Life
Storage, Inc. (NYSE:LSI), a leading national owner and operator of
self storage facilities, reported operating results for the quarter
ended June 30, 2018.
The Company achieved net income attributable to common shareholders in
the second quarter of 2018 of $39.3 million or $0.84 per fully diluted
common share. This compares to net income attributable to common
shareholders of $19.4 million in the second quarter of 2017, or $0.42
per fully diluted common share.
Funds from operations (“FFO”)(1) for the quarter were $1.39
per fully diluted common share compared to $1.24 for the same period
last year. Absent acquisition fee income and legal costs incurred in the
second quarter of 2017, adjusted FFO per fully diluted common share was
$1.39 and $1.33 for the quarters ended June 30, 2018 and 2017,
respectively.
“The solid contribution of the legacy Life Storage stores to the same
store pool, the resilience of the fundamentals in a number of our key
markets, and our growing joint venture and third-party management
initiatives is very encouraging,” commented CEO David Rogers. “We’re
also excited about the successful launch of Rent Now and further
penetration into our commercial customer base. Our focus on consistently
strengthening our platforms, supported by our strong balance sheet,
provides us with the ability to grow long-term shareholder value,”
concluded Mr. Rogers.
Highlights for the 2nd
Quarter Included:
OPERATIONS:
Total revenues increased 3.9% over second quarter 2017 while operating
costs increased 2.7%, resulting in an NOI increase of 4.5%.
Revenues for the 535 stabilized stores wholly owned by the Company since
December 31, 2016 increased 4.0% from those of the second quarter of
2017, the result of a 20 basis point increase in average occupancy and a
3.4% increase in rental rates.
The Company achieved same store revenue growth in 29 of the 33 major
markets in its same store pool, with all 33 markets maintaining an
average quarterly occupancy greater than 90%. Markets with the strongest
positive revenue impact included Las Vegas, NV; Houston/Beaumont, TX;
California (Northern and Southern); New York/New Jersey; and
Buffalo-Upstate New York.
Same store operating expenses increased 1.5% for the second quarter of
2018 compared to the prior year period. Increased real estate taxes and
payroll and benefits were partially offset by a 12.1% decrease in
internet marketing costs. Consequently, same store NOI for the period
increased 5.2% over the second quarter of 2017.
General and administrative expenses decreased by approximately $4.2
million over the same period in 2017. Absent expenses associated with
the Company’s name change and legal proceedings in 2017, general and
administrative costs would have increased approximately $0.9 million
driven primarily by increased incentive compensation.
PROPERTIES:
During the quarter, the Company added seven properties to its
third-party management platform. It now manages a total of 152
properties through its joint venture and third-party management
agreements. It has an additional 24 properties under contract to manage
commencing in 2018 and 2019, two of which opened subsequent to quarter
end. Twenty of the remaining 22 contracts are new developments.
In July, the Company sold one property in Austin, TX for $10.0 million;
the property remains under Life Storage management.
Also subsequent to the end of the quarter, the Company entered into
contracts to acquire three stores for its own portfolio for a total
consideration of approximately $28 million. The facilities are located
in markets where the Company already has a presence: Boston, MA;
Atlanta, GA; and Greater NYC. The Company currently manages the Boston,
MA and Atlanta, GA locations. These pending acquisitions are subject to
further due diligence and closing conditions; therefore no assurance can
be given that these properties will be purchased according to the terms
described.
CAPITAL STRUCTURE AND LIQUIDITY:
Illustrated below are key financial ratios at June 30, 2018:
At June 30, 2018, the Company had approximately $7.3 million of cash on
hand, and $386 million available on its line of credit.
During the quarter, the Company filed a prospectus supplement with the
Securities and Exchange Commission under which it may sell shares of its
common stock having an aggregate gross sales price of up to $300 million
through an “at-the-market” (ATM) offering program. No shares were issued
under the ATM during the quarter.
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.
YEAR 2018 EARNINGS GUIDANCE:
The following assumptions covering operations have been utilized in
formulating guidance for the third quarter and full year 2018:
Same Store
Projected Increases Over 2017
3Q 2018
FY 2018
The Company’s 2018 same store pool consists of the 535 stabilized stores
owned since December 31, 2016, which includes the stabilized legacy Life
Storage locations. The stores purchased between 2015 and 2017 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.
The Company plans to complete $45 – $50 million of expansions in 2018.
It also has budgeted $21 – $24 million to provide for recurring
capitalized expenditures including roofing, paving, and office
renovations.
The Company has not yet closed any acquisitions in 2018. Should any
acquisitions or joint venture investments occur, they are expected to be
funded by free cash flow and draws on its line of credit, which carries
an interest rate of Libor plus 1.10%.
As of June 30, 2018, the Company operated 22 self storage facilities
that it acquired between 2015 – 2017 upon issuance of certificate of
occupancy or in the early stages of lease-up. These properties are
expected to contribute above average revenue growth in 2018.
Annual general and administrative expenses are expected to be
approximately $45 – $46 million.
The Company experienced two unique situations in the second half of 2017
that impacted same store performance: (i) Houston and Beaumont, TX
benefited from elevated occupancy levels after Hurricane Harvey, and to
a lesser extent, parts of Florida also experienced occupancy gains due
to Hurricane Irma; and (ii) higher internet marketing spend associated
with the brand conversion to Life Storage. Guidance has been adjusted to
account for the Company’s solid performance in the first half of 2018,
and the estimates continue to include normalized seasonal occupancy in
the 2017 hurricane-affected markets, and reduced marketing spend.
As a result of the above assumptions, management expects adjusted funds
from operations for the full year 2018 to be approximately $5.42 to
$5.48 per share, and between $1.40 and $1.44 per share for the third
quarter of 2018.
3Q 2018
Range or Value
FY 2018
Range or Value
$
0.85 – $ 0.89
$
3.19 – $ 3.25
0.55 – 0.55
2.23 – 2.23
FORWARD LOOKING STATEMENTS:
When used within 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 enter new
markets where it has little or no operational experience; 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;
the future ratings on the Company’s debt instruments; the regional
concentration of the Company’s business may subject it to economic
downturns in the states of Florida and Texas; the Company’s ability to
effectively compete in the industries in which it does business; 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; and tax law changes which may change the taxability of future
income.
CONFERENCE CALL:
Life Storage will hold its Second Quarter Earnings Release Conference
Call at 9:00 a.m. Eastern Time on Thursday, August 2, 2018. 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 877.737.7051 (domestic), or 201.689.8878 (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
or at http://www.investorcalendar.com/event/33708.
The webcast will be archived for 90 days; a telephone replay will also
be available for 72 hours by calling 877.481.4010 and entering
conference ID 33708.
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
700 storage facilities in 28 states. The Company serves both residential
and commercial storage customers with storage units rented by month.
Life Storage consistently provides responsive service to its
400,000-plus customers, making it a leader in the industry. For more
information visit https://invest.lifestorage.com/.
2018
2017
2018
2017
Investment in Storage Facilities: (unaudited)
Comparison of Selected G&A Costs (unaudited)
June 30, 2018
June 30, 2017
Net rentable square feet
June 30, 2018
June 30, 2018
June 30, 2017
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