PSA stock down significantly recently. I have not done all the work on the company to figure out why they dropped so far so fast. Always liked PSA for their market dominance, good management and low debt. The one thing that is different about PSA today is the nearly $7 billion in debt in notes. In the past the bulk of their borrowing was in preferreds not notes. This is a big change. Are they overleveraged at present? Still working it out. However, took some time to look at all the preferred issues and was shocked to see the big discounts in so many of the offerings.
PSA has always paid the interest and usually calls the shares close to maturity. I am always sorry to see them called away. Maybe now is an opportunity to get back in. Needs more work.
ticker rate call date Price 5/9/22 YTM %
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PSA N 3.875 10/06/25 $17.48 14.94
PSA O 3.9 11/17/25 $17.27 14.99
PSA Q 3.95 08/17/26 $17.46 12.96
PSA P 4 06/16/26 $17.61 13.15
PSA L 4.625 06/17/25 $20.45 11.53
PSA K 4.75 12/20/24 $21.70 10.49
PSA G 5.05 08/09/22 $22.81 42.04
PSA F 5.15 06/02/22 $23.33 NA
PSA H 5.6 03/11/24 $25.03 5.53
PSA R 4 11/18/26 $17.53 12.46
PSA S 4.1 01/13/27 $17.97 11.76
PSA M 4.125 08/14/25 $18.42 14.03
PSA S 4.7 11/15/24 $20.92 12.17
PSA I 4.875 09/12/24 22.015 10.60
I cannot imagine them calling issues unless the interest rate for new issues is substantially the same or lower. If you hold these preferreds,I would look at the prospectus carefully to see if they have a maturity date. They may never redeem if they are perpetual preferreds.
If you are buying, you are settling in for yield. Yield to maturity is not relevant here. One thing I like is the preferredâs are cumulative. I need to read on the change of control language.
If you are okay with the yield, buy it. Some day, if you get lucky you can get some capital appreciation, but that is not the maturity date.
PSA has always paid the interest and usually calls the shares shortly after the call date.
Fixed that for you. (PSA preferreds are all perpetual, and have no âmaturityâ date.) I would point out that when they were calling the preferreds, it was because they were able to issue preferreds at lower rates. They even say that they are redeeming other preferreds in their press releases like this one https://investors.publicstorage.com/news-events/press-releas⌠on their most recent preferred issuance, Series S priced at 4.1%
The Company expects to use the net proceeds for general corporate purposes, including to fund acquisitions of self-storage facilities and redemptions of our preferred shares.
With interest rates increasing I would not expect that trend to continue. Based on the prices you provided in your post, the current market seems to be pricing PSA preferreds with an average of a 5.6% yield. The two preferreds that are callable in 2022 have coupons of 5.15% (PSA-F - 10MM shares) and 5.05% (PSA-G - 12MM shares).
PSA-S may have been issued in order to call PSA-F, since both were issues of 10MM shares, so thereâs a reasonable chance that PSA-F will be called. PSA-G may also be called, but it likely wonât be because they are issuing new preferreds to do so. If they do call PSA-G, itâs more likely that they will be calling PSA-G by using $300MM of the $2.7B cash proceeds they will be receiving from Blackstone for PSB, since they have only committed to distributing the $2.3B tax gain to their shareholders, leaving them $400MM to use for other purposes, possibly including calling PSA-G.
As far as remaining preferreds being called starting in 2024 - I would only expect that to occur if the market rate for PSA preferreds drops below the coupon rate on that particular preferred.
The one thing that is different about PSA today is the nearly $7 billion in debt in notes. In the past the bulk of their borrowing was in preferreds not notes. This is a big change. Are they overleveraged at present? Still working it out.
Yes, it will be interesting to see how they plan to pay off the notes when they come due.
I believe the PSA preferred distributions are safe, I also believe that it will be many years before PSA will be redeeming any of them (OK, maybe the H series). Most of the others are issued at under 5% and many are under 4.25%.
As for buying PSA preferreds versus some other similar investment, I think there are better bargains out there.
Not REITs, but purchased SOJD, FITBO, JPM-J and KEY-J recently. All yield around 6%. The financial ones are ânon-cumulativeâ, but similar preferreds had their dividends paid even during the financial crisis back in 2008-2009.
John
5% in preferreds now versus 2% on 12/31/2021.
PSA sop is to issue perpetual never even thought to mention itâshould have.
Look at the link and see the trend in coupons. Rates have decreased and the entire current crop of issues are all below 6 and that is unusually low for PSA historically speaking. The big yawn from the market and price below face value reflect the lack of enthusiasm from historically low coupon rates.
However, PSA redeems issues at or very near the call dates 80% of the time. The low coupon rates may keep these from redemption in which case, the holder would be in it for the current yield and YTM would be meaningless. Hard to predict what may happen. As long as interest rates remain low, preferred coupons will be low and these are unlikely to be redeemed at the first option to redeem. In that case, if we are convinced PSA will not default, it I akin to holding for interest only. In the past few years, it has been hard to get a 5% return on just about any investment for income. It is the only reason to consider them as someone pointed out.
As interest rates were near zero over the past couple of years, no surprise they broke with heavy reliance on preferred and went for notes. Still in the process of looking at what they paid and what years were the heaviest for borrowing.
Please consider if rates on solid new issue preferred goes to 8%,what the value of the current perpetual issues will be.$ 18.00 can certainly go to $12.00.
However, PSA redeems issues at or very near the call dates 80% of the time.
Not just PSA, many issuers redeemed because they can issue lower coupon preferredâs. Now what are the chances of PSA issuing new preferred that is going to have coupon lower than what they have already? Very little to none at this time. What incentive they have to redeem the preferreds?
Preferreds are not bonds they donât mature and they donât need to be redeemed. Even the cummulative means they donât have to pay the dividend on time, they can let it accrue forever. Then turnaround and take the company private. If you donât have clauses protecting âchange of controlâ or like âpreferred need to be paid before commonâ etc, you are basically trusting the issuer is going to take care of.
Equity holders have voting right and upside, bond holders expect to be paid otherwise they can force the company into liquidation. Preferred holders donât have voting rights, donât have upside like equity or control. Preferreds have absolutely no right. Preferreds are the worst investment.
If I were in SEC, I will ban them or add real protection.
The reason behind the strong post is so that people understand the risk. Most people who are looking for income are buying a product without understanding all the inherent risks.
As interest rates were near zero over the past couple of years, no surprise they broke with heavy reliance on preferred and went for notes.
Except that they donât ever have to call perpetual preferred shares, so they never have to pay them back. They have to pay back the notes when due. That said, per their 2021 10-K https://s1.q4cdn.com/588671402/files/doc_financials/2021/ar/⌠the year end outstanding preferreds are:
2018 $4.025B
2019 $4.065B
2020 $3.793B
2021 $4.100B
Based on those numbers, they certainly havenât reduced their reliance on preferred share borrowing from a total debt perspective - just as a percentage of their greatly increased overall borrowing.
Still in the process of looking at what they paid and what years were the heaviest for borrowing.
When/what they borrowed and when notes are due is all spelled out in the notes section of the 2021 10-K, starting on page F-18. 2028 looks especially scary for notes coming due at nearly $1.2B