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Will Solid Demand Aid Extra Space Storage (EXR) Q3 Earnings?

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Extra Space Storage Inc. EXR is slated to report third-quarter 2018 results on Oct 30, after the market closes. The company’s results are expected to reflect year-over-year growth in revenues and funds from operations (FFO).

In the last reported quarter, this Salt Lake City, UT-based self-storage real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results reflect growth in same-store revenues and net operating income (NOI). Further, higher rental rates supported growth, though increased discounts partly offset the benefit.

Over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in two quarters and came in line in the other two, with an average beat of 1.6%. 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 Quote

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

Factors to Consider

Extra Space Storage, the second largest self-storage operator in the United States and the largest self-storage management company in the nation, has made concerted efforts to consistently grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services.

Over the past five years, Extra Space Storage acquired $4.5 billion in properties. The company gained an increased scale in several core markets on the back of these acquisitions as well as fortified its presence in a number of new markets. These acquisition and expansion initiatives are anticipated to stoke growth.

Moreover, the self-storage industry is estimated to experience solid demand backed by favorable demographic changes, improving job market and rising incomes. Amid these, in the soon-to-be-reported quarter, the company is likely to benefit from steady demand in the self-storage industry, and record growth in same-store revenues and NOI.

The Zacks Consensus Estimate of $267 million for property rental revenues reflects a sequential rise from the prior-quarter figure of $258 million. The estimate for management fees and other income is pegged at around $10.87 million, indicating a projected increase from $10.16 million reported in the previous quarter. Moreover, the Zacks Consensus Estimate for total revenues is pegged at $302.4 million, indicating a year-over-year rise of nearly 6.4%.

Nevertheless, Extra Space Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in many markets. This is likely to fuel competition for the company, curb its power to raise rents, and turn on more discounting.

Also, the Zacks Consensus Estimate for FFO per share for the to-be-reported quarter marginally moved south to $1.19, over the past month. Nonetheless, it indicates a year-over-year increase of 5.3%.

Here is what our quantitative model predicts:

Extra Space Storage has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Extra Space Storage is +0.14%.

Zacks Rank: Extra Space Storage carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other 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:

UDR Inc. UDR, scheduled to release earnings on Oct 29, has an Earnings ESP of +0.68% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower Inc. WELL, slated to release third-quarter results on Oct 30, has an Earnings ESP of +2.04% and a Zacks Rank of 3.
    
Public Storage PSA, set to report its quarterly numbers on Oct 30, has an Earnings ESP of +1.57% and a Zacks Rank #3.

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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