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Extra Space Storage (EXR) Q4 FFO Tops, Revenues Miss Estimates

Zacks Equity Research

Extra Space Storage, Inc.’s EXR fourth-quarter 2018 core funds from operations (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 net operating income (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.

For full-year 2018, the company reported core FFO per share of $4.67, up 6.6% from the prior year. This is backed by an 8.3% increase in revenues to nearly $1.2 billion.

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.


Extra Space Storage anticipates full-year 2019 core FFO per share of $4.73-$4.83. This is below the Zacks Consensus Estimate which is currently pegged at $4.87.

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.

In Conclusion

Although the better-than-expected performance of Extra Space Storage in terms of FFO per share is encouraging, we are disappointed with the revenue miss. The company enjoys presence in key cities and opts for strategic joint ventures to drive long-term profitability. Focus on expansion of its geographical footprint through accretive acquisitions and third-party management platforms bode well for Extra Space Storage. In addition, fragmented ownership in the self-storage industry offers scope for consolidation activities. Also, the company’s enhancement of its balance-sheet strength by amending and restating the senior unsecured credit facility is encouraging.

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

Extra Space Storage currently has a Zacks Rank #3 (Hold). 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, now, look forward to the earnings releases of other REITs like Public Storage PSA, Outfront Media Inc. OUT and American Tower Corporation AMT, which are slated to report their quarterly numbers next week.

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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