• Public Storage Goes on Buying Spree as At-Home Workers Use Self-Storage Units to Declutter

    Public Storage has made more than $5 billion in self-storage property acquisitions during 2021. (CoStar)
    Public Storage has made more than $5 billion in self-storage property acquisitions during 2021. (CoStar)

    By Lou Hirsh
    CoStar News

     
    Public Storage, already among the nation’s largest owner-developers of self-storage units, is spending $2.3 billion to buy more than 100 facilities across 16 states as
    America's remote workforce declutters to add space while working at home.

     
    The Glendale, California-based company is capitalizing on shifts home office life that accelerated in the pandemic and it expects to linger in coming years.

    CEO Joseph Russell told analysts that the past year has added a fifth item to the “four D” list of life events — divorce, death, dislocation and disasters — that traditionally trigger a need for self-storage units.

    “For the last several quarters, a fifth ‘D’ has emerged — decluttering,” Russell said during the company’s third-quarter earnings call. “Customers [are] needing more space at home due to the shifts in working and living environments across all markets.”

    Company executives said Public Storage has responded by boosting its nationwide location count by 20% in just the past 18 months, primarily through acquisitions, while building new locations and scouting sites for a development pipeline that totals more than $730 million in upcoming projects. It’s also a sign of consolidation as demand is being fueled by workers moving to Texas, Florida and other Sun Belt states.

    Executives said Public Storage, with more than 2,600 U.S. locations serving more than 1 million customers, accounts for nearly one-third of the nation’s self-storage investment sales this year. It has spent more than $5.1 billion to buy more than 200 properties in 2021, while just in the third quarter ended Sept. 30, it acquired 27 facilities in 13 states including Texas and South Carolina for a total of $326.8 million.

    Since then, Public Storage acquired or is under contract to buy 107 facilities across 16 states, spanning 11.8 million square feet, for $2.3 billion. Russell told analysts the bulk of the newest acquisitions, 52, are in the high-growth, high-demand Dallas-Fort Worth market, and 56 of the properties are being acquired from competing provider All Storage for $1.5 billion.

    Established Power

    Real estate attorney Evan Hudson, whose clients include several global private investment firms, told CoStar News that consolidation will probably rise in the self-storage industry in coming months and years. While demand is not yet showing signs of weakness, larger firms will be better able to use their nationwide scale and access to capital to stabilize occupancy and wring profits from units when customer traffic eventually wanes with an improving economy and relaxing of pandemic business restrictions.

    “First, a larger enterprise can enjoy lower borrowing costs,” said Hudson, a real estate partner at law firm Stroock & Stroock in New York. “Self-storage is largely a commodity business, where the cost of capital matters a lot.”

    He said a larger enterprise can see lower general and administrative expenses relative to its total value, because the same number of people might be required to run a portfolio of $500 million as one worth 10 times as much. “And, with a large footprint comes great market knowledge,” Hudson added.

    Industry analysts note the prospects of self-storage properties can vary greatly based in geography, local demographics, land costs and supply-and-demand fundamentals. A February nationwide self-storage report by brokerage Marcus & Millichap noted several markets have relatively high construction rates but are still seeing rising demand created by people moving to the area, such as Phoenix and Las Vegas.

    Public Storage’s Russell said the company sees strong long-term demand prospects for the Dallas region and other sunbelt cities with steady in-migration, including Atlanta and Miami. Rents are still rising in those markets, even as move-outs gradually rise in proportion to move-ins.

    Company executives told analysts several factors are driving the buying opportunities, including some owners looking to sell while demand remains high. Other sellers want to dispose of properties ahead of federal tax changes that are expected to lessen the ability of owners to avoid capital gains taxes on certain property sales starting next year, including sales of inherited properties.

    Public Storage executives said they are looking to stabilize the newly acquired properties, many of which have occupancy rates at 50% or lower, by making use of the company’s nationwide scale and deploying more online technology. Russell said 500,000 customers nationwide have used its new e-rental platform to book space so far this year, and its new PS mobile app has been downloaded nearly 1 million times.

    The company now provides third-party management services to 28 clients, primarily smaller independent self-storage operators with newly built units, and is looking to boost that to 500 over the next few years using its enhanced technologies, Russell said.

    For the third quarter, Public Storage reported total revenue rose 14% to $716 million from a year earlier, and net income climbed 79% to $442.3 million.


    Source: CoStar Group, www.costar.com