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In December, I named LSI the perfect guess in Storage REITs. In January, I recognized Storage REITs as one of many 7 REIT sectors almost certainly to outperform in 2022. And in February, I named LSI as one of many high 12 REITs for the following 12 months. In April, Steven Cress named Life Storage, Inc. (NYSE:LSI) one of many three greatest REITs to purchase to battle inflation.
Reveals what we all know. There are nonetheless a number of months to go on my predictions, however a minimum of thus far, it isn’t wanting good for me, or for Mr. Cress.
YTD (year-to-date) LSI is underperforming the Vanguard Actual Property ETF (VNQ) by 827 foundation factors (bps). Oof!
What is going on on? Is the corporate in some type of bother?
Meet the corporate
Life Storage Inc.
LSI opened its first self-storage facility in 1985, and is headquartered in Williamsville, NY. The corporate now operates 1,105 shops in 36 states, and sports activities a 93.7% same-store occupancy charge, up from 92.4% in Q3 2020. The corporate owns 727 of these amenities outright, with a stake in one other 121 by joint ventures. LSI additionally manages an additional 261 for third events.
Geographic Distribution of LSI Property (LSI investor presentation Might 2022)
LSI is nicely diversified geographically, with solely 8.7% of its revenues coming from the New York space, and its high 10 markets accounting for lower than half its income.
Geographic breakdown of LSI revenues (Firm investor presentation for Might 2022 Is it in bother?)
This additionally displays the corporate’s emphasis on each major and secondary markets of their acquisition technique. The work-from-home pattern has created a web migration out of huge cities and into smaller cities and the Solar Belt. LSI’s robust presence in secondary markets will play of their favor. LSI has a bigger proportion of its belongings within the Solar Belt and in non-major markets than any storage REIT besides Nationwide Storage Associates (NSA).
Hoya Capital
The corporate is seeing robust inhabitants development of 10% or extra throughout 53 of its markets, together with 8 of its high 10. Folks have a tendency to decide on the storage facility closest to their house.
Inhabitants development in LSI markets (Firm investor presentation for Might 2022)
However what actually units this firm aside is 2 issues they’ve pioneered:
- On-line, touchless self-service leases (about 35% of all leases presently)
- Storage for e-commerce (their “Warehouse Anyplace” program)
LSI doesn’t construct new amenities. They develop by acquisitions, and by enlargement and enhancement of their present buildings. Their tempo of acquisitions has been quickly accelerating for 3 years, and is off to a superb begin this yr, with $445 million invested by April. Which brings us to quarterly outcomes.
Life Storage Inc. tempo of acquisitions (Firm investor presentation for Might 2022)
Quarterly outcomes are in
Life Storage reported quarterly outcomes Might 5. Listed here are the highlights:
- Complete revenues of $233.5 million, up 35.8% YoY (yr over yr)
- Earnings from operations of $97.5 million, up 47.9% YoY
- Earnings per share of $0.88, up 39.7% YoY
- FFO (funds from operations) per share of $1.44, a 33.3% enhance YoY
- Similar retailer income up by 15.6% YoY
- Similar retailer NOI (web working earnings) up by 21.9% YoY
- Web money from operations of $105.3 million, up 57.0% YoY
- Ancillary earnings (reinsurance, charges, and so on.) $28 million, up 29.5% YoY
- Acquired 18 shops for $351.5 million (a $1.4 billion annual tempo)
- Added 25 shops to the Firm’s third-party administration platform.
These are sensational numbers. I do not suppose CEO Joe Saffire was exaggerating when he stated this on the Q1 earnings name:
We’re off to a really robust begin for the yr as we proceed to display robust pricing energy in our footprint and sturdy acquisition exercise. . . With a robust pipeline forward, wholesome shopper demand tendencies, and our skill to proceed to operationally execute on our strategic initiatives, we’re nicely positioned to proceed to develop shareholder worth by 2022 and past.
Progress metrics
Listed here are the 3-year development figures for FFO (funds from operations), TCFO (whole money from operations), and market cap.
| Metric | 2017 | 2018 | 2019 | 2020 | 2021 | CAGR |
| FFO (tens of millions) | $229 | $256 | $266 | $277 | $400 | — |
| FFO Progress | — | 11.8% | 3.9% | 4.1% | 44.4% | 14.96% |
| TCO (tens of millions) | $249 | $262 | $279 | $299 | $434 | — |
| TCO Progress | — | 5.2% | 6.5% | 7.2% | 45.2% | 14.90% |
| Market Cap (billions) | $4.14 | $4.33 | $5.05 | $5.90 | $12.56 | — |
| Market Cap Progress % | — | 4.6% | 16.6% | 16.8% | 112.9% | 31.98% |
Supply: TD Ameritrade, CompaniesMarketCap.com, and creator calculations
These are glowing, FROG-worthy development numbers, and this resourceful and modern firm saved rising proper by the pandemic.
In the meantime, right here is how the inventory value has achieved over the previous 3 twelve-month durations.
| Metric | 2018 | 2019 | 2020 | 2021 | 3-yr CAGR |
| LSI share value Might 19 | $59.83 | $63.69 | $58.85 | $96.98 | — |
| LSI share value Acquire % | — | 6.5% | (-7.6) | 64.8 | 12.83% |
| VNQ share value Might 19 | $75.84 | $87.86 | $71.89 | $94.23 | — |
| VNQ share value Acquire % | — | 15.8% | (-18.2) | 31.1 | 5.58% |
Supply: MarketWatch.com and creator calculations
LSI has outperformed VNQ in every of the previous two years, and over the trailing 3-year interval, has doubled VNQ in share value Acquire. Buyers who bought shares on Might 19, 2019 have been rewarded with value Acquire of 12.83% per yr on common, and a complete return north of 16%.
Stability sheet metrics
Life Storage Inc.’s bond-rated stability sheet has robust liquidity and no critical weaknesses. This firm is a bona fide FROG.
| Firm | Liquidity Ratio | Debt Ratio | Debt/EBITDA | Bond Ranking |
| LSI | 2.06 | 18% | 5.4 | BBB/Baa2 |
Supply: Hoya Capital Earnings Builder, TD Ameritrade, and creator calculations
As of Q1 2022, LSI was holding about triple the money ($55 million) they have been holding in Q1 2021 ($18 million), and have $365 million out there on their $500 million line of credit score. The weighted common rate of interest on LSI’s $2.785 billion debt is 3.2%, with a 6.3 yr weighted common maturity, and 95% of their fairness is unencumbered.
Dividend metrics
LSI is a robust payer, with an above-average present Yield and very good dividend development charge, leading to a juicy 5.49% Dividend Rating. Dividend Rating initiatives the Yield three years from now, on shares purchased in the present day, assuming the Dividend Progress charge stays unchanged.
| Firm | Div. Yield | Div. Progress | Div. Rating | Payout Ratio | Div. Security |
| LSI | 3.66% | 14.5% | 5.49 | 65% | B+ |
Supply: Hoya Capital Earnings Builder, TD Ameritrade, Searching for Alpha Premium
The payout ratio of 65% is somewhat excessive, however nowhere close to sufficient to hazard the quarterly payout. In truth, the dividend is somewhat too protected, at B+. The corporate retains more cash for acquisitions than most, however buyers have had little or nothing to complain about within the dividend division. LSI has raised its dividend 35% within the final 12 months alone.
Valuation metrics
Progress like this firm has achieved often comes at a premium value, however this firm is on sale at simply 18.0x FFO, and a reduction of (-15.9)% to NAV.
| Firm | Div. Rating | Value/FFO | Premium to NAV |
| LSI | 5.49% | 18.0 | (-15.9)% |
Supply: Hoya Capital Earnings Builder, TD Ameritrade, and creator calculations
The YTD sell-off in LSI shares seems to have little or nothing to do with the corporate itself, and rather more to do with the large rotation from development to worth. This firm seems to be bristling with good well being.
What might go incorrect?
LSI runs the identical dangers as every other firm that depends on acquisitions for exterior development, as these acquisitions do not all the time prosper as anticipated. Modifications in rates of interest could have an effect on their skill to amass or finance new properties or redevelop present websites, or could suppress cap charges.
The REIT storage sector may be very aggressive, with a number of robust gamers, together with Nationwide Storage Associates, particularly within the prized Solar Belt markets. Elevated competitors for offers might additionally drive down cap charges on new acquisitions.
Self-storage items are comparatively simple to construct, and business oversupply might depress rental development. Thus far, nevertheless, provide doesn’t look like catching up.
Increased rates of interest might increase LSI’s value of debt funding (presently 3.2%).
Investor’s backside line
Glowing development, a robust stability sheet, very good dividends, and a discount value. What’s to not like? The REIT market general could proceed to unload within the quick time period, however as I see it, the upside potential is way better than the draw back threat, at this level within the drawdown. The sell-off in LSI shares appears to have little to do with the corporate itself, and thus has created a pretty entry level. I charge this firm a Sturdy Purchase, and I’m rising my very own place.
Searching for Alpha Premium
For as soon as, I’m not alone. The Searching for Alpha Quant Rankings charge LSI a Purchase, as do the Wall Road Analysts, with a median value goal of $153.33, implying 39.6% upside. Brief-term dealer Zacks concurs, and so does The Road.
TipRanks and Ford Fairness Analysis are much less enthusiastic, ranking the corporate a Maintain.
