SEC Filing (NYSE:EXR) | Extra Space Storage Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

exr-20210930

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 September 30, 2021


☐			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 ☒ 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 ☒ 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 ☒

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of November 1, 2021, was 133,891,804.

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			29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			40
ITEM 4. CONTROLS AND PROCEDURES			41

PART II. OTHER INFORMATION			42
ITEM 1. LEGAL PROCEEDINGS			42
ITEM 1A. RISK FACTORS			42
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			42
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			42
ITEM 4. MINE SAFETY DISCLOSURES			42
ITEM 5. OTHER INFORMATION			42
ITEM 6. EXHIBITS			43
SIGNATURES			44

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)


	September 30, 2021		December 31, 2020
	(unaudited)
Assets:
Real estate assets, net	$	8,272,671	$	7,893,802
Real estate assets - operating lease right-of-use assets	229,184		252,172
Investments in unconsolidated real estate entities	373,765		397,444
Investments in debt securities and notes receivable	606,115		593,810
Cash and cash equivalents	65,565		109,124
Restricted cash	15,717		18,885
Other assets, net	145,342		130,611
Total assets	$	9,708,359	$	9,395,848
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	5,409,828	$	4,797,303

Revolving lines of credit	174,000		949,000
Operating lease liabilities	234,118		263,485
Cash distributions in unconsolidated real estate ventures	63,196		47,126
Accounts payable and accrued expenses	164,674		130,012
Other liabilities	279,668		272,798
Total liabilities	6,325,484		6,459,724
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, 133,819,163 and 131,357,961 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	1,338		1,314
Additional paid-in capital	3,283,848		3,000,458
Accumulated other comprehensive loss	(64,155)		(99,093)
Accumulated deficit	(229,269)		(354,900)
Total Extra Space Storage Inc. stockholders' equity	2,991,762		2,547,779
Noncontrolling interest represented by Preferred Operating Partnership units, net	170,248		172,052
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	220,865		216,293
Total noncontrolling interests and equity	3,382,875		2,936,124
Total liabilities, noncontrolling interests and equity	$	9,708,359	$	9,395,848

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 September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Property rental	$	351,355	$	290,423	$	976,448	$	856,438
Tenant reinsurance	44,258		39,294		126,211		107,985
Management fees and other income	16,879		13,307		47,320		38,299
Total revenues	412,492		343,024		1,149,979		1,002,722
Expenses:
Property operations	92,794		92,322		274,316		271,659
Tenant reinsurance	7,509		7,189		21,405		20,725
General and administrative	24,395		23,894		74,276		72,242
Depreciation and amortization	61,516		56,412		179,685		167,705
Total expenses	186,214		179,817		549,682		532,331
Gain on real estate transactions	—		—		63,883		—
Income from operations	226,278		163,207		664,180		470,391
Interest expense	(39,670)		(42,213)		(120,605)		(127,610)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	—		(1,233)		—		(3,675)
Interest income	11,729		3,145		36,871		6,488
Income before equity in earnings and dividend income from unconsolidated real estate ventures and income tax expense	198,337		122,906		580,446		345,594
Equity in earnings and dividend income from unconsolidated real estate entities	8,255		5,605		23,533		15,692
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest	—		—		6,251		—
Income tax expense	(6,772)		(4,657)		(16,330)		(10,013)
Net income	199,820		123,854		593,900		351,273
Net income allocated to Preferred Operating Partnership noncontrolling interests	(3,529)		(3,248)		(10,647)		(9,498)
Net income allocated to Operating Partnership and other noncontrolling interests	(8,015)		(5,973)		(24,031)		(16,052)
Net income attributable to common stockholders	$	188,276	$	114,633	$	559,222	$	325,723
Earnings per common share
Basic	$	1.41	$	0.89	$	4.19	$	2.52
Diluted	$	1.40	$	0.88	$	4.19	$	2.50
Weighted average number of shares
Basic	133,809,750		128,862,341		133,197,903		129,044,954
Diluted	140,425,269		129,871,096		139,854,881		130,066,121
Cash dividends paid per common share	$	1.25	$	0.90	$	3.25	$	2.70

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 September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	199,820	$	123,854	$	593,900	$	351,273
Other comprehensive income (loss):
Change in fair value of interest rate swaps	8,055		11,181		36,685		(83,791)
Total comprehensive income	207,875		135,035		630,585		267,482
Less: comprehensive income attributable to noncontrolling interests	11,924		9,854		36,425		21,501
Comprehensive income attributable to common stockholders	$	195,951	$	125,181	$	594,160	$	245,981

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 Loss		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

Net income (loss)	3,139		5,216		(9)		—	—		—		—		102,911		111,257
Other comprehensive loss	(41)		(271)		—		—	—		—		(5,416)		—		(5,728)
Distributions to Operating Partnership units held by noncontrolling interests	(3,151)		(5,235)		—		—	—		—		—		—		(8,386)
Dividends paid on common stock at $0.90 per share	—		—		—		—	—		—		—		(116,318)		(116,318)
Balances at June 30, 2020	$	172,542	$	196,867	$	419	129,069,555	$	1,291	$	2,884,940	$	(119,256)	$	(391,285)	$	2,745,518
Issuance of common stock upon the exercise of options	—		—		—		18,605	—		1,200		—		—		1,200
Issuance of common stock in connection with share based compensation	—		—		—		8,289	—		3,452		—		—		3,452
Restricted stock grants cancelled	—		—		—		(949)	—		—		—		—		—

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 Loss		Accumulated Deficit		Total Noncontrolling Interests and Equity
Buyback of common stock, net of offering costs	—		—		—		(600)	—		—		—		(54)		(54)

Repayment of receivable with Preferred operating units pledged as collateral on loan	—		8,226		—		—	—		—		—		—		8,226
Redemption of Preferred B Units in the Operating Partnership for cash	(1,000)		—		—		—	—		—		—		—		(1,000)

Net income (loss)	3,248		5,986		(13)		—	—		—		—		114,633		123,854
Other comprehensive income	83		550		—		—	—		—		10,548		—		11,181
Distributions to Operating Partnership units held by noncontrolling interests	(3,135)		(5,235)		—		—	—		—		—		—		(8,370)
Dividends paid on common stock at $0.90 per share	—		—		—		—	—		—		—		(116,185)		(116,185)
Balances at September 30, 2020	$	171,738	$	206,394	$	406	129,094,900	$	1,291	$	2,889,592	$	(108,708)	$	(392,891)	$	2,767,822


	Noncontrolling Interest							Extra Space Storage Inc. Stockholders' Equity
		Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Noncontrolling Interests and Equity
Balances at December 31, 2020		$	172,052	$	215,892	$	401	131,357,961	$	1,314	$	3,000,458	$	(99,093)	$	(354,900)	$	2,936,124
Issuance of common stock upon the exercise of options		—		—		—		56,722	—		4,254		—		—		4,254
Issuance of common stock in connection with share based compensation		—		—		—		89,793	—		3,652		—		—		3,652
Restricted stock grants cancelled		—		—		—		(2,499)	—		—		—		—		—
Issuance of common stock, net of offering costs		—		—		—		2,185,685	22		273,698		—		—		273,720
Redemption of Operating Partnership units for stock		—		(193)		—		5,000	—		193		—		—		—
Noncontrolling interest in consolidated joint venture		—		—		(50)		—	—		—		—		—		(50)
Net income (loss)		3,680		8,828		(5)		—	—		—		—		202,998		215,501
Other comprehensive income		144		956		—		—	—		—		21,913		—		23,013
Distributions to Operating Partnership units held by noncontrolling interests		(3,224)		(5,801)		—		—	—		—		—		—		(9,025)
Dividends paid on common stock at $1.00 per share		—		—		—		—	—		—		—		(132,540)		(132,540)
Balances at March 31, 2021		$	172,652	$	219,682	$	346	133,692,662	$	1,336	$	3,282,255	$	(77,180)	$	(284,442)	$	3,314,649

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 Loss		Accumulated Deficit		Total Noncontrolling Interests and Equity
Issuance of common stock in connection with share based compensation		—		—		—		44,990	—		4,983		—		—		4,983
Restricted stock grants cancelled		—		—		—		(4,972)	—		—		—		—		—
Offering costs associated with previous stock issuance		—		—		—		—	—		(211)		—		—		(211)
Redemption of Operating Partnership units for stock		—		(2,185)		—		58,429	1		2,184		—		—		—
Redemption of Operating Partnership units for cash		—		(113)		—		—	—		(359)		—		—		(472)
Repayment of receivable with Operating Partnership units pledged as collateral		—		411		—		—	—		—		—		—		411
Noncontrolling interest in consolidated joint venture		—		—		150		—	—		—		—		—		150
Net income		3,438		7,190		3		—	—		—		—		167,948		178,579
Other comprehensive income		35		232		—		—	—		—		5,350		—		5,617
Distributions to Operating Partnership units held by noncontrolling interests		(3,223)		(5,751)		—		—	—		—		—		—		(8,974)
Dividends paid on common stock at $1.00 per share		—		—		—		—	—		—		—		(133,777)		(133,777)
Balances at June 30, 2021		$	172,902	$	219,466	$	499	133,791,109	$	1,337	$	3,288,852	$	(71,830)	$	(250,271)	$	3,360,955
Issuance of common stock upon the exercise of options		—		—		—		5,600	—		318		—		—		318
Issuance of common stock in connection with share based compensation		—		—		—		10,913	—		4,012		—		—		4,012
Restricted stock grants cancelled		—		—		—		(4,582)	—		—		—		—		—
Offering costs associated with previous stock issuance		—		—		—		—	—		(151)		—		—		(151)
Redemption of Operating Partnership units for stock		—		(34)		—		858	—		34		—		—		—


Redemption of Preferred B Units in the Operating Partnership for stock		(2,834)		—		—		15,265	1		2,833		—		—		—
Purchase of remaining equity interest in existing consolidated joint venture		—		—		—		—	—		(12,050)		—		—		(12,050)
Noncontrolling interest in consolidated joint venture		—		—		(225)		—	—		—		—		—		(225)
Net income		3,529		8,015				—	—		—		—		188,276		199,820
Other comprehensive income		50		330		—		—	—		—		7,675		—		8,055
Distributions to Operating Partnership units held by noncontrolling interests		(3,399)		(7,186)		—		—	—		—		—		—		(10,585)
Dividends paid on common stock at $1.25 per share		—		—		—		—	—		—		—		(167,274)		(167,274)
Balances at September 30, 2021		$	170,248	$	220,591	$	274	133,819,163	$	1,338	$	3,283,848	$	(64,155)	$	(229,269)	$	3,382,875

See accompanying notes to unaudited condensed consolidated financial statements.

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)


	For the Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	593,900	$	351,273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	179,685		167,705
Amortization of deferred financing costs	6,656		7,356
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	—		3,675
Non-cash lease expense	1,396		799
Compensation expense related to stock-based awards	12,647		11,316
Accrual of interest income added to principal of debt securities and notes receivable	(25,871)		—

Gain on real estate transactions	(63,883)		—
Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest	(6,251)		—
Distributions from unconsolidated real estate ventures in excess of earnings	4,640		5,097
Changes in operating assets and liabilities:

Other assets	(10,612)		(17,977)
Accounts payable and accrued expenses	33,907		41,780
Other liabilities	3,054		12,243
Net cash provided by operating activities	729,268		583,267
Cash flows from investing activities:
Acquisition of real estate assets	(589,382)		(151,244)
Development and redevelopment of real estate assets	(42,719)		(46,112)
Proceeds from sale of real estate assets and investments in real estate ventures	196,241		234
Investment in unconsolidated real estate entities	(20,834)		(13,937)
Return of investment in unconsolidated real estate ventures	31,534		371
Issuance and purchase of notes receivable	(143,270)		(149,750)
Principal payments received from notes receivable	36,874		—
Proceeds from sale of notes receivable	116,822		—
Purchase of equipment and fixtures	(3,058)		(3,407)
Net cash used in investing activities	(417,792)		(