Why Is PS Business Parks (PSB) Down 6.9% Since Last Earnings Report?

It has been about a month since the last earnings report for PS Business Parks (PSB). Shares have lost about 6.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

PS Business Parks Q2 FFO and Revenues Decline Y/Y

PS Business Parks reported second-quarter 2020 core FFO per share of $1.59, missing the Zacks Consensus Estimate of $1.66. Moreover, the reported figure declined from $1.75 reported in the year-ago quarter.

Quarter results reflect 3 cents per share adverse impact on FFO per share due to write-offs of accounts receivable and deferred rent receivable. The company experienced a slip in both same-park rental income and NOI reflecting a decline in both same-park annualized revenue per occupied-square-foot as well as weighted average square-foot occupancy.

Rental income came in at $100.6 million, marking a decline of 6.7% from the year-ago quarter’s $107.8 million.

The company noted that as of Jul 31, 2020, it has collected about 92% of July’s total billings, comprising 90%, 92% and 96% collection for industrial, flex and office spaces, respectively. Moreover, 3% of July’s billed revenue was deferred, the majority of which had been agreed to in June or earlier, while 4% of July’s total billings remained uncollected after given effect to amounts deferred or abated.

Moreover, through Jul 31, 2020, roughly 10.5% of its customers, based on total rental income, had been granted rent relief in the formof rent deferral and/or abatement.

Quarter in Detail

During the second quarter, PS Business Parks executed leases on 1.8 million square feet, surpassing the leasing production of 1.7 million for the prior-year quarter. Weighted average cash rental rate growth on leases executed during the quarter was 2.5%, while net effective rental rate growth was 8.5% 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 $2.28 per square foot. This compared to average lease term and transaction costs on leases executed in the prior-year same period of 3.9 years and $3.67 per square foot, respectively.

Same-park rental income was down 2.3% year over year to about $92.7 million and same-park NOI slid 3.6% to $65.7 million. Same-park annualized revenue per occupied-square-foot decreased 0.3% year on year to $15.64. Weighted average square-foot occupancy shrunk 1.9% year on year to 92.4%.

Liquidity

PS Business Parks exited the second quarter with cash and cash equivalents of $98.8 million, up from the $62.8 million reported at the end of 2019.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

VGM Scores

Currently, PS Business Parks has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

PS Business Parks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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