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Extra Space Storage (EXR) Q2 FFO Lags Estimates, Occupancy Falls
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Extra Space Storage Inc. (EXR - Free Report) reported second-quarter 2023 core funds from operations (FFO) per share of $2.06, which missed the Zacks Consensus Estimate of $2.14. Quarterly revenues of $511.4 million also lagged the Zacks Consensus Estimate of $524.9 million.
Results reflect lower-than-anticipated revenues on lower occupancy levels. Also, higher interest expenses were a dampener. The company revised its 2023 outlook.
EXR shares are down more than 7% in the initial hours of trading on the NYSE today.
On a year-over-year basis, while the core FFO per share declined 3.3%, revenues were up 7.7%.
According to Joe Margolis, CEO of Extra Space Storage, "We maintained strong occupancy of 94.5%, driving same-store revenue growth of 2.7% in the quarter, despite exceptionally difficult year over year comparables from pandemic highs. While property net operating income and Core FFO were both on budget in the quarter, we have revised our outlook for the back half of the year due to lower than expected new customer rates in June and July.”
EXR closed its merger with Life Storage, Inc. in an all-stock transaction on Jul 20. With the completion of the Life Storage Merger, Extra Space now possesses a portfolio of more than 3,500 locations, encompassing more than 270.0 million net rentable square feet, and operating under the Extra Space, Life Storage and Storage Express brands.
Quarter in Detail
Same-store revenues increased 2.7% year over year to $389.5 million in the second quarter. This uptick resulted from higher average rates to existing customers and a rise in other operating income, partly muted by lower occupancy. Same-store operating expenses increased 3% year over year to $91.4 million, reflecting an increase in marketing, insurance, property taxes and office expenses.
Consequently, same-store net operating income (NOI) increased 2.6% year over year to $298.1 million. The same-store square-foot occupancy contracted 130 basis points year over year to 94.5% as of Jun 30, 2023. Our estimate for the second-quarter occupancy was 94.4%.
In the second quarter, interest expenses significantly increased to $86.4 million from $47.5 million reported in the year-ago period.
Portfolio Activity
During the second quarter, Extra Space Storage acquired one operating store and two stores at the completion of construction for a total of $32.8 million.
The company added 54 stores (47 stores net) to its third-party management platform. As of Jun 30, 2023, it managed 978 stores for third parties and 323 stores in unconsolidated JVs, resulting in 1,301 total stores under management.
Balance Sheet
Extra Space Storage exited the second quarter of 2023 with $50.6 million of cash and cash equivalents, down from $92.86 million recorded as of Dec 31, 2022.
As of Jun 30, 2023, EXR's percentage of fixed-rate debt to total debt was 73.4%. The combined weighted average interest rate was 4.5%, with a weighted average maturity of around 5.1 years.
During the reported quarter, Extra Space Storage originated $68.6 million in mortgage and mezzanine bridge loans. It also sold $24.1 million in mortgage bridge loans.
In the second quarter, the company did not issue any shares under its at-the-market program and presently has $800 million available for issuance. Also, it did not repurchase any shares of common stock and had the authorization to buy up to an additional $337 million under the plan as of Jun 30, 2023.
2023 Guidance
Extra Space Storage revised its guidance for the current year.
It projects core FFO per share in the range of $8.15-$8.35 compared with the prior guidance of $8.30-$8.60. This is below the Zacks Consensus Estimate of $8.51.
The full-year guidance is based on the assumption of 2.5-3.5% growth in same-store revenues compared with the prior range of 3.75-5.25% and a 3.5-4.5% increase in same-store expenses compared with the prior guidance of 5-6%. Consequently, same-store NOI growth is projected in the band of 2-3.50% compared with the previous outlook of 3-5.5%.
However, EXR noted that as a result of the close timing between the Jul 20, 2023 Life Storage merger and the earnings release, the company’s details on initial and revised core FFO estimates and annual assumptions for the year ending Dec 31, 2023, excludes any influence from the Life Storage Merger.
Public Storage (PSA - Free Report) reported a second-quarter 2023 core FFO per share of $4.28, which increased 7.3% year over year. The core FFO per share, excluding the impact of PS Business Parks, was also $4.28, which rose 11.5% from the year-ago quarter’s tally. Both figures surpassed the Zacks Consensus Estimate of $4.20.
PSA’s results showed a better-than-anticipated top line. Public Storage also benefited from its expansion efforts through acquisitions, developments and extensions. It also revised its 2023 outlook.
Prologis (PLD - Free Report) reported a second-quarter 2023 core FFO per share of $1.83, beating the Zacks Consensus Estimate of $1.68. The figure also compared favorably with the year-ago quarter’s figure of $1.11.
Results of Prologis, which announced the acquisition of industrial properties from opportunistic real estate funds affiliated with Blackstone worth $3.1 billion in June, reflect robust leasing activity and solid rent growth. PLD also raised the midpoint of its 2023 core FFO per share guidance.
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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Extra Space Storage (EXR) Q2 FFO Lags Estimates, Occupancy Falls
Extra Space Storage Inc. (EXR - Free Report) reported second-quarter 2023 core funds from operations (FFO) per share of $2.06, which missed the Zacks Consensus Estimate of $2.14. Quarterly revenues of $511.4 million also lagged the Zacks Consensus Estimate of $524.9 million.
Results reflect lower-than-anticipated revenues on lower occupancy levels. Also, higher interest expenses were a dampener. The company revised its 2023 outlook.
EXR shares are down more than 7% in the initial hours of trading on the NYSE today.
On a year-over-year basis, while the core FFO per share declined 3.3%, revenues were up 7.7%.
According to Joe Margolis, CEO of Extra Space Storage, "We maintained strong occupancy of 94.5%, driving same-store revenue growth of 2.7% in the quarter, despite exceptionally difficult year over year comparables from pandemic highs. While property net operating income and Core FFO were both on budget in the quarter, we have revised our outlook for the back half of the year due to lower than expected new customer rates in June and July.”
EXR closed its merger with Life Storage, Inc. in an all-stock transaction on Jul 20. With the completion of the Life Storage Merger, Extra Space now possesses a portfolio of more than 3,500 locations, encompassing more than 270.0 million net rentable square feet, and operating under the Extra Space, Life Storage and Storage Express brands.
Quarter in Detail
Same-store revenues increased 2.7% year over year to $389.5 million in the second quarter. This uptick resulted from higher average rates to existing customers and a rise in other operating income, partly muted by lower occupancy. Same-store operating expenses increased 3% year over year to $91.4 million, reflecting an increase in marketing, insurance, property taxes and office expenses.
Consequently, same-store net operating income (NOI) increased 2.6% year over year to $298.1 million. The same-store square-foot occupancy contracted 130 basis points year over year to 94.5% as of Jun 30, 2023. Our estimate for the second-quarter occupancy was 94.4%.
In the second quarter, interest expenses significantly increased to $86.4 million from $47.5 million reported in the year-ago period.
Portfolio Activity
During the second quarter, Extra Space Storage acquired one operating store and two stores at the completion of construction for a total of $32.8 million.
The company added 54 stores (47 stores net) to its third-party management platform. As of Jun 30, 2023, it managed 978 stores for third parties and 323 stores in unconsolidated JVs, resulting in 1,301 total stores under management.
Balance Sheet
Extra Space Storage exited the second quarter of 2023 with $50.6 million of cash and cash equivalents, down from $92.86 million recorded as of Dec 31, 2022.
As of Jun 30, 2023, EXR's percentage of fixed-rate debt to total debt was 73.4%. The combined weighted average interest rate was 4.5%, with a weighted average maturity of around 5.1 years.
During the reported quarter, Extra Space Storage originated $68.6 million in mortgage and mezzanine bridge loans. It also sold $24.1 million in mortgage bridge loans.
In the second quarter, the company did not issue any shares under its at-the-market program and presently has $800 million available for issuance. Also, it did not repurchase any shares of common stock and had the authorization to buy up to an additional $337 million under the plan as of Jun 30, 2023.
2023 Guidance
Extra Space Storage revised its guidance for the current year.
It projects core FFO per share in the range of $8.15-$8.35 compared with the prior guidance of $8.30-$8.60. This is below the Zacks Consensus Estimate of $8.51.
The full-year guidance is based on the assumption of 2.5-3.5% growth in same-store revenues compared with the prior range of 3.75-5.25% and a 3.5-4.5% increase in same-store expenses compared with the prior guidance of 5-6%. Consequently, same-store NOI growth is projected in the band of 2-3.50% compared with the previous outlook of 3-5.5%.
However, EXR noted that as a result of the close timing between the Jul 20, 2023 Life Storage merger and the earnings release, the company’s details on initial and revised core FFO estimates and annual assumptions for the year ending Dec 31, 2023, excludes any influence from the Life Storage Merger.
Extra Space Storage currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Extra Space Storage Inc Price, Consensus and EPS Surprise
Extra Space Storage Inc price-consensus-eps-surprise-chart | Extra Space Storage Inc Quote
Performance of Other REITs
Public Storage (PSA - Free Report) reported a second-quarter 2023 core FFO per share of $4.28, which increased 7.3% year over year. The core FFO per share, excluding the impact of PS Business Parks, was also $4.28, which rose 11.5% from the year-ago quarter’s tally. Both figures surpassed the Zacks Consensus Estimate of $4.20.
PSA’s results showed a better-than-anticipated top line. Public Storage also benefited from its expansion efforts through acquisitions, developments and extensions. It also revised its 2023 outlook.
Prologis (PLD - Free Report) reported a second-quarter 2023 core FFO per share of $1.83, beating the Zacks Consensus Estimate of $1.68. The figure also compared favorably with the year-ago quarter’s figure of $1.11.
Results of Prologis, which announced the acquisition of industrial properties from opportunistic real estate funds affiliated with Blackstone worth $3.1 billion in June, reflect robust leasing activity and solid rent growth. PLD also raised the midpoint of its 2023 core FFO per share guidance.
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.