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Extra Space Storage (EXR) Q1 FFO In Line, Revenues Grow Y/Y

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Extra Space Storage, Inc.’s EXR first-quarter 2018 core funds from operations (FFO) as adjusted per share of $1.09 was in line with the Zacks Consensus Estimate. The figure was also 5.8% higher than the prior-year quarter.

Results reflect growth in property-rental revenues and improvement in same-store net operating income (NOI). Further, higher rental rates supported growth.

Quarterly revenues of $285.5 million climbed 8.5% year over year. However, it missed the Zacks Consensus Estimate of $286.8 million.

Behind the Headlines

Same-store revenues increased 5.2% year over year to $234.1 million during the first quarter while same-store NOI climbed 4.5% to $167.2 million. The increase in same-store revenues was driven by higher rental rates for both new and existing customers. Same-store occupancy was 92.1% as of Mar 31, 2018, up 10 basis points from 92.0% as of Mar 31, 2017.

Notably, during the reported quarter, Atlanta, Indianapolis, Las Vegas, Los Angeles and Sacramento 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, Dallas, Houston, Virginia Beach and West Palm Beach.

Portfolio Activity

Extra Space Storage acquired three operating stores, one store at the completion of construction and it also purchased their joint-venture partners' interest in a store for a total investment of $69.9 million. Also, the company purchased one Certificate of Occupancy store and finished a development with joint-venture partners for $22.8 million, out of which the company’s shares were $14.9 million.

Notably, as of Mar 31, 2018, the company managed 456 stores for third-party owners. Moreover, with additional 216 stores owned and operated in joint ventures, the company’s total stores under management reached 672.

Balance Sheet

Extra Space Storage exited first-quarter 2018, with roughly $35.5 million of cash and cash equivalents, declining from $55.7 million at the end of 2017. As of Mar 31, 2018, the company's percentage of fixed-rate debt to total debt was 74.4%.

In addition, the company had $349.4 million available for issuance under the ATM program as of Mar 31, 2018.

Outlook

Extra Space Storage revised its outlook for 2018. The company now anticipates FFO as adjusted per share in the band of $4.57-$4.66. The Zacks Consensus Estimate for the same is currently pegged at $4.59.
The company projects same-store property revenue growth of 3.50-4.25% and same-store property NOI growth of around 3.25-4.50% for the year.

In Conclusion

We are encouraged by the performance of Extra Space Storage in the first quarter. We are also impressed with its focus on expanding  itsgeographical 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. Moreover, a solid balance sheet and fragmented ownership of its industry will likely prove conducive to portfolio consolidation and strategic acquisitions.

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

Extra Space Storage currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Extra Space Storage Inc Price, Consensus and EPS Surprise

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

We are now looking forward to the earnings releases of EPR Properties EPR, Jones Lang LaSalle Incorporated JLL and Realty Income Corporation O, all of which are scheduled to report their numbers on May 8.

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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