Self-storage REIT Extra Space Storage saw a hefty lift in profit during the first quarter.
Salt Lake City-based Extra Space posted net income of $37.34 million during the first three months of 2014, up 19 percent from the same period a year earlier.
“We are seeing solid rental activity in most markets, and we’re entering peak rental season with pricing momentum,” CEO Spencer Kirk said during an April 29 call with Wall Street analysts.
Revenue in the first quarter grew by 28 percent compared with the same period last year, with a total of $152.2 million from self-storage operations, tenant insurance and third-party management contracts.
Contributing to Extra Space’s healthy first-quarter numbers was strong performance among the company’s 443 same-store locations. First-quarter net operating income at same-store locations was up 9.4 percent, while rental revenue grew 7.9 percent.
Markets with first-quarter revenue growth above the company’s portfolio average were Chicago, Denver, Houston and Miami. Performing below the company’s portfolio average were Detroit, Indianapolis, Las Vegas and Seattle.
In its quarterly report, the company attributed same-store revenue growth to “gains in occupancy, lower discounts to new customers and higher rental rates for both new and existing customers.”
Extra Space ended the quarter with an overall occupancy rate of 90.4 percent, up 2 percentage points from the same period in 2013.
During the call with Wall Street analysts, Kirk said the REIT is experiencing higher street rates and lower discounts as it heads into the busy rental season. Kirk said street rates were up about 3 percent at the end of March compared with last year; he hopes to see rates go up between 4 percent and 8 percent this summer.
Kirk pinpointed a couple of factors that are boosting the company’s pricing power.
“There is still virtually no new supply,” Kirk said. “Because of the power and the potency of our Internet platform, we’re taking market share from the smaller guy.”
Since the beginning of the year, Extra Space has been busy snatching up facilities.
Early in the quarter, Extra Space closed on a 17-facility deal with Mini Price Storage in Virginia for $200 million. The company bought four more properties during the quarter for about $49.7 million. Those include the purchase of Hoover Self Storage in Birmingham, AL, for $13.8 million. The three remaining properties are in California, Connecticut and Texas.
Since March 31, the company has purchased five more facilities for $60.5 million. Those facilities are in California, Florida and Georgia. The company has four more properties under contract with a total price tag of $39.3 million.
All told, that puts Extra Space’s expected acquisition activity for the first half of the year at $349.5 million. Kirk said the company could spend another $150 million or so during the last six months of the year. That would add up to roughly $500 million for 2014, compared with the $586 million it spent on acquisitions last year.
Kirk said he expects industry consolidation to continue over the next five years as operators bring more facilities to market.
“The advantageous cap rates that are out there today I think are causing lot of people to say, ‘If I don’t sell now, when would I sell?’” Kirk said.