Occupancy gains, reduced discounting and higher rental rates helped Extra Space Storage Inc. cap off an impressive 2013.
The Salt Lake City-based self-storage REIT concluded the year with a 27 percent rise in revenue over the previous year. The company also expanded its footprint during the fourth quarter with the acquisition of 50 properties.
“We are coming off of two years of superior results and heading into what we see to be a great year,” CEO Spencer Kirk said during a conference call with Wall Street analysts. “We expect storage to be amongst the best performing assets in ‘REIT-land’ in 2014.”
The company posted revenue of $520.6 million last year. Rental revenue rose by $100 million over the previous year to $446.6 million. Tenant reinsurance proceeds and management fees made up the rest of the revenue for 2013.
Extra Space notched a profit of $185.5 million in 2013, up 45 percent from the previous year.
Same-store occupancy climbed to 89.7 percent during the year, compared with 88.2 percent in 2012. Net rent per square foot at same-store locations jumped 4.6 percent over the same period to $14.14.
Kirk said he expects rising rents to be a major driver of growth in the coming year.
“I think we’re in a good position to push street rates, and how far we can push them, only time will tell,” Kirk said.
Despite a snowy winter throughout much of the U.S., Extra Space enjoyed a strong fourth quarter. Total revenue increased 25 percent over the same period last year to $141.9 million, while profit more than doubled to $77 million.
The company’s same-store locations continued to perform well in 2013. Same-store rental revenue increased by 7.2 percent, and net operating income grew by 9.9 percent year over year. The company’s same-store locations—344 in all—have been owned for three years or have maintained occupancy of at least 80 percent for one year.
In the fourth quarter, same-store revenue grew by 6.6 percent and same-store net operating income grew by 8.9 percent. New rentals did decline slightly at same-store locations, dropping by half of a percentage point.
The company bought 78 facilities during 2013 for $586 million. Of those deals, 50 closed during the fourth quarter at a price tag of $310.4 million. Of the acquisitions, 24 were buyouts of existing joint ventures.
Today, Extra Space owns 506 facilities outright. Including joint ventures and third-party managed facilities, the company ended the year with 1,029 locations.
So far in 2014, the company has closed on the 17-facility Mini Price Storage portfolio in Virginia and an additional facility in Texas for a total of $213.8 million. Extra Space has an additional eight properties under contract for $89.9 million; those deals are expected to close by the end of April.
With many Class A storage facilities trading hands in recent years, Kirk said the quality of remaining assets is “decent.” Sellers’ expectations have been raised by the high-dollar deals of 2013—which could prove to be a hitch on the acquisition front.
“I think from a seller’s perspective, they are seeing fairly attractive cap rates. From a buyer’s perspective, in theory our cost of capital ticked up over the last 60 or 90 days with interest rates going up. So it will be interesting to see what happens this year,” Kirk said.
Another factor that’s propelling facility operators to sell is heightened competition from REITs, according to Kirk.
“I think there is a growing awareness that it’s becoming more difficult to compete in the world of acquiring customers online, particularly as more and more customers migrate to mobile devices,” Kirk said.
Extra Space expects to spend up to $200 million more on acquisitions through 2014. That amount could go up if existing joint venture partners decide to sell, Kirk said.
“We know that we’ll be in storage in perpetuity, and we know that most of our [joint venture] partners at some point will be looking for liquidity. And when it’s the good time and the appropriate time for them, we’ll be ready to transact,” Kirk said.