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Americans Stop Living in the Past, Say No to Self-Storage

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Tighter budgets mean inessentials get the ax.

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When times were good, self-storage firms made brisk business out of junk repositories.

Now, with consumers eager to cut monthly expenses, paying to keep useless bric-a-brac just doesn't seem like that brilliant an idea. The Wall Street Journal reports that self-storage companies, many of which are organized as real-estate investment trusts, or REITs, are seeing customers flee en masse.

As KeyBanc analyst Jordan Sadler told the Journal, "Consumers are having to choose between a mortgage payment, a car payment and a self-storage payment. It's an easy one to get rid of."

When the economy began to sour, storage firms were actually highlighted as a potential pocket of strength. After a strong performance during most of 2008, the sector followed the broader equity markets down the proverbial rabbit hole last fall. Public Storage (PSA), the largest storage company in the country, fell from over $100 per share in September 2008 to below $50 last week.

U-Store It Trust (YSI), Sovran Storage (SSS) and Extra Space Storage (EXR), the other 3 publicly traded storage companies, fared slightly worse. Margins are dwindling as tenants vacate, defaults rise, and the industry is forced to increase advertising to replace its shrinking client base.

Investors also fear that the big storage companies may have a hard time rolling over their debt when it comes due, since, as REITs, they're heavily dependent on borrowing against real-estate assets.

In recent years, as new electronics and furniture piled up in the homes of American consumers, demand for storage facilities jumped. After all, we had to make room for the latest models of those "essentials" we just couldn't live without. Real-estate developers, snapping up land with cheap debt, found erecting and filling up storage units a simple, profitable business.

Old photos, antique sewing machines and other reminders of years long past don't notice freeway noise; they don't require curb appeal. As long as the sites were accessible, location didn't really matter. Land was cheap, and revenue -- the average lease currently sits at over $80 per month -- more than made up for the minimal upkeep and paltry debt service.

But now that budgets are stretched, customers are parting with the past in favor of the future. Indeed, in many cases, the future be damned - making it to next month is good enough.
No positions in stocks mentioned.

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