The global financial crisis and recession made 2009 a tumultuous year - for our -country, our industry and our company. Against this challenging backdrop, our management team focused on two goals: strengthening the balance sheet and optimizing property performance. In the worst recession in more than 30 years, we succeeded in positioning our company for stability and for continued growth.

Solidifying Our Balance Sheet
In a down economy, we made smart moves to maintain our industry-leading performance in the self-storage sector. First, we closed $341 million in loans by aggressively seeking secured financing from regional and local banks throughout the country. This was no small undertaking in the current lending climate, and I commend our team on this remarkable achievement. At year-end we had cash on hand and credit line availability to cover all of our debt maturities through 2011. Just as important, with the exception of one covenant on our undrawn $50 million line of credit with Bank of America, none of our debt has any corporate-level covenants.

At the same time, we made some tough decisions to do the right thing for shareholders. Given the scarcity of reasonably-priced development financing, we decided to discontinue our property development program in June. We also right-sized our dividend, suspending it in the second and third quarters and then, as rental activity and pricing trends began to improve, declared a fourth quarter cash dividend of $0.13 per common share. In fact, our total return to investors in 2009, including our stock price appreciation and cash dividend, was 18.7% percent for the year - a solid result in a difficult market.

These moves strengthened our balance sheet and helped us preserve capital. We believe that we have taken the proper steps to solidify our company, giving us the financial flexibility to pursue future opportunities. Most importantly, we have proven that the self-storage product type remains attractive to lenders because of the stability and diversity of our cash flows, our conservative investment approach and the recession resistant nature of our business.

Optimizing Property Performance
We optimized our property performance by leveraging one of our key differentiators: our ability to stay on top of technology and innovation. Our call center, which opened in late 2008, came into its own in 2009. The state-of-the-art National Sales Center, or NSC, is fully integrated with all aspects of our organization, and because we rely on cloud computing, most of the hardware is offsite at third-party vendors, giving us significant savings as well as scalable IT expertise. The NSC has supported our property performance by steadily improving its close rates, which more than doubled during the year. We made tremendous advances on the Internet, keeping Extra Space Storage at or near the top of the rankings in the ever-changing world of paid and organic searches. The Internet has been and will continue to be an increasingly important marketing and sales channel for us, and we gained key knowledge in this area that will help us capitalize on increasing opportunities through the economic recovery.

Our real-time revenue management capabilities enabled us to achieve the highest rents possible while maintaining our same-store occupancy. Our revenue management team has been one of the major reasons we have outperformed our self-storage peers in same-store revenue and net operating income (NOI) growth for the past 16 quarters. We also kept a close eye on our operating expenses and exercised careful payroll control by what we call "right staffing," or becoming more efficient in how we staff our properties and limit our overtime hours.

For Extra Space Storage, 2009 was our most challenging year on record. While the recession impacted demand, we made the right moves to keep units rented. When move-outs increased in the first half of 2009, we lowered our "street rates" or "asking rents" to gain new customers. The strategy worked, and we began to see occupancy and pricing improve in the second half of the year - a trend that accelerated in the fourth quarter. In fact, as of year-end, our same-store occupancy was 83.2% versus 82.2% in 2008.

Even so, for the first time in our company's 33-year history, we reported negative operating results with declines of 2.9% in same-store revenue and 4.3% in NOI. While not what we had hoped for, our results compared favorably to our peers. Given the economy, we believe our performance speaks to the quality of our people, processes and properties. At the same time, we succeeded in increasing our portfolio footprint across the nation by 10% last year by expanding our 3Plus third-party management platform - a business we plan to continue to grow in the coming years. At January 1, 2009, there were 694 Extra Space branded properties. At December 31, 2009, there were 766 branded properties.

2010 Outlook
As we look forward into 2010, we see solid signs of stabilization and improvement. We are encouraged by the continuing trend of lower move outs, improved rental activity, and strengthened pricing. These are all positive trends for the business.

The accounting principle LIFO, or "Last In, First Out", may apply to the recession--resistance of our business and the stability of our property type. The self-storage industry was among the last to feel the effects of the recession, and now we are starting to show strength and stability that suggests we will be among the first sectors to recover. Our occupancy has rebounded nicely, and as occupancy continues to improve we will realize a greater ability to raise incoming rents.

In 2010 our priorities will be to continue to grow, innovate and position our company for the future. We will open the remaining properties in our development pipeline. We plan on opening ten more properties over the next five to six quarters and estimate approximately $0.25 of additional earnings over the next four to five years from these properties. We will also accelerate the pace of our third-party management program. And, if the price is right, acquisition opportunities are likely to be part of our growth efforts in the future.

We are going to continue to refine our processes and our technology to maintain our competitive advantage in a market that remains highly fragmented. Our industry is starting to realize that the Yellow Pages and the old ways of attracting customers do not work in the new world. Extra Space Storage will continue to lead the way, by leveraging the Internet, data-driven revenue management, the NSC and local and national marketing programs.

We also plan to continue strengthening the balance sheet. As the economy turns around, we will be able to capitalize on the opportunities that manifest themselves in the coming years. It will be a time of healing - for our business, for our industry and for the country. I don't expect dramatic growth and I think patience is key, but Extra Space Storage will continue to be a growth company in 2010 and beyond.

In closing, one thing that lent stability to our business was the continuity of our leadership team. I became chief executive officer of Extra Space Storage in April, taking over from Ken Woolley, our company's founder and former chairman and CEO, who left to serve a mission for his church. He remains on our board of directors. Because I had worked alongside Ken for almost two decades, including nearly 11 years in executive roles at Extra Space Storage, it has turned out to be a seamless transition for our investors, our partners and our employees. I want to thank you, our investors, for your continued support and our entire team for executing on smart moves that position Extra Space Storage for the future. It is a privilege to serve as the chairman and CEO of Extra Space Storage, and I look forward to updating you on our progress in the coming year.

Sincerely,

Spencer F. Kirk
Chairman and CEO