Life Storage, Inc. Reports Fourth Quarter and Full Year 2020 Results

Life Storage, Inc. LSI, a leading national owner and operator of self-storage properties, reported operating results for the quarter and year ended December 31, 2020. All share and per share information has been retrospectively adjusted to reflect the January 2021 three-for-two stock split made in the form of a 50% stock dividend.

Highlights for the Fourth Quarter Included:

• Generated net income attributable to common shareholders of $41.6 million, or $0.57 per fully diluted common share.
• Achieved adjusted funds from operations ("FFO")⁽¹⁾ per fully diluted common share of $1.07, an 11.5% increase over the same period in 2019.
• Increased same store revenue by 4.9% and same store net operating income ("NOI")⁽²⁾ by 6.8%, year-over-year.
• Acquired nine stores for $113.0 million, including one store from one of our unconsolidated joint ventures for $11.5 million.
• Added 21 stores to the Company's third-party management platform.

Highlights for the Full Year Included:

• Generated net income attributable to common shareholders of $151.6 million, or $2.13 per fully diluted common share.
• Achieved adjusted funds from operations ("FFO")⁽¹⁾ per fully diluted common share of $3.97, a 5.9% increase over the same period in 2019.
• Increased same store revenue by 1.6% and same store net operating income ("NOI")⁽²⁾ by 2.3%, year-over-year.
• Acquired 40 stores for $532.6 million, including 32 stores from three of our unconsolidated joint ventures for $431.1 million.
• Added 77 stores to the Company's third-party management platform; the Company grew its third-party management portfolio 11% in 2020 despite acquiring 32 previously managed stores from unconsolidated joint ventures.
• Completed a $400 million offering of 2.2% Senior Unsecured Notes due 2030.
• Bolstered Warehouse Anywhere's ecommerce solution through a partnership with Deliverr, a leading technology-enabled fulfillment organization, with the build-out of a micro-fulfillment center in Las Vegas and a second launched in Chicago in the first quarter of 2021.
• Launched "Rent Now 2.0," the Company's dynamic pricing, second generation, fully-digital rental platform that allows customers to self-serve and move into their storage unit with no human interaction; the new pricing alternatives allow customers to select a storage unit from one of three convenience and pricing-based tiers according to their individual needs and preferences.

Joe Saffire, the Company's Chief Executive Officer, stated, "I am so proud of what our team accomplished in 2020 despite the challenges of the COVID-19 pandemic. We quickly adapted to operate in a manner designed to keep our teammates and customers safe. Rent Now contributed to differentiated performance as we grew same store occupancy significantly by year end, up more than 300 basis points, year-over-year. We invested more than $500 million in store acquisitions, while growing our total store count by 8.5%. Additionally, we positioned Warehouse Anywhere to capitalize on the significant consumer shift toward ecommerce. I believe we are very well positioned to continue executing on our strategic initiatives to further grow shareholder value in 2021 and beyond."

FINANCIAL RESULTS:

In the fourth quarter of 2020, the Company generated net income attributable to common shareholders of $41.6 million or $0.57 per fully diluted common share, compared to net income attributable to common shareholders of $43.5 million, or $0.62 per fully diluted common share, in the fourth quarter of 2019. Net income in the same quarter last year benefited from a $4.8 million gain on sales of storage facilities and real estate.

For the year ended December 31, 2020, the Company achieved $151.6 million of net income attributable to common shareholders, or $2.13 per fully diluted common share, as compared to $258.7 million, or $3.70 per fully diluted common share, for the year ended December 31, 2019. The decrease in net income was largely attributable to the $104.4 million gain on sale of storage facilities in 2019.

Funds from operations for the quarter were $1.02 per fully diluted common share compared to $0.97 for the same period last year. After adjusting for the $4.0 million impact of a make-whole payment on a repaid note, adjusted FFO per fully diluted common share for the quarter was $1.07, compared to $0.96, after adjusting for $1.1 million for a gain on sale of land and acquisition fees, for the quarter ended December 31, 2019.

For the year ended 2020, FFO per fully diluted common share was $3.90 compared to $3.80 for the same period last year. Absent the $5.0 million impact in 2020 due to the make-whole payment, uninsured damages and customer reinsurance claims (net) resulting from hurricane damage in September 2020, a gain on sale of land and acquisition fees, adjusted FFO per fully diluted common share for the year was $3.97. Adjusted FFO for the year ended 2019 was $3.75, after adjusting for the impact of $3.4 million of a lawsuit settlement, gain on sale of land, acquisition fee income and costs related to an officer's retirement.

OPERATIONS:

Revenues for the 515 stabilized stores wholly owned by the Company since December 31, 2018 increased 4.9% in the fourth quarter of 2020 compared to the same quarter of 2019. The increase largely resulted from the net impact of a 310 basis point increase in average occupancy.

Same store operating expenses increased 1.0% for the fourth quarter of 2020 compared to the prior year period, the result of increased repair and maintenance, payroll and benefits, office and other operating expense and insurance costs. The increases were offset by decreases in real estate taxes, utilities and marketing expenses. Same store NOI increased 6.8% in the fourth quarter of 2020 as compared to the fourth quarter of 2019.

Same store payroll and benefits included a one-time bonus payment to select store team members totaling $0.3 million in aggregate in recognition of their successful efforts rapidly implementing revised store procedures in response to the COVID-19 pandemic. Had that payment not occurred, same store payroll and benefits would have increased only 0.7%, rather than 3.9%, in the fourth quarter of 2020, compared to the same period last year.

During the fourth quarter of 2020, the Company achieved same store revenue growth in 28 of its 30 major markets. Overall, the markets with the strongest positive revenue impact were New York-Newark-Jersey City, New England-Other, Buffalo-Upstate, Boston and Chicago.

PORTFOLIO TRANSACTIONS:

During the quarter, the Company acquired nine stores in Florida (3), California (2), New Jersey (1), Missouri (1), South Carolina (1) and New York (1) for a total purchase price of $113.0 million.

At December 31, 2020, the Company was under contract to acquire 10 self-storage facilities in California (1), Florida (8) and South Carolina (1) for an aggregate purchase price of $111.3 million. During January 2021, the Company completed the acquisition of the two self-storage facilities in California and South Carolina for an aggregate purchase price of $26.3 million. Subsequent to December 31, 2020, the Company entered into contracts to acquire three self-storage facilities in Washington (2) and New York (1) for an aggregate purchase price of $87.9 million. The purchases of the remaining facilities are subject to customary conditions to closing, and there is no assurance that any of these facilities will be acquired.

THIRD-PARTY MANAGEMENT:

The Company continues to aggressively and profitably grow its third-party management platform. During the quarter, the Company added 21 stores. As of quarter end, the Company managed 330 facilities in total, including those in which it owns a minority interest.

FINANCIAL POSITION:

At December 31, 2020, the Company had approximately $54.4 million of cash on hand, and approximately $499.9 million available on its line of credit.

During the three months ended December 31, 2020, the Company issued 1,877,742 shares of common stock under its continuous equity offering program at a weighted average issue price of $75.60 per share, generating net proceeds after expenses of $140.5 million. The Company filed a new $500 million continuous equity offering program on December 29, 2020, and in early January 2021 issued an additional 1,205,009 shares of common stock under this program at a weighted average issue price of $78.79, generating net proceeds after expenses of $94.0 million.

Below are key financial ratios at December 31, 2020:

STOCK SPLIT AND COMMON STOCK DIVIDEND:

Subsequent to quarter end, the Company completed a three-for-two stock split, which was made in the form of a 50% stock dividend. The additional shares were distributed on January 27, 2021 and Life Storage's common stock began trading on a split-adjusted basis on January 28, 2021.

Also subsequent to quarter end, Life Storage's Board of Directors approved a quarterly dividend of $0.74 per share, or $2.96 annualized, on a post-split basis. The dividend was paid on January 27, 2021 to shareholders of record on January 15, 2021.

YEAR 2021 EARNINGS GUIDANCE:

The following assumptions covering operations have been utilized in formulating guidance for 2021:

The Company's 2021 same store pool consists of the 531 stabilized stores wholly owned since December 31, 2019. Twenty-two of the stores purchased through December 31, 2020 at certificate of occupancy or that were in the early stages of lease-up are not included, regardless of their current occupancies. The Company believes that occupancy levels achieved during the lease-up period, using discounted rates, are not truly indicative of a new store's performance, and therefore do not result in a meaningful year-over-year comparison in future years. The Company will include such stores in its same store pool in the second year after the stores achieve 80% sustained occupancy using market rates and incentives.

FORWARD LOOKING STATEMENTS:

When used in 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 our actual results, performance or achievements 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 would cause rents and occupancy rates to decline; risks associated with the COVID-19 global health crisis or similar events, including but not limited to (i) the impact to the health of our employees and/or customers, (ii) the negative impacts to the economy and to self-storage customers which could reduce the demand for self-storage or reduce our ability to collect rent, (iii) reducing or eliminating our ability to increase rents charged to our current or future customers, (iv) limiting our ability to collect rent from or evict past due customers, (v) we could see an increase in move-outs of longer-term customers due to the economic uncertainty and significant rise in unemployment resulting from the COVID-19 global health crisis which could lead to lower occupancies and reduced average rental rates as longer-term customers are replaced with new customers at lower rates, and (vi) potential negative impacts on the cost and availability of debt and equity which could have a negative impact on our capital and growth plans; the Company's ability to evaluate, finance and integrate acquired self-storage facilities into the Company's existing business and operations; the Company's ability to effectively compete in the industry in which it does business; 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; any future ratings on the Company's debt instruments; regional concentration of the Company's business may subject it to economic downturns in the states of Florida and Texas; the Company's reliance on its call center; the Company's cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and tax law changes that may change the taxability of future income.

CONFERENCE CALL:

Life Storage will hold its Fourth Quarter Earnings Release Conference Call at 9:00 a.m. Eastern Time on Tuesday, February 23, 2021. 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 844-707-6940 (domestic) or 412-317-5702 (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 a period of six months.

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. Located in Buffalo, New York, the Company operates more than 900 storage facilities in 31 states and in the province of Ontario, Canada. The Company serves both residential and commercial storage customers with storage units rented by month. Life Storage consistently provides responsive service to approximately 500,000 customers, making it a leader in the industry. For more information visit http://invest.lifestorage.com.

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