Analyst Note| Kevin Brown, CFA |
Extra Space Storage reported very strong third-quarter results, leading us to increase our fair value estimate for the no-moat company to $178 from $130. Same-store occupancy fell 30 basis points sequentially to 96.7%, but is still up 90 basis points year over year. A combination of higher average rates charged to new and existing customers, higher late fees, and a higher rate of rent collection from tenants led to same-store revenue increasing 18.4%. Meanwhile, the company managed to cut both payroll costs and marketing expenses, leading to same-store operating expenses falling 4.0% year over year. Combined, same-store net operating income increased 27.8%. Management raised 2021 same-store NOI guidance to a range of 18.0%-19.5%, which is 4.25% above the company's prior guidance midpoint but in line with the 18.1% growth the company has reported year to date. While we don't believe that Extra Space Storage will be able to continually produce same-store NOI growth near these record levels beyond the next few quarters, we also don't anticipate a correction coming for the company and believe it should continue to grow at a more modest level off of this higher base.