Intrinsic value of PS Business Parks - PSB

Previous Close

$126.69

  Intrinsic Value

$18.26

stock screener

  Rating & Target

str. sell

-86%

Previous close

$126.69

 
Intrinsic value

$18.26

 
Up/down potential

-86%

 
Rating

str. sell

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

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

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  418
  435
  453
  473
  493
  515
  538
  562
  588
  615
  644
  674
  706
  739
  775
  812
  851
  892
  935
  981
  1,029
  1,079
  1,132
  1,187
  1,246
  1,307
  1,372
  1,440
  1,511
  1,586
Variable operating expenses, $m
  257
  267
  278
  290
  303
  316
  330
  345
  361
  378
  395
  414
  433
  454
  476
  498
  522
  548
  574
  602
  632
  662
  695
  729
  765
  803
  842
  884
  928
  974
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
  257
  267
  278
  290
  303
  316
  330
  345
  361
  378
  395
  414
  433
  454
  476
  498
  522
  548
  574
  602
  632
  662
  695
  729
  765
  803
  842
  884
  928
  974
Operating income, $m
  161
  168
  175
  183
  190
  199
  208
  217
  227
  238
  249
  260
  272
  285
  299
  313
  328
  344
  361
  379
  397
  416
  437
  458
  481
  505
  529
  556
  583
  612
EBITDA, $m
  381
  396
  413
  431
  449
  469
  490
  512
  536
  560
  586
  614
  643
  673
  705
  739
  775
  812
  852
  893
  937
  982
  1,031
  1,081
  1,134
  1,190
  1,249
  1,311
  1,376
  1,444
Interest expense (income), $m
  7
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
Earnings before tax, $m
  156
  163
  170
  177
  185
  193
  202
  212
  222
  232
  243
  255
  267
  280
  294
  308
  323
  339
  356
  373
  392
  411
  431
  453
  475
  499
  524
  550
  578
  607
Tax expense, $m
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  101
  106
  111
  116
  122
  128
  135
  141
  149
  156
  164
Net income, $m
  114
  119
  124
  129
  135
  141
  148
  155
  162
  169
  177
  186
  195
  204
  214
  225
  236
  247
  260
  272
  286
  300
  315
  331
  347
  364
  383
  402
  422
  443

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Adjusted assets (=assets-cash), $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Revenue / Adjusted assets
  -209.000
  -217.500
  -226.500
  -236.500
  -246.500
  -257.500
  -269.000
  -281.000
  -196.000
  -205.000
  -214.667
  -224.667
  -235.333
  -246.333
  -258.333
  -203.000
  -212.750
  -223.000
  -233.750
  -245.250
  -205.800
  -215.800
  -226.400
  -237.400
  -207.667
  -217.833
  -228.667
  -240.000
  -215.857
  -226.571
Average production assets, $m
  2,193
  2,283
  2,379
  2,480
  2,588
  2,702
  2,823
  2,951
  3,086
  3,228
  3,378
  3,536
  3,703
  3,879
  4,064
  4,259
  4,464
  4,680
  4,907
  5,145
  5,396
  5,660
  5,938
  6,229
  6,536
  6,858
  7,196
  7,552
  7,926
  8,318
Working capital, $m
  -219
  -228
  -237
  -247
  -258
  -269
  -281
  -294
  -308
  -322
  -337
  -353
  -369
  -387
  -405
  -425
  -445
  -467
  -489
  -513
  -538
  -564
  -592
  -621
  -652
  -684
  -717
  -753
  -790
  -829
Total debt, $m
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
  101
Total liabilities, $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 equity, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Total liabilities and equity, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  114
  119
  124
  129
  135
  141
  148
  155
  162
  169
  177
  186
  195
  204
  214
  225
  236
  247
  260
  272
  286
  300
  315
  331
  347
  364
  383
  402
  422
  443
Depreciation, amort., depletion, $m
  219
  228
  238
  248
  259
  270
  282
  295
  309
  323
  338
  354
  370
  388
  406
  426
  446
  468
  491
  515
  540
  566
  594
  623
  654
  686
  720
  755
  793
  832
Funds from operations, $m
  333
  347
  362
  377
  394
  411
  430
  450
  470
  492
  515
  540
  565
  592
  621
  651
  682
  715
  750
  787
  825
  866
  909
  954
  1,001
  1,050
  1,102
  1,157
  1,214
  1,275
Change in working capital, $m
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
Cash from operations, $m
  342
  356
  371
  387
  405
  423
  442
  462
  484
  506
  530
  555
  582
  610
  639
  670
  703
  737
  773
  811
  851
  892
  936
  983
  1,031
  1,082
  1,136
  1,192
  1,252
  1,314
Maintenance CAPEX, $m
  -211
  -219
  -228
  -238
  -248
  -259
  -270
  -282
  -295
  -309
  -323
  -338
  -354
  -370
  -388
  -406
  -426
  -446
  -468
  -491
  -515
  -540
  -566
  -594
  -623
  -654
  -686
  -720
  -755
  -793
New CAPEX, $m
  -83
  -90
  -96
  -102
  -108
  -114
  -121
  -128
  -135
  -142
  -150
  -158
  -167
  -176
  -185
  -195
  -205
  -216
  -227
  -239
  -251
  -264
  -277
  -292
  -306
  -322
  -338
  -356
  -374
  -393
Cash from investing activities, $m
  -294
  -309
  -324
  -340
  -356
  -373
  -391
  -410
  -430
  -451
  -473
  -496
  -521
  -546
  -573
  -601
  -631
  -662
  -695
  -730
  -766
  -804
  -843
  -886
  -929
  -976
  -1,024
  -1,076
  -1,129
  -1,186
Free cash flow, $m
  47
  47
  47
  48
  49
  50
  51
  52
  54
  56
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
Issuance/(repayment) of debt, $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
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $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 cash flow (excl. dividends), $m
  47
  47
  47
  48
  49
  50
  51
  52
  54
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
Retained Cash Flow (-), $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
Prev. year cash balance distribution, $m
  2
  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
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
Cash available for distribution, $m
  49
  47
  47
  48
  49
  50
  51
  52
  54
  56
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
Discount rate, %
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
  46
  42
  39
  37
  35
  33
  31
  29
  26
  24
  22
  20
  18
  16
  14
  12
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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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 26.9
Price to Sales 8.9
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 13.7
Price to Free Cash Flow 16.7
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 $402 million for the last fiscal year's total revenue generated by PS Business Parks. The default revenue input number comes from 2017 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 4% 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 5.6%, 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 61.4%.

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 5.4% 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 1.2%.

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 524.6%.

Life of production assets of 10 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 -52.3%. 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 - $0 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 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 $3.4 billion.

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COMPANY NEWS

▶ Industrial REITs Poised to Shine as Demand Remains Robust   [Jul-16-18 12:03PM  InvestorPlace]
▶ Why PS Business Parks Inc (NYSE:PSB) Could Be A Buy   [Jun-27-18 11:43AM  Simply Wall St.]
▶ MRP, investors sell 'last mile' portfolio for nearly $150M   [Jun-11-18 11:49AM  American City Business Journals]
▶ NYSE Top Real Estate Dividend Paying Stocks   [May-07-18 11:02AM  Simply Wall St.]
▶ PS Business Parks: 1Q Earnings Snapshot   [Apr-24-18 06:49PM  Associated Press]
▶ PS Business Parks reports 4Q results   [Feb-20-18 09:39AM  Associated Press]
▶ 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]
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