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Factors to Impact Extra Space Storage's (EXR) Q3 Earnings

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Extra Space Storage (EXR - Free Report) is slated to report third-quarter 2020 earnings on Nov 4, after the bell. The company’s quarterly results might display declines in revenues and funds from operations (FFO) per share year on year.

In the last reported quarter, this Salt Lake City, UT-based self-storage real estate investment trust (REIT) delivered a surprise of 6.03% in terms of FFO per share.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and met in the other, the average beat being 2.74%. The graph below depicts this surprise history:

Extra Space Storage Inc Price and EPS Surprise

Extra Space Storage Inc Price and EPS Surprise

Extra Space Storage Inc price-eps-surprise | Extra Space Storage Inc Quote

Let’s see how things have shaped up for this announcement.

Factors to Consider

In the third quarter, Extra Space Storage is likely to have benefited from its solid presence in key cities and measures to boost the company’s geographical footprint through accretive acquisitions and third-party management.

Moreover, the self-storage asset category is need-based and recession-resilient in nature. This asset class has low capital-expenditure requirements and generates high operating margins. Additionally, the self-storage industry continues benefiting from favorable demographic changes. Specifically, migration and downsizing trend, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at a storage facility to park their possessions.

However, the coronavirus pandemic has been wreaking havoc and the self-storage market too has not been immune to its crippling impact. There is a substantial reduction in demand for self-storage space, which is affecting move-in volumes despite lower move-in rental rates.

Furthermore, stress on customers’ financial capacity will likely result in rent-collection issues. As such, same-store rental revenues and net operating income are expected to be affected in the near term. Also, elevated property tax, payroll and marketing expenses is a concern.

Moreover, the company 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 several markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turned on more discounting during the quarter under consideration.

Management and franchise fees for the quarter are projected at $13.11 million, indicating a 0.8% year-over-year improvement. However, the Zacks Consensus Estimate of $283 million for quarterly property rental revenues suggests a decline of 2.7% year on year. The Zacks Consensus Estimate for third-quarter revenues of $330.6 million calls for a 2% decline year on year.

Extra Space Storage’s activities during the quarter were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been revised 1.7% upward to $1.23 in a month’s time. However, it suggests a 0.81% year-over-year decline.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Extra Space 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 a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Extra Space carries a Zacks Rank #2 and has an Earnings ESP of +0.53%.

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 too have the right combination of elements to report a positive surprise this quarter:

Lexington Realty Trust (LXP - Free Report) , set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

National Storage Affiliates Trust (NSA - Free Report) , slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +1.94% and carries a Zacks Rank of 2, at present.

Ventas, Inc. (VTR - Free Report) , scheduled to announce earnings results on Nov 6, has an Earnings ESP of +2.03% and carries a Zacks Rank of 3 at present.

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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