Utah's largest initial public offering.
It brings to mind a biopharmaceutical darling, or perhaps a promising technology firm. Maybe a company producing life-saving medical devices.
That distinction belongs to Extra Space Storage, a Salt Lake-based company specializing in self-storage facilities — typically sleek, modern structures that, from the outside, could be mistaken for an office building or high-end hotel.
Chairman and chief executive officer Kenneth Woolley likes to tell the story of Spencer Kirk, who harbored common self-storage perceptions as Woolley tried to lure him to the company's management team in 1998.
"His vision of self-storage at the time had been that you drive along the freeway, you see a chain-link fence with some concertina wire on it, and behind that you see some gray cinder brick buildings and gravel driveways and sort of ugly-looking properties," Woolley said. "You drive around to the front of it, and there's a guy with a tank top, some tattoos, holding a shotgun, looking over your stuff.
"That was his image, as he told us. It's sad but true, living here in Salt Lake, as you drive on that I-15 corridor from Murray to Bountiful, you see a lot of properties that look that way. They're very ugly. They do not give a good image to our business. Our properties do not look that way."
Indeed, Extra Space — which in August had an IPO that raised $252 million and a subsequent over-allotment option exercise by the underwriters that added $38 million more — has facilities plopped down in the middle of densely populated areas. But they typically are clean, well-lighted, manned by uniformed personnel and often feature climate-controlled conditions. A few even forsake the stereotypical rows of exterior roll-down doors, opting instead for internal access via a drive-through.
An art deco exterior covers one in Hollywood. One in Simi Valley, Calif., is surrounded by palm trees. A gleaming-white, five-story facility occupies the Bronx.
Location, location, location
Extra Space has 136 properties, primarily in California, along the East Coast and in Chicago and Texas. It's the largest self-storage company in the Boston area. It has about 72,000 tenants, a number that rises to 85,000 when one adds properties Extra Space manages for unaffiliated third parties.
But it's not a company interested in operating in just any ol' place. High population density is a company hallmark. On average, 306,000 people live within five miles of each of its properties, and they have per capita income of $26,000.
"It's easy to build another self-storage property down the street. If you're in places where zoning regulations are not very strict, or it's just very easy to build, then competition comes in so much that there's very little opportunity to raise rents or create a sustainable business," Woolley said.
"Where zoning is very difficult, incomes are much higher, people can afford to pay more rent and people have more stuff because materiality is more important."
That has let Extra Space have an average rent of about $13.50 per square foot per year. By comparison, it's about $8 for companies operating in Salt Lake City.
Still, with lingering perceptions about self-storage, the company has had some doubters.
"In the financial community, as a self-storage company, we've often been considered a stepchild, so for many, many years it's often been difficult to get loans," Woolley said. "However, as people see the new product that's being built and they look at the stability of the income from our properties, they get more attracted by the investment."
A real estate investment trust, Extra Space is committed to paying a 91-cents-per-share dividend through at least 2005. At a $12.50-per-share IPO price, that's 7.28 percent.
With $450 million in equity and $220 million in debt, Extra Space is one of only five Utah-based companies trading on the New York Stock Exchange. But the company nonetheless sports humble beginnings.
Woolley was an entrepreneur since his early teens, when he had a wholesale stamp-collection business and later a TV repair shop. He helped pay for college at Brigham Young University by buying and selling antique cars from England throughout the West.
While in graduate school, he worked for a fellow building self-storage facilities. In 1972, he noticed Boston had no self-storage sites. Later, he convinced the head of a Wyoming-based company to get into the business. The first was built in 1977 in Billings, Mont., under a different name.
A year later, he was contacted about joining the faculty at BYU. He moved to Provo and started Extra Space Storage under its current name while also working at BYU. For the next decade, while Woolley also was in the homebuilding business in the Salt Lake Valley, the company built 30 properties, but many were later sold. By 1990, the company owned five.
A key moment occurred in 1998, when Woolley and other senior officials decided to make the company a major player in the industry. With a dozen properties in the portfolio, Woolley sought the business expertise of Kirk, who had been CEO of Megahertz Corp. Woolley says Kirk essentially became co-CEO of Extra Space.
Since then, the company has grown by building 55 to 60 facilities in several states and acquiring dozens of properties in a few others. Extra Space owns one property in Utah, a facility in Kearns.
This year Kirk began serving as a mission president for The Church of Jesus Christ of Latter-day Saints in Virginia, but he remains on the company's board of directors.
Going public was needed for the company to grow, Woolley said. During its history as a private firm, financing had been arranged through joint-venture relationships, but going public streamlined a lot of the operations and capital structure.
Analysts tracking the industry are expecting the company's revenues to climb. UBS Investment Research, for example, is predicting 2004 revenues of $85.3 million, a number expected to reach $107.8 million in 2005 and $117.8 million in 2006.
A 'quality portfolio'
As for the analysts, a few cite challenges for Extra Space to overcome, but many love the fact that the company's facilities are in the right place at the right time.
Banc of America Securities last month wrote that the "pro forma portfolio fundamentals look healthy relative to peers," adding that occupancy was high, rents were moving up and "the investment pipeline appears to be on track."
UBS noted a "high quality portfolio" in desirable markets, with per-square-foot rents being among the highest in the industry.
Raymond James & Associates said Extra Space "enjoys superior tenant diversification relative to other property types" and that with more than 70,000 tenants, "the risks associated with a high tenant concentration and of individual tenant default are substantially mitigated." Being in densely populated areas also leads to tenants less sensitive to price and wanting convenience, it said.
A Web-based centralized database with real-time information indicates tenants stay an average of about 24 months. "We don't have seven or eight customers in an office building where if one of them leaves, you're dying," said James Overturf, vice president of marketing.
Extra Space plans to continue its growth by developing about 25 properties through joint ventures and acquiring 30 to 40 others annually.
"Our goal over the next year is to acquire $200 million worth of operating self-storage properties that were already developed by other people, in the same markets we're in," Woolley said. "And we're very confident we can do that."
But as intriguing as the history, financial figures and goals are, the essence of Extra Space has been its ability to tap into the ever-on-the-go, materialistic psyche of Americans. As George Carlin used to joke, it's all about "finding a place for your stuff."
Store it away
"It's becoming a way of life for a lot of people," Overturf said. "It's a way of expanding their living space without adding onto their home. . . . For a lot of our business customers, it makes a lot more sense for them to use self-storage than it is for them to build a warehouse or something like that."
For many people, self-storage "is usually the last thing they ever want to do," he said. "But what we try to do is make it as convenient and professional as possible, so they come in and go, 'You know what? This is great.' "
Woolley described the industry as "somewhat recession-proof." The economy may dip or rise, but per-property cash flows of public self-storage companies don't waver much.
"During the downturn in the market in the last two years, we went down 1 percent in occupancy, whereas offices nationwide had gone down 8, 9, 10 percent. It has become such an integral part of the consumer, it becomes part of their lifestyle, and they don't get rid of it or stop doing it just because the recession happens."
Raymond James & Associates notes that the aging baby boom generation will tend to demand homes that are smaller and easier to maintain and thus have less storage space for their possessions. At the same time, the group will be entering their peak earning years, making it likely they will amass "a significant collection of material possessions that will further drive its needs for self-storage."
People, Woolley said, are pack rats.
"People like their stuff. They buy too much stuff at stores, and they end up with too much at their house, and as a result it either goes to the landfill dump or into self-storage. The better stuff ends up in self-storage. The real garbage ends up in the landfill dump," he said.
"It really has to do with human nature and taking care of the need that people have to store their excess things."