Extra Space Storage (EXR) Up 6.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Extra Space Storage (EXR). Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Extra Space Storage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Extra Space Storage Q4 FFO Lags Estimates, Occupancy Falls
Extra Space Storage reported fourth-quarter 2023 core FFO per share of $2.02, missing the Zacks Consensus Estimate by a penny. The figure declined 3.3% from the prior-year quarter.
The results reflected fall in occupancy. Higher interest expenses during the quarter were a spoilsport.
Quarterly revenues of $797.8 million beat the Zacks Consensus Estimate of $773.6 million. The top line jumped 57.4% year over year.
Per Joe Margolis, CEO of Extra Space Storage, “Turning to 2024, we anticipate stronger revenue growth from the Life Storage assets, which are benefiting from the sophistication of the Extra Space platform. While we expect a headwind from lower new customer rates, we are confident in the durability of self-storage, our highly diversified portfolio and our platform's ability to capture customer volume when sector demand accelerates.”
Quarter in Detail
Same-store revenues increased 0.8% year over year to $391.8 million in the fourth quarter. Same-store operating expenses rose 4% year over year to $93.4 million, reflecting an increase in marketing, insurance, payroll and benefits, repairs and maintenance, and office expenses. Consequently, same-store net operating income (NOI) decreased marginally (0.1%) year over year to $298.4 million.
The same-store square-foot occupancy contracted 110 basis points year over year to 93% as of Dec 31, 2023. Our estimate was pegged at 93.2%.
In the fourth quarter, interest expenses flared up to $129.7 million from $72.9 million a year ago.
Portfolio Activity
During the October-December quarter, Extra Space Storage acquired three operating stores and four stores at completion of construction for around $82.7 million.
In association with a joint-venture (JV) partner, the company acquired one operating store for approximately $25 million, of which it invested $1 million.
Extra Space Storage added 74 stores (55 stores net) to its third-party management platform. As of Dec 31, 2023, it managed 1,337 stores for third parties and 472 stores in unconsolidated JVs, with total stores under the management of 1,809.
Balance Sheet
Extra Space Storage exited 2023 with $99.1 million of cash and cash equivalents, up from $92.9 million recorded at the end of 2022.
As of Dec 31, 2023, EXR's percentage of fixed-rate debt to total debt was 73.4%. The combined weighted average interest rate was 4.6%, with a weighted average maturity of around 4.8 years.
During the reported quarter, Extra Space Storage originated $129.2 million in mortgage and mezzanine bridge loans. It also sold $43.9 million in mortgage bridge loans.
In the fourth quarter, the company did not issue any shares under its at-the-market program and presently has $800 million available for issuance. Also, it did not repurchase any shares of common stock and had the authorization to buy up to an additional $500 million under the plan as of Dec 31, 2023.
2024 Guidance
Extra Space Storage provided its initial 2024 outlook.
It expects core FFO per share in the range of $7.85-$8.15. The full-year guidance is based on the assumption of negative 2% to 0.5% growth in same-store revenues and a 4.0-5.5% increase in same-store expenses. Consequently, same-store NOI is projected in the band of negative 4.25-0.50%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Extra Space Storage has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Extra Space Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Extra Space Storage belongs to the Zacks REIT and Equity Trust - Other industry. Another stock from the same industry, Iron Mountain (IRM), has gained 6.3% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Iron Mountain reported revenues of $1.42 billion in the last reported quarter, representing a year-over-year change of +11%. EPS of $0.52 for the same period compares with $0.98 a year ago.
For the current quarter, Iron Mountain is expected to post earnings of $1.05 per share, indicating a change of +8.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Iron Mountain. Also, the stock has a VGM Score of F.
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