PS Business Parks, Inc. (PSB - Free Report) has enhanced its industrial portfolio in Northern Virginia by purchasing Fullerton Industrial Park and Northern Virginia Industrial Park in Springfield, VA. The company shelled out $143.3 million for the acquisition of this 1.1-million-square-foot multi-tenant industrial portfolio which comprises 19 buildings on 65 acres of land.
The move has particularly strengthened PS Business Parks’ presence in the Springfield/Newington industrial sub-market. In fact, with the latest acquisitions and the company’s existing three industrial parks, aggregating 606,000 square feet of space, PS Business Parks currently enjoys a solid 11% submarket concentration.
With PS Business Parks’ proven expertise, the previously owned properties have been enjoying historical average occupancy of 95% since 2000. This raises hopes for achieving higher occupancy of the latest acquired portfolio which is currently 76% occupied and offers scope for the company to make capital upgrades.
Moreover, with the acquired portfolio being advantageously located in a densely populated region next to Fort Belvoir and south of the Pentagon, and having solid transportation access, demand for space is likely to escalate.
In fact, companies are being compelled to enhance and renovate their distribution and production platforms, in order to address a large customer base and urbanization, as well as support e-commerce business. Services like same-day delivery are gaining traction, propelling demand for modern industrial facilities.
These have made industrial REITs fire on all cylinders and per a study by the commercial real estate services firm — CBRE Group Inc. (CBRE) — availability fell for 31 straight quarters to 7.3% for the U.S. industrial market in first-quarter 2018. Additionally, with demand surpassing new supply, net asking rents inched up1.9% in Q1 to $7.01 per square feet, denoting the highest level since 1989.
Going forward too, with a recovering economy and job market gains, as well as tax reforms, consumption levels are anticipated to remain elevated. And with a healthy manufacturing environment and high business inventories, demand for warehouse and industrial real estate is anticipated to be high.
For PS Business Parks, healthy fundamentals in the multi-tenant flex, office and industrial asset categories are anticipated to stoke growth in the near-to-medium term. In addition, the company’s financial flexibility keeps us optimistic. Nonetheless, supply is rising in certain submarkets and this could cast a pall on the company’s growth momentum. Also, rate hike adds to its woes.
PS Business Parks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s shares have appreciated 8.4% in the past three months compared with its industry’s growth of 4.6%.
Stocks to Consider
A few better-ranked stocks from the real estate space include Host Hotels & Resorts, Inc. (HST - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Prologis, Inc. (PLD - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy).
Host Hotels’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has risen 3% to $1.71 in two months’ time. Its shares have returned 18.6% over the past year.
Lamar’s FFO per share estimates for the current year increased 1.1% in a month’s time to $5.40. Its shares have gained 1.7% in a year’s time.
Prologis’ FFO per share estimates for 2018 have inched up 0.7% to $2.98 over the past month. Its shares have appreciated 15.1% over the past year.
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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