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Should You Buy PS Business Parks (PSB) Stock Right Now?

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Performance of REIT stocks so far this year has been affected by rate hike issues, rising supply in certain asset categories as well as a cautious approach of investors. But as this special hybrid asset class benefits from the favorable dynamics of the individual asset categories, investing in it often leads to big gains for investors.

In fact, one such REIT stock, which has been displaying strength, is PS Business Parks Inc.PSB . This Glendale, CA-based REIT is into ownership, acquisition, development and operation of commercial real estate properties, especially multi-tenant industrial, flex and office space. Healthy fundamentals in the flex and industrial asset categories are anticipated to stoke growth in the near-to-medium term. Moreover, the company's acquisition of the 1.1 million square foot multi-tenant industrial portfolio in Northern Virginia in June 2018 augurs well for long-term profitability.

Further, this Zacks Rank #2 (Buy) stock has gained 7.5% in the past three months outperforming industry 's growth of 5.3%. The stock is likely to move higher in the near term as there are a number of favorable factors.

Why a Solid Choice?

Last month, the company reported better-than-expected second-quarter 2018 funds from operations (FFO) per share. Its FFO per share of $1.59 surpassed the Zacks Consensus Estimate of $1.58. The figure also came in 2.6% higher than $1.55 recorded in the prior-year quarter. Results highlight a rise in same-park net operating income (NOI) backed by growth in rental rates and occupancy, as well as improved NOI from non-same-park and multi-family assets. The company also announced a 23.5% hike in its quarterly dividend.

Same-Park rental income was up 2.4% year over year to $97.8 million while Same-Park NOI climbed 2.1% to $68.9 million, driven by improving rental rates and occupancy level. Same-Park annualized rental income per occupied-square-foot inched up 1.4% to $15.36 while weighted average square-foot occupancy was 94.6%, up 90 basis points year over year. Notably, as of Jun 30, 2018, the company had wholly owned 28.3 million rentable square feet for around 5,000 customers in six states, and 95.0% interest in a 395-unit apartment complex.

Moreover, apart from making strategic acquisitions, the company is disposing assets that do not fit in its growth strategies. In the first half of 2018, the company sold three parks - two in Orange County, CA and one in Dallas, TX, aggregating 792,000 square feet, with net proceeds of $126.8 million. Following this, the company has 107,000 square feet remaining of the 705,000 square feet of office product in Orange County, earlier marked as held for sale. These efforts are expected to help it in achieving a better portfolio mix, going forward.

PS Business Parks' FFO per share has been displaying strength for the past few quarters. The company reported better-than-expected FFO per share figures in three of the trailing four quarters with an average beat of 1.67%.

Also, the company's projected FFO per share growth of 4.19% for 2018 is ahead of the industry's expected growth rate of 3.45%. In fact, the Zacks Consensus Estimate for the current-year FFO per share has inched up 0.3% to $6.14, in a month's time, reflecting analysts' bullish sentiment for the stock. Further, the consensus estimate for 2019 FFO per share has moved up 0.6% to $6.53 during the same time frame, signaling brighter days ahead.

Moreover, debt-to-equity ratio for PS Business Parks is 0.01 compared with the industry average of 0.84. This highlights greater financial stability for the company and lesser risk for shareholders.

Also, its return on equity ratio is 23.01% compared with the industry average of 4.9%. This indicates that the company reinvests more efficiently compared to the industry.

Other Stocks to Consider

Other top-ranked stocks in the real estate space include Condor Hospitality Trust, Inc. CDOR , Park Hotels and Resorts, Inc. PK and Life Storage, Inc. LSI . All three stocks carry a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Condor Hospitality Trust's Zacks Consensus Estimate for 2018 FFO per share has been revised 0.9% upward over the past 30 days.

Park Hotels and Resorts' FFO per share estimates for 2018 have witnessed 1.4% upward revision in 30 days' time.

Life Storage's FFO per share estimates for the current year have moved up 1.1% in the past 30 days to $5.45.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) - a widely used metric to gauge the performance of REITs.

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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