Storage REITs Enjoy a Boom

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One of real estate’s least-exciting businesses—warehouses that allow people to store their unused sofas, lamps and other household goods—have become a hit with investors.

The widely watched reality-TV show, “Storage Wars,” which follows investors as they bid on repossessed storage lockers in search of hidden treasure, put self-storage on the pop-culture map.


Extra Space StorageAn Extra Space Storage facility in Emeryville, Calif.

But the storage companies themselves have turned out to be winners, too, as their stock prices surge. Last year, the stocks of real-estate investment trusts in the self-storage business posted a total return of 35.4%, the strongest gain of any REIT sector for the second consecutive year. Those results greatly outpaced the 8% return for all REITs, as measured by the Dow Jones All REIT Equity Index.

Profits in storage “far exceeded where most thought they would come in,” said Michael Knott, an analyst at Green Street Advisors. “Almost every situation in life can create demand for self-storage, like moving, divorce and getting married, [that is] irrespective of where the economy may be.”

The foreclosure crisis also has boosted demand for storage space as families downsize into smaller rental housing.

Among the four self-storage REITs tracked in the Dow Jones index, Extra Space StorageInc., the second-largest public storage operator with 882 facilities in 34 states, packed the biggest punch, with a 2011 total return of 43%. Public Storage, the largest operator, had a return of 36%. Sovran Self Storage Inc. returned 21.35%, and CubeSmartreturned 14.97%.

While most self-storage companies performed well, analysts said that Extra Space, based in Salt Lake City, benefited more than others because customers are drawn to its newer facilities located in densely populated markets. That allowed the company to increase occupancy 3.4% in the third quarter to 89.1%, the company’s highest-rate ever for a third quarter. Extra Space asking rents jumped 3% in the third quarter compared to the same period a year earlier and discounts dropped 9%

“Along with the rest of the industry, [Extra Space] had a very good year, including increased occupancy and rising rents,” said Paul Adornato, an analyst at BMO Capital Markets. He said he anticipates a favorable business environment for the company this year. Mr. Adornato also is a satisfied customer. He is renting an Extra Space facility in Brooklyn, N.Y., for six months as he remodels his home.

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