UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September 30, 2018~~March 31, 2019



o	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 o

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 o

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. (Check one):~~Act:

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. o

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of ~~October 31, 2018,~~April 30, 2019, was ~~126,515,354.~~127,453,654.

EXTRA SPACE STORAGE INC.

TABLE OF CONTENTS

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,”~~“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;

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, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Assets:
Real estate assets, net	$	7,425,806		$	7,132,431		$	7,688,617		$	7,491,831
Real estate assets - operating lease right-of-use assets							94,198			—
Investments in unconsolidated real estate ventures	114,451			75,907			161,029			125,326
Cash and cash equivalents	45,378			55,683			38,988			57,496
Restricted cash	21,205			30,361			7,840			15,194
Other assets, net	191,850			166,571			141,842			158,131
Total assets	$	7,798,690		$	7,460,953		$	8,132,514		$	7,847,978
Liabilities, Noncontrolling Interests and Equity:
Notes payable, net	$	4,104,955		$	3,738,497		$	4,101,958		$	4,137,213
Exchangeable senior notes, net	560,613			604,276			564,136			562,374
Notes payable to trusts, net	95,887			117,444
Notes payable to trusts							—			30,928
Revolving lines of credit	—			94,000			335,000			81,000
Operating lease liabilities							103,578			—
Cash distributions in unconsolidated real estate ventures	44,218			5,816			44,570			45,197
Accounts payable and accrued expenses	126,539			96,087			99,302			101,461
Other liabilities	96,384			81,026			110,158			104,383
Total liabilities	5,028,596			4,737,146			5,358,702			5,062,556
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, 126,504,802 and 126,007,091 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	1,264			1,260
Common stock, $0.01 par value, 500,000,000 shares authorized, 127,392,050 and 127,103,750 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively							1,274			1,271
Additional paid-in capital	2,581,158			2,569,485			2,648,723			2,640,705
Accumulated other comprehensive income	68,362			33,290			11,807			34,650
Accumulated deficit	(255,065		)	(253,284		)	(277,655		)	(262,902		)
Total Extra Space Storage Inc. stockholders' equity	2,395,719			2,350,751			2,384,149			2,413,724
Noncontrolling interest represented by Preferred Operating Partnership units, net of $119,735 and $120,230 notes receivable as of September 30, 2018 and December 31, 2017, respectively	160,250			159,636
Noncontrolling interests in Operating Partnership	213,885			213,301
Other noncontrolling interests	240			119
Noncontrolling interest represented by Preferred Operating Partnership units, net							176,264			153,096
Noncontrolling interests in Operating Partnership, net and other noncontrolling interests							213,399			218,602
Total noncontrolling interests and equity	2,770,094			2,723,807			2,773,812			2,785,422
Total liabilities, noncontrolling interests and equity	$	7,798,690		$	7,460,953		$	8,132,514		$	7,847,978

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,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Property rental	$	266,728		$	248,589		$	772,742		$	720,878		$	271,003		$	247,886
Tenant reinsurance	30,105			25,882			85,660			73,050			29,797			27,034
Management fees and other income	10,120			9,685			30,849			29,239			10,746			10,565
Total revenues	306,953			284,156			889,251			823,167			311,546			285,485
Expenses:
Property operations	73,652			70,430			219,488			204,370			78,765			72,753
Tenant reinsurance	7,720			6,272			18,798			13,996			6,967			5,607
General and administrative	19,707			19,498			62,822			60,171			22,678			21,464
Depreciation and amortization	52,283			48,075			155,924			144,139			54,659			51,749
Total expenses	153,362			144,275			457,032			422,676			163,069			151,573
Income from operations	153,591			139,881			432,219			400,491			148,477			133,912
Gain (loss) on real estate transactions and impairment of real estate	30,807			—			30,807			(6,019		)
Interest expense	(45,926		)	(39,766		)	(130,239		)	(113,192		)	(47,360		)	(40,966		)
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,140		)	(1,268		)	(3,525		)	(3,827		)	(1,162		)	(1,209		)
Interest income	1,371			1,401			3,997			5,201			1,388			1,438
Income before equity in earnings of unconsolidated real estate ventures and income tax expense	138,703			100,248			333,259			282,654			101,343			93,175
Equity in earnings of unconsolidated real estate ventures	3,622			3,990			10,648			11,407			2,630			3,597
Income tax expense	(2,638		)	(3,163		)	(6,077		)	(9,154		)	(1,813		)	(1,342		)
Net income	139,687			101,075			337,830			284,907			102,160			95,430
Net income allocated to Preferred Operating Partnership noncontrolling interests	(3,723		)	(3,394		)	(10,605		)	(10,775		)	(3,163		)	(3,390		)
Net income allocated to Operating Partnership and other noncontrolling interests	(5,546		)	(3,917		)	(13,398		)	(11,080		)	(4,227		)	(3,784		)
Net income attributable to common stockholders	$	130,418		$	93,764		$	313,827		$	263,052		$	94,770		$	88,256
Earnings per common share
Basic	$	1.03		$	0.74		$	2.49		$	2.09		$	0.74		$	0.70
Diluted	$	1.02		$	0.74		$	2.48		$	2.07		$	0.74		$	0.70
Weighted average number of shares
Basic	126,466,837			125,717,517			125,959,926			125,665,787			127,037,247			125,772,439
Diluted	134,240,290			133,044,473			133,015,690			133,008,622			134,289,716			132,682,560
Cash dividends paid per common share	$	0.86		$	0.78		$	2.50		$	2.34		$	0.86		$	0.78

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,				For the Three Months Ended March 31,
	2018		2017		2018		2017		2019			2018
Net income	$	139,687	$	101,075	$	337,830	$	284,907	$	102,160		$	95,430
Other comprehensive income:
Other comprehensive income/(loss):
Change in fair value of interest rate swaps	5,716		759		36,812		992		(23,993		)	23,063
Total comprehensive income	145,403		101,834		374,642		285,899		78,167			118,493
Less: comprehensive income attributable to noncontrolling interests	9,553		7,342		25,743		21,886		6,240			8,256
Comprehensive income attributable to common stockholders	$	135,850	$	94,492	$	348,899	$	264,013	$	71,927		$	110,237

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															Noncontrolling Interests																	Extra Space Storage Inc. Stockholders' Equity
	Preferred Operating Partnership																																	Preferred Operating Partnership
	Series A			Series B			Series C			Series D			Operating Partnership			Other			Shares		Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Noncontrolling Interests and Equity			Series A			Series B			Series C			Series D			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, 2017	$	14,940		$	41,902		$	10,730		$	92,064		$	213,301		$	119		126,007,091		$	1,260	$	2,569,485		$	33,290	$	(253,284	)	$	2,723,807		$	14,940		$	41,902		$	10,730		$	92,064		$	213,301		$	119	126,007,091		$	1,260	$	2,569,485		$	33,290	$	(253,284	)	$	2,723,807
Issuance of common stock upon the exercise of options	—			—			—			—			—			—			54,575		—		1,169			—		—			1,169			—			—			—			—			—			—		31,525		—		799			—		—			799
Restricted stock grants issued	—			—			—			—			—			—			84,264		1		—			—		—			1			—			—			—			—			—			—		31,136		—		—			—		—			—
Restricted stock grants cancelled	—			—			—			—			—			—			(9,379	)	—		—			—		—			—			—			—			—			—			—			—		(770	)	—		—			—		—			—
Issuance of common stock, net of offering costs	—			—			—			—			—			—			343,251		3		33,777			—		—			33,780
Compensation expense related to stock-based awards	—			—			—			—			—			—			—		—		8,455			—		—			8,455			—			—			—			—			—			—		—		—		2,726			—		—			2,726
Repayment of receivable for preferred operating units pledged as collateral on loan	—			—			495			—			—			—			—		—		—			—		—			495			—			—			495			—			—			—		—		—		—			—		—			495
Issuance of Operating Partnership units in conjunction with acquisitions	—			—			—			—			1,877			—			—		—		—			—		—			1,877
Redemption of Operating Partnership units for stock	—			—			—			—			(955		)	—			25,000		—		955			—		—			—
Redemption of Operating Partnership units for cash	—			—			—			—			(1,126		)	—			—		—		(1,432		)	—		—			(2,558		)	—			—			—			—			(1,126		)	—		—		—		(1,432		)	—		—			(2,558		)
Noncontrolling interest in consolidated joint venture	—			—			—			—			—			122			—		—		—			—		—			122			—			—			—			—			—			120		—		—		—			—		—			120
Repurchase of equity portion of 2013 exchangeable senior notes	—			—			—			—			—			—			—		—		(31,251		)	—		—			(31,251		)	—			—			—			—			—			—		—		—		(21,000		)	—		—			(21,000		)
Net income	3,793			1,886			2,140			2,786			13,399			(1		)	—		—		—			—		313,827			337,830			1,156			629			676			929			3,784			—		—		—		—			—		88,256			95,430
Other comprehensive income	233			—			—			—			1,507			—			—		—		—			35,072		—			36,812			144			—			—			—			938			—		—		—		—			21,981		—			23,063
Distributions to Operating Partnership units held by noncontrolling interests	(3,906		)	(1,886		)	(2,140		)	(2,787		)	(14,118		)	—			—		—		—			—		—			(24,837		)	(1,254		)	(629		)	(676		)	(929		)	(4,421		)	—		—		—		—			—		—			(7,909		)
Dividends paid on common stock at $2.50 per share	—			—			—			—			—			—			—		—		—			—		(315,608		)	(315,608		)
Balances at September 30, 2018	$	15,060		$	41,902		$	11,225		$	92,063		$	213,885		$	240		126,504,802		$	1,264	$	2,581,158		$	68,362	$	(255,065	)	$	2,770,094
Dividends paid on common stock at $0.78 per share																																		—			—			—			—			—			—		—		—		—			—		(98,327		)	(98,327		)
Balances at March 31, 2018																																		$	14,986		$	41,902		$	11,225		$	92,064		$	212,476		$	239	126,068,982		$	1,260	$	2,550,578		$	55,271	$	(263,355	)	$	2,716,646

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
	Series A			Series B			Series C			Series D			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	$	14,756		$	41,902		$	4,374		$	92,064		$	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)	1,194			629			308			1,033			4,235			(9		)	—		—		—		—			94,770			102,160
Other comprehensive income (loss)	(147		)	—			—			—			(1,003		)	—			—		—		—		(22,843		)	—			(23,993		)
Distributions to Operating Partnership units held by noncontrolling interests	(1,326		)	(629		)	(308		)	(1,033		)	(5,116		)	—			—		—		—		—			—			(8,412		)
Dividends paid on common stock at $0.86 per share	—			—			—			—			—			—			—		—		—		—			(109,523		)	(109,523		)
Balances at March 31, 2019	$	14,477		$	41,902		$	4,374		$	115,511		$	213,168		$	231		127,392,050		$	1,274	$	2,648,723	$	11,807		$	(277,655	)	$	2,773,812

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,
2018 2017
Cash flows from operating activities:
Net income $ 337,830
$ 284,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 155,924
144,139
Amortization of deferred financing costs 9,230
9,246
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes 3,525
3,827
Compensation expense related to stock-based awards 8,455
7,244
(Gain) loss on real estate transactions and impairment of real estate (30,807 ) 6,019
Distributions from unconsolidated real estate ventures in excess of earnings 5,235
3,498
Changes in operating assets and liabilities:
Other assets (639 ) (15,303 )
Accounts payable and accrued expenses 27,677
6,425
Other liabilities 12,597
(373 )
Net cash provided by operating activities 529,027
449,629
Cash flows from investing activities:
Acquisition of real estate assets (327,011 ) (119,040 )
Development and redevelopment of real estate assets (45,376 ) (20,670 )
Proceeds from sale of real estate assets, investments in real estate ventures and other assets 51,889
18,565
Investment in unconsolidated real estate ventures (52,806 ) (3,021 )
Return of investment in unconsolidated real estate ventures 47,964
581
Issuance of notes receivable (13,889 ) —
Principal payments received from notes receivable 25,226
44,869
Purchase of equipment and fixtures (3,026 ) (5,635 )
Net cash used in investing activities (317,029 ) (84,351 )
Cash flows from financing activities:
Proceeds from the sale of common stock, net of offering costs 33,780
—
Proceeds from notes payable and revolving lines of credit 973,386
1,023,170
Principal payments on notes payable and revolving lines of credit (787,939 ) (1,020,144 )
Principal payments on notes payable to trusts (21,650 ) —
Deferred financing costs (7,055 ) (5,172 )
Repurchase of exchangeable senior notes (80,270 ) (19,726 )
Net proceeds from exercise of stock options 1,170
1,266
Redemption of Operating Partnership units held by noncontrolling interests (2,558 ) (2,510 )
Contributions from noncontrolling interests 122
—
Dividends paid on common stock (315,608 ) (294,754 )
Distributions to noncontrolling interests (24,837 ) (24,141 )
Net cash used in financing activities (231,459 ) (342,011 )
Net increase (decrease) in cash, cash equivalents, and restricted cash (19,461 ) 23,267
Cash, cash equivalents, and restricted cash, beginning of the period 86,044
57,742
Cash, cash equivalents, and restricted cash end of the period $ 66,583
$ 81,009

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

For the Nine Months Ended September 30,
2018 2017
Supplemental schedule of cash flow information
Interest paid $ 117,627
$ 107,144
Income taxes paid 803
8,086
Supplemental schedule of noncash investing and financing activities:
Redemption of Operating Partnership units held by noncontrolling interests for common stock
Noncontrolling interests in Operating Partnership $ (955 ) $ —
Common stock and paid-in capital 955
—
Acquisitions of real estate assets
Real estate assets, net $ 88,842
$ 20,100
Value of Operating Partnership units issued (1,877 ) (8,810 )
Notes payable assumed (87,500 ) (9,463 )
Investment in unconsolidated real estate ventures 535
—
Other noncontrolling interests —
(1,827 )
Accrued construction costs and capital expenditures
Acquisition of real estate assets $ 275
$ 4,874
Development and redevelopment of real estate assets —
1,558
Accounts payable and accrued expenses (275 ) (6,432 )



	For the Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	102,160		$	95,430
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,659			51,749
Amortization of deferred financing costs	3,034			3,021
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	1,162			1,209
Compensation expense related to stock-based awards	2,954			2,726
Distributions from unconsolidated real estate ventures in excess of earnings	1,732			1,501
Changes in operating assets and liabilities:
Other assets	(305		)	(737		)
Accounts payable and accrued expenses	6,418			10,434
Other liabilities	(2,475		)	6,275
Net cash provided by operating activities	169,339			171,608
Cash flows from investing activities:
Acquisition of real estate assets	(212,552		)	(76,122		)
Development and redevelopment of real estate assets	(15,846		)	(11,106		)
Proceeds from sale of real estate assets, investments in real estate ventures and other assets	—			753
Investment in unconsolidated real estate ventures	(17,395		)	(438		)
Return of investment in unconsolidated real estate ventures	—			47,944
Principal payments received from notes receivable	—			9,172
Purchase of equipment and fixtures	(1,182		)	(1,131		)
Net cash used in investing activities	(246,975		)	(30,928		)
Cash flows from financing activities:
Proceeds from notes payable and revolving lines of credit	424,000			162,000
Principal payments on notes payable and revolving lines of credit	(225,020		)	(168,204		)
Principal payments on notes payable to trusts	(30,928		)	—
Deferred financing costs	(100		)	(117		)
Repurchase of exchangeable senior notes	—			(58,464		)
Net proceeds from exercise of stock options	1,757			799
Redemption of Operating Partnership units held by noncontrolling interests	—			(2,558		)
Contributions from noncontrolling interests	—			120
Dividends paid on common stock	(109,523		)	(98,327		)
Distributions to noncontrolling interests	(8,412		)	(7,909		)
Net cash provided by (used in) financing activities	51,774			(172,660		)
Net decrease in cash, cash equivalents, and restricted cash	(25,862		)	(31,980		)
Cash, cash equivalents, and restricted cash, beginning of the period	72,690			86,044
Cash, cash equivalents, and restricted cash, end of the period	$	46,828		$	54,064

Extra Space Storage Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)



	For the Three Months Ended March 31,
	2019			2018
Supplemental schedule of cash flow information
Interest paid	$	45,165		$	37,007
Income taxes paid (received)	(177		)	492
Supplemental schedule of noncash investing and financing activities:
Redemption of Operating Partnership units held by noncontrolling interests for common stock
Noncontrolling interests in Operating Partnership	$	(3,310	)	$	—
Common stock and paid-in capital	3,310			—
Establishment of operating lease right-of-use assets and lease liabilities
Real estate assets - operating lease right-of-use assets	$	95,506		$	—
Operating lease liabilities	(104,863		)	—
Accounts payable and accrued expenses	9,357			—
Acquisitions of real estate assets
Real estate assets, net	$	19,937		$	489
Notes payable assumed	(17,157		)	—
Investment in unconsolidated real estate ventures	(2,780		)	(489		)
Accrued construction costs and capital expenditures
Acquisition of real estate assets	$	780		$	526
Development and redevelopment of real estate assets	—			1,381
Accounts payable and accrued expenses	(780		)	(1,907		)
Contribution of Preferred OP Units to unconsolidated real estate venture
Investments in unconsolidated real estate ventures	$	23,447		$	—
Value of Preferred Operating Partnership units issued	(23,447		)	—

See accompanying notes to unaudited condensed consolidated financial statements.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Amounts in thousands, except store and share data, unless otherwise stated


1.	ORGANIZATION

Extra Space Storage Inc. (the “Company”) is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed as a Maryland corporation on April 30, 2004, to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties ("stores") located throughout the United States. The Company was formed to continue the business of Extra Space Storage LLC and its subsidiaries, which had engaged in the self-storage business since 1977. The Company’s interest in its stores is held through its operating partnership, Extra Space Storage LP (the “Operating Partnership”), which was formed on May 5, 2004. The Company’s primary assets are general partner and limited partner interests in the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.

The Company invests in stores by acquiring wholly-owned stores or by acquiring an equity interest in real estate entities. At ~~September 30, 2018,~~March 31, 2019, the Company had direct and indirect equity interests in ~~1,099~~1,119 stores. In addition, the Company managed ~~507~~577 stores for third parties, bringing the total number of stores which it owns and/or manages to ~~1,606.~~1,696. These stores are located in 3940 states, Washington, D.C. and Puerto Rico. The Company also offers tenant reinsurance at its owned and managed stores that insures the value of goods in the storage units.


2.	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2018.~~2019. The condensed consolidated balance sheet as of December 31, ~~2017~~2018 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission.

Beginning January 1, 2018, the Company has elected to include amounts previously reported on the condensed consolidated balance sheets as "Receivables from related parties and affiliated joint ventures" in "Other assets, net," as these amounts are no longer material. Additionally, the Company has elected to include amounts previously reported on the condensed consolidated statements of operations as "Interest income on note receivable from Preferred Operating Partnership unit holder" in "Interest income" as these amounts are no longer material. Prior year amounts have been reclassified to conform to the current year's presentation.

~~Immaterial Correction to Consolidated Balance Sheets~~

In connection with the preparation of the financial statements for the quarter ended March 31, 2018, the Company determined that the negative balances in the "Investments in unconsolidated real estate ventures" line should be presented separately as liabilities. As a result, $5,816 should have been reported as "Cash distributions in unconsolidated real estate ventures" as of December 31, 2017. The Company concluded that the amount was not material to the consolidated balance sheet as of December 31, 2017 but has elected to present these amounts as liabilities in the accompanying financial statements for consistent presentation. The classification error had no effect on the previously reported consolidated statements of operations, comprehensive income, stockholders' equity or cash flows for the year ended December 31, 2017.

Recently Issued Accounting Standards

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,~~” ("Topic 606") which amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. Topic 606 outlines a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Topic 606 became effective for

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

annual and interim periods beginning after December 15, 2017. The Company determined that its property rental revenue and tenant reinsurance revenue are not subject to the guidance in Topic 606, as they qualify as lease contracts and insurance contracts, which are excluded from its scope. The Company's management fee revenue was included in the scope of Topic 606 and revenue recognized under the standard does not differ materially from revenue recognized under previous guidance. The Company adopted the new guidance using the modified retrospective transition method for all contracts as of January 1, 2018. The Company's adoption of this guidance did not result in a cumulative catch-up adjustment or any significant changes to financial statement line items.

In February 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842),” which modifies the accounting for leases, intending to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. ASU 2016-02 ~~will require~~requires entities to recognize a liability for their lease obligations and a corresponding asset representing the right to use the underlying asset over the lease term. Lease obligations are ~~to be~~ measured at their present value and accounted for using the effective interest method. The accounting for the leased asset ~~will differ~~differs slightly depending on whether the agreement is deemed to be a financing or operating lease. For financing leases, the leased asset is depreciated on a straight-line basis and ~~depreciation expense~~ is recorded separately from the interest expense in the statements of operations, resulting in higher expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. ASU 2016-02 requires that assets and liabilities be presented or disclosed separately, and requires additional disclosure of certain qualitative and quantitative information related to these lease agreements. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018. The Company ~~plans to adopt~~adopted the standard using the modified retrospective approach ~~beginning~~as of January 1, 2019. The Company ~~expects to elect~~elected the package of practical expedients upon adoption, which allows for the application of the standard solely to the transition period in 2019 but does not require application to prior fiscal comparative periods presented. The Company also elected the practical expedient provided in a subsequent amendment to the standard that removed the requirement to separate lease and nonlease components. The Company did not record a significant cumulative catch-up adjustment to retained earnings upon adoption of ASU 2016-02. The primary impact ~~is expected to be~~was related to the ~~Company’s 24~~Company's 21 operating ground leases and two corporate facility leases under which it serves as lessee. The Company recognized lease liabilities of $104,863 and right-of-use assets related to operating leases totaling $95,506 as of the adoption date. Refer to Note 13 for further discussion of the Company's leases.

~~In October 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash,"~~ which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2018, and now presents restricted cash with cash and cash equivalents in the statements of cash flows. Prior period amounts have been reclassified to conform to the current year's presentation.

EXTRA SPACE STORAGE INC.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~"Derivatives and Hedging (Topic 815): Targeted Improvements for Accounting for Hedging Activities,"~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~which amends~~(unaudited) (continued)

Amounts in thousands, except store and simplifies existing guidance for the financial reporting of hedging relationships to allow companies to better portray the economic effects of risk management activities in their financial statements. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company has chosen to early adopt this standard as of January 1, 2018. The adoption of this standard did not have a material impact on the financial statements.share data, unless otherwise stated

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." ASU 2018-15 amends the accounting for implementation costs incurred in a hosting arrangement that is a service contract, and aligns them with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 also requires that entities amortize the capitalized implementation costs over the term of the hosting arrangement. ASU 2018-15 is effective for annual periods beginning after December 15, 2020, with early adoption permitted, including early adoption in any interim period. The Company ~~has chosen to early adopt~~adopted this ~~guidance~~standard on a prospective basis as of October 1, 2018. The adoption of this standard ~~will~~did not have a material impact on the Company's financial statements.

~~EXTRA SPACE STORAGE INC.~~In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 changes how entities measure credit losses for most financial assets. This standard requires an entity to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The Company is evaluating the impact this new standard will have on its consolidated financial statements.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~In November 2018, the FASB issued ASU 2018-19, ~~(unaudited) (continued)~~"Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarified that receivables arising from operating leases are within the scope of the leasing standard (ASU 2016-02). This new standard will be effective for the Company on January 1, 2020. The Company is evaluating the impact this new standard will have on its consolidated financial statements.

~~Amounts in thousands, except store and share data, unless otherwise stated~~


3.	FAIR VALUE DISCLOSURES

Derivative Financial Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate forward curves.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of ~~September 30, 2018,~~March 31, 2019, the Company ~~had~~ assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2018,~~March 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall.


			Fair Value Measurements at Reporting Date Using						Fair Value Measurements at Reporting Date Using
Description	September 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets - Cash Flow Hedge Swap Agreements	$	75,293	$	—	$	75,293	$	—
Other assets - cash flow hedge swap agreements									$	—	$	25,908	$	—
Other liabilities - cash flow hedge swap agreements									$	—	$	9,307	$	—

The Company did not have any significant assets or liabilities that are re-measured on a recurring basis using significant unobservable inputs as of ~~September 30, 2018~~March 31, 2019 or December 31, ~~2017.~~2018.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Long-lived assets held for use are evaluated for impairment when events or circumstances indicate there may be impairment. The Company reviews each store at least annually to determine if any such events or circumstances have occurred or exist. The Company focuses on stores where occupancy and/or rental income have decreased by a significant amount. For these stores, the Company determines whether the decrease is temporary or permanent, and whether the store will likely recover the lost occupancy and/or revenue in the short term. In addition, the Company ~~carefully~~ reviews stores in the lease-up stage and compares actual operating results to original projections.

When the Company determines that an event that may indicate impairment has occurred, the Company compares the carrying value of the related long-lived assets to the undiscounted future net operating cash flows attributable to the assets. An impairment loss is recorded if the net carrying value of the assets exceeds the undiscounted future net operating cash flows attributable to the assets. The impairment loss recognized equals the excess of net carrying value over the related fair value of the assets.

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

When real estate assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value of the assets, net of selling costs. If the estimated fair value, net of selling costs, of the assets that have been identified as held for sale is less than the net carrying value of the assets, the Company would recognize an impairment loss on the assets held for sale. The operations of assets held for sale or sold during the period are presented as part of normal operations for all periods presented. As of ~~September 30, 2018,~~March 31, 2019, the Company had one operating store classified as held for sale and one parcel of land classified as held for sale which are included in real estate assets, net. The estimated fair value less selling costs for each of these assets is greater than the carrying value of the assets, and therefore no loss has been recorded. During the nine months ended September 30, 2017, the Company recorded an impairment loss of $6,100 relating to one parcel of land that was held for sale at the time, and an additional two parcels of undeveloped land where the carrying value was greater than the fair value.

The Company assesses annually whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be impaired annually and when events or circumstances indicate that there may be impairment. An investment is impaired if management’s estimate of the fair value of the investment is less than its carrying value. To the extent impairment has occurred, and is considered to be other than temporary, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment.

In connection with the Company’s acquisition of stores, the purchase price is allocated to the tangible and intangible assets and liabilities acquired based on their relative fair values, which are estimated using significant unobservable inputs. The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Intangible assets, which represent the value of existing tenant relationships, are recorded at their fair values based on the avoided cost to replace the current leases. The Company measures the value of tenant relationships based on the rent lost due to the amount of time required to replace existing customers, which is based on the Company’s historical experience with turnover in its stores. ~~Debt~~Any debt assumed as part of an acquisition is recorded at fair value based on current interest rates compared to contractual rates. Acquisition-related transaction costs are capitalized as part of the purchase price.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, receivables, other financial instruments included in other assets, accounts payable and accrued expenses, variable-rate notes payable, lines of credit and other liabilities reflected in the condensed consolidated balance sheets at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 approximate fair value. Restricted cash is comprised of letters of credit and escrowed funds deposited with financial institutions located throughout the United States relating to earnest money deposits on potential acquisitions, real estate taxes, insurance and capital expenditures.

The fair values of the Company’s notes receivable from Preferred Operating Partnership unit holders and other fixed rate notes receivable, which are recorded in other assets, net were based on the discounted estimated future cash flows of the notes (categorized within Level 3 of the fair value hierarchy); the discount rate used approximated the current market rate for loans with similar maturities and credit quality. The fair values of the Company’s fixed-rate notes payable and notes payable to trusts were estimated using the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximated current market rates for loans, or groups of loans, with similar maturities and credit quality. The fair value of the Company’s exchangeable senior notes was estimated using an average market price for similar securities obtained from a third party.

The fair values of the Company’s fixed-rate assets and liabilities were as follows for the periods indicated:


	September 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Notes receivable from Preferred Operating Partnership unit holders	$	112,826	$	119,735	$	113,683	$	120,230
Fixed rate notes receivable	$	—	$	—	$	20,942	$	20,608
Notes receivable from Preferred and Common Operating Partnership unit holders									$	116,957	$	119,735	$	115,467	$	119,735
Fixed rate notes payable and notes payable to trusts	$	3,469,014	$	3,573,996	$	2,774,242	$	2,815,085	$	3,057,072	$	3,051,171	$	2,985,731	$	3,022,414
Exchangeable senior notes	$	617,125	$	575,000	$	719,056	$	624,259	$	660,894	$	575,000	$	620,149	$	575,000

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~


4.	EARNINGS PER COMMON SHARE

Basic earnings per common share is computed using the two-class method by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. All outstanding unvested restricted stock awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common stockholders; accordingly, they are considered participating securities that are included in the two-class method. Diluted earnings per common share measures the performance of the Company over the reporting period while giving effect to all potential common shares that were dilutive and outstanding during the period. The denominator includes the weighted average number of basic shares and the number of additional common shares that would have been outstanding if the potential common shares that were dilutive had been issued, and is calculated using either the two-class, treasury stock or as if-converted method, whichever is most dilutive. Potential common shares are securities (such as options, convertible debt, Series A Participating Redeemable Preferred Units (“Series A Units”), Series B Redeemable Preferred Units (“Series B Units”), Series C Convertible Redeemable Preferred Units (“Series C Units”), Series D Redeemable Preferred Units (“Series D Units” and, together with

the Series A Units, Series B Units and Series C Units, the “Preferred OP Units”) and common Operating Partnership units (“OP Units”)) that do not have a current right to participate in earnings of the Company but could do so in the future by virtue of their option, redemption or conversion right.

In computing the dilutive effect of convertible securities, net income is adjusted to add back any changes in earnings in the period associated with the convertible security. The numerator also is adjusted for the effects of any other non-discretionary changes in income or loss that would result from the assumed conversion of those potential common shares. In computing diluted earnings per common share, only potential common shares that are dilutive (i.e. those that reduce earnings per common share) are included. For the three months ended ~~September 30, 2018~~March 31, 2019, there were no anti-dilutive options. For the three months ended ~~September 30, 2017,~~March 31, 2018, options to purchase an aggregate of approximately ~~45,438~~40,956 shares of common stock ~~and for the nine months ended September 30, 2018 and 2017, options to purchase an aggregate of approximately 36,404 and 97,697 shares of common stock, respectively,~~ were excluded from the computation of earnings per share as their effect would have been anti-dilutive.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

For the purposes of computing the diluted impact of the potential exchange of the Preferred Operating Partnership units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the intent and ability to settle the redemption in shares, the Company divided the total value of the Preferred Operating Partnership units by the average share price for the period presented. The average share price for the three months ended ~~September 30,~~March 31, 2019 and 2018 was $96.05 and ~~2017 was $92.83 and $77.84, respectively, and for the nine months ended September 30, 2018 and 2017, the average share price was $90.09 and $76.67,~~$84.11, respectively.

The following table presents the number of Preferred Operating Partnership units, and the potential common shares, that were excluded from the computation of earnings per share as their effect would have been anti-dilutive.


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,		For the Three Months Ended March 31,
	2018	2017	2018	2017	2019	2018
	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)	Equivalent Shares (if converted)
Series B Units	451,386	538,312	465,115	546,526	436,254	498,183
Series C Units	319,283	380,769	328,994	386,580	129,763	352,385
Series D Units	—	1,126,831	1,021,901	1,091,319	1,083,265	1,094,555
	770,669	2,045,912	1,816,010	2,024,425	1,649,282	1,945,123

The Operating Partnership had no amounts issued and outstanding of its 2.375% Exchangeable Senior Notes due 2033 (the “2013 Notes”) ~~issued and outstanding~~ as of ~~September 30, 2018,~~March 31, 2019, as the remaining principal balance had been redeemed in July 2018. Prior to their redemption, the 2013 Notes could potentially have had a dilutive impact on the Company’s earnings per share calculations. The 2013 Notes were exchangeable by holders into shares of the Company’s common stock under certain circumstances per the terms of the indenture governing the 2013 Notes. The ~~exchange price of the 2013 Notes could change over time as described in the indenture. The~~ Company had irrevocably agreed to pay only cash for the accreted principal amount of the 2013 Notes relative to its exchange obligations, but retained the right to satisfy the exchange obligation in excess of the accreted principal amount in cash and/or common stock.

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

The Operating Partnership had $575,000 of its 3.125% Exchangeable Senior Notes due 2035 (the “2015 Notes”) issued and outstanding as of ~~September 30, 2018.~~March 31, 2019. The 2015 Notes could potentially have a dilutive impact on the Company’s earnings per share calculations. The 2015 Notes are exchangeable by holders into shares of the Company’s common stock under certain circumstances per the terms of the indenture governing the 2015 Notes. The exchange price of the 2015 Notes was ~~$93.06~~$92.55 per share as of ~~September 30, 2018,~~March 31, 2019, and could change over time as described in the indenture. The Company has irrevocably agreed to pay only cash for the accreted principal amount of the 2015 Notes relative to its exchange obligations, but retained the right to satisfy the exchange obligation in excess of the accreted principal amount in cash and/or common stock.

Although the Company has retained the right to satisfy the exchange obligation in excess of the accreted principal amount of the 2013 Notes and 2015 Notes in cash and/or common stock, Accounting Standards Codification (“ASC”) 260, “Earnings per Share,” requires an assumption that shares would be used to pay the exchange obligation in excess of the accreted principal amount, and requires that those shares be included in the Company’s calculation of weighted average common shares outstanding for the diluted earnings per share computation. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ zero and ~~413,498~~81,382 shares, respectively, related to the 2013 Notes were included in the computation for diluted earnings per share. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, 226,527 and ~~2017, no~~zero shares, respectively, related to the 2015 Notes were included in the computation for diluted earnings per ~~share as the~~share. The exchange price exceeded the average per share price of the Company’s common stock during ~~these periods.~~the three months ended March 31, 2018.

For the purposes of computing the diluted impact on earnings per share of the potential exchange of Series A Units for common shares upon redemption, where the Company has the option to redeem in cash or shares and where the Company has stated the positive intent and ability to settle at least $101,700 of the instrument in cash (or net settle a portion of the Series A Units against the related outstanding note receivable), only the amount of the instrument in excess of $101,700 is considered in the calculation of shares contingently issuable for the purposes of computing diluted earnings per share as allowed by ASC 260-10-45-46. Accordingly, the number of shares included in the computation for diluted earnings per share related to the Series A Units is equal to the number of Series A Units outstanding, with no additional shares included related to the fixed $101,700 amount.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

The computation of earnings per common share ~~was~~is as follows for the periods presented:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Net income attributable to common stockholders	$	130,418		$	93,764		$	313,827		$	263,052		$	94,770		$	88,256
Earnings and dividends allocated to participating securities	(219		)	(191		)	(550		)	(595		)	(167		)	(178		)
Earnings for basic computations	130,199			93,573			313,277			262,457			94,603			88,078
Earnings and dividends allocated to participating securities	—			191			550			595			—			178
Income allocated to noncontrolling interest - Preferred Operating Partnership Units and Operating Partnership Units	7,336			5,163			17,191			15,448			5,429			4,941
Fixed component of income allocated to noncontrolling interest - Preferred Operating Partnership (Series A Units)	(572		)	(572		)	(1,716		)	(2,547		)	(572		)	(572		)
Net income for diluted computations	$	136,963		$	98,355		$	329,302		$	275,953		$	99,460		$	92,625

Weighted average common shares outstanding:
Average number of common shares outstanding - basic	126,466,837			125,717,517			125,959,926			125,665,787			127,037,247			125,772,439
OP Units	5,636,845			5,590,231			5,650,599			5,586,908			5,960,981			5,663,370
Series A Units	875,480			875,480			875,480			875,480			875,480			875,480
Series D Units	991,738			—			—			—
Unvested restricted stock awards included for treasury stock method	—			280,484			250,630			288,831
Shares related to exchangeable senior notes and dilutive stock options	269,390			580,761			279,055			591,616			416,008			371,271
Average number of common shares outstanding - diluted	134,240,290			133,044,473			133,015,690			133,008,622			134,289,716			132,682,560
Earnings per common share
Basic	$	1.03		$	0.74		$	2.49		$	2.09		$	0.74		$	0.70
Diluted	$	1.02		$	0.74		$	2.48		$	2.07		$	0.74		$	0.70

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

5. STORE ACQUISITIONS AND DISPOSITIONS

The following table shows the Company’s acquisitions of stores for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018. The table excludes purchases of raw land orand improvements made to existing assets. All acquisitions are considered asset acquisitions under ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business."

Consideration Paid Total
Quarter Number of Stores Total Cash Paid Loan Assumed Non- controlling interests Investments in Real Estate Ventures Net Liabilities/ (Assets) Assumed Value of OP Units Issued Number of OP Units Issued Real estate assets
Q3 2018 6 $ 74,694
$ 71,989
$ —
$ —
$ —
$ 2,705
$ —
—
$ 74,694
Q2 2018⁽¹⁾
17 237,284
148,650
87,500
—
(1,024 ) 281
1,877
21,768
237,284
Q1 2018⁽¹⁾
5 70,787
70,171
—
—
489
127
—
—
70,787
28 $ 382,765
$ 290,810
$ 87,500
$ —
$ (535 ) $ 3,113
$ 1,877
21,768
$ 382,765

Q3 2017 4 $ 31,966
$ 29,919
$ —
$ —
$ —
$ 47
$ 2,000
25,520
$ 31,966
Q2 2017 3 34,641
16,608
9,463
1,827
—
(67 ) 6,810
272,400
34,641
Q1 2017 2 25,556
25,541
—
—
—
15
—
—
25,556
9 $ 92,163
$ 72,068
$ 9,463
$ 1,827
$ —
$ (5 ) $ 8,810
297,920
$ 92,163



			Consideration Paid										Total
Quarter	Number of Stores		Total		Cash Paid		Loan Assumed		Investments in Real Estate Ventures		Net Liabilities/ (Assets) Assumed		Real estate assets
Q1 2019	14	⁽¹⁾	$	223,740	$	202,890	$	17,157	$	2,780	$	913	$	223,740

Q1 2018	5	⁽²⁾	$	70,787	$	70,171	$	—	$	489	$	127	$	70,787

⁽¹⁾ Store acquisitions during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 include the purchase of 1512 stores previously held in joint ventures where the Company held a noncontrolling interest. The Company purchased its partners' remaining equity interests in the joint ventures, and the properties owned by the joint ventures became wholly owned by the Company.

~~Store Dispositions~~

~~On August 16, 2018, the Company closed on the sale of a store located in California that had been classified as held for sale for $40,235 in cash. The Company recorded a gain on the sale of $30,671.~~

On September 13, 2017, the Company closed on the sale of a parcel of land located in New York that had been classified as held for sale for $19,000 in cash. This parcel of land had been written down to its fair value less selling costs during the six months ended June 30, 2017, and a loss of $3,500 was recorded. Therefore no additional No gain or loss was ~~recorded related to~~recognized as a result of this ~~sale at the time of closing.~~acquisition.

⁽²⁾ Store acquisitions during the three months ended March 31, 2018 include the acquisition of one store that had been owned by a joint venture in which the Company held a noncontrolling interest. No gain or loss was recognized as a result of this acquisition.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated


6.	INVESTMENTS IN UNCONSOLIDATED REAL ESTATE VENTURES

~~Net investments in unconsolidated real estate ventures and cash distributions in unconsolidated real estate ventures consist of the following:~~

Number of Stores Equity Ownership % Excess Profit % September 30, December 31,
2018 2017
WICNN JV LLC 7 10% 25% $ 27,036
$ —
VRS Self Storage, LLC 16 45% 54% 18,356
19,467
PRISA Self Storage LLC 85 4% 4% 9,345
9,638
Alan Jathoo JV LLC 7 10% 10% 6,205
—
Extra Space West Two LLC 5 5% 40% 3,823
3,939
ESS Bristol Investments LLC 7 10% 28% 2,356
1,258
WCOT Self Storage LLC — 5% 20% —
(357 )
Extra Space West One LLC 7 5% 40% (1,033 ) (900 )
Extra Space Northern Properties Six LLC 10 10% 35% (1,604 ) (1,279 )
Storage Portfolio II JV LLC 36 10% 30% (3,806 ) (3,140 )
Storage Portfolio I LLC 24 34% 49% (37,657 ) 11,495
Other minority owned stores 19 10-50% 19-50% 47,212
29,970
Net Investments in and Cash distributions in unconsolidated real estate ventures 223 $ 70,233
$ 70,091

Investments in unconsolidated real estate ventures represent the Company's noncontrolling interests in properties. The Company accounts for these investments using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which ~~it allocates~~is allocated in accordance with the provisions of the applicable partnership or joint venture ~~agreement, cash contributions and distributions.~~agreement.

In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that ~~cash/~~cash or profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess ~~cash/~~cash or profits than its equity interest.

The Company separately reports investments with net equity less than zero in cash distributions in unconsolidated real estate ventures in the condensed consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non‑cash charges for depreciation and amortization while distributions do not.

~~On May 18, 2018,~~During the three months ended March 31, 2019, the Company ~~entered into~~contributed a ~~new~~total of $40,843 to its joint ~~venture, WICNN JV LLC. On June 19, 2018, WICNN JV LLC purchased seven~~ventures for the purchase of one operating store and six stores ~~located~~acquired at the issuance of certificate of occupancy.

Net investments in ~~Connecticut, New Jersey~~unconsolidated real estate ventures and ~~Wisconsin,~~cash distributions in unconsolidated real estate ventures consist of the following:



	Number of Stores	Equity Ownership %	Excess Profit % ⁽¹⁾	March 31,					December 31,
	Number of Stores	Equity Ownership %	Excess Profit % ⁽¹⁾	2019					2018
PRISA Self Storage LLC	85	4%	4%	$	9,292				$	9,334
Storage Portfolio II JV LLC	36	10%	30%	(4,539		)			(4,233		)
Storage Portfolio I LLC	24	34%	49%	(38,186		)			(38,129		)
VRS Self Storage, LLC	16	45%	54%	18,002					18,281
Extra Space Northern Properties Six LLC	10	10%	35%	(1,793		)			(1,700		)
WICNN JV LLC	9	10%	25%	32,859					26,885
Alan Jathoo JV LLC	9	10%	10%	8,132					8,180
ESS Bristol Investments LLC	8	10%	28%	3,025					2,331
GFN JV, LLC	5	10%	25%	12,429					10,586
Extra Space West Two LLC	—	5%	40%	—			⁽²	⁾	3,818
Extra Space West One LLC	—	5%	40%	—			⁽²	⁾	(1,038		)
Other minority owned stores	22	10-50%	19-50%	77,238					45,814
Net Investments in and Cash distributions in unconsolidated real estate ventures	224			$	116,459				$	80,129

⁽¹⁾ Includes pro-rata equity ownership share and the Company made an initial contribution of $4,505 and received a 10.0% equity interest in the joint venture. The Company also made a preferred equity contribution of $22,734. The Company receives an annual return of 8.0% on its preferred equity, which has a distribution preference over common equity.promoted interest.

~~On April 26, 2018,~~⁽²⁾ In January 2019, the Company purchased its joint venture ~~partner's~~partners' 95% ~~interest~~interests in the ~~WCOT Self Storage~~Extra Space West One LLC and Extra Space West Two LLC joint ~~venture,~~ventures, which owned 14a total of 12 stores. The ~~partner's interest was purchased for $115,797~~Company paid $172,505 of cash to acquire the equity interests, and ~~the existing joint venture loan of $87,500. Subsequent~~subsequent to this acquisition, the Company owned 100% of the joint ~~venture~~ventures and the related ~~stores which are consolidated in the Company's financial statements.~~stores.

On February 2, 2018, the Company and Teachers REA II LLC ("TIAA") entered into the ~~"Third~~Third Amendment to Amended and Restated Limited Liability Company Agreement of Storage Portfolio I ~~LLC"~~LLC (the "Amendment"). The Amendment was deemed effective as of January 1, 2018. Under the Amendment, the Company's capital percentage in Storage Portfolio I LLC ("SP I") increased from 25.0% to 34.0%, and its excess profit participation percentage increased from 40.0% to 49.0%, among other changes. Additionally, SP I refinanced its mortgage loan and the Company received a financing distribution of $47,944, which was recorded as a reduction in the Company's investment in SP I. The Company continues to account for its investment in SP I under the equity method of accounting.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

~~which was recorded as a reduction in the Company's investment in SP I. The Company continues to account for its investment in SP I under the equity method of accounting.~~


7.	~~VARIABLE INTERESTS~~

7. VARIABLE INTERESTS

The Operating Partnership ~~has~~had three wholly-owned unconsolidated subsidiaries (“Trust,” “Trust II” and “Trust III,” together, the “Trusts”) that ~~have~~had issued trust preferred securities to third parties and common securities to the Operating Partnership. The proceeds from the sale of the preferred and common securities were loaned in the form of notes to the Operating Partnership. The Trusts ~~are~~were variable interest entities ("VIEs") because the holders of the equity investment at risk (the trust preferred securities) dodid not have the power to direct the activities of the entities that most significantly affect the entities’ economic performance because of their lack of voting or similar rights. Because the Operating Partnership’s investment in the Trusts’ common securities was financed directly by the Trusts as a result of its loan of the proceeds to the Operating Partnership, that investment iswas not considered an equity investment at risk. The Operating Partnership’s investment in the Trusts iswas not a variable interest because equity interests are variable interests only to the extent that the investment is considered to be at risk, and therefore the Operating Partnership cannot be the primary beneficiary of the Trusts. Since the Company iswas not the primary beneficiary of the Trusts, they ~~have~~were not ~~been~~ consolidated. A debt obligation ~~has been~~was recorded in the form of notes for the proceeds as discussed above, which ~~are~~were owed to the Trusts. The Company ~~has~~had also included its investment in the Trusts’ common securities in other assets on the condensed consolidated balance sheets.

During the year ended December 31, 2018, the Company repaid a total principal amount of $88,662, representing all of the notes payable to Trust III, all of the notes payable to Trust II, and all but $30,928 of the notes payable to Trust. The Trusts used the proceeds from these repayments to redeem their preferred and common securities. During the three months ended March 31, 2019, the Company ~~has~~repaid the remaining balance of $30,928 of notes payable to Trust.

During the time they were outstanding, the Company did not ~~provided~~provide financing or other support during the periods presented to the Trusts that it was not previously contractually obligated to provide. The Company’s maximum exposure to loss as a result of its involvement with the Trusts iswas equal to the total amount of the notes discussed above less the amounts of the Company’s investments in the Trusts’ common securities. The net amount iswas equal to the notes payable that the Trusts ~~owe~~owed to third parties for their investments in the Trusts’ preferred securities.

Following is a tabular comparison of the assets and liabilities the Company has recorded as a result of its involvement with the Trusts to the maximum exposure to loss the Company is subject to as a result of such involvement as of September 30, 2018:

Notes payable to Trusts Investment Balance Maximum exposure to loss Difference
Trust $ 36,083
$ 1,083
$ 35,000
$ —
Trust II 20,619
619
20,000
—
Trust III 41,238
1,238
40,000
—
97,940
$ 2,940
$ 95,000
$ —
Unamortized debt issuance costs (2,053 )

$ 95,887

~~On September 28, 2018, the Operating Partnership repaid $21,650 of principal amount of notes payable to Trust II.~~

The Company had no consolidated VIEs during the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019.


8.	DERIVATIVES

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and by using derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposure that arises from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“OCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. A portion of these changes is excluded from accumulated other comprehensive income as it is allocated to noncontrolling interests. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ such derivatives were

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

used to hedge the variable cash flows associated with existing variable-rate debt. In the coming 12 months, the Company estimates that ~~$19,640~~$13,649 will be reclassified ~~as a decrease to~~and reduce interest expense.

The Company held 2928 derivative financial instruments which had a total combined notional amount of ~~$2,156,475~~$2,287,824 as of ~~September 30, 2018.~~March 31, 2019.

Fair Values of Derivative Instruments

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets:


	Asset / Liability Derivatives				Asset / Liability Derivatives
	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Derivatives designated as hedging instruments:	Fair Value				Fair Value
Other assets	$	75,293	$	38,365	$	25,908	$	42,324
Other liabilities	$	—	$	9	$	9,307	$	2,131

Effect of Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statements of operations for the periods presented. No tax effect has been presented as the derivative instruments are held by the Company:

Gain (loss) recognized in OCI For the Three Months Ended September 30, Location of amounts reclassified from OCI into income Gain (loss) reclassified from OCI For the Three Months Ended September 30,
Type 2018 2017 2018 2017
Swap Agreements $ 8,325
$ (787 ) Interest Expense $ 2,561
$ (1,572 )


	Gain (loss) recognized in OCI For the Nine Months Ended September 30,					Location of amounts reclassified from OCI into income	Gain (loss) reclassified from OCI For the Nine Months Ended September 30,					Gain (loss) recognized in OCI For the Three Months Ended March 31,					Location of amounts reclassified from OCI into income	Gain reclassified from OCI For the Three Months Ended March 31,
Type	2018		2017			Location of amounts reclassified from OCI into income	2018		2017			2019			2018		Location of amounts reclassified from OCI into income	2019		2018
Swap Agreements	$	41,610	$	(6,474	)	Interest expense	$	4,684	$	(7,497	)	$	(19,576	)	$	23,317	Interest expense	$	4,462	$	240

Credit-risk-related Contingent Features

The Company has agreements with some of its derivative counterparties that contain provisions pursuant to which the Company could be declared in default of its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender.

The Company also has an agreement with some of its derivative counterparties that incorporates the loan covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of March 31, 2019, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $9,889. As of March 31, 2019, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 31, 2019, it could have been required to cash settle its obligations under the agreements at their termination value of $9,889, including accrued interest.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

As of September 30, 2018, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was immaterial. As of September 30, 2018, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 30, 2018, it could have been required to cash settle its obligations under the agreements at their termination value.


9.	EXCHANGEABLE SENIOR NOTES

In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in exchangeable senior notes, net, in the condensed consolidated balance sheets. The 2015 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on April 1 and October 1 of each year beginning April 1, 2016, until the maturity date of October 1, 2035. The 2015 Notes bear interest at 3.125% per annum and contain an exchange settlement feature, which provides that the 2015 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2015 Notes as of ~~September 30, 2018~~March 31, 2019 was approximately ~~10.75~~10.81 shares of the Company’s common stock per $1,000 principal amount of the 2015 Notes.

The Operating Partnership may redeem the 2015 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after October 5, 2020, the Operating Partnership may redeem the 2015 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2015 Notes. The holders of the 2015 Notes have the right to require the Operating Partnership to repurchase the 2015 Notes for cash, in whole or in part, on October 1 of the years 2020, 2025 and 2030 (unless the Operating Partnership has called the 2015 Notes for redemption), and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2015 Notes, which may result in the accelerated maturity of

the 2015 Notes.

Additionally, the 2015 Notes can be exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company is greater than or equal to 130% of the exchange price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter. The price of the Company’s common stock did not exceed 130% of the exchange price for the required time period for the 2015 Notes during the quarter ended ~~September 30, 2018.~~March 31, 2019.

On June 21, 2013, the Operating Partnership issued $250,000 of its 2.375% Exchangeable Senior Notes due 2033 at a 1.5% discount, or $3,750, and costs incurred to issue the 2013 Notes were approximately $1,672. These costs were amortized as an adjustment to interest expense over five years, which represented the estimated term based on the first available redemption date. The 2013 Notes bore interest at 2.375% per annum and contained an exchange settlement feature. ~~On or after July 5,~~During the three months ended March 31, 2018, the ~~Operating Partnership could redeem~~Company repurchased a total principal amount of $37,704 of the 2013 ~~Notes~~Notes. The Company paid cash of $58,464 for ~~cash, in whole or in part, at 100%~~the total of the principal amount ~~plus accrued~~ and ~~unpaid interest, upon at least 30 days but not more than 60 days prior written notice to~~ the ~~holders~~exchange value in excess of the ~~2013 Notes.~~principal amount. The Operating Partnership redeemed all remaining outstanding 2013 Notes on July 5, 2018.

GAAP requires entities with convertible debt instruments that may be settled entirely or partially in cash upon conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The Company therefore accounts for the liability and equity components of the 2013 Notes and 2015 Notes separately. The equity components are included in paid-in capital in stockholders’ equity in the condensed consolidated balance sheets, and the value of the equity components are treated as original issue discount for purposes of accounting for the debt components. The discounts are amortized as interest expense over the remaining period of the debt through its first redemption date: July 1, 2018 for the 2013 Notes, and October 1, 2020 for the 2015 Notes. The effective interest rate on the liability components of ~~both~~ the 2013 Notes and the 2015 Notes is 4.0%, which approximated the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Information about the Company’s ~~2013 Notes and~~ 2015 Notes, including the total carrying ~~amounts~~amount of the equity ~~components,~~component, the principal ~~amounts~~amount of the liability ~~components,~~component, the unamortized ~~discounts~~discount and the net carrying ~~amounts~~amount was as follows for the periods indicated:

September 30, 2018 December 31, 2017
Carrying amount of equity component - 2013 Notes $ —
$ —
Carrying amount of equity component - 2015 Notes 22,597
22,597
Carrying amount of equity components $ 22,597
$ 22,597
Principal amount of liability component - 2013 Notes $ —
$ 49,259
Principal amount of liability component - 2015 Notes 575,000
575,000
Unamortized discount - equity component - 2013 Notes —
(315 )
Unamortized discount - equity component - 2015 Notes (9,579 ) (12,974 )
Unamortized cash discount - 2013 Notes —
(74 )
Unamortized debt issuance costs (4,808 ) (6,620 )
Net carrying amount of liability components $ 560,613
$ 604,276



	March 31, 2019			December 31, 2018
Carrying amount of equity component	$	22,597		$	22,597
Principal amount of liability component	$	575,000		$	575,000
Unamortized discount - equity component	(7,255		)	(8,417		)
Unamortized debt issuance costs	(3,609		)	(4,209		)
Net carrying amount of liability components	$	564,136		$	562,374

The amount of interest cost recognized relating to the contractual interest ~~rates~~rate and the amortization of the ~~discounts~~discount on the liability ~~components~~component of the 2015 Notes were as follows for the periods indicated:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2018 2017 2018 2017
Contractual interest $ 4,492
$ 4,785
$ 13,614
$ 14,519
Amortization of discount 1,140
1,268
3,525
3,827
Total interest expense recognized $ 5,632
$ 6,053
$ 17,139
$ 18,346

~~Repurchases of 2013 Notes~~

During the nine months ended September 30, 2018, the Company repurchased a total principal amount of $49,259 of the 2013 Notes, which represented all of the remaining principal amount outstanding. The Company paid cash of $80,270 for the total of the principal amount and the exchange value in excess of the principal amount.

During the nine months ended September 30, 2017, the Company repurchased a total principal amount of $13,786 of the 2013 Notes. The Company paid cash of $19,853 for the total principal amount and the exchange value in excess of the principal amount.

The Company allocated the value of the consideration paid to repurchase the 2013 Notes (1) to the extinguishment of the liability component and (2) to the reacquisition of the equity component. The amount allocated to the extinguishment of the liability component is equal to the fair value of that component immediately prior to extinguishment. The difference between the consideration attributed to the extinguishment of the liability component and the sum of (a) the net carrying amount of the repurchased liability component, and (b) the related unamortized debt issuance costs, is recognized as a gain on debt extinguishment. The remaining settlement consideration is allocated to the reacquisition of the equity component of the repurchased 2013 Notes and recognized as a reduction of stockholders’ equity.

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

~~Information about the repurchases is as follows:~~

For the Nine Months Ended September 30,
2018 2017
Principal amount repurchased $ 49,259
$ 13,786
Amount allocated to:
Extinguishment of liability component $ 49,019
$ 13,568
Reacquisition of equity component 31,251
6,285
Total consideration paid for repurchase $ 80,270
$ 19,853
Exchangeable senior notes repurchased $ 49,259
$ 13,786
Extinguishment of liability component (49,019 ) (13,568 )
Discount on exchangeable senior notes (230 ) (183 )
Related debt issuance costs (10 ) (35 )
Gain/(loss) on repurchase $ —
$ —



	For the Three Months Ended March 31,
	2019		2018
Contractual interest	$	4,492	$	4,561
Amortization of discount	1,162		1,209
Total interest expense recognized	$	5,654	$	5,770


10.	STOCKHOLDERS’ EQUITY

On May 6, 2016, the Company filed its ~~current~~ $400,000 "at the market" equity program with the Securities and Exchange Commission using a shelf registration statement on Form S-3, and entered into separate equity distribution agreements with five sales agents. Under the terms of the current equity distribution agreements, the Company may from time to time offer and sell shares of common stock, up to the aggregate offering price of $400,000, through its sales agents.

During the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, the Company ~~sold 343,251~~did not issue any shares ~~of common stock under its "at the market" equity program at an average sales price of $99.75 per share, resulting in net proceeds of $33,780. As of September 30, 2018, the Company~~and had ~~$315,135~~$257,929 available for issuance under the ~~current~~ equity distribution agreements.


11.	NONCONTROLLING INTEREST REPRESENTED BY PREFERRED OPERATING PARTNERSHIP UNITS

Classification of Noncontrolling Interests

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

The Company has evaluated the terms of the Operating Partnership’s preferred units and classifies the noncontrolling interest represented by such preferred units as stockholders’ equity in the accompanying condensed consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the condensed consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount and (2) the redemption value as of the end of the period in which the determination is made.

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

~~As of September 30, 2018, the noncontrolling interests represented by Operating Partnership preferred units consisted of the following:~~



~~Series A Units~~	~~875,480~~
~~Series B Units~~	~~1,676,087~~
~~Series C Units~~	~~704,016~~
~~Series D Units~~	~~3,682,521~~

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the noncontrolling interests represented by the Preferred ~~Operating Partnership~~OP Units qualified for classification as permanent equity on the Company's condensed consolidated balance sheets. The partnership agreement of the Operating Partnership (as amended, the "Partnership Agreement") provides for the designation and issuance of the OP Units. Noncontrolling interests in Preferred OP Units were presented net of notes receivable from preferred OP unit holders of $108,644 as of March 31, 2019 and December 31, 2018, as more fully described below.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Series A Participating Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series A Units. The Series A Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series A Units were issued in June 2007. Series A Units in the amount of $101,700 bear a fixed priority return of 2.3% and originally had a fixed liquidation value of $115,000. The remaining balance participates in distributions with, and has a liquidation value equal to that of the OP Units. The Series A Units are redeemable at the option of the holder, which redemption obligation may be satisfied, at the Company’s option, in cash or shares of its common stock. As a result of the redemption of 114,500 Series A Units in October 2014, the remaining fixed liquidation value was reduced to ~~$101,700.~~$101,700, which represents 875,480 Series A Units. On April 18, 2017, the holder of the Series A Units and the Operating Partnership agreed to reduce the fixed priority return on the Series A Units from 5.0% to 2.3% in exchange for a reduction in the interest rate of the related loan, as more fully described below.

On June 25, 2007, the Operating Partnership loaned the holder of the Series A Units $100,000. On April 18, 2017, a loan amendment was signed modifying the maturity date of the loan to the later of the death of the Series A Unit holder or his spouse and also lowering the interest rate of the loan from 4.9% to 2.1%. The loan amendment was determined to be a loan modification under GAAP, and therefore no change in value was recognized. The loan is secured by the borrower’s Series A Units. No future redemption of Series A Units can be made unless the loan secured by the Series A Units is also repaid. The Series A Units are shown on the balance sheet net of the $100,000 loan because the borrower under the loan receivable is also the holder of the Series A Units.

Series B Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series B Units. The Series B Units rank junior to the Series A Units, on parity with the Series C Units and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series B Units were issued in 2013 and 2014 and have a liquidation value of $25.00 per unit for a fixed liquidation value of ~~$41,902.~~$41,902, which represents 1,676,087 Series B Units. Holders of the Series B Units receive distributions at an annual rate of 6.0%. These distributions are cumulative. The Series B Units became redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock.

Series C Convertible Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series C Units. The Series C Units rank junior to the Series A Units, on parity with the Series B Units and Series D Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series C Units were issued in 2013 and 2014 and have a liquidation value of $42.10 per unit for a fixed liquidation value of ~~$29,639.~~$12,462, which represents 296,020 Series C Units. From issuance to the fifth anniversary of issuance, each Series C Unit holder will receive quarterly distributions equal to the quarterly distribution per OP Unit plus $0.18. Beginning on the fifth anniversary of issuance, each Series C Unit holder will receive a fixed quarterly distribution equal to the aggregate quarterly distribution payable in respect of such Series C Unit

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~

during the four quarters immediately preceding the fifth anniversary of issuance, divided by four. These distributions are cumulative. The Series C Units became redeemable at the option of the holder one year from the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. The Series C Units are convertible into OP Units at the option of the holder at a rate of 0.9145 OP Units per Series C Unit converted. This conversion option expires upon the fifth anniversary of the date of issuance.

In December 2014, the Operating Partnership loaned certain holders of the Series C Units $20,230. The ~~notes~~loan receivable, which ~~are~~was collateralized by the Series C Units, ~~bear~~bears interest at 5.0% per annum and ~~mature~~matures on December 15, 2024. The Series C Units are shown on the balance sheet net of the loan balance ~~of $19,735 as of September 30, 2018 and $20,230 as of December 31, 2017,~~ because the borrower under the loan receivable is also the holder of the Series C Units.

On December 1, 2018, certain holders of the Series C Units converted their Series C Units into OP Units, with a total of 407,996 Series C Units being converted into a total of 373,113 OP Units. As part of this conversion, the holders of the Series C

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Units agreed to pledge the OP Units received in the conversion as collateral on the loan receivable to replace the Series C Units that were converted. As of March 31, 2019 and December 31, 2018, the total outstanding balance of the loan receivable was $19,735, of which $8,644 is shown as a reduction of the noncontrolling interests related to the Series C Units and $11,091 is shown as a reduction of the noncontrolling interests related to the OP Units on the Company's consolidated balance sheets. On April 25, 2019, subsequent to quarter-end, the remaining 296,020 Series C Units were converted into 270,710 OP Units.

Series D Redeemable Preferred Units

The Partnership Agreement provides for the designation and issuance of the Series D Units. The Series D Units rank junior to the Series A Units, on parity with the Series B Units and Series C Units, and senior to all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

The Series D Units have been issued at various times from 2014 to 2017. In addition, during the three months ended March 31, 2019, the Operating Partnership issued 937,924 Series D Units valued at $23,447 in conjunction with joint venture acquisitions.

The Series D Units have a liquidation value of $25.00 per unit, for a fixed liquidation value of ~~$92,063.~~$115,511, which represents 4,620,445 Series D Units. Holders of the Series D Units receive distributions at an annual rate between 3.0% and 5.0%. These distributions are cumulative. The Series D Units become redeemable at the option of the holder on the first anniversary of the date of issuance, which redemption obligation may be satisfied at the Company’s option in cash or shares of its common stock. In addition, certain of the Series D Units are exchangeable for ~~common~~ OP Units at the option of the holder until the tenth anniversary of the date of issuance, with the number of OP Units to be issued equal to $25.00 per Series D Unit, divided by the value of a share of common stock as of the exchange date.


12.	NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP AND OTHER NONCONTROLLING INTERESTS

Noncontrolling Interest in Operating Partnership

The Company’s interest in its stores is held through the Operating Partnership. Between its general partner and limited partner interests, the Company held a ~~91.0%~~90.5% ownership interest in the Operating Partnership as of ~~September 30, 2018.~~March 31, 2019. The remaining ownership interests in the Operating Partnership (including Preferred ~~Operating Partnership units)~~OP Units) of ~~9.0%~~9.5% are held by certain former owners of assets acquired by the Operating Partnership.

The noncontrolling interest in the Operating Partnership represents OP Units that are not owned by the Company. OP Units are redeemable at the option of the holder, which redemption may be satisfied at the Company's option in cash, based upon the fair market value of an equivalent number of shares of the Company’s common stock (based on the ten-day average trading price) at the time of the redemption, or shares of the Company's common stock on a one-for-one basis, subject to anti-dilution adjustments provided in the Partnership Agreement. As of ~~September 30, 2018,~~March 31, 2019, the ten-day average closing price of the Company's common stock was ~~$87.17~~$100.76 and there were ~~5,631,138~~5,908,750 OP Units outstanding. Assuming that all of the OP Unit holders exercised their right to redeem all of their OP Units on ~~September 30, 2018~~March 31, 2019 and the Company elected to pay the OP Unit holders cash, the Company would have paid ~~$490,866~~$595,366 in cash consideration to redeem the units.

OP Unit activity is summarized as follows for the periods presented:


	For the Nine Months Ended September 30,				For the Three Months Ended March 31,
	2018		2017		2019		2018
OP Units redeemed for common stock	25,000		—		85,501		—
OP Units redeemed for cash	30,000		33,896		—		30,000
Cash paid for OP Units redeemed	$	2,558	$	2,510	$	—	$	2,558
OP Units issued in conjunction with acquisitions	21,768		25,520
Value of OP Units issued in conjunction with acquisitions	$	1,877	$	2,000

GAAP requires a company to present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section, but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations, and requires changes in ownership interest to be accounted for similarly as equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

~~equity transactions. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.~~

The Company has evaluated the terms of the OP Units and classifies the noncontrolling interest represented by the OP Units as stockholders’ equity in the accompanying condensed consolidated balance sheets. The Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling amount as permanent equity in the condensed consolidated balance sheets. Any noncontrolling interests that fail to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount and (2) the redemption value as of the end of the period in which the determination is made.


~~13.~~	~~OTHER NONCONTROLLING INTERESTS~~

Other Noncontrolling Interests

Other noncontrolling interests represent the ownership interests of third parties in two consolidated joint ventures as of ~~September 30, 2018.~~March 31, 2019. One joint venture owns two operating stores in Texas, ~~and~~ an operating store and a development store in Colorado, and the other joint venture owns one operating ~~property~~store in Pennsylvania and one development property in New Jersey. The voting interests of the third-party owners are between 5.0% and 20.0%.


~~14.~~13.	~~REVENUE RECOGNITION~~LEASES

~~Rental revenues~~The Company adopted ASC 842, "Leases," effective January 1, 2019 on a modified retrospective basis as allowed under the standard and prior periods have not been restated. The Company elected the package of transition practical expedients, and has therefore (1) not reassessed whether any expired or existing contracts are or contain leases, (2) not reassessed the lease classification for any expired or existing leases, and (3) not reassessed initial direct costs for any expired or existing leases.

Lessee Accounting

The Company recognized lease liabilities of $104,863 and right-of-use assets related to operating leases totaling $95,506 as ~~earned based upon amounts that~~of the adoption date. These are ~~currently due from tenants.~~ presented as “Operating lease liabilities” and “Real estate assets-operating lease right-of-use assets” on the Company’s consolidated balance sheets.

The Company is lessee under several types of lease agreements. Generally, these leases fall into the following categories:

Leases of real estate at 22 stores classified as wholly-owned. These leases generally have original lease terms between 10-67 years. Under these leases, the Company typically has the option to extend the lease term for additional terms of 5-35 years.

Leases of its corporate offices and call center. These leases have original lease terms between 5.3 and 12.1 years, with no extension options.

Leases of 12 regional offices. These leases have original lease terms between three and five years. The Company has the option on five of these leases to extend the lease term for three additional years.

Leases of small district offices. These leases generally have terms of 12 months or less. The Company has made an accounting election to account for these under the short-term lease exception outlined under ASC 842. Therefore, no lease assets or liabilities are ~~generally on month-to-month terms. Prepaid rents are recognized~~recorded related to these leases, and the Company will recognize lease payments as expense on a straight-line basis over the term of the leases. Promotional discounts are recognized as a reduction to rental income over the promotional period. Late charges, administrative fees, merchandise sales and truck rentals are recognized as income when earned. Tenant reinsurance premiums are recognized as revenue when received.

~~The Company's management fees are earned subject to the terms of the~~ related management services agreements ("MSAs"). These MSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking and maintenance services. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties and unconsolidated joint ventures. MSAs generally have original terms from three to five years, after which management services are provided on a month-to-month basis unless terminated. Management fees are due on the last day of each calendar month that management services are provided.lease terms.

The Company ~~accounts~~has included lease extension options in the lease term for calculations of its right-of-use assets and liabilities related to the ~~management services provided~~real estate asset leases at its stores when it is reasonably certain that the Company plans to extend these leases when the options arise.

Several of the leases of real estate at the Company’s stores include escalation clauses based on an index or rate, such as the Consumer Price Index (CPI). The Company included these lease payments in its calculations of right-of-use assets and liabilities based on the prevailing index or rate as of the adoption date. The Company will recognize changes to these variable lease payments in earnings in the period of the change.

One of the real estate leases includes variable lease payments that are based upon a percentage of gross revenues. Certain other leases include additional variable payments relating to a ~~customer as~~percentage of sales in excess of a ~~single performance obligation which~~specified amount, common area maintenance, property taxes, etc. These payments are ~~rendered over time each month. The total amount of consideration~~variable lease payments that do not depend on an index or rate and are excluded from the ~~contract is~~measurement of the lease liabilities and right-of-use-assets for these leases. The Company will recognize costs from these variable as it is based on monthly revenues each month. The variable amount of management fees earned is dependent on the revenue and cash collected at the managed stores. Revenue is influenced by multiple factors, including tenant behavior, economic conditionslease payments in the ~~markets~~period in which the ~~stores are located, the effect of competition, and other factors outside of the Company's control. Since the management fee~~obligation for those payments is ~~dependent on revenue levels, the MSAs have a large number and broad range of possible consideration amounts that are difficult to estimate.~~incurred.

The total consideration for each contract cannot be estimated as it is dependent on factors outside of the Company's control. The uncertainty about the amount of consideration to be received under each MSA cannot be resolved until the actual revenues and cash collected by the related managed stores is known. The total consideration for each MSA is not known until the end of that MSA's term. One month of uncertainty regarding the consideration amount is resolved as each month passes and the actual revenues for that month can be determined. Therefore, at the end of each month, the Company allocates the actual management fee earned to the distinct services provided during that month and recognizes it as revenue as the uncertainty regarding the amount of revenues for that month has been resolved.

~~Due to the standardized terms of the MSAs, the Company accounts for all MSAs in a similar, consistent manner. Therefore, no disaggregated information relating to MSAs is presented.~~

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

~~15.~~The Company has signed a lease agreement for a store in New Jersey. The store is currently under construction by the lessor, and the Company will take possession of the leased asset upon completion of construction, which is estimated to be completed before the end of 2019. The lease term is 75 years from the lease commencement date, with three 10-year extension options. The Company has also signed a lease agreement for a store in California. The store is under construction by the lessor, and the Company will take possession of the leased asset upon completion of construction, which is estimated to be completed in mid-2020. The lease term is 15 years from the lease commencement date, with three 10-year extension options and one 5-year extension option. The Company has not recorded right-of-use assets or lease liabilities related to these leases as of March 31, 2019 as the lease term has not yet commenced for either lease. The lease commencement date will occur when the Company takes possession of the leased asset, and the Company will recognize a lease liability and right-of-use asset relating to the leases at that time.

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the present value of lease payments. These discount rates vary depending on the term of the specific leases.

Following is information on our total lease costs as of the period(s) indicated:



	March 31, 2019
Lease cost
Finance lease cost:
Amortization of finance lease right-of-use assets	$	42
Interest expense related to finance lease liabilities	70
Operating lease cost	2,079
Variable lease cost	912
Short-term lease cost	55
Total lease cost	$	3,158


Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows for finance lease payments	$	57
Operating cash outflows for operating lease payments	3,267
Total cash paid for lease liability measurement	$	3,324

Right-of-use assets obtained in exchange for new operating lease liabilities	$	95,506
Right-of-use assets obtained in exchange for new finance lease liabilities	$	8,050
Weighted average remaining lease term - operating leases (years)	23.7
Weighted average remaining lease term - finance leases (years)	72.5
Weighted average discount rate - operating leases	4.05		%
Weighted average discount rate - finance leases	4.25		%

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

Following is information about the Company’s undiscounted cash flows on an annual basis for operating and finance leases, including a reconciliation of the undiscounted cash flows to the finance lease and operating lease liabilities recognized in the Company’s consolidated balance sheets:



	Operating			Finance			Total
Year 1	$	8,281		$	232		$	8,513
Year 2	8,353			232			8,585
Year 3	8,264			241			8,505
Year 4	7,898			255			8,153
Year 5	7,828			255			8,083
Thereafter	130,052			35,062			165,114
Total	$	170,676		$	36,277		$	206,953
Present value adjustments	(67,098		)	(31,484		)	(98,582		)
Lease liabilities	$	103,578		$	4,793		$	108,371

Lessor Accounting

The Company's property rental revenue is primarily related to rents received from tenants at its operating stores. The Company's leases with its self-storage tenants are generally on month-to-month terms, include automatic monthly renewals, allow flexibility to increase rental rates over time as market conditions permit, and provide for the collection of contingent fees such as late fees. These leases do not include any terms or conditions that allow the tenants to purchase the leased space. All self-storage leases for which the Company acts as lessor have been classified as operating leases. The real estate assets related to the Company's stores are included in Real estate assets, net on the Company's condensed consolidated balance sheets and are presented at historical cost less accumulated depreciation and impairment, if any. Rental income related to these operating leases is included in Property rental revenue on the Company's condensed consolidated statements of operations, and is recognized each month during the month-to-month terms at the rental rate in place during each month.

14. SEGMENT INFORMATION

The Company’s segment disclosures present the measure used by the chief operating decision makers ("CODMs") for purposes of assessing each segment’s performance. The Company’s CODMs are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company’s reportable operating segments. NOI for ~~our~~the Company's self-storage operations represents total property revenue less direct property operating expenses. NOI for ~~our~~the Company's tenant reinsurance segment represents tenant reinsurance revenues less tenant reinsurance expense.

The Company’s segments were historically comprised of three reportable segments: (1) rental operations; (2) tenant reinsurance; and (3) property management, acquisition and development. Based on how the CODMs review performance and make decisions, the Company ~~realigned its segments as of December 31, 2017 into~~has two reportable segments: (1) self-storage operations and (2) tenant reinsurance. The self-storage operations activities include rental operations of wholly-owned stores. The Company's consolidated revenues equal total segment revenues plus property management fees and other income. Tenant reinsurance activities include the reinsurance of risks relating to the loss of goods stored by tenants in the stores operated by the Company. Excluded from segment revenues and net operating income is property management fees and other income.

For all periods presented, substantially all of the Company's real estate assets, intangible assets, other assets, and accrued and other liabilities are associated with the self-storage operations segment. The prior periods have been restated to conform to the current presentation. Financial information for the Company’s business segments is set forth below:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Self-Storage Operations	$	266,728		$	248,589		$	772,742		$	720,878		$	271,003		$	247,886
Tenant Reinsurance	30,105			25,882			85,660			73,050			29,797			27,034
Total segment revenues	$	296,833		$	274,471		$	858,402		$	793,928		$	300,800		$	274,920

Operating expenses:
Self-Storage Operations	$	73,652		$	70,430		$	219,488		$	204,370		$	78,765		$	72,753
Tenant Reinsurance	7,720			6,272			18,798			13,996			6,967			5,607
Total segment operating expenses	$	81,372		$	76,702		$	238,286		$	218,366		$	85,732		$	78,360

Net operating income:
Self-Storage Operations	$	193,076		$	178,159		$	553,254		$	516,508		$	192,238		$	175,133
Tenant Reinsurance	22,385			19,610			66,862			59,054			22,830			21,427
Total segment net operating income:	$	215,461		$	197,769		$	620,116		$	575,562		$	215,068		$	196,560

Other components of net income (loss):
Property management fees and other income	10,120			9,685			30,849			29,239			$	10,746		$	10,565
General and administrative expense	(19,707		)	(19,498		)	(62,822		)	(60,171		)	(22,678		)	(21,464		)
Depreciation and amortization expense	(52,283		)	(48,075		)	(155,924		)	(144,139		)	(54,659		)	(51,749		)
Gain/(loss) on real estate transactions and impairment of real estate	30,807			—			30,807			(6,019		)
Interest expense	(45,926		)	(39,766		)	(130,239		)	(113,192		)	(47,360		)	(40,966		)
Non-cash interest expense related to the amortization of discount on equity component of exchangeable senior notes	(1,140		)	(1,268		)	(3,525		)	(3,827		)	(1,162		)	(1,209		)
Interest income	1,371			1,401			3,997			5,201			1,388			1,438
Equity in earnings of unconsolidated real estate ventures	3,622			3,990			10,648			11,407			2,630			3,597
Income tax expense	(2,638		)	(3,163		)	(6,077		)	(9,154		)	(1,813		)	(1,342		)
Net income	$	139,687		$	101,075		$	337,830		$	284,907		$	102,160		$	95,430

~~EXTRA SPACE STORAGE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ~~(unaudited) (continued)~~

~~Amounts in thousands, except store and share data, unless otherwise stated~~


~~16.~~15.	COMMITMENTS AND CONTINGENCIES

As of ~~September 30, 2018,~~March 31, 2019, the Company was involved in various legal proceedings and was subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period, notwithstanding the fact that the Company is currently vigorously defending any legal proceedings against it.

EXTRA SPACE STORAGE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Amounts in thousands, except store and share data, unless otherwise stated

As of ~~September 30, 2018,~~March 31, 2019, the Company was under agreement to acquire 13six stores at a total purchase price of ~~$161,356.~~$67,028. Of these stores, ~~seven are scheduled to close in 2018 at a purchase price of $91,433, five~~three are scheduled to close in 2019 at a purchase price of ~~$59,395,~~$31,600, and ~~one is~~three are scheduled to close ~~thereafter~~in 2020 at a purchase price of ~~$10,528.~~$35,428. Additionally, the Company is under agreement to acquire 18six stores with joint venture partners, for a total investment of ~~$62,490. Twelve~~$25,346. Five of these stores are scheduled to close in ~~2018~~2019 and the remaining ~~six stores are~~store is expected to close ~~thereafter.~~in 2020.

Although there can be no assurance, the Company is not aware of any material environmental liability, for which it believes it will be ultimately responsible, that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s stores, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to its stores could result in future material environmental liabilities.

~~17.~~16. SUBSEQUENT EVENTS

Subsequent to ~~September 30, 2018,~~March 31, 2019, the Company ~~purchased three stores~~sold one store located in ~~California and Georgia~~New York for a total purchase price of ~~$31,900. These acquisitions are included in the amounts shown in the commitments and contingencies footnote.~~$11,781. The Company recognized a gain of approximately $1,200 related to this sale.

On April 25, 2019, all of the Company's 296,020 Series C Units were converted into 270,710 OP Units.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Amounts in thousands, except store and share data

CAUTIONARY LANGUAGE

The following discussion and analysis should be read in conjunction with our unaudited “Condensed Consolidated Financial Statements” and the “Notes to Condensed Consolidated Financial Statements (unaudited)” appearing elsewhere in this report and the “Consolidated Financial Statements,” “Notes to Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Form 10-K for the year ended December 31, ~~2017.~~2018. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled “Statement on Forward-Looking Information.”

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report and the audited financial statements contained in our Form 10-K for the year ended December 31, ~~2017~~2018 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.

OVERVIEW

We are a fully integrated, self-administered and self-managed real estate investment trust (“REIT”), formed to own, operate, manage, acquire, develop and redevelop self-storage properties (“stores”). We derive substantially all of our revenues from our two segments: storage operations and tenant reinsurance. Primary sources of revenue for our storage operations segment include rents received from tenants under leases at each of our wholly-owned stores. Our operating results depend materially on our ability to lease available self-storage units, to actively manage unit rental rates, and on the ability of our tenants to make required rental payments. Consequently, management spends a significant portion of their time maximizing cash flows from our diverse portfolio of stores. Revenue from our 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~~our stores. ~~Our segment presentation has changed from the prior year, and all applicable information has been reclassified to conform to the current year's segment presentation.~~

Our stores are generally situated in highly visible locations clustered around large population centers. These areas enjoy above average population growth and income levels. The clustering of our assets around these population centers enables us to reduce our operating costs through economies of scale. To maximize the performance of our stores, we ~~use an internally developed~~employ industry-leading revenue management ~~system that enables~~systems. Developed internally, these systems enable us to analyze, set and adjust rental rates in real time across our portfolio in order to respond to changing market conditions. We believe our systems and processes allow us to more ~~proactively~~pro-actively manage revenues.

We operate in competitive markets, often where consumers have multiple stores from which to choose. Competition has impacted, and will continue to impact, our store results. We experience seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. We believe that we are able to respond quickly and effectively to changes in local, regional and national economic conditions by adjusting rental rates through

the combination of our revenue management team and our proprietary pricing systems. We consider a store to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. We consider a store to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1 of the current year, or has been open for three years prior to January 1 of the current year.

PROPERTIES

As of ~~September 30, 2018,~~March 31, 2019, we owned or had ownership interests in ~~1,099~~1,119 operating stores. Of these stores, ~~872~~891 are wholly-owned, four are in consolidated joint ventures, and ~~223~~224 are in unconsolidated joint ventures. In addition, we managed an additional ~~507~~577 stores for third parties bringing the total number of stores which we own and/or manage to ~~1,606.~~1,696. These stores are located in 3940 states, Washington, D.C. and Puerto Rico. The majority of our stores are clustered around large population centers. The clustering of assets around these population centers enables us to reduce our operating costs through economies of scale. Our acquisitions have given us an increased scale in many core markets as well as a foothold in many markets where we had no previous presence.

As of ~~September 30, 2018,~~March 31, 2019, approximately ~~915,000~~930,000 tenants were leasing storage units at the operating stores that we own and/or manage, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit. Existing tenants generally receive rate increases at least annually, for which no direct correlation has been drawn to our vacancy trends. Although leases are short-term in duration, the typical tenant tends to remain at our stores for an extended period of time. For stores that were stabilized as of ~~September 30, 2018,~~March 31, 2019, the average length of stay was approximately ~~15.0~~15.2 months.

The average annual rent per square foot for our existing customers at stabilized stores, net of discounts and bad debt, was ~~$16.21~~$16.31 for the three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~$15.75~~$15.65 for the three months ended ~~September 30, 2017.~~March 31, 2018. Average annual rent per square foot for new leases was ~~$17.77~~$18.50 for the three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~$16.87~~$17.48 for the three months ended ~~September 30, 2017.~~March 31, 2018. The average ~~discount,~~discounts, as a percentage of rental revenues, at all stabilized properties during these periods ~~was 4.5%~~were 3.4% and ~~3.8%~~4.3%, respectively.

Our store portfolio is made up of different types of construction and building ~~configurations depending on the site and the municipality where it is located.~~configurations. Most often sites are what we consider “hybrid” stores, a mix of drive-up and multi-floor buildings. We have a number of multi-floor buildings with elevator access only, and a number of stores featuring ground-floor access only.

The following table presents additional information regarding net rentable square feet and the number of stores by state.


	September 30, 2018								March 31, 2019
	REIT Owned		Joint Venture Owned		Managed		Total		REIT Owned		Joint Venture Owned		Managed		Total
Location	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet	Property Count	Net Rentable Square Feet
Alabama	8	557,518	1	75,526	12	795,719	21	1,428,763	8	557,516	1	75,566	12	811,735	21	1,444,817
Arizona	23	1,622,847	7	466,936	9	670,316	39	2,760,099	23	1,622,735	7	467,320	12	948,118	42	3,038,173
California	144	11,343,815	53	3,752,994	60	5,660,581	257	20,757,390	158	12,195,525	41	3,025,712	64	5,879,157	263	21,100,394
Colorado	15	1,004,050	2	186,253	25	1,746,498	42	2,936,801	15	1,006,555	2	186,168	26	1,859,647	43	3,052,370
Connecticut	7	526,028	7	596,366	2	135,514	16	1,257,908	7	527,073	7	624,603	3	199,868	17	1,351,544
Delaware	—	—	1	76,765	1	69,269	2	146,034	—	—	1	76,945	1	68,701	2	145,646
Florida	86	6,599,179	20	1,557,318	68	4,921,766	174	13,078,263	86	6,599,932	22	1,715,499	81	6,125,434	189	14,440,865
Georgia	57	4,362,220	3	275,245	15	1,130,576	75	5,768,041	59	4,563,780	5	431,277	14	1,071,004	78	6,066,061
Hawaii	9	603,185	—	—	7	404,404	16	1,007,589	9	603,370	—	—	7	399,420	16	1,002,790
Idaho									—	—	—	—	4	420,636	4	420,636
Illinois	31	2,397,176	5	371,836	24	1,665,538	60	4,434,550	31	2,401,157	7	569,218	27	1,863,119	65	4,833,494
Indiana	15	948,611	1	56,926	10	649,526	26	1,655,063	15	949,675	1	57,286	12	768,938	28	1,775,899
Kansas	1	50,199	2	108,770	1	70,420	4	229,389	1	49,838	2	108,370	1	70,120	4	228,328
Kentucky	11	834,088	1	51,048	4	312,556	16	1,197,692	11	923,226	1	51,128	4	311,898	16	1,286,252
Louisiana	2	150,555	—	—	1	132,745	3	283,300	2	150,555	—	—	1	136,305	3	286,860
Maryland	32	2,561,257	7	530,418	22	1,575,660	61	4,667,335	32	2,586,980	8	618,498	24	1,725,335	64	4,930,813
Massachusetts	44	2,716,881	9	560,218	5	304,991	58	3,582,090	45	2,870,740	10	640,127	8	590,529	63	4,101,396
Michigan	7	561,999	4	314,069	1	102,291	12	978,359	7	558,759	4	313,245	1	102,247	12	974,251
Minnesota	3	154,203	—	—	5	303,989	8	458,192	4	301,405	—	—	9	610,773	13	912,178
Mississippi	3	215,912	—	—	4	255,730	7	471,642	3	215,912	—	—	4	254,990	7	470,902
Missouri	5	332,141	2	119,575	7	451,411	14	903,127	5	332,891	2	119,275	9	650,913	16	1,103,079
Nebraska	—	—	—	—	2	128,103	2	128,103	—	—	—	—	2	164,094	2	164,094
Nevada	14	1,042,087	4	472,751	6	772,832	24	2,287,670	14	1,034,772	4	472,891	6	773,862	24	2,281,525
New Hampshire	2	135,810	2	84,005	1	46,301	5	266,116	2	136,135	2	83,685	1	61,535	5	281,355
New Jersey	59	4,709,713	17	1,244,535	7	547,312	83	6,501,560	59	4,637,859	17	1,245,571	9	715,431	85	6,598,861
New Mexico	11	720,655	3	163,410	4	335,585	18	1,219,650	11	721,305	3	163,710	9	735,598	23	1,620,613
New York	23	1,732,868	11	857,293	14	737,484	48	3,327,645	23	1,706,869	13	1,118,845	15	846,553	51	3,672,267
North Carolina	18	1,319,001	3	214,795	17	1,326,600	38	2,860,396	18	1,319,420	5	367,375	19	1,505,249	42	3,192,044
Ohio	17	1,305,110	5	325,327	4	253,354	26	1,883,791	17	1,304,290	5	326,227	4	258,353	26	1,888,870
Oklahoma	—	—	—	—	18	1,497,876	18	1,497,876	—	—	—	—	19	1,574,532	19	1,574,532
Oregon	6	399,442	4	281,393	5	302,255	15	983,090	6	399,592	4	281,328	8	510,476	18	1,191,396
Pennsylvania	17	1,285,395	7	508,266	18	1,296,018	42	3,089,679	18	1,346,685	7	510,126	19	1,365,746	44	3,222,557
Rhode Island	2	130,846	—	—	1	84,665	3	215,511	2	130,846	—	—	1	84,665	3	215,511
South Carolina	23	1,752,120	6	415,793	16	1,205,343	45	3,373,256	23	1,755,709	7	497,303	15	1,146,492	45	3,399,504
Tennessee	17	1,421,136	12	802,125	12	910,827	41	3,134,088	17	1,419,101	12	803,011	12	903,941	41	3,126,053
Texas	99	8,539,134	10	705,556	61	4,909,889	170	14,154,579	99	8,523,539	10	706,130	68	5,527,913	177	14,757,582
Utah	10	707,771	—	—	10	713,894	20	1,421,665	10	709,653	—	—	15	992,310	25	1,701,963
Virginia	46	3,669,884	7	563,763	13	914,953	66	5,148,600	46	3,671,173	7	564,443	14	1,009,715	67	5,245,331
Washington	8	591,359	1	57,170	3	209,002	12	857,531	8	591,036	1	57,340	3	209,002	12	857,378
Washington, DC	1	99,664	1	104,382	1	73,237	3	277,283	1	99,664	1	104,070	2	139,173	4	342,907
Wisconsin	—	—	5	494,596	3	242,407	8	737,003	—	—	5	500,815	4	327,555	9	828,370
Puerto Rico	—	—	—	—	8	914,108	8	914,108	—	—	—	—	8	916,250	8	916,250
Totals	876	67,103,859	223	16,395,423	507	38,781,545	1,606	122,280,827	895	68,525,272	224	16,883,107	577	44,637,332	1,696	130,045,711

RESULTS OF OPERATIONS

Comparison of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

Overview

Results for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 included the operations of ~~1,099~~1,119 stores ~~(872~~(891 wholly-owned, four in consolidated joint ventures, and ~~223~~224 in joint ventures accounted for using the equity method) compared to the results for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018, which included the operations of ~~1,028~~1,067 stores ~~(844~~(851 wholly-owned, two in a consolidated joint ~~venture,~~ventures, and ~~182~~214 in joint ventures accounted for using the equity method).

Revenues

The following table presents information on revenues earned for the periods indicated:


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								For the Three Months Ended March 31,
	2018		2017		$ Change		% Change		2018		2017		$ Change		% Change		2019		2018		$ Change		% Change
Revenues:
Property rental	$	266,728	$	248,589	$	18,139	7.3	%	$	772,742	$	720,878	$	51,864	7.2	%	$	271,003	$	247,886	$	23,117	9.3	%
Tenant reinsurance	30,105		25,882		4,223		16.3	%	85,660		73,050		12,610		17.3	%	29,797		27,034		2,763		10.2	%
Management fees and other income	10,120		9,685		435		4.5	%	30,849		29,239		1,610		5.5	%	10,746		10,565		181		1.7	%
Total revenues	$	306,953	$	284,156	$	22,797	8.0	%	$	889,251	$	823,167	$	66,084	8.0	%	$	311,546	$	285,485	$	26,061	9.1	%

Property Rental—The increase in property rental revenues for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 was primarily the result of revenues from newly-acquired stores and increases in rental rates at our stabilized ~~stores and revenues from newly-acquired~~ stores. ~~Increases~~An increase of ~~$17,063 and $42,072 for the three and nine months ended September 30, 2018, respectively, were attributable to store~~$12,238 was associated with acquisitions completed in ~~2018~~2019 and ~~2017.~~2018. We acquired 2814 stores during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and 4634 stores during the year ended December 31, ~~2017. Increases~~2018. An increase of ~~$7,662 and $27,940 for the three and nine months ended September 30, 2018, respectively, were~~$10,078 was due to rental rate increases for new and existing customers at our stabilized stores. These increases were partially offset by decreases of $7,476 and $21,088 for the three and nine months ended September 30, 2018, respectively, due to property sales. During 2017, 36 stores were sold to a joint venture in which we hold a ten percent interest.

Tenant Reinsurance—The increase in our tenant reinsurance revenues was due primarily to an increase in ~~additional coverages provided to tenants and an increase in~~ the number of stores operated. We operated ~~1,606~~1,696 stores at ~~September 30, 2018~~March 31, 2019 compared to ~~1,513~~1,523 stores at ~~September 30, 2017.~~March 31, 2018.

Management Fees and Other Income—Management fees and other income primarily represent the fee collected for our management of stores owned by third parties and unconsolidated joint ~~ventures.~~ventures and other transaction fee income.

Expenses

The following table presents information on expenses for the periods indicated:


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								For the Three Months Ended March 31,
	2018		2017		$ Change		% Change		2018		2017		$ Change		% Change		2019		2018		$ Change		% Change
Expenses:
Property operations	$	73,652	$	70,430	$	3,222	4.6	%	$	219,488	$	204,370	$	15,118	7.4	%	$	78,765	$	72,753	$	6,012	8.3	%
Tenant reinsurance	7,720		6,272		1,448		23.1	%	18,798		13,996		4,802		34.3	%	6,967		5,607		1,360		24.3	%
General and administrative	19,707		19,498		209		1.1	%	62,822		60,171		2,651		4.4	%	22,678		21,464		1,214		5.7	%
Depreciation and amortization	52,283		48,075		4,208		8.8	%	155,924		144,139		11,785		8.2	%	54,659		51,749		2,910		5.6	%
Total expenses	$	153,362	$	144,275	$	9,087	6.3	%	$	457,032	$	422,676	$	34,356	8.1	%	$	163,069	$	151,573	$	11,496	7.6	%

Property Operations—The ~~increases~~increase in property operations expense during the three ~~and nine~~ months ended ~~September 30, 2018 were~~March 31, 2019 was due primarily to ~~increases~~an increase of ~~$5,617 and $14,341, respectively,~~$3,702 related to store acquisitions completed in ~~2018~~2019 and ~~2017.~~2018. We acquired 2814 stores during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and 4634 stores during the year ended December 31, ~~2017.~~2018. An additional ~~increase of $6,791~~$2,054 was related to ~~increases~~an increase in expenses from property taxes, marketing and insurance at stabilized stores during the nine months ended September 30, 2018. These increases were partially offset by decreases of $2,310 and $6,730 for the three and nine months ended September 30, 2018, respectively, due to property sales.stores.

Tenant Reinsurance—Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance. The

change was due primarily to an increase in the number of stores we owned and/or ~~managed and an increase in water and pest claims.~~managed.

General and Administrative—General and administrative expenses primarily include all expenses not directly related to our stores, including corporate payroll, travel and professional fees. We did not observe any material trends in specific payroll, travel or other expenses ~~that contributed~~apart from the increase due to the ~~change in general and administrative expenses.~~management of additional stores.

Depreciation and Amortization—Depreciation and amortization expense increased as a result of the acquisition of new stores. We acquired 2814 stores during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and 4634 stores during the year ended December 31, ~~2017.~~2018.

Other Revenues and Expenses

The following table presents information about other revenues and expenses for the periods indicated:


	For the Three Months Ended September 30,											For the Nine Months Ended September 30,											For the Three Months Ended March 31,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
Other income and expenses:
Gain (loss) on real estate transactions and impairment of real estate	$	30,807		$	—		$	30,807		100.0	%	$	30,807		$	(6,019	)	$	36,826		(611.8	)%
Interest expense	(45,926		)	(39,766		)	(6,160		)	15.5	%	(130,239		)	(113,192		)	(17,047		)	15.1	%	$	(47,360	)	$	(40,966	)	$	(6,394	)	15.6	%
Non-cash interest expense related to amortization of discount on equity component of exchangeable senior notes	(1,140		)	(1,268		)	128			(10.1	)%	(3,525		)	(3,827		)	302			(7.9	)%	(1,162		)	(1,209		)	47			(3.9	)%
Interest income	1,371			1,401			(30		)	(2.1	)%	3,997			5,201			(1,204		)	(23.1	)%	1,388			1,438			(50		)	(3.5	)%
Equity in earnings of unconsolidated real estate ventures	3,622			3,990			(368		)	(9.2	)%	10,648			11,407			(759		)	(6.7	)%	2,630			3,597			(967		)	(26.9	)%
Income tax expense	(2,638		)	(3,163		)	525			(16.6	)%	(6,077		)	(9,154		)	3,077			(33.6	)%	(1,813		)	(1,342		)	(471		)	35.1	%
Total other income (expense), net	$	(13,904	)	$	(38,806	)	$	24,902		(64.2	)%	$	(94,389	)	$	(115,584	)	$	21,195		(18.3	)%	$	(46,317	)	$	(38,482	)	$	(7,835	)	20.4	%

~~Gain (Loss) on Real Estate Transactions and Impairment of Real Estate—~~During the three and nine months ended September 30, 2018, we recorded $30,671 related to a gain on the sale of one property in California. During the nine months ended September 30, 2017, we recorded an impairment loss of $6,019 relating to one parcel of land held for sale and an additional two parcels of undeveloped land where the carrying value was greater than the fair value.

Interest Expense—The ~~increases~~increase in interest expense during the three ~~and nine~~ months ended ~~September 30, 2018 were~~March 31, 2019 was primarily the result of an overall increase in ~~interest rate and~~ total debt ~~during each period~~and interest rates when compared to the same ~~periods~~period in the prior year. The ~~average interest rate on our total fixed- and variable-rate debt at September 30, 2018 was 3.5%, compared to 3.3% as of September 30, 2017. Additionally, the~~ total face value of our debt, including our lines of credit, was ~~$4,803,360~~$5,039,286 at ~~September 30, 2018~~March 31, 2019 compared to ~~$4,362,400~~$4,557,414 at ~~September 30, 2017.~~March 31, 2018. Additionally, the average interest rate on our total fixed- and variable-rate debt at March 31, 2019 was 3.5%, compared to 3.4% as of March 31, 2018.

Non-cash Interest Expense Related to Amortization of Discount on Equity Component of Exchangeable Senior Notes—Represents the amortization of the discounts related to the equity components of the exchangeable senior notes issued by our Operating Partnership. The 2013 Notes and 2015 Notes both had an effective interest rate of 4.0% relative to the carrying amount of the liability.

Interest Income—Interest income represents amounts earned on cash and cash equivalents deposited with financial institutions, interest earned on notes receivable and income earned on note receivable from Preferred Operating Partnership unit holders.

Equity in Earnings of Unconsolidated Real Estate Ventures—Equity in earnings of unconsolidated real estate ventures represents the income earned through our ownership interests in unconsolidated joint ventures. In these joint ventures, we and our joint venture partners generally receive a preferred return on our invested capital. To the extent that ~~cash/~~cash or profits in excess of these preferred returns are generated, we receive a higher percentage of the excess ~~cash/~~cash or profits.

Income Tax Expense—For the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, the ~~decrease~~increase in income tax expense ~~relates primarily to a lower tax rate from 35% to 21% due~~was the result of an increase in income earned by our taxable REIT subsidiary when compared to the ~~Tax Cuts and Jobs Act of 2017.~~same period in the prior year.

FUNDS FROM OPERATIONS

Funds from ~~Operations~~operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net income and cash flows, for an understanding of our operating results. We believe FFO is a meaningful disclosure as a supplement to net earnings. Net earnings assume that the values of real estate assets diminish predictably over time as reflected through depreciation and amortization expenses. The values of real estate assets fluctuate due to market conditions and we believe FFO more accurately reflects the value of our real estate assets. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income computed in accordance with GAAP, excluding gains or losses on sales of operating stores and impairment write downs of depreciable real estate assets, plus real estate related depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in our condensed consolidated financial statements. FFO should not be considered a replacement of net income computed in accordance with GAAP.

The computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income as an indication of our performance, as an alternative to net cash flow from operating activities, as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

The following table presents the calculation of FFO for the periods indicated:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Net income attributable to common stockholders	$	130,418		$	93,764		$	313,827		$	263,052		$	94,770		$	88,256

Adjustments:
Real estate depreciation	48,673			43,303			144,018			127,729			50,773			47,238
Amortization of intangibles	1,835			2,316			6,427			11,164			2,288			2,639
(Gain)/loss on real estate transactions and impairment of real estate	(30,807		)	—			(30,807		)	6,019
Unconsolidated joint venture real estate depreciation and amortization	1,781			1,429			4,931			4,267			1,872			1,512
Distributions paid on Series A Preferred Operating Partnership units	(572		)	(572		)	(1,716		)	(2,547		)	(572		)	(572		)
Income allocated to Operating Partnership noncontrolling interests	9,269			7,363			24,003			21,928			7,390			7,174
Funds from operations attributable to common stockholders and unit holders	$	160,597		$	147,603		$	460,683		$	431,612		$	156,521		$	146,247

SAME-STORE RESULTS

Our same-store pool for the periods presented consists of ~~783~~821 stores that are wholly-owned and operated and that were stabilized by the first day of the earliest calendar year presented. We consider a store to be stabilized once it has been open for three years or has sustained average square foot occupancy of 80% or more for one calendar year. We believe that by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to: occupancy, rental revenue growth, operating expense growth, net operating income growth, etc., stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions or completed developments. Same-store results should not be used as a basis for future same-store performance or for the performance of our stores as a whole. The following table presents operating data for our same-store portfolio.


	For the Three Months Ended September 30,						Percent		For the Nine Months Ended September 30,						Percent		For the Three Months Ended March 31,						Percent
	2018			2017			Change		2018			2017			Change		2019			2018			Change
Same-store rental revenues	$	244,051		$	236,408		3.2	%	$	715,970		$	687,418		4.2	%	$	252,327		$	242,231		4.2	%
Same-store operating expenses	65,799			63,911			3.0	%	198,199			188,888			4.9	%	71,814			70,048			2.5	%
Same-store net operating income	$	178,252		$	172,497		3.3	%	$	517,771		$	498,530		3.9	%	$	180,513		$	172,183		4.8	%
Same-store square foot occupancy as of quarter end	93.9		%	93.7		%			93.9		%	93.7		%			91.6		%	91.8		%
Properties included in same-store	783			783					783			783					821			821

Same-store revenues for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased due to higher rental rates for both new and existing ~~customers and were partially offset by increased discounts. Expenses~~customers. Same-store expenses were higher for the three months ended ~~September 30, 2018,~~March 31, 2019, primarily due to increases in property taxes, marketing and ~~insurance. Expenses~~insurance, which were ~~higher for the nine months ended September 30, 2018, primarily due to increases~~partially offset by decreases in ~~property taxes,~~ payroll and benefits and marketing. Four stores were removed from the same-store pool during the three months ended September 30, 2018, due to one disposition and three redevelopment/expansion projects of sufficient scale to require removal from the same-store pool per our same-store pool definition.utilities expense.

The following table presents a reconciliation of same-store net operating income to net income as presented on our condensed consolidated statements of operations for the periods indicated:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Net income	$	139,687		$	101,075		$	337,830		$	284,907
Net Income													$	102,160		$	95,430
Adjusted to exclude:
Loss (gain) on real estate transactions and impairment of real estate	(30,807		)	—			(30,807		)	6,019
Equity in earnings of unconsolidated joint ventures	(3,622		)	(3,990		)	(10,648		)	(11,407		)	(2,630		)	(3,597		)
Interest expense	47,066			41,034			133,764			117,019
Interest expense (includes non-cash interest)													48,522			42,175
Depreciation and amortization	52,283			48,075			155,924			144,139			54,659			51,749
Income tax expense	2,638			3,163			6,077			9,154			1,813			1,342
General and administrative (includes stock compensation)	19,707			19,498			62,822			60,171			22,678			21,464
Management fees, other income and interest income	(11,491		)	(11,086		)	(34,846		)	(34,440		)	(12,134		)	(12,003		)
Net tenant reinsurance	(22,385		)	(19,610		)	(66,862		)	(59,054		)
Non same store revenue	(22,677		)	(12,181		)	(56,772		)	(33,460		)
Non same store expense	7,853			6,519			21,289			15,482
Total same store NOI	$	178,252		$	172,497		$	517,771		$	498,530
Net tenant insurance													(22,830		)	(21,427		)
Non Same Store Revenue													(18,676		)	(5,655		)
Non Same Store Expense													6,951			2,705
Total Same Store NOI													$	180,513		$	172,183

Same-store rental revenues	$	244,051		$	236,408		$	715,970		$	687,418		$	252,327		$	242,231
Same-store operating expenses	65,799			63,911			198,199			188,888			71,814			70,048
Same-store net operating income	$	178,252		$	172,497		$	517,771		$	498,530		$	180,513		$	172,183

CASH FLOWS

Cash flows from operating activities increased as expected from our continued growth in revenues through increased rental rates along with the increase in the number of stores we own and operate. Cash flows used in investing activities relate primarily to our acquisition, development and investments in unconsolidated real estate ventures, and fluctuate depending on our actions in those areas. Cash flows from financing activities depend primarily on our debt and equity financing activities. A summary of cash flows along with significant components are as follows:



	For the Three Months Ended March 31,
	2019			2018
Net cash provided by operating activities	$	169,339		$	171,608
Net cash used in investing activities	(246,975		)	(30,928		)
Net cash provided by (used in) financing activities	51,774			(172,660		)

Significant components of net cash flow included:
Net income	$	102,160		$	95,430
Depreciation and amortization	54,659			51,749
Acquisition and development of new stores	(228,398		)	(87,228		)
Investment in unconsolidated real estate ventures	(17,395		)	(438		)
Net proceeds (payments) from our debt financing	168,052			(64,668		)
Dividends paid on common stock	(109,523		)	(98,327		)

We believe that cash flows generated by operations, along with our existing cash and cash equivalents, the availability of funds under our existing lines of credit, and our access to capital markets will be sufficient to meet all of our reasonably anticipated cash needs during the next 12 months. These cash needs include operating expenses, monthly debt service payments, recurring capital expenditures, acquisitions, redevelopments and expansions, distributions to unit holders and dividends to stockholders necessary to maintain our REIT qualification.

We expect to generate positive cash flow from operations in 2019, and we consider these projected cash flows in our sources and uses of cash. These cash flows are principally derived from rents paid by our tenants. A significant deterioration in projected cash flows from operations could cause us to increase our reliance on available funds under our existing lines of credit, curtail planned capital expenditures, or seek other additional sources of financing.

LIQUIDITY AND CAPITAL RESOURCES

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$45,378~~$38,988 available in cash and cash equivalents. Our cash and cash equivalents are held in accounts managed by third party financial institutions and consist of invested cash and cash in our operating accounts. During ~~2018~~2019 and ~~2017,~~2018, we experienced no loss or lack of access to our cash or cash equivalents; however, there can be no assurance that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$4,803,360~~$5,039,286 face value of debt, resulting in a debt to total enterprise value ratio of ~~29.1%~~26.7%. As of ~~September 30, 2018,~~March 31, 2019, the ratio of total fixed-rate debt and other instruments to total debt was ~~74.4%~~72.0% (including ~~$2,168,575~~$2,221,885 on which we have interest rate swaps that have been included as fixed-rate debt). The weighted average interest rate of the total of fixed- and variable-rate debt at ~~September 30, 2018~~March 31, 2019 was 3.5%. Certain of our real estate assets are pledged as collateral for our debt. We are subject to certain restrictive covenants relating to our outstanding debt. We were in compliance with all financial covenants at ~~September 30, 2018.~~March 31, 2019.

We expect to fund our short-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to stockholders, distributions to holders of Operating Partnership units and interest on our outstanding indebtedness, out of our operating cash flow, cash on hand and borrowings under our revolving lines of ~~credit, including undrawn portions of our unsecured facility.~~credit. In addition, we are pursuing additional sources of financing based on anticipated funding needs.

Our liquidity needs consist primarily of ~~cash~~operating expenses, monthly debt service payments, recurring capital expenditures, dividends to stockholders and distributions to ~~stockholders, store acquisitions, principal payments under~~unit holders necessary to maintain our ~~borrowings and non-recurring capital expenditures.~~REIT qualification. We may from time to time seek to repurchase our outstanding debt, shares of common stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In addition, we evaluate, on an ongoing basis, the merits of strategic acquisitions and other relationships, which may require us to raise additional funds. We may also use Operating Partnership units as currency to fund acquisitions from self-storage owners.

~~CASH FLOWS~~

Cash flows provided by operating activities were $529,027 and $449,629 for the nine months ended September 30, 2018 and 2017, respectively. Cash flows from operating activities were higher primarily due to an increase of $52,923 in net income during the nine months ended September 30, 2018, which was partially offset by the add back of a non-cash gain on real estate transactions and impairment of real estate of $36,826. There were also increases of $21,252 in the change in accounts payable and accrued expenses and $14,664 in the change in other assets when compared with the nine months ended September 30, 2017.

Cash used in investing activities was $317,029 and $84,351, for the nine months ended September 30, 2018 and 2017, respectively. The increase was primarily due to an increase in cash paid for the acquisition of real estate assets of $207,971 during the nine months ended September 30, 2018 when compared to the prior year. We purchased 28 stores during the nine months ended September 30, 2018, compared to 9 stores purchased during the nine months ended September 30, 2017.

Cash used in financing activities was $231,459 and $342,011 for the nine months ended September 30, 2018 and 2017, respectively. The change related primarily to a decrease in principal payments on notes payable and revolving lines of credit of $232,205 when compared to the same period in the prior year. This decrease was partially offset by an increase in cash paid for the repurchase of our 2013 exchangeable senior notes of $60,544, a decrease of $49,784 in proceeds from notes payable and revolving lines of credit, and an increase of $21,650 for principal payments on notes payable to trusts during the nine months ended September 30, 2018 when compared to the prior year.

OFF-BALANCE SHEET ARRANGEMENTS

Except as disclosed in the notes to our consolidated financial statements of our most recently filed Annual Report on Form 10-K, we do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, except as disclosed in the notes to our condensed consolidated financial statements, we have not guaranteed any obligations of unconsolidated entities, nor do we have any commitments or intent to provide funding to any such entities. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

SEASONALITY

The self-storage business is subject to seasonal fluctuations. A greater portion of revenues and profits are realized from May through September. Historically, our highest level of occupancy has been at the end of July, while our lowest level of occupancy has been in late February and early March. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our future income, cash flows and fair values of financial instruments are dependent upon prevailing market interest rates.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$4.8~~approximately $5.0 billion in total face value of debt, of which ~~$1.2~~approximately $1.4 billion was subject to variable interest rates (excluding debt with interest rate swaps). If LIBOR were 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 ~~$12.3~~approximately $14.1 million annually.

Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.


ITEM 4.	CONTROLS AND PROCEDURES


(1)	Disclosure Controls and Procedures

We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended ~~or the Exchange Act,~~(the "Exchange Act"), are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have a disclosure committee that is responsible for considering the materiality of information and determining our disclosure obligations on a timely basis. The disclosure committee meets quarterly and reports directly to our Chief Executive Officer and Chief Financial Officer.

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and ~~the~~ Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.


(2)	Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are involved in various legal proceedings and are subject to various claims and complaints arising in the ordinary course of business. Because litigation is inherently unpredictable, the outcome of these matters cannot presently be determined with any degree of certainty. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. We could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period, notwithstanding the fact that we are currently vigorously defending any legal proceedings against us.


ITEM 1A.	RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition and results of operations. There have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and results of operations.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~On March 12, 2019, our Operating Partnership issued 228,916 Series D Units in connection with the acquisition of one store in New York. The store was acquired by a joint venture in which we contributed cash of $6.1 million as well as the Series D Units, valued at $5.7 million.

On February 12, 2019, our Operating Partnership issued 709,008 Series D Units in connection with the acquisition of one store in New York. The store was acquired by a joint venture in which we contributed cash of $0.2 million as well as the Series D Units, valued at $17.7 million.

The terms of the Series D Units are governed by the Operating Partnership's Fourth Amended and Restated Agreement of

Limited Partnership. The Series D Units will be redeemable at the option of the holders on the first anniversary of the date

of issuance, which redemption obligation may be satisfied, at our option, in cash or shares of our common stock.

The Series D Units were issued to accredited investors in private placements in reliance on Section 4(a)(2) of the Securities

Act of 1933, as amended, and the rules and regulations promulgated thereunder.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not Applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS


31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from Extra Space Storage Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2018,~~March 31, 2019, are formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (4) the Condensed Consolidated Statement of Noncontrolling Interests and Equity, (5) the Condensed Consolidated Statements of Cash Flows and (6) notes to these financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		EXTRA SPACE STORAGE INC.
		Registrant

Date: ~~November 6, 2018~~May 7, 2019		/s/ Joseph D. Margolis
		Joseph D. Margolis
		Chief Executive Officer (Principal Executive Officer)

Date: ~~November 6, 2018~~May 7, 2019		/s/ P. Scott Stubbs
		P. Scott Stubbs
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

4341



STATEMENT ON FORWARD-LOOKING INFORMATION	4

PART I. FINANCIAL INFORMATION	5
ITEM 1. FINANCIAL STATEMENTS	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	1112
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3937
ITEM 4. CONTROLS AND PROCEDURES	3937

PART II. OTHER INFORMATION	4139
ITEM 1. LEGAL PROCEEDINGS	4139
ITEM 1A. RISK FACTORS	4139
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4139
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	4139
ITEM 4. MINE SAFETY DISCLOSURES	4139
ITEM 5. OTHER INFORMATION	4139
ITEM 6. EXHIBITS	4240
SIGNATURES	4341



	Number of Stores	Equity Ownership %	Excess Profit %	September 30,			December 31,
	Number of Stores	Equity Ownership %	Excess Profit %	2018			2017
WICNN JV LLC	7	10%	25%	$	27,036		$	—
VRS Self Storage, LLC	16	45%	54%	18,356			19,467
PRISA Self Storage LLC	85	4%	4%	9,345			9,638
Alan Jathoo JV LLC	7	10%	10%	6,205			—
Extra Space West Two LLC	5	5%	40%	3,823			3,939
ESS Bristol Investments LLC	7	10%	28%	2,356			1,258
WCOT Self Storage LLC	—	5%	20%	—			(357		)
Extra Space West One LLC	7	5%	40%	(1,033		)	(900		)
Extra Space Northern Properties Six LLC	10	10%	35%	(1,604		)	(1,279		)
Storage Portfolio II JV LLC	36	10%	30%	(3,806		)	(3,140		)
Storage Portfolio I LLC	24	34%	49%	(37,657		)	11,495
Other minority owned stores	19	10-50%	19-50%	47,212			29,970
Net Investments in and Cash distributions in unconsolidated real estate ventures	223			$	70,233		$	70,091



	Notes payable to Trusts			Investment Balance		Maximum exposure to loss		Difference
Trust	$	36,083		$	1,083	$	35,000	$	—
Trust II	20,619			619		20,000		—
Trust III	41,238			1,238		40,000		—
	97,940			$	2,940	$	95,000	$	—
Unamortized debt issuance costs	(2,053		)
	$	95,887



	September 30, 2018			December 31, 2017
Carrying amount of equity component - 2013 Notes	$	—		$	—
Carrying amount of equity component - 2015 Notes	22,597			22,597
Carrying amount of equity components	$	22,597		$	22,597
Principal amount of liability component - 2013 Notes	$	—		$	49,259
Principal amount of liability component - 2015 Notes	575,000			575,000
Unamortized discount - equity component - 2013 Notes	—			(315		)
Unamortized discount - equity component - 2015 Notes	(9,579		)	(12,974		)
Unamortized cash discount - 2013 Notes	—			(74		)
Unamortized debt issuance costs	(4,808		)	(6,620		)
Net carrying amount of liability components	$	560,613		$	604,276

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company