Extra Space Storage Inc. EXR has earned solid recognition in the self-storage industry. The company has been making efforts to grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. It enjoys a 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 the past three months. The company’s shares have rallied 12.4%, while the industry has gained 2.1%.
This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on several favorable factors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Let’s explore what makes EXR stock a solid choice
Expansion Efforts: Extra Space Storage significantly expanded its business in the recent years, growing its branded-store count from 882 in 2011 to 2,054 at the end of the third quarter of 2021, in 41 states and Washington D.C. Also, the total stores managed for the third-party owners increased from 185 to 827 during the same period. Along with the acquisitions, the company is making strategic investments through other channels in the storage sector, including preferred equity investments and bridge loan programs.
These efforts have helped this Salt Lake City, UT-based self-storage REIT emerge as the second largest self-storage owner and/or operator and the largest self-storage management company in the United States. With a focus on both the primary and secondary markets, Extra Space Storage is well poised to capitalize on the favorable trends.
Healthy Asset Fundamentals: The self-storage asset category, which is need-based and recession-resilient in nature, has low capital-expenditure requirements and generates high operating margins. The self-storage industry continues to benefit from favorable demographic changes. Also, migration and the downsizing trend, and an 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. Further, demand for self-storage space has increased amid the flexible working environment and the improving housing market, while move-outs remain low amid the health crisis, supporting occupancy level.
Balance-Sheet Strength and High ROE: Extra Space Storage is focused on improving its balance sheet, reducing secured debt and increasing the size of its unencumbered pool. The REIT exited the third quarter of 2021 with $65.6 million of cash and cash equivalents. The company currently holds a BBB/Stable rating from Standard and Poor’s and a Baa2 rating from Moody’s Investors Service, rendering the company access to the debt market. With solid balance-sheet strength, the company is well poised to capitalize on the external growth opportunities, which will likely increase.
Extra Space Storage’s Return on Equity or ROE is 22.72% compared with the industry’s average of 2.85%. This reflects that the company reinvests more efficiently compared with the industry.
Dividend Payouts: Solid dividend payouts are the biggest enticements for REIT investors and Extra Space Storage is committed to increasing shareholders’ wealth. The company paid third-quarter dividend of $1.25 per share, which marked a 25% increase from the previous quarter. Moreover, in March 2021, the company paid out first-quarter dividend of $1.00, which reflected an 11.1% increase from the prior quarter. Such shareholder-friendly efforts are encouraging.
Estimate Revisions: The estimate revision trend for full-year 2021 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for current-year FFO per share has moved north marginally over the past week. The projected FFO per share growth rate for 2021 is 26.3%.
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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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