Document


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 30, 2018
(Date of Report (Date of Earliest Event Reported))
 
EXTRA SPACE STORAGE INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
Maryland
 
001-32269
 
20-1076777
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification Number)
2795 East Cottonwood Parkway, Suite 300
Salt Lake City, Utah 84121
(Address of Principal Executive Offices)
(801) 365-4600
(Registrant’s Telephone Number, Including Area Code)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐





ITEM 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 30, 2018, Extra Space Storage Inc. (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated by reference herein.
The information contained in this Current Report, including the exhibit referenced herein, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing of Extra Space Storage Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
ITEM 9.01        
FINANCIAL STATEMENTS AND EXHIBITS
(d) The following exhibit is furnished herewith: 
Exhibit
Number
  
Description of Exhibit
  
Press Release dated October 30, 2018.






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 hereunto duly authorized.
 
 
EXTRA SPACE STORAGE INC.
 
 
 
 
 
Date:
October 30, 2018
By
/s/ P. Scott Stubbs
 
 
 
Name:
P. Scott Stubbs
 
 
 
Title:
Executive Vice President and Chief Financial Officer



Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12519632&doc=3
 
Extra Space Storage Inc.
 
PHONE (801) 365-4600
 
2795 East Cottonwood Parkway, Suite 300
 
Salt Lake City, Utah 84121
 
www.extraspace.com
FOR IMMEDIATE RELEASE
 
 


Extra Space Storage Inc. Reports 2018 Third Quarter Results
SALT LAKE CITY, October 30, 2018 — Extra Space Storage Inc. (NYSE: EXR) (the “Company”), a leading owner and operator of self-storage facilities in the United States and a member of the S&P 500, announced operating results for the three and nine months ended September 30, 2018.
Highlights for the three months ended September 30, 2018:
 
Achieved net income attributable to common stockholders of $1.02 per diluted share, representing a 37.8% increase compared to the same period in 2017.

Achieved funds from operations attributable to common stockholders and unit holders (“FFO”) of $1.19 per diluted share. FFO, excluding adjustments for non-cash interest and hurricane losses ("Core FFO"), was $1.20 per diluted share, representing a 6.2% increase compared to the same period in 2017.

Increased same-store revenue by 3.2% and same-store net operating income (“NOI”) by 3.3% compared to the same period in 2017.

Reported same-store occupancy of 93.9% as of September 30, 2018, compared to 93.7% as of September 30, 2017.

Acquired five operating stores and one store at completion of construction (a "Certificate of Occupancy store" or "C of O store") for a total investment of approximately $74.3 million.

In conjunction with joint venture partners, acquired eight operating stores, three Certificate of Occupancy stores and completed one development for a total cost of approximately $127.1 million, of which the Company invested $34.6 million.

Added 36 stores to the Company's third-party management platform. As of September 30, 2018, we managed 507 stores for third parties and 227 stores in joint ventures, for a total of 734 managed stores.

Disposed of one store for $40.7 million.

Paid a quarterly dividend of $0.86 per share.
Highlights for the nine months ended September 30, 2018:
 
Achieved net income attributable to common stockholders of $2.46 per diluted share, representing an 18.8% increase compared to the same period in 2017.

Achieved FFO of $3.42 per diluted share. Core FFO was $3.44 per diluted share, representing a 5.5% increase compared to the same period in 2017.

Increased same-store revenue by 4.2% and same-store NOI by 3.9% compared to the same period in 2017.






Acquired 11 operating stores, two Certificate of Occupancy stores and purchased our joint venture partner's interest in 15 stores for a total investment of approximately $382.7 million.

In conjunction with joint venture partners, acquired 13 operating stores, 11 Certificate of Occupancy stores and completed three developments for a total cost of approximately $351.1 million, of which the Company invested $84.8 million.

Added 119 stores to the Company's third-party management platform.
Joe Margolis, CEO of Extra Space Storage Inc., commented: “The year continues to progress as expected as we head down the home stretch. Our stores have maintained very high occupancy, we continue to achieve positive rate growth and our diversified portfolio continues to deliver solid results, despite new supply in certain markets. External growth has also been strong through consistent acquisition volume and a record year expanding our third party management platform."





FFO Per Share:
The following table outlines the Company’s FFO and Core FFO for the three and nine months ended September 30, 2018 and 2017. The table also provides a reconciliation to GAAP net income attributable to common stockholders and earnings per diluted share for each period presented (amounts shown in thousands, except share and per share data1 — unaudited):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
(per share)
 
 
 
(per share)
 
 
 
(per share)
 
 
 
(per share)

Net income attributable to common stockholders
$
130,418

 
$
1.02

 
$
93,764

 
$
0.74

 
$
313,827

 
$
2.46

 
$
263,052

 
$
2.07

Impact of the difference in weighted average number of shares – diluted2
 
 
(0.05
)
 
 
 
(0.05
)
 
 
 
(0.13
)
 
 
 
(0.11
)
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate depreciation
48,673

 
0.36

 
43,303

 
0.32

 
144,018

 
1.07

 
127,729

 
0.95

Amortization of intangibles
1,835

 
0.01

 
2,316

 
0.02

 
6,427

 
0.05

 
11,164

 
0.08

(Gain) loss on real estate transactions and impairment of real estate assets
(30,807
)
 
(0.23
)
 

 

 
(30,807
)
 
(0.23
)
 
6,019

 
0.04

Unconsolidated joint venture real estate depreciation and amortization
1,781

 
0.01

 
1,429

 
0.01

 
4,931

 
0.04

 
4,267

 
0.03

Distributions paid on Series A Preferred Operating Partnership units
(572
)
 

 
(572
)
 

 
(1,716
)
 
(0.01
)
 
(2,547
)
 
(0.02
)
Income allocated to Operating Partnership noncontrolling interests
9,269

 
0.07

 
7,363

 
0.05

 
24,003

 
0.17

 
21,928

 
0.16

FFO
$
160,597

 
$
1.19

 
$
147,603

 
$
1.09

 
$
460,683

 
$
3.42

 
$
431,612

 
$
3.20

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property losses and tenant reinsurance claims due to hurricanes

 

 
4,360

 
0.03

 

 

 
4,360

 
0.03

Non-cash interest expense related to amortization of discount on equity portion of exchangeable senior notes
1,140

 
0.01

 
1,268

 
0.01

 
3,525

 
0.02

 
3,827

 
0.03

Core FFO
$
161,737

 
$
1.20

 
$
153,231

 
$
1.13

 
$
464,208

 
$
3.44

 
$
439,799

 
$
3.26

Weighted average number of shares – diluted3
135,010,959

 
 
 
135,090,385

 
 
 
134,831,700

 
 
 
135,033,047

 
 

(1)
Per share amounts may not recalculate due to rounding.

(2)
Adjustment to account for the difference between the number of shares used to calculate earnings per share and the number of shares used to calculate FFO per share. Earnings per share is calculated using the two-class method, which uses a lower number of shares than the calculation for FFO per share and Core FFO per share, which are calculated assuming full redemption of all OP units as described in note (3).

(3)
Extra Space Storage LP (the “Operating Partnership”) has outstanding preferred and common Operating Partnership units (“OP units”). These OP units can be redeemed for cash or, at the Company’s election, shares of the Company’s common stock. Redemption of all OP units for common stock has been assumed for purposes of calculating the weighted average number of shares — diluted as presented above. The computation of weighted average number of shares — diluted for FFO per share and Core FFO per share also includes the effect of share-based compensation plans and shares related to the exchangeable senior notes using the treasury stock method.












Operating Results and Same-Store Performance:
The following table outlines the Company’s same-store performance for the three and nine months ended September 30, 2018 and 2017 (amounts shown in thousands, except store count data—unaudited)1:
 
For the Three Months Ended September 30,
 
Percent
 
For the Nine Months Ended September 30,
 
Percent
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Same-store rental revenues2
$
244,051

 
$
236,408

 
3.2%
 
$
715,970

 
$
687,418

 
4.2%
Same-store operating expenses2
65,799

 
63,911

 
3.0%
 
198,199

 
188,888

 
4.9%
Same-store net operating income2
$
178,252

 
$
172,497

 
3.3%
 
$
517,771

 
$
498,530

 
3.9%
 
 
 
 
 
 
 
 
 
 
 
 
Same-store square foot occupancy as of quarter end
93.9%
 
93.7%
 
 
 
93.9%
 
93.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Properties included in same-store3
783
 
783
 
 
 
783
 
783
 
 

(1)
A reconciliation of net income to same-store net operating income is provided later in this release, entitled "Reconciliation of GAAP Net Income to Total Same-Store Net Operating Income."

(2)
Same-store revenues, same-store operating expenses and same-store net operating income do not include tenant reinsurance revenue or expense.

(3)
Four stores were removed from the same-store pool during the quarter, due to one disposition and three redevelopment/expansion projects of sufficient scale to require removal from the same-store pool per the Company's same-store pool definition.

Same-store revenues for the three and nine months ended September 30, 2018 increased due to higher rental rates for both new and existing customers, and were partially offset by increased discounts. Expenses were higher for the three months ended September 30, 2018, primarily due to increases in property taxes, marketing and insurance. Expenses were higher for the nine months ended September 30, 2018, primarily due to increases in property taxes, payroll and benefits and marketing.
Major markets with revenue growth above the Company’s portfolio average for the three and nine months ended September 30, 2018 included Atlanta, Hawaii, Indianapolis, Las Vegas and Los Angeles. Major markets performing below the Company’s portfolio average included Charleston, Dallas, Norfolk/Virginia Beach, Washington D.C. and West Palm Beach/Boca Raton.






Investment and Third-Party Management Activity:
The following table outlines the Company’s acquisitions and developments that are closed, completed or under agreement (dollars in thousands – unaudited):
 
 
Closed/Completed through
September 30, 2018
 
Closed/Completed subsequent to
September 30, 2018
 
Scheduled to Close/Complete in 2018
 
Total 2018
 
To Close/Complete in 2019-2020
Wholly-Owned Investment
 
Stores
 
Price
 
Stores
 
Price
 
Stores
 
Price
 
Stores
 
Price
 
Stores
 
Price
Operating Stores
 
11
 
$
137,950

 
2
 
$
24,400

 
1
 
$
13,000

 
14
 
$
175,350

 
 
$

C of O and Development Stores1
 
2
 
31,566

 
1
 
7,500

 
4
 
58,333

 
7
 
97,399

 
6
 
69,923

Buyout of JV Partners' Interest in Operating Stores2
 
15
 
213,211

 
 

 
 

 
15
 
213,211

 
 

EXR Investment in Wholly-owned stores
 
28
 
382,727

 
3
 
31,900

 
5
 
71,333

 
36
 
485,960

 
6
 
69,923

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joint Venture Investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JV Operating Stores
(Total Purchase Price)1
 
13
 
184,650

 
 

 
2
 
19,800

 
15
 
$
204,450

 
 

(Less) JV Partner Investment in Operating Stores
 
 
(158,985
)
 
 

 
 
(17,820
)
 
 
(176,805
)
 
 

JV Development and C of O (Total Purchase Price)
 
14
 
166,400

 
1
 
14,250

 
9
 
227,262

 
24
 
407,912

 
8
 
135,807

(Less) JV Partner Investment in Development and C of O
 
 
(107,296
)
 
 
(12,825
)
 
 
(184,702
)
 
 
(304,823
)
 
 
(99,802
)
EXR Investment in Joint Ventures
 
27
 
84,769

 
1
 
1,425

 
11
 
44,540

 
39
 
130,734

 
8
 
36,005

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total EXR Investment
 
55
 
$
467,496

 
4
 
$
33,325

 
16
 
$
115,873

 
75
 
$
616,694

 
14
 
$
105,928


(1)
The locations of C of O and development stores and joint venture ownership interest details are included in the supplemental financial information published on the Company’s website at www.extraspace.com.

(2)
The buyout of JV partners' interest in stores is reported at the value paid for the partners' ownership interest.
The projected developments and acquisitions under agreement described above are subject to customary closing conditions and no assurance can be provided that these developments and acquisitions will be completed on the terms described, or at all.
Disposition:
On August 16, 2018, the Company disposed of a store in Menlo Park, CA for $40.7 million, and recognized a gain of $30.7 million. The sale was part of a reverse 1031 exchange for stores previously acquired by the Company.
Property Management:
As of September 30, 2018, the Company managed 507 stores for third-party owners. With an additional 227 stores owned and operated in joint ventures, the Company had a total of 734 stores under management. The Company continues to be the largest self-storage management company in the United States.
Balance Sheet:
During the three months ended September 30, 2018, the Company sold 343,251 shares of common stock using its ATM equity program at an average sales price of $99.75 per share resulting in net proceeds of $33.8 million after deducting offering costs. As of September 30, 2018, the Company had $315.1 million available for issuance under its ATM equity program.
As of September 30, 2018, the Company’s percentage of fixed-rate debt to total debt was 74.4%. The weighted average interest rates of the Company’s fixed and variable-rate debt were 3.4% and 3.8%, respectively. The combined weighted average interest rate was 3.5% with a weighted average maturity of approximately 4.9 years.






Dividends:
On September 28, 2018, the Company paid a third quarter common stock dividend of $0.86 per share to stockholders of record at the close of business on September 14, 2018.

Outlook:
The following table outlines the Company’s FFO estimates and annual assumptions for the year ending December 31, 20181:
 
Ranges for 2018 Annual Assumptions
 
Notes
 
Low
 
High
 
 
FFO
$
4.58

 
$
4.62

 

Core FFO
$
4.62

 
$
4.66

 

Dilution per share from C of O and value add acquisitions
$
0.20

 
$
0.20

 
 
Same-store revenue growth
3.75
%
 
4.25
%
 
Assumes a same-store pool of 783 stores and excludes tenant reinsurance
Same-store expense growth
4.25
%
 
4.75
%
 
Assumes a same-store pool of 783 stores and excludes tenant reinsurance
Same-store NOI growth
3.50
%
 
4.25
%
 
Assumes a same-store pool of 783 stores and excludes tenant reinsurance
Weighted average one-month LIBOR
1.97
%
 
1.97
%
 
 
 
 
 
 
 
 
Net tenant reinsurance income
$
89,500,000

 
$
90,500,000

 
 
Management fees, other income and interest income
$
46,000,000

 
$
47,000,000

 
 
General and administrative expenses
$
81,500,000

 
$
82,500,000

 
Includes non-cash compensation expense
Average monthly cash balance
$
100,000,000

 
$
100,000,000

 
 
Equity in earnings of real estate ventures
$
14,500,000

 
$
14,500,000

 
 
Acquisition of operating stores (wholly-owned)
$
390,000,000

 
$
390,000,000

 

Development and C of O stores (wholly-owned)
$
100,000,000

 
$
100,000,000

 

Acquisition of operating stores (joint venture)
$
30,000,000

 
$
30,000,000

 
Represents the Company's investment
Development and C of O stores (joint venture)
$
100,000,000

 
$
100,000,000

 
Represents the Company's investment
Interest expense
$
177,000,000

 
$
178,000,000

 
 
Non-cash interest expense related to exchangeable senior notes
$
5,000,000

 
$
5,000,000

 
Excluded from Core FFO
Taxes associated with the Company's taxable REIT subsidiary
$
9,000,000

 
$
9,000,000

 
 
Weighted average share count
135,000,000

 
135,000,000

 
Assumes redemption of all OP units for common stock

(1)
A reconciliation of net income outlook to same-store net operating income outlook is provided later in this release entitled "Reconciliation of Estimated GAAP Net Income to Estimated Same-Store Net Operating Income." The reconciliation includes details related to same-store revenue and same-store expense outlooks. A reconciliation of net income per share outlook to funds from operations per share outlook is provided later in this release entitled "Reconciliation of the Range of Estimated GAAP Fully Diluted Earnings Per Share to Estimated Fully Diluted FFO Per Share."
FFO estimates for the year are fully diluted for an estimated average number of shares and OP units outstanding during the year. The Company’s estimates are forward-looking and based on management’s view of current and future market conditions. The Company’s actual results may differ materially from these estimates.





Supplemental Financial Information:
Supplemental unaudited financial information regarding the Company’s performance can be found on the Company’s website at www.extraspace.com. Under the "Company Info" navigation menu on the home page, click on “Investor Relations,” then under the “Financials & Stock Info” navigation menu click on “Quarterly Results.” This supplemental information provides additional detail on items that include store occupancy and financial performance by portfolio and market, debt maturity schedules and performance of lease-up assets.
Conference Call:
The Company will host a conference call at 11:00 a.m. Eastern Time on Wednesday, October 31, 2018, to discuss its financial results. To participate in the conference call, please dial 855-791-2026 or 631-485-4899 for international participants; audience passcode: 8497949. The conference call will also be available on the Company’s website at www.extraspace.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will be available for 30 days on the Company’s website in the Investor Relations section.
A replay of the call will also be available by telephone, from 4:00 p.m. Eastern Time on October 31, 2018, until 4:00 p.m. Eastern Time on November 5, 2018. The replay dial-in numbers are 855-859-2056 or 404-537-3406 for international callers; conference ID: 8497949.
Forward-Looking Statements:
Certain information set forth in this release contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning the benefits of store acquisitions, developments, favorable market conditions, our outlook and estimates for the year and other statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and developments and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “anticipates,” or “intends,” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this release. Any forward-looking statements should be considered in light of the risks referenced in the “Risk Factors” section included in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Such factors include, but are not limited to:
 
adverse changes in general economic conditions, the real estate industry and the markets in which we operate;
failure to close pending acquisitions and developments on expected terms, or at all;
the effect of competition from new and existing stores or other storage alternatives, which could cause rents and occupancy rates to decline;
potential liability for uninsured losses and environmental contamination;
the impact of the regulatory environment as well as national, state and local laws and regulations, including, without limitation, those governing real estate investment trusts (“REITs”), tenant reinsurance and other aspects of our business, which could adversely affect our results;
disruptions in credit and financial markets and resulting difficulties in raising capital or obtaining credit at reasonable rates or at all, which could impede our ability to grow;
increases in interest rates;
reductions in asset valuations and related impairment charges;
our lack of sole decision-making authority with respect to our joint venture investments;
the effect of recent changes to U.S. tax laws;
the failure to maintain our REIT status for U.S. federal income tax purposes; and
economic uncertainty due to the impact of natural disasters, war or terrorism, which could adversely affect our business plan.





All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
Definition of FFO:
FFO provides relevant and meaningful information about the Company’s operating performance that is necessary, along with net income and cash flows, for an understanding of the Company’s operating results. The Company believes FFO is a meaningful disclosure as a supplement to net income. Net income assumes that the values of real estate assets diminish predictably over time as reflected through depreciation and amortization expenses. The values of real estate assets fluctuate due to market conditions and the Company believes FFO more accurately reflects the value of the Company’s real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income computed in accordance with U.S. generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of operating stores and impairment write downs of depreciable real estate assets, plus depreciation and amortization related to real estate and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. The Company believes that to further understand the Company’s performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the Company’s consolidated financial statements. FFO should not be considered a replacement of net income computed in accordance with GAAP.
For informational purposes, the Company also presents Core FFO. Core FFO excludes revenues and expenses not core to our operations and non-cash interest. Although the Company’s calculation of Core FFO differs from NAREIT’s definition of FFO and may not be comparable to that of other REITs and real estate companies, the Company believes it provides a meaningful supplemental measure of operating performance. The Company believes that by excluding revenues and expenses not core to our operations and non-cash interest charges, stockholders and potential investors are presented with an indicator of our operating performance that more closely achieves the objectives of the real estate industry in presenting FFO. Core FFO by the Company should not be considered a replacement of the NAREIT definition of FFO. The computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income as an indication of the Company’s performance, as an alternative to net cash flow from operating activities as a measure of liquidity, or as an indicator of the Company’s ability to make cash distributions.
Definition of Same-Store:

The Company’s same-store pool for the periods presented consists of 783 stores that are wholly-owned and operated and that were stabilized by the first day of the earliest calendar year presented. The Company considers a store to be stabilized once it has been open for three years or has sustained average square foot occupancy of 80.0% or more for one calendar year. The Company believes that by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to occupancy, rental revenue (growth), operating expenses (growth), net operating income (growth), etc., stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions or completed developments.  Same-store results should not be used as a basis for future same-store performance or for the performance of the Company’s stores as a whole.
About Extra Space Storage Inc.:
Extra Space Storage Inc., headquartered in Salt Lake City, Utah, is a self-administered and self-managed REIT and a member of the S&P 500. As of September 30, 2018, the Company owned and/or operated 1,606 self-storage stores in 39 states, Washington, D.C. and Puerto Rico. The Company’s stores comprise approximately 1.1 million units and approximately 122 million square feet of rentable space. The Company offers customers a wide selection of conveniently located and secure storage units across the country, including boat storage, RV storage and business storage. The Company is the second largest owner and/or operator of self-storage stores in the United States and is the largest self-storage management company in the United States.
###
For Information:
Jeff Norman
Extra Space Storage Inc.
(801) 365-1759





Extra Space Storage Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
 
September 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
Assets:
 
 
 
Real estate assets, net
$
7,425,806

 
$
7,132,431

Investments in unconsolidated real estate ventures
114,451

 
75,907

Cash and cash equivalents
45,378

 
55,683

Restricted cash
21,205

 
30,361

Other assets, net
191,850

 
166,571

Total assets
$
7,798,690

 
$
7,460,953

Liabilities, Noncontrolling Interests and Equity:
 
 
 
Notes payable, net
$
4,104,955

 
$
3,738,497

Exchangeable senior notes, net
560,613

 
604,276

Notes payable to trusts, net
95,887

 
117,444

Revolving lines of credit

 
94,000

Cash distributions in unconsolidated real estate ventures
44,218

 
5,816

Accounts payable and accrued expenses
126,539

 
96,087

Other liabilities
96,384

 
81,026

Total liabilities
5,028,596

 
4,737,146

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Noncontrolling Interests and Equity:
 
 
 
Extra Space Storage Inc. stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding

 

Common stock, $0.01 par value, 500,000,000 shares authorized, 126,504,802 and 126,007,091 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
1,264

 
1,260

Additional paid-in capital
2,581,158

 
2,569,485

Accumulated other comprehensive income
68,362

 
33,290

Accumulated deficit
(255,065
)
 
(253,284
)
Total Extra Space Storage Inc. stockholders' equity
2,395,719

 
2,350,751

Noncontrolling interest represented by Preferred Operating Partnership units, net of $119,735 and $120,230 notes receivable as of September 30, 2018 and December 31, 2017, respectively
160,250

 
159,636

Noncontrolling interests in Operating Partnership
213,885

 
213,301

Other noncontrolling interests
240

 
119

Total noncontrolling interests and equity
2,770,094

 
2,723,807

Total liabilities, noncontrolling interests and equity
$
7,798,690

 
$
7,460,953






Consolidated Statement of Operations for the three and nine months ended September 30, 2018 and 2017
(In thousands, except share and per share data) - Unaudited
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Property rental
$
266,728

 
$
248,589

 
$
772,742

 
$
720,878

Tenant reinsurance
30,105

 
25,882

 
85,660

 
73,050

Management fees and other income
10,120

 
9,685

 
30,849

 
29,239

Total revenues
306,953

 
284,156

 
889,251

 
823,167

Expenses:
 
 
 
 
 
 
 
Property operations
73,652

 
70,430

 
219,488

 
204,370

Tenant reinsurance
7,720

 
6,272

 
18,798

 
13,996

General and administrative
19,707

 
19,498

 
62,822

 
60,171

Depreciation and amortization
52,283

 
48,075

 
155,924

 
144,139

Total expenses
153,362

 
144,275

 
457,032

 
422,676

Income from operations
153,591

 
139,881

 
432,219

 
400,491

Gain (loss) on real estate transactions and impairment of real estate
30,807

 

 
30,807

 
(6,019
)
Interest expense
(45,926
)
 
(39,766
)
 
(130,239
)
 
(113,192
)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes
(1,140
)
 
(1,268
)
 
(3,525
)
 
(3,827
)
Interest income
1,371

 
1,401

 
3,997

 
5,201

Income before equity in earnings of unconsolidated real estate ventures and income tax expense
138,703

 
100,248

 
333,259

 
282,654

Equity in earnings of unconsolidated real estate ventures
3,622

 
3,990

 
10,648

 
11,407

Income tax expense
(2,638
)
 
(3,163
)
 
(6,077
)
 
(9,154
)
Net income
139,687

 
101,075

 
337,830

 
284,907

Net income allocated to Preferred Operating Partnership noncontrolling interests
(3,723
)
 
(3,394
)
 
(10,605
)
 
(10,775
)
Net income allocated to Operating Partnership and other noncontrolling interests
(5,546
)
 
(3,917
)
 
(13,398
)
 
(11,080
)
Net income attributable to common stockholders
$
130,418

 
$
93,764

 
$
313,827

 
$
263,052

Earnings per common share
 
 
 
 
 
 
 
Basic
$
1.03

 
$
0.74

 
$
2.49

 
$
2.09

Diluted
$
1.02

 
$
0.74

 
$
2.46

 
$
2.07

Weighted average number of shares
 
 
 
 
 
 
 
Basic
126,466,837

 
125,717,517

 
125,959,926

 
125,665,787

Diluted
134,240,290

 
133,044,473

 
133,015,690

 
133,008,622

Cash dividends paid per common share
$
0.86

 
$
0.78

 
$
2.50

 
$
2.34







Reconciliation of GAAP Net Income to Total Same-Store Net Operating Income — for the three and nine months ended September 30, 2018 and 2017 (In thousands) — Unaudited
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
139,687

 
$
101,075

 
$
337,830

 
$
284,907

Adjusted to exclude:
 
 
 
 
 
 
 
Loss (gain) on real estate transactions and impairment of real estate
(30,807
)
 

 
(30,807
)
 
6,019

Equity in earnings of unconsolidated joint ventures
(3,622
)
 
(3,990
)
 
(10,648
)
 
(11,407
)
Interest expense
47,066

 
41,034

 
133,764

 
117,019

Depreciation and amortization
52,283

 
48,075

 
155,924

 
144,139

Income tax expense
2,638

 
3,163

 
6,077

 
9,154

General and administrative (includes stock compensation)
19,707

 
19,498

 
62,822

 
60,171

Management fees, other income and interest income
(11,491
)
 
(11,086
)
 
(34,846
)
 
(34,440
)
Net tenant reinsurance
(22,385
)
 
(19,610
)
 
(66,862
)
 
(59,054
)
Non same-store revenue
(22,677
)
 
(12,181
)
 
(56,772
)
 
(33,460
)
Non same-store expense
7,853

 
6,519

 
21,289

 
15,482

Total same-store net operating income
$
178,252

 
$
172,497

 
$
517,771

 
$
498,530

 
 
 
 
 
 
 
 
Same-store revenues
244,051

 
236,408

 
715,970

 
687,418

Same-store operating expenses
65,799

 
63,911

 
198,199

 
188,888

Same-store net operating income
$
178,252

 
$
172,497

 
$
517,771

 
$
498,530


































Reconciliation of the Range of Estimated GAAP Fully Diluted Earnings Per Share to Estimated Fully Diluted FFO Per Share — for the three months and year ending December 31, 2018 — Unaudited
 
For the Three Months Ending December 31, 2018
 
For the Year Ending
 December 31, 2018
 
Low End
 
High End
 
Low End
 
High End
Net income attributable to common stockholders per diluted share
$
0.72

 
$
0.76

 
$
3.05

 
$
3.09

Income allocated to noncontrolling interest - Preferred Operating Partnership and Operating Partnership
0.06

 
0.06

 
0.24

 
0.24

Fixed component of income allocated to non-controlling interest - Preferred Operating Partnership

 

 
(0.02
)
 
(0.02
)
Net income attributable to common stockholders for diluted computations
0.78

 
0.82

 
3.27

 
3.31

 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Real estate depreciation
0.35

 
0.35

 
1.42

 
1.42

Amortization of intangibles
0.02

 
0.02

 
0.07

 
0.07

Unconsolidated joint venture real estate depreciation and amortization
0.01

 
0.01

 
0.05

 
0.05

Funds from operations attributable to common stockholders

 

 
(0.23
)
 
(0.23
)
 
$
1.16

 
$
1.20

 
$
4.58

 
$
4.62

Adjustments:
 
 
 
 
 
 
 
Non-cash interest expense related to amortization of discount on equity portion of exchangeable senior notes
0.01

 
0.01

 
0.03

 
0.03

Accelerated loan amortization expense
0.01

 
0.01

 
0.01

 
0.01

Core funds from operations attributable to common stockholders
$
1.18

 
$
1.22

 
$
4.62

 
$
4.66






























Reconciliation of Estimated GAAP Net Income to Estimated Same-store Net Operating Income —
for the year ending December 31, 2018 (In thousands) — Unaudited

 
For the Year Ending December 31, 2018
 
 Low
 
 High
Net Income
$
411,000

 
$
421,000

Adjusted to exclude:
 
 
 
Equity in earnings of unconsolidated joint ventures
(14,500
)
 
(14,500
)
Interest expense (includes non-cash)
183,000

 
182,000

Depreciation and amortization
208,000

 
208,000

Income tax expense
9,000

 
9,000

General and administrative
82,500

 
81,500

Management fees, other income and interest income
(46,000
)
 
(47,000
)
Net tenant insurance
(89,500
)
 
(90,500
)
Non same-store revenue
(81,000
)
 
(81,000
)
Non same-store expense
29,000

 
29,000

Total same-store net operating income
$
691,500

 
$
697,500

 
 
 
 
Same-store revenue
$
955,500

 
$
960,200

Same-store expense
(264,000
)
 
(262,700
)
Total same-store net operating income
$
691,500

 
$
697,500