10-QPeriod: Q2 FY2016

Extra Space Storage Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 5, 2016For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported a strong second quarter of 2016, demonstrating robust revenue growth and improved operational performance. Total revenues increased by 31.4% year-over-year to $244.3 million, driven by a significant 31.5% rise in property rental income, attributed to both strategic acquisitions and improved occupancy and rental rates at stabilized stores. The company also saw growth in tenant reinsurance and management fees. Expenses also increased, largely due to the expanded portfolio from recent acquisitions, but the company managed to significantly improve its net income by 47.7% to $90.0 million for the quarter. Funds From Operations (FFO) also showed substantial growth, indicating strong operational cash generation. The company's balance sheet reflects continued investment in real estate assets, with total assets growing to $6.46 billion. Debt levels also increased to support this growth, with notes payable, net, rising to $2.99 billion. Despite the increased leverage, the company maintained compliance with its financial covenants, indicating a stable financial position. Investors should note the company's ongoing acquisition strategy, which is a key driver of its top-line growth, as well as its focus on optimizing rental rates and occupancy in its existing portfolio.

Financial Highlights

35 data points
Beta

Net Income

$83.04M

EPS (Diluted)

$0.66

Total Assets

$6.46B

Cash & Equivalents

$41.06M

Free Cash Flow

$144.20M

Financial Statements
Beta
Cost of Revenue$62.43M
Operating Expenses$133.97M
Operating Income$110.30M
Interest Expense$32.80M
Net Income$83.04M
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)124.91M
Shares Outstanding (Diluted)132.03M

Key Highlights

  • 1Total revenues increased by 31.4% to $244.3 million for the three months ended June 30, 2016, compared to $185.9 million in the prior year.
  • 2Property rental revenue saw a substantial increase of 31.5% to $211.8 million, driven by acquisitions and higher rental rates/occupancy.
  • 3Net income attributable to common stockholders grew by 49.7% to $83.0 million for the quarter, from $55.3 million in the prior year.
  • 4Funds from Operations (FFO) attributable to common stockholders increased by 34.2% to $120.9 million.
  • 5The company acquired 45 operating stores during the first six months of 2016, significantly expanding its portfolio.
  • 6Occupancy at wholly-owned stabilized stores increased to 93.6% at June 30, 2016, from 92.8% at June 30, 2015.
  • 7Total assets increased to $6.46 billion as of June 30, 2016, up from $6.07 billion as of December 31, 2015, reflecting growth in real estate assets.

Frequently Asked Questions

The primary driver of revenue growth is the company's strategic acquisition of new self-storage properties. In the first six months of 2016, EXR acquired 45 stores, and in 2015, they acquired 171 stores. This expansion, combined with increased occupancy and rental rates at existing stabilized properties, led to a 31.4% increase in total revenues year-over-year.

The company's total debt has increased to support its growth strategy. Notes payable, net, rose to $2.99 billion as of June 30, 2016. Despite this increase, EXR remained compliant with its financial covenants. The company expects to fund its ongoing liquidity needs through operating cash flow, existing cash, and further borrowings, indicating a continued reliance on debt to finance operations and acquisitions.

Extra Space Storage employs a proactive revenue management strategy. They leverage technology to adjust rental rates and discounts in real-time based on market conditions. The company also focuses on attracting new customers through online marketing and aims to retain existing tenants, who generally stay for extended periods. For stabilized stores, occupancy reached 93.6% by June 30, 2016, demonstrating effective execution of this strategy.

Yes, the company reported a significant gain on the purchase of joint venture partners' interests of $26.9 million during the six months ended June 30, 2016, stemming from a step acquisition. Additionally, a gain of $11.3 million was recognized on the sale of seven operating stores in April 2016. While these contribute to net income, investors should focus on the recurring revenue and operational improvements reflected in same-store results and Funds from Operations (FFO) for a clearer view of ongoing performance.