Extra Space Storage Inc. Reports 2012 Third Quarter Results

~ FFO Increases 34.4% to $0.43 per Share

~~ Same-Store Revenue Increases 6.8%

~~ Same-Store NOI Increases 11.4%

Oct 29, 2012, 14:30 ET from Extra Space Storage Inc.

SALT LAKE CITY, Oct. 29, 2012 /PRNewswire/ -- Extra Space Storage Inc. (NYSE: EXR) (the "Company"), a leading owner and operator of self-storage properties in the United States, announced operating results for the three and nine months ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120730/LA48662LOGO)

Highlights for the three months ended September 30, 2012:

  • Achieved funds from operations ("FFO") of $0.43 per diluted share, resulting in 34.4% FFO growth compared to the third quarter of 2011.
  • Increased same-store revenue and net operating income ("NOI") by 6.8% and 11.4%, respectively, compared to the same period in 2011.
  • Grew same-store occupancy by 180 basis points to 89.8% at September 30, 2012, compared to 88.0% as of September 30, 2011.
  • Acquired 53 properties for an approximate purchase price of $449.5 million.
  • Paid a quarterly dividend of $0.20 per share.

Spencer F. Kirk, CEO of Extra Space Storage Inc., commented:  "Our experienced management team, leading operational platform, advanced revenue management and online marketing systems are all performing well.  This was evidenced in the third quarter where we were able to post notable increases in earnings, same-store revenue and NOI despite coming up against difficult year-over-year comparables.  We remain optimistic about the self-storage sector and our ability to produce solid results for our shareholders."

FFO Per Share:

The following table outlines the Company's FFO and FFO as adjusted for the three and nine months ended September 30, 2012 and 2011.  The table also provides a reconciliation to GAAP net income per diluted share for each period presented (amounts shown in thousands, except share data - unaudited):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2012

2011

2012

2011

(per share)

(per share)

(per share)

(per share)

Net income attributable to common stockholders

$

38,606

$

0.37

$

15,261

$

0.16

$

81,233

$

0.80

$

34,171

$

0.37

Adjustments:

Real estate depreciation

16,886

0.15

12,958

0.12

46,380

0.43

38,000

0.40

Amortization of intangibles

2,090

0.02

651

0.01

4,130

0.03

1,371

Joint venture real estate

depreciation and amortization

1,741

0.01

1,979

0.02

5,343

0.05

6,111

0.06

Joint venture (gain) loss on sale

of properties and purchase of

partner's interest

(13,620)

(0.13)

512

0.01

(19,049)

(0.18)

182

Distributions paid on Preferred

Operating Partnership units

(1,438)

(0.01)

(1,438)

(0.02)

(4,313)

(0.04)

(4,313)

(0.04)

Income allocated to Operating

Partnership noncontrolling interests

2,938

0.02

2,092

0.02

7,563

0.07

5,846

0.06

Funds from operations

$

47,203

$

0.43

$

32,015

$

0.32

$

121,287

$

1.16

$

81,368

$

0.85

Adjustments:

Non-cash interest expense related

to amortization of discount on

exchangeable senior notes

440

0.01

444

1,308

0.01

Acquisition related costs

2,486

0.03

346

3,564

0.03

2,165

0.02

Funds from operations - adjusted

$

49,689

$

0.46

$

32,801

$

0.33

$

125,295

$

1.19

$

84,841

$

0.88

Weighted average number of shares - diluted

108,755,316

98,867,803

104,981,176

95,866,290

FFO and FFO as adjusted include the dilutive impact from lease-up properties of $0.00 and $0.02 per diluted share for the three and nine months ended September 30, 2012, respectively, compared to $0.02 and $0.06 for the same periods in 2011.

Operating Results and Same-Store Property Performance:

The following table outlines the Company's same-store property performance for the three and nine months ended September 30, 2012 and 2011 (amounts shown in thousands, except property count data - unaudited):

For the Three Months Ended

September 30,

Percent

For the Nine Months Ended

September 30,

Percent

2012

2011

Change

2012

2011

Change

Same-store rental and tenant reinsurance revenues

$

71,091

$

66,589

6.8

%

$

206,060

$

193,300

6.6

%

Same-store operating and tenant reinsurance expenses

21,269

21,871

(2.8)

%

64,716

65,745

(1.6)

%

Same-store net operating income

$

49,822

$

44,718

11.4

%

$

141,344

$

127,555

10.8

%

Non same-store rental and tenant reinsurance revenues

$

32,469

$

11,155

191.1

%

$

70,193

$

24,854

182.4

%

Non same-store operating and tenant reinsurance expenses

$

10,225

$

3,995

155.9

%

$

22,658

$

9,174

147.0

%

Total rental and tenant reinsurance revenues

$

103,560

$

77,744

33.2

%

$

276,253

$

218,154

26.6

%

Total operating and tenant reinsurance expenses

$

31,494

$

25,866

21.8

%

$

87,374

$

74,919

16.6

%

Same-store square foot occupancy as of quarter end

89.8

%

88.0

%

89.8

%

88.0

%

Properties included in same-store

282

282

282

282

As of September 30, 2012, same-store occupancy increased 180 basis points to 89.8% when compared to September 30, 2011.  Expenses for the three months ended September 30, 2012, were lower primarily due to reduced repairs and maintenance, utility costs and lower credit card processing fees.  Revenues for the same period were up primarily due to increases in occupancy and rates and decreases in discounts.

The Company's major markets with revenue growth above the portfolio average for the three months ended September 30, 2012, included Atlanta, Chicago, Dallas, Houston, San Francisco and Tampa.  Major markets performing below the Company's portfolio average included Denver, Las Vegas, Memphis and Phoenix.

Acquisition and Third-Party Management Activity:

During the quarter, the Company purchased 53 properties for an approximate purchase price of $449.5 million.  Of the 53 properties, 36 came from the acquisition of Prudential Real Estate Investors' ("PREI®") 94.9% interest in the ESS PRISA III LLC joint venture that was formed in 2005.  The joint venture owned 36 properties located in 18 states.  The remaining 17 assets were located in California, Colorado, New Jersey, New York, South Carolina, Texas, Utah and Virginia.

The Company has six additional properties under contract for approximately $51.6 million.  The properties are located in Florida, Massachusetts and New Jersey.  The purchase of these properties is currently expected to close by year end.  These acquisitions are subject to due diligence and other customary closing conditions and no assurance can be provided that these acquisitions will be completed on the terms described, or at all.

As of September 30, 2012, the Company managed 190 properties for third-party owners.  Including 304 properties owned and operated in joint ventures, the Company has a total of 494 properties under management.  The Company continues to be the largest self-storage management company in the United States.

Balance Sheet:

As of September 30, 2012, the Company's percentage of fixed-rate debt to total debt was 74.2%. The weighted average interest rate on the Company's fixed and variable rate debt was 4.9% and 2.1%, respectively.  The combined weighted average interest rate was 4.2% with a weighted average maturity of approximately 5.5 years.  During the quarter, the Company obtained $149.1 million in secured financing consisting of four loans with a weighted average interest rate of 2.9%.

Dividends:

The Company paid a third quarter dividend of $0.20 per share on the common stock of the Company on September 28, 2012, to stockholders of record at the close of business on September 17, 2012.

Outlook:

The Company currently estimates that FFO per diluted share for the year ending December 31, 2012, will be between $1.56 and $1.58.  FFO estimates for the year are fully diluted for an estimated average number of shares and Operating Partnership units ("OP units") outstanding during the year.  The Company's estimates are forward-looking and based on management's view of current and future market conditions.

The Company's actual results may differ materially from these estimates, which include the following annual assumptions:

  • Same-store property revenue growth, including tenant reinsurance, between 6.0% and 6.5%.
  • Same-store property expense increase, including tenant reinsurance, between (0.25)% and 0.25%.
  • Same-store property NOI growth, including tenant reinsurance, between 8.75% and 9.75%.
  • Net tenant reinsurance income between $29.5 million and $30.0 million.
  • General and administrative expenses between $50.0 million and $50.5 million, including non-cash compensation expense of approximately $4.5 million.
  • Average monthly cash balance of approximately $50.0 million.
  • Equity in earnings of real estate ventures between $10.0 million and $10.5 million.
  • Acquisition activity of approximately $535.0 million including the PREI transaction.
  • Interest expense between $71.5 million and $72.5 million.
  • Weighted average LIBOR of 0.3%.
  • Weighted average number of outstanding shares, including OP units, of approximately 106.0 million.
  • Dilution associated with the Company's lease-up properties of approximately $1.0 million.
  • Taxes associated with the Company's taxable Real Estate Investment Trust ("REIT") subsidiary between $5.5 million and $6.5 million, inclusive of approximately $5.5 million in solar tax credits.
  • Acquisition related costs of approximately $4.5 million.

Supplemental Financial Information:

Supplemental unaudited financial information regarding the Company's performance can be found on the Company's website at www.extraspace.com. Click on the "Investor Relations" link at the bottom of the home page, then on "Financial & Stock Info," then on "Quarterly Earnings" on the left of the page.  This supplemental information provides additional detail on items that include property 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 Tuesday, October 30, 2012, to discuss its financial results. To participate in the conference call, please dial 866-277-1181 or 617-597-5358 for international participants, conference ID:  16475739.  The conference call will also be available on the Company's website at www.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 4:00 p.m. Eastern Time on October 30, 2012, until midnight Eastern Time on November 30, 2012.  The replay dial-in numbers are 888-286-8010 or 617-801-6888 for international callers, conference ID: 97425335.

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 our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions 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;
  • the effect of competition from new and existing self-storage facilities or other storage alternatives, which could cause rents and occupancy rates to decline;
  • difficulties in our ability to evaluate, finance, complete and integrate acquisitions and developments successfully and to lease up those properties, which could adversely affect our profitability;
  • 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 REITs, which could increase our expenses and reduce our cash available for distribution;
  • 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;
  • increased interest rates and operating costs;
  • reductions in asset valuations and related impairment charges;
  • the failure of our joint venture partners to fulfill their obligations to us or their pursuit of actions that are inconsistent with our objectives;
  • the failure to maintain our REIT status for federal income tax purposes;
  • economic uncertainty due to the impact of war or terrorism, which could adversely affect our business plan; and
  • difficulties in our ability to attract and retain qualified personnel and management members.

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.

Notes to Financial Information:

The Company operates as a self-managed and self-administered REIT. Readers are encouraged to find further detail regarding Extra Space Storage's organizational structure in its most recent Annual Report and Form 10-K as filed with the SEC.

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 earnings. Net earnings assume 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 properties and impairment write downs of depreciable real estate assets, plus depreciation and amortization 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.

For informational purposes, the Company provides FFO as adjusted for the exclusion of non-recurring revenues and expenses, acquisition related costs and non-cash interest charges related to the Company's exchangeable senior notes.  Although the Company's calculation of FFO as adjusted 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 non-recurring revenues and expenses, the costs related to acquiring properties and non-cash interest charges from the exchangeable senior notes, stockholders and potential investors are presented with an indicator of its operating performance that more closely achieves the objectives of the real estate industry in presenting FFO.  FFO as adjusted by the Company should not be considered a replacement of the NAREIT definition of FFO and 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 Properties:

The Company's same-store properties for the three and nine months ended September 30, 2012, consisted of 282 properties that were wholly-owned and operated and that were stabilized by the first day of each period.  The Company considers a property to be stabilized once it has been open three years or has sustained average square foot occupancy of 80.0% or more for one calendar year.  Same-store results provide information relating to property operations without the effects of acquisitions or completed developments and should not be used as a basis for future same-store performance or for the performance of the Company's properties 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 that owns and/or operates 910 self-storage properties in 34 states, Washington, D.C. and Puerto Rico.  The Company's properties comprise approximately 610,000 units and approximately 66.7 million square feet of rentable space, offering customers a wide selection of conveniently located and secure storage solutions across the country, including boat storage, RV storage and business storage.  The Company is the second largest owner and/or operator of self-storage properties in the United States and is the largest self-storage management company in the United States.

 

 

Extra Space Storage Inc.

Consolidated Balance Sheets

(In thousands, except share data)

September 30, 2012

December 31, 2011

(Unaudited)

Assets: 

Real estate assets, net

$

2,741,945

$

2,263,795

Investments in real estate ventures

121,269

130,410

Cash and cash equivalents

43,608

26,484

Restricted cash

23,384

25,768

Receivables from related parties and affiliated real estate joint ventures

10,930

18,517

Other assets, net

71,786

51,276

Total assets

$

3,012,922

$

2,516,250

Liabilities, Noncontrolling Interests and Equity:

Notes payable

$

1,226,899

$

937,001

Premium on notes payable

3,638

4,402

Notes payable to trusts

119,590

119,590

Exchangeable senior notes

87,663

Lines of credit

240,000

215,000

Accounts payable and accrued expenses

49,609

45,079

Other liabilities

43,034

33,754

Total liabilities

1,682,770

1,442,489

Commitments and contingencies

Noncontrolling Interests and Equity:

Extra Space Storage Inc. stockholders' equity:

Preferred stock, $0.01 par value, 50,000,000

shares authorized, no shares issued or outstanding

Common stock, $0.01 par value, 300,000,000

shares authorized, 104,322,435 and 94,783,590

shares issued and outstanding at September 30,

2012, and December 31, 2011, respectively

1,043

948

Paid-in capital

1,531,975

1,290,021

Accumulated other comprehensive deficit

(14,956)

(7,936)

Accumulated deficit

(243,546)

(264,086)

Total Extra Space Storage Inc. stockholders' equity

1,274,516

1,018,947

Noncontrolling interest represented by Preferred

Operating Partnership units, net of $100,000 note

receivable

29,829

29,695

Noncontrolling interests in Operating Partnership

24,699

24,018

Other noncontrolling interests

1,108

1,101

Total noncontrolling interests and equity

1,330,152

1,073,761

Total liabilities, noncontrolling interests and equity

$

3,012,922

$

2,516,250

 

Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 — Unaudited

(In thousands, except share and per share data)

 

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2012

2011

2012

2011

Revenues:

Property rental

$

94,065

$

69,475

$

249,193

$

195,265

Tenant reinsurance

9,495

8,269

27,060

22,889

Management and franchise fees

6,231

6,353

19,476

18,464

Total revenues

109,791

84,097

295,729

236,618

Expenses:

Property operations

30,115

24,270

82,723

70,326

Tenant reinsurance

1,379

1,596

4,651

4,593

Acquisition related costs

2,486

346

3,564

2,165

General and administrative

12,559

12,306

37,744

36,396

Depreciation and amortization

19,768

14,364

52,918

42,041

Total expenses

66,307

52,882

181,600

155,521

Income from operations

43,484

31,215

114,129

81,097

Interest expense

(18,423)

(16,756)

(52,348)

(49,431)

Non-cash interest expense related to

amortization of discount on exchangeable senior notes

(440)

(444)

(1,308)

Interest income

461

185

1,184

556

Interest income on note receivable from

Preferred Operating Partnership unit holder

1,213

1,213

3,638

3,638

Income before equity in earnings of real

estate ventures and income tax expense

26,735

15,417

66,159

34,552

Equity in earnings of real estate ventures

2,854

1,873

7,848

6,060

Equity in earnings of real estate

ventures - gain on sale of real estate assets and purchase of partner's interest

13,620

19,049

Income tax expense

(1,656)

62

(4,240)

(603)

Net income

41,553

17,352

88,816

40,009

Net income allocated to Preferred

Operating Partnership noncontrolling

interests

(1,805)

(1,598)

(5,108)

(4,682)

Net income allocated to Operating

Partnership and other noncontrolling

interests

(1,142)

(493)

(2,475)

(1,156)

Net income attributable to common stockholders

$

38,606

$

15,261

$

81,233

$

34,171

Net income per common share

Basic 

$

0.37

$

0.16

$

0.81

$

0.37

Diluted

$

0.37

$

0.16

$

0.80

$

0.37

Weighted average number of shares

Basic

104,252,227

94,314,429

100,429,840

91,277,261

Diluted.

108,755,316

98,867,803

104,981,176

95,866,290

Cash dividends paid per common share

$

0.20

$

0.14

$

0.60

$

0.42

 

Reconciliation of the Range of Estimated Fully Diluted Net Income Per Share to Estimated Fully Diluted FFO Per Share — for the Three Months and Year Ending December 31, 2012 — Unaudited

 

For the Three Months Ending

December 31, 2012

For the Year Ending

December 31, 2012

Low End

High End

Low End

High End

Net income attributable to common stockholders per diluted share

$

0.19

$

0.21

$

0.95

$

0.97

Income allocated to noncontrolling

interest - Preferred Operating

Partnership and Operating Partnership

0.02

0.02

0.10

0.10

Fixed component of income allocated

to non-controlling interest - Preferred

Operating Partnership

(0.01)

(0.01)

(0.05)

(0.05)

Net income for diluted computations

0.20

0.22

1.00

1.02

Adjustments:

Real estate depreciation

0.17

0.17

0.62

0.62

Amortization of intangibles

0.01

0.01

0.05

0.05

Joint venture real estate depreciation

and amortization

0.02

0.02

0.07

0.07

Joint venture gain on sale of properties

(0.18)

(0.18)

Diluted funds from operations per share

$

0.40

$

0.42

$

1.56

$

1.58

 

 

SOURCE Extra Space Storage Inc.



RELATED LINKS

http://www.extraspace.com