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Momentum

Extra Space Storage Inc. (EXR)

On February 22nd, EXR again beat analysts’ expectations for the fourth quarter and full year 2011, sending the stock to a new all time high of $29.20.

 Extra space has been on the momentum radar since June of 2011; since then the company has reported 2 strong quarters and expects more growth in the future.  The question remains whether it’s too late to buy shares at these levels.

Another Stellar Report
This is the third time EXR has been featured as a momentum stock over the past 10 months; in that time, shares are up a whopping 46%!  Even with the gains, the stock has been holding the Zacks Rank Buy 1 position since February 24th and has been between a 1 and 2 ranking since November 2011.

EXR reported a 4.9% jump in revenues for the year on a 7.6% increase in total annual sales.  There were several factors (what the company calls “levers of growth”) that drove growth in 2011.  A record occupancy rate of almost 88%, which was up 310 basis points compared to 2010 allowed Extra Space to keep rent rates high and reduce the amount of discounts it had to offer perspective customers.  There busy season is just beginning is spring as the masses begin their moves.  The company attributes a large part of their success to the high occupancy rate and stable rent rates.

Acquisition of new properties was also a key factor for the company.  The purchased 55 new assets in 17 states for roughly $300 million over the course of the year and 28 properties in just the last quarter, with a large part of those most recent purchases in southern California. More are targeted by the end of the year (at least $100 million in acquisition).

EXR now manages185 properties as a 3rd party and they expect to see growth there as more smaller independent owners realize the big storage REITs like EXR can operate and manage efficiently. 

The CEO noted that as of the call, they have 35,000 potential customers for their tenant insurance program, which is also been a driver of revenue that they expect to increase.

Executives did note that they expect their cost cutting to slow a bit, but they will continue to focus on reductions in energy usage, which are down 19% since 2009.  51 properties have solar panels – reduced energy costs and tax credit helping and they are looking to expand.  The mild winter also helped add to the bottom line with snow removal costs being lower than expected.

While rent growth is strong (4.5% rise in Q4 alone), they do see that growth slowing a bit as well as they don’t want to hurt occupancy. 

 “Storage is closely tied to the economic health of economy, [he] doesn’t believe that storage is discretionary.”  said CEO Spencer F. Kirk.  He went on to say that “storage is not cool, it is need based.”  His opinion suggests that storage is a constant need for many Americans at the current time and just because things are bad, most are not forgoing their storage needs.

Company Description & Developments
Extra Space Storage Inc. is a real estate investment trust (REIT), headquartered in Salt Lake City, Utah that owns and operates over 850 self-storage properties in major cities across the U.S.

The Company's properties comprise more than 555,000 units and over 59 million square feet of rentable space, offering customers a wide selection of conveniently located and secure storage solutions across the country, including boat storage, RV storage and business storage. Extra Space is the second largest owner and/or operator of self-storage properties in the United States and is the largest self-storage management company in the United States.

Let’s not forget the fact that Extra Space is still throwing off a 2.05% dividend as a bit of icing on the cake. 

The boom in storage is being driven by several factors within the housing sector.  First of which being extremely high apartment rent rates across the US; average rents have risen substantially since the price of homes has been on the decline.

Being that most people have had to downsize their living space or are needing to save money on living expenses, the storage unit has become an integral part of many urban households.  We are a culture that likes “stuff” and even those who don’t hoard tons of extras, you might still need room for that entertainment center that mom gave you that just doesn’t fit anymore.  She’d kill you if you were to sell it.

Earnings Estimates
Even though EXR is a small cap (2.73 million), there are about 13 analysts covering the issue.  Over the past month we have seen upward revisions to the current and next quarter’s estimates as well as FY2012 and FY 2013.  

EXR has beat estimates for the past four quarters with an average surprise of 6.85%.  Expectations are for EXR to generate $0.33 in income this quarter.  Of the 13 analysts who cover EXR, the consensus is for the company to grow earnings by 15.76% in the current year (FY2012) and roughly 9% in FY2013.  They report earnings on April 26th.

REITs like Extra Space must distribute a large amount of operating profit in the form of a dividend; EXR’s current dividend yield is 2.8%

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

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