Form: 8-K

Current report filing

August 6, 2018

nsa2018coverq2.jpg



image0a80.jpg

Table of Contents
Page
 
 
 
Earnings Release
 
 
Consolidated Statements of Operations
 
 
Consolidated Balance Sheets
 
 
Schedule 1 - Funds From Operations and Core Funds From Operations
 
 
Schedule 2 - Other Non-GAAP Financial Measurements
 
 
Schedule 3 - Portfolio Summary
 
 
Schedule 4 - Debt and Equity Capitalization
 
 
Schedule 5 - Summarized Information for Unconsolidated Real Estate Venture
 
 
Schedule 6 - Same Store Performance Summary
 
 
Schedule 7 - Reconciliation of Same Store Data and Net Operating Income to Net Income
 
 
Schedule 8 - Selected Financial Information
 
 
Glossary
 
 
 
 
 
 
 
 



image0a80.jpg

August 6, 2018

National Storage Affiliates Trust Reports Second Quarter 2018 Results; Earnings Per Share Increases $0.02; Core FFO per Share Increases 9.7%, Same Store NOI Increases 4.2%, Acquired 12 Self Storage Properties
GREENWOOD VILLAGE, Colo. - (BUSINESS WIRE) - National Storage Affiliates Trust (“NSA” or the "Company") (NYSE: NSA) today reported the Company’s second quarter 2018 results.
Second Quarter 2018 Highlights
Earnings per share was $0.07 for the second quarter of 2018, an increase of $0.02 compared to $0.05 for the second quarter of 2017.
Core funds from operations ("Core FFO") was $0.34 per share for the second quarter of 2018, an increase of 9.7% compared to $0.31 per share for the second quarter of 2017.
Same store net operating income ("NOI") was $42.9 million for the second quarter of 2018, an increase of 4.2% compared to $41.1 million for the second quarter of 2017, driven by a 3.6% increase in same store total revenues and a 2.4% increase in same store property operating expenses.
Acquired 12 wholly-owned self storage properties for $62.9 million during the second quarter of 2018.
Highlights Subsequent to the End of the Second Quarter
NSA formed a new joint venture (the "2018 Joint Venture") slated to acquire a $1.325 billion portfolio of 112 self storage properties from Simply Self Storage, a portfolio company of a private real estate fund managed by Brookfield Asset Management.
The 112 property portfolio contains approximately 8.7 million rentable square feet, configured in over 68,000 storage units and is located across 17 states and Puerto Rico.
Completed an offering of 5,900,000 common shares resulting in net proceeds of approximately $176 million.
Arlen Nordhagen, Chairman and Chief Executive Officer, commented, "2018 is shaping up to be another exceptional year for NSA. We were very excited to announce the recent formation of our second joint venture to acquire a 112 property portfolio for over $1.3 billion. This portfolio will expand NSA's geographic footprint into five new states and Puerto Rico and will provide another source of fee income by leveraging our property management platform to operate the newly acquired properties under our existing iStorage brand. Upon closing, this acquisition will represent one of the largest M&A transactions in the history of the self storage industry. To match the funding required for this acquisition, we also completed a successful common share offering in July, raising the proceeds for our investment in the new joint venture and providing the flexibility to continue to execute on our growth strategy. "
Tamara Fischer, President and Chief Financial Officer, added, "Our second quarter capital investment of nearly $63 million added another 12 properties and half a million square feet of rentable space to our wholly-owned portfolio.  The continued growth in the size of our portfolio combined with solid second quarter NOI results delivered year-over-year Core FFO per share growth of 9.7%. 
As expected, the second quarter delivered slower same store results because of a very difficult comparative quarter in 2017, but we were pleased with the combination of good rate increases and a moderate uptick in occupancy.  With these results and continued same store expense moderation, we expect to finish the year with same store results consistent with our 2018 guidance."


1

image0a80.jpg


Financial Results
($ in thousands, except per share and unit data)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
Growth
 
2018
 
2017
 
Growth
Net income
$
13,041

 
$
15,576

 
(16.3
)%
 
$
25,014

 
$
22,757

 
9.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Funds From Operations ("FFO")(1)
$
27,416

 
$
22,297

 
23.0
 %
 
$
53,094

 
$
43,452

 
22.2
 %
Add back acquisition costs and NSA's share of unconsolidated real estate venture acquisition costs
150

 
169

 
(11.2
)%
 
330

 
332

 
(0.6
)%
Core FFO(1)
$
27,566

 
$
22,466

 
22.7
 %
 
$
53,424

 
$
43,784

 
22.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share - basic
$
0.07

 
$
0.05

 
40.0
 %
 
$
0.22

 
$
0.07

 
214.3
 %
Earnings (loss) per share - diluted
$
0.07

 
$
0.05

 
40.0
 %
 
$
0.19

 
$
0.07

 
171.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
FFO per share and unit(1)
$
0.33

 
$
0.31

 
6.5
 %
 
$
0.65

 
$
0.60

 
8.3
 %
Core FFO per share and unit(1)
$
0.34

 
$
0.31

 
9.7
 %
 
$
0.65

 
$
0.60

 
8.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
(1) Non-GAAP financial measures, including FFO, Core FFO and NOI, are defined in the Glossary in the supplemental financial information and, where appropriate, reconciliations of these measures and other non-GAAP financial measures to their most directly comparable GAAP measures are included in the Schedules to this press release and in the supplemental financial information. 
Net income decreased $2.5 million for the second quarter of 2018 and increased $2.3 million year-to-date as compared to the same periods in 2017. The decrease in net income for the second quarter of 2018 resulted from a reduction in gains on the sale of properties. Excluding the effect of gains (losses) on the sales of properties, second quarter 2018 and year-to date net income increased primarily as a result of incremental NOI generated from 87 self storage properties acquired between July 1, 2017 and June 30, 2018 and same store NOI growth, partially offset by increases in depreciation and amortization and interest expense.
Second quarter 2018 basic and diluted earnings per share increased $0.02 per share and year-to-date basic and diluted earnings per share increased $0.15 and $0.12, respectively. The increases in basic and diluted earnings per share resulted from decreases in net income attributable to noncontrolling interests for the second quarter of 2018 and year-to-date as compared to the same periods in 2017, due to the allocation of net income to noncontrolling interests pursuant to GAAP. Additional information on NSA's allocation of net income (loss) can be found in the Glossary to the supplemental financial information under "Hypothetical Liquidation at Book Value Method."
Second quarter 2018 FFO per share increased 6.5% and Core FFO per share increased 9.7%, and both year-to date FFO and Core FFO per share increased 8.3%. The increases in FFO and Core FFO were primarily the result of incremental NOI from 87 self storage properties acquired between July 1, 2017 and June 30, 2018 and same store NOI growth, partially offset by higher interest expense and the payment of dividends on preferred shares issued during the fourth quarter of 2017 to fund the Company's growth.

2

image0a80.jpg

Same Store Operating Results (376 Properties)
($ in thousands, except per square foot data)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
Growth
 
2018
 
2017
 
Growth
Total rental and other property-related revenue
$
62,354

 
$
60,175

 
3.6
%
 
$
123,220

 
$
118,578

 
3.9
%
Property operating expenses
19,486

 
19,026

 
2.4
%
 
39,476

 
38,257

 
3.2
%
Net Operating Income (NOI)
$
42,868

 
$
41,149

 
4.2
%
 
$
83,744

 
$
80,321

 
4.3
%
NOI Margin
68.7
%
 
68.4
%
 
0.3
%
 
68.0
%
 
67.7
%
 
0.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Average Occupancy
89.8
%
 
89.6
%
 
0.2
%
 
89.0
%
 
89.0
%
 

Average Annualized Rental Revenue Per Occupied Square Foot
$
11.79

 
$
11.43

 
3.1
%
 
$
11.77

 
$
11.33

 
3.9
%
Year-over-year same store total revenues increased 3.6% for the second quarter of 2018 and 3.9% year-to-date. The increases were driven primarily by a 3.1% increase in average annualized rental revenue per occupied square foot for the second quarter of 2018 and a 3.9% increase in average annualized rental revenue per occupied square foot year-to-date. Additionally, second quarter 2018 average occupancy increased 20 basis points while year-to-date average occupancy remained flat at 89.0%.
Year-over-year same store property operating expenses increased 2.4% for the second quarter of 2018 and 3.2% year-to-date. These increases primarily resulted from increases in property taxes, personnel costs and advertising.
Investment Activity
During the second quarter of 2018, NSA invested $62.9 million in the acquisition of 12 consolidated self storage properties and an expansion project at an existing property located in six states, consisting of over 0.5 million rentable square feet configured in approximately 4,500 storage units. Consideration for these acquisitions included approximately $62.5 million of net cash and the assumption of $0.4 million of other working capital liabilities.
Subsequent to June 30, 2018, NSA formed the 2018 Joint Venture to acquire a portfolio of 112 self storage properties located across 17 states and Puerto Rico, consisting of approximately 8.7 million rentable square feet configured in over 68,000 storage units for an aggregate purchase price of approximately $1.325 billion (the "2018 JV Acquisition"). The closing of the 2018 JV Acquisition is expected to occur during the third quarter of 2018 pending the satisfaction of a number of customary closing conditions. Following the closing of the 2018 JV Acquisition, NSA expects to rebrand the majority of the self storage properties acquired by the 2018 Joint Venture under its iStorage brand and NSA's iStorage management platform will operate the properties. NSA also expects the 2018 Joint Venture will spin-out to the Company six self storage properties located in Puerto Rico and a single self storage property located in Ohio acquired as part of the 2018 JV Acquisition immediately following the closing of the transaction.
An affiliate of Heitman America Real Estate REIT LLC, NSA's partner in the 2018 Joint Venture (the "JV Investor"), is currently targeting to fund approximately $482.3 million in exchange for a 75% ownership interest in the 2018 Joint Venture. NSA expects to make approximately $160.8 million in capital contributions to the 2018 Joint Venture, inclusive of amounts already contributed, in exchange for the remaining 25% ownership interest. NSA has also committed an additional $64.0 million of capital contributions to the 2018 Joint Venture to acquire the six self storage properties located in Puerto Rico and a single self storage property located in Ohio.
The 2018 Joint Venture has signed a non-binding term sheet with two institutional lenders to provide approximately $643.0 million in 10-year interest-only secured debt financing carrying an interest rate of 4.34% per annum, to be used by the 2018 Joint Venture to fund a portion of the purchase price for the 2018 JV Acquisition. Although NSA expects this debt financing to be obtained and agreed to as outlined in the term sheet, the term sheet does not represent a binding commitment, and there can be no assurance that the debt financing needed by the 2018 Joint Venture to complete the 2018 JV Acquisition will actually be arranged on the above terms or at all.

3

image0a80.jpg

Additional information about the 2018 Joint Venture and the 2018 JV Acquisition will be available on NSA's website at www.nationalstorageaffiliates.com under Investor Relations > Corporate Presentations.
Capitalization Activity
On May 31, 2018, NSA entered into an agreement with a syndicated group of lenders to reduce the applicable margins on its $155.0 million tranche B term loan from a range of LIBOR plus 1.60% to 2.15% to LIBOR plus 1.30% to 1.70%.
On June 5, 2018, NSA entered into an agreement with lenders to increase the total borrowing capacity under its term loan facility by $75.0 million for a total term loan facility of $175.0 million. NSA also increased the term loan facility's remaining expansion option by $200.0 million, for a total expansion option of $225.0 million. If the Company exercises its remaining expansion option in full, the total expansion option would provide for a total borrowing capacity under the term loan facility of $400.0 million. Additionally, the agreement also reduced the applicable margins on the term loan facility from a range of LIBOR plus 1.75% to 2.35% to LIBOR plus 1.30% to 1.70%.
In addition, NSA completed an offering of 5,900,000 common shares subsequent to June 30, 2018. The shares were issued at a price of $29.86 per share, resulting in net proceeds of approximately $176 million. The Company used a portion of the proceeds from this offering to repay all of the borrowings outstanding under its revolving line of credit and expects to use the additional proceeds, together with amounts it expects to redraw from its revolving line of credit, to make capital contributions to the 2018 Joint Venture.
Common Share Dividends
On May 23, 2018, NSA's Board of Trustees declared a quarterly cash dividend of $0.29 per common share, which was paid on June 29, 2018 to shareholders of record as of June 15, 2018. This was the sixth common share dividend increase since the Company’s IPO in the second quarter 2015, and represents an annualized dividend rate of $1.16, an 11.5% increase over the second quarter 2017 annualized dividend rate of $1.04 per share.
2018 Guidance
Although NSA expects certain assumptions included in its previously provided guidance to be affected by the formation of the 2018 Joint Venture, the dilution due to equity issuance in July and the expected closing of the 2018 JV Acquisition, NSA reaffirms its previously provided guidance estimate for Core FFO per share for the year ended December 31, 2018.
Supplemental Financial Information
The full text of this earnings release and supplemental financial information, including certain financial information referenced in this release, are available on NSA's website at http://ir.nationalstorageaffiliates.com/quarterly-reporting and as exhibit 99.1 to the Company's Form 8-K furnished to the SEC on August 6, 2018.
Non-GAAP Financial Measures & Glossary
This press release contains certain non-GAAP financial measures. These non-GAAP measures are presented because NSA's management believes these measures help investors understand NSA's business, performance and ability to earn and distribute cash to its shareholders by providing perspectives not immediately apparent from net income (loss). These measures are also frequently used by securities analysts, investors and other interested parties. The presentation of FFO, Core FFO and NOI in this press release are not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. In addition, NSA's method of calculating these measures may be different from methods used by other companies, and, accordingly, may not be comparable to similar measures as calculated by other companies that do not use the same methodology as NSA. These measures, and other words and phrases used herein, are defined in the Glossary in the supplemental financial information and, where appropriate, reconciliations of these measures and other non-GAAP financial measures to their most directly comparable GAAP measures are included in the Schedules to this press release and in the supplemental financial information.

4

image0a80.jpg

Quarterly Teleconference and Webcast
The Company will host a conference call at 1:00pm Eastern Time on Tuesday, August 7, 2018 to discuss its financial results. At the conclusion of the call, management will accept questions from certified financial analysts. All other participants are encouraged to listen to a webcast of the call by accessing the link found on the Company's website at www.nationalstorageaffiliates.com.
Conference Call and Webcast:
Date/Time:Tuesday, August 7, 2018, 1:00pm ET
Webcast available at: www.nationalstorageaffiliates.com
Domestic (Toll Free US & Canada): 877.407.9711
International: 412.902.1014
Replay:
Domestic (Toll Free US & Canada): 877.660.6853
International: 201.612.7415
Conference ID: 13646795
A replay of the call will be available for one week through Tuesday, August 14, 2018. A replay of the webcast will be available for 30 days on NSA's website at www.nationalstorageaffiliates.com.
Upcoming Industry Conferences
NSA management is scheduled to participate in the BMO 13th Annual Real Estate Conference on September 20 - 21, 2018 in Chicago, Illinois.

About National Storage Affiliates Trust
National Storage Affiliates Trust is a Maryland real estate investment trust focused on the ownership, operation and acquisition of self storage properties located within the top 100 metropolitan statistical areas throughout the United States. The Company currently holds ownership interests in and operates 552 self storage properties located in 29 states with approximately 34 million rentable square feet. NSA is the sixth largest owner and operator of self storage properties among public and private companies in the U.S. For more information, please visit the Company’s website at www.nationalstorageaffiliates.com. NSA is included in the MSCI US REIT Index (RMS/RMZ), the Russell 2000 Index of Companies and the S&P SmallCap 600 Index.
NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. Changes in any circumstances may cause the Company's actual results to differ significantly from those expressed in any forward-looking statement. When used in this release, the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: market trends in the Company's industry, interest rates, the debt and lending markets or the general economy; the Company's business and investment strategy; and the acquisition of properties, including those under contract to be acquired by the 2018 Joint Venture and our ability to execute on our acquisition pipeline, the timing of the closing of the portfolio under contract by the 2018 Joint Venture and the timing of other acquisitions under contract; the timing and ability of the 2018 Joint Venture to secure the debt financing required by the 2018 Joint Venture to complete the 2018 JV Acquisition on the terms

5

image0a80.jpg

outlined herein or at all; and the Company's guidance estimates for the year ended December 31, 2018. For a further list and description of such risks and uncertainties, see the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, and the other documents filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
CONTACT:
National Storage Affiliates Trust
Investor/Media Relations
Marti Dowling
Director - Investor Relations
720.630.2624
mdowling@nsareit.net

6

image0a80.jpg

National Storage Affiliates Trust
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
REVENUE
 
 
 
 
 
 
 
Rental revenue
$
75,019

 
$
60,154

 
$
147,030

 
$
117,998

Other property-related revenue
2,549

 
2,045

 
4,870

 
3,926

Management fees and other revenue
2,155

 
2,142

 
4,316

 
3,980

Total revenue
79,723

 
64,341

 
156,216

 
125,904

OPERATING EXPENSES
 
 
 
 
 
 
 
Property operating expenses
25,184

 
19,803

 
50,410

 
39,552

General and administrative expenses
8,460

 
7,405

 
16,766

 
14,586

Depreciation and amortization
22,389

 
17,800

 
43,757

 
36,483

Total operating expenses
56,033

 
45,008

 
110,933

 
90,621

Income from operations
23,690

 
19,333

 
45,283

 
35,283

OTHER (EXPENSE) INCOME

 

 

 

Interest expense
(10,472
)
 
(8,160
)
 
(20,107
)
 
(15,631
)
Equity in earnings (losses) of unconsolidated real estate venture
100

 
(765
)
 
48

 
(1,550
)
Acquisition costs
(150
)
 
(167
)
 
(330
)
 
(311
)
Non-operating expense

 
(14
)
 
(84
)
 
(66
)
(Loss) gain on sale of self storage properties
(83
)
 
5,637

 
391

 
5,637

Other expense
(10,605
)
 
(3,469
)
 
(20,082
)
 
(11,921
)
Income before income taxes
13,085

 
15,864

 
25,201

 
23,362

Income tax expense
(44
)
 
(288
)
 
(187
)
 
(605
)
Net income
13,041

 
15,576

 
25,014

 
22,757

Net income attributable to noncontrolling interests
(7,150
)
 
(13,209
)
 
(8,663
)
 
(19,835
)
Net income attributable to National Storage Affiliates Trust
5,891

 
2,367

 
16,351

 
2,922

Distributions to preferred shareholders
(2,587
)
 

 
(5,175
)
 

Net income attributable to common shareholders
$
3,304

 
$
2,367

 
$
11,176

 
$
2,922

 
 
 
 
 
 
 
 
Earnings (loss) per share - basic
$
0.07

 
$
0.05

 
$
0.22

 
$
0.07

Earnings (loss) per share - diluted
$
0.07

 
$
0.05

 
$
0.19

 
$
0.07

 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
50,486

 
44,223

 
50,393

 
43,814

Weighted average shares outstanding - diluted
50,486

 
44,223

 
100,492

 
43,814



7

image0a80.jpg

National Storage Affiliates Trust
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)

 
June 30,
 
December 31,
 
2018
 
2017
ASSETS
 
 
 
Real estate
 
 
 
Self storage properties
$
2,475,217

 
$
2,275,233

Less accumulated depreciation
(206,827
)
 
(170,358
)
Self storage properties, net
2,268,390

 
2,104,875

Cash and cash equivalents
16,419

 
13,366

Restricted cash
7,109

 
3,041

Debt issuance costs, net
1,746

 
2,185

Investment in unconsolidated real estate venture
88,725

 
89,093

Other assets, net
78,166

 
52,615

Assets held for sale

 
1,555

Total assets
$
2,460,555

 
$
2,266,730

LIABILITIES AND EQUITY
 
 
 
Liabilities
 
 
 
Debt financing
$
1,149,789

 
$
958,097

Accounts payable and accrued liabilities
26,983

 
24,459

Deferred revenue
13,546

 
12,687

Total liabilities
1,190,318

 
995,243

Equity
 
 
 
Preferred shares of beneficial interest, par value $0.01 per share. 50,000,000 authorized, 6,900,000 issued and outstanding at June 30, 2018 and December 31, 2017, at liquidation preference
172,500

 
172,500

Common shares of beneficial interest, par value $0.01 per share. 250,000,000 shares authorized, 50,539,575 and 50,284,934 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
505

 
503

Additional paid-in capital
701,256

 
711,467

Distributions in excess of earnings
(73,307
)
 
(55,729
)
Accumulated other comprehensive income
20,211

 
12,282

Total shareholders' equity
821,165

 
841,023

Noncontrolling interests
449,072

 
430,464

Total equity
1,270,237

 
1,271,487

Total liabilities and equity
$
2,460,555

 
$
2,266,730





8

image0a80.jpg

Supplemental Schedule 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds From Operations and Core Funds From Operations
(in thousands, except per share and unit amounts) (unaudited)
 
 
 
 
 
 
 
 
Reconciliation of Net Income to FFO and Core FFO
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
13,041

 
$
15,576

 
$
25,014

 
$
22,757

Add (subtract):
 
 
 
 
 
 
 
Real estate depreciation and amortization
22,093

 
17,343

 
43,168

 
35,586

Company's share of unconsolidated real estate venture real estate depreciation and amortization
1,378

 
1,918

 
2,755

 
3,790

Loss (gain) on sale of self storage properties
83

 
(5,637
)
 
(391
)
 
(5,637
)
Distributions to preferred shareholders and unitholders
(2,706
)
 

 
(5,395
)
 

FFO attributable to subordinated performance unitholders (1)
(6,473
)
 
(6,903
)
 
(12,057
)
 
(13,044
)
FFO attributable to common shareholders, OP unitholders, and LTIP unitholders
27,416

 
22,297

 
53,094

 
43,452

Add:
 
 
 
 
 
 
 
Acquisition costs
150

 
167

 
330

 
311

Company's share of unconsolidated real estate venture acquisition costs

 
2

 

 
21

Core FFO attributable to common shareholders, OP unitholders, and LTIP unitholders
$
27,566

 
$
22,466

 
$
53,424

 
$
43,784

 
 
 
 
 
 
 
 
Weighted average shares and units outstanding - FFO and Core FFO:(2)
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
50,486

 
44,223

 
50,393

 
43,814

Weighted average restricted common shares outstanding
30

 
27

 
30

 
22

Weighted average OP units outstanding
28,985

 
25,628

 
29,059

 
25,793

Weighted average DownREIT OP unit equivalents outstanding
1,835

 
1,835

 
1,835

 
1,835

Weighted average LTIP units outstanding
687

 
1,224

 
676

 
1,345

Total weighted average shares and units outstanding - FFO and Core FFO
82,023

 
72,937

 
81,993

 
72,809

 
 
 
 
 
 
 
 
FFO per share and unit
$
0.33

 
$
0.31

 
$
0.65

 
$
0.60

Core FFO per share and unit
$
0.34

 
$
0.31

 
$
0.65

 
$
0.60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, at NSA's option, exchangeable for common shares on a one-for-one basis and DownREIT OP units are also redeemable for cash or, at NSA's option, exchangeable for OP units in the Company's 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(3) 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.

9

image0a80.jpg

Supplemental Schedule 1 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds From Operations and Core Funds From Operations
(in thousands, except per share and unit amounts) (unaudited)
 
 
 
 
 
 
 
 
Reconciliation of Earnings (Loss) Per Share - Diluted to FFO and Core FFO Per Share and Unit
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Earnings (loss) per share - diluted
$
0.07

 
$
0.05

 
$
0.19

 
$
0.07

Impact of the difference in weighted average number of shares(3)
(0.03
)
 
(0.02
)
 
0.05

 
(0.02
)
Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(4)
0.08

 
0.18

 

 
0.27

Add real estate depreciation and amortization
0.27

 
0.24

 
0.53

 
0.49

Add Company's share of unconsolidated real estate venture real estate depreciation and amortization
0.02

 
0.03

 
0.03

 
0.05

Subtract gain on sale of self storage properties

 
(0.08
)
 

 
(0.08
)
FFO attributable to subordinated performance unitholders
(0.08
)
 
(0.09
)
 
(0.15
)
 
(0.18
)
FFO per share and unit
0.33

 
0.31

 
0.65

 
0.60

Add acquisition costs and Company's share of unconsolidated real estate venture acquisition costs
0.01

 

 

 

Core FFO per share and unit
$
0.34

 
$
0.31

 
$
0.65

 
$
0.60

 
 
 
 
 
 
 
 
(3) 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 and DownREIT subordinated performance units into OP units, see Note 10 to the Company's most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission. 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.
(4) 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(3).

10

image0a80.jpg

Supplemental Schedule 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Non-GAAP Financial Measurements
 
 
 
 
 
 
 
(dollars in thousands) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
13,041

 
$
15,576

 
$
25,014

 
$
22,757

(Subtract) add:
 
 
 
 
 
 
 
Management fees and other revenue
(2,155
)
 
(2,142
)
 
(4,316
)
 
(3,980
)
General and administrative expenses
8,460

 
7,405

 
16,766

 
14,586

Depreciation and amortization
22,389

 
17,800

 
43,757

 
36,483

Interest expense
10,472

 
8,160

 
20,107

 
15,631

Equity in (earnings) losses of unconsolidated real estate venture
(100
)
 
765

 
(48
)
 
1,550

Acquisition costs
150

 
167

 
330

 
311

Income tax expense
44

 
288

 
187

 
605

Loss (gain) on sale of self storage properties
83

 
(5,637
)
 
(391
)
 
(5,637
)
Non-operating expense

 
14

 
84

 
66

Net Operating Income
$
52,384

 
$
42,396

 
$
101,490

 
$
82,372

 
 
 
 
 
 
 
 
EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
13,041

 
$
15,576

 
$
25,014

 
$
22,757

Add:
 
 
 
 
 
 
 
Depreciation and amortization
22,389

 
17,800

 
43,757

 
36,483

Company's share of unconsolidated real estate venture depreciation and amortization
1,378

 
1,918

 
2,755

 
3,790

Interest expense
10,472

 
8,160

 
20,107

 
15,631

Income tax expense
44

 
288

 
187

 
605

EBITDA
47,324

 
43,742

 
91,820

 
79,266

Add (subtract):
 
 
 
 
 
 
 
Acquisition costs
150

 
167

 
330

 
311

Company's share of unconsolidated real estate venture acquisition costs

 
2

 

 
21

Loss (gain) on sale of self storage properties
83

 
(5,637
)
 
(391
)
 
(5,637
)
Equity-based compensation expense(1)
919

 
940

 
1,786

 
1,923

Adjusted EBITDA
$
48,476

 
$
39,214

 
$
93,545

 
$
75,884

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Equity-based compensation expense is a non-cash item that is included in general and administrative expenses in NSA's consolidated statements of operations.

11

image0a80.jpg

Supplemental Schedule 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Summary
 
 
 
 
(dollars in thousands) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Consolidated and Unconsolidated Property Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stores at Period End June 30,
 
Units at Period End
June 30,
 
Rentable Square Feet at Period End June 30,
 
Occupancy at Period End June 30,
State
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
Growth
California
 
82

 
79

 
48,769

 
47,490

 
6,144,359

 
5,974,469

 
92.9
%
 
91.4
%
 
1.5
 %
Texas
 
60

 
53

 
24,100

 
20,645

 
3,418,061

 
2,958,062

 
91.7
%
 
89.6
%
 
2.1
 %
Oregon
 
58

 
56

 
23,640

 
22,724

 
2,991,220

 
2,865,666

 
88.5
%
 
91.9
%
 
(3.4
)%
Georgia
 
34

 
20

 
13,920

 
6,551

 
1,878,284

 
871,793

 
88.4
%
 
95.0
%
 
(6.6
)%
Florida
 
31

 
28

 
22,311

 
20,512

 
2,219,755

 
1,942,014

 
88.4
%
 
86.0
%
 
2.4
 %
Oklahoma
 
30

 
30

 
13,875

 
13,968

 
1,903,147

 
1,903,399

 
86.7
%
 
87.2
%
 
(0.5
)%
Arizona
 
29

 
16

 
16,053

 
9,112

 
1,821,568

 
1,064,511

 
90.4
%
 
91.5
%
 
(1.1
)%
North Carolina
 
29

 
28

 
13,099

 
12,583

 
1,599,784

 
1,536,384

 
92.8
%
 
93.5
%
 
(0.7
)%
Indiana
 
16

 
14

 
8,789

 
7,845

 
1,134,980

 
1,007,445

 
91.7
%
 
85.3
%
 
6.4
 %
Kansas
 
15

 

 
5,350

 

 
704,109

 

 
84.5
%
 

 

Washington
 
15

 
15

 
4,950

 
5,064

 
624,046

 
644,680

 
89.8
%
 
93.0
%
 
(3.2
)%
Louisiana
 
14

 
10

 
6,326

 
4,519

 
859,187

 
629,903

 
85.6
%
 
85.9
%
 
(0.3
)%
Colorado
 
11

 
10

 
5,056

 
4,635

 
615,413

 
564,334

 
93.7
%
 
96.9
%
 
(3.2
)%
Nevada
 
12

 
6

 
6,409

 
3,130

 
794,931

 
419,427

 
94.3
%
 
93.3
%
 
1.0
 %
New Hampshire
 
10

 
10

 
4,190

 
4,038

 
509,470

 
499,025

 
91.6
%
 
93.0
%
 
(1.4
)%
Other(1)
 
33

 
19

 
13,618

 
7,351

 
1,790,887

 
980,075

 
89.8
%
 
88.5
%
 
1.3
 %
Total Consolidated/Weighted Average
 
479

 
394

 
230,455

 
190,167

 
29,009,201

 
23,861,187

 
90.4
%
 
90.5
%
 
(0.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Unconsolidated/Weighted Average(2)
 
72

 
70

 
39,625

 
38,682

 
5,007,109

 
4,864,500

 
88.2
%
 
88.7
%
 
(0.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Consolidated and Unconsolidated/Weighted Average
 
551

 
464

 
270,080

 
228,849

 
34,016,310

 
28,725,687

 
90.1
%
 
90.2
%
 
(0.1
)%





(1) Other states in NSA's consolidated portfolio as of June 30, 2018 include Alabama, Illinois, Kentucky, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, Ohio, South Carolina and Virginia.
(2) Refer to Supplemental Schedule 5 for additional information about NSA's unconsolidated real estate venture.

12

image0a80.jpg

Supplemental Schedule 3 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Summary
 
 
(dollars in thousands) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 Acquisition & Investment Activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Self storage properties
acquired during the
quarter ended:
 
 
 
 
 
 
 
Summary of Investment
 
Stores
 
Units
 
Rentable Square Feet
 
Cash and Acquisition Costs
 
Value of OP Equity
 
Mortgages Assumed
 
Other Liabilities
 
Total
 
 
 
 
 
 
March 31, 2018
 
25
 
12,002
 
1,352,592

 
$
105,135

 
$
22,403

 
$
7,581

 
$
670

 
$
135,789

June 30, 2018
 
12
 
4,485
 
544,466

 
62,470

 

 

 
467

 
62,937

Total 2018(3)
 
37
 
16,487
 
1,897,058

 
$
167,605

 
$
22,403

 
$
7,581

 
$
1,137

 
$
198,726

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated real estate venture (venture at 100%)(4)
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
March 31, 2018
 
1
 
481
 
64,745

 
9,394

 

 

 
66

 
9,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2018 Investments(4)
 
38
 
16,968
 
1,961,803

 
$
176,999

 
$
22,403

 
$
7,581

 
$
1,203

 
$
208,186


 
2018 Disposition Activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dispositions Closed During the Quarter Ended:
 
Stores
 
Units
 
Rentable Square Feet
 
Gross Proceeds
 
 
March 31, 2018
 
1
 
327
 
44,689

 
$
2,200

 
June 30, 2018
 
1
 
1,152
 
56,000

 
3,300

 
Total 2018 Dispositions(5)
 
2
 
1,479
 
100,689

 
$
5,500








(3) NSA acquired self storage properties located in Arizona, California, Florida, Georgia, Kansas, Maryland, Missouri, Nevada, Texas and Washington during 2018.
(4) Values represent entire unconsolidated real estate venture at 100%, not NSA's proportionate share. NSA's ownership in the unconsolidated real estate venture is 25%. Refer to Supplemental Schedule 5 for additional information about NSA's unconsolidated real estate venture.
(5) NSA disposed of self storage properties located in Florida and Washington during 2018.

13

image0a80.jpg

Supplemental Schedule 4
 
 
 
 
 
 
 
 
 
 
 
Debt and Equity Capitalization
 
 
 
 
 
As of June 30, 2018
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
Debt Balances and Characteristics (dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Effective Interest Rate(1)
 
Weighted Average Maturity (In Years)
 
Balance
Credit Facility:
 
 
 
 
 
Revolving line of credit
3.49%
 
1.85
 
$
80,125

Term loan - Tranche A
2.91%
 
2.85
 
235,000

Term loan - Tranche B
2.94%
 
3.85
 
155,000

Term loan - Tranche C
3.71%
 
5.59
 
105,000

Term loan - Tranche D
3.79%
 
4.59
 
125,000

Term loan facility
2.95%
 
5.00
 
175,000

Fixed rate mortgages payable
4.17%
 
7.18
 
273,335

Total Principal/Weighted Average
3.44%
 
4.73
 
1,148,460

Unamortized debt issuance costs and debt premium, net
 
 
 
 
1,329

Total Debt
 
 
 
 
$
1,149,789

Debt Maturities (dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
chart-52dbc8974032558bb7aa01.jpg
Debt Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Covenant
 
Amount
Net Debt to Annualized Current Quarter Adjusted EBITDA
 
n/a
 
5.8x
Trailing Twelve Month Fixed Charge Coverage Ratio
 
> 1.5x
 
3.3x
Total Leverage Ratio
 
 
< 60.0%
 
40.2%
 
 
 
 
 
 
(1) Effective interest rate incorporates the stated rate plus the impact of interest rate cash flow hedges and discount and premium amortization, if applicable. For the revolving line of credit, the effective interest rate excludes fees which range from 0.15% to 0.25% for unused borrowings.


14

image0a80.jpg

Supplemental Schedule 4 (continued)
 
 
 
 
 
 
 
Debt and Equity Capitalization
 
 
 
As of June 30, 2018
 
 
 
(unaudited)
 
 
 
 
 
 
 
Preferred Shares and Units
 
 
 
 
 
 
 
Outstanding
 
 
6.000% Series A perpetual preferred shares of beneficial interest
6,900,000

 
 
6.000% Series A-1 cumulative redeemable preferred units
316,103

 
 
 
 
 
 
Common Shares and Units
 
 
 
 
 
 
 
Outstanding
 
If Converted
Common shares of beneficial interest
50,509,931

 
50,509,931

Restricted common shares
29,644

 
29,644

Total shares outstanding
50,539,575

 
50,539,575

Operating partnership units
28,961,458

 
28,961,458

DownREIT operating partnership unit equivalents
1,834,786

 
1,834,786

Total operating partnership units
30,796,244

 
30,796,244

Long-term incentive plan units(2)
716,597

 
716,597

Total shares and Class A equivalents outstanding
82,052,416

 
82,052,416

Subordinated performance units(3)
10,663,892

 
14,929,449

DownREIT subordinated performance unit equivalents(3)
4,386,999

 
6,141,799

Total subordinated partnership units
15,050,891

 
21,071,248

Total common shares and units outstanding
97,103,307

 
103,123,664

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Balances exclude 224,000 long-term incentive plan ("LTIP") units which only vest and participate in dividend distributions upon the future contribution of properties from the PROs.
(3) If converted balance assumes that each subordinated performance unit (including each DownREIT subordinated performance unit) is convertible into OP units, notwithstanding the two-year lock-out period on conversions for certain series of subordinated performance units, and that each subordinated performance unit would on average convert on a hypothetical basis into an estimated 1.40 OP units based on historical financial information for the trailing twelve months ended June 30, 2018. The hypothetical conversions are calculated by dividing the average cash available for distribution, or CAD, per subordinated performance unit by 110% of the CAD per OP unit over the same period. The Company anticipates that as CAD grows over time, the conversion ratio will also grow, including to levels that may exceed these amounts.

15

image0a80.jpg

Supplemental Schedule 5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summarized Information for Unconsolidated Real Estate Venture
 
 
(dollars in thousands) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 Joint Venture Properties as of June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
State
 
Stores at Period End
 
Units at Period End
 
Rentable Square Feet at Period End
 
Occupancy at Period End
 
2Q 2018 Average Occupancy
Florida
 
21

 
11,483

 
1,331,340

 
87.4
%
 
86.9
%
Alabama
 
11

 
4,065

 
610,977

 
91.6
%
 
89.7
%
California
 
11

 
6,945

 
944,383

 
82.7
%
 
84.1
%
New Jersey
 
11

 
8,007

 
989,975

 
90.8
%
 
89.3
%
Other(1)
 
18

 
9,125

 
1,130,434

 
89.5
%
 
88.7
%
Total/Weighted Average
 
72

 
39,625

 
5,007,109

 
88.2
%
 
87.6
%


Balance Sheet Information for the 2016 Joint Venture
 
 
 
 
 
 Total Venture at 100%(2)
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Self storage properties, net
 
$
655,989

 
$
655,973

Other assets
 
8,217

 
8,397

Total assets
 
$
664,206

 
$
664,370

LIABILITIES AND EQUITY
 
 
 
 
Debt financing
 
$
317,522

 
$
317,359

Other liabilities
 
5,916

 
4,855

Equity
 
340,768

 
342,156

Total liabilities and equity
 
$
664,206

 
$
664,370

 
 
 
 
 



















(1) Other states in the unconsolidated real estate venture include Arizona, Delaware, Georgia, New Mexico, Nevada, Pennsylvania, Ohio, Texas and Virginia.
(2) Values represent entire unconsolidated real estate venture at 100%, not NSA's proportionate share. NSA's ownership in the unconsolidated real estate venture is 25%.

16

image0a80.jpg

Supplemental Schedule 5 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summarized Information for Unconsolidated Real Estate Venture
 
 
(dollars in thousands) (unaudited)
 
 
 
 
 
 
 
 

Operating Information for the 2016 Joint Venture for the Three Months Ended June 30, 2018 and 2017
 
 
 
 
 
 
 
 
 
 Total Venture at 100%(2)
 
NSA Proportionate Share (Venture at 25%)(3)
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
15,196

 
$
13,059

 
$
3,799

 
$
3,265

Property operating expenses
5,000

 
4,432

 
1,250

 
1,109

Net operating income
10,196

 
8,627

 
2,549

 
2,156

Supervisory, administrative and other expenses
(1,072
)
 
(941
)
 
(268
)
 
(235
)
Depreciation and amortization
(5,527
)
 
(7,676
)
 
(1,378
)
 
(1,918
)
Interest expense
(2,928
)
 
(2,802
)
 
(732
)
 
(700
)
Acquisition and other expenses
(275
)
 
(267
)
 
(71
)
 
(68
)
Net income (loss)
$
394

 
$
(3,059
)
 
$
100

 
$
(765
)
 
 
 
 
 
 
 
 
Operating Information for the 2016 Joint Venture for the Six Months Ended June 30, 2018 and 2017
 
 
 
 
 
 
 
 
 
 Total Venture at 100%(2)
 
NSA Proportionate Share (Venture at 25%)(3)
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
30,002

 
$
25,566

 
$
7,501

 
$
6,392

Property operating expenses
10,293

 
8,500

 
2,573

 
2,126

Net operating income
19,709

 
17,066

 
4,928

 
4,266

Supervisory, administrative and other expenses
(2,129
)
 
(1,839
)
 
(532
)
 
(460
)
Depreciation and amortization
(11,034
)
 
(15,165
)
 
(2,755
)
 
(3,790
)
Interest expense
(5,827
)
 
(5,628
)
 
(1,457
)
 
(1,407
)
Acquisition and other expenses
(537
)
 
(633
)
 
(136
)
 
(159
)
Net income (loss)
$
182

 
$
(6,199
)
 
$
48

 
$
(1,550
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Values represent entire unconsolidated real estate venture at 100%, not NSA's proportionate share. NSA's ownership in the unconsolidated real estate venture is 25%.
(3) NSA's proportionate share of its unconsolidated real estate venture is derived by applying NSA's 25% ownership interest to each line item in the GAAP financial statements of the unconsolidated real estate venture to calculate NSA's share of that line item. NSA believes this information offers insights into the financial performance of the Company, although the presentation of such information, and its combination with NSA's consolidated results, may not accurately depict the legal and economic implications of holding a noncontrolling interest in the unconsolidated real estate venture. The operating agreement of the unconsolidated real estate venture provides for the distribution of net cash flow to the unconsolidated real estate venture’s investors no less than monthly, generally in proportion to the investors’ respective ownership interests, subject to a promoted distribution to NSA upon the achievement of certain performance benchmarks by the non-NSA investor.

17

image0a80.jpg

Supplemental Schedule 6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Performance Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per square foot data) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018 compared to Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
Property Operating Expenses
 
Net Operating Income
 
Net Operating Income Margin
State
Stores
2Q 2018
 
2Q 2017
 
Growth
 
2Q 2018
 
2Q 2017
 
Growth
 
2Q 2018
 
2Q 2017
 
Growth
 
2Q 2018
 
2Q 2017
 
Growth
California
77

 
$
18,077

 
$
17,098

 
5.7
 %
 
$
5,281

 
$
5,066

 
4.2
 %
 
$
12,796

 
$
12,032

 
6.3
 %
 
70.8
%
 
70.4
%
 
0.4
 %
Oregon
55

 
9,241

 
9,143

 
1.1
 %
 
2,451

 
2,337

 
4.9
 %
 
6,790

 
6,806

 
(0.2
)%
 
73.5
%
 
74.4
%
 
(0.9
)%
Texas
51

 
6,240

 
6,076

 
2.7
 %
 
2,374

 
2,322

 
2.2
 %
 
3,866

 
3,754

 
3.0
 %
 
62.0
%
 
61.8
%
 
0.2
 %
Oklahoma
30

 
3,625

 
3,642

 
(0.5
)%
 
1,198

 
1,220

 
(1.8
)%
 
2,427

 
2,422

 
0.2
 %
 
67.0
%
 
66.5
%
 
0.5
 %
North Carolina
28

 
3,901

 
3,772

 
3.4
 %
 
1,190

 
1,175

 
1.3
 %
 
2,711

 
2,597

 
4.4
 %
 
69.5
%
 
68.8
%
 
0.7
 %
Florida
20

 
4,892

 
4,587

 
6.6
 %
 
1,498

 
1,450

 
3.3
 %
 
3,394

 
3,137

 
8.2
 %
 
69.4
%
 
68.4
%
 
1.0
 %
Georgia
20

 
1,981

 
1,905

 
4.0
 %
 
720

 
698

 
3.2
 %
 
1,261

 
1,207

 
4.5
 %
 
63.7
%
 
63.4
%
 
0.3
 %
Arizona
15

 
2,987

 
2,945

 
1.4
 %
 
916

 
883

 
3.7
 %
 
2,071

 
2,062

 
0.4
 %
 
69.3
%
 
70.0
%
 
(0.7
)%
Indiana
14

 
2,150

 
2,103

 
2.2
 %
 
616

 
759

 
(18.8
)%
 
1,534

 
1,344

 
14.1
 %
 
71.3
%
 
63.9
%
 
7.4
 %
Washington
13

 
1,805

 
1,754

 
2.9
 %
 
537

 
497

 
8.0
 %
 
1,268

 
1,257

 
0.9
 %
 
70.2
%
 
71.7
%
 
(1.5
)%
Colorado
10

 
1,625

 
1,575

 
3.2
 %
 
542

 
472

 
14.8
 %
 
1,083

 
1,103

 
(1.8
)%
 
66.6
%
 
70.0
%
 
(3.4
)%
Louisiana
10

 
1,426

 
1,425

 
0.1
 %
 
502

 
554

 
(9.4
)%
 
924

 
871

 
6.1
 %
 
64.8
%
 
61.1
%
 
3.7
 %
Other(1)
33

 
4,404

 
4,150

 
6.1
 %
 
1,661

 
1,593

 
4.3
 %
 
2,743

 
2,557

 
7.3
 %
 
62.3
%
 
61.6
%
 
0.7
 %
Total/Weighted Average
376

 
$
62,354

 
$
60,175

 
3.6
 %
 
$
19,486

 
$
19,026

 
2.4
 %
 
$
42,868

 
$
41,149

 
4.2
 %
 
68.7
%
 
68.4
%
 
0.3
 %















(1) Other states in NSA's same store portfolio include Alabama, Kentucky, Mississippi, Nevada, New Hampshire, New Mexico, Ohio and South Carolina.

18

image0a80.jpg

Supplemental Schedule 6 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Performance Summary
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per square foot data) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018 compared to Three Months Ended June 30, 2017
 
 
Rentable Square Feet
 
Occupancy at Period End
 
Average Occupancy
 
Average Annualized Rental Revenue per Occupied Square Foot
State
Units
 
2Q 2018
 
2Q 2017
 
Growth
 
2Q 2018
 
2Q 2017
 
Growth
 
2Q 2018
 
2Q 2017
 
Growth
California
46,472

5,819,571

 
92.8
%
 
91.4
%
 
1.4
 %
 
92.2
%
 
91.0
%
 
1.2
 %
 
$
12.89

 
$
12.29

 
4.9
 %
Oregon
22,465

2,834,349

 
89.1
%
 
91.9
%
 
(2.8
)%
 
87.6
%
 
90.6
%
 
(3.0
)%
 
14.61

 
14.02

 
4.2
 %
Texas
19,963

2,818,241

 
91.8
%
 
89.6
%
 
2.2
 %
 
90.3
%
 
88.4
%
 
1.9
 %
 
9.52

 
9.49

 
0.3
 %
Oklahoma
13,875

1,903,147

 
86.7
%
 
87.2
%
 
(0.5
)%
 
85.0
%
 
86.1
%
 
(1.1
)%
 
8.70

 
8.64

 
0.7
 %
North Carolina
12,579

1,536,384

 
93.1
%
 
93.5
%
 
(0.4
)%
 
90.9
%
 
91.2
%
 
(0.3
)%
 
10.68

 
10.28

 
3.9
 %
Florida
14,055

1,465,670

 
89.0
%
 
87.3
%
 
1.7
 %
 
88.4
%
 
86.6
%
 
1.8
 %
 
14.81

 
14.47

 
2.3
 %
Georgia
6,717

895,056

 
91.9
%
 
95.0
%
 
(3.1
)%
 
90.3
%
 
93.7
%
 
(3.4
)%
 
9.48

 
8.95

 
5.9
 %
Arizona
8,380

979,660

 
91.3
%
 
91.9
%
 
(0.6
)%
 
89.9
%
 
90.5
%
 
(0.6
)%
 
13.09

 
12.72

 
2.9
 %
Indiana
7,839

1,007,410

 
92.7
%
 
85.3
%
 
7.4
 %
 
89.3
%
 
84.1
%
 
5.2
 %
 
9.30

 
9.68

 
(3.9
)%
Washington
4,462

557,471

 
89.8
%
 
93.3
%
 
(3.5
)%
 
88.7
%
 
92.1
%
 
(3.4
)%
 
14.33

 
13.48

 
6.3
 %
Colorado
4,639

564,631

 
94.4
%
 
96.9
%
 
(2.5
)%
 
92.0
%
 
94.0
%
 
(2.0
)%
 
12.21

 
11.58

 
5.4
 %
Louisiana
4,520

629,928

 
86.2
%
 
85.9
%
 
0.3
 %
 
84.9
%
 
84.8
%
 
0.1
 %
 
10.46

 
10.49

 
(0.3
)%
Other(1)
13,835

1,796,827

 
92.3
%
 
90.4
%
 
1.9
 %
 
91.2
%
 
89.5
%
 
1.7
 %
 
10.47

 
10.04

 
4.3
 %
Total/Weighted Average
179,801

22,808,345

 
91.1
%
 
90.6
%
 
0.5
 %
 
89.8
%
 
89.6
%
 
0.2
 %
 
$
11.79

 
$
11.43

 
3.1
 %















(1) Other states in NSA's same store portfolio include Alabama, Kentucky, Mississippi, Nevada, New Hampshire, New Mexico, Ohio and South Carolina.

19

image0a80.jpg


Supplemental Schedule 6 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Performance Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per square foot data) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018 compared to Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
Property Operating Expenses
 
Net Operating Income
 
Net Operating Income Margin
State
Stores
YTD 2018
 
YTD 2017
 
Growth
 
YTD 2018
 
YTD 2017
 
Growth
 
YTD 2018
 
YTD 2017
 
Growth
 
YTD 2018
 
YTD 2017
 
Growth
California
77

 
$
35,680

 
$
33,466

 
6.6
%
 
$
10,631

 
$
10,401

 
2.2
 %
 
$
25,049

 
$
23,065

 
8.6
 %
 
70.2
%
 
68.9
%
 
1.3
 %
Oregon
55

 
18,160

 
17,883

 
1.5
%
 
5,030

 
4,789

 
5.0
 %
 
13,130

 
13,094

 
0.3
 %
 
72.3
%
 
73.2
%
 
(0.9
)%
Texas
51

 
12,345

 
12,032

 
2.6
%
 
4,784

 
4,602

 
4.0
 %
 
7,561

 
7,430

 
1.8
 %
 
61.2
%
 
61.8
%
 
(0.6
)%
Oklahoma
30

 
7,248

 
7,242

 
0.1
%
 
2,408

 
2,416

 
(0.3
)%
 
4,840

 
4,826

 
0.3
 %
 
66.8
%
 
66.6
%
 
0.2
 %
North Carolina
28

 
7,704

 
7,438

 
3.6
%
 
2,369

 
2,306

 
2.7
 %
 
5,335

 
5,132

 
4.0
 %
 
69.2
%
 
69.0
%
 
0.2
 %
Florida
20

 
9,718

 
9,147

 
6.2
%
 
3,006

 
2,886

 
4.2
 %
 
6,712

 
6,261

 
7.2
 %
 
69.1
%
 
68.4
%
 
0.7
 %
Georgia
20

 
3,902

 
3,790

 
3.0
%
 
1,453

 
1,405

 
3.4
 %
 
2,449

 
2,385

 
2.7
 %
 
62.8
%
 
62.9
%
 
(0.1
)%
Arizona
15

 
5,915

 
5,782

 
2.3
%
 
1,799

 
1,748

 
2.9
 %
 
4,116

 
4,034

 
2.0
 %
 
69.6
%
 
69.8
%
 
(0.2
)%
Indiana
14

 
4,225

 
4,198

 
0.6
%
 
1,369

 
1,501

 
(8.8
)%
 
2,856

 
2,697

 
5.9
 %
 
67.6
%
 
64.2
%
 
3.4
 %
Washington
13

 
3,556

 
3,406

 
4.4
%
 
1,087

 
980

 
10.9
 %
 
2,469

 
2,426

 
1.8
 %
 
69.4
%
 
71.2
%
 
(1.8
)%
Colorado
10

 
3,208

 
3,082

 
4.1
%
 
1,110

 
946

 
17.3
 %
 
2,098

 
2,136

 
(1.8
)%
 
65.4
%
 
69.3
%
 
(3.9
)%
Louisiana
10

 
2,852

 
2,843

 
0.3
%
 
1,007

 
1,060

 
(5.0
)%
 
1,845

 
1,783

 
3.5
 %
 
64.7
%
 
62.7
%
 
2.0
 %
Other(1)
33

 
8,707

 
8,269

 
5.3
%
 
3,423

 
3,217

 
6.4
 %
 
5,284

 
5,052

 
4.6
 %
 
60.7
%
 
61.1
%
 
(0.4
)%
Total/Weighted Average
376

 
$
123,220

 
$
118,578

 
3.9
%
 
$
39,476

 
$
38,257

 
3.2
 %
 
$
83,744

 
$
80,321

 
4.3
 %
 
68.0
%
 
67.7
%
 
0.3
 %














(1) Other states in NSA's same store portfolio include Alabama, Kentucky, Mississippi, Nevada, New Hampshire, New Mexico, Ohio and South Carolina.

20

image0a80.jpg

Supplemental Schedule 6 (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Performance Summary
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands, except per square foot data) (unaudited)
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018 compared to Six Months Ended June 30, 2017
 
 
Rentable Square Feet
 
Occupancy at Period End
 
Average Occupancy
 
Average Annualized Rental Revenue per Occupied Square Foot
State
Units
 
YTD 2018
 
YTD 2017
 
Growth
 
YTD 2018
 
YTD 2017
 
Growth
 
YTD 2018
 
YTD 2017
 
Growth
California
46,472

5,819,571

 
92.8
%
 
91.4
%
 
1.4
 %
 
91.5
%
 
90.8
%
 
0.7
 %
 
$
12.80

 
$
12.04

 
6.3
 %
Oregon
22,465

2,834,349

 
89.1
%
 
91.9
%
 
(2.8
)%
 
86.7
%
 
89.6
%
 
(2.9
)%
 
14.53

 
13.90

 
4.5
 %
Texas
19,963

2,818,241

 
91.8
%
 
89.6
%
 
2.2
 %
 
89.4
%
 
87.9
%
 
1.5
 %
 
9.52

 
9.45

 
0.7
 %
Oklahoma
13,875

1,903,147

 
86.7
%
 
87.2
%
 
(0.5
)%
 
84.3
%
 
85.4
%
 
(1.1
)%
 
8.78

 
8.67

 
1.3
 %
North Carolina
12,579

1,536,384

 
93.1
%
 
93.5
%
 
(0.4
)%
 
90.2
%
 
90.3
%
 
(0.1
)%
 
10.65

 
10.27

 
3.7
 %
Florida
14,055

1,465,670

 
89.0
%
 
87.3
%
 
1.7
 %
 
88.3
%
 
86.4
%
 
1.9
 %
 
14.83

 
14.52

 
2.1
 %
Georgia
6,717

895,056

 
91.9
%
 
95.0
%
 
(3.1
)%
 
89.5
%
 
93.2
%
 
(3.7
)%
 
9.41

 
8.95

 
5.1
 %
Arizona
8,380

979,660

 
91.3
%
 
91.9
%
 
(0.6
)%
 
88.7
%
 
89.8
%
 
(1.1
)%
 
13.13

 
12.59

 
4.3
 %
Indiana
7,839

1,007,410

 
92.7
%
 
85.3
%
 
7.4
 %
 
86.9
%
 
83.9
%
 
3.0
 %
 
9.40

 
9.70

 
(3.1
)%
Washington
4,462

557,471

 
89.8
%
 
93.3
%
 
(3.5
)%
 
88.2
%
 
90.6
%
 
(2.4
)%
 
14.21

 
13.32

 
6.7
 %
Colorado
4,639

564,631

 
94.4
%
 
96.9
%
 
(2.5
)%
 
90.7
%
 
92.0
%
 
(1.3
)%
 
12.23

 
11.58

 
5.6
 %
Louisiana
4,520

629,928

 
86.2
%
 
85.9
%
 
0.3
 %
 
84.4
%
 
84.8
%
 
(0.4
)%
 
10.54

 
10.54

 

Other(1)
13,835

1,796,827

 
92.3
%
 
90.4
%
 
1.9
 %
 
90.4
%
 
89.5
%
 
0.9
 %
 
10.45

 
10.01

 
4.4
 %
Total/Weighted Average
179,801

22,808,345

 
91.1
%
 
90.6
%
 
0.5
 %
 
89.0
%
 
89.0
%
 

 
$
11.77

 
$
11.33

 
3.9
 %













(1) Other states in NSA's same store portfolio include Alabama, Kentucky, Mississippi, Nevada, New Hampshire, New Mexico, Ohio and South Carolina.


21

image0a80.jpg

Supplemental Schedule 7
 
 
 
 
 
Reconciliation of Same Store Data and Net Operating Income to Net Income
(dollars in thousands) (unaudited)
 


 
 
 
 

 


Three Months Ended June 30,
 
Six Months Ended June 30,

2018
 
2017
 
2018
 
2017
Rental revenue
 
 
 
 
 
 
 
Same store portfolio
$
60,314

 
$
58,202

 
$
119,218

 
$
114,764

Non-same store portfolio
14,705

 
1,952

 
27,812

 
3,234

Total rental revenue
75,019

 
60,154

 
147,030

 
117,998

 
 
 
 
 
 
 
 
Other property-related revenue
 
 
 
 
 
 
 
Same store portfolio
2,040

 
1,973

 
4,002

 
3,814

Non-same store portfolio
509

 
72

 
868

 
112

Total other property-related revenue
2,549


2,045


4,870


3,926

 
 
 
 
 
 
 
 
Property operating expenses
 
 
 
 
 
 
 
Same store portfolio
19,486

 
19,026

 
39,476

 
38,257

Non-same store portfolio
5,698

 
777

 
10,934

 
1,295

Total property operating expenses
25,184


19,803


50,410


39,552

 
 
 
 
 
 
 
 
Net operating income
 
 
 
 
 
 
 
Same store properties
42,868

 
41,149

 
83,744

 
80,321

Non-same store properties
9,516

 
1,247

 
17,746

 
2,051

Total net operating income
52,384


42,396


101,490


82,372


 
 
 
 
 
 
 
Management fees and other revenue
2,155

 
2,142

 
4,316

 
3,980

General and administrative expenses
(8,460
)
 
(7,405
)
 
(16,766
)
 
(14,586
)
Depreciation and amortization
(22,389
)
 
(17,800
)
 
(43,757
)
 
(36,483
)
Income from operations
23,690

 
19,333

 
45,283

 
35,283

 
 
 
 
 
 
 
 
Other (expense) income
 
 
 
 
 
 
 
Interest expense
(10,472
)
 
(8,160
)
 
(20,107
)
 
(15,631
)
Equity in earnings (losses) of unconsolidated real estate venture
100

 
(765
)
 
48

 
(1,550
)
Acquisition costs
(150
)
 
(167
)
 
(330
)
 
(311
)
Non-operating expense

 
(14
)
 
(84
)
 
(66
)
(Loss) gain on sale of self storage properties
(83
)
 
5,637

 
391

 
5,637

Other expense
(10,605
)
 
(3,469
)
 
(20,082
)
 
(11,921
)
Income before income taxes
13,085

 
15,864

 
25,201

 
23,362

Income tax expense
(44
)
 
(288
)
 
(187
)
 
(605
)
Net income
$
13,041

 
$
15,576

 
$
25,014

 
$
22,757



22

image0a80.jpg

Supplemental Schedule 8
 
 
 
Selected Financial Information
(in thousands, except per square foot data) (unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Average Annualized Rental Revenue Per Occupied Square Foot
 
 
 
 
 
 
 
 
Same store
$
11.79

 
$
11.43

 
$
11.77

 
$
11.33

Total consolidated portfolio
$
11.78

 
$
11.49

 
$
11.83

 
$
11.36

 
 
 
 
 
 
 
 
Total Consolidated Portfolio Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring capital expenditures
$
1,177

 
$
1,053

 
$
2,435

 
$
1,811

Revenue enhancing capital expenditures
1,918

 
229

 
2,675

 
314

Acquisitions capital expenditures
2,832

 
2,466

 
4,749

 
4,726

Total Consolidated Portfolio Capital Expenditures
$
5,927

 
$
3,748

 
$
9,859

 
$
6,851

 
 
 
 
 
 
 
 
Property Operating Expenses Detail
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Store payroll and related costs
$
7,244

 
$
5,863

 
$
14,526

 
$
11,708

Property tax expense
6,145

 
4,733

 
12,411

 
9,516

Other property operating expenses
11,795

 
9,207

 
23,473

 
18,328

Property operating expenses on the Company's statements of operations
$
25,184

 
$
19,803

 
$
50,410

 
$
39,552

 
 
 
 
 
 
 
 
General and Administrative Expenses Detail
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supervisory and administrative expenses
$
4,183

 
$
3,487

 
$
8,242

 
$
6,836

Equity-based compensation expense
919

 
940

 
1,786

 
1,923

Other general and administrative expenses
3,358

 
2,978

 
6,738

 
5,827

General and administrative expenses on the Company's statements of operations
$
8,460

 
$
7,405

 
$
16,766

 
$
14,586

 
 
 
 
 
 
 
 




23

image0a80.jpg

Glossary
 
 
 
 
 
This Earnings Release and Supplemental Information include certain financial and operating measures used by NSA management that are not calculated in accordance with accounting principles generally accepted in the United States, or GAAP. NSA's definitions and calculations of these non-GAAP financial and operating measures and other terms may differ from the definitions and methodologies used by other real estate companies and, accordingly, may not be comparable. These non-GAAP financial and operating measures should not be considered an alternative to GAAP net income or any other GAAP measurement of performance and should not be considered an alternative measure of liquidity.
 
 
 
 
 
2016 JOINT VENTURE: NSA's 2016 Joint Venture was formed in 2016 with a major state pension fund advised by Heitman Capital Management LLC. NSA's ownership in the 2016 Joint Venture is 25% and NSA earns customary fees for managing and operating the 2016 Joint Venture properties. In connection with the 2016 Joint Venture’s acquisition of an initial portfolio of self storage properties, NSA separately acquired the property management platform related to the initial portfolio, including a property management company, a captive insurance company, and related intellectual property, including the iStorage brand, under which the 2016 Joint Venture properties are operated.
AVERAGE ANNUALIZED RENTAL REVENUE PER OCCUPIED SQUARE FOOT: Average annualized rental revenue per occupied square foot is computed by dividing annualized rental revenue per the Company's statements of operations (which includes fees and is net of any discounts) by average occupied square feet.
AVERAGE OCCUPANCY: 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.
CAPITAL EXPENDITURES DEFINITIONS
ACQUISITIONS CAPITAL EXPENDITURES: Acquisitions capital expenditures represents the portion of capital expenditures capitalized during the current period that were identified and underwritten prior to a property's acquisition.
RECURRING CAPITAL EXPENDITURES: Recurring capital expenditures represents the portion of capital expenditures that are deemed to replace the consumed portion of acquired capital assets and extend their useful lives.
REVENUE ENHANCING CAPITAL EXPENDITURES: Revenue enhancing capital expenditures represents the portion of capital expenditures that are made to enhance the revenue and value of an asset from its original purchase condition.
EBITDA: NSA defines 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. NSA defines ADJUSTED EBITDA as EBITDA plus acquisition costs, the Company's share of unconsolidated real estate venture acquisition costs, organizational and offering expenses, equity-based compensation expense, losses on sale of properties, and impairment of long-lived assets; and by subtracting gains on sale of properties and debt forgiveness. These further adjustments eliminate the impact of items that the Company does not consider indicative of its core operating performance. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. NSA's presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.
NSA presents EBITDA and Adjusted EBITDA because the Company believes they assist investors and analysts in comparing the Company's performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its 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 the Company's 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 the Company's debts;

24

image0a80.jpg

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 the Company's overall long-term incentive compensation package, although the Company excludes it as an expense when evaluating its ongoing operating performance for a particular period;
EBITDA and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; and
other companies in NSA's industry may calculate EBITDA and Adjusted EBITDA differently than NSA does, limiting its usefulness as a comparative measure.
NSA compensates for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with the Company's 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, income from operations, and net income (loss).
FUNDS FROM OPERATIONS: Funds from operations, or FFO, is a widely used performance measure for real estate companies and is provided here as a supplemental measure of the Company's operating performance. The April 2002 National Policy Bulletin of Nareit, which the Company refers to as the White Paper, as amended, defines FFO as net income (as determined under GAAP), excluding gains (or losses) from sales of real estate and related impairment charges, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. NSA includes amortization of customer in-place leases in real estate depreciation and amortization in the calculation of FFO because the Company believes the amortization of customer in-place leases is analogous to real estate depreciation, as the value of such intangibles is inextricably connected to the real estate acquired. Distributions declared on subordinated performance units and DownREIT subordinated performance units represent NSA's 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, NSA excludes distributions declared on subordinated performance units, DownREIT subordinated performance units, preferred shares and preferred units. NSA defines CORE FFO as FFO, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its 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 NSA's properties. Given the nature of NSA's business as a real estate owner and operator, the Company considers FFO and Core FFO as key supplemental measures of its operating performance that are not specifically defined by GAAP. NSA believes that FFO and Core FFO are useful to management and investors as a starting point in measuring the Company's 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 the Company's 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. NSA's 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 NSA's ability to make cash distributions. NSA believes that to further understand the Company's performance, FFO and Core FFO should be compared with the Company's reported net income (loss) and considered in addition to cash flows computed in accordance with GAAP, as presented in the Company's consolidated financial statements.
HYPOTHETICAL LIQUIDATION AT BOOK VALUE METHOD: In accordance with GAAP, the Company allocates income (loss) utilizing the hypothetical liquidation at book value ("HLBV") method, in which the Company allocates income or loss based on the change in each unitholders’ claim on the net assets of the Company's operating partnership at period end after adjusting for any distributions or contributions made during such period. The Company uses this method because of the difference between the distribution rights and priorities set forth in the operating partnership's

25

image0a80.jpg

Agreement of Limited Partnership and what is reflected by the underlying percentage ownership interests of the unitholders.
The HLBV method is a balance sheet-focused approach to income (loss) allocation. A calculation is prepared at each balance sheet date to determine the amount that unitholders would receive if the operating partnership were to liquidate all of its assets (at GAAP net book value) and distribute the resulting proceeds to its creditors and unitholders based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is used to derive each unitholder's share of the income (loss) for the 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 unitholders as compared to their respective ownership percentage in the operating partnership, and net income (loss) attributable to National Storage Affiliates Trust could be more or less net income than actual cash distributions received and more or less income or loss than what may be received in the event of an actual liquidation. Additionally, the HLBV method could result in net income (or net loss) attributable to National Storage Affiliates Trust during a period when the Company reports consolidated net loss (or net income), or net income (or net loss) attributable to National Storage Affiliates Trust in excess of the Company's consolidated net income (or net loss). The computations of basic and diluted earnings (loss) per share may be materially affected by these disproportionate income (loss) allocations, resulting in volatile fluctuations of basic and diluted earnings (loss) per share. Readers and investors are cautioned not to place undue reliance on NSA's income (loss) allocations or earnings (loss) per share without considering the effects described above, including the effect that depreciation and amortization have on income (loss), net book value and the application of the HLBV method.
LONG-TERM INCENTIVE PLAN UNITS: Long-term incentive plan units, or LTIP units, are a special class of partnership interest in NSA's operating partnership that allow the holder to participate in the ordinary and liquidating distributions received by holders of the operating partnership units (subject to the achievement of specified levels of profitability by our operating partnership or the achievement of certain events). Upon vesting, and after achieving parity with operating partnership units, vested LTIP units may be converted into an equal number of operating partnership units, and thereafter have all the rights of operating partnership units, including redemption rights.
NET DEBT TO ANNUALIZED CURRENT QUARTER ADJUSTED EBITDA: NSA calculates net debt to Adjusted EBITDA as total debt (inclusive of $8.8 million of fair value of debt adjustments and $7.5 million of debt issuance costs) less cash and cash equivalents, divided by annualized current quarter Adjusted EBITDA.
NET OPERATING INCOME:  NSA defines net operating income, or NOI, as net income (loss), as determined under GAAP, plus general and administrative expenses, depreciation and amortization, interest expense, loss on early extinguishment of debt, equity in earnings (losses) of unconsolidated real estate ventures, acquisition costs, organizational and offering expenses, income tax expense, impairment of long-lived assets, losses on the sale of properties and non-operating expense and by subtracting management fees and other revenue, gains on sale of properties, debt forgiveness, and non-operating income. NOI is not a measure of performance calculated in accordance with GAAP.
NSA believes NOI is useful to investors in evaluating the Company's operating performance because:
NOI is one of the primary measures used by NSA's management and the Company's PROs to evaluate the economic productivity of the Company's properties, including the Company's ability to lease its properties, increase pricing and occupancy and control the Company's 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 NSA's capital structure; and
NSA believes NOI helps the Company's investors to meaningfully compare the results of its operating performance from period to period by removing the impact of the Company's capital structure (primarily interest expense on the Company's outstanding indebtedness) and depreciation of the cost basis of NSA's assets from its 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 the Company's net income (loss). NSA compensates for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with the Company's analysis of net income (loss). NOI should be considered in addition to, but not as a substitute for,

26

image0a80.jpg

other measures of financial performance reported in accordance with GAAP, such as total revenues, income from operations and net loss.
NET OPERATING INCOME MARGIN: The ratio of NOI divided by total rental and other property-related revenue.
NON-SAME STORE PORTFOLIO: Non-same store portfolio comprises those properties that do not meet the Same Store portfolio property definition. 
OCCUPANCY AT PERIOD END:  Represents total occupied rentable square feet divided by total rentable square feet at period end.
OPERATING PARTNERSHIP UNITS:  Operating partnership units, or OP Units, are Class A common units of limited partner interest in the Company's operating partnership which are economically equivalent to NSA's common shares. NSA also owns certain of the Company's self storage properties through other consolidated limited partnership subsidiaries of the Company's operating partnership, which the Company refers to as "DownREIT partnerships." The DownREIT partnerships issue certain units of limited partner or limited liability company interest that are intended to be economically equivalent to the Company's OP units, which the Company defines as DOWNREIT OPERATING PARTNERSHIP UNIT EQUIVALENTS, or DownREIT OP units.
PROs: Participating regional operators, or "PROs", are NSA's experienced regional self storage operators with local operational focus and expertise. As of June 30, 2018, the Company had eight PROs, SecurCare Self Storage, Northwest Self Storage, Optivest Properties, Guardian Storage Centers, Move It Self Storage, Storage Solutions, Hide-Away and Personal Mini.
RENTABLE SQUARE FEET: Rentable square feet includes all enclosed self storage units but excludes commercial, residential, and covered parking space.
RESTRICTED COMMON SHARES: Restricted common shares are common shares that are subject to restrictions on transferability subject to vesting and such other restrictions. Generally, a participant granted restricted common shares has all of the rights of a shareholder, including, without limitation, the right to vote and the right to receive dividends on the restricted common shares. Holders of restricted common shares are prohibited from selling such shares until they vest.
SAME STORE PORTFOLIO: NSA's 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.
SUBORDINATED PERFORMANCE UNITS:  Subordinated performance units, or SP Units, are Class B common units of limited partner interest in the Company's operating partnership. SP units, which are linked to the performance of specific contributed portfolios, are intended to incentivize the Company's PROs to drive operating performance and support the sustainability of the operating cash flow generated by the contributed self storage properties that the PROs continue to manage on NSA's behalf. Because subordinated performance unit holders receive distributions only after portfolio-specific minimum performance thresholds are satisfied, the Company believes SP units play a key role in aligning the interests of the Company's PROs with NSA and the Company's shareholders. The DownREIT partnerships also issue units of limited partner interest that are intended to be economically equivalent to the Company's SP units, which the Company defines as DOWNREIT SUBORDINATED PERFORMANCE UNIT EQUIVALENTS, or DownREIT SP units.

27