April 3, 2023, Extra Space and Life Storage announced that the companies had entered into a merger agreement. This all-stock strategic combination had Life Storage shareholders receiving 0.895 shares of Extra Space common stock for each share of Life Storage stock, resulting in a purchase price of approximately $15 billion (including debt). After a near unanimous approval from both companies’ shareholders, the merger was completed on July 20, 2023. All Life Storage properties were onboarded onto the Extra Space platform in 19 days, allowing Extra Space to implement its digital marketing, pricing, and sales process strategies to enhance performance at the Life Storage stores.

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Diversification

The addition of the Life Storage portfolio to Extra Space creates a more diversified portfolio. With more than 3,700+ stores serving over 2 million customers, no singular property represents a material portion of the company’s asset value, and no single MSA contributes more than 10% of revenue. The increased geographic diversification that came with the additional stores also created a 5% increase in stores located in desirable growth markets with increased demand and population growth trends – increasing presence in Texas, Florida, and the Southeast while reducing exposure in California and the Mid-Atlantic.

Synergies

The merger is expected to generate at least $100 million in annual run-rate operating synergies. Extra Space has a track record of integrating stores onto its platform and improving store performance, generating outsized returns to shareholders. The company projected $23 million in corporate overhead savings, through G&A cost efficiencies achieved through economies of scale and due to the lower marginal cost per store. The company anticipated at least $65 million in property revenue uplift as Extra Space store revenues outperform in overlapping markets and trade areas. The company identified clear pathways to bring Life Storage branded stores up to the Extra Space level of occupancy and rent per square foot. The company also anticipated $12 million in tenant reinsurance uplift by moving Life Storage customers onto Extra Space’s higher performing tenant insurance strategy, which had higher penetration rates and better policy premia due to a more robust insurance offering.

Growth

Extra Space – at its new size and scale – has embedded growth drivers, with its growing third-party management, joint venture, and bridge lending platforms. This creates a robust pipeline for future external growth. Additionally, there will be greater site redevelopment opportunities for Extra Space to expand and improve properties. Plus, from the new scale and synergies, the company expects better access to capital, which will enhance returns on future growth opportunities.

Financial Impact

Extra Space – at its new size and scale – has embedded growth drivers, with its growing third-party management, joint venture, and bridge lending platforms. This creates a robust pipeline for future external growth. Additionally, there will be greater site redevelopment opportunities for Extra Space to expand and improve properties. Plus, from the new scale and synergies, the company expects better access to capital, which will enhance returns on future growth opportunities.

Integration

People

The Extra Space team integrated and trained over 2,000 new Life Storage team members. A large focus of this training was minimizing customer disruption and quickly adjusting to the Extra Space systems and platform. Through this thorough training and culture assimilation process, employees received regular communication and opportunities to meet with Extra Space leaders and have open two-way dialogue. This created a smooth transition that maintained the company’s high employment brand reputation. Additionally, there were many internal promotion opportunities for team members as new divisions and districts were created through its growth.

In addition to moving the Life Storage stores onto the Extra Space platform, there were additional technology synergies and financial and reporting systems consolidated, physical data centers could be shut down, and cybersecurity tools could be shared. The next steps for Extra Space are optimizing the customer acquisition and revenue management performance of the Life Storage locations and adding features from Life Storage’s proprietary systems into the Extra Space platform to continue to move forward in excellence as a combined company.

Platform

All Life Storage properties were onboarded onto the Extra Space platform 19 days after the merger was closed. This was an enormous endeavor, that ran extremely smoothly with precise collaboration between operations, IT, product, and marketing teams. All transactions and data were on Extra Space’s proprietary technology platform, allowing immediate visibility into the data and creating a smooth customer experience through all sales channels. Over 1.2 million customer records and 4 million customer documents were migrated to the Extra Space platform.

Performance

So far, from July 20, 2023 to December 31, 2023 the Extra Space team has seen improved performance as they moved the Life Storage stores onto the Extra Space systems, improved training and staffing, and used the additional data to optimize customer acquisition and revenue management. For example: occupancy, where the Life Storage’s same-store pool lagged that of Extra Space by 400 basis points, has seen the gap closing month-over-month. Additionally, net rent per square foot, where Life Storage stores lagged by approximately 15% at original underwriting, is also moving more in line with Extra Space properties in the same markets. As the company continues to close the performance gap between the Life Storage branded properties and the Extra Space stores, the anticipated synergies will be realized, with opportunity for additional upside.

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