Attached files
| file | filename |
|---|---|
| EX-99.1 - EX-99.1 - LIFE STORAGE, INC. | d153467dex991.htm |
| EX-23.1 - EX-23.1 - LIFE STORAGE, INC. | d153467dex231.htm |
| 8-K - FORM 8-K - LIFE STORAGE, INC. | d153467d8k.htm |
Exhibit 99.2
SOVRAN SELF STORAGE, INC.
SOVRAN ACQUISITION LIMITED PARTNERSHIP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 18, 2016, Sovran Self Storage, Inc. (the “Company”), through its operating limited partnership, Sovran Acquisition Limited Partnership (the “Operating Partnership”, and together with the Company, collectively “Sovran”), entered into a definitive merger agreement to acquire LifeStorage, LP (“LifeStorage”) for total cash consideration of approximately $1.3 billion. Sovran plans to finance the acquisition by issuing new common shares and additional fixed-rate term loans.
The acquisition of LifeStorage will be a significant acquisition under Rule 3-05 of Regulation S-X. LifeStorage’s audited financials for the year ended December 31, 2015 and unaudited interim financial information for the three month periods ended March 31, 2016 and 2015 are included in a Form 8-K filed by the Company on June 13, 2016.
The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements and LifeStorage’s historical consolidated financial statements as adjusted to give effect to the Sovran’s acquisition of LifeStorage and the related financing transactions. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the 12 months ended December 31, 2015 give effect to these transactions as if they had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of March 31, 2016 gives effect to these transactions as if they had occurred on March 31, 2016.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, the Operating Partnership’s historical financial statements included in a Form 8-K filed by the Company on June 13, 2016 and LifeStorage, LP’s historical information included in a Form 8-K filed by the Company on June 13, 2016.
Sovran Self Storage, Inc.
Sovran Acquisition Limited Partnership
Unaudited Pro Forma Condensed Combined
Balance Sheet as of March 31, 2016
| (Dollars in thousands) | Sovran historical |
Life Storage historical |
Pro forma adjustments |
Pro forma | ||||||||||||
| Assets |
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| Real estate assets, net |
$ | 2,353,127 | $ | 628,076 | $ | 656,770 | (a) | $ | 3,637,973 | |||||||
| Cash and cash equivalents |
6,373 | 62,623 | (40,791 | )(b) | 28,205 | |||||||||||
| Accounts receivable |
4,203 | 1,355 | (216 | )(c) | 5,342 | |||||||||||
| Receivable from joint venture |
659 | — | — | 659 | ||||||||||||
| Investment in joint venture |
64,985 | — | — | 64,985 | ||||||||||||
| Prepaid expenses |
7,236 | — | — | 7,236 | ||||||||||||
| Other assets |
12,900 | 17,680 | 645 | (a)(c) | 31,225 | |||||||||||
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| Total Assets |
$ | 2,449,483 | $ | 709,734 | $ | 616,408 | $ | 3,775,625 | ||||||||
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| Liabilities |
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| Line of credit |
$ | 141,000 | $ | 91,303 | $ | (91,303 | )(d)(e)(h) | $ | 141,000 | |||||||
| Term notes, net of financing fees |
746,831 | 53,815 | 611,542 | (e)(h) | 1,412,188 | |||||||||||
| Accounts payable, accrued liabilities and deferred revenue |
46,203 | 38,311 | (26,408 | )(c) | 58,106 | |||||||||||
| Fair value of interest rate swap agreements |
26,846 | — | — | 26,846 | ||||||||||||
| Mortgages payable |
1,959 | 320,463 | (320,463 | )(f)(e)(h) | 1,959 | |||||||||||
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| Total Liabilities |
962,839 | 503,892 | 173,368 | 1,640,099 | ||||||||||||
| Noncontrolling redeemable Units/limited partners’ redeemable capital interest |
24,213 | 68,675 | (68,675 | )(g) | 24,213 | |||||||||||
| Equity |
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| Total Shareholders’/Partners’ Equity |
1,462,003 | 137,167 | 511,715 | (h) | 2,110,885 | |||||||||||
| Noncontrolling interest in consolidated subsidiary |
428 | — | — | 428 | ||||||||||||
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| Total Equity |
1,462,431 | 137,167 | 511,715 | 2,111,313 | ||||||||||||
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| Total Liabilities and Shareholders’/Partners’ Equity |
$ | 2,449,483 | $ | 709,734 | $ | 616,408 | $ | 3,775,625 | ||||||||
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Sovran Self Storage, Inc.
Sovran Acquisition Limited Partnership
Unaudited Pro Forma Condensed Combined
Statement of Operations for the Three Months Ended March 31, 2016
| (Dollars in thousands, except per share/unit data) | Sovran historical |
Life Storage historical |
Pro forma adjustments |
Pro forma | ||||||||||||
| Revenues |
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| Rental income |
$ | 91,541 | $ | 19,806 | $ | (1,725 | )(i)(j) | $ | 109,622 | |||||||
| Other operating income |
7,583 | 133 | 1,303 | (j) | 9,019 | |||||||||||
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| Total operating revenues |
99,124 | 19,939 | (422 | ) | 118,641 | |||||||||||
| Expenses |
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| Property operations and maintenance |
22,861 | 7,130 | (2,477 | )(k) | 27,514 | |||||||||||
| Real estate taxes |
10,547 | — | 2,477 | (k) | 13,024 | |||||||||||
| General and administrative |
10,464 | 4,266 | (422 | )(i) | 14,308 | |||||||||||
| Acquisition related costs |
2,384 | 442 | — | 2,826 | ||||||||||||
| Depreciation and amortization |
16,425 | 6,857 | 1,081 | (l) | 24,363 | |||||||||||
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| Total operating expenses |
62,681 | 18,695 | 659 | 82,035 | ||||||||||||
| Income from operations |
36,443 | 1,244 | (1,081 | ) | 36,606 | |||||||||||
| Other income (expense) |
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| Interest expense |
(9,134 | ) | (4,231 | ) | (2,895 | )(m) | (16,260 | ) | ||||||||
| Interest income |
6 | — | — | 6 | ||||||||||||
| Equity in income of joint ventures |
915 | — | — | 915 | ||||||||||||
| Other income (expense) |
— | 738 | — | 738 | ||||||||||||
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| Net income (loss) |
28,230 | (2,249 | ) | (3,976 | ) | 22,005 | ||||||||||
| Noncontrolling interests in the Operating Partnership |
(130 | ) | — | 29 | (q) | (101 | ) | |||||||||
| Noncontrolling interests in consolidated subsidiaries |
239 | — | — | 239 | ||||||||||||
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| Net income (loss) attributable to common shareholders/unitholders |
$ | 28,339 | $ | (2,249 | ) | $ | (3,947 | ) | $ | 22,143 | ||||||
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| Earnings per common share/unit attributable to common shareholders/unitholders—Basic |
$ | 0.74 | $ | 0.49 | ||||||||||||
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| Weighted average shares/units outstanding—Basic |
38,410,817 | 6,900,000 | (n) | 45,310,817 | ||||||||||||
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| Earnings per common share/unit attributable to common shareholders/unitholders—Diluted |
$ | 0.73 | $ | 0.49 | ||||||||||||
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| Weighted average shares/units outstanding—Diluted |
38,663,138 | 6,900,000 | (n) | 45,463,138 | ||||||||||||
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Sovran Self Storage, Inc.
Sovran Acquisition Limited Partnership
Unaudited Pro Forma Condensed Combined
Statement of Operations for the Year Ended December 31, 2015
| (Dollars in thousands, except per share/unit data) | Sovran historical |
Life Storage historical |
Pro forma adjustments |
Pro forma | ||||||||||||
| Revenues |
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| Rental income |
$ | 338,435 | $ | 65,143 | $ | (5,817 | )(i)(j) | $ | 397,761 | |||||||
| Other operating income |
28,167 | 564 | 4,292 | (j) | 33,023 | |||||||||||
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| Total operating revenues |
366,602 | 65,707 | (1,525 | ) | 430,784 | |||||||||||
| Expenses |
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| Property operations and maintenance |
81,915 | 22,641 | (7,470 | )(k) | 97,086 | |||||||||||
| Real estate taxes |
36,563 | — | 7,470 | (k) | 44,033 | |||||||||||
| General and administrative |
38,659 | 16,497 | (1,525 | )(i) | 53,631 | |||||||||||
| Acquisition related costs |
2,991 | 4,169 | — | 7,160 | ||||||||||||
| Operating leases of storage facilities |
683 | — | — | 683 | ||||||||||||
| Depreciation and amortization |
58,506 | 23,930 | 7,822 | (o) | 90,258 | |||||||||||
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| Total operating expenses |
219,317 | 67,237 | 6,297 | 292,851 | ||||||||||||
| Income from operations |
147,285 | (1,530 | ) | (7,822 | ) | 137,933 | ||||||||||
| Other income (expense) |
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| Interest expense |
(37,124 | ) | (13,350 | ) | (15,152 | )(p) | (65,626 | ) | ||||||||
| Interest income |
5 | 1 | — | 6 | ||||||||||||
| Loss on sale of real estate |
(494 | ) | — | — | (494 | ) | ||||||||||
| Equity in income of joint ventures |
3,405 | — | — | 3,405 | ||||||||||||
| Other income (expense) |
— | 2,284 | — | 2,284 | ||||||||||||
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| Net income (loss) |
113,077 | (12,595 | ) | (22,974 | ) | 77,508 | ||||||||||
| Noncontrolling interests in the Operating Partnership |
(553 | ) | — | 174 | (q) | (379 | ) | |||||||||
| Noncontrolling interests in consolidated subsidiaries |
— | — | — | — | ||||||||||||
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| Net income (loss) attributable to common shareholders/unitholders |
$ | 112,524 | $ | (12,595 | ) | $ | (22,800 | ) | $ | 77,129 | ||||||
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| Earnings per common share/unit attributable to common shareholders/unitholders — Basic |
$ | 3.18 | $ | 1.82 | ||||||||||||
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| Weighted average shares/units outstanding — Basic |
35,379,212 | 6,900,000 | (n) | 42,279,212 | ||||||||||||
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| Earnings per common share/unit attributable to common shareholders/unitholders — Diluted |
$ | 3.16 | $ | 1.81 | ||||||||||||
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| Weighted average shares/units outstanding — Diluted |
35,600,520 | 6,900,000 | (n) | 42,500,520 | ||||||||||||
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, Sovran will estimate the fair value of LifeStorage’s assets acquired and liabilities assumed and conform the accounting policies of LifeStorage to its own accounting policies.
The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of LifeStorage, LP as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combination.
2. Financing Transactions
Sovran anticipates completing the acquisition of LifeStorage for approximately $1.3 billion in cash. Sovran plans to finance the purchase by issuing approximately 6,900,000 common shares for net proceeds of $665.3 million and incurring new debt of approximately $665.4 million, net of $11.0 million in debt issuance costs, in a 4.05% fixed rate term loan. Sovran plans to use the offering proceeds and the new debt proceeds to extinguish LifeStorage’s existing debt of approximately $467.8 million at the closing of the transaction.
3. Preliminary Purchase Price Allocation
Sovran has performed a preliminary valuation analysis of the fair market value of LifeStorage’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price (in thousands):
| Cash paid by Sovran to LifeStorage |
$ | 866,167 | ||
| Cash paid for debt (excludes defeasance and prepayment penalties) |
467,786 | |||
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| $ | 1,333,953 | |||
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| Real estate assets acquired: |
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| Land |
$ | 339,391 | ||
| Building and improvements |
945,455 | |||
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| 1,284,846 | ||||
| Cash |
46,436 | |||
| Accounts receivable |
1,139 | |||
| Other assets |
5,319 | |||
| Other intangibles |
8,116 | |||
| Accounts payable and accrued expenses |
(10,323 | ) | ||
| Other liabilities |
(1,580 | ) | ||
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| $ | 1,333,953 | |||
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This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statements of operations. The final purchase price allocation will be determined when Sovran has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of real estate assets, (2) changes in allocations to intangible assets and (3) other changes to assets and liabilities.
4. Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information (tabular amounts in thousands):
| (a) | Reflects the adjustments to increase the basis in the acquired real estate assets (including land and building and improvements) to its preliminary fair value of $1,284.8 million as shown in Note 3. |
| (b) | Reflects the net cash to be paid by Sovran related to the transaction, as follows: |
| Payment of defeasance fees related to defeasance of debt |
$ | 14,039 | ||
| Payment of advisory fees related to the transaction |
6,500 | |||
| Payment of fees related to transaction bridge financing |
7,238 | |||
| Payment of additional transaction costs |
6,878 | |||
| Payment for severance |
3,000 | |||
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| 37,655 | ||||
| Adjustment to reflect the estimated cash and cash equivalents as of merger date |
3,136 | |||
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| Total |
$ | 40,791 | ||
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| (c) | Reflects the adjustments to record other assets, other intangibles, accounts payable, accrued expenses and deferred revenue at their estimated fair values based on preliminary purchase price allocations as shown in Note 3. |
| (d) | Reflects cash to be paid to repay the amounts outstanding on the acquisition credit facility of LifeStorage of $91.3 million. |
| (e) | Reflects cash to be paid to repay the amounts outstanding on the term notes of LifeStorage of $53.8 million. Also reflects the additional term debt to be borrowed by Sovran of $665.4 million (net of $11.0 million in debt issuance costs) to finance the transaction. |
| Issuance of new term debt, net of debt issuance costs of $11.0 million |
$ | 665,357 | ||
| Decrease for extinguishment of existing LifeStorage debt |
(53,815 | ) | ||
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| Pro forma adjustment to debt |
$ | 611,542 | ||
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| (f) | Reflects cash to be paid to repay the outstanding mortgage notes payable of LifeStorage of $320.5 million. |
| (g) | Reflects the elimination of the historical redeemable units and equity of LifeStorage of $68.7 million. |
| (h) | Reflects the elimination of the historical equity of LifeStorage, the issuance of common shares to finance the acquisition and the effect of certain costs associated with the transaction as follows: |
| Net equity proceeds from the issuance of 6,900,000 common shares/units |
$ | 665,260 | ||
| Less: historical LifeStorage equity |
(137,167 | ) | ||
| Advisory fees related to the transaction |
(6,500 | ) | ||
| Additional transaction costs |
(6,878 | ) | ||
| One time severance payments |
(3,000 | ) | ||
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| $ | 511,715 | |||
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| (i) | Reclassifies $0.4 million and $1.5 million of bad debt expense from general and administrative expenses to rental income for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. Sovran’s accounting policy is to record bad debt expense as a reduction to rental income. |
| (j) | Reclassifies $1.3 million and $4.3 million of other income from rental income to other operating income for the three months ended March 31, 2016 and the year ended December 31, 2015 respectively. The reclassification relates to certain revenue items that Sovran accounts for as other operating income. |
| (k) | Reclassifies $2.5 million and $7.5 million of real estate taxes from property operations and maintenance to real estate taxes for the three months ended March 31, 2016 and the year ended December 31, 2015 respectively. Sovran classifies real estate taxes as a separate component on the statement of operations. |
| (l) | Reflects the adjustment to depreciation and amortization expense for the period January 1, 2016 to March 31, 2016. Adjustments to depreciation and amortization expense are summarized as follows: |
| New basis | Depreciation/ Amortization Period |
Estimated Annual Depreciation/ Amortization |
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| Land |
$ | 339,391 | NA | $ | — | |||||||
| Buildings and Improvements |
945,455 | 40.0 | 23,636 | |||||||||
| Other intangibles |
8,116 | 1.0 | 8,116 | |||||||||
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| $ | 1,292,962 | 31,752 | ||||||||||
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| Estimated depreciation for the three months ended March 31, 2016 |
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7,938 | ||||||||||
| Less : Elimination of LifeStorage historical depreciation/amortization |
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(6,857 | ) | |||||||||
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| Total Adjustment to Depreciation/Amortization |
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$ | 1,081 | |||||||||
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| (m) | Reflects the following adjustments to interest expense: |
| New Sovran debt |
$ | 676,426 | ||
| Interest rate |
4.05 | % | ||
| Estimated annual interest |
27,395 | |||
| Estimated new interest for three months ended March 31, 2016 |
6,849 | |||
| Amortization of deferred financing costs |
277 | |||
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| 7,126 | ||||
| Elimination of LifeStorage historical through March 31, 2016 |
(4,231 | ) | ||
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| Total Adjustment to interest expense |
$ | 2,895 | ||
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| (n) | Reflects the increase in the weighted average shares/units in connection with the expected issuance of 6,900,000 common shares to finance the acquisition. |
| (o) | Reflects the adjustment to depreciation and amortization expense for the period January 1, 2015 to December 31, 2015. Adjustments to depreciation and amortization expense are summarized as follows: |
| New basis | Depreciation/ Amortization Period |
Estimated Annual Depreciation/ Amortization |
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| Land |
$ | 339,391 | NA | $ | — | |||||||
| Buildings and Improvements |
945,455 | 40.0 | 23,636 | |||||||||
| Other intangibles |
8,116 | 1.0 | 8,116 | |||||||||
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| $ | 1,292,962 | 31,752 | ||||||||||
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| Less : Elimination of LifeStorage historical depreciation/amortization |
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(23,930 | ) | |||||||||
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| Total Adjustment to Depreciation/Amortization |
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$ | 7,822 | |||||||||
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| (p) | Reflects the following adjustments to interest expense: |
| New Sovran debt |
$ | 676,426 | ||
| Interest rate |
4.05 | % | ||
| Estimated annual interest |
27,395 | |||
| Estimated new interest for twelve months ended December 31, 2015 |
27,395 | |||
| Amortization of deferred financing costs |
1,107 | |||
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| 28,502 | ||||
| Elimination of LifeStorage historical through December 31, 2015 |
(13,350 | ) | ||
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| Total Adjustment to interest expense |
$ | 15,152 | ||
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| (q) | Reflects the impact of the pro forma adjustments on Noncontrolling interest in the Operating Partnership. The amounts were determined based on the total net income impact from the pro forma adjustments multiplied by the weighted average non controlling ownership interest of 0.5% for the three months ended March 31, 2016 and year ended December 31, 2015. |