Public Storage Coming for Cheap Preferred Money

Giant storage REIT Public Storage (PSA) has announced they will be doing a new cumulative preferred stock offering.

Being a high investment grade rated REIT we all know this will be a low coupon–‘Dave in Texas’ is guessing 4.50%. PSA last came to the market on 6/8/2020 with a 4.625% issue and it is trading in the stratosphere at $26.94. This very high price may indicated an even lower coupon than Dave guesses.

The company did not announce a specific redemption of preferred shares with proceeds, but a potential redemption is mentioned in the ‘use of proceeds’ section.

It looks like the PSA-X and PSA-W issues which are both 5.20% coupons are top candidates for redemption.

The long list of PSA prefereds can be found here.

The preliminary prospectus for the new issue can be read here.

mcg was on this early with Dave in Texas chiming in.

34 thoughts on “Public Storage Coming for Cheap Preferred Money”

    1. Thanks Jerry—craziness–but crazy to have the last issue with 4.625% coupon trading at 27ish.

      1. Yeah, I remember people scoffing at that recent 4.625% PSA issue when I and a couple others bought it. PSA preferreds have a solid history of strong performance. This new issue rate just shows the demand that is out there

  1. Should PSA call the W and/or X issues, they usually provide a 30 day notice.

    Even if a call was announced tomorrow, we would still receive almost 27 cents accrued interest based on my back-of-the-envelope math.

    I own PSA-W, bought right around par a while back, and will hold until redemption, not selling.

    1. PSA has been very predictable.
      once it prices, the size of the offering will tell you.
      I’ll predict they will be selling 650 million worth and if do, both preferreds are being called and the call announcement will likely be at the close of business the following day.
      so my prediction.
      They announce on Thursday evening after the market closes that they are calling both for redemption on September 14th, 2020.

      1. Justin, If your prediction comes about, and redemption date is 9/14, which is XD date, would we receive par plus a full dividend, or just a partial dividend?

        The pay date is 9/30, so a partial dividend would be about 2.5 months. In PSA-W’s case, about 27 cents.

        1. Ha. I missed that.
          so they do it on the 15th, and pay a full dividend on 9/15.
          so I update my prediction to 9/15 from 9/14.

          1. Justin – If they call on the 15th, they don’t pay a full coupon if pay date = 30th.. Though I think I’ve seen one exeption only, accruals are from payment date to payment date, not x-div to x-div date.

            1. 2WR, so assuming one or both series is redeemed on 9/15, we would then expect accrued interest of about 27 cents.

              That is the most likely outcome, so I will be anticipating the amount above, unless otherwise announced.

              1. Right, Inspy – It’s always difficult imho to be 100% accurate because there’s an assumption of a 360 day year in calculations and who knows how you’re supposed to know whether or not one of those 5 days should be excluded in your day count, but with PSA-W paying 1.30/annum, using 360 days, that means it pays .00361/day. There would be exactly 77 days between 6/30 and 9/15 so the maximum to be paid would be .27805 if all days count, however, it’s safer to drop one of those 77 days and assume you’d probably get .274. Want to be safer still? Drop 2 days and you’re still right on your number – .27075.

                1. Yes, I was mistaken.
                  It have to redeem on the payable date for the amount of the dividend and the par, so they announce tonight that series X will be redeemed on 9/30 for 25.325 a share. They announced the dividend was payable on 8/5.

                  1. Weird that they haven’t announced the redemption yet. Every other time, they did it the next day, but then again those were mid-period calls. Well, they have two weeks to announce it and still make the 30 day window.

                    1. I am also waiting for the announcement, hoping they call the X and not the W series.

                      If anyone comes across it whenever, please post it here.

                    2. They are call notice preferred assassins. Friend of the common stock holder and enemies to preferred holders. Just on principal that they are not willIng to toss any preferred holder a nickel extra, I refuse on principal alone to ever invest in PSA issuances.

                    3. They have not updated the prospectus. Still shows 8 mil shares. They could only call the X series. The W series is 18 mil shares, and they would need to do their biggest issue to date to redeem both. The PSA-L was 20 mil and they would need to issue a massive 30 mil shares (Their typical is 8-12).

                    4. Well, with that yield pricing, there is definitely a market for a 20-30 million share issuance if even at a slightly higher rate than the 4 1/8th they got and could have called both and saved buku bucks in preferred dividends for the next few years.
                      I’ll bet the Series X call announcement is after the close of business tonight, based on this line from the press release.
                      “The offering is expected to result in $200 million of gross proceeds (assuming no exercise of the underwriters’ overallotment option) and to close on or about August 14, 2020,”

        1. With 10M shares ( $250M proceeds ), that would not be enough to redeem both PSA-W ( 450M ) and PSA-X ( 200M ).

          I wonder if they will take out one only. Hopefully they will retire PSA-X first, and leave the other for a later date.

  2. Hi Tim,
    Do you have any info on STT.PRD ?
    You are doing a wonderful work, keep up the good job!
    Thank you !
    Stay safe and healthy
    God bless

    1. What is there to know. At 27.50 it’s a 3.2 ytc in 2024 with a float to three month libor +311. In other words its doing far better then most pfds w similar terms ratings etc. Fixed to libor floats not doing as well as hoped.

      Are you looking at buy, sell, or hold??

      1. If u ..Than you ! I am still holding it..2024 is still far a way..Redeemable? NO.
        What that means?
        Stay safe and healthy
        God bless

        1. What callable means is they can redeem at 25 plus accrued interest in that date. One major issue is libor is effectively zero now so if it floated today the eate would be 3.1…..

          And libor may vanish between now and then. So what does prospectus say? If things are terrible then who knows what STT would do.

          If it hts a 2.6 ytc you should strongly consider bailing out

        2. To clarify its redeemable at state streets request. You have no say. Except to vote with your wallet and stay…. or sell now at a premium.

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