Current Price: $9133
Offer Price: $9840
Expected Closing: December 2021
Consolidation in the US self-storage space with attractive 8% upside and expected closing during the next month.
CubeSmart is acquiring its smaller peer LAACO for $1.69bn gross proceeds. The consideration to LAACO shareholders will amount to gross proceeds less debt resulting in $9840/unit. The idea is timely as successful closing is very likely and I expect the current spread to be eliminated shortly. The situation exists probably because LAACO used to be a micro-cap/underfollowed/illiquid/pink sheet listed stock with a high nominal price per share and did not report with the SEC. The merger was announced after the market closed on the 15th of November and yesterday share price has jumped over 100% already.
Attractive aspects of the situation:
- This is a strategic, synergistic transaction by a larger peer. The buyer is an $11bn market cap company that has done roll-up $2.2bn in acquisitions over the last 5 years. The merger is expected to be immediately accretive to FFO per share with enhanced levels of accretion expected to be achieved through the realization of operating synergies over time
- There is no financing condition involved. The buyer expects to fund the deal with debt and equity. $1bn debt portion has been secured prior to merger announcement and equity raise will close on the 19th of Nov.
- Shareholder meeting won’t be necessary. LAACO is 70% owned by insiders. Managing general partner (Stability LLC) owns 69% and its stake is enough to secure the approval (merger agreement):
The vote of Stability’s units pursuant to the Voting Agreement will be sufficient to obtain the Unitholder Approval and no other vote by a limited partner of LAACO will be necessary to obtain the Unitholder Approval.
- Price comes at 3.7% cap rate at an estimated 2022 NOI – in line with the recent EZ Storage acquisition at mid 3% cap rate (April) – see this VIC write-up’s comment on the 17th of August.
- Both the buyer and the target receive comparable $19+ rents per in-place occupied square foot (see slide below) and have similar occupancy levels. At the buyout price LAACO is valued similarly to CubeSmart ($384/sq vs $336/sq respectively), with the small difference due to acquisition premium as well as unencumbered storage properties (no mortgage after repayment of $41m)
- Transaction fees will be covered by the buyer (as per merger agreement) and the only deductable from gross proceeds is $41m of LAACO debt:
At the Closing, and subject to the terms and conditions of the Merger Agreement, each outstanding limited partnership unit and general partnership unit of LAACO (other than units held by LAACO in treasury or by the Company or Merger Sub, which are referred to herein as “Cancelled Units”) will automatically be canceled and converted into the right to receive their pro-rata share of the Purchase Price (net of amounts applied to repay LAACO debt).
LAACO owned Storage West operates 59 self-storage assets in the highly desired western markets of Southern California (22), Phoenix (17), Las Vegas (13), and Houston (7). Two of these properties are owned by two separate joint ventures, each owned fifty percent by LAACO. Total rentable square feet is 4.4m. Laaco doesn’t report with the SEC and apparently doesn’t have an investor relations page, but financials can be found here.
The buyer will derive substantial cost synergies due to a high overlap in certain markets:
CubeSmart is the third-largest owner and operator of self-storage properties in the US.
The combined company: