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

View:

Download DOC

Download PDF

Download XLS

Download XBRL

exr-20220930

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, 2022


☐			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, 2022, was 133,921,528.

Table of Contents

EXTRA SPACE STORAGE INC.

TABLE OF CONTENTS


STATEMENT ON FORWARD-LOOKING INFORMATION			4

PART I. FINANCIAL INFORMATION			6
ITEM 1. FINANCIAL STATEMENTS (unaudited)			6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			42
ITEM 4. CONTROLS AND PROCEDURES			43

PART II. OTHER INFORMATION			44
ITEM 1. LEGAL PROCEEDINGS			44
ITEM 1A. RISK FACTORS			44
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			44
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			44
ITEM 4. MINE SAFETY DISCLOSURES			44
ITEM 5. OTHER INFORMATION			44
ITEM 6. EXHIBITS			45
SIGNATURES			46

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;

•our reliance on information technologies, which are vulnerable to, among other things, attack from computer viruses and malware, hacking, cyberattacks and other unauthorized access or misuse, any of which could adversely affect our business and 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;

•our ability to recover losses under our insurance policies;

•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, 2022		December 31, 2021
	(unaudited)
Assets:
Real estate assets, net	$	9,877,080	$	8,834,649
Real estate assets - operating lease right-of-use assets	226,984		227,949
Investments in unconsolidated real estate entities	568,691		457,326
Investments in debt securities and notes receivable	658,663		719,187
Cash and cash equivalents	86,991		71,126
Restricted cash	7,363		5,068
Other assets, net	414,873		159,172
Total assets	$	11,840,645	$	10,474,477
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	1,296,830	$	1,320,755
Unsecured term loans, net	2,339,419		1,741,926
Unsecured senior notes, net	2,757,285		2,360,066
Revolving lines of credit	600,000		535,000
Operating lease liabilities	233,832		233,356
Cash distributions in unconsolidated real estate ventures	66,141		63,582
Accounts payable and accrued expenses	191,183		142,285
Other liabilities	286,657		291,531
Total liabilities	7,771,347		6,688,501
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, 133,918,037 and 133,922,305 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	1,339		1,339
Additional paid-in capital	3,339,961		3,285,948
Accumulated other comprehensive income (loss)	48,521		(42,546)
Accumulated deficit	(139,250)		(128,245)
Total Extra Space Storage Inc. stockholders' equity	3,250,571		3,116,496
Noncontrolling interest represented by Preferred Operating Partnership units, net	261,494		259,110
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests	557,233		410,370
Total noncontrolling interests and equity	4,069,298		3,785,976
Total liabilities, noncontrolling interests and equity	$	11,840,645	$	10,474,477

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,
	2022		2021		2022		2021
Revenues:
Property rental	$	428,787	$	351,355	$	1,216,639	$	976,448
Tenant reinsurance	47,869		44,258		138,093		126,211
Management fees and other income	22,246		16,879		62,720		47,320
Total revenues	498,902		412,492		1,417,452		1,149,979
Expenses:
Property operations	114,577		92,794		322,371		274,316
Tenant reinsurance	10,770		7,509		25,349		21,405
Transaction related costs	—		—		1,465		—
General and administrative	32,275		24,395		93,288		74,276
Depreciation and amortization	71,423		61,516		208,396		179,685
Total expenses	229,045		186,214		650,869		549,682
Gain on real estate transactions	—		—		14,249		63,883
Income from operations	269,857		226,278		780,832		664,180
Interest expense	(56,245)		(39,670)		(146,249)		(120,605)

Interest income	18,125		11,729		52,174		36,871
Income before equity in earnings and dividend income from unconsolidated real estate ventures and income tax expense	231,737		198,337		686,757		580,446
Equity in earnings and dividend income from unconsolidated real estate entities	11,149		8,255		30,436		23,533
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	(6,760)		(6,772)		(15,516)		(16,330)
Net income	236,126		199,820		701,677		593,900
Net income allocated to Preferred Operating Partnership noncontrolling interests	(4,454)		(3,529)		(13,278)		(10,647)
Net income allocated to Operating Partnership and other noncontrolling interests	(10,953)		(8,015)		(31,971)		(24,031)
Net income attributable to common stockholders	$	220,719	$	188,276	$	656,428	$	559,222
Earnings per common share
Basic	$	1.65	$	1.41	$	4.89	$	4.19
Diluted	$	1.65	$	1.40	$	4.89	$	4.19
Weighted average number of shares
Basic	133,913,652		133,809,750		134,094,490		133,197,903
Diluted	141,504,215		140,425,269		141,567,845		139,854,881
Cash dividends paid per common share	$	1.50	$	1.25	$	4.50	$	3.25

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,
	2022		2021		2022		2021
Net income	$	236,126	$	199,820	$	701,677	$	593,900
Other comprehensive income:
Change in fair value of interest rate swaps	24,222		8,055		95,984		36,685
Total comprehensive income	260,348		207,875		797,661		630,585
Less: comprehensive income attributable to noncontrolling interests	16,663		11,924		50,166		36,425
Comprehensive income attributable to common stockholders	$	243,685	$	195,951	$	747,495	$	594,160

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 Interest							Extra Space Storage Inc. Stockholders' Equity
		Preferred Operating Partnership		Operating Partnership		Other		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (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

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

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 (Loss)		Accumulated Deficit		Total Noncontrolling Interests and Equity
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


Balances at December 31, 2021		$	259,110	$	410,053	$	317	133,922,305	$	1,339	$	3,285,948	$	(42,546)	$	(128,245)	$	3,785,976

Issuance of common stock in connection with share based compensation		—		—		—		142,784	—		4,542		—		—		4,542
Restricted stock grants cancelled		—		—		—		(779)	—		—		—		—		—


Redemption of Operating Partnership units for cash		—		(829)		—		—	—		(1,843)		—		—		(2,672)
Redemption of Preferred B Units in the Operating Partnership for cash		(3,375)		—		—		—	—		—		—		—		(3,375)
Issuance of common stock in conjunction with acquisitions		—		—		—		186,766	4		40,961		—		—		40,965


Net income		4,333		9,805				—	—		—		—		203,579		217,717
Other comprehensive income		313		2,333		—		—	—		—		49,003		—		51,649
Distributions to Operating Partnership units held by noncontrolling interests		(4,330)		(9,781)		—		—	—		—		—		—		(14,111)
Dividends paid on common stock at $1.50 per share		—		—		—		—	—		—		—		(202,527)		(202,527)
Balances at March 31, 2022		$	256,051	$	411,581	$	317	134,251,076	$	1,343	$	3,329,608	$	6,457	$	(127,193)	$	3,878,164

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 (Loss)		Accumulated Deficit		Total Noncontrolling Interests and Equity
Issuance of common stock in connection with share based compensation		—		—		—		38,016	—		5,245		—		—		5,245
Restricted stock grants cancelled		—		—		—		(7,122)	—		—		—		—		—


Redemption of Operating Partnership units for cash		—		(296)		—		—	—		(536)		—		—		(832)
Redemption of Preferred B Units in the Operating Partnership for cash		(1,125)		—		—		—	—		—		—		—		(1,125)
Issuance of Operating Partnership units in conjunction with business combinations		—		16,000		—		—	—		—		—		—		16,000
Issuance of Preferred D units in the Operating Partnership in conjunction with business combinations		6,000		—		—		—	—		—		—		—		6,000

Repurchase of common stock, net of offering costs		—		—		—		(381,786)	(4)		—		—		(63,004)		(63,008)


Net income		4,491		11,213		—		—	—		—		—		232,130		247,834
Other comprehensive income		120		895		—		—	—		—		19,098		—		20,113
Distributions to Operating Partnership units held by noncontrolling interests		(4,306)		(9,821)		—		—	—		—		—		—		(14,127)
Dividends paid on common stock at $1.50 per share		—		—		—		—	—		—		—		(201,024)		(201,024)
Balances at June 30, 2022		$	261,231	$	429,572	$	317	133,900,184	$	1,339	$	3,334,317	$	25,555	$	(159,091)	$	3,893,240
Issuance of common stock in connection with share based compensation		—		—		—		19,654	—		5,644		—		—		5,644
Restricted stock grants cancelled		—		—		—		(1,801)	—		—		—		—		—




Issuance of Operating Partnership units in conjunction with acquisitions		—		125,000		—		—	—		—		—		—		125,000




Noncontrolling interest in consolidated joint venture		—		—		338		—	—		—		—		—		338
Net income		4,454		10,953		—		—	—		—		—		220,719		236,126
Other comprehensive income		145		1,111		—		—	—		—		22,966		—		24,222
Distributions to Operating Partnership units held by noncontrolling interests		(4,336)		(10,058)		—		—	—		—		—		—		(14,394)
Dividends paid on common stock at $1.50 per share		—		—		—		—	—		—		—		(200,878)		(200,878)
Balances at September 30, 2022		$	261,494	$	556,578	$	655	133,918,037	$	1,339	$	3,339,961	$	48,521	$	(139,250)	$	4,069,298

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,
	2022		2021
Cash flows from operating activities:
Net income	$	701,677	$	593,900
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	208,396		179,685
Amortization of deferred financing costs	6,352		6,656

Non-cash lease expense	1,441		1,396
Compensation expense related to stock-based awards	15,431		12,647
Accrual of interest income added to principal of debt securities and notes receivable	(28,514)		(25,871)

Gain on real estate transactions	(14,249)		(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	9,380		4,640
Changes in operating assets and liabilities:

Other assets	(4,207)		(10,612)
Accounts payable and accrued expenses	48,898		33,907
Other liabilities