10-QPeriod: Q1 FY2012

Extra Space Storage Inc. Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 8, 2012For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported strong performance for the first quarter ended March 31, 2012, showcasing significant revenue growth and improved profitability. Total revenues surged by 22.2% year-over-year to $91.0 million, driven by a robust 23.3% increase in property rental income, attributed to a larger portfolio from recent acquisitions and improved occupancy and rental rates at stabilized properties. The company also saw notable growth in its tenant reinsurance business. Profitability improved substantially, with net income attributable to common stockholders more than doubling to $20.2 million, or $0.21 per diluted share, from $8.3 million, or $0.09 per diluted share, in the prior year's comparable quarter. Funds From Operations (FFO) also demonstrated strong growth, increasing by 41% to $33.1 million, or $0.33 per share. The company's balance sheet showed increased leverage with total debt rising, but a manageable debt-to-capitalization ratio of 32.4% was maintained. Management expressed confidence in their strategy of property maximization, strategic acquisitions, and expansion of their management business.

Financial Highlights

32 data points
Beta

Net Income

$20.21M

EPS (Diluted)

$0.21

Total Assets

$2.52B

Cash & Equivalents

$37.58M

Free Cash Flow

$40.79M

Financial Statements
Beta
Cost of Revenue$26.60M
Operating Expenses$58.22M
Operating Income$32.77M
Interest Expense$18.07M
Net Income$20.21M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)94.89M
Shares Outstanding (Diluted)99.93M

Key Highlights

  • 1Total revenues increased by 22.2% to $91.0 million for the first quarter of 2012 compared to the same period in 2011.
  • 2Property rental revenue grew by 23.3% to $75.8 million, driven by acquisitions and improved occupancy/rental rates.
  • 3Net income attributable to common stockholders more than doubled to $20.2 million ($0.21 per diluted share) from $8.3 million ($0.09 per diluted share).
  • 4Funds From Operations (FFO) saw a significant increase of 41% to $33.1 million ($0.33 per share).
  • 5Occupancy at stabilized properties improved to 86.1% as of March 31, 2012, up from 83.0% a year prior.
  • 6The company completed two property acquisitions in the first quarter of 2012.
  • 7Interest expense increased by 10.1% primarily due to increased average debt outstanding and accelerated recognition of deferred financing costs.

Frequently Asked Questions

The primary driver of revenue growth was a significant increase in property rental revenue, up 23.3% to $75.8 million. This growth was fueled by contributions from properties acquired in 2011 and early 2012, as well as improved occupancy rates (up to 86.1% at stabilized properties) and higher rental rates for both new and existing tenants.

Profitability saw a substantial improvement. Net income attributable to common stockholders more than doubled to $20.2 million from $8.3 million in the prior year's first quarter. Diluted earnings per share also doubled from $0.09 to $0.21.

As of March 31, 2012, Extra Space Storage had approximately $1.4 billion in total debt. The debt-to-capitalization ratio was 32.4%, considered manageable. The company's financing strategy involves continued use of leverage, with plans to fund future needs through operating cash flow, additional borrowings, joint ventures, and equity/debt offerings. Interest expense increased due to higher average debt levels and the acceleration of deferred financing costs.

Yes, the filing notes two significant subsequent events: the anticipated acquisition of Prudential Real Estate Investors’ 94.9% interest in the ESS PRISA III LLC joint venture (expected to close in July 2012) and a public offering of 8,050,000 shares of common stock that closed on April 20, 2012, to fund acquisitions, pay down debt, and for general corporate purposes.