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LSI Life Storage

Filed: 5 May 21, 4:22pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to            . 

Commission file number:

1-13820 (Life Storage, Inc.)

0-24071 (Life Storage LP)

 

LIFE STORAGE, INC.

LIFE STORAGE LP

(Exact name of Registrant as specified in its charter)

 

 

Maryland (Life Storage, Inc.)

16-1194043 (Life Storage, Inc.)

Delaware (Life Storage LP)

16-1481551 (Life Storage LP)

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

6467 Main Street

Williamsville, NY 14221

(Address of principal executive offices) (Zip code)

(716) 633-1850

(Registrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Life Storage, Inc.

Yes  

No  

 

 

 

Life Storage LP

Yes  

No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Life Storage, Inc.

Yes  

No  

Life Storage LP

Yes  

No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

Life Storage, Inc.:

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-accelerated Filer

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

 

 

Life Storage LP:

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-accelerated Filer

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Life Storage, Inc.

 

 

Life Storage LP

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Life Storage, Inc.

Yes  

No  

 

 

 

Life Storage LP

Yes  

No  

 

Securities registered pursuant to Section 12(b) of the Act:

Life Storage, Inc.:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

LSI

 

New York Stock Exchange

 

Life Storage LP:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

 

 

 

 

 

 

 

 

 

As of April 29, 2021, 76,855,417 shares of Common Stock, $.01 par value per share, were outstanding.

 

 

 


 

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2021 of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”). The Parent Company is a real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.

Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership, and through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 99.6% ownership interest therein as of March 31, 2021. The remaining ownership interests in the Operating Partnership are held by certain former owners of assets acquired by the Operating Partnership. As the owner of the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical.

There are few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the owner of the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership.

The substantive difference between the Parent Company’s filings and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or capital for the Operating Partnership) section of the consolidated balance sheets and in the Shareholders’ Equity and Partners’ Capital notes to the financial statements. Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.

The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will:

 

facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;

 

remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and

 

create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real

2


estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

As the owner of the general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

This report also includes separate Item 4 - Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended and 18 U.S.C. §1350.

3


Part I. Financial Information

Item 1. Financial Statements

LIFE STORAGE, INC.

CONSOLIDATED BALANCE SHEETS

 

(dollars in thousands, except share data)

 

March 31,

2021

(unaudited)

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Investment in storage facilities:

 

 

 

 

 

 

 

 

Land

 

$

991,214

 

 

$

951,813

 

Building, equipment, and construction in progress

 

 

4,612,622

 

 

 

4,378,510

 

 

 

 

5,603,836

 

 

 

5,330,323

 

Less: accumulated depreciation

 

 

(904,420

)

 

 

(873,178

)

Investment in storage facilities, net

 

 

4,699,416

 

 

 

4,457,145

 

Cash and cash equivalents

 

 

13,914

 

 

 

54,400

 

Accounts receivable

 

 

14,796

 

 

 

15,464

 

Receivable from unconsolidated joint ventures

 

 

520

 

 

 

1,064

 

Investment in unconsolidated joint ventures

 

 

140,415

 

 

 

143,042

 

Prepaid expenses

 

 

12,335

 

 

 

8,326

 

Trade name

 

 

16,500

 

 

 

16,500

 

Other assets

 

 

32,865

 

 

 

31,907

 

Total Assets

 

$

4,930,761

 

 

$

4,727,848

 

Liabilities

 

 

 

 

 

 

 

 

Line of credit

 

$

43,000

 

 

$

 

Term notes, net

 

 

2,156,140

 

 

 

2,155,457

 

Accounts payable and accrued liabilities

 

 

95,708

 

 

 

112,654

 

Deferred revenue

 

 

20,120

 

 

 

17,416

 

Mortgages payable

 

 

37,596

 

 

 

37,777

 

Total Liabilities

 

 

2,352,564

 

 

 

2,323,304

 

Noncontrolling redeemable Operating Partnership Units at redemption value

 

 

28,707

 

 

 

26,446

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock $.01 par value, 100,000,000 shares authorized, 76,477,796

   shares outstanding at March 31, 2021 (74,211,920 at December 31, 2020)

 

 

765

 

 

 

495

 

Additional paid-in capital

 

 

2,853,019

 

 

 

2,671,311

 

Dividends in excess of net income

 

 

(299,482

)

 

 

(288,667

)

Accumulated other comprehensive loss

 

 

(4,812

)

 

 

(5,041

)

Total Shareholders’ Equity

 

 

2,549,490

 

 

 

2,378,098

 

Total Liabilities and Shareholders’ Equity

 

$

4,930,761

 

 

$

4,727,848

 

 

See notes to consolidated financial statements.

4


LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

March 31,

 

(dollars in thousands, except per share data)

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

Rental income

 

$

150,283

 

 

$

128,907

 

Other operating income

 

 

21,604

 

 

 

18,036

 

Total operating revenues

 

 

171,887

 

 

 

146,943

 

Expenses

 

 

 

 

 

 

 

 

Property operations and maintenance

 

 

38,520

 

 

 

32,850

 

Real estate taxes

 

 

19,887

 

 

 

17,408

 

General and administrative

 

 

14,183

 

 

 

12,906

 

Depreciation and amortization

 

 

33,359

 

 

 

28,330

 

Total operating expenses

 

 

105,949

 

 

 

91,494

 

Gain on sale of real estate

 

 

 

 

 

302

 

Income from operations

 

 

65,938

 

 

 

55,751

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(20,346

)

 

 

(20,246

)

Interest and dividend income

 

 

779

 

 

 

4

 

Equity in income of joint ventures

 

 

1,221

 

 

 

1,116

 

Net income

 

 

47,592

 

 

 

36,625

 

Net income attributable to noncontrolling

   interest in the Operating Partnership

 

 

(209

)

 

 

(192

)

Net income attributable to common shareholders

 

$

47,383

 

 

$

36,433

 

Earnings per common share attributable

   to common shareholders – basic

 

$

0.63

 

 

$

0.52

 

Earnings per common share attributable

   to common shareholders – diluted

 

$

0.63

 

 

$

0.52

 

Common shares used in basic earnings per share

   calculation

 

 

75,387,332

 

 

 

70,015,856

 

Common shares used in diluted earnings per share

   calculation

 

 

75,510,201

 

 

 

70,126,344

 

Dividends declared per common share

 

$

0.74

 

 

$

0.71

 

 

See notes to consolidated financial statements.

5


LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three Months Ended

March 31,

 

(dollars in thousands)

 

2021

 

 

2020

 

Net income

 

$

47,592

 

 

$

36,625

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Effective portion of gain on derivatives net

   of reclassification to interest expense

 

 

229

 

 

 

229

 

Total comprehensive income

 

 

47,821

 

 

 

36,854

 

Comprehensive income attributable to noncontrolling

   interest in the Operating Partnership

 

 

(210

)

 

 

(193

)

Comprehensive income attributable to common shareholders

 

$

47,611

 

 

$

36,661

 

 

See notes to consolidated financial statements.

6


LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(dollars in thousands)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

47,592

 

 

$

36,625

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

33,359

 

 

 

28,330

 

Amortization of debt issuance costs and bond discount

 

 

1,062

 

 

 

1,025

 

Gain on sale of real estate

 

 

 

 

 

(302

)

Equity in income of joint ventures

 

 

(1,221

)

 

 

(1,116

)

Distributions from unconsolidated joint ventures

 

 

2,547

 

 

 

3,611

 

Non-vested stock earned

 

 

1,453

 

 

 

1,124

 

Deferred income taxes

 

 

64

 

 

 

399

 

Other

 

 

(67

)

 

 

 

Changes in assets and liabilities (excluding the effects of acquisitions):

 

 

 

 

 

 

 

 

Accounts receivable

 

 

705

 

 

 

541

 

Prepaid expenses

 

 

(3,862

)

 

 

(3,904

)

Receipts from joint ventures

 

 

544

 

 

 

51

 

Accounts payable and other liabilities

 

 

(16,949

)

 

 

(22,492

)

Deferred revenue

 

 

1,865

 

 

 

1,140

 

Net cash provided by operating activities

 

 

67,092

 

 

 

45,032

 

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of storage facilities, net of cash acquired

 

 

(265,197

)

 

 

(124,204

)

Improvements, equipment additions, and construction in progress

 

 

(10,228

)

 

 

(11,661

)

Return of investment in unconsolidated joint ventures

 

 

2,573

 

 

 

8,359

 

Investment in unconsolidated joint ventures

 

 

(1,330

)

 

 

(2,990

)

Property deposits

 

 

(519

)

 

 

171

 

Net cash used in investing activities

 

 

(274,701

)

 

 

(130,325

)

Financing Activities

 

 

 

 

 

 

 

 

Net proceeds from sale of common stock

 

 

180,529

 

 

 

21,466

 

Proceeds from line of credit

 

 

76,000

 

 

 

172,000

 

Repayments of line of credit

 

 

(33,000

)

 

 

(54,000

)

Dividends paid - common stock

 

 

(55,840

)

 

 

(49,969

)

Distributions to noncontrolling interest holders

 

 

(247

)

 

 

(264

)

Redemption of Operating Partnership Units

 

 

(63

)

 

 

(265

)

Mortgage principal payments

 

 

(117

)

 

 

(166

)

Net cash provided by financing activities

 

 

167,262

 

 

 

88,802

 

Net increase in cash and restricted cash

 

 

(40,347

)

 

 

3,509

 

Cash and restricted cash at beginning of period

 

 

58,771

 

 

 

21,556

 

Cash and restricted cash at end of period

 

$

18,424

 

 

$

25,065

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

15,118

 

 

$

18,315

 

Cash (received) paid for income taxes, net of refunds

 

$

(312

)

 

$

265

 

 

See notes to consolidated financial statements.

7


LIFE STORAGE LP

CONSOLIDATED BALANCE SHEETS

 

(dollars in thousands)

 

March 31,

2021

(unaudited)

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Investment in storage facilities:

 

 

 

 

 

 

 

 

Land

 

$

991,214

 

 

$

951,813

 

Building, equipment, and construction in progress

 

 

4,612,622

 

 

 

4,378,510

 

 

 

 

5,603,836

 

 

 

5,330,323

 

Less: accumulated depreciation

 

 

(904,420

)

 

 

(873,178

)

Investment in storage facilities, net

 

 

4,699,416

 

 

 

4,457,145

 

Cash and cash equivalents

 

 

13,914

 

 

 

54,400

 

Accounts receivable

 

 

14,796

 

 

 

15,464

 

Receivable from unconsolidated joint ventures

 

 

520

 

 

 

1,064

 

Investment in unconsolidated joint ventures

 

 

140,415

 

 

 

143,042

 

Prepaid expenses

 

 

12,335

 

 

 

8,326

 

Trade name

 

 

16,500

 

 

 

16,500

 

Other assets

 

 

32,865

 

 

 

31,907

 

Total Assets

 

$

4,930,761

 

 

$

4,727,848

 

Liabilities

 

 

 

 

 

 

 

 

Line of credit

 

$

43,000

 

 

$

 

Term notes, net

 

 

2,156,140

 

 

 

2,155,457

 

Accounts payable and accrued liabilities

 

 

95,708

 

 

 

112,654

 

Deferred revenue

 

 

20,120

 

 

 

17,416

 

Mortgages payable

 

 

37,596

 

 

 

37,777

 

Total Liabilities

 

 

2,352,564

 

 

 

2,323,304

 

Limited partners’ redeemable capital interest at redemption value (333,399 and 334,149

   units outstanding at March 31, 2021 and December 31, 2020, respectively)

 

 

28,707

 

 

 

26,446

 

Partners’ Capital

 

 

 

 

 

 

 

 

General partner (767,571 and 745,461 units outstanding at March 31, 2021 and

   December 31, 2020, respectively)

 

 

25,782

 

 

 

24,045

 

Limited partners (75,710,225 and 73,466,459 units outstanding at March 31, 2021

   and December 31, 2020, respectively)

 

 

2,528,520

 

 

 

2,359,094

 

Accumulated other comprehensive loss

 

 

(4,812

)

 

 

(5,041

)

Total Partners’ Capital

 

 

2,549,490

 

 

 

2,378,098

 

Total Liabilities and Partners’ Capital

 

$

4,930,761

 

 

$

4,727,848

 

 

See notes to consolidated financial statements.

8


LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

March 31,

 

(dollars in thousands, except per unit data)

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

Rental income

 

$

150,283

 

 

$

128,907

 

Other operating income

 

 

21,604

 

 

 

18,036

 

Total operating revenues

 

 

171,887

 

 

 

146,943

 

Expenses

 

 

 

 

 

 

 

 

Property operations and maintenance

 

 

38,520

 

 

 

32,850

 

Real estate taxes

 

 

19,887

 

 

 

17,408

 

General and administrative

 

 

14,183

 

 

 

12,906

 

Depreciation and amortization

 

 

33,359

 

 

 

28,330

 

Total operating expenses

 

 

105,949

 

 

 

91,494

 

Gain on sale of real estate

 

 

 

 

 

302

 

Income from operations

 

 

65,938

 

 

 

55,751

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(20,346

)

 

 

(20,246

)

Interest and dividend income

 

 

779

 

 

 

4

 

Equity in income of joint ventures

 

 

1,221

 

 

 

1,116

 

Net income

 

 

47,592

 

 

 

36,625

 

Net income attributable to noncontrolling interest

   in the Operating Partnership

 

 

(209

)

 

 

(192

)

Net income attributable to common unitholders

 

$

47,383

 

 

$

36,433

 

Earnings per common unit attributable to

   common unitholders – basic

 

$

0.63

 

 

$

0.52

 

Earnings per common unit attributable to

   common unitholders – diluted

 

$

0.63

 

 

$

0.52

 

Common units used in basic earnings per unit

   calculation

 

 

75,387,332

 

 

 

70,015,856

 

Common units used in diluted earnings per unit

   calculation

 

 

75,510,201

 

 

 

70,126,344

 

Distributions declared per common unit

 

$

0.74

 

 

$

0.71

 

Net income attributable to general partner

 

$

476

 

 

$

366

 

Net income attributable to limited partners

 

$

46,907

 

 

$

36,067

 

 

See notes to consolidated financial statements.

9


LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three Months Ended

March 31,

 

(dollars in thousands)

 

2021

 

 

2020

 

Net income

 

$

47,592

 

 

$

36,625

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Effective portion of gain on derivatives net of

   reclassification to interest expense

 

 

229

 

 

 

229

 

Total comprehensive income

 

 

47,821

 

 

 

36,854

 

Comprehensive income attributable to noncontrolling

   interest in the Operating Partnership

 

 

(210

)

 

 

(193

)

Comprehensive income attributable to common unitholders

 

$

47,611

 

 

$

36,661

 

 

See notes to consolidated financial statements.

10


LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(dollars in thousands)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

47,592

 

 

$

36,625

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

33,359

 

 

 

28,330

 

Amortization of debt issuance costs and bond discount

 

 

1,062

 

 

 

1,025

 

Gain on sale of real estate

 

 

 

 

 

(302

)

Equity in income of joint ventures

 

 

(1,221

)

 

 

(1,116

)

Distributions from unconsolidated joint ventures

 

 

2,547

 

 

 

3,611

 

Non-vested stock earned

 

 

1,453

 

 

 

1,124

 

Deferred income taxes

 

 

64

 

 

 

399

 

Other

 

 

(67

)

 

 

 

Changes in assets and liabilities (excluding the effects of acquisitions):

 

 

 

 

 

 

 

 

Accounts receivable

 

 

705

 

 

 

541

 

Prepaid expenses

 

 

(3,862

)

 

 

(3,904

)

Receipts from joint ventures

 

 

544

 

 

 

51

 

Accounts payable and other liabilities

 

 

(16,949

)

 

 

(22,492

)

Deferred revenue

 

 

1,865

 

 

 

1,140

 

Net cash provided by operating activities

 

 

67,092

 

 

 

45,032

 

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of storage facilities, net of cash acquired

 

 

(265,197

)

 

 

(124,204

)

Improvements, equipment additions, and construction in progress

 

 

(10,228

)

 

 

(11,661

)

Return of investment in unconsolidated joint ventures

 

 

2,573

 

 

 

8,359

 

Investment in unconsolidated joint ventures

 

 

(1,330

)

 

 

(2,990

)

Property deposits

 

 

(519

)

 

 

171

 

Net cash used in investing activities

 

 

(274,701

)

 

 

(130,325

)

Financing Activities

 

 

 

 

 

 

 

 

Net proceeds from sale of partnership units

 

 

180,529

 

 

 

21,466

 

Proceeds from line of credit

 

 

76,000

 

 

 

172,000

 

Repayments of line of credit

 

 

(33,000

)

 

 

(54,000

)

Distributions to unitholders

 

 

(55,840

)

 

 

(49,969

)

Distributions to noncontrolling interest holders

 

 

(247

)

 

 

(264

)

Redemption of Operating Partnership Units

 

 

(63

)

 

 

(265

)

Mortgage principal payments

 

 

(117

)

 

 

(166

)

Net cash provided by financing activities

 

 

167,262

 

 

 

88,802

 

Net increase in cash and restricted cash

 

 

(40,347

)

 

 

3,509

 

Cash and restricted cash at beginning of period

 

 

58,771

 

 

 

21,556

 

Cash and restricted cash at end of period

 

$

18,424

 

 

$

25,065

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

15,118

 

 

$

18,315

 

Cash (received) paid for income taxes, net of refunds

 

$

(312

)

 

$

265

 

 

See notes to consolidated financial statements.

11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.  Share and per share amounts and unit and per unit amounts as of and for the periods ending March 31, 2020 and December 31, 2020 have been adjusted to reflect the impact of the three-for-two distribution of common stock announced by the Company on January 4, 2021 and distributed on January 27, 2021 to shareholders and unitholders of record on January 15, 2021.

2. ORGANIZATION

The Parent Company operates as a self-administered and self-managed real estate investment trust (a “REIT”) that owns and operates self-storage properties. All of the Parent Company’s assets are owned by, and all its operations are conducted through, the Operating Partnership. Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership and, through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 99.6% ownership interest therein as of March 31, 2021. The remaining ownership interests in the Operating Partnership (the “Units”) are held by certain former owners of assets acquired by the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.

At March 31, 2021, we had an ownership interest in and/or managed 955 self-storage properties in 32 states and Ontario, Canada. Among our 955 self-storage properties are 91 properties that we manage for unconsolidated joint ventures (see Note 10) and 251 properties that we manage and in which we have no ownership interest.

We consolidate all wholly owned subsidiaries. Partially owned entities, including joint ventures, are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, Life Storage Solutions, LLC (one of the Parent Company’s taxable REIT subsidiaries), Warehouse Anywhere LLC, and all other wholly owned subsidiaries. Prior to July 2, 2020, the Company owned 60% of Warehouse Anywhere LLC. On July 2, 2020, the Company acquired the remaining ownership interest in Warehouse Anywhere LLC. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but over which we have significant influence are accounted for using the equity method.

Included in the Parent Company’s consolidated balance sheets are noncontrolling redeemable Operating Partnership Units and included in the Operating Partnership’s consolidated balance sheets are limited partners’ redeemable capital interest at redemption value. These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership. There were 333,399 and 334,149 noncontrolling redeemable Operating Partnership Units outstanding at March 31, 2021 and December 31, 2020, respectively. These unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock. The Operating Partnership is obligated to redeem each of these limited partnership units in the Operating Partnership at the request of the holder thereof for cash equal to the fair market value of a share of the Parent Company’s common stock based on a 10-day average of the daily market price, at the time of such redemption, provided that the Company, at its option, may elect to acquire any such Unit presented for redemption for one common share or cash. The Company accounts for these noncontrolling redeemable Operating Partnership Units under the provisions of Accounting Standards Codification (ASC) Topic 480-10-S99. The application of the ASC Topic 480-10-S99 accounting model requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount). The offset to the adjustment to the carrying amount of the noncontrolling interests is reflected in the Company’s dividends in excess of net income and in the Operating Partnership’s general partner and limited partners capital balances. Accordingly, in the accompanying consolidated balance sheets, noncontrolling interests are reflected at redemption value at March 31, 2021 and December 31, 2020, equal to the number of noncontrolling interest units outstanding multiplied by the fair market value of the Parent Company’s common stock at that date. Redemption value exceeded the value determined under the Company’s historical basis of accounting at those dates.

 

 

12


 

The following is a reconciliation of the Parent Company’s noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable capital interest for the period:

 

(dollars in thousands)

 

Three Months

Ended

March 31, 2021

 

Beginning balance

 

$

26,446

 

Net income attributable to noncontrolling interest in the

   Operating Partnership

 

 

209

 

Redemption of units

 

 

(59

)

Distributions

 

 

(247

)

Adjustment to redemption value

 

 

2,358

 

Ending balance

 

$

28,707

 

 

The disaggregated revenues of the Company presented in accordance with ASC Topic 606 “Revenue from Contracts with Customers” are as follows:

 

(dollars in thousands)

 

Three Months

Ended

March 31,

2021

 

 

Three Months

Ended

March 31,

2020

 

Rental income

 

$

150,283

 

 

$

128,907

 

Management and acquisition fee income

 

 

4,590

 

 

 

4,413

 

Revenues related to tenant reinsurance

 

 

12,619

 

 

 

10,138

 

Other

 

 

4,395

 

 

 

3,485

 

Total operating revenues

 

$

171,887

 

 

$

146,943

 

 

Management and acquisition fee income and revenues related to tenant reinsurance are included in other operating income in the consolidated statements of operations.

 

During the three months ended March 31, 2021, approximately 18% and 13% of the Company’s revenue was derived from self-storage facilities in the states of Texas and Florida, respectively.

3. STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “Compensation - Stock Compensation.” The Company recognizes compensation cost in its financial statements for all share-based payments granted, modified, or settled during the period.

For awards with graded vesting, compensation cost is recognized on a straight-line basis over the related vesting period.

For the three months ended March 31, 2021 and 2020, the Company recorded compensation expense of $1,453,000 and $1,124,000, respectively, related to amortization of non-vested stock grants and performance-based awards.

NaN stock options were exercised by employees or directors during the three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and 2020, 9,307 and 10,745 shares of non-vested stock, respectively, vested.

During the three months ended March 31, 2021, the Company issued 1,844 shares of non-vested stock to employees and directors which vest over periods ranging from one to five years. The per-share fair market value on the date of grant of the non-vested stock issued during the three months ended March 31, 2021 ranged from $84.06 to $84.33, resulting in an aggregate fair value of $155,100.

13


During the three months ended March 31, 2021, the Company granted performance-based awards that entitle recipients to earn up to 19,500 shares of Company stock if certain performance criteria are achieved over a three-year period. The Company estimated the aggregate fair value of the awards on the grant date to be $0.8 million.

4. CASH AND RESTRICTED CASH

Restricted cash represents those amounts required to be placed in escrow by banks with whom the Company has mortgages and amounts required to be placed into escrow related to the Company’s tenant reinsurance program. Restricted cash is included in other assets in the consolidated balance sheets. The following table provides a reconciliation of cash and restricted cash reported within the consolidated statement of cash flows:

 

(Dollars in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

2020

 

Cash

 

$

13,914

 

 

$

54,400

 

 

$

20,720

 

Restricted cash

 

 

4,510

 

 

 

4,371

 

 

 

4,345

 

Total cash and restricted cash

 

$

18,424

 

 

$

58,771

 

 

$

25,065

 

 

5. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS

The following summarizes our activity in storage facilities during the three months ended March 31, 2021:

 

(dollars in thousands)

 

 

 

 

Cost:

 

 

 

 

Beginning balance

 

$

5,330,323

 

Acquisition of storage facilities

 

 

263,299

 

Improvements and equipment additions

 

 

4,289

 

Net increase in construction in progress

 

 

6,024

 

Dispositions

 

 

(99

)

Ending balance

 

$

5,603,836

 

Accumulated Depreciation:

 

 

 

 

Beginning balance

 

$

873,178

 

Additions during the period

 

 

31,293

 

Dispositions

 

 

(51

)

Ending balance

 

$

904,420

 

The Company acquired 16 self-storage facilities during the three months ended March 31, 2021. The acquisitions of these facilities were accounted for as asset acquisitions. The costs of the facilities, including closing costs, were allocated to land, building, equipment and improvements, and in-place customer leases based upon their relative fair values.

The purchase prices of the facilities acquired in 2021 have been assigned as follows:

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Consideration paid

 

 

Acquisition Date Fair Value

 

States

 

Number

of

Properties

 

 

Date of

Acquisition

 

Purchase

Price

 

 

Cash

Paid

 

 

Net Other

Liabilities

(Assets)

Assumed

 

 

Land

 

 

Building,

Equipment,

and

Improvements

 

 

In-Place

Customer

Leases

 

SC

 

 

1

 

 

1/4/2021

 

$

8,070

 

 

$

8,042

 

 

$

28

 

 

$

812

 

 

$

7,153

 

 

$

105

 

CA

 

 

1

 

 

1/21/2021

 

 

18,287

 

 

$

18,251

 

 

 

36

 

 

 

1,322

 

 

 

16,830

 

 

 

135

 

NY

 

 

1

 

 

3/4/2021

 

 

47,947

 

 

$

47,933

 

 

 

14

 

 

 

10,591

 

 

 

37,020

 

 

 

336

 

FL

 

 

8

 

 

3/11/2021

 

 

85,156

 

 

$

84,586

 

 

 

570

 

 

 

13,381

 

 

 

70,538

 

 

 

1,237

 

AZ

 

 

3

 

 

3/24/2021

 

 

67,089

 

 

$

66,890

 

 

 

199

 

 

 

7,129

 

 

 

59,320

 

 

 

632

 

WA

 

 

2

 

 

3/25/2021

 

 

39,666

 

 

$

39,495

 

 

 

171

 

 

 

6,166

 

 

 

33,037

 

 

 

443

 

Total acquired in 2021

 

 

16

 

 

 

 

$

266,215

 

 

$

265,197

 

 

$

1,018

 

 

$

39,401

 

 

$

223,898

 

 

$

2,888

 

 

The facility purchased in New York in the first quarter of 2021 was acquired from SNL Orix Merrick (“Merrick”), an unconsolidated joint venture in which the Company holds a 5% ownership interest. In accordance with ASC Topic 970, “Real Estate – General,” the Company recorded its equity in the profit from the sales of this self-storage facility as a reduction in the respective purchase price allocated to land and depreciable fixed assets. In addition to the $47.9 million cash payment for the self-storage facility acquired from Merrick, the Company also recognized $0.8 million as a return on the Company’s investment in Merrick as discussed further in Note 10.

 

14


 

Non-cash investing activities during the three months ended March 31, 2021 include the assumption of net other liabilities totaling $1.0 million.

The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). The Company measures the value of trade names, which have an indefinite life and are not amortized, by calculating discounted cash flows utilizing the relief from royalty method.

In-place customer leases are included in other assets on the Company’s consolidated balance sheets as follows:

 

(Dollars in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

In-place customer leases

 

$

89,751

 

 

$

86,863

 

Accumulated amortization

 

 

(83,525

)

 

 

(81,455

)

Net carrying value at the end of period

 

$

6,226

 

 

$

5,408

 

 

Amortization expense related to in-place customer leases was $2.1 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively, and is included in depreciation and amortization expense on the consolidated statements of operations.

Change in Useful Life Estimates

As part of the Company’s capital improvement efforts during 2020 and 2021, buildings at certain self-storage facilities were identified for replacement. As a result of the decision to replace these buildings, the Company reassessed the estimated useful lives of the then existing buildings. This useful life reassessment resulted in an increase in depreciation expense of approximately $1.4 million during the three months ended March 31, 2021. There were no facilities identified for replacement or related impact on depreciation expense during the three months ended March 31, 2020. The Company estimates that due to buildings recently identified for replacement, the change in estimated useful lives of buildings identified for replacement as of March 31, 2021 will result in an increase in depreciation expense of approximately $0.4 million during the remainder of 2021.

The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.02 for the three months ended March 31, 2021.

6. UNSECURED LINE OF CREDIT AND TERM NOTES

Borrowings outstanding on our unsecured line of credit and term notes are as follows:

 

(Dollars in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

Revolving line of credit borrowings

 

$

43,000

 

 

$

 

 

 

 

 

 

 

 

 

 

Term note due April 8, 2024

 

 

175,000

 

 

 

175,000

 

Senior term note due July 1, 2026

 

 

600,000

 

 

 

600,000

 

Senior term note due December 15, 2027

 

 

450,000

 

 

 

450,000

 

Term note due July 21, 2028

 

 

200,000

 

 

 

200,000

 

Senior term note due June 15, 2029

 

 

350,000

 

 

 

350,000

 

Senior term note due October 15, 2030

 

 

400,000

 

 

 

400,000

 

Total term note principal balance outstanding

 

 

2,175,000

 

 

 

2,175,000

 

Less: unamortized debt issuance costs

 

 

(12,380

)

 

 

(12,833

)

Less: unamortized senior term note discount

 

 

(6,480

)

 

 

(6,710

)

Term notes payable

 

$

2,156,140

 

 

$

2,155,457

 

 

The Company’s unsecured amended credit agreement includes a revolving credit facility with a limit of $500 million with a maturity date of March 10, 2023, and initially included a term note in the principal amount of $100 million with a maturity date of June 4, 2020 which has since been repaid. Such credit agreement provides for interest on the revolving credit facility at a variable annual rate equal to LIBOR plus a margin based on the Company’s credit rating (at March 31, 2021 the margin is 0.95%), interest on any term notes at a variable annual rate equal to LIBOR plus a margin based on the Company’s credit rating (at March 31, 2021 the margin is 1.00%), and requires an annual facility fee on the revolving credit facility which varies based upon the Company’s credit rating (at March 31, 2021 the facility fee is 0.15%). The interest rate on the Company’s revolving credit facility at March 31, 2021 was approximately 1.06% (1.09% at December 31, 2020) and the interest rate on any term notes at March 31, 2021 was approximately 1.11% (1.14% at December 31, 2020). At March 31, 2021 there was $456.9 million available on the unsecured line of credit. The Company has the option under this credit facility to increase the total aggregate borrowing capacity of the facilities to $900 million.

15


On September 23, 2020, the Operating Partnership issued $400 million in aggregate principal amount of 2.200% unsecured senior notes due October 15, 2030 (the “2030 Senior Notes”). The 2030 Senior Notes were issued at 0.476% discount to par value. Interest on the 2030 Senior Notes is payable semi-annually in arrears on each April 15 and October 15, commencing with April 15, 2021. Proceeds received upon issuance, net of discount to par of $1.9 million and underwriting and other offering expenses of $3.5 million, totaled $394.6 million.

On June 3, 2019, the Operating Partnership issued $350 million in aggregate principal amount of 4.000% unsecured senior notes due June 15, 2029 (the “2029 Senior Notes”). The 2029 Senior Notes were issued at a 0.524% discount to par value. Interest on the 2029 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $1.8 million and underwriting discount and other offering expenses of $3.1 million, totaled $345.1 million.

On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal amount of 3.875% unsecured senior notes due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting discount and other offering expenses of $4.0 million, totaled $443.9 million.

On June 20, 2016, the Operating Partnership issued $600 million in aggregate principal amount of 3.50% unsecured senior notes due July 1, 2026 (the “2026 Senior Notes”). The 2026 Senior Notes were issued at a 0.553% discount to par value. Interest on the 2026 Senior Notes is payable semi-annually in arrears on each January 1 and July 1. Proceeds received upon issuance, net of discount to par of $3.3 million and underwriting discount and other offering expenses of $5.5 million, totaled $591.2 million.

The 2030 Senior Notes, the 2029 Senior Notes, the 2027 Senior Notes and the 2026 Senior Notes are all fully and unconditionally guaranteed by the Parent Company. The indenture under which the 2030 Senior Notes, the 2029 Senior Notes, the 2027 Senior Notes and the 2026 Senior Notes were issued restricts the ability of the Company and its subsidiaries to incur debt unless the Company and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 on all outstanding debt, after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Company and its subsidiaries to incur secured debt unless the Company and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Company and its consolidated subsidiaries. At March 31, 2021, the Company was in compliance with such covenants.

On July 21, 2016, the Company entered into a $200 million term note maturing July 21, 2028 bearing interest at a fixed rate of 3.67%.

On April 8, 2014, the Company entered into a $175 million term note maturing April 8, 2024 bearing interest at a fixed rate of 4.533%. The interest rate on the term note increases to 6.283% if the Company is not rated by at least one rating agency or if the Company’s credit rating is downgraded.

The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At March 31, 2021, the Company was in compliance with such covenants.

We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at March 31, 2021, the entire availability on the line of credit could be drawn without violating our debt covenants.

The Company’s fixed rate term notes contain a provision that allows for the noteholders to call the debt upon a change of control of the Company at an amount that includes a make whole premium based on rates in effect on the date of the change of control.

Deferred debt issuance costs and the discount on the outstanding term notes are both presented as reductions of term notes in the accompanying consolidated balance sheets at March 31, 2021 and December 31, 2020. Amortization expense related to deferred debt issuance costs was $0.6 million for each of the three months ended March 31, 2021 and 2020, and is included in interest expense in the consolidated statements of operations.

16


7. MORTGAGES PAYABLE AND DEBT MATURITIES

Mortgages payable at March 31, 2021 and December 31, 2020 consist of the following:

 

(dollars in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

4.065% mortgage note due April 1, 2023, secured by 1 self-

   storage facility with an aggregate net book value of $7.1

   million, principal and interest paid monthly

   (effective interest rate 4.40%)

 

$

3,807

 

 

$

3,832

 

5.26% mortgage note due November 1, 2023, secured by 1

   self-storage facility with an aggregate net book value of $7.8

   million, principal and interest paid monthly

   (effective interest rate 5.69%)

 

 

3,710

 

 

 

3,728

 

4.4625% mortgage notes due December 6, 2024, secured by

   3 self-storage facilities with an aggregate net book value

   of $54.8 million, principal and interest paid monthly

   (effective interest rate 3.12%)

 

 

22,620

 

 

 

22,684

 

4.44% mortgage note due July 6, 2025, secured by 1

   self-storage facility with an aggregate net book value of $13.6

   million, principal and interest paid monthly

   (effective interest rate 4.60%)

 

 

6,316

 

 

 

6,343

 

5.99% mortgage note due May 1, 2026, secured by 1 self-

   storage facility with an aggregate net book value of $6.4

   million, principal and interest paid monthly

   (effective interest rate 6.45%)

 

 

1,143

 

 

 

1,190

 

Total mortgages payable

 

$

37,596

 

 

$

37,777

 

 

The table below summarizes the Company’s debt obligations at March 31, 2021. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term notes and mortgage notes were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. These assumptions are considered Level 2 inputs within the fair value hierarchy as described in Note 9. The carrying values of our variable rate debt instruments approximate their fair values as such debt instruments bear interest at current market rates that approximate market participant rates. This is considered a Level 2 input within the fair value hierarchy. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.

 

 

 

 

 

 

 

Expected Maturity Date Including Discount

 

 

 

 

 

(dollars in thousands)

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

 

Fair Value

 

Line of credit - variable rate

   LIBOR + 0.95% (1.06% at

  March 31, 2021)

 

$

 

 

$

 

 

$

43,000

 

 

$

 

 

$

 

 

$

 

 

$

43,000

 

 

$

43,000

 

Notes Payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term note - fixed rate 4.533%

 

 

 

 

 

 

 

 

 

 

 

175,000

 

 

 

 

 

 

 

 

 

175,000

 

 

 

195,252

 

Term note - fixed rate 3.50%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

600,000

 

 

 

600,000

 

 

 

657,471

 

Term note - fixed rate 3.875%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

450,000

 

 

 

450,000

 

 

 

494,057

 

Term note - fixed rate 3.67%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

 

200,000

 

 

 

215,203

 

Term note - fixed rate 4.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

350,000

 

 

 

350,000

 

 

 

394,261

 

Term note - fixed rate 2.20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

400,000

 

 

 

400,000

 

 

 

376,052

 

Mortgage note - fixed rate 4.065%

 

 

79

 

 

 

108

 

 

 

3,620

 

 

 

 

 

 

 

 

 

 

 

 

3,807

 

 

 

3,936

 

Mortgage note - fixed rate 5.26%

 

 

60

 

 

 

83

 

 

 

3,567

 

 

 

 

 

 

 

 

 

 

 

 

3,710

 

 

 

3,983

 

Mortgage notes - fixed rate 4.4625%

 

 

 

 

 

 

 

 

 

 

 

22,620

 

 

 

 

 

 

 

 

 

22,620

 

 

 

23,317

 

Mortgage note - fixed rate 4.44%

 

 

92

 

 

 

125

 

 

 

130

 

 

 

136

 

 

 

5,833

 

 

 

 

 

 

6,316

 

 

 

6,765

 

Mortgage note - fixed rate 5.99%

 

 

145

 

 

 

203

 

 

 

216

 

 

 

229

 

 

 

244

 

 

 

106

 

 

 

1,143

 

 

 

1,244

 

Total

 

$

376

 

 

$

519

 

 

$

50,533

 

 

$

197,985

 

 

$

6,077

 

 

$

2,000,106

 

 

$

2,255,596

 

 

 

 

 

 

17


 

8. DERIVATIVE FINANCIAL INSTRUMENTS

In 2015 and 2016, the Company entered into forward starting interest rate swap agreements to hedge the risk of changes in the interest-related cash flows associated with the potential issuance of fixed rate long-term debt. These interest rate swaps qualify and have been designated as hedges of the amount of future cash flows related to interest payments on this fixed rate long-term debt. In conjunction with the issuance of the 2026 Senior Notes (see Note 6), the Company terminated these hedges and settled the forward starting swap agreements for approximately $9.2 million. The $9.2 million has been deferred in Accumulated Other Comprehensive Loss (“AOCL”) and is being amortized as additional interest expense over the ten-year term of the 2026 Senior Notes or until such time as interest payments on the 2026 Senior Notes are no longer probable. Such amortization is included in amortization of debt issuance costs and bond discount in the consolidated statements of cash flows.

The changes in AOCL for the three months ended March 31, 2021 and 2020 are summarized as follows:

 

(dollars in thousands)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Accumulated other comprehensive loss beginning

   of period

 

$

(5,041

)

 

$

(5,958

)

Realized loss reclassified from accumulated other

   comprehensive loss to interest expense

 

 

229

 

 

 

229

 

Accumulated other comprehensive loss end of period

 

$

(4,812

)

 

$

(5,729

)

 

9. FAIR VALUE MEASUREMENTS

The Company applies the provisions of ASC Topic 820 “Fair Value Measurements and Disclosures” in determining the fair value of its financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Refer to Note 7 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis.

There are 0 assets or liabilities carried at fair value measured on a recurring basis on the consolidated balance sheets as of March 31, 2021 and December 31, 2020.

10. INVESTMENT IN JOINT VENTURES

A summary of the Company’s unconsolidated joint ventures is as follows:

 

Venture

 

Number of

Properties at

March 31,

2021

 

 

Company

common

ownership

interest at

March 31,

2021

 

 

Carrying value

of investment

at March 31,

2021

 

 

Carrying value of

investment at

December 31,

2020

Sovran HHF Storage Holdings LLC (“Sovran HHF”)1

 

36

 

 

20%

 

 

$60.0 million

 

 

$60.5 million

Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2

 

22

 

 

15%

 

 

$27.0 million

 

 

$27.3 million

Life Storage-SERS Storage LLC (“SERS”)

 

3

 

 

20%

 

 

$3.0   million

 

 

$3.0   million

Life Storage-HIERS Storage LLC (“HIERS”)

 

17

 

 

20%

 

 

$14.2 million

 

 

$14.3 million

Iskalo Office Holdings, LLC (“Iskalo”)3

 

N/A

 

 

49%

 

 

($2.5   million)

 

 

($2.5   million)

Life Storage Spacemax, LLC ("Spacemax")

 

6

 

 

40%

 

 

$16.5 million

 

 

$16.7 million

Life Storage Virtus, LLC ("Virtus")4

 

1

 

 

20%

 

 

$1.4   million

 

 

$1.5   million

SNL Orix Merrick, LLC ("Merrick")5

 

 

 

 

5%

 

 

 

 

 

$2.5   million

Joint ventures with properties in development stage6

 

7

 

 

Various

 

 

$11.5 million

 

 

$10.4 million

Other unconsolidated joint ventures (6 joint ventures)

 

6

 

 

Various

 

 

$6.8   million

 

 

$6.8   million

 

18


 

1

In September 2020, the Company acquired 17 self-storage facilities and related assets from Sovran HHF for total consideration of $175.2 million, which is net of the Company’s share of Sovran HHF’s gain resulting from the transaction. In connection with this transaction, non-recourse loans with principal balances totaling $34.0 million were settled. Also in September 2020, Sovran HHF sold 4 self-storage facilities to an unrelated third-party for total consideration of $42.3 million, resulting in a gain on sale of $2.1 million. As of March 31, 2021, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs in 2008. This difference is included in the carrying value of the investment.

2

In September 2020, the Company acquired 8 self-storage facilities and related assets from Sovran HHF II for total consideration of $120.2 million, which is net of the Company’s share of Sovran HHF II’s gain resulting from the transaction. In connection with this transaction, $35.8 million of cash had been placed into escrow until non-recourse loans related to these properties were able to be paid which occurred in April 2021 (see Note 17). Also in connection with this transaction, the Company made a $12.7 million contribution to Sovran HHF II.

3

Iskalo owns the building that houses the Company’s headquarters. The Company paid rent to Iskalo of $0.4 million and $0.3 million during the three months ended March 31, 2021 and 2020, respectively.

4

In February 2020, the Company executed a joint venture agreement, Life Storage Virtus, LLC, with an unrelated third-party with the purpose of acquiring and operating a self-storage facility. During the first quarter of 2020, Virtus acquired a self-storage facility for a total of $21.7 million. In connection with this acquisition, Virtus entered into $14.0 million of non-recourse mortgage debt. During 2020, the Company contributed $1.7 million to Virtus as the Company’s share of the initial capital investment in the joint venture.

5

In March 2021, the Company acquired a self-storage facility and related assets from Merrick for total consideration of $47.9 million which is net of the Company’s share of Merrick’s gain resulting from the transaction. In connection with this transaction, all non-recourse loans held by Merrick were settled.

6

The Company has entered into 7 separate joint ventures, 2 of which are developing self-storage facilities in Ontario, Canada, 4 of which are developing self-storage facilities in the New York City market, and 1 of which is developing a self-storage facility in the Tucson, AZ market. The Company has contributed an aggregate total of $11.5 million as its share of capital to these joint ventures.

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint ventures at March 31, 2021 are a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” The Company used the voting model under ASC 810 to determine whether or not to consolidate the joint ventures. Based upon each member’s substantive participation rights over the activities as stipulated in the joint venture agreements, none of the joint ventures evaluated under the voting model are consolidated by the Company. Due to the Company’s significant influence over the operations of each of the joint ventures, all above joint ventures are accounted for under the equity method of accounting.

The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on any of the Company’s investments in joint ventures.

As property manager of the self-storage facilities owned by each of the operational joint ventures, the Company earns management and/or call center fees based on a percentage of joint venture gross revenues. These fees earned from joint ventures, which are included in other operating income in the consolidated statements of operations, totaled $1.8 million and $2.7 million for the three months ended March 31, 2021 and 2020, respectively.

The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:

 

 

(dollars in thousands)

Venture

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Sovran HHF

 

$

654

 

 

$

922

 

Sovran HHF II

 

 

332

 

 

 

455

 

Other unconsolidated joint ventures

 

 

235

 

 

 

(261

)

 

 

$

1,221

 

 

$

1,116

 

 

19


 

A summary of the combined unconsolidated joint ventures’ financial statements as of and for the three months ended March 31, 2021 is as follows:

 

(dollars in thousands)

 

 

 

 

Balance Sheet Data:

 

 

 

 

Investment in storage facilities, net

 

$

1,076,066

 

Investment in office building, net

 

 

4,185

 

Other assets

 

 

58,947

 

Total Assets

 

$

1,139,198

 

Due to the Company

 

$

520

 

Mortgages payable

 

 

529,504

 

Other liabilities

 

 

17,660

 

Total Liabilities

 

 

547,684

 

Unaffiliated partners’ equity

 

 

453,561

 

Company equity

 

 

137,953

 

Total Partners’ Equity

 

 

591,514

 

Total Liabilities and Partners’ Equity

 

$

1,139,198

 

Income Statement Data:

 

 

 

 

Total revenues

 

$

27,231

 

Property operating expenses

 

 

(9,529

)

Administrative, management and call center fees

 

 

(2,051

)

Gain on disposal of self-storage facilities

 

 

29,685

 

Depreciation and amortization of customer list

 

 

(6,017

)

Amortization of financing fees

 

 

(145

)

Income tax expense

 

 

(58

)

Interest expense

 

 

(5,229

)

Net income

 

$

33,887

 

 

The Company does not guarantee the debt of any of its equity method investees.

We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital required for future acquisitions of properties, our share of capital required for the development of properties under construction, and our share of the payoff of secured debt held by these joint ventures.

11. INCOME TAXES

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements.

The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries. In general, the Company’s taxable REIT subsidiaries may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.

The Company recorded federal and state income tax expense of $0.6 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. These amounts are included in general and administrative expenses in the consolidated statements of operations. At March 31, 2021 and 2020, there were 0 material unrecognized tax benefits and at March 31, 2021 and 2020 and the Company had 0 interest or penalties relating to uncertain tax positions during the periods then ended. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. Income taxes payable by the Company and the net deferred tax liabilities of our taxable REIT subsidiaries are classified within accounts payable and accrued liabilities in the consolidated balance sheets, while prepaid income taxes are classified within prepaid expenses. As of March 31, 2021, the Company’s taxable REIT subsidiaries have deferred tax assets totaling $0.3 million and a deferred tax liability of $1.7 million. As of December 31, 2020, the Company’s taxable REIT subsidiaries had deferred tax assets of $0.4 million and a deferred tax liability of $1.7 million. The tax years 2017-2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.

20


The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 20, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, applies to income earned by our taxable REIT subsidiaries.

12. EARNINGS PER SHARE AND EARNINGS PER UNIT

The Company reports earnings per share and earnings per unit data in accordance ASC Topic 260, “Earnings Per Share.” Under ASC Topic 260-10, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The Parent Company and the Operating Partnership have calculated their basic and diluted earnings per share/unit using the two-class method.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share utilizing the two-class method.

 

(in thousands except per share data)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

 

$

47,383

 

 

$

36,433

 

Denominator:

 

 

 

 

 

 

 

 

Denominator for basic earnings per share – weighted

   average shares

 

 

75,387

 

 

 

70,016

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

Stock options and non-vested stock

 

 

123

 

 

 

110

 

Denominator for diluted earnings per share – adjusted

   weighted average shares and assumed conversion

 

 

75,510

 

 

 

70,126

 

Basic earnings per common share attributable to

   common shareholders

 

$

0.63

 

 

$

0.52

 

Diluted earnings per common share attributable to

   common shareholders

 

$

0.63

 

 

$

0.52

 

 

Earnings Per Unit

The following table sets forth the computation of basic and diluted earnings per common unit utilizing the two-class method.

 

(in thousands except per unit data)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

March 31, 2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income attributable to common unitholders

 

$

47,383

 

 

$

36,433

 

Denominator:

 

 

 

 

 

 

 

 

Denominator for basic earnings per unit – weighted

   average units

 

 

75,387

 

 

 

70,016

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

Stock options and non-vested stock

 

 

123

 

 

 

110

 

Denominator for diluted earnings per unit – adjusted

   weighted average units and assumed conversion

 

 

75,510

 

 

 

70,126

 

Basic earnings per common unit attributable to

   common unitholders

 

$

0.63

 

 

$

0.52

 

Diluted earnings per common unit attributable to

   common unitholders

 

$

0.63

 

 

$

0.52

 

 

21


Not included in the effect of dilutive securities above for both earnings per share and earnings per unit are 149,227 unvested restricted shares for the three months ended March 31, 2021, and 148,047 unvested restricted shares for the three months ended March 31, 2020, because their effect would be antidilutive.

13. SHAREHOLDERS’ EQUITY

The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the three months ended March 31, 2021:

 

(dollars in thousands)

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Dividends in

Excess of

Net Income

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders’

Equity

 

Balance December 31, 2020

 

$

495

 

 

$

2,671,311

 

 

$

(288,667

)

 

$

(5,041

)

 

$

2,378,098

 

Net proceeds from issuance of common stock

 

 

18

 

 

 

180,511

 

 

 

 

 

 

 

 

 

180,529

 

Earned portion of non-vested stock

 

 

 

 

 

1,453

 

 

 

 

 

 

 

 

 

1,453

 

Stock dividend

 

 

252

 

 

 

(252

)

 

 

 

 

 

 

 

 

 

Carrying value less than redemption value on redeemed

   noncontrolling interest

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Adjustment to redemption value on

   noncontrolling redeemable Operating

   Partnership units

 

 

 

 

 

 

 

 

(2,358

)

 

 

 

 

 

(2,358

)

Net income attributable to common shareholders

 

 

 

 

 

 

 

 

47,383

 

 

 

 

 

 

47,383

 

Amortization of terminated hedge included in

   AOCL

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

229

 

Dividends

 

 

 

 

 

 

 

 

(55,840

)

 

 

 

 

 

(55,840

)

Balance March 31, 2021

 

$

765

 

 

$

2,853,019

 

 

$

(299,482

)

 

$

(4,812

)

 

$

2,549,490

 

 

The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the three months ended March 31, 2020:

 

(dollars in thousands)

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Dividends in

Excess of

Net Income

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders’

Equity

 

Balance December 31, 2019

 

$

467

 

 

$

2,376,723

 

 

$

(238,338

)

 

$

(5,958

)

 

$

2,132,894

 

Net proceeds from issuance of common stock

 

 

2

 

 

 

21,464

 

 

 

 

 

 

 

 

 

21,466

 

Earned portion of non-vested stock

 

 

 

 

 

1,124

 

 

 

 

 

 

 

 

 

1,124

 

Adjustment to redemption value on

   noncontrolling redeemable Operating

   Partnership units

 

 

 

 

 

 

 

 

5,542

 

 

 

 

 

 

5,542

 

Net income attributable to common shareholders

 

 

 

 

 

 

 

 

36,433

 

 

 

 

 

 

36,433

 

Amortization of terminated hedge included in

   AOCL

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

229

 

Dividends

 

 

 

 

 

 

 

 

(49,969

)

 

 

 

 

 

(49,969

)

Balance March 31, 2020

 

$

469

 

 

$

2,399,311

 

 

$

(246,332

)

 

$

(5,729

)

 

$

2,147,719

 

 

On June 14, 2018, the Company entered into a continuous equity offering program (“2018 Equity Program”) with multiple sales agents, pursuant to which the Company was permitted to sell up to $300 million in aggregate offering price of shares of the Company’s common stock. This continuous equity offering program was replaced on December 29, 2020, when the Company entered into a new continuous equity offering program (“2020 Equity Program”) with multiple sales agents, pursuant to which the Company may sell up to $500 million in aggregate offering price of shares of the Company’s common stock. Actual sales under this continuous equity offering program will depend on a variety of factors and conditions, including, but not limited to, market conditions, the trading price of the Company’s common stock, and determinations of the appropriate sources of funding for the Company. The Company expects to offer, sell and issue shares of common stock under this equity program from time to time based on various factors and conditions, although the Company is under no obligation to sell any shares under this equity program.

 

During the three-month period ended March 31, 2021, the Company issued 2,220,559 shares of common stock under the 2020 Equity Program at a weighted average issue price of $82.23 per share, generating net proceeds of $180.5 million after deducting $1.8 million of sales commissions paid to the sales agents, as well as other expenses of $0.3 million. The Company used such proceeds primarily to fund a portion of the acquisition of the 16 storage facilities during the three months ended March 31, 2021.

 

22


 

During the three months ended March 31, 2020, the Company issued 285,605 shares of common stock under the 2018 Equity Program at a weighted average issue price of $76.17 per share, generating net proceeds of $21.5 million after deducting $0.2 million of sales commissions paid to the sales agents, as well as other expenses of $0.1 million. The Company used such proceeds to fund a portion of the acquisition of the 6 storage facilities during the three months ended March 31, 2020.

On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding common shares (“Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market, through privately negotiated transactions, or through other methods of acquiring shares. The Buyback Program may be suspended or discontinued at any time. The Company did 0t repurchase any outstanding common shares under the Buyback Program during the three months ended March 31, 2021 or during the three months ended March 31, 2020.

In 2013, the Company implemented a Dividend Reinvestment Plan which was suspended by the Company’s Board of Directors in 2017. As a result, the Company did 0t issue any shares under the Dividend Reinvestment Plan during the three months ended March 31, 2021 and 2020.  

On January 4, 2021, the Company announced a three-for-two stock split of the Company’s common stock, to be made in the form of a 50% stock dividend. Shareholders of record at the close of business on January 15, 2021 received on additional share of Company stock for every two shares owned. These additional shares were distributed on January 27, 2021, with cash distributed in lieu of fractional shares based on the closing price on the record date.

14. PARTNERS’ CAPITAL

The following is a reconciliation of the changes in total partners’ capital for the three months ended March 31, 2021:

 

(dollars in thousands)

 

Life Storage

Holdings, Inc.

General

Partner

 

 

Life Storage,

Inc. Limited

Partner

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Controlling

Partners’

Capital

 

Balance December 31, 2020

 

$

24,045

 

 

$

2,359,094

 

 

$

(5,041

)

 

$

2,378,098

 

Net proceeds from issuance of Operating Partnership Units

 

 

1,807

 

 

 

178,722

 

 

 

 

 

 

180,529

 

Earned portion of non-vested stock

 

 

14

 

 

 

1,439

 

 

 

 

 

 

1,453

 

Carrying value less than redemption value on redeemed

   noncontrolling interest

 

 

(1

)

 

 

(3

)

 

 

 

 

 

(4

)

Adjustment to redemption value on noncontrolling

   redeemable Operating Partnership Units

 

 

 

 

 

(2,358

)

 

 

 

 

 

(2,358

)

Net income attributable to common unitholders

 

 

476

 

 

 

46,907

 

 

 

 

 

 

47,383

 

Amortization of terminated hedge included in AOCL

 

 

2

 

 

 

(2

)

 

 

229

 

 

 

229

 

Distributions

 

 

(561

)

 

 

(55,279

)

 

 

 

 

 

(55,840

)

Balance March 31, 2021

 

$

25,782

 

 

$

2,528,520

 

 

$

(4,812

)

 

$

2,549,490

 

 

The following is a reconciliation of the changes in total partners’ capital for the three months ended March 31, 2020:

 

(dollars in thousands)

 

Life Storage

Holdings, Inc.

General

Partner

 

 

Life Storage,

Inc. Limited

Partner

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Controlling

Partners’

Capital

 

Balance December 31, 2019

 

$

21,594

 

 

$

2,117,258

 

 

$

(5,958

)

 

$

2,132,894

 

Net proceeds from issuance of Operating Partnership Units

 

 

212

 

 

 

21,254

 

 

 

 

 

 

21,466

 

Earned portion of non-vested stock

 

 

11

 

 

 

1,113

 

 

 

 

 

 

1,124

 

Adjustment to redemption value on noncontrolling

   redeemable Operating Partnership Units

 

 

 

 

 

5,542

 

 

 

 

 

 

5,542

 

Net income attributable to common unitholders

 

 

366

 

 

 

36,067

 

 

 

 

 

 

36,433

 

Amortization of terminated hedge included in AOCL

 

 

2

 

 

 

(2

)

 

 

229

 

 

 

229

 

Distributions

 

 

(502

)

 

 

(49,467

)

 

 

 

 

 

(49,969

)

Balance March 31, 2020

 

$

21,683

 

 

$

2,131,765

 

 

$

(5,729

)

 

$

2,147,719

 

 

23


 

15. RECENT ACCOUNTING PRONOUNCEMENTS

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which reduced the number of accounting models for convertible debt instruments and convertible preferred stock, thus simplifying the accounting for convertible instruments. ASU 2020-06 is effective for annual periods beginning after December 31, 2021, and interim periods within those annual periods, and is therefore effective for the Company as of January 1, 2022. Management is evaluating the impact that the adoption of ASU 2020-06 will have on the Company, including, but not limited to, the accounting for the Company’s noncontrolling redeemable Operating Partnership Units.

16. COMMITMENT AND CONTINGENCIES

The Company’s lease population is comprised of leases for land and/or buildings in which certain of the Company’s self-storage facilities operate, as well as leases of corporate office space. All leases where the Company is the lessee qualify as operating leases and the Company does not have any financing leases as of March 31, 2021. At March 31, 2021 and December 31, 2020, the Company’s aggregate right-of-use assets total $19.9 million and $20.3 million, respectively, and are included in other assets on the consolidated balance sheet. The related lease liabilities at March 31, 2021 and December 31, 2020 total $19.7 million and $19.9 million, respectively, and are included in accounts payable and accrued liabilities on the consolidated balance sheet.  

Expenses related to operating leases totaled $0.6 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively. At March 31, 2021, the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were 11.2 years and 4.67%, respectively.

At March 31, 2021, the Company has approximately $25.7 million of operating lease commitments, excluding variable consideration. The undiscounted future minimum lease payments are summarized by year in the table below:

 

(in thousands)

 

 

 

 

2021

 

$

1,939

 

2022

 

 

2,388

 

2023

 

 

2,388

 

2024

 

 

2,374

 

2025

 

 

2,402

 

Thereafter

 

 

14,181

 

Total

 

$

25,672

 

 

The difference between the amounts included in the table above and the aggregate lease liability recorded in the accompanying consolidated balance sheet at March 31, 2021 is the result of the impact of the discount rate on future minimum lease payments.

At March 31, 2021, the Company was under contract to acquire 6 self-storage facilities for an aggregate purchase price of $106.5 million. The Company acquired 1 of these facilities subsequent to March 31, 2021 for $16.5 million. The purchase of the remaining facilities are subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.

At March 31, 2021, the Company has signed contracts in place with third-party contractors for expansion and enhancements at its existing facilities. The Company expects to pay $33.8 million under these contracts in 2021 and 2022.

17. SUBSEQUENT EVENTS

On April 1, 2021, the Company declared a quarterly dividend of $0.74 per common share. The dividend was paid on April 26, 2021 to shareholders of record on April 14, 2021. The total dividend paid amounted to $56.9 million.     

On April 1, 2021, Sovran HHF II paid off $69.1 million in existing nonrecourse mortgage debt and entered into $110 million of new nonrecourse mortgage debt which matures in 2029. As a result of the net proceeds from these transactions, the Company received a distribution of $31.6 million from Sovran HHF II on April 1, 2021.

During April 2021, the Company issued 377,621 shares of common stock under the Company’s continuous equity offering program at a weighted average issuance price of $88.17 per share, generating net proceeds of $33.0 million.

On May 3, 2021, the Company acquired 1 self-storage facility for an aggregate purchase price of $16.5 million.

24


Subsequent to March 31, 2021, the Company entered into contracts to acquire 11 self-storage facilities for an aggregate purchase price of $159.2 million. The purchases of these facilities are subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.

25


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this report.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this document, 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 our 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 would cause rents and occupancy rates to decline; risks associated with the COVID-19 global health crisis or similar events, including but not limited to (i) the impact to the health of our employees and/or customers, (ii) the negative impacts to the economy and to self-storage customers which could reduce the demand for self-storage or reduce our ability to collect rent, (iii) reducing or eliminating our ability to increase rents charged to our current or future customers, (iv) limiting our ability to collect rent from or evict past due customers, (v) we could see an increase in move-outs of longer-term customers due to the economic uncertainty and significant rise in unemployment resulting from the COVID-19 global health crisis which could lead to lower occupancies and reduced average rental rates as longer-term customers are replaced with new customers at lower rates, and (vi) potential negative impacts on the cost and availability of debt and equity which could have a negative impact on our capital and growth plans; the Company’s ability to evaluate, finance and integrate acquired self-storage facilities into the Company’s existing business and operations; the Company’s ability to effectively compete in the industry in which it does business; 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; any future ratings on the Company’s debt instruments; regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and tax law changes that may change the taxability of future income.

RESULTS OF OPERATIONS

FOR THE PERIOD JANUARY 1, 2021 THROUGH MARCH 31, 2021, COMPARED TO THE PERIOD JANUARY 1, 2020 THROUGH MARCH 31, 2020

We recorded rental revenues of $150.3 million for the three months ended March 31, 2021, an increase of $21.4 million or 16.6% when compared to rental revenues of $128.9 million for the same period in 2020. This increase in rental revenue was driven by a $9.0 million, or 7.3%, increase in rental revenues at the 531 core properties considered in same store sales (the Company will include stores in its same store pool in the second year after the stores achieve 80% sustained occupancy using market rates and incentives; therefore the 531 core properties considered in same store sales are those included in the consolidated results of operations since January 1, 2020, excluding stores not yet stabilized, four stores significantly impacted by flooding, and two stores that the Company began to fully replace in 2017). The increase in same store rental revenues was a result of a 410 basis point increase in average occupancy along with an increase of 1.3% in rental income per square foot. Also affecting the overall increase in rental revenues was an increase of $12.4 million in rental revenues contributed by stores not included in the same store pool, primarily those acquired in 2020 and 2021. Other operating income, which includes merchandise sales, revenues related to tenant reinsurance, truck rentals, management fees and acquisition fees, increased by $3.6 million for the three months ended March 31, 2021 compared to the same period in 2020 primarily as a result of increased revenues related to the Company’s tenant insurance program and increased revenues from the Company’s Warehouse Anywhere third party logistics and warehousing solution.

Property operations and maintenance expenses increased $5.7 million or 17.3% in the three months ended March 31, 2021 compared to the same period in 2020. Property operations and maintenance expenses related to the 531 core properties considered in the same store pool increased by $1.2 million or 4.5% primarily as the result of increased repairs and maintenance expenditures and utilities expenses. The remainder of the increase in property operations and maintenance expenses is primarily the result of the net activity of the stores not included in the same store pool. Real estate tax expense increased $2.5 million during the three months ended March 31, 2021 as compared to the same period in 2020. The 531 core properties considered in the same store pool experienced a 5.0% increase in real estate taxes which is reflective of a net increase in property tax levies on those properties. In addition to the same store real estate tax expense increase, real estate taxes increased $1.6 million from stores not included in the same store pool.

Net operating income increased $16.8 million or 17.4% resulting from a 8.6% increase in our same store net operating income coupled with an increase of $9.7 million related to the Company’s tenant insurance program, increased management fees, and the properties not included in the same store pool.

26


Net operating income, or “NOI,” is a non-GAAP (generally accepted accounting principles) financial measure that we define as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income: interest expense, impairment and casualty losses, operating lease expense, depreciation and amortization expense, any losses on sale of real estate, acquisition related costs, general and administrative expense, and deducting from net income: income from discontinued operations, interest income, any gains on sale of real estate, and equity in income of joint ventures. We believe that NOI is a meaningful measure to investors in evaluating our operating performance because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, and in comparing period-to-period and market-to-market property operating results. Additionally, NOI is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending on accounting methods and the book value of assets. NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income. There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income.

The following table reconciles our net income presented in the consolidated financial statements to NOI generated by our self-storage facilities for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months ended March 31,

 

(dollars in thousands)

 

2021

 

 

2020

 

Net income

 

$

47,592

 

 

$

36,625

 

General and administrative

 

 

14,183

 

 

 

12,906

 

Depreciation and amortization

 

 

33,359

 

 

 

28,330

 

Gain on sale of real estate

 

 

 

 

 

(302

)

Interest expense

 

 

20,346

 

 

 

20,246

 

Interest income

 

 

(779

)

 

 

(4

)

Equity in income of joint ventures

 

 

(1,221

)

 

 

(1,116

)

Net operating income

 

$

113,480

 

 

$

96,685

 

Net operating income

 

 

 

 

 

 

 

 

Same store

 

$

89,935

 

 

$

82,808

 

Other stores, tenant reinsurance related income

   and management fee income

 

 

23,545

 

 

 

13,877

 

Total net operating income

 

$

113,480

 

 

$

96,685

 

 

Our 2021 same store results consist of only those properties that have been owned by the Company and included in our consolidated results since January 1, 2020, excluding stores not yet stabilized, four stores significantly impacted by flooding, and two stores that the Company began to fully replace in 2017. We believe that same store results are meaningful measures to investors in evaluating our operating performance because, given the acquisitive nature of the industry, same store results provide information about the overall business after removing the results from those properties that were not consistent from year-to-year. Additionally, same store results are widely used in the real estate industry and the self-storage industry to measure performance. Same store results should be considered in addition to, but not as a substitute for, consolidated results in accordance with GAAP. The following table sets forth operating data for our 531 same store properties. These results provide information relating to property operating changes without the effects of acquisitions.

27


Same Store Summary

 

 

 

Three Months ended March 31,

 

 

Percentage

 

(dollars in thousands)

 

2021

 

 

2020

 

 

Change

 

Same store rental income

 

$

133,144

 

 

$

124,111

 

 

 

7.3

%

Same store other operating income

 

 

1,593

 

 

 

1,494

 

 

 

6.6

%

Total same store operating income

 

 

134,737

 

 

 

125,605

 

 

 

7.3

%

Payroll and benefits

 

 

10,023

 

 

 

9,841

 

 

 

1.8

%

Real estate taxes

 

 

17,424

 

 

 

16,592

 

 

 

5.0

%

Utilities

 

 

3,793

 

 

 

3,620

 

 

 

4.8

%

Repairs and maintenance

 

 

4,702

 

 

 

4,046

 

 

 

16.2

%

Office and other operating expenses

 

 

4,036

 

 

 

3,803

 

 

 

6.1

%

Insurance

 

 

1,524

 

 

 

1,506

 

 

 

1.2

%

Advertising

 

 

48

 

 

 

64

 

 

 

(25.0

)%

Internet marketing

 

 

3,252

 

 

 

3,325

 

 

 

(2.2

)%

Total same store operating expenses

 

 

44,802

 

 

 

42,797

 

 

 

4.7

%

Same store net operating income

 

$

89,935

 

 

$

82,808

 

 

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

Change

 

Quarterly same store move ins

 

 

46,838

 

 

 

46,389

 

 

 

449

 

Quarterly same store move outs

 

 

42,158

 

 

 

44,458

 

 

 

(2,300

)

 

We believe the increase in same store move ins was due to demand from housing transactions and increased demand from customers needing space to work from home as a result of the COVID-19 global health crisis. We believe the decrease in same store move outs was a result of customers increasing their length of stay and as a result of the COVID-19 global health crisis.

General and administrative expenses for the three months ended March 31, 2021 increased $1.3 million or 9.9% when compared with the three months ended March 31, 2020. This increase was primarily driven by an increase in home office personnel related costs to support the growth in stores and increased investments in technology.

Depreciation and amortization expense increased to $33.4 million in the three months ended March 31, 2021 from $28.3 million in the same period in 2020 as a result of depreciation and customer list amortization related to those properties acquired in 2021 and 2020, along with increased depreciation on self-storage facilities identified for replacement during the three months ended March 31, 2021.

Total interest expense remained fairly consistent at an increase of $0.1 million during the three months ended March 31, 2021 as compared to the same period in 2020 as the Company’s outstanding debt balances remained fairly consistent.

Total interest and dividend income increased by $0.8 million during the three months ended March 31, 2021 as compared to the same period in 2020 as a result of a preferred dividend received from one of the Company’s unconsolidated joint ventures during the three months ended March 31, 2021.

FUNDS FROM OPERATIONS

We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation.

FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income available to common shareholders computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of properties, plus impairment of real estate assets, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating

28


activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

Reconciliation of Net Income to Funds From Operations (unaudited)

 

 

 

Three Months ended March 31,

 

(in thousands)

 

2021

 

 

2020

 

Net income attributable to common shareholders

 

$

47,383

 

 

$

36,433

 

Net income attributable to noncontrolling interests

   in the Operating Partnership

 

 

209

 

 

 

192

 

Depreciation of real estate and amortization of

   intangible assets exclusive of debt issuance costs

 

 

32,819

 

 

 

27,742

 

Depreciation and amortization from unconsolidated

   joint ventures

 

 

1,202

 

 

 

1,795

 

Funds from operations allocable to noncontrolling

   interest in the Operating Partnership

 

 

(359

)

 

 

(346

)

Funds from operations available to common

   shareholders

 

$

81,254

 

 

$

65,816

 

 

LIQUIDITY AND CAPITAL RESOURCES

The COVID-19 global health crisis impacted the cost of debt and equity for a time during 2020 and may disrupt markets in the future. We expect to be able to maintain adequate liquidity as we manage through the current environment. While significant uncertainty exists as to the full impact of the COVID-19 global health crisis on our liquidity and capital resources, as of the date of this report we believe that the combination of our cash on hand, the cash generated by our operations, and our line of credit will be adequate to fund our operations. We will continue to actively monitor the potential impact of the COVID-19 global health crisis on our liquidity and capital resources.

Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness, and limitations on dividend payouts. At March 31, 2021, the Company was in compliance with all debt covenants. In the event that the Company violates its debt covenants in the future, the amounts due under the agreements could be callable by the lenders and could adversely affect our credit rating requiring us to pay higher interest and other debt-related costs. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at March 31, 2021, the entire availability under our line of credit could be drawn without violating our debt covenants.

Our ability to retain cash flow is limited because we operate as a REIT. In order to maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally-generated net cash provided by operating activities and the availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements.

Cash flows from operating activities were $67.1 million and $45.0 million for the three months ended March 31, 2021 and 2020, respectively. The increase in operating cash flows in the 2021 period compared to the 2020 period was primarily due to the increase in net income after adjusting for non-cash items.

Cash used in investing activities was $274.7 million and $130.3 million for the three months ended March 31, 2021 and 2020, respectively. The increase in cash used in investing activities in the 2021 period compared to the 2020 period was primarily due to the increased volume of acquisitions in 2021 as compared to the same period in 2020 and a decrease in return of investment in unconsolidated joint ventures in 2021.

Cash provided by financing activities was $167.3 million and $88.8 million for the three months ended March 31, 2021 and 2020, respectively. The increase is primarily a result of the increase in sales of shares of common stock under the Company’s continuous equity offering program during the three months ended March 31, 2021 resulting in net proceeds of $180.5 million as compared to the net proceeds of $21.5 million during the three months ended March 31, 2020, partially offset by increased dividends paid and a decrease in net proceeds from the Company’s line of credit during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

29


Note 6 and Note 7 to the consolidated financial statements include details related to the Company’s unsecured line of credit, term notes, mortgages, and other indebtedness. Note 13 to the consolidated financial statements includes details of our shareholders’ equity and activity related thereto.

Our line of credit facility and term notes have an investment grade rating from Standard and Poor’s (BBB) and Moody’s (Baa2).

Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be funded with draws on our line of credit, issuance of common and preferred stock, the issuance of unsecured term notes, sale of properties, and private placement solicitation of joint venture equity. Should the capital markets deteriorate, we may have to curtail acquisitions, our expansion and enhancement program and share repurchases.

ACQUISITION AND DISPOSITION OF PROPERTIES

During the three months ended March 31, 2021, the Company acquired 16 self-storage facilities comprising 1.1 million square feet in Arizona (3), California (1), Florida (8), New York (1), South Carolina (1), and Washington (2) for a total purchase price of $266.2 million, which is net of the Company’s equity in the profit from the sale of the New York store purchased from an unconsolidated joint venture. The weighted average capitalization rate for these acquisitions was 3.0%. As discussed further in Note 5 and Note 10, the Company holds a 5% ownership interest in the joint venture from which one of the self-storage facilities was acquired. Additionally, three of these facilities were managed by the Company for third parties prior to acquisition.

In 2020, the Company acquired 40 self-storage facilities comprising 3.1 million square feet in California (8), Florida, (6), Georgia (1), Missouri (1), New Jersey (7), New York (1), Ohio (6), Pennsylvania (4), South Carolina (1), and Texas (5) for a total purchase price of $532.6 million. One of these acquired self-storage facilities resulted from the Company acquiring the remaining 15% of a joint venture. Additionally, one of these facilities was managed by the Company for a third party prior to acquisition. Based on the trailing financial information of the entities from which the self-storage facilities were acquired, the weighted average capitalization rate was 5.0% on these purchases and capitalization rates ranged from 0.2% on more recently constructed facilities to 6.4% on mature facilities.

We may acquire additional stabilized or newly constructed properties in 2021, however, there is no assurance that the Company will do so. Additionally, there can be no assurance that if significant additional opportunities were to arise, we would be able to raise capital at a reasonable cost to allow us to take advantage of such opportunities. At March 31, 2021, the Company was under contract to acquire six self-storage facilities for an aggregate purchase price of $106.5 million. The Company acquired one of these facilities subsequent to March 31, 2021 for $16.5 million. Additionally, subsequent to March 31, 2021, the Company entered into contracts to acquire 11 self-storage facilities for an aggregate purchase price of $159.2 million. The purchases of the facilities are subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.

The Company did not sell or otherwise dispose of any properties during the three months ended March 31, 2021 or during fiscal year 2020.

As part of our ongoing strategy to improve overall operating efficiencies and portfolio quality, we may seek to sell self-storage facilities to third-parties or joint venture partners in 2021.

FUTURE ACQUISITION AND DEVELOPMENT PLANS

Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand into new markets by acquiring several facilities at once in those new markets. We are actively pursuing acquisitions in 2021, including potential acquisitions by unconsolidated joint ventures.

We plan to complete a total of $30 million to $40 million of expansions and enhancements to our existing facilities in 2021, of which $18.4 million was paid as of March 31, 2021.

We also expect to continue investing in capital expenditures on our properties. This includes roofing, paving, and remodeling of store offices. For the three months ended March 31, 2021, we invested approximately $4.3 million in such improvements and we expect to invest approximately $16 million to $21 million for the remainder of 2021.

REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS

As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that we satisfy certain requirements, including distributing at least 90% of our REIT taxable income for a taxable year. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if they are

30


paid not later than the date of the first regular dividend of the following year. As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends.

Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.

UMBRELLA PARTNERSHIP REIT

We are formed as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) and, as such, have the ability to issue Operating Partnership Units in exchange for properties sold by independent owners. By utilizing such Units as currency in facility acquisitions, we may obtain more favorable pricing or terms due to the seller’s ability to partially defer their income tax liability. As of March 31, 2021, 333,399 Units are outstanding. These Units had been issued in exchange for self-storage properties at the request of the sellers.

INTEREST RATE RISK

The primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including government monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control.

Based on our outstanding unsecured floating rate debt of $43.0 million at March 31, 2021, a 100 basis point increase in interest rates would have a $0.4 million effect on our annual interest expense. This amount was determined by considering the impact of the hypothetical interest rates on our borrowing cost on March 31, 2021. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.

INFLATION

We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at our facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates in a timely manner in response to any potential future inflationary pressures.

SEASONALITY

Our revenues typically have been higher in the third and fourth quarters, primarily because self-storage facilities tend to experience greater occupancy during the late spring, summer and early fall months due to the greater incidences of residential moves and college student activity during these periods. However, we believe that our customer mix, diverse geographic locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to materially affect distributions to shareholders.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 15 to the financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The information required is incorporated by reference to the information appearing under the caption “Interest Rate Risk” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.

31


Item 4.

Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Parent Company

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, has been conducted under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at March 31, 2021. There have not been changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter ended March 31, 2021.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Operating Partnership

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, has been conducted under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at March 31, 2021. There have not been changes in the Operating Partnership’s internal controls or in other factors that could significantly affect these controls during the quarter ended March 31, 2021.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Operating Partnership’s internal control over financial reporting (as defined in 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934) that occurred during the Operating Partnership’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

 

32


 

PART II.

Other Information

Item 1.

Legal Proceedings

Although we are party to various legal proceedings, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.

Item  1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”), which could materially affect our business, financial condition or future results. The risks described in our 2020 Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s common stock. We have not made any repurchases under such program since 2017, and up to approximately $191.8 million of the Company’s common stock may yet be purchased under such program. The program does not have an expiration date but may be suspended or discontinued at any time.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

Not Applicable

 

 

Item 5.

Other Information

None

33


Item 6.

Exhibits

 

31.1

 

Certification of Chief Executive Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 

 

 

31.2

 

Certification of Chief Financial Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 

 

 

31.3

 

Certification of Chief Executive Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 

 

 

31.4

 

Certification of Chief Financial Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer of Life Storage, Inc. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer of Life Storage LP Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following financial statements from the Parent Company’s and the Operating Partnership’s Quarterly Report on Form    10-Q for the quarter ended March 31, 2021, formatted in inline XBRL, as follows:

 

 

 

 

 

(i) Consolidated Balance Sheets at March 31, 2021 and December 31, 2020;

 

 

 

 

 

(ii) Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020;

 

 

 

 

 

(iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020;

 

 

 

 

 

(iv) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020; and

 

 

 

 

 

(v) Notes to Consolidated Financial Statements.

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

 

34


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Life Storage, Inc.

 

 

 

 

 

By:

 

/S/ Andrew J. Gregoire

 

 

 

Andrew J. Gregoire

 

 

 

Chief Financial Officer

 

 

 

(Principal Accounting Officer)

 

May 5, 2021

Date

 

 

Life Storage LP

 

 

 

 

 

By:

 

/S/ Andrew J. Gregoire

 

 

 

Andrew J. Gregoire

 

 

 

Chief Financial Officer

 

 

 

(Principal Accounting Officer)

 

May 5, 2021

Date

35