2 0 1 7
A N N U A L
R E P O R T
LIFE STORAGE TRANSFORMATION
LIFE STORAGE: AT A GLANCE*
*As of 12/31/17
2015
25 years as
Sovran/
Uncle Bob’s
Self Storage
Jul. 2016
Sovran
acquires
LifeStorage
Aug. 2016
Sovran begins
trading as Life
Storage (LSI) on
NYSE
Sep. 2016
Brand
transformation
begins
Mar. 2017
Brand
transformation
complete
Dec. 2017
706 Life Storage
locations
5.6xDebt to EBITDAInvestment Grade Rated Moody’s: Baa2S&P: BBB91% Same StoreOccupancy32 Years inSelf-StorageBusiness390,000+Customers$4.2 BillionMarket Cap$2.4 BillionOf AcquisitionsIn Past 2 Years122% DividendIncreaseOver Past 5 Years253% 10 YearTotal Return
Dear Fellow Shareholders:
In 2017 our Company assimilated its tremendous new brand, fully integrated the 122 stores we
acquired in 2016. and added another 47 stores to our portfolio. At the end of 2017, we owned 566 high
quality self-storage facilities in 28 states, comprising 40 million rentable square feet of storage space. In
addition. we managed 140 stores for 3rd parties. bringing the total number of stores carrying the Life
Storage brand to 706. comprising 50 mi[ion square feet and servicing almost 400.000 customers.
We realized strong growth in our Life Storage Solutions division. with management fee income
increasing 75% and ourjoint venture revenues growing by 31% year over year. respectively. The benefits
of leveraging the Life Storage name across a broader store base is very powerful - these initiatives
provide increased brand penetration on a national and local level and allow us to spread our marketing
costs over a growing platform with limited capital commitment from the company. The Life Storage brand
resonates with businesses as well evidenced by strong growth in our corporate customer base since we
changed our name.
The year was not without challenges. The introduction of significant new supply heavily impacted
some of our largest markets: notably Houston. Dallas. and Austin. TX: this. combined with rising real estate
taxes and internet marketing challenges. put pressure on our operating margins. The impact was
reflected in the year's same store revenue growth of 17% and same store NOi increase of o.6%. which.
after the tremendous growth exhibited over the past four years. was notably subdued. However. we
achieved record high year end occupancy of g1% for our same store portfolio. which puts us in excellent
position to defend our market share and improve operating results for 2018 and beyond
The Life Storage brand. our talented team of real estate. operations and marketing experts, and
our sophisticated operating platforms are the drivers of our ongoing growth and success. These are
supported by one of the strongest balance sheets in the sector. We have considerable Liquidity and fire
power to act opportunistically. maintain an investment grade rating of BBB. and remain conservatively
financed with a debt to enterprise value ofjust 29.5%, a virtually unencumbered asset base. and a net debt
to recurring annualized EBITDA ratio of 5.6 times.
Several important changes have been made to our Board of Directors and to our senior
management team Two of the founders of our Company. RobertAttea. Executive Chairman of the Board.
and Kenneth Myszka. President are now stepping down and retiring from the Board after having led Life
Storage for over 35 years. Bob. Ken. and I. along with our other co-founder. Chuck Lannon. have worked
together since acquiring our very first storage facility in 1985, and we thank them for their outstanding
leadership and guidance in building this Company.
With their retirement. Dana Hamilton and Edward Pettinella. two seasoned and highly respected
REIT veterans. and I. have been appointed to the Board. We join Carol Hansell a corporate governance
expert who was added to the Board in 2017. and our four incumbent independent directors in continuing
to guide the growth and improvement of our Company.
Joseph Saffire was added to our executive management team in 2017, appointed as Chief Investment
Officer. Joe brings strong leadership and deal making experience from his former roles as a senior
commercial banker at Wells Fargo. HSBC and First Niagara.
Looking forward to 2018. we see an industry that. despite temporary headwinds stemming from
new supply. remains one of the best cash flow generators in the REIT universe. Our ongoing focus and
efforts wm be to leverage our advantage as one of the sector's largest operators to deliver strong organic
growth at our 700-plus properties. to use the power of our dominant brand to expand our 3rd party
management and joint venture opportunities. and to responsibly grow the value of our Company.
Thank you for the confidence you've placed in us. and for your continued support
David Rogers. CEO
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Commission File Number:
1-13820 (Life Storage, Inc.)
0-24071 (Life Storage LP)
LIFE STORAGE, INC.
LIFE STORAGE LP
(Exact name of Registrant as specified in its charter)
Maryland (Life Storage, Inc.)
Delaware (Life Storage LP)
(State of incorporation
or organization)
16-1194043 (Life Storage, Inc.)
16-1481551 (Life Storage LP)
(I.R.S. Employer
Identification No.)
6467 Main Street
Williamsville, NY 14221
(Address of principal executive offices) (Zip code)
(716) 633-1850
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities
Common Stock, $.01 Par Value
Exchanges on which Registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Life Storage, Inc.
Life Storage LP
Life Storage, Inc.
Life Storage LP
Life Storage, Inc.
Life Storage LP
Life Storage, Inc.
Life Storage LP
Yes ☒
Yes ☒
No ☐
No ☐
Yes ☐
Yes ☐
No ☒
No ☒
Yes ☒
Yes ☒
No ☐
No ☐
☒
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Life Storage, Inc.
Life Storage LP
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
No ☐
No ☐
Yes ☒
Yes ☒
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Life Storage, Inc.:
Large accelerated filer
Non-accelerated filer
Emerging growth company
Life Storage LP:
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐ (Do not check if a small reporting company)
☐
☒
☐ (Do not check if a small reporting company)
☐
Accelerated filer
Smaller reporting company
Accelerated filer
Smaller reporting company
☐
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Life Storage, Inc.
Life Storage LP
Yes ☐
Yes ☐
No ☒
No ☒
As of June 30, 2017, 46,565,213 shares of Life Storage, Inc.’s Common Stock, $.01 par value per share, were outstanding, and the aggregate market value of the Common Stock held
by non-affiliates of Life Storage, Inc. was approximately $3,450,482,283 (based on the closing price of the Common Stock on the New York Stock Exchange on June 30, 2017). As of
February 12, 2018, 46,515,831 shares of Common Stock, $.01 par value per share, were outstanding.
As of June 30, 2017, the aggregate market value of the 217,481 units of limited partnership (the “OP Units”) held by non-affiliates of Life Storage LP was $16,115,342 (based on the
closing price of the Common Stock of Life Storage, Inc. on the New York Stock Exchange on June 30, 2017). (For this calculation, the market value of all OP Units beneficially owned by
Life Storage, Inc. has been excluded.)
Portions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the
extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrants’ fiscal year ended December 31, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2017 of Life Storage, Inc. (the “Parent Company”) and
Life Storage LP (the “Operating Partnership”). The Parent Company is a real estate investment trust, or REIT, that owns its assets and conducts
its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent
Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition,
terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.
Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating
Partnership; the Parent Company is a limited partner of the Operating Partnership, and through its ownership of Holdings and its limited
partnership interest, controls the operations of the Operating Partnership, holding a 99.5% ownership interest therein as of December 31, 2017.
The remaining ownership interests in the Operating Partnership are held by certain former owners of assets acquired by the Operating
Partnership. As the owner of the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the
Operating Partnership’s day-to-day operations and management.
Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and
the Operating Partnership are identical.
There are few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report.
The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context
of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the
partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the
owner of the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of
the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the
ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is
structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are
contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the
Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of
indebtedness or through the issuance of partnership units of the Operating Partnership.
The substantive difference between the Parent Company’s filings and the Operating Partnership’s filings is the fact that the Parent Company is
a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this
difference is primarily reflected in the equity (or capital for the Operating Partnership) section of the consolidated balance sheets and in the
consolidated statements of shareholders’ equity (or partners’ capital). Apart from the different equity treatment, the consolidated financial
statements of the Parent Company and the Operating Partnership are nearly identical.
The Company believes that combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into a single
report will:
•
•
•
facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view
the business as a whole in the same manner as management views and operates the business;
remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the
disclosure applies to both the Parent Company and the Operating Partnership; and
create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the
Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that
combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company.
Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds
assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business
through the Operating Partnership.
2
As the owner of the general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for
financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership.
Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements.
The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to
understand the results of the Company’s operations on a consolidated basis and how management operates the Company.
This report also includes separate Item 9A - Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each
of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of
the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite
certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. §1350.
3
TABLE OF CONTENTS
Part I.........................................................................................................................................................................................................
Item 1. Business ..................................................................................................................................................................................
Item 1A. Risk Factors .........................................................................................................................................................................
Item 1B. Unresolved Staff Comments ................................................................................................................................................
Item 2. Properties ................................................................................................................................................................................
Item 3. Legal Proceedings...................................................................................................................................................................
Item 4. Mine Safety Disclosures .........................................................................................................................................................
Part II ..................................................................................................................................................................................................
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities..............
Item 6. Selected Financial Data...........................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations..................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............................................................................................
Item 8. Financial Statements and Supplementary Data .......................................................................................................................
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................................
Item 9A. Controls and Procedures ......................................................................................................................................................
Item 9B. Other Information.................................................................................................................................................................
Part III .................................................................................................................................................................................................
Item 10. Directors, Executive Officers and Corporate Governance ....................................................................................................
Item 11. Executive Compensation.......................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............................
Item 13. Certain Relationships and Related Transactions, and Director Independence ......................................................................
Item 14. Principal Accountant Fees and Services ...............................................................................................................................
Part IV.................................................................................................................................................................................................
Item 15. Exhibits, Financial Statement Schedules ..............................................................................................................................
Item 16. Form 10-K Summary ............................................................................................................................................................
SIGNATURES.........................................................................................................................................................................................
5
5
10
15
16
17
17
18
18
20
23
33
33
66
66
70
70
70
70
70
70
70
71
71
76
77
EX-3.1
EX-10.19
EX-10.24
EX-10.25
EX-10.27
EX-12.1
EX-21.1
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2
EX-101
4
Part I
When used in this discussion and elsewhere in this document, 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 the actual results, performance or achievements of the Company 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; the Company’s ability to evaluate, finance and integrate acquired
businesses 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.
Item 1.
Business
The Company is a self-administered and self-managed real estate company that acquires, owns and manages self-storage properties. We
refer to the self-storage properties in which we have an ownership interest, lease, and/or are managed by us as “Properties.” We began
operations on June 26, 1995. We were formed to continue the business of our predecessor company, which had engaged in the self-storage
business since 1985. At December 31, 2017, we had an ownership interest in and/or managed 706 self-storage properties in 28 states under the
name Life Storage ®. Among our 706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures, 42 properties
that we manage and have no ownership interest, and two properties that we lease. We believe we are the fifth largest operator of self-storage
properties in the United States based on square feet owned and managed. Our Properties conduct business under the customer-friendly name
Life Storage ®.
At December 31, 2017, the Parent Company owned a direct or indirect interest in 662 of the Properties through the Operating
Partnership, which includes 564 wholly-owned properties and 98 properties owned by unconsolidated joint ventures. In total, we own a 99.5%
economic interest in the Operating Partnership and unaffiliated third parties collectively own a 0.5% limited partnership interest at
December 31, 2017. We believe that this structure, commonly known as an umbrella partnership real estate investment trust (“UPREIT”),
facilitates our ability to acquire properties by using units of the Operating Partnership as currency. By utilizing interests in the Operating
Partnership as currency in facility acquisitions, we may partially defer the seller’s income tax liability which in turn may allow us to obtain
more favorable pricing.
The Parent Company was incorporated on April 19, 1995 under Maryland law. The Operating Partnership was formed on June 1, 1995 as
a Delaware limited partnership and has engaged in virtually all aspects of the self-storage business, including the development, acquisition,
management, ownership and operation of self-storage facilities. Our principal executive offices are located at 6467 Main Street, Williamsville,
New York 14221, our telephone number is (716) 633-1850 and our website is www.lifestorage.com.
We seek to enhance shareholder value through internal growth and acquisition of additional storage properties. Internal growth is
achieved through aggressive property management: optimizing rental rates, increasing occupancy levels, controlling costs, maximizing
collections, and strategically expanding and enhancing the Properties. Should demographic and economic conditions warrant, we may develop
new properties. We believe that there continues to be opportunities for growth through acquisitions, including acquisitions through
unconsolidated joint ventures of the Company. We seek to acquire self-storage properties that are susceptible to realization of increased
economies of scale and improved performance through application of our expertise.
Industry Overview
We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed
and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Modern facilities, such as
those owned and/or managed by the Company, are usually fenced and well lighted with automated access systems, surveillance cameras, and
have a full-time manager. Our customers rent space on a month-to-month basis and typically have access to their storage space up to 15 hours a
day and in certain circumstances are provided with 24-hour access. Individual storage spaces are secured by the customer’s lock, and the
customer has control of access to the space.
According to the 2018 Self-Storage Almanac, of the estimated 44,000 core self-storage facilities in the United States (those properties
identified as having self-storage operated as the core business at the address), approximately 19.2% are managed by the ten largest operators.
This results in a highly fragmented industry as the remainder of the industry is characterized by numerous small, local operators. The scarcity
of capital available to small operators for acquisitions and expansions, internet marketing, call centers, and the potential for savings through
economies of scale are factors that are leading to consolidation in the industry. We believe that, as a result of this trend, significant growth
opportunities exist for operators with proven management systems and sufficient capital resources to grow either through acquisitions or third-
party management platforms.
5
Property Management
We have over 30 years of experience acquiring and managing self-storage facilities, and the combined experience of our key personnel
makes us one of the leaders in the industry. We employ the following strategies with respect to our property management:
Our People:
We recognize the importance of quality people to the success of an organization. Accordingly, we hire and train to ensure that associates
can reach their full potential. We strive to ensure that each associate conducts themselves in accordance with our core values: Teamwork,
Respect, Accountability, Integrity, and Innovation. In turn, we support them with state of the art training tools including an online learning
management system, a company intranet and a network of certified training personnel. Every store team also has frequent, and sometimes
daily, interaction with an Area Manager, a Regional Vice President, an Accounting Representative, and other support personnel. As such, our
store associates are held to high standards for customer service, store appearance, financial performance, and overall operations.
Training & Development:
Our employees benefit from a wide array of training and development opportunities. New store employees undergo a comprehensive,
proprietary training program designed to drive sales and operational results while ensuring the delivery of quality customer service. To
supplement their initial training, employees enjoy continuing edification, coaching, and performance feedback, including customer satisfaction
surveying, throughout their tenure.
All learning and development activities are facilitated through our online training and development portal. This portal delivers and tracks
hundreds of computer-based training and compliance courses; it also administers tests, surveys, and the employee appraisal process. The
Company’s training and development program encompasses the tools and support we deem essential to the success of our employees and
business.
Marketing and Advertising:
The digital age has changed consumer behavior – the way people shop, their expectations, and the way we communicate with them. As
such, we utilize the following strategies to market our properties and products:
• We employ a Customer Care Center (call center) that services an average of 43,000 rental inquiries per month. Our Sales
Representatives answer incoming sales calls for all of our locations, 364 days a year, 24 hours a day. In addition, they respond to
email inquiries and serve as overnight customer service agents to assist customers outside of regular office hours. The team
undergoes continuous training and coaching in effective storage sales techniques and best practices in customer service, which we
believe results in higher conversions of inquiries to rentals.
• We maintain a website and involve internal and external expertise to manage our internet presence and leverage a search engine
and social media marketing strategy to attract customers and gain rentals online, through our call center and at our stores. Precise
targeting and tracking through campaign management and analysis allows us to attract the right customers, at the right time, for
reasonable costs of acquisition.
•
•
Since the need for storage is largely based on timing, the goal is to create positive brand recognition through a variety of channels,
both digital and traditional. When the time comes for a customer to select a storage company, we want the Life Storage brand to be
on the top of their mind. We employ a variety of different strategies to create brand awareness; this includes our Life Storage rental
trucks, branded merchandise such as moving and packing supplies, extensive regional marketing in the communities in which we
operate, and digital targeting using search, social media and remarketing campaigns. We strive to introduce storage solutions early
and often to gain the most exposure as possible for the longest amount of time.
Approximately 47% of our self-storage space is comprised of units with temperature and/or humidity control capabilities which we
market to corporate, retail and residential customers seeking storage solutions for valuable, sentimental, or otherwise sensitive
items.
• We also have a fleet of rental trucks that serve as an added incentive to choose our storage facilities. We waive the truck rental
charge for new move-in customers, and we believe it provides a valuable service and added incentive to choose Life Storage.
Further, the prominent display of our logo turns each truck into a moving billboard.
Ancillary Income:
We know that our 393,000 customers require more than just a storage space. Knowing this, we offer a wide range of other products and
services that fulfill their needs while providing us with ancillary income. Whereas our Life Storage trucks are available with no rental charge
for new move-in customers, they are available for rent to non-customers and existing customers. We also rent moving dollies and blankets, and
we carry a wide assortment of moving and packing supplies including boxes, tape, locks, and other essential items. For those customers who do
not carry storage insurance, we make available renters insurance through a third party carrier, on which we earn an administrative fee. We also
receive incidental income from billboards and cell towers.
6
Information Systems:
Each of our primary business functions is linked to our customized computer applications, many of which are proprietary. These systems
provide for consistent, timely and accurate flow of information throughout our critical platforms:
•
•
•
•
Our proprietary operating software (“ubOS”) is installed at all locations and performs the functions necessary for field personnel to
efficiently and effectively run a property. This includes customer account management, automatic imposition of late fees, move-in
and move-out analysis, generation of essential legal notices, and marketing reports to aid in regional marketing efforts. Financial
reports are automatically transmitted to our Corporate Offices overnight to allow for strict accounting oversight.
ubOS is linked with each of our primary sales channels (customer care center, internet, store) allowing for real-time access to space
type and inventory, pricing, promotions, and other pertinent store information. This robust flow of information facilitates our
commitment to capturing prospective customers from all channels.
ubOS provides our revenue management team with raw data on historical pricing, move-in and move-out activity, specials and
occupancies, etc. This data is utilized in the various algorithms that form the foundation of our revenue management
program. Changes to pricing and specials are “pushed out” to all sales channels instantaneously.
ubOS generates financial reports for each property that provide our accounting and audit departments with the necessary oversight
of transactions; this allows us to maintain proper control of receipts.
Revenue Management:
Our proprietary revenue management system is constantly evolving through the efforts of our revenue management team comprised of a
group of analysts. We have the ability to change pricing instantaneously for any single unit type, at any single location, based on the
occupancy, competition, and forecasted changes in demand. By analyzing current customer rent tenures, we can implement rental rate increases
at optimal times to increase revenues. Advanced pricing analytics enables us to reduce the amount of concessions, attracting a more stable
customer base and discouraging short-term price shoppers. This system continues to drive revenue stability and/or growth throughout our
portfolio.
Property Maintenance:
We take great pride in the appearance and structural integrity of our Properties. All of our Properties go through a thorough annual
inspection performed by experienced project managers. These inspections provide the basis for short and long term planned projects that are all
performed under a standardized set of specifications. Routine maintenance such as landscaping, pest control, and snowplowing is contracted to
local providers to whom we clearly communicate our standards. Further, our software tracks repairs, monitors contractor performance and
measures the useful life of assets. As with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance
costs because we have the benefit of economies of scale in purchasing, travel, and overhead absorption. In addition, we continually look to
green alternatives and implement energy saving alternatives as new technology becomes available. This includes the installation of solar
panels, LED lighting, energy efficient air conditioning units, and cool roofs which are all environmentally friendly and have the potential to
reduce energy consumption (thereby reducing costs) in the buildings in which they are installed. We continue to implement and expand the
Company’s solar panel initiative which has reduced energy consumption and costs at those installed locations.
Environmental and Other Regulations
We are subject to federal, state, and local environmental regulations that apply generally to the ownership of real property. We have not
received notice from any governmental authority or private party of any material environmental noncompliance, claim, or liability in
connection with any of the Properties, and are not aware of any environmental condition with respect to any of the Properties that could have a
material adverse effect on our financial condition or results of operations.
The Properties are also generally subject to the same types of local regulations governing other real property, including zoning
ordinances. We believe that the Properties are in substantial compliance with all such regulations.
Insurance
Each of the Properties is covered by fire and property insurance (including comprehensive liability and business interruption), and all-
risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, we maintain a
policy insuring against environmental liabilities resulting from tenant storage on terms customary for the industry, and title insurance insuring
fee title to the Company-owned Properties in an amount that we believe to be adequate.
7
Federal Income Tax
We operate, and we intend to continue to operate, in such a manner as to continue to qualify as a REIT under the Internal Revenue Code
of 1986 (the “Code”), but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we
will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. We have elected to treat one of
our subsidiaries as a taxable REIT subsidiary. In general, our taxable REIT subsidiary may perform additional services for customers and
generally may engage in certain real estate or non-real estate related business. Our taxable REIT subsidiary is subject to corporate federal and
state income taxes. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - REIT Qualification
and Distribution Requirements.”
The Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on
December 22, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including
REITs and their shareholders. Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may
be forthcoming at any time. We cannot predict the long-term effect of the TCJA or any future law changes on us or our shareholders. A brief
summary of the key changes from the TCJA that directly impact us and, potentially, our shareholders is set forth below. The changes described
are effective for taxable years beginning after December 31, 2017, unless otherwise noted.
Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income
tax rate, which is effective for taxable years beginning after December 31, 2017, will apply to income earned by our taxable REIT subsidiary.
This reduced rate also applies to the amount that we must withhold from our distributions to non-U.S. shareholders that are designated as
capital gain dividends (or that could have been designated as capital gain dividends). The TCJA also repeals the alternative minimum tax
imposed on C corporations.
The TCJA reduces the highest marginal income tax rate applicable to U.S. individuals from 39.6% to 37% (excluding the 3.8% Medicare
tax on net investment income). Domestic non-corporate taxpayers continue to pay a maximum 20% rate on long-term capital gains and
qualified dividend income. However, the TCJA also will allow domestic non-corporate taxpayers to deduct 20% of their dividends from REITs,
excluding capital gain dividends and qualified dividend income (which continue to be subject to the 20% rate). As a result, dividend income
received by our domestic non-corporate shareholders will be subject to a maximum effective federal income tax rate of 29.6% (plus the 3.8%
Medicare tax on net investment income). The cumulative amount that a domestic non-corporate taxpayer may deduct for any taxable year with
respect to ordinary REIT dividends from all sources (together with certain other categories of income that are eligible for such 20% deduction)
may not exceed 20% of such person’s total taxable income (excluding any net capital gain). The income tax rate changes applicable to
domestic non-corporate taxpayers and the 20% deduction for ordinary REIT dividends apply for taxable years beginning after December 31,
2017 and before January 1, 2026.
The TCJA generally limits the deduction for net business interest to 30% of adjusted taxable income (excluding non-business income, net
operating losses, business interest income, and, for taxable years beginning before January 1, 2022, computed without regard to depreciation
and amortization). This limitation on the deductibility of net business interest could result in additional taxable income for us and our taxable
REIT subsidiary.
Competition
The primary factors upon which competition in the self-storage industry is based are location, rental rates, suitability of the property’s
design to prospective customers’ needs, and how the property is operated and marketed. We believe we compete successfully on these factors.
The extent of competition depends significantly on local market conditions. We seek to locate where we can increase market share while not
adversely affecting any of our existing locations in that market. However, the number of self-storage facilities in a particular area could have a
material adverse effect on the performance of any of the Properties.
Several of our competitors are larger and have substantially greater financial resources than we do. These larger operators may, among
other possible advantages, be capable of greater leverage and the payment of higher prices for acquisitions.
Investment Policy
While we emphasize equity real estate investments, we may, at our discretion, invest in mortgage and other real estate interests related to
self-storage properties in a manner consistent with our qualification as a REIT. We may also retain a purchase money mortgage for a portion of
the sale price in connection with the disposition of Properties from time to time. Should investment opportunities become available, we may
look to acquire additional self-storage properties via new or existing joint-venture partnerships or similar entities. We may or may not elect to
have a significant investment in such a venture, but would use such an opportunity to expand our portfolio of branded and managed properties.
Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, we also may invest in
securities of entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such
entities.
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Disposition Policy
Any disposition decision of our Properties is based on a variety of factors, including, but not limited to, the (i) potential to continue to
increase cash flow and value, (ii) sale price, (iii) strategic fit with the rest of our portfolio, (iv) potential for, or existence of, environmental or
regulatory issues, (v) alternative uses of capital, and (vi) maintaining qualification as a REIT.
During 2017, the Company sold two non-strategic properties and received net cash proceeds of $16.9 million, resulting in a loss of a
approximately $3.5 million. The Company has subsequently leased one of the properties sold during 2017 and will continue to operate the
property through March 2020. Due to the Company’s continuing involvement in this property, the related gain on the sale of this property has
been deferred and will be recognized by the Company upon termination of this lease. During 2016, we sold eight non-strategic properties in
Alabama, Georgia, Mississippi, Texas and Virginia for net proceeds of approximately $34.1 million, resulting in a gain of approximately $15.3
million. During 2015, we sold three non-strategic storage facilities in Missouri and South Carolina for net proceeds of approximately $4.6
million, resulting in a loss of approximately $0.5 million.
Distribution Policy
We intend to pay regular quarterly distributions to our shareholders. However, future distributions by us will be at the discretion of the
Board of Directors and will depend on the actual cash available for distribution, our financial condition and capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. In order to
maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income (which
does not include capital gains or losses). Under certain circumstances, we may be required to make distributions in excess of cash available for
distribution in order to meet the minimum requirements.
Financing Policy
Our Board of Directors currently limits the amount of debt that may be incurred by us to less than 50% of the sum of the market value of
our issued and outstanding Common and Preferred Stock plus our debt. We, however, may from time to time re-evaluate and modify our
borrowing policy considering current economic conditions, relative costs of debt and equity capital, market values of properties, growth and
acquisition opportunities and other factors. In addition to our Board of Directors’ debt limits, our most restrictive debt covenants limit our
leverage. However, we believe cash flow from operations, access to the capital markets and access to our credit facility, as described below, are
adequate to execute our current business plan and remain in compliance with our debt covenants.
The following sets forth certain financing activities during the year ended December 31, 2017.
On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal of 3.875% unsecured senior notes due
December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027
Senior Notes is payable semi-annually on June 15 and December 15, beginning on June 15, 2018. The 2027 Senior Notes are fully and
unconditionally guaranteed by the Parent Company. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting
and other offering expenses totaling $4.0 million, totaled $443.9 million. The proceeds were primarily used to repay $225.0 million of the
Company’s then existing variable rate term notes and to repay $210.0 million of the then outstanding balance on the Company’s line of credit.
Amounts outstanding on the Company’s line of credit at December 31, 2017 totaled $105.0 million.
To the extent that we desire to obtain additional capital to pay distributions, to provide working capital, to pay existing indebtedness or to
finance acquisitions, expansions or development of new properties, we may utilize amounts available under the line of credit, common or
preferred stock offerings, floating or fixed rate debt financing, retention of cash flow (subject to satisfying our distribution requirements under
the REIT rules) or a combination of these methods. Additional debt financing may also be obtained through mortgages on our Properties,
which may be recourse, non-recourse, or cross-collateralized and may contain cross-default provisions. We have not established any limit on
the number or amount of mortgages that may be placed on any single Property or on our portfolio as a whole, although certain of our existing
term loans contain limits on overall mortgage indebtedness. For additional information regarding borrowings and equity activities, see Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Notes 5 and
6 to the Consolidated Financial Statements filed herewith.
Employees
We currently employ a total of 1,792 employees, including 706 property managers, 47 area managers, and 785 associate managers and
part-time employees. At our headquarters, in addition to our five senior executive officers, we employ 249 people engaged in various support
activities, including accounting, human resources, customer care, and management information systems. None of our employees are covered by
a collective bargaining agreement. We consider our employee relations to be excellent.
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Available Information
We file with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively, current
reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. We file this
information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our web site at
http://www.lifestorage.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In
addition, our Codes of Ethics and Charters of our Governance Committee, Audit Committee, and Compensation Committee are available free
of charge on our website at http://www.lifestorage.com .
Also, copies of our annual report and Charters of our Governance Committee, Audit Committee, and Compensation Committee will be
made available, free of charge, upon written request to Life Storage, Inc., Attn: Investor Relations, 6467 Main Street, Williamsville, NY 14221.
Item 1A.
Risk Factors
You should carefully consider the risks described below, together with all of the other information included in or incorporated by
reference into our Form 10-K, as part of your evaluation of the Company. If any of the following risks actually occur, our business could be
harmed. In such case, the trading price of our securities could decline, and you may lose all or part of your investment.
Our Acquisitions May Not Perform as Anticipated
We have completed hundreds of acquisitions of self-storage facilities since our initial public offering of common stock in June 1995. One
of our strategies is to continue to grow by acquiring additional self-storage facilities. Acquisitions entail risks that investments will fail to
perform in accordance with our expectations. Our judgments with respect to the prices paid for acquired self-storage facilities and the costs of
any improvements required to bring an acquired property up to our standards may prove to be inaccurate. Acquisitions also involve general
investment risks associated with any new real estate investment.
We May Incur Problems with Our Real Estate Financing
Unsecured Credit Facility, Term Notes and Senior Notes. We have a line of credit and term note agreements with a syndicate of financial
institutions and other lenders, along with senior debt of $1,050 million. This indebtedness is recourse to us and the required payments are not
reduced if the economic performance of any of the properties declines. The facilities limit our ability to make distributions to our shareholders,
except in limited circumstances.
Rising Interest Rates. Indebtedness that we incur under the unsecured credit facility and bank term notes bears interest at a variable rate.
Accordingly, increases in interest rates could increase our interest expense, which would reduce our cash available for distribution and our
ability to pay expected distributions to our shareholders. We manage our exposure to rising interest rates using interest rate swaps and other
available mechanisms. If the amount of our indebtedness bearing interest at a variable rate increases, our unsecured credit facility may require
us to enter into additional interest rate swaps.
Refinancing May Not Be Available. It may be necessary for us to refinance our indebtedness through additional debt financing or equity
offerings. If we were unable to refinance this indebtedness on acceptable terms, we might be forced to dispose of some of our self-storage
facilities upon disadvantageous terms, which might result in losses to us and might adversely affect the cash available for distribution. If
prevailing interest rates or other factors at the time of refinancing result in higher interest rates on any refinancings, our interest expense would
increase, which would adversely affect our cash available for distribution and our ability to pay expected distributions to shareholders.
Covenants and Risk of Default. Our loan instruments require us to operate within certain covenants, including financial covenants with
respect to leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and dividend limitations. If we violate
any of these covenants or otherwise default under these instruments, then our lenders could declare all indebtedness under these facilities to be
immediately due and payable which would have a material adverse effect on our business and could require us to sell self-storage facilities
under distressed conditions and seek replacement financing on substantially more expensive terms.
Reduction in or Loss of Credit Rating. Certain of our debt instruments require us to maintain an investment grade rating from at least one
and in some cases two debt ratings agencies. Should we receive a reduction in our credit rating from the agencies, the interest rate on our line of
credit would increase by up to 0.50% and the interest rate on $100 million of our bank term notes would increase by up to 0.65%. Should we
fail to attain an investment grade rating from the agencies, the interest rates on our $100 million term note due 2021 and our $175 million term
note due 2024 would each increase by 1.750%.
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Our Debt Levels May Increase
Our Board of Directors currently has a policy of limiting the amount of our debt at the time of incurrence to less than 50% of the sum of
the market value of our issued and outstanding common stock and preferred stock plus the amount of our debt at the time that debt is incurred.
However, our organizational documents do not contain any limitation on the amount of indebtedness we might incur. Accordingly, our Board
of Directors could alter or eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become highly
leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our debt instruments.
We Are Subject to the Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage Industry
Our self-storage facilities are subject to all operating risks common to the self-storage industry. These risks include but are not limited to
the following:
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Decreases in demand for rental spaces in a particular locale;
Changes in supply of similar or competing self-storage facilities in an area;
Changes in market rental rates; and
Inability to collect rents from customers.
Our current strategy is to acquire interests only in self-storage facilities. Consequently, we are subject to risks inherent in investments in a
single industry. Our self-storage facilities compete with other self-storage facilities in their geographic markets. Due to competition, the self-
storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We
compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the
number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self-
storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding might cause
us to experience a decrease in occupancy levels, limit our ability to increase rents, and compel us to offer discounted rents.
Our Real Estate Investments Are Illiquid and Are Subject to Uninsurable Risks and Government Regulation
General Risks. Our investments are subject to varying degrees of risk generally related to the ownership of real property. The underlying
value of our real estate investments and our income and ability to make distributions to our shareholders are dependent upon our ability to
operate the self-storage facilities in a manner sufficient to maintain or increase cash available for distribution. Income from our self-storage
facilities may be adversely affected by the following factors:
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Changes in national economic conditions;
Changes in general or local economic conditions and neighborhood characteristics;
Competition from other self-storage facilities;
Changes in interest rates and in the availability, cost and terms of financing;
The impact of present or future environmental legislation and compliance with environmental laws;
The ongoing need for capital improvements, particularly in older facilities;
Changes in real estate tax rates and other operating expenses;
Adverse changes in governmental rules and fiscal policies;
Uninsured losses resulting from casualties associated with civil unrest, acts of God, including natural disasters, and acts of war;
Adverse changes in zoning laws; and
Other factors that are beyond our control.
Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to vary our portfolio of self-
storage facilities in response to changes in economic and other conditions is limited. In addition, provisions of the Code may limit our ability to
profit on the sale of self-storage facilities held for fewer than two years. We may be unable to dispose of a facility when we find disposition
advantageous or necessary and the sale price of any disposition may not equal or exceed the amount of our investment.
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Uninsured and Underinsured Losses Could Reduce the Value of our Self Storage Facilities. Some losses, generally of a catastrophic
nature, that we potentially face with respect to our self-storage facilities may be uninsurable or not insurable at an acceptable cost. Our
management uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to acquiring
appropriate insurance on our investments at a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in
the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment.
Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use
insurance proceeds to replace a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds received by
us might not be adequate to restore our economic position with respect to a particular property.
Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic
substances on, under, or in that property. Those laws often impose liability even if the owner or operator did not cause or know of the presence
of hazardous or toxic substances and even if the storage of those substances was in violation of a customer’s lease. In addition, the presence of
hazardous or toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the owner’s ability to
borrow using that real property as collateral. In connection with the ownership of the self-storage facilities, we may be potentially liable for any
of those costs.
Americans with Disabilities Act. The Americans with Disabilities Act of 1990, or ADA, generally requires that buildings be made
accessible to persons with disabilities. A determination that we are not in compliance with the ADA could result in imposition of fines or an
award of damages to private litigants. If we were required to make modifications to comply with the ADA, our results of operations and ability
to make expected distributions to our shareholders could be adversely affected.
There Are Limitations on the Ability to Change Control of the Company
Limitation on Ownership and Transfer of Shares. To maintain our qualification as a REIT, not more than 50% in value of our
outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code. To limit the possibility
that we will fail to qualify as a REIT under this test, our Amended and Restated Articles of Incorporation (“Articles of Incorporation”) include
ownership limits and transfer restrictions on shares of our stock. Our Articles of Incorporation limit ownership of our issued and outstanding
stock by any single shareholder to 9.8% of the aggregate value of our outstanding stock, except that the ownership by some of our shareholders
is limited to 15%.
These ownership limits may:
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Have the effect of precluding an acquisition of control of the Company by a third party without consent of our Board of Directors
even if the change in control would be in the interest of shareholders; and
Limit the opportunity for shareholders to receive a premium for shares of our common stock they hold that might otherwise exist if
an investor were attempting to assemble a block of common stock in excess of 9.8% or 15%, as the case may be, of the outstanding
shares of our stock or to otherwise effect a change in control of the Company.
Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those shareholders in excess of those limits
will not jeopardize our status as a REIT under the Code or in the event it determines that it is no longer in our best interests to be a REIT.
Waivers have been granted to the former holders of our Series C preferred stock, FMR Corporation, Cohen & Steers, Inc. and Invesco
Advisers, Inc. A transfer of our common stock and/or preferred stock to a person who, as a result of the transfer, violates the ownership limits
may not be effective under some circumstances.
Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a
majority, of our outstanding common stock might receive a premium for their shares of our common stock that exceeds the then prevailing
market price or that those holders might believe to be otherwise in their best interest. The issuance of shares of preferred stock could have the
effect of delaying or preventing a change in control of the Company even if a change in control were in the shareholders’ interest. In addition,
the Maryland General Corporation Law, or MGCL, imposes restrictions and requires specific procedures with respect to the acquisition of
stated levels of share ownership and business combinations, including combinations with interested shareholders. These provisions of the
MGCL could have the effect of delaying or preventing a change in control of Life Storage even if a change in control were in the shareholders’
interest. Our bylaws contain a provision exempting from the MGCL control share acquisition statute any and all acquisitions by any person of
shares of our stock. However, this provision may be amended or eliminated at any time. In addition, under the Operating Partnership’s
agreement of limited partnership, in general, we may not merge, consolidate or engage in any combination with another person or sell all or
substantially all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the Operating
Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof. If we were to own less than 75% of
the limited partnership interests in the Operating Partnership, this provision of the limited partnership agreement could have the effect of
delaying or preventing us from engaging in some change of control transactions.
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Our Failure to Qualify as a REIT Would Have Adverse Consequences
We intend to continue to operate in a manner that will permit us to qualify as a REIT under the Code. We have not requested and do not
plan to request a ruling from the Internal Revenue Service (“IRS”) that we qualify as a REIT, and the statements in this Annual Report on Form
10-K are not binding on the IRS or any court. Qualification as a REIT involves the application of highly technical and complex Code
provisions for which there are only limited judicial and administrative interpretations. Continued qualification as a REIT depends upon our
continuing ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our
assets, the sources of our income and the amount of our distributions to our shareholders. The fact that we hold substantially all of our assets
through our Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us.
Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs
and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.
Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts and the IRS might issue new rulings,
that make it more difficult, or impossible, for us to remain qualified as a REIT.
If we were to fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the
Code, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to federal
income tax (including possibly increased state and local taxes) on our taxable income at regular corporate rates. Unless entitled to relief under
certain Code provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year during which our
qualification was lost. As a result, distributions to the shareholders would be reduced for each of the years involved. Although we currently
intend to continue to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other
considerations may cause our Board of Directors to revoke our REIT election. If we fail to qualify as a REIT for federal income tax purposes
and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless
be required to pay penalty taxes of $50,000 or more for each such failure.
We Will Pay Some Taxes Even if We Qualify as a REIT, Reducing Cash Available for Shareholders
Even if we qualify as a REIT for federal income tax purposes, we are required to pay some federal, state and local taxes on our income
and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including
capital gains). Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any
calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income
from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general,
prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The
determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we
will undertake sales of assets if those assets become inconsistent with our long-term strategic or return objectives, we do not believe that those
sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise. The need to avoid
prohibited transactions could cause us to forego or defer sales of properties that might otherwise be in our best interest to sell.
One of our subsidiaries has elected to be treated as a “taxable REIT subsidiary” of the Company for federal income tax purposes. A
taxable REIT subsidiary is taxed as a regular corporation and is limited in its ability to deduct interest payments made to us in excess of a
certain amount, in addition to other limitations imposed on the deductibility of interest under the TCJA. In addition, if we receive or accrue
certain amounts and the underlying economic arrangements between our taxable REIT subsidiary and us are not comparable to similar
arrangements among unrelated parties, we will be subject to a 100% penalty tax on those payments in excess of amounts deemed reasonable
between unrelated parties.
Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax
on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we are or any taxable
REIT subsidiary is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to shareholders.
Complying with REIT Requirements May Limit Our Ability to Hedge Effectively and May Cause Us to Incur Tax Liabilities
The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we
generate from transactions intended to hedge our interest rate risk will be excluded from gross income for purposes of the REIT 75% and 95%
gross income tests if the instrument hedges interest rate risk on liabilities used to carry or acquire real estate assets or manages the risk of
certain currency fluctuations, and such instrument is properly identified under applicable Treasury Regulations. Income from hedging
transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95%
gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or
implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT
subsidiary would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want
to bear. In addition, losses in our taxable REIT subsidiary arising after December 31, 2017 will generally not provide any tax benefit, except for
being carried forward against future taxable income in the taxable REIT subsidiary.
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Complying with the REIT Requirements May Cause Us to Forgo and/or Liquidate Otherwise Attractive Investments
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and
diversification of our assets, the amounts that we distribute to our shareholders and the ownership of our shares. To meet these tests, we may be
required to take or forgo taking actions that we would otherwise consider advantageous. For instance, in order to satisfy the gross income or
asset tests applicable to REITs under the Code, we may be required to forgo investments that we otherwise would make. Furthermore, we may
be required to liquidate from our portfolio otherwise attractive investments. In addition, we may be required to make distributions to
shareholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could reduce our income
and amounts available for distribution to our shareholders. Thus, compliance with the REIT requirements may hinder our investment
performance.
If the Operating Partnership Fails to Qualify as a Partnership for Federal Income Tax Purposes, We Could Fail to Qualify as a REIT
and Suffer Other Adverse Consequences
We believe that the Operating Partnership is organized and operated in a manner so as to be treated as a partnership and not an
association or a publicly traded partnership taxable as a corporation, for federal income tax purposes. As a partnership, the Operating
Partnership is not subject to federal income tax on its income. Instead, each of the partners is allocated its share of the Operating Partnership’s
income. No assurance can be provided, however, that the IRS will not challenge the Operating Partnership’s status as a partnership for federal
income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership as an
association or publicly traded partnership taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests
and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT. Also, the failure of the Operating
Partnership to qualify as a partnership would cause it to become subject to federal corporate income tax, which would reduce significantly the
amount of its cash available for distribution to its partners, including us.
The Tax Cuts and Jobs Act May Impact the Attractiveness of an Investment in our Stock in Ways Difficult to Anticipate
The Tax Cuts and Jobs Act (the “TCJA”), signed into law in late 2017, significantly changed the U.S. federal income tax law applicable,
and is generally for taxable years beginning after December 31, 2017. The TCJA reduced corporate and non-corporate income tax rates and
changed numerous other provisions of the Code that may affect the taxation of REITs and their shareholders. These changes generally appear
favorable to REITs; however, certain changes to the U.S. federal income tax laws pursuant to the TCJA could have a material and adverse
effect on us. Some of these changes could reduce the relative competitive advantage of companies operating as REITs as opposed to companies
not operating as REITs, including:
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the reduction in tax rates applicable to individuals and C corporations, which could reduce the relative attractiveness of the
generally single-level of taxation on REIT distributions;
the immediate expensing of capital expenditures, which could likewise reduce the relative attractiveness of the REIT structure; and
the limit on the deductibility of interest expense, which could increase the distribution requirement of REITs.
Many changes applicable to individual taxpayers are temporary – applying to taxable years beginning after December 31, 2017 and
before January 1, 2026. The TCJA makes numerous other changes to the tax law that do not affect REITs directly, but these changes could
impact our shareholders and, therefore, could indirectly affect us.
Furthermore, the TCJA was adopted in a short period of time without hearings. It is likely that Congress will have to review, and
possibly modify, provisions of the TCJA in subsequent tax legislation. It is not possible to predict if or when Congress will address changes to
the TCJA or when the Internal Revenue Service will issue administrative guidance on the changes made by the TCJA or how any such changes
will impact us or an investment in our stock. It is possible that future changes to tax law or guidance promulgated thereunder could adversely
impact us.
Shareholders are urged to consult with their tax advisors about the TCJA and any other regulatory or administrative developments and
proposals with respect to taxes and their potential effect on investment in our stock.
U.S. Federal Income Tax Treatment of REITs and Investments in REITs May Change, Which May Result in the Loss of Our Tax
Benefits of Operating as a REIT
Current U.S. federal income tax treatment of a REIT and an investment in a REIT may be modified by legislative, judicial or
administrative action at any time, and we cannot predict when such action may occur. We cannot predict how changes in U.S. federal income
tax law will affect us or our investors nor can we predict the long-term impact of tax reforms on REITs.
We May Change the Dividend Policy for Our Common Stock in the Future
In 2017, our Board of Directors authorized and we declared quarterly common stock dividends of $0.95 per share in January, and $1.00
per share for April, July and October, for a total 2017 dividend per share annual rate of $3.95 per share. In addition, our Board of Directors
authorized and we declared a quarterly common stock dividend of $1.00 per share in January 2018. We can provide no assurance that our
Board of Directors will not reduce or eliminate entirely dividend distributions on our common stock in the future.
14
Our Board of Directors will continue to evaluate our distribution policy on a quarterly basis as they monitor the capital markets and the
impact of the economy on our operations. The decisions to authorize and pay dividends on our common stock in the future, as well as the
timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Directors given conditions then
existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of capital, applicable REIT and legal
restrictions and the general overall economic conditions and other factors. Any change in our dividend policy could have a material adverse
effect on the market price of our common stock.
Market Interest Rates May Influence the Price of Our Common Stock
One of the factors that may influence the price of our common stock in public trading markets or in private transactions is the annual
yield on our common stock as compared to yields on other financial instruments. An increase in market interest rates will result in higher yields
on other financial instruments, which could adversely affect the price of our common stock.
Regional Concentration of Our Business May Subject Us to Economic Downturns in the States of Texas and Florida
As of December 31, 2017, 254 of our 706 self-storage facilities are located in the states of Texas and Florida. For the year ended
December 31, 2017, these facilities accounted for approximately 36% of store revenues. This concentration of business in Texas and Florida
exposes us to potential losses resulting from a downturn in the economies of those states. If economic conditions in those states deteriorate, we
may experience a reduction in existing and new business, which may have an adverse effect on our business, financial condition and results of
operations.
When We Acquire Properties in New Markets, We Will Be Subject to Increased Operational Risks
We may acquire self-storage properties in markets where we have little or no operational experience. When we enter into new markets,
we will be subject to increased risks resulting from our lack of experience and infrastructure in these markets and may need to incur additional
costs, both expected and unexpected, to develop our operating capabilities in these markets. These risks could materially and adversely affect
us, including our growth prospects, financial condition and results of operations.
Changes in Taxation of Corporate Dividends May Adversely Affect the Value of Our Common Stock
The maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received from a regular “C” corporation
under current federal law generally is 20%, as opposed to higher ordinary income rates. The reduced tax rate, however, does not apply to
distributions paid to domestic noncorporate taxpayers by a REIT on its stock, except for certain limited amounts. The earnings of a REIT that
are distributed to its stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation that are
distributed to its stockholders net of corporate-level income tax. However, the lower rate of taxation to dividends paid by regular “C”
corporations could cause domestic noncorporate investors to view the stock of regular “C” corporations as more attractive relative to the stock
of a REIT, because the dividends from regular “C” corporations continue to be taxed at a lower rate while distributions from REITs (other than
distributions designated as capital gain dividends) are generally taxed at the same rate as other ordinary income for domestic noncorporate
taxpayers.
We are heavily dependent on computer systems, telecommunications and the Internet to process transactions, summarize results and
manage our business. Security breaches or a failure of such networks, systems or technology could adversely impact our business and
customer relationships.
We are heavily dependent upon automated information technology and Internet commerce, with many of our new customers coming
from the Internet or the telephone, and the nature of our business involves the receipt and retention of personal information about them. We
centrally manage significant components of our operations with our computer systems, including our financial information, and we also rely
extensively on third-party vendors to retain data, process transactions and provide other systems services. These systems are subject to damage
or interruption from power outages, computer and telecommunications failures, computer worms, viruses and other destructive or disruptive
security breaches and catastrophic events.
As a result, our operations could be severely impacted by a natural disaster, terrorist attack or other circumstance that resulted in a
significant outage of our systems or those of our third-party providers, despite our use of back up and redundancy measures. Further, viruses
and other related risks could negatively impact our information technology processes. We could also be subject to a “cyber-attack” or other
data security breach which would penetrate our network security, resulting in misappropriation of our confidential information, including
customer personal information. System disruptions and shutdowns could also result in additional costs to repair or replace such networks or
information systems and possible legal liability, including government enforcement actions and private litigation. In addition, our customers
could lose confidence in our ability to protect their personal information, which could cause them to move out of rented storage spaces. Such
events could lead to lost future sales and adversely affect our results of operations.
Item 1B. Unresolved Staff Comments
None.
15
Item 2.
Properties
At December 31, 2017, we held ownership interests in, leased, and/or managed a total of 706 Properties situated in 28 states. Among our
706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures of which we have varying percentage ownership
interests. For additional information regarding unconsolidated joint ventures, see Note 11 to the Consolidated Financial Statements filed
herewith.
Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to
month basis. Most of our Properties are fenced and well lighted with automated access systems and surveillance cameras. A majority of the
Properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage spaces. Our stores range
in size from 18,000 to 195,000 net rentable square feet, with an average of approximately 70,000 net rentable square feet. The Properties
generally are constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. All
Properties have a property manager on-site during business hours. Generally, customers have access to their storage space up to 15 hours a day,
and some customers are provided 24-hour access. Individual storage spaces are secured by a lock furnished by the customer to provide the
customer with control of access to the space.
The following table provides certain information regarding the Properties in which we have an ownership interest, lease, and/or manage
as of December 31, 2017:
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Illinois
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Mississippi
Missouri
Nevada
New Hampshire
New Jersey
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Virginia
Wisconsin
Total
Number of
Stores at
December 31,
2017
21
25
28
11
11
95
34
45
2
16
5
3
15
12
14
22
10
29
46
22
25
11
4
14
7
159
18
2
706
Square
Feet
1,581,503
1,741,275
2,538,426
769,437
834,952
6,422,451
2,355,069
3,348,867
142,764
954,965
233,136
138,839
817,298
885,381
948,066
1,633,278
725,123
2,091,277
2,827,529
1,361,090
1,656,927
688,019
205,871
901,444
510,619
11,745,044
1,382,818
169,595
49,611,063
Number of
Spaces
Percentage
of Store
Revenue
12,157
15,743
22,751
6,828
8,705
63,243
20,193
33,810
1,322
8,088
2,295
1,619
8,244
6,614
8,498
13,708
6,222
21,891
28,684
12,632
13,940
5,961
1,922
7,974
4,231
97,320
12,576
1,726
448,897
2.35%
3.00%
6.28%
1.80%
2.16%
13.49%
4.23%
7.40%
0.28%
1.66%
0.61%
0.36%
2.06%
1.48%
1.86%
2.81%
1.40%
5.79%
6.77%
2.20%
2.72%
1.37%
0.49%
1.67%
0.85%
22.51%
2.21%
0.19%
100.0%
At December 31, 2017, the Properties had an average occupancy of 88.7% and an annualized rent per occupied square foot of $14.07.
16
Item 3.
Legal Proceedings
On or about August 25, 2014, a putative class action was filed against the Company in the Superior Court of New Jersey Law Division
Burlington County. The action seeks to obtain declaratory, injunctive and monetary relief for a class of consumers based upon alleged
violations by the Company of various statutory laws. On October 17, 2014, the action was removed from the Superior Court of New Jersey
Law Division Burlington County to the United States District Court for the District of New Jersey. The Company brought a motion to partially
dismiss the complaint for failure to state a claim, and on July 16, 2015, the Company’s motion was granted in part and denied in part. On
October 20, 2016, the complaint was amended to add additional claims. The parties have entered into a memorandum of understanding to settle
all claims for an aggregate amount of $8.0 million. In February 2018, the motion for the preliminary approval of the proposed class action
settlement was granted. The aggregate settlement amount of $8.0 million ($6.0 million after considering income tax impact) has been recorded
as a liability of in the Company’s consolidated balance sheet. A portion of the settlement expense relates to self-storage facilities that are
managed by the Company through its taxable REIT subsidiary. There is an income tax impact to the Company on that portion of the settlement
expense as a result. The settlement is subject to final approval by the court, a decision which is expected in 2018.
Item 4.
Mine Safety Disclosures
Not Applicable
17
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock is traded on the New York Stock Exchange under the symbol “LSI”. Set forth below are the high and low sales
prices for our Common Stock for each full quarterly period within the two most recent fiscal years.
Part II
Quarter 2016
1st
2nd
3rd
4th
Quarter 2017
1st
2nd
3rd
4th
High
Low
118.18 $
117.81 $
107.71 $
88.89 $
98.80
98.93
86.45
77.00
High
Low
89.24 $
87.87 $
83.90 $
91.75 $
79.38
72.08
69.00
77.88
$
$
$
$
$
$
$
$
As of February 12, 2018, there were approximately 590 holders of record of our Common Stock. These figures do not include common
shares held by brokers and other institutions on behalf of shareholders.
We have paid quarterly dividends to our shareholders since our inception. Reflected in the table below are the dividends paid in the last
two years.
For federal income tax purposes, distributions to shareholders are treated as ordinary income, capital gain, return of capital or a
combination thereof. Distributions to shareholders for 2017 represent 83% ordinary income and 17% return of capital.
History of Dividends Declared on Common Stock
January 2016
April 2016
July 2016
October 2016
January 2017
April 2017
July 2017
October 2017
$
$
$
$
$
$
$
$
0.85 per share
0.95 per share
0.95 per share
0.95 per share
0.95 per share
1.00 per share
1.00 per share
1.00 per share
For each quarter in 2016 and 2017, the Operating Partnership paid a cash distribution per unit in an amount equal to the dividend paid on
a share of common stock for such quarter.
The following table summarizes our purchases of our common stock for the year ended December 31, 2017.
18
Issuer Purchases of Equity Securities
Period
August 1, 2017 - August 31, 2017
September 1, 2017 - September 30, 2017
October 1, 2017 - December 31, 2017
Total
(a) Total number of (b) Average price announced plans or
paid per share
shares purchased
programs (1)
(d) Approx. dollar
(c) Total number of value of shares that
shares purchased as
part of publicly
may yet be
purchased under
the plans or
programs (1)
92,150 $
20,404
—
112,554
72.98
73.94
—
73.16
92,150 $ 193,274,647
191,765,955
20,404
—
—
112,554 $ 191,765,955
(1) On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s
common stock. The program does not have an expiration date but may be suspended or discontinued at any time.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31, 2017, with respect to equity compensation plans under which
shares of the Company’s Common Stock may be issued.
Plan Category
Equity compensation plans approved by shareholders:
2005 Award and Option Plan
2015 Award and Option Plan (2)
2009 Outside Directors’ Stock Option and Award Plan
Deferred Compensation Plan for Directors (1)
Equity compensation plans not approved by shareholders:
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
Weighted
average
exercise price
of
outstanding
options,
warrants
and rights
Number of
securities
remaining
available
for future
issuance
76,106 $
124,402 $
18,500 $
21,540
N/A
45.59
—
79.58
N/A
N/A
—
345,383
67,871
22,598
N/A
(1) Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are
otherwise payable in cash. Directors’ fees that are deferred under the Plan will be credited to each Directors’ account under the Plan in
the form of Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of
the Company’s Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees
otherwise would be paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock
represented by Units in such Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the
Director or in quarterly or annual installments over a specified period and commencing on a specified date.
Includes the maximum number of shares (124,402) that could be issued as part of 2015, 2016 and 2017 performance-based awards. The
actual number of shares to be issued will be determined at the end of the three-year performance periods in 2018, 2019 and 2020. See
Note 9 to our consolidated financial statements filed herewith.
(2)
19
CORPORATE PERFORMANCE GRAPH
The following chart and line-graph presentation compares (i) the Company’s shareholder return on an indexed basis since December 31,
2012 with (ii) the S&P Stock Index and (iii) the National Association of Real Estate Investment Trusts Equity Index.
CUMULATIVE TOTAL SHAREHOLDER RETURN
LIFE STORAGE, INC.
DECEMBER 31, 2012 - DECEMBER 31, 2017
S&P
NAREIT
LSI
Dec. 31,
2012
100.00
100.00
100.00
Dec. 31,
2013
132.39
102.47
108.13
Dec. 31,
2014
150.51
133.35
150.19
Dec. 31,
2015
152.59
137.61
191.34
Dec. 31,
2016
170.84
149.33
157.66
Dec. 31,
2017
208.14
157.14
173.11
The foregoing item assumes $100.00 invested on December 31, 2012, with dividends reinvested.
Item 6.
Selected Financial Data
LIFE STORAGE, INC.
The following table sets forth selected financial and operating data on an historical consolidated basis for the Parent Company. The
selected historical financial data as of and for the five-year period ended December 31, 2017 are derived from the Parent Company’s
consolidated financial statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The
consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31,
2017, and their report thereon, are included herein. The other data presented below is not derived from the financial statements.
20
The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto of the Parent Company
included elsewhere in this Annual Report on Form 10-K:
(dollars in thousands, except per share data)
Operating Data
Operating revenues
Income from continuing operations
Income from discontinued operations (1)
Net income
Net income attributable to common shareholders
Income from continuing operations per common share
attributable to common shareholders – diluted
Net income per common share attributable to common
shareholders – basic
Net income per common share attributable to common
shareholders – diluted
Dividends declared per common share (2)
Balance Sheet Data
Investment in storage facilities at cost
Total assets
Total debt
Total liabilities
Other Data
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
$
2017
529,750
96,809
—
96,809
96,365
At or For Year Ended December 31,
2015
2014
2016
$
$
462,608
84,956
—
84,956
85,225
$
$
366,602
113,077
—
113,077
112,524
326,080
89,057
—
89,057
88,531
2.07
2.08
2.07
3.95
1.96
1.97
1.96
3.70
3.16
3.18
3.16
3.20
2.67
2.68
2.67
2.72
2013
273,507
71,472
3,123
74,595
74,126
2.26
2.37
2.36
2.02
$ 4,321,410
3,876,774
1,726,763
1,829,078
$ 4,243,308
3,857,984
1,653,552
1,751,399
$ 2,491,702
2,118,822
827,643
898,336
$ 2,177,983
1,850,727
797,054
861,236
$ 1,864,637
1,558,894
623,273
675,245
$
248,580
(156,510)
(106,588)
$
225,550
(1,796,069)
1,587,184
$
$
186,198
(328,689)
140,968
146,068
(334,993)
187,944
$
120,646
(114,345)
(4,032)
(1)
(2)
In 2013 we sold four stores whose results of operations and gain on disposal are classified as discontinued operations for all previous
years presented.
In 2013 we declared regular quarterly dividends of $0.48 in January and April, and $0.53 in July and October. In 2014 we declared
regular quarterly dividends of $0.68 in January, April, July and October. In 2015 we declared regular quarterly dividends of $0.75 in
January and April, and $0.85 in July and October. In 2016 we declared regular quarterly dividends of $0.85 in January and $0.95 in
April, July and October. In 2017 we declared regular quarterly dividends of $0.95 in January and $1.00 in April, July and October.
21
LIFE STORAGE LP
The following table sets forth selected financial and operating data on an historical consolidated basis for the Operating Partnership. The
selected historical financial data as of and for the five-year period ended December 31, 2017 are derived from the Operating Partnership’s
consolidated financial statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The
consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31,
2017, and their report thereon, are included herein. The other data presented below is not derived from the financial statements.
The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto of the Operating
Partnership included elsewhere in this Annual Report on Form 10-K:
(dollars in thousands, except per unit data)
Operating Data
Operating revenues
Income from continuing operations
Income from discontinued operations (1)
Net income
Net income attributable to common unitholders
Income from continuing operations per common unit
attributable to common unitholders – diluted
Net income per common unit attributable to common
unitholders – basic
Net income per common unit attributable to common
unitholders – diluted
Distributions declared per common unit (2)
Balance Sheet Data
Investment in storage facilities at cost
Total assets
Total debt
Total liabilities
Other Data
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
$
2017
529,750
96,809
—
96,809
96,365
At or For Year Ended December 31,
2015
2014
2016
$
$
462,608
84,956
—
84,956
85,225
$
$
366,602
113,077
—
113,077
112,524
326,080
89,057
—
89,057
88,531
2.07
2.08
2.07
3.95
1.96
1.97
1.96
3.70
3.16
3.18
3.16
3.20
2.67
2.68
2.67
2.72
2013
273,507
71,472
3,123
74,595
74,126
2.26
2.37
2.36
2.02
$ 4,321,410
3,876,774
1,726,763
1,829,078
$ 4,243,308
3,857,984
1,653,552
1,751,399
$ 2,491,702
2,118,822
827,643
898,336
$ 2,177,983
1,850,727
797,054
861,236
$ 1,864,637
1,558,894
623,273
675,245
$
248,580
(156,510)
(106,588)
$
225,550
(1,796,069)
1,587,184
$
$
186,198
(328,689)
140,968
$
146,068
(334,993)
187,944
120,646
(114,345)
(4,032)
(1)
(2)
In 2013 we sold four stores whose results of operations and gain on disposal are classified as discontinued operations for all previous
years presented.
In 2013 we declared regular quarterly distributions of $0.48 in January and April, and $0.53 in July and October. In 2014 we declared
regular quarterly distributions of $0.68 in January, April, July and October. In 2015 we declared regular quarterly distributions of $0.75
in January and April, and $0.85 in July and October. In 2016 we declared regular quarterly distributions of $0.85 in January and $0.95 in
April, July and October. In 2017 we declared regular quarterly distributions of $0.95 in January and $1.00 in April, July and October.
22
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with
the financial statements and notes thereto included elsewhere in this report.
Disclosure Regarding Forward-Looking Statements
When used in this discussion and elsewhere in this document, 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; the Company’s ability to evaluate, finance and integrate acquired businesses 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; the 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.
We believe we are the fifth largest operator of self-storage properties in the United States based on square feet owned and managed. All
our stores conduct business under the customer-friendly name Life Storage ®.
Business and Overview
Operating Strategy
Our operating strategy is designed to generate growth and enhance value by:
A.
Increasing operating performance and cash flow through aggressive management of our stores:
• We seek to differentiate our self-storage facilities from our competition through innovative marketing and value-added
product offerings including:
o
Strategic and efficient Web and Mobile marketing that places Life Storage in front of customers in search engines at
the right time for conversion;
o
o
o
o
Regional marketing which creates effective brand awareness in the cities where we do business;
Our Customer Care Center, established in 2000, answers sales inquiries and makes reservations for all of our Properties
on a centralized basis. Further, our call center and customer contact software was developed in-house and is 100%
supported by our in-house experts;
Our truck move-in program, under which, at present, 396 of our stores offer a free Life Storage truck to assist our
customers moving into their spaces, and also serve as a moving billboard further supporting our branding efforts;
Our dehumidification system, which provides our customers with a better environment to store their goods and
improves yields on our Properties;
•
•
Our customized computer applications link each of our primary sales channels (customer care center, web, and store)
allowing for real time access to space type and inventory, pricing, promotions, and other pertinent store information. This
also provides us with raw data on historical and current pricing, move-in and move-out activity, specials and occupancies,
etc. This data is then used within the advanced pricing analytics programs employed by our revenue management team;
All of our store employees receive a high level of training. New store associates are assigned a Certified Training Manager as
a mentor during their initial training period. In addition, all employees have access to our online training and development
portal for initial training as well as continuing education. Finally, we have a company intranet that acts as a communications
portal for company policy and procedures, online ordering, incentive rankings, etc.
B. Acquiring additional stores:
•
Our objective is to acquire new stores in markets in which we currently operate. This is a proven strategy we have employed
over the years as it facilitates our branding efforts, grows market share, and allows us to achieve improved economies of
scale through shared advertising, payroll, and other services.
23
• We also look to enter new markets that are in the top 50 Metropolitan Statistical Area (MSA) by acquiring established multi-
property portfolios. With this strategy we are then able to seek out additional acquisition or third party management
opportunities to continue to grow market share, branding and enhance economies of scale.
C.
Expanding our management business:
• We see our management business as a source of future acquisitions. We hold a minority interest in multiple joint ventures
which hold a total of 98 properties that we manage. In addition, we manage 42 self-storage facilities for which we have no
ownership. We may enter into additional management agreements and develop additional joint ventures in the future.
D.
Expanding and enhancing our existing stores:
•
Over the past five years we have undertaken a program of expanding and enhancing our Properties. In 2013, we added
295,000 square feet to existing Properties and converted 9,000 square feet to premium storage for a total cost of
approximately $17.9 million; in 2014, we added 272,000 square feet to existing Properties and converted 9,000 square feet to
premium storage for a total cost of approximately $18.3 million; in 2015, we added 256,000 square feet to existing Properties
and converted 5,000 square feet to premium storage for a total cost of approximately $14.1 million; in 2016, we added
343,000 square feet to existing Properties and converted 55,000 square feet to premium storage for a total cost of
approximately $22.4 million; and in 2017, we added 382,000 square feet to existing Properties and converted 122,000 square
feet to premium storage for a total cost of approximately $35.2 million. From 2012 through 2017 we also installed solar
panels on 23 buildings for a total cost of approximately $7.7 million. Our solar panel initiative, which began in 2011, has
reduced energy consumption at those installed locations.
Supply and Demand / Operating Trends
We believe the supply and demand model in the self-storage industry is micro market specific in that a majority of our business comes
from within a five mile radius of our stores. Suppressed economic conditions and a tight credit market environment resulted in a decrease in
new supply on a national basis from 2010-2015, but the out-performance of the sector compared to other real estate asset classes has drawn
new capital to self-storage. The Company experienced significant new competition beginning in 2016, especially in its Texas markets, and
expects noticeable growth in new supply at least through 2019. Despite the inflow of additional properties, we have seen capitalization rates on
quality acquisitions in the top fifty major metropolitan markets (expected annual return on investment) remain stable at approximately 5.00% to
5.50%.
Beginning in 2010, subsequent to the economic recession in 2009, we have experienced annual same store sales increases up to and
including the current year. We feel our recent performance further supports the notion that the self-storage industry holds up well regardless of
the prevailing economic landscape.
We believe our same-store move-ins in 2017 were lower than 2016 due to the fact that our stores had higher occupancy in 2017, resulting
in less space to rent. We believe the reduction in same store move-outs is a result of customers renting with us for longer periods.
Same store move ins
Same store move outs
Difference
2017
162,980
160,007
2,973
2016
167,856
165,193
2,663
Change
(4,876)
(5,186)
310
Elevated property tax increases is a trend that we experienced from 2014 through 2017. We expect same store expense growth resulting
from increases in wages, health costs, property insurance and property tax increases in 2018, partially offset by decreased internet marketing
costs. We believe the same store expense increases will be at manageable levels.
24
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the amounts reported in our financial statements and the accompanying notes. On an
on-going basis, we evaluate our estimates and judgments, including those related to carrying values of storage facilities, bad debts, and
contingencies and litigation. We base these estimates on experience and on various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Assigning purchase price to assets acquired: Upon adoption of Accounting Standards Update 2017-01, most of our self-storage facility
acquisitions are not considered business combinations and are treated as asset acquisitions. As a result, the cost of acquired storage facilities is
assigned primarily to land, land improvements, building, equipment, and in-place customer leases based on the relative fair values of these
assets as of the date of acquisition. We use significant unobservable inputs in our determination of the fair values of these assets. The
determination of these inputs involves judgments and estimates that can vary for each individual property based on various factors specific to
the properties and the functional, economic and other factors affecting each property. To determine the fair value of land, we use prices per acre
derived from observed transactions involving comparable land in similar locations. To determine the fair value of buildings, equipment and
improvements, we use financial projections and applicable discount rates to estimate the fair values of properties acquired, as well as current
replacement cost estimates based on information derived from construction industry data by geographic region as adjusted for the age,
condition, and economic obsolescence associated with these assets. The fair values of in-place customer leases are based on the rent that would
be lost due to the amount of time required to replace existing customers which is based on our historical experience with market demand and
turnover in our facilities.
Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a
critical accounting policy. Our policy is to assess the carrying value of our storage facilities for impairment whenever events or circumstances
indicate that the carrying value of a storage facility may not be recoverable. Such events or circumstances would include negative operating
cash flow, significant declining revenue per storage facility, significant damage sustained from accidents or natural disasters, or an expectation
that, more likely than not, a property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
When indicators of impairment exist, impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to
the carrying value of the storage facility, on a property by property basis. If the sum of the undiscounted cash flows is less than the carrying
value of the storage facility, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset
group. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable,
impairment charges may be required at that time and could materially affect our operating results and financial position. Estimates of
undiscounted cash flows could change based upon changes in market conditions, expected occupancy rates, etc. No assets had been determined
to be impaired under this policy in 2017.
Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical
accounting policy. We periodically evaluate the estimated useful lives of our long-lived assets to determine if any changes are warranted based
upon various factors, including changes in the planned usage of the assets, customer demand, etc. Changes in estimated useful lives of these
assets could have a material adverse impact on our financial condition or results of operations. In 2017, the Company changed the useful lives
of certain assets at self-storage facilities that were identified for replacement as part of the Company’s capital improvement efforts in 2017.
Additionally, in 2016, the Company changed the useful lives of existing Uncle Bob’s Self Storage ® signs as a result of the change in the name
of the Company’s storage facilities from Uncle Bob’s Self Storage ® to Life Storage ® which required replacement of the existing signage.
These changes resulted in a combined increase in depreciation expense of approximately $4.4 million in 2017 as depreciation was accelerated
over the new useful lives. The Company estimates that the change related to storage-facility asset replacement will result in an additional
increase in depreciation expense of approximately $0.3 million in 2018. We have not made any other significant changes to the estimated
useful lives of our long-lived assets and we do not have any current expectation of making significant changes in 2018 other than potentially on
any assets identified for replacement in 2018.
Consolidation and investment in joint ventures: We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint
ventures are consolidated when we control the entity or have the power to direct the activities most significant to the economic performance of
the entity. Investments in joint ventures that we do not control but over which we have significant influence are reported using the equity
method. Under the equity method, our investment in joint ventures are stated at cost and adjusted for our share of net earnings or losses and
reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of
each of the unconsolidated real estate ventures.
Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space.
Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of
occupancy. Rental income received prior to the start of the rental period is included in deferred revenue.
Qualification as a REIT: We operate, and intend to continue to operate, as a REIT under the Code, but no assurance can be given that we
will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the
taxable income that is distributed to our shareholders. If we fail to qualify as a REIT, any requirement to pay federal income taxes could have a
material adverse impact on our financial condition and results of operations.
25
See Note 2 to the financial statements.
Recent Accounting Pronouncements
YEAR ENDED DECEMBER 31, 2017 COMPARED TO YEAR ENDED DECEMBER 31, 2016
We recorded rental revenues of $485.3 million for the year ended December 31, 2017, an increase of $57.2 million or 13.4% when
compared to 2016 rental revenues of $428.1 million. Of the increase in rental revenue, $5.6 million resulted from a 1.6% increase in rental
revenues at the 430 core properties considered in same store sales (those properties included in the consolidated results of operations since
January 1, 2016, excluding stores not yet stabilized, the properties we sold in 2016 and 2017, six stores significantly impacted by flooding in
2016 and 2017, and two stores that the Company began to fully replace in 2017). The increase in same store rental revenues was a result of a 30
basis point increase in average occupancy and a 0.8% increase in rental income per square foot. The remaining increase in rental revenue of
$51.6 million resulted from the stores not included in the same store pool. Other operating income, which includes merchandise sales,
insurance administrative fees, truck rentals, management fees and acquisition fees, increased by $9.9 million for the year ended December 31,
2017 compared to 2016 primarily due to increased administrative fees earned on customer insurance, increased management fees earned on
managed properties, and increased acquisition fees earned on properties acquired by unconsolidated joint ventures.
Property operations and maintenance expenses increased $19.4 million or 18.8% in 2017 compared to 2016. The 430 core properties
considered in the same store pool experienced a $2.3 million or 2.9% increase in such expenses as a result of increases in payroll and higher
internet marketing costs in an effort to drive more traffic to the Company’s website as a result of our name change to Life Storage. In addition
to the same store increase, property operations and maintenance expenses increased $17.1 million due to the net activity from the stores not
included in the same store pool. Real estate tax expense increased $9.8 million or 20.4% in 2017 compared to 2016. The 430 core properties
considered in the same store pool experienced a $2.5 million or 6.6% increase which is reflective of a net increase in property tax levies on
those properties. In addition to the same store real estate expense increase, real estate taxes increased $7.3 million from the stores not included
in the same store pool.
Our 2017 same store results consist of only those properties that have been owned by the Company and included in our consolidated
results since January 1, 2016, excluding the stores not yet stabilized, the properties we sold in 2016 and 2017, six stores significantly impacted
by flooding in 2016 and 2017, and two stores that the Company began to fully replace in 2017. We believe that same store results is a
meaningful measure to investors in evaluating our operating performance because, given the acquisitive nature of the industry, same store
results provide information about the overall business after removing the results from those properties that were not consistent from year-to
year. Additionally, same store results are widely used in the real estate industry and the self-storage industry to measure performance. Same
store results should be considered in addition to, but not as a substitute for, consolidated results in accordance with GAAP.
The following table sets forth operating data for our 430 same store properties. These results provide information relating to property
operating changes without the effects of acquisitions.
Same Store Summary
(dollars in thousands)
Same store rental income
Same store other operating income
Total same store operating income
Payroll and benefits
Real estate taxes
Utilities
Repairs and maintenance
Office and other operating expenses
Insurance
Advertising
Internet marketing
Total same store operating expenses
Same store net operating income
Year ended December 31,
2017
357,428 $
20,063
377,491
32,112
40,459
11,686
13,613
12,140
4,380
1,070
8,250
123,710
253,781 $
2016
351,818
19,361
371,179
30,857
37,960
11,710
14,236
12,113
4,257
1,146
6,609
118,888
252,291
$
$
Percentage
Change
1.6%
3.6%
1.7%
4.1%
6.6%
(0.2)%
(4.4)%
0.2%
2.9%
(6.6)%
24.8%
4.1%
0.6%
26
Net operating income increased $37.9 million or 12.2%% as a result of a 0.6% increase in our same store net operating income and the
acquisitions completed since January 1, 2016.
Net operating income or “NOI” is a non-GAAP (generally accepted accounting principles) financial measure that we define as total
continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income: interest expense,
impairment and casualty losses, operating lease expense, depreciation and amortization expense, loss on sale of real estate, acquisition related
costs, general and administrative expense, and deducting from net income: income from discontinued operations, interest income, gain on sale
of real estate, and equity in income of joint ventures. We believe that NOI is a meaningful measure to investors in evaluating our operating
performance because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, and in
comparing period-to-period and market-to-market property operating results. Additionally, NOI is widely used in the real estate industry and
the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that
do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending on accounting
methods and the book value of assets. NOI should be considered in addition to, but not as a substitute for, other measures of financial
performance reported in accordance with GAAP, such as total revenues, operating income and net income. There are material limitations to
using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to
analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these
limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net
income.
The following table reconciles NOI generated by our self-storage facilities to our net income presented in the 2017 and 2016 consolidated
financial statements.
(dollars in thousands)
Net income
General and administrative
Acquisition related costs
Write-off of acquired property deposits
Operating leases of storage facilities
Depreciation and amortization
Interest expense
Interest income
Loss (gain) on sale of storage facilities
Gain on sale of real estate
Equity in income of joint ventures
Net operating income
Net operating income
Same store
Other stores and management fee income
Total net operating income
Year ended December 31,
2016
2017
$
$
96,809 $
50,031
—
—
424
127,485
74,362
(7)
3,503
—
(3,314)
349,293 $
253,781
95,512
$
349,293 $
84,956
43,103
29,542
1,783
—
117,081
54,504
(67)
(15,270)
(623)
(3,665)
311,344
252,291
59,053
311,344
General and administrative expenses increased $6.9 million or 16.1% from 2016 to 2017. The key drivers of the increase were the New
Jersey lawsuit settlement discussed in Note 14 to the consolidated financial statements and $0.9 million in officer severance recorded in 2017.
There were no acquisition related costs recorded in 2017 as no 2017 acquisitions were considered business combinations. Acquisition
related costs were $29.5 million in 2016 related to the acquisition of 122 stores during that period, including the acquisition of LifeStorage, LP.
Depreciation and amortization expense increased to $127.5 million in 2017 from $117.1 million in 2016, primarily due to depreciation
related to the properties acquired in 2016 and 2017 and accelerated depreciation on storage facility assets identified for replacement in 2017.
Interest expense increased from $54.5 million in 2016 to $74.4 million in 2017. The increase was primarily due to a full year of interest
in 2017 on the $600 million 3.5% senior notes issued in June 2016 and the $200 million 3.67% term loan entered into in July 2016, and $9.6
million of interest expense recorded in 2017 related to interest rate swaps settled in 2017 and the termination of the related hedging
relationships.
27
During 2017, we sold two non-strategic storage facilities in Utah (1) and Texas (1) for net proceeds of approximately $16.9 million,
resulting in a $3.5 million loss on sale. The Company has subsequently leased one of these properties and has deferred the related gain until the
termination of the lease which is scheduled in 2020. During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1),
Mississippi (1), Texas (1), and Virginia (4) for net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. These
dispositions were not classified as discontinued operations since they did not meet the criteria for such classification under ASU 2014-08
guidance.
YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015
We recorded rental revenues of $428.1 million for the year ended December 31, 2016, an increase of $89.7 million or 26.5% when
compared to 2015 rental revenues of $338.4 million. Of the increase in rental revenue, $16.1 million resulted from a 5.0% increase in rental
revenues at the 417 core properties considered in same store sales (those properties included in the consolidated results of operations since
January 1, 2015, excluding the properties we sold in 2016 and 2015, three properties purchased prior to January 1, 2015 that have not yet
stabilized and three properties significantly impacted by flooding in 2016). The increase in same store rental revenues was a result of a 50 basis
point increase in average occupancy and a 4.3% increase in rental income per square foot. The remaining increase in rental revenue of $73.6
million resulted from the revenues from the acquisition of 145 properties completed since January 1, 2015 (excluding the four properties
purchased in 2015 that had been leased since November 2013 and are included in the same store pool), slightly offset with the revenue decrease
as a result of eight self-storage properties sold in 2016 and three self-storage properties sold in 2015. Other operating income, which includes
merchandise sales, insurance administrative fees, truck rentals, management fees and acquisition fees, increased by $6.3 million for the year
ended December 31, 2016 compared to 2015 primarily due to increased administrative fees earned on customer insurance.
Property operations and maintenance expenses increased $21.4 million or 26.2% in 2016 compared to 2015. The 417 core properties
considered in the same store pool experienced a $1.0 million or 1.3% increase in such expenses due to increases in payroll and internet
marketing costs. The same store pool benefited from reduced utilities, snow removal costs, insurance and yellow page advertising expense. In
addition to the same store increase, property operations and maintenance expenses increased $20.4 million from the acquisition of 145
properties completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and are
included in the same store pool), slightly offset with the operating expense decrease as a result of eight self-storage properties sold in 2016 and
three self-storage properties sold in 2015. Real estate tax expense increased $11.3 million or 30.9% in 2016 compared to 2015. The 417 core
properties considered in the same store pool experienced a $1.9 million or 5.3% increase which is reflective of a net increase in property tax
levies on those properties. In addition to the same store real estate expense increase, real estate taxes increased $9.4 million from the
acquisition of 145 properties completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since
November 2013 and are included in the same store pool), slightly offset with the real estate tax expense decrease as a result of eight self-
storage properties sold in 2016 and three self-storage properties sold in 2015.
Our 2016 same store results consist of only those properties that were included in our consolidated results since January 1, 2015,
excluding the properties we sold in 2016 and 2015, three properties purchased prior to January 1, 2015 that have not yet stabilized and three
properties significantly impacted by flooding in 2016. We believe that same store results is a meaningful measure to investors in evaluating our
operating performance because, given the acquisitive nature of the industry, same store results provide information about the overall business
after removing the results from those properties that were not consistent from year-to-year. Additionally, same store results are widely used in
the real estate industry and the self-storage industry to measure performance. Same store results should be considered in addition to, but not as
a substitute for, consolidated results in accordance with GAAP.
28
The following table sets forth operating data for our 417 same store properties. These results provide information relating to property
operating changes without the effects of acquisition.
Same Store Summary
(dollars in thousands)
Same store rental income
Same store other operating income
Total same store operating income
Payroll and benefits
Real estate taxes
Utilities
Repairs and maintenance
Office and other operating expenses
Insurance
Advertising and yellow pages
Internet marketing
Total same store operating expenses
Same store net operating income
Year ended December 31,
2016
339,773 $
18,693
358,466
29,754
36,707
11,217
13,516
11,703
4,035
1,114
6,409
114,455
244,011 $
2015
323,664
17,085
340,749
28,843
34,847
11,789
13,412
11,373
4,414
1,352
5,557
111,587
229,162
$
$
Percentage
Change
5.0%
9.4%
5.2%
3.2%
5.3%
(4.9)%
0.8%
2.9%
(8.6)%
(17.6)%
15.3%
2.6%
6.5%
Net operating income increased $63.2 million or 25.5% as a result of a 6.5% increase in our same store net operating income and the
acquisitions completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and
are included in the same store pool).
The following table reconciles NOI generated by our self-storage facilities to our net income presented in the 2016 and 2015 consolidated
financial statements.
(dollars in thousands)
Net income
General and administrative
Acquisition related costs
Write-off of acquired property deposits
Operating leases of storage facilities
Depreciation and amortization
Interest expense
Interest income
(Gain) loss on sale of storage facilities
Gain on sale of real estate
Equity in income of joint ventures
Net operating income
Net operating income
$
$
Same store
Other stores and management fee income
Total net operating income
244,011
67,333
$
311,344 $
Year ended December 31,
2015
2016
113,077
38,659
2,991
—
683
58,506
37,124
(5)
494
—
84,956 $
43,103
29,542
1,783
—
117,081
54,504
(67)
(15,270)
(623)
(3,665)
311,344 $
(3,405)
248,124
229,162
18,962
248,124
General and administrative expenses increased $4.4 million or 11.5% from 2015 to 2016. The key drivers of the increase were $0.9
million in expenses recorded in 2016 related to the Company’s name change, and a $1.7 million increase in professional fees mainly stemming
from an increase in accounting fees related to the acquisition of LifeStorage, LP and an increase in legal fees related to the lawsuit in New
Jersey. The remaining $1.8 million increase is the result of various other administrative costs, including increased travel expenses and software
charges, related to managing the increased number of stores in our portfolio as a result of the LifeStorage, LP acquisition and other smaller
acquisitions in 2016.
Acquisition related costs were $29.5 million in 2016 related to the acquisition of 122 stores, including the acquisition of LifeStorage, LP.
Acquisition related costs for 2015 were $3.0 million related to the acquisition of 27 stores.
The operating lease expense for storage facilities in 2015 relates to leases which commenced in November 2013 with respect to four self-
storage facilities in New York (2) and Connecticut (2). Such leases had annual lease payments of $6 million with a provision for 4% annual
increases, and an exclusive option to purchase the facilities for $120 million. We completed the purchase of these four facilities on February 2,
2015, thus eliminating the lease payments thereafter.
29
Depreciation and amortization expense increased to $117.1 million in 2016 from $58.5 million in 2015, primarily as a result of
amortization and depreciation related to the properties acquired in 2015 and 2016 and accelerated depreciation on existing signage was
replaced as a result of the change in name of the Company’s storage facilities in 2016 to Life Storage ®.
Interest expense increased from $37.1 million in 2015 to $54.5 million in 2016. The increase was primarily due to interest on bridge loan
financing entered into to facilitate the LifeStorage, LP acquisition as well as interest on the $600 million 3.5% senior notes issued in June 2016
and the $200 million 3.67% term loan entered into in July 2016, partially offset by reduced interest costs as a result of the payoff of the $150
million 6.38% term loan in April 2016 with a draw on our line of credit which carries a lower interest rate.
During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1), Mississippi (1), Texas (1), and Virginia (4) for
net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. During 2015, we sold three non-strategic storage
facilities purchased during 2014 and 2015 in Missouri and South Carolina for net proceeds of approximately $4.6 million, resulting in a loss of
approximately $0.5 million. These dispositions were not classified as discontinued operations since they did not meet the criteria for such
classification under ASU 2014-08 guidance.
FUNDS FROM OPERATIONS
We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is
necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation,
which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with
market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding
(or adding back) historical cost depreciation.
FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income available to common
shareholders computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of
properties, plus impairment of real estate assets, plus depreciation and amortization and after adjustments to record unconsolidated partnerships
and joint ventures on the same basis. We believe that to further understand our performance FFO should be compared with our reported net
income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.
In October and November of 2011, NAREIT issued guidance for reporting FFO that reaffirmed NAREIT’s view that impairment write-
downs of depreciable real estate should be excluded from the computation of FFO. This view is because impairment write-downs are akin to
and effectively reflect the early recognition of losses on prospective sales of depreciable property or represent adjustments of previously
charged depreciation. Since depreciation of real estate and gains/losses from sales are excluded from FFO, it is NAREIT’s view that it is
consistent and appropriate for write-downs of depreciable real estate to also be excluded. Our calculation of FFO excludes impairment write-
downs of investments in storage facilities.
Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in
accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash
generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities
(determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.
Reconciliation of Net Income to Funds From Operations
(dollars in thousands)
Net income attributable to common shareholders
Net income attributable to noncontrolling interests in the
Operating Partnership
Depreciation of real estate and amortization of intangible assets
exclusive of debt issuance costs
Depreciation of real estate included in discontinued operations
Depreciation and amortization from unconsolidated joint
ventures
Loss (gain) on sale of real estate
Funds from operations allocable to noncontrolling interest in
the Operating Partnership
Funds from operations available to common shareholders
$
2017
2016
$
96,365
$
For Year Ended December 31,
2015
112,524
$
$
85,225
2014
2013
88,531
$
74,126
444
398
553
526
469
125,580
—
115,531
—
4,296
3,503
2,595
(15,270)
57,429
—
2,435
494
50,827
—
1,666
(5,176)
44,369
313
1,496
(2,852)
(1,045)
229,143
$
(857)
187,622
$
(848)
172,587
$
(806)
135,568
$
(742)
117,179
30
LIQUIDITY AND CAPITAL RESOURCES
Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed
leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness, and limitations on dividend payouts. At
December 31, 2017, the Company was in compliance with all debt covenants. In the event that the Company violates its debt covenants in the
future, the amounts due under the agreements could be callable by the lenders and could adversely affect our credit rating requiring us to pay
higher interest and other debt-related costs. We believe that if operating results remain consistent with historical levels and levels of other debt
and liabilities remain consistent with amounts outstanding at December 31, 2017, the entire availability under our line of credit could be drawn
without violating our debt covenants.
Our ability to retain cash flow is limited because we operate as a REIT. To maintain our REIT status, a substantial portion of our
operating cash flow must be used to pay dividends to our shareholders. We believe that our internally generated net cash provided by operating
activities and the availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, dividends and debt
service requirements.
Cash flows from operating activities were $248.6 million, $225.6 million, and $186.2 million for the years ended December 31, 2017,
2016, and 2015, respectively. The increases in operating cash flows from 2016 to 2017 and from 2015 to 2016 were primarily due to an
increase in net income as adjusted for non-cash depreciation and amortization expenses and other non-cash items during these periods.
Cash used in investing activities was $156.5 million, $1,796.1 million, and $328.7 million for the years ended December 31, 2017, 2016,
and 2015 respectively. The decrease in cash used from 2016 to 2017 was primarily a result of the acquisition of LifeStorage, LP and other
acquisitions made in 2016, partially offset by an increase in the Company’s investment in unconsolidated joint ventures in 2017. The increase
in cash used in investing activities from 2015 to 2016 was primarily a result of the acquisition of LifeStorage, LP and other acquisitions made
in 2016, partially offset by increased proceeds on the sale of storage facilities in 2016.
Cash used in financing activities was $106.6 million in 2017 compared to cash provided by financing activities of $1,587.2 million in
2016. In 2017, the Company increased its dividends paid on its common stock from $156.2 million in 2016 to $183.7 million in 2017. On
December 7, 2017, the Operating Partnership issued $450 million in senior notes, the proceeds of which were used primarily to repay $225
million of then outstanding term notes and to pay down the Company’s revolving line of credit. Also, during 2017, the Company repurchased
112,554 of the Company’s outstanding common shares for $8.2 million under the Company’s Buyback Program discussed further below. In
2016, the Company received net proceeds from the sale of common stock through public offerings of $935.1 million. The Company also
received net proceeds from the issuance of term notes of $796.7 million and net proceeds from the Company’s revolving credit line of $174.0
million in 2016. Further, the Company settled pre-issuance interest rate swaps on the 2026 Notes (discussed further below) for $9.2 million in
2016. Cash provided by financing activities was $1,587.2 million in 2016 compared to $141.0 million in 2015. The increase from 2015 to 2016
was primarily a result of the previously mentioned 2016 activity and a $43.2 million increase in dividends paid.
For the years 2015, 2016 and 2017, see Note 5 to the consolidated financial statements for details of the Company’s unsecured line of
credit and term note activity, Note 6 to the consolidated financial statements for the Company’s mortgage activity and related details, and Note
12 to the consolidated financial statements for the Company’s equity activity.
Our line of credit facility and term notes have an investment grade rating from Standard and Poor’s (BBB) and Moody’s (Baa2).
Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be funded with future cash flows
from operations, draws on our line of credit, issuance of common and preferred stock, the issuance of unsecured term notes, sale of properties,
and private placement solicitation of joint venture equity. Should the capital markets deteriorate, we may have to curtail acquisitions, our
expansion and enhancement program, and share repurchases.
31
The following table summarizes our future contractual obligations:
CONTRACTUAL OBLIGATIONS
Contractual obligations
Line of credit
Term notes
Mortgages payable
Interest payments
Land leases
Expansion and enhancement contracts
Building leases
Total
Payments due by period (in thousands)
Total
$ 105,000
1,625,000
12,674
514,859
9,103
32,807
14,676
$ 2,314,119
2018
$
—
—
372
65,912
566
32,807
2,328
$ 101,985
2019-2020
$ 105,000
100,000
806
126,483
1,135
—
4,068
$ 337,492
2021-2022
$
—
100,000
3,516
111,481
1,137
—
3,431
$ 219,565
2023 and
thereafter
—
1,425,000
7,980
210,983
6,265
—
4,849
1,655,077
$
$
Interest payments include actual interest on fixed rate debt and estimated interest for floating-rate debt based on December 31, 2017
rates.
ACQUISITION OF PROPERTIES
In 2017, we acquired two self-storage facilities comprising 148,000 square feet in Illinois (1) and North Carolina (1) for a total purchase
price of $22.6 million. As both of these acquisitions were of newly constructed facilities, the weighted average capitalization rate for each
acquisition was 0%. In 2016, we acquired 122 self-storage facilities comprising 9.4 million square feet in Arizona (1), California (22),
Colorado (6), Connecticut (2), Florida (11), Illinois (25), Massachusetts (1), Mississippi (1), New Hampshire (5), Nevada (17), New York (4),
Pennsylvania (1), South Carolina (1), Texas (23), Utah (1), and Wisconsin (1) for a total purchase price of $1,783.9 million. Based on the
trailing financial information of the entities from which the properties were acquired, the weighted average capitalization rate was 3.6% on
these purchases and ranged from 0% on recently constructed facilities to 6.7% on mature facilities. In 2015, we acquired 27 self-storage
facilities comprising 2.0 million square feet in Arizona (1), Connecticut (2), Florida (6), Illinois (2), Massachusetts (1), New York (6), North
Carolina (1), Pennsylvania (1), South Carolina (6) and Texas (1) for a total purchase price of $281.2 million. Based on the trailing financial
information of the entities from which the properties were acquired, the weighted average capitalization rate was 5.3% on these purchases and
ranged from 0% on recently constructed facilities to 6.4% on mature facilities. Four facilities acquired in Connecticut and New York in 2015
had been leased by the Company since November 1, 2013 and the operating results of these four facilities have been included in the Company’s
operations since that date.
FUTURE ACQUISITION AND DEVELOPMENT PLANS
Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already
have operations, or to expand into new markets by acquiring several facilities at once in those new markets.
In 2017, we added 382,000 square feet to existing Properties and converted 122,000 square feet to premium storage for a total cost of
approximately $35.2 million. In 2017 we also installed solar panels on two buildings for a total cost of approximately $0.4 million. Although
we do not expect to construct any new facilities in 2018, we do plan to complete $40 million to $50 million in expansions and enhancements to
existing facilities of which $12.1 million was paid prior to December 31, 2017.
In 2017, the Company spent approximately $47.8 million for recurring capitalized expenditures including roofing, paving, office
renovations, and new signs related to our rebranding. We expect to spend $20 million to $25 million in 2018 on similar capital expenditures as
we do not expect significant sign related expenditures in 2018.
DISPOSITION OF PROPERTIES
During 2017, we sold two non-strategic storage facilities in Utah (1) and Texas (1) for net proceeds of approximately $16.9 million,
resulting in a $3.5 million loss on sale. The Company has subsequently leased one of these properties and has deferred the related gain until the
termination of the lease which is scheduled in 2020. During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1),
Mississippi (1), Texas (1), and Virginia (4) for net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. During
2015, we sold three non-strategic storage facilities purchased during 2014 and 2015 in Missouri and South Carolina for net proceeds of
approximately $4.6 million, resulting in a loss of approximately $0.5 million.
As part of our ongoing strategy to improve overall operating efficiencies and portfolio quality, we may seek to sell additional Properties
to third parties or joint venture partners in 2018.
32
OFF-BALANCE SHEET ARRANGEMENTS
Our off-balance sheet arrangements consist of our investment in nine self-storage joint ventures in which we have ownership interests
ranging from 5% to 85%, as well as our investment in the entity that owns the building that houses our corporate office in which we have a
49% ownership. We account for these real estate entities under the equity method. The debt held by the unconsolidated real estate entities is
secured by the real estate owned by these entities and is non-recourse to us. See Note 11 to our consolidated financial statements for additional
details.
REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS
As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that we satisfy
certain requirements, including distributing at least 90% of our REIT taxable income for a taxable year. These distributions must be made in the
year to which they relate, or in the following year if declared before we file our federal income tax return, and if they are paid not later than the
date of the first regular dividend of the following year.
As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends. In 2016,
our percentage of revenue from such sources was approximately 97%, thereby passing the 95% test, and no special measures are expected to be
required to enable us to maintain our REIT designation. Although we currently intend to operate in a manner designed to qualify as a REIT, it
is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.
INTEREST RATE RISK
The primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including
government monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our
control.
We have entered into an interest rate swap agreement to help mitigate the effects of fluctuations in interest rates on our variable rate debt.
Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders;
however, the LIBOR base rates have been contractually fixed on $100 million of our floating rate bank debt through the interest rate swap
termination date. Forward starting interest rate swaps have also been used by the Company to hedge the risk of changes in the interest-related
cash outflows associated with the potential issuance of long-term debt. See Note 7 to our consolidated financial statements for additional detail
related to interest rate swaps.
Through September 2018, $100 million of our $205 million of floating rate unsecured debt is on a fixed rate basis after taking into
account our interest rate swap agreements. Based on our outstanding unsecured floating rate debt of $205 million at December 31, 2017, a 100
basis point increase in interest rates would have a $1.1 million effect on our interest expense. This amount was determined by considering the
impact of the hypothetical interest rates on our borrowing cost and our interest rate hedge agreements in effect on December 31, 2017. This
analysis does not consider the impact of the reduced level of overall economic activity that could exist in such an environment. Further, in the
event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the
uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital
structure.
INFLATION
We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at the facilities are on
a month-to-month basis which provides us with the opportunity to increase rental rates as each lease matures.
SEASONALITY
Our revenues typically have been higher in the third and fourth quarters, primarily because self-storage facilities tend to experience
greater occupancy during the late spring, summer and early fall months due to the greater incidence of residential moves and college student
activity during these periods. However, we believe that our customer mix, diverse geographic locations, rental structure and expense structure
provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect
seasonality to materially affect distributions to shareholders.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The information required is incorporated by reference to the information appearing under the caption “Interest Rate Risk” in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.
Item 8.
Financial Statements and Supplementary Data
33
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Life Storage, Inc.
Opinion on the Financial Statement
We have audited the accompanying consolidated balance sheets of Life Storage, Inc. (the Parent Company) as of December 31, 2017 and 2016,
and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in
the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Parent Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Parent Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report
dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Parent Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Parent Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Ernst & Young LLP
We have served as the Parent Company’s auditor since 1994.
Buffalo, New York
February 27, 2018
34
Report of Independent Registered Public Accounting Firm
To the Partners and the Board of Directors of Life Storage LP
Opinion on the Financial Statement
We have audited the accompanying consolidated balance sheets of Life Storage LP (the Operating Partnership) as of December 31, 2017 and
2016, and the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Operating Partnership at December 31, 2017 and 2016, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Operating Partnership’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report
dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the
Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Ernst & Young LLP
We have served as the Operating Partnership’s auditor since 2016.
Buffalo, New York
February 27, 2018
35
LIFE STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
Assets
Investment in storage facilities:
Land
Building, equipment, and construction in progress
Less: accumulated depreciation
Investment in storage facilities, net
Cash and cash equivalents
Accounts receivable
Receivable from unconsolidated joint ventures
Investment in unconsolidated joint ventures
Prepaid expenses
Fair value of interest rate swap agreements
Trade name
Other assets
Total Assets
Liabilities
Line of credit
Term notes, net
Accounts payable and accrued liabilities
Deferred revenue
Fair value of interest rate swap agreements
Mortgages payable
Total Liabilities
Noncontrolling redeemable Operating Partnership Units at redemption value
Shareholders’ Equity
Common stock $.01 par value, 100,000,000 shares authorized, 46,552,222 shares outstanding at
December 31, 2017 (46,454,606 at December 31, 2016)
Additional paid-in capital
Dividends in excess of net income
Accumulated other comprehensive loss
Total Shareholders’ Equity
Noncontrolling interest in consolidated subsidiary
Total Equity
Total Liabilities and Shareholders’ Equity
See notes to consolidated financial statements.
December 31,
2017
2016
786,628
3,534,782
4,321,410
(624,314)
3,697,096
9,167
7,331
1,397
133,458
6,757
205
16,500
4,863
3,876,774
105,000
1,609,089
92,941
9,374
—
12,674
1,829,078
19,373
466
2,363,171
(327,727)
(7,587)
2,028,323
—
2,028,323
3,876,774
$
$
$
$
786,764
3,456,544
4,243,308
(535,704)
3,707,604
23,685
5,469
1,223
67,300
6,649
—
16,500
29,554
3,857,984
253,000
1,387,525
75,132
9,700
13,015
13,027
1,751,399
18,091
464
2,348,567
(239,062)
(21,475)
2,088,494
—
2,088,494
3,857,984
$
$
$
$
36
LIFE STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
$
(dollars in thousands, except per share data)
Revenues
Rental income
Other operating income
Total operating revenues
Expenses
Property operations and maintenance
Real estate taxes
General and administrative
Acquisition costs
Write-off of acquired property deposits
Operating leases of storage facilities
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expenses)
Interest expense
Interest expense – bridge financing commitment fee
Interest income
(Loss) gain on sale of storage facilities
Gain on sale of real estate
Equity in income of joint ventures
Net income
Net income attributable to noncontrolling interest in the Operating Partnership
Net loss attributable to noncontrolling interest in consolidated subsidiary
Net income attributable to common shareholders
Earnings per common share attributable to common shareholders - basic
Earnings per common share attributable to common shareholders - diluted
$
$
$
See notes to consolidated financial statements.
2017
Year Ended December 31,
2016
2015
485,303
44,447
529,750
122,794
57,663
50,031
—
—
424
127,485
358,397
171,353
(74,362)
—
7
(3,503)
—
3,314
96,809
(444)
—
96,365
2.08
2.07
$
$
$
$
428,121
34,487
462,608
103,388
47,876
43,103
29,542
1,783
—
117,081
342,773
119,835
(47,175)
(7,329)
67
15,270
623
3,665
84,956
(398)
667
85,225
1.97
1.96
$
$
$
$
338,435
28,167
366,602
81,915
36,563
38,659
2,991
—
683
58,506
219,317
147,285
(37,124)
—
5
(494)
—
3,405
113,077
(553)
—
112,524
3.18
3.16
37
LIFE STORAGE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income
Other comprehensive income:
2017
Year Ended December 31,
2016
2015
$
96,809
$
84,956
$
113,077
Effective portion of gain (loss) on derivatives net of reclassification to interest
expense
Total comprehensive income
Comprehensive income attributable to noncontrolling interest in the Operating
Partnership
Comprehensive loss attributable to noncontrolling interest in consolidated
subsidiary
Comprehensive income attributable to common shareholders
13,888
110,697
(508)
(7,060)
77,896
(365)
(1,410)
111,667
(546)
—
110,189
$
$
667
78,198
$
—
111,121
See notes to consolidated financial statements.
38
LIFE STORAGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common
Stock
Shares
34,105,955
2,329,911
Common
Stock
341
23
Additional
Paid-in
Capital
1,156,225
210,119
Dividends in
Excess of
Net Income
(167,692)
—
1
1
1
—
—
—
—
—
—
—
—
367
96
1
—
—
—
—
—
—
—
—
—
—
464
Accumulated
Other
Comprehensive
Income (loss)
(13,005)
—
—
—
—
—
—
—
—
Total
Shareholders’
Equity
975,869
210,142
13,926
1,633
—
6,254
210
59
(80)
—
—
—
—
—
—
—
(3,328)
112,524
—
(113,484)
(171,980)
—
—
—
(1,410)
—
(14,415)
—
(3,328)
112,524
(1,410)
(113,484)
1,202,315
934,963
—
—
—
—
—
—
—
—
—
—
—
—
13,166
4,795
—
7,216
89
92
13,925
1,632
(1)
6,254
210
59
(80)
—
—
—
—
1,388,343
934,867
13,165
4,795
—
7,216
89
92
—
—
—
—
—
2,348,567
4,457
85,225
—
—
(156,764)
(239,062)
—
—
458
(7,518)
—
(21,475)
4,457
85,225
458
(7,518)
(156,764)
2,088,494
2
—
(1)
1
—
—
—
15,632
43
(8,233)
(1)
—
7,148
15
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
466 $2,363,171 $ (327,727) $
(1,697)
96,365
—
—
(183,333)
—
—
—
—
—
—
—
15,634
43
(8,234)
—
—
7,148
15
—
—
917
12,971
—
(1,697)
96,365
917
12,971
(183,333)
(7,587) $ 2,028,323
(dollars in thousands, except share data)
Balance January 1, 2015
Net proceeds from the issuance of common stock
Net proceeds from the issuance of common stock
through Dividend Reinvestment Plan
Exercise of stock options
Issuance of non-vested stock
Earned portion of non-vested stock
Stock option expense
Deferred compensation outside directors
Carrying value less than redemption value on redeemed
noncontrolling interest
Adjustment to redemption value of noncontrolling
redeemable Operating Partnership Units
Net income attributable to common shareholders
Change in fair value of derivatives
Dividends
Balance December 31, 2015
Net proceeds from the issuance of common stock
Net proceeds from the issuance of common stock
through Dividend Reinvestment Plan
Conversion of operating partnership units to common
shares
Issuance of non-vested stock
Earned portion of non-vested stock
Stock option expense
Deferred compensation outside directors
Adjustment to redemption value of noncontrolling
redeemable Operating Partnership Units
Net income attributable to common shareholders
Amortization of terminated hedge included in AOCI
Change in fair value of derivatives
Dividends
Balance December 31, 2016
Net proceeds from the issuance of common stock
through Dividend Reinvestment Plan
Exercise of stock options
Purchase of outstanding shares
Issuance of non-vested stock
Forfeiture of non-vested stock
Earned portion of non-vested stock
Stock option expense
Adjustment to redemption value of noncontrolling
redeemable Operating Partnership Units
Net income attributable to common shareholders
Amortization of terminated hedge included in AOCI
Change in fair value of derivatives, net of reclassifications
Dividends
Balance December 31, 2017
See notes to consolidated financial statements
151,246
30,900
64,244
—
—
28,417
—
—
—
—
—
36,710,673
9,545,000
133,666
41,862
23,405
—
—
—
—
—
—
—
—
46,454,606
199,809
1,100
(112,554)
51,276
(42,015)
—
—
—
—
—
—
—
46,552,222 $
39
LIFE STORAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2017
Year Ended December 31,
2016
2015
$
96,809
$
84,956
$
113,077
(dollars in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs and bond discount
Loss (gain) on sale of storage facilities
Gain on sale of real estate
Write-off of acquired property deposits
Equity in income of joint ventures
Distributions from unconsolidated joint venture
Non-vested stock earned
Stock option expense
Deferred income taxes
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable
Prepaid expenses
Advances to joint ventures
Accounts payable and other liabilities
Deferred revenue
Net cash provided by operating activities
Investing Activities
Acquisition of storage facilities, net of cash acquired
Improvements, equipment additions, and construction in progress
Net proceeds from the sale of real estate
Investment in unconsolidated joint ventures
Property deposits
Net cash used in investing activities
Financing Activities
Net proceeds from sale of common stock
Purchase of outstanding shares
Proceeds from line of credit
Repayment of line of credit
Proceeds from term notes, net of discount
Repayment of term notes
Debt issuance costs
Settlement of forward starting interest rate swaps
Dividends paid - common stock
Distributions to noncontrolling interest holders
Redemption of operating partnership units
Mortgage principal payments
Net cash (used in) provided by financing activities
Net (decrease) increase in cash
Cash at beginning of period
Cash at end of period
Supplemental cash flow information
Cash paid for interest, net of interest capitalized
Cash paid for income taxes, net of refunds
See notes to consolidated financial statements.
$
$
$
40
127,485
4,289
3,503
—
—
(3,314)
7,055
7,148
15
(2,578)
(1,862)
(162)
(174)
10,692
(326)
248,580
(21,880)
(83,657)
18,872
(69,911)
66
(156,510)
15,677
(8,234)
276,000
(424,000)
447,853
(225,000)
(3,961)
—
(183,711)
(859)
—
(353)
(106,588)
(14,518)
23,685
9,167
70,924
1,180
$
$
$
117,081
9,688
(15,270)
(623)
1,783
(3,665)
5,207
7,308
89
—
4,814
(230)
(294)
18,494
(3,788)
225,550
(1,750,267)
(72,852)
34,697
(6,438)
(1,209)
(1,796,069)
948,129
—
1,102,000
(928,000)
796,682
(150,000)
(15,273)
(9,166)
(156,249)
(742)
—
(197)
1,587,184
16,665
7,020
23,685
39,856
981
$
$
$
58,506
1,184
494
—
—
(3,405)
4,821
6,313
210
—
(1,038)
1,132
(346)
5,847
(597)
186,198
(280,010)
(41,739)
4,646
(6,151)
(5,435)
(328,689)
225,701
—
330,000
(300,000)
—
—
—
—
(113,039)
(555)
(1,005)
(134)
140,968
(1,523)
8,543
7,020
35,926
1,084
LIFE STORAGE LP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except unit data)
Assets
Investment in storage facilities:
Land
Building, equipment, and construction in progress
Less: accumulated depreciation
Investment in storage facilities, net
Cash and cash equivalents
Accounts receivable
Receivable from unconsolidated joint ventures
Investment in unconsolidated joint ventures
Prepaid expenses
Fair value of interest rate swap agreements
Trade name
Other assets
Total Assets
Liabilities
Line of credit
Term notes, net
Accounts payable and accrued liabilities
Deferred revenue
Fair value of interest rate swap agreements
Mortgages payable
Total Liabilities
Limited partners’ redeemable capital interest at redemption value (217,481 units outstanding at
December 31, 2017 and December 31, 2016)
Partners’ Capital
General partner (467,697 and 466,721 units outstanding at December 31, 2017
and December 31, 2016, respectively)
Limited partners (46,084,525 and 45,987,885 units outstanding at December 31, 2017
and December 31, 2016, respectively)
Accumulated other comprehensive loss
Total Controlling Partners’ Capital
Noncontrolling interest in consolidated subsidiary
Total Partners’ Capital
Total Liabilities and Partners’ Capital
See notes to consolidated financial statements.
December 31,
2017
2016
$
$
$
786,628
3,534,782
4,321,410
(624,314)
3,697,096
9,167
7,331
1,397
133,458
6,757
205
16,500
4,863
3,876,774
105,000
1,609,089
92,941
9,374
-
12,674
1,829,078
786,764
3,456,544
4,243,308
(535,704)
3,707,604
23,685
5,469
1,223
67,300
6,649
-
16,500
29,554
3,857,984
253,000
1,387,525
75,132
9,700
13,015
13,027
1,751,399
19,373
18,091
20,478
21,065
2,015,432
(7,587)
2,028,323
—
2,028,323
3,876,774
$
2,088,904
(21,475)
2,088,494
—
2,088,494
3,857,984
$
$
$
$
41
LIFE STORAGE LP
CONSOLIDATED STATEMENTS OF OPERATIONS
$
(dollars in thousands, except per unit data)
Revenues
Rental income
Other operating income
Total operating revenues
Expenses
Property operations and maintenance
Real estate taxes
General and administrative
Acquisition costs
Write-off of acquired property deposits
Operating leases of storage facilities
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expenses)
Interest expense
Interest expense – bridge financing commitment fee
Interest income
(Loss) gain on sale of storage facilities
Gain on sale of real estate
Equity in income of joint ventures
Net income
Net income attributable to noncontrolling interest in the Operating Partnership
Net loss attributable to noncontrolling interest in consolidated subsidiary
Net income attributable to common unitholders
Earnings per common unit attributable to common unitholders - basic
Earnings per common unit attributable to common unitholders - diluted
Net income attributable to general partner
Net income attributable to limited partners
$
$
$
$
See notes to consolidated financial statements.
2017
Year Ended December 31,
2016
2015
485,303
44,447
529,750
122,794
57,663
50,031
-
-
424
127,485
358,397
171,353
(74,362)
-
7
(3,503)
-
3,314
96,809
(444)
-
96,365
2.08
2.07
968
95,397
$
$
$
$
$
428,121
34,487
462,608
103,388
47,876
43,103
29,542
1,783
-
117,081
342,773
119,835
(47,175)
(7,329)
67
15,270
623
3,665
84,956
(398)
667
85,225
1.97
1.96
856
84,369
$
$
$
$
$
338,435
28,167
366,602
81,915
36,563
38,659
2,991
-
683
58,506
219,317
147,285
(37,124)
-
5
(494)
-
3,405
113,077
(553)
-
112,524
3.18
3.16
1,131
111,393
42
LIFE STORAGE LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income
Other comprehensive income:
Effective portion of gain (loss) on derivatives net of reclassification
to interest expense
Total comprehensive income
Comprehensive income attributable to noncontrolling interest
in the Operating Partnership
Comprehensive loss attributable to noncontrolling interest in
consolidated subsidiary
Comprehensive income attributable to common unitholders
See notes to consolidated financial statements.
2017
Year Ended December 31,
2016
2015
$
96,809
$
84,956
$
113,077
13,888
110,697
(508)
(7,060)
77,896
(365)
(1,410)
111,667
(546)
—
110,189
$
$
667
78,198
$
—
111,121
43
LIFE STORAGE LP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(dollars in thousands)
Balance January 1, 2015
Net proceeds from the issuance of Partnership Units
Net proceeds from the issuance of Partnership Units through
Dividend Reinvestment Plan
Exercise of stock options
Earned portion of non-vested stock
Stock option expense
Deferred compensation outside directors
Carrying value less than redemption value on redeemed
noncontrolling interest
Adjustment to redemption value of noncontrolling redeemable
Operating Partnership Units
Net income attributable to common unitholders
Change in fair value of derivatives
Distributions
Balance December 31, 2015
Net proceeds from the issuance of Partnership Units
Net proceeds from the issuance of Partnership Units through
Dividend Reinvestment Plan
Conversion of operating partnership units to common shares
Issuance of operating partnership units
Earned portion of non-vested stock
Stock option expense
Deferred compensation outside directors
Adjustment to redemption value of noncontrolling redeemable
Operating Partnership Units
Net income attributable to common unitholders
Amortization of terminated hedge included in AOCI
Change in fair value of derivatives
Distributions
Balance December 31, 2016
Net proceeds from the issuance of Partnership Units through
Dividend Reinvestment Plan
Exercise of stock options
Purchase of outstanding units
Issuance of non-vested stock
Forfeiture of non-vested stock
Earned portion of non-vested stock
Stock option expense
Adjustment to redemption value of noncontrolling redeemable
Operating Partnership Units
Net income attributable to common unitholders
Amortization of terminated hedge included in AOCI
Change in fair value of derivatives, net of reclassifications
Distributions
Balance December 31, 2017
See notes to consolidated financial statements
Life Storage
Holdings, Inc.
General
Partner
9,895
2,123
139
16
63
2
—
(10)
—
1,131
(14)
(1,140)
12,205
9,349
132
—
95
72
1
1
—
856
4
(75)
(1,575)
21,065
157
1
(82)
1
—
71
—
Life Storage, Inc.
Limited
Partner
978,979
208,019
13,787
1,617
6,191
208
59
(70)
(3,328)
111,393
14
(112,344)
1,204,525
925,614
13,034
4,795
(95)
7,144
88
91
4,457
84,369
(4)
75
(155,189)
2,088,904
15,477
42
(8,152)
(1)
—
7,077
15
Accumulated
Other
Comprehensive
Income (loss)
(13,005)
—
—
—
—
—
—
—
—
—
(1,410)
—
(14,415)
—
—
—
—
—
—
—
—
—
458
(7,518)
—
(21,475)
—
—
—
—
—
—
Total
Controlling
Partners’
Capital
975,869
210,142
13,926
1,633
6,254
210
59
(80)
(3,328)
112,524
(1,410)
(113,484)
1,202,315
934,963
13,166
4,795
—
7,216
89
92
4,457
85,225
458
(7,518)
(156,764)
2,088,494
15,634
43
(8,234)
—
—
7,148
15
—
968
9
130
(1,842)
20,478
$
(1,697)
95,397
(9)
(130)
(181,491)
2,015,432
$
—
—
917
12,971
—
(1,697)
96,365
917
12,971
(183,333)
(7,587) $ 2,028,323
$
44
LIFE STORAGE LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
2017
Year Ended December 31,
2016
2015
$
96,809
$
84,956
$
113,077
(dollars in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs and bond discount
Loss (gain) on sale of storage facilities
Gain on sale of real estate
Write-off of acquired property deposits
Equity in income of joint ventures
Distributions from unconsolidated joint venture
Non-vested stock earned
Stock option expense
Deferred income taxes
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable
Prepaid expenses
Advances to joint ventures
Accounts payable and other liabilities
Deferred revenue
Net cash provided by operating activities
Investing Activities
Acquisition of storage facilities, net of cash acquired
Improvements, equipment additions, and construction in progress
Net proceeds from the sale of real estate
Investment in unconsolidated joint ventures
Property deposits
Net cash used in investing activities
Financing Activities
Net proceeds from sale of partnership units
Purchase of outstanding units
Proceeds from line of credit
Repayment of line of credit
Proceeds from term notes, net of discount
Repayment of term notes
Debt issuance costs
Settlement of forward starting interest rate swaps
Distributions to unitholders
Distributions to noncontrolling interest holders
Redemption of operating partnership units
Mortgage principal payments
Net cash (used in) provided by financing activities
Net (decrease) increase in cash
Cash at beginning of period
Cash at end of period
Supplemental cash flow information
Cash paid for interest, net of interest capitalized
Cash paid for income taxes, net of refunds
See notes to consolidated financial statements.
$
$
$
45
127,485
4,289
3,503
-
-
(3,314)
7,055
7,148
15
(2,578)
(1,862)
(162)
(174)
10,692
(326)
248,580
(21,880)
(83,657)
18,872
(69,911)
66
(156,510)
15,677
(8,234)
276,000
(424,000)
447,853
(225,000)
(3,961)
—
(183,711)
(859)
—
(353)
(106,588)
(14,518)
23,685
9,167
70,924
1,180
$
$
$
117,081
9,688
(15,270)
(623)
1,783
(3,665)
5,207
7,308
89
—
4,814
(230)
(294)
18,494
(3,788)
225,550
(1,750,267)
(72,852)
34,697
(6,438)
(1,209)
(1,796,069)
948,129
—
1,102,000
(928,000)
796,682
(150,000)
(15,273)
(9,166)
(156,249)
(742)
—
(197)
1,587,184
16,665
7,020
23,685
39,856
981
$
$
$
58,506
1,184
494
—
—
(3,405)
4,821
6,313
210
—
(1,038)
1,132
(346)
5,847
(597)
186,198
(280,010)
(41,739)
4,646
(6,151)
(5,435)
(328,689)
225,701
—
330,000
(300,000)
—
—
—
—
(113,039)
(555)
(1,005)
(134)
140,968
(1,523)
8,543
7,020
35,926
1,084
LIFE STORAGE, INC. AND LIFE STORAGE LP
DECEMBER 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The Parent Company, which operates as a self-administered and self-managed real estate investment trust (a “REIT”), was formed on
April 19, 1995 to own and operate self-storage facilities throughout the United States. On June 26, 1995, the Parent Company commenced
operations effective with the completion of its initial public offering. The Parent Company, the Operating Partnership and their consolidated
subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may
refer to the Company, the Parent Company and/or the Operating Partnership.
At December 31, 2017, we had an ownership interest in, and/or managed 706 self-storage properties in 28 states under the name Life
Storage ®. Among our 706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures (See Note 11), 42
properties that we manage and have no ownership interest, and two properties that we lease. During 2017, approximately 23% and 13% of the
Company’s revenue was derived from stores in the states of Texas and Florida, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation : All of the Company’s assets are owned by, and all its operations are conducted through the Operating
Partnership. Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the
Operating Partnership; the Parent Company is a limited partner of the Operating Partnership, and, through its ownership of Holdings and its
limited partnership interest, controls the operations of the Operating Partnership, holding a 99.5% ownership interest therein as of
December 31, 2017. The remaining ownership interests in the Operating Partnership (the “Units”) are held by certain former owners of assets
acquired by the Operating Partnership.
We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the
entity. Our consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, Life Storage Solutions,
LLC (the Parent Company’s taxable REIT subsidiary), Warehouse Anywhere LLC (an entity owned 60% by Life Storage Solutions, LLC), and
all other wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do
not control but for which we have significant influence over are accounted for using the equity method.
Included in the Parent Company’s consolidated balance sheets are noncontrolling redeemable Operating Partnership Units and included
in the Operating Partnership’s consolidated balance sheets are limited partners’ redeemable capital interest at redemption value. These interests
are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or
equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership.
At December 31, 2017 and December 31, 2016, there were 217,481 noncontrolling redeemable Operating Partnership Units outstanding. These
unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock.
The Operating Partnership is obligated to redeem each of these limited partnership Units in the Operating Partnership at the request of the
holder thereof for cash equal to the fair market value of a share of the Parent Company’s common stock based on a 10-day average of the daily
market price, at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit presented for
redemption for one common share or cash. The Company accounts for these noncontrolling redeemable Operating Partnership Units under the
provisions of Accounting Standards Codification (ASC) Topic 480-10-S99. The application of the ASC Topic 480-10-S99 accounting model
requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of
each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount). The offset to the adjustment
to the carrying amount of the noncontrolling interests is reflected in the Parent Company’s dividends in excess of net income and in the
Operating Partnership’s general partner and limited partners capital balances. Accordingly, in the accompanying consolidated balance sheets,
noncontrolling interests are reflected at redemption value at December 31, 2017 and 2016, equal to the number of noncontrolling interest units
outstanding multiplied by the fair market value of the Parent Company’s common stock at that date. Redemption value exceeded the value
determined under the Company’s historical basis of accounting at those dates.
46
The following is a reconciliation of the Parent Company’s noncontrolling redeemable Operating Partnership Units and the Operating
Parnership’s limited partners’ redeemable capital interest for the year ending December 31:
(Dollars in thousands)
Beginning balance
Redemption of units
Issuance of units
Net income attributable to noncontrolling interests in
Operating Partnership
Distributions
Adjustment to redemption value
Ending balance
2017
2016
$
$
18,091 $
—
—
444
(859)
1,697
19,373 $
18,171
(4,795)
9,516
398
(742)
(4,457)
18,091
In 2016 the Operating Partnership issued 90,477 Units with a fair value of $9.5 million to acquire self-storage properties. The fair value of the
Units on the dates of issuance was determined based upon the fair market value of the Company’s common stock on those dates.
Operating Partnership Units redeemed in 2016 were redeemed for a total of 41,862 shares of the Parent Company.
Cash and Cash Equivalents : The Company considers all highly liquid investments purchased with maturities of three months or less to
be cash equivalents.
Accounts Receivable : Accounts receivable are composed of trade and other receivables recorded at billed amounts and do not bear
interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable uncollectible amounts in the
Company’s existing accounts receivable. The Company determines the allowance based on a number of factors, including experience, credit
worthiness of customers, and current market and economic conditions. The Company reviews the allowance for doubtful accounts on a regular
basis. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is
considered remote. The allowance for doubtful accounts is recorded as a reduction of accounts receivable and amounted to $0.7 million and
$1.0 million at December 31, 2017 and 2016, respectively.
Revenue and Expense Recognition : Rental income is recognized when earned pursuant to month-to-month leases for storage space.
Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of
occupancy. Rental income received prior to the start of the rental period is included in deferred revenue. Equity in earnings of real estate joint
ventures that we have significant influence over is recognized based on our ownership interest in the earnings of these entities.
Cost of operations, general and administrative expense, interest expense and advertising costs are expensed as incurred. For the years
ended December 31, 2017, 2016, and 2015, advertising costs were $12.3 million, $9.5 million, and $7.3 million, respectively. The Company
accrues property taxes based on estimates and historical trends. If these estimates are incorrect, the timing and amount of expense recognition
would be affected.
Other Operating Income : Other operating income consists primarily of sales of storage-related merchandise (locks and packing
supplies), insurance administrative fees, incidental truck rentals, and management and acquisition fees from unconsolidated joint ventures.
Investment in Storage Facilities : Storage facilities are recorded at cost. The purchase price of acquired facilities is allocated to land,
land improvements, building, equipment, and in-place customer leases based on the relative fair value of each component or based on the fair
value of each component if accounted for as a business combination. The fair values of land are determined based upon comparable market
sales information. The fair values of buildings are determined based upon estimates of current replacement costs adjusted for depreciation on
the properties. For the years ended December 31, 2016 and 2015, $29.5 million and $3.0 million of acquisition related costs were incurred and
expensed, respectively. There were no acquisition related costs expensed in 2017.
Depreciation is computed using the straight-line method over estimated useful lives of forty years for buildings and improvements, and
five to twenty years for furniture, fixtures and equipment. Estimated useful lives are reevaluated when facts and circumstances indicate that the
economic lives of assets do not extend to their currently assigned useful lives. Expenditures for significant renovations or improvements that
extend the useful life of assets are capitalized. Depreciation expense was $102.7 million, $87.2 million and $55.1 million for the years ending
December 31, 2017, 2016, and 2015, respectively. Interest and other costs incurred during the construction period of major expansions are
capitalized. Capitalized interest during the years ended December 31, 2017, 2016, and 2015 was $0.3 million, $0.1 million and $0.1 million,
respectively. Repair and maintenance costs are expensed as incurred.
47
Whenever events or changes in circumstances indicate that the carrying value of the Company’s property may not be recoverable, the
Company’s policy is to complete an assessment of impairment. Impairment is evaluated based upon comparing the sum of the property’s
expected undiscounted future cash flows to the carrying value of the property. If the sum of the undiscounted cash flows is less than the
carrying amount of the property, an impairment loss is recognized for any amount by which the carrying amount of the asset exceeds the fair
value of the asset. For the years ended December 31, 2017, 2016, and 2015, no assets have been determined to be impaired under this policy.
In general, sales of real estate and related profits / losses are recognized when all consideration has changed hands and risks and rewards
of ownership have been transferred.
Trade Name : The Company’s trade name, which was acquired in 2016, has an indefinite life and is not amortized but is reviewed for
impairment annually or more frequently when facts and circumstances indicate that the carrying value of the Company’s trade name may not
be recoverable. We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors as part of our
annual test. If, after completing this assessment, it is determined that it is more likely than not that the fair value of the trade name is less than
its carrying value, we proceed to a quantitative test. We did not elect to perform a qualitative assessment in 2017.
Quantitative testing requires a comparison of the fair value of the trade name to its carrying value. We use a discounted cash flow
analysis under the relief-from-royalty method to estimate the fair value of the trade name. This method incorporates various assumptions,
including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. If the carrying
value exceeds the fair value, the trade name is considered impaired to the extent that the carrying value exceeds the fair value. We did not
record any impairment in 2017.
Other Assets : Included in other assets are cash balances held in escrow for encumbered properties, property deposits and the value
placed on in-place customer leases at the time of acquisition. Cash held in escrow for encumbered properties at December 31, 2017 and 2016,
totaled $292,000 and $238,000, respectively. Property deposits at December 31, 2017 and 2016 were $0.9 million and $2.4 million,
respectively. In 2016, a decision was made to not proceed with the acquisition of two properties on which the Company had previously made
property deposits totaling $1.8 million. As a result, these property deposits were abandoned and are included in write-off of acquired property
deposits on the accompanying consolidated statements of operations. No such expenses were incurred in 2017 or 2015.
The Company allocates a portion of the purchase price of acquisitions to in-place customer leases. The methodology used to determine
the fair value of in-place customer leases is described in Note 8. The Company amortizes in-place customer leases on a straight-line basis over
12 months (the estimated future benefit period).
Investment in Unconsolidated Joint Ventures : The Company’s investment in unconsolidated joint ventures where the Company has
significant influence but not control, and joint ventures which are variable interest entities in which the Company is not the primary
beneficiary, are recorded under the equity method of accounting in the accompanying consolidated financial statements. Under the equity
method, the Company’s investment in unconsolidated joint ventures is stated at cost and adjusted for the Company’s share of net earnings or
losses and reduced by distributions. Equity in earnings of unconsolidated joint ventures is generally recognized based on the Company’s
ownership interest in the earnings of each of the unconsolidated joint ventures. For the purposes of presentation in the statement of cash flows,
the Company follows the “look through” approach for classification of distributions from joint ventures. Under this approach, distributions are
reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital
(e.g., a liquidating dividend or distribution of the proceeds from the joint venture’s sale of assets), in which case it is reported as an investing
activity.
Accounts Payable and Accrued Liabilities : Accounts payable and accrued liabilities consists primarily of trade payables, accrued
interest, and property tax accruals.
Income Taxes : The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be
subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements.
The Company has elected to treat one of its subsidiaries as a taxable REIT subsidiary. In general, the Company’s taxable REIT
subsidiary may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A
taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities.
48
The Company recorded federal and state income tax benefit of $1.0 million in the year ended December 31, 2017 and federal and state
income tax expense of $0.4 million and $1.3 million during the years ended December 31, 2016 and 2015, respectively, which are included in
general and administrative expenses in the consolidated statements of operations. The 2017 income tax benefit includes current tax expense of
$1.5 million and deferred tax benefit of $2.5 million. At December 31, 2017 and 2016, there were no material unrecognized tax benefits.
Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2017 and
2016, the Company had no interest or penalties related to uncertain tax provisions. Income taxes payable at December 31, 2017 and 2016 and
the net deferred tax liability of our taxable REIT subsidiary at December 31, 2016 are classified within accounts payable and accrued liabilities
in the consolidated balance sheets. Prepaid income taxes at December 31, 2017 and 2016 are classified within prepaid expenses, while the net
deferred tax asset of our taxable REIT subsidiary at December 31, 2017 is classified within other assets in the consolidated balance sheets. As
of December 31, 2017, the Company’s taxable REIT subsidiary has prepaid taxes of $0.1 million, deferred tax assets of $3.6 million and a
deferred tax liability of $1.7 million. As of December 31, 2016, the Company’s taxable REIT subsidiary has prepaid taxes of $0.4 million,
deferred tax assets of $1.5 million and a deferred tax liability of $2.2 million.
The Tax Cuts and Jobs Act (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on
December 22, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including
REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The
reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, will apply to income earned by our
taxable REIT subsidiary. As a result, the deferred tax assets and deferred tax liabilities of our taxable REIT subsidiary are remeasured at
December 31, 2017 using the 21% corporate income tax rate. The impact of the remeasurement is not material to the Company.
Derivative Financial Instruments : The Company accounts for derivatives in accordance with ASC Topic 815 “ Derivatives and
Hedging” , which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of
derivatives using an income approach. The accounting for changes in the fair value of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments is
limited to cash flow hedges of certain interest rate risks.
Recent Accounting Pronouncements : In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which
supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires an entity to recognize revenue in a way
that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2017. The Company has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of initially applying the new guidance recognized at the date of initial
application (the modified retrospective transition method). The Company has adopted the standard using the retrospective transition method as
of January 1, 2018. Leases are specifically excluded from the scope of ASU 2014-09, therefore, upon analysis, the Company concluded that the
adoption of the new standard did not have any impact on the timing or amounts of the Company’s rental revenue from customers which
represents over 90% of the Company’s total operating revenues. We have evaluated the other revenue streams material to the Company and
have concluded that the adoption of the new standard did not have any material impact on the timing or amounts of the Company’s material
revenue streams and no cumulative effect adjustment is required as of the date of initial application. Also, as part of the Company’s adoption of
ASU 2014-09, the Company has elected to apply the guidance only to contracts that are not completed contracts at the date of initial
application. Further, related to the Company’s management fee revenue stream, the Company has elected to apply a practical expedient
provided in the new standard which allows the Company to recognize revenue in the amount of management fees to which the Company has a
right to invoice as that amount corresponds directly with the value to the customer of the entity’s performance completed to date.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. This guidance revises existing practice related to accounting
for leases under ASC 840 Leases for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a right-of-use
asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will
be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for
initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified
as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for
operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for
capital leases under ASC 840). While the new standard maintains similar accounting for lessors as under ASC 840, the new standard reflects
updates to, among other things, align with certain changes to the lessee model. ASU 2016-02 is effective for fiscal years and interim periods,
within those years, beginning after December 15, 2018. Early adoption is permitted for all entities, thought the Company does not expect to
adopt ASU 2016-02 early. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt
Instruments”. ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by
removing the requirement to assess whether a contingent event is related to interest rates or credit risks. ASU 2016-06 is effective for fiscal
years, and interim reporting periods within those fiscal years, beginning after December 15, 2016. The implementation of this update did not
result in any changes to our consolidated financial statements.
49
In March 2016, the FASB issued ASU 2016-07, “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the
Transition to the Equity Method of Accounting”. ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the
equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the investment,
results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous
periods that the investment had been held. ASU 2016-07 is effective for fiscal years, and interim reporting periods within those fiscal years,
beginning after December 15, 2016. The implementation of this update did not result in any changes to our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” as part of its
simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance in ASU
2016-09 effective January 1, 2017 and has elected to recognize forfeitures of share-based payments as they occur beginning in 2017. The
implementation of this update did not result in any material changes to our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments (a Consensus of the Emerging Issues Task Force)” in an effort to reduce existing diversity in practice related to the
classification of certain cash receipts and cash payments on the statements of cash flows. The guidance addresses the classification of cash
flows related to, among other things, distributions received from equity method investees. The amendments in this update are effective for
annual periods beginning after December 15, 2017, and interim periods within those annual periods. The implementation of this update as of
January 1, 2018 did not have a material impact on the Company’s financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a Consensus of the
Emerging Issues Task Force)” which requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this
update are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption of this
update is permitted. Other than modifications to the statement of cash flows, the adoption of ASU 2016-18 is not expected to have a material
impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” which is
intended to assist entities with evaluating whether a set of transferred assets and activities is a business. The amendments in this update are
effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption of this update is
permitted and the Company adopted this update effective January 1, 2017. The adoption of ASU 2017-01 has potential impact on the
accounting treatment of properties acquired subsequent to the date of adoption. Property acquisitions treated as business combinations under
previous guidance may no longer be treated as business combinations subsequent to the adoption of ASU 2017-01. To the extent that properties
that we acquire do not meet the definition of a “business” under ASU 2017-01, future acquisitions of properties may be accounted for as asset
acquisitions resulting in the capitalization of acquisition costs incurred in connection with these transactions and the allocation of the purchase
price and related acquisition costs to the assets acquired based on their relative fair values. There were no properties acquired in 2017 that
would have been accounted for as business combinations prior to the adoption of ASU 2017-01.
In February 2017, the FASB issued ASU 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” which
clarifies the scope and application of ASC 610-20 on the sale or transfer of nonfinancial assets, including real estate, and in substance
nonfinancial assets to noncustomers, including partial sales. The amendments in this update are effective for annual periods beginning after
December 15, 2017, and interim periods within those annual periods. The implementation of this update as of January 1, 2018 could potentially
impact the accounting treatment of future real estate sales of the Company if such sales are to parties who are also customers of the Company.
In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. The amendments in this update are effective for annual periods beginning after December 15, 2017, and
interim periods within those annual periods. The implementation of this update as of January 1, 2018 did not have a material impact on the
Company’s financial statements, however, all future changes to the terms or conditions of any of the Company’s share-based payment awards
are subject to the guidance in ASU 2017-09 and could potentially be accounted for differently than under the previous guidance concerning
such changes.
Stock-Based Compensation : The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “
Compensation - Stock Compensation ”. The Company recognizes compensation cost in its financial statements for all share based payments
granted, modified, or settled during the period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over
the related vesting period.
50
The Company recorded compensation expense (included in general and administrative expense) of $15,000, $89,000, and $210,000,
respectively, related to stock options and $7.1 million, $7.2 million, and $6.3 million, respectively, related to amortization of non-vested stock
grants for the years ended December 31, 2017, 2016, and 2015. The Company uses the Black-Scholes Merton option pricing model to estimate
the fair value of stock options granted subsequent to the adoption of ASC Topic 718. The application of this pricing model involves
assumptions that are judgmental and sensitive in the determination of compensation expense. The weighted-average fair value of options
granted during the year ended December 31, 2015 was $9.90. There were no options granted during the years ended December 31, 2017 and
2016.
To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods
that correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of
grant for the expected life of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts.
The expected life of stock options is based on the midpoint between the vesting date and the end of the contractual term. The Company
recognizes any forfeitures as they occur.
During 2017, 2016, and 2015, the Company issued performance based non-vested stock awards to certain executives. The fair value for
the performance based awards in 2017, 2016 and 2015 was estimated at the time the awards were granted using a Monte Carlo pricing model
applying the following weighted-average assumptions:
Expected life (years)
Risk free interest rate
Expected volatility
Fair value
2017
2016
2015
3.0
1.79%
19.92%
82.06
$
3.0
1.53%
19.37%
80.24
$
3.0
1.33%
18.88%
101.43
$
The Monte Carlo pricing model was not used to value any other 2017, 2016, and 2015 non-vested shares granted as no market conditions
were present in these awards. The value of these other non-vested shares was equal to the stock price on the date of grant.
Use of Estimates : The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
3. EARNINGS PER SHARE AND EARNINGS PER UNIT
The Company reports earnings per share and earnings per unit data in accordance with ASC Topic 260, “Earnings Per Share .” Under
ASC Topic 260-10, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid
or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The
Parent Company and the Operating Partnership have calculated their basic and diluted earnings per share/unit using the two-class method.
The following table sets forth the computation of basic and diluted earnings per common share utilizing the two-class method.
(Amounts in thousands, except per share data)
Numerator:
Net income attributable to common shareholders
Denominator:
Denominator for basic earnings per share - weighted average
shares
Effect of Dilutive Securities:
Stock options and non-vested stock
Denominator for diluted earnings per share - adjusted weighted
Year Ended December 31,
2016
2015
2017
$
96,365 $
85,225 $
112,524
46,373
43,184
35,379
117
223
222
average shares and assumed conversion
46,490
43,407
35,601
Basic Earnings per common share attributable to common
shareholders
Diluted Earnings per common share attributable to common
shareholders
$
$
2.08 $
1.97 $
2.07 $
1.96 $
3.18
3.16
51
The following table sets forth the computation of basic and diluted earnings per common unit utilizing the two-class method.
(Amounts in thousands, except per unit data)
Numerator:
Net income attributable to common unitholders
Denominator:
Denominator for basic earnings per unit - weighted average units
Effect of Dilutive Securities:
Stock options and non-vested stock
Denominator for diluted earnings per unit - adjusted weighted
average units and assumed conversion
Basic Earnings per common unit attributable to common
Year Ended December 31,
2016
2015
2017
$
96,365 $
85,225 $
112,524
46,373
43,184
35,379
117
223
222
46,490
43,407
35,601
unitholders
Diluted Earnings per common unit attributable to common
unitholders
$
$
2.08 $
1.97 $
2.07 $
1.96 $
3.18
3.16
Not included in the effect of dilutive securities above are 13,750 stock options and 133,512 unvested restricted shares for the year ended
December 31, 2017; 107,283 unvested restricted shares for the year ended December 31, 2016; and 5,500 stock options and 152,835 unvested
restricted shares for the year ended December 31, 2015. The effects of including these securities would have been anti-dilutive.
4. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS
The following summarizes activity in storage facilities during the years ended December 31, 2017 and December 31, 2016.
(Dollars in thousands)
Cost:
Beginning balance
Acquisition of storage facilities
Improvements and equipment additions
Net (decrease) increase in construction in progress
Dispositions
Ending balance
Accumulated Depreciation:
Beginning balance
Additions during the year
Dispositions
Ending balance
2017
2016
$ 4,243,308 $ 2,491,702
1,714,029
65,860
7,525
(35,808)
4,243,308
22,638
84,332
(141)
(28,727)
4,321,410 $
$
$
$
535,704 $
102,674
(14,064)
624,314 $
465,195
87,219
(16,710)
535,704
The Company acquired two self-storage facilities during 2017. The acquisition of these facilities were accounted for as asset acquisitions
(See Note 2 for further discussion of the Company’s adoption of the accounting guidance under ASU 2017-01 as of January 1, 2017). The cost
of these facilities, including closing costs, were assigned to land, buildings, equipment and improvements based upon their relative fair values.
On July 15, 2016, the Company acquired all of the outstanding partnership interests in LifeStorage, LP, a Delaware limited partnership
(“LS”). Pursuant to the acquisition, the Company acquired 83 self-storage properties throughout the country, including the following markets:
Chicago, Illinois; Las Vegas, Nevada; Sacramento, California; Austin, Texas; and Los Angeles, California. Pursuant to the terms of the
Agreement and Plan of Merger dated as of May 18, 2016 by and among LS, the Operating Partnership, Solar Lunar Sub, LLC, a Delaware
limited liability company and wholly-owned subsidiary of the Operating Partnership, and Fortis Advisors LLC, a Delaware limited liability
company, as Sellers’ Representative, the Company paid aggregate consideration of approximately $1.3 billion, of which $482 million was paid
to discharge existing indebtedness of LS (including prepayment penalties and defeasance costs totaling $15.5 million).
Including the LS acquisition, the Company acquired 122 facilities during 2016. The acquisition of three stores that were acquired at
certificate of occupancy were accounted for as asset acquisitions. The cost of these stores, including closing costs, was assigned to land,
building, equipment and improvements components based upon their relative fair values. The assets and liabilities of the other 119 storage
facilities acquired in 2016, which primarily consist of tangible and intangible assets, were measured at fair value on the date of acquisition in
accordance with the principles of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and were accounted for as business
combinations in accordance with the principles of FASB ASC Topic 805 “Business Combinations.”
52
The purchase price of the two facilities acquired in 2017 and the 122 facilities acquired in 2016 has been assigned as follows:
(dollars in thousands)
Consideration paid
Acquisition Date Fair Value
Number of
Properties
Date of
Acquisition
Purchase
Price
Cash Paid
Net Other
Liabilities
Assumed
(Assets
Acquired)
Building,
Equipment,
and
Improvements
Closing
Costs
Expensed
Land
1
1
2
2/23/2017 $
12/14/2017
$
10,089
12,549
22,638
$
$
10,076
12,550
22,626
$
$
13
(1)
12
$
$
771
1,110
1,881
$
$
9,318
11,439
20,757
$
$
—
—
—
Number of
Properties
Date of
Acquisition
Purchase
Price
Cash Paid
Consideration paid
Value of
Operating
Partnership
Units
Issued
Mortgage
Assumed
Net Other
Liabilities
Assumed
(Assets
Acquired)
$
$
4
4
5
1
3
1
1
1
1
3
1
1
2
2
1
1
2
1/6/2016 $
1/21/2016
1/21/2016
1/21/2016
1/21/2016
2/1/2016
2/12/2016
2/17/2016
2/29/2016
3/16/2016
3/17/2016
4/11/2016
4/14/2016
4/26/2016
5/2/2016
5/5/2016
5/19/2016
20,350
80,603
55,435
11,387
38,975
9,275
11,274
5,750
12,600
68,832
17,320
36,750
17,313
24,312
8,100
10,800
8,400
20,246
80,415
55,151
11,362
38,819
9,261
11,270
5,732
12,549
63,965
17,278
33,346
17,152
20,143
4,006
10,708
8,366
$
—
—
—
—
—
—
—
—
—
4,472
—
3,294
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
4,249
4,036
—
—
104
188
284
25
156
14
4
18
51
395
42
110
161
(80)
58
92
34
Acquisition Date Fair Value
Building,
Equipment,
and
Improvements
In-Place
Customer
Leases
Trade
Name
Closing
Costs
Expensed
$
$
13,339
51,145
41,237
6,341
18,598
8,224
8,980
3,879
7,915
45,371
10,339
18,840
10,904
18,201
4,922
8,302
7,521
$
365
1,038
917
166
581
63
—
103
157
814
253
465
267
401
160
165
165
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
437
397
657
81
299
136
—
164
188
313
132
141
204
372
161
133
213
Land
$ 6,646
28,420
13,281
4,880
19,796
988
2,294
1,768
4,528
22,647
6,728
17,445
6,142
5,710
3,018
2,333
714
83
1
1
1
1
1
122
7/15/2016
7/29/2016
8/4/2016
9/27/2016
11/17/2016
12/20/2016
1,299,740
8,620
8,900
10,500
8,884
9,800
$ 1,783,920
1,335,274
8,617
8,831
10,407
7,125
6,900
$ 1,796,923
—
—
—
—
1,750
—
$ 9,516
—
—
—
—
—
2,966
$ 11,251
(35,534)
3
69
93
9
(66)
150,660
920
5,062
2,809
371
3,268
$ (33,770) $ 310,428
1,085,750
7,700
3,679
7,523
8,513
6,378
$ 1,403,601
46,830
—
159
168
—
154
$ 53,391
16,500
—
—
—
—
—
$ 16,500
25,398
—
119
244
—
98
$ 29,887
State
2017
IL
NC
Total acquired 2017
(dollars in thousands)
States
2016
FL
CA
NH
MA
TX
AZ
FL
PA
CO
CA
CA
CA
CT
NY
FL
TX
NY
CA, CO, FL, IL, MS,
NV, TX, UT, WI
SC
CO
FL
IL
FL
Total acquired 2016
All properties acquired were purchased from unrelated third parties. The operating results of the facilities acquired have been included in
the Company’s operations since the respective acquisition dates. The $22.6 million of cash paid for the facilities acquired in 2017 includes $0.5
million of deposits that were paid in 2015 and $0.6 million of deposits that were paid in 2016, when these facilities originally went under
contract. The $1,796.9 million of cash paid for the properties acquired during 2016 includes payment for cash acquired of $40.9 million and
$5.3 million of deposits that were paid in 2015 when certain of these properties originally went under contract. Closing costs totaling $345,000
were incurred and expensed in 2015 related to facilities acquired in 2016 and are reflected in totals for the respective 2016 acquisitions in the
chart above.
Non-cash investing activities during 2017 include the assumption of net other liabilities totaling $12,000. Non-cash investing activities
during 2016 include the issuance of $9.5 million in Operating Partnership Units valued based on the market price of the Company’s common
stock at the date of acquisition, the assumption of three mortgages with acquisition-date fair values of $11.3 million, and the assumption of net
other liabilities of $7.2 million. Non-cash investing activities during 2015 include the issuance of $2.1 million in Operating Partnership Units,
the assumption of $1.3 million of other net liabilities and $2.5 million for the settlement of a straight-line rent liability in connection with the
acquisition of self-storage facilities.
The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer
turnover and the estimated cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12
months (the estimated future benefit period). The Company measures the value of trade names, which have an indefinite life and are not
amortized, by calculating discounted cash flows utilizing the relief from royalty method.
53
In-place customer leases are included in other assets on the Company’s consolidated balance sheets at December 31 as follows:
(dollars in thousands)
In-place customer leases
Accumulated amortization
Net carrying value at the end of period
2017
2016
$
$
75,241 $
(75,241)
$
75,611
(50,782)
24,829
Amortization expense related to in-place customer leases was $24.8 million, $29.9 million, and $3.4 million, for the years ended
December 31, 2017, 2016, and 2015, respectively. No amortization expense is expected in 2018.
Property Dispositions
During 2017 the Company sold two non-strategic properties and received net cash proceeds of $16.9 million. The Company has
subsequently leased one of the properties sold during 2017 and will continue to operate the property through March 2020. Due to the
Company’s continuing involvement in this property, the related gain on the sale of this property has been deferred and will be recognized by
the Company upon termination of this lease. During 2016 the Company sold eight non-strategic properties and received net cash proceeds of
$34.1 million. During 2015 the Company sold three non-strategic properties and received cash proceeds of $4.6 million.
Change in Useful Life Estimates
The change in name of the Company’s storage facilities from Uncle Bob’s Self Storage ® to Life Storage ® required replacement of
signage at all existing storage facilities which are currently included in investment in storage facilities, net on the consolidated balance sheets.
The replacement of this signage has been completed as of December 31, 2017. As a result of this replacement of signage, the Company
reassessed the estimated useful lives of the then existing signage in 2016. This useful life reassessment resulted in an increase in depreciation
expense of approximately $0.5 million in 2017 and $8.2 million in 2016 as depreciation was accelerated over the new remaining useful lives.
The Company does not estimate any further impact on depreciation expense as a result of the replacement of the Uncle Bob’s Self Storage ®
signage which is now fully depreciated.
As part of the Company’s capital improvement efforts during 2017, buildings at certain self-storage facilities were identified for
replacement. As a result of the decision to replace these buildings, the Company reassessed the estimated useful lives of the then existing
buildings. This useful life reassessment resulted in an increase in depreciation expense of approximately $3.9 million in 2017. The Company
estimates that the change in estimated useful lives of buildings identified for replacement as of December 31, 2017 will result in an increase in
depreciation expense of approximately $0.3 million in 2018.
The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by
approximately $0.09 and approximately $0.19 per share/unit in 2017 and 2016, respectively.
5. UNSECURED LINE OF CREDIT AND TERM NOTES
Borrowings outstanding on our unsecured line of credit and term notes are as follows:
( Dollars in thousands )
Revolving line of credit borrowings
Dec. 31, 2017
Dec. 31, 2016
$
105,000 $
253,000
100,000
100,000
175,000
600,000
450,000
200,000
325,000
100,000
175,000
600,000
—
200,000
$ 1,625,000 $ 1,400,000
(9,323)
(3,152)
$ 1,609,089 $ 1,387,525
(10,962)
(4,949)
Term note due June 4, 2020
Term note due August 5, 2021
Term note due April 8, 2024
Senior term note due July 1, 2026
Senior term note due December 15, 2027
Term note due July 21, 2028
Total term note principal balance outstanding
Less: unamortized debt issuance costs
Less: unamortized senior term note discount
Term notes payable
54
In January 2016, the Company exercised the expansion feature on its existing amended unsecured credit agreement and increased the
revolving credit limit from $300 million to $500 million. The interest rate on the revolving credit facility bears interest at a variable annual rate
equal to LIBOR plus a margin based on the Company’s credit rating (at December 31, 2017 the margin is 1.10%), and requires an annual
0.15% facility fee. The Company’s unsecured credit agreement also includes a $325 million unsecured term note maturing June 4, 2020. In
2017, the Company repaid $225 million under this term note, resulting in $100 million outstanding at December 31, 2017, with the term note
bearing interest at LIBOR plus a margin based on the Company’s credit rating (at December 31, 2017 the margin is 1.15%). The interest rate at
December 31, 2017 on the Company’s line of credit was approximately 2.63% (1.79% at December 31, 2016). At December 31, 2017, there
was $395 million available on the unsecured line of credit. The revolving line of credit has a maturity date of December 10, 2019.
On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal amount of 3.875% unsecured senior notes
due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027
Senior Notes is payable semi-annually on June 15 and December 15, beginning on June 15, 2018. The 2027 Senior Notes are fully and
unconditionally guaranteed by the Parent Company. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting
discount and other offering expenses totaling $4.0 million, totaled $443.9 million.
On June 20, 2016, the Operating Partnership issued $600 million in aggregate principal amount of 3.50% unsecured senior notes due
July 1, 2026 (the “2026 Senior Notes”). The 2026 Senior Notes were issued at a 0.553% discount to par value. Interest on the 2026 Senior
Notes is payable semi-annually in arrears on January 1 and July 1. The 2026 Senior Notes are fully and unconditionally guaranteed by the
Parent Company. Proceeds received upon issuance, net of discount to par of $3.3 million and underwriting discount and other offering
expenses of $5.5 million, totaled $591.2 million.
The indenture under which the 2027 Senior Notes and the 2026 Senior Notes were issued restricts the ability of the Company and its
subsidiaries to incur debt unless the Company and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest
coverage ratio of more than 1.5:1 on all outstanding debt, after giving effect to the incurrence of the debt. The indenture also restricts the ability
of the Company and its subsidiaries to incur secured debt unless the Company and its consolidated subsidiaries comply with a secured debt
leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary
covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Company
and its consolidated subsidiaries. At December 31, 2017, the Company was in compliance with such covenants.
On May 17, 2016, the Company entered into two senior unsecured acquisition bridge facilities (the “Bridge Facilities”) totaling $1,675
million with the Company’s third-party advisors to the LS acquisition (see Note 4). In consideration for the bridge financing commitments, the
Company paid fees totaling $7.3 million which are included as interest expense – bridge financing commitment fee in the 2016 consolidated
statement of operations. The Bridge Facilities commitments were not drawn upon and were terminated on June 29, 2016.
On July 21, 2016, the Company entered into a $200 million term note maturing July 21, 2028 bearing interest at a fixed rate of 3.67%.
On April 8, 2014, the Company entered into a $175 million term note maturing April 2024 bearing interest at a fixed rate of 4.533%. The
interest rate on the term note increases to 6.283% if the Company is not rated by at least one rating agency or if the Company’s credit rating is
downgraded.
In 2011, the Company entered into a $100 million term note maturing August 5, 2021 bearing interest at a fixed rate of 5.54%. The
interest rate on the term note increases to 7.29% if the notes are not rated by at least one rating agency, the credit rating on the notes is
downgraded or if the Company’s credit rating is downgraded.
The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including
prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At
December 31, 2017, the Company was in compliance with such covenants.
We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with
amounts outstanding at December 31, 2017, the entire availability on the line of credit could be drawn without violating our debt covenants.
The Company’s fixed rate term notes contain a provision that allows for the noteholders to call the debt upon a change of control of the
Company at an amount that includes a make whole premium based on rates in effect on the date of the change of control.
Deferred debt issuance costs and the discount on the outstanding term notes are both presented as reductions of term notes in the
accompanying consolidated balance sheets at December 31, 2017 and December 31, 2016. Amortization expense related to these deferred debt
issuance costs, which exclude costs related to the Bridge Facilities, was $3.0 million, $1.7 million and $1.2 million for the periods ended
December 31, 2017, 2016 and 2015, respectively, and is included in interest expense in the consolidated statements of operations.
55
6. MORTGAGES PAYABLE AND DEBT MATURITIES
Mortgages payable at December 31, 2017 and 2016 consist of the following:
(dollars in thousands)
4.98% mortgage note due January 1, 2021 secured by one self-
storage facility with an aggregate net book value of $9.6 million,
principal and interest paid monthly (effective interest rate 5.22%)
4.065% mortgage note due April 1, 2023, secured by one self-
storage facility with an aggregate net book value of $7.6 million,
principal and interest paid monthly (effective interest rate 4.30%)
5.26% mortgage note due November 1, 2023, secured by one self-
storage facility with an aggregate net book value of $8.0 million,
principal and interest paid monthly (effective interest rate 5.56%)
5.99% mortgage note due May 1, 2026, secured by one self-
storage facility with an aggregate net book value of $6.6 million,
principal and interest paid monthly (effective interest rate 6.23%)
Total mortgages payable
December 31,
2017
December 31,
2016
$
2,916
$
2,966
4,119
4,207
3,939
4,002
$
1,700
12,674
$
1,852
13,027
The table below summarizes the Company’s debt obligations and interest rate derivatives at December 31, 2017. The estimated fair value
of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant
comparable market information associated with each financial instrument. The fair value of the fixed rate term notes and mortgage notes were
estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. These assumptions are considered Level 2 inputs within the fair value hierarchy as described in
Note 8. The carrying values of our variable rate debt instruments approximate their fair values as these debt instruments bear interest at current
market rates that approximate market participant rates. This is considered a Level 2 input within the fair value hierarchy. The use of different
market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the
estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.
(dollars in thousands)
Line of credit—variable rate LIBOR +
2018
2019
Expected Maturity Date Including Discount
Thereafter
2020
2022
2021
Total
Fair Value
1.10% (2.63% at December 31, 2017)
— $105,000
—
—
—
— $ 105,000 $105,000
Notes Payable:
Term note—variable rate LIBOR+1.15%
(2.53% at December 31, 2017)
Term note—fixed rate 5.54%
Term note—fixed rate 4.533%
Term note—fixed rate 3.50%
Term note—fixed rate 3.875%
Term note—fixed rate 3.67%
Mortgage note—fixed rate 4.98%
Mortgage note—fixed rate 4.065%
Mortgage note—fixed rate 5.26%
Mortgage note—fixed rate 5.99%
Total
—
—
—
—
—
—
53 $
$
92
$
$
$
67 $
$ 160
$
$ 372 $105,393
—
— $100,000
—
—
$100,000
—
—
—
—
—
—
—
—
—
—
—
—
59 $ 2,748
56 $
99 $
96 $
74 $
71 $
181 $
170 $
—
—
—
—
—
—
—
104 $ 108
83
78 $
192 $ 203
$ 394
$100,413 $103,122
— $ 100,000 $100,000
— $ 100,000 $109,192
$ 175,000 $ 175,000 $181,510
$ 600,000 $ 600,000 $585,092
$ 450,000 $ 450,000 $449,076
$ 200,000 $ 200,000 $192,447
2,916 $ 3,007
4,119 $ 4,112
3,939 $ 4,169
1,700 $ 1,822
$
$
$
$1,432,980 $1,742,674
— $
3,620 $
3,566 $
794 $
7. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable interest rates. The interest rate swaps require
the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount
equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. Forward starting interest rate
swaps have also been used by the Company to hedge the risk of changes in the interest-related cash outflows associated with the potential
issuance of long-term debt. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract
would likely be settled for an amount equal to its fair value. The Company enters into interest rate swaps with a number of major financial
institutions to minimize counterparty credit risk.
56
Interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate
debt. Therefore, interest rate swaps are recorded in the consolidated balance sheets at fair value and the related gains or losses are deferred in
shareholders’ equity or partners’ capital as Accumulated Other Comprehensive Loss (“AOCL”). These deferred gains and losses are recognized
in interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest
rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these
contracts is recognized in earnings immediately. Ineffectiveness was de minimis in 2017, 2016, and 2015.
The Company has one interest rate swap agreement in effect at December 31, 2017 as detailed below to effectively convert $100 million
of variable-rate debt to fixed-rate debt.
Notional Amount
$100 Million
Effective Date
9/4/13
Expiration Date
9/4/18
Fixed
Rate Paid
1.3710%
Floating Rate
Received
1 month LIBOR
In the fourth quarter of 2017, the Company terminated hedges and settled the interest rate swap agreements on $225 million of the
Company’s variable rate debt in connection with repayment of the related variable rate term notes. The Company settled these interest rate
swap agreements for a total of $9.6 million which is included in interest expense in the 2017 consolidated statement of operations. As a result
of the termination, no gains or losses related to the terminated interest rate swaps are included in AOCL at December 31, 2017.
In the fourth quarter of 2015, the Company entered into forward starting interest rate swap agreements with a total notional value of $50
million. In the first quarter of 2016, the Company entered into additional forward starting interest rate swap agreements with a total notional
value of $100 million. These forward starting interest rate swap agreements were entered into to hedge the risk of changes in the interest-
related cash flows associated with the potential issuance of fixed rate long-term debt. In conjunction with the issuance of the 2026 Senior Notes
(see Note 5), the Company terminated these hedges and settled the forward starting swap agreements for approximately $9.2 million. The $9.2
million has been deferred in AOCL and is being amortized as additional interest expense over the ten-year term of the 2026 Senior Notes or
until such time as interest payments on the 2026 Senior Notes are no longer probable. Consistent with the Company’s accounting policy, the
cash outflow related to the settlement of the forward starting swap agreements is reflected as a financing activity in the 2016 consolidated
statement of cash flows.
The remaining interest rate swap agreement is the only derivative instrument, as defined by FASB ASC Topic 815 “ Derivatives and
Hedging ”, held by the Company at December 31, 2017. During 2017, 2016, and 2015, the net reclassification from AOCL to interest expense
was $12.3 million, $4.6 million, and $5.2 million, respectively, based on payments made under the swap agreements. Based on current interest
rates, the Company estimates that payments received under the interest rate swaps in 2018 would be de minimis. Payments made or received
under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements,
including accrued interest, was an asset of $0.2 million at December 31, 2017 and a liability of $13.0 million at December 31, 2016.
The Company’s agreement with its interest rate swap counterparty contains provisions pursuant to which the Company could be declared
in default of its derivative obligation, if any, if the Company defaults on any of its indebtedness, including default where repayment of the
indebtedness has not been accelerated by the lender. The interest rate swap agreement also incorporates other loan covenants of the Company.
Failure to comply with the loan covenant provisions would result in the Company being in default on the interest rate swap agreement. As of
December 31, 2017, the Company had not posted any collateral related to the interest rate swap agreements.
The changes in AOCL for the years ended December 31, 2017, 2016, and 2015 are summarized as follows:
Jan. 1, 2017
to
Dec. 31, 2017
$
Jan. 1, 2016
to
Dec. 31, 2016
Jan. 1, 2015
to
Dec. 31, 2015
(21,475) $
(14,415) $
(13,005)
13,185
5,044
5,229
703
13,888
(7,587) $
(12,104)
(7,060)
(21,475) $
(6,639)
(1,410)
(14,415)
$
(dollars in thousands)
Accumulated other comprehensive loss beginning of period
Realized loss reclassified from accumulated other
comprehensive loss to interest expense
Unrealized gain (loss) from changes in the fair value of the
effective portion of the interest rate swaps
Gain (loss) included in other comprehensive loss
Accumulated other comprehensive loss end of period
57
8. FAIR VALUE MEASUREMENTS
The Company applies the provisions of ASC Topic 820 “ Fair Value Measurements and Disclosures ” in determining the fair value of its
financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used
to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that
are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based
on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is
determined based on the lowest level input that is significant to the fair value measurement.
Refer to Note 6 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2017 and
December 31, 2016 (dollars in thousands):
December 31, 2017
Interest rate swaps
December 31, 2016
Interest rate swaps
Asset
(Liability)
Level 1
Level 2
Level 3
$
$
205
—
$
205
(13,015)
—
$
(13,015)
—
—
Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and therefore are measured at fair
value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using the income
approach.
During 2016, assets and liabilities measured at fair value on a non-recurring basis included the assets acquired and liabilities assumed in
connection with the acquisition of storage facilities accounted for as business combinations (see note 4), including the LS acquisition. To
determine the fair value of land, the Company used prices per acre derived from observed transactions involving comparable land in similar
locations, which is considered a Level 2 input. To determine the fair value of buildings, equipment and improvements, the Company used
current replacement cost based on information derived from construction industry data by geographic region which is considered a Level 2
input. The replacement cost is then adjusted for the age, condition, and economic obsolescence associated with these assets, which are
considered Level 3 inputs. The fair value of in-place customer leases is based on the rent lost due to the amount of time required to replace
existing customers and the cost to replace in-place tenants which are based on the Company’s historical experience with turnover at its facilities
and on market rental rates and estimated downtime required to replace the in-place leases, all of which are Level 3 inputs. The average
downtime is based upon estimated demand information including the number of potential customers exhibited in historical property interest
data. The fair value of trade names is based on royalty payments avoided had the trade name been owned by a third party which is determined
using market royalty rates. Other assets acquired and liabilities assumed in the acquisitions consist primarily of prepaid or accrued real estate
taxes and deferred revenues from advance monthly rentals paid by customers. The fair values of these assets and liabilities are based on their
carrying values as they typically turn over within one year from the acquisition date and these are Level 3 inputs. There were no acquisitions
made in 2017 that were accounted for as business combinations.
9. STOCK BASED COMPENSATION
The Company established the 2015 Award and Option Plan (the “2015 Plan”) which replaced the expired 2005 Award and Option Plan
for the purpose of attracting and retaining the Company’s executive officers and other key employees, such plans being the “Plans”. There were
561,000 shares authorized for issuance under the 2015 Plan. Options granted under the Plans vest ratably over four and eight years, and must be
exercised within ten years from the date of grant. The exercise price for qualified incentive stock options must be at least equal to the fair
market value of the common shares at the date of grant. As of December 31, 2017, options for 76,106 shares were outstanding under the Plans
and options for 345,383 shares of common stock were available for future issuance. The Company may also grant other stock-based awards
under the 2015 Plan, including restricted stock and performance-based awards.
The Company also established the 2009 Outside Directors’ Stock Option and Award Plan (the “Non-employee Plan”) which replaced the
1995 Outside Directors’ Stock Option Plan for the purpose of attracting and retaining the services of experienced and knowledgeable outside
directors. Prior to 2016, the Non-employee Plan provided for the initial granting of options to purchase 3,500 shares of common stock and for
the annual granting of options to purchase 2,000 shares of common stock to each eligible director. Such options vest over a one-year period for
initial awards and immediately upon subsequent grants. The issuance of stock options to directors was discontinued in 2016. In addition, each
outside director receives non-vested shares annually equal to 80% of the annual fees paid to them. During the restriction period, the non-vested
shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares,
including the right to vote and receive dividends. During 2017, 3,145 non-vested shares were issued to outside directors. Such non-vested
shares vest over a one-year period. The total shares reserved under the Non-employee Plan is 150,000. The exercise price for options granted
under the Non-employee Plan is equal to the fair market value at the date of grant. As of December 31, 2017, options for 18,500 common
shares and 3,145 of non-vested shares were outstanding under the Non-employee Plans. As of December 31, 2017 options for 67,871 shares of
common stock were available for future issuance.
58
A summary of the Company’s stock option activity and related information for the years ended December 31 follows:
2017
2016
2015
Outstanding at beginning of year:
Granted
Exercised
Adjusted / (forfeited)
Outstanding at end of year
Exercisable at end of year
Weighted
average
exercise
price
Weighted
average
exercise
price
Options
Options
95,706 $
—
(1,100)
—
94,606 $
93,106
$
52.08
—
39.00
—
52.24
51.85
95,706 $
—
—
—
95,706 $
92,706
$
52.08
—
—
—
52.08
51.31
Weighted
average
exercise
price
Options
115,606 $
11,000
(30,900)
—
95,706 $
63,815
$
48.54
91.58
52.87
—
52.08
48.73
A summary of the Company’s stock options outstanding at December 31, 2017 follows:
Exercise Price Range
$30.00 – 39.99
$40.00 – 69.99
$70.00 – 91.58
Total
Intrinsic value of outstanding stock options at December 31,
2017
Intrinsic value of exercisable stock options at December 31,
2017
Outstanding
Exercisable
Weighted
average
exercise
price
35.73
44.68
85.78
52.24
Options
500 $
76,606 $
17,500 $
94,606 $
Weighted
average
exercise
price
35.73
44.68
86.71
51.85
Options
500 $
76,606 $
16,000 $
93,106 $
$
3,512,314
$
3,492,589
The intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $0.1 million, $0, and $1.4
million, respectively.
Proceeds from stock options exercised during the years ended December 31, 2017, 2016, and 2015 amounted to $0.1 million, $0, and
$1.6 million, respectively.
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of
the Company’s common stock at December 31, 2017, or the price on the date of exercise for those exercised during the year. As of
December 31, 2017, there was approximately $7,000 of total unrecognized compensation cost related to stock option compensation
arrangements granted under our stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 0.5
years. The weighted average remaining contractual life of all options is 1.9 years, and for exercisable options is 1.8 years.
Non-vested stock
The Company has also issued shares of non-vested stock to employees which vest over one to nine year periods. During the restriction
period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a
holder of common shares, including the right to vote and receive dividends. For issuances of non-vested stock during the year ended
December 31, 2017, the fair market value of the non-vested stock on the date of grant ranged from $74.36 to $89.07. During 2017, 51,276
shares of non-vested stock were issued to employees and directors with an aggregate fair value of $4.4 million. The Company charges the fair
value ratably to expense over the vesting period. The Company uses the average of the high and low price of its common stock on the date the
award is granted as the fair value for non-vested stock awards that do not have a market condition.
59
A summary of the status of unvested shares of stock issued to employees and directors as of and during the years ended December 31
follows:
2017
2016
2015
Unvested at beginning of year:
Granted
Vested
Forfeited
Unvested at end of year
Non-vested
Shares
258,163 $
51,276
(96,615)
(42,015)
170,809 $
Weighted
average
grant date
fair value
58.89
85.17
58.95
38.53
71.75
Non-vested
Shares
305,520 $
23,405
(70,762)
—
258,163 $
Weighted
average
grant date
fair value
59.09
89.30
69.82
—
58.89
Non-vested
Shares
310,463 $
64,665
(69,187)
(421)
305,520 $
Weighted
average
grant date
fair value
51.93
94.74
60.28
76.07
59.09
Compensation expense of $7.1 million, $7.2 million, and $6.3 million was recognized for the vested portion of non-vested stock grants in
2017, 2016, and 2015, respectively. The fair value of non-vested stock that vested during 2017, 2016, and 2015 was $5.7 million, $4.9 million,
and $4.2 million, respectively. The total unrecognized compensation cost related to non-vested stock was $8.2 million at December 31, 2017,
and the remaining weighted-average period over which this expense will be recognized was 4.2 years.
Performance-based awards
During 2017, 2016 and 2015, the Company granted performance-based awards that entitle the recipients to earn up to 48,762, 37,082 and
42,538 shares, respectively, if certain performance criteria are achieved over a three-year period. The actual number of shares to be issued will
be determined at the end of a three year period, and no performance-based shares were issued in 2017, 2016 or 2015. The performance-based
awards granted are based upon the Company’s performance over a three-year period depending on the Company’s total shareholder return
relative to a group of peer companies. Performance based awards are recognized as compensation expense based on the fair value on the date of
grant, the number of shares ultimately expected to vest and the vesting period. For accounting purposes, the performance shares are considered
to have a market condition. The effect of the market condition is reflected in the grant date fair value of the award and thus, compensation
expense is recognized on this type of award provided that the requisite service is rendered (regardless of whether the market condition is
achieved). The Company estimated the fair value of each performance-based award granted under the Plans on the date of grant using a Monte
Carlo simulation that uses the assumptions noted in Note 2.
During 2017, compensation expense of $2.6 million (included in the $7.1 million discussed above) was recognized for performance
awards granted in 2017 and prior. The total unrecognized compensation cost related to non-vested performance awards was $3.0 million at
December 31, 2017 and the weighted-average period over which this expense will be recognized is 1.9 years.
Deferred compensation plan for directors
Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are
otherwise payable in cash. Directors’ fees that are deferred under this plan are credited to each Directors’ account under the plan in the form of
Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of the Company’s
Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees otherwise would be
paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock represented by Units in such
Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the Director or in quarterly or annual
installments over a specified period and commencing on a specified date. The Directors may not elect to receive cash in lieu of shares. Under
this plan there were a total of 21,540 units outstanding at December 31, 2017. Fees that were earned and credited to Directors’ accounts are
recorded as compensation expense and totaled $0.1 million annually in each of 2016 and 2015. No fees were elected to be deferred by any non-
employee Directors in 2017.
10. RETIREMENT PLAN
Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan. In
2015, the Company contributed to the Plan at the rate of 25% of the first 4% of gross wages that the employee contributes. Beginning on
January 1, 2016, the Company contributes to the Plan at the rate of 33% of the first 5% of gross wages that the employee contributes. Total
expense to the Company was approximately $703,000, $505,000, and $276,000 for the years ended December 31, 2017, 2016, and 2015,
respectively.
60
11. INVESTMENT IN JOINT VENTURES
A summary of the Company’s unconsolidated joint ventures is as follows:
Venture
Sovran HHF Storage Holdings LLC (“Sovran HHF”)1
Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2
191 III Holdings LLC (“191 III”)3
Life Storage-SERS Storage LLC (“SERS”)4
Iskalo Office Holdings, LLC (“Iskalo”)5
Urban Box Coralway Storage, LLC (“Urban Box”)6
SNL/Orix 1200 McDonald Ave., LLC (“McDonald”)7
SNL Orix Merrick, LLC (“Merrick”)8
Review Avenue Partners, LLC (“RAP”)9
N 32nd Street Self Storage, LLC (“N32”)10
Number of
Properties
57
30
6
3
N/A
1
1
1
1
1
Company
common
ownership
interest
20%
15%
20%
20%
49%
85%
5%
5%
40%
46%
Carrying value
of investment
at Dec. 31, 2017
$85.1 million
$13.3 million
$9.4 million
$3.6 million
($0.4 million)
$4.1 million
$2.7 million
$2.5 million
$11.5 million
$1.3 million
Carrying value
of investment
at Dec. 31, 2016
$43.8 million
$13.5 million
$0.7 million
N/A
($0.4 million)
$4.1 million
$2.7 million
$2.5 million
N/A
N/A
1
2
3
4
5
6
7
8
9
Sovran HHF owns self-storage facilities in Arizona (11), Colorado (4), Florida (3), Georgia (1), Kentucky (2), Nevada (5), New Jersey
(2), Ohio (6), Pennsylvania (1), Tennessee (2) and Texas (20). In June 2017, Sovran HHF acquired 18 self-storage facilities for
$330 million in Arizona, Nevada and Tennessee. In connection with this acquisition, Sovran HHF entered into $135 million of mortgage
debt which is secured by 16 of the self-storage facilities acquired. During the year ended December 31, 2017, the Company contributed
$39.6 million as its share of capital to fund the acquisition, $3.6 million to fund the repayment of certain mortgages held by the joint
venture, and an additional $0.1 million to fund capital projects. During the year ended December 31, 2017, the Company received $4.5
million of distributions from Sovran HHF. As of December 31, 2017, the carrying value of the Company’s investment in Sovran HHF
exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of
certain acquisition related costs in 2008. This difference is included in the carrying value of the investment.
Sovran HHF II owns self-storage facilities in New Jersey (17), Pennsylvania (3), and Texas (10). During the year ended December 31,
2017, the Company received $1.7 million of distributions from Sovran HHF II.
191 III owns six self-storage facilities in California. During 2017, 191 III acquired these six self-storage facilities for a total of $104.1
million. In connection with the acquisition of these self-storage facilities, 191 III entered into $57.2 million of mortgage debt which is
secured by the self-storage facilities acquired. During 2017 and 2016, the Company contributed $9.3 million and $0.7 million,
respectively, as its share of capital to fund these acquisitions. During the year ended December 31, 2017, the Company received $0.5
million of distributions from 191 III.
In May 2017, the Company executed a joint venture agreement, Life Storage-SERS Storage LLC (“SERS”), with an unrelated third party
with the purpose of acquiring and operating self-storage facilities. SERS owns three self-storage facilities in Georgia. During 2017,
SERS acquired these three self-storage facilities for a total of $39.1 million. In connection with the acquisition of these self-storage
facilities, SERS entered into $22.0 million of mortgage debt which is secured by the self-storage facilities acquired. During 2017, the
Company contributed $3.6 million as its share of capital to fund these acquisitions.
Iskalo owns the building that houses the Company’s headquarters and other tenants. The Company paid rent to Iskalo of $1.2 million,
$1.2 million and $1.1 million during the years ended December 31, 2017, 2016, and 2015, respectively. During the year ended
December 31, 2017, the Company received $0.2 million of distributions from Iskalo.
Urban Box is currently developing a self-storage facility in Florida.
McDonald is currently developing a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common
capital and $2.3 million of preferred capital to McDonald as its share of capital to develop the property. McDonald entered into a non-
recourse mortgage loan in order to finance the future development costs, with $6.4 million of principal outstanding at December 31,
2017.
Merrick owns a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common capital and
$2.1 million of preferred capital to Merrick as its share of capital to develop the property. Merrick has entered into a non-recourse
mortgage loan with $9.3 million of principal outstanding at December 31, 2017.
In January 2017, the Company executed a joint venture agreement, Review Avenue Partners, LLC (“RAP”), with an unrelated third
party. The Company contributed $12.5 million of common capital to RAP during the year ended December 31, 2017. RAP is currently
operating a self-storage property in New York.
10
In April 2017, the Company executed a joint venture agreement, N 32nd Street Self Storage, LLC (“N32”), with an unrelated third party.
The Company contributed $1.3 million of common capital to N32 during the year ended December 31, 2017. N32 is currently developing
a self-storage property in Arizona.
61
Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint
ventures are a variable interest entity (VIE) in accordance with ASC 810, Consolidation. As a result, the Company used the voting model under
ASC 810 to determine whether or not to consolidate the joint ventures. Based upon each member’s substantive participation rights over the
activities as stipulated in the joint venture agreements, none of the joint ventures are consolidated by the Company. Due to the Company’s
significant influence over the operations of each of the joint ventures, all joint ventures are accounted for under the equity method of
accounting.
The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis
and no such impairments have been recorded on any of the Company’s investments in joint ventures.
The Company earns management and/or call center fees ranging from 6% to 7% of joint venture gross revenues as manager of HHF,
HHF II, 191 III, SERS, RAP and Merrick. These fees, which are included in other operating income in the consolidated statements of
operations, totaled $6.6 million, $4.9 million and $4.9 million in 2017, 2016 and 2015 respectively. The Company will also earn management
fees upon commencement of the operation of storage facilities owned by Urban Box, McDonald, and N32.
The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:
(dollars in thousands)
Venture
Sovran HHF
Sovran HHF II
191 III
SERS
Urban Box
RAP
Iskalo
Year Ended
December 31,
2017
Year Ended
December 31,
2016
Year Ended
December 31,
2015
$
$
2,517
1,530
13
(12)
—
(967)
233
3,314
$
$
2,033
1,403
—
—
15
—
214
3,665
$
$
1,953
1,263
—
—
—
—
189
3,405
A summary of the combined unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2017 is as
follows:
(dollars in thousands)
Balance Sheet Data:
Investment in storage facilities, net
Investment in office building, net
Other assets
Total Assets
Due to the Company
Mortgages payable
Other liabilities
Total Liabilities
Unaffiliated partners’ equity
Company equity
Total Partners’ Equity
Total Liabilities and Partners’ Equity
Income Statement Data:
Total revenues
Property operating expenses
Administrative, management and call center fees
Depreciation and amortization of customer list
Amortization of financing fees
Income tax expense
Interest expense
Net income
$
$
$
$
$
$
$
1,075,101
4,810
16,622
1,096,533
1,397
459,028
10,721
471,146
492,332
133,055
625,387
1,096,533
96,301
(31,008)
(7,668)
(21,165)
(810)
(252)
(14,571)
20,827
The Company does not guarantee the debt of any of its equity method investees.
62
We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of
properties. A summary of our revenues, expenses and cash flows arising from the off-balance sheet arrangements with unconsolidated joint
ventures for the three years ended December 31, 2017 are as follows:
(dollars in thousands)
Operating activities
Other operating income (management fees and
acquisition fee income)
General and administrative expenses (corporate office
rent)
Equity in income of joint ventures
Distributions from unconsolidated joint ventures
Advances to joint ventures
Investing activities
Investment in unconsolidated joint ventures
Year ended December 31,
2016
2015
2017
$
8,090 $
4,891 $
4,889
1,192
3,314
7,055
(174)
1,214
3,665
5,207
(294)
1,053
3,405
4,821
(346)
(69,911)
(6,438)
(6,151)
12. SHAREHOLDERS’ EQUITY
On March 3, 2015, the Company completed the public offering of 1,380,000 shares of its common stock at $90.40 per share. Net
proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $119.5 million.
On January 20, 2016, the Company completed the public offering of 2,645,000 shares of its common stock at $105.75 per share. Net
proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $269.7 million.
On May 25, 2016, the Company completed the public offering of 6,900,000 shares of its common stock at $100.00 per share. Net
proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $665.4 million.
Until May 2017, the Company had maintained a continuous equity offering program (“Equity Program”) with Wells Fargo Securities,
LLC, Jefferies LLC (“Jeffries”), SunTrust Robinson Humphrey, Inc., Piper Jaffray & Co. (“Piper”), HSBC Securities (USA) Inc. (“HSBC”),
and BB&T Capital Markets, a division of BB&T Securities, LLC, pursuant to which the Company could sell up to $225 million in aggregate
offering price of shares of the Company’s common stock. The Equity Program expired in May 2017.
During 2017 and 2016, the Company did not issue any shares of common stock under the Equity Program.
During 2015, the Company issued 949,911 shares of common stock under the Equity Program at a weighted average issue price of
$96.80 per share, generating net proceeds of $90.6 million after deducting $1.1 million of sales commissions paid to Jefferies, Piper, and
HSBC, as well as other expenses of $0.2 million.
On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding
common shares (“Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with
applicable securities laws on the open market, through privately negotiated transactions, or through other methods of acquiring shares. The
Buyback Program may be suspended or discontinued at any time. During 2017, the Company repurchased 112,554 of the Company’s
outstanding common shares for $8.2 million under the Buyback Program, resulting in a weighted average purchase price of $73.16 per share.
In 2013, the Company implemented a Dividend Reinvestment Plan. The Company issued 199,809, 133,666 and 151,246 shares under the
plan in 2017, 2016, and 2015, respectively. On August 2, 2017, the Company’s Board of Directors suspended the Dividend Reinvestment Plan.
63
13. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of Life Storage, Inc. operations for the years ended December 31, 2017 and 2016 (dollars
in thousands, except per share data):
Operating revenue
Net income
Net income attributable to common shareholders
Net income per share attributable to common shareholders
Basic
Diluted
Operating revenue
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) per share attributable to common shareholders
Basic
Diluted
2017 Quarter Ended
Mar. 31
Jun. 30
Sept. 30
Dec. 31
$
128,320 $
132,784 $
135,568 $
20,525
20,429
19,432
19,355
35,667
35,496
133,078
21,185
21,085
$
$
$
$
$
0.44 $
0.44 $
0.42 $
0.42 $
0.76 $
0.76 $
0.45
0.45
2016 Quarter Ended
Mar. 31
Jun. 30
Sept. 30
Dec. 31
$
99,124
28,230
28,339
107,005
43,504
43,456
$
$
127,801
(4,969)
(4,738)
128,678
18,191
18,168
0.74 $
0.73 $
1.04 $
1.03 $
(0.10) $
(0.10) $
0.39
0.39
The following is a summary of quarterly results of Life Storage LP operations for the years ended December 31, 2017 and 2016 (dollars
in thousands, except per unit data):
Operating revenue
Net income
Net income attributable to common unitholders
Net income per unit attributable to common unitholders
Basic
Diluted
Operating revenue
Net income
Net income attributable to common unitholders
Net income per unit attributable to common unitholders
Basic
Diluted
2017 Quarter Ended
Mar. 31
Jun. 30
Sept. 30
Dec. 31
$
128,320 $
132,784 $
135,568 $
20,525
20,429
19,432
19,355
35,667
35,496
133,078
21,185
21,085
$
$
$
$
$
0.44 $
0.44 $
0.42 $
0.42 $
0.76 $
0.76 $
0.45
0.45
2016 Quarter Ended
Mar. 31
Jun. 30
Sept. 30
Dec. 31
$
99,124
28,230
28,339
107,005
43,504
43,456
$
$
127,801
(4,969)
(4,738)
128,678
18,191
18,168
0.74 $
0.73 $
1.04 $
1.03 $
(0.10) $
(0.10) $
0.39
0.39
See note 4 for a discussion of property acquisitions made during 2016 and the depreciation resulting from the change in estimated useful
lives of Uncle Bob’s Self Storage ® signage and buildings identified for replacement at certain of the Company’s self-storage facilities. See
note 5 for financing transactions entered into in 2017 and 2016.
64
14. COMMITMENTS AND CONTINGENCIES
The Company’s current practice is to conduct environmental investigations in connection with property acquisitions. At this time, the
Company is not aware of any environmental contamination of any of its facilities that individually or in the aggregate would be material to the
Company’s overall business, financial condition, or results of operations.
Future minimum lease payments on a building lease, the lease of the Company’s headquarters and the lease of a self-storage facility are
as follows (dollars in thousands):
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
2,894
2,788
2,415
2,284
2,284
11,114
23,779
At December 31, 2017, the Company has signed contracts in place with third party contractors for expansion and enhancements at its
existing facilities. The Company expects to pay $32.8 million under these contracts in 2018.
On or about August 25, 2014, a putative class action was filed against the Company in the Superior Court of New Jersey Law Division
Burlington County. The action seeks to obtain declaratory, injunctive and monetary relief for a class of consumers based upon alleged
violations by the Company of various statutory laws. On October 17, 2014, the action was removed from the Superior Court of New Jersey
Law Division Burlington County to the United States District Court for the District of New Jersey. The Company brought a motion to partially
dismiss the complaint for failure to state a claim, and on July 16, 2015, the Company’s motion was granted in part and denied in part. On
October 20, 2016, the complaint was amended to add additional claims. The parties have entered into a memorandum of understanding to settle
all claims for an aggregate amount of $8.0 million. In February 2018, the motion for the preliminary approval of the proposed class action
settlement was granted. The aggregate settlement amount of $8.0 million ($6.0 million after considering income tax impact) has been recorded
as a liability in the Company’s consolidated balance sheet. A portion of the settlement expense relates to self-storage facilities that are managed
by the Company through its taxable REIT subsidiary. There is an income tax impact to the Company on that portion of the settlement expense
as a result. The settlement is subject to final approval by the court, a decision which is expected in 2018.
15. SUBSEQUENT EVENTS
On January 3, 2018, the Company declared a quarterly dividend of $1.00 per common share. The dividend was paid on January 26, 2018
to shareholders of record on January 16, 2018. The total dividend paid amounted to $46.5 million.
65
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Controls and Procedures (Parent Company)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Parent Company’s management conducted an evaluation of the effectiveness of the design and operation of the Parent Company’s
disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (Exchange Act), under the supervision of and with the participation of the Parent Company’s management, including the Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, the Parent Company’s management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Parent Company’s disclosure controls and procedures were effective at December 31,
2017. There have not been changes in the Parent Company’s internal controls or in other factors that could significantly affect these controls
during the quarter ended December 31, 2017.
Management’s Report on Life Storage, Inc. Internal Control Over Financial Reporting
Management of Life Storage, Inc. (the “Parent Company”) is responsible for establishing and maintaining adequate internal control over
financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017.
The Parent Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. The Parent Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Parent
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Parent Company are being made only in
accordance with authorizations of management and directors of the Parent Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Parent Company’s assets that could have a material effect
on the financial statements.
The Parent Company’s management performed an assessment of the effectiveness of the Parent Company’s internal control over
financial reporting as of December 31, 2017 based upon criteria in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based on our assessment, management determined that
the Parent Company’s internal control over financial reporting was effective as of December 31, 2017 based on the criteria in Internal Control-
Integrated Framework issued by COSO.
The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2017 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein.
/S/ David L. Rogers
Chief Executive Officer
/S/ Andrew J. Gregoire
Chief Financial Officer
66
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Life Storage, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Life Storage, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Life Storage, Inc. (the Parent Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2017, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Parent Company as of December 31, 2017 and 2016, the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related
notes and schedule and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Parent Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Life
Storage, Inc. Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Parent Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Parent Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Buffalo, New York
February 27, 2018
/s/ Ernst & Young LLP
67
Controls and Procedures (Operating Partnership)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Operating Partnership’s management conducted an evaluation of the effectiveness of the design and operation of the Operating
Partnership’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (Exchange Act), under the supervision of and with the participation of the Operating Partnership’s management, including
the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Operating Partnership’s management, including the
Chief Executive Officer and Chief Financial Officer, concluded that the Operating Partnership’s disclosure controls and procedures were
effective at December 31, 2017. There have not been changes in the Operating Partnership’s internal controls or in other factors that could
significantly affect these controls during the quarter ended December 31, 2017.
Management’s Report on Life Storage LP Internal Control Over Financial Reporting
Management of Life Storage LP (the “Operating Partnership”) is responsible for establishing and maintaining adequate internal control
over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31,
2017. The Operating Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Operating Partnership’s system of internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Operating Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Operating
Partnership are being made only in accordance with authorizations of management and directors of the Operating Partnership; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Operating Partnership’s
assets that could have a material effect on the financial statements.
The Operating Partnership’s management performed an assessment of the effectiveness of the Operating Partnership’s internal control
over financial reporting as of December 31, 2017 based upon criteria in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based on our assessment, management determined that
the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2017 based on the criteria in Internal
Control-Integrated Framework issued by COSO.
The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2017 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein.
/S/ David L. Rogers
Chief Executive Officer
/S/ Andrew J. Gregoire
Chief Financial Officer
68
Report of Independent Registered Public Accounting Firm
To the Partners and the Board of Directors of Life Storage LP
Opinion on Internal Control over Financial Reporting
We have audited Life Storage LP’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Life Storage LP (the Operating Partnership) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Operating Partnership as of December 31, 2017 and 2016, the related consolidated statements of
operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2017, and the
related notes and schedule and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Life Storage
LP Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Buffalo, New York
February 27, 2018
/s/ Ernst & Young LLP
69
Item 9B.
Other Information
None.
Item 10.
Directors, Executive Officers and Corporate Governance
Part III
The information contained in the Parent Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders to be filed with the
SEC within 120 days of the fiscal year ended December 31, 2017 (“2018 Proxy Statement”), with respect to directors, executive officers, audit
committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance, is
incorporated herein by reference in response to this item.
The Company has adopted a code of ethics that applies to all of its directors, officers, and employees. The Company has made the Code
of Ethics available on its website at http://www.lifestorage.com.
Item 11.
Executive Compensation
The information required is incorporated by reference to “Executive Compensation” and “Director Compensation” in the 2018 Proxy
Statement and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required herein is incorporated by reference to “Stock Ownership By Directors and Executive Officers” and “Security
Ownership of Certain Beneficial Owners” in the 2018 Proxy Statement and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference to “Certain Transactions” and “Election of Directors—Director
Independence” in the 2018 Proxy Statement and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required herein is incorporated by reference to “Appointment of Independent Registered Public Accounting Firm” in the
2018 Proxy Statement and is incorporated herein by reference.
70
Part IV
Item 15.
Exhibits, Financial Statement Schedules
(a) Documents filed as part of this Annual Report on Form 10-K:
1.
The following consolidated financial statements of Life Storage, Inc. are included in Item 8.
(i) Consolidated Balance Sheets as of December 31, 2017 and 2016;
(ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015;
(iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015;
(iv) Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015;
(v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and
(vi) Notes to Consolidated Financial Statements.
The following consolidated financial statements of Life Storage LP are included in Item 8.
(i) Consolidated Balance Sheets as of December 31, 2017 and 2016;
(ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015;
(iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015;
(iv) Consolidated Statements of Partners’ Capital for the Years Ended December 31, 2017, 2016 and 2015;.
(v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and
(vi) Notes to Consolidated Financial Statements.
2.
The following financial statement Schedule as of the period ended December 31, 2017 is included in this Annual Report on Form 10-K.
Schedule III Real Estate and Accumulated Depreciation at December 31, 2017.
All other Consolidated financial schedules are omitted because they are inapplicable, not required, or the information is included
elsewhere in the consolidated financial statements or the notes thereto.
71
3.
Exhibits
The exhibits required to be filed as part of this Annual Report on Form 10-K have been included as follows:
3.1* Amended and Restated Articles of Incorporation of the Parent Company.
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the
Series A Junior Participating Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Parent Company’s Form 8-A
filed December 3, 1996).
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the
9.85% Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 1.6 to the Parent Company’s Form 8-A
filed July 29, 1999).
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the
8.375% Series C Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 4.1 to the Parent Company’s Current
Report on Form 8-K filed July 12, 2002).
Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company reclassifying shares of Series B
Cumulative Redeemable Preferred Stock into Preferred Stock. (incorporated by reference to Exhibit 3.1 to the Parent Company’s
Current Report on Form 8-K filed May 31, 2011).
Articles of Amendment of the Parent Company (incorporated by reference to Exhibit 3.1 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed August 11, 2016).
Bylaws, as amended, of the Parent Company (incorporated by reference to Exhibit 3.2 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed August 11, 2016).
Amendment to Bylaws (incorporated by reference to Exhibit 3.1 to the Parent Company and the Operating Partnership’s Current
Report on Form 8-K filed May 19, 2017).
Amended and Restated Certificate of Limited Partnership (incorporated by reference to Exhibit 3.3 to the Parent Company and the
Operating Partnership’s Current Report on Form 8-K filed August 11, 2016).
3.10 Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to Exhibit 3.1 on Form 10 filed April 22,
1998).
3.11 Amendments to the Agreement of Limited Partnership of the Operating Partnership dated July 30, 1999 and July 3, 2002 (incorporated
by reference to Exhibit 10.13 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009).
3.12 Amendment to Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to Exhibit 3.4 to the Parent
Company and the Operating Partnership’s Current Report on Form 8-K filed August 11, 2016).
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Parent Company’s Registration Statement on Form
S-11 (File No. 33-91422) filed June 19, 1995). P
Base Indenture, dated as of June 20, 2016, among the Company, the Operating Partnership and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.1 to the Parent Company and the Operating Partnership’s Current Report on Form
8-K filed June 20, 2016).
First Supplemental Indenture, dated as of June 20, 2016, among the Parent Company, the Operating Partnership and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 4.2 to the Parent Company and the Operating Partnership’s Current
Report on Form 8-K filed June 20, 2016).
Form of Note representing the Notes (incorporated by reference to Exhibit 4.3 to the Parent Company and the Operating Partnership’s
Current Report on Form 8-K filed June 20, 2016).
Form of Guarantee (included in Exhibit 4.4).
Second Supplemental Indenture, dated as of December 7, 2017, among the Parent Company, the Operating Partnership and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Parent Company and the Operating Partnership’s
Current Report on Form 8-K filed December 7, 2017).
Form of Note representing the Notes (incorporated by reference to Exhibit 4.2 to the Parent Company and the Operating Partnership’s
Current Report on Form 8-K filed December 7, 2017).
Form of Guarantee (included in Exhibit 4.7).
10.1+ 2015 Award and Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating
Partnership’s Annual Report on Form 10-K filed February 27, 2017).
10.2+ 2005 Award and Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Parent Company’s Report on Form 10-K filed
February 28, 2012).
72
10.3+ Employment Agreement between the Parent Company, the Operating Partnership, and Robert J. Attea (incorporated by reference to
Exhibit 10.3 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009).
10.4+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Robert J. Attea (incorporated by
reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015).
10.5+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Robert J Attea (incorporated by
reference to Exhibit 10.5 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27,
2017).
10.6+ Employment Agreement between the Parent Company, the Operating Partnership, and Kenneth F. Myszka (incorporated by reference
to Exhibit 10.4 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009).
10.7+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership, and Kenneth F. Myszka
(incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015).
10.8+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Kenneth J. Myszka (incorporated
by reference to Exhibit 10.8 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27,
2017).
10.9+ Employment Agreement between the Parent Company, the Operating Partnership, and David L. Rogers (incorporated by reference to
Exhibit 10.5 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009).
10.10+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and David L. Rogers (incorporated
by reference to Exhibit 10.3 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015).
10.11+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and David L. Rogers (incorporated
by reference to Exhibit 10.11 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27,
2017).
10.12+ Form of restricted stock grant pursuant to the 2005 Award and Option Plan (incorporated by reference to Exhibit 10.6 to the Parent
Company’s Report on Form 10-K filed February 28, 2012).
10.13+ Form of stock option grant pursuant to 2005 Award and Option Plan (incorporated by reference to Exhibit 10.7 to the Parent
Company’s Report on Form 10-K filed February 28, 2012).
10.14+ Deferred Compensation Plan for Directors (incorporated by reference to the Parent Company’s Schedule 14A Proxy Statement filed
April 8, 2015).
10.15 Amended Indemnification Agreements with members of the Board of Directors (incorporated by reference to Exhibit 10.35 to the
Parent Company’s Current Report on Form 8-K filed July 20, 2006).
10.16 Amended Indemnification Agreements with Executive Officers (incorporated by reference to Exhibit 10.36 to the Parent Company’s
Current Report on Form 8-K filed July 20, 2006).
10.17 Sixth Amended and Restated Revolving Credit and Term Loan Agreement dated as of December 10, 2014 among the Parent
Company, the Operating Partnership, Wells Fargo Bank, National Association, Manufacturers and Traders Trust Company and certain
other lenders a party thereto or which may become a party thereto (collectively, the “Lenders”), Manufacturers and Traders Trust
Company, as administrative agent for itself and the other Lenders, Wells Fargo Bank, National Association, as syndication agent, and
U.S. Bank National Association, HSBC Bank USA, National Association, PNC Bank, National Association, and SunTrust Bank as co-
documentation agents, for themselves and the other Lenders (incorporated by reference to Exhibit 10.1 to the Parent Company’s
Current Report on Form 8-K filed December 15, 2014).
10.18 Agreement Regarding Revolving Credit Commitment Increases and First Amendment to Credit Agreement dated January 4, 2016
among the Parent Company, the Operating Partnership, Manufacturers & Traders Trust Company, as Administrative Agent, and
various other financial institutions (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K
filed January 4, 2016).
10.19* Amendments to Sixth Amended and Restated Revolving Credit and Term Loan Agreement.
10.20 Note Purchase Agreement dated as of August 5, 2011 among the Parent Company, the Operating Partnership and the institutions
named in Schedule A thereto as purchasers of $100 million, 5.54% Senior Guaranteed Notes, Series D due August 5, 2021
(incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed August 8, 2011).
10.21 Note Purchase Agreement dated as of April 8, 2014 among the Parent Company, the Operating Partnership and the institutions named
in Schedule A thereto as purchasers of $175 million, 4.533% Senior Guaranteed Notes, Series E due April 8, 2024 (incorporated by
reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed April 9, 2014).
10.22 Amendment No. 2 to Note Purchase Agreement (2011) dated June 29, 2016 by and among the Parent Company, and the Operating
Partnership and the Required Holders (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed July 6, 2016).
73
10.23 Amendment No. 2 to Note Purchase Agreement (2014) dated June 29, 2016 by and among the Parent Company and the Operating
Partnership and the Required Holders (incorporated by reference to Exhibit 10.2 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed July 6, 2016).
10.24* Amendments to Note Purchase Agreement (2011).
10.25* Amendments to Note Purchase Agreement (2014).
10.26 Note Purchase Agreement dated as of July 21, 2016 among the Parent Company and the Operating Partnership and the institutions
named in Schedule A thereto as purchasers (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed July 26, 2016).
10.27* Amendment to Note Purchase Agreement (2016).
10.28+ 2009 Outside Directors Stock Option and Award Plan, as amended (incorporated by reference to Exhibit 10.2 to the Parent Company’s
Current Report on Form 8-K filed April 6, 2016).
10.29+ Outside Director Fee Schedule (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed
April 6, 2016).
10.30+ Annual Incentive Compensation Plan for Executive Officers (incorporated by reference to Exhibit 10.1 to the Parent Company’s
Current Report on Form 8-K filed February 21, 2012).
10.31+ Amended and Restated Employment Agreement between the Parent Company, the Operating Partnership and Andrew J. Gregoire
dated November 1, 2017 (incorporated by reference to Exhibit 10.5 to the Parent Company and the Operating Partnership’s Quarterly
Report on Form 10-Q filed November 3, 2017).
10.32+ Employment Agreement between the Parent Company, the Operating Partnership and Paul Powell amended and restated effective
January 1, 2009 (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed February 14,
2012).
10.33+ Separation Agreement between the Parent Company, the Operating Partnership and Paul Powell dated November 1, 2017
(incorporated by reference to Exhibit 10.3 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q
filed November 3, 2017).
10.34+ Amended and Restated Employment Agreement between the Parent Company, the Operating Partnership and Edward F. Killeen dated
November 1, 2017 (incorporaterd by reference to Exhibit 10.6 to the Parent Company and the Operating Partnership’s Quarterly
Report on Form 10-Q filed November 3, 2017).
10.35+ Employment Agreement between the Parent Company, the Operating Partnership and Joseph Saffire dated November 1, 2017
(incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q
filed November 3, 2017).
10.36+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and
the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017).
10.37
10.38
10.39
10.40
Indemnification Agreement dated July 16, 2012 between the Parent Company, the Operating Partnership and Stephen R. Rusmisel, a
director of the Company (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed July
17, 2012).
Indemnification Agreement dated January 30, 2015 between the Parent Company, the Operating Partnership and Arthur L. Havener,
Jr., a director of the Parent Company (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K
filed February 3, 2015).
Indemnification Agreement dated January 30, 2015 between the Parent Company, the Operating Partnership and Mark G. Barberio, a
director of the Parent Company (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed
February 3, 2015).
Indemnification Agreement dated as of November 1, 2017, by and among the Parent Company, the Operating Partnership and Carol
Hansell, a director of the Parent Company (incorporated by reference to Exhibit 10.4 to the Parent Company and the Operating
Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017).
10.41+ Form of Long Term Incentive Restricted Stock Award Notice pursuant to 2005 Award and Option Plan (incorporated by reference to
Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed December 29, 2014).
10.42+ Form of Performance-Based Vesting Restricted Stock Award Notice pursuant to 2005 Award and Option Plan (incorporated by
reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed December 29, 2014).
10.43+ Form of Long Term Incentive Restricted Stock Award Notice pursuant to 2015 Award and Option Plan (incorporated by reference to
Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed December 22, 2015).
10.44+ Form of Performance-Based Award Notice pursuant to 2015 Award and Option Plan (incorporated by reference to Exhibit 10.2 to the
Parent Company’s Current Report on Form 8-K filed December 22, 2015).
74
10.45+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and
the Operating Partnership’s Current Report on Form 8-K filed December 28, 2016).
10.46+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and the Operating
Partnership’s Current Report on Form 8-K filed December 28, 2016).
10.47 Agreement and Plan of Merger, by and among LifeStorage, LP, the Operating Partnership, Solar Lunar Sub, LLC, and Fortis Advisors
LLC, as Sellers’ Representative dated as of May 18, 2016 (incorporated by reference to Exhibit 2.1 to the Parent Company’s Current
Report on Form 8-K filed May 19, 2016).
10.48+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and
Operating Partnership’s Current Report on Form 8-K filed February 27, 2017).
10.49+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and Operating
Partnership’s Current Report on Form 8-K filed February 27, 2017).
10.50+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and
Operating Partnership’s Current Report on Form 8-K filed January 4, 2018).
10.51+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and Operating
Partnership’s Current Report on Form 8-K filed January 4, 2018).
12.1* Statement Re: Computation of Earnings to Fixed Charges of Life Storage, Inc. and Life Storage LP
21.1* Subsidiaries of the Company.
23.1* Consent of Independent Registered Public Accounting Firm
23.2* Consent of Independent Registered Public Accounting Firm
24.1* Powers of Attorney (included on signature pages).
31.1* Certification of Chief Executive Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
31.2* Certification of Chief Financial Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended.
31.3* Certification of Chief Executive Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended.
31.4* Certification of Chief Financial Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended.
32.1* Certification of Chief Executive Officer and Chief Financial Officer of Life Storage, Inc. Pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Executive Officer and Chief Financial Officer of Life Storage LP Pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* The following financial statements from the Life Storage, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017,
formatted in XBRL, as follows:
(i) Consolidated Balance Sheets at December 31, 2017 and 2016;
(ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015;
(iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015;
(iv) Consolidated Statements of Shareholders’ Equity for Years Ended December 31, 2017, 2016 and 2015;
(v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and
(vi) Notes to Consolidated Financial Statements
The following financial statements from the Life Storage LP’s Annual Report on Form 10-K for the year ended December 31, 2017,
formatted in XBRL, as follows:
(i) Consolidated Balance Sheets at December 31, 2017 and 2016;
(ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015;
(iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015;
(iv) Consolidated Statements of Partners’ Capital for Years Ended December 31, 2017, 2016 and 2015;
(v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and
75
(vi) Notes to Consolidated Financial Statements
Filed herewith.
Management contract or compensatory plan or arrangement.
*
+
Item 16.
Form 10-K Summary
Not applicable.
76
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 27, 2018
February 27, 2018
LIFE STORAGE, INC.
By:
/s/ Andrew J. Gregoire
Andrew J. Gregoire
Chief Financial Officer
(Principal Accounting Officer)
LIFE STORAGE LP
By:
/s/ Andrew J. Gregoire
Andrew J. Gregoire
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Robert J. Attea
Robert J. Attea
/s/ Kenneth F. Myszka
Kenneth F. Myszka
/s/ David L. Rogers
David L. Rogers
/s/ Andrew J. Gregoire
Andrew J. Gregoire
/s/ Charles E. Lannon
Charles E. Lannon
/s/ Stephen R. Rusmisel
Stephen R. Rusmisel
/s/ Arthur L. Havener, Jr.
Arthur L. Havener, Jr.
/s/ Mark G. Barberio
Mark G. Barberio
/s/ Carol Hansell
Carol Hansell
Title
Chairman of Board and Director of Life Storage, Inc.
and Life Storage Holdings, Inc., general partner of Life Storage
LP
Date
February 27, 2018
President and Director of Life Storage, Inc. and Life Storage
Holdings, Inc., general partner of Life Storage LP
February 27, 2018
Chief Executive Officer (Principal Executive Officer) of Life
Storage, Inc. and Life Storage Holdings, Inc., general partner of
Life Storage LP
February 27, 2018
Chief Financial Officer (Principal Financial and Accounting
Officer) of Life Storage, Inc. and Life Storage Holdings, Inc.,
general partner of Life Storage LP
February 27, 2018
Director of Life Storage, Inc.
February 27, 2018
Director of Life Storage, Inc.
February 27, 2018
Director of Life Storage, Inc.
February 27, 2018
Director of Life Storage, Inc.
February 27, 2018
Director of Life Storage, Inc.
February 27, 2018
77
Life Storage, Inc.
Schedule III
Combined Real Estate and Accumulated Depreciation
(in thousands)
December 31, 2017
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
$
416 $
397
308
239
701
395
483
224
423
395
152
268
363
230
680
463
444
649
387
844
302
315
321
361
189
488
430
513
194
1,503
398
423
483
308
170
413
154
479
883
316
632
715
304
1,375
244
834
1,516 $
1,424
1,102
1,110
1,659
1,501
1,752
808
1,531
1,404
728
1,248
1,679
847
1,616
1,684
1,613
2,329
1,402
2,021
1,103
745
1,150
1,331
719
1,188
1,579
1,930
912
3,619
1,035
1,015
1,166
1,116
786
999
555
1,742
2,104
1,471
2,962
1,695
1,118
3,220
901
2,066
2,370 $
1,704
3,534
2,582
3,825
1,054
2,324
4,442
3,620
(141 )
3,883
775
885
2,322
878
4,925
3,444
1,487
4,020
1,009
698
4,040
3,468
917
1,200
2,081
2,343
856
586
1,302
500
606
1,271
833
906
853
1,492
3,018
1,932
1,045
1,669
1,420
2,906
2,894
692
3,528
416 $
397
747
239
1,036
779
483
224
497
395
687
268
363
234
680
1,445
444
649
387
844
303
517
321
374
189
488
602
513
194
1,503
398
424
483
308
174
413
306
479
883
316
651
715
619
1,376
244
1,591
78
3,886 $
3,128
4,197
3,692
5,149
2,171
4,076
5,250
5,077
1,263
4,076
2,023
2,564
3,165
2,494
5,627
5,057
3,816
5,422
3,030
1,800
4,583
4,618
2,235
1,919
3,269
3,750
2,786
1,498
4,921
1,535
1,620
2,437
1,949
1,688
1,852
1,895
4,760
4,036
2,516
4,612
3,115
3,709
6,113
1,593
4,837
4,302 $
3,525
4,944
3,931
6,185
2,950
4,559
5,474
5,574
1,658
4,763
2,291
2,927
3,399
3,174
7,072
5,501
4,465
5,809
3,874
2,103
5,100
4,939
2,609
2,108
3,757
4,352
3,299
1,692
6,424
1,933
2,044
2,920
2,257
1,862
2,265
2,201
5,239
4,919
2,832
5,263
3,830
4,328
7,489
1,837
6,428
1,683
1,375
1,357
1,379
1,538
1,259
1,875
996
2,080
731
1,189
1,051
1,341
939
1,262
2,433
1,822
1,892
1,594
1,588
950
1,433
1,110
1,203
1,408
1,228
1,605
1,536
818
2,387
875
776
1,140
1,075
860
1,077
874
2,007
2,181
1,346
2,560
1,541
1,607
3,083
860
1,626
New
Description
Charleston
Lakeland
Charlotte
Youngstown
Cleveland
Pt. St. Lucie
Orlando - Deltona
NY Metro-Middletown
Buffalo
Rochester
Jacksonville
Columbia
Boston
Rochester
Boston
Savannah
Greensboro
Raleigh-Durham
Hartford-New Haven
Atlanta
Atlanta
Buffalo
Raleigh-Durham
Columbia
Columbia
Columbia
Atlanta
Orlando
Sharon
Ft. Lauderdale
West Palm
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Baltimore
Baltimore
Melbourne
Newport News
Pensacola
Hartford
Atlanta
Alexandria
Pensacola
Melbourne
ST
SC
FL
NC
OH
OH
FL
FL
NY
NY
NY
FL
SC
MA
NY
MA
GA
NC
NC
CT
GA
GA
NY
NC
SC
SC
SC
GA
FL
PA
FL
FL
GA
GA
GA
GA
GA
MD
MD
FL
VA
FL
CT
GA
VA
FL
FL
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1985
1985
1986
1980
1987/15
1985
1984
1988/17
1981
1981
1985
1985
1980
1980
1986
1981
1986
1985
1985
1988
1988
1984
1985
1987
1989
1986
1988
1988
1975
1985
1985
1989
1988
1986
1981
1975
1984
1988
1986
1988
1983
1988
1988
1984
1986
1986/15
New
Description
Hartford
Atlanta
Norfolk
Birmingham
Birmingham
Montgomery
Jacksonville
Pensacola
Pensacola
Pensacola
Tampa
Clearwater
Clearwater-Largo
Jackson
Jackson
Providence
Norfolk - Virginia Beach
Richmond
Orlando
Syracuse
Ft. Myers
Ft. Myers
Harrisburg
Harrisburg
Newport News
Montgomery
Charleston
Tampa
Dallas-Ft.Worth
Dallas-Ft.Worth
Dallas-Ft.Worth
San Antonio
San Antonio
Montgomery
West Palm
Ft. Myers
Syracuse
Lakeland
Boston - Springfield
Ft. Myers
Cincinnati
Baltimore
Jacksonville
Jacksonville
Jacksonville
Charlotte
ST
CT
GA
VA
AL
AL
AL
FL
FL
FL
FL
FL
FL
FL
MS
MS
RI
VA
VA
FL
NY
FL
FL
PA
PA
VA
AL
SC
FL
TX
TX
TX
TX
TX
AL
FL
FL
NY
FL
MA
FL
OH
MD
FL
FL
FL
NC
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
6/26/1995
8/25/1995
9/29/1995
12/27/1995
12/28/1995
12/28/1995
12/29/1995
12/29/1995
1/5/1996
1/23/1996
3/1/1996
3/28/1996
3/29/1996
3/29/1996
3/29/1996
3/29/1996
3/29/1996
5/21/1996
5/29/1996
5/29/1996
6/5/1996
6/26/1996
6/28/1996
6/28/1996
7/23/1996
7/26/1996
8/23/1996
8/26/1996
8/30/1996
9/16/1996
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1992
1988
1984
1990
1990
1982
1987
1986
1990
1990
1989
1985
1988
1990
1990
1984
1,311
1,584
1,573
1,496
1,639
1,694
1,253
2,014
1,282
1,007
2,100
1,729
1,824
1,553
1,009
1,265
3,428 1989/93/95/16
1,434
2,296
1,604
837
1,455
1,027
2,213
1,454
1,086
936
1,392
1,209
1,499
1,739
1,598
457
1,053
931
939
1,871
1,370
1,638
1,011
976
1,847
1,800
1,316
1,477
1,248
1987
1986/15
1987
1988
1991/94
1983
1985
1988/93
1984
1985
1985
1987
1986
1986
1986
2012
1988
1986
1986
1983
1988
1986
1987
1988
1990
1987
1985
1987/92
1995
234
256
313
307
730
863
326
369
244
226
1,088
526
672
343
209
345
1,142
443
1,161
470
205
412
360
627
442
353
237
766
442
408
328
436
289
279
345
229
481
359
251
344
557
777
568
436
535
487
861
1,244
1,462
1,415
1,725
2,041
1,515
1,358
1,128
1,046
2,597
1,958
2,439
1,580
964
1,268
4,998
1,602
2,755
1,712
912
1,703
1,641
2,224
1,592
1,299
858
1,800
1,767
1,662
1,324
1,759
1,161
1,014
1,262
884
1,559
1,287
917
1,254
1,988
2,770
2,028
1,635
2,033
1,754
3,561
2,325
2,718
1,918
2,992
1,491
1,432
3,249
2,828
896
1,038
1,581
1,218
2,643
1,070
2,078
3,585
1,111
2,311
1,685
567
767
133
4,080
1,434
1,138
1,062
1,060
471
1,312
448
1,548
2,484
1,515
653
2,855
2,656
1,335
2,554
657
996
791
1,903
1,191
638
701
612
256
313
385
730
863
326
369
720
226
1,088
526
672
796
209
486
1,142
443
1,162
472
206
412
360
692
442
353
245
766
442
408
328
436
289
433
345
383
671
359
297
310
688
777
568
436
538
487
79
4,044
3,569
4,180
3,255
4,717
3,532
2,947
4,607
3,480
1,942
3,635
3,539
3,657
3,770
2,034
3,205
8,583
2,713
5,065
3,395
1,478
2,470
1,774
6,239
3,026
2,437
1,912
2,860
2,238
2,974
1,772
3,307
3,645
2,375
1,915
3,585
4,025
2,622
3,425
1,945
2,853
3,561
3,931
2,826
2,668
2,455
4,656
3,825
4,493
3,640
5,447
4,395
3,273
4,976
4,200
2,168
4,723
4,065
4,329
4,566
2,243
3,691
9,725
3,156
6,227
3,867
1,684
2,882
2,134
6,931
3,468
2,790
2,157
3,626
2,680
3,382
2,100
3,743
3,934
2,808
2,260
3,968
4,696
2,981
3,722
2,255
3,541
4,338
4,499
3,262
3,206
2,942
New
Description
Charlotte
Orlando
Rochester
Youngstown
Cleveland
Cleveland
Cleveland
Cleveland
Cleveland
Cleveland
Cleveland
San Antonio
San Antonio
San Antonio
Houston-Beaumont
Houston-Beaumont
Houston-Beaumont
Chesapeake
Orlando-W 25th St
Delray
Savannah
Delray
Cleveland-Avon
Dallas-Fort Worth
Atlanta-Alpharetta
Atlanta-Marietta
Atlanta-Doraville
Greensboro-Hilltop
Greensboro-StgCch
Baton Rouge-Airline
Baton Rouge-Airline2
Harrisburg-Peiffers
Tampa-E. Hillsborough
NY Metro-Middletown
Chesapeake-Military
Chesapeake-Volvo
Virginia Beach-Shell
Norfolk-Naval Base
Boston-Northbridge
Greensboro-High Point
Titusville
Boston-Salem
Providence
Chattanooga-Lee Hwy
Chattanooga-Hwy 58
Ft. Oglethorpe
ST
NC
FL
NY
OH
OH
OH
OH
OH
OH
OH
OH
TX
TX
TX
TX
TX
TX
VA
FL
FL
GA
FL
OH
TX
GA
GA
GA
NC
NC
LA
LA
PA
FL
NY
VA
VA
VA
VA
MA
NC
FL
MA
RI
TN
TN
GA
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Impvmts.
Land
Total
Accum.
Deprec.
315
314
704
600
751
725
637
495
761
418
606
474
346
432
634
566
293
260
289
491
296
921
301
965
1,033
769
735
268
89
396
282
635
709
843
542
620
540
1,243
441
397
492
733
702
384
296
349
1,131
1,113
2,496
2,142
2,676
2,586
2,918
1,781
2,714
1,921
2,164
1,686
1,236
1,560
2,565
2,279
1,357
1,043
1,160
1,756
1,196
3,282
1,214
3,864
3,753
2,788
3,429
1,097
376
1,831
1,303
2,550
3,235
3,394
2,210
2,532
2,211
5,019
1,788
1,834
1,990
2,941
2,821
1,371
1,198
1,250
524
1,417
2,975
2,773
4,465
2,524
2,082
4,140
1,829
2,944
1,533
814
652
2,134
4,625
577
702
4,760
2,486
805
586
940
2,344
1,773
797
724
517
911
1,947
1,234
564
777
1,030
1,113
542
1,561
569
1,039
1,203
1,109
1,282
2,000
4,269
652
2,333
1,871
315
314
707
693
751
725
701
495
761
418
606
504
346
432
634
566
293
260
616
491
296
921
304
943
1,033
825
735
231
89
421
282
637
709
843
542
620
540
1,243
694
397
688
733
702
384
414
464
80
1,655
2,530
5,468
4,822
7,141
5,110
4,936
5,921
4,543
4,865
3,697
2,470
1,888
3,694
7,190
2,856
2,059
5,803
3,319
2,561
1,782
4,222
3,555
5,659
4,550
3,456
3,946
2,045
2,323
3,040
1,867
3,325
4,265
4,507
2,752
4,093
2,780
6,058
2,738
2,943
3,076
4,941
7,090
2,023
3,413
3,006
1,970
2,844
6,175
5,515
7,892
5,835
5,637
6,416
5,304
5,283
4,303
2,974
2,234
4,126
7,824
3,422
2,352
6,063
3,935
3,052
2,078
5,143
3,859
6,602
5,583
4,281
4,681
2,276
2,412
3,461
2,149
3,962
4,974
5,350
3,294
4,713
3,320
7,301
3,432
3,340
3,764
5,674
7,792
2,407
3,827
3,470
890
1,223
2,118
1,874
2,578
2,268
2,765
1,571
2,315
2,071
1,691
1,119
918
1,739
2,081
1,423
960
1,650
1,024
1,371
912
2,118
1,534
2,806
2,303
1,733
2,039
863
988
1,425
923
1,680
2,145
2,168
1,370
1,839
1,370
2,993
895
1,313
1,047
2,308
2,310
1,063
1,354
1,137
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
9/16/1996
10/30/1996
12/20/1996
1/10/1997
1/10/1997
1/10/1997
1/10/1997
1/10/1997
1/10/1997
1/10/1997
1/10/1997
1/30/1997
1/30/1997
1/30/1997
3/26/1997
3/26/1997
3/26/1997
3/31/1997
3/31/1997
4/11/1997
5/8/1997
5/21/1997
6/4/1997
6/30/1997
7/24/1997
7/24/1997
8/21/1997
9/25/1997
9/25/1997
10/9/1997
11/21/1997
12/3/1997
2/4/1998
2/4/1998
2/5/1998
2/5/1998
2/5/1998
2/5/1998
2/9/1998
2/10/1998
2/25/1998
3/3/1998
3/26/1998
3/27/1998
3/27/1998
3/27/1998
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1995
1975
1990
1988
1986
1978
1979
1979/17
1977
1970
1982
1981
1985
1995
1993/95/16
1995
1995
1988/95
1984
1969
1988
1980
1989
1977
1994
1996
1995
1995
1997
1982
1985
1984
1985
1989/95
1996
1995
1991
1975
1988
1993
1986/90
1979
1984/88
1987
1985
1989
New
Description
Birmingham-Walt
Salem-Policy
Raleigh-Durham
Raleigh-Durham
Youngstown-Warren
Youngstown-Warren
Jackson
Houston-Katy
Melbourne
Vero Beach
Houston-Humble
Houston-Webster
Dallas-Fort Worth
San Marcos
Austin-McNeil
Austin-FM
Hollywood-Sheridan
Pompano Beach-Atlantic
Pompano Beach-Sample
Boca Raton-18th St
Hollywood-N.21st
Dallas-Fort Worth
Dallas-Fort Worth
Cincinnati-Batavia
Jackson-N.West
Houston-Katy
Providence
Lafayette-Pinhook 1
Lafayette-Pinhook2
Lafayette-Ambassador
Lafayette-Evangeline
Lafayette-Guilbeau
Phoenix-Gilbert
Phoenix-Glendale
Phoenix-Mesa
Phoenix-Mesa
Phoenix-Mesa
Phoenix-Mesa
Phoenix-Camelback
Phoenix-Bell
Phoenix-35th Ave
Portland
Space Coast-Cocoa
Dallas-Fort Worth
NY Metro-Middletown
Boston-N. Andover
ST
AL
NH
NC
NC
OH
OH
MS
TX
FL
FL
TX
TX
TX
TX
TX
TX
FL
FL
FL
FL
FL
TX
TX
OH
MS
TX
RI
LA
LA
LA
LA
LA
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
ME
FL
TX
NY
MA
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
544
742
775
940
522
512
744
419
662
489
447
635
548
324
492
484
1,208
944
903
1,503
840
550
670
390
460
507
447
556
708
314
188
963
651
565
330
339
291
354
453
872
849
410
667
335
276
633
1,942
2,977
3,103
3,763
1,864
1,829
3,021
1,524
2,654
1,813
1,790
2,302
1,988
1,493
1,995
1,951
4,854
3,803
3,643
6,059
3,373
1,998
2,407
1,570
1,642
2,058
1,776
1,951
2,860
1,095
652
3,896
2,600
2,596
1,309
1,346
1,026
1,405
1,610
3,476
3,401
1,626
2,373
1,521
1,312
2,573
1,335
655
973
1,087
1,414
2,831
280
4,101
3,705
1,783
2,588
634
442
2,233
2,646
1,044
701
876
650
(1,767 )
651
872
1,865
1,462
797
1,843
1,041
1,465
1,331
(1,091 )
1,671
1,192
1,339
783
2,606
816
1,160
723
1,101
3,659
972
2,031
1,009
946
1,333
1,083
544
742
775
940
569
633
744
419
662
584
740
635
548
324
510
481
1,208
944
903
851
840
550
670
390
460
507
447
556
708
314
188
963
772
565
733
339
291
354
453
872
849
410
667
335
276
633
81
3,277
3,632
4,076
4,850
3,231
4,539
3,301
5,625
6,359
3,501
4,085
2,936
2,430
3,726
4,623
2,998
5,555
4,679
4,293
4,944
4,024
2,870
4,272
3,032
2,439
3,901
2,817
3,416
4,191
4
2,323
5,088
3,818
3,379
3,512
2,162
2,186
2,128
2,711
7,135
4,373
3,657
3,382
2,467
2,645
3,656
3,821
4,374
4,851
5,790
3,800
5,172
4,045
6,044
7,021
4,085
4,825
3,571
2,978
4,050
5,133
3,479
6,763
5,623
5,196
5,795
4,864
3,420
4,942
3,422
2,899
4,408
3,264
3,972
4,899
318
2,511
6,051
4,590
3,944
4,245
2,501
2,477
2,482
3,164
8,007
5,222
4,067
4,049
2,802
2,921
4,289
1,635
1,766
1,978
2,353
1,543
1,662
1,632
1,759
1,687
1,186
1,631
1,284
1,163
1,451
1,633
1,269
2,744
2,277
2,075
2,414
2,003
1,276
1,813
1,205
1,191
1,564
1,320
1,674
1,675
97
1,078
2,218
1,688
1,571
1,262
940
881
948
1,281
2,538
2,060
1,517
1,564
987
1,076
1,543
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
3/27/1998
4/7/1998
4/9/1998
4/9/1998
4/22/1998
4/22/1998
5/13/1998
5/20/1998
6/2/1998
6/12/1998
6/16/1998
6/19/1998
6/19/1998
6/30/1998
6/30/1998
6/30/1998
7/1/1998
7/1/1998
7/1/1998
7/1/1998
8/3/1998
9/29/1998
10/9/1998
11/19/1998
12/1/1998
12/15/1998
2/2/1999
2/17/1999
2/17/1999
2/17/1999
2/17/1999
2/17/1999
5/18/1999
5/18/1999
5/18/1999
5/18/1999
5/18/1999
5/18/1999
5/18/1999
5/18/1999
5/21/1999
8/2/1999
9/29/1999
11/9/1999
2/2/2000
2/15/2000
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1984
1980
1988/91
1990/96
1986
1986/16
1995
1994
1985/07/15
1997
1986
1997
1997
1994
1994
1996
1988
1985
1988
1991
1987
1996
1996
1988
1984
1993
1986/94
1980
1992/94
1975
1977
1994
1995
1997
1986
1986
1976
1986
1984
1984
1996
1988
1982
1985
1998
1989
New
Description
Houston-Seabrook
Ft. Lauderdale
Birmingham-Bessemer
NY Metro-Brewster
Austin-Lamar
Houston
Ft.Myers
Boston-Dracut
Boston-Methuen
Columbia
Myrtle Beach
Maine-Saco
Boston-Plymouth
Boston-Sandwich
Syracuse
Dallas-Fort Worth
Dallas-Fort Worth
San Antonio-Hunt
Houston-Humble
Houston-Pasadena
Houston-League City
Houston-Montgomery
Houston-S. Hwy 6
Houston-Beaumont
The Hamptons
The Hamptons
The Hamptons
The Hamptons
Dallas-Fort Worth
Dallas-Fort Worth
Stamford
Houston-Tomball
Houston-Conroe
Houston-Spring
Houston-Bissonnet
Houston-Alvin
Clearwater
Houston-Missouri City
Chattanooga-Hixson
Austin-Round Rock
Long Island-Bayshore
Syracuse - Cicero
Boston-Springfield
Stamford
Montgomery-Richard
Houston-Jones
ST
TX
FL
AL
NY
TX
TX
FL
MA
MA
SC
SC
ME
MA
MA
NY
TX
TX
TX
TX
TX
TX
TX
TX
TX
NY
NY
NY
NY
TX
TX
CT
TX
TX
TX
TX
TX
FL
TX
TN
TX
NY
NY
MA
CT
AL
TX
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
633
384
254
1,716
837
733
787
1,035
1,024
883
552
534
1,004
670
294
734
394
381
919
612
689
817
407
817
2,207
1,131
635
1,251
1,039
827
2,713
773
1,195
1,103
1,061
388
1,720
1,167
1,365
2,047
1,131
527
612
1,612
1,906
1,214
2,617
1,422
1,059
6,920
2,977
3,392
3,249
3,737
3,649
3,139
1,970
1,914
4,584
3,060
1,203
2,956
1,595
1,545
3,696
2,468
3,159
3,286
1,650
3,287
8,866
4,564
2,918
5,744
4,201
3,776
11,013
3,170
4,877
4,550
4,427
1,640
6,986
4,744
5,569
5,857
4,609
2,121
2,501
6,585
7,726
4,949
572
874
2,165
1,805
3,643
1,360
762
772
849
1,496
1,181
997
2,401
631
1,217
967
562
6,688
724
478
824
2,231
856
3,517
914
629
442
789
349
551
764
1,876
463
529
2,920
1,052
323
3,620
1,882
951
284
3,309
646
408
499
372
633
384
332
1,981
966
841
902
1,104
1,091
942
589
938
1,004
714
327
784
421
618
919
612
688
1,119
407
817
2,207
1,131
635
1,252
1,039
827
2,713
773
1,195
1,103
1,061
388
1,720
1,566
1,365
1,976
1,131
527
612
1,612
1,906
1,215
82
3,189
2,296
3,146
8,460
6,491
4,644
3,896
4,440
4,431
4,576
3,114
2,507
6,985
3,647
2,387
3,873
2,130
7,996
4,420
2,946
3,984
5,215
2,506
6,804
9,780
5,193
3,360
6,532
4,550
4,327
11,777
5,046
5,340
5,079
7,347
2,692
7,309
7,965
7,451
6,879
4,893
5,430
3,147
6,993
8,225
5,320
3,822
2,680
3,478
10,441
7,457
5,485
4,798
5,544
5,522
5,518
3,703
3,445
7,989
4,361
2,714
4,657
2,551
8,614
5,339
3,558
4,672
6,334
2,913
7,621
11,987
6,324
3,995
7,784
5,589
5,154
14,490
5,819
6,535
6,182
8,408
3,080
9,029
9,531
8,816
8,855
6,024
5,957
3,759
8,605
10,131
6,535
1,435
949
990
2,358
1,450
1,432
1,339
1,821
1,770
1,726
1,258
967
2,465
1,448
819
1,480
823
1,369
1,682
1,136
1,444
1,838
793
1,495
3,718
1,953
1,270
2,361
1,643
1,537
4,200
1,727
1,817
1,832
2,382
883
2,563
2,379
2,519
2,366
1,584
1,133
934
2,324
2,646
1,747
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
3/1/2000
5/2/2000
11/15/2000
12/27/2000
2/22/2001
3/2/2001
3/13/2001
12/1/2001
12/1/2001
12/1/2001
12/1/2001
12/3/2001
12/19/2001
12/19/2001
2/5/2002
2/13/2002
2/13/2002
2/13/2002
6/19/2002
6/19/2002
6/19/2002
6/19/2002
6/19/2002
6/19/2002
12/16/2002
12/16/2002
12/16/2002
12/16/2002
8/26/2003
10/1/2003
3/17/2004
5/19/2004
5/19/2004
5/19/2004
5/19/2004
5/19/2004
6/3/2004
6/23/2004
8/4/2004
8/5/2004
3/15/2005
3/16/2005
4/12/2005
4/14/2005
6/1/2005
6/6/2005
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1996
1994
1998
1991/97
1996/99
1993/97
1997
1986
1984
1985
1984
1988
1996
1984
1987
1984
1985
1980/17
1998/02
1999
1994/97
1998
1997
1996/17
1989/95
1998
1997
1994/98
1995/99
1998/01
1998
2000
2001
2001
2003
2003
2001
1998
1998/02
2000
2003
1988/02/16
1965/75
2002
1997
1997/99
New
Description
Boston-Oxford
Austin-290E
San Antonio-Marbach
Austin-South 1st
Houston-Pinehurst
Atlanta-Marietta
Baton Rouge
San Marcos-Hwy 35S
Houston-Baytown
Houston-Cypress
Rochester
Houston-Jones Rd 2
Lafayette
Lafayette
Lafayette
Lafayette
Manchester
Clearwater-Largo
Clearwater-Pinellas Park
Clearwater-Tarpon Spring
New Orleans
St Louis-Meramec
St Louis-Charles Rock
St Louis-Shackelford
St Louis-W.Washington
St Louis-Howdershell
St Louis-Lemay Ferry
St Louis-Manchester
Dallas-Fort Worth
Dallas-Fort Worth
Dallas-Fort Worth
Dallas-Fort Worth
Dallas-Fort Worth
Dallas-Fort Worth
San Antonio-Blanco
San Antonio-Broadway
San Antonio-Huebner
Nashua
Lafayette
Chattanooga-Lee Hwy II
Montgomery-E.S.Blvd
Auburn-Pepperell Pkwy
Auburn-Gatewood Dr
Columbus-Williams Rd
Columbus-Miller Rd
Columbus-Armour Rd
ST
MA
TX
TX
TX
TX
GA
LA
TX
TX
TX
NY
TX
LA
LA
LA
LA
NH
FL
FL
FL
LA
MO
MO
MO
MO
MO
MO
MO
TX
TX
TX
TX
TX
TX
TX
TX
TX
NH
LA
TN
AL
AL
AL
GA
GA
GA
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
470
537
556
754
484
811
719
628
596
721
937
707
411
463
601
542
832
1,270
929
696
1,220
1,113
766
828
734
899
890
697
1,256
605
607
1,073
549
644
963
773
1,175
617
699
619
1,158
590
694
736
975
-
1,902
2,183
2,265
3,065
1,977
3,397
2,927
2,532
2,411
2,994
3,779
2,933
1,621
1,831
2,406
1,319
3,268
5,037
3,676
2,739
4,805
4,359
3,040
3,290
2,867
3,596
3,552
2,711
4,946
2,434
2,428
4,276
2,180
2,542
3,836
3,060
4,624
2,422
2,784
2,471
4,639
2,361
2,758
2,905
3,854
3,680
1,521
6,061
591
330
1,565
578
2,669
3,431
329
2,340
230
2,884
270
198
1,480
2,229
184
455
344
267
332
479
1,500
222
2,520
356
475
224
572
215
241
134
1,184
169
233
2,200
396
619
3,836
208
1,283
600
403
406
1,394
337
470
491
556
754
484
811
719
982
596
721
937
707
411
463
601
542
832
1,270
929
696
1,220
1,113
766
828
734
899
890
697
1,256
605
607
1,073
549
644
963
773
1,175
617
699
619
1,158
590
694
736
975
-
83
3,423
8,290
2,856
3,395
3,542
3,975
5,596
5,609
2,740
5,334
4,009
5,817
1,891
2,029
3,886
3,548
3,452
5,492
4,020
3,006
5,137
4,838
4,540
3,512
5,387
3,952
4,027
2,935
5,518
2,649
2,669
4,410
3,364
2,711
4,069
5,260
5,020
3,041
6,620
2,679
5,922
2,961
3,161
3,311
5,248
4,017
3,893
8,781
3,412
4,149
4,026
4,786
6,315
6,591
3,336
6,055
4,946
6,524
2,302
2,492
4,487
4,090
4,284
6,762
4,949
3,702
6,357
5,951
5,306
4,340
6,121
4,851
4,917
3,632
6,774
3,254
3,276
5,483
3,913
3,355
5,032
6,033
6,195
3,658
7,319
3,298
7,080
3,551
3,855
4,047
6,223
4,017
1,046
744
959
1,114
1,056
1,297
1,392
922
814
1,455
1,246
1,666
608
644
1,154
986
1,055
1,625
1,166
889
1,548
1,427
1,105
1,055
1,255
1,166
1,186
868
1,601
771
793
1,298
889
809
1,237
1,287
1,454
905
1,435
785
1,673
858
882
947
1,219
1,153
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
6/23/2005
7/12/2005
7/12/2005
7/12/2005
7/12/2005
9/15/2005
11/15/2005
1/10/2006
1/10/2006
1/13/2006
2/1/2006
3/9/2006
4/13/2006
4/13/2006
4/13/2006
4/13/2006
4/26/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/22/2006
6/29/2006
8/1/2006
8/7/2006
9/28/2006
9/28/2006
9/28/2006
9/28/2006
9/28/2006
9/28/2006
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
2002
2003/17
2003
2003
2002/04
2003
1984/94
2001/16
2002
2003
2002/06
2000
1997
2001/04
2002
1997/99
2000
1998
2000
1999
2000
1999
1999
1999
1980/01/15
2000
1999
2000
1998/03
2004
2004
2003
1998
1999
2004
2000
1998
1989
1995/99/16
2002
1996/97
1998
2002/03
2002/04/06
1995
2004/05
New
Description
Columbus-Amber Dr
Concord
Houston-Beaumont
Houston-Beaumont
Buffalo-Langner Rd
Buffalo-Transit Rd
Buffalo-Lake Ave
Buffalo-Union Rd
Buffalo-NF Blvd
Buffalo-Young St
Buffalo-Sheridan Dr
Bufrfalo-Transit Rd
Rochester-Phillips Rd
San Antonio-Foster
Huntsville-Memorial Pkwy
Huntsville-Madison 1
Bilox-Gulfport
Huntsville-Hwy 72
Mobile-Airport Blvd
Bilox-Gulfport
Huntsville-Madison 2
Foley-Hwy 59
Pensacola 6-Nine Mile
Auburn-College St
Biloxi-Gulfport
Pensacola 7-Hwy 98
Montgomery-Arrowhead
Montgomery-McLemore
Houston-Beaumont
Hattiesburg-Clasic
Biloxi-Ginger
Foley-7905 St Hwy 59
Jackson-Ridgeland
Jackson-5111
Cincinnati-Robertson
Richmond-Bridge Rd
Raleigh-Durham
Charlotte-Wallace
Raleigh-Durham
Charlotte-Westmoreland
Charlotte-Matthews
Raleigh-Durham
Charlotte-Zeb Morris
Fair Lawn
Elizabeth
Saint Louis-High Ridge
ST
GA
NH
TX
TX
NY
NY
NY
NY
NY
NY
NY
NY
NY
TX
AL
AL
MS
AL
AL
MS
AL
AL
FL
AL
MS
FL
AL
AL
TX
MS
MS
AL
MS
MS
OH
VA
NC
NC
NC
NC
NC
NC
NC
NJ
NJ
MO
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
439
813
929
1,537
532
437
638
348
323
315
961
375
1,003
676
1,607
1,016
1,423
1,206
1,216
1,345
1,164
1,346
1,029
686
1,811
732
1,075
885
742
444
384
437
1,479
1,337
852
1,047
846
961
574
513
1,129
381
965
796
885
197
1,745
3,213
3,647
6,018
2,119
1,794
2,531
1,344
1,331
2,185
3,827
1,498
4,002
2,685
6,338
4,013
5,624
4,775
4,819
5,325
4,624
5,474
4,180
2,732
7,152
3,015
4,333
3,586
3,024
1,799
1,548
1,757
5,965
5,377
3,409
5,981
4,095
3,702
3,975
5,317
4,767
3,575
3,355
9,467
3,073
2,132
394
2,072
453
642
3,600
702
2,964
529
249
1,206
2,638
749
145
466
1,113
467
222
401
391
159
330
1,592
213
245
163
118
347
286
373
212
159
198
596
279
281
2,722
229
1,272
268
47
156
107
133
417
755
90
439
813
930
1,537
532
437
638
348
323
316
961
375
1,003
676
1,677
1,017
1,423
1,206
1,216
1,301
1,164
1,347
1,029
686
1,811
732
1,075
885
742
444
384
437
1,479
1,337
852
1,047
846
961
575
513
1,129
381
965
796
885
197
84
2,139
5,285
4,099
6,660
5,719
2,496
5,495
1,873
1,580
3,390
6,465
2,247
4,147
3,151
7,381
4,479
5,846
5,176
5,210
5,528
4,954
7,065
4,393
2,977
7,315
3,133
4,680
3,872
3,397
2,011
1,707
1,955
6,561
5,656
3,690
8,703
4,324
4,974
4,242
5,364
4,923
3,682
3,488
9,884
3,828
2,222
2,578
6,098
5,029
8,197
6,251
2,933
6,133
2,221
1,903
3,706
7,426
2,622
5,150
3,827
9,058
5,496
7,269
6,382
6,426
6,829
6,118
8,412
5,422
3,663
9,126
3,865
5,755
4,757
4,139
2,455
2,091
2,392
8,040
6,993
4,542
9,750
5,170
5,935
4,817
5,877
6,052
4,063
4,453
10,680
4,713
2,419
637
1,413
1,098
1,858
1,060
672
1,007
502
464
868
1,472
570
1,143
915
1,927
1,241
1,615
1,408
1,454
1,493
1,344
1,683
1,289
838
1,960
900
1,263
1,028
876
526
423
495
1,700
1,425
845
1,528
809
788
763
964
913
672
635
1,648
575
444
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
9/28/2006
10/31/2006
3/8/2007
3/8/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
3/30/2007
5/21/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
6/1/2007
11/14/2007
12/19/2007
12/19/2007
12/19/2007
1/17/2008
1/17/2008
12/31/2008
10/1/2009
12/28/2010
12/29/2010
12/29/2010
12/29/2010
12/29/2010
12/29/2010
12/29/2010
7/14/2011
7/14/2011
7/28/2011
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1998
2000
2002/04
2003/06
1993/07/15
1998
1997/06
1998
1998
1999/00
1999
1990/95
1999
2003/06
1989/06
1993/07
1998/05
1998/06
2000/07
2002/04
2002/06
2003/06/15
2003/06
2003
2004/06
2006
2006
2006
2002/05
1998
2000
2000
1997/00
2003
2003/04
2009/16
2000
2008/16
2008
2009
2009
2008
2007
1999
1988
2007
New
Description
Atlanta-Decatur
Houston-Humble
Dallas-Fort Worth
Houston-Hwy 6N
Austin-Cedar Park
Houston-Katy
Houston-Deer Park
Houston-W.Little York
Houston-Pasadena
Houston-Friendswood
Houston-Spring
Houston-W.Sam Houston
Austin-Pond Springs Rd
Houston-Spring
Austin-Round Rock
Houston-Silverado Dr
Houston-Sugarland
Houston-Westheimer Rd
Houston-Wilcrest Dr
Houston-Woodlands
Houston-Woodlands
Houston-Katy Freeway
Houston-Webster
Newport News-Brick Kiln
Penasacola-Palafox
Miami
Chicago - Lake Forest
Chicago - Schaumburg
Norfolk - E. Little Creek
Atlanta-14th St.
Jacksonville - Middleburg
Jacksonville - Orange Park
Jacksonville - St. Augustine
Atlanta - NE Expressway
Atlanta - Kennesaw
Atlanta - Lawrenceville
Atlanta - Woodstock
Raleigh-Durham
Chicago - Lindenhurst
Chicago - Orland Park
Phoenix-83rd
Chicago-North Austin
Chicago-North Western
Chicago-West Pershing
Chicago - North Broadway
Brandenton
ST
GA
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
VA
FL
FL
IL
IL
VA
GA
FL
FL
FL
GA
GA
GA
GA
NC
IL
IL
AZ
IL
IL
IL
IL
FL
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
1,700
1,043
825
693
1,243
1,559
691
1,012
575
705
1,168
2,152
402
1,653
1,474
177
1,438
272
536
1,478
1,315
3,189
1,049
2,054
2,848
197
2,960
1,932
1,940
911
1,560
644
772
739
1,384
856
855
1,342
2,337
1,213
1,050
910
2,593
1,718
395
2,373
1,501
8,252
4,201
3,552
3,106
2,727
4,435
3,312
3,557
4,223
2,315
3,027
3,602
4,947
4,500
3,223
4,583
3,236
2,687
4,145
6,142
3,974
5,175
2,138
5,892
4,281
12,077
11,606
4,880
5,862
6,766
5,719
3,882
3,858
9,266
4,315
3,838
4,692
4,901
3,129
5,894
3,656
5,029
6,466
3,226
9,869
3,775
111
567
169
175
100
2,488
257
209
234
289
339
271
479
138
190
178
199
276
219
298
216
530
2,895
108
696
329
203
295
75
77
92
84
93
80
111
123
110
256
219
174
224
348
710
185
147
187
8,363
4,768
3,721
3,281
2,827
6,923
3,569
3,766
4,457
2,604
3,366
3,873
5,426
4,656
3,413
4,761
3,435
2,963
4,364
6,440
4,190
5,705
5,033
6,000
4,977
12,406
11,809
5,175
5,937
6,843
5,811
3,966
3,951
9,346
4,426
3,961
4,802
5,157
3,348
6,068
3,880
5,377
7,096
3,411
10,016
3,962
9,406
5,593
4,414
4,524
4,386
7,614
4,581
4,341
5,162
3,772
5,518
4,275
7,079
6,112
3,590
6,199
3,707
3,499
5,842
7,755
7,379
6,754
7,087
8,848
5,174
15,366
13,741
7,115
6,848
8,403
6,455
4,738
4,690
10,730
5,282
4,816
6,144
7,494
4,561
7,118
4,790
7,970
8,894
3,806
12,389
5,463
1,366
810
656
603
527
1,009
617
705
784
467
638
660
904
813
595
814
632
525
733
1,055
702
971
508
1,021
754
1,743
1,679
763
871
982
800
556
567
1,293
610
553
676
731
481
818
535
693
882
432
1,267
530
1,043
825
693
1,243
1,559
691
1,012
575
705
1,168
2,152
402
1,653
1,456
177
1,438
272
536
1,478
1,315
3,189
1,049
2,054
2,848
197
2,960
1,932
1,940
911
1,560
644
772
739
1,384
856
855
1,342
2,337
1,213
1,050
910
2,593
1,798
395
2,373
1,501
85
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
8/17/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/22/2011
9/29/2011
11/15/2011
5/16/2012
6/6/2012
6/6/2012
6/20/2012
7/18/2012
9/18/2012
9/18/2012
9/18/2012
9/18/2012
9/18/2012
9/18/2012
9/18/2012
9/19/2012
9/27/2012
12/10/2012
12/18/2012
12/20/2012
12/20/2012
12/20/2012
12/20/2012
12/21/2012
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
2006
1993
2001
2000
1998
2000/15
1998
1998
2000
1994
1993
1999
1984
2006
1999
2000
2001
1997
1999
1997
2000
1999
1982/17
2004
1996
2005
1996/04
1998
2007
2009
2008
2007
2007
2009
2008
2007
2009
2002
1999/06
2007
2008
2005
2005
2008
2011
1997
New
Description
Ft. Myers-Cleveland
Clearwater-Drew St.
Clearwater-N. Myrtle
Austin-Cedar Park
Austin-Round Rock
Austin-Round Rock
Chicago-Aurora
San Antonio - Marbach
Long Island - Lindenhurst
Boston - Somerville
Long Island - Deer Park
Long Island - Amityville
Colorado Springs - Scarlet
Toms River - Route 37 W
Lake Worth - S Military
Austin-Round Rock
Hartford-Bristol
Piscataway - New Brunswick
Fort Lauderdale - 3rd Ave
West Palm - Mercer
Austin - Manchaca
San Antonio
Portland
Portland-Topsham
Chicago - St. Charles
Chicago - Ashland
San Antonio - Walzem
St. Louis - Woodson
St. Louis - Mexico
St. Louis - Vogel
St. Louis - Manchester
St. Louis - North Highway
St. Louis - Dunn
Trenton-Hamilton Twnship
NY Metro-Fishkill
Atlanta-Peachtree City
Wayne - Willowbrook
Asbury Park - 1st Ave
Farmingdale - Tinton Falls
Lakewood - Route 70
Matawan - Highway 34
St. Petersburg - Gandy
Chesapeake - Campostella
San Antonio-Castle Hills
Chattanooga - Broad St
New Orleans-Kenner
ST
FL
FL
FL
TX
TX
TX
IL
TX
NY
MA
NY
NY
CO
NJ
FL
TX
CT
NJ
FL
FL
TX
TX
ME
ME
IL
IL
TX
MO
MO
MO
MO
MO
MO
NJ
NY
GA
NJ
NJ
NJ
NJ
NJ
FL
VA
TX
TN
LA
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
515
1,234
1,555
1,246
774
632
269
337
2,122
1,553
1,096
2,224
629
1,843
868
1,547
1,174
1,639
7,629
15,680
3,999
2,235
2,146
493
1,837
598
2,000
2,444
638
2,010
508
1,989
1,538
5,161
1,741
2,263
-
819
1,097
626
1,512
2,958
2,349
2,658
759
5,771
2,280
4,018
5,978
5,740
3,327
1,985
3,126
2,005
8,735
7,186
8,276
10,102
5,201
6,544
5,306
5,226
8,816
10,946
11,918
17,520
4,297
6,269
6,418
5,234
6,301
4,789
3,749
5,966
3,518
3,544
2,042
4,045
4,510
7,063
6,006
4,931
2,292
4,734
5,618
4,549
9,707
6,904
3,875
8,190
5,608
10,375
154
230
172
227
178
127
337
229
546
186
109
107
221
140
700
183
124
113
374
825
722
358
254
108
556
231
512
1,593
1,800
306
393
2,429
2,803
1,082
388
501
269
655
361
243
806
256
295
444
256
472
515
1,234
1,555
1,246
774
632
269
337
2,122
1,506
1,096
2,224
629
1,843
868
1,547
1,174
1,639
7,629
15,680
3,999
2,235
2,146
493
1,837
598
2,000
2,444
638
2,010
508
1,989
1,538
5,161
1,741
2,263
-
819
1,097
626
1,512
2,958
2,349
4,544
759
5,771
86
2,434
4,248
6,150
5,967
3,505
2,112
3,463
2,234
9,281
7,419
8,385
10,209
5,422
6,684
6,006
5,409
8,940
11,059
12,292
18,345
5,019
6,627
6,672
5,342
6,857
5,020
4,261
7,559
5,318
3,850
2,435
6,474
7,313
8,145
6,394
5,432
2,561
5,389
5,979
4,792
10,513
7,160
4,170
6,748
5,864
10,847
2,949
5,482
7,705
7,213
4,279
2,744
3,732
2,571
11,403
8,925
9,481
12,433
6,051
8,527
6,874
6,956
10,114
12,698
19,921
34,025
9,018
8,862
8,818
5,835
8,694
5,618
6,261
10,003
5,956
5,860
2,943
8,463
8,851
13,306
8,135
7,695
2,561
6,208
7,076
5,418
12,025
10,118
6,519
11,292
6,623
16,618
330
553
806
777
466
310
431
305
1,102
885
953
1,145
582
707
624
610
901
1,112
1,236
1,864
553
691
670
530
691
494
444
711
451
373
246
484
508
743
599
547
576
490
551
445
955
617
363
608
493
922
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
12/21/2012
12/21/2012
12/21/2012
12/27/2012
12/27/2012
12/27/2012
12/31/2012
2/11/2013
3/22/2013
3/22/2013
8/29/2013
8/29/2013
9/30/2013
11/26/2013
12/4/2013
12/27/2013
12/30/2013
12/30/2013
1/9/2014
1/9/2014
1/17/2014
2/10/2014
2/11/2014
2/11/2014
3/31/2014
5/5/2014
5/13/2014
5/22/2014
5/22/2014
5/22/2014
5/22/2014
5/22/2014
5/22/2014
6/5/2014
6/11/2014
6/12/2014
6/12/2014
6/18/2014
6/18/2014
6/18/2014
7/10/2014
8/28/2014
9/5/2014
9/10/2014
9/18/2014
10/10/2014
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
1998
2000
2000
2006
2004
2007
2010
2005
2002
2008
2009
2009
2006
2007
2000
2008
2004
2006
1998
2000
1998/02
2012
2000
2006
2004/13
2014
1997
1998
1998/16
2000
1996
1997
2000
1980
2005
2007
2000
2003
2004
2003
2005
2007
2000
2002
2014
2008
New
Description
Orlando-Celebration
Austin-Cedar Park
Chicago - Pulaski
Houston - Gessner
New England - Danbury
New England - Milford
Long Island - Hicksville
Long Island - Farmingdale
Chicago - Alsip
Chicago - N. Pulaski
Fort Myers - Tamiami Trail
Dallas - Allen
Jacksonville - Beach Blvd.
Space Coast - Vero Beach
Port St. Lucie - Federal Hwy.
West Palm - N. Military
Ft. Myers - Bonita Springs
Phoenix - Tatum Blvd.
Boston - Lynn
Syracuse - Ainsely Dr.
Syracuse - Cicero
Syracuse - Camillus
Syracuse - Manlius
Charlotte - Brookshire Blvd.
Charleston III
Myrtle Beach II
Columbia VI
Hilton Head - Bluffton
Philadelphia - Eagleville
Orlando - University
Orlando - N. Powers
Sarasota - North Port
Los Angeles - E. Commercial
Los Angeles - E. Slauson
Los Angeles - Westminster
Los Angeles - Calabasas
Portsmouth - Kingston
Portsmouth - Danville
Portsmouth - Hampton Falls
Portsmouth - Lee
Portsmouth - Heritage
Boston - Salisbury
Dallas - Frisco
Dallas - McKinney
Dallas - McKinney
Phoenix - 48th
ST
FL
TX
IL
TX
CT
CT
NY
NY
IL
IL
FL
TX
FL
FL
FL
FL
FL
AZ
MA
NY
NY
NY
NY
NC
SC
SC
SC
SC
PA
FL
FL
FL
CA
CA
CA
CA
NH
NH
NH
NH
NH
MA
TX
TX
TX
AZ
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
6,091
4,196
889
1,599
9,747
9,642
5,153
4,931
2,579
1,719
1,793
3,864
2,118
1,169
4,957
3,372
2,687
852
2,110
2,711
668
473
834
718
7,604
2,511
3,640
3,084
1,926
882
2,567
4,884
6,512
3,998
4,636
13,274
1,713
1,615
2,445
3,078
4,430
4,880
6,191
8,097
5,508
988
4,641
8,374
4,700
5,813
18,374
23,352
27,401
20,415
4,066
6,971
4,382
4,777
6,501
4,409
6,045
4,206
5,012
7,052
8,182
3,795
1,957
5,368
1,705
2,977
9,086
6,147
3,452
3,192
4,498
5,756
2,838
10,014
12,352
13,547
14,826
10,419
2,709
3,333
6,295
2,861
26,040
6,342
5,088
7,047
6,462
8,224
423
626
1,051
3,490
201
147
121
278
3,331
396
180
290
65
319
229
143
208
184
119
125
91
95
1,038
890
287
298
127
158
1,250
290
83
(344 )
409
254
175
455
47
70
107
76
183
163
157
100
76
69
6,091
4,196
889
1,599
9,747
9,642
5,153
4,931
2,579
1,719
1,793
3,864
2,118
1,169
4,957
3,372
2,687
852
2,110
2,711
668
473
834
718
7,604
2,511
3,640
3,084
1,926
882
2,567
4,278
6,512
3,998
4,636
13,274
1,713
1,615
2,445
3,078
4,430
4,880
6,191
8,097
5,508
988
87
5,064
9,000
5,751
9,303
18,575
23,499
27,522
20,693
7,397
7,367
4,562
5,067
6,566
4,728
6,274
4,349
5,220
7,236
8,301
3,920
2,048
5,463
2,743
3,867
9,373
6,445
3,579
3,350
5,748
6,046
2,921
10,276
12,761
13,801
15,001
10,874
2,756
3,403
6,402
2,937
26,223
6,505
5,245
7,147
6,538
8,293
11,155
13,196
6,640
10,902
28,322
33,141
32,675
25,624
9,976
9,086
6,355
8,931
8,684
5,897
11,231
7,721
7,907
8,088
10,411
6,631
2,716
5,936
3,577
4,585
16,977
8,956
7,219
6,434
7,674
6,928
5,488
14,554
19,273
17,799
19,637
24,148
4,469
5,018
8,847
6,015
30,653
11,385
11,436
15,244
12,046
9,281
430
750
439
532
1,367
1,737
2,032
1,518
336
540
328
374
456
328
437
300
370
509
548
250
135
333
120
232
576
410
228
213
258
308
157
386
680
681
733
572
141
171
309
148
1,272
320
271
367
328
424
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
10/21/2014
10/28/2014
11/14/2014
12/18/2014
2/2/2015
2/2/2015
2/2/2015
2/2/2015
2/5/2015
3/9/2015
4/1/2015
4/16/2015
4/21/2015
5/1/2015
5/1/2015
5/1/2015
5/1/2015
6/16/2015
6/16/2015
8/25/2015
8/25/2015
8/25/2015
8/25/2015
9/1/2015
9/1/2015
9/1/2015
9/1/2015
9/1/2015
12/30/2015
1/6/2016
1/6/2016
1/6/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
1/21/2016
2/1/2016
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
2006
2003
2014
2006/17
1999
1999
2002
2000
1986/17
2015
2004
2002
2013
1997
2001
1985
2000
2015
2015
2000
2002
2005/11
2000/17
2000
2005
1999
2004/08
1998
2010
2001
1997
2001/06
2004
2012
2006
2004/14
2003
2003
2005
2000
1985/99
2003
2003
2003
2002
2015
New
Description
Miami
Philadelphia - Glenolden
Denver - Thornton
Los Angeles - Costa Mesa
Los Angeles - Irving
Los Angeles - Durante
Los Angeles - Wildomar
Los Angeles - Torrance
New Haven - Wallingford
New Haven - Waterbury
New York - Mahopac
New York - Mount Vernon
Pt. St. Lucie
Dallas - Lewisville
Buffalo - Cayuga
Buffalo - Lackawanna
Austin - S. Congress
Austin - W Braker
Austin - Highway 290
Austin - Killeen
Austin - Round Rock
Austin - Georgetown
Austin - Pflugerville
Chicago - Algonquin
Chicago - Carpentersville
Chicago - W. Addison
Chicago - State St.
Chicago -W. Grand
Chicago - Libertyville
Chicago - Aurora
Chicago - Morton Grove
Chicago - Bridgeview
Chicago - Addison
Chicago - W Diversey
Chicago - Elmhurst
Chicago - Elgin
Chicago - N. Paulina St.,
Chicago - Matteson
Chicago - S. Heights
Chicago - W. Grand
Chicago - W 30th St
Chicago - Mokena
Chicago - Barrington
Chicago - Naperville
Chicago - Forest Park
Chicago - La Grange
ST
FL
PA
CO
CA
CA
CA
CA
CA
CT
CT
NY
NY
FL
TX
NY
NY
TX
TX
TX
TX
TX
TX
TX
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
IL
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
4,119
3,939
2,294
1,768
4,528
17,976
-
4,671
6,728
17,445
3,618
2,524
2,373
3,337
4,140
2,333
499
215
1,030
1,210
930
3,070
830
1,530
750
1,430
350
2,770
1,190
1,720
3,670
1,090
1,610
3,770
1,340
1,670
670
1,130
5,600
1,590
1,050
1,780
600
3,230
1,890
2,620
1,100
960
8,980
3,879
7,915
25,145
6,318
13,908
10,340
18,839
5,286
5,618
5,089
13,112
7,176
8,302
5,198
2,323
8,163
14,833
12,269
20,782
6,129
10,647
9,238
14,958
4,710
25,112
19,159
10,628
26,660
20,033
14,914
19,990
11,881
10,811
18,729
12,584
12,721
12,053
4,960
8,928
15,574
18,623
9,395
11,933
10,087
13,019
9,162
4,191
8,038
25,709
7,002
14,022
10,661
19,283
5,544
5,772
5,428
13,240
7,460
8,521
4,402
2,591
8,246
14,935
12,342
20,963
6,200
10,739
9,348
15,004
4,736
25,245
19,322
10,752
26,914
20,130
15,580
20,142
12,267
10,865
18,796
12,736
12,795
12,129
5,049
9,060
15,723
18,838
10,076
12,034
10,794
13,072
11,456
5,959
12,566
43,685
7,002
18,693
17,389
36,728
9,162
8,296
7,801
16,577
11,600
10,854
4,901
2,806
9,276
16,145
13,272
24,033
7,030
12,269
10,098
16,434
5,086
28,015
20,512
12,472
30,584
21,220
17,190
23,912
13,607
12,535
19,466
13,866
18,395
13,719
6,099
10,840
16,323
22,068
11,966
14,654
11,894
14,032
467
199
388
1,161
629
631
502
885
251
261
227
568
370
378
183
109
320
571
478
862
244
437
362
580
183
965
729
408
1,020
775
581
792
466
412
712
492
491
488
206
348
596
737
383
484
407
505
182
312
123
564
684
114
321
444
258
154
339
128
284
219
(796 )
268
83
102
73
181
71
92
110
46
26
133
163
124
254
97
666
152
386
54
67
152
74
76
89
132
149
215
681
101
707
53
2,294
1,768
4,528
17,976
-
4,671
6,728
17,445
3,618
2,524
2,373
3,337
4,140
2,333
499
215
1,030
1,210
930
3,070
830
1,530
750
1,430
350
2,770
1,190
1,720
3,670
1,090
1,610
3,770
1,340
1,670
670
1,130
5,600
1,590
1,050
1,780
600
3,230
1,890
2,620
1,100
960
88
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
2/12/2016
2/17/2016
2/29/2016
3/16/2016
3/16/2016
3/16/2016
3/17/2016
4/11/2016
4/14/2016
4/14/2016
4/26/2016
4/26/2016
5/2/2016
5/5/2016
5/19/2016
5/19/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
2016
1970
2011
2005
1985
2015
2005
2003
2000
2001
1991/94
2013
2002
2007
2006
2006
1984
2003
1999
2005
1986
2001/15
2005
2006
2004
2007
2009
2007
2009
2009
2009
2008
2008
2010
2008
2003
2006
2007
2006
2007
2008
2008
2015
2015
2015
2015
New
Description
Chicago - Glenview
Dallas - Richardson
Dallas - Arlington
Dallas - Plano
Dallas - Mesquite
Dallas - S Good Latimer
Boulder - Arapahoe
Boulder - Odell
Boulder - Arapahoe
Boulder - Broadway
Houston - Westpark
Houston - C. Jester
Houston - Bay Pointe
Houston - FM 529
Houston - Jones
Jackson - Flowood
Las Vegas - Spencer
Las Vegas - Maule
Las Vegas - Wigwam
Las Vegas - Stufflebeam
Las Vegas - Ft. Apache
Las Vegas - North
Las Vegas - Warm Springs
Las Vegas - Conestoga
Las Vegas - Warm Springs
Las Vegas - Nellis
Las Vegas - Cheyenne
Las Vegas - Dean Martin
Las Vegas - Flamingo
Las Vegas - North
Las Vegas - Henderson
Las Vegas - North
Las Vegas - Farm
Los Angeles - Torrance
Los Angeles - Irvine
Los Angeles - Palm Desert
Milwaukee - Green Bay
Orlando - Winter Garden
Orlando - Longwood
Orlando - Overland
Sacramento - Calvine
Sacramento - Folsom
Sacremento - Pell
Sacremento - Goldenland
Sacremento - Woodland
Sacremento - El Camino
ST
IL
TX
TX
TX
TX
TX
CO
CO
CO
CO
TX
TX
TX
TX
TX
MS
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
NV
CA
CA
CA
WI
FL
FL
FL
CA
CA
CA
CA
CA
CA
Life Storage, Inc.
Schedule III
Initial Cost to Company
Encum
brance
Land
Building,
Equipment
and
Impvmts.
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
Land
and
Impvmts.
Total
Accum.
Deprec.
3,210
630
790
1,370
620
4,030
3,690
2,650
11,540
2,670
2,760
8,080
1,960
680
1,260
680
1,020
2,510
590
350
1,470
390
1,340
1,420
1,080
790
1,470
3,050
980
330
570
520
1,510
5,250
2,520
2,660
750
640
1,230
1,080
2,280
1,200
540
2,010
860
1,450
8,519
10,282
12,785
10,166
8,771
8,029
12,074
15,304
15,571
5,623
8,288
10,114
9,585
3,951
2,382
20,066
25,152
11,822
16,838
6,977
11,047
7,042
5,141
10,295
16,436
5,233
17,366
23,333
13,451
15,651
12,676
10,105
9,388
32,363
18,402
16,589
14,720
6,688
9,586
3,713
17,069
22,150
8,874
8,944
10,569
12,239
11,791
10,969
13,656
11,606
9,432
12,174
15,836
17,993
27,282
8,357
11,206
18,351
11,645
4,757
3,735
20,861
26,271
13,468
17,524
7,556
12,679
7,553
6,584
11,847
17,628
6,154
18,923
26,474
14,575
16,056
13,374
10,706
10,977
37,810
21,174
19,408
15,499
7,386
10,913
4,909
19,424
23,394
9,465
11,014
11,485
13,767
344
410
496
394
340
319
474
603
616
229
342
404
380
163
109
786
964
457
642
280
437
278
260
417
631
225
698
985
519
602
505
399
365
1,243
721
654
569
265
371
153
661
839
347
367
407
475
8,581
10,339
12,866
10,236
8,812
8,144
12,146
15,343
15,742
5,687
8,446
10,271
9,685
4,077
2,475
20,181
25,251
11,958
16,934
7,206
11,209
7,163
5,244
10,427
16,548
5,364
17,453
23,424
13,595
15,726
12,804
10,186
9,467
32,560
18,654
16,748
14,749
6,746
9,683
3,829
17,144
22,194
8,925
9,004
10,625
12,317
62
57
81
70
41
115
72
39
171
64
158
157
100
126
93
115
99
(864 )
96
229
162
121
103
132
112
131
87
91
144
75
128
81
79
197
252
159
29
58
97
116
75
44
51
60
56
78
3,210
630
790
1,370
620
4,030
3,690
2,650
11,540
2,670
2,760
8,080
1,960
680
1,260
680
1,020
1,510
590
350
1,470
390
1,340
1,420
1,080
790
1,470
3,050
980
330
570
520
1,510
5,250
2,520
2,660
750
640
1,230
1,080
2,280
1,200
540
2,010
860
1,450
89
Life on
which
depreciation
in latest
income
statement
is computed
Date
Acquired
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date of
Const.
2014/15
2001
2007
1998
2016
2016
1992
1998
1984
1992
1996
2008
1972
2005
1994
2000
2000
2005
2008
1996
2004
2005
2004
2007
2007
1995
2004
2005
2007
2007
2005
2002
2008
2004
2002
2002
2005
2006
2000
2000
2004
2005
2004
2005
2003
2002
Life Storage, Inc.
Schedule III
Initial Cost to Company
New
Description
Sacremento - Bayou
Sacremento - Calvine
Sacremento - El Dorado Hills
Sacramento - Fruitridge
San Antonio - US 281
Austin - San Marcos
Charleston
Denver - Westminster
Chicago - Arlington Hgts.
Orlando - Curry Ford
Chicago - Lombard
Austin - Mary St.
Charlotte - Morehead St..
Construction in Progress
Corporate Office
ST
CA
CA
CA
CA
TX
TX
SC
CO
IL
FL
IL
TX
NC
NY
Encum
brance
Land
1,640
2,120
1,610
1,480
1,380
990
920
5,062
370
3,268
771
0
1,110
0
0
773,702
2,916
$ 12,674
$
Building,
Equipment
and
Impvmts.
21,603
24,650
24,829
15,695
8,457
7,323
7,700
3,679
8,513
6,378
9,318
0
11,439
0
68
2,974,075
$
Cost
Capitalized
Subsequent
to
Acquisition
Building,
Equipment
and
Impvmts.
88
59
48
176
139
56
57
307
104
114
0
6
1
14,383
38,947
573,633
$
Gross Amount at Which
Carried at Close of Period
Building,
Equipment
and
Impvmts.
21,691
24,709
24,877
15,871
8,596
7,379
7,757
3,986
8,617
6,492
9,318
6
11,440
14,383
37,382
3,534,782
$
Land
1,640
2,120
1,610
1,480
1,380
990
920
5,062
370
3,268
771
0
1,110
0
1,633
786,628
$
Total
23,331
26,829
26,487
17,351
9,976
8,369
8,677
9,048
8,987
9,760
10,089
6
12,550
14,383
39,015
4,321,410
$
Accum.
Deprec.
833
957
958
623
329
292
296
141
242
180
199
0
24
0
20,892
624,314
$
Date of
Const.
2005
2003
2007
2007
2003
2016
2016
2000
2016
2016
2017
2017
2017
2017
2000
Life on
which
depreciation
in latest
income
statement
is computed
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
5 to 40 years
Date
Acquired
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/15/2016
7/29/2016
8/4/2016
11/17/2016
12/20/2016
2/23/2017
4/3/2017
12/14/2017
5/1/2000
5 to 40 years
90
(dollars in thousands)
Cost:
Balance at beginning of period
Additions during period:
Acquisitions through foreclosure
Other acquisitions
Improvements, etc.
Deductions during period:
Cost of assets disposed
Impairment write-down
Casualty loss
Balance at close of period
Accumulated Depreciation:
Balance at beginning of period
Additions during period:
Depreciation expense
Deductions during period:
Accumulated depreciation of assets disposed
Accumulated depreciation on impaired asset
Accumulated depreciation on casualty loss
Balance at close of period
Life Storage, Inc.
Schedule III
December 31,
2017
December 31,
2016
December 31,
2015
$
4,243,308
$
2,491,702
$
2,177,983
—
22,638
84,191
106,829
(28,727)
—
—
(28,727)
4,321,410
$
—
1,714,029
73,385
1,787,414
(35,808)
—
—
(35,808)
4,243,308
—
278,572
42,046
320,618
(6,899)
—
—
(6,899)
2,491,702
$
535,704
$
465,195
$
411,701
102,674
102,674
(14,064)
—
—
(14,064)
624,314
$
87,219
87,219
(16,710)
—
—
(16,710)
535,704
$
55,101
55,101
(1,607)
—
—
(1,607)
465,195
$
$
$
The aggregate cost of real estate for U.S. federal income tax purposes is $4,388,101 at December 31, 2017.
91
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OFFICERS AND DIRECTORS
CORPORATE INFORMATION
Robert J. Attea
Director
Executive Chairman of the Board
Kenneth F. Myszka
Director
President
Charles E. Lannon
Director
President - Strategic Advisory, Inc
Stephen R. Rusmisel
Director
Partner (Retired) - Pillsbury, Winthrop,
Shaw, Pittman LLC.
Arthur L. Havener, Jr.
Director
Principal - Stampede Capital LLC
Mark G. Barberio
Director
Principal - Markapital, LLC
Carol Hansell
Director
Founder - Hansell LLP
David Rogers
Chief Executive Officer
Andrew J. Gregoire
Chief Financial Officer and Corporate
Secretary
Edward F. Killeen
Chief Operating Officer
Joseph V. Saffire
Chief Investment Officer
Investor Relations
Diane Piegza
(716) 650-6115 • invest.lifestorage.com
Independent Auditors
Ernst & Young LLP
1500 Key Tower • Buffalo, New York 14202
Corporate Counsel
Phillips Lytle LLP
One Canalside
125 Main Street • Buffalo, New York 14203
Registrar and Transfer Agent
American Stock Transfer & Trust Company LLC
6201 15th Avenue • Brooklyn, New York 11219
(800) 937-5449
Annual Meeting
May 31, 2018 • Life Storage, Inc. • Home Office
6467 Main Street Williamsville • New York 14221
9:00 a.m. (e.d.t.)
Exchange
New York Stock Exchange Listing Symbol: LSI
Average Daily Volume in 2017: 480,133
The Chief Executive Officer has previously
filed with the New York Stock Exchange
(NYSE) the annual CEO certification for
2017 as required by section 303A.12(a) of
the NYSE listed company manual.
As of December 31, 2017, there were
approximately 590 shareholders of record
of the common stock.