Self Storage REITs Weather Difficult Quarter, See Quick Rebound

By Laura Williams-Tracy, SSA Magazine

It was a quarter fraught with uncertainty, new cleaning and rental protocols, and far fewer new faces at the customer service counter. In all, self storage appears to have weathered Q2 of 2020 with few battle wounds. Those smarting from a steep drop in rentals or delinquent payments in the spring may already be feeling a rebound.

Based on analyst calls with the largest public REITs, the pandemic had a negative impact on funds from operations and net operating income for most operators. All of the REITs reported negative results in the second quarter. Same store revenue declined between 1.1% and 3.1% from April through June. But in calls with analysts, CEOs struck an optimistic tone that summer brought a resurgence of demand, and damage done by a spring on lockdown may not be as severe as once anticipated.

“It sounded like everyone was pretty happy with July, and the third quarter is off to a good start,” said Noah Mehrkam of the earnings calls. Mehrkam is CEO of Arcland Property Co., which owns Self Storage Plus and others in the greater Washington, D.C. market. Mehrkam followed the REIT results for a snapshot of the industry. “Occupancy is strong and rents will recover.”

Despite a tough season, heightened activity in July and early August has bolstered confidence in the industry and its ability to withstand the damage done by the COVID-19 pandemic.

National Storage Affiliates President & CEO Tamara Fischer called it “a very solid quarter given the circumstances.”

“While I never imagine being satisfied with the negative same-store NOI [net operating income] result, the extraordinary effort by our pros and team members minimize the magnitude of that decline in the second quarter,” she said.

For the quarter, same-store NOI was down 1.2% and same-store occupancy was 88.1%, down from 89.5% a year ago.

Christopher Marr, president and CEO of CubeSmart, told analysts that the company mission guided the company as the pandemic took its toll.

“We've had to change the way we do what we do,”  Marr said when releasing 2Q results. “From a high-level perspective, rentals hit the bottom in April, rates in May and both began to recover in June. July was our first month of what we would consider more normal pre-COVID operations.”

For the quarter, CubeSmart reported same-store NOI fell 4.1%, driven by 2.2% revenue decline. Extra Space saw same store revenue fall similarly at 3.1%. NOI declined 4.6%.

For Life Storage, year-over-year same store revenue decreased 2% and same store NOI decreased 2.5%. In a good trend, the company collected 99% of rental income in the second quarter compared to pre-COVID levels.

At Public Storage, revenue for same-store facilities decreased 3%, over the same quarter in 2019. NOI decreased $22.5 million, yet PSA beat analysts’ estimates with earnings coming in a $1.76 per share versus an estimated $1.62.

Joe Russell, president and CEO, said Public Storage’s non-same-store portfolio is performing very well, despite more challenging business conditions created by the pandemic. PSA’s same-store portfolio consists of 2,224 facilities that have been owned and operated with stabilized occupancy and revenue since January 1, 2018.

Those outside the same-store pool consist of 276 stores that are newer acquisitions or expansions. Russell said about 300,000 new customers moved in during Q2, and 60,000 of those move-ins came into the non-same-store portfolio.

“The non-same-store portfolio continues to do quite well from an occupancy growth standpoint, and we're up about 11%,” Russell said. “Frankly, we haven't seen any of our acquisitions development going backwards in this environment. They have done the absolute opposite where they're filling up pretty dramatically.”