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Guidance Suspended For Florida Property Insurers – Rating Revisions Expected In March

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The Company now manages a total of 131 properties through its joint venture and third party management agreements.

At June 30, 2017, the Company was in contract to acquire three stores on behalf of one of its joint ventures for an aggregate purchase price of $39.0 million, of which the Company is committed to contribute a total of up to $7.8 million. These pending acquisitions are subject to further due diligence and closing conditions; therefore no assurance can be given that these properties will be purchased according to the terms described.

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During the quarter, the Company entered into an agreement to lease one property in Austin, TX with an option to purchase the asset in 2020 at a price of $14.1 million. The property was leased at certificate of occupancy and contains approximately 60,000 net rentable square feet.

The Company remains in contract on a certificate of occupancy store anticipated to close in late 2017. The property is located in Charlotte, NC and the purchase price is $12.4 million.

BALANCE SHEET AND CAPITAL MARKETS:

Illustrated below are key financial ratios at June 30, 2017:

 
     

-

   

Debt to Enterprise Value (at $74.10/share)

                             

33.5%

-

Debt to Book Cost of Storage Facilities

40.7%

-

Debt to Recurring Annualized EBITDA

5.6x

-

Debt Service Coverage

5.2x

 

At June 30, 2017, the Company had approximately $8.0 million of cash on hand, and $169 million available on its line of credit.

In April 2017, the Company issued approximately 66,352 shares at a price of $83.78 through its Dividend Reinvestment Plan.

The Company also announces that the Dividend Reinvestment Plan dated March 18, 2013, will be suspended temporarily for all investments after September 30, 2017, and until further notice.

SHARE REPURCHASE PROGRAM:

The Company's Board of Directors authorized the repurchase of up to $200 million of the Company's outstanding common shares. The extent to which the Company repurchases its shares, and the timing of any such purchases, will depend on a variety of factors including general business and market conditions and other corporate considerations. The Repurchase Program has no time limit and may be discontinued at any time. Repurchases may be made through open market, privately-negotiated, or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

COMMON STOCK DIVIDEND:

Subsequent to quarter-end, the Company’s Board of Directors approved a quarterly dividend of $1.00 per share or $4.00 annualized.

YEAR 2017 EARNINGS GUIDANCE:

Pressure from new supply and the transition to the Life Storage brand resulted in higher than anticipated incentives and increased internet marketing expense. Although occupancy at June 30, 2017 improved over the prior year, the Company now expects that the increased internet marketing and the use of incentives will continue longer than originally anticipated. Accordingly, guidance for the full year same store revenue and NOI has been updated.

The following assumptions covering operations have been utilized in formulating revised guidance for the third quarter and full year 2017:

               
Same Store

Projected Results Over 2016

3Q 2017

     

FY 2017

Revenue 0.00 – 1.00% 1.00 – 2.00%
Operating Costs (excluding property taxes) 7.00 – 8.00% 5.00 – 6.00%
Property Taxes

7.00 – 8.00%

6.50 – 7.50%

Total Operating Expenses 7.00 – 8.00% 5.00 – 6.00%
Net Operating Income (3.00) – (2.00)% (1.00) – 0.00%
 

The Company has seen improvement in other facets of its business that it expects will be accretive to FFO growth in 2017, including:

  • An increase in fees earned from 3rd party management contracts. The Company has negotiated 37 such contracts since the beginning of the year, and has developed a significant queue of prospects.
  • Contributions from recently formed joint ventures and the addition of mature properties to the Company’s portfolio in markets in which it currently operates.
  • Strong lease-up and NOI improvement at the 11 yet to be stabilized stores that were a part of the Life Storage acquisition.
  • Plans to complete $30 to $40 million of expansions in 2017 with expected yields in excess of 8% at stabilization.
  • Increased occupancy which should lead to revenue growth as incentives for existing customers expire.

As of June 30, 2017, the Company operated 12 self storage facilities that it acquired between 2014 and 2017 upon issuance of certificate of occupancy or in the early stages of lease-up, and one certificate of occupancy property that is leased. Further, it is expected to acquire one more such certificate of occupancy facility in 2017. Although there is strong lease-up and NOI improvement at these certificate of occupancy facilities, they have insufficient rental revenue to cover operating costs; accordingly, for the first 24 to 36 months of operation, ownership of these facilities is dilutive to earnings and FFO per share. The Company expects that during the second half of 2017, it will incur such dilution to the extent of $0.01 to $0.03 per share due to the aforementioned acquisitions.

Outside of the one certificate of occupancy facility located in Charlotte, NC, the Company does not expect to acquire any additional properties in 2017.

As a result of the above assumptions, management expects adjusted funds from operations for the full year 2017 to be approximately $5.25 to $5.30 per share, and between $1.33 and $1.38 per share for the third quarter of 2017.

          Reconciliation of Guidance       3Q 2017       FY 2017

Range or Value

Range or Value

Earnings per share attributable to common shareholders - diluted

$ 0.79 – $ 0.84

$ 2.45 – $ 2.50

Plus: real estate depreciation and amortization

0.54 – 0.54

2.72 – 2.72

FFO Per Share 1.33 – 1.38 5.17 – 5.22
Plus: Legal Settlement 0.00 – 0.00 0.11 – 0.11
Less: Acquisition Fee

0.00 – 0.00

(0.03) – (0.03)

Adjusted FFO per share $ 1.33 - $ 1.38 $ 5.25 – $ 5.30
 

FORWARD LOOKING STATEMENTS:

When used within this news release, 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 the 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 could cause rents and occupancy rates to decline; the Company’s ability to evaluate, finance and integrate acquired businesses into the Company’s existing business and operations; the Company’s ability to enter new markets where it has little or no operational experience; 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; the future ratings on the Company’s debt instruments; the regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s ability to effectively compete in the industries in which it does business; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of principal, interest and dividends; and tax law changes which may change the taxability of future income.

CONFERENCE CALL:

Life Storage will hold its Second Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Thursday, August 3, 2017. To help avoid connection delays, participants are encouraged to pre-register using this link. Anyone unable to pre-register may access the conference call at 877.737.7051 (domestic) or 201.689.8878 (international). Management will accept questions from registered financial analysts after prepared remarks; all others are encouraged to listen to the call via webcast by accessing the investor relations tab at lifestorage.com/.

The webcast will be archived for 90 days; a telephone replay will also be available for 72 hours by calling 877.481.4010 and entering conference ID 16033.

ABOUT LIFE STORAGE, INC:

Life Storage, Inc. is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self storage facilities. The Company is a leading national self storage owner and operator of approximately 700 facilities in 29 states. For more information, visit http://invest.lifestorage.com/.

     

Life Storage, Inc.

Balance Sheet Data

 

June 30,

2017

December 31,

(dollars in thousands)

 

(unaudited)

 

2016

Assets

Investment in storage facilities:
Land $ 786,539 $ 786,764
Building, equipment and construction in progress   3,503,193     3,456,544  
4,289,732 4,243,308
Less: accumulated depreciation   (578,388 )   (535,704 )
Investment in storage facilities, net 3,711,344 3,707,604
Cash and cash equivalents 7,998 23,685
Accounts receivable 6,189 5,469
Receivable from joint venture 1,022 1,223
Investment in joint venture 132,524 67,300
Prepaid expenses 8,694 6,649
Intangible asset - in-place customer leases (net of accumulated
amortization of $75,479 in 2017 and $50,782 in 2016) 133 24,830
Trade name 16,500 16,500
Other assets   6,267     4,724  
Total Assets $ 3,890,671   $ 3,857,984  
 

Liabilities

Line of credit $ 331,000 $ 253,000
Term notes, net 1,388,380 1,387,525
Accounts payable and accrued liabilities 66,134 75,132
Deferred revenue 10,020 9,700
Fair value of interest rate swap agreements 11,526 13,015
Mortgages payable   12,852     13,027  
Total Liabilities 1,819,912 1,751,399
 
Noncontrolling redeemable Operating Partnership Units at redemption value 16,459 18,091
 

Equity

Common stock 466 464
Additional paid-in capital 2,361,579 2,348,567
Accumulated deficit (288,129 ) (239,062 )
Accumulated other comprehensive loss   (19,616 )   (21,475 )
Total Shareholders' Equity   2,054,300     2,088,494  
Total Liabilities and Shareholders' Equity $ 3,890,671   $ 3,857,984  
       

Life Storage, Inc.

Consolidated Statements of Operations

(unaudited)

April 1, 2017 April 1, 2016 January 1, 2017 January 1, 2016
to to to to
(dollars in thousands, except share data) June 30, 2017   June 30, 2016 June 30, 2017   June 30, 2016
 

Revenues

Rental income $ 120,646 $ 98,795 $ 239,240 $ 190,337
Other operating income 8,955 6,741 16,864 12,888
Management and acquisition fee income   3,183     1,469     5,001     2,904  
Total operating revenues 132,784 107,005 261,105 206,129
 

Expenses

Property operations and maintenance 29,719 23,153 59,515 46,014
Real estate taxes 14,498 11,021 28,933 21,568
General and administrative 15,959 10,114 27,396 20,578
Acquisition related costs - 1,694 - 4,078
Operating leases of storage facilities 141 - 141 -
Depreciation and amortization 26,186 16,414 51,050 31,665
Amortization of in-place customer leases   11,919     1,837     24,697     3,011  
Total operating expenses   98,422     64,233     191,732     126,914  
 
Income from operations 34,362 42,772 69,373 79,215
 
Other income (expense)
Interest expense

(A)

(15,716 ) (8,244 ) (30,926 ) (17,377 )
Interest expense - acquisition bridge loan commitment fee - (7,329 ) - (7,329 )
Interest income 1 37 4 43
Gain on sale of real estate - 15,270 - 15,270
Equity in income of joint ventures   785     998     1,506     1,913  
 

Net income

19,432 43,504 39,957 71,735
Noncontrolling interests in the Operating Partnership (77 ) (208 ) (172 ) (338 )
Noncontrolling interests in consolidated subsidiaries   -     160     -     399  

Net income attributable to common shareholders

$ 19,355   $ 43,456   $ 39,785   $ 71,796  
 

Earnings per common share attributable to common shareholders - basic

$ 0.42   $ 1.04   $ 0.86   $ 1.79  
 

Earnings per common share attributable to common shareholders - diluted

$ 0.42   $ 1.03   $ 0.86   $ 1.78  
 
Common shares used in basic
earnings per share calculation 46,364,890 41,980,389 46,334,729 40,195,603
 
Common shares used in diluted
earnings per share calculation 46,477,680 42,227,388 46,448,286 40,445,263
 

Dividends declared per common share

$ 1.00   $ 0.95   $ 1.95   $ 1.80  
 
 

(A) Interest expense for the period ending June 30 consists of the following

Interest expense $ 15,196 $ 7,894 $ 29,887 $ 16,671
Amortization of debt issuance costs   520     350     1,039     706  
Total interest expense $ 15,716   $ 8,244   $ 30,926   $ 17,377  
 
       

Life Storage, Inc.

Computation of Funds From Operations (FFO)

(2)

(unaudited)

April 1, 2017 April 1, 2016 January 1, 2017 January 1, 2016
to to to to
(dollars in thousands, except share data)   June 30, 2017   June 30, 2016 June 30, 2017   June 30, 2016
 
Net income attributable to common shareholders $ 19,355 $ 43,456 $ 39,785 $ 71,796
Noncontrolling interests in the Operating Partnership 77 208 172 338
Depreciation of real estate and amortization of intangible
assets exclusive of debt issuance costs 37,708 17,855 74,973 33,889
Depreciation and amortization from unconsolidated joint ventures 948 581 1,716 1,153
Gain on sale of real estate - (15,270 ) - (15,270 )
Funds from operations allocable to noncontrolling
interest in Operating Partnership   (229 )   (223 )   (502 )   (429 )
Funds from operations available to common shareholders   57,859     46,607     116,144     91,477  
FFO per share - diluted $ 1.24 $ 1.10 $ 2.50 $ 2.26
 

Adjustments to FFO

Loss related to legal settlement 5,040 - 5,040 -
Acquisition fee income (1,241 ) (1,241 )
Acquisition costs expensed - 1,694 - 4,078
Interest expense - acquisition bridge loan commitment fee - 7,329 - 7,329
Funds from operations resulting from non-recurring items
allocable to noncontrolling interest in Operating Partnership   (15 )   (43 )   (15 )   (54 )
Adjusted funds from operations available to common shareholders   61,643     55,587     119,928     102,830  
Adjusted FFO per share - diluted $ 1.33 $ 1.32 $ 2.58 $ 2.54
 
Common shares - diluted 46,477,680 42,227,388 46,448,286 40,445,263
 
       

Life Storage, Inc.

Quarterly Same Store Data

(3)

* 435 mature stores owned since 12/31/15

(unaudited)

April 1, 2017 April 1, 2016
to to Percentage
(dollars in thousands)   June 30, 2017   June 30, 2016 Change   Change
 

Revenues:

Rental income $ 89,660 $ 88,686 $       974 1.1 %
Tenant insurance 3,570 3,363 207 6.2 %
Other operating income   1,760   1,665         95   5.7 %
Total operating revenues 94,990 93,714 1,276 1.4 %
 

Expenses:

Payroll and benefits 7,978 7,761 217 2.8 %
Real estate taxes 10,271 9,739 532 5.5 %
Utilities 2,753 2,724 29 1.1 %
Repairs and maintenance 3,212 3,178 34 1.1 %
Office and other operating expense 3,090 3,031 59 1.9 %
Insurance 1,126 1,065 61 5.7 %
Advertising 269 293 (24 ) -8.2 %
Internet marketing   2,451   1,719         732   42.6 %
Total operating expenses   31,150   29,510         1,640   5.6 %
 
Net operating income (1) $ 63,840 $ 64,204 $       (364 ) -0.6 %
 
 
QTD Same store move ins 45,054 45,656 (602 )
 
QTD Same store move outs 39,570 40,280 (710 )
 
 

Other Comparable Quarterly Same Store Data *

(unaudited)

April 1, 2017 April 1, 2016
to to Percentage
June 30, 2017   June 30, 2016 Change   Change

Stores owned since 12/31/14 (417 stores)

Revenues $ 90,922 $ 89,735 $ 1,187 1.3 %
Expenses   29,718   28,090         1,628   5.8 %
Net operating income $ 61,204 $ 61,645 $       (441 ) -0.7 %
 
 
 

Stores owned since 12/31/13 (389 stores)

Revenues $ 83,105 $ 82,189 $ 916 1.1 %
Expenses   27,022   25,529         1,493   5.8 %
Net operating income $ 56,083 $ 56,660 $       (577 ) -1.0 %
 
 
* See exhibit A for supplemental quarterly same store data.
 
       

Life Storage, Inc.

Year to Date Same Store Data

(3)

* 435 mature stores owned since 12/31/15

(unaudited)

January 1, 2017 January 1, 2016
to to Percentage
(dollars in thousands)   June 30, 2017   June 30, 2016 Change   Change
 

Revenues:

Rental income $ 178,088 $ 174,413 $ 3,675 2.1 %
Tenant insurance 7,015 6,591 424 6.4 %
Other operating income   3,130     3,092     38     1.2 %
Total operating revenues 188,233 184,096 4,137 2.2 %
 

Expenses:

Payroll and benefits 15,995 15,440 555 3.6 %
Real estate taxes 20,543 19,477 1,066 5.5 %
Utilities 5,606 5,575 31 0.6 %
Repairs and maintenance 6,921 6,831 90 1.3 %
Office and other operating expense 6,109 6,061 48 0.8 %
Insurance 2,212 2,206 6 0.3 %
Advertising & yellow pages 539 602 (63 ) -10.5 %
Internet marketing   4,363     3,500     863     24.7 %
Total operating expenses   62,288     59,692     2,596     4.3 %
 
Net operating income (1) $ 125,945   $ 124,404   $ 1,541     1.2 %
 
 
YTD Same store move ins 84,375 87,036 (2,661 )
 
YTD Same store move outs 76,629 78,566 (1,937 )
 
 

Other Data - unaudited

Same Store (3) All Stores (4)

2017

2016

2017

2016

 
Weighted average quarterly occupancy 92.1 % 92.3 % 90.9 % 91.4 %
 
Occupancy at June 30 92.8 % 92.7 % 91.9 % 91.8 %
 
Rent per occupied square foot $ 13.17 $ 13.06 $ 13.36 $ 13.16
 
   

Investment in Storage Facilities: (unaudited)

The following summarizes activity in storage facilities during the six months ended June 30, 2017:
 
Beginning balance $ 4,243,308
Property acquisitions 10,089
Improvements and equipment additions:
Expansions 5,647
Roofing, paving, and equipment:
Stabilized stores 22,666
Recently acquired stores 6,971
Additions to consolidated subsidiary 82
Change in construction in progress (Total CIP $24.9 million) 10,383
Dispositions and Impairments   (9,414 )
Storage facilities at cost at period end $ 4,289,732  
 
 

Comparison of Selected G&A Costs (unaudited)

Quarter Ended

June 30, 2017

June 30, 2016


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