10-Q

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 June 30, 2022


☐	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 July 29, 2022, 84,384,715 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 June 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 June 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

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.

Part I. Financial Information

Item 1. Financial Statements

LIFE STORAGE, INC.

CONSOLIDATED BALANCE SHEETS


(dollars in thousands, except share data)	June 30, 2022 (unaudited)			December 31, 2021
Assets
Investment in storage facilities:
Land	$	1,266,040		$	1,185,976
Building, equipment, and construction in progress		6,468,230			5,904,481
		7,734,270			7,090,457
Less: accumulated depreciation		(1,088,128	)		(1,007,650	)
Investment in storage facilities, net		6,646,142			6,082,807
Cash and cash equivalents		32,639			171,865
Accounts receivable		21,136			17,784
Receivable from unconsolidated joint ventures		625			333
Investment in unconsolidated joint ventures		202,026			213,003
Prepaid expenses		11,728			9,918
Trade name		16,500			16,500
Other assets		36,388			44,387
Total Assets	$	6,967,184		$	6,556,597
Liabilities
Line of credit	$	303,000		$	—
Term notes, net		2,749,735			2,747,838
Accounts payable and accrued liabilities		119,962			131,778
Deferred revenue		32,583			27,277
Mortgages payable		36,646			37,030
Total Liabilities		3,241,926			2,943,923
Noncontrolling redeemable Preferred Operating Partnership Units at redemption value		90,772			90,783
Noncontrolling redeemable Common Operating Partnership Units at redemption value		114,125			142,892
Shareholders’ Equity
Common stock $.01 par value, 200,000,000 shares authorized, 84,384,380 shares outstanding at June 30, 2022 (83,565,710 at December 31, 2021)		844			836
Additional paid-in capital		3,801,203			3,697,000
Dividends in excess of net income		(278,020	)		(314,713	)
Accumulated other comprehensive loss		(3,666	)		(4,124	)
Total Shareholders’ Equity		3,520,361			3,378,999
Total Liabilities and Shareholders’ Equity	$	6,967,184		$	6,556,597

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	2022			2021			2022			2021
Revenues
Rental income	$	227,239		$	163,096		$	432,748		$	313,379
Tenant reinsurance		18,257			13,705			35,525			26,324
Other operating income		11,550			10,461			22,264			19,446
Total operating revenues		257,046			187,262			490,537			359,149
Expenses
Property operations and maintenance		42,458			33,369			84,827			67,109
Tenant reinsurance		6,481			5,425			13,328			10,206
Real estate taxes		25,356			20,510			49,879			40,397
General and administrative		18,636			15,083			34,502			29,266
Depreciation and amortization		48,076			35,771			94,476			69,130
Total operating expenses		141,007			110,158			277,012			216,108
Gain on sale of non-real estate assets		1,925			—			1,965			—
Income from operations		117,964			77,104			215,490			143,041
Other income (expenses)
Interest expense		(25,505	)		(20,774	)		(49,745	)		(41,119	)
Interest and dividend income		4			7			18			786
Equity in income of joint ventures		1,914			1,428			4,032			2,649
Net income		94,377			57,765			169,795			105,357
Net income attributable to noncontrolling preferred interests in the Operating Partnership		(1,007	)		—			(2,003	)		—
Net income attributable to noncontrolling common interests in the Operating Partnership		(1,106	)		(249	)		(1,953	)		(459	)
Net income attributable to common shareholders	$	92,264		$	57,516		$	165,839		$	104,898
Earnings per common share attributable to common shareholders – basic	$	1.09		$	0.75		$	1.98		$	1.38
Earnings per common share attributable to common shareholders – diluted	$	1.09		$	0.74		$	1.97		$	1.37
Common shares used in basic earnings per share calculation		84,270,378			77,057,520			83,957,402			76,222,426
Common shares used in diluted earnings per share calculation		84,428,182			77,219,999			84,132,978			76,365,100
Dividends declared per common share	$	1.00		$	0.74		$	2.00		$	1.48

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2022			2021			2022			2021
Net income	$	94,377		$	57,765		$	169,795		$	105,357
Other comprehensive income:
Effective portion of gain on derivatives net of reclassification to interest expense		229			229			458			458
Total comprehensive income		94,606			57,994			170,253			105,815
Comprehensive income attributable to noncontrolling interests in the Operating Partnership		(2,113	)		(249	)		(3,956	)		(459	)
Comprehensive income attributable to common shareholders	$	92,493		$	57,745		$	166,297		$	105,356

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


(dollars in thousands)	Six Months Ended June 30, 2022			Six Months Ended June 30, 2021
Operating Activities
Net income	$	169,795		$	105,357
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		94,476			69,130
Amortization of debt issuance costs and bond discount		2,654			2,123
Equity in income of joint ventures		(4,032	)		(2,649	)
Distributions from unconsolidated joint ventures		8,125			6,772
Non-vested stock earned		3,404			2,920
Deferred income taxes		117			(74	)
Other		(2,094	)		(179	)
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		(3,344	)		1,451
Prepaid expenses		(2,099	)		(2,181	)
(Advances to) receipts from joint ventures		(292	)		429
Accounts payable and other liabilities		(11,229	)		(7,987	)
Deferred revenue		3,581			3,296
Net cash provided by operating activities		259,062			178,408
Investing Activities
Acquisition of storage facilities, net of cash acquired		(571,618	)		(531,162	)
Improvements, equipment additions, and construction in progress		(39,529	)		(30,145	)
Proceeds from sale of non-real estate assets		2,603			—
Return of investment in unconsolidated joint ventures		—			34,145
Investment in unconsolidated joint ventures		(23,106	)		(30,146	)
Property deposits		2,587			(335	)
Net cash used in investing activities		(629,063	)		(557,643	)
Financing Activities
Net proceeds from sale of common stock		100,807			328,854
Proceeds from line of credit		443,000			263,000
Repayments of line of credit		(140,000	)		(123,000	)
Dividends paid - common stock		(168,000	)		(112,713	)
Distributions to noncontrolling interest holders		(3,935	)		(494	)
Redemption of operating partnership units		(245	)		(162	)
Mortgage principal payments		(255	)		(242	)
Net cash provided by financing activities		231,372			355,243
Net decrease in cash and restricted cash		(138,629	)		(23,992	)
Cash and restricted cash at beginning of period		176,434			58,771
Cash and restricted cash at end of period	$	37,805		$	34,779
Supplemental cash flow information
Cash paid for interest, net of interest capitalized	$	48,734		$	40,778
Cash paid for income taxes, net of refunds	$	2,014		$	818

See notes to consolidated financial statements.

LIFE STORAGE LP

CONSOLIDATED BALANCE SHEETS


(dollars in thousands)	June 30, 2022 (unaudited)			December 31, 2021
Assets
Investment in storage facilities:
Land	$	1,266,040		$	1,185,976
Building, equipment, and construction in progress		6,468,230			5,904,481
		7,734,270			7,090,457
Less: accumulated depreciation		(1,088,128	)		(1,007,650	)
Investment in storage facilities, net		6,646,142			6,082,807
Cash and cash equivalents		32,639			171,865
Accounts receivable		21,136			17,784
Receivable from unconsolidated joint ventures		625			333
Investment in unconsolidated joint ventures		202,026			213,003
Prepaid expenses		11,728			9,918
Trade name		16,500			16,500
Other assets		36,388			44,387
Total Assets	$	6,967,184		$	6,556,597
Liabilities
Line of credit	$	303,000		$	—
Term notes, net		2,749,735			2,747,838
Accounts payable and accrued liabilities		119,962			131,778
Deferred revenue		32,583			27,277
Mortgages payable		36,646			37,030
Total Liabilities		3,241,926			2,943,923
Limited partners’ preferred redeemable capital interest at redemption value (3,590,603 units outstanding at June 30, 2022 and December 31, 2021)		90,772			90,783
Limited partners’ common redeemable capital interest at redemption value (1,041,510 and 960,708 units outstanding at June 30, 2022 and December 31, 2021, respectively)		114,125			142,892
Partners’ Capital
General partner (887,018 and 881,030 units outstanding at June 30, 2022 and December 31, 2021, respectively)		37,277			36,131
Limited partners (83,497,362 and 82,684,680 units outstanding at June 30, 2022 and December 31, 2021, respectively)		3,486,750			3,346,992
Accumulated other comprehensive loss		(3,666	)		(4,124	)
Total Partners’ Capital