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Growth & Income

Extra Space Storage Inc. (EXR - Snapshot Report) recently delivered yet another positive earnings surprise as same-store revenue increased thanks to a significant improvement in the occupancy rate.

Management raised its guidance for 2011 off of the strong quarter, prompting analysts to revised their estimates higher too. This sent shares to a Zacks #1 Rank (Strong Buy).

Both management and analysts expect Extra Space Storage to grow earnings by double-digits in 2011. In addition to this growth, EXR pays a dividend that yields an attractive 2.7%.

Company Description

Extra Space Storage Inc. is a real estate investment trust (REIT) that owns and operates self-storage properties in the U.S. It has a market cap of $1.9 billion and is headquartered in Salt Lake City, Utah.

First Quarter Results

First quarter results came in better than expected. EXR reported funds from operations (FFO) of 25 cents per share, edging out the Zacks Consensus Estimate by a penny. It was a 32% increase over the same quarter in 2010.

Total revenue was up 10.2% to $74.481 million in the quarter, well ahead of the Zacks Consensus Estimate of $65.0 million. Same-store revenue increased 4.2% driven by a 290 basis point improvement in same-store occupancy to 85.4%.

Meanwhile, same-store net operating income rose a solid 5.8%.

Raised Guidance

Management raised its guidance for 2011 following solid first quarter results. It now expects FFO between $1.06 and $1.11 per share, up from previous guidance of $1.01 to $1.07. This new guidance is based on same-store property revenue growth of 2.5-3.5%.

This helped analysts revise their estimates significantly higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy). The 2011 Zacks Consensus Estimate is within guidance at $1.10. This corresponds with 14% growth over 2010 FFO.

The 2012 consenus estimate rose to $1.22 per share, which represents 11% growth.

Consensus estimates have been steadily rising over the last several quarters as EXR has delivered 9 consecutive positive earnings surprises:

EXR: Extra Space Storage Inc.

Dividend

As a REIT, Extra Space Storage pays out the majority of its income to shareholders through dividends. It currently yields 2.7%.

EXR actually cut its quarterly dividend in late 2009 and then again in early 2010. Management raised it by 40% in 2011, however, to 10 cents per share, but this is still well below its pre-cut level of 25 cents per share.

If earnings growth materializes as projected, expect the company to continue raising its dividend.

Valuation

Shares currently trade at 1.9x book value, a premium to the industry average of 1.5x. It is trading at 18.7x forward earnings, also above the industry average of 14.5x.

Given the rising earnings estimates and EXR's solid growth projections, as well as its attractive yield, the valuation picture seems quite reasonable.

The Bottom Line

Estimates continue to climb for Extra Space Storage as occupancy rates improve and revenues rise. With double-digit earnings growth on the horizon and a solid 2.7% dividend yield, EXR offers plenty to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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