In what could be the largest deal in self-storage history, industry leader Public Storage made an $11 billion unsolicited offer to purchase all outstanding shares of Life Storage.
Life Storage, the country’s fourth largest self-storage owner, said the proposal was “substantially similar” to a privately made offer it rejected last month.
“Our proposal would create a combined company with significant advantages, more robust operational capabilities, and a strong trajectory of profitable growth,” said Joe Russell, Public Storage’s president and CEO in a prepared statement. “Our compelling offer to Life Storage shareholders includes a substantial immediate equity premium, a turbo-charged share of the combined company, and the opportunity to participate in the upside we intend to create together.”
If the acquisition went through, Public Storage would increase its total market share by square footage from 10% to about 14.2%. The deal would add $9.5 billion in implied market cap to Public Storage’s existing $54.33 billion.
Russell went on to say that the company was disappointed that Life Storage’s board refused to “engage constructively” regarding the initial offer.
“Life Storage explicitly wrote on December 29, 2022 that Life Storage is ‘not for sale,’ reaffirmed that stance in a January 31, 2023 letter without offering any avenue for further dialogue, and has been unresponsive to our outreach,” Russell said.
By making the offer public, Life Storage now faces pressure from shareholders to make a deal. It will also have to convince major investors that they are the most capable operator to continue to grow and expand the portfolio.
To find out what all this means for the industry, the Storage Beat talked with Marc Boorstein, principal at real estate services company MJ Partners based in Chicago. Here are five major takeaways from our conversation.
1. Public Storage has done this before
This isn’t the first time Public Storage has made unsolicited offers, also known as a bear hug, to buy competing operators. In 1999 Public Storage made an unsolicited offer to buy StorageMart for $600 million. In 2006, Public Storage did the same thing with Shurgard Storage Centers for about $5.5 million.
“They have done this before very successfully so this is not a surprise to me,”
Boorstein, whose brokered deals on behalf of both companies over the years, said that Life Storage’s strong performance over the last few years has attracted the attention of Public Storage.
2. Life Storage’s impressive performance made it a target
“Life Storage has really turned around. They have become a much better run company under the leadership of Joe Saffire,” Boorstein said.
Saffire took over as CEO in 2017.
Life Storage changed its name from Uncle Bob’s Self Storage in 2017 after acquiring the assets and the branding from a conglomeration of operators backed by TPG private equity. The name change helped the company greatly expand its third party management business, Boorstein said.
Last year, MJ Partners orchestrated an acquisition of Life Storage to buy 23 properties from Metro Self Storage for $369 million. The facilities, located in Tampa, Atlanta and Chicago, would be very complementary to Public Storage’s existing portfolio.
“Life Storage bought all these assets, and outbid other public companies and private capital. A year later they have improved performance greatly,” Boorstein said.
“They’ve become a very well run company. But the question is what can Public Storage do differently?” Boorstein said, “When you talk about Public Storage it is a whole other level because of the pure size, immense balance sheet and dominance they have.”
3. The current economic conditions created the perfect moment for Public Storage to strike.
“It is brilliant timing on Public’s part. It is a down market for the capital markets, but with the balance sheet Public Storage has they can get deals done that don’t rely exclusively on bank loans,” Boorstein said.
The largest lenders to the self-storage industry have pulled back as the economy has slowed and industry performance has been dragged down with it. The takeover bid comes at a time when publicly traded storage stocks have taken a hit from their 52-week highs.
Public Storage’s offer of .4192 shares for each share of Life Storage common stock is a 17% premium over last Friday’s closing price of $110.58. Still, the offer is a steep discount from Life Storage’s 52-week high of $151.76. As an added sweetener, Public Storage also announced it was raising its quarterly dividend by 50%, from $2 to $3 per share.
“Public Storage is trying to take advantage of a down market. Life Storage’s stock price is much lower than it was before. Public Storage wants to strike now to keep growing,” Boorstein said.
4. It will be difficult for Life Storage to resist the takeover.
“Life Storage does not want to do this deal at current offer price, but will the institutional shareholders want to do it?” Boorstein said.
As it so happens, the two largest institutional shareholders of Life Storage are also the two largest institutional shareholders of Public Storage: Vanguard and BlackRock.
Vanguard owns 11.2% of outstanding shares of Public Storage and 14.7% of Life Storage. BlackRock owns 6.7% of Public and 9.3% of Life. The companies also share several other institutional investors. That fact makes it less likely that there will be much resistance from shareholders when it comes to taking a deal, Boorstein noted.
“There is no activist saying Life Storage is underperforming. Public Storage is just convinced that they can increase revenues through operations including tenant insurance penetration, third-party management and overall operations driving customers through scale of operations,” Boorstein said.
“My strong guess is that Public Storage will have to keep pushing the price higher until they reach a point where its hard for the board and investors to refuse.”
5. This is just the beginning
While the size of this deal might be hard to top, Boorstein expects that the pace of industry consolidation will accelerate as major players seek to dominate the space. The storage REITs currently own around 19 percent of the industry, which Boorstein finds low.
“You are going to see more of these deals. We and large investors have been predicting this for Life Storage and some of the others for years. The consolidation is going to keep going,” Boorstein said.
Boorstein said investor interest in the asset type has grown as the number of households using self-storage has steadily risen over the last decade.
“The real key is the utilization rate. Ten years ago it was around 9% of U.S. households utilizing self storage, and now it is at 11% and it keeps getting greater. No one knows where it ends.”