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| EXR > SEC Filings for EXR > Form 10-Q on 5-Nov-2012 | All Recent SEC Filings |
5-Nov-2012
Quarterly Report
Amounts in thousands, except property and share data
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY LANGUAGE
The following discussion and analysis should be read in conjunction with our "Unaudited Condensed Consolidated Financial Statements" and the "Notes to Unaudited Condensed Consolidated Financial Statements" appearing elsewhere in this report and the "Consolidated Financial Statements," "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Form 10-K for the year ended December 31, 2011. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Statement on Forward-Looking Information." (Amounts in thousands except property and share data unless otherwise stated).
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report and the audited financial statements contained in our Form 10-K for the year ended December 31, 2011 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
OVERVIEW
We are a fully integrated, self-administered and self-managed REIT, formed to continue the business commenced in 1977 by our predecessor companies to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties. We derive our revenues from rents received from tenants under existing leases at each of our self-storage properties; management fees on the properties we manage for joint venture partners, franchisees and unaffiliated third parties; and our tenant reinsurance program. Our management fee is equal to approximately 6% of total revenues generated by the managed properties.
We operate in competitive markets, often where consumers have multiple self-storage properties from which to choose. Competition has impacted, and will continue to impact, our property results. We experience seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. Our operating results depend materially on our ability to lease available self-storage units and actively manage rental rates, and on the ability of our tenants to make required rental payments. We believe we are able to respond quickly and effectively to changes in local, regional and national economic conditions by centrally adjusting rental rates through the combination of our revenue management team and our industry-leading technology systems.
We continue to evaluate a range of new initiatives and opportunities in order to enable us to maximize stockholder value. Our strategies to maximize stockholder value include the following:
† Maximize the performance of properties through strategic, efficient and proactive management. We pursue revenue-generating and expense-minimizing opportunities in our operations. Our revenue management team seeks to maximize revenue by responding to changing market conditions through our technology system's ability to provide real-time, interactive rental rate and discount management. Our size allows greater ability than the majority of our competitors to
implement national, regional and local marketing programs, which we believe will attract more customers to our stores at a lower net cost.
† Acquire self-storage properties from strategic partners and third parties. Our acquisitions team continues to pursue the acquisition of single properties and multi-property portfolios that we believe can provide stockholder value. We have established a reputation as a reliable, ethical buyer, which we believe enhances our ability to negotiate and close acquisitions. In addition, we believe our status as an UPREIT enables flexibility when structuring deals. We continue to see available acquisitions on which to bid and are seeing increasing prices. However, we remain a disciplined buyer and look for acquisitions that will strengthen our portfolio and increase stockholder value.
† Expand our management business. Our management business enables us to generate increased revenues through management fees and expand our geographic footprint. This expanded footprint enables us to reduce our operating costs through economies of scale. In addition, we see our management business as a future acquisition pipeline. We pursue strategic relationships with owners whose properties would enhance our portfolio in the event an opportunity arises to acquire the properties.
Recent U.S. and international market and economic conditions have been challenging, with slower growth. Turbulence in U.S. and international markets and economies may adversely affect our liquidity and financial condition, and the financial condition of our customers. If these market conditions continue, they may result in an adverse effect on our financial condition and results of operations.
PROPERTIES
As of September 30, 2012, we owned or had ownership interests in 720 operating self-storage properties. Of these properties, 416 are wholly-owned and 304 are held in joint ventures. In addition, we managed 190 properties for franchisees or third parties, bringing the total number of operating properties that we own and/or manage to 910. These properties are located in 34 states, Washington, D.C. and Puerto Rico. As of September 30, 2012, we owned and/or managed approximately 66.7 million square feet of space with approximately 610,000 units.
Our properties are generally situated in convenient, highly visible locations clustered around large population centers such as Atlanta, Baltimore/Washington, D.C., Boston, Chicago, Dallas, Houston, Las Vegas, Los Angeles, Miami, New York City, Orlando, Philadelphia, Phoenix, St. Petersburg/Tampa and San Francisco/Oakland. These areas all enjoy above-average population growth and income levels. The clustering of assets around these population centers enables us to reduce our operating costs through economies of scale. Our acquisitions and management business have given us an increased scale in many core markets as well as a foothold in many markets where we had no previous presence.
We consider a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. We consider a property to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1, or has been open for three years.
As of September 30, 2012, over 510,000 tenants were leasing storage units at our 910 operating properties that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as markets permit. Although leases are short-term in duration, the typical tenant tends to remain at our properties for an extended period of time. For properties that were stabilized as of September 30, 2012, the median length of stay was approximately 13 months. These existing tenants generally receive rate increases at least annually, for which no direct correlation has been drawn to our vacancy trends. The average annual rent per square foot for our existing customers at these stabilized properties, net of discounts and bad debt, was $13.81 at September 30, 2012, compared to $13.50 at September 30, 2011. This compares to our average annual rent per square foot for new leases of $14.43 at September 30, 2012, compared to $13.94 at September 30, 2011. The average discounts during these periods were 4.4% and 5.9%, respectively.
Our property portfolio is made up of different types of construction and building configurations depending on the site and the municipality where it is located. Most often sites are what we consider "hybrid" facilities, a mix of both drive-up buildings and multi-floor buildings. We have a number of multi-floor buildings with elevator access only, and a number of facilities featuring ground-floor access only.
The following table sets forth additional information regarding the occupancy of our stabilized properties by state as of September 30, 2012 and 2011. The information as of September 30, 2011, is on a pro forma basis as though all the properties owned and/or managed at September 30, 2012, were under our control as of September 30, 2011.
Stabilized Property Data Based on Location
Company Pro forma Company Pro forma Company Pro forma
Net Rentable Net Rentable Square Foot Square Foot
Number of Units as Number of Units as Square Feet as of Square Feet as of Occupancy % Occupancy %
Number of of September 30, of September 30, September 30, September 30, September 30, September 30,
Location Properties 2012 (1) 2011 2012 (2) 2011 2012 2011
Wholly-owned
properties
Alabama 4 1,970 1,958 233,643 233,454 85.2 % 81.2 %
Arizona 6 3,546 3,544 436,093 436,368 86.5 % 86.7 %
California 77 57,040 56,900 5,892,866 5,891,909 87.2 % 85.7 %
Colorado 11 5,265 5,257 660,845 661,320 92.5 % 91.6 %
Connecticut 4 2,647 2,661 257,818 257,848 89.3 % 89.3 %
Florida 37 24,618 24,748 2,636,997 2,639,001 88.5 % 85.5 %
Georgia 16 8,406 8,404 1,087,694 1,088,434 89.3 % 85.5 %
Hawaii 2 2,697 2,796 136,389 138,084 85.3 % 86.4 %
Illinois 12 8,044 8,033 872,081 872,544 92.2 % 84.8 %
Indiana 8 4,316 4,357 510,468 510,459 91.4 % 88.0 %
Kansas 1 504 506 50,340 50,340 91.6 % 91.2 %
Kentucky 4 2,150 2,152 254,115 253,991 93.1 % 89.5 %
Louisiana 2 1,414 1,413 150,215 150,165 93.1 % 88.7 %
Maryland 19 13,740 13,709 1,475,679 1,472,946 89.2 % 89.9 %
Massachusetts 31 18,458 18,461 1,907,072 1,908,923 91.1 % 90.3 %
Michigan 3 1,781 1,769 253,312 252,144 91.2 % 89.7 %
Missouri 6 3,159 3,158 375,337 374,987 90.7 % 89.2 %
Nevada 2 963 978 129,214 129,590 72.5 % 68.6 %
New Hampshire 2 1,006 1,007 125,773 125,473 88.3 % 89.6 %
New Jersey 38 30,118 30,262 2,902,269 2,901,664 89.3 % 88.7 %
New Mexico 2 1,193 1,185 162,864 162,704 89.6 % 90.9 %
New York 21 17,201 17,568 1,472,490 1,480,677 89.9 % 89.0 %
Ohio 16 8,849 9,008 1,126,519 1,129,589 90.1 % 84.6 %
Oregon 2 1,409 1,410 174,660 174,720 90.8 % 92.0 %
Pennsylvania 9 5,721 5,773 649,855 655,545 90.6 % 90.3 %
Rhode Island 2 1,181 1,188 130,836 131,091 89.3 % 81.2 %
South Carolina 5 2,700 2,702 327,675 328,558 89.1 % 89.9 %
Tennessee 6 2,918 2,930 408,725 409,034 87.9 % 86.2 %
Texas 25 16,101 16,074 1,895,579 1,894,074 88.6 % 86.5 %
Utah 8 3,845 3,846 485,306 484,358 91.8 % 88.8 %
Virginia 9 6,349 6,357 627,006 627,779 90.1 % 89.4 %
Washington 5 3,052 3,077 370,630 370,745 89.6 % 84.4 %
Total Wholly-Owned
Stabilized 395 262,361 263,191 28,180,365 28,198,518 89.1 % 87.3 %
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Company Pro forma Company Pro forma Company Pro forma
Net Rentable Net Rentable Square Foot Square Foot
Number of Units as Number of Units as Square Feet as Square Feet as of Occupancy % Occupancy %
Number of of September 30, of September 30, of September 30, September 30, September 30, September 30,
Location Properties 2012 (1) 2011 2012 (2) 2011 2012 2011
Joint-venture
properties
Alabama 2 1,147 1,145 145,243 145,063 89.9 % 89.6 %
Arizona 9 5,657 5,641 649,031 649,406 88.2 % 87.8 %
California 78 56,513 56,389 5,848,023 5,848,467 91.1 % 88.7 %
Colorado 2 1,320 1,314 158,553 158,743 93.0 % 89.1 %
Connecticut 7 5,299 5,302 612,445 612,850 90.0 % 89.1 %
Delaware 1 588 585 71,680 71,680 91.6 % 88.7 %
Florida 22 17,575 17,937 1,777,090 1,803,551 88.3 % 85.6 %
Georgia 3 1,850 1,848 240,061 240,541 89.1 % 84.0 %
Illinois 6 4,324 4,290 436,086 436,151 92.3 % 87.8 %
Indiana 6 2,431 2,416 315,086 301,466 92.6 % 89.5 %
Kansas 2 840 838 108,820 108,905 88.7 % 84.2 %
Kentucky 4 2,289 2,279 270,013 269,545 92.4 % 90.3 %
Maryland 13 10,524 10,490 1,021,369 1,020,186 91.8 % 90.5 %
Massachusetts 13 6,873 6,880 776,952 778,852 89.3 % 89.3 %
Michigan 8 4,747 4,695 612,118 612,638 92.1 % 90.5 %
Missouri 1 532 530 61,275 61,275 92.6 % 91.2 %
Nevada 8 5,288 5,320 742,282 692,983 84.3 % 83.7 %
New Hampshire 3 1,309 1,311 137,024 137,474 90.0 % 87.8 %
New Jersey 18 13,978 13,978 1,482,399 1,484,031 90.1 % 89.5 %
New Mexico 8 4,002 3,994 451,114 451,312 83.4 % 86.9 %
New York 13 14,075 14,122 1,105,611 1,088,055 91.7 % 91.1 %
Ohio 10 4,710 4,698 655,184 655,864 91.9 % 88.3 %
Oregon 1 652 651 64,970 64,970 95.6 % 94.3 %
Pennsylvania 10 7,936 7,994 799,424 797,230 91.4 % 91.6 %
Tennessee 20 11,252 11,224 1,475,010 1,475,079 87.9 % 87.9 %
Texas 17 10,525 10,503 1,388,028 1,388,863 90.5 % 87.8 %
Virginia 15 10,477 10,481 1,124,111 1,123,586 90.3 % 91.6 %
Washington, DC 1 1,529 1,529 101,989 101,989 91.5 % 92.0 %
Total Joint-Ventures
Stabilized 301 208,242 208,384 22,630,991 22,580,755 90.1 % 88.7 %
Managed properties
Arizona 1 578 580 67,460 67,350 69.5 % 55.7 %
California 48 32,769 32,997 4,251,655 4,248,492 74.2 % 72.8 %
Colorado 4 1,522 1,518 167,193 167,290 95.0 % 89.7 %
Connecticut 1 484 496 61,480 61,120 81.8 % 69.0 %
Florida 17 9,015 9,048 1,102,983 1,102,634 77.9 % 73.1 %
Georgia 2 1,438 1,431 183,850 180,350 78.9 % 77.2 %
Hawaii 3 3,471 3,512 203,073 201,632 63.6 % 59.9 %
Illinois 6 3,592 3,593 355,168 355,091 88.1 % 75.5 %
Indiana 1 500 501 55,225 55,225 84.1 % 73.1 %
Kansas 1 467 468 110,320 110,460 81.7 % 68.9 %
Kentucky 1 530 522 66,100 66,100 93.4 % 92.1 %
Louisiana 1 1,013 1,012 134,940 134,995 75.0 % 68.9 %
Maryland 8 5,047 5,018 543,965 543,740 90.8 % 89.2 %
Massachusetts 5 5,216 5,246 459,147 459,237 69.6 % 67.4 %
Missouri 2 1,206 1,206 151,716 152,685 83.2 % 87.0 %
Nevada 2 1,562 1,566 170,575 170,375 75.9 % 80.4 %
New Jersey 7 4,126 4,140 428,475 425,635 71.3 % 67.2 %
New Mexico 3 1,644 1,642 185,195 185,195 83.3 % 84.6 %
North Carolina 8 5,149 5,237 577,133 577,005 81.8 % 80.1 %
Pennsylvania 16 7,320 7,371 902,760 868,515 84.6 % 82.1 %
South Carolina 1 605 616 88,430 88,130 89.9 % 82.2 %
Tennessee 3 1,503 1,496 206,465 205,225 87.5 % 87.7 %
Texas 8 4,215 4,129 551,289 546,014 86.4 % 84.6 %
Utah 1 795 795 136,005 136,005 76.0 % 76.0 %
Virginia 4 2,475 2,478 255,033 255,174 80.8 % 77.4 %
Washington 1 468 464 56,590 56,590 85.3 % 78.9 %
Washington, DC 2 1,263 1,263 112,459 112,459 90.4 % 91.3 %
Puerto Rico 4 2,799 2,799 288,903 288,903 78.5 % 78.5 %
Total Managed
Stabilized 161 100,772 101,144 11,873,587 11,821,626 78.7 % 76.1 %
Total Stabilized
Properties 857 571,375 572,719 62,684,943 62,600,899 87.5 % 85.7 %
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(2) Represents net rentable square feet as of September 30, 2012, which may differ from September 30, 2011 net rentable square feet due to unit conversions or expansions.
The following table sets forth additional information regarding the occupancy of our lease-up properties by state as of September 30, 2012 and 2011. The information as of September 30, 2011 is on a pro forma basis as though all the properties owned and/or managed at September 30, 2012 were under our control as of September 30, 2011.
Lease-up Property Data Based on Location
Company Pro forma Company Pro forma Company Pro forma
Net Rentable Net Rentable Square Foot Square Foot
Number of Units as Number of Units as Square Feet as of Square Feet as of Occupancy % Occupancy %
Number of of September 30, of September 30, September 30, September 30, September 30, September 30,
Location Properties 2012 (1) 2011 2012 (2) 2011 2012 2011
Wholly-owned properties
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