Consider Storing Your Money in This REIT’s Preferreds

 

public-storageIn recent years, income-focused investors have been turning to REITs in search of decent yields. Within the REIT universe, there is plenty of attention given to the common shares of equity- and mortgage-REITs, and not enough attention given to the preferred shares. In this article, I would like to introduce you to the preferred shares of Public Storage, the world’s largest owner and operator of self-storage facilities. But first, here’s a bit of background information on Public Storage.

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According to its most recent earnings release, as of June 30, 2013, Public Storage had interests in 2,081 self-storage facilities in 38 U.S. states and 188 storage facilities in seven Western European countries. Total net rentable square feet was 133 million in the United States and 10 million in Europe. Public Storage also has, as of June 30, 2013, a 41% equity interest in PS Business Parks, Inc., an owner- operator of 28.2 million rentable square feet of commercial space.

During the first six months of 2013, Public Storage’s U.S. same store facilities (1,949 facilities) results showed a 3.45% year-over-year increase in realized annual rental income per occupied square foot, from $13.35 to $13.81. Moreover, the weighted average square foot occupancy was 94.9% for the six months ending June 30. This compares to 93.1% for the first six months of 2012. In addition to higher realized rents and higher occupancy rates, Public Storage lowered its total cost of operations by 2.2% year-over-year during the first half of 2013. Not surprisingly, all this translated into an 8.9% year-over-year increase in net operating income (NOI). Funds from operation (FFO) and Core FFO also increased a whopping 24.5% and 12.7% respectively, year-over-year. In Europe, the story was a bit different with NOI down 3.9%, square foot occupancy down 3.8%, and realized annual rents per occupied square foot up just 1.4% (from $26.03 to $26.40) year-over-year for the six months ending June 30, 2013. Public Storage’s European facilities are operated under the name Shurgard.

In terms of the company’s preferred stocks, there are currently 10 Series available for purchase. They are each cumulative perpetual preferreds. This means there is no stated maturity date, and, if the company fails to pay a dividend at any time on the preferred shares, no dividends may be paid and no share repurchases may occur on the common shares until preferred shareholders have received all dividends owed to them (from all prior distribution periods). The table below highlights the 10 Series of Public Storage preferreds.

 

Security

*Symbol

Coupon

Annual Dividend

**Callable On or After

Call Price

Public Storage Preferred – Series O

PSA-O

6.875%

$1.71875

4/15/2015

$25.00

Public Storage Preferred – Series P

PSA-P

6.500%

$1.62500

10/7/2015

$25.00

Public Storage Preferred – Series Q

PSA-Q

6.500%

$1.62500

4/14/2016

$25.00

Public Storage Preferred – Series R

PSA-R

6.350%

$1.58750

7/26/2016

$25.00

Public Storage Preferred – Series S

PSA-S

5.900%

$1.47500

1/12/2017

$25.00

Public Storage Preferred – Series T

PSA-T

5.750%

$1.43750

3/13/2017

$25.00

Public Storage Preferred – Series U

PSA-U

5.625%

$1.40625

6/15/2017

$25.00

Public Storage Preferred – Series V

PSA-V

5.375%

$1.34375

9/20/2017

$25.00

Public Storage Preferred – Series W

PSA-W

5.200%

$1.30000

1/16/2018

$25.00

Public Storage Preferred – Series X

PSA-X

5.200%

$1.30000

3/13/2018

$25.00

*Symbol varies depending on broker.  Using W Series as an example, may be PSA prW, PSA/PW, PSA-PW, etc.

**Can be called earlier only in order for the company to preserve its status as a REIT

At this time, all 10 Series are currently yielding over 6%. The table below outlines the current yields of each of the Public Storage preferreds.

Security

*Current Yield

Public Storage Preferred – Series O

6.690%

Public Storage Preferred – Series P

6.438%

Public Storage Preferred – Series Q

6.469%

Public Storage Preferred – Series R

6.358%

Public Storage Preferred – Series S

6.250%

Public Storage Preferred – Series T

6.245%

Public Storage Preferred – Series U

6.236%

Public Storage Preferred – Series V

6.158%

Public Storage Preferred – Series W

6.185%

Public Storage Preferred – Series X

6.164%

*As of August 9, 2013

Public Storage’s common stock yields just 3.065% and is by no means cheap from an FFO perspective. And if you are a retail investor, good luck finding Public Storage debt available for purchase. That leaves the preferred shares, all yielding over 6% and a bit higher up the capital structure than the currently en vogue common stock. If you decide the preferred stock is an appropriate investment for your portfolio, please remember to consult the prospectuses for additional important details not included in this article. Also, if you are struggling with the decision of which Series of preferred stock to choose, remember that Public Storage has more of an incentive to call the higher coupon securities when they become callable. This is especially true if the company will be able to issue future preferreds at lower coupons than those that are then outstanding.

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