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Extra Space Storage (EXR) Q2 FFO Tops Estimates on NOI Growth

Zacks Equity Research

Extra Space Storage, Inc.’s EXR second-quarter 2019 core funds from operations (FFO) per share of $1.22 outpaced the Zacks Consensus Estimate of $1.19. The figure also comes in higher than the prior-year quarter’s $1.15.

Results reflect growth in same-store net operating income (NOI). Further, it witnessed higher rental rates for both new and existing customers.

Quarterly revenues of $323.6 million climbed 9% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $309.4 million.

Behind the Headlines

Same-store rental revenues increased 3.9% year over year to $258.3 million during the second quarter, while same-store NOI was up 3.9% to $186.3 million. The upswing in same-store revenues stemmed from higher net rental rates for both new and existing customers. However, same-store square foot occupancy was 93.6% as of Jun 30, 2019, down 60 basis points from 94.2% as of Jun 30, 2018.

Notably, during the reported quarter, Chicago, Hawaii, Las Vegas, Oklahoma City, Phoenix and Sacramento were the major markets, which registered revenue growth above the company's portfolio average.

Nonetheless, markets, including Charleston, Dallas, Denver, Houston, Miami and West Palm Beach/Boca Raton, performed below the company's portfolio average.

Portfolio Activity

Extra Space Storage acquired one store at the completion of construction and completed the development of one store, for a total investment of nearly $20.2 million, during the April-June period. Also, in combination with its joint-venture partners, the company acquired 11 operating stores for $228.5 million. Of this, the company has invested $36.6 million. Further, the company added 48 stores (on a gross basis) to its third-party management platform.

Moreover, it sold one store for $11.8 million during the quarter.

As of Jun 30, 2019, the company managed 595 stores for third-party owners. Furthermore, with additional 243 stores owned in joint ventures, total stores under management summed 838.

Balance Sheet

Extra Space Storage exited second-quarter 2019 with roughly $47.7 million of cash and cash equivalents, down from the $57.5 million recorded at the end of 2018. As of Jun 30, 2019, the company's percentage of fixed-rate debt to total debt was 75.5%.

During the reported quarter, Extra Space Storage entered into a new ATM equity distribution agreement that enabled the company to reset balance available for issuance under its ATM program to $500 million.

During the June-end quarter, the company sold 930,000 shares of common stock using its ATM equity program for net proceeds of $99.1 million. Finally, as of Jun 30, 2019, Extra Space Storage had $399.9 million available for issuance under its ATM equity program.

Outlook

Extra Space Storage anticipates full-year 2019 core FFO per share of $4.79-$4.87. The Zacks Consensus Estimate for the same is currently pegged at $4.82.

The company projects same-store revenue growth of 2.5-3.25% and same-store NOI growth of around 1.75-3% for the current year (excluding tenant reinsurance).

In Conclusion

Amid competitive summer leasing season, the company posted solid results which indicate decent growth in same-store NOI. This apart, accretive acquisitions, a strong third-party management platform and the company’s first net lease transaction significantly fueled external growth. During the quarter, the company added 61 stores to its platform through these transactions.

Extra Space Storage’s presence in key cities and strategic joint ventures will drive long-term profitability. However, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators, which is a concern.

Extra Space Storage currently carries 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 price-consensus-eps-surprise-chart | Extra Space Storage Inc Quote

Performance of Other REITs

Cousins Properties Incorporated CUZ reported second-quarter FFO per share (before TIER transaction costs) of 71 cents, missing the Zacks Consensus Estimate by a whisker. Nonetheless, the figure came in higher than the prior-year quarter’s reported tally of 60 cents.

SL Green Realty Corp. SLG delivered second-quarter 2019 FFO of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The tally includes promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. Results also compared favorably with the year-ago quarter’s tally of $1.69.

Crown Castle International Corp. CCI posted second-quarter adjusted AFFO per share of $1.48, up from the prior-year figure of $1.31. Furthermore, the reported figure outpaced the Zacks Consensus Estimate of $1.43.

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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