10-QPeriod: Q3 FY2010

Extra Space Storage Inc. Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 5, 2010For Securities:EXR

Summary

This 10-Q filing for Extra Space Storage Inc. (EXR) for the period ending September 30, 2010, reveals a company navigating a challenging economic environment. While total revenues saw a slight increase year-over-year for the quarter, driven by growth in management/franchise fees and tenant reinsurance, property rental revenue experienced a modest decline. This decline is largely attributed to the sale of properties to a joint venture and the deconsolidation of other properties due to accounting standard changes. The company's strategic focus remains on maximizing property performance through efficient management, expanding its management business, and selectively acquiring properties. Despite economic headwinds, Extra Space Storage is demonstrating resilience, with positive trends in same-store stabilized property performance and continued efforts to manage costs effectively. Financially, the company reported total liabilities decreasing compared to the previous year, largely due to a reduction in notes payable. Interest expense also saw a decrease, benefiting from debt repurchases and property deconsolidations. However, the company's cash and cash equivalents significantly decreased year-over-year, highlighting a focus on liquidity management and debt repayment. Investors should note the company's continued efforts to manage its debt structure and maintain compliance with loan covenants, alongside ongoing strategic initiatives to drive long-term value.

Financial Highlights

33 data points
Beta

Net Income

$7.67M

EPS (Diluted)

$0.09

Total Assets

$2.18B

Cash & Equivalents

$21.80M

Free Cash Flow

$28.66M

Financial Statements
Beta
Cost of Revenue$21.33M
Operating Expenses$48.42M
Operating Income$23.56M
Interest Expense$15.70M
Net Income$7.67M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)87.48M
Shares Outstanding (Diluted)92.19M

Key Highlights

  • 1Total revenues increased slightly to $71.98 million for the third quarter of 2010, up from $71.11 million in the same period of 2009, driven by growth in management/franchise fees and tenant reinsurance.
  • 2Property rental revenue decreased by 1.7% to $59.33 million for the quarter, primarily due to the sale of 19 properties to a joint venture and the deconsolidation of five properties.
  • 3Total expenses saw a marginal increase of 1.1% to $48.42 million for the quarter, with notable decreases in property operations and depreciation, offset by increases in general and administrative expenses.
  • 4Net income attributable to common stockholders increased to $7.67 million ($0.09 per share) for the quarter, up from $5.97 million ($0.07 per share) in the prior year.
  • 5Cash and cash equivalents decreased significantly to $21.80 million as of September 30, 2010, from $131.95 million at the end of 2009, reflecting active debt repayment and liquidity management.
  • 6The company maintained compliance with all financial covenants on its outstanding debt.
  • 7Same-store rental revenues increased by 3.9% for the quarter, indicating healthy performance from core, stabilized properties.

Frequently Asked Questions

The formation of the joint venture with Harrison Street on January 21, 2010, involved the contribution of 19 wholly-owned properties. This resulted in a decrease in property rental revenues and property operations expenses, as these properties are now accounted for under the equity method rather than being consolidated. While it reduced reported revenue, it also decreased related expenses and debt obligations.

The adoption of ASC 810 effective January 1, 2010, led to the deconsolidation of five joint ventures. This means these entities are no longer fully included in Extra Space Storage's consolidated balance sheet and income statement, impacting reported assets, liabilities, revenues, and expenses. Investments in these entities are now accounted for using the equity method.

Extra Space Storage is actively managing its debt, as evidenced by the decrease in total liabilities and notes payable. The company reported a significant decrease in cash and cash equivalents, suggesting a focus on repaying debt, including principal payments on notes payable and lines of credit. They are also exploring additional term loans secured by unencumbered properties and maintain compliance with all financial covenants.

Same-store rental revenues increased by 3.9% for the third quarter of 2010 compared to the prior year. This metric, which excludes acquisitions and completed developments, indicates that the company's core, stabilized properties are performing well. The increase is attributed to higher rental rates and improved occupancy, suggesting underlying operational strength despite broader economic challenges.