Tenant protection is the largest ancillary line in self-storage, and the easiest to overstate in a sale pack.
Multiply occupied units by the share of customers who take cover and by the monthly charge, deduct what the owner does not keep, then capitalise the net. On an illustrative 560-unit store, 337 protected customers paying £11.50 a month bring in £46,523 a year; after claims, administration and the management fee the owner keeps £33,496, worth £535,940 at a 6.25 per cent cap rate. If an insurer runs the product and pays a 45 per cent commission, the same customers are worth £314,865.
Worked in full in Self-Storage Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Tenant protection, or contents cover sold at the counter, is the largest ancillary line in self-storage and one of the most mis-stated in a sale pack. It is quoted gross, on the wrong unit base, or without saying who keeps it. Each error moves value by a sum the size of a year's rent on dozens of units.
| Input | Value |
|---|---|
| Units | 560 |
| Occupancy, by units | 86% |
| Occupied units | 482 |
| Average rent per occupied unit, a month | £108.00 |
| Penetration: occupied customers who take cover | 70% |
| Average protection charge, a month | £11.50 |
| Owner-run plan: claims and administration, share of charges | 22% |
| Insurer-run product: commission paid to the store | 45% |
| Management fee, on revenue received | 6% |
| Cap rate (illustrative) | 6.25% |
The rent roll is 560 × 86% × £108.00 × 12 = £624,154. At a 58 per cent margin the store earns £362,009 of net operating income before protection, worth £5,792,145 at the same cap rate.
Gross protection income = units × occupancy × penetration × monthly charge × 12
= 560 × 86% × 70% × £11.50 × 12 = £46,523, 7.5 per cent of rent
Value = (gross − what the owner does not keep) ÷ cap rate
In Excel: =Units*Occ*Pen*Charge*12*(1-PlanCost-MgmtFee)/Cap for an owner-run plan, and =Units*Occ*Pen*Charge*12*Commission*(1-MgmtFee)/Cap where an insurer pays a commission.
| Line | Owner-run plan | Insurer commission |
|---|---|---|
| Charges paid by customers | 46,523 | 46,523 |
| Revenue to the store | 46,523 | 20,935 |
| Claims and administration | 10,235 | 0 |
| Management fee at 6% | 2,791 | 1,256 |
| Net income to the owner | 33,496 | 19,679 |
| Value at 6.25% | 535,940 | 314,865 |
| Value per protected customer | 1,590 | 934 |
| Value at 8.00%, a buyer's ancillary yield | 418,703 | 245,988 |
The owner-run plan adds 9.3 per cent to the store's net operating income and its value, taking it from £5,792,145 to £6,328,085. The commission structure adds 5.4 per cent. The owner-run plan earns more because the owner keeps the underwriting margin, and it carries the claims risk that comes with it: a theft or a flood lands on the owner's income, not an insurer's. Some buyers capitalise ancillary income at a higher yield than rent for that reason; at an illustrative 8.00 per cent the plan is worth £418,703.
Seen from the customer's side the line is small: £138 a year against £1,296 of rent, 10.6 per cent of what a protected customer pays for the unit. That is why it is rarely the reason a customer leaves, and why a rate increase on the rent moves the store's income far more than any change to the protection charge.
Penetration is the input that moves most between stores and between operators, because it depends on how the counter staff and the website present cover at move-in.
| Penetration | Customers | Gross charges | Plan net | Plan value | Commission net | Commission value |
|---|---|---|---|---|---|---|
| 40% | 193 | 26,584 | 19,141 | 306,251 | 11,245 | 179,923 |
| 55% | 265 | 36,553 | 26,318 | 421,096 | 15,462 | 247,394 |
| 70% | 337 | 46,523 | 33,496 | 535,940 | 19,679 | 314,865 |
| 85% | 409 | 56,492 | 40,674 | 650,784 | 23,896 | 382,336 |
Each 15 points of penetration is worth about £115,000 of value under the plan. A buyer who expects to raise penetration after taking over should price the uplift as a business plan, not pay for it in the entry yield.
Three errors recur, and they compound. Capitalising the gross charges instead of the net values the plan at £744,361, £208,421 too much. Applying penetration to all 560 units rather than the 482 occupied ones inflates the charges to £54,096. Doing both gives £865,536, 1.61 times the true £535,940. A fourth question sits under all of them: who owns the income. Where a third-party manager or the operator's group keeps the protection business, the owner's share can be nil, and the line should not be in the owner's net operating income at all.
Diligence check. Ask for penetration on move-ins over the last twelve months as well as across the current book. If recent move-ins take cover at a lower rate than the book, the existing penetration will drift down as older customers leave, and the income will follow.
Tenant protection is worth its net income, on occupied units, capitalised: £535,940 on this store under an owner-run plan, £314,865 if an insurer pays commission, and neither figure means anything until the pack says who keeps the money. The free companion workbooks for the book carry protection income as a share of rent in the store's cash flow, and how to value a self-storage facility shows where the line enters the valuation.
There is no single benchmark: it depends on the market and on how cover is offered at move-in. What matters is the value of each point. On the illustrative store each 15 points of penetration is worth about £115,000 under an owner-run plan, from £306,251 at 40 per cent to £650,784 at 85 per cent.
Many valuers apply the store's cap rate, some a higher one because the income carries claims risk and depends on sales practice. On the example, £33,496 of net plan income is worth £535,940 at 6.25 per cent and £418,703 at an illustrative 8.00 per cent.
Only the part the owner keeps. Under an owner-run plan that is the charges less claims, administration and the management fee, 72.0 per cent of the gross in the example. Under an insurer-run product it is the commission less fees, 42.3 per cent. If a manager keeps the business, it is nil.
This article is one calculation from Self-Storage Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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