Item 8. Financial Statements and Supplementary Data

EXTRA SPACE STORAGE INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND SCHEDULES

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42**)**			30
Consolidated Balance Sheets as of December 31, 2022 and 2021			32
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020			33
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020			34
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020			35
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020			38
Notes to Consolidated Financial Statements			39
Schedule III - Real Estate and Accumulated Depreciation			73

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Extra Space Storage Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Extra Space Storage Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

			Purchase price allocation
Description of the Matter			For the year ended December 31, 2022, the Company completed the acquisition of 153 self-storage properties (“stores”) for a total purchase price of $1.37 billion. As further discussed in Note 2 of the consolidated financial statements, the transactions were accounted for as asset acquisitions, and the purchase price was allocated to the real estate assets acquired based on their relative fair values, which are estimated using unobservable inputs.
			Auditing the accounting for the Company’s 2022 acquisitions of stores was subjective because in determining the fair value of acquired land and buildings, the Company had to rely on unobservable inputs due to the lack of available directly comparable market information. In particular, the fair value estimates were sensitive to assumptions such as price of land per square foot, and current replacement cost estimates, including adjustments for the age, class, height, square footage, condition, location, and turnkey factor associated with the acquired assets.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s accounting for acquired stores, including controls over the review of assumptions underlying the purchase price allocation and accuracy of the underlying data used. For example, we tested controls over the determination of the fair value of the land and building assets, including the controls over the review of the valuation models and the underlying assumptions used to develop such estimates.
			For the 2022 store acquisitions described above, our procedures included, but were not limited to, evaluating the Company’s valuation methodologies and evaluating the significant assumptions used to determine the fair value of the assets acquired. For certain of these asset acquisitions, we tested the completeness and accuracy of the underlying data by, among other things, recalculating the current replacement cost of buildings and comparing the adjustments for the age, class, height, square footage, condition, location, and turnkey factor with the acquired assets to industry publications. Additionally, we also compared significant assumptions, including prices per square foot to third-party sources such as recent land sales. For certain of these asset acquisitions, we involved our valuation specialists to assist in the assessment of the methodology utilized by the Company, in addition to performing corroborative analyses to assess whether the conclusions in the valuation were supported by observable market data. For example, our valuation specialists used independently identified data sources to evaluate management’s selected comparable land sales and replacement cost assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2005.

Salt Lake City, Utah

February 28, 2023

Extra Space Storage Inc.

Consolidated Balance Sheets

(dollars in thousands, except share data)

			December 31, 2022						December 31, 2021
Assets:
Real estate assets, net			$	9,997,978					$	8,834,649
Real estate assets - operating lease right-of-use assets			221,725						227,949
Investments in unconsolidated real estate entities			582,412						457,326
Investments in debt securities and notes receivable			858,049						719,187
Cash and cash equivalents			92,868						71,126
Other assets, net			414,426						164,240
Total assets			$	12,167,458					$	10,474,477
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net			$	1,288,555					$	1,320,755
Unsecured term loans, net			2,340,116						1,741,926
Unsecured senior notes, net			2,757,791						2,360,066
Revolving lines of credit			945,000						535,000
Operating lease liabilities			229,035						233,356
Cash distributions in unconsolidated real estate ventures			67,352						63,582
Accounts payable and accrued expenses			171,680						142,285
Other liabilities			289,655						291,531
Total liabilities			8,089,184						6,688,501
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, 133,921,020 and 133,922,305 shares issued and outstanding at December 31, 2022 and 2021, respectively			1,339						1,339
Additional paid-in capital			3,345,332						3,285,948
Accumulated other comprehensive income (loss)			48,798						(42,546)
Accumulated deficit			(135,872)						(128,245)
Total Extra Space Storage Inc. stockholders' equity			3,259,597						3,116,496
Noncontrolling interest represented by Preferred Operating Partnership units, net			261,502						259,110
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests			557,175						410,370
Total noncontrolling interests and equity			4,078,274						3,785,976
Total liabilities, noncontrolling interests and equity			$	12,167,458					$	10,474,477

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Operations

(dollars in thousands, except share data)

			For the Year Ended December 31,
			2022						2021						2020
Revenues:
Property rental			$	1,654,735					$	1,340,990					$	1,157,522
Tenant reinsurance			185,531						170,108						146,561
Management fees and other income			83,904						66,264						52,129
Total revenues			1,924,170						1,577,362						1,356,212
Expenses:
Property operations			435,342						368,608						360,615
Tenant reinsurance			33,560						29,488						26,494
Transaction related costs			1,548						—						—
General and administrative			129,251						102,194						96,594
Depreciation and amortization			288,316						241,879						224,444
Total expenses			888,017						742,169						708,147
Gain on real estate transactions			14,249						140,760						18,075
Income from operations			1,050,402						975,953						666,140
Interest expense			(219,171)						(166,183)						(168,626)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes			—						—						(3,675)
Interest income			69,422						49,703						15,192
Income before equity in earnings and dividend income from unconsolidated real estate entities and income tax expense			900,653						859,473						509,031
Equity in earnings and dividend income from unconsolidated real estate entities			41,428						32,358						22,361
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets			—						6,251						—
Income tax expense			(20,925)						(20,324)						(13,810)
Net income			921,156						877,758						517,582
Net income allocated to Preferred Operating Partnership noncontrolling interests			(17,623)						(14,697)						(12,882)
Net income allocated to Operating Partnership and other noncontrolling interests			(42,845)						(35,412)						(22,921)
Net income attributable to common stockholders			$	860,688					$	827,649					$	481,779
Earnings per common share
Basic			$	6.41					$	6.20					$	3.71
Diluted			$	6.41					$	6.19					$	3.71
Weighted average number of shares
Basic			134,050,815						133,374,938						129,541,531
Diluted			141,681,388						140,016,028						129,584,829

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Comprehensive Income

(amounts in thousands)

			For the Year Ended December 31,
			2022						2021						2020
Net income			$	921,156					$	877,758					$	517,582
Other comprehensive income:
Change in fair value of interest rate swaps			96,249						59,325						(73,686)
Total comprehensive income			1,017,405						937,083						443,896
Less: comprehensive income attributable to noncontrolling interests			65,373						52,887						32,244
Comprehensive income attributable to common stockholders			$	952,032					$	884,196					$	411,652

See accompanying notes

Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data)
																											Noncontrolling Interests																		Extra Space Storage Inc. Stockholders' Equity
									Preferred Operating Partnership						Operating Partnership						Other																		Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Noncontrolling Interests and Equity
																																	Shares						Par Value
Balances at December 31, 2019																											$	175,948					$	205,419					$	366					129,534,407						$	1,295					$	2,868,681					$	(28,966)					$	(301,049)					$	2,921,694
Issuance of common stock upon the exercise of options																											—						—						—						134,930						1						4,758						—						—						4,759
Issuance of common stock in connection with share based compensation																											—						—						—						143,187						1						16,280						—						—			`			16,281
Restricted stock grants cancelled																											—						—						—						(5,083)						—						—						—						—						—
Issuance of common stock, net of offering costs																											—						—						—						899,048						9						103,459						—						—						103,468
Buyback of common stock, net of offering costs																											—						—						—						(826,797)						(8)						—						—						(67,865)						(67,873)
Redemption of Operating Partnership units for stock																											—						(4,572)						—						123,993						1						4,571						—						—						—
Repurchase of equity portion of 2015 exchangeable senior notes																											—						—						—						1,323,781						14						(14)						—						—						—
Repayment of receivable with Preferred operating units pledged as collateral on loan																											—						16,213						—						—						—						—						—						—						16,213
Redemption of Preferred B Units in the Operating Partnership for cash																											(1,000)						—						—						—						—						—						—						—						(1,000)
Redemption of Preferred D Units in the Operating Partnership for stock																											(2,724)						—						—						30,495						1						2,723						—						—						—
Noncontrolling interest in consolidated joint venture																											—						—						66						—						—						—						—						—						66
Net income (loss)																											12,882						22,952						(31)						—						—						—						—						481,779						517,582
Other comprehensive loss																											(456)						(3,103)						—						—						—						—						(70,127)						—						(73,686)
Distributions to Operating Partnership units held by noncontrolling interests																											(12,598)						(21,017)						—						—						—						—						—						—						(33,615)
Dividends paid on common stock at $3.60 per share																											—						—						—						—						—						—						—						(467,765)						(467,765)
Balances at December 31, 2020																											$	172,052					$	215,892					$	401					131,357,961						$	1,314					$	3,000,458					$	(99,093)					$	(354,900)					$	2,936,124

Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data)
																											Noncontrolling Interests																		Extra Space Storage Inc. Stockholders' Equity
									Preferred Operating Partnership						Operating Partnership						Other																		Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Noncontrolling Interests and Equity
																																	Shares						Par Value
Balances at December 31, 2020																											$	172,052					$	215,892					$	401					131,357,961						$	1,314					$	3,000,458					$	(99,093)					$	(354,900)					$	2,936,124
Issuance of common stock upon the exercise of options																											—						—						—						62,322						—						4,572						—						—						4,572
Issuance of common stock in connection with share based compensation																											—						—						—						148,228						—						17,303						—						—						17,303
Restricted stock grants cancelled																											—						—						—						(12,808)						—						—						—						—						—
Issuance of common stock, net of offering costs																											—						—						—						2,185,685						22						273,167						—						—						273,189
Redemption of Operating Partnership units for stock																											—						(6,373)						—						165,652						2						6,371						—						—						—
Redemption of Preferred B Units in the Operating Partnership for stock																											(2,834)						—						—						15,265						1						2,833						—						—						—
Redemption of Operating Partnership units for cash																											—						(173)						—						—						—						(615)						—						—						(788)
Repayment of receivable with Operating Partnership units pledged as collateral																											—						411						—						—						—						—						—						—						411
Issuance of Operating Partnership units in conjunction with acquisitions																											—						188,319						—						—						—						—						—						—						188,319
Issuance of Preferred D units in the Operating Partnership in conjunction with acquisitions																											88,074						—						—						—						—						—						—						—						88,074
Purchase of remaining equity interest in existing consolidated joint venture																											—						—						—						—						—						(18,141)						—						—						(18,141)
Noncontrolling interest in consolidated joint venture																											—						—						(82)						—						—						—						—						—						(82)
Net income (loss)																											14,697						35,414						(2)						—						—						—						—						827,649						877,758
Other comprehensive income																											366						2,412						—						—						—						—						56,547						—						59,325
Distributions to Operating Partnership units held by noncontrolling interests																											(13,245)						(25,849)						—						—						—						—						—						—						(39,094)
Dividends paid on common stock at $4.50 per share																											—						—						—						—						—						—						—						(600,994)						(600,994)
Balances at December 31, 2021																											$	259,110					$	410,053					$	317					133,922,305						$	1,339					$	3,285,948					$	(42,546)					$	(128,245)					$	3,785,976

Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data)
																											Noncontrolling Interests																		Extra Space Storage Inc. Stockholders' Equity
									Preferred Operating Partnership						Operating Partnership						Other																		Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Noncontrolling Interests and Equity
																																	Shares						Par Value
Balances at December 31, 2021																											$	259,110					$	410,053					$	317					133,922,305						$	1,339					$	3,285,948					$	(42,546)					$	(128,245)					$	3,785,976
Issuance of common stock in connection with share based compensation																											—						—						—						204,349						2						21,386						—						—						21,388
Restricted stock grants cancelled																											—						—						—						(10,614)						—						—						—						—						—
Redemption of Operating Partnership units for cash																											—						(1,654)						—						—						—						(2,963)						—						—						(4,617)
Redemption of Preferred B Units in the Operating Partnership for cash																											(4,500)						—						—						—						—						—						—						—						(4,500)
Issuance of Operating Partnership units in conjunction with business combination																											—						16,000						—						—						—						—						—						—						16,000
Issuance of Operating Partnership units in conjunction with acquisitions																											—						125,000						—						—						—						—						—						—						125,000
Issuance of Preferred D units in the Operating Partnership in conjunction with business combination																											6,000						—						—						—						—						—						—						—						6,000
Issuance of common stock in conjunction with acquisitions																											—						—						—						186,766						2						40,961						—						—						40,963
Repurchase of common stock, net of offering costs																											—						—						—						(381,786)						(4)						—						—						(63,004)						(63,008)
Noncontrolling interest in consolidated joint venture																											—						—						771						—						—						—						—						—						771
Net income																											17,623						42,853						(8)						—						—						—						—						860,688						921,156
Other comprehensive income																											577						4,328						—						—						—						—						91,344						—						96,249
Distributions to Operating Partnership units held by noncontrolling interests																											(17,308)						(40,485)						—						—						—						—						—						—						(57,793)
Dividends paid on common stock at $6.00 per share																											—						—						—						—						—						—						—						(805,311)						(805,311)
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

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Cash Flows

(amounts in thousands)

			For the Year Ended December 31,
			2022						2021						2020
Cash flows from operating activities:
Net income			$	921,156					$	877,758					$	517,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			288,316						241,879						224,444
Amortization of deferred financing costs			8,773						10,587						9,386
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes			—						—						3,675
Non-cash lease expense			1,903						1,869						1,173
Compensation expense related to stock-based awards			21,386						17,303						16,281
Accrual of interest income added to principal of debt securities and notes receivable			(38,412)						(34,550)						(8,059)
Gain on real estate transactions			(14,249)						(140,760)						(18,075)
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets			—						(6,251)
Distributions from unconsolidated real estate ventures			13,162						7,035						6,893
Changes in operating assets and liabilities:
Other assets			(1,208)						(23,891)						(19,674)
Accounts payable and accrued expenses			29,027						10,951						17,974
Other liabilities			8,285						(9,494)						19,632
Net cash provided by operating activities			1,238,139						952,436						771,232
Cash flows from investing activities:
Acquisition of real estate assets			(1,291,491)						(1,233,298)						(320,148)
Cash paid for business combination			(157,302)						—						—
Development and redevelopment of real estate assets			(62,019)						(56,226)						(67,300)
Proceeds from sale of real estate assets and investments in real estate ventures			39,367						572,728						44,024
Investment in unconsolidated real estate entities			(118,963)						(54,602)						(64,792)
Return of investment in unconsolidated real estate ventures			342						31,534						371
Issuance and purchase of notes receivable			(529,245)						(317,482)						(313,355)
Investment in debt securities			—						—						(300,000)
Proceeds from sale of notes receivable			210,048						172,002						62,764
Principal payments received from notes receivable			283,636						51,463						10,102
Purchase of equipment and fixtures			(22,832)						(3,659)						(7,093)
Net cash used in investing activities			(1,648,459)						(837,540)						(955,427)
Cash flows from financing activities:
Proceeds from the sale of common stock, net of offering costs			—						273,189						103,468
Proceeds from notes payable and revolving lines of credit			5,188,011						4,666,632						3,281,000
Principal payments on notes payable and revolving lines of credit			(4,207,700)						(5,500,290)						(2,014,730)
Proceeds from issuance of public bonds, net			396,100						1,040,349						—
Deferred financing costs			(9,321)						(10,698)						(4,052)
Repurchase of exchangeable senior notes			—						—						(575,000)
Proceeds from principal payments on note receivable collateralized by OP Units			—						411						16,213
Net proceeds from exercise of stock options			—						4,572						4,759
Repurchase of common stock			(63,008)						—						(67,873)
Redemption of Preferred B Units for cash			(4,500)						—						—
Redemption of Operating Partnership units held by noncontrolling interests			(4,617)						(788)						(1,000)
Contributions from noncontrolling interests			—						—						66
Dividends paid on common stock			(805,311)						(600,994)						(467,765)
Distributions to noncontrolling interests			(57,793)						(39,094)						(33,615)
Net cash provided by (used in) financing activities			431,861						(166,711)						241,471
Net increase (decrease) in cash, cash equivalents, and restricted cash			21,541						(51,815)						57,276
Cash, cash equivalents, and restricted cash, beginning of the period			76,194						128,009						70,733
Cash, cash equivalents, and restricted cash, end of the period			$	97,735					$	76,194					$	128,009
Cash and equivalents, including restricted cash at the beginning of the period:
Cash and equivalents			$	71,126					$	109,124					$	65,746
Restricted cash included in other assets			5,068						18,885						4,987
			$	76,194					$	128,009					$	70,733
Cash and equivalents, including restricted cash at the end of the period:
Cash and equivalents			$	92,868					$	71,126					$	109,124
Restricted cash included in other assets			4,867						5,068						18,885
			$	97,735					$	76,194					$	128,009
Supplemental schedule of cash flow information
Interest paid			$	197,069					$	152,170					$	159,597
Income taxes paid			$	18,957					$	26,252					$	5,181
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			$	—					$	(6,373)					$	(4,005)
Common stock and paid-in capital			$	—					$	6,373					$	4,005
Redemption of Preferred Operating Partnership units for common stock
Preferred Operating Partnership units			$	—					$	(2,834)					$	(2,724)
Additional paid-in capital			$	—					$	2,834					$	2,724
Issuance of OP and Preferred OP units in conjunction with business combination
Preferred OP units issued			$	(6,000)					$	—					$	—
OP units issued			$	(16,000)					$	—					$	—
Acquisition and establishment of operating lease right of use assets and lease liabilities
Real estate assets - operating lease right-of-use assets			$	16,298					$	6,655					$	8,014
Operating lease liabilities			$	(16,298)					$	(6,655)					$	(8,014)
Acquisitions of real estate assets
Real estate assets, net			$	171,703					$	318,036					$	41,491
Value of equity issued			$	(165,965)					$	(276,393)					$	—
Notes payable assumed			$	—					$	(20,028)					$	—
Investment in unconsolidated real estate ventures			$	1,085					$	5,383					$	—
Finance lease liability			$	(6,823)					$	(26,998)					$	(41,491)
Accrued construction costs and capital expenditures
Acquisition of real estate assets			$	368					$	1,323					$	656
Accounts payable and accrued expenses			$	(368)					$	(1,323)					$	(656)

See accompanying notes

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. DESCRIPTION OF BUSINESS

Extra Space Storage Inc. (the “Company”) is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties 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. 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 December 31, 2022, the Company had direct and indirect equity interests in 1,451 storage facilities. In addition, the Company managed 887 stores for third parties bringing the total number of stores which it owns and/or manages to 2,338. These stores are located in 41 states and Washington, D.C. The Company also offers tenant reinsurance at its owned and managed stores that insures the value of goods in the storage units.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly- or majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Principles of Consolidation

The Company accounts for arrangements that are not controlled through voting or similar rights as variable interest entities (“VIEs”). An enterprise is required to consolidate a VIE if it is the primary beneficiary of the VIE. A VIE is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) the entity’s equity holders as a group either: (a) lack the power, through voting or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance, (b) are not obligated to absorb expected losses of the entity if they occur, or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, the enterprise that is deemed to have a variable interest, or combination of variable interests, that provides the enterprise with a controlling financial interest in the VIE, is considered the primary beneficiary and must consolidate the VIE.

The Company has concluded that under certain circumstances when the Company enters into arrangements for the formation of joint ventures or when entering into a new bridge loan agreement, a VIE may be created under condition (i), (ii), (b) or (c) of the previous paragraph. For each VIE created, the Company has performed a qualitative analysis, including considering which party, if any, has the power to direct the activities most significant to the economic performance of each VIE and whether that party has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If the Company is determined to be the primary beneficiary of the VIE, the assets, liabilities and operations of the VIE are consolidated with the Company’s financial statements.

The Company determined that its operating partnership met the definition of a VIE and is consolidated. Additionally, as of December 31, 2021 the Company determined in addition to its operating partnership that it had one consolidated joint venture VIE, consisting of four stores.

Substantially all of the assets and liabilities of the Company are related to the operating partnership VIE. The assets and credit of the VIE can only be used to satisfy the VIE's own contractual obligations, and the VIE's creditors have no recourse to the general credit of the Company.

The Company’s investments in real estate joint ventures, where the Company has significant influence, but not control, and joint ventures which are VIEs in which the Company is not the primary beneficiary, are recorded under the equity method of accounting on the accompanying consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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 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 Financial Accounting Standard Board’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 December 31, 2022, 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 are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are 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 December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall.

									Fair Value Measurements at Reporting Date Using
Description			December 31, 2022						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			$	54,839					$	—					$	54,839					$	—
Other liabilities - Cash flow hedge swap agreements			$	73					$	—					$	73					$	—

There were no transfers of assets and liabilities between Level 1 and Level 2 during the year ended December 31, 2022. The Company did not have any significant assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of December 31, 2022 or 2021.

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.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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 undiscounted 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 are presented as part of normal operations for all periods presented.

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 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 to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value. No impairments of goodwill were recorded for any period presented herein.

As of December 31, 2022 and 2021, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis.

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, revolving lines of credit and other liabilities reflected in the consolidated balance sheets at December 31, 2022 and 2021, approximate fair value.

The fair values of the Company’s notes receivable and notes receivable from Preferred and Common Operating Partnership unit holders were based on the discounted estimated future cash flow of the notes (categorized within Level 3 of the fair value hierarchy); the discount rate used approximated the current market rate for loans with similar maturities and credit quality. 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 assets and liabilities were as follows for the periods indicated:

			December 31, 2022												December 31, 2021
			Fair Value						Carrying Value						Fair Value						Carrying Value
Notes receivable from Preferred and Common Operating Partnership unit holders			$	95,965					$	101,900					$	101,824					$	101,900
Fixed rate notes receivable			$	5,191					$	5,241					$	105,954					$	104,251
Fixed rate debt			$	4,320,014					$	4,762,196					$	4,643,072					$	4,506,435

Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation. Direct and allowable internal costs associated with the development, construction, renovation, and improvement of real estate assets are capitalized. Interest, property taxes, and other

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

costs associated with development incurred during the construction period are capitalized. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.

Expenditures for maintenance and repairs are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and improvements, which are generally between five and 39 years.

The purchase of stores are considered asset acquisitions. As such, the purchase price is allocated to the real estate assets acquired based on their relative fair values, which are estimated using significant unobservable inputs. The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Intangible assets, which represent the value of existing tenant relationships, are recorded at their relative fair values based on the avoided cost to replace the current leases. The Company measures the value of tenant relationships based on the rent lost due to the amount of time required to replace existing customers, which is based on the Company’s historical experience with turnover in its stores. Any debt assumed as part of the acquisition is recorded at fair value based on current interest rates compared to contractual rates. Acquisition-related transaction costs are capitalized as part of the purchase price.

Intangible lease rights represent: (1) purchase price amounts allocated to leases on three stores that cannot be classified as ground or building leases; these rights are amortized to expense over the life of the leases and (2) intangibles related to ground leases on eight stores where the leases were assumed by the Company at rates that were lower than the current market rates for similar leases. The values associated with these assumed leases were recorded as intangibles, which will be amortized over the lease terms.

Real Estate Sales

In general, sales of real estate and related profits/losses are recognized when all consideration has changed hands and risks and rewards of ownership have been transferred. Certain types of continuing involvement preclude sale treatment and related profit recognition; other forms of continuing involvement allow for sale recognition but require deferral of profit recognition.

Investments in Unconsolidated Real Estate Entities

Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures represent the Company's noncontrolling interest in real estate joint ventures that own stores and the Company's interest in preferred stock of SmartStop Self Storage REIT, Inc. ("SmartStop"). The Company’s investments in real estate joint ventures, where the Company has significant influence, but not control and joint ventures which are VIEs in which the Company is not the primary beneficiary, are recorded under the equity method of accounting in the accompanying consolidated financial statements.

Under the equity method, the Company’s investment in real estate ventures is stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the Company’s ownership interest in the earnings of each of the unconsolidated real estate ventures. For the purposes of presentation in the statement of cash flows, the Company follows the “nature of distribution” approach for classification of distributions from joint ventures. Under this approach, cash flows are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow from operating activities) or a return of investment (classified as a cash inflow from investing activities).

The Company evaluated its investments in preferred stock of non-public real estate entities and determined it did not have significant influence over the entity, and the investment in preferred stock does not have a readily determinable fair value, therefore it has been recorded at the transaction price. The Company periodically evaluates the investment for impairment. No impairments were recorded during the year ended December 31, 2022.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Investments in Debt Securities and Notes Receivable

The Company accounts for its investment in debt securities and loans receivable at amortized cost. The Company recognizes interest income related to the debt securities and notes receivable using the effective interest method, with deferred fees and costs amortized over the lives of the related loans as yield adjustment.

Cash and Cash Equivalents

The Company’s cash is deposited with financial institutions located throughout the United States and at times may exceed federally insured limits. The Company considers all highly liquid debt instruments with a maturity date of three months or less to be cash equivalents.

Other Assets

Other assets consist of restricted cash, equipment and fixtures, capitalized software, rents receivable from our tenants, other receivables, other intangible assets, deferred tax assets, prepaid expenses, the fair value of interest rate swaps, and goodwill. Depreciation of equipment and fixtures is computed on a straight-line basis over three to five years. The Company capitalizes certain costs during the application development stage when developing software for internal use. As of December 31, 2022 and 2021, unamortized software costs were $23,165 and $21,493. During the year ended December 31, 2022 and 2021, the Company recorded amortization expense of $5,147 and $3,072, respectively, relating to capitalized software costs.

Derivative Instruments and Hedging Activities

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. 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.

Risk Management and Use of Financial Instruments

In the normal course of its ongoing business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of stores due to changes in rental rates, interest rates or other market factors affecting the value of stores held by the Company. The Company has entered into interest rate swap agreements to manage a portion of its interest rate risk.

Redemption of Common Operating Partnership Units

The Company has the option to redeem common Operating Partnership Units in cash or shares of common stock. Redemption of common Operating Partnership units for shares of common stock, when redeemed under the original provisions of the Operating Partnership agreement, is accounted for by reclassifying the underlying net book value of the units from noncontrolling interest to the Company’s equity. Redemption of common Operating Partnership units for cash is accounted for by reducing the underlying net book value of the units from noncontrolling interest.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Revenue and Expense Recognition

Rental revenues are recognized as earned based upon amounts that are currently due from tenants. Leases are generally on month-to-month terms. Prepaid rents are recognized on a straight-line basis over the term of the leases. Promotional discounts are recognized as a reduction to rental income over the promotional period. Late charges, administrative fees and merchandise sales are recognized as income when earned.

The Company's management fees are earned subject to the terms of the related management services agreements ("MSAs"). These MSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking, maintenance and other services. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties and unconsolidated joint ventures. MSAs generally have original terms from three to five years, after which management services are provided on a month-to-month basis unless terminated. Management fees are due on the last day of each calendar month that management services are provided.

The Company accounts for the management services provided to a customer as a single performance obligation which are rendered over time each month. The total amount of consideration from the contract is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company's control. Therefore, the Company recognizes the revenue at the end of each month once the uncertainty is resolved. Due to the standardized terms of the MSAs, the Company accounts for all MSAs in a similar, consistent manner. Therefore, no disaggregated information relating to MSAs is presented.

Property expenses, including utilities, property taxes, repairs and maintenance and other costs to manage the facilities are recognized as incurred. The Company accrues for property tax expense based upon invoice amounts and estimates. If these estimates are incorrect, the timing of expense recognition could be affected.

Tenant reinsurance premiums are recognized as revenue over the period of insurance coverage. The Company records an unpaid claims liability at the end of each period based on existing unpaid claims and historical claims payment history. The unpaid claims liability represents an estimate of the ultimate cost to settle all unpaid claims as of each period end, including both reported but unpaid claims and claims that may have been incurred but have not been reported. The Company uses a third party claims administrator to adjust all tenant reinsurance claims received. The administrator evaluates each claim to determine the ultimate claim loss and includes an estimate for claims that may have been incurred but not reported. Annually, a third party actuary evaluates the adequacy of the unpaid claims liability. Prior year claim reserves are adjusted as experience develops or new information becomes known. The impact of such adjustments is included in the current period operations. The unpaid claims liability is not discounted to its present value. Each tenant chooses the amount of insurance coverage they want through the tenant reinsurance program. Tenants can purchase policies in amounts of 2,000 dollars to 10,000 dollars of insurance coverage in exchange for a monthly fee. As of December 31, 2022, the average insurance coverage for tenants was approximately 3,500 dollars (coverage numbers not in thousands). The Company’s exposure per claim is limited by the maximum amount of coverage chosen by each tenant.

For the years ended December 31, 2022, 2021 and 2020, the number of individual claims made were 8,542, 8,748 and 8,226, respectively (claim numbers not in thousands).

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table presents information on the portion of the Company’s unpaid claims liability, which is included in other liabilities on the Company's consolidated balance sheets, that relates to tenant insurance for the periods indicated:

			For the Year Ended December 31,
Tenant Reinsurance Claims:			2022						2021						2020
Unpaid claims liability at beginning of year			$	9,112					$	8,294					$	8,109
Claims and claim adjustment expense for claims incurred in the current year			20,533						16,901						14,534
Claims and claim adjustment expense (benefit) for claims incurred in the prior years			179						122						(1,351)
Payments for current year claims			(18,137)						(11,913)						(9,697)
Payments for prior year claims			(5,289)						(4,292)						(3,301)
Unpaid claims liability at the end of the year			$	6,398					$	9,112					$	8,294

Advertising Costs

The Company incurs advertising costs primarily attributable to digital and other advertising. These costs are expensed as incurred. The Company recognized $19,285, $18,793 and $28,336 in advertising expense for the years ended December 31, 2022, 2021 and 2020, respectively, which are included in property operating expenses on the Company’s consolidated statements of operations.

Income Taxes

The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). In order to maintain its qualification as a REIT, among other requirements, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to U.S. federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to stockholders. The Company plans to continue to operate so that it meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. For any taxable year that the Company fails to qualify as a REIT and for which applicable statutory relief provisions did not apply, the Company would be subject to U.S. federal corporate income tax on all of its taxable income for at least that year and the ensuing four years. The Company is subject to certain state and local taxes. Provision for such taxes has been included in income tax expense on the Company’s consolidated statements of operations. For the year ended December 31, 2022, 0% (unaudited) of all distributions to stockholders qualified as a return of capital.

The Company owns and may acquire direct or indirect interests in entities that have elected or will elect to be taxed as REITs under the Internal Revenue Code (each, a “Subsidiary REIT ”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to the Company. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to U.S. federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that the Company would fail certain of the asset tests applicable to REITs, in which event the Company would fail to qualify as a REIT unless it could avail itself of certain relief provisions.

The Company has elected to treat certain corporate subsidiaries, including Extra Space Management, Inc. (“ESMI”), as a taxable REIT subsidiary (“TRS”). In general, a TRS may perform additional services for tenants and may engage in any real estate or non-real estate related business. A TRS is subject to U.S. federal corporate income tax and may also be subject to state and local income taxes. ESM Reinsurance Limited, a wholly-owned subsidiary of ESMI, generates income from insurance premiums that are subject to U.S. federal corporate income tax and state insurance premiums tax.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. At December 31, 2022 and 2021, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2022 and 2021, the Company had no interest or penalties related to uncertain tax provisions.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Stock-Based Compensation

The measurement and recognition of compensation expense for all share-based payment awards to employees and directors are based on estimated fair values. Awards granted are valued at fair value and any compensation expense is recognized over the service periods of each award.

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, convertible debt, Series A Participating Redeemable Preferred Units (“Series A Units”), Series B Redeemable Preferred Units (“Series B Units”), and 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.

For the purposes of computing the diluted impact of the potential exchange of the Preferred OP 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 liquidation value of the Preferred OP Units by the average share price of $183.21 for the year ended December 31, 2022.

The following table presents the number of weighted OP Units and Preferred OP Units, and the potential common shares, that were excluded from the computation of earnings per share as their effect would have been anti-dilutive:

			For the Year Ended December 31,
			2022						2021						2020
			Equivalent Shares (if converted)						Equivalent Shares (if converted)						Equivalent Shares (if converted)
Common OP Units			—						—						5,853,814
Series A Units (Variable Only)			—						—						875,480
Series B Units			187,664						246,618						400,771
Series D Units			1,140,513						726,037						1,143,547
			1,328,177						972,655						8,273,612

For the purposes of computing the diluted impact on earnings per share of the potential exchange of Series A 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 positive intent and ability to settle at least $101,700 of the instrument in cash (or net settle a portion of the Series A Units against the related outstanding note receivable), only the amount of the instrument in excess of $101,700 is considered in the calculation of shares contingently issuable for the purposes of computing diluted earnings per share as allowed by ASC 260-10-45-46. Accordingly, the number of shares included in the computation for diluted earnings per share related to the Series A Units is equal to the number of Series A Units outstanding, with no additional shares included related to the $101,700 fixed amount.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

			For the Year Ended December 31,
			2022						2021						2020
Net income attributable to common stockholders			$	860,688					$	827,649					$	481,779
Earnings and dividends allocated to participating securities			(1,201)						(1,183)						(706)
Earnings for basic computations			859,487						826,466						481,073
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units			50,706						43,093						—
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units)			(2,288)						(2,288)						—
Net income for diluted computations			$	907,905					$	867,271					$	481,073
Weighted average common shares outstanding:
Average number of common shares outstanding - basic			134,050,815						133,374,938						129,541,531
OP Units			6,749,995						5,752,902						—
Series A Units			875,480						875,480						—
Shares related to exchangeable senior notes and dilutive stock options			5,098						12,708						43,298
Average number of common shares outstanding - diluted			141,681,388						140,016,028						129,584,829
Earnings per common share
Basic			$	6.41					$	6.20					$	3.71
Diluted			$	6.41					$	6.19					$	3.71

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 changes how entities measure credit losses for most financial assets. This standard requires an entity to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarified that receivables arising from operating leases are within the scope of the leasing standard (ASU 2016-02), and not within the scope of ASU 2016-13. This new standard became effective for the Company on January 1, 2020. The adoption of this standard by the Company did not have a material impact on the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance that provides transition relief for reference rate reform, including optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform if certain criteria are met. ASU 2020-04 is effective upon issuance, and the provisions generally can be applied prospectively as of January 1, 2020 through December 31, 2024. The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company also elected to apply additional expedients related to contract modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes are made to applicable debt and derivative contracts. Application of these expedients preserves the presentation of derivatives and debt contracts consistent with past presentation. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 will have no impact on the Company’s consolidated financial statements for the year ended December 31, 2022.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions" ("ASU 2022-03"). ASU 2022-03 clarifies the guidance on fair value measurement of an equity security that is subject to a contractual sale restriction. Currently, some entities apply a discount to the fair value of an equity security subject to a contractual sale restriction, while others do not. This update eliminates the diversity in practice by clarifying that a recognition of a discount related to a contractual sale restriction is not permitted. The Company occasionally issues Operating Partnership units that are subject to trading restrictions in conjunction with business combinations and asset acquisitions. The Company does not currently recognize a discount related to such trading restrictions. ASU 2022-03 has no impact on the Company's consolidated financial statements and has been early adopted for the year ended December 31, 2022.

3. REAL ESTATE ASSETS

The components of real estate assets are summarized as follows:

			December 31, 2022						December 31, 2021
Land			$	2,356,746					$	2,151,319
Buildings, improvements and other intangibles			9,425,468						8,227,094
Right of use asset - finance lease			136,259						117,718
Intangible assets - tenant relationships			152,775						134,577
Intangible lease rights			12,943						12,443
			12,084,191						10,643,151
Less: accumulated depreciation and amortization			(2,138,524)						(1,867,750)
Net operating real estate assets			9,945,667						8,775,401
Real estate under development/redevelopment			52,311						59,248
Real estate assets, net			$	9,997,978					$	8,834,649
Real estate assets held for sale included in real estate assets, net			$	—					$	8,436

The Company amortizes to expense intangible assets—tenant relationships on a straight-line basis over the average period that a tenant is expected to utilize the facility (currently estimated at 18 months). The Company amortizes to expense the intangible lease rights over the terms of the related leases. Amortization related to the tenant relationships and lease rights was $13,981, $4,778, and $2,258 for the years ended December 31, 2022, 2021 and 2020, respectively. The remaining balance of the unamortized lease rights will be amortized over the next six to 39 years. Accumulated amortization related to intangibles was 144,144 and 130,561 as of December 31, 2022 and 2021, respectively.

4. OTHER ASSETS

The components of other assets are summarized as follows:

			December 31, 2022						December 31, 2021
Equipment and fixtures, net			$	42,808					$	29,060
Deferred line of credit financing costs, net			4,846						7,408
Prepaid expenses and deposits			50,318						39,384
Receivables, net			85,937						83,050
Goodwill			170,811						—
Restricted cash			4,867						5,068
Fair value of interest rate swaps			54,839						270
			$	414,426					$	164,240

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

5. PROPERTY ACQUISITIONS AND DISPOSITIONS

Store Acquisition

The following table shows the Company’s acquisitions of stores for the years ended December 31, 2022 and 2021. The table excludes purchases of raw land and improvements made to existing assets.

									Consideration Paid																											Total
Period			Number of Stores						Total						Cash Paid						Loan Assumed			Finance Lease Liability			Investments in Real Estate Ventures			Net Liabilities/ (Assets) Assumed			Value of Equity Issued						Real estate assets
Total 2022			153						$	1,366,348					$	1,193,261					$	—		$	6,823		$	1,085		$	(786)		$	165,965					$	1,366,348
Total 2021			74						$	1,344,574					$	1,011,483					$	20,028		$	26,998		$	5,383		$	4,292		$	276,390					$	1,344,574

On September 15, 2022, the Company completed the acquisition of multiple entities doing business as Storage Express for a purchase price of $590.0 million. A portion of the consideration paid was in the form of the issuance of 619,294 OP units (a total value of $125.0 million) and the remainder in cash. The portfolio included 106 operating stores and eight parcels of land for future development, all located in Illinois, Indiana, Kentucky and Ohio. This acquisition did not meet the definition of a business under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" and was therefore recorded as an asset acquisition.

Other Investments

On June 1, 2022, the Company completed the acquisition of Bargold Storage Systems, LLC ("Bargold") for a purchase price of approximately $179.3 million. Bargold leases space in apartment buildings, primarily in New York City and its boroughs, builds out the space as storage units, and subleases the units to tenants. As of June 1, 2022, Bargold had approximately 17,000 storage units with an approximate occupancy of 97%. This acquisition is considered a business combination under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business."

The following table summarizes the total consideration transferred to acquire Bargold:

Total cash paid by the company			$	157,302
Fair value of Series D Units issued			16,000
Fair value of OP Units issued			6,000
Total consideration transferred			$	179,302

As part of this acquisition, we recorded an expense of $1,465 related to transaction costs.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Cash and cash equivalents			$	175
Fixed assets			6,411
Developed technology			500
Trademarks			500
Customer relationships			1,870
Other assets			125
Accounts payables and accrued liabilities assumed			(1,090)
Nets asset acquired			8,491
Goodwill			170,811
Total assets acquired			$	179,302

The following table summarizes the revenues and earnings related to Bargold since the acquisition date of June 1, 2022, which are included in the Company's consolidated statement of operations for the year ended December 31, 2022:

Total revenues			$	9,374
Net income from operations			$	1,718

Pro Forma Information

As noted above, during the year ended December 31, 2022, the Company acquired Bargold. The following pro forma financial information is based on the combined historical financial statements of the Company and Bargold, however, only includes revenue and presents the Company's results as if the acquisition had occurred on January 1, 2021. Net income was excluded as it was impracticable to report expenses due to the lack of historical accrual basis accounting.

			For the Year Ended December 31, 2022						For the Year Ended December 31, 2021
			Pro Forma						Pro Forma
Total revenues			$	1,930,816					$	1,592,021

Store Dispositions

The Company disposed of one store on May 18 and one on June 21, 2022, for a total cash consideration of approximately $38.7 million, resulting in a gain of approximately $14.2 million. Both had been classified as held for sale.

On December 16, 2021 the Company sold 16 stores that had been classified as held for sale for total cash consideration of $200,292. The Company recorded a gain of $73,854.

On March 1, 2021 the Company sold 16 stores that had been classified as held for sale to a newly established unconsolidated joint venture. The Company received $132,759 and maintained a 55% interest in the new joint venture valued at $33,878. The Company recognized a gain of $63,477 related to the sale of these properties.

6. 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 the Company's noncontrolling interest in real estate joint ventures that own stores. The Company accounts for its investment in SmartStop preferred stock, which does 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.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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 profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess cash or profits, as applicable, than its equity interest.

The Company separately reports investments with net equity less than zero in Cash distributions in unconsolidated real estate ventures in the consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.

Net Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures consist of the following:

			Number of Stores						Equity Ownership %						Excess Profit % (1)						December 31,
						2022						2021
PRISA Self Storage LLC			84						4%						4%						$	8,596					$	8,792
Storage Portfolio II JV LLC			36						10%						30%						(7,200)						(6,116)
Storage Portfolio IV JV LLC			32						10%						30%						49,139						40,174
Storage Portfolio I LLC			24						34%						49%						(41,372)						(40,168)
PR II EXR JV LLC			23						25%						25%						110,172						70,403
ESS-CA TIVS JV LP			16						55%						60%						30,778						32,288
VRS Self Storage, LLC			16						45%						54%						(15,399)						(14,269)
ARA-EXR JV LLC			12						10%						30%						19,137						—
ESS-NYFL JV LP			11						16%						24%						11,332						11,796
Extra Space Northern Properties Six LLC			10						10%						35%						(3,382)						(3,029)
Alan Jathoo JV LLC			9						10%						10%						7,414						7,621
ESS Bristol Investments LLC			8						10%						30%						2,110						2,628
ESS - BGO Atlanta GA JV LLC			7						20%						35%						30,467						—
Storage Portfolio V JV LLC			6						10%						30%						9,517						—
PR EXR Self Storage, LLC			5						25%						40%						58,476						59,393
Storage Portfolio III JV LLC			5						10%						30%						5,467						5,596
Other unconsolidated real estate ventures			14						20-50%						20-50%						39,808						18,635
SmartStop Self Storage REIT, Inc. Preferred Stock (2)			n/a						n/a						n/a						200,000						200,000
Net Investments in and Cash distributions in unconsolidated real estate entities			318																		$	515,060					$	393,744

(1)Includes pro-rata equity ownership share and promoted interest.

(2)The Company invested in shares of convertible preferred stock of SmartStop. The dividend rate for the preferred shares is 6.25% per annum, subject to increase after five years. The preferred shares are generally not redeemable for five years, except in the case of a change of control or initial listing of SmartStop. Dividend income from this investment is included on the equity in earnings and dividend income from unconsolidated real estate entities line on the Company's consolidated statement of operations.

In June 2021, the Company sold its interest in two unconsolidated joint ventures to its joint venture partner. The Company received proceeds of $1,888 in cash, and recorded a gain of $525 which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's condensed consolidated statements of operations. The Company also purchased its joint venture partners' interests in two unconsolidated joint ventures.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Also in June 2021, the WICNN JV LLC and GFN JV, LLC joint ventures sold all 17 of the stores owned by the joint ventures to a third party. Subsequent to the sales, these joint ventures were dissolved. As a result of these transactions, the Company recorded a gain of $5,739, which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's consolidated statements of operations.

In accordance with ASC 810, the Company reviews all of its joint venture relationships annually to ensure that there are no entities that require consolidation. As of December 31, 2022, there were no previously unconsolidated entities that were required to be consolidated as a result of this review.

The Company entered into four new unconsolidated real estate joint ventures of which added a total of 27 stores and a total investment of $66,592 to the Company's portfolio during the year ended December 31, 2022. Additionally, the Company's existing joint ventures added 10 stores for a total investment of $54,724 during the year ended December 31, 2022. The Company accounts for its investment in these ventures under the equity method of accounting.

Equity in earnings and dividend income from unconsolidated real estate entities consists of the following:

			For the Year Ended December 31,
			2022						2021						2020
Dividend income from SmartStop preferred stock			$	12,509					$	12,500					$	9,968
Equity in earnings of PRISA Self Storage LLC			3,272						2,719						2,229
Equity in earnings of Storage Portfolio II JV LLC			3,398						1,802						559
Equity in earnings of Storage Portfolio IV JV LLC			917						112						—
Equity in earnings of Storage Portfolio I LLC			4,684						2,833						1,636
Equity in earnings of PR II EXR JV LLC			1,229						(8)						—
Equity in earnings of ESS-CA TIVS JV LP			2,753						1,274						—
Equity in earnings of VRS Self Storage, LLC			5,401						4,352						3,509
Equity in earnings of ARA-EXR JV LLC			180						—						—
Equity in earnings of ESS-NYFL JV LLC			803						427						(331)
Equity in earnings of Extra Space Northern Properties Six LLC			1,734						1,363						1,088
Equity in earnings of ESS-BGO Atlanta GA JV LLC			55						—						—
Equity in earnings of Alan Jathoo JV LLC			482						270						57
Equity in earnings of Bristol Investments LLC			350						177						(67)
Equity in earnings of Storage Portfolio V JV LLC			(33)						—						—
Equity in earnings of PR EXR Self Storage, LLC			1,030						491						(211)
Equity in earnings of WICNN JV LLC			—						1,050						1,878
Equity in earnings of GFN JV, LLC			—						546						788
Equity in earnings of other minority owned stores			2,664						2,450						1,258
			$	41,428					$	32,358					$	22,361

Equity in earnings of certain of our joint ventures includes the amortization of the Company’s excess purchase price of $24,839 of these equity investments over its original basis. The excess basis is amortized over 39 years.

The Company provides management services to joint ventures for a fee. Management fee revenues for affiliated real estate joint ventures for the years ended December 31, 2022, 2021 and 2020 were $24,389, $17,619 and $15,657, respectively.

7. INVESTMENTS IN DEBT SECURITIES AND NOTES RECEIVABLE

Investments in debt securities and notes receivable consists of the Company's investment in mandatorily redeemable preferred stock of Jernigan Capital, Inc. ("JCAP") in connection with JCAP's acquisition by affiliates of NexPoint Advisors, L.P. ("NexPoint") and receivables due to the Company under its bridge loan program. Information about these balances is as

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

follows:

			December 31, 2022						December 31, 2021
Debt securities - NexPoint Preferred Stock			$	300,000					$	300,000
Notes Receivable - Bridge Loans			491,879						279,042
Notes Receivable - Senior Mezzanine Loan, net			—						102,079
Dividends and Interest Receivable			66,170						38,066
			$	858,049					$	719,187

In November 2020, the Company invested $300,000 in the preferred stock of JCAP in connection with the acquisition of JCAP by affiliates of NexPoint. This investment consisted of 200,000 Series A Preferred Shares valued at a total of $200,000, and 100,000 Series B Preferred Shares valued at a total of $100,000. In December 2022, the Company completed a modification with Nexpoint Storage Partners (as successor in interest to JCAP) that exchanged the Series A and B Preferred Shares for 300,000 Series D Preferred Shares, valued at a total of $300,000. The JCAP Series D preferred stock is mandatorily redeemable after six years from the modification in December 2022, with two one-year extension options. NexPoint may redeem the Preferred Shares at any time, subject to certain prepayment penalties. The Company accounts for the JCAP preferred stock as a held to maturity debt security at amortized cost. The Series D Preferred Shares have initial dividend rates of 8.5%. If the investment is not retired after six years, the preferred dividends increase annually.

In July 2020, the Company purchased a senior mezzanine note receivable with a principal amount of $103,000. The note receivable bore interest at 5.5%, with a maturity in December 2023 and was collateralized through an equity interest in which it or its subsidiaries wholly own 62 storage facilities. The Company paid cash of $101,142 for the note receivable and accounted for the discount at amortized cost. The discount was being amortized over the term of the note receivable. In February 2022, a junior mezzanine lender exercised its right to buy the Company’s position for the full principal balance plus interest due, as a result of which the Company sold this note for a total of $103,315 in cash. The remaining unamortized discount was recognized in that quarter as interest income.

The Company provides bridge loan financing to third-party self-storage operators. These notes receivable consist of mortgage loans receivable, collateralized by self-storage properties. These notes receivable typically have a term of three years with two one-year extensions, and have variable interest rates. The Company intends to sell some of the mortgage receivables. In certain scenarios the notes may be sold at a premium or discount. When this occurs, a gain or loss is recorded at the time of sale. During the year ended December 31, 2022, the Company sold a total principal amount of $211,240 of its mortgage bridge loans receivable to third parties and closed on $529,245 in new mortgage bridge loans. There were no material gains or losses recorded for the year ended December 31, 2022.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

8. DEBT

In March 2022, the Operating Partnership executed a public bond issuance by selling $400.0 million principal amount of 3.900% Senior Notes due 2029 (the "Notes Due 2029"). Interest on the Notes Due 2029 is paid semi-annually in arrears on April 1 and October 1 of each year. The Notes Due 2029 will mature on April 1, 2029, and the Operating Partnership may redeem the Notes Due 2029 at its option and sole discretion at any time prior to April 1, 2029 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

In September 2021, the Operating Partnership executed a public bond issuance by selling $600.0 million principal amount of 2.350% Senior Notes due 2032 (the "Notes Due 2032"). Interest on the Notes Due 2032 is paid semi-annually in arrears on March 15 and September 15 of each year. The Notes Due 2032 will mature on March 15, 2032, and the Operating Partnership may redeem the Notes Due 2032 at its option and sole discretion at any time prior to March 15, 2032 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

In May 2021, the Operating Partnership executed its initial public bond issuance by selling $450.0 million principal amount of 2.550% Senior Notes due 2031 (the "Notes Due 2031"). Interest on the Notes Due 2031 is paid semi-annually in arrears on June 1 and December 1 of each year. The Notes Due 2031 will mature on June 1, 2031, and the Operating Partnership may redeem the Notes Due 2031 at its option and sole discretion at any time prior to March 31, 2031 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

The Operating Partner may redeem the Notes Due 2029, the Notes Due 2031, and/or the Notes Due in 2032 (collectively, the "Notes") in whole at any time or in part from time to time, at the Operating Partnership’s option and sole discretion, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed and (ii) a make-whole premium calculated in accordance with the indenture governing the notes, plus, in each case, accrued and unpaid interest thereon to, but not including, the applicable redemption date. Notwithstanding the foregoing, on or after the date three months prior to the maturity date of the applicable notes, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date.

Certain events are considered events of default, which may result in the accelerated maturity of the Notes, including, among other things, a default for 30 days in the payment of any installment of interest under the notes or a default in the payment of the principal amount or redemption price due with respect to the notes, when the same become due and payable.

The Notes are unsecured, and are fully and unconditionally guaranteed by the Company, ESS Holdings Business Trust I, and ESS Holdings Business Trust II (the "Guarantors," and together with the Operating Partnership, the "Obligated Group"), on a joint and several basis. The guarantee of the Notes will be a senior unsecured obligation of each Guarantor. The Guarantors have no material operations separate from the operation of the Operating Partnership and no material assets, other than their respective investments directly or indirectly in the Operating Partnership, and therefore the assets, liabilities, and results of operations of the Obligated Group are not materially different than those reported in the Company's financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The components of term debt are summarized as follows:

Term Debt			December 31, 2022						December 31, 2021						Fixed Rate						Variable Rate (2)						Maturity Dates
Secured fixed-rate (1)			$	521,820					$	930,830					2.55% - 4.50%												July 2023 - February 2030
Secured variable-rate (1)			772,604						392,679												5.36% - 5.80%						August 2023 - September 2030
Unsecured fixed-rate			4,240,376						3,575,000						2.35% - 5.12%												February 2024 - March 2032
Unsecured variable-rate			884,624						550,000												5.41%						January 2025 - January 2028
Total			6,419,424						5,448,509
Less: Unamortized debt issuance costs			(32,962)						(25,762)
Total			$	6,386,462					$	5,422,747
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents.
(2) Basis rates include 30-day USD LIBOR, Term SOFR and Daily Simple SOFR

At December 31, 2022, the terms of the Second Amended and Restated Credit Agreement dated June 22, 2021 (the "Credit Agreement") are as follows:

						Debt Capacity						Maturity Date
Revolving Credit Facility						$	1,250,000					June 2025
Tranche 1 Term Loan Facility (1)						400,000						January 2027
Tranche 2 Term Loan Facility (1)						425,000						October 2026
Tranche 3 Term Loan Facility (1)						245,000						January 2025
Tranche 4 Term Loan Facility (1)						255,000						June 2026
Tranche 5 Term Loan Facility (1)						425,000						February 2024
Tranche 6 Term Loan Facility (1)						175,000						January 2028
Tranche 7 Term Loan Facility (1)						425,000						July 2029
						$	3,600,000

(1) The term loan amounts have been fully drawn as of December 31, 2022.

Pursuant to the terms of the Credit Agreement, the Company may request an extension of the term of the revolving credit facility for up to two additional periods of six months each, after satisfying certain conditions.

As of December 31, 2022, amounts outstanding under the revolving credit facility bore interest at floating rates, at the Company’s option, equal to either (i) Adjusted Term SOFR/Adjusted Daily Simple SOFR ("ASOFR") plus the applicable margin or (ii) the applicable base rate which is the applicable margin plus the highest of (a) 0.0%, (b) the federal funds rate plus 0.50%, (c) U.S. Bank’s prime rate or (d) the SOFR rate plus 1.00%. Per the Credit Agreement, the applicable SOFR rate margin and applicable base rate margin are based on the Company’s achieved debt rating, with the SOFR rate margin ranging from 0.7% to 1.6% per annum and the applicable base rate margin ranging from 0.00% to 0.60% per annum.

The Credit Agreement is guaranteed by the Company and is not secured by any assets of the Company. The Company's unsecured debt is subject to certain financial covenants. As of December 31, 2022, the Company was in compliance with all of its financial covenants.

In July 2022, the Company completed an accordion transaction in its credit facility, which added a $175.0 million unsecured debt tranche maturing January 2028 and a $425.0 million unsecured debt tranche maturing July 2029. The current interest rates for the tranches are ASOFR + 0.95% and ASOFR + 1.25%, respectively.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table summarizes the scheduled maturities of term debt, excluding available extensions, at December 31, 2022:

2023			$	386,684
2024			425,000
2025			709,899
2026			808,960
2027			872,884
Thereafter			3,215,997
			$	6,419,424

All of the Company’s lines of credit are guaranteed by the Company. The following table presents information on the Company’s lines of credit, the proceeds of which are used to repay debt and for general corporate purposes, for the periods indicated:

			As of December 31, 2022
Revolving Lines of Credit			Amount Drawn						Capacity						Interest Rate						Maturity						Basis Rate (1)
Credit Line 1 (2)			$	35,000					$	140,000					5.7%						7/1/2023						SOFR plus 1.35%
Credit Line 2 (3)(4)			910,000						1,250,000						5.3%						6/20/2025						SOFR plus 0.95%
			$	945,000					$	1,390,000
(1) Term SOFR or Daily Simple SOFR
(2) Secured by mortgages on certain real estate assets. On January 13, 2023 the maturity date was extended to July 1, 2026 with one one-year extension available.
(3) Unsecured. Two six-month extensions available.
(4) Basis Rate as of December 31, 2022. Rate is subject to change based on our investment grade rating.

As of December 31, 2022, the Company’s percentage of fixed-rate debt to total debt was 64.7%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 3.4% and 5.5%, respectively. The combined weighted average interest rate was 4.1%.

9. DERIVATIVES

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“OCI”) and is subsequently reclassified into earnings in the period that

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

the hedged forecasted transaction affects earnings. A portion of these changes is excluded from accumulated other comprehensive income as it is allocated to noncontrolling interests. During the years ended December 31, 2022, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During 2023, the Company estimates that $37,005 will be reclassified as a decrease to interest expense.

The following table summarizes the terms of the Company’s 19 derivative financial instruments, which have a total combined notional amount of $1,837,714 as of December 31, 2022:

Hedge Product						Range of Notional Amounts						Strike						Effective Dates						Maturity Dates
Swap Agreements						$32,014 - $220,000						1.07% - 4.20%						2/1/2016 - 1/31/2024						2/1/2023 - 10/13/2026

Fair Values of Derivative Instruments

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets:

			Asset / Liability Derivatives
Derivatives designated as hedging instruments:			December 31, 2022						December 31, 2021
Other assets			$	54,839					$	271
Other liabilities			$	73					$	39,569

Effect of Derivative Instruments

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations for the periods presented. No tax effect has been presented as the derivative instruments are held by the Company:

						Gain recognized in OCI for the Year Ended December 31,												Location of amounts reclassified from OCI into income						Loss reclassified from OCI for the Year Ended December 31,
Type						2022						2021						2022						2021						2020
Swap Agreements						$	88,372					$	23,580					Interest expense						$	(7,877)					$	(35,764)					$	(26,794)

Credit-Risk-Related Contingent Features

The Company has agreements with some of its derivative counterparties that contain provisions pursuant to which, the Company could be declared in default of its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender.

The Company also has an agreement with some of its derivative counterparties that incorporates the loan covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of December 31, 2022, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

10. EXCHANGEABLE SENIOR NOTES

In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs were amortized as an adjustment to interest expense over five years, which represented the estimated term based on the first available redemption date, and were included in exchangeable senior notes, net, in the consolidated balance sheets. The 2015 Notes were general unsecured senior obligations of the Operating Partnership and were fully guaranteed by the Company. Interest was payable on April 1 and October 1 of each year. The Notes bore interest at 3.125% per annum and contained an exchange settlement feature, which provided that the 2015 Notes could, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option.

The Operating Partnership could redeem the 2015 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after October 5, 2020, the Operating Partnership could redeem the 2015 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2015 Notes. The holders of the 2015 Notes had the right to require the Operating Partnership to repurchase the 2015 Notes for cash, in whole or in part, on October 1 of the years 2020, 2025 and 2030, (unless the Operating Partnership had called the 2015 Notes for redemption), and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest. Additionally, the 2015 Notes could have been exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company was greater than or equal to 130% of the exchange price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter. The Company redeemed all outstanding 2015 Notes on November 2, 2020.

GAAP requires entities with convertible debt instruments that may be settled entirely or partially in cash upon conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The Company therefore accounted for the liability and equity component of the 2015 Notes separately. The equity components were included in paid-in capital in stockholders’ equity in the consolidated balance sheets, and the value of the equity components were treated as original issue discount for purposes of accounting for the debt components. The discount was amortized as interest expense over the remaining period of the debt through its first redemption date, October 1, 2020 for the 2015 Notes. The effective interest rate on the liability components of the 2015 Notes was 4.0%, which approximates the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.

The amount of interest cost recognized relating to the contractual interest rate and the amortization of the discount on the liability component for the Notes were as follows for the periods indicated:

			For the Year Ended December 31,
			2022						2021						2020
Contractual interest			$	—					$	—					$	13,476
Amortization of discount			—						—						3,675
Total interest expense recognized			$	—					$	—					$	17,151

Repurchase of 2015 Notes

On October 1, 2020, the holders of $71,513 principal amount of the 2015 Notes exchanged their Notes. The Company paid cash of $71,513 for the principal amount and issued 124,819 shares of common stock with a value of $13,495 for the exchange value in excess of the principal amount. On November 2, 2020, the holders of an additional $503,432 principal amount of the 2015 Notes exchanged their Notes. The Company paid cash of $503,487 for the principal amount and issued 1,198,962 shares of common stock with a value of $138,900 for the exchange value in excess of the principal amount. Also on November 2, 2020, the Company redeemed the remaining $55 of outstanding principal amount of the 2015 Notes for cash.

The Company allocated the value of the consideration paid to repurchase the 2013 Notes and the 2015 Notes (1) to the extinguishment of the liability component and (2) to the reacquisition of the equity component. The amount allocated to the extinguishment of the liability component is equal to the fair value of that component immediately prior to extinguishment. The

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

difference between the consideration attributed to the extinguishment of the liability component and the sum of (a) the net carrying amount of the repurchased liability component, and (b) the related unamortized debt issuance costs, is recognized as a gain on debt extinguishment. The remaining settlement consideration is allocated to the reacquisition of the equity component of the repurchased 2013 Notes and 2015 Notes and recognized as a reduction of stockholders’ equity.

Information about the repurchases is as follows:

			For the Year Ended December 31,
			2022						2021						2020
Principal amount repurchased			$	—					$	—					$	575,000
Amount allocated to:
Extinguishment of liability component			$	—					$	—					$	575,000
Reacquisition of equity component			—						—						—
Total consideration paid for repurchase			$	—					$	—					$	575,000
Exchangeable senior notes repurchased			$	—					$	—					$	575,000
Extinguishment of liability component			—						—						(575,000)
Discount on exchangeable senior notes			—						—						—
Related debt issuance costs			—						—						—
Gain/(loss) on repurchase			$	—					$	—					$	—

11. STOCKHOLDERS’ EQUITY

The Company’s charter provides that it can issue up to 500,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of December 31, 2022, 133,921,020 shares of common stock were issued and outstanding, and no shares of preferred stock were issued or outstanding.

All holders of the Company's common stock are entitled to receive dividends and to one vote on all matters submitted to a vote of stockholders. The transfer agent and registrar for the Company’s common stock is American Stock Transfer & Trust Company.

During the year ended December 31, 2022, the Company sold no shares of common stock.

On August 9, 2021, the Company filed its $800,000 "at the market" equity program with the Securities and Exchange Commission using a shelf registration statement on Form S-3, and entered into separate equity distribution agreements with ten sales agents. No shares have been sold under the current "at the market" equity program. From January 1, 2021, through August 8, 2021, the Company sold 585,685 shares of common stock under its prior "at the market" equity program at an average sales price of $115.90 per share resulting in net proceeds of $66,617.

On March 23, 2021, the Company sold 1,600,000 shares of its common stock in a registered offering structured as a bought deal at a price of $129.13 per share resulting in net proceeds of $206,572.

On October 15, 2020, the Company's board of directors authorized a share repurchase program allowing for the repurchase of shares with an aggregate value up to $400,000. During the year ended December 31, 2022, the Company repurchased 381,786 shares at an average price of $165.03 per share, paying a total of $63,008. As of December 31, 2022, the Company had remaining authorization to repurchase shares with an aggregate value up to $336,992.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

12. NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS

Classification of Noncontrolling Interests

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

The Company has evaluated the terms of the Operating Partnership’s preferred units and classifies the noncontrolling interest represented by such preferred units as stockholders’ equity in the accompanying consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.

At December 31, 2022 and 2021, the noncontrolling interests represented by the Preferred OP Units qualified for classification as permanent equity on the Company's consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. As of December 31, 2022 and 2021, noncontrolling interests in Preferred OP Units were presented net of notes receivable from Preferred Operating Partnership unit holders of $100,000 as of December 31, 2022 and 2021, respectively, as more fully described below. The balances for each of the specific preferred OP units as presented in the Statement of Noncontrolling Interests and Equity as of the periods indicated is as follows:

			December 31, 2022						December 31, 2021
Series A Units			$	16,498					$	15,606
Series B Units			33,568						38,068
Series D Units			211,436						205,436
			$	261,502					$	259,110

Series A Participating Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series A Units. The Series A Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series A Units were issued in June 2007. Series A Units in the amount of $101,700 bear a fixed priority return of 2.3%, and originally had a fixed liquidation value of $115,000. The remaining balance participates in distributions with, and has a liquidation value equal to, that of the common OP Units. The Series A Units are redeemable at the option of the holder, which redemption obligation may be satisfied, at the Company’s option, in cash or shares of its common stock. As a result of the redemption of 114,500 Series A Units in October 2014, the remaining fixed liquidation value was reduced to $101,700 which represents 875,480 Series A Units.

On June 25, 2007, the Operating Partnership loaned the holders of the Series A Units $100,000. The note receivable bears interest at 2.1%. The loan is secured by the borrower’s Series A Units. No future redemption of Series A Units can be made unless the loan secured by the Series A Units is also repaid. The Series A Units are shown on the balance sheet net of the $100,000 loan because the borrower under the loan is also the holder of the Series A Units.

On January 25, 2023, the remaining balance of the Series A units were redeemed for $5,000 in cash, 851,698 shares of common stock, and the repayment of the $100,000 note receivable.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Series B Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series B Units. The Series B Units rank junior to the Series A Units, on parity with the Series C Units (defined below) and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series B Units were issued in 2013 and 2014, have been redeemed at various times, and have a liquidation value of $25.00 per unit for a current fixed liquidation value of $33,568 which represents 1,342,727 Series B Units outstanding at December 31, 2022. Holders of the Series B Units receive distributions at an annual rate of 6.0%. These distributions are cumulative. The Series B Units became redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligations may be satisfied at the Company’s option in cash or shares of its common stock.

On August 31, 2021, 113,360 Series B Units were redeemed for 15,265 shares of common stock.

Series C Convertible Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series C Convertible Redeemable Preferred Units ("Series C Units").

The Series C Units were issued in 2013 and 2014.

In December 2014, the Operating Partnership loaned holders of the Series C Units $20,230. The note receivable, which was collateralized by the Series C Units, bears interest at 5.0% and matures on December 15, 2024. The Series C Units were shown on the balance sheet net of the loan because the borrower under the loan receivable was also the holder of the Series C Units.

In 2018, certain holders of the Series C Units converted their Series C Units into common OP Units and the remaining Series C Units were converted into common OP Units in 2019. The remaining outstanding balance of the loan receivable of $1,900 and $1,900 is shown as a reduction of the noncontrolling interests related to the OP Units as of December 31, 2022 and December 31, 2021, respectively. See footnote 13 for further discussion of noncontrolling interests.

Series D Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series D Units. The Series D Units rank junior to the Series A Units, on parity with the Series B Units and Series C Units, and senior to all other partnership interest of the Operating Partnership with respect to distributions and liquidation.

The Series D Units have a liquidation value of $25.00 per unit, for a current fixed liquidation value of $211,436 which represents 8,457,422 Series D Units outstanding at December 31, 2022. Holders of the Series D Units receive distributions at an annual rate between 3.0% and 5.0%. These distributions are cumulative. The Series D Units become redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. In addition, certain of the Series D Units are exchangeable for common OP Units until the tenth anniversary of the date of issuance, with the number of common OP Units to be issued equal to $25.00 per Series D Unit, divided by the value of a share of common stock as of the exchange date.

The Series D Units have been issued at various times from 2014 to 2022. During the year ended December 31, 2022, the Operating Partnership issued a total of 88,319 Series D Units in conjunction with store acquisitions.

On January 3, 2023, 890,594 Series D units were redeemed for 154,307 shares of common stock.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

13. NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS

Noncontrolling interest in Operating Partnership

The Company’s interest in its stores is held through the Operating Partnership. Between its general partner and limited partner interests, the Company held a 93.3% majority ownership interest in the Operating Partnership as of December 31, 2022. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 6.7% are held by certain former owners of assets acquired by the Operating Partnership. As of December 31, 2022 and 2021, the noncontrolling interests in the Operating Partnership are shown on the balance sheet net of notes receivable of $1,900 and $1,900, respectively, because the borrowers under the loan receivable are also holders of OP Units (Note 12). This loan receivable bears interest at 5.0% per annum and matures on December 15, 2024.

The noncontrolling interest in the Operating Partnership represents OP Units that are not owned by the Company. OP Units are redeemable at the option of the holder, which redemption may be satisfied at the Company's option in cash based upon the fair market value of an equivalent number of shares of the Company’s common stock (based on the ten-day average trading price) at the time of the redemption, or shares of the Company's common stock on a one-for-one basis, subject to anti-dilution adjustments provided in the Operating Partnership agreement. As of December 31, 2022, the ten-day average closing stock price was $147.10 and there were 7,214,649 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on December 31, 2022 and the Company elected to pay the OP Unit holders cash, the Company would have paid $1,061,275 in cash consideration to redeem the units.

OP Unit activity is summarized as follows for the periods presented:

			For the Year Ended December 31,
			2022			2021			2020
OP Units redeemed for common stock			—			165,652			123,993
OP Units redeemed for cash			24,824			4,500			—
Cash paid for OP Units redeemed			$	4,617		$	788		$	—
OP Units issued in conjunction with business combination and acquisitions			711,037			897,803			—
Value of OP Units issued in conjunction with business combination and acquisitions			$	141,000		$	188,319		$	—

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

The Company has evaluated the terms of the common OP Units and classifies the noncontrolling interest represented by the common OP Units as stockholders’ equity in the accompanying consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.

Other Noncontrolling Interests

Other noncontrolling interests represent the ownership interest of partners in five consolidated joint ventures as of December 31, 2022. One joint venture owns one operating store in Florida and the others own four properties all under development. The voting interests of the partners are 10% or less.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

14. LEASES

Lessee Accounting

The Company accounts for leases under ASC 842, "Leases." Right-of-use assets associated with operating leases are included in “Real estate assets - operating lease right-of-use assets” and operating lease liabilities are included in “Operating lease liabilities” on the Company's consolidated balance sheets. Right-of-use assets associated with finance leases are included in "Real estate assets, net" and finance lease liabilities are included in "Other liabilities" on the Company's consolidated balance sheets.

During the year ended December 31, 2022, the Company recorded new finance lease right-of-use assets and finance lease liabilities totaling $6,823 associated with the acquisition of two stores with land leases.

The Company is lessee under several types of lease agreements. Generally, these leases fall into the following categories:

• Leases of real estate at 60 stores classified as wholly-owned or in consolidated joint ventures. These leases generally have original lease terms between 10-99 years. Under these leases, the Company typically has the option to extend the lease term for additional terms of 5-35 years.

• Leases of its corporate offices and call center. These leases have original lease terms between five and 14 years, with no extension options. In 2021 the Company modified and extended the lease of its corporate offices to add additional space and extend the lease until 2034.

• Leases of 15 regional offices. These leases have original lease terms between two and five years. The Company has the option on certain of these leases to extend the lease term for up to three additional years.

• Leases of small district offices. These leases generally have terms of 12 months or less. The Company has made an election to account for these under the short-term lease exception outlined under ASC 842. Therefore, no lease assets or liabilities are recorded related to these leases.

The Company has included lease extension options in the lease term for calculations of its right-of-use assets and liabilities related to the real estate asset leases at its stores when it is reasonably certain that the Company plans to extend the lease terms as the options arise.

Several of the leases of real estate at the Company’s stores include escalation clauses based on an index or rate, such as the Consumer Price Index (CPI). The Company included these lease payments in its calculations of right-of-use assets and liabilities based on the prevailing index or rate as of the adoption date. The Company will recognize changes to these variable lease payments in earnings in the period of change.

One of the real estate leases includes variable lease payments that are based upon a percentage of gross revenues. Certain other leases include additional variable payments relating to a percentage of sales in excess of a specified amount, common area maintenance, property taxes, and similar items. These payments are variable lease payments that do not depend on an index or rate and are excluded from the measurement of the lease liabilities and right-of-use-assets for these leases. The Company will recognize costs from these variable lease payments in the period in which the obligation for those payments is incurred.

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the present value of lease payments. These discount rates vary depending on the term of the specific leases.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Following is information on our total lease costs as of the period indicated:

			For the Year Ended December 31,
			2022						2021
Finance lease cost:
Amortization of finance lease right-of-use assets			$	3,751					$	3,049
Interest expense related to finance lease liabilities			4,018						2,812
Operating lease cost			32,182						29,258
Variable lease cost			11,287						8,100
Short-term lease cost			32						51
Total lease cost			$	51,270					$	43,270
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows for finance lease payments			$	4,018					$	2,812
Operating cash outflows for operating lease payments			25,384						23,961
Total cash flows for lease liability measurement			$	29,402					$	26,773
Right-of-use assets obtained in exchange for new operating lease liabilities			$	16,298					$	6,655
Right-of-use assets obtained in exchange for new finance lease liabilities			$	6,823					$	67,992
Weighted average remaining lease term - finance leases (years)			54.16						54.97
Weighted average remaining lease term - operating leases (years)			20.03						21.25
Weighted average discount rate - finance leases			3.31		%				3.18		%
Weighted average discount rate - operating leases			3.65		%				3.63		%

The following table presents information about the Company’s undiscounted cash flows on an annual basis for operating and finance leases, including a reconciliation of the undiscounted cash flows to the finance lease and operating lease liabilities recognized in the Company’s consolidated balance sheets:

			Operating						Finance						Total
2023			$	30,716					$	6,433					$	37,149
2024			30,584						6,542						37,126
2025			30,344						6,571						36,915
2026			30,598						6,715						37,313
2027			31,063						6,842						37,905
Thereafter			143,651						360,936						504,587
Total			$	296,956					$	394,039					$	690,995
Present value adjustments			(67,921)						(248,486)						(316,407)
Lease liabilities			$	229,035					$	145,553					$	374,588

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Lessor Accounting

The Company's property rental revenue is primarily related to rents received from tenants at its operating stores. The Company's leases with its self-storage tenants are generally on month-to-month terms, include automatic monthly renewals, allow flexibility to increase rental rates over time as market conditions permit, and provide for the collection of contingent fees such as late fees. These leases do not include any terms or conditions that allow the tenants to purchase the leased space. All self-storage leases for which the Company acts as lessor have been classified as operating leases. The real estate assets related to the Company's stores are included in "Real estate assets, net" on the Company's condensed consolidated balance sheets and are presented at historical cost less accumulated depreciation and impairment, if any. Rental income related to these operating leases is included in "Property rental" revenue on the Company's condensed consolidated statements of operations, and is recognized each month during the month-to-month terms at the rental rate in place during each month.

15. STOCK-BASED COMPENSATION

As of December 31, 2022, 784,635 shares were available for issuance under the Company’s 2015 Incentive Award Plan (the “Plan”).

Options are exercisable once vested. Options are exercisable at such times and subject to such terms as determined by the Compensation Committee, but under no circumstances may be exercised if such exercise would cause a violation of the ownership limit in the Company’s charter. Options expire 10 years from the date of grant.

Also as defined under the terms of the Plan, restricted stock grants may be awarded. The stock grants are subject to a vesting period over which the restrictions are released and the stock certificates are given to the grantee. During the vesting period, the grantee is not permitted to sell, transfer, pledge, encumber or assign shares of restricted stock granted under the Plan; however, the grantee has the ability to vote the shares and receive nonforfeitable dividends paid on shares. Unless otherwise determined by the Compensation Committee at the time of grant, the forfeiture and transfer restrictions on the shares lapse over a one-year period or a four-year period beginning on the date of grant. For actions taken prior to July 2020, references to the Compensation Committee refer to its predecessor, the CNG Committee; the Board split the CNG Committee into two committees, the Compensation Committee and the Nominating and Governance Committee, effective July 1, 2020.

Option Grants

A summary of stock option activity is as follows:

Options			Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Life (Years)						Aggregate Intrinsic Value as of December 31, 2022
Outstanding at December 31, 2019			206,524						$	48.88
Exercised			(134,930)						35.26
Outstanding at December 31, 2020			71,594						$	74.54
Exercised			(62,322)						73.36
Outstanding at December 31, 2021			9,272						82.47
Exercised			—						—
Outstanding at December 31, 2022			9,272						$	82.47					2.98						$600
Vested			9,272						$	82.47					2.98						$600
Ending Exercisable			9,272						$	82.47					2.98						$600

The aggregate intrinsic value in the table above represents the total value (the difference between the Company’s closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2022. The amount of

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

aggregate intrinsic value will change based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the years ended December 31, 2022, 2021 and 2020 was $0, $3,925 and $10,016, respectively.

There have been no options granted since 2016. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the estimated life of the option. The Company uses actual historical data to calculate the expected price volatility, dividend yield and average expected term. The forfeiture rate, which is estimated at a weighted-average of 4.6% of unvested options outstanding as of December 31, 2022, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates.

A summary of stock options outstanding and exercisable as of December 31, 2022, is as follows:

						Options Outstanding																		Options Exercisable
Exercise Price						Shares						Weighted Average Remaining Contractual Life						Weighted Average Exercise Price						Shares						Weighted Average Exercise Price
$65.36 - $65.36						1,582						2.15						$	65.36					1,582						$	65.36
$85.99 - $85.99						7,690						3.15						85.99						7,690						85.99

The Company recorded compensation expense relating to outstanding options of $0, $0 and $27 in general and administrative expense for the years ended December 31, 2022, 2021 and 2020, respectively. Net proceeds received for the years ended December 31, 2022, 2021 and 2020, related to option exercises was $0, $4,572 and $4,759, respectively. At December 31, 2022, there was no unrecognized compensation expense related to non-vested stock options under the Plan.

Common Stock Granted to Employees and Directors

The Company recorded $12,086, $9,260 and $9,244 of expense in general and administrative expense in its statement of operations related to restricted stock awards granted to employees and directors for the years ended December 31, 2022, 2021 and 2020, respectively. The forfeiture rate, which is estimated at a weighted-average of 10.0% of unvested awards outstanding as of December 31, 2022, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates. At December 31, 2022 there was $20,465 of total unrecognized compensation expense related to non-vested restricted stock awards under the Plan. That cost is expected to be recognized over a weighted-average period of 2.22 years. The fair value of common stock awards is determined based on the closing trading price of the Company’s common stock on the grant date.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

A summary of the Company’s employee and director share grant activity is as follows:

Restricted Stock Grants			Shares						Weighted-Average Grant-Date Fair Value
Unreleased at December 31, 2019			212,608						$	91.62
Granted			95,671						98.81
Released			(94,164)						89.43
Cancelled			(5,083)						93.16
Unreleased at December 31, 2020			209,032						$	95.86
Granted			99,802						132.75
Released			(96,248)						91.65
Cancelled			(12,808)						113.89
Unreleased at December 31, 2021			199,778						$	115.16
Granted			105,677						201.12
Released			(86,781)						112.31
Cancelled			(10,614)						147.03
Unreleased at December 31, 2022			208,060						$	158.38

Performance-based Stock Units

The performance-based stock units (the "PSUs") granted to executives represent the right to earn shares of the Company's common stock. These awards have two financial performance components: (1) the Company's core FFO performance ("FFO Target"), and (2) the Company's total stockholder return relative to the performance of a defined group of peers ("TSR Target"). Each of these performance components are weighted 50% and are measured over the performance period, which is defined as the three-year period ending December 31 from the year of grant. At the end of the performance period, the financial performance components are reviewed to determine the number of shares actually granted to executives, which can be as low as zero shares and up to a maximum of two shares issued for each PSU. A summary of the PSU activity is as follows:

Performance-Based Stock Units						Units						Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2019						108,140						$	95.94
Granted						45,242						129.38
Released						(30,071)						$	112.16
Unvested at December 31, 2020						123,311						$	104.25
Granted						40,832						138.04
Released						(28,735)						$	117.19
Unvested at December 31, 2021						135,408						$	111.69
Granted						61,085						223.96
Released						(49,334)						$	194.21
Unvested at December 31, 2022						147,159						$	130.63

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company recorded $9,299, $8,043 and $7,048 of expense in general and administrative expense in its statement of operations related to PSUs granted to employees for the years ended December 31, 2022, 2021 and 2020, respectively. The Company estimated the fair value of the PSUs as of the grant date, using the closing trading price of the Company's common stock on the grant date to value the FFO Target portion. A Monte Carlo simulation model was used to calculate the fair value of the TSR Target portion of the PSUs, using the following assumptions:

						For the Year Ended December 31,
						2022						2021						2020
Intrinsic value						$21,659						$30,701						$12,266
Risk-free rate						1.8%						0.22%						1.42%
Volatility						29.3%						28.5%						18.4%
Expected term (in years)						2.9						2.9						2.9
Dividend yield						—%						—%						—%
Unrecognized compensation cost						$13,241						$8,859						$6,406
Term over which compensation cost recognized (in years)						3						3						3

Under the terms of the PSUs, dividends for the entire measurement period are paid in cash when the shares are released, so a dividend yield of zero was used. The valuation model applied in this calculation utilizes subjective assumptions that could potentially change over time, including the probabilities associated with achieving the FFO Targets (categorized within Level 3 of the fair value hierarchy). Therefore, the amount of unrecognized compensation expense at December 31, 2022 noted above does not necessarily represent the expense that will ultimately be realized by the Company in the statement of operations.

16. EMPLOYEE BENEFIT PLAN

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code under which eligible employees can contribute up to 60% of their annual salary, subject to a statutory prescribed annual limit. For the years ended December 31, 2022, 2021 and 2020, the Company made matching contributions to the plan of $5,169, $4,239, and $3,980 respectively, based on 100% of the first 3% and up to 50% of the next 2% of an employee’s compensation.

17. INCOME TAXES

As a REIT, the Company is generally not subject to U.S. federal income tax with respect to that portion of its income which is distributed annually to its stockholders. However, the Company has elected to treat certain of its corporate subsidiaries, including Extra Space Management, Inc., as a TRS. In general, a TRS may perform additional services for tenants and generally may engage in any real estate or non-real estate related business. A TRS is subject to U.S. federal corporate income tax and may be subject to state and local income taxes. The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes.” Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. The Company has elected to use the Tax-Law-Ordering approach to determine when excess tax benefits will be realized.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”). The provisions include the new Corporate Alternative Minimum Tax (“CAMT”), an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, and all of these provisions are effective for tax year 2023. The Company has evaluated the impact of these provisions and does not expect the enactment of these provisions to have a material impact on the Company's consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The income tax provision for the years ended December 31, 2022, 2021 and 2020, is comprised of the following components:

			For the Year Ended December 31, 2022
			Federal						State						Total
Current expense			$	20,592					$	4,546					$	25,138
Tax credits/true-up			(6,071)						31						(6,040)
Change in deferred expense/(benefit)			1,909						(82)						1,827
Total tax expense			$	16,430					$	4,495					$	20,925

			For the Year Ended December 31, 2021
			Federal						State						Total
Current expense			$	21,017					$	3,520					$	24,537
Tax credits/true-up			(4,979)						(138)						(5,117)
Change in deferred expense			818						86						904
Total tax expense			$	16,856					$	3,468					$	20,324

			For the Year Ended December 31, 2020
			Federal						State						Total
Current expense			$	15,553					$	3,347					$	18,900
Tax credits/true-up			(5,610)						(135)						(5,745)
Change in deferred benefit			594						61						655
Total tax expense			$	10,537					$	3,273					$	13,810

A reconciliation of the statutory income tax provisions to the effective income tax provisions for the periods indicated is as follows:

			For the Year Ended December 31,
			2022												2021												2020
Expected tax at statutory rate			$	197,887					21.0		%				$	188,600					21.0		%				$	111,760					21.0		%
Non-taxable REIT income			(172,966)						(18.4)		%				(166,137)						(18.5)		%				(94,270)						(17.7)		%
State and local tax expense - net of federal benefit			4,160						0.4		%				3,259						0.4		%				3,075						0.6		%
Change in valuation allowance			(1,093)						(0.1)		%				(1,061)						(0.1)		%				(363)						(0.1)		%
Tax credits/true-up			(6,040)						(0.6)		%				(5,117)						(0.6)		%				(5,745)						(1.1)		%
Miscellaneous			(1,023)						(0.1)		%				780						0.1		%				(647)						(0.1)		%
Total provision			$	20,925					2.2		%				$	20,324					2.3		%				$	13,810					2.6		%

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The major sources of temporary differences stated at their deferred tax effects are as follows:

			December 31, 2022						December 31, 2021
Deferred tax liabilities:
Fixed assets			$	(32,551)					$	(30,499)
Operating and Finance lease right-of-use assets			(6,610)						(6,016)
Other			(48)						(61)
State deferred taxes			(3,607)						(3,842)
Total deferred tax liabilities			(42,816)						(40,418)
Deferred tax assets:
Captive insurance subsidiary			335						396
Accrued liabilities			2,541						2,383
Stock compensation			3,467						3,076
Operating and Finance lease liabilities			8,418						7,936
Other			48						916
State deferred taxes			5,232						6,548
Total deferred tax assets			20,041						21,255
Valuation allowance			(1,148)						(2,241)
Net deferred income tax liabilities			$	(23,923)					$	(21,404)

The state income tax net operating losses expire between 2023 and 2042. The valuation allowance is associated with the state income tax net operating losses. The tax years 2018 through 2021 remain open related to the state returns, and 2019 through 2021 for the federal returns.

18. SEGMENT INFORMATION

The Company’s segment disclosures present the measure used by the chief operating decision makers ("CODMs") for purposes of assessing each segment’s performance. The Company’s CODMs are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company’s reportable operating segments. The Company’s segments are comprised of two reportable segments: (1) self-storage operations and (2) tenant reinsurance. NOI for self-storage operations represents total property revenue less direct property operating expenses. NOI for tenant reinsurance represents tenant reinsurance revenues less tenant reinsurance expense.

The self-storage operations activities include rental operations of wholly-owned stores and Bargold. The Company's consolidated revenues equal total segment revenues plus property management fees and other income. Tenant reinsurance activities include the reinsurance of risks relating to the loss of goods stored by tenants in the stores operated by the Company. Excluded from segment revenues and net operating income is property management fees and other income.

For all periods presented, substantially all real estate assets, intangible assets, other assets, and accrued and other liabilities are associated with the self-storage operations segment. Financial information for the Company’s business segments is set forth below:

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

			Year Ended December 31,
			2022						2021						2020
Revenues:
Self-Storage Operations			$	1,654,735					$	1,340,990					$	1,157,522
Tenant Reinsurance			185,531						170,108						146,561
Total segment revenues			$	1,840,266					$	1,511,098					$	1,304,083
Operating expenses:
Self-Storage Operations			$	435,342					$	368,608					$	360,615
Tenant Reinsurance			33,560						29,488						26,494
Total segment operating expenses			$	468,902					$	398,096					$	387,109
Net operating income:
Self-Storage Operations			$	1,219,393					$	972,382					$	796,907
Tenant Reinsurance			151,971						140,620						120,067
Total segment net operating income:			$	1,371,364					$	1,113,002					$	916,974
Total segment net operating income			$	1,371,364					$	1,113,002					$	916,974
Other components of net income:
Property management fees and other income			83,904						66,264						52,129
Transaction related costs			(1,548)						—						—
General and administrative expense			(129,251)						(102,194)						(96,594)
Depreciation and amortization expense			(288,316)						(241,879)						(224,444)
Gain on real estate transactions			14,249						140,760						18,075
Interest expense			(219,171)						(166,183)						(168,626)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes			—						—						(3,675)
Interest income			69,422						49,703						15,192
Equity in earnings and dividend income from unconsolidated real estate entities			41,428						32,358						22,361
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets			—						6,251						—
Income tax expense			(20,925)						(20,324)						(13,810)
Net income			$	921,156					$	877,758					$	517,582

19. COMMITMENTS AND CONTINGENCIES

As of December 31, 2022, the Company was under agreement to acquire 12 stores at a total purchase price of $156,678. Ten stores are scheduled to close in 2023 and two are scheduled to close in 2024. Additionally, the Company is under agreement to acquire seven stores in 2023 with joint venture partners, for a total investment of $26,002.

The Company is involved in various legal proceedings and is subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

adverse effect on its results of operations in any particular period, notwithstanding the fact that the Company is currently vigorously defending any legal proceedings against it. As of December 31, 2022, the Company was involved in various legal proceedings and was subject to various claims and complaints arising in the ordinary course of business. In the opinion of management, such litigation, claims and complaints are not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Although there can be no assurance, the Company is not aware of any material environmental liability, for which it believes it will be ultimately responsible, that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to its properties could result in future material environmental liabilities.

Extra Space Storage Inc.

Schedule III

Real Estate and Accumulated Depreciation

(Dollars in thousands)

As of December 31, 2022

												Building and Improvements Initial Cost			Adjustments and Costs to Land and Building Subsequent to Acquisition			Gross carrying amount at December 31, 2022
Self - Storage Facilities by State:			Store Count						Land Initial Cost						Building and Improvements						Accumulated Depreciation
Debt			Land			Total
AL			9			$	5,687		$	12,759		$	78,243		$	4,164		$	12,759		$	82,407		$	95,166		$	12,590
AZ			25			23,676			37,192			150,772			12,588			37,190			163,362			200,552			36,053
CA			177			334,247			665,423			1,394,380			199,150			663,569			1,595,384			2,258,953			379,484
CO			17			28,137			17,224			81,144			18,733			17,942			99,159			117,101			28,713
CT			7			6,609			9,789			61,688			5,631			9,789			67,319			77,108			12,866
FL			112			170,965			203,643			869,142			102,902			205,335			970,352			1,175,687			189,822
GA			67			74,374			89,898			455,894			42,551			89,882			498,461			588,343			100,924
HI			14			—			28,537			160,978			14,085			28,537			175,063			203,600			38,133
ID			2			—			4,047			25,235			20			4,047			25,255			29,302			162
IL			60			16,627			61,580			344,755			38,447			61,033			383,749			444,782			62,487
IN			91			—			64,531			494,469			8,141			64,528			502,613			567,141			20,388
KS			1			—			366			1,897			1,123			366			3,020			3,386			1,442
KY			13			31,483			8,531			77,872			19,485			9,303			96,585			105,888			18,590
LA			5			—			10,005			51,934			5,144			10,006			57,077			67,083			6,501
MA			47			33,948			77,617			276,254			60,272			77,798			336,345			414,143			110,133
MD			35			77,135			109,414			345,585			33,514			108,822			379,690			488,512			99,014
MI			8			5,486			10,900			63,388			5,498			10,900			68,886			79,786			11,008
MN			7			—			9,696			74,960			6,537			9,696			81,497			91,193			7,755
MO			6			—			5,633			34,252			7,499			5,591			41,793			47,384			8,587
MS			3			—			2,914			29,630			1,410			2,914			31,040			33,954			4,105
NC			23			—			38,463			150,475			12,017			38,461			162,494			200,955			22,883
NH			2			—			754			4,054			1,401			817			5,392			6,209			2,881
NJ			64			109,010			142,724			651,442			57,849			145,950			706,065			852,015			184,072
NM			11			18,648			31,826			68,779			5,978			31,826			74,758			106,584			14,760
NV			14			30,597			15,252			74,376			7,085			15,252			81,461			96,713			17,259
NY			28			13,807			121,945			237,795			46,207			122,680			283,267			405,947			85,218
OH			24			11,374			19,973			77,180			10,995			19,973			88,175			108,148			18,509
OK			1			—			721			6,125			—			721			6,125			6,846			65
OR			8			16,431			15,066			68,044			2,617			15,066			70,661			85,727			12,199
PA			21			10,894			39,704			203,360			17,340			39,032			221,371			260,403			38,174
RI			2			3,835			3,191			6,926			1,550			3,191			8,476			11,667			3,729
SC			23			27,850			36,617			148,900			12,120			36,618			161,019			197,637			33,901
TN			22			44,489			35,981			151,674			13,587			35,981			165,262			201,243			30,348
TX			111			111,417			205,385			760,041			75,963			205,237			836,152			1,041,389			166,839
UT			10			16,670			9,008			39,295			3,615			9,008			42,910			51,918			13,949
VA			53			58,133			156,074			517,534			32,574			156,075			550,107			706,182			108,891
WA			9			5,030			13,762			60,926			12,572			13,764			73,496			87,260			16,483
DC			1			7,864			14,394			18,172			566			14,394			18,738			33,132			3,383
Other corporate assets						—			—			—			207,609			—			207,609			207,609			67,700
Intangible tenant relationships and lease rights						—			—			165,718			—			—			165,718			165,718			144,144
Construction in Progress/Undeveloped Land						—			23,263			2,778			51,836			22,693			55,184			77,877			632
Right of use asset - finance lease						—			—			—			136,259			—			136,259			136,259			3,748
Totals (1)			1,133			$	1,294,423		$	2,353,802		$	8,486,066		$	1,296,634		$	2,356,746		$	9,779,756		$	12,136,502		$	2,138,524

(1) No right-of-use assets related to operating leases are included in the ending net real estate assets information above.

Extra Space Storage Inc. Schedule III (continued)

Activity in real estate facilities during the years ended December 31, 2022, 2021 and 2020 is as follows:

			2022						2021						2020
Operating facilities
Balance at beginning of year			$	10,643,722					$	9,507,788					$	9,129,558
Acquisitions			1,390,463						1,500,703						255,235
Improvements			95,282						80,131						66,693
Transfers from construction in progress			70,565						62,462						40,988
Dispositions and other			(116,007)						(507,362)						15,314
Balance at end of year			$	12,084,025					$	10,643,722					$	9,507,788
Accumulated depreciation:
Balance at beginning of year			$	1,868,321					$	1,681,429					$	1,473,851
Depreciation expense			276,155						230,445						217,364
Dispositions and other			(6,081)						(43,553)						(9,786)
Balance at end of year			$	2,138,395					$	1,868,321					$	1,681,429
Real estate under development/redevelopment:
Balance at beginning of year			$	59,248					$	67,443					$	41,157
Current development			63,597						54,267						67,274
Transfers to operating facilities			(70,565)						(62,462)						(40,988)
Dispositions and other			68						—						—
Balance at end of year			$	52,348					$	59,248					$	67,443
Net non-lease real estate assets			$	9,997,978					$	8,834,649					$	7,893,802

(1) No right-of-use assets related to operating leases are included in the ending net real estate assets information above.

As of December 31, 2022, the aggregate cost of real estate for U.S. federal income tax purposes was $9,886,378.