Public Storage Preferreds: Swap To The Class A For Yield Enhancement And Principal Protection

| About: Public Storage (PSA)
This article is now exclusive for PRO subscribers.

Summary

There is a temporary mispricing among Public Storage's investment grade preferred shares on offer.

The newly IPO'd Class A preferred is cheap relative to other Public Storage preferreds.

Swap out from Class U preferred for a ~25bps enhancement in yield or swap out from Class Z for principal protection and enhanced Yield-to-Call.

Public Storage (NYSE:PSA) recently issued a new preferred stock earlier this month on December 2nd, Preferred Stock Class A whose details are below:

Issuer Public Storage Inc.
Issue Series A
Ticker PSA PRA
Issue Size $175,000,000
Ratings A3/BBB+
Rate 5.875%
Tax Treatment Non-QDI
Cumulative Yes
Maturity Perpetual
Call Date 12/2/2019

As these shares have come on to the market they haven't had an opportunity to find their equilibrium yet and trade at a discount to the other preferred issuance from Public Storage offering up a higher yield or enhanced principal protection. The other two best preferreds to compare the Class A shares to is the Class U shares and the Class Z shares.

  Class A Class U Class Z
Price $24.60 $24.60 $25.40
Par $25.00 $25.00 $25.00
Rate 5.875% 5.625% 6.000%
Yield 5.97% 5.72% 5.91%
Gain/(Loss) on Call $0.40 $0.40 ($0.40)

As illustrated above the Class A shares have advantages across the Class U and Class Z shares in the form of higher yield (both) and enhanced principal protection in the event the shares are called (vs. Class Z).

For those considering purchasing the preferred stock of Public Storage, the preferred series Class A should be on the top of the list. For those invested in the Class U or Class Z shares (and the other classes of preferred stock as well), consider swapping out to the Class A shares for a better risk / reward profile.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author is long Public Storage Preferred Class A