Extra Space Storage Inc. EXR has earned solid recognition in the self-storage industry. The company has been making efforts 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.
Also, shares of Extra Space Storage have outperformed its industry in the past three months. The company’s shares have rallied 15.9%, while the industry has risen 4%.
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This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on several favorable factors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 882 in 2011 to 2,177 as of Jun 30, 2022 in 41 states and Washington D.C. Also, the total stores managed for third-party owners increased from 185 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.
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. With a focus on both primary and secondary markets, Extra Space Storage is well-poised to capitalize on favorable trends.
Healthy Asset Fundamentals: The self-storage asset category, which is need-based and recession-resilient in nature, has low capital-expenditure requirements and generates high operating margins. The self-storage industry continues to benefit from favorable demographic changes. Also, the migration and downsizing trend and an 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, the demand for self-storage space has increased amid the flexible working environment.
Strong Operating Performance: Extra Space Storage reported second-quarter 2022 core funds from operations (FFO) per share of $2.13, beating the Zacks Consensus Estimate of $2.04. The figure also came in 29.9% higher than the prior-year quarter’s $1.64. Results reflected better-than-anticipated top-line growth. The same-store net operating income (“NOI”) improved year over year.
Extra Space Storage also raised its 2022 outlook. It expects core FFO per share in the range of $8.30-$8.50, up from the $8.05-$8.30 range projected earlier. The Zacks Consensus Estimate for the same is currently pegged at $8.30. Management revised estimates for same-store revenue growth, expecting it to lie within 16% and 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 the 15-18% band estimated earlier, and acquisitions are projected at $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 9.64% growth projected for the industry. Moreover, 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 3.30%. 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 enticements for REIT investors, and EXR 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 has maintained its payment thereafter. Its dividend reported a five-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 month. The projected FFO per share growth rate for 2022 is 20.12%.
Other Stocks to Consider
Some other key picks from the REIT sector include Prologis PLD and Host Hotels & Resorts HST.
Prologis carries a Zacks Rank of 2 at present. Prologis’ long-term growth rate is projected at 9.8%. The Zacks Consensus Estimate for PLD’s 2022 FFO per share has been revised marginally upward in the past month.
The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved nearly 3.6% upward in the past week to $1.75. HST 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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