Extra Space: Healthy Demand, Marketing Strategies to Drive Q3

Third-quarter expectations

Extra Space Storage (EXR) is expected to report its third quarter of 2018 results on October 30. Wall Street expects AFFO (adjusted funds from operations) of $1.19 per share, reflecting a YoY (year-over-year) increase of 5.3%. Analysts seem to be backing their growth projection given the strong demand for self-storage space. Extra Space also has some strategic initiatives to enhance traffic and drive occupancy rates.

Extra Space: Healthy Demand, Marketing Strategies to Drive Q3

Factors driving Q3 2018 results

Analysts believe that Extra Space will continue to benefit from a rising demand for self-storage space. Many US households, students, and businesses are finding it reliable and cost-effective to store items in storage facilities. According to a recent market research report by Technavio, the self-storage industry’s revenues will grow at a compound annual growth rate of 8% through 2022.

Extra Space could be well positioned to grab this opportunity. It’s the second-largest domestic self-storage facilities provider after Public Storage (PSA). It has a presence in every key city of the United States and a wide array of offerings, including recreational vehicle storage, boat storage, and business storage.

Despite intense competition, Extra Space has managed to drive traffic to its rental spaces due to its need-based product offerings and digital marketing platforms that include search engines, social media, and pay-per-click for customer acquisitions. Those factors seem to be increasing its occupancy rate and giving it pricing power. Its second quarter of 2018 same-store rental revenues increased 4.1% YoY, driven mainly by price hikes.

Self-storage facilities require low capital expenditure to build and operate, and any increase in prices and occupancy rate could have a positive impact on their bottom lines. Acquisitions, joint ventures, and partnerships have provided incremental revenues and economies of scale for Extra Space, thus boosting profitability. Over the last five years, it has acquired properties worth $4.5 billion. All these factors are anticipated to help its third-quarter top- and bottom-line results.

Wall Street’s expectations for peers

Public Storage and Life Storage (LSI), close competitors of Extra Space, are expected to report FFO per share of $2.67 and $1.41, respectively, in their third quarters. CubeSmart (CUBE) reported its third-quarter results last week with FFO per share of $0.43, surpassing Wall Street’s estimate by a penny.

Extra Space makes up ~4.8% of the NuShares Short-Term REIT ETF (NURE).