Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-K entitled “Statements Regarding Forward-Looking Information.” Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Form 10-K entitled “Risk Factors.” AmountsDollar amounts in thousands, except share and per share data.data, unless otherwise stated.
Our stores are generally situated in highly visible locations clustered around large population centers. These areas enjoy above average population growth and income levels. The clustering of our assets around these population centers enables us to reduce our operating costs through economies of scale. To maximize the performance of our stores, we employ industry-leading revenue management systems. Developed by our management team, these systems enable us to analyze, set and adjust rental rates in real time across our portfolio in order to respond to changing market conditions. We believe our systems and processes allow us to more pro-actively manage revenues.
We operate in competitive markets, often where consumers have multiple stores from which to choose. Competition has impacted, and will continue to impact, our store results. We experience seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. We believe that we are able to respond quickly and effectively to changes in local, regional and national economic conditions by adjusting rental rates through the combination of our revenue management team and our industry-leading technology systems. We consider a store to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. We consider a store to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1 of the current year, or has been open for three years prior to January 1 of the current year.
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. A summary of significant accounting policies is also provided in the notes to our consolidated financial statements (see Note 2 to our consolidated financial statements). Actual results may differ from these estimates. We believe the following are our most critical accounting policies and estimates:
our financial statements. Otherwise, our investment is generally accounted for under the equity method. Our ability to correctly assess the influence or control over an entity affects the presentation of the investment in our consolidated financial statements.
taxable income for at least that year and the ensuing four years. We could also be subject to penalties and interest, and our net income may be materially different from the amounts reported in our financial statements.
For a discussion of recent accounting pronouncements affecting our business, see Item 8, “Financial Statements and Supplementary Data–Recently Issued Accounting Standards.”
The computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income as an indication of our performance, as an alternative to net cash flow from operating activities as a measure of our liquidity, or as an indicator of our ability to make cash distributions.
Cash provided by financing activities was $460,831 and $1,286,471, for the years ended December 31, 2016 and 2015, respectively. The change related primarily to a decrease in proceeds from notes payable and revolving lines of credit of $221,445, a decrease in net proceeds from the issuance of exchangeable senior notes of $563,500, and a decrease in net proceeds from the sale of common stock of $323,453 for the year ended December 31, 2016 when compared to the prior year. These decreases were partially offset by a decrease in principal payments on notes payable and revolving lines of credit of $191,128 and a decrease in the cash paid for the repurchase of exchangeable senior notes of $205,017.
LIQUIDITY AND CAPITAL RESOURCES
Financing Strategy
We will continue to employ leverage in our capital structure in amounts reviewed from time to time by our board of directors. Although our board of directors has not adopted a policy which limits the total amount of indebtedness that we may incur, we will consider a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such indebtedness that will be either fixed or variable rate. In making financing decisions, we will consider factors including but not limited to:
•the interest rate of the proposed financing;
•the extent to which the financing impacts flexibility in managing our stores;
•prepayment penalties and restrictions on refinancing;
•the purchase price of stores acquired with debt financing;
•long-term objectives with respect to the financing;
•target investment returns;
•the ability of particular stores, and our Companycompany as a whole, to generate cash flow sufficient to cover expected debt service payments;
•overall level of consolidated indebtedness;
•timing of debt maturities;
•provisions that require recourse and cross-collateralization; and
•corporate credit ratios including fixed charge coverage ratio and max secured/unsecured indebtedness.
Our indebtedness may be recourse, non-recourse, cross-collateralized, cross-defaulted, secured or unsecured. In addition, we may invest in stores subject to existing loans collateralized by mortgages or similar liens, or may refinance stores acquired on a leveraged basis. We may use the proceeds from any borrowings to refinance existing indebtedness, to refinance investments, including the redevelopment of existing stores, for general working capital or to purchase additional interests in partnerships or joint ventures or for other purposes when we believe it is advisable.
As of December 31, 2017,2023, we had $55,683$99,062 available in cash and cash equivalents. Our cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our operating accounts. During 20172023 and 2016,2022, we experienced no loss or lack of access to our cash or cash equivalents; however, there can be no assurance that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
As of December 31, 2017,2023, we had $4,601,322$11,346,105 face value of debt, resulting in a debt to total enterprise value ratio of 28.1%24.2%. As of December 31, 2016,2022, we had $4,363,697$7,364,424 face value of debt, resulting in a debt to total enterprise value ratio of 29.6%25.8%. As of December 31, 2017,2023, the ratio of total fixed-rate debt and other instruments to total debt was 74.7%73.4% (including $2,283,049$1,448,566 on which we have interest rate swaps that have been included as fixed-rate debt). As of December 31, 2016,2022, the ratio of total fixed-rate debt and other instruments to total debt was 70.0%64.7% (including $2,198,275$1,837,714 on which we have interest rate swaps that have been included as fixed-rate debt). The weighted average interest rate of the total of fixed- and variable-rate debt at December 31, 20172023 and 20162022 was 3.3%4.6% and 3.0%4.1%, respectively. As of December 31, 2023, the weighted average interest rate for all fixed rate debt was 3.9%, and the weighted average interest rate on all variable rate debt was 6.6%. As of December 31, 2022, the weighted average interest rate for all fixed rate debt was 3.4%, and the weighted average interest rate on all variable rate debt was 5.5%.
In January 2021, we received a Baa2 rating from Moody's Investors Service and in July 2019, we obtained a BBB/Stable rating from S&P which was upgraded to BBB+/Stable in July 2023 in connection with the Life Storage Merger. We intend to manage our balance sheet to preserve such ratings. Certain of our real estate assets are pledged as collateral for our debt. We have a total of 1671 unencumbered stores as defined by our public bonds. Our unencumbered asset value is calculated as $31,869,102 and our total asset value is calculated as $37,529,884 according to the calculations as defined by our public bonds. We are subject to certain restrictive covenants relating to our outstanding debt. We were in compliance with all financial covenants at December 31, 2017.2023.
We expect to fund our short-term and long-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to stockholders, distributions to holders of Operating Partnership units and interest on our outstanding indebtedness, out of our operating cash flow, cash on hand and borrowings under our revolving lines of credit. In addition, we are pursuing additional sources of financing based on anticipated funding needs.
Our liquidity needs consist primarily of cashoperating expenses, monthly debt service payments, recurring capital expenditures, distributions to unit holders and dividends to stockholders store acquisitions, principal payments undernecessary to maintain our borrowings and non-recurring capital expenditures.REIT qualification. We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market
purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In addition, we evaluate, on an ongoing basis, the merits of strategic acquisitions and other relationships, which may require us to raise additional funds. We may also use Operating Partnership units as currency to fund acquisitions from self-storage owners who desire tax-deferral in their exiting transactions.
OFF-BALANCE SHEET ARRANGEMENTS
Except as disclosed in the notes to our financial statements, we do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, except as disclosed in the notes to our financial statements, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitments or intent to provide funding to any such entities. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
CONTRACTUAL OBLIGATIONS
The following table presents information on future payments due by period as of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | |
| Payments due by Period: |
| | | Less Than | | | | | | After |
| Total | | 1 Year | | 1-3 Years | | 3-5 Years | | 5 Years |
Operating leases | $ | 152,426 |
| | $ | 8,015 |
| | $ | 15,087 |
| | $ | 14,595 |
| | $ | 114,729 |
|
Notes payable, unsecured term loans, notes payable to trusts and revolving lines of credit | | | | | | | | | |
Interest | 566,857 |
| | 144,367 |
| | 232,464 |
| | 101,042 |
| | 88,984 |
|
Principal | 4,601,322 |
| | 397,934 |
| | 2,036,425 |
| | 1,151,639 |
| | 1,015,324 |
|
Total contractual obligations | $ | 5,320,605 |
| | $ | 550,316 |
| | $ | 2,283,976 |
| | $ | 1,267,276 |
| | $ | 1,219,037 |
|
The operating leases above include minimum future lease payments on leases for 23 of our operating stores as well as leases of our corporate offices. Three ground leases include additional contingent rental payments based on the level of revenue achieved at the store.
As of December 31, 2017, the weighted average interest rate for all fixed rate loans was 3.3%, and the weighted average interest rate on all variable rate loans was 3.1%.
For more information on our contractual obligations related to real estate acquisitions, refer to our commitments and contingencies footnote in the notes to the consolidated financial statements in Item 8 of this Form 10-K.
SEASONALITY
The self-storage business ishas been subject to seasonal fluctuations. A greater portion of revenues and profits areis typically realized from May through September. Historically, our highest level of occupancy has been at the end of July, while our lowest level of occupancy has been in late February and early March. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year.
Item 7a.7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our future income, cash flows and fair values of financial instruments are dependent upon prevailing market interest rates.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
As of December 31, 2017,2023, we had approximately $4.6 billion$11,346,105 in total face value debt, of which approximately $1.2 billion$3,023,152 was subject to variable interest rates (excluding debt with interest rate swaps). If LIBORbenchmark index rates were to increase or decrease by 100 basis points, the increase or decrease in interest expense on the variable rate debt would increase or decrease future earnings and cash flows by approximately $11.6 million$30,232 annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
Derivative Instruments
We use derivative instruments to help manage interest rate risk using designated hedge relationships. Interest rate swaps involve the exchange of fixed-rate and variable-rate interest payments between two parties based on a contractual underlying notional amount, but do not involve the exchange of the underlying notional amounts. See our Derivatives footnote in our Notes to consolidated financial statements in Item 8 for additional information about our use of derivative contracts.
Item 8. Financial Statements and Supplementary Data
EXTRA SPACE STORAGE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of Extra Space Storage Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Extra Space Storage Inc. (the Company) as of December 31, 20172023 and 2016, and2022, the related consolidated statements of operations, comprehensive income, stockholders’stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2018February 29, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of Company’sthe Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | | | | |
| Purchase price allocation |
| |
Description of the Matter | For the year ended December 31, 2023, the Company completed the acquisition of 771 self-storage properties (“stores”) for a total purchase price of $13.0 billion. As further discussed in Notes 2 and 5 of the consolidated financial statements, the transactions were accounted for as asset acquisitions, and the purchase price was allocated based on a relative fair value of assets acquired and liabilities assumed, which consisted principally of land and buildings. |
| |
| Auditing the accounting for the Company’s 2023 acquisitions of stores was subjective because the Company, with the assistance of its external valuation specialist if applicable, had to exercise a high level of management judgment in determining the estimated fair value of acquired land and buildings. Determining the fair value of acquired land was difficult due to the lack of available directly comparable land market information. The estimated fair value of the acquired buildings was based upon the estimated replacement cost, which were calculated by estimating the cost of building similar stores in comparable markets and adjusting those costs for the age, quality, and building characteristics associated with the acquired stores. Determining the fair value of the acquired buildings was challenging due to the judgment utilized by management in determining the significant assumptions utilized in, or the adjustments applied to, the valuation of each building. |
| |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s accounting for acquired stores, including controls over the review of significant assumptions underlying the purchase price allocation and accuracy of the underlying data used. For example, we tested controls over the determination of the fair value of the land and building assets, including the controls over the review of the valuation models and the underlying significant assumptions used to develop such estimates. |
| |
| For the 2023 store acquisitions described above, our procedures included, but were not limited to, reading the purchase and sale agreements and other closing documents, evaluating whether the Company had appropriately determined the transaction was an asset acquisition or business combination and performing sensitivity analyses. For certain of these store acquisitions, we also evaluated the methods and significant assumptions used by the Company to determine the fair value of the land and buildings and tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Additionally, for certain of these asset acquisitions, we involved our valuation specialists to assist in the assessment of the methodology utilized by the Company, in addition to performing corroborative analyses to assess whether the conclusions in the valuation were supported by observable market data. For example, our valuation specialists used independently identified data sources to evaluate management’s selected comparable land sales and building replacement cost assumptions. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2005.
Salt Lake City, Utah
March 1, 2018
February 29, 2024
Extra Space Storage Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Assets: | | | |
Real estate assets, net | $ | 7,132,431 |
| | $ | 6,770,447 |
|
Investments in unconsolidated real estate ventures | 70,091 |
| | 79,570 |
|
Cash and cash equivalents | 55,683 |
| | 43,858 |
|
Restricted cash | 30,361 |
| | 13,884 |
|
Receivables from related parties and affiliated real estate joint ventures | 2,847 |
| | 16,611 |
|
Other assets, net | 163,724 |
| | 167,076 |
|
Total assets | $ | 7,455,137 |
| | $ | 7,091,446 |
|
Liabilities, Noncontrolling Interests and Equity: | | | |
Notes payable, net | $ | 3,738,497 |
| | $ | 3,213,588 |
|
Exchangeable senior notes, net | 604,276 |
| | 610,314 |
|
Notes payable to trusts, net | 117,444 |
| | 117,321 |
|
Revolving lines of credit | 94,000 |
| | 365,000 |
|
Accounts payable and accrued expenses | 96,087 |
| | 101,388 |
|
Other liabilities | 81,026 |
| | 87,669 |
|
Total liabilities | 4,731,330 |
| | 4,495,280 |
|
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, 126,007,091 and 125,881,460 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 1,260 |
| | 1,259 |
|
Additional paid-in capital | 2,569,485 |
| | 2,566,120 |
|
Accumulated other comprehensive income | 33,290 |
| | 16,770 |
|
Accumulated deficit | (253,284 | ) | | (339,257 | ) |
Total Extra Space Storage Inc. stockholders' equity | 2,350,751 |
| | 2,244,892 |
|
Noncontrolling interest represented by Preferred Operating Partnership units, net of $120,230 notes receivable | 159,636 |
| | 147,920 |
|
Noncontrolling interests in Operating Partnership | 213,301 |
| | 203,354 |
|
Other noncontrolling interests | 119 |
| | — |
|
Total noncontrolling interests and equity | 2,723,807 |
| | 2,596,166 |
|
Total liabilities, noncontrolling interests and equity | $ | 7,455,137 |
| | $ | 7,091,446 |
|
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Assets: | | | |
Real estate assets, net | $ | 24,555,873 | | | $ | 9,997,978 | |
Real estate assets - operating lease right-of-use assets | 227,241 | | | 221,725 | |
Investments in unconsolidated real estate entities | 1,071,617 | | | 582,412 | |
Investments in debt securities and notes receivable | 904,769 | | | 858,049 | |
Cash and cash equivalents | 99,062 | | | 92,868 | |
| | | |
| | | |
Other assets, net | 597,700 | | | 414,426 | |
Total assets | $ | 27,456,262 | | | $ | 12,167,458 | |
Liabilities, Noncontrolling Interests and Equity: | | | |
Notes payable, net | $ | 1,273,549 | | | $ | 1,288,555 | |
Unsecured term loans, net | 2,650,581 | | | 2,340,116 | |
Unsecured senior notes, net | 6,410,618 | | | 2,757,791 | |
Revolving lines of credit | 682,000 | | | 945,000 | |
Operating lease liabilities | 236,515 | | | 229,035 | |
Cash distributions in unconsolidated real estate ventures | 71,069 | | | 67,352 | |
Accounts payable and accrued expenses | 334,518 | | | 171,680 | |
Other liabilities | 383,463 | | | 289,655 | |
Total liabilities | 12,042,313 | | | 8,089,184 | |
Commitments and contingencies | | | |
Noncontrolling Interests and Equity: | | | |
Extra Space Storage Inc. stockholders' equity: | | | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
Common stock, $0.01 par value, 500,000,000 shares authorized, 211,278,803 and 133,921,020 shares issued and outstanding at December 31, 2023 and 2022, respectively | 2,113 | | | 1,339 | |
Additional paid-in capital | 14,750,388 | | | 3,345,332 | |
Accumulated other comprehensive income | 17,435 | | | 48,798 | |
Accumulated deficit | (379,015) | | | (135,872) | |
Total Extra Space Storage Inc. stockholders' equity | 14,390,921 | | | 3,259,597 | |
Noncontrolling interest represented by Preferred Operating Partnership units, net | 222,360 | | | 261,502 | |
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests | 800,668 | | | 557,175 | |
Total noncontrolling interests and equity | 15,413,949 | | | 4,078,274 | |
Total liabilities, noncontrolling interests and equity | $ | 27,456,262 | | | $ | 12,167,458 | |
See accompanying notes.
notes
Extra Space Storage Inc.
Consolidated Statements of Operations
(dollars in thousands, except share data)
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
Property rental | $ | 967,229 |
| | $ | 864,742 |
| | $ | 676,138 |
|
Tenant reinsurance | 98,401 |
| | 87,291 |
| | 71,971 |
|
Management fees and other income | 39,379 |
| | 39,842 |
| | 34,161 |
|
Total revenues | 1,105,009 |
| | 991,875 |
| | 782,270 |
|
Expenses: | | | | | |
Property operations | 271,974 |
| | 250,005 |
| | 203,965 |
|
Tenant reinsurance | 19,173 |
| | 15,555 |
| | 13,033 |
|
Acquisition related costs and other | — |
| | 12,111 |
| | 69,401 |
|
General and administrative | 78,961 |
| | 81,806 |
| | 67,758 |
|
Depreciation and amortization | 193,296 |
| | 182,560 |
| | 133,457 |
|
Total expenses | 563,404 |
| | 542,037 |
| | 487,614 |
|
Income from operations | 541,605 |
| | 449,838 |
| | 294,656 |
|
Gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate | 112,789 |
| | 8,465 |
| | 1,501 |
|
Interest expense | (153,511 | ) | | (133,479 | ) | | (95,682 | ) |
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes | (5,103 | ) | | (4,980 | ) | | (3,310 | ) |
Interest income | 3,801 |
| | 6,148 |
| | 3,461 |
|
Interest income on note receivable from Preferred Operating Partnership unit holder | 2,935 |
| | 4,850 |
| | 4,850 |
|
Income before equity in earnings of unconsolidated real estate ventures and income tax expense | 502,516 |
| | 330,842 |
| | 205,476 |
|
Equity in earnings of unconsolidated real estate ventures | 15,331 |
| | 12,895 |
| | 12,351 |
|
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners' interests | — |
| | 69,199 |
| | 2,857 |
|
Income tax expense | (3,625 | ) | | (15,847 | ) | | (11,148 | ) |
Net income | 514,222 |
| | 397,089 |
| | 209,536 |
|
Net income allocated to Preferred Operating Partnership noncontrolling interests | (14,989 | ) | | (14,700 | ) | | (11,718 | ) |
Net income allocated to Operating Partnership and other noncontrolling interests | (20,220 | ) | | (16,262 | ) | | (8,344 | ) |
Net income attributable to common stockholders | $ | 479,013 |
| | $ | 366,127 |
| | $ | 189,474 |
|
Earnings per common share | | | | | |
Basic | $ | 3.79 |
| | $ | 2.92 |
| | $ | 1.58 |
|
Diluted | $ | 3.76 |
| | $ | 2.91 |
| | $ | 1.56 |
|
Weighted average number of shares | | | | | |
Basic | 125,967,831 |
| | 125,087,554 |
| | 119,816,743 |
|
Diluted | 134,155,771 |
| | 125,948,076 |
| | 126,918,869 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Property rental | $ | 2,222,578 | | | $ | 1,654,735 | | | $ | 1,340,990 | |
Tenant reinsurance | 235,680 | | | 185,531 | | | 170,108 | |
Management fees and other income | 101,986 | | | 83,904 | | | 66,264 | |
Total revenues | 2,560,244 | | | 1,924,170 | | | 1,577,362 | |
Expenses: | | | | | |
Property operations | 612,036 | | | 435,342 | | | 368,608 | |
Tenant reinsurance | 58,874 | | | 33,560 | | | 29,488 | |
Transaction costs | — | | | 1,548 | | | — | |
Life Storage Merger transition costs | 66,732 | | | — | | | — | |
General and administrative | 146,408 | | | 129,251 | | | 102,194 | |
Depreciation and amortization | 506,053 | | | 288,316 | | | 241,879 | |
Total expenses | 1,390,103 | | | 888,017 | | | 742,169 | |
Gain on real estate transactions | — | | | 14,249 | | | 140,760 | |
Income from operations | 1,170,141 | | | 1,050,402 | | | 975,953 | |
| | | | | |
Interest expense | (419,035) | | | (219,171) | | | (166,183) | |
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes | (18,786) | | | — | | | — | |
Interest income | 84,857 | | | 69,422 | | | 49,703 | |
| | | | | |
Income before equity in earnings and dividend income from unconsolidated real estate entities and income tax expense | 817,177 | | | 900,653 | | | 859,473 | |
Equity in earnings and dividend income from unconsolidated real estate entities | 54,835 | | | 41,428 | | | 32,358 | |
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets | — | | | — | | | 6,251 | |
Income tax expense | (21,559) | | | (20,925) | | | (20,324) | |
Net income | 850,453 | | | 921,156 | | | 877,758 | |
Net income allocated to Preferred Operating Partnership noncontrolling interests | (9,011) | | | (17,623) | | | (14,697) | |
Net income allocated to Operating Partnership and other noncontrolling interests | (38,244) | | | (42,845) | | | (35,412) | |
Net income attributable to common stockholders | $ | 803,198 | | | $ | 860,688 | | | $ | 827,649 | |
Earnings per common share | | | | | |
Basic | $ | 4.74 | | | $ | 6.41 | | | $ | 6.20 | |
Diluted | $ | 4.74 | | | $ | 6.41 | | | $ | 6.19 | |
Weighted average number of shares | | | | | |
Basic | 169,216,989 | | | 134,050,815 | | | 133,374,938 | |
Diluted | 169,220,882 | | | 141,681,388 | | | 140,016,028 | |
See accompanying notes.
notes
Extra Space Storage Inc.
Consolidated Statements of Comprehensive Income
(amounts in thousands)
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 514,222 |
| | $ | 397,089 |
| | $ | 209,536 |
|
Other comprehensive income (loss): | | | | | |
Change in fair value of interest rate swaps | 17,308 |
| | 24,598 |
| | (4,929 | ) |
Total comprehensive income | 531,530 |
| | 421,687 |
| | 204,607 |
|
Less: comprehensive income attributable to noncontrolling interests | 35,997 |
| | 32,438 |
| | 20,001 |
|
Comprehensive income attributable to common stockholders | $ | 495,533 |
| | $ | 389,249 |
| | $ | 184,606 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income | $ | 850,453 | | | $ | 921,156 | | | $ | 877,758 | |
Other comprehensive income: | | | | | |
Change in fair value of interest rate swaps | (32,752) | | | 96,249 | | | 59,325 | |
Total comprehensive income | 817,701 | | | 1,017,405 | | | 937,083 | |
Less: comprehensive income attributable to noncontrolling interests | 45,866 | | | 65,373 | | | 52,887 | |
Comprehensive income attributable to common stockholders | $ | 771,835 | | | $ | 952,032 | | | $ | 884,196 | |
See accompanying notes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | | | | | | | | | |
| | | | | | | | | Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| | | Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| | | | | | | | | | | Shares | | Par Value | |
Balances at December 31, 2020 | | | | | | | | | $ | 172,052 | | | $ | 215,892 | | | $ | 401 | | | 131,357,961 | | | $ | 1,314 | | | $ | 3,000,458 | | | $ | (99,093) | | | $ | (354,900) | | | $ | 2,936,124 | |
Issuance of common stock upon the exercise of options | | | | | | | | | — | | | — | | | — | | | 62,322 | | | — | | | 4,572 | | | — | | | — | | | 4,572 | |
Issuance of common stock in connection with share based compensation | | | | | | | | | — | | | — | | | — | | | 148,228 | | | — | | | 17,303 | | | — | | | — | | | 17,303 | |
Restricted stock grants cancelled | | | | | | | | | — | | | — | | | — | | | (12,808) | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock, net of offering costs | | | | | | | | | — | | | — | | | — | | | 2,185,685 | | | 22 | | | 273,167 | | | — | | | — | | | 273,189 | |
Redemption of Operating Partnership units for stock | | | | | | | | | — | | | (6,373) | | | — | | | 165,652 | | | 2 | | | 6,371 | | | — | | | — | | | — | |
Redemption of Preferred B Units in the Operating Partnership for stock | | | | | | | | | (2,834) | | | — | | | — | | | 15,265 | | | 1 | | | 2,833 | | | — | | | — | | | — | |
Redemption of Operating Partnership units for cash | | | | | | | | | — | | | (173) | | | — | | | — | | | — | | | (615) | | | — | | | — | | | (788) | |
Repayment of receivable with Operating Partnership units pledged as collateral | | | | | | | | | — | | | 411 | | | — | | | — | | | — | | | — | | | — | | | — | | | 411 | |
Issuance of Operating Partnership units in conjunction with acquisitions | | | | | | | | | — | | | 188,319 | | | — | | | — | | | — | | | — | | | — | | | — | | | 188,319 | |
Issuance of Preferred D units in the Operating Partnership in conjunction with acquisitions | | | | | | | | | 88,074 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 88,074 | |
Purchase of remaining equity interest in existing consolidated joint venture | | | | | | | | | — | | | — | | | — | | | — | | | — | | | (18,141) | | | — | | | — | | | (18,141) | |
Noncontrolling interest in consolidated joint venture | | | | | | | | | — | | | — | | | (82) | | | — | | | — | | | — | | | — | | | — | | | (82) | |
Net income (loss) | | | | | | | | | 14,697 | | | 35,414 | | | (2) | | | — | | | — | | | — | | | — | | | 827,649 | | | 877,758 | |
Other comprehensive income | | | | | | | | | 366 | | | 2,412 | | | — | | | — | | | — | | | — | | | 56,547 | | | — | | | 59,325 | |
Distributions to Operating Partnership units held by noncontrolling interests | | | | | | | | | (13,245) | | | (25,849) | | | — | | | — | | | — | | | — | | | — | | | — | | | (39,094) | |
Dividends paid on common stock at $4.50 per share | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (600,994) | | | (600,994) | |
Balances at December 31, 2021 | | | | | | | | | $ | 259,110 | | | $ | 410,053 | | | $ | 317 | | | 133,922,305 | | | $ | 1,339 | | | $ | 3,285,948 | | | $ | (42,546) | | | $ | (128,245) | | | $ | 3,785,976 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | |
| Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| Series A | | Series B | | Series C | | Series D | | | Shares | | Par Value | |
Balances at Balances at December 31, 2014 | $ | 14,809 |
| | $ | 41,903 |
| | $ | 10,730 |
| | $ | 13,710 |
| | $ | 92,422 |
| | $ | 984 |
| | 116,360,239 |
| | $ | 1,163 |
| | $ | 1,995,484 |
| | $ | (1,484 | ) | | $ | (257,738 | ) | | $ | 1,911,983 |
|
Issuance of common stock upon the exercise of options | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 79,974 |
| | 1 |
| | 1,541 |
| | — |
| | — |
| | 1,542 |
|
Restricted stock grants issued | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 174,558 |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Restricted stock grants cancelled | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18,090 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock, net of offering costs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,735,000 |
| | 67 |
| | 446,810 |
| | — |
| | — |
| | 446,877 |
|
Compensation expense related to stock-based awards | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,055 |
| | — |
| | — |
| | 6,055 |
|
Purchase of remaining equity interest in existing consolidated joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | (822 | ) | | — |
| | — |
| | (446 | ) | | — |
| | — |
| | (1,268 | ) |
Issuance of Operating Partnership units in conjunction with acquisitions | — |
| | — |
| | — |
| | — |
| | 142,399 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 142,399 |
|
Redemption of Operating Partnership units for common stock | — |
| | — |
| | — |
| | — |
| | (28,106 | ) | | — |
| | 787,850 |
| | 8 |
| | 28,098 |
| | — |
| | — |
| | — |
|
Repurchase of equity portion of 2013 exchangeable senior notes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (70,112 | ) | | — |
| | — |
| | (70,112 | ) |
Issuance of 2015 exchangeable senior notes - equity component | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,597 |
| | — |
| | — |
| | 22,597 |
|
Net income | 6,445 |
| | 2,514 |
| | 2,074 |
| | 685 |
| | 8,344 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 189,474 |
| | 209,536 |
|
Other comprehensive income (loss) | (15 | ) | | — |
| | — |
| | — |
| | (46 | ) | | — |
| | — |
| | — |
| | — |
| | (4,868 | ) | | — |
| | (4,929 | ) |
Tax effect from vesting of restricted stock grants and stock option exercises | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,727 |
| | — |
| | — |
| | 1,727 |
|
Distributions to Operating Partnership units held by noncontrolling interests | (7,050 | ) | | (2,515 | ) | | (2,074 | ) | | (685 | ) | | (12,179 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (24,503 | ) |
Dividends paid on common stock at $2.24 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (269,302 | ) | | (269,302 | ) |
Balances at Balances at December 31, 2015 | $ | 14,189 |
| | $ | 41,902 |
| | $ | 10,730 |
| | $ | 13,710 |
| | $ | 202,834 |
| | $ | 162 |
| | 124,119,531 |
| | $ | 1,241 |
| | $ | 2,431,754 |
| | $ | (6,352 | ) | | $ | (337,566 | ) | | $ | 2,372,604 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | | | | | | | | | |
| | | | | | | | | Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| | | Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| | | | | | | | | | | Shares | | Par Value | |
Balances at December 31, 2021 | | | | | | | | | $ | 259,110 | | | $ | 410,053 | | | $ | 317 | | | 133,922,305 | | | $ | 1,339 | | | $ | 3,285,948 | | | $ | (42,546) | | | $ | (128,245) | | | $ | 3,785,976 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock in connection with share based compensation | | | | | | | | | — | | | — | | | — | | | 204,349 | | | 2 | | | 21,386 | | | — | | | — | | | 21,388 | |
Restricted stock grants cancelled | | | | | | | | | — | | | — | | | — | | | (10,614) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units for cash | | | | | | | | | — | | | (1,654) | | | — | | | — | | | — | | | (2,963) | | | — | | | — | | | (4,617) | |
Redemption of Preferred B Units in the Operating Partnership for cash | | | | | | | | | (4,500) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,500) | |
Issuance of Operating Partnership units in conjunction with business combinations | | | | | | | | | — | | | 16,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,000 | |
Issuance of Operating Partnership units in conjunction with acquisitions | | | | | | | | | — | | | 125,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | 125,000 | |
Issuance of Preferred D units in the Operating Partnership in conjunction with business combinations | | | | | | | | | 6,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,000 | |
Issuance of common stock in conjunction with acquisitions | | | | | | | | | — | | | — | | | — | | | 186,766 | | | 2 | | | 40,961 | | | — | | | — | | | 40,963 | |
Repurchase of common stock, net of offering costs | | | | | | | | | — | | | — | | | — | | | (381,786) | | | (4) | | | — | | | — | | | (63,004) | | | (63,008) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling interest in consolidated joint venture | | | | | | | | | — | | | — | | | 771 | | | — | | | — | | | — | | | — | | | — | | | 771 | |
Net income (loss) | | | | | | | | | 17,623 | | | 42,853 | | | (8) | | | — | | | — | | | — | | | — | | | 860,688 | | | 921,156 | |
Other comprehensive income | | | | | | | | | 577 | | | 4,328 | | | — | | | — | | | — | | | — | | | 91,344 | | | — | | | 96,249 | |
Distributions to Operating Partnership units held by noncontrolling interests | | | | | | | | | (17,308) | | | (40,485) | | | — | | | — | | | — | | | — | | | — | | | — | | | (57,793) | |
Dividends paid on common stock at $6.00 per share | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (805,311) | | | (805,311) | |
Balances at December 31, 2022 | | | | | | | | | $ | 261,502 | | | $ | 556,095 | | | $ | 1,080 | | | 133,921,020 | | | $ | 1,339 | | | $ | 3,345,332 | | | $ | 48,798 | | | $ | (135,872) | | | $ | 4,078,274 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | |
| Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| Series A | | Series B | | Series C | | Series D | | | Shares | | Par Value | |
Balances at Balances at December 31, 2015 | $ | 14,189 |
| | $ | 41,902 |
| | $ | 10,730 |
| | $ | 13,710 |
| | $ | 202,834 |
| | $ | 162 |
| | 124,119,531 |
| | $ | 1,241 |
| | $ | 2,431,754 |
| | $ | (6,352 | ) | | $ | (337,566 | ) | | $ | 2,372,604 |
|
Issuance of common stock upon the exercise of options | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 97,855 |
| | — |
| | 1,444 |
| | — |
| | — |
| | 1,444 |
|
Restricted stock grants issued | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 119,931 |
| | 2 |
| |
|
| | — |
| | — |
| | 2 |
|
Restricted stock grants cancelled | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,947 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of common stock, net of offering costs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,381,300 |
| | 14 |
| | 123,408 |
| | — |
| | — |
| | 123,422 |
|
Compensation expense related to stock-based awards | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,045 |
| | — |
| | — |
| | 8,045 |
|
Purchase of remaining equity interest in existing consolidated joint venture | — |
| | — |
| | — |
| | — |
| | 800 |
| | (162 | ) | | — |
| | — |
| | (638 | ) | | — |
| | — |
| | — |
|
Issuance of Operating Partnership units in conjunction with acquisitions | — |
| | — |
| | — |
| | — |
| | 7,247 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,247 |
|
Redemption of Operating Partnership units for sale of property | — |
| | — |
| | — |
| | — |
| | (7,689 | ) | | — |
| | — |
| | — |
| |
|
| | — |
| | — |
| | (7,689 | ) |
Redemption of Operating Partnership units for common stock and cash | — |
| | — |
| | — |
| | — |
| | (1,083 | ) | | — |
| | 23,850 |
| | — |
| | 577 |
| | — |
| | — |
| | (506 | ) |
Issuance of Preferred D Units in the Operating Partnership in conjunction with acquisitions | — |
| | — |
| | — |
| | 67,193 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 67,193 |
|
Repurchase of equity portion of 2013 exchangeable senior notes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 148,940 |
| | 2 |
| | (874 | ) | | — |
| | — |
| | (872 | ) |
Net income | 7,645 |
| | 2,514 |
| | 2,570 |
| | 1,971 |
| | 16,262 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 366,127 |
| | 397,089 |
|
Other comprehensive income | 201 |
| | — |
| | — |
| | — |
| | 1,275 |
| | — |
| | — |
| | — |
| | — |
| | 23,122 |
| | — |
| | 24,598 |
|
Tax effect from vesting of restricted stock grants and stock option exercises | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,404 |
| | — |
| | — |
| | 2,404 |
|
Distributions to Operating Partnership units held by noncontrolling interests | (7,650 | ) | | (2,514 | ) | | (2,570 | ) | | (1,971 | ) | | (16,292 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (30,997 | ) |
Dividends paid on common stock at $2.93 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (367,818 | ) | | (367,818 | ) |
Balances at Balances at December 31, 2016 | $ | 14,385 |
| | $ | 41,902 |
| | $ | 10,730 |
| | $ | 80,903 |
| | $ | 203,354 |
| | $ | — |
| | 125,881,460 |
| | $ | 1,259 |
| | $ | 2,566,120 |
| | $ | 16,770 |
| | $ | (339,257 | ) | | $ | 2,596,166 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | |
| Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| Series A | | Series B | | Series C | | Series D | | | Shares | | Par Value | |
Balances at Balances at December 31, 2016 | $ | 14,385 |
| | $ | 41,902 |
| | $ | 10,730 |
| | $ | 80,903 |
| | $ | 203,354 |
| | $ | — |
| | 125,881,460 |
| | $ | 1,259 |
| | $ | 2,566,120 |
| | $ | 16,770 |
| | $ | (339,257 | ) | | $ | 2,596,166 |
|
Issuance of common stock upon the exercise of options | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,418 |
| | — |
| | 1,266 |
| | — |
| | — |
| | 1,266 |
|
Restricted stock grants issued | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95,392 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
Restricted stock grants cancelled | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,179 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Compensation expense related to stock-based awards | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,561 |
| | — |
| | — |
| | 9,561 |
|
Issuance of Operating Partnership units in conjunction with acquisitions | — |
| | — |
| | — |
| | — |
| | 7,618 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,618 |
|
Redemption of Operating Partnership units for cash | — |
| | — |
| | — |
| | — |
| | (1,238 | ) | | — |
| | — |
| | — |
| | (1,272 | ) | | — |
| | — |
| | (2,510 | ) |
Issuance of Preferred D Units in the Operating Partnership in conjunction with acquisitions | — |
| | — |
| | — |
| | 11,161 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11,161 |
|
Noncontrolling Interest in consolidated joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | 216 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 216 |
|
Repurchase of equity portion of 2013 exchangeable senior notes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,189 | ) | | — |
| | — |
| | (6,189 | ) |
Net income (loss) | 6,300 |
| | 2,514 |
| | 2,703 |
| | 3,472 |
| | 20,317 |
| | (97 | ) | | — |
| | — |
| | — |
| | — |
| | 479,013 |
| | 514,222 |
|
Other comprehensive income | 106 |
| | — |
| | — |
| | — |
| | 682 |
| | — |
| | — |
| | — |
| | — |
| | 16,520 |
| | — |
| | 17,308 |
|
Distributions to Operating Partnership units held by noncontrolling interests | (5,851 | ) | | (2,514 | ) | | (2,703 | ) | | (3,472 | ) | | (17,432 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (31,972 | ) |
Dividends paid on common stock at $3.12 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (393,040 | ) | | (393,040 | ) |
Balances at Balances at December 31, 2017 | $ | 14,940 |
| | $ | 41,902 |
| | $ | 10,730 |
| | $ | 92,064 |
| | $ | 213,301 |
| | $ | 119 |
| | 126,007,091 |
| | $ | 1,260 |
| | $ | 2,569,485 |
| | $ | 33,290 |
| | $ | (253,284 | ) | | $ | 2,723,807 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Extra Space Storage Inc. Consolidated Statements of Stockholders' Equity (amounts in thousands, except share data) |
| | | | | | | | | | | | | |
| | | | | | | | | Noncontrolling Interests | | Extra Space Storage Inc. Stockholders' Equity | | |
| | | Preferred Operating Partnership | | Operating Partnership | | Other | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Noncontrolling Interests and Equity |
| | | | | | | | | | | Shares | | Par Value | |
Balances at December 31, 2022 | | | | | | | | | $ | 261,502 | | | $ | 556,095 | | | $ | 1,080 | | | 133,921,020 | | | $ | 1,339 | | | $ | 3,345,332 | | | $ | 48,798 | | | $ | (135,872) | | | $ | 4,078,274 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock in connection with share based compensation | | | | | | | | | — | | | — | | | — | | | 149,995 | | | 2 | | | 26,636 | | | — | | | — | | | 26,638 | |
Taxes paid upon net settlement of share based compensation | | | | | | | | | — | | | — | | | — | | | (8,295) | | | — | | | (7,640) | | | — | | | — | | | (7,640) | |
Restricted stock grants cancelled | | | | | | | | | — | | | — | | | — | | | (10,084) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units for stock | | | | | | | | | — | | | (225) | | | — | | | 2,803 | | | — | | | 225 | | | — | | | — | | | — | |
Redemption of Operating Partnership units for cash | | | | | | | | | — | | | (89) | | | — | | | — | | | — | | | (19) | | | — | | | — | | | (108) | |
Redemption of Preferred A Units in the Operating Partnership for stock and cash | | | | | | | | | (16,339) | | | — | | | — | | | 851,698 | | | 8 | | | 11,015 | | | — | | | — | | | (5,316) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Redemption of Preferred D Units in the Operating Partnership for stock | | | | | | | | | (22,265) | | | — | | | — | | | 154,307 | | | 2 | | | 22,263 | | | — | | | — | | | — | |
Redemption of Preferred D Units in the Operating Partnership for cash | | | | | | | | | (377) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (377) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Life Storage Merger issuance of common stock and Operating Partnership units | | | | | | | | | — | | | 249,470 | | | — | | | 76,217,359 | | | 762 | | | 11,352,576 | | | — | | | — | | | 11,602,808 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling interest in consolidated joint ventures | | | | | | | | | — | | | — | | | 7,959 | | | — | | | — | | | — | | | — | | | — | | | 7,959 | |
Net income (loss) | | | | | | | | | 9,011 | | | 38,369 | | | (125) | | | — | | | — | | | — | | | — | | | 803,198 | | | 850,453 | |
Other comprehensive loss | | | | | | | | | — | | | (1,389) | | | — | | | — | | | — | | | — | | | (31,363) | | | — | | | (32,752) | |
Distributions to Operating Partnership units held by noncontrolling interests | | | | | | | | | (9,172) | | | (50,477) | | | — | | | — | | | — | | | — | | | — | | | — | | | (59,649) | |
Dividends paid on common stock at $6.48 per share | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,046,341) | | | (1,046,341) | |
Balances at December 31, 2023 | | | | | | | | | $ | 222,360 | | | $ | 791,754 | | | $ | 8,914 | | | 211,278,803 | | | $ | 2,113 | | | $ | 14,750,388 | | | $ | 17,435 | | | $ | (379,015) | | | $ | 15,413,949 | |
See accompanying notes.
notes
Extra Space Storage Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income | $ | 850,453 | | | $ | 921,156 | | | $ | 877,758 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 506,053 | | | 288,316 | | | 241,879 | |
Amortization of deferred financing costs | 18,949 | | | 8,773 | | | 10,587 | |
Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes | 18,786 | | | — | | | — | |
| | | | | |
Compensation expense related to share-based awards | 26,638 | | | 21,386 | | | 17,303 | |
Accrual of interest income added to principal of debt securities and notes receivable | (37,907) | | | (38,412) | | | (34,550) | |
Gain on real estate transactions | — | | | (14,249) | | | (140,760) | |
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets | — | | | — | | | (6,251) | |
Distributions from unconsolidated real estate ventures | 20,060 | | | 13,162 | | | 7,035 | |
Changes in operating assets and liabilities: | | | | | |
| | | | | |
Other assets | (32,507) | | | 695 | | | (22,022) | |
Accounts payable and accrued expenses | 35,031 | | | 29,027 | | | 10,951 | |
Other liabilities | (3,082) | | | 8,285 | | | (9,494) | |
Net cash provided by operating activities | 1,402,474 | | | 1,238,139 | | | 952,436 | |
Cash flows from investing activities: | | | | | |
Acquisition of real estate assets and improvements | (320,711) | | | (1,291,491) | | | (1,233,298) | |
Life Storage Merger, net of cash acquired | (1,182,411) | | | — | | | — | |
Cash paid for business combination | — | | | (157,302) | | | — | |
Development and redevelopment of real estate assets | (100,181) | | | (62,019) | | | (56,226) | |
Proceeds from sale of real estate assets and investments in real estate ventures | 2,132 | | | 39,367 | | | 572,728 | |
| | | | | |
Investment in unconsolidated real estate entities | (180,279) | | | (118,963) | | | (54,602) | |
Return of investment in unconsolidated real estate ventures | — | | | 342 | | | 31,534 | |
Issuance and purchase of notes receivable | (330,499) | | | (529,245) | | | (317,482) | |
| | | | | |
Proceeds from sale of notes receivable | 167,495 | | | 210,048 | | | 172,002 | |
Principal payments received from notes receivable | 142,192 | | | 283,636 | | | 51,463 | |
Purchase of equipment and fixtures | (15,994) | | | (22,832) | | | (3,659) | |
Net cash used in investing activities | (1,818,256) | | | (1,648,459) | | | (837,540) | |
Cash flows from financing activities: | | | | | |
Proceeds from the sale of common stock, net of offering costs | — | | | — | | | 273,189 | |
Proceeds from unsecured term loans and senior notes and revolving lines of credit | 8,663,003 | | | 5,584,111 | | | 5,706,981 | |
Principal payments on unsecured term loans and senior notes and revolving lines of credit | (7,088,984) | | | (4,207,700) | | | (5,500,290) | |
| | | | | |
| | | | | |
Deferred financing costs | (39,418) | | | (9,321) | | | (10,698) | |
| | | | | |
Proceeds from principal payments on note receivable collateralized by OP Units | — | | | — | | | 411 | |
Net proceeds from exercise of stock options | — | | | — | | | 4,572 | |
Repurchase of common stock | — | | | (63,008) | | | — | |
Redemption of Preferred OP units for cash | (5,377) | | | (4,500) | | | — | |
Redemption of Operating Partnership units for cash | (108) | | | (4,617) | | | (788) | |
Contributions from noncontrolling interests | 74 | | | — | | | — | |
Distributions to minority investors | (70) | | | — | | | — | |
Dividends paid on common stock | (1,046,341) | | | (805,311) | | | (600,994) | |
Distributions to noncontrolling interests | (59,649) | | | (57,793) | | | (39,094) | |
Net cash provided by (used in) financing activities | 423,130 | | | 431,861 | | | (166,711) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 7,348 | | | 21,541 | | | (51,815) | |
Cash, cash equivalents, and restricted cash, beginning of the period | 97,735 | | | 76,194 | | | 128,009 | |
Cash, cash equivalents, and restricted cash, end of the period | $ | 105,083 | | | $ | 97,735 | | | $ | 76,194 | |
Cash and equivalents, including restricted cash at the beginning of the period: | | | | | |
Cash and equivalents | $ | 92,868 | | | $ | 71,126 | | | $ | 109,124 | |
Restricted cash included in other assets | 4,867 | | | 5,068 | | | 18,885 | |
| $ | 97,735 | | | $ | 76,194 | | | $ | 128,009 | |
Cash and equivalents, including restricted cash at the end of the period: | | | | | |
Cash and equivalents | $ | 99,062 | | | $ | 92,868 | | | $ | 71,126 | |
Restricted cash included in other assets | 6,021 | | | 4,867 | | | 5,068 | |
| $ | 105,083 | | | $ | 97,735 | | | $ | 76,194 | |
Supplemental schedule of cash flow information | | | | | |
Interest paid | $ | 338,552 | | | $ | 197,069 | | | $ | 152,170 | |
Income taxes paid | $ | 22,753 | | | $ | 18,957 | | | $ | 26,252 | |
Supplemental schedule of noncash investing and financing activities: | | | | | |
Redemption of Operating Partnership units held by noncontrolling interests for common stock | | | | | |
Noncontrolling interests in Operating Partnership | $ | (116,336) | | | $ | — | | | $ | (6,373) | |
Common stock and paid-in capital | 16,336 | | | — | | | 6,373 | |
| | | | | |
| | | | | |
| | | | | |
Noncontrolling interests in Operating Partnership Note Receivable Payoff | 100,000 | | | — | | | — | |
| | | | | |
Redemption of Preferred Operating Partnership units for common stock | | | | | |
Preferred Operating Partnership units | $ | (33,604) | | | $ | — | | | $ | (2,834) | |
Additional paid-in capital | 33,604 | | | — | | | 2,834 | |
| | | | | |
| | | | | |
| | | | | |
Issuance of OP and Preferred OP units in conjunction with business combination | | | | | |
Preferred OP units issued | $ | — | | | $ | (6,000) | | | $ | — | |
OP units issued | — | | | (16,000) | | | — | |
| | | | | |
| | | | | |
| | | | | |
Acquisition and establishment of operating lease right of use assets and lease liabilities | | | | | |
Real estate assets - operating lease right-of-use assets | $ | 265 | | | $ | 16,298 | | | $ | 6,655 | |
Operating lease liabilities | (265) | | | (16,298) | | | (6,655) | |
| | | | | |
Acquisitions of real estate assets | | | | | |
Real estate assets, net | $ | — | | | $ | 171,703 | | | $ | 318,036 | |
Value of equity issued | — | | | (165,965) | | | (276,393) | |
Net liabilities assumed | — | | | — | | | (20,028) | |
Investment in unconsolidated real estate ventures | — | | | 1,085 | | | 5,383 | |
Finance lease liability | — | | | (6,823) | | | (26,998) | |
Life Storage Merger real estate assets | | | | | |
Real estate assets, net | $ | 13,575,501 | | | $ | — | | | $ | — | |
Value of common stock issued | (11,353,338) | | | — | | | — | |
Unsecured senior notes | (2,106,866) | | | — | | | — | |
Value of OP units issued | (249,470) | | | — | | | — | |
Net liabilities assumed | (191,077) | | | — | | | — | |
Investment in unconsolidated real estate ventures | 325,250 | | | — | | | — | |
Accrued construction costs and capital expenditures | | | | | |
Acquisition of real estate assets | $ | 10,508 | | | $ | 368 | | | $ | 1,323 | |
| | | | | |
Accounts payable and accrued expenses | (10,508) | | | (368) | | | (1,323) | |
| | | | | |
| | | | | |
| | | | | |
Establishment of finance lease assets and lease liabilities | | | | | |
Real estate assets, net | $ | — | | | $ | — | | | $ | 67,992 | |
Other liabilities | — | | | — | | | (67,992) | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income | $ | 514,222 |
| | $ | 397,089 |
| | $ | 209,536 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 193,296 |
| | 182,560 |
| | 133,457 |
|
Amortization of deferred financing costs | 12,289 |
| | 12,922 |
| | 7,779 |
|
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes | 5,103 |
| | 4,980 |
| | 3,310 |
|
Non-cash interest expense related to amortization of premium on notes payable | — |
| | (872 | ) | | (2,409 | ) |
Compensation expense related to stock-based awards | 9,561 |
| | 8,045 |
| | 6,055 |
|
Gain on sale of real estate assets and purchase of joint venture partners' interests | — |
| | (69,199 | ) | | (2,857 | ) |
Gain on real estate transactions, earnout from prior acquisition and impairment of real estate | (112,789 | ) | | (8,465 | ) | | (1,501 | ) |
Distributions from unconsolidated real estate ventures in excess of earnings | 4,567 |
| | 3,534 |
| | 4,531 |
|
Changes in operating assets and liabilities: | | | | | |
Receivables from related parties and affiliated real estate joint ventures | 1,966 |
| | 1,367 |
| | (1,436 | ) |
Other assets | (14,694 | ) | | (2,981 | ) | | (1,172 | ) |
Accounts payable and accrued expenses | (10,515 | ) | | 10,075 |
| | 108 |
|
Other liabilities | (5,631 | ) | | 208 |
| | 11,928 |
|
Net cash provided by operating activities | 597,375 |
| | 539,263 |
| | 367,329 |
|
Cash flows from investing activities: | | | | | |
Acquisition of real estate assets | (653,185 | ) | | (1,086,523 | ) | | (349,897 | ) |
Development and redevelopment of real estate assets | (31,746 | ) | | (23,279 | ) | | (26,931 | ) |
Acquisition of SmartStop, net of cash acquired | — |
| | — |
| | (1,200,853 | ) |
Proceeds from sale of real estate assets, investments in real estate ventures and other assets | 312,165 |
| | 60,813 |
| | 800 |
|
Change in restricted cash | (16,477 | ) | | 16,854 |
| | 1,282 |
|
Investment in unconsolidated real estate ventures | (17,944 | ) | | (28,241 | ) | | (3,434 | ) |
Return of investment in unconsolidated real estate ventures | 581 |
| | 16,953 |
| | 45,080 |
|
Purchase/issuance of notes receivable | — |
| | (26,429 | ) | | (84,331 | ) |
Principal payments received from notes receivable | 44,869 |
| | 42,785 |
| | — |
|
Purchase of equipment and fixtures | (7,819 | ) | | (4,968 | ) | | (7,380 | ) |
Net cash used in investing activities | (369,556 | ) | | (1,032,035 | ) | | (1,625,664 | ) |
Cash flows from financing activities: | | | | | |
Proceeds from the sale of common stock, net of offering costs | — |
| | 123,424 |
| | 446,877 |
|
Proceeds from notes payable and revolving lines of credit | 1,325,623 |
| | 1,900,357 |
| | 2,121,802 |
|
Principal payments on notes payable and revolving lines of credit | (1,088,679 | ) | | (1,122,442 | ) | | (1,313,570 | ) |
Deferred financing costs | (6,967 | ) | | (17,486 | ) | | (9,779 | ) |
Net proceeds from the issuance of 2015 exchangeable senior notes | — |
| | — |
| | 563,500 |
|
Repurchase of exchangeable senior notes | (19,916 | ) | | (22,195 | ) | | (227,212 | ) |
Net proceeds from exercise of stock options | 1,266 |
| | 1,444 |
| | 1,542 |
|
Proceeds from termination of interest rate cap | — |
| | 1,650 |
| | — |
|
Purchase of interest rate cap | — |
| | — |
| | (2,884 | ) |
Payment of earnout from prior acquisition | — |
| | (4,600 | ) | | — |
|
Redemption of Operating Partnership units held by noncontrolling interests | (2,510 | ) | | (506 | ) | | — |
|
Contributions from noncontrolling interests | 201 |
| | — |
| | — |
|
Dividends paid on common stock | (393,040 | ) | | (367,818 | ) | | (269,302 | ) |
Distributions to noncontrolling interests | (31,972 | ) | | (30,997 | ) | | (24,503 | ) |
Net cash provided by (used in) financing activities | (215,994 | ) | | 460,831 |
| | 1,286,471 |
|
Net increase (decrease) in cash and cash equivalents | 11,825 |
| | (31,941 | ) | | 28,136 |
|
Cash and cash equivalents, beginning of the period | 43,858 |
| | 75,799 |
| | 47,663 |
|
Cash and cash equivalents, end of the period | $ | 55,683 |
| | $ | 43,858 |
| | $ | 75,799 |
|
Supplemental schedule of cash flow information | | | | | |
Interest paid | $ | 136,202 |
| | $ | 122,265 |
| | $ | 89,507 |
|
Income taxes paid | 5,648 |
| | 14,864 |
| | 1,782 |
|
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 | $ | — |
| | $ | (577 | ) | | $ | (28,106 | ) |
Common stock and paid-in capital | — |
| | 577 |
| | 28,106 |
|
Tax effect from vesting of restricted stock grants and option exercises | | | | | |
Other assets | $ | — |
| | $ | 2,404 |
| | $ | 1,727 |
|
Additional paid-in capital | — |
| | (2,404 | ) | | (1,727 | ) |
Acquisitions of real estate assets | | | | | |
Real estate assets, net | $ | 51,455 |
| | $ | 84,163 |
| | $ | 158,009 |
|
Value of Operating Partnership units issued | (14,428 | ) | | (74,440 | ) | | (142,399 | ) |
Notes payable assumed | (24,055 | ) | | (9,723 | ) | | — |
|
Investment in unconsolidated real estate ventures | (12,957 | ) | | — |
| | — |
|
Receivables from related parties and affiliated real estate joint ventures | — |
| | — |
| | (15,610 | ) |
Other noncontrolling interests | (15 | ) | | — |
| | — |
|
Accrued construction costs and capital expenditures | | | | | |
Acquisition of real estate assets | $ | 3,509 |
| | $ | 8,497 |
| | $ | 2,332 |
|
Development and redevelopment of real estate assets | 1,703 |
| | 125 |
| | — |
|
Accounts payable and accrued expenses | (5,212 | ) | | (8,622 | ) | | (2,332 | ) |
Distribution of real estate from investments in unconsolidated real estate ventures | | | | | |
Real estate assets, net | $ | — |
| | $ | 25,055 |
| | $ | — |
|
Investments in unconsolidated real estate ventures | — |
| | (25,055 | ) | | — |
|
Disposition of real estate assets | | | | | |
Real estate assets, net | $ | — |
| | $ | (7,689 | ) | | $ | — |
|
Operating Partnership units redeemed | — |
| | 7,689 |
| | — |
|
Acquisition of noncontrolling interests | | | | | |
Operating Partnership units issued | $ | — |
| | $ | (800 | ) | | $ | — |
|
Other noncontrolling interests | — |
| | 162 |
| | — |
|
Additional paid-in capital | — |
| | 638 |
| | — |
|
Issuance of Preferred OP Units for additional investment in unconsolidated real estate venture | | | | | |
Preferred OP Units issued | $ | (4,351 | ) | | $ | — |
| | $ | — |
|
Investment in unconsolidated real estate ventures | 4,351 |
| | — |
| | — |
|
See accompanying notes.notes
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in thousands, except store and share data, unless otherwise stated
1. DESCRIPTION OF BUSINESS
Extra Space Storage Inc. (the “Company”) is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties located throughout the United States. The Company was formed to continue the business of Extra Space Storage LLC and its subsidiaries, which had engaged in the self-storage business since 1977. The Company’s interest in its stores is held through its operating partnership, Extra Space Storage LP (the “Operating Partnership”), which was formed on May 5, 2004. The Company’s primary assets are general partner and limited partner interests in the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.
The Company invests in stores by acquiring wholly-owned stores or by acquiring an equity interest in real estate entities. At December 31, 2017,2023, the Company had direct and indirect equity interests in 1,0612,377 storage facilities. In addition, the Company managed 4221,337 stores for third parties bringing the total number of stores which it owns and/or manages to 1,483.3,714. These stores are located in 3942 states and Washington, D.C. and Puerto Rico. The Company also offers tenant reinsurance at its owned and managed stores that insures the value of goods in the storage units.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly- or majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
In our Segment Information in Note 18, the numberPrinciples of segments has changed from three to two. The prior years' segment information has been reclassified to conform to the current year's presentation.
Variable Interest EntitiesConsolidation
The Company accounts for arrangements that are not controlled through voting or similar rights as variable interest entities (“VIEs”). An enterprise is required to consolidate a VIE if it is the primary beneficiary of the VIE. A VIE is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) the entity’s equity holders as a group either: (a) lack the power, through voting or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance, (b) are not obligated to absorb expected losses of the entity if they occur, or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, the enterprise that is deemed to have a variable interest, or combination of variable interests, that provides the enterprise with a controlling financial interest in the VIE, is considered the primary beneficiary and must consolidate the VIE.
The Company has concluded that under certain circumstances when the Company enters into arrangements for the formation of joint ventures or when entering into a new bridge loan agreement, a VIE may be created under condition (i), (ii), (b) or (c) of the previous paragraph. For each VIE created, the Company has performed a qualitative analysis, including considering which party, if any, has the power to direct the activities most significant to the economic performance of each VIE and whether that party has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If the Company is determined to be the primary beneficiary of the VIE, the assets, liabilities and operations of the VIE are consolidated with the Company’s financial statements.
The Company determined that its operating partnership met the definition of a VIE and is consolidated. Additionally, as of December 31, 2023 the Operating Partnership has notes payableCompany determined in addition to three trustsits operating partnership that are VIEs under condition (ii)(a) above. Since the Operating Partnership is not the primary beneficiaryit had one consolidated joint venture VIE, consisting of one store.
Substantially all of the trusts, these VIEsassets and liabilities of the Company are not consolidated.related to the operating partnership VIE. The assets and credit of the VIE can only be used to satisfy the VIE's own contractual obligations, and the VIE's creditors have no recourse to the general credit of the Company.
The Company’s investments in real estate joint ventures, where the Company has significant influence, but not control, and joint ventures which are VIEs in which the Company is not the primary beneficiary, are recorded under the equity method of accounting on the accompanying consolidated financial statements.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Disclosures
Derivative financial instruments
Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate forward curves.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the Financial Accounting Standard Board’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2017,2023, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2017,2023, aggregated by the level in the fair value hierarchy within which those measurements fall.
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | December 31, 2017 | | 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 | $ | 38,365 |
| | $ | — |
| | $ | 38,365 |
| | $ | — |
|
Other liabilities - Cash Flow Hedge Swap Agreements | $ | 9 |
| | $ | — |
| | $ | 9 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | December 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Other assets - Cash flow hedge swap agreements | $ | 26,183 | | | $ | — | | | $ | 26,183 | | | $ | — | |
Other liabilities - Cash flow hedge swap agreements | $ | 5,030 | | | $ | — | | | $ | 5,030 | | | $ | — | |
There were no transfers of assets and liabilities between Level 1 and Level 2 during the year ended December 31, 2017.2023. The Company did not have any significant assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of December 31, 20172023 or 2016.2022.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Long-lived assets held for use are evaluated for impairment when events or circumstances indicate there may be impairment. The Company reviews each store at least annually to determine if any such events or circumstances have occurred or exist. The Company focuses on stores where occupancy and/or rental income have decreased by a significant amount. For these stores, the Company determines whether the decrease is temporary or permanent, and whether the store will likely recover the lost occupancy and/or revenue in the short term. In addition, the Company reviews stores in the lease-up stage and compares actual operating results to original projections.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
When the Company determines that an event that may indicate impairment has occurred, the Company compares the carrying value of the related long-lived assets to the undiscounted future net operating cash flows attributable to the assets. An impairment loss is recorded if the net carrying value of the assets exceeds the undiscounted future net operating cash flows attributable to the assets. The impairment loss recognized equals the excess of net carrying value over the related fair value of the assets.
When real estate assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value of the assets, net of selling costs. The Company compares the carrying value of the related long-lived assets to the undiscounted future net operating cash flows attributable to the assets (categorized within Level 3 of the fair value hierarchy). If the estimated fair value, net of selling costs, of the assets that have been identified as held for sale is less than the net carrying value of the assets, the Company would recognize a loss on the assets held for sale. The operations of assets held for sale or sold during the period are presented as part of normal operations for all periods presented.
The Company assesses annually whether there are any indicators that the value of the Company’s investments in unconsolidated real estate venturesentities may be impaired and when events or circumstances indicate that there may be impairment. An investment is impaired if management’s estimate of the fair value of the investment is less than its carrying value. To the extent impairment has occurred, and is considered to be other than temporary, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment.
The Company evaluates goodwill for impairment at least annually and whenever events, circumstances, and other related factors indicate that fair value of the related reporting unit may be less than the carrying value. If the fair value of the reporting unit is determined to exceed the aggregate carrying amount, no impairment charge is recorded. Otherwise, an impairment charge is recorded to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value. No impairments of goodwill were recorded for any period presented herein.
As of December 31, 20172023 and 2016,2022, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, receivables, other financial instruments included in other assets, accounts payable and accrued expenses, variable-rate notes payable, investments in debt securities and notes receivable, revolving lines of credit and other liabilities reflected in the consolidated balance sheets at December 31, 20172023 and 2016,2022, approximate fair value.
The fair values of the Company’s notes receivable and notes receivable from Preferred and Common Operating Partnership unit holders and other fixed rate notes receivable were based on the discounted estimated future cash flow of the notes (categorized within Level 3 of the fair value hierarchy); the discount rate used approximated the current market rate for loans with similar maturities and credit quality. The fair values of the Company’s fixed rate notes payable and notes payable to trusts 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 value of the Company’s exchangeable senior notes was estimated using an average market price for similar securities obtained from a third party.
The fair values of the Company’s fixed-rate assets and liabilities were as follows for the periods indicated:
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes receivable from Preferred Operating Partnership unit holders | $ | 113,683 |
| | $ | 120,230 |
| | $ | 125,642 |
| | $ | 120,230 |
|
Fixed rate notes receivable | $ | 20,942 |
| | $ | 20,608 |
| | $ | 53,450 |
| | $ | 52,201 |
|
Fixed rate notes payable and notes payable to trusts | $ | 2,774,242 |
| | $ | 2,815,085 |
| | $ | 2,404,996 |
| | $ | 2,417,558 |
|
Exchangeable senior notes | $ | 719,056 |
| | $ | 624,259 |
| | $ | 706,827 |
| | $ | 638,170 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes receivable from Preferred and Common Operating Partnership unit holders | $ | 1,886 | | | $ | 1,900 | | | $ | 95,965 | | | $ | 101,900 | |
Fixed rate notes receivable | $ | — | | | $ | — | | | $ | 5,191 | | | $ | 5,241 | |
Fixed rate debt | $ | 7,482,054 | | | $ | 8,048,605 | | | $ | 4,320,014 | | | $ | 4,762,196 | |
| | | | | | | |
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation. Direct and allowable internal costs associated with the development, construction, renovation, and improvement of real estate assets are capitalized. Interest, property taxes, and other
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
costs associated with development incurred during the construction period are capitalized. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Expenditures for maintenance and repairs are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and improvements, which are generally between five and 39 years.
Stores purchased at the timeThe purchase of certificate of occupancy issuance and stores purchased subsequent to the Company's adoption of ASU 2017-01 on January 1, 2017 are considered asset acquisitions. As such, the purchase price is allocated to the real estate assets acquired based on their relative fair values, which are estimated using significant unobservable inputs. The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Intangible assets, which represent the value of existing tenant relationships, are recorded at their relative fair values based on the avoided cost to replace the current leases. The Company measures the value of tenant relationships based on the rent lost due to the amount of time required to replace existing customers, which is based on the Company’s historical experience with turnover in its stores. Any debt assumed as part of the acquisition is recorded at fair value based on current interest rates compared to contractual rates. Acquisition-related transactionstransaction costs are capitalized as part of the purchase price.
Intangible lease rights represent: (1) purchase price amounts allocated to leases on three stores that cannot be classified as ground or building leases; these rights are amortized to expense over the life of the leases and (2) intangibles related to ground leases on eightnine stores where the leases were assumed by the Company at rates that were lower than the current market rates for similar leases. The values associated with these assumed leases were recorded as intangibles, which will be amortized over the lease terms.
Real Estate Sales
In general, sales of real estate and related profits/losses are recognized when all consideration has changed hands and risks and rewards of ownership have been transferred. Certain types of continuing involvement preclude sale treatment and related profit recognition; other forms of continuing involvement allow for sale recognition but require deferral of profit recognition.
Investments in Unconsolidated Real Estate VenturesEntities
Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures represent the Company's noncontrolling interest in real estate joint ventures that own stores and the Company's interest in preferred stock of SmartStop Self Storage REIT, Inc. ("SmartStop") and Strategic Storage Trust VI, Inc. ("Strategic Storage"), an affiliate of SmartStop. The Company’s investments in real estate joint ventures, where the Company has significant influence, but not control and joint ventures which are VIEs in which the Company is not the primary beneficiary, are recorded under the equity method of accounting in the accompanying consolidated financial statements.
Under the equity method, the Company’s investment in real estate ventures is stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the Company’s ownership interest in the earnings of each of the unconsolidated real estate ventures. For the purposes of presentation in the statement of cash flows, the Company follows the “look through”“nature of distribution” approach for classification of distributions from joint ventures. Under this approach, distributionscash flows are reported underclassified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow from operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it isactivities) or a return of capital (e.g.,investment (classified as a liquidating dividend or distributioncash inflow from investing activities).
The Company evaluated its investments in preferred stock of non-public real estate entities and determined it did not have significant influence over the entity, and the investment in preferred stock does not have a readily determinable fair value, therefore it has been recorded at the transaction price. The Company periodically evaluates the investment for impairment. No impairments were recorded during the year ended December 31, 2023.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Investments in Debt Securities and Notes Receivable
The Company accounts for its investment in debt securities and loans receivable at amortized cost. The Company recognizes interest income related to the debt securities and notes receivable using the effective interest method, with deferred fees and costs amortized over the lives of the proceeds from the joint venture’s sale of assets), in which case it is reportedrelated loans as an investing activity.yield adjustment.
Cash and Cash Equivalents
The Company’s cash is deposited with financial institutions located throughout the United States and at times may exceed federally insured limits. The Company considers all highly liquid debt instruments with a maturity date of three months or less to be cash equivalents.
Restricted Cash
Restricted cash is comprised of letters of credit and escrowed funds deposited with financial institutions located throughout the United States relating to earnest money deposits on potential acquisitions, real estate taxes, insurance and capital expenditures.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Other Assets
Other assets consist of equipment and fixtures, rents receivable from our tenants, investments in trusts, notes and other receivables, other intangible assets, deferred tax assets, prepaid expenses and the fair value of interest rate swaps. Depreciation of equipment and fixtures is computed on a straight-line basis over three to five years.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Risk Management and Use of Financial Instruments
In the normal course of its ongoing business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk on its interest-bearing liabilities. Credit risk is the risk of inability or unwillingness of tenants to make contractually required payments. Market risk is the risk of declines in the value of stores due to changes in rental rates, interest rates or other market factors affecting the value of stores held by the Company. The Company has entered into interest rate swap agreements to manage a portion of its interest rate risk.
ExchangeRedemption of Common Operating Partnership Units
The Company has the option to redeem common Operating Partnership Units in cash or shares of common stock. Redemption of common Operating Partnership units for shares of common stock, when redeemed under the original provisions of the Operating Partnership agreement, areis accounted for by reclassifying the underlying net book value of the units from noncontrolling interest to the Company’s equity. Redemption of common Operating Partnership units for cash is accounted for by reducing the underlying net book value of the units from noncontrolling interest.
Revenue and Expense Recognition
Rental revenues are recognized as earned based upon amounts that are currently due from tenants. Leases are generally on month-to-month terms. Prepaid rents are recognized on a straight-line basis over the term of the leases. Promotional discounts are recognized as a reduction to rental income over the promotional period. Late charges, administrative fees and merchandise sales and truck rentals are recognized as income when earned. Management fee revenues
The Company's management fees are recognized monthly as services are performed and in accordance withearned subject to the terms of the related management agreements. Equityservices agreements ("MSAs"). These MSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking, maintenance and other services. These services are provided in earnings of unconsolidated real estate entities is recognizedexchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties and unconsolidated joint ventures. MSAs generally have original terms from three to five years, after which
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
management services are provided on a month-to-month basis unless terminated. Management fees are due on the last day of each calendar month that management services are provided.
The Company accounts for the management services provided to a customer as a single performance obligation which are rendered over time each month. The total amount of consideration from the contract is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company's ownership interest incontrol. Therefore, the earningsCompany recognizes the revenue at the end of each month once the uncertainty is resolved. Due to the standardized terms of the unconsolidated real estate entities. Interest incomeMSAs, the Company accounts for all MSAs in a similar, consistent manner. Therefore, no disaggregated information relating to MSAs is recognized as earned.presented.
Property expenses, including utilities, property taxes, repairs and maintenance and other costs to manage the facilities are recognized as incurred. The Company accrues for property tax expense based upon invoice amounts estimates and historical trends.estimates. If these estimates are incorrect, the timing of expense recognition could be affected.
Tenant reinsurance premiums are recognized as revenue over the period of insurance coverage. The Company records an unpaid claims liability at the end of each period based on existing unpaid claims and historical claims payment history. The unpaid claims liability represents an estimate of the ultimate cost to settle all unpaid claims as of each period end, including both reported but unpaid claims and claims that may have been incurred but have not been reported. The Company uses a third party claims administrator to adjust all tenant reinsurance claims received. The administrator evaluates each claim to determine the ultimate claim loss and includes an estimate for claims that may have been incurred but not reported. Annually, a third party
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
actuary evaluates the adequacy of the unpaid claims liability. Prior year claim reserves are adjusted as experience develops or new information becomes known. The impact of such adjustments is included in the current period operations. The unpaid claims liability is not discounted to its present value. Each tenant chooses the amount of insurance coverage they want through the tenant reinsurance program. Tenants can purchase policies in amounts of 2,000 dollarsup to 10,000 dollars of insurance coverage in exchange for a monthly fee. As of December 31, 2017,2023, the averagetotal number of tenant insurance policies was 1.0 million, which was an aggregate coverage for tenants wasof approximately 2,800 dollars.$3.0 billion. The Company’s exposure per claim is limited by the maximum amount of coverage chosen by each tenant. The Company purchases reinsurance for losses exceeding a set amount for any one event. The Company does not currently have any amounts recoverable under the reinsurance arrangements.
For the years ended December 31, 2017, 2016 and 2015, the number of claims made were 5,671, 4,055 and 3,959, respectively. The following table presents information on the portion of the Company’s unpaid claims liability, which is included in other liabilities on the Company's consolidated balance sheets, that relates to tenant insurance for the periods indicated:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
Tenant Reinsurance Claims: | 2017 | | 2016 | | 2015 |
Unpaid claims liability at beginning of year | $ | 3,896 |
| | $ | 3,908 |
| | $ | 3,121 |
|
Claims and claim adjustment expense for claims incurred in the current year | 11,700 |
| | 7,250 |
| | 6,421 |
|
Claims and claim adjustment expense (benefit) for claims incurred in the prior years | (203 | ) | | 87 |
| | — |
|
Payments for current year claims | (8,895 | ) | | (5,423 | ) | | (4,283 | ) |
Payments for prior year claims | (1,331 | ) | | (1,926 | ) | | (1,351 | ) |
Unpaid claims liability at the end of the year | $ | 5,167 |
| | $ | 3,896 |
| | $ | 3,908 |
|
Advertising Costs
The Company incurs advertising costs primarily attributable to internet, directorydigital and other advertising. These costs are expensed as incurred. The Company recognized $14,410, $12,867$32,795, $19,285 and $10,528$18,793 in advertising expense for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively, which are included in property operating expenses on the Company’s consolidated statements of operations.
Income Taxes
The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended ("the Internal(the "Internal Revenue Code"). In order to maintain its qualification as a REIT, among other things,requirements, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to U.S. federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to stockholders. The Company plans to continue to operate so that it meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. For any taxable year that the Company fails to qualify as a REIT and for which applicable statutory relief provisions did not apply, wethe Company would be taxed at the regularsubject to U.S. federal corporate ratesincome tax on all of ourits taxable income for at least that year and the ensuing four years. The Company is subject to certain state and local taxes. Provision for such taxes has been included in income tax expense on the Company’s consolidated statements of operations. For the year ended December 31, 2017,2023, 0% (unaudited) of all distributions to stockholders qualified as a return of capital.
The Company owns and may acquire direct or indirect interests in entities that have elected or will elect to be taxed as REITs under the Internal Revenue Code (each, a “Subsidiary REIT ”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to the Company. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to U.S. federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that the Company would fail certain of the asset tests applicable to REITs, in which event the Company would fail to qualify as a REIT unless it could avail itself of certain relief provisions.
The Company has elected to treat itscertain corporate subsidiary,subsidiaries, including Extra Space Management, Inc. (“ESMI”), as a taxable REIT subsidiary (“TRS”). In general, the Company’sa TRS may perform additional services for tenants and may engage in any real estate or non-real estate related business. A TRS is subject to U.S. federal corporate income tax.tax and may also be subject to state and local income taxes. ESM Reinsurance Limited, a wholly-owned subsidiary of ESMI, generates income from insurance premiums that are subject to U.S. federal corporate income tax and state insurance premiums tax.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. At December 31, 20172023 and 2016,2022, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 20172023 and 2016,2022, the Company had no interest or penalties related to uncertain tax provisions.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Stock-Based Compensation
The measurement and recognition of compensation expense for all share-based payment awards to employees and directors are based on estimated fair values. Awards granted are valued at fair value and any compensation expense is recognized over the service periods of each award.
Earnings Per Common Share
Basic earnings per common share is computed using the two-class method by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. All outstanding unvested restricted stock awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common stockholders; accordingly, they are considered participating securities that are included in the two-class method. Diluted earnings per common share measures the performance of the Company over the reporting period while giving effect to all potential common shares that were dilutive and outstanding during the period. The denominator includes the weighted average number of basic shares and the number of additional common shares that would have been outstanding if the potential common shares that were dilutive had been issued, and is calculated using either the two-class, treasury stock or as if-converted method, whichever is most dilutive. Potential common shares are securities (such as options, convertible debt, Series A Participating Redeemable Preferred Units (“Series A Units”), Series B Redeemable Preferred Units (“Series B Units”), Series C Convertible Redeemable Preferred Units (“Series C Units”),and Series D Redeemable Preferred Units (“Series D Units”) and together with the Series A Units and Series B Units, the (“Preferred OP Units") and common Operating Partnership units (“OP Units”)) that do not have a current right to participate in earnings of the Company but could do so in the future by virtue of their option, redemption or conversion right.
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 (those that reduce earnings per common share) are included. For the years ended December 31, 2017, 2016 and 2015, options to purchase approximately 45,286, 88,552, and 62,254 shares of common stock, respectively, were excluded from the computation of earnings per share as their effect would have been anti-dilutive.
For the purposes of computing the diluted impact of the potential exchange of the Preferred Operating PartnershipOP 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, Thethe Company divided the total liquidation value of the Preferred Operating Partnership unitsOP Units by the average share price of $78.59$142.16 for the year ended December 31, 2017.2023.
The following table presents the number of weighted OP Units and Preferred Operating Partnership units,OP Units, and the potential common shares, that were excluded from the computation of earnings per share as their effect would have been anti-dilutive:
|
| | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Equivalent Shares (if converted) | | Equivalent Shares (if converted) | | Equivalent Shares (if converted) |
Common OP Units | — |
| | 5,564,631 |
| | — |
|
Series A Units (Variable Only) | — |
| | 875,480 |
| | — |
|
Series B Units | 533,174 |
| | 499,966 |
| | 579,640 |
|
Series C Units | 377,135 |
| | 353,646 |
| | 410,002 |
|
Series D Units | — |
| | 552,796 |
| | 189,649 |
|
| 910,309 |
| | 7,846,519 |
| | 1,179,291 |
|
The Operating Partnership had $49,259 of its 2.375% Exchangeable Senior Notes due 2033 (the “2013 Notes”) issued and outstanding as of December 31, 2017. The 2013 Notes could potentially have a dilutive impact on the Company’s earnings per share calculations. The 2013 Notes are exchangeable by holders into shares of the Company’s common stock under certain circumstances per the terms of the indenture governing the 2013 Notes. The exchange price of the 2013 Notes was $53.05 per share as of December 31, 2017, and could change over time as described in the indenture. The Company has irrevocably agreed
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
to pay only cash for the accreted principal amount of the 2013 Notes relative to its exchange obligations, but retained the right to satisfy the exchange obligation in excess of the accreted principal amount in cash and/or common stock.
The Operating Partnership had $575,000 of its 3.125% Exchangeable Senior Notes due 2035 (the “2015 Notes”) issued and outstanding as of December 31, 2017. The 2015 Notes could potentially have a dilutive impact on the Company’s earnings per share calculations. The 2015 Notes are exchangeable by holders into shares of the Company’s common stock under certain circumstances per the terms of the indenture governing the 2015 Notes. The exchange price of the 2015 Notes was $93.80 per share as of December 31, 2017, and could change over time as described in the indenture. The Company has irrevocably agreed to pay only cash for the accreted principal amount of the 2015 Notes relative to its exchange obligations, but retained the right to satisfy the exchange obligation in excess of the accreted principal amount in cash and/or common stock.
Though the Company has retained that right, Accounting Standards Codification (“ASC”) 260, “Earnings per Share,” requires an assumption that shares would be used to pay the exchange obligation in excess of the accreted principal amount, and requires that those shares be included in the Company’s calculation of weighted average common shares outstanding for the diluted earnings per share computation. For the years ended December 31, 2017, 2016 and 2015, 344,430 shares, 309,730 shares and 513,040 shares, respectively, related to the 2013 Notes were included in the computation for diluted earnings per share. For the years ended December 31, 2017, 2016 and 2015, no shares related to the 2015 Notes were included in the computation for diluted earnings per share as the exchange price exceeded the per share price of the Company’s common stock during this period. | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Equivalent Shares (if converted) | | Equivalent Shares (if converted) | | Equivalent Shares (if converted) |
Common OP Units | 7,970,487 | | | — | | | — | |
| | | | | |
Series B Units | 236,130 | | | 187,664 | | | 246,618 | |
Series D Units | 1,332,049 | | | 1,140,513 | | | 726,037 | |
| 9,538,666 | | | 1,328,177 | | | 972,655 | |
For the purposes of computing the diluted impact on earnings per share of the potential exchange of Series A Units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the positive intent and ability to settle at least $101,700 of the instrument in cash (or net settle a portion of the Series A Units against the related outstanding note receivable), only the amount of the instrument in excess of $101,700 is considered in the calculation of shares contingently issuable for the purposes of computing diluted earnings per share as allowed by ASC 260-10-45-46. Accordingly, the number of shares included in the computation for diluted earnings per share related to the Series A Units is equal to the number of Series A Units outstanding, with no additional shares included related to the $101,700 fixed amount.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The computation of earnings per share is as follows for the periods presented: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income attributable to common stockholders | $ | 803,198 | | | $ | 860,688 | | | $ | 827,649 | |
Earnings and dividends allocated to participating securities | (1,230) | | | (1,201) | | | (1,183) | |
Earnings for basic computations | 801,968 | | | 859,487 | | | 826,466 | |
| | | | | |
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units | — | | | 50,706 | | | 43,093 | |
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units) | — | | | (2,288) | | | (2,288) | |
Net income for diluted computations | $ | 801,968 | | | $ | 907,905 | | | $ | 867,271 | |
| | | | | |
Weighted average common shares outstanding: | | | | | |
Average number of common shares outstanding - basic | 169,216,989 | | | 134,050,815 | | | 133,374,938 | |
OP Units | — | | | 6,749,995 | | | 5,752,902 | |
Series A Units | — | | | 875,480 | | | 875,480 | |
| | | | | |
| | | | | |
| | | | | |
Shares related to dilutive stock options | 3,893 | | | 5,098 | | | 12,708 | |
Average number of common shares outstanding - diluted | 169,220,882 | | | 141,681,388 | | | 140,016,028 | |
Earnings per common share | | | | | |
Basic | $ | 4.74 | | | $ | 6.41 | | | $ | 6.20 | |
Diluted | $ | 4.74 | | | $ | 6.41 | | | $ | 6.19 | |
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance that provides transition relief for reference rate reform, including optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform if certain criteria are met. ASU 2020-04 is effective upon issuance, and the provisions generally can be applied prospectively as of January 1, 2020 through December 31, 2024. The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company also elected to apply additional expedients related to contract modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes are made to applicable debt and derivative contracts. Application of these expedients preserves the presentation of derivatives and debt contracts consistent with past presentation. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 had no impact on the Company’s consolidated financial statements for the year ended December 31, 2022.
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income attributable to common stockholders | $ | 479,013 |
| | $ | 366,127 |
| | $ | 189,474 |
|
Earnings and dividends allocated to participating securities | (975 | ) | | (792 | ) | | (601 | ) |
Earnings for basic computations | 478,038 |
| | 365,335 |
| | 188,873 |
|
Earnings and dividends allocated to participating securities | — |
| | 792 |
| | — |
|
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units | 30,088 |
| | — |
| | 14,790 |
|
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership Units (Series A) | (3,119 | ) | | — |
| | (5,088 | ) |
Net income for diluted computations | $ | 505,007 |
| | $ | 366,127 |
| | $ | 198,575 |
|
| | | | | |
Weighted average common shares outstanding: | | | | | |
Average number of common shares outstanding - basic | 125,967,831 |
| | 125,087,554 |
| | 119,816,743 |
|
OP Units | 5,590,831 |
| | — |
| | 5,451,357 |
|
Series A Units | 875,480 |
| | — |
| | 875,480 |
|
Series D Units | 1,081,561 |
| | — |
| | — |
|
Unvested restricted stock awards included for treasury stock method | — |
| | 299,585 |
| | — |
|
Shares related to exchangeable senior notes and dilutive stock options | 640,068 |
| | 560,937 |
| | 775,289 |
|
Average number of common shares outstanding - diluted | 134,155,771 |
| | 125,948,076 |
| | 126,918,869 |
|
Earnings per common share | | | | | |
Basic | $ | 3.79 |
| | $ | 2.92 |
| | $ | 1.58 |
|
Diluted | $ | 3.76 |
| | $ | 2.91 |
| | $ | 1.56 |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers,” which amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. ASU 2014-9 outlines a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASU 2014-9 includes all contracts with customers to provide goods and services in the ordinary course of business, except for certain contracts that are specifically excluded from the scope, such as lease contracts and insurance contracts. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. ASU 2014-9 will become effective for annual and interim periods beginning after December 15, 2017 with early adoption on the original effective date permitted. The Company has determined that its property rental revenue and tenant reinsurance revenue will not be subject to the guidance in ASU 2014-9, as they qualify as lease contract and insurance contracts, which are excluded from its scope. The Company's management fee revenue will be included in the scope of ASU 2014-9, however, revenue recognized under ASU 2014-9 will not differ materially from revenue recognized under existing guidance. The Company anticipates adopting the standard using the modified retrospective transition method as of January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which modifies the accounting for leases, intending to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. ASU 2016-02 will require entities to recognize a liability for their lease obligations and a corresponding asset representing the right to use the underlying asset over the lease term. Lease obligations are to be measured at the present value and accounted for using the effective interest method. The accounting for the leased asset will differ slightly depending on whether the agreement is deemed to be a financing or operating lease. For finance leases, the leased asset is depreciated on a straight-line basis and recorded separately from the interest expense in the statements of operations, resulting in higher expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. ASU 2016-02 requires that assets and liabilities be presented or disclosed separately, and requires additional disclosure of certain qualitative and quantitative information related to these lease agreements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018. The Company is currently assessing the impact of the adoption on ASU 2016-02 on the Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships." ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require re-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Company adopted this guidance on January 1, 2017. The adoption of ASU 2016-05 did not have a material impact on the Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this guidance prospectively on January 1, 2017, and prior periods have not been adjusted. As a result of the adoption of this guidance, the Company no longer presents the tax effects from vesting of restricted stock grants and stock option exercises on its condensed consolidated statement of noncontrolling interests and equity.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides guidance on several specific cash flow issues, including the classification of debt prepayment or debt extinguishment costs, contingent consideration payments, and distributions received from equity method investees. This guidance is effective for fiscal years beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this guidance January 1, 2018 and will begin presenting restricted cash along with cash and cash equivalents in its consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) - Clarifying the Definition of a Business," which provides guidance on whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Specifically, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. Additionally, ASU 2017-01 also provides other guidance providing a more robust framework to use in determining whether a set of assets and activities is a business. This guidance is effective for annual periods beginning after December 15, 2017. Early application of ASU 2017-01 is permitted for transactions for which the acquisition or disposition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued. The Company adopted the guidance in ASU 2017-01 to new acquisitions beginning on January 1, 2017. The adoption of this guidance resulted in a decrease in acquisition related costs, as the Company's acquisition of operating stores are considered asset acquisitions rather than business combinations under ASU 2017-01, and such costs are capitalized under the new guidance.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements for Accounting for Hedging Activities," which amends and simplifies existing guidance for the financial reporting of hedging relationships to allow companies to better portray the economic effects of risk management activities in their financial statements. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt ASU 2017-12 on January 1, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheets as of the date of adoption. The Company is currently assessing the impact of the adoption on ASU 2017-12 on the Company's consolidated financial statements.
3. REAL ESTATE ASSETS
The components of real estate assets are summarized as follows: | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Land | $ | 4,904,705 | | | $ | 2,356,746 | |
Buildings, improvements and other intangibles | 21,664,224 | | | 9,425,468 | |
Right of use asset - finance lease | 143,842 | | | 136,259 | |
Intangible assets - tenant relationships | 321,019 | | | 152,775 | |
Intangible lease rights | 27,743 | | | 12,943 | |
| 27,061,533 | | | 12,084,191 | |
Less: accumulated depreciation and amortization | (2,624,405) | | | (2,138,524) | |
Net operating real estate assets | 24,437,128 | | | 9,945,667 | |
Real estate under development/redevelopment | 118,745 | | | 52,311 | |
Real estate assets, net | $ | 24,555,873 | | | $ | 9,997,978 | |
Real estate assets held for sale included in real estate assets, net | $ | — | | | $ | — | |
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Land - operating | $ | 1,731,915 |
| | $ | 1,664,659 |
|
Land - development | 13,246 |
| | 26,982 |
|
Buildings, improvements and other intangibles | 6,286,762 |
| | 5,833,836 |
|
Intangible assets - tenant relationships | 114,375 |
| | 111,528 |
|
Intangible lease rights | 12,443 |
| | 12,443 |
|
| 8,158,741 |
| | 7,649,448 |
|
Less: accumulated depreciation and amortization | (1,060,060 | ) | | (900,861 | ) |
Net operating real estate assets | 7,098,681 |
| | 6,748,587 |
|
Real estate under development/redevelopment | 33,750 |
| | 21,860 |
|
Net real estate assets | $ | 7,132,431 |
| | $ | 6,770,447 |
|
Real estate assets held for sale included in net real estate assets | $ | 10,276 |
| | $ | 1,970 |
|
As of December 31, 2017, the Company had one operating store and one parcel of undeveloped land classified as held for sale. The estimated fair value less selling costs of these assets are greater than the carrying value of the assets, and therefore no loss has been recorded related to the operating store held for sale. These assets held for sale are included in the self-storage operations segment of the Company’s segment information. The parcel of undeveloped land was sold in January 2018 and the Company anticipates the operating store will be sold by the end of 2018. During the second quarter of 2017, the Company recorded an impairment loss of $6,100 relating to several parcels of undeveloped land where the carrying value was greater than the fair value.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The Company amortizes to expense intangible assets—tenant relationships on a straight-line basis over the average period that a tenant is expected to utilize the facility (currently estimated at 18 months). The Company amortizes to expense the intangible lease rights over the terms of the related leases. Amortization related to the tenant relationships and lease rights was $14,349, $21,133,$59,807, $13,981, and $11,695$4,778 for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. The remaining balance of the unamortized lease rights will be amortized over the next one yearfive to 4439 years. Accumulated amortization related to intangibles was $112,347317,511 and $101,120144,144 as of December 31, 20172023 and 2016,2022, respectively.
4. OTHER ASSETS
The components of other assets are summarized as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Goodwill | $ | 170,811 | | | $ | 170,811 | |
Receivables, net | 134,716 | | | 85,937 | |
Prepaid expenses and deposits | 85,153 | | | 50,318 | |
Other intangible assets, net | 66,332 | | | — | |
Trade name | 50,000 | | | — | |
Fair value of interest rate swaps | 26,183 | | | 54,839 | |
Equipment and fixtures, net | 48,697 | | | 42,808 | |
Deferred line of credit financing costs, net | 9,787 | | | 4,846 | |
Restricted cash | 6,021 | | | 4,867 | |
| $ | 597,700 | | | $ | 414,426 | |
Depreciation of equipment and fixtures is computed on a straight-line basis over three to five years. The Company capitalizes certain costs during the application development stage when developing software for internal use. As of December 31, 2023 and 2022, unamortized software costs were $18,844 and $23,165. During the year ended December 31, 2023 and 2022, the Company recorded amortization expense of $5,377 and $5,147, respectively, relating to capitalized software costs.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
5. PROPERTY ACQUISITIONS AND DISPOSITIONS
The Life Storage Merger
On July 20, 2023, the Company closed its merger with Life Storage (the "Life Storage Merger" or "Merger"), which included 757 wholly-owned stores and one consolidated joint venture store. Under the terms of the Life Storage Merger, Life Storage stockholders and holders of units of the Life Storage operating partnership received 0.895 of a share of common stock (or OP Unit, as applicable) of the Company for each issued and outstanding share (or operating partnership unit) of Life Storage they owned for total consideration of $11,602,808, based on the Company's closing share price on July 19, 2023. At closing, the Company retired $1,160,000 in balances on Life Storage's line of credit which included $375,000 that Life Storage used to pay off its private placement notes in connection with the closing of the Life Storage Merger. The Company also paid off $32,000 in secured loans. On July 25, 2023, the Company completed obligor exchange offers and consent solicitations (together the "Exchange Offers") related to Life Storage's various senior notes. Upon the closing of the Exchange Offers, a total of $2,351,100 of Life Storage's senior notes were exchanged for senior notes of the same tenor of Extra Space Storage L.P. The remaining Life Storage senior note balances which were not exchanged total $48,900 and no longer have any financial reporting requirements or covenants.
Consideration and Purchase Price Allocation
The Merger was accounted for as an asset acquisition in accordance with ASC Topic 805 which requires that the cost of an acquisition be allocated on a relative fair value basis to the assets acquired and the liabilities assumed. The following table summarizes the fair value of total consideration transferred in the Life Storage Merger:
| | | | | |
Consideration Type | July 20, 2023 |
Common stock | $ | 11,353,338 | |
OP units | 249,470 | |
Cash for payoff of Life Storage credit facility and debt | 1,192,000 | |
Transaction Costs | 55,318 | |
Total consideration | $ | 12,850,127 | |
The following table summarizes the estimated fair values assigned to the assets acquired and liabilities assumed:
| | | | | |
| July 20, 2023 |
Real estate assets | $ | 14,587,735 | |
Equity investment in joint venture partnerships | 325,250 | |
Cash and other assets | 107,423 | |
Intangible assets - other | 82,000 | |
Trade name | 50,000 | |
Unsecured senior notes | (2,106,866) | |
Accounts payable, accrued expenses and other liabilities | (191,077) | |
Noncontrolling interests | (4,338) | |
Fair value of net assets acquired | $ | 12,850,127 | |
Fair Value Measurement
The estimated fair values of assets acquired and liabilities assumed were primarily based on information that was available as of the closing date of the Life Storage Merger. The methodology used to estimate the fair values to apply purchase accounting and the ongoing financial statement impact, if any, are summarized below:
•Real estate assets – Real estate assets acquired were recorded at fair value using standard valuation methodologies, including the cost and market approaches. The remaining useful lives for real estate assets, excluding land, were reset to 39 years. Tenant relationships for storage leases were recorded at fair value based on estimated costs the Company
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
avoided to replace them. Tenant relationships are amortized to expense over 18 months, which is based on the Company’s historical experience with turnover in its stores.
•Equity investment in joint venture partnerships - Equity investment in joint venture partnerships were recorded at fair value based on a direct capitalization of net operating income.
•Intangible assets - other – Customer relationships relating to tenant reinsurance contracts were recorded at fair value based on the income approach which estimates the potential revenue loss the Company avoided to replace them. These assets are amortized to expense over 36 months, which is based on the Company’s historical experience with average length of stay for tenants.
•Trade name – Trade names were recorded at fair value based on royalty payments avoided had the trade name been owned by a third party. This is determined using market royalty rates and a discounted cash flow analysis under the relief-from-royalty method. This method incorporates various assumptions, including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. The trade name is an indefinite lived asset and as such is not amortized.
•Unsecured senior notes – Unsecured senior notes were recorded at fair value using readily available market data. The below-market value of debt is recorded as a debt discount and reported as a reduction of the unsecured senior notes balance on the condensed consolidated balance sheets. The discount is amortized using effective interest method as an increase to interest expense over the remaining terms of the unsecured senior notes.
•Other assets and liabilities – the carrying values of cash, accounts receivable, prepaids and other assets, accounts payable, accrued expenses and other liabilities represented the fair values.
| | | | | | | | | | | | | | |
| December 31, 2023 | Three Months Ended December 31, 2023 | For the Year Ended December 31, 2023 |
Intangible Assets: | Gross Carrying Amount | Accumulated Amortization | Amortization Expense | Amortization Expense |
Trade name | $ | 50,000 | | $ | — | | $ | — | | $ | — | |
Intangible assets - other | 82,000 | | 15,695 | | 9,417 | | 15,695 | |
| 132,000 | | 15,695 | | 9,417 | | 15,695 | |
| | | | | | | | | | | |
| Estimated Aggregate Amortization Expense |
Intangible Assets: | 2024 | 2025 | 2026 |
Trade name | $ | — | | $ | — | | $ | — | |
Intangible assets - other | 23,375 | | 19,833 | | 11,569 | |
| $ | 23,375 | | $ | 19,833 | | $ | 11,569 | |
Store Acquisition
The following table shows the Company’s acquisitions of stores for the years ended December 31, 20172023 and 2016.2022. The table excludes purchases of raw land orand improvements made to existing assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consideration Paid | Total |
Period | Number of Stores | | Total | | Cash Paid | | Loan Assumed | Finance Lease Liability | Investments in Real Estate Ventures | Net Liabilities/ (Assets) Assumed | Value of Equity Issued | | Real estate assets |
Total 2023 | 14 | | $ | 147,729 | | | $ | 135,577 | | | $ | 12,000 | | $ | — | | $ | — | | $ | 152 | | $ | — | | | $ | 147,729 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total 2022 | 153 | | $ | 1,366,348 | | | $ | 1,193,261 | | | $ | — | | $ | 6,823 | | $ | 1,085 | | $ | (786) | | $ | 165,965 | | | $ | 1,366,348 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consideration Paid | Total |
Quarter | Number of Stores | | Total | | Cash Paid | | Loan Assumed | Non- controlling Interests | Investments in Real Estate Ventures | Net Liabilities/ (Assets) Assumed | Value of OP Units Issued | Number of OP Units Issued | Real Estate Assets |
Q4 2017 | 37 | (1) | $ | 535,299 |
| | $ | 502,845 |
| | $ | 14,592 |
| $ | (1,812 | ) | $ | 12,957 |
| $ | 1,099 |
| $ | 5,618 |
| 64,708 |
| $ | 535,299 |
|
Q3 2017 | 4 | | 31,966 |
| | 29,919 |
| | — |
| — |
| — |
| 47 |
| 2,000 |
| 25,520 |
| 31,966 |
|
Q2 2017 | 3 | | 34,641 |
| | 16,608 |
| | 9,463 |
| 1,827 |
| — |
| (67 | ) | 6,810 |
| 272,400 |
| 34,641 |
|
Q1 2017 | 2 | | 25,556 |
| | 25,541 |
| | — |
| — |
| — |
| 15 |
| — |
| — |
| 25,556 |
|
| 46 | | $ | 627,462 |
| | $ | 574,913 |
| | $ | 24,055 |
| $ | 15 |
| $ | 12,957 |
| $ | 1,094 |
| $ | 14,428 |
| 362,628 |
| $ | 627,462 |
|
| | | | | | | | | | | | | |
Q4 2016 | 27 | (2) | $ | 320,564 |
| | $ | 297,569 |
| | $ | — |
| $ | — |
| $ | — |
| $ | 4,997 |
| $ | 17,998 |
| 563,819 |
| $ | 328,683 |
|
Q3 2016 | 27 | (3) | 296,280 |
| | 296,345 |
| | — |
| — |
| — |
| (65 | ) | — |
| — |
| 307,268 |
|
Q2 2016 | 22 | | 244,264 |
| | 176,689 |
| | 9,723 |
| — |
| — |
| 1,615 |
| 56,237 |
| 2,215,231 |
| 244,264 |
|
Q1 2016 | 23 | (4) | 225,537 |
| | 225,156 |
| | — |
| — |
| — |
| 381 |
| — |
| — |
| 269,721 |
|
| 99 | | $ | 1,086,645 |
| | $ | 995,759 |
| | $ | 9,723 |
| $ | — |
| $ | — |
| $ | 6,928 |
| $ | 74,235 |
| 2,779,050 |
| $ | 1,149,936 |
|
| | | | | | | | | | | | | |
| |
(1) | Store acquisitions during the three months ended December 31, 2017 include the acquisition of seven stores that had been owned by joint ventures in which the Company held an equity interest. No gain or loss was recognized as a result of these acquisitions as the Company accounted for them as asset acquisitions subsequent to the adoption of ASU 2017-01, rather than as business combinations achieved in stages (step acquisitions). |
| |
(2) | On November 17, 2016, the Company acquired 11 stores from its ESS WCOT LLC joint venture ("WCOT") in a step acquisition. The Company owns 5.0% of WCOT, with the other 95.0% owned by affiliates of Prudential Global Investment Management ("Prudential"). WCOT created a new subsidiary, Extra Space Properties 132 LLC ("ESP 132") and transferred 11 stores into ESP 132. WCOT then distributed ESP 132 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $68,814. Immediately after the distribution, the Company acquired Prudential's 95.0% interest in ESP 132 for $153,304, resulting in 100% ownership of ESP 132 and the related 11 stores. Based on the purchase price of Prudential's share of ESP 132, the Company determined that the fair value of its investment in ESP 132 immediately prior to the acquisition of Prudential's share was $8,119, and the Company recorded a gain of $4,651 as a result of remeasuring to fair value its existing equity interest in ESP 132. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners' interests on the Company's consolidated statements of operations. The fair value of the stores purchased was recorded at $161,072. |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| |
(3) | On September 16, 2016, the Company acquired 23 stores from its ESS PRISA II LLC joint venture ("PRISA II") in a step acquisition. The Company owned 4.4% of PRISA II, with the other 95.6% owned by affiliates of Prudential. PRISA II created a new subsidiary, Extra Space Properties 131 LLC ("ESP 131"), and transferred 23 stores into ESP 131. PRISA II then distributed ESP 131 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $4,326. Immediately after the distribution, the Company acquired Prudential's 95.6% interest in ESP 131 for $238,679, resulting in 100% ownership of ESP 131 and the related 23 stores. Based on the purchase price of Prudential's share of ESP 131, the Company determined that the fair value of its investment in ESP 131 immediately prior to the acquisition of Prudential's share was $10,988, and the Company recorded a gain of $6,778 as a result of re-measuring to fair value its existing equity interest in ESP 131. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners' interests on the Company's consolidated statements of operations. The fair value of the stores purchased was recorded at $248,530. Subsequent to these transactions, PRISA II owned 42 stores. The Company sold its 4.4% interest in PRISA II to Prudential immediately following these transactions, as disclosed in Note 5. |
| |
(4) | On February 2, 2016, the Company acquired six stores from its VRS Self Storage LLC joint venture (“VRS”) in a step acquisition. The Company owns 45.0% of VRS, with the other 55.0% owned by affiliates of Prudential. VRS created a new subsidiary, Extra Space Properties 122 LLC (“ESP 122”) and transferred six stores into ESP 122. VRS then distributed ESP 122 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $17,261. Immediately after the distribution, the Company acquired Prudential’s 55.0% interest in ESP 122 for $53,940, resulting in 100% ownership of ESP 122 and the related six stores. Based on the purchase price of Prudential’s share of ESP 122, the Company determined that the fair value of its investment in ESP 122 immediately prior to the acquisition of Prudential’s share was $44,184, and the Company recorded a gain of $26,923 as a result of re-measuring to fair value its existing equity interest in ESP 122. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners’ interests on the Company’s consolidated statements of operations. The fair value of the stores purchased was recorded at $98,082. |
Store Disposals
On November 30, 2017, the Company sold 36 stores located in various states that had been classified as held for sale for an aggregate sales price of $295,000. The buyer of these properties was Storage Portfolio II JV, LLC ("SP II"), a newly formed joint venture in which the Company has a 10.0% equity interest. The Company recognized a gain of $118,776 related to this disposition, which represented 90.0% of the total gain. This amount is included in gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate on the Company's consolidated statements of operations. The Company deferred 10.0% of the gain due to the fact that it held an equity interest in the buyer, which resulted in a reduction in the carrying value of the Company's investment in SP II.
On September 13, 2017, the Company closed on the sale of a parcel of land located in New York that had been classified as held for sale for $19,000 in cash. This parcel of land had been written down to its fair value less selling costs during the six months ended June 30, 2017, and a loss of $3,500 was recorded. Therefore, no additional gain or loss was recorded related to this sale at the time of closing.
On July 26, 2016,15, 2022, the Company completed the saleacquisition of an operating store locatedmultiple entities doing business as Storage Express for a purchase price of $590.0 million. A portion of the consideration paid was in Indiana that had been classified as held for sale for $4,447the form of the issuance of 619,294 OP units (a total value of $125.0 million) and the remainder in cash. The Company recognized no gain or loss related to this disposition.portfolio included 106 operating stores and eight parcels of land for future development, all located in Illinois, Indiana, Kentucky and Ohio. This acquisition did not meet the definition of a business under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" and was therefore recorded as an asset acquisition.
Other Investments
On April 20, 2016,June 1, 2022, the Company completed the saleacquisition of seven operating stores locatedBargold Storage Systems, LLC ("Bargold") for a purchase price of approximately $179.3 million. Bargold leases space in Ohioapartment buildings, primarily in New York City and Indiana thatits boroughs, builds out the space as storage units, and subleases the units to tenants. As of June 1, 2022, Bargold had been classified as held for sale for $17,555 in cash. 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 Company recognized a gainfollowing table summarizes the total consideration transferred to acquire Bargold:
| | | | | |
| |
| |
Total cash paid by the company | $ | 157,302 | |
Fair value of Series D Units issued | 16,000 | |
Fair value of OP Units issued | 6,000 | |
Total consideration transferred | $ | 179,302 | |
As part of $11,265this acquisition, we recorded an expense of $1,465 related to this disposition,transaction costs.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
| | | | | |
Cash and cash equivalents | $ | 175 | |
Fixed assets | 6,411 | |
Developed technology | 500 | |
Trademarks | 500 | |
Customer relationships | 1,870 | |
Other assets | 125 | |
Accounts payables and accrued liabilities assumed | (1,090) | |
Nets asset acquired | 8,491 | |
Goodwill | 170,811 | |
Total assets acquired | $ | 179,302 | |
The following table summarizes the revenues and earnings related to Bargold since the acquisition date of June 1, 2022, which isare included in gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate on the Company's consolidated statementsstatement of operations.operations for the year ended December 31, 2022:
On April 1, 2016, the Company disposed of a single store in Texas in exchange for 85,452 of the Company's OP Units valued at $7,689. The Operating Partnership canceled the OP Units received in this disposition. The Company recognized a gain of $93 related to this disposition, which is included in gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate on the Company's consolidated statements of operations. | | | | | |
Total revenues | $ | 9,374 | |
Net income from operations | $ | 1,718 | |
Pro Forma Information
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Losses on Earnouts from Prior Acquisitions
On December 2014, the Company acquired a portfolio of five stores located in New Jersey and Virginia. As part of this acquisition, the Company agreed to make an additional cash payment to the sellers if the acquired stores exceeded a specified amount of net operating income for the years ending December 31, 2015 and 2016. At the acquisition date, the Company recorded an estimated liability related to this earnout provision. The operating income of these storesnoted above, during the earnout period was higher than expected, resulting in an increase in the estimate of the amount due to the sellers of $4,284, which was recorded as a loss and included in gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate on the Company's consolidated statements of operations for the year ended December 31, 2016.
During 2011,2022, the Company acquired a store located in Florida. As partBargold. The following pro forma financial information is based on the combined historical financial statements of this acquisition, the Company agreed to make an additional cash payment toand Bargold, however, only includes revenue and presents the sellersCompany's results as if the acquired store exceeded a specified amount of net rentalacquisition had occurred on January 1, 2021. Net income for any twelve-month period prior to June 30, 2015. At the acquisition date, $133 was recordedexcluded as the estimated amount that would be due, and the Company believed that it was unlikely that any significant additional payment would be made as a result of this earnout provision. Because the rental growth of the stores was trending significantly higher than expected, the Company estimated that an additional earnout payment of $2,500 wasimpracticable to report expenses due to the sellerlack of historical accrual basis accounting.
| | | | | | | | | | | |
| For the Year Ended December 31, 2022 | | For the Year Ended December 31, 2021 |
| Pro Forma | | Pro Forma |
Total revenues | $ | 1,930,816 | | | $ | 1,592,021 | |
Store Dispositions
The Company disposed of one store on May 18, 2022 and one on June 21, 2022, for a total cash consideration of approximately $38.7 million, resulting in a gain of approximately $14.2 million. Both had been classified as held for sale.
On December 16, 2021 the Company sold 16 stores that had been classified as held for sale for total cash consideration of December 31, 2014. This amount is included in gain (loss) on real estate transactions, earnout from prior acquisitions and sale of other assets on the Company’s consolidated statements of operations for the year ended December 31, 2014. During the year ended December 31, 2015, the$200,292. The Company recorded a gain of $400$73,854.
On March 1, 2021 the Company sold 16 stores that had been classified as held for sale to adjusta newly established unconsolidated joint venture. The Company received $132,759 and maintained a 55% interest in the existing liabilitynew joint venture valued at $33,878. The Company recognized a gain of $63,477 related to the actual amount owed to the sellers assale of June 30, 2015. This gain is included in gain (loss) on real estate transactions, earnout from prior acquisitions and impairment of real estate on the Company’s consolidated statements of operations for the year ended December 31, 2015.these properties.
5.6. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE VENTURESENTITIES
Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures consistrepresent the Company's interest in preferred stock of SmartStop and Strategic Storage, an affiliate of SmartStop, and the Company's noncontrolling interest in real estate joint ventures that own stores. The Company accounts for its investments in SmartStop and Strategic Storage preferred stock, which do not have a readily determinable fair value, at the transaction price less impairment, if any. The Company accounts for its investments in joint ventures using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which is allocated in accordance with the provisions of the following:
|
| | | | | | | | | | | | |
| Number of Properties | Equity Ownership % | | Excess Profit Participation % | | December 31, |
| 2017 | | 2016 |
VRS Self Storage, LLC ("VRS") | 16 | 45% | | 54% | | $ | 19,467 |
| | $ | 20,433 |
|
Storage Portfolio I LLC ("SP I") | 24 | 25% | | 40% | | 11,495 |
| | 11,782 |
|
Storage Portfolio II JV LLC ("SP II'") | 36 | 10% | | 30% | | (3,140 | ) | | — |
|
PRISA Self Storage LLC ("PRISA") | 85 | 4% | | 4% | | 9,638 |
| | 10,152 |
|
Extra Space West Two LLC ("ESW II") | 5 | 5% | | 40% | | 3,939 |
| | 4,048 |
|
WCOT Self Storage LLC ("WCOT") | 16 | 5% | | 20% | | (357 | ) | | 160 |
|
Extra Space West One LLC ("ESW") | 7 | 5% | | 40% | | (900 | ) | | (546 | ) |
Extra Space Northern Properties Six LLC ("ESNPS") | 10 | 10% | | 35% | | (1,279 | ) | | (905 | ) |
Other minority owned stores | 15 | 10-50% | | 19-50% | | 31,228 |
| | 34,446 |
|
| 214 | | | | | $ | 70,091 |
| | $ | 79,570 |
|
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/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/cash or profits, as applicable, than its equity interest.
The Company separately reports investments with net equity less than zero in Cash distributions in unconsolidated real estate ventures in the consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Net Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stores | | Equity Ownership % | | Excess Profit % (1) | | December 31, |
| | 2023 | | 2022 |
PRISA Self Storage LLC | 85 | | 4% | | 4% | | $ | 9,435 | | | $ | 8,596 | |
HF1 Sovran HHF Storage Holdings LLC | 37 | | 20% | | 20% | | 105,339 | | | — | |
Storage Portfolio II JV LLC | 36 | | 10% | | 30% | | (8,314) | | | (7,200) | |
Storage Portfolio IV JV LLC | 32 | | 10% | | 30% | | 48,184 | | | 49,139 | |
Storage Portfolio I LLC | 24 | | 34% | | 49% | | (42,487) | | | (41,372) | |
PR II EXR JV LLC | 23 | | 25% | | 25% | | 108,160 | | | 110,172 | |
HF2 Sovran HHF Storage Holdings II LLC | 22 | | 15% | | 15% | | 41,613 | | | — | |
HF5 Life Storage-HIERS Storage LLC | 17 | | 20% | | 20% | | 26,051 | | | — | |
HF6 191 V Life Storage Holdings LLC | 17 | | 20% | | 20% | | 12,702 | | | — | |
ESS-CA TIVS JV LP | 16 | | 55% | | 55%-65% | | 29,128 | | | 30,778 | |
VRS Self Storage, LLC | 16 | | 45% | | 54% | | (16,386) | | | (15,399) | |
HF10 Life Storage HHF Wasatch Holdings LLC | 16 | | 20% | | 20% | | 20,019 | | | — | |
Other unconsolidated real estate ventures | 131 | | 10%-50% | | 10%-50% | | 317,104 | | | 180,346 | |
SmartStop Self Storage REIT, Inc. Preferred Stock (2) | n/a | | n/a | | n/a | | 200,000 | | | 200,000 | |
Strategic Storage Trust VI, Inc. Preferred Stock (3) | n/a | | n/a | | n/a | | 150,000 | | | — | |
Net Investments in and Cash distributions in unconsolidated real estate entities | 472 | | | | | | $ | 1,000,548 | | | $ | 515,060 | |
(1)Includes pro-rata equity ownership share and promoted interest.
(2)In October 2019, the Company invested $200,000 in shares of convertible preferred stock of SmartStop with a dividend rate of 6.25% per annum, subject to increase after five years. The preferred shares are generally not redeemable for five years, except in the case of a change of control or initial listing of SmartStop. Dividend income from this investment is included on the equity in earnings and dividend income from unconsolidated real estate entities line on the Company's condensed consolidated statements of operations.
(3)In May 2023, the Company invested $150,000 in shares of convertible preferred stock of Strategic Storage with a dividend rate of 8.35% per annum, subject to increase after five years. The preferred shares are generally not redeemable for three years, except in the case of a change of control or initial listing of Strategic Storage. Dividend income from this investment is included on the equity in earnings and dividend income from unconsolidated real estate entities line on the Company's condensed consolidated statements of operations.
In June 2021, the Company sold its interest in two unconsolidated joint ventures to its joint venture partner. The Company received proceeds of $1,888 in cash, and recorded a gain of $525 which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's condensed consolidated statements of operations. The Company also purchased its joint venture partners' interests in two unconsolidated joint ventures.
Also in June 2021, the WICNN JV LLC and GFN JV, LLC joint ventures sold all 17 of the stores owned by the joint ventures to a third party. Subsequent to the sales, these joint ventures were dissolved. As a result of these transactions, the Company recorded a gain of $5,739, which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's consolidated statements of operations.
In accordance with ASC 810, the Company reviews all of its joint venture relationships annually to ensure that there are no entities that require consolidation. As of December 31, 2017,2023, there were no previously unconsolidated entities that were required to be consolidated as a result of this review.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The Company has entered into several17 new unconsolidated real estate ventures.joint ventures (including 16 from the Life Storage Merger), which added a total of 146 stores and a total investment of $305,921 to the Company's portfolio during the year ended December 31, 2023. Additionally, the Company's existing joint ventures added nine stores for a total investment of $27,583 during the year ended December 31, 2023. The Company accounts for its investment in the followingthese ventures under the equity method of accounting. Information about these real estate ventures is summarized as follows:
|
| | | | | | | | |
| Number of new unconsolidated joint ventures | Number of Stores | | Equity ownership % | | Total initial investment |
Year ended December 31, 2017 | 4 | 39 | | 10.0% - 25.0% | | $ | 13,341 |
|
Year ended December 31, 2016 | 8 | 8 | | 20.0% - 50.0% | | $ | 26,387 |
|
Year ended December 31, 2015 | 1 | 1 | | 50% | | $ | 2,885 |
|
On September 16, 2016, subsequent to its acquisition of 23 properties as outlined in Note 4, the Company sold its 4.42% interest in PRISA II to Prudential for $34,758 in cash. The carrying value of the Company's investment prior to the acquisition was $3,912, and the Company recorded a gain on the sale of $30,846. This gain is included in equityEquity in earnings ofand dividend income from unconsolidated real estate ventures - gain on saleentities consists of real estate assets and purchasethe following: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Equity in earnings of PRISA Self Storage LLC | $ | 3,320 | | | $ | 3,272 | | | $ | 2,719 | |
Equity in earnings of HF1 Sovran HHF Storage Holdings LLC (1) | 1,553 | | | — | | | — | |
Equity in earnings of Storage Portfolio II JV LLC | 3,094 | | | 3,398 | | | 1,802 | |
Equity in earnings of Storage Portfolio IV JV LLC | 1,319 | | | 917 | | | 112 | |
Equity in earnings of Storage Portfolio I LLC | 5,182 | | | 4,684 | | | 2,833 | |
Equity in earnings of PR II EXR JV LLC | 2,227 | | | 1,229 | | | (8) | |
Equity in earnings of HF2 Sovran HHF Storage Holdings II LLC (1) | 691 | | | — | | | — | |
Equity in earnings of HF5 Life Storage-HIERS Storage LLC (1) | 377 | | | — | | | — | |
Equity in earnings of HF6 191 V Life Storage Holdings LLC (1) | (735) | | | — | | | — | |
Equity in earnings of ESS-CA TIVS JV LP | 3,873 | | | 2,753 | | | 1,274 | |
Equity in earnings of VRS Self Storage, LLC | 5,253 | | | 5,401 | | | 4,352 | |
Equity in earnings of HF10 Life Storage HHF Wasatch Holdings LLC (1) | 40 | | | — | | | — | |
Equity in earnings of other minority owned stores (1) | 7,740 | | | 7,265 | | | 6,774 | |
Dividend income from SmartStop preferred stock | 12,500 | | | 12,509 | | | 12,500 | |
Dividend income from Strategic Storage preferred stock | 8,401 | | | — | | | — | |
| | | | | |
| $ | 54,835 | | | $ | 41,428 | | | $ | 32,358 | |
(1)The earnings of joint venture partners' interests on the Company's consolidated statements of operations.
On April 25, 2016, the Company and Prudential entered into the “Second Amendment to Amended and Restated Operating Agreement of ESS PRISA LLC” and the “First Amendment to Amended and Restated Operating Agreement of ESS PRISA II LLC” (the “Amendments”). The Amendments are deemed effective as of April 1, 2016. Under the Amendments, the Company gave up any future rights to receive distributions from these16 joint ventures atfrom the higher “excess profit participation” percentageLife Storage Merger are from the close of 17.0% in exchange for a higher equity ownership percentage. The Company’s equity ownership in ESS PRISA LLC increased from 2.0% to 4.0%, and the Company’s equity ownership in ESS PRISA II LLC increased from 2.0% to 4.4%. The Company continues to account for its investment in PRISA under the equity method of accounting. The Company subsequently sold its interest in PRISA II as noted above.acquisition on July 20, 2023.
Equity in earnings of unconsolidated real estatecertain of our joint ventures consists of the following:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Equity in earnings of VRS | $ | 3,562 |
| | $ | 2,919 |
| | $ | 4,041 |
|
Equity in earnings of SP I | 2,684 |
| | 2,380 |
| | 1,951 |
|
Equity in earnings of SP II | 33 |
| | — |
| | — |
|
Equity in earnings of PRISA | 2,430 |
| | 1,912 |
| | 1,013 |
|
Equity in earnings of ESW II | 1,210 |
| | 174 |
| | 145 |
|
Equity in earnings of WCOT | 1,033 |
| | 614 |
| | 569 |
|
Equity in earnings of ESW | 2,502 |
| | 2,269 |
| | 1,875 |
|
Equity in earnings of ESNPS | 918 |
| | 823 |
| | 633 |
|
Equity in earnings of other minority owned stores | 959 |
| | 1,804 |
| | 2,124 |
|
| $ | 15,331 |
| | $ | 12,895 |
| | $ | 12,351 |
|
Equity in earnings of ESW II, SP I and VRS and other minority owned stores includes the amortization of the Company’s excess purchase price of $27,691$60,253 of these equity investments over its original basis. The excess basis is amortized over 4039 years.
The Company provides management services to joint ventures for a fee. Management fee revenues for affiliated real estate joint ventures for the years ended December 31, 2023, 2022 and 2021 were $31,755, $24,389 and $17,619, respectively.
7. INVESTMENTS IN DEBT SECURITIES AND NOTES RECEIVABLE
Investments in debt securities and notes receivable consists of the Company's investment in mandatorily redeemable preferred stock of Jernigan Capital, Inc. ("JCAP") in connection with JCAP's acquisition by affiliates of NexPoint Advisors, L.P. ("NexPoint") and receivables due to the Company under its bridge loan program. Information about these balances is as follows: | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Debt securities - Preferred Stock | $ | 300,000 | | | $ | 300,000 | |
Notes Receivable - Bridge Loans | 594,727 | | | 491,879 | |
| | | |
Dividends and Interest Receivable | 10,042 | | | 66,170 | |
| $ | 904,769 | | | $ | 858,049 | |
| | | |
In November 2020, the Company invested $300,000 in the preferred stock of JCAP in connection with the acquisition of JCAP by affiliates of NexPoint. This investment consisted of 200,000 Series A Preferred Shares valued at a total of $200,000, and 100,000 Series B Preferred Shares valued at a total of $100,000. In December 2022, the Company completed a modification with Nexpoint Storage Partners (as successor in interest to JCAP) that exchanged the Series A and B Preferred Shares for 300,000 Series D Preferred Shares, valued at a total of $300,000. The JCAP Series D preferred stock is mandatorily
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
redeemable after six years from the modification in December 2022, with two one-year extension options. NexPoint may redeem the Preferred Shares at any time, subject to certain prepayment penalties. The Company accounts for the JCAP preferred stock as a held to maturity debt security at amortized cost and evaluates whether the fair value is below the amortized cost basis at each reporting period. The Series D Preferred Shares have initial dividend rates of 8.5%. If the investment is not retired after six years, the preferred dividends increase annually.
6. NOTES PAYABLE AND REVOLVING LINES OF CREDITIn July 2020, the Company purchased a senior mezzanine note receivable with a principal amount of $103,000. The note receivable bore interest at 5.5%, with a maturity in December 2023 and was collateralized through an equity interest in which it or its subsidiaries wholly own 62 storage facilities. The Company paid cash of $101,142 for the note receivable and accounted for the discount at amortized cost. The discount was being amortized over the term of the note receivable. In February 2022, a junior mezzanine lender exercised its right to buy the Company’s position for the full principal balance plus interest due, as a result of which the Company sold this note for a total of $103,315 in cash. The remaining unamortized discount was recognized in that quarter as interest income.
The Company provides bridge loan financing to third-party self-storage operators. These notes receivable consist of mortgage loans receivable, which are collateralized by self-storage properties, and unsecured mezzanine loans receivable. As of December 31, 2023, 70% of the notes held are mortgage receivables. The Company intends to sell a portion of the mortgage receivables. These notes receivable typically have a term of three years with two one-year extensions, and have variable interest rates. During the year ended December 31, 2023, the Company sold a total principal amount of $167,495 of its mortgage bridge loans receivable to third parties for a total of $167,495 in cash, closed on $283,039 in initial loan draws, and recorded $27,366 of draws from interest holdbacks.
The bridge loans typically have a loan to value ratio between 70% and 80%. None of the debt securities or notes receivable are in past-due or nonaccrual status and the allowance for potential credit losses is immaterial.
8. DEBT
The components of notes payableterm debt are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Term Debt | December 31, 2023 | | December 31, 2022 | | Fixed Rate | | Variable Rate (2) | | Maturity Dates |
Secured fixed-rate (1) | $ | 401,319 | | | $ | 521,820 | | | 2.67% - 4.62% | | | | April 2025 - February 2030 |
Secured variable-rate (1) | 877,786 | | | 772,604 | | | | | 6.35% - 6.88% | | November 2024 - September 2030 |
Unsecured fixed-rate | 7,921,633 | | | 4,240,376 | | | 2.08% - 5.90% | | | | January 2025 - March 2032 |
Unsecured variable-rate | 1,463,367 | | | 884,624 | | | | | 6.30% - 6.63% | | June 2024 - July 2029 |
Total | 10,664,105 | | | 6,419,424 | | | | | | | |
Less: Discount on unsecured senior notes (3) | (274,350) | | | — | | | | | | | |
Less: Unamortized debt issuance costs | (55,007) | | | (32,962) | | | | | | | |
Total | $ | 10,334,748 | | | $ | 6,386,462 | | | | | | | |
| | | | | | | | | |
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents. |
(2) Basis rates include Term SOFR and Daily Simple SOFR |
(3) Unsecured senior notes from the Life Storage Merger were recorded at fair value, resulting in a discount to be amortized over the term of the debt. |
The following table summarizes the scheduled maturities of term debt, excluding available extensions, at December 31, 2023:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | | | | | | | | | | | | |
Notes Payable | December 31, 2017 | | December 31, 2016 | | Fixed Rate | | Variable Rate | | Basis Rate (2) | | Maturity Dates |
Secured fixed rate notes payable (1) | $ | 2,095,495 |
| | $ | 2,297,968 |
| | 2.6% - 6.1% | | | | | | September 2018 - February 2030 |
Secured variable rate notes payable (1) | 717,979 |
| | 642,970 |
| | | | 3.0% - 3.4% | | LIBOR plus 1.4% - 1.8% | | September 2018 - December 2024 |
Unsecured fixed rate notes payable | 600,000 |
| | — |
| | 3.1% - 4.0% | | | | | | October 2021 - August 2027 |
Unsecured variable rate notes payable | 350,000 |
| | 300,000 |
| | | | 2.8% - 3.2% | | LIBOR plus 1.3% - 1.7% | | October 2021 - October 2023 |
Total | 3,763,474 |
| | 3,240,938 |
| | | | | | | | |
Less: unamortized debt issuance costs | (24,977 | ) | | (27,350 | ) | | | | | | | | |
Total | $ | 3,738,497 |
| | $ | 3,213,588 |
| | | | | | | | |
| | | | | | | | | | | |
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents. |
(2) 30-day USD LIBOR | | | | | | | | | | | |
| | | | | |
| |
2024 | 648,250 | |
2025 | 1,123,120 | |
2026 | 1,409,581 | |
2027 | 1,316,907 | |
2028 | 1,029,000 | |
2029 | 1,542,759 | |
2030 | 1,344,488 | |
2031 | 1,650,000 | |
2032 | 600,000 | |
| |
Total | $ | 10,664,105 | |
On October 14, 2016,June 22, 2023, the Company entered into a credit agreementthe Third Amended and Restated Credit Agreement (the “Credit Agreement”"Credit Agreement") which provides for aggregate borrowingsincreased the commitment of up to $1.15 billion, consisting of a senior unsecured four-yearthe revolving credit facility of $500 million (the “Revolvingto $1,940,000, and later to $2,000,000 with an Increasing Lender Supplement entered into in August 2023, and extended its maturity to June 2027. In connection with entering into the Credit Facility”), a senior unsecured five-yearAgreement, the Company paid off Tranche 5 and added the Tranche 8 term loan, of $430 million (the “Five-Year Term Loan Facility”) and a senior unsecured seven-year term loan of $220 million (the “Seven-Year Term Loan Facility” and, togethermaturing June 2024, which allowed the Company to draw up to $1,000,000 in connection with the RevolvingLife Storage Merger. Tranche 8 was fully drawn on July 20, 2023, in connection with the closing of the Life Storage Merger, paid down to $400,000 in December 2023, and fully paid off in January 2024.
Pursuant to the terms of the Credit Facility andAgreement, the Five-Year Term Loan Facility, the “Credit Facility”). The Company may request an increase in the amountextension of the commitments under the Credit Facility up to an aggregate of $1.5 billion, and extend the term of the Revolving Credit Facilityrevolving credit facility for up to two additional periods of six months each, after satisfying certain conditions.
Amounts
As of December 31, 2023, amounts outstanding under the Credit Facility bearrevolving credit facility bore interest at floating rates, at the Company’s option, equal to either (i) LIBORAdjusted Term or Daily Simple SOFR plus the applicable Eurodollar rate 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 EurodollarSOFR rate plus 1.00%. ThePer the Credit Agreement, the applicable EurodollarSOFR rate margin will rangeand applicable base rate margin are based on the Company’s achieved debt rating, with the SOFR rate margin ranging from 1.35%0.7% to 2.50%2.2% per annum and the applicable base rate margin will range from 0.35% to 1.50% per annum, in each case depending on the Company’s Consolidated Leverage Ratio, as defined in the Credit Agreement, and the type of loan. If the Operating Partnership obtains a specified investment grade rating from two or more specified credit rating agencies, and elects to use the alternative rates based on the Company’s debt rating, the applicable Eurodollar rate margin will range from 0.85% to 2.45% per annum and the applicable base rate margin will rangeranging from 0.00% to 1.45%1.20% per annum, in each case depending on the rating achieved and the type of loan.annum.
The Credit Agreement is guaranteed by the Company and is not secured by any assets of the Company. We areThe Company's unsecured debt is subject to certain restrictive covenants relating to our outstanding debt.financial covenants. As of December 31, 2017,2023, the Company was in compliance with all of its financial covenants.
The following table summarizes the scheduled maturities of notes payable at December 31, 2017:
|
| | | |
| |
2018 | $ | 210,085 |
|
2019 | 456,117 |
|
2020 | 930,308 |
|
2021 | 658,146 |
|
2022 | 493,493 |
|
Thereafter | 1,015,325 |
|
| $ | 3,763,474 |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Real estate assets are pledged as collateral for the secured loans. Of the Company’s $3,763,474 principal amount of notes payable outstanding at December 31, 2017, $2,545,278 was recourse due to guarantees or other security provisions.
All of the Company’s lines of credit are guaranteed by the Company. The following table presents information on the Company’s lines of credit, the proceeds of which are used to repay debt and for general corporate purposes, for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | | | | |
Revolving Lines of Credit | Amount Drawn | | Capacity | | Interest Rate | | Maturity | | Basis Rate (1) |
Credit Line 1 (2) | $ | 40,000 | | | $ | 140,000 | | | 6.7% | | 7/1/2026 | | SOFR plus 1.35% |
Credit Line 2 (3)(4) | 642,000 | | | 2,000,000 | | | 6.3% | | 6/22/2027 | | ASOFR plus 0.775% |
| $ | 682,000 | | | $ | 2,140,000 | | | | | | | |
| | | | | | | | | |
(1) Daily Simple SOFR |
(2) Secured by mortgages on certain real estate assets. On January 13, 2023 the maturity date was extended to July 1, 2026 with one extension of one year available. |
(3) Unsecured. On June 22, 2023, the maturity date was extended to June 22, 2027 with two six-month extensions available. On August 11, 2023, the capacity was increased by $60 million. |
(4) Basis Rate as of December 31, 2023. Rate is subject to change based on the Company's investment grade rating. |
As of December 31, 2023, the Company’s percentage of fixed-rate debt to total debt was 73.4%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 3.9% and 6.6%, respectively. The combined weighted average interest rate was 4.6%.
|
| | | | | | | | | | | | | | | |
| As of December 31, 2017 | | | | | | |
Revolving Lines of Credit | Amount Drawn | | Capacity | | Interest Rate | | Origination Date | | Maturity | | Basis Rate (1) |
Credit Line 1 (2) | $ | 19,000 |
| | $ | 100,000 |
| | 3.2% | | 6/4/2010 | | 6/30/2018 | | LIBOR plus 1.7% |
Credit Line 2 (3)(4) | 75,000 |
| | 500,000 |
| | 3.0% | | 10/14/2016 | | 10/14/2020 | | LIBOR plus 1.4% |
| $ | 94,000 |
| | $ | 600,000 |
| | | | | | | | |
(1) 30-day USD LIBOR |
(2) Secured by mortgages on certain real estate assets. One two-year extension available. |
(3) Unsecured. Two six-month extensions available. |
(4) Basis Rate as of December 31, 2017. Rate is subject to change based on our consolidated leverage ratio. |
7.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
9. DERIVATIVES
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash 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 this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“OCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. A portion of these changes is excluded from accumulated other comprehensive income as it is allocated to noncontrolling interests. During the years ended December 31, 2017, 20162023, 2022 and 2015,2021, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During 2018,2024, the Company estimates that $4,736$19,010 will be reclassified as a decrease to interest expense.
The following table summarizes the terms of the Company’s 2915 active and four forward-starting derivative financial instruments, which have a total combined current notional amount of $2,154,799$1,448,566 as of December 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Hedge Product | | Range of Notional Amounts | | Strike | | Strike | Effective Dates | | Maturity Dates |
Swap Agreements | | $32,000 - $245,000 | | $4,8730.96% - $267,4314.33% | | 1.13% - 3.84% | | 10/3/2011 - 4/28/2017 | | 9/20/6/27/2018 - 7/14/2025 | | 1/29/2024 - 2/1/20242028 |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Fair Values of Derivative Instruments
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets:
|
| | | | | | | |
| Asset / Liability Derivatives |
| December 31, 2017 | | December 31, 2016 |
Derivatives designated as hedging instruments: | Fair Value |
Other assets | $ | 38,365 |
| | $ | 23,844 |
|
Other liabilities | $ | 9 |
| | $ | 2,447 |
|
| | | | | | | | | | | |
| Asset / Liability Derivatives |
Derivatives designated as hedging instruments: | December 31, 2023 | | December 31, 2022 |
Other assets | $ | 26,183 | | | $ | 54,839 | |
Other liabilities | $ | 5,030 | | | $ | 73 | |
Effect of Derivative Instruments
The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations for the periods presented. No tax effect has been presented as the derivative instruments are held by the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (loss) recognized in OCI for the Year Ended December 31, | | Location of amounts reclassified from OCI into income | | Gain (loss) reclassified from OCI for the Year Ended December 31, |
Type | | 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
Swap Agreements | | $ | 8,730 | | | $ | 88,372 | | | Interest expense | | $ | 41,541 | | | $ | (7,877) | | | $ | (35,764) | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Gain (loss) recognized in OCI For the Year Ended December 31, | | Location of amounts reclassified from OCI into income | | Gain (loss) reclassified from OCI For the Year Ended December 31, |
Type | | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
Swap Agreements | | $ | 8,499 |
| | $ | 6,388 |
| | Interest expense | | $ | (8,853 | ) | | $ | (18,800 | ) | | $ | (12,487 | ) |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Credit-Risk-Related Contingent Features
The Company has agreements with some of its derivative counterparties that contain provisions pursuant to which, the Company could be declared in default of its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender.
The Company also has an agreement with some of its derivative counterparties that incorporates the loan covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.
As of December 31, 2017,2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was immaterial.$5,082. As of December 31, 2017,2023, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2017,2023, it could have been required to cash settle its obligations under these agreements at their termination value.
8. NOTES PAYABLE TO TRUSTS
During July 2005, ESS Statutory Trust III (the “Trust III”), a newly formed Delaware statutory trust and a wholly-owned, unconsolidated subsidiary of the Operating Partnership, issued an aggregate of $40,000 of preferred securities which mature on July 31, 2035. In addition, the Trust III issued 1,238 of Trust common securities to the Operating Partnership for a purchase price of $1,238. On July 27, 2005, the proceeds from the sale of the preferred and common securities of $41,238 were loaned in the form of a note to the Operating Partnership (“Note 3”). Note 3 had a fixed rate of 6.91% through July 31, 2010, and then was payable at a variable rate equal to the three month LIBOR plus 2.4% per annum. Effective July 11, 2011, the Trust III entered into an interest rate swap that fixes the interest rate to be paid at 5.0% per annum and matures July 11, 2018. The interest on Note 3, payable quarterly, will be used by the Trust III to pay dividends on the trust preferred securities. The trust preferred securities became redeemable by the Trust III with no prepayment premium on July 27, 2010.
During May 2005, ESS Statutory Trust II (the “Trust II”), a newly formed Delaware statutory trust and a wholly-owned, unconsolidated subsidiary of the Operating Partnership of the Company, issued an aggregate of $41,000 of preferred securities which mature on June 30, 2035. In addition, the Trust II issued 1,269 of Trust common securities to the Operating Partnership for a purchase price of $1,269. On May 24, 2005, the proceeds from the sale of the preferred and common securities of $42,269 were loaned in the form of a note to the Operating Partnership (“Note 2”). Note 2 had a fixed rate of 6.7% through June 30,
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
2010, and then was payable at a variable rate equal to the three month LIBOR plus 2.4% per annum. Effective July 11, 2011, the Trust II entered into an interest rate swap that fixes the interest rate to be paid at 5.0% per annum and matures July 11, 2018. The interest on Note 2, payable quarterly, will be used by the Trust II to pay dividends on the trust preferred securities. The trust preferred securities became redeemable by the Trust II with no prepayment premium on June 30, 2010.
During April 2005, ESS Statutory Trust I (the “Trust”), a newly formed Delaware statutory trust and a wholly-owned, unconsolidated subsidiary of the Operating Partnership of the Company issued an aggregate of $35,000 of trust preferred securities which mature on June 30, 2035. In addition, the Trust issued 1,083 of Trust common securities to the Operating Partnership for a purchase price of $1,083. On April 8, 2005, the proceeds from the sale of the trust preferred and common securities of $36,083 were loaned in the form of a note to the Operating Partnership (the “Note”). The Note has a variable rate equal to the three month LIBOR plus 2.3% per annum. Effective June 30, 2010, the Trust entered into an interest rate swap that fixes the interest rate to be paid at 5.1% per annum and matures on June 30, 2018. The interest on the Note, payable quarterly, will be used by the Trust to pay dividends on the trust preferred securities. The trust preferred securities are redeemable by the Trust with no prepayment premium.
Trust, Trust II and Trust III (together, the “Trusts”) are VIEs because the holders of the equity investment at risk (the trust preferred securities) do not have the power to direct the activities of the entities that most significantly affect the entities’ economic performance because of their lack of voting or similar rights. Because the Operating Partnership’s investment in the Trusts’ common securities was financed directly by the Trusts as a result of its loan of the proceeds to the Operating Partnership, that investment is not considered to be an equity investment at risk. The Operating Partnership’s investment in the Trusts is not a variable interest because equity interests are variable interests only to the extent that the investment is considered to be at risk, and therefore the Operating Partnership cannot be the primary beneficiary of the Trusts. Since the Company is not the primary beneficiary of the Trusts, they have not been consolidated. A debt obligation has been recorded in the form of notes as discussed above for the proceeds, which are owed to the Trusts by the Company. The Company has also recorded its investment in the Trusts’ common securities as other assets.
The Company has not provided financing or other support during the periods presented to the Trusts that it was not previously contractually obligated to provide. The Company’s maximum exposure to loss as a result of its involvement with the Trusts is equal to the total amount of the notes discussed above less the amounts of the Company’s investments in the Trusts’ common securities. The net amount is the notes payable that the Trusts owe to third parties for their investments in the Trusts’ preferred securities.
The notes payable to trusts are presented net of unamortized deferred financing costs of $2,146 and $2,269 as of December 31, 2017 and 2016, respectively.
Following is a tabular comparison of the liabilities the Company has recorded as a result of its involvements with the Trusts to the maximum exposure to loss the Company is subject to related to the Trusts as of December 31, 2017:
|
| | | | | | | | | | | | | | | |
| Notes payable to Trusts | | Investment Balance | | Maximum exposure to loss | | Difference |
Trust | $ | 36,083 |
| | $ | 1,083 |
| | $ | 35,000 |
| | $ | — |
|
Trust II | 42,269 |
| | 1,269 |
| | 41,000 |
| | — |
|
Trust III | 41,238 |
| | 1,238 |
| | 40,000 |
| | — |
|
Total | 119,590 |
| | 3,590 |
| | 116,000 |
| | — |
|
Unamortized debt issuance costs | (2,146 | ) | |
| |
| |
|
Total notes payable to trusts, net | $ | 117,444 |
| |
|
| |
|
| |
|
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
9. EXCHANGEABLE SENIOR NOTES
In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in other assets in the consolidated balance sheets. The 2015 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on April 1 and October 1 of each year beginning April 1, 2016, until the maturity date of October 1, 2035. The Notes bear interest at 3.125% per annum and contain an exchange settlement feature, which provides that the 2015 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2015 Notes as of December 31, 2017 was approximately 10.66 shares of the Company’s common stock per $1,000 principal amount of the 2015 Notes.
The Operating Partnership may redeem the 2015 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after October 5, 2020, the Operating Partnership may redeem the 2015 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2015 Notes. The holders of the 2015 Notes have the right to require the Operating Partnership to repurchase the 2015 Notes for cash, in whole or in part, on October 1 of the years 2020, 2025 and 2030, (unless the Operating Partnership has called the 2015 Notes for redemption), and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2015 Notes, which may result in the accelerated maturity of the 2015 Notes.
On June 21, 2013, the Operating Partnership issued $250,000 of its 2.375% Exchangeable Senior Notes due 2033 at a 1.5% discount, or $3,750. Costs incurred to issue the 2013 Notes were approximately $1,672. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in other assets in the consolidated balance sheets. The 2013 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on January 1 and July 1 of each year beginning January 1, 2014, until the maturity date of July 1, 2033. The 2013 Notes bear interest at 2.375% per annum and contain an exchange settlement feature, which provides that the 2013 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2013 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2013 Notes as of December 31, 2017 was approximately 18.85 shares of the Company’s common stock per $1,000 principal amount of the 2013 Notes.
Additionally, the 2013 Notes and the 2015 Notes can be exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company is greater than or equal to 130% of the exchange price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter. The price of the Company’s common stock exceeded 130% of the exchange price for the required time period for the 2013 Notes during the quarter ended December 31, 2017. Therefore, holders of the 2013 Notes may elect to exchange such notes during the quarter ending March 31, 2018. The price of the Company’s common stock did not exceed 130% of the exchange price for the required time period for the 2015 Notes during the quarter ended December 31, 2017.
The Operating Partnership may redeem the 2013 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after July 5, 2018, the Operating Partnership may redeem the 2013 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2013 Notes. The holders of the 2013 Notes have the right to require the Operating Partnership to repurchase the 2013 Notes for cash, in whole or in part, on July 1 of the years 2018, 2023 and 2028, and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2013 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2013 Notes, which may result in the accelerated maturity of the 2013 Notes.
GAAP requires entities with convertible debt instruments that may be settled entirely or partially in cash upon conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The Company therefore accounts for the liability and equity components of the 2013 Notes and 2015 Notes separately. The equity components are included in paid-in capital in stockholders’ equity in the consolidated balance sheets, and
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
the value of the equity components are treated as original issue discount for purposes of accounting for the debt components. The discounts are being amortized as interest expense over the remaining period of the debt through its first redemption date, July 1, 2018 for the 2013 Notes and October 1, 2020 for the 2015 Notes. The effective interest rate on the liability components of both the 2013 Notes and the 2015 Notes is 4.0%, which approximates the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.$5,082.
Information about the carrying amount of the equity component, the principal amount of the liability component, its unamortized discount and its net carrying amount were as follows for the periods indicated:
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Carrying amount of equity component - 2013 Notes | $ | — |
| | $ | — |
|
Carrying amount of equity component - 2015 Notes | 22,597 |
| | 22,597 |
|
Carrying amount of equity components | $ | 22,597 |
| | $ | 22,597 |
|
Principal amount of liability component - 2013 Notes | $ | 49,259 |
| | $ | 63,170 |
|
Principal amount of liability component - 2015 Notes | 575,000 |
| | 575,000 |
|
Unamortized discount - equity component - 2013 Notes | (315 | ) | | (1,187 | ) |
Unamortized discount - equity component - 2015 Notes | (12,974 | ) | | (17,355 | ) |
Unamortized cash discount - 2013 Notes | (74 | ) | | (281 | ) |
Unamortized debt issuance costs | (6,620 | ) | | (9,033 | ) |
Net carrying amount of liability components | $ | 604,276 |
| | $ | 610,314 |
|
The amount of interest cost recognized relating to the contractual interest rate and the amortization of the discount on the liability component for the 2013 Notes and 2015 Notes was as follows for the periods indicated:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Contractual interest | $ | 19,303 |
| | $ | 19,483 |
| | $ | 9,939 |
|
Amortization of discount | 5,103 |
| | 4,980 |
| | 3,310 |
|
Total interest expense recognized | $ | 24,406 |
| | $ | 24,463 |
| | $ | 13,249 |
|
Repurchase of 2013 Notes
During July, August and October 2017, the Company repurchased a total principal amount of $13,911 of the 2013 Notes. The Company paid cash of $20,042 for the total of the principal amount and the exchange value in excess of the principal amount.
During April 2016, the Company repurchased a total principal amount of $2,555 of the 2013 Notes. The Company paid cash for the principal amount and issued a total of 18,031 shares of common stock valued at $1,686 for the exchange value in excess of the principal amount.
During February 2016, the Company repurchased a total principal amount of $19,639 of the 2013 Notes. The Company paid cash for the principal amount, and issued a total of 130,909 shares of common stock valued at $11,380 for the exchange value in excess of the principal amount.
As part of the 2015 Notes offering, the Company repurchased $164,636 of the 2013 Notes for $227,212 on September 15, 2015. The Company allocated the value of the consideration paid to repurchase the 2013 Notes (1) to the extinguishment of the liability component and (2) to the reacquisition of the equity component. The amount allocated to the extinguishment of the liability component is equal to the fair value of that component immediately prior to extinguishment. The difference between the consideration attributed to the extinguishment of the liability component and the sum of (a) the net carrying amount of the repurchased liability component, and (b) the related unamortized debt issuance costs, is recognized as a gain on debt extinguishment. The remaining settlement consideration is allocated to the reacquisition of the equity component of the repurchased 2013 Notes and recognized as a reduction of stockholders’ equity.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Information about the repurchases is as follows:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Principal amount repurchased | $ | 13,911 |
| | $ | 22,194 |
| | $ | 164,636 |
|
| | | | | |
Amount allocated to: | | | | | |
Extinguishment of liability component | $ | 13,692 |
| | $ | 21,363 |
| | $ | 157,100 |
|
Reacquisition of equity component | 6,350 |
| | 13,898 |
| | 70,112 |
|
Total consideration paid for repurchase | $ | 20,042 |
| | $ | 35,261 |
| | $ | 227,212 |
|
Exchangeable senior notes repurchased | $ | 13,911 |
| | $ | 22,194 |
| | $ | 164,636 |
|
Extinguishment of liability component | (13,692 | ) | | (21,363 | ) | | (157,100 | ) |
Discount on exchangeable senior notes | (184 | ) | | (788 | ) | | (6,931 | ) |
Related debt issuance costs | (35 | ) | | (43 | ) | | (605 | ) |
Gain/(loss) on repurchase | $ | — |
| | $ | — |
| | $ | — |
|
Subsequent to year end, the Company has repurchased a total principal amount of $37,704 of the 2013 Notes. The Company paid cash for these repurchases totaling $58,465, which included the principal amount and the exchange value in excess of the principal amount.
10. RELATED PARTY AND AFFILIATED REAL ESTATE JOINT VENTURE TRANSACTIONS
The Company provides management services to certain joint ventures and third parties for a fee. Management fee revenues for related party and affiliated real estate joint ventures and other income are summarized as follows:
|
| | | | | | | | | | | | | | |
| | | | For the Year Ended December 31, |
Entity | | Type | | 2017 | | 2016 | | 2015 |
PRISA | | Affiliated real estate joint ventures | | $ | 6,303 |
| | $ | 6,117 |
| | $ | 5,809 |
|
SP I | | Affiliated real estate joint ventures | | 1,450 |
| | 1,397 |
| | 1,312 |
|
WCOT | | Affiliated real estate joint ventures | | 1,159 |
| | 1,819 |
| | 1,799 |
|
VRS | | Affiliated real estate joint ventures | | 1,038 |
| | 1,053 |
| | 1,398 |
|
ESNPS | | Affiliated real estate joint ventures | | 645 |
| | 620 |
| | 584 |
|
ESW | | Affiliated real estate joint ventures | | 590 |
| | 555 |
| | 515 |
|
ESW II | | Affiliated real estate joint ventures | | 502 |
| | 482 |
| | 452 |
|
PRISA II | | Affiliated real estate joint ventures | | — |
| | 3,469 |
| | 4,703 |
|
Other | | Franchisees, third parties and other | | 27,692 |
| | 24,330 |
| | 17,589 |
|
| | | | $ | 39,379 |
| | $ | 39,842 |
| | $ | 34,161 |
|
Receivables from related parties and affiliated real estate joint ventures balances are summarized as follows:
|
| | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
Mortgage notes receivable | | $ | — |
| | $ | 15,860 |
|
Other receivables from stores | | 2,847 |
| | 751 |
|
| | $ | 2,847 |
| | $ | 16,611 |
|
Mortgage notes receivable consisted of short-term mortgage notes to joint ventures and one three-year revolving line of credit to a joint venture. These short-term mortgage notes had a maturity of less than a year and were repaid prior to December 31, 2017. Other receivables from stores consist of amounts due for management fees, asset management fees and expenses paid on behalf of the stores that the Company manages. The Company believes that all of these related party and affiliated real
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
estate joint venture receivables are fully collectible. The Company did not have any payables to related parties at December 31, 2017 or 2016.
The Company has entered into an annual aircraft dry lease and service and management agreement with SpenAero, L.C. (“SpenAero”), an affiliate of Spencer F. Kirk, who was the Company's Chief Executive Officer through December 31, 2016 and continues to serve as a member of the Company's Board of Directors. Under the terms of the agreement, the Company pays a defined hourly rate for use of the aircraft. During the years ended December 31, 2017, 2016 and 2015, the Company paid SpenAero $167, $1,180 and $1,163, respectively.
11. STOCKHOLDERS’ EQUITY
The Company’s charter provides that it can issue up to 500,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of December 31, 2017, 126,007,0912023, 211,278,803 shares of common stock were issued and outstanding, and no shares of preferred stock were issued or outstanding.
All holders of the Company's common stock are entitled to receive dividends and to one vote on all matters submitted to a vote of stockholders. The transfer agent and registrar for the Company’s common stock is American Stock Transfer & Trust Company.
During the year ended December 31, 2023, the Company sold no shares of common stock.
On July 20, 2023, the Company issued 76,217,359 shares of its common stock for a total value of $11,353,338. This was based on an exchange ratio of 0.895 per share conversion of Life Storage common stock at the Company's closing share price on July 19, 2023 of $148.96 as part of the Life Storage Merger.
On January 7, 2022, the Company issued 186,766 shares of its common stock to acquire two stores for $40,965.
On August 28, 2015, the Company filed a $400,000 “at the market” equity program with the Securities and Exchange Commission, and entered into separate equity distribution agreements with five sales agents. On May 6, 2016,9, 2021, the Company filed its current $400,000$800,000 "at the market" equity program with the Securities and Exchange Commission using a new shelf registration statement on Form S-3, and entered into separate equity distribution agreements with fiveten sales agents. Under the terms ofNo shares have been sold under the current "at the market" equity distribution agreements, the Company may from time to time offer and sell shares of common stock, up to the aggregate offering price of $400,000,program. From January 1, 2021, through its sales agents. The current equity distribution agreements, dated May 6, 2016, replaced and superseded the previous equity distribution agreements, dated August 28, 2015.
During the year ended December 31, 2017,8, 2021, the Company sold no585,685 shares of common stock under its prior "at the market" equity program.
During July 2016, the Company sold 550,000 shares of common stock under the current “at the market” equity program at an average sales price of $92.04$115.90 per share resulting in net proceeds of $50,062. At December 31, 2017, the Company had $349,375 available for issuance under the existing equity distribution agreements.66,617.
From January 1, 2016, through May 6, 2016,On March 23, 2021, the Company sold 831,3001,600,000 shares of its common stock under the previous “at the market” equity programin a registered offering structured as a bought deal at an average salesa price of $89.66$129.13 per share resulting in net proceeds of $73,360.206,572.
On November 13, 2023, the Company's board of directors authorized a share repurchase program allowing for the repurchase of shares with an aggregate value up to $500,000. During September 2015,the year ended December 31, 2023, no shares were repurchased. As of December 31, 2023, the Company sold 410,000had remaining authorization to repurchase shares of common stock under the previous “at the market” equity program atwith an average sales price of $75.17 peraggregate value up to $500,000.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share resulting in net proceeds of $30,266.data, unless otherwise stated
On June 22, 2015, the Company issued and sold 6,325,000 shares of its common stock in a public offering at a price of $68.15 per share. The Company received gross proceeds of $431,049. The underwriting discount and transaction costs were $14,438, resulting in net proceeds of $416,611.
12.11. NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS
Classification of Noncontrolling Interests
GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.
The Company has evaluated the terms of the Operating Partnership’s preferred units and classifies the noncontrolling interest represented by such preferred units as stockholders’ equity in the accompanying consolidated balance sheets. The
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.
As of December 31, 2017, the noncontrolling interests represented by Operating Partnership preferred units consisted of the following:
•875,480 Series A Units;
•1,676,087 Series B Units;
•704,016 Series C Units; and
•3,682,521 Series D Units.
At December 31, 20172023 and 2016,2022, the noncontrolling interests represented by the Preferred Operating PartnershipOP Units qualified for classification as permanent equity on the Company's consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. As of December 31, 2023 and 2022, noncontrolling interests in Preferred OP Units were presented net of notes receivable from Preferred Operating Partnership unit holders of $100,000 as of December 31, 2023 and 2022, respectively, as more fully described below. The balances for each of the specific preferred OP units as presented in the Statement of Noncontrolling Interests and Equity as of the periods indicated is as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Series A Units | $ | — | | | $ | 16,498 | |
Series B Units | 33,567 | | | 33,568 | |
Series D Units | 188,793 | | | 211,436 | |
| $ | 222,360 | | | $ | 261,502 | |
Series A Participating Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series A Units. The Series A Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation.
The Series A Units were issued in June 2007. Series A Units in the amount of $101,700 bear a fixed priority return of 2.3%, and originally had a fixed liquidation value of $115,000. The remaining balance participates in distributions with, and has a liquidation value equal to, that of the common OP Units. The Series A Units becameare redeemable at the option of the holder, on September 1, 2008, which redemption obligation may be satisfied, at the Company’s option, in cash or shares of its common stock. As a result of the redemption of 114,500 Series A Units in October 2014, the remaining fixed liquidation value was reduced to $101,700. On April 18, 2017, the holder of the$101,700 which represents 875,480 Series A Units and the Operating Partnership agreed to reduce the fixed priority return on the Series A Units from 5.0% to 2.3% in exchange for a reduction in the interest rate of the related loan, as more fully described below.
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.
On June 25, 2007, the Operating Partnership loaned the holders of the Series A Units $100,000. The note receivable bears interest at 2.1%. On April 18, 2017, a loan amendment was signed modifying the maturity date of the loan to the later of the death of the Series A Unit holder or his spouse and also lowering the interest rate of the loan from 4.9% to 2.1%. The loan amendment was determined to be a loan modification under GAAP, and therefore no change in value was recognized. The loan is secured by the borrower’s Series A Units. No future redemption of Series A Units can be made unless the loan secured by the Series A Units is also repaid. The Series A Units are shown on the balance sheet net of the $100,000 loan because the borrower under the loan is also the holder of the Series A Units.
On January 25, 2023, the redemption obligation for all outstanding Series A Units was satisfied in $5,000 cash and 851,698 shares of its common stock, which was net of the noncash settlement of the $100,000 loan. As a
result of this redemption, no Series A Units were outstanding as of December 31, 2023.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Series B Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series B Units. The Series B Units rank junior to the Series A Units, on parity with the Series C Units (defined below) and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.
The Series B Units were issued in 2013 and 2014, have been redeemed at various times, and have a liquidation value of $25.00 per unit for a current fixed liquidation value of $41,902.$33,567 which represents 1,342,727 Series B Units outstanding at December 31, 2023. Holders of the Series B Units receive distributions at an annual rate of 6.0%. These distributions are cumulative. The Series B Units arebecame redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligations may be satisfied at the Company’s option in cash or shares of its common stock. 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.
Series C Convertible Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series C Units. The Series C Units rank 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.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store As of December 31, 2023 and share data, unless otherwise stated
The Series C UnitsDecember 31, 2022, there were issued in 2013 and 2014 and have a liquidation value of $42.10 per unit for a fixed liquidation value of $29,639. From issuance to the fifth anniversary of issuance, each Series C Unit holder will receive quarterly distributions equal to the quarterly distribution for common OP Unit plus $0.18. Beginning on the fifth anniversary of issuance, each Series C Unit holder will receive a fixed quarterly distribution equal to the aggregate quarterly distribution payable in respect of such Series C Unit during the four quarters immediately preceding the fifth anniversary of issuance divided by four. These distributions are cumulative. The Series C Units will become redeemable at the option of the holder one year from the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. The Series C Units will also become convertible into common OP Units at the option of the holder one year from the date of issuance, at a rate of 0.9145 common OP Units per Series C Unit converted. This conversion option expires upon the fifth anniversary of the date of issuance.
In December 2014, the Operating Partnership loaned holders of the Series C Units $20,230. The notes receivable, which are collateralized by the Series C Units, bear interest at 5.0% and mature on December 15, 2024. The Series C Units are shown on the balance sheet net of the $20,230 loan because the borrower under the loan receivable is also the holder of theno outstanding Series C Units.
Series D Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series D Units. The Series D Units rank junior to the Series A Units, on parity with the Series B Units and Series C Units, and senior to all other partnership interest of the Operating Partnership with respect to distributions and liquidation.
The Series D Units have been issued at various times from 2014 to 2017. During the year ended December 31, 2017, the Operating Partnership issued 446,420 Series D Units valued at $11,161 in conjunction with wholly-owned and joint venture acquisitions. During the year ended December 31, 2016, the Operating Partnership issued a total of 2,687,711 Series D Units valued at $67,193 in conjunction with the acquisition of real estate assets.
The Series D Units have a liquidation value of $25.00 per unit, for a current fixed liquidation value of $92,064.$188,793 which represents 7,551,735 Series D Units outstanding at December 31, 2023. Holders of the Series D Units receive distributions at an annual rate between 3.0% and 5.0%. These distributions are cumulative. The Series D Units will become redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. In addition, certain of the Series D Units are exchangeable for common OP Units until the tenth anniversary of the date of issuance, with the number of common OP Units to be issued equal to $25.00 per Series D Unit, divided by the value of a share of common stock as of the exchange date.
In January 2023, 890,594 Series D units were redeemed for 154,307 shares of common stock. In November 2023, 15,093 Series D units were redeemed for cash of $377. 13.The Series D Units have been issued at various times from 2014 to 2022. On June 1, 2022, the Operating Partnership
issued a total of 240,000 Series D Units valued at $6,000 in connection with the acquisition of Bargold.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
12. NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS
Noncontrolling interest in Operating Partnership
The Company’s interest in its stores is held through the Operating Partnership. Between its general partner and limited partner interests, the Company held a 90.9%95.2% majority ownership interest thereinin the Operating Partnership as of December 31, 2017.2023. The remaining ownership interests in the Operating Partnership (including Preferred Operating Partnership units)OP Units) of 9.1%4.8% are held by certain former owners of assets acquired by the Operating Partnership. As of December 31, 2023 and 2022, the noncontrolling interests in the Operating Partnership are shown on the balance sheet net of notes receivable of $1,900 and $1,900, respectively, because the borrowers under the loan receivable are also holders of OP Units (Note 12). This loan receivable bears interest at 5.0% per annum and matures on December 15, 2024.
The noncontrolling interest in the Operating Partnership represents OP Units that are not owned by the Company. OP Units are redeemable at the option of the holder, which redemption may be satisfied at the Company's option in cash based upon the fair market value of an equivalent number of shares of the Company’s common stock (based on the ten-day average trading price) at the time of the redemption. Alternatively, the Company may, at its sole discretion, elect to acquire those OP Units in exchange forredemption, or shares of itsthe Company's common stock on a one-for-one basis, subject to anti-dilution adjustments provided in the Operating Partnership agreement. TheAs of December 31, 2023, the ten-day average closing stock price at December 31, 2017, was $86.77$156.68 and there were 5,664,3708,885,594 OP Units outstanding.
Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on December 31, 20172023 and the Company elected to pay the OP Unit holders cash, the Company would have paid $491,497$1,392,195 in cash consideration to redeem the units.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
OP Unit activity is summarized as follows for the periods presented:
|
| | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | 2016 | 2015 |
OP Units redeemed for common stock | — |
| 23,850 |
| 787,850 |
|
OP Units redeemed for cash | 33,896 |
| 6,760 |
| — |
|
Cash paid for OP Units redeemed | $ | 2,510 |
| $ | 506 |
| $ | — |
|
OP Units issued in conjunction with acquisitions | 90,228 |
| 93,569 |
| 2,043,613 |
|
Value of OP Units issued in conjunction with acquisitions | $ | 7,618 |
| $ | 7,247 |
| $ | 142,399 |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | 2022 | 2021 |
OP Units redeemed for common stock | 2,803 | | — | | 165,652 | |
OP Units redeemed for cash | 1,000 | | 24,824 | | 4,500 | |
Cash paid for OP Units redeemed | $ | 108 | | $ | 4,617 | | $ | 788 | |
OP Units issued in conjunction with business combination and acquisitions | 1,674,748 | | 711,037 | | 897,803 | |
Value of OP Units issued in conjunction with business combination and acquisitions | $ | 249,470 | | $ | 141,000 | | $ | 188,319 | |
GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.
The Company has evaluated the terms of the common OP Units and classifies the noncontrolling interest represented by the common OP Units as stockholders’ equity in the accompanying consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.
14. OTHER NONCONTROLLING INTERESTSOther Noncontrolling Interests
Other noncontrolling interests represent the ownership interest of third partiespartners in twonine consolidated joint ventures as of December 31, 2017. One2023. These joint venture owns anventures have ownership in 12 stores; two are operating store and a development store in Texas. and a development store in Colorado, and the other owns a development property in Pennsylvania.remaining are under development. The voting interests of the third-party ownerspartners are 31% or less.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
13. LEASES
Lessee Accounting
The Company accounts for leases under ASC 842, "Leases." Right-of-use assets associated with operating leases are included in “Real estate assets - operating lease right-of-use assets” and operating lease liabilities are included in “Operating lease liabilities” on the Company's consolidated balance sheets. Right-of-use assets associated with finance leases are included in "Real estate assets, net" and finance lease liabilities are included in "Other liabilities" on the Company's consolidated balance sheets.
During the year ended December 31, 2023, the Company recorded no new finance lease right-of-use assets and finance lease liabilities.
The Company is lessee under several types of lease agreements. Generally, these leases fall into the following categories:
•Leases of real estate at 65 stores classified as wholly-owned or in consolidated joint ventures. These leases generally have original lease terms between 5.0%10-99 years. Under these leases, the Company typically has the option to extend the lease term for additional terms of 5-35 years.
•Leases of its corporate offices and 20.0%.call center. These leases have original lease terms between five and 14 years, with no extension options. In 2021 the Company modified and extended the lease of its corporate offices to add additional space and extend the lease until 2034.
•Leases of 18 regional offices. These leases have original lease terms between three and five years. The Company has the option on certain of these leases to extend the lease term for up to three additional years. 15.•Leases of small district offices. These leases generally have terms of 12 months or less. The Company has made an election to account for these under the short-term lease exception outlined under ASC 842. Therefore, no lease assets or liabilities are recorded related to these leases.
The Company has included lease extension options in the lease term for calculations of its right-of-use assets and liabilities related to the real estate asset leases at its stores when it is reasonably certain that the Company plans to extend the lease terms as the options arise.
Several of the leases of real estate at the Company’s stores include escalation clauses based on an index or rate, such as the Consumer Price Index (CPI). The Company included these lease payments in its calculations of right-of-use assets and liabilities based on the prevailing index or rate as of the adoption date. The Company will recognize changes to these variable lease payments in earnings in the period of change.
One of the real estate leases includes variable lease payments that are based upon a percentage of gross revenues. Certain other leases include additional variable payments relating to a percentage of sales in excess of a specified amount, common area maintenance, property taxes, and similar items. These payments are variable lease payments that do not depend on an index or rate and are excluded from the measurement of the lease liabilities and right-of-use-assets for these leases. The Company will recognize costs from these variable lease payments in the period in which the obligation for those payments is incurred.
As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the present value of lease payments. These discount rates vary depending on the term of the specific leases.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Following is information on our total lease costs as of the period indicated: | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 |
| | | |
Finance lease cost: | | | |
Amortization of finance lease right-of-use assets | $ | 3,961 | | | $ | 3,751 | |
Interest expense related to finance lease liabilities | 4,483 | | | 4,018 | |
Operating lease cost | 35,783 | | | 32,182 | |
Variable lease cost | 11,632 | | | 11,287 | |
Short-term lease cost | 24 | | | 32 | |
Total lease cost | $ | 55,883 | | | $ | 51,270 | |
| | | |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash outflows for finance lease payments | $ | 4,483 | | | $ | 4,018 | |
Operating cash outflows for operating lease payments | 29,234 | | | 25,384 | |
| | | |
Total cash flows for lease liability measurement | $ | 33,717 | | | $ | 29,402 | |
| | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 265 | | | $ | 16,298 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | $ | — | | | $ | 6,823 | |
| | | |
Weighted average remaining lease term - finance leases (years) | 54.00 | | 54.16 |
Weighted average remaining lease term - operating leases (years) | 18.68 | | 20.03 |
Weighted average discount rate - finance leases | 3.31 | % | | 3.31 | % |
Weighted average discount rate - operating leases | 3.91 | % | | 3.65 | % |
The following table presents information about the Company’s undiscounted cash flows on an annual basis for operating and finance leases, including a reconciliation of the undiscounted cash flows to the finance lease and operating lease liabilities recognized in the Company’s consolidated balance sheets: | | | | | | | | | | | | | | | | | |
| Operating | | Finance | | Total |
2024 | $ | 34,983 | | | $ | 6,542 | | | $ | 41,525 | |
2025 | 34,919 | | | 6,572 | | | 41,491 | |
2026 | 35,245 | | | 6,715 | | | 41,960 | |
2027 | 35,635 | | | 6,842 | | | 42,477 | |
2028 | 36,194 | | | 6,953 | | | 43,147 | |
Thereafter | 131,194 | | | 353,983 | | | 485,177 | |
Total | $ | 308,170 | | | $ | 387,607 | | | $ | 695,777 | |
Present value adjustments | (71,655) | | | (244,004) | | | (315,659) | |
Lease liabilities | $ | 236,515 | | | $ | 143,603 | | | $ | 380,118 | |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Lessor Accounting
The Company's property rental revenue is primarily related to rents received from tenants at its operating stores. The Company's leases with its self-storage tenants are generally on month-to-month terms, include automatic monthly renewals, allow flexibility to increase rental rates over time as market conditions permit, and provide for the collection of contingent fees such as late fees. These leases do not include any terms or conditions that allow the tenants to purchase the leased space. All self-storage leases for which the Company acts as lessor have been classified as operating leases. The real estate assets related to the Company's stores are included in "Real estate assets, net" on the Company's condensed consolidated balance sheets and are presented at historical cost less accumulated depreciation and impairment, if any. Rental income related to these operating leases is included in "Property rental" revenue on the Company's condensed consolidated statements of operations, and is recognized each month during the month-to-month terms at the rental rate in place during each month.
14. STOCK-BASED COMPENSATION
As ofDecember 31, 20172023, 1,653,855477,624 shareswere available for issuance under the Company’s 2015 Incentive Award Plan (the “Plan”).
Option grantsOptions are issued with an exercise price equal to the closing price of stock on the date of grant. Unless otherwise determined by the Compensation, Nominating and Governance Committee (“CNG Committee”) at the time of grant, options shall vest ratably over a four-year period beginning on the date of grant. Each option will be exercisable once it has vested. Options are exercisable at such times and subject to such terms as determined by the CNGCompensation Committee, but under no circumstances may be exercised if such exercise would cause a violation of the ownership limit in the Company’s charter. Options expire 10 years from the date of grant. Beginning in 2017, the CNG Committee decided to the replace stock options granted to executives with performance based stock units for executive compensation. See the "Performance-Based Stock Units" section below.
Also asAs defined under the terms of the Plan, restricted stock grants may be awarded. The stock grants are subject to a vesting period over which the restrictions are released and the stock certificates are given to the grantee. During the performance or vesting period, the grantee is not permitted to sell, transfer, pledge, encumber or assign shares of restricted stock granted under the Plan; however, the grantee has the ability to vote the shares and receive nonforfeitable dividends paid on shares. Unless otherwise determined by the CNGCompensation Committee at the time of grant, the forfeiture and transfer restrictions on the shares lapse over a one-year period or a four-year period beginning on the date of grant.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store For actions taken prior to July 2020, references to the Compensation Committee refer to its predecessor, the CNG Committee; the Board split the CNG Committee into two committees, the Compensation Committee and share data, unless otherwise statedthe Nominating and Governance Committee, effective July 1, 2020.
Option Grants
A summary of stock option activity is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
Options | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value as of December 31, 2022 |
| | | | | | | |
Outstanding at December 31, 2020 | 71,594 | | | $ | 74.54 | | | | | |
| | | | | | | |
Exercised | (62,322) | | | 73.36 | | | | | |
| | | | | | | |
Outstanding at December 31, 2021 | 9,272 | | | $ | 82.47 | | | | | |
| | | | | | | |
Exercised | — | | | — | | | | | |
| | | | | | | |
Outstanding at December 31, 2022 | 9,272 | | | 82.47 | | | | | |
| | | | | | | |
Exercised | — | | | — | | | | | |
| | | | | | | |
Outstanding at December 31, 2023 | 9,272 | | | $ | 82.47 | | | 1.98 | | $1,338 |
| | | | | | | |
Vested | 9,272 | | | $ | 82.47 | | | 1.98 | | $1,338 |
Ending Exercisable | 9,272 | | | $ | 82.47 | | | 1.98 | | $1,338 |
|
| | | | | | | | | | |
Options | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value as of December 31, 2017 |
Outstanding at December 31, 2014 | 568,727 |
| | $ | 16.62 |
| | | | |
Granted | 89,575 |
| | 69.93 |
| | | | |
Exercised | (79,974 | ) | | 18.79 |
| | | | |
Forfeited | (5,699 | ) | | 39.83 |
| | | | |
Outstanding at December 31, 2015 | 572,629 |
| | $ | 24.42 |
| | | | |
Granted | 35,800 |
| | 85.99 |
| | | | |
Exercised | (97,855 | ) | | 14.75 |
| | | | |
Forfeited | — |
| | — |
| | | | |
Outstanding at December 31, 2016 | 510,574 |
| | $ | 30.60 |
| | | | |
Exercised | (38,418 | ) | | 32.94 |
| | | | |
Outstanding at December 31, 2017 | 472,156 |
| | $ | 30.41 |
| | 3.71 | | $26,934 |
Vested and Expected to Vest | 468,601 |
| �� | $ | 30.05 |
| | 3.68 | | $26,897 |
Ending Exercisable | 394,363 |
| | $ | 21.86 |
| | 2.96 | | $25,864 |
The aggregate intrinsic value in the table above represents the total value (the difference between the Company’s closing stock price on the last trading day of 20172023 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2017.2023. The amount of
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
aggregate intrinsic value will change based on the fair market value of the Company’s stock.
The weighted average fairtotal intrinsic value of stock options granted in 2016exercised for the years ended December 31, 2023, 2022 and 2015,2021 was $20.30$0, $0 and $16.89,$3,925, respectively.
There werehave been no options granted in 2017.since 2016. The fair value of each option grant iswas estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
| | | | | |
| For the Year Ended December 31, |
| 2016 | | 2015 |
Expected volatility | 37.0 | % | | 38.0 | % |
Dividend yield | 3.6 | % | | 3.6 | % |
Risk-free interest rate | 1.3 | % | | 1.5 | % |
Average expected term (years) | 5 |
| | 5 |
|
model. The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the estimated life of the option. The Company uses actual historical data to calculate the expected price volatility, dividend yield and average expected term. The forfeiture rate, which is estimated at a weighted-average of 7.4%4.6% of unvested options outstanding as of December 31, 2017,2023, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
A summary of stock options outstanding and exercisable as of December 31, 2017,2023, is as follows:
|
| | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Exercise Price | | Shares | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Shares | | Weighted Average Exercise Price |
$6.22 - $6.22 | | 157,750 |
| | 1.13 | | $ | 6.22 |
| | 157,750 |
| | $ | 6.22 |
|
$11.59 - $12.21 | | 105,480 |
| | 2.17 | | 12.04 |
| | 105,480 |
| | 12.04 |
|
$19.6 - $65.36 | | 105,986 |
| | 5.20 | | 39.89 |
| | 89,629 |
| | 36.47 |
|
$65.45 - $73.52 | | 67,140 |
| | 7.47 | | 71.46 |
| | 32,550 |
| | 71.65 |
|
$85.99 - $85.99 | | 35,800 |
| | 8.15 | | 85.99 |
| | 8,954 |
| | 85.99 |
|
$6.22-$85.99 | | 472,156 |
| | 3.71 | | $ | 30.41 |
| | 394,363 |
| | $ | 21.86 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Exercise Price | | Shares | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Shares | | Weighted Average Exercise Price |
$65.36 - $65.36 | | 1,582 | | | 1.15 | | $ | 65.36 | | | 1,582 | | | $ | 65.36 | |
$85.99 - $85.99 | | 7,690 | | | 2.15 | | 85.99 | | | 7,690 | | | 85.99 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Company recorded no compensation expense relating to outstanding options of $649, $729 and $510 in general and administrative expense for the years ended December 31, 2017, 20162023, 2022 and 2015, respectively. Total cash2021. Net proceeds received for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, related to option exercises was $1,265, $1,444$0, $0 and $1,542,$4,572, respectively. At December 31, 2017,2023, there was $869 of totalno unrecognized compensation expense related to non-vested stock options under the Plan. That cost is expected to be recognized over a weighted-average period of 1.56 years. The valuation model applied in this calculation utilizes subjective assumptions that could potentially change over time, including the expected forfeiture rate. Therefore, the amount of unrecognized compensation expense at December 31, 2017 noted above does not necessarily represent the expense that will ultimately be realized by the Company in the statement of operations.
Common Stock Granted to Employees and Directors
The Company recorded $8,072, $7,316$14,205, $12,086 and $5,545$9,260 of expense in general and administrative expense in its statement of operations related to restricted stock awards granted to employees and directors for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. The forfeiture rate, which is estimated at a weighted-average of 10.1%10.0% of unvested awards outstanding as of December 31, 2017,2023, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates. At December 31, 20172023 there was $12,913$20,222 of total unrecognized compensation expense related to non-vested restricted stock awards under the Plan. That cost is expected to be recognized over a weighted-average period of 2.142.09 years. The fair value of common stock awards is determined based on the closing trading price of the Company’s common stock on the grant date.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
A summary of the Company’s employee and director share grant activity is as follows: | | | | | | | | | | | |
Restricted Stock Grants | Shares | | Weighted-Average Grant-Date Fair Value |
Unreleased at December 31, 2020 | 209,032 | | | $ | 95.86 | |
Granted | 99,802 | | | 132.75 | |
Released | (96,248) | | | 91.65 | |
Cancelled | (12,808) | | | 113.89 | |
Unreleased at December 31, 2021 | 199,778 | | | $ | 115.16 | |
Granted | 105,677 | | | 201.12 | |
Released | (86,781) | | | 112.31 | |
Cancelled | (10,614) | | | 147.03 | |
Unreleased at December 31, 2022 | 208,060 | | | $ | 158.38 | |
Granted | 98,263 | | | 158.04 | |
Released | (90,662) | | | 147.21 | |
Cancelled | (10,084) | | | 165.36 | |
Unreleased at December 31, 2023 | 205,577 | | | $ | 162.81 | |
|
| | | | | | |
Restricted Stock Grants | Shares | | Weighted-Average Grant-Date Fair Value |
Unreleased at December 31, 2014 | 291,749 |
| | $ | 37.73 |
|
Granted | 174,558 |
| | 69.18 |
|
Released | (129,808 | ) | | 34.86 |
|
Cancelled | (18,090 | ) | | 44.54 |
|
Unreleased at December 31, 2015 | 318,409 |
| | $ | 55.75 |
|
Granted | 119,931 |
| | 87.61 |
|
Released | (128,808 | ) | | 50.05 |
|
Cancelled | (9,947 | ) | | 67.36 |
|
Unreleased at December 31, 2016 | 299,585 |
| | $ | 70.57 |
|
Granted | 95,392 |
| | 74.49 |
|
Released | (120,323 | ) | | 63.95 |
|
Cancelled | (8,179 | ) | | 77.25 |
|
Unreleased at December 31, 2017 | 266,475 |
| | $ | 74.76 |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Performance-based Stock Units
In 2017, the CNG Committee changed its compensation for executives to issueThe performance-based stock units (the "PSUs") as a replacement for stock option awards. The PSUs granted to executives in March 2017 represent the right to earn shares of the Company's common stock. These awards have two financial performance components: (1) the Company's core FFO performance ("FFO Target"), and (2) the Company's total stockholder return relative to the performance of a defined group of peers ("TSR Target"). Each of these performance components are weighted 50% and are measured over the performance period, which is defined as the three-year period ending December 31 2019.from the year of grant. At the end of the performance period, the financial performance components are reviewed to determine the number of shares actually granted to executives, which can be as low as zero shares and up to a maximum of two shares issued for each PSU. A summary of the PSU activity is as follows:
| | | | | | | | | | | | | | |
Performance-Based Stock Units | | Units | | Weighted-Average Grant-Date Fair Value |
Unvested at December 31, 2020 | | 123,311 | | | $ | 104.25 | |
Granted | | 40,832 | | | 138.04 | |
Released | | (28,735) | | | $ | 117.19 | |
Unvested at December 31, 2021 | | 135,408 | | | $ | 111.69 | |
Granted | | 61,085 | | | 223.96 | |
Released | | (49,334) | | | $ | 194.21 | |
Unvested at December 31, 2022 | | 147,159 | | | $ | 130.63 | |
Granted | | 86,795 | | | 207.28 | |
Released | | (45,242) | | | $ | 162.18 | |
Unvested at December 31, 2023 | | 188,712 | | | $ | 158.32 | |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | | | | |
Performance-based Stock Units | | Units | | Weighted-Average Grant-Date Fair Value |
Unvested at December 31, 2016 | | — |
| | $ | — |
|
Granted | | 30,071 |
| | 83.84 |
|
Unvested at December 31, 2017 | | 30,071 |
| | 83.84 |
|
| | | | |
The Company recorded $12,433, $9,299 and $8,043 of expense in general and administrative expense in its statement of operations related to PSUs granted to employees for the years ended December 31, 2023, 2022 and 2021, respectively. The Company estimated the fair value of the PSUs as of the grant date, using the closing trading price of the Company's common stock on the grant date to value the FFO Target portion. A Monte Carlo simulation model was used to calculate the fair value of the TSR Target portion of the PSUs, using an expected term of 2.8 years, a risk-free rate of 1.6%, and expected volatility of 21.4%. the following assumptions: | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
Intrinsic value | | $30,256 | | $21,659 | | $30,701 |
Risk-free rate | | 4.6% | | 1.8% | | 0.22% |
Volatility | | 29.3% | | 29.3% | | 28.5% |
Expected term (in years) | | 2.8 | | 2.9 | | 2.9 |
Dividend yield | | —% | | —% | | —% |
Unrecognized compensation cost | | $18,798 | | $13,241 | | $8,859 |
Term over which compensation cost recognized (in years) | | 3 | | 3 | | 3 |
Under the terms of the PSUs, dividends for the entire measurement period are paid in cash when the shares are issued,released, so a dividend yield of zero was used. The Monte Carlo simulation model incorporates assumptions to value stock-based awards. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the estimated life of the PSUs.
Compensation cost is recognized ratably over the period from the date of grant to the end of the related performance period. The Company recognized compensation expense of $840 during the year ended December 31, 2017 related to the PSUs, which is included in general and administrative expense in the Company's consolidated statements of operations. The intrinsic value of unvested PSUs as of December 31, 2017 was $2,630.
As of December 31, 2017, there was $1,681 of total unrecognized compensation expense related to the PSUs under the Plan. That cost is expected to be recognized over a period of two years. The valuation model applied in this calculation utilizes subjective assumptions that could potentially change over time, including the probabilities associated with achieving the FFO Targets (categorized within Level 3 of the fair value hierarchy). Therefore, the amount of unrecognized compensation expense at December 31, 20172023 noted above does not necessarily represent the expense that will ultimately be realized by the Company in the statement of operations.
16.15. EMPLOYEE BENEFIT PLAN
The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code under which eligible employees can contribute up to 60% of their annual salary, subject to a statutory prescribed annual limit. For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, the Company made matching contributions to the plan of $2,212, $1,944$6,576, $5,169, and $1,680,$4,239 respectively, based on 100% of the first 3% and up to 50% of the next 2% of an employee’s compensation.
17.16. INCOME TAXES
As a REIT, the Company is generally not subject to U.S. federal income tax with respect to that portion of its income which is distributed annually to its stockholders. However, the Company has elected to treat onecertain of its corporate subsidiaries, including Extra Space Management, Inc., as a taxable REIT subsidiary.TRS. In general, the Company’sa TRS may perform additional services for tenants and generally may engage in any real estate or non-real estate related business. A TRS is subject to U.S. federal corporate income tax.tax and may be subject to state and local income taxes. The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes.” Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. The Company has elected to use the Tax-Law-Ordering approach to determine when excess tax benefits will be realized.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”). The provisions include the new Corporate Alternative Minimum Tax (“CAMT”), an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, and all of these provisions were effective for tax year 2023. The Company has evaluated the impact of these provisions and does not expect the enactment of these provisions to have a material impact on the Company's consolidated financial statements.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The income tax provision for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, is comprised of the following components: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2023 |
| Federal | | State | | Total |
Current expense | $ | 26,516 | | | $ | 6,035 | | | $ | 32,551 | |
Tax credits/true-up | (7,742) | | | — | | | (7,742) | |
Change in deferred expense/(benefit) | (4,151) | | | 901 | | | (3,250) | |
Total tax expense | $ | 14,623 | | | $ | 6,936 | | | $ | 21,559 | |
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2022 |
| Federal | | State | | Total |
Current expense | $ | 20,592 | | | $ | 4,546 | | | $ | 25,138 | |
Tax credits/true-up | (6,071) | | | 31 | | | (6,040) | |
Change in deferred expense | 1,909 | | | (82) | | | 1,827 | |
Total tax expense | $ | 16,430 | | | $ | 4,495 | | | $ | 20,925 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, 2017 |
| Federal | | State | | Total |
Current expense | $ | 5,677 |
| | $ | 1,662 |
| | $ | 7,339 |
|
Tax credits/true-up | (5,573 | ) | | (383 | ) | | (5,956 | ) |
Change in deferred expense | 1,700 |
| | 542 |
| | 2,242 |
|
Total tax expense | $ | 1,804 |
| | $ | 1,821 |
| | $ | 3,625 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2021 |
| Federal | | State | | Total |
Current expense | $ | 21,017 | | | $ | 3,520 | | | $ | 24,537 | |
Tax credits/true-up | (4,979) | | | (138) | | | (5,117) | |
Change in deferred benefit | 818 | | | 86 | | | 904 | |
Total tax expense | $ | 16,856 | | | $ | 3,468 | | | $ | 20,324 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, 2016 |
| Federal | | State | | Total |
Current expense | $ | 14,627 |
| | $ | 2,368 |
| | $ | 16,995 |
|
Tax credits/true-up | (312 | ) | | — |
| | (312 | ) |
Change in deferred benefit | (369 | ) | | (467 | ) | | (836 | ) |
Total tax expense | $ | 13,946 |
| | $ | 1,901 |
| | $ | 15,847 |
|
|
| | | | | | | | | | | |
| For the Year Ended December 31, 2015 |
| Federal | | State | | Total |
Current expense | $ | 3,736 |
| | $ | 1,640 |
| | $ | 5,376 |
|
Tax credits/true-up | 274 |
| | — |
| | 274 |
|
Change in deferred expense (benefit) | 7,016 |
| | (1,518 | ) | | 5,498 |
|
Total tax expense | $ | 11,026 |
| | $ | 122 |
| | $ | 11,148 |
|
A reconciliation of the statutory income tax provisions to the effective income tax provisions for the periods indicated is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Expected tax at statutory rate | $ | 183,111 | | | 21.0 | % | | $ | 197,887 | | | 21.0 | % | | $ | 188,600 | | | 21.0 | % |
Non-taxable REIT income | (161,316) | | | (18.5) | % | | (172,966) | | | (18.4) | % | | (166,137) | | | (18.5) | % |
State and local tax expense - net of federal benefit | 8,779 | | | 1.0 | % | | 4,160 | | | 0.4 | % | | 3,259 | | | 0.4 | % |
Change in valuation allowance | (1,148) | | | (0.1) | % | | (1,093) | | | (0.1) | % | | (1,061) | | | (0.1) | % |
Tax credits/true-up | (7,742) | | | (0.9) | % | | (6,040) | | | (0.6) | % | | (5,117) | | | (0.6) | % |
| | | | | | | | | | | |
Miscellaneous | (125) | | | — | % | | (1,023) | | | (0.1) | % | | 780 | | | 0.1 | % |
Total provision | $ | 21,559 | | | 2.5 | % | | $ | 20,925 | | | 2.2 | % | | $ | 20,324 | | | 2.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Expected tax at statutory rate | $ | 186,274 |
| | 35.0 | % | | $ | 144,708 |
| | 35.0 | % | | $ | 77,151 |
| | 35.0 | % |
Non-taxable REIT income | (170,811 | ) | | (32.1 | )% | | (131,112 | ) | | (31.7 | )% | | (67,084 | ) | | (30.4 | )% |
State and local tax expense - net of federal benefit | 2,306 |
| | 0.4 | % | | 2,399 |
| | 0.6 | % | | 1,249 |
| | 0.6 | % |
Change in valuation allowance | 159 |
| | — | % | | (845 | ) | | (0.2 | )% | | (624 | ) | | (0.3 | )% |
Tax credits/true-up | (5,956 | ) | | (1.1 | )% | | (312 | ) | | (0.1 | )% | | 274 |
| | 0.1 | % |
Remeasurement of deferred balances | (8,460 | ) | | (1.6 | )% | | — |
| | — | % | | — |
| | — | % |
Miscellaneous | 113 |
| | — | % | | 1,009 |
| | 0.2 | % | | 182 |
| | 0.1 | % |
Total provision | $ | 3,625 |
| | 0.6 | % | | $ | 15,847 |
| | 3.8 | % | | $ | 11,148 |
| | 5.1 | % |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The major sources of temporary differences stated at their deferred tax effects are as follows:
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Deferred tax liabilities: | | | |
Fixed assets | $ | (15,271 | ) | | $ | (16,488 | ) |
Other | (108 | ) | | (201 | ) |
State deferred taxes | (2,822 | ) | | (1,242 | ) |
Total deferred tax liabilities | (18,201 | ) | | (17,931 | ) |
| | | |
Deferred tax assets: | | | |
Captive insurance subsidiary | 252 |
| | 413 |
|
Accrued liabilities | 873 |
| | 2,741 |
|
Stock compensation | 1,287 |
| | 1,713 |
|
Solar credit | 43 |
| | — |
|
Other | 57 |
| | 1,548 |
|
SmartStop TRS | 219 |
| | 365 |
|
State deferred taxes | 7,802 |
| | 6,078 |
|
Total deferred tax assets | 10,533 |
| | 12,858 |
|
| | | |
Valuation allowance | (4,924 | ) | | (4,765 | ) |
| | | |
Net deferred income tax liabilities | $ | (12,592 | ) | | $ | (9,838 | ) |
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Deferred tax liabilities: | | | |
Fixed assets | $ | (36,572) | | | $ | (32,551) | |
Operating and Finance lease right-of-use assets | (6,831) | | | (6,610) | |
Other | (37) | | | (48) | |
State deferred taxes | (4,564) | | | (3,607) | |
Captive insurance subsidiary | (10,760) | | | — | |
Total deferred tax liabilities | (58,764) | | | (42,816) | |
| | | |
Deferred tax assets: | | | |
Captive insurance subsidiary | 509 | | | 335 | |
Accrued liabilities | 3,015 | | | 2,541 | |
Stock compensation | 3,961 | | | 3,467 | |
| | | |
Operating and Finance lease liabilities | 9,013 | | | 8,418 | |
| | | |
Other | 502 | | | 48 | |
State deferred taxes | 2,581 | | | 5,232 | |
Total deferred tax assets | 19,581 | | | 20,041 | |
| | | |
Valuation allowance | — | | | (1,148) | |
| | | |
Net deferred income tax liabilities | $ | (39,183) | | | $ | (23,923) | |
The state income tax net operating losses expire between 20182024 and 2035.2043. The valuation allowance is associated with the state income tax net operating losses.losses was released in 2023. The tax years 20132019 through 20162022 remain open related to the state returns, and 20142020 through 20162022 for the federal returns.
Federal tax reform legislation that was enacted on December 22, 2017 (commonly known as the Tax Cuts and Jobs Act) (the “2017 Tax Legislation”) made substantial changes to the Internal Revenue Code. Among those changes are a reduction in the U.S. federal corporate tax rate from the previous rate of 35% to 21%, the elimination or modification of various currently allowed deductions, and a deduction for REIT stockholders that are individuals, trusts and estates of up to 20% of ordinary REIT dividends. Many of the provisions of the 2017 Tax Legislation will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are issued, increasing the uncertainty as to the ultimate effect of the statutory amendments on the Company. It is also likely that there will be technical corrections legislation proposed with respect to the 2017 Tax Legislation, the effect of which cannot be predicted and may be adverse to the Company or its stockholders.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Legislation. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Legislation.
The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the 2017 Tax Legislation and refining calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The tax benefit recorded related to the remeasurement of the deferred tax balance and valuation allowance was $8,606, which is included as a component of income tax expense.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The impact of the 2017 Tax Legislation may differ from the Company’s estimates, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the 2017 Tax Legislation. The Company will continue to make and refine calculations as additional analysis is completed. In addition, the estimates may also be affected as the Company gains a more thorough understanding of the tax law.
18.17. SEGMENT INFORMATION
The Company’s segment disclosures present the measure used by the chief operating decision makers ("CODMs") for purposes of assessing each segment’s performance. The Company’s CODMs are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company’s reportable operating segments. The Company’s segments are comprised of two reportable segments: (1) self-storage operations and (2) tenant reinsurance. NOI for our self-storage operations represents total property revenue less direct property operating expenses. NOI for our tenant reinsurance segment represents tenant reinsurance revenues less tenant reinsurance expense.
The Company’s segments were historically comprised of three reportable segments: (1) rental operations; (2) tenant reinsurance; and (3) property management, acquisition and development. Based on how the CODMs reviews performance and makes decisions, the Company realigned its segments into two reportable segments: (1) self-storage operations and (2) tenant reinsurance. The self-storage operations activities include rental operations of wholly-owned stores.stores and Bargold. The Company's consolidated revenues equal total segment revenues plus property management fees and other income. Tenant reinsurance activities include the reinsurance of risks relating to the loss of goods stored by tenants in the stores operated by the Company. Excluded from segment revenues and net operating income is property management fees and other income.
For all periods presented, substantially all of our real estate assets, intangible assets, other assets, and accrued and other liabilities are associated with the self-storage operations segment. The prior periods have been restated to conform to the current presentation. Financial information for the Company’s business segments is set forth below:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Self-Storage Operations | $ | 2,222,578 | | | $ | 1,654,735 | | | $ | 1,340,990 | |
Tenant Reinsurance | 235,680 | | | 185,531 | | | 170,108 | |
Total segment revenues | $ | 2,458,258 | | | $ | 1,840,266 | | | $ | 1,511,098 | |
| | | | | |
Operating expenses: | | | | | |
Self-Storage Operations | $ | 612,036 | | | $ | 435,342 | | | $ | 368,608 | |
Tenant Reinsurance | 58,874 | | | 33,560 | | | 29,488 | |
Total segment operating expenses | $ | 670,910 | | | $ | 468,902 | | | $ | 398,096 | |
| | | | | |
Net operating income: | | | | | |
Self-Storage Operations | $ | 1,610,542 | | | $ | 1,219,393 | | | $ | 972,382 | |
Tenant Reinsurance | 176,806 | | | 151,971 | | | 140,620 | |
Total segment net operating income: | $ | 1,787,348 | | | $ | 1,371,364 | | | $ | 1,113,002 | |
| | | | | |
Total segment net operating income | $ | 1,787,348 | | | $ | 1,371,364 | | | $ | 1,113,002 | |
Other components of net income: | | | | | |
Property management fees and other income | 101,986 | | | 83,904 | | | 66,264 | |
Transaction costs | — | | | (1,548) | | | — | |
Life Storage Merger transition costs | (66,732) | | | — | | | — | |
General and administrative expense | (146,408) | | | (129,251) | | | (102,194) | |
Depreciation and amortization expense | (506,053) | | | (288,316) | | | (241,879) | |
Gain on real estate transactions | — | | | 14,249 | | | 140,760 | |
| | | | | |
Interest expense | (419,035) | | | (219,171) | | | (166,183) | |
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes | (18,786) | | | — | | | — | |
Interest income | 84,857 | | | 69,422 | | | 49,703 | |
| | | | | |
Equity in earnings and dividend income from unconsolidated real estate entities | 54,835 | | | 41,428 | | | 32,358 | |
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets | — | | | — | | | 6,251 | |
Income tax expense | (21,559) | | | (20,925) | | | (20,324) | |
Net income | $ | 850,453 | | | $ | 921,156 | | | $ | 877,758 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
Self-storage operations | $ | 967,229 |
| | $ | 864,742 |
| | $ | 676,138 |
|
Tenant reinsurance | 98,401 |
| | 87,291 |
| | 71,971 |
|
Total segment revenues | $ | 1,065,630 |
| | $ | 952,033 |
| | $ | 748,109 |
|
| | | | | |
Operating expenses: | | | | | |
Self-storage operations | $ | 271,974 |
| | $ | 250,005 |
| | $ | 203,965 |
|
Tenant reinsurance | 19,173 |
| | 15,555 |
| | 13,033 |
|
Total segment operating expenses | $ | 291,147 |
| | $ | 265,560 |
| | $ | 216,998 |
|
| | | | | |
Net operating income: | | | | | |
Self-storage operations | $ | 695,255 |
| | $ | 614,737 |
| | $ | 472,173 |
|
Tenant reinsurance | 79,228 |
| | 71,736 |
| | 58,938 |
|
Total segment net operating income | $ | 774,483 |
| | $ | 686,473 |
| | $ | 531,111 |
|
| | | | | |
Total segment net operating income | $ | 774,483 |
| | $ | 686,473 |
| | $ | 531,111 |
|
Other components of net income (loss): | | | | | |
Property management fees and other income | 39,379 |
| | 39,842 |
| | 34,161 |
|
General and administrative expense | (78,961 | ) | | (81,806 | ) | | (67,758 | ) |
Depreciation and amortization expense | (193,296 | ) | | (182,560 | ) | | (133,457 | ) |
Acquisition and other related costs(1) | — |
| | (12,111 | ) | | (69,401 | ) |
Gain (loss) on real estate transactions, earnout from prior acquisition and sale of other assets | 112,789 |
| | 8,465 |
| | 1,501 |
|
Interest expense | (153,511 | ) | | (133,479 | ) | | (95,682 | ) |
Non-cash interest expense related to the amortization of discount on equity component of exchangeable senior notes | (5,103 | ) | | (4,980 | ) | | (3,310 | ) |
Interest income | 3,801 |
| | 6,148 |
| | 3,461 |
|
Interest income on note receivable from Preferred Operating Partnership unit holder | 2,935 |
| | 4,850 |
| | 4,850 |
|
Equity in earnings of unconsolidated real estate ventures | 15,331 |
| | 12,895 |
| | 12,351 |
|
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of partners' interests | — |
| | 69,199 |
| | 2,857 |
|
Income tax expense | (3,625 | ) | | (15,847 | ) | | (11,148 | ) |
Net income | $ | 514,222 |
| | $ | 397,089 |
| | $ | 209,536 |
|
(1) Beginning January 1, 2017, acquisition related costs have been capitalized due to the adoption of ASU 2017-01"Business Combinations (Topic 805): Clarifying the Definition of a Business."
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
19.18. COMMITMENTS AND CONTINGENCIES
The Company has operating leases on its corporate offices and owns 23 stores that are subject to leases. AtAs of December 31, 2017, future minimum rental payments2023, the Company was under these non-cancelable operating leases were as follows (unaudited):
|
| | | |
Less than 1 year | $ | 8,015 |
|
Year 2 | 7,521 |
|
Year 3 | 7,566 |
|
Year 4 | 7,448 |
|
Year 5 | 7,147 |
|
Thereafter | 114,729 |
|
| $ | 152,426 |
|
Theagreement to acquire 8 stores at a total purchase price of $73,811. Eight stores are scheduled to close in 2024 and none are scheduled to close in 2025. Additionally, the Company recorded expenseis under agreement to acquire two stores in 2024 with joint venture partners, for a total investment of $6,898, $4,578 and $3,858 related to operating leases in the years ended December 31, 2017, 2016 and 2015, respectively.$2,764.
The Company is involved in various legal proceedings and is subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. Therefore, any estimate(s) of loss disclosed below represents what management believes to be an estimate of loss only for certain matters meeting these criteria
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and does not represent the Company's maximum loss exposure.share data, unless otherwise stated
uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period, notwithstanding the fact that the Company is currently vigorously defending any legal proceedings against it. As of December 31, 2017,2023, the Company was involved in various legal proceedings and was subject to various claims and complaints arising in the ordinary course of business. In the opinion of management, such litigation, claims and complaints are not expected to have a material adverse effect on the Company’s financial condition or results of operations.
As of December 31, 2017, the Company was under agreement to acquire 14 stores at a total purchase price of $190,222. Of these stores, ten are scheduled to close in 2018 at a purchase price of $141,294, three are scheduled to close in 2019 at a purchase price of $38,400, and one is scheduled to close thereafter at a purchase price of $10,528. Additionally, the Company is under agreement to acquire 17 stores with joint venture partners, for a total investment of $88,203. Fourteen of these stores are scheduled to close in 2018, while the remaining three stores are expected to close in 2019.
The Company owns and/or operates stores located in Texas, Florida, and Puerto Rico that were impacted by Hurricanes Harvey, Irma, and Maria during the year ended December 31, 2017. Losses incurred to date by these hurricanes include property damage, net of insurance recoveries, of $2,110, and tenant reinsurance claims of $2,250, which are included in property operations and tenant reinsurance on the Company's condensed consolidated statements of operations.
Although there can be no assurance, the Company is not aware of any material environmental liability, for which it believes it will be ultimately responsible, that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to its properties could result in future material environmental liabilities.
EXTRA SPACE STORAGE INC.73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
20. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | December 31, 2017 |
Revenues | $ | 263,008 |
| | $ | 276,003 |
| | $ | 284,156 |
| | $ | 281,842 |
|
Cost of operations | 138,805 |
| | 139,596 |
| | 144,275 |
| | 140,728 |
|
Revenues less cost of operations | $ | 124,203 |
| | $ | 136,407 |
| | $ | 139,881 |
| | $ | 141,114 |
|
Net income | $ | 89,734 |
| | $ | 94,098 |
| | $ | 101,075 |
| | $ | 229,315 |
|
Net income attributable to common stockholders | $ | 82,282 |
| | $ | 87,006 |
| | $ | 93,764 |
| | $ | 215,983 |
|
Earnings per common share—basic | $ | 0.65 |
| | $ | 0.69 |
| | $ | 0.74 |
| | $ | 1.71 |
|
Earnings per common share—diluted | $ | 0.64 |
| | $ | 0.69 |
| | $ | 0.74 |
| | $ | 1.69 |
|
| For the Three Months Ended |
| March 31, 2016 | | June 30, 2016 | | September 30, 2016 | | December 31, 2016 |
Revenues | $ | 229,403 |
| | $ | 244,273 |
| | $ | 257,183 |
| | $ | 261,016 |
|
Cost of operations | 135,775 |
| | 133,971 |
| | 134,459 |
| | 137,832 |
|
Revenues less cost of operations | $ | 93,628 |
| | $ | 110,302 |
| | $ | 122,724 |
| | $ | 123,184 |
|
Net income | $ | 89,407 |
| | $ | 90,040 |
| | $ | 127,226 |
| | $ | 90,416 |
|
Net income attributable to common stockholders | $ | 82,592 |
| | $ | 83,044 |
| | $ | 118,088 |
| | $ | 82,403 |
|
Earnings per common share—basic | $ | 0.66 |
| | $ | 0.66 |
| | $ | 0.94 |
| | $ | 0.65 |
|
Earnings per common share—diluted | $ | 0.66 |
| | $ | 0.66 |
| | $ | 0.93 |
| | $ | 0.65 |
|
21. SUBSEQUENT EVENTS
Subsequent to year end the Company has purchased five stores for a total of $69,852.
On February 2, 2018, the Company and Teachers Insurance and Annuity ("TIAA") entered into the Third Amended and Restated Limited Liability Company Agreement of Storage Portfolio I LLC (as amended, the "SP I LLC Agreement"). The amendment to the SP I LLC Agreement is deemed effective as of January 1, 2018. Under the SP I LLC Agreement, the joint venture was recapitalized and the Company's ownership percentage of the SP I joint venture increased to 34.0%. Additionally, the Company's excess profit participation percentage increased to 49.0%.
Extra Space Storage Inc.
Schedule III
Real Estate and Accumulated Depreciation
(Dollars in thousands)
As of December 31, 20172023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Building and Improvements Initial Cost | Adjustments and Costs to Land and Building Subsequent to Acquisition | Gross carrying amount at December 31, 2023 | |
Self - Storage Facilities by State: | Store Count | | Land Initial Cost | | Building and Improvements | | Accumulated Depreciation |
Debt | Land | Total |
AL | 37 | $ | 5,686 | | $ | 52,358 | | $ | 380,499 | | $ | 5,593 | | $ | 52,356 | | $ | 386,094 | | $ | 438,450 | | $ | 18,152 | |
AZ | 46 | 22,349 | | 135,775 | | 523,811 | | 14,566 | | 135,774 | | 538,378 | | 674,152 | | 44,843 | |
CA | 218 | 328,992 | | 921,260 | | 2,322,145 | | 250,704 | | 919,806 | | 2,574,302 | | 3,494,108 | | 436,926 | |
CO | 27 | 26,374 | | 49,985 | | 192,497 | | 20,004 | | 50,703 | | 211,783 | | 262,486 | | 33,009 | |
CT | 23 | 6,399 | | 43,453 | | 373,628 | | 6,530 | | 43,452 | | 380,158 | | 423,610 | | 18,276 | |
FL | 245 | 167,386 | | 672,426 | | 2,894,604 | | 122,780 | | 674,576 | | 3,015,234 | | 3,689,810 | | 239,687 | |
GA | 119 | 78,837 | | 303,954 | | 1,179,911 | | 47,713 | | 303,941 | | 1,227,636 | | 1,531,577 | | 123,363 | |
HI | 14 | — | | 29,836 | | 160,978 | | 22,962 | | 29,836 | | 183,939 | | 213,775 | | 43,351 | |
ID | 2 | — | | 4,047 | | 25,235 | | 59 | | 4,047 | | 25,294 | | 29,341 | | 812 | |
IL | 105 | 16,231 | | 210,472 | | 1,107,463 | | 43,952 | | 209,924 | | 1,151,964 | | 1,361,888 | | 82,109 | |
IN | 91 | — | | 64,531 | | 494,467 | | 14,626 | | 64,875 | | 524,169 | | 589,044 | | 34,445 | |
KS | 1 | — | | 366 | | 1,897 | | 1,150 | | 366 | | 3,047 | | 3,413 | | 1,555 | |
KY | 15 | 30,470 | | 10,026 | | 88,389 | | 21,129 | | 10,799 | | 108,745 | | 119,544 | | 21,462 | |
LA | 10 | — | | 16,673 | | 126,604 | | 5,591 | | 16,674 | | 132,194 | | 148,868 | | 8,844 | |
MA | 64 | 39,808 | | 120,291 | | 534,152 | | 65,286 | | 120,472 | | 599,257 | | 719,729 | | 123,019 | |
MD | 44 | 74,081 | | 157,195 | | 450,952 | | 36,025 | | 156,605 | | 487,567 | | 644,172 | | 111,043 | |
ME | 5 | — | | 2,352 | | 86,339 | | 195 | | 2,352 | | 86,534 | | 88,886 | | 926 | |
MI | 8 | 4,301 | | 10,900 | | 63,388 | | 6,630 | | 10,900 | | 70,018 | | 80,918 | | 13,061 | |
MN | 8 | — | | 14,925 | | 104,513 | | 6,940 | | 14,925 | | 111,453 | | 126,378 | | 10,240 | |
MO | 28 | — | | 31,800 | | 347,070 | | 8,250 | | 31,758 | | 355,362 | | 387,120 | | 13,743 | |
MS | 7 | — | | 9,053 | | 82,098 | | 1,977 | | 9,052 | | 84,076 | | 93,128 | | 5,559 | |
NC | 52 | — | | 93,492 | | 557,728 | | 14,431 | | 93,489 | | 572,161 | | 665,650 | | 32,134 | |
NH | 17 | — | | 50,952 | | 195,719 | | 1,735 | | 51,015 | | 197,391 | | 248,406 | | 5,097 | |
NJ | 88 | 99,207 | | 308,001 | | 1,071,004 | | 70,630 | | 313,354 | | 1,136,281 | | 1,449,635 | | 209,349 | |
NM | 11 | 25,153 | | 31,826 | | 68,779 | | 6,909 | | 31,826 | | 75,689 | | 107,515 | | 17,000 | |
NV | 33 | 30,458 | | 97,497 | | 469,028 | | 9,504 | | 97,497 | | 478,532 | | 576,029 | | 23,846 | |
NY | 79 | 12,895 | | 340,256 | | 1,195,359 | | 66,207 | | 340,991 | | 1,260,831 | | 1,601,822 | | 105,190 | |
OH | 50 | 10,140 | | 71,460 | | 388,236 | | 13,917 | | 71,459 | | 402,154 | | 473,613 | | 24,721 | |
OK | 4 | — | | 3,917 | | 28,534 | | 159 | | 3,917 | | 28,693 | | 32,610 | | 429 | |
OR | 8 | 23,904 | | 15,066 | | 68,044 | | 2,938 | | 15,066 | | 70,982 | | 86,048 | | 14,126 | |
PA | 31 | 10,635 | | 57,671 | | 356,325 | | 29,609 | | 56,997 | | 386,607 | | 443,604 | | 46,425 | |
RI | 6 | 3,712 | | 6,132 | | 55,033 | | 1,793 | | 6,131 | | 56,827 | | 62,958 | | 4,517 | |
SC | 40 | 27,701 | | 65,032 | | 385,333 | | 13,408 | | 65,036 | | 398,737 | | 463,773 | | 41,190 | |
TN | 29 | 44,491 | | 50,603 | | 252,731 | | 15,296 | | 50,603 | | 268,027 | | 318,630 | | 36,356 | |
TX | 241 | 104,794 | | 534,804 | | 2,603,707 | | 97,822 | | 534,655 | | 2,701,678 | | 3,236,333 | | 212,009 | |
UT | 10 | 16,265 | | 9,008 | | 39,295 | | 9,775 | | 9,008 | | 49,070 | | 58,078 | | 15,445 | |
VA | 73 | 56,422 | | 198,998 | | 842,848 | | 37,952 | | 198,998 | | 880,800 | | 1,079,798 | | 127,878 | |
WA | 14 | 4,874 | | 51,011 | | 147,943 | | 13,780 | | 51,013 | | 161,720 | | 212,733 | | 19,542 | |
WI | 1 | — | | 1,076 | | 16,054 | | 70 | | 1,076 | | 16,123 | | 17,199 | | 173 | |
DC | 1 | 7,540 | | 14,394 | | 18,172 | | 634 | | 14,394 | | 18,806 | | 33,200 | | 3,904 | |
Other corporate assets | | — | | — | | — | | 245,910 | | — | | 245,910 | | 245,910 | | 92,553 | |
Intangible tenant relationships and lease rights | | — | | — | | 348,762 | | — | | — | | 348,762 | | 348,762 | | 204,135 | |
Construction in Progress/Undeveloped Land | | — | | 22,985 | | 2,779 | | 124,265 | | 34,987 | | 118,745 | | 153,732 | | — | |
Right of use asset - finance lease | | — | | — | | — | | 143,841 | | — | | 143,843 | | 143,843 | | 3,960 | |
Totals (1) | 1,905 | $ | 1,279,105 | | $ | 4,885,859 | | $ | 20,652,053 | | $ | 1,623,247 | | $ | 4,904,705 | | $ | 22,275,573 | | $ | 27,180,278 | | $ | 2,624,404 | |
(1) No right-of-use assets related to operating leases are included in the ending net real estate assets information above.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Building and Improvements Intial Cost | Adjustments and Costs Subsequent to Acquisition | Gross carrying amount at December 31, 2017 | |
Self - Storage Facilities by State: | Store Count | | Land Intial Cost | | Building and Improvements | | Accumulated Depreciation |
Debt | Land | Total |
AL | 8 | $ | 28,937 |
| $ | 7,690 |
| $ | 42,770 |
| $ | 2,749 |
| $ | 7,691 |
| $ | 45,518 |
| $ | 53,209 |
| $ | 5,629 |
|
AZ | 22 | 39,996 |
| 24,250 |
| 109,844 |
| 7,614 |
| 24,248 |
| 117,460 |
| 141,708 |
| 16,873 |
|
CA | 145 | 669,690 |
| 449,865 |
| 1,050,646 |
| 82,601 |
| 450,072 |
| 1,133,040 |
| 1,583,112 |
| 194,614 |
|
CO | 13 | 28,411 |
| 9,785 |
| 45,004 |
| 12,959 |
| 9,972 |
| 57,776 |
| 67,748 |
| 14,611 |
|
CT | 7 | 14,364 |
| 9,875 |
| 50,966 |
| 3,351 |
| 9,874 |
| 54,318 |
| 64,192 |
| 6,657 |
|
FL | 82 | 325,016 |
| 141,187 |
| 532,262 |
| 41,778 |
| 142,081 |
| 573,146 |
| 715,227 |
| 97,830 |
|
GA | 55 | 124,373 |
| 70,611 |
| 334,343 |
| 19,789 |
| 70,602 |
| 354,141 |
| 424,743 |
| 37,953 |
|
HI | 9 | 39,041 |
| 17,663 |
| 133,870 |
| 4,703 |
| 17,663 |
| 138,573 |
| 156,236 |
| 17,887 |
|
IL | 31 | 75,753 |
| 44,427 |
| 225,423 |
| 19,708 |
| 43,449 |
| 246,109 |
| 289,558 |
| 28,278 |
|
IN | 15 | 16,511 |
| 12,447 |
| 58,247 |
| 4,728 |
| 12,447 |
| 62,975 |
| 75,422 |
| 7,870 |
|
KS | 1 | — |
| 366 |
| 1,897 |
| 491 |
| 366 |
| 2,388 |
| 2,754 |
| 916 |
|
KY | 10 | 31,023 |
| 7,914 |
| 61,852 |
| 4,099 |
| 7,914 |
| 65,951 |
| 73,865 |
| 7,675 |
|
LA | 2 | 8,731 |
| 6,114 |
| 8,541 |
| 1,252 |
| 6,115 |
| 9,792 |
| 15,907 |
| 3,615 |
|
MA | 41 | 109,919 |
| 61,040 |
| 217,696 |
| 34,110 |
| 61,221 |
| 251,625 |
| 312,846 |
| 63,898 |
|
MD | 32 | 144,812 |
| 99,147 |
| 284,253 |
| 12,225 |
| 98,419 |
| 297,206 |
| 395,625 |
| 53,154 |
|
MI | 6 | 2,785 |
| 7,657 |
| 38,777 |
| 1,865 |
| 7,657 |
| 40,642 |
| 48,299 |
| 2,744 |
|
MN | 1 | — |
| 1,528 |
| 16,030 |
| 240 |
| 1,528 |
| 16,270 |
| 17,798 |
| 523 |
|
MO | 5 | 14,671 |
| 4,129 |
| 15,444 |
| 2,977 |
| 4,086 |
| 18,464 |
| 22,550 |
| 6,143 |
|
MS | 3 | — |
| 2,420 |
| 20,849 |
| 1,338 |
| 2,420 |
| 22,187 |
| 24,607 |
| 1,342 |
|
NC | 16 | 30,490 |
| 28,298 |
| 91,659 |
| 3,300 |
| 28,296 |
| 94,961 |
| 123,257 |
| 5,391 |
|
NH | 2 | 6,109 |
| 754 |
| 4,054 |
| 1,011 |
| 817 |
| 5,002 |
| 5,819 |
| 2,074 |
|
NJ | 55 | 206,391 |
| 117,000 |
| 490,627 |
| 29,396 |
| 117,447 |
| 519,576 |
| 637,023 |
| 97,042 |
|
NM | 10 | 11,513 |
| 22,889 |
| 61,575 |
| 3,521 |
| 22,889 |
| 65,096 |
| 87,985 |
| 5,103 |
|
NV | 14 | 28,990 |
| 15,252 |
| 74,376 |
| 3,562 |
| 15,252 |
| 77,938 |
| 93,190 |
| 5,834 |
|
NY | 22 | 117,779 |
| 121,479 |
| 232,875 |
| 20,664 |
| 122,215 |
| 252,803 |
| 375,018 |
| 44,859 |
|
OH | 16 | 37,286 |
| 16,677 |
| 40,923 |
| 5,295 |
| 16,676 |
| 46,219 |
| 62,895 |
| 9,769 |
|
OR | 6 | 31,070 |
| 7,906 |
| 39,576 |
| 1,116 |
| 7,906 |
| 40,692 |
| 48,598 |
| 5,261 |
|
PA | 16 | 29,140 |
| 22,176 |
| 123,544 |
| 8,138 |
| 21,468 |
| 132,390 |
| 153,858 |
| 16,058 |
|
RI | 2 | 7,852 |
| 3,191 |
| 6,926 |
| 946 |
| 3,191 |
| 7,872 |
| 11,063 |
| 2,426 |
|
SC | 23 | 44,315 |
| 37,075 |
| 135,760 |
| 8,265 |
| 37,076 |
| 144,024 |
| 181,100 |
| 14,133 |
|
TN | 17 | 48,717 |
| 25,938 |
| 91,497 |
| 6,246 |
| 25,938 |
| 97,743 |
| 123,681 |
| 12,135 |
|
TX | 97 | 291,418 |
| 166,643 |
| 629,982 |
| 43,395 |
| 166,625 |
| 673,395 |
| 840,020 |
| 71,866 |
|
UT | 10 | 21,938 |
| 9,008 |
| 39,295 |
| 9,636 |
| 9,008 |
| 48,931 |
| 57,939 |
| 7,515 |
|
VA | 44 | 204,498 |
| 132,362 |
| 390,878 |
| 13,872 |
| 132,363 |
| 404,749 |
| 537,112 |
| 44,694 |
|
WA | 8 | 32,080 |
| 12,528 |
| 47,645 |
| 1,791 |
| 12,530 |
| 49,434 |
| 61,964 |
| 8,581 |
|
DC | 1 | 9,304 |
| 14,394 |
| 18,172 |
| 326 |
| 14,394 |
| 18,498 |
| 32,892 |
| 812 |
|
Other corporate assets |
| — |
| — |
| 2,202 |
| 97,501 |
| — |
| 99,703 |
| 99,703 |
| 25,948 |
|
Intangible tenant relationships and lease rights | | — |
| — |
| 126,819 |
| — |
| — |
| 126,819 |
| 126,819 |
| 112,347 |
|
Construction in Progress/Undeveloped Land | | — |
| 17,874 |
| — |
| 29,275 |
| 13,245 |
| 33,904 |
| 47,149 |
| — |
|
Totals | 847 | $ | 2,832,923 |
| $ | 1,749,559 |
| $ | 5,897,098 |
| $ | 545,834 |
| $ | 1,745,161 |
| $ | 6,447,330 |
| $ | 8,192,491 |
| $ | 1,060,060 |
|
Extra Space Storage Inc. Schedule III (continued)
Activity in real estate facilities during the years ended December 31, 2017, 20162023, 2022 and 20152021 is as follows: | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Operating facilities | | | | | |
Balance at beginning of year | $ | 12,084,025 | | | $ | 10,643,722 | | | $ | 9,507,788 | |
Acquisitions | 14,715,285 | | | 1,390,463 | | | 1,500,703 | |
Improvements | 175,932 | | | 95,282 | | | 80,131 | |
Transfers from construction in progress | 87,485 | | | 70,565 | | | 62,462 | |
Dispositions and other | (1,194) | | | (116,007) | | | (507,362) | |
Balance at end of year | $ | 27,061,533 | | | $ | 12,084,025 | | | $ | 10,643,722 | |
Accumulated depreciation: | | | | | |
Balance at beginning of year | $ | 2,138,395 | | | $ | 1,868,321 | | | $ | 1,681,429 | |
Depreciation expense | 486,010 | | | 276,155 | | | 230,445 | |
Dispositions and other | — | | | (6,081) | | | (43,553) | |
Balance at end of year | $ | 2,624,405 | | | $ | 2,138,395 | | | $ | 1,868,321 | |
Real estate under development/redevelopment: | | | | | |
Balance at beginning of year | $ | 52,348 | | | $ | 59,248 | | | $ | 67,443 | |
Current development | 153,920 | | | 63,597 | | | 54,267 | |
Transfers to operating facilities | (87,523) | | | (70,565) | | | (62,462) | |
Dispositions and other | — | | | 68 | | | — | |
Balance at end of year | $ | 118,745 | | | $ | 52,348 | | | $ | 59,248 | |
Net non-lease real estate assets | $ | 24,555,873 | | | $ | 9,997,978 | | | $ | 8,834,649 | |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Operating facilities | | | | | |
Balance at beginning of year | $ | 7,649,448 |
| | $ | 6,392,487 |
| | $ | 4,722,162 |
|
Acquisitions | 628,391 |
| | 1,159,304 |
| | 1,609,608 |
|
Improvements | 71,090 |
| | 92,480 |
| | 46,696 |
|
Transfers from construction in progress | 19,079 |
| | 26,400 |
| | 19,971 |
|
Dispositions and other | (209,267 | ) | | (21,223 | ) | | (5,950 | ) |
Balance at end of year | $ | 8,158,741 |
| | $ | 7,649,448 |
| | $ | 6,392,487 |
|
Accumulated depreciation: | | | | | |
Balance at beginning of year | $ | 900,861 |
| | $ | 728,087 |
| | $ | 604,336 |
|
Depreciation expense | 185,903 |
| | 174,906 |
| | 123,751 |
|
Dispositions and other | (26,704 | ) | | (2,132 | ) | | — |
|
Balance at end of year | $ | 1,060,060 |
| | $ | 900,861 |
| | $ | 728,087 |
|
Real estate under development/redevelopment: | | | | | |
Balance at beginning of year | $ | 21,860 |
| | $ | 24,909 |
| | $ | 17,870 |
|
Current development | 33,484 |
| | 23,404 |
| | 27,010 |
|
Transfers to operating facilities | (19,079 | ) | | (26,400 | ) | | (19,971 | ) |
Dispositions and other | (2,515 | ) | | (53 | ) | | — |
|
Balance at end of year | $ | 33,750 |
| | $ | 21,860 |
| | $ | 24,909 |
|
Net real estate assets | $ | 7,132,431 |
| | $ | 6,770,447 |
| | $ | 5,689,309 |
|
(1) No right-of-use assets related to operating leases are included in the ending net real estate assets information above.As of December 31, 2017,2023, the aggregate cost of real estate for U.S. federal income tax purposes was $6,914,712.
$17,961,173.
Item 9. Changes in anand Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
| |
(i) | Disclosure Controls and Procedures |
(i)Disclosure Controls and Procedures
We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We have a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the Company on a timely basis. The disclosure committee meets quarterly and reports directly to our Chief Executive Officer and Chief Financial Officer.
We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
| |
(ii) | Internal Control over Financial Reporting |
(ii)Internal Control over Financial Reporting
| |
(a) | Management’s Report on Internal Control over Financial Reporting |
1.Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.2023. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our independent registered public accounting firm, Ernst & Young LLP, has issued the following attestation report over our internal control over financial reporting.
| |
(b) | Attestation Report of the Registered Public Accounting Firm |
(b)Attestation Report of the Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of Extra Space Storage Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Extra Space Storage Inc.’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Extra Space Storage Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172023 and 2016, and2022, the related consolidated
statements of operations, comprehensive income, stockholders’stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2017,2023, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated March 1, 2018February 29, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Salt Lake City, Utah
March 1, 2018February 29, 2024
| |
(c) | Changes in Internal Control over Financial Reporting |
(c)Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On December 18, 2023, Joseph D. Margolis, our Chief Executive Officer and Director, terminated a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense of Rule 10b5-1(c) and originally adopted on February 24, 2023, for the sale of up to 20,000 shares of our common stock until January 3, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated by reference to the information set forth under the captions “Executive Officers,” and “Information About the Board of Directors and its Committees” in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2017.2023.
We have adopted a Code of Business Conduct and Ethics in compliance with rules of the SEC that applies to all of our personnel, including our board of directors, Chief Executive Officer, Chief Financial Officer and principal accounting officer. The Code of Business Conduct and Ethics is available free of charge on the “Investor Relations—Corporate Governance” section of our web site at www.extraspace.com. We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of this Code of Business Conduct and Ethics by posting such information on our web site at the address and location specified above.
The board of directors has adopted Corporate Governance Guidelines and charters for our Audit Committee and Compensation, Nominating and Governance Committee, each of which is posted on our website at the address and location specified above. Investors may obtain a free copy of the Code of Business Conduct and Ethics, the Corporate Governance Guidelines and the committee charters by contacting the Investor Relations Department at 2795 East Cottonwood Parkway, Suite 300, Salt Lake City, Utah 84121, Attn: Jeff Norman or by telephoning (801) 365-4600.
Item 11. Executive Compensation
Information with respect to executive compensation is incorporated by reference to the information set forth under the caption “Executive Compensation” in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2017.2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference to the information set forth under the captions “Executive Compensation” and “Security Ownership of Directors and Officers” in our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2017.2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to certain relationships and related transactions is incorporated by reference to the information set forth under the captions “Information about the Board of Directors and its Committees” and “Certain Relationships“Review and Approval of Related Party Transactions” in our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2017.2023.
Item 14. Principal Accounting Fees and Services
Information with respect to principal accounting fees and services is incorporated by reference to the information set forth under the caption “Ratification of Appointmentthe Engagement of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm”Firm for 2023” in our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2017.
2023.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| |
(a) | Documents filed as part of this report: |
(a)Documents filed as part of this report:
(1) and (2). All Financial Statements and Financial Statement Schedules filed as part of this Annual Report on 10-K are included in Item 8—“Financial Statements and Supplementary Data” of this Annual Report on 10-K and reference is made thereto.
(3) The following documents are filed or incorporated by references as exhibits to this report: | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | Incorporated by Reference | Filed Herewith |
| | | Form | Date | Number | |
2.1 | | Agreement and Plan of Merger, dated as of April 2, 2023, by and among Extra Space Storage Inc., Extra Space Storage LP, Eros Merger Sub, LLC, Eros OP Merger Sub, LLC, Life Storage, Inc. and Life Storage LP | 8-K | April 3, 2023 | 2.1 | |
2.2 | | Amendment to Agreement and Plan of Merger, dated as of May 18, 2023, by and among Extra Space Storage Inc., Extra Space Storage LP, Eros Merger Sub, LLC, Eros OP Merger Sub, LLC, Life Storage, Inc. and Life Storage LP | 8-K | July 20, 2023 | 2.2 | |
3.1 | | | S-11 | August 10, 2004 | 3.1 | |
3.2 | | | 8-K | October 3, 2007 | 3.1 | |
3.3 | | | 8-K | August 29, 2013 | 3.1 | |
3.4 | | | 8-K | May 28, 2014 | 3.1 | |
3.5 | | | 8-K | January 17, 2018 | 3.1 | |
3.6 | | | 8-K | December 6, 2013 | 10.1 | |
4.1 | | | 10-K | February 26, 2010 | 4.3 | |
4.2 | | | 10-K | February 25, 2020 | 4.6 | |
4.3 | | Indenture, dated as of May 11, 2021, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Wells Fargo Bank, National Association, as trustee. | 8-K | May 11, 2021 | 4.1 | |
4.4 | | First Supplemental Indenture, dated as of May 11, 2021, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Wells Fargo Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | 8-K | May 11, 2021 | 4.2 | |
4.5 | | Second Supplemental Indenture, dated as of September 22, 2021, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Wells Fargo Bank, National Association, as trustee, including the form of the Notes and the Guarantee. | 8-K | September 22, 2021 | 4.2 | |
4.6 | | Third Supplemental Indenture, dated as of March 31, 2022, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | March 31, 2022 | 4.2 | |
| | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | Incorporated by Reference | Filed Herewith |
| | | Form | Date | Number | |
4.7 | | Fourth Supplemental Indenture, dated as of March 28, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | March 28, 2023 | 4.2 | |
4.8 | | Fifth Supplemental Indenture, dated as of June 16, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | June 16, 2023 | 4.2 | |
4.9 | | Sixth Supplemental Indenture, dated as of July 25, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | July 25, 2023 | 4.4 | |
4.10 | | Seventh Supplemental Indenture, dated as of July 25, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | July 25, 2023 | 4.5 | |
4.11 | | Eighth Supplemental Indenture, dated as of July 25, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | July 25, 2023 | 4.6 | |
4.12 | | Ninth Supplemental Indenture, dated as of July 25, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | July 25, 2023 | 4.7 | |
4.13 | | Tenth Supplemental Indenture, dated as of July 25, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | July 25, 2023 | 4.8 | |
4.14 | | Eleventh Supplemental Indenture, dated as of December 1, 2023, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | December 1, 2023 | 4.2 | |
4.15 | | Twelfth Supplemental Indenture, dated as of January 19, 2024, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., ESS Holdings Business Trust I and ESS Holdings Business Trust II, as guarantors, and Computershare Trust Company, N.A., as trustee, including the form of the Notes and the Guarantee. | 8-K | January 19, 2024 | 4.2 | |
4.16 | | | 8-K | July 25, 2023 | 4.1 | |
| | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | Incorporated by Reference | Filed Herewith |
| | | Form | Date | Number | |
4.17 | | | 8-K | July 25, 2023 | 4.2 | |
10.1 | | | S-11/A | July 26, 2004 | 10.14 | |
10.2 | | | 8-K | June 24, 2005 | 10.2 | |
10.3 | | | 8-K | June 26, 2007 | 10.2 | |
10.4 | | | 8-K | June 26, 2007 | 10.3 | |
10.5 | | | 8-K | April 16, 2012 | 10.1 | |
10.6 | | Letter Agreement, dated as of November 22, 2013, amending the Contribution Agreement, dated June 15, 2007, among Extra Space Storage LP and various limited partnerships affiliated with AAAAA Rent-A-Space, and the Promissory Note, dated June 25, 2007, among Extra Space Storage LP, H. James Knuppe and Barbara Knuppe. | 10-Q | May 8, 2014 | 10.1 | |
10.7 | | | 10-Q | May 5, 2017 | 10.1 | |
10.8* | | | 8-K | August 31, 2010 | 10.1 | |
10.9* | | | DEFA14A | April 14, 2015 | Definitive Proxy Statement | |
10.10* | | | 10-K | February 26, 2020 | 10.13 | |
10.11* | | | DEFA14A | April 14, 2008 | Definitive Proxy Statement | |
10.12* | | | 10-K | February 26, 2010 | 10.11 | |
10.13* | | | 10-Q | November 7, 2007 | 10.2 | |
10.14* | | | | | | X |
10.15 | | | 8-K | June 27, 2023 | 10.1 | |
21.1 | | | | | | X |
22.1 | | | | | | X |
23.1 | | | | | | X |
31.1 | | | | | | X |
31.2 | | | | | | X |
|
| | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | DescriptionIncorporated by Reference | Filed Herewith |
| | | Form | Date | Purchase and Sale Agreement, dated May 5, 2005 by and among Security Capital Self Storage Incorporated, as seller and Extra Space Storage LLC, PRISA Self Storage LLC, PRISA II Self Storage LLC, PRISA III Self Storage LLC, VRS Self Storage LLC, WCOT Self Storage LLC and Extra Space Storage LP, as purchaser parties and The Prudential Insurance Company of America (incorporated by reference to Exhibit 2.1 of Form 8-K filed on May 11, 2005).Number | |
32.1 | | Agreement and Plan of Merger, dated as of June 15, 2015, among Extra Space Storage Inc., Extra Space Storage LP, Edgewater REIT Acquisition (MD) LLC, Edgewater Partnership Acquisition (DE) LLC, SmartStop Self Storage, Inc. and SmartStop Self Storage Operating Partnership, L.P. (incorporated by reference to Exhibit 2.1 of Form 8-K filed on June 15, 2015). |
| | Amendment No. 1 to Agreement and Plan of Merger, dated as of July 16, 2015, among Extra Space Storage Inc., Extra Space Storage LP, Edgewater REIT Acquisition (MD) LLC, Edgewater Partnership Acquisition (DE) LLC, SmartStop Self Storage, Inc. and SmartStop Self Storage Operating Partnership, L.P. (incorporated by reference to Exhibit 2.1 of Form 8-K filed on July 16, 2015). |
| | Amended and Restated Articles of Incorporation of Extra Space Storage Inc.(1) |
| | Articles of Amendment of Extra Space Storage Inc., dated September 28, 2007 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on October 3, 2007). |
| | Articles of Amendment of Extra Space Storage Inc., dated August 29, 2013 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on August 29, 2013). |
| | Amended and Restated Bylaws of Extra Space Storage Inc.(incorporated by reference to Exhibit 3.1 of Form 8-K filed on May 26, 2009) |
| | Amendment No. 1 to Amended and Restated Bylaws of Extra Space Storage Inc. (incorporated by reference to Exhibit 3.1 of Form 8-K filed December 23, 2014). |
| | Fourth Amended and Restated Agreement of Limited Partnership of Extra Space Storage LP (incorporated by reference to Exhibit 10.1 of Form 8-K filed on December 6, 2013). |
| | Declaration of Trust of ESS Holdings Business Trust II.(1) |
| | Junior Subordinated Indenture dated as of July 27, 2005, between Extra Space Storage LP and JPMorgan Chase Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of Form 8-K filed on August 2, 2005). |
| | Amended and Restated Trust Agreement, dated as of July 27, 2005, among Extra Space Storage LP, as depositor and JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee, the Administrative Trustees named therein and the holders of undivided beneficial interest in the assets of ESS Statutory Trust III (incorporated by reference to Exhibit 4.2 of Form 8-K filed on August 2, 2005). |
| | Junior Subordinated Note (incorporated by reference to Exhibit 4.3 of Form 10-K filed on February 26, 2010) |
| | Trust Preferred Security Certificates (incorporated by reference to Exhibit 4.4 of Form 10-K filed on February 26, 2010) |
| | Indenture, dated June 21, 2013, among Extra Space Storage LP, Extra Space Storage Inc. and Wells Fargo Bank, National Association, as trustee, including the form of 2.375% Exchangeable Senior Notes due 2033 and form of guarantee (incorporated by reference to Exhibit 4.1 of Form 8-K filed on June 21, 2013). |
| | Indenture, dated September 21, 2015, among Extra Space Storage LP, as issuer, Extra Space Storage Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, including the form of 3.125% Exchangeable Senior Notes due 2035 and the form of guarantee (incorporated by reference to Exhibit 4.1 of Form 8-K filed on September 21, 2015). |
| | Registration Rights Agreement, by and among Extra Space Storage Inc. and the parties listed on Schedule I thereto.(1) |
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| | |
Exhibit
Number
| | Description |
| | Joint Venture Agreement, dated June 1, 2004, by and between Extra Space Storage LLC and Prudential Financial, Inc.(1) |
| | Registration Rights Agreement, dated June 20, 2005, among Extra Space Storage Inc. and the investors named therein (incorporated by reference to Exhibit 10.2 of Form 8-K filed on June 24, 2005). |
| | Purchase Agreement, dated as of July 27, 2005, among Extra Space Storage LP, ESS Statutory Trust III and the Purchaser named therein (incorporated by reference to Exhibit 10.1 of Form 8-K filed on August 2, 2005). |
| | Registration Rights Agreement, dated March 27, 2007, among Extra Space Storage LP, Extra Space Storage Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 10.1 of Form 8-K filed on March 28, 2007). |
| | Promissory Note, dated June 25, 2007, among Extra Space Storage LP, H. James Knuppe and Barbara Knuppe (incorporated by reference to Exhibit 10.2 of Form 8-K filed on June 26, 2007). |
| | Pledge Agreement, dated June 25, 2007, among Extra Space Storage LP, H. James Knuppe and Barbara Knuppe (incorporated by reference to Exhibit 10.3 of Form 8-K filed on June 26, 2007). |
| | Registration Rights Agreement among Extra Space Storage LP, H. James Knuppe and Barbara Knuppe. (incorporated by reference to Exhibit 10.26 of Form 10-K filed on February 26, 2010) |
| | Membership Interest Purchase Agreement, dated as of April 13, 2012, between Extra Space Properties Sixty Three LLC and PRISA III Co-Investment LLC (incorporated by reference to Exhibit 10.1 of Form 8-K filed on April 16, 2012). |
| | Extra Space Storage Inc. Executive Change in Control Plan (incorporated by reference to Exhibit 10.1 of Form 8-K filed on August 31, 2010). |
| | Registration Rights Agreement, dated June 21, 2013, among Extra Space Storage LP, Extra Space Storage Inc., Citigroup Global Markets Inc. and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.1 of Form 8-K filed on June 21, 2013). |
| | Letter Agreement, dated as of November 22, 2013, amending the Contribution Agreement, dated June 15, 2007, among Extra Space Storage LP and various limited partnerships affiliated with AAAAA Rent-A-Space, and the Promissory Note, dated June 25, 2007, among Extra Space Storage LP, H. James Knuppe and Barbara Knuppe (incorporated by reference to Exhibit 10.1 of Form 10-Q filed on May 8, 2014). |
| | Letter Agreement, dated April 18, 2017, amending the Promissory Note and Waiving a Portion of the Series A Preferred Priority Return, among Extra Space Storage LP, ESS Holdings Business Trust I, H. James Knuppe and Barbara Knuppe (incorporated by reference to Exhibit 10.1 of Form 10-Q filed on May 5, 2017). |
| | 2015 Incentive Award Plan (incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed on April 14, 2015) |
| | Registration Rights Agreement, dated September 21, 2015, among Extra Space Storage LP, Extra Space Storage Inc., Citigroup Global Markets Inc. and Wells Fargo Securities, LLC, as representatives of the initial purchasers (incorporated by reference to Exhibit 10.1 of Form 8-K filed on September 21, 2015). |
| | Credit Agreement, dated as of October 14, 2016, by and among Extra Space Storage Inc., Extra Space Storage LP, U.S. Bank National Association, as administrative agent, certain other financial institutions acting as syndication agents, documentation agents, senior management agents and lead arrangers and book runners, and certain lenders party thereto (incorporated by reference to Exhibit 10.1 of Form 8-K filed on October 17, 2016). |
| | 2004 Long-Term Compensation Incentive Plan as amended and restated effective March 25, 2008 (incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed on April 14, 2008) |
| | Form of 2004 Long Term Incentive Compensation Plan Option Award Agreement for Employees with employment agreements. (incorporated by reference to Exhibit 10.11 of Form 10-K filed on February 26, 2010) |
| | Form of 2004 Long Term Incentive Compensation Plan Option Award Agreement for employees without employment agreements. (incorporated by reference to Exhibit 10.12 of Form 10-K filed on February 26, 2010) |
| | Form of 2004 Non-Employee Directors Share Plan Option Award Agreement for Directors. (incorporated by reference to Exhibit 10.13 of Form 10-K filed on February 26, 2010) |
| | 2004 Long Term Incentive Compensation Plan Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 of Form 10-Q filed on November 7, 2007). |
| | First Amendment to Extra Space Storage Inc. 2004 Non-Employee Directors’ Share Plan (incorporated by reference to Exhibit 10.4 of Form 10-Q filed on November 7, 2007). |
| | Extra Space Storage 2004 Non-Employee Directors’ Share Plan (incorporated by reference to Exhibit 10.22 of Form 10-K/A filed on March 20, 2007). |
| | Note Purchase Agreement, dated as of June 29, 2017, by and among Extra Space Storage Inc., Extra Space Storage LP and the purchasers named therein (incorporated by reference to Exhibit 10.1 of Form 8-K filed on June 30, 2017). |
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| | |
Exhibit
Number
| | Description |
| | Subsidiaries of the Company(2) |
| | Consent of Ernst & Young LLP(2) |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(2) |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(2) |
| | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(2) | | | | X |
101 | | The following financial information from Registrant’s Annual Report on Form 10-K for the period ended December 31, 2014,2023, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 20142023 and 2013;2022; (ii) Consolidated Statements of Operations for the years ended December 31, 2014, 20132023, 2022 and 2012;2021; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 20132023, 2022 and 2012;2021; (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 20132023, 2022 and 2012;2021; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 20132023, 2022 and 2012;2021; and (vi) Notes to Consolidated Financial Statements(2)Statements. | | | | X |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | | | | X |
* Management compensatory plan or arrangement
(1)Incorporated by reference to Registration Statement on
Item 16. Form S-11 (File No. 333-115436 dated August 11, 2004).10-K Summary
(2)Filed herewith.
(3)See Item 15(a)(2) above.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | | |
| | EXTRA SPACE STORAGE INC. |
Date: March 1, 2018February 29, 2024 | | By: | | By: | /s/ JOSEPH D. MARGOLIS |
| | | | Joseph D. Margolis
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
Date: February 29, 2024 | | By: | | | |
Date: March 1, 2018 | | By: | | /s/ JOSEPH D. MARGOLIS |
| | | | Joseph D. Margolis Chief Executive Officer (Principal Executive Officer) |
| | | | |
Date: March 1, 2018February 29, 2024 | | By: | | By: | /s/ P. SCOTT STUBBS |
| | | | P. Scott Stubbs Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | | | |
Date: March 1, 2018February 29, 2024 | | By: | | By: | /s/ GRACE KUNDE |
| | | | Grace Kunde Senior Vice President, Accounting and Finance (Principal Accounting Officer) |
| | | | |
Date: March 1, 2018February 29, 2024 | | By: | | By: | /s/ KENNETH M. WOOLLEY |
| | | | Kenneth M. Woolley Executive Chairman of the Board
|
| | | | |
Date: February 29, 2024 | | By: | | | /s/ MARK BARBERIO |
| | | | Mark Barberio Director |
| | | | |
Date: March 1, 2018February 29, 2024 | | By: | | By:/s/ JENNIFER BLOUIN |
| | | | Jennifer Blouin Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ JOSEPH J. BONNER |
| | | | Joseph J. Bonner Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ GARY CRITTENDEN |
| | | | Gary Crittenden Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ SUSAN HARNETT |
| | | | Susan Harnett Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ SPENCER F. KIRK |
| | | | Spencer F. Kirk Director |
| | | | |
Date: February 29, 2024 | | By: | | | /s/ DIANE OLMSTEAD |
| Date: March 1, 2018 | | By: | /s/ DENNIS LETHAM |
| | | | Dennis LethamDiane Olmstead
Director |
| | | | |
Date: March 1, 2018February 29, 2024 | | By: | | By: | /s/ DIANE OLMSTEAD |
| | | | Diane Olmstead
Director
|
| | | | |
Date: March 1, 2018 | | By: | | /s/ ROGER B. PORTER |
| | | | Roger B. Porter Director |
| | | | |
| | | | | | | | | | | | | | |
Date: February 29, 2024 | | By: | | | /s/ JULIA VANDER PLOEG |
| Date: March 1, 2018 | | By: | /s/ K. FRED SKOUSENJulia Vander Ploeg Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ JOSEPH V. SAFFIRE |
| | | | Joseph V. Saffire Director |
| | | | |
Date: February 29, 2024 | | By: | | /s/ JEFFERSON S. SHREVE |
| | | | K. Fred Skousen Jefferson S. Shreve
Director |