Public Storage, owner, developer, and operator of self-storage properties, has made unsolicited offer to acquire rival Life Storage in an all-stock transaction valued at $11 billion, going public with an overture that had privately been spurned.
The offer would amount to a 17% premium to Life Storage’s closing price of $110.58 at market close last Friday.
Under the terms of the proposal sent to Life Storage Sunday night, Public Storage said a combination of the two companies would result in immediate benefits to Life Storage shareholders, and would unlock near-, medium- and long-term growth and value creation opportunities.
The public overture is that latest move by Public Storage. The self-storage giant's chief executive, Joe Russell, said in a statement that Life Storage had thus far declined “to engage constructively with us” adding that in December, Life Storage said it was not for sale.
The offer comes as the self-storage sector is coming down from robust performance after the start of the pandemic when values and rents skyrocketed on increased demand for storage space.
“Self-storage properties may start showing more visible performance differences, as the resilient sector softens, while still attracting strong investor interest,” Stav Gaon, a commercial mortage-based securities analyst with Academy Securities, wrote in a note last week. “Recent self-storage rent data paint a clearer deceleration trend.”
Rents declined between 0.5% and 0.6%, he wrote. Still, Gaon added, because self-storage customers generally lease for short-term durations, operators have the ability to adjust rents on a monthly basis.
Stock analysts view the news as Public Storage’s bet to the upside on the sector.
“While [Life Storage’s] January operating update showed double-digit street rate decline, which lagged peers, we think [Public Storage] is taking a long-term view," wrote Ron Kamden, an analyst for Morgan Stanley Securities that valued the offer at $11 billion. Life Storage "has greater exposure to secondary markets than [Public Storage] as evidenced by average portfolio rents of $19.26 vs [Public Storage’s] of $22.94. A key question is going to be how [Public Storage] could make this an accretive transaction in the first year.”
Ki Bin Kim, an analyst for Truist Securities, wrote this may not be the final bid and "there is a strong probability of a slightly higher offer.”
In its letter to Life Storage, Public Storage said a merger could lead to accelerated growth and profitability.
“Public Storage has a long and proven track record of delivering shareholder value through strategic growth, and we are confident in our ability to deliver significant operating efficiencies and capitalize on expanded ancillary and capital allocation opportunities,” Russell wrote
Life Storage confirmed receipt of the letter.
“The company noted that the proposal received [Sunday] appears to be substantially similar in all material respects to a privately submitted proposal previously reviewed by the Life Storage board of directors,” Life Storage said in a statement. “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.”