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.

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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.

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.

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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.

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