Self-storage REIT Extra Space Storage on Feb. 18 issued a relatively weak forecast for 2020, highlighting what a research note from Citi called “continued deceleration” across the self-storage market.

Along with reporting financial results for 2019, Salt Lake City, UT-based Extra Space projected key indicators for 2020. The REIT expects same-store revenue growth of 0.75 percent to 1.75 percent this year, same-store NOI growth of -0.50 percent to 1 percent and same-store expense growth of 4 percent to 5 percent.

Jonathan Hughes, an analyst at Raymond James & Associates Inc., said in a research note that Extra Space’s 2020 outlook echoes “familiar headwinds of new supply pressure, property tax hikes and elevated marketing spend.”

“An incredible decade”

In 2019, same-store revenue rose 3.5 percent, with same-store NOI increasing 2.9 percent and same-store expenses climbing 4.9 percent. Joe Margolis, CEO of Extra Space, described those results as solid, closing out “an incredible decade of performance.”

“Most of the headwinds faced in 2019 will continue to be present in 2020. The supply cycle we find ourselves in will continue to dampen performance, but it is moderating and will reverse,” Margolis told Wall Street analysts Feb. 19.

“The light at the end of the tunnel”

Despite the soft forecast for 2020, Margolis said Extra Space is “seeing the light at the end of the tunnel” in terms of overcoming the new-supply crunch. Deliveries of new supply peaked in 2018, he said, and moderated somewhat in 2019. This year, the decline in deliveries will be “significantly greater” than in 2019, Margolis said.

Nonetheless, he noted, “we’re still fighting through this development cycle.”

“Even with all this new supply delivered, we are at an extremely high occupancy, and this is a direct result of our ability to acquire customers. Our machine works,” Margolis said. “We have positive same-store revenue growth, even though two-thirds of our property have had new supply delivered in their markets.”

“So, I know we’re in difficult times,” he added, “but I am very excited about our opportunity to outperform in 2020 and beyond.”

Other highlights of Extra Space’s earnings release:

  • The REIT anticipates spending $230 million on acquisitions this year, down from $423.6 million in 2019. “As always, we are committed to being disciplined, but we will be opportunistic and innovative in seeking additional ways to grow externally,” said Scott Stubbs, executive vice president and chief financial officer.
  • Same-store occupancy dipped from 92.4 percent in 2018 to 91.7 percent in 2019.
  • The REIT added 41 facilities to its third-party management platform.
  • Major markets with above-average revenue growth in 2019 included Chicago, IL; Las Vegas, NV; Memphis, TN; Oklahoma City, OK; Phoenix, AZ; and Virginia Beach-Norfolk, VA.
  • Major markets with below-average revenue growth in 2019 included Charleston, SC; Denver, CO; Houston, TX; and Miami, Tampa and West Palm Beach-Boca Raton, FL.
John Egan