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What to Expect From Extra Space Storage (EXR) Q1 Earnings?

Zacks Equity Research

Extra Space Storage EXR is slated to report first-quarter 2019 results on Apr 30, after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Salt Lake City, UT-based self-storage real estate investment trust (REIT) delivered a positive surprise of 1.67% in terms of FFO per share. Results mirrored growth in same-store net operating income. The company witnessed higher rental rates for both new and existing customers.

Over the trailing four quarters, Extra Space Storage exceeded the Zacks Consensus Estimate in two quarters and came in line in the other two, the average beat being 0.63%. This is depicted in the graph below:

Extra Space Storage Inc Price and EPS Surprise
 

Extra Space Storage Inc Price and EPS Surprise | Extra Space Storage Inc Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

The self-storage real estate industry is expected to have remained healthy in the quarter backed by demand from the downsizing trend, an encouraging labor market, declining home ownership and the resultant increase in the number of people renting homes.

Amid these key demand catalysts, Extra Space Storage seems well poised to have capitalized on the trends with a high-quality portfolio of branded stores in high-income regions of the United States in the quarter.

In fact, the company has been making concerted efforts to consistently grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint ventures and third-party management services.

Particularly, over the past five years, Extra Space Storage acquired $4.6 billion in properties. Through these efforts, the company gained an increased scale in several core markets, and fortified its presence in a number of new markets. We anticipate these efforts to boost its first-quarter performance.

Moreover, banking on brand value and operational expertise, the company continues to fortify its higher-margin third-party management business.

In fact, for the quarter, management and franchise fees are estimated to be around $11.5 million, indicating sequential growth of 5.9%. The Zacks Consensus Estimate of $266 million for property rental revenues implies an improvement from the prior-year reported figure of $248 million.

These, in turn, will likely be conducive to 9% year-over-year revenue increase, with the top line pegged at $311.25 million for the quarter.

However, Extra Space Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in many markets. In fact, this year, the impact of new supply is likely to be high because of the aggregate impact of several years of elevated development. This high supply is likely to fuel competition for the company, curb its power to raise rents and turn on more discounting.

Additionally, as the company leases space on a month-to-month basis, its leasing activity is expected to be under pressure in case the storage units are not re-let promptly or if rates upon re-letting fall substantially.

Amid these, Extra Space Storage’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the first-quarter FFO per share remained unchanged at $1.14 in a month’s time. However, it indicates improvement of 4.6% from the year-ago reported figure.

Earnings Whispers

Our proven model does not show that Extra Space Storage is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Extra Space Storage’s Earnings ESP is -0.66%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:
   
Digital Realty Trust, Inc. DLR, slated to release first-quarter earnings on Apr 25, has an Earnings ESP of +1.27% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to report quarterly numbers on Apr 29, has an Earnings ESP of +0.30% and holds a Zacks Rank #2.

Public Storage PSA, set to release results on May 1, has an Earnings ESP of +0.75% and carries a Zacks Rank of 3.

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

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