Sourced through Scoop.it from: gilverbook.com
When we last looked into Extra Space Storage (NYSE:EXR), we ranked that company as a top pick among self-storage REITs. Since we featured its stock on May 26, EXR has had a great 11 percent run and distributed dividends 26 percent higher in June. Together with CubeSmart (which we have also featured), the company performed well the first seven months of 2015, ending up among the top 3 stock performers among 172 equity REITs we follow. Thus far, EXR stock has risen a whopping 34 percent.
Q2's results have been as exciting as Q1's. Year-over-year, total revenues and funds from operations (FFO) grew 16 and 17 percent respectively. Also, metrics that measure internal growth have been scorching hot. Same-store revenue and same-store net operating income (NOI) increased by 9.4 and 12.1 percent respectively; and same-store occupancy advanced 240 basis points to 94.5. Even with the dividend bump, the payout level is around 80 percent - a comfortable level.
Management is so confident that they purchased SmartShop, the country's seventh-largest storage company, for $1.3 billion - a transaction that increases EXR's footprint by 15 percent. The company will also end up with about 1,300 stores. In such a very fragmented industry as self-storage, besides growing presence, scale matters in cost reduction. That is particularly notable when marketing costs associated with the Internet have been a deciding factor in drawing in customers. Try google 'storage' and you'll realize how competitive this market is.
Unfortunately, EXR has reached a supreme level from a valuation perspective. Expecting possible strong growth, price-to-FFO has reached 27×, while dividend yield is 3 percent. Certainly, there are advantages in acquiring self-storage stock, which, being of shorter duration like apartments, can raise rates with rising interest rate costs. However, the entry point is too steep.
Written by Heli Brecailo
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.