Extra Space Storage Inc. EXR is consistently making efforts to expand its business around large population centers and attain geographical diversity. However, stiff competition from new supply in various markets may limit its profitability.

This Zacks Rank #3 (Hold) stock has underperformed its industry year to date.  Shares of the company have gained 0.3%, as compared with 7.4% growth recorded by the industry. Moreover, the Zacks Consensus Estimate for funds from operation (FFO) per share estimates for third-quarter 2017 edged down a cent to $1.09 in a week’s time.

Nonetheless, Extra Space Storage has been increasing its scale of operations in several core markets through accretive acquisitions, mutually beneficial joint-venture partnerships and third-party management services. In fact, over the past five years, Extra Space Storage acquired $4.8 billion in properties. Amid sound demand conditions in the industry, such efforts are anticipated to stoke solid growth for the company.

These efforts enabled the company to enhance its brand value and become the second largest self-storage operator in the United States. Extra Space Storage increased its branded store count from 694 in 2008 to 1,470 in second-quarter 2017.

Additionally, with majority of its stores gathered around large population centers, the company enjoys above-average income demographics from these markets.

Further, the industry is characterized by fragmented ownership and only around 20% of the total self-storage square footage is under this REIT’s ownership. Under such circumstances, Extra Space Storage remains well poised to pursue its acquisition plans.

However, stiff competition from new supply in certain metropolitan statistical areas (MSA) will keep dampening the company’s rent growth and pricing ability.

In addition, the month-to-month lease basis prevalent in the industry may adversely affect the company’s operating performance during times of distress — when tenant turnover is typically high.

Key Picks

Better-ranked stocks in the REIT space include Getty Realty Corporation GTY, Seritage Growth Properties SRG and Communications Sales & Leasing, Inc. UNIT. While Getty Realty flaunts a Zacks Rank #1 (Strong Buy), Seritage and Communications Sales & Leasing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Getty Realty’s FFO per share estimates for the current year moved 3.1% upward to $2 over the past week.

Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 during the same time frame.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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