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Recently, Extra Space Storage Inc. (EXR - Snapshot Report) announced that its operating partnership subsidiary – Extra Space Storage LP – inked a contribution deal with the several companies affiliated with All Aboard Mini Storage and Lance D. Alworth to buy 20 self-storage facilities in California.

The self-storage facilities, worth $196.0 million, comprise 14,800 units and net rentable space of 1.5 million square feet.The deal will likely be complete by the third quarter of 2013.

Deal Terms

The self-storage real estate investment trust (REIT) will prepay existing loans of $100.1 million on the assets and $10.1 million related to the loan’s defeasance and prepayment costs, after the passing on of the properties. Moreover, the company will issue newly designated Series B Redeemable Preferred Units worth $33.6 million and common Operating Partnership units worth $62.3 million to the sellers.

Deal Financing

To finance the purchase of the aforementioned assets, Extra Space declared the private offering of Exchangeable Senior Notes worth $250 million, due 2033. To cover any over-allotments, the company provided an option to initial purchasers to buy up to an additional $37.5 million of shares within 30 days of the initial notes issue. 

Further, upon exchange, the notes will likely be settled in cash and shares at a rate, determinable subject to certain conditions. Notably, Extra Space plans to utilize the remaining proceeds from the offering to pay off outstanding secured lines of credit and for other corporate purposes.

In Conclusion

We view the acquisition as a strategic fit for the company. It will drive its rental revenues and help in overall company’s growth in the future. Additionally, the private offering will position Extra Space favorably to exploit investment opportunities and gain acquisitions.

Headquartered in Salt Lake City, Utah, Extra Space is engaged in property management and development activities that include the acquisition, management, development, sales and rent of self-storage facilities. The company currently has 965 self-storage properties, comprising about 640,000 units, located across 35 states, Washington, D.C. and Puerto Rico.

Currently, Extra Space carries a Zacks Rank #2 (Buy). Other REITs that are doing well include DCT Industrial Trust Inc. (DCT - Snapshot Report), Diamondrock Hospitality Co. (DRH - Snapshot Report) and Douglas Emmett Inc (DEI - Snapshot Report), all of which have the same Zacks rank as Extra Space.

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