Sovran Self Storage Updates Financial Guidance for 2009

Oct 06, 2009

Sovran Self Storage Inc., a Buffalo, N.Y.-based real estate investment trust, updated financial guidance for the fiscal year 2009 as a result of its recent common-stock public offering.

On Sept. 29, the company agreed to sell 3.5 million shares of its common stock in an underwritten public offering, and granted the underwriters an option to purchase 525,000 additional shares to cover over allotment. The underwriters exercised the option in full on Oct. 2. On Oct. 5, the company closed its public offering totaling 4,025,000 shares of common stock, resulting in net proceeds of approximately $114.4 million, excluding offering expenses.

In August, the company issued guidance relating to its expected funds from operations (FFO), estimating that FFO for 2009 would be between $2.70 and $2.74 per fully diluted share. Based on recent transactions, the company now expects FFO between $2.33 and $2.37 per fully diluted share for the full year.

To read details about Sovran’s recent transactions, visit www.unclebobs.com/downloads/09-10-05.pdf.

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A-American Self Storage Supports Disaster Victims in American Samoa, Philippines

Oct 06, 2009

A-American Self Storage of Hawaii, along with the Ali'i Pauahi Hawaiian Civic Club and the State of Hawaii Organization of Police Officers, are conducting a drive to collect and send food and other goods to disaster victims in American Samoa and the Philippines. Items such as toiletries, linens, children’s clothing, military cots and food are being allocated for people in shelters and villages who may not be receiving adequate services.

A-American has donated $25,000 to cover the shipping costs, and is providing drop-off points at its locations in Pearl City, Kaka'ako and Kalihi. Donations will be accepted from 7 a.m. to 6 p.m. Monday through Friday, 7 a.m. to 5 p.m. on Saturday, and from 9 a.m. to 2 p.m. on Sunday.

Source: Honolulu Advertiser, Groups pitch in to provide aid for victims

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2020ComboPRO

Oct 06, 2009

Defentect introduced 2020ComboPRO photoionization detector manufactured by Photovac Inc. to its line of chemical, biological, radiological, nuclear and explosive management, monitoring and messaging system, DM3.

The 2020ComboPRO is a fully portable, handheld photoionization detector that measures volatile organic chemicals in the air, including solvents such as toluene, gasoline and jet fuel. The detector is capable of measuring acetone, identified by authorities as a major component in manufacturing what would have been a devastating improvised explosive device in the recently uncovered terrorist conspiracy in New York implicating Najibullah Zazi.

Self-storage facilities often contend with the illegal storage, dumping or abandonment of hazardous chemicals, ranging from those used to manufacture methamphetamine to the chemicals used in print shops.

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ISS Blog

Community Outreach: How-To, Part Three

Oct 05, 2009

In our quest to reach out to our community and help this holiday season, we’ve now reached the point of no return. You picked your charity to work with and you made contact. You decided you could do a bit more than just donate a unit and you volunteered your time.

I’m going to wager a bet that you're now hooked. You did a few errands, made some phone calls or put together items for a family in need. While that was all fun, you were left wanting more. Bam! Before you know it, you are now a full-fledged volunteer! You’ve hit the boss up already for a few extra dollars to feed a family or to use the copier to run off a couple hundred fliers. Yes, you caught the volunteerism bug and it’s a wonderful thing.

If you happen to be one of the strong-willed ones, you probably managed to get by with a few hours of time donated, some PR for your company and your obligation is done for the year. Bravo if you can pull that off. However, if you’re like the vast majority of people in the non-profit world, you want more. You’re dancing around trying to determine what else you can do, or how you can do more.

The biggest part of any holiday-giving program is getting the items to the recipients. Once you get this close and see all of your efforts come to fruition, there’s no going back. You are somehow finding the “spare time” to do more. All the effort always leads to the big day for any organization, be it a prom for mentally-challenged youth, food baskets for families in need, a literacy program or other worthwhile efforts.

The one project promoted by many industry speakers is to be a donation location for the Marine Toys for Tots Foundation during the holiday season. I’ve seen firsthand the difference this effort makes for the recipient children and their families, the volunteers, and the impact it has on the U.S. Marines who have seen too much horror for their young years. To see a smile from a child light up the face of a war-hardened Marine is such a blessing, and volunteers who help make this happen are truly a gift to a community.

To use the Toys for Tots organization as an example, let me advise you on some ways to really make a difference and not just be another “Johnny-come-lately” jumping onto the PR bandwagon. Putting out a barrel is great, and the more community involvement, the brighter the holidays are for the children. However, there are ways to be more than just a barrel site.

Consider using some of your resources to advertise a special move-in rate for each new, unwrapped toy donated valued at $10 or more. One of our local hotels, which is always at full capacity, runs this type of promo each year just to support the program. Give existing customers a two-for-one deal—they donate a $10 toy, you deduct $20 from their December rent.

Or get really involved, call the local Marine compound and volunteer yourself, a unit for collecting toys or your moving truck. Each year, the Marines scramble for a truck or two to collect the barrels and distribute the toys. A donated truck is invaluable to the program.

With resources the way they are, there are too few Marines to carry out the mission in most communities. Your time and effort to help collect, sort and distribute the toys would be welcomed by the captain or first sergeant at your local compound. Please don’t phone them and say, “I have toys, come get them,” especially if you have less than a dozen items. We see this time and time again, and while each and every toy does make a difference to a child, the logistics involved necessitate prudence in time management for the Corps.

Step up and do what you can for Toys for Tots or the charity of your choice. Don’t just be a “me too.” Instead, make a true difference. We have volunteered with Toys for Tots and other non-profits for more than 12 years now. We do it because we care, and the side benefit is true community outreach and appreciation from your community.

We all know that without our surrounding community’s support, we can have the greatest property features, but if there are no customers, it’s all for naught. Also, take your camera and get a few shots showing you and your team in action for your memories. You’ll be glad you did.

Share your volunteer stories with the Self-Storage Talk community.

Managing Self-Storage Debt: Solutions for Under Performing Properties

Oct 05, 2009

It’s no secret the recession has impacted owners and investors of all types of commercial property, self-storage included. From institutional property owners like publicly traded real estate investment trusts (REITs) to individual investors, it’s hard to escape the stark reality that primary operating fundamentals such as rental rates and occupancy are being challenged. In addition, cap rates are rising, and the entire financing paradigm has changed dramatically.

The combined effect of these market and economic forces can create new and sometimes unanticipated challenges for property owners. In some cases, it may not be readily apparent that a property is an under performer. Sure, rents and occupancy are down a bit, and concessions are more prevalent than a few years back, but that’s not unusual given the current economy. As long as there’s still cash flow to service the debt, there’s not really anything to worry about. Correct? Well, not exactly.

Properties with cash flow adequate to service existing debt but facing near-term loan maturities may have problems lurking in the distance. The new lending paradigm dictates much lower available leverage (65 percent) and more conservative underwriting than what was prevalent in the recent past. Couple this with valuation changes resulting from cap-rate expansion, and the result is many transactions are over leveraged by current standards.

Recognize the Problem, Calculate the Debt Yield

To determine if your loan is over leveraged, you can quickly calculate the debt yield to gain a more thorough understanding of the situation. To complete this analysis, simply divide the current loan balance by the net operating income (NOI), which is revenue minus expenses, not including debt service or depreciation. The result is the debt yield. If this number is lower than 12 percent, it’s a strong indication the current debt is higher than what’s available in today’s financing market.

Debt yields are a useful proxy measure and have been around forever. They provide a historical data set spanning multiple recessionary periods that lenders can reference and rely on. In a market where critical inputs such as underwriting standards, loan constants and cap rates change over time, debt yields are a constant that provide a useful benchmark for the amount of debt historically available for a given dollar of cash flow.

Historically, debt yields have rarely dipped below 12 percent. The last several years when capital was flowing freely and aggressively were clearly the exception and not the norm.

Think Like a Lender

To derive a valid cash-flow number, put on your lending hat and use a bank underwriting methodology that includes the following:

Market vacancy: A realistic market vacancy of no less than 10 percent.
Management fee: Even if you do not have one, you must include one that is generally between 3 percent and 6 percent of effective gross income.
Taxes and insurance: Use current premiums (not last year’s figures).
Payroll: A realistic payroll number, regardless of whether your facility is self-operated.
Replacement reserve: Typically 10 cents per square foot.

The operating-expense ratio should be in the 30 percent to 40 percent range. To calculate this, divide the sum of your total operating expenses by your income. If the number is a lot less than 30 percent, it’s probably not a realistic estimate of what it would cost a third party to operate the facility. Alternatively, if it’s much higher than 40 percent, a careful analysis may identify some capital-intensive or one-time expenses that can potentially be identified for the lender, footnoted and removed from the analysis.

If your loan is coming due in the near future, you should also calculate the exit debt yield. Simply use the loan balance that will be outstanding when the loan comes due. This is highly relevant because amortization will result in principal pay-down over a couple years, and the debt yield today will obviously be lower than when you refinance the loan.

Anticipate the Future

As mentioned earlier, if the debt yield is less than 12 percent, there’s a good chance the deal may be over leveraged by current standards, meaning the debt will need to be paid down to get a new loan that meets current underwriting parameters. Although debt yield is a useful measure, it’s also critical to understand that when you refinance, the asset will be subject to a new appraisal, and the property value may have declined. Couple this with the lower loan-to-value ratios available to investors today, and there’s a strong possibility you may have a significant cash requirement to close.

If you’re an investor in this position, here are some proactive steps you can take to help make the best of a sticky situation.

Scrutinize your operating expenses. The old guideline in finance is that every $10,000 reduction in operating expenses will bring $100,000 in value to the bottom line using a 10 percent cap rate (for easy math). While it’s not advisable to cut expenses in areas critical to your business operation, always examine discretionary items. Recognize that these add up and impact bottom-line cash flow, and by corollary, your property’s valuation.

Reserve cash. If you believe there’s an equity gap, immediately begin reserving some excess cash flow from operation. Problem-solving can cost money, and if you’re forced to go to the market and respond to an equity gap upon refinance or sale, this strategy should provide at least some cash to help fill it.

Be proactive with your current lender. It’s crucial to contact your lender as soon as possible to discuss modifying or extending the current loan. In this market, it pays to be proactive and leave plenty of time to fully explore your options. Meeting your lender allows you to gauge his reaction and better understand available options. If successful, being proactive may allow for a workable solution that’s much better than being forced to sell or refinance with another lender.

Do your homework. Prior to contacting your lender, do your homework and arm yourself with relevant information. Talk with a qualified self-storage broker to better understand the property’s value and determine if selling is viable. In addition, a mortgage professional can give you a valuable underwriting opinion and identify potential refinancing alternatives. This proactive approach can demonstrate to the lender that a loan modification is the best scenario for all parties involved. After all, the incumbent lender is a partner in the current transaction.

Work With Your Lender

If your property has adequate cash flow to service its existing debt but still faces the possibility of a loan default and subsequent foreclosure, remember the loan’s non-performance is more likely due to current market conditions than the property itself or its owner/manager. Foreclosure is an expensive process for lenders, and they certainly don’t want to be property owners. If the underlying weakness is due to market conditions and not mismanagement, the lender may determine that the most economical solution is to modify loan terms with the existing owner rather than foreclose and be forced to manage or sell bank-owned real estate in a depressed market.

Some assets don’t even generate sufficient cash flow to cover the existing debt. New construction or expansion properties that are not meeting their pro forma income and occupancy projections, for example, may face significant hurdles due to weak demand and softening rent. Likewise, properties acquired or built in the last three years (during the market’s peak) with short-term, high-leverage debt are likely to be more affected by today’s conservative cap rates and debt terms.

The sad reality is the value of many troubled assets is below the existing loan balance. Whereas cash-flowing properties with near-term maturities may face an equity gap, a more severe classification of under performing assets likely has no remaining equity at all.

If you find yourself in the unfortunate situation where the loan balance is greater than the property’s value, you may be facing an uphill battle, but all is not lost. In this scenario, you are likely headed for a workout with your lender. If so, in addition to the steps outlined earlier, consider these additional strategies.

Be Prepared

Gather all your loan documents and review them. Make sure you have a good understanding of their contents. In addition, seek competent advisors to guide you. Regardless of the type of loan you have, it’s likely you will benefit from the services of competent legal counsel.

Depending on your loan type, you may also need a loan-workout advisory service. These advisors will cost some money but should help minimize the long-term damage. It goes without saying that all consultants are not equal, so check references and make sure you hire competent and experienced advisors.

Financial-Term Modification Options

Ask for an interest-rate reduction or, if the loan can be converted to interest-only, ask to lower the loan payments to a level that allows the property’s existing cash flow to service the debt. Although it may seem nonsensical that a lender would consider these requests, make the case that he stands to lose less money through this structure than other alternatives such as foreclosure.

See if you can extend the loan’s maturity date. Time can be a great asset and heal many ills, but that requires the lender’s cooperation. If all parties agree and believe in the potential of the asset, this can often be an easy solution.

Reduce the outstanding principal balance to an amount equal to or greater than what the lender would receive through foreclosure and quick sale. If the lender believes in the current ownership, this may be a cheaper and less messy alternative.

Modify the Equity Structure

You might not want a partner in your business, but bringing in an additional guarantor with superior financial strength could boost the lender’s confidence that the loan will be repaid at maturity.

Alternatively, if the means exist, reducing the principal balance with a cash infusion from a new partner can rebalance the deal and allow the property’s cash flow to service the debt going forward.Another strategy is to offer the lender participation or a future equity kicker in exchange for modifying the loan.

Gracefully Exit the Deal

Conduct a short sale in which a buyer purchases the property at a price less than the principal balance. Again, this may not seem realistic on the surface, but if it’s a market deal, the lender avoids foreclosure costs, and the borrower potentially avoids future negative implications caused by foreclosure.

Another method is to cooperate with the lender to forgive your personal guarantee by handing the property over via Deed in Lieu of Foreclosure, as opposed to fighting foreclosure through bankruptcy. This minimizes the potential of the lender seeking your other assets for repayment.

Shawn Hill is a principal at The BSC Group. He is responsible for advising clients regarding debt and equity financing and providing loan-workout services for all commercial property types, with an emphasis on self-storage. He can be reached at 773.517.8504; e-mail [email protected].

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Talking With On The Move: Customer-Oriented Truck-Rental Business

Oct 03, 2009

Inside Self-Storage caught up with On the Move Inc. to talk about the company’s products, services, history, future plans and more. See what the company has to say about doing business in today’s self-storage market.

Products/Services

On The Move has a turnkey truck-leasing program that allows self-storage facilities to provide a state-of-the-art vehicle for customers to use. You may add a profit center to your business by renting the vehicle to your customers or the general public. We can wrap it in your custom graphics and make it a rolling billboard that advertises your facility when being driven by your customers.

Our vehicles have an extended warranty of five years or 100,000 miles. We provide all the ancillary materials you need to rent the vehicle and for your customers to use it safely. We can also provide you with an insurance license to our fleet policy, giving you $5 million liability and other coverage (comprehensive/collision) at a low cost.

You can sell advertising spaces on the back door of the truck to local companies to zero-base your truck and get it for free. We would be glad to assist you in ordering your new vehicle.

Mission

On The Move has always been and will remain customer-oriented. We strive to provide a worry- and hassle-free turnkey process to truck ownership. Effectively, we do it all!

History

Maury Westerdale, our founder and chairman of the board, is a pioneer in the self-storage industry. He built his first facility in 1978, and discovered his customers’ need for a rental truck. He converted his rental trucks into moving billboards when he added graphics to advertise his facility.

On The Move was founded on his discoveries and designs, which have developed into our modern-day truck-rental program, with leased vehicles in all 50 states and Canada.

Difference From Competitors

On The Move leases trucks directly to self-storage owners and allows them to set up their own truck-rental business. They get to make all the decisions about their rates and keep all the profit. By putting their own graphics on their trucks, they are creating moving billboards that advertise their facility.

Future Plans

On The Move is proud to announce that we have expanded our market to include Canada for truck sales and insurance. We continue to provide vehicles (cargo vans, pickup trucks, etc.) for service companies. Additionally, On The Move is always trying to make our trucks safer and easier for our customers to use. We are excited and look forward to our future.

30 Seconds in an Elevator With a Prospect

Anyone moving belongings into a storage facility will need a truck. On The Move can provide you with everything you need to start a truck-rental business and allow you to keep all the profit.

Other Things Readers Should Know

On The Move is family-owned and customer-oriented. We are proud that a majority of our business is repeat business from existing customers. They are satisfied with our product and the service they receive. They are anxious to continue working with our business while they expand their own. We look forward to a long and mutually prosperous relationship.

For more information, visit www.onthemovetrucks.com

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