Problem Definition
Keyline Properties is a US real estate investment trust (REIT) with about $4.8 billion of gross assets, mostly suburban shopping centres and light-industrial buildings in the South and Southeast. Retail rents have been flat for several years. Management wants a third property type with steady cash flow and low capital needs, and has settled on self-storage.
A private owner-operator has put a portfolio of 48 self-storage facilities up for sale: about 3.0 million net rentable square feet in three Sunbelt clusters (Texas, central Florida and the Carolinas). The seller reports revenue of $50 million, operating expenses of $17.5 million and net operating income (NOI) of $32.5 million, and is asking $560 million. The broker describes this as "a 5.8% cap rate, in line with where the public storage REITs are buying."
The market is mixed. The large storage REITs report occupancy of approximately 91% to 94% and see acquisition yields in the low-5% to 6% range. But advertised street rents have been falling year on year, and parts of the Sunbelt are still absorbing a wave of new facilities. Keyline has no storage operating platform and would hire a third-party manager.
Should Keyline acquire the portfolio, and if so, at what price and on what terms?
Additional InformationAsk for dataInterviewer’s data
If asked, please share that:
- Keyline's cost of capital (blended debt and equity) is about 6.0%. The board expects new acquisitions to earn at least 6.5% on total cost once stabilised
- The seller self-manages. Its operating expenses exclude any management fee and corporate overhead
- Third-party storage managers charge about 6% of revenue
- Most of the portfolio is in states that reassess property value for tax purposes when a property is sold
- Keyline can finance the deal with a mix of unsecured bonds and new equity. There is no financing contingency
Question 1Structuring
How would you structure Keyline's decision on whether to buy this portfolio?
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
Additional InformationAsk for dataInterviewer’s data
- The portfolio's average occupancy is about 85%, and average in-place rent is about $18 per occupied square foot per year
- Ancillary income (tenant insurance, fees, merchandise) is about $4M a year
- For comparison, Public Storage, the largest storage REIT, reported realized rent of approximately $22.50 per occupied square foot in Q4 2025. Its portfolio has more facilities in large, expensive coastal markets
Try it first, then checkCheck my answerModel answer
1. Market attractiveness
- Demand drivers: household moves, home sales, population growth in the Sunbelt
- Supply: new facilities under construction as a share of existing stock, by sub-market
- Rent trend: street (asking) rents vs. in-place rents
2. Portfolio quality and upside
- Occupancy and rent vs. REIT benchmarks, by cluster
- Age and condition of facilities, climate-controlled share, capex needs
- Revenue-management upside (pricing systems, rent increases for existing tenants)
3. Valuation and deal terms
- Buyer's NOI: seller's NOI adjusted for property-tax reassessment, management fee, insurance, payroll
- Implied cap rate at the asking price vs. market cap rates
- Stabilised yield on total cost vs. Keyline's 6.5% hurdle
- Option to buy only part of the portfolio
4. Strategic fit and execution
- Does Keyline need a storage platform, or is a third-party manager enough?
- Effect on Keyline's earnings per share, leverage and investor story
- Integration and management capacity
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate covers the attractiveness of the market, the quality of the assets, the price, and fit with Keyline. A strong candidate insists on rebuilding NOI from the buyer's point of view instead of accepting the seller's figure. An excellent candidate asks early whether all three clusters are equally attractive, rather than treating 48 facilities as one asset.
So What? cascade:
- Level 1: the broker quotes a 5.8% cap rate
- Level 2: a cap rate is only as good as the NOI behind it. The seller's NOI is not the NOI Keyline will earn
- Level 3: the real question is what the portfolio is worth to Keyline, cluster by cluster, and whether that clears the 6.5% stabilised hurdle
Question 2Numeracy
Rebuild the NOI Keyline would actually earn in year one. What cap rate is Keyline really paying at $560M, and what is the portfolio worth at a 6.0% cap rate?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 1Seller's Operating Statement (trailing 12 months)
| Line item | $M |
|---|---|
| Rental revenue | 46.0 |
| Ancillary revenue (tenant insurance, fees) | 4.0 |
| Total revenue | 50.0 |
| Payroll and on-site staff | (6.0) |
| Property tax | (3.5) |
| Repairs, utilities, insurance | (4.5) |
| Marketing and other | (3.5) |
| Total operating expenses | (17.5) |
| Net operating income (NOI) | 32.5 |
| NOI margin | 65% |
For reference, one listed storage REIT reported a same-store operating margin of about 67% in Q2 2026.
Source: Keyline Properties case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibit 1 and the following:
- On sale, counties reassess the properties at about 80% of the purchase price. The average property-tax rate is 1.25% of assessed value
- The seller's current property tax is $3.5M, included in its $17.5M of operating expenses
- Keyline will pay a third-party manager 6% of revenue
- Ignore all other changes in year one
Try it first, then checkCheck my answerModel answer
Step 1: Property-tax reset
- New assessed value: $560M x 80% = $448M
- New tax: $448M x 1.25% = $5.6M
- Increase vs. seller: $5.6M - $3.5M = +$2.1M
Step 2: Management fee
- 6% x $50M revenue = $3.0M
Step 3: Buyer's NOI
- $32.5M - $2.1M - $3.0M = $27.4M
- NOI margin: $27.4M / $50M = 54.8%
Step 4: Implied cap rate at the asking price
- Seller's view: $32.5M / $560M = 5.8%
- Buyer's view: $27.4M / $560M = 4.9%
Step 5: Value at a 6.0% cap rate
- $27.4M / 6.0% = about $457M, about $103M below the asking price
| Measure | Seller | Keyline (adjusted) |
|---|---|---|
| NOI | $32.5M | $27.4M |
| Cap rate at $560M | 5.8% | 4.9% |
| Value at 6.0% cap | $542M | $457M |
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should spot both adjustments without heavy prompting: the tax reset and the missing management fee. A strong candidate states that the seller's 65% margin looks like a REIT's margin only because two costs are missing. An excellent candidate cites a real-world parallel: property tax is one of the fastest-growing storage costs; one large storage REIT reported same-store property taxes up about 16% in a single year (Q1 2025).
So What? cascade:
- Level 1: adjusted NOI is $27.4M, not $32.5M
- Level 2: the true going-in cap rate is under 4.9%, well below the broker's 5.8% and below Keyline's 6.0% cost of capital, so the deal lowers earnings on day one
- Level 3: at the asking price Keyline would be paying about $100M for upside it would have to create itself
Question 3Judgement & Insights
Exhibit 2 breaks the portfolio into its three clusters. What does it tell you, and how should it change Keyline's approach?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
Exhibit 2Portfolio by Cluster
| Cluster | Facilities | Net rentable sq ft (M) | Occupancy | In-place rent ($/occupied sq ft/yr) | Street-rent change, YoY | New supply under construction (% of stock) |
|---|---|---|---|---|---|---|
| A. Texas (Dallas, Houston, Austin) | 20 | 1.3 | 87% | $17.00 | -2.5% | 3.5% |
| B. Central Florida (Tampa, Orlando) | 16 | 1.0 | 80% | $19.00 | -4.0% | 6.5% |
| C. Carolinas (Charlotte, Raleigh) | 12 | 0.7 | 89% | $18.50 | -1.0% | 2.0% |
| Portfolio | 48 | 3.0 | 85% | $18.00 | ||
| National benchmark | 91-94% (REITs) | approx. -1.9% | approx. 2.1% |
Source: Keyline Properties case file
Additional InformationAsk for dataInterviewer’s data
Share Exhibit 2 and the national context:
- Nationally, storage under construction was approximately 2.1% of existing stock in August 2026, and Yardi Matrix expects new supply to keep falling, to about 1.7% of stock by 2028. Orlando is among the top-30 metros with the largest pipeline relative to existing stock
- National advertised street rents were down approximately 1.9% year on year in August 2026
- Large storage REITs report occupancy of approximately 91% to 94% (Q2 2026)
Try it first, then checkCheck my answerModel answer
What the exhibit shows
- Carolinas (C) is the strongest cluster: highest occupancy (89%), rents close to stable, and a supply pipeline in line with the national average (2.0% vs. about 2.1%)
- Texas (A) is decent: occupancy is 4 to 7 points below the REITs, which is room to grow, but its supply pipeline (3.5%) is well above the national level, so occupancy gains will take work
- Florida (B) is the weakest despite the highest rent: 80% occupancy, street rents falling 4% a year, and a supply pipeline about three times the national average
Check of the portfolio totals
- Occupied sq ft: 1.3 x 87% + 1.0 x 80% + 0.7 x 89% = 1.131 + 0.800 + 0.623 = 2.554M, which is 85% of 3.0M
- Rental revenue: 1.131 x $17.00 + 0.800 x $19.00 + 0.623 x $18.50 = $19.2M + $15.2M + $11.5M = about $46M, which matches Exhibit 1
Implications
- Florida produces about a third of rental revenue ($15.2M of $46M) but carries most of the downside risk
- Keyline should bid for clusters A and C (32 facilities, 2.0M sq ft) and either leave Florida or price it separately at a cap rate well above 6%
- The upside case in A and C is to raise occupancy toward REIT levels and add revenue-management tools, without paying for that upside in the price
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The Florida cluster is the trap. It has the highest rent per square foot, so a candidate who ranks clusters by rent will like it. But it also has the lowest occupancy, the steepest fall in street rents and about three times the national supply pipeline. The high in-place rent is at risk: new tenants are signing at lower rates, and existing tenants can move to new facilities nearby.
So What? cascade:
- Level 1: Florida has the highest rent and the lowest occupancy
- Level 2: Florida's supply pipeline (6.5% of stock) is about three times the national 2.1%, and street rents are falling twice as fast as the national average, so the 80% occupancy will not recover soon and today's rents will drift down
- Level 3: Keyline should bid for Texas and the Carolinas only, or price Florida as a separate lot at a much higher cap rate
Question 4Numeracy
The seller will sell clusters A and C alone for $400M. Keyline believes it can stabilise them by year three. What is the most Keyline should pay?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Additional InformationAsk for dataInterviewer’s data
Share the following year-three assumptions for clusters A and C (2.0M sq ft):
- Occupancy: 90% (still below the REIT range of approximately 91% to 94%)
- In-place rent: $19.00 per occupied sq ft (today about $17.53)
- Ancillary income: $1.50 per occupied sq ft
- Operating expenses, including the reassessed property tax and the 6% management fee: 36% of revenue
- Upfront capex (signage, security, pricing systems, roof repairs): $6M
- Keyline's hurdle: 6.5% stabilised NOI yield on total cost (price plus capex)
Try it first, then checkCheck my answerModel answer
Step 1: Stabilised revenue
- Occupied sq ft: 2.0M x 90% = 1.8M
- Rental revenue: 1.8M x $19.00 = $34.2M
- Ancillary: 1.8M x $1.50 = $2.7M
- Total: $36.9M
Step 2: Stabilised NOI
- $36.9M x (1 - 36%) = $23.6M
Step 3: Maximum total cost at a 6.5% yield
- $23.6M / 6.5% = about $363M
- Less capex: $363M - $6M = about $357M maximum price
Step 4: Downside check (rent stays at $17.50)
- Rental revenue: 1.8M x $17.50 = $31.5M; total revenue $34.2M
- NOI: $34.2M x 64% = $21.9M
- Maximum total cost: $21.9M / 6.5% = $337M; price after capex = about $331M
Conclusion: the $400M ask is about $43M above the base-case maximum. Keyline should open at around $330M, aim to close at no more than about $355M, and walk away above that.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should work out stabilised NOI and then divide by the hurdle rate, remembering to subtract capex. A strong candidate questions the rent assumption: $19.00 is about 8% above today's $17.53, while street rents are falling. An excellent candidate runs a quick downside (for example, rent flat at $17.50) and uses it to set a walk-away price.
Question 5Synthesis
The CEO asks for your recommendation to take to the investment committee.
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
Try it first, then checkCheck my answerModel answer
Recommendation: do not buy the whole portfolio at $560M. Bid for the Texas and Carolinas clusters at no more than about $355M.
Why
- The headline price is wrong. After the property-tax reset and a management fee, NOI is $27.4M, not $32.5M. At $560M that is a 4.9% cap rate, below Keyline's 6.0% cost of capital. At 6.0% the whole portfolio is worth about $457M.
- Florida carries most of the risk. It has 80% occupancy, falling street rents and a supply pipeline about three times the national average. It should be left out or priced separately.
- A and C meet the hurdle at the right price. With 90% occupancy and $19 rent in year three, they earn 6.5% on a total cost of about $363M, which means a maximum price of about $357M, or about $331M if rents stay flat.
How to execute
- Hire an established third-party manager with revenue-management software. Revisit buying a platform once Keyline owns 100+ facilities
- Include a price adjustment if the seller's rent roll or occupancy is lower at closing
- Get property-tax appeal advice before signing, since the reassessment is the largest hidden cost
Risks
- Street rents keep falling: the downside case already covers flat rents. A further fall would push the value below $330M
- Execution: Keyline has never run storage. Third-party management reduces the risk but lowers margin
- Rates: if Keyline's cost of capital rises, the hurdle must rise with it
What the interviewer is looking forInterviewer’s viewInterviewer’s view
Good candidates say "buy A and C at the right price." Strong candidates give the walk-away number and explain why the headline 5.8% cap rate was misleading. Excellent candidates also cover how Keyline gains storage expertise (third-party manager now, with an option to buy a platform later) and what would make them change their view.
Data Sources
Market facts in this case come from public sources. Figures are rounded for interview math. Keyline, the seller and all portfolio figures are fictional.
| Fact used in the case | Publisher | Title | Year | URL |
|---|---|---|---|---|
| REIT occupancy Q2 2026: approximately 94.2% (Extra Space), 92.4% (Public Storage), 91.1% (CubeSmart, July); acquisition yields in the low-5% range (Public Storage) and 5.9% (a SmartStop deal); SmartStop same-store operating margin approximately 67.3% | Skyview Advisors | Q2 2026 Self-Storage Industry Report | 2026 | https://skyviewadvisors.com/q2-2026-self-storage-industry-report/ |
| Under-construction pipeline approximately 2.1% of existing stock nationally (August 2026); Orlando among the metros with the largest pipeline relative to stock | Multi-Housing News (Yardi Matrix data) | Self Storage National Report – September 2026 | 2026 | https://www.multihousingnews.com/self-storage-national-report-september-2026/ |
| New supply forecast to decline to approximately 1.7% of existing stock by 2028 | Yardi Matrix | Self Storage Supply Forecast Update, Q2 2026 | 2026 | https://www.yardimatrix.com/publications/download/file/8680-MatrixSelfStorageSupplyForecastUpdate-Q22026?signup=false |
| National advertised street rents down approximately 1.9% year on year (August 2026) | Yardi Matrix | Matrix Self Storage National Report – September 2026 | 2026 | https://www.yardimatrix.com/self-storage-national/matrix-self-storage-national-report-september-2026/ |
| Public Storage realized annual rent per occupied sq ft approximately $22.53 (Q4 2025) | Public Storage | Public Storage Reports Fourth Quarter and Full Year 2025 Results | 2026 | https://investors.publicstorage.com/news-events/press-releases/news-details/2026/Public-Storage-Reports-Fourth-Quarter-and-Full-Year-2025-Results/default.aspx |
| Same-store property taxes up approximately 15.8% year on year at a large storage REIT (Q1 2025) | Extra Space Storage (SEC Form 8-K) | Extra Space Storage Inc. Reports 2025 First Quarter Results | 2025 | https://www.sec.gov/Archives/edgar/data/1289490/000162828025020731/q12025ex991earningsrelease.htm |
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