For the fiscal year ended December 31, 2015

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes  ¨    No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common shares of beneficial interest of National Storage Affiliates Trust held by non-affiliates of National Storage Affiliates Trust was approximately $285.0 million as of June 30, 2015. As of March 9, 2016, 23,015,751 common shares of beneficial interest, $0.01 par value per share, were outstanding.

National Storage Affiliates Trust is a fully integrated, self-administered and self-managed real estate investment trust organized in the state of Maryland on May 16, 2013. We intend to elect to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") commencing with our taxable year ended December 31, 2015. We serve as the sole general partner of our operating partnership subsidiary, NSA OP, LP (our "operating partnership"), a Delaware limited partnership formed on February 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 ("MSAs") throughout the United States. As of December 31, 2015, we owned a geographically diversified portfolio of 277 self storage properties, located in 16 states, comprising approximately 15.8 million rentable square feet, configured in approximately 123,000 storage units. According to the 2016 Self-Storage Almanac, we are the sixth largest owner and operator of self storage properties in the United States based on number of properties, self storage units, and rentable square footage.

The Company had six PROs as of December 31, 2015: SecurCare Self Storage, Inc. and its controlled affiliates ("SecurCare"), Kevin Howard Real Estate Inc., d/b/a Northwest Self Storage and its controlled affiliates ("Northwest"), Optivest Properties LLC and its controlled affiliates ("Optivest"), Guardian Storage Centers LLC and its controlled affiliates ("Guardian"), Move It Self Storage and its controlled affiliates ("Move It"), and Arizona Mini Storage Management Company d/b/a Storage Solutions and its controlled affiliates ("Storage Solutions"). In February 2016, we entered into definitive agreements with entities related to Hide-Away Storage Services, Inc. ("Hide-Away") to add Hide-Away as our seventh PRO. The transaction is expected to close early in the second quarter of 2016, following the satisfaction of customary closing conditions. To capitalize on their recognized and established local brands, our PROs continue to function as property managers for their contributed properties under their existing brands (which include various brands in addition to those discussed below). Over the long-run, we may seek to brand or co-brand each location as part of NSA.

We acquired 58 self storage properties during the year ended December 31, 2015, and 83 self storage properties during the year ended December 31, 2014. 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. A complete listing of, and additional information about, our self storage properties is included in Item 2 of this Report. 

High Quality Properties in Key Growth Markets.    We owned a geographically diversified portfolio of 277 self storage properties, located in 16 states, comprising approximately 15.8 million rentable square feet, configured in approximately 123,000 storage units, as of December 31, 2015. Over 70% of our portfolio is located in the top 100 MSAs, based on our 2015 net operating income ("NOI"). We believe that these properties are primarily located in high quality growth markets that have attractive supply and demand characteristics and 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. Furthermore, we believe that our significant size and the overall geographic diversification of our portfolio reduces risks associated with specific local or regional economic downturns or natural disasters.

Differentiated, Growth-Oriented Strategy Focused on Established Operators.    We are a self storage REIT with a unique structure that supports our differentiated external growth strategy. Our structure appeals to operators who are looking for access to growth capital while maintaining an economic stake in the self storage properties that each has contributed to the Company and continues to manage on our behalf. These attributes entice operators to join the Company

Integrated Platform Utilizing Advanced Technology for Enhanced Operational Performance and Best Practices.    Our national platform allows us to capture cost savings through integration and centralization, thereby eliminating redundancies and utilizing economies of scale across the property management platforms of our PROs. As compared to a stand-alone operator, our national platform has greater access to lower-cost capital, reduced Internet marketing costs per customer lead, discounted property insurance expense, and reduced overhead costs. In addition, the Company has sufficient scale for national and bulk purchasing and has centralized various functions, including financial reporting, call center operations, a national credit card processing program, marketing, information technology, legal support, and capital market functions, to achieve substantial cost savings over smaller, individual operators.

Aligned Incentive Structure with Shareholder Downside Protection.    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 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 contributed properties. 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.

Increase Occupancy.    Other public self storage REITs operate at a weighted average occupancy level which we believe is at or near optimal revenue-producing occupancy as of December 31, 2015. Our portfolio occupancy was 88.5% as of December 31, 2015, reflecting a gap compared to the average occupancy of the other public self storage REITs. Through utilization of our centralized call center, integrated Internet marketing strategies and best practices protocols, we expect our PROs will be able to increase rental conversion rates resulting in increasing occupancy levels.

Maximize Property Level Cash Flow.    We strive to maximize the cash flows at our properties by leveraging the economies of scale provided by our national platform, including through the implementation of new ideas derived from our Technology and Best Practices Group. We believe that our unique PRO structure, centralized infrastructure and efficient national platform will enable us to achieve optimal market rents and occupancy, reduce operating expenses and increase the sale by our PROs of ancillary products and services, including tenant insurance, of which we receive a portion of the proceeds, truck rentals and packing supplies.

Acquire Built-in Captive Pipeline of Target Properties from Existing PROs.    We have an attractive, high quality potential acquisition pipeline (our "captive pipeline") of over 100 self storage properties valued at over $700 million that we anticipate will drive our future growth. We consider a property to be in our captive pipeline if it (i) is under a management service agreement with one of our PROS, (ii) meets our property quality criteria, and (iii) is either required to be offered to us under the applicable facilities portfolio management agreement or a PRO has a reasonable basis to believe that the controlling owner of the property intends to sell the property in the next seven years.

Access Additional Off-Market Acquisition Opportunities.    Our PROs and their "on-the-ground" personnel have established an extensive network of industry relationships and contacts in their respective markets. Through these local connections, our PROs are able to access acquisition opportunities that are not publicly marketed or sold through auctions. Our structure incentivizes our PROs to source acquisitions in their markets and consolidate these properties into the Company. Other public self storage companies generally have acquisition teams located at their central offices, which in many instances are far removed from regional and local markets. We believe our operators' networks and close familiarity with the other operators in their markets provide us clear competitive advantages in identifying and selecting attractive acquisition opportunities. Our PROs have already sourced 63 acquisitions as of December 31, 2015, comprising approximately 4.4 million rentable square feet within our portfolio.

Recruit Additional New PROs in Target Markets.    We intend to continue to execute on our external growth strategy through additional acquisitions and contributions from future PROs in key markets. We believe there is significant opportunity for growth through consolidation of the highly fragmented composition of the market. We believe that future operators will be attracted to our unique structure, providing them with lower cost of capital, better economies of scale, and greater operational and overhead efficiencies while preserving their existing property management platforms. We intend to add additional PROs to complement our existing geographic footprint and to achieve our goal of creating a highly diversified nationwide portfolio of properties focused in the top 100 MSAs. When considering a PRO candidate, we consider various factors, including the size of the potential PRO's portfolio, the quality and location of its properties, its market exposure, its operating expertise, its ability to grow its business, and its reputation with industry participants.

We expect to maintain a flexible approach in financing new property acquisitions. Future property acquisitions may entail the issuance of OP units, subordinated performance units or other equity securities. In general, we expect to fund our property acquisitions through a combination of borrowings under bank credit facilities (including term loans and revolving facilities), property-level debt and public and private equity and debt issuances. As of December 31, 2015, our unsecured credit facility (the "credit facility") provides for total borrowings of $550.0 million, consisting of a $200.0 million senior term loan (the "term loan") and a $350.0 million senior revolving credit facility (the "revolving line of credit"). As of December 31, 2015, we had the entire term loan amount drawn and we had $188.0 million of outstanding borrowings under the revolving line of credit, and the capacity to borrow an additional $162.0 million, subject to the borrowing base calculation. Furthermore, we are currently engaged in discussions with lenders to expand our credit facility during 2016 to provide for a total borrowing capacity of $600 million, including an additional expansion option, which, if exercised, would provide for a total borrowing capacity of $1.0 billion. This expansion is also expected to extend the maturity dates of our current credit facility and include customary market terms and covenants. There can be no assurance as to whether we will close the expansion of our credit facility or the actual timing of any such expansion.

As of December 31, 2015, the Company had 18 employees, which does not include persons employed by our PROs. As of December 31, 2015, our PROs, collectively, had over 600 full-time and part-time employees involved in management, operations, and reporting with respect to our self storage property portfolio.

 An investment in our common shares involves a high degree of risk. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this Annual Report on Form 10-K. If any of the risks discussed in this Annual Report on Form 10-K occurs, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

Our operating results are dependent upon our ability to achieve optimal occupancy levels and rental rates at our self storage properties. Adverse economic or other conditions in the markets in which we do business, particularly in California, Oregon, Texas, Oklahoma and North Carolina, which accounted for approximately 22%, 21%, 15%, 9% and 9%, respectively, of our revenues for the year ended December 31, 2015, may lower our occupancy levels and limit our ability to maintain or increase rents or require us to offer rental discounts. No single customer represented a significant

Our PROs had over 600 personnel in the management and operation of our portfolio as of December 31, 2015. The general professionalism of site managers and staff are contributing factors to a site's ability to successfully secure rentals and retain tenants. We rely on our PROs' on-site personnel to maintain clean and secure self storage properties. If our PROs are unable to successfully recruit, train and retain qualified on-site personnel, the quality of service we and our PROs strive to provide at our properties could be adversely affected, which could lead to decreased occupancy levels and reduced operating performance of our properties.

Our PROs and their employees and personnel are in the business of managing self storage properties. As of December 31, 2015, our PROs managed approximately 130 self storage properties which are not included in our portfolio. We have agreed that our PROs may continue to manage such properties, and our PROs are not obligated to dedicate any specific employees or personnel exclusively to the management of our properties. As a result, their time and efforts may be diverted from the management of our properties, which could adversely affect the execution of our business plan and our operating results.

As of December 31, 2015, our existing credit facility was a $550.0 million unsecured credit facility with a syndicate of lenders led by KeyBank National Association, comprised of a revolving line of credit of $350.0 million and a term loan of $200.0 million. As of December 31, 2015, we had the entire term loan amount drawn and $188.0 million of outstanding borrowings under the revolving line of credit, and we had the capacity to borrow $162.0 million, subject to the borrowing base calculation. We have an expansion option under our credit facility, which if exercised, would provide for a total credit facility of $700.0 million. The exercise of the expansion option under our credit facility requires the consent of any lenders participating in such expansion. There is no assurance that we will succeed in securing such expansions of our credit facility. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

As of December 31, 2015, we had approximately $570.6 million of debt outstanding, of which approximately $188.6 million, or 33.1%, is subject to variable interest rates (excluding variable-rate debt subject to interest rate swaps). Although the credit markets have recently experienced historic lows in interest rates, if interest rates continue to rise, the interest rates on our variable-rate debt could be higher than current levels, which could increase our financing costs and decrease our cash flow and our ability to pay cash distributions to our shareholders. For example, if market rates of interest on this variable-rate debt increased by 100 basis points (excluding variable-rate debt with interest rate swaps), the increase in interest expense would decrease future earnings and cash flows by approximately $1.9 million annually.

As of December 31, 2015, we owned 277 self storage properties that contain approximately 15.8 million rentable square feet and are located in 16 states.  The following table sets forth summary information regarding our properties by state as of December 31, 2015.

The Company had six PROs as of December 31, 2015: SecurCare, Northwest, Optivest, Guardian, Move It, and Storage Solutions. We have entered into definitive agreements with entities related to Hide-Away to add Hide-Away as our seventh PRO. The transaction is expected to close early in the second quarter of 2016, following the satisfaction of customary closing conditions. 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.

We owned a geographically diversified portfolio of 277 self storage properties, located in 16 states, comprising approximately 15.8 million rentable square feet, configured in approximately 123,000 storage units, as of December 31, 2015. Of these properties, 214 were acquired by us from our PROs and 63 were acquired by us from third-party sellers.

During the year ended December 31, 2015, we acquired 58 self storage properties with an aggregate fair value of $313.0 million, comprising approximately 3.7 million rentable square feet, configured in approximately 28,500 storage units. Of these acquisitions, 25 were acquired by us from our PROs and 33 were acquired by us from third-party sellers. During the year ended December 31, 2014, we acquired 83 self storage properties with an aggregate fair value of $479.1 million, comprising approximately 5.5 million rentable square feet, configured in approximately 42,100 storage units. Of these acquisitions, 60 were acquired by us from our PROs and 23 were acquired by us from third-party sellers.

In January and February 2016, we acquired 16 self storage properties for approximately $85.0 million, comprising approximately 1.0 million rentable square feet, configured in approximately 7,300 storage units. Of these acquisitions, four were acquired by us from our PROs and 12 were acquired by us from third-party sellers.

When reviewing our results of operations it is important to consider the timing of acquisition activity. We acquired 58 self storage properties during the year ended December 31, 2015, and 83 self storage properties during the year ended December 31, 2014.  Further, during the year ended December 31, 2013, we acquired 49 self storage properties and our predecessor contributed 88 properties to our operating partnership, including one property that we disposed of in May 2014. Our predecessor's financial statements for the three months ended March 31, 2013 include all self storage properties controlled by our predecessor as of and for the period presented, including 22 self storage properties that have not been and will not be contributed to our operating partnership or any DownREIT partnership. As a result of these and other factors, we do not believe that our historical results of operations or our predecessor's discussed and analyzed below are comparable or necessarily indicative of our future results of operations or cash flows.

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Net income was $4.8 million for the year ended December 31, 2015, compared to net loss of $16.4 million for the year ended December 31, 2014, an increase of $21.2 million. The increase was primarily due to an increase in net operating income ("NOI") resulting from an additional 58 self storage properties we acquired from January 1, 2015 to December 31, 2015 and reductions in acquisition costs, interest expense and organizational and offering expenses, partially offset by increases in depreciation and amortization and general and administrative expenses. For a description of NOI, see "Non-GAAP Financial measures – NOI".

As of December 31, 2015, our same store portfolio consisted of 135 self storage properties. We owned 142 self storage properties that did not yet meet the same store portfolio criteria as of December 31, 2015. These properties include 141 self storage properties that we acquired during 2014 and 2015 and one property where we completed a storage space expansion during the year ended December 31, 2015 which caused the property's year-over-year operating results to no longer be comparable. See "---Results of Operations" above for the definition of our same store portfolio. The following table illustrates the changes in rental revenue, other property-related revenue, property operating expenses, and other expenses for the year ended December 31, 2015 compared to the year ended December 31, 2014 (dollars in thousands):

Our total revenue increased by $56.9 million, or 74.0%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014. This increase was primarily attributable to incremental rental revenue from 141 self storage properties we acquired between January 1, 2014 and December 31, 2015, an increase in average total portfolio occupancy from 85.5% to 87.9%, the acquisition of properties with higher rents, increased market rates and fees, and regular rental increases for in-place tenants.

Rental revenue increased by $55.0 million, or 73.5%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014. The increase in rental revenue was primarily due to a $50.8 million increase in non-same store revenue which was attributable to incremental rental revenue of $32.3 million from 83 self storage properties acquired between January 1, 2014 and December 31, 2014, and $18.6 million from 58 self storage properties acquired during the year ended December 31, 2015. These increases were partially offset by a $0.1 million decrease in rental revenue related to a self storage property sold during the year ended December 31, 2014. Same store portfolio rental revenues increased $4.2 million, or 7.9%, due to a 4.8% increase in same store rental revenue divided by average occupied square feet ("rental revenue per occupied square foot") from $9.50 to $9.96, driven primarily by a combination of increased contractual lease rates and fees, and an increase in average occupancy from 85.6% to 88.1%. 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.

Other property-related revenue represents ancillary income from our self storage properties, such as tenant insurance-related access fees and commissions and sales of storage supplies. Other property-related revenue increased by $1.9 million, or 89.9%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014. This increase primarily resulted from a $1.9 million increase in non-same store other property-related revenue which was attributable to incremental other property-related revenue of $1.2 million from 83 self storage properties acquired between January 1, 2014 and December 31, 2014, and $0.7 million from 58 self storage properties acquired during the year ended December 31, 2015.

Total operating expenses increased $42.4 million, or 70.9% for the year ended December 31, 2015 compared to the year ended December 31, 2014. As discussed below, this change was primarily due to an increase of $17.5 million in property operating expenses, $8.1 million in general and administrative expenses, and $16.9 million in depreciation and amortization.

Property operating expenses increased $17.5 million, or 62.7%, for the year ended December 31, 2015 compared to the year ended December 31, 2014. This increase resulted from a $17.2 million increase in non-same store property operating expenses attributable to incremental property operating expenses of $10.1 million from 83 self storage properties acquired between January 1, 2014 and December 31, 2014, and $7.2 million from 58 self storage properties acquired during the year ended December 31, 2015. In addition, same store portfolio property operating expenses increased $0.3 million, or 1.7%, due to increases in bad debt expense and property taxes, partially offset by decreases in marketing costs, maintenance expenses, and utilities.

General and administrative expenses increased $8.1 million, or 98.6%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. This increase was primarily attributable to increases in (i) salaries and benefits of $3.3 million, consisting of $1.7 million related to additional personnel and $1.6 million associated with equity-based compensation, (ii) supervisory and administrative fees charged by our PROs of $3.1 million, and (iii) professional fees and other expenses of $1.7 million that were primarily related to increased audit and tax costs associated with the growth of our portfolio and periodic SEC reporting and other compliance matters.

Supervisory and administrative fees charged by our PROs totaled $7.6 million and $4.5 million for the years ended December 31, 2015 and 2014, respectively, an increase of $3.1 million. The increase was primarily attributable to properties we acquired during the years ended December 31, 2015 and 2014, for which there were either no fees, or only a partial-year of fees, during the year ended December 31, 2014.

Depreciation and Amortization

Depreciation and amortization increased $16.9 million, or 70.9%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. This increase was attributable to incremental depreciation expense of $8.3 million from 83 self storage properties acquired between January 1, 2014 and December 31, 2014, and $4.3 million from 58 self storage properties acquired during the year ended December 31, 2015. In addition, amortization of customer in-place leases increased $3.7 million from $8.3 million for the year ended December 31, 2014 to $12.0 million for the year ended December 31, 2015. Customer in-place leases are amortized over the 12-month period following the respective acquisition dates of our self storage properties. As of December 31, 2015, the unamortized balance of customer in-place leases totaled $4.2 million.

Interest expense decreased $2.3 million, or 9.8%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. The decrease in interest expense was primarily due to increases in amortization of debt premiums of $2.2 million, a decrease in unrealized losses on interest rate swaps of $0.3 million and a decrease of $0.6 million of amortization of debt issuance costs, partially offset by increases in weighted average borrowings outstanding.

Loss on early extinguishment of debt decreased $0.1 million, or 10.4%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. The decrease was due to a $0.2 million decrease in prepayment penalties partially offset by $0.1 million increase in write-offs of unamortized issuance costs. Loss on early extinguishment of debt during the year ended December 31, 2015 relates to the payoff of several debt instruments in connection with the Company's initial public offering.

Acquisition costs decreased $4.8 million, or 50.1%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. This decrease was primarily due to a decrease in consulting fees and other costs incurred to identify, qualify, and close acquisition properties with our PROs and other parties.

Organizational and offering expenses decreased $1.3 million, or 95.6%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. This decrease was primarily attributable to audit fees incurred during the year ended December 31, 2014 associated with the operations of the properties acquired during 2014 for periods preceding the related contribution and formation transactions.

Gain on sale of self storage properties totaled $1.4 million for the year ended December 31, 2014. In May 2014, we sold to an unrelated party one of the self storage properties contributed by our predecessor. The gross selling price for the property was approximately $3.0 million and net proceeds from this sale were invested in the acquisition of another self storage property in a tax-deferred exchange.

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 loss attributable to noncontrolling interests was $7.6 million for the year ended December 31, 2015, compared to $16.4 million for the year ended December 31, 2014. Our entire net loss for the year ended December 31, 2014 was attributable to noncontrolling interests as we did not have an ownership interest or share in our operating partnership's profits and losses prior to the completion of our initial public offering.