10-QPeriod: Q1 FY2009

Extra Space Storage Inc. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported its first quarter 2009 results, showing a significant increase in net income attributable to common stockholders, rising to $28.97 million from $5.67 million in the prior year quarter. This surge was largely driven by a substantial gain of $22.48 million from the repurchase of exchangeable senior notes. Total revenues also saw a healthy increase of 5.4% to $69.25 million, with property rental revenue up 4.2% and tenant reinsurance revenue showing a strong 32.8% jump, reflecting increased customer participation in the program. Despite a challenging economic environment, the company demonstrated resilience. Same-store rental revenues experienced a slight decrease of 0.1%, accompanied by a 0.5% dip in same-store net operating income, while occupancy also saw a modest decline. However, the company's strategic focus on expanding its management business and selective property acquisitions appears to be contributing to its overall revenue growth. The company also announced modifications to its 2009 dividend policy, opting not to distribute dividends in the second and third quarters and planning a fourth-quarter dividend primarily in stock, to maintain REIT distribution requirements.

Key Highlights

  • 1Net income attributable to common stockholders increased significantly to $28.97 million from $5.67 million in Q1 2008.
  • 2A substantial gain of $22.48 million was recognized from the repurchase of exchangeable senior notes.
  • 3Total revenues grew by 5.4% to $69.25 million, driven by property rental income and a strong increase in tenant reinsurance revenue.
  • 4Same-store rental revenues saw a slight decrease of 0.1%, and same-store net operating income declined by 0.5%, indicating some pressure on existing property performance.
  • 5Occupancy in same-store stabilized properties decreased to 81.3% from 83.7% in the prior year quarter.
  • 6The company drew down its entire $100 million line of credit by the end of the quarter, indicating a cautious approach to liquidity.
  • 7A new dividend policy was announced, with no second or third-quarter dividends and a primarily stock-based fourth-quarter dividend to meet REIT distribution requirements.

Frequently Asked Questions

The primary driver for the substantial increase in net income was a gain of $22.48 million realized from the repurchase of a portion of the company's exchangeable senior notes. This one-time gain significantly boosted the quarter's profitability.

In response to market conditions, Extra Space Storage fully utilized its $100 million line of credit by the end of the quarter, signaling a proactive stance on maintaining liquidity. The company also repurchased a significant amount of its exchangeable senior notes. The announced dividend policy modification, with a shift towards stock dividends, also aims to preserve cash.

For the same-store stabilized properties, rental revenues saw a minor decrease of 0.1%, and net operating income declined by 0.5%. Occupancy also decreased slightly from 83.7% to 81.3%. This indicates some headwinds in the performance of established properties, likely influenced by the broader economic conditions.

Extra Space Storage announced it will not pay dividends in the second and third quarters of 2009. For the fourth quarter, it expects to pay a dividend primarily in common stock (approximately 90%) with a small portion in cash, as permitted by IRS guidance for REITs to satisfy annual distribution requirements while conserving cash.