Annual Report 2015

Going Places

Annual Report 2015| Going Places

Strategy

94.9% peak occupancy

At Extra Space Storage, our strategy is simple: to maximize shareholder value by driving growth and delivering exceptional results. Throughout 2015, our team executed this strategy with excellence. From expanding our footprint and increasing occupancy to strengthening our third-party management platform and amplifying our online impact, we delivered on our strategy and produced some of the best financial and operational results in the company’s history.

How We Do It

Strategy

Strategic Focus Drives Exceptional Shareholder Value

Our focus on driving growth and delivering exceptional results served us well in 2015. Every quarter has been record-setting in terms of occupancy, revenue and net operating income (NOI). We completed $1.8 billion in acquisitions, closing the year with 1,347 stores compared to 1,088 at the end of 2014. We also expanded our third-party management platform considerably, adding nearly 90 stores for a total of 348. Throughout it all, we continued to innovate, finding new and better ways to improve operations, reduce expenses and maximize revenue.

Together, our growth strategy and excellence in execution have increased shareholder value more than any of our self-storage peers over the past decade. In fact, our one-year, two-year, three-year, four-year, five-year and ten-year total returns to shareholders were not only the highest among self-storage REITS, but also #1 across publicly traded REITs of all property types. In recognition of our accomplishments, Extra Space Storage was recently added to the S&P 500, joining the ranks of some of the most successful companies in the world.

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Proudly listed in the S&P 500

Annual Report 2015| Going Places

Portfolio

In the fragmented self-storage industry, size is a powerful differentiator. Large operators enjoy economies of scale that smaller players simply can’t match, particularly when it comes to marketing, technology and revenue management. For Extra Space Storage, these advantages translate directly into improved occupancy rates, higher revenue and increased NOI. In 2015, we increased our footprint by 24%, ending the year with 1,347 stores in 36 states.

2015 Acquisitions
$1.8 billion in acquisitions

Portfolio

A Year of Growth

In 2015, we acquired SmartStop Self Storage for $1.3 billion, adding 122 wholly-owned stores and 43 managed stores to our portfolio. The stores fit well within our existing footprint, allowing us to tap into economies of scale in marketing and management. Once the acquisition closed, we successfully integrated all 165 properties and immediately put our marketing prowess, revenue management platform and other systems to work.

In addition to the SmartStop acquisition, we also completed approximately $450 million in other acquisitions through a combination of open-market and off-market transactions. Through these purchases, we added another 173 stores in 21 states. This total includes seven "certificate of occupancy" transactions, in which we purchase properties that third-party developers have built to our specifications and are ready to be leased. This approach lets us add new, purpose-built assets in high barrier-to-entry markets without the entitlement or construction risks of ground-up development.

Leading the Industry in Third-Party Management

Extra Space ManagementPlus, our third-party management platform, remains the largest in the self-storage industry. In 2015, we grew our managed portfolio by nearly 90 stores, bringing us to 601 assets managed on behalf of joint venture relationships or third-party owners. Branded as Extra Space Storage, these stores benefit greatly from our scale, our marketing expertise and our technology platform. In fact, we were named the best third-party management company by Inside Self Storage for the fourth year in a row.

In addition to delivering exceptional results for owners and Extra Space Storage alike, ManagementPlus continues to help us build strong relationships with small operators. As a result, when owners are ready to sell, they often turn to us first. In 2015, ten of our acquired properties were sourced from ManagementPlus, and we continue to prospect from this valuable acquisition pipeline.

The Storage Brand of Choice

At Extra Space Storage, our goal is to become the nation’s storage brand of choice. That’s why we are committed to offering convenient, secure and competitively priced storage solutions. What’s more, we have over 800,000 customers, making us a large retailer in addition to a real estate company. We work hard to deliver a consistently welcoming and rewarding customer experience – whether that’s online, through our call center or in our stores.

In 2015, we began rolling out a contemporary office in select stores. With this new design and style, we are modernizing our brand and creating the retail experience today’s customers have come to expect. This customer-centric approach has been well received, and we will continue to emphasize it going forward.

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Annual Report 2015| Going Places

Technology

We’ve long been ahead of the curve – and the competition – when it comes to using technology to our advantage, and 2015 was no exception. We continued to use our expertise in online and mobile marketing, data analytics and revenue management to grow our business, build our brand, and manage our properties for optimal performance.

Our Advantage
67% growth in mobile searches

Technology

The Internet as a Competitive Advantage

When it comes to internet marketing, scale matters. As Extra Space Storage grows, we are even better positioned to drive awareness of our brand, attract new prospects, and convert them to customers. Approximately 80% of our customers interact with us online before completing a transaction. Our ability to present these customers with real-time promotions optimized for them is a distinct competitive advantage.

We generate web awareness and drive engagement through paid advertising, organic search engine optimization, social media and partnerships, putting us in the consideration set with an ever-broadening population of customers. These efforts are paying off. Our web conversion rates continue to increase and we continue to grow the number of unique web visitors we attract each year.

Mobile Matters – a Lot

One of our longstanding goals is consistently to reinforce the benefits and value of our storage solutions across all customer touchpoints – in our stores, through our call center and online. Today, as more and more customers connect with us through mobile devices, we are continuing to strengthen our mobile marketing platform and capabilities.

This approach was validated in early 2015, when Google launched a new way of ranking results. This new algorithm benefits mobile-friendly websites like ours. Unlike smaller operators that lack the technology resources to adapt to this change, we were well prepared for "Mobilegeddon" and well positioned to capitalize on it. As a result, more than half of consumers now find us through mobile search, a meaningful increase over 2014.

Data Drives Results

With more than 800,000 current customers, millions of previous customers and transactions, and millions more calls and website visits, Extra Space Storage has an enormous – and growing – set of data. Our analytics capabilities allow us to utilize this vast collection of information to better understand customer behavior and preferences. As a result, we can tailor our offerings to meet the unique needs of similar customers while maximizing revenue for our business. For example, we can predict which prices, discounts and special offers are more likely to lead a specific prospect to convert to a customer and stay with us longer.

The insights we gain from our technology enable us to deepen our understanding of consumer behavior, fine-tune our marketing approach and test new offers. With these insights and capabilities, we are well positioned to meet customer needs, optimize revenue and deliver strong results.

Real-Time Revenue Management

We continue to enhance the sophistication and reliability of our advanced revenue management platform, which remains a key driver of our success. The platform tracks and predicts supply and demand in real time, allowing us to vary rates and discounts by sales channel, set the best possible rates for new customers, and increase rates appropriately for existing customers.

With these advanced capabilities, we can carefully manage our rates and discounts during seasonal shifts. By giving us the information we need to maximize revenue, optimize occupancy and increase length of stay, our revenue management platform once again helped us achieve superior operational and financial results.

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Annual Report 2015| Going Places

7.2% reduction in utility expenses

Sustainability
and Redevelopment

Throughout the year, we continued to invest in updating our assets to create a more inviting customer experience and reduce our energy consumption and carbon footprint. Together, these activities help to reduce costs and strengthen and protect the value of our portfolio while demonstrating our ongoing commitment to sustainability.

Making an Impact

Sustainability and Redevelopment

Sustainability

We believe that sustainability is not only good for our environment, it’s good for our business. We continue to install solar panels where it makes financial sense, retrofit properties with high-efficiency lighting systems, and replace fixtures with energy-saving bulbs. We have also added charging stations for electric cars in select California facilities. When improvements like these are multiplied across our 1,347 stores, the cost savings – and the environmental impact – add up quickly. In fact, based on U.S. Environmental Protection Agency metrics, our sustainability efforts to date have reduced annual carbon dioxide emissions by 35,000 tons, saving enough energy to power 4,500 homes each year.

During 2015, twelve of our stores in Maryland were awarded LEED Gold certification. These certifications underscore our commitment to good corporate citizenship, and we are gratified to make an impact on the communities we serve and the world around us.

35,000 ton reduction in carbon emissions annually 37,000 acres of U.S. forest preserved

Site Redevelopment and Expansion

We have embarked on a multi-year project to update select stores with a fresh, modern look that keeps our portfolio fresh and relevant. These enhancements are designed to clearly convey who Extra Space Storage is and what we offer, and to create an inviting environment in which to conduct business.

We prioritize these upgrades by focusing on stores in high-demand markets where an enhanced customer experience is a differentiator. We also work to optimize our mix of units to meet the specific demands in a particular market. As part of our ongoing redevelopment program, we add square footage where feasible and appropriate.

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Annual Report 2015| Going Places

Financial Results

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (last year’s)* Among Extra Space Storage Inc., the S&P 500 Index, and the FTSE NAREIT Equity REITs Index

Financial Results

*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2016 S&P, a division of McGraw Hill Financial. All rights reserved.

In 2015, we expanded our footprint by 24% and delivered superior results that continue to set us apart in the self-storage sector. We achieved same-store revenue growth of 9.3% and average occupancy of 93.3% – both record highs for Extra Space Storage.

Our strong revenue growth, coupled with efficient cost management, delivered same-store NOI growth of 11.9% over 2014. Funds from operations as adjusted (AFFO) grew 19.9% over 2014, bringing AFFO per diluted share to $3.13. Extra Space Storage has now posted 21 consecutive quarters of double-digit AFFO growth.

During the year, we also continued to solidify our balance sheet and position ourselves for future growth. We filed a $400 million at-the-market equity program and completed a mid-year equity offering that raised $431 million in gross proceeds to support our growth. The offering was oversubscribed by four times, underscoring the confidence our investors have in our capital stewardship.

Together, the strength of our 2015 financial results, operational performance and balance sheet enabled us to increase our quarterly dividend to shareholders by 25.5%, reaching $2.36 on an annualized basis. With this increase, Extra Space Storage has now rewarded our shareholders with five-year dividend growth of 490%.

Annual Report 2015| Going Places

Shareholder Letter

Dear Fellow Shareholders,

In 2015, we once again demonstrated that Extra Space Storage is going places.

We delivered a year of exceptional growth coupled with outstanding performance, which propelled our company to the best financial and operational results in our history. Our continued momentum has increased shareholder value more than any self-storage company over the past decade. What’s more, our one-year, two-year, three-year, four-year, five-year and ten-year total returns to shareholders were the highest among publicly traded U.S. REITs across all asset classes at the end of 2015.

In recognition of our significant growth, strong performance and status as a top-tier REIT, Extra Space Storage was recently added to the S&P 500. We are honored to join this impressive group of companies. We are also proud of our performance and the value we have delivered to our shareholders in 2015, and we remain committed to driving excellent results in the future.

2015 Results

Our consistent focus on expanding our footprint, increasing occupancy and maximizing the efficiency of our operations once again served Extra Space Storage well in 2015. We also benefited from continued muted new supply in the industry.

Same-store revenues increased by 9.3% over 2014, continuing a five-year trend of top-line revenue growth. At the same time, we held same-store expense growth to 3.1%. As a result, same-store net operating income (NOI) grew by 11.9%.

Same-store occupancy rose to 92.9% from 91.4% in 2014, a 150 basis point increase and a record high for Extra Space Storage. Our funds from operations as adjusted (AFFO) showed double-digit growth in 2015, increasing AFFO per diluted share to $3.13, a 20% increase over 2014. As a result, we raised our quarterly common stock dividend to $0.59 per share, or $2.36 on an annualized basis, an increase of 26%.

A Year of Growth

If there’s one word that describes 2015 for Extra Space Storage, it’s growth. We acquired SmartStop Self Storage for $1.3 billion, a transaction that added 122 wholly-owned stores and 43 managed stores to our portfolio. This acquisition brought us well-located, high-quality facilities that fit well within our existing footprint. In addition, we acquired another 51 stores for approximately $450 million through a combination of open-market and off-market transactions, bringing us to a total of approximately $1.8 billion for the year.

We also saw strong growth in our industry-leading third-party management platform, ManagementPlus, which grew by nearly 90 net stores to more than 600 stores managed on behalf of joint venture relationships or third-party owners. This platform not only generates management fees, but also is a valuable pipeline for future acquisitions.

All told, we added 259 stores to our platform to finish the year with 1,347 stores, a 24% increase over the end of 2014. We are focused on putting this size and scale to work for us by improving efficiencies across our entire portfolio, strengthening our national presence and sharpening our competitive advantage. At the same time, we continue to execute across all facets of the business to deliver exceptional results and maximize shareholder value.

Looking Ahead

Our plan for 2016 is simple: maintain our focus on operational excellence while capitalizing on the efficiencies that our size and scale offer us. Following our strong performance in 2015, Extra Space Storage is well positioned to do just that.

We have the right properties in the right markets managed by the right team. Our technological prowess, analytical capabilities and marketing strength enable us to take full advantage of economies of scale across our business. Through ManagementPlus, we have built relationships with hundreds of third-party owners, giving us a rich pipeline for potential acquisitions. Our strong balance sheet affords us cost of capital advantages. Finally, our fresh, relevant brand is gaining strength among customers and prospects as we broaden our footprint and update stores to meet our standards.

I thank the entire Extra Space Storage team for accomplishing so much in 2015. Our success is a direct result of their individual and collective commitment to excellence, and it is a privilege to lead such a dedicated and talented organization. I would also like to thank you, our shareholders, for your ongoing support of Extra Space Storage. We work hard to earn your confidence every day.

As I’ve said before, this is a great time to be in the self-storage industry. I look forward to sharing our continued success with you throughout the year ahead.

Sincerely,

Spencer F. Kirk
CEO

Extra Space Storage Team
From left to right: Kenneth M. Woolley, Executive Chairman; Joseph D. Margolis, Chief Investment Officer & Executive VP; Charles L. Allen, Executive VP, Complex Transactions; Samrat Sondhi, Executive VP Operations; Scott Stubbs, Executive VP & Chief Financial Officer; Gwyn McNeal, Chief Legal Officer & Executive VP; James Overturf, Chief Marketing Officer & Executive VP; Spencer F. Kirk, Chief Executive Officer