Balanced View on PS Business Parks - Analyst Blog

On Apr 11, 2014, we issued an updated research report on real estate investment trust (REIT) – PS Business Parks Inc. PSB.

On Feb 18, PS Business Parks came up with impressive results in the fourth quarter. The company's adjusted FFO (funds from operations) per share came in at $1.26. Including non-recurring items, the company reported fourth-quarter 2013 FFO of $1.54 per share, which came well ahead of the Zacks Consensus Estimate of $1.20. Results also improved from the prior-year quarter.

An uptick in net operating income in Same Park as well as Non-Same Park facilities drove the year-over-year increase. Further, the investments through acquisitions poised the company well for growth going forward. Along with its fourth-quarter earnings release, the company declared a 13.6% hike in its quarterly dividend rate, which is encouraging for the shareholders.

PS Business Parks invests in and owns commercial real estate properties in diversified markets that enable it to tap opportunities and partly mitigate the operating risks associated with economic downturns in a specific region. The company has augmented its customer base to over 5,100 in 2013 from 3,900 in 2009 and achieved record leasing volume (9.1 million square feet in 2013) with free cash flow of $45 million at a 4-year high.

However, interest rates are anticipated to rise in the long term and this may weigh on PS Business Parks' ability to refinance existing debt. Moreover, a rise in interest rates increases the burden of new debt and adversely affects the company's FFO and funds available for distribution. Also, continual office space efficiency trends and stiff competition remain our concerns.

Over the last 30 days, the Zacks Consensus Estimate for FFO per share remained flat for both 2014 and 2015 at $5.11 per share and $5.44, respectively. The stock currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in the REIT industry may also consider stocks like Cousins Properties Inc. CUZ, Duke Realty Corp. DRE and Liberty Property Trust LPT. All three stocks have 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.