Public Storage 2014 Annual Report Download - page 23

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potential increased demand through the development of new facilities or, to a lesser extent, acquiring
existing facilities.
Financing of the Company’s Growth Strategies
Overview of financing strategy: As a REIT, we generally distribute 100% of our taxable income
to our shareholders, which relative to a taxable C corporation, limits the amount of cash flow from
operations that we can retain for investments. As a result, in order to grow our asset base, access to capital
is important. Historically we have primarily financed our investment activities with retained operating cash
flow and net proceeds from the issuance of preferred and common securities. Occasionally we use short-
term bank debt as bridge financing when capital market conditions are not favorable to issue either
preferred or common securities. We are evaluating raising additional capital through the issuance of
medium or long-term debt instruments, and may do so over the next twelve months.
Permanent capital: We have generally been able to raise capital through the issuance of preferred
securities at an attractive cost of capital relative to the issuance of our common shares and, as a result,
issuances of common shares have been minimal over the past several years. However, rates and market
conditions for the issuance of preferred securities can be volatile or inefficient from time to time, and the
market coupon rate of our preferred securities is influenced by long-term interest rates. During the early
part of 2013, we issued preferred securities with coupon rates of 5.2%, but later in 2013, rates increased
and market conditions for the issuance of common and preferred capital worsened. As a result, in
December 2013 we borrowed $750.1 million from banks to bridge finance our acquisition activities during
that timeframe. Subsequently, preferred share coupon rates and market conditions steadily improved, and
by September 2014, we repaid our bridge financing, in part, from the issuance of preferred securities.
During 2014, we issued an aggregate of $762.5 million in preferred securities, with an average coupon rate
of 6.11%. Notwithstanding the recent market turbulence, we continue to view preferred capital as an
important source of capital over the long-term.
Bridge financing: We have in the past used our $300 million revolving line of credit as
temporary “bridge” financing and repaid such borrowings with permanent capital. At December 31, 2013,
we had approximately $50.1 million outstanding on our line of credit and $700 million due to Wells Fargo
pursuant to a term loan which was used to fund our acquisitions of self-storage facilities in the fourth
quarter of 2013. We repaid the $750.1 million of bridge financing by September 30, 2014, in part, through
the issuance of preferred securities. See Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources” for more information.
Borrowing through mortgage loans or senior debt: Even though preferred securities have a
higher coupon rate than long-term debt, we have generally not issued conventional debt due to refinancing
risk associated with debt and other benefits of preferred securities described in more detail in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources.” We have broad powers to borrow in furtherance of our objectives without a vote of
our shareholders. These powers are subject to a limitation on unsecured borrowings in our Bylaws
described in “Limitations on Debt” below. Our senior debt has an “A” credit rating by Standard and
Poor’s. We believe this high rating, combined with our low level of debt, could allow us to issue a
significant amount of unsecured debt at lower interest rates than the coupon rates on preferred securities if
we chose to. Given the current low interest rate environment combined with having minimal debt
outstanding at December 31, 2014, we may seek to raise capital through the issuance of a modest amount
of medium to long-term debt.
Assumption of Debt: Substantially all of our mortgage debt outstanding was assumed in
connection with real estate acquisitions. When we have assumed debt in the past, we did so because the
nature of the loan terms did not allow prepayment, or a prepayment penalty made it economically
disadvantageous to prepay.
Issuance of securities in exchange for property: We have issued both our common and preferred
securities in exchange for real estate and other investments in the past. Future issuances will be dependent