Extra Space Storage started 2017 with a new CEO, Joe Margolis.
Margolis, a longtime board member and until recently the company’s chief investment officer, takes the reigns amid a period of murky waters for the industry as a whole.
“As we expected, revenue growth moderated throughout 2016, as the benefit from growing occupancy went away and street rate growth trended from peak levels to more historically normal levels by year-end,” Margolis said during a conference call with analysts.
Some ups, some downs
Margolis noted that while some markets experienced decelerated growth, other markets saw acceleration in growth during 2016. For example, Denver and St. Louis saw slightly negative growth during the fourth quarter, while Seattle was up almost 12 percent and Sacramento was up 16 percent.
“We benefit from our highly diversified portfolio, which reduces the volatility of cyclical markets,” Margolis said.
Overall same-store revenue was up 6.9 percent in 2016, with a net operating income increase of 9.2 percent year-over-year. Faced with mounting new supply in a number of markets and other headwinds, Extra Space is expecting slower growth in 2017: the company forecasts up to 5 percent same-store revenue growth for the year and up to 5.25% NOI growth.
New supply landscape
Margolis said because of its geographic diversity and strong consumer demand, the company so far as been able to navigate the growing surge of new supply with only “minimal or temporary impact” on stores. In some markets the development cycle has already matured, and in others it is still getting started, Margolis said.
“If you look at Chicago where we would identify 41 new stores, 23 of those have already been delivered. So, you are already deeper into the cycle with more stores delivered than being planned,” Margolis said, “Dallas is maybe on the other end where we have identified 83 stores and only 39 of them have been delivered.”
Margolis said they expect about 900 new self-storage facilities to come online in 2017, and less than that 2018. In the company’s top eight markets, which account for about 40 percent of NOI, Margolis said they have tallied 360 stores in some stage of development—about half of which compete directly with existing Extra Space locations. Margolis noted that many of those are still in the planning phase, a large portion of which may not make it across the finish line.
“But our heads are not in the sand. We recognize that new supply may have greater impact as we get further in the development cycle and we have factored that into our guidance,” Margolis said.