Extra Space Storage CEO Discusses Q3 2010 Results - Earnings Call Transcript

Extra Space Storage CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Extra Space Storage, Inc. (



Q3 2010 Earnings Call

October 29, 2010 1:00 pm ET


Clint Halverson - Senior Director, Corporate Communication & Investor Relations

Spencer Kirk - Chairman and CEO

Kent Christensen - CFO

Karl Haas - COO


Christy McElroy - UBS

Mark Metendan - Citi

Todd Thompson - KeyBank Capital Markets

David Toti - FBR

Smedes Rose - KBW

Michael Knott - Green Street Advisors

Michael Salinsky - RBC Capital Markets

Todd Stender - Wells Fargo

Paul Adornato - BMO Capital Markets

Mike Bilerman - Citi

Ross Nussbaum - UBS



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Greetings and welcome to the Extra Space Storage Third Quarter 2010 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Clint Halverson. Thank you Mr. Halverson, you may begin.

Clint Halverson

Thank you, Tanya. Welcome to Extra Space Storage’s third quarter 2010 conference call. In addition to our press release we’ve also furnished unaudited supplemental financial information on our website. Please remember that managements’ prepared remarks and answers to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Examples of forward-looking statements include those related to Extra Space Storage’s development and acquisition program, revenues and operating income, including FFO and guidance. We encourage all of our listeners to review a more detailed discussion related to these forward-looking statements contained in the Company’s filings with the SEC. Forward-looking statements represent management’s estimates as of today, Friday October 29, 2010.

Extra Space Storage assumes no obligation to update these forward-looking statements in the future because of changing market conditions or other circumstances. I would now like to turn the call over to Spencer Kirk, Chairman and Chief Executive Officer.

Spencer Kirk

Welcome, thank you for joining us today. With me are Kent Christensen, our Chief Financial Officer and Karl Haas, our Chief Operating Officer.

We are pleased to announce another strong quarter. We exceeded the top end of our quarterly FFO guidance by $0.01. We experienced strong internal growth at 3.9% same store revenue gain, at 3.1% same store expense decline resulting in a 7.8% same store NOI growth. We had a productive quarter with respect to our external growth strategy. The early signs of improvement on the acquisitions front that we spoke out on our second quarter call has turned out to be.

We purchased three property sourced from our third party management platform in the quarter and we have purchased three additional properties since the end of the quarter. Our marketing efforts from the third party management program have provided meaningful acceleration.

We added another 21 properties to the platform during the third quarter and one more since the end of the quarter. We opened another state-of-the-art development in Florida and we anticipate completing an additional two to four sites by year end. We will complete the remainder of our development pipeline in 2011.

We continue to make improvements to our balance sheet. Since the apex of the credit crisis, our total debt is down 21%. This has increased our financial flexibility. With just two months remaining in 2010, I believe that it is important to assess what we have accomplished year-to-date.

We have driven internal growth and our pricing has stabilized. We’ve incrementally improved various programs to enhance our operational efficiencies and reduce our cost structure. We have created an infrastructure that has multiple levers to generate earnings growth and we are proud of what we have accomplished. However, we are not satisfied and we will continue to use every effort to optimize our results. I’d now like to turn the time over to Karl.

Karl Haas

Thanks Spencer. During the quarter we achieved same store net operating income growth around 7.8% driven by both top line growth and by improving operating efficiencies. Occupancy ended the quarter at 180 basis points compared to last year, 180 basis points above to prior year. With improved occupancy and similar pricing compared to the prior year, combined with decreases in bad debt and discount, we achieved 3.9% same store revenue growth this quarter. While the market is still challenging, we are seeing rentals and vacate comparable to prior years.

We’ve experienced some softness in the pricing to new customers, but continued to have strong pricing power with existing customers. On the expense front, we benefited from the successful tax appeal in 2010 and improved operational efficiency. We’ve continued to aggressively manage all expense categories achieving a 2.6% reduction in controllable expenses.

An example of our operational efficiency is in our customer delinquency mailings where through our relatively simple modification we have reduced our expense almost 50%. Through focus on uses in reductions and retrofits, we are also seeing our utility expenses stay under control and expect even to have more savings as we get further into our retrofit programs.

We continue to push on all of our operational growth levers, but recognized that there are challenges that will likely make our recovery in a moderate way. We will also maximize all opportunities and expect to produce the possible results. In short we will make the most of what the market offers. With that, I would like to turn it over to Kent.

Kent Christensen

Thanks. Last night we reported FFO per share of $0.24 including $0.03 of development dilution and a $0.02 charge related to the write off of a long term office lease with a subtenant that we assumed in the acquisition of Storage USA in 2005.

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