Extra Space Storage to acquire Life Storage in $12.7 billion all-stock deal that will create biggest storage company in the U.S.

By Ciara Linnane

Extra Space's offer for rival storage REIT Life Storage is equal to about $145.82 per share

Extra Space Storage Inc. said Monday it has agreed to a merger deal with smaller rival real-estate investment trust Life Storage Inc. in an all-stock deal valued at $12.7 billion.

The deal will create the biggest storage company in the U.S., an entity with a total enterprise value of about $47 billion, including debt, and a market capitalization of about $36 billion.

Under the terms of the deal, Salt Lake City, Utah--based Extra Space Storage (EXR) will pay 0.8950 of a share for each Life Storage share (LSI), equal to about $145.82 per share, based on the stock's closing price on Friday.

The REIT will own about 65% of the combined company, with Buffalo, N.Y.--based Life Storage owning the remaining 35%. The deal is expected to close in the second half and to increase the size of Extra Space Storage's portfolio by more than 50% by locations.

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"In total, the transaction adds over 88 million square feet to the portfolio. The combined portfolio represents the largest storage operation in the country with over 3,500 locations, over 264 million square feet and serving over two million customers," the companies said in a joint statement.

Life Storage rejected an earlier unsolicited offer from Public Storage (PSA) at $129 a share made early February, the Wall Street Journal reported.

"This is an industry where scale really matters," Extra Space Chief Executive Joseph Margolis told the paper in an interview Sunday.

Life Storage's stock rose 3.8% Monday and has gained about 22% since the February offer.

The deal is expected to generate at least $100 million in annual run-rate operating synergies from general and administrative and property operating-expense savings. It's also expected to boost core funds from operations, or FFO, a core metric in the REIT industry, in the first year after closing.

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Truist Securities said it expects the deal to be about 1.6% accretive to Extra Space on an annualized run rate basis in 2024, but that could rise to 3% with additional same-store net operating income from Life Storage.

"While technically Public Storage could have potentially extracted a higher level of synergies from the Life Storage acquisition due to the widermargin differential than Extra Space could in theory, EXR's smaller asset base offsets this dynamic, in our view," analyst Ki Bin Kim wrote in a note.

Kim said she does not expect a superior offer to emerge.

The combined entity is set to trade on the New York Stock Exchange under the ticker symbol "EXR."

Kenneth Woolley will remain chairman, while Margolis will be CEO and a board member. The board will be expanded to 12 members from 10, with nine coming from Extra Space's board.

Extra Space's stock was down 5.3% and has fallen 26% in the last 12 months, while the S&P 500 has fallen about 10%.

-Ciara Linnane

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04-03-23 1454ET

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