For some of the assets owned by self-storage operator Life Storage, it’s out with the old and in with the new.
In 2019, the REIT says it will keep up its recycling of assets — shedding older, lower-revenue facilities in markets with less desirable demographics in favor of newer, higher-revenue facilities in markets with more desirable demographics. As such, Life Storage is setting aside about $225 million for acquisitions this year and about $225 million for dispositions.
“We think that this [strategy] is going to continue the transformation of our portfolio,” incoming CEO Joe Saffire, chief investment officer at Williamsville, NY-based Life Storage, said during the company’s Feb. 26 earnings call.
Company executives explained to Wall Street analysts that features of the REIT’s asset-recycling approach in 2019 will mirror those of a deal it executed late last year.
In the fourth quarter of 2018, Life Storage sold 12 “mature” facilities to a joint venture for about $91 million, then contributed $9.1 million in proceeds back to the joint venture in exchange for a 20 percent equity stake. It reinvested the balance of the proceeds in newer facilities. Life Storage still manages the properties included in deal.
All of the facilities that Life Storage plans to sell this year are smaller stores with comparatively low rental rates that are in markets where Life Storage isn’t interested in expanding, Saffire said.
“These are properties that are great for cash flow [and] there is a lot of interest in them, but … they have been holding us back over the last several years in terms of potential growth and prospects going forward,” he said.
By contrast, the facilities Life Storage is buying now are Class A properties in markets where “we want a bigger presence,” Saffire said.
Earlier this year, Life Storage agreed to buy 16 unidentified facilities for its wholly owned portfolio at a cost of $177.7 million.
Also during the earnings call, executives said Life Storage added 69 facilities to the REIT’s third-party management platform in 2018 and has another 22 third-party facilities under contract. At the end of 2018, properties where Life Storage holds no ownership stake made up about half of the company’s managed portfolio.
“We are excited about the traction we have generated in our third-party management business, and we will continue to drive additional business going forward,” Saffire said. “Our pipeline remains strong. The growth of our third-party platform has … provided us with a robust pipeline of off-market purchase opportunities.”
Financial highlights
- New-supply pressures continue to hinder the Chicago, IL; Miami, FL; and Austin, Dallas and Houston, TX, markets.
- The company recently hired its first-ever head of data science.
- Same-store revenue is projected to increase 1.5 percent to 2.5 percent in 2019, compared with 3.4 percent in 2018.
- Same-store NOI is expected to go up 1 percent to 2 percent in 2019, compared with 4.1 percent in 2018.
- Same-store operating expenses are projected to rise 3 percent to 4 percent in 2019, compared with 0.8 percent in 2018.
