As the company enters 2016, Extra Space Storage CEO said new industry supply won’t affect the Salt Lake City, UT-based REIT’s performance any time soon—but softness in at least one market could partially be to blame on new supply.

“New supply is not a factor really in 2016, I don’t think it’s a factor in 2017,” Spencer Kirk said during a recent call with financial analysts.

The company continued to benefit from a lack of new storage development in 2015. The high demand, low supply environment helped the company maintain an average occupancy rate of 92.6 percent, that’s up from 90.2 percent the previous year.

Not a hockey stick

Kirk said that lending remains difficult for would-be developers as credit requirements are getting tighter. In addition obtaining entitlements is “very, very difficult” around the country, he said.

“Although there will be new supply, I still maintain its likely to be muted and I don’t expect a hockey stick for the aforementioned reasons,” Kirk said.

Kirk personally estimates that 600 new facilities will be delivered in 2016, which he adds is barely enough to keep up with demand generated by natural population growth.

An Extra Space operated facility at 4455 W Montrose Ave in Chicago.
An Extra Space operated facility at 4455 W Montrose Ave in Chicago.

Chicago affected

While new supply in general doesn’t seem likely to affect Extra Space as a whole anytime soon, Chief Financial Officer Scott Stubbs acknowledged that outsized supply growth in Chicago contributed to below average results for the company’s stores in that market.

“I would tell you a portion of it is new supply, a portion of it is in the overall health of the economy there,” Stubbs said during the recent earnings call.

Net operating income at the company’s same-store Chicago locations fell 11.9 percent during the fourth quarter of 2015, the only market in the company’s network to see a decline in profits. Occupancy fell to 90.7 percent during the quarter, compared to 91.1 percent the year before.

Kirk said that specific markets can ebb and flow over time, but the company’s strategy of being in multiple markets across the country protects its bottom-line from being affect by localized market forces.

“If one market is up another might be down, and Chicago right now is feeling softness and we are okay with that,” Kirk said. “It’s not what we want, but it’s not causing us to [not] have a good night’s rest.”

Outstanding year

Overall, however, the company experienced outstanding results in 2015. Total revenue climbed 20.8 percent over the previous year to reach $782.27 million. Profits rose 6.9 percent to reach $209 million. Same-store revenue climbed 9.3 percent compared to the previous year with same-store profits rising 11.9 percent.

The company’s total revenue was boosted by its acquisition of 173 stores in 2015 for $1.77 billion. Most notably, the company acquired 166 stores from Strategic Storage Trust in last year’s biggest self-storage transaction. The company also acquired five new facilities from developers upon completion, and invested in two more new stores with join venture partners.

The next big deal

Extra Space is on track to acquire 31 operating facilities and seven newly constructed facilities in 2016. The company also plans to buy seven new facilities with joint venture partners.

So far this year the company has acquired 15 operating facilities and one new facility.

Kirk said the company is actively looking for new acquisition opportunities, but he doesn’t expect anything out there will match the scale of recent SmartStop deal.

“We expect to have a decent year in 2016, but I can’t predict another home run hit like SmartStop in 2016, because there isn’t anything right now on the table,” Kirk said.

Alexander Harris