Life Storage makes the case against a Public Storage takeover

Al Harris
February 24, 2023

Life Storage CEO Joe Saffire rebuffed Public Storage’s proposed takeover of the country’s fourth largest storage REIT in no uncertain terms during the company’s annual earnings conference call on Friday.

“It is a great proposal for Public Storage, but it is clearly inadequate for Life Storage shareholders,” Saffire said of the estimated $11 billion unsolicited bid to buy the company.

According to Saffire, the offer made by Public Storage was opportunistically timed to take advantage of a temporary dislocation in Life Storage’s current stock price.

“Public Storage’s proposal, which was made during the quiet period before we announced our 2022 results and outlook through 2024, does not account for our company’s strong future growth prospects,” Saffire said.

Life Storage reported net income attributable to common shareholders of $358.1 million for the full year 2022. The company saw year-over-year same-store revenue gains of 15.2% and NOI gains of 19.4%. The company also cleared the $1 billion of consolidated revenue for the first time ever, doubling its growth over a period of five years.

“Public Storage’s proposal failed to account for this industry leading growth and instead seems to be opportunistically timed to transfer Life Storage’s upside and value to Public Storage,” Saffire said.

Shirking off the bear hug

During the conference call, Saffire explained the board of directors’ decision to reject the buyout, while making the case to shareholders and Wall Street analysts that Life Storage is the best option for shepherding the portfolio of 1,998 self-storage properties into the future.

“Among other things, the board considered whether Life Storage is better positioned to deliver growth and value standing alone, or with Public Storage’s proposal,” Saffire said, “The conclusion of this evaluation was unanimous—Life Storage is better positioned to continue to enhance value for shareholders by executing its current strategy than it would be through the proposed transaction.”

Saffire pointed to the company’s robust growth pipeline, record of delivering higher than expected shareholder returns, sector leading same-store revenue and NOI growth, and strong margin improvement as the primary reasons that the board ruled against accepting the deal.

A precious pipeline worth protecting

Supporting Life Storage’s rosy projections is its geographic positioning through out the Sun Belt, and its ability to source a steady pipeline of off-market deals through its joint ventures and third party management customers.

“Our third party management program has seen remarkable growth since 2019, adding 227 new managed stores, including 65 net transfers from other REITS,” Saffire said.

Joint ventures with institutional and private equity partners have also become a key part of the business, with 141 stores operated in such arrangements. Saffire said joint ventures enable the company to develop and operate high-quality properties in top markets through shared investment.

In time, many managed and joint venture properties become a part of the wholly-owned portfolio through acquisitions. Last year, Life Storage acquired 49 stores for $974 million, 11 of which came from companies on the Life Storage management platform.

“We’ve increasingly leaned on our pool of managed and joint venture assets to fuel our acquisition pipeline in recent years,” Saffire said.

Valuable relationships at risk

Since 2020, Saffire said 37% of acquisitions came from such relationships—which would be at risk if Public Storage were to own the company.

“We have heard from many of these partners and they have serious reservations about continuing their relationships with Life Storage if the company were to be acquired by Public Storage,” Saffire said.

Life Storage has 440 managed facilities in its portfolio, with 40 stores added to the platform last quarter.

“Our partners trust Life Storage and rely on our leading operating platform and brand. This kind of trust is a differentiator for Life Storage and it is not built over night.”

Keeping an open-mind

Ultimately, the board concluded that the proposal from Public Storage is not in the best interest of shareholders and unanimously rejected it.

But could a different deal generate a different response?

“The Life Storage board is open-minded and will continue to review opportunities to further enhance value as we execute on our proven plan to drive continued growth and shareholder value,” Saffire said.

Earlier this week, Public Storage CEO Joe Russell reiterated its desire to buy Life Storage during their annual earnings call with analysts.

“We think this combination unlocks superior growth and value creation for shareholders,” Russell said. “Since announcing the proposal we have received overwhelmingly positive feedback from both company shareholders who clearly recognize the significant benefits uniquely achievable through a combination with Public Storage.”

Many of the large shareholders of both companies overlap, potentially putting the fate of the deal in the hands of institutional investors. Russell said that Life Storage’s public letter rejecting the proposal earlier this month did not change their position.

“We have a high level conviction in the strategic and financial merits and we are committed to pursuing a potential combination,” Russell said. “We look forward to engaging in good faith discussions regarding a mutually agreeable combination.”

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