Life Storage to Public Storage Takeover Offer: At $11B, Forget It

Third time wasn’t the charm for Public Storage (PSA). After private offers in December and January that were rejected, the Glendale, CA-based self-storage REIT offered the smaller Life Storage (LSI) a proposed share swap at $129 per share, or a 19% premium, for a total of $11 billion.

Life Storage got back to them with a flat no.

The Life Storage board of directors “unanimously concluded that the acquisition proposal submitted by Public Storage on February 5, 2023, significantly undervalues Life Storage and its prospects for future growth and value creation,” said a press release from the company. “This determination follows a comprehensive review process conducted by the Life Storage Board in consultation with its independent financial and legal advisors.”

Because the previous private offers went nowhere with Life Storage’s board, Public Storage used an acquisition tactic in which it made the offer public as a form of pressure by reaching out to shareholders. When the price offered is well above the value of the company, it’s called a “bear hug” and looks to make a deal sound to shareholders like too good to pass up.

Mark Barberio, non-executive chairman of the Life Storage board, said in the statement, “The Board believes Life Storage will deliver greater risk-adjusted total shareholder returns as a standalone company than through the proposed transaction. The Board is always open to and regularly evaluates opportunities to enhance shareholder value and will consider any proposal that appropriately values the Company and its prospects.”

In this case, Life Storage is framing the 19% premium as something other than an extremely generous offer that should be difficult to pass up.

The company’s board said that it had “total shareholder returns of nearly 100% and quarterly dividend growth of 80% since March 2019,” when Joseph Saffire became CEO. The directors also argued that it “has demonstrated sector-leading operating performance, including average same store revenue and NOI growth of 9.6% and 13.0%, respectively” and since 2019 has seen “same store rates per occupied square foot by nearly 38%.”

The board also said that it is positioned to grow funds from operations faster than would be possible with the acquisition, pointing to a total store count up by almost half compared to about 19% for Public Storage, though given that Public Storage is much larger than Life Storage, it would be a challenge to increase holdings by the same amount.