Public Storage has room to raise its Life Storage offer - analyst

Public Storage Inc. (NYSE:PSA) has room to raise its offer for smaller self-storage competitor Life Storage (NYSE:LSI) after LSI rejected the bid on Thursday, according to Citi.

"At current levels, we estimate PSA’s offer equates to a cap rate of 5.4%; in our opinion, there is room for PSA to raise its offer, and we will look for details around whether LSI looked to enter negotiations with PSA and if the company remains open to a higher offer," Citi analyst Smedes Rose, who has a neutral rating and $126 price target on LSI, wrote in a note late Thursday.

Life Storage's (LSI) board on Thursday rejected the unsolicited bid from rival Public Storage (PSA), saying the offer "significantly undervalues" the company as well as its prospects for future growth.

Life Storage "needs to provide shareholders more detail around why a standalone approach makes more sense than accepting a 20 % (at the time of offer) premium to current levels, or more importantly, why not negotiate a more favorable deal for LSI shareholders," Citi's Rose, who reduced his rating on LSI to neutral from buy earlier this month after the Public Storage (PSA) bid was disclosed.

Th Citi comments come after a Truist analyst said earlier this month that there's a "strong probability" that Public Storage (PSA) could "slightly" increase its offer for Life Storage (LSI).

Life Storage (LSI) plans to provide more detail regarding its decision to reject the PSA bid and its financial outlook during its Q4 earnings call on Friday. Public Storage (PSA) will release its Q4 results on Tuesday and hold a conference call on Wednesday.

Also see SA contributor Dane Bowler's piece from earlier this month entitled "How To Play The Public Storage And Life Storage Merger Talk"