Outlook for 2017

Extra Space (EXR) raised its same-store revenue expectations by 25 basis points to 4.5%–5.0%. The West Coast, Orlando, Las Vegas, and West Palm Beach have been its strongest performers.

Year-to-date, the company’s expenses have been below budget, and its annual expense expectations have reduced to ~1.3%–1.8%. This trend led to an increase in annual NOI (net operating income) of ~5.8%–6.5%.

Extra Space’s Diversified Portfolio Led Its Strong Performance

Strong performance in 3Q17 led to an increase in its fiscal 2017 FFO (funds from operation) outlook from $4.32 to $4.35 per share. This guidance also includes $0.07 of dilution from certificate of occupancy stores and $0.08 from value-added acquisitions.

Portfolio strengths

EXR holds 1,513 properties covering 114 million square feet. Of these properties, 844 are wholly owned, 184 are in the form of joint ventures, and 485 are managed for others.

The company has properties in Texas, California, Florida, Hawaii, the Midwest, and the Northeast. EXR has acquired more properties than any self-storage REIT, totaling $4.8 billion in the last five years.

Self-storage sector

Self-storage is a need-based and resilient sector that can have high operating margins along with low capital expenditures. The scale of assets and the solid tenant base reduces volatility as well as tenant and market risk.

Public Storage (PSA) has the largest market cap of ~$33.7 billion, and EXR has the second-largest market cap of ~$10.7 billion. The top four comprise ~$70.0 billion in market capitalization, and there is a large opportunity for these REITs to consolidate.

Apart from EXR, the self-storage sector comprises five other publicly traded REITs—CubeSmart (CUBE), Global Self Storage (SELF), Life Storage (LSI), National Storage Affiliates (NSA), and Public Storage (PSA). EXR forms ~2.0% of the Real Estate Select Sector SPDR ETF (XLRE).

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