Sovran Self Storage achieved record high occupancy rates, rental rates and net operating income during the second quarter, and it’s aiming for even stronger results in the second half of 2015.
“It seems incredible to be saying this, but our company’s results and those of the self-storage sector for the umpteenth quarter are setting new highs,” CEO David Rogers said during a conference call July 30 with Wall Street analysts.
I’ll tell you that I wish we could have taken Horace Greeley’s advice and ‘gone west’ a couple of years ago.
— David Rogers, CEO of Sovran Self Storage, speaking about the REIT’s lack of a presence in California
The Williamsville, NY-based REIT posted profit of $28.6 million during the second quarter, up 38 percent from the same period last year. Total revenue hit $90.7 million, a 12.8 percent boost.
“The usual suspects are at work here: muted supply in most markets, the scale and branding power of the larger operators, [and] the use of technology to optimize revenue,” Rogers said.
Sovran Self Storage operates its facilities under the Uncle Bob’s Self Storage brand.
Pricing power
Despite the strong fundamentals, Rogers acknowledged that the company underestimated its pricing power heading into 2015.
“We came out of the chutes a little slow in January,” Rogers said. “Partly due to weather and partly due to a little tentativeness regarding pricing.”
Since then, Rogers said, the company has pushed rates higher each month for the past three months and is “poised to hit it pretty good” in the third quarter.
Rent per square foot was $12.15 during the second quarter, up 3.9 percent compared with the year-ago period.
Easing off the gas
Ed Killeen, chief operating officer, said that at the end of 2014, Sovran decided to take a softer approach to pricing.
“Given the strong performance over the last three to four years, we decided to pull back a little on both asking and in-place [rents] and even discounts,” Killeen said.
Since then, customers have been more receptive to rate increases than Sovran had anticipated. Asking rates now are 8.2 percent higher than during the same time last year.
“We are going to start pushing again,” Killeen said of rental rates.
Same-store slip
Being hesitant on pricing contributed to a decline in the company’s year-over-year growth in same-store revenue and net operating income (NOI). Same-store revenue grew 5.8 percent, while NOI grew 7.8 percent.
In 2014, year-to-year revenue climbed 8.6 percent in the second quarter and NOI climbed 10 percent — besting the other public self-storage REITs.
“We are certainly working and fighting really hard to get back to one and two in the ranking with revenue,” Rogers said.
California dreamin’
Rogers also attributed the current lag in same-store results to its lack of facilities in California.
“I’ll tell you that I wish we could have taken Horace Greeley’s advice and ‘gone west’ a couple of years ago,” Rogers said. “There really is a party going on out there. Unfortunately, we are just watching through the window on that one.”
Rogers said the company has been looking for the right opportunity to enter West Coast markets but has not found the right one. “California has been a tough goal for us. We like to get clusters of properties, and we like to get scale,” he said.
Acquisition and development
Sovran continues to grow in its existing markets, however. The company bought nine facilities during the second quarter for a total price of $75 million. Two of those — one in Phoenix, AZ, and the other in Boston, MA — are newly built “certificate of occupancy” deals. Six of the newly acquired facilities are in Florida and one facility is in Dallas, TX.
The company has 13 facilities under contract for $85 million, two of which are certificate-of-occupancy deals.
Paul Powell, chief investment officer, said the company is being selective in teaming up with third-party developers but does plan to pursue more deals. Powell said Sovran has no intention of developing facilities in-house.
“We will continue to align ourselves with preferred developers in target markets,” Powell said. “You should see some more C of O deals signed up by Sovran over the next six months or so.”
