Disclaimers: https://www.transactionaldelights.com/disclaimers

• Initial observations on Public Storage (NYSE: PSA): Hughes Family has ~14% ownership; State Street, Vanguard, Black Rock have ~26%; Governing docs have a 3% ownership limit (w/ certain exemptions); Preferred gains voting rights if distribution default; Maryland REIT; 6 trustees is a minority slate.

• Elliott's letter is here. What’s the thesis? PSA is underlevered and overly focused on its investment-grade credit rating[1]. Could be a real fight, despite Hughes Family, if trustees[2] properly nominated and Elliott has notified its intent to cumulate its votes.

• How does cumulative voting work? Per the governing docs, if there is a proper nomination pursuant to PSA rules (and maybe we’ll see some games here), then in a proxy fight all shareholders will have the ability to cumulate their votes for nominees. Accordingly, instead of one vote per share for a nominee, a shareholder can give one nominee a number of votes equal to the number of trustees to be elected multiplied by the number of shares the shareholder has. So, in this case there are currently 13 trustees. If Elliott has 653,500 shares, they can allocate 8,495,500 votes towards one trustee and 0 votes to the other 12, thereby increasing the likelihood that they get at least one trustee on. (See below regarding a shell game).    

• But, Elliott's ownership is tiny right now with a majority of their holdings in swaps that are physically settled. They could increase voting power if they settle those swaps; however, still pretty small stakes.

• At Elliott’s current share ownership, they might try to flip some of the Big 3 if they want to do some damage with cumulative vote. However, looking at top 25 shareholders, there are some interesting names that could turn this into a shell game for defense, when paired with a strategic cumulative vote since Elliott's not going for majority.

• Uncertainty usually means a settlement, but with family ownership, and Hughes presence on Board of Trustees, there could be some emotion that takes us further along than normal. Last big family dynamic proxy fight we saw was Third Point at CPB, but this is a little different.

• Elliott had to nominate its nominees to preserve its cumulative voting and optionality going forward. However, that fact did not have to be made public. The publicity of the nomination is an obvious sign that there’s some resistance towards adding Elliott names to Board. How much is what we will find out.

[1] “In order to take market share the way they did, Public Storage's peers raised and deployed significant amounts of capital while PSA held back, with low leverage yielding lower equity returns.” PSA is also much larger than its self-storage peers.

[2] Trustee/Director same thing functionally.