Source: NoDerog/E+ via Getty Images The $38 Billion Business of Storing Your Junk Is Getting Tougher

Life Storage Inc. has reached an agreement with activist investor Jonathan Litt that could make the storage-facilities owner a takeover target as rents in the business come under pressure.

The company said in a statement that its co-founders had informed the board of their plans to retire after this year’s annual general meeting. Life Storage’s chief executive officer, David Rogers, will join the board, along with Dana Hamilton, head of real estate at Pretium Partners LLC, and Edward Pettinella, former CEO of Home Properties Inc.

Shares of Life Storage were down 1.1 percent in New York as of 3 p.m., at $80.87 apiece.

The changes were more likely made to improve the board than to put the Buffalo, New York, company in play, said George Hoglund, a New York-based analyst with Jefferies. Still, he noted that the company has been underperforming its peers and may need to consider alternatives if it can’t right the ship.

Go Time

It’s “time for these guys to put up or shut up,” Hoglund said in an interview. “If they don’t start getting better numbers by midyear, the board may be forced to do some sort of strategic review.”

Self-storage REITs surged coming out of the recession as a wave of foreclosures created new customers for storage units and a pause in construction limited supply and let landlords increase rents. The U.S. self-storage industry today takes in annual revenue of $38 billion, according to SpareFoot. Now that builders are catching up with demand, though, landlords are having a harder time raising rates.

Litt’s Land & Buildings Investment Management LLC, which owns a stake of about 1.8 percent in Life Storage, believes the company is both underperforming and undervalued, according to people with knowledge of the matter. Life Storage could be an attractive takeover target for some of its larger rivals, such as Public Storage and Extra Space Storage Inc., the people said, asking not to be identified because the discussions aren’t public.

“The changes to the board increase independence and remove what we previously viewed to be a potential impediment to a transaction,” said Todd Thomas, an analyst with KeyBanc Capital Markets Inc.

The retiring co-founders are Robert Attea and Kenneth Myszka. There will be eight people on the board after the changes.

Representatives of Life Storage and Land & Buildings declined to comment.

Pricing Power

Hamilton and Pettinella, the two joining the board, have been involved in some big deals. Hamilton was appointed to the board of FelCor Lodging Trust Inc. as part of a pact with Land & Buildings in April 2016; the real estate investment trust agreed to be acquired by RLJ Lodging Trust the following year. Pettinella was leading Home Properties when it was acquired in 2015.

They face a challenge in improving Life Storage’s performance. Across the industry, the amount that new customers paid to rent a space in the U.S. increased 1.5 percent in the fourth quarter from a year earlier, according to data from Green Street Advisors LLC. That compares with 1.4 percent in the same period of 2016 and 7.1 percent in the last three months of 2015, when supply was tighter.

Developers of self-storage facilities continue to be bullish. Builders spent just under $4 billion erecting new facilities last year, double what they spent in 2016, according to census data.

Life Storage owned or managed more than 700 storage facilities as of the end of last year, including properties that had previously operated under the Uncle Bob’s Self Storage brand.