10-KPeriod: FY2017

Extra Space Storage Inc. Annual Report, Year Ended Dec 31, 2017

Filed March 1, 2018For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported robust performance for the fiscal year ended December 31, 2017. The company, a leading self-storage REIT, saw significant growth in total revenues driven by strategic acquisitions and increased rental rates at its stabilized properties. This growth reflects the company's ability to effectively manage its portfolio and respond to market conditions through its advanced revenue management systems. EXR's strong operational execution and expansion strategy, which includes acquiring new stores and developing existing ones, position it well for continued success in the fragmented self-storage industry. Financially, EXR maintained a solid balance sheet, though it incurred increased interest expense due to higher debt levels supporting its growth initiatives. The company also successfully managed its REIT status, a key factor for its tax structure and ability to distribute income to shareholders. Investors can look to EXR's consistent property rental revenue growth and strategic expansion as key drivers of future value, while remaining aware of the general real estate risks and interest rate sensitivity inherent in the sector.

Financial Highlights

39 data points
Beta

Revenue

$1.11B

75.4% Gross Margin

Net Income

$479.01M

43.3% Net Margin

EPS (Diluted)

$3.76

Total Assets

$7.46B

Cash & Equivalents

$55.68M

Free Cash Flow

$597.38M

Financial Statements
Beta
Revenue$1.11B
Cost of Revenue$271.97M
Gross Profit$833.03M
Operating Expenses$563.40M
Operating Income$654.39M
Interest Expense$24.41M
Net Income$479.01M
EPS (Basic)$3.79
EPS (Diluted)$3.76
Shares Outstanding (Basic)125.97M
Shares Outstanding (Diluted)134.16M

Key Highlights

  • 1Total revenues increased by 11.4% to $1.105 billion in 2017, driven by property rental revenue growth and acquisitions.
  • 2Property rental revenue increased by 11.9% due to acquisitions and a 4.0% increase in average annual rent per square foot for new leases and a 3.0% increase for existing customers at stabilized stores.
  • 3The company owned or operated 1,483 stores across 39 states, Washington D.C., and Puerto Rico, representing approximately 112 million square feet of net rentable space.
  • 4Net income attributable to common stockholders grew to $479.0 million, a significant increase from $366.1 million in 2016.
  • 5Funds From Operations (FFO) attributable to common stockholders and unit holders increased to $590.2 million.
  • 6The company expanded its portfolio by acquiring 46 operating stores in 2017 and continued to manage stores for third parties.
  • 7Debt levels increased to $4.6 billion, with a focus on managing interest rate risk through fixed and variable rate debt, and derivative instruments.

Frequently Asked Questions

Revenue growth was primarily driven by two factors: acquisitions of new self-storage properties, which expanded the company's portfolio, and increases in rental rates at its existing, stabilized properties. This reflects both strategic expansion and effective revenue management.

Extra Space Storage finances its operations and growth through a combination of cash generated from operations, revolving credit lines, secured and unsecured debt, equity offerings, and joint ventures. As of December 31, 2017, the company had approximately $4.6 billion in debt. While this leverage supports growth, it also exposes the company to interest rate risk, as a 100 basis point increase in LIBOR could impact annual interest expense by approximately $11.6 million.

The company's long-term growth strategy focuses on maximizing the performance of its existing stores through strategic management and technology, acquiring self-storage stores that meet its criteria, and expanding its management business. It also actively develops new stores and acquires properties at the completion of construction.

The Tax Cuts and Jobs Act of 2017 introduced several changes, including a reduction in the corporate tax rate to 21%. For REIT stockholders, it allows for a deduction of up to 20% of ordinary REIT dividends. While the act offers potential benefits, it also introduces complexities and areas requiring further guidance from the IRS and Treasury, which the company is actively analyzing.