This time next year, self-storage giant Public Storage will have a new leader at the helm.
The company announced that Ron Havner will step down as CEO at the end of 2018 after more than 15 years in the role. Joe Russell, who currently serves as president, will replace Havner effective January 1, 2019. Havner will remain chairman of the company’s board.
John Reyes will also be stepping down as chief financial officer, a position he has held since 1996. That role will be filled by Tom Boyle, a former Morgan Stanley banker who has worked with Public Storage on transactions for the last decade. Reyes will join the company’s Board of Trustees.
“I am proud to have served as Public Storage’s CEO for over fifteen years. Together with John Reyes, we have created significant value for our shareholders and look forward to contributing to the company in our new roles,” Havner said in a prepared statement.
The new supply blues
The transition comes as Public Storage is experiencing its slowest growth in eight years, primarily due to record levels of self-storage development.
In the company’s most recent conference call with Wall Street, Havner noted that the company has enjoyed “above trend line growth rates” for the last several years. “That has slowed down with the pick up of new supply,” Havner said.
Same-store revenue ($2.19 million) for the company’s 2,042 same-store facilities grew by 3 percent in 2017 compared to the previous year. That’s a slower rate of growth than the 5.5 percent figure the company experienced in 2016.
Net operating income ($1.63 million) at same-store locations grew even more slowly compared to the previous year, a total year-over-year increase of 2.8 percent.
Average same-store occupancy for the year fell slightly by 0.7 percent to a total of 93.8 percent, but company managed to raise average realized rent by 3.9 percent to a total of $17.19 per square foot.
Development marches on
About $3.5 billion was spent on self-storage construction in 2017, and Havner said as much or more could be spent in 2018.
“I expect deliveries this year to be comparable to last year,” Havner said.
That means slower growth is likely on the menu for Public Storage and its peers in the year ahead. Havner said its impressive that the public companies are still able to post positive revenue numbers in the face of a seven-fold increase in supply since 2014.
“I think it’s a testament to the resilience of the industry,” Havner said.
Not to be outdone, Public Storage continues to work through its pipeline of development projects. The company completed 16 facilities and expansion projects in 2017, adding 2.7 million square feet of rentable space to its portfolio at a cost of $312 million. Looking ahead, the company will complete another 2.7 million square feet of new facility space over the next year and half.
Meanwhile, Public Storage purchased 22 existing facilities in 2017 for a total of $149.8 million.
Ramping up third-party management
For years, competitors Extra Space Storage, CubeSmart and LifeStorage have dominated the third-party management business—that is managing facilities for other owners on a fee basis. After years on the sidelines, Public announced that it is making a play to become a more dominant player in the third-party business. Havner said the company currently manages about 35 to 40 facilities for third party owners.
“We’ve actually been doing third-party management for 40 years, but we haven’t been promoting it,” Havner said.
The company promoted Peter Panos, executive vice president of operations, to the role of President of Third Party Management.
“He’s actually out today soliciting some business,” Havner said.
Havner said that Public Storage plans to pass through more profits from operations and tenant insurance to its clients than the other management platforms currently do. As a result, Havner said the push into third-party management won’t be a big profit maker, but will provide other benefits for the company such as creating an acquisition pipeline and increasing economies of scale.
“Certainly Cube and Extra Space have demonstrated it’s a much bigger business than I ever though it would be, so the size of the opportunity if probably quite significant,” Havner said.
You can catch Ron Havner as he delivers the keynote address at the California Self Storage Association’s 14th Annual Self Storage Owners Summit on July 19 in Newport Beach, CA. The event is sponsored by Talonvest Capital.