Extra Space Storage Inc.

Extra Space Storage Inc. is a fully integrated, self-administered and self-managed real estate investment trust that owns, operates, manages, acquires, develops and redevelops self-storage properties and provides lending to owners of stores located throughout the United States. The self-storage industry is characterized by fragmented ownership, where the largest companies in the industry own a minority of the operating stores, and the remainder of the industry is characterized by numerous small, local operators. The relative scarcity of capital available to small operators for acquisitions and expansions, internet marketing, call centers, and the potential for savings through economies of scale are factors that are leading to consolidation in the industry. The self-storage business is subject to seasonal fluctuations, with a greater portion of revenues and profits typically realized from May through September, and historically the highest level of occupancy has been at the end of July while the lowest level of occupancy has been in late February and early March. The self-storage industry is a mature industry with average occupancies that are typically around 90%.

The Company is the largest self-storage operator in the United States. Its three primary competitors who are public self-storage REITs are CubeSmart, National Storage Affiliates and Public Storage. The Company believes it is well positioned to compete for acquisitions and has encountered competition when seeking to acquire existing operating stores, especially for brokered portfolios, with competitive bidding practices commonplace between both public and private entities. The Company believes its status as an UPREIT enables flexibility when structuring deals, and it has established a reputation as a reliable, ethical buyer, which it believes enhances its ability to negotiate and close acquisitions.

The Company generates revenue from two distinct segments: self-storage operations and tenant reinsurance. Primary sources of revenue for the self-storage operations segment include rents received from tenants under leases at stores that are wholly-owned and in consolidated joint ventures, with leases generally on month-to-month terms. Revenue from the tenant reinsurance segment consists of insurance revenues from the reinsurance of risks relating to the loss of goods stored by tenants in the Company's stores. The Company also generates management fees and other income from managing stores for third parties and unconsolidated joint ventures, and interest income from its bridge lending program and other notes receivable. The Company's operating results depend materially on its ability to lease available self-storage units, to actively manage unit rental rates, and on the ability of tenants to make required rental payments.

The Company's self-storage operations segment includes rental operations of wholly-owned stores. As of December 31, 2025, the Company owned and/or operated 4,281 ¹ stores in 43 states, and Washington, D.C., comprising approximately 330.4 million ² square feet of net rentable space in approximately 2.9 million ³ units. Of the stores, 2,007 ⁴ are wholly-owned, 11 ⁵ are in consolidated joint ventures, and 407 ⁶ are in unconsolidated joint ventures. The Company also managed 1,856 ⁷ stores for third party owners. The Company's tenant reinsurance segment involves the reinsurance of risks relating to the loss of goods stored by tenants, with customers having the option to purchase insurance from a non-affiliated insurance company. A wholly-owned, consolidated subsidiary fully reinsures such policies and thereby assumes all risk of losses under these policies and receives reinsurance premiums substantially equal to the premiums collected from tenants. As of December 31, 2025, the total number of tenant insurance policies was approximately 1.8 million ⁸, which was an aggregate coverage of approximately $5.7 billion ⁹. The Company also has a bridge lending program under which it provides financing to third party self-storage owners for operating properties that it manages, and as of December 31, 2025, the total balance of bridge loans receivable was $1.5 billion ¹⁰. The Company has made investments in preferred stock of other self-storage companies, including SmartStop Self Storage REIT, Inc., Strategic Storage Trust VI, Inc., and Strategic Storage Growth Trust III, Inc.

During the year ended December 31, 2025, the Company acquired 76 ¹¹ wholly-owned stores and disposed of 37 ¹² wholly-owned stores. On April 30, 2025, the Company acquired all of its partners' membership interests in the ESS-NYFL JV LP and ESS CA-TIVS JV LP joint ventures, with the total value of the real estate recorded at $436,797 ¹³, which included $258,000 ¹⁴ of assumed debt, and the Company now owns 100% of the 27 ¹⁵ properties that were held in the two joint ventures. On March 31, 2025, the Company closed on the transfer and distribution of membership interests in its PR II EXR JV LLC joint venture, exchanging its 25% ¹⁶ ownership interest in 17 ¹⁷ properties for its partner's 75% ¹⁸ ownership interest in six ¹⁹ properties. On October 31, 2025, the Company sold its membership interest in the Extra Space Northern Properties VI LLC joint venture, which held 10 ²⁰ properties, resulting in a net gain of $45,167 ²¹. On July 8, 2025, the Company sold its membership interest in the Life Storage Spacemax LLC joint venture, which held six ²² properties, resulting in a net gain of $9,354 ²³. On February 4, 2025, the Company invested $100,000 ²⁴ in shares of newly issued convertible preferred stock of Strategic Storage Growth Trust III, Inc. On April 4, 2025, the Company was repaid its $200,000 ²⁵ preferred equity investment in SmartStop. During the year ended December 31, 2025, the Company repurchased 1,158,244 ²⁶ shares at an average price of $129.10 ²⁷ per share, paying a total of $149.5 million ²⁸. The Company issued 131,027 ²⁹ Operating Partnership units during the year. On August 21, 2025, the Company entered into the Fourth Amended and Restated Credit Agreement, which increased the commitment under the revolving credit facility to $3,000,000 ³⁰, extended the maturity to August 2029, and reduced the interest rate by 10 basis points, and in connection with the amendment, the Company paid off term loans in the amount of $655,000 ³¹ and increased other term loans by $200,000 ³².

Total revenues for the year ended December 31, 2025 were $3,377,542 ³³, compared to $3,256,902 ³⁴ for the year ended December 31, 2024, representing an increase of $120,640 ³⁵ or 3.7% ³⁶. Net income for the year ended December 31, 2025 was $1,022,538 ³⁷, compared to $900,232 ³⁸ for the prior year. Net income attributable to common stockholders was $973,999 ³⁹ for 2025, compared to $854,681 ⁴⁰ for 2024. Diluted earnings per common share was $4.59 ⁴¹ for 2025, compared to $4.03 ⁴² for 2024. Net cash provided by operating activities was $1,850,193 ⁴³ for 2025, compared to $1,887,430 ⁴⁴ for 2024. Funds from operations attributable to common stockholders and unit holders was $1,752,843 ⁴⁵ for 2025, compared to $1,677,161 ⁴⁶ for 2024.

The Company's primary growth strategies include maximizing the performance of stores through strategic, efficient and proactive management, acquiring self-storage stores, and developing stores from the ground up, frequently in a joint venture with a developer. The Company expects to continue acquiring Certificate of Occupancy stores, which are typically acquired at a lower price than a stabilized store, with expected greater long term returns on average, though in the short term these acquisitions cause dilution to earnings during the two-to-four year period required to lease up. The Company's management business is described as a potential future acquisition pipeline, and its bridge lending program helps increase its management business, create additional potential future acquisition opportunities, and strengthen relationships with partners. The Company has made investments in preferred stock of other self-storage companies, which benefit the Company by providing dividend income, creating additional potential future acquisition opportunities through relationships, and/or increasing its management business. The Company expects to continue its joint venture strategy by entering into additional joint ventures for the purpose of developing new stores and acquiring existing stores.The Company expects to fund future acquisitions, store development and re-development, capital expenditures and its bridge loan program through a diverse capital optimization strategy including cash generated from operations, borrowings under revolving lines of credit, commercial paper, secured and unsecured financing, equity offerings, joint ventures and the sale of stores. The Company expects to maintain a flexible approach to financing growth. As of December 31, 2025, the Company's Credit Lines had available capacity of $3.1 billion ⁴⁷, of which $2.6 billion ⁴⁸ was undrawn, and its commercial paper program had available capacity of $1.0 billion ⁴⁹, of which $320 million ⁵⁰ was undrawn. The Company had $138,920 ⁵¹ available in cash and cash equivalents as of December 31, 2025.

The Company has an active "at the market" equity program for selling stock, and during the year ended December 31, 2025, no shares were issued or sold under the program. As of December 31, 2025, no shares had been sold under the current Equity Distribution Agreement, which allows for the issuance and sale of shares of common stock having an aggregate offering price of up to $800,000 ⁵². In November 2023, the board of directors authorized a three-year share repurchase program allowing the repurchase of shares with an aggregate value up to $500.0 million ⁵³. As of December 31, 2025, the Company had remaining authorization to repurchase shares with an aggregate value up to $350.5 million ⁵⁴. The Company has historically made regular quarterly distributions to stockholders, and as a REIT is required to distribute annually at least 90% of its REIT taxable income to maintain its REIT qualification. Dividends paid on common stock were $1,374,298 ⁵⁵ for the year ended December 31, 2025, at $6.48 ⁵⁶ per share.

The filing identifies several headwinds and constraints. Adverse economic or other conditions in the markets in which the Company does business could negatively affect occupancy levels and rental rates, including increases in unemployment rates, rising interest rates, decreases in the volume of housing market transactions, recessions, and natural disasters. There is significant competition among self-storage operators and from other storage alternatives, and development of self-storage facilities has increased in recent years, intensifying competition. The Company's property taxes could increase due to reassessment or property tax rate changes. State and federal regulations relating to natural disasters, public health emergencies or consumer protection could adversely affect results of operations, including limitations on the ability to raise rents. The Company's tenant reinsurance business is subject to significant governmental regulation. Disruptions in the financial markets could affect the Company's ability to obtain debt financing on reasonable terms. Increases in interest rates could increase interest expense and adversely affect cash flow and the ability to service indebtedness and make cash distributions. As of December 31, 2025, approximately $2.4 billion ⁵⁷ or 17.9% ⁵⁸ of total debt was subject to variable interest rates (excluding debt with interest rate swaps), and if SOFR was to increase or decrease by 100 basis points, the increase or decrease in interest expense on the variable-rate debt would increase or decrease future earnings and cash flows by approximately $24,153 ⁵⁹ annually. A downgrade in credit ratings could materially adversely affect the Company's business and financial condition. The Company's unconsolidated joint venture investments could be adversely affected by its lack of sole decision-making authority. The Company may record losses as a result of the bankruptcy, insolvency, or other credit failure of borrowers under its bridge lending program or other companies in which it has invested, and as of December 31, 2025, the total outstanding balance under investments in debt securities and notes receivable was $1.8 billion ⁶⁰, including $1.5 billion ⁶¹ outstanding under the bridge loan program, and the total outstanding balance of investments in unconsolidated real estate entities, net of cash distributions, was $993 million ⁶², of which $250 million ⁶³ was invested in the preferred stock of entities affiliated with SmartStop.

Adverse economic conditions in the Company's markets, including increases in unemployment rates, rising interest rates, and decreases in housing market transactions, could negatively impact occupancy levels and rental rates, and nearly all leases are on a month-to-month basis, meaning any delay in re-letting units as vacancies arise would reduce revenues. Significant competition from other self-storage operators and increased development of self-storage facilities has affected occupancy levels, rental rates, and operating expenses. The Company's tenant reinsurance business is subject to significant governmental regulation, and regulatory authorities have broad discretion to grant, renew and revoke licenses, which could result in suspension of reinsurance activities or fines. As of December 31, 2025, the Company had approximately $13.5 billion ⁶⁴ of debt outstanding, of which approximately $2.4 billion ⁶⁵ or 17.9% ⁶⁶ was subject to variable interest rates (excluding debt with interest rate swaps), and increases in interest rates on this variable rate debt would increase interest expense, which could harm cash flow and the ability to pay cash distributions. The Company's existing indebtedness contains covenants that limit operating flexibility, including total debt to asset ratios, secured debt to total asset ratios, adjusted EBITDA to fixed charge ratios, and minimum ratios of unencumbered assets to unsecured debt, and failure to comply could result in acceleration of debt. The Company's unconsolidated joint venture investments, representing 407 ⁶⁷ operating stores as of December 31, 2025, could be adversely affected by its lack of sole decision-making authority, reliance on co-venturers' financial conditions, and potential disputes. As of December 31, 2025, the total outstanding balance under investments in debt securities and notes receivable was $1.8 billion ⁶⁸, including $1.5 billion ⁶⁹ outstanding under the bridge loan program, and the Company could incur losses if borrowers fail to perform as expected.

Management's discussion emphasizes the Company's primary business objectives of maximizing cash flow available for distribution to stockholders and achieving sustainable long-term growth in cash flow per share in order to maximize long-term stockholder value at acceptable levels of risk. Key themes include maximizing store performance through strategic, efficient and proactive management using advanced technology systems for real-time rental rate and discount management, pursuing acquisitions of multi-store portfolios and single stores, and maintaining a disciplined approach to dispositions to optimize portfolio quality and redeploy capital. Management highlights the Company's status as the largest self-storage operator in the United States and its reputation as a reliable, ethical buyer. The strategic priorities emphasized for the period ahead include continuing to evaluate a range of growth initiatives and opportunities, maintaining a flexible approach to financing growth through a diverse capital optimization strategy, and continuing to pursue acquisitions and development opportunities while managing the balance sheet to maintain credit ratings of BBB+/Stable from S&P and Baa2/Stable from Moody's Investors Service.