ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may," or similar expressions, we intend to identify forward-looking statements.
The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. One of the most significant factors is the ongoing and potential impact of the current outbreak of COVID-19 on the economy, the self storage industry and the broader financial markets, which may have a significant negative impact on the Company's financial condition, results of operations and cash flows. The Company is unable to predict whether the continuing effects of the COVID-19 pandemic will trigger a further economic slowdown or a recession and to what extent the Company will experience disruptions related to the COVID-19 pandemic in the second quarter or thereafter. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below and the risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 26, 2020 (the "Annual Report"), the risk factor set forth in this quarterly report under Item 1A below, and the Company's subsequent filings under the Exchange Act.
Statements regarding the following subjects, among others, may be forward-looking:
•market trends in our industry, interest rates, the debt and lending markets or the general economy;
•our business and investment strategy;
•the acquisition of properties, including those under contract, and the ability of our acquisitions to achieve underwritten capitalization rates and our ability to execute on our acquisition pipeline;
•the timing of acquisitions;
•the internalization of retiring PROs into the Company;
•our relationships with, and our ability and timing to attract additional, PROs;
•our ability to effectively align the interests of our PROs with us and our shareholders;
•the integration of our PROs and their managed portfolios into the Company, including into our financial and operational reporting infrastructure and internal control framework;
•our operating performance and projected operating results, including our ability to achieve market rents and occupancy levels, reduce operating expenditures and increase the sale of ancillary products and services;
•our ability to access additional off-market acquisitions;
•actions and initiatives of the U.S. federal, state and local government and changes to U.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies;
•the state of the U.S. economy generally or in specific geographic regions, states, territories or municipalities;
•economic trends and economic recoveries;
•our ability to obtain and maintain financing arrangements on favorable terms;
•general volatility of the securities markets in which we participate;
•the negative impacts from the continued spread of COVID-19 on the economy, the self storage industry, the broader financial markets, the Company's financial condition, results of operations and cash flows and the ability of the Company's tenants to pay rent;
•changes in the value of our assets;
•projected capital expenditures;
•the impact of technology on our products, operations, and business;
•the implementation of our technology and best practices programs (including our ability to effectively implement our integrated Internet marketing strategy);
•changes in interest rates and the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
•our ability to continue to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes;
•availability of qualified personnel;
•the timing of conversions of subordinated performance units in our operating partnership and subsidiaries of our operating partnership into OP units in our operating partnership, the conversion ratio in effect at such time and the impact of such convertibility on our diluted earnings (loss) per share;
•the risks of investing through joint ventures, including whether the anticipated benefits from a joint venture are realized or may take longer to realize than expected;
•estimates relating to our ability to make distributions to our shareholders in the future; and
•our understanding of our competition.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions, and expectations can change as a result of many possible events or factors, not all of which are known to us. Readers should carefully review our financial statements and the notes thereto, as well as the sections entitled "Business," "Risk Factors," "Properties," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 26, 2019 (the "Annual Report"), and the other documents we file from time to time with the SEC. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
National Storage Affiliates Trust is a fully integrated, self-administered and self-managed real estate investment trust organized in the state of Maryland on May 16, 2013. We have elected and we believe that we have qualified to be taxed as a REIT commencing with our taxable year ended December 31, 2015. We serve as the sole general partner of our operating partnership, a Delaware limited partnership formed on February 13, 2013 to conduct our business, which is focused on the ownership, operation, and acquisition of self storage properties located within the top 100 metropolitan statistical areas throughout the United States.
Our executive chairman of the board of trustees and former chief executive officer, Arlen D. Nordhagen, co-founded SecurCare Self Storage, Inc. in 1988 to invest in and manage self storage properties. While growing SecurCare to over 150 self storage properties, Mr. Nordhagen recognized a market opportunity for a differentiated public self storage REIT that would leverage the benefits of national scale by integrating multiple experienced regional self storage operators with local operational focus and expertise. We believe that his vision, which is the foundation of the Company, aligns the interests of our participating regional operators ("PROs"), with those of our public shareholders by allowing our PROs to participate alongside our shareholders in our financial performance and the performance of our PROs' managed portfolios. This structure offers our PROs a unique opportunity to serve as regional property managers for their managed portfolios and directly participate in the potential upside of those properties while simultaneously diversifying their investment to include a broader portfolio of self storage properties.
COVID-19
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. The outbreak of COVID-19 in many countries, including the United States, has adversely impacted economic activity. The effect of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified, most states and municipalities have reacted by instituting quarantines, mandating business and school closures, requiring restrictions on travel, "shelter-in-place" and/or "stay-at-home" orders, and imposing restrictions on the types of businesses that may continue to operate. These containment measures generally do not apply to businesses, like ours, which are designated as "essential," but may apply to certain of our tenants, employees, vendors, lenders and joint venture partners.
As of the date of this report, our stores continue to operate and we are in compliance with federal, state and local COVID-19 guidelines and mandates. In response to the pandemic, we have increased the level and frequency of cleaning and sanitation of our self storage facilities and enacted recommended social distancing guidelines. Our stores have operated, and some stores continue to operate, with a locked office, and on-site customer interaction is handled through a window, over the telephone, or in other ways intended to minimize physical contact. Many of our stores feature online rental capabilities whereby a customer can complete the entire rental process online and receive an access code to the storage facility. For the remainder of our stores that do not yet benefit from the online rental feature, the combination of call center and email communication eliminates the need for any physical contact between customers and employees.
While our results of operations were not significantly impacted by the pandemic during the three months ended March 31, 2020, we have experienced a slowdown in overall business activity, including lower move-in and move-out volume. There are state and local restrictions on price increases, auctions and late fee assessments, and we have temporarily suspended rental increases for in-place tenants. Specifically, our April 2020 same store portfolio (as defined below) operations were affected as follows:
•Same store move-in volume decreased approximately 28%, compared to the same period in 2019;
•Same store move-out volume decreased approximately 28%, compared to the same period in 2019.
•Same store period-end occupancy was 87.1% as of April 30, 2020, which was unchanged compared to March 31, 2020 and a decrease of approximately 140 basis points compared to April 30, 2019.
We have taken proactive measures to maintain the strength of our business and manage the impact of COVID-19 on our operations and liquidity, including the following:
•We have closely monitored our liquidity position. As of April 30, 2020, we had the capacity to borrow remaining Revolver commitments of approximately $300 million with less than $40 million of debt maturing through 2022, and we have determined that it is not necessary to enhance our liquidity position through further borrowings at this time;
•We are being diligent to manage operating expenses, including store-level personnel costs, marketing and repairs and maintenance expenses. We have also incurred lower corporate travel costs compared to expectations at the beginning of the year.
•We remain committed to acquiring properties at appropriate risk-adjusted returns. We expect in the near-term there may be a lower volume of acquisition transactions in the self storage sector generally due to uncertainty from the pandemic. We believe our acquisition opportunities through our captive pipeline and relationship-based third-party deals sourced by our PROs will continue to be a differentiating factor for us to prudently deploy capital, including through the issuance of OP equity.
The above discussion is intended to provide shareholders with certain information regarding the impacts of the COVID-19 pandemic on our business and management’s efforts to respond to those impacts. We are unable to predict the impact of the COVID-19 pandemic on our business for the balance of the second quarter of 2020 and thereafter. We will continue to monitor its effects and will adjust our operations as necessary. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such information will change, potentially significantly, going forward and may not be indicative of the actual impact of the COVID-19 pandemic on our financial condition, results of operations and cash flows for the second quarter of 2020 and future periods. See "Risk Factors" under Item 1A.
Our Structure
Our structure promotes operator accountability as subordinated performance units issued to our PROs in exchange for the contribution of their properties are entitled to distributions only after those properties satisfy minimum performance thresholds. In the event of a material reduction in operating cash flow, distributions on our subordinated performance units will be reduced before or disproportionately to distributions on our common shares held by our common shareholders. In addition, we expect our PROs will generally co-invest subordinated equity in the form of subordinated performance units in each acquisition that they source, and the value of these subordinated performance units will fluctuate with the performance of their managed portfolios. Therefore, our PROs are incentivized to select acquisitions that are expected to exceed minimum performance thresholds, thereby increasing the value of their subordinated equity stake. We expect that our shareholders will benefit from the higher levels of property performance that our PROs are incentivized to deliver.
Our PROs
The Company had tennine PROs as of September 30, 2019: SecurCare,March 31, 2020: Northwest, Optivest, Guardian, Move It, Storage Solutions, Hide Away, Personal Mini, Southern and Moove In. As discussed in Note 1 in Item 1, on March 31, 2020, we closed on the merger and internalization of the management platform of SecurCare, which prior to the merger and internalization was our largest PRO. As part of the internalization, we offered employment to most of SecurCare's employees, including its key persons, to continue managing SecurCare's managed portfolio under the brand SecurCare as members of our existing property management platform. As a result of the merger, we will no longer pay any fees or reimbursements to SecurCare and distributions on the series of subordinated performance units related to SecurCare's managed portfolio were discontinued.
We seek to further expand our platform by continuing to recruit additional established self storage operators, while integrating our operations through the implementation of centralized initiatives, including management information systems, revenue enhancement, and cost optimization programs. Our national platform allows us to capture cost savings by eliminating redundancies and utilizing economies of scale across the property management platforms of our PROs while also providing greater access to lower-cost capital.
Our Consolidated Properties
We seek to own properties that are well located in high quality sub-markets with highly accessible street access and attractive supply and demand characteristics, providing our properties with strong and stable cash flows that are less sensitive to the fluctuations of the general economy. Many of these markets have multiple barriers to entry against increased supply, including zoning restrictions against new construction and new construction costs that we believe are higher than our properties' fair market value.
As of September 30, 2019,March 31, 2020, we owned a geographically diversified portfolio of 560603 self storage properties, located in 29 states and Puerto Rico, comprising approximately 34.136.2 million rentable square feet, configured in approximately 273,000288,000 storage units. Of these properties, 263266 were acquired by us from our PROs, 296336 were acquired from third-party sellers and one was acquired from the 2016 Joint Venture.
During the ninethree months ended September 30, 2019,March 31, 2020, we acquired 6236 self storage properties for $415.7$222.8 million, comprising approximately 3.81.8 million rentable square feet, configured in approximately 30,50013,600 storage units. Of these acquisitions, 17 wereone was acquired from our PROs, 44a PRO and 35 were acquired from third-party sellers and one was acquired from the 2016 Joint Venture.sellers.
Our Unconsolidated Real Estate Ventures
We seek to opportunistically partner with institutional funds and other institutional investors to acquire attractive portfolios utilizing a promoted return structure. We believe there is significant opportunity for continued external growth by partnering with institutional investors seeking to deploy capital in the self storage industry.
2018 Joint Venture
As of September 30, 2019,March 31, 2020, our 2018 Joint Venture, in which we have a 25% interest, owned and operated a portfolio of 103 properties containing approximately 7.8 million rentable square feet, configured in approximately 63,00064,000 storage units and located across 17 states.
2016 Joint Venture
As of September 30, 2019,March 31, 2020, our 2016 Joint Venture, in which we have a 25% ownership interest, owned and operated a portfolio of 7274 properties containing approximately 4.9 million rentable square feet, configured in approximately 40,000 storage units and located across 13 states.
During the ninethree months ended September 30, 2019,March 31, 2020, our 2016 Joint Venture sold to the Company oneacquired two self storage property for $4.1 million, comprisingproperties containing less than 0.1 million rentable square feet, configured in approximately 300500 storage units.units and located in one state.
Our Property Management Platform
Through our property management platform, we direct, manage and control the day-to-day operations and affairs of certain consolidated properties and our unconsolidated real estate ventures. As of March 31, 2020, our property management platform managed and controlled 265 of our consolidated properties and 177 of our unconsolidated real estate venture properties.
We earn certain customary fees for managing and operating the properties in the unconsolidated real estate ventures and we facilitate tenant insurance and/or tenant warranty protection programs for tenants at these properties in exchange for half of all proceeds from such programs.
As of September 30, 2019, our property management platform managed and controlled 40 of our consolidated properties in select markets in California, Illinois, Kansas, Maryland, Missouri, Ohio, Texas and Virginia.
Results of Operations
When reviewing our results of operations it is important to consider the timing of acquisition activity. We acquired 6236 self storage properties during the ninethree months ended September 30, 2019March 31, 2020 and 5769 self storage properties during the year ended December 31, 2018.2019. As a result of these and other factors, we do not believe that our historical results of operations discussed and analyzed below are comparable or necessarily indicative of our future results of operations or cash flows.
To help analyze the operating performance of our self storage properties, we also discuss and analyze operating results relating to our same store portfolio. Our same store portfolio is defined as those properties owned and operated since the first day of the earliest year presented, excluding any properties sold, expected to be sold or subject to significant changes such as expansions or casualty events which cause the portfolio's year-over-year operating results to no longer be comparable. As of September 30, 2019,March 31, 2020, our same store portfolio consisted of 439500 consolidated self storage properties.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements in Item 1. Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Three Months Ended September 30, 2019March 31, 2020 compared to the Three Months Ended September 30, 2018March 31, 2019
Net income was $16.5$15.8 million for the three months ended September 30, 2019,March 31, 2020, compared to $16.8$12.9 million for the three months ended September 30, 2018, a decreaseMarch 31, 2019, an increase of $0.3$2.9 million. The decreaseincrease was primarily due to increases in depreciation and amortization, interest expense, general and administrative expenses and GAAP losses from the Company's unconsolidated real estate ventures substantially offset by an increase in net operating income ("NOI") resulting from an additional 6973 self storage properties acquired between OctoberApril 1, 20182019 and September 30, 2019March 31, 2020 and same store NOI growth.growth partially offset by increases in depreciation and amortization and interest expense. For a description of NOI, see "Non-GAAP Financial Measures – NOI".
The following table illustrates the changes in rental revenue, other property-related revenue, management fees and other revenue, property operating expenses, and other expenses for the three months ended September 30, 2019March 31, 2020 compared to the three months ended September 30, 2018March 31, 2019 (dollars in thousands):
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2019 | | 2018 | | Change |
Rental revenue | | | | | |
Same store portfolio | $ | 73,444 |
| | $ | 70,873 |
| | $ | 2,571 |
|
Non-same store portfolio | 19,302 |
| | 6,372 |
| | 12,930 |
|
Effect of bad debt expense classification resulting from adoption of leasing standard | — |
| | 2,302 |
| | (2,302 | ) |
Total rental revenue | 92,746 |
| | 79,547 |
| | 13,199 |
|
Other property-related revenue | | | | | |
Same store portfolio | 2,571 |
| | 2,427 |
| | 144 |
|
Non-same store portfolio | 646 |
| | 260 |
| | 386 |
|
Total other property-related revenue | 3,217 |
| | 2,687 |
| | 530 |
|
Property operating expenses | | | | | |
Same store portfolio | 22,595 |
| | 22,010 |
| | 585 |
|
Non-same store portfolio | 6,393 |
| | 2,240 |
| | 4,153 |
|
Effect of bad debt expense classification resulting from adoption of leasing standard | — |
| | 2,302 |
| | (2,302 | ) |
Total property operating expenses | 28,988 |
| | 26,552 |
| | 2,436 |
|
Net operating income | | | | | |
Same store portfolio | 53,420 |
| | 51,290 |
| | 2,130 |
|
32
| | | | | | | | | | Three Months Ended March 31, | |
| Three Months Ended September 30, | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | |
Rental revenue | | Rental revenue | | | | | |
Same store portfolio | | Same store portfolio | $ | 81,609 | | | $ | 79,338 | | | $ | 2,271 | |
Non-same store portfolio | | Non-same store portfolio | 13,793 | | | 3,517 | | | 10,276 | |
Total rental revenue | | Total rental revenue | 95,402 | | | 82,855 | | | 12,547 | |
Other property-related revenue | | Other property-related revenue | |
Same store portfolio | | Same store portfolio | 2,907 | | | 2,680 | | | 227 | |
Non-same store portfolio | | Non-same store portfolio | 464 | | | 144 | | | 320 | |
Total other property-related revenue | | Total other property-related revenue | 3,371 | | | 2,824 | | | 547 | |
Property operating expenses | | Property operating expenses | |
Same store portfolio | | Same store portfolio | 25,738 | | | 25,219 | | | 519 | |
Non-same store portfolio | | Non-same store portfolio | 4,854 | | | 1,238 | | | 3,616 | |
Total property operating expenses | | Total property operating expenses | 30,592 | | | 26,457 | | | 4,135 | |
Net operating income | | Net operating income | |
Same store portfolio | | Same store portfolio | 58,778 | | | 56,799 | | | 1,979 | |
Non-same store portfolio | 13,555 |
| | 4,392 |
| | 9,163 |
| Non-same store portfolio | 9,403 | | | 2,423 | | | 6,980 | |
Total net operating income | 66,975 |
| | 55,682 |
| | 11,293 |
| Total net operating income | 68,181 | | | 59,222 | | | 8,959 | |
Management fees and other revenue | 5,374 |
| | 3,148 |
| | 2,226 |
| Management fees and other revenue | 5,449 | | | 4,893 | | | 556 | |
General and administrative expenses | (12,039 | ) | | (8,848 | ) | | (3,191 | ) | General and administrative expenses | (11,094) | | | (10,380) | | | (714) | |
Depreciation and amortization | (27,598 | ) | | (22,469 | ) | | (5,129 | ) | Depreciation and amortization | (29,105) | | | (24,349) | | | (4,756) | |
Other | | Other | (389) | | | (386) | | | (3) | |
Other (expense) income | | | | | | Other (expense) income | |
Interest expense | (14,432 | ) | | (10,656 | ) | | (3,776 | ) | Interest expense | (15,628) | | | (13,211) | | | (2,417) | |
Equity in (losses) earnings of unconsolidated real estate ventures | (1,214 | ) | | 242 |
| | (1,456 | ) | |
| Equity in losses of unconsolidated real estate ventures | | Equity in losses of unconsolidated real estate ventures | (340) | | | (2,102) | | | 1,762 | |
Acquisition costs | (321 | ) | | (141 | ) | | (180 | ) | Acquisition costs | (833) | | | (157) | | | (676) | |
Non-operating (expense) income | (8 | ) | | 153 |
| | (161 | ) | |
Non-operating expense | | Non-operating expense | (192) | | | (98) | | | (94) | |
| Other expense | (15,975 | ) | | (10,402 | ) | | (5,573 | ) | Other expense | (16,993) | | | (15,568) | | | (1,425) | |
Income before income taxes | 16,737 |
| | 17,111 |
| | (374 | ) | Income before income taxes | 16,049 | | | 13,432 | | | 2,617 | |
Income tax expense | (223 | ) | | (282 | ) | | 59 |
| Income tax expense | (286) | | | (492) | | | 206 | |
Net income | 16,514 |
| | 16,829 |
| | (315 | ) | Net income | 15,763 | | | 12,940 | | | 2,823 | |
Net income attributable to noncontrolling interests | (25,374 | ) | | (12,435 | ) | | (12,939 | ) | Net income attributable to noncontrolling interests | (9,115) | | | (5,529) | | | (3,586) | |
Net (loss) income attributable to National Storage Affiliates Trust | (8,860 | ) | | 4,394 |
| | (13,254 | ) | |
Net income attributable to National Storage Affiliates Trust | | Net income attributable to National Storage Affiliates Trust | 6,648 | | | 7,411 | | | (763) | |
Distributions to preferred shareholders | (3,272 | ) | | (2,588 | ) | | (684 | ) | Distributions to preferred shareholders | (3,273) | | | (2,588) | | | (685) | |
Net (loss) income attributable to common shareholders | $ | (12,132 | ) | | $ | 1,806 |
| | $ | (13,938 | ) | |
Net income attributable to common shareholders | | Net income attributable to common shareholders | $ | 3,375 | | | $ | 4,823 | | | $ | (1,448) | |
Total Revenue
Our total revenue increased by $16.0$13.7 million, or 18.7%15.1%, for the three months ended September 30, 2019,March 31, 2020, as compared to the three months ended September 30, 2018.March 31, 2019. This increase was primarily attributable to incremental revenue from 6973 self storage properties acquired between OctoberApril 1, 20182019 and September 30, 2019,March 31, 2020, regular rental increases for in-place tenants, partially offset by a decrease in total portfolio average occupancy from 89.7%87.2% for the three months ended September 30, 2018March 31, 2019 to 89.6%86.7% for the three months ended September 30, 2019.March 31, 2020. Average occupancy is calculated based on the average of the month-end occupancy immediately preceding the period presented and the month-end occupancies included in the respective period presented.
Rental Revenue
Rental revenue increased by $13.2$12.5 million, or 16.6%15.1%, for the three months ended September 30, 2019,March 31, 2020, as compared to the three months ended September 30, 2018. As discussed in Note 2 in Item 1, we adopted ASU 2016-02 and ASU 2018-11 effective January 1,March 31, 2019. As a result of this adoption, beginning on January 1, 2019, activity related to uncollectible accounts is recognized as a current-period adjustment within revenue. For periods prior to January 1, 2019, such amounts were previously included in operating expenses, and as such, for comparability, we have presented $2.3 million of activity related to uncollectible accounts as a reduction to same store and non-same store rental revenue for the three months ended September 30, 2018. The increase in rental revenue was due to a $12.9$10.3 million increase in non-same store rental revenue which was primarily attributable to incremental rental revenue of $10.3$6.1 million from 6337 self storage properties acquired between OctoberApril 1, 2018 and June 30, 2019 and $0.3December 31, 2019, and $3.2 million from six36 self storage properties acquired during the three months ended September 30, 2019.March 31, 2020. Same store portfolio rental revenues increased $2.6$2.3 million, or 3.6%2.9%, due to a 3.3%3.0% increase, from $11.68$11.98 to $12.06,$12.34, in annualized same store rental revenue (including fees and net of any discounts and uncollectible customer amounts) divided by average occupied square feet ("average annualized rental revenue per occupied square foot"), driven primarily by increased contractual lease rates for in-place tenants and fees and an increasepartially offset by a decrease in average occupancy from 89.9%87.5% for the three months ended September 30, 2018March 31, 2019 to 90.2%87.2% for the three months ended September 30, 2019.
March 31, 2020.
Other Property-Related Revenue
Other property-related revenue represents ancillary income from our self storage properties, such as tenant insurance-related access fees and sales of storage supplies. Other property-related revenue increased by $0.5 million, or 19.7%19.4%, for the three months ended September 30, 2019,March 31, 2020, as compared to the three months ended September 30, 2018.March 31, 2019. This increase primarily resulted from a $0.4$0.3 million increase in non-same store other property-related revenue which was primarily attributable to incremental other property-related revenue of $0.3$0.2 million from 6337 self storage properties acquired between OctoberApril 1, 2018 and June 30, 2019 and less thanDecember 31, 2019, and $0.1 million from six36 self storage properties acquired during the three months ended September 30, 2019.March 31, 2020.
Management Fees and Other Revenue
Management fees and other revenue, which are primarily related to managing and operating the unconsolidated real estate ventures, were $5.4 million for the three months ended September 30, 2019,March 31, 2020, compared to $3.1$4.9 million for the three months ended September 30, 2018,March 31, 2019, an increase of $2.3$0.5 million. This increase was primarily attributable to incremental tenant insurance fees earnedand dividends from an investment in a tenant reinsurance company made during the 2018 Joint Venture following the acquisition of the Initial 2018 Joint Venture portfolio in September 2018.three months ended June 30, 2019.
Property Operating Expenses
Property operating expenses were $29.0$30.6 million for the three months ended September 30, 2019March 31, 2020 compared to $26.6$26.5 million for the three months ended September 30, 2018,March 31, 2019, an increase of $2.4$4.1 million, or 9.2%15.6%. As discussed in Note 2 in Item 1, we adopted ASU 2016-02 and ASU 2018-11 effective January 1, 2019. As a result of this adoption, beginning on January 1, 2019, activity related to uncollectible accounts is recognized as a current-period adjustment within revenue. For periods prior to January 1, 2019, such amounts were previously included in operating expenses, and as such, for comparability, we have presented $2.3 million of activity related to uncollectible accounts as a reduction to same store and non-same store property operating expenses for the three months ended September 30, 2018. The increase in property operating expenses primarily resulted from a $4.2$3.6 million increase in non-same store property operating expenses that was primarily attributable to incremental property operating expenses of $3.3$2.0 million from 6337 self storage properties acquired between OctoberApril 1, 2018 and June 30, 2019 and $0.1December 31, 2019, and $1.3 million from six36 self storage properties acquired during the three months ended September 30, 2019.March 31, 2020.
General and Administrative Expenses
General and administrative expenses increased $3.2$0.7 million, or 36.1%6.9%, for the three months ended September 30, 2019,March 31, 2020, compared to the three months ended September 30, 2018.March 31, 2019. This increase was primarily attributable to increases in supervisory and administrative fees charged by our PROs of $0.9$0.7 million primarily as a result ofresulting from incremental fees related to the 6973 self storage properties we acquired between OctoberApril 1, 20182019 and September 30, 2019, salaries and benefits of $0.7 million, equity-based compensation expense of $0.1 million and costs related to our property management platform of $0.9 million.March 31, 2020.
Depreciation and Amortization
Depreciation and amortization increased $5.1$4.8 million, or 22.8%19.5%, for the three months ended September 30, 2019,March 31, 2020, compared to the three months ended September 30, 2018.March 31, 2019. This increase was primarily attributable to incremental depreciation expense related to the 6973 self storage properties we acquired between OctoberApril 1, 20182019 and September 30, 2019March 31, 2020 and an increase in amortization of customer in-place leases from $2.5 million for the three months ended March 31, 2019 to $2.9 million for the three months ended September 30, 2018 to $3.3 million for the three months ended September 30, 2019.March 31, 2020.
Interest Expense
Interest expense increased $3.8$2.4 million, or 35.4%18.3%, for the three months ended September 30, 2019,March 31, 2020, compared to the three months ended September 30, 2018.March 31, 2019. The increase in interest expense was primarily attributable to additional term loan borrowings subsequent to September 30, 2018 consisting of $155.0 million of additional term loan borrowings under the Company's credit facility $75.0 million of borrowings under the 2028 Term Loan Facility, andin July 2019, $100.0 million of borrowings under the 2029 Term Loan Facility. Additionally, on August 30,Facility in April 2019 our operating partnership issuedand the issuance of the $150.0 million Senior Unsecured Notes in a private placement to certain accredited investors.investors in August 2019. The
increase in interest expense from these additional borrowings was partially offset by lower outstanding borrowings under the Revolver.
Equity In (Losses) Earnings Of Unconsolidated Real Estate Ventures
Equity in (losses) earnings of unconsolidated real estate ventures represents our share of losses and earnings incurred through our 25% ownership interests in the 2018 Joint Venture and the 2016 Joint Venture. During the three months ended September 30, 2019,March 31, 2020, we recorded $1.2$0.3 million of equity in losses from our unconsolidated real estate ventures compared to $0.2$2.1 million of earningslosses for the three months ended September 30, 2018.March 31, 2019. This was primarily the result of incremental losses from our 2018 Joint Venture during the three months ended March 31, 2019 driven by real estate depreciation and amortization of customer in-place leases following the acquisition of the Initial 2018 Joint Venture portfolio in September 2018.
Net Income Attributable to Noncontrolling Interests
As discussed in Note 2 in Item 1, we allocate GAAP income (loss) utilizing the HLBV method, in which we allocate income or loss based on the change in each unitholders' claim on the net assets of our operating partnership at period end after adjusting for any distributions or contributions made during such period.
Due to the stated liquidation priorities and because the HLBV method incorporates non-cash items such as depreciation expense, in any given period, income or loss may be allocated disproportionately to noncontrolling interests. Net income attributable to noncontrolling interests was $25.4$9.1 million for the three months ended September 30, 2019,March 31, 2020, compared to $12.4$5.5 million for the three months ended September 30, 2018.
Nine Months Ended September 30, 2019 compared to the Nine Months Ended September 30, 2018
Net income was $47.2 million for the nine months ended September 30, 2019, compared to $41.8 million for the nine months ended September 30, 2018, an increase of $5.4 million. The increase was primarily due to an increase in net operating income ("NOI") resulting from an additional 69 self storage properties acquired between October 1, 2018 and September 30, 2019, same store NOI growth and gain on the sale of self storage properties partially offset by increases in depreciation and amortization, interest expense and general and administrative expenses and losses from our unconsolidated real estate ventures.
The following table illustrates the changes in rental revenue, other property-related revenue, management fees and other revenue, property operating expenses, and other expenses for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 (dollars in thousands):
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 | | Change |
Rental revenue | | | | | |
Same store portfolio | $ | 214,860 |
| | $ | 205,947 |
| | $ | 8,913 |
|
Non-same store portfolio | 47,916 |
| | 14,391 |
| | 33,525 |
|
Effect of bad debt expense classification resulting from adoption of leasing standard | — |
| | 6,239 |
| | (6,239 | ) |
Total rental revenue | 262,776 |
| | 226,577 |
| | 36,199 |
|
Other property-related revenue | | | | | |
Same store portfolio | 7,525 |
| | 7,098 |
| | 427 |
|
Non-same store portfolio | 1,644 |
| | 459 |
| | 1,185 |
|
Total other property-related revenue | 9,169 |
| | 7,557 |
| | 1,612 |
|
Property operating expenses | | | | | |
Same store portfolio | 66,931 |
| | 65,557 |
| | 1,374 |
|
Non-same store portfolio | 15,704 |
| | 5,166 |
| | 10,538 |
|
Effect of bad debt expense classification resulting from adoption of leasing standard | — |
| | 6,239 |
| | (6,239 | ) |
Total property operating expenses | 82,635 |
| | 76,962 |
| | 5,673 |
|
Net operating income | | | | | |
Same store portfolio | 155,454 |
| | 147,488 |
| | 7,966 |
|
Non-same store portfolio | 33,856 |
| | 9,684 |
| | 24,172 |
|
Total net operating income | 189,310 |
| | 157,172 |
| | 32,138 |
|
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 | | Change |
Management fees and other revenue | 15,383 |
| | 7,464 |
| | 7,919 |
|
General and administrative expenses | (33,975 | ) | | (25,614 | ) | | (8,361 | ) |
Depreciation and amortization | (77,776 | ) | | (66,226 | ) | | (11,550 | ) |
Other (expense) income | | | | | |
Interest expense | (41,590 | ) | | (30,763 | ) | | (10,827 | ) |
Equity in (losses) earnings of unconsolidated real estate ventures | (4,962 | ) | | 290 |
| | (5,252 | ) |
Acquisition costs | (783 | ) | | (471 | ) | | (312 | ) |
Non-operating (expense) income | (275 | ) | | 69 |
| | (344 | ) |
Gain on sale of self storage properties | 2,814 |
| | 391 |
| | 2,423 |
|
Other expense | (44,796 | ) | | (30,484 | ) | | (14,312 | ) |
Income before income taxes | 48,146 |
| | 42,312 |
| | 5,834 |
|
Income tax expense | (959 | ) | | (469 | ) | | (490 | ) |
Net income | 47,187 |
| | 41,843 |
| | 5,344 |
|
Net income attributable to noncontrolling interests | (56,292 | ) | | (21,098 | ) | | (35,194 | ) |
Net (loss) income attributable to National Storage Affiliates Trust | (9,105 | ) | | 20,745 |
| | (29,850 | ) |
Distributions to preferred shareholders | (9,117 | ) | | (7,763 | ) | | (1,354 | ) |
Net (loss) income attributable to common shareholders | $ | (18,222 | ) | | $ | 12,982 |
| | $ | (31,204 | ) |
Total Revenue
Our total revenue increased by $45.7 million, or 18.9%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. This increase was primarily attributable to incremental revenue from 69 self storage properties acquired between October 1, 2018 and September 30, 2019, regular rental increases for in-place tenants, and an increase in total portfolio average occupancy from 88.5% for the nine months ended September 30, 2018 to 88.6% for the nine months ended September 30,March 31, 2019.
Rental Revenue
Rental revenue increased by $36.2 million, or 16.0%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. As discussed in Note 2 in Item 1, we adopted ASU 2016-02 and ASU 2018-11 effective January 1, 2019. As a result of this adoption, beginning on January 1, 2019, activity related to uncollectible accounts is recognized as a current-period adjustment within revenue. For periods prior to January 1, 2019, such amounts were previously included in operating expenses, and as such, for comparability, we have presented $6.2 million of activity related to uncollectible accounts as a reduction to same store and non-same store rental revenue for the nine months ended September 30, 2018. The increase in rental revenue was due to a $33.5 million increase in non-same store rental revenue which was primarily attributable to incremental rental revenue of $3.2 million from seven self storage properties that were acquired between October 1, 2018 and December 31, 2018, and $19.3 million from 62 self storage properties acquired during the nine months ended September 30, 2019. Same store portfolio rental revenues increased $8.9 million, or 4.3%, due to a 3.7% increase, from $11.49 to $11.91, in average annualized rental revenue per occupied square foot, driven primarily by increased contractual lease rates for in-place tenants and fees and an increase in average occupancy from 88.7% for the nine months ended September 30, 2018 to 89.0% for the nine months ended September 30, 2019.
Other Property-Related Revenue
Other property-related revenue represents ancillary income from our self storage properties, such as tenant insurance-related access fees and sales of storage supplies. Other property-related revenue increased by $1.6 million, or 21.3%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. This increase primarily resulted from a $1.2 million increase in non-same store other property-related revenue which was primarily attributable to incremental other property-related revenue of $0.1 million from seven self storage properties that were acquired between October 1, 2018 and December 31, 2018, and $0.5 million from 62 properties acquired during the nine months ended September 30, 2019.
Management Fees and Other Revenue
Management fees and other revenue, which are primarily related to managing and operating the unconsolidated real estate ventures, were $15.4 million for the nine months ended September 30, 2019, compared to $7.5 million for the nine months ended September 30, 2018, an increase of $7.9 million. This increase was primarily attributable to incremental fees earned from the 2018 Joint Venture following the acquisition of the Initial 2018 Joint Venture portfolio in September 2018.
Property Operating Expenses
Property operating expenses were $82.6 million for the nine months ended September 30, 2019 compared to $77.0 million for the nine months ended September 30, 2018, an increase of $5.6 million, or 7.4%. As discussed in Note 2 in Item 1, we adopted ASU 2016-02 and ASU 2018-11 effective January 1, 2019. As a result of this adoption, beginning on January 1, 2019, activity related to uncollectible accounts is recognized as a current-period adjustment within revenue. For periods prior to January 1, 2019, such amounts were previously included in operating expenses, and as such, for comparability, we have presented $6.2 million of activity related to uncollectible accounts as a reduction to same store and non-same store property operating expenses for the nine months ended September 30, 2018. The increase in property operating expenses resulted from a $10.5 million increase in non-same store property operating expenses that was primarily attributable to incremental property operating expenses of $0.9 million from seven self storage properties that were acquired between October 1, 2018 and December 31, 2018, and $6.1 million from 62 self storage properties acquired during the nine months ended September 30, 2019.
General and Administrative Expenses
General and administrative expenses increased $8.4 million, or 32.6%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. This increase was attributable to increases in supervisory and administrative fees charged by our PROs of $2.2 million primarily as a result of incremental fees related to the 69 self storage properties acquired between October 1, 2018 and September 30, 2019, costs related to our property management platform of $2.2 million, salaries and benefits of $1.7 million and equity-based compensation expense of $0.6 million.
Depreciation and Amortization
Depreciation and amortization increased $11.6 million, or 17.4%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. This increase was primarily attributable to incremental depreciation expense related to the 69 self storage properties acquired between October 1, 2018 and September 30, 2019, partially offset by a decrease in amortization of customer in-place leases from $9.2 million for the nine months ended September 30, 2018 to $8.6 million for the nine months ended September 30, 2019.
Interest Expense
Interest expense increased $10.8 million, or 35.2%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The increase in interest expense was primarily attributable to additional term loan borrowings subsequent to September 30, 2018 consisting of $155.0 million of additional term loan borrowings under the Company's credit facility, $75.0 million of borrowings under the 2028 Term Loan Facility, and $100.0 million of borrowings under the 2029 Term Loan Facility. Additionally, on August 30, 2019, our operating partnership issued the $150.0 million Senior Unsecured Notes in a private placement to certain accredited investors. The increase in interest expense from these additional borrowings was partially offset by lower outstanding borrowings under the Revolver.
Equity In (Losses) Earnings Of Unconsolidated Real Estate Ventures
Equity in (losses) earnings of unconsolidated real estate ventures represents our share of losses and earnings incurred through our 25% ownership interests in the 2018 Joint Venture and the 2016 Joint Venture. During the nine months ended September 30, 2019, we recorded $5.0 million of equity in losses from our unconsolidated real estate ventures compared to $0.3 million of earnings for the nine months ended September 30, 2018. This was primarily the result of incremental losses from our 2018 Joint Venture driven by real estate depreciation and amortization of customer in-place leases following the acquisition of the Initial 2018 Joint Venture portfolio in September 2018.
Gain On Sale of Self Storage Properties
Gain on sale of self storage properties was $2.8 million for the nine months ended September 30, 2019, compared to $0.4 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we sold one self storage property to an unrelated third party for gross proceeds of $6.5 million and during the nine months ended September 30, 2018, we sold two self storage properties to unrelated third parties for gross proceeds of $5.5 million.
Net Income Attributable to Noncontrolling Interests
As discussed in Note 2 in Item 1, we allocate GAAP income (loss) utilizing the HLBV method, in which we allocate income or loss based on the change in each unitholders' claim on the net assets of our operating partnership at period end after adjusting for any distributions or contributions made during such period.
Due to the stated liquidation priorities and because the HLBV method incorporates non-cash items such as depreciation expense, in any given period, income or loss may be allocated disproportionately to noncontrolling interests. Net income attributable to noncontrolling interests was $56.3 million for the nine months ended September 30, 2019, compared to $21.1 million for the nine months ended September 30, 2018.
Non-GAAP Financial Measures
FFO and Core FFO
Funds from operations, or FFO, is a widely used performance measure for real estate companies and is provided here as a supplemental measure of our operating performance. The December 2018 Nareit Funds From Operations White Paper - 2018 Restatement, which we refer to as the White Paper, defines FFO as net income (as determined under GAAP), excluding: real estate depreciation and amortization, gains and losses from the sale of certain real estate assets, gains and losses from change in control, mark-to-market changes in value recognized on equity securities, impairment write-downs of certain real estate assets and impairment of investments in entities when it is directly attributable to decreases in the value of depreciable real estate held by the entity and after items to record unconsolidated partnerships and joint ventures on the same basis. Distributions declared on subordinated performance units and DownREIT subordinated performance units represent our allocation of FFO to noncontrolling interests held by subordinated performance unitholders and DownREIT subordinated performance unitholders. For purposes of calculating FFO attributable to common shareholders, OP unitholders, and LTIP unitholders, we exclude distributions declared on subordinated performance units, DownREIT subordinated performance units, preferred shares and preferred units. We define Core FFO as FFO, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments consist of acquisition costs, organizational and offering costs, gains on debt forgiveness, gains (losses) on early extinguishment of debt, and after adjustments for unconsolidated partnerships and joint ventures.
Management uses FFO and Core FFO as key performance indicators in evaluating the operations of our properties. Given the nature of our business as a real estate owner and operator, we consider FFO and Core FFO as key supplemental measures of our operating performance that are not specifically defined by GAAP. We believe that FFO and Core FFO are useful to management and investors as a starting point in measuring our operational performance because FFO and Core FFO exclude various items included in net income (loss) that do not relate to or are not indicative of our operating performance such as gains (or losses) from sales of self storage properties and depreciation, which can make periodic and peer analyses of operating performance more difficult. Our computation of FFO and Core FFO may not be comparable to FFO reported by other REITs or real estate companies.
FFO and Core FFO should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income (loss). FFO and Core FFO do not represent cash generated from operating activities determined in accordance with GAAP and are not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand
our performance, FFO and Core FFO should be compared with our reported net income (loss) and considered in addition to cash flows computed in accordance with GAAP, as presented in our condensed consolidated financial statements.
The following table presents a reconciliation of net income (loss) to FFO and Core FFO for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 (in thousands, except per share and unit amounts):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2020 | | 2019 | | | | |
Net income | $ | 15,763 | | | $ | 12,940 | | | | | |
Add (subtract): | | | | | | | |
Real estate depreciation and amortization | 28,764 | | | 24,027 | | | | | |
Company's share of unconsolidated real estate venture real estate depreciation and amortization | 3,787 | | | 5,457 | | | | | |
| | | | | | | |
Mark-to-market changes in value on equity securities | 142 | | | — | | | | | |
Company's share of unconsolidated real estate venture loss on sale of properties | — | | | 202 | | | | | |
Distributions to preferred shareholders and unitholders | (3,514) | | | (2,753) | | | | | |
FFO attributable to subordinated performance unitholders(1) | (8,664) | | | (7,293) | | | | | |
FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | 36,278 | | | 32,580 | | | | | |
Add: | | | | | | | |
Acquisition costs | 833 | | | 157 | | | | | |
| | | | | | | |
| | | | | | | |
Core FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | $ | 37,111 | | | $ | 32,737 | | | | | |
| | | | | | | |
Weighted average shares and units outstanding - FFO and Core FFO:(2) | | | | | | | |
Weighted average shares outstanding - basic | 59,798 | | | 56,655 | | | | | |
Weighted average restricted common shares outstanding | 23 | | | 30 | | | | | |
Weighted average OP units outstanding | 30,709 | | | 29,948 | | | | | |
Weighted average DownREIT OP unit equivalents outstanding | 1,849 | | | 1,848 | | | | | |
Weighted average LTIP units outstanding | 617 | | | 747 | | | | | |
Total weighted average shares and units outstanding - FFO and Core FFO | 92,996 | | | 89,228 | | | | | |
| | | | | | | |
FFO per share and unit | $ | 0.39 | | | $ | 0.37 | | | | | |
Core FFO per share and unit | $ | 0.40 | | | $ | 0.37 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 16,514 |
| | $ | 16,829 |
| | $ | 47,187 |
| | $ | 41,843 |
|
Add (subtract): | | | | | | | |
Real estate depreciation and amortization | 27,279 |
| | 22,164 |
| | 76,816 |
| | 65,332 |
|
Company's share of unconsolidated real estate venture real estate depreciation and amortization | 5,197 |
| | 1,954 |
| | 16,126 |
| | 4,709 |
|
Gain on sale of self storage properties | — |
| | — |
| | (2,814 | ) | | (391 | ) |
Company's share of unconsolidated real estate venture loss on sale of properties | — |
| | 205 |
| | 202 |
| | 205 |
|
Distributions to preferred shareholders and unitholders | (3,515 | ) | | (2,711 | ) | | (9,729 | ) | | (8,106 | ) |
FFO attributable to subordinated performance unitholders(1) | (9,100 | ) | | (7,358 | ) | | (24,855 | ) | | (19,415 | ) |
FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | 36,375 |
| | 31,083 |
| | 102,933 |
| | 84,177 |
|
Add: | | | | | | | |
Acquisition costs | 321 |
| | 141 |
| | 783 |
| | 471 |
|
Core FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | $ | 36,696 |
| | $ | 31,224 |
| | $ | 103,716 |
| | $ | 84,648 |
|
| | | | | | | |
Weighted average shares and units outstanding - FFO and Core FFO:(2) |
Weighted average shares outstanding - basic | 59,278 |
| | 55,722 |
| | 57,835 |
| | 52,189 |
|
Weighted average restricted common shares outstanding | 27 |
| | 29 |
| | 29 |
| | 30 |
|
Weighted average OP units outstanding | 30,483 |
| | 28,910 |
| | 30,217 |
| | 29,009 |
|
Weighted average DownREIT OP unit equivalents outstanding | 1,848 |
| | 1,835 |
| | 1,848 |
| | 1,835 |
|
Weighted average LTIP units outstanding | 535 |
| | 715 |
| | 605 |
| | 689 |
|
Total weighted average shares and units outstanding - FFO and Core FFO | 92,171 |
| | 87,211 |
| | 90,534 |
| | 83,752 |
|
| | | | | | | |
FFO per share and unit | $ | 0.39 |
| | $ | 0.36 |
| | $ | 1.14 |
| | $ | 1.01 |
|
Core FFO per share and unit | $ | 0.40 |
| | $ | 0.36 |
| | $ | 1.15 |
| | $ | 1.01 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
(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 our operating partnership on a one-for-one basis, subject to certain adjustments in each case. Subordinated performance units, DownREIT subordinated performance units, and LTIP units may also, under certain circumstances, be convertible into or exchangeable for common shares (or other units that are convertible into or exchangeable for common shares). See footnote(1) in the following table for additional discussion of subordinated performance units, DownREIT subordinated performance units, and LTIP units in the calculation of FFO and Core FFO per share and unit. | | | | | | | |
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 nine months ended September 30, 2019March 31, 2020 and 2018:2019:
| | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2020 | | 2019 | | | | |
Earnings (loss) per share - diluted | $ | 0.06 | | | $ | 0.08 | | | | | |
Impact of the difference in weighted average number of shares(1) | (0.02) | | | (0.03) | | | | | |
Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(2) | 0.09 | | | 0.07 | | | | | |
Add real estate depreciation and amortization | 0.31 | | | 0.27 | | | | | |
Add Company's share of unconsolidated venture real estate depreciation and amortization | 0.04 | | | 0.06 | | | | | |
| | | | | | | |
FFO attributable to subordinated performance unitholders | (0.09) | | | (0.08) | | | | | |
FFO per share and unit | 0.39 | | | 0.37 | | | | | |
Add acquisition costs | 0.01 | | | — | | | | | |
Core FFO per share and unit | $ | 0.40 | | | $ | 0.37 | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Earnings (loss) per share - diluted | $ | (0.20 | ) | | $ | 0.03 |
| | $ | (0.32 | ) | | $ | 0.25 |
|
Impact of the difference in weighted average number of shares(1) | 0.07 |
| | — |
| | 0.11 |
| | (0.10 | ) |
Impact of GAAP accounting for noncontrolling interests, two-class method and treasury stock method(2) | 0.26 |
| | 0.14 |
| | 0.62 |
| | 0.25 |
|
Add real estate depreciation and amortization | 0.30 |
| | 0.25 |
| | 0.85 |
| | 0.78 |
|
Add Company's share of unconsolidated venture real estate depreciation and amortization | 0.06 |
| | 0.02 |
| | 0.18 |
| | 0.06 |
|
Subtract gain on sale of self storage properties | — |
| | — |
| | (0.03 | ) | | — |
|
FFO attributable to subordinated performance unitholders | (0.10 | ) | | (0.08 | ) | | (0.27 | ) | | (0.23 | ) |
FFO per share and unit | 0.39 |
| | 0.36 |
| | 1.14 |
| | 1.01 |
|
Add acquisition costs | 0.01 |
| | — |
| | 0.01 |
| | — |
|
Core FFO per share and unit | $ | 0.40 |
| | $ | 0.36 |
| | $ | 1.15 |
| | $ | 1.01 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
(1) Adjustment accounts for the difference between the weighted average number of shares used to calculate diluted earnings per share and the weighted average number of shares used to calculate FFO and Core FFO per share and unit. Diluted earnings per share is calculated using the two-class method for the company's restricted common shares and the treasury stock method for certain unvested LTIP units, and assumes the conversion of vested LTIP units into OP units on a one-for-one basis and the hypothetical conversion of subordinated performance units, and DownREIT subordinated performance units into OP units, even though such units may only be convertible into OP units (i) after a lock-out period and (ii) upon certain events or conditions. For additional information about the conversion of subordinated performance units, DownREIT subordinated performance units and LTIP units into OP units, see Note 9 in Item 1. The computation of weighted average shares and units for FFO and Core FFO per share and unit includes all restricted common shares and LTIP units that participate in distributions and excludes all subordinated performance units and DownREIT subordinated performance units because their effect has been accounted for through the allocation of FFO to the related unitholders based on distributions declared. | | | | | | | |
(2) Represents the effect of adjusting the numerator to consolidated net income (loss) prior to GAAP allocations for noncontrolling interests, after deducting preferred share and unit distributions, and before the application of the two-class method and treasury stock method, as described in footnote(1). | | | | | | | |
NOI
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 and net income (loss).
The following table presents a reconciliation of net income (loss) to NOI for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 (dollars in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | |
Net income | $ | 16,514 |
| | $ | 16,829 |
| | $ | 47,187 |
| | $ | 41,843 |
| Net income | $ | 15,763 | | | $ | 12,940 | | |
(Subtract) Add: | | | | | | | | (Subtract) Add: | | |
Management fees and other revenue | (5,374 | ) | | (3,148 | ) | | (15,383 | ) | | (7,464 | ) | Management fees and other revenue | (5,449) | | | (4,893) | | |
General and administrative expenses | 12,039 |
| | 8,848 |
| | 33,975 |
| | 25,614 |
| General and administrative expenses | 11,094 | | | 10,380 | | |
Other | | Other | 389 | | | 386 | | |
Depreciation and amortization | 27,598 |
| | 22,469 |
| | 77,776 |
| | 66,226 |
| Depreciation and amortization | 29,105 | | | 24,349 | | |
Interest expense | 14,432 |
| | 10,656 |
| | 41,590 |
| | 30,763 |
| Interest expense | 15,628 | | | 13,211 | | |
Equity in losses (earnings) of unconsolidated real estate ventures | 1,214 |
| | (242 | ) | | 4,962 |
| | (290 | ) | |
Equity in losses of unconsolidated real estate ventures | | Equity in losses of unconsolidated real estate ventures | 340 | | | 2,102 | | |
| Acquisition costs | 321 |
| | 141 |
| | 783 |
| | 471 |
| Acquisition costs | 833 | | | 157 | | |
Income tax expense | 223 |
| | 282 |
| | 959 |
| | 469 |
| Income tax expense | 286 | | | 492 | | |
Gain on sale of self storage properties | — |
| | — |
| | (2,814 | ) | | (391 | ) | |
Non-operating expense (income) | 8 |
| | (153 | ) | | 275 |
| | (69 | ) | |
| Non-operating expense | | Non-operating expense | 192 | | | 98 | | |
Net Operating Income | $ | 66,975 |
| | $ | 55,682 |
| | $ | 189,310 |
| | $ | 157,172 |
| Net Operating Income | $ | 68,181 | | | $ | 59,222 | | |
Our consolidated NOI shown in the table above does not include our proportionate share of NOI for our unconsolidated real estate ventures. For additional information about our 2018 Joint Venture and 2016 Joint Venture see Note 5 to the condensed consolidated financial statements in Item 1.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss), as determined under GAAP, plus interest expense, loss on early extinguishment of debt, income taxes, depreciation and amortization expense and the Company's share of unconsolidated real estate venture depreciation and amortization. We define Adjusted EBITDA as EBITDA plus acquisition costs, organizational and offering expenses, equity-based compensation expense, losses on sale of properties and impairment of long-lived assets, minus gains on sale of properties and debt forgiveness, and after adjustments for unconsolidated partnerships and joint ventures. These further adjustments eliminate the impact of items that we do not consider indicative of our core operating performance. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
We present EBITDA and Adjusted EBITDA because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. EBITDA and Adjusted EBITDA have limitations as an analytical tool. Some of these limitations are:
•EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures, contractual commitments or working capital needs;
•EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
•Adjusted EBITDA excludes equity-based compensation expense, which is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;
•EBITDA and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
•other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income (loss). EBITDA and Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues and net income (loss).
The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 (dollars in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2020 | | 2019 | | | | |
Net income | $ | 15,763 | | | $ | 12,940 | | | | | |
Add: | | | | | | | |
Depreciation and amortization | 29,105 | | | 24,349 | | | | | |
Company's share of unconsolidated real estate venture depreciation and amortization | 3,787 | | | 5,457 | | | | | |
Interest expense | 15,628 | | | 13,211 | | | | | |
Income tax expense | 286 | | | 492 | | | | | |
| | | | | | | |
EBITDA | 64,569 | | | 56,449 | | | | | |
Add: | | | | | | | |
Acquisition costs | 833 | | | 157 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Company's share of unconsolidated real estate venture loss on sale of properties | — | | | 202 | | | | | |
Equity-based compensation expense | 774 | | | 1,112 | | | | | |
Adjusted EBITDA | $ | 66,176 | | | $ | 57,920 | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 16,514 |
| | $ | 16,829 |
| | $ | 47,187 |
| | $ | 41,843 |
|
Add: | | | | | | | |
Depreciation and amortization | 27,598 |
| | 22,469 |
| | 77,776 |
| | 66,226 |
|
Company's share of unconsolidated real estate venture depreciation and amortization | 5,197 |
| | 1,954 |
| | 16,126 |
| | 4,709 |
|
Interest expense | 14,432 |
| | 10,656 |
| | 41,590 |
| | 30,763 |
|
Income tax expense | 223 |
| | 282 |
| | 959 |
| | 469 |
|
EBITDA | 63,964 |
| | 52,190 |
| | 183,638 |
| | 144,010 |
|
Add: | | | | | | | |
Acquisition costs | 321 |
| | 141 |
| | 783 |
| | 471 |
|
Gain on sale of self storage properties | — |
| | — |
| | (2,814 | ) | | (391 | ) |
Company's share of unconsolidated real estate venture loss on sale of properties | — |
| | 205 |
| | 202 |
| | 205 |
|
Equity-based compensation expense | 1,153 |
| | 1,022 |
| | 3,373 |
| | 2,808 |
|
Adjusted EBITDA | $ | 65,438 |
| | $ | 53,558 |
| | $ | 185,182 |
| | $ | 147,103 |
|
Liquidity and Capital Resources
Liquidity Overview
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from equity and debt offerings, and debt financings including borrowings under the credit facility, 2023 Term Loan Facility, 2028 Term Loan Facility and 2029 Term Loan Facility.
Our short-term liquidity requirements consist primarily of property operating expenses, property acquisitions, capital expenditures, general and administrative expenses and principal and interest on our outstanding indebtedness. A further short-term liquidity requirement relates to distributions to our common and preferred shareholders and holders of preferred units, OP units, LTIP units, subordinated performance units, DownREIT OP units and DownREIT subordinated performance units. We expect to fund short-term liquidity requirements from our operating cash flow, cash on hand and borrowings under our credit facility.
Our long-term liquidity needs consist primarily of the repayment of debt, property acquisitions, and capital expenditures. We acquire properties through the use of cash, preferred units, OP units and subordinated performance units in our operating partnership or DownREIT partnerships. We expect to meet our long-term liquidity requirements with operating cash flow, cash on hand, secured and unsecured indebtedness, and the issuance of equity and debt securities.
The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levelslevels. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and many lenders are active incannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the market.effects of the COVID-19 pandemic. We believe that, as a publicly-traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity
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 September 30, 2019,March 31, 2020, we had $44.7$18.7 million in cash and cash equivalents and $5.5$4.0 million of restricted cash, an increasea decrease in cash and cash equivalents of $31.6$1.9 million and an increase in restricted cash of $2.3$0.3 million from December 31, 2018.2019. Restricted cash primarily consists of escrowed funds deposited with financial institutions for real estate taxes, insurance, and other reserves for capital improvements in accordance with our loan agreements. The following discussion relates to changes in cash due to operating, investing, and financing activities, which are presented in our condensed consolidated statements of cash flows included in Item 1 of this report.
Operating Activities
Cash provided by our operating activities was $150.1$50.7 million for the ninethree months ended September 30, 2019March 31, 2020 compared to $123.7$46.4 million for the ninethree months ended September 30, 2018,March 31, 2019, an increase of $26.4$4.3 million. Our operating cash flow increased primarily due to the seven37 self storage properties that were acquired between OctoberApril 1, 20182019 and December 31, 20182019 that generated cash flow for the entire ninethree months ended September 30, 2019,March 31, 2020, and an additional 6236 self storage properties acquired during the ninethree months ended September 30, 2019.March 31, 2020. Because these 6973 self storage properties were acquired after September 30, 2018,March 31, 2019, our operating results for the ninethree months ended September 30, 2018March 31, 2019 were not impacted by them. The increase in our operating cash flows was partially offset by higher cash payments for general and administrative expenses and interest expense.
Investing Activities
Cash used in investing activities was $364.4$211.1 million for the ninethree months ended September 30, 2019March 31, 2020 compared to $460.5$143.7 million for the ninethree months ended September 30, 2018.March 31, 2019. The primary uses of cash for the ninethree months ended September 30, 2019March 31, 2020 were for our acquisition of 6236 self storage properties for cash consideration of $342.2$210.0 million, capital expenditures of $15.9$4.9 million, acquisitioninvestments in our 2016 Joint Venture of the interest in a reinsurance company and related cash flows of $6.6$3.1 million, expenditures for corporate furniture, equipment and other of $7.0$0.2 million and deposits for potential acquisitions of $0.5 million partially offset by $6.3$7.6 million of net proceeds from the sale of aequity securities. The primary uses of cash for the three months ended March 31, 2019 were for our acquisition of 32 self storage propertyproperties for cash consideration of $139.6 million, capital expenditures of $4.2 million and deposits for potential acquisitions of $0.8 million, partially offset by distributions received from our 2016 Joint Venture of $1.0 million. The primary uses of cash for the nine months ended September 30, 2018 were for our acquisition of 50 self storage properties and an expansion project to an existing property for cash consideration of $264.4 million, capital expenditures of $14.5 million, investments in our 2018 Joint Venture and 2016 Joint Venture of $165.6 million and deposits for potential acquisitions of $21.2 million, partially offset by $5.3 million of net proceeds from the sale of two self storage properties.
Capital expenditures totaled $15.9$4.9 million and $14.5$4.2 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. We generally fund post-acquisition capital additions from cash provided by operating activities.
We categorize our capital expenditures broadly into three primary categories:
•recurring capital expenditures, which represent the portion of capital expenditures that are deemed to replace the consumed portion of acquired capital assets and extend their useful life;
•value enhancing capital expenditures, which represent the portion of capital expenditures that are made to enhance the revenue and value of an asset from its original purchase condition; and
•acquisitions capital expenditures, which represent the portion of capital expenditures capitalized during the current period that were identified and underwritten prior to a property's acquisition.
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 ninethree months ended September 30,March 31, 2020 and 2019, and 2018, are presented below (dollars in thousands):
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| 2019 | | 2018 | | 2020 | | 2019 |
Recurring capital expenditures | $ | 6,773 |
| | $ | 4,030 |
| Recurring capital expenditures | $ | 1,677 | | | $ | 2,159 | |
Value enhancing capital expenditures | 3,386 |
| | 3,149 |
| Value enhancing capital expenditures | 897 | | | 945 | |
Acquisitions capital expenditures | 6,547 |
| | 7,511 |
| Acquisitions capital expenditures | 2,331 | | | 1,993 | |
Total capital expenditures | 16,706 |
| | 14,690 |
| Total capital expenditures | 4,905 | | | 5,097 | |
Change in accrued capital spending | (780 | ) | | (214 | ) | Change in accrued capital spending | 4 | | | (889) | |
Capital expenditures per statement of cash flows | $ | 15,926 |
| | $ | 14,476 |
| Capital expenditures per statement of cash flows | $ | 4,909 | | | $ | 4,208 | |
| | | | | | | |
Financing Activities
Cash provided by our financing activities was $248.1$158.8 million for the ninethree months ended September 30, 2019March 31, 2020 compared to $340.2$100.4 million for the ninethree months ended September 30, 2018.March 31, 2019. Our sources of financing cash flows for the ninethree months ended September 30, 2019March 31, 2020 primarily consisted of $572.0$244.0 million of borrowings under our credit facility, $100.0 million of borrowings under our 2029 Term Loan Facility, $150.0 million of borrowings under our Senior Unsecured Notes, $70.6 million of proceeds from the issuance of common shares and $43.6 million of proceeds from the issuance of Series A preferred shares. Our primary uses of financing cash flows for the nine months ended September 30, 2019 were for principal payments on existing debt of $560.3 million (which included $556.5 million of principal repayments under the Revolver and $3.8 million of scheduled fixed rate mortgage principal payments), distributions to noncontrolling interests of $55.8 million, distributions to common shareholders of $55.0 million, distributions to preferred shareholders of $9.1 million and payments for debt issue costs of $8.4 million. Our sources of financing cash flows for the nine months ended September 30, 2018 primarily consisted of $652.5 million of borrowings under our credit facility and 2023 Term Loan Facility and $175.7$4.2 million of proceeds from the issuance of common shares. Our primary uses of financing cash flows for the ninethree months ended September 30, 2018March 31, 2020 were for principal payments on existing debt of $387.0$46.6 million (which included $377.5$44.0 million of principal repayments under the Revolver $5.8and $2.6 million of fixed rate mortgage principal payoffspayments), distributions to noncontrolling interests of $19.8 million, distributions to common shareholders of $19.7 million and $3.6distributions to preferred shareholders of $3.3 million. Our sources of financing cash flows for the three months ended March 31, 2019 primarily consisted of $188.5 million of borrowings under our credit facility. Our primary uses of financing cash flows for the three months ended March 31, 2019 were for principal payments on existing debt of $51.8 million (which included $50.5 million of principal repayments under the Revolver and $1.3 million of scheduled fixed rate mortgage principal payments), distributions to noncontrolling interests of $46.5$17.0 million, distributions to common shareholders of $45.2$17.0 million and distributions to preferred shareholders of $7.8$2.6 million.
Credit Facility and Term Loan Facilities
As discussed in Note 8 in Item 1, on July 29, 2019, we entered into a second amended and restated credit agreement with a syndicated group of lenders to increase the total borrowing capacity under theMarch 31, 2020, our credit facility by $255.0 millionprovided for a total credit facilityborrowings of $1.275 billion. Our credit facility consistsbillion, consisting of five components: (i) a Revolver which provides for a total borrowing commitment up to $500.0 million, whereby we may borrow, repay and re-borrow amounts under the Revolver, (ii) a $125.0 million Term Loan A, (iii) a $250.0 million Term Loan B, (iv) a $225.0 million Term Loan C and (v) a $175.0 million Term Loan D.
The Revolver matures in January 2024; provided that we may elect to extend the maturity to July 2024 by paying an extension fee of 0.075% of the total borrowing commitment thereunder at the time of extension and meeting other customary conditions with respect to compliance. The Term Loan A matures in January 2023, the Term Loan B matures in July 2024, the Term Loan C matures in January 2025 and the Term Loan D matures in July 2026. The Revolver, Term Loan A, Term Loan B, Term Loan C and Term Loan D are not subject to any scheduled reduction or amortization payments prior to maturity. As of September 30, 2019,March 31, 2020, we have an expansion option under the credit facility, which, if exercised in full, would provide for a total credit facility of $1.750 billion. As of March 31, 2020, we would have had the capacity to borrow remaining Revolver commitments of $294.3 million while remaining in compliance with the credit facility's financial covenants.
We have thea 2023 Term Loan Facility that matures in June 2023 and is separate from the credit facility in an aggregate amount of $175.0 million. As of September 30, 2019March 31, 2020 the entire amount was outstanding under the 2023 Term Loan Facility with an effective interest rate of 2.83%. We have an expansion option under the 2023 Term Loan Facility, which, if exercised in full, would provide for total borrowings in an aggregate amount of $400.0 million.
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 September 30, 2019March 31, 2020 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.
ForWe have a summary of our financial covenants and additional detail regarding our credit facility, 2023 Term Loan Facility, 2028 Term Loan Facility and fixed rate mortgages payable please see Note 8 in Item 1 and Note 8 to the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.
As discussed in Note 8 in Item 1, on April 24, 2019, we entered into a credit agreement to make available the 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 September 30, 2019March 31, 2020 the entire amount was outstanding under the 2029 Term Loan Facility with an effective interest rate of 4.27%. We are required to comply with the same financial covenants under the 2029 Term Loan Facility as we are with the credit facility, 2023 Term Loan Facility and the 2028 Term Loan Facility. In addition, the terms of the 2029 Term Loan Facility contain customary affirmative and negative covenants that are consistent with those contained in the 2023 Term Loan Facility and 2028 Term Loan Facility, and, among other things, limit our ability to make distributions, make certain investments, incur debt, incur liens and enter into certain transactions.
2029 And 2031 Senior Unsecured Notes
As discussed in Note 8 in Item 1, onOn 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 accredited investors.
Equity Transactions
Issuance of Common Shares and Series A Preferred Shares
As discussed in Note 3 in Item 1, on March 31, 2020, we closed on the mergers of SecurCare and DLAN with and into wholly-owned subsidiaries of the Company. In connection with the mergers, we issued 8,105,192 common shares to the former owners of SecurCare and DLAN.
During the ninethree months ended September 30, 2019,March 31, 2020, we sold 2,375,000125,000 of our common shares and 1,785,680 of our Series A preferred shares through at the market offerings. The common shares were sold at an average offering price of $30.06$36.18 per share, resulting in net proceeds to us of approximately $70.6 million after deducting compensation payable by us to such agents and offering expenses. The Series A preferred shares were sold at an average offering price of $24.84 per share, resulting in net proceeds to us of approximately $43.6$4.2 million after deducting compensation payable by us to such agents and offering expenses.
During the ninethree months ended September 30, 2019,March 31, 2020, after receiving notices of redemption from certain OP unitholders, we elected to issue 287,479118,961 common shares to such holders in exchange for 287,479118,961 OP units in satisfaction of the operating partnership's redemption obligations.
During the three months ended March 31, 2020, after receiving notices of redemption from certain Series A-1 preferred unitholders, we elected to issue 5,600 Series A preferred shares to such holders in exchange for 5,600 Series A-1 preferred units in satisfaction of the operating partnership's redemption obligations.
Issuance of OP Equity
In connection with the 6236 properties acquired during the ninethree months ended September 30, 2019,March 31, 2020, we issued $49.8$7.2 million of OP equity (consisting of 343,657181,981 OP units, 340,702 Series A-1 preferred28,892 LTIP units and 1,125,35113,105 subordinated performance units). In addition, we issued 28,894 LTIP units to consultants that will vest upon the completion of expansion projects.
During the nine months ended September 30, 2019, the Company issued 863,148 OP units upon conversion of 913,680 subordinated performance units and 13,475 DownREIT OP units upon conversion of 15,377 DownREIT
subordinated performance units further described under "Subordinated Performance Units and DownREIT Subordinated Performance Units"As discussed in Note 3 in Item 1, during the three months ended March 31, 2020, the Company issued 445,701 OP units issued upon the conversion of this Quarterly Report.332,738 subordinated performance units and 133,637 OP units upon the conversion of an equivalent number of LTIP units.
Dividends and Distributions
On August 22, 2019February 20, 2020 our board of trustees declared a cash dividend and distribution, respectively, of $0.32$0.33 per common share and OP unit to shareholders and OP unitholders of record as of SeptemberMarch 13, 2019.2020. On August 22, 2019,February 20, 2020, our board of trustees also declared cash distributions of $0.375 per Series A Preferred Share and Series A-1 Preferred Unit to shareholders and unitholders of record as of SeptemberMarch 13, 2019.2020. On SeptemberMarch 12, 2019,2020, our board of trustees declared cash distributions of $9.1$8.7 million, in aggregate, to subordinated performance unitholders of record as of SeptemberMarch 13, 2019.2020. Such dividends and distributions were paid on September 30, 2019.March 31, 2020.
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:
| |
(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. |
(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 will 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:
| |
(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. |
(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 OP unitholders and to the holders of series of subordinated performance units that relate to such property portfolio as follows:
First, an amount is allocated to OP unitholders in order to provide OP unitholders (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 September 30, 2019,March 31, 2020, our operating partnership had an aggregate of $1,630.8$1,711.6 million of unreturned capital contributions with respect to common shareholders and OP unitholders, with 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 subordinated allocation corresponding to such series of subordinated performance units. The subordinated allocation for the outstanding subordinated performance units is 6%. As of September 30, 2019,March 31, 2020, an aggregate of $151.1$116.9 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 OP unitholders 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 OP unitholders 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 unitholders and subordinated performance unitholders 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 OP unitholders (or paid as dividends to holders of our common shares). Any distribution of operating cash flow allocated to the OP unitholders 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 OP unitholders 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 OP unitholders in order to provide OP unitholders (together with any prior allocations of operating cash flow) with a cumulative preferred allocation on the unreturned capital contributions attributed to the OP unitholders 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 relate 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 allocated to OP unitholders 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 general partner of our operating partnership, may cause our operating partnership to distribute the amounts allocated to the OP unitholders or may cause our operating partnership to retain such amounts to be used by our operating partnership for any 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 unitholders and subordinated performance unitholders 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 OP unitholders (or paid as dividends to holders of our common shares). Any distribution of capital transaction proceeds allocated to the OP unitholders 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 September 30, 2019,March 31, 2020, 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 September 30, 2019,March 31, 2020, we have not guaranteed any obligations of unconsolidated entities, nor made any commitments to provide funding to any such entities, that creates any material exposure to any financing, liquidity, market or credit risk.
Seasonality
The self storage business is subject to minor seasonal fluctuations. A greater portion of revenues and profits are 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 September 30, 2019,March 31, 2020, we did not have anyhad $200.0 million of debt subject to variable interest rates (excluding variable-rate debt subject to interest rate swaps). If one-month LIBOR 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 decrease or increase future earnings and cash flows by approximately $2.0 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 September 30, 2019March 31, 2020 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 ourthe Company's potential risks and uncertainties, see the information below and in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 26, 2019 under the heading Item 1A. "Risk Factors" beginning on page 15, which is accessible on the SEC's website at www.sec.gov. During
The current outbreak of COVID-19 or the nine months ended September 30, 2019, therefuture outbreak of any other highly infectious or contagious diseases, could adversely impact or cause significant disruption to our financial condition, results of operations and cash flows. The spread of the COVID-19 outbreak has disrupted, and is likely to further cause severe disruptions in, the economy and financial markets and create widespread business continuity and viability issues.
The potential impact and duration of COVID-19 or another pandemic could have significant repercussions across the economy and financial markets, and could trigger a period of economic slowdown or recessions. The outbreak of COVID-19 in many countries continues to adversely impact economic activity and has contributed to significant volatility and negative pressure in financial markets. The impact of the outbreak has been no material changesrapidly evolving and, as cases of the virus have continued to increase around the world, many countries, including the United States, have reacted by instituting, among other things, quarantines and restrictions on travel.
Most states and municipalities, including where we have our headquarters (Colorado) and in regions of the United States where our properties and tenants are located, have also reacted by instituting quarantines, mandating business and school closures, requiring restrictions on travel, "shelter in place" or "stay-at-home" orders, and imposing restrictions on the types of business that may continue to operate. Although many of these jurisdictions, including Colorado, are gradually relaxing a number of these restrictions, many of these restrictions are still in place in regions where our properties are located.
As a result, the COVID-19 pandemic, or a future pandemic, could adversely impact our financial condition, results of operations and cash flows due to, among other factors:
•reduced economic activity that may severely impact the Company's tenants and may cause a portion of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such riskobligations, which could increase uncollectible receivables and cause subsequent reductions in revenue;
•reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending, which could reduce move-in volumes at our stores or limit our ability to minimize exposure to uncollectible receivables;
•governmental or health and safety requirements or recommendations could compel a complete or partial closure of, or other operational issues at, one or more of our properties or prohibit us from charging late fees, conducting auctions and increasing prices;
•any of the above factors, disclosedor a combination thereof, could cause the Company to recognize impairment in value of its tangible or intangible assets;
•a general decline in business activity and demand for property acquisitions, expansions, and the addition of new PROs and/or joint venture partners could adversely affect our ability or desire to grow our portfolio of properties;
•interrupted availability of personnel, including our executive officers, other employees and the employees of our PROs, and an inability of us or our PROs to recruit, attract and retain additional skilled personnel to manage our business and/or properties;
•the potential negative impact on the health of our or our PROs' personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption;
•the inability of other third-party vendors we rely on to conduct our business to operate effectively and continue to support our business and operations, including vendors that provide IT services, legal and accounting services, or other operational support services;
•difficulty accessing debt and equity capital on attractive terms, or at all, and severe disruption or instability in the financial markets or a deterioration in credit and financing conditions may affect our access to capital necessary to fund business operations, potential acquisitions, or other growth opportunities or address maturing liabilities on a timely basis; and
•the financial impact of the COVID-19 pandemic, including potential decreases in cash from operations resulting therefrom, could negatively impact our future compliance with the financial covenants in our credit facility and other debt agreements and result in a default and potential acceleration of indebtedness, which could negatively impact our ability to make additional borrowings under our revolving credit facility and pay dividends.
The rapid development and fluidity of the circumstances resulting from this pandemic preclude any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows and our tenant's ability to pay rent.
The factors described above, as well as additional factors that the Company may not currently be aware of, could materially negatively impact the Company’s ability to collect rent and could lead to termination of leases by tenants, tenant bankruptcies, decreases in demand for storage space at the Company’s properties, difficulties in accessing capital, impairment of the Company’s tangible or intangible assets and other impacts that could materially and adversely affect the Company’s financial condition, results of operations and cash flows.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it 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, demand for self storage space generally, illiquidity of real estate investments, our ability to obtain debt financing, our dependence on Form 10-K filed with the SEC on February 26, 2019.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 September 30, 2019,March 31, 2020, the Company, in its capacity as general partner of its operating partnership, caused the operating partnership to issue 32,951118,961 common shares to satisfy redemption requests from certain limited partners.
On September 17, 2019,January 23, 2020, the operating partnership issued 28,511 subordinated performance57,786 LTIP units to an affiliateunrelated third parties and affiliates of Moove In,Southern Storage Management Systems, Inc. d/b/a Southern Self Storage, one of the Company's existing PROs, in exchangeas partial consideration for cash in connection with the acquisition, expansion, and ongoing management of a portfolio of 29 self storage properties.
On April 24, 2020, the operating partnership issued 54,111 OP units to NWSS Silverton Road Storage LLC, an affiliate of J. Timothy Warren, a trustee of the Company, as consideration for the acquisition of one self storage property.
The LTIP units issued by the operating partnership, after achieving parity with OP Units, are eligible to be converted into OP Units on a one-for-one basis upon the satisfaction of conditions set forth in the LP Agreement and in the LTIP award agreements pursuant to which the LTIP units were issued.
Following a two year lock-outspecified lock up period after the date of issuance set forth above, the OP units issued by the operating partnership may be redeemed from time to time by holders of subordinated performance units may elect, only upon the achievement of certain performance thresholds relatingfor a cash amount per OP unit equal to the propertiesmarket value of an equivalent number of common shares. The Company has the right, but not the obligation, to which such subordinated performance units relate,assume and satisfy the redemption obligation of the operating partnership described above by issuing one common share in exchange for each OP unit tendered for redemption.
The Company has elected to convert all or a portionreport early the private placement of such subordinated performance units intoits common shares that may occur if the Company elects to assume the redemption obligation of the operating partnership as described above in the event that OP units one time each year by submitting a completed conversion notice on or prior to December 1 of such year. All duly submitted conversion notices will become effective onare in the immediately following January 1. For additional information about the conversion or exchange of subordinated performance units into OP units, see Note 3 in Item 1 of this Quarterly Report.future tendered for redemption.
As of October 31, 2019,May 8, 2020, other than those OP units held by the Company, after reflecting the transactions described herein, 33,065,99232,411,982 OP units of its operating partnership were outstanding (including 760,173797,810 outstanding LTIP units in the operating partnership and 1,848,2611,924,918 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).
These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
Not applicable.During the three months ended March 31, 2020, 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 the quarter ended March 31, 2020:
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Period | | Total number of shares purchased | | - | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum numbers of shares that may yet be purchased under the plans or programs |
January 1 - January 31, 2020 | | 2,766 | | (1) | | | n/a | | n/a |
February 1 - February 29, 2020 | | — | | | | n/a | | n/a |
March 1 - March 31, 2020 | | — | | | | n/a | | n/a |
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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 was $33.62 and is based on the closing price of our common shares as of January 1, 2020, the date of withholding. |
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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| Second Amended and Restated CreditEmployment Agreement, dated as of July 29, 2019April 1, 2020, by and among NSA OP, LP, as Borrower, the lenders from time to time party hereto, and KeyBank National Association, as Administrative Agent, and joined in for certain purposes by certain Subsidiaries of the Borrower andbetween National Storage Affiliates Trust and David Cramer (Exhibit 10.1 to the Current Report on Form 8-K filed with Keybanc Capital Markets Inc., and PNC Capital Markets LLC, as Co-Bookrunners and Co-Lead Arrangers, PNC Bank, National Association, as Syndication Agent, U.S. Bank National Association and BMO Capital Markets Corp. as Co-Lead Arrangers and Co-Documentation Agents, Wells Fargo Securities, LLC as Co-Lead Arranger, Wells Fargo Bank, National Association, as Co-Documentation Agent, and CitiBank, N.A., as Co-Lead Arranger and Co-Documentation Agent for the Revolving Credit FacilitySEC on April 6, 2020, is incorporated herein by this reference) |
| Third Amendment to CreditSeparation Agreement, dated as of July 29, 2019,March 31, 2020 by and among NSA OP, LP, as Borrower, certain Subsidiaries of the Borrower party as Guarantors,between National Storage Affiliates Trust certain lenders party thereto, and Capital One, National Association, as Administrative Agent forSteven B. Treadwell (Exhibit 10.2 to the LendersCurrent Report on Form 8-K filed with the SEC on April 6, 2020, is incorporated herein by this reference) |
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| Agreement and Plan of Merger by and among National Storage Affiliates Trust, NSA Holding Company I, LLC, SecurCare Self Storage, Inc., Arlen D. Nordhagen, David Cramer and Justin Hlibichuk, each individually, and Arlen Nordhagen, in his capacity as Security Representative, dated February 24, 2020 (Film No. 20645362). (Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 24, 2020, is incorporated herein by this reference) |
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101.INS* | XBRL Instance Document - the instance document does not appear in 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/ TAMARA D. FISCHER |
| Tamara D. Fischer |
| 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 |
| president and chief financial officer |
| (principal accounting and financial officer) |
Date: November 1, 2019
May 11, 2020