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Here's Why You Should Hold Onto Extra Space (EXR) Stock Now

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Moumita C. Chattopadhyay
·5 min read
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Shares of Extra Space Storage Inc. EXR have gained 15.4% over the past six months, outperforming its industry’s rally of 5.1%. Moreover, the recent trends in estimate revisions for 2020 and 2021 funds from operations (FFO) per share indicate a favorable outlook for the company. The Zacks Consensus Estimate for 2020 and 2021 FFO per share have been revised marginally upward to $5.12 and 5.45, respectively, over the past month.

Notably, Extra Space Storage has earned a solid recognition in the self-storage industry. The company focuses on expansion through accretive acquisitions and third-party management platform. It enjoys solid presence in key cities and opts for strategic joint ventures to boost long-term profitability.

The company significantly expanded its business in recent years, growing its branded store count from 820 in 2010 to 1,906 in the third quarter of 2020. Also, total stores managed for third-party owners increased from 160 to 718 over the same period. In fact, 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 these acquisitions, while also fortifying its presence in a number of new markets.

In addition to acquisitions, the company is making strategic investments through other channels in the storage sector, including preferred equity investments and bridge loan program.

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. The majority of its stores are gathered around large population centers. Apart from having above-average population, these markets enjoy favorable income demographics for stores. Therefore, with a geographically diversified portfolio and significant scale, the company is poised for long-term growth.

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.

Migration and downsizing trends, and an increase in the number of people renting homes have escalated the need of consumers to rent space at a storage facility to park their possessions. 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.

Extra Space Storage is focused on improving its balance sheet. The company exited third-quarter 2020 with $74.8 million of cash and cash equivalents, up from the $65.7 million recorded at the end of 2019. The company had $298.6 million available for issuance under its ATM program as of Sep 30, 2020. The company made efforts to deleverage its balance sheet and achieved a BBB stable rating from S&P in 2019. With solid balance-sheet strength, the company remains well poised to capitalize on external growth opportunities which will likely increase going forward.

However, Extra Space Storage 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 high supply is likely to fuel competition, curb its power to raise rents and turn on more discounting.

Moreover, for Extra Space Storage, vacates are still down and are helping occupancy levels to remain high. However, such factors are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends, and resulting in negative pressure on revenue trends and occupancy.

Stocks to Consider

Duke Realty’s DRE Zacks Consensus Estimate for 2021 FFO per share has moved up marginally to $1.64 in the past month. The company currently carries a Zacks Rank  #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rexford Industrial Realty, Inc.’s REXR FFO per share estimate for the current year has been revised marginally upward to $1.44 in the past week. The company carries a Zacks Rank of 2, currently.

Four Corners Property Trust, Inc.’s FCPT Zacks Consensus Estimate for the ongoing-year FFO per share has been marginally revised upward to $1.55 in the past week. The company also holds a Zacks Rank of 2 at present.

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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Duke Realty Corporation (DRE) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
Rexford Industrial Realty, Inc. (REXR) : Free Stock Analysis Report
Four Corners Property Trust, Inc. (FCPT) : Free Stock Analysis Report
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