Public Storage CEO Ron Havner said he doesn’t know when the amount of new self-storage development will start to impact rental rates—but he knows it will happen.
“Eventually the uptick in new supply…will have an impact on rental rates or realized rents per foot. When that takes place? I don’t know,” Havner said during a recent conference call with Wall Street analysts.
Rent per occupied square foot at Public Storage’s 1,990 same-store facilities climbed 6.1 percent in 2015 to $15.76.
“Is it back half of this year? Is it 2017 or 2018? I don’t know,” Havner said. “It will happen though.”
Still the ‘big dog’
Havner estimates that between 1,000 and 1,200 new storage facilities are under construction nationwide. But he doesn’t seem too worried about Public Storage losing dominance in a lower rental rate environment created by a flood of new supply.
When asked what “weapons” the Glendale, CA-based REIT would use to capture an outsized share of storage demand, Havner that the company’s brand presence is the key.
“The great thing about Public Storage is we have a thing called the brand, which no one else has,” Havner said, “That is by far the biggest so-to-speak bazooka which we are using all the time.”
Combined with the operational skills of the company’s field personnel and its Internet marketing technology, Havner said they are ready to remain the market leader when leaner times arrive.
“If you look at what market share we have in the major metro markets…for the most part we are the dominant provider,” Havner said. “When things get tough, the big dog eats first—and we are the big dog.”
Revenue, profits grow
In the meantime, fundamentals were strong for the industry in 2015 allowing the company to grow revenue more than 9.17 percent over the previous year—a total of $2.3 billion. The company netted a profit of $1.32 billion, an increase of 14.8 percent over the previous year.
For the fourth quarter of 2015, Public Storage generated $609.3 million—an increase of 8.5 percent over the same period the previous year. Profit rose 4.8 percent during the same period, with a total of $365.25 million earned.
The company maintained an average occupancy of 94.5 percent in 2015, up just over half a percent from the previous year. That poses its own unique challenge for Public Storage, while it builds its own pipeline of about 60 new facilities.
John Reyes, chief financial officer, said the company is facing a bit of a supply crunch due to its high occupancy rate.
“The demand coming into our systems, either through the call center or the websites, continues to be strong,” Reyes said, “I think our biggest problem right now is really having the available space to rent and to satisfy that demand,” Reyes said.
Building and buying
Public Storage is moving full-speed ahead to expand its portfolio. The company completed the construction of four new facilities during the fourth quarter of last year. Together with various expansion projects, the REIT added 400,000-square-feet of space at a cost of $34 million.
In 2015, the company completed 13 new facilities totaling 1.2 million rentable square feet at a cost of $119 million. The company has three million square feet of additional projects in the pipeline at a cost of $396 million.
The company has also stepped up its acquisition pace. Since the start of the year Public Storage has purchased or put under contract 17 facilities for a total purchase price of $149 million. That is the same number of facilities the company acquired in all of 2015, seven of which were purchased in the fourth quarter for $71 million.