Extra Space (EXR) Q1 FFO Beats Estimates, Revenues Miss

Extra Space Storage Inc.’s (NYSE:EXR) first-quarter 2017 funds from operations (“FFO”) as adjusted per share of $1.03 surpassed the Zacks Consensus Estimate of 98 cents. The figure also came in 19.8% higher than 86 cents recorded in the prior-year quarter. Results reflect an improvement in same-store net operating income (NOI).

Quarterly revenues of $263.0 million climbed 14.6% year over year but narrowly missed the Zacks Consensus Estimate of $263.9 million.

Behind the Headlines

Same-store revenues were up 5.8% year over year to $206.6 million during the first quarter while same-store NOI climbed 9.2% to $148.9 million. The increase in same-store revenues was driven by higher rental rates for both new and existing customers as well as gains in occupancy. Same-store occupancy was 92.2% as of Mar 31, 2017, up 80 basis points from 91.4% as of Mar 31, 2016.

Notably, during the quarter, Las Vegas, Los Angeles, Orlando, Sacramento, and West Palm Beach/Boca Raton were the major markets which recorded revenue growth above the company's portfolio average. However, markets which performed below the company's portfolio average included Boston, Denver, Houston, New York City/Northern New Jersey and Washington, D.C./Baltimore.

Portfolio Activity

Extra Space Storage acquired two wholly-owned operating stores for a total purchase price of around $25.5 million. Also, the company purchased two stores at completion of construction with joint venture partners for a total of around $16.2 million.

Notably, as of Mar 31, 2017, the company managed 421 stores for third-party owners. Moreover, with an additional 182 stores owned and operated in joint ventures, the company’s total stores under management reached 603.

Balance Sheet

Extra Space Storage exited the first quarter with roughly $29.3 million of cash and cash equivalents, down from $43.9 million at the end of the prior-year quarter. As of Mar 31, 2017, the company's percentage of fixed-rate debt to total debt was 69.0%.

Further, the company had $349.4 million available for issuance under the existing equity distribution agreements as of Mar 31, 2017.

Outlook

For 2017, Extra Space Storage anticipates FFO as adjusted per share in the band of $4.21–$4.29. The Zacks Consensus Estimate for the same is currently pegged at $4.20. The company projects same-store property revenue growth of 4.00–5.00% and same-store property NOI growth of around 4.25–5.75% for the year.

In Conclusion

Extra Space Storage has a high brand value. Also, strategic acquisitions and robust presence in key cities serve as growth driver amid sound demand in the self-storage industry. However, increasing supply of self-storage units in certain markets and stiff competition remain concerns. Moreover, the rate hikes add to its woes.

Notably, shares of Extra Space Storage outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past three months. Over this time frame, the company’s shares logged in a return of 7.9% compared with 4.5% gain of the industry.

Extra Space Storage currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We are now looking forward to the earnings releases of Ventas, Inc. (NYSE:VTR) , Host Hotels & Resorts, Inc. (NYSE:HST) and GGP Inc. (NYSE:GGP) , all of which are expected to report in the upcoming days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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