In the midst of plunging oil prices, one Houston-based oil and gas company has made the switch to self-storage.
Publicly traded Caprock Oil Inc. was having trouble getting financing in the fourth quarter of 2014 when oil prices were starting to drop. Executives decided that it was time to shift gears.
By the second quarter of 2015, Caprock had sold its oil and gas assets to pay off bank debt and Caprock was officially Stack-It Storage Inc. The company redid its website and began looking for self-storage acquisitions. It trades under the OTC under the symbol “STAK.”
Chief Executive Officer Steve Mikel said the self-storage industry appeared to be one that was “relatively stable” compared to the oil and gas business.
“This is an industry where there is lots of room for consolidation and aggregation. We discovered that over 70 percent of owners are small mom and pops,” he said. “Our goal is to be an aggregator of multiple facilities over time.”
Long term, Mikel says the goal is to convert the company into a REIT.
“We will be looking at that once we reach a certain critical mass,” he said. “We see that as an opportunity to create value for our shareholders – a tax-efficient way to get distributions to shareholders.”
One facility down
For now, Stack-It Storage is looking to acquire facilities that have expansion capacity. It may consider development as the company grows, Mikel said.
“First, we need stores in place with operating income,” he said.
The company made its first acquisition in late October – a 22,000 square foot facility in Huffman, Texas, near Lake Houston for which it paid $1.5 million. When purchased, the facility was made up of of 202 non-climate controlled self-storage units situated on approximately 2.57 acres of land. It was originally constructed in stages from 1996 to 2004 and occupancy of the self-storage units was about 94 percent.
Many more to go
“This got us into the business,” said Chief Financial Officer D. Hughes Watler, Jr. “We are looking at additional opportunities to come down the road. And, we have expansion potential at the Lake Houston site that we plan to pursue.” The company is hoping to build up to 20,000 square feet of additional climate controlled storage space.
Stack-It Storage is not limiting its acquisitions to Texas. The company is looking at facilities in various states in the Southwest and Southeast.
“We want to be able to fly to our facility on a one to two hour direct flight and be there within an hour of leaving the airport,” Mikel said.
Both executives believe the skills that they honed with decades of experience in the oil and gas industry will translate well to the storage industry.
“A lot of aspects of oil and gas acquisitions are similar to self-storage acquisitions,” points out Mikel. “They all involve real estate and buying or leasing land, and looking at an opportunity and doing due diligence.”
“The financing aspects of storage properties are fairly similar to oil and gas properties,” he said.
Stack-It Storage has contracted Fort Worth, TX-based Donald Jones Consulting Services LLC to help manage their facilities. The consulting firm has more than 20 facilities under management.
Watler is excited by the industry’s potential for consolidation.
“There’s so many smaller facilities and many of those are owned by moms-and-pops who are getting to the point they want to retire or move on,” he said. “That creates a great environment to aggregate facilities and grow our company.”
To fund those acquisitions, Stack-It Storage is currently pursuing an equity financing. It has filed a registration statement with the U.S. Securities and Exchange Commission under the new Regulation A+, which allows smaller companies to directly market to investors. The company can raise a minimum of one million and a maximum of 10 million shares.
“We’re hoping it will bring in $7 million of new equity and increase our shareholders,” Watler said.
At that point, the company will evaluate whether to convert into a REIT, or not.
“I believe we’re the only self-storage company pursuing this type of equity offering,” Watler said.
Looking ahead, the prospect of a turnaround in the oil and gas industry doesn’t matter to Mikel or Watler.
“We kind of wish we had come across this industry about 20 years ago,” Mikel said. “It would have saved us a lot of anguish and made us a lot of money.”