CEO Letter

Sustainable performance

Our ability to perform is a testament to having the best people, properties and platform in the business. It also correlates directly to the power of the six key drivers behind our growth: core performance, third-party management, accretive acquisitions, tenant insurance, a strong balance sheet and the lease-up of our development pipeline.

We are the only one of our peers with all six of these levers at our disposal, operating for the benefit of our shareholders. Working together, these levers have allowed us to achieve double-digit FFO growth. Our strategy positions us to continue delivering sustained performance and impressive FFO growth going forward.

Six key drivers for growth

Throughout our history, we have made the right decisions to invest in the tools and strategies to produce best-in-class results. In 2011, we grew across the board by leveraging each key driver:

• Core performance: In a year of strong property performance, we capitalized on operational opportunities to maximize -revenues and minimize expenses. As a result, we generated same-store NOI growth of 7.6% in 2011, outpacing an already-impressive 3.9% in 2010.
• Third party management: We grew our third-party footprint by 16% in 2011 – ending the year with 185 properties under management. This makes Extra Space Storage the country’s largest third-party management company. At year end, we operated 882 properties nationwide under the Extra Space Storage brand, up from 820 in 2010.
• Accretive acquisitions: Throughout our history, we have been a disciplined, active acquirer of value-producing assets. Last year, we once again took the long-term approach to growing our portfolio, investing $290 million in 55 high-quality properties. At the end of 2011 we had 356 wholly owned assets, up 21% year-over-year.
• Tenant insurance: We continued to grow our tenant insurance program, which creates an important revenue stream while giving our customers peace of mind. More than 63% of our customers take advantage of this program.
• Strong balance sheet: We continued to optimize our balance sheet to return maximum value to our shareholders. To strengthen our -capital position, we closed on or assumed over $320 million in secured financing and issued $112.9 million in equity after identifying strategic acquisitions to enhance our portfolio.
• Lease up: We opened the last of our development assets in the first quarter of 2012. These 38 prime new locations are already paid for – and with virtually no new supply coming online, they will give us a substantive earnings boost. As our newest developments lease up, they are slated to add approximately 10 cents of FFO per share by the end of 2014.

Strong operational execution

In 2011, we delivered another year of strong execution. We increased our occupancy to 87.8% at December 31, 2011, up 310 basis points from 84.7% the year before. We grew same-store revenues by 4.9%, to $241.0 million in 2011 up from $229.8 million in 2010. Meanwhile, we reduced same-store expenses by 0.3%. As a result, our average same-store revenue, expense control and NOI growth have led the industry for the past 24 quarters running.

We are the second-largest owner and operator of self-storage properties in the United States. We are the largest third-party management company in our sector, which gives us an off-market acquisition pipeline and continues to build our business and brand on a national scale. As our growth shows, our platform is highly scalable – a unique advantage that we think will continue to serve us well in the years ahead.

Deep leadership

At Extra Space Storage, strong execution comes from having a sound strategy and an experienced and deep leadership team. In December, we announced that, in the third quarter of 2012, Kenneth M. Woolley – our founder, current board member and former Chairman and CEO – will assume the newly-created role of Chief Investment Officer and become Executive Chairman of the Board. We all look forward to Ken’s return once he completes a three-year sabbatical on a volunteer mission for his church. For 13 years, Ken and I have worked side by side to make Extra Space Storage an industry leader. I am excited to have Ken rejoin the team, both personally and professionally.

Focus on the fundamentals

2011 was a year of refinement and additional investment in our people, our properties and our platform. Looking ahead to 2012, we are focused on the fundamentals that continue to propel our growth and performance. This means doing what we do best: offering convenient self-storage solutions that are competitively priced and staffed by competent and courteous site management. As always, we are committed to operating secure facilities that meet our exacting “clean and green” standard.

By concentrating on the basics, we will strive for continuous improvement in every area of our business. Specifically, we are focused on maintaining core property performance, enhancing operational results through technology initiatives, and improving the customer experience. In addition, we are dedicated to effectively managing talent, continuing to execute an efficient and agile balance sheet strategy, and growing the portfolio.

As CEO, my top priority is maximizing shareholder value. I am pleased to report that in 2011 the Extra Space Storage team delivered a 43% total return to its shareholders.

Thank you for your support of our team as they make Extra Space Storage a leader in our industry. Going forward, I am confident we have the right people, the right properties and the right platform to continue our growth trajectory in 2012 and beyond.

Sincerely,

Spencer F. Kirk

Chairman and CEO
Extra Space Storage Inc.