SEC Filing | Extra Space Storage Inc.

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exr-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2020


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

For the transition period from to .

Commission File Number: 001-32269

EXTRA SPACE STORAGE INC.

(Exact name of registrant as specified in its charter)


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

2795 East Cottonwood Parkway, Suite 300

Salt Lake City, Utah 84121

(Address of principal executive offices)

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

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


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

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

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

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

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of July 31, 2020, was 129,069,911.

Table of Contents

EXTRA SPACE STORAGE INC.

TABLE OF CONTENTS


STATEMENT ON FORWARD-LOOKING INFORMATION			4

PART I. FINANCIAL INFORMATION			5
ITEM 1. FINANCIAL STATEMENTS (unaudited)			5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			37
ITEM 4. CONTROLS AND PROCEDURES			37

PART II. OTHER INFORMATION			39
ITEM 1. LEGAL PROCEEDINGS			39
ITEM 1A. RISK FACTORS			39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			40
ITEM 4. MINE SAFETY DISCLOSURES			40
ITEM 5. OTHER INFORMATION			40
ITEM 6. EXHIBITS			42
SIGNATURES			43

STATEMENT ON FORWARD-LOOKING INFORMATION

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

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

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

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

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

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

•potential liability for uninsured losses and environmental contamination;

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

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

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

•increased interest rates;

•reductions in asset valuations and related impairment charges;

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

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

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

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

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

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Extra Space Storage Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)


	June 30, 2020		December 31, 2019
	(unaudited)
Assets:
Real estate assets, net	$	7,673,724	$	7,696,864
Real estate assets - operating lease right-of-use assets	261,304		264,643
Investments in unconsolidated real estate entities	344,177		338,054
Cash and cash equivalents	56,397		65,746
Restricted cash	5,354		4,987

Other assets, net	188,938		162,083
Total assets	$	8,529,894	$	8,532,377
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	4,300,744	$	4,318,973
Exchangeable senior notes, net	573,154		569,513

Revolving lines of credit	207,000		158,000
Operating lease liabilities	271,875		274,783
Cash distributions in unconsolidated real estate ventures	46,100		45,264
Accounts payable and accrued expenses	132,257		111,382
Other liabilities	253,246		132,768
Total liabilities	5,784,376		5,610,683
Commitments and contingencies
Noncontrolling Interests and Equity:
Extra Space Storage Inc. stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 129,069,555 and 129,534,407 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	1,291		1,295
Additional paid-in capital	2,884,940		2,868,681
Accumulated other comprehensive loss	(119,256)		(28,966)
Accumulated deficit	(391,285)		(301,049)
Total Extra Space Storage Inc. stockholders' equity	2,375,690		2,539,961
Noncontrolling interest represented by Preferred Operating Partnership units, net	172,542		175,948
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	197,286		205,785
Total noncontrolling interests and equity	2,745,518		2,921,694
Total liabilities, noncontrolling interests and equity	$	8,529,894	$	8,532,377

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

(unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Property rental	$	279,312	$	279,584	$	566,015	$	550,587
Tenant reinsurance	35,078		31,701		68,691		61,498
Management fees and other income	12,856		12,317		24,992		23,063
Total revenues	327,246		323,602		659,698		635,148
Expenses:
Property operations	89,040		80,870		179,337		159,635
Tenant reinsurance	6,858		6,982		13,536		13,949
General and administrative	25,337		23,351		48,348		46,029
Depreciation and amortization	56,018		54,406		111,293		109,065
Total expenses	177,253		165,609		352,514		328,678
Gain on real estate transactions	—		1,205		—		1,205
Income from operations	149,993		159,198		307,184		307,675
Interest expense	(41,039)		(47,448)		(85,397)		(94,808)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,233)		(1,185)		(2,442)		(2,347)
Interest income	1,669		1,718		3,343		3,106
Income before equity in earnings of unconsolidated real estate ventures and income tax expense	109,390		112,283		222,688		213,626
Equity in earnings and dividend income from unconsolidated real estate entities	5,044		3,121		10,087		5,751
Income tax expense	(3,177)		(2,715)		(5,356)		(4,528)
Net income	111,257		112,689		227,419		214,849
Net income allocated to Preferred Operating Partnership noncontrolling interests	(3,139)		(3,128)		(6,250)		(6,291)
Net income allocated to Operating Partnership and other noncontrolling interests	(5,207)		(4,733)		(10,079)		(8,960)
Net income attributable to common stockholders	$	102,911	$	104,828	$	211,090	$	199,598
Earnings per common share
Basic	$	0.80	$	0.82	$	1.63	$	1.56
Diluted	$	0.80	$	0.81	$	1.63	$	1.55
Weighted average number of shares
Basic	128,932,152		127,585,436		129,110,131		127,349,299
Diluted	129,082,468		135,654,761		129,285,675		135,166,456
Cash dividends paid per common share	$	0.90	$	0.90	$	1.80	$	1.76

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

(unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	111,257	$	112,689	$	227,419	$	214,849
Other comprehensive income (loss):
Change in fair value of interest rate swaps	(5,728)		(41,302)		(94,972)		(65,295)
Total comprehensive income	105,529		71,387		132,447		149,554
Less: comprehensive income attributable to noncontrolling interests	8,034		5,842		11,647		12,082
Comprehensive income attributable to common stockholders	$	97,495	$	65,545	$	120,800	$	137,472

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

(amounts in thousands, except share data)

(unaudited)


	Noncontrolling Interests									Extra Space Storage Inc. Stockholders' Equity

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

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




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


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


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

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

(amounts in thousands, except share data)

(unaudited)


	Noncontrolling Interests									Extra Space Storage Inc. Stockholders' Equity

	Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at March 31, 2019	$	176,264	$	213,168	$	231	127,392,050	$	1,274	$	2,648,723	$	11,807	$	(277,655)	$	2,773,812
Issuance of common stock upon the exercise of options	—		—		—		17,042	—		468		—		—		468
Restricted stock grants issued	—		—		—		53,789	2		—		—		—		2
Restricted stock grants cancelled	—		—		—		(4,786)	—		—		—		—		—
Issuance of common stock, net of offering costs	—		—		—		930,000	9		98,787		—		—		98,796
Compensation expense related to stock-based awards	—		—		—		—	—		3,998		—		—		3,998
Redemption of Operating Partnership units for stock	—		(4,823)		—		125,000	—		4,823		—		—		—
Issuance of Preferred D Units in the Operating Partnership in conjunction with acquisitions	4,575		—		—		—	—		—		—		—		4,575
Noncontrolling interest in consolidated joint venture	—		—		50		—	—		—		—		—		50
Conversion of Preferred C Units in the Operating Partnership for Common Operating Partnership Units	(4,374)		4,374		—		—	—		—		—		—		—
Net income (loss)	3,129		4,754		(22)		—	—		—		—		104,828		112,689
Other comprehensive loss	(254)		(1,765)		—		—	—		—		(39,283)				(41,302)
Distributions to Operating Partnership units held by noncontrolling interests	(3,232)		(5,473)		—		—	—		—		—		—		(8,705)
Dividends paid on common stock at $0.90 per share	—		—		—		—	—		—		—		(115,572)		(115,572)
Balances at June 30, 2019	$	176,108	$	210,235	$	259	128,513,095	$	1,285	$	2,756,799	$	(27,476)	$	(288,399)	$	2,828,811

Extra Space Storage Inc.

Condensed Consolidated Statement of Noncontrolling Interests and Equity

(amounts in thousands, except share data)

(unaudited)


	Noncontrolling Interest												Extra Space Storage Inc. Stockholders' Equity

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





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





Net income (loss)		3,112		4,877		(6)		—	—		—			—		108,179		116,162
Other comprehensive loss		(563)		(3,807)		—		—	—		—			(84,874)		—		(89,244)
Distributions to Operating Partnership units held by noncontrolling interests		(3,178)		(5,327)		—		—	—		—			—		—		(8,505)
Dividends paid on common stock at $0.90 per share		—		—		—		—	—		—			—		(117,197)		(117,197)
Balances at March 31, 2020		$	175,319	$	200,832	$	360	129,038,907	$	1,290	$	2,872,933		$	(113,840)	$	(362,264)	$	2,774,630
Issuance of common stock upon the exercise of options		—		—		—		13,610	—		726			—		—		726
Issuance of common stock in connection with share based compensation		—		—		—		60,032	1		4,883			—		—		4,884
Restricted stock grants cancelled		—		—		—		(889)	—		—			—		—		—
Buyback of common stock, net of offering costs		—		—		—		(172,600)	(1)		—			—		(15,614)		(15,615)

Redemption of Operating Partnership units for stock		—		(3,675)		—		100,000	1		3,674			—		—		—
Redemption of Preferred D Units in the Operating Partnership for Stock		(2,724)		—		—		30,495	—		2,724			—		—		—
Noncontrolling interest in consolidated joint venture		—		—		68		—	—		—			—		—		68