Public Storage expects 2019 to be on par with 2018 when it comes to new self-storage deliveries in the marketplace.
One side effect of surging supply? More acquisition opportunities for Public Storage.
“There are a number of conversations that are becoming more pronounced, based around the theme of ‘I want out,'” said Public Storage CEO Joe Russell about private storage operators during the company’s first quarter conference call.
New supply is creating increased competition and higher costs for acquiring customers. Russell said for some operators that maybe means expected returns aren’t being met. Some operators might find themselves coming under pressure from their lenders. With new supply expected to continue to grow through the year, or maybe longer, Russell said some storage owners are coming to the conclusion that it is a good time to sell.
“That is a residual effect and potentially a good thing we are going to see,” Russell said.
In fact, it is happening already. Including properties under contract through the year to date, Public Storage has surpassed the volume of acquisitions that it did during all of last year—tallying more than $197.7 million in acquisitions in 2019 so far.
For the first time in years Public Storage purchased a facility out of bankruptcy, Russell said. Also in the mix was a nine property portfolio that came to Public Storage as an off-market deal.
“The owners decided for them it was the right time to exit the sector entirely,” Russell said. “[There is] more of that in the mix as we speak.”
Russell said the company is also seeing an increase in offers for entitled land, as well as offers to buy newly developed facilities.
“Owners are coming to us saying we may not have met or exceeded the type of returns we expected two or three years ago when we put these properties in development,” Russell said. “They are not failed assets, but the actual expectations are not being met. We got a few of those in the pipeline.”
Financial highlights
- During the quarter Public Storage acquired 12 self-storage facilities for $81.3 million. Following the end of the quarter the company has acquired or put under contract 10 more facilities for a total of $116.4 million.
- The company opened four newly developed facilities and completed various expansion projects totaling 1.3 million square feet at a cost of $133.5 million. The company has 1.2 million square feet of new development in the pipeline estimated to cost $194 million and another 2.7 million square feet of expansion projects budgeted for $318 million.
- Same-store revenue grew 1.5 percent over the same quarter last year. Same-store revenue totaled $588.75 million.
- Same-store net operating income grew 0.6 percent over last year with a total of $419.56 million for the quarter.
- Average square foot occupancy for the quarter was 92.5 percent, and 92.1 percent at the end of the quarter.
- Average rental income per occupied square foot was $17.41, 1.2 percent above the year ago period.
