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Extra Space Rides on Strong Fundamentals and Earnings Outlook

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Outperformed sector index

Extra Space Storage (EXR) has outperformed the broader sector MSCI US REIT Index YTD (year-to-date). The index includes the majority of property REITs. EXR stock has risen 7.1% YTD, while the index has recorded a mere 0.6% growth. The stock has also outperformed the Vanguard REIT ETF (VNQ), which has fallen 0.2% YTD. VNQ tracks the performance of the MSCI US REIT Index.

Extra Space’s top-line and bottom-line results have had YoY (year-over-year) growth for the past several quarters, which is supporting the stock’s price momentum. During its recently reported results for the second quarter, the company registered a YoY growth of 23.3% in revenues and a 5.5% increase in funds from operations (or FFO). Apart from that, quarterly revenues of $296.8 million surpassed the Wall Street estimate of $261 million, while FFO of $1.15 per share matched the estimate.

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What’s ahead?

Extra Space’s strong fundamentals along with an upbeat earnings outlook for the year appear assertive enough to drive its shares higher. In its second-quarter earnings release on July 31, it raised its 2018 outlook for same-store property and FFO. It now anticipates same-store revenues for 2018 to grow 3.75%–4.25%, up from 3.5%–4.25%. Similarly, FFO is now projected to be $4.56–$4.63 per share, up from $4.53–$4.62.

Going forward, its strategy of expanding its geographical footprint through acquisitions, joint ventures, and a third-party management platform is likely to continue to help its top-line growth. Most of its properties are in large, populated key cities, providing it the opportunity to benefit from their higher income demographics.

Peer performances

Comparing Extra Space stock with its peers, we see that it’s the second-highest gainer YTD among six listed self-storage REITs. Life Storage (LSI) has returned 10%, while Public Storage (PSA), CubeSmart (CUBE), and National Storage Affiliates (NSA) have risen 3.3%, 6.3%, and 6.5%, respectively. However, Global Self Storage (SELF) has fallen 11% YTD.

In the rest of this series, we’ll be looking at Extra Space’s revenue and profitability growth drivers, strategic investments, shareholder payouts, expectations, and valuation.

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