Item 1. FINANCIAL STATEMENTS

Extra Space Storage Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)

			June 30, 2023						December 31, 2022
			(unaudited)
Assets:
Real estate assets, net			$	10,017,351					$	9,997,978
Real estate assets - operating lease right-of-use assets			220,090						221,725
Investments in unconsolidated real estate entities			747,775						582,412
Investments in debt securities and notes receivable			891,190						858,049
Cash and cash equivalents			50,644						92,868
Other assets, net			438,403						414,426
Total assets			$	12,365,453					$	12,167,458
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net			$	1,273,448					$	1,288,555
Unsecured term loans, net			2,248,840						2,340,116
Unsecured senior notes, net			3,695,200						2,757,791
Revolving lines of credit			275,250						945,000
Operating lease liabilities			228,343						229,035
Cash distributions in unconsolidated real estate ventures			69,183						67,352
Accounts payable and accrued expenses			212,416						171,680
Other liabilities			327,366						289,655
Total liabilities			8,330,046						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, 135,058,897 and 133,921,020 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively			1,351						1,339
Additional paid-in capital			3,383,303						3,345,332
Accumulated other comprehensive income			47,065						48,798
Accumulated deficit			(175,941)						(135,872)
Total Extra Space Storage Inc. stockholders' equity			3,255,778						3,259,597
Noncontrolling interest represented by Preferred Operating Partnership units, net			222,940						261,502
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests			556,689						557,175
Total noncontrolling interests and equity			4,035,407						4,078,274
Total liabilities, noncontrolling interests and equity			$	12,365,453					$	12,167,458

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

(unaudited)

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2023						2022						2023						2022
Revenues:
Property rental			$	440,747					$	408,044					$	874,709					$	787,852
Tenant reinsurance			48,433						46,427						96,137						90,224
Management fees and other income			22,206						20,517						43,590						40,474
Total revenues			511,386						474,988						1,014,436						918,550
Expenses:
Property operations			114,637						104,252						231,803						207,794
Tenant reinsurance			9,482						7,537						18,571						14,579
Transaction related costs			—						1,465						—						1,465
General and administrative			34,842						31,251						69,605						61,013
Depreciation and amortization			79,086						69,067						157,576						136,973
Total expenses			238,047						213,572						477,555						421,824
Gain on real estate transactions			—						14,249						—						14,249
Income from operations			273,339						275,665						536,881						510,975
Interest expense			(86,372)						(47,466)						(166,471)						(90,004)
Interest income			21,077						15,060						40,515						34,049
Income before equity in earnings and dividend income from unconsolidated real estate entities and income tax expense			208,044						243,259						410,925						455,020
Equity in earnings and dividend income from unconsolidated real estate entities			13,254						10,190						23,559						19,287
Income tax expense			(5,986)						(5,615)						(10,294)						(8,756)
Net income			215,312						247,834						424,190						465,551
Net income allocated to Preferred Operating Partnership noncontrolling interests			(2,254)						(4,491)						(4,508)						(8,824)
Net income allocated to Operating Partnership and other noncontrolling interests			(10,648)						(11,213)						(20,968)						(21,018)
Net income attributable to common stockholders			$	202,410					$	232,130					$	398,714					$	435,709
Earnings per common share
Basic			$	1.50					$	1.73					$	2.96					$	3.24
Diluted			$	1.50					$	1.73					$	2.95					$	3.24
Weighted average number of shares
Basic			134,832,232						134,192,540						134,672,672						134,186,426
Diluted			143,529,817						142,737,909						143,337,522						141,600,206
Cash dividends paid per common share			$	1.62					$	1.50					$	3.24					$	3.00

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

(unaudited)

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2023						2022						2023						2022
Net income			$	215,312					$	247,834					$	424,190					$	465,551
Other comprehensive income:
Change in fair value of interest rate swaps			12,599						20,113						(1,911)						71,762
Total comprehensive income			227,911						267,947						422,279						537,313
Less: comprehensive income attributable to noncontrolling interests			13,517						16,719						25,298						33,503
Comprehensive income attributable to common stockholders			$	214,394					$	251,228					$	396,981					$	503,810

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2023

(unaudited, amounts in thousands, except share data)

			Noncontrolling Interest																					Extra Space Storage Inc. Stockholders' Equity
						Preferred Operating Partnership						Operating Partnership						Other						Shares						Par Value						Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Noncontrolling Interests and Equity
Balances at March 31, 2023						$	222,940					$	554,015					$	2,413					135,007,280						$	1,350					$	3,376,458					$	35,081					$	(159,556)					$	4,032,701
Issuance of common stock in connection with share based compensation						—						—						—						53,823						1						6,939						—						—						6,940
Taxes paid upon net settlement of share based compensation						—																		(573)						—						(94)						—						—						(94)
Restricted stock grants cancelled						—						—						—						(1,633)						—						—						—						—						—
Noncontrolling interest in consolidated joint venture						—						—						709						—						—						—						—						—						709
Net income (loss)						2,254						10,691						(43)						—						—						—						—						202,410						215,312
Other comprehensive income						—						615						—						—						—						—						11,984						—						12,599
Distributions to Operating Partnership units held by noncontrolling interests						(2,254)						(11,711)						—						—						—						—						—						—						(13,965)
Dividends paid on common stock at $1.62 per share						—						—						—						—						—						—						—						(218,795)						(218,795)
Balances at June 30, 2023						$	222,940					$	553,610					$	3,079					135,058,897						$	1,351					$	3,383,303					$	47,065					$	(175,941)					$	4,035,407
Balances at December 31, 2022						$	261,502					$	556,095					$	1,080					133,921,020						$	1,339					$	3,345,332					$	48,798					$	(135,872)					$	4,078,274
Issuance of common stock in connection with share based compensation						—						—						—						143,387						2						12,437						—						—						12,439
Taxes paid upon net settlement of share based compensation						—						—						—						(7,660)						—						(7,543)						—						—						(7,543)
Restricted stock grants cancelled						—						—						—						(3,855)						—						—						—						—						—
Redemption of Preferred A Units in the Operating Partnership for stock						(16,339)						—						—						851,698						8						11,015						—						—						(5,316)
Redemption of Preferred D Units in the Operating Partnership for stock						(22,064)						—						—						154,307						2						22,062						—						—						—
Noncontrolling interest in consolidated joint venture						—						—						2,100						—						—						—						—						—						2,100
Net income (loss)						4,508						21,069						(101)						—						—						—						—						398,714						424,190
Other comprehensive income						—						(178)						—						—						—						—						(1,733)						—						(1,911)
Distributions to Operating Partnership units held by noncontrolling interests						(4,667)						(23,376)						—						—						—						—						—						—						(28,043)
Dividends paid on common stock at $3.24 per share						—						—						—						—						—						—						—						(438,783)						(438,783)
Balances at June 30, 2023						$	222,940					$	553,610					$	3,079					135,058,897						$	1,351					$	3,383,303					$	47,065					$	(175,941)					$	4,035,407

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2022

(unaudited, amounts in thousands, except share data)

			Noncontrolling Interest																					Extra Space Storage Inc. Stockholders' Equity
						Preferred Operating Partnership						Operating Partnership						Other						Shares						Par Value						Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Noncontrolling Interests and Equity
Balances at March 31, 2022						$	256,051					$	411,581					$	317					134,251,076						$	1,343					$	3,329,608					$	6,457					$	(127,193)					$	3,878,164
Issuance of common stock in connection with share based compensation						—						—						—						38,016						—						5,245						—						—						5,245
Restricted stock grants cancelled						—						—						—						(7,122)						—						—						—						—						—
Redemption of Operating Partnership units for cash						—						(296)						—						—						—						(536)						—						—						(832)
Redemption of Preferred B Units in the Operating Partnership for cash						(1,125)						—						—						—						—						—						—						—						(1,125)
Issuance of Operating Partnership units in conjunction with business combinations						—						16,000						—						—						—						—						—						—						16,000
Issuance of Preferred D Units in the Operating Partnership in conjunction with business combinations						6,000						—						—						—						—						—						—						—						6,000
Repurchase of common stock, net of offering costs						—						—						—						(381,786)						(4)						—						—						(63,004)						(63,008)
Net income						4,491						11,213						—						—						—						—						—						232,130						247,834
Other comprehensive income						120						895						—						—						—						—						19,098						—						20,113
Distributions to Operating Partnership units held by noncontrolling interests						(4,306)						(9,821)						—						—						—						—						—						—						(14,127)
Dividends paid on common stock at $1.50 per share						—						—						—						—						—						—						—						(201,024)						(201,024)
Balances at June 30, 2022						$	261,231					$	429,572					$	317					133,900,184						$	1,339					$	3,334,317					$	25,555					$	(159,091)					$	3,893,240
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						—						—						—						180,800						2						9,787						—						—						9,789
Restricted stock grants cancelled						—						—						—						(7,901)						—						—						—						—						—
Redemption of Operating Partnership units for cash						—						(1,125)						—						—						—						(2,379)						—						—						(3,504)
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 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)
Net income						8,824						21,018						—						—						—						—						—						435,709						465,551
Other comprehensive income						433						3,228						—						—						—						—						68,101						—						71,762
Distributions to Operating Partnership units held by noncontrolling interests						(8,636)						(19,602)						—						—						—						—						—						—						(28,238)
Dividends paid on common stock at $3.00 per share						—						—						—						—						—						—						—						(403,551)						(403,551)
Balances at June 30, 2022						$	261,231					$	429,572					$	317					133,900,184						$	1,339					$	3,334,317					$	25,555					$	(159,091)					$	3,893,240

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

			For the Six Months Ended June 30,
			2023						2022
Cash flows from operating activities:
Net income			$	424,190					$	465,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			157,576						136,973
Amortization of deferred financing costs			5,470						3,933
Non-cash lease expense			942						939
Compensation expense related to stock-based awards			12,439						9,787
Accrual of interest income added to principal of debt securities and notes receivable			(16,200)						(19,235)
Gain on real estate transactions			—						(14,249)
Distributions from unconsolidated real estate ventures			7,594						6,204
Changes in operating assets and liabilities:
Other assets			(28,129)						15,789
Accounts payable and accrued expenses			36,234						28,646
Other liabilities			29,411						6,049
Net cash provided by operating activities			629,527						640,387
Cash flows from investing activities:
Acquisition of real estate assets			(127,416)						(438,287)
Cash paid for business combination			—						(157,301)
Development and redevelopment of real estate assets			(37,244)						(29,256)
Proceeds from sale of real estate assets and investments in real estate ventures			1,046						39,367
Investment in unconsolidated real estate entities			(171,126)						(76,339)
Return of investment in unconsolidated real estate ventures			—						342
Issuance and purchase of notes receivable			(124,103)						(204,930)
Principal payments received from notes receivable			46,466						223,773
Proceeds from sale of notes receivable			60,696						82,115
Purchase of equipment and fixtures			(5,905)						(9,512)
Net cash used in investing activities			(357,586)						(570,028)
Cash flows from financing activities:
Proceeds from notes payable and revolving lines of credit			2,479,592						1,948,657
Principal payments on notes payable and revolving lines of credit			(3,246,378)						(1,915,531)
Proceeds from issuance of public bonds, net			950,000						400,000
Deferred financing costs			(28,151)						(6,713)
Repurchase of common stock			—						(63,008)
Redemption of Operating Partnership units held by noncontrolling interests			—						(3,504)
Redemption of Preferred Units for cash			(5,000)						(4,500)
Dividends paid on common stock			(438,783)						(403,551)
Distributions to noncontrolling interests			(28,043)						(28,237)
Net cash used in financing activities			(316,763)						(76,387)
Net decrease in cash, cash equivalents, and restricted cash			(44,822)						(6,028)
Cash, cash equivalents, and restricted cash, beginning of the period			97,735						76,194
Cash, cash equivalents, and restricted cash, end of the period			$	52,913					$	70,166
Cash and equivalents, including restricted cash at the beginning of the period:
Cash and equivalents			$	92,868					$	71,126
Restricted cash included in other assets			4,867						5,068
			$	97,735					$	76,194

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

			For the Six Months Ended June 30,
			2023						2022
Cash and equivalents, including restricted cash at the end of the period:
Cash and equivalents			$	50,644					$	58,729
Restricted cash included in other assets			2,269						11,437
			$	52,913					$	70,166
Supplemental schedule of cash flow information
Interest paid			$	150,459					$	82,381
Income taxes paid			1,910						9,116
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					$	—
Common stock and paid-in capital			(11,336)						—
Noncontrolling interests in Operating Partnership Note Receivable Payoff			(100,000)						—
OP Unit Redemption - Cash Proceeds			(5,000)						—
Acquisition and establishment of operating lease right of use assets and lease liabilities
Real estate assets - operating lease right-of-use assets			$	—					$	1,689
Operating lease liabilities			—						(1,689)
Acquisitions of real estate assets
Real estate assets, net			$	—					$	48,535
Value of equity issued			—						(40,965)
Net Liabilities Assumed			—						—
Investment in unconsolidated real estate ventures			—						(747)
Accrued construction costs and capital expenditures
Acquisition of real estate assets			$	4,503					$	987
Accounts payable and accrued expenses			(4,503)						(987)
Redemption of Preferred Operating Partnership units for common stock
Preferred Operating Partnership units			$	33,403					$	—
Additional paid-in capital			(33,403)						$	—
Issuance of OP and Preferred OP units in conjunction with business combination
Preferred OP units issued			$	—					$	(6,000)
OP units issued			—						(16,000)

See accompanying notes to unaudited condensed consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1. ORGANIZATION

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

The Company invests in stores by acquiring wholly-owned stores or by acquiring an equity interest in real estate entities. At June 30, 2023, the Company had direct and indirect equity interests in 1,460 stores. In addition, the Company managed 978 stores for third parties, bringing the total number of stores which it owns and/or manages to 2,438. These stores are located in 41 states and Washington, D.C. The Company also offers tenant reinsurance at its owned and managed stores that insures the value of goods in the storage units.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board ("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. As of June 30, 2023, the Company has converted all of its LIBOR-indexed debt and derivatives to SOFR-based indexes (effective with the respective instrument’s next reset date for certain instruments). For all derivatives in hedge accounting relationships, the elective relief in Topic 848 that allows for the continuation of hedge accounting throughout the transition process was utilized.

EXTRA SPACE STORAGE INC.

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

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

3. FAIR VALUE DISCLOSURES

Derivative Financial Instruments

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2023, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall.

									Fair Value Measurements at Reporting Date Using
Description									Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Other assets - Cash flow hedge swap agreements									$	—					$	51,235					$	—
Other liabilities - Cash flow hedge swap agreements									$	—					$	—					$	—

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

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.

EXTRA SPACE STORAGE INC.

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

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

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

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. 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 an impairment loss on the assets held for sale. The operations of assets held for sale or sold during the period is presented as part of normal operations for all periods presented. As of June 30, 2023, the Company had no operating stores classified as held for sale which are included in real estate assets, net.

The Company assesses annually whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures 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.

In connection with the Company’s acquisition of stores, the purchase price is allocated to the tangible and intangible assets and liabilities 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 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 an 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. For acquisitions that meet the definition of a business, the Company estimates the fair value of the identifiable assets and liabilities of the acquired entity on the acquisition date. Goodwill is measured as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. Acquisition-related expenses arising from the transaction are expensed as incurred. The Company includes the results of operations of the businesses that it acquires beginning on the acquisition date.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, receivables, other financial instruments included in other assets, accounts payable and accrued expenses, variable-rate notes payable, investments in debt securities and notes receivable, lines of credit and other liabilities reflected in the condensed consolidated balance sheets at June 30, 2023 and December 31, 2022 approximate fair value. Restricted cash is comprised of funds deposited with financial institutions located throughout the United States primarily relating to earnest money deposits on potential acquisitions.

The fair values of the Company’s notes receivable from Preferred and Common Operating Partnership unit holders and other fixed rate notes receivable were based on the discounted estimated future cash flows 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.

EXTRA SPACE STORAGE INC.

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

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

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

			June 30, 2023												December 31, 2022
			Fair Value						Carrying Value						Fair Value						Carrying Value
Notes receivable from Preferred and Common Operating Partnership unit holders			$	1,889					$	1,900					$	95,965					$	101,900
Fixed rate notes receivable			$	1,571					$	1,625					$	5,191					$	5,241
Fixed rate debt			$	5,005,056					$	5,540,970					$	4,320,014					$	4,762,196

4. REAL ESTATE ASSETS

The components of real estate assets are summarized as follows:

			June 30, 2023						December 31, 2022
Land			$	2,371,918					$	2,356,746
Buildings, improvements and other intangibles			9,579,378						9,425,468
Right of use asset - finance lease			141,861						136,259
Intangible assets - tenant relationships			152,735						152,775
Intangible lease rights			12,943						12,943
			12,258,835						12,084,191
Less: accumulated depreciation and amortization			(2,295,568)						(2,138,524)
Net operating real estate assets			9,963,267						9,945,667
Real estate under development/redevelopment			54,084						52,311
Real estate assets, net			$	10,017,351					$	9,997,978

5. OTHER ASSETS

The components of other assets are summarized as follows:

			June 30, 2023						December 31, 2022
Goodwill			$	170,811					$	170,811
Receivables, net			99,971						85,937
Prepaid expenses and deposits			67,078						50,318
Equipment and fixtures, net			42,657						42,808
Fair value of interest rate swaps			51,235						54,839
Deferred line of credit financing costs, net			4,382						4,846
Restricted cash			2,269						4,867
			$	438,403					$	414,426

EXTRA SPACE STORAGE INC.

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

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

6. EARNINGS PER COMMON SHARE

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

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

For the purposes of computing the diluted impact of the potential exchange of the Preferred Operating Partnership units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the intent and ability to settle the redemption in shares, the Company divided the total value of the Preferred Operating Partnership units by the average share price for the period presented. The average share price for the three months ended June 30, 2023 and 2022 was $150.45 and $185.25, respectively.

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

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2023						2022						2023						2022
			Equivalent Shares (if converted)						Equivalent Shares (if converted)						Equivalent Shares (if converted)						Equivalent Shares (if converted)
Series B Units			223,118						183,807						218,259						183,342
Series D Units			—						—						—						1,074,933
			223,118						183,807						218,259						1,258,275

On January 25, 2023, the remaining Series A Units were redeemed (see Note 13 below). 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 had the option to redeem in cash or shares and where the Company had 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 was 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 was equal to the number of Series A Units outstanding, with no additional shares included related to the fixed $101,700 amount.

EXTRA SPACE STORAGE INC.

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

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

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

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2023						2022						2023						2022
Net income attributable to common stockholders			$	202,410					$	232,130					$	398,714					$	435,709
Earnings and dividends allocated to participating securities			(323)						(313)						(627)						(601)
Earnings for basic computations			202,087						231,817						398,087						435,108
Earnings and dividends allocated to participating securities			323						—						627						—
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units			12,441						15,201						24,569						24,978
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units)			—						(572)						—						(1,144)
Net income for diluted computations			$	214,851					$	246,446					$	423,283					$	458,942
Weighted average common shares outstanding:
Average number of common shares outstanding - basic			134,832,232						134,192,540						134,672,672						134,186,426
OP Units			7,214,649						6,545,104						7,214,649						6,533,010
Series A Units			—						875,480						—						875,480
Series D Units			1,257,366						1,119,641						1,233,178						—
Unvested restricted stock awards included for treasury stock method			221,380						—						212,723						—
Shares related to dilutive stock options			4,190						5,144						4,300						5,290
Average number of common shares outstanding - diluted			143,529,817						142,737,909						143,337,522						141,600,206
Earnings per common share
Basic			$	1.50					$	1.73					$	2.96					$	3.24
Diluted			$	1.50					$	1.73					$	2.95					$	3.24

7. ACQUISITIONS AND DISPOSITIONS

Store Acquisitions

The following table shows the Company’s acquisitions of stores for the three and six months ended June 30, 2023 and 2022. The table excludes purchases of raw land and improvements made to existing assets. All store acquisitions are considered asset acquisitions under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business."

																														Total
Period			Number of Stores						Cash Paid									Finance Lease Liability			Investments in Real Estate Ventures			Net Liabilities/ (Assets) Assumed			Value of Equity Issued									Real estate assets
Q2 2023			3						32,888									—			—			26			—									32,914
Q1 2023			1						13,111									—			—			6			—									13,117
Total 2023			4						$	45,999								$	—		$	—		$	32		$	—								$	46,031
Q2 2022			15						220,933									6,823			—			811			—									228,567
Q1 2022			14						185,910									—			747			274			40,965									227,896
Total 2022			29						$	406,843								$	6,823		$	747		$	1,085		$	40,965								$	456,463

Other Investments

EXTRA SPACE STORAGE INC.

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

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

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 the date of the acquisition, 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 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

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

8. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

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

EXTRA SPACE STORAGE INC.

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

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

In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that cash or profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess cash or profits 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 condensed consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.

Net investments in unconsolidated real estate ventures and cash distributions in unconsolidated real estate ventures consist of the following:

			Number of Stores						Equity Ownership %						Excess Profit % (1)						June 30,						December 31,
			2023						2022
PRISA Self Storage LLC			84						4%						4%						$	8,487					$	8,596
Storage Portfolio II JV LLC			36						10%						30%						(7,628)						(7,200)
Storage Portfolio IV JV LLC			32						10%						30%						48,511						49,139
Storage Portfolio I LLC			24						34%						49%						(42,000)						(41,372)
PR II EXR JV LLC			23						25%						25%						109,014						110,172
ESS-CA TIVS JV LP			16						55%						60%						29,938						30,778
VRS Self Storage, LLC			16						45%						54%						(15,922)						(15,399)
ARA-EXR JV LLC			12						10%						30%						18,982						19,137
ESS-NYFL JV LP			11						16%						24%						11,031						11,332
Extra Space Northern Properties Six LLC			10						10%						35%						(3,633)						(3,382)
Alan Jathoo JV LLC			9						10%						10%						7,313						7,414
ESS Bristol Investments LLC			8						10%						30%						2,017						2,110
ESS - BGO Atlanta GA JV LLC			8						20%						35%						35,185						30,467
ESS - BGO Storage JV I LLC			6						20%						35%						22,781						7,466
Storage Portfolio V JV LLC			6						10%						30%						9,416						9,517
PR EXR Self Storage, LLC			5						25%						40%						57,984						58,476
Storage Portfolio III JV LLC			5						10%						30%						5,419						5,467
Other unconsolidated real estate ventures			12						20-50%						20-50%						31,697						32,342
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			323																		$	678,592					$	515,060

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

(2) In October 2019, the Company invested $200,000 in shares of convertible preferred stock of SmartStop Self Storage REIT, Inc. ("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 Trust VI, Inc. ("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 Trust VI, Inc.. 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.

EXTRA SPACE STORAGE INC.

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

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

During the six months ended June 30, 2023, the Company contributed a total of $20,686 of cash to its joint ventures, for its pro-rata portion of the purchase price of five operating stores.

9. 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 Investment") and receivables due to the Company under its bridge loan program. Information about these balances is as follows:

			June 30, 2023						December 31, 2022
Debt securities - NexPoint Preferred Stock			$	300,000					$	300,000
Notes Receivable - Bridge Loans			540,355						491,879
Dividends and Interest Receivable			50,835						66,170
			$	891,190					$	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 Advisors, L.P. 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, a modification was completed that exchanged the Series A and Series B Preferred Shares for 300,000 Series D Preferred Shares, valued at a total of $300,000. The Series D Preferred Shares are mandatorily redeemable after six years from the modification in December 2022, with two one-year extension options. NexPoint may redeem the Series D Preferred Shares at any time, subject to certain prepayment penalties. The Company accounts for the JCAP Series D Preferred Shares as a held to maturity debt security at amortized cost. The Series D Preferred Shares have initial dividend rates of 8.5%. If the investment is not retired after six years, the preferred dividends increase annually.

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. These notes receivable typically have a term of three years with two one-year extensions, and have variable interest rates. The Company intends to sell a portion of the mortgage receivables. During the six months ended June 30, 2023 the Company sold a total principal amount of $60,696 of its mortgage bridge loans receivable to third parties for a total of $60,696 in cash and closed on $104,120 in new bridge loans.

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.

EXTRA SPACE STORAGE INC.

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

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

10. DEBT

In June 2023, the Operating Partnership executed a public bond issuance by selling $450.0 million principal amount of 5.500% Senior Notes due 2030 (the "Notes Due 2030"). Interest on the Notes Due 2030 is paid semi-annually in arrears on January 1 and July 1 of each year. The Notes Due 2030 will mature on July 1, 2030, and the Operating Partnership may redeem the Notes Due 2030 at its option and sole discretion at any time prior to May 1, 2030 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

In March 2023, the Operating Partnership executed a public bond issuance by selling $500.0 million principal amount of 5.700% Senior Notes due 2028 (the "Notes Due 2028"). Interest on the Notes Due 2028 is paid semi-annually in arrears on April 1 and October 1 of each year. The Notes Due 2028 will mature on April 1, 2028, and the Operating Partnership may redeem the Notes Due 2028 at its option and sole discretion at any time prior to March 1, 2028 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

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

In September 2021, the Operating Partnership executed a public bond issuance by selling $600.0 million principal amount of 2.350% Senior Notes due 2032 (the "Notes Due 2032"). Interest on the Notes Due 2032 is paid semi-annually in arrears on March 15 and September 15 of each year. The Notes Due 2032 will mature on March 15, 2032, and the Operating Partnership may redeem the Notes Due 2032 at its option and sole discretion at any time prior to December 15, 2031 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.

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

The Operating Partnership may redeem the Notes Due 2028, the Notes Due 2029, the Notes Due 2030, the Notes Due 2031 and/or the Notes Due 2032 (collectively, the "Notes") in whole at any time or in part from time to time, at the Operating Partnership’s option and sole discretion, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed and (ii) a make-whole premium calculated in accordance with the indenture governing the notes, plus, in each case, accrued and unpaid interest thereon to, but not including, the applicable redemption date. Notwithstanding the foregoing, on or after the par call date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date. The par call date on the Notes Due 2028 is one month prior to the maturity. The par call date on the Notes Due 2029 and the Notes Due 2030 is two months prior to the maturity. The par call date on the Notes Due 2031 and the Notes Due 2032 is three months prior to their maturity dates.

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

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

EXTRA SPACE STORAGE INC.

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

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

The components of term debt are summarized as follows:

Term Debt			June 30, 2023						December 31, 2022						Fixed Rate						Variable Rate (2)												Maturity Dates
Secured fixed-rate (1)			$	404,336					$	521,820					2.67% - 4.56%																		April 2025 - February 2030
Secured variable-rate (1)			883,052						772,604												6.14% - 6.59%												August 2023 - September 2030
Unsecured fixed-rate			5,136,633						4,240,376						2.35% - 5.70%																		January 2025 - March 2032
Unsecured variable-rate			848,367						884,624												6.14% - 6.19%												January 2024 - January 2028
Total			7,272,388						6,419,424
Less: Unamortized debt issuance costs			(54,900)						(32,962)
Total			$	7,217,488					$	6,386,462
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents.
(2) Basis rates include 30-day USD LIBOR, Adjusted Term SOFR and Adjusted Daily Simple SOFR.

The following table summarizes the scheduled maturities of term debt, excluding available extensions, at June 30, 2023:

2023			$	332,680
2024			335,000
2025			707,289
2026			809,508
2027			869,713
Thereafter			4,218,198
			$	7,272,388

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 $1,940.0 million and extended 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 $1,000.0 million in connection with the Life Storage merger. Tranche 8 was undrawn as of June 30, 2023, but was fully drawn on July 20, 2023, in connection with the closing of the merger with Life Storage, Inc. (“Life Storage”).

As of June 30, 2023, the terms of the Credit Agreement are as follows:

EXTRA SPACE STORAGE INC.

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

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

						Debt Capacity						Maturity Date
Revolving Credit Facility						$	1,940,000					June 2027
Tranche 1 Term Loan Facility (1)						400,000						January 2027
Tranche 2 Term Loan Facility (1)						425,000						October 2026
Tranche 3 Term Loan Facility (1)						245,000						January 2025
Tranche 4 Term Loan Facility (1)						255,000						June 2026
Tranche 5 Term Loan Facility (2)						—						February 2024
Tranche 6 Term Loan Facility (1)						175,000						January 2028
Tranche 7 Term Loan Facility (1)						425,000						July 2029
Tranche 8 Term Loan Facility (3)						$	1,000,000					June 2024
						$	4,865,000
(1) Term loan amounts have been fully drawn as of June 30, 2023.
(2) The Tranche 5 Term Loan was paid off prior to maturity as part of the June 2023 recast.
(3) The Tranche 8 Term Loan was undrawn as of June 30, 2023, but was fully drawn on July 20, 2023.

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, and the term of the Tranche 8 Term Loan Facility for one year, after satisfying certain conditions.

As of June 30, 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 June 30, 2023, the Company was in compliance with all of its financial covenants.

In July 2022, the Company completed an accordion transaction in its credit facility, which added a $175.0 million unsecured debt tranche maturing January 2028 and a $425.0 million unsecured debt tranche maturing July 2029. As of June 30, 2023, the interest rates for the tranches are Adjusted Term SOFR/Adjusted Daily Simple SOFR ("ASOFR") + 0.95% and ASOFR + 1.25%, respectively.

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 June 30, 2023
Revolving Lines of Credit			Amount Drawn						Capacity						Interest Rate												Maturity						Basis Rate (1)
Credit Line 1 (2)			$	23,250					$	140,000					6.44%												7/1/2026						SOFR plus 1.35%
Credit Line 2 (3)(4)			252,000						1,940,000						6.04%												6/22/2027						ASOFR plus 0.95%
			$	275,250					$	2,080,000
(1) Term SOFR or Daily Simple SOFR
(2) Secured by mortgages on certain real estate assets. On January 13, 2023 the maturity date was extended to July 1, 2026 with one extension of one year available.
(3) Unsecured. On June 22, 2023, the maturity was extended to June 22, 2027 with two six-month extensions available.
(4) Basis Rate as of June 30, 2023. Rate is subject to change based on our investment grade rating.

EXTRA SPACE STORAGE INC.

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

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

As of June 30, 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 3.8% and 6.4%, respectively. The combined weighted average interest rate was 4.5%.

11. DERIVATIVES

The Company is exposed to certain risks 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 by using derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposure that arises 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 receipts and its known or expected cash payments principally related to the Company’s investments and 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 these objectives, 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 three and six months ended June 30, 2023 and 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. In the coming 12 months, the Company estimates that $34,219 will be reclassified as an increase to interest income.

The Company held 17 derivative financial instruments which had a total combined notional amount of $1,666,265 as of June 30, 2023.

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 condensed consolidated balance sheets:

			Asset / Liability Derivatives
Derivatives designated as hedging instruments:			June 30, 2023						December 31, 2022
Other assets			$	51,235					$	54,839
Other liabilities			$	—					$	73

EXTRA SPACE STORAGE INC.

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

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

Effect of Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the condensed 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 Three Months Ended June 30,												Location of amounts reclassified from OCI into income						Gain (loss) reclassified from OCI for the Three Months Ended June 30,
Type			2023						2022						2023						2022
Swap Agreements			$	23,628					$	14,358					Interest expense						$	11,033					$	(5,755)

			Gain (loss) recognized in OCI for the Six Months Ended June 30,												Location of amounts reclassified from OCI into income						Gain (loss) reclassified from OCI for the Six Months Ended June 30,
Type			2023						2022						2023						2022
Swap Agreements			$	18,065					$	57,099					Interest expense						$	19,984					$	(14,667)

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 June 30, 2023, the Company did not have any net liability positions in the fair value of derivatives.

12. STOCKHOLDERS’ EQUITY

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 resulting in net proceeds of $66,617.

On October 15, 2020, the Company's board of directors authorized a new share repurchase program allowing for the repurchase of shares with an aggregate value up to $400,000. During 2022, a total of $63,008 was paid to repurchase 381,786 shares. During the six months ended June 30, 2023, no shares were repurchased. As of June 30, 2023, the Company had remaining authorization to repurchase shares with an aggregate value up to $336,992.

13. 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.

EXTRA SPACE STORAGE INC.

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

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

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 condensed consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the condensed 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 and (2) the redemption value as of the end of the period in which the determination is made.

At June 30, 2023 and December 31, 2022, the noncontrolling interests represented by the Preferred OP Units qualified for classification as permanent equity on the Company's condensed consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. As of December 31, 2022, noncontrolling interests in Preferred OP Units were presented net of notes receivable from Preferred OP Unit holders of $100,000 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:

			June 30, 2023						December 31, 2022
Series A Units			$	—					$	16,498
Series B Units			33,568						33,568
Series D Units			189,372						211,436
			$	222,940					$	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 bore a fixed priority return of 2.3% and originally had a fixed liquidation value of $115,000. The remaining balance participated in distributions with, and had a liquidation value equal to that of the OP Units. The Series A Units were redeemable at the option of the holder, which redemption obligation could have been satisfied, at the Company’s option, in cash or shares of its common stock. As a result of a redemption of 114,500 Series A Units in October 2014, the remaining fixed liquidation value was reduced to $101,700, which represented 875,480 Series A Units.

On June 25, 2007, the Operating Partnership loaned the holder of the Series A Units $100,000. The loan bore interest at 2.1%. The loan was secured by the borrower’s Series A Units, which are shown on the balance sheet net of the $100,000 loan as of December 31, 2022 because the borrower under the loan was also the holder of the Series A Units.

On January 25, 2023, the redemption obligation for all outstanding Series A Units was satisfied, at the Company’s option, in $5,000 cash, 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 June 30, 2023.

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 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. The Series B Units have a liquidation value of $25.00 per unit for a fixed liquidation value of $33,568 which represents 1,342,727 Series B Units. 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 obligation may be satisfied at the Company’s option in cash or shares of its common stock.

On May 10, 2022, 45,000 Series B Units were redeemed for $1,125 in cash.

EXTRA SPACE STORAGE INC.

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

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

Series C 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 June 30, 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 interests 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 fixed liquidation value of $189,372, which represents 7,566,828 Series D Units. 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 OP Units at the option of the holder until the tenth anniversary of the date of issuance, with the number of 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.

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

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.

14. 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 94.0% ownership interest in the Operating Partnership as of June 30, 2023. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 6.0% are held by certain former owners of assets acquired by the Operating Partnership. As of June 30, 2023 and December 31, 2022, the noncontrolling interests in the Operating Partnership are shown on the balance sheet net of a note receivable of $1,900 because a borrower under the note receivable is also a holder of OP Units. This note receivable originated in December 2014, 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 Partnership Agreement. As of June 30, 2023, the ten-day average closing price of the Company's common stock was $145.79 and there were 7,214,649 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on June 30, 2023 and the Company elected to pay the OP Unit holders cash, the Company would have paid $1,051,824 in cash consideration to redeem the units.

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

			For the Six Months Ended June 30,
			2023						2022
OP Units redeemed for cash			—						18,028
Cash paid for OP Units redeemed			$	—					$	3,504
OP Units issued in conjunction with business combination and acquisitions			—						91,743

EXTRA SPACE STORAGE INC.

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

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

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 OP Units and classifies the noncontrolling interest represented by the OP Units as stockholders’ equity in the accompanying condensed 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 condensed 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 and (2) the redemption value as of the end of the period in which the determination is made.

Other Noncontrolling Interests

Other noncontrolling interests represent the ownership interests of third parties in seven consolidated joint ventures as of June 30, 2023. One joint venture owns one operating store and the other six joint ventures each have a property under development. The voting interest of each third-party owner is between 2.0% and 31.0%.

15. 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 the Company's self-storage operations represents total property revenue less direct property operating expenses. NOI for the Company's tenant reinsurance segment represents tenant reinsurance revenues less tenant reinsurance expense.

The self-storage operations activities include rental operations of wholly-owned stores and self-storage units acquired in the Bargold transaction. 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 of the Company's 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:

			For the Three Months Ended June 30,									For the Six Months Ended June 30,
			2023			2022						2023			2022
Revenues:
Self-Storage Operations			$	440,747		$	408,044					$	874,709		$	787,852
Tenant Reinsurance			48,433			46,427						96,137			90,224
Total segment revenues			$	489,180		$	454,471					$	970,846		$	878,076
Operating expenses:
Self-Storage Operations			$	114,637		$	104,252					$	231,803		$	207,794
Tenant Reinsurance			9,482			7,537						18,571			14,579
Total segment operating expenses			$	124,119		$	111,789					$	250,374		$	222,373
Net operating income:
Self-Storage Operations			$	326,110		$	303,792					$	642,906		$	580,058
Tenant Reinsurance			38,951			38,890						77,566			75,645
Total segment net operating income:			$	365,061		$	342,682					$	720,472		$	655,703
Other components of net income:
Management fees and other income			$	22,206		$	20,517					$	43,590		$	40,474
Transaction related costs			—			(1,465)						—			(1,465)
General and administrative expense			(34,842)			(31,251)						(69,605)			(61,013)
Depreciation and amortization expense			(79,086)			(69,067)						(157,576)			(136,973)
Gain on real estate transactions			—			14,249						—			14,249
Interest expense			(86,372)			(47,466)						(166,471)			(90,004)
Interest income			21,077			15,060						40,515			34,049
Equity in earnings and dividend income from unconsolidated real estate entities			13,254			10,190						23,559			19,287
Income tax expense			(5,986)			(5,615)						(10,294)			(8,756)
Net income			$	215,312		$	247,834					$	424,190		$	465,551

16. COMMITMENTS AND CONTINGENCIES

As of June 30, 2023, the Company was involved in various legal proceedings and was subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material 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.

EXTRA SPACE STORAGE INC.

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

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

As of June 30, 2023, the Company was under agreement to acquire 11 stores at a total purchase price of $125,245. Four stores are scheduled to close in 2023 and seven stores are scheduled to close in 2024. Additionally, the Company is under agreement to acquire three stores with joint venture partners, for a total investment of $9,864. Two stores are scheduled to close in 2023 and one store is scheduled to close in 2024.

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 stores, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to its stores could result in future material environmental liabilities.

17. SUBSEQUENT EVENTS

On July 20, 2023, the Company closed its merger with Life Storage, Inc. in an all-stock transaction (the "Life Storage Merger"). 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 partnership unit) of Life Storage they owned for an estimated total consideration of $11,600,000, based on the Company's closing share price on July 19, 2023. At closing, the Company retired $1,200,000 in balances on Life Storage's line of credit which included $375,000 which Life Storage used to pay off its private placement notes in connection with the closing. The Company also paid off and/or defeased $32,000 in secured loans. On July 25, 2023, the Company completed an obligor exchange of Life Storage's various Senior Notes totaling $2,400,000. Remaining Life Storage senior note balances which were not exchanged total $48,900 and no longer have any financial reporting requirements or covenants. Following the merger, the combined company owned and/or managed over 3,500 locations and over 264.0 million net rentable square feet.

.