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5 Reasons to Buy Extra Space Storage (EXR) Stock Right Now

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Extra Space Storage Inc. (EXR - Free Report) has earned a solid recognition in the self-storage industry. The company has been putting in efforts to grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. It enjoys 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 three months’ time. The company’s shares have rallied 23.4%, while the industry has gained 11.7%.

Zacks Investment Research
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This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of favorable factors.

Let’s explore what makes it a solid choice:

Expansion Efforts: Extra Space Storage significantly expanded its business in recent years, growing the company’s branded-store count from 882 in 2011 to 1,969 at the end of first-quarter 2021 in 40 states, Washington, D.C. and Puerto Rico. Total stores managed for third-party owners increased from 185 to 763 during the same period. In addition to 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 focus on both primary and secondary markets, it is well poised to capitalize on the favorable trends.

Furthermore, the industry is characterized by fragmented ownership and only around 30% of the total self-storage square footage is under REIT’s ownership, with Public Storage (PSA - Free Report) and Extra Space Storage enjoying notable shares of the market. This creates ample scope for consolidation at some level in the future, and with a solid scale, decent balance sheet strength and technology advantage, Extra Space Storage is positioned strongly to compete for acquisitions.

Healthy Asset Fundamentals: The self-storage industry continues to benefit from favorable demographic changes. Migration and downsizing trends, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at storage facilities to park their possessions. Further, demand for self-storage space has shot up amid the flexible working environment as well as improving housing market, while move-outs remain low amid the coronavirus pandemic, resulting in improved year-over-year occupancy trends. Management also noted that the REIT’s record-high occupancy is resulting in greater pricing power.

Balance-Sheet Strength and High ROE: Extra Space Storage exited first-quarter 2021 with $60.3 million of cash and cash equivalents. Along with disposition proceeds, the company was able to lower its revolving balances, ending the quarter with net debt to EBITDA of 5.1 times, which is lower than its long-term debt target of 5.5 times to 6 times. During the first quarter, it also received an issuer credit rating of Baa2, with a stable outlook from Moody's Investors Service. The second investment-grade credit rating renders the company favorable access to the debt market. With solid balance-sheet strength, it is poised to bank on external growth opportunities, which will likely increase.

Additionally, Extra Space Storage’s Return on Equity or ROE is 20.7% compared with the industry’s average of 2.96%. This reflects that the company reinvests more efficiently compared to the industry.

Dividend Payouts: Solid dividend payouts are arguably the biggest enticement for REIT investors and Extra Space Storage is committed to increasing shareholders’ wealth. This March, the company paid a first-quarter dividend of $1.00, reflecting an 11.1% increase from the prior quarter. In fact, the company has achieved a five-year total increase of 69.5% in dividend. Such shareholder-friendly efforts are encouraging.

Estimate Revisions: Currently, the trend in estimate revisions for second-quarter and full-year 2021 funds from operations (FFO) per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for both second-quarter and current-year FFO per share moved north marginally over the past month. The projected FFO per share growth rate for the second quarter and 2021 is 26.02% and 16.1%, respectively.

Other Key Picks

Mack-Cali Realty Corporation’s Zacks Consensus Estimate for 2021 FFO per share moved up marginally over the past month. The company currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Braemar Hotels & Resorts Inc. (BHR - Free Report) holds a Zacks Rank of 2, at present. The consensus estimate for the ongoing year’s FFO per share has been revised 4.5% upward to 46 cents over the past month.

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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