Extra Space Storage's CEO Discusses Q3 2012 Earnings Results - Earnings Call Transcript
October 30, 2012 9:13 PM ET
Extra Space Storage, Inc. (EXR)
Q3 2012 Earnings Call
October 30, 2012 1:00 pm ET
Clint Halverson – Vice President Investor Relations
Spencer F. Kirk – Chairman of the Board & Chief Executive Officer
Karl T. Haas – Chief Operating Officer & Executive Vice President Operations
Scott Stubbs – Chief Financial Officer & Executive Vice President
David Toti – FBR Capital Markets & Co.
[Michael Knott – Green Street Advisors]
Michael Salinksky – RBC Capital Markets
Paula Poskon – Robert W. Baird & Co.
Ross Nussbaum – UBS
Richard Milligan – Raymond James & Associates, Inc.
Michael Bilerman – Citi Investment Research
Todd Thomas – Keybanc Capital Markets
Welcome to the third quarter 2012 Extra Space Storage, Inc. earnings conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to your host for today Mr. Clint Halverson, Vice President Investor Relations. Please proceed.
Welcome to Extra Space Storages third quarter 2012 conference call. In addition to our press release we’ve furnished unaudited supplemental financial information on our website. Please remember that managements’ prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company’s business.
These forward-looking statements are qualified by the cautionary statements contained in the company’s latest filings with the SEC which we encourage our listeners to review. Forward-looking statements represent managements’ estimates as of today, Tuesday, October 30, 2012. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call.
I would now like to turn the call over to Spencer Kirk, Chief Executive Officer.
Spencer F. Kirk
As we start this call I would like to simply say we are keenly aware of the natural disaster that has taken place and is still yet in process. We aware of the destruction and disruption in people’s lives and we want you to know that our thoughts and prayers are with all those that are being impacted, recognizing fully that the aftermath and the challenges going forward are not fully known nor what the course of the storm will yet be. We want to just acknowledge that this is not an optimal time for a call but nonetheless we had to make a decision and we have elected to go forward. But know that we are going to keep good thoughts for all those that have been in harm’s way or will yet be affected.
Extra Space did have an outstanding quarter thanks to the diligent focused efforts of the entire team. The environment and culture here are riveted on innovation, technology and performance. Additionally, our industry leading results speak to the depth and sophistication of our systems, our processes, and our unique financial and ownership structures.
I’ve spoken many times about our ability to deliver double digit FFO growth. This past quarter was no exception with a robust 34% year-over-year increase. Property performance was strong and our results benefited from accretive acquisitions. Speaking of accretive acquisitions, we currently have six properties with an aggregate purchase price of $15 million slated to close by the end of the year on top of the $486 million already closed in 2012.
We continue to execute in a meaningful and substantive way to grow the REIT from open market and off market acquisitions. We are delighted with the success of this quarter and our performance year-to-date. We are keenly aware that the comps for next year will be a very large hurdle. Please remember this statement. I’d now like to turn the time over to Carl to talk about operations.
Karl T. Haas
During the third quarter we experienced very strong same store revenue growth of 6.8% especially in light of the 4.9% revenue growth we had in the third quarter last year. Year-to-date same store revenue is up 6.6%. We continue to see our Internet marketing and revenue management strategies pay big dividends. As we refine our pricing model we will continue to steal market share from our smaller competitors.
Rental demand for storage remained stable in the third quarter and we haven’t seen a meaningful influx of new supply which resulted in record high occupancy levels for our portfolio. We ended the quarter at approximately 90%, up nearly 2% over last year. Stable rentals coupled with the lack of new supply allowed us to increase street rates 5% on average per quarter.
Same store expenses continue to be below budget. The primary drivers for expenses being down by 2.8% were lower repair and maintenance costs, continued benefits from sustainability initiatives and lower credit card processing fees. The benefit of lower credit card processing fees began in October last year and this will dissipate in the fourth quarter.
Discounts were down year-over-year 15% for the quarter and 10% for the year. This is due to higher occupancy and a focused effort to offer the right price and promotion. All those combined to produce third quarter same store operating income of 11.4% on top of 7.3% growth last year. With that I’d like to turn it over to Scott for a little bit more.
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