Raising rents helps lift revenue for Public Storage

February 24, 2014 1
Raising rents helps lift revenue for Public StorageA Public Storage facility in Spring Valley, CA.

The country’s largest self-storage operator got even bigger last year.

Revenue at Public Storage Inc. climbed almost 8 percent in 2013—to nearly $2 billion—compared with 2012. Executives with the self-storage REIT attribute the gain to boosts in rental and occupancy rates. Profit rise 12 percent year to year—to $1.05 billion.

Also last year, the Glendale, CA-based operator invested heavily in new locations, spending $1.16 billion to buy 121 locations.

The self-storage REIT grew realized rents by 5.3 percent in 2013, to $13.40 per square foot, compared with the previous year.

“Last year, we got a lot of the growth mostly on increases to existing tenant base, as well as reduced discounts,” John Reyes, chief financial officer, said during a conference call with Wall Street analysts. “We’re going to continue to do those two things, but the other thing that we were going to attempt to do is push street rates.”

Kicking Up the Rates
Reyes said street rates are up 5 percent to 10 percent over last year, depending on the market.

“We’re going to try to continue to do that throughout the year and see how that goes,” Reyes said.

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A Public Storage facility in Los Angeles.

Last year, Public Storage raised rents on existing tenants between 9 percent and 10 percent, according to Reyes. The company sent out rent-hike notices from February through August, with most going out during the summer.

Reyes said the REIT expects to follow the same pattern in 2014 “until we see evidence that suggests that we should do something different.”

Same-store net operating income increased 8.2 percent last year compared with 2012. The same-store figure covered 1,949 locations.

Buying the Good Stuff
In 2013, most of the REIT’s acquisitions happened in the fourth quarter, when the company bought 89 facilities in eight states for $765 million.

CEO Ronald Havner said that much of the activity was concentrated in large off-market portfolio deals that arose late in the year. Havner said it’s hard to tell what’s in store for acquisitions this year, but he expects the REIT to be an active acquirer again in 2014.

“Where we are today and kind of how the market evolves over 2014, I think can be very different than what people are looking at right now,” Havner said.

So far this year, Public Storage has only one property under contract. Havner said the availability of top-quality facilities has declined, despite more sellers looking to make deals.

“We’re seeing more products come to market in general … but of lower quality than the stuff we saw last year,” Havner said.

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An artist’s rendering of a facility that Public Storage plans to open in Glendale, CA.

Time to Develop
The lack of attractive facilities on the market has spurred the company to ramp up development, with an existing pipeline that will triple the total square footage it built last year.

Public Storage spent $85 million last year on new development and expansion, adding 614,000 rentable square feet. This year, the company has 21 redevelopment and construction projects on tap, adding 1.8 million rentable square feet at a cost of $196 million.

During the first quarter, the company expects to complete three projects with a total price tag of $40 million. Havner said the REIT will add more projects as the year goes on, possibly to the tune of $100 million.

Public Storage is concentrating new development in markets where it already doesn’t have a major presence, including Denver, Houston and Phoenix.

“We’re trying to build where there is relatively low per-capita self-storage, relatively good incomes and relatively high densities of people relative to that market,” Havner said.

Fourth-Quarter Performance
Same-store revenue grew 5.4 percent and same-store net operating income grew 8 percent during the fourth quarter. Total self-storage revenue increased 9.5 percent, to $480.6 million. Fourth-quarter profit rose 9.3 percent, to $296.6 million.

The company has seen minor effects from this winter’s severe storms, according to Reyes. As a whole, the company did not see a drop in move-ins during the fourth quarter, he said. However, some markets hit hardest by snow—including New York, Chicago, Boston and Washington, DC—did see a decline in move-ins. But, he added, the bad weather did keep some people from moving out as well.

“It’s kind of been a push, so to speak, on the occupancy levels,” Reyes said.

The company finished the fourth quarter with a same-store average occupancy rate of 93 percent.

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