Business Context and Reporting Period
Company: Extra Space Storage Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) owning, operating, and managing self-storage facilities. As of June 30, 2009, the Company owned or had interests in 628 operating facilities and managed an additional 110 properties for third parties, totaling 738 properties across 33 states and Washington, D.C.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $138,322 | $133,043 |
| Net Income (Loss) Attributable to Common Stockholders | $20,078 | $10,832 |
| Funds From Operations (FFO) | $48,905 | $36,047 |
| Net Cash Provided by Operating Activities | $49,132 | $50,119 |
| Total Assets | $2,382,444 | $2,291,008 |
| Total Debt (Notes Payable, Lines of Credit, Exchangeable Notes) | $1,380,255 | $1,289,861 |
| Cash and Cash Equivalents | $131,551 | $63,972 |
| Debt to Total Capitalization Ratio | 64.4% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 4.0% year-over-year, driven by a 2.8% increase in property rental revenue and a 30.1% increase in tenant reinsurance revenue due to higher customer participation (53% vs. 43%).
- Significant One-Time Charges: The Company recorded $18,883 in unrecovered development and acquisition costs and $1,400 in severance costs associated with the wind-down of its development program announced on June 2, 2009.
- Net Income Volatility: While Net Income attributable to common stockholders increased to $20,078 from $10,832, this was significantly boosted by a $27,576 gain on the repurchase of exchangeable senior notes. Without this gain, operating results would have been lower.
- Same-Store Performance: Same-store stabilized property revenues decreased 1.5% and Net Operating Income (NOI) decreased 2.0% due to lower occupancy (84.3% vs. 87.0%) and reduced rental rates.
- Liquidity Position: Cash and cash equivalents increased significantly to $131,551 from $63,972, aided by a $100,000 draw on the revolving line of credit and proceeds from new notes payable.
Guidance, Outlook, and Risks
- Development Program Wind-Down: The Company announced the cessation of new development activities, though it expects to complete 18 remaining wholly-owned projects by Q3 2010.
- Dividend Policy: No dividend was paid in Q2 2009. The Company expects to pay a Q4 2009 dividend of $0.24–$0.30 per share, utilizing a mix of approximately 10% cash and 90% common stock to satisfy REIT distribution requirements and avoid corporate income tax.
- Market Risks: Management highlighted risks related to disruptions in credit and financial markets, which could impede the ability to raise capital or refinance debt. Competition and economic conditions continue to pressure occupancy and rental rates.
- Joint Venture Transaction: Risks exist regarding the potential joint venture transaction with Harrison Street Real Estate Capital, LLC, including the possibility that it may not close or that expected benefits may not be realized.
Investor Verification Checklist
- Development Impairment: Verify the valuation assumptions used for the $18.9 million impairment charge related to the wind-down of the development program.
- Debt Maturities: Review the schedule of debt maturities, noting that $193.5 million in principal payments are due within one year.
- Dividend Structure: Confirm the final composition of the Q4 dividend (cash vs. stock) and its impact on share dilution.
- Occupancy Trends: Monitor same-store occupancy rates, which declined to 84.3%, to assess the impact of the economic downturn on core operations.
- Joint Venture Exposure: Assess the financial health of unconsolidated joint ventures, particularly those with guaranteed construction loans totaling $12.8 million.