Extra Space Storage Inc. Reports 2023 Second Quarter Results

SALT LAKE CITY, Aug. 3, 2023 /PRNewswire/ -- Extra Space Storage Inc. (NYSE: EXR) (the "Company"), a leading owner and operator of self-storage facilities in the United States and a constituent of the S&P 500, announced operating results for the three and six months ended June 30, 2023.

Highlights for the three months ended June 30, 2023:

• Achieved net income attributable to common stockholders of $1.50 per diluted share, representing a 13.3% decrease compared to the same period in the prior year, which included a one-time gain of $14.2 million.
• Achieved funds from operations attributable to common stockholders and unit holders ("FFO") of $2.06 per diluted share. FFO, excluding adjustments ("Core FFO"), was also $2.06 per diluted share, representing a 3.3% decrease compared to the same period in the prior year.
• Increased same-store revenue by 2.7% and same-store net operating income ("NOI") by 2.6% compared to the same period in the prior year.
• Reported ending same-store occupancy of 94.5% as of June 30, 2023, compared to 95.8% as of June 30, 2022.
• Acquired one operating store and two stores at completion of construction (a "Certificate of Occupancy store" or "C of O store") for a total cost of approximately $32.8 million.
• Originated $68.6 million in mortgage and mezzanine bridge loans and sold $24.1 million in mortgage bridge loans.
• Completed a public bond offering issuing $450.0 million of 5.5% senior unsecured notes due 2030.
• Completed a convertible preferred equity investment in Strategic Storage Trust VI, Inc., an affiliate of SmartStop Self Storage REIT, Inc. of $150.0 million with dividend rate of 8.35%.
• Added 54 stores (47 stores net) to the Company's third-party management platform. As of June 30, 2023, the Company managed 978 stores for third parties and 323 stores in unconsolidated joint ventures, for a total of 1,301 managed stores.
• Paid a quarterly dividend of $1.62 per share.

Highlights for the six months ended June 30, 2023:

• Achieved net income attributable to common stockholders of $2.95 per diluted share, representing a 9.0% decrease compared to the same period in the prior year, which included a one-time gain of $14.2 million.
• Achieved FFO of $4.08 per diluted share, and Core FFO was also $4.08 per diluted share, representing a 1.4% decrease compared to the same period in the prior year.
• Increased same-store revenue by 5.0% and same-store NOI by 5.5% compared to the same period in the prior year.
• Acquired one operating store and three C of O stores for a total cost of approximately $45.9 million.
• In conjunction with joint venture partners, acquired five operating stores for a total cost of approximately $101.2 million, of which the Company invested $20.2 million.
• Originated $121.6 million in mortgage and mezzanine bridge loans and sold $58.3 million in mortgage bridge loans.
• Added 102 stores (91 stores net) to the Company's third-party management platform.

Joe Margolis, CEO of Extra Space Storage Inc., commented: "We maintained strong occupancy of 94.5%, driving same-store revenue growth of 2.7% in the quarter, despite exceptionally difficult year over year comparables from pandemic highs. While property net operating income and Core FFO were both on budget in the quarter, we have revised our outlook for the back half of the year due to lower than expected new customer rates in June and July.

We remain confident in the durable nature of self-storage, and the strength of the Extra Space platform, which was enhanced through our recent merger with Life Storage.  The strategic combination increases the diversification and scale of our portfolio and our balance sheet as recognized in our recent upgrade to BBB+ by S&P.  We expect to create at least $100 million in synergies through the transaction, and to enhance our future internal and external growth through our increased scale."

FFO Per Share:

The following table (unaudited) outlines the Company's FFO and Core FFO for the three and six months ended June 30, 2023 and 2022.  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):

Operating Results and Same-Store Performance:

The following table (unaudited) outlines the Company's same-store performance for the three and six months ended June 30, 2023 and 2022 (amounts shown in thousands, except store count data)¹:

Same-store revenues for the three and six months ended June 30, 2023 increased compared to the same periods in 2022 due to higher average rates to existing customers and higher other operating income partially offset by lower occupancy. 

Details related to the same-store performance of stores by metropolitan statistical area ("MSA") for the three and six months ended June 30, 2023 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:

Life Storage Merger:

On July 20, 2023, the Company closed its merger with Life Storage, Inc. ("Life Storage" or "LSI") in an all-stock transaction (the "Life Storage Merger").  Under the terms of the Life Storage Merger, Life Storage stockholders received 0.895 of a share of common stock of the Company for each issued and outstanding share of Life Storage they owned for an estimated total consideration of $11.6 billion, based on the Company's closing share price on July 19, 2023. With completion of the Life Storage Merger, Extra Space currently has a portfolio of over 3,500 locations and over 270.0 million net rentable square feet operating under the Extra Space, Life Storage and Storage Express brands.

At closing, the Company retired $1.16 billion in balances on Life Storage's line of credit which included $375.0 million which Life Storage used to pay off its private placement notes in connection with the closing.  The Company also paid off and/or defeased $32.0 million in secured loans.  On July 25, 2023, the Company completed an obligor exchange offers and consent solicitations (together, the "Exchange Offers") related to Life Storage's 3.5% Senior Notes due 2026, its 3.9% Senior Notes due 2027, its 4.0% Senior Notes due 2029, its 2.2% Senior Notes due 2030 and its 2.4% Senior Notes due 2031.  Upon the closing of the Exchange Offers, a total of $2.35 billion of Life Storage's senior notes were exchanged for senior notes of the same tenor of Extra Space Storage L.P. Remaining Life Storage senior note balances which were not exchanged total $48.9 million and no longer have any financial reporting requirements or covenants. Additional details of the Exchange Offers, including participation by senior note tranche, can be found in the Company's press release and Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 25, 2023.

Additional information related to Life Storage's second quarter 2023 performance, including details related to the same-store pool, can be found in supplemental financial information published on the Company's Investor Relations website at https://ir.extraspace.com/.

Other Acquisitions:

The following table (unaudited) outlines the Company's other acquisitions and developments that are closed, completed or under agreement (dollars in thousands).  Totals in the table do not include the stores or values associated with the Life Storage Merger.

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.

Preferred Stock Investment:

As previously announced, during the three months ended June 30, 2023, the Company invested $150.0 million in shares of newly issued convertible preferred stock of Strategic Storage Trust VI, Inc., an affiliate of SmartStop Self Storage REIT, Inc. The dividend rate for the preferred shares is 8.35% per annum, subject to increase after five years.  The preferred shares are generally not redeemable for three years, except in the case of a change of control, initial listing or certain other events, and are redeemable thereafter subject to a redemption premium.

Bridge Loans:

During the three months ended June 30, 2023, the Company originated $68.6 million in bridge loans and sold $24.1 million in bridge loans, resulting in outstanding balances of approximately $540.4 million at quarter end. The Company has an additional $144.2 million in bridge loans that closed subsequent to quarter end or are under agreement to close in 2023 and an additional $119.6 million under agreement to close in 2024.  Additional details related to the Company's loan activity and balances held are included in the supplemental financial information published on the Company's Investor Relations website at https://ir.extraspace.com/.

Property Management:

As of June 30, 2023, the Company managed 978 stores for third-party owners and 323 stores owned in unconsolidated joint ventures, for a total of 1,301 stores under management.  The Company is the largest self-storage management company in the United States.

Balance Sheet:

During the three months ended June 30, 2023, the Company completed a public bond offering issuing $450.0 million of 5.5% senior unsecured notes due 2030.  The Company also amended and restated its credit facility, increasing revolving capacity to $1.94 billion (from $1.25 billion) and extending the maturity of the revolving commitment to June 2027. As part of the amendment, the Company also paid off a term loan within the credit facility of $425.0 million and added a term loan within the credit facility of $1.0 billion.  The new term loan was not drawn at June 30, 2023, but was drawn in full on July 20, 2023 in conjunction with the closing of the Life Storage Merger.

During the three months ended June 30, 2023, the Company did not issue any shares on its ATM program, and it currently has $800.0 million available for issuance. The Company did not repurchase any shares of common stock using its stock repurchase program during the quarter, and as of June 30, 2023, the Company had authorization to purchase up to an additional $337.0 million under the plan. 

As of June 30, 2023, the Company's percentage of fixed-rate debt to total debt was 73.4%. Net of the impact of variable rate receivables, the effective fixed-rate debt to total debt was 80.6%.  The weighted average interest rates of the Company's fixed and variable-rate debt were 3.8% and 6.4%, respectively. The combined weighted average interest rate was 4.5% with a weighted average maturity of approximately 5.1 years.  Full details related to the Company's debt schedule are included in the supplemental financial information published on the Company's Investor Relations website at https://ir.extraspace.com/.

On July 25, 2023, S&P Global upgraded all of its ratings on the Company to BBB+ stable.

Dividends:

On June 30, 2023, the Company paid a second quarter common stock dividend of $1.62 per share to stockholders of record at the close of business on June 15, 2023.

On July 19, 2023, the Company paid a dividend of $1.01 per share to stockholders of record at the close of business on July 13, 2023, in conjunction with the Life Storage Merger.  It is anticipated that Extra Space will pay an additional dividend for the third quarter, keeping with the Company's customary quarterly dividend timing.  The pre-closing dividend will be attributed to the total amount paid for the third quarter, so that between the pre-closing dividend and the additional quarterly dividend to be paid, an Extra Space stockholder will receive a total dividend consistent with the amount that the Company's board of directors would have otherwise declared for the whole third quarter but for the Life Storage Merger closing.

Outlook:

Due to the proximity of the July 20, 2023 Life Storage merger closing to this earnings release, the following table outlines the Company's initial and revised Core FFO estimates and annual assumptions for the year ending December 31, 2023¹, excluding any impact from the Life Storage Merger.

FFO estimates for the year are fully diluted for an estimated average number of shares and 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.

In addition to the Company's estimates and assumptions excluding the Life Storage Merger, the Company presents the net anticipated dilution to Core FFO from the merger in the year ending December 31, 2023, and other information related to the merger.  Full estimates and assumptions for the combined company will be provided at a later date.

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 Information" 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 Friday, August 4, 2023, to discuss its financial results. Telephone participants may avoid any delays in joining the conference call by pre-registering for the call using the following link to receive a special dial-in number and PIN:  https://register.vevent.com/register/BI3eb70db729a8472a9aa8005624bf6983.

A live webcast of the call will also be available on the Company's investor relations website at https://ir.extraspace.com. To listen to the live webcast, 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 investor relations section of the Company's website beginning at 5:00 p.m. Eastern Time on August 4, 2023. 

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, statements concerning the recently completed Life Storage Merger 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, estimated hurricane-related insurance claims 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 realize the expected benefits of the Life Storage Merger;
• the risk that Life Storage's business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected, including our ability to retain and hire key personnel;
• the uncertainty of expected future financial performance and results of the combined company following completion of the Life Storage merger;
• 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, including increased or unanticipated competition for our or Life Storage's properties, 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;
• our ability to recover losses under our insurance policies;
• 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;
• our reliance on information technologies, which are vulnerable to, among other things, attack from computer viruses and malware, hacking, cyberattacks and other unauthorized access or misuse, any of which could adversely affect our business and 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 or future changes to U.S. tax laws;
• the failure to maintain our REIT status for U.S. federal income tax purposes;
• impacts from any outbreak of highly infectious or contagious diseases, including reduced demand for self-storage space and ancillary products, and potential decreases in occupancy and rental rates and staffing levels, which could adversely affect our results; 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 914 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. No modification has been made to the same-store pool to include any assets acquired from Life Storage.

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 June 30, 2023, the Company owned and/or operated 2,438 self-storage stores in 41 states and Washington, D.C. The Company's stores comprise approximately 1.7 million units and approximately 184.0 million square feet of rentable space.

With the completed Life Storage Merger on July 20, 2023, Extra Space currently has over 3,500 locations under the Extra Space, Life Storage and Storage Express brands, and it is the largest operator of self-storage properties in the United States.  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.

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SOURCE Extra Space Storage Inc.

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