lsi-10q_20200930.htm

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.

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).

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.

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of October 27, 2020, 48,597,483 shares of Common Stock, $.01 par value per share, were outstanding.

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2020 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, 2020. 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:

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.

(dollars in thousands, except share data)	September 30, 2020 (unaudited)			December 31, 2019
Assets
Investment in storage facilities:
Land	$	937,030		$	884,235
Building, equipment, and construction in progress		4,263,222			3,865,238
		5,200,252			4,749,473
Less: accumulated depreciation		(842,592	)		(756,333	)
Investment in storage facilities, net		4,357,660			3,993,140
Cash and cash equivalents		110,247			17,458
Accounts receivable		13,970			12,218
Receivable from unconsolidated joint ventures		3,223			1,302
Investment in unconsolidated joint ventures		143,633			154,984
Prepaid expenses		10,601			7,771
Trade name		16,500			16,500
Other assets		33,221			29,591
Total Assets	$	4,689,055		$	4,232,964
Liabilities
Line of credit	$	—		$	65,000
Term notes, net		2,254,783			1,858,271
Accounts payable and accrued liabilities		107,980			103,942
Deferred revenue		16,204			11,699
Mortgages payable		34,352			34,851
Total Liabilities		2,413,319			2,073,763
Noncontrolling redeemable Operating Partnership Units at redemption value		25,848			26,307
Shareholders’ Equity
Common stock $.01 par value, 100,000,000 shares authorized, 48,199,008 shares outstanding at September 30, 2020 (46,675,933 at December 31, 2019)		482			467
Additional paid-in capital		2,533,402			2,376,723
Dividends in excess of net income		(278,726	)		(238,338	)
Accumulated other comprehensive loss		(5,270	)		(5,958	)
Total Shareholders’ Equity		2,249,888			2,132,894
Noncontrolling interest in consolidated subsidiary		—			—
Total Equity		2,249,888			2,132,894
Total Liabilities and Shareholders’ Equity	$	4,689,055		$	4,232,964

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands, except per share data)	2020			2019			2020			2019
Revenues
Rental income	$	135,965		$	128,565		$	393,701		$	381,625
Other operating income		20,345			17,069			56,565			45,561
Total operating revenues		156,310			145,634			450,266			427,186
Expenses
Property operations and maintenance		36,199			32,215			101,297			96,809
Real estate taxes		17,729			16,116			52,751			48,427
General and administrative		13,369			11,554			38,498			34,401
Payments for rent		—			75			—			358
Depreciation and amortization		33,018			26,854			90,335			79,239
Total operating expenses		100,315			86,814			282,881			259,234
Gain on sale of storage facilities		—			100,222			—			100,222
Gain on sale of real estate		—			—			302			1,076
Income from operations		55,995			159,042			167,687			269,250
Other income (expenses)
Interest expense		(20,544	)		(19,760	)		(61,056	)		(56,339	)
Interest income		8			289			14			340
Equity in income of joint ventures		1,829			1,175			3,915			3,095
Net income		37,288			140,746			110,560			216,346
Net income attributable to noncontrolling interest in the Operating Partnership		(193	)		(744	)		(576	)		(1,148	)
Net loss attributable to noncontrolling interest in consolidated subsidiary		—			—			—			—
Net income attributable to common shareholders	$	37,095		$	140,002		$	109,984		$	215,198
Earnings per common share attributable to common shareholders – basic	$	0.78		$	3.00		$	2.34		$	4.62
Earnings per common share attributable to common shareholders – diluted	$	0.78		$	2.99		$	2.34		$	4.61
Common shares used in basic earnings per share calculation		47,223,842			46,586,030			46,915,323			46,577,704
Common shares used in diluted earnings per share calculation		47,299,906			46,657,105			46,985,647			46,641,673
Dividends declared per common share	$	1.07		$	1.00		$	3.21		$	3.00

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2020			2019			2020			2019
Net income	$	37,288		$	140,746		$	110,560		$	216,346
Other comprehensive income:
Effective portion of gain on derivatives net of reclassification to interest expense		230			229			688			687
Total comprehensive income		37,518			140,975			111,248			217,033
Comprehensive income attributable to noncontrolling interest in the Operating Partnership		(194	)		(745	)		(580	)		(1,152	)
Comprehensive loss attributable to noncontrolling interest in consolidated subsidiary		—			—			—			—
Comprehensive income attributable to common shareholders	$	37,324		$	140,230		$	110,668		$	215,881

(dollars in thousands)	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Operating Activities
Net income	$	110,560		$	216,346
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		90,335			79,239
Amortization of debt issuance costs and bond discount		3,033			2,873
Gain on sale of storage facilities		—			(100,222	)
Gain on sale of real estate		(302	)		(1,076	)
Equity in income of joint ventures		(3,915	)		(3,095	)
Distributions from unconsolidated joint ventures		9,246			7,419
Non-vested stock earned		3,380			3,284
Deferred income taxes		1,266			429
Other		(178	)		—
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		(1,562	)		(3,132	)
Prepaid expenses		(2,710	)		(2,296	)
Advances to joint ventures		(2,254	)		(118	)
Accounts payable and other liabilities		1,396			(968	)
Deferred revenue		3,421			1,311
Net cash provided by operating activities		211,716			199,994
Investing Activities
Acquisition of storage facilities, net of cash acquired		(417,930	)		(354,712	)
Improvements, equipment additions, and construction in progress		(37,622	)		(63,645	)
Net proceeds from the sale of real estate		—			207,568
Return of investment in unconsolidated joint ventures		28,008			—
Investment in unconsolidated joint ventures		(21,862	)		(19,347	)
Loans to unconsolidated subsidiaries		(35,850	)		—
Loan payments received from unconsolidated subsidiaries		35,850			—
Property deposits		(129	)		(767	)
Net cash used in investing activities		(449,535	)		(230,903	)
Financing Activities
Net proceeds from sale of common stock		155,614			375
Proceeds from line of credit		285,000			225,000
Repayments of line of credit		(350,000	)		(291,000	)
Proceeds from term notes, net of discount		398,096			348,166
Repayment of term notes		—			(100,000	)
Debt issuance costs		(3,480	)		(3,099	)
Dividends paid - common stock		(150,357	)		(139,914	)
Distributions to noncontrolling interest holders		(785	)		(745	)
Payments to acquire equity in consolidated subsidiary from noncontrolling interests		(2,000	)		—
Redemption of Operating Partnership Units		(265	)		(145	)
Mortgage principal payments		(306	)		(293	)
Net cash provided by financing activities		331,517			38,345
Net increase in cash and restricted cash		93,698			7,436
Cash and restricted cash at beginning of period		21,556			14,065
Cash and restricted cash at end of period	$	115,254		$	21,501
Supplemental cash flow information
Cash paid for interest, net of interest capitalized	$	57,816		$	52,267
Cash paid for income taxes, net of refunds	$	859		$	1,485

(dollars in thousands)	September 30, 2020 (unaudited)			December 31, 2019
Assets
Investment in storage facilities:
Land	$	937,030		$	884,235
Building, equipment, and construction in progress		4,263,222			3,865,238
		5,200,252			4,749,473
Less: accumulated depreciation		(842,592	)		(756,333	)
Investment in storage facilities, net		4,357,660			3,993,140
Cash and cash equivalents		110,247			17,458
Accounts receivable		13,970			12,218
Receivable from unconsolidated joint ventures		3,223			1,302
Investment in unconsolidated joint ventures		143,633			154,984
Prepaid expenses		10,601			7,771
Trade name		16,500			16,500
Other assets		33,221			29,591
Total Assets	$	4,689,055		$	4,232,964
Liabilities
Line of credit	$	—		$	65,000
Term notes, net		2,254,783			1,858,271
Accounts payable and accrued liabilities		107,980			103,942
Deferred revenue		16,204			11,699
Mortgages payable		34,352			34,851
Total Liabilities		2,413,319			2,073,763
Limited partners’ redeemable capital interest at redemption value (243,966 and 246,466 units outstanding at September 30, 2020 and December 31, 2019, respectively)		25,848			26,307
Partners’ Capital
General partner (484,429 and 469,225 units outstanding at September 30, 2020 and December 31, 2019, respectively)		22,759			21,594
Limited partners (47,714,579 and 46,206,708 units outstanding at September 30, 2020 and December 31, 2019, respectively)		2,232,399			2,117,258
Accumulated other comprehensive loss		(5,270	)		(5,958	)
Total Controlling Partners’ Capital		2,249,888			2,132,894
Noncontrolling interest in consolidated subsidiary		—			—
Total Partners’ Capital		2,249,888			2,132,894
Total Liabilities and Partners’ Capital	$	4,689,055		$	4,232,964

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.)

Life Storage, Inc.	Yes ☒	No ☐

Life Storage LP	Yes ☒	No ☐

Life Storage, Inc.	Yes ☒	No ☐
Life Storage LP	Yes ☒	No ☐

Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

Emerging Growth Company	☐

Large Accelerated Filer	☐	Accelerated Filer	☐

Non-accelerated Filer	☒	Smaller Reporting Company	☐

Emerging Growth Company	☐

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $.01 par value		LSI		New York Stock Exchange

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands, except per unit data)	2020		2019	2020	2019
Revenues
Rental income	$	135,965