10-QPeriod: Q1 FY2007

Extra Space Storage Inc. Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 9, 2007For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported strong performance for the quarter ended March 31, 2007, with total revenues increasing by 18.5% to $53.8 million, driven primarily by an 18.0% rise in property rental revenue. This growth was fueled by acquisitions completed in 2006 and early 2007, as well as rental rate increases at stabilized properties. The company also saw a significant 132.7% jump in tenant insurance revenue due to the implementation of a new captive insurance program. Net income for the quarter surged to $6.5 million, or $0.10 per diluted share, a substantial improvement from $0.7 million, or $0.01 per diluted share, in the prior year's quarter. This was supported by increased property rental income and a decrease in depreciation and amortization expenses, partly due to intangibles from the prior year's Storage USA acquisition being fully amortized. The company also benefited from a substantial increase in interest income from larger cash reserves, largely from the proceeds of a $250 million exchangeable senior notes issuance in March 2007.

Key Highlights

  • 1Total revenues increased by 18.5% to $53.8 million, driven by a strong 18.0% rise in property rental revenue.
  • 2Net income significantly improved, reaching $6.5 million ($0.10/share) compared to $0.7 million ($0.01/share) in the prior year's quarter.
  • 3The company issued $250 million in 3.625% Exchangeable Senior Notes on March 27, 2007, bolstering its cash position.
  • 4Property operations expenses rose by 14.6%, largely due to the inclusion of newly acquired properties.
  • 5Depreciation and amortization expenses decreased by 5.2%, primarily because of the amortization of intangibles from the 2005 Storage USA acquisition.
  • 6Funds From Operations (FFO) increased by 48.0% to $16.3 million, indicating strong operational performance.
  • 7Same-store rental revenues grew by 5.8%, showcasing effective management of existing properties.

Frequently Asked Questions

The primary driver of revenue growth was property rental revenue, which increased by 18.0% to $46.2 million. This growth was attributed to revenue from recently acquired properties and increases in rental rates and occupancy at existing stabilized properties.

The company significantly increased its debt by issuing $250 million in 3.625% Exchangeable Senior Notes on March 27, 2007. Total debt stood at approximately $1.24 billion by the end of the quarter, representing a debt-to-total capitalization ratio of 49.1%.

The company anticipates generally positive self-storage fundamentals to continue in its core markets and expects to increase revenues in 2007 over 2006 levels. However, they anticipate continued competition and note that property taxes are a primary driver of expense increases. They are focused on managing pricing and promotional strategies to drive rental activity and revenue growth.

For the three months ended March 31, 2007, the company recorded $223 in compensation expense related to stock options and $213 in compensation expense related to restricted stock grants. These represent costs associated with employee and director equity awards.