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Self storage

Is Life Storage a Millionaire-Maker REIT?


Apr 11, 2021 by Matt Frankel, CFP
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Life Storage (NYSE: LSI) has only been in existence in its current form for a few years (it was known as Sovran Self Storage until 2016), but in the years since its rebranding, the performance has been strong. Since the renaming was completed in August 2016, Life Storage has delivered a total return of almost 80% to investors.

However, at less than one-sixth the market cap of the leading self-storage REIT, or real estate investment trust, there could be tons of room to grow from here. With that in mind, here's a rundown of Life Storage's business and why long-term investors might want to take a closer look.

Life Storage: The quick version

Life Storage operates a portfolio of 927 self-storage facilities in the U.S. and Canada. While it owns properties throughout the U.S, there is a particularly high concentration along the East Coast and Gulf Coast areas of the United States.

However, Life Storage doesn't own all of these facilities. In addition to its wholly owned portfolio, Life Storage has a rapidly growing third-party management business. Basically, the company uses its management expertise and brand name on facilities owned by other companies and receives a steady, predictable fee for its services. Life Storage currently manages 330 properties through this program, and 77 of them were added in 2020 alone.

Life Storage's properties are concentrated in areas where population density and household income are above the U.S. average. Since 2010, Life Storage has increased its FFO (the REIT version of earnings) per share at a 9.3% annualized rate, and its dividend has grown nearly as fast.

Is Life Storage a millionaire-maker REIT?

Life Storage is my favorite self-storage REIT for a few reasons. First, it's shown its ability to think outside of the box when it comes to growth, especially when it comes to its third-party management program. This could be a big driver of growth going forward, and it's a very capital-light way to build a revenue stream.

In other words, to build a new storage facility, it might cost $10 million. To acquire a similar property, it might cost $12 million. To manage such a facility for another owner doesn't cost Life Storage a dime, so it can achieve essentially unlimited growth without having to raise new capital. Since 2015, the company's management fee income has roughly tripled, and I think this number will become much larger as the years go on.

Speaking of capital, owning and operating its own facilities is still a focus of the business, as Life Storage expects to spend at least $350 million on acquisitions this year. And with a rock-solid balance sheet and investment-grade credit ratings, Life Storage can achieve excellent economics -- in fact, it recently raised $400 million in new 10-year debt at an interest rate of just 2.2%.

The company has other growth avenues as well. It actively looks for opportunities to expand its most successful properties and also enters into joint ventures.

In a nutshell, Life Storage has several different growth drivers and has an excellent track record of responsible capital allocation. It could be an excellent stock for total returns, as the value of its property portfolio increases over time and its dividend grows (currently yielding 3.3% with a strong history of increases). Life Storage isn't likely to make you a millionaire overnight, but it could be an excellent choice to build wealth over the long run.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Life Storage Inc. The Motley Fool has a disclosure policy.