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Is It Wise to Retain Extra Space Storage (EXR) Stock for Now?
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Extra Space Storage (EXR - Free Report) is poised to gain from its high brand value and strong presence in major cities in the United States. Strategic acquisitions, a healthy balance sheet, opportunistic investments and a third-party management platform bode well for the company’s long-term growth.
However, a development boom in many markets is likely to intensify competition, while an anticipated rise in vacating volumes could lead to pricing pressure. High interest rates add to its woes.
Extra Space Storage is the second-largest owner and/or operator of self-storage properties and the largest self-storage management company in the United States. EXR has significantly expanded its business in recent years, growing its branded-store count from 1,029 in 2013 to 2,388 as of Mar 31, 2023, in 41 states and Washington, D.C.
Also, the total number of stores managed by third-party owners increased from 250 to 931 during the same period. With a geographically diversified portfolio and significant scale, the company is poised for long-term growth.
The company also made concerted efforts to consistently grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. In April 2023, Extra Space Storage entered into a definitive merger agreement to acquire Life Storage, Inc. in an all-stock transaction, which is likely to be closed in the second half of 2023.
The self-storage asset category is basically need-based and recession-resilient in nature. Moreover, the migration and downsizing trend and an increase in the number of people renting homes have escalated the need for consumers to rent space at a storage facility to park their possessions. Further, the demand for self-storage space has increased amid the flexible working environment. For 2023, we estimate same-store rental revenues to grow 4.8% year over year.
EXR is focused on improving its balance sheet, reducing secured debt and increasing the size of its unencumbered pool. The percentage of unencumbered asset value to total asset value was nearly 77%. The combined weighted average interest rate was 4.3%, with a weighted average maturity of around five years. With solid balance-sheet strength, the company is well-poised to capitalize on external growth opportunities, which are likely to increase.
Solid dividend payouts are arguably the biggest enticements for REIT investors, and Extra Space Storage remains committed to increasing shareholders’ wealth. The company increased its dividend five times in the past five years, and its payout has grown 17.06% over the same period. Such shareholder-friendly efforts are encouraging. Check Extra Space Storage’s dividend history here.
Shares of this Zacks #3 (Hold) company have risen 0.6% in the year-to-date period against its industry’s decline of 0.6%.
Image Source: Zacks Investment Research
However, Extra Space Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, 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.
With the pandemic’s impact waning, tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on occupancy and rate growth in many markets. We expect same-store occupancy to be 93.8% in 2023.
A high interest rate is a concern for Extra Space Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. For 2023, our estimate for interest expenses indicates an increase of 53.6% year over year. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
The Zacks Consensus Estimate for EastGroup Properties’ current-year funds from operations (FFO) per share has moved marginally north over the past two months to $7.56.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past two months to $8.66.
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?
Extra Space Storage (EXR - Free Report) is poised to gain from its high brand value and strong presence in major cities in the United States. Strategic acquisitions, a healthy balance sheet, opportunistic investments and a third-party management platform bode well for the company’s long-term growth.
However, a development boom in many markets is likely to intensify competition, while an anticipated rise in vacating volumes could lead to pricing pressure. High interest rates add to its woes.
Extra Space Storage is the second-largest owner and/or operator of self-storage properties and the largest self-storage management company in the United States. EXR has significantly expanded its business in recent years, growing its branded-store count from 1,029 in 2013 to 2,388 as of Mar 31, 2023, in 41 states and Washington, D.C.
Also, the total number of stores managed by third-party owners increased from 250 to 931 during the same period. With a geographically diversified portfolio and significant scale, the company is poised for long-term growth.
The company also made concerted efforts to consistently grow its business and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. In April 2023, Extra Space Storage entered into a definitive merger agreement to acquire Life Storage, Inc. in an all-stock transaction, which is likely to be closed in the second half of 2023.
The self-storage asset category is basically need-based and recession-resilient in nature. Moreover, the migration and downsizing trend and an increase in the number of people renting homes have escalated the need for consumers to rent space at a storage facility to park their possessions. Further, the demand for self-storage space has increased amid the flexible working environment. For 2023, we estimate same-store rental revenues to grow 4.8% year over year.
EXR is focused on improving its balance sheet, reducing secured debt and increasing the size of its unencumbered pool. The percentage of unencumbered asset value to total asset value was nearly 77%. The combined weighted average interest rate was 4.3%, with a weighted average maturity of around five years. With solid balance-sheet strength, the company is well-poised to capitalize on external growth opportunities, which are likely to increase.
Solid dividend payouts are arguably the biggest enticements for REIT investors, and Extra Space Storage remains committed to increasing shareholders’ wealth. The company increased its dividend five times in the past five years, and its payout has grown 17.06% over the same period. Such shareholder-friendly efforts are encouraging. Check Extra Space Storage’s dividend history here.
Shares of this Zacks #3 (Hold) company have risen 0.6% in the year-to-date period against its industry’s decline of 0.6%.
Image Source: Zacks Investment Research
However, Extra Space Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, 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.
With the pandemic’s impact waning, tenants are likely to revert to more normal move-out behavior, leading to adverse pressure on occupancy and rate growth in many markets. We expect same-store occupancy to be 93.8% in 2023.
A high interest rate is a concern for Extra Space Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. For 2023, our estimate for interest expenses indicates an increase of 53.6% year over year. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) and Innovative Industrial Properties (IIPR - Free Report) , each presently 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 EastGroup Properties’ current-year funds from operations (FFO) per share has moved marginally north over the past two months to $7.56.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past two months to $8.66.
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.