Life Storage (NYSE: LSI) is a real estate investment trust, or REIT, that owns, operates, and manages self-storage properties. The company operates more than 900 facilities throughout the United States and Canada and has grown its business rapidly in recent years.
Life Storage company profile
If you haven't heard of Life Storage, you may have heard of either Sovran Self Storage or Uncle Bob's Self Storage, which were the company's names before its 2016 rebranding.
Life Storage operates over 900 self-storage properties with a total of more than 65 million rentable square feet. While its properties are located throughout the U.S. and Canada, much of the portfolio is concentrated along the East Coast and Gulf Coast areas of the United States. The company concentrates on markets with above-average household incomes and high or growing population density, as well as markets where it's not terribly practical to add large storage spaces (like basements) to homes. All this explains why Texas and Florida are two major focuses of its portfolio, just to name a few examples.
While Life Storage operates 901 facilities, it doesn't own all of them -- 563 of them, or about 62% of the total, are owned exclusively by Life Storage, while another 122 (14%) are owned as joint ventures.
The rest of the portfolio's properties -- 216 as of September 2020 -- are operated under third-party management contracts. In other words, other companies or investors own these properties; Life Storage simply leverages its brand name and management capabilities in exchange for a fee.
It's also worth mentioning where Life Storage fits into the self-storage market. By far, the industry leader is Public Storage (NYSE: PSA), which is larger than its three closest competitors combined. However, even that behemoth has less than a 7% share of the market, and only 18% of all self-storage facilities in the United States are REIT-owned. The majority are owned by small companies or independent operators, which leaves tons of room for Life Storage to expand its reach, both in terms of acquisitions and growing its management business.
Life Storage grows its business in a few different ways:
- The company acquires existing self-storage facilities. Generally, Life Storage isn't involved in ground-up development of new properties, although it does acquire recently built properties in the early stages of lease-up.
- Life Storage expands and improves its most successful storage facilities to boost rental income.
- The company acquires properties jointly with other investors, which is a capital-light way of expanding its portfolio as compared with acquiring a property in its entirety.
- Finally, Life Storage manages self-storage facilities it doesn't own on a third-party basis. Think of this in the context of a property manager who manages an apartment complex. The manager doesn't actually own the apartment building but uses its marketing resources, industry expertise, and brand to do a better job of management than the owner could. The same idea can be applied to other types of commercial real estate, including self-storage.
The management side of the business is arguably the most exciting growth opportunity, especially as the Life Storage brand continues to grow in value. Essentially, Life Storage leverages its brand value, efficiency, and industry knowledge to add value to properties owned by other companies.
And the economics of the third-party management business are fantastic -- adding a property to its management business has no upfront capital requirement (unlike buying a facility) and creates a predictable, recurring revenue stream.
Life Storage news
Since the time it rebranded as Life Storage in 2016, the company's growth has been impressive. Since 2015, Life Storage's property count has grown by 66%, and same-store revenue is 17% higher than it was then, indicating the company has not only done a good job of expanding itself also but adding value to its existing properties.
The management side of the business has been particularly impressive in terms of growth, which isn't too surprising since it's an area Life Storage has focused on in recent years. Since 2015, the number of properties managed but not owned by Life Storage has grown from 21 to more than 10 times that amount.
In addition to management, another major focus of Life Storage in recent years has been technology. The company's Rent Now platform allows self-storage customers to rent and occupy a storage unit entirely through the app -- which not only is a good fit for the socially-distanced world of 2020, but adds efficiency and cost savings to the rental process going forward.
Speaking of 2020, it's important to mention that while self-storage isn't 100% recession proof, it does tend to hold up well during tough economies. Most people who rent storage space do so because they need it, so they keep renting their units (and paying rent on time) even during recessions. In fact, during the second quarter of 2020 -- the worst of the COVID-19 pandemic business-wise -- Life Storage collected 99% of its expected rental income, and its properties' occupancy rate barely budged.
Even in a severe recession, there's quite a bit of safety in the economics of the self-storage business. The facilities themselves are relatively low maintenance compared with most other types of commercial properties, there are lower tenant turnover costs, and self-storage properties don't require a ton of staff.
To be fair, the news hasn't been all positive for the self-storage space in recent years. There have been significant oversupply problems in the industry, including in some of Life Storage's biggest markets, which has hurt pricing power and overall occupancy. (You'll notice in the next section that Life Storage's stock price hit a peak in 2016 before retreating -- oversupply worries were a big reason why.)
Life Storage stock price and performance
As mentioned, Life Storage's business has grown rapidly in recent years, so let's take a look at what this has meant for investors.
Over the 10-year period ending in September 2020, Life Storage has delivered a total return (stock price growth plus dividends) of nearly 300% for its investors. This translates to an annualized return of about 14.9%, handily beating the S&P 500's annualized total return of 13.3% during the same period.