Article source: http://www.marketwatch.com/story/broadstone-real-estate-announces-promotions-and-new-hire-2012-05-02

Article source: http://www.marketwatch.com/story/real-estate-industry-exec-brett-miller-to-lead-jones-lang-lasalle-in-canada-2012-05-02

The best real estate investment in the
past decade was found at the opposite end from trophy resorts
and office towers, in 5-foot-by-5-foot lockers.

Self-storage companies, which rent units to small
businesses and consumers under names such as “Uncle Bob’s Self
Storage (SSS) (SSS),” produced the best risk-adjusted return among 10 U.S.
real estate investment trust indexes in the past decade,
according to the BLOOMBERG RISKLESS RETURN RANKING. They had the
highest total return and the third-lowest volatility, for a
risk-adjusted gain of 10.6 percent. Owners of offices, hotels
and warehouses fared among the worst, hurt by price swings.

Public Storage, CubeSmart, Extra Space Storage Inc. (EXR) (EXR) and
Sovran Self Storage Inc. attracted investors with low debt
ratios and steady cash-flow growth in a decade that saw
commercial-property values soar to records along with sales of
mortgage-backed bonds to finance a wave of takeovers. The debt-
to-assets ratio for Public Storage, the largest in the group, is
22.5 percent, half the average 45 percent for REITs, said
Michael Knott, managing director of real estate research firm
Green Street Advisors Inc., making the stock less susceptible to
large price swings if the economy worsens.

“Public Storage (PSA) (PSA) has incredibly low leverage compared to
the average REIT,” Knott, whose firm is based in Newport Beach,
California, said in an interview. “It’s typically not as
volatile.”

Warehouses Trail

The Bloomberg REIT Public/Self-Storage Index (BBREPBST) topped gauges
tracking healthcare REITs and regional mall REITs, which
returned a risk-adjusted 8.4 percent and 7.5 percent,
respectively, in the 10 years through April. Warehouse REITs (BBREINDW),
which had the highest volatility and the lowest total return
during the period, joined hotels at the bottom, with a risk-
adjusted gain of 0.8 percent.

Storage REITs release first-quarter earnings this week.
Extra Space Storage said April 30 that first-quarter funds from
operations rose 41 percent on higher revenue and cost controls.
Sovran is scheduled to release earnings after the market closes
today, and the other two companies in the group report tomorrow.

The risk-adjusted return, which isn’t annualized, is
calculated by dividing total return by volatility, or the degree
of daily price variation, giving a measure of income per unit of
risk. A higher volatility means the price of an asset can swing
dramatically in a short period of time, increasing the potential
for unexpected losses.

Basic Units

The ranking compares 10 of the 11 property index types
within the Bloomberg REIT index. It excludes single-tenant REITs
because that index contains just four mostly smaller members
whose business of retail leasing is reflected in broader
indexes.

Storage REITs had twice the cash-flow growth of REITs in
main property types from 2001 to 2011, according to Green
Street. Net operating income for storage facilities open at
least one year rose an average 3 percent a year during that
period, compared with 1.5 percent on average for other REITs.

Companies such as Public Storage of Glendale, California;
Salt Lake City-based Extra Space; and CubeSmart (CUBE) (CUBE), of Wayne,
Pennsylvania, rent storage space by the month. The facilities
can range from basic 5-foot-by-5-foot (1.5-meter-by-1.5-meter)
units to climate-controlled rooms of 25 feet by 25 feet where
people can stash goods such as furniture, tools and skis, a
salesperson can store product samples, or a small business can
keep items as in a mini-warehouse. Demand tends to be driven by
life changes, which often entail moving, such as college
graduation, job changes, divorce or death.

Cleaning Out

“If you get married, you don’t necessarily throw your
couch away, you don’t necessarily throw away the buffalo head,
what have you,” said Clemente Teng, vice president of investor
relations for Public Storage. “You put it in storage.”

Public Storage has about 1 million tenants at any given
point in time, with the average lease of existing tenants
running about 36 months, Teng said. More than half its tenants
have rented their units for more than one year, he said.

“People always think, ‘I’ll just house it for a couple of
months and then get it all out, but the problem is once you get
all your stuff in, the last thing you want to do is spend a
Saturday cleaning it out,” Teng said.

Rents Rise

Occupancy and rents in the storage business probably will
increase over the coming year amid rising demand and virtually
no new construction, said Chris Sonne, executive managing
director of the self-storage industry group at Cushman
Wakefield Inc. The commercial real estate services firm expects
occupancy will increase by 1 to 3 percentage points and rents
will rise 3 to 3.5 percent, said Sonne, whose group conducts a
quarterly survey of about 7,000 facilities in the 50 largest
metropolitan areas.

“Physical occupancy is inching back up so they’re able to
really raise rents,” Sonne said.

Median occupancy rose to 81.1 percent in the first quarter
from 80 percent a year earlier. The median asking rent for a
unit of 10 feet by 10 feet at ground level and not climate-
controlled climbed to $90 a month in the first quarter from $88
a year earlier, according to Cushman Wakefield. Public REITs
saw stronger rent growth because their revenue-management tools
enable them to increase rents to match demand, said Sonne.

‘Not Cheap’

Public Storage, with a market value of $26 billion,
accounts for 81 percent of the BBREIT Public/Self Storage Index.
Its shares closed at $145.04 yesterday, for a dividend yield of
3 percent. The company operates in 38 states, with California
accounting for about 25 percent of revenue.

“It’s not a cheap stock,” Knott said. “It should be an
outperformer over a long time period, but over the next three,
six or nine months, it’s hard to say it’s going to outperform.”

Two-thirds of the 25 analysts who follow Public Storage
have “hold” or “sell” recommendations (PSA) on the stock, which
has returned 58 percent since April 2010, according to data
compiled by Bloomberg.

Storage wasn’t always so attractive to investors. In the
five years through 2006, when the Bloomberg REIT index more than
doubled, regional malls and shopping centers topped the ranking.
Storage, while second by total return in that period, fell to
third when adjusted for risk, because it had the second-highest
volatility, after hotels.

‘Low Barriers’

Those price swings coincided with a period where the supply
of storage units increased in the U.S. New construction of
facilities rose by more than half in the 2000s, with the fastest
growth in the beginning and middle of the decade. The U.S. had
an estimated 50,048 self-storage facilities last year, up from
29,955 in 1999, according to the Self-Storage Almanac, published
by Phoenix-based MiniCo Insurance Agency LLC, which provides
insurance and publications for the industry. Storage facilities
also got larger, growing to an average of 566 units each in
2011, from an average 243 units in 2000, according to the Self-
Storage Almanac.

“During 2001 to 2007, there was a great amount of new
supply built because of low barriers to entry and cheap
financing,” said Teng of Public Storage. “All that has
virtually come to a halt.”

The relatively low capital needs of the storage business
became more attractive after the financial crisis, as investors
shunned companies with large debt burdens. Storage REITs topped
the riskless return ranking since the end of 2009, with the
second-lowest volatility and the second-highest total return.
Regional malls (SPG), No. 2 over that period, had the best total
return and the third-highest volatility.

‘No Carpeting’

Storage units are relatively cheap to build and “when we
re-rent a space, all we have to do is sweep it out,” said Teng.
“We don’t have to change the carpeting, paint the walls” or
otherwise make improvements to get a new tenant.

High leverage remains a concern for some hotel REITs, which
have trailed in returns because recreational travel hasn’t fully
rebounded from the slump caused by the recession in 2008 and
2009. Hotel operators tend to see bigger swings in net operating
income than other REITs, reflecting their lower operating
margins, according to Green Street.

Hotel REITs returned just 0.8 percent over the past 10
years when adjusting for risk. They had the second-highest
volatility and the second-lowest return. Office REITs (BBREOFPY), whose
assets include well-known “trophy” properties such as the
General Motors Building in Manhattan and Embarcadero Center in
San Francisco, had the fourth-worst risk-adjusted return in the
period.

Appealing Exteriors

Increased usage of Internet marketing has helped storage
REITs attract more customers from smaller operators during the
sluggish economic recovery, said John Murphy, a vice president
at Cohen Steers Inc. (CNS) (CNS), a New York-based investor in real estate
shares that manages almost $45 billion. The storage business is
fragmented, with the publicly traded REITs accounting for just
10 percent of the U.S. market, he said.

“They’re able to steal market share in a time like today,
when demand is growing but at a slow pace,” said Murphy. “With
revenue management, they know which facilities they can increase
rents on” week by week.

The geographic diversification and large base of tenants
gives the publicly traded storage REITs some protection from
economic swings, offsetting the short-term nature of storage
leases, said Murphy.

Sovran, which operates under the Uncle Bob’s Self Storage
name, has been reducing concessions, or landlord incentives, as
the economy came out of recession starting in 2009, said Diane
Piegza, a spokeswoman for Sovran Self Storage, based in the
Buffalo, New York, suburb of Williamsville. During the
recession, Sovran offered as much as six weeks free rent and ran
a “name-your-price” promotion to attract renters.

“We’re not recession-proof by any means but we’re a little
more resistant than other types of real estate,” Piegza said.

To contact the reporter on this story:
Hui-yong Yu in Seattle at
hyu@bloomberg.net

To contact the editors responsible for this story:
Christian Baumgaertel at
cbaumgaertel@bloomberg.net;
Kara Wetzel at
kwetzel@bloomberg.net

Article source: http://www.businessweek.com/news/2012-05-02/best-u-dot-s-dot-real-estate-with-self-storage-riskless-return

The best real estate investment in the
past decade was found at the opposite end from trophy resorts
and office towers, in 5-foot-by-5-foot lockers.

Self-storage companies, which rent units to small
businesses and consumers under names such as “Uncle Bob’s Self
Storage (SSS),” produced the best risk-adjusted return among 10 U.S.
real estate investment trust indexes in the past decade,
according to the BLOOMBERG RISKLESS RETURN RANKING. They had the
highest total return and the third-lowest volatility, for a
risk-adjusted gain of 10.6 percent. Owners of offices, hotels
and warehouses fared among the worst, hurt by price swings.

Public Storage, CubeSmart, Extra Space Storage Inc. (EXR) and
Sovran Self Storage Inc. attracted investors with low debt
ratios and steady cash-flow growth in a decade that saw
commercial-property values soar to records along with sales of
mortgage-backed bonds to finance a wave of takeovers. The debt-
to-assets ratio for Public Storage, the largest in the group, is
22.5 percent, half the average 45 percent for REITs, said
Michael Knott, managing director of real estate research firm
Green Street Advisors Inc., making the stock less susceptible to
large price swings if the economy worsens.

“Public Storage (PSA) has incredibly low leverage compared to
the average REIT,” Knott, whose firm is based in Newport Beach,
California, said in an interview. “It’s typically not as
volatile.”

Warehouses Trail

The Bloomberg REIT Public/Self-Storage Index (BBREPBST) topped gauges
tracking healthcare REITs and regional mall REITs, which
returned a risk-adjusted 8.4 percent and 7.5 percent,
respectively, in the 10 years through April. Warehouse REITs (BBREINDW),
which had the highest volatility and the lowest total return
during the period, joined hotels at the bottom, with a risk-
adjusted gain of 0.8 percent.

Storage REITs release first-quarter earnings this week.
Extra Space Storage said April 30 that first-quarter funds from
operations rose 41 percent on higher revenue and cost controls.
Sovran is scheduled to release earnings after the market closes
today, and the other two companies in the group report tomorrow.

The risk-adjusted return, which isn’t annualized, is
calculated by dividing total return by volatility, or the degree
of daily price variation, giving a measure of income per unit of
risk. A higher volatility means the price of an asset can swing
dramatically in a short period of time, increasing the potential
for unexpected losses.

Basic Units

The ranking compares 10 of the 11 property index types
within the Bloomberg REIT index. It excludes single-tenant REITs
because that index contains just four mostly smaller members
whose business of retail leasing is reflected in broader
indexes.

Storage REITs had twice the cash-flow growth of REITs in
main property types from 2001 to 2011, according to Green
Street. Net operating income for storage facilities open at
least one year rose an average 3 percent a year during that
period, compared with 1.5 percent on average for other REITs.

Companies such as Public Storage of Glendale, California;
Salt Lake City-based Extra Space; and CubeSmart (CUBE), of Wayne,
Pennsylvania, rent storage space by the month. The facilities
can range from basic 5-foot-by-5-foot (1.5-meter-by-1.5-meter)
units to climate-controlled rooms of 25 feet by 25 feet where
people can stash goods such as furniture, tools and skis, a
salesperson can store product samples, or a small business can
keep items as in a mini-warehouse. Demand tends to be driven by
life changes, which often entail moving, such as college
graduation, job changes, divorce or death.

Cleaning Out

“If you get married, you don’t necessarily throw your
couch away, you don’t necessarily throw away the buffalo head,
what have you,” said Clemente Teng, vice president of investor
relations for Public Storage. “You put it in storage.”

Public Storage has about 1 million tenants at any given
point in time, with the average lease of existing tenants
running about 36 months, Teng said. More than half its tenants
have rented their units for more than one year, he said.

“People always think, ‘I’ll just house it for a couple of
months and then get it all out, but the problem is once you get
all your stuff in, the last thing you want to do is spend a
Saturday cleaning it out,” Teng said.

Rents Rise

Occupancy and rents in the storage business probably will
increase over the coming year amid rising demand and virtually
no new construction, said Chris Sonne, executive managing
director of the self-storage industry group at Cushman
Wakefield Inc. The commercial real estate services firm expects
occupancy will increase by 1 to 3 percentage points and rents
will rise 3 to 3.5 percent, said Sonne, whose group conducts a
quarterly survey of about 7,000 facilities in the 50 largest
metropolitan areas.

“Physical occupancy is inching back up so they’re able to
really raise rents,” Sonne said.

Median occupancy rose to 81.1 percent in the first quarter
from 80 percent a year earlier. The median asking rent for a
unit of 10 feet by 10 feet at ground level and not climate-
controlled climbed to $90 a month in the first quarter from $88
a year earlier, according to Cushman Wakefield. Public REITs
saw stronger rent growth because their revenue-management tools
enable them to increase rents to match demand, said Sonne.

‘Not Cheap’

Public Storage, with a market value of $26 billion,
accounts for 81 percent of the BBREIT Public/Self Storage Index.
Its shares closed at $145.04 yesterday, for a dividend yield of
3 percent. The company operates in 38 states, with California
accounting for about 25 percent of revenue.

“It’s not a cheap stock,” Knott said. “It should be an
outperformer over a long time period, but over the next three,
six or nine months, it’s hard to say it’s going to outperform.”

Two-thirds of the 25 analysts who follow Public Storage
have “hold” or “sell” recommendations on the stock, which
has returned 58 percent since April 2010, according to data
compiled by Bloomberg.

Storage wasn’t always so attractive to investors. In the
five years through 2006, when the Bloomberg REIT index more than
doubled, regional malls and shopping centers topped the ranking.
Storage, while second by total return in that period, fell to
third when adjusted for risk, because it had the second-highest
volatility, after hotels.

‘Low Barriers’

Those price swings coincided with a period where the supply
of storage units increased in the U.S. New construction of
facilities rose by more than half in the 2000s, with the fastest
growth in the beginning and middle of the decade. The U.S. had
an estimated 50,048 self-storage facilities last year, up from
29,955 in 1999, according to the Self-Storage Almanac, published
by Phoenix-based MiniCo Insurance Agency LLC, which provides
insurance and publications for the industry. Storage facilities
also got larger, growing to an average of 566 units each in
2011, from an average 243 units in 2000, according to the Self-
Storage Almanac.

“During 2001 to 2007, there was a great amount of new
supply built because of low barriers to entry and cheap
financing,” said Teng of Public Storage. “All that has
virtually come to a halt.”

The relatively low capital needs of the storage business
became more attractive after the financial crisis, as investors
shunned companies with large debt burdens. Storage REITs topped
the riskless return ranking since the end of 2009, with the
second-lowest volatility and the second-highest total return.
Regional malls, No. 2 over that period, had the best total
return and the third-highest volatility.

‘No Carpeting’

Storage units are relatively cheap to build and “when we
re-rent a space, all we have to do is sweep it out,” said Teng.
“We don’t have to change the carpeting, paint the walls” or
otherwise make improvements to get a new tenant.

High leverage remains a concern for some hotel REITs, which
have trailed in returns because recreational travel hasn’t fully
rebounded from the slump caused by the recession in 2008 and
2009. Hotel operators tend to see bigger swings in net operating
income than other REITs, reflecting their lower operating
margins, according to Green Street.

Hotel REITs returned just 0.8 percent over the past 10
years when adjusting for risk. They had the second-highest
volatility and the second-lowest return. Office REITs (BBREOFPY), whose
assets include well-known “trophy” properties such as the
General Motors Building in Manhattan and Embarcadero Center in
San Francisco, had the fourth-worst risk-adjusted return in the
period.

Appealing Exteriors

Increased usage of Internet marketing has helped storage
REITs attract more customers from smaller operators during the
sluggish economic recovery, said John Murphy, a vice president
at Cohen Steers Inc. (CNS), a New York-based investor in real estate
shares that manages almost $45 billion. The storage business is
fragmented, with the publicly traded REITs accounting for just
10 percent of the U.S. market, he said.

“They’re able to steal market share in a time like today,
when demand is growing but at a slow pace,” said Murphy. “With
revenue management, they know which facilities they can increase
rents on” week by week.

The geographic diversification and large base of tenants
gives the publicly traded storage REITs some protection from
economic swings, offsetting the short-term nature of storage
leases, said Murphy.

Sovran, which operates under the Uncle Bob’s Self Storage
name, has been reducing concessions, or landlord incentives, as
the economy came out of recession starting in 2009, said Diane
Piegza, a spokeswoman for Sovran Self Storage, based in the
Buffalo, New York, suburb of Williamsville. During the
recession, Sovran offered as much as six weeks free rent and ran
a “name-your-price” promotion to attract renters.

“We’re not recession-proof by any means but we’re a little
more resistant than other types of real estate,” Piegza said.

To contact the reporter on this story:
Hui-yong Yu in Seattle at
hyu@bloomberg.net

To contact the editors responsible for this story:
Christian Baumgaertel at
cbaumgaertel@bloomberg.net;
Kara Wetzel at
kwetzel@bloomberg.net

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Article source: http://www.bloomberg.com/news/2012-05-02/best-u-s-real-estate-with-self-storage-riskless-return.html