Self-Storage Giant Public Storage Sells an Investment Grade Preferred
By: Tim McPartland,
Self-storage giant Public Storage (ticker:PSA) has sold a new preferred stock issue with a coupon of 5.125%. Needless to say this is a very high quality issue with a coupon that is the lowest of all 12 preferred stock issues the REIT has outstanding. The terms are the normal preferred stock terms–optionally redeemable in about 5 years and cumulative in respect to dividends.
As many of you know PSA is a cash generating machine like no other REIT. In 2015 the company had $2.3 billion in revenue and $1.3 billion in net income (and $1.7 in free cash) and as a REIT they must pay out 90% of their taxable income. PSA meets the requirement for a 90% payout through a combination of common stock and preferred stock dividends. No other REIT pays out as much as PSA to preferred stockholders with over $258 million paid in 2015.
This issue may fill the needs of an investor wanting a very high quality issue, but it should be noted that when (if) interest rates move higher these low coupon issues may suffer with falling share prices.
As mentioned above the company now has 12 preferred issues outstanding and the proceeds from this offering will be used for general corporate purposes (versus redeeming any other preferred issues). The company has a 6.35% preferred issue which becomes redeemable in July and we can expect another low coupon preferred to be offered at that time in a “refinancing” transaction.
This new issue will trade with the permanent ticker of PSA-C and a OTC Grey market ticker of PBBSP. The share are trading now on the Grey market at $25/share.
Our Grey market trading primer, for those not familiar with this marketplace, is here.
To compare the new issue with the other outstanding issues that PSA has available you can check our “swaps” page, where we list all outstanding issues together so one can decide if the new issue is inferior or superior for their needs.