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Extra Space Increases Credit Facility, Lowers Cost of Debt

Extra Space Storage Inc. EXR recently enhanced its balance-sheet strength by amending and restating its senior unsecured credit facility, increasing the total capacity by $200 million to reach a total of $1.35 billion. Apart from increasing the capacity, the move has enabled the company to lower its cost of debt.

Particularly, the credit facility comprised a $650-million senior unsecured revolving credit facility due January 2023, a $480-million senior unsecured term loan due January 2024, as well as a $220-million senior unsecured term loan due October 2023. There is also an option in the credit agreement for increasing the capacity by another $650.0 million for an aggregate of $2.0 billion.

For the senior unsecured revolving credit facility, pricing at closing will be an initial interest rate of LIBOR + 1.10%, while for the senior unsecured term loans due January 2024 and October 2023 the same will be at LIBOR + 1.25%.

These efforts are expected to support Extra Space’ growth endeavors. The company has earned a solid recognition in the self-storage industry and emerged as the second largest self-storage operator, and the largest self-storage management company in the United States.

In fact, in recent years, the company has significantly expanded its business, growing the branded store count from 766 in 2009 to 1,606 in third-quarter 2018. Also, total stores managed for third-party owners increased from 181 in 2011 to 507 in the recently-reported quarter. In addition, over the past five years, Extra Space Storage has acquired $4.5 billion in properties. The company gained an elevated scale in several core markets on the back of these acquisitions, as well as fortified its presence in a number of new markets.

However, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in many markets. This is likely to fuel competition for the company, curb its power to raise rents and turn on more discounting. In addition to this, hike in interest rate is a concern as rising rates imply higher borrowing cost.

Extra Space Storage currently carries a Zacks Rank #3 (Hold). In the past three months, shares of the company have outperformed the industry. While the stock has gained 8.1%, the industry has inched up 0.7% during this period.

Stocks to Consider

Better- ranked stocks from the real-estate space are Cousins Properties Incorporated CUZ, PS Business Parks, Inc. PSB and Outfront Media Inc. OUT. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cousins Properties’ FFO per share estimates for 2018 has been revised marginally upward to 62 cents in the last two months.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved 0.5% north to $6.45 in the past month.

Outfront Media’s FFO per share estimates for 2018 has been revised 2% upward to $2.09 in two months’ time.

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.

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