Extra Space Storage Inc. — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Extra Space Storage Inc. is a fully integrated, self-administered and self-managed REIT focused on owning, operating, managing, acquiring, developing and redeveloping self-storage properties. The report covers the three months ended March 31, 2022, with unaudited financial statements prepared under U.S. GAAP.
At March 31, 2022, the company owned or held interests in 1,283 stores and managed an additional 847 stores, for 2,130 stores across 41 states and Washington, D.C. The portfolio served approximately 1.265 million tenants.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $443.6 million | $358.9 million | 23.6% |
| Property rental revenue | $379.8 million | $303.6 million | 25.1% |
| Tenant reinsurance revenue | $43.8 million | $39.6 million | 10.5% |
| Net income | $217.7 million | $215.5 million | 1.0% |
| Net income attributable to common stockholders | $203.6 million | $203.0 million | 0.3% |
| Diluted EPS | $1.51 | $1.53 | (1.3%) |
| FFO attributable to common stockholders and unit holders | $286.5 million | $210.1 million | 36.4% |
| Net cash provided by operating activities | $287.5 million | $203.9 million | 40.99% |
Net income margin was approximately 49.1%, compared with 60.0% in the prior-year quarter, primarily because Q1 2021 included a $63.9 million gain on real estate transactions. Operating income was $235.3 million, compared with $241.1 million, and total expenses increased 14.6% to $208.3 million.
Same-store rental revenue increased 21.7% and same-store net operating income increased 27.6% to $257.0 million. Same-store square-foot occupancy was 94.5%, compared with 95.3% in Q1 2021. Average annual rent per square foot for existing customers increased to $20.04 from $16.21, while new-lease rent increased to $19.68 from $16.54.
Cash flow used in investing activities was $121.4 million, including $210.5 million for real estate acquisitions, development and redevelopment. Cash flow used in financing activities was $169.6 million, including $202.5 million of common dividends. Cash, cash equivalents and restricted cash totaled $72.7 million at March 31, 2022, including $66.0 million of unrestricted cash and cash equivalents.
The company paid dividends of $1.50 per common share in Q1 2022, compared with $1.00 in Q1 2021.
Debt, Liquidity and Capital Resources
- Face value of debt was approximately $6.043 billion at March 31, 2022.
- Debt-to-total-enterprise-value ratio was 17.1%.
- Fixed-rate debt and instruments represented 80.4% of total debt; the weighted-average interest rate was 2.8%.
- Total term debt, net of issuance costs, was $5.793 billion, compared with $5.423 billion at December 31, 2021.
- Revolving credit facilities had $220.0 million drawn against $1.390 billion of total capacity.
- The company issued $400.0 million of 3.900% senior notes due 2029 in March 2022.
- Management stated that operating cash flow, cash on hand, revolving credit availability and access to capital markets should be sufficient for reasonably anticipated needs over the next 12 months.
- The company was in compliance with all financial covenants and held BBB/Stable and Baa2 ratings from S&P and Moody’s, respectively.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by higher rental rates at stabilized stores, acquisitions and increased management activity.
- The company operated 1,283 owned or partially owned stores versus 1,206 in Q1 2021 and managed 2,130 total stores versus 1,969.
- Q1 2022 included 14 store acquisitions with total real estate consideration of $227.9 million, compared with nine acquisitions totaling $151.9 million in Q1 2021.
- Interest expense increased 4.5% because of a higher weighted-average interest rate and debt balance.
- Interest income increased 54.3%, partly due to repayment of a senior mezzanine note receivable.
- Q1 2021 benefited from a $63.9 million gain on real estate transactions; no comparable gain was recorded in Q1 2022.
- Accumulated other comprehensive income improved to $6.5 million from a $42.5 million loss at December 31, 2021, primarily due to a $51.6 million increase in the fair value of interest-rate swaps.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific full-year earnings or FFO guidance. Management expects positive operating cash flow in 2022 and believes liquidity will support operations, debt service, recurring capital expenditures, dividends, distributions, acquisitions and redevelopment activities.
Management noted that self-storage demand and profitability are seasonal, with higher revenues and profits generally expected from May through September. The company remains exposed to competition, occupancy and rental-rate pressure, interest-rate increases, capital-market disruption, acquisition execution risk, property valuation changes, cybersecurity threats, regulatory and REIT qualification risks, litigation, environmental liabilities, natural disasters, war, terrorism and continuing or renewed COVID-19 impacts.
As of March 31, 2022, the company had agreements to acquire 18 stores for $266.6 million and four additional stores with joint venture partners requiring total investment of $13.0 million. Various ordinary-course legal proceedings were pending, but outcomes were not determinable and no specific material loss amount was disclosed.
A 100-basis-point change in LIBOR was estimated to change annual interest expense and cash flow by approximately $11.8 million, assuming no changes to the company’s financial structure.
Important Facts for Investors to Verify
- Whether strong same-store rent growth can offset the modest occupancy decline and higher property operating expenses.
- The sustainability of Q1 FFO growth after considering acquisitions, financing costs and the absence of Q1 2021’s real estate gain.
- Debt maturities, refinancing requirements and sensitivity to higher floating interest rates.
- Execution, pricing and financing for the announced acquisitions and joint venture investments.
- The effect of seasonal demand, competition, potential COVID-19 disruption and broader economic conditions on occupancy and rental rates.
- Future dividend coverage, given $202.5 million of common dividends paid versus $287.5 million of operating cash flow in the quarter.
- Potential exposure from litigation, environmental matters, derivative-counterparty provisions and other contingencies.