When it comes to occupancy rates, self-storage REIT Public Storage isn’t satisfied with the status quo.

The company’s 1,983 same-store locations — those under the Public Storage banner for at least a year — recorded average occupancy of 94.7 percent during the second quarter, up from 94 percent during the same period in 2013. But for Chairman, President and CEO Ron Havner, even a healthy 94.7 percent rate isn’t enough.

“If we can get to 96 percent, we would love to do that,” Havner told Wall Street analysts Aug. 1.

If operating at 90 percent occupancy is like being a jet pilot, according to Havner, then operating at 95 percent occupancy is like being an astronaut.

“So you’ve got to operate a little differently and your inventory systems have to be a little different, your pricing has to be a little different,” Havner said.

Citing competitive concerns, Havner declined to go into detail about those differences.

Solid numbers

Whatever the differences are, Public Storage appears to be benefiting from them.

A boost in spring rentals helped Public Storage lift its revenue 10 percent over the same period last year, the company reported July 31.

Veritage Management Naples
Public Storage bought this facility in Naples, FL, from Veritage Management.

During the second quarter, the Glendale, CA-based REIT raked in $538 million in revenue, compared with $485.4 million during the same period in 2013. Second-quarter profit climbed 6.5 percent over last year to $278 million. 

At $14.52 per square foot, rental rates rose 4.6 percent during the quarter compared with the year-ago period. Same-store revenue grew 4 percent during the second quarter, while same-store net operating income increased 6.9 percent.

Major acquisitions

Through the first half of 2014, Public Storage has been an active on the acquisition front, buying 31 facilities for a combined $277 million. Most of that went toward the $240 million purchase of 25 facilities from Veritage Management; most of the facilities are in Florida.

Havner said that the Veritage portfolio had an occupancy rate of 92 percent when it was purchased.

“These properties were operated with a variety of different names, no Internet marketing, no brand name, and yet we had a number of properties that had 96-plus occupancy,” he said.

On the horizon

Public Storage is on track to make more acquisitions in 2014. The company has four facilities under contract in Virginia, North Carolina and South Carolina for a total of $40 million. Those deals are scheduled to close in the fourth quarter.

In the development arena, Public Storage has a pipeline of projects that will add 2.1 million net rentable square feet when they’re completed in 2015. The facilities are being built at an estimated cost of $242 million. Havner said he hopes to expand the pipeline to at least $350 million worth of projects.

“If we get there and feel good about it, we could take it to $400 million. That would be fine if the market is there and our processes are in place to achieve that level of production,” Havner said.

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Alexander Harris