There are over 200 publicly traded real estate investment trusts (REITs). While income-focused investors might be able to name some of the sector's largest players, few probably know its best performer over the past decade. That distinction goes to Extra Space Storage (EXR -3.88%), a self-storage REIT overshadowed by industry giant Public Storage (PSA -2.81%).
Here's why investors won't want to miss this high-performing REIT.
A decade of outperformance
Extra Space Storage has delivered the highest total returns in the REIT sector over the last decade. Overall, the self-storage REIT has produced a nearly 690% total return, or almost 23% annualized. That's significantly higher than the S&P 500's roughly 250% total return (13.5% annualized). It's also much higher than the next-best-performing REIT, SBA Communications, and its 19.1% annualized total return, and the No. 2 performing self-storage REIT, CubeSmart, and its 17.7% annualized total return. Meanwhile, Extra Space's returns were even further above those of self-storage leader Public Storage, which produced an 11.8% total annualized return over the last 10 years.
To put the REIT's performance another way, it has grown a hypothetical $10,000 investment made a decade ago into $78,790. For comparison, the S&P 500 would have grown that same $10,000 investment into only $35,3600.
One factor driving the REIT's strong performance is its surging dividend. Extra Space has grown its dividend by 50% over the past year. That brought its total growth to 650% over the past decade. This means every $1,000 invested in Extra Space Storage's stock a decade ago is now generating $200 in annual passive income. For comparison, Public Storage hasn't increased its dividend since 2017.
The potential to continue enriching investors
Three factors have helped drive Extra Space Storage's ability to grow shareholder value over the last decade. The REIT benefited from above-average net operating income (NOI) growth, acquisitions, and its third-party management business. The self-storage REIT should continue thriving thanks to those catalysts in the future.
Extra Space's NOI should continue growing at a healthy rate due to the continued strong demand for self-storage space amid the potential for more constrained supplies in the future. With development yields near an all-time low and capital becoming more expensive due to higher interest rates, developers might not add as much new supply to the market in the near term. That should keep occupancy levels high and rental rates rising.
Meanwhile, Extra Space Storage has a strong balance sheet, enabling it to continue expanding its portfolio. The REIT has a long history of buying recently completed properties from developers, making acquisitions with joint venture partners, and purchasing properties through its third-party management platform. The REIT acquired 14 wholly owned locations in the first quarter of this year for $225 million while purchasing another two with joint venture partners, investing $4.3 million for its share.
Finally, the REIT has the largest third-party management business in the self-storage sector. It has steadily added stores to that platform as owners turn over management to Extra Space, including another 37 in the first quarter. That provides the REIT with steadily rising management income and other fees without much capital investment. These deals also give it a low-risk acquisition pipeline, as it has steadily acquired managed locations when those owners are ready to sell.
This trio of growth drivers should enable Extra Space to continue increasing its dividend in the future, which should help it grow shareholder value.
A wealth-building REIT
Extra Space Storage has enriched its investors over the years, thanks partly to its rapidly expanding dividend. With multiple growth drivers, the REIT should be able to continue increasing that payout in the future. Given its already attractive yield of more than 3.5%, Extra Space Storage looks like a great opportunity for investors seeking a balance of growth and income.