10-Q/APeriod: Q1 FY2009

Extra Space Storage Inc. Quarterly Report (Amendment) for Q1 Ended Mar 31, 2009

Filed June 5, 2009For Securities:EXR

Summary

This 10-Q/A filing for Extra Space Storage Inc. (EXR) for the quarter ended March 31, 2009, primarily serves to update information from its initial 10-Q filing. The company, a REIT specializing in self-storage facilities, reported revenue growth driven by property rentals and a significant increase in tenant reinsurance. However, operating expenses also rose due to property acquisitions and increased property taxes and utilities. The company also realized a substantial gain from the repurchase of its exchangeable senior notes. Financially, EXR maintained a solid asset base with increasing real estate assets, though cash and cash equivalents saw a decrease. The company's debt levels remained significant, with a debt-to-capitalization ratio of 72.1%. A notable event was the announced modification of its 2009 dividend policy, with no dividends expected in the second or third quarters, and a planned fourth-quarter dividend to be paid primarily in stock to meet REIT distribution requirements and avoid corporate income tax. Furthermore, EXR has committed to winding down its development program due to market conditions, expecting significant one-time charges in the second quarter of 2009. Despite a challenging economic environment, the company is focused on managing its property portfolio and expanding its management business.

Key Highlights

  • 1Total revenues increased by 5.4% to $69.3 million for the three months ended March 31, 2009, compared to $65.7 million in the prior year period, driven by property rental revenue and a significant increase in tenant reinsurance.
  • 2The company reported a substantial gain of $22.5 million from the repurchase of its exchangeable senior notes, which significantly boosted net income.
  • 3Operating expenses increased by 9.7% to $48.0 million, mainly due to higher property operations costs related to acquisitions and increased property taxes and utilities.
  • 4As of March 31, 2009, total assets were $2.30 billion, with net real estate assets growing to $2.03 billion.
  • 5Total liabilities remained largely stable at $1.35 billion, with notes payable representing the largest component.
  • 6The company announced a significant shift in its dividend policy, with no cash dividends expected in Q2 and Q3 2009, and a planned Q4 dividend to be paid primarily in stock.
  • 7Extra Space Storage Inc. committed to an immediate wind-down of its development program, expecting to incur substantial one-time charges in the second quarter of 2009.

Frequently Asked Questions

As of March 31, 2009, Extra Space Storage held total assets of $2.30 billion and total liabilities of $1.35 billion, resulting in a debt-to-capitalization ratio of 72.1%. While revenues showed a modest increase, operating expenses also rose, and the company had a reduced cash balance compared to the previous year. The company's ability to generate cash from operations and secure external financing are key to its liquidity.

The company announced a significant change to its dividend policy for 2009. It does not expect to pay dividends in the second or third quarters. A fourth-quarter dividend is planned, which will be paid using approximately 90% in common stock and 10% in cash, in compliance with IRS guidance for REITs to meet distribution requirements and avoid corporate income tax.

Extra Space Storage has committed to an immediate wind-down of its development program due to current market conditions. This decision is expected to result in one-time charges of approximately $19 million to $23 million in the second quarter of 2009, along with severance costs of $1 million to $2 million. The company will continue to complete 18 remaining wholly-owned development properties, with an estimated completion by Q3 2010.

The company repurchased $71.5 million in principal amount of exchangeable senior notes in March 2009, resulting in a significant gain of $22.5 million recognized in the current period. This gain substantially boosted net income for the quarter. The repurchase also led to a decrease in non-cash interest expense related to the amortization of the discount on these notes.