Public Storage Launches $11B Hostile Bid for Life Storage
Public Storage (PSA) has decided to approach shareholders directly after multiple unsuccessful attempts to secure a deal behind closed doors.
Good morning. Public Storage has announced a hostile $11B bid for Life Storage after previous takeover attempts failed. Meanwhile, the 5-year forecast for the SFR market continues to look bright despite growing financial pressures.
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📖 Read about how rising interest rates and decreased credit access have spiked bid-ask spreads across property types.
🖥️ Watch builder-developer Eric Brody discuss the ‘critical path’ for faster construction with The Real Deal on the latest episode of The Blueprint.
🎧 Listen to the FORT with Chris Powers as his next guest discusses navigating the '08 crisis and building a ground-up development company.
Public Storage pressures rival Life Storage with $11B bid
Public Storage (PSA) has decided to approach shareholders directly after multiple unsuccessful attempts to secure a deal behind closed doors. They have made an $11B unsolicited offer to purchase Life Storage (LSI), as reported by the Wall Street Journal.
An offer they can’t refuse? Public Storage has a market value of $54.2 billion, while Life Storage is worth $9.4 billion. Public Storage's latest takeover bid values Life Storage at approximately $129 per share, which is a 20% increase from its stock price last Friday.
If the deal is approved, Life Storage shareholders will receive 0.4192 shares of Public Storage for each share of Life Storage they own.
The total value of the deal, including debt, is estimated to be $15 billion, making it one of the biggest corporate acquisitions of 2023.
Making the case for a monopoly: Public Storage claims that the takeover would help consolidate a highly fragmented sector. By the end of 2022, Public Storage owned nearly 10% of the US self-storage market’s square footage, making it the largest operator in the country. The top five businesses in the space own nearly 20% of all available space, while the other 80% is split between regional and local operators.
➥ THE TAKEAWAY
The bottom line: Public Storage has made a public bid to acquire Life Storage, which is known as a "bear hug" strategy, hoping to pressure Life Storage shareholders to accept the offer. This tactic, although less common lately due to market uncertainty, is a conventional method in M&A. Life Storage previously rejected the offer, but will review the new proposal, which they believe is similar to the prior one.
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Single-Family Rentals Show Resilience Amid Economic Challenges
The single-family rental sector is expected to perform well this year despite economic challenges, with favorable demographics and limited construction contributing to its success. However, rising operating costs may pose a concern for owners and developers.
Actually, the grass is greener on this side: According to Green Street analysts, strong demographics, affordable price points, and limited single-family supply all add up to an excellent 5-year forecast for SFR compared to other CRE asset classes.
Strong demographic trends: The 35 to 44-year-old population is expected to grow at a rate twice that of the overall US average, with above-average growth expected in the Sun Belt, which already has a large number of SFR communities and many more under development or in the planning stage.
Leading the way: SFR developments are most common in the South Atlantic region, led by Florida, Texas, and North Carolina, with nearly 45% of all properties securitized in CMBS located in the Southeast. Additionally, SFRs are considered to be resilient from a pricing perspective, with several factors supporting firm rents and values.
➥ THE TAKEAWAY
Some road bumps, but not too many: This isn’t to say that SFR has it 100% made in the shade. Higher operating costs and capital expenditures are concerns for the sector. Cap-ex may increase due to aging homes and turnover. Political risks also pose a threat as regulation limits institutional home buying. Rent growth has slowed due to rising inventory, with Orlando and Miami leading in rental growth at 7.5% YoY.
📰 Editors' Picks
WFH anxiety: When NYC office magnate Scott Rechler said he was going to give back the keys to some of his buildings, he set off a firestorm of speculation.
“New” New York: Governor Hochul and Mayor Adam’s ‘Making New York Work For Everyone’ proposal has a ton of implications for CRE investors.
City of Brotherly Defaults: Three of Philly’s most prominent office buildings, which add up to over 3 MSF, may be underwater on their loans.
Got Debt? CRE investors are turning toward real estate debt as 2023’s top alternative investment class, according to a recent CBRE survey.
REIT rap sheet: The Hoya Capital Office REIT Index tracks 23 of the nation’s biggest REITs, and several of them are in trouble, including two of the biggest REITs in NYC.
Royally screwed: Coworking company Regus officially owes Vornado Realty Trust $90M over a 15-year lease for 78 KSF of San Francisco office space that it never occupied.
Who doesn’t like bread? Everyone’s favorite bread bowl destination, Panera Bread, is testing the waters for an IPO as post-pandemic dining demand keeps recovering.
Build me an HQ worthy of Prime: Amazon’s (AMZN) futuristic-looking ‘Helix’ HQ2 in Virginia is set to open this year, despite Big Tech laying off swathes of employees.
Hotel-eat-hotel world: As new hotel construction slows, big hotel companies are doubling down on their efforts to ‘recruit’ properties from competing brands.
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🤝 Deals & Dealmakers
Well played: Back in September, GIC and Oak Street planned to acquire the STORE Capital REIT for $14B. The deal just closed last Friday for $15B instead.
Deal of the day: The Diplomat Beach Resort in Hollywood, FL, was bought by a JV between Credit Suisse and Trinity Fund Advisors for $835M.
Loan of the day: After waiting out a rezoning debacle, Joy Construction and Maddd Equities land $414M in construction financing for their 611-unit apartment development in Inwood.
In the name of science: Private CRE investors are gravitating to life science projects this year, with San Francisco, San Diego, and Boston making up 66% of all disclosed funding.
Better than broke: A shuttered East Side Marriott in NYC just sold for $153.4M, slightly more than half the $270M the seller paid for it back in 2015.
Not half bad: IRA Capital offloaded 157 KSF Poinsettia Plaza in Ventura, CA, for $66M after buying it for $50M in 2016. The deal was brokered by Newmark.
Long live Playstation: Not to be outdone by Microsoft, Sony just inked a lease for 225 KSF on LA’s Miracle Mile with Onni Group.
Another conversion: In yet another sign of the times, Extell Development plans to convert a 415 KSF East Harlem office building into 543 apartments instead.
📈 Chart of the Day
After the biggest rent spike in 10 years from December 2021 to January 2022, rents remained flat this time around.
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