Self Storage Thriving
As a real estate investment trust, Life Storage operates more than 1,100 self-storage facilities in 37 states across the United States. Recently, the company made the news when it rejected an all-stock acquisition proposal from competitor Public Storage. Life Storage's board of directors unanimously rejected the offer, stating that it "significantly undervalues the company and its prospects for future growth and value creation." The company's ability to reject such an offer underscores how strong the self-storage business is today.
Despite the economic uncertainties brought on by the COVID-19 pandemic, the self-storage sector has been performing well. Although rental rates have slightly decreased, the demand for storage space remains high. One reason for this is that many people are moving to different cities and need a place to store their belongings temporarily. Additionally, people are downsizing their homes and may not have enough storage space for their possessions. Self-storage provides a practical solution for both groups.
The rejected buyout offer is particularly noteworthy because it came from Public Storage, one of the biggest names in the industry. Although the all-stock transaction valued Life Storage at around $11 billion, the company's board of directors rejected the proposal, citing the potential for greater risk-adjusted total shareholder returns as a standalone company.
In its decision, Life Storage highlighted its growth in net operating income compared to other self-storage REITs, including Public Storage. It also touted its ability to scale its portfolio "faster and more efficiently" than Public Storage. "Utilizing a strong and low-leveraged balance sheet, Life Storage has increased its total store count by nearly 50% since the beginning of 2019, outpacing Public Storage's approximate 19% store growth over that time," the release stated.
It's worth noting that despite the large size of some self-storage companies like Life Storage and Public Storage, 80% of the self-storage industry is actually owned by non-REIT "mom and pop" operators. This presents a huge opportunity for independent investors and entrepreneurs to enter the market and compete with the larger players. With the self-storage industry continuing to thrive, there is ample room for new players to enter the market and establish a profitable business. As long as people continue to move and downsize, the demand for self-storage will remain high, making it a lucrative industry for years to come.