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.” Dollar amounts in thousands, except share and per share data.data, unless otherwise stated.
We are a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed to own, operate, manage, acquire, develop and redevelop self-storage properties (“stores”). We derive substantially all of our revenues from our two segments: storage operations and tenant reinsurance. Primary sources of revenue for our storage operations segment include rents received from tenants under leases at each of our wholly-owned stores. Our operating results depend materially on our ability to lease available self-storage units, to actively manage unit rental rates, and on the ability of our tenants to make required rental payments. Consequently, management spends a significant portion of their time maximizing
cash flows from our diverse portfolio of stores. Revenue from our tenant reinsurance segment consists of insurance revenues from the reinsurance of risks relating to the loss of goods stored by tenants in our stores.
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.
likely recover the lost occupancy and/or revenue in the short term. In addition, we review stores in the lease-up stage and compare actual operating results to original projections. We may not have identified all material facts and circumstances that affect impairment of our stores. No material impairments were recorded in the year ended December 31, 2018.2021.
Funds from operations ("FFO") provides relevant and meaningful information about our operating performance that is necessary, along with net income and cash flows, for an understanding of our operating results. We believe FFO is a meaningful disclosure as a supplement to net earnings. Net earnings assume that the values of real estate assets diminish
predictably over time as reflected through depreciation and amortization expenses. The values of real estate assets fluctuate due to market conditions and we believe FFO more accurately reflects the value of our real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income computed in accordance with U.S. generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of operating stores and impairment write-downs of depreciable real estate assets, plus real estate related depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the consolidated financial statements. FFO should not be considered a replacement of net income computed in accordance with GAAP.
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.
Extra Space Storage Inc.
EXTRA SPACE STORAGE INC.37
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, 2018,2021, the Company had direct and indirect equity interests in 1,1111,268 storage facilities. In addition, the Company managed 536828 stores for third parties bringing the total number of stores which it owns and/or manages to 1,647.2,096. These stores are located in 3941 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.
Certain amounts previously reported inFor comparison purposes, the consolidated financial statements have beenCompany has reclassified ina portion of Notes payable, net to Unsecured term loans, net and Unsecured senior notes, net on the accompanying consolidated financial statementsConsolidated Balance Sheets as of December 31, 2020, to conform to the current period’s presentation primarily to change the presentation of Gain on real estate transactions, earnout from prior acquisitions, and impairment of real estate on the consolidated statement of operations. The Company has included Gain on real estate transactions, earnout from prior acquisitions, and impairment of real estate as a component of Income from operations to present gain and losses on sales of properties in accordance with ASC 360-10-45-5. The change was made for the prior periods as the Securities and Exchange Commission has eliminated Rule 3-15(a) of Regulation S-X as part of Release No. 33-10532; 34-83875; IC-33203, which had required REITs to present gain and losses on sale of properties outside of continuing operations in the statement of operations.
Immaterial Correction to Consolidated Balance Sheets
In connection with the preparation of the financial statements for the quarter ended March 31, 2018, the Company determined that the negative balances in the "Investments in unconsolidated real estate ventures" line should be presented separately as liabilities. As a result, $5,816 should have been reported as "Cash distributions in unconsolidated real estate ventures" as of December 31, 2017. The Company concluded that the amount was not material to the consolidated balance sheet as of December 31, 2017 but has elected to present these amounts as liabilities in the accompanying financial statements for consistent presentation. The classification error had no effect on the previously reported consolidated statements of operations, comprehensive income, stockholders' equity or cash flows for the year ended December 31, 2017.2021.
Variable Interest Entities
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.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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. Additionally, the Operating Partnership has notes payable to one trust that is aThe Company had 1 consolidated VIE under condition (ii)(a) above. Since the Operating Partnership is not the primary beneficiaryconsisting of the trust, this VIE is not consolidated.4 stores as of December 31, 2021 and no consolidated VIEs as of December 31, 2020.
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
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, 2018,2021, 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, 2018,2021, aggregated by the level in the fair value hierarchy within which those measurements fall.
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | December 31, 2018 | | 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 | $ | 42,324 |
| | $ | — |
| | $ | 42,324 |
| | $ | — |
|
Other liabilities - Cash Flow Hedge Swap Agreements | $ | (2,131 | ) | | $ | — |
| | $ | (2,131 | ) | | $ | — |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | December 31, 2021 | | 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 | $ | 271 | | | $ | — | | | $ | 271 | | | $ | — | |
Other liabilities - Cash flow hedge swap agreements | $ | 39,569 | | | $ | — | | | $ | 39,569 | | | $ | — | |
There were no transfers of assets and liabilities between Level 1 and Level 2 during the year ended December 31, 2018.2021. 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, 20182021 or 2017.2020.
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.
As of December 31, 20182021 and 2017,2020, 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, 20182021 and 2017,2020, approximate fair value.
The fair values of the Company’s notes receivable and notes receivable from Preferred 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.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The fair values of the Company’s fixed-rate assets and liabilities were as follows for the periods indicated:
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes receivable from Preferred and Common Operating Partnership unit holders | $ | 115,467 |
| | $ | 119,735 |
| | $ | 113,683 |
| | $ | 120,230 |
|
Fixed rate notes receivable | $ | — |
| | $ | — |
| | $ | 20,942 |
| | $ | 20,608 |
|
Fixed rate notes payable and notes payable to trusts | $ | 2,985,731 |
| | $ | 3,022,414 |
| | $ | 2,774,242 |
| | $ | 2,815,085 |
|
Exchangeable senior notes | $ | 620,149 |
| | $ | 575,000 |
| | $ | 719,056 |
| | $ | 624,259 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes receivable from Preferred and Common Operating Partnership unit holders | $ | 101,824 | | | $ | 101,900 | | | $ | 102,333 | | | $ | 102,311 | |
Fixed rate notes receivable | $ | 105,954 | | | $ | 104,251 | | | $ | 114,145 | | | $ | 104,000 | |
Fixed rate debt | $ | 4,643,072 | | | $ | 4,506,435 | | | $ | 3,816,530 | | | $ | 3,637,220 | |
| | | | | | | |
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 costs associated with development incurred during the construction period are capitalized. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.
Expenditures for maintenance and repairs are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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 transactions costs are capitalized as part of the purchase price.
Intangible lease rights represent: (1) purchase price amounts allocated to leases on three3 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 eight8 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"). 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
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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 impairment indicators were noted as of December 31, 2021.
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 fromrelated loans as yield adjustment. Additionally, the joint venture’s salediscount related to purchased notes receivable is being amortized to interest income over the remaining period of assets), in which case it is reported as an investing activity.the notes.
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, loan collateral, operating reserves and insurance and capital expenditures.
Other Assets
Other assets consist of equipment and fixtures, capitalized software, 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. The Company capitalizes certain costs during the application development stage when developing software for internal use. As of December 31, 2021 and 2020, unamortized software costs were $20,280 and $22,708. During the year ended December 31, 2021 and 2020, the Company recorded amortization expense of $2,428 and $1,571, respectively, relating to capitalized software costs. No significant amortization of software costs was recorded prior to 2020 as the software was still in the application development stage.
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 three3 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.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Exchange of Common Operating Partnership Units
Redemption of common Operating Partnership units for shares of common stock, when redeemed under the original provisions of the Operating Partnership agreement, are accounted for by reclassifying the underlying net book value of the units from noncontrolling interest to the Company’s equity.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Revenue and Expense Recognition
Rental revenues are recognized as earned based upon amounts that are currently due from tenants. Leases are generally on month-to-month terms. Prepaid rents are recognized on a straight-line basis over the term of the leases. Promotional discounts are recognized as a reduction to rental income over the promotional period. Late charges, administrative fees and merchandise sales are recognized as income when earned. Equity in earnings of unconsolidated real estate entities is recognized based on the Company's ownership interest in the earnings of each of the unconsolidated real estate entities. Interest income is recognized as earned.
The Company's management fees are earned subject to the terms of the related management services agreements ("MSAs"). These MSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking, maintenance and other services. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties and unconsolidated joint ventures. MSAs generally have original terms from three to five years, after which management services are provided on a month-to-month basis unless terminated. Management fees are due on the last day of each calendar month that management services are provided.
The Company accounts for the management services provided to a customer as a single performance obligation which are rendered over time each month. The total amount of consideration from the contract is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company's control. Therefore, the Company recognizes the revenue at the end of each month once the uncertainty is resolved. Due to the standardized terms of the MSAs, the Company accounts for all MSAs in a similar, consistent manner. Therefore, no disaggregated information relating to MSAs is presented.
Property expenses, including utilities, property taxes, repairs and maintenance and other costs to manage the facilities are recognized as incurred. The Company accrues for property tax expense based upon invoice amounts and estimates. If these estimates are incorrect, the timing of expense recognition could be affected.
Tenant reinsurance premiums are recognized as revenue over the period of insurance coverage. The Company records an unpaid claims liability at the end of each period based on existing unpaid claims and historical claims payment history. The unpaid claims liability represents an estimate of the ultimate cost to settle all unpaid claims as of each period end, including both reported but unpaid claims and claims that may have been incurred but have not been reported. The Company uses a third party claims administrator to adjust all tenant reinsurance claims received. The administrator evaluates each claim to determine the ultimate claim loss and includes an estimate for claims that may have been incurred but not reported. Annually, a third party actuary evaluates the adequacy of the unpaid claims liability. Prior year claim reserves are adjusted as experience develops or new information becomes known. The impact of such adjustments is included in the current period operations. The unpaid claims liability is not discounted to its present value. Each tenant chooses the amount of insurance coverage they want through the tenant reinsurance program. Tenants can purchase policies in amounts of 2,000 dollars to 10,000 dollars of insurance coverage in exchange for a monthly fee. As of December 31, 2018,2021, the average insurance coverage for tenants was approximately 2,9003,300 dollars. 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.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
For the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the number of individual claims made were 7,870, 5,6718,748, 8,226 and 4,055, respectively. 7,888, respectively (claim numbers not in thousands).
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: | 2018 | | 2017 | | 2016 |
Unpaid claims liability at beginning of year | $ | 5,167 |
| | $ | 3,896 |
| | $ | 3,908 |
|
Claims and claim adjustment expense for claims incurred in the current year | 15,800 |
| | 11,700 |
| | 7,250 |
|
Claims and claim adjustment expense (benefit) for claims incurred in the prior years | 107 |
| | (203 | ) | | 87 |
|
Payments for current year claims | (11,010 | ) | | (8,895 | ) | | (5,423 | ) |
Payments for prior year claims | (2,738 | ) | | (1,331 | ) | | (1,926 | ) |
Unpaid claims liability at the end of the year | $ | 7,326 |
| | $ | 5,167 |
| | $ | 3,896 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
Tenant Reinsurance Claims: | 2021 | | 2020 | | 2019 |
Unpaid claims liability at beginning of year | $ | 8,294 | | | $ | 8,109 | | | $ | 7,326 | |
Claims and claim adjustment expense for claims incurred in the current year | 16,901 | | | 14,534 | | | 16,280 | |
Claims and claim adjustment expense (benefit) for claims incurred in the prior years | 122 | | | (1,351) | | | 98 | |
Payments for current year claims | (11,913) | | | (9,697) | | | (11,352) | |
Payments for prior year claims | (4,292) | | | (3,301) | | | (4,243) | |
Unpaid claims liability at the end of the year | $ | 9,112 | | | $ | 8,294 | | | $ | 8,109 | |
Advertising Costs
The Company incurs advertising costs primarily attributable to digital and other advertising. These costs are expensed as incurred. The Company recognized $16,153, $14,410$18,793, $28,336 and $12,867$25,106 in advertising expense for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively, which are included in property operating expenses on the Company’s consolidated statements of operations.
Income Taxes
The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). In order to maintain its qualification as a REIT, among other things, 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, 2018,2021, 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.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. At December 31, 20182021 and 2017,2020, there were no material unrecognized tax benefits. Interest and penalties relating
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 20182021 and 2017,2020, the Company had no interest or penalties related to uncertain tax provisions.
Stock-Based Compensation
The measurement and recognition of compensation expense for all share-based payment awards to employees and directors are based on estimated fair values. Awards granted are valued at fair value and any compensation expense is recognized over the service periods of each award.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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”), Series D Redeemable Preferred Units (“Series D Units” and together with the Series A Units, Series B Units and Series C 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, 2018, 20172021, 2020 and 2016, options to purchase approximately 36,075, 45,286, and 88,5522019 there were no anti-dilutive shares of common stock, respectively, were excluded from the computation of earnings per share as their effect would have been anti-dilutive.
outstanding.
For the purposes of computing the diluted impact of the potential exchange of the Preferred OP Units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the intent and ability to settle the redemption in shares, Thethe Company divided the total liquidation value of the Preferred OP Units by the average share price of $90.30$161.98 for the year ended December 31, 2018.2021.
The following table presents the number of weighted OP Units and Preferred OP Units, and the potential common shares, that were excluded from the computation of earnings per share as their effect would have been anti-dilutive: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Equivalent Shares (if converted) | | Equivalent Shares (if converted) | | Equivalent Shares (if converted) |
Common OP Units | — | | | 5,853,814 | | | — | |
Series A Units (Variable Only) | — | | | 875,480 | | | — | |
Series B Units | 246,618 | | | 400,771 | | | 393,189 | |
| | | | | |
Series D Units | 726,037 | | | 1,143,547 | | | 1,081,369 | |
| 972,655 | | | 8,273,612 | | | 1,474,558 | |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | | | | | |
| For the Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| 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 | 464,033 |
| | 533,174 |
| | 499,966 |
|
Series C Units | 312,075 |
| | 377,135 |
| | 353,646 |
|
Series D Units | 1,019,524 |
| | — |
| | 552,796 |
|
| 1,795,632 |
| | 910,309 |
| | 7,846,519 |
|
TheAs of December 31, 2021 and 2020 the Operating Partnership had $575,000no exchangeable senior notes issued or outstanding. In October and November 2020, a portion of itsthe 3.125% Exchangeable Senior Notes due 2035 (the “2015 Notes”) issuedwere exchanged for cash and outstanding asshares of December 31, 2018.the Company's common stock and the remaining 2015 Notes were redeemed for cash. The 2015 Notes could potentially have had a dilutive impact on the Company’sCompany's earnings per share calculations. The 2015 Notes arewere exchangeable by holders into shares of the Company’sCompany's common stock under certain circumstances per the terms of the indenture governing the 2015 Notes. The exchange price of the 2015 Notes was $92.80 per share as of December 31, 2018, and could change over time as described in the indenture. The Company hashad 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.
ThoughAlthough the Company hashad retained that right to satisfy the exchange obligation in excess of the accreted principal amount of the 2015 Notes in cash and/or common stock, Accounting Standards Codification (“ASC”) 260, “Earnings per Share,” requiresrequired an assumption that shares would be used to pay the exchange obligation in excess of the accreted principal amount, and requiresrequired that those shares be included in the Company’s calculation of weighted average common shares outstanding for the
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
diluted earnings per share computation. As ofFor the year ended December 31, 2018,2021, the Company had repaid the principal and accrued interest of its Exchangeable Senior2015 Notes, due 2033 (the “2013 Notes”), and therefore, no shares underlying the 2013 Notes were included in the dilution calculation for 2018. For the years ended December 31, 2017 and 2016, 344,430 shares and 309,730 shares, respectively, relatedrelating to the 20132015 Notes were included in the computation forof diluted earnings per share. For the years ended December 31, 2018, 20172020 and 2016, no2019, zero and 993,114 shares, respectively, related to the 2015 Notes were included in the computation forof diluted earnings per share as the exchange price exceeded the per share price of the Company’s common stock during this period.share.
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, |
| 2018 | | 2017 | | 2016 |
Net income attributable to common stockholders | $ | 415,289 |
| | $ | 479,013 |
| | $ | 366,127 |
|
Earnings and dividends allocated to participating securities | (723 | ) | | (975 | ) | | (792 | ) |
Earnings for basic computations | 414,566 |
| | 478,038 |
| | 365,335 |
|
Earnings and dividends allocated to participating securities | 723 |
| | — |
| | 792 |
|
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units | 22,831 |
| | 30,088 |
| | — |
|
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units) | (2,288 | ) | | (3,119 | ) | | — |
|
Net income for diluted computations | $ | 435,832 |
| | $ | 505,007 |
| | $ | 366,127 |
|
| | | | | |
Weighted average common shares outstanding: | | | | | |
Average number of common shares outstanding - basic | 126,087,487 |
| | 125,967,831 |
| | 125,087,554 |
|
OP Units | 5,675,547 |
| | 5,590,831 |
| | — |
|
Series A Units | 875,480 |
| | 875,480 |
| | — |
|
Series D Units | — |
| | 1,081,561 |
| | — |
|
Unvested restricted stock awards included for treasury stock method | 244,215 |
| | — |
| | 299,585 |
|
Shares related to exchangeable senior notes and dilutive stock options | 276,304 |
| | 640,068 |
| | 560,937 |
|
Average number of common shares outstanding - diluted | 133,159,033 |
| | 134,155,771 |
| | 125,948,076 |
|
Earnings per common share | | | | | |
Basic | $ | 3.29 |
| | $ | 3.79 |
| | $ | 2.92 |
|
Diluted | $ | 3.27 |
| | $ | 3.76 |
| | $ | 2.91 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net income attributable to common stockholders | $ | 827,649 | | | $ | 481,779 | | | $ | 419,967 | |
Earnings and dividends allocated to participating securities | (1,183) | | | (706) | | | (680) | |
Earnings for basic computations | 826,466 | | | 481,073 | | | 419,287 | |
Earnings and dividends allocated to participating securities | — | | | — | | | 680 | |
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units | 43,093 | | | — | | | 23,727 | |
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units) | (2,288) | | | — | | | (2,288) | |
Net income for diluted computations | $ | 867,271 | | | $ | 481,073 | | | $ | 441,406 | |
| | | | | |
Weighted average common shares outstanding: | | | | | |
Average number of common shares outstanding - basic | 133,374,938 | | | 129,541,531 | | | 128,203,568 | |
OP Units | 5,752,902 | | | — | | | 6,006,114 | |
Series A Units | 875,480 | | | — | | | 875,480 | |
| | | | | |
| | | | | |
Unvested restricted stock awards included for treasury stock method | — | | | — | | | 212,402 | |
Shares related to exchangeable senior notes and dilutive stock options | 12,708 | | | 43,298 | | | 1,136,205 | |
Average number of common shares outstanding - diluted | 140,016,028 | | | 129,584,829 | | | 136,433,769 | |
Earnings per common share | | | | | |
Basic | $ | 6.20 | | | $ | 3.71 | | | $ | 3.27 | |
Diluted | $ | 6.19 | | | $ | 3.71 | | | $ | 3.24 | |
Recently Issued Accounting Standards
In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2014-9, “Revenue from Contracts with Customers,” ("Topic 606") 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. Topic 606 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. Topic 606 became effective for annual and interim periods beginning after December 15, 2017. The Company determined that its property rental revenue and tenant reinsurance revenue are not subject to the guidance in Topic 606, as they qualify as lease contract and insurance contracts, which are excluded from its scope. The Company's management fee revenue is included in the scope of Topic 606, and revenue recognized under the standard does not differ materially from revenue recognized under previous guidance. The Company adopted the standard
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
using the modified retrospective transition method as of January 1, 2018. The Company's adoption of Topic 606 did not result in a cumulative catch-up adjustment or any significant changes to financial statement line items.
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 requirerequires 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 isbecame effective for annual and interim periods beginning after December 15, 2018. The Company plans to adoptadopted the standard using the modified retrospective approach as of January 1, 2019. The Company expects to electelected the package of practical expedients upon adoption, which allows for the application of the standard solely to the transition period in 2019 but does not require application to prior fiscal comparative periods presented. The Company estimatesalso elected the practical expedient provided in a subsequent amendment to ASU 2016-02 that removed the requirement to separate lease and non-lease components. The Company did not record a significant cumulative catch-up adjustment recorded upon the adoption will not have a significant impact on retained earnings.of ASC 2016-02. The primary impact is expected to bewas related to the Company's 2322 operating ground leases and two2 corporate facility leases under which it servesserved as lessee.lessee as of the adoption date. The Company estimates the lease assets andrecognized lease liabilities to be between $90,000totaling $104,863 and $110,000right-of-use assets related to its operating leases upontotaling $95,506 as of the adoption date. Refer to Note 14 for further discussion of Topic 842.the Company's leases.
In OctoberJune 2016, the FASB issued ASU 2016-18,2016-13, "StatementFinancial Instruments - Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Restricted Cash,Credit Losses on Financial Instruments." whichASU 2016-13 changes how entities measure credit losses for most financial assets. This standard requires an entity to estimate its lifetime "expected credit loss" and record an allowance that, a statementwhen deducted from the amortized cost basis of cash flows explains the change duringfinancial asset, presents 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 shouldnet amount expected to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts showncollected on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance as of January 1,financial asset. In November 2018, and now presents restricted cash along with cash and cash equivalents in its consolidated statements of cash flows. Prior periods have been reclassified to conform to the current year's presentation.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805)2018-19, "Codification Improvements to Topic 326, Financial Instruments - ClarifyingCredit Losses," which clarified that receivables arising from operating leases are within 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 allscope of the fair valueleasing standard (ASU 2016-02), and not within the scope 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.2016-13. This guidance isnew standard became 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 prospectively to new acquisitions beginning on January 1, 2017.2020. The adoption of this guidance resulted in a decrease in acquisition related costs, asstandard by 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 adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." ASU 2018-15 amends the accounting for implementation costs incurred in a hosting arrangement that is a service contract, and aligns them with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 also requires that entities amortize the capitalized implementation costs over the term of the hosting arrangement. ASU 2018-15 is effective for annual periods beginning after December 15, 2020, with early adoption permitted,
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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 early adoption in any interim period.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 adopted this guidance on a prospective basis aselected to apply the hedge accounting expedients related to probability and the assessments of October 1, 2018. The adoption of this standard did not have a material impacteffectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the Company's financial statements.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 January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Topic 848 and clarifies some of its guidance. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
3. REAL ESTATE ASSETS
The components of real estate assets are summarized as follows:
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
Land - operating | $ | 1,825,133 |
| | $ | 1,731,915 |
|
Land - development | 7,359 |
| | 13,246 |
|
Buildings, improvements and other intangibles | 6,743,355 |
| | 6,286,762 |
|
Intangible assets - tenant relationships | 119,557 |
| | 114,375 |
|
Intangible lease rights | 12,443 |
| | 12,443 |
|
| 8,707,847 |
| | 8,158,741 |
|
Less: accumulated depreciation and amortization | (1,262,438 | ) | | (1,060,060 | ) |
Net operating real estate assets | 7,445,409 |
| | 7,098,681 |
|
Real estate under development/redevelopment | 46,422 |
| | 33,750 |
|
Net real estate assets | $ | 7,491,831 |
| | $ | 7,132,431 |
|
Real estate assets held for sale included in net real estate assets | $ | 13,032 |
| | $ | 10,276 |
|
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Land - operating | $ | 2,148,093 | | | $ | 1,952,097 | |
Land - development | 3,226 | | | 3,372 | |
Buildings, improvements and other intangibles | 8,227,094 | | | 7,357,033 | |
Right of use asset - finance lease | 117,718 | | | 58,148 | |
Intangible assets - tenant relationships | 134,577 | | | 124,695 | |
Intangible lease rights | 12,443 | | | 12,443 | |
| 10,643,151 | | | 9,507,788 | |
Less: accumulated depreciation and amortization | (1,867,750) | | | (1,681,429) | |
Net operating real estate assets | 8,775,401 | | | 7,826,359 | |
Real estate under development/redevelopment | 59,248 | | | 67,443 | |
Real estate assets, net | $ | 8,834,649 | | | $ | 7,893,802 | |
Real estate assets held for sale included in real estate assets, net | $ | 8,436 | | | $ | 103,624 | |
As of December 31, 2018,2021, the Company had one operating1 store and one parcel of land classified as held for sale. The estimated fair value less selling costs of these assets arethis asset is greater than the carrying value of the assets,asset, and therefore no loss has been recorded related to these assets. These assetsthis asset. Assets held for sale are included in the self-storage operations segment of the Company’s segment information.
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 $9,050, $14,349,$4,778, $2,258, and $21,133$6,614 for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. The remaining balance of the unamortized lease rights will be amortized over the next one yearseven to 4340 years. Accumulated amortization related to intangibles was $121,238$130,561 and $112,347$129,385 as of December 31, 20182021 and 2017,2020, respectively.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
4. PROPERTY ACQUISITIONS AND DISPOSITIONS
Store Acquisition
The following table shows the Company’s acquisitions of stores for the years ended December 31, 20182021 and 2017.2020. The table excludes purchases of raw land orand improvements made to existing assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consideration Paid | Total |
Quarter | Number of Stores | | Total | | Cash Paid | | Loan Assumed | Finance Lease Liability | Investments in Real Estate Ventures | Net Liabilities/ (Assets) Assumed | Value of OP Units Issued | | Real estate assets |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total 2021 | 74 | | $ | 1,344,575 | | | $ | 1,011,483 | | | $ | 20,028 | | $ | 26,998 | | $ | 5,383 | | $ | 4,293 | | $ | 276,390 | | | $ | 1,344,575 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total 2020 | 23 | | $ | 296,725 | | | $ | 254,111 | | | $ | — | | $ | 41,491 | | $ | — | | $ | 1,123 | | $ | — | | | $ | 296,725 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 2018 | 6 |
| $ | 74,852 |
| | $ | 74,868 |
| | $ | — |
| $ | — |
| $ | — |
| $ | (16 | ) | $ | — |
| — |
| $ | 74,852 |
|
Q3 2018 | 6 | | 74,694 |
| | 71,989 |
| | — |
| — |
| — |
| 2,705 |
| — |
| — |
| 74,694 |
|
Q2 2018 | 17 | | 237,284 |
| | 148,650 |
| | 87,500 |
| — |
| (1,024 | ) | 281 |
| 1,877 |
| 21,768 |
| 237,284 |
|
Q1 2018 | 5 | | 70,787 |
| | 70,171 |
| | — |
| — |
| 489 |
| 127 |
| — |
| — |
| 70,787 |
|
| 34 | (1) | $ | 457,617 |
| | $ | 365,678 |
| | $ | 87,500 |
| $ | — |
| $ | (535 | ) | $ | 3,097 |
| $ | 1,877 |
| 21,768 |
| $ | 457,617 |
|
| | | | | | | | | | | | | |
Q4 2017 | 37 |
| $ | 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 | (2) | $ | 627,462 |
| | $ | 574,913 |
| | $ | 24,055 |
| $ | 15 |
| $ | 12,957 |
| $ | 1,094 |
| $ | 14,428 |
| 362,628 |
| $ | 627,462 |
|
| | | | | | | | | | | | | |
(1)Store acquisitions during the year ended December 31, 2021 included the acquisition of 5 stores previously held in joint venture where the Company held a noncontrolling interest. The Company purchased its partner's equity interest in these joint ventures, and the properties owned by the joint ventures became wholly owned by the Company. In addition, store acquisitions include the acquisition of 2 stores that were subject to finance land leases. The right-of-use assets associated with these leases are included in real estate assets above.
(2)Store acquisitions during the year ended December 31, 2020 include the acquisition of 3 stores that were subject to finance land leases. The right-of-use assets associated with these leases are included in real estate assets above.
| |
(1) | Store acquisitions during the year ended December 31, 2018 include the acquisition of 15 stores previously held in joint ventures where the Company held a noncontrolling interest. The Company purchased its partners' remaining equity interests in the joint ventures, and the properties owned by the joint ventures became wholly owned by the Company. |
| |
(2) | Store acquisitions during the year 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. |
Store DisposalsDispositions
On AugustDecember 16, 2018,2021 the Company sold a store located in California16 stores that had been classified as held for sale for $40,235total cash consideration of $200,292. The Company recorded a gain of $73,854.
On March 1, 2021 the Company sold 16 stores that had been classified as held for sale to a newly established unconsolidated joint venture. The Company received $132,759 and maintained a 55% interest in cash.the new joint venture valued at $33,878. The Company recognized a gain of $63,477 related to the sale of these properties.
On December 18, 2020, the Company sold 4 stores located in Florida that had been classified as held for sale for a total sale price of $46,592. The Company recorded a gain on the sale of $30,671.$19,600.
On November 30, 2017,April 11, 2019, 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 on real estate transactions, earnout on 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 landstore 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, the Company completed the sale of an operating store located in Indiana that had been classified as held for sale for $4,447$11,272 in cash. The Company recognized norecorded a gain or loss related to this disposition.
On April 20, 2016, the Company completedon the sale of seven operating stores located in Ohio and Indiana that had been classified as held for sale for $17,555 in cash. The Company recognized a gain of $11,265 related to this disposition, which is included in Gain on real estate transactions, earnout on prior acquisitions and impairment of real estate on the Company's consolidated statements of operations.$1,205.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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 on real estate transactions, earnout on prior acquisitions and impairment of real estate on the Company's consolidated statements of operations.
Loss 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 stores 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 on real estate transactions, earnout on prior acquisitions and impairment of real estate on the Company's consolidated statements of operations for the year ended December 31, 2016.
5. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE VENTURESENTITIES
Investments in unconsolidated real estate venturesentities and cashCash distributions in unconsolidated real estate ventures consistrepresent the Company's interest in preferred stock of SmartStop Self Storage REIT, Inc. ("SmartStop") and the Company's noncontrolling interest in real estate joint ventures that own stores. The Company accounts for its investment in SmartStop preferred stock, which does not have a readily determinable fair value, at the transaction price less impairment, if any. The Company accounts for its investments in joint ventures using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which is allocated in accordance with the provisions of the following:applicable partnership or joint venture agreement.
|
| | | | | | | | | | | | |
| Number of Stores | Equity Ownership % | | Excess Profit % | | December 31, |
| 2018 | | 2017 |
WICNN JV LLC | 7 | 10% | | 25% | | $ | 26,885 |
| | $ | — |
|
VRS Self Storage, LLC | 16 | 45% | | 54% | | 18,281 |
| | 19,467 |
|
PRISA Self Storage LLC | 85 | 4% | | 4% | | 9,334 |
| | 9,638 |
|
Alan Jathoo JV LLC | 9 | 10% | | 10% | | 8,180 |
| | — |
|
Extra Space West Two LLC (1) | 5 | 5% | | 40% | | 3,818 |
| | 3,939 |
|
ESS Bristol Investments LLC | 7 | 10% | | 28% | | 2,331 |
| | 1,258 |
|
WCOT Self Storage LLC | — | 5% | | 20% | | — |
| | (357 | ) |
Extra Space West One LLC (1) | 7 | 5% | | 40% | | (1,038 | ) | | (900 | ) |
Extra Space Northern Properties Six LLC | 10 | 10% | | 35% | | (1,700 | ) | | (1,279 | ) |
Storage Portfolio II JV LLC | 36 | 10% | | 30% | | (4,233 | ) | | (3,140 | ) |
Storage Portfolio I LLC | 24 | 34% | | 49% | | (38,129 | ) | | 11,495 |
|
Other minority owned stores (17 joint ventures) | 23 | 10-50% | | 19-50% | | 56,400 |
| | 29,970 |
|
Net Investments in and Cash distributions in unconsolidated real estate ventures | 229 | | | | | $ | 80,129 |
| | $ | 70,091 |
|
| |
(1) | Subsequent to year end, the Company acquired its joint venture partner's interests in Extra Space West One LLC and Extra Space West Two LLC joint ventures. The 12 stores owned by these joint ventures became wholly-owned by the Company subsequent to this acquisition. The Company paid cash of $172,515 and assumed an existing loan of $17,157. |
In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that cash or profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess cash or profits, as applicable, than its equity interest.
The Company separately reports investments with net equity less than zero in Cash distributions in unconsolidated real estate ventures in the consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.
Net Investments in unconsolidated real estate entities and Cash distributions in unconsolidated real estate ventures consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stores | | Equity Ownership % | | Excess Profit % (1) | | December 31, |
| | 2021 | | 2020 |
PR EXR Self Storage, LLC | 5 | | 25% | | 40% | | $ | 59,393 | | | $ | 60,092 | |
WICNN JV LLC (2) | — | | 10% | | 35% | | — | | | 36,032 | |
VRS Self Storage, LLC | 16 | | 45% | | 54% | | (14,269) | | | 17,186 | |
ESS-CA TIVS JV LP (3) | 16 | | 55% | | 60% | | 32,288 | | | — | |
GFN JV, LLC (2) | — | | 10% | | 30% | | — | | | 18,397 | |
ESS-NYFL JV LP | 11 | | 16% | | 24% | | 11,796 | | | 12,211 | |
PRISA Self Storage LLC | 85 | | 4% | | 4% | | 8,792 | | | 8,815 | |
Alan Jathoo JV LLC | 9 | | 10% | | 10% | | 7,621 | | | 7,780 | |
Storage Portfolio IV JV LLC | 27 | | 10% | | 30% | | 40,174 | | | — | |
Storage Portfolio III JV LLC | 5 | | 10% | | 30% | | 5,596 | | | 5,726 | |
ESS Bristol Investments LLC | 8 | | 10% | | 30% | | 2,628 | | | 2,810 | |
Extra Space Northern Properties Six LLC | 10 | | 10% | | 35% | | (3,029) | | | (2,541) | |
Storage Portfolio II JV LLC | 36 | | 10% | | 30% | | (6,116) | | | (5,441) | |
Storage Portfolio I LLC | 24 | | 34% | | 49% | | (40,168) | | | (39,144) | |
PR II EXR JV LLC | 18 | | 25% | | 25% | | 70,403 | | | — | |
Other minority owned stores | 13 | | 10-50% | | 19-50% | | 18,635 | | | 28,395 | |
SmartStop Self Storage REIT, Inc. Preferred Stock (4) | n/a | | n/a | | n/a | | 200,000 | | | 200,000 | |
Net Investments in and Cash distributions in unconsolidated real estate entities | 283 | | | | | | $ | 393,744 | | | $ | 350,318 | |
(1)Includes pro-rata equity ownership share and promoted interest.
(2)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.
(3)The Company sold 16 operating stores to this newly formed joint venture in March 2021. The Company received cash of $132,759 and an interest in the new joint venture valued at $33,556. This joint venture is unconsolidated and the Company accounts for its investment under the equity method of accounting as the Company does not have voting control but does exercise significant influence over the joint venture.
(4)The Company invested in shares of convertible preferred stock of SmartStop. The dividend rate for the preferred shares is 6.25% per annum, subject to increase after five years. The preferred shares are generally not redeemable for five years, except in the case of a change of control or initial listing of SmartStop. Dividend income from this investment is included on the equity in earnings and dividend income from unconsolidated real estate entities line on the Company's consolidated statement of operations.
In June 2021, the Company sold its interest in 2 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 2 unconsolidated joint ventures.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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, 2018,2021, 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 severaltwo new unconsolidated real estate ventures.ventures with a total of 45 stores and a total investment of $109,583 during the year ended December 31, 2021. 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 Stores | | Equity ownership % | | Investment in new stores |
For the Year Ended December 31, 2018(1) | 28 | | 10.0% -50.0% | | $ | 63,723 |
|
For the Year Ended December 31, 2017 | 39 | | 10.0% - 25.0% | | $ | 13,341 |
|
For the Year Ended December 31, 2016 | 8 | | 20.0% - 50.0% | | $ | 26,387 |
|
| |
(1) | Included in the new unconsolidated joint ventures for the year ended December 31, 2018 were two new joint ventures (WICNN JV LLC and GFV JV, LLC), in which the Company has $22,734 and $8,720 of preferred equity, respectively. The Company earns an 8.0% return on its preferred equity in these joint ventures, which has priority over other distributions. |
On April 30, 2018,In January 2019, the Company acquiredpurchased its partner's interest in the WCOT Self Storage LLC joint venture. The Company paid cash of $115,797 and assumed a loan of $87,500. The 14 properties owned by this joint venture became wholly-owned properties of the Company subsequent to this acquisition.
On November 17, 2016, the Company acquired 11 stores from its ESS WCOT LLC joint venture ("WCOT") in a step acquisition. The Company owned 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 onin the Company's consolidated statementsExtra Space West One LLC and Extra Space West Two LLC joint ventures, which owned a total of operations.12 stores. The fair valueCompany paid $172,505 of cash to acquire the equity interests, and subsequent to this acquisition, the Company owned 100.0% of the stores purchased was recorded at $161,072.
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 131ventures 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
Equity in earnings ofand dividend income from 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.
On September 16, 2016, subsequent to its acquisition of 23 properties as outlined above, 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 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.
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 these joint ventures at the higher “excess profit participation”
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
percentage 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.
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.
Equity in earnings of unconsolidated real estate venturesentities consists of the following:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Equity in earnings of WICNN JV LLC | $ | 622 |
| | $ | — |
| | $ | — |
|
Equity in earnings of VRS Self Storage, LLC | 3,640 |
| | 3,562 |
| | 2,919 |
|
Equity in earnings of PRISA Self Storage LLC | 2,338 |
| | 2,430 |
| | 1,912 |
|
Equity in earnings of Alan Jathoo JV LLC | (12 | ) | | — |
| | — |
|
Equity in earnings of Extra Space West Two LLC | 1,042 |
| | 1,210 |
| | 174 |
|
Equity in earnings of ESS Bristol Investments LLC | (152 | ) | | — |
| | — |
|
Equity in earnings of Extra Space West One LLC | 2,526 |
| | 2,502 |
| | 2,269 |
|
Equity in earnings of WCOT Self Storage LLC | 359 |
| | 1,033 |
| | 614 |
|
Equity in earnings of Extra Space Northern Properties Six LLC | 1,014 |
| | 918 |
| | 823 |
|
Equity in earnings of Storage Portfolio I LLC | 1,886 |
| | 2,684 |
| | 2,380 |
|
Equity in earnings of Storage Portfolio II JV LLC | 79 |
| | 33 |
| | — |
|
Equity in earnings of other minority owned stores | 1,110 |
| | 959 |
| | 1,804 |
|
| $ | 14,452 |
| | $ | 15,331 |
| | $ | 12,895 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Dividend income from SmartStop preferred stock | $ | 12,500 | | | $ | 9,968 | | | $ | 1,636 | |
Equity in earnings of PRISA Self Storage LLC | 2,719 | | | 2,229 | | | 2,327 | |
Equity in earnings of Storage Portfolio II JV LLC | 1,802 | | | 559 | | | 291 | |
Equity in earnings of Storage Portfolio I LLC | 2,833 | | | 1,636 | | | 1,809 | |
Equity in earnings of VRS Self Storage, LLC | 4,352 | | | 3,509 | | | 3,583 | |
Equity in earnings of ESS-NYFL JV LLC | 427 | | | (331) | | | (96) | |
Equity in earnings of WICNN JV LLC | 1,050 | | | 1,878 | | | 1,373 | |
Equity in earnings of Extra Space Northern Properties Six LLC | 1,363 | | | 1,088 | | | 1,091 | |
Equity in earnings of Alan Jathoo JV LLC | 270 | | | 57 | | | (47) | |
Equity in earnings of Bristol Investments LLC | 177 | | | (67) | | | (262) | |
Equity in earnings of GFN JV, LLC | 546 | | | 788 | | | 450 | |
Equity in earnings of PR EXR Self Storage, LLC | 491 | | | (211) | | | (443) | |
Equity in earnings of Storage Portfolio IV JV LLC | 112 | | | — | | | — | |
Equity in earnings of ESS-CA TIVS JV LP | 1,274 | | | — | | | — | |
Equity in earnings of PR II EXR JV LLC | (8) | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
Equity in earnings of other minority owned stores | 2,450 | | | 1,258 | | | (438) | |
| $ | 32,358 | | | $ | 22,361 | | | $ | 11,274 | |
Equity in earnings of certain of our joint ventures includes the amortization of the Company’s excess purchase price of $27,867$24,721 of these equity investments over its original basis. The excess basis is amortized over 40forty 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, 2021, 2020 and 2019 were $17,619, $15,657 and $14,624, respectively.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
6. INVESTMENTS IN DEBT SECURITIES AND NOTES PAYABLE AND REVOLVING LINES OF CREDITRECEIVABLE
Investments in debt securities and notes receivable consists of the Company's investment in mandatorily redeemable preferred stock of Jernigan Capital, Inc. ("JCAP") in connection with JCAP's acquisition by affiliates of NexPoint Advisors, L.P. ("NexPoint Investment") and receivables due to the Company under its bridge loan program. Information about these balances is as follows: | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Debt securities - NexPoint Series A Preferred Stock | $ | 200,000 | | | $ | 200,000 | |
Debt securities - NexPoint Series B Preferred Stock | 100,000 | | | 100,000 | |
Notes Receivable-Bridge Loans | 279,042 | | | 187,368 | |
Notes Receivable-Senior Mezzanine Loan, net | 102,079 | | | 101,553 | |
Dividends Receivable | 38,066 | | | 4,889 | |
| $ | 719,187 | | | $ | 593,810 | |
| | | |
In November 2020, the Company invested $300,000 in the preferred stock of JCAP in connection with the acquisition of JCAP by affiliates of NexPoint Advisors, L.P. This investment consists of 200,000 Series A Preferred Shares valued at total of $200,000, and 100,000 Series B Preferred Shares valued at a total of $100,000. The JCAP preferred stock is mandatorily redeemable after five years, with 2 one-year extension options. NexPoint may redeem the Preferred Shares at any time, subject to certain prepayment penalties. The Company accounts for the JCAP preferred stock as a held to maturity debt security at amortized cost. The Series A Preferred Shares and the Series B Preferred Shares have initial dividend rates of 10.0% and 12.0%, respectively. If the investment isn't retired after five years, the preferred dividends increase annually.
In July 2020, the Company purchased a senior mezzanine note receivable with a principal amount of $103,000. This note receivable bears interest at 5.5%, matures in December 2023 and is collateralized through an entity interest in which it or its subsidiaries wholly own 62 storage facilities. The Company paid cash of $101,142 for the note receivable and accounts for the discount at amortized cost. The discount is being amortized over the term of the note receivable. In February 2022, the Company sold this note receivable to a junior mezzanine lender, which exercised its right to buy the Company's position for the full principal balance plus interest due.
The Company provides bridge loan financing to third-party self-storage operators. These notes receivable consist of primary mortgage and mezzanine loans receivable, collateralized by self-storage properties. These notes receivable typically have a term of three years with 2 one year extensions, and have variable interest rates. The Company intends to sell the majority of the mortgage receivables and keep the mezzanine receivables to maturity. During the year ended December 31, 2021, the Company sold a total principal amount of $172,566 of its mortgage bridge loans receivable to third parties for a total of $172,002 in cash and closed on $317,482 in new mortgage and mezzanine bridge loan.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
7. DEBT
In May 2021, the Operating Partnership executed its initial public bond issuance by selling $450.0 million principal amount of 2.550% Senior Notes due 2031 (the "Notes Due 2031"). Interest on the Notes Due 2031 is paid semi-annually in arrears on June 1 and December 1 of each year. The Notes Due 2031 will mature on June 1, 2031, and the Operating Partnership may redeem the Notes Due 2031 at its option and sole discretion at any time prior to March 31, 2031 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.
In September 2021, the Operating Partnership executed a public bond issuance by selling $600.0 million principal amount of 2.350% Senior Notes due 2032 (the "Notes Due 2032"). Interest on the Notes Due 2032 is paid semi-annually in arrears on March 15 and September 15 of each year. The Notes Due 2032 will mature on March 15, 2032, and the Operating Partnership may redeem the Notes Due 2032 at its option and sole discretion at any time prior to March 15, 2032 for cash equal to the outstanding principal amount plus the present value of the remaining scheduled interest payments, plus any accrued but unpaid interest.
The Operating Partner may redeem the Notes Due 2031 and/or the Notes Due in 2032 in whole at any time or in part from time to time, at the Operating Partnership’s option and sole discretion, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed and (ii) a make-whole premium calculated in accordance with the indenture governing the notes, plus, in each case, accrued and unpaid interest thereon to, but not including, the applicable redemption date. Notwithstanding the foregoing, on or after the date three months prior to the maturity date of the applicable notes, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date.
Certain events are considered events of default, which may result in the accelerated maturity of the Notes Due 2031 and/or the Notes Due 2032, including, among other things, a default for 30 days in the payment of any installment of interest under the notes or a default in the payment of the principal amount or redemption price due with respect to the notes, when the same become due and payable.
The Notes Due 2031 and the Notes Due 2032 are unsecured, and are fully and unconditionally guaranteed by the Company, ESS Holdings Business Trust I, and ESS Holdings Business Trust II (the "Guarantors," and together with the Operating Partnership, the "Obligated Group"), on a joint and several basis. The guarantee of the Notes Due 2031 and the Notes Due 2032 will be a senior unsecured obligation of each Guarantor. The Guarantors have no material operations separate from the operation of the Operating Partnership and no material assets, other than their respective investments directly or indirectly in the Operating Partnership, and therefore the assets, liabilities, and results of operations of the Obligated Group are not materially different than those reported in the Company's financial statements.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
The components of notes payableterm debt are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Term Debt | December 31, 2021 | | December 31, 2020 | | Fixed Rate | | Variable Rate (2) | | | | Maturity Dates |
Secured fixed-rate (1) | $ | 930,830 | | | $ | 1,112,220 | | | 2.46% - 4.23% | | | | | | June 2022 - February 2030 |
Secured variable-rate (1) | 392,679 | | | 1,081,551 | | | | | 1.10% - 2.45% | | | | April 2022 - May 2027 |
Unsecured fixed-rate | 3,575,000 | | | 2,525,000 | | | 2.02% - 4.39% | | | | | | February 2024 - March 2032 |
Unsecured variable-rate | 550,000 | | | 100,000 | | | | | 1.05% | | | | February 2024 - October 2026 |
Total | 5,448,509 | | | 4,818,771 | | | | | | | | | |
| | | | | | | | | | | |
Less: Unamortized debt issuance costs | (25,762) | | | (21,468) | | | | | | | | | |
Total | $ | 5,422,747 | | | $ | 4,797,303 | | | | | | | | | |
| | | | | | | | | | | |
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents. |
(2) Basis rate is 30-day USD LIBOR | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
Notes Payable | December 31, 2018 | | December 31, 2017 | | Fixed Rate | | Variable Rate | | Basis Rate (2) | | Maturity Dates |
Secured fixed rate notes payable (1) | $ | 2,032,414 |
| | $ | 2,095,495 |
| | 2.5% - 6.0% | | | | | | February 2019 - February 2030 |
Secured variable rate notes payable (1) | 834,735 |
| | 717,979 |
| | | | 3.9% - 4.1% | | Libor plus 1.4% - 1.6% | | May 2019 - August 2028 |
Unsecured fixed rate notes payable | 990,000 |
| | 600,000 |
| | 3.4% - 4.4% | | | | | | January 2024 - July 2028 |
Unsecured variable rate notes payable | 310,000 |
| | 350,000 |
| | | | 3.8% | | Libor plus 1.3% | | October 2023 - January 2024 |
Total | 4,167,149 |
| | 3,763,474 |
| | | | | | | | |
Less: unamortized debt issuance costs | (29,936 | ) | | (24,977 | ) | | | | | | | | |
Total | $ | 4,137,213 |
| | $ | 3,738,497 |
| | | | | | | | |
| | | | | | | | | | | |
(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents. |
(2) 30-day USD LIBOR | | | | | | | | | | | |
OnAt December 7, 2018,31, 2021, the Company amendedterms of the credit agreement originally entered into on October 14, 2016Second Amended and Restated Credit Agreement dated June 22, 2021 (the "Credit Agreement"). are as follows:
| | | | | | | | | | | | | | |
| | Debt Capacity | | Maturity Date |
Revolving Credit Facility | | $ | 1,250,000 | | | June 2025 |
Tranche 1 Term Loan Facility (1) | | 400,000 | | | January 2027 |
Tranche 2 Term Loan Facility (1) | | 425,000 | | | October 2026 |
Tranche 3 Term Loan Facility (1) | | 245,000 | | | January 2025 |
Tranche 4 Term Loan Facility (1) | | 255,000 | | | June 2026 |
Tranche 5 Term Loan Facility (1) | | 425,000 | | | February 2024 |
| | $ | 3,000,000 | | | |
(1) The amendedterm loan amounts have been fully drawn as of December 31, 2021.
Pursuant to the terms of the Credit Agreement, provides for aggregate borrowings of up to $1.35 billion consisting of a senior unsecured four-year revolving credit facility of $650 million maturing January 2023 (the “Revolving Credit Facility”), a senior unsecured loan of $480 million maturing January 2024 (the Tranche 1 Term Loan Facility”) and a senior unsecured loan of $220 million maturing October 2023 (the “Tranche 2 Term Loan Facility” and, together with the Revolving Credit Facility and the Tranche 1 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 $2.0 billion, and extend the term of the Revolving Credit Facilityrevolving credit facility for up to two2 additional periods of six months each, after satisfying certain conditions.
Amounts
As of December 31, 2021, amounts outstanding under the Credit Facility bearrevolving credit facility bore interest at floating rates, at the Company’s option, equal to either (i) LIBOR 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 Eurodollar rate plus 1.00%. ThePer the Credit Agreement, the applicable Eurodollar rate margin will rangeand applicable base rate margin are based on the Company’s achieved debt rating, with the Eurodollar rate margin ranging from 1.05%0.7% to 1.7%2.25% per annum and the applicable base rate margin will rangeranging from 0.05%0.00% to 0.7%0.60% 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 0.75% to 1.65% per annum and the applicable base rate margin will range from 0.0% to 0.7% 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, 2018,2021, the Company was in compliance with all of its financial covenants.
The following table summarizes the scheduled maturities of notes payable, excluding available extensions, at December 31, 2018:
|
| | | |
| |
2019 | $ | 208,742 |
|
2020 | 699,522 |
|
2021 | 228,015 |
|
2022 | 294,948 |
|
2023 | 915,646 |
|
Thereafter | 1,820,276 |
|
| $ | 4,167,149 |
|
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 forThe following table summarizes the secured loans. Of the Company’s $4,167,149 principal amountscheduled maturities of notes payable outstandingterm debt, excluding available extensions, at December 31, 2018, $2,601,960 was recourse due to guarantees or other security provisions.2021: | | | | | |
| |
2022 | $ | 311,412 | |
2023 | 486,688 | |
2024 | 496,407 | |
2025 | 447,266 | |
2026 | 802,104 | |
Thereafter | 2,904,632 | |
| $ | 5,448,509 | |
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, 2021 | | | | | | |
Revolving Lines of Credit | Amount Drawn | | Capacity | | Interest Rate | | | | Maturity | | Basis Rate (1) |
Credit Line 1 (2) | $ | 55,000 | | | $ | 140,000 | | | 1.6% | | | | 7/1/2023 | | LIBOR plus 1.45% |
Credit Line 2 (3)(4) | 480,000 | | | 1,250,000 | | | 1.0% | | | | 6/20/2025 | | LIBOR plus 0.85% |
| | | | | | | | | | | |
| $ | 535,000 | | | $ | 1,390,000 | | | | | | | | | |
(1) 30-day USD LIBOR |
(2) Secured by mortgages on certain real estate assets. NaN two-year extension available. |
(3) Unsecured. NaN six-month extensions available. |
(4) Basis Rate as of December 31, 2021. Rate is subject to change based on our investment grade rating. |
|
|
| | | | | | | | | | | | | | | |
| As of December 31, 2018 | | | | | | |
Revolving Lines of Credit | Amount Drawn | | Capacity | | Interest Rate | | Origination Date | | Maturity | | Basis Rate (1) |
Credit Line 1 (2) | $ | 81,000 |
| | $ | 140,000 |
| | 4.0% | | 6/4/2010 | | 7/1/2021 | | LIBOR plus 1.5% |
Credit Line 2 (3)(4) | — |
| | 650,000 |
| | 3.6% | | 12/7/2018 | | 1/29/2023 | | LIBOR plus 1.1% |
| $ | 81,000 |
| | $ | 790,000 |
| | | | | | | | |
(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, 2018. Rate is subject to change based on our consolidated leverage ratio. |
7.8. 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, 2018, 20172021, 2020 and 2016, 2019,
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During 2019,2022, the Company estimates that $17,439$28,070 will be reclassified as a decreasean increase to interest expense.
The following table summarizes the terms of the Company’s 2820 derivative financial instruments, which have a total combined notional amount of $2,231,162$1,982,632 as of December 31, 2018:2021:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Hedge Product | | Range of Notional Amounts | | Strike | | Effective Dates | | Maturity Dates |
Swap Agreements | | $4,87332,847 - $267,431$231,972 | | 1.13%1.07% - 3.87%2.67% | | 2/29/20127/8/2015 - 12/31/20183/30/2020 | | 2/28/20193/31/2022 - 7/12/20256/29/2026 |
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, 2018 | | December 31, 2017 |
Derivatives designated as hedging instruments: | Fair Value |
Other assets | $ | 42,324 |
| | $ | 38,365 |
|
Other liabilities | $ | 2,131 |
| | $ | 9 |
|
| | | | | | | | | | | |
| Asset / Liability Derivatives |
Derivatives designated as hedging instruments: | December 31, 2021 | | December 31, 2020 |
Other assets | $ | 271 | | | $ | — | |
Other liabilities | $ | 39,569 | | | $ | 98,325 | |
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 | | 2018 | | 2017 | | 2018 | | 2017 | | 2016 |
Swap Agreements | | $ | 9,889 |
| | $ | 8,499 |
| | Interest expense | | $ | 8,258 |
| | $ | (8,853 | ) | | $ | (18,800 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | 2021 | | 2020 | | 2021 | | 2020 | | 2019 |
Swap Agreements | | $ | 23,580 | | | $ | (100,352) | | | Interest expense | | $ | (35,764) | | | $ | (26,794) | | | $ | 12,322 | |
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, 2018,2021, 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 $1,785.$41,331. As of December 31, 2018,2021, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2018,2021, it could have been required to cash settle its obligations under these agreements at their termination value of $2,422.$41,331.
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, 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, Trust III entered into an interest rate swap that fixed the interest rate to be paid at 5.0% per annum and matured July 11, 2018. The interest on Note 3, payable quarterly, was be used by Trust III to pay dividends on the trust preferred securities. The trust preferred securities became redeemable by 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, 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
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
9. NOTES PAYABLE TO TRUSTS
loaned in the form of a note to the
The Operating Partnership (“Note 2”). Note 2 had a fixed rate of 6.7% through June 30, 2010, and then was payable at a variable rate equal to3 wholly-owned unconsolidated subsidiaries (“Trust", “Trust II”, “Trust III,” together, the three month LIBOR plus 2.4% per annum. Effective July 11, 2011, Trust II entered into an interest rate swap"Trusts") that fixed the interest rate to be paid at 5.0% per annum and matured July 11, 2018. The interest on Note 2, payable quarterly, was be used by Trust II to pay dividends on the trust preferred securities. Thehad issued trust preferred securities became redeemable by Trust II with no prepayment premium on June 30, 2010.
During April 2005, ESS Statutory Trust I (the “Trust”), a newly formed Delaware statutory trustto third parties 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, Trust issued 1,083 of Trust common securities to the Operating Partnership for a purchase price of $1,083. On April 8, 2005, theduring 2005. The Trusts loaned proceeds from the sale of the trust preferred and common securities of $36,083 were loanedto the Operating Partnership in the form of a note to the Operating Partnership (the “Note”).notes. The Note has a variable rate equal to the three month LIBOR plus 2.3% per annum. Effective June 30, 2010, Trust entered into an interest rate swap that fixed the interest rate to be paid at 5.1% per annum and matured on June 30, 2018. The interest on the Note, payable quarterly, will be used by Trust to pay dividends on the trust preferred securities. The trust preferred securities are redeemable by Trust with no prepayment premium.
Trust, Trust II and Trust III (together, the “Trusts”) areTrusts were VIEs because the holders of the equity investment at risk (the trust(that is the Trusts' preferred securities) dodid not have the power to direct the activities of the entities that most significantly affectaffected the entities’ economic performance because ofdue to 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 iswas not considered to be an equity investment at risk. The Operating Partnership’s investment in the Trusts iswas 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 bewas not the primary beneficiary of the Trusts. Since the Company iswas not the primary beneficiary of the Trusts, they havewere not been consolidated. A debt obligation has beenwas recorded in the form of notes for the proceeds as discussed above, for the proceeds, which arewere owed to the Trusts by the Company.Trusts. The Company hashad also recordedincluded its investment in the Trusts’ common securities asin other assets.assets on the Company's consolidated balance sheets.
During the year ended December 31, 2018, the Company repaid a total principal amount of $88,662 of the notes payable to Trusts, representing all of the notes payable to Trust III, all of the notes payable to Trust II, and all but $30,928 of the notes payable to Trust. The Trusts used the proceeds from these repayments to redeem their preferred and common securities. In January 2019, the Company repaid the remaining balance of $30,928 of notes payable to Trust.
TheDuring the time the notes were outstanding, the Company hasdid not providedprovide 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 iswas 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 iswas equal to the notes payable that the Trusts oweowed 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 $0 and $2,146 as of December 31, 2018 and 2017, 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, 2018:
|
| | | | | | | | | | | | | | | |
| Notes payable to Trusts | | Investment Balance | | Maximum exposure to loss | | Difference |
Trust | $ | 30,928 |
| | $ | 928 |
| | $ | 30,000 |
| | $ | — |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
9.10. EXCHANGEABLE SENIOR NOTES
In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs are beingwere amortized as an adjustment to interest expense over five years, which representsrepresented the estimated term based on the first available redemption date, and arewere included in exchangeable senior notes, net, in the consolidated balance sheets. The 2015 Notes arewere general unsecured senior obligations of the Operating Partnership and arewere fully guaranteed by the Company. Interest iswas payable on April 1 and October 1 of each year beginning April 1, 2016, until the maturity date of October 1, 2035.year. The Notes bearbore interest at 3.125% per annum and containcontained an exchange settlement feature, which providesprovided that the 2015 Notes may,could, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2015 Notes as of December 31, 2018 was approximately 10.78 shares of the Company’s common stock per $1,000 principal amount of the 2015 Notes.
The Operating Partnership maycould 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 maycould 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 havehad 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 hashad 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.
Additionally, the 2015 Notes can becould have been exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company iswas 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 did not exceed 130% of the exchange price for the required time period for theCompany redeemed all outstanding 2015 Notes during the quarter ended December 31, 2018.
On June 21, 2013, the Operating Partnership issued $250,000 of its 2013 Notes at a 1.5% discount, or $3,750. Costs incurred to issue the 2013 Notes were approximately $1,672. These costs were amortized as an adjustment to interest expense over five years, which represented the estimated term based on the first available redemption date. The 2013 Notes bore interest at 2.375% per annum and contained an exchange settlement feature. The Operating Partnership redeemed all remaining outstanding 2013 Notes on July 5, 2018.November 2, 2020.
GAAP requires entities with convertible debt instruments that may be settled entirely or partially in cash upon conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The Company therefore accountsaccounted for the liability and equity component of the 2015 Notes separately. The equity components arewere included in paid-in capital in stockholders’ equity in the consolidated balance sheets, and the value of the
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
equity components arewere treated as original issue discount for purposes of accounting for the debt components. The discount is beingwas amortized as interest expense over the remaining period of the debt through its first redemption date, October 1, 2020 for the 2015 Notes. The effective interest rate on the liability components of the 2015 Notes iswas 4.0%, which approximates the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.
Information about the 2013 Notes and 2015 Notes (collectively, the "Notes"), including the total carrying amounts of the equity components, the principal amounts of the liability components, their unamortized discounts and net carrying amount were as follows for the periods indicated:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
Carrying amount of equity component - 2015 Notes | $ | 22,597 |
| | $ | 22,597 |
|
Carrying amount of equity component - 2013 Notes | — |
| | — |
|
Carrying amount of equity components | $ | 22,597 |
| | $ | 22,597 |
|
Principal amount of liability component - 2015 Notes | $ | 575,000 |
| | $ | 575,000 |
|
Principal amount of liability component - 2013 Notes | — |
| | 49,259 |
|
Unamortized discount - equity component - 2015 Notes | (8,417 | ) | | (12,974 | ) |
Unamortized discount - equity component - 2013 Notes | — |
| | (315 | ) |
Unamortized cash discount - 2013 Notes | — |
| | (74 | ) |
Unamortized debt issuance costs | (4,209 | ) | | (6,620 | ) |
Net carrying amount of liability components | $ | 562,374 |
| | $ | 604,276 |
|
The amount of interest cost recognized relating to the contractual interest rate and the amortization of the discount on the liability component for the Notes were as follows for the periods indicated: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Contractual interest | $ | — | | | $ | 13,476 | | | $ | 17,968 | |
Amortization of discount | — | | | 3,675 | | | 4,742 | |
Total interest expense recognized | $ | — | | | $ | 17,151 | | | $ | 22,710 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Contractual interest | $ | 18,106 |
| | $ | 19,303 |
| | $ | 19,483 |
|
Amortization of discount | 4,687 |
| | 5,103 |
| | 4,980 |
|
Total interest expense recognized | $ | 22,793 |
| | $ | 24,406 |
| | $ | 24,463 |
|
Repurchase of 20132015 Notes
DuringOn October 1, 2020, the year ended December 31, 2018, the Company repurchased a totalholders of $71,513 principal amount of $49,259 of the 2013
2015 Notes which represented all of the remaining principal amount outstanding. The Company paid cash of $80,270 for the total of
the principal amount and the exchange value in excess of the principal amount.
During the year ended December 31, 2017, the Company repurchased a total principal amount of $13,911 of the 2013exchanged their 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 the year ended December 31, 2016, the Company repurchased a total principal amount of $22,194 of the 2013 Notes. The Company paid cash$71,513 for the principal amount and issued a total of 148,940124,819 shares of common stock valued at $13,066with a value of $13,495 for the exchange value in excess of the principal amount. On November 2, 2020, the holders of an additional $503,432 principal amount of the 2015 Notes exchanged their Notes. The Company paid cash of $503,487 for the principal amount and issued 1,198,962 shares of common stock with a value of $138,900 for the exchange value in excess of the principal amount. Also on November 2, 2020, the Company redeemed the remaining $55 of outstanding principal amount of the 2015 Notes for cash.
The Company allocated the value of the consideration paid to repurchase the 2013 Notes and the 2015 Notes (1) to the extinguishment of the liability component and (2) to the reacquisition of the equity component. The amount allocated to the extinguishment of the liability component is equal to the fair value of that component immediately prior to extinguishment. The difference between the consideration attributed to the extinguishment of the liability component and the sum of (a) the net carrying amount of the repurchased liability component, and (b) the related unamortized debt issuance costs, is recognized as a gain on debt extinguishment. The remaining settlement consideration is allocated to the reacquisition of the equity component of the repurchased 2013 Notes and 2015 Notes and recognized as a reduction of stockholders’ equity.
Information about the repurchases is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Principal amount repurchased | $ | — | | | $ | 575,000 | | | $ | — | |
| | | | | |
Amount allocated to: | | | | | |
Extinguishment of liability component | $ | — | | | $ | 575,000 | | | $ | — | |
Reacquisition of equity component | — | | | — | | | — | |
Total consideration paid for repurchase | $ | — | | | $ | 575,000 | | | $ | — | |
Exchangeable senior notes repurchased | $ | — | | | $ | 575,000 | | | $ | — | |
Extinguishment of liability component | — | | | (575,000) | | | — | |
Discount on exchangeable senior notes | — | | | — | | | — | |
Related debt issuance costs | — | | | — | | | — | |
Gain/(loss) on repurchase | $ | — | | | $ | — | | | $ | — | |
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, |
| 2018 | | 2017 | | 2016 |
Principal amount repurchased | $ | 49,259 |
| | $ | 13,911 |
| | $ | 22,194 |
|
| | | | | |
Amount allocated to: | | | | | |
Extinguishment of liability component | $ | 49,019 |
| | $ | 13,692 |
| | $ | 21,363 |
|
Reacquisition of equity component | 31,251 |
| | 6,350 |
| | 13,898 |
|
Total consideration paid for repurchase | $ | 80,270 |
| | $ | 20,042 |
| | $ | 35,261 |
|
Exchangeable senior notes repurchased | $ | 49,259 |
| | $ | 13,911 |
| | $ | 22,194 |
|
Extinguishment of liability component | (49,019 | ) | | (13,692 | ) | | (21,363 | ) |
Discount on exchangeable senior notes | (230 | ) | | (184 | ) | | (788 | ) |
Related debt issuance costs | (10 | ) | | (35 | ) | | (43 | ) |
Gain/(loss) on repurchase | $ | — |
| | $ | — |
| | $ | — |
|
10. RELATED PARTY AND AFFILIATED REAL ESTATE JOINT VENTURE TRANSACTIONS
The Company provides management services to certain joint ventures for a fee. Management fee revenues for related party and affiliated real estate joint ventures for the years ended December 31, 2018, 2017 and 2016 were $14,123, $12,650 and $16,066, 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, 2018, 127,103,7502021, 133,922,305 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 one1 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.
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, 2018,8, 2021, the Company sold 933,789585,685 shares of common stock under its prior "at the market" equity program at an average sales price of $97.93$115.90 per share resulting in net proceeds of $90,531. At December 31, 2018, the Company had $257,929 available for issuance under the current equity distribution agreements.$66,617.
During July 2016,On March 23, 2021, the Company sold 550,0001,600,000 shares of its common stock under the current “at the market” equity programin a registered offering structured as a bought deal at an average salesa price of $92.04$129.13 per share resulting in net proceeds of $50,062.$206,572.
From January 1, 2016, through May 6, 2016,During the year ended December 31, 2020, the Company sold 831,300899,048 shares of common stock under the previous “at the market” equity program at an average sales price of $89.66$116.42 per share, resulting in net proceeds of $73,360.$103,468.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)In November 2017, the Company's board of directors authorized a three-year share repurchase program to allow for the repurchase of shares with an aggregate value up to $400,000. During the year ended December 31, 2020, the Company repurchased 826,797 shares at an average price of $82.09 per share, paying a total of $67,873. On October 15, 2020, the Company's board of directors authorized a new share repurchase program allowing for the repurchase of shares with an aggregate value up to $400,000. No shares were repurchased during the year ended December 31, 2021.
Amounts in thousands, except store and share data, unless otherwise stated
12. NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS
Classification of Noncontrolling Interests
GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.
The Company has evaluated the terms of the Operating Partnership’s preferred units and classifies the noncontrolling interest represented by such preferred units as stockholders’ equity in the accompanying consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.
At December 31, 20182021 and 2017,2020, the noncontrolling interests represented by the Preferred OP Units qualified for classification as permanent equity on the Company's consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. NoncontrollingAs of December 31, 2021 and 2020, noncontrolling interests in Preferred OP Units were presented net of notes receivable from preferredPreferred Operating Partnership unit holders of $108,644 and $120,230$100,000 as of December 31, 20182021 and 2017,2020, 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:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Series A Units | $ | 15,606 | | | $ | 13,788 | |
Series B Units | 38,068 | | | 40,902 | |
Series D Units | 205,436 | | | 117,362 | |
| $ | 259,110 | | | $ | 172,052 | |
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 which represents 875,480 Series A Units. On April 18, 2017, the holder of the 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.
Series B Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series B Units. The Series B Units rank junior to the Series A Units, on parity with the Series C Units and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.
The Series B Units were issued in 2013 and 2014 and have a liquidation value of $25.00 per unit for a current fixed liquidation value of $41,902$38,068 which represents 1,676,0871,522,727 Series B Units. Holders of the Series B Units receive distributions at an annual rate of 6.0%. These distributions are cumulative. The Series B Units 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
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
shares of its common stock. The
On August 31, 2021, 113,360 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 interestswere redeemed for 15,265 shares of the Operating Partnership with respect to distributions and liquidation.common stock.
Series C Convertible Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series C Units. The Series C Units rank 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.
The Series C Units were issued in 2013 and 2014 and havehad a liquidation value of $42.10 per unit for a current fixed liquidation value of $12,462 which represents 296,020 Series C Units. 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.unit. The Series C Units became redeemable at the option of the holder one year from the date of issuance, which redemption obligation maycould be satisfied at the Company’s option in cash or shares of its common stock. The Series C Units also became 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 notesnote receivable, which arewas collateralized by the Series C Units, bearbears interest at 5.0% and maturematures on December 15, 2024. The Series C Units arewere shown on the balance sheet net of the loan because the borrower under the loan receivable iswas also the holder of the Series C Units.
On December 1, 2018, certain holders of the Series C Units converted their Series C Units into common OP Units, with a total of 407,996 Series C Units being converted into a total of 373,113 common OP Units. As part of this conversion,On April 25, 2019, the holders of theremaining
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
296,020 Series C Units agreed to pledge the commonwere converted into 270,709 OP Units received in the conversion as collateral on the loan receivable to replace the Series C Units that were converted. As of December 31, 2018, the totalUnits. The remaining outstanding balance of the loan receivable was $19,735, of which $8,644$1,900 and $2,311 is shown as a reduction of the noncontrolling interests related to the Series C Units and $11,091 is shown as a reduction of the noncontrolling interests related to the common OP Units on the Company's consolidated balance sheets.as of December 31, 2021 and December 31, 2020, respectively. See footnote 13 for further discussion of noncontrolling interests.
Series D Redeemable Preferred Units
The Partnership Agreement provides for the designation and issuance of the Series D Units. The Series D Units rank junior to the Series A Units, on parity with the Series B Units and Series C Units, and senior to all other partnership interest of the Operating Partnership with respect to distributions and liquidation.
The Series D Units have 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$205,435 which represents 3,682,5218,217,422 Series D Units. Holders of the Series D Units receive distributions at an annual rate between 3.0% and 5.0%. These distributions are cumulative. The Series D Units 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.
The Series D Units have been issued at various times from 2014 to 2021. During the year ended December 31, 2021, the Operating Partnership issued a total of 3,522,937 Series D Units valued at $88,073 in conjunction with store acquisitions. | |
13. | NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS |
13. NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS
Noncontrolling interest in Operating Partnership
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
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 91.0%93.9% majority ownership interest thereinin the Operating Partnership as of December 31, 2018.2021. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 9.0%6.1% are held by certain former owners of assets acquired by the Operating Partnership. As of December 31,2021 and December 31, 2020, the noncontrolling interests in the Operating Partnership are shown on the balance sheet net of notes receivable of $1,900 and $2,311, 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-one1-for-one basis, subject to anti-dilution adjustments provided in the Operating Partnership agreement. TheAs of December 31, 2021, the ten-day average closing stock price at December 31, 2018, was $91.64$220.58 and there were 5,994,2516,528,436 OP Units outstanding.
Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on December 31, 20182021 and the Company elected to pay the OP Unit holders cash, the Company would have paid $549,313$1,440,042 in cash consideration to redeem the units.
OP Unit activity is summarized as follows for the periods presented: | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | 2020 | 2019 |
OP Units redeemed for common stock | 165,652 | | 123,993 | | 340,182 | |
OP Units redeemed for cash | 4,500 | | — | | — | |
Cash paid for OP Units redeemed | $ | 788 | | $ | — | | $ | — | |
OP Units issued in conjunction with acquisitions | 897,803 | | — | | — | |
Value of OP Units issued in conjunction with acquisitions | $ | 188,319 | | $ | — | | $ | — | |
OP Units issued upon redemption of Series C Units | — | | — | | 270,709 | |
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | | | | | | |
| For the Year Ended December 31, |
| 2018 | 2017 | 2016 |
OP Units redeemed for common stock | 35,000 |
| — |
| 23,850 |
|
OP Units redeemed for cash | 30,000 |
| 33,896 |
| 6,760 |
|
Cash paid for OP Units redeemed | $ | 2,558 |
| $ | 2,510 |
| $ | 506 |
|
OP Units issued in conjunction with acquisitions | 21,768 |
| 90,228 |
| 93,569 |
|
Value of OP Units issued in conjunction with acquisitions | $ | 1,877 |
| $ | 7,618 |
| $ | 7,247 |
|
Additionally,On December 1, 2018, 373,113 common OP Units were issued in the conversion of 407,996 Series C Units on December 1, 2018.Units. These newly issued OP Units arewere pledged as collateral on the existing loan receivable to the Series C Unit holders. As a result, noncontrolling interests in the Operating Partnership iswas reported net of $11,091 of the loan receivable as of December 31, 2018, which represents the portion of the note receivable that is collateralized by the OP Units. The remaining 296,020 Series C Units were converted into 270,709 OP Units on April 25, 2019 and the remainder of the loan receivable was reported net with the OP Units. The remaining total outstanding balance of the loan receivable of $1,900 and $2,311 is shown as a reduction of the noncontrolling interests related to the OP Units as of December 31, 2021 and 2020, respectively.
GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.
The Company has evaluated the terms of the common OP Units and classifies the noncontrolling interest represented by the common OP Units as stockholders’ equity in the accompanying consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made.
Other Noncontrolling Interests
Other noncontrolling interests represent the ownership interest of third partiespartners in two2 consolidated joint ventures as of December 31, 2018.2021. One joint venture owns two operating4 stores in Texas and an operating store and a development store in Colorado,Georgia and the other owns an operating store1 property under development in Pennsylvania and a development store in New Jersey.Florida. The voting interests of the third-party ownerspartners are between 5.0%10% or less.
On August 25, 2021, the Company purchased for $12,215 in cash the remaining third party ownership interest in a previously consolidated joint venture that owned 2 operating stores.
On December 15, 2021, the Company purchased for $6,100 in cash the remaining third party ownership interest in previously consolidated joint venture that owned 4 operating stores.
14. LEASES
The Company adopted ASC 842, "Leases," effective January 1, 2019 on a modified retrospective basis as allowed under the standard and 20.0%.thus prior periods have not been restated. The Company elected the package of transition practical expedients, and has therefore (1) not reassessed whether any expired or existing contracts are or contain leases, (2) not reassessed the lease classification for any expired or existing leases, and (3) not reassessed initial direct costs for any expired or existing leases.
Lessee Accounting
The Company recognized right-of-use assets related to operating leases totaling $95,506 and lease liabilities of $104,863 as of the adoption date, January 1, 2019. These are presented as “Operating lease liabilities” and “Real estate assets-operating lease right-of-use assets” 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, 2021, the Company recorded new finance lease right-of-use assets and finance lease liabilities totaling $26,998 associated with the acquisition of two stores with land leases. The Company also recorded a finance lease right-of-use asset and a finance lease liability of $40,916 related to a corporate office lease.
In June and August 2019, the Company entered into new triple-net lease agreements to lease land and buildings at 22 and 5 operating stores, respectively. These leases are categorized as operating leases, and have contractual lease terms of 25 years, but have termination options after 10 years that result in lease terms of 10 years under ASC 842. The Company recorded
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
new operating lease right-of-use assets and operating lease liabilities of $127,532 and $52,224, respectively, in conjunction with these new lease agreements.
14.The Company is lessee under several types of lease agreements. Generally, these leases fall into the following categories:
•Leases of real estate at 58 stores classified as wholly-owned or in consolidated joint ventures. These leases generally have original lease terms between 10-99 years. Under these leases, the Company typically has the option to extend the lease term for additional terms of 5-35 years.
•Leases of its corporate offices and call center. These leases have original lease terms between five and 14 years, with no extension options. Subsequent to year-end the Company modified and extended the lease of its corporate offices to add additional space and extend the lease until 2034.
•Leases of 14 regional offices. These leases have original lease terms between three and five years. The Company has the option on certain of these leases to extend the lease term for up to three additional years.
•Leases of small district offices. These leases generally have terms of 12 months or less. The Company has made an election to account for these under the short-term lease exception outlined under ASC 842. Therefore, no lease assets or liabilities are recorded related to these leases.
The Company has included lease extension options in the lease term for calculations of its right-of-use assets and liabilities related to the real estate asset leases at its stores when it is reasonably certain that the Company plans to extend the lease terms as the options arise.
Several of the leases of real estate at the Company’s stores include escalation clauses based on an index or rate, such as the Consumer Price Index (CPI). The Company included these lease payments in its calculations of right-of-use assets and liabilities based on the prevailing index or rate as of the adoption date. The Company will recognize changes to these variable lease payments in earnings in the period of change.
One of the real estate leases includes variable lease payments that are based upon a percentage of gross revenues. Certain other leases include additional variable payments relating to a percentage of sales in excess of a specified amount, common area maintenance, property taxes, and similar items. These payments are variable lease payments that do not depend on an index or rate and are excluded from the measurement of the lease liabilities and right-of-use-assets for these leases. The Company will recognize costs from these variable lease payments in the period in which the obligation for those payments is incurred.
The Company has a signed lease agreement for a store in California. The store is under construction by the lessor, and the Company will take possession of the leased asset upon completion of construction, which is estimated to be completed in 2022. The lease term is 15 years from the lease commencement date, with 3 10-year extension options and 1 5-year extension option. The Company has not recorded right-of-use asset or lease liability related to this lease as of December 31, 2021 as the lease term has not yet commenced. The lease commencement date will occur when the Company takes possession of the leased asset, and the Company will recognize a lease liability and right-of-use asset relating to the lease at that time.
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, |
| 2021 | | 2020 |
| | | |
Finance lease cost: | | | |
Amortization of finance lease right-of-use assets | $ | 3,049 | | | $ | 400 | |
Interest expense related to finance lease liabilities | 2,812 | | | 712 | |
Operating lease cost | 29,258 | | | 28,709 | |
Variable lease cost | 8,100 | | | 9,056 | |
Short-term lease cost | 51 | | | 80 | |
Total lease cost | $ | 43,270 | | | $ | 38,957 | |
| | | |
| | | |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash outflows for finance lease payments | $ | 2,812 | | | $ | 712 | |
Operating cash outflows for operating lease payments | 23,961 | | | 25,037 | |
| | | |
Total cash flows for lease liability measurement | $ | 26,773 | | | $ | 25,749 | |
| | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 6,655 | | | $ | 8,014 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 67,992 | | | $ | 50,096 | |
| | | |
Weighted average remaining lease term - finance leases (years) | 54.97 | | 78.48 |
Weighted average remaining lease term - operating leases (years) | 21.25 | | 13.99 |
Weighted average discount rate - finance leases | 3.18 | % | | 3.47 | % |
Weighted average discount rate - operating leases | 3.63 | % | | 3.66 | % |
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 |
2022 | $ | 27,641 | | | $ | 4,214 | | | $ | 31,855 | |
2023 | 27,719 | | | 5,679 | | | 33,398 | |
2024 | 27,973 | | | 5,788 | | | 33,761 | |
2025 | 28,148 | | | 5,793 | | | 33,941 | |
2026 | 28,451 | | | 5,912 | | | 34,363 | |
Thereafter | 166,931 | | | 312,022 | | | 478,953 | |
Total | $ | 306,863 | | | $ | 339,408 | | | $ | 646,271 | |
Present value adjustments | (73,507) | | | (214,871) | | | (288,378) | |
Lease liabilities | $ | 233,356 | | | $ | 124,537 | | | $ | 357,893 | |
The Company elected the package of practical expedients upon adoption of ASC 842, which allows for the application of the standard solely to the transition period in 2019 and does not require application to prior fiscal comparative periods represented. Disclosures required under the previous leasing standard are presented for prior years.
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
Lessor Accounting
The Company's property rental revenue is primarily related to rents received from tenants at its operating stores. The Company's leases with its self-storage tenants are generally on month-to-month terms, include automatic monthly renewals, allow flexibility to increase rental rates over time as market conditions permit, and provide for the collection of contingent fees such as late fees. These leases do not include any terms or conditions that allow the tenants to purchase the leased space. All self-storage leases for which the Company acts as lessor have been classified as operating leases. The real estate assets related to the Company's stores are included in "Real estate assets, net" on the Company's condensed consolidated balance sheets and are presented at historical cost less accumulated depreciation and impairment, if any. Rental income related to these operating leases is included in Property rental revenue on the Company's condensed consolidated statements of operations, and is recognized each month during the month-to-month terms at the rental rate in place during each month.
15. STOCK-BASED COMPENSATION
As ofDecember 31, 20182021, 1,587,6251,051,208 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 as defined under the terms of the Plan, restricted stock grants may be awarded. The stock grants are subject to a vesting period over which the restrictions are released and the stock certificates are given to the grantee. During the 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 four-year period beginning on the date of grant. For actions taken prior to July 2020, references to the Compensation Committee refer to its predecessor, the CNG Committee; the Board split the CNG Committee into two committees, the Compensation Committee and the Nominating and Governance Committee, effective July 1, 2020.
Option Grants
A summary of stock option activity is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
Options | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value as of December 31, 2021 |
Outstanding at December 31, 2018 | 417,581 | | | $ | 31.58 | | | | | |
| | | | | | | |
Exercised | (211,057) | | | 14.65 | | | | | |
| | | | | | | |
Outstanding at December 31, 2019 | 206,524 | | | $ | 48.88 | | | | | |
| | | | | | | |
Exercised | (134,930) | | | 35.26 | | | | | |
| | | | | | | |
Outstanding at December 31, 2020 | 71,594 | | | $ | 74.54 | | | | | |
| | | | | | | |
Exercised | (62,322) | | | 73.36 | | | | | |
| | | | | | | |
Outstanding at December 31, 2021 | 9,272 | | | $ | 82.47 | | | 3.98 | | $1,338 |
| | | | | | | |
Vested | 9,272 | | | $ | 82.47 | | | 3.98 | | $1,338 |
Ending Exercisable | 9,272 | | | $ | 82.47 | | | 3.98 | | $1,338 |
|
| | | | | | | | | | |
Options | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value as of December 31, 2018 |
Outstanding at December 31, 2015 | 572,629 |
| | $ | 24.42 |
| | | | |
Granted | 35,800 |
| | 85.99 |
| | | | |
Exercised | (97,855 | ) | | 14.75 |
| | | | |
Outstanding at December 31, 2016 | 510,574 |
| | $ | 30.60 |
| | | | |
Exercised | (38,418 | ) | | 32.94 |
| | | | |
Outstanding at December 31, 2017 | 472,156 |
| | $ | 30.41 |
| | | | |
Exercised | (54,575 | ) | | 21.45 |
| | | | |
Outstanding at December 31, 2018 | 417,581 |
| | $ | 31.58 |
| | 2.78 | | $24,597 |
| | | | | | | |
Vested and Expected to Vest | 416,567 |
| | $ | 31.46 |
| | 2.77 | | $24,587 |
Ending Exercisable | 377,292 |
| | $ | 26.72 |
| | 2.35 | | $24,057 |
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 20182021 and the exercise price, multiplied by the number of in-the-money options) that would
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
have been received by the option holders had all option holders exercised their options on December 31, 2018.2021. The amount of 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 2016,exercised for the years ended December 31, 2021, 2020 and 2019 was $20.30. $3,925, $10,016 and $18,089, respectively.
There werehave been no options granted in 2018 or 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:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | |
| | | For the Year Ended December 31, |
| | | 2016 |
Expected volatility | | | 37.0% |
Dividend yield | | | 3.6% |
Risk-free interest rate | | | 1.3% |
Average expected term (years) | | | 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, 2018,2021, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates.
A summary of stock options outstanding and exercisable as of December 31, 2018,2021, 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 | | 139,250 |
| | 0.13 | | $ | 6.22 |
| | 139,250 |
| | $ | 6.22 |
|
$11.59 - $11.59 | | 20,080 |
| | 1.13 | | 11.59 |
| | 20,080 |
| | 11.59 |
|
$12.21 - $12.21 | | 77,400 |
| | 1.18 | | 12.21 |
| | 77,400 |
| | 12.21 |
|
$19.6 - $28.79 | | 29,469 |
| | 2.65 | | 23.56 |
| | 29,469 |
| | 23.56 |
|
$38.4 - $38.4 | | 10,360 |
| | 4.14 | | 38.4 |
| | 10,360 |
| | 38.40 |
|
$47.5 - $47.5 | | 17,687 |
| | 5.13 | | 47.5 |
| | 17,687 |
| | 47.50 |
|
$65.36 - $65.36 | | 20,395 |
| | 6.15 | | 65.36 |
| | 15,297 |
| | 65.36 |
|
$65.45 - $65.45 | | 17,140 |
| | 6.13 | | 65.45 |
| | 12,345 |
| | 65.45 |
|
$73.52 - $73.52 | | 50,000 |
| | 6.58 | | 73.52 |
| | 37,500 |
| | 73.52 |
|
$85.99 - $85.99 | | 35,800 |
| | 7.15 | | 85.99 |
| | 17,904 |
| | 85.99 |
|
| | 417,581 |
| | 2.78 | | $ | 31.58 |
| | 377,292 |
| | $ | 26.72 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | 3.15 | | $ | 65.36 | | | 1,582 | | | $ | 65.36 | |
$85.99 - $85.99 | | 7,690 | | | 4.15 | | 85.99 | | | 7,690 | | | 85.99 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Company recorded compensation expense relating to outstanding options of $570, $649$0, $27 and $729$364 in general and administrative expense for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. Total cashNet proceeds received for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, related to option exercises was $1,169, $1,266$4,572, $4,759 and $1,444,$3,063, respectively. At December 31, 2018,2021, there was $344 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 0.72 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, 2018 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 $10,606, $8,072$9,260, $9,244 and $7,316$9,173 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, 2018, 20172021, 2020 and 2016,2019, respectively. The forfeiture rate, which is estimated at a weighted-average of 10.2%10.0% of unvested awards outstanding as of December 31, 2018,2021, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimates. At December 31, 20182021 there was $10,870$13,843 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 2.002.15 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:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| | Restricted Stock Grants | Shares | | Weighted-Average Grant-Date Fair Value | Restricted Stock Grants | Shares | | Weighted-Average Grant-Date Fair Value |
Unreleased at December 31, 2015 | 318,409 |
| | $ | 55.75 |
| |
Unreleased at December 31, 2018 | | Unreleased at December 31, 2018 | 223,114 | | | $ | 80.02 | |
Granted | 119,931 |
| | 87.61 |
| Granted | 109,081 | | | 101.52 | |
Released | (128,808 | ) | | 50.05 |
| Released | (110,724) | | | 79.58 | |
Cancelled | (9,947 | ) | | 67.36 |
| Cancelled | (8,863) | | | 90.11 | |
Unreleased at December 31, 2016 | 299,585 |
| | $ | 70.57 |
| |
Unreleased at December 31, 2019 | | Unreleased at December 31, 2019 | 212,608 | | | $ | 91.62 | |
Granted | 95,392 |
| | 74.49 |
| Granted | 95,671 | | | 98.81 | |
Released | (120,323 | ) | | 63.95 |
| Released | (94,164) | | | 89.43 | |
Cancelled | (8,179 | ) | | 77.25 |
| Cancelled | (5,083) | | | 93.16 | |
Unreleased at December 31, 2017 | 266,475 |
| | $ | 74.76 |
| |
Unreleased at December 31, 2020 | | Unreleased at December 31, 2020 | 209,032 | | | $ | 95.86 | |
Granted | 85,066 |
| | 86.14 |
| Granted | 99,802 | | | 132.75 | |
Released | (116,656 | ) | | 72.38 |
| Released | (96,248) | | | 91.65 | |
Cancelled | (11,771 | ) | | 80.96 |
| Cancelled | (12,808) | | | 113.89 | |
Unreleased at December 31, 2018 | 223,114 |
| | $ | 80.02 |
| |
Unreleased at December 31, 2021 | | Unreleased at December 31, 2021 | 199,778 | | | $ | 115.16 | |
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 represent the right to earn shares of the Company's common stock. These awards have two financial performance components: (1) the Company's core FFO performance ("FFO Target"), and (2) the Company's total stockholder return relative to the performance of a defined group of peers ("TSR Target"). Each of these performance components are weighted 50% and are measured over the performance period, which is defined as the three-year period ending December 31 from the year of grant. At the end of the performance period, the financial performance components are reviewed to determine the number of shares actually granted to executives, which can be as low as zero shares and up to a maximum of two2 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, 2018 | | 58,806 | | | $ | 89.87 | |
Granted | | 49,334 | | | 103.18 | |
Unvested at December 31, 2019 | | 108,140 | | | $ | 95.94 | |
Granted | | 45,242 | | | 129.38 | |
Released | | (30,071) | | | $ | 112.16 | |
Unvested at December 31, 2020 | | 123,311 | | | $ | 104.25 | |
Granted | | 40,832 | | | 138.04 | |
Released | | (28,735) | | | $ | 117.19 | |
Unvested at December 31, 2021 | | 135,408 | | | $ | 111.69 | |
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 |
|
Granted | | 28,735 |
| | 96.19 |
|
Unvested at December 31, 2018 | | 58,806 |
| | $ | 89.87 |
|
| | | | |
The Company recorded $8,043, $7,048 and $3,514 of expense in general and administrative expense in its statement of operations related to PSUs granted to employees for the years ended December 31, 2021, 2020 and 2019, respectively. The Company estimated the fair value of the PSUs as of the grant date, using the closing trading price of the Company's common stock on the grant date to value the FFO Target portion. A Monte Carlo simulation model was used to calculate the fair value of the TSR Target portion of the PSUs, using the following assumptions:
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
|
| | | | |
| | For the Year Ended December 31, |
| | 2018 | | 2017 |
Intrinsic value | | $5,321 | | $2,630 |
Compensation cost | | $1,873 | | $840 |
Risk-free rate | | 2.37% | | 1.62% |
Volatility | | 22.6% | | 21.4% |
Expected term (in years) | | 2.9 | | 2.8 |
Dividend yield | | —% | | —% |
Unrecognized compensation cost | | $2,739 | | $1,681 |
Term over which unrecognized compensation cost recognized | | 2 | | 2 |
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Intrinsic value | | $30,701 | | $12,266 | | $6,211 |
Risk-free rate | | 0.22% | | 1.42% | | 2.53% |
Volatility | | 28.5% | | 18.4% | | 20.7% |
Expected term (in years) | | 2.9 | | 2.9 | | 2.8 |
Dividend yield | | —% | | —% | | —% |
Unrecognized compensation cost | | $8,859 | | $6,406 | | $4,315 |
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 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, 20182021 noted above does not necessarily represent the expense that will ultimately be realized by the Company in the statement of operations.
15.16. EMPLOYEE BENEFIT PLAN
The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code under which eligible employees can contribute up to 60% of their annual salary, subject to a statutory prescribed annual limit. For the years ended December 31, 2018, 20172021, 2020 and 2016,2019, the Company made matching contributions to the plan of $2,833, $2,212$4,239, $3,980 and $1,944,$3,355, respectively, based on 100% of the first 3% and up to 50% of the next 2% of an employee’s compensation.
16.17. INCOME TAXES
As a REIT, the Company is generally not subject to U.S. federal income tax with respect to that portion of its income which is distributed annually to its stockholders. However, the Company has elected to treat onecertain of its corporate subsidiaries, including Extra Space Management, Inc., as a 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.
The income tax provision for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, is comprised of the following components: | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2021 |
| Federal | | State | | Total |
Current expense | $ | 21,017 | | | $ | 3,520 | | | $ | 24,537 | |
Tax credits/true-up | (4,979) | | | (138) | | | (5,117) | |
Change in deferred expense/(benefit) | 818 | | | 86 | | | 904 | |
Total tax expense | $ | 16,856 | | | $ | 3,468 | | | $ | 20,324 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, 2018 |
| Federal | | State | | Total |
Current expense | $ | 9,136 |
| | $ | 2,426 |
| | $ | 11,562 |
|
Tax credits/true-up | (5,841 | ) | | (175 | ) | | (6,016 | ) |
Change in deferred expense/(benefit) | 3,730 |
| | (32 | ) | | 3,698 |
|
Total tax expense | $ | 7,025 |
| | $ | 2,219 |
| | $ | 9,244 |
|
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2020 |
| Federal | | State | | Total |
Current expense | $ | 15,553 | | | $ | 3,347 | | | $ | 18,900 | |
Tax credits/true-up | (5,610) | | | (135) | | | (5,745) | |
Change in deferred expense | 594 | | | 61 | | | 655 | |
Total tax expense | $ | 10,537 | | | $ | 3,273 | | | $ | 13,810 | |
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 |
| Federal | | State | | Total |
Current expense | $ | 10,164 | | | $ | 2,936 | | | $ | 13,100 | |
Tax credits/true-up | (3,633) | | | (30) | | | (3,663) | |
Change in deferred benefit | 1,787 | | | 84 | | | 1,871 | |
Total tax expense | $ | 8,318 | | | $ | 2,990 | | | $ | 11,308 | |
|
| | | | | | | | | | | |
| 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, 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 |
|
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, |
| 2021 | | 2020 | | 2019 |
Expected tax at statutory rate | $ | 188,600 | | | 21.0 | % | | $ | 111,760 | | | 21.0 | % | | $ | 97,110 | | | 21.0 | % |
Non-taxable REIT income | (166,137) | | | (18.5) | % | | (94,270) | | | (17.7) | % | | (82,717) | | | (17.9) | % |
State and local tax expense - net of federal benefit | 3,259 | | | 0.4 | % | | 3,075 | | | 0.6 | % | | 2,837 | | | 0.6 | % |
Change in valuation allowance | (1,061) | | | (0.1) | % | | (363) | | | (0.1) | % | | (207) | | | — | % |
Tax credits/true-up | (5,117) | | | (0.6) | % | | (5,745) | | | (1.1) | % | | (3,663) | | | (0.8) | % |
| | | | | | | | | | | |
Miscellaneous | 780 | | | 0.1 | % | | (647) | | | (0.1) | % | | (2,052) | | | (0.4) | % |
Total provision | $ | 20,324 | | | 2.3 | % | | $ | 13,810 | | | 2.6 | % | | $ | 11,308 | | | 2.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Expected tax at statutory rate | $ | 95,828 |
| | 21.0 | % | | $ | 186,274 |
| | 35.0 | % | | $ | 144,708 |
| | 35.0 | % |
Non-taxable REIT income | (83,022 | ) | | (18.2 | )% | | (170,811 | ) | | (32.1 | )% | | (131,112 | ) | | (31.7 | )% |
State and local tax expense - net of federal benefit | 2,385 |
| | 0.5 | % | | 2,306 |
| | 0.4 | % | | 2,399 |
| | 0.6 | % |
Change in valuation allowance | (1,052 | ) | | (0.2 | )% | | 159 |
| | — | % | | (845 | ) | | (0.2 | )% |
Tax credits/true-up | (6,016 | ) | | (1.3 | )% | | (5,956 | ) | | (1.1 | )% | | (312 | ) | | (0.1 | )% |
Remeasurement of deferred balances | — |
| | — | % | | (8,460 | ) | | (1.6 | )% | | — |
| | — | % |
Miscellaneous | 1,121 |
| | 0.2 | % | | 113 |
| | — | % | | 1,009 |
| | 0.2 | % |
Total provision | $ | 9,244 |
| | 2.0 | % | | $ | 3,625 |
| | 0.6 | % | | $ | 15,847 |
| | 3.8 | % |
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, 2018 | | December 31, 2017 |
Deferred tax liabilities: | | | |
Fixed assets | $ | (20,907 | ) | | $ | (15,271 | ) |
Other | (96 | ) | | (108 | ) |
State deferred taxes | (3,076 | ) | | (2,822 | ) |
Total deferred tax liabilities | (24,079 | ) | | (18,201 | ) |
| | | |
Deferred tax assets: | | | |
Captive insurance subsidiary | 324 |
| | 252 |
|
Accrued liabilities | 1,772 |
| | 873 |
|
Stock compensation | 1,604 |
| | 1,287 |
|
Solar credit | — |
| | 43 |
|
Other | 53 |
| | 57 |
|
SmartStop TRS | 219 |
| | 219 |
|
State deferred taxes | 7,196 |
| | 7,802 |
|
Total deferred tax assets | 11,168 |
| | 10,533 |
|
| | | |
Valuation allowance | (3,872 | ) | | (4,924 | ) |
| | | |
Net deferred income tax liabilities | $ | (16,783 | ) | | $ | (12,592 | ) |
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Deferred tax liabilities: | | | |
Fixed assets | $ | (30,499) | | | $ | (27,374) | |
Operating and Finance lease right-of-use assets | (6,016) | | | (2,223) | |
Other | (61) | | | (72) | |
State deferred taxes | (3,842) | | | (3,210) | |
Total deferred tax liabilities | (40,418) | | | (32,879) | |
| | | |
Deferred tax assets: | | | |
Captive insurance subsidiary | 396 | | | 378 | |
Accrued liabilities | 2,383 | | | 2,325 | |
Stock compensation | 3,076 | | | 2,635 | |
| | | |
Operating and Finance lease liabilities | 7,936 | | | 2,232 | |
SmartStop TRS | — | | | 219 | |
Other | 916 | | | 1,554 | |
State deferred taxes | 6,548 | | | 6,725 | |
Total deferred tax assets | 21,255 | | | 16,068 | |
| | | |
Valuation allowance | (2,241) | | | (3,302) | |
| | | |
Net deferred income tax liabilities | $ | (21,404) | | | $ | (20,113) | |
The state income tax net operating losses expire between 20192022 and 2036.2041. The valuation allowance is associated with the state income tax net operating losses. The tax years 20142017 through 20172020 remain open related to the state returns, and 20152018 through 20172020 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 were a reduction in the U.S. federal corporate tax rate from the previous rate of 35% to 21%, the elimination or modification of various 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 required guidance through the issuance of Treasury regulations in order to assess their effect. It is possible 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 2017 Tax Legislation 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 2017 Tax Legislation for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the 2017 Tax Legislation 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 recorded a provisional estimate of the impact of the 2017 Tax Legislation for the year ended December 31, 2017. The SAB 118 measurement period closed on December 22, 2018. The Company's accounting for the 2017 Tax Legislation under SAB 118 has been finalized with no additional adjustments.
For the year ended December 31, 2017, 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%. 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
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
tax expense for the year ended December 31, 2017. The Company made no additional adjustments to this initial remeasurement for the year ended December 31, 2018.
17.18. SEGMENT INFORMATION
The Company’s segment disclosures present the measure used by the chief operating decision makers ("CODMs") for purposes of assessing each segment’s performance. The Company’s CODMs are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company’s reportable operating segments. 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 prior to 2017, wereare 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 two2 reportable segments: (1) self-storage operations and (2) tenant reinsurance. The self-storage operations activities include rental operations of wholly-owned stores. 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, |
| 2021 | | 2020 | | 2019 |
Revenues: | | | | | |
Self-Storage Operations | $ | 1,340,990 | | | $ | 1,157,522 | | | $ | 1,130,177 | |
Tenant Reinsurance | 170,108 | | | 146,561 | | | 128,387 | |
Total segment revenues | $ | 1,511,098 | | | $ | 1,304,083 | | | $ | 1,258,564 | |
| | | | | |
Operating expenses: | | | | | |
Self-Storage Operations | $ | 368,608 | | | $ | 360,615 | | | $ | 336,050 | |
Tenant Reinsurance | 29,488 | | | 26,494 | | | 29,376 | |
Total segment operating expenses | $ | 398,096 | | | $ | 387,109 | | | $ | 365,426 | |
| | | | | |
Net operating income: | | | | | |
Self-Storage Operations | $ | 972,382 | | | $ | 796,907 | | | $ | 794,127 | |
Tenant Reinsurance | 140,620 | | | 120,067 | | | 99,011 | |
Total segment net operating income: | $ | 1,113,002 | | | $ | 916,974 | | | $ | 893,138 | |
| | | | | |
Total segment net operating income | $ | 1,113,002 | | | $ | 916,974 | | | $ | 893,138 | |
Other components of net income: | | | | | |
Property management fees and other income | 66,264 | | | 52,129 | | | 49,890 | |
General and administrative expense | (102,194) | | | (96,594) | | | (89,418) | |
Depreciation and amortization expense | (241,879) | | | (224,444) | | | (219,857) | |
Gain on real estate transactions | 140,760 | | | 18,075 | | | 1,205 | |
| | | | | |
Interest expense | (166,183) | | | (168,626) | | | (186,526) | |
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes | — | | | (3,675) | | | (4,742) | |
Interest income | 49,703 | | | 15,192 | | | 7,467 | |
| | | | | |
Equity in earnings and dividend income from unconsolidated real estate entities | 32,358 | | | 22,361 | | | 11,274 | |
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest | 6,251 | | | — | | | — | |
Income tax expense | (20,324) | | | (13,810) | | | (11,308) | |
Net income | $ | 877,758 | | | $ | 517,582 | | | $ | 451,123 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Revenues: | | | | | |
Self-Storage Operations | $ | 1,039,340 |
| | $ | 967,229 |
| | $ | 864,742 |
|
Tenant Reinsurance | 115,507 |
| | 98,401 |
| | 87,291 |
|
Total segment revenues | 1,154,847 |
| | 1,065,630 |
| | $ | 952,033 |
|
| | | | | |
Operating expenses: | | | | | |
Self-Storage Operations | $ | 291,695 |
| | $ | 271,974 |
| | $ | 250,005 |
|
Tenant Reinsurance | 25,707 |
| | 19,173 |
| | 15,555 |
|
Total segment operating expenses | $ | 317,402 |
| | $ | 291,147 |
| | $ | 265,560 |
|
| | | | | |
Net operating income: | | | | | |
Self-Storage Operations | 747,645 |
| | 695,255 |
| | $ | 614,737 |
|
Tenant Reinsurance | 89,800 |
| | 79,228 |
| | 71,736 |
|
Total segment net operating income: | $ | 837,445 |
| | $ | 774,483 |
| | $ | 686,473 |
|
| | | | | |
Total segment net operating income | $ | 837,445 |
| | $ | 774,483 |
| | $ | 686,473 |
|
Other components of net income (loss): | | | | | |
Property management fees and other income | 41,757 |
| | 39,379 |
| | 39,842 |
|
General and administrative expense | (81,256 | ) | | (78,961 | ) | | (81,806 | ) |
Depreciation and amortization expense | (209,050 | ) | | (193,296 | ) | | (182,560 | ) |
Acquisition and other related costs(1) | — |
| | — |
| | (12,111 | ) |
Gain on real estate transactions, earnout from prior acquisitions and impairment of real estate | 30,807 |
| | 112,789 |
| | 8,465 |
|
Interest expense | (178,436 | ) | | (153,511 | ) | | (133,479 | ) |
Non-cash interest expense related to the amortization of discount on equity component of exchangeable senior notes | (4,687 | ) | | (5,103 | ) | | (4,980 | ) |
Interest income | 5,292 |
| | 6,736 |
| | 10,998 |
|
Equity in earnings of unconsolidated real estate ventures | 14,452 |
| | 15,331 |
| | 12,895 |
|
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of partners' interests | — |
| | — |
| | 69,199 |
|
Income tax expense | (9,244 | ) | | (3,625 | ) | | (15,847 | ) |
Net income | $ | 447,080 |
| | $ | 514,222 |
| | $ | 397,089 |
|
(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
18.19. 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, 2018, future minimum rental payments2021, the Company was under these non-cancelable operating leases were as follows (unaudited):
|
| | | |
Less than 1 year | $ | 8,203 |
|
Year 2 | 8,307 |
|
Year 3 | 8,137 |
|
Year 4 | 7,837 |
|
Year 5 | 7,021 |
|
Thereafter | 111,653 |
|
| $ | 151,158 |
|
Theagreement to acquire 9 stores at a total purchase price of $136,491. These stores are scheduled to close in 2022. Additionally, the Company recorded expenseis under agreement to acquire 3 stores in 2022 with joint venture partners, for a total investment of $8,229, $6,898 and $4,578 related to operating leases in the years ended December 31, 2018, 2017 and 2016, respectively.$5,850.
The Company is involved in various legal proceedings and is subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period, notwithstanding the fact that the Company is currently
EXTRA SPACE STORAGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
vigorously defending any legal proceedings against it. As of December 31, 2018,2021, 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, 2018, the Company was under agreement to acquire 18 stores at a total purchase price of $271,526. Of these stores, 16 are scheduled to close in 2019 at a purchase price of $247,498, and two are scheduled to close in 2020 at a purchase price of $24,028. Additionally, the Company is under agreement to acquire 13 stores with joint venture partners, for a total investment of $73,860. Eleven of these stores are scheduled to close in 2019, while the remaining two are scheduled to close in 2020.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts in thousands, except store and share data, unless otherwise stated
19. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Building and Improvements Initial Cost | Adjustments and Costs to Land and Building Subsequent to Acquisition | Gross carrying amount at December 31, 2021 | |
Self - Storage Facilities by State: | Store Count | | Land Initial Cost | | Building and Improvements | | Accumulated Depreciation |
Debt | Land | Total |
AL | 8 | $ | 5,261 | | $ | 11,021 | | $ | 62,772 | | $ | 3,712 | | $ | 11,021 | | $ | 66,484 | | $ | 77,505 | | $ | 10,573 | |
AZ | 23 | 22,469 | | 27,535 | | 117,304 | | 11,820 | | 27,533 | | 129,126 | | 156,659 | | 31,818 | |
CA | 173 | 369,493 | | 646,278 | | 1,365,639 | | 160,072 | | 646,728 | | 1,525,261 | | 2,171,989 | | 333,516 | |
CO | 17 | 28,776 | | 17,224 | | 81,144 | | 17,834 | | 17,942 | | 98,260 | | 116,202 | | 25,649 | |
CT | 6 | 6,811 | | 8,598 | | 46,974 | | 5,211 | | 8,598 | | 52,185 | | 60,783 | | 11,055 | |
FL | 105 | 173,529 | | 186,083 | | 799,941 | | 63,289 | | 186,209 | | 863,104 | | 1,049,313 | | 163,231 | |
GA | 71 | 68,819 | | 98,519 | | 529,048 | | 37,329 | | 98,503 | | 566,393 | | 664,896 | | 86,525 | |
HI | 13 | — | | 17,663 | | 133,870 | | 12,984 | | 17,663 | | 146,854 | | 164,517 | | 33,733 | |
IL | 37 | 23,283 | | 49,304 | | 247,958 | | 34,806 | | 48,757 | | 283,311 | | 332,068 | | 52,591 | |
IN | 14 | — | | 12,652 | | 60,605 | | 7,255 | | 12,652 | | 67,860 | | 80,512 | | 14,639 | |
KS | 1 | — | | 366 | | 1,897 | | 1,102 | | 366 | | 2,999 | | 3,365 | | 1,326 | |
KY | 10 | 30,996 | | 5,670 | | 60,442 | | 18,768 | | 6,442 | | 78,438 | | 84,880 | | 16,198 | |
LA | 4 | — | | 9,105 | | 34,923 | | 5,082 | | 9,106 | | 40,004 | | 49,110 | | 5,130 | |
MA | 46 | 32,251 | | 73,544 | | 270,243 | | 57,334 | | 73,725 | | 327,396 | | 401,121 | | 100,242 | |
MD | 34 | 76,478 | | 104,486 | | 327,904 | | 30,986 | | 103,894 | | 359,482 | | 463,376 | | 88,599 | |
MI | 8 | 5,588 | | 10,900 | | 63,388 | | 4,594 | | 10,900 | | 67,982 | | 78,882 | | 9,011 | |
MN | 7 | — | | 9,696 | | 74,960 | | 6,095 | | 9,696 | | 81,055 | | 90,751 | | 5,613 | |
MO | 4 | — | | 3,517 | | 13,674 | | 3,374 | | 3,474 | | 17,091 | | 20,565 | | 7,292 | |
MS | 3 | — | | 2,914 | | 29,630 | | 1,298 | | 2,914 | | 30,928 | | 33,842 | | 3,244 | |
NC | 23 | 6,684 | | 38,463 | | 150,475 | | 10,399 | | 38,461 | | 160,876 | | 199,337 | | 18,159 | |
NH | 2 | — | | 754 | | 4,054 | | 1,353 | | 817 | | 5,344 | | 6,161 | | 2,716 | |
NJ | 62 | 106,726 | | 138,417 | | 605,834 | | 51,542 | | 141,643 | | 654,150 | | 795,793 | | 164,838 | |
NM | 10 | 17,085 | | 30,806 | | 63,495 | | 5,105 | | 30,806 | | 68,600 | | 99,406 | | 12,628 | |
NV | 14 | 29,942 | | 15,252 | | 74,376 | | 6,379 | | 15,252 | | 80,755 | | 96,007 | | 14,958 | |
NY | 28 | 13,886 | | 121,945 | | 237,795 | | 41,749 | | 122,680 | | 278,809 | | 401,489 | | 76,295 | |
OH | 16 | 11,651 | | 17,568 | | 49,287 | | 9,036 | | 17,567 | | 58,324 | | 75,891 | | 16,292 | |
OR | 8 | 16,804 | | 15,066 | | 68,044 | | 2,268 | | 15,066 | | 70,312 | | 85,378 | | 10,284 | |
PA | 21 | 8,673 | | 35,104 | | 190,966 | | 14,639 | | 34,396 | | 206,313 | | 240,709 | | 34,860 | |
RI | 2 | 3,952 | | 3,191 | | 6,926 | | 1,369 | | 3,191 | | 8,295 | | 11,486 | | 3,473 | |
SC | 23 | 25,008 | | 36,617 | | 148,900 | | 10,789 | | 36,618 | | 159,688 | | 196,306 | | 29,256 | |
TN | 21 | 42,375 | | 34,740 | | 138,399 | | 11,557 | | 34,740 | | 149,956 | | 184,696 | | 25,607 | |
TX | 101 | 116,803 | | 173,040 | | 635,935 | | 67,710 | | 172,892 | | 703,793 | | 876,685 | | 143,451 | |
UT | 10 | 14,316 | | 9,008 | | 39,295 | | 3,072 | | 9,008 | | 42,367 | | 51,375 | | 12,587 | |
VA | 50 | 52,508 | | 150,324 | | 470,969 | | 27,164 | | 150,325 | | 498,132 | | 648,457 | | 93,787 | |
WA | 9 | 5,167 | | 13,762 | | 60,926 | | 11,618 | | 13,764 | | 72,542 | | 86,306 | | 14,437 | |
DC | 1 | 8,175 | | 14,394 | | 18,172 | | 507 | | 14,394 | | 18,679 | | 33,073 | | 2,865 | |
Other corporate assets | | — | | — | | 1,323 | | 181,117 | | — | | 182,440 | | 182,440 | | 57,041 | |
Intangible tenant relationships and lease rights | | — | | — | | 147,020 | | — | | — | | 147,020 | | 147,020 | | 130,561 | |
Construction in Progress/Undeveloped Land | | — | | 7,111 | | 2,778 | | 56,441 | | 3,576 | | 62,754 | | 66,330 | | 621 | |
Right of use asset - finance lease | | — | | — | | — | | 117,718 | | — | | 117,718 | | 117,718 | | 3,049 | |
Totals (1) | 985 | $ | 1,323,509 | | $ | 2,150,637 | | $ | 7,437,285 | | $ | 1,114,477 | | $ | 2,151,319 | | $ | 8,551,080 | | $ | 10,702,399 | | $ | 1,867,750 | |
(1) No right-of-use assets related to operating leases are included in the ending net real estate assets information above.
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2018 | | June 30, 2018 | | September 30, 2018 | | December 31, 2018 |
Revenues | $ | 285,485 |
| | $ | 296,813 |
| | $ | 306,953 |
| | $ | 307,353 |
|
Cost of operations | 151,573 |
| | 152,097 |
| | 153,362 |
| | 150,676 |
|
Revenues less cost of operations | $ | 133,912 |
| | $ | 144,716 |
| | $ | 153,591 |
| | $ | 156,677 |
|
Net income | $ | 95,430 |
| | $ | 102,713 |
| | $ | 139,687 |
| | $ | 109,250 |
|
Net income attributable to common stockholders | $ | 88,256 |
| | $ | 95,153 |
| | $ | 130,418 |
| | $ | 101,462 |
|
Earnings per common share—basic | $ | 0.70 |
| | $ | 0.75 |
| | $ | 1.03 |
| | $ | 0.80 |
|
Earnings per common share—diluted | $ | 0.70 |
| | $ | 0.75 |
| | $ | 1.02 |
| | $ | 0.80 |
|
| 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 |
| | $ | 93,742 |
| | $ | 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 |
|
20. SUBSEQUENT EVENTS
Subsequent to year end, the Company acquired its joint venture partner's interests in Extra Space West One LLC and Extra Space West Two LLC. The 12 stores owned by these joint ventures are now wholly-owned by the Company. The Company paid cash of $172,515 and assumed an existing loan of $17,157.
Extra Space Storage Inc.
Schedule III
Real Estate and Accumulated Depreciation
(Dollars in thousands)
As of December 31, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Building and Improvements Initial Cost | Adjustments and Costs to Land and Building Subsequent to Acquisition | Gross carrying amount at December 31, 2018 | |
Self - Storage Facilities by State: | Store Count | | Land Initial Cost | | Building and Improvements | | Accumulated Depreciation |
Debt | Land | Total |
AL | 8 | $ | 30,215 |
| $ | 7,690 |
| $ | 42,770 |
| $ | 3,156 |
| $ | 7,691 |
| $ | 45,925 |
| $ | 53,616 |
| $ | 6,928 |
|
AZ | 23 | 39,974 |
| 27,535 |
| 117,304 |
| 8,680 |
| 27,533 |
| 125,986 |
| 153,519 |
| 20,509 |
|
CA | 146 | 699,982 |
| 446,176 |
| 1,069,102 |
| 91,467 |
| 446,863 |
| 1,159,882 |
| 1,606,745 |
| 227,969 |
|
CO | 15 | 39,092 |
| 15,700 |
| 62,816 |
| 14,186 |
| 15,887 |
| 76,815 |
| 92,702 |
| 16,942 |
|
CT | 7 | 23,869 |
| 9,875 |
| 50,966 |
| 3,861 |
| 9,874 |
| 54,828 |
| 64,702 |
| 8,279 |
|
FL | 86 | 331,556 |
| 161,109 |
| 579,419 |
| 45,736 |
| 161,573 |
| 624,691 |
| 786,264 |
| 115,603 |
|
GA | 59 | 104,806 |
| 77,306 |
| 372,157 |
| 22,117 |
| 77,290 |
| 394,290 |
| 471,580 |
| 48,711 |
|
HI | 9 | 39,644 |
| 17,663 |
| 133,870 |
| 5,094 |
| 17,663 |
| 138,964 |
| 156,627 |
| 21,756 |
|
IL | 31 | 58,189 |
| 44,427 |
| 225,423 |
| 21,944 |
| 43,449 |
| 248,345 |
| 291,794 |
| 35,630 |
|
IN | 15 | 11,149 |
| 12,447 |
| 58,247 |
| 5,118 |
| 12,447 |
| 63,365 |
| 75,812 |
| 9,767 |
|
KS | 1 | — |
| 366 |
| 1,897 |
| 529 |
| 366 |
| 2,426 |
| 2,792 |
| 997 |
|
KY | 11 | 34,817 |
| 8,640 |
| 68,679 |
| 4,558 |
| 8,640 |
| 73,237 |
| 81,877 |
| 9,813 |
|
LA | 2 | — |
| 6,114 |
| 8,541 |
| 1,297 |
| 6,115 |
| 9,837 |
| 15,952 |
| 3,919 |
|
MA | 45 | 126,966 |
| 72,445 |
| 254,383 |
| 36,722 |
| 72,626 |
| 290,924 |
| 363,550 |
| 71,855 |
|
MD | 32 | 140,841 |
| 99,147 |
| 284,253 |
| 14,408 |
| 97,180 |
| 300,628 |
| 397,808 |
| 61,719 |
|
MI | 7 | 8,639 |
| 9,583 |
| 51,359 |
| 2,025 |
| 9,583 |
| 53,384 |
| 62,967 |
| 4,206 |
|
MN | 4 | — |
| 6,681 |
| 42,252 |
| 277 |
| 6,681 |
| 42,529 |
| 49,210 |
| 1,348 |
|
MO | 5 | 5,981 |
| 4,129 |
| 15,444 |
| 3,510 |
| 4,086 |
| 18,997 |
| 23,083 |
| 6,752 |
|
MS | 3 | — |
| 2,420 |
| 20,849 |
| 1,403 |
| 2,420 |
| 22,252 |
| 24,672 |
| 1,983 |
|
NC | 18 | 33,835 |
| 31,969 |
| 104,104 |
| 3,769 |
| 31,967 |
| 107,875 |
| 139,842 |
| 8,128 |
|
NH | 2 | 6,024 |
| 754 |
| 4,054 |
| 1,108 |
| 817 |
| 5,099 |
| 5,916 |
| 2,225 |
|
NJ | 59 | 201,091 |
| 134,032 |
| 560,512 |
| 34,227 |
| 134,479 |
| 594,292 |
| 728,771 |
| 113,188 |
|
NM | 11 | 22,055 |
| 32,252 |
| 71,142 |
| 4,177 |
| 32,252 |
| 75,319 |
| 107,571 |
| 7,175 |
|
NV | 14 | 35,797 |
| 15,252 |
| 74,376 |
| 4,081 |
| 15,252 |
| 78,457 |
| 93,709 |
| 8,114 |
|
NY | 23 | 97,930 |
| 122,835 |
| 240,816 |
| 29,767 |
| 123,570 |
| 269,848 |
| 393,418 |
| 52,400 |
|
OH | 17 | 43,789 |
| 17,788 |
| 50,493 |
| 5,983 |
| 17,787 |
| 56,477 |
| 74,264 |
| 11,500 |
|
OR | 6 | 30,885 |
| 7,906 |
| 39,576 |
| 1,414 |
| 7,906 |
| 40,990 |
| 48,896 |
| 6,389 |
|
PA | 17 | 34,544 |
| 23,376 |
| 132,317 |
| 9,331 |
| 22,668 |
| 142,356 |
| 165,024 |
| 19,949 |
|
RI | 2 | 10,327 |
| 3,191 |
| 6,926 |
| 1,176 |
| 3,191 |
| 8,102 |
| 11,293 |
| 2,676 |
|
SC | 23 | 44,560 |
| 37,075 |
| 135,760 |
| 8,834 |
| 37,076 |
| 144,593 |
| 181,669 |
| 18,349 |
|
TN | 17 | 49,475 |
| 25,938 |
| 91,497 |
| 7,321 |
| 25,938 |
| 98,818 |
| 124,756 |
| 15,043 |
|
TX | 99 | 279,717 |
| 169,160 |
| 648,128 |
| 52,440 |
| 169,012 |
| 700,716 |
| 869,728 |
| 91,986 |
|
UT | 10 | 16,625 |
| 9,008 |
| 39,295 |
| 10,044 |
| 9,008 |
| 49,339 |
| 58,347 |
| 8,925 |
|
VA | 46 | 228,363 |
| 139,318 |
| 414,335 |
| 16,668 |
| 139,319 |
| 431,002 |
| 570,321 |
| 56,712 |
|
WA | 8 | 33,203 |
| 12,528 |
| 47,645 |
| 2,349 |
| 12,530 |
| 49,992 |
| 62,522 |
| 9,965 |
|
DC | 1 | 9,038 |
| 14,394 |
| 18,172 |
| 356 |
| 14,394 |
| 18,528 |
| 32,922 |
| 1,311 |
|
Other corporate assets |
| — |
| — |
| 2,202 |
| 116,855 |
| — |
| 119,057 |
| 119,057 |
| 32,473 |
|
Intangible tenant relationships and lease rights | | — |
| — |
| 132,000 |
| — |
| — |
| 132,000 |
| 132,000 |
| 121,238 |
|
Construction in Progress/Undeveloped Land | | — |
| 10,937 |
| — |
| 48,034 |
| 7,359 |
| 51,612 |
| 58,971 |
| 6 |
|
Totals | 882 | $ | 2,872,978 |
| $ | 1,837,166 |
| $ | 6,273,080 |
| $ | 644,023 |
| $ | 1,832,492 |
| $ | 6,921,777 |
| $ | 8,754,269 |
| $ | 1,262,438 |
|
Extra Space Storage Inc. Schedule III (continued)
Activity in real estate facilities during the years ended December 31, 2018, 20172021, 2020 and 20162019 is as follows: | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Operating facilities | | | | | |
Balance at beginning of year | $ | 9,507,788 | | | $ | 9,129,558 | | | $ | 8,709,315 | |
Acquisitions | 1,500,703 | | | 255,235 | | | 303,588 | |
Improvements | 80,131 | | | 66,693 | | | 68,459 | |
Transfers from construction in progress | 62,462 | | | 40,988 | | | 59,614 | |
Dispositions and other | (507,362) | | | 15,314 | | | (11,418) | |
Balance at end of year | $ | 10,643,722 | | | $ | 9,507,788 | | | $ | 9,129,558 | |
Accumulated depreciation: | | | | | |
Balance at beginning of year | $ | 1,681,429 | | | $ | 1,473,851 | | | $ | 1,262,438 | |
Depreciation expense | 230,445 | | | 217,364 | | | 212,202 | |
Dispositions and other | (43,553) | | | (9,786) | | | (789) | |
Balance at end of year | $ | 1,868,321 | | | $ | 1,681,429 | | | $ | 1,473,851 | |
Real estate under development/redevelopment: | | | | | |
Balance at beginning of year | $ | 67,443 | | | $ | 41,157 | | | $ | 44,954 | |
Current development | 54,267 | | | 67,274 | | | 55,817 | |
Transfers to operating facilities | (62,462) | | | (40,988) | | | (59,614) | |
Dispositions and other | — | | | — | | | — | |
Balance at end of year | $ | 59,248 | | | $ | 67,443 | | | $ | 41,157 | |
Net non-lease real estate assets | $ | 8,834,649 | | | $ | 7,893,802 | | | $ | 7,696,864 | |
|
| | | | | | | | | | | |
| 2018 | | 2017 | | 2016 |
Operating facilities | | | | | |
Balance at beginning of year | $ | 8,158,741 |
| | $ | 7,649,448 |
| | $ | 6,392,487 |
|
Acquisitions | 459,223 |
| | 628,391 |
| | 1,159,304 |
|
Improvements | 64,336 |
| | 71,090 |
| | 92,480 |
|
Transfers from construction in progress | 49,449 |
| | 19,079 |
| | 26,400 |
|
Dispositions and other | (22,434 | ) | | (209,267 | ) | | (21,223 | ) |
Balance at end of year | $ | 8,709,315 |
| | $ | 8,158,741 |
| | $ | 7,649,448 |
|
Accumulated depreciation: | | | | | |
Balance at beginning of year | $ | 1,060,060 |
| | $ | 900,861 |
| | $ | 728,087 |
|
Depreciation expense | 203,030 |
| | 185,903 |
| | 174,906 |
|
Dispositions and other | (652 | ) | | (26,704 | ) | | (2,132 | ) |
Balance at end of year | $ | 1,262,438 |
| | $ | 1,060,060 |
| | $ | 900,861 |
|
Real estate under development/redevelopment: | | | | | |
Balance at beginning of year | $ | 33,750 |
| | $ | 21,860 |
| | $ | 24,909 |
|
Current development | 60,677 |
| | 33,484 |
| | 23,404 |
|
Transfers to operating facilities | (49,449 | ) | | (19,079 | ) | | (26,400 | ) |
Dispositions and other | (24 | ) | | (2,515 | ) | | (53 | ) |
Balance at end of year | $ | 44,954 |
| | $ | 33,750 |
| | $ | 21,860 |
|
Net real estate assets | $ | 7,491,831 |
| | $ | 7,132,431 |
| | $ | 6,770,447 |
|
(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, 2018,2021, the aggregate cost of real estate for U.S. federal income tax purposes was $7,306,350.
$8,865,491.
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, 2018.2021. 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, 2018,2021, 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, 2018,2021, 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, 20182021 and 2017,2020, 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, 2018,2021, and the related notes and financial statement schedule listed in the Index at Item 8 and our report dated February 26, 201928, 2022 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
February 26, 201928, 2022
| |
(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
None.
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“Information about our 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, 2018.2021.
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, 2018.2021.
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, 2018.2021.
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 and Related Transactions” in our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018.2021.
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 Appointment of Independent Registered Public Accounting Firm” in our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018.
2021.
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 | | Description |
| | 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). |
| | 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). |
| | Articles of Amendment of Extra Space Storage Inc., dated May 21, 2014 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on May 28, 2014). |
| | Second Amended and Restated Bylaws of Extra Space Storage Inc.(incorporated by reference to Exhibit 3.1 of Form 8-K filed on January 17, 2018) |
| | 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 (incorporatedDescription of Securities (Incorporated by reference to Exhibit 4.44.6 of Form 10-K filed on February 26, 2010)25, 2020) |
| | Indenture, dated September 21, 2015,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 guarantor,guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by Extra Space Storage Inc. on May 11, 2021). |
| | 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 3.125% Exchangeable Seniorthe Notes due 2035 and the form of guaranteeGuarantee (incorporated by reference to Exhibit 4.14.2 to the Current Report on Form 8-K filed by Extra Space Storage Inc. on May 11, 2021). |
| | 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 (incorporated by reference to Exhibit 4.2 of Form 8-K filed on September 21, 2015)22, 2021). |
| | Registration Rights Agreement, by and among Extra Space Storage Inc. and the parties listed on Schedule I thereto.(1) |
| | 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). |
| | | | | | | | |
Exhibit Number | | Description |
| | 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). |
|
| | |
Exhibit
| | Description |
| | 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). |
| | 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 RightsForm of 2015 Incentive Award Plan Performance Stock Award 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 10.110.13 of Form 8-K10-K filed on September 21, 2015).February 26, 2020) |
| | 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). |
| | Note Purchase Agreement, dated as of May 25, 2018, by and among Extra Space Storage Inc., Extra Space Storage LP and the purchasers named therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 31, 2018). |
| | Second Amended and Restated Credit Agreement, dated as of December 7, 2018,June 22, 2021, 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 and lead arrangers and bookbooks runners, and certain lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report onof Form 8-K filed on December 10, 2018)June 25, 2021). |
| | Subsidiaries of the Company(2)Company(2) |
| | Issuer and Guarantors of Guaranteed Securities(2) |
| | Consent of Ernst & Young LLP(2) |
LLP(2)
|
| | |
Exhibit
| | Description |
| | 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) |
| | | | | | | | |
101Exhibit Number | | Description |
101 | | The following financial information from Registrant’s Annual Report on Form 10-K for the period ended December 31, 2018,2021, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 20182021 and 2017;2020; (ii) Consolidated Statements of Operations for the years ended December 31, 2018, 20172021, 2020 and 2016;2019; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 20172021, 2020 and 2016;2019; (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 20172021, 2020 and 2016;2019; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172021, 2020 and 2016;2019; and (vi) Notes to Consolidated Financial Statements(2)Statements(2). |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Management compensatory plan or arrangement
(1)Incorporated by reference to Registration Statement on Form S-11 (File No. 333-115436 dated August 11, 2004).
(2)Filed herewith.
(3)See
Item 15(a)(2) above.
16. Form 10K Summary
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: February 26, 201928, 2022 | | 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.
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Date: February 26, 201928, 2022 | | By: | | /s/ JOSEPH D. MARGOLIS |
| | | | Joseph D. Margolis Chief Executive Officer (Principal Executive Officer) |
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Date: February 26, 201928, 2022 | | By: | | /s/ P. SCOTT STUBBS |
| | | | P. Scott Stubbs Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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Date: February 26, 201928, 2022 | | By: | | /s/ GRACE KUNDE |
| | | | Grace Kunde Senior Vice President, Accounting and Finance (Principal Accounting Officer) |
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Date: February 26, 201928, 2022 | | By: | | /s/ KENNETH M. WOOLLEY |
| | | | Kenneth M. Woolley Chairman of the Board |
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Date: February 26, 201928, 2022 | | By: | | /s/ ASHLEY DREIERJOSEPH J. BONNER |
| | | | Ashley DreierJoseph J. Bonner
Director |
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Date: February 26, 201928, 2022 | | By: | | /s/ GARY CRITTENDEN |
| | | | Gary Crittenden Director |
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Date: February 28, 2022 | | By: | | /s/ SPENCER F. KIRK |
| | | | Spencer F. Kirk
Director |
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Date: February 26, 201928, 2022 | | By: | | /s/ DENNIS LETHAM |
| | | | Dennis Letham
Director |
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Date: February 26, 201928, 2022 | | By: | | /s/ DIANE OLMSTEAD |
| | | | Diane Olmstead
Director |
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Date: February 26, 201928, 2022 | | By: | | /s/ ROGER B. PORTER |
| | | | Roger B. Porter
Director |
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Date: February 28, 2022 | | By: | | /s/ JULIA VANDER PLOEG |
| | | | Julia Vander Ploeg Director |