Shares of Colorado-based National Storage Affiliates, which operates more than half a million storage units nationwide, surged on Monday after industry leader Public Storage announced a buyout offer worth $10.5 billion to acquire its Greenwood Village rival.
Under the terms of the deal, holders of National Storage (NSA) common shares and operating partnership units will receive 0.14 equivalent shares or partnership units in Public Storage, resulting in an equity payout of $3.1 billion.
Some of the better cash-flowing properties at NSA will be transferred into a joint venture with an estimated value of $3.3 billion. And Public Storage will take on $4.1 billion in debt and preferred shares held by NSA.
Shares of NSA rose 30% on Monday after the deal was announced, going from a close price of $30.94 on Friday to around $40 a share. That is near the price of $41.68 a share implied in what Public Storage has offered.
NSA’s portfolio includes more than 1,000 properties, 69 million square feet of rentable space and 550,000 units in 37 states and Puerto Rico. Public Storage operates 3,533 self-storage facilities with approximately 258 million net rentable square feet across 40 states.
“This outcome reflects the incredible transformation we have undertaken over the past few years to refocus our portfolio, enhance operations and drive growth,” said David Cramer, CEO of National Storage Affiliates, in a news release. “Public Storage is the ideal strategic fit for our company given their best-in-class brand, operating platform and future growth profile.”
Arlen Nordhagen, who co-founded SecurCare Self Storage in 1988, was the driving force behind NSA, which he took public in 2015 as a Real Estate Investment Trust. His innovation was to create a “federation” of regional storage companies using a single operating platform.
The structure, called the Participating Regional Operator model, allowed local owners in the highly fragmented industry to swap ownership in their properties for equity in NSA, while maintaining their local branding.
That structure is going away. But the deal creates a joint venture with 313 of the stronger properties worth an estimated value of $3.3 billion. Current NSA owners will control 80% of the joint venture, with Public Storage holding the remainder.
The “carve out,” backed with $2.2 billion in debt secured by the properties, will give owners a tax-favorable off-ramp, while handing over the heavy lift of managing the properties to Public Storage.
Additionally, Public Storage will repay NSA’s bank debt, senior unsecured notes, mortgage debt and preferred shares, worth an estimated $4.1 billion.
Goldman Sachs Bank and Wells Fargo Bank will provide $4 billion in bridge loan financing to make that happen. That short-term debt is expected to convert into secured mortgages.
The deal will combine the country’s largest and fourth-largest providers of self-storage units. But even combined, the two companies will have about a 10th of the highly fragmented storage market.
That could assuage Federal Trade Commission concerns about excessive concentration. But Colorado could be higher up on the list where federal regulators require divestitures.
NSA reports having just under 1,500 employees overall, with an undisclosed number at its Greenwood Village headquarters and at its regional operator, SecurCare Self Storage.
Public Storage has direct operating margins of 78% at its location, which is higher than NSA’s margins of 69%. The 1,000-plus NSA properties are expected to be moved over to Public Storage’s “PS Next” platform.
Public Storage also has a much stronger balance sheet, meaning it can borrow money at a lower cost.
Public Storage lists $110 million to $130 million in expected “annual synergies,” some of which will come from making NSA operations more efficient and through “general and administrative” savings.
That last item would suggest the company might eliminate redundant corporate roles in Colorado that could be handled in Frisco, Texas. The two companies didn’t mention layoffs in the news release. NSA didn’t respond to an email request about workforce reductions because of its sale.
The combined companies are expected to have a market value of $57 billion. The deal is expected to be completed in the third quarter.
StorageCafe, a storage unit search engine, estimates that and that the nation has 2.1 billion square feet of rentable storage space.
Despite slower population growth and a cultural emphasis on “minimalist” lifestyles, developers added 55.1 million square feet of storage space last year and are on track to add another 51.1 million this year, according to StorageCafe.
The average cost of a a month, down 1.6% from the average last year and close to the current U.S. average in January of $119 a month, according to StorageCafe.
