| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
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| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
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Maryland 95-4300881 (State or Other Jurisdiction (I.R.S. Employer of Incorporation) Identification Number) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Ticker Symbol Name of Each Exchange on Which Registered Common Stock, $0.01 par value per share PSB New York Stock Exchange Depositary Shares Each Representing 1/1,000 of a 5.250% Cum Pref Stock, Series X, $0.01 par value PSBPrX New York Stock Exchange Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series Y, $0.01 par value PSBPrY New York Stock Exchange Depositary Shares Each Representing 1/1,000 of a 4.875% Cum Pref Stock, Series Z, $0.01 par value PSBPrZ New York Stock Exchange Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company 27,627,443. PS BUSINESS PARKS, INC. PART I. FINANCIAL INFORMATION June 30, December 31, 2021 2020 (Unaudited) ASSETS Cash and cash equivalents $ 115,965 $ 69,083 Real estate facilities, at cost Land 865,081 864,092 Buildings and improvements 2,204,461 2,186,621 3,069,542 3,050,713 Accumulated depreciation (1,219,040) (1,181,402) 1,850,502 1,869,311 Properties held for sale, net 12,871 26,273 Land and building held for development, net 52,529 40,397 1,915,902 1,935,981 Rent receivable 1,903 1,519 Deferred rent receivable 37,589 36,788 Other assets 15,165 14,334 Total assets $ 2,086,524 $ 2,057,705 LIABILITIES AND EQUITY Accrued and other liabilities $ 88,989 $ 82,065 Total liabilities 88,989 82,065 Commitments and contingencies Equity PS Business Parks, Inc.’s stockholders’ equity Preferred stock, $0.01 par value, 50,000,000 shares authorized, 37,790 shares issued and outstanding at ($944,750 aggregate liquidation preference) June 30, 2021 and December 31, 2020 944,750 944,750 Common stock, $0.01 par value, 100,000,000 shares authorized, 27,541,464 and 27,488,547 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 275 274 Paid-in capital 739,336 738,022 Accumulated earnings 89,800 73,631 Total PS Business Parks, Inc.’s stockholders’ equity 1,774,161 1,756,677 Noncontrolling interests 223,374 218,963 Total equity 1,997,535 1,975,640 Total liabilities and equity $ 2,086,524 $ 2,057,705 PS BUSINESS PARKS, INC. For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 2021 2020 Rental income $ 109,364 $ 100,559 $ 217,411 $ 206,775 Expenses Cost of operations 31,849 30,131 65,067 61,394 Depreciation and amortization 22,514 22,963 45,499 49,582 General and administrative 4,799 3,004 9,181 6,327 Total operating expenses 59,162 56,098 119,747 117,303 Interest and other income 923 225 1,179 782 Interest and other expense (268) (203) (479) (364) Gain on sale of real estate facility 19,193 — 19,193 19,621 Net income 70,050 44,483 117,557 109,511 Allocation to noncontrolling interests (12,094) (6,795) (19,505) (17,887) Net income allocable to PS Business Parks, Inc. 57,956 37,688 98,052 91,624 Allocation to preferred stockholders (12,047) (12,047) (24,093) (24,093) Allocation to restricted stock unit holders (314) (119) (478) (394) Net income allocable to common stockholders $ 45,595 $ 25,522 $ 73,481 $ 67,137 Net income per share of common stock Basic $ 1.66 $ 0.93 $ 2.67 $ 2.44 Diluted $ 1.65 $ 0.93 $ 2.66 $ 2.44 Weighted average common stock outstanding Basic 27,531 27,479 27,513 27,464 Diluted 27,632 27,560 27,611 27,557 See accompanying notes. PS BUSINESS PARKS, INC. Total PS Business Parks, For the three months ended Preferred Stock Common Stock Paid-in Accumulated Inc.’s Stockholders’ Noncontrolling Total June 30, 2021 Shares Amount Shares Amount Capital Earnings Equity Interests Equity Balances at March 31, 2021 37,790 $ 944,750 27,516,939 $ 274 $ 736,336 $ 72,809 $ 1,754,169 $ 218,845 $ 1,973,014 Issuance of common stock in connection with share-based compensation — — 24,525 1 906 — 907 — 907 Stock compensation, net — — — — 2,099 — 2,099 — 2,099 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (5) — (5) — (5) Capital contribution from noncontrolling interests—joint venture — — — — — — — 128 128 Net income — — — — — 57,956 57,956 12,094 70,050 Distributions Preferred stock (Note 9) — — — — — (12,047) (12,047) — (12,047) Common stock ($1.05 per share) — — — — — (28,918) (28,918) — (28,918) Noncontrolling interests— Common units — — — — — — — (7,670) (7,670) Joint venture — — — — — — — (23) (23) Balances at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 For the three months ended June 30, 2020 Balances at March 31, 2020 37,790 $ 944,750 27,477,303 $ 274 $ 734,091 $ 76,739 $ 1,755,854 $ 219,518 $ 1,975,372 Issuance of common stock in connection with share-based compensation — — 4,183 — 259 — 259 — 259 Stock compensation, net — — — — 784 — 784 — 784 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (5) — (5) — (5) Net income — — — — — 37,688 37,688 6,795 44,483 Distributions Preferred stock (Note 9) — — — — — (12,047) (12,047) — (12,047) Common stock ($1.05 per share) — — — — — (28,856) (28,856) — (28,856) Noncontrolling interests— Common units — — — — — — — (7,670) (7,670) Joint venture — — — — — — — (25) (25) Balances at June 30, 2020 37,790 $ 944,750 27,481,486 $ 274 $ 735,129 $ 73,524 $ 1,753,677 $ 218,618 $ 1,972,295 PS BUSINESS PARKS, INC. Total PS Business Parks, For the six months ended Preferred Stock Common Stock Paid-in Accumulated Inc.’s Stockholders’ Noncontrolling Total June 30, 2021 Shares Amount Shares Amount Capital Earnings Equity Interests Equity Balances at December 31, 2020 37,790 $ 944,750 27,488,547 $ 274 $ 738,022 $ 73,631 $ 1,756,677 $ 218,963 $ 1,975,640 Issuance of common stock in connection with share-based compensation — — 52,917 1 906 — 907 — 907 Stock compensation, net — — — — 3,715 — 3,715 — 3,715 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,202) — (3,202) — (3,202) Capital contribution from noncontrolling interests—joint venture — — — — — — — 287 287 Issuance costs — — — — (105) — (105) — (105) Net income — — — — — 98,052 98,052 19,505 117,557 Distributions Preferred stock (Note 9) — — — — — (24,093) (24,093) — (24,093) Common stock ($2.10 per share) — — — — — (57,790) (57,790) — (57,790) Noncontrolling interests— Common units — — — — — — — (15,341) (15,341) Joint venture — — — — — — — (40) (40) Balances at June 30, 2021 37,790 $ 944,750 27,541,464 $ 275 $ 739,336 $ 89,800 $ 1,774,161 $ 223,374 $ 1,997,535 For the six months ended June 30, 2020 Balances at December 31, 2019 37,790 $ 944,750 27,440,953 $ 274 $ 736,986 $ 63,666 $ 1,745,676 $ 216,135 $ 1,961,811 Issuance of common stock in connection with share-based compensation — — 40,533 — 259 — 259 — 259 Stock compensation, net — — — — 1,544 — 1,544 — 1,544 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,660) — (3,660) — (3,660) Net income — — — — — 91,624 91,624 17,887 109,511 Distributions Preferred stock (Note 9) — — — — — (24,093) (24,093) — (24,093) Common stock ($2.10 per share) — — — — — (57,673) (57,673) — (57,673) Noncontrolling interests— Common units — — — — — — — (15,341) (15,341) Joint venture — — — — — — — (63) (63) Balances at June 30, 2020 37,790 $ 944,750 27,481,486 $ 274 $ 735,129 $ 73,524 $ 1,753,677 $ 218,618 $ 1,972,295 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2021 2020 Cash flows from operating activities Net income $ 117,557 $ 109,511 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 45,499 49,582 Straight-line rent and amortization of lease intangibles, net (1,490) (3,810) Gain on sale of real estate facility (19,193) (19,621) Stock compensation expense 4,081 1,873 Amortization of financing costs 272 273 Other, net 1,381 4,513 Total adjustments 30,550 32,810 Net cash provided by operating activities 148,107 142,321 Cash flows from investing activities Capital expenditures to real estate facilities (15,707) (16,038) Capital expenditures to land and building held for development (18,240) (4,995) Acquisition of real estate facility — (13,423) Proceeds from sale of real estate facility 32,622 29,266 Net cash used in investing activities (1,325) (5,190) Cash flows from financing activities Payment of financing costs (157) (176) Proceeds from the exercise of stock options 907 259 Issuance costs (105) — Cash paid for taxes in lieu of stock upon vesting of restricted stock units (3,202) (3,660) Cash paid to restricted stock unit holders (366) (329) Capital contribution from noncontrolling interests—joint venture 287 — Distributions paid to preferred stockholders (24,093) (24,093) Distributions paid to common stockholders (57,790) (57,673) Distributions paid to noncontrolling interests—common units (15,341) (15,341) Distributions paid to noncontrolling interests—joint venture (40) (63) Net cash used in financing activities (99,900) (101,076) Net increase in cash and cash equivalents 46,882 36,055 Cash, cash equivalents and restricted cash at the beginning of the period 70,171 63,874 Cash, cash equivalents and restricted cash at the end of the period $ 117,053 $ 99,929 Supplemental schedule of non-cash investing and financing activities Accrued capital expenditures to land and building held for development Land and building held for development, net $ 4,642 $ — Accrued and other liabilities $ (4,642) $ — See accompanying notes. PS BUSINESS PARKS, INC. 2021. defined as having (i) the power to direct the activities most significantly impacting economic performance and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE. December 31, 2020 2019 Consolidated balance sheets Cash and cash equivalents $ 69,083 $ 62,786 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 70,171 $ 63,874 June 30, 2021 2020 Consolidated balance sheets Cash and cash equivalents $ 115,965 $ 98,841 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 117,053 $ 99,929 Property held for buyer. Accrued and other liabilities 2021. an entity is not required to account for all lease concessions in response to the COVID-19 pandemic under one elected option; however, the entity is required to apply the elected option consistently to leases with similar characteristics and in similar circumstances. Accounting for preferred equity issuance costs For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 2021 2020 Calculation of net income allocable to common stockholders Net income $ 70,050 $ 44,483 $ 117,557 $ 109,511 Net (income) loss allocated to Preferred stockholders based upon distributions (12,047) (12,047) (24,093) (24,093) Noncontrolling interests—joint venture 7 (13) 5 (30) Restricted stock unit holders (314) (119) (478) (394) Net income allocable to common stockholders and noncontrolling interests—common units 57,696 32,304 92,991 84,994 Net income allocation to noncontrolling interests— common units (12,101) (6,782) (19,510) (17,857) Net income allocable to common stockholders $ 45,595 $ 25,522 $ 73,481 $ 67,137 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,531 27,479 27,513 27,464 Weighted average common partnership units outstanding 7,305 7,305 7,305 7,305 Total common stock equivalents 34,836 34,784 34,818 34,769 Common partnership units as a percentage of common stock equivalents 21.0% 21.0% 21.0% 21.0% Weighted average common stock outstanding Basic weighted average common stock outstanding 27,531 27,479 27,513 27,464 Net effect of dilutive stock compensation—based on treasury stock method using average market price 101 81 98 93 Diluted weighted average common stock outstanding 27,632 27,560 27,611 27,557 Segment reporting but has only 1 reportable segment as the multifamily segment does not meet the quantitative thresholds necessary to require reporting as a separate segment. Buildings and Accumulated Land Improvements Depreciation Total Balances at December 31, 2020 (1) $ 864,092 $ 2,186,621 $ (1,181,402) $ 1,869,311 Capital expenditures — 15,748 — 15,748 Disposals (2) — (5,860) 5,860 — Depreciation and amortization expense — — (44,136) (44,136) Transfer from property held for development 989 8,063 — 9,052 Transfer to properties held for sale — (111) 638 527 Balances at June 30, 2021 $ 865,081 $ 2,204,461 $ (1,219,040) $ 1,850,502 (1) replacement cost approach. The amount recorded to acquired in-place lease intangible is also determined utilizing the income approach using market assumptions which are based on management’s assessment of current market conditions and the estimated lease-up periods for the respective spaces. Transaction costs related to asset acquisitions are capitalized. March 31, 2022. and building held for development, net on our consolidated balance sheets along with our 5. Leasing activity Remainder of 2021 $ 153,267 2022 257,570 2023 189,236 2024 127,362 2025 76,979 Thereafter 128,762 Total (1) $ 933,176 If PS exercises its right of redemption, at PSB’s option (a) PS will receive 1 share of common stock from us for each common partnership unit redeemed, or (b) PS will receive cash from us for each common partnership unit redeemed 2021. 2021. 9. Stockholders’ equity Earliest Potential Dividend Shares Amount Series Issuance Date Redemption Date Rate Outstanding (in thousands) Series W October 2016 October 2021 5.200% 7,590 $ 189,750 Series X September 2017 September 2022 5.250% 9,200 230,000 Series Y December 2017 December 2022 5.200% 8,000 200,000 Series Z November 2019 November 2024 4.875% 13,000 325,000 Total 37,790 $ 944,750 We paid respectively. 11. Stock compensation March 18, 2022. 2021. Compensation Committee of the Board may adjust the actual award to 75% 2021. Merger Agreement. A fee of $735 million may be payable by an affiliate of Blackstone upon termination of the transaction, as more fully described in the Merger Agreement. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview We continue to seek to acquire additional properties in our existing markets and generally in close proximity to our existing portfolio; however, there can be no assurance that we will acquire additional facilities that meet our risk-adjusted return and underwriting requirements. our Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended March 31, 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of March 31, 2022, $2.3 million of the estimated $4.2 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the Boca Commerce Park development is projected to be $4.8 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022, we have contractual construction commitments totaling $1.9 million that will be paid to various contractors as the project is completed. March 31, 2022. On three months ended March 31, 2021. Regional Concentration: Our portfolio is concentrated in eight regions, in six states. We have chosen to concentrate in these regions because we believe they have characteristics which enable them to be competitive economically, such as above average population growth, job growth, higher education levels and personal income. Changes in economic conditions in these regions in the future could impact our future results. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP. Results of Operations Analysis of Net Income The table below sets forth the various components of our net income (in thousands): For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 Change 2021 2020 Change Rental income Same Park $ 101,501 $ 94,078 7.9% $ 201,496 $ 193,208 4.3% Non-Same Park 3,926 2,067 89.9% 7,695 4,488 71.5% Multifamily 2,248 2,488 (9.6%) 4,575 5,048 (9.4%) Assets sold or held for sale (1) 1,689 1,926 (12.3%) 3,645 4,031 (9.6%) Total rental income 109,364 100,559 8.8% 217,411 206,775 5.1% Cost of operations Adjusted Cost of Operations (2) Same Park 28,330 27,181 4.2% 58,014 55,561 4.4% Non-Same Park 1,187 878 35.2% 2,340 1,707 37.1% Multifamily 1,177 1,002 17.5% 2,244 2,018 11.2% Assets sold or held for sale (1) 674 804 (16.2%) 1,532 1,568 (2.3%) Stock compensation expense (3) 481 266 80.8% 937 540 73.5% Total cost of operations 31,849 30,131 5.7% 65,067 61,394 6.0% NOI (4) Same Park 73,171 66,897 9.4% 143,482 137,647 4.2% Non-Same Park 2,739 1,189 130.4% 5,355 2,781 92.6% Multifamily 1,071 1,486 (27.9%) 2,331 3,030 (23.1%) Assets sold or held for sale (1) 1,015 1,122 (9.5%) 2,113 2,463 (14.2%) Stock compensation expense (3) (481) (266) 80.8% (937) (540) 73.5% Depreciation and amortization expense (22,514) (22,963) (2.0%) (45,499) (49,582) (8.2%) General and administrative expense (4,799) (3,004) 59.8% (9,181) (6,327) 45.1% Interest and other income 923 225 310.2% 1,179 782 50.8% Interest and other expense (268) (203) 32.0% (479) (364) 31.6% Gain on sale of real estate facility 19,193 — 100.0% 19,193 19,621 (2.2%) Net income $ 70,050 $ 44,483 57.5% $ 117,557 $ 109,511 7.3% (1) and Non-Same Park portfolios, partially offset by a decrease in Cost of Operations from assets sold. assets sold during the For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 Change 2021 2020 Change Rental income (1) $ 101,501 $ 94,078 7.9% $ 201,496 $ 193,208 4.3% Adjusted Cost of Operations (2) Property taxes 11,155 11,102 0.5% 22,579 22,158 1.9% Utilities 4,323 4,027 7.4% 8,960 8,999 (0.4%) Repairs and maintenance 5,805 5,586 3.9% 11,274 10,950 3.0% Compensation 4,114 3,886 5.9% 8,394 8,156 2.9% Snow removal 9 — 100.0% 1,028 71 1,347.9% Property insurance 1,171 856 36.8% 2,349 1,735 35.4% Other expenses 1,753 1,724 1.7% 3,430 3,492 (1.8%) Total Adjusted Cost of Operations 28,330 27,181 4.2% 58,014 55,561 4.4% NOI $ 73,171 $ 66,897 9.4% $ 143,482 $ 137,647 4.2% Selected Statistical Data NOI margin (3) 72.1% 71.1% 1.4% 71.2% 71.2% — Weighted average square foot occupancy 92.9% 92.2% 0.8% 92.7% 92.5% 0.2% Revenue per occupied square foot (4) $ 16.63 $ 15.53 7.1% $ 16.55 $ 15.90 4.1% Revenue per available foot (RevPAF) (5) $ 15.45 $ 14.32 7.9% $ 15.34 $ 14.71 4.3% (1)Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). See table below for the change in The following table details the change in Same Park rental income for the three For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 Change 2021 2020 Change Rental income Base rental income $ 75,930 $ 74,268 $ 1,662 $ 149,590 $ 148,290 $ 1,300 Expense recovery income 24,701 22,607 2,094 49,594 46,429 3,165 Lease buyout income 316 257 59 693 514 179 Rent receivable write-off 38 (1,148) 1,186 29 (1,202) 1,231 Abatements (110) (863) 753 (207) (863) 656 Deferrals (78) (3,638) 3,560 (287) (3,638) 3,351 Deferral repayments, net 499 — 499 1,264 — 1,264 Fee Income 175 155 20 353 485 (132) Non-Cash Rental Income (1) 30 2,440 (2,410) 467 3,193 (2,726) Total rental income $ 101,501 $ 94,078 $ 7,423 $ 201,496 $ 193,208 $ 8,288 (1)Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Percent of Rentable Square Percent of Annualized Rental Annualized Rental Number of Footage Subject to Total Leased Income Under Income Represented Year of Lease Expiration Customers Expiring Leases Square Footage Expiring Leases by Expiring Leases Remainder of 2021 1,213 2,383 9.7% $ 42,354 9.8% 2022 1,500 5,843 23.7% 103,792 23.9% 2023 1,086 5,614 22.8% 95,240 21.9% 2024 545 4,016 16.3% 71,372 16.4% 2025 255 2,906 11.8% 50,557 11.7% Thereafter 197 3,868 15.7% 70,732 16.3% Total 4,796 24,630 100.0% $ 434,047 100.0% other expenses. Utilities are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utilities increased March 31, 2022. Analysis of Same Park For the Three Months Ended March 31 June 30 September 30 December 31 Rental income 2021 $ 99,995 $ 101,501 $ — $ — 2020 $ 99,130 $ 94,078 $ 97,893 $ 97,937 Adjusted Cost of Operations (1) 2021 $ 29,684 $ 28,330 $ — $ — 2020 $ 28,380 $ 27,181 $ 29,142 $ 28,624 NOI (1) 2021 $ 70,311 $ 73,171 $ — $ — 2020 $ 70,750 $ 66,897 $ 68,751 $ 69,313 Weighted average square foot occupancy 2021 92.4% 92.9% — — 2020 92.8% 92.2% 92.3% 92.0% Revenue per occupied square foot (2) 2021 $ 16.47 $ 16.63 $ — $ — 2020 $ 16.27 $ 15.53 $ 16.15 $ 16.21 RevPAF (2) 2021 $ 15.23 $ 15.45 $ — $ — 2020 $ 15.09 $ 14.32 $ 14.91 $ 14.91 (1) For the Three Months For the Six Months Ended June 30, Ended June 30, Region 2021 2020 Change 2021 2020 Change Geographic Data on Same Park Rental income Northern California (7.2 million feet) $ 28,934 $ 26,550 9.0% $ 57,067 $ 53,631 6.4% Southern California (3.3 million feet) 15,132 12,682 19.3% 29,797 26,921 10.7% Dallas (2.9 million feet) 7,959 8,146 (2.3%) 15,795 16,831 (6.2%) Austin (2.0 million feet) 8,665 8,149 6.3% 16,910 16,468 2.7% Northern Virginia (4.5 million feet) 19,032 18,826 1.1% 38,765 38,442 0.8% South Florida (3.9 million feet) 11,983 10,304 16.3% 23,689 21,464 10.4% Seattle (1.4 million feet) 5,088 4,642 9.6% 9,993 9,526 4.9% Suburban Maryland (1.1 million feet) 4,708 4,779 (1.5%) 9,480 9,925 (4.5%) Total Same Park (26.3 million feet) 101,501 94,078 7.9% 201,496 193,208 4.3% Adjusted Cost of Operations Northern California 6,246 6,052 3.2% 12,590 12,218 3.0% Southern California 3,666 3,349 9.5% 7,358 7,074 4.0% Dallas 3,205 3,196 0.3% 6,314 6,241 1.2% Austin 3,141 2,963 6.0% 6,356 5,922 7.3% Northern Virginia 5,978 5,931 0.8% 13,017 12,394 5.0% South Florida 3,175 2,960 7.3% 6,359 5,952 6.8% Seattle 1,271 1,171 8.5% 2,563 2,448 4.7% Suburban Maryland 1,648 1,559 5.7% 3,457 3,312 4.4% Total Same Park 28,330 27,181 4.2% 58,014 55,561 4.4% Net operating income Northern California 22,688 20,498 10.7% 44,477 41,413 7.4% Southern California 11,466 9,333 22.9% 22,439 19,847 13.1% Dallas 4,754 4,950 (4.0%) 9,481 10,590 (10.5%) Austin 5,524 5,186 6.5% 10,554 10,546 0.1% Northern Virginia 13,054 12,895 1.2% 25,748 26,048 (1.2%) South Florida 8,808 7,344 19.9% 17,330 15,512 11.7% Seattle 3,817 3,471 10.0% 7,430 7,078 5.0% Suburban Maryland 3,060 3,220 (5.0%) 6,023 6,613 (8.9%) Total Same Park $ 73,171 $ 66,897 9.4% $ 143,482 $ 137,647 4.2% Weighted average square foot occupancy Northern California 93.9% 91.0% 3.2% 93.5% 91.2% 2.5% Southern California 96.1% 95.3% 0.8% 95.8% 95.0% 0.8% Dallas 82.6% 89.7% (7.9%) 83.0% 90.0% (7.8%) Austin 95.0% 93.9% 1.2% 95.0% 94.7% 0.3% Northern Virginia 92.1% 91.9% 0.2% 91.9% 91.7% 0.2% South Florida 96.9% 92.4% 4.9% 96.2% 93.2% 3.2% Seattle 94.0% 97.4% (3.5%) 93.6% 98.2% (4.7%) Suburban Maryland 87.9% 89.4% (1.7%) 88.1% 90.3% (2.4%) Total Same Park 92.9% 92.2% 0.8% 92.7% 92.5% 0.2% Revenue per occupied square foot (1) Northern California $ 17.01 $ 16.12 5.5% $ 16.85 $ 16.24 3.8% Southern California $ 19.20 $ 16.21 18.4% $ 18.95 $ 17.27 9.7% Dallas $ 13.34 $ 12.58 6.0% $ 13.18 $ 12.95 1.8% Austin $ 18.57 $ 17.67 5.1% $ 18.12 $ 17.71 2.3% Northern Virginia $ 18.23 $ 18.08 0.8% $ 18.61 $ 18.50 0.6% South Florida $ 12.79 $ 11.53 10.9% $ 12.74 $ 11.91 7.0% Seattle $ 16.04 $ 14.12 13.6% $ 15.81 $ 14.37 10.0% Suburban Maryland $ 18.66 $ 18.63 0.2% $ 18.74 $ 19.16 (2.2%) Total Same Park $ 16.63 $ 15.53 7.1% $ 16.55 $ 15.90 4.1% RevPAF (1) Northern California $ 15.97 $ 14.66 8.9% $ 15.75 $ 14.80 6.4% Southern California $ 18.44 $ 15.45 19.4% $ 18.15 $ 16.40 10.7% Dallas $ 11.03 $ 11.29 (2.3%) $ 10.94 $ 11.66 (6.2%) Austin $ 17.66 $ 16.61 6.3% $ 17.23 $ 16.78 2.7% Northern Virginia $ 16.80 $ 16.62 1.1% $ 17.11 $ 16.96 0.9% South Florida $ 12.40 $ 10.66 16.3% $ 12.26 $ 11.10 10.5% Seattle $ 15.08 $ 13.75 9.7% $ 14.80 $ 14.11 4.9% Suburban Maryland $ 16.45 $ 16.70 (1.5%) $ 16.56 $ 17.34 (4.5%) Total Same Park $ 15.45 $ 14.32 7.9% $ 15.34 $ 14.71 4.3% Our past revenue growth has come from contractual annual rent increases, as well as re-leasing of space at rates above outgoing rental rates. We believe the percentage difference between outgoing cash rent inclusive of estimated expense recoveries and incoming cash rent inclusive of estimated expense recoveries for leases executed (“Cash Rental Rate Change”) is useful in understanding trends in current market rates relative to our existing lease rates. The following For the Three Months Ended June 30, 2021 Square Transaction Footage Customer Costs per Cash Rental Net Effective Industrial Leased Retention Executed Foot Rate Change (1) Rent Change (2) Northern California 369 84.1% $ 2.75 12.4% 26.2% Southern California 203 81.3% 1.42 3.5% 10.1% Dallas 85 63.7% 2.94 3.0% 9.9% Austin 119 100.0% 0.07 5.0% 28.5% Northern Virginia 85 67.6% 2.26 1.9% 4.2% South Florida 288 52.5% 2.30 8.8% 19.7% Seattle 25 70.2% 1.38 12.0% 18.2% Suburban Maryland 11 100.0% 0.80 — 1.3% Industrial Totals by Region 1,185 73.7% $ 2.08 7.7% 18.4% Flex Northern California 39 81.2% $ 0.75 (2.7%) (0.5%) Southern California 94 78.5% 2.00 2.3% 13.6% Dallas 108 55.9% 2.63 2.4% 14.0% Austin 35 52.0% 6.76 (4.6%) (3.0%) Northern Virginia 170 100.0% 2.92 (2.4%) (3.6%) South Florida 1 — — 9.4% 22.1% Seattle 14 24.6% 5.41 7.8% 13.5% Suburban Maryland — — — — — Flex Totals by Region 461 73.7% $ 2.85 (0.3%) 4.5% Office Northern California 24 68.7% $ 1.20 (13.6%) (14.6%) Southern California 4 100.0% 0.90 2.8% 10.4% Dallas — — — — — Austin — — — — — Northern Virginia 115 70.6% 10.12 (7.1%) (0.1%) South Florida — — — — — Seattle 8 — 14.20 8.5% 19.7% Suburban Maryland 54 72.0% 1.61 (6.0%) 3.7% Office Totals by Region 205 70.2% $ 6.82 (7.3%) (1.2%) Company Totals by Type 1,851 73.3% $ 2.79 3.0% 10.8% (1)Cash Rental Rate Change is computed by taking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure. For the Six Months Ended June 30, 2021 Square Transaction Footage Customer Costs per Cash Rental Net Effective Industrial Leased Retention Executed Foot Rate Change (1) Rent Change (2) Northern California 781 81.5% $ 2.23 14.0% 30.0% Southern California 412 78.4% 1.61 3.7% 10.1% Dallas 288 83.5% 2.83 2.8% 7.6% Austin 145 97.2% 1.06 8.0% 30.8% Northern Virginia 230 81.7% 3.24 4.1% 6.8% South Florida 572 60.8% 1.84 8.6% 22.0% Seattle 98 82.3% 2.27 16.7% 31.0% Suburban Maryland 52 91.8% 2.53 (0.5%) 6.9% Industrial Totals by Region 2,578 77.5% $ 2.14 8.5% 19.8% Flex Northern California 78 68.0% $ 0.93 (5.5%) (3.6%) Southern California 190 72.5% 2.27 1.5% 9.3% Dallas 216 64.0% 2.95 (1.5%) 2.1% Austin 62 37.8% 6.24 (0.8%) 3.2% Northern Virginia 257 89.2% 4.23 (2.3%) (1.2%) South Florida 15 75.8% 0.37 7.6% 19.7% Seattle 41 47.2% 2.51 6.2% 13.4% Suburban Maryland — — — — — Flex Totals by Region 859 68.7% $ 3.17 (0.6%) 3.6% Office Northern California 36 67.3% $ 1.10 (10.4%) (9.7%) Southern California 6 60.8% 2.18 3.0% 10.1% Dallas — — — — — Austin — — — — — Northern Virginia 183 60.6% 8.89 (7.6%) (0.9%) South Florida — — — — — Seattle 8 — 14.20 8.5% 19.7% Suburban Maryland 71 74.3% 1.60 (5.2%) 4.2% Office Totals by Region 305 63.8% $ 6.26 (6.9%) (0.8%) Company Totals by Type 3,742 73.8% $ 2.71 4.2% 12.7% For the three Non-Same Park Portfolio: The table below reflects the assets comprising our Non-Same Park portfolio (in thousands): Purchase Square Occupancy at Acquired Property Date Acquired Location Price Feet June 30, 2021 Pickett Industrial Park October 2020 Alexandria, VA $ 46,582 246 92.2% La Mirada Commerce Center January 2020 La Mirada, CA 13,513 73 100.0% San Tomas Business Center December 2019 Santa Clara, CA 16,787 79 94.8% Hathaway Industrial Park September 2019 Santa Fe Springs, CA 104,330 543 100.0% Walnut Avenue Business Park April 2019 Signal Hill, CA 13,824 74 94.8% Total acquired property $ 195,036 1,015 97.3% Date Total Square Occupancy at Developed Property Completed Location Cost Feet June 30, 2021 Freeport Industrial Building March 2021 Irving, TX $ 9,052 83 39.8% Total Non-Same Park $ 204,088 1,098 93.0% For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 Change 2021 2020 Change Rental income $ 2,248 $ 2,488 (9.6%) $ 4,575 $ 5,048 (9.4%) Cost of operations 1,177 1,002 17.5% 2,244 2,018 11.2% NOI $ 1,071 $ 1,486 (27.9%) $ 2,331 $ 3,030 (23.1%) Selected Statistical Data Weighted average square foot occupancy 94.6% 91.7% 3.1% 94.4% 93.3% 1.2% As of June 30, 2021 Total costs (1) $ 115,426 Physical occupancy 94.9% Average rent per unit (2) $ 2,019 (1)The project cost for Highgate at The Mile includes the underlying land at its assigned contribution value upon formation of the joint venture of $27.0 million, which includes unrealized land appreciation of $6.0 million that is not recorded on our balance sheet. Assets sold or held for sale: These amounts include historical operating results with respect to properties that were sold or held for sale. of 2022 Assets Sold. There were no asset sales during the three months ended March 31, 2021. Liquidity and Capital Resources We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for debt service, capital expenditures and distributions to our stockholders for the foreseeable future. In the last five years, we have retained $40 to $60 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less stockholder and unit holder distributions and capital expenditures, excluding development costs. In addition, as of March 31, 2022, we had $104.2 million in unrestricted cash. non-investment grade territory, upon transaction close. Credit Facility: As of Preferred stock dividends: We paid $9.6 million to preferred stockholders during the three months ended March 31, 2022. We expect to continue to pay quarterly distributions of $9.6 million to our preferred stockholders for the foreseeable future or until such time as there is a change in the amount or composition of our series of preferred equity outstanding. Dividends on preferred equity are paid when and if declared by our Board of Directors (the "Board") and accumulate if not paid. For the Six Months Ended June 30, 2021 2020 2021 2020 Commercial Real Estate (in thousands) (per square foot) (1) Recurring capital expenditures Capital improvements (2) $ 4,429 $ 4,788 $ 0.16 $ 0.17 Tenant improvements 7,024 7,701 0.25 0.28 Lease commissions 3,404 3,336 0.12 0.12 Total commercial recurring capital expenditures (2) 14,857 15,825 0.53 0.57 Nonrecurring capital improvements 843 213 0.03 0.01 Total commercial capital expenditures (2) $ 15,700 $ 16,038 $ 0.56 $ 0.58 (1)Per square foot amounts are calculated based on capital expenditures divided by total weighted average square feet owned for the periods presented. The following table summarizes recurring capital expenditures paid and the related percentage of NOI for Same Park For the Six Months Ended June 30, Recurring Recurring Capital Expenditures Capital Expenditures as a Percentage of NOI 2021 2020 Change 2021 2020 Region Same Park Northern California $ 4,112 $ 3,229 27.3% 9.2% 7.8% Southern California 1,618 1,690 (4.3%) 7.2% 8.5% Dallas 1,936 1,985 (2.5%) 20.4% 18.7% Austin 569 686 (17.1%) 5.4% 6.5% Northern Virginia 2,932 4,938 (40.6%) 11.4% 19.0% South Florida 958 1,062 (9.8%) 5.5% 6.8% Seattle 607 342 77.5% 8.2% 4.8% Suburban Maryland 1,534 724 111.9% 25.5% 10.9% Total Same Park 14,266 14,656 (2.7%) 9.9% 10.6% Non-Same Park Northern California 44 26 69.2% Southern California 220 — 100.0% Dallas 72 — 100.0% Northern Virginia 145 — 100.0% Total Non-Same Park 481 26 1,750.0% Assets sold or held for sale 110 1,143 (90.4%) Total commercial recurring capital expenditures 14,857 15,825 (6.1%) Multifamily 7 — 100.0% Total $ 14,864 $ 15,825 (6.1%) our Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended March 31, 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of March 31, 2022, $2.3 million of the estimated $4.2 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the Boca Commerce Park development is projected to be $4.8 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022, we have contractual construction commitments totaling $1.9 million that will be paid to various contractors as the project is completed. March 31, 2022 As of March 31, 2022, we have contractual construction commitments totaling $31.6 million that will be paid to various contractors as the project is completed. March 31, 2022. applicable law, as a “capital gains dividend” under the Code. The merger consideration will be reduced by the per share amount of such Closing Cash Dividend. Refer to Note 12 – “Subsequent Events” to our consolidated financial statements under Item 15 in this quarterly report on Form 10-Q, for additional information regarding the Merger. Funds from Operations, Core Funds from Operations, and Funds Available for Distributions capitalized tenant improvements and lease commissions and (ii) remove certain non-cash income or expense items such as amortization of deferred rent receivable and stock compensation expense. For the Three Months For the Six Months Ended June 30, Ended June 30, 2021 2020 2021 2020 Net income allocable to common stockholders $ 45,595 $ 25,522 $ 73,481 $ 67,137 Adjustments Gain on sale of real estate facility (19,193) — (19,193) (19,621) Depreciation and amortization expense 22,514 22,963 45,499 49,582 Net income allocated to noncontrolling interests 12,094 6,795 19,505 17,887 Net income allocated to restricted stock unit holders 314 119 478 394 FFO allocated to JV partner (18) (38) (45) (81) FFO allocable to diluted common stock and units 61,306 55,361 119,725 115,298 Maryland reincorporation costs 510 — 510 — Core FFO allocable to diluted common stock and units 61,816 55,361 120,235 115,298 Adjustments Recurring capital improvements (3,788) (3,565) (4,436) (4,788) Tenant improvements (4,115) (4,155) (7,024) (7,701) Capitalized lease commissions (1,556) (1,254) (3,404) (3,336) Non-cash rental income (1) (183) (2,746) (1,490) (3,810) Non-cash stock compensation expense 2,301 931 4,081 1,873 Cash paid for taxes in lieu of stock upon vesting of restricted stock units (5) (5) (3,202) (3,660) FAD allocable to diluted common stock and units $ 54,470 $ 44,567 $ 104,760 $ 93,876 Weighted average outstanding Common stock 27,531 27,479 27,513 27,464 Common operating partnership units 7,305 7,305 7,305 7,305 Restricted stock units 32 43 35 65 Common stock equivalents 101 81 98 93 Total diluted common stock and units 34,969 34,908 34,951 34,927 Reconciliation of earnings per share to FFO per share Net income per share of common stock—diluted $ 1.65 $ 0.93 $ 2.66 $ 2.44 Gain on sale of real estate facility (0.54) — (0.54) (0.56) Depreciation and amortization expense 0.64 0.66 1.31 1.42 FFO per share 1.75 1.59 3.43 3.30 Maryland reincorporation costs 0.01 — 0.01 — Core FFO per share $ 1.77 $ 1.59 $ 3.44 $ 3.30 (1)Non-cash rental income includes amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. We believe FFO, Core FFO, and FAD assist investors in analyzing and comparing the operating and financial performance of a company’s real estate from period to period. FFO, Core FFO, and FAD are not substitutes for GAAP net income. In addition, other REITs may compute FFO, Core FFO, and FAD differently, which could inhibit comparability. Payments Due by Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years More than 5 years Transaction costs (1) $ 8,873 $ 8,873 $ — $ — $ — Ground lease obligations (2) 1,669 99 596 397 577 Total $ 10,542 $ 8,972 $ 596 $ 397 $ 577 amounts outstanding on the Credit Facility. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended the obligation to pay a termination fee (as described below); business. ITEM 6. EXHIBITS SIGNATURES Dated: May 2, 2022 PS BUSINESS PARKS, INC. BY: /s/ (Principal Financial Officer)
Depositary Shares Each Representing 1/1,000 of a 5.200% Cum Pref Stock, Series W, $0.01 par valuePSBPrWNew York Stock ExchangeSx No £oSx No £oS£££x o £oo o £o£o No SxAugust 2, 2021,April 27, 2022, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 27,542,562. March 31,
2022December 31,
2021ASSETS Cash and cash equivalents $ 104,204 $ 27,074 Real estate facilities, at cost Land 865,214 867,345 Buildings and improvements 2,244,104 2,239,137 3,109,318 3,106,482 Accumulated depreciation (1,197,811) (1,178,397) 1,911,507 1,928,085 Properties held for sale, net — 33,609 Land and building held for development, net 97,212 78,990 2,008,719 2,040,684 Rent receivable 2,988 1,621 Deferred rent receivable 37,484 37,581 Other assets 13,176 16,262 Total assets $ 2,166,571 $ 2,123,222 LIABILITIES AND EQUITY Accrued and other liabilities $ 95,509 $ 97,151 Credit facility 20,000 32,000 Total liabilities 115,509 129,151 Commitments and contingencies 0 0 Equity PS Business Parks, Inc.’s stockholders’ equity Preferred stock, $0.01 par value, 50,000,000 shares authorized, 30,200 shares issued and outstanding at March 31, 2022 and December 31, 2021 755,000 755,000 276 275 Paid-in capital 754,387 752,444 Accumulated earnings 270,243 226,737 Total PS Business Parks, Inc.’s stockholders’ equity 1,779,906 1,734,456 Noncontrolling interests 271,156 259,615 Total equity 2,051,062 1,994,071 Total liabilities and equity $ 2,166,571 $ 2,123,222 Three Months Ended March 31, 2022 2021 Rental income $ 112,840 $ 108,047 Expenses Cost of operations 34,114 33,218 Depreciation and amortization 23,132 22,985 General and administrative 11,324 4,382 Total operating expenses 68,570 60,585 Interest and other income 246 256 Interest and other expense (330) (211) Gain on sale of real estate facilities 56,959 — Net income 101,145 47,507 Allocation to noncontrolling interests (19,049) (7,411) Net income allocable to PS Business Parks, Inc. 82,096 40,096 Allocation to preferred stockholders (9,580) (12,046) Allocation to restricted stock unit holders (523) (164) Net income allocable to common stockholders $ 71,993 $ 27,886 Net income per share of common stock Basic $ 2.61 $ 1.01 Diluted $ 2.60 $ 1.01 Weighted average common stock outstanding Basic 27,607 27,495 Diluted 27,691 27,594 (Unaudited)
Three months ended March 31, 2022 Preferred Stock Common Stock Paid-in
CapitalAccumulated
EarningsTotal PS
Business Parks,
Inc.’s Stockholders'
EquityNoncontrolling
InterestsTotal
EquityShares Amount Shares Amount Balances at December 31, 2021 30,200 $ 755,000 27,589,807 $ 275 $ 752,444 $ 226,737 $ 1,734,456 $ 259,615 $ 1,994,071 Issuance of common stock in connection with share-based compensation — — 37,636 1 2,101 — 2,102 — 2,102 Stock compensation, net — — — — 773 — 773 — 773 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (931) — (931) — (931) Capital contribution from noncontrolling interests—joint venture — — — — — — — 186 186 Net income — — — — — 82,096 82,096 19,049 101,145 Distributions — Preferred stock (Note 9) — — — — — (9,580) (9,580) — (9,580) Common stock ($1.05 per share) — — — — — (29,010) (29,010) — (29,010) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (23) (23) Balances at March 31, 2022 30,200 $ 755,000 27,627.443 $ 276 $ 754,387 $ 270,243 $ 1,779,906 $ 271,156 $ 2,051,062 Three months ended March 31, 2021 Balances at December 31, 2020 37,790 $ 944,750 27,488,547 $ 274 $ 738,022 $ 73,631 $ 1,756,677 $ 218,963 $ 1,975,640 Issuance of common stock in connection with share-based compensation — — 28,392 — — — — — — Stock compensation, net — — — — 1,616 — 1,616 — 1,616 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,197) — (3,197) — (3,197) Capital contribution from noncontrolling interests—joint venture — — — — — — — 159 159 Issuance costs — — — — (105) — (105) — (105) Net income — — — — — 40,096 40,096 7,411 47,507 Distributions Preferred stock (Note 9) — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,872) (28,872) — (28,872) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (17) (17) Balances at March 31, 2021 37,790 $ 944,750 27,516,939 $ 274 $ 736,336 $ 72,809 $ 1,754,169 $ 218,845 $ 1,973,014 CONSOLIDATED STATEMENTS OF EQUITY(Amounts in thousands, except share data)(Unaudited)PS BUSINESS PARKS, INC.Three Months Ended March 31, 2022 2021 Cash flows from operating activities Net income $ 101,145 $ 47,507 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 23,132 22,985 Straight-line rent and amortization of lease intangibles, net (1,157) (1,307) Gain on sale of real estate facilities (56,959) — Stock compensation expense 940 1,780 Amortization of financing costs 252 136 Other, net (798) (2,277) Total adjustments (34,590) 21,317 Net cash provided by operating activities 66,555 68,824 Cash flows from investing activities Capital expenditures to real estate facilities (7,860) (5,816) Capital expenditures to land and building held for development, net (16,251) (10,608) Proceeds from sale of real estate facilities 91,907 — Net cash provided by (used in) investing activities 67,796 (16,424) Cash flows from financing activities Proceeds from borrowing on credit facility 20,000 — Repayment of borrowing on credit facility (32,000) — Payment of financing costs (106) (78) Proceeds from the exercise of stock options 2,102 — Payment of Issuance costs — (105) Cash paid for taxes in lieu of stock upon vesting of restricted stock units (931) (3,197) Cash paid to restricted stock unit holders (188) (164) Capital contribution from noncontrolling interests – joint venture 186 159 Distributions paid to preferred stockholders (9,580) (12,046) Distributions paid to common stockholders (29,010) (28,872) Distributions paid to noncontrolling interests—common units (7,671) (7,671) Distributions paid to noncontrolling interests—joint venture (23) (17) Net cash used in financing activities (57,221) (51,991) Net increase in cash and cash equivalents 77,130 409 Cash, cash equivalents and restricted cash at the beginning of the period 28,162 70,171 Cash, cash equivalents and restricted cash at the end of the period $ 105,292 $ 70,580 Supplemental disclosures Interest Paid $ 35 $ — Supplemental schedule of non-cash investing and financing activities Accrued capital expenditures to land and building held for development Land and building held for development, net $ 5,565 $ 2,615 Accrued and other liabilities $ (5,565) $ (2,615) June 30, 2021formerly a CaliforniaMaryland corporation, was organized in 1990. Effective May19,2021, following approval by ourits common and preferred stockholders, PSB was reincorporated as a Maryland corporation. from the state of California to the state of Maryland. As of June 30, 2021,March 31, 2022, PSB owned 79.0%79.1% of the common partnership units of PS Business Parks, L.P. (the “OP”). The remaining common partnership units are owned by Public Storage (“PS”). PS’s interest in the OP is referred to as the “PS OP Interests.” PSB, as the sole general partner of the OP, has full, exclusive and complete responsibility and discretion in managing and controlling the OP. PSB and its subsidiaries, including the OP and ourits consolidated joint ventures, are collectively referred to as the “Company,” “we,” “us,” or “our.” PS also owns 7.2 million shares of common stock and would own 41.5%41.4% (or 14.5 million shares) of the outstanding shares of the Company’s common stock if it redeemed its common partnership units for shares of common stock.office.office space. As of June 30, 2021,March 31, 2022, the Company owned and operated 27.627.0 million rentable square feet of commercial space in 6 states, comprising 9796 parks and 673652 buildings. The Company also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit395- unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit411- unit multifamily apartment complex also located in Tysons, Virginia. The Company also manages for a fee approximately 0.40.3 million rentable square feet on behalf of PS.firm'sfirm’s review of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).ourits consolidated joint ventures. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements. The financial statements are presented on an accrual basis in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, 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 GAAP for audited financial statements. 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 six months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.2022. 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, 2020.411-unit411- unit multifamily apartment complex (the “Brentford Joint Venture”). An unrelated real estate development company (the “JV Partner”) holds the remaining 1.8% interest. Based on management’s analysis of the joint venture and certain related agreements, we determined Brentford Joint Venture is a VIE because (a) Brentford Joint Venture does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, and (b) there are no substantive kick-out rights. We have also concluded we have control over the Brentford Joint Venture as we (a)(i) are the managing member of the Brentford Joint Venture, (b)(ii) have designated decision making power to direct the activities that most significantly affect the economic performance of the joint venture,Brentford Joint Venture, and (c)(iii) have a 98.2% economic interest in the investment. Thus, we determined the Brentford Joint Venture is a VIE, and that we are the primary beneficiary.beneficiary of Brentford Joint Venture. As such, we consolidate the Brentford Joint Venture, and the related land and development costs of $34.7$69.5 million and $15.1$59.9 million waswere included in land and building held for development, net on our consolidated balance sheets as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The assets of the Brentford Joint Venture may only be used to settle obligations of the Brentford Joint Venture and the creditors of the Brentford Joint Venture have no recourse to the general credit of the Company. See Note 4 for more information relating to this joint venture arrangement.we haveit has the exclusive responsibility under the Operating Partnership Agreement to manage and conduct the business of the OP. Accordingly, we consider the OP a VIE and consolidate it. Substantially all of our assets and liabilities are held by the OP.
•Level 1—quoted prices for identical instruments in active markets;•Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and•Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.December 31, 2021 2020 Consolidated balance sheets Cash and cash equivalents $ 27,074 $ 69,083 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 28,162 $ 70,171 March 31, 2022 2021 Consolidated balance sheets Cash and cash equivalents $ 104,204 $ 69,492 Restricted cash included in Land and building held for development, net 1,088 1,088 Cash and cash equivalents and restricted cash at the end of the period $ 105,292 $ 70,580
sale or developmentReal estate is classified as held for sale when the asset is being marketed for sale and we expect that a sale is likely to occur in the next 12 months. Real estatesale or development is not depreciated.Intangible assets/liabilitiesWhen we acquireSales of real estate facilities an intangible asset is recorded in other assets for leases where the in-place rent is higher than market rents, and an intangible liability is recorded in other liabilities where the market rents are higher than the in-place rents. The amounts recorded are based upon the present value (using a discount rate which reflects the risks associated with the leases acquired) such differences over the lease term and such amounts are amortized to rental income over the respective remaining lease term. As of June 30, 2021, the value of above-market in-place rents resulted in net intangible assets of $0.9 million, net of $11.4 million of accumulated amortization and the value of below-market in-place rents resulted in net intangible liabilities of $1.9 million, net of $12.6 million of accumulated amortization. As of December 31, 2020, the value of above-market in-place rents resulted in net intangible assets of $1.2 million, net of $11.1 million of accumulated amortization and the value of below-market in-place rents resulted in net intangible liabilities of $2.2 million, net of $12.2 million of accumulated amortization.Additionally, when we acquire real estate facilities the value of in-place lease intangible (i.e., customer lease-up costs) is recorded in other assets and is amortized to depreciation and amortization expense over the respective remaining lease term. As of June 30, 2021, the value of acquired in-place lease intangible resulted in net intangible assets of $4.0 million, net of $8.5 million of accumulated amortization. As of December 31, 2020, the value of acquired in-place leases resulted in net intangible assets of $5.3 million, net of $7.2 million of accumulated amortization.As of June 30, 2021, the valueare not part of our right-of-use (“ROU”) assets relating to our existing ground lease arrangements, included in “other assets” on our consolidated balance sheetsordinary activities, and as a result, we consider such sales as contracts with non-customers. We recognize sales of real estate when we have collected payment and the corresponding liability included under “accruedattributes of ownership, such as possession and other liabilities,” was $1.4 million, netcontrol of $0.3 millionthe asset, have been transferred to the buyer. If a contract for sale includes obligations to provide goods or services to the buyer, an allocated portion of accumulated amortization. As of December 31, 2020, the value of our ROU assets and related liability relating to our ground lease arrangements was $1.5 million, net of $0.2 million of accumulated amortization. These ground leases expire in 2029 and 2030 and do not have options to extend. As of June 30, 2021, the remaining lease terms were 8.3 years and 8.6 years. Lease expense for these ground leasescontract price is recognized inas revenue as the periodrelated goods or services are transferred to the applicable costs are incurred, and the monthly lease amount for these operating leases is constant and without contractual increases throughout the remaining terms.theretriggering events or impairment indicators are indicators of impairment andidentified, we determine that the carrying valuereview an estimate of the asset is not recoverable from estimated future undiscounted cash flows, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.be received throughreduce the asset’s remaining life (or, if earlier,carrying amount of the expected disposal date), we recordasset to its estimated fair value. If an impairment charge is not required to be recognized, the extentrecognition of depreciation or amortization is adjusted prospectively, as necessary, to reduce the carrying amount exceedsof the asset’sasset to its estimated fairdisposition value over the remaining period that the asset is expected to be held and used. We may adjust the depreciation of properties that are expected to be disposed of or expected net proceeds from disposal.NaNredeveloped prior to the end of their useful lives.
balances deemed uncollectible. The Company wrote-off accounts receivable, netbalances.ourits lease arrangements aggregating to $109.4$112.8 million and $100.6$108.0 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and $217.4 million and $206.8 million for the six months ended June 30, 2021 and 2020, respectively. This revenue consisted primarily of rental income from operating leases and the related variable lease payments resulting from reimbursements of property operating expenses. Base rental income was $83.7$84.8 million and $77.4$82.1 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and $165.8 million and $159.0 million for the six months ended June 30, 2021 and 2020, respectively. Variable lease payments, consisting primarily of reimbursement of property operating expenses, were $25.7$28.0 million and $23.2$25.9 million for the three months ended June 30, 2021March 31, 2022 and 2020, respectively, and $51.6 million and $47.8 million for the six months ended June 30, 2021 and 2020, respectively. novel coronavirus (“COVID-19”) pandemic. Under existing lease guidance, an entity would have to determine, on a lease by lease basis, if a lease concession contained a lease modification which would be accounted for under the lease modification framework, or if a lease concession was an enforceable right or obligation that existed in the original lease, which would be accounted for outside the lease modification framework. The Lease Modification Q&A provides that, to the extent that cash flow after the lease concessions are substantially the same, or less than, the cash flow previously required by the existing lease, an entity is not required to evaluate each contract to determine whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. Instead, an entity can account for such lease concessions either (i) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or (ii) as a lease modification. Based on the Lease Modification Q&A,concessionconcessions as a lease modification.During the three months ended June 30, 2021, the Company agreed to defer $0.1 million and abate $0.1 million of billed rental income, which was significantly lower than $3.8 million of rent deferrals and $0.9 million of abatements granted at the initial onset of the COVID-19 pandemic during the three months ended June 30, 2020. During the six months ended June 30, 2021, the Company granted $0.3 million of rent deferrals and $0.2 million of rent abatements. $5.9$6.2 million of rent deferrals and $1.5$1.6 million of rent abatements. As of June 30, 2021,March 31, 2022, the 352307 current customers that received rent relief account for 10.4%9.60% of rental income. AsAlso as of June 30, 2021,March 31, 2022, the Company had collected $4.3$5.4 million of rent deferral repayment, representing 99.2%99.8% of the amounts scheduled to be repaid through June 2021.March 31, 2022. An additional $0.8 million of rent deferral repayment is scheduled to be repaid thereafter. The duration and severity of the effects of the COVID-19 pandemic on the economy are uncertain and are likely to impact collectability of certain customers’ rent receivable balances in the future. The Company has taken into account the current financial condition of its tenants, including consideration of COVID-19COVID-19 impacts, in its estimation of its uncollectible accounts and deferred rents receivable at June 30, 2021.March 31, 2022. The Company is closely monitoring the collectability of such rents and will adjust future estimations as appropriate as further information becomes known.Sales of real estate facilitiesSales of real estate facilities are not part of our ordinary activities, and as a result, we consider such sales as contracts with non-customers. We recognize sales of real estate when we have collected payment and the attributes of ownership, such as possession and control of the asset, have been transferred to the buyer. If a contract for sale includes obligations to provide goods or services to the buyer, an allocated portion of the contract price is recognized as revenue as the related goods or services are transferred to the buyer.0no U.S. federal corporate income tax expense related to our “REIT taxable income.”June 30, 2021March 31, 2022 and December 31, 2020,2021, we did 0tnot recognize any tax benefit for uncertain tax positions.
theirits percentage interest in the joint ventures, to the extent the consolidated joint ventures produce net income or loss during the period and (d) restricted stock unit (“RSU”) holders, for non-forfeitable dividends paid adjusted for participation rights in undistributed earnings. The remaining net income is allocated to the common partnership units and our common stockholders, respectively, based upon the pro-rata aggregate number of units and stock outstanding.11)10) using the treasury stock method.
Three Months Ended March 31, 2022 2021 Calculation of net income allocable to common stockholders Net income $ 101,145 $ 47,507 Net (income) loss allocated to Preferred stockholders based upon distributions (9,580) (12,046) Noncontrolling interests—joint venture 1 (2) Restricted stock unit holders (523) (164) Net income allocable to common stockholders and noncontrolling interests—common units 91,043 35,295 Net income allocation to noncontrolling interests—common units (19,050) (7,409) Net income allocable to common stockholders $ 71,993 $ 27,886 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,607 27,495 Weighted average common partnership units outstanding 7,305 7,305 Total common stock equivalents 34,912 34,800 Common partnership units as a percentage of common stock equivalents 20.9 % 21.0 % Weighted average common stock outstanding Basic weighted average common stock outstanding 27,607 27,495 Net effect of dilutive stock compensation—based on treasury stock method using average market price 84 99 Diluted weighted average common stock outstanding 27,691 27,594 Certain reclassifications have been made to the consolidated financial statements for 2020 in order to conform to the 2021 presentation, including reclassifying assets held for sale or sold during 2021 from “real estate facilities, at cost” of $23.7 million and “land and building held for development, net” of $2.6 million as of December 31, 2020 into “properties held for sale, net” of $26.3 million on our consolidated balance sheets. Additionally, wesixthree months ended June 30, 2021March 31, 2022 was as follows (in thousands): Land Buildings and
ImprovementsAccumulated
DepreciationTotal Balances at December 31, 2021 $ 867,345 $ 2,239,137 $ (1,178,397) $ 1,928,085 Capital expenditures — 7,868 — 7,868 — (2,894) 2,894 — Depreciation and amortization expense — — (22,308) (22,308) Transfer to properties held for development (2,131) — — (2,131) Transfer to properties held for sale — (7) — (7) Balances at March 31, 2022 $ 865,214 $ 2,244,104 $ (1,197,811) $ 1,911,507 ____________________________Land, building and improvements, and accumulated depreciation totaling $10.6 million, $60.8 million, and $47.7 million, respectively, were reclassified as of December 31, 2020 to “properties held for sale, net” representing a 244,000 square foot office business park located in Herndon, Virginia, and a 198,000 square foot office oriented flex business park located in Chantilly, Virginia.(2)Disposals primarily represent the book value of tenant improvements that have been removed upon the customer vacating their space.June 30, 2021,March 31, 2022, we have commitments, pursuant to executed leases throughout our portfolio, to spend $8.9$11.4 million on leasing transaction costs, which include tenant improvements and lease commissions. unamortized lease commissions, and acquired in-place lease intangible), and intangible assets and intangible liabilities (see Note 2), based upon the relative fair value of each component, which are evaluated independently.On January 10, 2020,Company acquired a multi-tenant industrial park comprisingprocess of developing an approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs. We did 0t acquire any properties during the six months ended June 30, 2021.The following table summarizes assets acquired and liabilities assumed for the six months ended June 30, 2020 (in thousands):Land$11,123 Buildings and improvements2,153 Other assets (in-place lease value)237 Total purchase price13,513 Net operating assets acquired and liabilities assumed(90)Total cash paid$13,423 During the six months ended June 30, 2021, we completed the development of an 83,000 square foot shallow-baymulti-tenant industrial building at our Freeport212 Business Park located in Kent, Washington. During the quarter ended March 31, 2022, $1.5 million was reclassified from land to property held for development on our consolidated balance sheet and, as of March 31, 2022, $5.5 million of the estimated $16.0 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the 212 Business Park development is projected to be $17.5 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022, we have contractual construction commitments totaling $10.5 million that will be paid to various contractors as the project is completed.total development costs of $8.1 million. The total developed asset value inclusive of land costs of $9.1 million was placed into service on March 1, 2021 and accordingly was reflected under real estate facilities, at cost on our consolidated balance sheets at June 30, 2021.Properties SoldOn June 17, 2021, the Company sold a 198,000 square foot office oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6$91.9 million, which resulted in a gain on sale of $19.2$57.0 million. During 2021,(the "2022 Asset Sold"). There were no asset sales during the Company reclassified such assets as properties held for sale, net, in the consolidated balance sheet as of Decemberthree months ended March 31, 2020. 2021.sale2022 Asset Sold did not meet the criteria for discontinued operations presentation, as the sale of such assets did not represent a strategic shift that will have a major effect on our operations and financial results.On January 7, 2020, the Company sold an 113,000 square foot office building located at Metro Park North in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million. The Company determined that the sale did not meet the criteria for discontinued operations presentation, as the sale of such assets did not represent a strategic shift that will have a major effect on our operations and financial results.Subsequent to June 30, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for a gross sales price of $41.3 million.411-unit411- unit multifamily apartment complex. Under the Brentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed a parcel of land to the Brentford Joint Venture (the “Brentford Parcel”) at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.5$5.1 million as of June 30, 2021.June 30, 2021,March 31, 2022, the development cost incurred was $29.2$64.4 million, which is reflected in land$5.5$5.1 million cost basis in the Brentford Parcel.June 30, 2021March 31, 2022 is as follows (in thousands):____________________________(1)Excludes future minimum rental income from assets held for sale asTable of June 30, 2021.ContentsRemainder of 2022 $ 226,849 2023 247,271 2024 179,063 2025 112,943 2026 76,014 Thereafter 115,503 $ 957,643 $25.7$28.0 million and $23.2$25.9 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and $51.6 million and $47.8 million for the six months ended June 30, 2021 and 2020, respectively. These variable lease payment amounts are included as rental income in the accompanying consolidated statements of income.2.6%2.5% of total leased square footage are subject to termination options, of which 1.5%1.6% have termination options exercisable through December 31, 2021.2022. In general, these leases provide for termination payments to us should the termination options be exercised. Certain leases also have an option to extend the term of the lease. The future minimum rental income in the above table assumes termination options and lease extension options are not exercised.We have anIn August 2021, the Company amended and restated the credit agreement (the “Amended Credit Agreement”) governing its unsecured revolving line of credit (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). , as administrative agent, and the other lenders party thereto. The Amended Credit Agreement increased the aggregate principal amount of the Credit Facility has a borrowing limit offrom $250.0 million to $400.0 million, and expires January 10, 2022.extended the maturity date to August 24, 2025, with 2 six-month extension options or 1 12-month extension option. The per annum rate of interest charged on borrowings is based on LIBOR plus 0.80%0.70% to LIBOR plus 1.55% depending on the Company’s credit ratings.1.35%. Currently, the Company’s rate under the Credit Facility is LIBOR plus 0.825%.0.70% per annum. In addition, the Company is required to pay an annual facility fee ranging from 0.10% to 0.30%0.25% per annum calculated on the aggregate committed amount of the borrowing limit dependingCredit Facility (currently 0.10% per annum). The interest rate margin and facility fee may increase in the future based on the ratio of the Company’s credit ratings (currently 0.125%). Wetotal consolidated indebtedness to its consolidated gross asset value defined in accordance with the Amended Credit Agreement. The Credit Facility also features a sustainability-linked pricing component whereby the pricing can improve by 0.01%, if the Company meets certain sustainability performance targets, and an accordion feature whereby it has an option to increase commitments under the Credit Facility up to an additional $300.0 million.0a $20.0 million and $32.0 million balance outstanding, at an interest rate of 1.16% and 0.80%, on ourits Credit Facility at June 30, 2021March 31, 2022 and December 31, 2020.2021, respectively. In connection with the Amended Credit Agreement, the Company paid $2.2 million of loan origination costs. The Company had $0.1$2.0 million and $0.2$2.1 million of total unamortized loan origination costs as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, which isare included in other assets in the accompanying consolidated balance sheets. The Credit Facility requires usthe Company to meet certain covenants, all of which we wereit was in compliance with as of June 30, 2021.March 31, 2022. Interest on outstanding borrowings is payable monthly.$219.9$267.1 million and $215.7$255.7 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, and (ii) the JV Partner’s interests in our consolidated joint ventures, totaling $3.5$4.1 million and $3.3$3.9 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
$12.1$19.1 million and $6.8$7.4 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, and $19.5 million and $17.9 million for the six months ended June 30, 2021 and 2020, respectively.and six months ended June 30, 2021,March 31, 2022, the Company recorded capital contributions of $0.1$0.2 million, and $0.3 million, respectively, from the JV Partner representing theirrelated to its noncontrolling interest in the Brentford Joint Venture. NaN capital contributions were recorded during either the three or six months ended June 30, 2020.and six months ended June 30, 2021March 31, 2022 and 2020.2021. We allocate certain operating expenses to PS related to the management of these properties, including payroll and other business expenses totaling $0.1 million and $0.2 million for each of the three and six months ended June 30, 2021March 31, 2022 and 2020, respectively.June 30, 2021March 31, 2022 and 2020, and $0.1 million and less than $0.1 million for the six months ended June 30, 2021 and 2020, respectively.2021. Additionally, PS allocated certain operating expenses to us related to the management of these properties totaling less than $0.1 million for each of the three and six months ended June 30, 2021March 31, 2022 and 2020.2021. These amounts are included under cost of operations on our consolidated statements of income.June 30, 2021March 31, 2022 and 2020, and $0.5 million and $0.4 million for the six months ended June 30, 2021 and 2020, respectively.2021. PS reimbursed us less than $0.1 million for costs we incurred on their behalf for each of the three and six months ended June 30, 2021March 31, 2022 and 2020.less than $0.1$0.3 million bothand due from PS of $0.2 million at June 30, 2021March 31, 2022 and December 31, 20202021, respectively, for these contracts.June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had the following series of preferred stock outstanding:Series Issuance Date Earliest Potential
Redemption DateDividend
RateShares
OutstandingAmount
(in thousands)Series X September 2017 September 2022 5.250 % 9,200 230,000 Series Y December 2017 December 2022 5.200 % 8,000 200,000 Series Z November 2019 November 2024 4.875 % 13,000 325,000 Total 30,200 $ 755,000 $12.0$9.6 million and $24.1$12.0 million in distributions to our preferred stockholders for the three and six months ended June 30,March 31, 2022 and 2021, and 2020, respectively.June 30, 2021,March 31, 2022, there were 0no dividends in arrears.depositarydepository share, plus any accrued and unpaid dividends.June 30,March 31, 2022 and 2021, and 2020, and $57.8 million ($2.10 per share of common stock) and $57.7 million ($2.10 per share of common stock) in distributions to our common stockholders for the six months ended June 30, 2021 and 2020, respectively.June 30,March 31, 2022 and 2021, and 2020, and $15.3 million ($2.10 per common unit) in distributions to our common unit holders for each of the six months ended June 30, 2021 and 2020.Equity Stock. The Articlesequity stock. Our articles of Incorporationincorporation provide that Equity Stockequity stock may be issued from time to time in one or more series and give the Board broad authority to fix the dividend and distribution rights, conversion and voting rights, redemption provisions and liquidation rights of each series of Equity Stock.equity stock. As of June 30, 2021March 31, 2022 and December 31, 2020, 02021, no equity stock had been issued.appointment ofseparation agreement with our former President and Chief Executive Officer (“CEO”) effective April 5, 2021,, who stepped down from his positions with the Company grantedfor health reasons effective March 23, 2022, the Company paid a one-time RSU sign-on award with a grant date fairlump sum payment of $6.6 million in exchange for 41,186 restricted stock units owned by the former CEO, which represents the market value of $3.7 million and a retention RSU award with a grant date fair valuethe Company common stock underlying such units as of $2.9 million. These RSUs will vest ratably over five years.and six months ended June 30, 2021,March 31, 2022, we recorded $0.2$0.1 million and $0.4 million, respectively, in compensation expense related to stock options as compared to $0.1 million and $0.2 million for the same periodsperiod in 2020, respectively.sixthree months ended June 30, 2021, 28,000March 31, 2022, no stock options were granted, 14,47827,403 options were exercised and 0no options were forfeited. A total of 185,216132,167 and 171,694159,570 options were outstanding at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.one-thirdone-third per year. Grantees receive dividends for each outstanding RSU equal to the per share dividend received by common stockholders, which are recorded in paid-in capital. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives shares of common stock equal to the number of vested RSUs, less shares of common stock withheld in exchange for tax withholdingswithholding made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting. The fair value of our RSUs is determined based upon the applicable closing trading price of our common stock on the date of grant.-to 125% of the target award based on theirits assessment of whether certain strategic and operational goals were accomplished in the performance period. RSUs awarded under the Annual Equity Incentive Program for the 20212022 performance year will be awarded on or around March 1, 20222023 and will vest in 5 equal installments, with the first installment vesting on the award date. RSU holders will earn dividend equivalent rights during the vesting period.and six months ended June 30, 2021,March 31, 2022, respectively, we recorded $1.8 million and $3.2$0.5 million in compensation expense related to RSUs as compared to $0.6 million and $1.3$1.4 million for the same periodsperiod in 2020.sixthree months ended June 30, 2021, 72,583March 31, 2022, 38,151 RSUs were granted, 49,26316,076 RSUs vested and 16,31055,396 RSUs were forfeited. Tax withholdingswithholding totaling $0.9 million were made on behalf of employees in exchange for 5,843 shares of common stock withheld upon vesting for the three months ended March 31, 2022 resulting in the issuance of 10,233 shares of common stock.20,82420,791 shares of common stock withheld upon vesting for the sixthree months ended June 30,March 31, 2021 resulting in the issuance of 28,439 shares of common stock. Tax withholdings totaling $3.7 million were made on behalf of employees in exchange for 25,359 shares of common stock withheld upon vesting for the six months ended June 30, 2020 resulting in the issuance of 36,39728,392 shares of common stock. A total of 128,51885,270 and 121,508118,591 RSUs were outstanding at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.Of the 72,583 RSUs granted during the six months ended June 30, 2021, 41,186 RSUs were granted to our President and CEO in April 2021 (discussed above), 10,955 were granted to our Chief Financial Officer, and 16,970 were granted in aggregate to our Divisional Vice Presidents.and six months ended June 30, 2021, respectively,March 31, 2022, we recorded $0.3 million and $0.5 million in compensation expense related to these shares as compared to $0.2 million and $0.4 million for the same periodsperiod in 2020.In April 2021, we issued 10,000 shares of common stock to a director upon retirement with an aggregate fair value of $1.6 million. Compensation expense for these shares was previously recognized. NaN2021.sixthree months ended June 30, 2020.March 31, 2022 and March 31, 2021, respectively.Otherasset sale subsequentcash available for distribution, which Closing Cash Dividend will be designated, to the maximum extent permitted by applicable law, as a “capital gains dividend” under the Code. The per share merger consideration will be reduced by the per share amount of such Closing Cash Dividend.30, 2021 (disclosed in Note 3), no subsequent events have occurred that would require recognition4, 2022, as more fully described in the consolidated financial statements or disclosureMerger Agreement. A fee of up to $220 million may be payable by PSB if the Merger Agreement is terminated in certain other specified circumstances, as more fully described in the accompanying notes.
COVID-19coronavirus (“COVID-19”) pandemic and its impact on our business and our customers; (ii)(ix) changes in general economic and business conditions, including as a result of the economic fallout of the COVID-19 pandemic; (iii)(x) potential regulatory actions to close our facilities or limit our ability to evict delinquent customers; (iv)(xi) decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases; (v)(xii) tenant defaults; (vi)(xiii) the effect of the recent credit and financial market conditions; (vii)(xiv) our failure to maintain our status as a REITreal estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”); (viii)(xv) the economic health of our customers; (ix)(xvi) the health of our officers and directors; (xvii) increases in operating costs; (x)(xviii) casualties to our properties not covered by insurance; (xi)(xix) the availability and cost of capital; (xii)(xx) increases in interest rates and its effect on our stock price; (xiii)(xxi) security breaches, including ransomware, or a failure of our networks, systems or technology which could adversely impact our operations or our business, customer and employee relationships or result in fraudulent payments; (xiv)(xxii) the impact of inflation; and (xv)(xxiii) other factors discussed under the heading “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements, except as required by law.theour consolidated financial statements includedunder Item 15 in this quarterly report on Form 10-Q. We believepolicies relateestimates as compared to income tax expense,the critical accounting for acquired real estate facilities, accounting for customer receivable balances including deferred rent receivable balances, impairmentestimates disclosed in Management’s Discussion and Analysis of long-lived assets,Financial Condition and accrual for uncertain and contingent liabilities, eachResults of which are more fully discussed below.Income Tax Expense: We have elected to be treated as a REIT, as definedOperations contained in the Code. As a REIT, we do not incur U.S. federal corporate income tax on our “REIT taxable income” that is fully distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we meet certain organizational and operational requirements. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our “REIT taxable income.”Our evaluation that we have met the REIT requirements could be incorrect, because compliance with the tax rules requires factual determinations, and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at the regular corporate rates on allPart II, Item 7 of our taxable incomeAnnual Report on Form 10-K for at least thatthe year and the ensuing four years, we could be subject to penalties and interest, and our net income would be materially different from the amounts shown in our consolidated financial statements.ended December 31, 2021.Accounting for Acquired Real Estate Facilities: We estimate the fair value of land, buildings, intangible assets and intangible liabilities for purposes of allocating purchase price. Such estimates, which are determined with the assistance of third-party valuation specialists where appropriate, are based upon many assumptions and judgments, including, but not limited to, (i) market rates of return and capitalization rates on real estate and intangible assets, (ii) building and material cost levels, (iii) estimated market rent levels, (iv) future revenue growth rates, (v) future cash flows from the real estate and the existing customer base and (vi) comparisons of the acquired underlying land parcels to recent land transactions. Others could come to materially different conclusions as to the estimatedfair values, which could result in different depreciation and amortization expense, rental income, gains and losses on sale of real estate assets, and real estate and intangible assets.Accounting for Customer Receivable Balances, including Deferred Rent Receivable Balances: Customer receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes and other expenses recoverable from customers. Deferred rent receivables represent the amount that the cumulative straight-line rental income recorded as of a reporting date exceeds cash rents billed through that same date under the lease agreement, inclusive of rent deferrals and abatements granted to our customers in response to the COVID-19 pandemic. The Company writes off uncollectible customer receivable balances, including deferred rent receivable balances, in the period such receivable balances are deemed uncollectible. Significant bad debt losses could materially impact our net income.Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves identification of indicators of impairment, projections of future operating cash flows and estimates of fair values or selling prices, all of which require significant judgment and subjectivity. Others could come to materially different conclusions. In addition, we may not have identified all current facts and circumstances that may affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material adverse impact on our net income.Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other liabilities that have significant uncertain elements, such as property taxes, performance bonuses and other operating expenses, as well as other legal claims and disputes involving customers, employees, governmental agencies and other third parties. We estimate such liabilities based upon many factors such as past trends and our evaluation of likely outcomes. However, the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities, in which case our accrued liabilities and net income could be materially different.office.office space. As of June 30, 2021,March 31, 2022, the Company owned and operated 27.627.0 million rentable square feet of commercial space in six states consisting of 9796 parks and 673652 buildings. The Company’s properties are primarily located in major coastal markets that have experienced long-term economic growth. The Company also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia.We have a strong and conservative capital structure which allows usRefer to Note 12 – “Subsequent Events” to our consolidated financial statements under Item 15 in this quarterly report on Form 10-Q, for information regarding the flexibility to use debt and equity capital prudently to fund our growth initiatives, includingacquiring and developing properties we believe will create long-term value. From time to time we sell properties which no longer fitmerger agreement the Company’s strategic objectives.Company enter into on April 24, 2022 (the mergers described therein, the “Merger”).customers, are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2020.customers.
On October 28, 2020, we acquired a multi-tenant industrial park comprising approximately 246,000 rentable square feet in Alexandria, Virginia, for a total purchase price of $46.6 million, inclusive of capitalized transaction costs. The park consists of three buildings and was 100.0% occupied at acquisition with suites ranging from 7,000 to 75,000 square feet.On January 10, 2020, we acquired a multi-tenant industrial park comprised of approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs. The park consists of five buildings and was 100.0% occupied at acquisition with suites ranging from 1,200 to 3,000 square feet. Duringsix months ended June 30, 2021, we completed the developmentprocess of developing an approximately 83,000 square foot shallow-baymulti-tenant industrial building on an excess land parcel at our Freeport212 Business Park located in Irving, TexasKent, Washington. During the quarter ended March 31, 2022, $1.5 million was reclassified from land to property held for total development costs of $8.1 million. The asset was placed into service on March 1, 2021 and accordingly was reflected under real estate facilities, at cost on our consolidated balance sheetssheet and, as of March 31, 2022, $5.5 million of the estimated $16.0 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the 212 Business Park development is projected to be $17.5 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022, we have contractual construction commitments totaling $10.5 million that will be paid to various contractors as the project is completed.June 30, 2021.the Brentford Joint Venturea new joint venture with the JV Partner (the “Brentford Joint Venture”) for the purpose of developing a second multifamily property, Brentford at The Mile, a planned 411-unit multifamily apartment complex. Under the Brentford Joint Venture agreement, the Company has a 98.2% controlling interest and is the managing member with the JV Partner holding the remaining 1.8% limited partnership interest. We contributed the Brentford Parcela parcel of land to the Brentford Joint Venture (the “Brentford Parcel”) at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.5$5.1 million as of June 30, 2021.June 30, 2021,March 31, 2022, the development cost incurred was $29.2$64.4 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.5$5.1 million cost basis in the Brentford Parcel.SalesSale of Real Estate Facilities: We may from time to time sell individual real estate facilities based on market conditions, fit with our existing portfolio, evaluation of long-term potential returns of markets or product types, or other reasons.June 17, 2021,March 29, 2022, the Company sold a 198,000702,000 square foot office oriented flexindustrial-flex business park located in Chantilly, Virginia,Irving, Texas, for net sale proceeds of $32.6$91.9 million, which resulted in a gain on sale of $19.2$57.0 million.On January 7, 2020, (the "2022 Asset Sold"). There were no asset sales during the Company completed the sale of a single-tenant building totaling 113,000 square feet in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to June 30, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for a gross sales price of $41.3 million.sold or held for sale.sold.”Pandemic:pandemic: Starting in March 2020, the COVID-19 pandemic resulted in cessation, severe curtailment, or impairment of business activities in most sectors of the economy in all markets we operate in, due to governmental “stay at home” orders, risk mitigation procedures, and closure of businesses not considered to be “essential.” This resulted in a rapid and dramatic increase in unemployment in the U.S. in the second quarter of 2020, with only a partial recovery by June 30, 2021. Since it remains unknown at this time how long the COVID-19 pandemic will continue, particularly given the impact of existing and potential future variants, such as the Delta variant, we cannot estimate how long these negative economic impacts will persist.The COVID-19 pandemic has had and is expected to continue to have a negative impact on many of our customers’ businesses. During the three months ended June 30, 2021, the Company granted $0.1 million of rent deferrals and $0.1 million of rent abatements, which was significantly lower than $3.8 million of rent deferrals and $0.9 million of abatements granted at the initial onset of the COVID-19 pandemic during the three months ended June 30, 2020. During the six months ended June 30, 2021, the Company granted $0.3 million of rent deferrals and $0.2 million of rent abatements. $5.9$6.2 million of rent deferrals and $1.5$1.6 million of rent abatements. As of June 30, 2021,March 31, 2022, the 352307 current customers that received rent relief account for 10.4%9.6% of rental income. We are closely monitoring the collectabilityAlso as of such deferred rents. As of June 30, 2021,March 31, 2022, the Company had collected $4.3$5.4 million of rent deferral repayment, representing 99.2%99.8% of the amounts scheduled to be repaid June 2021.through March 31, 2022. An additional $0.6$0.8 million of rent deferral repayment is scheduled to be repaid by customers between July 1, 2021 and December 31, 2021, with another $0.8 million thereafter. As of August 2, 2021, the Company had collected 99.4% of revenue billed during the six months ended June 30, 2021.As of August 2, 2021, the Company had open rent relief requests from approximately 1% of its customers. It is possible that additional rent relief requests will arise in future months as a result of continued effects of the COVID-19 pandemic and related responses from state and local governments, however the timing and magnitude of such future requests cannot be easily predicted due to the inherent uncertainty of the virus and its varying regional effects. All rent relief requests to date have been, and all future rent relief requests are expected to be evaluated on a case-by-case basis. To the extent we grant additional requests for abatement, or to the extent that our customers default on their lease obligations, it will have a negative effect on our future rental income and net income.willmay continue to have adverse effects on rental income for 20212022 and possibly beyond.June 30, 2021, excluding assets held for sale,March 31, 2022, leases from our top 10 customers comprised 10.3%10.0% of our annualized rental income, with only threefour customers –representing 1% or more– the U.S.US Government (3.1%(2.6%), Amazon Inc. (1.5%(1.6%), and KZ Kitchen Cabinet & Stone (1.2%(1.3%) – representing more than 1%, and Luminex Corporation (1.0%). In terms of industry concentration, 21.3%23.8% of our annualized rental income comes from businessBusiness services, 13.3%and 15.0% from logistics, and 10.3% from technology.Logistics. No other industry group represents more than 10% of our annualized rental income.The negative impactAs of the COVID-19 pandemicMarch 31, 2022 and its effect onDecember 31, 2021, our customers’ ability to pay rent resulted in accounts receivablelevel of write-offs of 0.4%uncollectible rents were 0.1%, and 0.0% of rental income, in 2020, which is at the high end of the historical range noted above. The second quarter of 2021 marked the fourth consecutive quarter of normal accounts receivable write-off activity. During the three and six months ended June 30, 2021, the Company wrote off $0.0 of accounts receivable, net of recoveries, compared to $1.2 million written off during both the three and six months ended June 30, 2020.respectively.The Company writes off deferred rent receivable balances as a reduction to rental income in the period such balances are no longer deemed probable of being collected. During the three and six months ended June 30, 2021, the Company wrote off $0.1 million and $0.2 million of deferred rent receivable, respectively, which is significantly lower than the $2.4 million written off during both the three and six months ended June 30, 2020.August 2, 2021,April 27, 2022, we had 30,00029,320 square feet of leased space occupied by two customers that are protected by Chapter 11 of the U.S. Bankruptcy Code, which have an aggregate remaining lease value of $0.1$1.2 million. From time to time, customers contact us, requesting early termination of their lease, reductions in space leased, or rent deferment or rent abatement, which we are not obligated to grant but will consider and grant under certain circumstances.U.S. generally accepted accounting principles (“GAAP”),GAAP, to evaluate the operating performance of our real estate. We define NOI as rental income less Adjusted Cost of Operations. Adjusted Cost of Operations, a non-GAAP measure, represents cost of operations, excluding stock compensation, which can vary significantly period to period based upon the performance of the Company.estate, and (iii) stock compensation expense because this expense item can vary significantly from period to period and thus impact comparability across periods.estate. The Company’s calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to performance measures calculated in accordance with GAAP.
and Six Months Ended June 30,March 31, 2022 and 2021 and 2020June 30, 2021,March 31, 2022, net income allocable to common stockholders was $45.6$72.0 million, or $1.65$2.60 per diluted share, compared to $25.5$27.9 million, or $0.93$1.01 per diluted share, for the same period in 2020.2021. The increase was mainly due to a $19.2$57.0 million gain on sale of assets sold during the secondfirst quarter of 2022, compared to no assets sold in the first quarter of 2021, that did not occur in 2020 combined with ana $5.3 million increase in NOI from our Same Park portfolio (defined below), a $1.5 million increase in NOI from our Non-Same Park portfolio (defined below), and $2.5 million lower preferred distributions in 2022 compared to 2021 due to the redemption of preferred stock in November 2021, partially offset by higher generalaadministrative expense.Fora one-time cash payment of $6.7 million to the six months ended June 30, 2021, net income allocable to common stockholders was $73.5former Chief Executive Officer ("CEO"), which consists of a $6.6 million or $2.66 per diluted share, compared to $67.1cash payment for RSUs, a $0.1 million or $2.44 per diluted share,cash payment for the same periodCOBRA coverage reimbursement in 2020. The increase was mainly due to higher NOI and lower depreciation and amortization expense,accordance with his separation agreement, partially offset by higher general and administrative$0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net of dividend forfeiture expense.2019,2020, comprising 26.325.7 million rentable square feet of our total 27.627.0 million of rentable square feet at June 30, 2021 (theMarch 31, 2022 the “Same Park” portfolio), (ii) non-same park operations, representing those facilities we own that were acquired after January 1, 20192020 (the “Non-Same Park” portfolio), (iii) multifamily operations, and (iv) assets sold or held for sale, comprising 595,000including the 2022 Asset Sold totaling 0.7 million square feet including 113,000and the 2021 Assets Sold totaling 1.0 million square feet of assets sold in January 2020, 40,000 square feet of assets sold in September 2020, a 198,000 square feet of assets sold in June 30, 2021, and a 244,000 square foot office business park located in Herndon, Virginia, classified as held for sale as of June 30, 2021 (subsequently sold in July 2021).
Three Months Ended March 31, 2022 2021 % Change Rental income Same Park $ 105,014 $ 98,012 7.1 % Non-Same Park 3,348 1,246 168.7 % Multifamily 2,369 2,327 1.8 % 2,109 6,462 (67.4) % Total rental income 112,840 108,047 4.4 % Same Park 30,900 29,175 5.9 % Non-Same Park 1,060 422 151.2 % Multifamily 1,224 1,067 14.7 % 930 2,554 (63.6) % Total cost of operations 34,114 33,218 2.7 % (536) (456) 17.5 % Total cost of operations excluding stock compensation expense 33,578 32,762 2.5 % Same Park 74,114 68,837 7.7 % Non-Same Park 2,288 824 177.7 % Multifamily 1,145 1,260 (9.1) % 1,179 3,908 (69.8) % Depreciation and amortization expense (23,132) (22,985) 0.6 % General and administrative expense (11,324) (4,382) 158.4 % Interest and other income 246 256 (3.9) % Interest and other expense (330) (211) 56.4 % Gain on sale of real estate facilities 56,959 — 100.0 % Net income $ 101,145 $ 47,507 112.9 % ____________________________Amounts shown for the three and six months ended June 30, 2021 include operating results attributable to assets held for sale comprising 244,000 square feet (subsequently sold in July 2021) and an asset sold in June 2021 comprising 198,000 square feet. Amounts shown for the three months ended June 30, 2020March 31, 2022 and 2021 include operating results attributable to assets held for sale comprising 244,000 square feet, the asset sold in June2022 Asset Sold and the 2021 comprising 198,000 square feet, and an asset sold in September 2020 comprising 40,000 square feet. Amounts shown for the six months ended June 30, 2020 include operating results attributable to assets held for sale comprising 244,000 square feet, the asset sold in June 2021 comprising 198,000 square feet, the asset sold in September 2020 comprising 40,000 square feet, and an asset sold in January 2020 comprising 113,000 square feet.Assets Sold, respectively.Adjusted Cost of Operations under Cash NOI excludes the impact of stock compensation expense.Adjusted Cost of Operations.$8.8 million and $10.6$4.8 million for the three and six months ended June 30, 2021March 31, 2022 as compared to the same periodsperiod in 20202021 due primarily to higher occupancy a reduction in abatements granted2022 compared to certain customersthe same period in 2021 compared to 2020,combined with rental income from our Non-Same Park portfolio acquired during the third and lower write-offsfourth quarters of accounts receivable and deferred rent receivable granted in 2021 compared to 2020,2021. These increases were partially offset by a decrease in rental income from our multifamily asset and assets sold.$1.7 million and $3.7$0.8 million for the three and six months ended June 30, 2021March 31, 2022, as compared to the same periodsperiod in 20202021 due primarily to higher Adjusted Cost of Operations incurred by our Same Park portfolio (discussed below).$25.6 million and $8.0$53.6 million for the three and six months ended June 30, 2021March 31, 2022, as compared to the same periodsperiod in 2020.2021. The three month increase was mainly due to a $19.2$57.0 million gain on sale ofsecondfirst quarter of 2022 compared to 2021 as there were no assets sold in the first quarter of 2021, that did not occur in 2020 combined with ana $5.3 million increase in NOI tied tofrom our Same Park portfolio (defined below), a reduction$1.5 million increase in abatements granted to certain customers as well as lower write-offs of accounts receivable and deferred rent receivable,NOI from our Non-Same Park portfolio (defined below), partially offset by higher generala decrease of $2.7 million in NOI generated from assets sold or held for sale, and administrative expense. The six month increase was mainly due to higher NOI attributeda one-time cash payment of $6.7 million to the same reasons mentioned above combinedformer CEO, which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with a decrease in depreciation and amortization expensehis separation agreement, partially offset by higher general and administrative$0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net of dividend forfeiture expense.similarcomparable manner.and six months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands, except per square foot data): Three Months Ended March 31, 2022 2021 % Change Rental income $ 104,096 $ 96,638 7.7 % 918 1,374 (33.2 %) Total rental income 105,014 98,012 7.1 % Cost of Operations Property taxes 11,788 11,197 5.3 % Utilities 4,637 4,417 5.0 % Repairs and maintenance 5,679 5,244 8.3 % Compensation 5,168 4,559 13.4 % Snow removal 846 1,002 (15.6 %) Property insurance 1,268 1,167 8.7 % Other expenses 1,514 1,589 (4.7 %) 30,900 29,175 5.9 % Less: Non-cash stock based compensation in operating costs (496) (421) 17.8 % Total Cash Cost of Operations 30,404 28,754 5.7 % $ 74,114 $ 68,837 7.7 % $ 73,692 $ 67,884 8.6 % Selected Statistical Data Square footage at period end 25,749 25,749 — 70.6 % 70.2 % 0.4 % 70.8 % 70.2 % 0.6 % Weighted average square foot occupancy 96.0 % 93.3 % 2.7 % $ 16.99 $ 16.32 4.1 % $ 16.84 $ 16.10 4.6 % ____________________________rental income.Cash Rental Income.Adjusted Non-Cash Rental Income represents amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.0 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectivelyexcludes the impact ofas presented above, includes stock compensation expense.expense for employees whose compensation expense is recorded in cost of operations.(3)(4)NOI represents rental income less Cost of Operations.(4)(7)Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.occupied square footOccupied Square Foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period. Revenue per occupied square footOccupied Square Foot for the three and six month periodsperiod shown is annualized.(5)(9)RevenueCash Rental Income per AvailableOccupied Square Foot (RevPAF) is computed by dividing rental incomeCash Rental Income for the period by weighted average availableoccupied square feet for the same period. RevPAFCash rental Income per Occupied Square Foot for the three and six month periodsperiod shown is annualized.7.9% and 4.3%7.1% for the three and six months ended June 30, 2021March 31, 2022, as compared to the same periodsperiod in 2020.2021. The three and six month increases wereincrease was due primarily due to a reduction in abatements granted to certain customers as well as lower write-offs of accounts receivable and deferred rent receivable in 2021 compared to 2020, an increase in weighted average occupancy and higher rental rates charged to our customers, as revenue per occupied square foot increased 7.1% and 4.1%, respectively, in the three and six months ended June 30, 2021March 31, 2022, compared to the same periodsperiod in 2020.
and six months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands):Three Months Ended March 31, 2022 2021 $ Change Rental income Base rental income $ 77,002 $ 71,600 $ 5,402 Expense recovery income 26,545 24,022 2,523 Lease buyout income 245 377 (132) Rent receivable recovery/(write-off) (87) (1) (86) Abatements (2) (83) 81 Deferrals — (187) 187 Deferral repayments, net 147 738 (591) Fee Income 246 172 74 Cash Rental Income 104,096 96,638 7,458 918 1,374 (456) Total rental income $ 105,014 $ 98,012 $ 7,002 ____________________________June 30, 2021March 31, 2022 (dollars and square feet in thousands):Year of Lease Expiration Number of
CustomersSquare
Footage Subject to
Expiring LeasesPercent of
Total Leased
Square FootageAnnualized Rental
Income Under
Expiring LeasesPercent of
Annualized Rental
Income Represented
by Expiring LeasesRemainder of 2022 Remainder of 2022 1,629 4,063 16 % 72,761 16 % 2023 1,463 5,931 24 % 102,748 23 % 2024 923 4,978 20 % 90,522 20 % 2025 377 3,695 15 % 68,558 15 % 2026 2026 223 2,372 10 % 43,422 10 % Thereafter 159 3,696 15 % 69,794 16 % Total 4,774 24,735 100 % 447,805 100 % Adjusted Cost of OperationsAdjusted 4.2% and 4.4%5.9% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. The three month increase was due primarily to increases in insurance, utilities, compensation,almost all cost of operations categories except for snow removal and repairs and maintenance, while the six month increase was due primarily to increases in insurance, property taxes, repairs and maintenance, and snow removal.0.5% and 1.9%5.3% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. These increases were due to higher assessed values. We expect potential property tax growth in the future due to higher assessed values.
7.4% and decreased 0.4%5.0% during the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. The three monththree-month increase was driven by reduced consumption in 2020the first quarter of 2021 resulting from the ongoing “shelter in place order” due to the COVID-19 pandemic during the secondfirst quarter of 2020.2021. It is difficult to estimate future utility costs, because weather, temperature and energy prices are volatile and not readily predictable. However, we expect utility costs in the future to return to pre-COVID-19 pandemic levels over time due to expected increases in traffic and use at our parks as our customers resume operations.3.9% and 3.0%8.3% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. The three and six month increases werethree-month increase was due a reduction in general repairs and property services as a result ofresulting from the ongoing “shelter in place order” placed into effectdue to the COVID-19 pandemic during the secondfirst quarter of 2020.2021. Repairs and maintenance costs are dependent upon many factors including weather conditions, which can impact repair and maintenance needs, inflation in material and labor costs and random events, and as a result are not readilyalways predictable. We expect repairs and maintenance costs for the remainder of 20212022 to be comparable to our results for the three months ended June 30, 2021 and more consistent with pre-COVID-19 pandemic levels as a result of expected increases in traffic and use at our parks as customers resume operations.5.9% and 2.9%13.4% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. Compensation expense is comprised of on-site and supervisory personnel costs incurred in the operation of our properties. The increase in compensation was primarily due to salary increases and promotions. We expect compensation expense forand payroll expenses to continue to increase in the remainder of 2021 to be comparable to our results forfuture.June 30, 2021.Snow removal costs increased 1,347.9% during the six months ended June 30, 2021March 31, 2022 as compared to the same period in the prior year. Snow removal costs are weather dependent and therefore not predictable.36.8% and 35.4%8.7% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. The three and six month increases werethree-month increase was primarily due to an increase in our property insurance premium for the policy period June 20202021 to May 20212022 due to unfavorable market conditions pervasive throughout commercial real estate sectors combined with insurance deductibles recorded during 2021 related to damage from the winter storm in Texas. We expect to experience increases in property insurance expense in the future as unfavorable market conditions pervasive throughout commercial real estate sectors persist.increased 1.7% and decreased 1.8%4.7% for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in the prior year. Other expenses are comprised of general property expenses incurred in the operation of our properties. We expect other expenses for the remainder of 20212022 to be similar to our results for the three months June 30, 2021.QuarterlyMarket Trendstable setstables set forth historical quarterly data by region related to the operations of our Same Park portfolio for rental income, AdjustedCash Rental Income, Cash Cost of Operations, weighted average occupancy, annualized revenueand Cash Rental Income per occupied square foot, and RevPAFOccupied Square Foot (in thousands, except per square foot data):: Three Months Ended March 31, Region 2022 2021 Change Geographic Data on Same Park Cash Rental Income Square Feet Northern California 7,324 $ 30,652 $ 27,791 10.3% Southern California 3,529 15,955 14,093 13.2% Dallas 2,093 5,446 5,044 8.0% Austin 1,963 8,834 8,633 2.3% Northern Virginia 4,532 19,900 19,484 2.1% South Florida 3,866 13,175 11,786 11.8% Seattle 1,350 5,232 4,920 6.3% Suburban Maryland 1,092 4,902 4,887 0.3% Total Same Park 25,749 $ 104,096 $ 96,638 7.7% Cash Cost of Operations Northern California $ 6,761 $ 6,498 4.0% Southern California 4,212 3,854 9.3% Dallas 1,792 1,921 (6.7)% Austin 3,505 3,215 9.0% Northern Virginia 7,368 7,039 4.7% South Florida 3,526 3,184 10.7% Seattle 1,439 1,292 11.4% Suburban Maryland 1,801 1,751 2.9% Total Same Park $ 30,404 $ 28,754 5.7% Cash NOI Northern California $ 23,891 $ 21,293 12.2% Southern California 11,743 10,239 14.7% Dallas 3,654 3,123 17.0% Austin 5,329 5,418 (1.6)% Northern Virginia 12,532 12,445 0.7% South Florida 9,649 8,602 12.2% Seattle 3,793 3,628 4.5% Suburban Maryland 3,101 3,136 (1.1)% Total Same Park $ 73,692 $ 67,884 8.6% Weighted average square foot occupancy Northern California 97.6 % 93.1 % 4.5% Southern California 97.8 % 96.2 % 1.6% Dallas 92.9 % 86.9 % 6.0% Austin 94.2 % 95.1 % (0.9)% Northern Virginia 93.7 % 91.7 % 2.0% South Florida 98.0 % 95.5 % 2.5% Seattle 95.4 % 93.3 % 2.1% Suburban Maryland 92.1 % 92.2 % (0.1)% Total Same Park 96.0 % 93.3 % 2.7% Northern California $ 17.16 $ 16.31 5.2% Southern California $ 18.50 $ 16.62 11.3% Dallas $ 11.19 $ 11.09 0.9% Austin $ 19.10 $ 18.50 3.2% Northern Virginia $ 18.75 $ 18.75 0.0% South Florida $ 13.91 $ 12.76 9.0% Seattle $ 16.24 $ 15.62 4.0% Suburban Maryland $ 19.43 $ 19.37 0.3% Total Same Park $ 16.84 $ 16.10 4.6% ____________________________Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Net Operating Income.(2)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table.Analysis of Same Park Market TrendsThe following tables set forth historical data by region related to the operations of our Same Park portfolio for rental income, Adjusted Cost of Operations, weighted average occupancy, annualized revenue per occupied square foot, and RevPAF (in thousands, except per square foot data):____________________________(1)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table.
tables summarize thetable summarizes Cash Rental Rate Change and other key statistical information with respect to the Company’s leasing production for its Same Park portfolio for the three and six months ended June 30, 2021March 31, 2022 (square feet in thousands):: Three Months Ended March 31, 2022 Industrial Square
Footage
LeasedCustomer
RetentionTransaction
Costs per
Executed FootNorthern California 226 81.0 % $ 2.01 14.5 % 29.6 % Southern California 240 81.6 % 1.82 11.8 % 22.8 % Dallas 97 44.9 % 3.22 10.6 % 25.7 % Austin 28 — 3.19 19.9 % 47.7 % Northern Virginia 141 97.4 % 1.92 6.7 % 17.9 % South Florida 299 66.2 % 1.36 25.1 % 51.0 % Seattle 45 71.9 % 1.80 18.4 % 37.7 % Suburban Maryland 9 100.0 % 1.09 (1.6) % 0.5 % Industrial Totals by Region 1,085 74.3 % $ 1.90 15.2 % 31.4 % Flex Northern California 43 91.5 % $ 0.75 6.4 % 13.1 % Southern California 44 81.1 % 4.88 8.0 % 20.4 % Dallas 51 79.0 % 2.46 7.8 % 18.9 % Austin 108 90.3 % 7.28 5.1 % 16.8 % Northern Virginia 34 53.0 % 3.74 (0.9) % 0.4 % South Florida 6 58.5 % 2.10 16.6 % 34.1 % Seattle 32 51.1 % 2.80 7.7 % 16.8 % Flex Totals by Region 318 75.4 % $ 4.36 5.9 % 15.6 % Office Northern California 19 91.7 % $ 0.04 (6.6) % (5.8) % Southern California 1 30.9 % — 1.0 % 9.0 % Northern Virginia 85 69.1 % 9.97 (8.4) % 1.1 % Seattle 1 100.0 % — 6.2 % 15.3 % Suburban Maryland 22 76.2 % 8.15 (1.3) % 4.0 % Office Totals by Region 128 72.3 % $ 8.00 (6.8) % (0.1) % Company Totals by Type 1,531 74.4 % $ 2.92 10.4 % 23.5 % ____________________________Net effectiveGAAP rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating expense reimbursements.
____________________________(1)Cash Rental Rate Change is computed by taking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure.(2)Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating expense reimbursements.and six months ended June 30, 2021,March 31, 2022, weighted average occupancy was 92.9% and 92.7%96.0%, respectively, an increase from weighted average occupancy of 92.2% and 92.5%93.3% for the three and six months ended June 30, 2020, respectively. Weighted average cash rental rate growth on leases executed during the three and six months ended June 30, 2021 was 3.0% and 4.2%, respectively, while average net effective rent growth was 10.8% and 12.7%.March 31, 2021. Renewals of leases with existing customers represented 65.7%76.3% of our leasing activity for the sixthree months ended June 30, 2021.March 31, 2022. Average lease term of the leases executed during the three months ended June 30, 2021March 31, 2022 was 3.33.4 years with associated average transaction costs (tenant improvements and leasing commissions) of $2.79$2.92 per square foot. For comparative purposes, average lease term andJune 30, 2020March 31, 2021 were 3.23.3 years and $2.32$2.58 per square foot, respectively. The uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to increase or maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and potential additional rent deferrals, rent abatements, and customer defaults, may affect our ability to grow Same Park rental income in the near future.
Acquired Property Date Acquired Location Purchase
PriceSquare
FeetOccupancy at March 31, 2022 Jupiter Business Park November 2021 Plano, TX $ 25,600 141 100.0% Port America September 2021 Grapevine, Texas 123,268 718 95.6% Pickett Industrial Park October 2020 Alexandria, VA 46,582 246 44.3% La Mirada Commerce Center January 2020 La Mirada, CA 13,513 73 95.6% Total acquired property $ 208,963 1,178 85.3% June 30, 2021,March 31, 2022, we held a 95.0% controlling interest in a joint venture that owns Highgate at The Mile, a 395-unit apartment complex.complex in Tysons, Virginia. The following table summarizes the historical operating results of Highgate at The Mile and certain statistical information (in thousands, except per unit data):Three Months Ended March 31, 2022 2021 % Change Rental income $ 2,369 $ 2,327 1.8 % Cost of operations 1,224 1,067 14.7�� % NOI $ 1,145 $ 1,260 (9.1 %) Selected Statistical Data Weighted average square foot occupancy 95.0 % 94.2 % 0.8 % As of March 31, 2022 $ 115,426 Physical occupancy 96.9 % $ 2,123 ____________________________three and six month decreasesdecrease in NOI werein 2022 compared to 2021 was primarily due to a decline in rental rates as a result of the COVID-19 pandemic combined with an increase in cost of operations. The increase in cost of operations was attributed to higher property taxes, insurance costs, and an increase in trash service.utility charges, increased costs for common area cleaning, increased turnover costs, unscheduled repairs to the garage door and HVAC units. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to maintain existing occupancy levels and rental rates, we may continue to experience NOI levels below those which were achieved prior to the onset of the COVID-19 pandemic in the near future.
Amounts shown for the three and six months ended June 30, 2021 include operating results attributable to assets held for sale comprising 244,000 square feet (subsequently sold in July 2021) and an asset sold in June 2021 comprising 198,000 square feet. Amounts shown forJune 30, 2020 includeMarch 31, 2022, the operating results attributable to assets held for sale comprising 244,000include 0.7 million square feet the asset sold in June 2021 comprising 198,000 square feet, and an asset sold in September 2020 comprising 40,000 square feet. Amounts shown for the six months ended June 30, 2021 include operating results attributable to assets held for sale comprising 244,000 square feet, the asset sold in June 2021 comprising 198,000 square feet, the asset sold in September 2020 comprising 40,000 square feet, and an asset sold in January 2020 comprising 113,000 square feet.$22.5 million and $45.5$23.1 million for the three and six months ended June 30, 2021, respectively, compared toMarch 31, 2022, and consistent with the $23.0 million and $49.6 million for the same periodsperiod in 2020, respectively. The six month decrease was primarily due to acceleration of depreciation expense related to the building reclassified to held for development in 2020.2021.and six months ended June 30, 2021,March 31, 2022, general and administrative expense increased $1.8$6.9 million and $2.9 million, respectively, compared to the same periodsperiod in 2020. The three and six month increases were2021 primarily due to highera one-time cash payment of $6.7 million to the former CEO, which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by the non-cash $0.6 million reversal of stock compensation expense and professional fees related tofor the reincorporationunvested former CEO's shares net of PSB from the state of California to the state of Maryland during the second quarter of 2021.dividend forfeiture expense.: June 17, 2021,March 29, 2022, the Company sold a 198,000702,000 square foot office oriented flexindustrial-flex business park located in Chantilly, Virginia,Irving, Texas, for net sale proceeds of $32.6$91.9 million, which resulted in a gain on sale of $19.2$57.0 million.On January 7, 2020, we sold an 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.sixthree months ended June 30,March 31, 2022 and 2021 and 2020 and the notes to our consolidated financial statements, which set forth the major components of our historical liquidity and capital resources. The discussion below sets forth the factors which we expect will affect our future liquidity and capital resources or which may vary substantially from historical levels.Raising Strategy:Markets: As a REIT, we are required to distribute at least 90% of our “REIT taxable income” to our stockholders each year, which relative to a taxable C corporation, limits the amount of cash flow from operations that we can retain for investment purposes.purposes, such as to fund acquisitions and developments. As a result, in order to grow our asset base, access to capital is important.Our financial profile is characterized by strong credit metrics, including low leverage relative to our total capitalization and operating cash flows. We areTable of Contentshighly rated REIT, as determined by Moody’s and Standard & Poor’s. Ourresult of the announced Merger, our corporate credit rating by Standard and Poor’s is A-(S&P) was downgraded to BBB+, while our preferred stock is rated BBBwere downgraded to a rating of BBB-. S&P placed all their ratings on PSB, including our 'BBB+' issuer credit rating, on CreditWatch with negative implications. The CreditWatch placement reflects that S&P could lower their ratings upon closing of the transaction, based on the pro forma capital structure and their view of the acquirer's financial policy. S&P no longer views PSB as being strategic to Public Storage. Public Storage, which holds approximately 41% common equity interest in PSB, has agreed to Blackstone's acquisition bid. S&P previously considered PSB to be moderately strategic to Public Storage and, as such, S&P believed that Public Storage would provide support to PSB under a stress scenario. As a result, S&P applied a one-notch improvement to their standalone rating on PSB. The transaction changes S&P's view, such that they no longer expect Public Storage to support PSB under a hypothetical stress scenario. As a result, S&P downgraded PSB by Standardone notch to 'BBB+'. S&P also lowered their ratings on PSB's preferred stock by one notch to 'BBB-', two notches below its issuer credit rating, in line with S&P's criteria.Poor’sour Baa2 preferred stock rating and Baa2 by Moody’s. We believethe Baa1 senior unsecured shelf rating of our main operating subsidiary, PS Business Parks, L.P. The review for downgrade follows the announcement of the Merger. The review for downgrade reflects the likelihood that PSB’s credit profile will deteriorate under Blackstone’s ownership, with the potential for meaningfully higher leverage and secured debt levels that could result in a multi-notch downgrade of the REIT’s ratings, will enable usincluding crossing over to efficiently access both the public and private capital markets to raise capital, as necessary.six monthsyear ended June 30, 2021,March 31, 2022, the ratio of FFO to combined fixed charges and preferred distributions paid was 5.96.8 to 1.0.
We have a $250.0 millionIn August 2021, we amended and restated the credit agreement governing our revolving Credit Facility that can be expandedto increase the aggregate principal amount of the Credit Facility from $250.0 million to $400.0 million and expires in January 2022.extend the expiration date to August 2025. The Credit Facility can also be expanded to $700.0 million. We can use the Credit Facility as necessary as temporary financing until we are able to raise longer term capital. Historically we have funded our long-term capital requirements with retained operating cash flow and proceeds from the issuance of common and preferred securities. We will select among these sources of capital based upon availability, relative cost, the impact of constraints on our operations (such as covenants), and the desire for leverage.The COVID-19 pandemic has had varying effectsOur material contractual commitments as of March 31, 2022 consist of principal and interest on the costour Credit Facility, payment of dividends on our preferred stock (which if not paid will accrue), contractual construction commitments for development projects, and availability of debt and equity capital. Based upon our substantial current liquidity relative to our capital requirements noted below, and our strong financial profile and credit ratings, we do not expect any pandemic-related capital market turbulence to have a material impact upon our capital and growth plans over the next 12 months. However, there can be no assurance that it would not in the future if the COVID-19 pandemic were to persist for a long period of time or intensify, including as a result of variants such as the Delta variant.ground lease obligations:Short-term Liquidity and Capital Resource Analysis:• We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for debt service, capital expenditures and distributions to our stockholders for the foreseeable future.June 30, 2021, we had $116.0 million in unrestricted cash. In the last five years,March 31, 2022, we have retained between $40 to $60$20.0 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less stockholder and unit holder distributions and capital expenditures.Required Debt Repayment: As of June 30, 2021, we have no debt outstanding on our Credit Facility. We are in compliance with all of the covenants and other requirements of our Credit Facility. Our Credit Facility expires in August 2025.reconfigurationsreconfiguration and other capital expenditures related to repositioning asset acquisitions.sixthree months ended June 30,March 31, 2022 and 2021 and 2020 on an aggregate and per square foot basis:Three Months Ended March 31, 2022 2021 2022 2021 (in thousands) Commercial Real Estate Recurring capital expenditures Capital improvements $ 2,015 $ 648 $ 0.07 $ 0.02 Tenant improvements 3,027 2,909 0.11 0.10 Lease commissions 1,307 1,848 0.05 0.07 Total commercial recurring capital expenditures 6,349 5,405 0.23 0.19 Nonrecurring capital improvements 1,511 411 0.06 0.01 Total commercial capital expenditures $ 7,860 $ 5,816 $ 0.29 $ 0.20 ____________________________(2)Excludes $7 and $0 of recurring capital improvements on our multifamily asset for the six months ended June 30, 2021 and 2020, respectively.Non-Same Park, multifamily and assets sold by region for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands):Three Months Ended March 31, Recurring
Capital ExpendituresRecurring
Capital Expenditures
as a Percentage of NOI2022 2021 2022 2021 Region Same Park Northern California $ 392 $ 1,597 (75.5)% 1.6 % 7.3 % Southern California 496 546 (9.2)% 4.2 % 4.9 % Dallas 416 487 (14.6)% 11.5 % 15.8 % Austin 340 187 81.8% 6.3 % 3.7 % Northern Virginia 2,159 974 121.7% 16.8 % 7.7 % South Florida 901 349 158.2% 9.4 % 4.1 % Seattle 434 294 47.6% 11.4 % 8.2 % Suburban Maryland 234 253 (7.5)% 7.7 % 8.5 % Total Same Park 5,372 4,687 14.6% 7.2 % 6.8 % Non-Same Park Southern California 12 19 (36.8)% Dallas 186 42 342.9% Northern Virginia 771 23 3252.2% Total Non-Same Park 969 84 1053.6% Assets sold or held for sale 8 634 (98.7)% Total commercial recurring
capital expendituresTotal commercial recurring
capital expenditures$ 6,349 $ 5,405 17.5% 11.5%10.7% and 16.3%14.3% as a percentage of NOI, and we expected future recurring capital expenditures to be within or near the low end of this range. While what we discloseWe have one series ofOur Series X preferred securities that will become redeemable during 2021, at our option,shares, with a coupon rate of 5.20% and5.25%, at a par value of $189.8 million. Redemption$230.0 million and Series Y preferred shares, with a coupon rate of such5.20%, at a par value of $200.0 million are redeemable in September 2022 and December 2022, respectively. Future redemptions of preferred stock will depend upon many factors, including available cash and our cost of capital. None of our preferred securities are redeemable at the option of the holders. SeeRefer to Note 9 to theour consolidated financial statements included in this Quarterly Report on Form 10-Q for additionalor more information on the earliest redemption date of our outstanding preferred securities.stock.On October 28, 2020, we acquired a multi-tenant industrial park comprising approximately 246,000 rentable square feet in Alexandria, Virginia,Refer to “Business Overview—Acquisition of Real Estate Facilities” above for a total purchase pricediscussion of $46.6 million, inclusive of capitalized transaction costs.our recent acquisitions. On January 10, 2020, we acquired a multi-tenant industrial park comprising approximately 73,000 rentable square feet in La Mirada, California, for a total purchase price of $13.5 million, inclusive of capitalized transaction costs. We continue to seek to acquire additional real estate facilities; however, there is significant competition to acquire existing facilities in our markets and there can be no assurance as to the volume of future acquisition activity.SaleRefer to “Business Overview—Development or Redevelopment of real estate: On June 17, 2021, we sold a 198,000 square foot office oriented flex business park located in Chantilly, Virginia, for net proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. On January 7,2020, we sold an 113,000 square foot office building located at Metro Park North in Montgomery County, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to June 30, 2021, we sold a 244,000 square foot office business park located in Herndon, Virginia,Real Estate Facilities” above for a gross sales pricediscussion of $41.3 million.our recently completed developments.Developmentreal estate facilities: As noted above, duringMarch 31, 2022, we were in the six months ended June 30, 2021, we completed the developmentprocess of developing an approximately 83,000 square foot shallow-baymulti-tenant industrial building on an excess land parcel at our Freeport212 Business Park located in Irving, Texas for total development costs of $8.1 million. The total developed asset value inclusive of land costs of $9.1Kent, Washington. During the quarter ended March 31, 2022, $1.5 million was placed into service on March 1, 2021 and accordingly was reflected under real estate facilities, at costreclassified from land to property held for development on our consolidated balance sheetssheet and, as of March 31, 2022, $5.5 million of the estimated $16.0 million total development costs had been incurred. The total investment, inclusive of land and development costs, for the 212 Business Park development is projected to be $17.5 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022, we have contractual construction commitments totaling $10.5 million that will be paid to various contractors as the project is completed.June 30, 2021.with the JV Partner for the purpose of developing a second multifamily property, Brentford at The Mile, a planned 411-unit multifamily apartment complex. We contributed the Brentford Parcel to the Brentford Joint Venture at a value of $18.5 million, for which we received equity contribution credit in the Brentford Joint Venture. Our cost basis in the Brentford Parcel was $5.5$5.1 million as of June 30, 2021.June 30, 2021,March 31, 2022, the development cost incurred was $29.2$64.4 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.5$5.1 million cost basis in the Brentford Parcel.sixthree months ended June 30, 2021 or the year ended DecemberMarch 31, 2020. As of June 30, 2021, management has the authorization to repurchase an additional 1,614,721 shares.2022.$81.9$38.6 million ($24.19.6 million to preferred stockholders and $57.8$29.0 million to common stockholders) during the sixthree months ended June 30, 2021.We estimate the annual distribution requirements with respect to our preferred stock outstanding at June 30, 2021 to be $48.2 million per year. Futurewith respect to holders of its common stock and to holders of common units of partnership interest of the OP, in an amount of up to $1.05 per share or unit, including a pro rata distribution in respect of any stub period. Additionally, PSB is permitted to declare and pay regular quarterly dividends on its shares of preferred stock. Subject to the terms of the Merger Agreement, PSB will continuealso pay a closing cash dividend (the “Closing Cash Dividend”) to be determined based upon our REITholders of record PSB common stock as of the close of business on the business day immediately prior to the closing date in an aggregate amount no greater than the cash available for distribution, requirements and, along with distributions to preferred stockholders, we expectwhich Closing Cash Dividend will be funded with cash provideddesignated, to the maximum extent permitted by operating activities.and six months ended June 30, 2021March 31, 2022 was $1.75$1.65 per share, and $3.43 per share, respectively, representing increases of 10.7% and 3.8%a 1.2% decrease from the same periodsperiod in 2020.2021. The increasesdecrease in FFO per share werefor the resultfirst quarter was due one-time cash payment of higher NOI as described above$6.6 million to the former Chief Executive Officer ("CEO"), for RSUs and a $0.1 million cash payment for COBRA coverage reimbursement, in accordance with his separation agreement, partially offset by higher general and administrative$0.6 million non-cash adjustment related to the reversal of stock compensation for the unvested former CEO's shares, net of dividend forfeiture expense.Core The decrease in FFO was $1.77 per share and $3.44 per sharepartially offset by lower preferred distributions in the first quarter due to the Series W preferred stock redemption in Q4 2021.and six months ended June 30, 2021, respectively. ForMarch 31, 2022 was $1.82 per share, representing a 9.0% increase from the three and six months ended June 30, 2021,same period in 2021. Core FFO excludes the impact of the a one-time costs associatedcash payment of $6.7 million to the former CEO, which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash payment for COBRA coverage reimbursement in accordance with his separation agreement, partially offset by $0.6 million non-cash adjustment related to the Company’s reincorporation as a Maryland corporationreversal of $0.5 million. Forstock compensation for the three and six months ended June 30, 2020, Core FFO was equal to FFO as the Company did not incur any preferred stock redemption charges or any nonrecurring income or expense items in either period.unvested former CEO's shares, net of dividend forfeiture expense.Three Months Ended March 31, 2022 2021 Net income allocable to common stockholders $ 71,993 $ 27,886 Adjustments Gain on sale of real estate facilities Gain on sale of real estate facilities (56,959) — Depreciation and amortization Depreciation and amortization 23,132 22,985 Net income allocable to noncontrolling interests Net income allocable to noncontrolling interests 19,049 7,411 Net income allocable to restricted stock unit holders Net income allocable to restricted stock unit holders 523 164 FFO allocated to joint venture partner FFO allocated to joint venture partner (23) (27) 57,715 58,419 CEO cash payment for RSUs net of reversal of stock compensation CEO cash payment for RSUs net of reversal of stock compensation 6,108 — Core FFO allocable to diluted common stock and units $ 63,823 $ 58,419 FAD FAD FFO allocable to diluted common stock and units FFO allocable to diluted common stock and units $ 57,715 $ 58,419 Adjustments: Adjustments: Recurring capital improvements (2,010) (565) Tenant improvements (3,027) (2,422) Capitalized lease commissions (1,304) (1,784) Total recurring capital expenditures for assets sold or held for sale Total recurring capital expenditures for assets sold or held for sale (8) (634) Cash paid for taxes in lieu of stock upon vesting of restricted stock units Cash paid for taxes in lieu of stock upon vesting of restricted stock units (931) (3,197) (1,157) (1,307) Non-cash stock compensation expense 940 1,780 FAD allocable to diluted common stock and units 50,218 50,290 Weighted average outstanding Common stock 27,607 27,495 Operating partnership units Operating partnership units 7,305 7,305 Restricted stock units 45 47 Common stock equivalents 84 99 Total diluted common stock and units 35,041 34,946 Reconciliation of Earnings per share to FFO per share Reconciliation of Earnings per share to FFO per share Net income per common stock—diluted Net income per common stock—diluted $ 2.60 $ 1.01 Gain on sale of real estate facilities Gain on sale of real estate facilities (1.63) — Depreciation and amortization expense 0.66 0.66 Net income allocated to restricted stock unit holders Net income allocated to restricted stock unit holders 0.02 — FFO per share $ 1.65 $ 1.67 CEO cash payment for RSUs net of reversal of stock compensation CEO cash payment for RSUs net of reversal of stock compensation 0.17 — Core FFO per share $ 1.82 $ 1.67 ____________________________
Off-Balance Sheet Arrangements: The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources.Contractual Obligations: We paid $24.1 million in distributions to our preferred stockholders for the six months ended June 30, 2021 and expect to continue to pay quarterly distributions of $12.0 million to our preferred stockholders for the foreseeable future or until such time as there is a change in the amount or composition of our series of preferred equity outstanding. Dividends on preferred equity are paid when and if declared by the Company’s Board and accumulate if not paid. Shares of preferred equity are redeemable by the Company in order to preserve its status as a REIT and are also redeemable five years after issuance, but are not redeemable at the option of the holder.Our significant contractual obligations as of June 30, 2021 and their impact on our future cash flow and liquidity are summarized below (in thousands):____________________________(1)Represents transaction costs, including tenant improvements and lease commissions, which we are committed to under the terms of executed leases.(2)Represents future contractual payments on land under various operating leases.noonly $20.0 million debt outstanding as of asMarch 31, 2022, which consists entirely of June 30, 2021.June 30, 2021.March 31, 2022. These controls and procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and communicated to management. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of June 30, 2021,March 31, 2022, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.June 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.2020,2021, in Part I, Item 1A, Risk Factors, and in our other filings with the SEC. These factors may materially affect our business, financial condition and operating results and could cause our actual results to differ materially from expectations. ThereExcept as set forth below, as of the date of this report, there have been no material changes to the risk factors relating to the Company disclosed in our Form 10-K for the year ended December 31, 2020.2021.considering the forward-looking statements containedMerger Agreement, the Company may be unable, during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.this Form 10-Qany litigation that may be filed to challenge the Merger may prevent the transaction from becoming effective or from becoming effective within the expected timeframe.elsewhere, you should referany such suit may seek, among other things, to enjoin us from proceeding with the stockholder vote on the Merger. No assurance can be made as to the qualificationsoutcome of any such lawsuits, including the amount of costs associated with defending any of these claims or any other liabilities that may be incurred in connection with the litigation of any of these claims. If plaintiffs are successful in obtaining an injunction prohibiting completion the Merger on the agreed-upon terms, such an injunction may delay the completion of the transaction in the expected timeframe, or may prevent the transaction from being completed altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and limitations ondiverts management’s attention and resources, which could adversely affect the operation of our forward-looking statements that are described in Forward Looking Statements at the beginning of Part I, Item 2 of this Form 10-Q.June 30, 2021,March 31, 2022, there were no shares of the Company’s common stock repurchased. As of June 30, 2021,March 31, 2022, 1,614,721 shares remain available for purchase under the program.
Dated: August 3, 2021Jeffrey D. HedgesAdeel KhanJeffrey D. HedgesAdeel KhanExecutive Vice President and Chief Financial Officer