Intrinsic value of PS Business Parks - PSB

Previous Close

$119.25

  Intrinsic Value

$14.79

stock screener

  Rating & Target

str. sell

-88%

Previous close

$119.25

 
Intrinsic value

$14.79

 
Up/down potential

-88%

 
Rating

str. sell

Our model is not good at valuating stocks of financial companies, such as PSB.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PSB stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.48
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
Revenue, $m
  387
  399
  412
  426
  442
  458
  476
  495
  515
  537
  560
  584
  610
  637
  666
  696
  728
  762
  798
  836
  875
  917
  961
  1,007
  1,056
  1,107
  1,161
  1,217
  1,277
  1,339
  1,405
Variable operating expenses, $m
 
  256
  264
  273
  283
  294
  305
  317
  330
  344
  359
  374
  391
  408
  427
  446
  467
  489
  511
  536
  561
  588
  616
  646
  677
  710
  744
  780
  819
  859
  901
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  237
  256
  264
  273
  283
  294
  305
  317
  330
  344
  359
  374
  391
  408
  427
  446
  467
  489
  511
  536
  561
  588
  616
  646
  677
  710
  744
  780
  819
  859
  901
Operating income, $m
  150
  143
  148
  153
  159
  165
  171
  178
  185
  193
  201
  210
  219
  229
  239
  250
  261
  274
  286
  300
  314
  329
  345
  362
  379
  397
  417
  437
  458
  481
  504
EBITDA, $m
  249
  245
  253
  262
  272
  282
  293
  304
  317
  330
  344
  359
  375
  392
  409
  428
  448
  469
  491
  514
  538
  564
  591
  619
  649
  681
  714
  748
  785
  824
  864
Interest expense (income), $m
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
Earnings before tax, $m
  145
  135
  139
  144
  149
  154
  160
  166
  172
  179
  186
  194
  202
  210
  220
  229
  239
  250
  261
  273
  286
  299
  313
  327
  343
  359
  376
  394
  412
  432
  453
Tax expense, $m
  0
  37
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  57
  59
  62
  65
  67
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
  111
  117
  122
Net income, $m
  128
  99
  102
  105
  109
  112
  117
  121
  126
  131
  136
  141
  147
  154
  160
  167
  175
  182
  191
  199
  208
  218
  228
  239
  250
  262
  274
  287
  301
  315
  331

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  129
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,119
  2,057
  2,124
  2,198
  2,277
  2,363
  2,454
  2,552
  2,657
  2,768
  2,886
  3,011
  3,144
  3,284
  3,432
  3,589
  3,754
  3,929
  4,113
  4,307
  4,511
  4,726
  4,953
  5,191
  5,442
  5,706
  5,983
  6,275
  6,582
  6,905
  7,244
Adjusted assets (=assets-cash), $m
  1,990
  2,057
  2,124
  2,198
  2,277
  2,363
  2,454
  2,552
  2,657
  2,768
  2,886
  3,011
  3,144
  3,284
  3,432
  3,589
  3,754
  3,929
  4,113
  4,307
  4,511
  4,726
  4,953
  5,191
  5,442
  5,706
  5,983
  6,275
  6,582
  6,905
  7,244
Revenue / Adjusted assets
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
  0.194
Average production assets, $m
  1,891
  1,949
  2,014
  2,083
  2,159
  2,240
  2,327
  2,419
  2,518
  2,624
  2,736
  2,854
  2,980
  3,113
  3,253
  3,402
  3,559
  3,724
  3,899
  4,082
  4,276
  4,480
  4,695
  4,921
  5,158
  5,408
  5,672
  5,948
  6,239
  6,545
  6,866
Working capital, $m
  0
  -133
  -137
  -142
  -147
  -153
  -159
  -165
  -172
  -179
  -186
  -195
  -203
  -212
  -222
  -232
  -243
  -254
  -266
  -278
  -291
  -305
  -320
  -335
  -352
  -369
  -387
  -405
  -425
  -446
  -468
Total debt, $m
  230
  246
  264
  282
  302
  324
  347
  372
  399
  427
  457
  489
  523
  558
  596
  636
  678
  722
  769
  818
  870
  924
  982
  1,043
  1,106
  1,173
  1,244
  1,318
  1,396
  1,478
  1,564
Total liabilities, $m
  506
  522
  540
  558
  578
  600
  623
  648
  675
  703
  733
  765
  799
  834
  872
  912
  954
  998
  1,045
  1,094
  1,146
  1,200
  1,258
  1,319
  1,382
  1,449
  1,520
  1,594
  1,672
  1,754
  1,840
Total equity, $m
  1,613
  1,534
  1,585
  1,640
  1,699
  1,763
  1,831
  1,904
  1,982
  2,065
  2,153
  2,246
  2,345
  2,450
  2,561
  2,677
  2,801
  2,931
  3,068
  3,213
  3,365
  3,526
  3,695
  3,873
  4,060
  4,257
  4,464
  4,681
  4,910
  5,151
  5,404
Total liabilities and equity, $m
  2,119
  2,056
  2,125
  2,198
  2,277
  2,363
  2,454
  2,552
  2,657
  2,768
  2,886
  3,011
  3,144
  3,284
  3,433
  3,589
  3,755
  3,929
  4,113
  4,307
  4,511
  4,726
  4,953
  5,192
  5,442
  5,706
  5,984
  6,275
  6,582
  6,905
  7,244
Debt-to-equity ratio
  0.143
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
Adjusted equity ratio
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  128
  99
  102
  105
  109
  112
  117
  121
  126
  131
  136
  141
  147
  154
  160
  167
  175
  182
  191
  199
  208
  218
  228
  239
  250
  262
  274
  287
  301
  315
  331
Depreciation, amort., depletion, $m
  99
  102
  105
  109
  113
  117
  122
  127
  132
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  235
  246
  258
  270
  283
  297
  311
  327
  343
  359
Funds from operations, $m
  248
  201
  207
  214
  222
  230
  238
  248
  257
  268
  279
  291
  303
  317
  331
  345
  361
  377
  395
  413
  432
  453
  474
  496
  520
  545
  571
  599
  628
  658
  690
Change in working capital, $m
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from operations, $m
  251
  205
  212
  219
  227
  235
  244
  254
  264
  275
  287
  299
  312
  326
  340
  355
  372
  389
  407
  426
  446
  467
  489
  512
  536
  562
  589
  618
  647
  679
  712
Maintenance CAPEX, $m
  0
  -99
  -102
  -105
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -195
  -204
  -214
  -224
  -235
  -246
  -258
  -270
  -283
  -297
  -311
  -327
  -343
New CAPEX, $m
  -45
  -58
  -64
  -70
  -75
  -81
  -87
  -93
  -99
  -105
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -165
  -174
  -184
  -194
  -204
  -215
  -226
  -238
  -250
  -263
  -277
  -291
  -306
  -321
Cash from investing activities, $m
  -85
  -157
  -166
  -175
  -184
  -194
  -204
  -215
  -226
  -237
  -249
  -262
  -275
  -289
  -304
  -319
  -335
  -351
  -369
  -388
  -408
  -428
  -450
  -472
  -496
  -520
  -546
  -574
  -602
  -633
  -664
Free cash flow, $m
  166
  47
  45
  44
  42
  41
  40
  39
  39
  38
  37
  37
  37
  37
  37
  37
  37
  37
  37
  38
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  48
Issuance/(repayment) of debt, $m
  -250
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  70
  74
  78
  82
  86
Issuance/(repurchase) of shares, $m
  187
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -87
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  70
  74
  78
  82
  86
Total cash flow (excl. dividends), $m
  79
  64
  62
  62
  63
  63
  63
  64
  65
  66
  67
  69
  70
  72
  74
  76
  79
  81
  84
  87
  90
  93
  97
  101
  105
  109
  113
  118
  123
  128
  134
Retained Cash Flow (-), $m
  48
  -50
  -50
  -55
  -59
  -64
  -68
  -73
  -78
  -83
  -88
  -93
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -145
  -152
  -160
  -169
  -178
  -187
  -197
  -207
  -218
  -229
  -241
  -253
Prev. year cash balance distribution, $m
 
  129
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  142
  12
  8
  3
  -1
  -5
  -9
  -13
  -17
  -21
  -25
  -28
  -32
  -36
  -40
  -45
  -49
  -53
  -58
  -62
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
  -119
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  136
  11
  7
  3
  -1
  -4
  -6
  -8
  -10
  -11
  -12
  -12
  -12
  -12
  -12
  -11
  -11
  -10
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

PS Business Parks, Inc. is a self-advised and self-managed real estate investment trust (REIT). The Company owns, operates and develops commercial properties, primarily multi-tenant flex, office and industrial parks. It focuses on owning concentrated business parks. PS Business Parks, L.P. (the Operating Partnership) is a California limited partnership, which owns directly or indirectly substantially all of its assets and through, which the Company conducts substantially all of its business. PSB is the partner of the Operating Partnership and, as of December 31, 2016, owned 77.9% of the common partnership units. The remaining common partnership units are owned by Public Storage (PS). As of December 31, 2016, the Company owned and operated 28.1 million rentable square feet of commercial space, comprising 99 business parks, in the states, including California, Texas, Virginia, Florida, Maryland and Washington. It also manages 684,000 rentable square feet on behalf of PS.

FINANCIAL RATIOS  of  PS Business Parks (PSB)

Valuation Ratios
P/E Ratio 25.3
Price to Sales 8.4
Price to Book 2
Price to Tangible Book
Price to Cash Flow 12.9
Price to Free Cash Flow 15.7
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.2%
Cap. Spend. - 3 Yr. Gr. Rate -23.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 14.3%
Total Debt to Equity 14.3%
Interest Coverage 22
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 7.5%
Return On Equity 7.8%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 68.2%
Gross Margin - 3 Yr. Avg. 67.3%
EBITDA Margin 64.9%
EBITDA Margin - 3 Yr. Avg. 74.6%
Operating Margin 38.8%
Oper. Margin - 3 Yr. Avg. 36%
Pre-Tax Margin 37.5%
Pre-Tax Margin - 3 Yr. Avg. 43.9%
Net Profit Margin 33.1%
Net Profit Margin - 3 Yr. Avg. 38%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 108.6%

PSB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSB stock intrinsic value calculation we used $387 million for the last fiscal year's total revenue generated by PS Business Parks. The default revenue input number comes from 2016 income statement of PS Business Parks. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PSB stock valuation model: a) initial revenue growth rate of 3.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for PSB is calculated based on our internal credit rating of PS Business Parks, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of PS Business Parks.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PSB stock the variable cost ratio is equal to 64.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PSB stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for PS Business Parks.

Corporate tax rate of 27% is the nominal tax rate for PS Business Parks. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PSB stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PSB are equal to 488.6%.

Life of production assets of 19.1 years is the average useful life of capital assets used in PS Business Parks operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PSB is equal to -33.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1613 million for PS Business Parks - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 27.26 million for PS Business Parks is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of PS Business Parks at the current share price and the inputted number of shares is $3.3 billion.

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COMPANY NEWS

▶ 7 REIT Payouts Getting Set To Grow In February   [Jan-14-18 09:07AM  Forbes]
▶ PS Business Parks reports 3Q results   [Oct-24-17 05:59PM  Associated Press]
▶ PS Business Parks Trying To Close In On Key Technical Measure   [Oct-05-17 03:00AM  Investor's Business Daily]
▶ PS Business Parks reports 2Q results   [Jul-25-17 11:49PM  Associated Press]
▶ PS Business Parks reports 1Q results   [Apr-25-17 05:52PM  Associated Press]
▶ PS Business Parks reports 4Q results   [Feb-21-17 05:56PM  Associated Press]
▶ 4 REITs To Help You Sleep Well At Night   [Feb-20-17 07:00AM  at Forbes]
▶ Is ITT Inc. (ITT) Going to Burn These Hedge Funds?   [Dec-02-16 04:46PM  at Insider Monkey]
▶ Should You Avoid American Eagle Outfitters (AEO)?   [Dec-01-16 08:17AM  at Insider Monkey]
Financial statements of PSB
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