Life Storage, Inc. Reports Third Quarter 2019 Results and Provides Preliminary 2020 Guidance

BUFFALO, N.Y.–(BUSINESS WIRE)–$LSI #FFOLife Storage, Inc. (NYSE:LSI), a leading national owner and operator of self storage properties, reported operating results for the quarter ended September 30, 2019.

Highlights for the Third Quarter Included:

  • Generated net income attributable to common shareholders of $140.0 million, or $2.99 per fully diluted common share.
  • Achieved adjusted funds from operations (“FFO”)(1) per fully diluted common share of $1.46.
  • Increased same store net operating income (“NOI”)(2) by 2.6% and same store revenue by 1.8%.
  • Grew management and acquisition fees by 43.1%.
  • Acquired 22 properties for a total cost of $281.7 million, including five stores in Baltimore, Md. and three stores in Seattle, Wash., two new strategic markets to the Company.
  • Completed the divestiture of 32 mature stores for a total gain of $100.2 million, and began a new strategic relationship with The Inland Real Estate Group of Companies, Inc., under which Life Storage will continue to manage the 32 properties.
  • Entered into a new strategic relationship with developer Childress Klein Properties, Inc. with 40% minority interest investment in six stores in Atlanta, Ga.
  • Added 50 stores to the Company’s third-party management platform, bringing total managed stores at the end of the third quarter to 277.

Joe Saffire, the Company’s Chief Executive Officer, stated, “The Life Storage team’s continued successful execution of our disciplined growth strategy led to strong operational and financial performance in the third quarter. We increased FFO, despite temporary dilution from our completed asset rotation and higher interest costs from the earlier-than-planned bond offering last quarter. Operationally, our team is doing an outstanding job identifying and realizing growth opportunities and expense efficiencies to drive operating leverage.”

FINANCIAL RESULTS

In the third quarter of 2019, the Company generated net income attributable to common shareholders of $140.0 million or $2.99 per fully diluted common share, compared to net income attributable to common shareholders of $41.1 million, or $0.88 per fully diluted common share, in the third quarter of 2018. The increase in net income was primarily the result of the sale of 32 storage facilities for total consideration of $212.0 million, which resulted in a gain on sale of $100.2 million. Net income was also positively impacted by increased same store NOI, higher fee income and lower general and administrative expenses.

Funds from operations for the quarter were $1.46 per fully diluted common share compared to $1.46 for the same period last year. Funds from Operations for the quarter includes the impact of $0.05 dilution from the successful execution of the asset recycling this year as well as the impact of $0.01 dilution from the completion of the earlier-than-planned bond issuance in June 2019 (see “Year 2019 Earnings Guidance” below). Adjusted FFO per fully diluted common share for the quarter ended September 30, 2019 was $1.46. In the prior year period, adjusted FFO per fully diluted common share was $1.45, reflecting a $0.7 million gain on sale of land and $0.2 million of costs related to an officer’s retirement.

OPERATIONS

Revenues for the 504 stabilized stores wholly owned by the Company since December 31, 2017 increased 1.8% from the third quarter of 2018, the result of a 2.8% increase in realized rental rates, partially offset by a 110 basis point decrease in average occupancy.

Same store operating expenses increased 0.2% for the third quarter of 2019 compared to the prior year period, the result of increased real estate taxes, internet marketing costs and utilities. These increases were offset by decreases in payroll and benefits, repair and maintenance as well as office and other operating expenses. Accordingly, same store NOI increased 2.6% in the third quarter of 2019 as compared to the third quarter of 2018.

General and administrative expenses decreased by $0.2 million compared to the same period in 2018.

During the third quarter of 2019, the Company achieved same store revenue growth in 23 of its 30 major markets. Overall, the markets with the strongest positive revenue impact were Chicago, Las Vegas, Buffalo, Los Angeles, New York-Newark-New Jersey, and New England.

PORTFOLIO TRANSACTIONS

Acquisition Activity

The Company acquired 22 properties for a total cost of $281.7 million for its wholly owned portfolio in the third quarter of 2019, including: five stabilized stores in Baltimore, Md.; three stabilized stores in Seattle, Wash.; one stabilized store in Las Vegas, Nev.; 12 lease-up stores in Virginia (5), Florida (2), South Carolina (2), North Carolina (1), Tennessee (1) and Georgia (1); and one lease-up store in Austin, Texas that was previously operated pursuant to an operating lease.

During the third quarter, the Company entered into agreements to acquire two stores in the greater New York City market for total consideration of $37.1 million. The Company completed the acquisition of one of those stores subsequent to quarter end for $18.9 million.

Joint Venture Activity

The Company entered into a joint venture with Childress Klein Properties, Inc. and acquired a 40% minority investment in six stores in Atlanta, Ga. (formerly SpaceMax Storage). The total purchase price was $82.6 million, of which the Company contributed $16.5 million as its share of the equity. Additionally, the Company completed a minority investment in a fourth development property in the Greater Toronto Area. The total development cost is $18.2 million (USD), of which Life Storage contributed $0.5 million (USD) for a 10% minority equity interest.

Also as of September 30, 2019, the Company was under contract for minority investments in six stores in the Tampa, Fla. (3), Sarasota, Fla. (2) and Seattle, Wash. (1) markets. The Florida properties are managed by Life Storage Solutions, the Company’s third-party management platform.

All remaining acquisitions and joint venture investments are subject to further due diligence and closing conditions; therefore, no assurance can be given that they will be purchased according to the terms described.

Divestiture Activity

The Company divested 32 stabilized facilities for total consideration of approximately $212.0 million as part of its asset recycling program, resulting in a total gain of $100.2 million. The facilities were located in Louisiana (9), Mississippi (8), Texas (6), South Carolina (5) and North Carolina (4). Life Storage continues to manage all the properties pursuant to the terms of a long-term management agreement with The Inland Real Estate Group of Companies, Inc.

THIRD PARTY MANAGEMENT

The Company continues to aggressively and profitably grow its third-party management platform. During the quarter, the Company added 50 stores (net) to the platform. As of quarter end, the Company managed 277 facilities in total, including those in which it owns a minority interest.

FINANCIAL POSITION

At September 30, 2019, the Company had approximately $16.4 million of cash on hand, and $474.7 million available on its line of credit.

Below are key financial ratios at September 30, 2019:

– Debt to Enterprise Value (at $105.41/share) 28.1%

– Debt to Book Cost of Storage Facilities 41.3%

– Debt to Recurring Annualized EBITDA 5.5x

– Debt Service Coverage 4.5x

COMMON STOCK DIVIDEND

Subsequent to quarter-end, the Company’s Board of Directors approved a quarterly dividend of $1.00 per share, or $4.00 annualized. The dividend was paid on October 28, 2019 to shareholders of record on October 15, 2019.

YEAR 2019 EARNINGS GUIDANCE

Life Storage narrowed its full year 2019 guidance range based on the Company’s continued strong execution of its strategic initiatives and favorable operating trends:

Year 2019 Earnings Guidance

 

Current Guidance

Range

 

Prior Guidance

Range

(July 31, 2019)

Same Store Revenue

 

1.75%

2.25%

 

1.50%

2.50%

Same Store Operating Costs (excluding property taxes)

 

(2.00)%

0.00%

 

0.00%

1.00%

Same Store Property Taxes

 

5.50%

6.00%

 

5.50%

6.50%

Total Same Store Operating Expenses

 

0.50%

1.50%

 

2.00%

3.00%

Same Store Net Operating Income

 

2.40%

2.90%

 

1.50%

2.50%

General & Administrative

 

$47M

$49M

 

$48M

$50M

 

 

 

 

 

 

 

 

 

Expansions & Enhancements

 

$56M

$59M

 

$45M

$55M

Capital Expenditures

 

$25M

$29M

 

$20M

$25M

Wholly Owned Acquisitions

 

$385M

$430M

 

$275M

$475M

Wholly Owned Dispositions

 

$212M

$225M

 

$212M

$225M

Joint Venture Investments

 

$20M

$25M

 

$15M

$25M

 

 

 

 

 

 

 

 

 

Adjusted Funds from Operations per Share

 

$5.59

$5.63

 

$5.56

$5.63

The Company’s 2019 same store pool consists of the 504 stabilized stores owned since December 31, 2017. Twenty-seven of the stores purchased through September 30, 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.

As a result of favorable company operating trends and the increased acquisition volume, the Company has increased the low end of its full year 2019 adjusted funds from operations guidance to approximately $5.59 to $5.63 per share. The full year 2019 guidance includes $0.04 of increased interest cost as a result of the $350 million debt offering completed in June 2019. The earlier-than-expected issuance resulted in greater interest expense than originally planned in 2019; however, the Company believed that the opportunity to secure long-term, low cost, fixed rate debt would benefit shareholders. The Company has not decreased guidance to account for this additional interest expense in 2019.

The Company expects adjusted funds from operations for the fourth quarter of 2019 to be between $1.40 and $1.44 per share.

Reconciliation of Guidance

 

4Q 2019

Range or Value

 

FY 2019

Range or Value

Earnings per share attributable to common shareholders – diluted

 

$ 0.73 – $ 0.77

 

$ 5.35 – $ 5.39

Plus: real estate depreciation and amortization

 

0.67 – 0.67

 

2.41 – 2.41

Less: gain on sale of real estate

 

 

(2.17 – 2.17)

FFO per share

 

$ 1.40 – $ 1.44

 

$ 5.59 – $ 5.63

PRELIMINARY YEAR 2020 EARNINGS GUIDANCE:

The Company is providing preliminary 2020 earnings guidance due to a number of initiatives underway that are expected to further improve financial performance, including:

  • Anticipated margin and growth impact of the asset rotation completed in 2019, including the expected expansion of the non-same store pool to 53 stores at year end 2019;
  • Ongoing revenue and expense efficiency initiatives related to fee income, payroll and benefits, utilities management and repairs and maintenance;
  • Continued growth of the Company’s third-party management portfolio; and
  • Impact of approximately $50 million of expansions and enhancements planned for each of 2019 and 2020, compared to roughly $25 – $35 million completed in each of 2016, 2017 and 2018.

The following assumptions covering operations have been utilized in formulating guidance for 2020:

 

 

Same Store

Projected Increases Over 2019

 

 

FY 2020

Revenue

 

1.25 – 2.25%

Operating Costs (excluding property taxes)

 

(2.75) – (1.75)%

Property Taxes

 

5.00 – 6.00%

Total Operating Expenses

 

0.25 – 1.25%

Net Operating Income

 

2.00 – 3.00%

The Company anticipates that its 2020 same store pool will consist of 517 stabilized stores owned since December 31, 2018. The stores purchased through 2019 at certificate of occupancy or that were less than 80% occupied at market rates are not included, regardless of their current occupancies. Accordingly, the Company anticipates that five stores previously classified as certificate of occupancy and lease-up that have achieved stabilized occupancy and rates by January 1, 2019 will be added to the 2020 same store pool.

Similar to 2019, the Company plans to complete $40 – $55 million of expansions in 2020. It also has budgeted $22 – $27 million to provide for recurring capitalized expenditures including roofing, paving, and office renovations.

The Company has included $200 million of acquisition activity in its projections for 2020.

In 2020, the Company anticipates entering into additional joint ventures, or adding to its existing joint ventures, contributing up to $25 million.

Annual general and administrative expenses, including costs incurred to manage third-party properties, are expected to be approximately $48 – $50 million.

As a result of the above assumptions, management expects adjusted funds from operations for the full year 2020 to be between $5.93 to $6.07 per share.

Reconciliation of Guidance

 

FY 2020

Range or Value

Earnings per share attributable to common shareholders – diluted

 

$ 3.25 – $ 3.39

Plus: real estate depreciation and amortization

 

2.68 – 2.68

FFO per share

 

$ 5.93 – $ 6.07

Additionally, the Company is evaluating its dividend for 2020 to potentially increase it commensurate with the anticipated growth in funds from operations per share.

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 could cause rents and occupancy rates to decline; the Company’s ability to evaluate, finance and integrate acquired businesses 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; the Company’s cash flow may be insufficient to meet required payments of principal, interest and dividends; economic uncertainty due to the impact of natural disasters, war or terrorism; 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 Thursday, October 31, 2019. 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 866-777-2509 (domestic) or 412-317-5413 (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 825 storage facilities in 29 states and 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 450,000 customers, making it a leader in the industry. For more information visit http://invest.lifestorage.com.

   
Life Storage, Inc.  
Balance Sheet Data  
(unaudited)  
   

September 30,

 

December 31,

(dollars in thousands)  

2019

 

2018

Assets  
  Investment in storage facilities:  
     Land

 $

             879,662

 

 

 $

             794,729

 

     Building, equipment and construction in progress

 

             3,808,917

 

 

 

             3,604,210

 

 

             4,688,579

 

 

 

             4,398,939

 

     Less: accumulated depreciation

 

              (730,555

)

 

 

              (704,681

)

  Investment in storage facilities, net

 

             3,958,024

 

 

 

             3,694,258

 

  Cash and cash equivalents

 

                  16,371

 

 

 

                  13,560

 

  Accounts receivable

 

                  10,816

 

 

 

                    7,805

 

  Receivable from joint ventures

 

                    1,124

 

 

 

                    1,006

 

  Investment in joint ventures

 

                150,182

 

 

 

                145,911

 

  Prepaid expenses

 

                    9,523

 

 

 

                    7,251

 

  Intangible asset – in-place customer leases

 

                    3,540

 

 

 

                        970

 

  Trade name

 

                  16,500

 

 

 

                  16,500

 

  Other assets

 

                  22,660

 

 

 

                    4,951

 

     Total Assets

 $

         4,188,740

 

 

 $

         3,892,212

 

   
Liabilities  
  Line of credit

 $

               25,000

 

 

 $

               91,000

 

  Term notes, net

 

             1,857,624

 

 

 

             1,610,820

 

  Accounts payable and accrued liabilities

 

                  99,337

 

 

 

                  87,446

 

  Deferred revenue

 

                  10,421

 

 

 

                    9,191

 

  Mortgages payable

 

                  35,016

 

 

 

                  12,302

 

     Total Liabilities

 

             2,027,398

 

 

 

             1,810,759

 

   
  Noncontrolling redeemable Operating Partnership Units at redemption value

 

                  26,024

 

 

 

                  23,716

 

   
Equity  
  Common stock  

 

                        467

 

 

 

                        466

 

  Additional paid-in capital

 

             2,375,816

 

 

 

             2,372,157

 

  Accumulated deficit

 

              (234,777

)

 

 

              (308,011

)

  Accumulated other comprehensive loss 

 

                   (6,188

)

 

 

                   (6,875

)

     Total Shareholders’ Equity

 

             2,135,318

 

 

 

             2,057,737

 

  Total Liabilities and Shareholders’ Equity

 $

         4,188,740

 

 

 $

         3,892,212

 

     
Life Storage, Inc.    
Consolidated Statements of Operations    
(unaudited)    
July 1, 2019   July 1, 2018 January 1, 2019   January 1, 2018
to   to to   to
(dollars in thousands, except share data) September 30, 2019   September 30, 2018 September 30, 2019   September 30, 2018
     
Revenues    
  Rental income

 $

                  128,565

 

 

 $

                  128,818

 

 $

                  381,625

 

 

 $

                  376,334

 

  Other operating income

 

                        13,260

 

 

 

                        10,004

 

 

                        35,405

 

 

 

                        28,649

 

  Management and acquisition fee income

 

                          3,809

 

 

 

                          2,661

 

 

                        10,156

 

 

 

                          7,602

 

     Total operating revenues

 

                     145,634

 

 

 

                     141,483

 

 

                     427,186

 

 

 

                     412,585

 

     
Expenses    
  Property operations and maintenance

 

                        32,215

 

 

 

                        30,316

 

 

                        96,809

 

 

 

                        90,551

 

  Real estate taxes

 

                        16,116

 

 

 

                        15,450

 

 

                        48,427

 

 

 

                        46,512

 

  General and administrative

 

                        11,554

 

 

 

                        11,742

 

 

                        34,401

 

 

 

                        35,513

 

  Operating leases of storage facilities

 

                               75

 

 

 

                             141

 

 

                             358

 

 

 

                             424

 

  Depreciation and amortization

 

                        26,055

 

 

 

                        27,282

 

 

                        77,561

 

 

 

                        76,830

 

  Amortization of in-place customer leases

 

                             799

 

 

 

                                  9

 

 

                          1,678

 

 

 

                                  9

 

     Total operating expenses

 

                        86,814

 

 

 

                        84,940

 

 

                     259,234

 

 

 

                     249,839

 

     
  Gain on sale of storage facilities

 

                     100,222

 

 

 

                             925

 

 

                     100,222

 

 

 

                             925

 

  Gain on sale of real estate

 

                                   –

 

 

 

                             718

 

 

                          1,076

 

 

 

                             718

 

Income from operations

 

                     159,042

 

 

 

                        58,186

 

 

                     269,250

 

 

 

                     164,389

 

     
Other income (expense)    
  Interest expense (A)

 

                      (19,760

)

 

 

                      (17,923

)

 

                      (56,339

)

 

 

                      (52,645

)

  Interest income

 

                             289

 

 

 

                                  2

 

 

                             340

 

 

 

                                  8

 

  Equity in income of joint ventures

 

                          1,175

 

 

 

                          1,046

 

 

                          3,095

 

 

 

                          3,066

 

     
Net income

 

                     140,746

 

 

 

                        41,311

 

 

                     216,346

 

 

 

                     114,818

 

  Noncontrolling interests in the Operating Partnership

 

                            (744

)

 

 

                            (191

)

 

                        (1,148

)

 

 

                            (535

)

Net income attributable to common shareholders

 $

                  140,002

 

 

 $

                    41,120

 

 $

                  215,198

 

 

 $

                  114,283

 

     
Earnings per common share attributable to common shareholders – basic

 $

                         3.00

 

 

 $

                         0.88

 

 $

                         4.62

 

 

 $

                         2.46

 

     
Earnings per common share attributable to common shareholders – diluted

 $

                         2.99

 

 

 $

                         0.88

 

 $

                         4.61

 

 

 $

                         2.45

 

     
Common shares used in basic    
    earnings per share calculation

 

                46,586,030

 

 

 

                46,526,362

 

 

                46,577,704

 

 

 

                46,486,587

 

     
Common shares used in diluted    
    earnings per share calculation

 

                46,657,105

 

 

 

                46,627,968

 

 

                46,641,673

 

 

 

                46,580,331

 

     
Dividends declared per common share

 $

                         1.00

 

 

 $

                         1.00

 

 $

                         3.00

 

 

 $

                         3.00

 

     
     
(A) Interest expense for the period ending September 30 consists of the following    
     Interest expense

 $

                    19,146

 

 

 $

                    17,399

 

 $

                    54,625

 

 

 $

                    51,071

 

     Amortization of debt issuance costs

 

                             614

 

 

 

                             524

 

 

                          1,714

 

 

 

                          1,574

 

Total interest expense

 $

                    19,760

 

 

 $

                    17,923

 

 $

                    56,339

 

 

 $

                    52,645

 

Contacts

Life Storage, Inc.

David Dodman

(716) 229-8284

ddodman@lifestorage.com

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