Trends for Storing Wealth III


Several years ago while speaking at a seminar I heard another speaker share an incredibly powerful idea about trends. His theme was “the future always reveals itself in the present”. In this current series on spotting trends I have asked readers to share their insights about trends we can see. No one of us can ever know more than the whole. Here we have powerful and sensitive insights about storage and wealth.

A recent message (see http://www.garyascott.com/archives/2004/05/19/1047/index.html) looked at the market for storage units and how this has exploded. We asked the questions…What message can this trend tell us about society and where our investments and business should go? What clues and secrets can we see in this action of so many people and how will this activity evolve?

"Gary, It was a possible coincidence that I was thinking of trends when I checked my email and yours pops up. I had been thinking about your last email which was about trend ideas.

"I think storage is a good one. I store a large wall hanging/sign in a warehouse down near the river in my city in Glasgow, Scotland. It's cheap (10 pounds – 6$ – a month) and the contact I have at the company is friendly. Their primary business is dry goods and they use the spare space for storage. My reason for not keeping it in my home is that I now live with my parents and they didnt want "that big thing" in the house which I formerly kept as a decoration in my flat. Due to inflation (of both taxes, house prices and consumer goods) in our country there is generally a large number of young people still living with their parents after university, such as myself.

The trend I was thinking about was not storage of articles but of waste. I was thinking about the volume of waste that each person in my office and home creates. This is obviously already taken care of but I believe that with the trend of the western world needing to become more environmentally (both personal and society) friendly this will come about as stricter laws surrounding waste storage (disposal is a bad term since a lot of waste can only really be stored and not disposed of!). I know the EU is already in the process of implementing rules of this nature.

"Anyway-know you are busy but your feedback would be appreciated. Regards"

"Dear Gary:

"I have three storage units currently. Two are museum storage (which means basically temperature controlled), and one is not. My mother was an only child, and inherited so many antiques that I hesitate to speak of it. Downstairs where I live is one of the beautiful old iceboxes, as well as a table and clock dating back to my great-great grandfather. There is also a desk made at least as early as the 1840s.

"It is very strange that you are writing me about storage. I own a 400 acre farm in the country between Eatonton, GA, and Greensboro, GA (not too far from Milledgeville).

My grandfather built a dairy barn there in 1938. It has a milk room, two feed rooms, and an office (we will not discuss the still that I found behind the Spring house, because Granddad, of course, did not drink).

"I am in the process of turning the four rooms into three storage areas and refurbishing the office. The reason is that I am paying above $400 a month for the storage I now have. The dairy barn, by the way, is huge, as large as a warehouse, when you include the area where the mangers were, which I have removed. The local fire Chief keeps a large boat there, and I do not charge him. The area where my farm is located has skyrocketed in value because of the very nearby Lake Oconee, a large recreational lake. I believe I remember that Merri is from Georgia, so you are likely familiar with the area.

"I suppose the farm, which is family land that I would never sell, is worth close to 2 million now. It is an interesting place. It is the remains of an antebellum town. Some of the buildings remain. One is the largest privately owned (two story) smokehouse in Georgia, put together with pegs and dowels.

"The other reason that your communication is strange (or perhaps timely is a better word) is that I have checked around the Lake, and I find storage units, but no museum storage, and no outside storage for boats and RVs. A part of the land at the farm is across from a concrete plant, and would probably easily be zoned commercial. I am considering building indoor/outdoor storage there. My brother, who is retired, and lives on the farm, is willing to manage said facility.

"You have certainly hit on a trend. I have been aware of it for years because of being forced to be a part of it.

Regards,"

"Gary, while you may know this name, probably few of your other readers do: steelmaster. but it is the ultimate in storage!

"When we moved onto our farm in North Carolina, some 5 years ago, the first thing I did — one of the wisest things in my life — was to contract to have a company-build a 40'x60' Steelmaster quonset-type "barn" set not too close to our main building site.

"The reason: we had nearly 4 decades of stuff to haul up, then store, in our hasty move out of south Florida & words cannot describe the feeling of security & bliss I still feel seeing several moving vans'worth of accumulated boxes, etc., now sitting (still unpacked) with vast amounts of space in this fortress-like barn STILL left to fill!

"The Steelmaster company (housed in Boone, NC, but advertises in popular publications around the world) claims you can build these vaults yourself & maybe you can … but if possible, it's best to opt for a professional job (the company has several crews just for that purpose, & many other non-company people can also erect one).

"My barn, for example, stands close to 20' tall at the top of its curve that's a long way to fall or slide down, in case things go wrong. Soup to nuts, my total cost — in 1999 dollars — was under $10 per square foot. That's including a concrete slab, rudimentary electricity, (both of which I supplied but whose price I've included) & 2 entrances & 1 overhead door.

"I was so impressed with my new 'barn,' I had a second one — 30'x40' (no slab or electricity) — built for less than $6 per s.f., for my tractor,implements & pick-up. In fact, I had it set in such a way that, if I ever choose to, this structure could form the exterior walls & roof of aunique, tremendously strong dwelling or office.

"Bottom line: I love these half-tunnel buildings & can highly recommend them for virtually any storage, shop & possibly dwelling requirement –they're strong, simple, impervious to weather & easy on the budget. In other words, they're just great!"

"Gary, We have a guy here in the town of Fresno, that set up mini-storages twenty years ago. He now owns 21 of them and has been highly successful. I think with millions of folks like me having a home office, it is cheaper to put some stuff into a mini-storage than rent an office. If you wish more info on REIT's that invest in storage please visit the following companies:

"Shurgard Storage (Symbol SHU) – Public Storage (PSA).

Here is our "short research" on the company. It is a great business been in ministorage. All the best, D. Bianchi

"PUBLIC STORAGE, Inc. PSA

Share price: $42.00

Market Cap: $5.4 billion.

Gross Assets: $5.2 billion Net Assets: $4.0 billion

Cash on hand: $320 million. The company said that it will upgrade/buildout existing facilities over the next 18 months as well as have some flexibility to acquire additional properties. There are some additional details in the 10Q if interested.

"Pure Debt: $0

Preferred Stock (basically debt): $2.3 billion. Average rate: 7.5-8%. None convertible into common stock. The company has been reducing its cost of preferred stock for the past year by redeeming older high-cost preferred stock (8.5%-10%) with proceeds from new low-cost preferred stock (6.25%-7%).This is not only logical, but also astute by the company. One transaction in particular that I noted was a $200 million re-negotiation, where the company was able to pay 4% ($8 million) to get holders of 9.5% preferred stock to reduce their payments to 6.4%. This avoided the paperwork and fees required when doing a deal through an investment bank and will be paid back in reduced interest in just 15 months.

"Dividends: $1.80 per common share (4.3% yield). This represents $226 million and seems sustainable given the company's approximately $230 million of current free cash flow after payment of preferred dividends and capital expenditures/improvements. The company maintained the dividend at $1.80 in 2003 from 2002, but is likely to increase it slightly as it builds out more properties and starts to generate more cash flow.

"While 2002 and 2003 were somewhat difficult years for the company operationally, I'd say that it performed rather well all things considered. At the end of 2000, the company raised prices and reduced discounting significantly, thus benefiting for the first 9 months of 2001. In the last quarter, the company got hit as the market and economy faltered and occupancy rates fell approximately 5% from 90% to 85%. In early 2002, the company reversed course and again began discounting and advertising more aggressively. This resulted in occupancy returning to normal levels, but with significantly increased advertising and promotional costs. It seems to me that the company operated as well as can be expected in a quickly changing business environment, first taking advantage of the boom by raising prices and then reversing course rather quickly as the environment changed.

"The company seems to be the largest self storage company in the nation with only a few significant competitors that are somewhat smaller, Storage USA (owned by GE), Shurgard (about 40% its size) and U-Haul (also about 40% its size). Both Storage USA and Shurgard seem to charge slightly more (maybe also U-Haul), and occupancy at U-Haul and Shurgard is somewhat lower than at Public Storage. So, it looks to me like PSA is the low-cost leader and they are doing a decent job at it. The company's core strength remains Southern California, which is not a bad market to be strong in all things considered. Rents are high and there is a very large pool of potential customers. It's always great to be a low-cost producer in a commodity business with a big market."

Here were some interesting thoughts on the trends of Storage. May all your storage bring you joy, safety and good feelings,

Gary


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