PS BUSINESS PARKS, INC. The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the selected financial data and the Company's consolidated financial statements and notes thereto included in this Form 10-K. Our consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP.") The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the estimates, judgments, and assumptions we use to prepare our consolidated financial statements. Changes in estimates, judgments, or assumptions could affect our financial position and our results of operations, which are used by our stockholders, potential investors, industry analysts, and lenders in their evaluation of our performance.
Critical Accounting Estimates:
Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with GAAP, which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our significant accounting policies, which utilize these critical accounting estimates, are described in Note 2 - "Summary of significant accounting policies" to our consolidated financial statements under Item 15 in this annual report on Form 10-K. Our critical accounting estimates are described below. Recognition of real estate acquired: Generally, our acquisitions of real estate or in-substance real estate are accounted for as asset acquisitions and not business combinations because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets). The accounting model for asset acquisitions requires that the acquisition consideration (including acquisition costs) be allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Any excess (deficit) of the consideration transferred relative to the sum of the fair value of the assets acquired and liabilities assumed is allocated to the individual assets and liabilities based on their relative fair values. 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:
?market rates of return and capitalization rates on real estate and intangible assets;
?building and material cost levels;
?estimated market rent levels;
?future revenue growth rates;
?future cash flows from the real estate and the existing customer base, and
?comparisons of the acquired underlying land parcels to recent land transactions.
In calculating value for acquisitions completed during the year endedDecember 31, 2021 , we used discount rates ranging from 5.5% and 6.0% and a capitalization rate of 5.0%. 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. We completed acquisitions of two properties for a total purchase price of$148.9 million during the year endedDecember 31, 2021 . These transactions were accounted for as asset acquisitions, and the purchase price of each was allocated based on the relative fair value of the asset acquired and liabilities assumed. Refer to the "Acquisitions" section of Note 3 - "Real estate facilities" to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information. ? 23
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Impairment of long-lived assets: For each reporting period, we review current activities and changes in the business conditions of all of our long-lived assets, including our rental properties, construction in progress, land held for development, right-of-use assets related to operating leases in which we are the lessee, and intangibles, to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value. If an impairment loss is not required to be recognized, the recognition of depreciation or amortization is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the asset is expected to be held and used. We may also adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives. Impairment of real estate assets classified as held for sale: A property is classified as held for sale when all of the accounting criteria for a plan of sale have been met. Upon classification as held for sale, we recognize an impairment charge, if necessary, to lower the carrying amount of the real estate asset to its estimated fair value less cost to sell. The determination of fair value can involve significant judgments and assumptions. We develop key assumptions based on the following available factors: (i) contractual sales price, (ii) preliminary non-binding letters of intent, or (iii) other available comparable market information. If this information is not available, we use estimated replacement costs or estimated cash flow projections that utilize estimated discount and capitalization rates. These estimates are subject to uncertainty and therefore require significant judgment by us. We review all assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to their estimated fair values less costs to sell. Subsequently, as a result of our quarterly assessment, we may recognize an incremental impairment charge for any decrease in the asset's fair value less cost to sell. Conversely, we may recognize a gain for a subsequent increase in fair value less cost to sell, limited to the cumulative net loss previously recognized. 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.
The evaluation for impairment and calculation of the carrying amount of a long-lived asset to be held and used involves consideration of factors and calculations that are different than the estimate of fair value of assets classified as held for sale. Because of these two different models, it is possible for a long-lived asset previously classified as held and used to require the recognition of an impairment charge upon classification as held for sale.
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Business Overview
The Company is a fully-integrated, self-advised and self-managed REIT that owns, operates, acquires, and develops commercial properties, primarily multi-tenant industrial, industrial-flex and low-rise suburban office space. As ofDecember 31, 2021 , the Company owned and operated 27.7 million rentable square feet of commercial space in six states consisting of 97 parks and 666 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 . Our strong and conservative capital structure allows us the flexibility to use debt and equity capital prudently to fund our growth, which allows us to acquire properties we believe will create long-term value. From time to time we sell properties which no longer fit the Company's strategic objectives. Existing Real Estate Facilities: The operating results of our existing real estate facilities are substantially influenced by demand for rental space within our properties and our markets, which impacts occupancy, rental rates, and capital expenditure requirements. We strive to maintain high occupancy levels while increasing rental rates and minimizing capital expenditures when market conditions allow, although the Company may decrease rental rates in markets where conditions require. Management's initiatives and strategies with respect to our existing real estate facilities, which include incentivizing our personnel to maximize the return on investment for each lease transaction and provide a superior level of service to our customers. 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. OnNovember 18, 2021 , we acquired a multi-tenant industrial business park comprising approximately 141,000 rentable square feet inPlano, Texas , for a total purchase price of$25.6 million , inclusive of capitalized transaction costs. The park consists of 5 buildings and was 97.3% occupied at acquisition with suites ranging from 1,400 to 25,000 square feet. OnSeptember 1, 2021 , we acquired a multi-tenant industrial business park comprising approximately 718,000 rentable square feet inGrapevine, 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. OnOctober 28, 2020 , we acquired a multi-tenant industrial business park comprising approximately 246,000 rentable square feet inAlexandria, 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. OnJanuary 10, 2020 , we acquired a multi-tenant industrial business park comprising approximately 73,000 rentable square feet inLa 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. OnDecember 20, 2019 , we acquired a multi-tenant industrial-flex business park comprising approximately 79,000 rentable square feet inSanta Clara, California , for a total purchase price of$16.8 million , inclusive of capitalized transaction costs. The park consists of nine buildings and was 95.6% occupied at acquisition with suites ranging from 200 to 3,500 square feet.
On
OnApril 18, 2019 , we acquired a multi-tenant industrial business park comprising approximately 74,000 rentable square feet inSignal Hill, California , for a total purchase price of$13.8 million , inclusive of capitalized transaction costs. The park consists of eight buildings and was 98.4% occupied at acquisition with suites ranging from 1,200 to 8,000 square feet. 25
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We continue to seek to acquire additional properties in our existing markets and generally in close proximity to our existing portfolio; however, there can be no assurance that we will acquire additional facilities that meet our risk-adjusted return and underwriting requirements.
Development or Redevelopment of Real Estate Facilities
In certain instances, we may seek to redevelop our existing real estate or develop new buildings on excess land parcels.
As ofDecember 31, 2021 , we were in the process of developing an approximately 83,000 square foot multi-tenant industrial building at our212 Business Park located inKent, Washington . As ofDecember 31, 2021 ,$2.2 million of the estimated$15.4 million total development costs had been incurred and was reflected under land and building held for development, net on our consolidated balance sheets. This construction project is scheduled to be completed in the fourth quarter of 2022. As ofDecember 31, 2021 , we were in the process of developing an approximately 17,000 square foot multi-tenant industrial building at ourBoca Commerce Park , located inBoca Raton, Florida . As ofDecember 31, 2021 ,$1.1 million of the estimated$4.0 million total development costs had been incurred and was reflected under land and building held for development, net on our consolidated balance sheets. This construction project is scheduled to be completed in the fourth quarter of 2022. During 2021, we completed the development of an 83,000 square foot shallow-bay industrial building on an excess land parcel at ourFreeport Business Park located inIrving, Texas for total development costs of$8.1 million . The asset was placed into service onMarch 1, 2021 and accordingly was reflected under real estate facilities, at cost on our consolidated balance sheets atDecember 31, 2021 . The Mile is an office and multifamily park we own which sits on 44.5 contiguous acres of land located in Tysons,Virginia . The park consists of 628,000 square feet of office space and a 395-unit multifamily apartment community we developed, Highgate at The Mile, which we completed in 2017 through a joint venture with the JV Partner. In 2019, we successfully rezoned The Mile allowing us to develop, at our election, up to 3,000 additional multifamily units and approximately 500,000 square feet of other commercial uses. InAugust 2020 , the Company entered into a new joint venture with the JV Partner 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 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 ofDecember 31, 2021 . Construction of Brentford at The Mile commenced inAugust 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 ofDecember 31, 2021 , the development cost incurred was$54.8 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. During the year endedDecember 31, 2020 , the Company also recorded non-capitalizable demolition costs of$0.3 million in interest and other expense on our consolidated statements of income. ? 26
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While multifamily real estate was not previously a core asset class for us, we determined that multifamily real estate represents a unique opportunity and the highest and best use of the Brentford Parcel. Through joint ventures we have partnered with a local developer and operator of multifamily properties in order to leverage their development and operational expertise. The scope and timing of the future phases of development of The Mile are subject to a variety of uncertainties, including site plan approvals and building permits.
We consolidate both the joint venture that owns Highgate at The Mile and the joint venture that is developing Brentford at The Mile.
See "Analysis of Net Income - Multifamily" below and Note 3 and 4 to our consolidated financial statements for more information on Highgate at The Mile and Brentford at The Mile.
Sale 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. OnDecember 30, 2021 , we sold a 53,000 square foot industrial building located inBeltsville, Maryland , for net sale proceeds of$4.5 million , which resulted in a gain on sale of$3.2 million .
On
OnOctober 19, 2021 , we sold a 371,000 square foot industrial-flex business park located inSan Diego, California , for net sale proceeds of$311.1 million , which resulted in a gain on sale of$301.3 million . OnSeptember 17, 2021 , we sold a 22,000 square foot industrial-flex building located inIrving, Texas , for net sale proceeds of$3.4 million , which resulted in a gain on sale of$2.9 million . OnJuly 16, 2021 , we sold a 244,000 square foot office business park located inHerndon, Virginia , for net sale proceeds of$40.5 million , which resulted in a gain on sale of$27.0 million . OnJune 17, 2021 , we sold a 198,000 square foot office-oriented flex business park located inChantilly, Virginia , for net sale proceeds of$32.6 million , which resulted in a gain on sale of$19.2 million . (Collectively the "2021 Assets Sold").
During 2021, we reclassified above-mentioned assets as properties held for sale,
net, in the consolidated balance sheet as of
OnSeptember 16, 2020 , we sold two industrial buildings totaling 40,000 square feet located inRedmond, Washington , which were subject to an eminent domain process for net sale proceeds of$11.4 million , which resulted in a gain on sale of$7.7 million . OnJanuary 7, 2020 , we completed the sale of a single-tenant building totaling 113,000 square feet inRockville, Maryland , for net sale proceeds of$29.3 million , which resulted in a gain on sale of$19.6 million . (Collectively the "2020 Assets Sold"). OnOctober 8, 2019 , we sold three business parks located inRockville andSilver Springs, Maryland :Metro Park North ,Meadow Business Park andWesTech Business Park . The parks, consisting of 28 buildings totaling approximately 1.3 million rentable square feet sold for net sale proceeds of$144.6 million , which resulted in a gain on sale of$16.6 million . (Collectively the "2019 Assets Sold"). We have 702,000 rentable square feet of industrial-flex business park located inIrving, Texas , held for sale as ofDecember 31, 2021 and expect to complete the sale of these assets during 2022. The operations of such facilities as well as the sold facilities mentioned above are presented below under "assets sold or held for sale." ? 27
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Certain Factors that May Impact Future Results
Impact of COVID-19 Pandemic: Starting inMarch 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." 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, we cannot estimate how long these negative economic impacts will persist. Since the onset of the COVID-19 pandemic, the Company has entered into rent relief agreements consisting of$6.2 million of rent deferrals and$1.6 million of rent abatements. As ofDecember 31, 2021 , the 317 current customers that received rent relief account for 9.5% of rental income. Also as ofDecember 31, 2021 , the Company had collected$5.3 million of rent deferral repayment, representing 99.8% of the amounts scheduled to be repaid throughDecember 2021 . An additional$0.9 million of rent deferral repayment is scheduled to be repaid thereafter. The Company also wrote off accounts receivable, net of recoveries and deferred rent receivables of$0.1 million and$0.3 million , respectively, for the year endedDecember 31, 2021 , compared to$1.6 million and$3.1 million , respectively, for the year endedDecember 31, 2020 . As ofFebruary 18, 2022 , the Company had open rent relief requests from approximately less than 1% of customers. 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 may continue to have adverse effects on rental income for 2022 and possibly beyond. Impact of Inflation: Inflation has significantly increased recently and a continued increase in inflation could adversely impact our future results. 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. Regional Concentration: Our portfolio is concentrated in eight regions, in six states. We have chosen to concentrate in these regions because we believe they have characteristics which enable them to be competitive economically, such as above average population growth, job growth, higher education levels and personal income. Changes in economic conditions in these regions in the future could impact our future results. Industry and Customer Concentrations: We seek to minimize the risk of industry or customer concentrations. As ofDecember 31, 2021 , excluding the assets held for sale, only three industry concentrations represented more than 10% of our annualized rental income as depicted in the following table. Percent of Annualized Industry Rental Income Business services 23.0% Logistics 14.7% Technology 10.1% Retail, food, and automotive 8.6% Construction and engineering 8.1% Health services 6.7% Government 5.2% Electronics 2.9% Home furnishings 2.4% Insurance and financial services 2.0% Aerospace/defense 1.8% Communications 1.6% Education 0.9% Other 12.0% Total 100.0% 28
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As ofDecember 31, 2021 , excluding the assets held for sale, leases from our top 10 customers comprised 10.3% of our annualized rental income with four customers representing more than 1% as depicted in the following table (in thousands). Percent of Annualized Annualized Customers Square Footage Rental Income (1) Rental Income U.S. Government 465,000 $ 11,989 2.8%Amazon Inc. 543,000 7,071 1.6% KZ Kitchen Cabinet & Stone 370,000 5,604 1.3% Luminex Corporation 199,000 4,419 1.0% ECS Federal, LLC 143,000 3,430 0.8% Lockheed Martin Corporation 124,000 2,724 0.6% Applied Materials, Inc. 173,000 2,689 0.6% CentralColo, LLC 96,000 2,495 0.6% Great Way Trading & Transportation, Inc. 177,000 2,126 0.5% Costco-Innovel Solutions LLC 180,000 2,013 0.5% Total 2,470,000 $ 44,560 10.3% ____________________________
(1)For leases expiring prior to
Customer credit risk: Historically, we have experienced a low level of write-offs of uncollectible rents, with less than 0.4% of rental income written off in any single year from 2011-2019. As ofDecember 31, 2021 , our level of write-offs of uncollectible rents were 0.0%, which were below the 0.4% of rental income written off as ofDecember 31, 2020 . As ofFebruary 18, 2022 , we had 25,000 square feet of leased space occupied by one customer that is protected by Chapter 11 of theU.S. Bankruptcy Code, which has no remaining lease value as the lease obligation ended duringFebruary 2022 . 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.
Net Operating Income
We utilize net operating income ("NOI"), a measure that is not defined in
accordance with 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.
We believe NOI assists investors in analyzing the performance of our real estate
by excluding (i) corporate overhead (i.e., general and administrative expense)
because it does not relate to the direct operating performance of our real
estate, (ii) depreciation and amortization expense because it does not
accurately reflect changes in the fair value of our real estate, and (iii) stock
compensation expense because this expense item can vary significantly from
period to period and thus impact comparability across periods. 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.
We also report NOI on a basis which excludes non-cash rents that have been
deferred or abated during the period, certain non-cash revenue items, including
amortization of deferred rent receivable, in-place lease intangible, tenant
improvement reimbursements, and lease incentives, and also excludes
stock-compensation expense for employees whose compensation expense is recorded
in cost of operations ("Cash NOI"). We utilize Cash NOI to evaluate the cash
flow performance of our properties and believe investors and analysts utilize
this metric for the same purpose. Cash NOI should not be used as a measure of
our liquidity, nor is it indicative of funds available to fund our cash needs.
Cash NOI should not be used as a substitute for cash flow from operating
activities in accordance with GAAP.
See "Analysis of net income" below for reconciliations of each of these measures to their closest analogous GAAP measure from our consolidated statements of income.
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Table of Contents Results of Operations
Operating Results for 2021 and 2020
For the year endedDecember 31, 2021 , net income allocable to common stockholders was$393.1 million or$14.22 per diluted share, compared to$124.6 million or$4.52 per diluted share for the year endedDecember 31, 2020 . The increase was mainly due to a$332.6 million higher gain on sale of real estate facilities sold in 2021 than in 2020, an$18.3 million increase in NOI from ourSame Park portfolio (defined below), a$6.7 million increase in NOI from ourNon-Same Park portfolio (defined below), and$1.6 million lower preferred distributions in 2021 compared to 2020 due to the redemption of preferred stock inNovember 2021 , partially offset by a decrease of$5.9 million in NOI generated from assets sold or held for sale,$6.4 million non-cash charge related to the above mentioned 2021 redemption of preferred stock, and$3.6 million charge for a state income tax provision due to differences between state and federal tax codes.
Operating Results for 2020 and 2019
For the year endedDecember 31, 2020 , net income allocable to common stockholders was$124.6 million or$4.52 per diluted share, compared to$108.7 million or$3.95 per diluted share for the year endedDecember 31, 2019 . The increase was due to an$11.0 million non-cash charge related to the redemption of preferred stock incurred in 2019 that did not reoccur in 2020,$10.6 million higher gain on sale of real estate facilities sold in 2020 than in 2019,$6.2 million lower preferred distributions in 2020 compared to 2019, and an increase of$3.9 million in NOI from ourNon-Same Park portfolio, partially offset by a decrease of$15.1 million in NOI generated from assets sold or held for sale. ? 30
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Table of Contents Analysis of Net Income
Our net income is comprised primarily of our real estate operations, depreciation and amortization expense, general and administrative expense, interest and other income, interest and other expenses and gain on sale of real estate facilities.
We segregate our real estate activities into (i) same park operations, representing all operating properties acquired prior toJanuary 1, 2019 , comprising 25.1 million rentable square feet of our 27.7 million of rentable square feet atDecember 31, 2021 (the "Same Park " portfolio), (ii) non-same park operations, representing those facilities we own that were acquired afterJanuary 1, 2019 (the "Non-Same Park " portfolio), (iii) multifamily operations, and (iv) assets sold or held for sale comprising 0.7 million square feet of assets held for sale ("AHFS"), the 2021 Assets Sold totaling 1.0 million square feet, the 2020 Assets sold totaling 153,000 square feet, and the 2019 Assets Sold totaling 1.3 million square feet. The table below sets forth the various components of our net income (in thousands): For the Years For the Years Ended December 31, Ended December 31, 2021 2020 Variance 2020 2019 Variance Rental income Same Park$ 392,221 $ 369,448 $ 22,773 $ 369,448 $ 366,130 $ 3,318 Non-Same Park 17,829 9,311 8,518 9,311 2,566 6,745 Multifamily 9,069 9,464 (395) 9,464 10,075 (611) Assets sold or held for 19,584 27,400 27,400
51,075
sale (1) (7,816) (23,675)
Total rental income 438,703 415,623 23,080 415,623
429,846 (14,223)
Cost of operations
Adjusted Cost of
Operations (2)
Same Park 111,333 106,860 4,473 106,860 104,152 2,708
Non-Same Park 5,523 3,661 1,862 3,661 857 2,804
Multifamily 4,647 4,264 383 4,264 4,137 127
Assets sold or held for 7,636 9,518 9,518 18,063
sale (1) (1,882) (8,545)
Stock compensation 1,757 1,210 1,210 1,134
expense (3) 547 76Total cost of operations 130,896 125,513 5,383 125,513
128,343 (2,830)
NOI (4)
Same Park 280,888 262,588 18,300 262,588 261,978 610
Non-Same Park 12,306 5,650 6,656 5,650 1,709 3,941
Multifamily 4,422 5,200 (778) 5,200 5,938 (738)
Assets sold or held for
sale (1) 11,948 17,882 (5,934) 17,882 33,012 (15,130)
Stock compensation
expense (3) (1,757) (1,210) (547) (1,210) (1,134) (76)
Depreciation and (93,486) (96,314) (96,314) (104,249)
amortization expense 2,828 7,935
General and (19,057) (14,526) (14,526) (13,761)
administrative expense (4,531) (765)
Interest and other income 2,536 1,234 1,302 1,234
4,492 (3,258)
Interest and other (4,646) (1,072) (1,072) (657)
expense (3,574) (415) Gain on sale of real 359,875 27,273 27,273 16,644 estate facilities 332,602 10,629 Net income$ 553,029 $ 206,705 $ 346,324 $ 206,705 $ 203,972 $ 2,733 ____________________________ (1)As ofDecember 31, 2021 , the Company had reclassified AHFS totaling 0.7 million square feet to Assets sold or held for sale. Also included in the respective periods in 2021 are the 2021 Assets Sold totaling 1.0 million square feet. As ofDecember 31, 2020 , Assets sold or held for sale includes the 0.7 million square feet of AHFS, along with the 2021 Assets Sold, and the 2020 Assets sold totaling 153,000 square feet. As ofDecember 31, 2019 , Assets sold or held for sale includes the 0.7 million square feet of AHFS, along with the 2021 Assets Sold, the 2020 Assets sold, and the 2019 Assets Sold totaling 1.3 million square feet.
(2)Adjusted Cost of Operations excludes the impact of stock compensation expense.
(3)Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributable to our executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense.
(4)NOI represents rental income less Adjusted Cost of Operations.
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Rental income increased$23.1 million in 2021 compared to 2020 and decreased$14.2 million in 2020 compared to 2019. The increase in 2021 was due primarily to higher occupancy, a reduction in rent abatements granted to certain customers in 2021 compared to 2020, lower write-offs of accounts receivable and deferred rent receivable in 2021 compared to 2020, combined with rental income from ourNon-Same Park portfolio acquired during the fourth quarter of 2020 and 2021. These increases were partially offset by a decrease in rental income from assets sold. The decrease in 2020 was due primarily to reduced rental income from assets sold, partially offset by an increase in rental income from ourNon-Same Park andSame Park portfolio. Cost of operations increased$5.4 million in 2021 compared to 2020 and decreased$2.8 million in 2020 compared to 2019. The increase in 2021 was due primarily to higher Adjusted Cost of Operations incurred by ourSame Park (discussed below) andNon-Same Park portfolios, partially offset by a decrease in Adjusted Cost of Operations from assets sold. The decrease in 2020 was due primarily to reduced operating expenses from assets sold, partially offset by higher Adjusted Cost of Operations incurred by ourSame Park andNon-Same Park portfolios. Net income increased$346.3 million in 2021 compared to 2020 and increased$2.7 million in 2020 compared to 2019. The increase in 2021 was mainly due to higher gain on sale of real estate facilities sold in 2021 than 2020 combined with higher NOI, partially offset by higher general and administrative expense in 2021 than 2020 and higher other expenses in 2021 compared to 2020. The increase in 2020 was mainly due to higher gain on sale of real estate facilities sold in 2020 than 2019 combined with lower depreciation and amortization expense, partially offset by lower NOI and lower interest and other income. ? 32
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Same Park Portfolio
We believe that evaluation of theSame Park portfolio provides an informative view of how the Company's portfolio has performed over comparable periods. We believe that investors and analysts useSame Park information in a comparable manner. The following table summarizes the historical operating results of ourSame Park portfolio and certain statistical information related to leasing activity in 2021, 2020, and 2019 (in thousands, except per square foot data): For the Years For the Years Ended December 31, Ended December 31, 2021 2020 % Change 2020 2019 % Change Rental income Cash Rental Income (1)$ 391,125 $ 365,881 6.9%$ 365,881 $ 363,104 0.8% Non-Cash Rental Income (2) 1,096 3,567 (69.3%) 3,567 3,026 17.9% Total rental income 392,221 369,448 6.2%
369,448 366,130 0.9%
Adjusted Cost of Operations (3) Property taxes 41,958 41,184 1.9% 41,184 38,873 5.9% Utilities 18,066 17,170 5.2% 17,170 17,920 (4.2%) Repairs and maintenance 23,064 22,697 1.6% 22,697 21,711 4.5% Compensation 16,082 15,522 3.6% 15,522 14,708 5.5% Snow removal 1,021 233 338.2% 233 1,033 (77.4%) Property insurance 4,778 3,943 21.2% 3,943 3,269 20.6% Other expenses 6,364 6,111 4.1% 6,111 6,638 (7.9%) Total Adjusted Cost of Operations 111,333 106,860 4.2% 106,860 104,152 2.6% NOI (4)$ 280,888 $ 262,588 7.0%$ 262,588 $ 261,978 0.2% Cash NOI (5)$ 279,792 $ 259,021 8.0%$ 259,021 $ 258,952 0.0% Selected Statistical Data Rentable square footage at period end 25,053 25,053 - 25,053 25,053 - NOI margin (6) 71.6% 71.1% 0.5% 71.1% 71.6% -0.5% Cash NOI margin (7) 71.5% 70.8% 0.7% 70.8% 71.3% -0.5% Weighted average square foot occupancy 94.4% 92.7% 1.7% 92.7% 94.4% -1.7% Revenue perOccupied Square Foot (8)$ 16.58 $ 15.91 4.2%$ 15.91 $ 15.48 2.8% Revenue per Available Foot (RevPAF) (9)$ 15.66 $ 14.75 6.2%$ 14.75 $ 14.62 0.9% Cash Rental Income per Occupied Square Foot (10)$ 16.53 $ 15.76 4.9%$ 15.76 $ 15.35 2.7% Cash Rental Income per Available Foot (11)$ 15.61 $ 14.60 6.9%$ 14.60 $ 14.49 0.8%
____________________________
(1)Cash Rental Income represents rental income excluding Non-Cash Rental Income (defined below). See table below for the change in Cash Rental Income
(2)Non-Cash Rental Income represents amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. Same Park Non-Cash Rental Income is presented net of deferred rent receivable write-offs of$0.3 million ,$3.0 million , and$0.5 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively.
(3)Adjusted Cost of Operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in costs of operations
(4)NOI represents rental income less Adjusted Cost of Operations.
(5)Cash NOI represents Cash Rental Income less Adjusted Cost of Operations.
(6)NOI margin is computed by dividing NOI by rental income.
(7)Cash NOI margin is computed by dividing Cash NOI by Cash Rental Income.
(8)Revenue per Occupied Square Foot is computed by dividing rental income for the period by weighted average occupied square feet for the same period.
(9)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.
(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.
(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.
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Analysis of Same Park Rental Income
Rental income for ourSame Park portfolio increased 6.2% in 2021 compared to 2020 and 0.9% in 2020 compared to 2019. The increase in 2021 was due primarily to higher rental rates charged to customers, as revenue per occupied square foot increased 4.2%, weighted average occupancy increased 1.7% in 2021, and lower rent deferrals and rent abatements granted in 2021, combined with lower write-offs of accounts receivable and deferred rent receivable in 2021. The increase in 2020 was due primarily to higher rental rates charged to customers, as revenue per occupied square foot increased 2.8%, partially offset by a 1.7% decrease in weighted average occupancy in 2020 compared to 2019, rent deferrals and rent abatements granted in 2020, and higher write-offs of accounts receivable and deferred rent receivable in 2020.
The following table details
For the Years For the Years
Ended December 31, Ended December 31,
2021 2020 Change 2020 2019 Change
Rental income (1)
Base rental income $ 291,169 $ 280,499 $ 10,670 $ 280,499 $ 275,563 $ 4,936
Expense recovery income 96,248 88,534 7,714 88,534 85,948 2,586
Lease buyout income 1,856 1,044 812 1,044 1,364 (320)
Rent receivable recovery/
(write-off) (12) (1,515) 1,503 (1,515) (1,016) (499)
Abatements (312) (1,285) 973 (1,285) - (1,285)
Deferrals (292) (5,253) 4,961 (5,253) - (5,253)
Deferral repayments, net 1,773 2,953 (1,180) 2,953 - 2,953
Fee Income 695 904 (209) 904 1,245 (341)
Non-Cash Rental Income (2) 1,096 3,567 (2,471) 3,567 3,026 541
Total rental income $ 392,221 $ 369,448 $ 22,773 $ 369,448 $ 366,130 $ 3,318 ____________________________
(1)For all periods presented, the Company reclassified AHFS totaling 0.7 million square feet to assets sold or held for sale and were excluded from reportedSame Park operating metrics. (2)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 expect our future revenue growth will come primarily from contractual rental increases as well as from potential increases in market rents which would allow us to increase rent levels when leases are either renewed with existing customers or re-leased to new customers. The following table sets forth the expirations of existing leases in ourSame Park portfolio over the next ten years based on lease data atDecember 31, 2021 (dollars and square feet in thousands): Percent of Rentable Square Percent of Annualized Rental Annualized Rental Footage Number of Subject to Total Leased Income Under Income Represented Year of Lease Expiring Expiration Customers Leases Square Footage Expiring Leases by Expiring Leases 2022 1,961 5,527 22.8% $ 96,033 22.2% 2023 1,314 5,749 23.8% 98,774 22.8% 2024 762 4,635 19.1% 83,220 19.2% 2025 277 3,220 13.3% 59,538 13.8% 2026 204 2,313 9.6% 42,195 9.8% 2027 40 1,155 4.8% 20,877 4.8% 2028 27 565 2.3% 9,935 2.3% 2029 13 337 1.4% 8,032 1.9% 2030 14 567 2.3% 10,104 2.3% 2031 3 38 0.2% 1,156 0.3% Thereafter 9 108 0.4% 2,746 0.6% Total 4,624 24,214 100.0% $ 432,610 100.0%
See "Analysis of Same Park Market Trends" below for further analysis of such data on a by market basis.
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Analysis of Same Park Adjusted Cost of Operations
Adjusted Cost of Operations for ourSame Park portfolio increased 4.2% in 2021 compared to 2020 due primarily to higher utility costs, higher property insurance, higher snow removal costs, higher property taxes, and higher payroll costs. Adjusted Costs of Operations increased 2.6% in 2020 compared to 2019 due primarily to higher property taxes, higher repairs and maintenance, higher payroll costs, and higher insurance costs, partially offset by lower utility costs and savings from snow removal costs. Property taxes increased 1.9% in 2021 compared to 2020 and 5.9% in 2020 compared to 2019 due to higher assessed values. We expect potential property tax growth in the future due to higher assessed values. Utilities are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Utilities increased 5.2% in 2021 compared to 2020 and decreased 4.2% in 2020 compared to 2019. The increase in 2021 were driven by reduced consumption in 2020 resulting from the "shelter in place order" due to the COVID-19 pandemic during the second and third quarter of 2020. The decrease in 2020 was due primarily to a rate reduction related to adopting a renewable energy program during the year as well as reduced water and electricity usage due to the COVID-19 pandemic. 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 be higher than our results for year endedDecember 31, 2021 due to increased traffic and use at our parks as our customers resume operations. Repairs and maintenance increased 1.6% in 2021 compared to 2020 and 4.5% in 2020 compared to 2019. The increase in 2021 was primarily due to increased property services combined with higher landscaping repairs and security costs, as well as reduced consumption in 2020 resulting from the "shelter in place order" due to the COVID-19 pandemic during the second and third quarter of 2020. The increase in 2020 was primarily due to increased property services combined with higher landscaping repairs and security costs incurred partially offset by a reduction in general repairs and maintenance projects as a result of the COVID-19 pandemic. However, we expect repairs and maintenance costs in the future to be higher than our results for the year endedDecember 31, 2021 as a result of increased traffic and use at our parks as customers resume normalized operations. Payroll expense increased 3.6% in 2021 compared to 2020 and 5.5% in 2020 compared to 2019. Payroll expense includes on site and supervisory personnel costs incurred in the operation of our properties. The increases in payroll was primarily due to salary increases and promotions. We expect payroll expenses to continue to increase in the future. Snow removal increased 338.2% in 2021 compared to 2020 and decreased 77.4% in 2020 compared to 2019. Snow removal costs are weather dependent and therefore not predictable. Property insurance expense increased 21.2% in 2021 compared to 2020 and 20.6% in 2020 compared to 2019 due to a 20% rate increase for the policy periodJune 1, 2021 toMay 31, 2022 due to unfavorable market conditions pervasive throughout commercial real estate sectors combined with insurance deductibles recorded during 2021 related to damage from the winter storm inTexas . The increase in property insurance expense in 2020 compared to 2019 was also primarily due to an increase in our property insurance premiums for the policy periodJune 2020 toMay 2021 . We expect to experience increases in property insurance expense in the future as unfavorable market conditions pervasive throughout commercial real estate sectors persist. Other expenses increased 4.1% in 2021 compared to 2020 and decreased 7.9% in 2020 compared to 2019. Other expenses are general property expenses incurred in the operation of our properties. The increase in 2021 was primarily due to certain office related expenses and professional services. The decrease in 2020 was primarily due to higher than average professional fees related to ordinary course tenant related matters incurred in 2019, which did not recur in 2020. We expect other expenses to be comparable to our results for the year endedDecember 31, 2021 . ? 35
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Same Park Quarterly Trends
The following table sets forth historical quarterly data related to the operations of ourSame Park portfolio for Cash Rental Income, Adjusted Cost of Operations, weighted average occupancy, Cash Rental Income perOccupied Square Foot, and Cash Rental Income per Available Square Foot (in thousands, except per square foot data): For the Three Months Ended March 31 June 30 September 30
December 31 Full Year Cash Rental income (1) 2021$ 95,010 $ 96,948 $ 99,161 $ 100,006 $ 391,125 2020$ 93,109 $ 86,705 $ 91,501 $ 94,566 $ 365,881 2019$ 89,301 $ 90,723 $ 90,189 $ 92,891 $ 363,104 Adjusted Cost of Operations (1) 2021$ 28,017 $ 26,661 $ 28,470 $ 28,185 $ 111,333 2020$ 26,669 $ 25,439 $ 27,637 $ 27,115 $ 106,860 2019$ 26,808 $ 25,375 $ 25,969 $ 26,000 $ 104,152 Cash NOI (1) 2021$ 66,993 $ 70,287 $ 70,691 $ 71,821 $ 279,792 2020$ 66,440 $ 61,266 $ 63,864 $ 67,451 $ 259,021 2019$ 62,493 $ 65,348 $ 64,220 $ 66,891 $ 258,952 Weighted average square foot occupancy 2021 93.2% 93.9% 94.8% 95.7% 94.4% 2020 92.9% 92.4% 92.6% 92.7% 92.7% 2019 94.4% 94.0% 94.7% 94.5% 94.4% Cash Rental Income perOccupied Square Foot (1) 2021$ 16.28 $ 16.49 $ 16.70 $ 16.67 $ 16.53 2020$ 16.00 $ 14.97 $ 15.78 $ 16.29 $ 15.76 2019$ 15.11 $ 15.41 $ 15.20 $ 15.69 $ 15.35 Cash Rental Income per Available Square Foot (1) 2021$ 15.17 $ 15.48 $ 15.83 $ 15.97 $ 15.61 2020$ 14.87 $ 13.84 $ 14.61 $ 15.10 $ 14.60 2019$ 14.26 $ 14.48 $ 14.40 $ 14.83 $ 14.49 ____________________________
(1)Defined in Management's Discussion and Analysis of Financial Condition and Results of Operations-Analysis of Net Income-Same Park Portfolio table. ?
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Analysis of Same Park Market Trends
The following tables set forth historical data by region related to the operations of ourSame Park portfolio for Cash Rental Income, Adjusted Cost of Operations, weighted average occupancy, Cash Rental Income perOccupied Square Foot, and Cash Rental Income per Available Square Foot (in thousands, except per square foot data): For the Years For the Years Ended December 31, Ended December 31, Region 2021 2020 Variance 2020 2019 Variance Geographic Data onSame Park Cash Rental Income Northern California (7.2$ 114,970 $ 105,833 8.6%$ 105,833 $ 107,354 (1.4%) million feet) Southern California (3.0 53,347 47,802 11.6% 47,802 48,296 (1.0%) million feet) Dallas (2.1 million feet) 20,563 19,270 6.7% 19,270 20,215 (4.7%) Austin (2.0 million feet) 34,414 32,816 4.9% 32,816 30,365 8.1% Northern Virginia (4.5 78,382 77,017 1.8% 77,017 76,776 0.3% million feet) South Florida (3.9 million 49,631 44,119 12.5% 44,119 43,326 1.8% feet) Seattle (1.4 million feet) 20,354 19,311 5.4% 19,311 17,268 11.8% Suburban Maryland (1.0 19,464 19,713 (1.3%) 19,713 19,504 1.1% million feet)Total Same Park (25.1 6.9% 0.8% million feet) 391,125 365,881 365,881 363,104 Adjusted Cost of Operations Northern California 25,956 25,121 3.3% 25,121 24,313 3.3% Southern California 13,263 12,870 3.1% 12,870 12,521 2.8% Dallas 7,100 7,145 (0.6%) 7,145 6,979 2.4% Austin 12,670 12,041 5.2% 12,041 10,843 11.0% Northern Virginia 26,983 25,382 6.3% 25,382 26,482 (4.2%) South Florida 13,476 12,470 8.1% 12,470 11,977 4.1% Seattle 5,233 5,051 3.6% 5,051 4,109 22.9% Suburban Maryland 6,652 6,780 (1.9%) 6,780 6,928 (2.1%)Total Same Park 111,333 106,860 4.2% 106,860 104,152 2.6% Cash NOI Northern California 89,014 80,712 10.3% 80,712 83,041 (2.8%) Southern California 40,084 34,932 14.7% 34,932 35,775 (2.4%) Dallas 13,463 12,125 11.0% 12,125 13,236 (8.4%) Austin 21,744 20,775 4.7% 20,775 19,522 6.4% Northern Virginia 51,399 51,635 (0.5%) 51,635 50,294 2.7% South Florida 36,155 31,649 14.2% 31,649 31,349 1.0% Seattle 15,121 14,260 6.0% 14,260 13,159 8.4% Suburban Maryland 12,812 12,933 (0.9%) 12,933 12,576 2.8%Total Same Park $ 279,792 $ 259,021 8.0%$ 259,021 $ 258,952 0.0% Weighted average square foot occupancy Northern California 94.5% 91.3% 3.5% 91.3% 96.1% (5.0%) Southern California 96.9% 95.0% 2.0% 95.0% 94.9% 0.1% Dallas 90.1% 88.7% 1.6% 88.7% 93.3% (4.9%) Austin 94.5% 94.9% (0.4%) 94.9% 91.8% 3.4% Northern Virginia 92.8% 92.3% 0.5% 92.3% 91.9% 0.4% South Florida 97.3% 93.5% 4.1% 93.5% 95.4% (2.0%) Seattle 94.7% 95.6% (0.9%) 95.6% 96.0% (0.4%) Suburban Maryland 92.1% 93.4% (1.4%) 93.4% 92.9% 0.5%Total Same Park 94.4% 92.7% 1.8% 92.7% 94.4% (1.8%) Cash Rental Income per Occupied Square Foot (1) Northern California$ 16.80 $ 16.00 5.0%$ 16.00 $ 15.42 3.8% Southern California$ 18.92 $ 17.29 9.4%$ 17.29 $ 17.48 (1.1%) Dallas$ 10.89 $ 10.37 5.0%$ 10.37 $ 10.35 0.2% Austin$ 18.54 $ 17.61 5.3%$ 17.61 $ 16.84 4.6% Northern Virginia$ 18.64 $ 18.41 1.2%$ 18.41 $ 18.44 (0.2%) South Florida$ 13.19 $ 12.20 8.1%$ 12.20 $ 11.74 3.9% Seattle$ 15.91 $ 14.96 6.4%$ 14.96 $ 13.31 12.4% Suburban Maryland$ 19.31 $ 19.27 0.2%$ 19.27 $ 19.18 0.5%Total Same Park $ 16.53 $ 15.76 4.9%$ 15.76 $ 15.35 2.7% Cash Rental Income per Available Square Foot (1) Northern California$ 15.87 $ 14.61 8.6%$ 14.61 $ 14.82 (1.4%) Southern California$ 18.32 $ 16.42 11.6%$ 16.42 $ 16.60 (1.1%) Dallas$ 9.82 $ 9.21 6.6%$ 9.21 $ 9.65 (4.6%) Austin$ 17.53 $ 16.72 4.8%$ 16.72 $ 15.46 8.2% Northern Virginia$ 17.30 $ 16.99 1.8%$ 16.99 $ 16.94 0.3% South Florida$ 12.84 $ 11.41 12.5%$ 11.41 $ 11.21 1.8% Seattle$ 15.08 $ 14.30 5.5%$ 14.30 $ 12.79 11.8% Suburban Maryland$ 17.82 $ 18.05 (1.3%)$ 18.05 $ 17.86 1.1%Total Same Park $ 15.61 $ 14.60 6.9%$ 14.60 $ 14.49 0.8% ____________________________
(1)Defined in Management's Discussion and Analysis of Financial Condition and Results of Operations-Analysis of Net Income-Same Park Portfolio table.
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Supplemental Same Park Data by Product Type
The following supplemental tables provide further detail of ourSame Park rental income, Adjusted Cost of Operations and NOI by region, further segregated by industrial, flex, and office for each of the three years endedDecember 31, 2021 , 2020, and 2019. For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 For the Year
Ended
Industrial Flex Office Total Industrial Flex Office Total Industrial Flex Office Total
In thousands
Cash Rental Income:
Northern California $ 94,414 $ 10,040 $ 10,516 $ 114,970 $
84,337
34,879 12,108 815 47,802 35,198 12,341 757 48,296
Dallas 12,568 7,995 - 20,563 11,780 7,490 - 19,270 12,230 7,985 - 20,215
Austin 9,191 25,223 - 34,414 8,270 24,546 - 32,816 8,288 22,077 - 30,365
Northern Virginia 20,381 22,270 35,731 78,382 19,972 21,327 35,718 77,017 18,124 21,272 37,380 76,776
South Florida 47,351 2,094 186 49,631 42,102 1,880 137 44,119 41,303 1,920 103 43,326
Seattle 12,723 7,075 556 20,354 11,831 6,873 607 19,311 10,231 6,302 735 17,268
Suburban Maryland 4,357 - 15,107 19,464 4,146 - 15,567 19,713 4,307 - 15,197 19,504
Total 240,057 88,120 62,948 391,125 217,317 83,581 64,983 365,881 214,915 81,814 66,375 363,104
Adjusted Cost of
Operations:
Northern California 20,074 2,755 3,127 25,956 19,340 2,672 3,109 25,121 18,526 2,602 3,185 24,313
Southern California 9,343 3,575 345 13,263 9,053 3,473 344 12,870 8,869 3,369 283 12,521
Dallas 4,015 3,085 - 7,100 3,885 3,260 - 7,145 3,702 3,277 - 6,979
Austin 3,184 9,486 - 12,670 3,022 9,019 - 12,041 2,778 8,065 - 10,843
Northern Virginia 6,190 6,823 13,970 26,983 5,785 6,333 13,264 25,382 6,143 6,191 14,148 26,482
South Florida 12,770 607 99 13,476 11,841 562 67 12,470 11,262 602 113 11,977
Seattle 3,279 1,701 253 5,233 3,192 1,635 224 5,051 2,417 1,492 200 4,109
Suburban Maryland 1,237 - 5,415 6,652 1,243 - 5,537 6,780 1,229 - 5,699 6,928
Total 60,092 28,032 23,209 111,333 57,361 26,954 22,545 106,860 54,926 25,598 23,628 104,152
Cash NOI:
Northern California 74,340 7,285 7,389 89,014 64,997 6,685 9,030 80,712 66,708 7,315 9,018 83,041
Southern California 29,729 9,848 507 40,084 25,826 8,635 471 34,932 26,329 8,972 474 35,775
Dallas 8,553 4,910 - 13,463 7,895 4,230 - 12,125 8,528 4,708 - 13,236
Austin 6,007 15,737 - 21,744
5,248 15,527 - 20,775 5,510 14,012 - 19,522
14,187 14,994 22,454 51,635 11,981 15,081 23,232 50,294
34,581 1,487 87 36,155 30,261 1,318 70 31,649 30,041 1,318 (10) 31,349
Seattle 9,444 5,374 303 15,121 8,639 5,238 383 14,260 7,814 4,810 535 13,159
Suburban Maryland 3,120 - 9,692 12,812 2,903 - 10,030 12,933 3,078 - 9,498 12,576
Total $ 179,965 $ 60,088 $ 39,739 $ 279,792 $ 159,956 $ 56,627 $ 42,438 $ 259,021 $ 159,989 $ 56,216 $ 42,747 $ 258,952
Percentage by
Product Type 64.3% 21.5% 14.2% 100.0% 61.7% 21.9% 16.4% 100.0% 61.8% 21.7% 16.5% 100.0%
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Our past revenue growth has come from contractual annual rent increases, as well
as re-leasing of space at rates above outgoing rental rates. We believe the
percentage difference between outgoing cash rent inclusive of estimated expense
recoveries and incoming cash rent inclusive of estimated expense recoveries for
leases executed ("Cash Rental Rate Change") is useful in understanding trends in
current market rates relative to our existing lease rates. The following 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
year ended December 31, 2021 (square feet in thousands):
For the Year Ended December 31, 2021
Square Transaction
Footage Customer Costs per Cash Rental Net Effective
Industrial Leased Retention Executed Foot Rate Change (1) Rent Change (2)
Northern California 1,532 76.3% $ 3.10 12.1% 27.3%
Southern California 777 79.2% 2.29 6.2% 14.4%
Dallas 438 80.8% 3.81 4.0% 11.8%
Austin 294 74.0% 2.67 13.5% 41.0%
Northern Virginia 473 86.4% 4.86 3.7% 9.4%
South Florida 998 59.9% 1.29 11.5% 25.6%
Seattle 279 74.0% 3.91 11.5% 21.2%
Suburban Maryland 114 68.5% 3.12 (2.1%) 4.9%
Industrial Totals by 9.2% 21.4%
Region 4,905 74.1% $ 2.86
Flex
Northern California 204 69.4% $ 1.00 (0.2%) 4.3%
Southern California 207 76.5% 2.10 1.0% 8.5%
Dallas 263 76.8% 3.22 4.8% 15.4%
Austin 169 34.1% 5.10 1.1% 7.2%
Northern Virginia 508 91.9% 4.46 (2.1%) 3.1%
South Florida 42 74.6% 1.69 8.3% 20.7%
Seattle 88 47.5% 2.25 6.1% 13.3%
Suburban Maryland - - - - -
Flex Totals by 0.8% 7.1%
Region 1,481 71.0% $ 3.30
Office
Northern California 85 60.6% $ 0.82 (12.0%) (10.4%)
Southern California 10 57.3% 2.16 3.2% 10.5%
Dallas - - - - -
Austin - - - - -
Northern Virginia 458 69.6% 8.89 (4.1%) 2.4%
South Florida - - - - -
Seattle 12 41.1% 8.08 5.7% 15.5%
Suburban Maryland 147 78.4% 3.11 (5.8%) 2.9%
Office Totals by (5.6%) 0.7%
Region 712 69.9% $ 6.63
Company Totals by 4.9% 14.4%
Type 7,098 72.8% $ 3.33
____________________________
(1)Cash Rental Rate Change is computed by taking the percentage difference between the incoming initial billed monthly cash rental rates inclusive of estimated expense recoveries (excluding the impact of certain items such as concessions or future escalators) on new leases or extensions executed in the period, and the outgoing monthly cash rental rates inclusive of estimated expense recoveries last billed on the previous lease for that space. Leases executed on spaces vacant for more than the preceding twelve months have been excluded from this measure. (2)Net effective rent represents average rental payments for the term of a lease on a straight-line basis in accordance with GAAP and excludes operating expense reimbursements. For the year endedDecember 31, 2021 , weighted average occupancy was 94.4%, an increase from weighted average occupancy of 92.7% for the year endedDecember 31, 2020 . Weighted average cash rental rate growth on leases executed during the year endedDecember 31, 2021 was 4.9% while average net effective rent1 growth was 14.4%. Renewals of leases with existing customers represented 63.3% of our leasing activity for the year endedDecember 31, 2021 . Average lease term of the leases executed during the year endedDecember 31, 2021 was 3.4 years, with associated average transaction costs (tenant improvements and leasing commissions) of$3.33 per square foot. For comparative purposes, average lease term and transaction costs on leases executed in the same period of 2020 were 3.4 years and$2.58 per square foot, respectively.
________________________
1Net effective rent represents average rental payments for the term of a lease
on a straight-line basis in accordance with GAAP, excluding operating expense
reimbursements.
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Non-Same Park Portfolio: The table below reflects the assets comprising our
Purchase Square Occupancy at
Acquired Property Date Acquired Location Price Feet December 31, 2021
Jupiter Business November 2021 $ 25,600 141 97.3%
Park Plano, TX
Port America September 2021 Grapevine, TX 123,268 718 95.2%
Pickett Industrial October 2020 46,582 246 36.6%
Park Alexandria, VA
La Mirada Commerce January 2020 13,513 73 98.4%
Center La Mirada, CA
San Tomas Business December 2019 Santa Clara, 16,787 79 89.4%
Center CA
Hathaway Industrial September 2019 Santa Fe 104,330 543 100.0%
Park Springs, CA
Walnut Avenue April 2019 Signal Hill, 13,824 74 98.3%
Business Park CA
Total Acquired $ 343,904 1,874 89.0%
Property
Date Total Square Occupancy at
Developed Property Completed Location Cost Feet December 31, 2021
Freeport Industrial March 2021 $ 9,052 83 100.0%
Building Irving, TX
Total $ 352,956 1,957 89.4%
We believe that our management and operating infrastructure typically allows us
to generate higher NOI from newly acquired real estate facilities than was
achieved by previous owners. However, it can take 24 or more months for us to
fully achieve higher NOI, and the ultimate levels of NOI achieved can be
affected by changes in general economic conditions. Due to the uncertainty of
the COVID-19 pandemic's impact on the Company's ability to generate higher NOI
from these newly acquired real estate facilities in the future, there can be no
assurance that we will achieve our expectations with respect to newly acquired
real estate facilities.
Multifamily: As of December 31, 2021 , 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):
For the Years For the Years
Ended December 31, Ended December 31,
2021 2020 Change 2020 2019 Change
Rental income $ 9,069 $ 9,464 (4.2%) $ 9,464 $ 10,075 (6.1%)
Cost of operations 4,647 4,264 9.0% 4,264 4,137 3.1%
NOI $ 4,422 $ 5,200 (15.0%) $ 5,200 $ 5,938 (12.4%)
Selected Statistical Data
Weighted average square foot occupancy 94.5% 92.9% 1.6% 92.9% 95.4% (2.5%)
As of December 31, 2021
Total costs (1) $ 115,426
Physical occupancy 95.7%
Average rent per unit (2) $ 2,078 ____________________________
(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.
(2)Average rent per unit is defined as the total potential monthly rental revenue (actual rent for occupied apartment units plus market rent for vacant apartment units) divided by the total number of rentable apartment units.
The decrease in NOI in 2021 compared to 2020 was primarily due to a decline in
rental rates as result of the COVID-19 pandemic combined with an increase in
cost of operations. The increase in cost of operations was attributed to an
increase in property tax assessments. 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 future.
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Assets sold or held for sale: These amounts include historical operating results with respect to properties that were sold or held for sale.
For the year ended
For the year ended
For the year ended
Depreciation and Amortization Expense: Depreciation and amortization expense decreased 2.9% in 2021 compared to 2020 and decreased 7.6% in 2020 compared to 2019. The decrease in 2021 over 2020 was primarily due to acceleration of depreciation expense related to a building reclassified to held for development in 2020, which is also the primary reason for the decrease in 2020 over 2019. General and Administrative Expense: General and administrative expense primarily represents executive and other compensation, including non-cash stock compensation, audit and tax fees, legal expenses and other costs associated with being a public company. General and administrative expense increased$4.5 million , or 31.2%, in 2021 compared to 2020 and$0.8 million , or 5.6%, in 2020 compared to 2019. The increase in 2021 over 2020 was primarily due to increase in compensation expense mainly due to the addition of the new President and CEO, partially offset by the departure of the former COO, combined with an increase in stock compensation expense, as well as an increase in professional fees related to the reincorporation of PSB from the state ofCalifornia to the state ofMaryland in the second quarter of 2021, the increase was also attributable to legal fees related to various corporate service projects and an increase in executive procurement costs. The increase was partially offset by a reduction in expense due to accelerated stock compensation expense related to the former CEO retirement in the prior year. The increase in 2020 over 2019 was primarily due to higher stock compensation expense due to accelerated stock compensation expense for the former CEO (mentioned above) and an increase in professional fees related to various corporate service projects. The increase was partially offset by a decrease in compensation expense related to our President and CEO's retirement and stock compensation expense incurred during 2019 tied to a modification of the Director Retirement Plan which did not recur in 2020.
Sale of Real Estate Facilities
OnDecember 30, 2021 , the Company sold a 53,000 square foot industrial building located inBeltsville, Maryland , for net sale proceeds of$4.5 million , which resulted in a gain on sale of$3.2 million .
On
On
OnSeptember 17, 2021 , the Company sold a 22,000 square foot industrial-flex building located inIrving, Texas , for net sale proceeds of$3.4 million , which resulted in a gain on sale of$2.9 million .
On
OnJune 17, 2021 , the Company sold a 198,000 square foot office-oriented flex business park located inChantilly, Virginia , for net sale proceeds of$32.6 million , which resulted in a gain on sale of$19.2 million . OnSeptember 16, 2020 , the Company sold two industrial buildings totaling 40,000 square feet located inRedmond, Washington , which were subject to an eminent domain process for net sale proceeds of$11.4 million , which resulted in a gain on sale of$7.7 million .
On
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OnOctober 8, 2019 , the Company sold 1.3 million rentable square feet located inRockville andSilver Spring, Maryland , for net sale proceeds of$144.6 million , which resulted in a gain on sale of$16.6 million .
Liquidity and Capital Resources
This section should be read in conjunction with our consolidated statements of cash flows for the years endedDecember 31, 2021 , 2020, and 2019 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.
Overview
Our expected material cash requirements for the twelve months endedDecember 31, 2022 and thereafter consist of (i) contractually obligated expenditures, including payments of principal and interest; (ii) other essential expenditures, including property operating expenses, maintenance capital expenditures and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including acquisitions and developments and repurchases of our securities. We expect to satisfy these short-term and long-term cash requirements through operating cash flow, disposition proceeds and opportunistic debt and equity financing.
Sources of Capital
Operating Cash Flow: We believe that our net cash provided by our operating activities will continue to be sufficient to enable us to meet our ongoing requirements for debt service, capital expenditures and distributions to our stockholders for the foreseeable future. In the last five years, we have retained$40 to$60 million in operating cash flow per year. Retained operating cash flow represents cash flow provided by operating activities, less stockholder and unit holder distributions and capital expenditures, excluding development costs. In addition, as ofDecember 31, 2021 , we had$27.1 million in unrestricted cash. Proceeds from Dispositions: Refer to "Business Overview-Sale of Real Estate Facilities" above for a discussion of our dispositions. We expect to continue sell properties that are no longer consistent with our investment strategy and expect to use the proceeds from these dispositions to fund new acquisitions, development or other cash requirements. Access to Capital 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, 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 andStandard & Poor's . Our corporate credit rating by Standard and Poor's is A-, while our preferred stock are 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 year endedDecember 31, 2021 , the ratio of FFO to combined fixed charges and preferred distributions paid was 6.1 to 1.0. InAugust 2021 , we amended and restated the credit agreement governing our revolving Credit Facility to increase the aggregate principal amount of the Credit Facility from$250.0 million to$400.0 million and extend the expiration date toAugust 2025 . The Credit Facility can also be expanded to$700.0 million . We can use the Credit Facility as necessary as temporary financing until we are able to raise longer term capital. Historically we have funded our long-term capital requirements with retained operating cash flow and proceeds from the issuance of common and preferred securities. We will select among these sources of capital based upon availability, relative cost, the impact of constraints on our operations (such as covenants), and the desire for leverage. ? 42
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Cash Requirements
Contractual Commitments: Our material contractual commitments as ofDecember 31, 2021 consist of principal and 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: ?Credit Facility: As ofDecember 31, 2021 , we have$32.0 million outstanding on our Credit Facility. Subsequent toDecember 31, 2021 , the Company repaid in full the balance outstanding as ofDecember 31, 2021 . We are in compliance with all of the covenants and other requirements of our Credit Facility. Our Credit Facility expires inAugust 2025 . ?Preferred stock dividends: We paid$46.6 million to preferred stockholders during the year endedDecember 31, 2021 . We expect to continue to pay quarterly distributions of$9.6 million to our preferred stockholders for the foreseeable future or until such time as there is a change in the amount or composition of our series of preferred equity outstanding. Dividends on preferred equity are paid when and if declared by our Board and accumulate if not paid.
?Contractual commitments: Contractual construction commitments as of
?Ground lease obligations: Our contractual payment requirements under various operating leases as ofDecember 31, 2021 are approximately$0.2 million for 2022 and$1.4 million thereafter. Capital Expenditures: We define recurring capital expenditures as those necessary to maintain and operate our real estate at its current economic value. Nonrecurring capital improvements generally are related to property reconfigurations and other capital expenditures related to repositioning asset acquisitions. The following table sets forth our commercial capital expenditures paid for in the years endedDecember 31, 2021 , 2020, and 2019 on an aggregate and per square foot basis: For the Years Ended December 31, 2021 2020 2019 2021 2020 2019 Commercial Real Estate (in thousands) (per total weighted average square foot) Recurring capital expenditures Capital improvements$ 11,636 $ 9,497 $ 11,224 $ 0.42 $ 0.34 $ 0.40 (1) Tenant improvements 14,767 15,948 17,360 0.53 0.58 0.62 Lease commissions 8,719 8,878 8,267 0.31 0.32 0.29 Total commercial recurring capital expenditures (1) 35,122 34,323 36,851 1.26 1.24 1.31 Nonrecurring capital 2,705 1,715 2,494 0.10 0.06 0.09 improvements Total commercial capital expenditures (1)$ 37,827 $ 36,038 $ 39,345 $ 1.36 $ 1.30 $ 1.40 ____________________________
(1)Per square foot amounts are calculated based on capital expenditures divided by total weighted average square feet owned for the periods presented.
(2)Excludes
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The following table summarizes recurring capital expenditures paid and the
related percentage of NOI for
For the Years Ended December 31,
Recurring Capital
Expenditures
Recurring Capital Expenditures as a Percentage of NOI
Region 2021 2020 Change 2020 2019 Change 2021 2020 2019
Same Park
Northern $ $ 36.2% $ $ 44.0%
California 8,654 6,354 6,354 4,411 9.5% 7.7% 5.3%
Southern 2.9% (19.9%)
California 3,302 3,209 3,209 4,007 8.3% 9.0% 11.1%
Dallas 3,491 2,466 41.6% 2,466 2,655 (7.1%) 25.8% 20.0% 19.7%
Austin 1,887 1,955 (3.5%) 1,955 4,539 (56.9%) 8.9% 9.2% 22.9%
Northern 1.5% (26.3%)
Virginia 8,880 8,751 8,751 11,880 17.3% 16.8% 23.1%
South Florida 2,273 2,313 (1.7%) 2,313 2,191 5.6% 6.3% 7.3% 6.9%
Seattle 1,713 1,326 29.2% 1,326 914 45.1% 11.3% 9.4% 7.0%
Suburban 19.4% (12.4%)
Maryland 2,141 1,793 1,793 2,046 17.1% 14.0% 15.9%
Total Same Park 32,341 28,167 14.8% 28,167 32,643 (13.7%) 11.5% 10.7% 12.5%
Non-Same Park
Northern (10.5%) 100.0%
California 68 76 76 -
Southern (76.2%) 3851.9%
California 508 2,134 2,134 54
Dallas 371 - 100.0% - - -
Northern 329.4% 100.0%
Virginia 219 51 51 -
Total Non-Same (48.4%) 4087.0%
Park 1,166 2,261 2,261 54
Assets sold or (58.5%) (6.2%)
held for sale 1,615 3,895 3,895 4,154
Total commercial
recurring
capital 2.3% (6.9%)
expenditures 35,122 34,323 34,323 36,851
Multifamily 13 24 (45.8%) 24 20 20.0%
Total $ 35,135 $ 34,347 2.3% $ 34,347 $ 36,871 (6.8%)
In the last five years, our annual Same Park recurring capital expenditures have
ranged between 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.
Redemption of Preferred Stock: Shares of preferred stock are redeemable by the
Company five years after issuance or in order to preserve its status as a REIT,
but shares of preferred stock are never redeemable at the option of the holder.
Historically, we have reduced our cost of capital by refinancing higher coupon
preferred securities with lower coupon preferred securities. In November 2021 ,
our 5.20% Series W preferred shares, with a par value of $189.8 million , were
redeemed at par. 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 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. Refer to
Note 9 to our consolidated financial statements or more information on our
preferred stock.
Acquisitions of real estate facilities: Refer to "Business Overview-Acquisition
of Real Estate Facilities" above for a discussion of our recent acquisitions. 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.
Development real estate facilities: Refer to "Business Overview-Development of Real Estate Facilities" above for a discussion of our recently completed developments.
As ofDecember 31, 2021 , we were in the process of developing an approximately 83,000 square foot multi-tenant industrial building at our212 Business Park located inKent, Washington . As ofDecember 31, 2021 ,$2.2 million of the estimated$15.4 million total development costs had been incurred and was reflected under land and building held for development, net on our consolidated balance sheets. This construction project is scheduled to be completed in the fourth quarter of 2022. As ofDecember 31, 2021 , we have contractual construction commitments totaling$1.2 million that will be paid to various contractors as the project is completed. 44
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As ofDecember 31, 2021 , we were in the process of developing an approximately 17,000 square foot multi-tenant industrial building at ourBoca Commerce Park , located inBoca Raton, Florida . As ofDecember 31, 2021 ,$1.1 million of the estimated$4.0 million total development costs had been incurred and was reflected under land and building held for development, net on our consolidated balance sheets. This construction project is scheduled to be completed in the fourth quarter of 2022. As ofDecember 31, 2021 , we have contractual construction commitments totaling$2.9 million that will be paid to various contractors as the project is completed. InAugust 2020 , we entered into the Brentford Joint Venture 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 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 ofDecember 31, 2021 . Construction of Brentford at The Mile commenced inAugust 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 ofDecember 31, 2021 , the development cost incurred was$54.8 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. During the year endedDecember 31, 2020 , the Company recorded non-capitalizable demolition costs of$0.3 million in interest and other expense on our consolidated statements of income. As ofDecember 31, 2021 , we have contractual construction commitments totaling$39.3 million that will be paid to various contractors as the project is completed. Repurchase of Common Stock: Our Board has approved a common stock repurchase program and we may in the future acquire our shares under the program. As ofDecember 31, 2021 , management has the authorization to repurchase an additional 1,614,721 shares. No shares of common stock were repurchased under the board-approved common stock repurchase program during the years endedDecember 31, 2021 , 2020, and 2019. Requirement to Pay Distributions: Our election to be taxed as a REIT, as defined by the Code, applies to all periods presented herein. As a REIT, we do not incurU.S. federal corporate income tax on our "REIT taxable income" that is distributed each year (for this purpose, certain distributions paid in a subsequent year may be considered), and we continue to meet certain organizational and operational requirements. We believe we have met these requirements in all periods presented herein, and we expect we will continue to qualify as a REIT in future periods.
We paid REIT qualifying distributions of
We declared a one-time special cash dividend of$4.60 per share (the "Special Cash Dividend") along with the fourth quarter regular dividend of$1.05 per share for the three months endedDecember 31, 2021 . The Special Cash Dividend was declared to distribute a portion of the excess income attributable to gains on sales from asset dispositions during 2021. Our consistent, long-term dividend policy has been to set dividend distribution amounts based on our taxable income. Future quarterly distributions with respect to common stock will continue to be determined based upon our REIT distribution requirements and, along with distributions to preferred stockholders, we expect will be funded with cash provided by operating activities. ? 45
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Funds from Operations, Core Funds from Operations, and Funds Available for Distribution
Funds from Operations ("FFO") is a non-GAAP measure defined by the National
Association of Real Estate Investment Trusts and is considered a helpful measure
of REIT performance by REITs and many REIT analysts. FFO represents GAAP net
income before real estate depreciation and amortization expense, gains or losses
on sales of operating properties and land and impairment charges on real estate
assets.
We also present Core FFO and Funds Available for Distribution ("FAD") which are
both also non-GAAP measures. The Company defines Core FFO as FFO excluding the
impact of (i) income allocated to preferred stockholders to the extent
redemption value exceeds the related carrying value and (ii) other nonrecurring
income or expense items as appropriate. FAD represents Core FFO adjusted to (i)
deduct recurring capital improvements and capitalized tenant improvements and
lease commissions and (ii) remove certain non-cash income or expense items such
as amortization of deferred rent receivable and stock compensation expense.
FFO for the year ended December 31, 2021 was $6.67 per share representing an
increase of 2.5% from the same period in 2020. The increases in FFO per share
were the result of higher NOI, partially offset by the $6.4 million non-cash
charge related to the redemption of the Series W preferred stock, the $3.6
million for state income tax provision as described above, as well as higher
general and administrative expense.
Core FFO was $6.97 and $6.57 per share for the years ended December 31, 2021 and
2020, respectively. For the year ended December 31, 2021 , Core FFO excludes the
impact of (i) the $6.4 million non-cash charge related to the redemption of the
Series W preferred stock in November 2021 (ii) a $3.6 million charge for a state
income tax provision due to differences between state and federal tax code, and
(iii) a one-time cost associated with the Company's reincorporation as a
Maryland corporation of $0.5 million incurred during the second quarter of 2021.
For the year ended December 31, 2020 , Core FFO excludes the impact of (i)
accelerated amortization of stock compensation expense of $1.7 million related
to the retirement of our former President and CEO and (ii) non-capitalizable
demolition costs of $0.3 million .
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The following table reconciles net income allocable to common stockholders to
FFO, Core FFO and FAD as well as net income per share to FFO per share and Core
FFO per share (amounts in thousands, except per share data):
For the Years Ended
2021 2020 2019
Net income allocable to common stockholders
$ 108,703 Adjustments Gain on sale of real estate facilities (359,875) (27,273) (16,644) Depreciation and amortization expense 93,486 96,314
104,249
Net income allocated to noncontrolling interests 104,270 33,158
29,006
Net income allocated to restricted stock 2,613 716
910
unit holders FFO allocated to JV partner (78) (118) (149) FFO allocable to diluted common stock and 233,504 227,442
226,075
units
Maryland reincorporation costs 510 - - Non-capitalizable demolition costs - 335 - Acceleration of stock compensation expense due to President and CEO retirement - 1,687 - Preferred securities redemption charge 6,434 - 11,007 Income tax expense 3,600 - -
Core FFO allocable to diluted common stock
$ 237,082 and units Adjustments Recurring capital improvements (11,649) (9,521) (11,244) Tenant improvements (14,767) (15,948) (17,360) Capitalized lease commissions (8,719) (8,878) (8,267) Non-cash rental income (1) (2,800) (4,713) (3,936) Non-cash stock compensation expense (2) 8,495 3,961
4,956
Cash paid for taxes in lieu of stock upon vesting of restricted stock units (3,940) (4,216) (6,350) FAD allocable to diluted common stock and$ 210,668 $ 190,149 $ 194,881 units Weighted average outstanding Common stock 27,534 27,475 27,418 Common operating partnership units 7,305 7,305 7,305 Restricted stock units 50 51 124 Common stock equivalents 102 88 108 Total common and dilutive stock 34,991 34,919
34,955
Reconciliation of Earnings per Share to FFO per Share Net income per common share - diluted$ 14.22 $ 4.52 $ 3.95 Gain on sale of real estate facilities (10.29) (0.78) (0.48) Net income allocated to restricted stock 0.07 0.02
0.02
unit holders Depreciation and amortization expense 2.67 2.75
2.98
FFO per share 6.67 6.51
6.47
Maryland reincorporation costs 0.02 - - Non-capitalizable demolition costs - 0.01 - Acceleration of stock compensation expense due to President and CEO retirement - 0.05 - Preferred securities redemption charge 0.18 - 0.31 Income tax expense 0.10 - - Core FFO per share$ 6.97 $ 6.57 $ 6.78 ____________________________ (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.
(2)Amounts shown are net of accelerated stock compensation expense related to the former President and CEO retirement, which is also excluded from the computation of Core FFO.
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.
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