Why is it Wise to Hold On to PS Business Parks (PSB) for Now
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, the industrial real estate market is witnessing improving fundamentals amid growth of e-commerce business. This is driving demand for warehouse space as companies are compelled to enhance and renovate their distribution platforms. Further, job-market gains and resilient consumer sentiment are likely to drive demand from other sectors besides e-commerce. Moreover, demand for office space is likely to benefit from the healthy job market.
Further, the company is aimed at portfolio repositioning which can help the company emerge stronger amid improving industrial market fundamentals in the United States. Particularly, in third-quarter 2019, PS Business Parks announced the acquisition of Hathaway Industrial Park in Santa Fe Springs, CA. Particularly, the company has shelled out $104.3 million as purchase price for the multi-tenant industrial park that consists of 10 buildings and encompasses 543,000-square-foot space on 27 acres of land.
Positioned in a key last-mile location in the core of the Los Angeles Mid-Counties sub-market, the property is fully occupied. This industrial park has strong trade-area demographics with more than 6 million people within a 15-mile radius. It has immediate access to I-605, I-5, I-105 and SR-91.
In addition, in October, the company announced completion of sale of three business parks in Maryland for a gross price of $148.8 million. This office/flex portfolio comprised around 1.3 million square feet of space. The company continues to shed office parks that it does not plan to redevelop in the near- to mid-term. Moreover, the company has ample financial flexibility and its asset-repositioning efforts are likely to improve the overall portfolio quality.
Also, the company’s third-quarter 2019 results highlighted improvement in same-Park net operating income (NOI), backed by growth in rental rates, as well as higher NOI from non-same-park and multi-family assets. However, NOI reduction due to facilities sold in 2018 partly offset the positives.
Additionally, over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 9.7%, outperforming the industry’s gain of 3.9%.
Nevertheless, the recovery in the industrial market has continued for long, and a whole lot of new buildings are slated to be completed and made available in the market in the near term, leading to higher supply and lesser scope for rent and occupancy growth. Also, any protectionist trade policies will have an adverse impact on economic growth and the company’s business over the long term.
Moreover, the near-term adverse impact on NOI from facilities sold cannot be avoided. Furthermore, the trend in estimate revisions of 2019 FFO per share does not indicate a favorable outlook for the company. In fact, the Zacks Consensus Estimate for 2019 FFO per share has been revised 2.3% downward in a month’s time. Therefore, given the above-mentioned concerns and negative estimate revisions, there is limited upside potential to the stock.
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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.