Last night Best Idea Long PSA priced a EUR 700 million bond issue (~$840 million USD at current FX rates), increasing the investment capacity on the balance sheet to go out and acquire storage facilities as well as fund the remaining ~$411 million of its $661 million development pipeline. We took up our acquisitions assumption for FY21 by $200 million to $3.3 billion (versus the company's guidance for $3.1 billion), and we are now +3.5% above the Street on FY22 Core FFO approaching $14/share. PSA now has ~$10 billion of unsecured debt and preferred equity outstanding including its share of PSB, or roughly ~4x net debt + preferred on annual run rate basis adjusting for ultimate NOI contribution from facilities under development. Roughly 60% of the leverage stack is now unsecured debt which we have argued is the right move and much more efficient from a capital structure perspective, and the company has room to take up leverage by another 1-1.5x turns should another large opportunity present itself. PSA and other Best Idea Long CUBE have the two best balance sheets in the sector.
For anyone outside of the "REIT Mafia," one of the more interesting and unique aspects of PSA is that it owns a 35% direct equity interest (~$1.6 billion) in Shurgard Self-Storage SA (Euronext: SHUR), which allows PSA to tap the European debt markets at much lower rates with the cash flows/equity of SHUR effectively acting as "collateral." This is similar to how PLD uses its Strategic Capital platform, which focuses on investment outside of the U.S., to access a much lower cost of debt and improve the overall cost of capital, just at a smaller scale for PSA. PSA now has about ~$1.8 billion of EUR denominated debt outstanding at weighted average cost of 95bps, versus a weighted average cost of ~4.6% for the $3.6 billion of remaining preferred and a ~4% marginal cost of preferred. This is a unique long-term strategic advantage to PSA for the purpose of funding external growth and optimizing the capital structure.
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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