Key Takeaways: Last night PSA announced that it would redeem the $200 million of outstanding 5.125% Series C preferred stock. Recall that a portion of our long thesis was gradual capital structure optimization, namely a reduction of outstanding higher-cost preferreds as they come callable over the next two years. This move appears consistent with that thesis, and was also most likely a point advocated for by Elliott Management as part of their activist campaign. Another $675 million comes callable over the balance of 2021 (Series D & E), followed by $580 million in 2022 (Series F & G), all with coupons averaging to roughly ~5.00%.
Based on our model we calculate that PSA should be able to cover this redemption with available cash on hand. PSA issued $2.0 billion of unsecured senior notes in mid-April in three floating and fixed-rate tranches (blending to a ~2.0% average cost), with $1.85 billion to fund the recent $1.8 billion acquisition of ezStorage + transaction costs and $150 million of additional cash funding to the balance sheet. With $160 million of unrestricted cash on the balance sheet as of 1Q21, this preferred redemption should be easily covered without additional capital issuance. Taken together, we view the capital structure move as consistent with this piece of our long thesis, and expect additional preferred redemptions in the months to come.
Figure 1: PSA Preferred Callable Through 2022
