The Best at Getting Better

Dear Fellow Shareholders,

For Extra Space Storage and the self-storage industry, 2013 was an exceptional year. We achieved record high occupancies and strong operational performance. Our outstanding execution, together with minimal new supply coming online, enabled us to deliver another year of superior results.

A key reason for our success is our commitment to continuous improvement. At Extra Space Storage, we are constantly looking for new ways to innovate, gain market share and operate more efficiently. It’s all part of our focus on being the best at getting better.

2013 Results

Same-store rental and tenant reinsurance revenues grew by 7.4%, to $345.9 million in 2013 up from $321.9 million in 2012. At the same time we kept same-store expenses in line, up 2.0% for the year, to deliver a 10.0% increase in same-store NOI. In fact, this was our second straight year of 10% NOI growth – a remarkable achievement.

Even in a weak economy, we lowered discounts and increased same-store occupancy by 130 basis points to 89.2% at December 31, 2013, compared to 87.9% as of December 31, 2012. We generated funds from operations (FFO) of $1.96 per diluted share, including a $0.07 expense related to costs associated with acquisitions, a $0.01 expense related to the Company's exchangeable senior notes and an $0.08 one-time expense for the extinguishment of debt on an acquired portfolio. Excluding these items, FFO as adjusted was $2.12 per diluted share, representing a 29.3% increase compared to 2012.

We delivered robust results by continuing to take market share from less sophisticated competitors. To reward our shareholders, we raised our quarterly common stock dividend in the second quarter by 60% to $0.40 per share, or $1.60 per share on an annualized basis.

A Year of Growth

At Extra Space Storage, it was another year of strategic growth. We purchased 78 assets for $586 million to grow our portfolio, expand our brand and create long-term value for our shareholders. We also continued to draw new owners to our proven Extra Space ManagementPlus program, which makes us the largest self-storage management company in the United States.

We ended 2013 with 250 properties under management for third-party owners, an increase of almost 40% for the year. Altogether, we own and/or operate more than 1,000 properties in 35 states, Washington, D.C. and Puerto Rico. As the second-largest company in the self-storage industry, we continue to grow our scale nationwide, for the benefit of our third-party owners, our joint venture partners and our shareholders.

Strong Fundamentals

As our performance shows, the fundamentals of our business remain strong. It has become even more evident that smaller operators are struggling to keep up with more sophisticated operators online, especially when it comes to acquiring customers through mobile devices.

Today, more than 60 percent of customers use the Internet to research self storage at some point during the purchase process. Over the years, Extra Space Storage has assembled an unparalleled Internet marketing team with wide-ranging expertise. Reaching customers online requires a highly specialized strategy. We bid on more than 10 million search terms a day and excel at everything from paid and organic search optimization to mobile marketing. As a result, we continue to win a disproportionate share of the market. In this kind of environment, smaller owners simply can’t compete.

Operational Excellence

At the same time, we are accelerating our business by taking full advantage of our operational excellence. With real-time data from our revenue-management system, we are able to maximize top-line growth and expense control. Across the company, we continue to innovate and to push ourselves. I would like to recognize our entire team for collaborating and committing themselves to improving on our performance.

I also want to thank Karl Haas, our former Chief Operating Officer who retired at the end of 2013, for his 20 years of dedicated service with the company. Karl will join our board of directors, and we are excited to have his successor, Samrat Sondhi, take over our field operations. Samrat has been with the Company for almost a decade, and his successes include architecting our revenue management system and leading our field operations in Chicago, New York and Los Angeles.

Looking ahead, Extra Space is positioned to have a strong 2014. As we come off two years of superior results, we see continued core growth and a favorable environment for acquisitions. We are making long-term investments that will give Extra Space the technological advantage to produce best-in-class results long into the future. I look forward to updating you on our progress in the year ahead.

Sincerely,

Spencer F. Kirk

CEO
Extra Space Storage Inc.

Strategic Acquisitions

In a highly competitive market for top-quality assets, we continued to take a disciplined and creative approach to acquiring properties on the open market and through privately negotiated deals. As a rule, we refuse to overpay for the sake of growth. Instead, we placed an emphasis on unique and creative deals, including a large number of off-market deals. In many cases we offered operating partnership (OP) units.

Altogether, we purchased 78 facilities during the year, for a total of $585.7 million. In November, we announced a definitive agreement to acquire a portfolio of 17 self-storage properties in Virginia for approximately $200 million in cash, a deal we closed in January 2014. Like all our acquisitions, we believe these will add significantly to the quality and performance of our portfolio. Our disciplined approach to acquisitions continues to provide long-term value to our shareholders.

Third-Party Management

We remain the largest self-storage management company in the United States, and last year we continued to expand our footprint by adding more properties under the Extra Space Storage brand. As of December 31, 2013, we managed 250 properties for third-party owners, up 40 percent from the prior year. With another 273 properties owned and operated by joint ventures, we had a total of 523 properties under management at year end.

Through our proven Extra Space ManagementPlus program, we offer third-party owners all the benefits of operating under our brand. Our people stand ready to serve customers, whether on site, online or by phone. Inside Self Storage, a leading industry publication, has named us the best third-party management company in the business for two years in a row. One reason for this honor is that we use our advanced technology, marketing and revenue management platforms to produce strong operating results. Ultimately, third-party owners gain by maximizing the performance of their properties. At the same time, we gain economies of scale and a built-in pipeline of potential off-market acquisitions for Extra Space down the line.

Redeveloping for Relevancy

In a year of growth, another major focus for Extra Space was redeveloping select properties in key markets. With this initiative, our goal is to protect and preserve the value of some of our assets in our strongest markets. Ultimately, we want to remain competitive and continue to meet customer expectations by enhancing the overall customer experience.

In 2013, we completed nine redevelopments for a total of approximately $14 million. With each one, we took a comprehensive look at both the exterior and interior. Then we renovated everything from the exterior of the building to the interior hallways, adding improvements such as new façades, lighting systems, climate control systems, modern amenities and landscaping. Another 35 properties are slated for redevelopment in 2014, and we expect to continue to invest in our redevelopment program over the years to come.

In addition, we are pursuing expansion opportunities in strategic markets with strong demographic profiles. For example, in the Chicago area, our Tinley Park property had achieved occupancy of at least 94 percent for more than three years running. Last fall we completed a 12,000-square-foot expansion on an existing parcel, which will enable us to maximize the value of this asset. With both our redevelopments and expansions, we are striving for continuous improvement to keep our portfolio at peak performance for many years to come.

The Shift to Mobile Search

Over the years we have developed a sophisticated strategy to attract and convert customers who find us online. Today more than 60 percent of our customers go online at some point during the purchase process. For a growing number, browsing the Internet on a mobile phone is their first point of contact with Extra Space Storage. In fact, from 2011 to 2012 mobile Internet search queries rose 46 percent, while searches from desktop computers dropped 22 percent.

To capture the shift to mobile, we have refined our search engine optimization and interactive marketing strategies. We continue to focus on cost-effective digital advertising, bidding on 39 million search terms every day – much of that driven by mobile search. Best of all, we customize our strategies depending on whether customers search from a computer, tablet or mobile phone from any operating system – Windows, Android or Apple. As a result, we are gaining more market share in an increasingly online world.

Analytics

Our online initiatives are just one way we are leveraging our technological advantage. We take a comprehensive approach to big data, sharing customer information across all our channels. If a customer finds us online and then reserves a unit through the call center, we can reduce our call time by 30 to 60 seconds because we already know what kind of storage solution they want. This seamless handoff allows us to minimize our costs while delivering a one-to-one customer experience.

With our data-driven approach, we can adjust our pricing by channel – over the web, through the call center or at the property – and depending on whether the customer has researched other storage options. In addition, we recently rolled out a new user interface to our call tracking software, enabling our employees to track each customer from first click or call to rental. Our technology leadership not only advances our results but continues to drive our industry forward.

Revenue Management

Our proprietary revenue management platform remains a key advantage. By tracking the price elasticity of demand in real time, it allows us to set prices on a unit-by-unit basis. As a predictive tool, it enables us to achieve the highest rents and occupancy levels, ultimately maximizing revenue on each transaction. Last year our occupancy reached an all-time high, even as our “street” or asking rates rose and discounts for new customers declined. By carefully balancing supply and demand, we once again maximized our operational and financial results.

Sustainability

As in years past, we continue to invest in sustainability initiatives. By outfitting select properties with solar panels, we have dramatically cut our electric bills while taking advantage of tax credits. We also continue to install energy-efficient lighting systems. By using motion sensors and the latest lighting technologies, we have cut our utility costs and reduced our environmental footprint. Altogether, we reduced our greenhouse gas emissions last year by an estimated 6,466 tons of carbon dioxide, the equivalent of taking 835 cars permanently off the road.

We delivered robust results and rewarded our shareholders. We raised our quarterly common stock dividend in the second quarter by 60% to $0.40 per share, or $1.20 per share on an annualized basis. We generated funds from operations (FFO) of $1.96 per diluted share, including a $0.07 expense related to costs associated with acquisitions, a $0.01 expense related to the Company's exchangeable senior notes and an $0.08 one-time expense for the extinguishment of debt on an acquired portfolio. Excluding these items, FFO as adjusted was $2.12 per diluted share, representing a 29.3% increase compared to 2012. As our performance shows, the fundamentals of our business remain strong.