PS Business Parks Revert to Neutral - Analyst Blog

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We have recently lowered the long-term recommendation for PS Business Parks, Inc. ( PSB ), a real estate investment trust (REIT) that owns and operates commercial real estate properties across the U.S., from 'Outperform' to 'Neutral' as we anticipate it to perform in line with the broader market.

PS Business Parks owns low-rise suburban multi-tenant offices, business parksand industrial and flex assets. Located mostly in high population markets, flex properties are a combination of warehouse and office space and can be easily configured to suit a variety of uses.

The warehouse component of the flex space is primarily used for purposes such as light manufacturing and assembly, storage and warehousing, showroom, laboratory, distribution and research and development activities. The office component of the flex space is complementary to the warehouse component and enables businesses to accommodate management and production staff in the same facility.

Over the years, PS Business Parks has focused on investing and owning real estate in diversified markets, thereby tapping multiple industry concentrations and minimizing the risks associated with the economic down cycles. In addition, the company seeks to maximize its cash flow by controlling capital expenditures associated with re-leasing space by acquiring and owning properties, which can be easily reconfigured to suit a variety of uses for a wide range of tenants.

Furthermore, PS Business Parks has one of the strongest balance sheets in the sector with minimal debt maturities and adequate liquidity that provides it with an operating flexibility to protect and enhance market positions by capitalizing on improving real estate market fundamentals

However, PS Business Parks generates a significant amount of revenue from its office portfolio. Office demand is highly correlated to job growth. If job loses recur, operations in the company's office portfolio are likely to suffer, thereby undermining its long-term growth potential.

Moreover, PS Business Parks primarily has a suburban office and industrial portfolio, which does not have the near or long-term growth prospects of some of its better-positioned peers. In addition, the company generally caters to smaller businesses that generally do not possess the financial stability of its bigger rivals. This has historically affected the top-line growth of the company.

PS Business Parks presently has Zacks #3 Rank that translates into a short-term 'Hold' rating. We also have a 'Neutral' recommendation and Zacks #2 Rank (short-term 'Buy') for First Industrial Realty Trust Inc. ( FR ), a competitor of PS Business Parks.


 
FIRST INDL RLTY ( FR ): Free Stock Analysis Report
 
PS BUSINESS PKS ( PSB ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: FR , PSB

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