For Extra Space Storage, 2018 was another solid year, with same-store revenue in line with expectations. According to Joe Margolis, CEO of the REIT, the company’s diversified portfolio and best-in-class platform are maintaining very high occupancies while producing positive rate growth despite a challenging environment with new supply in many markets.
On the firm’s Q4 earnings call, Margolis noted that “Expenses were also generally in line with expectations with the exception of a couple of uncontrollable expenses which hit in the first half of the year. Our team stepped up and did a great job with controllable expenses, especially in the last two quarters and found ways to offset some of the expense growth through savings and efficiencies.”
The REIT’s same-store NOI grew 4% for the year despite a challenging operating environment, he explained. “Same-store NOI was enhanced by our strong external growth from third-party management and off-market acquisitions resulting in core FFO growth of 6.6% which was above the high-end of our annual guidance.”
Looking forward to 2019, he noted that many of the themes are similar to 2018. “We continue to see new supply delivered in many markets. The rate of deliveries has started to slow, and while we still believe new openings in 2019 will be lower than in 2018, we expect the impact of new supply to be greater due to the cumulative impact of several years of elevated development. These concerns are the same concerns we discussed on our call a year ago. However, there are also some encouraging themes from last year that will continue into 2019.”
First, the economy continues to be healthy, he said. Second, “we are in a need-based industry with steady demand and solid fundamentals. Third, concerns about declining use of storage due to millennials, disruptive new businesses or otherwise are proving to be ill-founded. And fourth, large operators continue to have a significant technology advantage over most of the industry.”
As a result, he said, occupancy remains very strong and the company has positive rate growth in most markets. “We have a geographically diverse portfolio and a platform built to drive traffic to our stores, our website and our call centers. In short, Extra Space is well prepared to navigate today’s competitive landscape.”