We recently published a list of 13 Most Profitable Real Estate Stocks Now. In this article, we are going to take a look at where Extra Space Storage Inc. (NYSE:EXR) stands against the other most profitable real estate stocks now.

Real Estate and the Aftermath of the Fed Rate Cut

As reported by Redfin, buying a home has gotten affordable for the first time since 2020 as homebuyers need to earn $115,000 to afford the typical home. While Senior Economist Elijah de la Campa thinks this could be a good time to buy a home with housing affordability improving for the first time in four years, he thinks the market won’t be cheaper in the near future. This is because the Fed’s recent rate cut and the following rate cut plans have already been priced into the mortgage rates since they were highly anticipated.

Another optimistic news for homebuyers on the sidelines was the housing payments witnessing the biggest decline in 4 years ahead of the Fed’s historic rate cut. These payments have gone down by almost $300 from April’s all-time high. The median housing payment was reported to be $2,534 during the four weeks ending September 15, down 2.7% year-over-year. With lower mortgage rates and less inventory, the housing market is still unaffordable for many but it is as good as it gets in the words of Orphe Divounguy, Zillow’s senior economist.

Regarding the aforementioned optimism for homebuyers, Robert Reffkin, Compass founder and CEO, stated that homebuyers are much more active than they were before. In his opinion, consumers react more to the change in mortgage rates rather than the absolute rate itself. He told CNBC that buyers now know not to take a relatively lower rate for granted after being through a period of elevated mortgage rates. Meanwhile, the major issue has been the lock-in effect during the preceding 2 years since 75% of the homeowners were locked into 4% mortgage rates or below, a percentage which is now approaching 50%. With declining mortgage rates, he expects the lock-in effect to drop and the housing inventory to grow.

With the declining mortgage rates, refinancings have surged. Mortgage applications hit the highest levels since July 2022 as the rates dropped. According to the Mortgage Bankers Association, applications to refinance or purchase a home in the week that ended September 20 increased 11% week-over-week while the refinancing applications climbed 20% during the period. This marks the 2^nd  consecutive week of double-digit gains in applications. Overall, the refinance activity is still modest with seasonally slow homebuying complemented with high home prices and a shortage of inventory.

Our Methodology:

In order to compile a list of the 13 most profitable real estate stocks, we created an initial list of 30 companies with the biggest market caps. Moving on, we screened out those companies that had a positive net income in the last twelve months and had grown their net income positively over the past 5 years. For the 5-year net income growth, we have considered the compound annual growth rates on a TTM basis. Finally, we ranked the shortlisted companies in ascending order of their hedge funds, as of Q2 2024.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An aerial view of a self-storage facility, its parking lot full with cars and RV's.

Extra Space Storage Inc. (NYSE:EXR)

Number of Hedge Fund Holders: 25

5 Year Net Income Growth: 13.24%

Extra Space Storage Inc. (NYSE:EXR) is a fully integrated, self-administered, and self-managed real estate investment trust headquartered in Salt Lake City. The firm owns and operates more than 3,500 self-storage properties, comprising over 2.5 million units and over 275 million square feet of rentable storage space. Customers can select from a variety of conveniently located and secure storage units across the US including boat storage, RV storage, and business storage.

Extra Space Storage Inc. (NYSE:EXR) dominates by serving as the largest operator of self-storage properties in the United States. The firm managed 1,423 stores for third-party owners and 472 stores owned in unconsolidated joint ventures, for a total of 1,895 stores under management, as of June 30, 2024. It recorded one of the strongest first halves of the year by adding 86 net stores to the platform. Thus, Extra Space Storage’s track record reflects its massive scale and the consistent growth of its geographically diverse portfolio.

Despite the fiscal second quarter being plagued with a challenging demand and new customer rate environment, the firm was successful in maintaining strong occupancy levels in the Extra Space and Life Storage same-store pools. This led to positive revenue growth in both pools, with Extra Space’s same-store revenue increasing 0.6% and Life Storage’s same-store revenue climbing 1.8%, year-over-year.

The REIT had previously taken a major step towards achieving a transformative scale and synergy opportunities through its merger with Life Storage in July 2023. 2023 was a year of operational excellence for the firm with same-store revenue growth of 3.1% while the balance sheet grew through the aforementioned merger. The favorable performance resulted in a positive total shareholder return of 12.5% for the year while the firm raised the dividend by 8%.

Extra Space Storage Inc. (NYSE:EXR) remains profitable. Over the past 5 years, the firm has expanded its net income by 13.24% and its revenue by 20.59%. Among other self-storage real estate companies, the firm has a solid market cap of $40.39 billion. With a strong balance sheet, robust occupancy gains, massive scale, and disciplined growth through accretive acquisitions and strong partnerships, the REIT is in a good position in a highly fragmented sector. As of Q2, the stock is held by 25 hedge funds.

Overall EXR ranks 12th on our list of most profitable real estate stocks now. While we acknowledge the potential of EXR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than EXR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.