Is it Wise to Retain Extra Space Storage Stock in Your Portfolio?

Extra Space Storage EXR is well-positioned to gain from its high brand value, strategic buyouts and the need-based nature of the self-storage industry. A healthy balance sheet favours financial flexibility. Solid dividends aid shareholders’ wealth creation.However, the company is likely to face headwinds from lower new customer rates. The development boom of self-storage units in many markets is likely to continue affecting its pricing power.What’s Aiding EXR?Extra Space Storage is the largest operator of self-storage properties in the United States. The company has significantly expanded its business in recent years, growing its branded store count from 1,029 in 2013 to 3,862 as of Sept. 30, 2024 in 42 states and Washington, D.C. With a geographically diversified portfolio and significant scale, EXR is poised for long-term growth. We expect a year-over-year rise of 26.9% in the company’s total revenues in 2024.The company is focused on consistently growing its business and achieving geographical diversity through accretive acquisitions, mutually beneficial joint venture partnerships and third-party management services. In addition to the buyouts, Extra Space Storage is making strategic investments through other channels in the storage sector, including preferred equity investments and a bridge loan program.The self-storage asset category is need-based and recession-resilient in nature. This asset class has low capital expenditure requirements and generates high operating margins. The self-storage industry continues to benefit from favorable demographic changes. For 2024, we estimate year-over-year growth of 25.8% in property rental revenues.Extra Space Storage is focused on improving its balance sheet, reducing secured debt and increasing the size of its unencumbered pool. As of Sept. 30, 2024, the company's net debt to EBITDA was 4.8X. The percentage of unencumbered asset value to total asset value was 84.2%. With solid balance sheet strength, the company is well-poised to capitalize on external growth opportunities.EXR remains committed to increasing shareholders’ wealth through consistent dividend payouts. In the past five years, the company has increased its dividend six times, and the five-year annualized dividend growth rate is 13.32% (Check Extra Space Storage dividend history). With a robust operating platform, a healthy financial position and our core FFO growth projections of 23.8% in 2024, we expect the dividend payout to be sustainable in the upcoming period.What’s Hurting EXR?The company continues to see new customer price sensitivity and is likely to face headwinds from lower new customer rates in the near term. As such, the reacceleration in revenue growth is expected to be challenging until the company regains pricing power with new customers.There has been a development boom of self-storage units in many markets in recent years. This high supply has fueled competition, affecting the power to raise rents and turn on more discounting for EXR.Despite the Federal Reserve announcing rate cuts recently, the interest rate is still high and is a concern for EXR. The company has a substantial debt of around $11.8 billion as of Sept. 30, 2024. Our estimate indicates a year-over-year increase of 31.1% in interest expenses in 2024.Analysts seem bearish on this stock, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) being lowered marginally over the past week to $8.33.In the past three months, shares of this Zacks Rank #3 (Hold) company have declined 13.1% compared with the industry’s fall of 9.9%.Image Source: Zacks Investment ResearchStocks to ConsiderSome better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and OUTFRONT Media OUT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.68, which suggests year-over-year growth of 2.3%.The Zacks Consensus Estimate for OUTFRONT Media’s 2024 FFO per share stands at $1.73, which indicates an increase of 5.5% from the year-ago period.Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Cousins Properties Incorporated (CUZ): Free Stock Analysis Report Extra Space Storage Inc (EXR): Free Stock Analysis Report OUTFRONT Media Inc. (OUT): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks