Extra Space Storage Inc. 2021 Form 10-K Summary
Business context and reporting period
Extra Space Storage Inc. is a fully integrated, self-managed self-storage REIT operating through Extra Space Storage LP. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The Company owned and/or operated 2,096 stores in 41 states and Washington, D.C., totaling approximately 160.9 million net rentable square feet and 1.5 million units. It reports self-storage operations and tenant reinsurance segments.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1.577 billion | $1.356 billion | +16.3% |
| Property rental revenue | $1.341 billion | $1.158 billion | +15.9% |
| Net income | $877.8 million | $517.6 million | +69.6% |
| Net income attributable to common stockholders | $827.6 million | $481.8 million | +71.8% |
| Basic/diluted EPS | $6.20/$6.19 | $3.71/$3.71 | Higher |
| FFO attributable to common stockholders and unit holders | $974.0 million | $722.5 million | +34.8% |
| Net cash provided by operating activities | $952.4 million | $771.2 million | +23.5% |
| Same-store NOI | $898.8 million | $750.8 million | +19.7% |
Same-store rental revenue increased 13.8%, while same-store operating expenses declined 1.0%, producing a 19.7% increase in same-store net operating income. Same-store occupancy was 95.3% at year-end versus 94.9% in 2020; average occupancy for wholly owned stores was 94.8% for 2021. Total segment NOI was $1.113 billion, including $972.4 million from self-storage operations and $140.6 million from tenant reinsurance.
Net income benefited materially from $140.8 million of gains on real estate transactions, compared with $18.1 million in 2020. Accordingly, reported net income and net income margin are not fully representative of recurring operating performance. Interest expense declined modestly to $166.2 million from $168.6 million, while interest income increased to $49.7 million from $15.2 million, primarily from bridge loans and other investments.
Liquidity, leverage and capital allocation
- Cash and cash equivalents were $71.1 million at December 31, 2021, compared with $109.1 million at year-end 2020.
- Face-value debt was approximately $6.0 billion, with a weighted-average interest rate of 2.6%. Approximately 24.7% of debt was variable-rate debt excluding debt subject to swaps; the weighted-average rate on variable-rate debt was approximately 1.3%.
- Debt consisted primarily of $1.3 billion of secured notes, $1.7 billion of unsecured term loans, $2.4 billion of unsecured senior notes and $535.0 million drawn under revolving lines of credit.
- Credit-line capacity was approximately $1.4 billion, of which $855.0 million was undrawn at year-end.
- The Company reported a 15.6% debt-to-total-enterprise-value ratio, 75.3% fixed-rate debt including swaps, 752 unencumbered stores and $13.5 billion of unencumbered asset value as defined by its public bonds.
- The Company was in compliance with all financial covenants at year-end and maintained investment-grade ratings of Baa2 from Moody’s and BBB/Stable from S&P.
- Operating cash flow funded dividends, debt service and ongoing investment needs. Dividends paid on common stock were $601.0 million, or $4.50 per share for 2021.
Material changes versus the prior comparable period
- The Company acquired 74 stores for total consideration of approximately $1.345 billion, compared with 23 stores for $296.7 million in 2020. Acquisition, development and redevelopment cash spending increased to $1.290 billion from $387.4 million.
- The Company sold 16 stores to a newly formed unconsolidated joint venture for $168.9 million and 16 stores to a third party for $204.5 million, recognizing aggregate gains of approximately $137.3 million.
- Store count increased to 2,096 from 1,921, and management fees and other income rose 27.1% to $66.3 million as the managed-store platform expanded.
- Property operations expense increased only 2.2% despite portfolio growth, while general and administrative expense increased 5.8%. Management cited elevated employee turnover, longer hiring times and approximately 10% nationwide wage increases as pressures expected to affect 2022 costs.
- The Company issued $1.05 billion of public bonds in 2021 and raised $273.2 million through common-stock offerings. No shares were repurchased during 2021, although $400 million remained authorized under the repurchase program.
- COVID-19-related operating conditions generally improved. Management reported higher achieved rental rates, collections closer to historical norms and resumed auctions in most locations, while reduced tenant move-outs contributed to record occupancy.
Outlook, risks and unusual items
The filing does not provide formal 2022 earnings or revenue guidance. Management expects positive operating cash flow, existing cash, available credit facilities and access to capital markets to satisfy anticipated operating expenses, recurring capital expenditures, debt service, dividends, acquisitions, bridge lending and redevelopment needs over the next twelve months.
Management expects continued acquisition activity, including certificate-of-occupancy stores that may dilute near-term earnings during their two-to-four-year lease-up periods. Nine stores under contract for approximately $136.5 million and three stores to be acquired with joint venture partners for approximately $5.9 million were expected to close in 2022.
- Key risks include competition, declining occupancy or rental rates, economic weakness, higher interest rates, refinancing and credit-market risk, and the need to access debt or equity markets to fund growth and maturities.
- Approximately $1.48 billion of debt was exposed to variable interest rates excluding swaps; a 100-basis-point change was estimated to affect annual interest expense and cash flows by approximately $14.8 million.
- The Company has LIBOR-indexed contracts and is exposed to risks from the transition to alternative reference rates, including SOFR.
- Other material risks include COVID-19 or other pandemics, natural disasters, uninsured losses, environmental liabilities, legal proceedings, data privacy and cybersecurity incidents, tenant reinsurance regulation, joint-venture decision-making limitations and maintenance of REIT status.
- No material impairments were recorded in 2021. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter was the valuation and purchase-price allocation of acquired stores.
Important facts for investors to verify
- Separate recurring operating performance from the $140.8 million of 2021 real estate transaction gains when evaluating earnings growth.
- Reconcile FFO and same-store NOI to GAAP net income and operating cash flow, and assess the effect of acquisitions, dispositions and joint ventures.
- Review debt maturities, variable-rate exposure, swap coverage, LIBOR-to-SOFR transition terms and the Company’s ability to refinance future maturities.
- Monitor occupancy, rental-rate growth, tenant retention, concessions, bad debt and competitive supply as unusually strong 2021 conditions normalize.
- Evaluate acquisition pricing, lease-up dilution, pending 2022 acquisitions and the capital required to fund future growth.
- Confirm dividend sustainability relative to operating cash flow, FFO, debt service and the REIT distribution requirement.
- Review joint-venture economics, preferred investments, bridge-loan exposures and counterparty or redemption terms.