U-Store-It Trust, a self-administered and self-managed real estate investment trust focused on self-storage facilities, announced its board of trustees declared a quarterly dividend of $0.07 per common share for the period ending Dec. 31. The dividend, payable on Jan. 21, to common shareholders of record on Jan. 7, represents an annualized dividend rate of $0.28 per share, an increase of 180 percent compared to the previous annualized dividend rate of $0.10 per share.

"The past two years have been transformational for our company as we navigated through a difficult recession and damaged capital markets, said CEO Dean Jernigan. Our dividend policy during this period was predicated on preserving liquidity as our highest priority. As 2010 comes to an end, we look to continue our positive net operating income growth into 2011, execute our external growth initiatives, and refine our healthy, largely unsecured balance sheet."

The increase in dividend marks a return to a more traditional dividend policy for the company, and reflects its increasing confidence in the fundamental strength of the companys portfolio and the self-storage sector, Jernigan said. The implied $0.28 annual dividend rate per share represents the portion of the companys estimated 2011 free cash flow that it believes is appropriate to distribute as dividends based on general economic conditions and the companys continued confidence in external growth opportunities. "Our philosophy going forward will be to share our future growth in free cash with shareholders as well as increase the overall percentage of free cash flow we distribute as economic conditions stabilize, Jernigan added.

Based in Wayne, Pa., U-Store-It owns or manages 476 facilities across the United States and operates the U-Store-It Network, which consists of approximately 714 additional self-storage facilities.

By Dale C. Eisenman

Self-storage owners frequently want to know, What are current cap rates? What theyre really asking is, What are our properties worth in todays market? Before we can answer that question, we need to understand two things: First, the commercial real estate market is dynamic, and second, self-storage does not exist in a vacuum.

To determine the value of a self-storage property, you must understand the income it has already generated and what it will provide moving forward. While appraisers typically value commercial real estate by the income approach, the replacement-value or -cost approach, or the comparable sales approach, this article will focus on the income approach, for this is what motivates buyers almost exclusively. Property condition, location, competition and other factors all enter into how a facility performs.

The Commercial Real Estate Market

Just like the stock market, the market for commercial real estate is constantly changing. For example, assuming a stable supply of self-storage properties for sale, from time to time, theres more capital available on favorable terms than others, which may lead to more demand, more activity and higher prices. Other times, theres less available capital (debt and equity), which may lead to less demand and lower prices.

For most investors, commercial real estate represents a financial investment and should be seen in financial terms. Buyers are looking for an adequate return as compared to alternative assets. More specifically, the self-storage buyer is seeking to achieve acceptable return as he compares specific properties.

Self-storage should not be seen in a vacuum. It competes with multi-family, office, industrial and retail real estate in its attempt to attract buyers. It also competes with alternative investments such as stocks, bonds, CDs, etc. Investors seek adequate return on their capital. Its of no importance to them what the seller has invested in the project or the proceeds he needs to fund his retirement. The asking price needs to be supported by the income the property generates.

Likewise, todays buyer will not pay the seller for future improvement in income. In fact, in this market, buyers assign little or no value to expansion land or vacant units. An existing facility may be sold below its replacement cost and, possibly, below the investment made by the current owner. Why? Because a buyer will only pay an amount he feels will be justified by the expected return.

Think of it in terms stocks: Just because someone paid $55 per share for a stock last year doesnt mean a new buyer will pay $55 or more for it this year. While its sometimes difficult, to determine a facilitys current value, an owner must focus on the return on investment his property will provide.

Gathering Information

The process of determining self-storage facility value can be seen as reviewing the past and predicating the future. The first step is to gather and review information. Accurate records are critical. Begin by collecting: trailing 12 months revenue and expenses (categorized by month), the previous years income statement, earlier income statements, and occupancy information.

Often times, small or individual operators understate and under record revenue and overstate expenses. While there may be business or tax reasons to do so, for the purposes of determining value, you must be able to review and verify all revenue generated by the facilityrent, truck-rental commissions, retail sales, late fees, administrative fees, etc.

Equally important is to properly and accurately reflect all operating expenses. These are the costs the owner incurs to generate revenue, minus debt service, amortization and depreciation. Owners often fail to recognize items such as repair and maintenance costs, complete payroll, and others. In other cases, they include items that have nothing to do with operating the facility, which must be adjusted to provide a true and accurate picture of expenses associated with the property.

By comparing financial data month to month, the owner and potential buyer can see revenue and expense fluctuations. In many parts of the country, self-storage rentals are seasonal, as are some expenses. Comparing the last two or three years of data will illustrate trends for the property. A site that sees increasing occupancy, revenue and income is more attractive than one that shows a consistent decline.

The Valuation

Once armed with accurate historical information, you can attempt to predict the future. Based on experience and your view of the market, including the overall economy, you can project expected revenue by asking: Will occupancy increase? Will rental rates rise or fall? Are there missed opportunities for additional revenue through fees, truck rentals, retail sales or ancillary services? You can also project expected expenses by asking: Will real estate taxes increase upon sale? Will payroll be less or more? Will bank fees, insurance and management fees rise or fall?

This entire exercise is an attempt to determine the accurate net operating income (NOI) or revenue less operating expensespast, present and future. While buyers may project future income, they determine current value by using current NOI.

Heres a caveat: While many seem to focus solely on capitalization rates (cap rates), this is only a starting point and should not be considered a complete or full estimate of value. There are many factors a cap-rate analysis doesnt take into account, so it should serve merely as one piece of the puzzle. Cap rate focuses on NOI over a short period of time as opposed to the entire period of ownership. Once NOI is determined, including the future proceeds from sale, we can initially estimate value by using the formula:

Annual Income
Value x Cap Rate

If you know any two of the variables, the formula can be solved for the unknown. For example, assume a property of 50,000 rentable square feet is 85 percent occupied and generates an average of $1 per square foot per month in rental revenue. (For this example, well ignore ancillary income, which may carry a different cap rate.) The monthly revenue is 85 percent of $50,000, or $42,500; thats $510,000 per year. If operating expenses total $200,000 annually and the market cap rate is 9 percent, the value calculation would be:

• $510,000 Revenue - $200,000 Expenses = $310,000 Income
• $310,000 Income / .09 = $3,444,444

Who or what determines the cap rate? The short answer is the market. Often its the threshold a potential buyer must attain before acquiring a property. For example, a buyer may have investors to whom a 7 percent return is paid. In that case, that buyer would rarely be able to acquire a property unless he purchased at a cap rate above 7 percent (unless the buyers analysis showed adequate return in the future to offset the difference).

In other words, market cap rates reflect what buyers are willing to pay, sellers are willing to accept, and lenders are willing to underwrite. That is correctlenders play a growing role in influencing the market. If a buyer cannot finance a property at a specific purchase price, a transaction is unlikely to occur.  There has to be adequate cash flow from the property to service the debt and meet the lenders requirements for, among other parameters, debt-coverage ratio and debt yield. In short, there has to be enough cash flow to pay all the operating expenses, service the proposed debt and have money left over.

Other Methods to Determine Value

There are other methods for determining facility value, and its important to be aware of them. Heres a brief summary:

Internal rate of return. This analysis calculates the rate earned on each dollar that remains in an investment every year, and takes into account the proceeds from the sale of the asset. It can be calculated based on purchases with or without financing. One of its advantages is it provides a measurement of the return one might expect over time, usually years.

Cash-on-cash return. This is a measurement of the return on the cash invested in a property and is calculated by dividing annual cash flow by the amount of cash invested.

Heres another caveat: Each approach to valuation typically ignores the impact of taxes and is, therefore, before tax. A complete analysis should take into account the tax implications for a buyer and seller based on their specific circumstances. All of these methods of valuation can be employed when estimating value.

Dale C. Eisenman is president and broker in charge of Midcoast Properties Inc., as well as a licensed real estate broker in Georgia, and North and South Carolina. In addition to being a professional pilot early in his career, Eisenman has practiced law, owned and operated several small businesses, and has been an active commercial real estate investor for more than 20 years. He specializes in the self-storage industry as an investor and broker. To reach him, call 843.342.7650; e-mail [email protected]; visit www.midcoastproperties.com .

A man suspected of a July 13 armed robbery at a North York, Pa., self-storage facility was arrested on Friday. Christopher N. Stafford, 38, of Springettsbury Township was arrested by state police in Eagleville and taken to York for arraignment, police said.

Stafford allegedly used a hand gun to force the facilitys female employee to the floor. He is charged with robbery, theft by unlawful taking or disposition, receiving stolen property, aggravated assault, simple assault, crimes committed with firearms, and persons not to possess, use, manufacture, control, sell or transfer firearms. He was taken into custody without incident.

The arrest was part of a warrant service operation conducted by Northern Regional Police and the United States Marshalls Fugitive Task Force. The operation is intended to find, arrest and prosecute offenders in York County and South Central Pennsylvania.

Strategic Storage Trust Inc., a publicly registered non-traded real estate investment trust targeting the self-storage market, acquired a five-year-old self-storage complex in North Las Vegas from IBRAC LLC for $4.2 million. It will be rebranded SmartStop Self Storage.

The 700-unit Storage One complex is located inside Simmons Marketplace and close to high-traffic retailers including Walmart, Albertsons and Fitness 19. The two-story complex is 94,000 square feet on 3.23 acres, and averages 93 percent occupancy. It features surveillance cameras, individual locks, climate control and keypad entry, and has 63 RV- and boat-parking spaces.

Strategic Storage Trust now owns 1,410 units in Nevada, including a 190-unit complex and 520-unit complex. Since its launch two-and-a-half years ago, Strategic Storage Trusts portfolio of wholly-owned properties has expanded to include 39 properties in 15 states.

Highline Self Storage in Santa Paula, Calif., hosted the citys chamber of commerce monthly mixer in November.

The Nov. 17 event was held from 5:30 to 7 p.m. at the facility at 1343 E. Main St. The facility recently opened. Paladin Principal co-hosed the mixer.

Rodney Elliott, owner of Highline Self Storage, and Ernie Villegas gave tours of the facility. Guests also enjoyed hors doeuvres and a no-host bar after the first drink, all included in the $5 entry fee. 

Highline Self Storage offers traditional indoor storage in a variety of unit sizes, plus RV and boat storage, and truck rental. 

Centershift Inc., a provider of self-storage management software, successfully achieved another SAS 70 Type II certification after an audit of internal controls by the internationally recognized independent auditing firm Grant Thornton. Centershift was the first software provider in the self-storage industry to achieve this status.

The certification verifies that the companys control objectives and activities surrounding financial transactions meet the standards for internal control over financial reporting developed by the American Institute of Certified Public Accountants (AICPA). Centershift has earned the certification four consecutive years.

The SAS 70 audit requires intensive documentation of the companys process controls and a physical audit by a third-party organization of those controls, said Terry Bagley, president and CEO. An audit must be performed each year for the SAS 70 Type II certification to be issued.

This audit helps satisfy the requirements of our largest clients in their compliance with the Sarbanes-Oxley act of 2002, added James Hafen, chief technology officer and executive vice president.

Statement on Auditing Standards (SAS) No. 70 is an internationally recognized auditing standard developed by the AICPA. A service auditors examination demonstrates that a service organization has been through an in-depth audit of their control activities, which generally includes controls over information technology and related processes. An SAS 70 Type I outlines the procedures, policies and controls necessary to ensure effective performance at a single point in time. SAS 70 Type II is an independent audit of these procedures, policies and controls to verify and validate that the organization is actually following them over an extended period.

Grant Thornton is an internationally recognized, top-five public accounting firm.

Based in Salt Lake City, Centershift provides Internet-based rental-management and point-of-sale software solutions for the self-storage industry. Its clients include real estate investment trusts and ownership/management organizations of all sizes. The companys Store Enterprise and Advantage applications were designed for integration with websites, call centers, web aggregators, iPhones, centralized mail services, corporate offices and other business systems.

Concerns about bed bugs, especially in urban areas, continue to rage throughout the United States, and the self-storage industry is no exception. This week self-storage operators have taken their own as well as customer concerns about bed bugs to Self-Storage Talk, the official online forum of Inside Self-Storage.

On a thread titled "Bed Bugs," forum member jaywontfly posed the questions, "What do I tell my customers about bed bugs?" and "How do I keep them out?" For jaywontfly's facility, a couple of other facilities nearby have had tenants report bed bugs, but they remain unscathedso far. How would a facility's staff know if they had bed bugs until someone reported it?

To track whether bed bugs have been reported in your area, use Bed Bug Registry, recommended by SST member Madman. The same member suggested making sure the entire staff has been through awareness and prevention training, not only for actual bed bug prevention but for sales situations in which customers ask what you do to prevent the pests.

Member shaekirk points out that bed bugs don't just attack mattresses, they attack anything that has had regular contact with human skin including boxes of linens, towels, blankets, perhaps even clothing. Member DebT suggests upselling tenants with plastic mattress and linen covers to put on all of these items before they're stored.

Do you have ideas on how to thwart the bed bug revolution? Log into SST and post your suggestions. You must be a registered member to post; if you aren't registered, you can do so for free. The process is easy and takes only a few minutes.

Live and growing since 2008, SST is the largest online forum in the self-storage industry, with approximately 3,800 members, 23 different topical forums, 3,740 discussion threads and 32,200 posts.

Self-storage owner Nicholas Sprayregen has ultimately lost his battle in a New York eminent domain case as the U.S. Supreme Court refuses Monday to reconsider the legality of his case.

Sprayregen, owner of four Tuck-It-Away Self Storage facilities in Manhattanville, and two other business owners reached out to the high court, hoping to reverse the decision by a lower court that paves the way for Columbia University to use eminent domain to take over the land on which their businesses reside.

The New York Court of Appeals in Albany ruled in June the state can use its eminent domain power to acquire private property for an expansion for Columbia University. Eminent domain is state seizure of private property for the public good in exchange for market-rate compensation.

The ruling reversed a lower court ruling from December 2009 that stopped the state from taking property from Sprayregen and Gurnam Singh and Parminder Kaur, the owners of two gas stations.

Columbia now has the legal right to move forward with its 17-acre expansion in West Harlem, from 125th to 134th streets, bordered by Broadway and 12th Avenue.

Sprayregen, Singh and Kaur, who refused for six years to sell their land, embarked on a two-year legal battle to maintain rights to their land.

"We are extremely disappointed that the Supreme Court of the United States decided not to hear this important eminent domain case," Norman Siegel, Sprayregens attorney and the former director of the New York Civil Liberties Union, told the Columbia Spectator. "The denial ... means that the abuse of eminent domain in New York stands."

The Supreme Court announced Friday it would consider to grant certiorarithe official term for agreeing to hear a case. The court grants just one percent of all petitions for certiorari. The last Supreme Court eminent domain decision was Kelo v. City of New London in 2005, in which property owners lost their case.

Columbia unveiled plans to build a satellite campus in 2003 and has since attempted to obtain parts of a 17-acre site in Upper Manhattan for its $6.3 billion expansion. After Sprayregen refused to sell his property, Columbia sought to obtain the land through eminent domain.

The legal battle began in December 2008, when Empire State Development Corp., the state agency that approves eminent domain, deemed the neighborhood blighted. Sprayregen, Singh, and Kaur then filed lawsuits.

Sprayregen told Inside Self-Storage last summer that he was stunned by the Court of Appeals decision and reversal of the prior Appellate ruling. The Court of Appeals virtually ignored most of the facts we presented during the proceeding.