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Growth & Income

Based on strong third quarter results, Extra Space Storage Inc. (EXR - Snapshot Report) raised both its FFO (funds from operations) outlook for the year and its quarterly dividend payout. Shares of this self-storage REIT (real estate investment trust) have been rising for over a year now, and are currently hovering around the all-time high of $36.51. Moving forward, earnings for this Zacks #1 Rank (Strong Buy) are expected to grow 28.4% in 2012 and 15.7% in 2013.

Strong Third Quarter

Extra Space Storage reported strong third quarter results on October 29, with a 30.6% year-over-year growth in total revenues to $109.8 million. The healthy top-line growth was attributable to a solid operating platform backed by an experienced management team, as the company leveraged its resources and sophisticated revenue management software to drive traffic to its website and properties. Same-store revenue increased 6.8% year over year to $71.1 million, while same-store net operating income (NOI) surged 11.4% to $49.8 million.

Third quarter FFO of 43 cents per share increased 34.4% year over year and exceeded the Zacks Consensus Estimate by nearly 5%. Average physical occupancy for same-store properties spiked 180 basis points to 89.8% from 88.0% in the year-ago quarter.

Outlook Raised

Thanks to these solid results, management raised their FFO guidance for 2012 to between $1.56 and $1.58 per share, compared to the earlier range of $1.47 to $1.53. The increased guidance is based on same-store revenue growth of 6.0% – 6.5% and a same-store NOI growth of 8.8% – 9.8%.

Analysts have revised their earnings estimates upward for both 2012 and 2013, helping the stock become a Zacks #1 Rank (Strong Buy). Over the past 60 days, the Zacks Consensus Estimate for 2012 increased 3.3% to $1.58, as 7 of 11 earnings estimates moved higher. This implies a year-over-year growth of 28.4%.

For 2013, the Zacks Consensus Estimate has increased 7.0% to $1.83 over the same timeframe, as 9 of 13 earnings estimates moved upward. This represents a year-over-year growth of 15.7%.

Dividend Payout

Extra Space Storage paid a dividend of 25 cents per share in the third quarter of 2012. The quarterly dividend represented a 78.6% increase from the payout in the year-ago quarter. The current dividend payment affirms a yield of 2.8%.

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 22.50x versus the peer group average of 15.21x. On a P/S basis, shares are trading 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 largely 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 January 20, 2011. The year-to-date return for the stock is noteworthy at 50.6%, compared to the S&P 500 tally of 11.1%.

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 (recreational vehicle) storage and business storage. Presently, its portfolio includes 910 self-storage properties in 34 states and Washington, D.C., totaling 610,000 units and spanning 66.7 million square feet of rentable space. With a market cap of $3.9 billion, Extra Space Storage is currently the second largest owner and operator of self-storage properties in the U.S.


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