In the recently wrapped-up second quarter, Extra Space Storage and joint venture partners bought an 11-facility, off-market portfolio for about $228.5 million. The self-storage REIT also purchased a certificate-of-occupancy project, and it’s got another eight facilities under contract for $41 million.

However, during the rest of 2019 and heading into 2020, Salt Lake City, UT-based Extra Space is tapping the brakes on acquisitions — or at least acquisitions of heavily marketed facilities. CEO Joe Margolis said there’s simply too much equity chasing on-the-market deals for Extra Space to be an aggressive bidder on those assets.

“Widely marketed acquisitions are still very expensive. However, we continue to find success acquiring off-market acquisitions through long-standing relationships,” Margolis told Wall Street analysts July 31 during the company’s second-quarter earnings call.

“We’re trying to remain disciplined”

Margolis said that for the time being, the REIT will pursue on-the-market deals only if they deliver long-term value for shareholders. In fact, he doubts many of those deals will make financial sense for Extra Space in the near term.

“There’s lots of equity keeping prices high,” he said, “and we’re trying to remain disciplined.”

Instead of competing against local investors, private equity players and other publicly traded REITs for acquisitions, Margolis said Extra Space will — for now — seek innovative approaches to drive external growth.

More net-lease deals?

One of those approaches could be more net-lease deals like the one Extra Space recently arranged with net-lease REIT W.P. Carey, based in New York City, NY. Under that agreement, Extra Space will lease 36 self-storage facilities from W.P. Carey for 25 years. Extra Space already managed 31 of those properties and will operate the five others.

Since the W.P. Carey transaction was announced in early June, Extra Space has been contacted by other owners interested in net-lease opportunities, Margolis said.

Extra Space’s appetite for further net-lease activity “is as big as the deal dynamics that make sense,” Margolis said.

“We’re not going to target doing any more of these if we can’t get the right type of returns for the risk we’re taking,” he said, “but as long as we can underwrite the deals successfully and they are in markets within our operational footprint, we’d be happy to do more.”

Other highlights of Extra Space’s second-quarter activity included:

  • The company added 48 facilities to its third-party management platform.
  • Same-store revenue and same-store NOI rose by 3.9 percent compared with the same period in 2018.
  • Same-store occupancy declined to 93.6 percent as of June 30, 2019, compared with 94.2 percent on the same date in 2018.
  • Major markets posting above-average revenue growth included Chicago, IL; Hawaii; Las Vegas, NV; Oklahoma City, OK; Phoenix, AZ; and Sacramento, CA.

Major markets posting below-average revenue growth included Charleston, SC; Dallas and Houston, TX; Denver, CO; and Miami and West Palm Beach-Boca Raton, FL

John Egan