Extra Space Storage Inc. EXR has earned a solid recognition in the self-storage industry. The company focuses on 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.
In fact, in recent years, the company has significantly expanded its business, growing its branded store count from 820 in 2010 to 1,696 in first-quarter 2019. Also, total stores managed for third-party owners increased from 181 in 2012 to 577 in the reported quarter.
In addition, over the past five years, Extra Space Storage acquired $4.6 billion in properties. The company has 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 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.
Also, 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, self-storage industry is likely to continue witnessing solid demand, backed by favorable demographic changes.
Extra Space Storage’s Return on Equity (ROE) is 16.56% compared with the industry’s average of 5.57%. This reflects that the company reinvests more efficiently compared to the industry. Furthermore, it remains committed to boost shareholders’ wealth. In May 2019, the company announced a 4.7% hike in quarterly dividend payout. It has achieved a five-year dividend increase of 115% in dividend. Such shareholder-friendly efforts are encouraging.
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.
In fact, in 2019, management expects the impact of new supply to be greater due to the cumulative impact of several years of elevated development. This high supply is likely to fuel competition for the company, curb its power to raise rents and turn on more discounting.
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 11.5%, the industry has increased 6.1% during this period.
Stocks to Consider
Some better-ranked stocks from the real-estate space include Duke Realty Corp. DRE, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB, each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Duke Realty’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share moved marginally north to $1.41 in the past week.
Lamar’s FFO per share estimates for the current year remained unchanged at $5.81 over the past week.
PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved up slightly to $6.61 in the past month.
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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