Extra Space Storage Inc. - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-32269

EXTRA SPACE STORAGE INC.

(Exact name of registrant as specified in its charter)


Maryland						20-1076777
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2795 East Cottonwood Parkway, Suite 300

Salt Lake City, Utah 84121

(Address of principal executive offices)

Registrant’s telephone number, including area code: (801) 365-4600

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934


Title of each class	Trading symbol	Name of each exchange on which registered

Common Stock, $0.01 par value	EXR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of April 30, 2020, was 129,086,589.

Table of Contents

EXTRA SPACE STORAGE INC.

TABLE OF CONTENTS


STATEMENT ON FORWARD-LOOKING INFORMATION			4

PART I. FINANCIAL INFORMATION			5
ITEM 1. FINANCIAL STATEMENTS (unaudited)			5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36
ITEM 4. CONTROLS AND PROCEDURES			37

PART II. OTHER INFORMATION			38
ITEM 1. LEGAL PROCEEDINGS			38
ITEM 1A. RISK FACTORS			38
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			39
ITEM 4. MINE SAFETY DISCLOSURES			39
ITEM 5. OTHER INFORMATION			39
ITEM 6. EXHIBITS			40
SIGNATURES			41

STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information presented in this report contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

All forward-looking statements, including without limitation, management’s examination of historical operating trends and estimates of future earnings, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks referenced in “Part II. Item 1A. Risk Factors” below and in “Part I. Item 1A. Risk Factors” included in our most recent Annual Report on Form 10-K. Such factors include, but are not limited to:

•adverse changes in general economic conditions, the real estate industry and the markets in which we operate;

•failure to close pending acquisitions and developments on expected terms, or at all;

•the effect of competition from new and existing stores or other storage alternatives, which could cause rents and occupancy rates to decline;

•potential liability for uninsured losses and environmental contamination;

•the impact of the regulatory environment as well as national, state, and local laws and regulations including, without limitation, those governing real estate investment trusts (“REITs”), tenant reinsurance and other aspects of our business, which could adversely affect our results;

•disruptions in credit and financial markets and resulting difficulties in raising capital or obtaining credit at reasonable rates or at all, which could impede our ability to grow;

•impacts from the COVID-19 pandemic, including reduced demand for self-storage space and ancillary products and services such as tenant reinsurance, and potential decreases in occupancy and rental rates and staffing levels, which could adversely affect our results;

•increased interest rates;

•reductions in asset valuations and related impairment charges;

•our lack of sole decision-making authority with respect to our joint venture investments;

•the effect of recent or future changes to U.S. tax laws;

•the failure to maintain our REIT status for U.S. federal income tax purposes; and

•economic uncertainty due to the impact of natural disasters, war or terrorism, which could adversely affect our business plan.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities.

We disclaim any duty or obligation to update or revise any forward-looking statements set forth in this report to reflect new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Extra Space Storage Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)


	March 31, 2020		December 31, 2019
	(unaudited)
Assets:
Real estate assets, net	$	7,689,621	$	7,696,864
Real estate assets - operating lease right-of-use assets	259,681		264,643
Investments in unconsolidated real estate entities	342,404		338,054
Cash and cash equivalents	93,297		65,746
Restricted cash	4,633		4,987

Other assets, net	159,850		162,083
Total assets	$	8,549,486	$	8,532,377
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	4,310,476	$	4,318,973
Exchangeable senior notes, net	571,321		569,513

Revolving lines of credit	244,000		158,000
Operating lease liabilities	270,174		274,783
Cash distributions in unconsolidated real estate ventures	45,712		45,264
Accounts payable and accrued expenses	116,069		111,382
Other liabilities	217,104		132,768
Total liabilities	5,774,856		5,610,683
Commitments and contingencies
Noncontrolling Interests and Equity:
Extra Space Storage Inc. stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 129,038,907 and 129,534,407 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	1,290		1,295
Additional paid-in capital	2,872,933		2,868,681
Accumulated other comprehensive income (loss)	(113,840)		(28,966)
Accumulated deficit	(362,264)		(301,049)
Total Extra Space Storage Inc. stockholders' equity	2,398,119		2,539,961
Noncontrolling interest represented by Preferred Operating Partnership units, net	175,319		175,948
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	201,192		205,785
Total noncontrolling interests and equity	2,774,630		2,921,694
Total liabilities, noncontrolling interests and equity	$	8,549,486	$	8,532,377

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

(unaudited)


	For the Three Months Ended March 31,
	2020		2019
Revenues:
Property rental	$	286,703	$	271,003
Tenant reinsurance	33,613		29,797
Management fees and other income	12,136		10,746
Total revenues	332,452		311,546
Expenses:
Property operations	90,297		78,765
Tenant reinsurance	6,678		6,967
General and administrative	23,011		22,678
Depreciation and amortization	55,275		54,659
Total expenses	175,261		163,069

Income from operations	157,191		148,477
Interest expense	(44,358)		(47,360)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,209)		(1,162)
Interest income	1,674		1,388
Income before equity in earnings of unconsolidated real estate entities and income tax expense	113,298		101,343
Equity in earnings and dividend income from unconsolidated real estate entities	5,043		2,630
Income tax expense	(2,179)		(1,813)
Net income	116,162		102,160
Net income allocated to Preferred Operating Partnership noncontrolling interests	(3,111)		(3,163)
Net income allocated to Operating Partnership and other noncontrolling interests	(4,872)		(4,227)
Net income attributable to common stockholders	$	108,179	$	94,770
Earnings per common share
Basic	$	0.84	$	0.74
Diluted	$	0.83	$	0.74
Weighted average number of shares
Basic	129,288,629		127,037,247
Diluted	137,139,560		134,289,716
Cash dividends paid per common share	$	0.90	$	0.86

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2020		2019
Net income	$	116,162	$	102,160
Other comprehensive income (loss):
Change in fair value of interest rate swaps	(89,244)		(23,993)
Total comprehensive income	26,918		78,167
Less: comprehensive income attributable to noncontrolling interests	3,613		6,240
Comprehensive income attributable to common stockholders	$	23,305	$	71,927

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

(amounts in thousands, except share data)

(unaudited)


	Noncontrolling Interests									Extra Space Storage Inc. Stockholders' Equity

	Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at December 31, 2018	$	153,096	$	218,362	$	240	127,103,750	$	1,271	$	2,640,705	$	34,650	$	(262,902)	$	2,785,422
Issuance of common stock upon the exercise of options	—		—		—		169,021	3		1,754		—		—		1,757
Restricted stock grants issued	—		—		—		35,022	—		—		—		—		—
Restricted stock grants cancelled	—		—		—		(1,244)	—		—		—		—		—

Compensation expense related to stock-based awards	—		—		—		—	—		2,954		—		—		2,954




Redemption of Operating Partnership units for stock	—		(3,310)		—		85,501	—		3,310		—		—		—


Issuance of Preferred D Units in the Operating Partnership in conjunction with acquisitions	23,447		—		—		—	—		—		—		—		23,447


Net income	3,164		4,235		(9)		—	—		—		—		94,770		102,160
Other comprehensive income	(147)		(1,003)		—		—	—		—		(22,843)		—		(23,993)
Distributions to Operating Partnership units held by noncontrolling interests	(3,296)		(5,116)		—		—	—		—		—		—		(8,412)
Dividends paid on common stock at $0.86 per share	—		—		—		—	—		—		—		(109,523)		(109,523)
Balances at March 31, 2019	$	176,264	$	213,168	$	231	127,392,050	$	1,274	$	2,648,723	$	11,807	$	(277,655)	$	2,773,812

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

(amounts in thousands, except share data)

(unaudited)


	Noncontrolling Interest												Extra Space Storage Inc. Stockholders' Equity

		Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at December 31, 2019		$	175,948	$	205,419	$	366	129,534,407	$	1,295	$	2,868,681		$	(28,966)	$	(301,049)	$	2,921,694
Issuance of common stock upon the exercise of options		—		—		—		77,400	1		943			—		—		944
Issuance of common stock in connection with share based compensation		—		—		—		73,602	1		2,979			—		—		2,980
Restricted stock grants cancelled		—		—		—		(1,767)	—		—			—		—		—
Buyback of common stock, net of offering costs		—		—		—		(653,597)	(7)		—			—		(52,197)		(52,204)





Redemption of Operating Partnership units for stock		—		(330)		—		8,862	—		330			—		—		—





Net income		3,112		4,877		(6)		—	—		—			—		108,179		116,162
Other comprehensive income		(563)		(3,807)		—		—	—		—			(84,874)		—		(89,244)
Distributions to Operating Partnership units held by noncontrolling interests		(3,178)		(5,327)		—		—	—		—			—		—		(8,505)
Dividends paid on common stock at $0.90 per share		—		—		—		—	—		—			—		(117,197)		(117,197)
Balances at March 31, 2020		$	175,319	$	200,832	$	360	129,038,907	$	1,290	$	2,872,933		$	(113,840)	$	(362,264)	$	2,774,630

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net income	$	116,162	$	102,160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	55,275		54,659
Amortization of deferred financing costs	2,830		3,034
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	1,209		1,162
Non-cash lease expense	353		—
Compensation expense related to stock-based awards	2,980		2,954



Distributions from unconsolidated real estate ventures in excess of earnings	2,539		1,732
Changes in operating assets and liabilities:

Other assets	2,490		(305)
Accounts payable and accrued expenses	3,727		6,418
Other liabilities	1,691		(2,475)
Net cash provided by operating activities	189,256		169,339
Cash flows from investing activities:
Acquisition of real estate assets	(30,164)		(212,552)
Development and redevelopment of real estate assets	(15,373)		(15,846)


Investment in unconsolidated real estate entities	(6,441)		(17,395)

Issuance of notes receivable	(7,500)		—

Purchase of equipment and fixtures	(1,095)		(1,182)
Net cash used in investing activities	(60,573)		(246,975)
Cash flows from financing activities:

Proceeds from notes payable and revolving lines of credit	268,000		424,000
Principal payments on notes payable and revolving lines of credit	(192,508)		(225,020)
Principal payments on notes payable to trusts	—		(30,928)
Deferred financing costs	(16)		(100)

Net proceeds from exercise of stock options	944		1,757
Repurchase of common stock	(52,204)		—


Dividends paid on common stock	(117,197)		(109,523)
Distributions to noncontrolling interests	(8,505)		(8,412)
Net cash provided by (used in) financing activities	(101,486)		51,774
Net increase (decrease) in cash, cash equivalents, and restricted cash	27,197		(25,862)
Cash, cash equivalents, and restricted cash, beginning of the period	70,733		72,690
Cash, cash equivalents, and restricted cash, end of the period	$	97,930	$	46,828

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2020		2019
Supplemental schedule of cash flow information
Interest paid	$	41,013	$	45,165
Income taxes paid	976		(177)
Supplemental schedule of noncash investing and financing activities:
Redemption of Operating Partnership units held by noncontrolling interests for common stock
Noncontrolling interests in Operating Partnership	$	(330)	$	(3,310)
Common stock and paid-in capital	330		3,310
Establishment of operating lease right of use assets and lease liabilities
Real estate assets - operating lease right-of-use assets	$	—	$	95,506
Operating lease liabilities	—		(104,863)
Accounts payable and accrued expenses	—		9,357
Acquisitions of real estate assets
Real estate assets, net	$	—	$	19,937

Notes payable assumed	—		(17,157)
Investment in unconsolidated real estate ventures	—		(2,780)


Accrued construction costs and capital expenditures
Acquisition of real estate assets	$	960	$	780

Accounts payable and accrued expenses	(960)		(780)
Contribution of Preferred OP Units to unconsolidated real estate venture
Investments in unconsolidated real estate ventures	$	—	$	23,447
Value of Preferred Operating Partnership units issued	—		(23,447)

See accompanying notes to unaudited condensed consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1.ORGANIZATION

Extra Space Storage Inc. (the “Company”) is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties ("stores") located throughout the United States. The Company was formed to continue the business of Extra Space Storage LLC and its subsidiaries, which had engaged in the self-storage business since 1977. The Company’s interest in its stores is held through its operating partnership, Extra Space Storage LP (the “Operating Partnership”), which was formed on May 5, 2004. The Company’s primary assets are general partner and limited partner interests in the Operating Partnership. 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 March 31, 2020, the Company had direct and indirect equity interests in 1,176 stores. In addition, the Company managed 676 stores for third parties, bringing the total number of stores which it owns and/or manages to 1,852. These stores are located in 40 states, 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. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission.

Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 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, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarified that receivables arising from operating leases are within the scope of the leasing standard (ASU 2016-02), and not within the scope of ASU 2016-13. This new standard became effective for the Company on January 1, 2020. The adoption of this standard by the Company did not have a material impact on the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)." ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

EXTRA SPACE STORAGE INC.

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

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

3. FAIR VALUE DISCLOSURES

Derivative Financial Instruments

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall.


	Fair Value Measurements at Reporting Date Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Other liabilities - Cash flow hedge swap agreements	$	—	$	113,986	$	—

The Company did not have any significant assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of March 31, 2020 or December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

When real estate assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value of the assets, net of selling costs. If the estimated fair value, net of selling costs, of the assets that have

EXTRA SPACE STORAGE INC.

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

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

been identified as held for sale is less than the net carrying value of the assets, the Company would recognize an impairment loss on the assets held for sale. The operations of assets held for sale or sold during the period are presented as part of normal operations for all periods presented. As of March 31, 2020, the Company had one parcel of land classified as held for sale which is included in real estate assets, net. The estimated fair value less selling costs for this asset is greater than the carrying value of the asset, and therefore no loss has been recorded.

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

In connection with the Company’s acquisition of stores, the purchase price is allocated to the tangible and intangible assets and liabilities acquired based on their relative fair values, which are estimated using significant unobservable inputs. The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Intangible assets, which represent the value of existing tenant relationships, are recorded at their fair values based on the avoided cost to replace the current leases. The Company measures the value of tenant relationships based on the rent lost due to the amount of time required to replace existing customers, which is based on the Company’s historical experience with turnover in its stores. Any debt assumed as part of an acquisition is recorded at fair value based on current interest rates compared to contractual rates. Acquisition-related transaction costs are capitalized as part of the purchase price.

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, lines of credit and other liabilities reflected in the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 approximate fair value. Restricted cash is comprised of 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.

The fair values of the Company’s notes receivable from Preferred and Common Operating Partnership unit holders, were based on the discounted estimated future cash flows of the notes (categorized within Level 3 of the fair value hierarchy); the discount rate used approximated the current market rate for loans with similar maturities and credit quality. The fair values of the Company’s fixed-rate notes payable were estimated using the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximated current market rates for loans, or groups of loans, with similar maturities and credit quality. The fair value of the Company’s exchangeable senior notes was estimated using an average market price for similar securities obtained from a third party.

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


	March 31, 2020						December 31, 2019
	Fair Value		Carrying Value		Fair Value		Carrying Value
Notes receivable from Preferred and Common Operating Partnership unit holders	$	119,016	$	118,524	$	116,184	$	118,524

Fixed rate notes payable	$	3,599,824	$	3,460,253	$	3,511,151	$	3,417,928
Exchangeable senior notes	$	635,375	$	575,000	$	673,831	$	575,000

EXTRA SPACE STORAGE INC.

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

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

4. 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 (i.e. those that reduce earnings per common share) are included. For the three months ended March 31, 2020, and 2019, there were no anti-dilutive options.

For the purposes of computing the diluted impact of the potential exchange of the Preferred Operating Partnership units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the intent and ability to settle the redemption in shares, the Company divided the total value of the Preferred Operating Partnership units by the average share price for the period presented. The average share price for the three months ended March 31, 2020 and 2019 was $104.13 and $96.05, respectively.

The following table presents the number of Preferred Operating Partnership 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 Three Months Ended March 31,
	2020	2019
	Equivalent Shares (if converted)	Equivalent Shares (if converted)
Series B Units	402,403	436,254
Series C Units (1)	—	129,763
Series D Units	1,153,233	1,083,265
	1,555,636	1,649,282

(1) The remainder of the Series C Units were converted to OP Units on April 25, 2019.

The Operating Partnership had $575,000 of its 3.125% Exchangeable Senior Notes due 2035 (the “2015 Notes”) issued and outstanding as of March 31, 2020. The 2015 Notes could potentially have a dilutive impact on the Company’s earnings per share calculations. The 2015 Notes are exchangeable by holders into shares of the Company’s common stock under certain circumstances per the terms of the indenture governing the 2015 Notes. The exchange price of the 2015 Notes was $91.46 per share as of March 31, 2020, and could change over time as described in the indenture. The Company has irrevocably agreed to pay only cash for the accreted principal amount of the 2015 Notes relative to its exchange obligations, but retained the right to satisfy the exchange obligation in excess of the accreted principal amount in cash and/or common stock.

Although the Company has retained the 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,” requires an assumption that shares would be used to pay the exchange obligation in excess of the accreted principal amount, and requires that those shares be included in the Company’s calculation of weighted average common shares outstanding for the diluted

EXTRA SPACE STORAGE INC.

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

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

earnings per share computation. For the three months ended March 31, 2020 and 2019, 764,703 and 226,527 shares, respectively, related to the 2015 Notes were included in the computation for diluted earnings per 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 fixed $101,700 amount.

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


	For the Three Months Ended March 31,
	2020		2019
Net income attributable to common stockholders	$	108,179	$	94,770
Earnings and dividends allocated to participating securities	(163)		(167)
Earnings for basic computations	108,016		94,603
Earnings and dividends allocated to participating securities	163		—
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units	6,171		5,429
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units)	(572)		(572)
Net income for diluted computations	$	113,778	$	99,460

Weighted average common shares outstanding:
Average number of common shares outstanding - basic	129,288,629		127,037,247
OP Units	5,919,705		5,960,981
Series A Units	875,480		875,480


Unvested restricted stock awards included for treasury stock method	211,602		—
Shares related to exchangeable senior notes and dilutive stock options	844,144		416,008
Average number of common shares outstanding - diluted	137,139,560		134,289,716
Earnings per common share
Basic	$	0.84	$	0.74
Diluted	$	0.83	$	0.74

EXTRA SPACE STORAGE INC.

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

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

5. STORE ACQUISITIONS

The following table shows the Company’s acquisitions of stores for the three months ended March 31, 2020 and 2019. The table excludes purchases of raw land and improvements made to existing assets. All acquisitions are considered asset acquisitions under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business."


			Consideration Paid												Total
Quarter	Number of Stores		Total		Cash Paid		Loan Assumed		Investments in Real Estate Ventures		Net Liabilities/ (Assets) Assumed		Real estate assets



Q1 2020	2		$	19,399	$	19,354	$	—	$	—	$	45	$	19,399





Q1 2019	14	(1)	$	223,740	$	202,890	$	17,157	$	2,780	$	913	$	223,740

⁽¹⁾ Store acquisitions during the three months ended March 31, 2019 include the acquisition of 12 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. No gain or loss was recognized as a result of these acquisitions.

6. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

Investments in unconsolidated real estate entities and cash distributions in unconsolidated real estate ventures represent the Company's interest in preferred stock of SmartStop 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 applicable partnership or joint venture agreement.

In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that cash or profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess cash or profits than its equity interest.

The Company separately reports investments with net equity less than zero in cash distributions in unconsolidated real estate ventures in the condensed consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.

During the three months ended March 31, 2020, the Company contributed a total of $6,441 to its joint ventures for the purchase of one operating store and two stores acquired at the issuance of certificate of occupancy.

EXTRA SPACE STORAGE INC.

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

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

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


	Number of Stores	Equity Ownership %	Excess Profit % (1)	March 31,		December 31,
								2020	2019
PR EXR Self Storage, LLC	5	25%	40%	$	59,147	$	59,391
WICNN JV LLC	10	10%	25%	36,445		36,552
VRS Self Storage, LLC	16	45%	54%	17,356		17,639
ESS-NYFL JV LP	11	16%	24%	12,611		13,320
GFN JV, LLC	6	10%	30%	15,576		12,168
PRISA Self Storage LLC	85	4%	4%	9,073		9,133
Alan Jathoo JV LLC	9	10%	10%	7,928		7,977
Storage Portfolio III JV LLC	5	10%	30%	5,832		3,995
ESS Bristol Investments LLC	8	10%	28%	2,914		3,046


Extra Space Northern Properties Six LLC	10	10%	35%	(2,228)		(2,091)
Storage Portfolio II JV LLC	36	10%	30%	(4,915)		(4,827)
Storage Portfolio I LLC	24	34%	49%	(38,570)		(38,345)
Other minority owned stores	19	10-50%	19-50%	25,523		24,832
SmartStop Self Storage REIT, Inc. Preferred Stock (2)	n/a	n/a	n/a	150,000		150,000
Net Investments in and Cash distributions in unconsolidated real estate entities	244			$	296,692	$	292,790

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

(2) In October 2019, the Company invested $150,000 in shares of newly issued convertible preferred stock of SmartStop,with an additional commitment to purchase up to $50,000 of the preferred shares over the 12 months after the original purchase. 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 condensed consolidated statements of operations.

EXTRA SPACE STORAGE INC.

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

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

7. VARIABLE INTERESTS

The Operating Partnership had three wholly-owned unconsolidated subsidiaries (“Trust,” “Trust II” and “Trust III,” together, the “Trusts”) that had issued trust preferred securities to third parties and common securities to the Operating Partnership. The proceeds from the sale of the preferred and common securities were loaned in the form of notes to the Operating Partnership. The Trusts were variable interest entities ("VIEs") because the holders of the equity investment at risk (the trust preferred securities) did not have the power to direct the activities of the entities that most significantly affect the entities’ economic performance because of their lack of voting or similar rights. Because the Operating Partnership’s investment in the Trusts’ common securities was financed directly by the Trusts as a result of its loan of the proceeds to the Operating Partnership, that investment was not considered an equity investment at risk. The Operating Partnership’s investment in the Trusts was not a variable interest because equity interests are variable interests only to the extent that the investment is considered to be at risk, and therefore the Operating Partnership cannot be the primary beneficiary of the Trusts. Since the Company was not the primary beneficiary of the Trusts, they were not consolidated. A debt obligation was recorded in the form of notes for the proceeds as discussed above, which were owed to the Trusts. The Company had also included its investment in the Trusts’ common securities in other assets on the condensed consolidated balance sheets.

During the year ended December 31, 2018, the Company repaid a total principal amount of $88,662, 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.

During the time they were outstanding, the Company did not provide 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 was 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 was equal to the notes payable that the Trusts owed to third parties for their investments in the Trusts’ preferred securities.

The Company had no consolidated VIEs during the three months ended March 31, 2020.

8. DERIVATIVES

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and by using derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposure that arises from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“OCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. A portion of these changes is excluded from accumulated other comprehensive income as it is allocated to noncontrolling interests. During the three months ended March 31, 2020 and 2019, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. In the coming 12 months, the Company estimates that $32,595 will be reclassified and increase interest expense.

EXTRA SPACE STORAGE INC.

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

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

The Company held 25 derivative financial instruments which had a total combined notional amount of $2,396,948 as of March 31, 2020.

Fair Values of Derivative Instruments

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets:


	Asset / Liability Derivatives
	March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:	Fair Value
Other assets	$	—	$	6,214
Other liabilities	$	113,986	$	31,400

Effect of Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statements of operations for the periods presented. No tax effect has been presented as the derivative instruments are held by the Company:


	Gain (loss) recognized in OCI For the Three Months Ended March 31,					Location of amounts reclassified from OCI into income		Gain (loss) reclassified from OCI For the Three Months Ended March 31,
Type	2020		2019					2020		2019
Swap Agreements	$	(89,710)	$	(19,576)	Interest expense	$	(563)	$	4,462

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 March 31, 2020, 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 $116,411. As of March 31, 2020, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 31, 2020, it could have been required to cash settle its obligations under the agreements at their termination value of $116,411, including accrued interest.

EXTRA SPACE STORAGE INC.

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

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

9. EXCHANGEABLE SENIOR NOTES

In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in exchangeable senior notes, net, in the condensed consolidated balance sheets. The 2015 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on April 1 and October 1 of each year beginning April 1, 2016, until the maturity date of October 1, 2035. The 2015 Notes bear interest at 3.125% per annum and contain an exchange settlement feature, which provides that the 2015 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2015 Notes as of March 31, 2020 was approximately 10.93 shares of the Company’s common stock per $1,000 principal amount of the 2015 Notes.

The Operating Partnership may redeem the 2015 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after October 5, 2020, the Operating Partnership may redeem the 2015 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2015 Notes. The holders of the 2015 Notes have the right to require the Operating Partnership to repurchase the 2015 Notes for cash, in whole or in part, on October 1 of the years 2020, 2025 and 2030 (unless the Operating Partnership has called the 2015 Notes for redemption), and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2015 Notes, which may result in the accelerated maturity of

the 2015 Notes.

Additionally, the 2015 Notes can be exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company is greater than or equal to 130% of the exchange price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter. The price of the Company’s common stock did not exceed 130% of the exchange price for the required time period for the 2015 Notes during the quarter ended March 31, 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 accounts for the liability and equity components of the 2015 Notes separately. The equity components are included in paid-in capital in stockholders’ equity in the condensed consolidated balance sheets, and the value of the equity components are treated as original issue discount for purposes of accounting for the debt components. The discounts are amortized as interest expense over the remaining period of the debt through its first redemption date of October 1, 2020. The effective interest rate on the liability components of the 2015 Notes is 4.0%, which approximated the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.

Information about the Company’s 2015 Notes, including the total carrying amount of the equity component, the principal amount of the liability component, the unamortized discount and the net carrying amount was as follows for the periods indicated:


	March 31, 2020		December 31, 2019
Carrying amount of equity component	$	22,597	$	22,597


Principal amount of liability component	$	575,000	$	575,000

Unamortized discount - equity component	(2,466)		(3,675)


Unamortized debt issuance costs	(1,213)		(1,812)
Net carrying amount of liability component	$	571,321	$	569,513

EXTRA SPACE STORAGE INC.

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

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

The amount of interest cost recognized relating to the contractual interest rate and the amortization of the discount on the liability component of the Notes were as follows for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019
Contractual interest	$	4,492	$	4,492
Amortization of discount	1,209		1,162
Total interest expense recognized	$	5,701	$	5,654

10. STOCKHOLDERS’ EQUITY

On May 15, 2019, the Company filed its $500,000 "at the market" equity program with the Securities and Exchange Commission using a shelf registration statement on Form S-3, and entered into separate equity distribution agreements with nine sales agents.

During the three months ended March 31, 2020, the Company sold no shares of common stock under its "at the market" equity program and had $298,621 available for issuance under the equity distribution agreements.

On November 8, 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. In March 2020, the Company repurchased 653,597 shares at an average price of $79.85, paying a total of $52,204. As of March 31, 2020, the Company had remaining authorization to repurchase shares with an aggregate value up to $347,796.

11. NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS

Classification of Noncontrolling Interests

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

The Company has evaluated the terms of the Operating Partnership’s preferred units and classifies the noncontrolling interest represented by such preferred units as stockholders’ equity in the accompanying condensed consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the condensed consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount and (2) the redemption value as of the end of the period in which the determination is made.

At March 31, 2020 and December 31, 2019, the noncontrolling interests represented by the Preferred OP Units qualified for classification as permanent equity on the Company's condensed consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. As of March 31, 2020 and December 31, 2019, noncontrolling interests in Preferred OP Units were presented net of notes receivable from Preferred OP Unit holders of $100,000 as more fully described below.

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.

EXTRA SPACE STORAGE INC.

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

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

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 OP Units. The Series A Units are redeemable at the option of the holder, which redemption obligation may be satisfied, at the Company’s option, in cash or shares of its common stock. As a result of the redemption of 114,500 Series A Units in October 2014, the remaining fixed liquidation value was reduced to $101,700, which represents 875,480 Series A Units.

On June 25, 2007, the Operating Partnership loaned the holder of the Series A Units $100,000. The loan bears interest at 2.1%. The loan is secured by the borrower’s Series A Units. No future redemption of Series A Units can be made unless the loan secured by the Series A Units is also repaid. The Series A Units are shown on the balance sheet net of the $100,000 loan because the borrower under the loan receivable 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 fixed liquidation value of $41,902, which represents 1,676,087 Series B Units. Holders of the Series B Units receive distributions at an annual rate of 6.0%. These distributions are cumulative. The Series B Units became redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock.

Series C Convertible Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series C Units. The Series C Units ranked junior to the Series A Units, on parity with the Series B Units and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series C Units were issued in 2013 and 2014 and had a liquidation value of $42.10 per unit. The Series C Units became redeemable at the option of the holder one year from the date of issuance, which redemption obligation could be satisfied at the Company’s option in cash or shares of its common stock. The Series C Units were convertible into OP Units at the option of the holder at a rate of 0.9145 OP Units per Series C Unit converted. This conversion option expired upon the fifth anniversary of the date of issuance.

In December 2014, the Operating Partnership loaned certain holders of the Series C Units $20,230. The loan receivable, which was collateralized by the Series C Units, bears interest at 5.0% per annum and matures on December 15, 2024. The Series C Units were shown on the balance sheet net of the loan balance because the borrower under the loan receivable was 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 OP Units, with a total of 407,996 Series C Units being converted into a total of 373,113 OP Units. As part of this conversion, the holders of the Series C Units agreed to pledge the 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 total outstanding balance of the loan receivable was $19,735, of which $8,644 was shown as a reduction of the noncontrolling interests related to the Series C Units and $11,091 was shown as a reduction of the noncontrolling interests related to the OP Units on the Company's consolidated balance sheets. On April 25, 2019, the remaining 296,020 Series C Units were converted into 270,709 OP Units. The remaining outstanding balance of the loan receivable of $18,524 is shown as a reduction of the noncontrolling interests related to the OP Units as of December 31, 2019 and March 31, 2020. See footnote 12 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 interests of the Operating Partnership with respect to distributions and liquidation.

EXTRA SPACE STORAGE INC.

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

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

The Series D Units have been issued at various times from 2014 to 2019. During the three months ended March 31, 2019, the Operating Partnership issued 1,120,924 Series D Units valued at $28,023 in conjunction with joint venture acquisitions.

The Series D Units have a liquidation value of $25.00 per unit, for a fixed liquidation value of $120,086, which represents 4,803,445 Series D Units. Holders of the Series D Units receive distributions at an annual rate between 3.0% and 5.0%. These distributions are cumulative. The Series D Units become redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. In addition, certain of the Series D Units are exchangeable for OP Units at the option of the holder until the tenth anniversary of the date of issuance, with the number of OP Units to be issued equal to $25.00 per Series D Unit, divided by the value of a share of common stock as of the exchange date.

12. NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS

Noncontrolling Interest in Operating Partnership

The Company’s interest in its stores is held through the Operating Partnership. Between its general partner and limited partner interests, the Company held a 93.8% ownership interest in the Operating Partnership as of March 31, 2020. The remaining ownership interests in the Operating Partnership (including Preferred OP Units) of 6.2% are held by certain former owners of assets acquired by the Operating Partnership. As of March 31, 2020 and December 31, 2019, the noncontrolling interests in the Operating Partnership are shown on the balance sheet net of notes receivable of $18,524 because the borrowers under the loan receivable are also holders of OP Units (Note 11). This loan receivable bears interest at 5.0% per annum and matures on December 15, 2024.

The noncontrolling interest in the Operating Partnership represents OP Units that are not owned by the Company. OP Units are redeemable at the option of the holder, which redemption may be satisfied at the Company's option in cash, based upon the fair market value of an equivalent number of shares of the Company’s common stock (based on the ten-day average trading price) at the time of the redemption, or shares of the Company's common stock on a one-for-one basis, subject to anti-dilution adjustments provided in the Partnership Agreement. As of March 31, 2020, the ten-day average closing price of the Company's common stock was $87.07 and there were 5,915,916 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on March 31, 2020 and the Company elected to pay the OP Unit holders cash, the Company would have paid $515,099 in cash consideration to redeem the units.

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


	For the Three Months Ended March 31,
	2020	2019
OP Units redeemed for common stock	8,862	85,501

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations, and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

The Company has evaluated the terms of the OP Units and classifies the noncontrolling interest represented by the OP Units as stockholders’ equity in the accompanying condensed consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the condensed consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount and (2) the redemption value as of the end of the period in which the determination is made.

Other Noncontrolling Interests

EXTRA SPACE STORAGE INC.

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

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

Other noncontrolling interests represent the ownership interests of third parties in two consolidated joint ventures as of March 31, 2020. One joint venture owns four operating stores, and the other joint venture owns one operating store and one development store. The voting interests of the third-party owners are between 5.0% and 20.0%.

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

The Company has two 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 the Company's real estate assets, intangible assets, other assets, and accrued and other liabilities are associated with the self-storage operations segment. Financial information for the Company’s business segments is set forth below:


	For the Three Months Ended March 31,
	2020		2019
Revenues:
Self-Storage Operations	$	286,703	$	271,003
Tenant Reinsurance	33,613		29,797
Total segment revenues	$	320,316	$	300,800

Operating expenses:
Self-Storage Operations	$	90,297	$	78,765
Tenant Reinsurance	6,678		6,967
Total segment operating expenses	$	96,975	$	85,732

Net operating income:
Self-Storage Operations	$	196,406	$	192,238
Tenant Reinsurance	26,935		22,830
Total segment net operating income:	$	223,341	$	215,068

Other components of net income (loss):
Property management fees and other income	$	12,136	$	10,746
General and administrative expense	(23,011)		(22,678)
Depreciation and amortization expense	(55,275)		(54,659)

Interest expense	(44,358)		(47,360)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,209)		(1,162)
Interest income	1,674		1,388

Equity in earnings and dividend income from unconsolidated real estate entities	5,043		2,630
Income tax expense	(2,179)		(1,813)
Net income	$	116,162	$	102,160

14. COMMITMENTS AND CONTINGENCIES

As of March 31, 2020, the Company was involved in various legal proceedings and was subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period, notwithstanding the fact that the Company is currently vigorously defending any legal proceedings against it.

EXTRA SPACE STORAGE INC.

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

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

As of March 31, 2020, the Company was under agreement to acquire three stores at a total purchase price of $20,634. One store is scheduled to close in 2020 and the remaining two stores are expected to close in 2021. Additionally, the Company is under agreement to acquire five stores with joint venture partners, for a total investment of $25,770. Four of these stores are scheduled to close in 2020 and the remaining store is expected to close in 2021.

Although there can be no assurance, the Company is not aware of any material environmental liability, for which it believes it will be ultimately responsible, that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s stores, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to its stores could result in future material environmental liabilities.

15. SUBSEQUENT EVENTS

Subsequent to March 31, 2020, the global economy has continued to be severely impacted by the COVID-19 pandemic. The impact of the COVID-19 pandemic on the U.S. and world economies generally, and on our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. This includes new information which may emerge concerning the severity of COVID-19, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Amounts in thousands, except store and share data

CAUTIONARY LANGUAGE

The following discussion and analysis should be read in conjunction with our unaudited “Condensed Consolidated Financial Statements” and the “Notes to Condensed Consolidated Financial Statements (unaudited)” appearing elsewhere in this report and the “Consolidated Financial Statements,” “Notes to Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Form 10-K for the year ended December 31, 2019. 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-Q entitled “Statement on Forward-Looking Information.”

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report and the audited financial statements contained in our Form 10-K for the year ended December 31, 2019 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.

CURRENT MATERIAL DEVELOPMENT – THE COVID-19 PANDEMIC

The United States and other countries around the world are experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in impacted regions are taking increasingly dramatic action in an effort to slow the spread of COVID-19. Federal, state and local jurisdictions have issued varying forms of “stay-at-home” orders, halting public gatherings and restricting business functions outside of one’s home to only those that are considered “essential.” We are working to comply within the framework of local, county, state and federal laws as they evolve. In that regard, we have implemented a wide range of practices to protect and support our employees and customers. Such measures include instituting “work from home” measures at our corporate offices and call center, instituting a contactless rental process that allows our on-site employees to continue to rent storage units without physical interaction, and providing personal protective equipment to on-site employees providing essential functions so that hygiene and “social distancing” standards can be effectively managed and applied. We have transitioned many of our interactions between customers and leasing and support staff to on-line and telephonic communications. Due to the COVID-19 pandemic, our customers may be impacted, including through unemployment, which may impact their ability to pay rent or renew their leases.

While we have seen a decrease in new rentals as a result of the COVID-19 pandemic, we have not seen significant vacates from existing tenants, which continue to make up the majority of our occupancy.

Although the self-storage has historically been resilient to ordinary market downturns, the impact of the COVID-19 pandemic on the U.S. and world economies generally, and on our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. This includes new information which may emerge

concerning the severity of COVID-19, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

OVERVIEW

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 internally, 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 proprietary pricing 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.

PROPERTIES

As of March 31, 2020, we owned or had ownership interests in 1,176 operating stores. Of these stores, 927 are wholly-owned, five are in consolidated joint ventures, and 244 are in unconsolidated joint ventures. In addition, we managed an additional 676 stores for third parties bringing the total number of stores which we own and/or manage to 1,852. These stores are located in 40 states, Washington, D.C. and Puerto Rico. The majority of our stores are clustered around large population centers. The clustering of assets around these population centers enables us to reduce our operating costs through economies of scale. Our acquisitions have given us an increased scale in many core markets as well as a foothold in many markets where we had no previous presence.

As of March 31, 2020, approximately 1,030,000 tenants were leasing storage units at the operating stores that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit. Existing tenants generally receive rate increases at least annually, for which no direct correlation has been drawn to our vacancy trends. Although leases are short-term in duration, the typical tenant tends to remain at our stores for an extended period of time. For stores that were stabilized as of March 31, 2020, the average length of stay was approximately 16.1 months.

The average annual rent per square foot for our existing customers at stabilized stores, net of discounts and bad debt, was $16.42 for the three months ended March 31, 2020, compared to $16.22 for the three months ended March 31, 2019. Average annual rent per square foot for new leases was $18.66 for the three months ended March 31, 2020, compared to $17.66 for the three months ended March 31, 2019. The average discounts, as a percentage of rental revenues, at all stabilized properties during these periods were 3.2% and 3.4%, respectively.

Our store portfolio is made up of different types of construction and building configurations. Most often sites are what we consider “hybrid” stores, a mix of drive-up and multi-floor buildings. We have a number of multi-floor buildings with elevator access only, and a number of stores featuring ground-floor access only.

The following table presents additional information regarding net rentable square feet and the number of stores by state.


	March 31, 2020
	REIT Owned			Joint Venture Owned			Managed		Total
Location	Property Count⁽¹⁾	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet
Alabama	8	557,538	1	75,821	14	1,013,225	23	1,646,584

Arizona	23	1,623,422	7	468,275	17	1,388,188	47	3,479,885

California	166	12,681,551	41	3,010,523	66	6,152,489	273	21,844,563
Colorado	17	1,154,826	2	186,318	23	1,741,170	42	3,082,314
Connecticut	7	530,220	7	630,009	5	331,035	19	1,491,264
Delaware	—	—	1	76,945	2	137,618	3	214,563
Florida	91	6,990,368	31	2,583,489	93	7,232,854	215	16,806,711
Georgia	63	4,868,448	6	511,367	22	1,648,442	91	7,028,257
Hawaii	13	848,264	—	—	4	211,634	17	1,059,898
Idaho	—	—	—	—	7	712,786	7	712,786
Illinois	37	2,808,931	7	566,908	29	2,125,520	73	5,501,359
Indiana	15	950,671	1	58,166	12	738,189	28	1,747,026

Kansas	1	83,011	2	108,770	2	147,242	5	339,023
Kentucky	11	930,478	1	51,128	4	339,523	16	1,321,129
Louisiana	2	142,525	—	—	5	466,550	7	609,075

Maryland	31	2,655,908	8	618,458	30	2,110,571	69	5,384,937
Massachusetts	46	2,973,668	10	641,533	6	454,667	62	4,069,868
Michigan	7	560,657	4	313,176	3	249,901	14	1,123,734
Minnesota	5	382,961	2	150,870	9	628,202	16	1,162,033
Mississippi	3	220,182	—	—	3	205,610	6	425,792
Missouri	5	333,480	2	119,275	8	539,518	15	992,273

Nebraska	—	—	—	—	2	194,970	2	194,970
Nevada	14	1,040,201	4	473,471	5	533,505	23	2,047,177
New Hampshire	2	136,135	2	83,925	1	61,490	5	281,550
New Jersey	59	4,665,875	17	1,246,378	14	1,099,279	90	7,011,532
New Mexico	11	721,690	6	349,860	12	890,990	29	1,962,540
New York	27	1,972,200	18	1,510,548	20	1,190,289	65	4,673,037
North Carolina	19	1,411,294	5	373,864	18	1,353,003	42	3,138,161

Ohio	17	1,315,221	5	327,213	7	546,293	29	2,188,727
Oklahoma	—	—	—	—	21	1,731,033	21	1,731,033
Oregon	6	399,921	4	281,709	11	766,965	21	1,448,595
Pennsylvania	18	1,351,196	7	513,083	23	1,720,165	48	3,584,444
Rhode Island	2	130,696	—	—	2	165,617	4	296,313
South Carolina	24	1,843,372	7	497,758	15	1,180,662	46	3,521,792

Tennessee	17	1,433,223	12	803,886	16	1,161,571	45	3,398,680
Texas	100	8,603,027	10	707,712	81	6,589,954	191	15,900,693
Utah	10	710,019	—	—	18	1,343,811	28	2,053,830

Virginia	46	3,682,996	7	567,003	18	1,365,942	71	5,615,941
Washington	8	590,132	1	57,340	10	811,993	19	1,459,465
Washington, DC	1	100,039	1	103,567	5	392,974	7	596,580

Wisconsin	—	—	5	508,836	5	428,525	10	937,361

Puerto Rico	—	—	—	—	8	916,914	8	916,914
Totals	932	71,404,346	244	18,577,184	676	53,020,879	1,852	143,002,409

(1) Includes five consolidated joint venture stores.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2020 and 2019

Overview

Results for the three months ended March 31, 2020 included the operations of 1,176 stores (927 wholly-owned, five in consolidated joint ventures, and 244 in joint ventures accounted for using the equity method) compared to the results for the three months ended March 31, 2019, which included the operations of 1,119 stores (891 wholly-owned, four in consolidated joint ventures, and 224 in joint ventures accounted for using the equity method).

Revenues

The following table presents information on revenues earned for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019		$ Change		% Change
Revenues:
Property rental	$	286,703	$	271,003	$	15,700	5.8	%
Tenant reinsurance	33,613		29,797		3,816		12.8	%
Management fees and other income	12,136		10,746		1,390		12.9	%
Total revenues	$	332,452	$	311,546	$	20,906	6.7	%

Property Rental—The increase in property rental revenues for the three months ended March 31, 2020 was primarily the result of revenues from newly-acquired stores and increases in rental rates at our stabilized stores. An increase of $9,655 was attributable to store acquisitions completed in 2020 and 2019. We acquired two wholly-owned stores during the three months ended March 31, 2020. We acquired 21 stores and added 27 leased properties (as part of a new net lease agreement) during

the year ended December 31, 2019. An increase of $5,034 for the three months ended March 31, 2020 was due to higher net rental rates for new and existing customers at our stabilized stores.

Tenant Reinsurance—The increase in our tenant reinsurance revenues was due primarily to an increase in the number of stores operated. We operated 1,852 stores at March 31, 2020 compared to 1,696 stores at March 31, 2019.

Management Fees and Other Income—Management fees and other income primarily represent the fee collected for our management of stores owned by third parties and unconsolidated joint ventures and other transaction fee income. The increase for the three months ended March 31, 2020 was primarily due to an increase in the number of stores managed. As of March 31, 2020, we managed 925 stores for joint ventures and third parties, compared to 805 stores as of March 31, 2019.

Expenses

The following table presents information on expenses for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019		$ Change		% Change
Expenses:
Property operations	$	90,297	$	78,765	$	11,532	14.6	%
Tenant reinsurance	6,678		6,967		(289)		(4.1)	%
General and administrative	23,011		22,678		333		1.5	%
Depreciation and amortization	55,275		54,659		616		1.1	%
Total expenses	$	175,261	$	163,069	$	12,192	7.5	%

Property Operations—The increase in property operations expense during the three months ended March 31, 2020 was due primarily to an increase of $8,976 attributable to store acquisitions completed in 2020 and 2019. We acquired two wholly-owned stores during the three months ended March 31, 2020. We acquired 21 stores and added 27 leased properties (as part of a new net lease agreement) during the year ended December 31, 2019. An additional increase of $2,339 for the three months ended March 31, 2020 was related to an increase in expenses from property taxes, payroll and benefits, and marketing.

Tenant Reinsurance—Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance. The decrease in tenant reinsurance expense for three months ended March 31, 2020 was due primarily to a reduction in the number of claims as well as a decrease in the overall average payout on individual claims when compared to the three months ended March 31, 2019.

General and Administrative—General and administrative expenses primarily include all expenses not directly related to our stores, including corporate payroll, office expense, office rent, travel and professional fees. We did not observe any material trends in specific payroll, travel or other expenses apart from the increase due to the management of additional stores.

Depreciation and Amortization—Depreciation and amortization expense increased as a result of the acquisition of new stores. We acquired two stores during the three months ended March 31, 2020. We acquired 21 stores during the year ended December 31, 2019.

Other Revenues and Expenses

The following table presents information about other revenues and expenses for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019		$ Change		% Change


Interest expense	$	(44,358)	$	(47,360)	$	3,002	(6.3)	%
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,209)		(1,162)		(47)		4.0	%
Interest income	1,674		1,388		286		20.6	%

Equity in earnings and dividend income from unconsolidated real estate entities	5,043		2,630		2,413		91.7	%

Income tax expense	(2,179)		(1,813)		(366)		20.2	%
	$	(41,029)	$	(46,317)	$	5,288	(11.4)	%

Interest Expense—The decrease in interest expense during the three months ended March 31, 2020 was primarily the result of a lower average interest rate compared to the same period in the prior year. The average interest rate for the three months ended March 31, 2020 was 3.1%, compared to an average interest rate of 3.5% for the three months ended March 31, 2019.

Non-cash Interest Expense Related to Amortization of Discount on Equity Component of Exchangeable Senior Notes—Represents the amortization of the discounts related to the equity components of the exchangeable senior notes issued by our Operating Partnership. The 2015 Notes had an effective interest rate of 4.0% relative to the carrying amount of the liability.

Interest Income—Interest income represents amounts earned on cash and cash equivalents deposited with financial institutions, interest earned on bridge loans and income earned on note receivable from Common and Preferred Operating Partnership unit holders. In late 2018 we began to provide bridge financing on completed properties, including recently completed properties, owned by third parties that we manage. The increase in interest income during the three months ended March 31, 2020 was primarily the result of interest earned on these bridge loans.

Equity in Earnings and Dividend Income from Unconsolidated Real Estate Entities—Equity in earnings of unconsolidated real estate entities represents the income earned through our ownership interests in unconsolidated joint ventures. In these joint ventures, we and our joint venture partners generally receive a preferred return on our invested capital. To the extent that cash or profits in excess of these preferred returns are generated, we receive a higher percentage of the excess cash or profits. Dividend income represents dividends from our investment in preferred stock of SmartStop, which was purchased in October 2019. The increase related primarily to the dividends income recognized during the three months ended March 31, 2020.

Income Tax Expense—For the three months ended March 31, 2020, the increase in income tax expense was the result of an increase in income earned by our taxable REIT subsidiary when compared to the same period in the prior year.

FUNDS FROM OPERATIONS

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 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 our condensed 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.

The following table presents the calculation of FFO for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019
Net income attributable to common stockholders	$	108,179	$	94,770

Adjustments:
Real estate depreciation	52,926		50,773
Amortization of intangibles	617		2,288

Unconsolidated joint venture real estate depreciation and amortization	2,164		1,872

Distributions paid on Series A Preferred Operating Partnership units	(572)		(572)
Income allocated to Operating Partnership noncontrolling interests	7,983		7,390
Funds from operations attributable to common stockholders and unit holders	$	171,297	$	156,521

SAME-STORE RESULTS

Our same-store pool for the periods presented consists of 863 stores that are wholly-owned and operated and that were stabilized by the first day of the earliest calendar year presented. We consider a store to be stabilized once it has been open for three years or has sustained average square foot occupancy of 80% or more for one calendar year. We believe that by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to: occupancy, rental revenue growth, operating expense growth, net operating income growth, etc., stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions or completed developments. Same-store results should not be used as a basis for future same-store performance or for the performance of our stores as a whole. The following table presents operating data for our same-store portfolio.


	For the Three Months Ended March 31,					Percent
	2020		2019		Change
Same-store rental revenues	$	270,063	$	264,905	1.9%
Same-store operating expenses	78,401		75,502		3.8%
Same-store net operating income	$	191,662	$	189,403	1.2%
Same-store square foot occupancy as of quarter end	91.3%		91.4%
Properties included in same-store	863		863

Same-store revenues for the three months ended March 31, 2020 increased due to higher average occupancy and net rental rates for customers. Same-store expenses were higher for the three months ended March 31, 2020 primarily due to increases in marketing, payroll and benefits, and property taxes. For the three months ended March 31, 2020, the increase in same-store expenses was partially offset by decreases in repairs and maintenance expense.

The following table presents a reconciliation of same-store net operating income to net income as presented on our condensed consolidated statements of operations for the periods indicated:


	For the Three Months Ended March 31,
	2020		2019
Net Income	$	116,162	$	102,160
Adjusted to exclude:

Equity in earnings and dividend income from unconsolidated real estate entities	(5,043)		(2,630)


Interest expense	45,567		48,522
Depreciation and amortization	55,275		54,659
Income tax expense	2,179		1,813
General and administrative	23,011		22,678
Management fees, other income and interest income	(13,810)		(12,134)
Net tenant insurance	(26,935)		(22,830)
Non-same store rental revenue	(16,640)		(6,098)
Non-same store operating expense	11,896		3,263
Total Same-store net operating income	$	191,662	$	189,403

Same-store rental revenues	$	270,063	$	264,905
Same-store operating expenses	78,401		75,502
Same-store net operating income	$	191,662	$	189,403

CASH FLOWS

Cash flows from operating activities increased as a result of our continued revenue growth. This growth was due to increased rental rates and an increase in the number of stores we own and operate. Cash flows used in investing activities relates primarily to our acquisition and development of REIT and joint venture assets, as well as activity on our bridge loan program. Cash flows from financing activities depend primarily on our debt and equity financing activities. A summary of cash flows along with significant components are as follows:


	For the Three Months Ended March 31,
	2020		2019
Net cash provided by operating activities	$	189,256	$	169,339
Net cash used in investing activities	(60,573)		(246,975)
Net cash provided by (used in) financing activities	(101,486)		51,774

Significant components of net cash flow included:
Net income	$	116,162	$	102,160
Depreciation and amortization	55,275		54,659
Acquisition and development of new stores	(45,537)		(228,398)


Repurchase of common stock	(52,204)		—

Net proceeds (payments) from our debt financing	75,492		168,052
Dividends paid on common stock	(117,197)		(109,523)

We believe that cash flows generated by operations, along with our existing cash and cash equivalents, the availability of funds under our existing lines of credit, and our access to capital markets will be sufficient to meet all of our reasonably anticipated cash needs during the next 12 months. These cash needs include operating expenses, monthly debt service payments, recurring capital expenditures, acquisitions, redevelopments and expansions, distributions to unit holders and dividends to stockholders necessary to maintain our REIT qualification.

We expect to generate positive cash flow from operations in 2020, and we consider these projected cash flows in our sources and uses of cash. These cash flows are principally derived from rents paid by our tenants. A significant deterioration in projected cash flows from operations could cause us to increase our reliance on available funds under our existing lines of credit, curtail planned capital expenditures, or seek other additional sources of financing.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2020, we had $93,297 available in cash and cash equivalents. Our cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our operating accounts. During 2020 and 2019, we experienced no loss or lack of access to our cash or cash equivalents; however, there can be no assurance that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

As of March 31, 2020, we had $5,151,993 face value of debt, resulting in a debt to total enterprise value ratio of 27.9%. As of March 31, 2020, the ratio of total fixed-rate debt and other instruments to total debt was 78.3% (including $2,333,276 on which we have interest rate swaps that have been included as fixed-rate debt). The weighted average interest rate of the total of fixed- and variable-rate debt at March 31, 2020 was 3.1%. Certain of our real estate assets are pledged as collateral for our debt. We are subject to certain restrictive covenants relating to our outstanding debt. We were in compliance with all financial covenants at March 31, 2020.

We expect to fund our short-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to stockholders, distributions to holders of Operating Partnership units and interest on our outstanding indebtedness, out of our operating cash flow, cash on hand and borrowings under our revolving lines of credit. In addition, we are pursuing additional sources of financing based on anticipated funding needs.

Our liquidity needs consist primarily of operating expenses, monthly debt service payments, recurring capital expenditures, dividends to stockholders and distributions to unit holders necessary to maintain our REIT qualification. We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In addition, we evaluate, on an ongoing basis, the merits of strategic acquisitions and other relationships, which may require us to raise additional funds. We may also use Operating Partnership units as currency to fund acquisitions from self-storage owners.

The COVID-19 Pandemic has had negative impacts on the cost of debt and equity capital, and may continue to do so or such negative impacts could intensify. Based upon the current availability of our credit facility and our credit rating, we do not expect such capital market dislocations to have a material impact upon our ability to satisfy obligations and maturities or our growth plans during the year. However, there can be no assurance that they would not in the future, if they were to persist for a long period of time or intensify.

OFF-BALANCE SHEET ARRANGEMENTS

Except as disclosed in the notes to our consolidated financial statements of our most recently filed Annual Report on Form 10-K, we do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, except as disclosed in the notes to our condensed consolidated financial statements, we have not guaranteed any obligations of unconsolidated entities, nor do we have any commitments or intent to provide funding to any such entities. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

SEASONALITY

The self-storage business is subject to seasonal fluctuations. A greater portion of revenues and profits are realized from May through September. Historically, our highest level of occupancy has been at the end of July, while our lowest level of occupancy has been in late February and early March. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our future income, cash flows and fair values of financial instruments are dependent upon prevailing market interest rates.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

As of March 31, 2020, we had approximately $5.2 billion in total face value of debt, of which approximately $1.1 billion was subject to variable interest rates (excluding debt with interest rate swaps). If LIBOR were to increase or decrease by 100 basis points, the increase or decrease in interest expense on the variable-rate debt would increase or decrease future earnings and cash flows by approximately $11.2 million annually.

Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

ITEM 4. CONTROLS AND PROCEDURES

(1)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 Securities and Exchange Commission, 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 a 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 our disclosure obligations 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 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.

(2)Changes in internal control over financial reporting

There were no changes 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings and are 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. We could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period, notwithstanding the fact that we are currently vigorously defending any legal proceedings against us.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition and results of operations. Except as described below, there have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2019. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and results of operations.

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely affect our financial condition, operating results and cash flows.

The outbreak of COVID-19, which has rapidly spread to a growing number of countries, including the United States and the specific regions in which our stores are located, has created considerable instability and disruption in the U.S. and world economies. Considerable uncertainty still surrounds COVID-19 and its potential effects, as well as the extent of and effectiveness of any responses taken on a national and local level. However, measures taken to limit the impact of COVID-19, including “social distancing” and other restrictions on travel, congregation and business operations have already resulted in significant negative economic impacts. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain, but is likely to result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted. The extent to which our financial condition or operating results will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted.

Our operating results depend, in large part, on revenues derived from the demand for self-storage space. If the outbreak causes further weakness in national, regional and local economies that negatively impacts the demand for self-storage space, our financial condition, operating results and cash flows could be adversely impacted. The spread of COVID-19 could also result in further increases in unemployment, and customers that experience deteriorating financing conditions as a result of the pandemic may be unwilling or unable to pay rent on a timely basis, or at all. Additionally, certain states and cities, including where we own or operate stores, have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “stay-at-home” orders and business shutdowns, which could result in the Company being required to close access at some stores to customers. Certain states have also put into effect state of emergency orders which may restrict our ability to increase rent or evict delinquent tenants. In addition, we typically conduct many aspects of our leasing activity on-site at our stores, as well as offer various ancillary products, including moving and packing supplies, and other services, such as tenant reinsurance. Accordingly, reductions in the ability and willingness of customers to visit our facilities due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our facilities. Concerns relating to the COVID-19 pandemic could also cause our on-site personnel to avoid reporting for work at our facilities, which could adversely affect our ability to adequately manage our facilities. Such restrictions may reduce demand for self-storage facilities which could negatively impact occupancy and rental rates and therefore our results of operations and cash flows.

Additionally, market fluctuations as a result of the COVID-19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments on satisfactory terms, or at all. In addition, moratoriums on construction and macro-economic factors may cause construction

contractors to be unable to perform, which may delay the start or completion of certain development projects by us or our joint venture partners. Further, while we carry comprehensive property and casualty insurance along with other insurance policies that may provide some coverage for any losses or costs incurred in connection with the COVID-19 pandemic, given the novelty of the issue and the scale of losses incurred throughout the world, there can be no assurance that we will be able to recover all or any portion of our losses and costs under these policies. The occurrence of any of the foregoing events or any other related matters could have a material adverse effect on our business, financial condition, results of operations or cash flows.

The global impact of the COVID-19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others. However, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, operating results and cash flows. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2019. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, we and our properties may be subject to similar risks as posed by COVID-19.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2020, we repurchased 653,597 shares of common stock for approximately $52.2 million under our stock repurchase program approved by our board of directors. See Note 10, Stockholders' Equity, to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report for additional details.

The following table presents information regarding repurchases by us of common stock during the three months ended March 31, 2020 under the stock repurchase program.

ISSUER PURCHASES OF EQUITY SECURITIES


	Total Number of Shares Purchase	Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands)
January 1 - January 31, 2020	-	$	-	-		$400,000
February 1 – February 29, 2020	-	$	-	-		$400,000
March 1 – March 31, 2020	653,597	$	79.85	653,597		$347,796
Total	653,597	$	79.85	653,597		$347,796

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 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.

101 The following materials from Extra Space Storage Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, are formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (4) the Condensed Consolidated Statement of Noncontrolling Interests and Equity, (5) the Condensed Consolidated Statements of Cash Flows and (6) notes to these financial statements.

104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						EXTRA SPACE STORAGE INC.
						Registrant

Date: May 8, 2020						/s/ Joseph D. Margolis
						Joseph D. Margolis
						Chief Executive Officer (Principal Executive Officer)

Date: May 8, 2020						/s/ P. Scott Stubbs
						P. Scott Stubbs
						Executive Vice President and Chief Financial Officer
						(Principal Financial Officer)