Extra Space Storage Inc. EXR has earned a solid recognition in the self-storage industry. The company has been putting in efforts for the expansion of its geographical footprint through accretive acquisitions and third-party management platforms. It enjoys solid presence in key cities and opts for strategic joint ventures to drive long-term profitability.
Also, shares of Extra Space Storage have outperformed its industry in three months’ time. The company’s shares have gained 13.8%, while the industry has rallied 5.9% during this time frame.
Currently, the trend in estimate revisions for 2019 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. In fact, this Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of favorable factors, and the current price offers a good entry point.
Let’s explore what makes it a solid choice:
Expansion Efforts: Extra Space Storage has grown its branded store count from 820 in 2010 to 1,752 in second-quarter 2019. Also, total stores managed for third-party owners increased from 181 in 2012 to 595 in second-quarter 2019. Moreover, over the past five years, Extra Space Storage acquired $4.6 billion in properties. The company gained an increased scale in several core markets on the back of these acquisitions as well as fortified its presence in a number of new markets.
These efforts have helped this Salt Lake City, UT-based self-storage real estate investment trust (REIT) emerge as the second largest self-storage owner and/or operator and the largest self-storage management company in the United States. Majority of this REIT’s stores are situated around large population centers which enjoy above-average population and income demographics for stores.
Furthermore, the industry is characterized by fragmented ownership, and only around 30% of the total self-storage square footage is under REIT’s ownership. This creates solid scope for consolidation at some level in the future and with a solid balance sheet, Extra Space Storage is well poised to compete for acquisitions.
Healthy Asset Fundamentals: The self-storage asset category is basically need-based and recession-resilient in nature. This asset class has low capital-expenditure requirements and generates high operating margins. Furthermore, the self-storage industry continues to witness solid demand, backed by favorable demographic changes. Specifically, the downsizing trend, an encouraging labor market, increase in the number of people renting homes have escalated the needs of consumers to rent space at a storage facility to park their possessions. In addition, self-storage assets are benefiting from adoption of technology, and serving the millennial generation.
Balance-Sheet Strength and High ROE: Extra Space Storage remains focused on improving its balance sheet. The company exited the June-end quarter with roughly $47.7 million of cash and cash equivalents. Moreover, as of Jun 30, 2019, Extra Space Storage had $399.9 million available for issuance under its ATM equity program. Over the years, the company has increased the size of its unencumbered asset pool. Also, it has staggered its maturities. Further, Extra Space Storage’s Return on Equity (ROE) is 16.71% compared with the industry’s average of 5.06%. This reflects that the company reinvests more efficiently compared to the industry.
Dividend Payouts: Solid dividend payouts remain arguably the biggest attraction for REIT investors and Extra Space Storage remains committed to this purpose. This May, the company announced a 4.7% hike in its quarterly dividend payout. The company has achieved a five-year total increase of 91.5% in dividend. Such shareholder-friendly efforts are encouraging.
Other Key Picks
Investors can also consider other top-ranked stocks in the REIT space like Alexandria Real Estate Equities, Inc. ARE, Equity Residential EQR and Mid-America Apartment Communities, Inc. MAA, each carrying a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alexandria Real Estate’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has moved marginally north to $6.98 in the past three months.
Equity Residential’s FFO per share estimate for the current year moved up 1.5% to $3.45 over the past month.
Mid-America’s Zacks Consensus Estimate for the ongoing year’s FFO per share climbed marginally to $6.28 in a month’s time.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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