REIT Finds Capital in Preferred Stock, CMBS Offering
Storage rental real estate investment trust (REIT) Public Storage (PSA) has found success financing its growth with perpetual preferred stock, company executives told group during a panel discussion at the UBS Global Real Estate Conference, held in London this week. The stock mechanism never matures, is fixed rate and insulates the company from bankruptcy risks. If the company were to default on the perpetual preferred stock, there are incentives, including stockholders earning seats on the company’s board of directors that would delay a bankruptcy, the executives said. The REIT has 3.5bn outstanding shares of the perpetual preferred stock with a fixed 6.8% coupon. Dividends are only paid out when its required to maintain REIT status, and those payments are tax deductible for the company. While Public Storage is a market leader in the US, the executives said, its 130m square feet of rental space represents less than 5% of the total rental storage market in the country. In addition to its US operations, Public Storage operates 10m square feet of space in seven western European countries under the Shurgard brand. Other financing has come from commercial mortgage-backed securitization (CMBS) offerings. The company recently raised $400m with a CMBS offering collaterialized by 28 properties worth $775m. Goldman Sachs (GS) originated the deal, which was securitized two weeks ago, the executives said. Executives described the underwriting process as arduous, including US government review for Term Asset-Backed Securities Loan Facility (TALF) eligibility. Most investors balked, however, at using the government-backed funds, as only a “small minority” of buyers participated in the program, the executives said. The executives said they were pleased with the market’s response to the offering, a sign that well-underwritten CMBS is a structure that can work well and is very attractive to investors. Write to Austin Kilgore.