Resilience in Self Storage

Amid the economic wreckage brought on by COVID-19, one industry stands out for its resilience to the virus: self-storage. Deemed an essential sector by the state, self-storage facilities have remained open and operating through the economic freeze that began in mid-March. The standard operating model – where customers pay monthly for a leased storage unit in a facility accessible 24/7 with a personalized key code – has held up fairly well. Most companies have been able to avoid sweeping layoffs or furloughs. Arlen Nordhagen, chairman of Life Storage, a national operator in New York, said storage businesses are positioned well to withstand most economic slumps. “Self-storage has proven to be very resilient in a downturn. It’s certainly not recession-proof, but it is recession-resilient,” Nordhagen said in a statement in early March. Essential supply chain Brianna Lapple, floor manager at a StorQuest Self Storage facility in Mission Hills, told the Business Journal the industry may actually benefit from the COVID-19 shutdown. That’s because tenants are only entering leases, not leaving them. “Vacancies are way down,” she said. “People who were moving decided to hold off on plans, so everyone is staying in storage.” StorQuest is a national operator with other Valley facilities in Camarillo, Thousand Oaks, Westlake Village and Canoga Park. Lapple said occupancy at the Mission Hills location in a normal month is between 90 and 92 percent, and “we’re right there.” She credited StorQuest’s stability to its diverse clientele – many renters in Mission Hills are essential businesses themselves, and need to access their inventories to keep operating. For them to stay open, StorQuest has to stay open too. “We have a lot of restaurants that store with us, a lot of landscaping businesses, electrical businesses, construction businesses … pharmaceutical companies,” she said. “We’re an important part of the essential supply chain.” Lapple said the Mission Hills facility is seeing more business from the homeless population, for whom storage spaces offer a relatively cheap place to keep personal belongings safe from theft or weather during the lockdown. As business forges on, Lapple said operations at StorQuest facilities look a little different, with social distancing and no-touch measures in place on the premises. Interactions with new renters and inquiring customers that would normally be face-to-face have moved online and over the phone. As for evictions, the city’s moratorium during the pandemic applies only to residential and commercial properties – not storage. Any tenant relief offered by storage space operators is noncompulsory. Valley Councilman David Ryu has proposed a measure that would extend the moratorium to storage tenants, but it has not been voted on as of press time. Lapple said many StorQuest tenants, particularly owners of non-essential businesses, have been rendered unable to pay rent. “We’re doing everything we can to help clients. … We’re not doing foreclosures, and we’re certainly not moving forward with the lien process,” she said. Normally, when a storage tenant misses multiple rent payments without communication, the operator assumes the right to auction whatever items are in the unit. This both recoups some money for the operator and creates a vacancy to fill with a new, paying customer. Lapple said StorQuest has decided not to do any auctions during the shutdown for the benefit of its tenants. “We had a group of people who were set to go to auction right when everything began. Those people will continue to go to auction (when the economy reopens). Everyone else … has been able to work with us.” Lapple said StorQuest is offering relief in the form of payment plans. Tenants pay whatever they can afford for now and make up the rest over time. She said it’s inevitable that some clients won’t be able to make their back payments, but this is the best StorQuest can do. “We can legally proceed at some point, but we’re really trying not to do that and to make sure they understand they have a lot of options to help them avoid that,” she said. Nine weeks into the shutdown, Lapple said she’s beginning to see an influx of new renters in Mission Hills. “Some new customers, unfortunately, are businesses who’ve waited two months, were anticipating reopening last week, found out they can’t reopen and can’t wait any longer and had to (shut down),” she added. Public Storage While the Valley has an abundance of small, independent self-storage providers, the region is also home to industry giant Public Storage, headquartered in Glendale and one of just five publicly traded self-storage real estate investment trusts in the country. Public Storage has more than 2,000 facilities throughout the U.S., all of which are open and operating. The company could not be reached by the Business Journal. Public Storage stock has endured a rough few weeks of market turbulence, but is faring better than most. Shares, which trade under the ticker PSA, closed May 20 at $183.92, down 21 percent from the stock’s recent high of $232.82 in February. In its earnings report for the quarter ending March 31, the company said it has seen significant reductions in demand for storage space since March. “As a result, our move-in volumes, despite lower move-in rental rates, have also declined significantly, offset partially by lower move-out volumes. The reduction in move-out volumes may be temporary or even reverse, to the extent they are driven by short-term factors such as stay-at-home orders and delays in our auction process,” the company said. Furthermore, according a research note published April 30 by Baird Equity Research, a subsidiary of investment bank Robert W. Baird & Co., “PSA commented that the pandemic has also led to … increased employee absentee rates and … lower employee efficiency due to remote working.” Analysts expect the company’s revenue will dip significantly in the second quarter, reflecting COVID-19-related pains. “PSA (and peers) have been driving a large portion of their revenue growth through (rent) increases to existing customers. PSA commented that it had ‘curtailed’ these increases which is expected to negatively impact revenue growth,” the analysts wrote. In the company’s quarterly earnings call, Chief Financial Officer Tom Boyle said tenant rate increases in normal times are managed at a granular level using data analytics. “That will be an important part of where we go from here and how we restart at the appropriate time, recognizing that consumer behavior could be a little bit different post this event than what it was before,” he said. He added the company balance sheet is strong enough to withstand whatever recession lies ahead. “We’re sitting right now with debt-to-EBITDA just a touch over one times, fixed charge coverage around eight times and over $700 million in cash on the balance sheet,” said Boyle in the earnings call. “We feel very good about our financial and liquidity position.” As for development projects, the Baird researchers expect a coming recession could dampen supply. “Given the increased prospects for a sharper recession, we expect the new supply pipeline to drop significantly, putting a sharper decline in the new supply delivery projections for 2021-2022,” they wrote.