10-QPeriod: Q2 FY2020

Extra Space Storage Inc. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 6, 2020For Securities:EXR

Summary

Extra Space Storage Inc. (EXR) reported its financial results for the second quarter and first half of 2020, a period significantly impacted by the COVID-19 pandemic. Despite the challenging economic environment, the company demonstrated resilience, with total revenues slightly increasing year-over-year for the quarter and showing more substantial growth for the six-month period. Property rental revenue remained stable in the quarter but grew over the six months, while tenant reinsurance and management fees showed notable increases. The company managed its expenses effectively, though property operations and general administrative costs rose, partly due to recent acquisitions. Net income attributable to common stockholders saw a slight decrease in the quarter but an increase for the year-to-date period compared to 2019. Funds From Operations (FFO) attributable to common stockholders and unit holders remained strong, reflecting the underlying performance of the self-storage portfolio. The company maintained a solid balance sheet with significant real estate assets and managed its debt levels prudently. EXR's management highlighted its operational adaptability amidst the pandemic, including contactless rental processes and measures to protect employees and customers, while continuing strategic growth through acquisitions.

Financial Highlights

37 data points
Beta

Revenue

$327.25M

72.8% Gross Margin

Net Income

$102.91M

31.4% Net Margin

EPS (Diluted)

$0.80

Total Assets

$8.53B

Cash & Equivalents

$56.40M

Free Cash Flow

$202.82M

Financial Statements
Beta
Revenue$327.25M
Cost of Revenue$89.04M
Gross Profit$238.21M
Operating Expenses$177.25M
Operating Income$149.99M
Interest Expense$5.72M
Net Income$102.91M
EPS (Basic)$0.80
EPS (Diluted)$0.80
Shares Outstanding (Basic)128.93M
Shares Outstanding (Diluted)129.08M

Key Highlights

  • 1Total revenues increased by 1.1% to $327.2 million for the three months ended June 30, 2020, and by 3.9% to $659.7 million for the six months ended June 30, 2020, compared to the prior year periods.
  • 2Property rental revenue remained relatively stable for the quarter at $279.3 million but increased by 2.8% to $566.0 million for the six-month period, driven by acquisitions and growth at lease-up stores.
  • 3Tenant reinsurance revenue saw a significant increase of 10.7% to $35.1 million for the quarter and 11.7% to $68.7 million for the six months, largely due to an increase in the number of managed stores.
  • 4Net income attributable to common stockholders was $102.9 million for the quarter, a slight decrease from $104.8 million in the prior year, but increased to $211.1 million for the six-month period from $199.6 million.
  • 5Funds From Operations (FFO) attributable to common stockholders and unit holders was $166.8 million for the quarter and $338.1 million for the six months, demonstrating stable operational performance.
  • 6The company managed its debt effectively, with total debt to total enterprise value at 30.0% as of June 30, 2020, and a weighted average interest rate of 3.0% on its debt.
  • 7Extra Space Storage Inc. successfully navigated the initial impacts of the COVID-19 pandemic by implementing contactless rental processes and adapting operations to ensure employee and customer safety.

Frequently Asked Questions

The COVID-19 pandemic created instability, impacting the company through potential reductions in new rentals, lower rental rates, fewer customer rent increases, reduced late fee collections, and impaired ability to hold auctions, leading to higher accounts receivable and bad debt. However, EXR implemented contactless rental processes and other safety measures, and total revenues saw a slight increase for the quarter compared to the prior year, indicating resilience in its operations.

Property rental revenue was largely stable for the three months ended June 30, 2020, at $279.3 million, a slight decrease of 0.1% from the prior year. For the six months ended June 30, 2020, property rental revenue increased by 2.8% to $566.0 million, driven by store acquisitions completed in 2020 and 2019, and revenue increases at lease-up stores, partially offset by decreases in rental rates at stabilized stores.

As of June 30, 2020, Extra Space Storage had approximately $5.1 billion in total face value of debt, with a debt to total enterprise value ratio of 30.0%. The weighted average interest rate on its total debt was 3.0%. The company believes its operating cash flow, cash on hand, and available lines of credit are sufficient to meet its liquidity needs for the next 12 months, including operating expenses, debt service, capital expenditures, and dividends.

For the three months ended June 30, 2020, same-store rental revenues decreased by 3.1% due to lower net rental rates, late fees, and higher bad debt expense, while same-store operating expenses increased by 0.7%. For the six months, same-store revenues decreased by 0.6% and expenses increased by 2.3%, resulting in a 1.8% decrease in same-store Net Operating Income (NOI). Despite these challenges, the company continued to pursue strategic growth, with agreements to acquire additional stores and a commitment to maintaining its REIT qualification through distributions and dividends.