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Self-Storage REIT Public Storage Responds to Criticism, Pressure From Investor Elliott Management

January 8, 2021

6 Min Read
Self-Storage REIT Public Storage Responds to Criticism, Pressure From Investor Elliott Management

Update 1/8/21 – Following engagement with company shareholders, including funds advised by Elliott Investment Management L.P., Public Storage has appointed Michelle “Meka” Millstone-Shroff and Rebecca Owen to its board, and named Neithercut as the new lead independent trustee replacing Gary E. Pruitt, who has retired. The REIT has also established a long-term planning committee to advise the board on planning, strategic growth, capital allocation and capital-structure management, according to a press release. The planning committee will be chaired by Joe Russell, president and CEO. Other committee members include Leslie Heisz, Millstone-Shroff, Mitra, Neithercut and Owen.

In related actions, the REIT also entered a cooperation agreement with Elliott, which withdrew its nominees to the board along with related nomination and cumulative voting notices. As a result, Elliott will now support the board’s nominees during the REIT’s upcoming annual shareholders meeting. Public Storage and Elliott have also agreed to share information that facilitates continued dialogue in preparation for the REIT’s Investor Day on May 3.

“We welcome Meka and Becky to the board and look forward to working with them as we take action to drive long-term value creation,” Havner said. “Today’s actions will accelerate our company’s ongoing, comprehensive process to refresh the board and further improve corporate governance. We are pleased to have collaborated with Elliott and other shareholders in connection with these actions. We also expect the new committee to build on the progress Joe and his team have made since he took on the CEO role to reinvest in the company’s existing portfolio, implement new technology to enhance customer experience, drive organic growth, accelerate external growth, and expand third-party management.”

“Public Storage has the best platform in the self-storage industry, and we share the board and management team’s conviction in the company’s ability to capitalize on its leading franchise,” Weber said. “We believe the changes announced today will position the company for significant growth and are pleased to have helped the company identify corporate-governance improvements and to have worked constructively with the board and management to reach this result. We look forward to the company’s Investor Day and its strategy to drive sustainable value creation.”

Millstone-Shroff, 45, has served as an independent adviser to various businesses since November 2018, and has served as a senior advisor to an unidentified, global management-consulting firm since April 2019. She previously served as chief customer experience officer at Bed Bath & Beyond Inc., and was president and chief operating officer of Buy Baby Inc., a subsidiary of the retailer. She serves on multiple boards of directors including technology company Nanit and retailers Neiman Marcus Group Inc. and Party City Holdco Inc.

Owen, 58, founded Battery Reef LLC, a commercial real estate investment and management company, in January 2019 and serves as its board as chair. She previously served in various roles at private-investment firm Clark Enterprises Inc. and its affiliates, including senior vice president and chief legal officer at Clark, and president and chief investment officer at CEI Realty Inc. Prior to her work with Clark, Owen practiced as a commercial real estate and corporate attorney. She serves on the board of directors of private REIT Carr Properties and is a member of the real estate investment advisory committee of ASB Capital Management LLC. She previously served on several other corporate boards.

12/17/20 – Fund manager Elliott Management Corp., which has invested in self-storage real estate investment trust (REIT) Public Storage through two different entities, has publicly pressured the REIT to change its operational strategies and board of trustees. In a press release issued on Monday, the company said it had made “substantial” investments into the storage operator and criticized its performance compared to other publicly traded industry REITs. Elliott also shared a letter it recently sent to Public Storage containing nominations for six trustee candidates and several recommendations for company growth.

In the message, Elliott portfolio managers Jeremy Grant and Johannes Weber urged the REIT to refresh its board, which they criticized for members’ “long tenure and lack of independence.” They suggest the company form a new committee to evaluate its performance and growth plan and restore investor credibility. The pair argued that Public Storage has underperformed for the last decade “despite having numerous structural advantages.”

In conducting their own research and survey of Public Storage customers and locations, Grant and Weber concluded the REIT ceded market share by failing to invest more heavily in expansion, including a slow move toward third-party management. They also criticized the company’s customer experience compared to competitors, encouraged the REIT to invest more in its employees, and said its pricing algorithm focused too much on occupancy.

Public Storage officials released a statement on Monday indicating its board and management team “are committed to serving the best interests of the company and its shareholders, and will continue to take decisive action to drive sustainable value creation.” The REIT defended its market position, growth performance and operational initiatives.

Earlier Monday, the REIT also announced the appointment of three new board members: Shankh Mitra, CEO and chief investment officer of Welltower Inc.; David Neithercut, board member and former president/CEO of Equity Residential; and Paul Williams, president of the Chicago chapter of the National Association of Corporate Directors. All three will begin on Jan. 1. They’ll fill the seats being vacated by Uri P. Harkham, B. Wayne Hughes Jr. and Daniel C. Staton, who’ll be retiring effective Dec. 31.

“We are pleased to welcome Shankh, David and Paul to the board,” said Ronald L. Havner Jr., Public Storage Chairman. “With deep real estate investing experience, corporate governance expertise and proven track records as public company leaders and board members, they will bring valuable perspectives and skillsets that complement those of our current trustees. Further, these highly qualified new trustees bring diverse backgrounds and experiences, and they have a demonstrated focus on sustainable value creation, which will support the board’s and management’s strategy to promote the long-term resilience of our business and enhance shareholder value.”

As of Jan. 1, Public Storage will have appointed five new trustees in the last 18 months. In its letter, Elliott officials acknowledged the appointments but still criticized the makeup of the board. None of the new trustees were among the names put forth by Elliott. “We do not believe that the current board of trustees can lead Public Storage toward long-term success, even with the changes announced yesterday,” the Elliot message stated. “Prior to those changes taking effect, [Public Storage’s] board has a 12-year average tenure and lacks a sufficient number of independent trustees, making it one of the least independent boards in the S&P 500.”

Founded in 1977, Elliott manages approximately $41 billion in assets. Its fund investors include pension plans, sovereign-wealth funds, endowments, foundations, funds-of-funds, high-net-worth individuals and families, and employees of the firm, according to the release.

Based in Glendale, Calif., Public Storage has interests in 2,504 self-storage facilities in 38 states, with approximately 171 million net rentable square feet. It holds a 35 percent interest in Shurgard Self Storage SA, which has 239 facilities in seven European countries, with approximately 13 million net rentable square feet.

Public Storage, Public Storage Advances Board Refreshment
Businesswire, Public Storage Issues Statement
Businesswire, Public Storage Appoints Three New Independent Trustees
PR Newswire, Elliott Management Nominates Independent, Highly Qualified Trustee Candidates to the Board of Public Storage
Barron’s, Activist Investor Elliott Management Wants Changes at Public Storage
Reuters, Elliott Confirms Public Storage Board Nominations, Urges Growth Moves

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