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Factors to Impact Extra Space Storage (EXR) in Q3 Earnings

Zacks Equity Research

Extra Space Storage EXR is slated to report third-quarter 2019 results on Oct 29, after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Salt Lake City, UT-based self-storage real estate investment trust (REIT) delivered a positive surprise of 2.52% in terms of FFO per share. Results mirrored growth in same-store net operating income (NOI). Further, it witnessed higher rental rates for both new and existing customers.

Over the trailing four quarters, Extra Space Storage beat the Zacks Consensus Estimate on each occasion, the average positive beat being 1.70%. This is depicted in the graph below:

Extra Space Storage Inc Price and EPS Surprise
 

Extra Space Storage Inc Price and EPS Surprise

Extra Space Storage Inc price-eps-surprise | Extra Space Storage Inc Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

The self-storage real estate industry is expected to have remained healthy in the quarter with stable demand. This is likely to have been backed by favorable demographic changes, the downsizing trend and an encouraging labor market. Moreover, increase in the number of people renting homes has escalated the needs of consumers to rent space at a storage facility to park their possessions.

Amid these, with strategic presence in key cities, Extra Space Storage’s efforts to expand its geographical footprint through accretive acquisitions and third-party management are anticipated to have been beneficial for its third-quarter results.

Additionally, the self-storage sector remains an attractive asset class as it is basically need-based and recession-resilient in nature. The asset class’ low capital-expenditure requirements and ability to generate high operating margins is anticipated to have buoyed the company’s quarterly results.

In fact, management and franchise fees for the quarter are estimated to be around $11.87 million, indicating year-on-year growth of 17.3%. The Zacks Consensus Estimate of $282 million for property rental revenues suggests an improvement of 5.6% from the prior-year quarter’s reported figure of $267 million.

These, in turn, will likely be conducive to the year-over-year revenue growth by 8.4%, with the top line pegged at $332.7 million for the quarter.

However, Extra Space Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. Further, with attractive opportunities in the industry, developers have flocked to this asset class, prompting a surge in development activity. This high supply is likely to have fueled competition for the company during the quarter, curbing its power to raise rents and turn on more discounting.

Amid these, Extra Space Storage’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the third-quarter FFO per share remained unchanged at $1.24 in a month’s time. However, it indicates improvement of 3.3% from the year-ago quarter’s reported figure.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Extra Space Storage this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Extra Space Storage carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Ventas, Inc. VTR, scheduled to release earnings on Oct 25, has an Earnings ESP of +2.02% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. DLR, slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

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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