National Storage Affiliates(NSA) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and notes on accounting policies and PRO structure internalization Condensed Consolidated Balance Sheets Total assets decreased to $5.32 billion from $5.93 billion due to property dispositions, resulting in lower total equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $5,321,101 | $5,931,811 | | Self storage properties, net | $4,856,411 | $4,917,815 | | Assets held for sale, net | $0 | $550,199 | | Total Liabilities | $3,504,036 | $3,805,970 | | Debt financing | $3,365,836 | $3,658,205 | | Total Equity | $1,817,065 | $2,125,841 | Condensed Consolidated Statements of Operations Q2 2024 revenue decreased 11.6% with lower net income, while H1 2024 revenue fell 8.7% but net income increased due to a $63.8 million gain on property sales Q2 2024 vs Q2 2023 Statement of Operations (in thousands, except per share) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $190,448 | $215,511 | -11.6% | | Net Income | $32,280 | $45,476 | -29.0% | | Net Income Attributable to Common Shareholders | $11,952 | $24,329 | -50.9% | | EPS (basic and diluted) | $0.16 | $0.28 | -42.9% | H1 2024 vs H1 2023 Statement of Operations (in thousands, except per share) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $386,596 | $423,504 | -8.7% | | Gain on sale of self storage properties | $63,841 | $0 | N/A | | Net Income | $127,368 | $85,868 | +48.3% | | Net Income Attributable to Common Shareholders | $65,869 | $49,608 | +32.8% | | EPS (basic and diluted) | $0.85 | $0.56 | +51.8% | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased, while investing activities provided significant cash from property sales, and financing activities used cash for debt and share repurchases Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $177,217 | $218,185 | | Net Cash Provided by (Used In) Investing Activities | $544,654 | ($53,622) | | Net Cash Used In Financing Activities | ($742,525) | ($159,441) | - Significant cash inflows from investing activities were driven by $616.8 million in proceeds from the sale of self storage properties[15] - Major uses of cash in financing activities included $713.0 million in debt principal payments and $275.2 million for the repurchase of common shares[15] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, PRO structure internalization, significant property dispositions with a $63.8 million gain, and $275.2 million in common share repurchases - On June 3, 2024, the company announced an agreement to internalize its participating regional operator (PRO) structure, effective July 1, 2024. This involved purchasing PRO management contracts and converting all 11.9 million subordinated performance units into 18.0 million OP and DownREIT OP units[19][48][86] - During the six months ended June 30, 2024, the company repurchased 7.4 million common shares for approximately $275.2 million[40] - In the first half of 2024, the company sold 40 properties to third parties for $273.1 million and contributed 56 properties to the 2024 Joint Venture for $343.7 million, recording a total net gain of $63.8 million[60] - A new joint venture (2024 Joint Venture) was formed with an affiliate of Heitman, where NSA holds a 25% interest. NSA contributed 56 properties to this venture[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance, PRO structure internalization, decreased revenue and expenses from dispositions, declining non-GAAP measures, and strong liquidity used for debt reduction and share repurchases Results of Operations Results were impacted by property dispositions, with Q2 revenue down 11.6% and H1 revenue down 8.7%, though H1 net income increased due to a $63.8 million property sales gain, and occupancy declined - The decrease in total revenue for Q2 and H1 2024 was primarily attributed to the sale of 32 properties in Q4 2023, the contribution of 56 properties to the 2024 Joint Venture in Q1 2024, and the sale of 40 properties in H1 2024[105][119] - Total portfolio average occupancy decreased from 89.0% for Q2 2023 to 86.1% for Q2 2024[105] - Average annualized rental revenue per occupied square foot increased by 3.3% in Q2 2024 YoY, from $15.09 to $15.59, driven by higher rates for in-place tenants[107] Non-GAAP Financial Measures Core FFO per share decreased in Q2 2024, and Same Store NOI for 776 properties declined 5.6% due to lower revenue from occupancy drops and increased operating expenses FFO and Core FFO per Share/Unit | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | FFO per share and unit | $0.61 | $0.68 | $1.20 | $1.32 | | Core FFO per share and unit | $0.62 | $0.68 | $1.22 | $1.34 | Same Store Portfolio (776 properties) Performance - Q2 2024 vs Q2 2023 | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Rental Revenue | $167,930 | $172,826 | -2.8% | | Property Operating Expenses | $49,840 | $47,576 | +4.8% | | Net Operating Income (NOI) | $124,342 | $131,667 | -5.6% | - The decrease in same store rental revenue was driven by a drop in average occupancy from 89.6% to 86.4% YoY for the second quarter[140] Liquidity and Capital Resources Liquidity from operations and property dispositions; H1 2024 saw decreased operating cash but significant property sale proceeds used for debt repayment and share repurchases, with substantial revolving credit capacity remaining - Primary uses of cash in H1 2024 were principal payments on debt ($713.0 million) and common share repurchases ($275.2 million)[159] - As of June 30, 2024, the company had $721.5 million of borrowing capacity remaining on its Revolver[66][161] - Subsequent to quarter-end, in July 2024, the company repaid the remaining $145.0 million of its Term Loan B using proceeds from the Revolver[87][160] - A quarterly dividend of $0.56 per common share was declared on May 16, 2024, and paid on June 28, 2024[171] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate risk on variable-rate debt, with a 100 basis point change impacting annual earnings and cash flows by approximately $2.2 million - The company is primarily exposed to interest rate risk on its variable-rate debt[181] - As of June 30, 2024, a hypothetical 100 basis point change in interest rates would affect annual earnings and cash flows by approximately $2.2 million on its $222.0 million of unhedged variable-rate debt[181] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[182] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[184] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings - As of the filing date, the company is not involved in any material legal proceedings[185] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2023 Annual Report on Form 10-K - The company refers to its 2023 Form 10-K for a discussion of potential risks and uncertainties, indicating no material updates in this filing[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered equity issuances related to PRO structure internalization, including OP unit conversions, and reports on share repurchase activity - On July 1, 2024, in connection with the PRO internalization, the operating partnership issued 1,548,866 OP Units to PROs as consideration and converted 11,906,167 subordinated performance units into 17,984,787 OP units[187] Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Purchased as Part of Program | Approx. Value Remaining for Purchase ($) | | :--- | :--- | :--- | :--- | :--- | | April 2024 | 1,908,397 | $37.51 | 1,908,397 | $256,908 | | May 2024 | 398 | $36.58 | — | $256,908 | | June 2024 | 448 | $38.74 | — | $256,908 | | Total | 1,909,243 | $37.51 | 1,908,397 | $256,908 | Items 3, 4, & 5. Other Information Items 3, 4, and 5 (Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information) are reported as not applicable - No information was reported for Defaults Upon Senior Securities, Mine Safety Disclosures, or Other Information[190] Item 6. Exhibits Lists all exhibits filed with Form 10-Q, including corporate governance documents, material agreements, and required CEO/CFO certifications