What's in Store for Extra Space Storage (EXR) in Q3 Earnings?
Extra Space Storage EXR, a leading self-storage real estate investment trust (REIT) in the United States, is set to release its third-quarter 2023 earnings on Nov 7 after market close. The company has been steadily expanding its footprint and diversifying its operations. As the market anticipates the earnings announcement, this article provides an in-depth preview of EXR’s expected performance in the third quarter of 2023, considering overall industry trends, the company's growth strategy and recent acquisitions.
In the last reported quarter, this Salt Lake City, Utah-based REIT reported a core FFO per share of $2.06, which missed the Zacks Consensus Estimate of $2.14. Results reflected lower-than-anticipated revenues on a fall in occupancy levels. Also, higher interest expenses were a dampener.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions for as many misses, the average negative surprise being 0.84%. The graph below depicts this surprise history:
Extra Space Storage Inc Price and EPS Surprise
Extra Space Storage Inc price-eps-surprise | Extra Space Storage Inc Quote
Factors to Consider
Extra Space Storage has adopted a multifaceted growth strategy, which includes strategic acquisitions, third-party management services and joint ventures. In recent years, the company has successfully executed numerous acquisitions that have expanded its portfolio, bolstered its market presence and generated additional value for its investors.
In the third quarter too, Extra Space Storage is likely to have continued to benefit from its solid presence in key cities and measures to boost its geographical footprint through accretive acquisitions and third-party management. In July 2023, EXR concluded the buyout of Life Storage, Inc. in an all-stock transaction. It has eventually emerged as the largest operator of self-storage properties in the United States.
In addition, EXR's ongoing focus on enhancing the customer experience through technology integration and improved operational efficiency is likely to strengthen its competitive advantage. High brand value and technological advantage are expected to have aided Extra Space Storage’s top and bottom lines in the quarter under consideration. Also, this REIT is likely to have maintained a healthy balance sheet position.
However, 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 high supply is likely to fuel competition, curb its power to raise rents and turn on more discounting. Also, the company noted that new customer rates did not improve meaningfully during the busy leasing months of June and July. Management expects year-over-year growth in the new customer rate to remain negative further into 2023.
Moreover, with the pandemic’s impact waning, the self-storage industry is witnessing an elevation in vacating activity, resulting in falling occupancy levels. Tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on rate growth in many markets. With a return of seasonality, rates and occupancy are likely to experience some pressure.
In the third quarter, we estimate same-store rental revenues to fall 1.7% year over year and operating expenses to decrease 0.8%. Consequently, same-store net operating income is expected to decline 1.9% year over year.
Also, a hike in the interest rate is a concern for Extra Space Storage. Rising rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate.
Projections for Q3
The Zacks Consensus Estimate of $512.41 million for quarterly property rental revenues suggests an increase from the prior quarter’s $440.75 million and the year-ago period’s $428.79 million. The consensus estimate for revenues from tenant insurance of $52.86 million suggests an increase from $48.43 million in the prior quarter and $47.87 million in the year-ago period.
Management and franchise fees for the quarter are projected at $24.77 million, calling for an increase from $22.21 in the prior quarter and $22.25 in the year-ago period. The Zacks Consensus Estimate of $522.24 million for quarterly revenues suggests a 4.7% increase year over year.
Extra Space Storage’s activities during the quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has moved a cent south to $2.03 in the past month. It also calls for an 8.14% year-over-year fall.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a 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 chances of an FFO beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Extra Space Storage currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.41%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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 came ahead of 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. It also raised its 2023 outlook.
American Tower Corporation's AMT third-quarter 2023 AFFO per share, attributable to AMT common stockholders, of $2.58 beat the Zacks Consensus Estimate of $2.35 and climbed 9.3% year over year. Results reflected better-than-anticipated revenues, aided by revenue growth across its Property segment. American Tower recorded healthy year-over-year organic tenant billings growth of 6.3% and total tenant billings growth of 7.3%. It also raised its outlook for 2023.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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