Fitch Sees No Change to Public Storage's Long-Term Financial Strategy

Fri Dec 20, 2013 1:01pm EST

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(The following statement was released by the rating agency) NEW YORK, December 20 (Fitch) Fitch Ratings does not expect Public Storage's (PSA) issuance of a $700 million, one-year unsecured term loan to impact its credit ratings. The financing is more a consequence of the dislocation in the preferred equity market, rather than indicative of a change in the company's long-term financial policy. Fitch bases its one-notch differential (rather than the two-notch standard) between PSA's 'A+' Issuer Default Rating (IDR) and the 'A' preferred stock rating on the company's maintenance of low levels of long-term unsecured debt in its capital stack. The company has used its unsecured revolving credit facility sparingly and has only utilized long-term unsecured debt via bonds assumed through the Shurgard acquisition. Preferred stock and internally-generated retained cash flow remain the company's primary funding sources. Since the unsecured term loan is not a long-term obligation, the one-notch differential between PSA's IDR and preferred stock rating remains appropriate. PSA management has previously stated it was reviewing a variety of capital sources to fund planned acquisitions, including common equity and debt. The short tenor suggests that PSA is viewing the term loan as low cost de-facto bridge financing for its recent and planned acquisitions. It allows the company time to see whether the dislocation in the preferred equity market post Fed tapering comments resolves itself. The issuance of longer term unsecured debt to refinance the term loan, should issuing preferred equity remain cost prohibitive, could result in Fitch re-examining the notching of PSA's preferred stock. Fitch views the marked increase in acquisition opportunities as a credit positive that should accelerate the growth in PSA's operating cash flow. The company spent $716 million on acquisitions YTD through October 2013 and had a backlog of $430 million of purchases it expected to close in December. This compares with $226 million and $80 million of acquisitions from third parties during 2012 and 2011, respectively. Fitch currently rates PSA as follows: --Issuer Default Rating (IDR) 'A+'; --$300 million unsecured revolving line of credit 'A+'; --$3.4 billion preferred stock 'A'. The Rating Outlook is Stable. Contact: Primary Analyst Stephen Boyd, CFA Director +1-212-908-9153 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Sean Pattap Senior Director +1-212-908-0642 Committee Chairperson James Rizzo Managing Director +1-212-908-0548 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Recovery Rating and Notching Criteria for Equity REITs,' Nov. 19, 2013; --'Corporate Rating Methodology,' Aug. 5, 2013; --'Parent and Subsidiary Rating Linkage,' Aug. 5, 2013; --'Criteria for Rating U.S. Equity REITs and REOCs,' Feb. 26, 2013; --'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis, Dec. 13, 2012. Applicable Criteria and Related Research: Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis here Criteria for Rating U.S. Equity REITs and REOCs here Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Recovery Rating and Notching Criteria for Equity REITs – Effective May 12, 2011 to May 3, 2012 here Parent and Subsidiary Rating Linkage here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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