Life Storage has a dual-focused growth strategy: Expand both geographically and in regard to third-party management platforms. The REIT has steadily grown its footprint over the years by adding new markets. For example, it expanded to the West Coast in 2016 and entered the Seattle, Baltimore, and greater Toronto markets last year. With those new additions, the self-storage REIT now has a presence in 18 of the top 25 fastest-growing markets in the U.S. and one of the best in Canada.
The REIT will likely continue expanding geographically over the next three years. It could enter more of the top 25 U.S. growth markets, those right outside that group, and additional international markets, either in Canada or elsewhere. The company will also likely grow its presence in currently underserved markets. For example, earlier this year it expanded its presence in California by acquiring full control of six facilities from a joint venture partner for $115.9 million.
Life Storage also seems poised to continue the rapid expansion of its third-party management platform. It has already added 26 third-party properties to its portfolio this year as it leverages its brand strength to increase market share, scale, and revenue for a much lower investment rate than a wholly-owned acquisition. Meanwhile, these deals enhance its acquisition pipeline as it can eventually buy out its joint venture partners (as it did earlier this year in California) or acquire managed properties in whole or in part (by forming a joint venture).
One growth strategy Life Storage doesn't currently utilize is the development of new properties. That's partly because competitors have added so much new supply in recent years that there's too much capacity. However, while new supply growth is slowing, it still doesn't seem likely that Life Storage will start developing properties in the coming years. Instead of taking on the development risk, the company will likely continue to occasionally acquire newly built locations and leverage its brand power to lease them up. It applied this strategy earlier this year by forming a joint venture to buy a 20% interest in a facility that just opened in Seattle.