000 23,724,000 23,426,000 23,713,000
================ ================ =============== ==============
Basic earnings per common share................................ $ 0.44 $ 0.40 $ 1.28 $ 1.19
================ ================ =============== ==============
Diluted earnings per common share.............................. $ 0.44 $ 0.40 $ 1.28 $ 1.19
================ ================ =============== ==============
</TABLE>
Reclassifications
Certain reclassifications have been made to the condensed consolidated
financial statements for 1999 in order to conform to the 2000 presentation.
9
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
3. Real estate facilities
The activity in real estate facilities for the nine months ended September
30, 2000 is as follows:
<TABLE>
<CAPTION>
Accumulated
Land Buildings Depreciation Total
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1999...... $ 194,140,000 $ 636,261,000 $ (50,976,000) $ 779,425,000
Property acquisitions.............. 14,549,000 41,858,000 - 56,407,000
Property dispositions.............. (1,995,000) (9,748,000) 2,470,000 (9,273,000)
Developed projects................. 358,000 2,870,000 - 3,228,000
Capital improvements............... - 7,598,000 - 7,598,000
Depreciation expense............... - - (26,497,000) (26,497,000)
----------------- ------------------ ----------------- -----------------
Balances at September 30, 2000..... $ 207,052,000 $ 678,839,000 $ (75,003,000) $ 810,888,000
================= ================== ================= =================
</TABLE>
During the nine months ended September 30, 2000, the Company incurred $13.8
million in development costs. In April 2000, the Company completed and
transferred to real estate facilities a 22,000 square foot development in
Beaverton, Oregon of approximately $3.2 million.
4. Leasing activity
The Company leases space in its real estate facilities to tenants under
non-cancelable leases generally ranging from one to ten years. Future
minimum rental revenues excluding recovery of expenses as of September 30,
2000 under these leases are as follows:
2000 (October - December)........... $ 30,241,000
2001................................ 104,452,000
2002................................ 76,604,000
2003................................ 54,491,000
2004................................ 38,027,000
Thereafter.......................... 53,446,000
----------------
$ 357,261,000
================
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amount to
$14,277,000 and $12,369,000 for the nine months ended September 30, 2000
and 1999, respectively. These amounts are included as rental income and
cost of operations in the accompanying condensed consolidated statements of
income.
5. Revolving line of credit
In September 2000, the Company extended its unsecured line of credit (the
"Credit Facility") with Wells Fargo Bank. The Credit Facility has a
borrowing limit of $100 million and an expiration date of August 6, 2003.
The expiration date may be extended by one year on each anniversary of the
Credit Facility. Interest on outstanding borrowings is payable monthly. At
the option of the Company, the rate of interest charged is equal to (i) the
prime rate or (ii) a rate ranging from the London Interbank Offered Rate
("LIBOR") plus 0.75% to 1.35% depending on the Company's credit ratings and
coverage ratios, as defined (currently LIBOR plus 1.00%). In addition, the
Company is required to pay an annual commitment fee of 0.25%. The Company
had no outstanding balance and $100 million available on its line of credit
at September 30, 2000 and December 31, 1999.
10
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
The Credit Facility requires the Company to meet certain covenants
including (i) maintain a balance sheet leverage ratio (as defined) of less
than 0.50 to 1.00, (ii) maintain interest and fixed charge coverage ratios
(as defined) of not less than 2.25 to 1.0 and 1.75 to 1.0, respectively,
(iii) maintain a minimum total shareholders' equity (as defined) and (iv)
limit distributions to 95% of funds from operations. In addition, the
Company is limited in its ability to incur additional borrowings (the
Company is required to maintain unencumbered assets with an aggregate book
value equal to or greater than two times the Company's unsecured recourse
debt) or sell assets. The Company was in compliance with the covenants of
the Credit Facility at September 30, 2000.
6. Mortgage notes payable
Mortgage notes consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
7.125% mortgage note, principal and interest payable monthly, due
May 2006...................................................... $ 8,617,000 $ 8,751,000
8.190% mortgage note, principal and interest payable monthly, due
March 2007.................................................... 6,529,000 6,666,000
7.290% mortgage note, principal and interest payable monthly, due
February 2009................................................. 6,298,000 6,372,000
7.280% mortgage note, principal and interest payable monthly, due
February 2003................................................. 4,216,000 4,304,000
8.000% mortgage note, principal and interest payable monthly, due
April 2003.................................................... 2,045,000 2,108,000
8.500% mortgage note, principal and interest payable monthly, due
July 2007..................................................... 1,861,000 1,898,000
8.000% mortgage note, principal and interest payable monthly, due
April 2003.................................................... 1,602,000 1,640,000
8.125% mortgage note extinguished in March 2000.................... - 5,327,000
--------------- ---------------
$31,168,000 $37,066,000
=============== ===============
</TABLE>
At September 30, 2000, approximate principal maturities of mortgage notes
payable are as follows:
2000 (October - December)........... $ 196,000
2001................................ 829,000
2002................................ 895,000
2003................................ 7,871,000
2004................................ 696,000
Thereafter.......................... 20,681,000
----------------
$ 31,168,000
================
11
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
7. Minority interests
Common units
The Company presents the accounts of PSB and the Operating Partnership on a
consolidated basis. Ownership interests in the Operating Partnership, other
than PSB's interest, are classified as minority interest in the condensed
consolidated financial statements. Minority interest in income consists of
the minority interests' share of the condensed consolidated operating
results.
Beginning one year from the date of admission as a limited partner and
subject to certain limitations described below, each limited partner other
than PSB has the right to require the redemption of its partnership
interest.
A limited partner that exercises its redemption right will receive cash
from the Operating Partnership in an amount equal to the market value (as
defined in the Operating Partnership Agreement) of the partnership
interests redeemed. In lieu of the Operating Partnership redeeming the
partner for cash, PSB, as general partner, has the right to elect to
acquire the partnership interest directly from a limited partner exercising
its redemption right, in exchange for cash in the amount specified above or
by issuance of one share of PSB common stock for each unit of limited
partnership interest redeemed.
A limited partner cannot exercise its redemption right if delivery of
shares of PSB common stock would be prohibited under the applicable
articles of incorporation, if the general partner believes that there is a
risk that delivery of shares of common stock would cause the general
partner to no longer qualify as a REIT, would cause a violation of the
applicable securities laws, or would result in the Operating Partnership no
longer being treated as a partnership for federal income tax purposes.
At September 30, 2000, there were 7,335,839 OP units owned by minority
interests (7,305,355 were owned by PSI and affiliated entities and 30,484
were owned by unaffiliated third parties). On a fully converted basis,
assuming all 7,335,839 minority interest OP units were converted into
shares of common stock of PSB at September 30, 2000, the minority interests
would own approximately 24% of the common shares outstanding. At the end of
each reporting period, PSB determines the amount of equity (book value of
net assets) which is allocable to the minority interest based upon the
ownership interest and an adjustment is made to the minority interest, with
a corresponding adjustment to paid-in capital, to reflect the minority
interests' equity in the Company.
Preferred units
On April 23, 1999, the Operating Partnership completed a private placement
of 510,000 preferred units with a preferred distribution rate of 8 7/8%.
The net proceeds from the placement of preferred units were approximately
$12.5 million and were used to repay borrowings from an affiliate.
On September 3, 1999, the Operating Partnership completed a private
placement of 3,200,000 preferred units with a preferred distribution rate
of 8 3/4%. The net proceeds from the placement of preferred units were
approximately $78 million and part of the proceeds was used to prepay a
mortgage note payable of approximately $8.5 million.
On September 7 and 23, 1999, the Operating Partnership completed private
placements of 1,200,000 and 400,000 preferred units, respectively, with a
preferred distribution rate of 8 7/8%. The net proceeds from the placement
of preferred units were approximately $39.2 million.
On July 12, 2000 the Operating Partnership completed a private placement of
480,000 preferred units with a preferred distribution rate of 8 7/8%. The
net proceeds from the placement of preferred units were approximately $11.7
million.
12
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
The Operating Partnership has the right to redeem the preferred units on or
after the fifth anniversary of the issuance date at the original capital
contribution plus the cumulative priority return, as defined, to the
redemption date to the extent not previously distributed. The preferred
units are exchangeable for Cumulative Redeemable Preferred Stock of the
respective series of PS Business Parks, Inc. on or after the tenth
anniversary of the date of issuance at the option of the Operating
Partnership or majority of the holders of the preferred units. The
Preferred Stock will have the same distribution rate and par value as the
respective units and will have equivalent terms to those described in Note
9.
8. Property management contracts
The Operating Partnership manages industrial, office and retail facilities
for PSI and entities affiliated with PSI. These facilities, all located in
the United States, operate under the "Public Storage" or "PS Business
Parks" name.
The property management contracts provide for compensation of five percent
of the gross revenue of the facilities managed. Under the supervision of
the property owners, the Operating Partnership coordinates rental policies,
rent collections, marketing activities, the purchase of equipment and
supplies, maintenance activities, and the selection and engagement of
vendors, suppliers and independent contractors. In addition, the Operating
Partnership assists and advises the property owners in establishing
policies for the hire, discharge and supervision of employees for the
operation of these facilities, including property managers, leasing,
billing and maintenance personnel.
The property management contract with PSI is for a seven year term with the
term being extended one year each anniversary. The property management
contracts with affiliates of PSI are cancelable by either party upon sixty
days notice.
9. Shareholders' equity
Preferred stock
On April 30, 1999, the Company issued 2,200,000 depositary shares each
representing 1/1,000 of a share of 9 1/4% Cumulative Preferred Stock,
Series A. Net proceeds from the public perpetual preferred stock offering
were approximately $53.1 million and were used to repay borrowings from an
affiliate and a mortgage note payable of approximately $11 million. The
remaining proceeds were used for investment in real estate.
Holders of the Company's preferred stock will not be entitled to vote on
most matters, except under certain conditions. In the event of a cumulative
arrearage equal to six quarterly dividends, the holders of the preferred
stock will have the right to elect two additional members to serve on the
Company's Board of Directors until all events of default have been cured.
At September 30, 2000, there were no dividends in arrears.
Except under certain conditions relating to the Company's qualification as
a REIT, the preferred stock is not redeemable prior to April 30, 2004. On
or after April 30, 2004, the preferred stock will be redeemable, at the
option of the Company, in whole or in part, at $25 per depositary share,
plus any accrued and unpaid dividends.
The Company paid $3,816,000 ($1.734375 per depositary share) and $2,134,000
($0.969965 per depositary share) in distributions to its preferred
shareholders for the nine months ended September 30, 2000 and 1999,
respectively.
Common stock
On March 2, 2000, the Board of Directors authorized the repurchase from
time to time of up to 1,000,000 shares of the Company's common stock on the
open market or in privately negotiated transactions. On July 27, 2000, the
13
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Board of Directors authorized the repurchase of up to an additional 600,000
shares of the Company's common stock (for a total repurchase authorization
of up to 1,600,000 shares) on the open market or in privately negotiated
transactions. Purchases will be made subject to market conditions and other
investment opportunities available to the Company. As of September 30,
2000, the Company repurchased 652,600 shares of common stock at an
aggregate cost of approximately $14.8 million.
On March 31, 2000, a holder of common OP units exercised its option and
converted its 107,517 common OP units into an equal number of shares of PSB
common stock. The conversion resulted in an increase in shareholders'
equity and a corresponding decrease in minority interest of approximately
$2,531,000 representing the book value of the OP units at the time of
conversion.
The Company paid $17,480,000 ($0.75 per common share) and $17,729,000
($0.75 per common share) in distributions to its common shareholders for
the nine months ended September 30, 2000 and 1999, respectively. Pursuant
to restrictions on the Credit Facility, distributions may not exceed 95% of
funds from operations, as defined.
Equity stock
In addition to common and preferred stock, the Company is authorized to
issue 100,000,000 shares of Equity Stock. The Articles of Incorporation
provide that the Equity Stock may be issued from time to time in one or
more series and gives the Board of Directors broad authority to fix the
dividend and distribution rights, conversion and voting rights, redemption
provisions and liquidation rights of each series of Equity Stock.
10. Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. This
statement provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The
Company is studying this statement to determine its effect on the
consolidated financial statements and will adopt this statement in the year
ending December 31, 2001.
11. Commitments and contingencies
The Company is subject to the risks inherent in the ownership and operation
of commercial real estate. These include, among others, the risks normally
associated with changes in the general economic climate, trends in the real
estate industry, creditworthiness of tenants, competition, changes in tax
laws, interest rate levels, the availability of financing and potential
liability under environmental and other laws.
Substantially all of the properties have been subjected to Phase I
environmental reviews. Such reviews have not revealed, nor is management
aware of, any probable or reasonably possible environmental costs that
management believes would be material to the consolidated financial
statements except as discussed below.
The Company acquired a property in Beaverton, Oregon ("Creekside Corporate
Park") in May 1998. A property adjacent to Creekside Corporate Park is
currently the subject of an environmental remedial
investigation/feasibility study that is being conducted by the current and
past owners of the property, pursuant to an order issued by the Oregon
Department of Environmental Quality ("ODEQ"). As part of that study, ODEQ
ordered the property owners to sample soil and groundwater on the Company's
property to determine the nature and extent of contamination resulting from
past industrial operations at the property subject to the study. The
Company, which is not a party of the Order on Consent, executed separate
Access Agreements with the property owners to allow access to its property
to conduct the required sampling and testing. The sampling and testing is
ongoing, and preliminary results from one area indicate that the
contamination from the property subject to the study may have migrated onto
a portion of Creekside Corporate Park owned by the Company.
14
<PAGE>
PS BUSINESS PARKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
There is no evidence that any past or current use of the Creekside
Corporate Park property contributed in any way to the contamination that is
the subject of the current investigation. Nevertheless, upon completion of
the study, it is likely that removal or remedial measures will be required
to address any contamination detected during the current investigation,
including any contamination on or under the Creekside Corporate Park
property. Because of the preliminary nature of the investigation, the
Company cannot predict the outcome of the investigation, nor can it
estimate the costs of any remediation or removal activities that may be
required.
The Company believes that it bears no responsibility or liability for the
contamination. In the event the Company is ultimately deemed responsible
for any costs relating to this matter, the Company believes that the party
from whom the property was purchased will be responsible for any expenses
or liabilities that the Company may incur as a result of this
contamination.
On November 3, 1999, the Company filed an action in the Los Angeles
Superior Court seeking damages in excess of $1 million, as well as
equitable relief. The complaint alleges that Mr. Howard and entities
controlled by him engaged in unfair trade practices, including (1)
negotiating kickbacks, secret rebates and/or unearned discounts from third
party suppliers for "providing" Company business to those suppliers and (2)
disrupting the Company's relationship with various suppliers.
On or about February 14, 2000, Mr. Howard and entities controlled by him
filed a cross-complaint against the Company, Public Storage, Inc., and
several other cross-defendants alleging, among other things, (1)
interference with Mr. Howard's contractual relations with various third
party suppliers, (2) violation of Title VII of the Civil Rights Act and (3)
abuse of process. None of the cross-complainants assigned any dollar amount
in the cross-complaint to the claims. The Company intends to vigorously
contest the claims in the cross-complaint.
In November 2000, Mary Jayne Howard, a former officer of the Company, filed
a complaint for discrimination with the California Department of Fair
Employment and Housing, requesting authorization to file a lawsuit against
the Company. The complaint does not specify the damages, if any, and
therefore the Company is not able to establish the materiality of the
possible claim. The Company intends to vigorously contest any claims for
discrimination by Ms. Howard.
The Company currently is neither subject to any other material litigation
nor, to management's knowledge, is any material litigation currently
threatened against the Company other than routine litigation and
administrative proceedings arising in the ordinary course of business.
Based on consultation with counsel, management believes that these items
will not have a material adverse impact on the Company's condensed
consolidated financial position or results of operations.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------------
Operations
----------
Forward-Looking Statements: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors. Actual results could differ materially from those set forth
in the forward-looking statements as a result of various factors. Such factors
include, but are not limited to, a change in economic conditions in the various
markets served by the Company's operations which would adversely affect the
level of demand for rental of commercial space and the cost structure of the
Company, general real estate investment risks, competition, risks associated
with acquisition and development activities and debt financing, environmental
matters, general uninsured losses and seismic activity. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Overview: During 2000 and 1999, the Company focused on increasing cash
flow from its existing core portfolio of properties, expanded its presence in
existing markets through strategic acquisitions and developments and
strengthened its balance sheet primarily through the issuance of preferred
stock/OP units at reasonable prices. By maintaining low leverage, the Company
believes that future growth is facilitated. In addition, management identified
five properties that did not meet its investment criteria and disposed of these
properties during 2000. These properties totaled 627,000 square feet including
238,000 square feet in Baltimore, Maryland, 144,000 square feet in Tulsa,
Oklahoma, 91,000 square feet in Little Rock, Arkansas and 154,000 square feet in
Houston, Texas. Net proceed from these dispositions totaled $23.6 million.
During the nine months ended September 30, 2000, the Company acquired
178,000 square feet in Northern California for approximately $23.3 million and
161,000 square feet in Southern California for approximately $25.4 million. In
addition, the Company acquired 21 acres of land in Texas for approximately $3.7
million for the development of two 100,000 square foot flex buildings.
During 1999, the Company added approximately 1.3 million square feet to
its portfolio at an aggregate cost of approximately $103 million. The Company
acquired 483,000 square feet in Texas for approximately $32 million, 405,000
square feet in Northern Virginia/Maryland market for approximately $41 million,
211,000 square feet in Northern California for approximately $17 million and
200,000 square feet in Arizona for approximately $13 million.
Results of Operations: Net income for the three months ended September
30, 2000 was $11,471,000 compared to $10,655,000 for the same period in 1999.
Net income allocable to common shareholders (net income less preferred stock
dividends) for the three months ended September 30, 2000 was $10,199,000
compared to $9,383,000 for the same period in 1999. Net income per common share
on a diluted basis was $0.44 for the three months ended September 30, 2000
compared to $0.40 for the same period in 1999 (based on weighted average diluted
common shares outstanding of 23,216,000 and 23,724,000, respectively). Net
income for the nine months ended September 30, 2000 was $33,726,000 compared to
$30,352,000 for the same period in 1999. Net income allocable to common
shareholders (net income less preferred stock dividends) for the nine months
ended September 30, 2000 was $29,910,000 compared to $28,218,000 for the same
period in 1999. Net income per common share on a diluted basis was $1.28 for the
nine months ended September 30, 2000 compared to $1.19 for the same period in
1999 (based on weighted average diluted common shares outstanding of 23,426,000
and 23,713,000, respectively). The increases in net income and net income per
share reflect the Company's growth in its asset base through the acquisition and
development of commercial properties in addition to increased net operating
income from its stabilized base of properties.
16
<PAGE>
The Company's property operations account for almost all of the net
operating income earned by the Company. The following table presents the
pre-depreciation operating results of the properties for the three and nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
2000 1999 Change
--------------- ------------- ------------
<S> <C> <C> <C>
Rental income:
"Same Park" facilities (107 facilities, 10.5 million net
rentable square feet).................................. $30,900,000 $29,055,000 6.4%
Other facilities............................................ 5,898,000 3,513,000 67.9%
--------------- ------------- ------------
Total rental income......................................... $36,798,000 $32,568,000 13.0%
=============== ============= ============
Cost of operations (excluding depreciation):
"Same Park" facilities...................................... $8,043,000 $8,026,000 0.2%
Other facilities............................................ 1,719,000 894,000 92.3%
--------------- ------------- ------------
Total cost of operations.................................... $9,762,000 $8,920,000 9.4%
=============== ============= ============
Net operating income (rental income less cost of operations):
"Same Park" facilities...................................... $22,857,000 $21,029,000 8.7%
Other facilities............................................ 4,179,000 2,619,000 59.6%
--------------- ------------- ------------
Total net operating income.................................. $27,036,000 $23,648,000 14.3%
=============== ============= ============
Nine Months Ended
September 30,
-------------------------------
2000 1999 Change
--------------- ------------- ------------
Rental income:
"Same Park" facilities (107 facilities, 10.5 million net
rentable square feet).................................. $90,667,000 $85,498,000 6.0%
Other facilities............................................ 16,598,000 7,046,000 135.6%
--------------- ------------- ------------
Total rental income......................................... $107,265,000 $92,544,000 15.9%
=============== ============= ============
Cost of operations (excluding depreciation):
"Same Park" facilities...................................... $23,883,000 $23,432,000 1.9%
Other facilities............................................ 5,549,000 2,519,000 120.3%
--------------- ------------- ------------
Total cost of operations.................................... $29,432,000 $25,951,000 13.4%
=============== ============= ============
Net operating income (rental income less cost of operations):
"Same Park" facilities...................................... $66,784,000 $62,066,000 7.6%
Other facilities............................................ 11,049,000 4,527,000 144.1%
--------------- ------------- ------------
Total net operating income.................................. $77,833,000 $66,593,000 16.9%
=============== ============= ============
</TABLE>
17
<PAGE>
Rental income and rental income less cost of operations or net
operating income ("NOI") prior to depreciation are summarized for the three
months ended September 30, 2000 by major geographic regions below:
<TABLE>
<CAPTION>
Square Percent Rental Percent Percent
Region Footage of Total Income of Total NOI of Total
--------------------------- ------------- ------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Southern California 3,254,000 26.9% $9,372,000 25.5% $7,192,000 26.6%
Northern California 1,495,000 12.4% 4,541,000 12.3% 3,488,000 12.9%
Southern Texas 1,032,000 8.5% 2,763,000 7.5% 1,746,000 6.5%
Northern Texas 1,849,000 15.3% 4,779,000 13.0% 3,366,000 12.5%
Virginia 1,612,000 13.3% 5,747,000 15.6% 4,230,000 15.6%
Maryland 866,000 7.2% 3,377,000 9.2% 2,349,000 8.7%
Oregon 1,191,000 9.8% 4,360,000 11.8% 3,544,000 13.1%
Other 797,000 6.6% 1,859,000 5.1% 1,121,000 4.1%
------------- ------------- --------------- ------------- -------------- ---------------
12,096,000 100.0% $36,798,000 100.0% $27,036,000 100.0%
============= ============= =============== ============= ============== ===============
Rental income and rental income less cost of operations or net operating income
("NOI") prior to depreciation are summarized for the nine months ended September
30, 2000 by major geographic regions below:
Square Percent Rental Percent Percent
Region Footage of Total Income of Total NOI of Total
--------------------------- ------------- ------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Southern California 3,254,000 26.9% $27,135,000 25.3% $20,725,000 26.6%
Northern California 1,495,000 12.4% 12,388,000 11.5% 9,294,000 11.9%
Southern Texas 1,032,000 8.5% 8,027,000 7.5% 4,840,000 6.2%
Northern Texas 1,849,000 15.3% 14,954,000 13.9% 10,495,000 13.5%
Virginia 1,612,000 13.3% 16,735,000 15.6% 12,198,000 15.7%
Maryland 866,000 7.2% 10,248,000 9.6% 7,243,000 9.3%
Oregon 1,191,000 9.8% 11,801,000 11.0% 9,431,000 12.1%
Other 797,000 6.6% 5,977,000 5.6% 3,607,000 4.6%
------------- ------------- --------------- ------------- -------------- ---------------
12,096,000 100.0% $107,265,000 100.0% $77,833,000 100.0%
============= ============= =============== ============= ============== ===============
</TABLE>
Supplemental Property Data and Trends: In order to evaluate the
performance of the Company's overall portfolio, management analyzes the
operating performance of a consistent group of 107 properties (10.5 million net
rentable square feet). These 107 properties (herein referred to as the "Same
Park" facilities) have been owned and operated by the Company for the comparable
periods. These properties do not include properties that have been sold during
the year. The "Same Park" facilities represent approximately 87% of the square
footage of the Company's portfolio at September 30, 2000.
18
<PAGE>
The following table summarizes the pre-depreciation historical
operating results of the "Same Park" facilities excluding the effects of
accounting for rental revenues on a straight-line basis.
"Same Park" Facilities (107 Properties)
---------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
2000 1999 Change
------------------- --------------- ---------------
<S> <C> <C> <C>
Rental income (1).................................... $ 30,290,000 $ 28,219,000 7.3%
Cost of operations................................... 8,043,000 8,026,000 0.2%
------------------- --------------- ---------------
Net operating income................................. $ 22,247,000 $ 20,193,000 10.2%
=================== =============== ===============
Gross margin (2)..................................... 73.4% 71.6% 1.8%
Weighted average for period:
Occupancy........................................ 97.1% 97.0% 0.1%
Annualized realized rent per sq. ft.(3).......... $11.84 $11.03 7.3%
====================================================================================================================================
Nine Months Ended
September 30,
-----------------------------------
2000 1999 Change
------------------- --------------- ---------------
Rental income (1).................................... $ 89,018,000 $ 83,148,000 7.1%
Cost of operations................................... 23,883,000 23,432,000 1.9%
------------------- --------------- ---------------
Net operating income................................. $ 65,135,000 $ 59,716,000 9.1%
=================== =============== ===============
Gross margin (2)..................................... 73.2% 71.8% 1.4%
Weighted average for period:
Occupancy........................................ 97.2% 96.9% 0.3%
Annualized realized rent per sq. ft.(3).......... $11.59 $10.86 6.7%
</TABLE>
---------------
(1) Rental income does not include the effect of straight-line accounting.
(2) Gross margin is computed by dividing property net operating income by rental
income.
(3) Realized rent per square foot represents the actual revenues earned per
occupied square foot.
19
<PAGE>
The following tables summarize the "Same Park" operating results by major
geographic region for the three months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Revenues Revenues NOI NOI Increase
Region 2000 1999 Increase 2000 1999 (Decrease)
-------------------------- -------------- ------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Southern California..... $9,178,000 $8,519,000 7.8% $6,935,000 $6,221,000 11.4%
Northern California..... 3,164,000 2,824,000 12.0% 2,440,000 2,105,000 15.9%
Southern Texas.......... 2,430,000 2,246,000 8.2% 1,530,000 1,374,000 11.3%
Northern Texas.......... 3,758,000 3,680,000 2.1% 2,644,000 2,431,000 8.8%
Virginia................ 4,175,000 3,766,000 10.9% 2,972,000 2,735,000 8.7%
Maryland................ 2,508,000 2,413,000 3.9% 1,845,000 1,784,000 3.4%
Oregon.................. 3,862,000 3,598,000 7.3% 3,084,000 2,823,000 9.3%
Other................... 1,215,000 1,173,000 3.6% 797,000 720,000 10.7%
-------------- ------------- ----------- --------------- ------------- -----------
$30,290,000 $28,219,000 7.3% $22,247,000 $20,193,000 10.2%
============== ============= =========== =============== ============= ===========
The following tables summarize the "Same Park" operating results by major
geographic region for the nine months ended September 30, 2000 and 1999:
Revenues Revenues NOI NOI Increase
Region 2000 1999 Increase 2000 1999 (Decrease)
-------------------------- -------------- ------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Southern California..... $27,057,000 $24,519,000 10.4% $20,586,000 $18,108,000 13.7%
Northern California..... 9,151,000 8,123,000 12.7% 7,004,000 6,085,000 15.1%
Southern Texas.......... 7,011,000 6,733,000 4.1% 4,159,000 4,123,000 0.8%
Northern Texas.......... 11,320,000 11,543,000 (1.9%) 7,749,000 7,747,000 0.0%
Virginia................ 12,160,000 11,011,000 10.4% 8,769,000 7,839,000 11.9%
Maryland................ 7,369,000 7,030,000 4.8% 5,452,000 5,166,000 5.5%
Oregon.................. 11,325,000 10,752,000 5.3% 9,134,000 8,535,000 7.0%
Other................... 3,625,000 3,437,000 5.5% 2,282,000 2,113,000 8.0%
-------------- ------------- ----------- --------------- ------------- -----------
$89,018,000 $83,148,000 7.1% $65,135,000 $59,716,000 9.1%
============== ============= =========== =============== ============= ===========
</TABLE>
The increases noted above reflect the performance of the Company's
existing markets. Southern and Northern California and Virginia continued to
benefit from a strong economy. In Northern Texas, the decline in revenue relates
primarily related to lower expense recoveries for the nine months ended
September 30, 2000.
Facility Management Operations: The Company's facility management
accounts for a small portion of the Company's net operating income. During the
three months ended September 30, 2000, $104,000 in net operating income was
recognized from facility management operations compared to $97,000 for the same
period in 1999. During the nine months ended September 30, 2000, $306,000 in net
operating income was recognized from facility management operations compared to
$281,000 for the same period in 1999. Facility management fees have increased
due to the increase in rental rates of the properties managed by the Company.
Business Services: The Company recently hired a Vice President to focus
on creating new revenue opportunities for the Company and additional products
and services for our customers. Currently the Company has begun receiving income
from construction management fees and fees from telecommunication service
providers. During the three months ended September 30, 2000, $4,000 in net
operating income was derived from such services compared to none for the same
period in 1999. During the nine months ended September 30, 2000, $207,000 in net
operating income was derived from such services compared to none for the same
period in 1999.
Interest Income: Interest income reflects earnings on cash balances.
Interest income was $1,035,000 for the three months ended September 30, 2000
compared to $581,000 for the same period in 1999. Interest income was $3,046,000
for the nine months ended September 30, 2000 compared to $845,000 for the same
20
<PAGE>
period in 1999. The increase is attributable to increased average cash balances
and higher interest rates. Average cash balances for the three months ended
September 30, 2000 were approximately $64 million compared to $47 million for
the same period in 1999. Average cash balances for the nine months ended
September 30, 2000 were approximately $68 million compared to $24 million for
the same period in 1999.
Dividend Income: Dividend income reflects earnings from marketable
securities. Dividend income was $439,000 for the three months ended September
30, 2000 compared to $11,000 for the same period in 1999. Dividend income was
$1,297,000 for the nine months ended September 30, 2000 compared to $40,000 for
the same period in 1999. The increase is attributable to increased investments
in marketable securities.
Cost of Operations: Cost of operations for the three months ended
September 30, 2000 was $9,762,000 compared to $8,920,000 for the same period in
1999. Cost of operations for the nine months ended September 30, 2000 was
$29,432,000 compared to $25,951,000 for the same period in 1999. Cost of
operations for the three months ended September 30, 2000 consists primarily of
property taxes ($3,138,000), property maintenance ($1,818,000), utilities
($2,044,000) and direct payroll ($1,467,000). Cost of operations for the nine
months ended September 30, 2000 consists primarily of property taxes
($9,481,000), property maintenance ($5,399,000), utilities ($5,143,000) and
direct payroll ($4,345,000). The increase is due primarily to the growth in the
total square footage of the Company's portfolio of properties. Cost of
operations as a percentage of rental income decreased from 27.4% to 26.5% and
from 28.0% to 27.4% for the three and nine months ended September 30, 2000 and
1999, respectively, as a result of economies of scale achieved through the
acquisition and development of properties in existing markets and the
disposition of properties outside of our core markets.
Depreciation and Amortization Expense: Depreciation and amortization
expense for the three months ended September 30, 2000 was $9,449,000 compared to
$7,594,000 for the same period in 1999. Depreciation and amortization expense
for the nine months ended September 30, 2000 was $26,723,000 compared to
$21,641,000 for the same period in 1999. The increase is due to the acquisition
and development of real estate facilities during 1999 and 2000.
General and Administrative Expense: General and administrative expense
was $995,000 for the three months ended September 30, 2000 compared to $742,000
for the same period in 1999. General and administrative expense was $2,859,000
for the nine months ended September 30, 2000 compared to $2,339,000 for the same
period in 1999. The increase is due primarily to the increased size and
activities of the Company. Included in general and administrative costs are
acquisition costs and abandoned transaction costs. Acquisition expenses were
$130,000 and $139,000 for the three months ended September 30, 2000 and 1999,
respectively. There were no abandoned transaction costs for the three months
ended September 30, 2000 and 1999, respectively. Acquisition expenses were
$378,000 and $324,000 for the nine months ended September 30, 2000 and 1999,
respectively. Abandoned transaction costs were $7,000 and $30,000 for the nine
months ended September 30, 2000 and 1999, respectively.
Interest Expense: Interest expense was $502,000 for the three months
ended September 30, 2000 compared to $977,000 for the same period in 1999.
Interest expense was $1,246,000 for the nine months ended September 30, 2000
compared to $2,658,000 for the same period in 1999. The decrease is attributable
to decreased average debt balances during the period and greater capitalized
interest in 2000 as a result of higher construction in progress. Interest
expense of $308,000 and $174,000 was capitalized as part of building costs
associated with properties under development during the three months ended
September 30, 2000 and 1999, respectively. Interest expense of $996,000 and
$584,000 was capitalized as part of building costs associated with properties
under development during the nine months ended September 30, 2000 and 1999,
respectively.
Minority Interest in Income: Minority interest in income reflects the
income allocable to equity interests in the Operating Partnership that are not
owned by the Company. Minority interest in income for the three months ended
September 30, 2000 was $6,360,000 ($3,157,000 allocated to preferred unitholders
and $3,203,000 allocated to common unitholders) compared to $4,369,000
($1,022,000 allocated to preferred unitholders and $3,347,000 allocated to
common unitholders) for the same period in 1999. Minority interest in income for
the nine months ended September 30, 2000 was $18,391,000 ($8,998,000 allocated
to preferred unitholders and $9,393,000 allocated to common unitholders)
compared to $10,769,000 ($1,236,000 allocated to preferred unitholders and
21
<PAGE>
$9,533,000 allocated to common unitholders) for the same period in 1999. The
increase in minority interest in income is due primarily to the issuance of
preferred operating partnership units in April and September of 1999.
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities for the nine months ended
September 30, 2000 and 1999 was $82,895,000 and $62,745,000, respectively.
Management believes that its internally generated net cash provided by operating
activities will continue to be sufficient to enable it to meet its operating
expenses, capital improvements, debt service requirements and maintain the
current level of distribution to shareholders.
The Company owns approximately one million shares of common stock of
Pacific Gulf Properties, Inc. ("PAG") representing an investment of
approximately $20 million. On November 9, 2000, the shareholders of PAG approved
the sale of its industrial property portfolio and the sale of its remaining
assets and subsequent liquidation and dissolution. PAG expects to make a cash
distribution to shareholders in December 2000 of up to $25.50 per share from the
sale proceeds. This would result in net proceeds of approximately $25.5 million
to the Company or $5.5 million in excess of our original investment. The
investment is currently reflected on the balance sheet at $26.5 million
reflecting the fair market value of the stock at September 30, 2000. The
unrealized gain is not reflected in net income or FFO. There is no assurance
that the Company will realize the estimated net proceeds.
The Company sold five properties for approximately $23.6 million during
the nine months ended September 30, 2000 at a gain of $256,000. There are no
additional property dispositions planned for the year 2000.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to pay
distributions to shareholders, make principal payments on debt and to make
investments in real estate.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Net income........................................................... $ 33,726,000 $ 30,352,000
Depreciation and amortization........................................ 26,723,000 21,641,000
Change in working capital............................................ 4,055,000 (17,000)
Minority interest in income.......................................... 18,391,000 10,769,000
----------------- ---------------
Net cash provided by operating activities............................ 82,895,000 62,745,000
Maintenance capital expenditures..................................... (2,301,000) (2,153,000)
Tenant improvements.................................................. (3,058,000) (3,857,000)
Capitalized lease commissions........................................ (2,239,000) (1,479,000)
----------------- ---------------
Funds available for distributions to shareholders, minority interests,
acquisitions and other corporate purposes.......................... 75,297,000 55,256,000
Cash distributions to shareholders and minority interests............ (35,823,000) (26,667,000)
----------------- ---------------
Excess funds available for principal payments on debt, investments in
real estate and other corporate purposes........................... $ 39,474,000 $ 28,589,000
================= ===============
</TABLE>
The Company's capital structure is characterized by a low level of
leverage. As of September 30, 2000, the Company had seven fixed rate mortgage
notes payable totaling $31,168,000 which represented 3.6% of its total
capitalization (based on book value, including minority interests and debt). The
weighted average interest rate for the mortgage notes is 7.59%.
In September 2000, the Company extended its unsecured line of credit
(the "Credit Facility") with Wells Fargo Bank. The Credit Facility has a
borrowing limit of $100 million and an expiration date of August 6, 2003.
22
<PAGE>
The expiration date may be extended by one year on each anniversary of the
Credit Facility. Interest on outstanding borrowings is payable monthly. At the
option of the Company, the rate of interest charged is equal to (i) the prime
rate or (ii) a rate ranging from the London Interbank Offered Rate ("LIBOR")
plus 0.75% to 1.35% depending on the Company's credit ratings and coverage
ratios, as defined (currently LIBOR plus 1.00%). In addition, the Company is
required to pay an annual commitment fee of 0.25%.
The Company expects to fund its growth strategies with permanent
capital, including issuances of common and preferred stock and internally
generated retained cash flows. In addition, the Company may sell properties that
no longer meet its investment criteria. The Company may finance acquisitions on
a temporary basis with borrowings from its line of credit. The Company intends
to repay amounts borrowed under the Credit Facility from undistributed cash flow
or, as market conditions permit and as determined to be advantageous, from the
public or private placement of preferred and common stock/OP units or formation
of joint ventures. The Company targets a leverage ratio of 40% and Funds from
Operations ("FFO") to combined fixed charges and preferred distributions ratio
of 3.0 to 1.0. As of September 30, 2000 and for the nine months then ended, the
leverage ratio was 22% (based on the fair market capitalization) and the FFO to
fixed charges and preferred distributions coverage ratio was 6.0 to 1.0.
In April 1999, the Company completed a private placement of preferred
OP units and a public offering of depositary shares representing fractional
interest in perpetual preferred stock resulting in net proceeds totaling $65.6
million. The net proceeds from the placement of preferred OP units, completed
April 23, 1999 were approximately $12.5 million. The preferred OP units have a
preferred distribution rate of 8 7/8% on a stated value of $12.75 million. The
preferred OP units have equivalent terms to those of perpetual preferred stock.
Net proceeds from the public perpetual preferred stock offering completed April
30, 1999 were $53.1 million. The preferred stock has a dividend rate of 9 1/4%
on a stated value of $55 million. Proceeds from the issuances were used to pay
off borrowings from an affiliate and a portion was used to repay a mortgage note
payable of approximately $11 million. The remaining proceeds were used for
investment in real estate.
On September 3, 1999, the Operating Partnership completed a private
placement of 3,200,000 preferred units with a preferred distribution rate of 8
3/4%. The net proceeds from the placement of preferred units were approximately
$78 million. A portion of the proceeds was used to prepay a mortgage note
payable of approximately $8.5 million. On September 7 and 23, 1999, the
Operating Partnership completed private placements of 1,200,000 and 400,000
preferred units, respectively, with a preferred distribution rate of 8 7/8%. The
net proceeds from the placement of preferred units were approximately $39.2
million.
On July 12, 2000 the Operating Partnership completed a private
placement of 480,000 preferred units with a preferred distribution rate of 8
7/8%. The net proceeds from the placement of preferred units were approximately
$11.7 million and will be used for investment in real estate.
Funds from Operations: FFO is defined as net income, computed in
accordance with generally accepted accounting principles ("GAAP"), before
depreciation, amortization, minority interest in income, straight-line rent
adjustments and extraordinary or non-recurring items. FFO is presented because
the Company considers FFO to be a useful measure of the operating performance of
a REIT which, together with net income and cash flows provides investors with a
basis to evaluate the operating and cash flow performances of a REIT. FFO does
not represent net income or cash flows from operations as defined by GAAP. FFO
does not take into consideration scheduled principal payments on debt and
capital improvements. Accordingly, FFO is not necessarily a substitute for cash
flow or net income as a measure of liquidity or operating performance or ability
to make acquisitions and capital improvements or ability to pay distributions or
debt principal payments. Also, FFO as computed and disclosed by the Company may
not be comparable to FFO computed and disclosed by other REITs.
23
<PAGE>
FFO for the Company is computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Net income allocable to common shareholders........................ $ 29,910,000 $ 28,218,000
Less: Gain on disposition of real estate........................ (256,000) -
Depreciation and amortization.................................... 26,723,000 21,641,000
Minority interest in income - common units....................... 9,393,000 9,533,000
Less: Straight-line rent adjustment............................. (1,951,000) (2,544,000)
----------------- ----------------
Consolidated FFO allocable to common shareholders and minority
interests.......................................................... 63,819,000 56,848,000
FFO allocated to common minority interest - common units........... (15,253,000) (13,179,000)
----------------- ----------------
FFO allocated to common shareholders............................... $ 48,566,000 $ 43,669,000
================= ================
</TABLE>
Capital Expenditures: During the nine months ended September 30, 2000,
the Company incurred $7.6 million in maintenance capital expenditures, tenant
improvements and capitalized lease commissions. On a recurring annual basis, the
Company expects $0.90 to $1.20 per square foot in recurring capital expenditures
(an aggregate of $11 - $15 million based on square footage at September 30,
2000).
Developments: The Company is currently developing approximately 335,000
square feet of flex and office buildings in Northern Virginia, Dallas, Texas and
Beaverton, Oregon at an aggregate cost of approximately $37 million. Unfunded
development costs are approximately $23 million.
Distributions: The Company has elected and intends to qualify as a REIT
for federal income tax purposes. As a REIT, the Company must meet, among other
tests, sources of income, share ownership and certain asset tests. In addition,
the Company is not taxed on that portion of its taxable income which is
distributed to its shareholders provided that at least 95% of its taxable income
is so distributed to its shareholders prior to filing of the Company's tax
return.
The Board of Directors declared a quarterly dividend of $0.25 per
common share on November 8, 2000. In addition, the Board of Directors declared a
quarterly dividend of $0.578125 per share on the depositary shares each
representing 1/1000 of a share of 9 1/4% Cumulative Preferred Stock, Series A.
Distributions are payable on December 29, 2000 to shareholders of record as of
the close of business on December 15, 2000.
24
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
To limit the Company's exposure to market risk, the Company principally
finances its operations and growth with permanent equity capital consisting of
either common or preferred stock. At September 30, 2000, the Company's debt as a
percentage of shareholders' equity (based on book values) was 5.6%.
The Company's market risk sensitive instruments include mortgage notes
payable which totaled $31,168,000 at September 30, 2000. Substantially all of
the Company's mortgage notes payable bear interest at fixed rates. See Note 6 of
the Notes to Consolidated Financial Statements for terms, valuations and
approximate principal maturities of the mortgage notes payable as of September
30, 2000. Based on borrowing rates currently available to the Company, the
carrying amount of debt approximates fair value.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 2000, Mary Jayne Howard, a former officer of the Company,
filed a complaint for discrimination with the California Department of Fair
Employment and Housing, requesting authorization to file a lawsuit against the
Company. The complaint does not specify the damages, if any, and therefore the
Company is not able to establish the materiality of the possible claim. The
Company intends to vigorously contest any claims for discrimination by Ms.
Howard.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Amended and Restated Agreement and Plan of Reorganization among
Registrant, American Office Park Properties, Inc. ("AOPP") and Public
Storage, Inc. ("PSI") dated as of December 17, 1997. Filed with
Registrant's Registration Statement No. 333-45405 and incorporated
herein by reference.
3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 333-78627 and incorporated herein by
reference.
3.2 Certificate of Determination of Preferences of 8 3/4% Series C
Cumulative Redeemable Preferred Stock of PS Business Parks, Inc.
Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999 and incorporated herein by
reference.
3.3 Certificate of Determination of Preferences of 8 7/8% Series X
Cumulative Redeemable Preferred Stock of PS Business Parks, Inc.
Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999 and incorporated herein by
reference.
3.4 Amendment to Certificate of Determination of Preferences of 8 7/8%
Series X Cumulative Redeemable Preferred Stock of PS Business Parks,
Inc. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999 and incorporated herein by
reference.
3.5 Certificate of Determination of Preferences of 8 7/8% Series Y
Cumulative Redeemable Preferred Stock of PS Business Parks, Inc.
Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by
reference.
3.6 Restated Bylaws. Filed with Registrant's Current Report on Form
8-K dated March 17, 1998 and incorporated herein by reference.
10.1 Amended Management Agreement between Storage Equities, Inc. and
Public Storage Commercial Properties Group, Inc. dated as of February
21, 1995. Filed with PSI's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
10.2 Registrant's 1997 Stock Option and Incentive Plan. Filed with
Registrant's Registration Statement No. 333-48313 and incorporated
herein by reference.
10.3 Agreement of Limited Partnership of PS Business Parks, L.P.
Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998 and incorporated herein by
reference.
10.4 Merger and Contribution Agreement dated as of December 23, 1997
among Acquiport Two Corporation, Acquiport Three Corporation, New
York State Common Retirement Fund, American Office Park Properties,
L.P., AOPP and AOPP Acquisition Corp. Three. Filed with Registrant's
Registration Statement No. 333-45405 and incorporated herein by
reference.
10.5 Agreement Among Shareholders and Company dated as of December
23, 1997 among Acquiport Two Corporation, AOPP, American Office Park
Properties, L.P. and PSI. Filed with Registrant's Registration
Statement No. 333-45405 and incorporated herein by reference.
10.6 Amendment to Agreement Among Shareholders and Company dated as
of January 21, 1998 among Acquiport Two Corporation, AOPP, American
Office Park Properties, L.P. and PSI. Filed with Registrant's
Registration Statement No. 333-45405 and incorporated herein by
reference.
26
<PAGE>
10.7 Non-Competition Agreement dated as of December 23, 1997 among
PSI, AOPP, American Office Park Properties, L.P. and Acquiport Two
Corporation. Filed with Registrant's Registration Statement No.
333-45405 and incorporated herein by reference.
10.8 Employment Agreement between AOPP and Ronald L. Havner, Jr.
dated as of December 23, 1997. Filed with Registrant's Registration
Statement No. 333-45405 and incorporated herein by reference.
10.9 Employment Agreement between Registrant and J. Michael Lynch
dated as of May 20, 1998. Filed with Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.
10.10 Common Stock Purchase Agreement dated as of January 23, 1998
among AOPP and the Investors signatory thereto. Filed with
Registrant's Registration Statement No. 333-45405 and incorporated
herein by reference.
10.11 Registration Rights Agreement dated as of January 30, 1998
among AOPP and the Investors signatory thereto. Filed with
Registrant's Registration Statement No. 333-45405 and incorporated
herein by reference.
10.12 Registration Rights Agreement dated as of March 17, 1998
between Registrant and Acquiport Two Corporation ("Acquiport
Registration Rights Agreement"). Filed with Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.
10.13 Letter dated May 20, 1998 relating to Acquiport Registration
Rights Agreement. Filed with Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 and incorporated
herein by reference.
10.14 Revolving Credit Agreement dated August 6, 1998 among PS Business
Parks, L.P., Wells Fargo Bank, National Association, as Agent, and
the Lenders named therein. Filed with Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.
10.15 First Amendment to Revolving Credit Agreement dated as of August 19,
1999 among PS Business Parks, L.P., Wells Fargo Bank, National
Association, as Agent, and the Lenders named therein. Filed with
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999 and incorporated herein by reference.
10.16 Second Amendment to Revolving Credit Agreement dated as of September
29, 2000 among PS Business Parks, L.P., Wells Fargo Bank, National
Association, as Agent, and the Lenders named therein. Filed herewith.
10.17 Form of Indemnity Agreement. Filed with Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998 and
incorporated herein by reference.
10.18 Cost Sharing and Administrative Services Agreement dated as of
November 16, 1995 by and among PSCC, Inc. and the owners listed
therein. Filed with Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998 and incorporated herein by
reference.
10.19 Amendment to Cost Sharing and Administrative Services Agreement dated
as of January 2, 1997 by and among PSCC, Inc. and the owners listed
therein. Filed with Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998 and incorporated herein by
reference.
10.20 Accounts Payable and Payroll Disbursement Services Agreement dated as
of January 2, 1997 by and between PSCC, Inc. and American Office Park
Properties, L.P. Filed with Registrant's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 and incorporated
herein by reference.
10.21 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 8 7/8% Series B Cumulative Redeemable Preferred
Units, dated as of April 23, 1999. Filed with Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
27
<PAGE>
10.22 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 9 1/4% Series A Cumulative Redeemable Preferred
Units, dated as of April 30, 1999. Filed with Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
10.23 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 8 3/4% Series C Cumulative Redeemable Preferred
Units, dated as of September 3, 1999. Filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
10.24 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to 8 7/8% Series X Cumulative Redeemable Preferred
Units, dated as of September 7, 1999. Filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
10.25 Amendment to Agreement of Limited Partnership of PS Business Parks,
L.P. Relating to Additional 8 7/8% Series X Cumulative Redeemable
Preferred Units, dated as of September 23, 1999. Filed with
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999 and incorporated herein by reference.
10.26 Amendment to Agreement of Limited Partnership of PS Business Parks
L.P. Relating to 8 7/8% Series Y Cumulative Redeemable Preferred
Units, dated as of July 12, 2000. Filed with Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
11 Statement re: Computation of Earnings per Share. Filed herewith.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K
None.
28
<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 thereunto duly authorized.
Dated: November 13, 2000
PS BUSINESS PARKS, INC.
BY: /s/ Jack Corrigan
------------------------------------------
Jack Corrigan
Vice President and Chief Financial Officer
29
