After a tumultuous year for commercial real estate (CRE) some investors are looking to self-storage, a sector with strong historical performance, little overhead, and big upside as a safer investment option. The storage industry certainly isn't immune to economic-related challenges, but after the coronavirus pandemic and battles against over-supply, things are looking up for self-storage operators. This means investors may look toward Extra Space Storage (NYSE: EXR), one of the leading self-storage real estate investment trusts (REITs) as a potential buy. Let's take a look at where the company stands today to see if it's a buy right now or not.
At year end 2020, Extra Space storage wholly owned or had interest in 1,921 facilities, either through third-party management or joint ventures. The company earned $1.4 billion in 2020, with a presence in 41 states and making up roughly 7.8% of total market share of storage facilities in the United States.
Like many other sectors in the commercial industry, initial concerns over COVID-19 delayed or paused evictions and resulted in an increase in expenses, with a slightly lower demand. These factors, combined with already high supply in several markets, pushed rental revenues down slightly over the past year despite record-high occupancy levels. Funds from operations (FFOs) fell slightly by 8.2% from the year prior, while revenues and net operating income (NOI) slipped marginally as well, 0.1% and 0.7% respectively.
Despite slightly lower performance in 2020, the company has continued to outperform its peers over the past five years. In 2020 the company completed $724 million in activity, including bridge lending, joint ventures, new developments and acquisitions, meaning continued growth and expansion is on the forefront of the company's mind. The company, feeling confident with where it's headed, increased its dividend in Q1 2020, to $1.00, making its payout ratio 84%, high for the sector but still a manageable ratio.
Right now, debt-to-EBITDA is 6.1x, which is rather high for the self-storage industry, meaning in order to continue maintaining forward momentum and strong performance in this sector, the company needs to consider its liquidity, debt obligations, and dividends moving forward. Share prices for the company are at five-year highs, meaning investors aren't exactly getting a great return on their investment, just under 3%.
I think Extra Space Storage is a safe long-term investment, but right now prices are a bit inflated. I expect to see similar performance for the company over the next year or two as the economy continues to recover from the pandemic and oversupply in the market. I personally believe there are other REITs in the market today that offer a bit more value right now, but Extra Space Storage is still a worthy buy for investors looking for safety over growth or value.