Extra Space Storage is on track to complete more than $1 billion in acquisitions this year, fueled primarily by joint venture partnerships and its third-party management pipeline.
In an Oct. 31 call with Wall Street analysts, Extra Space CEO Joe Margolis said those business ties will account for a little over 80 percent of the $1 billion-plus in acquisitions in 2018, with the REIT contributing about $600 million to those deals.
The other one-fifth of this year’s deals involve brokered transactions in which Extra Space is competing against other prospective buyers, he said.
Selective and disciplined
Margolis said he expects Salt Lake City, UT-based REIT to maintain that acquisition philosophy.
“We find very few situations where we can be the high bidder in a brokered situation,” he said. “We’re very lucky and fortunate to have these great relationships, and some are [part of a] proprietary pipeline that allows us to continue our external growth.”
Margolis said Extra Space has adopted a “selective and disciplined” approach to acquisitions.
“In a perfect world, I would love to buy more from the mom-and-pops and from under-managed properties and get more juice out of the deals, but I don’t want to pay for it,” Margolis said. “So, we’ll do that when the pricing is right. And when the pricing isn’t right, we need to remain disciplined and patient.”
In the third quarter alone, Extra Space added five existing facilities and one certificate-of-occupancy facility to its portfolio for a total of $74.3 million. With joint venture partners, the REIT added eight operating facilities, three certificate-of-occupancy facilities and one ground-up project at a cost of $127.1 million, including a $34.6 million investment from the REIT.
The new-delivery pinch
Margolis noted that the REIT is seeing a delay in new-supply deliveries in some markets along with abandonment of many proposed projects. Extra Space anticipates a slowdown in deliveries in 2019, although Margolis said the REIT’s portfolio still will feel a new-delivery pinch.
“Our highly diversified portfolio, while certainly not immune to the effects of new supply, reduces volatility,” Margolis said. “And our sophisticated platform is better prepared to respond to competition than ever before.”
In terms of new supply, Margolis singled out Florida as a place where he thinks the situation will get worse before it gets better, in addition to Dallas, TX, and Portland, OR. Meanwhile, the new-supply picture “may get worse” next year in the Washington, DC, market, he said, whereas the Chicago, IL, market is showing signs of improvement in that regard.
Extra Space markets that posted above-average revenue growth in the third quarter were Atlanta, GA; Hawaii; Indianapolis, IN; Las Vegas, NV; and Los Angeles, CA. At the other end of the spectrum, major markets where revenue growth lagged were Charleston, SC; Dallas; Norfolk-Virginia Beach, VA; the District of Columbia; and West Palm Beach-Boca Raton, FL.
Other financial highlights from the third quarter include:
- A 3.2 percent rise in same-store revenue compared with the same period in 2017.
- A 3.3 percent rise in same-store NOI compared with the same period in 2017.
- An uptick in same-store occupancy, from 93.7 percent in the third quarter of 2017 to 93.9 percent in the third quarter of this year.