1289490--2/28/2007--Extra_Space_Storage

related topics

{investment, property, distribution}

{loan, real, estate}

{tax, income, asset}

{debt, indebtedness, cash}

{acquisition, growth, future}

{stock, price, operating}

{regulation, change, law}

{personnel, key, retain}

{condition, economic, financial}

{property, intellectual, protect}

{loss, insurance, financial}

{cost, regulation, environmental}

{provision, law, control}

{product, market, service}

{operation, international, foreign}

Risks Related to Our Properties and Operations If we are unable to promptly re-let our units or if the rates upon such re-letting are significantly lower than expected, then our business and results of operations would be adversely affected. We face increasing competition for the acquisition of self-storage properties and other assets, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions. Our investments in development and redevelopment projects may not yield anticipated returns, which would harm our operating results and reduce the amount of funds available for distributions. We may not be successful in identifying and consummating suitable acquisitions that meet our criteria, which may impede our growth and negatively affect our stock price. We may not be successful in integrating and operating acquired properties. We depend upon our on-site personnel to maximize tenant satisfaction at each of our properties, and any difficulties we encounter in hiring, training and maintaining skilled field personnel may harm our operating performance. Other self-storage operators may employ STORE or a technology similar to STORE, which could enhance their ability to compete with us. Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow. Increases in taxes and regulatory compliance costs may reduce our income. We do not always obtain independent appraisals of our properties, and thus the consideration paid for these properties may exceed the value that may be indicated by third-party appraisals. Environmental compliance costs and liabilities associated with operating our properties may affect our results of operations. Adverse economic or other conditions in the markets in which we do business could negatively affect our occupancy levels and rental rates and therefore our operating results. Risks Related to Our Organization and Structure Our business could be harmed if key personnel with long-standing business relationships in the self-storage industry terminate their employment with us. We may change our investment and financing strategies and enter into new lines of business without stockholder consent, which may subject us to different risks. If other self-storage companies convert to an UPREIT structure or if tax laws change, we may no longer have an advantage in competing for potential acquisitions. Tax indemnification obligations may require the Operating Partnership to maintain certain debt levels. Our joint venture investments could be adversely affected by our lack of sole decision-making authority. Kenneth M. Woolley, our Chairman and Chief Executive Officer, Spencer F. Kirk, one of our directors, Richard S. Tanner, Senior Vice President, Development, Kent W. Christensen, Executive Vice President and Chief Financial Officer, and Charles L. Allen, Executive Vice President and Chief Legal Officer, members of our senior management team, have outside business interests which could divert their time and attention away from us, which could harm our business. Conflicts of interest could arise as a result of our relationship with our Operating Partnership. Our management s ownership of contingent conversion shares, or CCSs, and contingent conversion units, or CCUs, may cause them to devote a disproportionate amount of time to the performance of the related 14 wholly-owned early-stage lease-up properties, which could cause our overall operating performance to suffer. We may pursue less vigorous enforcement of terms of contribution and other agreements because of conflicts of interest with certain of our officers. Certain provisions of Maryland law and our organizational documents, including the stock ownership limit imposed by our charter, may inhibit market activity in our stock and could prevent or delay a change in control transaction. Our board of directors has the power to issue additional shares of our stock in a manner that may not be in the best interest of our stockholders. Our rights and the rights of our stockholders to take action against our directors and officers are limited. To the extent our distributions represent a return of capital for U.S. federal income tax purposes, our stockholders could recognize an increased capital gain upon a subsequent sale of common stock. Risks Related to the Real Estate Industry Our primary business involves the ownership, operation and development of self-storage properties. Any negative perceptions of the self-storage industry generally may result in a decline in our stock price. Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses. Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties. Any investments in unimproved real property may take significantly longer to yield income-producing returns, if at all, and may result in additional costs to us to comply with re-zoning restrictions or environmental regulations. Risks Related to Our Debt Financings Required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties or to pay the distributions currently contemplated or necessary to maintain our qualification as a REIT and may expose us to the risk of default under our debt obligations. We could become highly leveraged in the future because our organizational documents contain no limitation on the amount of debt we may incur. Increases in interest rates may increase our interest expense and adversely affect our cash flow and our ability to service our indebtedness and make distributions to our stockholders. Failure to hedge effectively against interest rate changes may adversely affect our results of operations. Risks Related to Qualification and Operation as a REIT To maintain our qualification as a REIT, we may be forced to borrow funds on a short-term basis during unfavorable market conditions. Dividends payable by REITs generally do not qualify for reduced tax rates. Possible legislative or other actions affecting REITs could adversely affect our stockholders. The power of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders. Our failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock. We will pay some taxes. Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

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1289490--2/28/2007--Extra_Space_Storage_Inc.