cfa presentation uvu 2014
DESCRIPTION
Slides presented by Third Place team in Utah CFA Research Challenge.TRANSCRIPT
Extra Space Storage
Salt Lake City, February 2014
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Main Features• 2nd largest self-storage operator• Largest self-storage management company
Introduction
Wholly-Owned;
51%Joint
Venture; 25%
Managed; 24%
Market Profile52-week Price Range 36.50-49.29
Avg. Daily Volume (3mths)
922,567
Shares Outstanding 111.25M
Market Capitalization 4.85B
% Held by Insiders 5%
% Held by Institutions 95%
FFO Multiple 2013E 23.539
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
4166341639
4161441591
4156941547
4152341500
4147841453
4143141408
4138641361
4133941316
4129130
35
40
45
50
55
60
29.2%upside
Target price: $54.44 Upside: 29.2% BUY
Recommendation
Target PriceCurrent PriceClosing Price
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Tenant Insurance• 80% profit margin• $10 or $35 for $2,000 or $10,000
coverage, respectively
Management
Lease-up Properties• Avg. sq. ft. occupancy at 82.5% as
of Sept. 2013, up from 73.5%• Redeveloping properties
Big Data
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
• Signs of continual aggressive acquisitions• January 8, 2014 announced acquisition of 17 properties in Virginia for
$200 million
Acquisitions
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Industry & Competitors
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Industry & Competitors
Key self storage marketcharacteristics:• High barriers to entry• Low product differentiation• Lack of substitute products• Internet enables both buyer and seller
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Industry & Competitors
Source: FTSE NAREIT U.S. Real Estate Index Series
Source: Cushman & Wakerfield Storage Business Briefing – August 2013
High returns compared to other REITs
Market resilience & increasing rental rates
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
EXR vs. Competitors
Competitive Advantage:•Management Team •Extensive stats & analytics
Risk Analysis
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Risk Analysis Market Economic
Operational Political
IMPACT
PRO
BABI
LITY
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Conditional Upside Drivers
• Constant upward trend of rental prices
• EXR’s occupancy rates for same-store properties were at 88.6 percent compared to the national average of 79.7 percent, according to EXR’s 2012 10k filing
• More acquisitions mean more revenue from tenant insurance
Financial Analysis
• EXR’s stock price follows the SPY with a 67% coefficient of determination.
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
EXR’s Stock Growth Compared to S&P
• Over the last two years, the 100-day stock price moving average is below the 50-day stock price moving average until the effects of the November stock price drop become dominant.
• Long-term the stock has shown strong growth in price.• The stock price is still recovering from the November drop.
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Technical Analysis
• The six month chart shows the possible rebounding from that November drop.
• The 10-day moving average shows that there may be a possibility of a short-term holding profit.
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Moving Averages
Year 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13Assets: Real estate assets, net $ 1,938,922 $ 2,015,432 $ 1,935,319 $ 2,263,795 $ 2,991,722 $ 3,265,292 Investments in real estate ventures $ 136,791 $ 130,449 $ 140,560 $ 130,410 $ 106,313 $ 116,035 Cash and Cash equivalents $ 63,972 $ 131,950 $ 46,750 $ 26,484 $ 30,785 $ 33,600 Restricted Cash $ 38,678 $ 39,208 $ 30,498 $ 25,768 $ 16,976 $ 18,528 Receivables from related parties and affiliated real estate joint ventures $ 11,335 $ 5,114 $ 10,061 $ 18,517 $ 11,078 $ 12,091 Other assets, net $ 42,576 $ 50,976 $ 49,549 $ 52,550 $ 66,603 $ 72,693 Total Assets $ 2,291,008 $ 2,407,556 $ 2,249,820 $ 2,517,524 $ 3,223,477 $ 3,518,239 Growth 11.5% 5.1% -6.6% 11.9% 28.0% 9.1%
Historical data was taken from SEC filings and Internet resources, run through statistical software, and used for forecasting.
became
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Data Conversion
• Total Assets = 20983 + (Years Since IPO x 257534)• Total Revenue = -50060 + (Total Assets x 0.143243)• Net Income = -84716 + (Total Assets x 0.059286)
Asset Regression Coefficients Standard Error t Stat P-value
Intercept 20983.16 243118.3 0.086308 0.933342
Year 257533.7 27096.91 9.504174 1.24E-05
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
Year
Tota
l Ass
ets
(tho
usan
ds)
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Regression Equations for Forecasting
Valuation
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Valuation Using FFO
• Constant FFO growth• Market cap projected at 5.619 billion
Years 2013 2014
FFO 199.356 M 239.117 M
FFO Multiple 23.539 23.5
Market Cap 4,687 M 5,619 M
Shares Outstanding 111.250 M 113.750 M
Price Per Share 42.1349.40
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Valuation Using FFO
• Arbitrage Opportunities• Historically low cap rates• Increasing interest rates
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
NAV Valuation
• Historically low cap rates• Strong rental revenue growth
Year 2013 2014
Rental Revenue 426.841 M 239.117 M
Cap Rates 6.4% 23.5
NAV 5,243 M 6,335 M
Price Per Share 47.1355.70
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
Target Price
Target = 54.44
Holding period return = 29%
NAV Valuation FFO Valuation
$55.70 $49.40
80% 20%
Company Overview
Industry & Competitors
Risk Analysis
Financial Analysis Valuation Conclusion
4166341639
4161441591
4156941547
4152341500
4147841453
4143141408
4138641361
4133941316
4129130
35
40
45
50
55
60
29.2%upside
Target price: $54.44 Upside: 29.2% BUY
Conclusion
Target PriceCurrent PriceClosing Price
Questions?
Data Source: Cushman & Wakefield Storage Business Briefing – August 2013
Average Demand per Person
Virtually No New Supply
Source: Adelante Capital Management, Wilshire Associates, and FactSet
Annual Returns: Ranked By Property SectorWilshire US REIT Index
Rental Trends
1 2 3 4 5 6 7 8 9 10 $-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 $-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
Total Assets Forecast
Since EXR’s IPO, there has been a steady increase of total assets. In all the regressions run, time showed the most direct correlation with an R Squared of 0.919, t Statistic of 9.5, and P-value of less than 0.0001.
By using the regression model, we were able to forecast total assets using the following equation:Total Assets = 20983 + (257534 x Years since IPO)
Total Assets Since IPO
The correlation between revenue and assets proved exceptionally high for past periods with an R Squared of 0.99, a t Statistic of 28.34, and a P-Value lower than 0.000000003.
Total
Assets
$748,484
$1,420,192
$1,669,825
$2,054,075
$2,291,008
$2,407,556
$2,249,820
$2,517,524
$3,223,477
$3,518,239 $-
$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000
Total
Assets
$748,484
$1,420,192
$1,669,825
$2,054,075
$2,291,008
$2,407,556
$2,249,820
$2,517,524
$3,223,477
$3,518,239
$3,626,456
$3,883,989
$4,141,523
$4,399,057
$4,656,591
$4,914,124
$5,171,658 $-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Revenue Forecast
We were able to forecast Revenue for upcoming years by using the following equation: Total Revenue = -50060 + (Total Assets x 0.143243).
Revenue and Asset Correlation
Net Income’s Correlation Coefficient in regards to Assets for historical data was 0.9226, t Statistic is 9.766, and P-Value is than 0.00001.
$748,484
$1,420,192
$1,669,825
$2,054,075
$2,291,008
$2,407,556
$2,249,820
$2,517,524
$3,223,477
$3,518,239
$3,626,456
$3,883,989
$4,141,523
$4,399,057
$4,656,591
$4,914,124
$5,171,658
$(50,000)
$-
$50,000
$100,000
$150,000
$200,000
$250,000
Net Income Forecasted $748,484
$1,420,192
$1,669,825
$2,054,075
$2,291,008
$2,407,556
$2,249,820
$2,517,524
$3,223,477
$3,518,239 $(40,000) $(20,000)
$- $20,000 $40,000 $60,000 $80,000
$100,000 $120,000 $140,000 $160,000
Net Income = -84716 + (Total Assets x 0.059286)
Net Income and Asset Correlation
• Regression models similar to the one used for assets were used to forecast liabilities and equity.
• Growth rates were calculated each year, including forecasted years, for assets, liabilities and equity.
• Those growth rates were used to forecast individual accounts within each section of the balance sheet.
• Example: Cash and Cash Equivalents historical data was input, the last reported number was then multiplied by 1+calculated growth rate for assets.
Balance Sheet Equations
• The correlation coefficient for historic operational cash flows and net income is 0.923, t Statistic of 6.9, and P-Value of 0.002.
• Thus, forecasted net income was used to forecast operational cash flows.
• Those forecasted values were used to determine the growth rate for operational cash flows.
• Those growth rates were applied to individual accounts within the operational cash flows section of the Summary of Cash Flows Statement.
Operational Cash Flow Calculations
• The regression process used to forecast revenue was also used to expenses and income from operations.
• The calculated growth rates from those forecasted accounts was again used to forecast the relevant subordinate accounts.
• Example: 2015 Acquisition Related Expense = forecasted 2014 Acquisition Related Expense x Calculated growth rate for 2015 Total Expenses.
Statement of Operations Calculations