Extra Space Storage has struck a deal to acquire Life Storage for $12.4 billion in an all-stock transaction.

The combined company will operate more than 3,500 self-storage facilities, surpassing Public Storage as the country’s largest operator.

“We believe this combination will create the preeminent storage platform and team in the country,” said Joe Margolis, CEO of Extra Space, during a conference call announcing terms of the deal.

Overall the addition of Life Storage will add 88 million square feet to the Extra Space portfolio for a total footprint of 264 million square feet.

‘An even playing field’

The announcement follows an attempt in February by Public Storage to acquire Life Storage with an unsolicited offer of approximately $11 billion. Life Storage resisted that offer, and quietly opened the door to other suitors.

“We created an even playing field to ensure all interested parties were given access to the same information and same opportunities to conduct due diligence and put in position to submit their best offer,” said Joe Saffire, CEO of Life Storage, during the joint conference on Monday.

Life Storage received two bids for the company by its deadline last Friday, one from Extra Space and one from an unnamed bidder.

“Based on the superior value shareholders will receive with the Extra Space storage transaction, the board unanimously voted to execute,” Saffire said.

The deal at a glance

The key aspects of the deal are as follows:

  • The combined company is expected to have a pro forma equity market capitalization of approximately $36 billion and total enterprise value of approximately $47 billion.
  • Life Storage shareholders will receive 0.8950 shares of Extra Space stock for every share of Life Storage stock.
  • The Extra Space board will be expanded from 10 to 12 members, with three seats reserved for Life Storage board members, including Joe Saffire.
  • The transaction is expected to close during the second half of 2023.
  • Citigroup Global Markets Inc. is acting as lead financial advisor and Latham & Watkins LLP is serving as legal advisor to Extra Space. J.P. Morgan Securities LLC is also serving as a financial advisor to Extra Space. Wells Fargo Securities and BofA Securities are acting as financial advisors and Hogan Lovells US LLP and Quinn Emanuel Urquhart & Sullivan LLP are serving as legal advisors to Life Storage.

Overall, the acquisition will increase Extra Space Storage’s total store count by more than 50%.

Margolis said the combination of the two companies is highly synergistic, resulting in greater scale efficiencies, lower cost of capital, and enhanced data analytics, among several other benefits. In addition, the merged portfolio offers a great deal of diversification with less than 11% exposure in a single MSA.

Also, the deal is expected to generate at least $100 million in run-rate operating synergies, with Extra Space stores commanding higher average rental rates per square foot than Life Storage in the same trade areas. In addition, the average occupancy of Extra Space stores are 200-basis points higher than Life Storage stores.

Brand transition

Margolis said the underwriting assumes the cost of rebranding every single Life Storage store, but that likely won’t happen right away. In markets where there is overlap, Margolis said there is an opportunity to test operating both brands and gather data to see if the benefits offset the costs.

“Our portfolio has significant overlap,” Margolis said, “But some markets we don’t have sufficient density to justify two brands. In those markets we will move to rebrand Life Storage stores to Extra Space and that will take time.”

Alexander Harris