More and more operators are jumping on the Extra Space bandwagon.
The company’s pipeline of potential management contracts has doubled since last year, CEO Joe Margolis said during the company’s first quarter earnings call with analysts.
“A year ago we had 150 properties in the pipeline, we have about 300 properties now,” Margolis said.
While much of the new management deals have been driven by new development, Margolis said the share of existing operators is also increasing compared to last year as they face tougher operating environments.
“We’re experiencing revenue deceleration in our portfolio, and we know that folks that don’t have our platform and our systems are less able to deal with a tougher market, as maintaining performance gets harder, more and more individual operators will turn to professional management,” Margolis said.
Demand for management
Margolis said that last year the vast majority of its management pipeline was made up of developers of new properties, but now the percentage of existing operators interested in management is on the rise.
“Both the pipeline has increased and the mix, the percentage of existing in the pipeline, has increased,” Margolis said
The company added 27 managed stores to its pipeline during the first quarter, 40 percent of which were existing properties. Existing stores are somewhat more beneficial to Extra Space’s bottom line, since management fees are a percentage of income. New lease up stores take some time to gain occupancy before they start generating more cash.
Extra Space had 421 stores under management for third-party owners at the end of the quarter.
First quarter results
Same-store revenue grew 5.8 percent during the first quarter, and income grew 9.2 percent.
The company ended the quarter with a same-store occupancy of 91.4 percent, slightly down from last year’s 92.2 percent.
Overall revenue increased more than 14 percent for a total of $263 million during the quarter, compared to the same period last year. Overall income growth was virtually flat compared to the previous year due to a 2.2 percent increase in expenses.
The company acquired four storage facilities during the quarter including two operating stores for $25.5 million. The company purchased two newly developed facilities at C/O with a JV partner for $16.2 million.
Margolis said the company is growing more conservative in its acquisition strategy and will instead put more money towards expansions of existing properties. The company typically spends $30 to $40 million a year on value-add projects, but now the company has a pipeline of 55 value-add projects at a cost of $175 million in the works.