Life Storage, Inc. Reports Third Quarter 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, 2020.
Highlights for the Third Quarter Included:
Generated net income attributable to common shareholders of $37.1 million, or $0.78 per fully diluted common share. Achieved adjusted funds from operations (“FFO”)(1) per fully diluted common share of $1.52, a 4.1% increase over the same period in 2019. Increased same store revenue by 1.2% and same store net operating income (“NOI”)(2) by 0.4%, year-over-year. Achieved 11th straight quarter of less than 1% increase year-over-year growth of same store operating expense (excluding property taxes). Acquired 25 stabilized stores from two of our joint ventures for a total valuation of $326.7 million. Added 30 stores to the Company’s third-party management platform. Completed a $400 million offering of 2.2% Senior Unsecured Notes due 2030. Bolstered Warehouse Anywhere’s ecommerce solution through a partnership with Deliverr, a leading technology-enabled fulfillment organization, with the build-out of a micro-fulfillment center in Las Vegas and a second planned in Chicago.Joe Saffire, the Company’s Chief Executive Officer, stated, “We had a great quarter on many fronts. Our stores returned to positive top line revenue and NOI growth. We achieved record third quarter same store occupancy, up 290 basis points year-over-year at quarter end. We acquired 25 stores from two of our strategic joint venture partners and our acquisition pipeline remains robust. We added 30 stores to our third-party management platform as owners are drawn to our technology platforms and peer-leading same store performance. Our B2B platform, Warehouse Anywhere, achieved several positive customer pilot outcomes. And our balance sheet and liquidity position remain strong and support our ability to execute on our strategic initiatives.”
COVID-19 PANDEMIC:
The COVID-19 global health crisis and related economic disruption has had an adverse effect on the Company’s year-to-date financial results in 2020. However, the Company experienced several positive trends in the third quarter and October, which include:
Same store move-ins were 11.0% higher and same store move-outs were 7.7% lower in the third quarter of 2020 than the same period last year, resulting in weighted average quarterly occupancy of 93.0% compared to 90.7% in the third quarter of 2019. Same store occupancy was 93.2% at both September 30, 2020 and October 31, 2020. The impact of delayed auctions continued to decrease as auction activities have resumed in nearly all markets. Had normal auction activity occurred, the Company estimates same store occupancy would have been approximately 92.5% as of September 30, 2020 and 92.8% at October 31, 2020. Cash collection rates have returned to pre-COVID-19 levels.FINANCIAL RESULTS:
In the third quarter of 2020, the Company generated net income attributable to common shareholders of $37.1 million or $0.78 per fully diluted common share, compared to net income attributable to common shareholders of $140.0 million, or $2.99 per fully diluted common share, in the third quarter of 2019. Net income in the same quarter last year benefited from a $100.2 million gain on sale of storage facilities.
Funds from operations for the quarter were $1.49 per fully diluted common share compared to $1.46 for the same period last year. After adjusting for the $1.5 million impact of uninsured damages and customer reinsurance claims associated with hurricane damage in September 2020, adjusted FFO per fully diluted common share for the quarter was $1.52, compared to $1.46 for the quarter ended September 30, 2019.
OPERATIONS:
Same store revenues for the stabilized stores wholly owned by the Company since December 31, 2018 increased 1.2% from the third quarter of 2019. The increase resulted from the net impact of a 230 basis point increase in average occupancy and a 2.4% decline in realized rental rates.
Same store operating expenses increased 2.7% for the third quarter of 2020 compared to the prior year period, the result of increased real estate taxes and internet marketing costs. The increases were offset by decreases in payroll and benefits, repair and maintenance, utilities, advertising, insurance and office and other operating expenses. This is the eighth straight quarter of declining payroll and benefits when comparing to the same period of the prior year. Same store NOI increased 0.4% in the third quarter of 2020 as compared to the third quarter of 2019.
The Company’s 2020 same store pool consists of the 515 stabilized stores wholly owned since December 31, 2018. Two stores that were damaged from hurricanes in September 2020 were removed from the same store pool in the third quarter. Twenty-two of the stores purchased through December 31, 2019 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.
PORTFOLIO TRANSACTIONS:
During the quarter, the Company acquired 25 stabilized stores in New Jersey (6), Ohio (6), Texas (5), Pennsylvania (4), Florida (3), and Georgia (1) for a total purchase price of $326.7 million. Seventeen of the properties were acquired from Sovran HHF Storage Holdings LLC, a joint venture in which the Company has a 20% common interest, and eight of the properties were acquired from Sovran HHF Storage Holdings II LLC, a joint venture in which the Company has a 15% common interest. The net investment to acquire the properties was $295.3 million.
During the third quarter, the Company entered into contracts to acquire three self-storage facilities in Missouri, New Jersey, and New York for an aggregate purchase price of $37.9 million. Subsequent to September 30, 2020, the Company entered into contracts to acquire five self-storage facilities in Florida (2), South Carolina (2) and California (1) for an aggregate purchase price of $59.6 million. The purchases of these facilities are subject to customary conditions to closing, and there is no assurance that any of these facilities will be acquired.
THIRD-PARTY MANAGEMENT:
The Company continues to aggressively and profitably grow its third-party management platform. During the quarter, the Company added 30 stores. As of quarter end, the Company managed 317 facilities in total, including those in which it owns a minority interest.
FINANCIAL POSITION:
At September 30, 2020, the Company had approximately $110.2 million of cash on hand, and approximately $500 million available on its line of credit.
On September 23, 2020, the Company completed an offering of $400 million aggregate principal amount of 2.2% Senior Unsecured Notes due 2030. The proceeds were used to fund a portion of the 25-store portfolio acquisition noted above, for general corporate purposes and to fund the October 2020 repayment of a $100 million term note due August 2021 and a related $4.0 million make-whole expense.
During the three months ended September 30, 2020, the Company issued 1,285,546 shares of common stock under its continuous equity offering program at a weighted average issue price of $105.51 per share, generating net proceeds after expenses of $134.2 million.
Below are key financial ratios at September 30, 2020:
•
Debt to Enterprise Value (at $105.27/share)
31.2%
•
Debt to Book Cost of Storage Facilities
44.4%
•
Debt to Recurring Annualized EBITDA
5.8x
•
Debt Service Coverage
4.3x
COMMON STOCK DIVIDEND:
Subsequent to quarter end, the Company’s Board of Directors approved a quarterly dividend of $1.07 per share, or $4.28 annualized. The dividend was paid on October 26, 2020 to shareholders of record on October 13, 2020.
YEAR 2020 EARNINGS GUIDANCE:
Continued uncertainties resulting from the ongoing COVID-19 pandemic and related economic disruption across the country and its impact on customer demand in individual markets, continue to make it challenging to provide an outlook and guidance with reasonable accuracy. However, the Company believes it is well positioned to continue to strengthen its share of the resilient self-storage markets it serves due to its disciplined business model and a strong balance sheet to support its strategic initiatives.
The Company will continue with suspension of quantitative guidance and revisit this practice next quarter.
FORWARD LOOKING STATEMENTS:
When used in this news release, 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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which would cause rents and occupancy rates to decline; risks associated with the COVID-19 global health crisis or similar events, including but not limited to (i) the impact to the health of our employees and/or customers, (ii) the negative impacts to the economy and to self-storage customers which could reduce the demand for self-storage or reduce our ability to collect rent, (iii) reducing or eliminating our ability to increase rents charged to our current or future customers, (iv) limiting our ability to collect rent from or evict past due customers, (v) we could see an increase in move-outs of longer-term customers due to the economic uncertainty and significant rise in unemployment resulting from the COVID-19 global health crisis which could lead to lower occupancies and reduced average rental rates as longer-term customers are replaced with new customers at lower rates, and (vi) potential negative impacts on the cost and availability of debt and equity which could have a negative impact on our capital and growth plans; the Company’s ability to evaluate, finance and integrate acquired self-storage facilities into the Company’s existing business and operations; the Company’s ability to effectively compete in the industry in which it does business; 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 fluctuate, impacting costs associated with the Company’s outstanding floating rate debt; the Company’s ability to comply with debt covenants; any future ratings on the Company’s debt instruments; regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s reliance on its call center; and tax law changes that may change the taxability of future income.
CONFERENCE CALL:
Life Storage will hold its Third Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Friday, November 6, 2020. 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 844-707-6940 (domestic) or 412-317-5702 (international). 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 six months.
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 900 storage facilities in 30 states and in the province of Ontario, Canada. The Company serves both residential and commercial storage customers with storage units rented by month. Life Storage consistently provides responsive service to approximately 500,000 customers, making it a leader in the industry. For more information visit http://invest.lifestorage.com.
2020
2019
Assets Investment in storage facilities: Land$
937,030
$
884,235
Building, equipment and construction in progress
4,263,222
3,865,238
5,200,252
4,749,473
Less: accumulated depreciation
(842,592
)
(756,333
)
Investment in storage facilities, net
4,357,660
3,993,140
Cash and cash equivalents
110,247
17,458
Accounts receivable
13,970
12,218
Receivable from joint ventures
3,223
1,302
Investment in joint ventures
143,633
154,984
Prepaid expenses
10,601
7,771
Intangible asset - in-place customer leases
5,685
2,910
Trade name
16,500
16,500
Other assets
27,536
26,681
Total Assets
$
4,689,055
$
4,232,964
Liabilities Line of credit
$
-
$
65,000
Term notes, net
2,254,783
1,858,271
Accounts payable and accrued liabilities
107,980
103,942
Deferred revenue
16,204
11,699
Mortgages payable
34,352
34,851
Total Liabilities
2,413,319
2,073,763
Noncontrolling redeemable Operating Partnership Units at redemption value
25,848
26,307
Equity Common stock
482
467
Additional paid-in capital
2,533,402
2,376,723
Accumulated deficit
(278,726
)
(238,338
)
Accumulated other comprehensive loss
(5,270
)
(5,958
)
Total Shareholders' Equity
2,249,888
2,132,894
Total Liabilities and Shareholders' Equity
$
4,689,055
$
4,232,964
$
135,965
$
128,565
$
393,701
$
381,625
Other operating income
15,827
13,260
43,458
35,405
Management and acquisition fee income
4,518
3,809
13,107
10,156
Total operating revenues
156,310
145,634
450,266
427,186
Expenses Property operations and maintenance
36,199
32,215
101,297
96,809
Real estate taxes
17,729
16,116
52,751
48,427
General and administrative
13,369
11,554
38,498
34,401
Payments for rent
-
75
-
358
Depreciation and amortization
31,960
26,055
86,524
77,561
Amortization of in-place customer leases
1,058
799
3,811
1,678
Total operating expenses
100,315
86,814
282,881
259,234
Gain on sale of storage facilities
-
100,222
-
100,222
Gain on sale of real estate
-
-
302
1,076
Income from operations
55,995
159,042
167,687
269,250
Other income (expense) Interest expense (A)
(20,544
)
(19,760
)
(61,056
)
(56,339
)
Interest income
8
289
14
340
Equity in income of joint ventures
1,829
1,175
3,915
3,095
Net income
37,288
140,746
110,560
216,346
Net income attributable to noncontrolling interests in the Operating Partnership
(193
)
(744
)
(576
)
(1,148
)
Net income attributable to common shareholders$
37,095
$
140,002
$
109,984
$
215,198
Earnings per common share attributable to common shareholders - basic
$
0.78
$
3.00
$
2.34
$
4.62
Earnings per common share attributable to common shareholders - diluted
$
0.78
$
2.99
$
2.34
$
4.61
Common shares used in basic earnings per share calculation
47,223,842
46,586,030
46,915,323
46,577,704
Common shares used in diluted earnings per share calculation
47,299,906
46,657,105
46,985,647
46,641,673
Dividends declared per common share
$
1.07
$
1.00
$
3.21
$
3.00
(A) Interest expense for the period ending September 30 consists of the following Interest expense
$
19,948
$
19,146
$
59,258
$
54,625
Amortization of debt issuance costs
596
614
1,798
1,714
Total interest expense
$
20,544
$
19,760
$
61,056
$
56,339
$
37,095
$
140,002
$
109,984
$
215,198
Noncontrolling interests in the Operating Partnership
193
744
576
1,148
Depreciation of real estate and amortization of intangible assets exclusive of debt issuance costs
32,417
26,269
88,557
77,797
Depreciation and amortization from unconsolidated joint ventures
1,024
1,598
4,502
4,468
Gain on sale of storage facilities
-
(100,222
)
-
(100,222
)
Funds from operations allocable to noncontrolling interest in Operating Partnership
(367
)
(360
)
(1,060
)
(1,055
)
Funds from operations available to common shareholders
70,362
68,031
202,559
197,334
FFO per share - diluted
$
1.49
$
1.46
$
4.31
$
4.23
Adjustments to FFO Uninsured damages and customer reinsurance claims, net
$
1,546
$
-
$
1,546
$
-
Lawsuit settlement
$
-
$
-
$
-
(1,651
)
Gain on sale of land
-
-
(302
)
(1,076
)
Acquisition fee
-
-
(217
)
-
Costs related to officer's retirement
-
-
-
443
Funds from operations resulting from non-recurring items allocable to noncontrolling interest in Operating Partnership
(8
)
-
(5
)
12
Adjusted funds from operations available to common shareholders
71,900
68,031
203,581
195,062
Adjusted FFO per share - diluted
$
1.52
$
1.46
$
4.33
$
4.18
Common shares - diluted
47,299,906
46,657,105
46,985,647
46,641,673
$
37,288
$
140,746
$
110,560
$
216,346
General and administrative
13,369
11,554
38,498
34,401
Payments for rent
-
75
-
358
Depreciation and amortization
33,018
26,854
90,335
79,239
Gain on sale of storage facilities
-
(100,222
)
-
(100,222
)
Gain on sale of real estate
-
-
(302
)
(1,076
)
Interest expense
20,544
19,760
61,056
56,339
Interest income
(8
)
(289
)
(14
)
(340
)
Equity in income of joint ventures
(1,829
)
(1,175
)
(3,915
)
(3,095
)
Net operating income$
102,382
$
97,303
$
296,218
$
281,950
Same store (4)
$
84,303
$
83,949
$
243,549
$
241,594
Net operating income related to tenant reinsurance
7,059
6,768
21,254
19,286
Other stores and management fee income
11,020
6,586
31,415
21,070
Total net operating income
$
102,382
$
97,303
$
296,218
$
281,950
$
124,614
$
123,162
$
1,452
1.2
%
Other operating income
1,781
1,764
17
1.0
%
Total operating revenues
126,395
124,926
1,469
1.2
%
Expenses: Payroll and benefits
9,218
9,460
(242
)
-2.6
%
Real estate taxes
16,209
15,241
968
6.4
%
Utilities
4,085
4,359
(274
)
-6.3
%
Repairs and maintenance
3,564
3,583
(19
)
-0.5
%
Office and other operating expense
3,751
3,817
(66
)
-1.7
%
Insurance
1,466
1,478
(12
)
-0.8
%
Advertising
62
113
(51
)
-45.1
%
Internet marketing
3,737
2,926
811
27.7
%
Total operating expenses
42,092
40,977
1,115
2.7
%
Net operating income (2)$
84,303
$
83,949
$
354
0.4
%
QTD Same store move ins
55,365
49,859
5,506
QTD Same store move outs
51,043
55,325
(4,282
)
$
123,760
$
122,404
$
1,356
1.1
%
Expenses
41,000
39,929
1,071
2.7
%
Net operating income$
82,760
$
82,475
$
285
0.3
%
2018 Same store pool (486 stores) Revenues$
119,378
$
118,137
$
1,241
1.1
%
Expenses
39,318
38,400
918
2.4
%
Net operating income$
80,060
$
79,737
$
323
0.4
%
$
363,209
$
360,660
$
2,549
0.7
%
Other operating income
4,641
5,155
(514
)
-10.0
%
Total operating revenues
367,850
365,815
2,035
0.6
%
Expenses: Payroll and benefits
27,879
29,353
(1,474
)
-5.0
%
Real estate taxes
48,436
45,697
2,739
6.0
%
Utilities
10,738
11,699
(961
)
-8.2
%
Repairs and maintenance
10,801
12,692
(1,891
)
-14.9
%
Office and other operating expense
10,838
11,696
(858
)
-7.3
%
Insurance
4,407
4,431
(24
)
-0.5
%
Advertising
186
708
(522
)
-73.7
%
Internet marketing
11,016
7,945
3,071
38.7
%
Total operating expenses
124,301
124,221
80
0.1
%
Net operating income (2)$
243,549
$
241,594
$
1,955
0.8
%
YTD Same store move ins
152,499
148,987
3,512
YTD Same store move outs
135,953
147,009
(11,056
)
Same Store (3)
All Stores (5)
2020
2019
2020
2019
Weighted average quarterly occupancy
93.0
%
90.7
%
92.3
%
89.2
%
Occupancy at September 30
93.2
%
90.3
%
92.4
%
88.8
%
Rent per occupied square foot$
14.43
$
14.79
$
14.44
$
14.71
$
4,749,473
Property acquisitions
413,022
Improvements and equipment additions: Expansions
31,650
Roofing, paving, and equipment: Stabilized stores
12,191
Recently acquired stores
47
Change in construction in progress (Total CIP $22.4 million)
(5,884
)
Dispositions and Impairments
(247
)
Storage facilities at cost at period end$
5,200,252
Comparison of Selected G&A Costs (unaudited) Quarter Ended September 30, 2020 September 30, 2019 Management and administrative salaries and benefits
$
7,792
$
6,557
Training
173
296
Call center
814
744
Life Storage Solutions costs
205
255
Income taxes
961
490
Legal, accounting and professional
945
944
Other administrative expenses (6)
2,479
2,268
$
13,369
$
11,554
Net rentable square feet September 30, 2020 Wholly owned properties
42,689,838
Joint venture properties
6,701,445
Third party managed properties
16,463,115
65,854,398
September 30, 2020 September 30, 2019 Common shares outstanding
48,199,008
46,656,891
Operating Partnership Units outstanding
243,966
247,466
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