Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 2, 2004
| California (State or Other Jurisdiction of Incorporation) |
1-10709 (Commission File Number) |
95-4300881 (I.R.S. Employer Identification Number) |
|---|
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (818) 244-8080
(Former name or former address, if changed since last report)
| |_| | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |_| | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |_| | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| |_| | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| On November 2, 2004, the Company reported operating results for the quarter ended September 30, 2004. The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing. |
(c) Exhibits
The following exhibit relating to Item 7.01 shall be deemed to be furnished, and not filed:
99.1 Press release dated November 2, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PS BUSINESS PARKS, INC.
Date: November 2, 2004
By: /s/ Edward A. Stokx
Edward A. Stokx
Chief
Financial Officer
PS Business Parks, Inc.
701 Western Avenue
Glendale, CA 91201-2349
www.psbusinessparks.com
For Release: Immediately
Date: November 2, 2004
Contact:
Mr. Edward A. Stokx
(818)244-8080, Ext. 649
PS Business Parks, Inc. reports results for the third quarter ended September 30, 2004.
Glendale, California — PS Business Parks, Inc. (AMEX:PSB), reported operating results for the three and nine months ended September 30, 2004.
Net income allocable to common shareholders for the three months ended September 30, 2004 was $2.8 million or $0.13 per diluted share on revenues of $55.2 million compared to $7.8 million or $0.36 per diluted share on revenues of $48.9 million for the same period in 2003. Net income allocable to common shareholders for the nine months ended September 30, 2004 was $12.2 million or $0.56 per diluted share on revenues of $162.9 million compared to $26.6 million or $1.24 per diluted share on revenues of $144.7 million for the same period in 2003.
Revenues increased $6.3 million for the three months ended September 30, 2004 over the same period in the prior year as a result of properties acquired during the latter part of 2003, partially offset by a decrease in Same Park revenues of $1.1 million. Net income allocable to common shareholders decreased over the same period by $5.0 million or $0.23 per diluted share partially resulting from distributions of $2.9 million reported to preferred unit holders related to the redemption of $120 million of preferred units during the three months ended September 30, 2004. The remaining change is attributable to an increase in depreciation expense of approximately $3.3 million, or $0.11 per diluted share, for properties acquired in 2003.
Revenues increased $18.2 million for the nine months ended September 30, 2004 over the same period in the prior year as a result of properties acquired during the latter part of 2003, partially offset by a decrease in Same Park revenues of $3.5 million. Net income allocable to common shareholders decreased over the same periods by $14.4 million or $0.66 per diluted share. Offsetting the impact of net operating income from acquired properties was additional depreciation, interest costs and preferred distributions related to the acquired assets. In addition, through September 30, 2004 the Company has reported non-cash distributions to its preferred stock and unit holders of $5.0 million related to the redemption of preferred equity (see discussion below).
Supplemental Measures
Funds from operations (“FFO”) allocable to common shareholders and unit holders for the third quarter of 2004 and 2003 were $22.3 million, or $0.76 per diluted share and $25.8 million, or $0.89 per diluted share, respectively. FFO allocable to common shareholders and unit holders for the nine months ended September 30, 2004 was $71.2 million or $2.44 per diluted share compared to $72.0 million or $2.50 per diluted share for the same period in 2003.
On September 3, 2004 the Company redeemed 3,200,000 units of its 8.75% Cumulative Series C Preferred Operating Partnership Units for $80 million and on September 7, 2004 the Company redeemed 1,600,000 units of its 8.875% Series X Cumulative Preferred Operating Partnership Units for $40 million. In accordance with the Securities and Exchange Commission’s interpretation of Emerging Issues Task Force (“EITF”) Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” the call for redemption of the Series C and X preferred units resulted in an additional allocation of net income to preferred unit holders for the three months ended September 30, 2004 and a corresponding reduction of net income and FFO allocable to common shareholders of $2,872,000.
In the fourth quarter of 2003, the Company adopted guidance from the SEC regarding the inclusion of impairment adjustments in the calculation of funds from operations. Accordingly, the Company no longer adds back the effects of impairment losses in determining FFO, resulting in a decrease in FFO of $5.9 million or $0.20 per diluted share for the nine months ended September 30, 2003.
The following table summarizes the impact of the implementation of the SEC’s clarification of EITF Topic D-42 and the adoption of the SEC’s guidance regarding impairment adjustments on the Company’s FFO per common shareholders and unit holders for the three and nine months ended September 30, 2004 and 2003:
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- ---------------------------------------
2004 2003 2004 2003
---------------- ------------------ ------------------ --------------------
FFO per common share before adjustments........ $ 0.86 $ 0.89 $ 2.61 $ 2.70
Application of EITF Topic D-42................. (0.10) - (0.17) -
Impairment provision........................... - - - (0.20)
---------------- ------------------ ------------------ --------------------
FFO per common share, as reported.............. $ 0.76 $ 0.89 $ 2.44 $ 2.50
================ ================== ================== ====================
Property Operations
In order to evaluate the performance of the Company’s overall portfolio, management analyzes the operating performance of a consistent group of properties (13.7 million net rentable square feet, not including assets classified as discontinued operations). These properties (herein referred to as Same Park facilities) have been owned and operated by the Company since January 1, 2003 and exclude assets held for sale and included in discontinued operations. In the first quarter of 2004 the Company reevaluated its plans to sell five office and flex buildings in Beaverton, Oregon. The Company determined that these properties would not likely be sold within the next twelve months. Accordingly, these properties have been included in the Same Park facilities for the three and nine months ended September 30, 2004 and 2003. Same Park facilities represent approximately 74.5% of the Company’s total portfolio of 18.4 million square feet as of September 30, 2004.
The following tables summarize the operating results of the Same Park facilities as well as the total portfolio:
Same Park Facilities (13.7 million square feet) (1)
-----------------------------------------------
(in thousands, except per square foot amounts)
Three Months Ended
September 30,
-----------------------------------------
2004 2003 Change
--------------------- ------------------ ----------------
Rental income before straight-line rent...................... $ 45,813 $ 46,649 (1.8%)
Straight-line rent........................................... 412 645 (36.1%)
--------------------- ------------------ ----------------
Total rental income.......................................... 46,225 47,294 (2.3%)
Cost of operations........................................... 12,898 12,668 1.8%
--------------------- ------------------ ----------------
Net operating income......................................... 33,327 34,626 (3.8%)
Less: straight-line rent................................. (412) (645) (36.1%)
--------------------- ------------------ ----------------
Net operating income before straight-line rent(1)............ $ 32,915 $ 33,981 (3.1%)
===================== ================== ================
Gross margin(2).............................................. 71.8% 72.8% (1.4%)
Weighted average for period:
Occupancy................................................ 90.5% 92.9% (2.6%)
Annualized realized rent per occupied sq. ft.(3)......... $ 14.75 $ 14.63 0.8%
Nine Months Ended
September 30,
-----------------------------------------
2004 2003 Change
--------------------- ------------------ ----------------
Rental income before straight-line rent...................... $ 136,802 $ 140,634 (2.7%)
Straight-line rent........................................... 1,490 1,204 23.8%
--------------------- ------------------ ----------------
Total rental income.......................................... 138,292 141,838 (2.5%)
Cost of operations........................................... 39,045 38,014 2.7%
--------------------- ------------------ ----------------
Net operating income......................................... 99,247 103,824 (4.4%)
Less: straight-line rent................................. (1,490) (1,204) 23.8%
--------------------- ------------------ ----------------
Net operating income before straight-line rent(2)............ $ 97,757 $ 102,620 (4.7%)
===================== ================== ================
Gross margin(3).............................................. 71.5% 73.0% (2.1%)
Weighted average for period:
Occupancy................................................ 90.4% 92.9% (2.7%)
Annualized realized rent per occupied sq. ft.(4)......... $ 14.70 $ 14.71 (0.1%)
(1) Same park properties' operations have been adjusted to exclude the financial results of the properties
classified as Discontinued Operations.
(2) Net operating income ("NOI") is an important measurement in the commercial real estate industry for
determining the value of the real estate generating the NOI. The key components of NOI are rental
income less cost of operations excluding the effects of straight-line rent and depreciation.
(3) Gross margin is computed by dividing property net operating income before straight-line rent by rental
income before straight-line rent.
(4) Realized rent per square foot represents the revenues earned before straight-line rent per occupied
square foot.
Total Portfolio (18.4 million square feet) (1)
------------------------------------------
(in thousands, except per square foot amounts)
Three Months Ended
September 30,
------------------------------------------
2004 2003 Change
---------------------- ------------------ ----------------------
Rental income before straight-line rent....................... $ 54,116 $ 47,926 11.1%
Straight-line rent............................................ 863 793 8.8%
---------------------- ------------------ ----------------------
Total rental income........................................... 54,979 48,719 12.8%
Cost of operations............................................ 16,342 13,403 21.9%
---------------------- ------------------ ----------------------
Net operating income.......................................... 38,637 35,316 9.4%
Less: straight-line rent.................................. (863) (793) 8.8%
---------------------- ------------------ ----------------------
Net operating income before straight-line rent(2)............. $ 37,774 $ 34,523 9.4%
====================== ================== =======================
Gross margin(3)............................................... 69.8% 72.0% (3.1%)
Weighted average for period:
Square footage (4)........................................ 18,408 14,784 24.5%
Occupancy (4) ............................................ 88.7% 91.8% (3.4%)
Annualized realized rent per occupied sq. ft.(5).......... $ 13.26 $ 14.12 (6.1%)
Nine Months Ended
September 30,
------------------------------------------
2004 2003 Change
---------------------- ------------------ ----------------------
Rental income before straight-line rent....................... $ 160,163 $ 142,772 12.2%
Straight-line rent............................................ 2,242 1,352 65.8%
---------------------- ------------------ ----------------------
Total rental income........................................... 162,405 144,124 12.7%
Cost of operations............................................ 48,270 39,038 23.6%
---------------------- ------------------ ----------------------
Net operating income.......................................... 114,135 105,086 8.6%
Less: straight-line rent.................................. (2,242) (1,352) 65.8%
---------------------- ------------------ ----------------------
Net operating income before straight-line rent(2)............. $ 111,893 $ 103,734 7.9%
====================== ================== ======================
Gross margin(3)............................................... 69.9% 72.7% (3.9%)
Weighted average for period:
Square footage (4)........................................ 18,338 14,535 26.2%
Occupancy (4)............................................. 88.2% 91.5% (3.6%)
Annualized realized rent per occupied sq. ft.(5).......... $ 13.20 $ 14.31 (7.8%)
(1) Financial results exclude discontinued operations.
(2) Net operating income ("NOI") is an important measurement in the commercial real estate industry for
determining the value of the real estate generating the NOI. The key components of NOI are rental
income less cost of operations excluding the effects of straight-line rent and depreciation.
(3) Gross margin is computed by dividing property net operating income before straight-line rent by rental
income before straight-line rent.
(4) Weighted average square footage and occupancy include all assets owned as of September 30, 2004.
(5) Realized rent per square foot represents the revenues earned before straight-line rent adjustment per
occupied square foot.
Financial Condition
The following are the Company’s key financial ratios with respect to its leverage at and for the three months ended September 30, 2004.
Ratio of FFO to fixed charges (1)..................................... 43.4x
Ratio of FFO to fixed charges and preferred distributions excluding
the effects of EITF Topic D-42 (1) (2)........................... 2.8x
Debt and preferred equity to total market capitalization (based on
common stock price of $39.85 at September 30, 2004) .................. 36%
Available under line of credit at September 30, 2004 (3).............. $ 70 million
(1) Fixed charges include interest expense of $513,000.
(2) Preferred distributions include amounts paid to preferred shareholders of $8,121,000 and preferred unit
holders in the operating partnership of $5,170,000 (excludes $2,872,000 related to EITF Topic D-42).
(3) The balance outstanding of the Company's line of credit of $30 million as of September 30, 2004 was
repaid in full as of October 25, 2004.
Issuance of Preferred Stock and Preferred Units
On August 31, 2004, the Company issued 2,300,000 depositary shares each representing 1/1,000 of a share of the Company’s 7.60% Cumulative Preferred Stock, Series L, at $25.00 per share.
Subsequent to September 30, 2004, the Company reopened its 7.00% Series H Preferred shares and issued an additional 1,300,000 depositary shares, each representing 1/1,000 of a share of the 7.00% Cumulative Preferred Stock, Series H, at $24.0638 per share. Net proceeds from the offering were used to repay in full the balance outstanding on the Company’s line of credit.
Property Disposition and Assets Held for Sale
On July 28, 2004 the Company closed on a sale of a 10,000 square foot unit in Miami, Florida with gross proceeds of $1.2 million. In addition, on September 1, 2004 the Company sold a 30,500 square foot building in Beaverton, Oregon for gross proceeds of $3.1 million. The Company reported a combined gain of $313,000 on the sale of those two assets.
During the third quarter of 2004 the Company concluded that it would likely proceed with the sale of certain additional assets. Accordingly, such assets have been classified as assets held for sale and the operations of such assets have been reflected as discontinued operations.
Included in assets held for sale are 11 units, aggregating 90,000 square feet, at Miami International Commerce Center (“MICC”). These units consist of a series of buildings each comprising two units. In addition the Company has also included a 56,000 square foot retail center within MICC that it intends to proceed with selling. Finally, the Company has included two assets in Prince George's County, Maryland. The two buildings comprise approximately 400,000 square feet with a combined weighted average occupancy rate of 86% for the third quarter of 2004.
Distributions Declared
The Board of Directors declared a quarterly dividend of $0.29 per common share on November 2, 2004. Distributions were also declared on the various series of depositary shares, each representing 1/1,000 of a share of preferred stock listed below. Distributions are payable December 31, 2004 to shareholders of record on December 15, 2004.
Series Dividend Rate Dividend Declared
------ ------------- -----------------
Series D 9.500% .593750
Series F 8.750% .546875
Series H 7.000% .437500
Series I 6.875% .429688
Series K 7.950% .496875
Series L 7.60% .638611 (1)
(1) Series L distribution includes dividends from August 31, 2004 through December 31, 2004.
Company Information
PSB is a self-advised and self-managed equity real estate investment trust that acquires, develops, owns and operates commercial properties, primarily flex, multi-tenant office and industrial space. The Company defines “flex” space as buildings that are configured with a combination of office and warehouse space and can be designed to fit a number of uses (including office, assembly, showroom, laboratory, light manufacturing and warehouse space). As of September 30, 2004, PSB wholly-owned approximately 18.4 million net rentable square feet of commercial space with approximately 3,600 customers located in eight states, concentrated primarily in California (5,160,000 sq. ft.), Texas (2,852,000 sq. ft.), Florida (3,342,000 sq. ft.), Oregon (1,939,000 sq. ft.), Virginia (2,786,000 sq. ft.) and Maryland (1,646,000 sq. ft.).
Forward-Looking Statements
When used within this press release, the words “may,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” “intends” and similar expressions are intended to identify “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results and performance of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include the impact of competition from new and existing commercial facilities which could impact rents and occupancy levels at the Company’s facilities; the Company’s ability to evaluate, finance, and integrate acquired and developed properties into the Company’s existing operations; the Company’s ability to effectively compete in the markets that it does business in; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing Real Estate Investment Trusts; the impact of general economic conditions upon rental rates and occupancy levels at the Company’s facilities; the availability of permanent capital at attractive rates, the outlook and actions of Rating Agencies and risks detailed from time to time in the Company’s SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.
Additional information about PS Business Parks, Inc. including more financial analysis of the third quarter’s operating results is available on the Internet. The Company’s web site is www.psbusinessparks.com.
A conference call is scheduled for November 3, 2004 at 10:00 A.M. (PT) to discuss the third quarter results. The toll free number is 1-800-399-4409; the conference ID is 1132334. The call will also be available via a live webcast on the Company’s website. A replay of the conference call will be available through November 10, 2004 at 1-800-642-1687. A replay of the conference call will also be available on the Company’s website.
Additional financial data attached.
PS BUSINESS PARKS, INC.
SELECTED FINANCIAL DATA
(unaudited, in thousands)
At September 30, 2004 At December 31, 2003
------------------------- ------------------------
Balance Sheet Data:
Cash and cash equivalents....................... $ 3,103 $ 5,809
Properties held for disposition, net............ $ 47,038 $ -
Real estate facilities, before accumulated
depreciation.................................. $ 1,555,447 $ 1,556,728
Total assets.................................... $ 1,358,646 $ 1,358,861
Total debt...................................... $ 49,225 $ 264,694
Minority interest - common units................ $ 165,945 $ 169,888
Minority interest - preferred units............. $ 127,750 $ 217,750
Perpetual preferred stock....................... $ 478,350 $ 168,673
Common shareholders' equity..................... $ 495,704 $ 502,155
Total common shares outstanding at period end... 21,819 21,566
========================= ========================
Total common shares outstanding at period end,
assuming conversion of all Operating
Partnership units into common stock........... 29,124 28,871
========================= ========================
PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
------------------------------------- ---------------------------------
September 30, September 30,
2004 2003 2004 2003
-------------------- ----------------- --------------- -----------------
Revenues:
Rental income................................. $ 54,979 $ 48,719 $ 162,405 $ 144,124
Facility management fees primarily from
affiliates.................................. 200 178 515 553
-------------------- ----------------- --------------- -----------------
Total revenues................................. 55,179 48,897 162,920 144,677
Expenses:
Cost of operations............................. 16,342 13,403 48,270 39,038
Depreciation and amortization.................. 18,310 15,015 53,559 41,972
General and administrative..................... 1,155 1,055 3,249 3,509
-------------------- ----------------- --------------- -----------------
Total expenses................................. 35,807 29,473 105,078 84,519
Other income and expenses:
Gain on sale of marketable securities.......... - - - 2,043
Interest and other income...................... 136 145 212 970
Interest expense............................... (513) (1,013) (2,612) (3,013)
-------------------- ----------------- --------------- -----------------
Total other income and expenses................ (377) (868) (2,400) -
-------------------- ----------------- --------------- -----------------
Income from continuing operation before minority
interests and equity income of joint venture. 18,995 18,556 55,442 60,158
-------------------- ----------------- --------------- -----------------
Equity income of liquidated joint venture - - - 2,296
Minority interests in continuing operations:
Minority interest in income - preferred units
Distributions paid......................... (5,170) (4,810) (14,785) (14,430)
Redemptions of preferred OP units.......... (2,872) - (3,139) -
Minority interest in income - common units... (714) (2,462) (3,643) (9,183)
-------------------- ----------------- --------------- -----------------
Total minority interests in continuing
operations.................................. (8,756) (7,272) (21,567) (23,613)
-------------------- ----------------- --------------- -----------------
Income from continuing operations
before preferred distributions.............. 10,239 11,284 33,875 38,841
-------------------- ----------------- --------------- -----------------
Preferred distributions:
Preferred distributions paid................. 8,121 4,052 21,166 11,904
Redemption of preferred stock................ - - 1,866 -
-------------------- ----------------- --------------- -----------------
Total preferred distributions.................. 8,121 4,052 23,032 11,904
-------------------- ----------------- --------------- -----------------
Income from continuing operations allocable to
common shareholders 2,118 7,232 10,843 26,937
-------------------- ----------------- --------------- -----------------
Discontinued operations:
Income from discontinued operations............ 655 737 1,682 1,939
Impairment charge on properties held for sale.. - - - (5,907)
Gain on disposition of real estate............. 313 14 145 3,498
Minority interest in (earnings) loss
attributable to discontinued operation -
common units................................ (240) (191) (459) 119
-------------------- ----------------- --------------- -----------------
Total discontinued operations.................. 728 560 1,368 (351)
-------------------- ----------------- --------------- -----------------
Net income allocable to common shareholders..... $ 2,846 $ 7,792 $ 12,211 $ 26,586
==================== ================= =============== =================
Net income per common share - basic:
Continuing operations.......................... $ 0.10 $ 0.33 $ 0.50 $ 1.26
-------------------- ----------------- --------------- -----------------
Discontinued operations........................ 0.03 0.03 0.06 (0.02)
$ 0.13 $ 0.36 $ 0.56 $ 1.24
==================== ================= =============== =================
Net income per common share - diluted:
Continuing operations.......................... $ 0.10 $ 0.33 $ 0.50 $ 1.25
Discontinued operations........................ 0.03 0.03 0.06 (0.01)
-------------------- ----------------- --------------- -----------------
$ 0.13 $ 0.36 $ 0.56 $ 1.24
==================== ================= =============== =================
Weighted average common shares outstanding:
Basic.......................................... 21,813 21,417 21,744 21,368
-------------------- ----------------- --------------- -----------------
Diluted........................................ 21,977 21,617 21,919 21,514
==================== ================= =============== =================
PS BUSINESS PARKS, INC.
Computation of Funds from Operations ("FFO") and Funds Available for Distribution ("FAD")
(unaudited, in thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
------------------------------------- -----------------------------------
September 30, September 30,
2004 2003 2004 2003
------------------ ------------------- ----------------- -----------------
Computation of Diluted Funds From Operations
--------------------------------------------
per Common Share ("FFO") (1):
-----------------------------
Net income allocable to common shareholders....... $ 2,846 $ 7,792 $ 12,211 $ 26,586
Adjustments:
Gain on disposition of real estate............ (313) (14) (145) (3,498)
Gain on sale of marketable securities......... - - - (2,043)
Equity income from gain on sale of joint
venture properties.......................... - - - (1,376)
Depreciation and amortization................. 18,802 15,382 55,016 43,237
Minority interest in income - common units.... 954 2,653 4,103 9,064
------------------ ------------------- ----------------- -----------------
FFO allocable to common shareholders/unit holders. $ 22,289 $ 25,813 $ 71,185 $ 71,970
================== =================== ================= =================
Weighted average common shares outstanding........ 21,813 21,417 21,744 21,368
Weighted average common OP units outstanding...... 7,305 7,305 7,305 7,305
Weighted average stock options outstanding using
treasury method............................ 164 200 175 146
------------------ ------------------- ----------------- -----------------
Weighted average common shares and OP units for
purposes of computing fully-diluted FFO per
common share.................................... 29,282 28,922 29,224 28,819
================== =================== ================= =================
Diluted FFO per common share ..................... $ 0.76 $ 0.89 $ 2.44 $ 2.50
================== =================== ================= =================
Computation of Funds Available for Distribution
("FAD") (2):
FFO allocable to common shareholders.............. $ 22,289 $ 25,813 $ 71,185 $ 71,970
Adjustments:
Maintenance capital expenditures............. (3,226) (1,614) (4,908) (2,798)
Tenant improvements.......................... (9,573) (2,835) (18,960) (9,236)
Lease commissions............................ (1,780) (1,420) (5,514) (3,577)
Straight-line rent........................... (863) (793) (2,242) (1,352)
Stock based compensation expense............. 276 270 892 723
In-place rents adjustment.................... 39 - 117 -
Impairment charge on properties held for sale - - - 5,907
Impact of application of EITF Topic D-42..... 2,872 - 5,004 -
------------------ ------------------- ----------------- -----------------
FAD............................................... $ 10,034 $ 19,421 $ 45,574 $ 61,637
================== =================== ================= =================
Distributions to common shareholders and unit
holders $ 8,446 $ 8,311 $ 25,287 $ 24,939
================== =================== ================= =================
Distribution payout ratio......................... 84.2% 42.8% 55.5% 40.5%
================== =================== ================= =================
(1) Funds from operations ("FFO") is defined as net income, computed in accordance with generally accepted
accounting principles ("GAAP"), before depreciation, amortization, minority interest in income, and
extraordinary items. FFO is presented because the Company considers FFO to be a useful measure of the
operation performance of a REIT and when compared year over year, reflects the impact to operation from
trends in occupancy rates, rental rates, operating costs, development activities, general and administrative
expenses and interest costs, providing a perspective not immediately apparent from net income. FFO does not
represent net income or cash flows from operations as defined by GAAP. FFO does not take into consideration
scheduled principal payments on debt or capital improvements. The Company believes that in order to
facilitate a clear understanding of the Company's operating results, FFO should be analyzed in conjunction
with net income. However, FFO should not be viewed as a substitute for net income as a measure of operating
performance as it does not reflect depreciation and amortization costs or the level of capital expenditure
and leasing costs necessary to maintain the operating performance of the Company's properties, which are
significant economic costs and could materially impact the Company's results from operations. FFO may be
used by investors to compare our performance with other real estate companies. Other real estate companies
may use different methods for calculating FFO and, accordingly, our FFO may not be comparable to other real
estate companies.
(2) Funds available for distribution ("FAD") is computed by deducting from consolidated FFO recurring capital
expenditures, which the Company defines as those costs incurred to maintain the asset's value, tenant
improvements, capitalized leasing commissions, and straight-line rent from FFO and adding impairment charges
and stock based compensation expense. Like FFO, the Company considers FAD to be a useful measure for
investors to evaluate the operations and cash flows of a REIT. FAD does not represent net income or cash
flow from operations as defined by GAAP.