PS Business Parks, Inc. ( PSB ), a real estate investment trust (REIT) that owns and operates commercial real estate properties across the U.S., has recently augmented its Northern California portfolio with the acquisition of 18 multi-tenant business parks comprised of 2.9 million square feet of industrial space and 2.4 million square feet of flex space. The properties were purchased from RREEF America REIT II Corp. and its affiliate Northern California Industrial Portfolio Inc., for $520 million.
The acquired properties, currently 82.2% leased to 216 tenants, are located in the Bay Area, primarily concentrated in Oakland, Hayward, Fremont, Milpitas, San Jose, Santa Clara and Sunnyvale. With the strategic purchase, PS Business Parks presently has 7.2 million square feet of multi-tenant industrial and flex space in 30 business parks in Northern California, accounting for about 26.3% of the total portfolio.
In order to fund the acquisition, the company assumed a $250 million secured loan scheduled to mature in December 2016, which bears a fixed interest rate of 5.45%. PS Business Parks also entered into a three-year unsecured term loan worth $250 million with Wells Fargo & Company ( WFC ) that bears an interest rate of LIBOR plus 1.20%. The remainder of the purchase price was funded from retained cash and available credit facility. PS Business Parks intends to record approximately $2.8 million as additional G&A expense in fourth quarter 2011 related to transaction costs for the acquisition.
PS Business Parks owns low-rise suburban multi-tenant offices, business parks and 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.
We maintain our 'Outperform' recommendation for PS Business Parks, which presently has Zacks #2 Rank that translates into a short-term 'Buy' rating.
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