Public Storage - Preferred Stock Revolving Door

| About: Public Storage (PSA)

Public Storage REIT (NYSE:PSA) tapped the preferred market again today, issuing 4 million shares of cumulative perpetual preferred shares, Series U.

Details of the offering are (prospectus):

Issuer Public Storage
Series Series A
Ticker PSA PrU (when listed)
Coupon 5.625%
Rating Baa1/BBB+/A-
Shares 4,000,000
Dividends Cumulative. Paid quarterly 9/30, 12/31, 3/31 and 6/30
Optional Redemption June 2017
Convesrion Rights None
Voting Rights After 6 quarterly distributions have not been paid (consecutively or not), holders can elect two additional trustees.
Use of Proceeds To redeem PSA depositary shares representing interests in PSA 7.0% Cumulative Preferred Shares, Series N at $25.00 per share, for a total redemption price of approximately $172.5 million,

Public Storage is one of the most efficient REIT preferred issuers as preferred stock makes up the majority of their capital structure. So far this year, they have completed the following transactions in the preferred market:

  • In March 2012, PSA issued 18,500,000 depositary shares representing interests in 5.750% Cumulative Preferred Shares, Series T, with an aggregate liquidation preference of $462.5 million.
  • On March 19, 2012, they redeemed all of their outstanding 6.85% Cumulative Preferred Shares, Series Y, for a total redemption amount of $8.8 million plus accrued and unpaid dividends.
  • On April 11, 2012, they redeemed all of their outstanding 6.625% Cumulative Preferred Shares, Series M, for a total redemption amount of approximately $476.6 million plus accrued and unpaid dividends.
  • On May 3, 2012, PSA announced they are calling for redemption all of their outstanding 7.0% Cumulative Preferred Shares, Series N. The redemption will occur on July 2, 2012. The aggregate redemption amount to be paid to all holders of the depositary shares, before payment of accrued dividends, is approximately $172.5 million.

The Issuer

Public Storage is a fully integrated, self-administered and self-managed real estate investment trust ("REIT") that acquires, develops, owns and operates self-storage facilities which offer self-storage spaces for lease for personal and business use. The company is the largest global owner and operator of self-storage facilities with equity interests (through direct ownership, as well as joint venture and general and limited partnership interests), as of March 31, 2012, in 2,064 storage facilities located in 38 states in the United States and 189 storage facilities located in seven countries in Europe operated under the "Shurgard" brand. Public Storage also has a significant ownership in PS Business Parks, Inc., a REIT that, as of March 31, 2012, had an equity interest in 27.2 million net rentable square feet of commercial space, primarily flex, multi-tenant office and industrial space, located in eight states.

Outstanding Preferred Stock

The following table lists all of Public Storage's preferred stock. You will notice that after the redemption of the Series N, they no longer have any preferred with a rate of 7% or better.

The preferred stock highlighted in blue are issues that have call protection remaining and were used to determine the relative attractiveness of the new issue.

Having a coupon of 5.625%, the new Series U - in my opinion - was priced aggressively with very little new issue concession. As well, given this rate I can't see a long future for the PSA-C as the company could save nearly 100 basis points by refinancing the Series C preferred. Again, as the preferred make up the majority of the capital structure, the REIT is very efficient at reducing their cost of capital.

Bottom Line: While I like Public Storage, and they are the giant in their space, the rate on this preferred stock is just too tight for my taste. Great company, fully valued. For those looking to gain preferred exposure to the self-storage space, it might be worthwhile looking at Cubesmart (NYSE:CUBE) 7.75% Series A (trading at $25.67 - and fully loaded with accrued) which currently yields 7.55%. If self storage is not a must, perhaps Pennsylvania REIT (NYSE:PEI) Series A (I wrote about it here) which trades at $25.30 and yields 8.15% or Monmouth REIT (NYSE:MNR) 7.875% Series B (I wrote about it here). There are better yielding options available within the REIT sector which are more attractively priced.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.