Extra Space’s Growth Driven by Demand and Marketing Strategies

Surging demand

The demand for self-storage facilities is on the rise. Citing a report by IBISWorld, Investment Bank reported that revenues of the self-storage industry are anticipated to grow 2.9% annually and reach $32.6 billion by 2020, from $30 billion at the end of 2017.

Extra Space’s Growth Driven by Demand and Marketing Strategies

As the second-largest domestic self-storage facility provider after Public Storage (PSA) and with its presence in every key city of the United States, Extra Space (EXR) seems well positioned to grab this opportunity. With its vast array of offerings, including recreational vehicle storage, boat storage, and business storage, the company seems able to provide storage facilities for almost every purpose.

Marketing strategies to drive traffic

Extra Space has adopted digital marketing platforms, including social media and search engines, to drive traffic at its facilities. Its sustained focus on providing need-based product offerings has also helped it increase occupancy rates and prices.

Its same-store occupancy rate as of June 30 was 94.2%, indicating an improvement of 210 basis points from 92.1% as of March 31. During the second-quarter 2018 conference call, the company stated that leasing rates were up in the mid-single-digits YoY (year-over-year). All these factors helped its 4.1% YoY growth in same-store rental revenues.

Self-storage facilities require minimal capital expenditure to build and operate. So any increase in price and occupancy rate should have a positive impact on Extra Space’s top-line and bottom-line results. The self-storage facility provider anticipates same-store rental revenues for 2018 to grow 3.75%–4.25%, which translates to $862.6 million–$866.8 million. Similarly, its FFO (funds from operations) is projected to be $4.56–$4.63 per share, a YoY growth of 4.3%–4.9%. Wall Street expects Extra Space to report FFO per share of $4.63 for 2018.

Wall Street’s expectations for peers

In the self-storage REIT space, Extra Space faces intense competition from Public Storage, CubeSmart (CUBE), and Life Storage (LSI). Analysts expect Public Storage, CubeSmart, and Life Storage to report FFO per share of $10.55, $1.63, and $5.43, respectively, for 2018.

Extra Space and these competitors make up ~17.8% of the iShares Residential Real Estate ETF (REZ).