Aggressive rental rates during the busy summer season drove growth for Extra Space Storage during the third quarter.
The average rent at the self-storage REIT’s same-store locations during the third quarter was $14.92 per square foot — 59 cents more than the same time last year.
During the summer, street rates were up 7 percent to 8 percent over the previous year, CEO Spencer Kirk told Wall Street analysts. By the start of fall, the rates had dropped to 2 percent to 3 percent over the previous year.
“We expect to be less aggressive in the fall and winter in order to maintain occupancy so that we can push rates again in the summer,” Kirk said.
What I think Extra Space has become really good at is driving traffic to a property. I have confidence in our Internet marketing prowess. It’s something, quite frankly, that the small guy can’t compete [with].
— Spencer Kirk, CEO of Extra Space Storage
Average same-store occupancy for the quarter was 91.7 percent, compared with 90.7 percent during the same quarter in 2013.
Same-store revenue grew at a healthy clip of 7.2 percent, while same-store profit climbed 9.3 percent. Total revenue during the quarter jumped to $167.4 million, a 25.7 percent rise over the comparable period a year ago.
On the horizon
On the acquisition front, Extra Space was fairly quiet during the third quarter, picking up just three facilities (in Florida, Georgia and Texas) for a combined $26.7 million. Since the end of the third quarter, the company has purchased two more facilities, one each in Colorado and Georgia, for a total of $17.5 million.
Expansion is slated to pick up, however, with 11 facility acquisitions on track to close by the end of the first quarter of 2015. The combined price tag: $108.2 million.
In addition, Extra Space is under contract to buy seven newly developed facilities for $69.5 million. Under these arrangements, known as “certificate of occupancy” deals, Extra Space agrees to buy a facility from the developer once it’s completed.
According to Kirk, relying on certificate-of-occupancy deals instead of developing new properties in-house eliminates two of the three risks associated with development: construction risk and entitlement risk. As for the lease-up risk, Kirk said Extra Space is comfortable taking that on.
“What I think Extra Space has become really good at is driving traffic to a property. I have confidence in our Internet marketing prowess,” Kirk said. “It’s something, quite frankly, that the small guy can’t compete [with].”
New supply limited
While an uptick in self-storage development is underway, Kirk said he doesn’t think there’ll be enough new supply to affect the REIT’s bottom line.
“With the performance of self-storage, everybody wants to get in, but land prices are very high,” Kirk said.
In addition, he said, the ability to obtain financing and to compete against the REITs for Internet traffic continues to pose challenges to industry newcomers.