Extra Space Storage Inc. 10-Q

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, 2024. 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, 2024 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: 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 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 our stores. Our stores are generally situated in highly visible locations clustered around large 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, we 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. 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 industry-leading technology 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 been open for three years or has sustained average square foot occupancy of 80% or more for one calendar year. 29 PROPERTIES As of June 30, 2025, we owned or had ownership interests in 2,430 operating stores. Of these stores, 2,005 are wholly-owned, 11 are in consolidated joint ventures, and 414 are in unconsolidated joint ventures. In addition, we managed an additional 1,749 stores for third parties bringing the total number of stores which we own and/or manage to 4,179. These stores are located in 43 states and Washington, D.C. 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 June 30, 2025, approximately 2,465,000 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-stores as of June 30, 2025, the average length of stay for tenants who have vacated was approximately 17.1 months. Our store portfolio is made up of different types of construction and building configurations. Most often sites are what we consider “hybrid” stores, a mix of drive-up and multi-floor buildings. 30 The following table presents additional information regarding net rentable square feet and the number of stores by state: June 30, 2025 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 38 2,993,801 2 150,859 18 1,258,118 58 4,402,778 Arizona 50 3,840,157 25 2,027,339 61 4,984,618 136 10,852,114 Arkansas — — — — 4 481,708 4 481,708 California 225 18,557,409 43 3,198,121 153 14,350,783 421 36,106,313 Colorado 27 1,889,275 13 936,684 40 2,941,929 80 5,767,888 Connecticut 23 1,756,332 8 713,677 17 1,203,405 48 3,673,414 Delaware — — 1 76,633 6 443,919 7 520,552 Florida 266 20,519,041 41 3,246,302 235 18,058,542 542 41,823,885 Georgia 122 9,343,661 22 1,857,508 66 5,084,622 210 16,285,791 Hawaii 14 941,438 — — 5 343,951 19 1,285,389 Idaho 2 131,834 — — 5 572,699 7 704,533 Illinois 110 7,830,662 8 636,227 62 4,947,871 180 13,414,760 Indiana 94 4,171,008 1 57,737 29 2,207,165 124 6,435,910 Iowa — — — — 1 86,474 1 86,474 Kansas 1 50,264 2 108,746 3 236,790 6 395,800 Kentucky 15 1,094,003 1 51,641 16 1,272,881 32 2,418,525 Louisiana 11 861,133 — — 16 1,157,185 27 2,018,318 Maine 5 354,667 — — 12 798,821 17 1,153,488 Maryland 45 3,589,589 8 629,262 58 4,357,918 111 8,576,769 Massachusetts 67 4,202,636 16 986,177 47 2,956,056 130 8,144,869 Michigan 11 854,665 4 309,087 13 1,057,795 28 2,221,547 Minnesota 7 587,540 8 645,848 13 903,278 28 2,136,666 Mississippi 7 564,729 — — 6 531,003 13 1,095,732 Missouri 29 2,395,379 7 503,624 26 2,013,909 62 4,912,912 Nebraska — — — — 5 445,919 5 445,919 Nevada 34 3,030,060 9 823,555 17 1,553,552 60 5,407,167 New Hampshire 17 1,283,570 2 84,165 13 646,883 32 2,014,618 New Jersey 91 7,217,433 32 2,535,458 79 6,083,726 202 15,836,617 New Mexico 12 762,388 10 681,583 17 1,234,891 39 2,678,862 New York 83 6,020,427 26 2,122,190 94 6,656,947 203 14,799,564 North Carolina 56 4,083,140 5 396,356 63 4,977,019 124 9,456,515 Ohio 50 3,446,858 5 327,138 24 1,993,823 79 5,767,819 Oklahoma 4 269,828 — — 37 2,630,001 41 2,899,829 Oregon 8 549,806 2 166,613 7 479,932 17 1,196,351 Pennsylvania 33 2,557,705 10 787,187 64 4,820,968 107 8,165,860 Rhode Island 6 350,217 1 95,759 6 482,576 13 928,552 South Carolina 48 3,476,009 1 94,802 51 4,319,837 100 7,890,648 Tennessee 32 2,572,618 16 1,089,706 31 2,171,342 79 5,833,666 Texas 270 21,738,606 65 5,000,057 202 16,355,625 537 43,094,288 Utah 10 733,948 — — 46 3,756,277 56 4,490,225 Virginia 74 6,008,574 9 699,535 40 2,791,844 123 9,499,953 Washington 16 1,281,341 1 77,325 18 1,446,191 35 2,804,857 Washington, DC 1 100,053 1 104,078 6 534,582 8 738,713 Wisconsin 2 187,155 9 871,210 17 1,532,138 28 2,590,503 Totals 2,016 152,198,959 414 32,092,189 1,749 137,165,513 4,179 321,456,661 (1) Includes 11 consolidated joint ventures. 31 RESULTS OF OPERATIONS Amounts in thousands, except store and share data Comparison of the three and six months ended June 30, 2025 and 2024 Overview Results for the three and six months ended June 30, 2025 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) compared to the results for the three and six months ended June 30, 2024, which included the operations of 2,389 stores (1,912 wholly-owned, five in consolidated joint ventures, and 472 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 June 30, For the Six Months Ended June 30, 2025 2024 $ Change % Change 2025 2024 $ Change % Change Revenues: Property rental $ 721,004 $ 697,100 $ 23,904 3.4 % $ 1,425,384 $ 1,385,144 $ 40,240 2.9 % Tenant reinsurance 88,572 83,705 4,867 5.8 % 173,284 165,052 8,232 5.0 % Management fees and other income 32,042 29,858 2,184 7.3 % 62,947 60,006 2,941 4.9 % Total revenues $ 841,618 $ 810,663 $ 30,955 3.8 % $ 1,661,615 $ 1,610,202 $ 51,413 3.2 % Property rental— The increase in property rental revenues for the three and six months ended June 30, 2025 was primarily the result of an increase of $30,049 and $47,591, respectively, associated with acquisitions completed in 2024 and acquisitions completed in the first six months of 2025. The increase in revenue resulting from these acquisitions was partially offset by decreases in rental revenue of $6,027 and $10,663, respectively, due to property dispositions for the three and six months ended June 30, 2025. We acquired 58 wholly-owned stores in 2024 and an additional 45 wholly-owned stores during the six months ended June 30, 2025. Tenant reinsurance— The increase in tenant reinsurance revenues was due primarily to an increase in the number of stores operated. We operated 4,179 stores at June 30, 2025 compared to 3,812 stores at June 30, 2024. 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, 2025 was 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 period last year. As of June 30, 2025, we managed 2,163 stores for unconsolidated joint ventures and third parties, compared to 1,895 stores as of June 30, 2024. 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, 2025 2024 $ Change % Change 2025 2024 $ Change % Change Expenses: Property operations $ 227,621 $ 196,902 $ 30,719 15.6 % $ 451,203 $ 401,420 $ 49,783 12.4 % Tenant reinsurance 16,945 19,631 (2,686) (13.7) % 34,061 38,136 (4,075) (10.7) % General and administrative 44,952 39,901 5,051 12.7 % 90,926 83,623 7,303 8.7 % Depreciation and amortization 177,266 194,809 (17,543) (9.0) % 357,622 391,775 (34,153) (8.7) % Total expenses $ 466,784 $ 451,243 $ 15,541 3.4 % $ 933,812 $ 914,954 $ 18,858 2.1 % Property operations— The increase in property operations expense during the three and six months ended June 30, 2025 consists primarily of an increase of $14,612 and $24,624, respectively, related to acquisitions completed in 2024 and acquisitions completed in the first six months of 2025. We acquired 58 wholly-owned stores in 2024 and an additional 45 wholly-owned stores during the six months ended June 30, 2025. Additionally, for the three and six months ended June 30, 32 2025 there was an increase of $12,220 and $22,501, respectively at our same-store properties primarily due to an increase in property tax expense. 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. Our overall general and administrative expense has increased primarily as a result of our increased size through acquisitions and growth through our joint venture partners and managed portfolio. Depreciation and amortization— The company amortizes 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 decreased for both the three and six month periods, due to the customer intangibles associated with our merger with Life Storage being fully expensed in January of this year. 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, 2025 2024 $ Change % Change 2025 2024 $ Change % Change Gain (loss) on real estate assets held for sale and sold, net $ (864) $ (54,659) $ 53,795 (98.4) % $ 34,897 $ (54,659) $ 89,556 (163.8) % Interest expense (146,128) (137,133) (8,995) 6.6 % (288,527) (270,020) (18,507) 6.9 % Non-cash interest expense related to amortization of discount on unsecured senior notes, net (11,770) (10,853) (917) 8.4 % (23,083) (21,558) (1,525) 7.1 % Interest income 41,998 31,226 10,772 34.5 % 80,965 54,799 26,166 47.7 % Equity in earnings and dividend income from unconsolidated real estate entities 16,284 17,255 (971) (5.6) % 36,215 32,262 3,953 12.3 % Income tax expense (11,638) (9,844) (1,794) 18.2 % (20,629) (16,586) (4,043) 24.4 % Total other revenues & expenses, net $ (112,118) $ (164,008) $ 51,890 (31.6) % $ (180,162) $ (275,762) $ 95,600 (34.7) % Gain on real estate assets held for sale and sold, net— We completed the sale of 12 previously held for sale stores during the six months ended June 30, 2025 resulting in a gain of $38,656 which was partially offset by losses of $3,759. The loss 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 resulting in an additional loss of $864. During the three months ended June 30, 2024, we listed seven properties for sale. These properties were recorded at current fair value less selling costs which resulted in an estimated loss of $54,659. Interest expense— The increase in interest expense during the three and six months ended June 30, 2025 was primarily the result of higher outstanding debt. As of June 30, 2025, we had approximately $13,169,719 in total face value of debt, compared to approximately $11,803,723 as of June 30, 2024. 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 the Life Storage Merger and net premium from bond offerings, offset by discount from assumed debt. Interest income— Interest income represents interest earned on variable interest rate bridge loans, debt securities and on notes receivable from Common Operating Partnership unit holders. The increase in interest income during the three and six months ended June 30, 2025 was primarily the result of an increase in the amount of bridge loans outstanding. The balance of bridge loans was $1,542,693 as of June 30, 2025, compared to $1,136,306 as of June 30, 2024. 33 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 increase for the six months ended June 30, 2025 is primarily due to the transaction in November 2024 in which we acquired additional ownership interest in the HF1 Sovran HHF Storage Holdings LLC and HF2 Sovran HHF Storage Holdings II LLC from our partner in the unconsolidated joint ventures. The transaction increased our equity ownership percentages from 20% and 15%, respectively, to 49% in each unconsolidated joint venture. The decrease for the three months ended June 30, 2025 is primarily due to the acquisition of our partners’ membership interests in the ESS-NYFL JV LP and ESS CA-TIVS JV LP joint ventures, as well as the transfer and distribution of membership interests in the PR II EXR JV LLC joint venture. The number of unconsolidated joint ventures in which we have ownership interests was 414 as of June 30, 2025, compared to 472 as of June 30, 2024. Dividend income represents dividends from our investment in preferred stock of SmartStop and its affiliates. Income tax expense —The increase in income tax expense for the three and six months ended June 30, 2025 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, 2025 2024 2025 2024 Net income attributable to common stockholders $ 249,731 $ 185,872 $ 520,606 $ 398,984 Adjustments: Real estate depreciation 164,707 153,217 323,877 307,589 Amortization of intangibles 3,225 28,137 14,304 57,421 (Gain) loss on real estate assets held for sale and sold, net 864 54,659 (34,897) 54,659 Unconsolidated joint venture real estate depreciation and amortization 7,741 8,009 16,430 15,849 Income allocated to Operating Partnership noncontrolling interests 12,985 9,540 27,035 20,502 Funds from operations attributable to common stockholders and unit holders $ 439,253 $ 439,434 $ 867,355 $ 855,004 34 SAME-STORE RESULTS Our same-store pool for the periods presented consists of 1,829 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 2025 2024 Change 2025 2024 Change Same-store rental revenues Net rental income $ 640,422 $ 639,094 0.2 % $ 1,276,284 $ 1,270,499 0.5 % Other operating income 25,141 26,681 (5.8) % 49,095 52,914 (7.2) % Total same-store rental revenues 665,563 665,775 0.0 % 1,325,379 1,323,413 0.1 % Same-store operating expenses Payroll and benefits 40,985 39,968 2.5 % 81,213 81,130 0.1 % Marketing 17,146 16,946 1.2 % 31,086 32,874 (5.4) % Office expense 20,553 20,250 1.5 % 40,859 41,126 (0.6) % Property operating expense 15,792 15,335 3.0 % 35,341 34,480 2.5 % Repairs and maintenance 13,047 12,426 5.0 % 28,243 27,008 4.6 % Property taxes 75,881 63,661 19.2 % 151,350 128,849 17.5 % Insurance 7,968 7,667 3.9 % 15,732 15,514 1.4 % Total same-store operating expenses 191,372 176,253 8.6 % 383,824 360,981 6.3 % Same-store net operating income $ 474,191 $ 489,522 (3.1) % $ 941,555 $ 962,432 (2.2) % Same-store square foot occupancy as of period end 94.6% 94.0% 94.6% 94.0% Average same-store square foot occupancy 94.2% 93.6% 93.8% 92.8% Properties included in same-store 1,829 1,829 1,829 1,829 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 2025 2024 2025 2024 Average annual rent per occupied square foot, net of discounts and bad debt $ 19.68 $ 19.83 $ 19.71 $ 19.89 New leases average annual rent per square foot $ 14.28 $ 13.86 $ 13.24 $ 13.01 Average discounts as a percentage of rental revenues 2.0% 1.9% 1.9% 1.9% 35 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, 2025 2024 2025 2024 Net Income $ 262,716 $ 195,412 $ 547,641 $ 419,486 Adjusted to exclude: (Gain) loss on real estate assets held for sale and sold, net 864 54,659 (34,897) 54,659 Equity in earnings and dividend income from unconsolidated real estate entities (16,284) (17,255) (36,215) (32,262) Interest expense 146,128 137,133 288,527 270,020 Non-cash interest expense related to amortization of discount on unsecured senior notes, net 11,770 10,853 23,083 21,558 Depreciation and amortization 177,266 194,809 357,622 391,775 Income tax expense 11,638 9,844 20,629 16,586 General and administrative 44,952 39,901 90,926 83,623 Management fees, other income and interest income (74,040) (61,084) (143,912) (114,805) Net tenant insurance (71,627) (64,074) (139,223) (126,916) Non same-store rental revenue (55,441) (31,325) (100,005) (61,731) Non same-store operating expense 36,249 20,649 67,379 40,439 Total same-store net operating income $ 474,191 $ 489,522 $ 941,555 $ 962,432 Same-store rental revenues $ 665,563 $ 665,775 $ 1,325,379 $ 1,323,413 Same-store operating expenses 191,372 176,253 383,824 360,981 Same-store net operating income $ 474,191 $ 489,522 $ 941,555 $ 962,432 36 CASH FLOWS Cash flows from operating activities for the six months ended June 30, 2025 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, 2025 2024 Net cash provided by operating activities $ 1,025,265 $ 1,010,800 Net cash used in investing activities (614,255) (764,767) Net cash used in financing activities (425,625) (269,572) Significant components of net cash flow included: Net income $ 547,641 $ 419,486 Depreciation and amortization 357,622 391,775 Acquisition and development of real estate assets (544,077) (226,713) Proceeds from sale of real estate assets 133,206 — Investment in unconsolidated real estate entities (113,285) (10,789) Return of investment in unconsolidated real estate ventures 200,000 4,200 Issuance of notes receivable, net of sales and principal payments (281,697) (521,813) Proceeds from unsecured term loans, senior notes, revolving lines of credit and commercial paper 6,440,431 3,263,470 Principal payments on unsecured term loans, senior notes, revolving lines of credit and commercial paper (6,974,943) (3,407,382) Proceeds from issuance of public bonds, net 850,000 600,000 Dividends paid on common stock (688,085) (687,636) 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, recurring capital expenditures, acquisitions, funding for the bridge loan program, 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 2025, 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 As of June 30, 2025, we had $125,045 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 2025 and 2024, 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. 37 The following table presents information relating to our debt: June 30, 2025 Total face value of debt $ 13,169,719 Total enterprise value ratio 28.7 % Total fixed-rate debt and other instruments to total debt 77.6% (1) Weighted average interest rate of total debt 4.4 % (1) $10,225,848 total fixed-rate debt including $952,000 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. In November 2024, we established our commercial paper program, under which we may 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 13 months. 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 Facilities in an amount at least equal to the amount of commercial paper notes outstanding. At June 30, 2025, we had $700,000 in issuances outstanding under the commercial paper program. We hold a BBB+/Stable rating from S&P, which was upgraded from BBB/Stable in July 2023 in connection with the Life Storage Merger, and a Baa2/Positive 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, 2025, we had a total of 1,773 unencumbered stores as defined by our public bonds. Our unencumbered asset value was calculated as $30,214,990 and our total asset value was calculated as $36,039,197 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, 2025. Our liquidity needs consist primarily of operating expenses, monthly debt service payments, recurring capital expenditures, dividends to stockholders and distributions to unit holders necessary to maintain our 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. 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, 2025, no shares have been sold under the Equity Distribution Agreement, which we refer to as our “at the market” equity program. 38 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. RECENT TAX LEGISLATION On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law, which included certain modifications to U.S. tax law, including certain provisions that affect the taxation of REITs and their investors. The OBBBA permanently extended certain provisions that were enacted in the Tax Cuts and Jobs Act of 2017. Such extensions included the permanent extension of the 20% deduction for “qualified REIT dividends” for individuals and other non-corporate taxpayers. The OBBBA also increased the percentage limit under the REIT asset test applicable to taxable REIT subsidiaries (the permissible value of taxable REIT subsidiary securities that a REIT may hold) from 20% to 25% of the value of the REIT’s total assets for taxable years beginning after December 31, 2025. We are currently evaluating the provisions of the OBBBA, but do not expect the OBBBA to have a material impact on our financial position and/or results of operations. 39