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Table of Contents
Item 8. Financial Statements and Supplementary Data

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

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

For the fiscal year ended December 31, 2013

OR

o

 

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

For the transition period from            to            .

Commission File Number: 001-32269

EXTRA SPACE STORAGE INC.
(Exact name of registrant as specified in its charter)

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

2795 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121

(Address of principal executive offices and zip code)

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

          Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class   Name of exchange on which registered
Common Stock, $0.01 par value   New York Stock Exchange, Inc.

          Securities registered pursuant to Section 12(g) of the Act: None

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý    No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ý

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

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

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

          The aggregate market value of the common stock held by non-affiliates of the registrant was $4,421,398,748 based upon the closing price on the New York Stock Exchange on June 28, 2013, the last business day of the registrant's most recently completed second fiscal quarter. This calculation does not reflect a determination that persons whose shares are excluded from the computation are affiliates for any other purpose.

          The number of shares outstanding of the registrant's common stock, $0.01 par value per share, as of February 21, 2014 was 115,802,553.

Documents Incorporated by Reference

          Portions of the registrant's definitive proxy statement to be issued in connection with the registrant's annual stockholders' meeting to be held in 2014 are incorporated by reference into Part III of this Annual Report on Form 10-K.

   


Table of Contents


EXTRA SPACE STORAGE INC.

Table of Contents

PART I

    3  

           

Item 1.

 

Business

    3  

           

Item 1A.

 

Risk Factors

    7  

           

Item 1B.

 

Unresolved Staff Comments

    20  

           

Item 2.

 

Properties

    20  

           

Item 3.

 

Legal Proceedings

    24  

           

Item 4.

 

Mine Safety Disclosures

    24  

           

PART II

    25  

           

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    25  

           

Item 6.

 

Selected Financial Data

    27  

           

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    29  

           

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    48  

           

Item 8.

 

Financial Statements and Supplementary Data

    50  

           

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    123  

           

Item 9A.

 

Controls and Procedures

    123  

           

Item 9B.

 

Other Information

    125  

           

PART III

    125  

           

Item 10.

 

Directors, Executive Officers and Corporate Governance

    125  

           

Item 11.

 

Executive Compensation

    126  

           

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    126  

           

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

    126  

           

Item 14.

 

Principal Accounting Fees and Services

    126  

           

PART IV

    127  

           

Item 15.

 

Exhibits and Financial Statement Schedules

    127  

           

SIGNATURES

    131  

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Statements Regarding Forward-Looking Information

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

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

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

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

        We disclaim any duty or obligation to update or revise any forward-looking statements set forth in this Annual Report on Form 10-K to reflect new information, future events or otherwise.


PART I

Item 1.    Business

General

        Extra Space Storage Inc. ("we," "our," "us" or the "Company") is a fully integrated, self-administered and self-managed real estate investment trust ("REIT") formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage facilities. We closed our initial public offering ("IPO") on August 17, 2004. Our common stock is traded on the New York Stock Exchange under the symbol "EXR."

        We were formed to continue the business of Extra Space Storage LLC and its subsidiaries, which had engaged in the self-storage business since 1977. These companies were reorganized after the consummation of our IPO and various formation transactions. As of December 31, 2013, we held ownership interests in 779 operating properties. Of these operating properties, 506 are wholly-owned, and 273 are owned in joint venture partnerships. An additional 250 operating properties are owned by third parties and operated by us in exchange for a management fee, bringing the total number of operating properties which we own and/or manage to 1,029. These operating properties are located in 35 states, Washington, D.C. and Puerto Rico and contain approximately 75.7 million square feet of net rentable space in approximately 680,000 units and currently serve a customer base of approximately 600,000 tenants.

        We operate in three distinct segments: (1) rental operations; (2) tenant reinsurance; and (3) property management, acquisition and development. Our rental operations activities include rental operations of self-storage facilities in which we have an ownership interest. Tenant reinsurance activities include the reinsurance of risks relating to the loss of goods stored by tenants in the Company's self-storage facilities. Our property management, acquisition and development activities include managing, acquiring, developing and selling self-storage facilities.

        Substantially all of our business is conducted through Extra Space Storage LP (the "Operating Partnership"). Our primary assets are general partner and limited partner interests in the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). To the extent we continue to qualify as a REIT we will not be subject to tax, with certain exceptions, on our net taxable income that is distributed to our stockholders.

        We file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (the "SEC"). You may obtain copies of these documents by visiting the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC's website at www.sec.gov. In addition, as soon as reasonably practicable after such materials are furnished to the SEC, we make copies of these documents available to the public free of charge through our website at www.extraspace.com, or by contacting our Secretary at our principal offices,

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which are located at 2795 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, telephone number (801) 365-4600.

Management

        Members of our executive management team have significant experience in all aspects of the self-storage industry, having acquired and/or developed a significant number of properties since before our IPO. Our executive management team and their years of industry experience are as follows: Spencer F. Kirk, Chief Executive Officer, 16 years; Scott Stubbs, Executive Vice President and Chief Financial Officer, 13 years; Karl Haas, Executive Vice President and Chief Operating Officer, 26 years; Charles L. Allen, Executive Vice President and Chief Investment Officer, 16 years; and Kenneth M. Woolley, Executive Chairman, 33 years. Mr. Haas retired on December 31, 2013, at which time Samrat Sondhi, who has 10 years of industry experience, was appointed Senior Vice President Operations.

        Our executive management team and board of directors have a significant ownership position in the Company with executive officers and directors owning approximately 5,734,817 shares or 5.0% of our outstanding common stock as of February 14, 2014.

Industry & Competition

        Self-storage facilities refers to properties that offer month-to-month storage space rental for personal or business use. Self-storage offers a cost-effective and flexible storage alternative. Tenants rent fully enclosed spaces that can vary in size according to their specific needs and to which they have unlimited, exclusive access. Tenants have responsibility for moving their items into and out of their units. Self-storage unit sizes typically range from 5 feet by 5 feet to 20 feet by 20 feet, with an interior height of 8 feet to 12 feet. Properties generally have on-site managers who supervise and run the day-to-day operations, providing tenants with assistance as needed.

        Self-storage provides a convenient way for individuals and businesses to store their possessions due to life changes, or simply because of a need for storage space. The mix of residential tenants using a self-storage property is determined by a property's local demographics and often includes people who are looking to downsize their living space or others who are not yet settled into a permanent residence. Items that residential tenants place in self-storage properties range from cars, boats and recreational vehicles, to furniture, household items and appliances. Commercial tenants tend to include small business owners who require easy and frequent access to their goods, records, inventory or storage for seasonal goods.

        Our research has shown that tenants choose a self-storage property based primarily on the convenience of the site to their home or business, making high-density, high-traffic population centers ideal locations for self-storage properties. A property's perceived security and the general professionalism of the site managers and staff are also contributing factors to a site's ability to successfully secure rentals. Although most self-storage properties are leased to tenants on a month-to-month basis, tenants tend to continue their leases for extended periods of time.

        The self-storage business is subject to seasonal fluctuations. A greater portion of revenues and profits are realized from May through September. Historically, our highest level of occupancy has been at the end of July, while our lowest level of occupancy has been in late February and early March.

        Since inception in the early 1970's, the self-storage industry has experienced significant growth. According to the Self-Storage Almanac (the "Almanac"), in 2003 there were only 37,011 self-storage properties in the United States, with an average physical occupancy rate of 86.1% of net rentable square feet, compared to 48,151 self-storage properties in 2013 with an average physical occupancy rate of 87.8% of net rentable square feet.

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        We have encountered competition when we have sought to acquire properties, especially for brokered portfolios. Aggressive bidding practices have been commonplace between both public and private entities, and this competition will likely continue.

        The industry is also characterized by fragmented ownership. According to the Almanac, the top ten self-storage companies in the United States owned approximately 12.2% of total U.S. self-storage properties, and the top 50 self-storage companies owned approximately 15.9% of the total U.S. properties as of December 31, 2013. We believe this fragmentation will contribute to continued consolidation at some level in the future. We also believe that we are well positioned to compete for acquisitions given our historical reputation for closing deals.

        We are the second largest self-storage operator in the United States. We are one of four public self-storage REITs along with Public Storage Inc., CubeSmart and Sovran Self-Storage, Inc.

Long-Term Growth and Investment Strategies

        Our primary business objectives are to maximize cash flow available for distribution to our stockholders and to achieve sustainable long-term growth in cash flow per share in order to maximize long-term stockholder value. We continue to evaluate a range of growth initiatives and opportunities, including the following:

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Financing of Our Long-Term Growth Strategies

Acquisition and Development Financing

        The following table presents information on our lines of credit (the "Credit Lines") for the periods indicated (amounts in thousands). All of our Credit Lines are guaranteed by us and secured by mortgages on certain real estate assets.

 
  As of December 31, 2013    
   
   
   
Line of Credit
  Amount
Drawn
  Capacity   Interest
Rate
  Origination
Date
  Maturity   Basis Rate   Notes

Credit Line 1

  $   $ 75,000     2.07 %   2/13/2009     5/13/2014     LIBOR plus 1.90 % (1)

Credit Line 2

        85,000     2.07 %   6/4/2010     6/3/2016     LIBOR plus 1.90 % (2)

Credit Line 3

        40,000     2.37 %   11/16/2010     2/13/2017     LIBOR plus 2.20 % (3)(4)

Credit Line 4

        80,000     1.87 %   4/29/2011     11/18/2016     LIBOR plus 1.70 % (4)
                                     

  $   $ 280,000                            
                                     
                                     

(1)
One year extension available

(2)
One two-year extension available

(3)
Amended February 13, 2014 to extend the maturity date to February 13, 2017, increase the capacity to $50,000 and lower the interest rate to Libor plus 1.75%.

(4)
Two one-year extensions available

We expect to maintain a flexible approach in financing new property acquisitions. We plan to finance future acquisitions through a combination of cash, borrowings under the Credit Lines, traditional secured mortgage financing, joint ventures and additional equity offerings.

Joint Venture Financing

        We own 273 of our stabilized properties through joint ventures with third parties, including affiliates of Prudential Financial, Inc. In each joint venture, we generally manage the day-to-day operations of the underlying properties and have the right to participate in major decisions relating to sales of properties or financings by the applicable joint venture. Our joint venture partners typically provide most of the equity capital required for the operation of the respective business. Under the operating agreements for the joint ventures, we maintain the right to receive between 2.0% and 99.0% of the available cash flow from operations after our joint venture partners and the Company have received a predetermined return, and between 17.0% and 99.0% of the available cash flow from capital transactions after our joint venture partners and the Company have received a return of their capital plus such predetermined return. Most joint venture agreements include buy-sell rights, as well as rights of first refusal in connection with the sale of properties by the joint venture.

Disposition of Properties

        We will continue to review our portfolio for properties or groups of properties that are not strategically located and determine whether to dispose of these properties to fund other growth.

Regulation

        Generally, self-storage properties are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures. Changes in any of these laws or regulations, as well as changes in laws, such as the Comprehensive Environmental Response and Compensation Liability Act, which increase the potential liability for environmental conditions or circumstances

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existing or created by tenants or others on properties, or laws affecting development, construction, operation, upkeep, safety and taxation may result in significant unanticipated expenditures, loss of self-storage sites or other impairments to operations, which would adversely affect our financial position, results of operations or cash flows.

        Under the Americans with Disabilities Act of 1990 (the "ADA"), places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional U.S. federal, state and local laws also exist that may require modifications to the properties, or restrict further renovations thereof, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, thereby requiring substantial capital expenditures. To the extent our properties are not in compliance, we are likely to incur additional costs to comply with the ADA.

        Insurance activities are subject to state insurance laws and regulations as determined by the particular insurance commissioner for each state in accordance with the McCarran-Ferguson Act, and are subject to the Gramm-Leach-Bliley Act and the privacy regulations promulgated by the Federal Trade Commission pursuant thereto.

        Property management activities are often subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.

        Changes in any of the laws governing our conduct could have an adverse impact on our ability to conduct our business or could materially affect our financial position, results of operations or cash flows.

Employees

        As of February 14, 2014, we had 2,584 employees and believe our relationship with our employees is good. Our employees are not represented by a collective bargaining agreement.

Item 1A.    Risk Factors

        An investment in our securities involves various risks. All investors should carefully consider the following risk factors in conjunction with the other information contained in this Annual Report before trading in our securities. If any of the events set forth in the following risks actually occur, our business, operating results, prospects and financial condition could be harmed.

        Our performance is subject to risks associated with real estate investments. We are a real estate company that derives our income from operation of our properties. There are a number of factors that may adversely affect the income that our properties generate, including the following:

Risks Related to Our Properties and Operations

Adverse economic or other conditions in the markets in which we do business could negatively affect our occupancy levels and rental rates and therefore our operating results.

        Our operating results are dependent upon our ability to maximize occupancy levels and rental rates in our self-storage properties. Adverse economic or other conditions in the markets in which we operate may lower our occupancy levels and limit our ability to increase rents or require us to offer rental discounts. If our properties fail to generate revenues sufficient to meet our cash requirements, including operating and other expenses, debt service and capital expenditures, our net income, funds from operations ("FFO"), cash flow, financial condition, ability to make cash distributions to

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stockholders and the trading price of our securities could be adversely affected. The following factors, among others, may adversely affect the operating performance of our properties:

If we are unable to promptly re-let our units or if the rates upon such re-letting are significantly lower than expected, our business and results of operations would be adversely affected.

        Virtually all of our leases are on a month-to-month basis. Any delay in re-letting units as vacancies arise would reduce our revenues and harm our operating results. In addition, lower than expected rental rates upon re-letting could adversely affect our revenues and impede our growth.

We depend upon our on-site personnel to maximize tenant satisfaction at each of our properties, and any difficulties we encounter in hiring, training and maintaining skilled field personnel may harm our operating performance.

        We had 2,241 field personnel as of February 14, 2014 in the management and operation of our properties. The general professionalism of our site managers and staff are contributing factors to a site's ability to successfully secure rentals and retain tenants. We also rely upon our field personnel to maintain clean and secure self-storage properties. If we are unable to successfully recruit, train and retain qualified field personnel, the quality of service we strive to provide at our properties could be adversely affected which could lead to decreased occupancy levels and reduced operating performance.

Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow.

        We maintain comprehensive liability, fire, flood, earthquake, wind (as deemed necessary or as required by our lenders), extended coverage and rental loss insurance with respect to our properties. Certain types of losses, however, may be either uninsurable or not economically insurable, such as losses due to earthquakes, hurricanes, tornadoes, riots, acts of war or terrorism. Should an uninsured loss occur, we could lose both our investment in and anticipated profits and cash flow from a property. In addition, if any such loss is insured, we may be required to pay significant amounts on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount

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of the loss may exceed our coverage for the loss. As a result, our operating results may be adversely affected.

Increases in taxes and regulatory compliance costs may reduce our income.

        Costs resulting from changes in real estate tax laws generally are not passed through to tenants directly and will affect us. Increases in income, property or other taxes generally are not passed through to tenants under leases and may reduce our net income, FFO, cash flow, financial condition, ability to pay or refinance our debt obligations, ability to make cash distributions to stockholders, and the trading price of our securities. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures, which could similarly adversely affect our business and results of operations.

Environmental compliance costs and liabilities associated with operating our properties may affect our results of operations.

        Under various U.S. federal, state and local laws, ordinances and regulations, owners and operators of real estate may be liable for the costs of investigating and remediating certain hazardous substances or other regulated materials on or in such property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances or materials. The presence of such substances or materials, or the failure to properly remediate such substances, may adversely affect the owner's or operator's ability to lease, sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous substances or other regulated materials may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials.

        Certain environmental laws also impose liability, without regard to knowledge or fault, for removal or remediation of hazardous substances or other regulated materials upon owners and operators of contaminated property even after they no longer own or operate the property. Moreover, the past or present owner or operator from which a release emanates could be liable for any personal injuries or property damages that may result from such releases, as well as any damages to natural resources that may arise from such releases.

        Certain environmental laws impose compliance obligations on owners and operators of real property with respect to the management of hazardous materials and other regulated substances. For example, environmental laws govern the management of asbestos-containing materials and lead-based paint. Failure to comply with these laws can result in penalties or other sanctions.

        No assurances can be given that existing environmental studies with respect to any of our properties reveal all environmental liabilities, that any prior owner or operator of our properties did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any one or more of our properties. There also exists the risk that material environmental conditions, liabilities or compliance concerns may have arisen after the review was completed or may arise in the future. Finally, future laws, ordinances or regulations and future interpretations of existing laws, ordinances or regulations may impose additional material environmental liability.

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Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses.

        Under the ADA, places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other legislation, then we would be required to incur additional costs to bring the facility into compliance. If we incur substantial costs to comply with the ADA or other legislation, our financial condition, results of operations, cash flow, per share trading price of our securities and our ability to satisfy our debt service obligations and to make cash distributions to our stockholders could be adversely affected.

Our tenant reinsurance business is subject to significant governmental regulation, which may adversely affect our results.

        Our tenant reinsurance business is subject to significant governmental regulation. The regulatory authorities generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate, interpret and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits and investigations of the affairs of insurance providers. As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our reinsurance activities, or otherwise fined or penalized or suffer an adverse judgment, which could adversely affect our business and results of operations.

We face competition for the acquisition of self-storage properties and other assets, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.

        We compete with many other entities engaged in real estate investment activities for acquisitions of self-storage properties and other assets, including national, regional and local operators and developers of self-storage properties. These competitors may drive up the price we pay for self-storage properties or other assets we seek to acquire or may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive suitors because they may have greater resources, may be willing to pay more or may have a more compatible operating philosophy. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition would result in increased demand for these assets and therefore increased prices paid for them. Because of an increased interest in single- property acquisitions among tax-motivated individual purchasers, we may pay higher prices if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices for self-storage properties or other assets, our profitability will be reduced.

We may not be successful in identifying and consummating suitable acquisitions that meet our criteria, which may impede our growth.

        Our ability to expand through acquisitions is integral to our business strategy and requires us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in identifying suitable properties or other assets that meet our acquisition criteria or in consummating acquisitions or investments on

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satisfactory terms or at all. Failure to identify or consummate acquisitions will slow our growth, which could in turn adversely affect our stock price.

        Our ability to acquire properties on favorable terms and successfully integrate and operate them may be constrained by the following significant risks:

        In addition, strategic decisions by us, such as acquisitions, may adversely affect the price of our securities.

We may not be successful in integrating and operating acquired properties.

        We expect to make future acquisitions of self-storage properties. If we acquire any self-storage properties, we will be required to integrate them into our existing portfolio. The acquired properties may turn out to be less compatible with our growth strategy than originally anticipated, may cause disruptions in our operations or may divert management's attention away from day-to-day operations, which could impair our operating results as a whole.

We do not always obtain independent appraisals of our properties, and thus the consideration paid for these properties may exceed the value that may be indicated by third-party appraisals.

        We do not always obtain third-party appraisals in connection with our acquisition of properties and the consideration being paid by us in exchange for those properties may exceed the value determined by third-party appraisals. In such cases, the value of the properties was determined by our senior management team.

Our investments in development and redevelopment projects may not yield anticipated returns, which would harm our operating results and reduce the amount of funds available for distributions.

        To the extent that we engage in development and redevelopment activities, we will be subject to the following risks normally associated with these projects:

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        In deciding whether to develop or redevelop a particular property, we make certain assumptions regarding the expected future performance of that property. We may underestimate the costs necessary to bring the property up to the standards established for its intended market position or may be unable to increase occupancy at a newly developed property as quickly as expected or at all. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these development or redevelopment projects and harm our operating results, liquidity and financial condition, which could result in a decline in the value of our securities.

        We may rely on the investments of our joint venture partners for funding certain of our development and redevelopment projects. If our reputation in the self-storage industry changes or the number of investors considering us an attractive strategic partner is otherwise reduced, our ability to develop or redevelop properties could be affected, which would limit our growth.

Risks Related to Our Organization and Structure

Our business could be harmed if key personnel with long-standing business relationships in the self-storage industry terminate their employment with us.

        Our success depends on the continued services of members of our executive management team, who have substantial experience in the self-storage industry. In addition, our ability to acquire or develop properties in the future depends on the significant relationships our executive management team has developed with our institutional joint venture partners, such as affiliates of Prudential Financial, Inc. There is no guarantee that any of them will remain employed by us. We do not maintain key person life insurance on any of our officers. The loss of services of one or more members of our executive management team could harm our business and our prospects.

We may change our investment and financing strategies and enter into new lines of business without stockholder consent, which may subject us to different risks.

        We may change our investment and financing strategies and enter into new lines of business at any time without the consent of our stockholders, which could result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this document. A change in our investment strategy or our entry into new lines of business may increase our exposure to other risks or real estate market fluctuations.

If other self-storage companies convert to an UPREIT structure or if tax laws change, we may no longer have an advantage in competing for potential acquisitions.

        Because we are structured as an UPREIT, we are a more attractive acquirer of properties to tax-motivated sellers than our competitors that are not structured as UPREITs. However, if other self-storage companies restructure their holdings to become UPREITs, this competitive advantage will disappear. In addition, new legislation may be enacted or new interpretations of existing legislation may be issued by the Internal Revenue Service ("IRS"), or the U.S. Treasury Department that could affect the attractiveness of our UPREIT structure so that it may no longer assist us in competing for acquisitions.

Tax indemnification obligations may require the Operating Partnership to maintain certain debt levels.

        We have provided certain tax protections to various third parties in connection with their property contributions to the Operating Partnership upon acquisition by the Company, including making

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available the opportunity to (1) guarantee debt or (2) enter into a special loss allocation and deficit restoration obligation. We have agreed to these provisions in order to assist these contributors in preserving their tax position after their contributions. These obligations may require us to maintain certain indebtedness levels that we would not otherwise require for our business.

Our joint venture investments could be adversely affected by our lack of sole decision-making authority.

        As of December 31, 2013, we held interests in 273 operating properties through joint ventures. Some of these arrangements could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers financial conditions and disputes between us and our co-venturers. We expect to continue our joint venture strategy by entering into more joint ventures for the purpose of developing new self-storage properties and acquiring existing properties. In such event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. The decision-making authority regarding the properties we currently hold through joint ventures is either vested exclusively with our joint venture partners, is subject to a majority vote of the joint venture partners or equally shared by us and the joint venture partners. In addition, investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and efforts on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers, which could harm our financial condition.

Conflicts of interest could arise as a result of our relationship with our Operating Partnership.

        Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, and our Operating Partnership or any partner thereof. Our directors and officers have duties to our Company under applicable Maryland law in connection with their management of our Company. At the same time, we, through our wholly-owned subsidiary, have fiduciary duties, as a general partner, to our Operating Partnership and to the limited partners under Delaware law in connection with the management of our Operating Partnership. Our duties, through our wholly-owned subsidiary, as a general partner to our Operating Partnership and its partners may come into conflict with the duties of our directors and officers to our Company. The partnership agreement of our Operating Partnership does not require us to resolve such conflicts in favor of either our Company or the limited partners in our Operating Partnership. Unless otherwise provided for in the relevant partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness, and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest.

        Additionally, the partnership agreement expressly limits our liability by providing that neither we, our direct wholly-owned Massachusetts business trust subsidiary, as the general partner of the Operating Partnership, nor any of our or their trustees, directors or officers, will be liable or accountable in damages to our Operating Partnership, the limited partners or assignees for errors in judgment, mistakes of fact or law or for any act or omission if we, or such trustee, director or officer,

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acted in good faith. In addition, our Operating Partnership is required to indemnify us, our affiliates and each of our respective trustees, officers, directors, employees and agents to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys' fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, provided that our Operating Partnership will not indemnify for (1) willful misconduct or a knowing violation of the law, (2) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.

        The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties that would be in effect under common law were it not for the partnership agreement.

Certain provisions of Maryland law and our organizational documents, including the stock ownership limit imposed by our charter, may inhibit market activity in our stock and could prevent or delay a change in control transaction.

        Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and to limit any person to actual or constructive ownership of no more than 7.0% (by value or by number of shares, whichever is more restrictive) of our outstanding common stock or 7.0% (by value or by number of shares, whichever is more restrictive) of our outstanding capital stock. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limit. However, our board of directors may not grant an exemption from the ownership limit to any proposed transferee whose ownership could jeopardize our qualification as a REIT. These restrictions on ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. The ownership limit may delay or impede a transaction or a change of control that might involve a premium price for our securities or otherwise be in the best interests of our stockholders. Different ownership limits apply to the family of Kenneth M. Woolley, certain of his affiliates, family members and estates and trusts formed for the benefit of the foregoing; to Spencer F. Kirk, certain of his affiliates, family members and estates and trusts formed for the benefit of the foregoing; and to certain designated investment entities as defined in our charter.

Our board of directors has the power to issue additional shares of our stock in a manner that may not be in the best interest of our stockholders.

        Our charter authorizes our board of directors to issue additional authorized but unissued shares of common stock or preferred stock and to increase the aggregate number of authorized shares or the number of shares of any class or series without stockholder approval. In addition, our board of directors may classify or reclassify any unissued shares of common stock or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. Our board of directors could issue additional shares of our common stock or establish a series of preferred stock that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for our securities or otherwise not be in the best interests of our stockholders.

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Our rights and the rights of our stockholders to take action against our directors and officers are limited.

        Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter eliminates our directors' and officers' liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our bylaws require us to indemnify our directors and officers for liability resulting from actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.

To the extent our distributions represent a return of capital for U.S. federal income tax purposes, our stockholders could recognize an increased capital gain upon a subsequent sale of common stock.

        Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a U.S. stockholder under current U.S. federal income tax law to the extent those distributions do not exceed the stockholder's adjusted tax basis in his, her, or its common stock, but instead will constitute a return of capital and will reduce such adjusted basis. If distributions result in a reduction of a stockholder's adjusted basis in such holder's common stock, subsequent sales of such holder's common stock will result in recognition of an increased capital gain or decreased capital loss due to the reduction in such adjusted basis.

Risks Related to the Real Estate Industry

Our primary business involves the ownership and operation of self-storage properties.

        Our current strategy is to own, operate, manage, acquire, develop and redevelop only self-storage properties. Consequently, we are subject to risks inherent in investments in a single industry. Because investments in real estate are inherently illiquid, this strategy makes it difficult for us to diversify our investment portfolio and to limit our risk when economic conditions change. Decreases in market rents, negative tax, real estate and zoning law changes and changes in environmental protection laws may also increase our costs, lower the value of our investments and decrease our income, which would adversely affect our business, financial condition and operating results.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties.

        Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

        We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to transfer restrictions that materially restrict us from selling that property for a period of time or impose other restrictions, such

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as a limitation on the amount of debt that can be placed or repaid on that property. These transfer restrictions would impede our ability to sell a property even if we deem it necessary or appropriate.

Any investments in unimproved real property may take significantly longer to yield income-producing returns, if at all, and may result in additional costs to us to comply with re-zoning restrictions or environmental regulations.

        We have invested in the past, and may invest in the future, in unimproved real property. Unimproved properties generally take longer to yield income-producing returns based on the typical time required for development. Any development of unimproved property may also expose us to the risks and uncertainties associated with re-zoning the land for a higher use or development and environmental concerns of governmental entities and/or community groups. Any unsuccessful investments or delays in realizing an income-producing return or increased costs to develop unimproved real estate could restrict our ability to earn our targeted rate of return on an investment or adversely affect our ability to pay operating expenses which would harm our financial condition and operating results.

Any negative perceptions of the self-storage industry generally may result in a decline in our stock price.

        To the extent that the investing public has a negative perception of the self-storage industry, the value of our securities may be negatively impacted, which could result in our securities trading below the inherent value of our assets.

Risks Related to Our Debt Financings

Disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.

        Uncertainty in the credit markets may negatively impact our ability to access additional debt financing or to refinance existing debt maturities on favorable terms (or at all), which may negatively affect our ability to make acquisitions and fund development projects. A downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing.

Required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties or to pay the distributions currently contemplated or necessary to maintain our qualification as a REIT and may expose us to the risk of default under our debt obligations.

        As of December 31, 2013, we had approximately $2.0 billion of outstanding indebtedness. We may incur additional debt in connection with future acquisitions and development. We may borrow under our Credit Lines or borrow new funds to finance these future properties. Additionally, we do not anticipate that our internally generated cash flow will be adequate to repay our existing indebtedness upon maturity and, therefore, we expect to repay our indebtedness through refinancings and equity and/or debt offerings. Further, we may need to borrow funds in order to make cash distributions to maintain our qualification as a REIT or to make our expected distributions.

        If we are required to utilize our Credit Lines for purposes other than acquisition activity, this will reduce the amount available for acquisitions and could slow our growth. Therefore, our level of debt

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and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

We could become highly leveraged in the future because our organizational documents contain no limitation on the amount of debt we may incur.

        Our organizational documents contain no limitations on the amount of indebtedness that we or our Operating Partnership may incur. We could alter the balance between our total outstanding indebtedness and the value of our portfolio at any time. If we become more highly leveraged, the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated cash distributions and/or to continue to make cash distributions to maintain our REIT qualification, and could harm our financial condition.

Increases in interest rates may increase our interest expense and adversely affect our cash flow and our ability to service our indebtedness and make cash distributions to our stockholders.

        As of December 31, 2013, we had approximately $1,958 million of debt outstanding, of which approximately $339.3 million or 17.3% was subject to variable interest rates (excluding debt with interest rate swaps). This variable rate debt had a weighted average interest rate of approximately 2.1% per annum. Increases in interest rates on this variable rate debt would increase our interest expense, which could harm our cash flow and our ability to pay cash distributions. For example, if market rates of interest on this variable rate debt increased by 100 basis points (excluding variable rate debt with

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interest rate floors), the increase in interest expense would decrease future earnings and cash flows by approximately $3.0 million annually.

Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

        In certain cases we may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements. Hedging involves risks, such as the risk that the counterparty may fail to honor its obligations under an arrangement. Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations and ability to make cash distributions to our stockholders.

Risks Related to Qualification and Operation as a REIT

To maintain our qualification as a REIT, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.

        To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding net capital gains, and we are subject to regular corporate income taxes to the extent that we distribute less than 100% of our net taxable income each year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which distributions made by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. While historically we have satisfied these distribution requirements by making cash distributions to our stockholders, a REIT is permitted to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, its own stock. Assuming we continue to satisfy these distributions requirements with cash, we may need to borrow funds on a short-term basis, or possibly long-term, to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from a difference in timing between the actual receipt of cash and inclusion of income for U.S. federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt amortization payments.

Dividends payable by REITs generally do not qualify for reduced tax rates.

        The maximum U.S. federal income tax rate for dividends paid by domestic corporations to individual U.S. stockholders is 20%. Dividends paid by REITs, however, are generally not eligible for the reduced rates. The more favorable rates applicable to regular corporate dividends could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our securities.

        In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given to corporate dividends, which could negatively affect the value of our properties.

Possible legislative or other actions affecting REITs could adversely affect our stockholders.

        The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our stockholders. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to us or our stockholders will be changed.

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The power of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.

        Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our net taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.

Our failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.

        We believe we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under the Internal Revenue Code. If we fail to qualify as a REIT or lose our qualification as a REIT at any time, we will face serious tax consequences that would substantially reduce the funds available for distribution for each of the years involved because:

        In addition, if we fail to qualify as a REIT, we will not be required to make distributions to stockholders, and all distributions to stockholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. This means that our U.S. individual stockholders would be taxed on our dividends at capital gains rates, and our U.S. corporate stockholders would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Internal Revenue Code. If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the relief provisions under the Internal Revenue Code in order to maintain our REIT status, we may nevertheless be required to pay penalty taxes of $50,000 or more for each such failure. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could adversely affect the value of our securities.

        Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets, the sources of our gross income and the owners of our stock. Our ability to satisfy the asset tests depends upon our analysis of the fair market value of our assets, some of which are not susceptible to precise determination, and for which we will not obtain independent appraisals. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding capital gains, and we will be subject to income tax at regular corporate rates to the extent we distribute less than 100% of our net taxable income including capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax purposes or the desirability of an investment in

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a REIT relative to other investments. Although we believe that we have been organized and have operated in a manner that is intended to allow us to qualify for taxation as a REIT, we can give no assurance that we have qualified or will continue to qualify as a REIT for tax purposes. We have not requested and do not plan to request a ruling from the Internal Revenue Service regarding our qualification as a REIT.

We will pay some taxes.

        Even though we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some U.S. federal, state and local taxes on our income and property. Extra Space Management, Inc. manages self-storage properties for our joint ventures and properties owned by third parties. We, jointly with Extra Space Management, Inc., elected to treat Extra Space Management, Inc. as a taxable REIT subsidiary ("TRS") of our Company for U.S. federal income tax purposes. A taxable REIT subsidiary is a fully taxable corporation, and may be limited in its ability to deduct interest payments made to us. ESM Reinsurance Limited, a wholly-owned subsidiary of Extra Space Management, Inc., generates income from insurance premiums that are subject to federal income tax and state insurance premiums tax. In addition, we will be subject to a 100% penalty tax on certain amounts if the economic arrangements among our tenants, our taxable REIT subsidiary and us are not comparable to similar arrangements among unrelated parties or if we receive payments for inventory or property held for sale to customers in the ordinary course of business. Also, if we sell property as a dealer (i.e., to customers in the ordinary course of our trade or business), we will be subject to a 100% penalty tax on any gain arising from such sales. While we don't intend to sell properties as a dealer, the IRS could take a contrary position. To the extent that we are, or our taxable REIT subsidiary is, required to pay U.S. federal, state or local taxes, we will have less cash available for distribution to stockholders.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

        To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. In order to meet these tests, we may be required to forego attractive business or investment opportunities. Thus, compliance with the REIT requirements may adversely affect our ability to operate solely to maximize profits.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        As of December 31, 2013, we owned or had ownership interests in 779 operating self-storage properties. Of these properties, 506 are wholly-owned and 273 are held in joint ventures. In addition, we managed an additional 250 properties for third parties bringing the total number of properties which we own and/or manage to 1,029. These properties are located in 35 states, Washington, D.C. and Puerto Rico. We receive a management fee generally equal to approximately 6% of cash collected from total revenues to manage the joint venture and third party sites. As of December 31, 2013, we owned and/or managed approximately 75.7 million square feet of rentable space configured in approximately 680,000 separate storage units. Approximately 70% of our properties are clustered around large population centers, such as Atlanta, Baltimore/Washington, D.C., Boston, Chicago, Dallas, Houston, Las Vegas, Los Angeles, Miami, New York City, Orlando, Philadelphia, Phoenix, St. Petersburg/Tampa and San Francisco/Oakland. These markets contain above-average population and income demographics for self-storage properties. The clustering of assets around these population centers enables us to

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reduce our operating costs through economies of scale. Our acquisitions have given us an increased scale in many core markets as well as a foothold in many markets where we had no previous presence.

        We consider a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. We consider a property to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1, or has been open for three years.

        As of December 31, 2013, approximately 600,000 tenants were leasing storage units at the 1,029 operating properties that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit. Existing tenants generally receive rate increases at least annually, for which no direct correlation has been drawn to our vacancy trends. Although leases are short-term in duration, the typical tenant tends to remain at our properties for an extended period of time. For properties that were stabilized as of December 31, 2013, the average length of stay was approximately 12 months.

        The average annual rent per square foot for our existing customers at stabilized properties, net of discounts and bad debt, was $13.96 for the year ended December 31, 2013, compared to $13.38 for the year ended December 31, 2012. Average annual rent per square foot for new leases was $14.18 for the year ended December 31, 2013, compared to $13.81 for the same period ended December 31, 2012. The average discounts, as a percentage of rental revenues, during these periods were 4.4% and 5.1%, respectively.

        Our property portfolio is made up of different types of construction and building configurations depending on the site and the municipality where it is located. Most often sites are what we consider "hybrid" facilities, a mix of both drive-up buildings and multi-floor buildings. We have a number of multi-floor buildings with elevator access only, and a number of facilities featuring ground-floor access only.

        The following table presents additional information regarding the occupancy of our stabilized properties by state as of December 31, 2013 and 2012. The information as of December 31, 2012, is on a pro forma basis as though all the properties owned at December 31, 2013, were under our control as of December 31, 2012.

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  Company   Pro forma   Company   Pro forma   Company   Pro forma  
Location
  Number of
Properties
  Number of
Units as of
December 31,
2013(1)
  Number of
Units as of
December 31,
2012
  Net Rentable
Square Feet
as of
December 31,
2013(2)
  Net Rentable
Square Feet
as of
December 31,
2012
  Square Foot
Occupancy %
December 31,
2013
  Square Foot
Occupancy %
December 31,
2012
 

Wholly-Owned Properties

                                           

Alabama

    4     1,973     1,971     233,537     233,643     84.1 %   85.4 %

Arizona

    11     6,949     6,914     814,933     814,803     87.8 %   86.7 %

California

    113     83,805     83,685     8,741,416     8,761,065     88.0 %   86.4 %

Colorado

    11     5,350     5,290     658,305     660,425     86.9 %   88.6 %

Connecticut

    5     3,130     3,137     301,174     301,204     89.3 %   88.1 %

Florida

    46     31,115     31,136     3,390,855     3,386,961     89.6 %   87.1 %

Georgia

    20     11,420     11,350     1,458,175     1,456,612     87.1 %   85.3 %

Hawaii

    5     5,708     5,656     338,210     333,636     83.2 %   82.0 %

Illinois

    18     12,166     11,992     1,267,164     1,259,870     90.3 %   89.9 %

Indiana

    9     4,711     4,600     553,158     542,543     86.4 %   89.6 %

Kansas

    1     504     506     50,360     50,350     91.7 %   84.9 %

Kentucky

    4     2,156     2,151     254,141     254,115     89.4 %   90.1 %

Louisiana

    2     1,414     1,412     150,065     149,865     91.5 %   89.3 %

Maryland

    21     15,543     15,449     1,645,845     1,645,040     89.9 %   87.3 %

Massachusetts

    35     21,327     21,395     2,173,269     2,186,312     91.7 %   89.2 %

Michigan

    3     1,792     1,781     252,784     253,072     89.2 %   87.1 %

Missouri

    6     3,208     3,155     376,256     374,537     88.0 %   86.9 %

Nevada

    5     3,219     3,207     546,574     546,203     88.4 %   83.4 %

New Hampshire

    2     1,002     1,005     125,773     125,773     91.8 %   90.2 %

New Jersey

    45     35,373     35,862     3,431,693     3,468,745     91.4 %   89.6 %

New Mexico

    3     1,573     1,592     216,154     216,064     85.0 %   86.2 %

New York

    19     16,534     16,471     1,351,830     1,351,605     90.0 %   90.1 %

Ohio

    19     10,254     10,279     1,353,710     1,345,470     88.7 %   88.7 %

Oregon

    3     2,144     2,140     250,410     250,610     92.5 %   92.0 %

Pennsylvania

    9     5,724     5,728     648,885     650,755     88.9 %   88.8 %

Rhode Island

    2     1,183     1,180     131,321     130,836     91.6 %   86.3 %

South Carolina

    5     2,709     2,700     329,700     327,725     90.5 %   85.9 %

Tennessee

    10     5,487     5,443     753,427     743,859     88.9 %   84.6 %

Texas

    30     19,396     19,375     2,303,491     2,305,064     86.4 %   84.2 %

Utah

    7     3,523     3,528     443,431     444,500     90.5 %   89.8 %

Virginia

    11     7,499     7,485     758,522     757,546     88.9 %   86.8 %

Washington

    5     3,065     3,054     370,983     370,630     84.0 %   86.6 %
                               

Total Wholly-Owned Stabilized

    489     330,956     330,629     35,675,551     35,699,438     88.9 %   87.3 %
                               

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Table of Contents

 
   
  Company   Pro forma   Company   Pro forma   Company   Pro forma  
Location
  Number of
Properties
  Number of
Units as of
December 31,
2013(1)
  Number of
Units as of
December 31,
2012
  Net Rentable
Square Feet
as of
December 31,
2013(2)
  Net Rentable
Square Feet
as of
December 31,
2012
  Square Foot
Occupancy %
December 31,
2013
  Square Foot
Occupancy %
December 31,
2012
 

Joint-Venture Properties

                                           

Alabama

    2     1,148     1,147     145,153     145,213     90.3 %   89.7 %

Arizona

    7     4,224     4,211     492,831     493,191     90.4 %   88.6 %

California

    72     51,819     51,540     5,322,350     5,323,259     91.3 %   91.1 %

Colorado

    2     1,323     1,320     158,863     158,553     89.9 %   88.5 %

Connecticut

    7     5,296     5,298     611,790     612,255     92.7 %   88.9 %

Delaware

    1     590     589     71,705     71,680     92.4 %   92.8 %

Florida

    19     15,189     15,274     1,526,503     1,532,906     89.4 %   87.8 %

Georgia

    2     1,056     1,061     151,524     151,684     86.6 %   86.8 %

Illinois

    5     3,442     3,390     364,933     361,998     90.4 %   89.8 %

Indiana

    5     2,166     2,145     284,826     283,611     90.5 %   91.9 %

Kansas

    2     843     842     109,605     108,990     83.4 %   85.0 %

Kentucky

    4     2,228     2,289     254,769     270,013     87.6 %   89.5 %

Maryland

    12     9,731     9,644     954,975     951,480     90.2 %   88.8 %

Massachusetts

    13     6,904     6,871     782,515     777,077     90.9 %   90.2 %

Michigan

    8     4,781     4,749     611,243     611,558     89.8 %   91.2 %

Missouri

    1     531     532     61,225     61,275     83.8 %   88.5 %

Nevada

    5     3,046     3,062     327,113     325,923     87.7 %   86.7 %

New Hampshire

    3     1,305     1,309     137,024     137,024     88.6 %   89.7 %

New Jersey

    16     12,947     12,869     1,357,003     1,356,579     90.3 %   90.7 %

New Mexico

    7     3,605     3,612     398,245     398,007     85.4 %   80.8 %

New York

    13     14,177     14,119     1,107,419     1,106,469     91.0 %   92.8 %

Ohio

    8     3,963     3,946     531,522     531,937     88.6 %   87.1 %

Oregon

    1     652     652     64,970     64,970     90.4 %   93.2 %

Pennsylvania

    10     7,961     7,944     802,240     799,590     89.6 %   89.6 %

Tennessee

    17     9,354     9,288     1,240,082     1,214,916     89.7 %   85.8 %

Texas

    17     10,563     10,536     1,387,706     1,388,171     92.2 %   89.3 %

Virginia

    13     9,359     9,337     994,449     993,306     89.7 %   86.8 %

Washington, DC

    1     1,530     1,529     102,017     101,989     91.3 %   90.6 %
                               

Total Joint-Venture Stabilized

    273     189,733     189,105     20,354,600     20,333,624     90.4 %   89.4 %
                               

Managed Properties

                                           

Arizona

    3     1,225     1,225     228,847     228,822     86.4 %   80.2 %

California

    60     40,240     40,305     5,313,158     5,326,706     79.0 %   75.4 %

Colorado

    11     5,782     5,764     680,801     678,304     89.7 %   90.4 %

Connecticut

    1     477     481     61,600     61,480     88.3 %   78.6 %

Florida

    28     16,639     16,376     2,000,476     1,972,131     83.4 %   82.2 %

Georgia

    9     4,630     4,621     703,228     700,948     86.0 %   83.2 %

Hawaii

    4     4,109     4,112     234,772     236,279     81.1 %   69.3 %

Illinois

    5     2,928     2,928     318,195     318,195     91.4 %   91.4 %

Indiana

    9     5,035     5,039     618,777     618,727     86.5 %   85.6 %

Kentucky

    1     547     535     67,268     66,868     85.7 %   89.4 %

Louisiana

    1     1,006     1,013     135,035     134,940     77.0 %   76.5 %

Maryland

    10     6,084     5,814     614,972     598,802     86.3 %   89.2 %

Massachusetts

    1     1,100     1,109     108,405     108,605     87.4 %   83.2 %

Mississippi

    2     1,893     1,893     281,823     281,823     79.2 %   79.2 %

Missouri

    2     1,209     1,206     152,021     151,716     85.5 %   84.7 %

Nevada

    2     1,554     1,562     170,025     170,575     80.1 %   75.6 %

New Jersey

    7     4,033     4,114     428,388     430,198     90.7 %   74.4 %

New Mexico

    2     1,119     1,109     131,112     132,137     87.0 %   88.8 %

North Carolina

    10     5,721     5,630     704,621     704,818     86.8 %   81.7 %

Ohio

    10     3,521     3,521     489,384     489,384     84.0 %   84.0 %

Pennsylvania

    16     7,800     7,832     927,771     929,071     85.2 %   82.7 %

South Carolina

    4     2,763     2,745     359,600     359,250     87.1 %   85.1 %

Tennessee

    3     1,510     1,503     206,530     206,465     87.4 %   87.3 %

Texas

    19     9,507     9,294     1,324,030     1,329,570     83.5 %   81.9 %

Utah

    1     785     795     136,005     136,005     79.7 %   74.8 %

Virginia

    4     2,513     2,517     258,556     258,481     81.8 %   76.0 %

Washington

    1     470     468     56,590     56,590     89.1 %   85.6 %

Washington, DC

    2     1,262     1,263     112,409     112,459     91.8 %   84.7 %

Puerto Rico

    4     2,701     2,775     288,190     289,003     84.2 %   80.2 %
                               

Total Managed Stabilized

    232     138,163     137,549     17,112,589     17,088,352     83.3 %   80.5 %
                               

Total Stabilized Properties

    994     658,852     657,283     73,142,740     73,121,414     88.0 %   86.3 %
                               
                               

(1)
Represents unit count as of December 31, 2013, which may differ from unit count as of December 31, 2012, due to unit conversions or expansions.

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(2)
Represents net rentable square feet as of December 31, 2013, which may differ from net rentable square feet as of December 31, 2012, due to unit conversions or expansions.

        The following table presents additional information regarding the occupancy of our lease-up properties by state as of December 31, 2013 and 2012. The information as of December 31, 2012, is on a pro forma basis as though all the properties owned at December 31, 2013, were under our control as of December 31, 2012.

Lease-up Property Data Based on Location

 
   
  Company   Pro forma   Company   Pro forma   Company   Pro forma  
Location
  Number of
Properties
  Number of
Units as of
December 31,
2013(1)
  Number of
Units as of
December 31,
2012
  Net Rentable
Square Feet
as of
December 31,
2013(2)
  Net Rentable
Square Feet
as of
December 31,
2012
  Square Foot
Occupancy %
December 31,
2013
  Square Foot
Occupancy %
December 31,
2012
 

Wholly-Owned Properties

                                           

Arizona

    1     631     633     71,355     71,355     73.0 %   57.0 %

California

    3     2,143     2,167     206,835     206,023     87.7 %   71.5 %

Florida

    6     5,143     5,252     513,994     516,079     86.2 %   75.9 %

Maryland

    3     2,679     1,675     274,237     172,035     69.9 %   72.5 %

Massachusetts

    1     686     684     72,465     72,770     72.5 %   64.4 %

New York

    1     822     822     100,480     100,480     78.9 %   78.3 %

North Carolina

    1     568     564     64,477     64,427     84.8 %   69.9 %

Utah

    1     501     504     59,500     59,250     86.7 %   68.4 %
                               

Total Wholly-Owned in Lease-up

    17     13,173     12,301     1,363,343     1,262,419     81.1 %   72.5 %
                               

Managed Properties

                                           

Colorado

    2     1,011     1,014     117,327     117,327     85.7 %   81.9 %

Florida

    3     1,491     1,482     151,909     150,024     85.4 %   66.4 %

Georgia

    3     1,844     1,835     261,037     258,566     72.7 %   62.7 %

Illinois

    1     675         46,599         10.8 %   0.0 %

Maryland

    3     2,256     2,255     215,035     215,085     76.2 %   47.3 %

North Carolina

    1     715     345     61,386     31,145     46.4 %   0.0 %

Texas

    3     2,384     1,551     266,493     171,238     46.2 %   50.7 %

Utah

    1     424     429     65,790     66,750     86.8 %   82.8 %

Virginia

    1     600     600     54,640     54,640     51.3 %   0.0 %
                               

Total Managed in Lease-up

    18     11,400     9,511     1,240,216     1,064,775     66.6 %   59.1 %
                               

Total Lease up-Properties

    35     24,573     21,812     2,603,559     2,327,194     74.2 %   66.4 %
                               
                               

(1)
Represents unit count as of December 31, 2013, which may differ from unit count as of December 31, 2012, due to unit conversions or expansions.

(2)
Represents net rentable square feet as of December 31, 2013, which may differ from net rentable square feet as of December 31, 2012, due to unit conversions or expansions.

Item 3.    Legal Proceedings

        We are involved in various litigation and legal proceedings in the ordinary course of business. We are not a party to any material litigation or legal proceedings, or to the best of our knowledge, any threatened litigation or legal proceedings which, in the opinion of management, will have a material adverse effect on our financial condition or results of operations either individually or in the aggregate.

Item 4.    Mine Safety Disclosures

        Not Applicable.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

        Our common stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "EXR" since our IPO on August 17, 2004. Prior to that time there was no public market for our common stock.

        The following table presents, for the periods indicated, the high and low sales price for our common stock as reported by the NYSE and the per share dividends declared:

 
   
  Range    
 
 
   
  Dividends Declared  
Year
  Quarter   High   Low  

2012

  1st     28.92     23.80     0.20  

  2nd     30.82     27.45     0.20  

  3rd     35.17     30.21     0.20  

  4th     36.56     32.59     0.25  

2013

 

1st

   
40.97
   
36.50
   
0.25
 

  2nd     45.29     38.87     0.40  

  3rd     47.11     39.98     0.40  

  4th     49.29     40.32     0.40  

        On February 14, 2014, the closing price of our common stock as reported by the NYSE was $47.20. At February 14, 2014, we had 274 holders of record of our common stock. Certain shares of the Company are held in "street" name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

        Holders of shares of common stock are entitled to receive distributions when declared by our board of directors out of any assets legally available for that purpose. As a REIT, we are required to distribute at least 90% of our "REIT taxable income," which is generally equivalent to our net taxable ordinary income, determined without regard to the deduction for dividends paid to our stockholders annually in order to maintain our REIT qualification for U.S. federal income tax purposes.

        Information about our equity compensation plans is incorporated by reference in Item 12 of Part III of this Annual Report on Form 10-K.

Unregistered Sales of Equity Securities

        On December 2, 2013, we completed the purchase of six of eight self-storage facilities affiliated with Grupe Properties Co. Inc. ("Grupe"), all of which are located in California. On December 3, 2013, we completed the purchase of the remaining two facilities. We previously held 35% interests in five of these eight properties through separate joint ventures with Grupe. These properties were acquired in exchange for approximately $42.7 million in cash, the assumption of approximately $4.3 million in existing debt, and the issuance of 407,996 Series C Convertible Redeemable Preferred Units ("Series C Units") valued at approximately $17.2 million.

        The Series C Units rank junior to the Operating Partnership's Series A Participating Redeemable Preferred Units, on parity with the Operating Partnership's Series B Redeemable Preferred Units and senior to all other partnership interests with respect to distributions and liquidation. The Series C Units have a priority quarterly return per unit (1) before the fifth anniversary of the date of issuance of such units, equal to $0.18 plus the then-payable quarterly distribution per common unit of the Operating Partnership, and (2) after the fifth anniversary of the date of issuance of such units, equal to the

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Table of Contents

aggregate quarterly distribution per common unit of the Operating Partnership for the four quarters immediately preceding the fifth anniversary of issuance divided by four. The Series C Units have a liquidation value of $42.10 per unit. The Series C Units will be convertible at the option of the holders after the first anniversary of the date of issuance of such units and until the fifth anniversary of the date of issuance of such units, into approximately 0.9145 common units of the Operating Partnership per Series C Unit. The Series C Units will be redeemable for the liquidation value per unit at the option of the holders after the first anniversary of the date of issuance of such units, which redemption obligation may be satisfied, at our option, in cash or shares of our common stock.

        The Series C Units were issued in private placements in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

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Table of Contents

Item 6.    Selected Financial Data

        The following table presents selected financial data and should be read in conjunction with the financial statements and notes thereto included in Item 8, "Financial Statements and Supplementary Data" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K (amounts in thousands, except share and per share data).

 
  For the Year Ended December 31,  
 
  2013   2012   2011   2010   2009  

Revenues:

                               

Property rental

  $ 446,682   $ 346,874   $ 268,725   $ 232,447   $ 238,256  

Tenant reinsurance and management fees

    73,931     62,522     61,105     49,050     41,890  
                       

Total revenues

    520,613     409,396     329,830     281,497     280,146  
                       

Expenses:

                               

Property operations

    140,012     114,028     95,481     86,165     88,935  

Tenant reinsurance

    9,022     7,869     6,143     6,505     5,461  

Acquisition related costs, loss on sublease and severance

    8,618     5,351     5,033     3,235     21,236  

General and administrative

    54,246     50,454     49,683     44,428     40,224  

Depreciation and amortization

    95,232     74,453     58,014     50,349     52,403  
                       

Total expenses

    307,130     252,155     214,354     190,682     208,259  
                       

Income from operations

    213,483     157,241     115,476     90,815     71,887  

Interest expense

   
(73,034

)
 
(72,294

)
 
(69,062

)
 
(65,780

)
 
(69,818

)

Interest income

    5,599     6,666     5,877     5,748     6,432  

Gain on repurchase of exchangeable senior notes

                    27,928  

Loss on extinguishment of debt related to portfolio acquisition and gain on sale of real estate assets

    (8,193 )                
                       

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

    137,855     91,613     52,291     30,783     36,429  

Equity in earnings of unconsolidated real estate ventures

   
11,653
   
10,859
   
7,287
   
6,753
   
6,964
 

Equity in earnings of unconsolidated real estate ventures—gain on sale of real estate assets and purchase of joint venture partners' interests

    46,032     30,630              

Income tax expense

    (9,984 )   (5,413 )   (1,155 )   (4,162 )   (4,300 )
                       

Net income

    185,556     127,689     58,423     33,374     39,093  

Noncontrolling interests in Operating Partnership and other

    (13,480 )   (10,380 )   (7,974 )   (7,043 )   (7,116 )
                       

Net income attributable to common stockholders

  $ 172,076   $ 117,309   $ 50,449   $ 26,331   $ 31,977  
                       
                       

Earnings per common share

                               

Basic

  $ 1.54   $ 1.15   $ 0.55   $ 0.30   $ 0.37  

Diluted

  $ 1.53   $ 1.14   $ 0.54   $ 0.30   $ 0.37  

Weighted average number of shares

   
 
   
 
   
 
   
 
   
 
 

Basic

    111,349,361     102,290,200     92,097,008     87,324,104     86,343,029  

Diluted

    113,105,094     106,523,015     96,683,508     92,050,453     91,082,834  

Cash dividends paid per common share

 
$

1.45
 
$

0.85
 
$

0.56
 
$

0.40
 
$

0.38
 

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Table of Contents

 
  As of December 31,  
 
  2013   2012   2011   2010   2009  

Balance Sheet Data

                               

Total assets

  $ 3,977,140   $ 3,223,477   $ 2,517,524   $ 2,249,820   $ 2,407,566  

Total notes payable, notes payable to trusts, exchangeable senior notes and lines of credit

  $ 1,946,647   $ 1,577,599   $ 1,363,656   $ 1,246,918   $ 1,402,977  

Noncontrolling interests

  $ 173,425   $ 53,524   $ 54,814   $ 57,670   $ 62,040  

Total stockholders' equity

  $ 1,758,470   $ 1,491,807   $ 1,018,947   $ 881,401   $ 884,179  

Other Data

   
 
   
 
   
 
   
 
   
 
 

Net cash provided by operating activities

  $ 271,259   $ 215,879   $ 144,164   $ 104,815   $ 81,165  

Net cash used in investing activities

  $ (366,976 ) $ (606,938 ) $ (251,919 ) $ (83,706 ) $ (104,410 )

Net cash provided by (used in) financing activities

  $ 191,655   $ 395,360   $ 87,489   $ (106,309 ) $ 91,223  

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Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-K entitled "Statements Regarding Forward-Looking Information." Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Form 10-K entitled "Risk Factors." Amounts in thousands, except share and per share data.

Overview

        We are a fully integrated, self-administered and self-managed real estate investment trust, or REIT, formed to continue the business commenced in 1977 by Extra Space Storage LLC and its subsidiaries to own, operate, manage, acquire, develop and redevelop professionally managed self-storage facilities.

        At December 31, 2013, we owned, had ownership interests in, or managed 1,029 operating properties in 35 states, Washington, D.C. and Puerto Rico. Of these 1,029 operating properties, we owned 506, we held joint venture interests in 273 properties, and our taxable REIT subsidiary, Extra Space Management, Inc., operated an additional 250 properties that are owned by third parties. These operating properties contain approximately 75.7 million square feet of rentable space in approximately 680,000 units and currently serve a customer base of approximately 600,000 tenants.

        Our properties are generally situated in convenient, highly visible locations clustered around large population centers such as Atlanta, Baltimore/Washington, D.C., Boston, Chicago, Dallas, Houston, Las Vegas, Los Angeles, Miami, New York City, Orlando, Philadelphia, Phoenix, St. Petersburg/Tampa and San Francisco/Oakland. These areas all enjoy above average population growth and income levels. The clustering of our assets around these population centers enables us to reduce our operating costs through economies of scale. We consider a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. A property is considered to be stabilized once it has achieved an 80% occupancy rate for a full year measured as of January 1, or has been open for three years.

        To maximize the performance of our properties, we employ industry-leading revenue management systems. Developed by our management team, these systems enable us to analyze, set and adjust rental rates in real time across our portfolio in order to respond to changing market conditions. We believe our systems and processes allow us to more proactively manage revenues.

        We derive substantially all of our revenues from rents received from tenants under leases at each of our wholly-owned self-storage properties, from management fees on the properties we manage for joint-venture partners and unaffiliated third parties, and from our tenant reinsurance program. Our management fee is generally equal to approximately 6% of cash collected from total revenues generated by the managed properties. We also receive an asset management fee of 0.5% of the total asset value from one of our joint ventures.

        We operate in competitive markets, often where consumers have multiple self-storage properties from which to choose. Competition has impacted, and will continue to impact, our property results. We experience seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. Our operating results depend materially on our ability to lease available self-storage units, to actively manage unit rental rates, and on the ability of our tenants to make required rental payments. We believe that we are able to respond quickly and effectively to changes in local, regional and national economic conditions by adjusting rental rates through the combination of our revenue management team and our industry-leading technology systems.

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        We continue to evaluate a range of new initiatives and opportunities in order to enable us to maximize stockholder value. Our strategies to maximize stockholder value include the following:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates. We believe the following are our most critical accounting policies:

        CONSOLIDATION:    Arrangements that are not controlled through voting or similar rights are accounted for as variable interest entities ("VIEs"). An enterprise is required to consolidate a VIE if it is the primary beneficiary of the VIE.

        A VIE is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) the entity's equity holders as a group either: (a) lack the power, through voting or similar rights, to direct the activities of the entity that most significantly impact the entity's economic performance, (b) are not obligated to absorb expected losses of the entity if they occur, or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, the enterprise that is deemed to have a variable interest, or combination of variable interests, that provides the enterprise with a controlling financial interest in the VIE is considered the primary beneficiary and must consolidate the VIE.

        We have concluded that under certain circumstances when we (1) enter into option agreements for the purchase of land or facilities from an entity and pay a non-refundable deposit, or (2) enter into arrangements for the formation of joint ventures, a VIE may be created under condition (i), (ii) (b) or

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(c) of the previous paragraph. For each VIE created, we have performed a qualitative analysis, including considering which party, if any, has the power to direct the activities most significant to the economic performance of each VIE and whether that party has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If we are determined to be the primary beneficiary of the VIE, the assets, liabilities and operations of the VIE are consolidated with our financial statements. As of December 31, 2013, we had no consolidated VIEs. Additionally, our Operating Partnership has notes payable to three trusts that are VIEs under condition (ii)(a) above. Since the Operating Partnership is not the primary beneficiary of the trusts, these VIEs are not consolidated.

        REAL ESTATE ASSETS:    Real estate assets are stated at cost, less accumulated depreciation. Direct and allowable internal costs associated with the development, construction, renovation, and improvement of real estate assets are capitalized. Interest, property taxes, and other costs associated with development incurred during the construction period are capitalized.

        Expenditures for maintenance and repairs are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and improvements, which are generally between 5 and 39 years.

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

        Intangible lease rights include: (1) purchase price amounts allocated to leases on three properties that cannot be classified as ground or building leases; these rights are amortized to expense over the term of the leases; and (2) intangibles related to ground leases on five properties where the ground leases were assumed by the Company at rates that were different than the current market rates for similar leases. The value associated with these assumed leases were recorded as intangibles, which will be amortized over the lease terms.

        EVALUATION OF ASSET IMPAIRMENT:    Long lived assets held for use are evaluated for impairment when events or circumstances indicate that there may be impairment. We review each storage facility at least annually to determine if any such events or circumstances have occurred or exist. We focus on facilities where occupancy and/or rental income have decreased by a significant amount. For these facilities, we determine whether the decrease is temporary or permanent and whether the facility will likely recover the lost occupancy and/or revenue in the short term. In addition, we review facilities in the lease-up stage and compare actual operating results to original projections.

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

        When real estate assets are identified as held for sale, we discontinue depreciating the assets and estimate the fair value of the assets, net of selling costs. If the estimated fair values, net of selling costs, of the assets that have been identified for sale are less than the net carrying value of the assets, then a

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valuation allowance is established. The operations of assets held for sale or sold during the period are generally presented as discontinued operations for all periods presented.

        INVESTMENTS IN REAL ESTATE VENTURES:    Our investments in real estate joint ventures where we have significant influence but not control, and joint ventures which are VIEs in which we are not the primary beneficiary, are recorded under the equity method of accounting on the accompanying consolidated financial statements.

        Under the equity method, our investment in real estate ventures is stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of each of the unconsolidated real estate ventures. For the purposes of presentation in the statement of cash flows, we follow the "look through" approach for classification of distributions from joint ventures. Under this approach, distributions are reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital (e.g., a liquidating dividend or distribution of the proceeds from the joint venture's sale of assets) in which case it is reported as an investing activity.

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

        DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:    The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

        For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income, outside of earnings and subsequently reclassified to earnings when the hedged transaction affects earnings.

        REVENUE AND EXPENSE RECOGNITION:    Rental revenues are recognized as earned based upon amounts that are currently due from tenants. Leases are generally on month-to-month terms. Prepaid rents are recognized on a straight-line basis over the term of the leases. Promotional discounts are recognized as a reduction to rental income over the promotional period. Late charges, administrative fees, merchandise sales and truck rentals are recognized in income when earned. Management fee revenues are recognized monthly as services are performed and in accordance with the terms of the related management agreements. Equity in earnings of real estate entities is recognized based on our ownership interest in the earnings of each of the unconsolidated real estate entities. Interest income is recognized as earned.

        Tenant reinsurance premiums are recognized as revenue over the period of insurance coverage. We record an unpaid claims liability at the end of each period based on existing unpaid claims and historical claims payment history. The unpaid claims liability represents an estimate of the ultimate cost to settle all unpaid claims as of each period end, including both reported but unpaid claims and claims that may have been incurred but have not been reported. We use a third party claims administrator to adjust all tenant reinsurance claims received. The administrator evaluates each claim to determine the

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ultimate claim loss and includes an estimate for claims that may have been incurred but not reported. Annually, a third party actuary evaluates the adequacy of the unpaid claims liability. Prior year claim reserves are adjusted as experience develops or new information becomes known. The impact of such adjustments is included in the current period operations. The unpaid claims liability is not discounted to its present value. Each tenant chooses the amount of insurance coverage they want through the tenant reinsurance program. Tenants can purchase policies in amounts of two thousand dollars to ten thousand dollars of insurance coverage in exchange for a monthly fee. Our exposure per claim is limited by the maximum amount of coverage chosen by each tenant. We purchase reinsurance for losses exceeding a set amount on any one event. We do not currently have any amounts recoverable under the reinsurance arrangements.

        Property expenses, including utilities, property taxes, repairs and maintenance and other costs to manage the facilities are recognized as incurred. We accrue for property tax expense based upon invoice amounts, estimates and historical trends. If these estimates are incorrect, the timing of expense recognition could be affected.

        INCOME TAXES:    We have elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, among other things, we are required to distribute at least 90% of our REIT taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income tax with respect to that portion of our income which meets certain criteria and is distributed annually to our stockholders. We plan to continue to operate so that we meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we would be subject to federal income tax. We are subject to certain state and local taxes. Provision for such taxes has been included in income tax expense in our consolidated statements of operations.

        We have elected to treat one of our corporate subsidiaries, Extra Space Management, Inc., as a taxable REIT subsidiary ("TRS"). In general, our TRS may perform additional services for tenants and generally may engage in any real estate or non-real estate related business. A TRS is subject to corporate federal income tax. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred.

RECENT ACCOUNTING PRONOUNCEMENTS

        In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02 "Comprehensive Income—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which supersedes and replaces the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 and 2011-12. The amendment requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 was effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. We adopted the amended standard beginning January 1, 2013 and presents accumulated other comprehensive income in accordance with the requirements of the standard.

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RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

Overview

        Results for the year ended December 31, 2013, included the operations of 779 properties (525 of which were consolidated and 254 of which were in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2012, which included the operations of 729 properties (449 of which were consolidated and 280 of which were in joint ventures accounted for using the equity method).

Revenues

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

 
  For the Year Ended
December 31,
   
   
 
 
  2013   2012   $ Change   % Change  

Revenues:

                         

Property rental

  $ 446,682   $ 346,874   $ 99,808     28.8 %

Tenant reinsurance

    47,317     36,816     10,501     28.5 %

Management fees

    26,614     25,706     908     3.5 %
                   

Total revenues

  $ 520,613   $ 409,396   $ 111,217     27.2 %
                   
                   

        Property Rental—The change in property rental revenues consists primarily of an increase of $75,401 associated with acquisitions completed in 2013 and 2012. We acquired 78 properties during 2013 and 91 properties during 2012. In addition, revenues increased by $21,551 as a result of increases in occupancy and rental rates to existing customers at our stabilized properties. We have seen no significant increase in overall customer renewal rates; our average length of stay is approximately 12 months. For existing customers we seek to increase rental rates approximately 7% to 10% at least annually. Occupancy at our stabilized properties increased to 88.0% at December 31, 2013, as compared to 86.3% at December 31, 2012. Rental rates to new tenants increased by approximately 2.7% over the same period in the prior year.

        Tenant Reinsurance—The increase in tenant reinsurance revenues was partially due to the increase in overall customer participation to approximately 68.7% at December 31, 2013, compared to approximately 67.0% at December 31, 2012. In addition, we operated 1,029 properties at December 31, 2013, compared to 910 properties at December 31, 2012.

        Management Fees—Our taxable REIT subsidiary, Extra Space Management, Inc., manages properties owned by our joint ventures and third parties. Management fees generally represent 6% of cash collected from properties owned by third parties and unconsolidated joint ventures. The Company also earns an asset management fee from the Storage Portfolio I ("SPI") joint venture, equal to 0.50% multiplied by the total asset value, provided certain conditions are met.

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Expenses

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

 
  For the Year Ended
December 31,
   
   
 
 
  2013   2012   $ Change   % Change  

Expenses:

                         

Property operations

  $ 140,012   $ 114,028   $ 25,984     22.8 %

Tenant reinsurance

    9,022     7,869     1,153     14.7 %

Acquisition related costs

    8,618     5,351     3,267     61.1 %

General and administrative

    54,246     50,454     3,792     7.5 %

Depreciation and amortization

    95,232     74,453     20,779     27.9 %
                   

Total expenses

  $ 307,130   $ 252,155   $ 54,975     21.8 %
                   
                   

        Property Operations—The increase in property operations expense consists primarily of an increase of $24,335 related to acquisitions completed in 2013 and 2012. We acquired 78 properties during the year ended December 31, 2013 and 91 properties during the year ended December 31, 2012.

        Tenant Reinsurance—Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance. The change is due primarily to the increase in the number of properties we owned and/or managed. At December 31, 2013, we owned and/or managed 1,029 properties compared to 910 properties at December 31, 2012. In addition, there was an increase in overall customer participation to approximately 68.7% at December 31, 2013 from approximately 67.0% at December 31, 2012.

        Acquisition Related Costs—These costs relate to acquisition activities during the periods indicated. The increase for the year ended December 31, 2013 when compared to the prior year was related primarily to the expense of $2,441 of defeasance reimbursement costs paid to the seller in a property acquisition in December 2013.

        General and Administrative—General and administrative expenses primarily include all expenses not related to our properties, including corporate payroll, travel and professional fees. The expenses are recognized as incurred. General and administrative expense increased over the prior year primarily as a result of the costs related to the management of additional properties. During the year ended December 31, 2013, we acquired 78 properties, 47 of which we did not previously manage. We did not observe any material trends specific to payroll, travel or other expense that contributed significantly to the increase in general and administrative expenses apart from the increase due to the management of additional properties.

        Depreciation and Amortization—Depreciation and amortization expense increased as a result of the acquisition of new properties. We acquired 78 properties during the year ended December 31, 2013, and 91 properties during the year ended December 31, 2012.

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Other Income and Expenses

        The following table presents information on other revenues and expenses for the years indicated:

 
  For the Year Ended
December 31,
   
   
 
 
  2013   2012   $ Change   % Change  

Other income and expenses:

                         

Gain on sale of real estate assets

  $ 960   $   $ 960     100.0 %

Loss on extinguishment of debt related to portfolio acquisition

    (9,153 )       (9,153 )   100.0 %

Interest expense

    (71,630 )   (71,850 )   220     (0.3 )%

Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes

    (1,404 )   (444 )   (960 )   216.2 %

Interest income

    749     1,816     (1,067 )   (58.8 )%

Interest income on note receivable from Preferred Operating Partnership unit holder

    4,850     4,850          

Equity in earnings of unconsolidated real estate ventures

    11,653     10,859     794     7.3 %

Equity in earnings of unconsolidated real estate ventures—gain on sale of real estate assets and purchase of joint venture partners' interests

    46,032     30,630     15,402     50.3 %

Income tax expense

    (9,984 )   (5,413 )   (4,571 )   84.4 %
                   

Total other expense, net

  $ (27,927 ) $ (29,552 ) $ 1,625     (5.5 )%
                   
                   

        Gain on Sale of Real Estate Assets—The gain on sale of real estate assets recorded for the year ended December 31, 2013 was related to two transactions: (1) we recorded a gain of $800 as a result of the condemnation of a portion of land in California that resulted from eminent domain, and (2) we recorded a gain of $160 as a result of the sale of one property in Florida for $3,250 in cash.

        Loss on Extinguishment of Debt Related to Portfolio Acquisition—The loss on extinguishment of debt occurred as part of a loan assumption and immediate defeasance upon closing of a portfolio acquisition during the year ended December 31, 2013.

        Interest Expense—Interest expense remained fairly constant as the increase the total amount of debt outstanding was offset by a decrease in the average interest rate. At December 31, 2013, our total face value of debt was $1,958,586, compared to total face value of debt of $1,574,280 at December 31, 2012. The average interest rate was 3.8% as of December 31, 2013, compared to 4.2% as of December 31, 2012.

        Non-cash Interest Expense Related to Amortization of Discount on Equity Component of Exchangeable Senior Notes—Represents the amortization of the discount related to the equity component of the exchangeable senior notes issued by our Operating Partnership, which reflects the effective interest rate relative to the carrying amount of the liability. Our Operating Partnership had $87,663 of its 3.625% Exchangeable Senior Notes due 2027 (the "Notes due 2027") outstanding prior to April 2012, when all of the Notes due 2027 were surrendered for exchange. In June 2013, our Operating Partnership issued $250,000 of its 2.375% Exchangeable Senior Notes due 2033 (the "Notes due 2033").

        Interest Income—Interest income represents amounts earned on cash and cash equivalents deposited with financial institutions and interest earned on notes receivable. The decrease relates primarily to the payoff of two note receivables in December 2012 when the related properties were purchased by us.

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        Interest Income on Note Receivable from Preferred Operating Partnership Unit Holder —Represents interest on a $100,000 loan to the holder of the Operating Partnership's Series A Participating Redeemable Preferred Units (the "Series A Units").

        Equity in Earnings of Unconsolidated Real Estate Ventures—The increase in equity in earnings of unconsolidated real estate ventures was due primarily to an increase in revenues at joint ventures, which resulted from higher occupancy and rental rates to new and existing customers. This increase was partially offset by a slight decrease in equity in earnings due to the acquisition of our joint venture partners' interests in several joint ventures during 2012 and 2013.

        Equity in Earnings of Unconsolidated Real Estate Ventures—Gain on Sale of Real Estate Assets and Purchase of Joint Venture Partners' Interests—In December 2013, we acquired our partners' equity interest in five joint ventures that each held one self-storage property. Each of these joint venture partners was associated with with Grupe Properties Co. Inc. ("Grupe"). As a result of these transactions, we recorded non-cash gains of $9,340, which represents the increase in the fair values of our prior interests in the Grupe joint ventures from their formations to the acquisition dates.

        On November 1, 2013, we acquired an additional 49% equity interest from our joint venture partners, which retained a 1% interest in the HSRE-ESP IA, LLC joint venture ("HSRE") that owns 19 properties. This transaction resulted in a non-cash gain of $34,136, which represents the increase in the fair value of our 50% interest in HSRE from the formation of the joint venture to the acquisition date.

        In February 2013, we acquired our partners' equity interests in two joint ventures that each held one self-storage property. As a result of the acquisitions, we recognized non-cash gains of $2,556, which represents the increase in the fair values of our prior interests in the joint ventures from their formations to the acquisition dates.

        In December 2012, two joint ventures in which we held a 20% equity interest, each sold its only self-storage property. As a result of the sales, the joint ventures were dissolved, and we received cash proceeds which resulted in a gain of $1,409.

        On November 30, 2012, we acquired our joint venture partner's 80% interest in the Storage Portfolio Bravo II LLC joint venture ("SPB II"). This transaction resulted in a non-cash gain of $10,171, which represents the increase in fair value of our 20% interest in SPB II from the formation of the joint venture to the acquisition date.

        On July 2, 2012, we acquired Prudential Real Estate Investors' ("PREI®") 94.9% interest in the ESS PRISA III LLC joint venture ("PRISA III"). This transaction resulted in a non-cash gain of $13,499, which represents the increase in fair value of our 5.1% interest in PRISA III from the formation of the joint venture to the acquisition date.

        In February 2012, a joint venture in which we held a 40% equity interest sold its only self-storage property. As a result of the sale, the joint venture was dissolved, and we received cash proceeds which resulted in a gain of $5,550.

        Income Tax Expense—The increase in income tax expense relates primarily to increased tenant reinsurance income earned by our taxable REIT subsidiary and lower solar tax credits when compared to the prior year.

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Net Income Allocated to Noncontrolling Interests

        The following table presents information on net income allocated to noncontrolling interests for the years indicated:

 
  For the Year Ended
December 31,
   
   
 
 
  2013   2012   $ Change   % Change  

Net income allocated to noncontrolling interests:

                         

Net income allocated to Preferred Operating Partnership noncontrolling interests

  $ (8,006 ) $ (6,876 ) $ (1,130 )   16.4 %

Net income allocated to Operating Partnership and other noncontrolling interests

    (5,474 )   (3,504 )   (1,970 )   56.2 %
                   

Total income allocated to noncontrolling interests:          

  $ (13,480 ) $ (10,380 ) $ (3,100 )   29.9 %
                   
                   

        Net Income Allocated to Preferred Operating Partnership Noncontrolling Interests—In December 2013, as part of a portfolio acquisition, our Operating Partnership issued 407,996 Series C Convertible Redeemable Preferred Units ("Series C Units"). The Series C Units have a liquidation value of $42.10 per unit. From issuance until the fifth anniversary of issuance, the Series C Units receive distributions at an annual rate of $0.18 plus the then-payable quarterly distribution per common OP Unit.

        During August and September 2013, as part of a portfolio acquisition, our Operating Partnership issued 1,342,727 Series B Redeemable Preferred Units ("Series B Units"). The Series B Units have a liquidation value of $25.00 per unit and receive distributions at an annual rate of 6%.

        Income allocated to the Preferred Operating Partnership noncontrolling interests for the year ended December 31, 2013 represents the fixed distributions paid to the holders of the Series A Units, Series B Units, and Series C Units plus approximately 0.9% of the remaining net income allocated after adjustment for the fixed distribution paid.

        For the year ended December 31, 2012, income allocated to the Preferred Operating Partnership noncontrolling interest equals the fixed distribution paid to the Series A Unit holder, plus approximately 0.9% of the remaining net income allocated after the adjustment for the fixed distribution paid. The increase in the percentage was primarily a result of the issuance of the Series B Units and Series C Units as noted above.

        Net Income Allocated to Operating Partnership and Other Noncontrolling Interests —Income allocated to the Operating Partnership represents approximately 3.6% and 2.9% of net income after the allocation of the fixed distribution paid to the Preferred Operating Partnership unit holders for the years ended December 31, 2013 and 2012, respectively.

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

Overview

        Results for the year ended December 31, 2012, included the operations of 729 properties (449 of which were consolidated and 280 of which were in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2011, which included the operations of 697 properties (357 of which were consolidated and 340 of which were in joint ventures accounted for using the equity method).

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Revenues

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

 
  For the Year Ended
December 31,
   
   
 
 
  2012   2011   $ Change   % Change  

Revenues:

                         

Property rental

  $ 346,874   $ 268,725   $ 78,149     29.1 %

Tenant reinsurance

    36,816     31,181     5,635     18.1 %

Management fees

    25,706     29,924     (4,218 )   (14.1 )%
                   

Total revenues

  $ 409,396   $ 329,830   $ 79,566     24.1 %
                   
                   

        Property Rental—The increase in property rental revenues consists primarily of an increase of $56,777 associated with acquisitions completed in 2012 and 2011. We completed the acquisition of 91 properties during 2012 and 55 properties during 2011. In addition, revenues increased by $15,493 as a result of increases in occupancy and rental rates to existing customers at our stabilized properties. Occupancy at our stabilized properties increased to 87.8% at December 31, 2012, as compared to 85.8% at December 31, 2011. Rental rates to new tenants increased by approximately 4.1% in 2012 over the same period in 2011. Finally, revenues at our lease-up properties increased by $5,879 in 2012 as compared to 2011, as a result of increased occupancy.

        Tenant Reinsurance—The increase in tenant reinsurance revenues was partially due to the increase in overall customer participation to 67% at December 31, 2012, compared to approximately 63% at December 31, 2011. In addition, we operated 910 properties at December 31, 2012, compared to 882 at December 31, 2011.

        Management Fees—Our taxable REIT subsidiary, Extra Space Management, Inc., manages properties owned by our joint ventures and third parties. Management fees generally represent 6% of cash collected from properties owned by third parties and unconsolidated joint ventures. We also earn an asset management fee from the Storage Portfolio I ("SPI") joint venture, equal to 0.50% of the total asset value, provided certain conditions are met.

        During 2011, it was discovered that the asset management fee owed to us by the SPI joint venture had not been recorded by either party for the five-year period ended December 31, 2010. The annual asset management fee for this period was $885. After determining that the amounts were not material either in the prior periods or the year ended December 31, 2011 for restatement purposes, $4,425 of asset management fees earned during the five-year period ended December 31, 2010, was recorded in the year ended December 31, 2011. There were no such adjustments made during the year ended December 31, 2012.

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Expenses

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

 
  For the Year Ended
December 31,
   
   
 
 
  2012   2011   $ Change   % Change  

Expenses:

                         

Property operations

  $ 114,028   $ 95,481   $ 18,547     19.4 %

Tenant reinsurance

    7,869     6,143     1,726     28.1 %

Acquisition related costs

    5,351     2,896     2,455     84.8 %

Severance costs

        2,137     (2,137 )   (100.0 )%

General and administrative

    50,454     49,683     771     1.6 %

Depreciation and amortization

    74,453     58,014     16,439     28.3 %
                   

Total expenses

  $ 252,155   $ 214,354   $ 37,801     17.6 %
                   
                   

        Property Operations—The increase in property operations expense consists primarily of an increase of $18,375 related to acquisitions completed in 2012 and 2011. We completed the acquisition of 91 properties during the year ended December 31, 2012 and 55 properties during the year ended December 31, 2011.

        Tenant Reinsurance—Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance. The increase is due primarily to approximately $1,000 of claims related to Superstorm Sandy which affected sites in the northeastern United States in October 2012.

        Acquisition Related Costs—These costs relate to acquisition activities during the periods indicated. The increases were related to increased acquisition activity when compared to the prior year. During 2012, we acquired 91 properties, compared to 55 properties during the year ended December 31, 2011.

        Severance Costs—The severance costs recorded during the year ended December 31, 2011, relate to severance granted to our former Executive Vice President and Chief Financial Officer, Kent Christensen, who left the Company on December 7, 2011. There were no severance costs incurred during the year ended December 31, 2012.

        General and Administrative—General and administrative expenses primarily include all expenses not related to our properties, including corporate payroll, travel and professional fees. The expenses are recognized as incurred. General and administrative expenses increased over the prior year primarily as a result of costs related to the management of additional properties. During the year ended December 31, 2012, we purchased 91 properties, 31 of which we did not previously manage. We did not observe any material trends specific to payroll, travel or other expenses that contributed significantly to the increase in general and administrative expenses apart from the increase due to the management of additional properties. Also included in general and administrative expenses for the year ended December 31, 2011, is an expense of $1,800 related to litigation matters. There were no such expenses incurred during the year ended December 31, 2012.

        Depreciation and Amortization—Depreciation and amortization expense increased as a result of the acquisition and development of new properties. We acquired 91 properties and completed the development of one property during the year ended December 31, 2012.

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Other Income and Expenses

        The following table presents information on other revenues and expenses for the years indicated:

 
  For the Year Ended
December 31,
   
   
 
 
  2012   2011   $ Change   % Change  

Other income and expenses:

                         

Interest expense

  $ (71,850 ) $ (67,301 ) $ (4,549 )   6.8 %

Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes              

    (444 )   (1,761 )   1,317     (74.8 )%

Interest income

    1,816     1,027     789     76.8 %

Interest income on note receivable from Preferred Operating Partnership unit holder

    4,850     4,850          

Equity in earnings of unconsolidated real estate ventures

    10,859     7,287     3,572     49.0 %

Equity in earnings of unconsolidated real estate ventures—gain on sale of real estate assets and purchase of joint venture partners' interests

    30,630         30,630     100.0 %

Income tax expense

    (5,413 )   (1,155 )   (4,258 )   368.7 %
                   

Total other expense, net

  $ (29,552 ) $ (57,053 ) $ 27,501     (48.2 )%
                   
                   

        Interest Expense—The increase in interest expense was primarily the result of an increase in the total amount of debt outstanding. At December 31, 2012, our total face value of debt was $1,574,280, compared to total face value of debt of $1,359,254 at December 31, 2011. The increase was partially offset by lower average interest rates of 4.2% as of December 31, 2012, compared to 4.7% as of December 31, 2011.

        Non-cash Interest Expense Related to Amortization of Discount on Equity Component of Exchangeable Senior Notes—Represents the amortization of the discount on the Notes due 2027, which reflects the effective interest rate relative to the carrying amount of the liability. All of the outstanding Notes due 2027 were surrendered for exchange in April 2012.

        Interest Income—Interest income represents amounts earned on cash and cash equivalents deposited with financial institutions. The increase in interest income is due to higher average cash balances during the year ended December 31, 2012, primarily as a result of the cash proceeds received from stock offerings completed in April 2012 and November 2012.

        Interest Income on Note Receivable from Preferred Operating Partnership Unit Holder —Represents interest on a $100,000 loan to the holder of the Series A Units.

        Equity in Earnings of Unconsolidated Real Estate Ventures—The increase in equity in earnings of real estate ventures was due primarily to an increase in revenues at joint ventures, which resulted from higher occupancy and rental rates to new and existing customers. This increase was partially offset by a slight decrease in equity in earnings due to the acquisition of our joint venture partners' interests in two joint ventures in July 2012 and November 2012.

        During 2011, there was an increase of approximately $1,100 in equity in earnings as a result of the asset management fee expense recorded by the SPI joint venture in the prior year. During 2011, it was discovered that the asset management fee owed to us by the SPI joint venture had not been recorded by either party for the five-year period ended December 31, 2010. The annual asset management fee for this period was $885, offset by an annual reduction of $221 of equity in earnings of SPI. The total prior period adjustment for the years 2006 through 2010 that was recorded during the year ended

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December 31, 2011, increased asset management fee revenues by $4,425 and decreased equity in earnings by $1,106. There were no similar adjustments made during the year ended December 31, 2012.

        Equity in Earnings of Unconsolidated Real Estate Ventures—Gain on Sale of Real Estate Assets and Purchase of Joint Venture Partners' Interests—In December 2012, two joint ventures in which we held a 20.0% equity interest, each sold its only self-storage property. As a result of the sales, the joint ventures were dissolved, and we received cash proceeds which resulted in a gain of $1,409.

        On November 30, 2012, we acquired our joint venture partner's 80.0% interest in SPB II. This transaction resulted in a non-cash gain of $10,171, which represents the increase in fair value of our 20.0% interest in SPB II from the formation of the joint venture to the acquisition date.

        On July 2, 2012, we acquired PREI's 94.9% interest in PRISA III. This transaction resulted in a non-cash gain of $13,499, which represents the increase in fair value of our 5.1% interest in PRISA III from the formation of the joint venture to the acquisition date.

        In February 2012, a joint venture in which we held a 40% equity interest sold its only self-storage property. As a result of the sale, the joint venture was dissolved, and we received cash proceeds which resulted in a gain of $5,550.

        Income Tax Expense—The increase in income tax expense relates primarily to increased tenant reinsurance income earned by our taxable REIT subsidiary.

Net Income Allocated to Noncontrolling Interests

        The following table presents information on net income allocated to noncontrolling interests for the years indicated:

 
  For the Year Ended
December 31,
   
   
 
 
  2012   2011   $ Change   % Change  

Net income allocated to noncontrolling interests:

                         

Net income allocated to Preferred Operating Partnership noncontrolling interests

  $ (6,876 ) $ (6,289 ) $ (587 )   9.3 %

Net income allocated to Operating Partnership and other noncontrolling interests

    (3,504 )   (1,685 )   (1,819 )   108.0 %
                   

Total income allocated to noncontrolling interests:

  $ (10,380 ) $ (7,974 ) $ (2,406 )   30.2 %
                   
                   

        Net Income Allocated to Preferred Operating Partnership Noncontrolling Interests —Income allocated to the Preferred Operating Partnership noncontrolling interest equals the fixed distribution paid to the Series A Units holder plus approximately 0.9% and 1.0% of the remaining net income allocated after the adjustment for the fixed distribution paid for the years ended December 31, 2012 and 2011, respectively. The amount allocated to Preferred Operating Partnership noncontrolling interests was higher in 2012 when compared to 2011, as a result of an increase in net income.

        Net Income Allocated to Operating Partnership and Other Noncontrolling Interests —Income allocated to the Operating Partnership represents approximately 2.9% and 3.2% of net income after the allocation of the fixed distribution paid to the Series A Units holder for the years ended December 31, 2012 and 2011, respectively.

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FUNDS FROM OPERATIONS

        FFO provides relevant and meaningful information about our operating performance that is necessary, along with net income and cash flows, for an understanding of our operating results. We believe FFO is a meaningful disclosure as a supplement to net earnings. Net earnings assume that the values of real estate assets diminish predictably over time as reflected through depreciation and amortization expenses. The values of real estate assets fluctuate due to market conditions and we believe FFO more accurately reflects the value of our real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income computed in accordance with U.S. generally accepted accounting principles ("GAAP"), excluding gains or losses on sales of operating properties and impairment write-downs of depreciable 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 considered along with the reported net income and cash flows in accordance with GAAP, as presented in the consolidated financial statements.

        The computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income as an indication of our performance, as an alternative to net cash flow from operating activities as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

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

 
  For the Year Ended December 31,  
 
  2013   2012   2011  

Net income attributable to common stockholders

  $ 172,076   $ 117,309   $ 50,449  

Adjustments:

   
 
   
 
   
 
 

Real estate depreciation

    78,943     64,301     52,647  

Amortization of intangibles

    11,463     6,763     2,375  

Gain on sale of real estate assets

    (960 )        

Unconsolidated joint venture real estate depreciation and amortization

    5,676     7,014     7,931  

Unconsolidated joint venture gain on sale of real estate assets and purchase of partners' interests

    (46,032 )   (30,630 )   185  

Distributions paid on Series A Preferred Operating Partnership units

    (5,750 )   (5,750 )   (5,750 )

Income allocated to Operating Partnership noncontrolling interests          

    13,431     10,349     7,978  
               

Funds from operations

  $ 228,847   $ 169,356   $ 115,815  
               
               

SAME-STORE STABILIZED PROPERTY RESULTS

        We consider our same-store stabilized portfolio to consist of only those properties which were wholly-owned at the beginning and at the end of the applicable periods presented that had achieved stabilization as of the first day of such period. The following tables present operating data for our same-store portfolio. We consider the following same-store presentation to be meaningful in regards to

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the properties shown below because these results provide information relating to property level operating changes without the effects of acquisitions or completed developments.

 
  For the Three Months
Ended December 31,
   
  For the Year Ended
December 31,
   
 
 
  Percent
Change
  Percent
Change
 
 
  2013   2012   2013   2012  

Same-store rental and tenant reinsurance revenues

  $ 88,056   $ 82,603     6.6 % $ 345,825   $ 321,962     7.4 %

Same-store operating and tenant reinsurance expenses

    26,071     25,704     1.4 %   104,377     102,379     2.0 %
                           

Same-store net operating income

  $ 61,985   $ 56,899     8.9 % $ 241,448   $ 219,583     10.0 %

Non same-store rental and tenant reinsurance revenues

 
$

47,174
 
$

24,834
   
90.0

%

$

148,174
 
$

61,728
   
140.0

%

Non same-store operating and tenant reinsurance expenses

  $ 13,703   $ 8,819     55.4 % $ 44,657   $ 19,518     128.8 %

Total rental and tenant reinsurance revenues

 
$

135,230
 
$

107,437
   
25.9

%

$

493,999
 
$

383,690
   
28.7

%

Total operating and tenant reinsurance expenses

  $ 39,774   $ 34,523     15.2 % $ 149,034   $ 121,897     22.3 %

Same-store square foot occupancy as of quarter end

   
89.2

%
 
87.9

%
       
89.2

%
 
87.9

%
     

Properties included in same-store

   
344
   
344
         
344
   
344
       

 

 
  For the Three Months
Ended December 31,
   
  For the Year Ended
December 31,
   
 
 
  Percent
Change
  Percent
Change
 
 
  2012   2011   2012   2011  

Same-store rental and tenant reinsurance revenues

  $ 70,751   $ 66,433     6.5 % $ 276,811   $ 259,733     6.6 %

Same-store operating and tenant reinsurance expenses

    21,698     21,208     2.3 %   86,414     86,953     (0.6 )%
                           

Same-store net operating income

  $ 49,053   $ 45,225     8.5 % $ 190,397   $ 172,780     10.2 %

Non same-store rental and tenant reinsurance revenues

 
$

36,686
 
$

15,319
   
139.5

%

$

106,879
 
$

40,173
   
166.0

%

Non same-store operating and tenant reinsurance expenses

  $ 12,825   $ 5,497     133.3 % $ 35,483   $ 14,671     141.9 %

Total rental and tenant reinsurance revenues

 
$

107,437
 
$

81,752
   
31.4

%

$

383,690
 
$

299,906
   
27.9

%

Total operating and tenant reinsurance expenses

  $ 34,523   $ 26,705     29.3 % $ 121,897   $ 101,624     19.9 %

Same-store square foot occupancy as of quarter end

   
88.6

%
 
86.9

%
       
88.6

%
 
86.9

%
     

Properties included in same-store

    282     282           282     282        

Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

        The increases in same-store rental and tenant reinsurance revenues for the three months and year ended December 31, 2013, as compared to the same periods ended December 31, 2012, were due primarily to an increase in average occupancy, a decrease in discounts to new customers, and an

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average increase of 2.0% to 4.0% in incoming rates to new tenants. The increases in same-store operating and tenant reinsurance expenses for the three months and year ended December 31, 2013 were primarily due to increases in payroll, property taxes and repairs and maintenance expenses.

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

        The increase in same-store rental revenues was primarily due to increases in occupancy and rental rates to both incoming and existing customers, and to decreases in discounts to new customers. The decreases in same-store operating expenses for the year ended December 31, 2012 were primarily due to decreases in utilities and office expenses. These decreases were partially offset by increased expenses as a result of Superstorm Sandy and higher property taxes.

CASH FLOWS

Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

        Cash provided by operating activities were $271,259 and $215,879 for the years ended December 31, 2013 and 2012, respectively. The change when compared to the prior year was primarily due to a $57,867 increase in net income. There was also an increase in depreciation and amortization of $20,779 and an increase of $9,153 in loss on extinguishment of debt related to portfolio acquisition. These increases were partially offset by an increase in the non-cash gain on the purchase of joint venture partners' interests of $22,362.

        Cash used in investing activities was $366,976 and $606,938 for the years ended December 31, 2013 and 2012, respectively. The change was primarily the result of a decrease of $249,061 in the amount of cash used to acquire new properties in 2013 when compared to 2012.

        Cash provided by financing activities was $191,655 and $395,360 for the years ended December 31, 2013 and 2012, respectively. The net decrease was due to a number of factors, including a decrease of $223,600 in the cash proceeds received from the sale of common stock, a decrease of $492,078 in the proceeds from notes payable and lines of credit, and an increase in cash paid for dividends of $74,727. These decreases in cash were partially offset by an increase of $246,250 in proceeds received from the issuance of the Notes due 2033, a decrease of $257,459 in cash paid for principal payments on notes payable and lines of credit, including defeasance, and an increase of $87,663 in cash paid to repurchase the Notes due 2027.

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

        Cash provided by operating activities was $215,879 and $144,164 for the years ended December 31, 2012 and 2011, respectively. The increase when compared to the prior year was primarily due to a $69,266 increase in net income. There was also an increase in depreciation and amortization of $16,439 and an increase of $16,073 in cash received from affiliated joint ventures and related parties in 2012 when compared to 2011. These increases were partially offset by a $23,670 non-cash gain on the purchase of joint venture partners' interests.

        Cash used in investing activities was $606,938 and $251,919 for the years ended December 31, 2012 and 2011, respectively. The increase in 2012 was primarily the result of $406,768 more cash being used to acquire new properties in 2012 compared to 2011. This increase was partially offset by a decrease of $42,265 in the amount paid to purchase notes receivable.

        Cash provided by financing activities was $395,360 and $87,489 for the years ended December 31, 2012 and 2011, respectively. The increase in cash provided was the result of an increase of $317,239 in the net cash proceeds generated from the sale of common stock in 2012 compared to 2011, along with an increase of $598,776 in cash proceeds received from notes payable and lines of credit in 2012 when compared to 2011. These increases of cash were partially offset by the increase of $469,484 of cash

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used for principal repayments on notes payable and lines of credit during 2012 when compared to 2011, the use of $87,663 of cash to repurchase the Notes due 2027 in 2012, compared to $0 in 2011, and the increase of $36,260 of dividends paid on common stock in 2012, compared to 2011.

LIQUIDITY AND CAPITAL RESOURCES

        As of December 31, 2013, we had $126,723 available in cash and cash equivalents. We intend to use this cash for acquisitions, to repay debt scheduled to mature in 2014 and for general corporate purposes. We are required to distribute at least 90% of our net taxable income, excluding net capital gains, to our stockholders on an annual basis to maintain our qualification as a REIT.

        Our cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our operating accounts. During 2013, we experienced no loss or lack of access to our cash or cash equivalents; however, there can be no assurance that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

        The following table presents information on our lines of credit for the period presented. All of our lines of credit are guaranteed by us and secured by mortgages on certain real estate assets.

 
  As of December 31, 2013    
   
   
   
 
Line of Credit
  Amount
Drawn
  Capacity   Interest
Rate
  Origination
Date
  Maturity   Basis Rate   Notes  

Credit Line 1

  $   $ 75,000     2.07 % 2/13/2009   5/13/2014   LIBOR plus 1.90%       (1)

Credit Line 2

        85,000     2.07 % 6/4/2010   6/3/2016   LIBOR plus 1.90%       (2)

Credit Line 3

        40,000     2.37 % 11/16/2010   2/13/2017   LIBOR plus 2.20%       (3)(4)

Credit Line 4

        80,000     1.87 % 4/29/2011   11/18/2016   LIBOR plus 1.70%       (4)
                                   

  $   $ 280,000                          
                                   
                                   

(1)
One year extension available

(2)
One two-year extension available

(3)
Amended February 13, 2014 to extend the maturity date to February 13, 2017, increase the capacity to $50,000 and lower the interest rate to Libor plus 1.75%.

(4)
Two one-year extensions available

        As of December 31, 2013, we had $1,958,186 face value of debt, resulting in a debt to total capitalization ratio of 27.5%. As of December 31, 2013, the ratio of total fixed rate debt and other instruments to total debt was 82.7% (including $857,966 on which we have interest rate swaps that have been included as fixed-rate debt). The weighted average interest rate of the total of fixed and variable rate debt at December 31, 2012 was 3.8%. Certain of our real estate assets are pledged as collateral for our debt. We are subject to certain restrictive covenants relating to our outstanding debt. We were in compliance with all financial covenants at December 31, 2013.

        We expect to fund our short-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to stockholders, distributions to holders of OP Units and interest on our outstanding indebtedness out of our operating cash flow, cash on hand and borrowings under our Credit Lines. In addition, we are pursuing additional term loans secured by unencumbered properties.

        Our liquidity needs consist primarily of cash distributions to stockholders, property acquisitions, principal payments under our borrowings and non-recurring capital expenditures. We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

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In addition, we evaluate, on an ongoing basis, the merits of strategic acquisitions and other relationships, which may require us to raise additional funds. We do not expect that our operating cash flow will be sufficient to fund our liquidity needs and instead expect to fund such needs out of additional borrowings of secured or unsecured indebtedness, joint ventures with third parties, and from the proceeds of public and private offerings of equity and debt. Additional capital may not be available on terms favorable to us or at all. Any additional issuance of equity or equity-linked securities may result in dilution to our stockholders. In addition, any new securities we issue could have rights, preferences and privileges senior to holders of our common stock. We may also use OP Units as currency to fund acquisitions from self-storage owners who desire tax-deferral in their exiting transactions.

OFF-BALANCE SHEET ARRANGEMENTS

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

CONTRACTUAL OBLIGATIONS

        The following table presents information on future payments due by period as of December 31, 2013:

 
  Payments due by Period:  
 
  Total   Less Than
1 Year
  1 - 3 Years   3 - 5 Years   After
5 Years
 

Operating leases

  $ 69,857   $ 7,806   $ 10,255   $ 5,934   $ 45,862  

Notes payable, notes payable to trusts and lines of credit

                               

Interest

    401,949     73,593     122,404     75,633     130,319  

Principal

    1,958,186     29,004     413,747     810,009     705,426  
                       

Total contractual obligations

  $ 2,429,992   $ 110,403   $ 546,406   $ 891,576   $ 881,607  
                       
                       

        The operating leases above include minimum future lease payments on leases for 18 of our operating properties as well as leases of our corporate offices. Two ground leases include additional contingent rental payments based on the level of revenue achieved at the property.

        As of December 31, 2013, the weighted average interest rate for all fixed rate loans was 4.1%, and the weighted average interest rate on all variable rate loans was 2.1%.

FINANCING STRATEGY

        We will continue to employ leverage in our capital structure in amounts reviewed from time to time by our board of directors. Although our board of directors has not adopted a policy which limits the total amount of indebtedness that we may incur, we will consider a number of factors in evaluating our level of indebtedness from time to time, as well as the amount of such indebtedness that will be

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either fixed or variable rate. In making financing decisions, we will consider factors including but not limited to:

        Our indebtedness may be recourse, non-recourse or cross-collateralized. If the indebtedness is non-recourse, the collateral will be limited to the particular properties to which the indebtedness relates. In addition, we may invest in properties subject to existing loans collateralized by mortgages or similar liens on our properties, or may refinance properties acquired on a leveraged basis. We may use the proceeds from any borrowings to refinance existing indebtedness, to refinance investments, including the redevelopment of existing properties, for general working capital or to purchase additional interests in partnerships or joint ventures or for other purposes when we believe it is advisable.

        We may from time to time seek to retire or repurchase our outstanding debt, as well as shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

SEASONALITY

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

Item 7a.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

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

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Interest Rate Risk

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

        As of December 31, 2013, we had approximately $1,958,186 in total face value debt, of which approximately $339,302 was subject to variable interest rates (excluding debt with interest rate swaps). If LIBOR were to increase or decrease by 100 basis points, the increase or decrease in interest expense on the variable rate debt (excluding variable rate debt with interest rate floors) would increase or decrease future earnings and cash flows by approximately $3,000 annually.

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

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Item 8.    Financial Statements and Supplementary Data

EXTRA SPACE STORAGE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  51

CONSOLIDATED BALANCE SHEETS

  52

CONSOLIDATED STATEMENTS OF OPERATIONS

  53

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  54

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

  55

CONSOLIDATED STATEMENTS OF CASH FLOWS

  58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  59

SCHEDULE III

  106

        All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Extra Space Storage Inc.

        We have audited the accompanying consolidated balance sheets of Extra Space Storage Inc. ("the Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated March 3, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 3, 2014

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Extra Space Storage Inc.

Consolidated Balance Sheets

(dollars in thousands, except share data)

 
  December 31,
2013
  December 31,
2012
 

Assets:

             

Real estate assets, net

  $ 3,636,544   $ 2,991,722  

Investments in unconsolidated real estate ventures

   
88,125
   
106,313
 

Cash and cash equivalents

    126,723     30,785  

Restricted cash

    21,451     16,976  

Receivables from related parties and affiliated real estate joint ventures

    7,542     11,078  

Other assets, net

    96,755     66,603  
           

Total assets

  $ 3,977,140   $ 3,223,477  
           
           

Liabilities, Noncontrolling Interests and Equity:

             

Notes payable

  $ 1,588,596   $ 1,369,690  

Premium on notes payable

    4,948     3,319  

Exchangeable senior notes

    250,000      

Discount on exchangeable senior notes

    (16,487 )    

Notes payable to trusts

    119,590     119,590  

Lines of credit

        85,000  

Accounts payable and accrued expenses

    60,601     52,299  

Other liabilities

    37,997     48,248  
           

Total liabilities

    2,045,245     1,678,146  
           

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, 300,000,000 shares authorized, 115,755,527 and 110,737,205 shares issued and outstanding at December 31, 2013, and December 31, 2012, respectively

    1,157     1,107  

Paid-in capital

    1,973,159     1,740,037  

Accumulated other comprehensive income (deficit)

    10,156     (14,273 )

Accumulated deficit

    (226,002 )   (235,064 )
           

Total Extra Space Storage Inc. stockholders' equity

    1,758,470     1,491,807  

Noncontrolling interest represented by Preferred Operating Partnership units, net of $100,000 note receivable

    80,947     29,918  

Noncontrolling interests in Operating Partnership

    91,453     22,492  

Other noncontrolling interests

    1,025     1,114  
           

Total noncontrolling interests and equity

    1,931,895     1,545,331  
           

Total liabilities, noncontrolling interests and equity

  $ 3,977,140   $ 3,223,477  
           
           

   

See accompanying notes.

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Extra Space Storage Inc.

Consolidated Statements of Operations

(dollars in thousands, except share data)

 
  For the Year Ended December 31,  
 
  2013   2012   2011  

Revenues:

                   

Property rental

  $ 446,682   $ 346,874   $ 268,725  

Tenant reinsurance

    47,317     36,816     31,181  

Management fees

    26,614     25,706     29,924  
               

Total revenues

    520,613     409,396     329,830  
               

Expenses:

                   

Property operations

    140,012     114,028     95,481  

Tenant reinsurance

    9,022     7,869     6,143  

Acquisition related costs

    8,618     5,351     2,896  

Severance costs

            2,137  

General and administrative

    54,246     50,454     49,683  

Depreciation and amortization

    95,232     74,453     58,014  
               

Total expenses

    307,130     252,155     214,354  
               

Income from operations

    213,483     157,241     115,476  

Gain on sale of real estate assets

   
960
   
   
 

Loss on extinguishment of debt related to portfolio acquisition

    (9,153 )        

Interest expense

    (71,630 )   (71,850 )   (67,301 )

Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes

    (1,404 )   (444 )   (1,761 )

Interest income

    749     1,816     1,027  

Interest income on note receivable from Preferred Operating Partnership unit holder

    4,850     4,850     4,850  
               

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

    137,855     91,613     52,291  

Equity in earnings of unconsolidated real estate ventures

   
11,653
   
10,859
   
7,287
 

Equity in earnings of unconsolidated real estate ventures—gain on sale of real estate assets and purchase of joint venture partners' interests

   
46,032
   
30,630
   
 

Income tax expense

    (9,984 )   (5,413 )   (1,155 )
               

Net income

    185,556     127,689     58,423  

Net income allocated to Preferred Operating Partnership noncontrolling interests

    (8,006 )   (6,876 )   (6,289 )

Net income allocated to Operating Partnership and other noncontrolling interests

    (5,474 )   (3,504 )   (1,685 )
               

Net income attributable to common stockholders

  $ 172,076   $ 117,309   $ 50,449  
               
               

Earnings per common share

                   

Basic

  $ 1.54   $ 1.15   $ 0.55  
               
               

Diluted

  $ 1.53   $ 1.14   $ 0.54  
               
               

Weighted average number of shares

                   

Basic

    111,349,361     101,766,385     91,301,265  

Diluted

    113,105,094     103,767,365     93,633,573  

   

See accompanying notes.

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Extra Space Storage Inc.

Consolidated Statements of Comprehensive Income

(dollars in thousands)

 
  For the Year Ended December 31,  
 
  2013   2012   2011  

Net income

  $ 185,556   $ 127,689   $ 58,423  

Other comprehensive income:

   
 
   
 
   
 
 

Change in fair value of interest rate swaps

    25,335     (6,587 )   (2,237 )
               

Total comprehensive income

    210,891     121,102     56,186  

Less: comprehensive income attributable to noncontrolling interests

    14,386     10,130