Extra Space Storage Inc. (EXR - Free Report) has earned a solid recognition in the self-storage industry. The company focuses on expansion of its geographical footprint through accretive acquisitions and third-party management platforms. It enjoys solid 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 the branded store count from 766 in 2009 to 1,606 in third-quarter 2018. Also, total stores managed for third-party owners increased from 181 in 2011 to 507 in the reported quarter.
In addition, over the past five years, Extra Space Storage acquired $4.5 billion in properties. The company gained an elevated scale in several core markets on the back of these acquisitions, as well as fortified 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. Majority of this REIT’s stores are situated around large population centers which enjoy above-average population and income demographics for stores.
Also, 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, self-storage industry is likely to continue experiencing solid demand, backed by favorable demographic changes.
Extra Space Storage’s Return on Equity (ROE) is 20.1% compared with the industry’s average of 5.3%. This reflects that the company reinvests more efficiently compared to the industry. Furthermore, the company remains committed to boost shareholders’ wealth. It has achieved a five-year dividend increase of 115% in dividend. Such shareholder-friendly efforts are encouraging.
However, the company 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 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 for the company, which would affect its ability to purchase or develop real estate and lower dividend payouts as well. Further, its 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 8.6%, the industry has inched up 0.4% during this period.
Stocks to Consider
Better- ranked stocks from the real-estate space are Iron Mountain Incorporated (IRM - Free Report) , Cousins Properties Incorporated (CUZ - Free Report) and PS Business Parks, Inc. (PSB - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Iron Mountain’s FFO per share estimates for 2018 has been revised slightly upward to $2.13 in three months’ time.
Cousins Properties’ FFO per share estimates for 2018 has been revised marginally upward to 62 cents in the last two months.
PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved 0.5% north to $6.45 in the past month.
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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