PS Business Parks continues to demonstrate that it’s a high quality player in its space.
The overall risk profile of the business is favorable and its long-term outlook is encouraging.
But given how pricey shares are today, there are better prospects to be had.
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Torsten Asmus/iStock via Getty Images When buying into a diversified REIT, it is important to note that while the company itself might be diversified, it may have an area of concentration that it specializes in. An example of this would be PS Business Parks ( PSB ). Although the company owns some multifamily properties and some office space, it really does specialize in commercial properties such as multi-tenant industrial assets and industrial flex assets.
Although its financial performance has not always been better than what the company achieved the year before, the overall picture for the company has always been positive. That remains true in the current fiscal year. The company also has no debt an access cache, and its long-term outlook is likely positive. Having said that, shares of the enterprise are starting to look rather lofty. And due to that reason, investors likely would be better off looking elsewhere for opportunity. Continued growth
The last time I wrote about PS Business Parks was in an article published in June of this year. In that article, I called the company a healthy prospect. But I ultimately rated it as a neutral play because of how expensive shares were. Since then, shares have gotten even pricier. This is due in large part to the fact that the businesses generated a return for shareholders over that timeframe of 12.4%. That compares to the 10.7% achieved by the S&P 500. It’s not an extraordinary profit relative to the market, but it is solid.
This share price appreciation has not been due to random chance. If anything, it has to do with the fact that the company continues to innovate and strive to create value for its shareholders. As an example, consider its broader portfolio of properties. As of this trading, the company has 97 business parks spread across 6 U.S. states.
This actually represents a decline from the 98 parks that had operated at the end of the first quarter of this year when I wrote about it. However, the square footage of its portfolio has increased, climbing from 27.8 million square feet to 28.1 million square feet. The vast majority of this is comprised of industrial assets, with smaller portions attributed to flex space and office space.
Recent maneuvers have been aimed at trying to extract value from the company’s assets or to reduce costs for the enterprise in the long run. For instance, in October of this year, the company completed the sale of its Lusk Business Park, generating net proceeds of $311.1 million. With this, it plans to pay out a special dividend of between $166 million and $183.5 million, amounting to between $4.75 and $5.25 per share, before the year is out.
With the rest of the proceeds, it decided to buy back Series W preferred units that were outstanding. This amounts to $189.8 million and, with an annual distribution rate of 5.20%, it will save shareholders about $9.87 million annually. Normally, I might recommend that the company pay down debt first, but PS Business Parks is in the unique position of having cash in excess of debt of $46.59 million, and that is before the recent sale that it engaged in. The company also recently announced the acquisition of a multi-tenant industrial park in Dallas for $123 million. That particular property brings with it 15 buildings that have a 96% combined occupancy rate. Investments like this are great to see because of the long-term value they can generate for shareholders. *Created by Author
Moves like these have helped the company to continue growing, albeit at a slow pace. Take, as an example, financial performance achieved in the first nine months of the current fiscal year. According to management, revenue during this period came out to $327.86 million. That represents an increase of 5.6% over the $310.54 million generated at the same time of 2020. Revenue growth in the third quarter alone was 6.4%. As revenue has risen, so too has profitability. Operating cash flow, as an example, grew from $211.56 million in the first nine months of 2020 to $232.41 million […]