Extra Space Storage(EXR) - 2022 Q2 - Quarterly Report

STATEMENT ON FORWARD-LOOKING INFORMATION Forward-Looking Statements and Risks This section details forward-looking statements, highlighting their reliance on current expectations and susceptibility to various material risks and uncertainties - Forward-looking statements are based on current expectations and assumptions, and are subject to risks and uncertainties[7][8][10] - Key risks include adverse changes in general economic conditions, competition, regulatory environment, credit and financial markets, COVID-19 impacts, reliance on information technologies, increased interest rates, and potential impairment charges[9] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section provides unaudited condensed consolidated financial statements, offering a snapshot of the company's financial position and performance Condensed Consolidated Balance Sheets (amounts in thousands) | Assets/Liabilities | June 30, 2022 | December 31, 2021 | | :----------------------------------------------------- | :------------ | :------------------ | | Assets: | | | | Real estate assets, net | $9,135,464 | $8,834,649 | | Investments in unconsolidated real estate entities | $544,771 | $457,326 | | Cash and cash equivalents | $58,729 | $71,126 | | Total assets | $11,038,767 | $10,474,477 | | Liabilities: | | | | Notes payable, net | $1,288,487 | $1,320,755 | | Unsecured term loans, net | $1,742,995 | $1,741,926 | | Unsecured senior notes, net | $2,757,158 | $2,360,066 | | Revolving lines of credit | $599,000 | $535,000 | | Total liabilities | $7,145,527 | $6,688,501 | | Total liabilities, noncontrolling interests and equity | $11,038,767 | $10,474,477 | Condensed Consolidated Statements of Operations (amounts in thousands, except share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $474,988 | $378,630 | $918,550 | $737,487 | | Total expenses | $213,572 | $181,801 | $421,824 | $363,468 | | Net income | $247,834 | $178,579 | $465,551 | $394,080 | | Net income attributable to common stockholders | $232,130 | $167,948 | $435,709 | $370,946 | | Basic Earnings per common share | $1.73 | $1.25 | $3.24 | $2.79 | | Diluted Earnings per common share | $1.73 | $1.25 | $3.24 | $2.79 | | Cash dividends paid per common share | $1.50 | $1.00 | $3.00 | $2.00 | Condensed Consolidated Statements of Cash Flows (amounts in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $640,387 | $463,688 | | Net cash used in investing activities | $(570,028) | $(145,302) | | Net cash used in financing activities | $(76,387) | $(386,646) | | Net decrease in cash, cash equivalents, and restricted cash | $(6,028) | $(68,260) | | Cash, cash equivalents, and restricted cash, end of the period | $70,166 | $59,749 | Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statement of Noncontrolling Interests and Equity Condensed Consolidated Statements of Cash Flows NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes to the unaudited condensed consolidated financial statements, covering organization, policies, assets, debt, equity, and contingencies - The Company is a self-administered and self-managed REIT, operating through its Operating Partnership, with direct and indirect equity interests in 1,313 stores and managing an additional 864 stores for third parties as of June 30, 2022[35][36] - The Company adopted ASU 2020-04 for Reference Rate Reform, applying hedge accounting expedients for LIBOR-indexed cash flows and contract modifications, and has begun transitioning debt to SOFR[38] - Goodwill of $170.811 million was recorded as of June 30, 2022, primarily due to the acquisition of Bargold Storage Systems, LLC[56][68] 1. ORGANIZATION 2. BASIS OF PRESENTATION 3. FAIR VALUE DISCLOSURES 4. REAL ESTATE ASSETS 5. OTHER ASSETS 6. EARNINGS PER COMMON SHARE 7. ACQUISITIONS AND DISPOSITIONS 8. INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES 9. INVESTMENTS IN DEBT SECURITIES AND NOTES RECEIVABLE 10. DEBT 11. DERIVATIVES 12. STOCKHOLDERS' EQUITY 13. NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS 14. NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS 15. SEGMENT INFORMATION 16. COMMITMENTS AND CONTINGENCIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial condition and results, covering accounting policies, business overview, property portfolio, performance, FFO, and liquidity - The Company operates two primary segments: storage operations (rents from wholly-owned stores) and tenant reinsurance (insurance revenues)[144] - As of June 30, 2022, the Company owned or had ownership interests in 1,313 operating stores (1,009 wholly-owned, 304 in unconsolidated joint ventures) and managed an additional 864 stores for third parties, totaling 2,177 stores across 41 states and Washington, D.C[149] Revenue Performance (amounts in thousands) | Revenue Category | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | % Change (3M) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | % Change (6M) | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------ | :----------------------------- | :----------------------------- | :------------ | | Property rental | $408,044 | $321,500 | 26.9% | $787,852 | $625,093 | 26.0% | | Tenant reinsurance | $46,427 | $42,334 | 9.7% | $90,224 | $81,953 | 10.1% | | Management fees and other income | $20,517 | $14,796 | 38.7% | $40,474 | $30,441 | 33.0% | | Total revenues | $474,988 | $378,630 | 25.4% | $918,550 | $737,487 | 24.6% | Same-Store Operating Data | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Percent Change | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Percent Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Same-store rental revenues | $362,192 | $297,601 | 21.7% | $704,081 | $578,591 | 21.7% | | Same-store operating expenses | $83,471 | $76,346 | 9.3% | $168,328 | $155,825 | 8.0% | | Same-store net operating income | $278,721 | $221,255 | 26.0% | $535,753 | $422,766 | 26.7% | | Same-store square foot occupancy (quarter end) | 95.9% | 96.9% | | 95.9% | 96.9% | | Funds From Operations (FFO) (amounts in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stockholders | $232,130 | $167,948 | $435,709 | $370,946 | | Funds from operations attributable to common stockholders and unit holders | $303,589 | $232,313 | $590,045 | $442,372 | CAUTIONARY LANGUAGE CRITICAL ACCOUNTING POLICIES OVERVIEW COVID-19 UPDATE PROPERTIES RESULTS OF OPERATIONS FUNDS FROM OPERATIONS SAME-STORE RESULTS CASH FLOWS LIQUIDITY AND CAPITAL RESOURCES OFF-BALANCE SHEET ARRANGEMENTS SEASONALITY ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section quantifies the company's market risk exposure, specifically interest rate risk, and its potential impact on earnings and cash flows - As of June 30, 2022, the Company had approximately $6.4 billion in total face value of debt, with $1.6 billion subject to variable interest rates[197] - A 100 basis point increase or decrease in LIBOR or SOFR would impact annual interest expense, and thus future earnings and cash flows, by approximately $16.2 million[197] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[200] - No material changes in internal control over financial reporting occurred during the most recent quarter[201] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is involved in various legal proceedings, with management accruing for probable losses while acknowledging potential additional exposure - The Company is involved in various legal proceedings and claims, with outcomes inherently unpredictable[203] - Management establishes accrued liabilities for probable and reasonably estimable loss contingencies, but there may be exposure to losses in excess of these amounts[203] ITEM 1A. RISK FACTORS This section refers to the Annual Report on Form 10-K for comprehensive risk factors, noting no material changes in the current period - No material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2021, have occurred[204] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On June 1, 2022, the company issued common and Series D Preferred OP Units in a private placement for the Bargold acquisition, redeemable in cash or stock - On June 1, 2022, the Company issued 91,743 common OP Units ($16.0 million) and 240,000 Series D Units ($6.0 million) in a private placement for the acquisition of Bargold[205] - Both OP Units and Series D Units are redeemable by holders, with the Company having the option to settle in cash or common stock[206] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities occurred during the reporting period ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company ITEM 5. OTHER INFORMATION No other information is reported under this item ITEM 6. EXHIBITS Exhibits List This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL financial statements - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[211] - The Condensed Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Noncontrolling Interests and Equity, and Cash Flows are formatted in XBRL[211] SIGNATURES Report Signatures This section contains the signatures of the CEO and CFO, certifying the report on August 5, 2022 - The report is signed by Joseph D. Margolis, Chief Executive Officer, and P. Scott Stubbs, Executive Vice President and Chief Financial Officer, on August 5, 2022[214]