GlobeSt.com UPDATE: Extra Space Closes $2B-Plus Acquisition of Storage USA

SALT LAKE CITY-Publicly held Extra Space Storage Inc. and joint venture partner Prudential Real Estate Investors have closed on their $2.3-billion acquisition of Storage USA from GE Commercial Finance. The transaction, the largest the self-storage industry has ever seen, creates the second largest self-storage operator in the US with over 630 properties owned or under management.Prior to the acquisition, Extra Space Storage owned and/or operated 148 self-storage properties in 20 states. Storage USA controlled 18.3 million sf in 450 properties in 30 states and was one of the nation’s largest self-storage operators.The transaction gives Extra Space Storage 100% ownership of 61 Storage USA properties and, through its PREI joint venture, a lesser interest in an additional 259 Storage USA properties. In addition, Extra Space acquired Storage USA’s equity interest in 54 joint venture properties, and assumed the management of 84 franchise properties. PREI’s investment was made on behalf of four open-end commingled funds and two single client accounts. None of the parties involved in the transaction could be reached Thursday evening for comment. When the deal was first announced in May, a source at GE Finance said that “given the attractive pricing environment, now provided to be the right time to capitalize our investment.” GE acquired Storage USA in 2002 when it bought Security Capital Group Inc. for around $4 billion in cash and stock and assumed $1.4 billion in debt in the deal. In 2003, it liquidated the Regency Centers stock that came with the acquisition of Security Capital. It retains the InterPark parking and Belmont assisted living businesses that also came with the deal. The Storage USA properties are concentrated in California, Florida, the Northeast and the Middle Atlantic regions. Extra Space Storage will manage the properties, in addition to owning 61 additional sites, along with Storage USA’s joint venture and franchise facilities. PREI has committed about $1.5 billion in equity to the transaction, with Extra Space committing the remainder.”Until now, this sector has primarily been owned by REITs and private investors, but is becoming increasingly popular among institutional investors,” said PREI chief executive Charles Lowrey in May. “Through this transaction, we’re able to…provide investors with a geographically diverse exposure to this sector, which offers the potential for good returns through increases in rents and occupancy.” Youguo Liang, managing director of PREI research, added that as employment levels have been increasing during the current economic expansion, demand for self-storage has been recovering and strengthening. “This higher demand, coupled with slowing supply growth, will likely result in moderate rent and income growth in the medium term,” he said. “This positive outlook for the self-storage industry, attractive cap rates and high diversification benefits make self-storage an attractive consideration for institutional investors.”In June, Extra Space Storage sold 6.2 million shares of its common stock at $13.47 per share in a private placement with institutional investors. The $81.4 million in net proceeds were used to partially fund the Storage USA acquisition.