PS Business Parks, Inc (PSB) Q3 2021 Earnings Call Transcript

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PS Business Parks, Inc (PSB)
Q3 2021 Earnings Call
Oct 29, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the PS Business Parks' Third Quarter 2021 Earnings Results Conference Call and Webcast. [Operator Instructions]

It is now my pleasure to turn the floor over to Jeff Hedges, PSB's Chief Financial Officer. Sir, you may begin.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Good morning, everyone, and thank you for joining us for the third quarter 2021 PS Business Parks investor conference call. This is Jeff Hedges, Chief Financial Officer. With me today is our President and Chief Executive Officer, Mac Chandler; and our Chief Accounting Officer, Trent Groves.

Before we begin, let me remind everyone that all statements other than statements of historical fact included in this conference call are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond PS Business Parks' control, which could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. All forward-looking statements speak only as of the date of this conference call. PS Business Parks undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. For additional information about risks and uncertainties that could adversely affect PS Business Parks' forward-looking statements, please refer to the reports filed by the company with the Securities and Exchange Commission, including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. We will also provide certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to GAAP is included in our press release and earnings supplement, which can be found on our website at psbusinessparks.com.

I will now turn the call over to Mac.

Dan "Mac" Chandler -- President and Chief Executive Officer

Thank you, Jeff. Good morning, and good afternoon to those in the East. Welcome to PS Business Parks third quarter 2021 investor call. On today's call, I will highlight our third quarter accomplishments, provide a rundown of recent investment activity and provide an update on our markets. Jeff will present additional detail on our financial results, balance sheet and capital allocation.

To begin, we are thrilled with the third quarter results, highlighted by Same Park cash NOI, which increased by 10.7% this quarter compared to the same period last year. Robust occupancy gains and rent growth with the primary driver of our NOI growth. Our quarter-end occupancy of 95.5% increased 270 basis points year-over-year. Our industrial portfolio continues to flourish with an average occupancy of 96.3% for the quarter and year-to-date Same Park cash NOI growth of 13.3% compared to last year.

Moving to production. We leased 2 million square feet in Q3, a sequential increase of 7.5%. Cash and net effective rent this quarter increased 5% and 15.4%, respectively. Again, our industrial assets led the way with healthy cash and net effective rent growth of 9% and 22.4%, respectively. Leasing transaction costs were $4.38 per square foot for the quarter. The increase as compared to Q2 is mainly attributable to a handful of larger strategic space reconfigurations supported by higher rental rates.

Now turning to our investment activity. On September 1st, we acquired Port America, 718,000 square foot multi-tenant industrial park adjacent to DFW in Dallas for $123 million. The park is currently 97.1% occupied and continues to meet our high expectations in all aspects, particularly rent growth and renewals. We are forecasting a stabilized yield of approximately 4.5%. Subsequent to quarter end, we announced the disposition of flex business park in San Diego, California. We couldn't be happier with this transaction that realized $315 million of gross sale proceeds. To put this in perspective, the sale price represents greater than 60 times our 2021 estimated NOI for the property. Approximately $50 million of the net proceeds has been exchanged in Port America. As previously communicated, a special dividend will likely be paid by year-end to the extent the remainder of the sale proceeds are not exchanged, which Jeff will touch on a little later.

We previously announced that we are marketing for sale. our Royal Tech Flex Park in Las Colinas, Texas. Process is advancing as expected and we've received very positive feedback from the market. If you may have seen, we move this property to held for sale in our Q3 financials and we plan to provide an update early next year. We are in the market for acquisitions that meet our standards, particularly multi-tenant industrial parks that allow us to add value through our best-in-class leasing and operating platform.

Moving to our development projects. Freeport, our 83,000 corporate industrial development in Dallas is tracking well. The building is 63% leased with another lease execute this week. We continue to do that strong interest in the remainder of the building and are tracking to have it fully committed by year-end. Our 212 development in Seattle and Boca development in Florida are due to break ground in November. Construction of Brentford at the Mile, our 411-unit multi-tenant multi-family development in Tysons, Virginia is on schedule. Framing is proceeding as planned and drywall starts next month. We plan to deliver the first units in summer 2022.

Now let's turn to our markets. In Seattle, we are pleased to announce that we have leased our 48,000 square foot vacancy, a 212 business park to regional technology company. Our industrial assets in Seattle are performing well and average occupancy increased to 95.6% for the third quarter, a 110 basis point sequential expansion. We had strong demand for logistics, fulfillment and building materials companies. In Northern California, momentum continues to build. Logistics and distribution are the leading demand drivers, but we also increased -- see increased demand from life science firms in the East Bay and construction-related industries throughout the market. Industrial rent growth in Northern California was 9.9% for the quarter with an average occupancy of 95.9%.

We recently signed a letter of intent for our 140,000 square foot vacancy in Hayward and lease negotiations are just beginning. For Southern California, we see increased diversity in demand from logistics and smaller last mile users to small business services. We are delighted with the performance of our industrial assets, which maintained an average occupancy of 98% for the quarter. Third quarter cash rent growth was strong at 9.5%, retention was 85%. Our mid-counties industrial portfolio remains exceptional with less than 2% vacancy.

In Texas, industrial demand is strong. In Austin, average occupancy for the third quarter dropped to 94.2% primarily due to the expected move out of a 67,000 square foot tenant and a flex building in North Austin. We are evaluating several options for releasing the space. However, we do expect it to remain down for a few quarters. In Dallas, we ended the quarter at 92.8% occupancy, and we are bullish of the market as it continues to a beacon for employment growth and population migration. In Washington Metro, our industrial portfolio continues to perform well with Q3 occupancy coming in at 95.6%, which is in line with the all-time low market vacancy rates for Northern Virginia and suburban Maryland as reported by JLL.

Our office portfolio was 87.5% occupied and there is positive momentum with Transwestern reporting tourists are up 35% from a year-ago. Our leasing production between Q2 2020 and Q1 2021 average 90,000 square feet per he quarter. Since then, production has increased to 175,000 square feet per quarter. We are still not back to pre-pandemic levels, but we are pleased with the increase in activity. The investment we made in our [Indecipherable] suite has positioned us well, as in many cases we can deliver space faster and cheaper than our competitors. Finally, South Florida continues to lead all of our markets due to strong wholesale distribution, e-commerce and logistics demand. Occupancy in our Florida division increased in Q3 to 98.2% from 96.9% last quarter. Our MICC park in Miami continues to outperform the local market due to small tenant demand and expansions, both of which are helping drive rental rates to all time highs.

I will now turn the call over to Jeff.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Thank you, Mac. I'll begin with an overview of our financial results for the three and nine months ended September 30, 2021. Net income allocable to common stockholders for the three months ended September 30th was $52.2 million or $1.89 per diluted share, while core FFO was $60.3 million or $1.72 per share, representing a 6.8% increase from the same period in the prior year. For the nine months ended September 30th, net income per diluted share was $4.55 and core FFO was $5.16 per share, a 5.1% increase from the prior year.

During the quarter, cash net operating income attributable to our Same Park portfolio was $70.7 million, up 10.7% from a year ago. The increase in Same Park cash NOI was driven by cash rental income growth of 8.4%, which was primarily attributable to gains in occupancy and rental rate growth. Same Park weighted average occupancy for the quarter was 94.8%, up from 92.6% in the prior year. For the nine months ended September 30th, Same Park cash NOI increased 8.6%, again driven by a 7.3% growth and cash rental income resulting from increased occupancy and rental rate growth. Funds available for distribution or FAD was $51.6 million for the three months ended September 30, bringing FAD year-to-date to $156.3 million, representing a 10% increase from the prior year. In addition to the previously mentioned cash NOI growth, FAD continues to benefit from well-managed recurring capital expenditures, which for our Same Park portfolio registered at 11% of NOI.

Turning now to the balance sheet. We ended the quarter with $46.6 million of unrestricted cash and our credit facility remains undrawn. As previously announced, we recently called for redemption all Series W preferred shares and those shares will be redeemed on November 3rd. At this time, there is no plan to issue a new series of preferred equity, as we intend to fund the Series W redemption with cash on hand and a portion of the lost for sale proceeds. Speaking to the last disposition, approximately $51 million of the $311 million of net sale proceeds will qualify for a 1031 exchange against the Port America acquisition, which also served as an exchange asset for the two parks in Northern Virginia, Monroe Business Center and Park East business park that we sold earlier in the year. We will retain the ability to exchange, some of the remaining lost for sale proceeds for a period of time. But as previously disclosed, if we do not find additional exchange opportunities, we will likely pay a special dividend by year-end. We will provide an update with all relevant details of this potential special dividend on or around December 1st. Lastly, I'll point out that we paid a quarterly dividend of $1.05 per share to common stockholders in the third quarter and our Board recently declared an ordinary dividend of $1.05 per share to be paid in the fourth quarter of 2021 on December 30th to stockholders of record on December 15th.

With that, I'll now turn the call back to Mac.

Dan "Mac" Chandler -- President and Chief Executive Officer

Thanks, Jeff. Earlier this month, we announced that Adeel Khan will be joining us as our new EVP and Chief Financial Officer, effective January 10, 2022. Adeel, Jeff, Trenton and I have developed an orderly transition plan, which will mitigate any potential disruption and allow us to continue to accomplish our strategic goals to grow net cash flow and source accretive investment opportunities. Today is Jeff's last investor call with PSB and while as too soon to say goodbye, I'd like to take a moment to acknowledge Jeff's many contributions and to say thank you.

This concludes our prepared remarks. And with that, we'll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] We will take our first question from Emmanuel Korchman with Citi.

Emmanuel Korchman -- Citi -- Analyst

Hi, good morning, guys. Mac, given the success of less sale, how much more time are you spending looking for assets that have higher and better uses? And maybe the second part has the same questions. Are there sort of limits that you think about whether it be things like need for a special dividend or use of proceeds or is it just a matter of scaling the portfolio for the best value creation opportunities?

Dan "Mac" Chandler -- President and Chief Executive Officer

Thanks, Manny, good morning. Over the years, we've identified many such assets and were partly brought on the -- brought on -- it supported the need for some of the focus directly on that and that was our Head of Development who's based up in Seattle, who is going to primarily work, work on creating value through entitlements and whether that entitled value is something that we used for ourselves through reinvestment or we sell to someone else remains to be seen, but we're spending a lot of time, and I would say more time than before. And in part, I would say the emergence of life science as incredibly strong sector is somewhat new in the scheme of things and it's their ability to pay what they can afford to pay is somewhat unprecedented. So we are looking for more opportunities that might fit there and many of the markets that where we own assets or markets that meet their needs to as well. So I would say we've increased our time on it. It's, obviously we've enjoyed the success of that and it's raised our attention to other potential opportunities. So hopefully that answers your question, but certainly more time -- we're spending more time on it.

Emmanuel Korchman -- Citi -- Analyst

Thanks. And if we just think that the types of tenants leasing from you, have you seen any shift in tenant industries or types? I know in the past you increased to experiential users [Indecipherable] and the like in some of your flex parks. Have you seen less of those, more of those, more e-commerce? Just a flavor of who is leasing your parks right now.

Dan "Mac" Chandler -- President and Chief Executive Officer

Yeah, no, I don' t think, definitely [Indecipherable] call experiential in our own portfolio, maybe a small handful. That's really not a growing segment. I'd say if anything in the shift is more to traditional logistics-related companies, whether that be tenants who are assembling or manufacturing goods to be sold through e-commerce or distribution. So I think we're -- think our portfolio certainly is shifting in that direction with -- industrial is always been that way, but shifting more all the time and flexes continue to go that way too as well as vacancy dries up in most markets. So we've seen more of a pure industrial tenant look at our flex product as an interesting alternative. And so there are some cases where we may -- we may reduce the amount of office build out because that's what the market is looking for and make it more of a true play industrial.

Emmanuel Korchman -- Citi -- Analyst

Thanks very much.

Operator

We'll take the next question from Craig Mailman with KeyBanc Capital.

Craig Mailman -- KeyBanc -- Analyst

Hi, guys. Just wanted to follow up on the potential acquisition pipeline. Just kind of curious the kind of the robustness of that and your willingness to maybe stretch a little bit given the fact that you have essentially very low cost proceeds from loss that you can kind of redeploy here?

Dan "Mac" Chandler -- President and Chief Executive Officer

Yeah. Hi, Craig. Part of that -- there is a limiting factor with our 10/31, which is [Indecipherable] to appetite. It's just a timing factor because we're -- really the shot clock that we have really expires, really roughly December 1st. So if we don't exchange by then, anything we don't exchange, we're in a special dividend mode. So there is a couple of assets that we are pursuing one that were under contract for, one that we're pursuing that would meet that timing. But those -- at this stage given how close we are to 121, I would say less than half of the net sales proceeds will be -- have the ability to be redeployed through a 10/31.

Craig Mailman -- KeyBanc -- Analyst

All right, so you --that's about [Speech Overlap]

Dan "Mac" Chandler -- President and Chief Executive Officer

Yeah, less than a $100 million.

Craig Mailman -- KeyBanc -- Analyst

Okay.

Dan "Mac" Chandler -- President and Chief Executive Officer

So there is a couple of assets that we're pursuing, but we do understand the attractiveness of the cost of capital and obviously we want assets that meet our standards, not just for yield but for the long-term, and except that we can close on a couple of that we're pursuing, we certainly intend to do so.

Craig Mailman -- KeyBanc -- Analyst

Okay. So that -- would that one that's under contract be a little bit less than $100 million or would you need another one after that to close to kind of get to the 50% mark?

Dan "Mac" Chandler -- President and Chief Executive Officer

The aggregate of the two is under $100 million.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Hey, Craig, this is Jeff. Just to remind you. As I said, about -- little over $50 million of the proceeds has already been applied against the Port America acquisition, so that portion has been exchanged.

Craig Mailman -- KeyBanc -- Analyst

Right, this will be an incremental kind of $100 million to get you to the half of the 311?

Dan "Mac" Chandler -- President and Chief Executive Officer

That's right, yeah. And also looking -- it's not quite a new investment, but the redemption of the Series W is in a sense investment at a higher -- at a higher yield than what you'd find in the marketplace today.

Craig Mailman -- KeyBanc -- Analyst

Okay. So probability [Speech Overlap]

Dan "Mac" Chandler -- President and Chief Executive Officer

So cash applied for that is certainly an accretive use of funds.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

I'm just getting that probability waiting to probably 100% on $150 million special dividend. And somewhat 50-50 and another kind of $50 million on top of that.

Dan "Mac" Chandler -- President and Chief Executive Officer

Craig, I think you're directionally thinking about it the right way. And as I said, we're going to provide more details on this on or around December 1st when we have more clarity on our opportunity to exchange the remainder of those proceeds.

Craig Mailman -- KeyBanc -- Analyst

Okay and then just quickly. On Port America, I know you said 4.5% stabilized yield as we're modeling now, kind of what's a good GAAP yield to put that at it initially.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Hey, Craig, it's Jeff again. For the interim period of time, we'd say probably three and three quarters to four, picking up closer to that four next year.

Craig Mailman -- KeyBanc -- Analyst

Okay, on a GAAP basis.

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Yeah, between now to be clear, between now and when we reach stabilization in about two to three years.

Craig Mailman -- KeyBanc -- Analyst

Okay. Then another one on the signed LOI at Hayward. Can you give us a sense of the potential mark-to-market there?

Dan "Mac" Chandler -- President and Chief Executive Officer

We're not quite ready to communicate too many details on that because we've just started -- we've just entered into that and we -- there is some confidentiality that we have between us and the tenant who is a -- I will tell you the tenant is a building materials tenant that uses a lot of technology in their application and manufacture of building materials. We've just started that, but as we get further and we're ready to proceed. But it's -- we're very pleased with the transaction should it make and it's in line with our expectations of what we've been pursuing over the last couple of quarters.

Craig Mailman -- KeyBanc -- Analyst

Okay. Could you remind me of your expectations.

Dan "Mac" Chandler -- President and Chief Executive Officer

Well, I will say it's not going to qualify as rent growth because it's been vacant for, but presuming this lease step side, it will have been vacant for more than a year.

Craig Mailman -- KeyBanc -- Analyst

So you guys are wiggling out of reporting because it's not 12 months.

Dan "Mac" Chandler -- President and Chief Executive Officer

[Speech Overlap] It's a little premature. I mean, literally we just started turning -- turning a lease, and obviously we got very close once before. So maybe we're a little cautious here. We don't want to jeopardize this deal for making.

Craig Mailman -- KeyBanc -- Analyst

Now, that's fair. And then just one last quick one. I didn't hear it, Austin vacancy you said should be down. How big is that and how much of an earnings drag would that be if it's going be down for the full year or a few quarters?

Dan "Mac" Chandler -- President and Chief Executive Officer

About 67,000 square feet. This was planned some time ago. They gave us notice. It was the state of Texas. And that will be be down for a few quarters [Speech Overlap] Craig. I don't have a precise figure to give you on that. I would say you could probably look at what we've experienced from an NOI perspective in the Austin market and on a pro rata basis, that's a pretty good proxy for what we would expect the drag to be.

Craig Mailman -- KeyBanc -- Analyst

Perfect. I'll give the floor. Thanks, guys.

Dan "Mac" Chandler -- President and Chief Executive Officer

Thanks, Graig.

Operator

We'll go next to Anthony Paolone with J.P. Morgan.

Anthony Paolone -- J.P. Morgan -- Analyst

Yeah, thanks. So you all talked about 95 -- getting to 95% on occupancy, like for a few quarters now and it seems like you're more or less there and you just talked about Hayward and Austin. So where should we think about kind of the next stop is on the occupancy side as we kind of look ahead?

Dan "Mac" Chandler -- President and Chief Executive Officer

Yeah, Tony, I mean it's -- we like we like where we're at. At this point, we're -- we're pushing rent growth and we think we're really in a sweet spot being in that 95%, maybe a hair over and we think pushing rent growth, pushing embedded rent bumps puts us in the best position to grow in a way over the long term. So certainly in certain markets you can see from what we reported, we're a healthy clip above 95% in certain markets. So it doesn't mean on a per-market basis you could exceed it. But keep in mind our lease terms are generally shorter, they're less than four years. So we have a little bit more natural role, which helps us mark-to-market quicker, we can get to spaces faster. But we like -- we like this occupancy and can we clip up a little bit more, a hair more. But we like the spot that we're in. We think we've got some really good leverage and we're applying that through rent growth, through retention. We don't have to -- we're renewing tenants where it makes sense, but we're under no pressure to do that and we're having good success with this.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay and then just in terms of thinking about inflation, you have smaller tenants in the portfolio and perhaps more maybe gross leasing. So do you feel like you have many more exposure on the inflation side as we think about costs that you can't pass through?

Dan "Mac" Chandler -- President and Chief Executive Officer

I don't think any more than -- disproportionately more than any other landlord out there. I mean, our our parks if you think about how we operate them, it's pretty basic. There isn't a lot of fluff to it and I don't think inflation is really, they're pretty utilitarian and that allows our expenses to be really pretty modest. So I don't -- I don't think we're -- for the most part our portfolio is obviously in industrial flex and our expenses are pretty reasonable. So I don't think inflation is going to have a tremendous push in this as it might in other sectors, for example. We haven't seen a big big push back from our tenants on that and we haven't experienced a big change in tone from our tenants as it comes to renewing leases and signing new leases. Really I think that the overriding theme is really just the lack of vacancy in the market and within our portfolio. I think that's overriding any inflationary concerns, which is -- there is just so little space out there and most of our tenants don't have the opportunity to go to other other parks in the market.

Anthony Paolone -- J.P. Morgan -- Analyst

Got it. And then just last question from me. You talked about the couple of deals you might have to use up some of the proceeds from from lost, but just thinking beyond that because you have a lot of balance sheet capacity beyond sort of the sales proceeds. What is the deal flow look like, your [Indecipherable] Are you seeing a lot of product that fits into what you would want?

Dan "Mac" Chandler -- President and Chief Executive Officer

There is -- the deal flow that's out there is really pretty good. Pricing is a little bit better in Texas and [Indecipherable] There is a pretty meaningful difference in that. There is a lot of product that we like that's out there and we will likely -- we signaled that Royal Tech may very well sell next year, that's going to provide additional 10/31 exchange opportunities presuming that closes. So we're we're in the market, not just for between here and December, but very much active pursuing deals that would close next year as well. So we're seeing a lot of what we like. Pricing has gotten more aggressive over the last quarter. It's getting awfully expensive out there and I think the parks are a little bit larger like a Port America. I think those are ones that we certainly like, but I think we also compete a little bit better because there aren't as many operators who want to take on a 100 plus tenant park like that and that really fits us well because we are built that way, we're built to take that on.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, thank you.

Dan "Mac" Chandler -- President and Chief Executive Officer

The larger portfolio opportunity by the way, would suit us really well and we're pursuing those as well.

Anthony Paolone -- J.P. Morgan -- Analyst

All right, sounds good. Thank you.

Dan "Mac" Chandler -- President and Chief Executive Officer

Good day.

Operator

We'll go next to Blaine Heck with Wells Fargo.

Blaine Heck -- Wells Fargo -- Analyst

Great, thanks, good morning. Can you talk about your development projects and program a little bit more? It sounds like you guys are on track to execute well at your Freeport and Seattle projects. I guess just with demand for industrial product is robust as we've ever seen it, are you more inclined to start spec industrial development? And maybe can you give us any sense of how much capacity your current landholdings might afford you on that side?

Dan "Mac" Chandler -- President and Chief Executive Officer

I can't point to a a long-term pipeline of surplus land. It's pretty fit. There are -- there aren't a ton of these opportunities. But we're certainly mining them. I certainly think our our expertise in this is proven and with our ability from a capital standpoint and an appetite to do this is certainly that we would love to do more. I think -- I think really the next -- the next evolution is trying to acquire adjacent land, land that we don't already own and bring that into into our parks. What we experienced at Freeport was pretty interesting, in that nobody would -- nobody is really building ground-up Class A industrial for small tenants. These are 10,000 square foot base and the 10s of condos and say, boy, nobody has this product in a newly built building with all the modern amenities and that's why our rents were well in excess of what we underwrote. It was actually pretty difficult for us to underwrite that and we well, well exceeded those. I mean, our return on that is roughly 10% stabilized yield on that excluding land that we already own the land. So to me, I think the next evolution is pursuing adjacent land to existing parks and it might be land that doesn't necessarily have to be vacant, but land where we could scrape and rebuild and we're going to start to pursue those more because those really meet our expectations and thus provide a great accretive yield for us.

Blaine Heck -- Wells Fargo -- Analyst

Okay that makes sense. And then just with respect to Brentford at the Mile, it sounds like everything is on schedule there, which is great. Are you running into any cost pressures given the supply chain disruption we've seen and the related increase in pricing for materials?

Dan "Mac" Chandler -- President and Chief Executive Officer

We're fortunate the since that when we -- when we bought that job out, we got ahead of some of this. So we're 99% bought out. So we're monitoring that very closely. Just because we're bought doesn't mean we have all materials under roof. But it looks like we're going to be just fine. But we're in fact pushing things where normally we'd want to be ordering things a month out, we're ordering three months out, and we're really trying to get out ahead of any potential disruptions whether or not there today or not. And I think we're confident we're going to be just fine. But I think starting when we did and focusing a lot of time and effort on it has really helped us.

Blaine Heck -- Wells Fargo -- Analyst

Okay, that's helpful. And then last one for me, Mac. I think it's pretty clear you guys are working on decreasing your exposure to office and increasing industrial and maybe even flex on the margin, but I wanted to ask whether there are any geographic targets, the market targets that you have that might involve a sale out of the market or investment in any specific market over the others?

Dan "Mac" Chandler -- President and Chief Executive Officer

We -- we like -- we like all of the markets that we're in. I mean, what's interesting is we're performing almost equally well in all of our markets, our industrial is performing. Now, that's probably because 80% of our product is on the coast. But I don't see us having a heavy bias toward leaning into one or leaning out of any of them. They're really, it's really more opportunity driven. But I do echo your observation just out that we are continuing to to lighten up our office and reinvest in industrial. I think that theme makes sense for us in and when it's opportunistic, we'll continue to do that. And certainly the pricing is a little bit better in Texas. Texas is sort of an interesting take compared to the coast, a little better yield going into it. And you might say well markets in Texas, for example, may be more susceptible to new supply than the coast. That's a -- it's conventional wisdom. But I will say the multi-tenant product almost no matter where you are, just generally isn't being built and even with vacant land and even with more lax entitlements, it's just not being built and so supply really isn't increasing as opposed to bulk warehouse. So we're not as concerned about that. So we're -- we like all of our markets and really one additional set that we haven't really got to you yet is, all right -- green lighting new markets, and so nothing to reveal here today. But I will tell you our markets, we're very bullish on all of them right now. They're all performing very well.

Blaine Heck -- Wells Fargo -- Analyst

Great, that's helpful, thanks.

Dan "Mac" Chandler -- President and Chief Executive Officer

Thanks, Blaine.

Operator

We'll go next to Vince Tibone with Green Street.

Vince Tibone -- Green Street Advisors -- Analyst

Hi, good morning. I wanted to follow-up on an earlier question on the transactions market. Are you seeing the same level of investor competition for business park is more traditional, industrial properties and then obviously business parks are more operationally intensive. So just wondering how the type of bidders or investor differs between the two segments.

Dan "Mac" Chandler -- President and Chief Executive Officer

Hi, Vince. I'd say it's probably overall probably less -- there are less bidders going after it than traditional book, large warehouse industrial which probably has more foreign capital behind local sponsors. I would say in the multi-tenant arena it tends to be some of our, some of our REIT peers, but also more local operators who know their local markets and they're used to operating and they're expanding their footprint. But even with less players, does it really mean there's less demand, is just -- whether you have 10 people going out for an asset or 25. Even with 10 there is still plenty of competition there. So we're seeing there is still real robust demand for our property and it's helping to drive the value of our existing multi-tenant.

Vince Tibone -- Green Street Advisors -- Analyst

No, thank you. That's really helpful. And then one follow-up. I mean, what do you think the current cap rate spread is in the same market for a business park versus more a bulk product in the same place?

Dan "Mac" Chandler -- President and Chief Executive Officer

Well, I certainly think it's compressed versus a year ago and it probably continues to compress because I think there is demand for product that has a shorter vault where you can mark-to-market quicker. And that's what -- that's traditionally and what this is parks provide. So I think it's continuing to compress. I mean, it's -- I think it's since -- call it 50 basis points of cases it's less. At one point it was -- over a year ago was over 100. So that -- it's certainly compressed. I think 50 plus or minus, probably inside in cases is a reasonable -- reasonable spread.

Vince Tibone -- Green Street Advisors -- Analyst

Perfect, thank you.

Dan "Mac" Chandler -- President and Chief Executive Officer

Sure. Thanks.

Operator

[Operator Instructions] There are no further questions, I will turn the floor back over to Mac Chandler.

Dan "Mac" Chandler -- President and Chief Executive Officer

Thank you everyone for your time and for your continued interest in PSB. I hope you enjoy the rest of the Friday and I hope everyone has a safe Halloween. Thank you again.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Jeff Hedges -- Executive Vice President, Chief Financial Officer and Secretary

Dan "Mac" Chandler -- President and Chief Executive Officer

Emmanuel Korchman -- Citi -- Analyst

Craig Mailman -- KeyBanc -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

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