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Extra Space Storage (EXR) Down 4.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Extra Space Storage (EXR - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Extra Space Storage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Extra Space Storage Q3 FFO Meets, Revenues Top Estimates

Extra Space Storage’s third-quarter 2019 core FFO per share of $1.24 came in line with the Zacks Consensus Estimate. The figure also came in 3.3% higher than the prior-year quarter’s $1.20.

Results reflect growth in same-store NOI. Further, it witnessed higher net rental rates for customers amid headwinds from new supply. Though occupancy was near all-time highs, it remained flat with the same period in 2018. Also, the company experienced increases in marketing expenses and property taxes.

Quarterly revenues of $337.5 million climbed 10% year over year. The revenue figure also exceeded the Zacks Consensus Estimate of $332.7 million.

Behind the Headlines

Same-store rental revenues increased 3.3% year over year to $262.7 million during the third quarter, while same-store NOI was up 2.1% to $189 million. This upswing in same-store revenues stemmed from higher net rental rates for customers. Same-store square foot occupancy was 93.8% as of Sep 30, 2019, unchanged from the same period in 2018.

Notably, during the reported quarter, Cincinnati, Hawaii, Las Vegas, Norfolk/Virginia Beach, Oklahoma City and Phoenix were the major markets, which registered revenue growth above the company's portfolio average.

Nonetheless, markets, including Charleston, Denver, Houston, Miami, Tampa and West Palm Beach/Boca Raton, performed below the company's portfolio average.

Portfolio Activity

Extra Space Storage acquired one store at the completion of construction, for around $16.8 million. Moreover, in association with joint-venture partners, the company acquired three operating stores as well as completed one development for a total cost of about $29.3 million. Of this, the company invested $11.1 million.

Also, Extra Space Storage added 42 stores (gross) to its third-party management platform. As of Sep 30, 2019, the company managed 630 stores for third-party owners. Furthermore, with additional 247 stores owned in joint ventures, total stores under management summed 877.

Notably, on Aug 1, the company started leasing an additional five stores under its net lease agreements with W.P. Carey Inc. (WPC - Research Report) , denoting the second of three bunches of stores that will be leased to the company by W.P. Carey. So far, 27 of the 36 previously-disclosed net leases have started.

Balance Sheet

Extra Space Storage exited third-quarter 2019 with roughly $62.3 million of cash and cash equivalents, up from the $57.5 million recorded at the end of 2018. As of Sep 30, 2019, the company's percentage of fixed-rate debt to total debt was 77.2%. Notably, in July, it amended its unsecured credit facility, and enhanced borrowings by $500 million, to a total of up to $1.85 billion in aggregate borrowings.

During the September-end quarter, the company sold 849,200 shares of common stock using its ATM program at an average price of $119.30, for net proceeds of $100.1 million. Finally, as of Sep 30, 2019, Extra Space Storage had $298.6 million available for issuance under its ATM program.

Outlook

Extra Space Storage anticipates full-year 2019 core FFO per share of $4.84-$4.87. The company projects same-store revenue growth of 3-3.5% and same-store NOI growth of around 2.25-3% for the current year (excluding tenant reinsurance).
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Extra Space Storage has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Extra Space Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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