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Is it Wise to Retain Extra Space Storage (EXR) Stock for Now?
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The self-storage asset category is need-based and recession-resilient by nature and generates high operating margins, given its low capital-expenditure requirements.
Moreover, the self-storage industry continues to benefit from favorable demographic changes. Amid the flexible working environment, the demand for self-storage space has risen.
Therefore, given the favorable self-storage industry fundamentals, Extra Space Storage (EXR - Free Report) , the second-largest owner and/or operator of self-storage properties and the biggest self-storage management company in the United States, is well-positioned for growth.
The company is focused on enhancing its business and achieving geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services.
This September, EXR completed the acquisition of Storage Express for roughly $590 million. The move resulted in the addition of 107 remotely operated stores across Indiana, Ohio, Illinois and Kentucky to the company’s portfolio.
Additionally, management raised its 2022 acquisitions guidance from $1.2 billion to $1.65 billion.
The company is also making strategic investments through other channels in the storage sector, including preferred equity investments and a bridge loan program. In the nine months ended Sep 30, 2022, Extra Space Storage originated $321.8 million in mortgage and mezzanine bridge loans and sold $211.5 million in mortgage bridge loans.
On the balance-sheet front, EXR exited third-quarter 2022 with nearly $86.9 million of cash and cash equivalents. Its investment-grade credit ratings BBB/Stable from Standard and Poor's and a Baa2/Stable from Moody's Investors Service render it favorable access to the debt market. With solid balance-sheet strength, it is well-poised to capitalize on future growth opportunities.
Further, EXR’s current cash flow growth is projected at 50.41% compared with 9.70% estimated for the industry. Its trailing 12-month return on equity (ROE) is 24.07% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
However, Extra Space Storage operates in a highly fragmented market in the United States with intense competition from several private, regional and local operators.
The development boom of self-storage units in many markets and a likely rise in vacating volumes could curb the company’s pricing power and turn on discounting.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Analysts seem bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been unchanged over the past month.
Shares of Extra Space Storage have lost 8.2% in the quarter-to-date period against its industry’s growth of 6.1%.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34.
The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17.
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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Is it Wise to Retain Extra Space Storage (EXR) Stock for Now?
The self-storage asset category is need-based and recession-resilient by nature and generates high operating margins, given its low capital-expenditure requirements.
Moreover, the self-storage industry continues to benefit from favorable demographic changes. Amid the flexible working environment, the demand for self-storage space has risen.
Therefore, given the favorable self-storage industry fundamentals, Extra Space Storage (EXR - Free Report) , the second-largest owner and/or operator of self-storage properties and the biggest self-storage management company in the United States, is well-positioned for growth.
The company is focused on enhancing its business and achieving geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services.
This September, EXR completed the acquisition of Storage Express for roughly $590 million. The move resulted in the addition of 107 remotely operated stores across Indiana, Ohio, Illinois and Kentucky to the company’s portfolio.
Additionally, management raised its 2022 acquisitions guidance from $1.2 billion to $1.65 billion.
The company is also making strategic investments through other channels in the storage sector, including preferred equity investments and a bridge loan program. In the nine months ended Sep 30, 2022, Extra Space Storage originated $321.8 million in mortgage and mezzanine bridge loans and sold $211.5 million in mortgage bridge loans.
On the balance-sheet front, EXR exited third-quarter 2022 with nearly $86.9 million of cash and cash equivalents. Its investment-grade credit ratings BBB/Stable from Standard and Poor's and a Baa2/Stable from Moody's Investors Service render it favorable access to the debt market. With solid balance-sheet strength, it is well-poised to capitalize on future growth opportunities.
Further, EXR’s current cash flow growth is projected at 50.41% compared with 9.70% estimated for the industry. Its trailing 12-month return on equity (ROE) is 24.07% compared with the industry’s average of 4.65%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
However, Extra Space Storage operates in a highly fragmented market in the United States with intense competition from several private, regional and local operators.
The development boom of self-storage units in many markets and a likely rise in vacating volumes could curb the company’s pricing power and turn on discounting.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Analysts seem bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been unchanged over the past month.
Shares of Extra Space Storage have lost 8.2% in the quarter-to-date period against its industry’s growth of 6.1%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , Lamar Advertising (LAMR - Free Report) and Chatham Lodging Trust REIT (CLDT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34.
The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17.
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.