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What's in Store for Extra Space Storage (EXR) in Q4 Earnings?
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Extra Space Storage (EXR - Free Report) , a leading self-storage real estate investment trust (REIT) in the United States, is set to release its fourth-quarter and full-year 2023 results on Feb 27 after market close. The company has been steadily expanding its footprint and diversifying its operations. As the market anticipates the earnings announcement, this article provides an in-depth preview of EXR’s expected performance in the fourth quarter of 2023, considering overall industry trends, EXR's growth strategy and recent acquisitions.
In the last reported quarter, this Salt Lake City, Utah-based REIT reported a core FFO per share of $2.02, which missed the Zacks Consensus Estimate of $2.03. Results reflected a fall in occupancy levels. Also, higher interest expenses were a dampener.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion while missing in the other three periods, the average negative surprise being 1.30%. The graph below depicts this surprise history:
Extra Space Storage has adopted a multifaceted growth strategy, which includes strategic acquisitions, third-party management services and joint ventures. In recent years, the company has successfully executed numerous acquisitions that have expanded its portfolio, bolstered its market presence and generated additional value for its investors.
In the fourth quarter, too, Extra Space Storage is likely to have continued to benefit from its solid presence in key cities and measures to boost its geographical footprint through accretive acquisitions and third-party management. In July 2023, EXR concluded the buyout of Life Storage, Inc. in an all-stock transaction. It has eventually emerged as the largest operator of self-storage properties in the United States.
In addition, EXR's ongoing focus on enhancing the customer experience through technology integration and improved operational efficiency is likely to strengthen its competitive advantage. High brand value and technological advantage are expected to have aided Extra Space Storage’s performance in the quarter under consideration. Also, this REIT is likely to have maintained a healthy balance sheet position.
However, Extra Space Storage 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 many markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turn on more discounting. Further, the new customer rate is likely to have remained subdued in the fourth quarter of 2023.
With the pandemic’s impact waning, the self-storage industry is witnessing an elevation in vacating activity, resulting in falling occupancy levels. In the third quarter of 2023, Extra Space Storage’s same-store square-foot occupancy was 94.1%, contracting 100 basis points (bps) year over year. Tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on rate growth in many markets.
With a return to seasonality, rates and occupancy are likely to experience some pressure in the fourth quarter. We expect same-store occupancy to be 93.2% at the end of the fourth quarter of 2023. Also, a high interest rate is a concern for Extra Space Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate.
Projections
The Zacks Consensus Estimate of $678.66 million for quarterly property rental revenues suggests an increase from the prior quarter’s $650.89 million and the year-ago period’s $438.10 million. The consensus estimate for revenues from tenant insurance of $70.89 million suggests an increase from $69.13 million in the prior quarter and $47.44 million in the year-ago period.
Management and franchise fees for the quarter are projected at $30.86 million, calling for an increase from $28.02 in the prior quarter and $21.18 in the year-ago period. The Zacks Consensus Estimate of $773.59 million for quarterly revenues suggests a 52.67% increase year over year.
Extra Space Storage’s activities during the quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has remained unrevised at $2.03 in the past month. It also calls for a 2.87% year-over-year fall.
For 2023, Extra Space Storage expected core FFO per share in the range of $8.05-$8.20. The full-year guidance is based on the assumption of 2.75-3.50% year-over-year growth in same-store revenues and a 4-5% increase in same-store expenses. Consequently, same-store NOI growth is projected in the band of 2.25-3.25%.
For the full year, the Zacks Consensus Estimate for core FFO per share has been revised a cent upward to $8.13 over the past month. However, this indicates a 3.67% decrease from the year-ago reported figure. The Zacks Consensus Estimate for 2023 revenues is pegged at $2.51 billion, calling for an increase of 30.56% from the year-ago reported number.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Extra Space Storage 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 an FFO beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Extra Space Storage currently has a Zacks Rank of 3 and an Earnings ESP of +0.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Performance of Another REIT
Public Storage (PSA - Free Report) reported a fourth-quarter 2023 core FFO per share of $4.20, beating the Zacks Consensus Estimate of $4.15. The figure increased 1% year over year. Results showed a better-than-anticipated top line, aided by an improvement in the realized annual rent per available square foot in the reported quarter. The company also benefited from its expansion efforts through acquisitions, developments and extensions.
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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What's in Store for Extra Space Storage (EXR) in Q4 Earnings?
Extra Space Storage (EXR - Free Report) , a leading self-storage real estate investment trust (REIT) in the United States, is set to release its fourth-quarter and full-year 2023 results on Feb 27 after market close. The company has been steadily expanding its footprint and diversifying its operations. As the market anticipates the earnings announcement, this article provides an in-depth preview of EXR’s expected performance in the fourth quarter of 2023, considering overall industry trends, EXR's growth strategy and recent acquisitions.
In the last reported quarter, this Salt Lake City, Utah-based REIT reported a core FFO per share of $2.02, which missed the Zacks Consensus Estimate of $2.03. Results reflected a fall in occupancy levels. Also, higher interest expenses were a dampener.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion while missing in the other three periods, the average negative surprise being 1.30%. The graph below depicts this surprise history:
Extra Space Storage Inc Price and EPS Surprise
Extra Space Storage Inc price-eps-surprise | Extra Space Storage Inc Quote
Factors to Consider
Extra Space Storage has adopted a multifaceted growth strategy, which includes strategic acquisitions, third-party management services and joint ventures. In recent years, the company has successfully executed numerous acquisitions that have expanded its portfolio, bolstered its market presence and generated additional value for its investors.
In the fourth quarter, too, Extra Space Storage is likely to have continued to benefit from its solid presence in key cities and measures to boost its geographical footprint through accretive acquisitions and third-party management. In July 2023, EXR concluded the buyout of Life Storage, Inc. in an all-stock transaction. It has eventually emerged as the largest operator of self-storage properties in the United States.
In addition, EXR's ongoing focus on enhancing the customer experience through technology integration and improved operational efficiency is likely to strengthen its competitive advantage. High brand value and technological advantage are expected to have aided Extra Space Storage’s performance in the quarter under consideration. Also, this REIT is likely to have maintained a healthy balance sheet position.
However, Extra Space Storage 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 many markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turn on more discounting. Further, the new customer rate is likely to have remained subdued in the fourth quarter of 2023.
With the pandemic’s impact waning, the self-storage industry is witnessing an elevation in vacating activity, resulting in falling occupancy levels. In the third quarter of 2023, Extra Space Storage’s same-store square-foot occupancy was 94.1%, contracting 100 basis points (bps) year over year. Tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on rate growth in many markets.
With a return to seasonality, rates and occupancy are likely to experience some pressure in the fourth quarter. We expect same-store occupancy to be 93.2% at the end of the fourth quarter of 2023. Also, a high interest rate is a concern for Extra Space Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate.
Projections
The Zacks Consensus Estimate of $678.66 million for quarterly property rental revenues suggests an increase from the prior quarter’s $650.89 million and the year-ago period’s $438.10 million. The consensus estimate for revenues from tenant insurance of $70.89 million suggests an increase from $69.13 million in the prior quarter and $47.44 million in the year-ago period.
Management and franchise fees for the quarter are projected at $30.86 million, calling for an increase from $28.02 in the prior quarter and $21.18 in the year-ago period. The Zacks Consensus Estimate of $773.59 million for quarterly revenues suggests a 52.67% increase year over year.
Extra Space Storage’s activities during the quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has remained unrevised at $2.03 in the past month. It also calls for a 2.87% year-over-year fall.
For 2023, Extra Space Storage expected core FFO per share in the range of $8.05-$8.20. The full-year guidance is based on the assumption of 2.75-3.50% year-over-year growth in same-store revenues and a 4-5% increase in same-store expenses. Consequently, same-store NOI growth is projected in the band of 2.25-3.25%.
For the full year, the Zacks Consensus Estimate for core FFO per share has been revised a cent upward to $8.13 over the past month. However, this indicates a 3.67% decrease from the year-ago reported figure. The Zacks Consensus Estimate for 2023 revenues is pegged at $2.51 billion, calling for an increase of 30.56% from the year-ago reported number.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Extra Space Storage 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 an FFO beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Extra Space Storage currently has a Zacks Rank of 3 and an Earnings ESP of +0.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Performance of Another REIT
Public Storage (PSA - Free Report) reported a fourth-quarter 2023 core FFO per share of $4.20, beating the Zacks Consensus Estimate of $4.15. The figure increased 1% year over year. Results showed a better-than-anticipated top line, aided by an improvement in the realized annual rent per available square foot in the reported quarter. The company also benefited from its expansion efforts through acquisitions, developments and extensions.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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.