Capture Growth And A 4% Yield With This Little-Known Industry Leader

The Bureau of Labor Statistics (BLS) estimates that an average worker will change jobs 15 times in the span of a career.

That's a far cry from just 20 years ago when it was common for someone to stay with one company for her entire career.

And this is just one of the factors that has made self-storage REITs the best performing REITs of 2013. With people switching jobs more often and smaller apartment rentals rising, demand for temporary storage is at a record high.

As a result, self-storage REITs have enjoyed a 14% gain in 2013, a sharp outperformance to the overall REIT-market return of 2%... and a little-known industry leader is making the most of the trend. Take a look below.

Extra Space Storage (NYSE: EXR) is one of the largest self-storage REITs in the U.S. with a market cap of $4.7 billion. The company owns and operates more than 1,000 self storage properties in 35 states, Washington D.C. and Puerto Rico.

But even though Extra Space has already delivered impressive gains this year, the company is in position to benefit from a number of long-term trends.

The first is industry demand. According to the 2013 Self-Storage Demand Study, 46% of self-storage customers are renting on a long-term basis, up from 38% in 2007. And looking forward, that trend is expected to accelerate, with 30% planning to keep their storage units for at least two years, up from 17% in 2007.

Extra Space is moving quickly to profit from that trend. The company is leveraging its industry-leading position to execute an aggressive expansion strategy. In the third quarter, Extra Space acquired 22 spaces in the high-demand markets of California and Arizona for $215 million. It also announced two more acquisitions after the quarter closed, buying two properties in North Carolina and Georgia for $18 million. That puts Extra Space on track to invest $535 million in acquisitions in 2013, up from its projection of $400 million earlier in the year.

Not only will these acquisitions enable Extra Space to grow revenue, it also creates a big opportunity for cost savings because the self-storage industry is still highly fragmented. Introducing centralized and updated systems into an old-school industry gives Extra Space major margin power and scalability.

Those investments in extra units will help Extra Space take advantage of record demand for self-storage. The company exited the third quarter with an occupancy rate of 90%, a record high, up 170 basis points from the previous year. That lifted rental rates up 3% while discounting fell 12%.

But in spite of its aggressive acquisition strategy, Extra Space isn't leveraged to the hilt. The company's 24% debt-to-cap ratio gives it plenty of room to buy more properties and increase operating leverage.

Not only is this market leader benefitting from an aggressive expansion strategy, it also pays a healthy dividend yield of 3.8%. The good news has consensus estimates calling for earnings growth of 21% in 2013 and 16% in 2014.

Risks to Consider: REITs as an asset class are particularly sensitive to interest rate volatility. Although self-storage REITs have been less impacted than other REITs, rising interest rates pose a threat to margins and growth.

Action to Take --> Extra Space's recent 17% decline helped sweeten the valuation. Its forward P/E (price-to-earnings) ratio of 20 times is a small premium to its peer average of 17 times. And with earnings expected to grow 23% this year, 16% in 2014 and a solid 3.8% dividend yield, Extra Space offers a compelling combination of growth and income.

-- Michael Vodicka