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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, 2019

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 22, 2019, 46,656,891 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, 2019 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 99.5% ownership interest therein as of September 30, 2019. 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.

2


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.

3


Part I. Financial Information

Item 1. Financial Statements

LIFE STORAGE, INC.

CONSOLIDATED BALANCE SHEETS

 

(dollars in thousands, except share data)

 

September 30,

2019

(unaudited)

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Investment in storage facilities:

 

 

 

 

 

 

 

 

Land

 

$

879,662

 

 

$

794,729

 

Building, equipment, and construction in progress

 

 

3,808,917

 

 

 

3,604,210

 

 

 

 

4,688,579

 

 

 

4,398,939

 

Less: accumulated depreciation

 

 

(730,555

)

 

 

(704,681

)

Investment in storage facilities, net

 

 

3,958,024

 

 

 

3,694,258

 

Cash and cash equivalents

 

 

16,371

 

 

 

13,560

 

Accounts receivable

 

 

10,816

 

 

 

7,805

 

Receivable from unconsolidated joint ventures

 

 

1,124

 

 

 

1,006

 

Investment in unconsolidated joint ventures

 

 

150,182

 

 

 

145,911

 

Prepaid expenses

 

 

9,523

 

 

 

7,251

 

Trade name

 

 

16,500

 

 

 

16,500

 

Other assets

 

 

26,200

 

 

 

5,921

 

Total Assets

 

$

4,188,740

 

 

$

3,892,212

 

Liabilities

 

 

 

 

 

 

 

 

Line of credit

 

$

25,000

 

 

$

91,000

 

Term notes, net

 

 

1,857,624

 

 

 

1,610,820

 

Accounts payable and accrued liabilities

 

 

99,337

 

 

 

87,446

 

Deferred revenue

 

 

10,421

 

 

 

9,191

 

Mortgages payable

 

 

35,016

 

 

 

12,302

 

Total Liabilities

 

 

2,027,398

 

 

 

1,810,759

 

Noncontrolling redeemable Operating Partnership Units at redemption value

 

 

26,024

 

 

 

23,716

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock $.01 par value, 100,000,000 shares authorized, 46,656,891

   shares outstanding at September 30, 2019 (46,617,441 at December 31, 2018)

 

 

467

 

 

 

466

 

Additional paid-in capital

 

 

2,375,816

 

 

 

2,372,157

 

Dividends in excess of net income

 

 

(234,777

)

 

 

(308,011

)

Accumulated other comprehensive loss

 

 

(6,188

)

 

 

(6,875

)

Total Shareholders’ Equity

 

 

2,135,318

 

 

 

2,057,737

 

Noncontrolling interest in consolidated subsidiary

 

 

 

 

 

 

Total Equity

 

 

2,135,318

 

 

 

2,057,737

 

Total Liabilities and Shareholders’ Equity

 

$

4,188,740

 

 

$

3,892,212

 

 

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)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

128,565

 

 

$

128,818

 

 

$

381,625

 

 

$

376,334

 

Other operating income

 

 

17,069

 

 

 

12,665

 

 

 

45,561

 

 

 

36,251

 

Total operating revenues

 

 

145,634

 

 

 

141,483

 

 

 

427,186

 

 

 

412,585

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operations and maintenance

 

 

32,215

 

 

 

30,316

 

 

 

96,809

 

 

 

90,551

 

Real estate taxes

 

 

16,116

 

 

 

15,450

 

 

 

48,427

 

 

 

46,512

 

General and administrative

 

 

11,554

 

 

 

11,742

 

 

 

34,401

 

 

 

35,513

 

Payments for rent

 

 

75

 

 

 

141

 

 

 

358

 

 

 

424

 

Depreciation and amortization

 

 

26,854

 

 

 

27,291

 

 

 

79,239

 

 

 

76,839

 

Total operating expenses

 

 

86,814

 

 

 

84,940

 

 

 

259,234

 

 

 

249,839

 

Gain on sale of storage facilities

 

 

100,222

 

 

 

925

 

 

 

100,222

 

 

 

925

 

Gain on sale of real estate

 

 

 

 

 

718

 

 

 

1,076

 

 

 

718

 

Income from operations

 

 

159,042

 

 

 

58,186

 

 

 

269,250

 

 

 

164,389

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(19,760

)

 

 

(17,923

)

 

 

(56,339

)

 

 

(52,645

)

Interest income

 

 

289

 

 

 

2

 

 

 

340

 

 

 

8

 

Equity in income of joint ventures

 

 

1,175

 

 

 

1,046

 

 

 

3,095

 

 

 

3,066

 

Net income

 

 

140,746

 

 

 

41,311

 

 

 

216,346

 

 

 

114,818

 

Net income attributable to noncontrolling

   interest in the Operating Partnership

 

 

(744

)

 

 

(191

)

 

 

(1,148

)

 

 

(535

)

Net loss attributable to noncontrolling

   interest in consolidated subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

 

$

140,002

 

 

$

41,120

 

 

$

215,198

 

 

$

114,283

 

Earnings per common share attributable

   to common shareholders – basic

 

$

3.00

 

 

$

0.88

 

 

$

4.62

 

 

$

2.46

 

Earnings per common share attributable

   to common shareholders – diluted

 

$

2.99

 

 

$

0.88

 

 

$

4.61

 

 

$

2.45

 

Common shares used in basic earnings per share

   calculation

 

 

46,586,030

 

 

 

46,526,362

 

 

 

46,577,704

 

 

 

46,486,587

 

Common shares used in diluted earnings per share

   calculation

 

 

46,657,105

 

 

 

46,627,968

 

 

 

46,641,673

 

 

 

46,580,331

 

Dividends declared per common share

 

$

1.00

 

 

$

1.00

 

 

$

3.00

 

 

$

3.00

 

 

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)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

140,746

 

 

$

41,311

 

 

$

216,346

 

 

$

114,818

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective portion of gain on derivatives net

   of reclassification to interest expense

 

 

229

 

 

 

100

 

 

 

687

 

 

 

483

 

Total comprehensive income

 

 

140,975

 

 

 

41,411

 

 

 

217,033

 

 

 

115,301

 

Comprehensive income attributable to noncontrolling

   interest in the Operating Partnership

 

 

(745

)

 

 

(191

)

 

 

(1,152

)

 

 

(537

)

Comprehensive loss attributable to noncontrolling

   interest in consolidated subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

140,230

 

 

$

41,220

 

 

$

215,881

 

 

$

114,764

 

 

See notes to consolidated financial statements.

6


LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(dollars in thousands)

 

Nine Months

Ended

September 30, 2019

 

 

Nine Months

Ended

September 30, 2018

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

216,346

 

 

$

114,818

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

79,239

 

 

 

76,839

 

Amortization of debt issuance costs and bond discount

 

 

2,873

 

 

 

2,672

 

Gain on sale of storage facilities

 

 

(100,222

)

 

 

(925

)

Gain on sale of real estate

 

 

(1,076

)

 

 

(718

)

Equity in income of joint ventures

 

 

(3,095

)

 

 

(3,066

)

Distributions from unconsolidated joint ventures

 

 

7,419

 

 

 

6,276

 

Non-vested stock earned

 

 

3,284

 

 

 

4,203

 

Stock option expense

 

 

 

 

 

7

 

Deferred income taxes

 

 

429

 

 

 

1,115

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,132

)

 

 

(657

)

Prepaid expenses

 

 

(2,296

)

 

 

(3,787

)

(Advances to) receipts from joint ventures

 

 

(118

)

 

 

655

 

Accounts payable and other liabilities

 

 

(968

)

 

 

(13,720

)

Deferred revenue

 

 

1,311

 

 

 

(318

)

Net cash provided by operating activities

 

 

199,994

 

 

 

183,394

 

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of storage facilities, net of cash acquired

 

 

(354,712

)

 

 

(19,409

)

Improvements, equipment additions, and construction in progress

 

 

(63,645

)

 

 

(45,020

)

Net proceeds from the sale of real estate

 

 

207,568

 

 

 

10,576

 

Investment in unconsolidated joint ventures

 

 

(19,347

)

 

 

(5,095

)

Property deposits

 

 

(767

)

 

 

(541

)

Net cash used in investing activities

 

 

(230,903

)

 

 

(59,489

)

Financing Activities

 

 

 

 

 

 

 

 

Net proceeds from sale of common stock

 

 

375

 

 

 

2,977

 

Proceeds from line of credit

 

 

225,000

 

 

 

172,000

 

Repayments of line of credit

 

 

(291,000

)

 

 

(149,000

)

Proceeds from term notes, net of discount

 

 

348,166

 

 

 

 

Repayment of term notes

 

 

(100,000

)

 

 

 

Debt issuance costs

 

 

(3,099

)

 

 

 

Dividends paid - common stock

 

 

(139,914

)

 

 

(139,235

)

Distributions to noncontrolling interest holders

 

 

(745

)

 

 

(650

)

Redemption of operating partnership units

 

 

(145

)

 

 

(232

)

Mortgage principal payments

 

 

(293

)

 

 

(277

)

Net cash provided by (used in) financing activities

 

 

38,345

 

 

 

(114,417

)

Net increase in cash and restricted cash

 

 

7,436

 

 

 

9,488

 

Cash and restricted cash at beginning of period

 

 

14,065

 

 

 

9,459

 

Cash and restricted cash at end of period

 

$

21,501

 

 

$

18,947

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

52,267

 

 

$

53,636

 

Cash paid for income taxes, net of refunds

 

$

1,485

 

 

$

1,175

 

 

See notes to consolidated financial statements.

7


LIFE STORAGE LP

CONSOLIDATED BALANCE SHEETS

 

(dollars in thousands)

 

September 30,

2019

(unaudited)

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Investment in storage facilities:

 

 

 

 

 

 

 

 

Land

 

$

879,662

 

 

$

794,729

 

Building, equipment, and construction in progress

 

 

3,808,917

 

 

 

3,604,210

 

 

 

 

4,688,579

 

 

 

4,398,939

 

Less: accumulated depreciation

 

 

(730,555

)

 

 

(704,681

)

Investment in storage facilities, net

 

 

3,958,024

 

 

 

3,694,258

 

Cash and cash equivalents

 

 

16,371

 

 

 

13,560

 

Accounts receivable

 

 

10,816

 

 

 

7,805

 

Receivable from unconsolidated joint ventures

 

 

1,124

 

 

 

1,006

 

Investment in unconsolidated joint ventures

 

 

150,182

 

 

 

145,911

 

Prepaid expenses

 

 

9,523

 

 

 

7,251

 

Trade name

 

 

16,500

 

 

 

16,500

 

Other assets

 

 

26,200

 

 

 

5,921

 

Total Assets

 

$

4,188,740

 

 

$

3,892,212

 

Liabilities

 

 

 

 

 

 

 

 

Line of credit

 

$

25,000

 

 

$

91,000

 

Term notes, net

 

 

1,857,624

 

 

 

1,610,820

 

Accounts payable and accrued liabilities

 

 

99,337

 

 

 

87,446

 

Deferred revenue

 

 

10,421

 

 

 

9,191

 

Mortgages payable

 

 

35,016

 

 

 

12,302

 

Total Liabilities

 

 

2,027,398

 

 

 

1,810,759

 

Limited partners’ redeemable capital interest at redemption value (247,466 and 248,966

   units outstanding at September 30, 2019 and December 31, 2018, respectively)

 

 

26,024

 

 

 

23,716

 

Partners’ Capital

 

 

 

 

 

 

 

 

General partner (469,044 and 468,663 units outstanding at September 30, 2019 and

   December 31, 2018, respectively)

 

 

21,615

 

 

 

20,816

 

Limited partners (46,187,847 and 46,148,778 units outstanding at September 30, 2019

   and December 31, 2018, respectively)

 

 

2,119,891

 

 

 

2,043,796

 

Accumulated other comprehensive loss

 

 

(6,188

)

 

 

(6,875

)

Total Controlling Partners’ Capital

 

 

2,135,318

 

 

 

2,057,737

 

Noncontrolling interest in consolidated subsidiary