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Extra Space (EXR) Q2 FFO & Revenues Beat, Outlook Revised

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Extra Space Storage Inc.’s (EXR - Free Report) second-quarter 2017 funds from operations (“FFO”) as adjusted per share of $1.09 surpassed the Zacks Consensus Estimate of $1.05. The figure also came in 16.0% higher than 94 cents recorded in the prior-year quarter.

Results reflect growth in revenues and improvement in same-store net operating income (NOI). Further, acquisitions and third-party management platforms supported growth.

Quarterly revenues of $276.0 million climbed 13.0% year over year and also surpassed the Zacks Consensus Estimate of $271.8 million.

Extra Space Storage Inc Price, Consensus and EPS Surprise
 

Extra Space Storage Inc Price, Consensus and EPS Surprise | Extra Space Storage Inc Quote

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Behind the Headlines

Same-store revenues were up 5.2% year over year to $213.6 million during the second quarter, while same-store NOI climbed 7.7% to $155.8 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 94.4% as of Jun 30, 2017, up 70 basis points from 93.7% as of Jun 30, 2016.

Notably, during the quarter, Las Vegas, Los Angeles, Orlando, 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 one operating store and one store at completion of construction, for a total price of around $18.3 million. Also, the company purchased one Certificate of Occupancy store with a joint-venture partner for approximately $15.9 million.

Notably, as of Jun 30, 2017, the company managed 447 stores for third-party owners. Moreover, with an additional 183 stores owned and operated in joint ventures, the company’s total stores under management reached 630.

Balance Sheet

Extra Space Storage exited second-quarter 2017, with roughly $31.6 million of cash and cash equivalents, down from $43.9 million at the end of 2016. As of Jun 30, 2017, the company's percentage of fixed-rate debt to total debt was 76.1%.

In addition, the company had $349.4 million available for issuance under the ATM program as of Jun 30, 2017.

Outlook

Extra Space Storage revised its outlook for 2017. The company now anticipates FFO as adjusted per share in the band of $4.25–$4.32, against the prior guided range of $4.21–$4.29. The Zacks Consensus Estimate for the same is currently pegged at $4.25. The company projects same-store property revenue growth of 4.25– 5.00% and same-store property NOI growth of around 4.75–6.00% for the year.

In Conclusion

We are encouraged with the better-than-expected performance of Extra Space Storage in the second quarter. It has a high brand value. Additionally, strategic acquisitions and robust presence in key cities serve as growth drivers amid sound demand in the self-storage industry. Nevertheless, increasing supply of self-storage units in certain markets and stiff competition remain concerns. Moreover, the rate hikes add to its woes.

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 Regency Centers Corporation (REG - Free Report) , Outfront Media Inc. (OUT - Free Report) and Lamar Advertising Company (LAMR - Free Report) , all of which are expected to report quarterly numbers in the upcoming days.

Note:  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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