More and more of Extra Space Storage’s customers are finding them with a mobile device, according to CEO Spencer Kirk.
Kirk said during the Salt Lake City, UT-based REIT’s third quarter earnings conference call that more than 50 percent of the company’s demand comes from mobile devices.
“Last year it was probably 30 percent. The rate of growth is tremendous,” said Kirk.
As more storage consumers shift search activity from desktop and laptop computers to smartphones, Kirk said that large national operators are going to benefit the most from this shift—to the detriment of small independent operators.
“I don’t believe the smaller operators have the resources to throw at the mobile platform, what we and the other national storage operators have been able to do.” Kirk said. “The Internet is creating a landscape of haves and have-nots. That chasm is widening and the rate that chasm is widening is accelerating.”
Throwing in the towel
According to Kirk, the difficulties that small operators face competing on the Internet is one factor limiting the rate at which new supply is being developed.
During the last cycle during the mid-2000s, more than 2,600 properties per year were being developed. Kirk said that new self-storage development today is just 20 percent to 30 percent of that number.
While local operators might have the advantage when it comes to finding contractors and getting a deal done in their market, Kirk said:
“They cannot compete because we are not in the world of Yellow Pages anymore. We’re in the land of digital real estate, and they are recognizing that they don’t have the sophistication or the dollars to even attempt to compete against the REITs.”
“I think many folks out there are throwing in the towel and that is going to continue to accelerate,” Kirk said.
Watching the upstarts
While some traditional operators might be crumbling under the change wrought by new technology, a new group of startups are using technology to pioneer new models of storage.
Companies like Clutter and MakeSpace have making headway in the emerging on-demand or valet storage business, and Kirk said they are paying very close attention.
“Right now I am aware of several dozen players that are all vying to prove this product concept. One of the things I do know is with over 1,300 stores scattered across the U.S., we are in a really good position to be part of the solution,” Kirk said.
Kirk said the company has had discussions about the valet storage industry, but said only that the company is “keeping all options open” when asked if Extra Space has held discussions with any specific companies in the space.
“We’ve been exploring it and trying to understand what the implications might mean for our core market,” Kirk said. “Today, it is de minimis. It is insignificant and it is not impacting our business.”
Extra Space generated $197.5 million in revenue during the third quarter, an increase of 16.8 percent over the previous year. Net income rose 32 percent to $78.2 million during the same period.
Revenue at the company’s 503 same-store locations increased 9.9 percent year-over-year, while same store net income rose 12.6 percent.
As of the end of the quarter on September 30, the company’s same-store occupancy stood at 93.6 percent, compared with 91.6 percent the previous year.
Net rent at same-store locations was $15.17 per square foot, up from $14.23 the previous year.
Acquisitions and development
During the quarter Extra Space acquired one store in Maryland for $6.1 million. The REIT also acquired a 10 percent interest in a newly construction facility as part of a joint venture deal. The total purchase price of that facility was $5.4 million. The company has nine operating self-storage facilities under contract for a total of $82 million, six of which are scheduled to close by the end of the year.
Subsequent to the end of the quarter, Extra Space completed its merger with SmartStop Self Storage on October 1. In the deal, Extra Space picked up 122 stores for $1.3 billion. It also assumed management of 43 stores owned by SmartStop as part of the deal.
The company has a pipeline of 18 “certificate of occupancy” stores under contract for more than $185 million, according to a supplemental report released along with its earnings statement. Extra Space will buy the stores from private developers when construction is complete.
Four of the projects are scheduled to be completed and acquired by the end of the year with a total purchase price of $34.8 million—one store in Aurora, CO is a joint venture in which Extra Space will own a 10 percent stake.
Ten of the remaining projects will be completed in 2016, two in 2017 and two in 2018.