Public Storage Targets Life Storage

On Feb. 5, 2023, Public Storage made it known that the publicly traded real estate investment trust (REIT) was interested in acquiring the entire portfolio of Buffalo, N.Y.-based Life Storage. The press release, which was distributed through various online newswire services, revealed that Public Storage has been pursuing the possibility of a merger since at least Dec. 22, 2022, when Public Storage’s President and CEO Joseph D. Russell, Jr., and Chairman of the Board Ronald L. Havner, Jr., had a conversation with Life Storage’s CEO Joseph V. Saffire and Chairman of the Board Mark G. Barberio about its “very strong interest in acquiring Life Storage, Inc.”

Though neither of the REITs have divulged the specifics of that conversation, one can speculate that it was left open-ended. In a follow-up letter sent to Life Storage’s Saffire and Barberio, dated Jan. 12, 2023, Russell and Havner note that Public Storage received a response letter from Life Storage on Dec. 29, 2022, stating that “the Company is not for sale.” According to the letter, Life Storage’s executives also called the Public Storage executives to request that they “not provide” them with “specific terms” for a proposed transaction. That first letter is printed in its entirety in the sidebar below.

Despite Life Storage’s initial refusal to entertain the proposal, Public Storage’s executives sent a second letter to Saffire and Barberio on Feb. 5, 2023, to “reiterate” the REIT’s acquisition proposal. On the same day, Public Storage made its proposal public by submitting the aforementioned press release to various newswires. The second letter is printed in its entirety in the sidebar below.

In response, Life Storage issued the following press release on Feb. 5, 2023:

“Life Storage, Inc., (NYSE:LSI), a leading national owner and operator of self-storage properties, today confirmed that it received an unsolicited taxable all-stock proposal from Public Storage to acquire all of the outstanding shares of Life Storage for 0.4192 shares of Public Storage common stock for each outstanding Life Storage share.

The Company noted that the proposal received today appears to be substantially similar in all material respects to a privately submitted proposal previously reviewed by the Life Storage Board of Directors. Notwithstanding, the Board, in consultation with its financial and legal
advisors, will carefully review the proposal and determine the course of action that it believes is in the best interests of all shareholders.

Life Storage shareholders are advised to take no action at this time.

Wells Fargo Securities, LLC is acting as financial advisor to Life Storage and Hogan Lovells US LLP is serving as legal advisor.”

When Mini-Storage Messenger reached out to Life Storage on Feb. 6, 2023, an official spokesperson provided no additional comments, instead referring us to the REIT’s statement in the press release above.

An official Public Storage spokesperson responded to our inquiries with the following statement on Feb. 8, 2023:

“We believe a combination with Life Storage will unlock growth and value creation opportunities embedded in Life Storage’s portfolio. Our proposal would create a combined company with significant advantages and a strong trajectory of profitable growth. We’re all excited about the prospect of this combination and the ways in which it will unlock opportunities for near-,medium-, and long-term value creation.
 
We see a number of benefits for everyone involved in this transaction – from our shareholders, investors, employees, and customers to Life Storage’s. We intend to utilize our extensive in- house development capabilities to enhance Life Storage’s portfolio alongside leveraging our strong balance sheet which gives us significant capacity to fund ongoing growth.
 
We’ve been disappointed by Life Storage’s persistent refusal to engage constructively including its explicit stance that the company is “not for sale,” which is why we made the decision to make our offer publicly known. We believe that shareholders deserve to be informed of the proposal and to have the opportunity to make their views known to Life Storage.”

Although uncertainty remains about whether a transaction with transpire between these two REITs, it’s clear that Public Storage intends to continue to grow its portfolio in 2023.

Public Storage’s First Letter to Life Storage (reprinted from the press release distributed via (www.businesswire.com)

January 12, 2023

Mark G. Barberio, Chairman of the Board
Joseph V. Saffire, Chief Executive Officer
Life Storage, Inc.
6467 Main Street
Buffalo, NY 14221

Dear Mark and Joe,

We are writing to follow up on our December 22, 2022 conversation, during which we conveyed to you Public Storage’s very strong interest in acquiring Life Storage, Inc. We appreciated our conversation and the chance to discuss the merits of a combined company. As discussed, we admire your business and respect what you, your management team, and board have accomplished. We strongly believe that our combined company would be one of the leading and most well-regarded real estate companies and very well received by the investor community.

We are proposing that Public Storage would acquire all of the outstanding shares and units of Life Storage for consideration consisting of Public Storage common stock at an exchange ratio of 0.4192 shares of Public Storage common stock for each outstanding Life Storage share or unit. The proposed consideration has a current value of $124.12 per Life Storage share/unit based on the closing price of Public Storage common stock on January 12, 2023, which represents a substantial immediate premium for Life Storage equity holders of 20%. We propose to structure the transaction so that it would be taxable for Life Storage equity holders, which we believe would not be of concern to the majority of your shareholders, so that the combined company would benefit from a step-up in tax basis, with a corresponding enhanced ability for the combined company to retain free cash flow to fund future accretive growth.

Participating in the combined company on the basis of the exchange ratio we are proposing will provide your equityholders with the opportunity to share in all of the upside of the combined company on a basis reflecting a proportional ownership interest substantially greater than would be implied by our respective underlying fundamentals. Put simply, the immediate equity premium to be paid to your
shareholders affords them a turbo-charged share of the combined company and an equity investment far superior to continuing as an investor in your stand-alone company.

Our proposed transaction will allow Life Storage shareholders the opportunity to benefit from long-term value creation in a combined company that will have several advantages, including the immediate ability to:

– Increase significant operational efficiencies and economies of scale, leading to improved margins on Life Storage’s portfolio and enabling your shareholders to benefit from operational improvement quickly;
– Expand the strongest brand in the industry, which when combined with the leading digital customer experience, will enable more robust customer acquisition and new customer growth;
– Retain and deploy a strong, low leverage, single-A credit rated balance sheet, which will create significant external growth capacity at a low cost of capital;
– Unlock additional capital allocation opportunities through acquisitions with the combined company’s higher margins and lower cost of capital, including providing your shareholders exposure to our industry leading in-house development and redevelopment capabilities;
– Combine our significant 65 million square feet of non-same store portfolios, providing outsized cash flow growth; and
– Accelerate growth of ancillary operations, including tenant reinsurance and third-party property management, and pair your private owner lending platform with our strong balance sheet.

Our industry leading brand, balance sheet, and lower cost of capital, combined with the significant operational efficiencies we expect to achieve through the proposed transaction, will make the combined company more profitable and nimble, driving cash flow and value creation for the shareholders of the combined company.

Given the proposed transaction’s immediate and long-term benefits, we feel very strongly that our proposed offer provides Life Storage shareholders a more favorable alternative than its current standalone strategy. We were surprised by your December 29, 2022 letter, which stated that “the Company is not for sale,” and your call to request that we not provide you with the specific terms on which we would propose a transaction. Hopefully you agree that this proposal is compelling and merits serious consideration and engagement by your board. We would certainly welcome the opportunity to spend time with you and your Board to discuss our proposal and walk you through why this is such a compelling opportunity for your shareholders.

Our proposal provides a high degree of closing certainty and a fast track to completion. We stand ready to enter into a confidentiality agreement, commence our due diligence, and negotiate definitive transaction documentation on a fast track. To that end, we have engaged Wachtell, Lipton, Rosen & Katz as our legal advisor on this transaction, and all of our internal and external resources stand ready to move promptly to the next phase of the transaction, including our completion of customary confirmatory due diligence. This transaction is a very high priority for our management team and Board of Trustees, which has unanimously approved this proposal.

This proposal is based solely on public information, is non-binding, and does not constitute an offer or a commitment to submit an offer or to negotiate or enter into a definitive agreement; the parties will not be legally bound with respect to this proposal until execution of definitive transaction agreements, if any, and subject to the terms and conditions expressed therein.

We and our advisors stand ready to engage with you and your team as quickly and intensively as possible, and we look forward to doing so, with a view towards delivering superior value to your equity holders.

We would welcome the opportunity to meet with you as soon as possible to discuss this compelling proposal further and answer any questions you may have.

Sincerely,
Joseph D. Russell, Jr. (President and Chief Executive Officer)
Ronald L. Havner, Jr. (Chairman of the Board)

Public Storage’s Second Letter To Life Storage (reprinted from the press release distributed via www.businesswire.com)

6467 Main Street
Buffalo, NY 14221

Dear Mark and Joe,

We are writing to reiterate our proposal to acquire Life Storage, Inc. for consideration consisting of Public Storage common stock at an exchange ratio of 0.4192 shares of Public Storage common stock for each outstanding Life Storage share or unit. Our offer represents a 19% premium based on the 20-day trailing VWAPs of Public Storage and Life Storage as of February 3, 2023. This substantial offer provides Life Storage shareholders not only an immediate, highly attractive equity premium, but also a superior opportunity to unlock near-, medium-, and long-term growth, profitability, and value creation.

We believe your shareholders deserve to be informed of our proposed transaction and to have the opportunity to make their views known, and we are making this letter public in light of your refusal to engage in any meaningful dialogue, including your declaration in writing on December 29, 2022 that Life Storage “is not for sale.”

As we have stated multiple times, we admire your business and respect the strides your management team and board have made, particularly in recent years. Your success, coupled with Public Storage’s proven ability to deliver industry-leading performance through superior operational capabilities and strategic growth, is the reason we are so confident in the unique opportunity this proposal represents for your shareholders. Following the transaction, your shareholders would own a combined business with a diversified platform that is well-positioned for enhanced organic growth, profitability, and portfolio expansion utilizing the industry’s most recognized brand and strongest balance sheet.

We have made numerous attempts to engage in a constructive private dialogue with you and your board over the past two months. On January 12, we proposed to you in writing a transaction at an exchange ratio of 0.4192 shares, which represented a 20% premium on that day. Instead of meaningfully engaging with us, you sent a letter on January 31 bluntly asserting that our offer is not in the best interests of your shareholders without providing any explanation or avenue for discussion. Your letter—and your lack of response to our outreach since—clearly reflect the “not for sale” stance communicated in your December 29 letter. We believe your persistent unwillingness to engage in discussions regarding this highly beneficial transaction is contrary to the interests of your shareholders.

We would have preferred to work privately with you to reach an agreement for the benefit of our respective shareholders, but given your refusal to engage meaningfully, we believe making our proposal public is now the most constructive approach. Your shareholders deserve the opportunity to consider and communicate directly with you regarding the substantial benefits of our offer.

Public Storage and our board consider this transaction to be an important strategic priority. We have engaged Goldman Sachs & Co. LLC and Wachtell, Lipton, Rosen & Katz to assist us in completing this transaction. We believe that this transaction provides a high degree of closing certainty and can be completed quickly.

We stand ready to work with you immediately and to move forward on the basis of our proposal. We strongly prefer to engage in direct and constructive discussions to reach an agreement for the benefit of your company. And we hope you, your board, and your advisors are prepared to engage with us in the best interests of your deserving shareholders.

Sincerely,
Joseph D. Russell, Jr. (President and Chief Executive Officer)
Ronald L. Havner, Jr. (Chairman of the Board)

Top Operators: Public Storage and Life Storage

As published in the November 2022 issue of Mini-Storage Messenger, within the annual Top Operators list, Public Storage was the No. 1 operator in the United States. Life Storage was ranked fourth.

When completing the annual Top Operators survey in October 2022, Public Storage reported that the REIT owned 2,879 facilities (208,721,000 NRSF) in the United States and 256 facilities (13,885,000 NRSF) outside of the U.S. Public Storage’s third-party management portfolio reportedly consists of 175 facilities with a combined total of 13,194,000 net rentable square feet. Altogether, the company’s portfolio totaled 3,310 facilities and 235,800,000 net rentable square feet. At the time, the company disclosed that it “plans on continued growth per public commentary.”

Life Storage reported that it owns 757 facilities in the United States (54,628,550 NRSF). Life Storage does not own any facilities outside of the U.S. Its third-party management portfolio includes 401 facilities with a combined total of 29,984,790 net rentable square feet. As of October, its entire portfolio consisted of 1,152 facilities and 84,613,340 net rentable square feet. Life Storage did not divulge any expansion plans at that time.

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Erica Shatzer is the editor of Messenger, Self-Storage Now!, Self-Storage Canada, and MiniCo Publishing’s annual Self-Storage Almanac.