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Public Storage

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Public Storage
Company typePublic
NYSE
S&P 500 Component
IndustryReal estate investment trust, Self storage
Founded1972 (1972)
HeadquartersGlendale, California, USA
Number of locations
2,443 self-storage locations (2014)
2,546 Business Parks (2014)
Key people
B. Wayne Hughes, founder; Ronald L. Havner Jr., Chairman of the Board, CEO and President
Revenue$2.2 billion USD (2014)[1]
$1.07 billion USD (2014)[1]
$1.15 billion USD (2014)[1]
Number of employees
5,300 (2014)[1]
Websitehttp://www.publicstorage.com

Public Storage is an international real estate investment trust (REIT) based in Glendale, California that operates self storage warehouses. It is funded by real estate investors, who receive more than 90 percent of the company's profits as a return-on-investment. It is the largest publicly traded storage REIT[2] and the largest brand of self-storage services in the US.[3] There are more than 2,000 Public Storage self-storage locations in the US, Canada and Europe. It also owns 42 percent of an office parks subsidiary, sells packing supplies and provides other services.

Public Storage Inc. was founded in 1972 by B. Wayne Hughes and Kenneth Volk Jr. It grew to 1,000 locations by 1989, using funding from investors in real estate limited partnerships (RELPs). The private company was re-structured as a publicly traded REIT in 1995, when Storage Equities merged with Public Storage and adopted its name. In 2006 it acquired Shurgard Storage Centers in a $5.5 billion transaction.

Corporate history

Origins

The idea for Public Storage was conceived by Southern California real estate developer B. Wayne Hughes in the early 1970s.[4] During a trip to Texas, he observed that local real estate developers were doing well creating mini-storage facilities outside of Dallas and Houston; he decided to bring the concept back with him to California.[4][5][6] Hughes partnered with Kenneth Volk and the two founded Public Storage with a $50,000 initial investment,[4][6] at first calling it "Private Storage Spaces Inc.," on August 14, 1972.[7]

The first warehouse was built in El Cajon, California that year.[6][8] According to Hughes, consumers thought "Private Storage" meant the storage units were not available to the public for rent, so the name was changed to "Public Storage" to match the "PS" acronym already on documents and signs.[4][7] Initially the founders planned to build the storage warehouses as a temporary source of income until the land became more valuable and could be redeveloped for another use.[9]

Within three months, the first location was breaking even with a 35 percent occupancy.[4] In comparison to real estate investments in apartments or office space, the units were rented for a similar price per square foot but cost 35 to 50 percent less to build and maintain.[4][5] A property management subsidiary called Public Storage Management Inc. was formed in 1973.[5][7] By 1974, 20 locations had been built.[5][6]

Real Estate Limited Partnership Financing

Hughes disliked loans, so he financed the purchase and development of new properties primarily through real estate limited partnerships (RELPs).[5][10] At first, Public Storage built warehouses and sold them to independent RELPs for a development fee.[5] The company's own RELP, called Public Storage Partners Ltd, was formed in 1975[7] and closed its first deal for $3 million in investments two years later.[5] Public Storage would pay cash to acquire property and build a self-storage facility, then would use the property's income to pay investors back and earn a portion as profit.[5] Public Storage Inc. earned revenues from a portion of each location's rental fees and a portion of each deal that was made.[11]

Early investors earned three to four times their money back due to increasing property values in Southern California, high occupancy rates, and increasing storage rental prices. By the mid-1980s, Public Storage was raising $200 to $300 million in investments a year.[5] The RELP format allowed Public Storage to continue building more locations in the 1970s and 1980s when most of the industry had halted growth in response to higher interest rates on loans.[5] By 1989, $2.7 billion had been invested from 200,000 investors.[5] Public Storage helped popularize the use of self-storage businesses as a real estate investment vehicle[12] and became one of the longest-running RELP investment vehicles.[5]

The capital was used to build mini-storage warehouses nationally beyond California, targeting the 39 largest US cities. It opened self-storage locations in close proximity, so multiple construction sites could share a development office and to justify local television advertising.[4][5] Public Storage's growth slowed in the mid-1980s as new competition increased the cost of property and slowed the increase in rental prices to consumers.[5][11] Poor weather and difficult labor markets outside of California delayed development projects and the company made poor investments in office parks.[5] Interest in real estate investing had also diminished.[11] By the late 1980s, the company opened its 1,000th Public Storage location[5] and the company was three times larger than its nearest competitor in the US market.[13]

In the mid-1980s, co-founder Volk retired and his interest in Public Storage was purchased by Hughes.[4] Forbes estimated that by this time the company was worth $800 million.[4] By 1991, Public Storage had setup more than 150 RELPs and real estate investment trusts (REITs).[14]

Real Estate Investment Trust (REIT)

According to Financial World, by 1989 the real estate limited partnership (RELP) market that Public Storage relied on for funding "all but vanished".[5] A book by Public Storage Inc. said the Tax Reform Act of 1986 reduced the tax benefits of RELPs and was followed by "a tough time for real estate companies."[7] Five of its partnerships were converted to Real Estate Investment Trusts (REITs) in December 1990.[14] It also began consolidating its partnerships and acquiring many of the companies it held an interest in.[3]

In 1995, Public Storage and its subsidiaries were merged with its self-storage REIT, Storage Equities Inc., and re-structured as a single REIT called Public Storage Inc.[3][7] Storage Equities was founded by Public Storage in 1980[15] to purchase self-storage facilities.[7] It was one of 17 self-storage REITs that Public Storage held an equity interest in.[16] Analyst Michael Karby said the acquisition capitalized on conflict of interest concerns, while Hughes said the merger was set up to alleviate them.[4] Public Storage was paid $31 million in management and consulting fees from Storage Equities over three years.[4]

In 1995, it spun-off its box, locks and packing and moving supplies business into the PS Orangeco subsidiary; this was done to avoid the risk of losing the company's tax-free REIT status, which can occur if too large a portion of the company's business is no longer related to real estate. This frustrated institutional investors that can only invest in real estate companies and could no longer invest in the new non-real estate subsidiaries.[17] By 1998, Public Storage had $141 million in quarterly revenues,[3] $2 billion in assets and 1,200 facilities in 38 states.[3][14] Later that year, Public Storage acquired a competing storage company called Storage Trust Realty in a $600 million transaction.[6]

Recent history

Public Storage grew steadily in the early 2000s.[18] The company was added to the S&P 500 in 2005.[12] The next year, it acquired Shurgard Storage Centers in a transaction totaling $5.5 billion, acquiring 624 locations including 141 in Europe.[19][20][21] Public Storage had attempted to acquire the company in 2000 and again in 2005 but the offers were rejected.[6][8][21] According to a 2013 article in Appraisal Magazine, the company has been making numerous acquisitions, such as a March 2010 purchase of 30 locations from A-American Self Storage.[12]

Self-storage and other services

A Public Storage facility in Los Angeles

Public Storage is the largest self-storage brand in the US.[3] As of 2014, there were 2,250 Public Storage locations in North America and 193 locations in Europe (operated by Shurgard Europe, which Public Storage owns 49 percent of). There are also 2,546 office parks operated by PS Business Parks, which Public Storage owns a 42 percent interest in.[1] The largest self-storage business in Canada is operated by a separate company that is allowed to use the Public Storage brand.[3] The self-storage locations tend to be in dense clusters in major cities,[3] especially near freeways and intersections.[10]

The contents of a storage unit are put up for auction if the rental fees are not paid for sixty days. Although the TV show Storage Wars created increased interest in the auctions, most units do not contain anything of substantial economic value.[22] Sometimes auctioning the renter's property can result in disputes between Public Storage and the renter.[23][24] In 2007, a customer's belongings were auctioned for non-payment while he was serving the US military in Iraq. After receiving negative publicity, Public Storage apologized and gave him $8,000 as compensation for his sold belongings.[24]

According to The Wall Street Journal, there are a growing number of theft or property damage incidences at self-storage facilities and "surprisingly few remedies."[23] Public Storage said it has been involved in an increasing number of legal disputes since 2005 regarding damage to a renter's property caused by mold problems.[23] The company's rental contract says it is not responsible for the storage unit's contents, even if damage is caused by defects in the unit.[23][25]

Public Storage hallway with storage unit doors

More than 90 percent of Public Storage's revenues are from its self-storage operations; it also provides insurance, packing products, and has a 44 percent interest in PS Business Parks.[6] PS Orangeco was created as a subsidiary in 1995 in order to sell boxes, packaging, truck rentals, and other moving supplies.[7] PS Reinsurance was formed to sell insurance for a storage unit's contents in 1984.[7]

According to a 2010 report by KPIX-TV, a CBS station in San Francisco, many Public Storage customers have filed complaints with the Better Business Bureau regarding issues with insurance policies sold by Public Storage representatives. For example, often "seemingly obvious burglary claims" are denied. An undercover reporter for the station said Public Storage employees required insurance in order to purchase storage, even though the company was not licensed to sell or discuss insurance products. Jerry Whitfield, a spokesperson for the California Department of Insurance, commented, "When you in fact solicit the purchase of insurance you are doing things that only licensed agents can do". According to that report, 22 burglaries of that one Public Storage location had been reported to police in the previous year.[26]

Corporate structure and operations

Public Storage is a "self-administered, self-managed" real estate investment trust (REIT).[3] A REIT is an organization that primarily purchases and operates real estate investments and returns at least 90 percent of its incomes to investors.[27] It combines the capital of a large number of investors for real estate projects.[18] As of 2008, Public Storage was the largest of four publicly traded self-storage REITs.[2] As of 2013, it had a profit margin of 50 percent, the third-highest in the S&P 500.[28] Many of its locations have just one or two employees that are paid close to minimum wage and may live on-site.[28][29]

References

  1. ^ a b c d e "Public Storage Annual Report". Public Storage. 2014. Retrieved April 21, 2015.
  2. ^ a b Mark Gordon (2008). The Complete Guide to Investing in REITs, Real Estate Investment Trusts: How to Earn High Rates of Return Safely. Atlantic Publishing Company. p. 185. ISBN 978-1-60138-256-6.
  3. ^ a b c d e f g h i Heath, Tracy (November 1998). "Public Storage Inc. cashes in on storing your stash". National Real Estate Investor. Retrieved April 28, 2015.
  4. ^ a b c d e f g h i j k Rudnitsky, Howard (October 23, 1995). "The king of self-storage" (PDF). Forbes. Retrieved April 22, 2015.
  5. ^ a b c d e f g h i j k l m n o p q Wrubel, Robert (November 28, 1989). "California Cold Storage" (PDF). Financial World.
  6. ^ a b c d e f g Vault Guide to the Top Real Estate Employers. Vault Inc. pp. 140–141. ISBN 978-1-58131-388-8.
  7. ^ a b c d e f g h i David, Rothenberg (2006). The Public Storage Story: Behind the Orange Doors. Angel City Press. ISBN 978-1-883318-67-3.
  8. ^ a b Vincent, Roger (August 2, 2005). "Public Storage Makes Bid for Rival but Is Rejected". Los Angeles Times.
  9. ^ Paris, Ellen (June 15, 1987). "Rent-a-closet" (PDF). Forbes. p. 136.
  10. ^ a b Newman, Morris (February 5, 1990). "Public Storage: Mini-Storage Turns Landscape Orange". Los Angeles Business Journal.
  11. ^ a b c Peltz, James (March 13, 1990). "Problems Fail to Daunt Public Storage". Los Angeles Times. Retrieved April 22, 2015.
  12. ^ a b c Sonne, Christian (July 1, 2013). "Self Storage Economics". Appraisal Journal.
  13. ^ Wilkinson, Stephanie (December 1, 1987). "Winning the War in the Mini-Storage Business". PC Week. p. 64.
  14. ^ a b c Peltz, James (April 2, 1991). "Storage Firm Partnerships Shifted to Trusts". Los Angeles Times. Retrieved June 19, 2015.
  15. ^ John A. Mullaney (1998). REITs: Building Profits with Real Estate Investment Trusts. John Wiley & Sons. p. 164. ISBN 978-0-471-19324-1.
  16. ^ Jay P. Pederson (2003). International Directory of Company Histories. St. James Press. ISBN 978-1-55862-482-5.
  17. ^ Rudnitsky, Howard (September 2000). "Packing it in". Institutional Investor.
  18. ^ a b Woolard, John (July 2, 2001). "Public Storage Locking into Business Due to Downturn" (PDF). Los Angeles Business Journal. p. 27.
  19. ^ Davis, April (September 16, 2006). "Public storage acquires shurgard storage centers" (PDF). Commercial Property News.
  20. ^ White, Ronald (January 18, 2015). "Public Storage is poised for further growth". Los Angeles Times. Retrieved April 22, 2015.
  21. ^ a b Hopkins, Brent (March 7, 2006). "Public Storage Merger Almost Shur". Daily News.
  22. ^ Smith, Quinton (December 28, 2012). "Storage unit auction bidders seek treasures in leftovers of others' lives". The Oregonian. Archived from the original on December 31, 2012. Retrieved April 22, 2015. {{cite news}}: Unknown parameter |deadurl= ignored (|url-status= suggested) (help)
  23. ^ a b c d Goldfarb, Zachary (August 3, 2005). "Mold, Theft and Hurricanes: The Risks of Self-Storage". The Wall Street Journal. Retrieved April 29, 2015.
  24. ^ a b "Soldier gets apology, $8,000 from storage company that sold belongings while he served in Iraq". Associated Press. February 8, 2007. Retrieved April 25, 2015.
  25. ^ Mueller, Karin (April 20, 2015). "Bamboozled: Who's responsible when a Public Storage customer's stuff is damaged by water?". The Star-Ledger. Retrieved April 29, 2015.
  26. ^ Watts, Julie (November 18, 2010). "ConsumerWatch: Insurance Issues At Public Storage". CBS Local Media. Retrieved April 12, 2014.
  27. ^ "Real Estate Investment Trusts (REITs)". Securities Exchange Commission. Retrieved April 20, 2015.
  28. ^ a b McIntyre, Douglad; Weigley, Samuel (May 14, 2013). "8 companies that most owe workers a raise". USA Today. Retrieved April 25, 2015.
  29. ^ Donald L. Barlett; James B. Steele (January 1, 1992). America: What Went Wrong?. Andrews McMeel Publishing. p. 209. ISBN 978-0-8362-7001-3.
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