The following table presents a reconciliation of earnings (loss) per share - diluted to FFO and Core FFO per share and unit for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2023 | | 2022 | | 2023 | | 2022 |
| 2017 | | 2016 | | 2017 | | 2016 | |
Earnings (loss) per share - diluted | $ | 0.03 |
| | $ | — |
| | $ | 0.09 |
| | $ | 0.25 |
| |
Earnings per share - diluted | | Earnings per share - diluted | $ | 0.28 | | | $ | 0.24 | | | $ | 0.56 | | | $ | 0.48 | |
Impact of the difference in weighted average number of shares(1) | (0.02 | ) | | — |
| | (0.04 | ) | | 0.09 |
| Impact of the difference in weighted average number of shares(1) | (0.09) | | | (0.07) | | | (0.18) | | | (0.14) | |
Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(2) | 0.14 |
| | 0.13 |
| | 0.41 |
| | — |
| Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(2) | 0.12 | | | 0.18 | | | 0.21 | | | 0.33 | |
Add real estate depreciation and amortization | 0.25 |
| | 0.22 |
| | 0.74 |
| | 0.68 |
| Add real estate depreciation and amortization | 0.43 | | | 0.44 | | | 0.85 | | | 0.89 | |
Add Company's share of unconsolidated venture real estate depreciation and amortization | 0.03 |
| | — |
| | 0.08 |
| | — |
| Add Company's share of unconsolidated venture real estate depreciation and amortization | 0.03 | | | 0.03 | | | 0.06 | | | 0.06 | |
Subtract gain on sale of self storage properties | — |
| | — |
| | (0.08 | ) | | — |
| Subtract gain on sale of self storage properties | — | | | — | | | — | | | (0.02) | |
FFO attributable to subordinated performance unitholders | (0.11 | ) | | (0.09 | ) | | (0.28 | ) | | (0.29 | ) | FFO attributable to subordinated performance unitholders | (0.09) | | | (0.12) | | | (0.18) | | | (0.23) | |
FFO per share and unit | 0.32 |
| | 0.26 |
| | 0.92 |
| | 0.73 |
| FFO per share and unit | 0.68 | | | 0.70 | | | 1.32 | | | 1.37 | |
Add acquisition costs, Company's share of unconsolidated real estate venture acquisition costs, and loss on early extinguishment of debt | 0.01 |
| | 0.03 |
| | 0.01 |
| | 0.09 |
| |
Add acquisition costs | | Add acquisition costs | — | | | 0.01 | | | 0.01 | | | 0.01 | |
Subtract casualty recoveries | | Subtract casualty recoveries | — | | | — | | | — | | | — | |
Add loss on early extinguishment of debt | | Add loss on early extinguishment of debt | — | | | — | | | 0.01 | | | — | |
Core FFO per share and unit | $ | 0.33 |
| | $ | 0.29 |
| | $ | 0.93 |
| | $ | 0.82 |
| Core FFO per share and unit | $ | 0.68 | | | $ | 0.71 | | | $ | 1.34 | | | $ | 1.38 | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
(1) Adjustment accounts for the difference between the weighted average number of shares used to calculate diluted earnings per share and the weighted average number of shares used to calculate FFO and Core FFO per share and unit. Diluted earnings per share is calculated using the two-class method for the company's restricted common shares and the treasury stock method for certain unvested LTIP units, and includesassumes the assumptionconversion of vested LTIP units into OP units on a one-for-one basis and the hypothetical conversion of subordinated performance units and DownREIT subordinated performance units into OP units, even though such units may only be convertible into OP units (i) after a lock-out period and (ii) upon certain events or conditions. For additional information about the conversion of subordinated performance units, DownREIT subordinated performance units and LTIP units into OP units, see Note 9 in Item 1. The computation of weighted average shares and units for FFO and Core FFO per share and unit includes all restricted common shares and LTIP units that participate in distributions and excludes all subordinated performance units and DownREIT subordinated performance units because their effect has been accounted for through the allocation of FFO to the related unitholders based on distributions declared. |
(2) Represents the effect of adjusting the numerator to consolidated net income (loss) prior to GAAP allocations for noncontrolling interests, after deducting preferred share and unit distributions, and before the application of the two-class method and treasury stock method, as described in footnote(1). |
NOINet Operating Income
We defineNet operating income, or NOI, as net income (loss), as determined under GAAP,represents rental revenue 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 property-related revenue gains on sale of properties, debt forgiveness, and non-operating income.less property operating expenses. NOI is not a measure of performance calculated in accordance with GAAP.
We believe NOI is useful to investors in evaluating our operating performance because:
•NOI is one of the primary measures used by our management and our PROs to evaluate the economic productivity of our properties, including our ability to lease our properties, increase pricing and occupancy and control our property operating expenses;
•NOI is widely used in the real estate industry and the self storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending upon accounting methods, the book value of assets, and the impact of our capital structure; and
•We believe NOI helps our investors to meaningfully compare the results of our operating performance from period to period by removing the impact of our capital structure (primarily interest expense on our outstanding indebtedness) and depreciation of the cost basis of our assets from our operating results.
There are material limitations to using a non-GAAP measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income (loss). We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income (loss). NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues income from operations and net loss.income (loss).
Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022
As of June 30, 2023, our same store portfolio consisted of 834 self storage properties. Our same store portfolio is defined as those properties owned and operated since the first day of the earliest year presented, excluding any properties sold, expected to be sold or subject to significant changes such as expansions or casualty events which cause the portfolio's year-over-year operating results to no longer be comparable. The following table illustrates the changes in rental revenue, other property-related revenue, and property operating expenses, for the three months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 | | Change |
Rental revenue | | | | | |
Same store portfolio | $ | 179,907 | | | $ | 175,567 | | | $ | 4,340 | |
Non-same store portfolio | 19,404 | | | 9,069 | | | 10,335 | |
Total rental revenue | 199,311 | | | 184,636 | | | 14,675 | |
Other property-related revenue | | | | | |
Same store portfolio | 6,801 | | | 5,982 | | | 819 | |
Non-same store portfolio | 812 | | | 359 | | | 453 | |
Total other property-related revenue | 7,613 | | | 6,341 | | | 1,272 | |
Property operating expenses | | | | | |
Same store portfolio | 50,194 | | | 49,477 | | | 717 | |
Non-same store portfolio | 6,900 | | | 3,786 | | | 3,114 | |
Prior period comparability adjustment | — | | | (75) | | | 75 | |
Total property operating expenses | 57,094 | | | 53,188 | | | 3,906 | |
Net operating income | | | | | |
Same store portfolio | 136,514 | | | 132,072 | | | 4,442 | |
Non-same store portfolio | 13,316 | | | 5,717 | | | 7,599 | |
Total net operating income | $ | 149,830 | | | $ | 137,789 | | | $ | 12,041 | |
Rental Revenue
Same store portfolio rental revenues increased $4.3 million, or 2.5%, due to a 7.1% increase, from $14.26 to $15.27, in annualized same store rental revenue (including fees and net of any discounts and uncollectible customer amounts) divided by average occupied square feet for the three months ended June 30, 2023, driven primarily by increased contractual lease rates for in-place tenants partially offset by a decrease in average occupancy from 94.1% for the three months ended June 30, 2022 to 90.0% for the three months ended June 30, 2023.
Other Property-Related Revenue
Same store other property-related revenue increased by $0.8 million, or 13.7%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. This increase primarily resulted from an increase in tenant insurance revenue.
Property Operating Expenses
Same store property operating expenses were $50.2 million for the three months ended June 30, 2023 compared to $49.5 million for the three months ended June 30, 2022, an increase of $0.7 million, or 1.4%. The increase in same store property operating expenses was a result of increases in marketing and insurance expenses during the three months ended June 30, 2023.
Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022
As of June 30, 2023, our same store portfolio consisted of 834 self storage properties. Our same store portfolio is defined as those properties owned and operated since the first day of the earliest year presented, excluding any properties sold, expected to be sold or subject to significant changes such as expansions or casualty events which cause the portfolio's year-over-year operating results to no longer be comparable. The following table illustrates the changes in rental revenue, other property-related revenue, and property operating expenses, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 | | Change |
Rental revenue | | | | | |
Same store portfolio | $ | 357,574 | | | $ | 343,614 | | | $ | 13,960 | |
Non-same store portfolio | 35,866 | | | 15,491 | | | 20,375 | |
Total rental revenue | 393,440 | | | 359,105 | | | 34,335 | |
Other property-related revenue | | | | | |
Same store portfolio | 13,049 | | | 11,867 | | | 1,182 | |
Non-same store portfolio | 1,371 | | | 640 | | | 731 | |
Total other property-related revenue | 14,420 | | | 12,507 | | | 1,913 | |
Property operating expenses | | | | | |
Same store portfolio | 100,614 | | | 96,018 | | | 4,596 | |
Non-same store portfolio | 12,963 | | | 6,678 | | | 6,285 | |
Prior period comparability adjustment | — | | | (150) | | | 150 | |
Total property operating expenses | 113,577 | | | 102,546 | | | 11,031 | |
Net operating income | | | | | |
Same store portfolio | 270,009 | | | 259,463 | | | 10,546 | |
Non-same store portfolio | 24,274 | | | 9,603 | | | 14,671 | |
Total net operating income | $ | 294,283 | | | $ | 269,066 | | | $ | 25,217 | |
Rental Revenue
Same store portfolio rental revenues increased $14.0 million, or 4.1%, due to a 8.6% increase, from $13.99 to $15.19, in annualized same store rental revenue (including fees and net of any discounts and uncollectible customer amounts) divided by average occupied square feet for the six months ended June 30, 2023, driven primarily by increased contractual lease rates for in-place tenants partially offset by a decrease in average occupancy from 93.9% for the six months ended June 30, 2022 to 89.9% for the six months ended June 30, 2023.
Other Property-Related Revenue
Same store other property-related revenue increased by $1.2 million, or 10.0%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This increase primarily resulted from an increase in tenant insurance revenue.
Property Operating Expenses
Same store property operating expenses were $100.6 million for the six months ended June 30, 2023 compared to $96.0 million for the six months ended June 30, 2022, an increase of $4.6 million, or 4.8%. The increase in same store property operating expenses was a result of increases in marketing and insurance costs, partially offset by decreases in personnel costs during the six months ended June 30, 2023.
The following table presents a reconciliation of net income (loss) to NOI for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (dollars in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 11,226 |
| | $ | 7,944 |
| | $ | 33,983 |
| | $ | 18,791 |
| Net income | $ | 45,476 | | | $ | 48,425 | | | $ | 85,868 | | | $ | 93,211 | |
(Subtract) Add: | | | | | | | | (Subtract) Add: | |
Management fees and other revenue | (1,998 | ) | | — |
| | (5,978 | ) | | — |
| Management fees and other revenue | (8,587) | | | (7,913) | | | (15,644) | | | (14,462) | |
General and administrative expenses | 7,480 |
| | 5,259 |
| | 22,066 |
| | 14,431 |
| General and administrative expenses | 14,404 | | | 14,702 | | | 29,225 | | | 28,668 | |
Other | | Other | 3,220 | | | 525 | | | 4,393 | | | 995 | |
Depreciation and amortization | 18,463 |
| | 14,319 |
| | 54,946 |
| | 38,299 |
| Depreciation and amortization | 56,705 | | | 57,891 | | | 112,163 | | | 115,963 | |
Interest expense | 9,157 |
| | 6,265 |
| | 24,788 |
| | 17,050 |
| Interest expense | 39,693 | | | 24,448 | | | 77,641 | | | 47,095 | |
Equity in losses of unconsolidated real estate venture | 710 |
| | — |
| | 2,260 |
| | — |
| |
Equity in earnings of unconsolidated real estate ventures | | Equity in earnings of unconsolidated real estate ventures | (1,861) | | | (1,962) | | | (3,539) | | | (3,456) | |
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | 136 |
| Loss on early extinguishment of debt | — | | | — | | | 758 | | | — | |
Acquisition costs | 139 |
| | 1,737 |
| | 450 |
| | 4,733 |
| Acquisition costs | 239 | | | 682 | | | 1,083 | | | 1,235 | |
Income tax expense | 162 |
| | 80 |
| | 767 |
| | 301 |
| Income tax expense | 737 | | | 730 | | | 1,933 | | | 1,578 | |
Gain on sale of self storage properties | (106 | ) | | — |
| | (5,743 | ) | | — |
| Gain on sale of self storage properties | — | | | — | | | — | | | (2,134) | |
Non-operating expense | 9 |
| | 15 |
| | 75 |
| | 77 |
| |
Non-operating (income) expense | | Non-operating (income) expense | (196) | | | 261 | | | 402 | | | 373 | |
Net Operating Income | $ | 45,242 |
| | $ | 35,619 |
| | $ | 127,614 |
| | $ | 93,818 |
| Net Operating Income | $ | 149,830 | | | $ | 137,789 | | | $ | 294,283 | | | $ | 269,066 | |
Our consolidated NOI shown in the table above does not include our proportionate share of theNOI for our unconsolidated real estate venture's net operating income.ventures. For additional information about our unconsolidated real estate venture2018 Joint Venture and 2016 Joint Venture see Note 5 to the condensed consolidated financial statements in Item 1.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), as determined under GAAP, plus interest expense, loss on early extinguishment of debt, income taxes, depreciation and amortization expense and the Company's share of unconsolidated real estate venture depreciation and amortization. We define Adjusted EBITDA as EBITDA plus acquisition costs, 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;assets, and by subtractingcasualty-related expenses, minus gains on sale of properties and debt forgiveness.forgiveness, and after adjustments for unconsolidated partnerships and joint ventures. These further adjustments eliminate the impact of items that we do not consider indicative of our core operating performance. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
We present EBITDA and Adjusted EBITDA because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. EBITDA and Adjusted EBITDA have limitations as an analytical tool. Some of these limitations are:
•EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures, contractual commitments or working capital needs;
•EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
•Adjusted EBITDA excludes equity-based compensation expense, which is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;
•EBITDA and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
•other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting itstheir usefulness as a comparative measure.measures.
We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income (loss). EBITDA and Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues income from operations, and net income (loss).
The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 45,476 | | | $ | 48,425 | | | $ | 85,868 | | | $ | 93,211 | |
Add: | | | | | | | |
Depreciation and amortization | 56,705 | | | 57,891 | | | 112,163 | | | 115,963 | |
Company's share of unconsolidated real estate venture depreciation and amortization | 4,315 | | | 4,324 | | | 8,786 | | | 8,170 | |
Interest expense | 39,693 | | | 24,448 | | | 77,641 | | | 47,095 | |
Income tax expense | 737 | | | 730 | | | 1,933 | | | 1,578 | |
Loss on early extinguishment of debt | — | | | — | | | 758 | | | — | |
EBITDA | 146,926 | | | 135,818 | | | 287,149 | | | 266,017 | |
Add (subtract): | | | | | | | |
Acquisition costs | 239 | | | 682 | | | 1,083 | | | 1,235 | |
Gain on sale of self storage properties | — | | | — | | | — | | | (2,134) | |
Casualty-related recoveries | (522) | | | — | | | (522) | | | — | |
Equity-based compensation expense(1) | 1,677 | | | 1,580 | | | 3,326 | | | 3,124 | |
Adjusted EBITDA | $ | 148,320 | | | $ | 138,080 | | | $ | 291,036 | | | $ | 268,242 | |
| | | | | | | |
(1) Equity-based compensation expense is a non-cash item that is included in general and administrative expenses in our consolidated statements of operations. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 11,226 |
| | $ | 7,944 |
| | $ | 33,983 |
| | $ | 18,791 |
|
Add: | | | | | | | |
Depreciation and amortization | 18,463 |
| | 14,319 |
| | 54,946 |
| | 38,299 |
|
Company's share of unconsolidated real estate venture depreciation and amortization | 2,042 |
| | — |
| | 5,832 |
| | — |
|
Interest expense | 9,157 |
| | 6,265 |
| | 24,788 |
| | 17,050 |
|
Income tax expense | 162 |
| | 80 |
| | 767 |
| | 301 |
|
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | 136 |
|
EBITDA | 41,050 |
| | 28,608 |
| | 120,316 |
| | 74,577 |
|
Add: | | | | | | | |
Acquisition costs | 139 |
| | 1,737 |
| | 450 |
| | 4,733 |
|
Company's share of unconsolidated real estate venture acquisition costs | 1 |
| | — |
| | 22 |
| | — |
|
Gain on sale of self storage properties | (106 | ) | | — |
| | (5,743 | ) | | — |
|
Equity-based compensation expense(1) | 921 |
| | 685 |
| | 2,844 |
| | 1,913 |
|
Adjusted EBITDA | $ | 42,005 |
| | $ | 31,030 |
| | $ | 117,889 |
| | $ | 81,223 |
|
| | | | | | | |
(1) Equity-based compensation expense is a non-cash item that is included in general and administrative expenses in our consolidated statements of operations. |
Liquidity and Capital Resources
Liquidity Overview
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from equity and debt offerings, and debt financings including borrowingsadditional borrowing capacity under ourthe credit facility, and expansion options available under the 2028 Term Loan Facility, (as defined below).the June 2029 Term Loan Facility, and our credit facility.
Our short-term liquidity requirements consist primarily of property operating expenses, property acquisitions, capital expenditures, general and administrative expenses acquisition pursuit costs and principal and interest on our outstanding indebtedness. A further short-term liquidity requirement relates to distributions to our common and preferred shareholders and holders of preferred units, OP units, LTIP units, subordinated performance units, DownREIT OP units and DownREIT subordinated performance units. We expect to fund short-term liquidity requirements from our operating cash flow, cash on hand and borrowings under our credit facility.
As discussed in Note 8 in Item 1, on February 8, 2017, we entered into an Increase Agreement with a syndicated group of lenders to increase the total borrowing capacity under the credit facility by $170.0 million for a total credit facility of $895.0 million, which included entry into a new $105.0 million Term Loan C. We continue to have an expansion option under the credit facility, which, if exercised in full, would provide for a total credit facility of $1.0 billion.
As of September 30, 2017, $235.0 million was outstanding under the Term Loan A with an effective interest rate of 2.63%, $155.0 million was outstanding under the Term Loan B with an effective interest rate of 3.24%, $105.0 million was outstanding under the Term Loan C with an effective interest rate of 3.71% and $201.0 million was outstanding under the Revolver with an effective interest rate of 2.63%. As of September 30, 2017, we would have had the capacity to borrow remaining Revolver commitments of $194.3 million while remaining in compliance with the credit facility's financial covenants.
For a summary of our financial covenants and additional detail regarding our credit facility, Term Loan Facility (as defined below), and fixed rate mortgage payables, please see Note 8 to the Company's most recent Annual Report on Form10-K filed with the Securities and Exchange Commission.
Our long-term liquidity needs consist primarily of the repayment of debt, property acquisitions, and capital expenditures. We acquire properties through the use of cash, preferred units, OP units and subordinated performance units in our operating partnership or DownREIT partnerships. We expect to meet our long-term liquidity requirements with operating cash flow, cash on hand, secured and unsecured indebtedness, and the issuance of equity and debt securities.
We have aThe availability of credit agreementand its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. During the last year, the Federal Reserve Board has raised interest rates from historically low levels and has signaled an intention to continue to do so until current inflation levels re-align with a syndicated groupthe Federal Reserve Board's long-term inflation target. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of lenders for a term loan facility (the "Term Loan Facility") in an aggregate amount of $100.0 million, which amount is outstanding, with an effective interest rate of 3.08% as of September 30, 2017. We have an expansion option under the Term Loan Facility, which, if exercised in full, would provide for a total Term Loan Facility in an aggregate amount of $200.0 million.
are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties. We believe that, as a publicly-traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of debt and additional equity securities. However, we cannot assure you that this will be the case.
Cash Flows
At SeptemberJune 30, 2017,2023, we had $13.7$44.0 million in cash and cash equivalents and $4.7$3.3 million of restricted cash, an increase in cash and cash equivalents of $1.1$8.7 million and an increasedecrease in restricted cash of $1.9$3.6 million from December 31, 2016.2022. Restricted cash primarily consists of escrowed funds deposited with financial institutions for real estate taxes, insurance, and other reserves for capital improvements in accordance with our loan agreements. The following discussion relates to changes in cash due to operating, investing, and financing activities, which are presented in our condensed consolidated statements of cash flows included in Item 1 of this report.
Cash Flows From Operating Activities
Cash provided by our operating activities was $94.9$218.2 million for the ninesix months ended SeptemberJune 30, 20172023 compared to $68.3$227.0 million for the ninesix months ended SeptemberJune 30, 2016, an increase2022, a decrease of $26.6$8.9 million. Our operating cash flow increaseddecreased primarily due to higher cash payments for interest expense. The decrease in our operating cash flows was partially offset by the 3125 self storage properties that were acquired between OctoberJuly 1, 20162022 and December 31, 20162022 that generated cash flow for the entire ninesix months ended SeptemberJune 30, 2017,2023, and an additional 3416 self storage properties and two annexes to existing properties acquired during the ninesix months ended SeptemberJune 30, 2017. Because these 65 self storage properties were acquired after September 30, 2016, our operating results for the nine months ended September 30, 2016 were not impacted by them. In addition, we received $3.8 million of operating distributions from our unconsolidated real estate venture during the nine months ended September 30, 2017. The increase in our operating cash flows from these activities was partially offset by higher cash payments for general and administrative expenses and interest expense.2023.
Cash Flows From Investing Activities
Cash used in investing activities was $217.1$53.6 million for the ninesix months ended SeptemberJune 30, 20172023 compared to $342.6$244.9 million for the ninesix months ended SeptemberJune 30, 2016.2022. The primary uses of cash for the ninesix months ended SeptemberJune 30, 20172023 were for our acquisition of 3416 self storage properties and two annexes to existing properties for cash consideration of $209.7$18.1 million, capital expenditures of $10.0$17.9 million, investments in our unconsolidated real estate venture of $12.6 million and deposits for potential acquisitions of $2.3 million, partially offset by $17.5 million of proceeds from the sale of three self storage properties and land parcels. The primary uses of cash for the nine months ended September 30, 2016 were for our acquisition of 76 self storage properties for cash considerationmanagement company assets and an interest in a reinsurance company from Move It of $323.8 million, capital expenditures of $8.0$16.9 million, and depositsexpenditures for potential acquisitionscorporate furniture and equipment of $5.4$0.7 million.
Capital expenditures totaled $10.0$17.9 million and $8.0$20.3 million during the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. We generally fund post-acquisition capital additions from cash provided by operating activities.
We categorize our capital expenditures broadly into three primary categories:
•recurring capital expenditures, which represent the portion of capital expenditures that are deemed to replace the consumed portion of acquired capital assets and extend their useful life;
revenue•value enhancing capital expenditures, which represent the portion of capital expenditures that are made to enhance the revenue and value of an asset from its original purchase condition; and
•acquisitions capital expenditures, which represent the portion of capital expenditures capitalized during the current period that were identified and underwritten prior to a property's acquisition.
A summary of the capital expenditures for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, are presented below (dollars in thousands):
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Recurring capital expenditures | $ | 7,337 | | | $ | 4,972 | |
Value enhancing capital expenditures | 3,744 | | | 5,968 | |
Acquisitions capital expenditures | 6,102 | | | 8,775 | |
Total capital expenditures | 17,183 | | | 19,715 | |
Change in accrued capital spending | 750 | | | 618 | |
Capital expenditures per statement of cash flows | $ | 17,933 | | | $ | 20,333 | |
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|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Recurring capital expenditures | $ | 2,589 |
| | $ | 2,442 |
|
Revenue enhancing capital expenditures | 1,271 |
| | 2,315 |
|
Acquisitions capital expenditures | 6,149 |
| | 3,982 |
|
Total capital expenditures | 10,009 |
| | 8,739 |
|
Change in accrued capital spending | 2 |
| | (759 | ) |
Capital expenditures per statement of cash flows | $ | 10,011 |
| | $ | 7,980 |
|
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Cash Flows From Financing Activities
Cash provided byused in our financing activities was $125.3$159.4 million for the ninesix months ended SeptemberJune 30, 20172023 compared to $25.6 million in cash provided by our financing activities of $281.0 million for the ninesix months ended SeptemberJune 30, 2016. Our sources of financing cash flows for the nine months ended September 30, 2017 primarily consisted of $455.5 million of borrowings under our credit facility, an $84.9 million secured debt financing and $7.0 million of proceeds from the issuance of 300,043 subordinated performance units to an affiliate of Personal Mini.2022. Our primary uses of financing cash flows for the ninesix months ended SeptemberJune 30, 20172023 were for principal payments on existing debt of $344.9$359.5 million (which included $331.0$345.0 million of principal repayments under the Revolver, $10.4$12.3 million ofin fixed rate mortgage principal payoffsrepayments, and $3.5$2.2 million of scheduled fixed rate mortgage principal amortization payments), payments of dividends to common shareholders of $98.2 million, distributions to noncontrolling interests of $41.8$70.0 million, common share repurchases of $69.3 million, and distributions to commonpreferred shareholders of $33.6$9.4 million. Our sources of financing cash flows for the ninesix months ended SeptemberJune 30, 20162023 primarily consisted of $237.5$449.0 million of proceeds from the completion of our follow-on common share offering, $398.5borrowings (which included $329.0 million of borrowings under our Revolver and $120.0 million of senior unsecured notes).
Credit Facility and Term Loan Facilities
On January 3, 2023, we entered into a third amended and restated credit agreement which expands the total borrowing capacity of our credit facility by $405.0 million to $1.955 billion with an expansion option to expand the total borrowing capacity to $2.5 billion. The maturity date of the Revolver is now January 2027 versus the previous maturity date of January 2024, while the total borrowing capacity of the Revolver increased to $950.0 million from $650.0 million. In connection with the credit facility recast the $125.0 million Term Loan A due January 2023 was eliminated by us, Term Loan B increased from $250.0 million to $275.0 million, Term Loan C increased from $225.0 million to $325.0 million, Term Loan D increased from $175.0 million to $275.0 million, and $100.0Term Loan E increased from $125.0 million to $130.0 million. The Revolver matures in January 2027; provided that we may elect to extend the maturity to July 2028 by paying an extension fee of borrowings under our0.0625% of the total borrowing commitment thereunder at the time of extension and meeting other customary conditions with respect to compliance. The Term loan facility. Our primary usesLoan B matures in July 2024, provided that we have the option to elect to extend the maturity to January 2025, subject to certain conditions being met and payment of financing cash flows foran extension fee of 0.0625% of the nine months ended Septemberamount of the Term Loan B, the Term Loan C matures in January 2025, the Term Loan D matures in July 2026 and the Term Loan E matures in March 2027. The Revolver, Term Loan B, Term Loan C, Term Loan D and Term Loan E are not subject to any scheduled reduction or amortization payments prior to maturity.
As of June 30, 2016 were for principal payments on existing debt of $401.22023, $275.0 million (which included $376.0 million of principal repaymentswas outstanding under the Term Loan B with an effective interest rate of 3.26%, $325.0 million was outstanding under the Term Loan C with an effective interest rate of 3.21%, $275.0 million was outstanding under the Term Loan D with an effective interest rate of 2.92% and $130.0 million was outstanding under the Term Loan E with an effective interest rate of 4.92%. As of June 30, 2023, we would have had the capacity to borrow remaining Revolver $22.0commitments of $393.6 million of fixed rate mortgage principal payoffs and $3.2 million of scheduled fixed rate mortgage principal payments), distributions to noncontrolling interests of $33.4 million, and distributions to common shareholders of $17.6 million.while remaining in compliance with the credit facility's financial covenants.
In connection with the 34credit facility recast on January 3, 2023, the Company retired the $175.0 million term loan facility due in June 2023.
We have a 2028 Term Loan Facility that matures in December 2028 and is separate from the credit facility and 2023 Term Loan Facility in an aggregate amount of $75.0 million. As of June 30, 2023 the entire amount was outstanding under the 2028 Term Loan Facility with an effective interest rate of 4.62%. We have an expansion option under the 2028 Term Loan Facility, which, if exercised in full, would provide for total borrowings in an aggregate amount up to $125.0 million.
We have an April 2029 Term Loan Facility that matures in April 2029 and is separate from the credit facility, 2023 Term Loan Facility and 2028 Term Loan Facility in an aggregate amount of $100.0 million. As of June 30, 2023 the entire amount was outstanding under the April 2029 Term Loan Facility with an effective interest rate of 4.27%.
We have a June 2029 Term Loan Facility that matures in June 2029 and is separate from the credit facility, 2023 Term Loan Facility, 2028 Term Loan Facility, and April 2029 Term Loan Facility in an aggregate amount of $285.0 million. As of June 30, 2023 the June 2029 Term Loan Facility had an effective interest rate of 5.37%. We have an expansion option under the June 2029 Term Loan Facility, which, if exercised in full, would provide for total borrowings in an aggregate amount up to $300.0 million.
2029 and August 2031 Senior Unsecured Notes
On August 30, 2019, our operating partnership issued $100.0 million of 3.98% senior unsecured notes due August 30, 2029 and $50.0 million of 4.08% senior unsecured notes due August 30, 2031 in a private placement to certain institutional investors.
August 2030 and 2032 Senior Unsecured Notes
On October 22, 2020, our operating partnership issued $150.0 million of 2.99% senior unsecured notes due August 5, 2030 and $100.0 million of 3.09% senior unsecured notes due August 5, 2032 in a private placement to certain institutional investors.
2026, May 2031 and May 2033Senior Unsecured Notes
On May 26, 2021, our operating partnership issued $55.0 million of 3.10% senior unsecured notes due May 4, 2033. On July 26, 2021, our operating partnership issued $35.0 million of 2.16% senior unsecured notes due May 4, 2026 and $90.0 million of 3.00% senior unsecured notes due May 4, 2031.
November 2030, November 2031, November 2033, and 2036 Senior Unsecured Notes
On December 14, 2021, our operating partnership issued $75.0 million of 2.72% senior unsecured notes due November 30, 2030, $175.0 million of 2.81% senior unsecured notes due November 30, 2031 and $75.0 million of 3.06% senior unsecured notes due November 30, 2036. On January 28, 2022, our operating partnership issued $125.0 million of 2.96% senior unsecured notes due November 30, 2033.
November 2032 Senior Unsecured Notes
On September 28, 2022, our operating partnership issued $200.0 million of 5.06% senior unsecured notes due November 16, 2032.
2028 Senior Unsecured Notes
On April 27, 2023, our operating partnership issued $120.0 million of 5.61% senior unsecured notes due July 5, 2028 in a private placement to certain institutional investors. The 2028 Notes have an effective interest rate of 5.75% after taking into account the effect of interest rate swaps.
Fixed Rate Mortgage Payable
On July 9, 2021, we entered into an agreement with a single lender for an $88.0 million debt financing secured by eight of our self storage properties. This interest-only loan matures in July 2028 and has a fixed interest rate of 2.77%.
Equity Transactions
Issuance of Preferred Shares
On March 16, 2023, the Company issued 5,668,128 Series B Preferred Shares for approximately $139.6 million, to shareholders of an affiliate of Personal Mini, in connection with the acquisition of a portfolio of 15 properties. As part of the acquisition transaction, the Company recorded a $26.1 million promissory note receivable from an affiliate of Personal Mini. Proceeds from the promissory note were used by the affiliate of Personal Mini to acquire $26.1 million of subordinated performance units. The promissory note bears interest at a rate equivalent to the dividends paid on 1,059,683 of the Series B Preferred Shares. As a result of these agreements, the $26.1 million promissory note receivable, interest income on the note receivable, $26.1 million of Series B Preferred Shares value, and dividends on such Series B Preferred Shares have been offset, resulting in a net amount presented as proceeds from the issuance of Series B Preferred Shares of $113.3 million.
Issuance of Common Shares
During the six months ended June 30, 2023, after receiving notices of redemption from certain OP unitholders, we elected to issue 422,367 common shares to such holders in exchange for 422,367 OP units in satisfaction of the operating partnership's redemption obligations.
Common Share Repurchases
During the six months ended June 30, 2023, we repurchased 1,622,874 common shares for approximately $69.3 million.
Issuance of OP Equity
In connection with the 16 properties and two annexes to existing properties acquired during the ninesix months ended SeptemberJune 30, 2017,2023, we issued $42.8 million of OP equity of $14.2 million (consisting of 473,533855,486 subordinated performance units).
During the six months ended June 30, 2023, we also issued (i) 2,545,063 OP units 96,394upon the non-voluntary conversion of 926,623 subordinated performance units in connection with Move It's retirement, (ii) 481,811 OP units upon the conversion of 397,000 subordinated performance units and (iii) 128,487 OP units upon the vestingconversion of 36,400an equivalent number of LTIP units.
During the six months ended June 30, 2023, we issued 195,573 DownREIT OP units previously issued)issued upon the voluntary conversion of 203,637 DownREIT subordinated performance units.
Dividends and paid cash of $209.7 million.Distributions
On August 24, 2017,May 25, 2023, our board of trustees declared a cash dividend and distribution, respectively, of $0.26$0.56 per common share and OP unit. Such distributions were paid on September 29, 2017unit to shareholders and OP unitholders of record as of SeptemberJune 15, 2017.2023. On September 13, 2017,May 25, 2023, our board of trustees also declared cash distributions of $0.375 per Series A Preferred Share, Series B Preferred Share and Series A-1 preferred unit to shareholders and unitholders of record as of June 15, 2023. On June 15, 2023, our board of trustees declared cash distributions of $7.7$12.3 million, in the aggregate, to subordinated performance unitholders of record as of SeptemberJune 15, 2017.2023. Such dividends and distributions were paid on September 29, 2017.
During the nine months ended SeptemberJune 30, 2017, after receiving notices of redemption from certain holders of OP units, we elected to issue 1,189,801 common shares to such holders in exchange for 1,189,801 OP units in satisfaction of the operating partnership's redemption obligations.
As discussed in Note 13 in Item 1, on October 11, 2017, we completed an underwritten public offering of 6,900,000 of our Preferred Shares, which included 900,000 Preferred Shares sold upon the exercise in full by the underwriters of their option to purchase additional Preferred Shares, resulting in net proceeds to us of approximately $166.6 million, after deducting the underwriting discount and our other offering expenses. We used the net proceeds from the offering to repay amounts outstanding under our Revolver, and subsequently redrew under our Revolver to fund self storage property acquisitions.2023.
Cash Distributions from our Operating Partnership
Under the LP Agreement of our operating partnership, to the extent that we, as the general partner of our operating partnership, determine to make distributions to the partners of our operating partnership out of the operating cash flow or capital transaction proceeds generated by a real property portfolio managed by one of our PROs, the holders of the series of subordinated performance units that relate to such portfolio are entitled to share in such distributions. Under the LP Agreement of our operating partnership, operating cash flow with respect to a portfolio of properties managed by one of our PROs is generally an amount determined by us, as general partner of our operating partnership, equal to the excess of property revenues over property related expenses from that portfolio. In general, property revenue from the portfolio includes:
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(i) | all receipts, including rents and other operating revenues; |
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(ii) | any incentive, financing, break-up and other fees paid to us by third parties; |
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(iii) | amounts released from previously set aside reserves; and |
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(iv) | any other amounts received by us, which we allocate to the particular portfolio of properties. |
(i)all receipts, including rents and other operating revenues;
(ii)any incentive, financing, break-up and other fees paid to us by third parties;
(iii)amounts released from previously set aside reserves; and
(iv)any other amounts received by us, which we allocate to the particular portfolio of properties.
In general, property-related expenses include all direct expenses related to the operation of the properties in that portfolio, including real property taxes, insurance, property-level general and administrative expenses, employee costs, utilities, property marketing expense, property maintenance and property reserves and other expenses incurred at the
property level. In addition, other expenses incurred by our operating partnership maywill also be allocated by us, as general partner, to the property portfolio and will be included in the property-related expenses of that portfolio. Examples of such other expenses include:
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(i) | corporate-level general and administrative expenses; |
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(ii) | out-of-pocket costs, expenses and fees of our operating partnership, whether or not capitalized; |
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(iii) | the costs and expenses of organizing and operating our operating partnership; |
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(iv) | amounts paid or due in respect of any loan or other indebtedness of our operating partnership during such period; |
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(v) | extraordinary expenses of our operating partnership not previously or otherwise deducted under item (ii) above; |
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(vi) | any third-party costs and expenses associated with identifying, analyzing, and presenting a proposed property to us and/or our operating partnership; and |
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(vii) | reserves to meet anticipated operating expenditures, debt service or other liabilities, as determined by us. |
(i)corporate-level general and administrative expenses;
(ii)out-of-pocket costs, expenses and fees of our operating partnership, whether or not capitalized;
(iii)the costs and expenses of organizing and operating our operating partnership;
(iv)amounts paid or due in respect of any loan or other indebtedness of our operating partnership during such period;
(v)extraordinary expenses of our operating partnership not previously or otherwise deducted under item (ii) above;
(vi)any third-party costs and expenses associated with identifying, analyzing, and presenting a proposed property to us and/or our operating partnership; and
(vii)reserves to meet anticipated operating expenditures, debt service or other liabilities, as determined by us.
To the extent that we, as the general partner of our operating partnership, determine to make distributions to the partners of our operating partnership out of the operating cash flow of a real property portfolio managed by one of our PROs, operating cash flow from a property portfolio is required to be allocated to holders of OP unitsunitholders and to the holders of series of subordinated performance units that relate to such property portfolio as follows:
First, an amount is allocated to holders of OP unitsunitholders in order to provide holders of OP unitsunitholders (together with any prior allocations of capital transaction proceeds) with a cumulative preferred allocation on the unreturned capital contributions attributed to the OP units in respect of such property portfolio. The preferred allocation for all of our existing portfolios is 6%. As of SeptemberJune 30, 2017,2023, our operating partnership had an aggregate of $1,081.0$3,013.7 million of such unreturned capital contributions with respect to common shareholders and OP unitholders, andwith respect to the various property portfolios.
Second, an amount is allocated to the holders of the series of subordinated performance units relating to such property portfolio in order to provide such holders with an allocation (together with prior distributions of capital transaction proceeds) on their unreturned capital contributions. Although the subordinated allocation for the subordinated performance units is non-cumulative from period to period, if the operating cash flow from a property portfolio related to a series of subordinated performance units is sufficient, in the judgment of the general partner (with the approval of a majority of our independent trustees), to fund distributions to the holders of such series of subordinated performance units, but we, as the general partner of our operating partnership, decline to make distributions to such holders, the amount available but not paid as distributions will be added to the capital contributionssubordinated allocation corresponding to such series of subordinated performance units. The subordinated allocation for the outstanding subordinated performance units is 6%. As of SeptemberJune 30, 2017,2023, an aggregate of $188.3$198.1 million of unreturned capital contributions has been allocated to the various series of subordinated performance units.
Thereafter, any additional operating cash flow is allocated to holders of OP unitsunitholders and the applicable series of subordinated performance units equally.
Following the allocation described above, we as the general partner of our operating partnership, will generally cause our operating partnership to distribute the amounts allocated to the relevant series of subordinated performance units to the holders of such series of subordinated performance units. We, as the general partner, may cause our operating partnership to distribute the amounts allocated to holders of the OP unitsunitholders or may cause our operating partnership to retain such amounts to be used by our operating partnership for any purpose. Any operating cash flow that is attributable to amounts retained by our operating partnership pursuant to the preceding sentence will generally be available to be allocated as an additional capital contribution to the various property portfolios.
The foregoing description of the allocation of operating cash flow between the OP unit holdersunitholders and subordinated performance unit holdersunitholders is used for purposes of determining distributions to holders of subordinated performance units but does not necessarily represent the operating cash flow that will be distributed to holders of OP unitsunitholders (or paid as dividends to holders of our common shares). Any distribution of operating cash flow allocated to the holders of OP unitsunitholders will be made at our discretion (and paid as dividends to holders of our common shares at the discretion of our board of trustees).
Under the LP Agreement of our operating partnership, capital transactions are transactions that are outside the ordinary course of our operating partnership's business, involve the sale, exchange, other disposition, or refinancing
of any property, and are designated as capital transactions by us, as the general partner. To the extent the general partner determines to distribute capital transaction proceeds, the proceeds from capital transactions involving a particular property portfolio are required to be allocated to holders of OP unitsunitholders and to the series of subordinated performance units that relate to such property portfolio as follows:
First, an amount determined by us, as the general partner, of such capital transaction proceeds is allocated to holders of OP unitsunitholders in order to provide holders of OP unitsunitholders (together with any prior allocations of operating cash flow) with a cumulative preferred allocation on the unreturned capital contributions attributed to the holders of OP unitsunitholders in respect of such property portfolio that relate to such capital transaction plus an additional amount equal to such unreturned capital contributions.
Second, an amount determined by us, as the general partner, is allocated to the holders of the series of subordinated performance units relating to such property portfolio in order to provide such holders with a non-cumulative subordinated allocation on the unreturned capital contributions made by such holders in respect of such property portfolio that relatesrelate to such capital transaction plus an additional amount equal to such unreturned capital contributions.
The preferred allocation and subordinated allocation with respect to capital transaction proceeds for each portfolio is equal to the preferred allocation and subordinated allocation for distributions of operating cash flow with respect to that portfolio.
Thereafter, any additional capital transaction proceeds are equally allocated to holders of OP unitsunitholders and the applicable series of subordinated performance units.units equally.
Following the allocation described above, we, as the general partner of our operating partnership, will generally cause our operating partnership to distribute the amounts allocated to the relevant series of subordinated performance units to the holders of such series of subordinated performance units. We, as general partner of our operating partnership, may cause our operating partnership to distribute the amounts allocated to holders of the OP unitsunitholders or may cause our operating partnership to retain such amounts to be used by our operating partnership for any purpose, including additional acquisitions through the use of 1031 exchanges.purpose. Any capital transaction proceeds that are attributable to amounts retained by our operating partnership pursuant to the preceding sentence will generally be available to be allocated as an additional capital contribution to the various property portfolios.
The foregoing allocation of capital transaction proceeds between the OP unit holdersunitholders and subordinated performance unit holdersunitholders is used for purposes of determining distributions to holders of subordinated performance units but does not necessarily represent the capital transaction proceeds that will be distributed to holders of OP unitsunitholders (or paid as dividends to holders of our common shares). Any distribution of capital transaction proceeds allocated to the holders of OP unitsunitholders will be made at our discretion (and paid as dividends to holders of our common shares at the discretion of our board of trustees).
Allocation of Capital Contributions
We, as the general partner of our operating partnership, in our discretion, have the right to increase or decrease, as appropriate, the amount of capital contributions allocated to our operating partnership in general and to each series of subordinated performance units to reflect capital expenditures made by our operating partnership in respect of each portfolio, the sale or refinancing of all or a portion of the properties comprising the portfolio, the distribution of capital transaction proceeds by our operating partnership, the retention by our operating partnership of cash for working capital purposes and other events impacting the amount of capital contributions allocated to the holders. In addition, to avoid conflicts of interests, any decision by us to increase or decrease allocations of capital contributions must also be approved by a majority of our independent trustees.
Off-Balance Sheet Arrangements
Except as disclosed in the notes to our financial statements, as of SeptemberJune 30, 2017,2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, except as disclosed in the notes to our financial statements, as of SeptemberJune 30, 2017,2023, we have not guaranteed any obligations of unconsolidated entities, nor do we havemade any commitments or intent to provide funding to any such entities. Accordingly, we are not materially exposedentities, that creates any material exposure to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
risk.
Seasonality
The self storage business is subject to minor seasonal fluctuations. A greater portion of revenues and profits are generally realized from May through September. Historically, our highest level of occupancy has typically been in July, while our lowest level of occupancy has typically been in February. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our future income, cash flows, and fair values of financial instruments are dependent upon prevailing market interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. We use interest rate swaps to moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. We make limited use of other derivative financial instruments and we do not use them for trading or other speculative purposes.
As of SeptemberJune 30, 2017,2023, we had $201.0$605.0 million of debt subject to variable interest rates (excluding variable-rate debt subject to interest rate swaps). If our reference rates (currently one-month LIBORSOFR) were to increase or decrease by 100 basis points, the increase or decrease in interest expense on the variable-rate debt (excluding variable-rate debt subject to interest rate swaps) would increasedecrease or decreaseincrease future earnings and cash flows by approximately $2.0$6.1 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures, as of the end of the period covered by this report, are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We are not currently subject to any legal proceedings that we consider to be material.
ITEM 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the Company's Annual Report on Form 10-K for the year ended December 31, 20162022 filed with the SEC on February 28, 2017 under the heading Item 1A. "Risk Factors" beginning on page 14,17, which is accessible on the SEC's website at www.sec.gov. During
With the nine months ended September 30, 2017,exception of the risk factor set forth below, which updates and supplements the risk factors disclosed in our 2022 Form 10-K, there have been no material changes to suchthe risk factors disclosed in our 2022 Form 10-K.
Adverse developments affecting the financial services industry, whether actual or perceived, such as events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional parties, could adversely affect our financial condition or our results of operations.
We maintain our cash assets at commercial banks in the United States in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000 and have entered into or may in the future enter into credit agreements, letters of credit and other financial instruments with one or more lenders or other counterparties. In the event any bank at which we maintain our deposits or any lender or such other counterparty fails, is or was to be placed into receivership or suffers or is perceived to be in similar economic distress, we may be unable to access our cash assets or funds at such institutions, which could adversely affect our financial condition and our results of operations. In addition, if any of our customers, tenants, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties' ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.
To the extent such adverse developments adversely affect our business and financial results, they may also have the effect of heightening many of the other risks described in the Risk Factors section in the Annual Report, such as those relating to economic or other conditions in the markets in which we do business, changes in interest rates, our ability to obtain debt financing, our dependence on Form 10-K filed with the SEC on February 28, 2017.external sources of capital and our ability to pay dividends.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended SeptemberJune 30, 2017,2023, the Company, in its capacity as general partner of its operating partnership, caused the operating partnership to issue 36,283354,936 common shares to satisfy redemption requests from certain limited partners.
On October 3, 2017,May 16, 2023, the operating partnership issued 26,049 OP153,840 subordinated performance units to Nordhagen LLLP, an entity for which Arlen D. Nordhagen, the Company's chairman and chief executive officer, holds voting and/or investment power, 115,918 OP units each to JM Trust and Lamb Family Trust, each an affiliate of Guardian, one of the Company's existing PROs, and 2,605 OP units to an unrelated third party as partial consideration for the acquisition of a self storage property.
On October 16, 2017,July 18, 2023, the operating partnership issued 22,21418,895 OP units to unrelated third parties and 269,364 subordinated performance units to SecurCare Self Storage Inc., an affiliate of SecurCare,Guardian, one of the Company's existing PROs, and an affiliateas partial consideration for the acquisition of Arlen D. Nordhagen, the Company's chairman and chief executive officer and 23,121 subordinated performance units to Move It B Units, LLC, an affiliate of Move It, one of the Company's existing PROs.a self storage property.
Following a specified lock up period after the respective datesdate of issuance set forth above, the OP units issued by the operating partnership may be redeemed from time to time by holders for a cash amount per OP unit equal to the market value of an equivalent number of common shares of the Company.shares. The Company has the right, but not the obligation, to assume and satisfy the redemption obligation of itsthe operating partnership described above by issuing one common share in exchange for each OP unit tendered for redemption.
The Company has elected to report early the private placement of its common shares that may occur if the Company elects to assume the redemption obligation of itsthe operating partnership as described above in the event that OP units are in the future tendered for redemption.
Following a two-year lock-up period, holders of subordinated performance units may elect, only upon the achievement of certain performance thresholds relating to the properties to which such subordinated performance units relate, to convert all or a portion of such subordinated performance units into OP units one time each year by submitting a completed conversion notice prior to December 1 of such year. All duly submitted conversion notices will become effective on the immediately following January 1. For additional information about the conversion or exchange of subordinated performance units into OP units, see Note 9 in Item 1 of this report.
As of November 6, 2017,August 7, 2023, other than those OP units held by the Company, after reflecting the transactions described herein, 29,111,15340,836,318 OP units of its operating partnership were outstanding (including 771,396814,826 outstanding LTIP units in the operating partnership and 1,834,7862,120,491 outstanding OP units ("DownREIT OP units") in certain consolidated subsidiaries of the operating partnership, which are convertible into, or exchangeable for, OP units on a one-for-basis, subject to certain conditions) and 12,089,225 subordinated performance units (including 4,133,474 subordinated performance units in certain subsidiaries of the operating partnership ("DownREIT subordinated performance units")).
These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
On July 11, 2022, the Company approved a share repurchase program authorizing the repurchase of up to $400.0 million of the Company's common shares. During the three months ended June 30, 2023 the Company did not repurchase any of its common shares pursuant to the program. During the three months ended June 30, 2023, certain of our employees surrendered common shares owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares issued to them. The table below summarizes all of our repurchases of common shares during three months ended June 30, 2023:
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Period | | Total number of shares purchased | | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs |
April 1 - April 30, 2023 | | — | | | $ | — | | | — | | | $ | 240,819,102 | |
May 1 - May 31, 2023 | | — | | | — | | | — | | | 240,819,102 | |
June 1 - June 30, 2023 | | 1,257(1) | | | 36.58 | | | — | | | 240,819,102 | |
Total/Weighted Average | | 1,257 | | | $ | 36.58 | | | — | | | $ | 240,819,102 | |
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(1) The number of shares purchased represents restricted common shares surrendered by certain of our employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common shares issued to them. The price paid per share is based on the closing price of our common shares as of June 9, 2023, the date prior to the date of withholding. |
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Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
Not applicable.
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ITEM 6. Exhibits |
The following exhibits are filed with this report: |
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Exhibit Number | Exhibit Description |
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| Facilities Portfolio Management Agreement, dated July 1, 2017,Description of Common Shares of Beneficial Interest and 6.000% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (Exhibit 4.3 to the Annual Report on Form 10-K, filed with the SEC on February 26, 2020, is incorporated herein by and among (i) NSA OP, LP, (ii) the property owners listed therein, (iii) Move It Self Storage, LP, a Texas limited partnership, and (iv) Austin Starke Taylor III, an individualthis reference) |
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101*101.INS* | XBRL (Extensible Business Reporting Language). The following materials from NSA's Quarterly Report on Form 10-Q forInstance Document - the quarterly period ended September 30, 2017, taggedinstance document does not appear in XBRL: ((i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of comprehensive income (loss); (iv) condensed consolidated statement of changes in equity; (v) condensed consolidated statements of cash flows; and (vi) notes to condensed consolidated financial statements.the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* | Inline XBRL Taxonomy Extension Schema |
*101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase |
104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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* | Filed herewith. |
** | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| National Storage Affiliates Trust |
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By: | /s/ DAVID G. CRAMER |
| David G. Cramer |
| president and chief executive officer |
| (principal executive officer) |
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By: | National Storage Affiliates Trust/s/ BRANDON S. TOGASHI |
| Brandon S. Togashi |
By: | /s/ ARLEN D. NORDHAGEN |
| Arlen D. Nordhagen |
| chairman of the board of trustees |
| and chief executive officer |
| (principal executive officer) |
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By: | /s/ TAMARA D. FISCHER |
| Tamara D. Fischer |
| chief financial officer |
| (principal accounting and financial officer) |
Date: November 7, 2017
August 8, 2023