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public storage inc. (New York Stock Exchange:PSA) has room to increase its offer to the smaller self-storage competitor Life Storage (New York Stock Exchange: LSI) after LSI rejected the offer on Thursday, according to Citi.
“At current levels, we estimate that the supply of PSA is equivalent to at a capitalization rate of 5.4%; In our opinion, there is room for PSA to raise its offer, and we will seek details on whether LSI sought to enter into negotiations with PSA and whether the company remains open to a higher offer,” said Citi analyst Smedes Rose, who has a neutral opinion. rating and $126 price target on LSI, he wrote in a note late Thursday.
Life Storage (LSI)’s board rejected an unsolicited offer from rival Public Storage (PSA) on Thursday, saying the offer “significantly undervalues” the company, as well as its future growth prospects.
Life Storage “needs to provide shareholders with more detail as to why an independent approach makes more sense than accepting a 20% premium (at the time of the offer) at current levels or, more importantly, why not negotiate more favorable treatment for LSI’s shareholders”. Citi’s Rose, which lowered its LSI rating to neutral from buy earlier this month after the Public Storage (PSA) offering was revealed.
Citi’s comments come after a Truist analyst said earlier this month that there is a “high probability” that Public Storage (PSA) could increase its Life Storage (LSI) offering “slightly.”
Life Storage (LSI) plans to provide more details on its decision to reject the PSA offer and its financial outlook during its fourth quarter earnings call on Friday. Public Storage (PSA) will release its fourth-quarter results on Tuesday and hold a conference call on Wednesday.
Also see SA contributor Dane Bowler’s article from earlier this month titled “How to Play the Conversation on Merging Public Storage and Living Storage.”