Exactly how high can occupancy go in the self-storage industry? Public Storage is about to find out.

As of March 31, the occupancy rate for the self-storage REIT’s 2,000 same-store locations stood at 93.9 percent. As the Glendale, CA-based company heads into peak rental season, it’s likely to reach the upper threshold for self-storage occupancy.

“Two years ago, I was saying that you can’t get higher than 94 percent,” John Reyes, chief financial officer, told Wall Street analysts during the company’s first-quarter earnings call.

I’ve got to believe everybody is fairly full, and people are getting more aggressive on rates.
— John Reyes, chief financial officer of Public Storage

In 2014, second- and-third quarter occupancy topped out at 94.7 percent.

“We have properties that are at 96 percent,” Reyes said. “There are certain properties and maybe even markets that can get to those levels, but I don’t think our entire portfolio can get there.”

Ron Havner, chairman, president and CEO, said three of the REIT’s markets had occupancy rates of at least 97 percent in April, but he agreed with Reyes that overall occupancy of 97 percent “is probably not going to happen.”

Operating results

Revenue at the company’s same-store locations rose 6.1 percent to $472.3 million during the first quarter. Same-store profit rose 8.4 percent during the same period, reaching $329.8 million.

Rents climbed to $15.19 per occupied square foot during the first quarter, up 80 cents from a year ago.

“Street rates were up about 6 percent and our move-in rates were up a little over 5 percent,” Reyes said. “I’m pretty happy that we’re able to move street rates and people are accepting those higher rates.”

Reyes said he’s seeing competitors raise rates as well — something he hasn’t noticed much over the past couple of years. “I’ve got to believe everybody is fairly full,” he said, “and people are getting more aggressive on rates.”

Focus on development

Unlike the three other major self-storage REITs, which are acquiring new facilities from private developers, Public Storage is expanding through its internal development program. The company has 31 projects in the pipeline that will add 3.6 million square feet to its portfolio, Havner said.

During the first quarter, the company completed four projects at a cost of $26.8 million. On May 6, the company will open a 1,400-unit facility at 5500 San Fernando Road in Glendale, its hometown (artist’s rendering at top). That facility is Public Storage’s 2,259th location in the U.S.

Limited acquisitions

David Doll, president of real estate, said the development program is a result of fewer top-quality properties being available for purchase.

“We don’t see high-quality products available today, and hence it’s one of the reasons why we are so happy with our development program,” Doll said. “It gives us an opportunity to bring better product to your customers.”

Public Storage remains an active buyer, however. In the first quarter, the REIT bought four facilities — in Florida, North Carolina, Texas and Washington — for a combined $32.3 million. Seven more facilities are under contract in Colorado, Texas and California for a total of $80 million.

Alexander Harris