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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

or

For the transition period from                  to                  .

Commission File Number: 001-32269

EXTRA SPACE STORAGE INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (801) 562-5556

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of February 28, 2005 was 31,169,950.

DOCUMENTS INCOPROPRATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the registrant’s 2005 Annual Meeting, to be filed within 120 days after the close of the registrant’s fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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EXTRA SPACE STORAGE INC.

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Explanatory Note

Note that the financial statements covered in this report for the period from January 1, 2004 to August 16, 2004 and for the year ended December 31, 2003 and 2002 contain the results of operations and financial condition of Extra Space Storage LLC and its subsidiaries, the predecessor to Extra Space Storage Inc. and its subsidiaries, prior to the consummation of Extra Space Storage Inc.’s initial public offering on August 17, 2004, and various formation transactions. In addition, the financial statements covered in this report contain the results of operations and financial condition of Extra Space Storage Inc. for the period from August 17, 2004 to December 31, 2004. Due to the timing of the offering and the formation transactions, the Company does not believe that the results of operations discussion set forth in this document are necessarily indicative of the Company’s future operating results as a publicly-held company. Amounts are in thousands (except per share data and unless otherwise stated).

Statements Regarding Forward-Looking Information

When used within this document, the words “believes,” “anticipates,” “projects,” “should,” “estimates,” “expects,” and similar expressions are intended to identify “forward-looking statements” within the meaning of Section 27-A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied in the forward-looking statements. Such factors include, but are not limited to, changes in general economic conditions and in the markets in which the Company operates:

The Company disclaims any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report.

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PART I

Item 1. Business

General

Extra Space Storage Inc. (the “Company”) is a self-administered and self-managed real estate investment trust (“REIT”) formed as a Maryland corporation on April 30, 2004 to own, operate, acquire, develop and redevelop professionally managed self-storage facilitates. On August 17, 2004, the Company commenced operations effective with the completion of its initial public offering of 20,200,000 shares of common stock. The Company received proceeds from the offering of $234.8 million, net of issuance costs of $17.7 million. As part of the offering, the Company granted the underwriters the right to purchase up to 3,030,000 additional shares within thirty days after the offering to cover any overallotments. On September 1, 2004, the underwriters exercised their right and purchased an additional 3,030,000 shares of common stock with proceeds to the Company of $35.2 million, net of issuance costs of $2.6 million. The Company also paid additional issuance costs of $5.6 million. The Company’s common stock is traded on the New York Stock Exchange under the symbol “EXR”.

The Company was formed to continue the business of its of Extra Space Storage LLC and its subsidiaries (the “Predecessor”), which had engaged in the self-storage business since 1977. These companies were reorganized after the consummation of the offering and various formation transactions. As of December 31, 2004, the Company held ownership interests in 140 properties located in 20 states with an aggregate of 9.2 million square feet of net rentable space and greater than 70,000 customers. Of these 140 properties, 122 are wholly owned, and 18 are owned in joint-venture partnerships. An additional 20 properties are owned by third parties and operated by the Company in exchange for a management fee.

Substantially all of the Company’s business is conducted through Extra Space Storage LP, (the “Operating Partnership”), and its primary assets are general partner and limited partner interests in the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To the extent the Company continues to qualify as a REIT, it will not be subject to tax, with certain limited exceptions, on the taxable income that is distributed to its shareholders.

The Company files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports to the Securities and Exchange Commission (the “SEC”). You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website at http://www.sec.gov. The Company’s website is www.extraspace.com. Its reports on Forms 10-K, 10Q, and 8-K, and all amendments to those reports are posted on the Company’s website as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. These reports are available upon request without charge.

Management

Members of the Company’s senior management team have significant experience in all aspects of the self-storage industry, with an average of more than ten years of industry experience. The senior management team has collectively acquired and/or developed more than 200 properties during the past 25 years for the Predecessor and other entities. Kenneth M. Woolley, Chairman and Chief Executive Officer, and Richard S. Tanner, Senior Vice President Development, have worked in the self-storage industry since 1977 and led two of the earliest self-storage facility development projects in the United States.

The remainder of our executive management team and their years of experience with the Company and Predecessors are as follows: Kent Christensen, Chief Financial Officer, 7 years; Charles Allen, Chief Legal

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Officer, 7 years; Timothy Arthurs, Senior Vice President Operations, 5 years; Scott Stubbs, Senior Vice President and Chief Accounting Officer, 5 years; Kenneth T. Woolley; Senior Vice President Acquisitions, 6 years.

The executive management team has guided the Predecessor through substantial growth, developing and acquiring over $750 million in assets since 1996. This growth was previously funded with internal funds and more than $245 million was raised in private equity capital since 1998, largely from sophisticated, high net-worth individuals and institutional investors such as affiliates of Prudential Financial, Inc. and Fidelity Investments.

The Company’s senior management and board of directors have a significant ownership position in the Company with executive officers and directors owning approximately 5.6 million shares or 17.8% of the common stock as of February 28, 2005.

Industry & Competition

Self-storage properties refer to properties that offer do-it-yourself, month-to-month storage space rental for personal or business use. Self-storage offers a cost-effective and flexible storage alternative. Tenants rent fully enclosed spaces that can vary in size according to their specific needs and to which they have unlimited, exclusive access. Tenants have responsibility for moving their items into and out of their units. Self-storage unit sizes typically range from five feet by five feet to 20 feet by 20 feet, with an interior height of eight to 12 feet.

Self-storage provides a convenient way for individuals and businesses to store their possessions, whether due to a life-change, or simply because of a need for extra storage space. The mix of residential tenants using a self-storage property is determined by a property’s local demographics and often includes people who are looking to downsize their living space or others who are not yet settled in large homes.

The range of items residential tenants place in self-storage properties range from cars, boats and recreational vehicles, to furniture, household items and appliances. Commercial tenants tend to include small business owners who require easy and frequent access to their goods, records or extra inventory or storage for seasonal goods.

Self-storage properties provide an accessible storage alternative at a relatively low cost. Tenants typically rent an enclosed space to which they have unlimited, exclusive access. Properties generally have on-site managers who supervise and run the day-to-day operations, providing tenants with assistance as needed.

The Company’s research has shown that tenants choose a self-storage property based primarily on the convenience of the site to their home or business, making high-density, high-traffic population centers ideal locations for locating a self-storage property. A property’s perceived security and the general professionalism of the site managers and staffs are also contributing factors to a site’s ability to successfully secure rentals. Although most self-storage properties are leased to tenants on a month-to-month basis, tenants tend to continue their leases for extended periods of time.

Self-storage does have seasonal fluctuations in occupancy rates for self-storage properties. Based on the Company’s experience, generally, there is increased leasing activity at self-storage properties during the summer months due to the higher number of people who relocate during this period. The highest level of occupancy is achieved in July and August, while the lowest level of occupancy is seen in February and March.

Since it’s inception in the early 1970’s the self-storage industry has seen significant growth. In the past ten years, there has been even greater growth. According to the 2005 Self-Storage Almanac (the “Almanac”), in 1994 there were approximately 19,500 self-storage properties in the United States, with an average occupancy rate of 84.8% of net rentable square feet compared to approximately 38,800 self-storage properties in 2004 with an average occupancy rate of 84.2% of net rentable square feet. As population densities have increased in the United States, there has been an increase in self-storage awareness and development, which the Company expects will continue in the future.

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The Company has found that the factors most important to tenants when choosing a self-storage site are a convenient location, a clean environment, friendly service and a professional helpful staff. Its experience also indicates that successfully competing in the self-storage industry requires an experienced and dedicated management team that is supported by an efficient and flexible operating platform that is responsive to tenants’ needs and expectations.

Increased competition has affected the Company’s business and has led to both pricing and discounts pressure. This has limited the Company’s ability to increase revenues in many markets in which it operates. Many markets have been able to absorb the increase in self-storage development due to superior demographics and density. However, select markets have not been able to absorb the new facilities and have not performed as well as others.

Competition can also be seen on the acquisitions front, especially with brokered portfolios. Bidding wars have been commonplace between both public and private entities, and this competition has hindered the Company’s ability to grow at a more consistent pace.

The growth within the industry has also led to an increased emphasis on site location, property design, innovation and functionality, especially for new sites slated for high-density population centers, to accommodate the requirements and tastes of local planning and zoning boards, and to distinguish a facility from other offerings in the market.

The Company strives to have a creative and flexible approach to its development projects and it is open to a broad array of opportunities because of this flexibility. Due to the attractive architecture of many of the Company’s properties, the Company has been able to eliminate a typical barrier of entry for most self-storage developers in areas usually reserved for more traditional retail and commercial users.

The industry is also characterized by fragmented ownership. According to the Almanac, the top five self-storage companies in the United States owned approximately 9.9% of total U.S. self-storage properties, and the top 50 self-storage companies owned approximately 15.6% of the total U.S. properties. The Company believes this fragmentation will contribute to continued consolidation at some level into the future. The Company also believes it is well positioned to be able to compete for acquisitions given its enhanced ability to access capital as a public company and its historical reputation for closing deals.

According to the Almanac, the Company is the seventh largest self-storage owner and operator in the United States as of December 31, 2004. The Company is now one of five self-storage REITS along with Public Storage Inc. (PSA), Shurgard Storage Centers, Inc. (SHU); Sovran Self-Storage, Inc. (SSS), and U-Store-It Inc. (YSI).

Growth and Investment Strategies

The Company’s primary business objectives are to maximize cash flow available for distribution to its shareholders and to achieve sustainable long-term growth in cash flow per share in order to maximize long-term shareholder value. The Company’s business strategy to achieve these objectives consists of the following elements:

The Company seeks to maximize revenue-generating opportunities by responding to changing local market conditions through interactive yield management of the rental rates at its properties. Supported by STORE (the Company’s licensed property management software), the Company will seek to respond to changing market conditions and to maximize revenue-generating opportunities through interactive rental rate management.

The Company intends to continue to selectively acquire, for cash or by utilizing units in its operating partnership as acquisition currency, privately-held self-storage portfolios and single self-storage assets in

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high population density areas with an undersupply or equilibrium of self-storage demand, re-flag them under the Extra Space Storage brand name, and implement its comprehensive property and operating systems so as to maximize operating performance over time.

The Company plans to continue to expand by selecting and developing new self-storage properties, through joint ventures, with cost-effective, appealing construction in desirable areas based on specific data, including: visibility and convenience of location, market occupancy and rental rates, market saturation, traffic count, household density, median household income, barriers to entry and future demographic and migration trends. Because of the attractive architecture of many of the Company’s properties, it has been able to eliminate a typical barrier of entry for most self-storage developers in areas usually reserved for more traditional retail and commercial properties.

The Company plans to grow by continuing its development activities in conjunction with its joint venture partners while mitigating the risks normally associated with early-stage development and lease-up activities. Where appropriate, the Company plans to also seek to acquire properties in a capital-efficient manner in conjunction with its joint venture partners. Typically in these deals, the Company seeks to have a small capital interest, and once its joint venture partner receives a predetermined return on its investment, the remaining profits will be distributed to the joint venture partners.

Financing of the Company’s Growth Strategies

On September 9, 2004, the Company, as guarantor, and its Operating Partnership entered into a $100 million revolving line of credit, which includes a $10 million swingline subfacility (the “Credit Facility”). The Credit Facility is collateralized by self-storage properties. Since the Company’s initial public offering, the Company has funded substantially all of its acquisitions through the Credit Facility. As of December 31, 2004, the Credit Facility had approximately $63.5 million of available borrowings based on the assets collateralizing the Credit Facility. The Company expects to maintain a flexible approach in financing new property acquisitions. The Company plans to finance future acquisitions through a combination of borrowings under the Credit Facility, traditional secured mortgage financing and additional equity offerings.

The Company owns 13 of its stabilized properties and five of its lease-up properties through joint venture with third parties, including affiliates of Prudential Financial, Inc. In each joint venture, the Company manages the day-to-day operations of the underlying properties and has the right to participate in major decisions relating to sales of properties or financings by the applicable joint venture. The Company’s joint venture partners typically provide most of the equity capital required for the operation of the respective business. Under the operating agreements for the joint ventures, the Company typically maintains the right to receive between 35% and 50% of the available cash flow from operations after the joint venture partner has received a predetermined return, and between 35% and 50% of the available cash flow from capital transactions after the joint venture partner has received a return of its capital plus such predetermined return. Some joint venture agreements include certain buy-sell rights, as well as rights of first refusal in connection with the sale of properties by the joint venture.

The Company will continue to review its portfolio for properties or groups of properties that are not strategically located and determine the potential disposition of these properties to fund other growth.

Regulation

Generally, self-storage properties are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures. Changes in any of these laws or regulations, as well as

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changes in laws, such as the Comprehensive Environmental Response and Compensation Liability Act, or CERCLA, which increase the potential liability for environmental conditions or circumstances existing or created by tenants or others on properties, or laws affecting development, construction, operation, upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of self-storage sites or other impairments to operations, which would adversely affect the Company’s financial position, results of operations or cash flows.

Under the American Disabilities Act (the “ADA”), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional U.S. federal, state and local laws also exist that may require modifications to the properties, or restrict certain further renovations thereof, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, and in substantial capital expenditures. To the extent the Company’s properties are not in compliance, the Company is likely to incur additional costs to comply with the ADA.

Insurance activities are subject to state insurance laws and regulations as determined by the particular insurance commissioner for each state in accordance with the McCarran-Ferguson Act, as well as are subject to the Gramm-Leach-Bliley Act and the privacy regulations promulgated by the Federal Trade Commission pursuant thereto.

Property management activities are often subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.

Changes in any of the laws governing the Company’s conduct could have an adverse impact on the ability to conduct its business or could materially affect its financial position, results of operations or cash flows.

Employees

As of February 28, 2005, the Company had 469 employees and believes its relationships with its employees to be good. The Company’s employees are not represented by a collective bargaining agreement.

Item 2. Properties

As of December 31, 2004, the Company owned and operated 140 self-storage properties located in 20 states, 122 of which are wholly owned and 18 of which are held in joint ventures with third parties. The Company also manages an additional 20 properties for third parties. The Company’s properties are generally situated in convenient, highly visible locations regionally clustered around high-density, high-income population centers, such as Boston, Chicago, Los Angeles, Miami, New York/Northern New Jersey and San Francisco. Its properties contain an aggregate of approximately 9.2 million net rentable square feet of space configured in approximately 87,500 separate storage units. As of December 31, 2004, its stabilized portfolio (which consists of 111 properties) was on average 85.4% occupied, while its lease-up portfolio (which consists of 29 properties) was on average 69.7% occupied. The Company considers a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. The Company considers a property to be stabilized once it has achieved either an 85% occupancy rate, or has been open for four years. Over the next 24 months, the Company expects its lease-up properties to achieve 85% occupancy, which it believes is in line with lease-up periods typical in the self-storage industry.

As of December 31, 2004, greater than 70,000 tenants were leasing storage units at the Company’s 140 properties, primarily on a month-to-month basis, providing the flexibility to increase rental rates over time as market conditions permit. Although leases are short-term in duration, the typical tenant tends to remain at the Company’s properties for an extended period of time. For properties that were stabilized as of December 31, 2004, the average length of stay was approximately 16 months.

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The following table sets forth additional information regarding the occupancy of the stabilized properties on a state-by-state basis as of December 31, 2004 and 2003. The information as of December 31, 2003 is on a pro forma basis as though all the properties owned at December 31, 2004 were under the Company’s control as of December 31, 2003.

Stabilized Property Data Based on Location

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The following table sets forth additional information regarding the occupancy of the Company’s lease-up properties on a state-by-state basis as of December 31, 2004 and 2003. The information as of December 31, 2003 is on a pro forma basis as though all the properties owned at December 31, 2004 were under the Company’s control as of December 31, 2003.

Lease-up Property Data Based on Location

The Company’s property portfolio is a made up of different types of construction and building configuration depending on the site and the municipality where it is located. Most often sites are a mix of both drive-up buildings and multi-floor buildings. The Company has several multi-floor buildings with elevator access only, and a number of facilities featuring ground-floor access only.

The Company’s properties are generally situated in convenient, highly visible locations clustered around large population bases; however, due to certain factors, the Company has a handful of locations outside the top MSA’s (Metropolitan Statistical Areas) that were developed or acquired based on the market, familiarity with the properties, or as part of a larger portfolio.

Item 3. Legal Proceedings

The Company is involved in various litigation and proceedings in the ordinary course of business. The Company is not a party to any material litigation or legal proceedings, or to the best of its knowledge, any

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threatened litigation or legal proceedings which, in the opinion of management individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2004.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information

The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “EXR”. The following table sets forth, for the periods indicated, the high and low sales price for the common stock as reported by the NYSE and the per share dividends declared:

On February 28, 2005, the closing price of the Company’s common stock as reported by the NYSE was $13.90. At February 28, 2005, the Company had 124 holders of record of its Common Stock.

Holders of shares of Common Stock are entitled to receive distributions when declared by the Company’s board of directors out of any assets legally available for that purpose. As a REIT, the Company is required to distribute at least 90% of its “REIT taxable income,” which, as defined by the relevant tax status and regulations, is generally equivalent to net taxable ordinary income, to shareholders annually in order to maintain the Company’s REIT status for federal income tax purposes.

Unregistered Sales of Equity Securities and Use of Proceeds

None

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Item 6. Selected Financial Data

The following table sets forth the selected financial data and should be read in conjunction with the Financial Statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.

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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Where appropriate, the following discussion includes analysis of the effects of the Company’s initial public offering (“IPO”), the formation transactions and related refinancing transactions and certain other transactions. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-K entitled “Statements Regarding Forward-Looking Information.” Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Form 10-K entitled “Statements Regarding Forward-Looking Information.”

Overview

On August 17, 2004, the Company closed its initial public offering, pursuant to which it sold 20,200,000 shares of common stock, with proceeds to the Company of approximately $234,825, net of issuance costs of $17,675. As part of the offering, the Company granted the underwriters the right to purchase up to 3,030,000 additional shares within thirty days after the offering to cover any over-allotments. On September 1, 2004, the underwriters exercised their right and purchased an additional 3,030,000 shares of stock with proceeds to the Company of approximately $35,224, net of issuance costs of $2,651. The Company also paid additional issuance costs of $5,574. The formation transactions outlined in the offering prospectus have been completed as described in various 8-K filings.

In connection with the initial public offering, the existing holders of Class A, Class B, Class C and Class E Units in the Predecessor exchanged these Units for an aggregate of 7,939,950 shares of common stock, 1,608,437 operating partnership (“OP”) units, 3,888,843 CCS’s and 200,046 CCU’s and $18,885 in cash. As a result of this exchange, the Predecessor became a wholly owned subsidiary of Extra Space Storage LP (the “Operating Partnership”), which is a subsidiary of the Company. The transaction did not result in a change in the carrying value of the Predecessor’s assets and liabilities because the exchange was accounted for at historical cost as a transfer of assets between companies under common control.

The Company is a fully integrated, self-administered and self-managed real estate investment trust formed to continue the business commenced in 1977 by its predecessor companies to own, operate, acquire, develop and redevelop professionally managed self-storage properties. Since 1996, the Company’s fully integrated development and acquisition teams have completed the development or acquisition of more than 130 self-storage properties. To maximize revenue-generating opportunities for the properties, the Company employs a state-of-the-art, proprietary, web-based tracking and yield management technology called STORE. Developed by the Company’s management team, STORE enables the Company to analyze, set and adjust rental rates in real time across its portfolio in order to respond to changing market conditions.

The Company derives substantially all of its revenues from rents received from tenants under existing leases on each of its self-storage properties. The Company operates in competitive markets, where consumers have multiple self-storage self-storage properties from which to choose. Competition has and will continue to impact the Company’s results. The Company experiences minor seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. The Company’s operating results, therefore, depend materially on its ability to lease available self-storage space and on the ability of its tenants to make required rental payments. The Company believes it is able to respond quickly and effectively to changes in local, regional and national economic conditions by adjusting rental rates through the use of STORE, the operating management software employed at the properties.

The Company continues to evaluate a range of new growth initiatives and opportunities in order to enable it to maximize shareholder value. These include:

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As of December 31, 2004, the Company owned and operated 140 properties located in 20 states. Of the 140 properties, 122 are wholly owned and 18 are held in joint ventures with third parties. The properties are operated under the service-marked Extra Space Storage brand name. As of December 31, 2004, the properties contained an aggregate of approximately 9.2 million net rentable square feet of space configured in approximately 87,500 separate storage units. The properties are generally situated in convenient, highly visible locations clustered around large population centers such as Boston, Chicago, Los Angeles, Miami, New York/Northern New Jersey and San Francisco. These areas all enjoy above average population and income demographics and high barriers to entry for new self-storage properties. The clustering of assets around these population centers enables the Company to reduce its operating costs through economies of scale. The Company considers a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. A property is considered to be stabilized once it has achieved an 85% occupancy rate, or has been open for four years.

In the Results of Operations discussion below, the Company has combined the historical results of operations for the Predecessor for the period from January 1, 2004 through August 16, 2004 with the historical results of operations for the Company for the period from August 17, 2004 through December 31, 2004 in discussing the historical results of the operations for the Company for the year ended December 31, 2004. Comparisons to the respective prior periods are to the historical results of operations of the Predecessor.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management of the Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States, which require the Company to make certain estimates and assumptions that affect the recorded amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates. The Company has summarized below those accounting policies and estimates that require its most difficult, subjective or complex judgments and that have the most significant impact on its financial condition and results of operations. Management evaluates these estimates on an ongoing basis. These estimates are based on information currently available to management and on various other assumptions management believes are reasonable as of the date of this report.

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The Company determines the fair value of the real estate it acquires, including land, land improvements and buildings, by valuing the real estate at the purchase price less any intangible assets. This fair value is then allocated to land, land improvements and buildings based on the Company’s determination of the relative fair values of these assets.

The Company determines the fair value of the intangible assets it acquires in accordance with purchase accounting for acquisitions by considering the value of in-place leases and the value of tenant relationships. The Company does not place a value on the in-place leases due to the month-to-month terms of the leases. The Company values tenant relationships as two months’ projected rent (end of month rent roll), based on the stable nature of rentals and vacates in its self-storage properties and the minimal amount of time and effort required to replace an existing tenant.

The Company has estimated the useful life of tenant relationships to be approximately 18 months based on experience with the period of time a tenant stays in a property.

When real estate assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value, net of selling costs. If, the estimated fair value, net of selling costs, of the assets which have been identified for sale, is less than the net carrying value of the assets, a valuation allowance is established.

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RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 2004 to the Year Ended December 31, 2003

Overview

Results for the year ended December 31, 2004 included the operations of 147 properties, seven of which were deconsolidated during 2004, (128 of which were consolidated and 19 of which were in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2003, which included the operations of 94 properties (57 of which were consolidated and 37 of which were in joint ventures accounted for using the equity method). Results for the quarter and year-ended December 31, 2004 include the results of six properties in which the Company did not own any interest and one where the Company sold its joint venture interest in 2004. The properties were consolidated as a result of guarantees and/or puts for which the Company was liable. Five of the six properties were deconsolidated on August 16, 2004 upon the release of all guarantees and puts, and the other property was deconsolidated on December 31, 2004. Results for both periods also included equity in earnings of real estate ventures, third-party management fees, acquisition fees and development fees.

Revenues

Revenues for the year ended December 31, 2004 were $65,971 compared to $36,261 for the year ended December 31, 2003, an increase of $29,710, or 81.9%. This increase was primarily due to an increase of $29,602 in property rental revenues, which includes merchandise sales, insurance administrative fees and late fees. The increase in property rental revenues consists of $8,081 from the buyout of the certain joint venture interests (previously accounted for using the equity method of accounting), $16,777 from new acquisitions and $4,045 from increases in occupancy at lease-up properties. During the year ended December 31, 2004, the Company and the Predecessor opened five new properties, acquired 44 new properties, acquired its joint venture partners interest in 22 properties and continued to increase the occupancy at its other lease-up properties. The increase in stabilized property revenues consists primarily of increased rental rates.

Management fees represent 6.0% of cash collected from properties owned by third parties and unconsolidated joint ventures. The decrease in management fees was due to the Company purchasing its joint venture partner’s interest Extra Space East One, LLC in 2004.

During 2004, acquisition and development fees increased by $546. The increase in acquisition fees and development fees was due to the increased volume of development relating to joint ventures in 2004. While the Company and the Predecessor purchased 44 properties in 2004, acquired its joint venture partners interest in 22 properties the Company did not recognize any acquisition fees as these properties are wholly owned and are consolidated.

Other income represents interest income and income from truck rentals.

Expenses

Total expenses for the year ended December 31, 2004 were $54,822 compared to $34,897 for the year ended December 31, 2003, an increase of $19,925, or 57.1%. This increase was primarily due to an increase of $11,208 in property operating expenses, an increase of $4,168 in general and administrative expenses and an increase in depreciation of $8,747. These amounts were partially offset by a decrease of $4,198 in unrecovered development/acquisition costs.

Property Operations

For the year ended December 31, 2004, property operations were $26,066 compared to $14,858 for the year ended December 31, 2003, an increase of $11,208, or 75.4%. The increase in property operations was primarily due to increases of $2,654 from the buyout of certain joint venture interests (previously accounted for using the

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equity method of accounting), $6,306 from new acquisitions and $2,238 from lease-up properties. During the year ended December 31, 2004, the Company and the Predecessor opened five new properties, acquired 44 new properties, and continued to increase the occupancy at its other lease-up properties. Existing lease-up property expenses increased due to increases in utilities, office expenses, repairs and maintenance and property taxes due to reassessment. The increase in stabilized property expenses consists primarily of payroll and property taxes.

Unrecovered Development/Acquisition Costs and Support Payments

Unrecovered development/acquisition costs and support payments were $739 for the year ended December 31, 2004 compared to $4,937 for the year ended December 31, 2003, a decrease of $4,198, or 85.0%. Unrecovered development costs for 2003 included $1,520 relating to final performance guarantee payments to the joint venture partner in Extra Space West One, LLC and Extra Space East One, LLC. In addition, the decrease was due to approximately $2,500 in costs relating to potential acquisitions, which were written off during the year ended December 31, 2003.

General and Administrative

General and administrative expenses for the year ended December 31, 2004 were $12,465 compared to $8,297 for the year ended December 31, 2003, an increase of $4,168, or 50.2%. This increase is due to fewer internal development expenses capitalized in 2004—$1,198, than were capitalized in 2003—$1,797, and to overhead added to prepare the Company for growth, and its ongoing public company costs. In addition, the Company recognized $1,205 in compensation expense related to employee unit grants in 2004.

Depreciation and Amortization

Depreciation and amortization for the year ended December 31, 2004 was $15,552 compared to $6,805 for the year ended December 31, 2003, an increase of $8,747, or 128.5%. The increase results from more properties being open due to development and acquisition during 2004, than were open during the year ended December 31, 2003. The Company and the Predecessor acquired 44 properties, bought out joint venture partners on 22 properties that had been previously accounted for on the equity method of accounting, and opened five properties in 2004.

Interest Expense and Loss on Debt Extinguishments

Interest expense and loss on debt extinguishments for the year ended December 31, 2004 was $32,014 compared to $18,746 for the year ended December 31, 2003, an increase of $13,268, or 70.8%. The increase was due primarily to additional debt and interest relating to new properties entering the lease-up stage being expensed rather than capitalized (interest was capitalized during the development phase) and $3,523 being paid to extinguish debt. Capitalized interest during the years ended December 31, 2004 and 2003 was $1,213 and $2,593, respectively. In addition, during 2004, the Company and the Predecessor acquired 44 new properties and bought out joint venture partners on 22 properties, which increased its average outstanding debt.

Minority Interest-Fidelity Preferred Return

Minority interest-Fidelity preferred return for the year ended December 31, 2004 was $3,136 compared to $4,132 for the year ended December 31, 2003, a decrease of $996, or 24.1%. The decrease was due to the redemption of the Fidelity minority interest on August 17, 2004.

Minority Interest Operating Partnership

Loss allocated to the Operating Partnership represents 8.05% of the net loss subsequent to the IPO and totaled $113 for the year ended December 31, 2004.

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Loss Allocated to Other Minority Interests

Loss allocated to other minority interests for the year ended December 31, 2004 was $2,290 compared to $1,431 for the year ended December 31, 2003, an increase of $859, or 60.0%. The increase was primarily due to additional losses on lease-up properties allocated to Extra Space Development (“ESD”) in 2004 under the joint venture operating agreements.

Equity in Earnings of Real Estate Ventures

Equity in earnings of real estate ventures decreased $78, or 5.3%, for the year ended December 31, 2004. This decrease was primarily due to the Predecessor purchasing its joint venture partner’s interest in 18 self-storage facilities held by Extra Space Storage East One and West One, LLC and these facilities being subsequently consolidated, offset by increased profitability of Extra Space West One, LLC.

Gain on the Sale of Real Estate Assets

Gain on the sale of real estate assets for the year ended December 31, 2004 was $1,749 compared to $672 for the year ended December 31, 2003. The increase was due primarily to the Company recognizing a gain of $1,920 on the sale of its joint venture interest in a property in Laguna Hills, California in August 2004.

Comparison of the Year Ended December 31, 2003 to the Year Ended December 31, 2002

Overview

Results for the year ended December 31, 2003 included the operations of 94 properties (57 of which were consolidated and 37 of which were in joint ventures accounted for using the equity method) compared to the results for the year ended December 31, 2002, which included the operations of 88 properties (54 of which were consolidated and 34 of which were in joint ventures accounted for using the equity method). Results for both periods also included equity and earnings of real estate ventures, third-party management fees, acquisition fees and development fees.

Revenues

Revenues for the year ended December 31, 2003 were $36,261 compared to $32,386 for the year ended December 31, 2002, an increase of $3,875, or 11.9%. This increase was primarily due to an increase of $4,243 in property rental revenues.

Property rental revenues (including merchandise sales, insurance administrative fees and late fees) increased by $4,243, or 14.7%, consisting of approximately $3,840 from lease-up properties and $403 from stabilized properties. During the year ended December 31, 2003, the Predecessor opened six new properties, and continued to increase the occupancy at its other lease-up properties. The increase in stabilized property revenues consists primarily of increased rental rates.

Management fees represent 6.0% of cash collected from properties owned by third parties and unconsolidated joint ventures.

During 2003, acquisition and development fees decreased by $268. The decrease in acquisition and development fees was primarily due to the decreased volume of acquisitions of behalf of joint ventures in 2003. This decrease in the number of properties acquired was the result of increased competition for properties, offset by overall higher prices for the properties acquired.

Other income represents interest income and income from truck rentals.

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Expenses

Total expenses for the year ended December 31, 2003 were $34,897 compared to $25,146 for the year ended December 31, 2002, an increase of $9,751, or 38.8%. This increase was primarily due to an increase of $3,218 in property operating expenses, an increase of $2,381 in general and administrative expenses, and an increase of $2,999 in unrecovered development/acquisition costs and support payments.

Property Operating Expenses

For the year ended December 31, 2003, property-operating expenses were $14,858 compared to $11,640 for the year ended December 31, 2002, an increase of $3,218, or 27.6%. The increase was due primarily to increases in expenses of approximately $2,810 resulting from lease-up properties and approximately $408 in expenses from stabilized properties.

During the year ended December 31, 2003, the Predecessor opened six new properties, and continued to increase the occupancy at its other lease-up properties. Existing lease-up property expenses increased due to increases in utilities, office expenses, repairs and maintenance and property taxes due to reassessment. The increase in stabilized property expenses consists primarily of payroll and repairs and maintenance.

Unrecovered Development/Acquisition Costs and Support Payments

Unrecovered development/acquisition costs and support payments were $4,937 for the year ended December 31, 2003 compared to $1,938 for the year ended December 31, 2002, an increase of $2,999, or 154.7%. Unrecovered development costs for 2003 and 2002 included $1,520 and $314, respectively, relating to final performance guarantee payments to the joint venture partner in Extra Space West One, LLC and Extra Space East One, LLC. In addition, the increase was due to approximately $2,500 in costs relating to potential acquisitions that were written off during the year ended December 31, 2003.

General and Administrative

General and administrative expenses for the year ended December 31, 2003 were $8,297 compared to $5,916 for the year ended December 31, 2002, an increase of $2,381, or 40.2%. This increase is primarily due to fewer development expenses capitalized in 2003—$1,797—than were capitalized in 2002—$3,788.

Depreciation and Amortization

Depreciation and amortization for the year ended December 31, 2003 was $6,805 compared to $5,652 for the year ended December 31, 2002, an increase of $1,153, or 20.4%. The increase results from more properties being open for the entire year in 2003, than were open during 2002.

Interest Expense and Loss on Debt Extinguishments

Interest expense and loss on debt extinguishments for the year ended December 31, 2003 was $18,746 compared to $13,894 for the year ended December 31, 2002, an increase of $4,852, or 34.9%. The increase was due primarily to additional debt and interest relating to new properties entering the lease-up stage being expensed rather than capitalized (interest was capitalized during the development phase). Capitalized interest during the years ended December 31, 2003 and 2002 was $2,593 and $2,071, respectively. During the year ended December 31, 2003, the Predecessor opened six new properties, which increased the Predecessor’s average outstanding debt. This increase in interest expense was partially offset by lower interest rates on variable rate debt.

Minority Interest-Fidelity Preferred Return

Minority interest-Fidelity preferred return for the year ended December 31, 2003 was $4,132 compared to $3,759 for the year ended December 31, 2002, an increase of $373, or 9.9%. The increase was primarily due to an additional investment by Fidelity being outstanding for the entire year of 2003 compared to three months of 2002.

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Loss Allocated to Other Minority Interests

Loss allocated to other minority interests for the year ended December 31, 2003 was $1,431 compared to ($100) for the year ended December 31, 2002, an increase of $1,531. The increase was primarily due to additional losses on lease-up properties allocated to the minority investors, and to the deconsolidation in 2003 of two properties due to the release of guarantees.

Equity in Earnings of Real Estate Ventures

Equity in earnings of real estate ventures increased $494, or 50.9%, for the year ended December 31, 2004. This increase was primarily due to the increased profitability of Extra Space West One.

Gain on the Sale of Real Estate Assets

Gain on the sale of real estate assets for the year ended December 31, 2003 was $672 compared to $0 for the year ended December 31, 2002. The increase was due to the sale of a facility in Kings Park, New York for $6,241 to Extra Space East One, LLC.

SAME-STORE STABILIZED PROPERTY RESULTS

The Company considers same-store stabilized portfolio to consist of only those properties owned by the Company at the beginning and at the end of the applicable periods presented and that had achieved stabilization as of the first day of such period. The following table sets forth operating data for the same-store portfolio for the Company and the Predecessor’s same store portfolio. The Company considers the following same-store presentation to be meaningful in regards to the 31 properties shown below. These results provide information relating to property-level operating changes without the effects of acquisitions or completed developments. As the Company continues forward as a public company, it will have a greater population of same-store properties to which to make a comparison. Consequently, the results shown below should not be used as a basis for future same-store performance.

Comparison of the Year Ended December 31, 2004 to the Year Ended December 31, 2003

Same-Store Rental Revenues. Total revenues for the Company’s same-store stabilized property portfolio for the year ended December 31, 2004 were $22,597 compared to $21,861 for the year ended December 31, 2003, an increase of $736, or 3.4%. This increase was primarily due to increased rental rates and the Company’s ability to maintain occupancy.

Same-Store Operating Expenses. Total operating expenses for the Company’s same-store stabilized property portfolio for the year ended December 31, 2004 were $7,385 compared to $7,189 for the year ended December 31, 2003, an increase of $196, or 2.7%. This increase was primarily due to an increase in insurance and property taxes.

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Comparison of the Year Ended December 31, 2003 to the Year Ended December 31, 2002

Same-Store Rental Revenues. Total revenues for the Predecessor’s same-store stabilized property portfolio for the year ended December 31, 2003 were $21,861 compared to $21,518 for the year ended December 31, 2002, an increase of $343, or 1.6%. This increase was primarily due to increased rental rates and a slight increase in occupancy.

Same-Store Operating Expenses. Total operating expenses for the Predecessor’s same-store stabilized property portfolio for the year ended December 31, 2003 were $7,189 compared to $6,660 for the year ended December 31, 2002, an increase of $529, or 7.9%. This increase was primarily due to increased payroll, advertising, snow removal (due to heavy snow falls experienced in New England) and property taxes.

Common Contingent Share (“CCS”) and Common Contingent Unit (“CCU”) Property Performance:

As described in the Company’s Prospectus for its IPO, upon the achievement of certain levels of net operating income with respect to 14 of the Company’s pre-stabilized properties, the Company’s CCSs and the Company’s operating partnership’s CCUs will convert into additional shares of common stock and operating partnership units, respectively, beginning, with the quarter ending March 31, 2006. The average occupancy of these 14 properties as of December 31, 2004 was 57.5% as compared to 36.4% at December 31, 2003. The table below outlines the performance of the properties for the quarter and year ended December 31, 2004 and 2003, respectively.

Revenues for the quarter ended December 31, 2004 increased 65.9% as compared to the quarter ended December 31, 2003. Expenses for the quarter ended December 31, 2004 increased 18.6%. Revenues for the year ended December 31, 2004 increased 98.6% as compared to the quarter ended December 31, 2003. Expenses for the year ended December 31, 2004 increased 48.7%.

CASH FLOWS

Comparison of the Year Ended December 31, 2004 to the Year Ended December 31, 2003

Cash used in operating activities was ($6,158) and ($8,526) for the years ended December 31, 2004 and 2003, respectively. The decrease in cash used was primarily due to lower cash funding requirements relating to the Company’s lease-up properties.

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Cash used in investing activities was ($261,298) and ($59,206) for the years ended December 31, 2004 and 2003, respectively. The increase in 2004 is primarily the result of acquisitions of real estate assets.

Cash provided by financing activities was $280,039 and $73,017 for the years ended December 31, 2004 and 2003, respectively. The 2004 financing activities consisted primarily of net proceeds from share issuances of $264,475, additional borrowings of $418,154, including borrowings to fund the purchase of 44 stabilized properties and the development of existing projects, offset by the repayment of $325,917 of borrowings. The 2003 financing activities consisted primarily of additional borrowings of $106,323 offset by the repayment of $61,613 of borrowings.

Comparison of the Year Ended December 31, 2003 to the Year Ended December 31, 2002

Cash provided by (used in) operating activities was ($8,526) and $1,613 for the years ended December 31, 2003 and 2002, respectively. The increase in 2003 was primarily due to the increased net loss and use of cash for working capital in 2003. Properties acquired in 2003 and 2002 continued to increase in occupancy, but it was still necessary to fund the cash shortfalls relating to these properties.

Cash used in investing activities was ($59,206) and ($69,249) for the years ended December 31, 2003 and 2002, respectively. The decrease in 2003 was due primarily to the sale of a property in Kings Park, New York for $6,241 to Extra Space East One, LLC. Development activity in 2003 was similar to 2002.

Cash provided by financing activities was $73,017 and $66,863 for the years ended December 31, 2003 and 2002, respectively. The increase in 2003 was due primarily to additional net borrowings and additional equity contributions by members. These borrowings have been primarily in the form of construction loans on development properties and mortgage loans on operating properties.

2004 OPERATIONAL SUMMARY

The 2004 year proved to be challenging for the Company. Not only did it become a public company and overcome the requisite obstacles, but it also faced strong competition in most of the markets where it operates.

The first three months of 2004 signaled a return to increased revenues and occupancy for the Company. This was also true for most public and private self-storage operators. However, during the second quarter, the Company saw its rental activity and corresponding occupancy begin to drop on a year-on-year basis. The Company believes this was due to strong competitive pressures in certain markets, where of the Company’s properties are located. High levels of discounting and aggressive pricing by certain competitors continued well into the third and fourth quarter of 2004.

The Company also became more aggressive in terms of its promotional strategy, moving from site-level promotions to unit-level promotions that its software can stringently control. This combination negatively affected second and third quarter results.

The Company instituted several in-house initiatives and marketing promotions in the third quarter. These tactics, combined with additional less-stringent promotional rules at properties proved to stimulate occupancy and revenue growth. During the third quarter, and into the fourth quarter, the Company witnessed positively trending improvement in both revenue and occupancy on a year-on-year basis. Despite increased promotional activity in the third and fourth quarters, promotional discounts at the 31 wholly owned, same-store properties were 24.1% below 2003 discounting levels.

The Company experienced flat move-in activity as compared to 2003, while move-out activity was slightly lower. Occupancies remained essentially flat on a year-on-year basis. California, Florida and New Jersey were the strongest regions in terms of revenue growth for the year ended December 31, 2004, while Massachusetts and Pennsylvania were the weakest.

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OUTLOOK

The Company has seen marked improvement in its recent year-on-year performance with both occupancy and revenue. Though there can be no assurance that this trend will continue, the Company believes that positive economic conditions and its use of real real-time pricing and promotions, will continue to provide the Company with the opportunity to grow revenues.

The Company anticipates increased competition from all operators, both public and private, in all of the markets in which the Company operates in 2005. Despite this, the Company expects continued improvement in the operating climate for self-storage operators, particularly for those with well-located, highly visible, and efficiently managed self-storage properties. The Company will continue to enhance operational processes and implement technology to maximize its effectiveness as an operator.

REVENUE OUTLOOK

2004 signaled a gradual return to increased revenues and occupancy for many operators. This was also true for the Company and the Predecessor, as illustrated by same-store revenue growth and net operating income growth. With the use of the Company’s STORE software technology, the Company aims to achieve not the highest level of occupancy, but the highest sustainable level of revenue to increase shareholder value. This may mean lower occupancy levels when compared on a year-on-year basis. The Company will also continue to selectively discount certain sites and units based on occupancy, availability, and competitive parameters that are controlled through the Company’s software.

Discounting, though substantially lower in 2004 on a same-store portfolio comparison from 2003, remains an important factor for the Company. The Company’s evolving system of analyzing different data as it relates to site performance, customer behavior, competitive variables and its operational experience will drive site-level and portfolio performance in the future.

As the Company continues to grow, media opportunities that only a few companies currently possess in the industry will become available. Currently, select marketing programs have been targeted on a local level. The Company seeks to both continue to stretch its marketing dollar further and investigate other marketing channels to better communicate its services to prospective customers.

EXPENSE OUTLOOK

Property taxes and insurance costs were the main components of 2004’s increased operating expenses. An increase in credit card merchant fees had both positive and negative impacts, as it signified customers placing their monthly rental purchases on an auto-pay format that eliminates manual processes for the Company’s site personnel, but also resulted in higher fees. The Company believes that expenses such as credit card merchant fees are somewhat controllable and should be brought in line with prior years through proactive negotiating by the Company. In regards to the same-store group of properties, the Company is forecasting no major increase in repairs and maintenance in 2005. The unknown factor regarding repairs and maintenance will be the snow removal situation in the eastern United States as a result of several major storms in early 2005. The Company believes that its insurance costs are controllable to an extent, and is hopeful that they will decrease in the future through continued refinement of insurance and risk management processes.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2004, the Company had approximately $24,329 available in cash and cash equivalents. The Company will be required to distribute at least 90% of its net taxable income, excluding net capital gains, to its shareholders on an annual basis to maintain its qualification as a REIT. The Company intends to use this cash to purchase additional self-storage properties in the first quarter of 2005. Therefore, it is unlikely that the Company will have any substantial cash balances that could be used to meet its liquidity needs. Instead, these needs must be met from cash generated from operations and external sources of capital.

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On September 9, 2004, the Company, as guarantor, and its Operating Partnership entered into a $100 million revolving line of credit (“Credit Facility”), which includes a $10 million swingline sub facility. The Credit Facility is collateralized by self-storage properties. The Operating Partnership intends to use the proceeds of the Credit Facility for general corporate purposes and acquisitions. As of December 31, 2004, the Credit Facility has approximately $63.5 million of capacity based on the assets collateralizing the Credit Facility. The outstanding principal balance of the Credit Facility at December 31, 2004 was $39.0 million and is due September 2007.

On October 4, 2004, the Company entered into a reverse interest rate swap with U.S. Bank National Association, relating to the Company’s existing $61,770 fixed rate mortgage due 2009 with Wachovia Bank. Pursuant to the swap agreement, the Company will receive fixed interest payments of 4.30% and pay variable interest payments based on the one-month LIBOR plus .0655% on a notional amount of $61,770. There were no origination fees or other up front costs incurred by the Company in connection with the swap agreement.

As of December 31, 2004, the Company had approximately $473 million of debt, resulting in a debt to total capitalization ratio of approximately 53.2%. The Company’s variable rate instruments increased by $61.8 million upon completion of the reverse interest rate swap. As of December 31, 2004, the ratio of total fixed rate debt and other instruments to total debt is approximately 59.1%. The weighted average interest rate of the total of fixed and variable rate debt at December 31, 2004 is approximately 4.5%.

The Company expects to fund its short-term liquidity requirements, including operating expenses, recurring capital expenditures, dividends to shareholders, distributions to holders of OP units and interest on its outstanding indebtedness out of its operating cash flow, cash on hand and borrowings under the Credit Facility.

Long-Term Liquidity Needs

The Company’s long-term liquidity needs consist primarily of distributions to shareholders, new facility development, property acquisitions, principal payments under the Company’s borrowings and non-recurring capital expenditures. The Company does not expect that its operating cash flow will be sufficient to fund its long term liquidity needs and instead expects to fund such needs out of additional borrowings, joint ventures with third parties, and from the proceeds of public and private offerings of equity and debt. The Company may also use OP Units as currency to fund acquisitions from self-storage owners who desire tax-deferral in their exiting transactions.

FINANCING STRATEGY

The Company will continue to employ leverage in its capital structure in amounts determined from time to time by its board of directors. Although its board of directors has not adopted a policy, which limits the total amount of indebtedness that the Company may incur, it will consider a number of factors in evaluating the Company’s level of indebtedness from time to time, as well as the amount of such indebtedness that will be either fixed or variable rate. In making financing decisions, the Company’s board of directors will consider factors including but not limited to:

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