Life Storage, Inc. (NYSE:LSI), a leading national owner and
operator of self storage properties, reported operating results for
the quarter ended March 31, 2020.
Highlights for the First Quarter
Included:
- Generated net income attributable to common shareholders of
$36.4 million, or $0.78 per fully diluted common share.
- Achieved adjusted funds from operations (“FFO”)(1) per fully
diluted common share of $1.40, a 6.9% increase over the same period
in 2019.
- Increased same store net operating income ("NOI")(2) by 4.8%
and same store revenue by 2.6% year-over-year.
- Grew management and acquisition fees by 43.0%.
- Acquired six stabilized stores in various California markets
from a joint venture partner for a total purchase price of $134.0
million.
- Reported $20.7 million in cash and cash equivalents and $316.9
million in revolving line of credit availability as of March 31,
2020.
- Added 13 stores to the Company’s third-party management
platform, bringing total managed stores at the end of the first
quarter to 304.
- Launched “Rent Now 2.0,” the Company’s dynamic pricing, second
generation, fully-digital rental platform that allows customers to
self-serve and move into their storage unit with no human
interaction; the new pricing alternatives allow customers to select
a storage unit from one of three convenience and pricing-based
tiers according to their individual needs and preferences.
Joe Saffire, the Company’s Chief Executive Officer, stated, “We
had another excellent quarter, the results of which continue to
validate our strategic initiatives to drive revenue growth, improve
operating margins and increase shareholder value. The emergence of
COVID-19 later in the quarter has shifted our focus and attention
to the health and safety of our teammates and customers, and
ensuring the Company’s liquidity remains strong.”
Saffire added, “Our industry leading technology has proven to be
a differentiator during these times of social distancing as Rent
Now has exceeded 50% of our rentals in recent weeks. I would like
to congratulate our amazing team for ramping up the roll-out of
Rent Now 2.0 earlier than planned to even further augment our
customers' ability to self-serve. It is this team that provides me
the confidence that our company will prove once again its ability
to manage through challenging times.”
FINANCIAL RESULTS:
In the first quarter of 2020, the Company generated net income
attributable to common shareholders of $36.4 million or $0.78 per
fully diluted common share, compared to net income attributable to
common shareholders of $34.5 million, or $0.74 per fully diluted
common share, in the first quarter of 2019. Net income was
positively impacted by increased same store NOI and higher
management fee income.
Funds from operations for the quarter were $1.41 per fully
diluted common share compared to $1.32 for the same period last
year. Absent adjustments of $0.5 million that includes a gain on
sale of land and acquisition fees, adjusted FFO per fully diluted
common share for the quarter was $1.40, compared to $1.31 for the
quarter ended March 31, 2019, after adjusting 2019 results for a
$1.1 million gain on sale of land and $0.4 million in costs related
to an officer’s retirement.
OPERATIONS:
Same store revenues for the stabilized stores wholly owned by
the Company since December 31, 2018 increased 2.6% from the first
quarter of 2019, the result of a 2.7% increase in realized rental
rates, partially offset by a 50 basis point decrease in average
occupancy.
Same store operating expenses decreased 1.3% for the first
quarter of 2020 compared to the prior year period, primarily due to
decreases in payroll and benefits, repair and maintenance,
utilities, advertising and office and other operating expenses,
partially off-set by increased real estate taxes and internet
marketing costs. Accordingly, same store NOI increased 4.8% in the
first quarter of 2020 as compared to the first quarter of 2019.
During the first quarter of 2020, the Company achieved same
store revenue growth in 26 of its 30 major markets. Overall, the
markets with the strongest positive revenue impact were Los
Angeles, Buffalo, Chicago, Las Vegas and Austin.
The Company’s 2020 same store pool consists of the 517
stabilized stores wholly owned since December 31, 2018. 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:
Wholly Owned Portfolio
During the quarter, the Company acquired six stabilized stores
in various California markets from a joint venture partner for a
total purchase price of $134.0 million. The Company previously
managed these stores and owned a 20% minority interest in this
joint venture, and the net investment to acquire the properties was
$115.9 million.
The Company is under contract to sell one self storage facility
for $19.0 million. The sale of this facility is subject to
customary closing conditions and has been delayed until the second
half of 2020 as a result of the impact of the COVID-19 global
health crisis. There is no assurance that this facility will be
sold.
Joint Venture Portfolio
During the quarter, the Company entered into a joint venture and
acquired a 20% minority investment in a store at certificate of
occupancy in Seattle, Wash. purchased by the joint venture for
$21.7 million, of which the Company contributed $1.7 million.
THIRD-PARTY MANAGEMENT:
The Company continues to aggressively and profitably grow its
third-party management platform. During the quarter, the Company
added 13 stores. As of quarter end, the Company managed 304
facilities in total, including those in which it owns a minority
interest.
FINANCIAL POSITION:
At March 31, 2020, the Company had approximately $20.7 million
of cash on hand, and $316.9 million available on its line of
credit. With no debt maturities until August 2021 ($100 million)
and an average debt maturity of 6.5 years, the Company believes it
has adequate liquidity to navigate this period of COVID-19 related
disruption.
During the three months ended March 31, 2020, the Company issued
190,403 shares of common stock under its continuous equity offering
program at a weighted average issue price of $114.26 per share,
generating net proceeds after expenses of $21.5 million.
Below are key financial ratios at March 31, 2020:
-
Debt to Enterprise Value (at
$94.55/share)
31.9%
-
Debt to Book Cost of Storage
Facilities
42.8%
-
Debt to Recurring Annualized EBITDA
6.0x
-
Debt Service Coverage
4.3x
COMMON STOCK DIVIDEND:
Subsequent to quarter end, the Company’s Board of Directors
approved a quarterly dividend to $1.07 per share, or $4.28
annualized. The dividend was paid on April 27, 2020 to shareholders
of record on April 14, 2020.
COVID-19 PANDEMIC:
The emergence of the COVID-19 global health crisis has had a
profound impact on human health, the global economy and society
at-large. Life Storage has been actively addressing COVID-19, with
teams working to mitigate the potential impacts to its employees,
customers and financial performance.
To support its employees, the Company: (i) increased paid time
off for COVID-19 related reasons; (ii) instituted enhanced health
plan changes to cover certain COVID-19 related costs; (iii)
installed counter standing acrylic screens (“sneeze guards”) and
provided personal protective equipment to employees (e.g., masks,
gloves) in many stores; and (iv) minimized employee contact by
mobilizing support teams in the home office to work from home and
implemented social distancing and precautionary measures in all of
its stores.
To support its customers, the Company curtailed both: (i) rate
increases to existing customers, which has been a significant
contributor to same store rental income growth in recent quarters;
and (ii) its standard “auction” process under lien sale statutes
for past due customers.
The Company also encouraged customers to use Rent Now, its
online rental platform that allows customers to self-serve, in
order to promote a safe environment and peace-of-mind to its
employees and customers as they practice social distancing. Since
Rent Now has been in place at certain stores since July 2018, the
technology platform and associated store procedures are mature and
broadly adopted, contributing significantly to the Company’s
ability to continue conducting business at its stores during this
difficult and disruptive situation.
While the COVID-19 global health crisis has not had a
significant adverse effect on the Company’s financial results
to-date, the Company has experienced certain negative impacts to
its operations. For example, same store move-ins in April 2020 were
roughly 15% lower than April 2019, the effect of which was off-set
by approximately 23% lower same store move-outs during that same
time period. Same store occupancy at April 30, 2020 was 89.8% as
compared to 90.2% at April 30, 2019. Furthermore, the Company
collected approximately 94% of rental income in April 2020 compared
to roughly 96% in April 2019. The decrease was partially due to the
Company’s decision to curtail auctions. The Company has taken steps
to augment its collection efforts; though there can be no assurance
that such efforts will be successful in mitigating rental income
losses.
In order to support its liquidity position, the Company has
paused store acquisitions and reduced its planned expansion and
enhancement projects for its wholly owned portfolio. As of March
31, 2020, the Company has no wholly owned acquisitions under
contract. Additionally, the Company plans to complete $40 to $50
million of expansions and enhancements to its existing facilities
in 2020, a reduction from its previous plan to complete $55 to $65
million. If market conditions improve later this year, the Company
will seek to execute upon its robust pipeline of investment
opportunities; however, there is no assurance that the environment
will allow the Company to do so. The Company is also evaluating
opportunities to reduce planned capital expenditures.
YEAR 2020 EARNINGS GUIDANCE:
Because the Company cannot reasonably estimate the duration and
severity of the impact from COVID-19 on its business, the Company
has withdrawn the full year 2020 guidance that was included in its
February 19, 2020 earnings release. The Company may reinstate
guidance once it has better, longer-term visibility into customer
behaviors resulting from the economic and social impact of the
COVID-19 pandemic. However, the Company continues to believe it
will emerge from these events well positioned for long-term growth
due to its strong liquidity position and the strategic initiatives
that have been underway for the past several quarters.
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, (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, and (vii) the
requirement to close our facilities if we were determined not to be
an “essential business”; 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; and
tax law changes that may change the taxability of future
income.
CONFERENCE CALL:
Life Storage will hold its First Quarter Earnings Release
Conference Call at 9:00 a.m. Eastern Time on Friday, May 8, 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 850 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)
March 31,
December 31,
(dollars in thousands)
2020
2019
Assets Investment in storage facilities: Land
$
904,475
$
884,235
Building, equipment and construction in progress
3,979,535
3,865,238
4,884,010
4,749,473
Less: accumulated depreciation
(783,284
)
(756,333
)
Investment in storage facilities, net
4,100,726
3,993,140
Cash and cash equivalents
20,720
17,458
Accounts receivable
11,717
12,218
Receivable from joint ventures
918
1,302
Investment in joint ventures
147,326
154,984
Prepaid expenses
11,823
7,771
Intangible asset - in-place customer leases
3,282
2,910
Trade name
16,500
16,500
Other assets
26,277
26,681
Total Assets
$
4,339,289
$
4,232,964
Liabilities Line of credit
$
183,000
$
65,000
Term notes, net
1,858,918
1,858,271
Accounts payable and accrued liabilities
81,295
103,942
Deferred revenue
13,244
11,699
Mortgages payable
34,685
34,851
Total Liabilities
2,171,142
2,073,763
Noncontrolling redeemable Operating Partnership Units at
redemption value
20,428
26,307
Equity Common stock
469
467
Additional paid-in capital
2,399,311
2,376,723
Accumulated deficit
(246,332
)
(238,338
)
Accumulated other comprehensive loss
(5,729
)
(5,958
)
Total Shareholders' Equity
2,147,719
2,132,894
Total Liabilities and Shareholders' Equity
$
4,339,289
$
4,232,964
Life Storage, Inc. Consolidated Statements
of Operations (unaudited) January 1, 2020 January 1,
2019 to to (dollars in thousands, except share data) March 31, 2020
March 31, 2019
Revenues Rental income
$
128,907
$
124,146
Other operating income
13,623
9,290
Management and acquisition fee income
4,413
3,086
Total operating revenues
146,943
136,522
Expenses Property operations and maintenance
32,850
31,161
Real estate taxes
17,408
16,092
General and administrative
12,906
12,337
Payments for rent
-
141
Depreciation and amortization
27,028
25,883
Amortization of in-place customer leases
1,302
344
Total operating expenses
91,494
85,958
Gain on sale of real estate
302
1,076
Income from operations
55,751
51,640
Other income (expense) Interest expense (A)
(20,246
)
(17,819
)
Interest income
4
5
Equity in income of joint ventures
1,116
811
Net income
36,625
34,637
Net income attributable to noncontrolling interests in the
Operating Partnership
(192
)
(183
)
Net income attributable to common shareholders
$
36,433
$
34,454
Earnings per common share attributable to common
shareholders - basic
$
0.78
$
0.74
Earnings per common share attributable to common
shareholders - diluted
$
0.78
$
0.74
Common shares used in basic earnings per share calculation
46,677,237
46,564,846
Common shares used in diluted earnings per share calculation
46,750,896
46,636,700
Dividends declared per common share
$
1.07
$
1.00
(A) Interest expense for the period ending March
31 consists of the following Interest expense
$
19,632
$
17,282
Amortization of debt issuance costs
614
537
Total interest expense
$
20,246
$
17,819
Life Storage, Inc. Computation of Funds
From Operations (FFO) (1) (unaudited) January 1, 2020
January 1, 2019 to to (dollars in thousands, except share data)
March 31, 2020 March 31, 2019 Net income attributable to
common shareholders
$
36,433
$
34,454
Noncontrolling interests in the Operating Partnership
192
183
Depreciation of real estate and amortization of intangible assets
exclusive of debt issuance costs
27,742
25,806
Depreciation and amortization from unconsolidated joint ventures
1,795
1,410
Funds from operations allocable to noncontrolling interest in
Operating Partnership
(346
)
(326
)
Funds from operations available to common shareholders
65,816
61,527
FFO per share - diluted
$
1.41
$
1.32
Adjustments to FFO 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
3
3
Adjusted funds from operations available to common shareholders
65,300
60,897
Adjusted FFO per share - diluted
$
1.40
$
1.31
Common shares - diluted
46,750,896
46,636,700
Life Storage, Inc. Computation of Net
Operating Income (2) (unaudited) January 1, 2020 January
1, 2019 to to (dollars in thousands) March 31, 2020 March 31, 2019
Net Income
$
36,625
$
34,637
General and administrative
12,906
12,337
Payments for rent
-
141
Depreciation and amortization
28,330
26,227
Gain on sale of real estate
(302
)
(1,076
)
Interest expense
20,246
17,819
Interest income
(4
)
(5
)
Equity in income of joint ventures
(1,116
)
(811
)
Net operating income
$
96,685
$
89,269
Same store (4)
$
80,221
$
76,569
Net operating income related to tenant reinsurance
6,877
5,815
Other stores and management fee income
9,587
6,885
Total net operating income
$
96,685
$
89,269
Life Storage, Inc. Quarterly Same Store
Data (3) (4) 517 mature stores owned since 12/31/18
(unaudited) January 1, 2020 January 1, 2019 to to Percentage
(dollars in thousands) March 31, 2020 March 31, 2019 Change Change
Revenues: Rental income
$
120,453
$
117,228
$
3,225
2.8
%
Other operating income
1,451
1,576
(125
)
-7.9
%
Total operating revenues
121,904
118,804
3,100
2.6
%
Expenses: Payroll and benefits
9,575
10,089
(514
)
-5.1
%
Real estate taxes
16,135
15,249
886
5.8
%
Utilities
3,534
3,895
(361
)
-9.3
%
Repairs and maintenance
3,945
5,150
(1,205
)
-23.4
%
Office and other operating expense
3,707
3,969
(262
)
-6.6
%
Insurance
1,488
1,488
-
0.0
%
Advertising
62
298
(236
)
-79.2
%
Internet marketing
3,237
2,097
1,140
54.4
%
Total operating expenses
41,683
42,235
(552
)
-1.3
%
Net operating income (2)
$
80,221
$
76,569
$
3,652
4.8
%
QTD Same store move ins
45,495
45,622
(127
)
QTD Same store move outs
43,294
44,343
(1,049
)
Other Comparable Quarterly Same Store Data (4)
(unaudited) January 1, 2020 January 1, 2019 to to Percentage
March 31, 2020 March 31, 2019 Change Change
2019 Same store pool
(504 stores) Revenues
$
119,426
$
116,530
$
2,896
2.5
%
Expenses
40,650
41,167
(517
)
-1.3
%
Net operating income
$
78,776
$
75,363
$
3,413
4.5
%
2018 Same store pool (488 stores) Revenues
$
115,213
$
112,602
$
2,611
2.3
%
Expenses
39,084
39,534
(450
)
-1.1
%
Net operating income
$
76,129
$
73,068
$
3,061
4.2
%
Life Storage, Inc. Other Data -
unaudited Same Store (3) All Stores (5)
2020
2019
2020
2019
Weighted average quarterly occupancy
89.3
%
89.8
%
88.0
%
89.2
%
Occupancy at March 31
89.5
%
90.0
%
88.3
%
89.4
%
Rent per occupied square foot
$
14.59
$
14.20
$
14.60
$
14.01
Life Storage, Inc. Other Data - unaudited
(continued) Investment in Storage
Facilities: (unaudited) The following summarizes activity in
storage facilities during the three months ended March 31, 2020:
Beginning balance
$
4,749,473
Property acquisitions
122,623
Improvements and equipment additions: Expansions
-
Roofing, paving, and equipment: Stabilized stores
3,465
Recently acquired stores
184
Change in construction in progress (Total CIP $37.2 million)
8,387
Dispositions and Impairments
(122
)
Storage facilities at cost at period end
$
4,884,010
Comparison of Selected G&A
Costs (unaudited) Quarter Ended
March
31, 2020 March 31, 2019
Management and administrative salaries and benefits
$
7,521
$
6,617
Training
208
253
Call center
731
755
Life Storage Solutions costs
207
417
Income taxes
796
365
Legal, accounting and professional
1,074
925
Costs related to officer's retirement
-
443
Other administrative expenses (6)
2,369
2,562
$
12,906
$
12,337
Net rentable square feet
March 31, 2020 Wholly owned properties
40,390,316
Joint venture properties
8,834,451
Third party managed properties
13,713,726
62,938,493
March 31, 2020 March 31, 2019 Common shares outstanding
46,902,364
46,632,703
Operating Partnership Units outstanding
243,966
248,966
(1) We believe that Funds from Operations (“FFO”) provides
relevant and meaningful information about our operating performance
that is necessary, along with net earnings and cash flows, for an
understanding of our operating results. FFO adds back historical
cost depreciation, which assumes the value of real estate assets
diminishes predictably in the future. In fact, real estate asset
values increase or decrease with market conditions. Consequently,
we believe FFO is a useful supplemental measure in evaluating our
operating performance by disregarding (or adding back) historical
cost depreciation. Funds from operations is defined by the National
Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as
net income available to common shareholders computed in accordance
with generally accepted accounting principles (“GAAP”), excluding
gains or losses on sales of properties, plus impairment of real
estate assets, plus depreciation and amortization and after
adjustments to record unconsolidated partnerships and joint
ventures on the same basis. We believe that to further understand
our performance, FFO should be compared with our reported net
income and cash flows in accordance with GAAP, as presented in our
consolidated financial statements. Our computation of FFO may not
be comparable to FFO reported by other REITs or real estate
companies that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT
definition differently. FFO does not represent cash generated from
operating activities determined in accordance with GAAP, and should
not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our performance, as an
alternative to net cash flows from operating activities (determined
in accordance with GAAP) as a measure of our liquidity, or as an
indicator of our ability to make cash distributions. (2) Net
operating income or "NOI" is a non-GAAP (generally accepted
accounting principles) financial measure that we define as total
continuing revenues less continuing property operating expenses.
NOI also can be calculated by adding back to net income: interest
expense, impairment and casualty losses, operating lease expenses,
depreciation and amortization expense, any losses on sale of real
estate, acquisition related costs, general and administrative
expense, and deducting from net income: income from discontinued
operations, interest income, any gains on sale of real estate, and
equity in income of joint ventures. We believe that NOI is a
meaningful measure to investors in evaluating our operating
performance, because we utilize NOI in making decisions with
respect to capital allocations, in determining current property
values, and in comparing period-to-period and market-to-market
property operating results. Additionally, NOI is widely used in the
real estate industry and the self-storage industry to measure the
performance and value of real estate assets without regard to
various items included in net income that do not relate to or are
not indicative of operating performance, such as depreciation and
amortization, which can vary depending on accounting methods and
book value of assets. NOI should be considered in addition to, but
not as a substitute for, other measures of financial performance
reported in accordance with GAAP, such as total revenues, operating
income and net income. (3) Includes the stores owned and/or managed
by the Company for the entire periods presented that are
consolidated in our financial statements. Does not include
unconsolidated joint ventures or other stores managed by the
Company. (4) Revenues and expenses do not include items related to
tenant reinsurance. (5) Does not include unconsolidated joint
venture stores or other stores managed by the Company. (6) Other
administrative expenses include office rent, travel expense,
investor relations and miscellaneous other expenses.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507006056/en/
Life Storage, Inc. David Dodman (716) 229-8284
ddodman@lifestorage.com
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