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What's in Store for Extra Space Storage's (EXR) Q4 Earnings?

Zacks Equity Research

Extra Space Storage Inc. EXR is slated to report fourth-quarter 2018 results on Feb 20, after the market closes. The company’s quarterly 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 better-than-expected results in terms of FFO per share that came in at $1.2, surpassing the Zacks Consensus Estimate by a whisker. Results reflected 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 average positive beat of 1.1%. 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

Operating performance of self-storage REITs is expected to have remained upbeat for the Dec-end quarter. As for Extra Space Storage, the company is expected to have gained from the trend toward downsizing, an encouraging labor market, declining home ownership and the resultant increase in the number of people renting homes.

Amid these key demand catalysts, Extra Space Storage seems well poised to have capitalized on the trends with a high-quality portfolio of branded stores in high-income regions of the United States.

In addition, the company continues to grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. In the quarter under review, we anticipate these strategic efforts to boost its performance.

In fact, banking on brand value and operational expertise, the company continues to fortify its higher-margin third-party management business.

In fact, the estimate for management and franchise fees is pegged at around $10.7 million, indicating projected sequential growth of 5.3%. The Zacks Consensus Estimate of $268 million for property rental revenues reflects an improvement from the prior-year’s $246 million.

These, in turn, will likely be conducive to the 8.1% year-over year revenue increase, pinned at $304.7 million, for the Oct-Dec quarter.

However, flurry of development activities might have led to higher supply of self-storage units in many of the company’s markets. This is likely to fuel competition, curbing Extra Space Storage’s pricing power. Amid these, the company may have to resort to discounting for new leases, going ahead.

Additionally, since the company leases space on a month-to-month basis, its leasing activity is expected to be under pressure, in case, the storage units are not re-let promptly or if rates upon re-letting fall substantially.

In fact, Extra Space Storage’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the fourth-quarter FFO remained unchanged at $1.2 in a month’s time. In addition, it indicates improvement of 7.1% on a year-over-year basis.

Earnings Whispers

Our proven model does not conclusively show that Extra Space Storage is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

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

Earning ESP: Extra Space Storage’s Earnings ESP is -0.89%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Hersha Hospitality Trust HT, slated to report fourth-quarter results on Feb 25, has an Earnings ESP of +3.81% and holds a Zacks Rank of 2.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

CubeSmart CUBE, set to release earnings on Feb 21, has an Earnings ESP of +1.24% and carries a Zacks Rank of 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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