SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

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

January 17, 2007

(Date of Report (Date of Earliest Event Reported))

EXTRA SPACE STORAGE INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

 

001-32269

 

20-1076777

(State or Other Jurisdiction

 

(Commission File Number)

 

(IRS Employer

of Incorporation)

 

 

 

Identification Number)

 

2795 East Cottonwood Parkway, Suite 400

Salt Lake City, Utah 84121

(Address of Principal Executive Offices)

(801) 562-5556

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



ITEM 2.01 Completion of Acquisition or Disposition of Assets.

Extra Space Storage Inc. (the “Company” or “EXR”) purchased 25 properties during 2006.  Twenty properties were acquired during the first nine months of 2006 and the remaining five properties thereafter.  No single property (or portfolio of properties) was an individually significant acquisition as defined under Regulation S-X Rule 3-14.  Audits of nine properties were performed and represent the mathematical majority of the cost of the Company’s individually insignificant pool of acquisition properties.

ITEM 9.01 Financial Statements and Exhibits.

Pro Forma Financial Information:

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2006

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2006

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2005

Audited Historical Financial Statements with Unaudited Interim Periods:

Deland Vest, L.L.C.

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

CFG Properties

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Little River Vest, L.L.C.

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Extra Space Development, LLC

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Inwood Limited Partnership

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Winward Self Storage, LLC                        

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Parklawn Storage Partners, L.P.

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Advantage Self Storage

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

Jason’s Self Storage of Neptune, New Jersey

Report of Independent Registered Public Accounting Firm

Statements of Revenues and Certain Expenses

Notes to Statements of Revenues and Certain Expenses

2



SIGNATURES

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

 

EXTRA SPACE STORAGE INC.

 

 

 

 

 

 

 

 

Date: January 17, 2007

 

By

/s/ Kent W. Christensen

 

 

 

Name:

Kent W. Christensen

 

 

 

Title:

Executive Vice President and Chief
Financial Officer

 

3



Index to the Financial Statements

Pro Forma Financial Information:

 

 

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2006

 

6

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2006

 

8

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2005

 

12

 

 

 

Audited Historical Financial Statements with Unaudited Interim Periods:

 

 

Deland Vest, L.L.C.

 

 

Report of Independent Registered Public Accounting Firm

 

16

Statements of Revenues and Certain Expenses

 

17

Notes to Statements of Revenues and Certain Expenses

 

18

CFG Properties

 

 

Report of Independent Registered Public Accounting Firm

 

19

Statements of Revenues and Certain Expenses

 

20

Notes to Statements of Revenues and Certain Expenses

 

21

Little River Vest, L.L.C.

 

 

Report of Independent Registered Public Accounting Firm

 

22

Statements of Revenues and Certain Expenses

 

23

Notes to Statements of Revenues and Certain Expenses

 

24

Extra Space Development, LLC

 

 

Report of Independent Registered Public Accounting Firm

 

25

Statements of Revenues and Certain Expenses

 

26

Notes to Statements of Revenues and Certain Expenses

 

27

Inwood Limited Partnership

 

 

Report of Independent Registered Public Accounting Firm

 

28

Statements of Revenues and Certain Expenses

 

29

Notes to Statements of Revenues and Certain Expenses

 

30

Winward Self Storage, LLC

 

 

Report of Independent Registered Public Accounting Firm

 

31

Statements of Revenues and Certain Expenses

 

32

Notes to Statements of Revenues and Certain Expenses

 

33

Parklawn Storage Partners, L.P.

 

 

Report of Independent Registered Public Accounting Firm

 

34

Statements of Revenues and Certain Expenses

 

35

Notes to Statements of Revenues and Certain Expenses

 

36

Advantage Self Storage

 

 

Report of Independent Registered Public Accounting Firm

 

37

Statements of Revenues and Certain Expenses

 

38

Notes to Statements of Revenues and Certain Expenses

 

39

Jason’s Self Storage of Neptune, New Jersey

 

 

Report of Independent Registered Public Accounting Firm

 

40

Statements of Revenues and Certain Expenses

 

41

Notes to Statements of Revenues and Certain Expenses

 

42

4



 

EXTRA SPACE STORAGE INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Extra Space Storage Inc. (the “Company” or “EXR”) purchased 25 properties during 2006.  Twenty properties were acquired during the first nine months of 2006 and the remaining five properties thereafter.  No single property (or portfolio of properties) was an individually significant acquisition as defined under Regulation S-X Rule 3-14.  Audits of nine properties were performed and represent the mathematical majority of the cost of the Company’s individually insignificant pool of acquisition properties.

The following unaudited pro forma condensed consolidated financial information of Extra Space Storage Inc. as of and for the nine months ended September 30, 2006 and for the year ended December 31, 2005 has been derived from (1) the historical audited financial statements of Extra Space Storage Inc. as filed in the Company’s 2005 Form 10-K, (2) the historical unaudited financial statements of Extra Space Storage Inc. as filed in the Company’s third quarter 2006 Form 10-Q, (3) the historical statements of revenues and certain expenses of the nine audited properties acquired during 2006, and (4) the historical unaudited statements of revenues and certain expenses of the remaining 16 self-storage properties acquired during 2006.

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2006 reflects adjustments to the Company’s unaudited historical financial data to give effect to the five properties acquired subsequent to September 30, 2006 as if each had occurred on September 30, 2006.

The pro forma condensed consolidated statements of operations for the nine months ended September 30, 2006 and for the year ended December 31, 2005 reflect adjustments to the Company’s historical financial data to give effect to the acquisition of all 25 self-storage properties as if each had occurred on January 1, 2005 (the pro forma amounts have been adjusted to exclude any operations from the date of acquisition to September 30, 2006 if such acquisition occurred before September 30, 2006).

On April 13, 2006, the Company purchased a group of five properties from a joint venture in which it was a partner.  This joint venture interest was originally acquired by the Company as part of the Storage USA acquisition that was completed on July 14, 2005.  The Company has included these five properties in its pool of unaudited individually insignificant acquisitions.  These properties were not audited for the following reasons:  (i) the amount of the acquisition was not considered by management to be material individually or in aggregate to the Company’s financial statements; (ii) the acquisition was not a typical related party transaction (i.e. where the counter party is a significant shareholder, officer or director, etc.); and (iii) completing the audits would have been burdensome to the Company due to the incomplete nature of the related records.  Management believes that the absence of audits of these financial statements is not material to a reader’s understanding of the Company’s financial results, financial condition and related trends.

The unaudited pro forma adjustments are based on available information and assumptions that the Company considers reasonable. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of what the Company’s actual financial position or results of operations for the period would have been as of the date and for the periods indicated, nor does it purport to represent the Company’s future financial position or results of operations.

The unaudited pro forma condensed consolidated financial information should be read together with the notes thereto in conjunction with the more detailed information contained in the historical  financial statements referenced in this filing.

5



EXTRA SPACE STORAGE INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2006

(in thousands, except per share data)

 

 

Historical EXR

 

Five
Acquisitions
Subsequent to
9/30/06

 

Pro Forma
EXR

 

 

 

(1)

 

(2)

 

 

 

Assets:

 

 

 

 

 

 

 

Real estate assets:

 

 

 

 

 

 

 

Net operating real estate assets

 

$

1,333,901

 

$

35,956

 

$

1,369,857

 

Real estate under development

 

36,343

 

—

 

36,343

 

Net real estate assets

 

1,370,244

 

35,956

 

1,406,200

 

 

 

 

 

 

 

 

 

Investments in real estate ventures

 

89,695

 

—

 

89,695

 

Cash and cash equivalents

 

151,686

 

(35,636

)

116,050

 

Restricted cash

 

16,955

 

—

 

16,955

 

Receivables from related parties and affiliated real estate joint ventures

 

7,064

 

—

 

7,064

 

Notes receivable

 

1,688

 

—

 

1,688

 

Other assets, net

 

31,204

 

309

 

31,513

 

Total assets

 

$

1,668,536

 

$

629

 

$

1,669,165

 

 

 

 

 

 

 

 

 

Liabilities, Minority Interests, and Stockholders' Equity:

 

 

 

 

 

 

 

Notes payable

 

$

825,604

 

$

—

 

$

825,604

 

Notes payable to trusts

 

119,590

 

—

 

119,590

 

Accounts payable and accrued expenses

 

6,776

 

526

 

7,302

 

Other liabilities

 

29,952

 

103

 

30,055

 

Total liabilities

 

981,922

 

629

(3)

982,551

 

 

 

 

 

 

 

 

 

Minority interest in Operating Partnership

 

35,304

 

—

 

35,304

 

Other minority interests

 

225

 

—

 

225

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized, 64,151,274 shares issued and outstanding at September 30, 2006

 

642

 

—

 

642

 

Additional paid-in capital

 

821,852

 

—

 

821,852

 

Accumulated deficit

 

(171,409

)

—

 

(171,409

)

Total stockholders' equity

 

651,085

 

—

 

651,085

 

Total liabilities, minority interests, and stockholders' equity

 

$

1,668,536

 

$

629

 

$

1,669,165

 

 

6



EXTRA SPACE STORAGE INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

BALANCE SHEET

(in thousands)

(1) Reflects the assets, liabilities and stockholders’ equity of EXR as filed in Form 10-Q as of September 30, 2006.

(2) Represents the five properties purchased after September 30, 2006 which include:

·                  The purchase of a property located in Neptune, New Jersey on November 2, 2006 for cash of $13,129.

·                  The purchase of a four property portfolio on November 21, 2006 for cash of $22,507.  Three properties are located in Texas and one is located in Florida.

(3) Security deposits and prepaid rent from customers and accrued property taxes represent the total liabilities of $629 for the five properties purchased after September 30, 2006.

7



EXTRA SPACE STORAGE INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006

(in thousands, except per share data)

 

 

Historical
EXR

 

Nine Audited
Acquisitions

 

Sixteen Un-
Audited

Acquisitions

 

Pro Forma
Adjustments

 

Pro Forma
EXR

 

 

 

(1)

 

(2)

 

(3)

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Property rental

 

$

125,877

 

$

3,662

 

$

3,903

 

$

—

 

$

133,442

 

Management and franchise fees

 

15,697

 

—

 

—

 

—

 

15,697

 

Tenant insurance

 

2,608

 

—

 

—

 

—

 

2,608

 

Acquisition and development fees

 

272

 

—

 

—

 

—

 

272

 

Other income

 

635

 

—

 

—

 

—

 

635

 

Total revenues

 

145,089

 

3,662

 

3,903

 

—

 

152,654

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Property operations

 

46,603

 

1,652

 

1,360

 

(377

)(4)

49,238

 

Tenant insurance

 

1,506

 

—

 

—

 

—

 

1,506

 

Unrecovered development/acquisition costs and support payments

 

255

 

—

 

—

 

—

 

255

 

General and administrative

 

26,590

 

—

 

—

 

—

 

26,590

 

Depreciation and amortization

 

27,586

 

—

 

—

 

2,324

(5)

29,910

 

Total expenses

 

102,540

 

1,652

 

1,360

 

1,947

 

107,499

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before interest, minority interests, equity in earnings of real estate ventures

 

42,549

 

2,010

 

2,543

 

(1,947

)

45,155

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(38,198

)

—

 

—

 

(855

)(6)

(39,053

)

Interest income

 

805

 

—

 

—

 

(805

)(7)

—

 

Minority interest - Operating Partnership

 

(585

)

—

 

—

 

—

 

(585

)

Equity in earnings of real estate ventures

 

3,566

 

—

 

—

 

—

 

3,566

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,137

 

$

2,010

 

$

2,543

 

$

(3,607

)

$

9,083

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.16

 

 

 

 

 

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.13

 

 

 

 

 

 

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares-Basic

 

51,929,336

 

 

 

 

 

 

 

51,929,336

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of commona shares-Diluted

 

56,250,164

 

 

 

 

 

 

 

56,250,164

 

 

8



EXTRA SPACE STORAGE INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006

(in thousands, except per share data)

 

(1) Reflects the results of operations of EXR as filed in Form 10-Q for the nine months ended September 30, 2006.

(2) Represents the pro forma revenues and operating expenses for the nine months ended September 30, 2006 of the nine audited properties acquired in 2006, for the period prior to acquisition by the Company.

 

 

Nine Audited Properties Financial
Statements

 

Less Activity for
Period Subsequent to
Acquisition

 

Net Activity for

Periods Prior to
Acquisition Included
in Pro Forma

 

Property

 

Revenues

 

Expenses

 

Mgmt.Fee

 

Revenues

 

Expenses

 

Revenues

 

Expenses

 

Deland, FL (Deland Vest, L.L.C.)

 

$

431

 

$

250

 

$

30

 

$

419

 

$

206

 

$

12

 

$

44

 

Venice, FL (CFG Properties)

 

701

 

317

 

49

 

670

 

258

 

31

 

59

 

Dacula, FL (Little River Vest, L.L.C.)

 

470

 

224

 

33

 

429

 

165

 

41

 

59

 

N. Hollywood, CA (Extra Space Development, L.L.C.)

 

620

 

301

 

37

 

363

 

152

 

257

 

149

 

Dallas, TX (Inwood Limited Partnership)

 

1,087

 

338

 

54

 

606

 

159

 

481

 

179

 

Alpharetta, GA (Winward Self Storage, LLC)

 

454

 

184

 

32

 

87

 

27

 

367

 

157

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

1,131

 

336

 

56

 

125

 

28

 

1,006

 

308

 

Neptune, NJ (Jason's Self Storage of Neptune, NJ)

 

895

 

437

 

52

 

—

 

—

 

895

 

437

 

Allen, TX (Advantage Self Storage)

 

572

 

260

 

34

 

—

 

—

 

572

 

260

 

TOTALS

 

$

6,361

 

$

2,647

 

$

377

 

$

2,699

 

$

995

 

$

3,662

 

$

1,652

 

 

(3) Represents the unaudited pro forma revenues and operating expenses (excluding management fees) for the nine months ended September 30, 2006 of the 16 additional properties that were acquired in 2006 for the period prior to acquisition:

16 Un-Audited Properties

 

Revenues

 

Expenses

 

Tacoma (Pacific Hwy), WA

 

$

83

 

$

35

 

Tacoma (80th Street), WA

 

84

 

33

 

Tacoma (Tacoma Way), WA

 

25

 

23

 

Bensalem, PA

 

80

 

49

 

Houston (Pasadena), TX

 

183

 

77

 

Garland, TX

 

159

 

75

 

Nashville, TN

 

145

 

94

 

Houston (SW Fwy), TX

 

407

 

136

 

Wichita, KS

 

128

 

82

 

Phoenix, AZ

 

222

 

85

 

Lancaster, CA

 

435

 

110

 

Rowlett, TX

 

223

 

129

 

Parker, CO

 

273

 

132

 

Plano (Plano Pkwy), TX

 

606

 

110

 

Plano (Spring Creek) , TX

 

403

 

100

 

Tampa, FL

 

447

 

90

 

TOTALS

 

$

3,903

 

$

1,360

 

 

(4) Adjustment to eliminate the management fee paid to a third party for management of the properties as subsequent to acquisition by the Company, all properties are self-managed.

9



(5) Depreciation and amortization expense adjustments of $1,136 on audited transactions includes real estate depreciation of $709 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $63,222 and amortization of $427 computed on a straight-line basis over 18 months on $1,461 of intangible assets relating to tenant relationships.  Depreciation and amortization expense adjustments of $1,188 on non-audited transactions includes real estate depreciation of $715 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $65,449 and amortization of $473 computed on a straight-line basis over 18 months on $1,806 of intangible assets relating to tenant relationships.

 

Nine Audited Properties

 

Depreciable
Assets

 

Depreciation
for Period
Prior to
Acquisition

 

Intangibles

 

Amortization
for Period
Prior to
Acquisition

 

Total
Depreciation /
Amortization
for Period
Prior to
Acquisition

 

Deland, FL (Deland Vest, L.L.C.)

 

$

3,953

 

$

—

 

$

96

 

$

—

 

$

—

 

Venice, FL (CFG Properties)

 

5,907

 

6

 

170

 

5

 

11

 

Dacula, FL (Little River Vest, L.L.C.)

 

2,990

 

3

 

100

 

3

 

6

 

N. Hollywood, CA (Extra Space Development, L.L.C.)

 

9,251

 

79

 

140

 

31

 

110

 

Dallas, TX (Inwood Limited Partnership)

 

12,491

 

107

 

230

 

51

 

158

 

Alpharetta, GA (Winward Self Storage, LLC)

 

3,121

 

48

 

105

 

42

 

90

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

11,242

 

192

 

270

 

120

 

312

 

Neptune, NJ (Jason's Self Storage of Neptune, NJ)

 

8,745

 

168

 

230

 

115

 

283

 

Allen, TX (Advantage Self Storage)

 

5,525

 

106

 

120

 

60

 

166

 

Totals

 

$

63,222

 

$

709

 

$

1,461

 

$

427

 

$

1,136

 

 

16 Un-Audited Properties

 

Depreciable
Assets

 

Depreciation
for Period
Prior to
Acquisition

 

Intangibles

 

Amortization
for Period
Prior to
Acquisition

 

Total
Depreciation /
Amortization
for Period
Prior to
Acquisition

 

Tacoma (Pacific Hwy), WA

 

$

5,239

 

$

17

 

$

166

 

$

14

 

$

31

 

Tacoma (80th Street), WA

 

4,766

 

15

 

156

 

13

 

28

 

Tacoma (Tacoma Way), WA

 

3,093

 

10

 

117

 

10

 

20

 

Bensalem, PA

 

2,999

 

19

 

62

 

10

 

29

 

Houston (Pasadena), TX

 

4,063

 

30

 

112

 

22

 

52

 

Garland, TX

 

2,216

 

17

 

96

 

19

 

36

 

Nashville, TN

 

2,598

 

19

 

88

 

17

 

36

 

Houston (SW Fwy), TX

 

8,690

 

65

 

242

 

47

 

112

 

Wichita, KS

 

1,897

 

14

 

76

 

15

 

29

 

Phoenix, AZ

 

3,441

 

44

 

85

 

28

 

72

 

Lancaster, CA

 

5,799

 

87

 

130

 

51

 

138

 

Rowlett, TX

 

2,585

 

40

 

70

 

28

 

68

 

Parker, CO

 

4,543

 

79

 

76

 

34

 

113

 

Plano (Plano Pkwy), TX

 

6,191

 

119

 

140

 

70

 

189

 

Plano (Spring Creek) , TX

 

3,761

 

72

 

90

 

45

 

117

 

Tampa, FL

 

3,518

 

68

 

100

 

50

 

118

 

Totals

 

$

65,449

 

$

715

 

$

1,806

 

$

473

 

$

1,188

 

Grand Total

 

 

 

 

 

 

 

 

 

$

2,324

 

 

10



 

(6) Debt of $23,562 was assumed on four properties with an average fixed rate of 6.19%.  Another four properties are part of a new loan that was closed in the third quarter of 2006.  The debt allocable to these four properties totals $20,172 with interest at a fixed rate of 6.18%.  The pro forma statement of operations assumes that all of the debt was in place on January 1, 2005. These properties are shown below.

Nine Audited Properties Debt

Property

 

Debt

 

Rate

 

Non-Owned
Period
Interest

 

Type

 

Venice, FL (CFG Properties)

 

$

7,096

 

6.18

%

$

14

 

New Debt

 

Dacula, FL (Little River Vest, L.L.C.)

 

3,879

 

6.18

%

10

 

New Debt

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

12,680

 

6.08

%

514

 

Assumed Debt

 

Alpharetta, GA (Winward Self Storage, LLC)

 

2,955

 

5.43

%

97

 

Assumed Debt

 

Total

 

$

26,610

 

 

 

$

635

 

 

 

 

Sixteen Non-Audited Properties Debt

 

Property

 

Debt

 

Rate

 

Non-Owned
Period
Interest

 

Type

 

Tacoma (Pacific Hwy), WA

 

$

4,600

 

6.18

%

$

36

 

New Debt

 

Tacoma (80th Street), WA

 

4,597

 

6.18

%

36

 

New Debt

 

Houston (SW Fwy), TX

 

5,126

 

7.00

%

100

 

Assumed Debt

 

Houston (Pasadena), TX

 

2,801

 

6.01

%

48

 

Assumed Debt

 

Total

 

$

17,102

 

 

 

$

220

 

 

 

Grand Total

 

 

 

 

 

$

855

 

 

 

 

(7) Interest income was reduced by $805 to reflect the use of net cash in the acquisitions.

11



 

EXTRA SPACE STORAGE INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(in thousands, except per share data)

 

 

 

 

Historical
EXR

 

Nine Audited
Acquisitions

 

Sixteen Un-
Audited
Acquisitions

 

Pro Forma
Adjustments

 

Pro Forma
EXR

 

 

 

(1)

 

(2)

 

(3)

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Property rental

 

$

120,640

 

$

7,968

 

$

8,539

 

$

—

 

$

137,147

 

Management and franchise fees

 

10,650

 

—

 

—

 

—

 

10,650

 

Tenant insurance

 

1,882

 

—

 

—

 

—

 

1,882

 

Acquisition and development fees

 

992

 

—

 

—

 

—

 

992

 

Other income

 

564

 

—

 

—

 

—

 

564

 

Total revenues

 

134,728

 

7,968

 

8,539

 

—

 

151,235

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Property operations

 

45,963

 

3,593

 

3,596

 

(485

)(4)

52,667

 

Tenant insurance

 

1,023

 

—

 

—

 

—

 

1,023

 

Unrecovered development/acquisition costs and support payments

 

302

 

—

 

—

 

—

 

302

 

General and administrative

 

24,081

 

—

 

—

 

—

 

24,081

 

Depreciation and amortization

 

31,005

 

—

 

—

 

5,477

(5)

36,482

 

Total expenses

 

102,374

 

3,593

 

3,596

 

4,992

 

114,555

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before interest, minority interests, equity in earnings of real estate ventures

 

32,354

 

4,375

 

4,943

 

(4,992

)

36,680

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(42,549

)

—

 

—

 

(2,704

)(6)

(45,253

)

Interest income

 

1,625

 

—

 

—

 

(1,625

)(7)

—

 

Minority interest - Operating Partnership

 

434

 

—

 

—

 

—

 

434

 

Equity in earnings of real estate ventures

 

3,170

 

—

 

—

 

—

 

3,170

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(4,966

)

$

4,375

 

$

4,943

 

$

(9,321

)

$

(4,969

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$

(0.14

)

 

 

 

 

 

 

$

(0.14

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares-basic and diluted

 

35,481,538

 

 

 

 

 

 

 

35,481,538

 

 

12



 

EXTRA SPACE STORAGE INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005

(in thousands, except per share data)

 

(1) Reflects the results of operations of EXR as filed in Form 10-K for the year ended December 31, 2005.

(2) Represents the pro forma revenues and operating expenses for the year ended December 31, 2005 of the nine audited properties acquired in 2006:

 

Nine Audited Properties Financial
Statements

 

Property

 

Revenues

 

Expenses

 

Mgmt. Fee

 

Deland, FL (Deland Vest, L.L.C.)

 

$

516

 

$

319

 

$

35

 

Venice, FL (CFG Properties)

 

1,079

 

485

 

74

 

Dacula, FL (Little River Vest, L.L.C.)

 

583

 

283

 

39

 

N. Hollywood, CA (Extra Space Development, L.L.C.)

 

327

 

344

 

37

 

Dallas, TX (Inwood Limited Partnership)

 

1,367

 

473

 

68

 

Alpharetta, GA (Winward Self Storage, LLC)

 

584

 

279

 

40

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

1,434

 

461

 

80

 

Neptune, NJ (Jason's Self Storage of Neptune, NJ)

 

1,378

 

616

 

69

 

Allen, TX (Advantage Self Storage)

 

700

 

333

 

43

 

TOTALS

 

$

7,968

 

$

3,593

 

$

485

 

 

(3) Represents the unaudited pro forma revenues and operating expenses (excluding management fees) for the year ended December 31, 2005 of the 16 additional properties that were acquired in 2006:

16 Un-Audited Properties

 

Revenues

 

Expenses

 

Tacoma (Pacific Hwy), WA

 

$

646

 

$

275

 

Tacoma (80th Street), WA

 

653

 

260

 

Tacoma (Tacoma Way), WA

 

78

 

92

 

Bensalem, PA

 

262

 

197

 

Houston (Pasadena), TX

 

697

 

334

 

Garland, TX

 

501

 

293

 

Nashville, TN

 

528

 

286

 

Houston (SW Fwy), TX

 

1,376

 

525

 

Wichita, KS

 

455

 

290

 

Phoenix, AZ

 

423

 

171

 

Lancaster, CA

 

740

 

190

 

Rowlett, TX

 

379

 

161

 

Parker, CO

 

107

 

85

 

Plano (Plano Pkwy), TX

 

675

 

168

 

Plano (Spring Creek) , TX

 

501

 

137

 

Tampa, FL

 

518

 

132

 

TOTALS

 

$

8,539

 

$

3,596

 

 

(4) Adjustment to eliminate the management fee paid to a third party for management of the properties as subsequent to acquisition by the Company, all properties are self-managed.

13



 

(5) Depreciation and amortization expense adjustments of $2,593 on audited transactions includes real estate depreciation of $1,620 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $63,222 and amortization of $973 computed on a straight-line basis over 18 months on $1,461 of intangible assets relating to tenant relationships.  Depreciation and amortization expense adjustments of $2,884 on non-audited transactions includes real estate depreciation of $1,677 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $65,449 and amortization of $1,207 computed on a straight-line basis over 18 months on $1,806 of intangible assets relating to tenant relationships.

Nine Audited Properties

 

Depreciable
Assets

 

2005
Depreciation

 

Intangible
Assets

 

2005
Amortization

 

Total 2005
Depreciation /
Amortization

 

Deland, FL (Deland Vest, L.L.C.)

 

$

3,953

 

$

101

 

$

96

 

$

64

 

$

165

 

Venice, FL (CFG Properties)

 

5,907

 

151

 

170

 

113

 

264

 

Dacula, FL (Little River Vest, L.L.C.)

 

2,990

 

77

 

100

 

67

 

144

 

N. Hollywood, CA (Extra Space Development, L.L.C.)

 

9,251

 

237

 

140

 

93

 

330

 

Dallas, TX (Inwood Limited Partnership)

 

12,491

 

320

 

230

 

153

 

473

 

Alpharetta, GA (Winward Self Storage, LLC)

 

3,121

 

80

 

105

 

70

 

150

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

11,242

 

288

 

270

 

180

 

468

 

Neptune, NJ (Jason's Self Storage of Neptune, NJ)

 

8,745

 

224

 

230

 

153

 

377

 

Allen, TX (Advantage Self Storage)

 

5,525

 

142

 

120

 

80

 

222

 

Totals

 

$

63,222

 

$

1,620

 

$

1,461

 

$

973

 

$

2,593

 

 

16 Un-Audited Properties

 

Depreciable
Assets

 

2005
Depreciation

 

Intangible
Assets

 

2005
Amortization

 

Total 2005
Depreciation /
Amortization

 

Tacoma (Pacific Hwy), WA

 

$

5,239

 

$

134

 

$

166

 

$

111

 

$

245

 

Tacoma (80th Street), WA

 

4,766

 

122

 

156

 

104

 

226

 

Tacoma (Tacoma Way), WA

 

3,093

 

79

 

117

 

79

 

158

 

Bensalem, PA

 

2,999

 

77

 

62

 

41

 

118

 

Houston (Pasadena), TX

 

4,063

 

104

 

112

 

75

 

179

 

Garland, TX

 

2,216

 

57

 

96

 

64

 

121

 

Nashville, TN

 

2,598

 

67

 

88

 

59

 

126

 

Houston (SW Fwy), TX

 

8,690

 

223

 

242

 

161

 

385

 

Wichita, KS

 

1,897

 

49

 

76

 

51

 

100

 

Phoenix, AZ

 

3,441

 

88

 

85

 

57

 

145

 

Lancaster, CA

 

5,799

 

149

 

130

 

87

 

236

 

Rowlett, TX

 

2,585

 

66

 

70

 

47

 

113

 

Parker, CO

 

4,543

 

115

 

76

 

51

 

166

 

Plano (Plano Pkwy), TX

 

6,191

 

160

 

140

 

93

 

253

 

Plano (Spring Creek) , TX

 

3,761

 

96

 

90

 

60

 

156

 

Tampa, FL

 

3,518

 

90

 

100

 

67

 

157

 

Totals

 

$

65,449

 

$

1,677

 

$

1,806

 

$

1,207

 

$

2,884

 

Grand Total

 

 

 

 

 

 

 

 

 

$

5,477

 

 

14



 

(6) Debt of $23,562 was assumed on four properties with an average fixed rate of 6.19%.  Another four properties are part of a new loan that was closed in the third quarter of 2006. The allocated debt amount on these four properties totals $20,172 with interest at a fixed rate of 6.18%. These properties are shown below.

Nine Audited Properties Debt

Property

 

Debt

 

Rate

 

Annual
Interest

 

Type

 

Venice, FL (CFG Properties)

 

$

7,096

 

6.18

%

$

439

 

New Debt

 

Dacula, FL (Little River Vest, L.L.C.)

 

3,879

 

6.18

%

240

 

New Debt

 

Rockville, MD (Parklawn Storage Partners, L.P.)

 

12,680

 

6.08

%

771

 

Assumed Debt

 

Alpharetta, GA (Winward Self Storage, LLC)

 

2,955

 

5.43

%

160

 

Assumed Debt

 

Total

 

$

26,610

 

 

 

$

1,610

 

 

 

 

Sixteen Non-Audited Properties Debt

 

Property

 

Debt

 

Rate

 

Annual
Interest

 

Type

 

Tacoma (Pacific Hwy), WA

 

$

4,600

 

6.18

%

$

284

 

New Debt

 

Tacoma (80th Street), WA

 

4,597

 

6.18

%

284

 

New Debt

 

Houston (SW Fwy), TX

 

5,126

 

7.00

%

358

 

Assumed Debt

 

Houston (Pasadena), TX

 

2,801

 

6.01

%

168

 

Assumed Debt

 

Total

 

$

17,102

 

 

 

$

1,094

 

 

 

Grand Total

 

 

 

 

 

$

2,704

 

 

 

 

(7) Interest income was reduced by $1,625 to reflect the use of net cash in the acquisitions.

15



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Deland Vest, L.L.C.(the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

 

/s/ Tanner LC

 

 

 

Salt Lake City, Utah

January 15, 2007

 

16



Deland Vest, L.L.C.

STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

405

 

$

354

 

$

485

 

Other

 

26

 

21

 

31

 

 

 

 

 

 

 

 

 

Total

 

431

 

375

 

516

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

220

 

216

 

284

 

Management fees

 

30

 

26

 

35

 

 

 

 

 

 

 

 

 

Total

 

250

 

242

 

319

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

181

 

$

133

 

$

197

 

 

The accompanying notes are an integral part of this statement.

17



Deland Vest, L.L.C.

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In January 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Deland Vest, L.L.C. (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Deland, Florida.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred.  Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

18



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by CFG Properties(the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

 

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

19



CFG Properties

STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

661

 

$

762

 

$

1,008

 

Other

 

40

 

56

 

71

 

 

 

 

 

 

 

 

 

Total

 

701

 

818

 

1,079

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

268

 

321

 

411

 

Management fees

 

49

 

56

 

74

 

 

 

 

 

 

 

 

 

Total

 

317

 

377

 

485

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

384

 

$

441

 

$

594

 

 

The accompanying notes are an integral part of this statement.

20



CFG Properties

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In January 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by CFG Properties (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Venice, Florida.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods. The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

21



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Little River Vest, L.L.C. (the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

 

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

22



Little River Vest, L.L.C.

STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

430

 

$

400

 

$

539

 

Other

 

40

 

31

 

44

 

 

 

 

 

 

 

 

 

Total

 

470

 

431

 

583

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

191

 

180

 

244

 

Management fees

 

33

 

29

 

39

 

 

 

 

 

 

 

 

 

Total

 

224

 

209

 

283

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

246

 

$

222

 

$

300

 

 

The accompanying notes are an integral part of this statement.

23



Little River Vest, L.L.C.

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In January 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Little River Vest, L.L.C. (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Dacula, Florida.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred.  Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

24



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Extra Space Development, LLC (the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

 

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

25



Extra Space Development, LLC

STATEMENTS OF REVENUES AND CERTAIN EXPENSES

(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year Ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

576

 

$

157

 

$

290

 

Other

 

44

 

28

 

37

 

 

 

 

 

 

 

 

 

Total

 

620

 

185

 

327

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

264

 

226

 

307

 

Management fees

 

37

 

33

 

37

 

 

 

 

 

 

 

 

 

Total

 

301

 

259

 

344

 

 

 

 

 

 

 

 

 

Revenues in excess of (short of) certain expenses

 

$

319

 

$

(74

)

$

(17

)

 

The accompanying notes are an integral part of this statement.

26



Extra Space Development, LLC

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In May 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Extra Space Development, LLC (the property).  The property had commenced rental operations in January 2005.  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in North Hollywood, California.  Extra Space Development, LLC is owned by certain shareholders of the REIT.  The property was in its initial lease up stage throughout the periods presented.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

27



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Inwood Limited Partnership(the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s  Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

28



Inwood Limited Partnership

STATEMENTS OF REVENUES AND CERTAIN EXPENSES

(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year Ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

1,060

 

$

997

 

$

1,335

 

Other

 

27

 

23

 

32

 

 

 

 

 

 

 

 

 

Total

 

1,087

 

1,020

 

1,367

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

284

 

306

 

405

 

Management fees

 

54

 

51

 

68

 

 

 

 

 

 

 

 

 

Total

 

338

 

357

 

473

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

749

 

$

663

 

$

894

 

 

The accompanying notes are an integral part of this statement.

29



Inwood Limited Partnership

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In May 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Inwood Limited Partnership (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Dallas, Texas.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

30



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Winward Self Storage, LLC(the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s  Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

31



Winward Self Storage, LLC

STATEMENTS OF REVENUES AND CERTAIN EXPENSES

(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year Ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

424

 

$

410

 

$

540

 

Other

 

30

 

35

 

44

 

 

 

 

 

 

 

 

 

Total

 

454

 

445

 

584

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

152

 

185

 

239

 

Management fees

 

32

 

31

 

40

 

 

 

 

 

 

 

 

 

Total

 

184

 

216

 

279

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

270

 

$

229

 

$

305

 

 

The accompanying notes are an integral part of this statement.

32



Winward Self Storage, LLC

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In August 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Winward Self Storage, LLC (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Alpharetta, Georgia.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

33



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Parklawn Storage Partners, L.P.(the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s  Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

34



Parklawn Storage Partners, L.P.

STATEMENTS OF REVENUES AND CERTAIN EXPENSES

(dollars in thousands)

 

 

For the
Nine Months Ended
September 30,

 

For the
Year Ended
December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

1,092

 

$

1,020

 

$

1,365

 

Other

 

39

 

58

 

69

 

 

 

 

 

 

 

 

 

Total

 

1,131

 

1,078

 

1,434

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

280

 

295

 

381

 

Management fees

 

56

 

63

 

80

 

 

 

 

 

 

 

 

 

Total

 

336

 

358

 

461

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

795

 

$

720

 

$

973

 

 

The accompanying notes are an integral part of this statement.

35



Parklawn Storage Partners, L.P.

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property

In September 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Parklawn Storage Partners, L.P. (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Rockville, Maryland.

Basis of presentation

The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition

The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition

Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

36



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Advantage Self Storage (the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage, Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s  Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

 

37



Advantage Self Storage

STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)

 

 

For the

 

For the

 

 

 

Nine Months Ended

 

Year Ended

 

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

543

 

$

484

 

$

664

 

Other

 

29

 

25

 

36

 

 

 

 

 

 

 

 

 

Total

 

572

 

509

 

700

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

226

 

217

 

290

 

Management fees

 

34

 

31

 

43

 

 

 

 

 

 

 

 

 

Total

 

260

 

248

 

333

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

312

 

$

261

 

$

367

 

 

The accompanying notes are an integral part of this statement.

38



 

Advantage Self Storage

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property
In November 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Advantage Self Storage (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Allen, Texas.

Basis of presentation
The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition
The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition
Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Extra Space Storage Inc.

We have audited the accompanying statement of revenues and certain expenses of the property previously owned by Jason’s Self Storage of Neptune, New Jersey (the Property) for the year ended December 31, 2005 (the statement).  The statement is the responsibility of the management of Extra Space Storage, Inc.  Our responsibility is to express an opinion on the statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Extra Space Storage Inc.’s  Current Report on Form 8-K.  Material expense amounts, as described in Note 1 to the statement, that would not be comparable to those resulting from the proposed future operations of the Property, are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of the Property.

In our opinion, the statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LC

 

 

Salt Lake City, Utah

January 15, 2007

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Jason’s Self Storage of Neptune, New Jersey

STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)

 

 

For the

 

For the

 

 

 

Nine Months Ended

 

Year Ended

 

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

2005

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Revenues:

 

 

 

 

 

 

 

Rents

 

$

884

 

$

911

 

$

1,325

 

Other

 

11

 

10

 

53

 

 

 

 

 

 

 

 

 

Total

 

895

 

921

 

1,378

 

 

 

 

 

 

 

 

 

Certain expenses (Note 1):

 

 

 

 

 

 

 

Property operating expenses

 

385

 

368

 

547

 

Management fees

 

52

 

50

 

69

 

 

 

 

 

 

 

 

 

Total

 

437

 

418

 

616

 

 

 

 

 

 

 

 

 

Revenues in excess of certain expenses

 

$

458

 

$

503

 

$

762

 

 

The accompanying notes are an integral part of this statement.

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Jason’s Self Storage of Neptune, New Jersey

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES

1.  ACQUISITION OF PROPERTY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Acquisition of Property
In November 2006, Extra Space Storage Inc. (the REIT) acquired a property owned by Jason’s Self Storage of Neptune, New Jersey (the property).  The REIT did not hold any interest in the property prior to the acquisition.  The controlling interest in the property was held by a single entity.  The property consists of land and self-storage facilities located in Neptune, New Jersey.

Basis of presentation
The accompanying statements of revenues and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the actual operations of the property for the periods presented.  Certain expenditures may not be comparable to the future operations of the property.  Excluded expenses consist of interest, depreciation and amortization, and other expenses not directly related to the future operations of the property.

The statements of revenues and certain expenses for the nine months ended September 30, 2006 and 2005 are unaudited.  In the opinion of management, these interim financial statements reflect all necessary adjustments for a fair presentation of the revenues and certain expenses of the respective periods.  All such adjustments are of a normal recurring nature.

Revenue recognition
The property recognizes rental revenue daily on a straight-line basis over the terms of the leases.  Generally, leases are on month-to-month terms.  Tenants move in and out throughout the month and revenue is recognized on a pro-rata basis for the days each unit is occupied during the month.

The property recognizes revenue for merchandise sales as the sales take place.  Revenue for late fees and other miscellaneous items are included in other revenue as earned under the terms of the rental contracts.

Expense recognition
Property expenses, including utilities, repairs and maintenance and other costs to manage the facilities are recognized as incurred. Expenses such as property taxes and property insurance are recognized over their respective assessment or coverage periods.  The property recognizes bad debt expense based upon the property’s historical collection experience and current economic trends.

Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2.  OPERATING LEASES

Operating revenue is principally obtained from tenant rentals under month-to-month operating leases.

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