National Storage Affiliates Trust Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

SELF STORAGE PROPERTY ACQUISITIONS AND DISPOSITIONS

SELF STORAGE PROPERTY ACQUISITIONS AND DISPOSITIONS

12 Months Ended

Dec. 31, 2017

SELF STORAGE PROPERTY ACQUISITIONS AND DISPOSITIONS

Acquisitions

The Company acquired 65 self storage properties with an estimated fair value of $426.8 million during the year ended December 31, 2017 and 107 self storage properties with an estimated fair value of $721.4 million during the year ended December 31, 2016. During the year ended December 31, 2017, 10 self storage properties with an estimated fair value of $73.2 million were acquired by the Company from its PROs and during the year ended December 31, 2016, 23 self storage properties with an estimated fair value of $176.3 million were acquired by the Company from its PROs.

The Company allocated the total purchase price to the estimated fair value of tangible and intangible assets acquired, and liabilities assumed for these self storage property acquisitions. The Company allocated a portion of the purchase price to identifiable intangible assets consisting of customer in-place leases which were recorded at estimated fair values of $10.5 million and $17.7 million during the years ended December 31, 2017 and 2016, respectively, resulting in a total fair value of $416.3 million and $703.7 million allocated to real estate during the years ended December 31, 2017 and 2016, respectively.

As a result of the Company's adoption of ASU 2017-01 during the year ended December 31, 2017, the 65 self storage properties acquired during the year ended December 31, 2017 were accounted for as asset acquisitions and accordingly, $3.6 million of acquisition costs related to the acquisitions were capitalized as part of the basis of the acquired properties.

The following table summarizes, by calendar quarter, the investments in self storage property acquisitions completed by the Company during the years ended December 31, 2017 and 2016 (dollars in thousands):



Acquisitions closed during the Three Months Ended:		Summary of Investment
	Number of Properties	Cash and Acquisition Costs		Value of OP Equity⁽¹⁾		Liabilities Assumed				Total
	Number of Properties	Cash and Acquisition Costs		Value of OP Equity⁽¹⁾		Mortgages⁽²⁾		Other		Total
March 31, 2017	5	$	26,780	$	4,964	$	—	$	183	$	31,927
June 30, 2017	10	60,672		8,931		—		387		69,990
September 30, 2017	19	122,742		267		—		826		123,835
December 31, 2017	31	181,809		17,019		—		2,220		201,048
Total	65	$	392,003	$	31,181	$	—	$	3,616	$	426,800

March 31, 2016	17	$	63,300	$	19,068	$	5,861	$	584	$	88,813
June 30, 2016	25	61,263		80,986		55,767		1,212		199,228
September 30, 2016	34	199,890		4,841		—		896		205,627
December 31, 2016	31	208,707		16,871		—		2,125		227,703
Total	107	$	533,160	$	121,766	$	61,628	$	4,817	$	721,371


⁽¹⁾	^{Value of OP equity represents the fair value of OP units, subordinated performance units, and LTIP units.}


⁽²⁾	^{Includes fair value of debt adjustment for assumed mortgages of approximately}^{$7.2 million}^{during the}^year^{ended December 31,}²⁰¹⁶^.

The results of operations for these self storage acquisitions are included in the Company's statements of operations beginning on the respective closing date for each acquisition. The accompanying statements of operations includes aggregate revenue of $15.5 million and operating income of $0.5 million related to the 65 self storage properties acquired during the year ended December 31, 2017. For the year ended December 31, 2016, the accompanying statements of operations includes aggregate revenue of $35.6 million and operating income of $3.7 million related to the 107 self storage properties acquired during such period.

Unaudited Pro Forma Financial Information For 2016 Business Combinations

The Company acquired 107 self storage properties during the year ended December 31, 2016 that were accounted for as business combinations. On a pro forma basis, after giving effect to the acquisition of 100 of the 107 self storage properties as if they were acquired on January 1, 2015 (pro forma financial information is not presented for seven of the self storage properties acquired during the year ended December 31, 2016 since the information required is not available to the Company), the Company would have recorded incremental additional revenue of $35.5 million and net income of $15.3 million for the year ended December 31, 2016 and additional revenue of $61.2 million and an incremental net loss of $23.1 million for the year ended December 31, 2015. This unaudited pro forma information was prepared using the following significant assumptions: (i) for the cash portion of the purchase price, the Company assumed borrowings under the Company's revolving line of credit with interest computed based on the effective interest rate of 2.17% as of December 31, 2016; (ii) for assumed debt financing directly associated with the acquisition of specific self storage properties, interest was computed for the entirety of the periods presented using the effective interest rates under such financings; and (iii) for acquisition costs $6.5 million incurred during the year ended December 31, 2016, pro forma adjustments give effect to these costs as if they were incurred on January 1, 2015.

The unaudited pro forma information presented in the paragraph above does not purport to represent what the actual results of operations would have been for the periods indicated, nor does it purport to represent the Company's future results of operations. As described in greater detail above, given that certain information with respect to the business combinations is not available to the Company, readers of this Form 10-K and investors are cautioned not to place undue reliance on the Company's unaudited pro forma financial information.

Dispositions

During the year ended December 31, 2017, the Company sold to unrelated third parties three self storage properties and excess land parcels adjacent to its self storage properties. The gross sales price was $17.8 million and the Company recognized $5.7 million of gain on the sales.

In December 2016, the Company sold to an unrelated third party one of the self storage properties acquired as part of a larger portfolio of self storage properties acquired during the year ended December 31, 2016. The gross sales price was $4.9 million and the Company did not recognize any gain or loss on the sale.