National Storage Affiliates(NSA) - 2019 Q3 - Quarterly Report

FORM 10-Q TABLE OF CONTENTS This section provides an index to the various parts and items included in the Form 10-Q, outlining the structure of the financial information and other disclosures PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive income (loss), changes in equity, and cash flows, along with detailed notes explaining the company's accounting policies and specific financial items Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Assets | $3,110,797 | $2,729,263 | +$381,534 | | Self storage properties, net | $2,741,903 | $2,391,462 | +$350,441 | | Cash and cash equivalents | $44,749 | $13,181 | +$31,568 | | Total Liabilities | $1,653,591 | $1,326,964 | +$326,627 | | Debt financing | $1,533,936 | $1,278,102 | +$255,834 | | Total Shareholders' Equity | $915,702 | $916,839 | -$1,137 | | Noncontrolling interests | $541,504 | $485,460 | +$56,044 | | Total Equity | $1,457,206 | $1,402,299 | +$54,907 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) over specific periods, reflecting operational performance Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total Revenue | $101,337 | $85,382 | +18.7% | $287,328 | $241,598 | +18.9% | | Total Operating Expenses | $68,625 | $57,869 | +18.6% | $194,386 | $168,802 | +15.1% | | Net Income | $16,514 | $16,829 | -1.9% | $47,187 | $41,843 | +12.8% | | Net (Loss) Income attributable to National Storage Affiliates Trust | $(8,860) | $4,394 | -301.7% | $(9,105) | $20,745 | -143.9% | | Earnings (loss) per share - basic and diluted | $(0.20) | $0.03 | -766.7% | $(0.32) | $0.25 | -228.0% | | Dividends declared per common share | $0.32 | $0.29 | +10.3% | $0.94 | $0.86 | +9.3% | Condensed Consolidated Statements of Comprehensive Income (Loss) Reports net income and other comprehensive income (loss) items, providing a complete view of changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net income | $16,514 | $16,829 | -1.9% | $47,187 | $41,843 | +12.8% | | Unrealized (loss) gain on derivative contracts | $(17,433) | $3,078 | -666.0% | $(44,547) | $16,733 | -366.1% | | Other comprehensive (loss) income | $(18,372) | $2,479 | -841.8% | $(48,039) | $15,902 | -402.1% | | Comprehensive (loss) income | $(1,858) | $19,308 | -109.6% | $(852) | $57,745 | -101.5% | | Comprehensive (loss) income attributable to National Storage Affiliates Trust | $(20,679) | $5,978 | -446.8% | $(39,833) | $30,577 | -230.3% | Condensed Consolidated Statements of Changes in Equity Outlines the changes in each component of shareholders' equity over a period, including net income, share issuances, and distributions - During the nine months ended September 30, 2019, the Company sold 2,375,000 common shares through its ATM program, generating approximately $70.6 million in net proceeds[67] - The Company also sold 1,785,680 Series A preferred shares through its ATM program, resulting in approximately $43.6 million in net proceeds[67] - OP equity issued for property acquisitions totaled $49.8 million during the nine months ended September 30, 2019, consisting of OP units, Series A-1 preferred units, and subordinated performance units[222] Key Equity Balances (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Preferred Shares Amount | $218,178 | $172,500 | +$45,678 | | Common Shares Amount | $593 | $567 | +$26 | | Additional Paid-in Capital | $901,530 | $844,276 | +$57,254 | | Distributions In Excess Of Earnings | $(187,305) | $(114,122) | -$73,183 | | Noncontrolling Interests | $541,504 | $485,460 | +$56,044 | | Total Equity | $1,457,206 | $1,402,299 | +$54,907 | Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities, showing changes in cash over a period Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :---------------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Net Cash Provided by Operating Activities | $150,081 | $123,663 | +$26,418 | | Net Cash Used In Investing Activities | $(364,371) | $(460,536) | +$96,165 | | Net Cash Provided By Financing Activities | $248,133 | $340,215 | -$92,082 | | Increase in Cash, Cash Equivalents and Restricted Cash | $33,843 | $3,342 | +$30,501 | | End of period Cash, Cash Equivalents and Restricted Cash | $50,206 | $19,749 | +$30,457 | - Key investing activities for the nine months ended September 30, 2019, included $342.2 million for self-storage property acquisitions, $15.9 million for capital expenditures, and $6.6 million for the acquisition of an interest in a reinsurance company[29] - Significant financing activities included $822.0 million in debt borrowings, $560.3 million in debt principal payments, $70.6 million from common share issuance, and $43.6 million from preferred share issuance[29] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information about the figures presented in the condensed consolidated financial statements Note 1. Organization and Nature of Operations Describes the company's business, its primary activities, and its operational structure as a self-administered and self-managed REIT - National Storage Affiliates Trust (NSA) is a self-administered and self-managed REIT focused on the ownership, operation, and acquisition of self-storage properties in top 100 US metropolitan statistical areas[34][35] - As of September 30, 2019, NSA owned 560 consolidated self-storage properties (34.1 million rentable square feet) and managed an additional 175 properties through unconsolidated real estate ventures (12.7 million rentable square feet), totaling 735 properties[36][37][38] Note 2. Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements, including consolidation, revenue recognition, and new lease standards - The Company consolidates its operating partnership and controlled subsidiaries, including 21 DownREIT partnerships identified as Variable Interest Entities (VIEs)[40][41][42] - Revenue recognition policies include straight-line recognition for rental revenue, recognition in the period earned for other property-related revenue (e.g., tenant insurance, storage supplies), and deferred recognition over four years for certain acquisition fees[43][44][50] - Net income (loss) is allocated using the hypothetical liquidation at book value (HLBV) method, which can lead to disproportionate allocations and volatile earnings per share[58][59] - The Company adopted new lease accounting standards (ASU 2016-02 and ASU 2018-11) effective January 1, 2019, requiring on-balance sheet recognition of most leases and reclassifying uncollectible accounts from operating expenses to revenue[63][65] Note 3. Shareholders' Equity and Noncontrolling Interests Details the components of shareholders' equity and noncontrolling interests, including share issuances, unit conversions, and their impact on ownership structure - During the nine months ended September 30, 2019, the Company raised approximately $70.6 million from common share sales and $43.6 million from Series A preferred share sales through its At-the-Market (ATM) program[67] Noncontrolling Interests Units Outstanding | Unit Type | September 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------------- | :------------------- | | Series A-1 preferred units | 642,982 | 343,719 | | OP units | 30,458,558 | 28,874,103 | | Subordinated performance units | 10,961,146 | 10,749,475 | | LTIP units | 760,173 | 931,671 | | DownREIT OP units | 1,848,261 | 1,834,786 | | DownREIT subordinated performance units | 4,371,622 | 4,386,999 | | Total | 49,042,742 | 47,120,753 | - Changes in units outstanding include increases in Series A-1 preferred units and OP units due to property acquisitions and conversions, and a decrease in LTIP units due to conversions to OP units[71][73][81] Note 4. Self Storage Properties Provides a breakdown of the company's self-storage property assets, including land, buildings, and accumulated depreciation, and related expenses Self Storage Properties Summary (in thousands) | Metric | September 30, 2019 | December 31, 2018 | Change | | :-------------------------- | :----------------- | :---------------- | :----- | | Land | $643,524 | $583,455 | +$60,069 | | Buildings and improvements | $2,405,621 | $2,048,281 | +$357,340 | | Total self storage properties | $3,055,597 | $2,637,723 | +$417,874 | | Less accumulated depreciation | $(313,694) | $(246,261) | -$67,433 | | Self storage properties, net | $2,741,903 | $2,391,462 | +$350,441 | - Depreciation expense for self-storage properties increased to $23.8 million for the three months ended September 30, 2019 (from $19.2 million in 2018) and to $68.0 million for the nine months ended September 30, 2019 (from $56.1 million in 2018)[82] Note 5. Investment in Unconsolidated Real Estate Ventures Details the company's equity interests in unconsolidated joint ventures and their combined operating performance - The Company holds a 25% equity interest in the 2018 Joint Venture (103 properties) and the 2016 Joint Venture (72 properties)[83][84] Combined Condensed Operating Information of Unconsolidated Real Estate Ventures (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total revenue | $41,600 | $23,090 | +80.2% | $122,253 | $53,092 | +130.3% | | Net (loss) income | $(4,913) | $966 | -608.5% | $(20,015) | $1,148 | -1843.8% | - The 2016 Joint Venture sold one self-storage property to the Company for $4.1 million during the nine months ended September 30, 2019[85] Note 6. Self Storage Property Acquisitions and Dispositions Summarizes the company's activities related to acquiring and selling self-storage properties, including transaction values and gains on sales - During the nine months ended September 30, 2019, the Company acquired 62 self-storage properties for an estimated fair value of $415.7 million, including 17 from PROs and one from the 2016 Joint Venture[87] - The Company sold one self-storage property to an unrelated third party for $6.5 million, recognizing a $2.8 million gain on sale during the nine months ended September 30, 2019[89] Note 7. Other Assets Details various other assets held by the company, such as customer in-place leases, interest rate swaps, and tenant reinsurance intangibles Other Assets Summary (in thousands) | Metric | September 30, 2019 | December 31, 2018 | Change | | :---------------------------------------- | :----------------- | :---------------- | :----- | | Customer in-place leases, net | $5,619 | $4,063 | +$1,556 | | Property acquisition and other deposits | $0 | $20,977 | -$20,977 | | Interest rate swaps | $449 | $16,164 | -$15,715 | | Corporate furniture, equipment and other, net | $8,776 | $1,574 | +$7,202 | | Tenant reinsurance intangible, net | $14,429 | $0 | +$14,429 | | Total | $63,271 | $75,053 | -$11,782 | - Amortization expense for customer in-place leases was $8.6 million for the nine months ended September 30, 2019, and for the tenant reinsurance intangible was $0.2 million for the three and nine months ended September 30, 2019[91] Note 8. Debt Financing Provides information on the company's debt obligations, including credit facilities, term loans, senior unsecured notes, and interest rate swap agreements Outstanding Debt Summary (in thousands) | Metric | September 30, 2019 | December 31, 2018 | Change | | :-------------------- | :----------------- | :---------------- | :----- | | Total principal | $1,539,323 | $1,277,638 | +$261,685 | | Total debt | $1,533,936 | $1,278,102 | +$255,834 | - On July 29, 2019, the Company amended its credit facility, increasing total borrowing capacity by $255.0 million to $1.275 billion, with an expansion option up to $1.750 billion[94][214] - The Company entered into a $100.0 million 2029 Term Loan Facility in April 2019 and issued $150.0 million in 2029 and 2031 Senior Unsecured Notes in August 2019[101][105] - As of September 30, 2019, the Company had outstanding interest rate swaps with aggregate notional amounts of $1,125.0 million, fixing interest rates for its Term Loans[127] Note 9. Earnings Per Share Explains the calculation of basic and diluted earnings per share, including the impact of income allocation methods and potential common shares Earnings (Loss) Per Share Highlights | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net (loss) income attributable to common shareholders | $(12,132) | $1,806 | -771.6% | $(18,222) | $12,982 | -240.4% | | Earnings (loss) per share - basic and diluted | $(0.20) | $0.03 | -766.7% | $(0.32) | $0.25 | -228.0% | | Weighted average shares outstanding - basic and diluted | 59,278 | 55,722 | +6.4% | 57,835 | 52,189 | +10.8% | - The hypothetical liquidation at book value (HLBV) method for income allocation can lead to disproportionate income/loss allocation to unitholders and volatile fluctuations in basic and diluted earnings (loss) per share[108][109] - For the three months ended September 30, 2019, 55.2 million potential common shares were excluded from diluted EPS calculation as they were not dilutive[114] Note 10. Related Party Transactions Discloses transactions with related parties, including fees paid to PROs and the acquisition of an interest in a reinsurance company from an affiliate - The Company incurred $14.8 million in supervisory and administrative fees and $23.8 million in payroll and related costs reimbursable to its PROs for the nine months ended September 30, 2019[116][117] - On June 1, 2019, the Company acquired a 5.5% ownership interest in SBOA TI Reinsurance Ltd. from an affiliate of its CEO for $15.1 million (cash and OP units), gaining rights to access fees and a share of profits[121][122][123] Note 11. Commitments and Contingencies Addresses potential future obligations and uncertainties, including ongoing litigation, claims, and assessments in the ordinary course of business - The Company is subject to litigation, claims, and assessments in the ordinary course of business, but management believes their final disposition will not have a material adverse effect on its financial position, results of operations, or liquidity[124] Note 12. Fair Value Measurements Details the fair value of financial instruments, particularly interest rate swaps used for hedging, and fixed rate mortgages payable - The Company uses interest rate swap agreements as cash flow hedges to moderate exposure to interest rate risk, effectively converting variable rate debt to fixed rates[126] Fair Value of Interest Rate Swaps (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Sep 30, 2018 | | :------------------------------------------------------------------ | :----------- | :----------- | :----------- | | Fair value | $(33,844) | $14,195 | $28,316 | | Unrealized (losses) gains on interest rate swaps in AOCI | $(44,547) | N/A | $16,733 | | Aggregate notional amounts of outstanding interest rate swaps | $1,125,000 | $795,000 | N/A | - The fair value of fixed rate mortgages payable was approximately $285.0 million (principal $264.3 million) as of September 30, 2019, compared to $276.5 million (principal $268.1 million) as of December 31, 2018[131] Note 13. Leases Discusses the impact of new lease accounting standards, including the recognition of right-of-use assets and lease liabilities on the balance sheet - Following the adoption of new lease accounting standards (ASU 2016-02 and ASU 2018-11) effective January 1, 2019, the Company recognizes operating lease right-of-use (ROU) assets of $23.5 million and operating lease liabilities of $24.8 million on its balance sheet[12][132] Weighted-Average Lease Terms and Discount Rates (September 30, 2019) | Lease Type | Weighted-average remaining lease term | Weighted-average discount rate | | :-------------------------- | :---------------------------------- | :----------------------------- | | Real estate leasehold interests | 29 years | 4.9% | | Office leases | 7 years | 4.1% | - Total future minimum lease payments under operating leases amounted to $46.8 million as of September 30, 2019[136] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, property portfolio, and detailed analysis of revenue and expenses for the three and nine months ended September 30, 2019. It also discusses non-GAAP financial measures, liquidity, and capital resources Forward-Looking Statements Highlights cautionary language regarding future-oriented information, emphasizing that actual results may differ due to various risks and uncertainties - The report contains forward-looking statements regarding future business, financial condition, liquidity, and results of operations, identified by words such as 'believe,' 'expect,' and 'anticipate'[137] - These statements are subject to numerous known and unknown risks, uncertainties, and changes in circumstances that may cause actual results to differ significantly[138] Overview Provides a high-level introduction to the company's business model as a self-storage REIT and its strategic alignment with Participating Regional Operators - National Storage Affiliates Trust is a self-administered and self-managed REIT focused on owning, operating, and acquiring self-storage properties in top US metropolitan areas[140] - The company's structure aligns the interests of its Participating Regional Operators (PROs) with shareholders by allowing PROs to participate in financial performance and managed portfolios[141] Our Structure Explains the company's operational framework, emphasizing operator accountability and incentives for co-investment in property acquisitions - The company's structure promotes operator accountability by linking distributions on subordinated performance units to minimum property performance thresholds[142] - PROs are incentivized to co-invest subordinated equity in acquisitions they source, aligning their interests with the performance of their managed portfolios[142] Our PROs Describes the company's relationship with its Participating Regional Operators and its strategy for platform expansion and operational integration - As of September 30, 2019, the Company had ten Participating Regional Operators (PROs)[144] - The company aims to expand its platform by recruiting additional operators and integrating operations through centralized initiatives to achieve cost savings and economies of scale[144] Our Consolidated Properties Details the company's portfolio of owned self-storage properties, including their location, size, and recent acquisition activities - The company focuses on owning well-located self-storage properties in high-quality sub-markets with strong cash flows and barriers to entry[145] - As of September 30, 2019, the company owned 560 self-storage properties (34.1 million rentable square feet) across 29 states and Puerto Rico[146] - During the nine months ended September 30, 2019, 62 self-storage properties were acquired for $415.7 million (3.8 million rentable square feet)[147] Our Unconsolidated Real Estate Ventures Describes the company's partnerships with institutional investors through joint ventures for acquiring self-storage portfolios - The company partners with institutional investors through unconsolidated joint ventures (2018 JV and 2016 JV) to acquire self-storage portfolios, holding a 25% interest in each[148][149][150] - The 2016 Joint Venture sold one self-storage property to the Company for $4.1 million during the nine months ended September 30, 2019[151] Our Property Management Platform Explains the role of the property management platform in overseeing daily operations for consolidated properties and unconsolidated ventures, including tenant insurance programs - The property management platform directs day-to-day operations for certain consolidated properties and unconsolidated real estate ventures[152] - The platform earns customary fees for managing unconsolidated ventures and facilitates tenant insurance programs, receiving half of all proceeds from such programs[152] Results of Operations Analyzes the company's financial performance, detailing revenue and expense trends for both quarterly and year-to-date periods, and the impact of acquisitions - The company acquired 62 self-storage properties during the nine months ended September 30, 2019, impacting the comparability of historical results[155] - The same-store portfolio, used for performance analysis, consisted of 439 consolidated self-storage properties as of September 30, 2019[156] Three Months Ended September 30, 2019 compared to the Three Months Ended September 30, 2018 Compares the company's financial performance for the three-month period, highlighting changes in net income, revenue, and key expenses year-over-year - Net income decreased by $0.3 million (1.9%) to $16.5 million, primarily due to increased depreciation, interest expense, G&A, and losses from unconsolidated ventures, partially offset by higher NOI[158] - Total revenue increased by $16.0 million (18.7%) to $101.3 million, driven by incremental revenue from 69 acquired properties and regular rental increases[161] - Same-store rental revenue increased by 3.6% due to a 3.3% increase in average annualized rental revenue per occupied square foot and a rise in average occupancy from 89.9% to 90.2%[162] - Interest expense increased by $3.8 million (35.4%) to $14.4 million, mainly due to additional term loan borrowings and senior unsecured notes[168] Nine Months Ended September 30, 2019 compared to the Nine Months Ended September 30, 2018 Compares the company's financial performance for the nine-month period, detailing changes in net income, revenue, and key expenses year-over-year - Net income increased by $5.4 million (12.8%) to $47.2 million, driven by higher NOI from acquisitions and same-store growth, and a gain on property sales, partially offset by increased expenses[172] - Total revenue increased by $45.7 million (18.9%) to $287.3 million, primarily from 69 acquired properties and rental increases[175] - Same-store rental revenue increased by 4.3% due to a 3.7% increase in average annualized rental revenue per occupied square foot and a rise in average occupancy from 88.7% to 89.0%[176] - Interest expense increased by $10.8 million (35.2%) to $41.6 million, mainly due to additional term loan borrowings and senior unsecured notes[182] - Gain on sale of self-storage properties increased to $2.8 million from $0.4 million, due to the sale of one property[184] Non-GAAP Financial Measures Presents and reconciles non-GAAP financial measures such as FFO, Core FFO, NOI, EBITDA, and Adjusted EBITDA, used to assess operational performance FFO and Core FFO Defines and presents Funds from Operations (FFO) and Core FFO, key non-GAAP metrics for evaluating REIT operating performance by excluding certain non-cash and non-recurring items - Funds from Operations (FFO) and Core FFO are supplemental non-GAAP measures used to evaluate operating performance, excluding real estate depreciation, gains/losses from property sales, and other non-core items[187] FFO and Core FFO Highlights (in thousands, except per share and unit amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | $36,375 | $31,083 | +17.0% | $102,933 | $84,177 | +22.3% | | Core FFO attributable to common shareholders, OP unitholders, and LTIP unitholders | $36,696 | $31,224 | +17.5% | $103,716 | $84,648 | +22.5% | | FFO per share and unit | $0.39 | $0.36 | +8.3% | $1.14 | $1.01 | +12.9% | | Core FFO per share and unit | $0.40 | $0.36 | +11.1% | $1.15 | $1.01 | +13.9% | NOI Explains and presents Net Operating Income (NOI), a non-GAAP measure used to assess property-level operating performance by excluding corporate-level expenses - Net Operating Income (NOI) is a non-GAAP measure used by management and investors to evaluate property operating performance, excluding general and administrative expenses, depreciation, interest, and other non-property-level items[194][195] Net Operating Income (NOI) Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Operating Income | $66,975 | $55,682 | +20.3% | $189,310 | $157,172 | +20.4% | EBITDA and Adjusted EBITDA Defines and presents EBITDA and Adjusted EBITDA, non-GAAP measures used to compare performance across periods by excluding non-operating and non-cash items - EBITDA and Adjusted EBITDA are non-GAAP measures used to compare performance across reporting periods by excluding items not indicative of core operating performance, such as interest, taxes, depreciation, and amortization[198][199] EBITDA and Adjusted EBITDA Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | EBITDA | $63,964 | $52,190 | +22.6% | $183,638 | $144,010 | +27.5% | | Adjusted EBITDA | $65,438 | $53,558 | +22.2% | $185,182 | $147,103 | +25.9% | Liquidity and Capital Resources Discusses the company's ability to generate and manage cash, outlining sources of liquidity, capital expenditure plans, and financing activities Liquidity Overview Provides a summary of the company's primary sources of liquidity and how it meets its short-term and long-term cash requirements - The company's primary liquidity sources are cash flow from operations, equity and debt offerings, and debt financings[203] - Short-term liquidity needs are met by operating cash flow, cash on hand, and credit facility borrowings, while long-term needs are funded by operating cash, debt, and equity issuances[204][205] Cash Flows Analyzes the changes in cash from operating, investing, and financing activities, detailing the impact of acquisitions, debt, and equity transactions - Cash provided by operating activities increased by $26.4 million to $150.1 million for the nine months ended September 30, 2019, primarily due to property acquisitions[208] - Cash used in investing activities decreased by $96.1 million to $364.4 million, primarily for 62 self-storage property acquisitions ($342.2 million cash consideration)[209] - Cash provided by financing activities decreased by $92.1 million to $248.1 million, reflecting $822.0 million in new borrowings and $560.3 million in debt repayments[212] Capital Expenditures by Category (in thousands) | Category | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | | Recurring capital expenditures | $6,773 | $4,030 | | Value enhancing capital expenditures | $3,386 | $3,149 | | Acquisitions capital expenditures | $6,547 | $7,511 | | Total capital expenditures | $16,706 | $14,690 | Credit Facility and Term Loan Facilities Details the company's credit facility and term loan agreements, including borrowing capacity, outstanding amounts, and financial covenants - The credit facility was amended on July 29, 2019, increasing total borrowing capacity by $255.0 million to $1.275 billion, with an expansion option up to $1.750 billion[213][214] - The company has separate 2023, 2028, and 2029 Term Loan Facilities, with $175.0 million, $75.0 million, and $100.0 million outstanding respectively, all subject to similar financial covenants[215][216][218] 2029 And 2031 Senior Unsecured Notes Provides information on the private placement of senior unsecured notes, including their principal amounts, interest rates, and maturity dates - On August 30, 2019, the operating partnership issued $100.0 million of 3.98% senior unsecured notes due 2029 and $50.0 million of 4.08% senior unsecured notes due 2031 in a private placement[219] Equity Transactions Summarizes the company's equity-related activities, including common and preferred share issuances through its ATM program and OP equity issued for acquisitions - During the nine months ended September 30, 2019, the Company sold 2,375,000 common shares ($70.6 million net proceeds) and 1,785,680 Series A preferred shares ($43.6 million net proceeds) through its ATM program[220] - The Company issued $49.8 million of OP equity for 62 property acquisitions and 863,148 OP units upon conversion of 913,680 subordinated performance units[222] Dividends and Distributions Details the cash dividends declared per common share and OP unit, as well as distributions for preferred shares and subordinated performance unitholders - On August 22, 2019, the board declared a cash dividend of $0.32 per common share and OP unit, and cash distributions of $0.375 per Series A Preferred Share and Series A-1 Preferred Unit[225] - Cash distributions of $9.1 million were declared for subordinated performance unitholders, all paid on September 30, 2019[225] Cash Distributions from our Operating Partnership Explains the tiered allocation structure for operating cash flow and capital transaction proceeds to various unitholders of the operating partnership - Operating cash flow is allocated first to OP unitholders for a 6% cumulative preferred allocation, then to subordinated performance unitholders for a 6% non-cumulative subordinated allocation, with any remainder allocated equally[227][228][229] - Capital transaction proceeds follow a similar tiered allocation structure, with preferred and subordinated allocations based on unreturned capital contributions[232][233][234] Allocation of Capital Contributions Discusses the general partner's right to adjust capital contributions allocated to the operating partnership and subordinated performance units, subject to independent trustee approval - The general partner has the right to adjust capital contributions allocated to the operating partnership and subordinated performance units, subject to approval by a majority of independent trustees[239] Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements, guarantees, or funding commitments with unconsolidated entities as of the reporting date - As of September 30, 2019, the Company had no material off-balance sheet arrangements, guarantees, or funding commitments with unconsolidated entities beyond those disclosed in the financial statements[240] Seasonality Describes the minor seasonal fluctuations in the self-storage business, with higher revenues and occupancy typically occurring from May through September - The self-storage business experiences minor seasonal fluctuations, with higher revenues and profits typically from May through September, and highest occupancy in July, lowest in February[241] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk, and its strategies for mitigation, such as the use of interest rate swap agreements - The primary market risk to which the Company is exposed is interest rate risk, which is highly sensitive to governmental monetary policies and economic factors[242] - The Company uses interest rate swaps to moderate its exposure to interest rate risk by effectively converting variable rate debt to a fixed rate[242] - As of September 30, 2019, the Company did not have any debt subject to variable interest rates that was not hedged by interest rate swaps[243] ITEM 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the period - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report (September 30, 2019)[246] - There have been no material changes in the Company's internal control over financial reporting during the three months ended September 30, 2019[247] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings This section states that the company is not currently involved in any legal proceedings considered material - The Company is not currently subject to any legal proceedings that it considers to be material[250] ITEM 1A. Risk Factors This section refers to the company's Annual Report on Form 10-K for a discussion of potential risks and uncertainties, noting no material changes during the current reporting period - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, during the nine months ended September 30, 2019[251] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered sales of equity securities, including common shares issued for redemption requests and subordinated performance units for property acquisitions, all exempt from registration - During the three months ended September 30, 2019, the operating partnership issued 32,951 common shares to satisfy redemption requests from certain limited partners[252] - On September 17, 2019, 28,511 subordinated performance units were issued to an affiliate of Moove In in exchange for cash related to self-storage property acquisitions[253] - These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933[256] ITEM 3. Defaults Upon Senior Securities This item is marked as not applicable, indicating no defaults upon senior securities - Not applicable[259] ITEM 4. Mine Safety Disclosures This item is marked as not applicable, indicating no mine safety disclosures - Not applicable[260] ITEM 5. Other Information This item is marked as not applicable, indicating no other information to report - Not applicable[261] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and regulatory certifications - Exhibits include Articles of Amendment and Restatement, Bylaws, Articles Supplementary for Preferred Shares, and Specimen Share Certificates[263] - Key agreements filed are the Second Amended and Restated Credit Agreement and the Third Amendment to Credit Agreement[263] - Certifications of the Chief Executive Officer and Chief Financial Officer (pursuant to Sarbanes-Oxley Act) and XBRL-related documents are also included[263] SIGNATURES Signatures The report is duly signed on behalf of National Storage Affiliates Trust by its Chairman and Chief Executive Officer, Arlen D. Nordhagen, and its President and Chief Financial Officer, Tamara D. Fischer - The report was signed by Arlen D. Nordhagen (Chairman and CEO) and Tamara D. Fischer (President and CFO) on November 1, 2019[266]