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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 September 30, 2022

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 October 28, 2022, 84,997,556 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 September 30, 2022 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 98.0% ownership interest therein as of September 30, 2022, assuming the conversion of all preferred operating partnership units at that date. 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)

 

September 30,
2022
(unaudited)

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Investment in storage facilities:

 

 

 

 

 

 

Land

 

$

1,293,597

 

 

$

1,185,976

 

Building, equipment, and construction in progress

 

 

6,708,246

 

 

 

5,904,481

 

 

 

 

8,001,843

 

 

 

7,090,457

 

Less: accumulated depreciation

 

 

(1,128,083

)

 

 

(1,007,650

)

Investment in storage facilities, net

 

 

6,873,760

 

 

 

6,082,807

 

Cash and cash equivalents

 

 

22,498

 

 

 

171,865

 

Accounts receivable

 

 

22,829

 

 

 

17,784

 

Receivable from unconsolidated joint ventures

 

 

1,087

 

 

 

333

 

Investment in unconsolidated joint ventures

 

 

254,728

 

 

 

213,003

 

Prepaid expenses

 

 

13,042

 

 

 

9,918

 

Trade name

 

 

16,500

 

 

 

16,500

 

Other assets

 

 

43,957

 

 

 

44,387

 

Total Assets

 

$

7,248,401

 

 

$

6,556,597

 

Liabilities

 

 

 

 

 

 

Line of credit

 

$

456,000

 

 

$

 

Term notes, net

 

 

2,750,683

 

 

 

2,747,838

 

Accounts payable and accrued liabilities

 

 

153,575

 

 

 

131,778

 

Deferred revenue

 

 

33,646

 

 

 

27,277

 

Mortgages payable

 

 

36,454

 

 

 

37,030

 

Total Liabilities

 

 

3,430,358

 

 

 

2,943,923

 

Noncontrolling redeemable Preferred Operating Partnership Units at redemption value

 

 

89,077

 

 

 

90,783

 

Noncontrolling redeemable Common Operating Partnership Units at redemption value

 

 

116,190

 

 

 

142,892

 

Shareholders’ Equity

 

 

 

 

 

 

Common stock $.01 par value, 200,000,000 shares authorized, 84,995,100
   shares outstanding at September 30, 2022 (
83,565,710 at December 31, 2021)

 

 

850

 

 

 

836

 

Additional paid-in capital

 

 

3,883,047

 

 

 

3,697,000

 

Dividends in excess of net income

 

 

(272,608

)

 

 

(314,713

)

Accumulated other comprehensive loss

 

 

(3,437

)

 

 

(4,124

)

Total Shareholders’ Equity

 

 

3,607,852

 

 

 

3,378,999

 

Noncontrolling interest in consolidated subsidiary

 

 

4,924

 

 

 

 

Total Equity

 

 

3,612,776

 

 

 

3,378,999

 

Total Liabilities and Equity

 

$

7,248,401

 

 

$

6,556,597

 

 

See notes to consolidated financial statements.

4


 

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(dollars in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

241,261

 

 

$

182,937

 

 

$

674,008

 

 

$

496,316

 

Tenant reinsurance

 

 

19,042

 

 

 

15,485

 

 

 

54,567

 

 

 

41,810

 

Other operating income

 

 

12,651

 

 

 

9,834

 

 

 

34,914

 

 

 

29,280

 

Total operating revenues

 

 

272,954

 

 

 

208,256

 

 

 

763,489

 

 

 

567,406

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Property operations and maintenance

 

 

47,906

 

 

 

36,410

 

 

 

132,733

 

 

 

103,519

 

Tenant reinsurance

 

 

9,033

 

 

 

6,228

 

 

 

22,361

 

 

 

16,434

 

Real estate taxes

 

 

25,702

 

 

 

21,397

 

 

 

75,581

 

 

 

61,794

 

General and administrative

 

 

18,493

 

 

 

16,141

 

 

 

52,995

 

 

 

45,407

 

Depreciation and amortization

 

 

48,711

 

 

 

37,158

 

 

 

143,187

 

 

 

106,287

 

Total operating expenses

 

 

149,845

 

 

 

117,334

 

 

 

426,857

 

 

 

333,441

 

Gain on sale of non-real estate assets

 

 

2,841

 

 

 

 

 

 

4,806

 

 

 

 

Income from operations

 

 

125,950

 

 

 

90,922

 

 

 

341,438

 

 

 

233,965

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(28,010

)

 

 

(21,350

)

 

 

(77,755

)

 

 

(62,470

)

Interest and dividend income

 

 

5

 

 

 

2

 

 

 

24

 

 

 

787

 

Equity in income of joint ventures

 

 

2,799

 

 

 

1,477

 

 

 

6,832

 

 

 

4,126

 

Net income

 

 

100,744

 

 

 

71,051

 

 

 

270,539

 

 

 

176,408

 

Net income attributable to noncontrolling preferred
   interests in the Operating Partnership

 

 

(999

)

 

 

(476

)

 

 

(3,002

)

 

 

(476

)

Net income attributable to noncontrolling common
   interests in the Operating Partnership

 

 

(1,231

)

 

 

(301

)

 

 

(3,184

)

 

 

(760

)

Net income attributable to noncontrolling
   interests in consolidated subsidiary

 

 

(9

)

 

 

 

 

 

(9

)

 

 

 

Net income attributable to common shareholders

 

$

98,505

 

 

$

70,274

 

 

$

264,344

 

 

$

175,172

 

Earnings per common share attributable
   to common shareholders – basic

 

$

1.16

 

 

$

0.89

 

 

$

3.14

 

 

$

2.27

 

Earnings per common share attributable
   to common shareholders – diluted

 

$

1.16

 

 

$

0.89

 

 

$

3.14

 

 

$

2.27

 

Common shares used in basic earnings per share
   calculation

 

 

84,472,979

 

 

 

78,961,434

 

 

 

84,129,261

 

 

 

77,135,429

 

Common shares used in diluted earnings per share
   calculation

 

 

85,396,539

 

 

 

79,179,816

 

 

 

84,554,165

 

 

 

77,303,339

 

Dividends declared per common share

 

$

1.08

 

 

$

0.74

 

 

$

3.08

 

 

$

2.22

 

 

See notes to consolidated financial statements.

5


 

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

100,744

 

 

$

71,051

 

 

$

270,539

 

 

$

176,408

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Effective portion of gain on derivatives net
   of reclassification to interest expense

 

 

229

 

 

 

229

 

 

 

687

 

 

 

687

 

Total comprehensive income

 

 

100,973

 

 

 

71,280

 

 

 

271,226

 

 

 

177,095

 

Comprehensive income attributable to noncontrolling
   interests in the Operating Partnership

 

 

(2,242

)

 

 

(778

)

 

 

(6,203

)

 

 

(1,239

)

Comprehensive income attributable to common shareholders

 

$

98,731

 

 

$

70,502

 

 

$

265,023

 

 

$

175,856

 

 

See notes to consolidated financial statements.

6


 

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(dollars in thousands)

 

Nine Months
Ended
September 30, 2022

 

 

Nine Months
Ended
September 30, 2021

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

270,539

 

 

$

176,408

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

143,187

 

 

 

106,287

 

Amortization of debt issuance costs and bond discount

 

 

4,187

 

 

 

3,185

 

Equity in income of joint ventures

 

 

(6,832

)

 

 

(4,126

)

Distributions from unconsolidated joint ventures

 

 

12,710

 

 

 

10,359

 

Non-vested stock earned

 

 

5,226

 

 

 

4,603

 

Deferred income taxes

 

 

18

 

 

 

(43

)

Other

 

 

(4,999

)

 

 

(236

)

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

 

 

 

 

 

 

Accounts receivable

 

 

(5,007

)

 

 

(271

)

Prepaid expenses

 

 

(3,272

)

 

 

(3,562

)

(Advances to) receipts from joint ventures

 

 

(753

)

 

 

475

 

Accounts payable and other liabilities

 

 

22,488

 

 

 

10,402

 

Deferred revenue

 

 

3,906

 

 

 

4,614

 

Net cash provided by operating activities

 

 

441,398

 

 

 

308,095

 

Investing Activities

 

 

 

 

 

 

Acquisition of storage facilities, net of cash acquired

 

 

(811,622

)

 

 

(773,859

)

Improvements, equipment additions, and construction in progress

 

 

(66,013

)

 

 

(54,310

)

Proceeds from sale of non-real estate assets

 

 

6,250

 

 

 

 

Return of investment in unconsolidated joint ventures

 

 

 

 

 

36,911

 

Investment in unconsolidated joint ventures

 

 

(77,755

)

 

 

(57,397

)

Property deposits

 

 

(2,220

)

 

 

(11,914

)

Net cash used in investing activities

 

 

(951,360

)

 

 

(860,569

)

Financing Activities

 

 

 

 

 

 

Net proceeds from sale of common stock

 

 

181,028

 

 

 

807,185

 

Proceeds from line of credit

 

 

1,017,000

 

 

 

459,000

 

Repayments of line of credit

 

 

(561,000

)

 

 

(459,000

)

Debt issuance costs

 

 

(5,994

)

 

 

(88

)

Dividends paid - common stock

 

 

(259,135

)

 

 

(170,666

)

Distributions to noncontrolling interest holders

 

 

(6,065

)

 

 

(740

)

Redemption of operating partnership units

 

 

(3,823

)

 

 

(256

)

Mortgage principal payments

 

 

(383

)

 

 

(364

)

Net cash provided by financing activities

 

 

361,628

 

 

 

635,071

 

Net (decrease) increase in cash and restricted cash

 

 

(148,334

)

 

 

82,597

 

Cash and restricted cash at beginning of period

 

 

176,434

 

 

 

58,771

 

Cash and restricted cash at end of period

 

$

28,100

 

 

$

141,368

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

66,173

 

 

$

56,359

 

Cash paid for income taxes, net of refunds

 

$

2,526

 

 

$

940

 

 

See notes to consolidated financial statements.

7


 

LIFE STORAGE LP

CONSOLIDATED BALANCE SHEETS

 

(dollars in thousands)

 

September 30,
2022
(unaudited)

 

 

December 31,
2021

 

Assets