Annual Report 2014

Shareholder Letter

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DEAR FELLOW SHAREHOLDERS,

In the decade since our IPO, investors have come to expect more from Extra Space Storage. We have built our reputation by delivering more, with a growth strategy that has increased shareholder value more than any of our self-storage peers over the past 10 years. Moreover, our 10-year total return to shareholders is among the top returns produced by any publicly traded REIT across all sectors.

We continue to lead the storage sector with our management expertise, platform and technology advantage. Our business remains healthy and strong, and we have proven ourselves as a growth company — not a standard owner and operator of real estate.

17 Consecutive Quarters of double-digit FFO growth
595 Percent 10 Year Total Shareholder Return

2014 RESULTS

We achieved another year of extraordinary performance in 2014, driven by our national portfolio, operational excellence and significant Internet marketing presence. With new demand for storage space exceeding the increase in inventory, we also benefitted from muted new supply.

We grew our top-line results by increasing same-store revenues 7.5% in 2014. Expense growth was minimal at 3.2% with moderate increases in repairs, maintenance and property taxes, resulting in a 9.5% increase in same-store net operating income (NOI).

By carefully managing discounts and promotions, we improved same-store occupancy by 190 basis points to 91.4% at December 31, 2014, compared to 89.5% as of December 31, 2013. We generated double-digit growth in funds from operations-as adjusted (AFFO) for the fourth year in a row, increasing AFFO per diluted share to $2.61 in 2014, a 23.7% increase compared to 2013. As a result, we raised our quarterly common stock dividend in the second quarter by 17.5% to $0.47 per share, or $1.88 per share on an annualized basis.

GROWING OUR PORTFOLIO

As good stewards of capital, we continued to invest wisely in our portfolio. We purchased 51 assets for $531 million during 2014 to create long-term value for our shareholders. It is important to note that 21 of our strategic acquisitions came from our joint venture and ManagementPlus pipeline of self-storage properties that we manage on behalf of third-party owners. Even with this acquisition activity, we added a net 10 sites to our third-party management platform, which had 260 locations as of December 31, 2014, up from 250 as of December 31, 2013. Overall, our expansion enabled us to end the year with 1,088 locations as of December 31, 2014, up from 1,029 as of December 31, 2013.

OPERATIONAL EXCELLENCE

We continued to produce top-tier operational results in 2014. I am especially proud of the seamless transition from Karl Haas, our former Chief Operating Officer who retired at the end of 2013, to Samrat Sondhi, Executive Vice President of Operations. Mr. Sondhi has proven his capabilities not only this year, but during the past decade with the Company in strategic leadership positions.

To deepen our customer acquisition expertise, we brought together our revenue management, call center and online marketing teams to create one powerful, integrated platform. Our national scale and the power to capture customers who utilize the Internet continue to set us apart — driving traffic disproportionately to our facilities at the expense of smaller, less sophisticated operators.

We continue to achieve success by offering convenient locations that are clean, secure and competitively priced — all backed by superior customer service. To build on the strength of our brand, we are looking at ways to become even more retail-centric so we can improve the customer experience across our portfolio.

OUR FOCUS

At Extra Space Storage, we excel because we know what we do best: owning and operating self-storage real estate in the best markets across the country. We see no need to reinvent ourselves. This singular focus on our core business is what allows us to deliver impressive results year after year.

Going forward, maximizing shareholder value remains our No. 1 priority, and intelligent growth is the key driver. In the year ahead we will continue to:

  • Make sure we capture every rental opportunity and maximize the value of each customer interaction.
  • Compete effectively for acquisitions on the open market by leveraging our attractive cost of capital.
  • Take full advantage of our off-market, proprietary acquisition pipeline of 531 assets that are owned by joint ventures or third-party investors — all of which are branded Extra Space Storage.
  • Expand our third-party management platform.

Looking ahead, we will continue to focus on the fundamentals of our business. In closing, I want to recognize our talented team of more than 2,600 employees for delivering another year of outstanding operational and financial results. Their experience has allowed us to execute exceptionally well during a time of rapid growth.

I also want to thank you, our shareholders, for your interest and support. Going forward you should expect more of the same from Extra Space Storage — strong execution and outstanding financial and operational performance. I look forward to updating you on our progress in 2015 and beyond.

 

SPENCER F. KIRK, CEO, Extra Space Storage Inc.
Sincerely,

Spencer F. Kirk
Chief Executive Officer