Key Takeaways: Tomorrow after the close Best Idea Short EXR and Best Idea Long PSA will report 1Q21 results. With PSA holding its investor day next week on Monday, 5/3 and unlikely to provide a more granular outlook of any kind / steal its own thunder prior to the event, we will be focusing in on EXR tomorrow.
As we presented in our launch, EXR set the highest bar in the space in terms of 2021 guidance with the midpoint of same store revenue growth (+4.88%, see Figure 1 below) set a full +50bps higher than the next closest name in the space (CUBE). This puts extraordinary pressure on the pricing side of the equation - average in-place rents will need to grow +5% or higher this year as the portfolio churns and assuming flat weighted average occupancy rates just to meet the current outlook (forgetting potential raises). With the ridiculously tough occupancy comps coming in 2H21, and EXR and peers likely needing to sacrifice some occupancy in exchange for rate growth later this year, the simple revenue growth math presents risk to the downside. We would highlight two things: (1) while pricing has undeniably been strong, those rates will blend in together with ECRI over the course of the year, and (2) EXR average in-place rents have not grown above +5% in the same-store portfolio since 2016 when the current development cycle began. Neither an unchanged 2021 outlook (less likely) nor a modest increase / narrowing upwards (more likely) to the ranges would be enough to drive the stock higher given already high expectations. A crushing of 1Q and a clean and outright raise would obviously lead us to take another look at our short call.
Other things to watch:
- Management contract and fee growth above $60 million would be a net positive
- Status of the SmartStop preferred investment which generates $12.5 million / $0.09 per share annually of Core FFO - we had heard that it may be taken out by the sponsors
- External growth and the pace of acquisitions above ~$350 million this year - the more the better given EXR's cost of capital
- Bridge loan book - plans to retain more / less than the current $100 million net ($400 million originations / $300 million paid off or sold). There is a balance between the juice this strategy provides to earnings growth and the likely drag on multiple as the book gets bigger (see SLG)
Figure 1:
