GE may sell storage arm to Utah firm

General Electric Co. is in talks to sell its self-storage business for around $2.5 billion to a Prudential Financial Inc. unit and Utah-based Extra Space Storage Inc., according to people familiar with the discussions.

The deal with Prudential Financial's real-estate investors group and Extra Space Storage could take place as early as this week, although details of the transaction, including the price, are still being finalized, people close to the matter say. Storage USA is part of GE Commercial Finance, the biggest unit at the Fairfield, Conn., conglomerate.

Representatives for Prudential, based in Newark, N.J., didn't return requests for comment. A spokesman for Extra Space, a real- estate investment trust based in Salt Lake City, told the Deseret Morning News Monday that the company would not comment on the Journal article.

GE spokesman John Oliver said, "GE doesn't comment on rumors." He added, "We are always looking for ways to run our business more efficiently and more profitably."

The unglamorous realm of self-storage, with an estimated market value of $120 billion, has become an attractive part of the real- estate investment trust universe. There are five self-storage REITs now trading publicly, with a combined market capitalization of nearly $11 billion. These REITs have had one-year gains of over 16 percent, according to the National Association of Real Estate Investment Trusts, outpacing the performance of both residential REITs and office/industrial REITs.

GE acquired Storage USA in 2002 when it bought Security Capital Group Inc. for around $4 billion in cash and a stock distribution, and the assumption of $1.4 billion in debt. Storage USA, which operates in 34 states and the District of Columbia, is the third- largest storage company based on rentable space, according to a recent report by Prudential Real Estate Investors.

In the report, Prudential noted that small, local individual owners control the majority of self-storage space, with publicly traded firms and institutional investors owning about 13 percent of the industry.

The deal would be a massive one for Extra Space, which has a market capitalization of just over $400 million, total debt of $473 million and 147 properties in 20 states, including Utah. The company would still remain small by comparison to Public Storage Inc., a rival storage REIT that carries a market capitalization of $7.4 billion and ownership interests in over 1,400 storage facilities.

A report last week by Bank of America analyst Ross Nussbaum highlighted a possible deal between GE and Extra Space Storage but didn't name Prudential Financial. In his analysis, Nussbaum noted that Storage USA was a "big nut to swallow" for Extra Space, and that it would need to partner with an investor who would take a majority stake. Nussbaum questioned Extra Space's ability to "integrate the assets seamlessly and run a $4 billion portfolio overnight." Details of how the deal would be structured between Prudential and Extra Space weren't clear.

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