Life Storage, Inc. Reports Third Quarter 2022 Results
Life Storage, Inc. (NYSE:LSI), a leading national owner and operator of self-storage properties, reported operating results for the quarter ended September 30, 2022.
Highlights for the Third Quarter Included:
Generated net income attributable to common shareholders of $98.5 million, or $1.16 per fully diluted common share. Achieved adjusted funds from operations (“FFO”)(1) per fully diluted common share of $1.73, a 26.3% increase over the same period in 2021, and an increase from $1.65 per fully diluted common share of adjusted FFO in the second quarter of 2022. Increased same store revenue by 14.9% and same store net operating income (“NOI”)(2) by 18.4%, year-over-year. Acquired 11 wholly owned stores for $217.5 million and one consolidated joint venture store for $29.0 million of which the Company’s net investment is $24.1 million. Five of these stores were added from the Company’s third-party management platform. With a joint venture partner, acquired 15 stores for a total cost of $264.3 million, of which the Company invested $52.7 million. Added 25 stores (gross) to the Company’s third-party management platform. Replaced the Company’s existing $500 million bank credit facility that was scheduled to mature on March 10, 2023 with a $1.25 billion facility, providing committed liquidity to the Company to January 2027 on terms comparable to or improved from the existing facility. For the fifth consecutive year, the Company was awarded Newsweek’s Best Customer Service Award in America for 2023. Life Storage is the longest running recipient in the Storage Centers category.Joe Saffire, the Company’s Chief Executive Officer, stated, “Operating fundamentals are very strong with occupancy remaining elevated from pre-pandemic seasonal levels. We are on track and well positioned for another strong end to this year, and I cannot be more pleased with how our team continues to perform. Our focus to continually optimize revenue resulted in same store achieved rate growth per square foot of 17.1% over the same quarter of last year, supporting our significant adjusted FFO growth of 26.3% from one year ago. We strategically added scale to key existing markets with the addition of wholly owned, joint venture and third-party management properties. Our third quarter performance, together with continuing strong fundamentals and our ability to execute on our strategic initiatives, positions us well to continue to grow shareholder value.”
FINANCIAL RESULTS:
In the third quarter of 2022, the Company generated net income attributable to common shareholders of $98.5 million, or $1.16 per fully diluted common share, compared to net income attributable to common shareholders of $70.3 million, or $0.89 per fully diluted common share from the third quarter of 2021.
Funds from operations for the quarter were $1.74 per fully diluted common share compared to $1.37 for the same period last year. Adjusted FFO per fully diluted common share for the quarter was $1.73, representing a 26.3% increase over the same period from one year ago. This quarter adjustments to FFO primarily included $2.8 million for the gain on sale of non-real estate assets, $1.0 million for acquisition fees and $2.6 million relating to uninsured property damages and tenant reinsurance claims resulting from the impact of Hurricane Ian.
OPERATIONS:
Revenues for the 576 stabilized stores wholly owned by the Company since December 31, 2020 increased 14.9% in the third quarter of 2022 compared to the same quarter of 2021. The increase largely resulted from the impact of a 17.1% increase in same store realized rental rates per square foot with same store occupancy for the third quarter of 2022 averaging 93.1%.
Same store operating expenses increased 6.6% for the third quarter of 2022 compared to the prior year period, primarily the result of increased repairs and maintenance, credit card fees, and utilities expenses. Payroll and benefits increased slightly on a same store basis over the third quarter of 2021 by 0.6%. Same store NOI increased 18.4% in the third quarter of 2022 as compared to the third quarter of 2021.
During the third quarter of 2022, the Company achieved double digit same store revenue growth in 31 of its 33 major markets. Overall, the markets with the strongest positive revenue impact were Miami, FL; Los Angeles, CA; Atlanta, GA; Austin, TX; and Chicago, IL.
Three of the Company’s wholly owned stores in Ft. Myers, Florida and one in Naples, Florida sustained wind and flood damage relating to Hurricane Ian during the third quarter of 2022. Additionally, one of the Company’s wholly owned stores near St. Louis, Missouri also sustained flood damage during to the quarter due to an unrelated storm. Subsequent to the storms, impacted customer goods were removed from these stores and the properties are in the process of being cleaned and repaired. Although all five stores remain open and operational, and will generate income during the re-lease up period, four of these properties that were included in the Company’s same store pool at the time of the storms have been removed from the Company’s same store pool until they again attain stabilized occupancy.
PORTFOLIO TRANSACTIONS:
Wholly Owned Portfolio
During the quarter, the Company acquired 11 wholly owned stores in Missouri (5), North Carolina (1), Nevada (1), California (1), Arizona (1), Massachusetts (1), and Florida (1) for $217.5 million. Additionally, a consolidated joint venture of the Company acquired one store in New York for $29.0 million, of which the Company’s net investment was $24.1 million.
At September 30, 2022 the Company was under contract to acquire 11 self-storage facilities in Arizona (6), California (3), Minnesota (1), and Illinois (1) for a total purchase price of $212.8 million. Subsequent to September 30, 2022, the Company completed the acquisition of seven of these self-storage facilities in Arizona (6) and Minnesota (1) for $142.0 million. The purchases of the remaining facilities are subject to customary conditions to closing, and there is no assurance that any of these facilities will be acquired.
As of the date of this press release, the Company has acquired 50 stores for $1.0 billion since January 1, 2022 (inclusive of the fully consolidated New York joint venture property) and is under contract for four stores with an aggregate purchase price of $70.8 million which may close during 2023.
Joint Venture Portfolio
During the quarter, the Company with a joint venture partner acquired a portfolio of 15 stores with a total value of $264.3 million. The Company’s investment in the joint venture was $52.7 million.
At September 30, 2022, the Company was under contract with joint venture partners to acquire eight stores for an aggregate purchase price of $148.8 million of which the Company would invest $29.8 million. Subsequent to September 30, 2022, certain unconsolidated joint ventures of the Company completed the acquisition of seven of these stores for an aggregate purchase price of $126.3 million of which the Company invested $25.3 million. The investment into the remaining facility is subject to customary conditions to closing, and there is no assurance that this transaction will be closed.
THIRD-PARTY MANAGEMENT:
The Company continues to aggressively and profitably grow its third-party management platform. During the quarter, the Company added 25 stores (gross). As of quarter end, the Company managed 401 facilities in total, including those in which it owns a joint venture interest.
FINANCIAL POSITION:
At September 30, 2022, the Company had approximately $22.5 million of cash on hand, and approximately $794 million available on its $1.25 billion line of credit.
During the quarter, the Company issued 610,385 shares of common stock under its continuous equity offering program at a weighted average issue price of $133.11 per share, generating net proceeds after expenses of $80.2 million.
Below are key financial ratios at September 30, 2022:
--Debt to Enterprise Value (at $ 110.76/share)
25.4%
--Debt to Book Cost of Storage Facilities
40.8%
--Debt to Recurring Annualized EBITDA
4.6x
--Debt Service Coverage
5.6x
COMMON STOCK DIVIDEND:
Subsequent to quarter end, the Company’s Board of Directors approved a quarterly dividend of $1.08 per share, or $4.32 annualized. The dividend was paid on October 26, 2022 to shareholders of record on October 14, 2022.
YEAR 2022 EARNINGS GUIDANCE:
The following assumptions covering operations have been utilized in formulating guidance for 2022:
Current Guidance
Range
Prior Guidance
Range
(August 3, 2022)
Same Store Revenue
14.25%
-
15.25%
13.25%
-
14.25%
Same Store Operating Costs (excluding property
taxes)
4.75%
-
5.75%
4.50%
-
5.50%
Same Store Property Taxes
6.25%
-
7.25%
6.25%
-
7.25%
Total Same Store Operating Expenses
5.25%
-
6.25%
5.00%
-
6.00%
Same Store Net Operating Income
18.0%
-
19.0%
16.5%
-
17.5%
General & Administrative
$71M
-
$73M
$71M
-
$73M
Expansions & Enhancements
$65M
-
$75M
$65M
-
$75M
Capital Expenditures
$30M
-
$35M
$30M
-
$35M
Wholly Owned Acquisitions
$1,000M
$800M
-
$1,000M
Joint Venture Investments
$100M
-
$125M
$75M
-
$125M
Adjusted Funds from Operations per Share
$6.42
-
$6.46
$6.27
-
$6.33
Reconciliation of Guidance
4Q 2022
Range or Value
FY 2022
Range or Value
Earnings per share attributable to
common shareholders - diluted
$1.00 - $1.04
$4.12 - $4.16
Plus: real estate depreciation and
amortization
0.60 - 0.60
2.30 - 2.30
FFO per share
$1.60 - $1.64
$6.42 - $6.46
The Company’s 2022 same store pool consists of the 576 stabilized stores wholly owned since December 31, 2020. Fifty-One of the stores purchased through September 30, 2022, at certificate of occupancy or that were in the early stages of lease-up are not included, regardless of their current occupancies. The Company believes that occupancy levels achieved during the lease-up period, using discounted rates, are not truly indicative of a new store’s performance, and therefore do not result in a meaningful year-over-year comparison in future years. The Company will include such stores in its same store pool in the second year after the stores achieve 80% sustained occupancy using market rates and incentives.
FORWARD LOOKING STATEMENTS:
When used herein, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934.
All forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained herein. Any forward-looking statements should be considered in light of the risks referenced in the “Risk Factors” section included in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Such factors include, but are not limited to:
adverse changes in general economic conditions, the real estate industry and in the markets in which we operate; the effect of competition from new self-storage facilities or other storage alternatives, which would cause rents and occupancy rates to decline; impacts from the COVID-19 pandemic or the future outbreak of other highly infectious or contagious diseases on the U.S., regional and global economies and our financial condition and results of operations; potential liability for uninsured losses and environmental contamination; the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing real estate investment trusts (“REITs”), tenant reinsurance and other aspects of our business, which could adversely affect our results; loss of key personnel; the Company’s ability to evaluate, finance and integrate acquired self-storage facilities on expected terms into the Company’s existing business and operations; the Company’s ability to effectively compete in the industry in which it does business; disruptions in credit and financial markets and resulting difficulties in raising capital or obtaining credit at reasonable rates or at all, which could impede our ability to grow; the Company’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may increase, impacting costs associated with the Company’s outstanding floating rate debt, if any, and impacting the Company’s ability to comply with debt covenants; exposure to litigation or other claims; risks associated with breaches of our data security; the regional concentration of the Company's business may subject the Company to economic downturns in the states of Florida and Texas; the Company’s cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and failure to maintain our REIT status for U.S. federal income purposes, including tax law changes that may change the taxability of future income.The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities.
CONFERENCE CALL:
Life Storage will hold its Third Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Thursday, November 3, 2022. To help avoid connection delays, participants are encouraged to pre-register using this link. Anyone unable to pre-register may access the conference call at 877.545.0523 (domestic) or 973.528.0016 (international); passcode 107039 or request to be joined into the Life Storage call. Management will accept questions from registered financial analysts after prepared remarks; all others are encouraged to listen to the call via webcast by accessing the investor relations tab at lifestorage.com. The webcast will be archived for a period of 90 days; a telephone replay will also be available for 14 days by calling 877.481.4010 and entering passcode 46805.
ABOUT LIFE STORAGE, INC:
Life Storage, Inc. is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities. Located in Buffalo, New York, the Company operates more than 1,100 storage facilities in 37 states. The Company serves both residential and commercial storage customers with storage units rented by month. Life Storage consistently provides responsive service to approximately 675,000 customers, making it a leader in the industry. For more information visit http://invest.lifestorage.com.
2022
2021
Assets Investment in storage facilities: Land$
1,293,597
$
1,185,976
Building, equipment and construction in progress
6,708,246
5,904,481
8,001,843
7,090,457
Less: accumulated depreciation
(1,128,083
)
(1,007,650
)
Investment in storage facilities, net
6,873,760
6,082,807
Cash and cash equivalents
22,498
171,865
Accounts receivable
22,829
17,784
Receivable from joint ventures
1,087
333
Investment in joint ventures
254,728
213,003
Prepaid expenses
13,042
9,918
Intangible asset - in-place customer leases
6,745
13,966
Trade name
16,500
16,500
Other assets
37,212
30,421
Total Assets
$
7,248,401
$
6,556,597
Liabilities Line of credit
$
456,000
$
-
Term notes, net
2,750,683
2,747,838
Accounts payable and accrued liabilities
153,575
131,778
Deferred revenue
33,646
27,277
Mortgages payable
36,454
37,030
Total Liabilities
3,430,358
2,943,923
Noncontrolling redeemable Preferred Operating Partnership Units at redemption value
89,077
90,783
Noncontrolling redeemable Common Operating Partnership Units at redemption value
116,190
142,892
Equity Common stock
850
836
Additional paid-in capital
3,883,047
3,697,000
Accumulated deficit
(272,608
)
(314,713
)
Accumulated other comprehensive loss
(3,437
)
(4,124
)
Total Shareholders' Equity
3,607,852
3,378,999
Noncontrolling interest in consolidated subsidiary
4,924
-
Total Equity
3,612,776
3,378,999
Total Liabilities and Shareholders' Equity
$
7,248,401
$
6,556,597
$
241,261
$
182,937
$
674,008
$
496,316
Tenant reinsurance
19,042
15,485
54,567
41,810
Other operating income
4,957
4,474
15,025
13,189
Management and acquisition fee income
7,694
5,360
19,889
16,091
Total operating revenues
272,954
208,256
763,489
567,406
Expenses Property operations and maintenance
47,906
36,410
132,733
103,519
Tenant reinsurance
9,033
6,228
22,361
16,434
Real estate taxes
25,702
21,397
75,581
61,794
General and administrative
18,493
16,141
52,995
45,407
Depreciation and amortization
43,694
33,531
127,120
97,937
Amortization of in-place customer leases
5,017
3,627
16,067
8,350
Total operating expenses
149,845
117,334
426,857
333,441
Gain on sale of non-real estate assets
2,841
-
4,806
-
Income from operations
125,950
90,922
341,438
233,965
Other income (expense) Interest expense (A)
(28,010
)
(21,350
)
(77,755
)
(62,470
)
Interest and dividend income
5
2
24
787
Equity in income of joint ventures
2,799
1,477
6,832
4,126
Net income
100,744
71,051
270,539
176,408
Net income attributable to noncontrolling preferred interests in the Operating Partnership
(999
)
(476
)
(3,002
)
(476
)
Net income attributable to noncontrolling common interests in the Operating Partnership
(1,231
)
(301
)
(3,184
)
(760
)
Net income attributable to noncontrolling common interests in consolidated subsidiary
(9
)
-
(9
)
-
Net income attributable to common shareholders
$
98,505
$
70,274
$
264,344
$
175,172
Earnings per common share attributable to common shareholders - basic
$
1.16
$
0.89
$
3.14
$
2.27
Earnings per common share attributable to common shareholders - diluted
$
1.16
$
0.89
$
3.14
$
2.27
Common shares used in basic earnings per share calculation
84,472,979
78,961,434
84,129,261
77,135,429
Common shares used in diluted earnings per share calculation
85,396,539
79,179,816
84,554,165
77,303,339
Dividends declared per common share
$
1.0800
$
0.7400
$
3.0800
$
2.2200
(A) Interest expense for the period ending September 30 consists of the following Interest expense
$
27,074
$
20,748
$
75,358
$
60,662
Amortization of debt issuance costs
936
602
2,397
1,808
Total interest expense
$
28,010
$
21,350
$
77,755
$
62,470
$
98,505
$
70,274
$
264,344
$
175,172
Noncontrolling common interests in the Operating Partnership
1,231
301
3,184
760
Noncontrolling preferred interests in the Operating Partnership during conversion period
999
-
999
-
Depreciation of real estate and amortization of intangible assets exclusive of debt issuance costs
48,237
36,615
141,643
104,691
Depreciation and amortization from unconsolidated joint ventures
1,872
1,796
6,014
4,239
Funds from operations allocable to noncontrolling interest in Operating Partnership
(1,862
)
(465
)
(4,949
)
(1,231
)
Funds from operations available to common shareholders
148,982
108,521
411,235
283,631
FFO per share - diluted
$
1.74
$
1.37
$
4.86
$
3.67
Adjustments to FFO Gain on sale of non-real estate assets
(2,841
)
-
(4,806
)
-
Uninsured damages related to natural disasters
2,598
-
2,598
-
Acquisition fee
(1,048
)
-
(1,180
)
(1,280
)
Costs related to officer's retirement
-
155
-
155
Funds from operations resulting from non-recurring items allocable to noncontrolling interest in Operating Partnership
16
(1
)
40
5
Adjusted funds from operations available to common shareholders
147,707
108,675
407,887
282,511
Adjusted FFO per share - diluted
$
1.73
$
1.37
$
4.82
$
3.65
Common shares - diluted
85,396,539
79,179,816
84,554,165
77,303,339
$
100,744
$
71,051
$
270,539
$
176,408
General and administrative
18,493
16,141
52,995
45,407
Depreciation and amortization
48,711
37,158
143,187
106,287
Interest expense
28,010
21,350
77,755
62,470
Interest and dividend income
(5
)
(2
)
(24
)
(787
)
Equity in income of joint ventures
(2,799
)
(1,477
)
(6,832
)
(4,126
)
Net operating income$
193,154
$
144,221
$
537,620
$
385,659
Same store (4)
$
140,105
$
118,333
$
395,086
$
324,487
Net operating income related to tenant reinsurance
10,009
9,257
32,206
25,376
Other stores, management fee income, and gain on sale of non-real estate assets
43,040
16,631
110,328
35,796
Total net operating income
$
193,154
$
144,221
$
537,620
$
385,659
$
190,757
$
165,440
$
25,317
15.3
%
Other operating income
1,793
2,114
(321
)
-15.2
%
Total operating revenues
192,550
167,554
24,996
14.9
%
Expenses: Payroll and benefits
10,445
10,380
65
0.6
%
Real estate taxes
19,860
19,421
439
2.3
%
Utilities
5,031
4,493
538
12.0
%
Repairs and maintenance
5,787
4,612
1,175
25.5
%
Office and other operating expense
5,102
4,559
543
11.9
%
Insurance
1,786
1,731
55
3.2
%
Advertising
52
52
-
0.0
%
Internet marketing
4,382
3,973
409
10.3
%
Total operating expenses
52,445
49,221
3,224
6.6
%
Net operating income (2)$
140,105
$
118,333
$
21,772
18.4
%
QTD Same store move ins
58,051
53,937
4,114
QTD Same store move outs
63,859
57,975
5,884
$
174,326
$
152,125
$
22,201
14.6
%
Expenses
47,603
44,459
3,144
7.1
%
Net operating income$
126,723
$
107,666
$
19,057
17.7
%
2020 Same store pool (510 stores) Revenues$
168,966
$
147,357
$
21,609
14.7
%
Expenses
46,129
43,116
3,013
7.0
%
Net operating income$
122,837
$
104,241
$
18,596
17.8
%
$
542,126
$
464,590
$
77,536
16.7
%
Other operating income
5,719
5,988
(269
)
-4.5
%
Total operating revenues
547,845
470,578
77,267
16.4
%
Expenses: Payroll and benefits
31,502
31,692
(190
)
-0.6
%
Real estate taxes
59,322
57,924
1,398
2.4
%
Utilities
13,402
12,225
1,177
9.6
%
Repairs and maintenance
15,976
14,251
1,725
12.1
%
Office and other operating expense
14,636
13,136
1,500
11.4
%
Insurance
5,323
5,168
155
3.0
%
Advertising
156
155
1
0.6
%
Internet marketing
12,442
11,540
902
7.8
%
Total operating expenses
152,759
146,091
6,668
4.6
%
Net operating income (2)$
395,086
$
324,487
$
70,599
21.8
%
YTD Same store move ins
167,599
161,260
6,339
YTD Same store move outs
169,888
153,037
16,851
2022
2021
2022
2021
Weighted average quarterly occupancy
93.1
%
95.2
%
92.7
%
94.8
%
Occupancy at September 30
92.4
%
94.6
%
91.8
%
94.2
%
Rent per occupied square foot$
19.43
$
16.59
$
19.26
$
16.52
$
7,090,457
Wholly owned property acquisitions
822,980
Consolidated joint venture acquisition
28,813
Improvements and equipment additions: Expansions
21,007
Roofing, paving, and equipment: Stabilized stores
17,893
Recently acquired stores
9,381
Change in construction in progress (Total CIP $64.0 million)
19,457
Dispositions and Impairments
(8,145
)
Storage facilities at cost at period end$
8,001,843
Comparison of Selected G&A Costs (unaudited) Quarter Ended September 30, 2022 September 30, 2021 Management and administrative salaries and benefits
$
11,928
$
10,740
Training
161
98
Call center
1,103
845
Life Storage Solutions costs
271
232
Income taxes
724
731
Legal, accounting and professional
949
912
Other administrative expenses (6)
3,357
2,583
$
18,493
$
16,141
Net rentable square feet September 30, 2022 Wholly owned properties
54,557,731
Joint venture properties
10,019,056
Third party managed properties
19,965,736
84,542,523
September 30, 2022 September 30, 2021 Common shares outstanding
84,995,100
82,017,283
Common Operating Partnership Units outstanding
1,041,510
344,531
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