What happened
The past year was a particularly good one for shareholders of PS Business Parks (PSB), a mixed-use real estate investment trust (REIT) that saw its stock jump 38.6% in 2021, according to data provided by S&P Global Market Intelligence. That performance was capped by a Dec. 1 declaration of a special dividend of $4.60 per share on top of the $1.05 per share the REIT had already announced for the fourth quarter.
While the stock has dipped 3.6% in 2022 as of Monday's closing price, it's still running well ahead of the pack, with year-over-year performance of nearly 37%, compared to about 22% for the S&P 500 over the same period. The dividend gives it a year-over-year total return of nearly 44% -- not bad at all for a relatively conservative real estate investment.
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So what
PS Business Parks' portfolio contains 97 properties located primarily in major coastal markets; they're a mix of multi-tenant industrial, industrial-flex (space designed for mixed office and industrial use), and low-rise suburban office buildings, as well as 800 residential units.
Capitalizing on soaring demand, PS Business Parks maintained occupancy of about 95% in its properties and was able to raise the effective net rent by nearly 21% on the new leases it executed in the first nine months of 2021 for industrial space, and 7% for industrial-flex space.
PS Business Parks' earnings per share (EPS) also rose by about 10.5% in the past year, and funds from operations (FFO) -- a critical metric for evaluating equity REITs -- by an even more impressive 19% over the same time frame. That and the higher rent it's able to charge stand it well going forward, giving it the ability to withstand inflation and rising interest rates better than many other REITs and similar equities.
Now what
About those rising interest rates. When rates do go up, they can impact market appetite for REITs versus bonds and even CDs and savings accounts. But not all REITs are alike.
PS Business Parks has an appealing niche. The company says 90% of its square footage is in high-demand industrial and industrial-flex space, and nearly 80% of it is in coastal markets, areas that may hold up particularly well as global supply chain issues work themselves out and make smaller, last-mile properties look even more attractive.
That competitive moat also could help persuade investors to stay invested rather than bail out for the certainty of bond yields.
There are REITs that pay more than this stock's current yield of about 2.35%, to be sure. But yield drops as share prices rise, and PS Business Parks' has certainly done that, trading now at around $178 a share after dipping to as low as $129.14 back on Jan. 11, 2020.
PS Business Parks' stock has been paying $1.05 per share per quarter since the third quarter of 2018, but the special dividend at year's end makes up for some of that staleness and could point to more generous payouts and share price growth in the coming year and beyond.
