Item 8. Financial Statements and Supplementary Data

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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)			33
Consolidated Balance Sheets as of December 31, 2023 and 2022			35
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021			36
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021			37
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021			38
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021			41
Notes to Consolidated Financial Statements			42
Schedule III - Real Estate and Accumulated Depreciation			74

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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 29, 2024 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, 2023, the Company completed the acquisition of 771 self-storage properties (“stores”) for a total purchase price of $13.0 billion. As further discussed in Notes 2 and 5 of the consolidated financial statements, the transactions were accounted for as asset acquisitions, and the purchase price was allocated based on a relative fair value of assets acquired and liabilities assumed, which consisted principally of land and buildings.

			Auditing the accounting for the Company’s 2023 acquisitions of stores was subjective because the Company, with the assistance of its external valuation specialist if applicable, had to exercise a high level of management judgment in determining the estimated fair value of acquired land and buildings. Determining the fair value of acquired land was difficult due to the lack of available directly comparable land market information. The estimated fair value of the acquired buildings was based upon the estimated replacement cost, which were calculated by estimating the cost of building similar stores in comparable markets and adjusting those costs for the age, quality, and building characteristics associated with the acquired stores. Determining the fair value of the acquired buildings was challenging due to the judgment utilized by management in determining the significant assumptions utilized in, or the adjustments applied to, the valuation of each building.

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 significant 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 significant assumptions used to develop such estimates.

			For the 2023 store acquisitions described above, our procedures included, but were not limited to, reading the purchase and sale agreements and other closing documents, evaluating whether the Company had appropriately determined the transaction was an asset acquisition or business combination and performing sensitivity analyses. For certain of these store acquisitions, we also evaluated the methods and significant assumptions used by the Company to determine the fair value of the land and buildings and tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Additionally, 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 building replacement cost assumptions.

/s/ Ernst & Young LLP

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

Salt Lake City, Utah

February 29, 2024

Extra Space Storage Inc.

Consolidated Balance Sheets

(dollars in thousands, except share data)


	December 31, 2023		December 31, 2022
Assets:
Real estate assets, net	$	24,555,873	$	9,997,978
Real estate assets - operating lease right-of-use assets	227,241		221,725
Investments in unconsolidated real estate entities	1,071,617		582,412
Investments in debt securities and notes receivable	904,769		858,049
Cash and cash equivalents	99,062		92,868


Other assets, net	597,700		414,426
Total assets	$	27,456,262	$	12,167,458
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	1,273,549	$	1,288,555
Unsecured term loans, net	2,650,581		2,340,116
Unsecured senior notes, net	6,410,618		2,757,791
Revolving lines of credit	682,000		945,000
Operating lease liabilities	236,515		229,035
Cash distributions in unconsolidated real estate ventures	71,069		67,352
Accounts payable and accrued expenses	334,518		171,680
Other liabilities	383,463		289,655
Total liabilities	12,042,313		8,089,184
Commitments and contingencies
Noncontrolling Interests and Equity:
Extra Space Storage Inc. stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 211,278,803 and 133,921,020 shares issued and outstanding at December 31, 2023 and 2022, respectively	2,113		1,339
Additional paid-in capital	14,750,388		3,345,332
Accumulated other comprehensive income	17,435		48,798
Accumulated deficit	(379,015)		(135,872)
Total Extra Space Storage Inc. stockholders' equity	14,390,921		3,259,597
Noncontrolling interest represented by Preferred Operating Partnership units, net	222,360		261,502
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	800,668		557,175
Total noncontrolling interests and equity	15,413,949		4,078,274
Total liabilities, noncontrolling interests and equity	$	27,456,262	$	12,167,458

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Operations

(dollars in thousands, except share data)


	For the Year Ended December 31,
	2023		2022		2021
Revenues:
Property rental	$	2,222,578	$	1,654,735	$	1,340,990
Tenant reinsurance	235,680		185,531		170,108
Management fees and other income	101,986		83,904		66,264
Total revenues	2,560,244		1,924,170		1,577,362
Expenses:
Property operations	612,036		435,342		368,608
Tenant reinsurance	58,874		33,560		29,488
Transaction costs	—		1,548		—
Life Storage Merger transition costs	66,732		—		—
General and administrative	146,408		129,251		102,194
Depreciation and amortization	506,053		288,316		241,879
Total expenses	1,390,103		888,017		742,169
Gain on real estate transactions	—		14,249		140,760
Income from operations	1,170,141		1,050,402		975,953

Interest expense	(419,035)		(219,171)		(166,183)
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes	(18,786)		—		—
Interest income	84,857		69,422		49,703

Income before equity in earnings and dividend income from unconsolidated real estate entities and income tax expense	817,177		900,653		859,473
Equity in earnings and dividend income from unconsolidated real estate entities	54,835		41,428		32,358
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets	—		—		6,251
Income tax expense	(21,559)		(20,925)		(20,324)
Net income	850,453		921,156		877,758
Net income allocated to Preferred Operating Partnership noncontrolling interests	(9,011)		(17,623)		(14,697)
Net income allocated to Operating Partnership and other noncontrolling interests	(38,244)		(42,845)		(35,412)
Net income attributable to common stockholders	$	803,198	$	860,688	$	827,649
Earnings per common share
Basic	$	4.74	$	6.41	$	6.20
Diluted	$	4.74	$	6.41	$	6.19
Weighted average number of shares
Basic	169,216,989		134,050,815		133,374,938
Diluted	169,220,882		141,681,388		140,016,028

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Comprehensive Income

(amounts in thousands)


	For the Year Ended December 31,
	2023		2022		2021
Net income	$	850,453	$	921,156	$	877,758
Other comprehensive income:
Change in fair value of interest rate swaps	(32,752)		96,249		59,325
Total comprehensive income	817,701		1,017,405		937,083
Less: comprehensive income attributable to noncontrolling interests	45,866		65,373		52,887
Comprehensive income attributable to common stockholders	$	771,835	$	952,032	$	884,196

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, 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 combinations				—		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 combinations				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 (loss)				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


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, 2022				$	261,502	$	556,095	$	1,080	133,921,020	$	1,339	$	3,345,332	$	48,798	$	(135,872)	$	4,078,274

Issuance of common stock in connection with share based compensation				—		—		—		149,995	2		26,636		—		—		26,638
Taxes paid upon net settlement of share based compensation				—		—		—		(8,295)	—		(7,640)		—		—		(7,640)
Restricted stock grants cancelled				—		—		—		(10,084)	—		—		—		—		—

Redemption of Operating Partnership units for stock				—		(225)		—		2,803	—		225		—		—		—
Redemption of Operating Partnership units for cash				—		(89)		—		—	—		(19)		—		—		(108)
Redemption of Preferred A Units in the Operating Partnership for stock and cash				(16,339)		—		—		851,698	8		11,015		—		—		(5,316)


Redemption of Preferred D Units in the Operating Partnership for stock				(22,265)		—		—		154,307	2		22,263		—		—		—
Redemption of Preferred D Units in the Operating Partnership for cash				(377)		—		—		—	—		—		—		—		(377)


Life Storage Merger issuance of common stock and Operating Partnership units				—		249,470		—		76,217,359	762		11,352,576		—		—		11,602,808






Noncontrolling interest in consolidated joint ventures				—		—		7,959		—	—		—		—		—		7,959
Net income (loss)				9,011		38,369		(125)		—	—		—		—		803,198		850,453
Other comprehensive loss				—		(1,389)		—		—	—		—		(31,363)		—		(32,752)
Distributions to Operating Partnership units held by noncontrolling interests				(9,172)		(50,477)		—		—	—		—		—		—		(59,649)
Dividends paid on common stock at $6.48 per share				—		—		—		—	—		—		—		(1,046,341)		(1,046,341)
Balances at December 31, 2023				$	222,360	$	791,754	$	8,914	211,278,803	$	2,113	$	14,750,388	$	17,435	$	(379,015)	$	15,413,949

See accompanying notes

Extra Space Storage Inc.

Consolidated Statements of Cash Flows

(amounts in thousands)


	For the Year Ended December 31,
	2023		2022		2021
Cash flows from operating activities:
Net income	$	850,453	$	921,156	$	877,758
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	506,053		288,316		241,879
Amortization of deferred financing costs	18,949		8,773		10,587
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes	18,786		—		—

Compensation expense related to share-based awards	26,638		21,386		17,303
Accrual of interest income added to principal of debt securities and notes receivable	(37,907)		(38,412)		(34,550)
Gain on real estate transactions	—		(14,249)		(140,760)
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets	—		—		(6,251)
Distributions from unconsolidated real estate ventures	20,060		13,162		7,035
Changes in operating assets and liabilities:

Other assets	(32,507)		695		(22,022)
Accounts payable and accrued expenses	35,031		29,027		10,951
Other liabilities	(3,082)		8,285		(9,494)
Net cash provided by operating activities	1,402,474		1,238,139		952,436
Cash flows from investing activities:
Acquisition of real estate assets and improvements	(320,711)		(1,291,491)		(1,233,298)
Life Storage Merger, net of cash acquired	(1,182,411)		—		—
Cash paid for business combination	—		(157,302)		—
Development and redevelopment of real estate assets	(100,181)		(62,019)		(56,226)
Proceeds from sale of real estate assets and investments in real estate ventures	2,132		39,367		572,728

Investment in unconsolidated real estate entities	(180,279)		(118,963)		(54,602)
Return of investment in unconsolidated real estate ventures	—		342		31,534
Issuance and purchase of notes receivable	(330,499)		(529,245)		(317,482)

Proceeds from sale of notes receivable	167,495		210,048		172,002
Principal payments received from notes receivable	142,192		283,636		51,463
Purchase of equipment and fixtures	(15,994)		(22,832)		(3,659)
Net cash used in investing activities	(1,818,256)		(1,648,459)		(837,540)
Cash flows from financing activities:
Proceeds from the sale of common stock, net of offering costs	—		—		273,189
Proceeds from unsecured term loans and senior notes and revolving lines of credit	8,663,003		5,584,111		5,706,981
Principal payments on unsecured term loans and senior notes and revolving lines of credit	(7,088,984)		(4,207,700)		(5,500,290)


Deferred financing costs	(39,418)		(9,321)		(10,698)

Proceeds from principal payments on note receivable collateralized by OP Units	—		—		411
Net proceeds from exercise of stock options	—		—		4,572
Repurchase of common stock	—		(63,008)		—
Redemption of Preferred OP units for cash	(5,377)		(4,500)		—
Redemption of Operating Partnership units for cash	(108)		(4,617)		(788)
Contributions from noncontrolling interests	74		—		—
Distributions to minority investors	(70)		—		—
Dividends paid on common stock	(1,046,341)		(805,311)		(600,994)
Distributions to noncontrolling interests	(59,649)		(57,793)		(39,094)
Net cash provided by (used in) financing activities	423,130		431,861		(166,711)
Net increase (decrease) in cash, cash equivalents, and restricted cash	7,348		21,541		(51,815)
Cash, cash equivalents, and restricted cash, beginning of the period	97,735		76,194		128,009
Cash, cash equivalents, and restricted cash, end of the period	$	105,083	$	97,735	$	76,194
Cash and equivalents, including restricted cash at the beginning 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
Cash and equivalents, including restricted cash at the end of the period:
Cash and equivalents	$	99,062	$	92,868	$	71,126
Restricted cash included in other assets	6,021		4,867		5,068
	$	105,083	$	97,735	$	76,194
Supplemental schedule of cash flow information
Interest paid	$	338,552	$	197,069	$	152,170
Income taxes paid	$	22,753	$	18,957	$	26,252
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	$	(116,336)	$	—	$	(6,373)
Common stock and paid-in capital	16,336		—		6,373



Noncontrolling interests in Operating Partnership Note Receivable Payoff	100,000		—		—

Redemption of Preferred Operating Partnership units for common stock
Preferred Operating Partnership units	$	(33,604)	$	—	$	(2,834)
Additional paid-in capital	33,604		—		2,834



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	$	265	$	16,298	$	6,655
Operating lease liabilities	(265)		(16,298)		(6,655)

Acquisitions of real estate assets
Real estate assets, net	$	—	$	171,703	$	318,036
Value of equity issued	—		(165,965)		(276,393)
Net liabilities assumed	—		—		(20,028)
Investment in unconsolidated real estate ventures	—		1,085		5,383
Finance lease liability	—		(6,823)		(26,998)
Life Storage Merger real estate assets
Real estate assets, net	$	13,575,501	$	—	$	—
Value of common stock issued	(11,353,338)		—		—
Unsecured senior notes	(2,106,866)		—		—
Value of OP units issued	(249,470)		—		—
Net liabilities assumed	(191,077)		—		—
Investment in unconsolidated real estate ventures	325,250		—		—
Accrued construction costs and capital expenditures
Acquisition of real estate assets	$	10,508	$	368	$	1,323

Accounts payable and accrued expenses	(10,508)		(368)		(1,323)



Establishment of finance lease assets and lease liabilities
Real estate assets, net	$	—	$	—	$	67,992
Other liabilities	—		—		(67,992)

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, 2023, the Company had direct and indirect equity interests in 2,377 storage facilities. In addition, the Company managed 1,337 stores for third parties bringing the total number of stores which it owns and/or manages to 3,714. These stores are located in 42 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, 2023 the Company determined in addition to its operating partnership that it had one consolidated joint venture VIE, consisting of one store.

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, 2023, 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, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall.


			Fair Value Measurements at Reporting Date Using
Description	December 31, 2023		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	$	26,183	$	—	$	26,183	$	—
Other liabilities - Cash flow hedge swap agreements	$	5,030	$	—	$	5,030	$	—

There were no transfers of assets and liabilities between Level 1 and Level 2 during the year ended December 31, 2023. 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, 2023 or 2022.

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, 2023 and 2022, 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, 2023 and 2022, 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, 2023				December 31, 2022
	Fair Value		Carrying Value		Fair Value		Carrying Value
Notes receivable from Preferred and Common Operating Partnership unit holders	$	1,886	$	1,900	$	95,965	$	101,900
Fixed rate notes receivable	$	—	$	—	$	5,191	$	5,241
Fixed rate debt	$	7,482,054	$	8,048,605	$	4,320,014	$	4,762,196

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 nine 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") and Strategic Storage Trust VI, Inc. ("Strategic Storage"), an affiliate of 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, 2023.

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.

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.

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

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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. Each tenant chooses the amount of insurance coverage they want through the tenant reinsurance program. Tenants can purchase policies in amounts up to 10,000 dollars of insurance coverage in exchange for a monthly fee. As of December 31, 2023, the total number of tenant insurance policies was 1.0 million, which was an aggregate coverage of approximately $3.0 billion. The Company’s exposure per claim is limited by the maximum amount of coverage chosen by each tenant.

Advertising Costs

The Company incurs advertising costs primarily attributable to digital and other advertising. These costs are expensed as incurred. The Company recognized $32,795, $19,285 and $18,793 in advertising expense for the years ended December 31, 2023, 2022 and 2021, 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, 2023, 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.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. At December 31, 2023 and 2022, 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, 2023 and 2022, the Company had no interest or penalties related to uncertain tax provisions.

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 $142.16 for the year ended December 31, 2023.

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,
	2023	2022	2021
	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)
Common OP Units	7,970,487	—	—

Series B Units	236,130	187,664	246,618
Series D Units	1,332,049	1,140,513	726,037
	9,538,666	1,328,177	972,655

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,
	2023		2022		2021
Net income attributable to common stockholders	$	803,198	$	860,688	$	827,649
Earnings and dividends allocated to participating securities	(1,230)		(1,201)		(1,183)
Earnings for basic computations	801,968		859,487		826,466

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	$	801,968	$	907,905	$	867,271

Weighted average common shares outstanding:
Average number of common shares outstanding - basic	169,216,989		134,050,815		133,374,938
OP Units	—		6,749,995		5,752,902
Series A Units	—		875,480		875,480



Shares related to dilutive stock options	3,893		5,098		12,708
Average number of common shares outstanding - diluted	169,220,882		141,681,388		140,016,028
Earnings per common share
Basic	$	4.74	$	6.41	$	6.20
Diluted	$	4.74	$	6.41	$	6.19

Recently Issued Accounting Standards

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 had 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

3. REAL ESTATE ASSETS

The components of real estate assets are summarized as follows:


	December 31, 2023		December 31, 2022
Land	$	4,904,705	$	2,356,746
Buildings, improvements and other intangibles	21,664,224		9,425,468
Right of use asset - finance lease	143,842		136,259
Intangible assets - tenant relationships	321,019		152,775
Intangible lease rights	27,743		12,943
	27,061,533		12,084,191
Less: accumulated depreciation and amortization	(2,624,405)		(2,138,524)
Net operating real estate assets	24,437,128		9,945,667
Real estate under development/redevelopment	118,745		52,311
Real estate assets, net	$	24,555,873	$	9,997,978
Real estate assets held for sale included in real estate assets, net	$	—	$	—

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 $59,807, $13,981, and $4,778 for the years ended December 31, 2023, 2022 and 2021, respectively. The remaining balance of the unamortized lease rights will be amortized over the next five to 39 years. Accumulated amortization related to intangibles was 317,511 and 144,144 as of December 31, 2023 and 2022, respectively.

4. OTHER ASSETS

The components of other assets are summarized as follows:


	December 31, 2023		December 31, 2022
Goodwill	$	170,811	$	170,811
Receivables, net	134,716		85,937
Prepaid expenses and deposits	85,153		50,318
Other intangible assets, net	66,332		—
Trade name	50,000		—
Fair value of interest rate swaps	26,183		54,839
Equipment and fixtures, net	48,697		42,808
Deferred line of credit financing costs, net	9,787		4,846
Restricted cash	6,021		4,867
	$	597,700	$	414,426

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, 2023 and 2022, unamortized software costs were $18,844 and $23,165. During the year ended December 31, 2023 and 2022, the Company recorded amortization expense of $5,377 and $5,147, respectively, relating to capitalized software costs.

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

The Life Storage Merger

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

Consideration and Purchase Price Allocation

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


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

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


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

Fair Value Measurement

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

Real estate assets – Real estate assets acquired were recorded at fair value using standard valuation methodologies, including the cost and market approaches. The remaining useful lives for real estate assets, excluding land, were reset to 39 years. Tenant relationships for storage leases were recorded at fair value based on estimated costs the Company

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

avoided to replace them. Tenant relationships are amortized to expense over 18 months, which is based on the Company’s historical experience with turnover in its stores.

Equity investment in joint venture partnerships - Equity investment in joint venture partnerships were recorded at fair value based on a direct capitalization of net operating income.
Intangible assets - other – Customer relationships relating to tenant reinsurance contracts were recorded at fair value based on the income approach which estimates the potential revenue loss the Company avoided to replace them. These assets are amortized to expense over 36 months, which is based on the Company’s historical experience with average length of stay for tenants.
Trade name – Trade names were recorded at fair value based on royalty payments avoided had the trade name been owned by a third party. This is determined using market royalty rates and a discounted cash flow analysis under the relief-from-royalty method. This method incorporates various assumptions, including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. The trade name is an indefinite lived asset and as such is not amortized.
Unsecured senior notes – Unsecured senior notes were recorded at fair value using readily available market data. The below-market value of debt is recorded as a debt discount and reported as a reduction of the unsecured senior notes balance on the condensed consolidated balance sheets. The discount is amortized using effective interest method as an increase to interest expense over the remaining terms of the unsecured senior notes.
Other assets and liabilities – the carrying values of cash, accounts receivable, prepaids and other assets, accounts payable, accrued expenses and other liabilities represented the fair values.


	December 31, 2023				Three Months Ended December 31, 2023		For the Year Ended December 31, 2023
Intangible Assets:	Gross Carrying Amount		Accumulated Amortization		Amortization Expense		Amortization Expense
Trade name	$	50,000	$	—	$	—	$	—
Intangible assets - other	82,000		15,695		9,417		15,695
	132,000		15,695		9,417		15,695


	Estimated Aggregate Amortization Expense
Intangible Assets:	2024		2025		2026
Trade name	$	—	$	—	$	—
Intangible assets - other	23,375		19,833		11,569
	$	23,375	$	19,833	$	11,569

Store Acquisition

The following table shows the Company’s acquisitions of stores for the years ended December 31, 2023 and 2022. 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 2023	14	$	147,729	$	135,577	$	12,000	$	—	$	—	$	152	$	—		$	147,729




Total 2022	153	$	1,366,348	$	1,193,261	$	—	$	6,823	$	1,085	$	(786)	$	165,965		$	1,366,348

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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:


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

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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, 2022 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 and Strategic Storage, an affiliate of SmartStop, and the Company's noncontrolling interest in real estate joint ventures that own stores. The Company accounts for its investments in SmartStop and Strategic Storage preferred stock, which do not have a readily determinable fair value, at the transaction price less impairment, if any. The Company accounts for its investments in joint ventures using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which is allocated in accordance with the provisions of the applicable partnership or joint venture agreement.

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

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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,
		2023		2022
PRISA Self Storage LLC	85		4%		4%	$	9,435	$	8,596
HF1 Sovran HHF Storage Holdings LLC	37		20%		20%	105,339		—
Storage Portfolio II JV LLC	36		10%		30%	(8,314)		(7,200)
Storage Portfolio IV JV LLC	32		10%		30%	48,184		49,139
Storage Portfolio I LLC	24		34%		49%	(42,487)		(41,372)
PR II EXR JV LLC	23		25%		25%	108,160		110,172
HF2 Sovran HHF Storage Holdings II LLC	22		15%		15%	41,613		—
HF5 Life Storage-HIERS Storage LLC	17		20%		20%	26,051		—
HF6 191 V Life Storage Holdings LLC	17		20%		20%	12,702		—
ESS-CA TIVS JV LP	16		55%		55%-65%	29,128		30,778
VRS Self Storage, LLC	16		45%		54%	(16,386)		(15,399)
HF10 Life Storage HHF Wasatch Holdings LLC	16		20%		20%	20,019		—
Other unconsolidated real estate ventures	131		10%-50%		10%-50%	317,104		180,346
SmartStop Self Storage REIT, Inc. Preferred Stock (2)	n/a		n/a		n/a	200,000		200,000
Strategic Storage Trust VI, Inc. Preferred Stock (3)	n/a		n/a		n/a	150,000		—
Net Investments in and Cash distributions in unconsolidated real estate entities	472					$	1,000,548	$	515,060

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

(2)In October 2019, the Company invested $200,000 in shares of convertible preferred stock of SmartStop with a dividend rate of 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 condensed consolidated statements of operations.

(3)In May 2023, the Company invested $150,000 in shares of convertible preferred stock of Strategic Storage with a dividend rate of 8.35% per annum, subject to increase after five years. The preferred shares are generally not redeemable for three years, except in the case of a change of control or initial listing of Strategic Storage. 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 condensed consolidated statements 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.

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, 2023, there were no previously unconsolidated entities that were required to be consolidated as a result of this review.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company entered into 17 new unconsolidated real estate joint ventures (including 16 from the Life Storage Merger), which added a total of 146 stores and a total investment of $305,921 to the Company's portfolio during the year ended December 31, 2023. Additionally, the Company's existing joint ventures added nine stores for a total investment of $27,583 during the year ended December 31, 2023. 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,
	2023		2022		2021
Equity in earnings of PRISA Self Storage LLC	$	3,320	$	3,272	$	2,719
Equity in earnings of HF1 Sovran HHF Storage Holdings LLC (1)	1,553		—		—
Equity in earnings of Storage Portfolio II JV LLC	3,094		3,398		1,802
Equity in earnings of Storage Portfolio IV JV LLC	1,319		917		112
Equity in earnings of Storage Portfolio I LLC	5,182		4,684		2,833
Equity in earnings of PR II EXR JV LLC	2,227		1,229		(8)
Equity in earnings of HF2 Sovran HHF Storage Holdings II LLC (1)	691		—		—
Equity in earnings of HF5 Life Storage-HIERS Storage LLC (1)	377		—		—
Equity in earnings of HF6 191 V Life Storage Holdings LLC (1)	(735)		—		—
Equity in earnings of ESS-CA TIVS JV LP	3,873		2,753		1,274
Equity in earnings of VRS Self Storage, LLC	5,253		5,401		4,352
Equity in earnings of HF10 Life Storage HHF Wasatch Holdings LLC (1)	40		—		—
Equity in earnings of other minority owned stores (1)	7,740		7,265		6,774
Dividend income from SmartStop preferred stock	12,500		12,509		12,500
Dividend income from Strategic Storage preferred stock	8,401		—		—

	$	54,835	$	41,428	$	32,358

(1)The earnings of the 16 joint ventures from the Life Storage Merger are from the close of acquisition on July 20, 2023.

Equity in earnings of certain of our joint ventures includes the amortization of the Company’s excess purchase price of $60,253 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, 2023, 2022 and 2021 were $31,755, $24,389 and $17,619, 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 follows:


	December 31, 2023		December 31, 2022
Debt securities - Preferred Stock	$	300,000	$	300,000
Notes Receivable - Bridge Loans	594,727		491,879

Dividends and Interest Receivable	10,042		66,170
	$	904,769	$	858,049

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

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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 and evaluates whether the fair value is below the amortized cost basis at each reporting period. 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, which are collateralized by self-storage properties, and unsecured mezzanine loans receivable. As of December 31, 2023, 70% of the notes held are mortgage receivables. The Company intends to sell a portion of the mortgage receivables. These notes receivable typically have a term of three years with two one-year extensions, and have variable interest rates. During the year ended December 31, 2023, the Company sold a total principal amount of $167,495 of its mortgage bridge loans receivable to third parties for a total of $167,495 in cash, closed on $283,039 in initial loan draws, and recorded $27,366 of draws from interest holdbacks.

The bridge loans typically have a loan to value ratio between 70% and 80%. None of the debt securities or notes receivable are in past-due or nonaccrual status and the allowance for potential credit losses is immaterial.

8. DEBT

The components of term debt are summarized as follows:


Term Debt	December 31, 2023		December 31, 2022		Fixed Rate	Variable Rate (2)	Maturity Dates
Secured fixed-rate (1)	$	401,319	$	521,820	2.67% - 4.62%		April 2025 - February 2030
Secured variable-rate (1)	877,786		772,604			6.35% - 6.88%	November 2024 - September 2030
Unsecured fixed-rate	7,921,633		4,240,376		2.08% - 5.90%		January 2025 - March 2032
Unsecured variable-rate	1,463,367		884,624			6.30% - 6.63%	June 2024 - July 2029
Total	10,664,105		6,419,424
Less: Discount on unsecured senior notes (3)	(274,350)		—
Less: Unamortized debt issuance costs	(55,007)		(32,962)
Total	$	10,334,748	$	6,386,462

(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents.
(2) Basis rates include Term SOFR and Daily Simple SOFR
(3) Unsecured senior notes from the Life Storage Merger were recorded at fair value, resulting in a discount to be amortized over the term of the debt.

The following table summarizes the scheduled maturities of term debt, excluding available extensions, at December 31, 2023:

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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



2024	648,250
2025	1,123,120
2026	1,409,581
2027	1,316,907
2028	1,029,000
2029	1,542,759
2030	1,344,488
2031	1,650,000
2032	600,000

Total	$	10,664,105

On June 22, 2023, the Company entered into the Third Amended and Restated Credit Agreement (the "Credit Agreement") which increased the commitment of the revolving credit facility to $1,940,000, and later to $2,000,000 with an Increasing Lender Supplement entered into in August 2023, and extended its maturity to June 2027. In connection with entering into the Credit Agreement, the Company paid off Tranche 5 and added the Tranche 8 term loan, maturing June 2024, which allowed the Company to draw up to $1,000,000 in connection with the Life Storage Merger. Tranche 8 was fully drawn on July 20, 2023, in connection with the closing of the Life Storage Merger, paid down to $400,000 in December 2023, and fully paid off in January 2024.

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, 2023, amounts outstanding under the revolving credit facility bore interest at floating rates, at the Company’s option, equal to either (i) Adjusted Term or Daily Simple SOFR 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 2.2% per annum and the applicable base rate margin ranging from 0.00% to 1.20% 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, 2023, the Company was in compliance with all of its financial covenants.

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, 2023
Revolving Lines of Credit	Amount Drawn		Capacity		Interest Rate	Maturity	Basis Rate (1)
Credit Line 1 (2)	$	40,000	$	140,000	6.7%	7/1/2026	SOFR plus 1.35%
Credit Line 2 (3)(4)	642,000		2,000,000		6.3%	6/22/2027	ASOFR plus 0.775%
	$	682,000	$	2,140,000

(1) 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 extension of one year available.
(3) Unsecured. On June 22, 2023, the maturity date was extended to June 22, 2027 with two six-month extensions available. On August 11, 2023, the capacity was increased by $60 million.
(4) Basis Rate as of December 31, 2023. Rate is subject to change based on the Company's investment grade rating.

As of December 31, 2023, the Company’s percentage of fixed-rate debt to total debt was 73.4%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 3.9% and 6.6%, respectively. The combined weighted average interest rate was 4.6%.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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 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, 2023, 2022 and 2021, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During 2024, the Company estimates that $19,010 will be reclassified as a decrease to interest expense.

The following table summarizes the terms of the Company’s 15 active and four forward-starting derivative financial instruments, which have a total combined current notional amount of $1,448,566 as of December 31, 2023:


Hedge Product						Range of Notional Amounts						Strike						Effective Dates						Maturity Dates
Swap Agreements						$32,000 - $245,000						0.96% - 4.33%						6/27/2018 - 7/14/2025						1/29/2024 - 2/1/2028

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, 2023		December 31, 2022
Other assets	$	26,183	$	54,839
Other liabilities	$	5,030	$	73

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 (loss) recognized in OCI for the Year Ended December 31,				Location of amounts reclassified from OCI into income	Gain (loss) reclassified from OCI for the Year Ended December 31,
Type	2023		2022		2023	2022		2021
Swap Agreements	$	8,730	$	88,372	Interest expense	$	41,541	$	(7,877)	$	(35,764)

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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, 2023, 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 $5,082. As of December 31, 2023, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2023, it could have been required to cash settle its obligations under these agreements at their termination value of $5,082.

10. 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, 2023, 211,278,803 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, 2023, the Company sold no shares of common stock.

On July 20, 2023, the Company issued 76,217,359 shares of its common stock for a total value of $11,353,338. This was based on an exchange ratio of 0.895 per share conversion of Life Storage common stock at the Company's closing share price on July 19, 2023 of $148.96 as part of the Life Storage Merger.

On January 7, 2022, the Company issued 186,766 shares of its common stock to acquire two stores for $40,965.

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 November 13, 2023, the Company's board of directors authorized a share repurchase program allowing for the repurchase of shares with an aggregate value up to $500,000. During the year ended December 31, 2023, no shares were repurchased. As of December 31, 2023, the Company had remaining authorization to repurchase shares with an aggregate value up to $500,000.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

11. 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, 2023 and 2022, 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, 2023 and 2022, 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, 2023 and 2022, 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, 2023		December 31, 2022
Series A Units	$	—	$	16,498
Series B Units	33,567		33,568
Series D Units	188,793		211,436
	$	222,360	$	261,502

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 redemption obligation for all outstanding Series A Units was satisfied in $5,000 cash and 851,698 shares of its common stock, which was net of the noncash settlement of the $100,000 loan. As a

result of this redemption, no Series A Units were outstanding as of December 31, 2023.

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 $33,567 which represents 1,342,727 Series B Units outstanding at December 31, 2023. 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.

Series C Convertible Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series C Units. The Series C Units ranked

junior to the Series A Units, on parity with the Series B Units and Series D Units, and senior to all other partnership interests of

the Operating Partnership with respect to distributions and liquidation. As of December 31, 2023 and December 31, 2022, there were no outstanding Series C Units.

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 $188,793 which represents 7,551,735 Series D Units outstanding at December 31, 2023. 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.

In January 2023, 890,594 Series D units were redeemed for 154,307 shares of common stock. In November 2023, 15,093 Series D units were redeemed for cash of $377.

The Series D Units have been issued at various times from 2014 to 2022. On June 1, 2022, the Operating Partnership

issued a total of 240,000 Series D Units valued at $6,000 in connection with the acquisition of Bargold.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

12. 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 95.2% majority ownership interest in the Operating Partnership as of December 31, 2023. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 4.8% are held by certain former owners of assets acquired by the Operating Partnership. As of December 31, 2023 and 2022, 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, 2023, the ten-day average closing stock price was $156.68 and there were 8,885,594 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on December 31, 2023 and the Company elected to pay the OP Unit holders cash, the Company would have paid $1,392,195 in cash consideration to redeem the units.

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


	For the Year Ended December 31,
	2023		2022		2021
OP Units redeemed for common stock	2,803		—		165,652
OP Units redeemed for cash	1,000		24,824		4,500
Cash paid for OP Units redeemed	$	108	$	4,617	$	788
OP Units issued in conjunction with business combination and acquisitions	1,674,748		711,037		897,803
Value of OP Units issued in conjunction with business combination and acquisitions	$	249,470	$	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 nine consolidated joint ventures as of December 31, 2023. These joint ventures have ownership in 12 stores; two are operating and the remaining are under development. The voting interests of the partners are 31% or less.

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

13. 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, 2023, the Company recorded no new finance lease right-of-use assets and finance lease liabilities.

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

Leases of real estate at 65 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 18 regional offices. These leases have original lease terms between three 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,
	2023			2022

Finance lease cost:
Amortization of finance lease right-of-use assets	$	3,961		$	3,751
Interest expense related to finance lease liabilities	4,483			4,018
Operating lease cost	35,783			32,182
Variable lease cost	11,632			11,287
Short-term lease cost	24			32
Total lease cost	$	55,883		$	51,270

Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows for finance lease payments	$	4,483		$	4,018
Operating cash outflows for operating lease payments	29,234			25,384

Total cash flows for lease liability measurement	$	33,717		$	29,402

Right-of-use assets obtained in exchange for new operating lease liabilities	$	265		$	16,298
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—		$	6,823

Weighted average remaining lease term - finance leases (years)	54.00			54.16
Weighted average remaining lease term - operating leases (years)	18.68			20.03
Weighted average discount rate - finance leases	3.31		%	3.31		%
Weighted average discount rate - operating leases	3.91		%	3.65		%

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
2024	$	34,983	$	6,542	$	41,525
2025	34,919		6,572		41,491
2026	35,245		6,715		41,960
2027	35,635		6,842		42,477
2028	36,194		6,953		43,147
Thereafter	131,194		353,983		485,177
Total	$	308,170	$	387,607	$	695,777
Present value adjustments	(71,655)		(244,004)		(315,659)
Lease liabilities	$	236,515	$	143,603	$	380,118

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.

14. STOCK-BASED COMPENSATION

As of December 31, 2023, 477,624 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.

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, 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

Exercised	—	—

Outstanding at December 31, 2023	9,272	$	82.47	1.98	$1,338

Vested	9,272	$	82.47	1.98	$1,338
Ending Exercisable	9,272	$	82.47	1.98	$1,338

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 2023 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, 2023. 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, 2023, 2022 and 2021 was $0, $0 and $3,925, 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, 2023, 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, 2023, 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	1.15	$	65.36	1,582	$	65.36
$85.99 - $85.99	7,690	2.15	85.99		7,690	85.99

The Company recorded no compensation expense relating to outstanding options in general and administrative expense for the years ended December 31, 2023, 2022 and 2021. Net proceeds received for the years ended December 31, 2023, 2022 and 2021, related to option exercises was $0, $0 and $4,572, respectively. At December 31, 2023, 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 $14,205, $12,086 and $9,260 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, 2023, 2022 and 2021, respectively. The forfeiture rate, which is estimated at a weighted-average of 10.0% of unvested awards outstanding as of December 31, 2023, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates. At December 31, 2023 there was $20,222 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 2.09 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, 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
Granted	98,263	158.04
Released	(90,662)	147.21
Cancelled	(10,084)	165.36
Unreleased at December 31, 2023	205,577	$	162.81

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, 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
Granted	86,795	207.28
Released	(45,242)	$	162.18
Unvested at December 31, 2023	188,712	$	158.32

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company recorded $12,433, $9,299 and $8,043 of expense in general and administrative expense in its statement of operations related to PSUs granted to employees for the years ended December 31, 2023, 2022 and 2021, 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,
	2023	2022	2021
Intrinsic value	$30,256	$21,659	$30,701
Risk-free rate	4.6%	1.8%	0.22%
Volatility	29.3%	29.3%	28.5%
Expected term (in years)	2.8	2.9	2.9
Dividend yield	—%	—%	—%
Unrecognized compensation cost	$18,798	$13,241	$8,859
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, 2023 noted above does not necessarily represent the expense that will ultimately be realized by the Company in the statement of operations.

15. 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, 2023, 2022 and 2021, the Company made matching contributions to the plan of $6,576, $5,169, and $4,239 respectively, based on 100% of the first 3% and up to 50% of the next 2% of an employee’s compensation.

16. 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 were 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, 2023, 2022 and 2021, is comprised of the following components:


	For the Year Ended December 31, 2023
	Federal		State		Total
Current expense	$	26,516	$	6,035	$	32,551
Tax credits/true-up	(7,742)		—		(7,742)
Change in deferred expense/(benefit)	(4,151)		901		(3,250)
Total tax expense	$	14,623	$	6,936	$	21,559


	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	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 benefit	818		86		904
Total tax expense	$	16,856	$	3,468	$	20,324

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,
	2023				2022				2021
Expected tax at statutory rate	$	183,111	21.0	%	$	197,887	21.0	%	$	188,600	21.0	%
Non-taxable REIT income	(161,316)		(18.5)	%	(172,966)		(18.4)	%	(166,137)		(18.5)	%
State and local tax expense - net of federal benefit	8,779		1.0	%	4,160		0.4	%	3,259		0.4	%
Change in valuation allowance	(1,148)		(0.1)	%	(1,093)		(0.1)	%	(1,061)		(0.1)	%
Tax credits/true-up	(7,742)		(0.9)	%	(6,040)		(0.6)	%	(5,117)		(0.6)	%

Miscellaneous	(125)		—	%	(1,023)		(0.1)	%	780		0.1	%
Total provision	$	21,559	2.5	%	$	20,925	2.2	%	$	20,324	2.3	%

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, 2023		December 31, 2022
Deferred tax liabilities:
Fixed assets	$	(36,572)	$	(32,551)
Operating and Finance lease right-of-use assets	(6,831)		(6,610)
Other	(37)		(48)
State deferred taxes	(4,564)		(3,607)
Captive insurance subsidiary	(10,760)		—
Total deferred tax liabilities	(58,764)		(42,816)

Deferred tax assets:
Captive insurance subsidiary	509		335
Accrued liabilities	3,015		2,541
Stock compensation	3,961		3,467

Operating and Finance lease liabilities	9,013		8,418

Other	502		48
State deferred taxes	2,581		5,232
Total deferred tax assets	19,581		20,041

Valuation allowance	—		(1,148)

Net deferred income tax liabilities	$	(39,183)	$	(23,923)

The state income tax net operating losses expire between 2024 and 2043. The valuation allowance associated with the state income tax net operating losses was released in 2023. The tax years 2019 through 2022 remain open related to the state returns, and 2020 through 2022 for the federal returns.

17. 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,
	2023		2022		2021
Revenues:
Self-Storage Operations	$	2,222,578	$	1,654,735	$	1,340,990
Tenant Reinsurance	235,680		185,531		170,108
Total segment revenues	$	2,458,258	$	1,840,266	$	1,511,098

Operating expenses:
Self-Storage Operations	$	612,036	$	435,342	$	368,608
Tenant Reinsurance	58,874		33,560		29,488
Total segment operating expenses	$	670,910	$	468,902	$	398,096

Net operating income:
Self-Storage Operations	$	1,610,542	$	1,219,393	$	972,382
Tenant Reinsurance	176,806		151,971		140,620
Total segment net operating income:	$	1,787,348	$	1,371,364	$	1,113,002

Total segment net operating income	$	1,787,348	$	1,371,364	$	1,113,002
Other components of net income:
Property management fees and other income	101,986		83,904		66,264
Transaction costs	—		(1,548)		—
Life Storage Merger transition costs	(66,732)		—		—
General and administrative expense	(146,408)		(129,251)		(102,194)
Depreciation and amortization expense	(506,053)		(288,316)		(241,879)
Gain on real estate transactions	—		14,249		140,760

Interest expense	(419,035)		(219,171)		(166,183)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(18,786)		—		—
Interest income	84,857		69,422		49,703

Equity in earnings and dividend income from unconsolidated real estate entities	54,835		41,428		32,358
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets	—		—		6,251
Income tax expense	(21,559)		(20,925)		(20,324)
Net income	$	850,453	$	921,156	$	877,758

18. COMMITMENTS AND CONTINGENCIES

As of December 31, 2023, the Company was under agreement to acquire 8 stores at a total purchase price of $73,811. Eight stores are scheduled to close in 2024 and none are scheduled to close in 2025. Additionally, the Company is under agreement to acquire two stores in 2024 with joint venture partners, for a total investment of $2,764.

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

EXTRA SPACE STORAGE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material 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, 2023, 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, 2023


						Building and Improvements Initial Cost		Adjustments and Costs to Land and Building Subsequent to Acquisition		Gross carrying amount at December 31, 2023
Self - Storage Facilities by State:	Store Count			Land Initial Cost				Building and Improvements				Accumulated Depreciation
Debt	Land	Total
AL	37	$	5,686	$	52,358	$	380,499	$	5,593	$	52,356	$	386,094	$	438,450	$	18,152
AZ	46	22,349		135,775		523,811		14,566		135,774		538,378		674,152		44,843
CA	218	328,992		921,260		2,322,145		250,704		919,806		2,574,302		3,494,108		436,926
CO	27	26,374		49,985		192,497		20,004		50,703		211,783		262,486		33,009
CT	23	6,399		43,453		373,628		6,530		43,452		380,158		423,610		18,276
FL	245	167,386		672,426		2,894,604		122,780		674,576		3,015,234		3,689,810		239,687
GA	119	78,837		303,954		1,179,911		47,713		303,941		1,227,636		1,531,577		123,363
HI	14	—		29,836		160,978		22,962		29,836		183,939		213,775		43,351
ID	2	—		4,047		25,235		59		4,047		25,294		29,341		812
IL	105	16,231		210,472		1,107,463		43,952		209,924		1,151,964		1,361,888		82,109
IN	91	—		64,531		494,467		14,626		64,875		524,169		589,044		34,445
KS	1	—		366		1,897		1,150		366		3,047		3,413		1,555
KY	15	30,470		10,026		88,389		21,129		10,799		108,745		119,544		21,462
LA	10	—		16,673		126,604		5,591		16,674		132,194		148,868		8,844
MA	64	39,808		120,291		534,152		65,286		120,472		599,257		719,729		123,019
MD	44	74,081		157,195		450,952		36,025		156,605		487,567		644,172		111,043
ME	5	—		2,352		86,339		195		2,352		86,534		88,886		926
MI	8	4,301		10,900		63,388		6,630		10,900		70,018		80,918		13,061
MN	8	—		14,925		104,513		6,940		14,925		111,453		126,378		10,240
MO	28	—		31,800		347,070		8,250		31,758		355,362		387,120		13,743
MS	7	—		9,053		82,098		1,977		9,052		84,076		93,128		5,559
NC	52	—		93,492		557,728		14,431		93,489		572,161		665,650		32,134
NH	17	—		50,952		195,719		1,735		51,015		197,391		248,406		5,097
NJ	88	99,207		308,001		1,071,004		70,630		313,354		1,136,281		1,449,635		209,349
NM	11	25,153		31,826		68,779		6,909		31,826		75,689		107,515		17,000
NV	33	30,458		97,497		469,028		9,504		97,497		478,532		576,029		23,846
NY	79	12,895		340,256		1,195,359		66,207		340,991		1,260,831		1,601,822		105,190
OH	50	10,140		71,460		388,236		13,917		71,459		402,154		473,613		24,721
OK	4	—		3,917		28,534		159		3,917		28,693		32,610		429
OR	8	23,904		15,066		68,044		2,938		15,066		70,982		86,048		14,126
PA	31	10,635		57,671		356,325		29,609		56,997		386,607		443,604		46,425
RI	6	3,712		6,132		55,033		1,793		6,131		56,827		62,958		4,517
SC	40	27,701		65,032		385,333		13,408		65,036		398,737		463,773		41,190
TN	29	44,491		50,603		252,731		15,296		50,603		268,027		318,630		36,356
TX	241	104,794		534,804		2,603,707		97,822		534,655		2,701,678		3,236,333		212,009
UT	10	16,265		9,008		39,295		9,775		9,008		49,070		58,078		15,445
VA	73	56,422		198,998		842,848		37,952		198,998		880,800		1,079,798		127,878
WA	14	4,874		51,011		147,943		13,780		51,013		161,720		212,733		19,542
WI	1	—		1,076		16,054		70		1,076		16,123		17,199		173
DC	1	7,540		14,394		18,172		634		14,394		18,806		33,200		3,904
Other corporate assets		—		—		—		245,910		—		245,910		245,910		92,553
Intangible tenant relationships and lease rights		—		—		348,762		—		—		348,762		348,762		204,135
Construction in Progress/Undeveloped Land		—		22,985		2,779		124,265		34,987		118,745		153,732		—
Right of use asset - finance lease		—		—		—		143,841		—		143,843		143,843		3,960
Totals (1)	1,905	$	1,279,105	$	4,885,859	$	20,652,053	$	1,623,247	$	4,904,705	$	22,275,573	$	27,180,278	$	2,624,404

(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, 2023, 2022 and 2021 is as follows:


	2023		2022		2021
Operating facilities
Balance at beginning of year	$	12,084,025	$	10,643,722	$	9,507,788
Acquisitions	14,715,285		1,390,463		1,500,703
Improvements	175,932		95,282		80,131
Transfers from construction in progress	87,485		70,565		62,462
Dispositions and other	(1,194)		(116,007)		(507,362)
Balance at end of year	$	27,061,533	$	12,084,025	$	10,643,722
Accumulated depreciation:
Balance at beginning of year	$	2,138,395	$	1,868,321	$	1,681,429
Depreciation expense	486,010		276,155		230,445
Dispositions and other	—		(6,081)		(43,553)
Balance at end of year	$	2,624,405	$	2,138,395	$	1,868,321
Real estate under development/redevelopment:
Balance at beginning of year	$	52,348	$	59,248	$	67,443
Current development	153,920		63,597		54,267
Transfers to operating facilities	(87,523)		(70,565)		(62,462)
Dispositions and other	—		68		—
Balance at end of year	$	118,745	$	52,348	$	59,248
Net non-lease real estate assets	$	24,555,873	$	9,997,978	$	8,834,649

(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, 2023, the aggregate cost of real estate for U.S. federal income tax purposes was $17,961,173.

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