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.

Extra Space Storage significantly expanded its business in recent years, growing its branded-store count from 882 in 2011 to 2,054 at the end of the third quarter of 2021 in 41 states and Washington D.C. Also, the total stores managed for third-party owners increased from 185 to 827 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 the largest self-storage management company in the United States. With its focus on both primary and secondary markets, EXR is well-poised to capitalize on favorable trends.

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 continues to benefit from favorable demographic changes. Specifically, migration and the 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, demand for self-storage space has increased amid the flexible working environment and the improving housing market, while move-outs remain low amid the health crisis, supporting the occupancy level.

Extra Space Storage is focused on improving its balance sheet, reducing secured debt and increasing the size of its unencumbered pool. This REIT exited the third quarter of 2021 with $65.6 million of cash and cash equivalents. The company currently holds a BBB/Stable rating from Standard and Poor's and a Baa2 rating from Moody's Investors Service, rendering the company access to the debt market. With solid balance-sheet strength, the company is well-poised to capitalize on the external growth opportunities, which will likely increase.

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. Nevertheless, with a solid scale, decent balance-sheet strength and technology advantage, Extra Space Storage remains well-poised to compete for tenants and property acquisitions.

Moreover, solid dividend payouts are arguably the biggest enticements for REIT investors and Extra Space Storage remains committed to increasing shareholders’ wealth. In March 2021, the company paid out first-quarter dividend of $1.00 per share, reflecting an 11.1% increase from the prior quarter. The company also paid out third-quarter 2021 dividend of $1.25 per share, which marks a 25% increase from the previous quarter. Such shareholder-friendly efforts are encouraging.

Also, shares of this Zacks Rank #1 (Strong Buy) EXR have outperformed the industry in the past three months. The company’s shares have rallied 7.2%, while the industry has increased 0.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Other Key Picks

Some other top-ranked stocks from the REIT sector include Alexandria Real Estate Equities, Inc. ARE, CubeSmart CUBE and Public Storage PSA.

Alexandria Real Estate Equities holds a Zacks Rank of 2 (Buy) at present. Alexandria’s long-term growth rate is projected at 7.70%.

2021 FFO per share of ARE is projected to increase 6.30% year over year.

The Zacks Consensus Estimate for CubeSmart’s 2021 FFO per share has moved 1.9% north to $2.10 over the past two months.

Currently, CubeSmart carries a Zacks Rank of 1. CUBE's long-term growth rate is projected at 11.2%.

The Zacks Consensus Estimate for Public Storage’s 2021 FFO per share has moved 1.9% north to $12.80 over the past two months.

Currently, Public Storage carries a Zacks Rank of 1. PSA's long-term growth rate is projected at 8.2%.

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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