Key Takeaways: Last night Best Idea Long PSA announced it had priced a $525 million offering of new 4.0% Series P Preferred shares. The stated use of funds is the redemption of the already-called $200 million of 5.125% Series C preferreds, however gross proceeds are a 1-for-1 match with the the Series C + $325 million of 4.95% Series D which comes callable on 7/20. Essentially PSA is executing its traditional swap of preferreds at lower rates.
A couple of thoughts - while we have obviously liked the stock on the long side, we have at the same time been very critical of the over $3.8 billion of higher cost preferred stock in the cap stack in lieu of lower cost unsecured debt. To be fair in this case, the company will be saving ~100bps on rate for perpetual capital in an environment where rates on unsecured debt have backed up somewhat since the beginning of 2021. We would still like to see preferred swapped out for unsecured debt over time and under the right conditions (lower rates), especially with just under $1.0 billion of additional preferred coming callable over the next ~12 months, but in this case we have to be fair and say this was a pretty good trade. Total unsecured debt now stands at $5 billion at a sub-2% rate when-issued, up from $2 billion a year ago and under $1 billion in 2017 for a $50-60 billion total market cap REIT. PSA has the best balance sheet and largest scale in the sector, so higher but prudent overall leverage (which management has targeted) and a smaller % of preferred in the stack are appropriate over time.
Separately, CPT and MAA provided investor update decks last night ahead of NAREIT beginning today - no changes to their 2021 outlooks. PSA presents at 3:45pm ET today and we will be tuned in.
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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