Greetings, and welcome to the National Storage Affiliates Fourth Quarter and Year End 2017 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Marti Dowling, Director of Investor Relations for National Storage Affiliates. Thank you, Mrs. Dowling, you may now begin.

Hello, everyone. We would like to thank you for joining us today for the fourth quarter and year-end 2017 earnings conference call of National Storage Affiliates Trust. In addition to the press release distributed this morning, we have furnished an 8-K with the SEC containing our supplemental package with additional detail on our results, which may also be found in the Investor Relations section on our website at nationalstorageaffiliates.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties. The company cautions that actual results may differ materially from those projected in any forward-looking statements. For additional detail concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of non-GAAP financial measures such as FFO, core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on the company's website and in its filings made with the SEC. Today's conference call is hosted by National Storage Affiliates' Chief Executive Officer, Arlen Nordhagen; Chief Financial Officer, Tamara Fischer; and Senior Vice President of Operations, Steve Treadwell. Following prepared remarks, management will accept questions from registered financial analysts. I will now turn the call over to Arlen.

Thanks, Marti, and thank you, everyone, for joining today’s earnings conference call. We are very pleased with our fourth quarter and full year 2017 results, which represents industry leading growth by nearly every metric. We believe this continued outperformance is proof that our differentiated strategy, which combines our national operating platform and strong balance sheet with local market presence and expertise from our PROs provides tremendous advantages that drives superior results. From an operational perspective, we continue to drive strong organic growth. For the full year 2017 our same-store revenue grew by 5.7%, and same-store NOI grew by 7.5%. We did feel the impact of new supply coming online in several markets. So, fourth quarter numbers were below the yearly averages, but same-store NOI growth in the fourth quarter was still close to 6%. From acquisitions perspective, we expanded our portfolio at an industry-leading pace in 2017 with 65 wholly-owned acquisitions, and 5 joint venture acquisitions across 20 states. We added nearly 5 million square feet to our combined portfolio, which represents approximately 16% growth for the year. As a result of this strong acquisition pace, we ended the year with a portfolio of 515 self-storage properties, diversified across 29 states. To fund our external growth, we leveraged and enhanced our access to multiple sources of well-priced capital. During the fourth quarter, we opportunistically accessed the common and preferred equity markets raising $147 million of common equity and $173 million of preferred equity. Our credit facility's total capacity now stands at $1.3 billion with almost all of our $400 million revolver undrawn and available, and our balance sheet is well-positioned for continued growth in 2018. Our strong organic results and disciplined portfolio expansion combine to drive double-digit core FFO growth. Our full-year core FFO per share increased by 10.7%, despite…

Thanks, Arlen. For the fourth quarter, we reported core FFO of $23.6 million, and core FFO per share of $0.32, a 6.7% increase over the prior year. For the full-year, we reported core FFO of $91.2 million and core FFO per share of $1.24, representing a 10.7% increase over last year. Our core FFO growth is driven by our robust acquisition activity, as well as continued organic growth in our same-store portfolio and increased joint venture platform fees. Our strong topline growth was partially offset by the dilutive impact of our fourth-quarter common and preferred equity offerings. Turning now to operations. For the fourth quarter, our same-store NOI increased 5.8%. Same-store total revenue grew by 5%, driven by a 5.2% increase in average rent per square foot, which was offset by a 30-basis point decrease in average occupancy to 89%. We continue to focus on rate growth as our key driver of long-term revenue growth even in the face of mind occupancy decreases, which are typically due to new supply. We have demonstrated the ability to increase average rental rates to our existing customer base, while largely holding the line on Street rates. And we expect this strategy to remain effective through the current cycle in new supply. From an expense perspective, our controllable expense growth remains in-line with our expectation with the increased property taxes personnel costs and advertising driving our 3.3% growth in property operating expenses during the fourth quarter. For the full-year 2017, our same-store NRI increased 7.5%, driven by 5.7% growth in total revenues at a 1.9% increase in property operating expenses. Similar to our fourth quarter results, we achieved 5.8% annual growth in average rent per square foot. Offset slightly by a 30-basis point decrease in average occupancy for the year. Within our same-store portfolio,…

Thank you. [Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi. Good afternoon. Just first question on the guidance, so 100 basis point deceleration in revenue growth from 2017, so seems like you’re expecting another above-average year and Arlen you noted that there is good demand growth, we’ve heard from most others that demand was generally steady, and I was just curious if you could comment on that growth and demand that you're seeing that’s sort of behind that 4% to 5% revenue growth forecast?

Hi Todd. I think, I would agree with the comment that demand growth is steady, which we see on average running about 2% per year of demand growth right now, and so if you think about that from a standpoint of long-term averages that’s below the kind of growth in demand that we saw in the early 2000s, but similar to what we have seen in the last couple of years. Supply growth is running a little above 2% nationwide, particularly in the top 50 MSAs. It is probably running more in the 3% to 4% in supply growth. So, we’ve factored that into our expectations on revenue and so if you think about the 25-year average revenue growth in the sector being 4% a year, our average that we are projecting for this year is a little above, about 10% about that, mid-point would be 4.5% that would compare to the industry average of all the peers slightly below the 4% historical average, but that’s a reflection of the fact that we have less exposure to markets where there is new outsize supply growth.

Okay. So, the demand growth though is primarily related to population growth. There is no other sort of driver that’s impacting that specifically that you're thinking about?

There is a little bit of I’d call it increased absorption if you will, just, but it’s - that’s fairly small, that’s maybe 1% a year. So, if you were in a market that had absolutely no population growth, my estimate is in most cases your demand will probably grow at about 1% in that market.

Okay. And then in the same store, so you touched on this a little bit, average occupancy in a few markets, primarily, I guess Atlanta and New Hampshire, Phoenix was down year-over-year and then it looks like it's slipped a little bit further at year-end, Tammy you talked about the ability to push right at the expense of some modest occupancy loss, can you just discuss sort of the strategy in those markets, you know what the strategy is there to stabilize occupancy, how you're thinking about maximizing revenue in some of those markets where you did see a little bit more outsized occupancy loss and whether that strategy is consistent overall with your comments?

Hi Todd. It is Steve. With respect to occupancy and the strategy going forward certainly we are cognizant of the supply pressures out there and we're certainly setting our rates appropriately, but as we mentioned before we really are trying to hold the line on Street rates, keep those relatively constant where we can and use the discounting to get that marginal new rental. Overall, across the entire portfolio we think that we're going to be probably flat-to-mildly down, but acknowledging that there are certain markets where we will be a little bit further down on occupancy. So, Tammy highlighted Phoenix, Atlanta, Portland, Oklahoma City all those have been more difficult markets recently and we expect that to continue somewhat in the New Year.

Todd, this is Arlen. The other thing to note is, we really do have to look at each submarket around the specific stores. So, we do look at that in terms of, you know it’s one thing if there is new supply in Atlanta, but if it’s on the other side of Atlanta, it wouldn’t have any impact on us, whereas if it is a block down the Street it’s going to have a big impact on us. So, our budgets reflect that specifically.

Sure, understood. But in Atlanta for example, where occupancy ended the year down a little over 600 basis points year-over-year, I mean would it be safe to assume that you’re increasing discounts and offering more promotions in a market like that?

Yes, we would do that and it’s also very competitor specific, but our key focus is to try and keep our Street rates from going down and use more discounting and promotions to keep our occupancy from being hit as much.

Okay. And just lastly, Arlen, Public Storage this quarter was out discussing their intent to be more aggressive in terms of third-party management, I'm just curious where you stand on bringing the NSA PROs under one operating platform to potentially benefit from increased scale and maybe rebranding the portfolio, I realize it’s not the same thing, it’s a different objective, but it’s sort of arguably accomplishes or lends itself to the same end objectives, so I was just curious to get your updated thoughts there.

While we continue to get the vast majority of the skilled benefits by providing the common platform that our PROs can operate under and there is a small amount of the benefits that you probably can't get without going under a totally unified operating system, but we think that that’s more than made up for by the additional expertise, local market expertise, and the acquisition emphasis that we get through having so many PROs. I mean we literally have nine acquisition teams, out in the market signing deals, which is why our external growth is so much more than any of our peers. And as it relates to the brand side of things, unfortunately we can't get the brand public storage, that’s a generic search term, but other than that basically people don't search for brands, they search for stores near them, self-storage near them. And we’re very good at using our web marketing platforms to get high rankings whether that be organically or through a pay-per-click-type approach.

Okay. Thank you.

Thanks Todd.

Thank you. Our next question comes from the line of Smedes Rose with Citi Group. Please proceed with your question.

Hi thank you. I just wanted to ask you, just first of all on your same-store growth outlook at 4 to 5, did you say that the 99 that you're adding from last year's pool would grow at the same pace as what you were seeing in 2017?

No, it would grow at the same pace as the remaining 277. So, often Smedes we get the question, does this change in the same-store pool really give you a big pickup and we wanted to address that fundamentally those 99 are going to perform at almost the exact same numbers as the other 277.

Okay. That’s what I wanted to get clarity on. Thank you. And then the other question we had was just, it looks like you're acquisition activity really picked up in the fourth quarter and is pretty strong thus far in the first quarter. So, is that coming from, I guess just wanted to understand the source a little better. Is that developments coming online from the PROs or acquisitions that they're procuring for you? Or is this your stand-alone platform?

It’s somewhat of a mix, but it’s almost also sourced by the PROs. There are a few developments that the PROs had stabilized that they contributed so that will be part of our captive pipeline between those two quarters. The PROs have sourced a lot of third-party acquisitions. We had a few stabilized other nondevelopment stores from PROs, but it’s a total mix, as I mentioned we also had some JV acquisitions in there as well. So, it’s all four of those avenues of external growth that I mentioned where we’re coming to play basically in the combination of Q4 and Q1 so far.

Okay. And then just I just wanted to ask you your range on the acquisitions outlook, it’s quite large, what are kind of puts and takes around being at the high-end or the low end?

Bottom line is that with already closing 100 million in the first couple months of this year and with what we see we will hit the low end with between our captive pipeline and with what’s already, I, very identifiable and then we should hit the midpoint with just normal acquisitions and to hit the highest and we’ll probably have to have at least either a new PRO or small portfolio that comes in sometime during the year, but we feel really, really positive that at this point that we should at least achieve the midpoint of that range.

All right, thank you guys.

Thanks, Smedes.

Thank you. Our next question comes from the line of Todd Stender with Wells Fargo. Please proceed with your question.

Hi thanks. And thanks for your color on the demand outlook. Can you give more detail, I guess just back to the Q4, and maybe the already Q1 acquisitions, it sounds like some of these acquisitions are newly built, so maybe you don't have a cap rate on those, but maybe the range of cap rates you’re buying at, just for the stabilized assets?

Yes, hi Todd. If we take away the new developments, which as you say can't really have a cap rate on those, the other ones range from about 5.9 to 6.5, and the average or weighted average is right around 6.25 on a year one forward cap rate range, so that’s been consistent with our past experience, but maybe a little bit better, I think last year we might average 6.15 or something like that. So, it’s very comparable and we definitely are seeing sellers with lot more realistic expectations where they are at least not seeing or expecting the cap rates to go down again.

And what do you attribute that to? Is that a reflection, maybe of what the public market is saying to the stock prices of the REITs so they don't have the currency they want to add, what’s impacting that you think?

I think there is several things, one is clearly the interest rates moving up. Another I think is what you identify that the public stocks are trading frankly at nowhere near as good our multiples right now, and then I think the third is just the general supply demand situation. We still have good demand with a lot of buyers out there, but the buyers are for the most part being pretty disciplined.

Okay. Thanks. And for the JV acquisition guidance, how were those generally sourced? And do you have a set dollar amount that you’ve committed to funding JV's? What would mean a property to go into a JV versus to be wholly-owned?

Yes, this is Steve. We do have an internal team that works on the JV acquisitions, it works on sourcing and underwriting, and the JV really is focused, as far as acquisitions on four exclusive market territories. So, those are basically the East Coast of Florida, Northern Alabama, The Philly Metro area and Northern California. And that's where we look to acquire. We have a commitment with our JV partner in terms of the total volume of acquisitions that we would like to do, but that is by no means a restriction we can go beyond that commitment. That commitment was $200 million at the time of the joint venture inception.

Great. Thank you.

Thanks Todd.

Thank you. Our next question comes from the line of David Corak with B. Riley FBR. Please proceed with your question.

Hi, good morning out there. Within the captive pipeline, what are some of the assumptions and probabilities assigned to acquiring assets within that in terms of the debt maturities and stabilizations within the pipeline, what should be available to acquire in 2018?

Yes, so every year we go through the list of the captive pipeline properties and then be assign both timing based on debt maturity or stabilization and a probability. If the PRO totally controls it, the probability is obviously much higher that will be able to acquire it upon debt maturity versus if the PRO is either a minority partner or just a third-party manager. So, as we looked at that for 2018 specifically with a combination of the probability weighting and the debt maturity schedule, this year we have between 50 million and 100 million of assets that we project from the captive pipeline that should come in into NSA.

Okay. That’s helpful. Thanks. And then going back to the idea of rate integrity in some of the higher supplying markets, has that been effective thus far? Have competitors been active in a similar matter as kind of all of the board, but as you know the real question though is, if we fast forward to a year from now or 18 months from now is you’ve had a competitor kind of slashing a rate right next door to you, how does that set you up once they stop, if you're rates are significantly about market early better kind of rate?

Yes David. So, we play that on a store by store basis and all the way down to the price type basis in terms of how we compete, we’ve made a strategic goal to not take the hit in Street rates or asking rates, but to try to do with discounting and compete with higher discounts where we need to do. And so far, that’s helped. We’ve been very successful with that and even in stores that are threatened by new supply we’re also successful on raising rates on in-place customers. So, it's not that as draconian as you might think out there. We are able to compete with new stores that are filling-up and we can compete effectively without flashing rates. And when we come out of this and everybody has filled up to some extent, the demand has been absorbed by the new supply, I think we will be positioned just like everybody else and be ready to compete. So, I don't see that as a problem going forward.

Okay. Thanks Steve. And then Tammy you talked on this a little bit in your prepared remarks, but can you walk us through kind of the primary drivers of expense growth guidance this year and where there might be some wiggle room on either side?

Sure. I think the biggest driver of same-store OpEx this year will be our property tax expenses. So that is something that we saw in 2017 and we fully expect to see it again in 2018. We fully believe that property taxes could go up in the range of 5% to 6%, but we also believe that our controllable expenses will come-in in the range of 2% to 3% David.

Okay. That's helpful. Thank you, guys.

Thank you.

Thank you. Our next question comes from George Hoglund with Jefferies. Please proceed with your question.

Hi guys. I just have one question here on development within the PROs, can you give us a sense of what’s the level of development going on within the PROs whether it’s them agreeing to acquire CFO properties or stuff they have going on?

Yeah, George, I would say that the PROs are being more cautious on new development in light of the increasing supply, which is actually consistent with what we’re seeing with the more sophisticated developers out there as well. We’re seeing a lot of deals that are getting cancelled. People are delaying new developments and our PROs are doing a similar thing, but right now I think in combined total, our PROs probably you have around 12 to 15 properties and that they are looking at either at various stages of development. Some of them might be under construction, some of them might be just finishing permitting. Some of them may be delayed. We generally don't do a lot of CFO acquisition, unless we find it to be a really good investment and we look at those in MSA, and anything that the PRO would do if he is looking at a CFO he has to offer everything to us first as an opportunity and we might do it directly in NSA, but if it’s too dilutive or we think there is too much risk on filling it up, we would not want to take on that kind of risk and then we would decline it and let the pro have the opportunity to do it themselves.

Okay. And then just on the JV side, would you anticipate doing any new JVs in 2018?

I can't say anticipate is a good word, but we always look at it. Now, we are going to grow our existing JV for sure. We already know we have got some properties under contract for that, but also if the right opportunity comes along we’re always open to it and as you know in general for like a new JV it has to be pretty sizable something like half $1 billion to make it worthwhile for us to do it in a JV-type format and I certainly don't have anything like that right now, but those things come up really quickly and we just can't predict them. So, we just have to react and keep our powder dry and I have relationships with potential JV partners that could move quickly.

Okay. And actually, if I can just squeeze one more and tag on to that. Some of your peers had commented on some portfolios out there in the market that may not be geographically or quality-wise portfolios they would be interested in, which means that they might be more in-line for your geographic markets. Are there larger portfolios that you’re currently looking at in the market?

Well if any come up, we always look at them. So, there are some things that are out there right now that we're taking a look at, they’re not particularly big, but - and I wouldn't call them, I think some of these - there is a pretty sizable development portfolio that’s on the market right now that’s very high-quality properties. So, I would say that anything that’s out there will look at primarily though we want to continue to increase our market share and our presence in the markets that we’re already in. So, if a portfolio came up in Manhattan, we wouldn't be interested in that. We are not in that market, but if something comes in and markets that we overlap with we will look at anything there.

Okay. Thanks for the color.

Thanks.

Thank you. Our next question comes from the line of R.J. Milligan with Robert W. Baird & Co. Please proceed with your question.

Hi, good afternoon guys. This is Will Harman on for R.J. Appreciate the color on new supply, but can you just remind us what percent of your portfolio is outside of the top 50 MSAs and then can you just provide some commentary on what you're seeing in terms of new development activities outside of these Top 50 markets?

So, we break it down Will into our Top 20 MSAs where we have about 35% of our portfolio so that would mean 65% of it is in MSAs, 21 through - on OP. And if we go to the Top 50 MSAs my guess is that would probably put us at around 65% of our stores in the Top 50 MSAs, but I don't have that exact number right off the top of my head, but I can tell you that based on some external reports we’ve read and they appear correct based on our independent looking. In the top 50 MSAs last year, supply grew at about 3.8%, and demand only grew at about 2%. So, obviously the Top 50 MSAs are where you have a lot more pressure on occupancy, and rates, and whereas the MSAs from 51 and up, you know the growth and supply was way less and we are continuing to see a lot less in those markets. It’s really mostly in the top 50 MSAs where you see the new supply.

Got you. And then just looking at your guidance for the SP unit. The distributions, it looks like they are going to be flat in 2018 at the midpoint, does this guidance include the addition of any new PROs or could you just provide a little more color on why it’s flat year-over-year?

Yes. It does not include the addition of new PROs, what it really reflects is that with our model every time we raise new equity, which we raised a lot of new equity in the fourth quarter of 2017 every time we do that we increase the priority return that goes to the common shareholders and the OP pool. And so that makes it much harder for the PROs to increase amount going to SP equity. And so that’s largely a reflection of the fact that because of the way our waterfall works we always give a real priority to the common shareholders and the regular OP unit holders and that’s really more of a reflection of that for the guidance in 2018.

Got you. And then last question is, just on the balance sheet, you guys had previously talked about targeting 6 times to 7 times leverage, is that still what you are targeting and if so does that now include the preferred you offered in Q4?

So, I think we have re-thought our stated range. Our target range is now 5.5 times to 6.5 times with sort of how we're thinking about it over the long term.

Does that include preferred?

No, it doesn’t include preferred, right.

Okay. That's it for us. Thanks guys.

Thanks, Will.

Thank you. Our next question comes from Barry Oxford with DA Davidson. Please proceed with your question.

Great. Thanks guys. Arlen, can you give us a little more color on the PROs opportunity and maybe how far you are down the line with maybe one or two of them, just as far as what we might expect maybe this year?

Well Barry, I would say that…

I know it’s a tough question to answer, I get it.

It is, but I can tell you as far as - we have got about 10 or so people that we have been talking to for like two years or more. And I would say of that there is maybe five that are pretty serious, but when they ultimately pull the trigger and if they do I can never predict that. I honestly thought we would end up with two last year and we ended up with one. And we only have slots for basically another 3 to 5 more PROs total and then we will shut that off totally and of course whether it is three or five depends partly on how big each PRO is. A larger - if there are larger it would cut off at three and if they are smaller it might go to 5, but the timing of when that happens is really hard to predict. So, the best guess is still to say maybe one year to two years as a rough estimate, but unfortunately, I’m not very good at guessing exactly when that happens.

Right. I get it. It’s definitely hard. My last question, when - I’m looking at your same-store, forward guidance, is part of the slowdown from 2018 or from 2017 obviously related to some of the supply that’s happening, but also the fact that your systems now have been kind of up and running and it’s just going to be a harder to squeeze any efficiencies out of the current portfolio or not necessarily?

Hi Barry, it’s Steve. We agree with that. Certainly, supply is a big driver of that deceleration. But I think it’s also worth of point of our life cycle where we have matured, our portfolio has matured, our platform has matured and even the same-store pool as we add the 99 stores this year they are going to have a similar growth profile to the remaining 276 stores. So, that portfolio maturity is an impact for a factor in some of the deceleration.

Right. Great, thanks guys. Appreciate it.

Thank you, Barry.

[Operator Instructions] Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question. Mr. Malhotra, your line is now open.

Vikram are you there? We can't hear you.

Our next question comes from the line of Juan Sanabria with Bank of America. Please proceed with your question.

Hi good afternoon. Just hoping you could expand a little bit on supply. I think you said that maybe 21% of your stores are exposed to supply this year for 2018, I was hoping you could help us contextualize that if you have the number for 2017 just to see the delta year-over-year?

It’s a little bit higher than it was in 2017, Juan. It is a less little less actually than 20%. I think the actual number is like 18.6% of our stores have new supply that is either opened up in 2016 or 2017. It is within a 3-mile radius and so we looked very closely at those because those will very directly impact our stores. That number, I don't have the exact number in 2017 when we looked at added - for the previous two years, we look at the two years prior new openings because that’s kind of how long the real impact carries, but it was around 17%. So, it hasn't changed a lot. I can't say if it was 16.8% or, but it was the right around 17% and now we are at 18.6%. So, really there won't be a lot of change, but a little bit more.

Okay. And then just on Street rate growth, can you remind us what Street rates grew by on a net effective basis in 2017 and I don't know if you could provide it, but what your forecast and guidance for 2018?

Just a comment on Q4. For Q4, we saw Street rates were basically flat-to-mildly positive. We expect for this year, it is consistent with our guidance we expect Street rates to be continued to be flat, and potentially mildly down, but when you think about effective rate or contract rate that we have with our customers, we are up 5.2% in average rent per occupied square foot in Q4. We expect to see similar behavior this year and that’s really going to be driven by rent increases to existing customers. So, let’s headroom from the Street rates moving around, but we still have been successful and continue to be successful in raising rents on existing customers and that will raise our revenues for this year.

And just one quick one for me. Do you have a sense of what cash on cash yields the PROs or the guys kind of in your network as a whole of underwriting for new development starts today and how that’s changed over time if at all?

Yes, Juan I would say that it has gone up on cash on cash yields for new developments of what they would look at, probably by about 50 to 100 basis points compared to what they were thinking before because of the risk. There is a lot more risk now for new developments versus one that was almost no new supply coming on. So, I think right now look anyone that is in the development business is looking more that they need to see 8% to 9% or at least 8.5% stabilized cash on cash yields for a new development. It’s because frankly I certainly wouldn't take the risk for new development if I can't take at least that kind of return.

Great. Thank you.

Thank you, Juan.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Nordhagen for any closing remarks.

Thank you. And thank you all for joining us for today's fourth quarter and year-end earnings call. As always, we appreciate your continued interest in and support of national storage affiliates and we look forward to seeing many of you at the upcoming Wells Fargo and Citi Conferences over the next month. Thank you again. Bye, bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.