- Oops!Something went wrong.Please try again later.
- Oops!Something went wrong.Please try again later.
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 six months’ time. The company’s shares have rallied 9.8%, while the industry has gained 2.9%.
Currently, the trend in estimate revisions for 2020 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for the current-year FFO per share has been revised 1.2% upward over the past month. In fact, this Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of favorable factors.
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 1,906 during third-quarter 2020. Also, total stores managed for third-party owners increased from 160 to 718 during the same period. Moreover, over the past 10 years, Extra Space Storage has spent $6.8 billion in acquisitions.
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. Further, during third-quarter 2020, the company closed to put under contract an additional $140 million of acquisitions, bringing Extra Space Storage’s total expected investment in 2020 to approximately $287 million.
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 healthy 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. Additionally, the self-storage industry continues to benefit from favorable demographic changes. Specifically, migration and downsizing trend, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at storage facilities for parking their possessions.
In addition, self-storage assets are benefiting from adoption of technology, and serving the millennial generation. Further, demand for self-storage space has increased amid the flexible working environment as well as improving housing market, while move-outs remain low amid the health crisis, resulting in improved year-over-year occupancy trends.
Balance-Sheet Strength and High ROE: Extra Space Storage is focused on improving its balance sheet. The company exited the third quarter with $74.8 million of cash and cash equivalents, up from the $65.7 million recorded at the end of 2019. Notably, as of Sep 30, 2020 the company's percentage of fixed-rate debt to total debt was 77.7%. The company had $298.6 million available for issuance under its ATM program as of Sep 30, 2020. It made efforts to deleverage its balance sheet and achieved a BBB stable rating from S&P in 2019. With a solid balance-sheet strength, the company is well poised to bank on external growth opportunities which will likely increase in the days to come.
Further, Extra Space Storage’s Return on Equity (ROE) is 16.54% compared with the industry’s average of 3.56%. This reflects that the company reinvests more efficiently compared with the industry.
Dividend Payouts: Solid dividend payouts are arguably the biggest enticement for REIT investors and Extra Space Storage is committed to increasing shareholders’ wealth. In May 2019, the company announced a 4.7% hike in quarterly dividend payout. It has achieved a five-year total increase of 52.5% in dividend. Such shareholder-friendly efforts are encouraging.
Other Key Picks
Innovative Industrial Properties, Inc.’s IIPR funds from operations (FFO) per share estimates for 2020 have been revised upward by 5.8% to $5.11 over the past month. The company carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Life Storage, Inc.’s LSI Zacks Consensus Estimate for current-year FFO per share has moved up marginally to $5.82 over the past month. The company currently carries a Zacks Rank of 2.
City Office REIT, Inc.’s CIO Zacks Consensus Estimate for the ongoing-year FFO per share has improved 5.3% to $1.20 in a month’s time. The company holds a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Life Storage, Inc. (LSI) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
City Office REIT, Inc. (CIO) : Free Stock Analysis Report
Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research