Notes From Presentation by Chris Marr of CubeSmart

Day 3 of the 2013 SSA Ski Retreat in Avon, Colorado. We just started a presentation by Chris Marr of CubeSmart.

The self-storage industry has navigated through a challenging debt crisis and Great Recession, earning it the designation of a “recession resistant” industry, but do uncertain times still lie ahead? What have been the significant economic drivers of the industry, and what will they be going forward? How will self-storage be impacted by domestic policy as well as European and Asian economic influences? What are the implications for cost allocation, marketing strategy, asset valuation, and financing costs? And, how do the implications differ for small versus large operators? Join CubeSmart President, COO, and CIO Chris Marr as he, along with guest speaker(s), discuss these questions and their respective answers in an open and engaging dialogue.

That’s the official description of Chris’ remarks. He’s first going through some of the history of the self storage industry.

Macroeconomic context – There are some interesting correlations (or lack thereof) between apartment revenue, employment, housing affordability, and the self storage industry. Apartment revenue correlates fairly strongly. Employment less so, but somewhat. Very little correlation with housing affordability, but still some. You can see that when housing affordability spikes there is a slight dip in self storage revenues.

If we believe in the correlation between self storage and multi-family revenue then we should be seeing decelerating same store revenues in the storage industry over the next year.

The average homeowner moves every 9+ years. That means when less people own homes the self storage industry does better, at least in terms of those people? I think that was what was implied.

How often does the average renter move? Every 2-3 years. So if the housing economy improves how does that affect storage? Perhaps harmful, since more renters moving more often means more people storing. Perhaps this is why there has been a good recovery in storage during the recession.

[As a sidenote, perhaps this shows how the Federal Reserve policy of keeping interest rates low has hurt the self storage industry by artificially increasing home ownership rates beyond what they would normally be. Those low interest rates may also have hurt the industry by artificially stimulating self storage construction and depressing rental rates. Thoughts?]

Are we facing a Japan-like scenario? [I'm going to go out on a limb with a commit to a strong "maybe".]

External growth / deal flow – Where will funding be coming from primarily? Most people in the room think it will be external capital looking for viable investment opportunities.

Where will most development be focused? Most people think it will be primary and secondary markets, not tertiary markets.

The top 10 operators currently control just over 11% of total supply. What will this number be in 10 years? A decade ago people thought there would be massive consolidation, but then new entrepreneurs entered the market and built faster than the large companies could build or acquire, so it went the opposite way, even as the larger companies were growing.

If paying a premium for a portfolio, what are you paying for? Most respondents said benefit of scale (market depth). Many also said difficulty in accumulating assets through smaller transactions. About 18% said benefits of scope/diversification (market breadth).

What do you think industry-wide same store revenue growth will average annually for the next three years? 59% of respondents thought 4.5% to 6%. 34% thought 1.5% to 3.0%.

What will be the primary driver of outperformance by larger operators? 33% said market share gains due to Internet marketing followed by 24% saying market share gains due to more effective revenue management.

Operational performance – …I think we skipped over this due to a lack of time.

Industry “Disruptors” – What has been the effect of aggregators in the self storage industry? They are there, they are a reality, but they are not a dominant force.

If you are an operator, do you have any listing relationships with aggregators? 28% have no relationship. 14% have relationships with 3 or more aggregators.

Significantly more deal volume through auction websites these days.

This section also had to be cut short due to lack of time, it appears.

Amazing presentation. Wish I had it all on video.

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