Storage USA Changing Hands in $2B+ Deal

MEMPHIS, TN-Storage USA, one of the largest self-storage companies in the nation with 18.3 million sf in 450 properties in 30 states, is changing hands for $2.3 billion in cash. GE Commercial Finance has agreed to sell the locally based company to a joint venture of publicly traded Extra Space Storage Inc. and Prudential Real Estate Investors, which is acting on behalf of four open-end commingled funds and two single client accounts. The transaction is expected to close in the third quarter of 2005.Extra Space Storage is a self-storage REIT headquartered in Salt Lake City. It owns and/or operates 148 self-storage properties in 20 states. Prudential Real Estate Investors is the real estate investment and advisory business of publicly traded Prudential Financial Inc. GE Finance is the business-to-business financial services arm of publicly traded General Electric Co. “Given the attractive pricing environment, now provided to be the right time to capitalize our investment,” a GE Finance source tells GlobeSt.com. GE acquired Storage USA three years ago as part of its acquisition of Security Capital. In 2003, it liquidated the Regency Centers stock that came with the acquisition of Security Capital. It retains the InterPark parking and Belmont assisted living businesses that also came with the deal. The Storage USA properties are concentrated in California, Florida, the Northeast and the Middle Atlantic regions. Extra Space Storage will manage the properties, in addition to owning 61 additional sites, along with Storage USA’s joint venture and franchise facilities. PREI has committed about $1.5 billion in equity to the transaction, with Extra Space committing the remainder. “Until now, this sector has primarily been owned by REITs and private investors, but is becoming increasingly popular among institutional investors,” says PREI chief executive Charles Lowrey. “Through this transaction, we’re able to … provide investors with a geographically diverse exposure to this sector, which offers the potential for good returns through increases in rents and occupancy.”Youguo Liang, managing director of PREI research adds that as employment levels have been increasing during the current economic expansion, demand for self-storage has been recovering and strengthening. “This higher demand, coupled with slowing supply growth, will likely result in moderate rent and income growth in the medium term,” he says. “This positive outlook for the self-storage industry, attractive cap rates and high diversification benefits make self-storage an attractive consideration for institutional investors.”The transaction also expands PREI’s already existing relationship with Extra Space Storage, which began in 1998 when PREI’s merchant banking unit formed joint ventures with Extra Space and others to acquire and develop self-storage facilities. To date, PREI has invested $133 million in 32 properties in partnership with Extra Space Storage. Additionally, PREI has invested in self-storage assets throughout Europe, bringing its total investment in the sector since 1998 to about $500 million.