Public Storage Reports Stellar Earnings

As we note items that may be of interest to preferred or baby bond holders we like to post  a ‘heads up ‘ note.

Giant storage REIT Public Storage (NYSE:PSA) has announced stellar earnings. Of course we make a mention of this because of the plethora of preferred stock issues they have outstanding. While we own none of their preferred shares at this time we would love to own some if we could get a current yield somewhere north of 6%–currently almost all of the PSA preferreds have current yields around 5.6 to 5.7%.

You can check out all of the outstanding issues on the Preferred Stock of REITs page here.

Just a quick look at the PSA financials.  The company reported net income of $322 million for the 3rd quarter compared to $279 million in the year ago quarter.  For the 1st 9 months of the year net income was $959 million!!!!  You’ve got to love financials like these.  FFO for the nine month period was $1.39 billion  As great as the financials are for PSA we have never owned the common shares, but we have owned the preferred shares many times–but now are awaiting higher interest rates and higher current yields.

For those interested in the financials for the company they can be found here.

13 thoughts on “Public Storage Reports Stellar Earnings”

  1. Tim — Annaly (NLY) and TWO Harbors (TWO) are now both with a 12% + yield. Can I have your thoughts on these REITS.

  2. Tim, while I love Public Storage, I have been out of the preferreds for the past few years due to the low coupon rate. However, I recently started a small position in my IRA account with the PSA-Z shares. They yield about 5.89% right now. I got in a few weeks ago when the price was closer to $25, but an article in Barron’s about preferred stocks (they mentioned this class of shares) has caused them to move up about .25 cents per share. Considering they are callable in June 2019, I may not pay the current price but would continue to accumulate on price dips. You just have to love the credit quality of the company and no worry about tax consequences if they are held inside a retirement account.

    1. I did exactly the same kaptain lou but with PSA-Y that has a coupon of 6.375%. and calls 3 months earlier. I tried to get at the bottom price but settled for an average price of $25.26. I have calculated the risk of being called as follows: assume 100 shares at $25.26. That’s 2,526. 2 dividend periods is $0.796 cents. At call they are worth $2,500 + 79.60 dividend = $2579.6 That’s a next gain of $53.6 for 6 months. Annualized at $107.2 on an investment of $2526 or 4.25% on an annual basis with a capital gains loss. If called, not great at all. Clearly, I am not counting on being called. The good news for PSA-Z at 6% being called 3 months later is I would think if any PSA issue will be called it will be PSA-Y. They may do both together or in a rising rate environment, they may do PSA-Y very quickly if more rate hikes are in the offering. Time will tell.

      By the way, I did something similar with the Kemper Insurance dip. That’s a notch below investment grade paying 7.375% coupon. It calls in 4 months, but before 11-8 you get 6 months interest. Using the same formula as above, my yield if called is 4%. Time will tell, if either PSA or Kemper is called. Since Kemper is a baby bond with a long duration it may have less risk of call. I am not sure but time will tell.

      Good luck investing.

      1. Steve, I have a few of the Y shares as well and think either issue is fine especially as the Y shares traded higher than $26.50 in the past year and the YTC was very, very low.

        I’ve looked at KMPA in the past year, but previously the price was just too high. It’s come down to a reasonable level now. However, I think they pay interest on a quarterly basis and they should pay .4609 per share 11/8, according to TD Ameritrade. Most of the baby bonds pay on a quarterly basis, but some of the third-party trust preferreds pay semi-annually.

        1. Yes thanks, what I meant on the 6 month dividends for KMPA was you get a ex-dividend payment on 11-8 and a ex-dividend payment on 2-8 (2 payments for a total of 6 months dividends) before the call date of 2-27-2019. So for holding for 4 months, you get the 6 months of payments.

          Once 11-8 occurs, you probably risk losing money if you invest and its called on 2-27-2019 (depending on where it trades on 11-8)

          1. Thanks for the reply SteveA. I like issues that are one step below investment grade because there is normally some good value there. I’ve held some U.S. Cellular notes for quite some time, one step below investment grade, and they have performed very well for me. But overall, KMPA looks like a good play with limited downside potential.

    2. RE: PSA, the company is consistent in its call policy. If they can reissue at or below the coupon, the issue gets called as soon as it becomes callable. Else they leave it. The past call issues are at 5.2-5.75%. If PSA were to come with a new issue it would be at 6% +/- based on last issue and change in the 10-year since.

      If rates remain the same I would give the Z 50-50 on a call and say that the Y is gone. Both are reasonable bets if stripped price is close to par. If it were my money I would go with the Z and be content with the 5.94 stripped yield.

      1. I was on the fence between Z and Y. The reason I went Y was I assumed that we will get rate hikes in Dec 2018 and March 2019 (Y is callable 2 days before the March 2019 Fed meeting) based upon the Fed forecast.

        Of course, nothing stops PSA from doing a new issue immediately at +-6% and then using the proceeds to pay down Y in March 2019. Frankly, this is what I would do before Dec 2018 if I were PSA. My logic was I’d still get $25.26 a share if the prospectus was the typical vague language as to use of proceeds giving me the opportunity to switch.

  3. Great web site, appreciate all the work.

    Noticed TNP-F table states cumulative ‘no’ but prospectus and page heading states ‘yes’

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