NATIONAL STORAGE AFFILIATES TRUST Forward-Looking Statements We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may," or similar expressions, we intend to identify forward-looking statements. The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. One of the most significant factors is the ongoing and potential impact of the current outbreak of COVID-19 on the economy, the self storage industry and the broader financial markets, which may have a significant negative impact on the Company's financial condition, results of operations and cash flows. The Company is unable to predict whether the continuing effects of the COVID-19 pandemic will trigger a further economic slowdown or a recession and to what extent the Company will experience disruptions related to the COVID-19 pandemic in the second quarter or thereafter. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments' efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on theU.S. economy and economic activity, including the timing of the successful distribution of an effective vaccine. The current outbreak of COVID-19 has impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below and the risks described in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC (the "Annual Report"), and the Company's subsequent filings under the Exchange Act. Statements regarding the following subjects, among others, may be forward-looking: •market trends in our industry, interest rates, the debt and lending markets or the general economy; •our business and investment strategy; •the acquisition of properties, including those under contract, and the ability of our acquisitions to achieve underwritten capitalization rates and our ability to execute on our acquisition pipeline; •the timing of acquisitions; •the internalization of retiring PROs into the Company; •our relationships with, and our ability and timing to attract additional, PROs; •our ability to effectively align the interests of our PROs with us and our shareholders; •the integration of our PROs and their managed portfolios into the Company, including into our financial and operational reporting infrastructure and internal control framework; •our operating performance and projected operating results, including our ability to achieve market rents and occupancy levels, reduce operating expenditures and increase the sale of ancillary products and services; •our ability to access additional off-market acquisitions; •actions and initiatives of theU.S. federal, state and local government and changes toU.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies; •the state of theU.S. economy generally or in specific geographic regions, states, territories or municipalities; •economic trends and economic recoveries; •our ability to obtain and maintain financing arrangements on favorable terms; •general volatility of the securities markets in which we participate; •the negative impacts from the continued spread of COVID-19 on the economy, the self storage industry, the broader financial markets, the Company's financial condition, results of operations and cash flows and the ability of the Company's tenants to pay rent; 25 -------------------------------------------------------------------------------- •changes in the value of our assets; •projected capital expenditures; •the impact of technology on our products, operations, and business; •the implementation of our technology and best practices programs (including our ability to effectively implement our integrated Internet marketing strategy); •changes in interest rates and the degree to which our hedging strategies may or may not protect us from interest rate volatility; •impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; •our ability to continue to qualify and maintain our qualification as a REIT forU.S. federal income tax purposes; •availability of qualified personnel; •the timing of conversions of subordinated performance units in our operating partnership and subsidiaries of our operating partnership into OP units in our operating partnership, the conversion ratio in effect at such time and the impact of such convertibility on our diluted earnings (loss) per share; •the risks of investing through joint ventures, including whether the anticipated benefits from a joint venture are realized or may take longer to realize than expected; •estimates relating to our ability to make distributions to our shareholders in the future; and •our understanding of our competition. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions, and expectations can change as a result of many possible events or factors, not all of which are known to us. Readers should carefully review our financial statements and the notes thereto, as well as the sections entitled "Business," "Risk Factors," "Properties," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," described in the Company's Annual Report, and the other documents we file from time to time with theSEC . If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. OverviewNational Storage Affiliates Trust is a fully integrated, self-administered and self-managed real estate investment trust organized in the state ofMaryland onMay 16, 2013 . We have elected and we believe that we have qualified to be taxed as a REIT commencing with our taxable year endedDecember 31, 2015 . We serve as the sole general partner of our operating partnership, aDelaware limited partnership formed onFebruary 13, 2013 to conduct our business, which is focused on the ownership, operation, and acquisition of self storage properties located within the top 100 metropolitan statistical areas throughoutthe United States . Our executive chairman of the board of trustees and former chief executive officer,Arlen D. Nordhagen , co-foundedSecurCare Self Storage, Inc. in 1988 to invest in and manage self storage properties. While growing SecurCare to over 150 self storage properties,Mr. Nordhagen recognized a market opportunity for a differentiated public self storage REIT that would leverage the benefits of national scale by integrating multiple experienced regional self storage operators with local operational focus and expertise. We believe that his vision, which is the foundation of the Company, aligns the interests of our participating regional operators ("PROs"), with those of our public shareholders by allowing our PROs to participate alongside our shareholders in our financial performance and the performance of our PROs' managed portfolios. This structure offers our PROs a unique opportunity to serve as regional property managers for their managed portfolios and directly participate in the potential upside of those 26 -------------------------------------------------------------------------------- properties while simultaneously diversifying their investment to include a broader portfolio of self storage properties. COVID-19 We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. The outbreak of COVID-19 in many countries, includingthe United States , has adversely impacted economic activity. As cases of COVID-19 have continued to increase, most states and municipalities have reacted by instituting, extending or reinstating quarantines, mandating business and school closures, requiring restrictions on travel, "shelter-in-place" and/or "stay-at-home" orders, and imposing restrictions on the types of businesses that may continue to operate. These containment measures generally do not apply to businesses, like ours, which are designated as "essential," but may apply to certain of our tenants, employees, vendors, lenders and joint venture partners. As of the date of this report, our stores continue to operate and we are in compliance with federal, state and local COVID-19 guidelines and mandates. In response to the pandemic, we have increased the level and frequency of cleaning and sanitation of our self storage facilities and enacted recommended social distancing guidelines. Many of our stores feature online rental capabilities whereby a customer can complete the entire rental process online and receive an access code to the storage facility. For the remainder of our stores that do not yet benefit from the online rental feature, the combination of call center and email communication eliminates the need for any physical contact between customers and employees. Due to the pandemic, we experienced a slowdown in overall business activity during the second quarter of 2020. However, we observed sustained improvement in our property operating results during the third and fourth quarters of 2020 and continuing into the first quarter of 2021. We continue to take proactive measures to maintain the strength of our business and manage the impact of COVID-19 on our operations and liquidity, including the following: •We resumed rental rate increases for in-place tenants at the vast majority of our stores during the third quarter of 2020; •We are continuing to diligently manage operating expenses, including store-level personnel costs, marketing and repairs and maintenance expenses; •We continue to closely monitor our liquidity position. As ofMarch 31, 2021 , we had the capacity to borrow remaining Revolver commitments of$303.8 million with less than$5 million of debt maturing through 2022; •OnOctober 22, 2020 , we issued$150.0 million of 2.99% senior unsecured notes dueAugust 5, 2030 and$100.0 million of 3.09% senior unsecured notes dueAugust 5, 2032 in a private placement; •During the year endedDecember 31, 2020 , we completed the forward offering of 4,900,000 common shares of beneficial interest under forward sale agreements at a public offering price of$33.15 per share. OnDecember 30, 2020 , we settled a portion of the forward offering by physically delivering 1,850,510 common shares to the forward purchasers for net proceeds of approximately$60.0 million . OnMarch 22, 2021 we settled the remaining portion of the forward offering by physically delivering 3,049,490 common shares to the forward purchasers for net proceeds of approximately$97.3 million . •As discussed in Note 13 in Item 1, onMay 3, 2021 , our operating partnership entered into an agreement to issue$35.0 million of 2.16% senior unsecured notes dueMay 4, 2026 ,$90.0 million of 3.00% senior unsecured notes dueMay 4, 2031 and$55.0 million of 3.10% senior unsecured notes dueMay 4, 2033 in a private placement to certain institutional investors. •We remain committed to acquiring properties at appropriate risk-adjusted returns. We believe our acquisition opportunities through our captive pipeline and relationship-based third-party deals sourced by our PROs will continue to be a differentiating factor for us to prudently deploy capital, including through the issuance of OP equity. The above discussion is intended to provide shareholders with certain information regarding the impacts of the COVID-19 pandemic on our business and management's efforts to respond to those impacts. We are unable to predict the impact of the COVID-19 pandemic on our business for the balance of 2021 and thereafter. We will continue to monitor its effects and will adjust our operations as necessary. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such information will change, potentially 27 -------------------------------------------------------------------------------- significantly, going forward and may not be indicative of the actual impact of the COVID-19 pandemic on our financial condition, results of operations and cash flows for the second quarter of 2021 and future periods. See "Risk Factors" under Item 1A to the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC . Our Structure Our structure promotes operator accountability as subordinated performance units issued to our PROs in exchange for the contribution of their properties are entitled to distributions only after those properties satisfy minimum performance thresholds. In the event of a material reduction in operating cash flow, distributions on our subordinated performance units will be reduced before or disproportionately to distributions on our common shares held by our common shareholders. In addition, we expect our PROs will generally co-invest subordinated equity in the form of subordinated performance units in each acquisition that they source, and the value of these subordinated performance units will fluctuate with the performance of their managed portfolios. Therefore, our PROs are incentivized to select acquisitions that are expected to exceed minimum performance thresholds, thereby increasing the value of their subordinated equity stake. We expect that our shareholders will benefit from the higher levels of property performance that our PROs are incentivized to deliver. Our Property Management Platform Through our property management platform, we direct, manage and control the day-to-day operations and affairs of certain consolidated properties and our unconsolidated real estate ventures. As ofMarch 31, 2021 , our property management platform managed and controlled 288 of our consolidated properties and 177 of our unconsolidated real estate venture properties. We earn certain customary fees for managing and operating the properties in the unconsolidated real estate ventures and we facilitate tenant insurance and/or tenant warranty protection programs for tenants at these properties in exchange for half of all proceeds from such programs. Our PROs The Company had ten PROs as ofMarch 31, 2021 : Northwest, Optivest, Guardian, Move It, Storage Solutions, Hide Away, Personal Mini, Southern, Moove In and Blue Sky. We seek to further expand our platform by continuing to recruit additional established self storage operators, while integrating our operations through the implementation of centralized initiatives, including management information systems, revenue enhancement, and cost optimization programs. Our national platform allows us to capture cost savings by eliminating redundancies and utilizing economies of scale across the property management platforms of our PROs while also providing greater access to lower-cost capital. OurConsolidated Properties We seek to own properties that are well located in high quality sub-markets with highly accessible street access and attractive supply and demand characteristics, providing our properties with strong and stable cash flows that are less sensitive to the fluctuations of the general economy. Many of these markets have multiple barriers to entry against increased supply, including zoning restrictions against new construction and new construction costs that we believe are higher than our properties' fair market value. We have an attractive, high quality potential acquisition pipeline that we expect will continue to drive our future growth. As ofMarch 31, 2021 , we owned a geographically diversified portfolio of 667 self storage properties, located in 33 states andPuerto Rico , comprising approximately 40.8 million rentable square feet, configured in approximately 321,000 storage units. Of these properties, 283 were acquired by us from our PROs, 383 were acquired from third-party sellers and one was acquired from the 2016 Joint Venture. During the three months endedMarch 31, 2021 , we acquired 23 self storage properties for$166.0 million , comprising approximately 1.5 million rentable square feet, configured in approximately 11,300 storage units. Of these acquisitions, seven were acquired from our PROs and 16 were acquired from third-party sellers. OurUnconsolidated Real Estate Ventures We seek to opportunistically partner with institutional funds and other institutional investors to acquire attractive portfolios utilizing a promoted return structure. We believe there is significant opportunity for continued external growth by partnering with institutional investors seeking to deploy capital in the self storage industry. In 28 -------------------------------------------------------------------------------- addition, we consider the 75% third-party interest in the Company's unconsolidated real estate ventures, which currently own 177 properties, to present a potential acquisition opportunity. This 75% third-party share of gross real estate assets is approximately$1.5 billion based on the historical book value of the joint ventures. Were we to pursue an acquisition of these interests, it could potentially drive our future growth. 2018 Joint Venture As ofMarch 31, 2021 , our 2018 Joint Venture, in which we have a 25% interest, owned and operated a portfolio of 103 properties containing approximately 7.8 million rentable square feet, configured in approximately 64,000 storage units and located across 17 states. 2016 Joint Venture As ofMarch 31, 2021 , our 2016 Joint Venture, in which we have a 25% ownership interest, owned and operated a portfolio of 74 properties containing approximately 4.9 million rentable square feet, configured in approximately 40,000 storage units and located across 13 states. Results of Operations When reviewing our results of operations it is important to consider the timing of acquisition activity. We acquired 23 self storage properties during the three months endedMarch 31, 2021 and 77 self storage properties during the year endedDecember 31, 2020 . As a result of these and other factors, we do not believe that our historical results of operations discussed and analyzed below are comparable or necessarily indicative of our future results of operations or cash flows. To help analyze the operating performance of our self storage properties, we also discuss and analyze operating results relating to our same store portfolio. Our same store portfolio is defined as those properties owned and operated since the first day of the earliest year presented, excluding any properties sold, expected to be sold or subject to significant changes such as expansions or casualty events which cause the portfolio's year-over-year operating results to no longer be comparable. As ofMarch 31, 2021 , our same store portfolio consisted of 560 consolidated self storage properties. The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements in Item 1. Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. Three Months EndedMarch 31, 2021 compared to the Three Months EndedMarch 31, 2020 Net income was$27.6 million for the three months endedMarch 31, 2021 , compared to$15.8 million for the three months endedMarch 31, 2020 , an increase of$11.8 million . The increase was primarily due to an increase in net operating income ("NOI") generated from 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 , an additional 23 self storage properties acquired betweenJanuary 1, 2021 andMarch 31, 2021 and same store NOI growth, partially offset by increases in depreciation and amortization. For a description of NOI, see "Non-GAAP Financial Measures - NOI". The following table illustrates the changes in rental revenue, other property-related revenue, management fees and other revenue, property operating expenses, and other expenses for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 (dollars in thousands): Three Months Ended March 31, 2021 2020 Change Rental revenue Same store portfolio$ 97,904 $ 90,680 $ 7,224 Non-same store portfolio 15,223 4,722 10,501 Total rental revenue 113,127 95,402 17,725 29
--------------------------------------------------------------------------------
Three
Months Ended
2021 2020 Change
Other property-related revenue
Same store portfolio 3,613 3,194 419
Non-same store portfolio 524 177 347
Total other property-related revenue 4,137 3,371 766
Property operating expenses
Same store portfolio 28,833 28,661 172
Non-same store portfolio 5,771 1,931 3,840
Total property operating expenses 34,604 30,592 4,012
Net operating income
Same store portfolio 72,684 65,213 7,471
Non-same store portfolio 9,976 2,968 7,008
Total net operating income 82,660 68,181 14,479
Management fees and other revenue 5,728 5,449 279
General and administrative expenses (11,238) (11,094) (144)
Depreciation and amortization (32,424) (29,105) (3,319)
Other (397) (389) (8)
Other (expense) income
Interest expense (16,792) (15,628) (1,164)
Equity in earnings (losses) of unconsolidated real
estate ventures 759 (340) 1,099
Acquisition costs (292) (833) 541
Non-operating expense (173) (192) 19
Other expense (16,498) (16,993) 495
Income before income taxes 27,831 16,049 11,782
Income tax expense (196) (286) 90
Net income 27,635 15,763 11,872Net income attributable to noncontrolling interests (6,797)
(9,115) 2,318
Net income attributable to National Storage
Affiliates Trust 20,838 6,648 14,190
Distributions to preferred shareholders (3,275) (3,273) (2)
Net income attributable to common shareholders $ 17,563 Total Revenue Our total revenue increased by$18.8 million , or 18.0%, for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . This increase was primarily attributable to incremental revenue from 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 , 23 self storage properties acquired betweenJanuary 1, 2021 andMarch 31, 2021 and an increase in total portfolio average occupancy from 86.7% for the three months endedMarch 31, 2020 to 91.8% for the three months endedMarch 31, 2021 . Average occupancy is calculated based on the average of the month-end occupancy immediately preceding the period presented and the month-end occupancies included in the respective period presented. Rental Revenue Rental revenue increased by$17.7 million , or 18.6%, for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . The increase in rental revenue was due to a$10.5 million increase in non-same store rental revenue which was primarily attributable to incremental rental revenue of$7.0 million from 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 and$1.4 million from 23 self storage properties acquired during the three months endedMarch 31, 2021 . Same store portfolio rental revenues increased$7.2 million , or 8.0%, due to an increase in average occupancy from 86.9% for the three months ended 30 --------------------------------------------------------------------------------March 31, 2020 to 92.5% for the three months endedMarch 31, 2021 and a 1.4% increase, from$12.30 to$12.47 , in annualized same store rental revenue (including fees and net of any discounts and uncollectible customer amounts) divided by average occupied square feet ("average annualized rental revenue per occupied square foot"), driven primarily by increased contractual lease rates for in-place tenants. Other Property-Related Revenue Other property-related revenue represents ancillary income from our self storage properties, such as tenant insurance-related access fees and sales of storage supplies. Other property-related revenue increased by$0.8 million , or 22.7%, for the three months endedMarch 31, 2021 , as compared to the three months endedMarch 31, 2020 . This increase primarily resulted from a$0.4 million increase in same store other property-related revenue and a$0.3 million increase in non-same store other property-related revenue which was primarily attributable to incremental other property-related revenue of$0.2 million from 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 . Management Fees and Other Revenue Management fees and other revenue, which are primarily related to managing and operating the unconsolidated real estate ventures, were$5.7 million for the three months endedMarch 31, 2021 , compared to$5.4 million for the three months endedMarch 31, 2020 , an increase of$0.3 million . This increase was primarily attributable to increases in tenant insurance fees and dividends. Property Operating Expenses Property operating expenses were$34.6 million for the three months endedMarch 31, 2021 compared to$30.6 million for the three months endedMarch 31, 2020 , an increase of$4.0 million , or 13.1%. The increase in property operating expenses primarily resulted from a$3.8 million increase in non-same store property operating expenses that was primarily attributable to incremental property operating expenses of$2.6 million from 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 and$0.6 million from 23 self storage properties acquired during the three months endedMarch 31, 2021 . General and Administrative Expenses General and administrative expenses increased$0.1 million , or 1.3%, for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 . This increase was attributable to increases in equity based compensation expense offset by decreases in supervisory and administrative fees charged by our PROs primarily as a result of the merger and internalization of the management platform of SecurCare onMarch 31, 2020 . Depreciation and Amortization Depreciation and amortization increased$3.3 million , or 11.4%, for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 . This increase was primarily attributable to incremental depreciation expense related to the 41 self storage properties acquired betweenApril 1, 2020 andDecember 31, 2020 and the 23 self storage properties we acquired betweenJanuary 1, 2021 andMarch 31, 2021 , partially offset by a decrease in amortization of customer in-place leases from$2.9 million for the three months endedMarch 31, 2020 to$2.4 million for the three months endedMarch 31, 2021 . Interest Expense Interest expense increased$1.2 million , or 7.4%, for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 . The increase in interest expense was primarily attributable to additional borrowings inOctober 2020 consisting of the issuance of$150.0 million of 2.99% senior unsecured notes dueAugust 5, 2030 and$100.0 million of 3.09% senior unsecured notes dueAugust 5, 2032 .Equity In Earnings (Losses) Of Unconsolidated Real Estate Ventures Equity in earnings (losses) of unconsolidated real estate ventures represents our share of earnings and losses incurred through our 25% ownership interests in the 2018 Joint Venture and the 2016 Joint Venture. During the three months endedMarch 31, 2021 , we recorded$0.8 million of equity in earnings from our unconsolidated real estate ventures compared to$0.3 million of losses for the three months endedMarch 31, 2020 . 31 -------------------------------------------------------------------------------- Net Income Attributable to Noncontrolling Interests As discussed in Note 2 in Item 1, we allocate GAAP income (loss) utilizing the HLBV method, in which we allocate income or loss based on the change in each unitholders' claim on the net assets of our operating partnership at period end after adjusting for any distributions or contributions made during such period. Due to the stated liquidation priorities and because the HLBV method incorporates non-cash items such as depreciation expense, in any given period, income or loss may be allocated disproportionately to noncontrolling interests. Net income attributable to noncontrolling interests was$6.8 million for the three months endedMarch 31, 2021 , compared to$9.1 million for the three months endedMarch 31, 2020 . Non-GAAP Financial Measures FFO and Core FFO Funds from operations, or FFO, is a widely used performance measure for real estate companies and is provided here as a supplemental measure of our operating performance. TheDecember 2018 Nareit Funds From Operations White Paper - 2018 Restatement, which we refer to as the White Paper, defines FFO as net income (as determined under GAAP), excluding: real estate depreciation and amortization, gains and losses from the sale of certain real estate assets, gains and losses from change in control, mark-to-market changes in value recognized on equity securities, impairment write-downs of certain real estate assets and impairment of investments in entities when it is directly attributable to decreases in the value of depreciable real estate held by the entity and after items to record unconsolidated partnerships and joint ventures on the same basis. Distributions declared on subordinated performance units and DownREIT subordinated performance units represent our allocation of FFO to noncontrolling interests held by subordinated performance unitholders and DownREIT subordinated performance unitholders. For purposes of calculating FFO attributable to common shareholders, OP unitholders, and LTIP unitholders, we exclude distributions declared on subordinated performance units, DownREIT subordinated performance units, preferred shares and preferred units. We define Core FFO as FFO, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments consist of acquisition costs, organizational and offering costs, gains on debt forgiveness, gains (losses) on early extinguishment of debt, and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO and Core FFO as key performance indicators in evaluating the operations of our properties. Given the nature of our business as a real estate owner and operator, we consider FFO and Core FFO as key supplemental measures of our operating performance that are not specifically defined by GAAP. We believe that FFO and Core FFO are useful to management and investors as a starting point in measuring our operational performance because FFO and Core FFO exclude various items included in net income (loss) that do not relate to or are not indicative of our operating performance such as gains (or losses) from sales of self storage properties and depreciation, which can make periodic and peer analyses of operating performance more difficult. Our computation of FFO and Core FFO may not be comparable to FFO reported by other REITs or real estate companies. FFO and Core FFO should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income (loss). FFO and Core FFO do not represent cash generated from operating activities determined in accordance with GAAP and are not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO and Core FFO should be compared with our reported net income (loss) and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements. 32 --------------------------------------------------------------------------------
The following table presents a reconciliation of net income (loss) to FFO and
Core FFO for the three months ended
Three Months Ended
March 31,
2021 2020
Net income $ 27,635 $ 15,763
Add (subtract):
Real estate depreciation and amortization 32,070 28,764
Company's share of unconsolidated real estate venture real estate depreciation and amortization
3,881 3,787
Mark-to-market changes in value on equity securities - 142
Distributions to preferred shareholders and unitholders (3,517) (3,514)
FFO attributable to subordinated performance unitholders(1) (9,162) (8,664)
FFO attributable to common shareholders, OP unitholders, and
LTIP unitholders 50,907 36,278
Add:
Acquisition costs 292 833
Core FFO attributable to common shareholders, OP unitholders, and LTIP unitholders
Weighted average shares and units outstanding - FFO and Core FFO:(2) Weighted average shares outstanding - basic
71,794 59,798
Weighted average restricted common shares outstanding 25 23
Weighted average effect of forward offering agreement(3) 399 -
Weighted average OP units outstanding 29,751 30,709
Weighted average DownREIT OP unit equivalents outstanding 1,925 1,849
Weighted average LTIP units outstanding 585 617
Total weighted average shares and units outstanding - FFO and
Core FFO 104,479 92,996
FFO per share and unit $ 0.49 $ 0.39
Core FFO per share and unit (1) Amounts represent distributions declared for subordinated performance unitholders and DownREIT subordinated performance unitholders for the periods presented. (2)NSA combines OP units and DownREIT OP units with common shares because, after the applicable lock-out periods, OP units in the Company's operating partnership are redeemable for cash or, atNSA's option, exchangeable for common shares on a one-for-one basis and DownREIT OP units are also redeemable for cash or, atNSA's option, exchangeable for OP units in our operating partnership on a one-for-one basis, subject to certain adjustments in each case. Subordinated performance units, DownREIT subordinated performance units, and LTIP units may also, under certain circumstances, be convertible into or exchangeable for common shares (or other units that are convertible into or exchangeable for common shares). See footnote(1) in the following table for additional discussion of subordinated performance units, DownREIT subordinated performance units, and LTIP units in the calculation of FFO and Core FFO per share and unit. (3) Represents the dilutive effect of the forward offering from the application of the treasury stock method. 33
-------------------------------------------------------------------------------- The following table presents a reconciliation of earnings (loss) per share - diluted to FFO and Core FFO per share and unit for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Earnings (loss) per share - diluted$ 0.19 $ 0.06 Impact of the difference in weighted average number of shares(1) 0.04 (0.02)
Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(2)
- 0.09
Add real estate depreciation and amortization 0.31 0.31
0.04 0.04
FFO attributable to subordinated performance unitholders (0.09) (0.09)
FFO per share and unit 0.49 0.39
Add acquisition costs - 0.01
Core FFO per share and unit (1) Adjustment accounts for the difference between the weighted average number of shares used to calculate diluted earnings per share and the weighted average number of shares used to calculate FFO and Core FFO per share and unit. Diluted earnings per share is calculated using the two-class method for the company's restricted common shares and the treasury stock method for certain unvested LTIP units, and assumes the conversion of vested LTIP units into OP units on a one-for-one basis and the hypothetical conversion of subordinated performance units, and DownREIT subordinated performance units into OP units, even though such units may only be convertible into OP units (i) after a lock-out period and (ii) upon certain events or conditions. For additional information about the conversion of subordinated performance units, DownREIT subordinated performance units and LTIP units into OP units, see Note 9 in Item 1. The computation of weighted average shares and units for FFO and Core FFO per share and unit includes all restricted common shares and LTIP units that participate in distributions and excludes all subordinated performance units and DownREIT subordinated performance units because their effect has been accounted for through the allocation of FFO to the related unitholders based on distributions declared. (2) Represents the effect of adjusting the numerator to consolidated net income (loss) prior to GAAP allocations for noncontrolling interests, after deducting preferred share and unit distributions, and before the application of the two-class method and treasury stock method, as described in footnote(1).
NOI
Net operating income, or NOI, represents rental revenue plus other
property-related revenue less property operating expenses. NOI is not a measure
of performance calculated in accordance with GAAP.
We believe NOI is useful to investors in evaluating our operating performance
because:
•NOI is one of the primary measures used by our management and our PROs to
evaluate the economic productivity of our properties, including our ability to
lease our properties, increase pricing and occupancy and control our property
operating expenses;
•NOI is widely used in the real estate industry and the self storage industry to
measure the performance and value of real estate assets without regard to
various items included in net income that do not relate to or are not indicative
of operating performance, such as depreciation and amortization, which can vary
depending upon accounting methods, the book value of assets, and the impact of
our capital structure; and
•We believe NOI helps our investors to meaningfully compare the results of our
operating performance from period to period by removing the impact of our
capital structure (primarily interest expense on our outstanding indebtedness)
and depreciation of the cost basis of our assets from our operating results.
There are material limitations to using a non-GAAP measure such as NOI,
including the difficulty associated with comparing results among more than one
company and the inability to analyze certain significant items, including
depreciation and interest expense, that directly affect our net income (loss).
We compensate for these limitations by considering the economic effect of the
excluded expense items independently as well as in connection with our analysis
of net income (loss). NOI should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in accordance
with GAAP, such as total revenues and net income (loss).
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The following table presents a reconciliation of net income (loss) to NOI for
the three months ended
Three Months Ended
March 31,
2021 2020
Net income $ 27,635 $ 15,763
(Subtract) Add:
Management fees and other revenue (5,728) (5,449)
General and administrative expenses 11,238 11,094
Other 397 389
Depreciation and amortization 32,424 29,105
Interest expense 16,792 15,628
Equity in (earnings) losses of unconsolidated real estate
ventures (759) 340
Acquisition costs 292 833
Income tax expense 196 286
Non-operating expense 173 192
Net Operating Income $ 82,660 $ 68,181
Our consolidated NOI shown in the table above does not include our proportionate
share of NOI for our unconsolidated real estate ventures. For additional
information about our 2018 Joint Venture and 2016 Joint Venture see Note 5 to
the condensed consolidated financial statements in Item 1.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), as determined under GAAP, plus interest
expense, loss on early extinguishment of debt, income taxes, depreciation and
amortization expense and the Company's share of unconsolidated real estate
venture depreciation and amortization. We define Adjusted EBITDA as EBITDA plus
acquisition costs, organizational and offering expenses, equity-based
compensation expense, losses on sale of properties and impairment of long-lived
assets, minus gains on sale of properties and debt forgiveness, and after
adjustments for unconsolidated partnerships and joint ventures. These further
adjustments eliminate the impact of items that we do not consider indicative of
our core operating performance. In evaluating EBITDA and Adjusted EBITDA, you
should be aware that in the future we may incur expenses that are the same as or
similar to some of the adjustments in this presentation. Our presentation of
EBITDA and Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by unusual or non-recurring items.
We present EBITDA and Adjusted EBITDA because we believe they assist investors
and analysts in comparing our performance across reporting periods on a
consistent basis by excluding items that we do not believe are indicative of our
core operating performance. EBITDA and Adjusted EBITDA have limitations as an
analytical tool. Some of these limitations are:
•EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future
requirements, for capital expenditures, contractual commitments or working
capital needs;
•EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or
the cash requirements necessary to service interest or principal payments, on
our debts;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements;
•Adjusted EBITDA excludes equity-based compensation expense, which is and will
remain a key element of our overall long-term incentive compensation package,
although we exclude it as an expense when evaluating our ongoing operating
performance for a particular period;
•EBITDA and Adjusted EBITDA do not reflect the impact of certain cash charges
resulting from matters we consider not to be indicative of our ongoing
operations; and
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•other companies in our industry may calculate EBITDA and Adjusted EBITDA
differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by considering the economic effect of the
excluded expense items independently as well as in connection with our analysis
of net income (loss). EBITDA and Adjusted EBITDA should be considered in
addition to, but not as a substitute for, other measures of financial
performance reported in accordance with GAAP, such as total revenues and net
income (loss).
The following table presents a reconciliation of net income (loss) to EBITDA and
Adjusted EBITDA for the three months ended March 31, 2021 and 2020 (dollars in
thousands):
Three Months Ended
March 31,
2021 2020
Net income $ 27,635 $ 15,763
Add:
Depreciation and amortization 32,424 29,105
Company's share of unconsolidated real estate venture depreciation and amortization
3,881 3,787
Interest expense 16,792 15,628
Income tax expense 196 286
EBITDA 80,928 64,569
Add:
Acquisition costs 292 833
Equity-based compensation expense 1,286 774
Adjusted EBITDA $ 82,506 $ 66,176
Liquidity and Capital Resources
Liquidity Overview
Liquidity is the ability to meet present and future financial obligations. Our
primary source of liquidity is cash flow from our operations. Additional sources
are proceeds from equity and debt offerings, and debt financings including
borrowings under the credit facility, 2023 Term Loan Facility, 2028 Term Loan
Facility and 2029 Term Loan Facility.
Our short-term liquidity requirements consist primarily of property operating
expenses, property acquisitions, capital expenditures, general and
administrative expenses and principal and interest on our outstanding
indebtedness. A further short-term liquidity requirement relates to
distributions to our common and preferred shareholders and holders of preferred
units, OP units, LTIP units, subordinated performance units, DownREIT OP units
and DownREIT subordinated performance units. We expect to fund short-term
liquidity requirements from our operating cash flow, cash on hand and borrowings
under our credit facility.
Our long-term liquidity needs consist primarily of the repayment of debt,
property acquisitions, and capital expenditures. We acquire properties through
the use of cash, preferred units, OP units and subordinated performance units in
our operating partnership or DownREIT partnerships. We expect to meet our
long-term liquidity requirements with operating cash flow, cash on hand, secured
and unsecured indebtedness, and the issuance of equity and debt securities.
The availability of credit and its related effect on the overall economy may
affect our liquidity and future financing activities, both through changes in
interest rates and access to financing. Currently, interest rates are low
compared to historical levels. Our ability to access capital on favorable terms
as well as to use cash from operations to continue to meet our liquidity needs,
all of which are highly uncertain and cannot be predicted, could be affected by
various risks and uncertainties, including, but not limited to, the effects of
the COVID-19 pandemic. We believe that, as a publicly-traded REIT, we will have
access to multiple sources of capital to fund our long-term liquidity
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requirements, including the incurrence of additional debt and the issuance of
debt and additional equity securities. However, we cannot assure you that this
will be the case.
Cash Flows
At March 31, 2021 , we had $19.5 million in cash and cash equivalents and $3.3
million of restricted cash, an increase in cash and cash equivalents of $0.8
million and an increase in restricted cash of $0.3 million from December 31,
2020 . Restricted cash primarily consists of escrowed funds deposited with
financial institutions for real estate taxes, insurance, and other reserves for
capital improvements in accordance with our loan agreements. The following
discussion relates to changes in cash due to operating, investing, and financing
activities, which are presented in our condensed consolidated statements of cash
flows included in Item 1 of this report.
Operating Activities
Cash provided by our operating activities was $64.1 million for the three ended
March 31, 2021 compared to $50.7 million for the three months ended March 31,
2020 , an increase of $13.4 million . Our operating cash flow increased primarily
due to the 41 self storage properties that were acquired between April 1, 2020
and December 31, 2020 that generated cash flow for the entire three months ended
March 31, 2021 , an additional 23 self storage properties acquired during the
three months ended March 31, 2021 and same store NOI growth. Because these self
storage properties were acquired after March 31, 2020 , our operating results for
the three months ended March 31, 2020 were not impacted by them. The increase in
our operating cash flows was partially offset by higher cash payments for
interest expense.
Investing Activities
Cash used in investing activities was $149.4 million for the three months ended
March 31, 2021 compared to $211.1 million for the three months ended March 31,
2020 . The primary uses of cash for the three months ended March 31, 2021 were
for our acquisition of 23 self storage properties for cash consideration of
$141.2 million , capital expenditures of $5.7 million , and deposits for potential
acquisitions of $2.5 million . The primary uses of cash for the three months
ended March 31, 2020 were for our acquisition of 36 self storage properties for
cash consideration of $210.0 million , capital expenditures of $4.9 million ,
investments in our 2016 Joint Venture of $3.1 million , expenditures for
corporate furniture, equipment and other of $0.2 million and deposits for
potential acquisitions of $0.5 million partially offset by $7.6 million of
proceeds from the sale of equity securities.
Capital expenditures totaled $5.7 million and $4.9 million during the three
months ended March 31, 2021 and 2020, respectively. We generally fund
post-acquisition capital additions from cash provided by operating activities.
We categorize our capital expenditures broadly into three primary categories:
•recurring capital expenditures, which represent the portion of capital
expenditures that are deemed to replace the consumed portion of acquired capital
assets and extend their useful life;
•value enhancing capital expenditures, which represent the portion of capital
expenditures that are made to enhance the revenue and value of an asset from its
original purchase condition; and
•acquisitions capital expenditures, which represent the portion of capital
expenditures capitalized during the current period that were identified and
underwritten prior to a property's acquisition.
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A summary of the capital expenditures for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying condensed consolidated statements of cash flows for the three months endedMarch 31, 2021 and 2020, are presented below (dollars in thousands):
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