Extra Space Storage Inc. Reports 2020 Third Quarter Results

SALT LAKE CITY, Nov. 4, 2020 /PRNewswire/ — Extra Space Storage Inc. (NYSE: EXR) (the “Company”), a leading owner and operator of self-storage facilities in the United States and a member of the S&P 500, announced operating results for the three and nine months ended September 30, 2020.

Highlights for the three months ended September 30, 2020:

• Achieved net income attributable to common stockholders of $0.88 per diluted share, representing a 6.0% increase compared to the same period in 2019.
• Achieved funds from operations attributable to common stockholders and unit holders (“FFO”) of $1.30 per diluted share. FFO, excluding acceleration of share-based compensation expense due to retirement of an executive officer and adjustments for non-cash interest (“Core FFO”), was $1.31 per diluted share, representing a 5.6% increase compared to the same period in 2019.
• Experienced decreases in same-store revenue of (1.5)% and same-store net operating income (“NOI”) of (2.7)% compared to the same period in 2019.
• Reported same-store occupancy of 95.9% as of September 30, 2020, compared to 93.8% as of September 30, 2019.
• Acquired eight operating stores for a total cost of approximately $87.4 million.
• In conjunction with joint venture partners, acquired two stores at completion of construction (a “Certificate of Occupancy store” or “C of O store”) for a total cost of approximately $19.6 million, of which the Company invested $9.8 million.
• Purchased a senior mezzanine note at 98.0% of the $103.0 million principal balance.
• Added 42 stores (gross) to the Company’s third-party management platform. As of September 30, 2020, the Company managed 718 stores for third parties and 253 stores in joint ventures, for a total of 971 managed stores.
• Paid a quarterly dividend of $0.90 per share.

Highlights for the nine months ended September 30, 2020:

• Achieved net income attributable to common stockholders of $2.50 per diluted share, representing a 5.5% increase compared to the same period in 2019.
• Achieved FFO of $3.74 per diluted share. Core FFO was $3.78 per diluted share, representing a 5.0% increase compared to the same period in 2019.
• Experienced decreases in same-store revenue of (0.9)% and same-store NOI of (2.1)% compared to the same period in 2019.
• Acquired nine operating stores and one C of O store for a total cost of approximately $106.8 million.
• In conjunction with joint venture partners, acquired one operating store, five C of O stores and completed one development for a total cost of approximately $85.6 million, of which the Company invested $33.9 million.
• Added 121 stores (gross) to the Company’s third-party management platform.

Updates Subsequent to September 30, 2020:

• Achieved same-store occupancy of 95.9% as of October 31, 2020, compared to 93.3% as of October 31, 2019. Same-store occupancy as of October 31, 2020, includes less than 0.2% of inflated occupancy due to delayed auctions of delinquent units as a result of COVID-19.
• The Company continues to hold auctions except where prohibited by local restrictions, which impact fewer than 1.5% of wholly-owned stores.
• As of October 31, 2020, accounts receivable and collections less than 60 days have returned to historical levels.
• Invested an additional $50.0 million in convertible preferred stock of Smart Stop Self Storage REIT, Inc. (“SmartStop”), bringing the Company’s total investment to $200.0 million.
• Due to the continuing uncertainty related to the impacts of the COVID-19 pandemic, including the potential for future stay-at-home orders, the uncertain economic climate, and the resulting impact on customer behavior, the Company has elected to not reinstate 2020 annual guidance.

Joe Margolis, CEO of Extra Space Storage Inc., commented: “The storage sector experienced a number of tailwinds in the third quarter that benefited our earnings. Demand was healthy and vacates remained muted, resulting in strong occupancy and increased rental rates to new customers, offset by lower late fees and higher bad debt.  These improved trends resulted in better than expected same-store performance, which together with contributions from our various external growth and balance sheet initiatives, resulted in solid third quarter FFO growth of 5.6%.  We recognize that future risks and uncertainties related to the pandemic and general macro-economic conditions may still impact future results, however, to date the impact has been less significant than previously anticipated.”

FFO Per Share:

The following table outlines the Company’s FFO and Core FFO for the three and nine months ended September 30, 2020 and 2019. The table also provides a reconciliation to GAAP net income attributable to common stockholders and earnings per diluted share for each period presented (amounts shown in thousands, except share and per share data — unaudited):

Operating Results and Same-Store Performance:

The following table outlines the Company’s same-store performance for the three and nine months ended September 30, 2020 and 2019 (amounts shown in thousands, except store count data—unaudited)¹:

Same-store revenues for the three and nine months ended September 30, 2020 decreased due to lower rental rates for existing customers, lower late fees collected and higher bad debt expense related to non-paying tenants, partially offset by higher occupancy.  Same-store expenses were higher for the three months ended September 30, 2020 primarily due to increases in marketing expenses and property taxes.  Same-store expenses were higher for the nine months ended September 30, 2020 primarily due to increases in payroll, marketing expenses and property taxes.  Expenses in both periods were partially offset by reduced utilities expense and repairs and maintenance.

Details related to the same-store performance of stores by metropolitan statistical area (“MSA”) for the three and nine months ended September 30, 2020 are provided in the supplemental financial information published on the Company’s Investor Relations website at https://ir.extraspace.com/.

Investment and Property Management Activity:

The following table outlines the Company’s acquisitions and developments that are closed, completed or under agreement (dollars in thousands – unaudited):

The projected developments and acquisitions under agreement described above are subject to customary closing conditions and no assurance can be provided that these developments and acquisitions will be completed on the terms described, or at all.

Bridge Loans:

Year to date the Company has closed $79.5 million in bridge loans, with an additional $235.4 million under agreement to close in 2020 and an additional $167.7 million under agreement to close in 2021.  

During the three months ended September 30, 2020, the Company purchased a senior mezzanine note at 98.0% of the $103.0 million principal balance, which has an expected yield-to-maturity of 6.1%.

Other Investment Activity:

On October 26, 2020 the Company purchased $50.0 million in shares of convertible preferred stock of SmartStop, which the Company had previously committed to purchase at SmartStop’s option.  Accordingly, the Company has invested a total of $200.0 million in SmartStop’s convertible preferred stock.  The dividend rate for the preferred stock is 6.25% per annum, and is subject to increase in 2024.

Property Management:

As of September 30, 2020, the Company managed 718 stores for third-party owners and 253 stores owned in joint ventures, for a total of 971 stores under management.  The Company is the largest self-storage management company in the United States.

Balance Sheet:

The Company received $425.0 million in proceeds from a previously announced private placement of senior unsecured notes through delayed draws on August 25, 2020 and October 1, 2020. 

During the three months ended September 30, 2020, the Company did not sell any shares of common stock using its “at the market” (“ATM”) program.  As of September 30, 2020, the Company had $298.6 million available for issuance under its ATM program.

As of September 30, 2020, the Company’s percentage of fixed-rate debt to total debt was 77.7%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 3.4% and 1.8%, respectively. The combined weighted average interest rate was 3.0% with a weighted average maturity of approximately 4.3 years.

Dividends:

On September 30, 2020, the Company paid a third quarter common stock dividend of $0.90 per share to stockholders of record at the close of business on September 15, 2020.

Outlook:

On May 6, 2020, the Company withdrew its previously provided FFO estimates and annual assumptions for the year ending December 31, 2020 due to the impact of COVID-19. 

Supplemental Financial Information:

Supplemental unaudited financial information regarding the Company’s performance can be found on the Company’s website at www.extraspace.com. Under the “Company Info” navigation menu on the home page, click on “Investor Relations,” then under the “Financials & Stock Info” navigation menu click on “Quarterly Earnings.” This supplemental information provides additional detail on items that include store occupancy and financial performance by portfolio and market, debt maturity schedules and performance of lease-up assets.

Conference Call:

The Company will host a conference call at 1:00 p.m. Eastern Time on Thursday, November 5, 2020, to discuss its financial results. To participate in the conference call, please dial 855-791-2026 or 631-485-4899 for international participants; audience passcode: 1069195. The conference call will also be available on the Company’s investor relations website at https://ir.extraspace.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will be available for 30 days on the Company’s website in the Investor Relations section. 

A replay of the call will also be available by telephone, from 4:30 p.m. Eastern Time on November 5, 2020, until 4:30 p.m. Eastern Time on November 10, 2020. The replay dial-in numbers are 855-859-2056 or 404-537-3406 for international callers; passcode: 1069195.

Forward-Looking Statements:

Certain information set forth in this release contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning the benefits of store acquisitions, developments, favorable market conditions, our outlook and estimates for the year and other statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, the competitive landscape, plans or intentions relating to acquisitions and developments and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “anticipates,” or “intends,” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this release. Any forward-looking statements should be considered in light of the risks referenced in the “Risk Factors” section included in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Such factors include, but are not limited to:

• adverse changes in general economic conditions, the real estate industry and the markets in which we operate;
• failure to close pending acquisitions and developments on expected terms, or at all;
• the effect of competition from new and existing stores or other storage alternatives, which could cause rents and occupancy rates to decline;
• potential liability for uninsured losses and environmental contamination;
• the impact of the regulatory environment as well as national, state and local laws and regulations, including, without limitation, those governing real estate investment trusts (“REITs”), tenant reinsurance and other aspects of our business, which could adversely affect our results;
• disruptions in credit and financial markets and resulting difficulties in raising capital or obtaining credit at reasonable rates or at all, which could impede our ability to grow;
• impacts from the COVID-19 pandemic or the future outbreak of other highly infectious or contagious diseases, including reduced demand for self-storage space and ancillary products and services such as tenant reinsurance, and potential decreases in occupancy and rental rates and staffing levels, which could adversely affect our results;
• increases in interest rates;
• reductions in asset valuations and related impairment charges;
• our lack of sole decision-making authority with respect to our joint venture investments;
• the effect of recent changes to U.S. tax laws;
• the failure to maintain our REIT status for U.S. federal income tax purposes; and
• economic uncertainty due to the impact of natural disasters, war or terrorism, which could adversely affect our business plan.

All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

Definition of FFO:

FFO provides relevant and meaningful information about the Company’s operating performance that is necessary, along with net income and cash flows, for an understanding of the Company’s operating results. The Company believes FFO is a meaningful disclosure as a supplement to net income. Net income assumes that the values of real estate assets diminish predictably over time as reflected through depreciation and amortization expenses. The values of real estate assets fluctuate due to market conditions and the Company believes FFO more accurately reflects the value of the Company’s real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income computed in accordance with U.S. generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of operating stores and impairment write downs of depreciable real estate assets, plus depreciation and amortization related to real estate and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. The Company believes that to further understand the Company’s performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the Company’s consolidated financial statements. FFO should not be considered a replacement of net income computed in accordance with GAAP.

For informational purposes, the Company also presents Core FFO.  Core FFO excludes revenues and expenses not core to our operations and non-cash interest.  Although the Company’s calculation of Core FFO differs from NAREIT’s definition of FFO and may not be comparable to that of other REITs and real estate companies, the Company believes it provides a meaningful supplemental measure of operating performance. The Company believes that by excluding revenues and expenses not core to our operations and non-cash interest charges, stockholders and potential investors are presented with an indicator of our operating performance that more closely achieves the objectives of the real estate industry in presenting FFO. Core FFO by the Company should not be considered a replacement of the NAREIT definition of FFO. The computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income as an indication of the Company’s performance, as an alternative to net cash flow from operating activities as a measure of liquidity, or as an indicator of the Company’s ability to make cash distributions.

Definition of Same-Store:

The Company’s same-store pool for the periods presented consists of 863 stores that are wholly-owned and operated and that were stabilized by the first day of the earliest calendar year presented.  The Company considers a store to be stabilized once it has been open for three years or has sustained average square foot occupancy of 80.0% or more for one calendar year. The Company believes that by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to occupancy, rental revenue (growth), operating expenses (growth), net operating income (growth), etc., stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions or completed developments.  Same-store results should not be used as a basis for future same-store performance or for the performance of the Company’s stores as a whole.

About Extra Space Storage Inc.:

Extra Space Storage Inc., headquartered in Salt Lake City, Utah, is a self-administered and self-managed REIT and a member of the S&P 500. As of September 30, 2020, the Company owned and/or operated 1,906 self-storage stores in 40 states, Washington, D.C. and Puerto Rico. The Company’s stores comprise approximately 1.4 million units and approximately 147.5 million square feet of rentable space. The Company offers customers a wide selection of conveniently located and secure storage units across the country, including boat storage, RV storage and business storage. The Company is the second largest owner and/or operator of self-storage stores in the United States and is the largest self-storage management company in the United States.