Extra Space (EXR) Surpasses Q4 FFO Estimates, Revenue Up Y/Y

Extra Space Storage, Inc.’s (NYSE:EXR) fourth-quarter 2017 core funds from operations (FFO) as adjusted per share of $1.12 handily surpassed the Zacks Consensus Estimate of $1.08. The figure also came in 8.7% higher than $1.03 recorded in the prior-year quarter.

Results reflect growth in property-rental revenues and improvement in same-store net operating income (NOI). Further, higher occupancy and rental rates supported growth.

Quarterly revenues of $281.8 million climbed 8% year over year. However, it missed the Zacks Consensus Estimate of $283.7 million.

For full-year 2017, the company reported FFO per share of $4.38, higher than the prior-year figure of $3.85. Further, revenue of $1.11 billion for full-year 2017 came in higher than the prior-year quarter figure of $991.9 million.

Behind the Headlines

Same-store revenues were up 4.9% year over year to $210.8 million during the fourth quarter, while same-store NOI climbed 5.7% to $154.9 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 91.9% as of Dec 31, 2017, up 40 basis points from 91.5% as of Dec 31, 2016.

Notably, for 2017, Hawaii, Las Vegas, Los Angeles, Phoenix and Sacramento 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, Dallas, Denver and Houston.

Portfolio Activity

Extra Space Storage acquired 24 operating stores, eight stores at the completion of construction and it also purchased their joint-venture partners' interest in six stores for a total investment of around $500.5 million. Also, the company purchased three Certificate of Occupancy stores with a joint-venture partner for $46.6 million, out of which the company’s share was $11.8 million.

Notably, as of Dec 31, 2017, the company managed 422 stores for third-party owners. Moreover, with additional 215 stores owned and operated in joint ventures, the company’s total stores under management reached 637.

Balance Sheet

Extra Space Storage exited fourth-quarter 2017, with roughly $55.7 million of cash and cash equivalents, up from $43.9 million at the end of 2016. As of Dec 31, 2017, the company's percentage of fixed-rate debt to total debt was 74.7%.

In addition, the company had $349.4 million available for issuance under the ATM program as of Dec 31, 2017.

Outlook

Extra Space Storage provided its outlook for 2018. The company anticipates FFO as adjusted per share in the band of $4.55-$4.65. The Zacks Consensus Estimate for the same is currently pegged at $4.48. The company projects same-store property revenue growth of 3.25-4.25% and same-store property NOI growth of around 3-4.5% for the year.

In Conclusion

We are encouraged by the better-than-expected performance of Extra Space Storage in the fourth quarter. We are also impressed with its focus on the expansion of its geographical footprint through accretive acquisitions and third-party management platforms.

It enjoys presence in key cities and opts for strategic joint ventures to drive long-term profitability. Moreover, a solid balance sheet and fragmented ownership of its industry will likely prove conducive to portfolio consolidation and strategic acquisitions.

However, the company is likely to be affected by the development boom going forward. In fact, many of its markets are witnessing an escalating supply of new self-storage space and this is anticipated to fuel competition for the company, curb its power to raise rents and turn on more discounting.

Extra Space Storage Inc Price, Consensus and EPS Surprise

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 Lamar Advertising Co. (NASDAQ:LAMR) , EPR Properties (NYSE:EPR) and Outfront Media Inc. (NYSE:OUT) , all of which are expected to report in the upcoming days.

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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