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Extra Space Storage (EXR) Up 9.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Noodles & Co. (NDLS) closed the most recent trading day at $7.03, moving -1.13% from the previous trading session.

A month has gone by since the last earnings report for Extra Space Storage (EXR). Shares have added about 9.1% 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 Tops, Revenues Miss Estimates

Extra Space Storage’s fourth-quarter 2018 core FFO per share of $1.22 outpaced the Zacks Consensus Estimate of $1.20. The figure also comes in 8.9% higher than the prior-year quarter.

Results reflect growth in same-store NOI. The company witnessed higher rental rates for both new and existing customers. However, the company expects additional pressure from new supply in 2019.

Quarterly revenues of $307.4 million climbed 9.1% year over year. However, the revenue figure missed the Zacks Consensus Estimate of $308.5 million.

Behind the Headlines

Same-store rental revenues increased 3.8% year over year to $242.8 million during the fourth quarter, while same-store NOI was up 4.4% to $178.4 million. The upswing in same-store revenues stemmed from higher rental rates for both new and existing customers. However, same-store square foot occupancy was 91.8% as of Dec 31, 2018, down 10 basis points from 91.9% as of Dec 31, 2017.

Notably, during the reported quarter, Atlanta, Hawaii, Indianapolis, Las Vegas, Los Angeles and Philadelphia were the major markets, which recorded revenue growth above the company's portfolio average. Nonetheless, markets, which performed below the company's portfolio average, included Charleston, Dallas, Miami, Washington D.C. and West Palm Beach/Boca Raton.

Portfolio Activity

Extra Space Storage acquired three operating stores and three stores at the completion of construction, for an aggregate investment of around $74.3 million, during the Oct-Dec period. Also, in combination with its joint-venture (JV) partners, the company acquired two operating stores and four Certificate of Occupancy stores, for $69.8 million. Of this, the company has invested $15.7 million.

As of Dec 31, 2018, the company managed 536 stores for third-party owners. Furthermore, with additional 233 stores owned and operated in joint ventures, the company’s total stores under management reached 769.

Balance Sheet

Extra Space Storage exited 2018 with roughly $57.5 million of cash and cash equivalents, marginally higher than $55.7 million recorded at the end of 2017. As of Dec 31, 2018, the company's percentage of fixed-rate debt to total debt was 74.1%.

Notably, in December, the company amended and restated its senior unsecured credit facility, increasing capacity by $200.0 million to a total of $1.4 billion. This facility includes a senior unsecured revolving credit facility of $650 million due January 2023, a senior unsecured term loan of $480 million due January 2024, as well as a senior unsecured term loan of $220 million due October 2023.

In addition, during the quarter, 590,538 shares of common stock were sold by the company using its ATM equity program, at average sales price of $96.87 per share. This resulted in net proceeds of $56.6 million after deduction of offering costs. Finally, as of Dec 31, 2018, Extra Space Storage had $257.9 million available for issuance under its ATM equity program.

Outlook

Extra Space Storage anticipates full-year 2019 core FFO per share of $4.73-$4.83. The company projects same-store revenue growth of 2-3% and same-store NOI growth of around 1.25-2.75% for the current year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Extra Space Storage has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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.



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