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Rating Action: Moody's assigns a first-time Baa2 issuer rating to Extra Space Storage LP; stable outlookGlobal Credit Research - 28 Jan 2021New York, January 28, 2021 -- Moody's Investors Service ("Moody's") assigned a first-time Baa2 issuer rating to Extra Space Storage LP ("Extra Space"). The rating outlook is stable.The stable outlook reflects Extra Space's good scale and proven profitability. It also incorporates our expectation that the REIT will continue to reduce secured debt levels in addition to continued improvement in operational performance.The following rating was assigned: Extra Space Storage, LP -Issuer Rating, Assigned Baa2 Outlook Action: -Outlook, Stable RATINGS RATIONALE The Baa2 issuer rating reflects Extra Space's competitive positioning as one of the leading owners and operators of self-storage properties in the United States. The rating also considers the REIT's strong fixed charge coverage (4.8x at 3Q20), experienced management team that maintains a prudent financial policty with a long track record of operational excellence and demonstrated profitability through real estate cycles. These credit strengths are offset by Extra Space's historical reliance on mortgage financing resulting in higher secured debt levels, modest unencumbered asset base and high effective leverage for the rating category. Additionally, the company's market access to public unsecured debt is also less established relative to similarly rated peers.At $10.2 billion in gross assets, Extra Space does benefit from economies of scale representing a large competitive advantage over smaller operators. The REIT also benefits from a highly diversified portfolio of over 1,900 stores across many primary and secondary markets. There are modest geographic concentrations, but no market represents more than 15% of total NOI. Extra Space also continues to perform favorably on key operating metrics while maintaining a good capital position. Over the last five years, the REIT had posted healthy same-store NOI growth averaging approximately 5%. Although same-store NOI was down -2.1% for the 9 months ending September 30, 2020 as a result of COVID-related challenges, the self-storage industry has proven to be resilient with a strong recovery to date. Extra Space's occupancy for the fourth quarter ended December 31 was 94.8% compared to 92.4% the same period a year ago. Moreover, we expect Extra Space's revenue growth to recover in 2021, yet this is contingent on a stable economic environment and the REIT's ability to push rents across its portfolio amid new supply in certain markets.Although Extra Space's secured debt levels are at the upper-end of the rating category at 21.6% of gross assets for the nine months ended September 30, we expect this ratio to decline in a meaningful way by year-end 2022 as the REIT continues to move towards an unsecured capital structure. Leverage on a net debt to EBITDA basis is conservative at 6.1x for 3Q20. The REIT's effective leverage (total debt plus preferred as a percentage of gross assets) was 54% for the same period but on a market asset value basis, leverage is on par with rated peers in our view, mitigating this concern somewhat.Lastly, the REIT's liquidity position is good supported by $75 million in cash and cash equivalents and its three unsecured revolving credit facilities with a total capacity of $1.2 billion, which generally have maturities between June 2022 and January 2024 assuming the company exercises its extension options. Extra Space also has access to an ATM program of which it had approximately $299 million available for issuance (as of September 30, 2020). Currently, the REIT has $350 million of unsecured debt and $361 million of secured debt maturing in 2021 as well as $588 million of secured debt maturing in 2022.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward ratings movement would require maintenance of net debt to EBITDA below 5.0x (including Moody's adjustments), reducing secured debt levels below 5% of gross assets and maintaining a fixed charge coverage ratio of 5.5x. Geographic diversification with no market representing more than 20% of total NOI is also required.Downward rating pressure would result from material weakness in operating results or liquidity position, net debt to EBITDA above 7.0x (including Moody's standard adjustments), secured debt levels approaching 20% of gross assets, and or fixed charge coverage below 3.5x.Extra Space Storage, Inc. [NYSE: EXR], headquartered in Salt Lake City, Utah is a real estate investment trust (REIT) that owns, operates, manages and acquires self-storage assets. As of September 30, 2020, the REIT owns 935 properties, manages 718 stores and has 253 properties in joint ventures.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Alice Chung Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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