UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-10709

PS BUSINESS PARKS, INC.

(Exact name of registrant as specified in its charter)

California (State or Other Jurisdiction of Incorporation)		95-4300881 (I.R.S. Employer Identification Number)

701 Western Avenue, Glendale, California 91201-2397
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (818) 244-8080

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of July 31, 2010, the number of shares of the registrant’s common stock, $0.01 par value per share, outstanding was 24,602,613.

 

 

PS BUSINESS PARKS, INC.
INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of June 30, 2010 (unaudited) and December 31, 2009			3
Consolidated statements of income (unaudited) for the three and six months ended June 30, 2010 and 2009			4
Consolidated statement of equity (unaudited) for the six months ended June 30, 2010			5
Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2010 and 2009			6
Notes to consolidated financial statements (unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures about Market Risk			38
Item 4. Controls and Procedures			38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 6. Exhibits			40
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PS BUSINESS PARKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

		June 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Cash and cash equivalents		$	43,696			$	208,229
Real estate facilities, at cost:
Land			507,531				493,709
Buildings and equipment			1,649,153				1,528,044
			2,156,684				2,021,753
Accumulated depreciation			(740,725	)			(707,209	)
			1,415,959				1,314,544
Property held for disposition, net			—				4,260
Land held for development			6,829				6,829
			1,422,788				1,325,633
Rent receivable			2,458				2,313
Deferred rent receivable			22,010				21,596
Other assets			10,782				7,051
Total assets		$	1,501,734			$	1,564,822
LIABILITIES AND EQUITY
Accrued and other liabilities		$	49,937			$	46,298
Mortgage notes payable			52,207				52,887
Total liabilities			102,144				99,185
Commitments and contingencies
Equity:
PS Business Parks, Inc.’s shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 22,877 and 25,042 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			571,921				626,046
Common stock, $0.01 par value, 100,000,000 shares authorized, 24,600,560 and 24,399,509 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			245				243
Paid-in capital			556,240				548,393
Cumulative net income			744,227				699,291
Cumulative distributions			(703,738	)			(658,294	)
Total PS Business Parks, Inc.’s shareholders’ equity			1,168,895				1,215,679
Noncontrolling interests:
Preferred units			53,418				73,418
Common units			177,277				176,540
Total noncontrolling interests			230,695				249,958
Total equity			1,399,590				1,465,637
Total liabilities and equity		$	1,501,734			$	1,564,822

See accompanying notes.

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
Revenues:
Rental income		$	69,878			$	67,375			$	137,010			$	136,507
Facility management fees			163				173				336				350
Total operating revenues			70,041				67,548				137,346				136,857
Expenses:
Cost of operations			21,720				21,251				44,686				43,687
Depreciation and amortization			18,666				21,970				36,856				44,584
General and administrative			2,400				1,538				5,149				3,514
Total operating expenses			42,786				44,759				86,691				91,785
Other income and expenses:
Interest and other income			91				68				200				247
Interest expense			(856	)			(881	)			(1,711	)			(1,811	)
Total other income and expenses			(765	)			(813	)			(1,511	)			(1,564	)
Income from continuing operations			26,490				21,976				49,144				43,508
Discontinued operations:
Income from discontinued operations			—				176				34				343
Gain on sale of land and real estate facility			—				1,488				5,153				1,488
Total discontinued operations			—				1,664				5,187				1,831
Net income		$	26,490			$	23,640			$	54,331			$	45,339
Net income allocation:
Net income allocable to noncontrolling interests:
Noncontrolling interests — common units		$	2,749			$	2,900			$	6,261			$	14,523
Noncontrolling interests — preferred units			1,752				1,381				3,134				(5,333	)
Total net income allocable to noncontrolling interests			4,501				4,281				9,395				9,190
Net income allocable to PS Business Parks, Inc.:
Common shareholders			9,229				8,152				20,974				40,757
Preferred shareholders			12,723				11,155				23,878				(4,871	)
Restricted stock unit holders			37				52				84				263
Total net income allocable to PS Business Parks, Inc.			21,989				19,359				44,936				36,149
		$	26,490			$	23,640			$	54,331			$	45,339
Net income per common share — basic:
Continuing operations		$	0.38			$	0.34			$	0.69			$	1.92
Discontinued operations		$	—			$	0.06			$	0.16			$	0.07
Net income		$	0.38			$	0.40			$	0.86			$	1.99
Net income per common share — diluted:
Continuing operations		$	0.37			$	0.34			$	0.69			$	1.91
Discontinued operations		$	—			$	0.06			$	0.16			$	0.07
Net income		$	0.37			$	0.39			$	0.85			$	1.98
Weighted average common shares outstanding:
Basic			24,524				20,531				24,469				20,501
Diluted			24,669				20,652				24,611				20,605

See accompanying notes.

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(Unaudited, in thousands, except share data)

																														Total PS
																														Business Parks,
																														Inc.’s
		Preferred Stock								Common Stock								Paid-in				Cumulative				Cumulative				Shareholders’				Noncontrolling				Total
		Shares				Amount				Shares				Amount				Capital				Net Income				Distributions				Equity				Interests				Equity
Balances at December 31, 2009			25,042			$	626,046				24,399,509			$	243			$	548,393			$	699,291			$	(658,294	)		$	1,215,679			$	249,958			$	1,465,637
Redemption of preferred units			—				—				—				—				582				—				—				582				(20,582	)			(20,000	)
Redemption of preferred stock			(2,165	)			(54,125	)			—				—				1,854				—				(1,854	)			(54,125	)			—				(54,125	)
Exercise of stock options			—				—				181,036				2				5,894				—				—				5,896				—				5,896
Stock compensation, net			—				—				20,015				—				421				—				—				421				—				421
Net income			—				—				—				—				—				44,936				—				44,936				9,395				54,331
Distributions:
Preferred stock			—				—				—				—				—				—				(22,024	)			(22,024	)			—				(22,024	)
Common stock			—				—				—				—				—				—				(21,566	)			(21,566	)			—				(21,566	)
Noncontrolling interests			—				—				—				—				—				—				—				—				(8,980	)			(8,980	)
Adjustment to noncontrolling interests in underlying operating partnership			—				—				—				—				(904	)			—				—				(904	)			904				—
Balances at June 30, 2010			22,877			$	571,921				24,600,560			$	245			$	556,240			$	744,227			$	(703,738	)		$	1,168,895			$	230,695			$	1,399,590

See accompanying notes.

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

		For the Six Months
		Ended June 30,
		2010				2009
Cash flows from operating activities:
Net income		$	54,331			$	45,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			36,856				44,840
In-place lease adjustment			98				(161	)
Lease incentives net of tenant improvement reimbursements			(265	)			(174	)
Amortization of mortgage premium			(140	)			(134	)
Gain on sale of land and real estate facility			(5,153	)			(1,488	)
Stock compensation			1,135				1,713
Decrease in receivables and other assets			587				2,019
Increase in accrued and other liabilities			1,467				1,332
Total adjustments			34,585				47,947
Net cash provided by operating activities			88,916				93,286
Cash flows from investing activities:
Capital improvements to real estate facilities			(17,709	)			(11,367	)
Acquisition of real estate facilities			(123,582	)			—
Proceeds from sale of land and real estate facility			9,181				2,557
Net cash used in investing activities			(132,110	)			(8,810	)
Cash flows from financing activities:
Principal payments on mortgage notes payable			(540	)			(527	)
Repayment of mortgage note payable			—				(5,128	)
Proceeds from the exercise of stock options			5,896				678
Shelf registration costs			—				(75	)
Redemption of preferred stock			(54,125	)			—
Redemption of preferred units			(20,000	)			—
Repurchase of preferred stock			—				(50,199	)
Repurchase of preferred units			—				(12,335	)
Distributions paid to common shareholders			(21,566	)			(18,044	)
Distributions paid to preferred shareholders			(22,024	)			(22,351	)
Distributions paid to noncontrolling interests — common units			(6,428	)			(6,428	)
Distributions paid to noncontrolling interests — preferred units			(2,552	)			(3,084	)
Net cash used in financing activities			(121,339	)			(117,493	)
Net decrease in cash and cash equivalents			(164,533	)			(33,017	)
Cash and cash equivalents at the beginning of the period			208,229				55,015
Cash and cash equivalents at the end of the period		$	43,696			$	21,998

See accompanying notes.

PS BUSINESS PARKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

		For the Six Months
		Ended June 30,
		2010				2009
Supplemental schedule of non-cash investing and financing activities:
Adjustment to noncontrolling interests in underlying operating partnership:
Noncontrolling interests — common units		$	904			$	9,645
Paid-in capital		$	(904	)		$	(9,645	)
Gain on repurchase of preferred equity:
Preferred stock		$	—			$	(30,005	)
Preferred units		$	—			$	(8,997	)
Paid-in capital		$	—			$	39,002
Effect of redemption/repurchase of preferred equity:
Cumulative distributions		$	(1,854	)		$	(2,783	)
Noncontrolling interest — common units		$	(582	)		$	(580	)
Paid-in capital		$	2,436			$	3,363

See accompanying notes.

PS BUSINESS PARKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010

1. Organization and description of business

PS Business Parks, Inc. (“PSB”) was incorporated in the state of California in 1990. As of June 30, 2010, PSB owned 77.1% of the common partnership units of PS Business Parks, L.P. (the “Operating Partnership”). The remaining common partnership units are owned by Public Storage (“PS”). PSB, as the sole general partner of the Operating Partnership, has full, exclusive and complete responsibility and discretion in managing and controlling the Operating Partnership. PSB and the Operating Partnership are collectively referred to as the “Company.”

The Company is a fully-integrated, self-advised and self-managed real estate investment trust (“REIT”) that acquires, develops, owns and operates commercial properties, primarily multi-tenant flex, office and industrial space. As of June 30, 2010, the Company owned and operated 20.7 million rentable square feet of commercial space located in eight states. The Company also manages 1.4 million rentable square feet on behalf of PS and its affiliated entities.

References to the number of properties or square footage are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The accompanying consolidated financial statements include the accounts of PSB and the Operating Partnership. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.

Noncontrolling Interests

The Company’s noncontrolling interests are reported as a component of equity separate from the parent’s equity. Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest is included in consolidated net income on the face of the income statement and, upon a gain or loss of control, the interest purchased or sold, as well as any interest retained, is recorded at fair value with any gain or loss recognized in earnings.

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Allowance for doubtful accounts

The Company monitors the collectability of its receivable balances including the deferred rent receivable on an ongoing basis. Based on these reviews, the Company maintains an allowance for doubtful accounts for estimated losses resulting from the possible inability of tenants to make contractual rent payments to the Company. A provision for doubtful accounts is recorded during each period. The allowance for doubtful accounts, which represents the cumulative allowances less write-offs of uncollectible rent, is netted against tenant and other receivables on the consolidated balance sheets. Tenant receivables are net of an allowance for uncollectible accounts totaling $400,000 at June 30, 2010 and December 31, 2009.

Financial instruments

The methods and assumptions used to estimate the fair value of financial instruments are described below. The Company has estimated the fair value of financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of market value. Accordingly, estimated fair values are not necessarily indicative of the amounts that could be realized in current market exchanges.

The Company considers all highly liquid investments with a remaining maturity of three months or less at the date of purchase to be cash equivalents. Due to the short period to maturity of the Company’s cash and cash equivalents, accounts receivable, other assets and accrued and other liabilities, the carrying values as presented on the consolidated balance sheets are reasonable estimates of fair value. Based on borrowing rates currently available to the Company, the carrying amount of debt approximates fair value.

Financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and receivables. Cash and cash equivalents, which consist primarily of money market investments, are only invested in entities with an investment grade rating. Receivables are comprised of balances due from a large number of customers. Balances that the Company expects to become uncollectible are reserved for or written off.

Real estate facilities

Real estate facilities are recorded at cost. Costs related to the renovation or improvement of the properties are capitalized. Expenditures for repairs and maintenance are expensed as incurred. Expenditures that are expected to benefit a period greater than two years and exceed $2,000 are capitalized and depreciated over the estimated useful life. Buildings and equipment are depreciated on the straight-line method over the estimated useful lives, which are generally 30 and five years, respectively. Transaction costs in excess of $1,000 for leases with terms greater than one year are capitalized and depreciated over their estimated useful lives. Transaction costs for leases of one year or less or less than $1,000 are expensed as incurred.

Intangible assets/liabilities

Intangible assets and liabilities include above-market and below-market in-place lease values of acquired properties based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market and below-market lease values (included in other assets and accrued liabilities in the accompanying consolidated balance sheets) are amortized to rental income over the remaining non-cancelable terms of the respective leases. The Company recorded net amortization of $136,000 and $75,000 of intangible assets and liabilities resulting from the above-market and below-market lease values during the three months ended June 30, 2010 and 2009, respectively. Amortization was $98,000 and $161,000 for each of the six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010, the value of in-place leases resulted in a net intangible asset of $5.3 million, net of $1.4 million of accumulated amortization, and a net intangible liability of $1.5 million, net of $1.3 million of accumulated amortization. As of December 31, 2009, the value of in-place leases resulted in a net intangible asset of $94,000, net of $1.1 million of accumulated amortization, and a net intangible liability of $247,000, net of $1.1 million of accumulated amortization.

Evaluation of asset impairment

The Company evaluates its assets used in operations by identifying indicators of impairment and by comparing the sum of the estimated undiscounted future cash flows for each asset to the asset’s carrying value. When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its value based on discounting its estimated future cash flows. In addition, the Company evaluates its assets held for disposition for impairment. Assets held for disposition are reported at the lower of their carrying value or fair value, less cost of disposition. At June 30, 2010, the Company did not consider any assets to be impaired.

Stock compensation

All share-based payments to employees, including grants of employee stock options, are recognized as stock compensation in the Company’s income statement based on their fair values. See Note 11.

Revenue and expense recognition

The Company must meet four basic criteria before revenue can be recognized: persuasive evidence of an arrangement exists; the delivery has occurred or services rendered; the fee is fixed or determinable; and collectability is reasonably assured. All leases are classified as operating leases. Rental income is recognized on a straight-line basis over the terms of the leases. Straight-line rent is recognized for all tenants with contractual fixed increases in rent that are not included on the Company’s credit watch list. Deferred rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents. Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as rental income in the period the applicable costs are incurred. Property management fees are recognized in the period earned.

Costs incurred in connection with leasing (primarily tenant improvements and lease commissions) are capitalized and amortized over the lease period.

Gains from sales of real estate facilities

The Company recognizes gains from sales of real estate facilities at the time of sale using the full accrual method, provided that various criteria related to the terms of the transactions and any subsequent involvement by the Company with the properties sold are met. If the criteria are not met, the Company defers the gains and recognizes them when the criteria are met or using the installment or cost recovery methods as appropriate under the circumstances.

General and administrative expense

General and administrative expense includes executive and other compensation, office expense, professional fees, state income taxes and other such administrative items.

Income taxes

The Company qualified and intends to continue to qualify as a REIT, as defined in Section 856 of the Internal Revenue Code. As a REIT, the Company is not subject to federal income tax to the extent that it distributes its taxable income to its shareholders. A REIT must distribute at least 90% of its taxable income each year. In addition, REITs are subject to a number of organizational and operating requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) based on its taxable income using corporate income tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to

federal income and excise taxes on its undistributed taxable income. The Company believes it met all organization and operating requirements to maintain its REIT status during 2009 and intends to continue to meet such requirements for 2010. Accordingly, no provision for income taxes has been made in the accompanying consolidated financial statements.

The Company can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent that the “more likely than not” standard has been satisfied, the benefit associated with a position is measured as the largest amount that is greater than 50% likely of being recognized upon settlement. As of June 30, 2010, the Company did not recognize any tax benefit for uncertain tax positions.

Accounting for preferred equity issuance costs

The Company records issuance costs as a reduction to paid-in capital on its balance sheet at the time the preferred securities are issued and reflects the carrying value of the preferred equity at the stated value. The Company records issuance costs as non-cash preferred equity distributions at the time it notifies the holders of preferred stock or units of its intent to redeem such shares or units.

Net income allocation

Net income was allocated as follows (in thousands):

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
Net income allocable to noncontrolling interests:
Noncontrolling interests — common units:
Continuing operations		$	2,749			$	2,465			$	5,072			$	14,044
Discontinued operations			—				435				1,189				479
Total net income allocable to noncontrolling interests — common units			2,749				2,900				6,261				14,523
Noncontrolling interests — preferred units:
Distributions to preferred unit holders			1,170				1,381				2,552				3,084
Issuance costs related to the redemption of preferred units			582								582				—
Gain on repurchase of preferred units, net of issuance costs			—				—				—				(8,417	)
Total net income allocable to noncontrolling interests — preferred units			1,752				1,381				3,134				(5,333	)
Total net income allocable to noncontrolling interests			4,501				4,281				9,395				9,190
Net income allocable to PS Business Parks, Inc.:
Common shareholders:
Continuing operations			9,229				6,931				16,993				39,414
Discontinued operations			—				1,221				3,981				1,343
Total net income allocable to common shareholders			9,229				8,152				20,974				40,757
Preferred shareholders:
Distributions to preferred shareholders			10,869				11,155				22,024				22,351
Issuance costs related to the redemption of preferred stock			1,854								1,854				—
Gain on repurchase of preferred stock, net of issuance costs			—				—				—				(27,222	)
Total net income allocable to preferred shareholders			12,723				11,155				23,878				(4,871	)
Restricted stock unit holders:
Continuing operations			37				44				67				254
Discontinued operations			—				8				17				9
Total net income allocable to restricted stock unit holders			37				52				84				263
Total net income allocable to PS Business Parks, Inc.			21,989				19,359				44,936				36,149
		$	26,490			$	23,640			$	54,331			$	45,339

Net income per common share

Per share amounts are computed using the number of weighted average common shares outstanding. “Diluted” weighted average common shares outstanding includes the dilutive effect of stock options and restricted stock units under the treasury stock method. “Basic” weighted average common shares outstanding excludes such effect. The Company’s restricted stock units are participating securities and included in the computation of basic and diluted weighted average common shares outstanding. The Company’s allocation of net income to the restricted stock unit holders are paid non-forfeitable dividends in excess of the expense recorded which results in a reduction in net income allocable to common shareholders and unit holders. Earnings per share has been calculated as follows (in thousands, except per share amounts):

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
Net income allocable to common shareholders		$	9,229			$	8,152			$	20,974			$	40,757
Weighted average common shares outstanding:
Basic weighted average common shares outstanding			24,524				20,531				24,469				20,501
Net effect of dilutive stock compensation — based on treasury stock method using average market price			145				121				142				104
Diluted weighted average common shares outstanding			24,669				20,652				24,611				20,605
Net income per common share — Basic		$	0.38			$	0.40			$	0.86			$	1.99
Net income per common share — Diluted		$	0.37			$	0.39			$	0.85			$	1.98

Options to purchase 78,000 and 210,000 shares for the three months ended June 30, 2010 and 2009, respectively, were not included in the computation of diluted net income per share because such options were considered anti-dilutive. Options to purchase 78,000 and 220,000 shares for the six months ended June 30, 2010 and 2009, respectively, were not included in the computation of diluted net income per share because such options were considered anti-dilutive.

Segment reporting

The Company views its operations as one segment.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements for 2009 in order to conform to the 2010 presentation.

3. Real estate facilities

The activity in real estate facilities for the six months ended June 30, 2010 is as follows (in thousands):

						Buildings and				Accumulated
		Land				Equipment				Depreciation				Total
Balances at December 31, 2009		$	493,709			$	1,528,044			$	(707,209	)		$	1,314,544
Acquisition of real estate facilities			13,822				106,740				—				120,562
Capital improvements			—				17,709				—				17,709
Disposals			—				(3,340	)			3,340				—
Depreciation expense			—				—				(36,856	)			(36,856	)
Balances at June 30, 2010		$	507,531			$	1,649,153			$	(740,725	)		$	1,415,959

On June 30, 2010, the Company acquired a two-building multi-tenant office park, known as Tycon II and Tycon III, aggregating 270,000 square feet in Tysons Corner, Virginia, for $35.4 million.

On June 18, 2010, the Company acquired Parklawn Business Park, a 232,000 square foot multi-tenant office and flex business park located in Rockville, Maryland, for $23.4 million.

On April 21, 2010, the Company acquired a portfolio of assets in Austin, Texas, aggregating 704,000 square feet of multi-tenant flex business parks for $42.9 million. In connection with the purchase, the Company received a $256,000 credit for committed tenant improvements.

On March 16, 2010, the Company acquired Shady Grove Executive Center, a 350,000 square foot multi-tenant office business park located in Rockville, Maryland, for $60.0 million. In connection with the purchase, the Company received a $1.6 million credit for committed tenant improvements and leasing commissions.

In connection with the 2010 acquisitions, the Company incurred acquisition transaction costs of $787,000 and $1.9 million for the three and six months ended June 30, 2010, respectively. The Company did not acquire any assets or assume any liabilities during the six months ended June 30, 2009.

The following table summarizes the assets acquired and liabilities assumed during the six months ended June 30, 2010 (in thousands):

Land		$	13,822
Buildings and equipment			106,740
Above-market in-place lease value			5,468
Below-market in-place lease value			(1,404	)
Total purchase price			124,626
Net operating assets acquired and liabilities assumed			(1,044	)
Total cash paid		$	123,582

The purchase price of acquired properties is allocated to land, buildings and equipment and intangible assets and liabilities associated with in-place leases (including tenant improvements, unamortized lease commissions, value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated fair values. In addition, beginning January 1, 2009, acquisition-related costs are recognized separately and expensed as incurred.

In determining the fair value of the tangible assets of the acquired properties, management considers the value of the properties as if vacant as of the acquisition date. Management must make significant assumptions in determining the value of assets acquired and liabilities assumed. Using different assumptions in the allocation of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses. Amounts allocated to land are derived from comparable sales of land within the same region. Amounts allocated to buildings and improvements, tenant improvements and unamortized lease commissions are based on current market replacement costs and other market information. The amount allocated to acquired in-place leases is determined based on management’s assessment of current market conditions and the estimated lease-up periods for the respective spaces.

During January, 2010, the Company completed the sale of a 131,000 square foot office building located in Houston, Texas, for a gross sales price of $10.0 million, resulting in a net gain of $5.2 million.

The following summarizes the condensed results of operations for the property sold during the first quarter of 2010 (in thousands):

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
Rental income		$	—			$	601			$	91			$	1,216
Cost of operations			—				(298	)			(57	)			(617	)
Depreciation			—				(127	)			—				(256	)
Income from discontinued operations		$	—			$	176			$	34			$	343

In addition to minimum rental payments, tenants reimburse the Company for their pro rata share of specified operating expenses, which amounted to $16,000 for the six months ended June 30, 2010. Reimbursements were $66,000 and $153,000 for the three and six months ended June 30, 2009, respectively. These amounts are included as rental income in the table presented above.

During May, 2009, the Company sold 3.4 acres of land held for development in Portland, Oregon, for a gross sales price of $2.7 million, resulting in a net gain of $1.5 million.

As of June 30, 2010, the Company has a development in progress on a parcel within its Miami International Commerce Center in Miami, Florida, which upon completion is expected to comprise 75,000 square feet of leasable small-bay industrial space. As of June 30, 2010, $3.8 million of the estimated $5.4 million has been expended for the development. The construction is scheduled to be completed in the third quarter of 2010.

4. Leasing activity

The Company leases space in its real estate facilities to tenants primarily under non-cancelable leases generally ranging from one to 10 years. Future minimum rental revenues excluding recovery of operating expenses as of June 30, 2010 under these leases are as follows (in thousands):

2010		$	105,933
2011			178,380
2012			127,257
2013			83,926
2014			51,949
Thereafter			107,858
Total		$	655,303

In addition to minimum rental payments, certain tenants reimburse the Company for their pro rata share of specified operating expenses. Such reimbursements amounted to $14.2 million and $13.7 million for the three months ended June 30, 2010 and 2009, respectively and $28.6 million and $27.5 million for the six months ended June 30, 2010 and 2009, respectively. These amounts are included as rental income in the accompanying consolidated statements of income.

Leases accounting for 5.7% of total leased square footage are subject to termination options which include leases accounting for 2.2% of total leased square footage having termination options exercisable through December 31, 2010. In general, these leases provide for termination payments should the termination options be exercised. The above table is prepared assuming such options are not exercised.

5. Bank loans

Subsequent to June 30, 2010, the Company extended the term of its line of credit (the “Credit Facility”) with Wells Fargo Bank to August 1, 2012. The Credit Facility has a borrowing limit of $100.0 million. Interest on outstanding borrowings is payable monthly. The rate of interest charged is equal to a rate ranging from the London Interbank Offered Rate (“LIBOR”) plus 1.60% to LIBOR plus 2.60% depending on the Company’s credit ratings and coverage ratios, as defined (currently LIBOR plus 2.00%). In addition, the Company is required to pay an annual commitment fee ranging from 0.15% to 0.40% of the borrowing limit (currently 0.25%). The Company had no balance outstanding on its Credit Facility at June 30, 2010 or December 31, 2009. The Credit Facility requires the Company to meet certain covenants, with which the Company was in compliance at June 30, 2010.

6. Mortgage notes payable

Mortgage notes consist of the following (in thousands):

		June 30,				December 31,
		2010				2009
5.73% mortgage note, secured by one commercial property with a net book value of $28.7 million, principal and interest payable monthly, due March, 2013		$	13,868			$	14,006
6.15% mortgage note, secured by one commercial property with a net book value of $27.5 million, principal and interest payable monthly, due November, 2031 (1)			16,201				16,446
5.52% mortgage note, secured by one commercial property with a net book value of $15.6 million, principal and interest payable monthly, due May, 2013			9,697				9,819
5.68% mortgage note, secured by one commercial property with a net book value of $17.3 million, principal and interest payable monthly, due May, 2013			9,717				9,836
5.61% mortgage note, secured by one commercial property with a net book value of $5.7 million, principal and interest payable monthly, due January, 2011 (2)			2,724				2,780
Total		$	52,207			$	52,887

At June 30, 2010, mortgage notes payable had a weighted average interest rate of 5.8% and a weighted average maturity of 8.5 years with principal payments as follows (in thousands):

2010		$	696
2011			3,984
2012			1,174
2013			31,573
2014			371
Thereafter			14,409
Total		$	52,207

7. Noncontrolling interests

As described in Note 2, the Company reports noncontrolling interests within equity in the consolidated financial statements, but separate from the Company’s shareholders’ equity. In addition, net income allocable to noncontrolling interests is shown as a reduction from net income in calculating net income allocable to common shareholders.

Common partnership units

The Company presents the accounts of PSB and the Operating Partnership on a consolidated basis. Ownership interests in the Operating Partnership that can be redeemed for common stock, other than PSB’s interest, are classified as noncontrolling interests — common units in the consolidated financial statements. Net income allocable

to noncontrolling interests — common units consists of the common units’ share of the consolidated operating results after allocation to preferred units and shares. Beginning one year from the date of admission as a limited partner (common units) and subject to certain limitations described below, each limited partner other than PSB has the right to require the redemption of its partnership interest.

A limited partner (common units) that exercises its redemption right will receive cash from the Operating Partnership in an amount equal to the market value (as defined in the Operating Partnership Agreement) of the partnership interests redeemed. In lieu of the Operating Partnership redeeming the partner for cash, PSB, as general partner, has the right to elect to acquire the partnership interest directly from a limited partner exercising its redemption right, in exchange for cash in the amount specified above or by issuance of one share of PSB common stock for each unit of limited partnership interest redeemed.

A limited partner (common units) cannot exercise its redemption right if delivery of shares of PSB common stock would be prohibited under the applicable articles of incorporation, or if the general partner believes that there is a risk that delivery of shares of common stock would cause the general partner to no longer qualify as a REIT, would cause a violation of the applicable securities laws, or would result in the Operating Partnership no longer being treated as a partnership for federal income tax purposes.

At June 30, 2010, there were 7,305,355 common units owned by PS, which are accounted for as noncontrolling interests. On a fully converted basis, assuming all 7,305,355 noncontrolling interests — common units were converted into shares of common stock of PSB at June 30, 2010, the noncontrolling interests — common units would convert into 22.9% of the common shares outstanding. Combined with PS’s common stock ownership, on a fully converted basis, PS has a combined ownership of 41.1% of the Company’s common equity. At the end of each reporting period, the Company determines the amount of equity (book value of net assets) which is allocable to the noncontrolling interest based upon the ownership interest, and an adjustment is made to the noncontrolling interest, with a corresponding adjustment to paid-in capital, to reflect the noncontrolling interests’ equity interest in the Company.

Preferred partnership units

Through the Operating Partnership, the Company had the following preferred units outstanding as of June 30, 2010 and December 31, 2009:

														June 30, 2010								December 31, 2009
						Earliest Potential				Dividend				Units				Amount				Units				Amount
Series		Issuance Date				Redemption Date				Rate				Outstanding				(in thousands)				Outstanding				(in thousands)
Series J		May & June, 2004				May, 2009					7.500	%			1,710,000			$	42,750				1,710,000			$	42,750
Series N		December, 2005				December, 2010					7.125	%			223,300				5,583				223,300				5,583
Series Q		March, 2007				March, 2012					6.550	%			203,400				5,085				203,400				5,085
Series G		October, 2002				October, 2007					7.950	%			—				—				800,000				20,000
Total															2,136,700			$	53,418				2,936,700			$	73,418

On May 12, 2010, the Company redeemed 800,000 units of its 7.950% Series G Cumulative Redeemable Preferred Units for $20.0 million. The Company reported the excess of the redemption amount over the carrying amount of $582,000, equal to the original issuance costs, as a reduction of net income allocable to common shareholders for the three and six months ended June 30, 2010.

During the first quarter of 2009, the Company paid $12.3 million to repurchase 853,300 units of various series of Cumulative Redeemable Preferred Units for a weighted average purchase price of $14.46 per unit. The purchase price discount, equaling the liquidation value of $25.00 per unit over the weighted average purchase price of $14.46 per unit, was added to net income allocable to common shareholders, net of the original issue discount.

The Operating Partnership has the right to redeem preferred units on or after the fifth anniversary of the applicable issuance date at the original capital contribution plus the cumulative priority return, as defined, to the redemption date to the extent not previously distributed. The preferred units are exchangeable for Cumulative Redeemable Preferred Stock of the respective series of PSB on or after the tenth anniversary of the date of issuance at the option of the Operating Partnership or a majority of the holders of the respective preferred units. The Cumulative Redeemable Preferred Stock will have the same distribution rate and par value as the corresponding preferred units and will otherwise have equivalent terms to the other series of preferred stock described in Note 9. As of June 30, 2010, the Company had $1.5 million of deferred costs in connection with the issuance of preferred units, which the Company will report as additional distributions upon notice of redemption.

8. Related party transactions

Concurrent with the public offering, as discussed in Note 9, the Company sold 383,333 shares of common stock to PS for net proceeds of $17.8 million in 2009.

Pursuant to a cost sharing and administrative services agreement, the Company shares costs with PS and its affiliated entities for certain administrative services, which are allocated among PS and its affiliates in accordance with a methodology intended to fairly allocate those costs. These costs totaled $112,000 and $93,000 for the three months ended June 30, 2010 and 2009, respectively and $319,000 and $186,000 for the six months ended June 30, 2010 and 2009, respectively.

The Operating Partnership manages industrial, office and retail facilities for PS and its affiliated entities. These facilities, all located in the United States, operate under the “Public Storage” or “PS Business Parks” names. The PS Business Parks name and logo is owned by PS and licensed to the Company under a non-exclusive, royalty-free license agreement. The license can be terminated by either party for any reason with six months written notice.

Under the property management contracts, the Operating Partnership is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the property owners, the Operating Partnership coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities, and the selection and engagement of vendors, suppliers and independent contractors. In addition, the Operating Partnership assists and advises the property owners in establishing policies for the hire, discharge and supervision of employees for the operation of these facilities, including property managers and leasing, billing and maintenance personnel.

The property management contract with PS is for a seven-year term with the agreement automatically extending for an additional one-year period upon each one-year anniversary of its commencement (unless cancelled by either party). Either party can give notice of its intent to cancel the agreement upon expiration of its current term. Management fee revenues under these contracts were $163,000 and $173,000 for the three months ended June 30, 2010 and 2009, respectively and $336,000 and $350,000 for the six months ended June 30, 2010 and 2009, respectively.

In December, 2006, PS began providing property management services for the mini storage component of two assets owned by the Company. These mini storage facilities, located in Palm Beach County, Florida, operate under the “Public Storage” name.

Under the property management contracts, PS is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the Company, PS coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities, and the selection and engagement of vendors, suppliers and independent contractors. In addition, PS assists and advises the Company in establishing policies for the hire, discharge and supervision of employees for the operation of these facilities, including on-site managers, assistant managers and associate managers.

Either the Company or PS can cancel the property management contract upon 60 days notice. Management fee expenses under the contract were $12,000 and $10,000 for the three months ended June 30, 2010 and 2009, respectively and $23,000 and $27,000 for the six months ended June 30, 2010 and 2009, respectively.

The Company had amounts due from PS of $134,000 and $396,000 at June 30, 2010 and December 31, 2009, respectively, for these contracts, as well as for certain operating expenses paid by the Company on behalf of PS.

9. Shareholders’ equity

Preferred stock

As of June 30, 2010 and December 31, 2009, the Company had the following series of preferred stock outstanding:

														June 30, 2010								December 31, 2009
						Earliest Potential				Dividend				Shares				Amount				Shares				Amount
Series		Issuance Date				Redemption Date				Rate				Outstanding				(in thousands)				Outstanding				(in thousands)
Series H		January & October, 2004				January, 2009					7.000	%			6,340,776			$	158,520				6,340,776			$	158,520
Series I		April, 2004				April, 2009					6.875	%			2,745,050				68,626				2,745,050				68,626
Series L		August, 2004				August, 2009					7.600	%			1,935,000				48,375				1,935,000				48,375
Series M		May, 2005				May, 2010					7.200	%			3,182,000				79,550				3,182,000				79,550
Series O		June & August, 2006				June, 2011					7.375	%			3,384,000				84,600				3,384,000				84,600
Series P		January, 2007				January, 2012					6.700	%			5,290,000				132,250				5,290,000				132,250
Series K		June, 2004				June, 2009					7.950	%			—				—				2,165,000				54,125
Total															22,876,826			$	571,921				25,041,826			$	626,046

On June 7, 2010, the Company redeemed 2,165,000 depositary shares, each representing 1/1,000 of a share of 7.950% Cumulative Preferred Stock, Series K, for $54.1 million. The Company reported the excess of the redemption amount over the carrying amount of $1.9 million, equal to the original issuance costs, as a reduction of net income allocable to common shareholders for the three and six months ended June 30, 2010.

During the first quarter of 2009, the Company paid $50.2 million to repurchase 3,208,174 depositary shares, each representing 1/1,000 of a share of various series of Cumulative Redeemable Preferred Stock for a weighted average purchase price of $15.65 per depositary share. The purchase price discount, equaling the liquidation value of $25.00 per depositary share over the weighted average purchase price per depositary share of $15.65, was added to net income allocable to common shareholders, net of the original issue discount.

The Company paid $10.9 million and $11.2 million in distributions to its preferred shareholders for the three months ended June 30, 2010 and 2009, respectively. The Company paid $22.0 million and $22.4 million in distributions to its preferred shareholders for the six months ended June 30, 2010 and 2009, respectively.

Holders of the Company’s preferred stock will not be entitled to vote on most matters, except under certain conditions. In the event of a cumulative arrearage equal to six quarterly dividends, the holders of the preferred stock will have the right to elect two additional members to serve on the Company’s Board of Directors until all events of default have been cured.

Except under certain conditions relating to the Company’s qualification as a REIT, the preferred stock is not redeemable prior to the previously noted redemption dates. On or after the respective redemption dates, the respective series of preferred stock will be redeemable, at the option of the Company, in whole or in part, at $25.00 per depositary share, plus any accrued and unpaid dividends. As of June 30, 2010, the Company had $18.8 million of deferred costs in connection with the issuance of preferred stock, which the Company will report as additional non-cash distributions upon notice of its intent to redeem such shares.

Common stock

On August 14, 2009, the Company closed the sale of 3,450,000 shares of common stock in a public offering and concurrently sold 383,333 shares of common stock to PS. The aggregate net proceeds were $171.2 million.

The Company’s Board of Directors previously authorized the repurchase, from time to time, of up to 6.5 million shares of the Company’s common stock on the open market or in privately negotiated transactions. Since inception of the program, the Company has repurchased an aggregate of 4.3 million shares of common stock at an aggregate cost of $152.8 million or an average cost per share of $35.84. Under existing board authorizations, the Company can repurchase an additional 2.2 million shares. No shares of common stock were repurchased under this program during the six months ended June 30, 2010 and 2009.

The Company paid $10.8 million ($0.44 per common share) and $9.0 million ($0.44 per common share) in distributions to its common shareholders for the three months ended June 30, 2010 and 2009, respectively and $21.6 million ($0.88 per common share) and $18.0 million ($0.88 per common share) for the six months ended June 30, 2010 and 2009, respectively.

Equity Stock

In addition to common and preferred stock, the Company is authorized to issue 100.0 million shares of Equity Stock. The Articles of Incorporation provide that the Equity Stock may be issued from time to time in one or more series and give the Board of Directors broad authority to fix the dividend and distribution rights, conversion and voting rights, redemption provisions and liquidation rights of each series of Equity Stock.

10. Commitments and contingencies

The Company currently is neither subject to any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company other than routine litigation and administrative proceedings arising in the ordinary course of business.

11. Stock compensation

PSB has a 1997 Stock Option and Incentive Plan (the “1997 Plan”) and a 2003 Stock Option and Incentive Plan (the “2003 Plan”), each covering 1.5 million shares of PSB’s common stock. Under the 1997 Plan and 2003 Plan, PSB has granted non-qualified options to certain directors, officers and key employees to purchase shares of PSB’s common stock at a price no less than the fair market value of the common stock at the date of grant. Additionally, under the 1997 Plan and 2003 Plan, PSB has granted restricted stock units to officers and key employees.

The weighted average grant date fair value of options granted during the six months ended June 30, 2010 and 2009 was $6.08 per share and $4.14 per share, respectively. The Company has calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants during the six months ended June 30, 2010 and 2009, respectively: a dividend yield of 3.3% and 4.4%; expected volatility of 17.5% and 19.4%; expected life of five years; and risk-free interest rates of 2.4% and 2.0%.

The weighted average grant date fair value of restricted stock units granted during the six months ended June 30, 2010 and 2009 was $52.35 and $35.00, respectively. The Company calculated the fair value of each restricted stock unit grant using the market value on the date of grant.

At June 30, 2010, there were a combined total of 887,000 options and restricted stock units authorized to grant. Information with respect to outstanding options and nonvested restricted stock units granted under the 1997 Plan and 2003 Plan is as follows:

										Weighted				Aggregate
						Weighted				Average				Intrinsic
		Number of				Average				Remaining				Value
Options:		Options				Exercise Price				Contract Life				(in thousands)
Outstanding at December 31, 2009			542,752			$	39.43
Granted			281,000			$	52.68
Exercised			(181,036	)		$	32.56
Forfeited			(2,000	)		$	68.90
Outstanding at June 30, 2010			640,716			$	47.09			6.61 Years				$	6,152
Exercisable at June 30, 2010			301,716			$	40.94			3.61 Years				$	4,773

						Weighted
		Number of				Average Grant
Restricted Stock Units:		Units				Date Fair Value
Nonvested at December 31, 2009			119,091			$	53.64
Granted			6,500			$	52.35
Vested			(31,797	)		$	56.37
Forfeited			—				—
Nonvested at June 30, 2010			93,794			$	52.63

Included in the Company’s consolidated statements of income for the three months ended June 30, 2010 and 2009, was $147,000 and $142,000, respectively, in net compensation expense related to stock options. Net compensation expense of $241,000 and $264,000 related to stock options was recognized during the six months ended June 30, 2010 and 2009, respectively. Net compensation expense of $334,000 and $415,000 related to restricted stock units was recognized during the three months ended June 30, 2010 and 2009, respectively. Net compensation expense of $813,000 and $1.3 million related to restricted stock units was recognized during the six months ended June 30, 2010 and 2009, respectively.

As of June 30, 2010, there was $1.9 million of unamortized compensation expense related to stock options expected to be recognized over a weighted average period of 4.3 years. As of June 30, 2010, there was $3.2 million of unamortized compensation expense related to restricted stock units expected to be recognized over a weighted average period of 3.3 years.

Cash received from 181,036 stock options exercised during the six months ended June 30, 2010 was $5.9 million. Cash received from 22,100 stock options exercised during the six months ended June 30, 2009 was $678,000. The aggregate intrinsic value of the stock options exercised during the six months ended June 30, 2010 and 2009 was $3.7 million and $312,000, respectively.

During the six months ended June 30, 2010, 31,797 restricted stock units vested; in settlement of these units, 20,015 shares were issued, net of shares applied to payroll taxes. The aggregate fair value of the shares vested for the six months ended June 30, 2010 was $1.7 million. During the six months ended June 30, 2009, 101,817 restricted stock units vested; in settlement of these units, 63,495 shares were issued, net of shares applied to payroll taxes. The aggregate fair value of the shares vested for the six months ended June 30, 2009 was $3.6 million.

In May of 2004, the shareholders of the Company approved the issuance of up to 70,000 shares of common stock under the Retirement Plan for Non-Employee Directors (the “Director Plan”). Under the Director Plan, the Company grants 1,000 shares of common stock for each year served as a director up to a maximum of 5,000 shares issued upon retirement. The Company recognizes compensation expense with regards to grants to be issued in the future under the Director Plan. As a result, included in the Company’s consolidated statements of income was $39,000 and $68,000 in compensation expense for the three months ended June 30, 2010 and 2009, respectively and $81,000 and $99,000 for the six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010 and 2009, there was $411,000 and $321,000, respectively, of unamortized compensation expense related to these shares.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements: Forward-looking statements 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 those detailed under the heading “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2009. 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.

Overview

As of June 30, 2010, the Company owned and operated 20.7 million rentable square feet of multi-tenant flex, industrial and office properties located in eight states.

The Company focuses on increasing profitability and cash flow aimed at maximizing shareholder value. The Company strives to maintain high occupancy levels while increasing rental rates when market conditions allow, although the Company may decrease rental rates in markets where conditions require. The Company also acquires properties it believes will create long-term value, and from time to time disposes of properties which no longer fit within the Company’s strategic objectives or in situations where the Company believes it can optimize cash proceeds. Operating results are driven by income from rental operations and are therefore substantially influenced by rental demand for space within our properties and rental rates.

During the first six months of 2010, the Company successfully leased or re-leased 2.8 million square feet of space while experiencing a decrease in rental rates. Total net operating income for the six months ended June 30, 2010 decreased $496,000, or 0.5%, compared to the six months ended June 30, 2009. See further discussion of operating results below.

Critical Accounting Policies and Estimates:

Our accounting policies are described in Note 2 to the consolidated financial statements included in this Form 10-Q. We believe our most critical accounting policies relate to revenue recognition, property acquisitions, allowance for doubtful accounts, impairment of long-lived assets, depreciation, accruals of operating expenses and accruals for contingencies, each of which we discuss below.

Revenue Recognition: The Company must meet four basic criteria before revenue can be recognized: persuasive evidence of an arrangement exists; the delivery has occurred or services rendered; the fee is fixed or determinable; and collectability is reasonably assured. All leases are classified as operating leases. Rental income is recognized on a straight-line basis over the terms of the leases. Straight-line rent is recognized for all tenants with contractual fixed increases in rent that are not included on the Company’s credit watch list. Deferred rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents. Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as rental income in the period the applicable costs are incurred. Property management fees are recognized in the period earned.

Property Acquisitions: The Company allocates the purchase price of acquired properties to land, buildings and equipment and intangible assets and liabilities associated with in-place leases (including tenant improvements, unamortized lease commissions, value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated fair values. In addition, beginning January 1, 2009, acquisition-related costs are recognized separately and expensed as incurred.

In determining the fair value of the tangible assets of the acquired properties, management considers the value of the properties as if vacant as of the acquisition date. Management must make significant assumptions in determining the value of assets acquired and liabilities assumed. Using different assumptions in the allocation of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses. Amounts allocated to land are derived from comparable sales of land within the same region. Amounts allocated to buildings and improvements, tenant improvements and unamortized lease commissions are based on current market replacement costs and other market rate information.

The value allocable to the above-market or below-market in-place lease values of acquired properties is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual rents to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The amounts allocated to above-market or below-market leases are included in other assets or other liabilities in the accompanying consolidated balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases.

Allowance for Doubtful Accounts: Rental revenue from our tenants is our principal source of revenue. We monitor the collectability of our receivable balances including the deferred rent receivable on an ongoing basis. Based on these reviews, we maintain an allowance for doubtful accounts for estimated losses resulting from the possible inability of our tenants to make required rent payments to us. Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible tenant receivables and deferred rent. As discussed below, determination of the adequacy of these allowances requires significant judgments and estimates. Our estimate of the required allowance is subject to revision as the factors discussed below change and is sensitive to the effect of economic and market conditions on our tenants.

Tenant receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes and other expenses recoverable from tenants. Determination of the adequacy of the allowance for uncollectible current tenant receivables is performed using a methodology that incorporates specific identification, aging analysis, an overall evaluation of the historical loss trends and the current economic and business environment. The specific identification methodology relies on factors such as the age and nature of the receivables, the payment history and financial condition of the tenant, the assessment of the tenant’s ability to meet its lease obligations, and the status of negotiations of any disputes with the tenant. The allowance also includes a reserve based on historical loss trends not associated with any specific tenant. This reserve as well as the specific identification reserve is reevaluated quarterly based on economic conditions and the current business environment.

Deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement. Given the long-term nature of these types of receivables, determination of the adequacy of the allowance for unbilled deferred rent receivable is based primarily on historical loss experience. Management evaluates the allowance for unbilled deferred rent receivable using a specific identification methodology for significant tenants designed to assess their financial condition and ability to meet their lease obligations.

Impairment of Long-Lived Assets: The Company evaluates a property for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. On a quarterly basis, we evaluate our entire portfolio for impairment based on current operating information. In the event that these periodic assessments reflect that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the property, the Company would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on

subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. Management must make assumptions related to the property such as future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels and the estimated proceeds generated from the future sale of the property. These assumptions could differ materially from actual results in future periods. Our intent to hold properties over the long-term directly decreases the likelihood of recording an impairment loss. If our strategy changes or if market conditions otherwise dictate an earlier sale date, an impairment loss could be recognized, and such loss could be material.

Depreciation: We compute depreciation on our buildings and equipment using the straight-line method based on estimated useful lives of generally 30 and five years, respectively. A significant portion of the acquisition cost of each property is allocated to building and building components. The allocation of the acquisition cost to building and building components, as well as the determination of their useful lives, are based on estimates. If we do not appropriately allocate to these components or we incorrectly estimate the useful lives of these components, our computation of depreciation expense may not appropriately reflect the actual impact of these costs over future periods, which will affect net income. In addition, the net book value of real estate assets could be overstated or understated. The statement of cash flows, however, would not be affected.

Accruals of Operating Expenses: The Company accrues for property tax expenses, performance bonuses and other operating expenses each quarter based on historical trends and anticipated disbursements. If these estimates are incorrect, the timing and amount of expense recognized will be affected.

Accruals for Contingencies: The Company is exposed to business and legal liability risks with respect to events that may have occurred, but in accordance with U.S. generally accepted accounting principles (“GAAP”) has not accrued for such potential liabilities because the loss is either not probable or not estimable. Future events and the result of pending litigation could result in such potential losses becoming probable and estimable, which could have a material adverse impact on our financial condition or results of operations.

Effect of Economic Conditions on the Company’s Operations:

During the first six months of 2010, the impact of the recession and weak economic conditions continued to affect commercial real estate negatively as the Company experienced a decrease in new rental rates over expiring rental rates on executed leases. Although it is uncertain what impact the current economic conditions will have on the Company’s ability to maintain current occupancy levels and rental rates, management expects that the decrease in rental rates on new and renewal transactions will result in a decrease in rental income for 2010 when compared to 2009. The current economic condition may have a significant impact on the Company, potentially resulting in further reductions in occupancy and rental rates.

While the Company historically has experienced a low level of write-offs due to bankruptcy, there is inherent uncertainty in a tenant’s ability to continue paying rent when in bankruptcy. As of July 31, 2010, the Company had 17,000 square feet of leased space occupied by tenants that are protected by Chapter 11 of the U.S. Bankruptcy Code. In addition, the Company had tenants occupying 297,000 square feet who vacated their space during the six months ended June 30, 2010 prior to their scheduled lease expiration as a result of business failures. As of June 30, 2010, 119,000 square feet of the vacated square feet, or approximately 40%, has been re-leased. During the six months ended June 30, 2010 and 2009, write-offs of unpaid rents were $734,000 and $667,000, respectively. During the six months ended June 30, 2010, we also recorded $716,000 of accelerated depreciation expense related to unamortized tenant improvements and lease commissions for leases terminated prior to their scheduled expiration. A number of other tenants have contacted us, requesting early termination of their lease, a reduction in space under lease, or rent deferment or abatement. At this time, the Company cannot anticipate what impact, if any, the ultimate outcome of these discussions will have on our future operating results.

Company Performance and Effect of Economic Conditions on Primary Markets:

The Company’s operations are substantially concentrated in 10 regions. Current market conditions for each region are summarized below. During the six months ended June 30, 2010, rental rates on new and renewed leases within the Company’s overall portfolio decreased 15.4% over expiring rents. The Company’s overall vacancy rate at June 30, 2010 was 8.6%, down from 10.7% as of June 30, 2009. Below is a summary of the general market conditions as well as the Company’s operating statistics for each of the 10 regions in which the Company operates. The Company has compiled the market information set forth below using third party reports for each respective market. The Company considers these sources to be reliable, but there can be no assurance that the information in these reports is accurate.

The Company owns 4.0 million square feet in Southern California located in Los Angeles, Orange and San Diego Counties. Market vacancies have increased due to the continued weakness in the economy and the resulting job losses combined with the lack of credit availability and its effect on businesses. These factors have created significantly more competition for tenants, which in turn has placed pressure on occupancy and rental rates. Vacancy rates in Southern California range from 4.7% to 17.6%. The Company’s vacancy rate in this region at June 30, 2010 was 6.1%. Although the overall market experienced negative net absorption of 0.1% for the six months ended June 30, 2010, the Company’s weighted average occupancy for the region increased from 90.4% for the first six months of 2009 to 92.7% for the first six months of 2010. However, annualized realized rent per square foot decreased 7.4% from $17.22 per square foot for the first six months of 2009 to $15.94 per square foot for the first six months of 2010 as the Company reduced rental rates in an effort to maintain and grow occupancy.

The Company owns 1.8 million square feet in Northern California with concentrations in Sacramento, the East Bay (Hayward and San Ramon) and Silicon Valley (San Jose and Santa Clara). Vacancy rates in these submarkets are 23.2%, 21.4% and 19.3%, respectively. The Company’s vacancy rate in its Northern California portfolio at June 30, 2010 was 7.5%. During the first six months of 2010, demand in these submarkets remained slow. Company consolidations continued to be the trend in this submarket, which negatively impacted both rental and occupancy rates. For the six months ended June 30, 2010, the combined submarkets experienced negative net absorption of 0.4%. The Company’s weighted average occupancy in this region increased from 86.7% for the first six months of 2009 to 89.0% for the first six months of 2010. However, annualized realized rent per square foot decreased 10.9% from $13.72 per square foot for the first six months of 2009 to $12.23 per square foot for the first six months of 2010 as the Company reduced rental rates in an effort to maintain occupancy.

The Company owns 1.7 million square feet in Southern Texas, specifically in the Austin and Houston markets. During the second quarter of 2010, the Company acquired a portfolio of assets in Austin aggregating 704,000 square feet of multi-tenant flex business parks. Market vacancy rates are 14.2% in the Austin market and 16.4% in the Houston market. The Company’s vacancy rate for these combined markets at June 30, 2010 was 12.5%. During the first six months of 2010, demand remained flat in these markets. The combined markets experienced positive net absorption of 0.1% for the six months ended June 30, 2010 as opposed to the net negative absorption experienced in 2009. The Company’s weighted average occupancy in this region increased from 84.8% for the first six months of 2009 to 86.1% for the first six months of 2010. The increase in weighted average occupancy was a result of current year acquisition with a higher weighted average occupancy of 89.1% for the six months ended June 30, 2010. Weighted average occupancy for the Company’s Same Park portfolio for this market increased from 84.8% for the first six months of 2009 to 85.1% for the first six months of 2010. Including current year acquisition, annualized realized rent per square foot decreased 4.5% from $11.36 per square foot for the first six months of 2009 to $10.85 per square foot for the first six months of 2010.

The Company owns 1.7 million square feet in Northern Texas, primarily located in the Dallas Metroplex market. The market vacancy rate in Las Colinas, where significant concentration of the Company’s Northern Texas portfolio is located, is 11.1%. The Company’s vacancy rate at June 30, 2010 in this market was 7.5%. During the first six months of 2010, this market showed signs of slow recovery from the impact of the national recession. For the six months ended June 30, 2010, the market experienced negative net absorption of 0.4%. The Company’s weighted average occupancy for the region decreased from 91.8% for the first six months of 2009 to 91.7% for the first six months of 2010. Despite the decrease in weighted average occupancy, annualized realized rent per square foot increased 2.2% from $10.62 per square foot for the first six months of 2009 to $10.85 per square foot for the first six months of 2010 as rental rates increased modestly on in-place leases partially offset by rental rate reductions on new and renewed leases.

The Company owns 3.6 million square feet in South Florida, which consists of Miami International Commerce Center (“MICC”) business park located in the Airport West submarket of Miami-Dade County and two multi-tenant flex parks located in Palm Beach County. MICC is located less than one mile from the cargo entrance of the Miami International Airport, which is one of the most active cargo airports in the United States. The effect of the economic recession on the import/export business has had a measurable negative impact on the overall Miami market. Market vacancy rates for Miami-Dade County and Palm Beach County are 11.8% and 10.9%, respectively, compared to the Company’s vacancy rate for Miami-Dade County and Palm Beach County of 4.2% and 10.5%, respectively, at June 30, 2010. For the six months ended June 30, 2010, the combined markets experienced positive net absorption of 0.6%. The Company’s weighted average occupancy remained flat at 95.4% for the first six months of 2009 and 2010. Annualized realized rent per square foot decreased 4.3% from $9.45 per square foot for the first six months of 2009 to $9.04 per square foot for the first six months of 2010.

The Company owns 3.0 million square feet in the Northern Virginia submarket of Washington D.C., where the average market vacancy rate is 14.2%. The Company’s vacancy rate at June 30, 2010 was 7.4%. During the first six months of 2010, the market experienced an increase in activity across all tenant sizes. For the six months ended June 30, 2010, the market experienced positive net absorption of 0.2%. The Company’s weighted average occupancy increased from 93.2% for the first six months of 2009 to 94.1% for the first six months of 2010. However, annualized realized rent per square foot decreased 0.4% from $20.84 per square foot for the first six months of 2009 to $20.75 per square foot for the first six months of 2010.

The Company owns 2.4 million square feet in the Maryland submarket of Washington D.C. During the first half of 2010, the Company acquired Shady Grove Executive Center, a 350,000 square foot multi-tenant office business park, and Parklawn Business Park, a 232,000 square foot multi-tenant office and flex business park, each located in Rockville, Maryland. The Company’s vacancy rate in the region at June 30, 2010 was 12.9% compared to 14.8% for the market as a whole. For the six months ended June 30, 2010, the market experienced negative net absorption of 0.1%, which is attributed to a decrease in transactions for government tenants. The Company’s weighted average occupancy decreased from 92.0% for the first six months of 2009 to 90.9% for the first six months of 2010. The decrease in weighted average occupancy was a result of current year acquisitions with a combined lower weighted average occupancy of 75.0% for the six months ended June 30, 2010. Weighted average occupancy for the Company’s Same Park portfolio for this market increased from 92.0% for the first six months of 2009 to 92.9% for the first six months of 2010. Including current year acquisitions, annualized realized rent per square foot increased 2.4% from $23.77 per square foot for the first six months of 2009 to $24.35 per square foot for the first six months of 2010.

The Company owns 1.3 million square feet in the Beaverton submarket of Portland, Oregon. The submarket vacancy rate in this region is 26.3%. The Company’s vacancy rate in the submarket was 15.6% at June 30, 2010. The economic recession has resulted in higher vacancy rates and increased rent concessions in the market. Although the market experienced negative net absorption of 1.8% for the six months ended June 30, 2010, the Company’s weighted average occupancy increased from 80.3% for the first six months of 2009 to 82.9% for the first six months of 2010. Annualized realized rent per square foot increased 1.2% from $16.54 per square foot for the first six months of 2009 to $16.74 per square foot for the first six months of 2010.

The Company owns 679,000 square feet in the Phoenix and Tempe submarkets of Arizona. During 2010, national and local economies continue to impact the submarket negatively. Market vacancies increased significantly in 2009 due in part to companies contracting and reorganizing business operations in the market, which has had a negative impact on rental rates. The submarket vacancy rate is 16.0% compared to the Company’s vacancy rate of 12.9% at June 30, 2010. For the six months ended June 30, 2010, the market experienced positive net absorption of 0.2% as opposed to the net negative absorption experienced in 2009. The Company’s weighted average occupancy in the region decreased from 86.9% for the first six months of 2009 to 84.3% for the first six months of 2010. Annualized realized rent per square foot decreased 7.1% from $10.89 per square foot for the first six months of 2009 to $10.12 per square foot for the first six months of 2010 as rental rate decreased on new and renewed leases.

The Company owns 521,000 square feet in the state of Washington which mostly consists of Overlake Business Center, a 493,000 square foot multi-tenant office and flex business park located in Redmond. The weakened global and local economies slowdown has resulted in a softened demand in this market. The market vacancy rate is 14.3%. For the six months ended June 30, 2010, this market experienced negative net absorption of 1.5%. The Company’s vacancy rate in this region at June 30, 2010 was 11.0%. The Company’s weighted average occupancy decreased from 90.8% for the first six months of 2009 to 88.2% for the first six months of 2010. Annualized realized rent per square foot decreased 9.4% from $19.77 per square foot for the first six months of 2009 to $17.92 per square foot for the first six months of 2010 as rental rate decreased on new and renewed leases.

Growth of the Company’s Operations and Acquisitions and Dispositions of Properties:

The Company is focused on maximizing cash flow from its existing portfolio of properties by looking for opportunities to expand its presence in existing and new markets through strategic acquisitions. The Company will from time to time dispose of non-strategic assets that do not meet this criterion. The Company has historically maintained a low-leverage-level approach intended to provide the Company with the greatest level of flexibility for future growth.

On June 30, 2010, the Company acquired a two-building multi-tenant office park, known as Tycon II and Tycon III, aggregating 270,000 square feet in Tysons Corner, Virginia, for $35.4 million.

On June 18, 2010, the Company acquired Parklawn Business Park, a 232,000 square foot multi-tenant office and flex business park located in Rockville, Maryland, for $23.4 million.

On April 21, 2010, the Company acquired a portfolio of assets in Austin, Texas, aggregating 704,000 square feet of multi-tenant flex business parks for $42.9 million. In connection with the purchase, the Company received a $256,000 credit for committed tenant improvements.

On March 16, 2010, the Company acquired Shady Grove Executive Center, a 350,000 square foot multi-tenant office business park located in Rockville, Maryland, for $60.0 million. In connection with the purchase, the Company received a $1.6 million credit for committed tenant improvements and leasing commissions. The Company made no acquisitions during the six months ended June 30, 2009.

During January, 2010, the Company completed the sale of a 131,000 square foot office building located in Houston, Texas, for a gross sales price of $10.0 million, resulting in a net gain of $5.2 million.

During May, 2009, the Company sold 3.4 acres of land held for development in Portland, Oregon, for a gross sales price of $2.7 million, resulting in a net gain of $1.5 million.

As of June 30, 2010, the Company has a development in progress on a parcel within its Miami International Commerce Center in Miami, Florida, which upon completion is expected to comprise 75,000 square feet of leasable small-bay industrial space. The construction is scheduled to be completed in the third quarter of 2010 and as of June 30, 2010, 33.6% of the development was preleased.

Scheduled Lease Expirations:

In addition to the 1.8 million square feet, or 8.6%, of space available in our total portfolio as of June 30, 2010, leases representing 10.2% of the leased square footage of our total portfolio are scheduled to expire during the remainder of 2010. Our ability to re-lease available space depends upon the market conditions in the specific submarkets in which our properties are located.

Impact of Inflation:

Although inflation has not been significant in recent years, it remains a potential factor in our economy, and the Company continues to seek ways to mitigate its potential impact. A substantial portion of the Company’s leases require tenants to pay operating expenses, including real estate taxes, utilities, and insurance, as well as increases in common area expenses, partially reducing the Company’s exposure to inflation.

Concentration of Portfolio by Region:

Rental income, cost of operations and rental income less cost of operations, excluding depreciation and amortization, or net operating income (defined as “NOI” for purposes of the following tables) are summarized for the three and six months ended June 30, 2010 by major geographic region. The Company uses NOI and its components as a measurement of the performance of its commercial real estate. Management believes that these financial measures provide them, as well as the investor, the most consistent measurement on a comparative basis of the performance of the commercial real estate and its contribution to the value of the Company. Depreciation and amortization have been excluded from NOI as they are generally not used in determining the value of commercial real estate by management or the investment community. Depreciation and amortization are generally not used in determining value as they consider the historical costs of an asset compared to its current value; therefore, to understand the effect of the assets’ historical cost on the Company’s results, investors should look at GAAP financial measures, such as total operating costs including depreciation and amortization. The Company’s calculation of NOI may not be comparable to those of other companies and should not be used as an alternative to measures of performance calculated in accordance with GAAP. The tables below reflect rental income, operating expenses and NOI from continuing operations for the three and six months ended June 30, 2010 based on geographical concentration. The total of all regions is equal to the amount of rental income and cost of operations recorded by the Company in accordance with GAAP. As part of the tables below, we have reconciled total NOI to income from continuing operations, which we consider the most directly comparable financial measure calculated in accordance with GAAP. The percent of total by region reflects the actual contribution to rental income, cost of operations and NOI during the period (in thousands):

Three Months Ended June 30, 2010:

		Weighted
		Square				Percent				Rental				Percent				Cost of				Percent								Percent
Region		Footage				of Total				Income				of Total				Operations				of Total				NOI				of Total
Southern California			3,988				19.6	%		$	14,954				21.4	%		$	4,296				19.8	%		$	10,658				22.1	%
Northern California			1,818				8.9	%			4,902				7.0	%			1,662				7.7	%			3,240				6.7	%
Southern Texas			1,579				7.8	%			3,709				5.3	%			1,638				7.4	%			2,071				4.4	%
Northern Texas			1,689				8.3	%			4,181				6.0	%			1,491				6.9	%			2,690				5.6	%
South Florida			3,596				17.7	%			7,613				10.9	%			2,584				11.9	%			5,029				10.4	%
Virginia			3,020				14.8	%			14,426				20.6	%			3,543				16.3	%			10,883				22.6	%
Maryland			2,152				10.6	%			11,956				17.1	%			3,580				16.5	%			8,376				17.4	%
Oregon			1,314				6.4	%			4,727				6.8	%			1,607				7.4	%			3,120				6.5	%
Arizona			679				3.3	%			1,393				2.0	%			672				3.1	%			721				1.5	%
Washington			521				2.6	%			2,017				2.9	%			647				3.0	%			1,370				2.8	%
Total NOI			20,356				100.0	%		$	69,878				100.0	%		$	21,720				100.0	%		$	48,158				100.0	%

Reconciliation of NOI to income from continuing operations

Total NOI		$	48,158
Other income and expenses:
Facility management fees			163
Interest and other income			91
Interest expense			(856	)
Depreciation and amortization			(18,666	)
General and administrative			(2,400	)
Income from continuing operations		$	26,490

Six Months Ended June 30, 2010:

		Weighted
		Square				Percent				Rental				Percent				Cost of				Percent								Percent
Region		Footage				of Total				Income				of Total				Operations				of Total				NOI				of Total
Southern California			3,988				20.0	%		$	29,443				21.5	%		$	8,659				19.4	%		$	20,784				22.5	%
Northern California			1,818				9.1	%			9,892				7.2	%			3,382				7.6	%			6,510				7.1	%
Southern Texas			1,306				6.6	%			6,104				4.5	%			2,650				5.9	%			3,454				3.7	%
Northern Texas			1,689				8.5	%			8,406				6.1	%			2,950				6.6	%			5,456				5.9	%
South Florida			3,596				18.0	%			15,511				11.3	%			5,237				11.7	%			10,274				11.1	%
Virginia			3,020				15.2	%			29,477				21.5	%			8,559				19.2	%			20,918				22.7	%
Maryland			1,992				10.0	%			22,049				16.1	%			7,309				16.4	%			14,740				16.0	%
Oregon			1,314				6.6	%			9,114				6.7	%			3,359				7.5	%			5,755				6.2	%
Arizona			679				3.4	%			2,897				2.1	%			1,303				2.9	%			1,594				1.7	%
Washington			521				2.6	%			4,117				3.0	%			1,278				2.8	%			2,839				3.1	%
Total NOI			19,923				100.0	%		$	137,010				100.0	%		$	44,686				100.0	%		$	92,324				100.0	%