10-QPeriod: Q1 FY2018

Extra Space Storage Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 9, 2018For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported solid financial results for the first quarter ended March 31, 2018, demonstrating continued revenue growth and operational efficiency. Total revenues increased by 8.5% year-over-year to $285.5 million, driven by a 7.1% increase in property rental revenue, reflecting higher occupancy and rental rates, as well as contributions from recent acquisitions. The company also saw significant growth in its tenant reinsurance and management fees segments. Operationally, the company maintained strong performance with a 4.5% increase in same-store net operating income (NOI), indicating effective cost management and revenue enhancement strategies. While total expenses increased, a substantial portion was attributed to growth initiatives, including store acquisitions. The company's balance sheet remains robust, though it carries a significant amount of debt, managed through various financing instruments and hedging activities. EXR's strategic focus on expanding its property portfolio and optimizing rental rates positions it for continued growth, though investors should monitor interest rate sensitivity given its variable-rate debt exposure.

Financial Highlights

36 data points
Beta

Revenue

$285.49M

74.5% Gross Margin

Net Income

$88.26M

30.9% Net Margin

EPS (Diluted)

$0.70

Total Assets

$7.47B

Cash & Equivalents

$35.53M

Free Cash Flow

$171.61M

Financial Statements
Beta
Revenue$285.49M
Cost of Revenue$72.75M
Gross Profit$212.73M
Operating Expenses$151.57M
Operating Income$133.91M
Interest Expense$5.77M
Net Income$88.26M
EPS (Basic)$0.70
EPS (Diluted)$0.70
Shares Outstanding (Basic)125.77M
Shares Outstanding (Diluted)132.68M

Key Highlights

  • 1Total revenues increased by 8.5% to $285.5 million for the first quarter of 2018 compared to the same period in 2017.
  • 2Property rental revenue grew by 7.1% to $247.9 million, driven by higher occupancy, rental rates, and contributions from recent acquisitions.
  • 3Same-store net operating income (NOI) increased by 4.5%, demonstrating effective operational management within the existing portfolio.
  • 4The company acquired 5 stores in Q1 2018 and 46 stores in 2017, contributing to revenue growth.
  • 5Interest expense increased by 13.9% due to higher interest rates and an increased debt load.
  • 6The company's debt-to-enterprise value ratio was 27.9% as of March 31, 2018.
  • 7Net income attributable to common stockholders rose by 7.3% to $88.3 million, resulting in diluted EPS of $0.70, up from $0.64 in the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in property rental revenue, which rose 7.1% to $247.9 million. This was due to a combination of higher occupancy and rental rates at stabilized stores, as well as the impact of acquisitions completed in late 2017 and early 2018. Tenant reinsurance and management fees also contributed positively to the top-line growth.

Extra Space Storage Inc. utilizes interest rate swaps designated as cash flow hedges to manage its exposure to interest rate movements and add stability to its interest expense. As of March 31, 2018, the company had $1.2 billion in variable-rate debt, and a hypothetical 100 basis point increase in LIBOR could impact interest expense by approximately $11.7 million annually.

The company's growth strategy involves acquiring new self-storage properties and redeveloping existing ones. In the first quarter of 2018, EXR acquired 5 stores and had agreements to acquire an additional 26 stores. They also manage stores for third parties, expanding their operational footprint and revenue streams.

The 4.5% increase in same-store NOI for the first quarter of 2018 is a key indicator of the company's operational performance. It shows that the core, stabilized properties are generating more profit, driven by effective revenue management (higher rental rates) and controlled operating expenses, independent of the impact of new acquisitions or dispositions.