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Extra Space Storage Offers Private Placement of Senior Notes

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Extra Space Storage Inc. (EXR - Free Report) , along with its operating partnership subsidiary, has entered into a Note Purchase Agreement with various investors, for a private placement of 4.39% senior unsecured notes worth $300 million, to be issued by the operating partnership.  

The notes, subject to the fulfillment of customary closing conditions, are expected to be issued on Jul 17, 2018. The notes will mature on July 17, 2028, and pay semi-annual interests on Jan 17 and Jul 17 each year.All of these notes are guaranteed by Extra Space Storage.

The operating partnership intends to utilize the proceeds from this agreement to refinance its existing indebtedness.  The remaining proceeds from the issue will be channelized for general corporate purposes.

Per management, this move is a strategic fit to further ladder the company’s debt maturities, reduce secured debt and expand size of unencumbered pool of properties. Further, access to capital from various sources will improve diversity of its balance sheet and maintain an impressive growth trajectory.

The company exited first-quarter 2018 with lower liquidity as compared to Dec 31, 2017. In fact, its cash and cash equivalents of roughly $35.5 million was lower than $55.7 million reported at the end of 2017. Also, its percentage of fixed-rate debt to total debt was 74.4%. Hence, these efforts will strengthen its balance sheet.

Importantly, the above-mentioned move provides flexibility to the company and helps meet its financial obligations efficiently. This is because the unsecured note issuance offers capital at lower cost to the real estate investment trust (REIT). Furthermore, reduction of secured debt is anticipated to bring down the company’s annualized interest expenses significantly. The move will improve the company’s cash flow and alleviate its bottom-line pressure as well.

This Zacks Rank #3 (Hold) stock has outperformed the industry it belongs to over the past year.  In fact, the company’s shares have logged in a gain of 30.8% compared with 1.3% growth recorded by the industry.

Stocks Worth a Look

A few better-ranked stocks from the same space are Arbor Realty Trust (ABR - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Prologis, Inc. (PLD - Free Report) . While Arbor Realty sports a Zacks Rank of 1 (Strong Buy), Lamar and Prologis carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has risen 14.4% to $1.03 in a month’s time. Its shares have returned 17.5% over the past three months.

Lamar’s FFO per share estimates for the current year have moved 1.3% north to $5.34 in the past month. Its shares have gained 1.4% in a year’s time.

Prologis’ FFO per share estimates for 2018 have inched up 0.7% to $2.98 over the past month. Its shares have appreciated 16.4% over the past year.

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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