Extra Space CEO: New supply growth could ramp up next year

John Egan
February 27, 2022

Growth of new supply in the self-storage industry has tapered off in recent years. However, Joe Margolis, CEO of Extra Space Storage, anticipates supply growth will pick up again in 2023.

During the self-storage REIT’s fourth-quarter earnings call Feb. 24, Margolis said he “would not at all be surprised” if the recent year-to-year decline of supply growth reverses itself next year.

“I am concerned that given the tremendous performance in the asset class and the amount of capital seeking exposure to storage that we’ll see an uptick in new development,” Margolis told Wall Street analysts. “We know how to manage through that. We’ve done that before … .”

He said growth in new supply will provide opportunities for Salt Lake City, UT-based Extra Space, such as third-party management agreements for owners, bridge loans for owners and operators, and purchases of certificate-of-occupancy facilities from developers.

Margolis said 28% of the REIT’s facilities were affected by new supply in 2019, with that figure dipping to 23% in 2020 and 20% in 2021. Extra Space predicts 18% of its facilities will be affected by new supply this year.

“New supply hasn’t gone away. Stores are still being delivered,” he said. “We get the opportunity to manage an awful lot of those, which is a good thing for us.”

Highlights of Extra Space’s 2021 results include:

  • The REIT made $1.1 billion worth of acquisitions. Extra Space expects to spend $500 million this year on acquisitions, with about half of those deals already closed or under contract. “We saw a good number of kind of year-end, tax-motivated transactions come in the fourth quarter, and we were able to execute on those,” Margolis said. “Almost all of them were single properties or groupings of a very small number of properties.”
  • Same-store revenue climbed 13.8% compared with 2020. This year, same-store revenue is expected to rise 10.5% to 12.5%.
  • Same-store NOI jumped 19.7% compared with the previous year. In 2021, same-store revenue is projected to grow 11.5% to 14.5%.
  • Same-store expenses fell 1% compared with 2020. Same-store expense growth is expected to reach 6% to 7.5% this year.

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