Can Extra Space Storage Beat Analysts’ Q2 Estimates?

Second-quarter estimates

Extra Space Storage (EXR) is set to report its second-quarter results on July 31. Analysts expect its second-quarter AFFO (adjusted funds from operations) to rise 5.5% YoY (year-over-year) to $1.15 due to strong demand in the self-storage space and Extra Space’s strategic initiatives enhancing traffic and driving occupancy rates.

Can Extra Space Storage Beat Analysts’ Q2 Estimates?

Drivers in Q2 2018

Analysts believe that Extra Space could continue to benefit from self-storage demand rising, as many US households, students, and businesses are finding self-storage to be a more reliable and cost-effective way to store items. As reported by Investment Bank, IBISWorld expects the self-storage industry’s revenue to grow 2.9% annually to reach $32.6 billion by 2020 from $30 billion in 2017. Extra Space seems well positioned to grab this opportunity.

Despite intense competition, Extra Space has managed to drive traffic to its rental spaces with its need-based product offerings and digital marketing platforms such as search engines and social media, which are increasing its occupancy rates and pricing power.

In the first quarter, the company’s same-store rental revenue rose 5.2% YoY, driven by price hikes and a ten-basis-point occupancy rate enhancement. Analysts expect these factors to continue to support the company in the second quarter, forecasting its same-store rental revenue to grow 8.4% YoY.

As self-storage facilities require minimal capital expenditure to build and operate, any increase in prices and occupancy rate could boost Extra Space’s bottom-line results. Additionally, the company’s focus on acquisitions, joint ventures, and partnerships has boosted its incremental revenue and economies of scale, improving its profitability. Over the last five years, the company has acquired worth $4.5 billion in properties.

Wall Street’s expectations for peers

Public Storage (PSA), CubeSmart (CUBE), and Life Storage (LSI) are expected to report FFO per share of $2.60, $0.41, and $1.34, respectively, in their next quarterly results. Together with these peers, Extra Space comprises ~18.4% of the iShares Residential Real Estate ETF (REZ).