Actually, the class E preferreds are callable at any time. The F shares are not callable, as they issued these at 6.63% to call in the 7.375% class D shares.
10 year debt may be the best way to finance the properties. The yields on preferreds have really jumped in the past month or two, while their BBB+ rated debt has not moved much at all.
LOL. He may have been in a drunken stupor today. I do have to admit to like the headlines, as they are all false but do make for some good reading.
Trader, thanks for such a good reply on such a crazy board. There are actually a few decent investors here and we are trading investment ideas. The $1B line of credit is how they make purchases and this company knows how to run the REIT business.
It does make sense to lock in rates at 4.5% for ten years. Personally, I would lock in those rates, as rents will rise over that ten year period. A cap rate of 7% makes sense, and most of the tenants are investment grade. The company will avoid preferreds at the current time, considering they will have to pay 7%.
Thanks for your comments.
Trader, the company normally pays for properties through several options:
1) The company keeps a $1 Billion dollar line of credit. They will pay cash for some of the properties, but will then use the LOC.
2) Depending on market conditions, they may issue more stock to pay for the properties. They have done this in the past when they felt the stock was priced fair.
3) They could issue preferred stock, but would have to pay about 7% on the issuance. Costs to issue preferred stock can be high, sometimes reaching 3% of the issuance price.
4) I'm guessing they will issue 10 year unsecured notes to pay down the balance on the LOC. They are currently rated BBB+, so they will probably pay 4.5% on the notes. If the cap rate is 7%, the company can make some decent money on the spread.
The preferreds of PSA took quit the drop in 08-09, but there was never a risk of default. They are the gold standard in preferreds.
Traded out some of my lower grade preferreds today and pick up more shares of PSB preferreds. PSA owns about 35% of their "baby REIT" but they are also well capitalized.
David, UZA is a 6.95% exchange traded note that was issued by US Cellular. The company is losing some subscribers to their cell phone service, but T and VZ could buy them in the future. Sprint is making a bid for T Mobile, and it may not go through, but I still like US Cellular.
They are trading at about $22.50 and yield close to 8%. Rated BBB- and their debt may get downgraded, but still worth a position in my medium risk portfolio.
Bad news for Donkegen. I'm afraid that he does not have any money to invest at all and has never owned or shorted any kind of stock.
Donk - it is not too late to start investing. Please try mutual funds, they can be decent investments, especially for people that do not have much money to invest.
If you look at the cash flow of PSA, there would never be a chance of default. Market cap of the company is over $20 Billion and cash flow is incredible. While they have a fair amount of preferreds, it is only about $3 Billion. The Hughes family has done of wonderful job of managing the company.
I agree. A preferred portfolio of PSA, PSB, O, and NNN pays over 7%. I have holdings in MNR preferred and like the company, even though it does not have a credit rating.
Buy Buy Buy! It's like taking candy from a baby.
Or maybe even better, taking hay from a donkey!
Sure, it might go down a little. But PSA also issued those shares with a coupon rate of 5.2% so the downside might be limited. I'm taking the 7% to the bank.
While not as strong, PSB also does not have much debt, so the 7.6% yield on their preferred is also fantastic.
The Fed may not have raised rates yet, but the preferred market is already adjusting. Some of these yields are fantastic and I have not seen rates like this in a about five years.
Yes, the interest rate coverage is fantastic as they have next to nothing in debt. Fitch rates the preferreds A-, so they are clearly higher investment grade.
I will be loading up on these preferrreds in 2014. David, I agree with keeping some cash for next year. I'm still holding a lot of preferreds AND collecting about 7.5% on those, but there will be good opportunities also in 2014.
Shares of PSA-U are now yielding 7%. I've always considered PSA to be the "gold standard" in preferred stocks, considering the company basically has no debt.