Quarterly report pursuant to Section 13 or 15(d)

EARNINGS PER SHARE

v3.5.0.2
EARNINGS PER SHARE
9 Months Ended
Sep. 30, 2016
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per common share for the three and nine months ended September 30, 2016 and 2015, respectively (in thousands, except per share amounts):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Earnings (loss) per common share - basic and diluted
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
Net income (loss)
$
7,944

 
$
2,109

 
$
18,791

 
$
(569
)
Net (income) loss attributable to noncontrolling interests
(7,955
)
 
2,263

 
(9,222
)
 
8,405

Net (loss) income attributable to National Storage Affiliates Trust
(11
)
 
4,372

 
9,569

 
7,836

Distributed and undistributed earnings allocated to participating securities
(4
)
 
(3
)
 
(13
)
 
(6
)
Net (loss) income attributable to common shareholders - basic
(15
)
 
4,369

 
9,556

 
7,830

Effect of assumed conversion of dilutive securities

 
(2,275
)
 
9,135

 
(5,646
)
Net (loss) income attributable to common shareholders - diluted
$
(15
)
 
$
2,094

 
$
18,691

 
$
2,184

 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
35,080

 
23,000

 
27,084

 
12,924

Effect of dilutive securities:
 
 
 
 
 
 
 
Weighted average OP units outstanding

 
21,109

 
23,761

 
13,773

Weighted average DownREIT OP unit equivalents outstanding

 
1,432

 
1,835

 
949

Weighted average LTIP units outstanding

 
1,844

 
2,162

 
1,030

Weighted average subordinated performance units and DownREIT subordinated performance unit equivalents

 
16,071

 
20,650

 
10,082

Weighted average shares outstanding - diluted
35,080

 
63,456

 
75,492

 
38,758

 
 
 
 
 
 
 
 
Earnings (loss) per share - basic
$

 
$
0.19

 
$
0.35

 
$
0.61

Earnings (loss) per share - diluted
$

 
$
0.03

 
$
0.25

 
$
0.06

 
 
 
 
 
 
 
 
As discussed in Note 2, the Company allocates GAAP income (loss) utilizing the HLBV method, in which the Company allocates income or loss based on the change in each unitholders' claim on the net assets of its 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 National Storage Affiliates Trust and noncontrolling interests, resulting in volatile fluctuations of basic and diluted earnings (loss) per share. Additionally, the Company did not have an ownership interest or share in its operating partnership's profits and losses prior to the completion of the Company's initial public offering. As a result, all of the operating partnership's profits and losses for the period from January 1, 2015 to April 28, 2015 were allocated to noncontrolling interests.


Outstanding equity interests of the operating partnership and DownREIT partnerships are considered potential common shares for purposes of calculating diluted earnings (loss) per share as the unitholders may, through the exercise of redemption rights, obtain common shares, subject to various restrictions. Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by further adjusting for the dilutive impact using the treasury stock method for unvested LTIP units subject to a service condition outstanding during the period and the if-converted method for any convertible securities outstanding during the period.
Generally, following certain lock-out periods, OP units in the operating partnership are redeemable for cash or, at the Company's option, exchangeable for common shares on a one-for-one basis, subject to certain adjustments and DownREIT OP units are redeemable for cash or, at the Company's option, exchangeable for OP units in the operating partnership on a one-for-one basis, subject to certain adjustments in each case.
LTIP units may also, under certain circumstances, be convertible into OP units on a one-for-one basis, which are then exchangeable for common shares as described above. Certain LTIP units vested prior to or upon the completion of the Company's initial public offering and certain LTIP units have vested upon the satisfaction of a service condition or will vest upon the satisfaction of a future service condition. Vested LTIP units and unvested LTIP units that vest based on a service condition are allocated income or loss in a similar manner as OP units. Unvested LTIP units subject to a service condition are evaluated for dilution using the treasury stock method. For the three and nine months ended September 30, 2016, 386,713 unvested LTIP units that vest based on a service condition are excluded from the calculation of diluted earnings (loss) per share as they are not dilutive to earnings (loss) per share. In addition, certain LTIP units vest upon the future acquisition of properties sourced by PROs. For the three and nine months ended September 30, 2016, 271,400 unvested LTIP units that vest upon the future acquisition of properties are excluded from the calculation of diluted earnings (loss) per share because the contingency for the units to vest has not been attained as of the end of the reported periods.
Subordinated performance units may also, under certain circumstances, be convertible into OP units which are exchangeable for common shares as described above, and DownREIT subordinated performance units may, under certain circumstances, be exchangeable for subordinated performance units on a one-for-one basis. Subordinated performance units are only convertible into OP units, after a two year lock-out period and then generally (i) at the holder’s election only upon the achievement of certain performance thresholds relating to the properties to which such subordinated performance units relate or (ii) at the Company's election upon a retirement event of a PRO that holds such subordinated performance units or upon certain qualifying terminations.
For the three months ended September 30, 2016, potential common shares totaling 49.8 million related to OP units, DownREIT OP units, subordinated performance units and DownREIT subordinated performance units have been excluded from the calculation of diluted earnings (loss) per share as they are not dilutive to earnings (loss) per share.
Although subordinated performance units may only be convertible after a two year lock-out period, the Company assumes a hypothetical conversion of each subordinated performance unit (including each DownREIT subordinated performance unit) into OP units (with subsequently assumed redemption into common shares) for the purposes of calculating diluted weighted average common shares. This hypothetical conversion is calculated using historical financial information, prior to and since the completion of the Company's initial public offering on April 28, 2015, and as a result, is not necessarily indicative of the subsequent results of operations, cash flows or financial position of the Company following the initial public offering or upon expiration of the two-year lock out period on conversions.
Participating securities, which consist of unvested restricted common shares, receive dividends equal to those received by common shares. The effect of participating securities for the periods presented above is calculated using the two-class method of allocating distributed and undistributed earnings.