PS Business Parks (PSB) Down 3.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for PS Business Parks (PSB). Shares have lost about 3.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PS Business Parks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

PS Business Parks Q1 FFO Meets Estimates, Revenues Beat

PS Business Parks reported first-quarter 2021 core FFO per share of $1.67, in line with the Zacks Consensus Estimate. However, the reported figure decreased 2.9% year on year.

The results reflect flat net operating income, and higher general and administrative expenses.

Nevertheless, rental income came in at $108 million, beating the Zacks Consensus Estimate of $105 million. Moreover, the figure inched up 1.7% from the year-ago quarter’s $106.2 million.

During the first quarter, the company granted $0.2 million of deferred rent and $0.1 million of rent abatement. Moreover, as of Mar 31, 2021, it collected $3.9 million, or 98.5%, of the scheduled repayments of COVID-related rent deferrals billed through Mar 1, 2021.

The company also noted that as of Apr 26, 2021, it collected 98.8% of billed revenues during first-quarter 2021. Further, as of the same date, the company had open rent relief requests from roughly 1% of customers.

Quarter in Detail

During the first quarter, PS Business Parks executed leases on 2.0 million square feet in 569 transactions compared with the prior-year quarter’s 1.9 million square feet in 495 transactions. Weighted average cash rental rate growth on leases executed during the quarter was 5.7%, while average net effective rent growth was 14.8% for the same period.

Average lease term of the leases executed during the quarter was 3.2 years, with associated average transaction costs (tenant improvements and leasing commissions) of $2.59 per square foot. Average lease term and transaction costs on leases executed were 3.8 years and $3.08 per square foot, respectively, in the prior-year period.

Same-park rental income inched up 0.9% year over year to $99.99 million, while same-park NOI slid 0.6% to $70.3 million. However, same-park revenue per occupied-square-foot climbed 1.2% year on year to $16.47.

Same-park cash NOI declined 0.2% year on year to $69.9 million, reflecting 1.2% cash rental income growth offset by 4.6% growth in adjusted cost of operations. Also, weighted average occupancy for the first quarter of 92.4% shrunk 40 basis points (bps) year on year.

Liquidity

PS Business Parks exited first-quarter 2021 with cash and cash equivalents of $69.5 million, marginally up from $69.1 million reported at 2020-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, PS Business Parks has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise PS Business Parks has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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