PS Business Parks Inc. PSB has a well-diversified portfolio of multi-tenant flex, industrial and office assets across various markets. The company has a stable and diversified customer base with limited exposure to any single industry. This ensures stable cash flow from properties and helps in tapping opportunities in different asset classes.
Further, industrial real estate is grabbing headlines amid rapid growth of e-commerce business. This is driving demand for warehouse space as companies are compelled to enhance and renovate their distribution and production platforms. In addition, with a stable job market environment and resilient consumer sentiment, demand from other sectors apart from e-commerce is likely to grow. These positive factors are helping the company do extremely well in recent quarters, driving rental rates as well as occupancy at properties.
PS Business Parks is also making concerted efforts to reshuffle its portfolio and achieve a better mix. Recently, the company acquired a 543,000-square-foot multi-tenant industrial park in Southern California. Positioned in a key last-mile location in the core of the Los Angeles Mid-Counties submarket, the property is fully occupied. Moreover, in April 2019, the company took over a multi-tenant industrial park spreading 74,000 rentable square feet in Signal Hill, CA. Apart from acquisitions, PS Business Parks is divesting office parks that it does not plan to redevelop in the near-to-mid term. The company also has ample financial flexibility to enhance its market position as is evident from cash and cash equivalents of $42 million while exiting second-quarter 2019.
Such encouraging factors have helped PS Business Parks’ shares gain 41.6% so far this year, outperforming the industry’s rise of 25.3%.
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However, the industrial market is witnessing an extended phase of recovery. A whole range of new buildings are likely to be completed and delivered in the market in the near term. This will likely hurt the company’s ability to raise rent and also affect occupancy. Additionally, any protectionist trade policies will have an adverse impact on economic growth and the company’s business over the long term.
Moreover, PS Business Parks faces intense competition from developers, owners and operators of office properties and other industrial assets. This also affects its ability to attract and retain tenants at relatively higher rents than its competitors.
Currently, PS Business Parks carries a Zacks Rank #3 (Hold). Also, its current-year FFO per share estimates have stayed put over the past 60 days.
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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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