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Growth & Income

Extra Space Storage Inc. (EXR - Snapshot Report) raised its FFO (funds from operations) outlook for this year during its stellar second quarter 2012 report, and also offers a dividend yield of 2.3%. Shares of this Zacks #1 Rank (Strong Buy), self storage REIT (real estate investment trust) have been advancing for almost a year now and are currently hovering around the all-time high of $35.17.

Strong Second Quarter

Extra Space Storage reported strong second quarter results on July 30, with a 21.8% year-over-year growth in total revenues to $95.0 million. The healthy top-line growth was attributable to incremental market share gains, as the company leveraged its resources and sophisticated revenue management software to drive traffic to its website and properties. Same-store revenue increased 6.7% year over year to $68.5 million, while same-store net operating income (NOI) surged 10.2% to $47.3 million.

Second quarter 2012 FFO of 38 cents per share jumped nearly 41% from last year’s 27 cents and exceeded the Zacks Consensus Estimate by 3 cents. Average physical occupancy for same-store properties spiked 270 basis points to 90.4% from 87.7% in the year-ago quarter.

Outlook Raised

Based on better-than-expected second quarter results, management raised the FFO guidance for 2012 to between $1.47 and $1.53 per share from the earlier range of $1.40 – $1.46. The increased guidance is based on a same-store revenue growth of 4.8%-6.0% and a same-store NOI growth of 6.0%-9.0%.

Analysts have revised their earnings estimates upward for both 2012 and 2013, helping the stock attain a Zacks #1 Rank (Strong Buy). Over the past 60 days, the Zacks Consensus Estimate for 2012 increased by 7 cents or 4.8% to $1.53, which is at the upper-end of the company’s guidance range. This implies a year-over-year growth of 24.5%. For 2013, the Zacks Consensus Estimate has increased by 7 cents or 4.3% to $1.71 over the past 60 days, representing growth of 11.8%.

Dividend Payout

Extra Space Storage paid a dividend of 20 cents per share in the second quarter of 2012. The quarterly dividend represented a 42.9% increase from the payout in the year-ago quarter. The current dividend payment affirms a yield of 2.3%.

Premium Valuation

Extra Space Storage is trading at a premium on a price-to-earnings (P/E) and price-to-sales (P/S) basis. On a forward P/E basis, shares trade at 22.76x versus the peer group average of 16.02x. On a P/S basis, shares trade at 10.00x versus 5.34x for the peer group average. A healthy earnings growth prospect warrants the premium valuation of the company.

Since October 21, 2011, Extra Space Storage shares have fared better than the simple moving average for 200 days or SMA (200). In addition, the stock has outperformed the S&P 500 index since April 14, 2011. The year-to-date return for the stock is noteworthy at 45.8% compared to the S&P 500 tally of 14.8%.

With a favorable supply/demand relationship, rising earnings estimates, robust growth projections and a healthy dividend yield, Extra Space Storage offers an enticing upside potential going forward. In addition, over 30 years of operating experience in the self-storage industry bodes well for its long-term growth.

Based in Salt Lake City, Utah, Extra Space Storage owns and operates self-storage properties across the U.S. The company provides a wide array of conveniently located and secure storage solutions across the country, including boat storage, RV storage and business storage. Presently, its portfolio includes 882 self-storage properties in 34 states and Washington, D.C., totaling 585,000 units and spanning 64 million square feet of rentable space. With a market cap of $3.6 billion, Extra Space Storage is currently the second largest owner and operator of self-storage properties in the U.S.


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