Extra Space Storage (EXR) Q2 FFO In Line, Revenues Up Y/Y

Extra Space Storage, Inc.’s EXR second-quarter 2018 core funds from operations (FFO) per share of $1.15 came in line with the Zacks Consensus Estimate. The figure also came in 5.5% higher than the prior-year quarter.

Results reflect growth in same-store revenues and net operating income (NOI). Further, higher rental rates supported growth, though increased discounts partly offset the benefit.

Quarterly revenues of $296.8 million climbed 7.5% year over year. Also, the revenue figure surpassed the Zacks Consensus Estimate of $294.9 million.

Behind the Headlines

Same-store rental revenues increased 4.1% year over year to $239.8 million during the second quarter, while same-store NOI climbed 3.8% to $173.8 million. The increase in same-store revenues was driven by higher rental rates for new and existing customers, but partly offset by increased discounts. Same-store square foot occupancy was 94.2% as of Jun 30, 2018, down 10 basis points from 94.3% as of Jun 30, 2017.

Notably, during the reported quarter, Atlanta, Hawaii, Indianapolis, Las Vegas and Los Angeles were the major markets, which recorded revenue growth above the company's portfolio average. However, markets, which performed below the company's portfolio average, included Charleston, Chicago, Dallas, Norfolk/Virginia Beach and West Palm Beach/Boca Raton.

Portfolio Activity

Extra Space Storage acquired three operating stores, and purchased its joint-venture (JV) partner's stake in 14 operating stores, for a total investment of around $238.6 million. Moreover, in combination with the JV partners, the company acquired five operating stores, seven stores at completion of construction, as well as completed one development for a total cost of about $201.2 million. Of this, the company invested $35.3 million.

Notably, as of Jun 30, 2018, the company managed 486 stores for third-party owners. Also, with additional 214 stores owned and operated in joint ventures, the company’s total stores under management reached 700.

Balance Sheet

Extra Space Storage exited the June-end quarter, with roughly $49.2 million of cash and cash equivalents, down from $55.7 million at the end of 2017. As of Jun 30, 2018, the company's percentage of fixed-rate debt to total debt was 72.8%.

In addition, following the quarter end, 343,251 shares of common stock were sold by the company using its ATM equity program, at an average sales price of $99.75 per share. This resulted in net proceeds of $33.9 million after deduction of offering costs. Finally, as of Jul 31, 2018, Extra Space Storage had $315.1 million available for issuance under its ATM equity program.

Outlook

Extra Space Storage revised its outlook for 2018. The company now anticipates core FFO per share in the band of $4.60-$4.67. The Zacks Consensus Estimate for the same is currently pegged at $4.62 and lies within the guided range.

The company projects same-store property revenue growth of 3.75- 4.25% and same-store property NOI growth of around 3.25- 4.50% for the current year.

In Conclusion

The healthy performance of Extra Space Storage in the second quarter is encouraging. The company focuses on expanding its geographical footprint through accretive acquisitions and third-party management platforms. It enjoys a presence in key cities and opts for strategic joint ventures to drive long-term profitability. Additionally, a solid balance sheet and fragmented ownership of its industry will likely be conducive to portfolio consolidation and strategic acquisitions.

Nevertheless, many of the company’s markets are witnessing an escalating supply of new self-storage space, which is anticipated to increase competition for the company, curb its power to raise rents and turn on more discounting.

Extra Space Storage currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We, now, look forward to the earnings releases of Lamar Advertising Company LAMR, Host Hotels & Resorts, Inc. HST and Outfront Media Inc. OUT, all of which are scheduled to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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