Salt Lake City-based Extra Space Storage has completed the acquisition of its competitor, Life Storage in an all-stock transaction valued at $11.48 billion, based on the stock price at market close on Tuesday.
The publicly traded REIT now controls more than 3,500 self-storage locations, growing more than 50% to become the largest self-storage operator in the country. Extra Space has also become the leader when it comes to square footage, with a portfolio that now encompasses 270 million square feet of storage space.
The ascension of Extra Space makes the previous long-reigning leader, Public Storage, the number two operator in the nation. Public Storage previously attempted to acquire Life Storage earlier this year, with an unsolicited offer of approximately $11 billion. Not long after the Life Storage board publicly rebuffed Public’s attempted bear hug, it was announced that they had accepted an offer from Extra Space instead.
Under the terms of the deal, approved by shareholders of both companies earlier this week, Life Storage shareholders will receive .8950 shares of Extra Space stock for every one share of Life Storage stock. The combined company now serves two million storage customers. Yet, it only controls about 13% of the U.S. storage market, meaning there is plenty of room for Extra Space to continue to expand its market share.
As part of the merger, the Extra Space board added three new members from Life Storage: Mark G. Barberio, Joseph Saffire and Susan Harnett. Another result of the merger is a workforce reduction of 116 positions at Life Storage’s corporate headquarters in Amherst, NY, which will continue on as a regional office, the Buffalo News reported.
To find out what is next for the marriage of these two self-storage REITs, the Storage Beat spoke with Joe Margolis, CEO of Extra Space to find out more.
When did you first become aware that acquiring Life Storage was a potential opportunity?
Joe Margolis: “In Q4 of 2022, Public Storage approached them to start discussions. In the first quarter of this year, they issued a public bear hug letter. At some point after that, in early March, Joe Saffire, CEO of Life Storage, called me and asked if I’d like to have a discussion. After that we were off to the races.”
What are you most excited about going forward and what are the immediate tasks at hand related to the merger?
“The most important thing is to integrate the Life Storage people and systems into our platform. We are targeting early August to have all of the stores on our point of sale and operating platform. Once that is complete, we can control pricing, marketing, data collection, and price increases at those stores.”
“When we looked at the Life Storage portfolio, we saw there is a significant gap in both rate and occupancy in their stores and our comparable stores. We are looking forward to getting in there and closing that gap.”
What about branding, will Life Storage stores remain as such?
“We have identified about 143 Life Storage stores that will immediately be rebranded to Extra Space. For the balance of stores, we will operate both brands in those markets, and we believe that will improve our web presence and lead to greater customer acquisition power.”
What about new stores?
“For now, while we are new at running two brands, new stores that come on the system will for the most part be Extra Space branded. But I think what we will learn is what the market characteristics are where it makes sense to have two brands and where it doesn’t”
And managed locations?
“Extra Space managed properties will remain Extra Space. Life Storage managed properties will remain Life Storage. We will have discussions with owners and if they have a strong preference or brand they prefer, we will sit down and talk with them.”
Extra Space is now the largest self-storage operator in the country, so I got to ask —how does it feel to be number one?
“I’m not so concerned about whether we have three more stores than the next guy or do they have 10 more stores than us. We want to be the most profitable company. The number one in size thing is not as important. Returns to our shareholders are much more important. We are the number one REIT in total returns over the last 10 years.”
I imagine this transaction makes it easier to keep the streak going?
“Yes, its all about scale. Scale gives you more data that we can analyze to optimize decision making and operations, improve customer acquisition and web presence. It gives us more stores to test—we are constantly testing different pricing combinations.”
“Diversification gives us a better balance sheet, a larger balance sheet that is less encumbered. There are lots of advantages to scale.”