I have said it in other episodes, but the fortune-tellers of today are the ones who “interrupt data.”
I could get the “data” to predict virtually any outcome I want.
But with all this data flying around, it is hard not to predict what is coming down the pike. As business owners, it is our job to make educated decisions based on the available information at our disposal.
Now, I make no claims to the accuracy of my predictions. I am not one of the countless people I have met who “predicted the economic collapse of 2008.” (It’s amazing to me anyone lost any money in the Great Recession given all the people I have met who predicted it).
The REITs
One place we can look to is the REITs. Given their information is public, it is easier to get than many other companies.
I also pay attention to them because part of our exit strategy is to sell to REITs, so I want to stay on top of what they are doing and thinking.
Public Storage’s earnings call on August 6 indicated they expect the balance of the year’s income to drop further than it did in the second quarter.
Compared to last year, their second-quarter earnings were down 2%, and they predict it to go to 3% or greater.
That is right in line with our “stabilized” portion of our portfolio. In our properties where we are stabilized, we are 2.7% lower in storage revenues than last year through the end of July.
Interestingly enough, much of our difference in our stabilized facilities’ income from 2019 to 2020 are in late fees.
In 2019 our late fees accounted for slightly over 2% of our income. In 2020, the difference in late fees accounts for 20% of the difference between 2019 and 2020 storage revenues through the end of July.
Not surprisingly, given half of the first quarter and most of the second, we did not (and in most parts of the country, could not) charge late fees. We have restarted auctions, lien fees, and it looks like we can continue through the end of the year.
Then why was the prediction for the balance of the year worse than the second quarter?
Public Storage had a 6.7% increase in same-store operating cost. This increase for them was primarily in marketing and property tax.
Fortunately for us, in our stabilized facilities, we have been able to reduce operating expenses by 4.7% through June over the same period in 2019. However, we have made up for it with increased marketing expenses in our facilities in lease-up.
I only see this expense going up due to the increase in self storage product in most sub-markets.
For Extra Space, their numbers looked very similar. In-store revenues down 3.1% and NOI’s down 4.6%.
Self Storage Sector
Now we are talking about 2020 being down over 2019. But let’s keep this in perspective. We are talking numbers like 2% to 5%.
What is the retail sector doing?
Retail sales are down over 6% so far in 2020, and much of the current sales have moved to online sales.
How would you like to be in the office sector right now?
We still see a flight of money to self storage because of how well it does in economic downturns.
This is one reason CAP rates haven’t risen as much as I thought they would (and interest rates are still very low).
With all we have said about Public Storage in this episode being down over last year, they closed on $67.1 million of facilities in the second quarter 2020 and have under contract another $33.3 million.
We are working hard to get our operating expenses down to compensate for increased marketing expenses and any revenue shortfall over 2019 or in our lease-up projections.
We still see the value add plays in secondary markets as the way to go to get in and/or grow your self storage business. Just use longer lease-up periods and more concessions than in previous years.
Thank goodness we are in self storage. This is the product to be in during good times and in not so good times.
