Last year, all eyes were on Extra Space Storage Inc. and its $1.3 billion deal to acquire SmartStop Self Storage.

Part of that mega deal was an agreement that Extra Space also would assume management of 43 stores owned by separate non-traded REITs affiliated with Ladera Ranch, CA-based SmartStop Asset Management– a Strategic Storage Growth Trust and Strategic Storage Trust II.

The results from that management change are starting to trickle down to the bottom line, and it looks like a win for SmartStop based on second quarter results for the smaller of its two funds–Self Storage Growth Trust (SSGT).

The growth-focused REIT recently announced second quarter results for its portfolio that spans 14 properties totaling 9,300 units in seven states. The company also has two additional properties with another 1,700 units that are currently under construction. Same-store revenues and NOI for the portfolio grew by 20.3% and 38.3% respectively compared to the same period in 2015.

The ‘extra’ touch

“We view Extra Space’s third party management business as one of the best in the industry,” said Brad Schwer, an equity analyst at Morningstar.

Strengths for this side of the business are subjective, but at the end of the day it’s a sales job, he says. Managers must be able to attract internet traffic for facilities, bring potential renters in the door and effectively close rental deals.

Although Extra Space commands a high fee at six percent of revenue, they are able to attract management business through proven NOI performance.  Management reportedly shows facility owners an NOI growth chart over the past decade that shows Extra Space beating the industry average by 140 basis points – 6.7% growth vs. the industry average of 5.3%, according to Schwer.  

In addition to helping to fill vacancies at SSGT, Extra Space has been able to use its third party management business to boost its own off-balance sheet stream of revenue, as well as create a pipeline for off-market acquisition opportunities, he adds. 

Extra Space is the second largest owner/operator of self-storage properties in the U.S. and the largest self-storage management company with more than 1,400 owned and/or operated properties in 37 states.

Under Extra Space Storage's management, SmartStop' SSGT REIT has
Under Extra Space Storage’s management, SmartStop’ SSGT REIT has increased occupancy 12.3 percent

Positive results

Strategic Storage Trust is “particularly pleased” with its gains in occupancy and revenue growth, noted Strategic Storage CEO H. Michael Schwartz in the company’s Q2 earnings statement.

Same-store physical occupancy climbed to 88.3% at the end of second quarter, which represents a 12.3% year-over-year increase. In addition, same-store annualized rent per occupied square foot also rose a modest 4.2% to average $9.11.

“These results validate the upside we saw in these properties, and we look forward to similar continued operational improvements,” Schwartz said.

The higher occupancy levels are more on par with current industry averages. Nationally, self-storage occupancies are expected to improve slightly to 89.9% by year-end, while the weighted average for publicly traded self-storage rents is at 5.6%.

SSGT’s rental rate growth is slightly outpacing the industry average for climate-controlled units, which is forecast to be 3.2% this year, according to Marcus & Millichap.

Beth Mattson-Teig