SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

September 10, 2007

(Date of Report (Date of Earliest Event Reported))

EXTRA SPACE STORAGE INC.

(Exact Name of Registrant as Specified in Its Charter)

 

2795 East Cottonwood Parkway, Suite 400

Salt Lake City, Utah 84121

(Address of Principal Executive Offices)

(801) 562-5556

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4© under the Exchange Act (17 CFR 240.13e-4©)

 

ITEM 2.01 Completion of Acquisition or Disposition of Assets.

As of August 30, 2007, Extra Space Storage Inc. (the “Company” or “EXR”) has acquired 23 properties since December 31, 2006.  During the first six months of 2007, 22 properties were acquired and one has been acquired thereafter.

On June 25, 2007, the Company closed on eight of the 10 AAAAA Rent-A-Space properties.  The remaining two AAAAA Rent-A-Space properties closed on June 26, 2007 and on August 1, 2007.  The AAAAA Rent-A-Space transaction in which the Company acquired a portfolio of 10 properties was a significant acquisition as defined under Regulation S-X Rule 3-14.  Other than the AAAAA Rent-A-Space acquisition, no single property (or other portfolio of properties) was an individually significant acquisition as defined under Regulation S-X Rule 3-14.  Audits were performed on 11 of the acquired properties, including the 10 AAAAA Rent-A-Space properties.  The audited properties represent the mathematical majority of the Company’s pool of acquired properties as of August 30, 2007.

ITEM 9.01 Financial Statements and Exhibits.

Pro Forma Financial Information:

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2007

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2007

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2006

Audited Historical Financial Statements with Unaudited Interim Periods:

AAAAA Rent-A-Space

Report of Independent Certified Public Accountants

Statements of Revenues and Certain Operating Expenses

Notes to Statements of Revenues and Certain Operating Expenses

Greenway 27, LLC

Report of Independent Certified Public Accountants

Statements of Revenues and Certain Operating Expenses

Notes to Statements of Revenues and Certain Operating Expenses

2

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	EXTRA SPACE STORAGE INC.
Date: September 10, 2007	By	/s/ Kent W. Christensen
		Name:		Kent W. Christensen
		Title:		Executive Vice President and Chief
				Financial Officer

 

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Index to Financial Statements

Unaudited Pro Forma Condensed Consolidated Financial Information:	5
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2007	6
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2007	8
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2006	12
Audited Historical Financial Statements with Unaudited Interim Periods:
AAAAA Rent-A-Space	17
Report of Independent Certified Public Accountants	16
Statements of Revenues and Certain Operating Expenses	17
Notes to Statements of Revenues and Certain Operating Expenses	18
Greenway 27, LLC	21
Report of Independent Certified Public Accountants	20
Statements of Revenues and Certain Operating Expenses	21
Notes to Statements of Revenues and Certain Operating Expenses	22

 

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Extra Space Storage Inc.

Unaudited Pro Forma Condensed Consolidated Financial Information

As of August 30, 2007, Extra Space Storage Inc. (the “Company” or “EXR”) has acquired 23 properties since December 31, 2006.  During the first six months of 2007, 22 properties were acquired and one has been acquired thereafter.

On June 25, 2007, the Company closed on eight of the 10 AAAAA Rent-A-Space properties.  The remaining two AAAAA Rent-A-Space properties closed on June 26, 2007 and on August 1, 2007.  The AAAAA Rent-A-Space transaction in which the Company acquired a portfolio of 10 properties was a significant acquisition as defined under Regulation S-X Rule 3-14.  Other than the AAAAA Rent-A-Space acquisition, no single property (or other portfolio of properties) was an individually significant acquisition as defined under Regulation S-X Rule 3-14.  Audits were performed on 11 of the acquired properties, including the 10 AAAAA Rent-A-Space properties.  The audited properties represent the mathematical majority of the Company’s pool of acquired properties as of August 30, 2007.

On August 31, 2007, the Company acquired eight additional properties.  These properties were acquired from joint ventures in which the Company held a minority interest.  The Company will file a separate Form 8-K including audited financial statements for these properties within the required time frame.  The pro forma financial statements included in this Form 8-K do not include any financial information for the eight properties acquired on August 31, 2007.

On January 2, 2007, the Company purchased a property from a joint venture in which it was a partner.  This joint venture interest was originally acquired by the Company as part of the Storage USA acquisition that was completed on July 14, 2005.  The Company has included this property in its pool of audited individually insignificant acquisitions.  Only one year of audited  financial statements(versus three years) was included for the following reasons:  (i) the amount of the acquisition was not considered by management to be material individually or in aggregate to the Company’s financial statements; (ii) the acquisition was not a typical related party transaction (i.e. where the counter party is a significant shareholder, officer or director, etc.); and (iii) completing three years of audits would have been burdensome to the Company due to the incomplete nature of the related records.  Management believes that the absence of the two additional years of audited financial statements is not material to a reader’s understanding of the Company’s financial results, financial condition and related trends.

The following unaudited pro forma condensed consolidated financial information of Extra Space Storage Inc. as of and for the six months ended June 30, 2007 has been derived from (1) the historical unaudited financial statements of Extra Space Storage Inc. as filed in the Company’s second quarter 2007 Form 10-Q, (2) the historical unaudited statements of revenues and certain operating expenses of the 11 audited properties acquired during 2007, and (3) the historical unaudited statements of revenues and certain expenses of the remaining 12 acquired self-storage properties.

The following unaudited pro forma condensed consolidated financial information of Extra Space Storage Inc. for the year ended December 31, 2006 has been derived from (1) the historical audited financial statements of Extra Space Storage Inc. as filed in the Company’s 2006 Form 10-K, (2) the historical statements of revenues and certain operating expenses of the 11 audited properties acquired during 2007, and (3) the historical unaudited statements of revenues and certain expenses of the remaining 12 acquired self-storage properties.

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 reflects adjustments to the Company’s unaudited historical financial data to give effect to the one property acquired subsequent to June 30, 2007 as if it had occurred on June 30, 2007.

The pro forma condensed consolidated statements of operations for the six months ended June 30, 2007 and for the year ended December 31, 2006 reflect adjustments to the Company’s historical financial data to give effect to the acquisition of all 23 self-storage properties as if each had occurred on January 1, 2006. The pro forma amounts have been adjusted to exclude any operations from the date of acquisition to June 30, 2007 if such acquisition occurred before June 30, 2007 because such amounts are already included in the historical results.

The unaudited pro forma adjustments are based on available information. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of what the Company’s actual financial position or results of operations for the period would have been as of the date and for the periods indicated, nor does it purport to represent the Company’s future financial position or results of operations. The unaudited pro forma condensed consolidated financial information should be read, together with the notes thereto, in conjunction with the more detailed information contained in the historical financial statements referenced in this filing.

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Extra Space Storage Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

as of June 30, 2007

(in thousands, except share data)

					Acquisition
					Subsequent to			Pro Forma
		Historical EXR			6/30/07			EXR
		(1)			(2)
Assets:
Real estate assets:
Net operating real estate assets		$	1,641,120		$	14,686		$	1,655,806
Real estate under development		35,906			—			35,906
Net real estate assets		1,677,026			14,686			1,691,712
Investments in real estate ventures		91,303			—			91,303
Cash and cash equivalents		45,790			(4,915		)	40,875
Short-term investments		90,331			—			90,331
Restricted cash		35,528			—			35,528
Receivables from related parties and affiliated real estate joint ventures		8,321			—			8,321
Other assets, net		35,640			78			35,718
Total assets		$	1,983,939		$	9,849		$	1,993,788
Liabilities, Preferred Operating Partnership, Minority Interests, and Stockholders’ Equity:
Notes payable		$	875,730		$	—		$	875,730
Notes payable to trusts		119,590			—			119,590
Exchangeable senior notes		250,000			—			250,000
Derivative instrument associated with Preferred Operating Partnership units (3)		15,268			1,231			16,499
Accounts payable and accrued expenses		25,363			66			25,429
Other liabilities		22,960			17			22,977
Total liabilities		1,308,911			1,314			1,310,225
Preferred Operating Partnership units, net of $100,000 note receivable (3)		6,465			8,535			15,000
Minority interest in Operating Partnership		37,020			—			37,020
Other minority interests		277			—			277
Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding		—			—			—
Common stock, $0.01 par value, 200,000,000 shares authorized, 64,833,425 shares issued and outstanding		649			—			649
Paid-in capital		824,088			—			824,088
Accumulated deficit		(193,471		)	—			(193,471		)
Total stockholders’ equity		631,266			—			631,266
Total liabilities, Preferred Operating Partnership, minority interests, and stockholders’ equity		$	1,983,939		$	9,849		$	1,993,788

 

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Extra Space Storage Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of June 30, 2007

(in thousands, except share data)

(1) Reflects the assets, liabilities and stockholders’ equity of the Company as filed in Form 10-Q as of June 30, 2007.

(2) Represents the purchase of a property located in San Leandro, CA on August 1, 2007 for cash and 80,905 Preferred Operating Partnership units with a total cost of $14,686.

(3) On June 15, 2007, the Operating Partnership entered into a Contribution Agreement with various limited partnerships affiliated with AAAAA Rent-A-Space to acquire 10 self-storage facilities (the “Properties”) in exchange for the issuance of newly designated Series A Participating Redeemable Preferred Units (“Preferred OP Units”) of the Operating Partnership.  The self-storage facilities are located in California and Hawaii.

On June 25 and 26, 2007, nine of the 10 properties were contributed to the Operating Partnership in exchange for consideration totaling $137.8 million. Preferred OP units totaling 909,075, with a value of $121.7 million, were issued along with the assumption of approximately $14.2 million of third-party debt, of which $11,381 was paid off at close.  The final property was purchased by the Company on August 1, 2007 (see note (2) above).

On June 25, 2007, the Company loaned the holders of the Preferred OP Units $100.0 million. The receivable bears interest at 4.85%, and is due September 1, 2017.  The loan is secured by the borrower’s Preferred OP Units.  In addition, any conversion of the Preferred OP Units prior to the maturity date requires repayment of the loan as of the date of the Preferred OP Unit redemption.  Preferred OP Units are shown on the balance sheet net of the $100.0 million loan under the guidance in EITF No. 85-1, Classifying Notes Receivable for Capital because the borrower under the loan receivable is also the holder of the Preferred OP Units.

The Operating Partnership entered into a Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) which provides for the designation and issuance of the Preferred OP Units.  The Preferred OP Units will have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation.

Per the Partnership Agreement, Preferred OP Units in the amount of $115.0 million bear a fixed priority return of 5% and have a fixed liquidation value of $115.0 million. The remaining balance will participate in distributions with and have a liquidation value equal to that of the common Operating Partnership units.  Included in the June 30, 2007 financial statements was the pro rata amount of  $106,465 related to the $115.0 million due to the Company not closing on the final property until August 1, 2007.  The Preferred OP Units will be redeemable at the option of the holder on or after September 1, 2008, which redemption obligation may be satisfied, at the Company’s option, in cash or shares of its common stock.

The Preferred OP Units are classified as a hybrid instrument such that the value of the units associated with the fixed return are classified in mezzanine after total liabilities on the balance sheet and before stockholders’ equity.  The remaining balance that participates in distributions equal to that of common stock has been identified as an embedded derivative and has been classified as a liability on the balance sheet and is marked to fair value on a quarterly basis with any adjustment being recorded to the income statement.  As of June 30, 2007, the carrying value of the obligation associated with the Preferred OP Units approximated fair value.  The pro forma financial statements assume the embedded derivative approximates fair value.

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Extra Space Storage Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Six Months Ended June 30, 2007

(in thousands, except share data)

 

		Historical			Audited			Unaudited			Pro Forma			Pro Forma
		EXR			Acquisitions			Acquisitions			Adjustments			EXR
		(1)			(2)			(3)
Revenues:
Property rental		$	94,623		$	8,123		$	3,241		$	—		$	105,987
Management and franchise fees		10,351			—			—			—			10,351
Tenant insurance		4,831			—			—			—			4,831
Acquisition and development fees		237			—			—			—			237
Other income		284			—			—			—			284
Total revenues		110,326			8,123			3,241			—			121,690
Expenses:
Property operations		34,248			4,296			1,204			(917		)(4)	38,831
Tenant insurance		2,190			—			—			—			2,190
Unrecovered development and acquisition costs		409			—			—			—			409
General and administrative		18,208			—			—			—			18,208
Depreciation and amortization		17,919			—			—			3,521		(5)	21,440
Total expenses		72,974			4,296			1,204			2,604			81,078
Income (loss) before interest, minority interests, and equity in earnings of real estate ventures		37,352			3,827			2,037			(2,604		)	40,612
Interest expense		(28,833		)	—			—			(1,222		)(6),(8)	(30,055		)
Interest income		5,116			—			—			707		(7),(8)	5,823
Minority interest - Operating Partnership		(899		)	—			—			—			(899		)
Minority interest - other		40			—			—			—			40
Equity in earnings of real estate ventures		2,389			—			—			—			2,389
Net income (loss)		15,165			3,827			2,037			(3,119		)	17,910
Distributions to Preferred Operating Partnership unit holders		—			—			—			(2,875		)(8)	(2,875		)
Net income (loss) available to common stockholders		$	15,165		$	3,827		$	2,037		$	(5,994	)	$	15,035
Basic earnings per common share		$	0.24											$	0.23
Diluted earnings per common share		$	0.23											$	0.23
Weighted average number of common shares-Basic		64,356,827												64,356,827
Weighted average number of common shares-Diluted		69,214,313									964,867		(9)	70,179,180

 

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Extra Space Storage Inc.

Notes To Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Six Months Ended June 30, 2007

(in thousands, except share data)

(1) Reflects the results of operations of EXR as filed in Form 10-Q for the six months ended June 30, 2007.

(2) Represents the pro forma revenues and operating expenses for the six months ended June 30, 2007 of the 11 audited properties acquired in 2007, adjusted to reflect the results for the period prior to acquisition by the Company.

		11 Audited Properties Financial  Statements									Less Activity for  Period Subsequent to Acquisition						Net Activity for  Periods Prior to  Acquisition Included  in Pro Forma
Property		Revenues			Expenses			Mgmt. Fee			Revenues			Expenses			Revenues			Expenses
Phoenix, AZ (Greenway 27, LLC)		$	360		$	149		$	25		$	343		$	116		$	17		$	33
AAAAA Rent-A-Space Properties (10 propeties)		8,284			4,318			892			178			55			8,106			4,263
TOTALS		$	8,644		$	4,467		$	917		$	521		$	171		$	8,123		$	4,296

 

(3) Represents the unaudited pro forma revenues and operating expenses (excluding management fees) for the six months ended June 30, 2007 of the 12 additional properties that were acquired in 2007 adjusted to reflect the results for the period prior to acquisition:

12 Unaudited Properties		Revenues			Expenses
Memphis, TN		$	5		$	2
Ft. Washington, MD		37			16
Tampa, FL		185			53
Annapolis, MD		277			89
Pleasanton, CA		208			92
Miami, FL		327			192
Modesto, CA		176			110
Alexandria, MD		565			182
San Francisco, CA		864			259
Sugar Hill (Property 1), GA		169			70
Duluth, GA		245			78
Sugar Hill (Property 2), GA		183			61
TOTALS		$	3,241		$	1,204

 

(4) Adjustment to eliminate the management fee paid to a third party for the management of the properties.  Subsequent to the acquisition by the Company, all properties are self-managed.

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(5) Depreciation and amortization expense adjustments of $2,527 on audited transactions includes real estate depreciation of $1,572 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $130,979 and amortization of $955 computed on a straight-line basis over 18 months on $3,028 of intangible assets relating to tenant relationships.

														Total
														Depreciation /
					Depreciation						Amortization			Amortization
					for Period						for Period			for Period
		Depreciable			Prior to						Prior to			Prior to
11 Audited Properties		Assets			Acquisition			Intangibles			Acquisition			Acquisition
Phoenix, AZ (Greenway 27, LLC)		$	4,113		$	—		$	64		$	—		$	—
AAAAA Rent-A-Space Properties (10 propeties)		126,866			1,572			2,964			955			2,527
Totals		$	130,979		$	1,572		$	3,028		$	955		$	2,527

 

Depreciation and amortization expense adjustments of $994 on unaudited transactions includes real estate depreciation of $615 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $71,063 and amortization of $379 computed on a straight-line basis over 18 months on $1,606 of intangible assets relating to tenant relationships.

														Total
														Depreciation /
					Depreciation						Amortization			Amortization
					for Period						for Period			for Period
		Depreciable			Prior to						Prior to			Prior to
12 Unaudited Properties		Assets			Acquisition			Intangibles			Acquisition			Acquisition
Memphis, TN		$	2,661		$	1		$	71		$	1		$	2
Ft. Washington, MD		9,201			6			128			2			8
Tampa, FL		4,766			29			130			21			50
Annapolis, MD		7,247			55			175			34			89
Pleasanton, CA		4,283			43			94			25			68
Miami, FL		7,597			81			141			39			120
Modesto, CA		3,043			33			68			19			52
Alexandria, MD		13,103			145			219			63			208
San Francisco, CA		9,928			115			318			96			211
Sugar Hill (Property 1), GA		2,540			29			76			23			52
Duluth, GA		4,147			48			110			33			81
Sugar Hill (Property 2), GA		2,547			30			76			23			53
Totals		$	71,063		$	615		$	1,606		$	379		$	994
Grand Total		$	202,042		$	2,187		$	4,634		$	1,334		$	3,521

 

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(6) Debt of $42,259 was assumed on five properties with an average fixed rate of 5.82%.  These properties are shown below with interest for the period as if the acquisitions occurred on January 1, 2006.

11 Audited Properties Debt

							Non-Owned
							Period
Property		Debt			Rate		Interest			Type
AAAAA Rent-A-Space (Hayward, CA)		$	2,822		8.33	%	$	114		Assumed Debt
Total		$	2,822				$	114

 

12 Unaudited Properties Debt

 

							Non-Owned
							Period
Property		Debt			Rate		Interest			Type
Ft. Washington, MD		$	11,280		5.76	%	$	18		Assumed Debt
Annapolis, MD		7,292			5.87	%	126			Assumed Debt
Alexandria, MD		6,821			5.80	%	171			Assumed Debt
San Francisco, CA		14,044			5.35	%	343			Assumed Debt
Total		$	39,437				$	658
Grand Total		$	42,259				$	772

 

(7) Interest income was reduced by $1,718 for the use of net cash in the acquisitions as if the acquisitions occurred on January 1, 2006.

(8) Interest expense, interest income, and distributions to preferred Operating Partnership Unit holders were increased in accordance with the Partnership Agreement related to the AAAAA Rent-A-Space transaction as follows:

Interest expense: Total Preferred Operating Partnership units of 989,980 multiplied by the dividend rate of $0.91 resulted in interest expense of $450 for the six months ended June 30, 2007.

Interest income: The $100,000 loan bearing interest at 4.85% resulted in interest income of $2,425 for the six months ended June 30, 2007.

Distributions to Preferred Operating Partnership unit holders: The $115,000 of Preferred Operating Partnership units that have a fixed priority return of 5.00%, which resulted in distributions of $2,875 for the six months ended June 30, 2007.

(9) The AAAAA Rent-A-Space transaction was completed with the issuance of Preferred Operating Partnership units as part of the purchase consideration.  A total of 989,980 Preferred Operating Partnership units were issued in the transaction.  However, 25,113 Preferred Operating Partnership units were included in the diluted weighted average number of common shares for the period ending June 30, 2007, and this amount was included in the share count in the Historical EXR column.  Therefore, the difference of 964,867 Preferred Operating Partnership units is shown in the pro-forma adjustments column to reflect the impact on the weighted average number of common shares – diluted as if the acquisitions occurred on January 1, 2006.

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Extra Space Storage Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2006

(in thousands, except share data)

		Historical			Audited			Unaudited			Pro Forma			Pro Forma
		EXR			Acquisitions			Acquisitions			Adjustments			EXR
		(1)			(2)			(3)
Revenues:
Property rental		$	170,993		$	17,333		$	9,934		$	—		$	198,260
Management and franchise fees		20,883			—			—			—			20,883
Tenant insurance		4,318			—			—			—			4,318
Acquisition and development fees		272			—			—			—			272
Other income		798			—			—			—			798
Total revenues		197,264			17,333			9,934			—			224,531
Expenses:
Property operations		62,243			8,899			3,395			(2,108		)(4)	72,429
Tenant insurance		2,328			—			—			—			2,328
Unrecovered development and acquisition costs		269			—			—			—			269
General and administrative		35,600			—			—			—			35,600
Depreciation and amortization		37,172			—			—			8,270		(5)	45,442
Total expenses		137,612			8,899			3,395			6,162			156,068
Income (loss) before interest, minority interests, and equity in earnings of real estate ventures		59,652			8,434			6,539			(6,162		)	68,463
Interest expense		(50,953		)	—			—			(3,361		)(6),(8)	(54,314		)
Interest income		2,469			—			—			2,618		(7),(8)	5,087
Minority interest - Operating Partnership		(985		)	—			—			—			(985		)
Equity in earnings of real estate ventures		4,693			—			—			—			4,693
Net income (loss)		14,876			8,434			6,539			(6,905		)	22,944
Distributions to Preferred Operating Partnership unit holders		—			—			—			(5,750		)(8)	(5,750		)
Net income (loss) available to common stockholders		$	14,876		$	8,434		$	6,539		$	(12,655	)	$	17,194
Basic earnings per common share		$	0.27											$	0.31
Diluted earnings per common share		$	0.27											$	0.30
Weighted average number of common shares-Basic		54,998,935												54,998,935
Weighted average number of common shares-Diluted		59,291,749									989,980		(9)	60,281,729

 

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Extra Space Storage Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Year Ended December 31, 2006

(in thousands, except share data)

(1) Reflects the results of operations of EXR as filed in Form 10-K for the year ended December 31, 2006.

(2) Represents the pro forma revenues and operating expenses for the year ended December 31, 2006 of the 11 audited properties acquired in 2007:

		11 Audited Properties Financial  Statements
Property		Revenues			Expenses			Mgmt. Fee
Phoenix, AZ (Greenway 27, LLC)		$	665		$	288		$	46
AAAAA Rent-A-Space Properties (10 propeties)		16,668			8,611			2,062
TOTALS		$	17,333		$	8,899		$	2,108

 

(3) Represents the unaudited pro forma revenues and operating expenses (excluding management fees) for the year ended December 31, 2006 of the 12 additional properties that were acquired in 2007:

12 Unaudited Properties		Revenues			Expenses
Memphis, TN		$	520		$	189
Ft. Washington, MD		1,331			261
Tampa, FL		774			251
Annapolis, MD		1,127			308
Pleasanton, CA		521			230
Miami, FL		693			383
Modesto, CA		460			109
Alexandria, MD		1,362			439
San Francisco, CA		1,830			686
Sugar Hill (Property 1), GA		367			154
Duluth, GA		560			226
Sugar Hill (Property 2), GA		389			159
TOTALS		$	9,934		$	3,395

 

(4) Adjustment to eliminate the management fee paid to a third party for the management of the properties.  Subsequent to the acquisition by the Company, all properties are self-managed.

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(5) Depreciation and amortization expense adjustments of $5,377 on audited transactions includes real estate depreciation of $3,358 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $130,979 and amortization of $2,019 computed on a straight-line basis over 18 months on $3,028 of intangible assets relating to tenant relationships.

														Total 2006
		Depreciable			2006			Intangible			2006			Depreciation /
11 Audited Properties		Assets			Depreciation			Assets			Amortization			Amortization
Phoenix, AZ (Greenway 27, LLC)		$	4,113		$	105		$	64		$	43		$	148
AAAAA Rent-A-Space Properties (10 propeties)		126,866			3,253			2,964			1,976			5,229
Totals		$	130,979		$	3,358		$	3,028		$	2,019		$	5,377

 

Depreciation and amortization expense adjustments of $2,893 on unaudited transactions includes real estate depreciation of $1,822 computed on a straight-line basis over the estimated useful life (39 years) on depreciable assets acquired of $71,063 and amortization of $1,071 computed on a straight-line basis over 18 months on $1,606 of intangible assets relating to tenant relationships.

														Total 2006
		Depreciable			2006			Intangible			2006			Depreciation /
12 Unaudited Properties		Assets			Depreciation			Assets			Amortization			Amortization
Memphis, TN		$	2,661		$	68		$	71		$	47		$	115
Ft. Washington, MD		9,201			236			128			85			321
Tampa, FL		4,766			122			130			87			209
Annapolis, MD		7,247			186			175			117			303
Pleasanton, CA		4,283			110			94			63			173
Miami, FL		7,597			195			141			94			289
Modesto, CA		3,043			78			68			45			123
Alexandria, MD		13,103			336			219			146			482
San Francisco, CA		9,928			255			318			212			467
Sugar Hill (Property 1), GA		2,540			65			76			51			116
Duluth, GA		4,147			106			110			73			179
Sugar Hill (Property 2), GA		2,547			65			76			51			116
Totals		$	71,063		$	1,822		$	1,606		$	1,071		$	2,893
Grand Total		$	202,042		$	5,180		$	4,634		$	3,090		$	8,270

 

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(6) Debt of $42,259 was assumed on five properties with an average fixed rate of 5.82%. These properties are shown below with interest for the period as if the acquisitions occurred on January 1, 2006.

11 Audited Properties Debt

 

Property		Debt			Rate		Annual  Interest			Type
AAAAA Rent-A-Space (Hayward, CA)		$	2,822		8.33	%	$	235		Assumed Debt
Total		$	2,822				$	235

 

12 Unaudited Properties Debt

 

Property		Debt			Rate		Annual Interest			Type
Ft. Washington, MD		$	11,280		5.76	%	$	650		Assumed Debt
Annapolis, MD		7,292			5.87	%	428			Assumed Debt
Alexandria, MD		6,821			5.80	%	396			Assumed Debt
San Francisco, CA		14,044			5.35	%	751			Assumed Debt
Total		$	39,437				$	2,225
Grand Total		$	42,259				$	2,460

 

(7) Interest income was reduced by $2,232 for the use of net cash in the acquisitions as if the acquisitions occurred on January 1, 2006.

(8) Interest expense, interest income, and distributions to preferred Operating Partnership Unit holders were increased in accordance with the Partnership Agreement related to the AAAAA Rent-A-Space transaction as follows:

Interest expense: Total Preferred Operating Partnership units of 989,980 multiplied by the dividend rate of $0.91 resulted in interest expense of $901 for the year ended December 31, 2006.

Interest income: The $100,000 loan bearing interest at 4.85% resulted in interest income of $4,850 for the year ended December 31, 2006.

Distributions to Preferred Operating Partnership unit holders: The $115,000 of Preferred Operating Partnership units that have a fixed priority return of 5.00%, which resulted in distributions of $5,750 for the year ended December 31, 2006.

(9) The AAAAA Rent-A-Space transaction was completed with the issuance of Preferred Operating Partnership units as part of the purchase consideration.  A total of 989,980 Preferred Operating Partnership units were issued in the transaction and are shown in the Pro-Forma Adjustments column to reflect the impact in the weighted average number of common shares – diluted as if the acquisitions occurred on January 1, 2006.

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