National Storage Affiliates(NSA) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2023, highlighting growth in total assets to $6.19 billion and an 11.1% increase in total revenues to $208.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,185,425 | $6,070,007 | | Self storage properties, net | $5,731,956 | $5,618,911 | | Cash and cash equivalents | $44,330 | $35,312 | | Total Liabilities | $3,780,351 | $3,680,993 | | Debt financing | $3,643,585 | $3,551,179 | | Total Equity | $2,405,074 | $2,389,014 | Condensed Consolidated Statement of Operations Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenue | $207,993 | $187,184 | | Net income | $40,392 | $44,786 | | Net income attributable to common shareholders | $24,997 | $21,949 | | Earnings per share - diluted | $0.24 | $0.24 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $109,753 | $110,066 | | Net Cash Used In Investing Activities | ($36,172) | ($83,515) | | Net Cash Used In Financing Activities | ($63,944) | ($25,279) | Note 1. Organization and Nature of Operations NSA is a self-administered REIT that owned 932 consolidated and managed 185 unconsolidated self-storage properties as of March 31, 2023, and internalized management of 72 properties from a retiring PRO - As of March 31, 2023, NSA owned 932 consolidated self-storage properties with approximately 59.3 million rentable square feet[31] - The company also managed an additional 185 properties through its unconsolidated real estate ventures, bringing the total operated portfolio to 1,117 properties across 42 states and Puerto Rico[33][34] - Effective January 1, 2023, the company internalized the management of 72 properties and the brand name from its retiring PRO, Move It Self Storage[32] Note 3. Shareholders' Equity and Noncontrolling Interests This note details changes in equity, including $69.3 million in common share repurchases, issuance of $139.6 million in Series B Preferred Shares, and an increase in total noncontrolling interest units to 54.1 million - Under its share repurchase program, the company repurchased 1,622,874 common shares for approximately $69.3 million during the three months ended March 31, 2023[60] - On March 16, 2023, the company issued 5,668,128 Series B Preferred Shares for approximately $139.6 million in connection with the acquisition of a 15-property portfolio[63] Noncontrolling Interest Units | Unit Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | OP units | 38,782,420 | 35,737,281 | | Subordinated performance units | 7,532,547 | 8,154,524 | | DownREIT OP units | 2,120,491 | 1,924,918 | | DownREIT subordinated performance units | 4,133,474 | 4,337,111 | | Total | 54,071,479 | 51,594,932 | Note 6. Acquisitions and Dispositions In Q1 2023, the company acquired 16 self-storage properties for $160.5 million and Move It's management rights and intellectual property for $4.7 million - Acquired 16 self-storage properties for $160.5 million during Q1 2023, all from its PROs[82] Q1 2023 Acquisition Funding (in thousands) | Funding Source | Amount | | :--- | :--- | | Cash and Acquisition Costs | $9,920 | | Value of Equity Issued | $150,531 | | Other Liabilities Assumed | $85 | | Total Investment | $160,536 | - Acquired Move It's asset management agreements, brand, and intellectual property for $4.7 million following its retirement as a PRO[84] Note 8. Debt Financing The company's total debt reached $3.64 billion as of March 31, 2023, following an amendment to its credit facility that increased borrowing capacity to $1.955 billion - Total debt outstanding increased to $3.64 billion as of March 31, 2023, from $3.55 billion at the end of 2022[87] - On January 3, 2023, the company amended its credit facility, increasing total borrowing capacity to $1.955 billion with an option to expand to $2.5 billion[89] Note 12. Fair Value Measurements The company uses interest rate swaps to manage variable-rate debt exposure, with $1.41 billion in outstanding notional amount as of March 31, 2023 - The company uses interest rate swaps to effectively convert variable-rate debt to a fixed rate, mitigating interest rate risk[105] - As of March 31, 2023, the company had 17 active interest rate swaps with a total notional amount of $1.41 billion and a weighted average remaining term of approximately 3.2 years[106][108] Note 13. Subsequent Events Subsequent to quarter-end, the company completed a private placement of $120.0 million in senior unsecured notes due July 2028 with a 5.75% effective interest rate - On April 27, 2023, the company completed a private placement of $120.0 million of senior unsecured notes due July 5, 2028, with an effective interest rate of 5.75%[115] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting an 11.1% revenue increase, a 67.6% rise in interest expense, and 4.8% same-store NOI growth, alongside liquidity and non-GAAP measures Results of Operations Q1 2023 total revenue increased 11.1% to $208.0 million due to acquisitions and higher rental rates, but net income decreased due to a 67.6% surge in interest expense Q1 2023 vs. Q1 2022 Operating Results (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $207,993 | $187,184 | $20,809 | 11.1% | | Property Operating Expenses | $56,483 | $49,358 | $7,125 | 14.4% | | Interest Expense | $37,948 | $22,647 | $15,301 | 67.6% | | Net Income | $40,392 | $44,786 | ($4,394) | -9.8% | - The increase in rental revenue was driven by incremental revenue from 49 properties acquired since April 1, 2022, and a 12.9% increase in average annualized rental revenue per occupied square foot[137][138] - The significant increase in interest expense was primarily due to additional borrowings and higher interest rates on the company's revolving line of credit[145] Non-GAAP Financial Measures Core FFO per share decreased to $0.66, while the same-store portfolio achieved 4.8% NOI growth, and Adjusted EBITDA increased to $142.7 million FFO and Core FFO per Share and Unit | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | FFO per share and unit | $0.64 | $0.67 | | Core FFO per share and unit | $0.66 | $0.68 | Same Store Portfolio Performance (834 properties) | Metric | Q1 2023 vs Q1 2022 Change | | :--- | :--- | | Rental Revenue | +5.7% | | Property Operating Expenses | +8.3% | | Net Operating Income (NOI) | +4.8% | - Adjusted EBITDA for Q1 2023 was $142.7 million, an increase from $130.2 million in Q1 2022[168] Liquidity and Capital Resources The company's liquidity includes $44.3 million in cash and a $1.955 billion credit facility, with Q1 2023 financing activities including $69.3 million in share repurchases and $48.8 million in dividends - As of March 31, 2023, the company had $44.3 million in cash and cash equivalents and $283.3 million of available capacity on its revolving line of credit[173][180] - In January 2023, the company amended its credit facility, increasing total borrowing capacity to $1.955 billion and extending the revolver's maturity to January 2027[179] - Major financing activities in Q1 2023 included $69.3 million in common share repurchases and $48.8 million in dividend payments to common shareholders[178] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on $715.5 million of unhedged variable-rate debt, where a 100-basis-point change would impact annual interest expense by approximately $7.2 million - The primary market risk exposure is interest rate risk on variable-rate debt[215] - As of March 31, 2023, a hypothetical 100 basis point (1%) change in interest rates would impact annual interest expense by approximately $7.2 million on the $715.5 million of unhedged variable-rate debt[216] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[218] - No material changes to internal control over financial reporting were identified during the first quarter of 2023[219] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings considered material - The company is not currently subject to any material legal proceedings[222] Risk Factors This section updates risk factors, adding a new one concerning adverse developments in the financial services industry that could impact the company's cash access and partner obligations - A new risk factor was added to address potential adverse effects from instability in the financial services industry, such as bank failures or liquidity concerns[225] - The company's cash deposits at commercial banks exceed the $250,000 FDIC insurance limit, creating a risk of loss in the event of a bank failure[225] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company issued unregistered equity securities, including 67,431 common shares and 701,646 subordinated performance units, and repurchased 1,622,874 common shares for $69.3 million - Issued 67,431 common shares to satisfy redemption requests from limited partners holding OP units[227] - Issued 701,646 subordinated performance units to affiliates of its PROs (Guardian and Personal Mini) as partial consideration for property acquisitions[228] Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Jan 2023 | — | $— | $— | | Feb 2023 | — | $— | $— | | Mar 2023 | 1,622,874 | $42.65 | $69.3M | | Total | 1,622,874 | $42.65 | $69.3M |