Property Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2016

PROPERTY ACQUISITIONS AND DISPOSITIONS

The following table shows the Company’s acquisitions of operating stores for the years ended December 31, 2016 and 2015. The table excludes purchases of raw land or improvements made to existing assets.



			Consideration Paid														Fair Value
Property Location	Number of Stores	Date of Acquisition	Total		Cash Paid		Loan Assumed		Notes issued to/from Seller		Net Liabilities/(Assets) Assumed			Value of OP Units Issued		Number of OP Units Issued	Real estate assets
Arizona	1	12/21/2016	$	9,513	$	9,500	$	—	$	—	$	13		$	—	—	$	9,513
Washington	1	11/22/2016	12,743		12,726		—		—		17			—		—	12,743
Hawaii	2	11/18/2016	15,394		15,356		—		—		38			—		—	15,394
Georgia	1	11/17/2016	7,998		8,009		—		—		(11		)	—		—	7,998
Various states ⁽¹⁾	11	11/17/2016	152,953		153,017		—		—		(64		)	—		—	161,072
California	1	11/17/2016	17,892		17,860		—		—		32			—		—	17,892
North Carolina	1	11/14/2016	13,242		13,241		—		—		1			—		—	13,242
Illinois	1	11/8/2016	12,304		9		—		—		139			12,156		486,244	12,304
Maryland	1	11/2/2016	14,807		9,040		—		—		(75		)	5,842		77,575,000	14,807
Texas	1	10/25/2016	6,743		6,685		—		—		58			—		—	6,743
Minnesota	1	10/12/2016	17,744		17,729		—		—		15			—		—	17,744
Texas	3	10/6/2016	22,302		22,131		—		—		171			—		—	22,302
Utah	1	10/4/2016	8,429		3,750		—		—		4,679			—		—	8,429
California	1	10/4/2016	8,500		8,516		—		—		(16		)	—		—	8,500
California	1	9/21/2016	13,800		13,782		—		—		18			—		—	13,800
Various states⁽²⁾	23	9/16/2016	237,542		237,800		—		—		(258		)	—		—	248,530
California	1	8/31/2016	3,990		3,998		—		—		(8		)	—		—	3,990
Texas	1	8/12/2016	9,993		9,915		—		—		78			—		—	9,993
Hawaii	1	7/14/2016	30,955		30,850		—		—		105			—		—	30,955
Massachusetts	1	6/30/2016	13,807		13,751		—		—		56			—		—	13,807
Georgia	1	6/30/2016	7,900		6,696		—		—		4			1,200		13,764	7,900
Illinois	4	6/10/2016	55,851		—		—		—		814			55,037		2,201,467	55,851
Texas	4	6/2/2016	37,478		37,246		—		—		232			—		—	37,478
South Carolina	1	5/10/2016	8,249		8,230		—		—		19			—		—	8,249
Washington, DC	1	5/5/2016	32,968		23,163		9,723		—		82			—		—	32,968
Indiana	5	4/22/2016	26,983		26,849		—		—		134			—		—	26,983
Colorado	1	4/19/2016	7,904		7,869		—		—		35			—		—	7,904
Arizona	1	4/18/2016	8,154		8,029		—		—		125			—		—	8,154
Texas	1	4/15/2016	10,978		10,922		—		—		56			—		—	10,978
Arizona	1	4/5/2016	5,000		4,999		—		—		1			—		—	5,000
Hawaii	1	4/5/2016	28,992		28,935		—		—		57			—		—	28,992
New Mexico	1	3/29/2016	10,958		10,928		—		—		30			—		—	10,958
New Mexico	1	3/29/2016	17,940		17,905		—		—		35			—		—	17,940
Georgia	3	3/29/2016	25,087		25,069		—		—		18			—		—	25,087



			Consideration Paid															Fair Value
Property Location	Number of Stores	Date of Acquisition	Total		Cash Paid		Loan Assumed		Notes issued to/from Seller		Net Liabilities/(Assets) Assumed			Value of OP Units Issued		Number of OP Units Issued		Real estate assets
Texas	1	3/21/2016	9,994		9,969		—		—		25			—		—		9,994
Illinois	1	2/25/2016	16,721		16,738		—		—		(17		)	—		—		16,721
Massachusetts	1	2/16/2016	16,169		16,174		—		—		(5		)	—		—		16,169
Various states ⁽³⁾	6	2/2/2016	53,898		53,940		—		—		(42		)	—		—		98,082
Texas	3	1/14/2016	22,625		22,523		—		—		102			—		—		22,625
Florida	1	1/12/2016	9,001		8,980		—		—		21			—		—		9,001
Texas	3	1/7/2016	27,537		27,435		—		—		102			—		—		27,537
New Mexico	2	1/7/2016	15,607		15,495		—		—		112			—		—		15,607
2016 Totals	99		$	1,086,645	$	995,759	$	9,723	$	—	$	6,928		$	74,235	2,779,050		$	1,149,936

California	1	12/11/2015	$	9,708	$	9,712	$	—	$	—	$	(4	)	$	—	$	—	$	9,708
North Carolina	1	12/8/2015	5,301		5,327		—		—		(26		)	—		—		5,301
Oregon	1	11/24/2015	9,992		9,994		—		—		(2		)	—		—		9,992
Florida	3	11/19/2015	20,003		19,951		—		—		52			—		—		20,003
Texas	1	11/16/2015	14,396		7,115		—		—		60			7,221		91,434		14,396
Texas	1	10/23/2015	8,700		8,678		—		—		22			—		—		8,700
New Jersey	1	10/7/2015	7,240		7,204		—		—		36			—		—		7,240
Various ⁽⁴⁾	122	10/1/2015	1,176,893		1,218,173		—		—		(69,936		)	28,656		376,848		1,176,898
Maryland	1	9/10/2015	6,091		6,109		—		—		(18		)	—		—		6,091
North Carolina	1	6/19/2015	6,976		6,915		—		—		61			—		—		6,976
Florida	1	6/18/2015	17,547		12,567		—		—		207			4,773		71,054		17,547
Florida ⁽⁵⁾	1	6/17/2015	4,923		359		—		4,601		(37		)	—		—		6,023
Illinois	1	6/8/2015	10,049		9,973		—		—		76			—		—		10,049
Massachusetts	1	5/13/2015	12,500		12,503		—		—		(3		)	—		—		12,500
Georgia	1	5/7/2015	6,496		6,456		—		—		40			—		—		6,496
North Carolina	1	5/5/2015	10,994		10,963		—		—		31			—		—		10,994
Georgia	1	4/24/2015	6,498		6,449		—		—		49			—		—		6,498
Arizona, Texas	22	4/15/2015	177,673		75,102		—		—		822			101,749		1,504,277		177,673
Texas	1	4/14/2015	8,640		8,570		—		—		70			—		—		8,640
California ⁽⁶⁾	1	3/30/2015	12,334		1,700		—		11,009		(375		)	—		—		12,699
South Carolina	2	3/30/2015	13,136		13,114		—		—		22			—		—		13,136
Virginia	1	3/17/2015	4,996		4,988		—		—		8			—		—		4,996
Texas	1	2/24/2015	13,554		13,503		—		—		51			—		—		13,554
Texas	3	1/13/2015	41,869		41,771		—		—		98			—		—		41,869
2015 Totals	171		$	1,606,509	$	1,517,196	$	—	$	15,610	$	(68,696	)	$	142,399	2,043,613		$	1,607,979

(1)

On November 17, 2016, the Company acquired 11 stores from its ESS WCOT LLC joint venture ("WCOT") in a step acquisition. These stores are located in California, Georgia, Maryland, New Mexico, Tennessee and Virginia. The Company owns 5.0% of WCOT, with the other 95.0% owned by affiliates of Prudential Global Investment Management ("Prudential"). WCOT created a new subsidiary, Extra Space Properties 132 LLC ("ESP 132") and transferred 11 stores into ESP 132. WCOT then distributed ESP 132 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $68,814. Immediately after the distribution, the Company acquired Prudential's 95.0% interest in ESP 132 for $153,304, resulting in 100% ownership of ESP 132 and the related 11 stores. Based on the purchase price of Prudential's share of ESP 132, the Company determined that the fair value of its investment in ESP 132 immediately prior to the acquisition of Prudential's share was $8,119, and the Company recorded a gain of $4,651 as a result of remeasuring to fair value its existing equity interest in ESP 132. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners' interests on the Company's consolidated statements of operations. The Company recorded fixed assets related to this acquisition of $161,072, which includes total cash paid, the investment in ESP 132, and the step acquisition gain, less net assets acquired.

(2)

On September 16, 2016, the Company acquired 23 stores from its ESS PRISA II LLC joint venture ("PRISA II") in a step acquisition. These stores are located in Arizona, California, Connecticut, Florida, Indiana, Kentucky, Massachusetts, Maryland, Michigan, New Jersey, New Mexico, Ohio, Tennessee and Virginia. The Company owned 4.4% of PRISA II, with the other 95.6% owned by affiliates of Prudential. PRISA II created a new subsidiary, Extra Space Properties 131 LLC ("ESP 131"), and transferred 23 stores into ESP 131. PRISA II then distributed ESP 131 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $4,326. Immediately after the distribution, the Company acquired Prudential's 95.6% interest in ESP 131 for $238,679, resulting in 100% ownership of ESP 131 and the related 23 stores. Based on the purchase price of Prudential's share of ESP 131, the Company determined that the fair value of its investment in ESP 131 immediately prior to the acquisition of Prudential's share was $10,988, and the Company recorded a gain of $6,778 as a result of re-measuring to fair value its existing equity interest in ESP 131. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners' interests on the Company's consolidated statements of operations. The Company recorded fixed assets related to this acquisition of $248,530, which includes total cash paid, the investment in ESP 131, and the step acquisition gain, less net assets acquired. Subsequent to these transactions, PRISA II owned 42 stores. The Company sold its 4.4% interest in PRISA II to Prudential immediately following these transactions, as disclosed in Note 5.

(3)

On February 2, 2016, the Company acquired six stores from its VRS Self Storage LLC joint venture (“VRS”) in a step acquisition. These stores are located in Florida, Maryland, Nevada, New York, and Tennessee. The Company owns 45.0% of VRS, with the other 55.0% owned by affiliates of Prudential. VRS created a new subsidiary, Extra Space Properties 122 LLC (“ESP 122”) and transferred six stores into ESP 122. VRS then distributed ESP 122 to the Company and Prudential on a pro rata basis. This distribution was accounted for as a spinoff, and was therefore recorded at the net carrying amount of the properties of $17,261. Immediately after the distribution, the Company acquired Prudential’s 55.0% interest in ESP 122 for $53,940, resulting in 100% ownership of ESP 122 and the related six stores. Based on the purchase price of Prudential’s share of ESP 122, the Company determined that the fair value of its investment in ESP 122 immediately prior to the acquisition of Prudential’s share was $44,184, and the Company recorded a gain of $26,923 as a result of re-measuring to fair value its existing equity interest in ESP 122. This gain is included in equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partners’ interests on the Company’s consolidated statements of operations. The Company recorded fixed assets related to this acquisition of $98,082, which includes total cash paid, the investment in ESP 122, and the step acquisition gain, less net assets acquired.


(4)	This represents the acquisition of SmartStop Self Storage, Inc. (“SmartStop”). See below for more detailed information about this acquisition.


(5)	The Company determined the consideration paid for this store was below its market value, and recognized a $1,100 gain, representing the difference between the fair value of the store and the consideration paid.

(6)

This represents the acquisition of a joint venture partners’ interest in Extra Space of Sacramento One LLC (“Sacramento One”), an existing joint venture, for $1,700 in cash. The result of the acquisition is that the Company owns 100% of Sacramento One, which owned one store located in California. Prior to the acquisition date, the Company accounted for its interest in Sacramento One as an equity-method investment, and the Company also held mortgage notes receivable from Sacramento One totaling $11,009, including related interest. The total acquisition date fair value of the Company’s previous equity interest was approximately $365 and is included in consideration transfered. The Company recognized a non-cash gain of $1,629 as a result of remeasuring the fair value of its equity interest held prior to the acquisition. The store is consolidated subsequent to the acquisition as the Company owns 100% of the store.

Acquisition of SmartStop

On October 1, 2015, the Company completed the acquisition of SmartStop, a public non-traded REIT (the “Transaction”), pursuant to an Agreement and Plan of Merger, dated June 15, 2015 (the “Merger Agreement”). The Company completed the Transaction as part of its strategy to acquire stores and portfolios of stores that can increase stockholder value. Under the terms of the Merger Agreement, SmartStop shareholders received $13.75 per share in cash, which represented a total purchase price of approximately $1,391,272.

In connection with the Transaction, it was agreed that certain assets would be excluded from the Company’s acquisition of SmartStop (the “Excluded Assets”). The Company had determined that the Excluded Assets were not complementary to the Company’s business or otherwise not of primary interest to the Company. These Excluded Assets were instead sold by SmartStop to Strategic 1031, LLC, a Delaware limited liability company (“Strategic 1031”), prior to the Transaction. The Excluded Assets included five SmartStop stores located in Canada, one parcel of land located in California that is under development, and SmartStop’s non-traded REIT platform. Strategic 1031 is owned by and controlled by SmartStop’s former Chief Executive Officer, President and Chairman of the Board of Directors.

The following table reconciles the purchase price to cash paid by the Company and total consideration transferred to acquire SmartStop:



Total purchase price	$	1,391,272
Less: amount paid for Excluded Assets by Strategic 1031	(90,360		)
Total purchase price attributable to the Company	$	1,300,912
Total cash paid by the Company	$	1,272,256
Fair value of OP Units issued to certain SmartStop unit holders	28,656
	1,300,912
Less: Cash paid for transaction costs	8,053
Less: Cash paid for defeasance and prepayment fees	38,360
Less: Severance and share-based compensation to SmartStop employees	7,665
Total consideration transferred	$	1,246,834

As part of this acquisition, the Company recorded an expense of $38,360 related to defeasance costs and prepayment penalties incurred related to the repayment of SmartStop’s existing debt as of the acquisition date. The Company incurred $8,053 of professional fees/closing costs, $6,338 of severance-related costs, and $1,327 of other payroll-related costs for a total of $54,078 that was paid at closing. Another $9,043 of other acquisition related costs were incurred that were not paid in connection with the closing for a total of $63,121.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company’s allocation of consideration transferred for SmartStop is as follows:



Land	$	179,700
Buildings	978,368
Intangibles	18,830
Investments in unconsolidated real estate ventures	60,981
Other assets	34,500
Total assets acquired	1,272,379
Accounts payable and accrued liabilities assumed	17,064
Other liabilities assumed	8,481
Total net assets acquired	$	1,246,834

The Company agreed to loan Strategic 1031 $84,331 to finance the purchase of the Excluded Assets. The loans are secured by an interest in the Excluded Assets and accrue interest at 7.0% per annum until February 1, 2017, when the interest rate increases to 9.0%. The loans are due May 30, 2018. As of December 31, 2016, the remaining principal balance was $52,201. These loans receivable are included in Other assets on the Company’s consolidated balance sheets.

Pro Forma Information

During the year ended December 31, 2016, the Company acquired 99 operating stores. The following pro forma financial information includes 66 of the 99 operating stores acquired. 33 stores were excluded as it was impractical to obtain the historical information from the previous owners and in total they represent and immaterial amount of total revenues. The following pro forma financial information is based on the combined historical financial statements of the Company and 66 of the stores acquired, and presents the Company’s results as if the acquisitions had occurred as of January 1, 2015 (unaudited):



	For the Year Ended December 31,
	2016		2015
	Pro Forma		Pro Forma
Total revenues	$	1,025,639	$	831,730
Net income attributable to common stockholders	$	381,883	$	212,313

The following table summarizes the revenues and earnings related to the 99 stores acquired during 2016 since their acquisition dates, which are included in the Company’s consolidated statements of operations for the year ended December 31, 2016:



	Year Ended December 31, 2016
Total revenues	$	44,712
Net income attributable to common stockholders	$	12,560

Store Disposals

On July 26, 2016, the Company completed the sale of an operating store located in Indiana that had been classified as held for sale for $4,447 in cash. The Company recognized no gain or loss related to this disposition.

On April 20, 2016, the Company completed the sale of seven operating stores located in Ohio and Indiana that had been classified as held for sale for $17,555 in cash. The Company recognized a gain of $11,265 related to this disposition, which is included in gain (loss) on real estate transactions, earnout from prior acquisitions, and sale of other assets on the Company's consolidated statements of operations.

On April 1, 2016, the Company disposed of a single store in Texas in exchange for 85,452 of the Company's OP Units valued at $7,689. The Operating Partnership canceled the OP Units received in this disposition. The Company recognized a gain of $93 related to this disposition, which is included in gain (loss) on real estate transactions, earnout from prior acquisitions, and sale of other assets on the Company's consolidated statements of operations.

Losses on Earnouts from Prior Acquisitions

On December 2014, the Company acquired a portfolio of five stores located in New Jersey and Virginia. As part of this acquisition, the Company agreed to make an additional cash payment to the sellers if the acquired stores exceeded a specified amount of net operating income for the years ending December 31, 2015 and 2016. At the acquisition date, the Company recorded an estimated liability related to this earnout provision. The operating income of these stores during the earnout period has been higher than expected, resulting in an increase in the estimate of the amount due to the sellers of $4,284, which was recorded as a loss and included in gain (loss) on real estate transactions, earnout from prior acquisition and sale of other assets on the Company's consolidated statements of operations for the year ended December 31, 2016.

During 2011, the Company acquired a store located in Florida. As part of this acquisition, the Company agreed to make an additional cash payment to the sellers if the acquired store exceeded a specified amount of net rental income for any twelve-month period prior to June 30, 2015. At the acquisition date, $133 was recorded as the estimated amount that would be due, and the Company believed that it was unlikely that any significant additional payment would be made as a result of this earnout provision. Because the rental growth of the stores was trending significantly higher than expected, the Company estimated that an additional earnout payment of $2,500 would be due to the seller as of December 31, 2014. This amount is included in gain (loss) on real estate transactions, earnout from prior acquisitions and sale of other assets on the Company’s consolidated statements of operations for the year ended December 31, 2014. During the year ended December 31, 2015, the Company recorded a gain of $400 to adjust the existing liability to the actual amount owed to the sellers as of June 30, 2015. This gain is included in gain (loss) on real estate transactions, earnout from prior acquisition and sale of other assets on the Company’s consolidated statements of operations for the year ended December 31, 2015.

During 2012, the Company acquired a portfolio of ten stores located in New Jersey and New York. As part of this acquisition, the Company agreed to make an additional cash payment to the sellers if the acquired stores exceeded a specified amount of net rental income two years after the acquisition date. At the acquisition date, the Company believed that it was unlikely that any significant payment would be made as a result of this earnout provision. The rental growth of the stores was significantly higher than expected, resulting in a payment to the sellers of $7,785. This amount is included in gain (loss) on real estate transactions, earnout from prior acquisition and sale of other assets on the Company’s consolidated statements of operations for the year ended December 31, 2014.