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Here's Why You Should Hold on to Extra Space (EXR) Stock Now

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Extra Space Storage Inc. (EXR - Free Report) is a notable name in the self-storage industry. The company focuses on expansion of its geographical footprint through accretive acquisitions and third-party management platforms. It enjoys presence in key cities and opts for strategic joint ventures to drive long-term profitability.

In fact, in recent years, the company has significantly expanded its business, growing its branded store count from 694 in 2008 to 1,513 in third-quarter 2017. Also, total stores managed for third-party owners increased from 185 in 2011 to 485 in the recently-reported quarter.

In addition, over the past five years, Extra Space Storage acquired $4.8 billion in properties. 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. Majority of this REIT’s stores are situated around large population centers which enjoy above-average population and income demographics for stores.

Further, the self-storage asset category is basically need based and recession resilient in nature. This asset class has low capital expenditure requirements and generates high-operating margins. Additionally, the self-storage industry is likely to continue experiencing solid demand, backed by favorable demographic changes, and events like marriages, shifting, death and even divorce.

Extra Space Storage’s Return on Equity (ROE) is 14.4% compared with the industry’s average of 5.8%. This reflects that the company reinvests more efficiently compared to the industry. Also, the company remains committed to boost shareholders’ wealth. It has achieved five-year total increase of a whopping 290% in dividend. Such shareholder-friendly efforts are encouraging.

However, the company operates in a highly fragmented market in the nation, 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 is likely to fuel competition for the company, curb its power to raise rents and turn on more discounting.

Moreover, hike in interest rate is a concern for the company. Essentially, rising rates imply higher borrowing cost, which might impede its ability to purchase or develop real estate and impact profitability. Furthermore, the dividend payout might become less attractive compared to the yields on fixed income and money market accounts.

Extra Space Storage currently carries a Zacks Rank #3 (Hold). In the past three months, shares of the company have outperformed the industry. While the stock has gained 7.6%, the industry has inched up 0.2% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


 

Better-ranked stocks in the REIT space include Ashford Hospitality Prime, Inc. , Lamar Advertising Company (LAMR - Free Report) and Outfront Media Inc. (OUT - Free Report) . All three carry a Zacks Rank of 2 (Buy).

Ashford Hospitality Prime’s Zacks Consensus Estimates for 2017 funds from operations (FFO) per share remained unchanged at $1.61 over the past week. Its share price has increased 3.4% in three months’ time.

Lamar Advertising Company’s FFO per share estimates for 2017 have remained unchanged at $4.96 in a month’s time. The stock has gained 7.2% over the past three months.

Outfront Media’s FFO per share estimates for 2017 remained unchanged at $1.98 over the past month. Its shares have lost 5.5% during the past three months.

Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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