Public Storage 2013 Annual Report Download - page 58

48
Liquidity and Capital Resources
Financial Strategy: Our financial profile is characterized by a low level of debt-to-total-
capitalization. In general, we seek to finance our investment activities and debt obligations with retained
operating cash flow, and when not sufficient, capital raised through the issuance of preferred and common
securities. When market conditions are not favorable to issue either preferred or common securities, we
will use bank debt as bridge financing.
Unlike most REITs, we have elected to use predominantly preferred securities in our capital
structure as a form of leverage despite the fact that the dividend rates of our preferred securities exceed the
prevailing market interest rates on conventional debt. We have chosen this method of financing for the
following reasons: (i) under the REIT structure, a significant amount of operating cash flow needs to be
distributed to our shareholders, making it difficult, relative to a traditional taxable corporation, to repay
debt with operating cash flow alone, (ii) our perpetual preferred shares have no sinking fund requirement or
maturity date and do not require redemption, all of which eliminate future refinancing risks, (iii) after the
end of a non-call period, we have the option to redeem the preferred shares at any time, which enables us to
refinance higher coupon preferred shares with new preferred shares at lower rates if appropriate, (iv)
preferred shares do not contain covenants, thus allowing us to maintain significant financial flexibility, and
(v) dividends on the preferred shares can be applied to satisfy our REIT distribution requirements.
We have generally been able to raise preferred capital at an attractive cost relative to the issuance
of our common shares, and as a result, our issuances of common shares for cash have been minimal over
the past several years. During the years ended December 31, 2013 and 2012, we issued approximately
$725.0 million and $1.7 billion, respectively, of preferred securities. Currently, market conditions are
much less favorable, with market coupon rates for our most recently issued series of preferred securities
trading at approximately 6.5% (as compared to 5.2% for the preferred securities we issued in the first
quarter of 2013). We believe that market coupon rates for a new issuance of our preferred securities would
need to be in the area of 6.5% and the amount of capital we could raise would most likely be much lower
than what we raised in the first quarter of 2013. The market coupon rate on our preferred securities is
influenced by long-term interest rates.
Due to poor capital market conditions for the issuance of either preferred or common securities,
during the last three months of 2013, we borrowed approximately $750.1 million from banks to bridge
finance our acquisition activities during that timeframe. See discussion on this debt below.
Our credit ratings on each of our series of preferred shares are “A3” by Moody’s, “BBB+” by
Standard & Poor’s and “A” by Fitch Ratings. In recent years, we have been one of the largest and most
frequent issuers of preferred equity in the U.S.
Liquidity and Capital Resource Analysis: We believe that our net cash provided by our operating
activities will continue to be sufficient to enable us to meet our ongoing requirements for operating
expenses, capital improvements and distributions to our shareholders for the foreseeable future.
As of December 31, 2013, our capital commitments for 2014 exceed our expected capital
resources. As of December 31, 2013, our capital resources consist of (i) approximately $250 million of
available borrowing capacity on our revolving line of credit, (ii) $216.2 million of cash proceeds from the
sale of 51% of a loan we have provided to Shurgard Europe which we received in January 2014, and (iii)
$250 million of expected 2014 retained operating cash flow. Retained operating cash flow represents our
expected 2014 cash flow provided by operating activities, after deducting estimated 2014 distributions to
our common and preferred shareholders, and estimated 2014 capital expenditure requirements.
At December 31, 2013, we had estimated 2014 capital commitments of $726.2 million of debt
maturities, and approximately $145 million of remaining spend on our development pipeline. In addition,
we expect that our capital commitments will continue to grow during 2014 as we continue to seek
additional development and acquisition opportunities.