Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

Extra Space Storage Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)


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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

(unaudited)


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


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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

(unaudited)


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

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2024

(unaudited, amounts in thousands, except share data)


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

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














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

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














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

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

For the three and six months ended June 30, 2023

(unaudited, amounts in thousands, except share data)


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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


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


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

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


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

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

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

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

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


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

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

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


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

















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

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

See accompanying notes to unaudited condensed consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1. ORGANIZATION

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

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

2. BASIS OF PRESENTATION

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

Recently Issued Accounting Standards

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

3. FAIR VALUE DISCLOSURES

Derivative Financial Instruments

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

EXTRA SPACE STORAGE INC.

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

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

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

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

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

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


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

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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

EXTRA SPACE STORAGE INC.

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

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

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

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

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

Fair Value of Financial Instruments

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

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

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


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

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

4. ACQUISITIONS AND DISPOSITIONS

The Life Storage Merger

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

EXTRA SPACE STORAGE INC.

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

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

Consideration and Purchase Price Allocation

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


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

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


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

Fair Value Measurement

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

Real estate assets – Real estate assets acquired were recorded at fair value using standard valuation methodologies, including the cost and market approaches. The remaining useful lives for real estate assets, excluding land, were reset to 39 years. Tenant relationships for storage leases were recorded at fair value based on estimated costs the Company avoided to replace them. Tenant relationships are amortized to expense over 18 months, which is based on the Company’s historical experience with turnover in its stores.
Equity investment in joint venture partnerships - Equity investment in joint venture partnerships were recorded at fair value based on a direct capitalization of net operating income.
Intangible assets - other – Customer relationships relating to tenant reinsurance contracts were recorded at fair value based on the income approach which estimates the potential revenue loss the Company avoided to replace them. These assets are amortized to expense over 36 months, which is based on the Company’s historical experience with average length of stay for tenants.
Trade name – Trade names were recorded at fair value based on royalty payments avoided had the trade name been owned by a third party. This is determined using market royalty rates and a discounted cash flow analysis under the relief-from-royalty method. This method incorporates various assumptions, including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. The trade name is an indefinite lived asset and as such is not amortized.

EXTRA SPACE STORAGE INC.

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

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

Unsecured senior notes – Unsecured senior notes were recorded at fair value using readily available market data. The below-market value of debt is recorded as a debt discount and reported as a reduction of the unsecured senior notes balance on the condensed consolidated balance sheets. The discount is amortized using effective interest method as an increase to interest expense over the remaining terms of the unsecured senior notes.
Other assets and liabilities – the carrying values of cash, accounts receivable, prepaids and other assets, accounts payable, accrued expenses and other liabilities represented the fair values.

Store Acquisitions

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


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



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

5. REAL ESTATE ASSETS

The components of real estate assets are summarized as follows:


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

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

EXTRA SPACE STORAGE INC.

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

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

6. OTHER ASSETS

The components of other assets are summarized as follows:


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

7. EARNINGS PER COMMON SHARE

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

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

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

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

EXTRA SPACE STORAGE INC.

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

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


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

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

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


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

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

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


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

8. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

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

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

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


	Number of Stores	Equity Ownership %	Excess Profit % (1)	June 30,		December 31,
	2024	2023
PRISA Self Storage LLC	85	4%	4%	$	9,209	$	9,435
HF1 Sovran HHF Storage Holdings LLC	37	20%	20%	103,775		105,339
Storage Portfolio II JV LLC	36	10%	30%	(8,846)		(8,314)
Storage Portfolio IV JV LLC	32	10%	30%	47,685		48,184
Storage Portfolio I LLC	24	34%	49%	(43,060)		(42,487)
PR II EXR JV LLC	23	25%	25%	106,930		108,160
HF2 Sovran HHF Storage Holdings II LLC	22	15%	15%	41,376		41,613
HF5 Life Storage-HIERS Storage LLC	17	20%	20%	25,586		26,051
HF6 191 V Life Storage Holdings LLC	17	20%	20%	11,566		12,702
ESS-CA TIVS JV LP	16	55%	55%-65%	28,302		29,128
VRS Self Storage, LLC	16	45%	54%	(17,069)		(16,386)
HF10 Life Storage HHF Wasatch Holdings LLC	16	20%	20%	19,849		20,019
Other unconsolidated real estate ventures	131	10%-50%	10%-50%	316,719		317,104
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		150,000
Net Investments in and Cash distributions in unconsolidated real estate entities	472			$	992,022	$	1,000,548

(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.

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”) and receivables due to the Company under its bridge loan program. Information about these balances is as

EXTRA SPACE STORAGE INC.

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

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

follows:


	June 30, 2024		December 31, 2023
Debt securities - Preferred Stock	$	300,000	$	300,000
Notes Receivable - Bridge Loans	1,136,306		594,727

Dividends and Interest Receivable	6,375		10,042
	$	1,442,681	$	904,769

In November 2020, the Company invested $300,000 in the preferred stock of JCAP in connection with the acquisition of JCAP by 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 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 Series D Preferred Shares as a held to maturity debt security at amortized cost. The Series D Preferred Shares have an initial dividend rate of 8.5%. If the investment is not retired after six years, the preferred dividends increase annually.

The Company offers bridge loan financing to third-party self-storage owners. These notes receivable consist of mortgage loans receivable, which are collateralized by self-storage properties, and mezzanine loans receivable, which are secured by equity interest pledges. As of June 30, 2024, 76% 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 six months ended June 30, 2024 the Company closed on $491,918 in initial loan draws and recorded $23,275 of draws for interest payments.

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.

10. DEBT

The components of term debt are summarized as follows:


Term Debt	June 30, 2024		December 31, 2023
Secured notes payable (1)	$	1,270,723	$	1,279,105
Unsecured term loans	2,260,000		2,660,000
Unsecured senior notes	7,325,000		6,725,000
Total	10,855,723		10,664,105
Less: Discount on unsecured senior notes (2)	(252,790)		(274,350)
Less: Unamortized debt issuance costs	(55,628)		(55,007)
Total	$	10,547,305	$	10,334,748

(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents.
(2) 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.

EXTRA SPACE STORAGE INC.

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

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

The following table summarizes the scheduled maturities of term debt, excluding available extensions, at June 30, 2024:


Year	Amount
2024	$	248,250
2025	1,119,521
2026	1,409,581
2027	1,314,104
2028	1,028,400
2029	1,542,125
2030	1,343,742
2031	1,650,000
2032	600,000
Thereafter	600,000
	$	10,855,723

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, 2024
Revolving Lines of Credit	Amount Drawn		Capacity		Interest Rate	Maturity	Basis Rate (1)
Credit Line 1 (2)	$	29,000	$	140,000	6.68%	7/1/2026	SOFR plus 1.35%
Credit Line 2 (3)(4)	919,000		2,000,000		6.21%	6/22/2027	SOFR plus 0.875%
	$	948,000	$	2,140,000
(1) Daily Simple Secured Overnight Financing Rate (“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 $60.0 million.
(4) Basis Rate as of June 30, 2024. Rate is subject to change based on the Company's investment grade rating.

On June 22, 2023, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). 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 June 30, 2024, 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, 2024, the Company was in compliance with all of its financial covenants.

As of June 30, 2024, the Company’s percentage of fixed-rate debt to total debt was 75.0%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 4.0% and 6.5%, respectively. The combined weighted average interest rate was 4.6%.

EXTRA SPACE STORAGE INC.

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

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

11. 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 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, 2024 and 2023, 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 $20,946 will be reclassified as an increase to interest income.

The Company held 14 active derivative financial instruments, which had a total current notional amount of $1,383,303, as of June 30, 2024 and two forward-starting derivative financial instruments with effective dates of October 31, 2024 and July 14, 2025.

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, 2024		December 31, 2023
Other assets	$	31,133	$	26,183
Other liabilities	$	77	$	5,030

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	2024		2023		2024	2023
Swap Agreements	$	6,045	$	23,628	Interest expense	$	7,059	$	11,033


	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	2024		2023		2024	2023
Swap Agreements	$	25,294	$	18,065	Interest expense	$	15,076	$	19,984

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (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 June 30, 2024, 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 $85. As of June 30, 2024, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of June 30, 2024, it could have been required to cash settle its obligations under these agreements at their termination value of $85.

12. STOCKHOLDERS’ EQUITY

On April 15, 2024, 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 an equity distribution agreement with nine sales agents. No shares have been sold under the current “at the market” equity program, and no shares were sold under the previous “at the market” equity program, which spanned from August 9, 2021 through April 14, 2024.

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 and the six months ended June 30, 2024, no shares were repurchased. As of June 30, 2024, the Company had remaining authorization to repurchase shares with an aggregate value up to $500,000.

On July 20, 2023, the Company issued 76,217,359 shares of its common stock at $148.96 for a total value of $11,353,338 as part of the Life Storage Merger. See Acquisitions and Dispositions note above.

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.

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.

EXTRA SPACE STORAGE INC.

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

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

At June 30, 2024 and December 31, 2023, 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. 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, 2024		December 31, 2023

Series B Units	$	33,567	$	33,567
Series D Units	157,739		188,793
	$	191,306	$	222,360

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. As of June 30, 2024 and December 31, 2023, there were no outstanding Series A Units.

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 $33,567 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.

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, 2024 and December 31, 2023, 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 $157,739, which represents 6,309,567 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.

During the six months ended June 30, 2024, 1,242,168 Series D Units were redeemed for 213,661 shares of common stock.

EXTRA SPACE STORAGE INC.

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

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

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 95.5% ownership interest in the Operating Partnership as of June 30, 2024. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 4.5% are held by certain former owners of assets acquired by the Operating Partnership. As of June 30, 2024 and December 31, 2023, 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, 2024, the ten-day average closing price of the Company's common stock was $157.24 and there were 8,621,449 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on June 30, 2024 and the Company elected to pay the OP Unit holders cash, the Company would have paid $1,355,637 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,
	2024	2023
OP Units redeemed for common stock	264,145	—

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, 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 June 30, 2024. Five joint ventures each own one operating store and the other four joint ventures each have properties under development. The voting interests of the partners are 17.0% or less.

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that one of the joint ventures at June 30, 2024 was a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” The Company has consolidated that joint venture as it was determined that the Company has the power to direct the activities of the joint venture and is the primary beneficiary of the joint venture.

EXTRA SPACE STORAGE INC.

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

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

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 on June 1, 2022. 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,
	2024		2023		2024		2023
Revenues:
Self-Storage Operations	$	697,100	$	440,747	$	1,385,144	$	874,709
Tenant Reinsurance	83,705		48,433		165,052		96,137
Total segment revenues	$	780,805	$	489,180	$	1,550,196	$	970,846

Operating expenses:
Self-Storage Operations	$	196,902	$	114,637	$	401,420	$	231,803
Tenant Reinsurance	19,631		9,482		38,136		18,571
Total segment operating expenses	$	216,533	$	124,119	$	439,556	$	250,374

Net operating income:
Self-Storage Operations	$	500,198	$	326,110	$	983,724	$	642,906
Tenant Reinsurance	64,074		38,951		126,916		77,566
Total segment net operating income:	$	564,272	$	365,061	$	1,110,640	$	720,472

Other components of net income:
Management fees and other income	$	29,858	$	22,206	$	60,006	$	43,590


General and administrative expense	(39,901)		(34,842)		(83,623)		(69,605)
Depreciation and amortization expense	(194,809)		(79,086)		(391,775)		(157,576)

Interest expense	(137,133)		(86,372)		(270,020)		(166,471)
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes	(10,853)		—		(21,558)		—
Interest income	31,226		21,077		54,799		40,515

Equity in earnings and dividend income from unconsolidated real estate entities	17,255		13,254		32,262		23,559

Income tax expense	(9,844)		(5,986)		(16,586)		(10,294)
Net income	$	195,412	$	215,312	$	419,486	$	424,190

EXTRA SPACE STORAGE INC.

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

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

16. COMMITMENTS AND CONTINGENCIES

As of June 30, 2024, the Company was under agreement to acquire four stores at a total purchase price of $49,166. All four stores are scheduled to close in 2024.

As of June 30, 2024, 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.

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.

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