Geographically, self-storage REIT Life Storage is taking a turn in its buying-and-selling strategy. The company recently broke into two new markets — Seattle, WA, and Baltimore, MD — while scaling back its position in Texas.
During the REIT’s second-quarter earnings call Aug. 2, CEO Joe Saffire said Life Storage plans to bulk up its presence in the Seattle and Baltimore areas through wholly owned acquisitions, joint venture deals and additions to its third-party management program.
Seeking to scale in Seattle
Saffire said Life Storage had eyed the Seattle market for several years but hadn’t found the right opportunity to capitalize on the region’s sustained growth. That changed recently with its pending acquisition of three facilities in the Seattle market through an off-market sale. With a trio of facilities there, it’ll become “much easier to start gaining more scale,” Saffire said.
“We think that we’re going to be able to grow that presence over the next couple of years. We like Seattle, and we’re very excited about finally being there,” Saffire told Wall Street analysts.
That excitement stems, in large part, from Seattle area’s robust economy.
According to Marcus & Millichap’s 2019 self-storage forecast, the Seattle area’s job growth rate is projected at 2.9 percent this year, down only a tad from 3.2 percent in 2018. Meanwhile, the metro’s population is expected to rise 1.2 percent this year, Marcus & Millichap says.
Life Storage enters the Seattle market as the influx of new supply tapers off. According to data provider Yardi Matrix, under-construction and planned facilities in the Seattle area represented 20.7 percent of existing inventory in July, down slightly from 21 percent in June.
Filling a “clear gap”
As for Baltimore, Saffire said the market represented a “clear gap” in Life Storage’s otherwise strong foothold in the Mid-Atlantic region. The REIT recently filled that void through the pending off-market acquisition of five facilities from a large self-storage operator there.
“We think we have a very good relationship with that seller,” Saffire said, “and they have other properties down the road that maybe we can do something with.”
Although the Baltimore area’s population is forecast to grow at a tepid 0.2 percent this year — the same as last year’s rate — job growth is predicted to be 1.3 percent, down from 2 percent in 2018, according to Marcus & Millichap.
Including the Seattle and Baltimore deals, Life Storage now anticipates $275 million to $475 million in wholly owned acquisitions this year, up from its earlier projection of $225 million.
“De-risking” in Texas
Life Storage’s debut in the Seattle and Baltimore markets coincides with a decrease in its Texas holdings, especially in Houston. Yardi Matrix recently noted that Houston, like many Texas markets, is “struggling with oversaturation” of supply.
The REIT recently sold 13 facilities in Texas, including six in Houston, in an effort to “de-risk” its exposure there, Saffire said.
Nonetheless, Saffire said, Life Storage feels “pretty good” about the Houston market over the next 12 to 18 months, especially since it was one of the first markets to experience a supply buildup during the current development cycle. In June and July, the Houston market’s share of under-constructed and planned facilities slid from 4.4 percent in June to 4.2 percent in July, according to Yardi Matrix.
Looking ahead, Saffire said Life Storage doesn’t expect any “meaningful dispositions” of wholly owned properties through at least 2020. In the past year, the REIT sold 45 facilities for more than $300 million.
Other second-quarter highlights for Life Storage included:
- The REIT added 11 facilities to its third-party management platform.
- Same-store NOI rose 2.4 percent compared with the same period in 2018.
- Same-store revenue increased 3 percent versus the same period last year.
- Same-store occupancy fell to 5 percent as of June 30 compared with 92.4 percent at the same point last year.