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, 2023. 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, 2023 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 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 in real time across our portfolio in order to respond to changing market conditions. We believe our systems and processes allow us to more 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 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 28 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 March 31, 2024, we owned or had ownership interests in 2,384 operating stores. Of these stores, 1,909 are wholly-owned, three in consolidated joint ventures and 472 are in unconsolidated joint ventures. In addition, we managed an additional 1,409 stores for third parties bringing the total number of stores which we own and/or manage to 3,793. These stores are located in 42 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 March 31, 2024, approximately 2,155,000 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 March 31, 2024, the average length of stay was approximately 17.4 months. The average annual rent per square foot for our existing customers at stabilized stores, net of discounts and bad debt, was $20.36 for the three months ended March 31, 2024, compared to $20.41 for the three months ended March 31, 2023. Average annual rent per square foot for new leases was $13.60 for the three months ended March 31, 2024, compared to $16.00 for the three months ended March 31, 2023. The average discounts, as a percentage of rental revenues, at all stabilized properties during these periods were 2.2% and 2.5%, respectively. 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. We have a number of multi-floor buildings with elevator access only, and a number of stores featuring ground-floor access only. 29 The following table presents additional information regarding net rentable square feet and the number of stores by state. March 31, 2024 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 2,947,166 2 150,859 13 808,111 53 3,906,136 Arizona 47 3,513,908 26 2,092,735 45 3,617,066 118 9,223,709 California 218 17,841,007 50 3,715,765 128 12,013,135 396 33,569,907 Colorado 27 1,891,044 13 938,440 32 2,410,876 72 5,240,360 Connecticut 23 1,755,094 8 713,977 12 821,289 43 3,290,360 Delaware — — 2 143,640 4 307,281 6 450,921 Florida 246 18,491,634 56 4,651,374 175 13,501,590 477 36,644,598 Georgia 119 9,126,390 23 1,926,107 53 4,036,519 195 15,089,016 Hawaii 14 941,707 — — 4 259,012 18 1,200,719 Idaho 2 131,569 — — 3 290,407 5 421,976 Illinois 106 7,698,254 12 940,002 48 3,653,165 166 12,291,421 Indiana 92 4,053,979 1 57,765 27 1,994,992 120 6,106,736 Iowa — — — — 1 86,949 1 86,949 Kansas 1 50,224 2 108,921 4 289,704 7 448,849 Kentucky 15 1,065,353 1 51,801 15 1,180,063 31 2,297,217 Louisiana 10 772,138 — — 26 1,861,092 36 2,633,230 Maine 5 353,687 — — 12 750,771 17 1,104,458 Maryland 44 3,473,237 11 899,763 47 3,382,656 102 7,755,656 Massachusetts 64 4,059,406 16 984,794 36 2,390,598 116 7,434,798 Michigan 8 675,039 4 309,052 12 910,629 24 1,894,720 Minnesota 8 709,814 8 646,689 15 1,113,028 31 2,469,531 Mississippi 7 561,154 — — 14 1,128,583 21 1,689,737 Missouri 28 2,240,093 7 508,850 20 1,573,103 55 4,322,046 Nebraska — — — — 4 372,210 4 372,210 Nevada 32 2,844,476 9 839,617 11 1,059,690 52 4,743,783 New Hampshire 17 1,276,768 2 84,165 20 867,695 39 2,228,628 New Jersey 88 7,035,203 33 2,611,839 57 4,455,314 178 14,102,356 New Mexico 12 762,225 10 681,770 15 1,084,075 37 2,528,070 New York 79 5,691,946 28 2,316,289 88 6,187,255 195 14,195,490 North Carolina 52 3,734,453 8 620,667 37 2,793,720 97 7,148,840 Ohio 50 3,424,784 5 325,467 19 1,444,508 74 5,194,759 Oklahoma 4 268,388 — — 22 1,435,578 26 1,703,966 Oregon 8 550,140 2 166,608 7 467,224 17 1,183,972 Pennsylvania 31 2,369,176 12 941,276 53 3,940,276 96 7,250,728 Rhode Island 6 351,421 1 95,844 6 473,149 13 920,414 South Carolina 40 2,974,322 11 709,302 41 3,363,581 92 7,047,205 Tennessee 29 2,410,994 16 1,091,876 26 1,831,891 71 5,334,761 Texas 243 20,052,750 71 5,496,514 150 12,371,140 464 37,920,404 Utah 10 734,036 — — 34 2,629,878 44 3,363,914 Virginia 73 5,945,497 10 759,216 34 2,367,956 117 9,072,669 Washington 14 1,091,024 2 199,745 17 1,321,836 33 2,612,605 Washington, DC 1 100,203 1 104,230 6 532,962 8 737,395 Wisconsin 1 97,638 9 883,127 16 1,317,947 26 2,298,712 Totals 1,912 144,067,341 472 36,768,086 1,409 108,698,504 3,793 289,533,931 (1) Includes three consolidated joint ventures and excludes approximately 18,000 units related to Bargold. 30 RESULTS OF OPERATIONS Amounts in thousands, except store and share data Comparison of the three months ended March 31, 2024 and 2023 Overview Results for the three months ended March 31, 2024 included the operations of 2,384 stores (1,909 wholly-owned, three in consolidated joint ventures, and 472 in joint ventures accounted for using the equity method) compared to the results for the three months ended March 31, 2023, which included the operations of 1,457 stores (1,133 wholly-owned, one in a consolidated joint venture, and 323 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 March 31, 2024 2023 $ Change % Change Revenues: Property rental $ 688,044 $ 433,962 $ 254,082 58.5 % Tenant reinsurance 81,347 47,704 33,643 70.5 % Management fees and other income 30,148 21,384 8,764 41.0 % Total revenues $ 799,539 $ 503,050 $ 296,489 58.9 % Property Rental— The increase in property rental revenues for the three months ended March 31, 2024 was primarily the result of an increase of $248,455 associated with the merger of Life Storage, other acquisitions completed in 2023, and acquisitions completed in the first quarter of 2024. We acquired 771 wholly-owned stores in 2023 and an additional six wholly-owned stores during the three months ended March 31, 2024. Tenant Reinsurance— The increase in tenant reinsurance revenues was due primarily to an increase in the number of stores operated. We operated 3,793 stores at March 31, 2024 compared to 2,388 stores at March 31, 2023. 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 months ended March 31, 2024 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 March 31, 2024, we managed 1,884 stores for joint ventures and third parties, compared to 1,255 stores as of March 31, 2023. Expenses The following table presents information on expenses for the periods indicated: For the Three Months Ended March 31, 2024 2023 $ Change % Change Expenses: Property operations $ 204,518 $ 117,166 $ 87,352 74.6 % Tenant reinsurance 18,505 9,089 9,416 103.6 % General and administrative 43,722 34,763 8,959 25.8 % Depreciation and amortization 196,966 78,490 118,476 150.9 % Total expenses $ 463,711 $ 239,508 $ 224,203 93.6 % 31 Property Operations— The increase in property operations expense during the three months ended March 31, 2024 consists primarily of an increase of $79,051 related to the Life Storage Merger, other acquisitions completed in 2023, and acquisitions completed in the first quarter of 2024. We acquired 771 wholly-owned stores in 2023 and an additional six wholly-owned stores during the three months ended March 31, 2024. Additionally, for the three months ended March 31, 2024 there was an increase of $8,451 at our stabilized stores primarily due to payroll, marketing and insurance, partially offset by utilities. Tenant Reinsurance— Tenant reinsurance expense represents the costs that are incurred to provide tenant reinsurance. These increases are primarily related to an increase in stores. We operated 3,793 stores at March 31, 2024 compared to 2,388 stores at March 31, 2023. 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 expense has increased primarily as a result of our increased size through acquisitions, business combinations and growth through our joint venture partners and managed portfolio. Depreciation and Amortization— Depreciation and amortization expense increased as a result of the acquisition of new stores. We acquired 771 wholly-owned stores in 2023 and an additional six wholly-owned stores during the three months ended March 31, 2024. Additionally, the increase relates to the amortization of intangibles recorded as part of the Life Storage Merger. Other Revenues and Expenses The following table presents information on other revenues and expenses for the periods indicated: For the Three Months Ended March 31, 2024 2023 $ Change % Change Interest expense (132,887) (80,099) (52,788) 65.9 % Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes (10,705) — (10,705) 100.0 % Interest income 23,573 19,438 4,135 21.3 % Equity in earnings and dividend income from unconsolidated real estate entities 15,007 10,305 4,702 45.6 % Income tax expense (6,742) (4,308) (2,434) 56.5 % Total other revenues & expenses, net $ (111,754) $ (54,664) $ (57,090) 104.4 % Interest Expense— The increase in interest expense during the three months ended March 31, 2024 was primarily the result of a higher debt balance and higher weighted average interest rate compared to the same period in the prior year. As of March 31, 2024, we had approximately $11.5 billion in total face value of debt, compared to approximately $7.4 billion at March 31, 2023. The increase in the face value of debt is due to the Life Storage Merger. The weighted average interest rate of the total of fixed- and variable-rate debt was 4.5% at March 31, 2024, compared to 4.3% at March 31, 2023. Non-cash Interest Expense Related to Amortization of Discount on Life Storage Unsecured Senior Notes— Represents the amortization of the discount assigned in order to present the fair value of the Life Storage unsecured senior notes assumed as part of the Life Storage Merger. Interest Income— Interest income represents interest earned on variable interest rate bridge loans, debt securities and on notes receivable from Common and Preferred Operating Partnership unit holders. The increase in interest income during the three months ended March 31, 2024 was primarily the result of an increase in amount of bridge loans held combined with an increase in interest rates. The balance of bridge loans was $752,336 as of March 31, 2024, compared to $507,885 as of March 31, 2023. 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 32 cash or profits. We added a total of 154 stores to new and existing joint ventures (145 stores from the Life Storage Merger) during 2023. These additional joint ventures have contributed to the increase. Dividend income represents dividends from our investment in preferred stock of SmartStop Self Storage REIT, Inc. and Strategic Storage Trust VI, Inc. Income Tax Expense —The increase in income tax expense for the three months ended March 31, 2024 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 March 31, 2024 2023 Net income attributable to common stockholders $ 213,112 $ 196,304 Adjustments: Real estate depreciation 154,372 71,248 Amortization of intangibles 29,284 4,170 Unconsolidated joint venture real estate depreciation and amortization 7,840 4,939 Distributions paid on Series A Preferred Operating Partnership units — (159) Income allocated to Operating Partnership noncontrolling interests 10,962 12,574 Funds from operations attributable to common stockholders and unit holders $ 415,570 $ 289,076 33 SAME-STORE RESULTS Our same-store pool for the periods presented consists of 1,078 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 March 31, Percent 2024 2023 Change Same-store rental revenues Net rental income $ 398,792 $ 395,259 0.9 % Other operating income 15,865 15,320 3.6 % Total same-store rental revenues 414,657 410,579 1.0 % Same-store operating expenses Payroll and benefits 24,506 22,526 8.8 % Marketing 8,853 7,173 23.4 % Office expense 13,415 13,057 2.7 % Property operating expense 10,287 11,012 (6.6) % Repairs and maintenance 7,470 7,085 5.4 % Property taxes 38,057 37,416 1.7 % Insurance 5,262 3,921 34.2 % Total same-store operating expenses 107,850 102,190 5.5 % Same-store net operating income $ 306,807 $ 308,389 (0.5) % Same-store square foot occupancy as of year end 93.2% 92.7% Properties included in same-store 1,078 1,078 34 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 March 31, 2024 2023 Net Income $ 224,074 $ 208,878 Adjusted to exclude: Equity in earnings and dividend income from unconsolidated real estate entities (15,007) (10,305) Interest expense 132,887 80,099 Non-cash interest expense related to amortization of discount on Life Storage unsecured senior notes 10,705 — Depreciation and amortization 196,966 78,490 Income tax expense 6,742 4,308 General and administrative 43,722 34,763 Management fees, other income and interest income (53,721) (40,822) Net tenant insurance (62,842) (38,615) Non same-store rental revenue (273,387) (23,383) Non same-store operating expense 96,668 14,976 Total same-store net operating income $ 306,807 $ 308,389 Same-store rental revenues $ 414,657 $ 410,579 Same-store operating expenses 107,850 102,190 Same-store net operating income $ 306,807 $ 308,389 35 CASH FLOWS Cash flows from operating activities for the three months ended March 31, 2024 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 Three Months Ended March 31, 2024 2023 Net cash provided by operating activities $ 465,556 $ 281,649 Net cash used in investing activities (282,071) (86,339) Net cash used in financing activities (233,182) (242,603) Significant components of net cash flow included: Net income $ 224,074 $ 208,878 Depreciation and amortization 196,966 78,490 Accounts payable and accrued expenses 1,112 4,724 Acquisition and development of real estate assets (126,875) (64,058) Investment in unconsolidated real estate entities (2,412) (21,062) Issuance and purchase of notes receivable (158,005) (58,378) Proceeds from sale of notes receivable 7 39,261 Principal payments received from notes receivable 11,823 21,828 Proceeds from unsecured term loans and senior notes and revolving lines of credit 1,679,470 1,381,592 Principal payments on unsecured term loans and senior notes and revolving lines of credit (2,147,191) (1,879,049) Proceeds from issuance of public bonds, net 600,000 500,000 Dividends paid on common stock (344,208) (219,988) 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 2024, 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 March 31, 2024, we had $50,816 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 2024 and 2023, 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 March 31, 2024, we had $11,479,914 face value of debt, resulting in a debt to total enterprise value ratio of 27.0%. As of March 31, 2024, the ratio of total fixed-rate debt and other instruments to total debt was 77.2% ($8,858,252 total fixed-rate debt including $1,384,038 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 March 31, 2024 was 4.5%. Certain of our real estate assets 36 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 March 31, 2024. 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. In addition, we are pursuing additional sources of financing based on anticipated funding needs and growth assumptions. 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 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 March 31, 2024, we had a total of 1,677 unencumbered stores as defined by our public bonds. Our unencumbered asset value was calculated as $32,023,434 and our total asset value was calculated as $37,860,700 according to the calculations as defined by our public bonds. 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. 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.