PS BUSINESS PARKS, INC./MD MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Forward-Looking Statements: Forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, are made throughout this
Quarterly Report on Form 10-Q. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "may," "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," "intends" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements,
including but not limited to: (i) the occurrence of any event, change or other
circumstance that could give rise to the termination of the merger agreement
described in Note 12 - "Subsequent Events" to our consolidated financial
statements under Item 15 in this quarterly report on Form 10-Q; (ii) the failure
to obtain the approval of PSB's stockholders of the proposed transaction or the
failure to satisfy any of the other conditions to the completion of the proposed
transaction; (iii) stockholder litigation in connection with the proposed
transaction, which may affect the timing or occurrence of the proposed
transaction or result in significant costs of defense, indemnification and
liability; (iv) the effect of the announcement of the proposed transaction on
the ability of PSB to retain and hire key personnel and maintain relationships
with its tenants, vendors and others with whom it does business, or on its
operating results and businesses generally; (v) risks associated with the
disruption of management's attention from ongoing business operations due to the
proposed transaction; (vi) the ability to meet expectations regarding the timing
and completion of the proposed transaction; (vii) significant transaction costs,
fees, expenses and charges; (viii) the duration and severity of the coronavirus
("COVID-19") pandemic and its impact on our business and our customers; (ix)
changes in general economic and business conditions, including as a result of
the economic fallout of the COVID-19 pandemic; (x) potential regulatory actions
to close our facilities or limit our ability to evict delinquent customers; (xi)
decreases in rental rates or increases in vacancy rates/failure to renew or
replace expiring leases; (xii) tenant defaults; (xiii) the effect of the recent
credit and financial market conditions; (xiv) our failure to maintain our status
as a real estate investment trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Code"); (xv) the economic health of our customers; (xvi)
the health of our officers and directors; (xvii) increases in operating costs;
(xviii) casualties to our properties not covered by insurance; (xix) the
availability and cost of capital; (xx) increases in interest rates and its
effect on our stock price; (xxi) security breaches, including ransomware, or a
failure of our networks, systems or technology which could adversely impact our
operations or our business, customer and employee relationships or result in
fraudulent payments; (xxii) the impact of inflation; and (xxiii) other factors
discussed under the heading "Part I, Item 1A. Risk Factors" in our Annual Report
on Form 10-K for the year ended December 31, 2021. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved. Moreover, we
assume no obligation to update these forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward-looking statements, except as required by law.

Critical Accounting Policies and Estimates:


Our critical accounting estimates are defined as accounting estimates or
assumptions made in accordance with U.S. generally accepted accounting
principles ("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 quarterly report on Form 10-Q.

During the three months ended March 31, 2022, there were no material changes to
our critical accounting estimates as compared to the critical accounting
estimates disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Part II, Item 7 of our Annual
Report on Form 10-K for the year ended December 31, 2021.




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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 of March 31,
2022, the Company owned and operated 27.0 million rentable square feet of
commercial space in six states consisting of 96 parks and 652 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.

Pending merger transaction: Refer to Note 12 - "Subsequent Events" to our
consolidated financial statements under Item 15 in this quarterly report on Form
10-Q, for information regarding the merger agreement the Company enter into on
April 24, 2022 (the mergers described therein, the "Merger").

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.

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 of March 31, 2022, we were in the process of developing an approximately
83,000 square foot multi-tenant industrial building at our 212 Business Park
located in Kent, Washington. During the quarter ended March 31, 2022,
$1.5 million was reclassified from land to property held for development on our
consolidated balance sheet and, as of March 31, 2022, $5.5 million of the
estimated $16.0 million total development costs had been incurred. The total
investment, inclusive of land and development costs, for the 212 Business Park
development is projected to be $17.5 million. This construction project is
scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022,
we have contractual construction commitments totaling $10.5 million that will be
paid to various contractors as the project is completed.

As of March 31, 2022, we were in the process of developing an approximately
17,000 square foot multi-tenant industrial building at our Boca Commerce Park,
located in Boca Raton, Florida. During the quarter ended March 31, 2022, $0.6
million was reclassified from land to property held for development on our
consolidated balance sheet and, as of March 31, 2022, $2.3 million of the
estimated $4.2 million total development costs had been incurred. The total
investment, inclusive of land and development costs, for the Boca Commerce Park
development is projected to be $4.8 million. This construction project is
scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022,
we have contractual construction commitments totaling $1.9 million that will be
paid to various contractors as the project is completed.

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.
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In August 2020, the Company entered into a new joint venture with the JV Partner
(the "Brentford Joint Venture") for the purpose of developing a second
multifamily property, Brentford at The Mile, a planned 411-unit multifamily
apartment complex. Under the Brentford Joint Venture agreement, the Company has
a 98.2% controlling interest and is the managing member with the JV Partner
holding the remaining 1.8% limited partnership interest. We contributed a parcel
of land to the Brentford Joint Venture (the "Brentford Parcel") at a value of
$18.5 million, for which we received equity contribution credit in the Brentford
Joint Venture. Our cost basis in the Brentford Parcel was $5.1 million as of
March 31, 2022.

Construction of Brentford at The Mile commenced in August 2020 and is
anticipated to be completed over a period of 24 to 36 months at an estimated
development cost of $110 million to $115 million, excluding land cost. As of
March 31, 2022, the development cost incurred was $64.4 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.

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.
On March 29, 2022, the Company sold a 702,000 square foot industrial-flex
business park located in Irving, Texas, for net sale proceeds of $91.9 million,
which resulted in a gain on sale of $57.0 million. (the "2022 Asset Sold").
There were no asset sales during the three months ended March 31, 2021.

The operations of these facilities are presented in the tables below under
“assets sold.”

Certain Factors that May Impact Future Results

Pending merger transaction: Refer to Note 12 – “Subsequent Events” to our
consolidated financial statements under Item 15 in this quarterly report on Form
10-Q, for information regarding the Merger.


Impact of COVID-19 pandemic: Starting in March 2020, the COVID-19 pandemic
resulted in cessation, severe curtailment, or impairment of business activities
in most sectors of the economy in all markets we operate in, due to governmental
"stay at home" orders, risk mitigation procedures, and closure of businesses not
considered to be "essential." 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 of March 31, 2022, the 307 current customers that
received rent relief account for 9.6% of rental income. Also as of March 31,
2022, the Company had collected $5.4 million of rent deferral repayment,
representing 99.8% of the amounts scheduled to be repaid through March 31, 2022.
An additional $0.8 million of rent deferral repayment is scheduled to be repaid
thereafter.

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
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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 of March 31, 2022, leases from our top 10
customers comprised 10.0% of our annualized rental income, with only four
customers representing 1% or more- the US Government (2.6%), Amazon Inc. (1.6%),
KZ Kitchen Cabinet & Stone (1.3%), and Luminex Corporation (1.0%). In terms of
industry concentration, 23.8% of our annualized rental income comes from
Business services, and 15.0% from Logistics. No other industry group represents
more than 10% of our annualized rental income.

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 of March 31, 2022 and December 31,
2021, our level of write-offs of uncollectible rents were 0.1%, and 0.0% of
rental income,respectively.

As of April 27, 2022, we had 29,320 square feet of leased space occupied by two
customers that are protected by Chapter 11 of the U.S. Bankruptcy Code, which
have an aggregate remaining lease value of $1.2 million. From time to time,
customers contact us, requesting early termination of their lease, reductions in
space leased, or rent deferment or rent abatement, which we are not obligated to
grant but will consider and grant under certain circumstances.

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 Cost of Operations.


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, and (ii) depreciation and amortization expense because it does not
accurately reflect changes in the fair value of our real estate. The Company's
calculation of NOI may not be comparable to those of other companies and should
not be used as an alternative to performance measures calculated in accordance
with GAAP. NOI should not be used as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs. NOI should not be used as
a substitute for cash flow from operating activities in accordance with GAAP.

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.


Results of Operations


Operating Results Overview: Three Months Ended March 31, 2022 and 2021


For the three months ended March 31, 2022, net income allocable to common
stockholders was $72.0 million, or $2.60 per diluted share, compared to $27.9
million, or $1.01 per diluted share, for the same period in 2021. The increase
was mainly due to a $57.0 million gain on sale of assets sold during the first
quarter of 2022, compared to no assets sold in the first quarter of 2021,
combined with a $5.3 million increase in NOI from our Same Park portfolio
(defined below), a $1.5 million increase in NOI from our Non-Same Park portfolio
(defined below), and $2.5 million lower preferred distributions in 2022 compared
to 2021 due to the redemption of preferred stock in November 2021, partially
offset by a
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decrease of $2.7 million in NOI generated from assets sold or held for sale, and
a one-time cash payment of $6.7 million to the former Chief Executive Officer
("CEO"), which consists of a $6.6 million cash payment for RSUs, a $0.1 million
cash payment for COBRA coverage reimbursement in accordance with his separation
agreement, partially offset by $0.6 million non-cash adjustment related to the
reversal of stock compensation for the unvested former CEO's shares, net of
dividend forfeiture expense.

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, generally
representing all operating properties acquired prior to January 1, 2020,
comprising 25.7 million rentable square feet of our 27.0 million of rentable
square feet at March 31, 2022 the "Same Park" portfolio), (ii) non-same park
operations, representing those facilities we own that were acquired after
January 1, 2020 (the "Non-Same Park" portfolio), (iii) multifamily operations,
and (iv) assets sold or held for sale, including the 2022 Asset Sold totaling
0.7 million square feet and the 2021 Assets Sold totaling 1.0 million square
feet.

The table below sets forth the various components of our net income (in
thousands):

                                                        Three Months Ended March 31,
                                                          2022                2021                % Change
Rental income
Same Park                                             $  105,014          $  98,012                      7.1  %
Non-Same Park                                              3,348              1,246                    168.7  %
Multifamily                                                2,369              2,327                      1.8  %
Assets sold or held for sale (1)                           2,109              6,462                    (67.4) %
Total rental income                                      112,840            108,047                      4.4  %

Cost of Operations (2)
Same Park                                                 30,900             29,175                      5.9  %
Non-Same Park                                              1,060                422                    151.2  %
Multifamily                                                1,224              1,067                     14.7  %
Assets sold or held for sale (1)                             930              2,554                    (63.6) %
Total cost of operations                                  34,114             33,218                      2.7  %
Stock compensation expense (3)                              (536)              (456)                    17.5  %
Total cost of operations excluding stock compensation     33,578             32,762                      2.5  %
expense

NOI (4)
Same Park                                                 74,114             68,837                      7.7  %
Non-Same Park                                              2,288                824                    177.7  %
Multifamily                                                1,145              1,260                     (9.1) %
Assets sold or held for sale (1)                           1,179              3,908                    (69.8) %

Depreciation and amortization expense                    (23,132)           (22,985)                     0.6  %
General and administrative expense                       (11,324)            (4,382)                   158.4  %
Interest and other income                                    246                256                     (3.9) %
Interest and other expense                                  (330)              (211)                    56.4  %
Gain on sale of real estate facilities                    56,959                  -                    100.0  %
Net income                                            $  101,145          $  47,507                    112.9  %


_______________

(1)Amounts shown for the three months ended March 31, 2022 and 2021 include
operating results attributable to the 2022 Asset Sold and the 2021 Assets Sold,
respectively.

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(2)Cost of Operations under Cash NOI 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 Cost of Operations.


Rental income increased $4.8 million for the three months ended March 31, 2022
as compared to the same period in 2021 due primarily to higher occupancy in 2022
compared to the same period in 2021 combined with rental income from our
Non-Same Park portfolio acquired during the third and fourth quarters of 2021.
These increases were partially offset by a decrease in rental income from assets
sold.

Cost of operations, excluding stock compensation expense, increased $0.8 million
for the three months ended March 31, 2022, as compared to the same period in
2021 due primarily to higher Cost of Operations incurred by our Same Park
(discussed below) and Non-Same Park portfolios, partially offset by a decrease
in Cost of Operations from assets sold.

Net income increased $53.6 million for the three months ended March 31, 2022, as
compared to the same period in 2021. The three month increase was mainly due to
a $57.0 million gain on sale of assets sold during the first quarter of 2022
compared to 2021 as there were no assets sold in the first quarter of 2021, a
$5.3 million increase in NOI from our Same Park portfolio (defined below), a
$1.5 million increase in NOI from our Non-Same Park portfolio (defined below),
partially offset by a decrease of $2.7 million in NOI generated from assets sold
or held for sale, and a one-time cash payment of $6.7 million to the former CEO,
which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash
payment for COBRA coverage reimbursement in accordance with his separation
agreement, partially offset by $0.6 million non-cash adjustment related to the
reversal of stock compensation for the unvested former CEO's shares, net of
dividend forfeiture expense.

Same Park Portfolio


We believe that evaluation of the Same Park portfolio provides an informative
view of how the Company's portfolio has performed over comparable periods. We
believe that investors and analysts use Same Park information in a comparable
manner.
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The following table summarizes the historical operating results of our Same Park
portfolio and certain statistical information related to leasing activity during
the three months ended March 31, 2022 and 2021 (in thousands, except per square
foot data):

                                                          Three Months Ended March 31,
                                                            2022                   2021                  % Change
Rental income
Cash Rental Income (1)                               $      104,096           $    96,638                       7.7  %
Non-Cash Rental Income (2)                                      918                 1,374                     (33.2  %)
Total rental income                                         105,014                98,012                       7.1  %

Cost of Operations
Property taxes                                               11,788                11,197                       5.3  %
Utilities                                                     4,637                 4,417                       5.0  %
Repairs and maintenance                                       5,679                 5,244                       8.3  %
Compensation                                                  5,168                 4,559                      13.4  %
Snow removal                                                    846                 1,002                     (15.6  %)
Property insurance                                            1,268                 1,167                       8.7  %
Other expenses                                                1,514                 1,589                      (4.7  %)
Total Cost of Operations (3)                                 30,900                29,175                       5.9  %
Less: Non-cash stock based compensation in operating           (496)                 (421)                     17.8  %
costs
Total Cash Cost of Operations                                30,404                28,754                       5.7  %
NOI (4)                                              $       74,114           $    68,837                       7.7  %

Cash NOI (5)                                         $       73,692           $    67,884                       8.6  %

Selected Statistical Data
Square footage at period end                                 25,749                25,749                         -
NOI margin (6)                                                 70.6   %              70.2  %                    0.4  %
Cash NOI margin (7)                                            70.8   %              70.2  %                    0.6  %
Weighted average square foot occupancy                         96.0   %              93.3  %                    2.7  %
Revenue per Occupied Square Foot (8)                 $        16.99           $     16.32                       4.1  %

Cash Rental Income per Occupied Square Foot (9) $ 16.84

  $     16.10                       4.6  %


_______________

(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 $0.0 million and $0.1
million for the three months ended March 31, 2022 and 2021, respectively

(3)Cost of Operations, as presented above, includes stock compensation expense
for employees whose compensation expense is recorded in cost of operations.

(4)NOI represents rental income less Cost of Operations.

(5)Cash NOI represents Cash Rental Income less Cash 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. Revenue
per Occupied Square Foot for the three month period shown is annualized.

(9)Cash Rental Income per Occupied Square Foot is computed by dividing Cash
Rental Income for the period by weighted average occupied square feet for the
same period. Cash rental Income per Occupied Square Foot for the three month
period shown is annualized.
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Analysis of Same Park Rental Income


Rental income for our Same Park portfolio increased 7.1% for the three months
ended March 31, 2022, as compared to the same period in 2021. The three month
increase was due primarily due to an increase in weighted average occupancy and
higher rental rates charged to our customers, as revenue per occupied square
foot increased 4.1%, in the three months ended March 31, 2022, compared to the
same period in 2021.

The following table details the change in Same Park rental income for the three
months ended March 31, 2022 and 2021 (in thousands):

                                              Three Months Ended March 31,
                                                   2022                    2021        $ Change
Rental income
Base rental income                     $         77,002                 $ 71,600      $  5,402
Expense recovery income                          26,545                   24,022         2,523
Lease buyout income                                 245                      377          (132)
Rent receivable recovery/(write-off)                (87)                      (1)          (86)
Abatements                                           (2)                     (83)           81
Deferrals                                             -                     (187)          187
Deferral repayments, net                            147                      738          (591)
Fee Income                                          246                      172            74
Cash Rental Income                              104,096                   96,638         7,458
Non-Cash Rental Income (1)                          918                    1,374          (456)
Total rental income                    $        105,014                 $ 98,012      $  7,002


_______________

(1)Non-cash rental income includes amortization of deferred rent receivable (net
of write-offs), in-place lease intangible, tenant improvement reimbursements,
and lease incentives.

We 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 our Same
Park portfolio over the next five years based on lease data at March 31, 2022
(dollars and square feet in thousands):

                                                                                                                                                       Percent of
                                                                    Square                    Percent of              Annualized Rental            Annualized Rental
                                        Number of             Footage Subject to             Total Leased               Income Under               Income Represented
Year of Lease Expiration                Customers               Expiring Leases             Square Footage             Expiring Leases             by Expiring Leases
Remainder of 2022                          1,629                      4,063                            16  %                72,761                                16  %
2023                                       1,463                      5,931                            24  %               102,748                                23  %
2024                                         923                      4,978                            20  %                90,522                                20  %
2025                                         377                      3,695                            15  %                68,558                                15  %
2026                                         223                      2,372                            10  %                43,422                                10  %
Thereafter                                   159                      3,696                            15  %                69,794                                16  %
Total                                      4,774                     24,735                           100  %               447,805                               100  %

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 Cost of Operations


Cost of Operations for our Same Park portfolio increased 5.9% for the three
months ended March 31, 2022, as compared to the same period in the prior year.
The three month increase was due to increases in almost all cost of operations
categories except for snow removal and other expenses.

Property taxes increased 5.3% for the three months ended March 31, 2022, as
compared to the same period in the prior year. These increases were due to
higher assessed values. We expect potential property tax growth in the future
due to higher assessed values.


Utilities are dependent upon energy prices and usage levels. Changes in usage
levels are driven primarily by weather and temperature. Utilities increased 5.0%
during the three months ended March 31, 2022, as compared to the same period in
the prior year. The three-month increase was driven by reduced consumption in
the first quarter of 2021 resulting from the ongoing "shelter in place order"
due to the COVID-19 pandemic during the first quarter of 2021. It is difficult
to estimate future utility costs, because weather, temperature and energy prices
are volatile and not readily predictable. However, we expect utility costs in
the future to return to pre-COVID-19 pandemic levels over time due to expected
increases in traffic and use at our parks as our customers resume operations.

Repairs and maintenance expense increased 8.3% for the three months ended
March 31, 2022, as compared to the same period in the prior year. The
three-month increase was due a reduction in general repairs and property
services resulting from the ongoing "shelter in place order" due to the COVID-19
pandemic during the first quarter of 2021. Repairs and maintenance costs are
dependent upon many factors including weather conditions, which can impact
repair and maintenance needs, inflation in material and labor costs and random
events, and as a result are not always predictable. We expect repairs and
maintenance costs for the remainder of 2022 to be more consistent with
pre-COVID-19 pandemic levels as a result of expected increases in traffic and
use at our parks as customers resume operations.

Compensation increased 13.4% for the three months ended March 31, 2022, as
compared to the same period in the prior year. Compensation expense is comprised
of on-site and supervisory personnel costs incurred in the operation of our
properties. The increase in compensation was primarily due to salary increases
and promotions. We expect compensation and payroll expenses to continue to
increase in the future.

Snow removal costs decreased 15.6% during the three months ended March 31, 2022
as compared to the same period in the prior year. Snow removal costs are weather
dependent and therefore not predictable.

Property insurance expense increased 8.7% for the three months ended March 31,
2022, as compared to the same period in the prior year. The three-month increase
was primarily due to an increase in our property insurance premium for the
policy period June 2021 to May 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 in
Texas. We expect to experience increases in property insurance expense in the
future as unfavorable market conditions pervasive throughout commercial real
estate sectors persist.

Other expenses decreased 4.7% for the three months ended March 31, 2022, as
compared to the same period in the prior year. Other expenses are comprised of
general property expenses incurred in the operation of our properties. We expect
other expenses for the remainder of 2022 to be similar to our results for the
three months March 31, 2022.


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Analysis of Same Park Market Trends

The following tables set forth historical data by region related to the
operations of our Same Park portfolio for Cash Rental Income, Cash Cost of
Operations, weighted average occupancy, and Cash Rental Income per Occupied
Square Foot (in thousands, except per square foot data):

                                                                 Three Months Ended March 31,
Region                                                             2022                   2021                  Change

Geographic Data on Same Park

Cash Rental Income                          Square Feet
Northern California                             7,324       $       30,652           $    27,791                 10.3%
Southern California                             3,529               15,955                14,093                 13.2%
Dallas                                          2,093                5,446                 5,044                 8.0%
Austin                                          1,963                8,834                 8,633                 2.3%
Northern Virginia                               4,532               19,900                19,484                 2.1%
South Florida                                   3,866               13,175                11,786                 11.8%
Seattle                                         1,350                5,232                 4,920                 6.3%
Suburban Maryland                               1,092                4,902                 4,887                 0.3%
Total Same Park                                25,749       $      104,096           $    96,638                 7.7%

Cash Cost of Operations
Northern California                                         $        6,761           $     6,498                 4.0%
Southern California                                                  4,212                 3,854                 9.3%
Dallas                                                               1,792                 1,921                (6.7)%
Austin                                                               3,505                 3,215                 9.0%
Northern Virginia                                                    7,368                 7,039                 4.7%
South Florida                                                        3,526                 3,184                 10.7%
Seattle                                                              1,439                 1,292                 11.4%
Suburban Maryland                                                    1,801                 1,751                 2.9%
Total Same Park                                             $       30,404           $    28,754                 5.7%

Cash NOI
Northern California                                         $       23,891           $    21,293                 12.2%
Southern California                                                 11,743                10,239                 14.7%
Dallas                                                               3,654                 3,123                 17.0%
Austin                                                               5,329                 5,418                (1.6)%
Northern Virginia                                                   12,532                12,445                 0.7%
South Florida                                                        9,649                 8,602                 12.2%
Seattle                                                              3,793                 3,628                 4.5%
Suburban Maryland                                                    3,101                 3,136                (1.1)%
Total Same Park                                             $       73,692           $    67,884                 8.6%

Weighted average square foot occupancy
Northern California                                                   97.6   %              93.1  %              4.5%
Southern California                                                   97.8   %              96.2  %              1.6%
Dallas                                                                92.9   %              86.9  %              6.0%
Austin                                                                94.2   %              95.1  %             (0.9)%
Northern Virginia                                                     93.7   %              91.7  %              2.0%
South Florida                                                         98.0   %              95.5  %              2.5%
Seattle                                                               95.4   %              93.3  %              2.1%
Suburban Maryland                                                     92.1   %              92.2  %             (0.1)%
Total Same Park                                                       96.0   %              93.3  %              2.7%

Cash Rental Income per Occupied Square
Foot (1)
Northern California                                         $        17.16           $     16.31                 5.2%
Southern California                                         $        18.50           $     16.62                 11.3%
Dallas                                                      $        11.19           $     11.09                 0.9%
Austin                                                      $        19.10           $     18.50                 3.2%
Northern Virginia                                           $        18.75           $     18.75                 0.0%
South Florida                                               $        13.91           $     12.76                 9.0%
Seattle                                                     $        16.24           $     15.62                 4.0%
Suburban Maryland                                           $        19.43           $     19.37                 0.3%
Total Same Park                                             $        16.84           $     16.10                 4.6%


_______________

(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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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
three months ended March 31, 2022 (square feet in thousands):

                                                                               Three Months Ended March 31, 2022
                                            Square                                         Transaction
                                           Footage                 Customer                 Costs per              Cash Rental                GAAP
Industrial                                  Leased                 Retention               Executed Foot         Rate Change (1)        Rent Change (2)
Northern California                            226                        81.0  %       $          2.01                   14.5  %                29.6 

%

Southern California                            240                        81.6  %                  1.82                   11.8  %                22.8  %
Dallas                                          97                        44.9  %                  3.22                   10.6  %                25.7  %
Austin                                          28                           -                     3.19                   19.9  %                47.7  %
Northern Virginia                              141                        97.4  %                  1.92                    6.7  %                17.9  %
South Florida                                  299                        66.2  %                  1.36                   25.1  %                51.0  %
Seattle                                         45                        71.9  %                  1.80                   18.4  %                37.7  %
Suburban Maryland                                9                       100.0  %                  1.09                   (1.6) %                 0.5  %
Industrial Totals by Region                  1,085                        74.3  %       $          1.90                   15.2  %                31.4  %

Flex
Northern California                             43                        91.5  %       $          0.75                    6.4  %                13.1  %
Southern California                             44                        81.1  %                  4.88                    8.0  %                20.4  %
Dallas                                          51                        79.0  %                  2.46                    7.8  %                18.9  %
Austin                                         108                        90.3  %                  7.28                    5.1  %                16.8  %
Northern Virginia                               34                        53.0  %                  3.74                   (0.9) %                 0.4  %
South Florida                                    6                        58.5  %                  2.10                   16.6  %                34.1  %
Seattle                                         32                        51.1  %                  2.80                    7.7  %                16.8  %

Flex Totals by Region                          318                        75.4  %       $          4.36                    5.9  %                15.6  %

Office
Northern California                             19                        91.7  %       $          0.04                   (6.6) %                (5.8) %
Southern California                              1                        30.9  %                     -                    1.0  %                 9.0  %

Northern Virginia                               85                        69.1  %                  9.97                   (8.4) %                 1.1  %

Seattle                                          1                       100.0  %                     -                    6.2  %                15.3  %
Suburban Maryland                               22                        76.2  %                  8.15                   (1.3) %                 4.0  %
Office Totals by Region                        128                        72.3  %       $          8.00                   (6.8) %                (0.1) %

Company Totals by Type                       1,531                        74.4  %       $          2.92                   10.4  %                23.5  %


_______________

(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)GAAP 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 three months ended March 31, 2022, weighted average occupancy was 96.0%,
an increase from weighted average occupancy of 93.3% for the three months ended
March 31, 2021. Renewals of leases with existing customers represented 76.3% of
our leasing activity for the three months ended March 31, 2022. Average lease
term of the leases executed during the three months ended March 31, 2022 was 3.4
years with associated average transaction costs (tenant improvements and leasing
commissions) of $2.92 per square foot. For comparative purposes, average lease
term and
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transaction costs on leases executed during the three months ended March 31,
2021 were 3.3 years and $2.58 per square foot, respectively. The uncertainty of
the COVID-19 pandemic's impact on the Company's future ability to increase or
maintain existing occupancy levels, possible decreases in rental rates on new
and renewal transactions, and potential additional rent deferrals, rent
abatements, and customer defaults, may affect our ability to grow Same Park
rental income in the near future.

Non-Same Park Portfolio: The table below reflects the assets comprising our
Non-Same Park portfolio (in thousands):

                                                                                                     Purchase            Square                 Occupancy at March
Acquired Property                          Date Acquired                    Location                  Price               Feet                       31, 2022
Jupiter Business Park                      November 2021            Plano, TX                      $  25,600                141                       100.0%
Port America                               September 2021           Grapevine, Texas                 123,268                718                       95.6%
Pickett Industrial Park                     October 2020            Alexandria, VA                    46,582                246                       44.3%
La Mirada Commerce Center                   January 2020            La Mirada, CA                     13,513                 73                       95.6%
Total acquired property                                                                            $ 208,963              1,178                       

85.3%



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 March 31, 2022, we held a 95.0% controlling interest in a
joint venture that owns Highgate at The Mile, a 395-unit apartment complex in
Tysons, Virginia. The following table summarizes the historical operating
results of Highgate at The Mile and certain statistical information (in
thousands, except per unit data):

                                                    Three Months Ended March 31,
                                                     2022                   2021                % Change
Rental income                                  $       2,369           $      2,327                  1.8  %
Cost of operations                                     1,224                  1,067                 14.7  %
NOI                                            $       1,145           $      1,260                 (9.1  %)

Selected Statistical Data
Weighted average square foot occupancy                  95.0  %                94.2  %               0.8  %

                                                                               As of March 31, 2022
Total costs (1)                                                                              $   115,426
Physical occupancy                                                                                  96.9  %
Average rent per unit (2)                                                                    $     2,123


_______________


(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 2022 compared to 2021 was primarily due to an increase in
cost of operations. The increase in cost of operations was attributed to an
increase in utility charges, increased costs for common area cleaning, increased
turnover costs, unscheduled repairs to the garage door and HVAC units. Due to
the uncertainty of the COVID-19 pandemic's impact on the Company's future
ability to maintain existing occupancy levels and rental rates, we may continue
to experience NOI levels below those which were achieved prior to the onset of
the COVID-19 pandemic in the 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 three months ended March 31, 2022, the operating results include 0.7
million square feet of 2022 Assets Sold.


Depreciation and Amortization Expense: Depreciation and amortization expense was
$23.1 million for the three months ended March 31, 2022, and consistent with the
$23.0 million for the same period in 2021.

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. For the three months ended March 31, 2022, general and
administrative expense increased $6.9 million compared to the same period in
2021 primarily due to a one-time cash payment of $6.7 million to the former CEO,
which consists of a $6.6 million cash payment for RSUs, a $0.1 million cash
payment for COBRA coverage reimbursement in accordance with his separation
agreement, partially offset by the non-cash $0.6 million reversal of stock
compensation for the unvested former CEO's shares net of dividend forfeiture
expense.

Gain on Sale of Real Estate Facilities


On March 29, 2022, the Company sold a 702,000 square foot industrial-flex
business park located in Irving, Texas, for net sale proceeds of $91.9 million,
which resulted in a gain on sale of $57.0 million. There were no asset sales
during the three months ended March 31, 2021.

Liquidity and Capital Resources



This section should be read in conjunction with our consolidated statements of
cash flows for the three months ended March 31, 2022 and 2021 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 three months ended March 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 of March 31, 2022, we had $104.2 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.


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As a result of the announced Merger, our corporate credit rating by Standard and
Poor's (S&P) was downgraded to BBB+, while our preferred stock were downgraded
to a rating of BBB-. S&P placed all their ratings on PSB, including our 'BBB+'
issuer credit rating, on CreditWatch with negative implications. The CreditWatch
placement reflects that S&P could lower their ratings upon closing of the
transaction, based on the pro forma capital structure and their view of the
acquirer's financial policy. S&P no longer views PSB as being strategic to
Public Storage. Public Storage, which holds approximately 41% common equity
interest in PSB, has agreed to Blackstone's acquisition bid. S&P previously
considered PSB to be moderately strategic to Public Storage and, as such, S&P
believed that Public Storage would provide support to PSB under a stress
scenario. As a result, S&P applied a one-notch improvement to their standalone
rating on PSB. The transaction changes S&P's view, such that they no longer
expect Public Storage to support PSB under a hypothetical stress scenario. As a
result, S&P downgraded PSB by one notch to 'BBB+'. S&P also lowered their
ratings on PSB's preferred stock by one notch to 'BBB-', two notches below its
issuer credit rating, in line with S&P's criteria.

In addition, Moody's Investors Service ("Moody's") has placed under review for
downgrade the ratings of the Company and our Baa2 preferred stock rating and the
Baa1 senior unsecured shelf rating of our main operating subsidiary, PS Business
Parks, L.P. The review for downgrade follows the announcement of the Merger. The
review for downgrade reflects the likelihood that PSB's credit profile will
deteriorate under Blackstone's ownership, with the potential for meaningfully
higher leverage and secured debt levels that could result in a multi-notch
downgrade of the REIT's ratings, including crossing over to non-investment grade
territory, upon transaction close.

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 ended March 31, 2022, the ratio of FFO to
combined fixed charges and preferred distributions paid was 6.8 to 1.0.

In August 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 to August 2025. The Credit Facility can also be expanded to $700.0 million.
We can use the Credit Facility as necessary as temporary financing until we are
able to raise longer term capital. Historically we have funded our long-term
capital requirements with retained operating cash flow and proceeds from the
issuance of common and preferred securities. We will select among these sources
of capital based upon availability, relative cost, the impact of constraints on
our operations (such as covenants), and the desire for leverage.

Cash Requirements


Contractual Commitments: Our material contractual commitments as of March 31,
2022 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 of March 31, 2022, we have $20.0 million outstanding on our
Credit Facility. We are in compliance with all of the covenants and other
requirements of our Credit Facility. Our Credit Facility expires in August 2025.
•Preferred stock dividends: We paid $9.6 million to preferred stockholders
during the three months ended March 31, 2022. We expect to continue to pay
quarterly distributions of $9.6 million to our preferred stockholders for the
foreseeable future or until such time as there is a change in the amount or
composition of our series of preferred equity outstanding. Dividends on
preferred equity are paid when and if declared by our Board of Directors (the
"Board") and accumulate if not paid.
•Contractual commitments: Contractual construction commitments as of March 31,
2022 are approximately $46.4 million.
•Ground lease obligations: Our contractual payment requirements under various
operating leases as of March 31, 2022 are approximately $0.1 million for 2022
and $1.4 million thereafter.
•Leasing transaction cost commitments: We have commitments, pursuant to executed
leases throughout our portfolio, to spend $11.4 million on transaction costs,
which include tenant improvements and lease commissions as of March 31, 2022.
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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
reconfiguration and other capital expenditures related to repositioning asset
acquisitions.

The following table sets forth our commercial capital expenditures paid for in
the three months ended March 31, 2022 and 2021 on an aggregate and per square
foot basis:

                                                                Three Months Ended March 31,
                                              2022                2021                2022                2021
                                                   (in thousands)                      (per square foot) (1)
Commercial Real Estate
Recurring capital expenditures
Capital improvements                      $    2,015          $     648          $      0.07          $    0.02
Tenant improvements                            3,027              2,909                 0.11               0.10
Lease commissions                              1,307              1,848                 0.05               0.07
Total commercial recurring capital
expenditures                                   6,349              5,405                 0.23               0.19
Nonrecurring capital improvements              1,511                411                 0.06               0.01

Total commercial capital expenditures $ 7,860 $ 5,816

     $      0.29          $    0.20


_______________

(1)Per square foot amounts are calculated based on capital expenditures divided
by total weighted average square feet owned for the periods presented.

The following table summarizes recurring capital expenditures paid and the
related percentage of NOI for Same Park by region for the three months ended
March 31, 2022 and 2021 (in thousands):

                                                                            Three Months Ended March 31,
                                                                                                                      Recurring
                                                 Recurring                                                       Capital Expenditures
                                           Capital Expenditures                                                 as a Percentage of NOI
                                          2022                 2021                                          2022                      2021
Region
Same Park
Northern California                 $         392          $   1,597              (75.5)%                           1.6  %                 7.3  %
Southern California                           496                546               (9.2)%                           4.2  %                 4.9  %
Dallas                                        416                487              (14.6)%                          11.5  %                15.8  %
Austin                                        340                187               81.8%                            6.3  %                 3.7  %
Northern Virginia                           2,159                974               121.7%                          16.8  %                 7.7  %
South Florida                                 901                349               158.2%                           9.4  %                 4.1  %
Seattle                                       434                294               47.6%                           11.4  %                 8.2  %
Suburban Maryland                             234                253               (7.5)%                           7.7  %                 8.5  %
Total Same Park                             5,372              4,687               14.6%                            7.2  %                 6.8  %
Non-Same Park

Southern California                            12                 19              (36.8)%
Dallas                                        186                 42               342.9%
Northern Virginia                             771                 23              3252.2%
Total Non-Same Park                           969                 84              1053.6%
Assets sold or held for sale                    8                634              (98.7)%
Total commercial recurring                                                         17.5%
capital expenditures                $       6,349          $   5,405


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
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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. 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 or
Redevelopment of Real Estate Facilities" above for a discussion of our recently
completed developments.

As of March 31, 2022, we were in the process of developing an approximately
83,000 square foot multi-tenant industrial building at our 212 Business Park
located in Kent, Washington. During the quarter ended March 31, 2022,
$1.5 million was reclassified from land to property held for development on our
consolidated balance sheet and, as of March 31, 2022, $5.5 million of the
estimated $16.0 million total development costs had been incurred. The total
investment, inclusive of land and development costs, for the 212 Business Park
development is projected to be $17.5 million. This construction project is
scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022,
we have contractual construction commitments totaling $10.5 million that will be
paid to various contractors as the project is completed.

As of March 31, 2022, we were in the process of developing an approximately
17,000 square foot multi-tenant industrial building at our Boca Commerce Park,
located in Boca Raton, Florida. During the quarter ended March 31, 2022, $0.6
million was reclassified from land to property held for development on our
consolidated balance sheet and, as of March 31, 2022, $2.3 million of the
estimated $4.2 million total development costs had been incurred. The total
investment, inclusive of land and development costs, for the Boca Commerce Park
development is projected to be $4.8 million. This construction project is
scheduled to be completed in the fourth quarter of 2022. As of March 31, 2022,
we have contractual construction commitments totaling $1.9 million that will be
paid to various contractors as the project is completed.

In August 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 of March 31, 2022

Construction of Brentford at The Mile commenced in August 2020 and is
anticipated to be completed over a period of 24 to 36 months at an estimated
development cost of $110 million to $115 million, excluding land cost. As of
March 31, 2022, the development cost incurred was $64.4 million, which is
reflected in land and building held for development, net on our consolidated
balance sheets along with our $5.1 million cost basis in the Brentford Parcel.
As of March 31, 2022, we have contractual construction commitments totaling
$31.6 million that will be paid to various contractors as the project is
completed.

Repurchase of Common Stock: The Board has approved a common stock repurchase
program and we may in the future acquire our shares under the program. As of
March 31, 2022, 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 three months ended
March 31, 2022.

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 incur
U.S. federal corporate income tax on our "REIT taxable income" that is
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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 $38.6 million ($9.6 million to
preferred stockholders and $29.0 million to common stockholders) during the
three months ended March 31, 2022.

Our consistent, long-term dividend policy has been to set dividend distribution
amounts based on our taxable income.


From the date of the Merger Agreement through the closing of the Merger, PSB may
declare and pay regular, quarterly cash distributions to holders of its common
stock and to holders of common units of partnership interest of the OP, in an
amount of up to $1.05 per share or unit, including a pro rata distribution in
respect of any stub period. Additionally, PSB is permitted to declare and pay
regular quarterly dividends on its shares of preferred stock. Subject to the
terms of the Merger Agreement, PSB will also pay a closing cash dividend (the
"Closing Cash Dividend") to holders of record PSB common stock as of the close
of business on the business day immediately prior to the closing date in an
aggregate amount no greater than the cash available for distribution, which
Closing Cash Dividend will be designated, to the maximum extent permitted by
applicable law, as a "capital gains dividend" under the Code. The merger
consideration will be reduced by the per share amount of such Closing Cash
Dividend. Refer to Note 12 - "Subsequent Events" to our consolidated financial
statements under Item 15 in this quarterly report on Form 10-Q, for additional
information regarding the Merger.

Funds from Operations, Core Funds from Operations, and Funds Available for Distributions



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 three months ended March 31, 2022 was $1.65 per share, representing
a 1.2% decrease from the same period in 2021. The decrease in FFO per share for
the first quarter was due one-time cash payment of $6.6 million to the former
Chief Executive Officer ("CEO"), for RSUs and a $0.1 million cash payment for
COBRA coverage reimbursement, in accordance with his separation agreement,
partially offset by $0.6 million non-cash adjustment related to the reversal of
stock compensation for the unvested former CEO's shares, net of dividend
forfeiture expense. The decrease in FFO was partially offset by lower preferred
distributions in the first quarter due to the Series W preferred stock
redemption in Q4 2021.

Core FFO for the three months ended March 31, 2022 was $1.82 per share,
representing a 9.0% increase from the same period in 2021. Core FFO excludes the
impact of the a one-time cash payment of $6.7 million to the former CEO, which
consists of a $6.6 million cash payment for RSUs, a $0.1 million cash payment
for COBRA coverage reimbursement in accordance with his separation agreement,
partially offset by $0.6 million non-cash adjustment related to the reversal of
stock compensation for the unvested former CEO's shares, net of dividend
forfeiture expense.


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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):

                                                                      Three Months Ended March 31,
                                                                        2022                  2021

Net income allocable to common stockholders                      $        71,993          $   27,886
Adjustments
Gain on sale of real estate facilities                                   (56,959)                  -
Depreciation and amortization                                             23,132              22,985
Net income allocable to noncontrolling interests                          19,049               7,411
Net income allocable to restricted stock unit holders                        523                 164
FFO allocated to joint venture partner                                       (23)                (27)
FFO allocable to diluted common stock and units                           57,715              58,419
CEO cash payment for RSUs net of reversal of stock compensation            6,108                   -

Core FFO allocable to diluted common stock and units             $        

63,823 $ 58,419

FAD

FFO allocable to diluted common stock and units                  $        57,715          $   58,419
Adjustments:
Recurring capital improvements                                            (2,010)               (565)
Tenant improvements                                                       (3,027)             (2,422)
Capitalized lease commissions                                             (1,304)             (1,784)

Total recurring capital expenditures for assets sold or held for
sale

                                                                          (8)               (634)

Cash paid for taxes in lieu of stock upon vesting of restricted
stock units                                                                 (931)             (3,197)

Non-cash rental income (1)                                                (1,157)             (1,307)
Non-cash stock compensation expense                                          940               1,780
FAD allocable to diluted common stock and units                           50,218              50,290

Weighted average outstanding
Common stock                                                              27,607              27,495
Operating partnership units                                                7,305               7,305
Restricted stock units                                                        45                  47
Common stock equivalents                                                      84                  99
Total diluted common stock and units                                      35,041              34,946

Reconciliation of Earnings per share to FFO per share
Net income per common stock-diluted

                              $          2.60          $     1.01
Gain on sale of real estate facilities                                     (1.63)                  -
Depreciation and amortization expense                                       0.66                0.66
Net income allocated to restricted stock unit holders                       0.02                   -
FFO per share                                                    $          1.65          $     1.67
CEO cash payment for RSUs net of reversal of stock compensation             0.17                   -

Core FFO per share                                               $          1.82          $     1.67


_______________

(1)Non-cash rental income includes amortization of deferred rent receivable (net
of write-offs), in-place lease intangible, tenant improvement reimbursements,
and lease incentives.

We believe FFO, Core FFO, and FAD assist investors in analyzing and comparing
the operating and financial performance of a company's real estate from period
to period. FFO, Core FFO, and FAD are not substitutes for GAAP net income. In
addition, other REITs may compute FFO, Core FFO, and FAD differently, which
could inhibit comparability.

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