REIT - May/June 2010

One-on-One

By allen kenney

Leasing for the Lifecycle

Ron Havner explains how Public Storage has prospered renting “garage space”

Investing in storage space doesn’t bring quite the same rush as putting money into hot biotechnology stocks or cutting-edge telecommunications. Yet, for people who invest with the goal of making money over thrill-seeking, many believe that self- storage REITs are a pretty smart play.

Ron Havner, president and CEO of sector leader Public Storage (NYSE: PSA), readily acknowledges that his company essentially sells “garage space.” Compound annual returns between 1999 and 2009 on the order of 18 percent make Public Storage sound pretty glamorous, though.

“It’s certainly one of the very best forms of commercial real estate you could own,” Havner says when asked about the long-term benefits of the self-storage sector.

REIT magazine interviewed Havner about why he thinks storage REITs—and Public Storage, in particular—are such a good buy.

We’re the largest company in the sector, with 2,000 properties. That means there are lots of opportunities to consolidate and acquire properties in the long term.

REIT: Long term, what do you think makes self storage a good business to be in?

Ron Havner: Our rents generally are comparable to class-B apartments in the markets where we operate. Yet, we don’t have things like plumbing and carpets and painting to worry about, so we have a very low break-even point and excellent margins.

In terms of demand drivers, we need population growth, which has been positive in the United States. If you’re in the West Coast markets like we are, you get even more of that.

We also need people “doing things:” marriages, births, deaths, moves. These activities in people’s lives continue to go on, no matter what the economy is doing.

Lastly, the self-storage market is highly fragmented in the United States. There are a total of 55,000 storage facilities around the country, but the 10 largest owners account for approximately 10 percent of that amount.

closE up
REIT: Some describe the storage sector as “recession-proof,”
meaning that it is well-protected against the volatility of the
economic cycle. Do you agree?

AGE: 52
FAMILY: Wife, LeeAnn, and
three kids
HOBBIES: Golf
CURRENTLY READING:
“The Big Short: Inside the
Doomsday Machine,”
by Michael Lewis
FAVORITE MOVIE: “Star Wars”
COMMUNITY/PROFESSIONAL
ACTIVITIES: Supporting my
wife in her community service
and charitable activities

REIT: What, then, would you say is the biggest challenge your company is facing? Havner: At the end of the first quarter, we had more than $700 million in cash, so one of our bigger challenges is how to deploy that capital. We haven’t had a problem dealing with debt maturities and operating successfully throughout the challenging economic environment. Now it’s a matter of finding opportunities.