Public Storage Sells a Low Coupon Preferred Issue
By: Tim McPartland,
August 4, 2017
By Tim McPartland
Giant self-storage real estate investment trust (REIT) Public Storage (NYSE: PSA) has sold 12 million shares of a new preferred issue with a coupon of 5.05%.
While this is a pretty low coupon, PSA has sold two other issues with lower coupons in the last two years, with the lowest coupon issue of 4.90% sold last October. PSA now has 14 preferred stock issues outstanding, which you can see here on our “swaps” page.
The coupons on these issues range from the previously mentioned low of 4.90% to a high of 6.375%. Public Storage is a rare real estate investment trust (REIT) that finances company growth primarily through the issuance of preferred stock instead of taking on debt. The proceeds of this issue will be used for further self-storage acquisitions.
Public Storage is an investment-grade company with the most solid financials in the REIT industry. Regardless of these positives though, we will not be buying this security since the coupon falls drastically short of what we target to own.
Remember, we try to own securities with coupons in the 6.5% to 7% area, which is typically our annual return goal. Additionally, as a perpetual issue, a holder of this security could be locked into a very low coupon with declining share price for a long time.
It is unlikely that this new issue will trade higher than $25.25 in the coming months, or forever, depending on the movement of interest rates. As a point of reference, the company’s 4.90% issue sold last October currently is trading at $24.79 a share.
The new issue now is trading on the OTC Grey Market under the ticker PBSTP and is was last priced at $24.84.
Tim McPartland is a private investor with over 45 years of investment experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.