Extra Space Storage Inc. [EXR] Filings

10-Q 1 exr-20240630.htm 10-Q exr-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-32269

EXTRA SPACE STORAGE INC.

(Exact name of registrant as specified in its charter)


Maryland						20-1076777
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2795 East Cottonwood Parkway, Suite 300

Salt Lake City, Utah 84121

(Address of principal executive offices)

Registrant’s telephone number, including area code: (801) 365-4600

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934


Title of each class	Trading symbol	Name of each exchange on which registered

Common Stock, $0.01 par value	EXR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of July 29, 2024, was 211,928,695.

Table of Contents

EXTRA SPACE STORAGE INC.

TABLE OF CONTENTS


STATEMENT ON FORWARD-LOOKING INFORMATION			4

PART I. FINANCIAL INFORMATION			6
ITEM 1. FINANCIAL STATEMENTS (unaudited)			6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			39
ITEM 4. CONTROLS AND PROCEDURES			39

PART II. OTHER INFORMATION			40
ITEM 1. LEGAL PROCEEDINGS			40
ITEM 1A. RISK FACTORS			40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			40
ITEM 4. MINE SAFETY DISCLOSURES			40
ITEM 5. OTHER INFORMATION			40
ITEM 6. EXHIBITS			41
SIGNATURES			44

STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information set forth in this report contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

All forward-looking statements, including without limitation, management’s examination of historical operating trends and estimates of future earnings, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks referenced in “Part II. Item 1A. Risk Factors” below and in “Part I. Item 1A. Risk Factors” included in our most recent Annual Report on Form 10-K. Such factors include, but are not limited to:

•adverse changes in general economic conditions, the real estate industry and the markets in which we operate;

•failure to realize the expected benefits of the acquisition of Life Storage, Inc. (“Life Storage”);

•the risk that Life Storage’s business will not be fully integrated successfully or that such integration may be more difficult, time-consuming or costly than expected;

•the uncertainty of expected future financial performance and results of the combined company following completion of the Life Storage merger;

•failure to close pending acquisitions and developments on expected terms, or at all;

•the effect of competition from new and existing stores or other storage alternatives, including increased or unanticipated competition for our properties, which could cause rents and occupancy rates to decline;

•potential liability for uninsured losses and environmental contamination;

•the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing real estate investment trusts (“REITs”), tenant reinsurance and other aspects of our business, which could adversely affect our results;

•our ability to recover losses under our insurance policies;

•disruptions in credit and financial markets and resulting difficulties in raising capital or obtaining credit at reasonable rates or at all, which could impede our ability to grow;

•our reliance on information technologies, which are vulnerable to, among other things, attack from computer viruses and malware, hacking, cyberattacks and other unauthorized access or misuse, any of which could adversely affect our business and results;

•changes in global financial markets and increases in interest rates;

•availability of financing and capital, the levels of debt that we maintain and our credit ratings;

•risks associated with acquisitions, dispositions and development of properties, including increased development costs due to additional regulatory requirements related to climate change and other factors;

•reductions in asset valuations and related impairment charges;

•our lack of sole decision-making authority with respect to our joint venture investments;

•the effect of recent or future changes to U.S. tax laws;

•the failure to maintain our REIT status for U.S. federal income tax purposes;

•impacts from any outbreak of highly infectious or contagious diseases, including reduced demand for self-storage space and ancillary products and services such as tenant reinsurance, and potential decreases in occupancy and rental rates and staffing levels, which could adversely affect our results; and

•economic uncertainty due to the impact of natural disasters, war or terrorism, which could adversely affect our business plan.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities.

We disclaim any duty or obligation to update or revise any forward-looking statements set forth in this report to reflect new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Extra Space Storage Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)


	June 30, 2024		December 31, 2023
	(unaudited)
Assets:
Real estate assets, net	$	24,340,817	$	24,555,873
Real estate assets - operating lease right-of-use assets	218,823		227,241
Investments in unconsolidated real estate entities	1,065,155		1,071,617
Investments in debt securities and notes receivable	1,442,681		904,769
Cash and cash equivalents	76,973		99,062

Other assets, net	617,631		597,700
Total assets	$	27,762,080	$	27,456,262
Liabilities, Noncontrolling Interests and Equity:
Secured notes payable, net	$	1,265,981	$	1,273,549
Unsecured term loans, net	2,252,872		2,650,581
Unsecured senior notes, net	7,028,452		6,410,618
Revolving lines of credit	948,000		682,000
Operating lease liabilities	229,035		236,515
Cash distributions in unconsolidated real estate ventures	73,133		71,069
Accounts payable and accrued expenses	381,941		334,518
Other liabilities	451,826		383,463
Total liabilities	12,631,240		12,042,313
Commitments and contingencies
Noncontrolling Interests and Equity:
Extra Space Storage Inc. stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 211,927,348 and 211,278,803 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	2,120		2,113
Additional paid-in capital	14,810,938		14,750,388
Accumulated other comprehensive income	27,241		17,435
Accumulated deficit	(667,667)		(379,015)
Total Extra Space Storage Inc. stockholders' equity	14,172,632		14,390,921
Noncontrolling interest represented by Preferred Operating Partnership units, net	191,306		222,360
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	766,902		800,668
Total noncontrolling interests and equity	15,130,840		15,413,949
Total liabilities, noncontrolling interests and equity	$	27,762,080	$	27,456,262

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Property rental	$	697,100	$	440,747	$	1,385,144	$	874,709
Tenant reinsurance	83,705		48,433		165,052		96,137
Management fees and other income	29,858		22,206		60,006		43,590
Total revenues	810,663		511,386		1,610,202		1,014,436
Expenses:
Property operations	196,902		114,637		401,420		231,803
Tenant reinsurance	19,631		9,482		38,136		18,571


General and administrative	39,901		34,842		83,623		69,605
Depreciation and amortization	194,809		79,086		391,775		157,576
Total expenses	451,243		238,047		914,954		477,555
Loss on real estate assets held for sale	(54,659)		—		(54,659)		—
Income from operations	304,761		273,339		640,589		536,881
Interest expense	(137,133)		(86,372)		(270,020)		(166,471)
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes	(10,853)		—		(21,558)		—
Interest income	31,226		21,077		54,799		40,515
Income before equity in earnings and dividend income from unconsolidated real estate entities and income tax expense	188,001		208,044		403,810		410,925
Equity in earnings and dividend income from unconsolidated real estate entities	17,255		13,254		32,262		23,559

Income tax expense	(9,844)		(5,986)		(16,586)		(10,294)
Net income	195,412		215,312		419,486		424,190
Net income allocated to Preferred Operating Partnership noncontrolling interests	(1,933)		(2,254)		(4,141)		(4,508)
Net income allocated to Operating Partnership and other noncontrolling interests	(7,607)		(10,648)		(16,361)		(20,968)
Net income attributable to common stockholders	$	185,872	$	202,410	$	398,984	$	398,714
Earnings per common share
Basic	$	0.88	$	1.50	$	1.88	$	2.96
Diluted	$	0.88	$	1.50	$	1.88	$	2.95
Weighted average number of shares
Basic	211,584,155		134,832,232		211,433,877		134,672,672
Diluted	211,587,105		143,529,817		220,114,016		143,337,522
Cash dividends paid per common share	$	1.62	$	1.62	$	3.24	$	3.24

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	195,412	$	215,312	$	419,486	$	424,190
Other comprehensive income:
Change in fair value of interest rate swaps	(1,006)		12,599		10,196		(1,911)
Total comprehensive income	194,406		227,911		429,682		422,279
Less: comprehensive income attributable to noncontrolling interests	9,484		13,517		20,892		25,298
Comprehensive income attributable to common stockholders	$	184,922	$	214,394	$	408,790	$	396,981

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2024

(unaudited, amounts in thousands, except share data)


	Noncontrolling Interest							Extra Space Storage Inc. Stockholders' Equity
		Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at March 31, 2024		$	218,824	$	763,971	$	9,137	211,658,812	$	2,117	$	14,776,888	$	28,191	$	(510,150)	$	15,288,978
Issuance of common stock for share based compensation, exercise of options and taxes paid upon net settlement		—		—		—		71,502	1		6,585		—		—		6,586

Offering costs associated with shelf registration		—		—		—		—	—		(494)		—		—		(494)
Redemption of Operating Partnership units for stock		(27,518)		(446)		—		197,034	2		27,959		—		—		(3)














Noncontrolling interest in consolidated joint venture		—		—		656		—	—		—		—		—		656
Net income		1,933		7,600		7		—	—		—		—		185,872		195,412
Other comprehensive income		—		(56)		—		—	—		—		(950)		—		(1,006)
Distributions to Operating Partnership units held by noncontrolling interests		(1,933)		(13,967)		—		—	—		—		—		—		(15,900)
Dividends paid on common stock at $1.62 per share		—		—		—		—	—		—		—		(343,389)		(343,389)
Balances at June 30, 2024		$	191,306	$	757,102	$	9,800	211,927,348	$	2,120	$	14,810,938	$	27,241	$	(667,667)	$	15,130,840

Balances at December 31, 2023		$	222,360	$	791,754	$	8,914	211,278,803	$	2,113	$	14,750,388	$	17,435	$	(379,015)	$	15,413,949
Issuance of common stock for share based compensation, exercise of options and taxes paid upon net settlement		—		—		—		168,429	2		6,193		—		—		6,195
Issuance of common stock, net of offering costs		—		—		—		2,310	—		365		—		—		365
Offering costs associated with shelf registration		—		—		—		—	—		(494)		—		—		(494)
Redemption of Operating Partnership units for stock		(31,054)		(23,437)		—		477,806	5		54,486		—		—		—














Noncontrolling interest in consolidated joint ventures		—		—		862		—	—		—		—		—		862
Net income		4,141		16,337		24		—	—		—		—		398,984		419,486
Other comprehensive loss		—		390		—		—	—		—		9,806		—		10,196
Distributions to Operating Partnership units held by noncontrolling interests		(4,141)		(27,942)		—		—	—		—		—		—		(32,083)
Dividends paid on common stock at $3.24 per share		—		—		—		—	—		—		—		(687,636)		(687,636)
Balances at June 30, 2024		$	191,306	$	757,102	$	9,800	211,927,348	$	2,120	$	14,810,938	$	27,241	$	(667,667)	$	15,130,840

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2023

(unaudited, amounts in thousands, except share data)


	Noncontrolling Interest							Extra Space Storage Inc. Stockholders' Equity
		Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at March 31, 2023		$	222,940	$	554,015	$	2,413	135,007,280	$	1,350	$	3,376,458	$	35,081	$	(159,556)	$	4,032,701
Issuance of common stock in connection with share based compensation		—		—		—		53,823	1		6,939		—		—		6,940
Taxes paid upon net settlement of share based compensation		—		—		—		(573)	—		(94)		—		—		(94)
Restricted stock grants cancelled		—		—		—		(1,633)	—		—		—		—		—
Noncontrolling interest in consolidated joint venture		—		—		709		—	—		—		—		—		709
Net income (loss)		2,254		10,691		(43)		—	—		—		—		202,410		215,312
Other comprehensive income		—		615		—		—	—		—		11,984		—		12,599
Distributions to Operating Partnership units held by noncontrolling interests		(2,254)		(11,711)		—		—	—		—		—		—		(13,965)
Dividends paid on common stock at $1.62 per share		—		—		—		—	—		—		—		(218,795)		(218,795)
Balances at June 30, 2023		$	222,940	$	553,610	$	3,079	135,058,897	$	1,351	$	3,383,303	$	47,065	$	(175,941)	$	4,035,407

Balances at December 31, 2022		$	261,502	$	556,095	$	1,080	133,921,020	$	1,339	$	3,345,332	$	48,798	$	(135,872)	$	4,078,274
Issuance of common stock in connection with share based compensation		—		—		—		143,387	2		12,437		—		—		12,439
Taxes paid upon net settlement of share based compensation		—		—		—		(7,660)	—		(7,543)		—		—		(7,543)
Restricted stock grants cancelled		—		—		—		(3,855)	—		—		—		—		—
Redemption of Preferred A Units in the Operating Partnership for stock		(16,339)		—		—		851,698	8		11,015		—		—		(5,316)
Redemption of Preferred D Units in the Operating Partnership for stock		(22,064)		—		—		154,307	2		22,062		—		—		—
Noncontrolling interest in consolidated joint venture		—		—		2,100		—	—		—		—		—		2,100
Net income (loss)		4,508		21,069		(101)		—	—		—		—		398,714		424,190
Other comprehensive income		—		(178)		—		—	—		—		(1,733)		—		(1,911)
Distributions to Operating Partnership units held by noncontrolling interests		(4,667)		(23,376)		—		—	—		—		—		—		(28,043)
Dividends paid on common stock at $3.24 per share		—		—		—		—	—		—		—		(438,783)		(438,783)
Balances at June 30, 2023		$	222,940	$	553,610	$	3,079	135,058,897	$	1,351	$	3,383,303	$	47,065	$	(175,941)	$	4,035,407

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	419,486	$	424,190
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	391,775		157,576
Amortization of deferred financing costs	7,739		5,470
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes	21,558		—
Compensation expense related to share-based awards	6,192		12,439
Accrual of interest income added to principal of debt securities and notes receivable	(16,100)		(16,200)


Loss on real estate assets held for sale	54,659		—
Distributions from unconsolidated real estate ventures	14,540		7,594
Changes in operating assets and liabilities:

Other assets	(2,518)		(28,129)
Accounts payable and accrued expenses	42,669		37,176
Other liabilities	70,800		29,411
Net cash provided by operating activities	1,010,800		629,527
Cash flows from investing activities:
Acquisition of real estate assets and improvements	(157,329)		(127,416)


Development and redevelopment of real estate assets	(69,384)		(37,244)
Proceeds from sale of real estate assets and investments in real estate ventures	—		1,046
Investment in unconsolidated real estate entities	(10,789)		(171,126)

Return of investment in unconsolidated real estate ventures	4,200		—
Issuance and purchase of notes receivable	(569,268)		(124,103)
Principal payments received from notes receivable	47,455		46,466
Proceeds from sale of notes receivable	—		60,696
Purchase of equipment and fixtures	(9,652)		(5,905)
Net cash used in investing activities	(764,767)		(357,586)
Cash flows from financing activities:

Proceeds from unsecured term loans and senior notes and revolving lines of credit	3,263,470		2,479,592
Principal payments on unsecured term loans and senior notes and revolving lines of credit	(3,407,382)		(3,246,378)
Proceeds from issuance of public bonds, net	600,000		950,000
Deferred financing costs	(5,719)		(28,151)

Proceeds from share issuances and redemption of stock options for cash, net	366		—

Redemption of Preferred OP units for cash	—		(5,000)
Offering costs associated with shelf registration	(494)		—


Dividends paid on common stock	(687,636)		(438,783)
Distributions to noncontrolling interests	(32,177)		(28,043)
Net cash used in financing activities	(269,572)		(316,763)
Net decrease in cash, cash equivalents, and restricted cash	(23,539)		(44,822)
Cash, cash equivalents, and restricted cash, beginning of the period	105,083		97,735
Cash, cash equivalents, and restricted cash, end of the period	$	81,544	$	52,913

Cash and equivalents, including restricted cash at the beginning of the period:
Cash and equivalents	$	99,062	$	92,868
Restricted cash included in other assets	6,021		4,867

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2024		2023
	$	105,083	$	97,735
Cash and equivalents, including restricted cash at the end of the period:
Cash and equivalents	$	76,973	$	50,644
Restricted cash included in other assets	4,571		2,269
	$	81,544	$	52,913
Supplemental schedule of cash flow information
Interest paid	$	230,242	$	150,459
Income taxes paid	22,034		11,831
Supplemental schedule of noncash investing and financing activities:
Redemption of Operating Partnership units held by noncontrolling interests for common stock
Noncontrolling interests in Operating Partnership	$	54,491	$	149,739
Common stock and paid-in capital	(54,491)		(44,739)
Noncontrolling interests in Operating Partnership Note Receivable Payoff	—		(100,000)
OP Unit Redemption - Cash Proceeds	—		(5,000)

















Accrued construction costs and capital expenditures
Acquisition of real estate assets	$	4,754	$	4,503

Accounts payable and accrued expenses	(4,754)		(4,503)

See accompanying notes to unaudited condensed consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Amounts in thousands, except store and share data, unless otherwise stated

1. ORGANIZATION

Extra Space Storage Inc. (the “Company”) is a fully integrated, self-administered and self-managed REIT, formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties (“stores”) located throughout the United States. The Company was formed to continue the business of Extra Space Storage LLC and its subsidiaries, which had engaged in the self-storage business since 1977. The Company’s interest in its stores is held through its operating partnership, Extra Space Storage LP (the “Operating Partnership”), which was formed on May 5, 2004. The Company’s primary assets are general partner and limited partner interests in the Operating Partnership, which meets the definition of a variable interest entity and is consolidated. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.

The Company invests in stores by acquiring wholly-owned stores or by acquiring an equity interest in real estate entities. At June 30, 2024, the Company had direct and indirect equity interests in 2,389 stores. In addition, the Company managed 1,423 stores for third parties, bringing the total number of stores which it owns and/or manages to 3,812. These stores are located in 42 states and Washington, D.C. The Company offers tenant reinsurance at its owned and managed stores that insures the value of goods in the storage units and also offers bridge loan financing to certain of its third-party self-storage owners.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission.

Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires the disclosure of incremental segment information, including significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and a reconciliation of segment profit or loss to net income. The title and position of the CODM must also be disclosed, along with how the CODM uses the reported measures to assess segment performance and to allocate resources. Pursuant to this ASU, the footnotes to the Company's consolidated financial statements may include incremental disclosures related to its two reportable segments: (1) self-storage operations and (2) tenant reinsurance. The compliance with this ASU will be required beginning with the Company's annual report on Form 10-K for the year ending December 31, 2024, followed by interim disclosures in quarterly reports on Form 10-Q thereafter, with early adoption permitted. The Company expects to adopt this ASU for its annual report on Form 10-K for the year ending December 31, 2024.

3. FAIR VALUE DISCLOSURES

Derivative Financial Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate forward curves.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2024, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2024, aggregated by the level in the fair value hierarchy within which those measurements fall.


	Fair Value Measurements at Reporting Date Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets - Cash flow hedge swap agreements	$	—	$	31,133	$	—
Other liabilities - Cash flow hedge swap agreements	$	—	$	77	$	—

The Company did not have any significant assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of June 30, 2024 or December 31, 2023.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Long-lived assets held for use are evaluated for impairment when events or circumstances indicate there may be impairment. The Company reviews each store at least annually to determine if any such events or circumstances have occurred or exist. The Company focuses on stores where occupancy and/or rental income have decreased by a significant amount. For these stores, the Company determines whether the decrease is temporary or permanent, and whether the store will likely recover the lost occupancy and/or revenue in the short term. In addition, the Company reviews stores in the lease-up stage and compares actual operating results to original projections.

When the Company determines that an event that may indicate impairment has occurred, the Company compares the carrying value of the related long-lived assets to the undiscounted future net operating cash flows attributable to the assets. An impairment loss is recorded if the net carrying value of the assets exceeds the undiscounted future net operating cash flows attributable to the assets. The impairment loss recognized equals the excess of net carrying value over the related fair value of the assets.

When real estate assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value of the assets, net of selling costs. The Company compares the carrying value of the related long-lived assets to the discounted future net operating cash flows attributable to the assets (categorized within Level 3 of the fair value hierarchy). If the estimated fair value, net of selling costs, of the assets that have been identified as held for sale is less than the net carrying value of the assets, the Company would recognize a loss on the assets held for sale. The operations of assets held for sale or sold during the period is presented as part of normal operations. As of June 30, 2024, the Company had seven stores classified as held for sale which are included in real estate assets, net. The estimated fair value of these assets, net

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

of selling costs, was $51,934, which was less than the net carrying value of the assets and thus the Company recorded a loss of $54,659 during the three months ended June 30, 2024.

The Company assesses annually whether there are any indicators that the value of the Company’s investments in unconsolidated real estate entities may be impaired and when events or circumstances indicate that there may be impairment. An investment is impaired if management’s estimate of the fair value of the investment is less than its carrying value. To the extent impairment has occurred, and is considered to be other than temporary, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment.

The Company evaluates goodwill for impairment at least annually and whenever events, circumstances, and other related factors indicate that the fair value of the related reporting unit may be less than the carrying value. If the fair value of the reporting unit is determined to exceed the aggregate carrying amount, no impairment charge is recorded. Otherwise, an impairment charge is recorded for the amount in which the fair value of the reporting unit exceeds the carrying value. No impairments of goodwill were recorded for any period presented herein.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, receivables, other financial instruments included in other assets, accounts payable and accrued expenses, variable-rate notes payable, investments in debt securities and notes receivable, lines of credit and other liabilities reflected in the condensed consolidated balance sheets at June 30, 2024 and December 31, 2023 approximate fair value. Restricted cash is comprised of funds deposited with financial institutions located throughout the United States primarily relating to operating cash reserve for the Company's captive insurance subsidiary and earnest money deposits on potential acquisitions.

The fair values of the Company’s fixed-rate notes payable were estimated using the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximated current market rates for loans, or groups of loans, with similar maturities and credit quality.

The fair values of the Company’s fixed-rate liabilities were as follows for the periods indicated:


	June 30, 2024				December 31, 2023
	Fair Value		Carrying Value		Fair Value		Carrying Value

Fixed rate debt	$	8,052,960	$	8,604,553	$	7,482,054	$	8,048,605

4. ACQUISITIONS AND DISPOSITIONS

The Life Storage Merger

On July 20, 2023, the Company closed its merger with Life Storage (the “Life Storage Merger”), which included 757 wholly-owned stores and one consolidated joint venture store. Under the terms of the Life Storage Merger, Life Storage stockholders and holders of units of the Life Storage operating partnership received 0.895 of a share of common stock (or OP Unit, as applicable) of the Company for each issued and outstanding share (or operating partnership unit) of Life Storage they owned for total equity consideration of $11,602,808, based on the Company's closing share price on July 19, 2023. At closing, the Company retired $1,160,000 in balances on Life Storage's line of credit which included $375,000 that Life Storage used to pay off its private placement notes in connection with the closing of the Life Storage Merger. The Company also paid off $32,000 in secured loans. On July 25, 2023, the Company completed obligor exchange offers and consent solicitations (together the “Exchange Offers”) related to Life Storage's various senior notes. Upon the closing of the Exchange Offers, a total of $2,351,100 of Life Storage's senior notes were exchanged for senior notes of the same tenor of Extra Space Storage L.P. The remaining Life Storage senior note balances which were not exchanged total $48,900 and no longer have any financial reporting requirements or covenants.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Consideration and Purchase Price Allocation

The Life Storage Merger was accounted for as an asset acquisition in accordance with ASC Topic 805 which requires that the cost of an acquisition be allocated on a relative fair value basis to the assets acquired and the liabilities assumed. The following table summarizes the fair value of total consideration transferred in the Life Storage Merger:


Consideration Type	July 20, 2023
Common stock	$	11,353,338
OP units	249,470
Cash for payoff of Life Storage credit facility and debt	1,192,000
Transaction Costs	55,318
Total consideration	$	12,850,127

The following table summarizes the estimated fair values assigned to the assets acquired and liabilities assumed:


	July 20, 2023
Real estate assets	$	14,587,735
Equity investment in joint venture partnerships	325,250
Cash and other assets	107,423
Intangible assets - other	82,000
Trade name	50,000
Unsecured senior notes	(2,106,866)
Accounts payable, accrued expenses and other liabilities	(191,077)
Noncontrolling interests	(4,338)
Fair value of net assets acquired	$	12,850,127

Fair Value Measurement

The estimated fair values of assets acquired and liabilities assumed were primarily based on information that was available as of the closing date of the Life Storage Merger. The methodology used to estimate the fair values to apply purchase accounting and the ongoing financial statement impact, if any, are summarized below.

•Real estate assets – Real estate assets acquired were recorded at fair value using standard valuation methodologies, including the cost and market approaches. The remaining useful lives for real estate assets, excluding land, were reset to 39 years. Tenant relationships for storage leases were recorded at fair value based on estimated costs the Company avoided to replace them. Tenant relationships are amortized to expense over 18 months, which is based on the Company’s historical experience with turnover in its stores.

•Equity investment in joint venture partnerships - Equity investment in joint venture partnerships were recorded at fair value based on a direct capitalization of net operating income.

•Intangible assets - other – Customer relationships relating to tenant reinsurance contracts were recorded at fair value based on the income approach which estimates the potential revenue loss the Company avoided to replace them. These assets are amortized to expense over 36 months, which is based on the Company’s historical experience with average length of stay for tenants.

•Trade name – Trade names were recorded at fair value based on royalty payments avoided had the trade name been owned by a third party. This is determined using market royalty rates and a discounted cash flow analysis under the relief-from-royalty method. This method incorporates various assumptions, including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. The trade name is an indefinite lived asset and as such is not amortized.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

•Unsecured senior notes – Unsecured senior notes were recorded at fair value using readily available market data. The below-market value of debt is recorded as a debt discount and reported as a reduction of the unsecured senior notes balance on the condensed consolidated balance sheets. The discount is amortized using effective interest method as an increase to interest expense over the remaining terms of the unsecured senior notes.

•Other assets and liabilities – the carrying values of cash, accounts receivable, prepaids and other assets, accounts payable, accrued expenses and other liabilities represented the fair values.

Store Acquisitions

The following table shows the Company’s acquisitions of stores for the three and six months ended June 30, 2024 and 2023. The table excludes purchases of raw land and improvements made to existing assets. All store acquisitions are considered asset acquisitions under ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”


										Total
Period	Number of Stores	Cash Paid		Finance Lease Liability		Investments in Real Estate Ventures		Net Liabilities/ (Assets) Assumed		Value of Equity Issued		Real estate assets
Q2 2024	3	$	27,644	$	—	$	—	$	97	$	—	$	27,741
Q1 2024	6	$	35,084	$	—	$	—	$	171	$	—	$	35,255
Total 2024	9	$	62,728	$	—	$	—	$	268	$	—	$	62,996



Q2 2023	3	32,888		—		—		26		—		32,914
Q1 2023	1	13,111		—		—		6		—		13,117
Total 2023	4	$	45,999	$	—	$	—	$	32	$	—	$	46,031

5. REAL ESTATE ASSETS

The components of real estate assets are summarized as follows:


	June 30, 2024		December 31, 2023
Land	$	4,903,843	$	4,904,705
Buildings, improvements and other intangibles	21,803,131		21,664,224
Right of use asset - finance lease	141,861		143,842
Intangible assets - tenant relationships	321,091		321,019
Intangible lease rights	27,743		27,743
	27,197,669		27,061,533
Less: accumulated depreciation and amortization	(2,984,371)		(2,624,405)
Net operating real estate assets	24,213,298		24,437,128
Real estate under development/redevelopment	127,519		118,745
Real estate assets, net	$	24,340,817	$	24,555,873
Real estate assets held for sale included in real estate assets, net	$	51,934	$	—

As of June 30, 2024, the Company had seven stores classified as held for sale. The estimated fair value less selling costs of these assets is less than the carrying value of the assets and, therefore, an estimated loss of $54,659 related to these assets has been recorded in Loss on real estate assets held for sale on the Company's condensed consolidated statements of operations for the three months ended June 30, 2024. Assets held for sale are included in the self-storage operations segment of the Company’s segment information.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

6. OTHER ASSETS

The components of other assets are summarized as follows:


	June 30, 2024		December 31, 2023
Goodwill	$	170,811	$	170,811
Receivables, net	164,060		134,716
Prepaid expenses and deposits	92,605		85,153
Other intangible assets, net	47,498		66,332
Trade name	50,000		50,000
Fair value of interest rate swaps	31,133		26,183
Equipment and fixtures, net	48,286		48,697
Deferred line of credit financing costs, net	8,667		9,787
Restricted cash	4,571		6,021
	$	617,631	$	597,700

7. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed using the two-class method by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. All outstanding unvested restricted stock awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common stockholders; accordingly, they are considered participating securities that are included in the two-class method. Diluted earnings per common share measures the performance of the Company over the reporting period while giving effect to all potential common shares that were dilutive and outstanding during the period. The denominator includes the weighted average number of basic shares and the number of additional common shares that would have been outstanding if the potential common shares that were dilutive had been issued, and is calculated using either the two-class, treasury stock or as if-converted method, whichever is most dilutive. Potential common shares are securities (such as options, Series A Participating Redeemable Preferred Units (“Series A Units”), Series B Redeemable Preferred Units (“Series B Units”), Series D Redeemable Preferred Units (“Series D Units” and, together with the Series A Units and Series B Units, the “Preferred OP Units”) and common Operating Partnership units (“OP Units”)) that do not have a current right to participate in earnings of the Company but could do so in the future by virtue of their option, redemption or conversion right.

In computing the dilutive effect of convertible securities, net income is adjusted to add back any changes in earnings in the period associated with the convertible security. The numerator also is adjusted for the effects of any other non-discretionary changes in income or loss that would result from the assumed conversion of those potential common shares. In computing diluted earnings per common share, only potential common shares that are dilutive (i.e. those that reduce earnings per common share) are included.

For the purposes of computing the diluted impact of the potential exchange of the Preferred Operating Partnership units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the intent and ability to settle the redemption in shares, the Company divided the total value of the Preferred Operating Partnership units by the average share price for the period presented. The average share price for the three months ended June 30, 2024 and 2023 was $145.78 and $150.45, respectively.

The following table presents the number of Common and Preferred Operating Partnership units as if converted into potential common shares that were excluded from the computation of earnings per share as their effect would have been anti-dilutive.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2024	2023	2024	2023
	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)
Common OP Units	8,621,889	—	—	—

Series B Units	230,266	223,118	230,250	218,259
Series D Units	1,160,861	—	1,216,866	—
	10,013,016	223,118	1,447,116	218,259

The computation of earnings per common share is as follows for the periods presented:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
Net income attributable to common stockholders	$	185,872	$	202,410	$	398,984	$	398,714
Earnings and dividends allocated to participating securities	(396)		(323)		(750)		(627)
Earnings for basic computations	185,476		202,087		398,234		398,087
Earnings and dividends allocated to participating securities	—		323		—		627
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units	—		12,441		16,336		24,569

Net income for diluted computations	$	185,476	$	214,851	$	414,570	$	423,283

Weighted average common shares outstanding:
Average number of common shares outstanding - basic	211,584,155		134,832,232		211,433,877		134,672,672
OP Units	—		7,214,649		8,676,813		7,214,649


Series D Units	—		1,257,366		—		1,233,178
Unvested restricted stock awards included for treasury stock method	—		221,380		—		212,723
Shares related to dilutive stock options	2,950		4,190		3,326		4,300
Average number of common shares outstanding - diluted	211,587,105		143,529,817		220,114,016		143,337,522
Earnings per common share
Basic	$	0.88	$	1.50	$	1.88	$	2.96
Diluted	$	0.88	$	1.50	$	1.88	$	2.95

8. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

Investments in unconsolidated real estate entities and cash distributions in unconsolidated real estate ventures represent the Company's interest in preferred stock of SmartStop Self Storage REIT, Inc. (“SmartStop”) and Strategic Storage Trust VI, Inc. (“Strategic Storage”), an affiliate of SmartStop, and the Company's noncontrolling interest in real estate joint ventures. The Company accounts for its investments in SmartStop and Strategic Storage preferred stock, which do not have a readily determinable fair value, at the transaction price less impairment, if any. The Company accounts for its investments in joint ventures using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which is allocated in accordance with the provisions of the applicable partnership or joint venture agreement.

In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that cash or