Extra Space Storage Acquires Life Storage in All-Stock Deal

No-moat-rated Extra Space Storage EXR has entered into a definitive merger agreement to acquire Life Storage in an all-stock deal. Life Storage shareholders will receive 0.8950 of an Extra Space share for each Life Storage share they own, representing a total consideration of approximately $145.82 per share as per Extra Space’s share price on March 31, 2023. The combined entity will have an enterprise value of approximately $47 billion and 65% of the combined entity will be owned by Extra Space’s shareholders. The combined entity will become the largest self-storage operator in the United States, with over 3,500 locations and 264 million square feet. The transaction is expected to be accretive to core FFO per share within the first year of closing and be leverage neutral for Extra Space’s shareholders. We do not plan to materially change our $177 fair value estimate for Extra Space Storage.

The acquisition price of $145.82 for each Life Storage share is approximately 32% higher than the company’s stock price before Public Storage launched its bid to acquire the company. We think that the shareholders of Life Storage are the biggest winners in the deal because of the substantial acquisition premium and the benefits of becoming a part of the biggest portfolio owner in an industry where scale is extremely important.

We think that the deal is also mildly positive for Extra Space Storage’s shareholders. Extra Space Storage’s stock was trading at approximately a 5% implied cap rate before the announcement of the acquisition deal. The acquisition price for Life Storage including the acquisition premium ($145.82 per share) also implies a cap rate of around 5%. In other words, Extra Space Storage has used a currency that is more valuable to justify the acquisition premium associated with the deal. Extra Space used to trade at a premium compared with Life Storage before Public Storage launched a bid to acquire the company.