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Is it Wise to Hold On to PS Business Parks (PSB) Stock Now?
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PS Business Parks Inc. has a well-diversified portfolio of multi-tenant industrial, flex and office assets across various markets. Its tenant roster is also well diversified. This gives the company the ability to tap into opportunities in different asset classes and helps in mitigating operating risks associated with a particular asset category or economic downturns in a specific region.
As of Jun 30, 2021, excluding assets held for sale, leases from the company’s top 10 customers comprised 10.3% of its annualized rental income with three customers, namely, the U.S. Government (3.1%), Amazon Inc. (AMZN - Free Report) (1.5%), and KZ Kitchen Cabinet & Stone (1.2%), representing more than 1%.
In addition, with respect to industry concentration, 21.3% of the company’s annualized rental income comes from business services, 13.3% from logistics and 10.3% from technology. A number of these industries have been resilient in the wake of the pandemic, which bodes well for PS Business Parks. No other industry group represents more than 10% of its annualized rental income.
Demand for industrial real estates has been increasing amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. Over the long term, apart from the fast adoption of e-commerce, logistics real estate is anticipated to benefit from a likely increase in inventory levels post crisis. Given the company’s solidly positioned properties, it remains well poised to benefit from this trend. Moreover, the company experienced a recent increase in demand for its suburban office product, and management remains hopeful to recapture occupancy with the ongoing reopening of the local economy.
Portfolio acquisitions and developments can help PS Business Parks to emerge stronger amid improving industrial market fundamentals in the United States. Recently, the company announced completion of the buyout of Port America in Dallas, TX for $123 million. The move was line with management’s small bay industrial investment strategy. This 717,735-square-foot multi-tenant industrial park comprises of 15 buildings with an average customer size of 8,000 square feet. It is advantageously located next to DFW International Airport on fee simple land, and is complementary to the company’s present industrial and flex portfolio in Dallas that aggregates 3 million square feet.
PS Business Parks is strategically shedding some of its office parks that it does not plan to redevelop in the near-to-mid term. Subsequent to the quarter end, the company also sold Monroe Office Park in Herndon, VA, for $41.3 million. We expect these efforts to help the company achieve a better portfolio mix in the days ahead.
However, with the industrial asset category being attractive in the challenging times, there is a development boom in a number of markets. This high supply is likely to fuel competition and curb pricing power. Particularly, new supply is likely to put pressure on vacancy level, which might shoot up to some extent in the upcoming quarters.
Though industrial real estate fundamentals seem more resilient than other asset categories, they are not immune. With the company’s portfolio having a concentration of small- and mid-sized customers, it is more susceptible to the pandemic’s adverse impacts. In fact, the pandemic has had a substantial adverse impact on a number of its customers’ businesses.
The Zacks Consensus Estimate for Public Storage’s (PSA - Free Report) current-year FFO per share has moved up 3.6% to $12.35 in the past month. The company currently carries a Zacks Rank of 2 (Buy).
The Zacks Consensus Estimate for OUTFRONT Media Inc.’s (OUT - Free Report) 2021 FFO per share has moved 3.4% north to 90 cents over the past month. The company carries a Zacks Rank of 2, currently.
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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Is it Wise to Hold On to PS Business Parks (PSB) Stock Now?
PS Business Parks Inc. has a well-diversified portfolio of multi-tenant industrial, flex and office assets across various markets. Its tenant roster is also well diversified. This gives the company the ability to tap into opportunities in different asset classes and helps in mitigating operating risks associated with a particular asset category or economic downturns in a specific region.
As of Jun 30, 2021, excluding assets held for sale, leases from the company’s top 10 customers comprised 10.3% of its annualized rental income with three customers, namely, the U.S. Government (3.1%), Amazon Inc. (AMZN - Free Report) (1.5%), and KZ Kitchen Cabinet & Stone (1.2%), representing more than 1%.
In addition, with respect to industry concentration, 21.3% of the company’s annualized rental income comes from business services, 13.3% from logistics and 10.3% from technology. A number of these industries have been resilient in the wake of the pandemic, which bodes well for PS Business Parks. No other industry group represents more than 10% of its annualized rental income.
Demand for industrial real estates has been increasing amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. Over the long term, apart from the fast adoption of e-commerce, logistics real estate is anticipated to benefit from a likely increase in inventory levels post crisis. Given the company’s solidly positioned properties, it remains well poised to benefit from this trend. Moreover, the company experienced a recent increase in demand for its suburban office product, and management remains hopeful to recapture occupancy with the ongoing reopening of the local economy.
Portfolio acquisitions and developments can help PS Business Parks to emerge stronger amid improving industrial market fundamentals in the United States. Recently, the company announced completion of the buyout of Port America in Dallas, TX for $123 million. The move was line with management’s small bay industrial investment strategy. This 717,735-square-foot multi-tenant industrial park comprises of 15 buildings with an average customer size of 8,000 square feet. It is advantageously located next to DFW International Airport on fee simple land, and is complementary to the company’s present industrial and flex portfolio in Dallas that aggregates 3 million square feet.
PS Business Parks is strategically shedding some of its office parks that it does not plan to redevelop in the near-to-mid term. Subsequent to the quarter end, the company also sold Monroe Office Park in Herndon, VA, for $41.3 million. We expect these efforts to help the company achieve a better portfolio mix in the days ahead.
However, with the industrial asset category being attractive in the challenging times, there is a development boom in a number of markets. This high supply is likely to fuel competition and curb pricing power. Particularly, new supply is likely to put pressure on vacancy level, which might shoot up to some extent in the upcoming quarters.
Though industrial real estate fundamentals seem more resilient than other asset categories, they are not immune. With the company’s portfolio having a concentration of small- and mid-sized customers, it is more susceptible to the pandemic’s adverse impacts. In fact, the pandemic has had a substantial adverse impact on a number of its customers’ businesses.
Shares of this Zacks Rank #3 (Hold) company have inched up 0.5% compared with the industry's growth of 5.6% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Stocks to Consider
The Zacks Consensus Estimate for Public Storage’s (PSA - Free Report) current-year FFO per share has moved up 3.6% to $12.35 in the past month. The company currently carries a Zacks Rank of 2 (Buy).
The Zacks Consensus Estimate for OUTFRONT Media Inc.’s (OUT - Free Report) 2021 FFO per share has moved 3.4% north to 90 cents over the past month. The company carries a Zacks Rank of 2, currently.
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.