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Extra Space Storage (EXR) Down 13.1% MTD: Is It Worth A Look?

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If Extra Space Storage’s (EXR - Free Report) 13.1% decline this month has made you apprehensive about your investment in this stock, then you need to think again.

Undoubtedly, the broader market has been widely affected because of geopolitical uncertainties, inflation and the consequent rate hikes. Extra Space Storage could not escape the hit.

Despite the recent sell-off, this Zacks Rank #2 (Buy) stock has strong growth potential and seems a solid choice for your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Extra Space Storage has earned solid recognition in the self-storage industry. The company has been trying to grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. It enjoys a solid presence in key cities and opts for strategic joint ventures to drive long-term profitability.

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 largest self-storage management company in the United States.

Let’s Explore What Makes EXR Stock a Solid Choice

Expansion Efforts: Extra Space Storage significantly expanded its business in recent years, growing its branded-store count from 910 in 2012 to 2,177 as of Jun 30, 2022, in 41 states and Washington D.C. The total stores managed by third-party owners increased from 181 to 864 during the same period. Along with acquisitions, the company is making strategic investments through other channels in the storage sector, including preferred equity investments and bridge loan programs. With a focus on primary and secondary markets, Extra Space Storage is well-poised to capitalize on favorable trends.

Recently, as part of its efforts to boost the national portfolio and the operating platform, Extra Space Storage has completed the acquisition of Storage Express for roughly $590 million. The move added 107 remotely operated stores across Indiana, Ohio, Illinois and Kentucky to EXR’s portfolio.

Healthy Asset Fundamentals: The self-storage asset category is need-based and recession-resilient. This asset class has low capital-expenditure requirements and generates high operating margins. Additionally, the self-storage industry continues to benefit from favorable demographic changes. The migration and downsizing trend and increase in the number of people renting homes have escalated the needs of consumers to rent space at a storage facility to park their possessions. Further, demand for self-storage space has increased amid the flexible working environment.

Strong Operating Performance: Extra Space Storage’s better-than-expected second quarter 2022 performance reflected better-than-anticipated top-line growth. The same-store net operating income (“NOI”) improved year over year. Moreover, during the second-quarter 2022 earnings release, Extra Space Storage raised its 2022 outlook. It expects core FFO per share in the range of $8.30-$8.50, up from $8.05-$8.30 projected earlier. Management revised estimates for same-store revenue growth, expecting it to lie within 16-18%, up from the earlier range of 13-15%. Same-store NOI growth is projected in the band of 18.5-21.5%, up from 15-18% estimated earlier and acquisitions of $1.2 billion, up from the previous estimate of $800 million.

Superior Cash Flow Growth and High ROE: Extra Space Storage’s current cash flow growth is projected at 50.41% compared with the 9.7% growth projected for the industry. This REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. Extra Space Storage’s ROE is 24.31% compared with the industry’s average of 3.76%. This reflects that the company reinvests more efficiently compared with the industry.

With solid balance sheet strength, the company is well-poised to capitalize on external growth opportunities, which will likely increase.

Dividend Payouts: Solid dividend payouts are arguably the biggest enticement for REIT investors and Extra Space Storage remains committed to increasing shareholders’ wealth. In February 2022, Extra Space Storage announced a first-quarter 2022 dividend of $1.50 per share on the common stock, which marked a 20% increase over the prior-quarter dividend and a 50% hike over the first-quarter 2021 dividend. The company maintained its payment after that. Its dividend reported a 5-year increase of 92.3%. Such shareholder-friendly efforts are encouraging.

Estimate Revisions: The estimate revision trend for full-year 2022 FFO per share indicates a favorable outlook for this self-storage REIT. The Zacks Consensus Estimate for current-year FFO per share has moved north marginally over the past week to $8.49. The projected FFO per share growth rate for 2022 is 22.9%.

Other Stocks to Consider

Some other key picks from the REIT sector include Prologis (PLD - Free Report) and Terreno Realty Corporation (TRNO - Free Report) .

Prologis carries a Zacks Rank of 2 at present. Prologis’ long-term growth rate is projected at 9.0%. The Zacks Consensus Estimate for PLD’s 2022 funds from operations (FFO) per share has been revised marginally upward in the past three months to $5.17.

The Zacks Consensus Estimate for Terreno Realty’s 2022 FFO per share has moved marginally upward in the past two months to $1.93. TRNO presently carries a Zacks Rank of 2.

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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