On Jul 17, 2013, we reiterated our long-term recommendation on PS Business Parks Inc. (PSB) at Neutral. The decision is based on the company’s decent operating performance with rising rental revenues and net operating income. Yet, the volatility in the office sector due to job cuts and a decline in market fundamentals is a headwind.
Why the Neutral Stance?
PS Business Parks’ portfolio in diversified markets enables it to tap opportunities and neutralize the operating risks associated with the economic down cycles. As a result, the company has been enjoying a steady increase in revenues. In addition, it aims to expand in high growth areas through accretive acquisitions. This is expected to strengthen its portfolio and boost top-line growth going forward. Moreover, it has a strong balance sheet with adequate liquidity.
While the company is diversifying, it still has exposure to the suburban office and industrial portfolio that lacks significant growth prospects in the near term due to weak demand for such properties amid elevated unemployment levels. Moreover, stiff competition from office and industrial asset developers somewhat undermines the company’s near-term profitability.
The Zacks Consensus Estimate for 2013 and 2014 FFO (funds from operations) per share remained unchanged at a respective $4.85 and $4.95, over the last 60 days.
PS Business Parks is scheduled to release its second-quarter 2013 earnings results on Jul 29. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at $1.21 per share.
Other Stocks to Consider
Some better performing REITs include W. P. Carey Inc. (WPC) and Winthrop Realty Trust (FUR), carrying a Zacks Rank #1 (Strong Buy) as well as Diamondrock Hospitality Co. (DRH), having a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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