Extra Space Storage's (EXR) Q3 FFO Lags, '23 View Revised
Extra Space Storage Inc. EXR reported third-quarter 2023 core funds from operations (FFO) per share of $2.02, missing the Zacks Consensus Estimate by a whisker. The figure declined 8.6% from the prior-year quarter. Shares of the company witnessed a marginal loss on the Nov 9 normal trading session on the NYSE.
The results reflect better-than-anticipated revenues despite a fall in occupancy. Higher interest expenses during the quarter were a spoilsport. The company revised its outlook for 2023.
Quarterly revenues of $748.03 million beat the Zacks Consensus Estimate of $522.24 million. The top line jumped nearly 50% year over year.
Per Joe Margolis, CEO of Extra Space Storage, “Operationally, we maintained strong same-store occupancy in the quarter, averaging 94.4%, and increased same-store revenue 1.9%. We remain confident in the durable nature of self-storage and the strength of the Extra Space portfolio, which was enhanced through our recent merger with Life Storage.”
Quarter in Detail
Same-store revenues increased 1.9% year over year to $397.9 million in the third quarter. This uptick resulted from a rise in other operating income, partly muted by lower occupancy.
Same-store expenses rose 5.7% year over year to $98.3 million, reflecting an increase in marketing, insurance, property taxes and office expenses.
Consequently, same-store net operating income (NOI) increased marginally year over year to $299.6 million.
The same-store square-foot occupancy contracted 100 basis points year over year to 94.1% as of Sep 30, 2023. Our estimate was pegged at 94.2%.
In the third quarter, interest expenses flared up to $122.9 million from $56.2 million a year ago.
Portfolio Activity
On Jul 20, 2023, Extra Space Storage closed its merger with Life Storage, Inc. in an all-stock transaction valued at $11.6 billion. The move added more than 1,200 stores to the company’s platform, enhancing its scale and diversifying its presence further.
During the July-September quarter, Extra Space Storage acquired three operating stores for around $18.5 million in addition to the stores acquired through the Life Storage Merger.
In association with joint-venture (JV) partners, the company acquired two operating stores and one store at completion of construction for $44.3 million, of which it invested $10 million.
Extra Space Storage added 49 stores (43 stores net) to its third-party management platform in addition to the stores added through the Life Storage Merger. As of Sep 30, 2023, it managed 1,282 stores for third parties and 471 stores in unconsolidated JVs, with total stores under the management of 1,753.
Balance Sheet
Extra Space Storage exited the third quarter with $216.1 million of cash and cash equivalents, up from $50.6 million recorded as of Jun 30, 2023.
As of Sep 30, 2023, EXR's percentage of fixed-rate debt to total debt was 70.3%. The combined weighted average interest rate was 4.4%, with a weighted average maturity of around 4.7 years.
During the reported quarter, Extra Space Storage originated $78.8 million in mortgage and mezzanine bridge loans. It also sold $78.8 million in mortgage bridge loans.
In the third 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 $337 million under the plan as of Sep 30, 2023.
2023 Guidance Revised
Extra Space Storage revised its outlook for the current year, taking into account the impact of the Life Storage Merger.
It expects core FFO per share in the range of $8.05-$8.20, revised from the earlier guided range of $8.00-$8.25. The Zacks Consensus Estimate is currently pegged at $8.14, within expectations.
The full-year guidance is based on the assumption of 2.75-3.50% growth in same-store revenues compared with the prior range of 2.50-3.50% and a 4.0-5.0% increase in same-store expenses compared with the prior guidance of 3.5-4.5%. Consequently, same-store NOI growth is projected in the band of 2.25-3.25% compared with the previous outlook of 2.0-3.5%.
Extra Space Storage currently carries 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-eps-surprise-chart | Extra Space Storage Inc Quote
Performance of Other REITs
Public Storage PSA reported a third-quarter 2023 core FFO per share of $4.33, which increased 4.8% year over year and beat the Zacks Consensus Estimate of $4.21.
Results showed a better-than-anticipated top line, aided by an improvement in the realized annual rent per available square foot in the reported quarter. The company also benefited from its expansion efforts through acquisitions, developments and extensions. PSA raised its 2023 outlook.
Prologis, Inc. PLD reported third-quarter 2023 core FFO per share of $1.30, beating the Zacks Consensus Estimate of $1.26. The figure, however, declined 24.9% from the year-ago quarter.
The results of this industrial REIT reflect healthy rent growth. However, lower occupancy and higher interest expenses were undermining factors. PLD also raised the midpoint of its 2023 core FFO per share guidance by a cent.
Boston Properties Inc.’s BXP third-quarter 2023 FFO per share of $1.86 outpaced the Zacks Consensus Estimate of $1.85. However, the reported figure fell 2.6% year over year.
The quarterly results reflect better-than-anticipated revenues on healthy leasing activity. However, higher interest expenses during the quarter marred its year-over-year FFO per share growth. BXP revised its outlook for 2023 FFO per share.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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