Kenneth Woolley, Chairman and Founder of Extra Space Storage, recently appeared on Bloomberg. Pimm Fox interviewed him for the “Taking Stock” segment.
We’re excited that Kenneth was featured on Bloomberg and want to share some highlights with you. Of course, you’re invited to watch the video too. View it on Bloomberg: “Self-Storage: Small Spaces Yielding Big Returns” or catch it at the bottom of this post.
What’s a storage unit, and why is the self storage business so profitable?
Any good journalist starts out by asking or answering the most basic question of all – what? And that’s precisely what Pimm did. He asked Kenneth to describe what’s so profitable about the self storage business.
Kenneth provided a succinct description of self storage, and explained why it’s so profitable. He said that the storage business is about renting “cubicles,” primarily to people who store furniture rather than businesses, and the price per square foot is very similar to what someone may pay for an apartment. However, Kenneth noted that storage properties don’t have all the overhead of apartment complexes, so they can be very profitable for those who build them and own them. As an example, Kenneth said that a typical storage property may contain 600 storage units, yielding a profit before financing costs of about $600,000 to $700,000 a year. He explained that in big cities both expenses and profits are higher, but in smaller rural markets profits and expenses are lower.
REIT, self storage and shareholders. How does that work?
Extra Space Storage, a real estate investment trust (REIT), just celebrated 10 years of being publicly traded on the New York Stock Exchange (NYSE). Yet, not everyone is clear on how shareholders benefit from investing in a storage business that’s a REIT.
Per Pimm’s request, Kenneth delved into the topic for the Bloomberg audience, explaining how income flows to shareholders. Here’s a small snippet from Kenneth: “Most REITs are judged and generated from funds of operation, not taxable income. Typically, the taxable income is somewhere around 70 percent of the funds from operations, which means the dividend needs to be about 70 percent of that number, which is the case in our company.”
Let’s discuss fragmentation in the self storage industry and local entrepreneurs.
Pimm asked Kenneth to talk about how the self storage industry is fragmented, and the role that local entrepreneurs play in the storage world. According to Kenneth, there are about 55,000 self storage properties in the U.S., and larger companies own up to about 12 percent of those. Many of those are owned by mom and pop operators who built the storage properties and run them themselves. Kenneth noted that self storage properties exist in every city, from small farm communities to larger cities like New York City.
What’s happening next with Extra Space Storage?
Pimm asked Kenneth where he’d like to go with the business. Kenneth said that this is a very exciting time in the business, and he sees a “continued growth path.” Kenneth explained that the Internet has changed marketing for self storage. Due to prominence in search engines, larger companies have a clear advantage when it comes to finding customers. Kenneth, who predicts a consolidation in the self storage business, explained that he sees the opportunity to increase management structure, adding that it can be very profitable for self storage property owners to allow Extra Space to manage their platform.
Here’s the interview in its entirety: