LAACZ - LA Athletic Co

[EricSchleien]

Does anybody here have a relationship with management or have spoken to them? Something that I wonder about is whether LAACO makes sense being part of a larger self-storage management company. LAACO is clearly run for the benefit of unitholders but my concern is that there's a lot of low hanging fruit being left on the table being a stand-alone company. If I was running one of the larger SS co's, I'd much rather buy LAACO to expand my portfolio than purchase SS through a broker in the private market. I was speaking to my business broker about LAACO last week and he said there's no way he could ever find anything that cheaply valued in the private market. Also, margins would instantly expand (hence the low hanging fruit) through a more favorable cost structure. Correct me if I'm wrong but I would imagine the reason margins are higher at one of the larger publicly traded SS companies is due to the fact that as size increases, expenses don't rise nearly as quickly.

 

Would love to hear other input on this.

[BG2008]

Does anybody here have a relationship with management or have spoken to them? Something that I wonder about is whether LAACO makes sense being part of a larger self-storage management company. LAACO is clearly run for the benefit of unitholders but my concern is that there's a lot of low hanging fruit being left on the table being a stand-alone company. If I was running one of the larger SS co's, I'd much rather buy LAACO to expand my portfolio than purchase SS through a broker in the private market. I was speaking to my business broker about LAACO last week and he said there's no way he could ever find anything that cheaply valued in the private market. Also, margins would instantly expand (hence the low hanging fruit) through a more favorable cost structure. Correct me if I'm wrong but I would imagine the reason margins are higher at one of the larger publicly traded SS companies is due to the fact that as size increases, expenses don't rise nearly as quickly.

 

Would love to hear other input on this.

 

Take a number and get on the queue  :P 

 

Yes to most of your questions.  I doubt the management will sell.  Some hedge fund manager offered a take private years ago.  I think if they offer $4,000-$5,000 a share, they may.  The structure is what it is.  If you want to own RE and don't have to do a lot of work, this is an awesome investment.  If you want a quick IRR, selling to a PSA would obviously make sense.   

[EricSchleien]

Has anyone followed this recently? I bought some more shares last quarter - the stock price is basically the same as it was last year even though the business has gotten slightly better.

 

Also, I have bugged them about doing a tender offer at a price slightly higher than it is today. I told them there's no downside if they can't get a lot of units. They've told me that the reason they stay public is that there are people who have relied on the stock ownership for several generations and there's a few families in LA that rely on the company's stock. My thinking is that if some shareholders wanted liquidity, it would give them a way out. It would also allow LAACO to increase the speed of their buybacks which is severely limited due to how thinly traded the units are.

 

Are there any other unitholders on this board that would be in favor of a tender offer at say 10% above the current unit price?

 

I currently have 170 units.

[johnny]

I wouldn't be very enthusiastic/confident about tender pricing until I felt more informed about what sort of returns they model on building new facilities; they don't really reveal much here. In 2013 they briefly outlined why they were preferring to build rather than buy new facilities, indicating that the return was something like "3 or more" percentage points better for builds. So I guess that gives us some vague, relative idea, from half a decade ago when it was pretty cheap to book concrete trucks. Have I missed some burst of transparency/clarity on this?

 

Anyway, if they're building new facilities at 10x EBITDA, then buybacks at 14X aren't exactly something I'm going to go out of my way to draft a petition over.

 

Topic change: One of the reasons I talked myself into playing around here was that I liked the performance of the business over the last recession. Peak-to-trough FCF change was like -16%.

 

I now think it's an error to model future recession-proofiness this way. Current national spending on new self-storage construction clocks in at like 2-3x what it did in the years preceding 08/09...I think people paying 20x EBITDA for these businesses are sort of nuts.

 

That said, 13x is fine. I have a few units, mostly because I enjoy passive-aggressively invoking them as a hedge against my family's storage-unit addiction.

[Spekulatius]

Has anyone followed this recently? I bought some more shares last quarter - the stock price is basically the same as it was last year even though the business has gotten slightly better.

 

Also, I have bugged them about doing a tender offer at a price slightly higher than it is today. I told them there's no downside if they can't get a lot of units. They've told me that the reason they stay public is that there are people who have relied on the stock ownership for several generations and there's a few families in LA that rely on the company's stock. My thinking is that if some shareholders wanted liquidity, it would give them a way out. It would also allow LAACO to increase the speed of their buybacks which is severely limited due to how thinly traded the units are.

 

Are there any other unitholders on this board that would be in favor of a tender offer at say 10% above the current unit price?

 

I currently have 170 units.

 

I thought about this and reviewed the last few years annual statements since I bought it in 2012 and I don’t feel that a tender is such a no brainer. For one thing, getting 10% of the shares tendered would add about $40M to their existing $80M in debt. This is probably OK, but I really liked about this investment that here was very little debt when I bought into this to begin with and I would like them to keep it this way. Their leverage is already somewhat larger than in 2012, due to Capex expenses gong into the new facilities in Texas. I also note that they reduced their units from about 172.5k to 165.5k since I owned it, which is not too bad considering that they are growing their business, while paying a nice distribution a along. The other issue with reducing the unit count is that the liquidity for the remaining shareholders will get even worse. I’d rather have them put a message in the annual report that they are willing to buy back shares from owners in a privately negotiated  transaction at prevailing market prices by contacting management.

 

I think the bigger question for me is how they feel about the expansion into Texas after being there a couple of years and if they feel it’s giving a good return on investment. In particular the Houston market, which is dependent on Energy and has low barriers to entry looks iffy to me.

 

FWIW, I just added a few units a couple of days ago below $2200.

[johnny]

Want to correct and elaborate on my earlier post, which got some stuff wrong. I made the claim that back in 2013 they discussed build v. buy. That was way off. I couldn't find anything like that in the AR when I checked, so I scanned the rest and found what I was thinking about, actually in the 2015 (so, a bit more fresh, which is nicer).

 

Here are the relevant snippets:

 

We generally anticipate that the entire process, beginning with identifying land in a prime location, continuing through construction and on to the point when we have achieved 85% occupancy, will take five years.

 

(later)

 

In our experience, by developing a ground-up project, even with the delays in realizing revenue, we can expect a return on investment that is three or more percentage points above what we would receive from an acquisition property.

 

That "even with delays" bit makes me assume they're talking IRR and not ~stabilized~ yield.

 

So, I figure the regional cap rates in those markets was safely 6%, they're expecting a minimum of 9%. As long as those opportunities are available, isn't this a better avenue for capital than buybacks (FCF yield something like 7ish% today)? As Spek mentions, they have found more capex opportunities than cash in the past few years, so it's not like the capital structure is an urgent issue that needs addressing.

 

And if something -has- changed and the prospects of new facilities are substantially less rosy than they were a few years ago, that probably means we should be correspondingly less bullish on the shares, though the logic of this begins increasingly depending on what your valuation of the club stuff is.

[Gregmal]

I only have a tracker position here so I dont forget about it, but have dug into the storage space previously and think that on the surface these guys get "it", but also have certain alignment of interests that make this a difficult investment for most people. It is absolutely a low maintenance, buy and put away type of investment.

 

With regard to buy vs build, I've been told by people at other companies that target acquisitions you look at 5.50-6% cap rates with room to either build out or bump occupancy rates. Anything over 6% and you really have to be careful and start looking for red flags.

 

There are actually decent barriers to entry here depending upon where you look. Certain markets it can be very difficult to get proper approvals to build. Often(as Johnny pointed out) it's about a 5 year process so if you can get a good feel for certain markets you have windows to move. Often the most value is in secondary markets or fringe markets just outside larger msas.

 

Building just seems quite capital intensive and also, thinking about it logically, if you're there and able to build, generally so is the next guy. You want to be in areas where it's hard to get in and a nuisance to build.

 

I have always been under the impression(and the statistics I've seen quoted indicate it too) that the self storage business is predominantly fragmented mom and pop stuff. Maybe 25-30% are institutionally owned. So again, I'd think buying would be more optimal. Goal would be to find something mom and pop owned, somewhat, but not entirely neglected, and then just pump some money into fixing up the appearance and advertising and in 12-18 months you can take 60-70% occupancies and get them in the mid to high 80's. IMO a superior option to taking 5 years trying to turn dirt into cash.

[bobozou]

Tax season question

 

I think in past years there was a website I could go to get LAACO unit-level K-1 information.  Understanding that 2018 K-1's may not yet be ready, does anyone else know what I'm talking about and can point me to the site (maybe it wasn't a site, but was something that was sent)?

 

TIA

[Spekulatius]

Tax season question

 

I think in past years there was a website I could go to get LAACO unit-level K-1 information.  Understanding that 2018 K-1's may not yet be ready, does anyone else know what I'm talking about and can point me to the site (maybe it wasn't a site, but was something that was sent)?

 

TIA

 

There is no website to pull the K-1 from. In my case, LAACZ actually sents me a letter to confirm how many units I own and if there are changes to my ownership. It is the only Lo to do so (others LP’s get this info from the broker where the units are with, but not with LAACZ). Then after a while, I get the K-1 per mail. So far, I have not received my K-1 yet this year.

[EricSchleien]

Did you have to email them with your contact information to get this letter? I was told by management that I had to but I'm wondering if they got your contact information through your broker and not with you manually.

 

Tax season question

 

I think in past years there was a website I could go to get LAACO unit-level K-1 information.  Understanding that 2018 K-1's may not yet be ready, does anyone else know what I'm talking about and can point me to the site (maybe it wasn't a site, but was something that was sent)?

 

TIA

 

There is no website to pull the K-1 from. In my case, LAACZ actually sents me a letter to confirm how many units I own and if there are changes to my ownership. It is the only Lo to do so (others LP’s get this info from the broker where the units are with, but not with LAACZ). Then after a while, I get the K-1 per mail. So far, I have not received my K-1 yet this year.

[Spekulatius]

Did you have to email them with your contact information to get this letter? I was told by management that I had to but I'm wondering if they got your contact information through your broker and not with you manually.

 

Tax season question

 

I think in past years there was a website I could go to get LAACO unit-level K-1 information.  Understanding that 2018 K-1's may not yet be ready, does anyone else know what I'm talking about and can point me to the site (maybe it wasn't a site, but was something that was sent)?

 

TIA

 

There is no website to pull the K-1 from. In my case, LAACZ actually sents me a letter to confirm how many units I own and if there are changes to my ownership. It is the only Lo to do so (others LP’s get this info from the broker where the units are with, but not with LAACZ). Then after a while, I get the K-1 per mail. So far, I have not received my K-1 yet this year.

 

I don’t recall, since I owned it for so long, but I believe I had to contact them. I also have to email them when I change the address etc., so I don’t think they get the info from my broker.

LAACZ is different from all the other LP that I own which will sent you a K-1 automatically, based on what your broker provided. LAACZ will not do that. I think they might do so, if you have the shares registered in your own name, since they mention ComputerShare.

[bobozou]

That's helpful, but to be clear the site/mailer I'm referring to does not provide an individual's k1 for laaco, but rather the theoretical k1 for a theoretical unitholder who owns a single theoretical unit.

 

I will reach out to company and report back, but if anyone else is also suffering from the same hallucination, please let me know.

[rkbabang]

I emailed them today and found out that I wasn't on their list to send a K-1 to.  This is what they replied to me:

 

From: Shirley Lee <Shirley.Lee@laaco.net>

Thank you for reaching out.  Based on our records, we haven’t previously received your information to set it up in our K-1 system to have a K-1 generated.  Please provide me with the following information so I can have your record setup.

 

·        Name, as units are held

·        Address, city, state, and zip

·        Tax ID

·        Number of units held with dates and counts of buys and sells

·        Telephone number

·        Email address

 

Please feel free to contact me if you have any questions.

 

Regards,

Shirley Lee

Property Accountant

LAACO, Ltd

213-260-9934

 

 

[bobozou]

Thanks that's helpful!

 

They also left a VM for me, indicating that they plan to send K-1 information to brokers 3/15/19 (I probably got the info from brokers in previous years)

[BG2008]

Anyone got their K-1 via their Broker today? I haven't seen anything via IB yet. 

[Spekulatius]

You will get the K-1 directly from the company. The brokers have nothing to do with it. They may even sent you a pdf of the K-1 via email, if you ask nicely.

[EricSchleien]

Any thoughts on this as a threat to the self-storage industry?

 

https://www.forbes.com/sites/samanthasharf/2019/02/20/softbank-leads-200-million-investment-in-storage-startup-clutter/#352b7ba6667d

[Spekulatius]

Interesting idea. I laugh anout this example  though:

With self-storage, if you want to store a sofa, you have to call up your friends and bribe them with pizza to help you on a Saturday,” Mir told Forbes in a 2017 profile. “You drive it to a facility, you return the U-Haul, take an Uber home, and your whole day is shot. With us, you just push a button.”

 

I have a much better idea: put the sofa in front of the house and hang a sign on it “Free”. You save a lot of money and hassle this way.

 

It’s also not too convenient to use clutter if you need to access your stuff from time to time. Then you got to make an appointment and wait for the forklift driver to pull your container from the warehouse. And if you don’t need access to your crap, why store it to begin with?

[DTEJD1997]

Any thoughts on this as a threat to the self-storage industry?

 

https://www.forbes.com/sites/samanthasharf/2019/02/20/softbank-leads-200-million-investment-in-storage-startup-clutter/#352b7ba6667d

 

I would have to fully think it through...but I think this is a solution looking for a problem.  Perhaps it is for trust fund millenials on the coasts?  I don't see this playing out too well in the Mid-West.

 

As another poster said, "just put it on the curb with a "FREE" sign".

 

I would also be curios to see how much money this concept is losing?  Of course, maybe the goal of the founders is to get something up & running and then off load it to "investors"?

[rkbabang]

And if you don’t need access to your crap, why store it to begin with?

 

A few years ago I closed on the house I was living in and rented an apartment for 3 months until I could close on my new house.  I rented a self storage unit for that time in-between houses.  We moved everything into storage then moved everything again into our new house 3 months later. This clutter service might have been good for that purpose.  It took us weeks to pack everything, and bring everything to the storage unit.  My wife and kids would pack during the day and we'd fill up the SUV and a utility trailer I have and run a load or two to the storage unit when I got home from work every night.  If I had an option of having someone just come and pick everything up for me and store it, I might have done that. 

 

But there are people who rent storage units long term and keep stuff in them that they don't need and keep adding to it.  I don't think in that case this Clutter business is much of a threat to regular self storage. I've never understood why people use these self storage facilities for long term storage, but for LAACO's sake I'm glad that they do.

 

[johnny]

The business model is straightforward: charge high urban mini-storage rates, lease cheap warehouse space that is on the periphery of town, and hope that the margin will pay for the insanely inefficient logistics operation.

 

I'm going to guess the numbers aren't great (how many of these new-economy urban logistics players are crushing it while keeping the price-to-the-customer at par?) As already mentioned, this is a pretty attractive solution to people who just need to dump stuff off for a few months. I have in fact used it for just that purpose when we took an overseas trip for a few months that coincided with a move. The total all-in cost of the storage for a few months was basically the same price as using professional movers. So rather than operating a less capital-intensive storage business, they were in fact operating a more capital intensive moving company. The adverse selection problem here is real.

 

Beyond that, we had problems at almost evetry conceivable stage of the process. Our scheduled appointment for pickup was cancelled the day before because of scheduling issues. That delayed things a few days. Once we took all items back, they continued to attempt to bill for the space. They clearly had all the normal problems companies have: "closers" on the phone who are less than meticulous about noting the various promises and generally sloppy with the truth, contract-labor on the ground that may be turning over so much that they're in a perpetual state of systems-training ong the job.

 

One reason I tried Clutter was because I was concerned about what it meant for StorageCos. I'm less concerned now than I was. I think Clutter is the sort of concept that presents well to investors because it appeals to exactly the sort of people who are not actually customers of the industry. Think of the Ron Johnson era at JC Penney. To me, the idea of eliminating coupons and dumping millions into store capex to create an elevated experience made a lot of sense. But it turns out the thing that I found repulsive was actually the very thing the core customer wanted, and making JC Penney slightly repulsive to me didn't convert me to a shopper (just a bagholder). In the case of storage, I think the average self-storage customer values the sense that they are in control of their stuff. They can go fondle it whenever they want, it'll be exactly where they put it, behind a big metal door with a big padlock that only they have the key to, etc. Even if they go years without doing it, they value the option.

 

I'm more concerned with the general proposition that self-storage utilizagion is super super concentrated in a special generation of USAmericans, and that it represents some impermanent cultural defect that may not sustain itself through the generations. I don't think Milennials are going to be using Clutter en masse, but I do think they're going to generally be less crow-like in amassing their collections of garbage.

[EricSchleien]

https://www.sparefoot.com/california-storage.html

[Spekulatius]

Interesting website above. I bought most of mymposition in LASCZ in 2012 and same store trends were just turning positive. It seems that trends were lagging economic trends which had turned positive way before self storage demand did after the recession.

 

Whether the millennials are really so different remains to be seen. As far as self storage is concerned, clutter is something that gets accumulated over time. Self storage demand also depends on mobility and an apartment dweller (Millenials have lower home ownerships than proof generations) have less storage available to them than homeowners. So it could work out either way. Whatever happens, trends will be very very slow to materialize and there will be time to adjust the business model.

 

Overbuilding of self storage is a much larger and immediate concern, as this asset class has become way more popular.

[lschmidt]

I still haven't received my K-1. Getting a bit late in the season. Wondering if others are in the same boat.

 

Anyone got their K-1 via their Broker today? I haven't seen anything via IB yet.

[BG2008]

I still haven't received my K-1. Getting a bit late in the season. Wondering if others are in the same boat.

 

Anyone got their K-1 via their Broker today? I haven't seen anything via IB yet.

 

E-Mail the CFO.  Call the company and ask for the CFO. I hope you provided your name and shares to them already. Be nice and explain that it is getting late and you're worried.  If you did not provide name and shares and when you bought them, it will get tricky.  I learned the hard way last year.