LIFE STORAGE, INC. - Quarter Report: 2023 March (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2023


☐	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:

1-13820 (Life Storage, Inc.)

0-24071 (Life Storage LP)

LIFE STORAGE, INC.

LIFE STORAGE LP

(Exact name of Registrant as specified in its charter)


Maryland (Life Storage, Inc.)	16-1194043 (Life Storage, Inc.)
Delaware (Life Storage LP)	16-1481551 (Life Storage LP)
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6467 Main Street

Williamsville, NY 14221

(Address of principal executive offices) (Zip code)

(716) 633-1850

(Registrant’s telephone number including area code)

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.


Life Storage, Inc.	Yes ☒	No ☐

Life Storage LP	Yes ☒	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).


Life Storage, Inc.	Yes ☒	No ☐
Life Storage LP	Yes ☒	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.

Life Storage, Inc.:


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

Emerging Growth Company	☐

Life Storage LP:


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.


Life Storage, Inc.	☐

Life Storage LP	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Life Storage, Inc.	Yes ☐	No ☒

Life Storage LP	Yes ☐	No ☒

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

Life Storage, Inc.:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	LSI	New York Stock Exchange

Life Storage LP:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

As of April 26, 2023, 85,089,732 shares of Common Stock, $.01 par value per share, were outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2023 of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”). The Parent Company is a real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.

Life Storage Holdings, Inc., a wholly owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership, and through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 97.9% ownership interest therein as of March 31, 2023, assuming the conversion of all preferred operating partnership units at that date. The remaining ownership interests in the Operating Partnership are held by certain former owners of assets acquired by the Operating Partnership. As the owner of the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical.

There are few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the owner of the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership.

The substantive difference between the Parent Company’s filings and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or capital for the Operating Partnership) section of the consolidated balance sheets and in the Shareholders’ Equity and Partners’ Capital notes to the financial statements. Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.

The Company believes that combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into a single report will:

•

facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;

•

remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and

•

create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real

estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

As the owner of the general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

This report also includes separate Item 4 - Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended and 18 U.S.C. §1350.

Part I. Financial Information

Item 1. Financial Statements

LIFE STORAGE, INC.

CONSOLIDATED BALANCE SHEETS


(dollars in thousands, except share data)	March 31, 2023 (unaudited)			December 31, 2022
Assets
Investment in storage facilities:
Land	$	1,309,475		$	1,307,425
Building, equipment, and construction in progress		6,886,522			6,864,381
		8,195,997			8,171,806
Less: accumulated depreciation		(1,215,348	)		(1,170,520	)
Investment in storage facilities, net		6,980,649			7,001,286
Cash and cash equivalents		32,765			24,406
Accounts receivable		23,281			24,153
Receivable from unconsolidated joint ventures		795			1,562
Investment in unconsolidated joint ventures		276,436			275,190
Prepaid expenses		14,165			10,363
Trade name		16,500			16,500
Other assets		31,963			34,270
Total Assets	$	7,376,554		$	7,387,730
Liabilities
Line of credit	$	619,000		$	595,000
Term notes, net		2,752,580			2,751,632
Accounts payable and accrued liabilities		136,409			148,130
Deferred revenue		34,530			33,192
Mortgages payable		32,466			36,258
Total Liabilities		3,574,985			3,564,212
Noncontrolling redeemable Preferred Operating Partnership Units at redemption value		30,090			89,077
Noncontrolling redeemable Common Operating Partnership Units (see Note 2)		201,373			107,074
Shareholders’ Equity
Common stock $.01 par value, 200,000,000 shares authorized, 85,061,573 shares outstanding at March 31, 2023 (85,019,884 at December 31, 2022)		851			850
Additional paid-in capital		3,884,890			3,886,317
Dividends in excess of net income		(317,570	)		(261,510	)
Accumulated other comprehensive loss		(2,978	)		(3,207	)
Total Shareholders’ Equity		3,565,193			3,622,450
Noncontrolling interest in consolidated subsidiary		4,913			4,917
Total Equity		3,570,106			3,627,367
Total Liabilities and Equity	$	7,376,554		$	7,387,730

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended March 31,
(dollars in thousands, except per share data)	2023			2022
Revenues
Rental income	$	240,483		$	205,509
Tenant reinsurance		20,291			17,267
Other operating income		12,828			10,714
Total operating revenues		273,602			233,490
Expenses
Property operations and maintenance		47,306			42,368
Tenant reinsurance		9,220			6,847
Real estate taxes		27,437			24,523
General and administrative		27,818			15,826
Depreciation and amortization		47,769			46,401
Total operating expenses		159,550			135,965
Gain on sale of non-real estate assets		686			—
Income from operations		114,738			97,525
Other income (expenses)
Interest expense		(33,113	)		(24,240	)
Interest and dividend income		12			15
Equity in income of joint ventures		1,629			2,118
Net income		83,266			75,418
Net income attributable to noncontrolling preferred interests in the Operating Partnership		(330	)		(996	)
Net income attributable to noncontrolling common interests in the Operating Partnership		(1,333	)		(847	)
Net loss attributable to noncontrolling interests in consolidated subsidiary		5			—
Net income attributable to common shareholders	$	81,608		$	73,575
Earnings per common share attributable to common shareholders – basic	$	0.96		$	0.88
Earnings per common share attributable to common shareholders – diluted	$	0.96		$	0.88
Common shares used in basic earnings per share calculation		84,935,860			83,644,426
Common shares used in diluted earnings per share calculation		85,378,412			83,837,773
Dividends declared per common share	$	1.20		$	1.00

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Net income	$	83,266		$	75,418
Other comprehensive income:
Effective portion of gain on derivatives net of reclassification to interest expense		229			229
Total comprehensive income		83,495			75,647
Comprehensive income attributable to noncontrolling interests in the Operating Partnership		(1,667	)		(1,846	)
Comprehensive income attributable to common shareholders	$	81,828		$	73,801

See notes to consolidated financial statements.

LIFE STORAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


(dollars in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Operating Activities
Net income	$	83,266		$	75,418
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47,769			46,401
Amortization of debt issuance costs and bond discount		1,537			1,328
Equity in income of joint ventures		(1,629	)		(2,118	)
Distributions from unconsolidated joint ventures		4,751			4,024
Non-vested stock earned		1,764			1,661
Other		(3,915	)		(149	)
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		872			(406	)
Prepaid expenses		(3,654	)		(2,396	)
Receipts from (advances to) joint ventures		767			(471	)
Accounts payable and other liabilities		(11,912	)		(19,233	)
Deferred revenue		1,338			1,284
Net cash provided by operating activities		120,954			105,343
Investing Activities
Acquisition of storage facilities, net of cash acquired		—			(350,662	)
Improvements, equipment additions, and construction in progress		(25,500	)		(15,985	)
Proceeds from sale of non-real estate assets		1,198			—
Investment in unconsolidated joint ventures		(4,122	)		(3,450	)
Property deposits		645			1,260
Net cash used in investing activities		(27,779	)		(368,837	)
Financing Activities
Net proceeds from sale of common stock		—			92,943
Proceeds from line of credit		110,000			170,000
Repayments of line of credit		(86,000	)		(35,000	)
Dividends paid - common stock		(102,028	)		(83,637	)
Distributions to noncontrolling interest holders		(2,249	)		(1,978	)
Issuance of operating partnership units		58,576			—
Redemption of operating partnership units		(58,318	)		(75	)
Mortgage principal payments		(3,727	)		(129	)
Net cash (used in) provided by financing activities		(83,746	)		142,124
Net increase (decrease) in cash and restricted cash		9,429			(121,370	)
Cash and restricted cash at beginning of period		29,461			176,434
Cash and restricted cash at end of period	$	38,890		$	55,064
Supplemental cash flow information
Cash paid for interest, net of interest capitalized	$	24,192		$	15,319
Cash paid (received) for income taxes, net of refunds	$	59		$	(172	)

See notes to consolidated financial statements.

LIFE STORAGE LP

CONSOLIDATED BALANCE SHEETS


(dollars in thousands)	March 31, 2023 (unaudited)			December 31, 2022
Assets
Investment in storage facilities:
Land	$	1,309,475		$	1,307,425
Building, equipment, and construction in progress		6,886,522			6,864,381
		8,195,997			8,171,806
Less: accumulated depreciation		(1,215,348	)		(1,170,520	)
Investment in storage facilities, net		6,980,649			7,001,286
Cash and cash equivalents		32,765			24,406
Accounts receivable		23,281			24,153
Receivable from unconsolidated joint ventures		795			1,562
Investment in unconsolidated joint ventures		276,436			275,190
Prepaid expenses		14,165			10,363
Trade name		16,500			16,500
Other assets		31,963			34,270
Total Assets	$	7,376,554		$	7,387,730
Liabilities
Line of credit	$	619,000		$	595,000
Term notes, net		2,752,580			2,751,632
Accounts payable and accrued liabilities		136,409			148,130
Deferred revenue		34,530			33,192
Mortgages payable		32,466			36,258
Total Liabilities		3,574,985			3,564,212
Limited partners’ preferred redeemable capital interest at redemption value (1,190,407 and 3,523,113 units outstanding at March 31, 2023 and December 31, 2022, respectively)		30,090			89,077
Limited partners’ common redeemable capital interest (see Note 2) (1,602,323 and 1,041,260 units outstanding at March 31, 2023 and December 31, 2022, respectively)		201,373			107,074
Partners’ Capital
General partner (893,777 and 893,360 units outstanding at March 31, 2023 and December 31, 2022, respectively)		38,019			38,247
Limited partners (84,167,796 and 84,126,524 units outstanding at March 31, 2023 and December 31, 2022, respectively)		3,530,152			3,587,410
Accumulated other comprehensive loss		(2,978	)		(3,207	)
Total Controlling Partners’ Capital		3,565,193			3,622,450
Noncontrolling interest in consolidated subsidiary		4,913			4,917
Total Partners' Capital		3,570,106			3,627,367
Total Liabilities and Partners’ Capital	$	7,376,554		$	7,387,730

See notes to consolidated financial statements.

LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended March 31,
(dollars in thousands, except per unit data)	2023			2022
Revenues
Rental income	$	240,483		$	205,509
Tenant reinsurance		20,291			17,267
Other operating income		12,828			10,714
Total operating revenues		273,602			233,490
Expenses
Property operations and maintenance		47,306			42,368
Tenant reinsurance		9,220			6,847
Real estate taxes		27,437			24,523
General and administrative		27,818			15,826
Depreciation and amortization		47,769			46,401
Total operating expenses		159,550			135,965
Gain on sale of non-real estate assets		686			—
Income from operations		114,738			97,525
Other income (expenses)
Interest expense		(33,113	)		(24,240	)
Interest and dividend income		12			15
Equity in income of joint ventures		1,629			2,118
Net income		83,266			75,418
Net income attributable to noncontrolling preferred interests in the Operating Partnership		(330	)		(996	)
Net income attributable to noncontrolling common interests in the Operating Partnership		(1,333	)		(847	)
Net income attributable to noncontrolling interests in consolidated subsidiary		5			—
Net income attributable to common unitholders	$	81,608		$	73,575
Earnings per common unit attributable to common unitholders – basic	$	0.96		$	0.88
Earnings per common unit attributable to common unitholders – diluted	$	0.96		$	0.88
Common units used in basic earnings per unit calculation		84,935,860			83,644,426
Common units used in diluted earnings per unit calculation		85,378,412			83,837,773
Distributions declared per common unit	$	1.20		$	1.00
Net income attributable to general partner	$	833		$	754
Net income attributable to limited partners	$	80,775		$	72,821

See notes to consolidated financial statements.

LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Net income	$	83,266		$	75,418
Other comprehensive income:
Effective portion of gain on derivatives net of reclassification to interest expense		229			229
Total comprehensive income		83,495			75,647
Comprehensive income attributable to noncontrolling interests in the Operating Partnership		(1,667	)		(1,846	)
Comprehensive income attributable to common unitholders	$	81,828		$	73,801

See notes to consolidated financial statements.

LIFE STORAGE LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


(dollars in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Operating Activities
Net income	$	83,266		$	75,418
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47,769			46,401
Amortization of debt issuance costs and bond discount		1,537			1,328
Equity in income of joint ventures		(1,629	)		(2,118	)
Distributions from unconsolidated joint ventures		4,751			4,024
Non-vested stock earned		1,764			1,661
Other		(3,915	)		(149	)
Changes in assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		872			(406	)
Prepaid expenses		(3,654	)		(2,396	)
Receipts from (advances to) joint ventures		767			(471	)
Accounts payable and other liabilities		(11,912	)		(19,233	)
Deferred revenue		1,338			1,284
Net cash provided by operating activities		120,954			105,343
Investing Activities
Acquisition of storage facilities, net of cash acquired		—			(350,662	)
Improvements, equipment additions, and construction in progress		(25,500	)		(15,985	)
Proceeds from sale of non-real estate assets		1,198			—
Investment in unconsolidated joint ventures		(4,122	)		(3,450	)
Property deposits		645			1,260
Net cash used in investing activities		(27,779	)		(368,837	)
Financing Activities
Net proceeds from sale of partnership units		—			92,943
Proceeds from line of credit		110,000			170,000
Repayments of line of credit		(86,000	)		(35,000	)
Distributions to unitholders		(102,028	)		(83,637	)
Distributions to noncontrolling interest holders		(2,249	)		(1,978	)
Issuance of operating partnership units		58,576			—
Redemption of operating partnership units		(58,318	)		(75	)
Mortgage principal payments		(3,727	)		(129	)
Net cash (used in) provided by financing activities		(83,746	)		142,124
Net increase (decrease) in cash and restricted cash		9,429			(121,370	)
Cash and restricted cash at beginning of period		29,461			176,434
Cash and restricted cash at end of period	$	38,890		$	55,064
Supplemental cash flow information
Cash paid for interest, net of interest capitalized	$	24,192		$	15,319
Cash paid (received) for income taxes, net of refunds	$	59		$	(172	)

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

2. ORGANIZATION

The Parent Company operates as a self-administered and self-managed real estate investment trust (a “REIT”) that owns and operates self-storage properties. All of the Parent Company’s assets are owned by, and all its operations are conducted through, the Operating Partnership. Life Storage Holdings, Inc., a wholly owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership and, through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 97.9% ownership interest therein as of March 31, 2023, assuming the conversion of all preferred operating partnership units at that date. The remaining ownership interests in the Operating Partnership (the “Units”) are held by certain former owners of assets acquired by the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.

At March 31, 2023, we had an ownership interest in and/or managed 1,210 self-storage properties in 37 states and the District of Columbia. Among our 1,210 self-storage properties are 142 properties that we manage for unconsolidated joint ventures (see Note 10) and 310 properties that we manage and in which we have no ownership interest.

We consolidate all wholly owned subsidiaries. Partially owned entities, including joint ventures, are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, Life Storage Solutions, LLC (one of the Parent Company’s taxable REIT subsidiaries), Warehouse Anywhere LLC, and all other wholly owned subsidiaries. Also included in our consolidated financial statements is one joint venture of which we own 83% of the equity and are the primary beneficiary of the joint venture. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but over which we have significant influence are accounted for using the equity method.

Included in the Parent Company’s consolidated balance sheets are noncontrolling redeemable Operating Partnership Units and included in the Operating Partnership’s consolidated balance sheets are limited partners’ redeemable capital interests at redemption value. These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership. During the three months ended March 31, 2023, 2,332,706 preferred Operating Partnership Units were converted to 561,063 common Operating Partnership Units. There were 1,602,323 and 1,041,260 common noncontrolling redeemable Operating Partnership Units outstanding at March 31, 2023 and December 31, 2022, respectively, and 1,190,407 and 3,523,113 preferred noncontrolling redeemable Operating Partnership Units outstanding at March 31, 2023 and December 31, 2022, respectively. The preferred noncontrolling redeemable Operating Partnership Units rank senior to all other partnership interests with respect to distributions and liquidation.

The common unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock. The preferred unitholders are entitled to receive a fixed priority return of 4.5% and the preferred noncontrolling redeemable Operating Partnership Units are convertible at the option of the unitholders into common noncontrolling redeemable Operating Partnership Units. Upon any such conversion, each preferred noncontrolling redeemable Operating Partnership Unit being converted shall be convertible into a number of common Operating Partnership Units equal to the quotient of (i) the stated value of the preferred noncontrolling redeemable Operating Partnership Units being converted (such stated value being $25.00 per preferred noncontrolling redeemable Operating Partnership Unit) plus any accrued and unpaid distributions, divided by (ii) the average closing price of the Parent Company's common stock over the 90 consecutive trading days ending the trading day preceding the date of conversion. The Operating Partnership is obligated to redeem each of the common noncontrolling redeemable Operating Partnership Units at the request of the holder thereof for cash equal to the fair market value of a share of the Parent Company’s

common stock based on a 10-day average of the daily market price, at the time of such redemption, provided that the Company, at its option, may elect to acquire any such Unit presented for redemption for one common share or cash.

The Company accounts for the noncontrolling redeemable Operating Partnership Units under the provisions of Accounting Standards Codification (ASC) Topic 480-10-S99. The application of the ASC Topic 480-10-S99 accounting model requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount) for the common noncontrolling redeemable Operating Partnership Units. The offset to the adjustment to the carrying amount of the common noncontrolling redeemable Operating Partnership Units is reflected in the Company’s dividends in excess of net income and in the Operating Partnership’s general partner and limited partners capital balances. The value of common noncontrolling redeemable Operating Partnership Units at March 31, 2023 is equal to the number of common noncontrolling interest units outstanding multiplied by the fair market value of the Parent Company’s common stock at that date. Redemption value exceeded the value determined under the Company’s historical basis of accounting at March 31, 2023. Accordingly, in the accompanying consolidated balance sheets, common noncontrolling redeemable Operating Partnership Units are reflected at the normal noncontrolling interest accounting amount at December 31, 2022 and at redemption value at March 31, 2023. The redemption value of the common noncontrolling redeemable Operating Partnership Units was less than the normal noncontrolling interest amount at December 31, 2022. ASC Topic 480-10-S99 requires the preferred noncontrolling redeemable Operating Partnership Units to be valued at fair value as of the date of issuance and to continue to be recorded at the value determined at initial measurement plus any accrued distributions.

The following is a reconciliation of the Parent Company’s common noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable common capital interest for the period:


(dollars in thousands)	Three Months Ended March 31, 2023
Beginning balance	$	107,074
Net income attributable to noncontrolling common interests in the Operating Partnership		1,333
Issuance of units		58,576
Distributions		(1,250	)
Adjustment to redemption value		35,640
Ending balance	$	201,373

The following is a reconciliation of the Parent Company’s preferred noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable preferred capital interest for the period:


(dollars in thousands)	Three Months Ended March 31, 2023
Beginning balance	$	89,077
Net income attributable to noncontrolling preferred interests in the Operating Partnership		330
Redemption of units		(58,318	)
Distributions		(999	)
Ending balance	$	30,090

The disaggregated revenues of the Company presented in accordance with ASC Topic 606 “Revenue from Contracts with Customers” are as follows:


(dollars in thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Rental income	$	240,483	$	205,509
Tenant reinsurance		20,291		17,267
Management and acquisition fee income		6,933		5,856
Other		5,895		4,858
Total operating revenues	$	273,602	$	233,490

Management and acquisition fee income is included in other operating income in the consolidated statements of operations.

During the three months ended March 31, 2023, approximately 15% and 15% of the Company’s revenue was derived from self-storage facilities in the states of Texas and Florida, respectively.

3. STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “Compensation - Stock Compensation.” The Company recognizes compensation cost in its financial statements for all share-based payments granted, modified, or settled during the period.

For awards with graded vesting, compensation cost is recognized on a straight-line basis over the related vesting period.

For the three months ended March 31, 2023 and 2022, the Company recorded compensation expense of $1,764,000 and $1,661,000, respectively, related to amortization of non-vested stock grants and performance-based awards.

During the three months ended March 31, 2023, no options were exercised by directors of the Company. During the three months ended March 31, 2022, 5,250 options were exercised by directors of the Company at a weighted average exercise price of $32.95 per share.

During the three months ended March 31, 2023, the Company issued 5,400 shares of non-vested stock to employees which vest over a period of five years from the respective grant dates. The per-share fair market value on the date of grant of the non-vested stock issued during the three months ended March 31, 2023 was $97.32, resulting in an aggregate fair value of $0.5 million. During the three months ended March 31, 2023 and 2022, 17,663 and 9,079 shares of non-vested stock, respectively, vested.

During the three months ended March 31, 2023, the Company granted performance-based awards that entitle recipients to earn up to 10,000 shares of Company stock if certain performance criteria are achieved over a three-year period. The Company estimated the aggregate fair value of the awards on the grant date to be $0.6 million.

4. CASH AND RESTRICTED CASH

Restricted cash represents those amounts required to be placed in escrow by banks with whom the Company has mortgages and amounts required to be placed into escrow related to the Company’s tenant reinsurance program. Restricted cash is included in other assets in the consolidated balance sheets. The following table provides a reconciliation of cash and restricted cash reported within the consolidated statement of cash flows:


(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Cash	$	32,765	$	24,406	$	50,206
Restricted cash		6,125		5,055		4,858
Total cash and restricted cash	$	38,890	$	29,461	$	55,064

5. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS

The following summarizes our activity in storage facilities during the three months ended March 31, 2023:


(dollars in thousands)
Cost:
Beginning balance	$	8,171,806
Improvements and equipment additions		22,365
Net increase in construction in progress		3,232
Dispositions		(1,406	)
Ending balance	$	8,195,997
Accumulated Depreciation:
Beginning balance	$	1,170,520
Additions during the period		45,722
Dispositions		(894	)
Ending balance	$	1,215,348

The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). The Company measures the value of trade names, which have an indefinite life and are not amortized, by calculating discounted cash flows utilizing the relief from royalty method.

In-place customer leases are included in other assets on the Company’s consolidated balance sheets as follows:


(Dollars in thousands)	March 31, 2023			December 31, 2022
In-place customer leases	$	118,216		$	118,216
Accumulated amortization		(116,058	)		(114,005	)
Net carrying value at the end of period	$	2,158		$	4,211

Amortization expense related to in-place customer leases was $2.1 million and $5.6 million for the three months ended March 31, 2023 and 2022, respectively, and is included in depreciation and amortization expense in the consolidated statements of operations.

6. UNSECURED LINE OF CREDIT AND TERM NOTES

Borrowings outstanding on our unsecured line of credit and term notes are as follows:


(Dollars in thousands)	March 31, 2023			December 31, 2022
Revolving line of credit borrowings	$	619,000		$	595,000

Term note due April 8, 2024	$	175,000		$	175,000
Senior term note due July 1, 2026		600,000			600,000
Senior term note due December 15, 2027		450,000			450,000
Term note due July 21, 2028		200,000			200,000
Senior term note due June 15, 2029		350,000			350,000
Senior term note due October 15, 2030		400,000			400,000
Senior term note due October 15, 2031		600,000			600,000
Total term note principal balance outstanding		2,775,000			2,775,000
Less: unamortized debt issuance costs		(13,104	)		(13,685	)
Less: unamortized senior term note discount		(9,316	)		(9,683	)
Term notes payable	$	2,752,580		$	2,751,632

The Company's unsecured amended and restated credit facility includes a revolving credit facility with a limit of $1.25 billion and a maturity date of January 13, 2027. The revolving credit facility bears interest at a variable annual rate equal to Term SOFR plus a 0.10% SOFR adjustment plus a margin based on the Company's credit rating (at March 31, 2023, the margin is 0.775%) and requires an annual facility fee which varies based on the Company's credit rating (at March 31, 2023, the facility fee is 0.15%). The interest rate on the Company’s revolving credit facility at March 31, 2023 was approximately 5.68% (5.20% at December 31, 2022). At March 31, 2023, there was $630.9 million available on the unsecured line of credit. The Company has the option under the credit facility to increase the total aggregate borrowing capacity to $2.0 billion.

On October 7, 2021, the Operating Partnership issued $600 million in aggregate principal amount of 2.400% unsecured senior notes due October 15, 2031 (the "2031 Senior Notes"). The 2031 Senior Notes were issued at 0.917% discount to par value. Interest on the 2031 Senior Notes is payable semi-annually in arrears on each April 15 and October 15. Proceeds received upon issuance, net of discount to par of $5.5 million, and underwriting discount and other offering expenses of $5.1 million, totaled $589.4 million.

On September 23, 2020, the Operating Partnership issued $400 million in aggregate principal amount of 2.200% unsecured senior notes due October 15, 2030 (the “2030 Senior Notes”). The 2030 Senior Notes were issued at 0.476% discount to par value. Interest on the 2030 Senior Notes is payable semi-annually in arrears on each April 15 and October 15. Proceeds received upon issuance, net of discount to par of $1.9 million and underwriting and other offering expenses of $3.5 million, totaled $394.6 million.

On June 3, 2019, the Operating Partnership issued $350 million in aggregate principal amount of 4.000% unsecured senior notes due June 15, 2029 (the “2029 Senior Notes”). The 2029 Senior Notes were issued at a 0.524% discount to par value. Interest on the 2029 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $1.8 million and underwriting discount and other offering expenses of $3.1 million, totaled $345.1 million.

On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal amount of 3.875% unsecured senior notes due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting discount and other offering expenses of $4.0 million, totaled $443.9 million.

On June 20, 2016, the Operating Partnership issued $600 million in aggregate principal amount of 3.50% unsecured senior notes due July 1, 2026 (the “2026 Senior Notes”). The 2026 Senior Notes were issued at a 0.553% discount to par value. Interest on the 2026 Senior Notes is payable semi-annually in arrears on each January 1 and July 1. Proceeds received upon issuance, net of discount to par of $3.3 million and underwriting discount and other offering expenses of $5.5 million, totaled $591.2 million.

The 2031 Senior Notes, the 2030 Senior Notes, the 2029 Senior Notes, the 2027 Senior Notes and the 2026 Senior Notes (collectively the "Senior Notes") are all fully and unconditionally guaranteed by the Parent Company. The indenture under which the Senior Notes were issued restricts the ability of the Company and its subsidiaries to incur debt unless the Company and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 on all outstanding debt, after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Company and its subsidiaries to incur secured debt unless the Company and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Company and its consolidated subsidiaries. At March 31, 2023, the Company was in compliance with such covenants.

On July 21, 2016, the Company entered into a $200 million term note maturing July 21, 2028 bearing interest at a fixed rate of 3.67%.

On April 8, 2014, the Company entered into a $175 million term note maturing April 8, 2024 bearing interest at a fixed rate of 4.533%. The interest rate on the term note increases to 6.283% if the Company is not rated by at least one rating agency or if the Company’s credit rating is downgraded.

The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At March 31, 2023, the Company was in compliance with such covenants.

We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at March 31, 2023, the entire availability on the line of credit could be drawn without violating our debt covenants.

The Company’s fixed rate term notes contain a provision that allows for the noteholders to call the debt upon a change of control of the Company at an amount that includes a make whole premium based on rates in effect on the date of the change of control.

Deferred debt issuance costs and the discount on the outstanding term notes are both presented as reductions of term notes in the accompanying consolidated balance sheets at March 31, 2023 and December 31, 2022. Amortization expense related to deferred debt issuance costs was $0.9 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively, and is included in interest expense in the consolidated statements of operations.

7. MORTGAGES PAYABLE AND DEBT MATURITIES

Mortgages payable at March 31, 2023 and December 31, 2022 consist of the following:


(dollars in thousands)	March 31, 2023		December 31, 2022
4.065% mortgage note due April 1, 2023, secured by one self- storage facility	$	—	$	3,620
5.26% mortgage note due November 1, 2023, secured by one self-storage facility with an aggregate net book value of $7.7 million, principal and interest paid monthly (effective interest rate 8.50%)		3,544		3,566
4.4625% mortgage notes due December 6, 2024, secured by three self-storage facilities with an aggregate net book value of $53.2 million, principal and interest paid monthly (effective interest rate 3.20%)		22,105		22,169
4.44% mortgage note due July 6, 2025, secured by one self-storage facility with an aggregate net book value of $13.0 million, principal and interest paid monthly (effective interest rate 4.44%)		6,075		6,108
5.99% mortgage note due May 1, 2026, secured by one self- storage facility with an aggregate net book value of $6.2 million, principal and interest paid monthly (effective interest rate 6.66%)		742		795
Total mortgages payable	$	32,466	$	36,258

On March 31, 2023, the Company paid the remaining outstanding principal balance on the 4.065% mortgage note due April 1, 2023.

The table below summarizes the Company’s debt obligations at March 31, 2023. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term notes and mortgage notes were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. These assumptions are considered Level 2 inputs within the fair value hierarchy as described in Note 9. The carrying values of our variable rate debt instruments approximate their fair values as these debt instruments bear interest at current market rates that approximate market participant rates. This is considered a Level 2 input within the fair value hierarchy. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.


			Expected Maturity Date Including Discount
(dollars in thousands)	2023		2024		2025		2026		2027		Thereafter		Total		Fair Value
Line of credit - variable rate SOFR + 0.775% (5.68% at March 31, 2023)	$	—	$	—	$	—	$	—	$	619,000	$	—	$	619,000	$	619,000
Notes Payable:
Term note - fixed rate 4.533%		—		175,000		—		—		—		—		175,000		170,785
Term note - fixed rate 3.50%		—		—		—		600,000		—		—		600,000		567,557
Term note - fixed rate 3.875%		—		—		—		—		450,000		—		450,000		423,097
Term note - fixed rate 3.67%		—		—		—		—		—		200,000		200,000		183,277
Term note - fixed rate 4.00%		—		—		—		—		—		350,000		350,000		322,533
Term note - fixed rate 2.20%		—		—		—		—		—		400,000		400,000		316,610
Term note - fixed rate 2.40%		—		—		—		—		—		600,000		600,000		462,816
Mortgage note - fixed rate 5.26%		3,544		—		—		—		—		—		3,544		3,502
Mortgage notes - fixed rate 4.4625%		—		22,105		—		—		—		—		22,105		20,943
Mortgage note - fixed rate 4.44%		94		131		5,850		—		—		—		6,075		5,798
Mortgage note - fixed rate 5.99%		163		229		243		107		—		—		742		741
Total	$	3,801	$	197,465	$	6,093	$	600,107	$	1,069,000	$	1,550,000	$	3,426,466

8. DERIVATIVE FINANCIAL INSTRUMENTS

In 2015 and 2016, the Company entered into forward starting interest rate swap agreements to hedge the risk of changes in the interest-related cash flows associated with the potential issuance of fixed rate long-term debt. In conjunction with the issuance of the 2026 Senior Notes (see Note 6), the Company terminated these hedges and settled the forward starting swap agreements for

approximately $9.2 million. The $9.2 million has been deferred in Accumulated Other Comprehensive Loss (“AOCL”) and is being amortized as additional interest expense over the ten-year term of the 2026 Senior Notes or until such time as interest payments on the 2026 Senior Notes are no longer probable. Such amortization is included in amortization of debt issuance costs and bond discount in the consolidated statements of cash flows.

The changes in AOCL for the three months ended March 31, 2023 and 2022 are summarized as follows:


(dollars in thousands)	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Accumulated other comprehensive loss beginning of period	$	(3,207	)	$	(4,124	)
Realized loss reclassified from accumulated other comprehensive loss to interest expense		229			229
Accumulated other comprehensive loss end of period	$	(2,978	)	$	(3,895	)

9. FAIR VALUE MEASUREMENTS

The Company applies the provisions of ASC Topic 820 “Fair Value Measurements and Disclosures” in determining the fair value of its financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Refer to Note 7 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis.

There are no assets or liabilities carried at fair value measured on a recurring basis on the consolidated balance sheets as of March 31, 2023 and December 31, 2022.

10. INVESTMENT IN JOINT VENTURES

A summary of the Company’s unconsolidated joint ventures is as follows:


Venture	Number of Properties at March 31, 2023	Company common ownership interest at March 31, 2023	Carrying value of investment at March 31, 2023	Carrying value of investment at December 31, 2022
Sovran HHF Storage Holdings LLC (“Sovran HHF”)1	37	20%	$63.0 million	$63.6 million
Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)	22	15%	($2.6 million)	($2.4 million)
Life Storage-HIERS Storage LLC (“HIERS”)	17	20%	$13.8 million	$13.7 million
191 V Life Storage Holdings LLC ("191 V")	17	20%	$26.9 million	$27.5 million
GII Life Storage Holdings LLC (“GII”)	13	35%	$48.0 million	$48.6 million
LS HF8 ComRef LLC ("HF8")2	3	20%	$11.8 million	$11.9 million
LS HF9 ComRef Texas LLC ("HF9")3	4	20%	$13.6 million	$13.7 million
Life Storage HHF Wasatch Holdings LLC ("Wasatch")4	16	20%	$56.4 million	$52.8 million
Iskalo Office Holdings, LLC (“Iskalo”)5	N/A	49%	($2.3 million)	($2.3 million)
Life Storage Spacemax, LLC ("Spacemax")	6	40%	$13.5 million	$13.7 million
Life Storage ArrowMark Venture LLC ("ArrowMark Venture")6	N/A	50%	$5.9 million	$5.9 million
Joint ventures with properties in development stage7	5	Various	$16.1 million	$16.1 million
Other unconsolidated joint ventures	6	Various	$7.4 million	$7.6 million

As of March 31, 2023, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition-related costs in 2008. This difference is included in the carrying value of the investment. In June 2022, Sovran HHF acquired one additional self-storage facility for cash consideration of $33.4 million. The Company made an additional contribution of $6.7 million as the Company's share of this transaction.


2	In August 2022, the Company executed a joint venture agreement, LS HF8 ComRef LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. In October 2022, HF8 acquired three self-storage facilities for a total contractual purchase price of $59.0 million. During 2022, the Company contributed $12.0 million to HF8 as the Company's share of the initial capital investment in the joint venture.

3	In October 2022, the Company executed a joint venture agreement, LS HF9 ComRef Texas LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. In October 2022, HF9 acquired four self-storage facilities for a total contractual purchase price of $67.5 million. During 2022, the Company contributed $13.8 million to HF9 as the Company's share of the initial capital investment in the joint venture.

4	In July 2022, the Company executed a joint venture agreement, Life Storage HHF Wasatch Holdings LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. In September 2022, Wasatch acquired 15 self-storage facilities for a total contractual purchase price of $262.0 million. During 2022, the Company contributed $53.4 million to Wasatch as the Company's share of the initial capital investment in the joint venture. In February 2023, Wasatch acquired one additional self-storage facility for a total contractual purchase price of $22.4 million. During 2023, the Company made an additional contribution of $4.1 million as the Company's share of the cash required to fund this acquisition.

5	Iskalo owns the building that houses the Company’s headquarters. The Company paid rent to Iskalo of $0.4 million during each of the three months ended March 31, 2023 and March 31, 2022.

6	In October 2021, the Company executed a joint venture agreement, Life Storage ArrowMark Venture LLC, with the purpose of arranging and originating mortgage loans to owners of self-storage facilities throughout the United States. During 2022, the Company contributed $4.2 million to ArrowMark Venture as the Company's share of the funding of mortgage loans to third-parties. No contributions were made during 2023.

7	The Company has entered into five separate joint ventures, four of which are developing self-storage facilities in the New York City market and one of which is developing a self-storage facility in the Tampa, FL, market. The Company has not made any contributions to these joint ventures during 2023.

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that one of the joint ventures at March 31, 2023 is a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” The Company has consolidated that joint venture as it was determined that the Company has substantive participation rights over the activities as stipulated in the joint venture agreement and is the primary beneficiary of the joint venture. The Company used the voting model under ASC 810 to determine whether or not to consolidate the remaining joint ventures. Based upon each member’s substantive participation rights over the activities as stipulated in the joint venture agreements, none of the joint ventures evaluated under the voting model are consolidated by the Company. Due to the Company’s significant influence over the operations of each of these joint ventures, all above joint ventures are accounted for under the equity method of accounting.

The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on any of the Company’s investments in joint ventures.

As property manager of the self-storage facilities owned by each of the operational joint ventures, the Company earns management and/or call center fees based on a percentage of joint venture gross revenues. These fees earned from joint ventures, which are included in other operating income in the consolidated statements of operations, totaled $3.1 million and $2.5 million for the three months ended March 31, 2023 and 2022, respectively.

The Company’s share of the unconsolidated joint ventures’ income is as follows:


(dollars in thousands) Venture	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Sovran HHF	$	1,015		$	960
Sovran HHF II		539			475
191 V		(328	)		633
Other unconsolidated joint ventures		403			50
	$	1,629		$	2,118

The Company does not guarantee the debt of any of its equity method investees.

We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital required for future acquisitions of self-storage facilities, our share of capital for the origination of nonrecourse loans by ArrowMark Venture, our share of capital required for the development of properties under construction, and our share of the payoff of secured debt held by these joint ventures.

11. INCOME TAXES

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements.

The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries. In general, the Company’s taxable REIT subsidiaries may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.

The Company recorded federal and state income tax expense of $1.2 million for the three months ended March 31, 2023. Of this amount, $0.2 million is included in gain on sale of non-real estate assets while the remainder is included in general and administrative expenses in the consolidated statements of operations. The Company recorded federal and state income tax expense of $0.4 million for the three months ended March 31, 2022. This amount is included in general and administrative expenses in the consolidated statements of operations. At March 31, 2023 and 2022, there were no material unrecognized tax benefits, and the Company had no interest or penalties relating to uncertain tax positions during the periods then ended. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. Income taxes payable by the Company and the net deferred tax liabilities of our taxable REIT subsidiaries are classified within accounts payable and accrued liabilities in the consolidated balance sheets, while prepaid income taxes are classified within prepaid expenses. As of March 31, 2023, the Company’s taxable REIT subsidiaries have deferred tax assets totaling $0.6 million and a deferred tax liability of $2.1 million. As of December 31, 2022, the Company’s taxable REIT subsidiaries had deferred tax assets of $0.5 million and a deferred tax liability of $2.0 million. The tax years 2019-2022 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 20, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, applies to income earned by our taxable REIT subsidiaries.

12. EARNINGS PER SHARE AND EARNINGS PER UNIT

The Company reports earnings per share and earnings per unit data in accordance ASC Topic 260, “Earnings Per Share.” Under ASC Topic 260-10, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The Parent Company and the Operating Partnership have calculated their basic and diluted earnings per share/unit using the two-class method.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share of the Parent Company utilizing the two-class method.


(in thousands except per share data)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Numerator:
Net income attributable to common shareholders	$	81,608	$	73,575
Denominator:
Denominator for basic earnings per share – weighted average shares		84,936		83,644
Effect of Dilutive Securities:
Stock options and non-vested stock		442		194
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversion		85,378		83,838
Basic earnings per common share attributable to common shareholders	$	0.96	$	0.88
Diluted earnings per common share attributable to common shareholders	$	0.96	$	0.88

Earnings Per Unit

The following table sets forth the computation of basic and diluted earnings per common unit of the Operating Partnership utilizing the two-class method.


(in thousands except per unit data)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Numerator:
Net income attributable to common unitholders	$	81,608	$	73,575
Denominator:
Denominator for basic earnings per unit – weighted average units		84,936		83,644
Effect of Dilutive Securities:
Stock options and non-vested stock		442		194
Denominator for diluted earnings per unit – adjusted weighted average units and assumed conversion		85,378		83,838
Basic earnings per common unit attributable to common unitholders	$	0.96	$	0.88
Diluted earnings per common unit attributable to common unitholders	$	0.96	$	0.88

Not included in the effect of dilutive securities above for both earnings per share and earnings per unit are 144,992 unvested restricted shares for the three months ended March 31, 2023, and 123,436 unvested restricted shares for the three months ended March 31, 2022, because their effect would be antidilutive. Additionally, the effect of 1,190,407 preferred noncontrolling redeemable Operating Partnership Units are included in the effect of dilutive securities above for both earnings per share and earnings per unit for the three months ended March 31, 2023 as such Units became redeemable during September 2022. The effect of 3,590,603 preferred noncontrolling redeemable Operating Partnership Units is not included in the effect of dilutive securities above for both earnings per share and earnings per unit for the three months ended March 31, 2022 as such Units were not redeemable at March 31, 2022.

13. SHAREHOLDERS’ EQUITY

The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the three months ended March 31, 2023:


(dollars in thousands)	Common Stock		Additional Paid-in Capital			Dividends in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance December 31, 2022	$	850	$	3,886,317		$	(261,510	)	$	(3,207	)	$	3,622,450
Net impact of restricted stock issued and surrendered for taxes		1		(3,221	)		—			—			(3,220	)
Deferred compensation of Directors		—		30			—			—			30
Earned portion of non-vested stock		—		1,764			—			—			1,764
Adjustment to redemption value on noncontrolling redeemable Operating Partnership Units		—		—			(35,640	)		—			(35,640	)
Net income attributable to common shareholders		—		—			81,608			—			81,608
Amortization of terminated hedge included in AOCL		—		—			—			229			229
Dividends		—		—			(102,028	)		—			(102,028	)
Balance March 31, 2023	$	851	$	3,884,890		$	(317,570	)	$	(2,978	)	$	3,565,193

The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the three months ended March 31, 2022:


(dollars in thousands)	Common Stock		Additional Paid-in Capital		Dividends in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance December 31, 2021	$	836	$	3,697,000	$	(314,713	)	$	(4,124	)	$	3,378,999
Net proceeds from issuance of common stock		7		92,764		—			—			92,771
Exercise of stock options		—		173		—			—			173
Earned portion of non-vested stock		—		1,661		—			—			1,661
Adjustment to redemption value on noncontrolling redeemable Operating Partnership units		—		—		10,924			—			10,924
Net income attributable to common shareholders		—		—		73,575			—			73,575
Amortization of terminated hedge included in AOCL		—		—		—			229			229
Dividends		—		—		(83,637	)		—			(83,637	)
Balance March 31, 2022	$	843	$	3,791,598	$	(313,851	)	$	(3,895	)	$	3,474,695

On June 15, 2021, the Company entered into a continuous equity offering program ("2021 Equity Program") with multiple sales agents pursuant to which the Company was permitted to sell up to $500 million in aggregate offering price of shares of the Company's common stock. The 2021 Equity Program was replaced on August 11, 2022 when the Company entered into a new continuous equity offering program ("2022 Equity Program") with multiple sales agents pursuant to which the Company is permitted to sell up to $1 billion in aggregate offering price of shares of the Company's common stock. Actual sales under this continuous equity offering program will depend on a variety of factors and conditions, including, but not limited to, market conditions, the trading price of the Company’s common stock, and determinations of the appropriate sources of funding for the Company. The Company expects to offer, sell and issue shares of common stock under this equity program from time to time based on various factors and conditions, although the Company is under no obligation to sell any shares under this equity program. The 2021 Equity Program and the 2022 Equity Program are referred to collectively as the "Equity Programs."

During the three months ended March 31, 2023, the Company did not issue any shares of common stock under the Equity Programs.

During the three months ended March 31, 2022, the Company issued 686,712 shares of common stock under the Equity Programs at a weighted average issue price of $136.48 per share, generating net proceeds of $92.8 million after deducting $0.9 million of sales

commissions paid to the sales agents (all other related expenses were minor during the period). The Company used such proceeds to fund a portion of the 18 storage facilities acquired during the three months ended March 31, 2022.

On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding common shares (“Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market, through privately negotiated transactions, or through other methods of acquiring shares. The Buyback Program may be suspended or discontinued at any time. The Company did not repurchase any outstanding common shares under the Buyback Program during the three months ended March 31, 2023 or during the three months ended March 31, 2022.

In 2013, the Company implemented a Dividend Reinvestment Plan which was suspended by the Company’s Board of Directors in 2017. As a result, the Company did not issue any shares under the Dividend Reinvestment Plan during the three months ended March 31, 2023 and 2022.

14. PARTNERS’ CAPITAL

The following is a reconciliation of the changes in the Operating Partnership's total partners’ capital for the three months ended March 31, 2023:


(dollars in thousands)	Life Storage Holdings, Inc. General Partner			Life Storage, Inc. Limited Partner			Accumulated Other Comprehensive Income (Loss)			Total Controlling Partners’ Capital
Balance December 31, 2022	$	38,247		$	3,587,410		$	(3,207	)	$	3,622,450
Net impact of restricted stock issued and surrendered for taxes		(32	)		(3,188	)		—			(3,220	)
Deferred compensation of Directors		1			29			—			30
Earned portion of non-vested stock		18			1,746			—			1,764
Adjustment to redemption value on noncontrolling redeemable Operating Partnership Units		—			(35,640	)		—			(35,640	)
Net income attributable to common unitholders		816			80,792			—			81,608
Amortization of terminated hedge included in AOCL		2			(2	)		229			229
Distributions		(1,033	)		(100,995	)		—			(102,028	)
Balance March 31, 2023	$	38,019		$	3,530,152		$	(2,978	)	$	3,565,193

The following is a reconciliation of the changes in the Operating Partnership's total partners’ capital for the three months ended March 31, 2022:


(dollars in thousands)	Life Storage Holdings, Inc. General Partner			Life Storage, Inc. Limited Partner			Accumulated Other Comprehensive Income (Loss)			Total Controlling Partners’ Capital
Balance December 31, 2021	$	36,131		$	3,346,992		$	(4,124	)	$	3,378,999
Net proceeds from issuance of Operating Partnership Units		927			91,844			—			92,771
Exercise of stock options		2			171			—			173
Earned portion of non-vested stock		17			1,644			—			1,661
Carrying value less than redemption value on redeemed noncontrolling interest		(1	)		1			—			—
Adjustment to redemption value on noncontrolling redeemable Operating Partnership Units		—			10,924			—			10,924
Net income attributable to common unitholders		754			72,821			—			73,575
Amortization of terminated hedge included in AOCL		2			(2	)		229			229
Distributions		(846	)		(82,791	)		—			(83,637	)
Balance March 31, 2022	$	36,986		$	3,441,604		$	(3,895	)	$	3,474,695

15. COMMITMENT AND CONTINGENCIES

The Company’s lease population is comprised of leases for land and/or buildings in which certain of the Company’s self-storage facilities operate, as well as leases of warehousing and corporate office space. All leases where the Company is the lessee qualify as operating leases and the Company does not have any financing leases as of March 31, 2023. At March 31, 2023 and December 31, 2022, the Company’s aggregate right-of-use assets total $17.1 million and $17.4 million, respectively, and are included in other assets on the consolidated balance sheets. The related lease liabilities at March 31, 2023 and December 31, 2022 total $16.9 million and $17.1 million, respectively, and are included in accounts payable and accrued liabilities on the consolidated balance sheets.

Expenses related to operating leases totaled $0.7 million for both the three months ended March 31, 2023 and 2022. At March 31, 2023, the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were 9.3 years and 4.60%, respectively.

At March 31, 2023, the Company has approximately $21.3 million of operating lease commitments, excluding variable consideration. The undiscounted future minimum lease payments are summarized by year in the table below:


(in thousands)
2023	$	2,146
2024		2,584
2025		2,402
2026		2,483
2027		2,524
Thereafter		9,173
Total	$	21,312

The difference between the amounts included in the table above and the aggregate lease liability recorded in the accompanying consolidated balance sheet at March 31, 2023 is the result of the impact of the discount rate on future minimum lease payments.

At March 31, 2023, the Company was under contract to acquire three self-storage facilities for an aggregate purchase price of $60.0 million. The purchase of these self-storage facilities is subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.

At March 31, 2023, the Company has signed contracts in place with third-party contractors for expansion and enhancements at its existing facilities. The Company expects to pay $48.7 million under these contracts in 2023 and 2024.

16. SUBSEQUENT EVENTS

On April 2, 2023, the Company entered into an agreement and plan of merger (the "Merger Agreement") by and among the Parent Company, the Operating Partnership, Extra Space Storage Inc. ("Extra Space"), Extra Space Storage LP ("Extra Space OP"), Eros Merger Sub, LLC ("Eros Merger Sub") and Eros OP Merger Sub, LLC ("Eros OP Merger Sub"), pursuant to which Eros Merger Sub will merge with and into the Parent Company (the "Company Merger"), with the Parent Company surviving the Company Merger and remaining a wholly owned subsidiary of Extra Space and following certain conversion and contribution transactions, Eros OP Merger Sub will merge with and into the Operating Partnership (the "Partnership Merger" and together with the Company Merger, the "Mergers"), with the Operating Partnership surviving the Partnership Merger and becoming a wholly-owned subsidiary of Extra Space OP. At the effective time of the Company Merger (the "Company Merger Effective Time"), each share of common stock of the Parent Company outstanding immediately prior to the Company Merger Effective Time will be automatically converted into the right to receive 0.895 shares of Extra Space common stock. Additionally, each share of restricted Parent Company common stock that is issued and outstanding immediately prior to the Company Merger Effective Time will, as of immediately prior to the Company Merger Effective Time, become fully vested. Each performance stock unit with respect to shares of Parent Company common stock that is outstanding as of immediately prior to the Company Merger Effective Time will, as of immediately prior to the Company Merger Effective Time, be accelerated and vest with respect to the Parent Company performance stock units that would vest based on the actual achievement of the applicable performance conditions over the truncated performance period ending on the closing date of the Company Merger, determined in accordance with the terms of the applicable award agreement.

The respective boards of directors of the Parent Company and Extra Space have approved the Merger Agreement. The Mergers are expected to close during the second half of 2023 and are subject to certain conditions to closing, including (a) the approval of the Company Merger and other transactions contemplated by the Merger Agreement by the holders of at least two-thirds of the Parent Company's common stock, (b) the approval of the issuance of Extra Space common stock in the Company Merger by a majority of the votes cast by the holders of Extra Space common stock on such matter, (c) the shares of Extra Space common stock to be issued in the Company Merger will have been approved for listing on the New York Stock Exchange, (d) the Form S-4 to be filed by Extra Space

to register the offer and sale of shares of Extra Space common stock to be issued in the Company Merger becoming effective, (e) the absence of any temporary restraining order, injunction or other legal order, and no law being enacted, which would have the effect of making illegal or otherwise prohibiting the consummation of the Mergers, (f) the receipt of certain legal opinions by each of the Parent Company and Extra Space and (g) other customary conditions specified in the Merger Agreement.

On April 3, 2023, the Company declared a quarterly dividend of $1.20 per common share. The dividend was paid on April 26, 2023 to shareholders of record on April 14, 2023. The total dividend paid amounted to $102.1 million.

During April 2023, holders of 1,190,407 preferred noncontrolling redeemable Operating Partnership Units elected to convert their preferred Units to common noncontrolling redeemable Operating Partnership Units. A total of 268,880 common noncontrolling redeemable Operating Partnership Units with an aggregate value of $29.8 million were issued as part of this conversion.

Subsequent to March 31, 2023, an unconsolidated joint venture of the Company acquired four self-storage facilities for an aggregate contractual purchase price of $150.0 million, of which the Company's share was $15.1 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this report.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this document, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. All forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. 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 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 this report. Any forward-looking statements should be considered in light of the risks referenced in "Part I. Item 1A. Risk Factors" in our 2022 annual report on form 10-K filed with the Securities and Exchange Commission on February 24, 2023. Such factors include, but are not limited to:

•

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

•

risks associated with our ability to consummate the Mergers with Extra Space and the timing and closing of the Mergers including, among other things, the ability of the Company to obtain shareholder approval required to consummate the Mergers, the satisfaction or waiver of other conditions to closing the Mergers, unanticipated difficulties or expenditures relating to the Mergers, potential difficulties in employee retention as a result of the Mergers, the occurrence of any event, change or other circumstances that could give rise to the termination of the Mergers and the outcome of legal proceedings instituted against the Company, its directors and others related to the Mergers;

•

the effect of competition from new self-storage facilities or other storage alternatives, which would cause rents and occupancy rates to decline;

•

impacts from the COVID-19 pandemic or the future outbreak of other highly infectious or contagious diseases on the U.S., regional and global economies and our financial condition and results of operations;

•

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;

•

loss of key personnel;

•

the Company’s ability to evaluate, finance and integrate acquired self-storage facilities on expected terms into the Company’s existing business and operations;

•

the Company’s ability to effectively compete in the industry in which it does business;

•

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;

•

the Company’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms;

•

interest rates may increase, impacting costs associated with the Company’s outstanding floating rate debt, if any, and impacting the Company's ability to comply with debt covenants;

•

exposure to litigation or other claims;

•

risks associated with breaches of our data security;

•

the regional concentration of the Company’s business may subject the Company to economic downturns in the states of Florida and Texas;

•

the Company’s cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and

•

failure to maintain our REIT status for U.S. federal income purposes, including tax law changes that may change the taxability of future income.

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.

RESULTS OF OPERATIONS

FOR THE PERIOD JANUARY 1, 2023 THROUGH MARCH 31, 2023, COMPARED TO THE PERIOD JANUARY 1, 2022 THROUGH MARCH 31, 2022

We recorded rental revenues of $240.5 million for the three months ended March 31, 2023, an increase of $35.0 million or 17.0% when compared to rental revenues of $205.5 million for the same period in 2022. This increase in rental revenues was driven by a $20.7 million, or 10.8%, increase in rental revenues at the 664 core properties considered in same store sales (the Company will include stores in its same store pool in the second year after the stores achieve 80% sustained occupancy using market rates and incentives; therefore, the 664 core properties considered in same store sales are those included in the consolidated results of operations since December 31, 2021, excluding stores not yet stabilized, three stores significantly impacted by natural disasters, and seven stores that were significantly expanded or fully replaced). The increase in same store rental revenues was a result of a 13.6% increase in rental income per square foot, partially offset by a 280 basis point decrease in average occupancy. Also affecting the overall increase in rental revenues was an increase of $14.3 million in rental revenues contributed by stores not included in the same store pool, primarily those acquired in 2022. We recorded tenant reinsurance revenues of $20.3 million for the three months ended March 31, 2023, an increase of $3.0 million or 17.5% when compared to tenant reinsurance revenues of $17.3 million for the same period in 2022. The increase in tenant reinsurance revenues is primarily due to the increase in stores owned or managed in 2022 and 2023. Other operating income, which includes merchandise sales and management fees and acquisition fees, increased by $2.1 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily as a result of increased management fees due to an increase in managed properties and increased acquisition fee income earned related to the acquisition of self-storage facilities by certain of the Company's unconsolidated joint ventures.

Property operations and maintenance expenses increased $4.9 million or 11.7% during the three months ended March 31, 2023 compared to the same period in 2022. Property operations and maintenance expenses related to the 664 core properties considered in the same store pool increased by $1.8 million, or 5.1%, primarily as the result of increases in payroll expenses, utilities costs, insurance, internet marketing, and repairs and maintenance expenditures. The remainder of the increase in property operations and maintenance expenses is primarily the result of the net activity of the stores not included in the same store pool. Tenant reinsurance expenses increased $2.4 million or 34.7% in three months ended March 31, 2023 compared to the same period in 2022 primarily as the result of the increase in stores owned or managed in 2022 and 2023. Real estate tax expense increased $2.9 million during the three months ended March 31, 2023 as compared to the same period in 2022. The 664 core properties considered in the same store pool experienced a 5.3% increase in real estate taxes which is reflective of a net increase in property tax levies on those properties. In addition to the same store real estate tax expense increase, real estate taxes increased $1.7 million from stores not included in the same store pool.

Net operating income increased $30.6 million or 19.1% resulting from a 12.8% increase in our same store net operating income coupled with an increase of $13.2 million related to tenant reinsurance related income, management fee income, the gain on sale of non-real estate assets, and the properties not included in the same store pool.

Net operating income, or “NOI,” is a non-GAAP (generally accepted accounting principles) financial measure that we define as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income: interest expense, impairment and casualty losses, operating lease expense, depreciation and amortization expense, any losses on sale of real estate, acquisition related costs, general and administrative expense, and deducting from net income: income from discontinued operations, interest income, any gains on sale of real estate, and equity in income of joint ventures. We believe that NOI is a meaningful measure to investors in evaluating our operating performance because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, and in comparing period-to-period and market-to-market property operating results. Additionally, NOI is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending on accounting methods and the book value of assets. NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income. There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these

limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income.

The following table reconciles our net income presented in the consolidated financial statements to NOI generated by our self-storage facilities for the three months ended March 31, 2023 and 2022.


	Three Months ended March 31,
(dollars in thousands)	2023			2022
Net income	$	83,266		$	75,418
General and administrative		27,818			15,826
Depreciation and amortization		47,769			46,401
Interest expense		33,113			24,240
Interest income		(12	)		(15	)
Equity in income of joint ventures		(1,629	)		(2,118	)
Net operating income	$	190,325		$	159,752
Net operating income
Same store	$	152,523		$	135,169
Other stores, tenant reinsurance related income management fee income, and gain on sale of non-real estate assets		37,802			24,583
Total net operating income	$	190,325		$	159,752

Our 2023 same store results consist of only those properties that have been owned by the Company and included in our consolidated results since December 31, 2021, excluding stores not yet stabilized, three stores significantly impacted by natural disasters, and seven stores that were significantly expanded or fully replaced. We believe that same store results are meaningful measures to investors in evaluating our operating performance because, given the acquisitive nature of the industry, same store results provide information about the overall business after removing the results from those properties that were not consistent from year-to-year. Additionally, same store results are widely used in the real estate industry and the self-storage industry to measure performance. Same store results should be considered in addition to, but not as a substitute for, consolidated results in accordance with GAAP. The following table sets forth operating data for our 664 same store properties. These results provide information relating to property operating changes without the effects of acquisitions.

Same Store Summary


	Three Months ended March 31,				Percentage
(dollars in thousands)	2023		2022		Change
Same store rental income	$	211,534	$	190,883		10.8	%
Same store other operating income		1,746		2,062		(15.3	)%
Total same store operating income		213,280		192,945		10.5	%
Payroll and benefits		12,754		12,368		3.1	%
Real estate taxes		23,613		22,418		5.3	%
Utilities		5,413		5,083		6.5	%
Repairs and maintenance		6,295		5,995		5.0	%
Office and other operating expenses		5,782		5,342		8.2	%
Insurance		2,250		2,045		10.0	%
Advertising		—		60		(100.0	)%
Internet marketing		4,650		4,465		4.1	%
Total same store operating expenses		60,757		57,776		5.2	%
Same store net operating income	$	152,523	$	135,169		12.8	%


			Change
Quarterly same store move ins	58,659	58,042		617
Quarterly same store move outs	61,161	57,040		4,121

We believe the increase in same store move ins was due to additional spaces available to rent as well as incremental demand linked to elevated levels of mobility, decluttering, and home buying during the three months ended March 31, 2023 as compared to the three

months ended March 31, 2022. We believe the increase in same store move outs was a result of a higher number of existing customer rent increases during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

General and administrative expenses for the three months ended March 31, 2023 increased $12.0 million or 75.8% when compared with the three months ended March 31, 2022. The most significant driver of this increase was advisory and other costs related to the merger agreement with Extra Space Storage and the evaluation of other offers received by the Company.

Depreciation and amortization expense increased to $47.8 million in the three months ended March 31, 2023 from $46.4 million in the same period of 2022 as a result of depreciation and customer list amortization related to those properties acquired in 2022.

Gain on sale of non-real estate assets increased by $0.7 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to the strategic decision made by the Company to sell off its fleet of rental trucks in 2022 which continued in the first quarter of 2023.

Total interest expense increased by $8.9 million during the three months ended March 31, 2023 as compared to the same period in 2022 primarily as a result of higher interest rates on variable rate debt coupled with an increase in the amount outstanding on the Company's revolving credit facility.

FUNDS FROM OPERATIONS

We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation.

FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income available to common shareholders computed in accordance with GAAP, excluding gains or losses on sales of properties, plus impairment of real estate assets, plus 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 compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

Our 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 (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

Reconciliation of Net Income to Funds From Operations (unaudited)


	Three Months ended March 31,
(in thousands)	2023			2022
Net income attributable to common shareholders	$	81,608		$	73,575
Net income attributable to noncontrolling common interests in the Operating Partnership		1,333			847
Net income attributable to noncontrolling preferred interests in the Operating Partnership		330			—
Depreciation of real estate and amortization of intangible assets exclusive of debt issuance costs		47,573			45,866
Depreciation and amortization from unconsolidated joint ventures		3,187			1,802
Funds from operations allocable to noncontrolling interest in the Operating Partnership		(2,154	)		(1,389	)
Funds from operations available to common shareholders	$	131,877		$	120,701

LIQUIDITY AND CAPITAL RESOURCES

Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness, and limitations on dividend payouts. At March 31, 2023, the Company was in compliance with all debt covenants. In the event that the Company violates its debt covenants in the future, the amounts due under the agreements could be callable by the lenders and could adversely affect our credit rating requiring us to pay higher interest and other debt-related costs. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at March 31, 2023, the entire availability under our line of credit could be drawn without violating our debt covenants.

Our ability to retain cash flow is limited because we operate as a REIT. To maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally-generated net cash provided by operating activities and the availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements.

Cash flows from operating activities were $121.0 million and $105.3 million for the three months ended March 31, 2023 and 2022, respectively. The increase in operating cash flows in the 2023 period compared to the 2022 period was primarily due to the increase in net income after adjusting for non-cash items.

Cash used in investing activities was $27.8 million and $368.8 million for the three months ended March 31, 2023 and 2022, respectively. The decrease in cash used in investing activities in the 2023 period compared to the 2022 period was primarily due to the decreased volume of acquisitions, partially offset by an increase in investments in improvements and equipment additions in 2023.

Cash used in financing activities was $83.7 million for the three months ended March 31, 2023 and cash provided by financing activities was $142.1 million for the three months ended March 31, 2022. The change is primarily a result of a reduction in the Company's sales of shares of common stock under the Company’s continuous equity offering programs and increased dividends paid during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 in addition to a decrease in net borrowings on the Company's line of credit in the 2023 period compared to the 2022 period.

Note 6 and Note 7 to the consolidated financial statements include details related to the Company’s unsecured line of credit, term notes, mortgages, and other indebtedness. Note 13 to the consolidated financial statements includes details of our shareholders’ equity and activity related thereto.

Our line of credit facility and term notes have an investment grade rating from Standard and Poor’s (BBB) and Moody’s (Baa2).

We expect to fund operating expenses, future acquisitions, our expansion and enhancement program, and share repurchases, if any, and any other cash requirements with future cash flows from operations, draws on our line of credit, issuance of common and/or preferred stock, the issuance of unsecured term notes, sale of properties, and private placement solicitation of joint venture equity. Should the capital markets deteriorate, we may have to curtail acquisitions, our expansion and enhancement program and/or any share repurchases.

ACQUISITION AND DISPOSITION OF PROPERTIES

The Company did not acquire any self-storage facilities during the three months ended March 31, 2023.

In 2022, we acquired 49 self-storage facilities comprising 3.8 million square feet in Arizona (7), California (8), Florida (7), Georgia (2), Illinois (1), Maryland (1), Massachusetts (2), Minnesota (1), Missouri (5), Nevada (1), New York (3), North Carolina (5), South Carolina (1), and Texas (5), for a total purchase price of $974.0 million. The Company held an 85.8% ownership interest in one of the properties acquired prior to the acquisition of the remaining 14.2% ownership interest in the second quarter of 2022. Additionally, during the third quarter of 2022, the Company purchased an 83% ownership interest in a self-storage facility in New York from an unrelated joint venture partner that has been consolidated in the Company's financial statements. Additionally, nine of these facilities were managed by the Company for a third-party prior to acquisition. Based on the trailing financial information of the entities from which the properties were acquired, the weighted average capitalization rate for these acquisitions was 3.2%.

We may acquire additional stabilized or newly constructed properties in 2023, however, there is no assurance that the Company will do so. Additionally, there can be no assurance that if significant additional opportunities were to arise, we would be able to raise capital at a reasonable cost to allow us to take advantage of such opportunities. We are actively pursuing acquisitions in 2023 and at March 31, 2023, the Company was under contract to acquire three self-storage facilities for an aggregate purchase price of $60.0 million. The purchase of the self-storage facilities under contract is subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.

The Company did not sell or otherwise dispose of any properties during the three months ended March 31, 2023 or during 2022.

As part of our ongoing strategy to improve overall operating efficiencies and portfolio quality, we may seek to sell self-storage facilities to third-parties or joint venture partners in 2023.

FUTURE ACQUISITION AND DEVELOPMENT PLANS

Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations or to expand into new markets by acquiring several facilities at once in those new markets. We are actively pursuing acquisitions in 2023, including potential acquisitions by unconsolidated joint ventures.

During the three months ended March 31, 2023, we added 106,000 square feet to existing properties for a total cost of approximately $14.8 million. We plan to complete a total of $50 million to $60 million of additional expansions and enhancements to our existing facilities in 2023, of which $33.8 million was paid as of March 31, 2023.

We also expect to continue investing in capital expenditures on our properties. This includes roofing, paving, and remodeling of store offices. For the three months ended March 31, 2023, we invested approximately $7.9 million in such improvements and we expect to invest approximately $25 million to $30 million for the remainder of 2023.

REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS

As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that we satisfy certain requirements, including distributing at least 90% of our REIT taxable income for a taxable year. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if they are paid not later than the date of the first regular dividend of the following year. As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends.

Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election.

UMBRELLA PARTNERSHIP REIT

We are formed as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) and, as such, have the ability to issue Operating Partnership Units in exchange for properties sold by independent owners. By utilizing such Units as currency in facility acquisitions, we may obtain more favorable pricing or terms due to the seller’s ability to partially defer their income tax liability. As of March 31, 2023, 1,602,323 common Units and 1,190,407 preferred Units are outstanding. These Units had been issued in exchange for self-storage properties at the request of the sellers. During April 2023, holders of 1,190,407 preferred noncontrolling redeemable Operating Partnership Units elected to convert their preferred Units to common noncontrolling redeemable Operating Partnership Units. A total of 268,880 common noncontrolling redeemable Operating Partnership Units with an aggregate value of $29.8 million were issued as part of this conversion.

INTEREST RATE RISK

The primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including government monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control.

Based on our outstanding unsecured floating rate debt of $619.0 million at March 31, 2023, a 100 basis point increase in interest rates would have a $6.2 million effect on our annual interest expense. This amount was determined by considering the impact of the hypothetical interest rates on our borrowing cost on March 31, 2023. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking 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, the sensitivity analysis assumes no changes in our capital structure.

INFLATION

We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at our facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates in a timely manner in response to any potential future inflationary pressures.

SEASONALITY

Our revenues typically have been higher in the third and fourth quarters, primarily because self-storage facilities tend to experience greater occupancy during the late spring, summer and early fall months due to the greater incidences of residential moves and college student activity during these periods. However, we believe that our customer mix, diverse geographic locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to materially affect distributions to shareholders.

RECENT ACCOUNTING PRONOUNCEMENTS

None that materially affect the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required is incorporated by reference to the information appearing under the caption “Interest Rate Risk” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Parent Company

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, has been conducted under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at March 31, 2023. There have not been changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter ended March 31, 2023.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Operating Partnership

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, has been conducted under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at March 31, 2023. There have not been changes in the Operating Partnership’s internal controls or in other factors that could significantly affect these controls during the quarter ended March 31, 2023.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Operating Partnership’s internal control over financial reporting (as defined in 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934) that occurred during the Operating Partnership’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

Although we are party to various legal proceedings, we believe that the likelihood of these contingencies resulting in a material loss to the Company, either individually or in the aggregate, is remote.

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, 2022 (“2022 Annual Report”), which could materially affect our business, financial condition or future results. Except as set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Risks Related to the Pending Mergers with Extra Space

The exchange ratio will not be adjusted in the event of any change in the stock prices of either the Company or Extra Space.

Upon the consummation of the Mergers, each of our outstanding shares of common stock will be converted into the right to receive 0.895 shares of Extra Space common stock, with cash paid in lieu of any fractional shares, without interest. The exchange ratio of 0.895 was fixed in the Merger Agreement and, except for certain adjustments on account of changes in the capitalization of Extra Space or the Company, will not be adjusted for changes in the market prices of either shares of our common stock or shares of Extra Space common stock. Changes in the market price of shares of Extra Space common stock prior to the closing of the Mergers will affect the market value of the merger consideration that our shareholders and holders of partnership units in the Operating Partnership will receive upon closing of the Mergers. Stock price changes may result from a variety of factors (many of which are beyond the control of us and Extra Space), including the following factors:

•

market reaction to the announcement of the Mergers and the prospects of the combined company;

•

changes in the respective businesses, operations, assets, liabilities and prospects of either company;

•

changes in market assessments of the business, operations, financial position and prospects of either company or the combined company;

•

market assessments of the likelihood that the Mergers will close;

•

interest rates, general market and economic conditions and other factors generally affecting the market prices of our common stock and Extra Space common stock;

•

federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and Extra Space operate; and

•

other factors beyond our control and that of Extra Space, including those described or referred to elsewhere in this “Risk Factors” section.

The market price of shares of Extra Space common stock at the closing of the Mergers may vary from its price on the date the Merger Agreement was executed, on the date of the joint proxy statement/prospectus and on the date of our special meeting. As a result, the market value of the merger consideration represented by the exchange ratio will also vary.

If the market price of shares of Extra Space common stock increases between the date the Merger Agreement was signed, the date of the joint proxy statement/prospectus or the date of our special meeting and the closing of the Mergers, our shareholders could receive shares of Extra Space common stock that have a market value upon completion of the Mergers that is greater than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed, the date of the joint proxy statement/prospectus or on the date of the special meeting, respectively. Conversely, if the market price of shares of Extra Space common stock declines between the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of our special meeting and the closing of the Mergers, our shareholders could receive shares of Extra Space common stock that have a market value upon completion of the Mergers that is less than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed, the date of the joint proxy statement/prospectus or on the date of the special meeting, respectively.

Therefore, while the number of shares of Extra Space common stock to be issued per share of our common stock is fixed, our shareholders cannot be sure of the market value of the merger consideration they will receive upon completion of the Mergers.

Completion of the Mergers is subject to many closing conditions and if these conditions are not satisfied or waived, the Mergers will not be completed, which could result in the requirement that we pay certain termination fees.

The consummation of the Mergers is subject to certain conditions, including (a) the approval of the Merger Agreement by the holders of two-thirds of the outstanding shares of our common stock, (b) the approval of the issuance of Extra Space common stock in the Mergers by a majority of the votes cast by the holders of Extra Space common stock on such matter, (c) the shares of Extra Space common stock to be issued in the Company Merger having been approved for listing on the New York Stock Exchange, (d) the Form S-4 to be filed by Extra Space to register the offer and sale of shares of Extra Space common stock to be issued in the Company Merger becoming effective, (e) the absence of any temporary restraining order, injunction or other legal order, and no law being enacted, which would have the effect of making illegal or otherwise prohibiting the consummation of the Mergers, (f) the receipt of certain legal opinions by us and Extra Space and (g) other customary conditions specified in the Merger Agreement.

There can be no assurance that the conditions to closing of the Mergers will be satisfied or waived or that the Mergers will be completed. Failure to consummate the Mergers may adversely affect our results of operations and business prospects for the following reasons, among others: (i) we have incurred and will incur certain transaction costs, regardless of whether the proposed Mergers close, which could adversely affect our financial condition, results of operations and ability to make distributions to our shareholders; and (ii) the proposed Mergers, whether or not they close, will divert the attention of certain of our management and other key employees from ongoing business activities, including the pursuit of other opportunities that could be beneficial to us. In addition, we or Extra Space may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Mergers are not completed by December 31, 2023 (the “Drop Dead Date”), and if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, we may be required to pay Extra Space a termination fee of $371.0 million and Extra Space may be required to pay a termination fee to us of $761.0 million. If our shareholders vote on but do not approve the Mergers, and the Merger Agreement is thereafter terminated, then we may be required to reimburse Extra Space’s transaction expenses up to an amount equal to $20.0 million. If the Mergers are not consummated, the price of our common stock might decline.

Failure to complete the Mergers could negatively impact the price of our common stock, future business and financial results.

If the Mergers are not completed, our ongoing business could be adversely affected and we will be subject to a variety of risks associated with the failure to complete the Mergers, including the following:

•

the market price of our common stock could decline;

•

being required, under certain circumstances, to pay to Extra Space a termination fee of $371.0 million or if the shareholders vote on but do not approve the Mergers, and the Merger Agreement is thereafter terminated, then we may be required to reimburse Extra Space’s transaction expenses up to an amount equal to $20.0 million;

•

if the Merger Agreement is terminated and our board of directors seeks another business combination, we may not be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms Extra Space has agreed to in the Merger Agreement;

•

we may experience negative reactions from the financial markets or our customers, vendors or employees;

•

having to pay certain costs relating to the proposed Mergers, such as legal, accounting, financial advisor, filing, printing and mailing fees; and

•

diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the Mergers.

If the Mergers are not completed, these risks could materially affect our business, financial results and stock price.

The pendency of the Mergers could adversely affect our business and operations.

Prior to the effective time of the Mergers, some of our customers, prospective customers or vendors may delay or defer decisions, which could negatively affect our revenues, earnings, cash flows and expenses, regardless of whether the Mergers are completed. Similarly, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Mergers, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Mergers. In addition, due to operating restrictions in the Merger Agreement, we may be unable, during the pendency of the Mergers, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.

The Merger Agreement contains provisions that could make it difficult for a third party to acquire us prior to the Mergers.

Pursuant to the Merger Agreement, we have agreed not to (a) solicit proposals relating to certain alternative transactions, (b) enter into discussions or negotiations or provide non-public information in connection with any proposal for an alternative transaction from a third party or (c) approve or enter into any agreements providing for any such alternative transaction, subject to certain exceptions to permit members of our board of directors to comply with their duties under applicable law. Notwithstanding these “no-shop” restrictions, prior to obtaining the approval of our shareholders, under specified circumstances our board of directors may change its recommendation of the transaction, and we may also terminate the Merger Agreement to accept a superior proposal upon payment of the termination fee described below.

The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, we may be required to pay to Extra Space a termination fee of $371.0 million. If our shareholders vote on, but do not approve, the Company Merger, and the Merger Agreement is thereafter terminated, we may be required to reimburse Extra Space’s transaction expenses up to an amount equal to $20.0 million.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us from considering or proposing such an acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Mergers, or might result in a potential competing acquirer proposing to pay a lower per share value than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.

If the Mergers are not consummated by December 31, 2023, either Extra Space or the Company may terminate the Merger Agreement.

Either Extra Space or the Company may terminate the Merger Agreement if the Mergers have not been consummated by December 31, 2023. However, this termination right will not be available to a party if that party failed to comply with the Merger Agreement and that failure was the primary cause of, or resulted in, the failure to consummate the Mergers on or before December 31, 2023.

If the Company Merger does not qualify as a tax-free reorganization, there may be adverse tax consequences.

The Company Merger is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. The closing of the Company Merger is conditioned on the receipt by both Extra Space and us of an opinion of our respective counsel to the effect that the Company Merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. The foregoing opinions, however, are limited to the factual representations provided by Extra Space and us to counsel and the assumptions set forth therein, and are not a guarantee that the Company Merger, in fact, will qualify as a tax-free reorganization. Moreover, neither we nor Extra Space has requested or plans to request a ruling from the IRS that the Company Merger qualifies as a tax-free reorganization. If the Company Merger were to fail to qualify as a tax-free reorganization, then our shareholders generally would recognize gain or loss, as applicable, equal to the difference between (i) the sum of the fair market value of the shares of Extra Space common stock and cash in lieu of any fractional share of Extra Space common stock received by such shareholder in the Company Merger; and (ii) such shareholder's adjusted tax basis in our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s common stock. We have not made any repurchases under such program since 2017, and up to approximately $191.8 million of the Company’s common stock may yet be purchased under such program. The program does not have an expiration date but may be suspended or discontinued at any time. During the three months ended March 31, 2023, 26,585 shares with an aggregate value of $3.2 million were withheld for the payment of taxes on restricted and performance shares vested. During the three months ended March 31, 2022, no such shares were withheld.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits


2.1		Agreement and Plan of Merger, dated as of April 2, 2023, by and among Extra Space Storage Inc., Extra Space Storage LP, Eros Merger Sub, LLC, Eros OP Merger Sub, LLC, Life Storage, Inc. and Life Storage LP (incorporated by reference to Exhibit 2.1 to the combined Current Report on Form 8-K of the Company and the Operating Partnership as filed with the SEC on April 3, 2023).

31.1		Certification of Chief Executive Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.2		Certification of Chief Financial Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.3		Certification of Chief Executive Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.4		Certification of Chief Financial Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32		Certification of Chief Executive Officer and Chief Financial Officer of Life Storage, Inc. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer of Life Storage LP Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements from the Parent Company’s and the Operating Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in inline XBRL, as follows:

		(i) Consolidated Balance Sheets at March 31, 2023 and December 31, 2022;

		(ii) Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022;

		(iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022;

		(iv) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022; and

		(v) Notes to Consolidated 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, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Life Storage, Inc.

	By:		/S/ Alexander Gress
			Alexander Gress
			Chief Financial Officer
			(Principal Accounting Officer)

May 3, 2023

Date


	Life Storage LP

	By:		/S/ Alexander Gress
			Alexander Gress
			Chief Financial Officer
			(Principal Accounting Officer)

May 3, 2023

Date