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Why It is Wise to Hold On to Extra Space (EXR) Stock Now

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Extra Space Storage Inc. (EXR - Free Report) has earned a solid recognition in the self-storage industry. The company focuses on expansion through accretive acquisitions and a third-party management platform. It enjoys solid presence in key cities and opts for strategic joint ventures to boost long-term profitability.

The company significantly expanded its business in recent years, growing its branded-store count from 820 in 2010 to 1,969 at the end of first-quarter 2021 in 40 states, Washington, D.C. and Puerto Rico. Also, total stores managed for third-party owners increased from 160 to 763 during the same period.

Apart from acquisitions, the company is making strategic investments through other channels in the storage sector, including preferred equity investments and the bridge loan program. The company gained an increased scale in several core markets on these acquisitions, while fortifying its presence in a number of new markets.

These efforts have helped this Salt Lake City, UT-based self-storage real estate investment trust (REIT) emerge as the second-largest self-storage operator and the largest self-storage management company in the United States.

Markedly, the self-storage industry continues to benefit from favorable demographic changes. Specifically, the 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 spaces has shot up amid the flexible working environment as well as an improving housing market, while move-outs remain low amid the global health crisis, resulting in improved year-over-year occupancy trends. Management also noted that the REIT’s record-high occupancy is resulting in greater pricing power.

Extra Space Storage is focused on improving its balance sheet, reduce secured debt and increase the size of its unencumbered pool. The REIT exited first-quarter 2021 with $60.3 million of cash and cash equivalents. During the first quarter, it strengthened its balance sheet through an overnight offering and ATM activity, reaping net proceeds of $273.7 million. 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. With balance-sheet strength, the company is well poised to capitalize on external growth opportunities, which will likely increase.

Shares of Extra Space have gained 53.5% over the past six months, outperforming its industry’s growth of 21.5%. Moreover, the recent trends in estimate revisions for 2021 funds from operations (FFO) per share indicate a favorable outlook for the company. The Zacks Consensus Estimate for 2021 FFO per share has been revised marginally upward to $6.13 over the past week.

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However, there is a development boom of self-storage units in many markets. This high supply is likely to fuel competition, curb its power to raise rents and turn on more discounting.

In addition, for Extra Space Storage, vacates are still down and are helping the occupancy level remain high. However, such factors are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends, and resulting in adverse pressure on rent growth in many markets.

Stocks to Consider

Crown Castle International Corporation’s (CCI - Free Report) FFO per share estimate for the current year moved up marginally to $6.80 in the past two months. The company currently carries a Zacks Rank of 2 (Buy). You can see thecomplete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali Realty Corporation’s (CLI - Free Report) Zacks Consensus Estimate for 2021 FFO per share has moved 1.8% north to 57 cents over the past month. The company currently carries a Zacks Rank of 2.

Geo Group Inc The (GEO - Free Report) carries a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward over the past month.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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