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PS Business Parks Inc. PSB has a well-diversified portfolio of multi-tenant industrial, flex and office assets across various markets. Also, its tenant roster is well diversified. This enables the company to tap opportunities in different asset classes and helps mitigate the operating risks associated with a particular asset category or economic downturns in a specific region.
As of Sep 30, 2020, excluding assets held for sale, leases from the company’s top 10 customers comprised 10.1% of its annualized rental income, with three customers, the U.S. Government (3.2%), Amazon Inc. (1.5%) and Luminex Corporation (1.1%), representing more than 1%.
In addition, with respect to industry concentration, 19.6% of PS Business Parks’ annualized rental income comes in from business services, 12.9% from warehouses, distribution, transportation and logistics, and 11.3% from computer hardware, software and related services. A number of these industries have been resilient in the wake of the pandemic which bodes well for the company. None of the other industry groups represent more than 10% of its annualized rental income.
Moreover, the industrial real estate market is witnessing healthy fundamentals amid the e-commerce boom and supply-chain strategy transformations. Given the company’s well-positioned properties, it is well poised to benefit from this trend.
Also, this Zacks Rank #3 (Hold) company has outperformed its industry over the past three months. Shares of PS Business Parks have appreciated 5.1%, while the industry has gained 2.4% during this period.
Nevertheless, recovery in the industrial market has continued for long, and hence, growth in rent is expected to slow down in the days to come. Also, with the asset class being an attractive one, there has been a development boom.
Moreover, industrial real estate fundamentals, though seem more resilient than other asset categories, are not immune. Particularly, with the company’s portfolio having a concentration of small- and mid-size customers, it is more susceptible to the pandemic’s adverse impact given the economic turbulence and the prevailing health crisis that is yet to be resolved.
As such, in the near term, woes with rent collections with deferrals, abatements and defaults are might linger. Through Sep 30, 2020, 11% of the company’s customers, based on total rental income, had been granted rent relief in the form of rent deferral and/or abatement, with open rent relief requests from approximately 1% of customers as of Oct 26, 2020.
Additionally, the trend in estimate revisions of 2020 funds from operations (FFO) per share does not indicate a favorable outlook as the estimate moved marginally downward over the past 30 days.
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Arbor Realty Trust, Inc.’s ABR FFO per share estimate for 2020 moved up 11.7% to $1.62 in the last month. The stock carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
City Office REIT, Inc.’s CIO Zacks Consensus Estimate for the ongoing-year FFO per share moved 2.6% upward to $1.17 in the past month. The stock currently carries a Zacks Rank of 2.
Extra Space Storage Inc.’s EXR Zacks Consensus Estimate for the current year’s FFO per share moved 1.2% north to $5.02 in a month’s time. The stock holds a Zacks Rank of 2, at present.
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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