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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 27,631,499. PS BUSINESS PARKS, INC. PART I. FINANCIAL INFORMATION September 30, December 31, 2021 2020 (Unaudited) ASSETS Cash and cash equivalents $ 46,594 $ 69,083 Real estate facilities, at cost Land 865,062 843,765 Buildings and improvements 2,207,095 2,080,895 3,072,157 2,924,660 Accumulated depreciation (1,157,947) (1,101,739) 1,914,210 1,822,921 Properties held for sale, net 46,811 75,138 Land and building held for development, net 62,467 37,922 2,023,488 1,935,981 Rent receivable 2,427 1,519 Deferred rent receivable 37,078 36,788 Other assets 18,891 14,334 Total assets $ 2,128,478 $ 2,057,705 LIABILITIES AND EQUITY Accrued and other liabilities $ 99,208 $ 82,065 Total liabilities 99,208 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) September 30, 2021 and December 31, 2020 944,750 944,750 Common stock, $0.01 par value, 100,000,000 shares authorized, 27,546,153 and 27,488,547 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 275 274 Paid-in capital 741,032 738,022 Accumulated earnings 113,444 73,631 Total PS Business Parks, Inc.’s stockholders’ equity 1,799,501 1,756,677 Noncontrolling interests 229,769 218,963 Total equity 2,029,270 1,975,640 Total liabilities and equity $ 2,128,478 $ 2,057,705 PS BUSINESS PARKS, INC. For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Rental income $ 110,448 $ 103,760 $ 327,859 $ 310,535 Expenses Cost of operations 33,091 32,096 98,158 93,490 Depreciation and amortization 23,857 23,064 69,356 72,646 General and administrative 5,148 5,047 14,329 11,374 Total operating expenses 62,096 60,207 181,843 177,510 Interest and other income 411 230 1,590 1,012 Interest and other expense (224) (536) (703) (900) Gain on sale of real estate facilities 29,924 7,652 49,117 27,273 Net income 78,463 50,899 196,020 160,410 Allocation to noncontrolling interests (13,850) (8,124) (33,355) (26,011) Net income allocable to PS Business Parks, Inc. 64,613 42,775 162,665 134,399 Allocation to preferred stockholders (12,046) (12,046) (36,139) (36,139) Allocation to restricted stock unit holders (350) (149) (828) (543) Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Net income per share of common stock Basic $ 1.90 $ 1.11 $ 4.57 $ 3.56 Diluted $ 1.89 $ 1.11 $ 4.55 $ 3.55 Weighted average common stock outstanding Basic 27,543 27,483 27,523 27,470 Diluted 27,635 27,565 27,623 27,560 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 September 30, 2021 Shares Amount Shares Amount Capital Earnings Equity Interests Equity 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 Issuance of common stock in connection with share-based compensation — — 4,689 — — — — — — Stock compensation, net — — — — 2,174 — 2,174 — 2,174 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (478) — (478) — (478) Capital contribution from noncontrolling interests—joint venture — — — — — — — 236 236 Net income — — — — — 64,613 64,613 13,850 78,463 Distributions Preferred stock (Note 9) — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,923) (28,923) — (28,923) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (20) (20) Balances at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 For the three months ended September 30, 2020 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 Issuance of common stock in connection with share-based compensation — — 5,302 — — — — — — Stock compensation, net — — — — 2,378 — 2,378 — 2,378 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (442) — (442) — (442) Capital contribution from noncontrolling interests—joint venture — — — — — — — 438 438 Net income — — — — — 42,775 42,775 8,124 50,899 Distributions Preferred stock (Note 9) — — — — — (12,046) (12,046) — (12,046) Common stock ($1.05 per share) — — — — — (28,860) (28,860) — (28,860) Noncontrolling interests— Common units — — — — — — — (7,671) (7,671) Joint venture — — — — — — — (46) (46) Balances at September 30, 2020 37,790 $ 944,750 27,486,788 $ 274 $ 737,065 $ 75,393 $ 1,757,482 $ 219,463 $ 1,976,945 See accompanying notes. PS BUSINESS PARKS, INC. Total PS Business Parks, For the nine months ended Preferred Stock Common Stock Paid-in Accumulated Inc.’s Stockholders’ Noncontrolling Total September 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 — — 57,606 1 906 — 907 — 907 Stock compensation, net — — — — 5,889 — 5,889 — 5,889 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (3,680) — (3,680) — (3,680) Capital contribution from noncontrolling interests—joint venture — — — — — — — 523 523 Issuance costs — — — — (105) — (105) — (105) Net income — — — — — 162,665 162,665 33,355 196,020 Distributions Preferred stock (Note 9) — — — — — (36,139) (36,139) — (36,139) Common stock ($3.15 per share) — — — — — (86,713) (86,713) — (86,713) Noncontrolling interests— Common units — — — — — — — (23,012) (23,012) Joint venture — — — — — — — (60) (60) Balances at September 30, 2021 37,790 $ 944,750 27,546,153 $ 275 $ 741,032 $ 113,444 $ 1,799,501 $ 229,769 $ 2,029,270 For the nine months ended September 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 — — 45,835 — 259 — 259 — 259 Stock compensation, net — — — — 3,922 — 3,922 — 3,922 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (4,102) — (4,102) — (4,102) Capital contribution from noncontrolling interests—joint venture — — — — — — — 438 438 Net income — — — — — 134,399 134,399 26,011 160,410 Distributions Preferred stock (Note 9) — — — — — (36,139) (36,139) — (36,139) Common stock ($3.15 per share) — — — — — (86,533) (86,533) — (86,533) Noncontrolling interests— Common units — — — — — — — (23,012) (23,012) Joint venture — — — — — — — (109) (109) Balances at September 30, 2020 37,790 $ 944,750 27,486,788 $ 274 $ 737,065 $ 75,393 $ 1,757,482 $ 219,463 $ 1,976,945 PS BUSINESS PARKS, INC. For the Nine Months Ended September 30, 2021 2020 Cash flows from operating activities Net income $ 196,020 $ 160,410 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 69,356 72,646 Straight-line rent and amortization of lease intangibles, net (1,943) (5,340) Gain on sale of real estate facilities (49,117) (27,273) Stock compensation expense 6,422 4,391 Amortization of financing costs 468 410 Other, net 11,202 6,313 Total adjustments 36,388 51,147 Net cash provided by operating activities 232,408 211,557 Cash flows from investing activities Capital expenditures to real estate facilities (26,062) (23,189) Capital expenditures to land and building held for development (31,921) (10,602) Acquisition of real estate facilities (122,171) (13,423) Proceeds from sale of real estate facilities 76,566 40,674 Net cash used in investing activities (103,588) (6,540) Cash flows from financing activities Payment of deferred financing costs (2,248) — Payment of financing costs (237) (255) 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 (3,680) (4,102) Cash paid to restricted stock unit holders (545) (469) Capital contribution from noncontrolling interests – joint venture 523 438 Distributions paid to preferred stockholders (36,139) (36,139) Distributions paid to common stockholders (86,713) (86,533) Distributions paid to noncontrolling interests—common units (23,012) (23,012) Distributions paid to noncontrolling interests—joint venture (60) (109) Net cash used in financing activities (151,309) (149,922) Net (decrease) increase in cash and cash equivalents (22,489) 55,095 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 $ 47,682 $ 118,969 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 $ 3,362 $ — Accrued and other liabilities $ (3,362) $ — See accompanying notes. PS BUSINESS PARKS, INC. 2022 2021. 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 September 30, 2021 2020 Consolidated balance sheets Cash and cash equivalents $ 46,594 $ 117,881 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 $ 47,682 $ 118,969 Property held for Accrued and other liabilities 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 Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Calculation of net income allocable to common stockholders Net income $ 78,463 $ 50,899 $ 196,020 $ 160,410 Net (income) loss allocated to Preferred stockholders based upon distributions (12,046) (12,046) (36,139) (36,139) Noncontrolling interests—joint venture 2 4 7 (26) Restricted stock unit holders (350) (149) (828) (543) Net income allocable to common stockholders and noncontrolling interests—common units 66,069 38,708 159,060 123,702 Net income allocation to noncontrolling interests— common units (13,852) (8,128) (33,362) (25,985) Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,543 27,483 27,523 27,470 Weighted average common partnership units outstanding 7,305 7,305 7,305 7,305 Total common stock equivalents 34,848 34,788 34,828 34,775 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 27,543 27,483 27,523 27,470 Net effect of dilutive stock compensation—based on treasury stock method using average market price 92 82 100 90 Diluted weighted average common stock outstanding 27,635 27,565 27,623 27,560 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) $ 843,765 $ 2,080,895 $ (1,101,739) $ 1,822,921 Acquisition of real estate facility 20,308 100,893 — 121,201 Capital expenditures — 26,121 — 26,121 Disposals (2) — (7,349) 7,349 — Depreciation and amortization expense — — (67,182) (67,182) Transfer from property held for development 989 8,063 — 9,052 Transfer to properties held for sale — (1,528) 3,625 2,097 Balances at September 30, 2021 $ 865,062 $ 2,207,095 $ (1,157,947) $ 1,914,210 (1) of land is estimated based upon, among other considerations, comparable sales of land within the same region. The fair value of buildings and improvements is determined using a combination of the income and replacement cost approaches which both utilize available market information relevant to the acquired property. The fair value of other acquired assets including tenant improvements and unamortized lease commissions are determined using the 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. 2021 2020 Land $ 20,308 $ 11,123 Buildings and improvements 100,893 2,153 Other assets (above-market in-place rents) — — Accrued and other liabilities (below-market in-place rents) (1,156) — Other assets (in-place lease value) 3,223 237 Total purchase price 123,268 13,513 Net operating assets acquired and liabilities assumed (1,097) (90) Total cash paid $ 122,171 $ 13,423 (The “2021 Asset Sold”). 4. Multifamily developmental activity 2022. completed. Remainder of 2021 $ 77,055 2022 271,075 2023 204,571 2024 142,367 2025 89,682 Thereafter 158,093 Total (1) $ 942,843 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. PS provides us property management services for the self-storage component of 2 assets we own and operates them under the “Public Storage” name. Either the Company or PS can cancel the property management contract upon 60 days’ notice. Under our supervision, PS coordinates and assists in rental and marketing activities, and property maintenance and other operational activities, including the selection of vendors, suppliers, employees and independent contractors. Management fee expenses were less than $0.1 million for each of the three months ended 2021. 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 Common stock and units 2021. March 18, 2022. Stock Options 2021. Plan over the requisite service period. For the three and 2021. Company and 20.9% of the issued and outstanding common units of partnership interest of the OP. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview Acquisitions of Real Estate Facilities: We seek to grow our portfolio through acquisitions of facilities generally consistent with the Company’s focus on owning concentrated business parks with easy to configure space and in markets and product types with favorable long-term return potential. 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 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 June 30, 2022, we have contractual construction commitments totaling $0.8 million that will be paid to various contractors as the project is completed. 2022. We consolidate both the joint venture that owns Highgate at The Mile and the joint venture that is developing Brentford at The Mile. "2022 Assets Sold"). . Our ability to re-lease space as leases expire in a way that minimizes vacancy periods and maximizes market rental rates will depend upon market conditions in the specific submarkets in which each of our properties are located. Due to the uncertainty of the COVID-19 pandemic’s impact on the Company’s future ability to grow or maintain existing occupancy levels, possible decreases in rental rates on new and renewal transactions, and the potential negative effect of additional rent deferrals, rent abatements, and customer defaults, we believe in some instances the COVID-19 pandemic Net Operating Income Results of Operations Analysis of Net Income For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Same Park $ 99,292 $ 92,931 6.8% $ 291,801 $ 275,841 5.8% Non-Same Park 4,470 1,697 163.4% 12,165 6,185 96.7% Multifamily 2,308 2,201 4.9% 6,883 7,249 (5.0%) Assets sold or held for sale (1) 4,378 6,931 (36.8%) 17,010 21,260 (20.0%) Total rental income 110,448 103,760 6.4% 327,859 310,535 5.6% Cost of operations Adjusted Cost of Operations (2) Same Park 28,470 27,637 3.0% 83,148 79,745 4.3% Non-Same Park 1,389 900 54.3% 3,729 2,607 43.0% Multifamily 1,161 1,066 8.9% 3,405 3,084 10.4% Assets sold or held for sale (1) 1,643 2,250 (27.0%) 6,511 7,271 (10.5%) Stock compensation expense (3) 428 243 76.1% 1,365 783 74.3% Total cost of operations 33,091 32,096 3.1% 98,158 93,490 5.0% NOI (4) Same Park 70,822 65,294 8.5% 208,653 196,096 6.4% Non-Same Park 3,081 797 286.6% 8,436 3,578 135.8% Multifamily 1,147 1,135 1.1% 3,478 4,165 (16.5%) Assets sold or held for sale (1) 2,735 4,681 (41.6%) 10,499 13,989 (24.9%) Stock compensation expense (3) (428) (243) 76.1% (1,365) (783) 74.3% Depreciation and amortization expense (23,857) (23,064) 3.4% (69,356) (72,646) (4.5%) General and administrative expense (5,148) (5,047) 2.0% (14,329) (11,374) 26.0% Interest and other income 411 230 78.7% 1,590 1,012 57.1% Interest and other expense (224) (536) (58.2%) (703) (900) (21.9%) Gain on sale of real estate facilities 29,924 7,652 291.1% 49,117 27,273 80.1% Net income $ 78,463 $ 50,899 54.2% $ 196,020 $ 160,410 22.2% Same Park Portfolio For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Cash Rental Income (1) $ 99,161 $ 91,501 8.4% $ 291,119 $ 271,315 7.3% Non-Cash Rental Income (2) 131 1,430 (90.8%) 682 4,526 (84.9%) Total rental income 99,292 92,931 6.8% 291,801 275,841 5.8% Adjusted Cost of Operations (3) Property taxes 10,749 10,517 2.2% 32,022 31,357 2.1% Utilities 4,934 4,477 10.2% 13,321 12,936 3.0% Repairs and maintenance 5,957 5,868 1.5% 16,613 16,018 3.7% Compensation 4,001 3,974 0.7% 11,946 11,688 2.2% Snow removal — — — 1,011 70 1,344.3% Property insurance 1,290 1,243 3.8% 3,551 2,908 22.1% Other expenses 1,539 1,558 (1.2%) 4,684 4,768 (1.8%) Total Adjusted Cost of Operations 28,470 27,637 3.0% 83,148 79,745 4.3% NOI (4) $ 70,822 $ 65,294 8.5% $ 208,653 $ 196,096 6.4% Cash NOI (5) $ 70,691 $ 63,864 10.7% $ 207,971 $ 191,570 8.6% Selected Statistical Data Rentable square footage at period end 25,053 25,053 — 25,053 25,053 — NOI margin (6) 71.3% 70.3% 1.4% 71.5% 71.1% 0.6% Cash NOI margin (7) 71.3% 69.8% 2.1% 71.4% 70.6% 1.1% Weighted average square foot occupancy 94.8% 92.6% 2.4% 94.0% 92.6% 1.5% Revenue per Occupied Square Foot (8) $ 16.72 $ 16.02 4.4% $ 16.52 $ 15.85 4.2% Revenue per Available Foot (RevPAF) (9) $ 15.85 $ 14.84 6.8% $ 15.53 $ 14.68 5.8% Cash Rental Income per Occupied Square Foot (10) $ 16.70 $ 15.78 5.8% $ 16.49 $ 15.59 5.8% Cash Rental Income per Available Foot (11) $ 15.83 $ 14.61 8.4% $ 15.49 $ 14.44 7.3% (1)Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). See table below for the change in Cash Rental Income. (9) 2021. For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income Base rental income $ 73,250 $ 69,440 $ 3,810 $ 216,566 $ 210,068 $ 6,498 Expense recovery income 24,690 22,643 2,047 71,658 66,270 5,388 Lease buyout income 738 288 450 1,318 787 531 Rent receivable recovery/ (write-off) 20 (275) 295 61 (1,321) 1,382 Rent abatements (97) (331) 234 (304) (1,189) 885 Deferrals (5) (1,632) 1,627 (292) (5,144) 4,852 Deferral repayments 310 1,147 (837) 1,518 1,166 352 Fee Income 255 221 34 594 678 (84) Cash Rental Income 99,161 91,501 7,660 291,119 271,315 19,804 Non-Cash Rental Income (1) 131 1,430 (1,299) 682 4,526 (3,844) Total rental income $ 99,292 $ 92,931 $ 6,361 $ 291,801 $ 275,841 $ 15,960 (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. The following table sets forth the expirations of existing leases in our Same Park portfolio over the next five years based on lease data at 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 719 1,241 5.2% $ 22,044 5.2% 2022 1,534 5,492 22.8% 98,145 23.1% 2023 1,182 5,526 23.0% 92,804 21.9% 2024 667 4,397 18.3% 77,153 18.2% 2025 259 2,913 12.1% 50,810 12.0% Thereafter 263 4,472 18.6% 82,928 19.6% Total 4,624 24,041 100.0% $ 423,884 100.0% other expenses. conditions pervasive throughout commercial real estate 2022. For the Three Months Ended March 31 June 30 September 30 December 31 Cash Rental income (1) 2021 $ 95,010 $ 96,948 $ 99,161 $ — 2020 $ 93,109 $ 86,705 $ 91,501 $ 94,566 Adjusted Cost of Operations (1) 2021 $ 28,017 $ 26,661 $ 28,470 $ — 2020 $ 26,669 $ 25,439 $ 27,637 $ 27,115 Cash NOI (1) 2021 $ 66,993 $ 70,287 $ 70,691 $ — 2020 $ 66,440 $ 61,266 $ 63,864 $ 67,451 Weighted average square foot occupancy 2021 93.2% 93.9% 94.8% — 2020 92.9% 92.4% 92.6% 92.7% Cash Rental Income per Occupied Square Foot (1) 2021 $ 16.28 $ 16.49 $ 16.70 $ — 2020 $ 16.00 $ 14.97 $ 15.78 $ 16.29 Cash Rental Income per Available Square Foot (1) 2021 $ 15.17 $ 15.48 $ 15.83 $ — 2020 $ 14.87 $ 13.84 $ 14.61 $ 15.10 Analysis of Same Park Market Trends For the Three Months For the Nine Months Ended September 30, Ended September 30, Region 2021 2020 Change 2021 2020 Change Geographic Data on Same Park Geographic Data on Same Park Cash Rental Income Northern California (7.2 million feet) $ 29,461 $ 26,532 11.0% $ 85,435 $ 78,733 8.5% Southern California (3.0 million feet) 13,332 12,121 10.0% 39,704 35,216 12.7% Dallas (2.1 million feet) 5,124 4,862 5.4% 15,341 14,501 5.8% Austin (2.0 million feet) 8,783 8,267 6.2% 26,068 24,293 7.3% Northern Virginia (4.5 million feet) 19,799 19,099 3.7% 58,378 57,007 2.4% South Florida (3.9 million feet) 12,681 10,913 16.2% 36,487 32,304 12.9% Seattle (1.4 million feet) 5,212 4,869 7.0% 15,213 14,387 5.7% Suburban Maryland (1.0 million feet) 4,769 4,838 (1.4%) 14,493 14,874 (2.6%) Total Same Park (25.1 million feet) 99,161 91,501 8.4% 291,119 271,315 7.3% Adjusted Cost of Operations Northern California 6,569 6,488 1.2% 19,159 18,706 2.4% Southern California 3,364 3,507 (4.1%) 9,901 9,732 1.7% Dallas 1,709 1,821 (6.2%) 5,619 5,548 1.3% Austin 3,482 3,120 11.6% 9,838 9,042 8.8% Northern Virginia 6,831 6,248 9.3% 19,848 18,642 6.5% South Florida 3,497 3,317 5.4% 9,856 9,269 6.3% Seattle 1,374 1,358 1.2% 3,937 3,806 3.4% Suburban Maryland 1,644 1,778 (7.5%) 4,990 5,000 (0.2%) Total Same Park 28,470 27,637 3.0% 83,148 79,745 4.3% Cash NOI Cash NOI Northern California 22,892 20,044 14.2% 66,276 60,027 10.4% Southern California 9,968 8,614 15.7% 29,803 25,484 16.9% Dallas 3,415 3,041 12.3% 9,722 8,953 8.6% Austin 5,301 5,147 3.0% 16,230 15,251 6.4% Northern Virginia 12,968 12,851 0.9% 38,530 38,365 0.4% South Florida 9,184 7,596 20.9% 26,631 23,035 15.6% Seattle 3,838 3,511 9.3% 11,276 10,581 6.6% Suburban Maryland 3,125 3,060 2.1% 9,503 9,874 (3.8%) Total Same Park $ 70,691 $ 63,864 10.7% $ 207,971 $ 191,570 8.6% Weighted average square foot occupancy Weighted average square foot occupancy Northern California 94.9% 91.8% 3.4% 94.0% 91.4% 2.8% Southern California 97.2% 94.8% 2.5% 96.6% 95.0% 1.7% Dallas 91.2% 88.5% 3.1% 88.8% 89.0% (0.2%) Austin 94.2% 94.5% (0.3%) 94.8% 94.6% 0.2% Northern Virginia 92.8% 92.7% 0.1% 92.2% 92.0% 0.2% South Florida 98.2% 92.8% 5.8% 96.9% 93.1% 4.1% Seattle 95.0% 93.8% 1.3% 94.1% 96.7% (2.7%) Suburban Maryland 92.2% 93.4% (1.3%) 92.1% 93.9% (1.9%) Total Same Park 94.8% 92.6% 2.4% 94.0% 92.6% 1.5% Cash Rental Income per Occupied Square Foot (1) Cash Rental Income per Occupied Square Foot (1) Northern California $ 17.15 $ 15.96 7.5% $ 16.73 $ 15.86 5.5% Southern California $ 18.85 $ 17.57 7.3% $ 18.83 $ 16.99 10.8% Dallas $ 10.73 $ 10.49 2.3% $ 11.00 $ 10.37 6.1% Austin $ 18.98 $ 17.83 6.4% $ 18.67 $ 17.42 7.2% Northern Virginia $ 18.83 $ 18.19 3.5% $ 18.63 $ 18.22 2.3% South Florida $ 13.36 $ 12.17 9.8% $ 12.99 $ 11.97 8.5% Seattle $ 16.25 $ 15.37 5.7% $ 15.96 $ 14.69 8.6% Suburban Maryland $ 18.91 $ 18.92 (0.1%) $ 19.17 $ 19.29 (0.6%) Total Same Park $ 16.70 $ 15.78 5.8% $ 16.49 $ 15.59 5.8% Cash Rental Income per Available Square Foot (1) Northern California $ 16.27 $ 14.65 11.1% $ 15.72 $ 14.49 8.5% Southern California $ 18.31 $ 16.65 10.0% $ 18.18 $ 16.12 12.8% Dallas $ 9.79 $ 9.29 5.4% $ 9.77 $ 9.24 5.7% Austin $ 17.90 $ 16.85 6.2% $ 17.71 $ 16.50 7.3% Northern Virginia $ 17.47 $ 16.86 3.6% $ 17.18 $ 16.77 2.4% South Florida $ 13.12 $ 11.29 16.2% $ 12.58 $ 11.14 12.9% Seattle $ 15.44 $ 14.43 7.0% $ 15.03 $ 14.21 5.8% Suburban Maryland $ 17.47 $ 17.72 (1.4%) $ 17.70 $ 18.16 (2.5%) Total Same Park $ 15.83 $ 14.61 8.4% $ 15.49 $ 14.44 7.3% (1)Defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations–Analysis of Net Income–Same Park Portfolio table. For the Three Months Ended September 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 374 73.4% $ 3.47 9.9% 25.3% Southern California 228 83.7% 3.76 9.3% 20.6% Dallas 100 85.7% 4.97 7.3% 26.0% Austin 64 63.9% 1.28 9.6% 22.0% Northern Virginia 146 95.6% 5.48 5.3% 19.4% South Florida 196 48.4% 1.66 13.6% 28.3% Seattle 102 96.8% 5.64 3.8% 6.7% Suburban Maryland 43 — 1.68 (3.8%) 3.4% Industrial Totals by Region 1,253 74.3% $ 3.60 8.9% 22.4% Flex Northern California 89 80.4% $ 1.44 6.7% 14.6% Southern California 41 73.8% 2.83 (0.3%) 4.4% Dallas 73 84.1% 3.16 4.8% 16.9% Austin 60 20.0% 2.49 (0.7%) 3.4% Northern Virginia 179 95.4% 5.58 0.7% 8.3% South Florida 26 87.6% 2.76 9.2% 22.4% Seattle 30 45.8% 2.95 8.2% 16.5% Suburban Maryland — — — — — Flex Totals by Region 498 69.6% $ 3.58 2.5% 10.0% Office Northern California 20 53.2% $ 0.27 (19.8%) (22.1%) Southern California — — — — — Dallas — — — — — Austin — — — — — Northern Virginia 142 72.3% 15.23 (8.0%) (1.9%) South Florida — — — — — Seattle — — — — — Suburban Maryland 38 80.2% 5.08 (3.1%) 4.0% Office Totals by Region 200 71.7% $ 11.82 (9.2%) (3.8%) Company Totals by Type 1,951 72.6% $ 4.44 4.9% 15.4% (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. The following table 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 six months ended June 30, 2022 (square feet in thousands): For the Nine Months Ended September 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 1,156 76.5% $ 2.66 12.5% 28.3% Southern California 639 79.8% 2.41 5.6% 13.6% Dallas 389 83.4% 3.90 4.0% 12.0% Austin 208 81.0% 1.12 8.6% 26.9% Northern Virginia 375 85.5% 4.73 4.6% 11.0% South Florida 767 56.9% 1.56 10.1% 23.9% Seattle 199 87.5% 3.90 11.5% 20.8% Suburban Maryland 93 91.5% 2.19 (2.0%) 5.5% Industrial Totals by Region 3,826 75.3% $ 2.69 8.7% 20.8% Flex Northern California 169 71.0% $ 1.20 (0.7%) 3.7% Southern California 164 76.9% 2.35 1.0% 10.0% Dallas 195 75.2% 3.21 3.8% 14.6% Austin 122 28.4% 4.41 (0.8%) 3.2% Northern Virginia 436 91.5% 4.60 (0.8%) 3.6% South Florida 41 79.1% 1.87 8.3% 21.1% Seattle 71 46.6% 2.65 7.0% 14.5% Suburban Maryland — — — — — Flex Totals by Region 1,198 70.3% $ 3.36 0.8% 7.0% Office Northern California 56 62.3% $ 0.78 (13.3%) (13.2%) Southern California 6 57.6% 2.68 3.0% 10.1% Dallas — — — — — Austin — — — — — Northern Virginia 324 64.7% 11.07 (7.8%) (1.3%) South Florida — — — — — Seattle 8 — 11.79 8.5% 19.7% Suburban Maryland 109 76.3% 2.65 (4.6%) 4.2% Office Totals by Region 503 66.4% $ 8.01 (7.7%) (1.9%) Company Totals by Type 5,527 73.1% $ 3.32 4.7% 14.2% (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. 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 September 30, 2021 Port America September 2021 Grapevine, Texas $ 123,268 718 96.8% 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 92.9% 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 96.6% Total acquired property $ 318,304 1,733 97.1% Date Total Square Occupancy at Developed Property Completed Location Cost Feet September 30, 2021 Freeport Industrial Building March 2021 Irving, TX $ 9,052 83 51.7% Total Non-Same Park $ 327,356 1,816 95.0% For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 Change 2021 2020 Change Rental income $ 2,308 $ 2,201 4.9% $ 6,883 $ 7,249 (5.0%) Cost of operations 1,161 1,066 8.9% 3,405 3,084 10.4% NOI $ 1,147 $ 1,135 1.1% $ 3,478 $ 4,165 (16.5%) Selected Statistical Data Weighted average square foot occupancy 94.7% 91.1% 4.0% 94.5% 92.6% 2.1% As of September 30, 2021 Total costs (1) $ 115,426 Physical occupancy 96.2% Average rent per unit (2) $ 2,044 (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. Assets Sold. first quarter of 2022, 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 for the unvested former CEO's shares net of dividend forfeiture expense. Liquidity and Capital Resources Credit Facility: As of • Ground lease obligations: Our contractual payment requirements under various operating leases as of June 30, 2022 are approximately $0.1 million for 2022 and $1.4 million thereafter. For the Nine Months Ended September 30, 2021 2021 2020 2021 2020 Commercial Real Estate (in thousands) (per square foot) (1) Recurring capital expenditures Capital improvements (2) $ 8,343 $ 6,413 $ 0.30 $ 0.23 Tenant improvements 11,255 11,039 0.41 0.40 Lease commissions 5,438 5,225 0.20 0.19 Total commercial recurring capital expenditures (2) 25,036 22,677 0.91 0.82 Nonrecurring capital improvements 1,019 512 0.04 0.02 Total commercial capital expenditures (2) $ 26,055 $ 23,189 $ 0.95 $ 0.84 (1)Per square foot amounts are calculated based on capital expenditures divided by total weighted average square feet owned for the periods presented. For the Nine Months Ended September 30, 2021 Recurring Recurring Capital Expenditures Capital Expenditures as a Percentage of NOI 2021 2020 Change 2021 2020 Region Same Park Northern California $ 5,944 $ 4,696 26.6% 8.8% 7.5% Southern California 2,571 1,973 30.3% 8.6% 7.5% Dallas 2,716 1,629 66.7% 27.8% 17.7% Austin 1,209 1,251 (3.4%) 7.7% 7.9% Northern Virginia 5,666 6,071 (6.7%) 14.7% 15.5% South Florida 1,693 1,698 (0.3%) 6.4% 7.3% Seattle 1,197 745 60.7% 10.6% 7.0% Suburban Maryland 1,900 1,090 74.3% 20.5% 11.1% Total Same Park 22,896 19,153 19.5% 11.0% 9.8% Non-Same Park Northern California 52 45 15.6% Southern California 305 169 80.5% Dallas 74 — 100.0% Northern Virginia 211 — 100.0% Total Non-Same Park 642 214 200.0% Assets sold or held for sale 1,498 3,310 (54.7%) Total commercial recurring capital expenditures 25,036 22,677 10.4% Multifamily 7 — 100.0% Total $ 25,043 $ 22,677 10.4% In the last five years, our annual Same Park recurring capital expenditures have ranged between 2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 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 June 30, 2022, we have contractual construction commitments totaling $0.8 million that will be paid to various contractors as the project is completed. Construction of Brentford at The Mile commenced in August 2020 and is anticipated to be completed over a period of 24 to 36 months at an estimated development cost of $110 million to $115 million, excluding land cost. As of project is completed. 2022. Funds from Operations, Core Funds from Operations, and Funds Available for Distributions For the Three Months For the Nine Months Ended September 30, Ended September 30, 2021 2020 2021 2020 Net income allocable to common stockholders $ 52,217 $ 30,580 $ 125,698 $ 97,717 Adjustments Gain on sale of real estate facilities (29,924) (7,652) (49,117) (27,273) Depreciation and amortization expense 23,857 23,064 69,356 72,646 Net income allocated to noncontrolling interests 13,850 8,124 33,355 26,011 Net income allocated to restricted stock unit holders 350 149 828 543 FFO allocated to JV partner (22) (21) (67) (102) FFO allocable to diluted common stock and units 60,328 54,244 180,053 169,542 Maryland reincorporation costs — — 510 — Non-capitalizable demolition costs — 335 — 335 Acceleration of stock compensation expense due to President and Chief Executive Officer retirement — 1,687 — 1,687 Core FFO allocable to diluted common stock and units 60,328 56,266 180,563 171,564 Adjustments Recurring capital improvements (3,914) (1,625) (8,350) (6,413) Tenant improvements (4,231) (3,338) (11,255) (11,039) Capitalized lease commissions (2,034) (1,889) (5,438) (5,225) Non-cash rental income (1) (453) (1,530) (1,943) (5,340) Non-cash stock compensation expense (2) 2,341 831 6,422 2,704 Cash paid for taxes in lieu of stock upon vesting of restricted stock units (478) (442) (3,680) (4,102) FAD allocable to diluted common stock and units $ 51,559 $ 48,273 $ 156,319 $ 142,149 Weighted average outstanding Common stock 27,543 27,483 27,523 27,470 Common operating partnership units 7,305 7,305 7,305 7,305 Restricted stock units 33 49 42 65 Common stock equivalents 92 82 100 90 Total diluted common stock and units 34,973 34,919 34,970 34,930 Reconciliation of earnings per share to FFO per share Net income per share of common stock—diluted $ 1.89 $ 1.11 $ 4.55 $ 3.55 Gain on sale of real estate facilities (0.85) (0.22) (1.39) (0.78) Depreciation and amortization expense 0.68 0.66 1.99 2.08 FFO per share 1.72 1.55 5.15 4.85 Maryland reincorporation costs — — 0.01 — Non-capitalizable demolition costs — 0.01 — 0.01 Acceleration of stock compensation expense due to President and Chief Executive Officer retirement — 0.05 — 0.05 Core FFO per share $ 1.72 $ 1.61 $ 5.16 $ 4.91 (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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 2022. the obligation to pay a termination fee (as described below); these and other similar 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 diverts management’s attention and resources, which could adversely affect the operation of our business. ITEM 6. EXHIBITS Exhibits Number Description Exhibit Exhibit 10.1 Exhibit 10.2 † Exhibit 31.2 † Exhibit 32.1 † Exhibit 101.INS Inline XBRL Instance Document. Filed herewith. Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema. Filed herewith. Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith. Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith. Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith. Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase. Filed herewith. Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). SIGNATURES Dated: July 19, 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 SxOctober 27, 2021,July 13, 2022, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 27,550,595. June 30,
2022December 31,
2021 (Unaudited) ASSETS Cash and cash equivalents $ 173,460 $ 27,074 Real estate facilities, at cost Land 849,942 852,073 Buildings and improvements 2,202,358 2,186,849 3,052,300 3,038,922 Accumulated depreciation (1,182,746) (1,141,727) 1,869,554 1,897,195 Properties held for sale, net — 66,914 Land and building held for development, net 112,952 76,575 1,982,506 2,040,684 Rent receivable 1,571 1,621 Deferred rent receivable 37,525 37,581 Other assets 10,995 16,262 Total assets $ 2,206,057 $ 2,123,222 LIABILITIES AND EQUITY Accrued and other liabilities $ 92,047 $ 97,151 Credit facility — 32,000 Total liabilities 92,047 129,151 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 June 30, 2022 and December 31, 2021 755,000 755,000 276 275 Paid-in capital 755,873 752,444 Accumulated earnings 318,782 226,737 Total PS Business Parks, Inc.’s stockholders’ equity 1,829,931 1,734,456 Noncontrolling interests 284,079 259,615 Total equity 2,114,010 1,994,071 Total liabilities and equity $ 2,206,057 $ 2,123,222 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Rental income $ 110,910 $ 109,364 $ 223,750 $ 217,411 Expenses Cost of operations 32,587 31,849 66,701 65,067 Depreciation and amortization 22,799 22,514 45,931 45,499 General and administrative 11,092 4,799 22,416 9,181 Total operating expenses 66,478 59,162 135,048 119,747 Interest and other income 1,722 923 1,968 1,179 Interest and other expense (476) (268) (806) (479) Gain on sale of real estate facilities 61,842 19,193 118,801 19,193 Net income 107,520 70,050 208,665 117,557 Allocation to noncontrolling interests (20,388) (12,094) (39,437) (19,505) Net income allocable to PS Business Parks, Inc. 87,132 57,956 169,228 98,052 Allocation to preferred stockholders (9,580) (12,047) (19,160) (24,093) Allocation to restricted stock unit holders (475) (314) (998) (478) Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Net income per share of common stock Basic $ 2.79 $ 1.66 $ 5.40 $ 2.67 Diluted $ 2.78 $ 1.65 $ 5.38 $ 2.66 Weighted average common stock outstanding Basic 27,630 27,531 27,618 27,513 Diluted 27,722 27,632 27,707 27,611 (Unaudited)Three Months Ended June 30, 2022 Preferred Stock Common Stock Paid-in
CapitalAccumulated
EarningsTotal PS
Business Parks,
Inc.’s Stockholders'
EquityNoncontrolling
InterestsTotal
EquityShares Amount Shares Amount 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 Issuance of common stock in connection with share-based compensation — — 4,056 — — — — — — Stock compensation, net — — — — 1,873 — 1,873 — 1,873 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (387) — (387) — (387) Capital contribution from noncontrolling interests—joint venture — — — — — — — 227 227 Net income — — — — — 87,132 87,132 20,388 107,520 Distributions — Preferred stock (Note 9) — — — — — (9,580) (9,580) — (9,580) Common stock ($1.05 per share) — — — — — (29,013) (29,013) — (29,013) Noncontrolling interests— Common units — — — — — — — (7,670) (7,670) Joint venture — — — — — — — (22) (22) Balances at June 30, 2022 30,200 $ 755,000 27,631.499 $ 276 $ 755,873 $ 318,782 $ 1,829,931 $ 284,079 $ 2,114,010 Three Months Ended June 30, 2021 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 (Unaudited)Six Months Ended June 30, 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 — — 41,692 1 2,101 — 2,102 — 2,102 Stock compensation, net — — — — 2,646 — 2,646 — 2,646 Cash paid for taxes in lieu of stock upon vesting of restricted stock units — — — — (1,318) — (1,318) — (1,318) Capital contribution from noncontrolling interests—joint venture — — — — — — — 413 413 Net income — — — — — 169,228 169,228 39,437 208,665 Distributions — — — — — — — Preferred stock (Note 9) — — — — — (19,160) (19,160) — (19,160) Common stock ($2.10 per share) — — — — — (58,023) (58,023) — (58,023) Noncontrolling interests— Common units — — — — — — — (15,341) (15,341) Joint venture — — — — — — — (45) (45) Balances at June 30, 2022 30,200 $ 755,000 27,631.499 $ 276 $ 755,873 $ 318,782 $ 1,829,931 $ 284,079 $ 2,114,010 Six Months Ended June 30, 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 — — 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 Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net income $ 208,665 $ 117,557 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 45,931 45,499 Straight-line rent and amortization of lease intangibles, net (2,171) (1,490) Gain on sale of real estate facilities (118,801) (19,193) Stock compensation expense 2,940 4,081 Amortization of financing costs 488 272 Other, net (2,635) 1,381 Total adjustments (74,248) 30,550 Net cash provided by operating activities 134,417 148,107 Cash flows from investing activities Capital expenditures to real estate facilities (19,120) (15,707) Capital expenditures to land and building held for development, net (34,522) (18,240) Proceeds from sale of real estate facilities 189,509 32,622 Net cash provided by (used in) investing activities 135,867 (1,325) Cash flows from financing activities Proceeds from borrowing on credit facility 20,000 — Repayment of borrowing on credit facility (52,000) — Payment of financing costs (198) (157) Proceeds from the exercise of stock options 2,102 907 Payment of Issuance costs — (105) Cash paid for taxes in lieu of stock upon vesting of restricted stock units (1,318) (3,202) Cash paid to restricted stock unit holders (328) (366) Capital contribution from noncontrolling interests – joint venture 413 287 Distributions paid to preferred stockholders (19,160) (24,093) Distributions paid to common stockholders (58,023) (57,790) Distributions paid to noncontrolling interests—common units (15,341) (15,341) Distributions paid to noncontrolling interests—joint venture (45) (40) Net cash used in financing activities (123,898) (99,900) Net increase in cash and cash equivalents 146,386 46,882 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 $ 174,548 $ 117,053 Supplemental disclosures Interest Paid $ 71 $ — 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 $ 7,307 $ 4,642 Accrued and other liabilities $ (7,307) $ (4,642) September2021SeptemberJune 30, 2021,2022, 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 its 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.SeptemberJune 30, 2021,2022, the Company owned and operated 28.126.6 million rentable square feet of commercial space in 6 states, comprising 9793 parks and 680636 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.ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.2020.
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 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 $46.5$77.2 million and $15.1$59.9 million were included in land and building held for development, net on our consolidated balance sheets as of SeptemberJune 30, 20212022 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.
•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 June 30, 2022 2021 Consolidated balance sheets Cash and cash equivalents $ 173,460 $ 115,965 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 $ 174,548 $ 117,053
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 September 30, 2021, the value of above-market in-place rents resulted in net intangible assets of $0.8 million, net of $11.5 million of accumulated amortization, and the value of below-market in-place rents resulted in net intangible liabilities of $2.8 million, net of $12.8 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 September 30, 2021, the value of acquired in-place lease intangible resulted in net intangible assets of $6.4 million, net of $9.4 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 September 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. The ground leases expire in 2029 and 2030 and do not have options to extend. As of September 30, 2021, the remaining lease terms were 8.0 years and 8.3 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.buyer.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.
The Company wrote-off accounts receivable, net of recoveries, and deferred rent receivable of $0.0 million and $0.1 million, respectively, for the three months ended September 30, 2021, and $0.0 million and $0.3 million, respectively, for the nine months ended September 30, 2021.$110.4$110.9 million and $103.8$109.4 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $327.9$223.7 million and $310.5$217.4 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, 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 $83.6$83.1 million and $79.4$83.7 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $249.4$167.9 million and $238.3$165.8 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Variable lease payments, consisting primarily of reimbursement of property operating expenses, were $26.8$27.8 million and $24.4$25.7 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $78.4$55.8 million and $72.2$51.6 million for the ninesix months ended SeptemberJune 30, 2022 and 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, an entity is not required to account for all leaseDuring the three months ended September 30, 2021, the Company agreed to defer $0.1 million and abate $0.1 million of billed rental income, which was significantly lower than the $1.7 million of rent deferrals and $0.3 million of rent abatements granted at the initial onset of the COVID-19 pandemic during the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferrals and $0.3 million of rent abatements. $6.1$6.2 million of rent deferrals and $1.6 million of rent abatements. As of SeptemberJune 30, 2021,2022, the 340289 current customers that received rent relief account for 9.6%9.30% of rental income. Also as of SeptemberJune 30, 2021,2022, the Company had collected $4.5$5.7 million of rent deferral repayment, representing 99.9%99.8% of the amounts scheduled to be repaid through September 2021.June 30, 2022. An additional $0.5 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 SeptemberJune 30, 2021.2022. 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.”SeptemberJune 30, 20212022 and December 31, 2020,2021, we did 0tnot recognize any tax benefit for uncertain tax positions.
11)10) using the treasury stock method.Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Calculation of net income allocable to common stockholders Net income $ 107,520 $ 70,050 $ 208,665 $ 117,557 Net (income) loss allocated to Preferred stockholders based upon distributions (9,580) (12,047) (19,160) (24,093) Noncontrolling interests—joint venture (9) 7 (8) 5 Restricted stock unit holders (475) (314) (998) (478) Net income allocable to common stockholders and noncontrolling interests—common units 97,456 57,696 188,499 92,991 Net income allocation to noncontrolling interests—common units (20,379) (12,101) (39,429) (19,510) Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Calculation of common partnership units as a percentage of common stock equivalents Weighted average common stock outstanding 27,630 27,531 27,618 27,513 Weighted average common partnership units outstanding 7,305 7,305 7,305 7,305 Total common stock equivalents 34,935 34,836 34,923 34,818 Common partnership units as a percentage of common stock equivalents 20.9 % 21.0 % 20.9 % 21.0 % Weighted average common stock outstanding Basic weighted average common stock outstanding 27,630 27,531 27,618 27,513 Net effect of dilutive stock compensation—based on treasury stock method using average market price 92 101 89 98 Diluted weighted average common stock outstanding 27,722 27,632 27,707 27,611
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 $70.0 million and “land and building held for development, net” of $5.1 million as of December 31, 2020 into “properties held for sale, net” of $75.1 million on our consolidated balance sheets. Additionally, weninesix months ended SeptemberJune 30, 20212022 was as follows (in thousands): Land Buildings and
ImprovementsAccumulated
DepreciationTotal Balances at December 31, 2021 $ 852,073 $ 2,186,849 $ (1,141,727) $ 1,897,195 Capital expenditures — 18,651 — 18,651 — (2,889) 2,889 — Depreciation and amortization expense — — (43,908) (43,908) Transfer to properties held for development (2,131) — — (2,131) Transfer to properties held for sale — (253) — (253) Balances at June 30, 2022 $ 849,942 $ 2,202,358 $ (1,182,746) $ 1,869,554 ____________________________Land, building and improvements, and accumulated depreciation totaling $30.9 million, $166.5 million, and $127.4 million, respectively, were reclassified as of December 31, 2020 to “properties held for sale, net” representing a 772,000 square foot industrial-flex business park located in Irving, Texas, a 371,000 square foot industrial-flex business park located in San Diego, California, a 244,000 square foot office business park located in Herndon, Virginia, a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, a 53,000 square foot industrial building located in Beltsville, Maryland, and a 22,000 square foot single-tenant industrial-flex building located in Irving, Texas.(2)Disposals primarily represent the book value of tenant improvements that have been removed upon the customer vacating their space.SeptemberJune 30, 2021,2022, we have commitments, pursuant to executed leases throughout our portfolio, to spend $10.5$7.1 million on leasing transaction costs, which include tenant improvements and lease commissions.On September 1, 2021,Company acquired a multi-tenant industrial business park comprisingprocess of developing an approximately 718,000 rentable square feet in Grapevine, Texas, for a total purchase price of $123.3 million, inclusive of capitalized transaction costs.On January 10, 2020, the Company acquired a multi-tenant industrial business 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.The following table summarizes assets acquired and liabilities assumed for the nine months ended September 30, 2021 and 2020 (in thousands):During the nine months ended September 30, 2021, we completed the development of an 83,000 square foot shallow-baymulti-tenant industrial building 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 June 30, 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 June 30, 2022, $10.7 million of the estimated $17.1 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 $18.6 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $3.7 million that will be paid to various contractors as the project is completed.Septemberour Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended June 30, 2021.2022, $0.6 million was reclassified from land to property held for development on our consolidated balance sheet and, as of June 30, 2022, $3.4 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 constructionProperties SoldSeptember 17, 2021,June 1, 2022, the Company sold a 22,00093,000 square foot industrial-flex buildingbusiness park located in San Francisco, California, for net sale proceeds of $62.1 million, which resulted in a gain on sale of $55.3 million.$3.4$91.9 million, which resulted in a gain on sale of $2.9$57.0 million. On July 16, 2021,(The June 1, May 6, and March 29, 2022 sales, collectively the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. "2022 Assets Sold").During 2021, the Company reclassified such assets as properties held for sale, net, in the consolidated balance sheet as of December 31, 2020.On September 16, 2020, the Company sold 2 industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. 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.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California, for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 million.these salesthe 2022 Assets Sold and the 2021 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.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 $5.1 million as of SeptemberJune 30, 2021.SeptemberJune 30, 2021,2022, the development cost incurred was $41.4$77.2 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel. As of SeptemberJune 30, 2021, 2022, we have contractual construction commitments totaling $51.0$20.8 million that will be paid to various contractors as the project is completed.SeptemberJune 30, 20212022 is as follows (in thousands):Remainder of 2022 $ 150,404 2023 258,127 2024 189,786 2025 122,009 2026 83,657 Thereafter 125,746 $ 929,729 ____________________________(1)Excludes future minimum rental income from assets held for sale asTable of September 30, 2021.Contents$26.8$27.8 million and $24.4$25.7 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $78.4$55.8 million and $72.2$51.6 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. These variable lease payment amounts are included as rental income in the accompanying consolidated statements of income.2.2%2.5% of total leased square footage are subject to termination options, of which 1.3%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., 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 0.70% to LIBOR plus 1.35%. Currently, the Company’s rate under the Credit Facility is LIBOR plus 0.70% per annum. In addition, the Company is required to pay an annual facility fee ranging from 0.10% to0.25% per annum calculated on the aggregate committed amount of the Credit 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 total 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 improve0zero balance outstanding on its Credit Facility at SeptemberJune 30, 20212022 and a $32.0 million balance outstanding, at an interest rate of 0.80%, at December 31, 2020. 2021. In connection with the Amended Credit Agreement, the Company paid $2.2 million of loan origination costs. The Company had $2.2$1.8 million and $0.2$2.1 million of total unamortized loan origination costs as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, which isare included in other assets in the accompanying consolidated balance sheets. The Credit Facility requires the Company to meet certain covenants, all of which it was in compliance with as of SeptemberJune 30, 2021.2022. Interest on outstanding borrowings is payable monthly.$226.0$279.8 million and $215.7$255.7 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and (ii) the JV Partner’s interests in our consolidated joint ventures, totaling $3.7$4.3 million and $3.3$3.9 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.$13.9$20.4 million and $8.1$12.1 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $33.4$39.4 million and $26.0$19.5 million for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.During the three and nine months ended September 30, 2021, the$0.5 million, respectively, and $0.4 million for bothduring the three and ninesix months ended SeptemberJune 30, 2020,2022, respectively, and $0.1 million and $0.3 million during the three and six months ended June 30, 2021, respectively, from the JV Partner related to its noncontrolling interest in the Brentford Joint Venture.SeptemberJune 30, 20212022 and 2020 and $0.2 million for each of the nine months ended September 30, 2021 and 2020. We2021.We allocate certain operating expenses to PS related to the management of these properties, including payroll and other business expenses, totaling $0.1 million for each of the three months ended SeptemberJune 30, 2022 and 2021, and 2020$0.1 million and $0.2 million and $0.3 million for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.SeptemberJune 30, 20212022 and 20202021, and $0.1 million for each of the ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. 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 SeptemberJune 30, 20212022 and 2020 and $0.1 million for each of the nine months ended September 30, 2021 and 2020.2021. These amounts are included under cost of operations on our consolidated statements of income.$0.5$0.3 million and $0.4$0.2 million for costs PS incurred on our behalf for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $1.0 million and $0.8$0.5 million for each of the ninesix months ended SeptemberJune 30, 20212022 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 ninesix months ended SeptemberJune 30, 20212022 and 2020.less than $0.1due from PS of $0.2 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, for these contracts.SeptemberJune 30, 20212022 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 On October 4, 2021, the Company announced that it is calling for redemption all outstanding depositary shares representing interests in its 5.20% Cumulative Preferred Stock, Series W on November 3, 2021, at $25.00 per share plus accrued dividends from October 1, 2021, through the date of redemption. The aggregate redemption amount, inclusive of prorated dividends, to be paid to the holders of the depositary shares is $190.7 million.$12.0$9.6 million and $36.1$19.2 million in distributions to our preferred stockholders for each of the three and ninesix months ended SeptemberJune 30, 2022, respectively, and $12.0 million and $24.1 million for the three and six months ended June 30, 2021, and 2020, respectively.SeptemberJune 30, 2021,2022, there were 0no dividends in arrears.depositarydepository share, plus any accrued and unpaid dividends.SeptemberJune 30, 2022 and 2021, respectively, and 2020, and $86.7$58.0 million ($3.152.10 per share of common stock) and $86.5$57.8 million ($3.152.10 per share of common stock) in distributions to our common stockholders for each of the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.SeptemberJune 30, 2022 and 2021, and 2020, and $23.0$15.3 million ($3.152.10 per share of common unit) in distributions to our common unit holders for each of the ninesix months ended SeptemberJune 30, 20212022 and 2020.SeptemberJune 30, 20212022 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 value of $2.9 million. These RSUs will vest ratably over five years.Effective September 1, 2020, Maria Hawthorne retired from her role as President and CEO and continues to serve as a director of the Company. Due to Ms. Hawthorne’s continued service as a director of the Company her unvestedcommon stock options and restricted stockunderlying such units will continue to vest on their original vesting schedule in accordance with the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan and related award agreements. For financial reporting purposes, the endas of the service periods for these stock option and restricted stock unit grants have changed from the various respective vesting dates to September 1, 2020, the date of her retirement as President and CEO. Accordingly, all remaining stock compensation expense for Ms. Hawthorne, which totaled $1.7 million, was amortized and included in general and administrative expense during the three and nine months ended September 30, 2020.ninesix months ended SeptemberJune 30, 2021,2022, we recorded $0.1 million and $0.5$0.2 million, respectively, in compensation expense related to stock options as compared to $0.1$0.2 million and $0.3$0.4 million for the same periods in 2020, respectively.ninesix months ended SeptemberJune 30, 2021, 28,0002022, 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 SeptemberJune 30, 20212022 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.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.ninesix months ended SeptemberJune 30, 2021,2022, respectively, we recorded $1.9$1.7 million and $5.1$2.2 million in compensation expense related to RSUs as compared to $2.2$1.8 million and $3.5$3.2 million for the same periods in 2020.2021.ninesix months ended SeptemberJune 30, 2021, 74,4352022, 38,151 RSUs were granted, 57,06322,209 RSUs vested, and 17,11055,976 RSUs were forfeited.withholdingswithholding totaling $3.7$1.3 million were made on behalf of employees in exchange for 23,9357,920 shares of common stock withheld upon vesting for the ninesix months ended SeptemberJune 30, 20212022, resulting in the issuance of 33,12812,528 shares of common stock.withholdingswithholding totaling $4.1$3.2 million were made on behalf of employees in exchange for 28,87720,824 shares of common stock withheld upon vesting for the ninesix months ended SeptemberJune 30, 20202021, resulting in the issuance of 41,69928,439 shares of common stock. A total of 121,77078,557 and 121,508118,591 RSUs were outstanding at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.Of the 74,435 RSUs granted during the nine months ended September 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.ninesix months ended SeptemberJune 30, 2021, respectively,2022, we recorded $0.3 million and $0.8$0.5 million, respectively, in compensation expense related to these shares as compared to $0.2$0.3 million and $0.6$0.5 million for the same periods in 2020, respectively. NaN director retirementwereof common stock on the record date for the dividends and through the effective time of the Company merger will be entitled to receive an aggregate of $187.716848 per share in cash, consisting of (i) $187.50, representing the $5.25 closing cash dividend and the merger consideration of $187.50 per share as reduced by the $5.25 closing cash dividend plus (ii) the $0.216848 pro rata dividend.duringand outstanding shares of common stock of the nine months ended September 30, 2020.12.13. Subsequent EventsSubsequentOn July 8, 2022, the Company completed the sale of 5 properties with approximately 0.3 million rentable square feet to September 30, 2021, other thanPS for $47.0 million.These properties were originally contributed to the asset sales (disclosedCompany by PS in Note 3)connection with the Company’s initial public offering in 1998.announced redemptionother transactions contemplated by the Merger Agreement. Subject to the satisfaction or waiver of all of the 5.20% Cumulative Preferred Stock, Series W (disclosed in Note 9), no other subsequent events have occurred that would require recognitionconditions to the closing of the transaction in the consolidated financial statementsMerger Agreement, the transaction is expected to be completed on or disclosurearound July 20, 2022.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 1 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.
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 estimated fair 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 rent 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.SeptemberJune 30, 2021,2022, the Company owned and operated 28.126.6 million rentable square feet of commercial space in six states consisting of 9793 parks and 680636 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 structureRefer to Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for information regarding the merger agreement the Company enter into on April 24, 2022 (the mergers described therein, the “Merger”). The Merger, which allows us 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 fitwas approved by the Company’s strategic objectives.common stockholders at a special meeting on July 15, 2022, is subject to other customary closing conditions. The Merger is expected to close on or around July 20, 2022, after the conditions to closing are satisfied or waived. The Company can provide no assurances regarding whether the Merger will close as expected, or at all.customers, are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2020.customers.On September 1, 2021, we acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet in Grapevine, Texas, for a total purchase price of $123.3 million, inclusive of capitalized transaction costs. The park consists of 15 buildings and was 96.1% occupied at acquisition with suites ranging from 2,000 to 20,000 square feet.On October 28, 2020, we acquired a multi-tenant industrial business 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 business 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. Duringnine months ended September 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 June 30, 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 June 30, 2022, $10.7 million of the estimated $17.1 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 $18.6 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $3.7 million that will be paid to various contractors as the project is completed.Septemberour Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended 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 $5.1 million as of SeptemberJune 30, 2021.SeptemberJune 30, 2021,2022, the development cost incurred was $41.4$77.2 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $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.September 17, 2021,June 1, 2022, the Company sold a 22,00093,000 square foot industrial-flex buildingbusiness park located in San Francisco, California, for net sale proceeds of $62.1 million, which resulted in a gain on sale of $55.3 million.$3.4$91.9 million, which resulted in a gain on sale of $2.9$57.0 million.On July 16, 2021, (The June 1, May 6, and March 29, 2022 sales, collectively the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million.On September 16, 2020, the Company sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million and resulted in a gain of $7.7 million.On January 7, 2020, the Company completed the sale of a single-tenant building totaling 113,000 square feet in Rockville, Maryland, for net sale proceeds of $29.3 million, which resulted in a gain on sale of $19.6 million.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California (“Lusk Sale” (The “2021 Asset Sold”), for a gross sales price of $315.4 million, and net sale proceeds, after payment of transaction costs, were $311.1 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 and third quarter of 2020, with only a partial recovery by September 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.During the three months ended September 30, 2021, the Company granted $0.1 million rent deferral and $0.1 million of rent abatement compared to the $1.7 million of rent deferral and $0.3 million of rent abatement granted for the three months ended September 30, 2020. During the nine months ended September 30, 2021, the Company granted $0.4 million of rent deferral and $0.3 million of rent abatement which was significantly lower than the $5.5 million of rent deferrals and $1.2 million of rent abatements granted during the nine months ended September 30, 2020. has entered into rent relief agreements consisting of $6.1$6.2 million of rent deferrals and $1.6 million of rent abatements. As of SeptemberJune 30, 2021,2022, the 340289 current customers that received rent relief account for 9.6%9.30% of rental income. Also as of SeptemberJune 30, 2021,2022, the Company had collected $4.5$5.7 million of rent deferral repayment, representing 99.9%99.8% of the amounts scheduled to be repaid through September 2021.AsJune 30, 2022. An additional $0.5 million of October 27, 2021, the Company had open rent relief requests from less than 1% of its customers. Itdeferral repayment 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 cannotbe 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 rent 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.results.results, including as a result of adverse impacts to our tenants and to the economy generally. The Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company’s leases require customers to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, which should partially reduce the Company’s exposure to inflation.SeptemberJune 30, 2021, excluding assets held for sale,2022, leases from our top 10 customers comprised 10.0% of our annualized rental income, with only four customers –representing 1% or more– the U.S.US Government (2.6%(2.5%), Amazon Inc. (1.6%), KZ Kitchen Cabinet & Stone (1.3%), and Luminex Corporation (1.0%) – representing more than 1%. In terms of industry concentration, 22.0%24.1% of our annualized rental income comes from businessBusiness services, 14.7%and 15.4% from logistics, and 10.0% from technology.Logistics. No other industry group represents more than 10% of our annualized rental income.The negative impactAs of the COVID-19 pandemicJune 30, 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. During the three and nine months ended September 30, 2021, the Company wrote off $0.0 million of accounts receivable, net of recoveries, compared to $0.3 million and $1.5 million written off during the three and nine months ended September 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 nine months ended September 30, 2021, the Company wrote off $0.1 million and $0.3 million of deferred rent receivable, respectively, which is significantly lower than the $0.3 million and $2.7 million written off during the three and nine months ended September 30, 2020, respectively.October 27, 2021,July 13, 2022, we had 25,000 square feet of leased space occupied by one customer that is protected by Chapter 11 of the U.S. Bankruptcy Code, which has an aggregatea remaining lease value of $0.1 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. 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.NineSix Months Ended SeptemberJune 30, 20212022 and 20202021SeptemberJune 30, 2021,2022, net income allocable to common stockholders was $52.2$77.1 million, or $1.89$2.78 per diluted share, compared to $30.6$45.6 million, or $1.11$1.65 per diluted share, for the same period in 2020.2021. The increase was mainly due to a $29.9$61.8 million gain on sale of assets sold during the thirdsecond quarter of 2021,2022, compared to a $7.7 million gain on sales of assets sold in 2020, combined with an increase in NOI.For the nine months ended September 30, 2021, net income allocable to common stockholders was $125.7 million, or $4.55 per diluted share, compared to $97.7 million, or $3.55 per diluted share, for the same period in 2020. The increase was mainly due to a $49.1 million gain on sale of assets sold during the first nine months of 2021, compared to a $27.3$19.2 million gain on sale of assets sold during the same period in 2020,2021, combined with ana $3.3 million increase in higher 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 depreciation and amortization expense,preferred distributions in 2022 compared to 2021 due to the redemption of preferred stock in November 2021, partially offset by higher generalMerger related costs of $6.1 million and administrativea decrease of $4.3 million in NOI generated from assets sold.
2019,2020, comprising 25.125.4 million rentable square feet of our total 28.126.6 million of rentable square feet at SeptemberJune 30, 2021 (the2022 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 1.8including the 2022 Assets Sold totaling 1.1 million square feet including 1.2and the 2021 Asset Sold totaling 0.2 million square feetfeet.Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income Same Park $ 103,988 $ 98,010 6.1 % $ 207,390 $ 194,167 6.8 % Non-Same Park 3,659 1,377 165.7 % 7,007 2,623 167.1 % Multifamily 2,524 2,248 12.3 % 4,893 4,575 7.0 % 739 7,729 (90.4) % 4,460 16,046 (72.2 %) Total rental income 110,910 109,364 1.4 % 223,750 217,411 2.9 % Same Park 29,853 27,188 9.8 % 59,950 55,594 7.8 % Non-Same Park 1,279 494 158.9 % 2,339 916 155.3 % Multifamily 1,181 1,177 0.3 % 2,405 2,244 7.2 % 274 2,990 (90.8) % 2,007 6,313 (68.2 %) Total cost of operations 32,587 31,849 2.3 % 66,701 65,067 2.5 % (549) (481) 14.1 % (1,085) (937) 15.8 % Total cost of operations excl. stock compensation expense 32,038 31,368 2.1 % 65,616 64,130 2.3 % Same Park 74,135 70,822 4.7 % 147,440 138,573 6.4 % Non-Same Park 2,380 883 169.5 % 4,668 1,707 173.5 % Multifamily 1,343 1,071 25.4 % 2,488 2,331 6.7 % 465 4,739 (90.2) % 2,453 9,733 (74.8 %) Depreciation and amortization expense (22,799) (22,514) 1.3 % (45,931) (45,499) 0.9 % General and administrative expense (11,092) (4,799) 131.1 % (22,416) (9,181) 144.2 % Interest and other income 1,722 923 86.6 % 1,968 1,179 66.9 % Interest and other expense (476) (268) 77.6 % (806) (479) 68.3 % Gain on sale of real estate facilities 61,842 19,193 222.2 % 118,801 19,193 519.0 % Net income $ 107,520 $ 70,050 53.5 % $ 208,665 $ 117,557 77.5 %
____________________________(1)(2)As of September 30, 2021, the Company had reclassified AHFS totaling 1.2 million square feet, including a 53,000 square foot industrial building located in Beltsville, Maryland, a 371,000 square foot industrial-flex business park located in San Diego, California (subsequently sold in October 2021), and a 772,000 square foot industrial-flex business park located in Irving, Texas. As of December 31, 2020, properties held for sale includes the 1.2 million square feet described above along with a single-tenant industrial-flex building totaling 22,000 square feet located in Irving, Texas, which was sold in September 2021, a 244,000 square foot office business park located in Herndon, Virginia, which sold in July 2021, and a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, which sold in June 2021. Also included in the respective periods in 2020 are assets sold comprising 40,000 square feet sold in September 2020 and 113,000 square feet sold in January 2020.(2)Adjusted Cost of Operations under Cash NOI excludes the impact of stock compensation expense.Adjusted Cost of Operations.$6.7$1.5 million and $17.3$6.3 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in 20202021 due primarily to higher occupancy a reduction in rent abatements granted2022 compared to certain customersthe same period in 2021 compared to 2020, and lower write-offs of accounts receivable and deferred rent receivable in 2021 compared to 2020 combined with rental income from our Non-Same Park portfolio acquired during the third and fourth quarterquarters of 2020 and in 2021. These increases were partially offset by a decrease in rental income from assets sold.$1.0$0.7 million and $4.7$1.5 million for the three and ninesix months ended SeptemberJune 30, 20212022, respectively, as compared to the same periods in 20202021 due primarily to higher Adjusted Cost of Operations incurred by our Same Park (discussed below) and Non-Same Park portfolios, partially offset by a decrease in Adjusted Cost of Operations from assets sold.$27.6$37.5 million and $35.6$90.6 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in 2020.2021. The three month increase was mainly due to a $29.9$42.6 million increase in the gain on sale of assets sold during second quarter of 2022, compared to the same period in 2021, combined with a $3.3 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 the Merger related costs of $6.1 million and a decrease of $4.3 million in NOI generated from assets sold or held for sale.third quarter of 2021six months ended June 30, 2022 compared to only a $7.7 million gain on sale of assets sold during the same period in 20202021, combined with an $8.9 million increase in NOI driven byfrom our Same Park portfolio (defined below), a reduction in rent abatements granted to certain customers as well as lower write-offs of accounts receivable and deferred rent receivable. The nine month increase was primarily due to a $49.1$3.0 million gain on sale of assets sold during the first nine months of 2021, compared to only a $27.3 million gain on sale of assets sold during the same period in 2020, combined with an increase in higher NOI attributable to the same reasons mentioned above and lower depreciation and amortization expense,from our Non-Same Park portfolio (defined below), partially offset by higher generala decrease of $7.3 million in NOI generated from assets sold or held for sale, the Merger related costs of $6.1 million, and administrativea 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 $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.ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands, except per square foot data): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income $ 103,242 $ 97,698 5.7 % $ 205,749 $ 192,518 6.9 % 746 312 139.1 % 1,641 1,649 (0.5 %) Total rental income 103,988 98,010 6.1 % 207,390 194,167 6.8 % Cost of Operations Property taxes 11,366 10,718 6.0 % 22,997 21,756 5.7 % Utilities 4,172 3,948 5.7 % 8,586 8,169 5.1 % Repairs and maintenance 6,339 5,428 16.8 % 11,805 10,461 12.8 % Compensation 4,857 4,345 11.8 % 9,936 8,825 12.6 % Snow removal 12 6 100.0 % 784 928 (15.5 %) Property insurance 1,251 1,147 9.1 % 2,502 2,302 8.7 % Other expenses 1,856 1,596 16.3 % 3,340 3,153 5.9 % 29,853 27,188 9.8 % 59,950 55,594 7.8 % Less: Non-cash stock based compensation in operating costs (518) (438) 18.3 % (1,004) (852) 17.8 % Total Cash Cost of Operations 29,335 26,750 9.7 % 58,946 54,742 7.7 % $ 74,135 $ 70,822 4.7 % $ 147,440 $ 138,573 6.4 % $ 73,907 $ 70,948 4.2 % $ 146,803 $ 137,776 6.6 % Selected Statistical Data Square footage at period end 25,365 25,365 — 25,365 25,365 — 71.3 % 72.3 % (1.0 %) 71.1 % 71.4 % (0.3 %) 71.6 % 72.6 % (1.0 %) 71.4 % 71.6 % (0.2 %) Weighted average square foot occupancy 95.6 % 94.2 % 1.4 % 95.9 % 93.8 % 1.9 % $ 16.83 $ 16.41 2.6 % $ 16.78 $ 16.32 2.8 % $ 16.58 $ 16.36 1.3 % $ 16.47 $ 16.18 1.8 % ____________________________Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.3 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively.(3)Adjusted Cost of Operations, as presented above, excludesincludes stock compensation expense for employees whose compensation expense is recorded in cost of operations.Adjusted Cost of Operations.AdjustedCash Cost of Operations.ninesix month periods shown is annualized.Revenue per Available Square Foot (RevPAF) is computed by dividing rental income for the period by weighted average available square feet for the same period. RevPAF for the three and nine month periods shown is annualized.(10)Cash Rental Income per Occupied Square Foot is computed by dividing Cash Rental Income for the period by weighted average occupied square feet for the same period. Cash rental Income per Occupied Square Foot for the three and ninesix month periods shown is annualized.(11)Cash Rental Income per Available Square Foot is computed by dividing Cash Rental Income for the period by weighted average available square feet for the same period. Cash Rental Income per Available Square Foot for the three and nine month periods shown is annualized.6.8%6.1% and 5.8%6.8% for the three and ninesix months ended SeptemberJune 30, 20212022, respectively, as compared to the same periods in 2020.2021. The three and ninesix month increases wereincrease was due primarily due to a reduction in rent 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 4.4%2.6% and 4.2%2.8%, in the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to the same periods in 2020.ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2022 2021 $ Change 2022 2021 $ Change Rental income Base rental income $ 76,232 $ 73,270 $ 2,962 $ 151,919 $ 143,437 $ 8,482 Expense recovery income 26,694 23,815 2,879 53,050 47,587 5,463 Lease buyout income 112 170 (58) 272 486 (214) Rent receivable recovery/(write-off) (128) 47 (175) (215) 46 (261) Abatements — (103) 103 (2) (185) 183 Deferrals — (78) 78 — (280) 280 Deferral repayments, net 139 422 (283) 289 1,103 (814) Fee Income 193 155 38 436 324 112 Cash Rental Income 103,242 97,698 5,544 205,749 192,518 13,231 746 312 434 1,641 1,649 (8) Total rental income $ 103,988 $ 98,010 $ 5,978 $ 207,390 $ 194,167 $ 13,223 ____________________________
SeptemberJune 30, 20212022 (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 1,155 2,787 12 % 50,250 11 % 2023 1,441 5,860 24 % 101,889 23 % 2024 1,006 5,017 21 % 92,169 21 % 2025 460 3,858 16 % 72,389 17 % 2026 2026 225 2,356 10 % 42,911 10 % Thereafter 193 4,131 17 % 79,007 18 % Total 4,480 24,009 100 % 438,615 100 % Adjusted Cost of OperationsAdjusted 3.0%9.8% and 4.3%7.8% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in the prior year. The three and six month increase wasincreases were due primarily to increases in utilitiesalmost all cost of operations categories due to increased traffic as customers returned to the workplace, except for snow removal and property taxes, while the nine month increase was due primarily to increases in insurance, property taxes, repairs and maintenance, and snow removal.2.2%6.0% and 2.1%5.7% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods 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.10.2%5.7% and 3.0%5.1% during the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periodsperiod in the prior year. The three and nine month increases werethree-month increase was driven by reduced consumption in 2020 resulting from the “shelter in place order” dueincreased rates and increased usage as customers returned to the COVID-19 pandemic during the second and third quarter of 2020.workplace. 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.expense increased 1.5%16.8% and 3.7%12.8% for the three and ninesix months ended SeptemberJune 30, 2021, respectively,2022, as compared to the same periodsperiod in the prior year. The three and nine month increases werethree-month increase was due a reduction in general repairs and property servicesto increased usage as a result ofcustomers returned to the “shelter in place order” placed into effect during the second and third quarter of 2020.workplace. 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 always predictable. We expect repairs and maintenance costs for the remainder of 20212022 to be comparable to our results for the three months ended September 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.0.7%11.8% and 2.2%12.6% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in the prior year. Compensation expense is comprised of on-siteThe increase in compensation was primarily due to increases in personnel and supervisory personnel costs incurred in the operation of our properties.increased wages due to inflationary impacts on labor. We expect compensation expense forand payroll expenses to continue to increase in the remainderfuture.1,344.3%100.0% and decreased 15.5% during the ninethree and six months ended SeptemberJune 30, 20212022, respectively, as compared to the same periodperiods in the prior year. Snow removal costs are weather dependent and therefore not predictable.expense increased 3.8%9.1% and 22.1%8.7% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in the prior year. The three and nine month increases werethree-month increase was primarily due to an increase in our property insurance premium for the policy period June 2020 to May 2021premiums due to unfavorable marketsectors combined with insurance deductibles recorded during 2021 related to damage from the winter storm in Texas.sectors. We expect to experience increases in property insurance expense in the future as unfavorable market conditions pervasive throughout commercial real estate sectors persist.decreased 1.2%increased 16.3% and 1.8%5.9% for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods 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 and six months Septemberended June 30, 2021.Same Park Quarterly TrendsThe following table sets forth historical quarterly data related to the operations of our Same Park portfolio for Cash Rental Income, Adjusted Cost of Operations, weighted average occupancy, Cash Rental Income per Occupied Square Foot, and Cash Rental Income per Available Square Foot (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.AdjustedCash Cost of Operations, weighted average occupancy, Cash Rental Income per Occupied Square Foot, and Cash Rental Income per AvailableOccupied Square Foot (in thousands, except per square foot data): Three Months Ended June 30, Six Months Ended June 30, Region 2022 2021 Change 2022 2021 Change Geographic Data on Same Park Cash Rental Income Square Feet Northern California Northern California 7,231 $ 30,209 $ 28,573 5.7% $ 60,457 $ 55,937 8.1% Southern California Southern California 3,529 16,177 15,411 5.0% 32,132 29,504 8.9% Dallas Dallas 2,093 5,553 5,173 7.3% 10,999 10,217 7.7% Austin Austin 1,963 9,537 8,652 10.2% 18,371 17,285 6.3% Northern Virginia Northern Virginia 4,241 17,916 17,951 (0.2)% 36,631 36,044 1.6% South Florida South Florida 3,866 13,747 12,020 14.4% 26,922 23,806 13.1% Seattle Seattle 1,350 5,135 5,081 1.1% 10,367 10,001 3.7% Suburban Maryland Suburban Maryland 1,092 4,968 4,837 2.7% 9,870 9,724 1.5% Total Same Park Total Same Park 25,365 $ 103,242 $ 97,698 5.7% 205,749 192,518 6.9% Cash Cost of Operations Cash Cost of Operations Northern California $ 6,913 $ 6,218 11.2% 13,524 12,561 7.7% Southern California 4,141 3,836 8.0% 8,353 7,691 8.6% Dallas 1,960 1,989 (1.5)% 3,751 3,908 (4.0)% Austin 3,892 3,141 23.9% 7,398 6,356 16.4% Northern Virginia 5,922 5,525 7.2% 12,645 11,958 5.7% South Florida 3,632 3,175 14.4% 7,159 6,359 12.6% Seattle 1,269 1,271 (0.2)% 2,709 2,563 5.7% Suburban Maryland 1,606 1,595 0.7% 3,407 3,346 1.8% Total Same Park $ 29,335 $ 26,750 9.7% 58,946 54,742 7.7% Cash NOI Northern California $ 23,296 $ 22,355 4.2% 46,933 43,376 8.2% Southern California 12,036 11,575 4.0% 23,779 21,813 9.0% Dallas 3,593 3,184 12.8% 7,248 6,309 14.9% Austin 5,645 5,511 2.4% 10,973 10,929 0.4% Northern Virginia 11,994 12,426 (3.5)% 23,986 24,086 (0.4)% South Florida 10,115 8,845 14.4% 19,763 17,447 13.3% Seattle 3,866 3,810 1.5% 7,658 7,438 3.0% Suburban Maryland 3,362 3,242 3.7% 6,463 6,378 1.3% Total Same Park $ 73,907 $ 70,948 4.2% $ 146,803 $ 137,776 6.6% Weighted average square foot occupancy Northern California 96.3 % 93.9 % 2.4% 96.9 % 93.5 % 3.4% Southern California 97.6 % 97.0 % 0.6% 97.7 % 96.6 % 1.1% Dallas 91.3 % 88.4 % 2.9% 92.1 % 87.7 % 4.4% Austin 94.3 % 95.0 % (0.7)% 94.3 % 95.0 % (0.7)% Northern Virginia 93.8 % 92.8 % 1.0% 94.2 % 92.7 % 1.5% South Florida 98.6 % 96.9 % 1.7% 98.3 % 96.2 % 2.1% Seattle 95.7 % 94.0 % 1.7% 95.6 % 93.6 % 2.0% Suburban Maryland 91.6 % 91.8 % (0.2)% 91.8 % 92.0 % (0.2)% Total Same Park 95.6 % 94.2 % 1.4% 95.9 % 93.8 % 2.1% Northern California $ 17.36 $ 16.82 3.2% $ 17.27 $ 16.53 4.5% Southern California $ 18.80 $ 18.01 4.4% $ 18.64 $ 17.32 7.6% Dallas $ 11.62 $ 11.18 3.9% $ 11.40 $ 11.13 2.4% Austin $ 20.60 $ 18.55 11.1% $ 19.83 $ 18.53 7.0% Northern Virginia $ 18.01 $ 18.24 (1.3)% $ 18.33 $ 18.34 (0.1)% South Florida $ 14.42 $ 12.83 12.4% $ 14.16 $ 12.80 10.6% Seattle $ 15.89 $ 16.02 (0.8)% $ 16.06 $ 15.82 1.5% Suburban Maryland $ 19.81 $ 19.25 2.9% $ 19.64 $ 19.31 1.7% Total Same Park $ 17.03 $ 16.36 4.1% $ 16.92 $ 16.18 4.6% ____________________________
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 nine months ended SeptemberJune 30, 20212022 (square feet in thousands):: Three Months Ended June 30, 2022 Industrial Square
Footage
LeasedCustomer
RetentionTransaction
Costs per
Executed FootNorthern California 149 53.8 % $ 4.77 32.1 % 63.3 % Southern California 145 65.2 % 1.70 22.4 % 41.6 % Dallas 90 96.5 % 2.23 43.0 % 59.7 % Austin 14 35.7 0.72 7.7 % 30.4 % Northern Virginia 32 77.3 % — 12.8 % 25.2 % South Florida 176 71.1 % 1.06 36.8 % 49.2 % Seattle 31 71.5 % 4.59 20.4 % 41.8 % Suburban Maryland 44 100.0 % 0.08 16.5 % 18.2 % Industrial Totals by Region 681 68.4 % $ 2.21 28.2 % 47.8 % Flex Northern California 23 65.6 % $ 1.63 8.6 % 13.3 % Southern California 34 67.1 % 2.50 20.0 % 35.3 % Dallas 66 69.2 % 4.96 12.6 % 29.3 % Austin 65 82.3 % 11.72 2.6 % 17.5 % Northern Virginia 52 56.8 % 4.84 1.0 % 8.5 % South Florida 1 100.0 % — 25.7 % 43.9 % Seattle 19 91.8 % 1.75 8.7 % 21.4 % Flex Totals by Region 260 68.5 % $ 5.74 7.6 % 19.8 % Office Northern California 19 75.5 % $ 0.29 (4.1) % (4.0) % Southern California 5 100.0 % 0.26 4.1 % 12.4 % Northern Virginia 70 87.1 % 6.67 (5.3) % (0.4) % Suburban Maryland 12 42.5 % 11.17 (4.4) % 1.1 % Office Totals by Region 106 79.0 % $ 5.74 (4.4) % (0.8) % Company Totals by Type 1,047 69.6 % $ 3.44 17.8 % 32.3 % ____________________________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.Six Months Ended June 30, 2022 Industrial Square
Footage
LeasedCustomer
RetentionTransaction
Costs per
Executed FootNorthern California 375 67.3 % $ 3.28 22.0 % 43.7 % Southern California 378 71.3 % 2.17 16.3 % 30.5 % Dallas 187 57.4 % 2.89 24.9 % 41.8 % Austin 42 31.3 2.39 15.4 % 41.7 % Northern Virginia 172 93.0 % 1.20 7.9 % 19.3 % South Florida 475 66.7 % 1.25 29.1 % 50.3 % Seattle 76 68.8 % 3.42 19.2 % 39.4 % Suburban Maryland 52 100.0 % 0.25 13.1 % 14.8 % Industrial Totals by Region 1,757 69.4 % $ 2.14 20.3 % 38.1 % Flex Northern California 54 75.8 % $ 1.36 9.6 % 15.7 % Southern California 78 74.5 % 3.91 12.4 % 26.0 % Dallas 117 68.3 % 4.08 10.4 % 24.5 % Austin 168 86.3 % 8.73 4.1 % 17.3 % Northern Virginia 87 55.6 % 4.48 0.3 % 5.3 % South Florida 7 63.9 % 1.84 18.5 % 36.4 % Seattle 51 63.0 % 2.41 8.1 % 18.8 % Flex Totals by Region 562 70.5 % $ 5.07 6.8 % 17.9 % Office Northern California 38 77.0 % $ 0.15 (5.4) % (4.9) % Southern California 6 66.2 % 0.20 3.4 % 11.5 % Northern Virginia 144 68.9 % 9.46 (7.4) % (0.1) % Seattle 1 100.0 % — 6.2 % 15.3 % Suburban Maryland 34 56.3 % 10.59 (2.6) % 2.6 % Office Totals by Region 223 68.3 % $ 7.74 (5.9) % (0.8) % Company Totals by Type 2,542 69.6 % $ 6.19 13.7 % 27.7 % ____________________________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.ninesix months ended SeptemberJune 30, 2021,2022, weighted average occupancy was 94.8%95.6% and 94.0%95.9%, respectively, an increase from weighted average occupancy of 92.6%94.2% and 93.8% for both the three and ninesix months ended SeptemberJune 30, 2020.2021. Renewals of leases with existing customers represented 62.6%73.8% of our leasing activity for the ninesix months ended SeptemberJune 30, 2021.2022. Average lease term of the leases executed during the three months ended SeptemberJune 30, 20212022, respectively, was 3.8 years with associated average transaction costs (tenant improvements and leasing commissions) of $4.44 per square foot.$3.44. For comparative purposes, average lease term and transaction costs on leases executed during the three months ended SeptemberJune 30, 20202021 were 3.3 years and $2.16$2.76 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 June 30, 2022 Jupiter Business Park November 2021 Plano, TX $ 25,600 141 100.0% Port America September 2021 Grapevine, Texas 123,268 718 96.5% Pickett Industrial Park October 2020 Alexandria, VA 46,582 246 58.2% La Mirada Commerce Center January 2020 La Mirada, CA 13,513 73 100.0% Total acquired property $ 208,963 1,178 89.1% SeptemberJune 30, 2021,2022, we held a 95.0% controlling interest in a joint venture that owns Highgate at The Mile, a 395-unit apartment 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 June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Rental income $ 2,524 $ 2,248 12.3 % $ 4,893 $ 4,575 7.0 % Cost of operations 1,181 1,177 0.3 % 2,405 2,244 7.2 % NOI $ 1,343 $ 1,071 25.4 % $ 2,488 $ 2,331 6.7 % Selected Statistical Data Weighted average square foot occupancy 94.9 % 94.6 % 0.3 % 94.9 % 94.4 % 0.5 % As of June 30, 2022 $ 115,426 Physical occupancy 94.1 % $ 2,132 ____________________________ninethree and six month decreaseincreases in NOI wasin 2022 compared to 2021 were primarily due to a decline in rental rates as a result of the COVID-19 pandemic combined with an increase in rental income as the Tysons submarket continued to show signs of recovery. The cost of operations.operations for the three months ended June 30, 2022 remained flat compared to the same period in 2021. The increase in the cost of operations was attributedfor the six months ended June 30, 2022 is primarily due to an insurance deductible expense resulting from storm related flood damage.increase in utility charges, increased costs for common area cleaning, increased turnover costs, and 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.each of the respective periods shown,three and six months ended June 30, 2022, the operating results include the following: 1.21.1 million square feet of AHFS of as September2022 Assets Sold. For the three and six months ended June 30, 2021, an asset comprising 22,000the operating results include 1.1 million square feet sold in September 2021, an asset comprising 244,000of 2022 Assets Sold and 0.2 million square feet sold in Julyof 2021 an asset comprising 198,000 square feet sold in June 2021, an asset comprising 40,000 square feet sold in September 2020, and an asset comprising 113,000 square feet sold in January 2020.Amounts shown for the three months ended September 30, 2021 include operating results attributable from the AHFS and the assets sold comprising 22,000 square feet and 244,000 square feet. Amounts shown for the nine months ended September 30, 2021 include operating results attributable from AHFS and the assets sold comprising 22,000 square feet, 244,000 square feet, and 198,000 square feet. Amounts shown for the three months ended September 30, 2020 include operating results attributable to from the AHFS and assets sold comprising 22,000 square feet, 244,000 square feet, 198,000 square feet, and 40,000 square feet. Amounts shown for the nine months ended September 30, 2020 include operating results attributable from the AHFS and assets sold comprising 22,000 square feet, 244,000 square feet, 198,000 square feet, 40,000 square feet, and 113,000 square feet.$23.9$22.8 million and $69.4$45.9 million for the three and ninesix months ended SeptemberJune 30, 2022 and 2021, respectively, compared to $23.1and consistent with the $22.5 million and $72.6$45.5 million for the same periods in 2020, respectively. The nine month decrease was primarily due to acceleration of depreciation expense related to a building reclassified to held for development in 2020.2021.and nine months ended SeptemberJune 30, 2021,2022, general and administrative expense increased $0.1$6.3 million and $3.0 million, respectively, compared to the same periodsperiod in 2020.The three month increase was2021 primarily due to compensation andMerger related costs of $6.1 million for professional fees and investor related services.nine month increase wassix months ended June 30, 2022, general and administrative expense increased $13.2 million compared to the same period in 2021 primarily due to stock compensation expense andMerger related costs of $6.1 million for professional fees and investor related to the reincorporationservices and a one-time cash payment of PSB from the state of California to the state of Maryland in the second quarter of 2021. The increase in both the three and nine month periods was partially offset by a reduction in expense due to accelerated stock compensation expense related$6.7 million to the former CEO retirement in the prior year.: September 17, 2021,June 1, 2022, the Company sold a 22,00093,000 square foot industrial-flex buildingbusiness park located in San Francisco, California, for net sale proceeds of $62.1 million, which resulted in a gain on sale of $55.3 million.$3.4$91.9 million, which resulted in a gain on sale of $2.9$57.0 million. On July 16, 2021, the Company sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. On September 16, 2020, the Company sold two industrial buildings totaling 40,000 square feet locatedRedmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. 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.
ninethree and six months ended SeptemberJune 30, 20212022 and 20202021 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 are a highly rated REIT, as determined by Moody’s and Standard & Poor’s. Our corporate credit rating by Standard and Poor’s is A-, while our preferred stock is rated BBB by Standard and Poor’s and Baa2 by Moody’s. We believe our credit profile and ratings will enable us to efficiently access both the public and private capital markets to raise capital, as necessary.In order to maintain efficient access to the capital markets, we target a minimum ratio of FFO (as defined below) to combined fixed charges and preferred distributions of 3.0 to 1.0. Ratio of FFO to fixed charges and preferred distributions is calculated by dividing FFO excluding fixed charges and preferred distributions by fixed charges and preferred distributions paid. Fixed charges include interest expense, capitalized interest and preferred equity distributions paid. For the nine months ended September 30, 2021, the ratio of FFO to combined fixed charges and preferred distributions paid was 5.9 to 1.0.longer-termlonger 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.Short-term LiquidityOur material contractual commitments as of June 30, 2022 consist of principal and Capital Resource Analysis:interest on our Credit Facility, payment of dividends on our preferred stock (which if not paid will accrue), contractual construction commitments for development projects, and ground lease obligations: 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.SeptemberJune 30, 2021, we had $46.6 million in unrestricted cash. In the last five years,2022, we have retained between $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.Required Debt Repayment: As of September 30, 2021, we have no debtzero balance 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.ninesix months ended SeptemberJune 30, 20212022 and 20202021 on an aggregate and per square foot basis:Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Commercial Real Estate Recurring capital expenditures Capital improvements $ 5,116 $ 4,429 $ 0.19 $ 0.16 Tenant improvements 8,956 7,024 0.33 0.25 Lease commissions 2,928 3,404 0.11 0.12 Total commercial recurring capital expenditures 17,000 14,857 0.63 0.53 Nonrecurring capital improvements 2,120 843 0.08 0.03 Total commercial capital expenditures $ 19,120 $ 15,700 $ 0.71 $ 0.56 ____________________________ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):
Six Months Ended June 30, Recurring
Capital ExpendituresRecurring
Capital Expenditures
as a Percentage of NOI2022 2021 2022 2021 Region Same Park Northern California $ 1,729 $ 4,143 (58.3)% 3.7 % 9.4 % Southern California 3,452 1,535 124.9% 14.5 % 6.7 % Dallas 1,076 1,283 (16.1)% 15.0 % 20.5 % Austin 1,055 569 85.4% 9.6 % 5.4 % Northern Virginia 3,354 2,713 23.6% 13.5 % 11.3 % South Florida 1,394 958 45.5% 7.2 % 5.6 % Seattle 1,047 607 72.5% 13.5 % 8.2 % Suburban Maryland 495 1,534 (67.7)% 7.9 % 25.3 % Total Same Park 13,602 13,342 1.9% 9.2 % 9.6 % Non-Same Park Southern California 32 38 (15.8)% Dallas 554 72 669.4% Northern Virginia 2,077 145 1332.4% Total Non-Same Park 2,663 255 944.3% Assets sold or held for sale 735 1,260 (41.7)% Total commercial recurring
capital expenditures$ 17,000 $ 14,857 14.4% 11.5%10.7% and 14.3% as a percentage of NOI, and we expected future recurring capital expenditures to be within this range. While what we disclose herein with respect to capital expenditures represents our best estimates at this time, there can be no assurance that these amounts will not change substantially in the future for various reasons, including the potential impact of the COVID-19 pandemic on capital projects and leasing volume.On October 4, 2021, we announced that weShares of preferred stock are calling for redemption all outstanding depositaryredeemable by the Company five years after issuance or in order to preserve its status as a REIT, but shares representing interests in our 5.20% Cumulative Preferred Stock, Series W on November 3, 2021,of preferred stock are never redeemable at $25.00 per share plus prorated dividends from October 1, 2021, through the date of redemption. The aggregate redemption amount, including the payment of prorated dividends, to be paid to the holdersoption of the depositary shares is $190.7 million.Other than the Series W,holder. Historically, we do not have any other seriesreduced our cost of capital by refinancing higher coupon preferred securities thatwith lower coupon preferred securities. Our Series X preferred shares, with a coupon rate of 5.25%, at a par value of $230.0 million and Series Y preferred shares, with a coupon rate of 5.20%, at a par value of $200.0 million are currently redeemable.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 September 1, 2021, we acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet in Grapevine, Texas,Refer to “Business Overview—Acquisition of Real Estate Facilities” above for a total purchase pricediscussion of $123.3 million, inclusive of capitalized transaction costs. On October 28, 2020, we acquired a multi-tenant industrial business 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.our recent acquisitions. On January 10, 2020, we acquired a multi-tenant industrial business 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.estate:estate facilities: On September 17, 2021, we sold a 22,000 square foot industrial-flex building located in Irving, Texas, for net sale proceedsRefer to “Business Overview—Development or Redevelopment of $3.4 million, which resulted in a gain on sale of $2.9 million. On July 16, 2021, we sold a 244,000 square foot office business park located in Herndon, Virginia, for net sale proceeds of $40.5 million, which resulted in a gain on sale of $27.0 million. On June 17, 2021, we sold a 198,000 square foot office-oriented flex business park located in Chantilly, Virginia, for net sale proceeds of $32.6 million, which resulted in a gain on sale of $19.2 million. On September 16, 2020, we sold two industrial buildings totaling 40,000 square feet located in Redmond, Washington, which were subject to an eminent domain process for net sale proceeds of $11.4 million, which resulted in a gain of $7.7 million. On January 7, 2020, we 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.Subsequent to September 30, 2021, the Company sold a 371,000 square foot industrial-flex business park located in San Diego, California,Real Estate Facilities” above for a gross sales pricediscussion of $315.4 million, and net sale proceeds, after paymentour recently completed developments.transaction costs,June 30, 2022, we were $311.1 million.Developmentin the process of real estate facilities: As noted above, during the nine months ended September 30, 2021, we completed the development ofdeveloping 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 June 30, 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 June 30, 2022, $10.7 million of the estimated $17.1 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 $18.6 million. This construction project is scheduled to be completed in the fourth quarter of 2022. As of June 30, 2022, we have contractual construction commitments totaling $3.7 million that will be paid to various contractors as the project is completed.Septemberour Boca Commerce Park, located in Boca Raton, Florida. During the quarter ended 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 $5.1 million as of SeptemberJune 30, 2021.
SeptemberJune 30, 2021,2022, the development cost incurred was $41.4$77.2 million, which is reflected in land and building held for development, net on our consolidated balance sheets along with our $5.1 million cost basis in the Brentford Parcel. DuringAs of June 30, 2022, we have contractual construction commitments totaling $20.8 million that will be paid to various contractors as the three months ended September 30, 2020, the Company recorded non-capitalizable demolition costs of $0.3 million in interest and other expense on our consolidated statements of income.ninethree and six months ended SeptemberJune 30, 2021 or the year ended December 31, 2020. As of September 30, 2021, management has the authorization2022. The Company does not expect to repurchase an additional 1,614,721 shares.shares prior to the closing of the Mergers.$122.8$38.6 million ($36.19.6 million to preferred stockholders and $86.7$29.0 million to common stockholders) during the ninesix months ended SeptemberJune 30, 2021.We estimate the annual distribution requirements with respect to our preferred shares outstanding to be $38.3 million per year, excluding the 5.20% Cumulative Preferred Stock, Series W that will be redeemed during the fourth quarter of 2021 (see Note 9).If we are unable to find suitable Section 1031 exchange opportunities for the remainder of the net sale proceeds from the Lusk Sale by year end, we expect to declare and pay, by year end, a one-time special dividend sourced by a portion of the disposition proceeds. The actual amount of any special dividend will be determined by the Company based on its estimate of 2021 REIT taxable income. Futuredistributions with respect tocash dividend on the Company’s common stock will continueequal $0.216848 per share and (ii) a cash dividend of $5.25 per share of the Company’s common stock (the “Closing Cash Dividend), each payable immediately before the effective time of the Partnership Merger, to be determined basedholders of record as of the close of business on the business day immediately preceding the closing of the Mergers and contingent upon our REIT distribution requirementsthe approval of the Company Merger by the Company’s stockholders, the satisfaction or waiver of the other conditions to the Mergers, and along with distributions to preferred stockholders, we expectthe Merger Agreement not having been terminated. The Closing Cash Dividend will be funded with cash provideddesignated, to the maximum extent permitted by operating activities.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. Refer to Note 12 – “Merger Events” to our consolidated financial statements under Item 1 in this quarterly report on Form 10-Q, for additional information regarding the Merger.ninesix months ended SeptemberJune 30, 20212022 was $1.72$1.68 per share and $5.15$3.33 per share, respectively, representing increases of 11.2%a 4.0% and 6.2%2.9% decrease from the same periods in 2020. 2021.increasesdecrease in FFO per share were the result of higher NOI as described above partially offset by higher general and administrative expense.
Core FFO was $1.72 per share and $5.16 per share for the three and nine months ended SeptemberJune 30, 2022 was due to Merger related costs of $6.1 million and higher general and administrative expenses. The decrease in FFO was partially offset by lower preferred distributions in the second quarter due to the Series W preferred stock redemption in Q4 2021, respectively, and was $1.61 per share and $4.91higher NOI as described above.three and ninesix months ended SeptemberJune 30, 2020, respectively. For2022 was due to the three months ended September 30, 2021, Coreabove-mentioned Merger costs of $6.1 million, a one-time cash payment of $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 a $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, and higher general and administrative expenses. The decrease in FFO was equalpartially offset by lower preferred distributions due to FFO, as the Company did not incur anySeries W preferred stock redemption charges or any nonrecurring income or expense items in either period. ForQ4 2021, and higher NOI as described above.ninethree and six months ended SeptemberJune 30, 2021, 2022 was $1.85 per share and $3.68, per share representing a 4.5% and 7.0% increase from the same periods in 2021.cost 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 corporation of $0.5 million incurred during the second quarter of 2021. For the three and nine months ended September 30, 2020, Core FFO excludes the impact of (i) accelerated amortizationreversal of stock compensation expensefor the unvested former CEO's shares, net of $1.7 million related to the retirementdividend forfeiture expense.Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income allocable to common stockholders $ 77,077 $ 45,595 $ 149,070 $ 73,481 Adjustments Gain on sale of real estate facilities (61,842) (19,193) (118,801) (19,193) Depreciation and amortization Depreciation and amortization 22,799 22,514 45,931 45,499 Net income allocable to noncontrolling interests Net income allocable to noncontrolling interests 20,388 12,094 39,437 19,505 Net income allocable to restricted stock unit holders Net income allocable to restricted stock unit holders 475 314 998 478 FFO allocated to joint venture partner FFO allocated to joint venture partner (33) (18) (56) (45) 58,864 61,306 116,579 119,725 Acquisition and merger costs Acquisition and merger costs 6,147 — 6,147 — CEO cash payment for RSUs net of reversal of stock compensation CEO cash payment for RSUs net of reversal of stock compensation — — 6,108 — Maryland reincorporation costs — 510 — 510 Core FFO allocable to diluted common stock and units $ 65,011 $ 61,816 $ 128,834 $ 120,235 FAD FAD FFO allocable to diluted common stock and units FFO allocable to diluted common stock and units $ 58,864 $ 61,306 $ 116,579 $ 119,725 Adjustments: Adjustments: Recurring capital improvements (3,055) (3,638) (4,611) (4,183) Tenant improvements (5,837) (3,849) (8,735) (6,254) Capitalized lease commissions (1,620) (1,430) (2,920) (3,160) Total recurring capital expenditures for assets sold Total recurring capital expenditures for assets sold (139) (542) (734) (1,261) 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 (387) (5) (1,318) (3,202) (1,015) (183) (2,172) (1,490) Non-cash stock compensation expense Non-cash stock compensation expense 2,000 2,301 2,940 4,081 FAD allocable to diluted common stock and units 48,811 53,960 99,029 104,249 Weighted average outstanding Common stock 27,630 27,531 27,618 27,513 Operating partnership units Operating partnership units 7,305 7,305 7,305 7,305 Restricted stock units 39 32 39 35 Common stock equivalents 92 101 89 98 Total diluted common stock and units 35,066 34,969 35,051 34,951 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 $ 2.78 $ 1.65 $ 5.38 $ 2.66 Gain on sale of real estate facilities (1.76) (0.55) (3.39) (0.55) Depreciation and amortization expense 0.65 0.64 1.31 1.31 Net income allocated to restricted stock unit holders Net income allocated to restricted stock unit holders 0.01 0.01 0.03 0.01 FFO per share $ 1.68 $ 1.75 $ 3.33 $ 3.43 Acquisition and merger costs Acquisition and merger costs 0.17 — 0.17 — CEO cash payment for RSUs net of reversal of stock compensation CEO cash payment for RSUs net of reversal of stock compensation — — 0.18 — Maryland reincorporation costs — 0.01 — 0.01 Core FFO per share $ 1.85 $ 1.77 $ 3.68 $ 3.44 ____________________________(2)Amounts shown are net of accelerated stock compensation expense related to the former President and CEO retirement, also excluded from the computation of Core FFO.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 $36.1 million in distributions to our preferred stockholders for the nine months ended September 30, 2021 and expect to continue to pay quarterly distributions of $9.6 million, which excludes the 5.20% Cumulative Preferred Stock, Series W scheduled to be redeemed during the fourth quarter of 2021 (Note 9) 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 never redeemable at the option of the holder.
as of SeptemberJune 30, 2021.SeptemberJune 30, 2021.2022. 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 SeptemberJune 30, 2021,2022, 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.SeptemberJune 30, 20212022 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 refersuch suits seek, among other things, to enjoin us from proceeding with the stockholder vote on the Merger. No assurance can be made as to the qualifications and limitations on our forward-looking statements that are described in Forward Looking Statements at the beginningoutcome of Part I, Item 2 of this Form 10-Q.
threesix months ended SeptemberJune 30, 2021,2022, there were no shares of the Company’s common stock repurchased. As of SeptemberJune 30, 2021,2022, 1,614,721 shares remain available for purchase under the program.
10.13.1Exhibit 10.3 Exhibit 31.1 Dated: October 28, 2021Jeffrey D. HedgesAdeel KhanJeffrey D. HedgesAdeel KhanExecutive Vice President and Chief Financial Officer