Extra Space Storage · 10-Q · Item 2 MD&A

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

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, 2025. 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 U.S. generally accepted accounting principles (“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, 2025 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”) that owns, operates, manages, acquires, develops and redevelops self-storage properties (“stores”) and provides lending to owners of stores located throughout the United States. We derive substantially all of our revenues from our two segments: self-storage operations and tenant reinsurance. Primary sources of revenue for our self-storage operations segment include rents received from tenants under leases at stores that are wholly-owned and in consolidated joint ventures. 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 its 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 our stores.

Our stores are generally situated in highly visible locations clustered around population centers. 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, T1we employ industry-leading revenue management systems. Developed by our management team, these systems enable us to analyze, set and adjust rental rates daily across our portfolio in order to respond to changing market conditions. We believe our systems and processes allow us to more proactively 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. T2We 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 industry-leading technology systems.

PROPERTIES

As of June 30, 2026, we owned or had ownership interests in 2,446 operating stores. Of these stores, 2,026 are wholly-owned, 11 are in consolidated joint ventures, and 409 are in unconsolidated joint ventures. In addition, we managed an additional 1,964 stores for third parties, bringing the total number of stores which we own and/or manage to 4,410. These stores are located in 42 states and Washington, D.C. The clustering of assets around 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 June 30, 2026, approximately 2,580,000 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 same-store properties as of June 30, 2026, the average length of stay for tenants who had vacated was approximately 16.8 months.

Our store portfolio is made up of different types of construction and building configurations. Most often sites are what we consider “hybrid” facilities, a mix of both drive-up buildings and multi-floor buildings.

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

REIT Owned

Joint Venture Owned

Managed

Total

Location

Property Count (1)

Net Rentable Square Feet

Property Count

Net Rentable Square Feet

Property Count

Net Rentable Square Feet

Property Count

Net Rentable Square Feet

Alabama

2

Arizona

Arkansas

—

—

—

—

5

5

California

Colorado

Connecticut

8

Delaware

—

—

1

7

8

Florida

Georgia

Hawaii

—

—

4

Idaho

2

—

—

6

8

Illinois

9

Indiana

1

Kansas

1

2

3

6

Kentucky

1

Louisiana

1

Maine

5

—

—

Maryland

8

Massachusetts

Michigan

4

Minnesota

7

8

Mississippi

6

—

—

6

Missouri

7

Nebraska

—

—

—

—

9

9

Nevada

New Hampshire

—

—

New Jersey

New Mexico

New York

North Carolina

5

Ohio

5

Oklahoma

4

—

—

Oregon

8

3

5

Pennsylvania

Rhode Island

6

1

7

South Carolina

1

Tennessee

Texas

Utah

3

Virginia

9

Washington

1

Washington, DC

1

1

7

9

Wisconsin

2

9

Totals

(1) Includes 11 stores in consolidated joint ventures.

RESULTS OF OPERATIONS

Amounts in thousands, except store and share data

Comparison of the three and six months ended June 30, 2026 and 2025

Overview

Results for the three and six months ended June 30, 2026 included the operations of 2,446 stores (2,026 wholly-owned, 11 in consolidated joint ventures, and 409 in joint ventures accounted for using the equity method) compared to the results for the three and six months ended June 30, 2025, which included the operations of 2,430 stores (2,005 wholly-owned, 11 in consolidated joint ventures, and 414 in joint ventures accounted for using the equity method). Material or unusual changes in the results of our operations are discussed below:

Revenues

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

$ Change

% Change

$ Change

% Change

Revenues:

Property rental

$

$

$

%

$

$

$

%

Tenant reinsurance

%

%

Management fees and other income

%

%

Total revenues

$

$

$

%

$

$

$

%

Property rental—The increase in property rental revenue for the three and six months ended June 30, 2026 compared to the same periods in the prior year was primarily the result of growth in our portfolio related to acquisitions completed in 2025 and acquisitions completed in the first six months of 2026. T3We acquired 18 wholly-owned stores during the six months ended June 30, 2026 and acquired 76 wholly-owned stores during the year ended December 31, 2025. These increases in revenue resulting from acquisitions were partially offset by property dispositions during the same periods. Additionally, property rental revenue increased for the three and six months ended June 30, 2026 due to improved operating results from increases in average annual rent per occupied square foot over the comparative periods.

Tenant reinsurance—The increase in tenant reinsurance revenue for the three and six months ended June 30, 2026 compared to the same periods in the prior year was due primarily to an increase in the number of stores operated. We operated 4,410 stores at June 30, 2026 compared to 4,179 stores at June 30, 2025.

Management fees and other income—Management fees and other income primarily represent the fees collected for our management of stores owned by third parties and unconsolidated joint ventures and other transaction fee income. The increase for the three and six months ended June 30, 2026 compared to the same periods in the prior year was primarily due to both an increase in the number of stores managed and an increase in the overall revenue of stores under management when compared to the same periods last year. As of June 30, 2026, we managed 1,964 stores for third party owners, compared to 1,749 stores as of June 30, 2025. These increases are offset by a decrease in management fees attributable to stores in unconsolidated joint ventures, where the number of stores decreased from 414 to 409 over the same period.

Expenses

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

$ Change

% Change

$ Change

% Change

Expenses:

Property operations

$

$

$

%

$

$

$

%

Tenant reinsurance

%

%

General and administrative

%

%

Depreciation and amortization

%

%

Total expenses

$

$

$

%

$

$

$

%

Property operations—The increase in property operations expense during the three and six months ended June 30, 2026 compared to the same periods in the prior year was due to growth in our portfolio related to acquisitions completed in 2025 and in the first six months of 2026. The increase in expense resulting from acquisitions was partially offset by expense control across our portfolio in most expense categories over the same periods with the exception of property taxes and insurance.

Tenant reinsurance—Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance and is subject to volatility due to increased claims arising when significant events occur at stores.

General and administrative—General and administrative expenses primarily include all expenses not directly related to our stores, including corporate payroll, office expense, office rent, travel and professional fees. These expenses are recognized as incurred.

Depreciation and amortization—We amortize to expense intangible assets-customer intangibles on a straight-line basis over the average period that a tenant is expected to utilize the facility (currently estimated at 18 months). Depreciation and amortization expense increased for the three and six months ended June 30, 2026 compared to the same periods in the prior year primarily as a result of the acquisition of new stores. We acquired 18 wholly-owned stores and disposed of one wholly-owned store during the six months ended June 30, 2026. We acquired 76 wholly-owned stores and disposed of 37 wholly-owned stores during the year ended December 31, 2025.

Other Revenues and Expenses

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

$ Change

% Change

$ Change

% Change

Gain (loss) on real estate assets held for sale and sold, net

$

—

$

$

%

$

—

$

$

%

Interest expense

%

%

Non-cash interest expense related to amortization of discount on unsecured senior notes, net

%

%

Interest income

%

%

Equity in earnings and dividend income from unconsolidated real estate entities

%

%

Equity in earnings of unconsolidated real estate ventures - gain on sale of a joint venture interest

—

%

—

%

Income tax expense

%

%

Total other revenues & expenses, net

$

$

$

%

$

$

$

%

Gain (loss) on real estate assets held for sale and sold, net— During the six months ended June 30, 2026, we disposed of one previously held for sale store, resulting in no gain or loss. We disposed of 12 previously held for sale stores during the six months ended June 30, 2025, resulting in a gain of $38,656. This gain was partially offset by losses of $3,759 related to the sale of three land parcels and three properties listed for sale during the six months ended June 30, 2025 where the estimated fair value, net of selling costs, was less than the net carrying value of the assets. The loss recorded during the three months ended June 30, 2025 related to the sale of one operating property previously listed as held for sale resulted in an additional loss of $864.

Interest expense—Represents the cost of our financing activities and primarily consists of interest incurred on borrowings under our commercial paper program, revolving lines of credit, senior notes and secured and unsecured term loans. Interest expense also includes commitment fees, letter of credit fees, and the amortization of financing costs associated with these arrangements.

Non-cash interest expense related to amortization of discount on unsecured senior notes, net—Represents the amortization of the discount assigned to the fair value of the Life Storage unsecured senior notes assumed as part of our merger with Life Storage and net premium from bond offerings, offset by the discount from assumed debt.

Interest income—Interest income represents interest earned on bridge loans, debt securities and on a note receivable from a common Operating Partnership unit holder. The decrease in interest income during the three and six months ended June 30, 2026 compared to the same periods in the prior year was primarily the result of a decrease in the amount of bridge loans outstanding. The balance of bridge loans outstanding was $1,445,278 as of June 30, 2026, compared to $1,542,693 as of June 30, 2025.

Equity in earnings and dividend income from unconsolidated real estate entities—Equity in earnings of unconsolidated real estate entities 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 or profits in excess of these preferred returns are generated, we receive a higher percentage of the excess cash or profits. The decrease for the three and six months ended June 30, 2026 was primarily due to the transfer and distribution of membership interests in the PR II EXR JV LLC joint venture in March 2025 and the acquisition of our partners’ membership interests in the ESS-NYFL JV LP and ESS CA-TIVS JV LP joint ventures in April 2025.

Also contributing to the decrease is the sale of our membership interests in both the Life Storage Spacemax LLC and the Extra Space Northern Properties VI LLC joint ventures, which occurred in July and October 2025, respectively. T4The number of stores in unconsolidated joint ventures in

which we have ownership interests was 409 as of June 30, 2026, compared to 414 as of June 30, 2025. Dividend income represents dividends from our investments in preferred stock of Strategic Storage Trust VI, Inc. and Strategic Storage Growth Trust III, Inc.

Income tax expense—The increase in income tax expense for the three and six months ended June 30, 2026 compared to the same periods in the prior year was primarily the result of an increase in book income and a decrease in permanent tax deductions related to stock awards.

FUNDS FROM OPERATIONS

Funds from 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 June 30,

For the Six Months Ended June 30,

Net income attributable to common stockholders

$

$

$

$

Adjustments:

Real estate depreciation

Amortization of intangibles

(Gain) loss on real estate assets held for sale and sold, net

—

—

Unconsolidated joint venture real estate depreciation and amortization

Unconsolidated joint venture gain on sale of a joint venture interest

—

—

Income allocated to Operating Partnership noncontrolling interests

Funds from operations attributable to common stockholders and unit holders

$

$

$

$

SAME-STORE RESULTS

Our same-store pool for the periods presented consists of 1,870 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 June 30,

Percent

For the Six Months Ended June 30,

Percent

Change

Change

Same-store rental revenues

Net rental income

$

$

%

$

$

%

Other operating income

%

%

Total same-store rental revenues

%

%

Same-store operating expenses

Payroll and benefits

%

%

Marketing

%

%

Office expense

%

%

Property operating expense

%

—

%

Repairs and maintenance

%

%

Property taxes

%

%

Insurance

%

%

Total same-store operating expenses

%

%

Same-store net operating income

$

$

%

$

$

%

Same-store square foot occupancy as of period end

Average same-store square foot occupancy

Properties included in same-store

The following table presents additional information for our same-store portfolio:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Same-store portfolio

Average annual rent per occupied square foot, net of discounts and bad debt

$

$

$

$

New leases average annual rent per square foot

$

$

$

$

Average discounts as a percentage of rental revenues

%

%

%

%

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 June 30,

For the Six Months Ended June 30,

Net Income

$

$

$

$

Adjusted to exclude:

(Gain) loss on real estate assets held for sale and sold, net

—

—

Equity in earnings and dividend income from unconsolidated real estate entities

Equity in earnings of unconsolidated real estate ventures - gain on sale of a joint venture interest

—

—

Interest expense

Non-cash interest expense related to amortization of discount on unsecured senior notes, net

Depreciation and amortization

Income tax expense

General and administrative

Management fees, other income and interest income

Net tenant insurance

Non same-store rental revenue

Non same-store operating expense

Total same-store net operating income

$

$

$

$

Same-store rental revenues

$

$

$

$

Same-store operating expenses

Same-store net operating income

$

$

$

$

CASH FLOWS

Cash flows from operating activities for the six months ended June 30, 2026 increased when compared to the same period in the prior year. Cash flows used in investing activities relate primarily to our acquisition and development of new stores, sales of stores, investments in unconsolidated real estate entities, and notes receivable from bridge loans 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 Six Months Ended June 30,

Net cash provided by operating activities

$

$

Net cash used in investing activities

Net cash used in financing activities

Significant components of net cash flow included:

Net income

$

$

Depreciation and amortization

Acquisition and development of real estate assets

Return of investment in unconsolidated real estate ventures

—

Net proceeds (payments) from unsecured term loans, senior notes, revolving lines of credit and commercial paper

Dividends paid on common stock

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 twelve months. These cash needs include operating expenses, monthly debt service payments, acquisitions, funding for the bridge loan program, recurring capital expenditures, building 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 2026, and we consider 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

T5As of June 30, 2026, we had $695,171 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 2026 and 2025, we experienced no loss or lack of access to our cash and 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.

The following table presents information relating to our debt:

Total face value of debt

$

Total enterprise value ratio

%

Total fixed-rate debt and other instruments to total debt

Weighted average interest rate of total debt

%

(1) $10,890,830 total fixed-rate debt including $777,000 on which we have interest rate swaps that have been included as fixed-rate debt.

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 and commercial paper. In addition, we are pursuing additional sources of financing based on anticipated funding needs and growth assumptions.

Our commercial paper program provides us the ability to issue, repay and re-issue short-term unsecured commercial paper notes. The aggregate principal amount outstanding under the program at any time cannot exceed $1,000,000, and the net proceeds of the commercial paper notes are expected to be used for general corporate purposes. The maturities of the notes generally range from overnight to three months, with a maximum of up to 397 days. The commercial paper notes are issued under customary terms in the commercial paper market and are issued at a discount from par or, alternatively, can be issued at par and bear varying interest rates on a fixed or floating basis.

At any point in time, we expect to maintain available commitments under our credit facility in an amount at least equal to the amount of commercial paper notes outstanding. At June 30, 2026, we had $850,000 in issuances outstanding under the commercial paper program.

We hold a BBB+/Stable rating from S&P and a Baa2/Stable rating from Moody’s Investors Service. We intend to manage our balance sheet to maintain these ratings. Certain of our real estate assets are pledged as collateral for our debt. As of June 30, 2026, we had a total of 1,794 unencumbered stores as defined by our public bonds. Our unencumbered asset value was calculated as $31,069,882 and our total asset value was calculated as $36,807,478 according to the calculations as defined by our public bonds. We are subject to certain restrictive covenants relating to our outstanding debt. We were in compliance with all financial covenants at June 30, 2026.

Our liquidity needs consist primarily of operating expenses, monthly debt service payments, recurring capital expenditures, distributions to unit holders and dividends to stockholders necessary to maintain our REIT qualification. 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. In addition, 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.

On April 15, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain sales agents and forward purchasers named therein. Under the terms of the Equity Distribution Agreement, we may issue and sell, and the forward purchasers may sell, from time to time through or to the sales agents, shares of our common stock having an aggregate offering price of up to $800,000. The shares of common stock will be offered pursuant to our effective registration statement on Form S-3 (Registration Statement No. 333-278690) previously filed with and declared effective by the Securities and Exchange Commission (the “SEC”) and a prospectus supplement and accompanying prospectus, filed with the SEC. As of June 30, 2026, no shares have been sold under the Equity Distribution Agreement, which we refer to as our “at the market” equity program.

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 is typically 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.