Extra Space Storage LP, an operating-partnership subsidiary of self-storage real estate investment trust (REIT) Extra Space Storage Inc., has launched a private placement of $500 million of its 3.125 percent exchangeable senior notes due in 2035. Purchasers have a 30-day option to acquire up to an additional $75 million in additional notes. All of the notes are guaranteed by Extra Space, according to a press release.

The company will use the proceeds from the offering to fund acquisitions, including its $1.4 billion purchase of SmartStop Self Storage Inc. The SmartStop deal is expected to close before the end of the year. The company will also use funds to pay off debt and other capital expenses.

Concurrent with the private offering, the operating partnership has agreed to repurchase approximately $164.6 million of its outstanding 2.375 percent exchangeable senior notes due in 2033 for approximately $228.1 million, according to the release.

Subject to certain conditions, the operating partnership will pay cash up to the aggregate principal amount of notes to be exchanged, opt to exchange with shares of Extra Space common stock, or a combination of cash and stock. The common-stock initial exchange rate is 10.4827 shares per $1,000 principal amount. The initial exchange price of $95.40 is approximately 27.5 percent more than the Sept. 15 reported sale price of $74.82 per share. The initial exchange rate is subject to adjustment. The notes will mature on Oct. 1, 2035, unless they are exchanged, redeemed or repurchased at an earlier date, the release stated.

The operating partnership may not redeem the notes prior to Oct. 5, 2020, except to preserve the company's status as a REIT. After Oct. 5, 2020, the operating partnership may redeem all or a portion of the notes for cash equal to 100 percent of the principal amount, plus any unpaid interest accrued to, but excluding, the redemption date.

Unless the operating partnership has called the notes for redemption, the holders of the notes may require Extra Space to repurchase all or a portion of the notes on Oct. 1 in 2020, 2025 and 2030, for cash equal to 100 percent of the principal amount, plus any unpaid interest accrued to, but excluding, the redemption date.

The offering will be managed jointly by Citigroup and Wells Fargo Securities LLC, according to the release.

Headquartered in Salt Lake City, Extra Space owns or operates 1,147 self-storage properties in 35 states; Washington, D.C.; and Puerto Rico. The company’s properties comprise approximately 770,000 units and 85.1 million square feet of rentable space.

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