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Initial confidential draft submitted to the Securities and Exchange Commission on October 10, 2014

Registration Statement No. 333-                


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-11
FOR REGISTRATION
UNDER
THE SECURITIES ACT OF 1933
OF CERTAIN REAL ESTATE COMPANIES

National Storage Affiliates Trust
(Exact name of registrant as specified in its governing instruments)



National Storage Affiliates Trust
5200 DTC Parkway
Suite 200
Greenwood Village, Colorado 80111
(720) 630-2600

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices)

Arlen D. Nordhagen
Chief Executive Officer
National Storage Affiliates Trust
5200 DTC Parkway
Suite 200
Greenwood Village, Colorado 80111
(720) 630-2600

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

Copies to:

Jay L. Bernstein, Esq.
Andrew S. Epstein, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Tel (212) 878-8000
Fax (212) 878-8375

 

Julian Kleindorfer, Esq.
Latham & Watkins LLP
355 South Grand Avenue
Los Angeles, California 90071
Tel (213) 485-1234
Fax (213) 891-8763



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

          If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price(1)(2)

  Amount of
registration fee(3)

 

Common shares, $0.01 par value per share

  $               $            

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Includes the offering price of common shares that may be sold if the option to purchase additional shares granted by the Registrant to the underwriters is exercised.

(3)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these common shares until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these common shares and it is not soliciting an offer to buy these common shares in any jurisdiction where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus, dated October     , 2014

PROSPECTUS

Shares

LOGO

National Storage Affiliates Trust

Common Shares of Beneficial Interest



        This is our initial public offering. We are offering            common shares of beneficial interest, $0.01 par value per share. We expect the initial public offering price of our common shares to be between $      and $      per share. Prior to this offering, there has been no public market for our common shares. We intend to apply to have our common shares listed on the New York Stock Exchange, under the symbol "NSA."

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012.

        We intend to elect and qualify to be taxed as a real estate investment trust, or a REIT, for U.S. federal income tax purposes, commencing with our short taxable year ending December 31, 2015. To assist us in qualifying as a REIT, among other purposes, shareholders are generally restricted from owning more than 9.8% by value or number of shares, whichever is more restrictive, of our aggregate outstanding shares of all classes and series, the outstanding shares of any class or series of our preferred shares or our outstanding common shares. Our declaration of trust contains various other restrictions on the ownership and transfer of our shares, see "Description of Shares of Beneficial Interest—Restrictions on Ownership and Transfer."

        Investing in our common shares involves risks that are described in the "Risk Factors" section beginning on page 25 of this prospectus.



       
 
 
  Per share
  Total
 

Initial public offering price

  $               $            
 

Underwriting discount

  $               $            
 

Proceeds, before expenses,(1) to us

  $               $            

 

(1)
See "Underwriting" for a detailed description of compensation payable to the underwriters.

        We have granted the underwriters the option to purchase up to            additional common shares from us at the initial public offering price, less the underwriting discount, within 30 days after the date of this prospectus.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these shares or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The shares sold in this offering will be ready for delivery on or about                        , 2014.



        Jefferies   Morgan Stanley   Wells Fargo Securities

   

The date of this prospectus is                        , 2014


TABLE OF CONTENTS

Market and Industry Data and Forecasts

    ii  

Prospectus Summary

    1  

Risk Factors

    25  

Forward-Looking Statements

    49  

Use of Proceeds

    51  

Distribution Policy

    52  

Capitalization

    53  

Dilution

    54  

Selected Pro Forma and Historical Financial and Operating Data

    56  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    61  

Industry Overview and Market Opportunity

    92  

Business and Properties

    98  

Our Management

    119  

The Formation and Structure of Our Company

    132  

Principal Shareholders

    139  

Certain Relationships and Related Transactions

    141  

Description of Shares of Beneficial Interest

    144  

Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws

    150  

Shares Eligible for Future Sale

    157  

Limited Partnership Agreement of Our Operating Partnership

    160  

U.S. Federal Income Tax Considerations

    167  

ERISA Considerations

    192  

Underwriting

    193  

Legal Matters

    200  

Experts

    201  

Where You Can Find More Information

    202  

Index to Financial Statements

    F-1  



        You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or information to which we have referred you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, our common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common shares.

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MARKET AND INDUSTRY DATA AND FORECASTS

        Certain market and industry data included in this prospectus has been obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third-party information. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings "Forward-Looking Statements" and "Risk Factors" in this prospectus.


CERTAIN DEFINED TERMS

        Except where the context suggests otherwise, references in this prospectus to (1) "NSA," "our company," "we," "us" and "our" refer to National Storage Affiliates Trust, a Maryland real estate investment trust, together with its subsidiaries, (2) "our operating partnership" or "our operating partnership subsidiary" refer to NSA OP, LP, a Delaware limited partnership, together with its subsidiaries, and (3) "our predecessor" refer to the combined subsidiaries of SecurCare Self Storage, Inc. In addition, unless the context otherwise requires, the following terms used throughout this prospectus have the following meanings:

CAD

  cash available for distribution as defined in the operating partnership agreement

common shares

 

our company's common shares of beneficial interest, $0.01 par value per share

contributed portfolio

 

with respect to each PRO, the portfolio of properties that such PRO manages on our behalf, which were (i) contributed by such PRO to us or (ii) sourced by such PRO and acquired by us

DownREIT partnerships

 

limited partnership subsidiaries of our operating partnership that issue units of limited partner interest intended to be economically equivalent to the OP units and subordinated performance units issued by our operating partnership

Guardian

 

Guardian Storage Centers, LLC and its controlled affiliates

in-place portfolio

 

235 self-storage properties that our company owns or expects to acquire prior to or concurrently with the completion of this offering and the formation transactions. These properties are located in 14 states, comprise approximately 13.2 million rentable square feet and are configured in over 100,000 storage units

LTIP units

 

long-term incentive plan units in our operating partnership

Move It

 

Move It Self Storage, LP and its controlled affiliates

MSA

 

metropolitan statistical area

NOI

 

net operating income

Northwest

 

Kevin Howard Real Estate Inc., d/b/a Northwest Self Storage and its controlled affiliates

operating partnership agreement

 

the Third Amended and Restated Limited Partnership Agreement of our operating partnership

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Optivest

 

Optivest Properties, LLC and its controlled affiliates

OP units

 

common equity interests in our operating partnership or DownREIT partnerships

pipeline

 

125 self-storage properties, comprising approximately 8.1 million rentable square feet. Of these, 13 are properties that our company has under contract to acquire, 29 are properties in which our PROs have a controlling ownership interest and we have a right to acquire such interest (i) in the event that our PRO seeks to transfer such interest or (ii) upon maturity of outstanding indebtedness encumbering such property so long as the occupancy of such property is consistent with average local market levels at such time, 20 are properties in which our PROs currently have an ownership interest but do not control, and 63 are properties that our PROs manage without an ownership interest. There can be no assurance that we will be able to acquire any of the properties in our pipeline

PROs

 

our participating regional operators, which currently consist of Guardian, Move It, Northwest, Optivest, SecurCare, and Storage Solutions

same store portfolio

 

properties owned and operated for the entirety of the applicable periods presented

SecurCare

 

SecurCare Self Storage, Inc. and its controlled affiliates

subordinated performance units

 

subordinated performance units in our operating partnership or DownREIT partnerships

Storage Solutions

 

Arizona Mini Storage Management Company d/b/a Storage Solutions and its controlled affiliates

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PROSPECTUS SUMMARY

        This summary highlights some of the information in this prospectus. It does not contain all of the information that you should consider before investing in our common shares. You should carefully read the more detailed information set forth under "Risk Factors" and the other information included in this prospectus. Certain technical and other terms used in this prospectus are defined under the heading "Certain Defined Terms" on p. ii above.

        Unless otherwise indicated, the information contained in this prospectus assumes that (1) the formation transactions described under "The Formation and Structure of our Company" have been completed, (2) the common shares to be sold in the offering are sold at $            per share, which is the mid-point of the initial public offering price range shown on the cover page of this prospectus, and (3) the underwriters' option to purchase additional shares is not exercised.

Company Overview

Our Company

        National Storage Affiliates Trust is a Maryland real estate investment trust focused on the ownership, operation, and acquisition of self-storage properties located within the top 100 metropolitan statistical areas, or MSAs, throughout the United States. According to the 2014 Self-Storage Almanac, we are the sixth largest owner and operator of self-storage properties and the largest privately-owned operator of self-storage properties in the United States based on number of properties, units, and rentable square footage. Upon the completion of this offering and the formation transactions, we will own 235 self-storage properties, which we refer to as our in-place portfolio. Our in-place portfolio is located in 14 states, comprises approximately 13.2 million rentable square feet and is configured in over 100,000 storage units. In addition, we have a pipeline of potential acquisitions consisting of 125 properties (13 of which we have under contract to acquire), comprising approximately 8.1 million rentable square feet.

        Our chief executive officer, Arlen D. Nordhagen, co-founded SecurCare Self Storage, Inc. in 1988 to invest in and manage self-storage properties. While growing SecurCare to over 150 self-storage properties, Mr. Nordhagen recognized a market opportunity for a differentiated public self-storage REIT that would leverage the benefits of national scale by integrating multiple experienced regional self-storage operators with local operational focus and expertise. We believe that his vision, which is the foundation of our company, aligns the interests of regional self-storage operators with those of public shareholders by allowing the operators to participate alongside shareholders in the financial performance of our company and their contributed portfolios. A key component of this strategy is to capitalize on the local market expertise and knowledge of regional self-storage operators by maintaining the continuity of their roles as property managers.

        We believe that our structure creates the right financial incentives to accomplish these objectives. We require our participating regional operators, or PROs, to exchange the self-storage properties they contribute to our company for a combination of common equity interests, or OP units, and subordinated performance units in our operating partnership or DownREIT partnerships. OP units, which are economically equivalent to our common shares, create alignment with the performance of our company as a whole. Subordinated performance units, which are linked to the performance of specific contributed portfolios, incentivize our PROs to drive operating performance and support the sustainability of the operating cash flow, generated by the contributed self-storage properties that they continue to manage on our behalf. Because subordinated performance unit holders receive distributions only after portfolio-specific minimum performance thresholds are satisfied, subordinated performance units play a key role in aligning the interests of our PROs with us and our shareholders. Our structure thus offers PROs a unique opportunity to serve as regional property managers for their contributed properties and directly participate in the potential upside of those properties while simultaneously

 

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diversifying their investment to include a broader portfolio of self-storage properties. We believe our structure provides us with a competitive growth advantage over self-storage companies that do not offer property owners the ability to participate in the performance and potential future growth of their contributed portfolios.

        We believe that our national platform has significant potential for external and internal growth. We seek to expand our platform by recruiting additional established self-storage operators, while integrating our operations through the implementation of centralized initiatives, including management information systems, revenue enhancement and cost optimization programs. We are currently engaged in preliminary discussions with additional self-storage operators and believe that we could add several additional PROs over the next two to three years. These additional operators will enhance our existing geographic footprint and allow us to enter regional markets in which we currently have limited or no market share. In addition, we believe the implementation of best practices across our portfolio and leveraging economies of scale will allow us to more effectively grow internally through increased occupancy, rents and margins, which will drive cash flow growth across our portfolio. As of June 30, 2014, our occupancy rate across our in-place portfolio was approximately 87%.

        We are organized as a Maryland real estate investment trust and intend to elect to be taxed as a REIT for U.S. federal income tax purposes, commencing with our short taxable year ending December 31, 2015. We generally will not be subject to U.S. federal income tax on our net taxable income to the extent that we distribute annually all of our net taxable income to our shareholders and maintain our intended qualification as a REIT. We serve as the sole general partner of, and operate our business through, our operating partnership subsidiary, NSA OP, LP, a Delaware limited partnership. Our operating partnership enables us to facilitate additional tax deferred acquisitions using both OP units and subordinated performance units as currency for these transactions.

Our PROs

        SecurCare has been operating since 1988 and, in connection with the launch of our company in April 2013, was joined by two additional PROs: Northwest, which has been operating since 1977, and Optivest, which has been operating since 2007. Guardian, which has been operating since 1984, joined our company as a PRO in February 2014. In July 2014, Move It and Storage Solutions were added as our fifth and sixth PROs, respectively. Our PROs have collectively contributed the vast majority of their properties to our company as part of the formation transactions.

        We believe our structure allows our PROs to optimize their established property management platforms while addressing financial and operational hurdles. Before joining us, our PROs faced challenges in securing low cost capital and had to manage multiple investors and lending relationships, making it difficult to compete with larger competitors, including public REITs, for acquisition and investment opportunities. Our PROs were also limited in their ability to raise growth capital through the sale of assets, a portfolio refinancing or capital contributions from new equity partners. Serving as our on-the-ground acquisition teams, our PROs now have access to our broader financing sources and lower cost of capital while our national platform allows them to benefit from our economies of scale to drive operating efficiencies in a rapidly evolving, technology driven industry.

        We benefit from the local market knowledge and active presence of our PROs, allowing us to build and foster important customer and industry relationships. These local relationships provide attractive off-market acquisition opportunities that we believe will continue to fuel additional external growth. Newly acquired properties are integrated into our national platform and managed by our PROs.

 

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        The following table summarizes the properties in our in-place portfolio and our pipeline that are managed by our PROs as of June 30, 2014:

 
  In-Place Portfolio   Pipeline(1)  
PRO
  Properties   Units   Rentable
Square
Feet(2)
  Occupancy(3)   Properties   Units   Rentable
Square
Feet(2)
 

SecurCare

    102     38,894     4,961,845     87%     37     17,936     2,270,473  

Northwest

    62     23,843     2,998,685     91%     8     2,614     318,485  

Optivest

    28     13,944     1,842,679     81%     24     13,983     1,691,977  

Guardian

    27     16,818     1,971,358     89%     7     5,655     637,447  

Move It(4)

    11     6,788     1,062,846     80%     21     10,091     1,396,069  

Storage Solutions

    5     3,519     376,617     87%     28     16,038     1,756,456  
                               

Total/Weighted Average(5)

    235     103,806     13,214,030     87%     125     66,317     8,070,907  
                                 
                                 

(1)
Our pipeline consists of 125 self-storage properties. Of these, 13 are properties that our company has under contract to acquire, 29 are properties in which our PROs have a controlling ownership interest and we have a right to acquire such interest (i) in the event that our PRO seeks to transfer such interest or (ii) upon maturity of outstanding indebtedness encumbering such property so long as the occupancy of such property is consistent with average local market levels at such time, 20 are properties in which our PROs currently have an ownership interest but do not control, and 63 are properties that our PROs manage without an ownership interest. There can be no assurance that we will be able to acquire any of the properties in our pipeline.

(2)
Rentable square feet includes all enclosed self-storage units but excludes commercial, residential, and covered parking space of over 285,000 square feet in our in-place portfolio and over 25,000 square feet in our pipeline.

(3)
Represents total occupied rentable square feet divided by total rentable square feet.

(4)
Move It is currently a manager of these properties pursuant to an agreement with SecurCare, which is the contributor of these properties. See "The Formation and Structure of our Company—SecurCare Contributions."

(5)
Five properties in our in-place portfolio will be held as long-term leasehold interests with an average remaining lease term, including extension options, ranging from 20 to 61 years. One property in our pipeline, if acquired, would be held as a long-term leasehold interest.

        To capitalize on their recognized and established local brands, our PROs will continue to function as property managers for their contributed properties under their existing brands. Over the long-run, we may seek to brand or co-brand each location as part of NSA.


LOGO
  SecurCare is one of our PROs responsible for covering the mountain and southeast regions. SecurCare provides property management services to 102 of our properties located in nine states, including California, Colorado, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas. Headquartered in Lone Tree, Colorado, SecurCare was founded in 1988 and is currently managed by David Cramer, who has worked in the self-storage industry for more than 15 years. Mr. Cramer is our mountain and southeast regional president and also leads our Technology and Best Practices Group, which is described under "Business and Properties—Our Technology and Best Practices."

 

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LOGO
  Northwest is our PRO responsible for covering the northwest region. Northwest provides property management services to 62 of our properties located in Oregon and Washington. Headquartered in Portland, Oregon, Northwest is run by Kevin Howard, who founded the company over 30 years ago. Mr. Howard is our northwest regional president and is recognized in the industry for his successful track record as a self-storage specialist in the areas of design and development, operation and property management, consultation, and brokerage.


LOGO

 

Optivest is one of our PROs responsible for covering the southwest region. Based in Dana Point, California, Optivest currently manages 28 of our properties across five states, including Arizona, California, Nevada, New Hampshire and Texas. Optivest is run by its co-founder, Warren Allan, who has more than 25 years of financial and operational management experience in the self-storage industry. Mr. Allan is our southwest regional president and is recognized as a self-storage acquisition and development specialist.

Guardian Storage Centers

 

Guardian is one of our PROs responsible for covering portions of the southern California region and the Arizona market. Based in Irvine, California, Guardian currently manages 27 of our properties located in California and Arizona. This operator is led by John Minar, who has over 30 years of self-storage acquisition and operational management experience. Mr. Minar is our southern California regional president and brings close to 40 years of real estate acquisition, rehabilitation, ownership, and development experience to our company.


LOGO

 

Move It is one of our PROs responsible for covering certain portions of the Texas market. Based in Addison, Texas, Move It currently manages 11 of our properties in Texas. This operator is led by its founder, Tracy Taylor, who has more than 40 years of experience in self-storage development, acquisition and management. Mr. Taylor is our Texas market executive vice president and is currently on the board of directors for the Large Owners Council of the Self Storage Association.


LOGO

 

Storage Solutions is one of our PROs responsible for covering most of the Arizona market. Based in Chandler, Arizona, Storage Solutions manages five of our properties in Arizona. This operator is led by its founder, Bill Bohannan, who is one of the largest operators in Phoenix and has more than 34 years of self-storage acquisition, development and management experience. Mr. Bohannan is our Arizona market executive vice president and is recognized in the industry as a self-storage acquisition, development and management specialist.

 

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Our Competitive Strengths

        We believe our unique PRO structure allows us to differentiate ourselves from other self-storage operators, and the following competitive strengths enable us to effectively compete against our industry peers:

        High Quality Properties in Key Growth Markets.    Upon the completion of this offering and the formation transactions, we will own a large, geographically diversified portfolio of 235 self-storage properties located in 14 states and over 50 MSAs. We believe that these properties are primarily located in high quality growth markets within the top 100 MSAs that have attractive supply and demand characteristics and are less sensitive to the fluctuations of the general economy. Our top 10 states, (based on our net operating income, or NOI, for the second quarter of 2014) are expected to grow over 50% faster than the national average for population and job growth, as projected by the U.S. Department of Labor's Bureau of Labor Statistics. These 10 states accounted for over 95% of our second quarter 2014 NOI. Many of these markets tend to have multiple barriers to entry against increased supply, including zoning restrictions against new construction and new construction costs that we believe are higher than our properties' fair market value. We seek to own properties that are well located in high quality sub-markets with highly accessible street access, providing our properties with strong and stable cash flows. Furthermore, we believe that our significant size and the overall geographic diversification of our portfolio reduces risks associated with specific local or regional economic downturns or natural disasters.

        Differentiated, Growth Oriented Strategy Focused on Established Operators.    We are a self-storage REIT with a unique structure that supports our differentiated external growth strategy. Our structure appeals to operators who are looking for access to growth capital while maintaining an economic stake in the self-storage properties that each has contributed to our company and continues to manage on our behalf. These attributes entice operators to join our company rather than sell their properties for cash consideration. Our strategy is to attract operators who are confident in the performance of their properties and desire to participate in the future growth of our company. We are focused on recruiting established operators across the United States with a history of efficient property management and a track record of successful acquisitions. Our structure and differentiated strategy have enabled us to build a substantial pipeline from existing operators as well as potentially create external growth from future operators.

        Integrated Platform Utilizing Advanced Technology for Enhanced Operational Performance and Best Practices.    Our national platform allows us to capture cost savings through integration and centralization, thereby eliminating redundancies and utilizing economies of scale across the property management platforms of our PROs. As compared to a stand-alone operator, our national platform has greater access to lower-cost capital, reduced Internet marketing costs per customer lead, discounted property insurance expense, and reduced overhead costs. In addition, our company has sufficient scale for national and bulk purchasing and has centralized various functions, including financial reporting, call center operations, marketing, information technology, legal support, and capital market functions, to achieve substantial cost savings over smaller, individual operators.

        Our national platform utilizes advanced technology for Internet marketing, call center operations, financial and property analytic dashboards, revenue optimization analytics and expense management tools to enhance operational performance. These centralized programs, which are run through our Technology and Best Practices Group, are positively impacting our business performance, and we believe that they will be a driver of organic growth going forward. We will utilize our Technology and Best Practices Group to help us benefit from the collective sharing of key operating strategies among our PROs in areas like human resource management, local marketing and operating procedures.

        Aligned Incentive Structure with Shareholder Downside Protection.    Our structure promotes operator accountability as subordinated performance units issued to our PROs in exchange for the contribution

 

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of their properties are entitled to distributions only after those properties satisfy minimum performance thresholds. In the event of a material reduction in operating cash flow, distributions on our subordinated performance units will be reduced before distributions on our common shares held by our common shareholders. In addition, we expect our PROs will generally co-invest subordinated equity in the form of subordinated performance units in each acquisition that they source, and the value of these subordinated performance units will fluctuate with the performance of their contributed properties. Therefore, our PROs are incentivized to select acquisitions that are expected to exceed minimum performance thresholds, thereby increasing the value of their subordinated equity stake. We expect that our shareholders will benefit from the higher levels of property performance that our PROs are incentivized to deliver.

        Attractive Sector with Strong Underlying Fundamentals and Historic Outperformance.    Self-storage industry fundamentals are robust, with many properties operating at optimal revenue-producing occupancy and favorable industry dynamics resulting in pricing power for self-storage operators. Operators are able to achieve high same-store occupancy levels through a diverse base of customer demand from individuals as well as businesses. Based on these favorable supply and demand dynamics, we believe that disciplined self-storage operators will generate revenue growth in the near term and will continue to drive revenue performance throughout various economic cycles. We believe that overhead costs and maintenance capital expenditures are considerably lower in the self-storage industry as compared to other real estate sectors, and as a result, self-storage companies are able to achieve comparatively higher operating and cash flow margins. The self-storage sector's fundamentals have consistently established it as one of the strongest performing sectors among all classes of real estate over the last twenty years. The National Association of Real Estate Investment Trusts, or NAREIT, has tracked total return performance of the real estate equity sector since 1994, and from that time through December 31, 2013, the self-storage equity REIT sector has returned an average of over 17% on an annual total return basis compared to the average annual total return of approximately 12% for all other equity REIT sectors.

        Experienced Senior Management Team with Deep Operating and Public Company Experience.    Our senior management team has an established executive leadership track record, aided by their extensive knowledge of the self-storage sector and experience in the ownership, management, and development of self-storage properties. Our chief executive officer, Arlen D. Nordhagen, and chief financial officer, Tamara D. Fischer, bring accomplished backgrounds with an average of 25 years of experience in multiple management capacities at both public and private companies. As a successful entrepreneur involved in the start-up and growth of several public and private companies, Mr. Nordhagen was one of the founders of SecurCare in 1988 and led the company through a period of rapid growth. In addition to SecurCare, Mr. Nordhagen was a founder of MMM Healthcare, Inc., the largest provider of Medicare Advantage health insurance in Puerto Rico. He has also served as managing member of various private investment funds and held various managerial positions at E. I. DuPont De Nemours and Company, or DuPont, and Synthetech, Inc. Ms. Fischer also brings substantial managerial and public company experience to us. Prior to joining us, Ms. Fischer was executive vice president and chief financial officer of Vintage Wine Trust Inc., a REIT formed for the purpose of providing triple-net lease financing to owners and operators of wineries, vineyards, and other wine-related facilities. Ms. Fischer also served as executive vice president and chief financial officer of Chateau Communities Inc., one of the largest public REITs in the manufactured home community sector. In that capacity, Ms. Fischer oversaw the company's initial public offering, multiple merger and acquisition transactions, as well as ongoing capital markets activities, investor relations, financial reporting, and administrative responsibilities. Ms. Fischer remained at Chateau through its sale to Hometown America LLC in 2003.

        Our seasoned PROs also have highly experienced management teams averaging over 30 years of industry experience as well as deep industry knowledge of key markets and extensive national networks of industry relationships.

 

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        We believe our deep and cohesive management structure has the relevant skills and experience necessary to effectively grow our company. Upon the completion of this offering and the formation transactions, we expect that our senior management team, including our chief executive officer, representatives of our PROs who serve on our board of trustees and PRO advisory committee, and our chief financial officer, will own approximately        % of our equity on a fully diluted basis.

Our Business and Growth Strategies

        By capitalizing on our competitive strengths, we seek to increase scale, achieve optimal revenue-producing occupancy and rent levels, and increase long-term shareholder value by achieving sustainable long-term growth. Our business and growth strategies to achieve these objectives are as follows:

        Increase Occupancy of In-Place Portfolio.    Existing public self-storage REITs are operating with a weighted average occupancy level of approximately 93% as of June 30, 2014, which we believe is at or near optimal revenue-producing occupancy. Our in-place portfolio occupancy was approximately 87% as of June 30, 2014, reflecting a gap of approximately 6% compared to the average occupancy of the existing public self-storage REITs. Through utilization of our centralized call centers, integrated Internet marketing strategies and best practices protocols, we expect our PROs will be able to increase rental conversion rates resulting in increasing occupancy levels. We believe that a 1% improvement in our average occupancy for our in-place portfolio will translate to an approximate $         million improvement in revenue. We would expect a similar increase in NOI subject to marginal increases in operating expenses.

 

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        Maximize Property Level Cash Flow.    We strive to maximize the cash flows at our properties by leveraging the economies of scale provided by our national platform, including through the implementation of new ideas derived from our Technology and Best Practices Group. We believe that our unique PRO structure, centralized infrastructure and efficient national platform will enable us to achieve optimal market rents and occupancy, reduce operating expenses and increase the sale of ancillary products and services, including tenant insurance, rental moving equipment and packing supplies.

        Acquire Built-in Pipeline of Target Properties from Existing PROs.    We have an attractive, high quality pipeline of potential future acquisitions that we anticipate will drive our initial growth. We are under contract to acquire 13 properties representing approximately 750,000 rentable square feet upon the completion of the debt assumption process, which we expect to complete in the first six months of 2015 (with respect to 12 properties) and in 2016 (with respect to one property). In addition, within our pipeline of potential acquisition candidates, our PROs manage 112 properties, comprising approximately 7.3 million rentable square feet. The pipeline from existing PROs includes 29 properties that our PROs have an ownership interest in and we have a right to acquire such interests (i) in the event that our PRO seeks to transfer such interests or (ii) upon maturity of outstanding indebtedness encumbering such properties so long as the occupancy of such properties is consistent with average local market levels at such time, 20 properties that our PROs currently have an ownership interest in but do not control, and 63 properties that our PROs currently manage without an ownership interest. We generally anticipate making offers to acquire these properties when the existing property-level debt matures or the prepayment of such debt is economical. We may make an offer to acquire six of these properties, which have been recently developed, once occupancy achieves acceptable levels which may not coincide with the existing debt maturities. There can be no assurance that we will be able to acquire any of the properties in our pipeline. The following table summarizes the debt maturities or dates by year in which we expect occupancy of our pipeline as of June 30, 2014 to achieve acceptable levels.

 
  Pipeline  
 
  Under
Contract(1)
  Owned
(Controlled)(2)
  Owned
(Non-
Controlled)
  Managed   Total  

2015

    12     4     15     20     51  

2016

    1     9     5     38     53  

2017

        6         3     9  

2018 and beyond

        10         2     12  
                       

Total

    13     29     20     63     125  
                       
                       

(1)
Comprises 13 properties in our pipeline for which offers were already made and accepted.

(2)
One property in our pipeline, if acquired, would be held as a long-term leasehold interest.

        Access Additional Off-Market Acquisition Opportunities.    Our PROs and their "on-the-ground" personnel have established an extensive network of industry relationships and contacts in their respective markets. Through these local connections, our PROs are able to access acquisition opportunities that are not publicly marketed or sold through auctions. Our structure incentivizes our PROs to source acquisitions in their markets and consolidate these properties into our company. Other public self-storage companies generally have acquisition teams located at their central offices, which in many instances are far removed from regional and local markets. We believe our operators' networks and close familiarity with the other operators in their markets provide us clear competitive advantages in identifying and selecting attractive acquisition opportunities. Our PROs have already sourced

 

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31 acquisitions since our inception, comprising approximately 2.3 million rentable square feet within our in-place portfolio.

        Recruit New PROs in Target Markets.    We intend to continue to execute on our external growth strategy through additional acquisitions and contributions from future PROs in key markets. With the approximately 50,000 total self-storage properties in the United States owned by over 30,000 operators, we believe there is significant opportunity for growth through consolidation of the highly fragmented composition of the market. We believe that future operators will be attracted to our unique structure, providing them with lower cost of capital, better economies of scale, and greater operational and overhead efficiencies while preserving their existing property management platforms. We intend to add additional PROs to complement our existing geographic footprint and to achieve our goal of creating a highly diversified nationwide portfolio of properties in the top 100 MSAs. Following our inception, we recruited an additional three PROs who managed 112 self-storage properties across six states, 43 of which are part of our in-place portfolio. For example, we recruited Move It, which manages self-storage properties in three states. This PRO manages 11 properties in our in-place portfolio and 21 in our pipeline.

Our Technology and Best Practices

        Our technology and best practices programs, which are overseen by our Technology and Best Practices Group, are designed to take advantage of the scale and sophistication afforded to a large national storage operator while benefiting from the local expertise and relationships of experienced PROs. These programs deliver value for us and our PROs through a number of methods, tools, and platforms: (1) a common data platform for financial, operational, and marketing data collection, reporting, analysis and dissemination, (2) a common online marketing platform to deliver economies of scale for Internet search rankings and customer lead generation, (3) a centralized call center supporting property operations, (4) a joint purchasing program for products such as property insurance, retail merchandise, office supplies, merchant credit and debit card processing, and online auction services in order to achieve economies of scale, and (5) a forum for sharing management techniques and engaging in high-level collaboration across decentralized operations.

        Our unique structure allows for effective best practices collaboration among our experienced PROs. We provide the methods, tools, and platforms for our PROs to share management techniques and resources with each other in order to promote greater experimentation, faster iteration, and a level of flexibility not easily achieved by large competitors operating in a more monolithic fashion. These techniques span the spectrum of property management from employee training, sourcing, and retention to operational audits, selling techniques, data analytics, document digitization, and the pursuit of additional revenue streams such as rooftop solar and cellular antenna contracts. We believe that over time, the open sharing of best practices will deliver consistent, incremental organic improvements and drive better financial results throughout our portfolio.

The Formation and Structure of Our Company

        Upon the completion of this offering and the formation transactions, our in-place portfolio will consist of 235 self-storage properties located in 14 states, comprising approximately 13.2 million rentable square feet. Of these properties, five will be held as long-term leasehold interests with an average remaining lease term, including extension options, ranging from 20 to 61 years.

        Acquisition of In-Place Portfolio.    For our in-place portfolio, pursuant to separate contribution agreements described under "The Formation and Structure of our Company—Contribution Agreements," we have issued or expect to issue prior to or concurrently with the completion of this offering an aggregate of            units of limited partner interest in our operating partnership or in DownREIT partnerships in which our operating partnership owns a significant investment, consisting of            

 

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OP units in our operating partnership,            OP units in our DownREIT partnerships,             subordinated performance units in our operating partnership, and             subordinated performance units in our DownREIT partnerships. The properties included in our in-place portfolio by our PROs were contributed pursuant to a policy adopted by our board of trustees that standardizes the methodology that we use for valuing self-storage properties that are contributed to us by our PROs. See "The Formation and Structure of our Company—Valuation Methodology for Contributed Portfolios." In connection with these transactions, we assumed or will assume an aggregate of approximately $         million of mortgage indebtedness. In addition, we have acquired an aggregate of            properties, which were sourced by our PROs, pursuant to purchase and sale agreements with certain third-party owners for a combination of cash and OP units totaling approximately $         million. As of June 30, 2014, our operating partnership had also granted an additional            LTIP units to a third-party consultant and            LTIP units to our PROs under the Prior Incentive Plan. See "Our Management—Prior Incentive Plan."

        Facilities Portfolio and Asset Management Agreements.    Each self-storage property that was contributed to our operating partnership or one of its subsidiaries by a PRO will continue to be managed by the PRO that contributed the property. Each PRO has entered into a facilities portfolio management agreement with us with respect to its contributed portfolio together with asset management agreements for each property. We believe this consistency in post-contribution portfolio and property management, together with our technology and best practices programs, will allow us to fully leverage each PRO's local market knowledge and expertise and mitigate transitional disruptions to operations. These agreements also contain a number of important terms relating to, among other things, exclusivity and non-competition, management and retirement (including the "Key Person Standards" described below under "—Key Person Standards"), and performance. For a further description of the terms of the facilities portfolio and asset management agreements, see "The Formation and Structure of Our Company—Facilities Portfolio and Asset Management Agreements."

        Assignment of PRO Territories.    Pursuant to the facilities portfolio management agreements, within certain MSAs granted to our PROs, our operating partnership has agreed not to acquire additional self-storage properties without first offering the PRO the opportunity to co-invest in, and manage, the property. In the event that a PRO determines not to co-invest and manage a property, we can still acquire and assign management rights to the property.

        Each PRO is prohibited from entering into new agreements or arrangements for self-storage properties that they do not currently own or manage without our operating partnership's prior written consent.

 

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        Company Lock-out Periods.    We utilize a number of different lock-out periods with respect to our PROs' equity interests in order to maintain their long-term incentive to continue to improve and grow the portfolio of properties that they contributed to us.

        Key Person Standards.    Each facilities portfolio management agreement contains provisions, which we refer to as the "Key Person Standards," which relate to each PRO's key persons (as defined in each facilities portfolio management agreement). Our operating partnership, in its sole discretion, may consent to changes in the key persons designated with respect to each PRO from time to time. Pursuant to the facilities portfolio management agreements, each PRO's key persons are required to remain active in and devote a reasonable and prudent portion of each such person's business time to the business and affairs of the PRO with respect to such PRO's contributed portfolio. In addition, other than as a result of death or legal incapacity, at least 50% of the subordinated performance units issued in respect of each PRO's contributed portfolio are required to be beneficially owned by such PRO's key persons and such key persons are required to collectively own at least 50% of the beneficial interest in and control the management company relating to the contributed portfolio. We may elect to terminate our facilities portfolio and asset management agreements and transfer property management responsibilities over the properties managed by a PRO to us (or our designee), if, subject to specified cure provisions, a PRO breaches its Key Person Standards. Upon termination of the facilities portfolio management agreement for a PRO in the case of breach of Key Person Standards, we will be permitted to require that the subordinated performance units issued in respect of such PRO's contributed portfolio be converted into OP units applying a specified conversion penalty on the terms described herein under "Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units." See "The Formation and Structure of our Company—Management and Retirement" and "—Performance."

        Registration Rights Agreements.    We have granted registration rights to those persons who will be eligible to receive common shares issuable upon exchange of OP units (or securities exchangeable for OP units) issued in our formation transactions. The registration rights agreement requires that as soon as practicable after the date on which we first become eligible to register the resale of securities of our

 

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company pursuant to Form S-3 under the Securities Act, but in no event later than 60 calendar days thereafter, we file a shelf registration statement registering the offer and resale of the common shares issuable upon exchange of OP units (or securities exchangeable for OP units) issued in our formation transactions on a delayed or continuous basis. See "Shares Eligible for Future Sale—Registration Rights Agreement."

Our Structure

        The following diagram illustrates our anticipated structure upon the completion of this offering and the formation transactions:

GRAPHIC


(1)
In addition to PROs, various third-party investors who do not manage the properties own OP units and subordinated performance units.

(2)
OP units in our operating partnership are convertible into common shares on a one-for-one basis. Subordinated performance units convert into OP units subject to a specified conversion penalty.

(3)
OP units in our DownREIT partnerships are convertible into OP units in our operating partnership on a one-for-one basis. Subordinated performance units in our DownREIT partnerships convert into subordinated performance units in our operating partnership on a one-for-one basis, which are then convertible into OP units in our operating partnership subject to a specified conversion penalty.

        The diagram above excludes (i) up to             common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares, (ii)              common shares available for future issuance under our 2014 Equity Incentive Plan, as described under "Our Management—2014 Equity Incentive Plan" (iii) OP units issuable upon conversion of outstanding subordinated performance units, and (iv)             OP units issuable upon conversion of            outstanding LTIP units. For a description of the terms related to the conversion of subordinated performance units into OP units, including the application of the conversion penalty, see "Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units."

 

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        We believe that our structure provides meaningful advantages, including the strong alignment of financial incentives between PROs and shareholders, accelerated acquisition growth opportunities and a disciplined approach to new acquisitions.

Our Properties

        Our PROs have contributed high quality portfolios of self-storage properties that are designed to offer customers convenient, affordable, and secure storage units. Generally, our properties are in highly visible locations clustered in states or markets with strong population and job growth and are specifically designed to accommodate residential and commercial tenants with features such as security systems, electronic gate entry, easy access, climate control, and pest control. Our units typically range from 25 square feet to 300 square feet, and some of our properties also offer outside storage for vehicles, boats, and equipment. We provide 24-hour access to many storage units through computer controlled access systems, as well as alarm and sprinkler systems on many of our individual storage units. Our portfolio upon the completion of this offering and the formation transactions is expected to have more than 100,000 storage units, almost all of which are leased on a month-to-month basis providing us the flexibility to increase rental rates over time as market conditions permit.

        The following map depicts the geographic diversification of our in-place portfolio and pipeline as of June 30, 2014:

GRAPHIC

 

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        The following table summarizes information about our in-place portfolio by state as of June 30, 2014:

 
  In-Place Portfolio  
Location
  Properties   Units   Rentable
Square Feet(1)
  % Rentable
Square Feet
  Occupancy(2)  

Oregon

    49     19,319     2,427,023     18%     92%  

Texas

    46     18,050     2,526,865     19%     84%  

California

    30     17,496     2,170,390     16%     87%  

Oklahoma

    26     12,268     1,632,232     12%     88%  

North Carolina

    17     7,400     883,185     7%     85%  

Georgia

    16     5,315     678,301     5%     82%  

Arizona

    15     9,405     1,031,293     8%     84%  

Washington

    13     4,524     571,662     4%     89%  

Colorado

    8     3,741     453,166     3%     95%  

Louisiana

    5     2,274     327,590     2%     89%  

Other(3)

    10     4,014     512,323     4%     81%  
                       

Total/Weighted Average(4)

    235     103,806     13,214,030     100%     87%  
                         
                         

(1)
Rentable square feet includes all enclosed self-storage units but excludes over 285,000 square feet in our in-place portfolio of commercial, residential, and covered parking space.

(2)
Represents total occupied rentable square feet divided by total rentable square feet.

(3)
Other states include Mississippi, Nevada, New Hampshire and South Carolina.

(4)
Five properties in our in-place portfolio will be held as long-term leasehold interests with an average remaining lease term, including extension options, ranging from 20 to 61 years.

        The following table summarizes our pipeline by state as of June 30, 2014:

 
  Pipeline(1)  
Location
  Properties   Units   Rentable
Square Feet(2)
  % Rentable
Square Feet
 

Arizona

    31     18,568     2,032,057     25%  

California

    30     18,578     2,145,033     27%  

Texas

    24     11,690     1,607,575     20%  

North Carolina

    10     4,995     624,604     8%  

Oregon

    7     2,252     270,353     3%  

Colorado

    6     3,978     469,808     6%  

Oklahoma

    5     1,690     254,085     3%  

Other(3)

    12     4,566     667,392     8%  
                   

Total

    125     66,317     8,070,907     100%  
                   
                   

(1)
Our pipeline consists of 125 self-storage properties. Of these, 13 are properties that our company has under contract to acquire, 29 are properties in which our PROs have a controlling ownership interest and we have a right to acquire such interest (i) in the event that our PRO seeks to transfer such interest or (ii) upon maturity of outstanding indebtedness encumbering such property so long as the occupancy of such property is consistent with average local market levels at such time, 20 are properties in which our PROs currently have an ownership interest but do not control, and 63 are properties that our PROs manage without an ownership interest. There can be no assurance that we will be able to acquire any of the properties in our pipeline.

(2)
Rentable square feet includes all enclosed self-storage units but excludes over 25,000 square feet in our pipeline of commercial, residential, and covered parking space.

(3)
Other states include Florida, Kentucky, Louisiana, Nevada, South Carolina, Tennessee, Utah and Washington.

 

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Our Industry and Market Opportunity

        According to the 2014 Self Storage Almanac, the self-storage industry is a large and highly fragmented sector with over $22 billion in estimated annual revenue and over $200 billion in estimated private market value across approximately 52,000 properties operated by over 30,000 operators. Only 25% of the industry consists of operators with more than one property. The 100 largest operators manage less than 18% of these properties; the largest public self-storage companies are Public Storage, Extra Space Storage Inc., Amerco, or U-Haul, CubeSmart, and Sovran Self Storage, Inc., which comprise roughly 10% of the self-storage market share. The larger operators enjoy economies of scale in administration, marketing, and purchasing and often have greater access to capital to fund development and acquisitions. The high level of fragmentation and the opportunity to achieve economies of scale present ample opportunity for growth through consolidation in the industry.

        According to NAREIT, the self-storage sector has been one of the strongest-performing real estate sectors over the past 20 years. The sector's outperformance has been especially strong since the beginning of the recent financial crisis and through the subsequent recovery (January 1, 2008 to December 31, 2013). Throughout this six-year period, the self-storage sector performed better than any other NAREIT equity sub-sector in terms of cumulative total return, average annual total return and volatility of returns. Every year during this period, the cumulative total return in the self-storage NAREIT sub-sector was above 5%. The value of $100 invested in the NAREIT self-storage sub-sector on January 1, 2008 (with annual dividend reinvestment) would have been worth $261 on December 31, 2013, 89% higher than the $138 average of all other NAREIT equity sub-sectors, and 28% higher than the second highest performing NAREIT sub-sector ($204 for manufactured home communities).

        While difficult economic times caused some vacancy, it also created new users by way of downsizing, job loss, and foreclosure, which often necessitate the need for self-storage. The combination of the fluidity in rental rates, the diverse and changing mix of tenants, and operational flexibility enabled operators to actively manage through a tough operating environment. We believe the self-storage sector also typically has a lower expense ratio than do other real estate asset classes, which enabled it to be more resilient to downward pressure on revenue and better able to maintain strong positive cash flow during the downturn. In addition to experiencing smaller declines in cash flow during 2008 and 2009, as the economy began improving in 2010, self-storage property cash flows recovered more quickly than other property types because of the industry's ability to rapidly reset rental rates commensurate with the improving economy. Because self-storage is a short-term operating business, the sector holds an advantage over retail, office, industrial, and virtually all other property types that operate with long-term lease obligations, primarily driven by the ability of operators to adjust rents to market conditions on a daily, weekly, and monthly basis.

Indebtedness Outstanding Upon the Completion of this Offering and the Formation Transactions

        Upon the completion of this offering and the formation transactions, our existing credit facility will automatically convert to a $425 million unsecured credit facility with a syndicate of lenders led by KeyBank National Association, comprised of a revolving line of credit of approximately $             million and a term loan of approximately $             million. At such time, we expect to have the entire term loan amount drawn and approximately $             million drawn on our revolving line of credit. In addition, we expect to have approximately $             million in mortgage debt outstanding upon the completion of this offering and the formation transactions. For further description of our indebtedness, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness Outstanding Upon the Completion of this Offering and the Formation Transactions."

 

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Summary Risk Factors

        An investment in our common shares involves various risks. You should carefully consider the risks discussed below and under "Risk Factors" before purchasing our common shares. If any of the following risks or risks discussed under "Risk Factors" occurs, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common shares could decline, and you may lose some or all of your investment.

 

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Dividend Reinvestment Plan

        In the future, we may adopt a dividend reinvestment plan that will permit shareholders who elect to participate in the plan to have their cash dividends reinvested in additional common shares.

Operating and Regulatory Structure

REIT qualification

        In connection with this offering, we intend to elect to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, commencing with our short taxable year ending on December 31, 2015. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT on an ongoing basis. To qualify, and maintain our qualification, as a REIT, we must meet on a continuing basis, through our organization and actual investment and operating results, various requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our common shares. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we failed to qualify as a REIT. Even if we qualify for taxation as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property. Dividends paid by us generally will not be eligible for taxation at the preferential U.S. federal income tax rates that currently apply to certain distributions received by individuals from taxable corporations.

Restrictions on Ownership and Transfer of Our Shares

        To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our declaration of trust prohibits, with certain exceptions, any shareholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of all classes and series, the outstanding shares of any class or series of our preferred shares or our outstanding common shares. Our board of trustees may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, waive any or all of these 9.8% ownership limits with respect to a particular shareholder if such waiver will not jeopardize our qualification as a REIT. Our declaration of trust also prohibits any person from, among other things, beneficially or constructively owning shares that would result in our

 

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being "closely held" under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or would otherwise cause us to fail to qualify as a REIT.

        Our declaration of trust provides that any ownership or purported transfer of common shares in violation of the foregoing restrictions will result in the shares so owned or transferred being automatically transferred to a charitable trust for the benefit of a charitable beneficiary, and the purported owner or transferee acquiring no rights in such shares. If a transfer of shares would result in our shares being beneficially owned by fewer than 100 persons or the transfer to a charitable trust would be ineffective for any reason to prevent a violation of the other restrictions on ownership and transfer of our shares, the transfer resulting in such violation will be void.

Implications of Being an Emerging Growth Company

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

        Although we have not made a determination whether to take advantage of any or all of these exemptions, we expect to remain an "emerging growth company" for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion, (2) December 31 of the fiscal year that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months or (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period. In addition, we have irrevocably opted out of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As a result, we will comply with new or revised accounting standards on the same time frames as other public companies that are not "emerging growth companies."

 

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The Offering

Common shares offered by us

                  shares (plus up to an additional                common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares).

Common shares and OP units outstanding upon the completion of this offering and the formation transactions

 

                shares (plus up to an additional                common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares)                 and OP units.(1)

Use of proceeds

 

We estimate that we will receive net proceeds from this offering of approximately $            million, or approximately $            million if the underwriters' option to purchase additional shares is exercised in full, assuming an initial public offering price of $            per share, which is the mid-point of the initial public offering price range shown on the cover page of this prospectus, and after deducting the underwriting discount, and estimated expenses of this offering payable by us. We intend to contribute the net proceeds of this offering to our operating partnership, which we expect will subsequently use the net proceeds as follows:

 

approximately $            million to acquire            self-storage properties within our in-place portfolio;

 

approximately $             million to repay in full our U.S. Bank senior term loans, our unsecured term loan, and our mezzanine loan (including prepayment penalties); and

 

approximately $             million to pay down our revolving line of credit.

 

The net proceeds remaining after the uses described above will be used for general corporate and working capital purposes. See "Use of Proceeds."

 

If the public offering price is below the mid-point of the initial public offering price range shown on the cover page of this prospectus, or if we sell fewer shares than are set forth on the cover page of this prospectus, repayment of our existing revolving line of credit will be correspondingly reduced.

   


(1)
Excludes (i)                 common shares available for future issuance under our 2014 Equity Incentive Plan, as described under "Our Management—2014 Equity Incentive Plan," (ii)                  common shares issuable upon exchange of                OP units (including                 OP units issuable upon conversion of                outstanding LTIP units), (iii) OP units issuable upon conversion of outstanding subordinated performance units, and (iv)                  OP units held by NSA.

 

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Distribution policy

 

We intend to make regular quarterly distributions to holders of our common shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Our current policy is to pay quarterly distributions, which on an annual basis will equal all or substantially all of our taxable income.

 

Any distributions we make will be at the discretion of our board of trustees and will depend upon, among other things, our actual results of operations. These results and our ability to pay distributions will be affected by various factors, including our revenues, operating expenses and the occupancy levels of our existing self-storage properties, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information, see "Distribution Policy."

 

We cannot assure you that we will make any distributions to our shareholders.

Proposed New York Stock Exchange symbol

 

"NSA"

Ownership and transfer restrictions

 

To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our declaration of trust prohibits, with certain exceptions, any shareholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of all classes and series, the outstanding shares of any class or series of our preferred shares or our outstanding common shares. See "Description of Shares of Beneficial Interest—Restrictions on Ownership and Transfer."

Risk factors

 

An investment in our common shares involves various risks. You should consider carefully the risks discussed below and under "Risk Factors" before purchasing our common shares.

Our Corporate Information

        Our principal executive offices are located at 5200 DTC Parkway, Suite 200, Greenwood Village, CO 80111. Our telephone number is (720) 630-2600. Our website is www.nationalstorageaffiliates.com. The information on our website is not intended to form a part of or be incorporated by reference into this prospectus.

 

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Summary Pro Forma and Historical Financial and Operating Data

        The following table sets forth our summary pro forma and historical financial and operating data as of and for the periods indicated. You should read the information below in conjunction with the unaudited pro forma condensed consolidated financial statements and the consolidated and combined financial statements and related notes included elsewhere in this prospectus, and the sections entitled "Selected Pro Forma and Historical Financial and Operating Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        In order to present certain of our summary pro forma and historical financial and operating data in a way that offers investors a period to period comparison, the historical results of operations, cash flows, and certain other information for the year ended December 31, 2013 and the six months ended June 30, 2013 are presented on a basis that combines the results of operations, cash flows, and certain other information of National Storage Affiliates Trust and its consolidated subsidiaries for the nine months ended December 31, 2013 with those of our predecessor for the three months ended March 31, 2013, and for National Storage Affiliates Trust and its consolidated subsidiaries for the three months ended June 30, 2013 with those of our predecessor for the three months ended March 31, 2013. The stand-alone historical financial data used to derive the combined amounts are presented in respective tables under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." The combination of our historical financial data with the historical financial data of our predecessor does not comply with U.S. GAAP and is not intended to represent what our consolidated results of operations and cash flows would have been if our company had commenced operations as of January 1, 2013. We have not included or excluded revenues or expenses that would have resulted if we had commenced operations on January 1, 2013.

        The historical statements of operations and cash flows data (i) for the six months ended June 30, 2014 has been derived from the historical unaudited consolidated statement of operations and statement of cash flows of our company for such period, and (ii) for the six months ended June 30, 2013 is presented on a combined basis and has been derived by combining the historical unaudited consolidated statement of operations and statement of cash flows of our company for the three months ended June 30, 2013 with the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor for the three months ended March 31, 2013, in each case included elsewhere in this prospectus. The historical statements of operations and cash flows data (i) for the year ended December 31, 2013 is presented on a combined basis and is derived by combining the historical audited consolidated statement of operations and statement of cash flows of our company for the nine months ended December 31, 2013 with the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor for the three months ended March 31, 2013, in each case included elsewhere in this prospectus. The historical statements of operations and cash flows data for the year ended December 31, 2012 has been derived from the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor included elsewhere in this prospectus. The consolidated balance sheet data (i) as of June 30, 2014 has been derived from the historical unaudited consolidated balance sheet of our company as of such date, (ii) as of December 31, 2013 has been derived from the historical audited consolidated balance sheet of our company as of such date, and (iii) as of December 31, 2012 has been derived from the historical audited consolidated and combined balance sheet of our predecessor as of such date, in each case included elsewhere in this prospectus. Our financial statements have been prepared in accordance with GAAP. Dollars in the table below are in thousands, except per share amounts.

 

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  Pro Forma   Historical  
 
   
   
  Six Months
Ended June 30,
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
   
  NSA   Combined(1)   Combined(1)   Predecessor  
 
  Year Ended
December 31,
2013
 
 
  2014   2013   2013   2012  

Revenue

                                     

Rental revenue

  $     $     $ 28,649   $ 15,422   $ 39,235   $ 28,671  

Other property-related revenue(2)

                727     312     929     608  
                           

Total revenue

                29,376     15,734     40,164     29,279  
                           

Operating Expenses

                                     

Property operating expenses

                10,955     6,082     14,812     11,728  

General and administrative

                3,134     1,166     4,660     1,889  

Depreciation and amortization

                8,534     2,665     9,375     3,826  
                           

Total operating expenses

                22,623     9,913     28,847     17,443  
                           

Income from operations

                6,753     5,821     11,317     11,836  

Other Income (Expense)

                                     

Interest expense

                (11,189 )   (8,822 )   (19,605 )   (17,054 )

Acquisition costs

                (5,271 )   (2,785 )   (3,383 )    

Organizational and offering costs

                (677 )   (50 )   (50 )    

Gains on

                                     

Sale of properties

                1,426             218  

Debt forgiveness

                            1,509  

Non-operating income (expense), net

                (3 )   (21 )   (13 )   39  
                           

Net income (loss)

                (8,961 )   (5,857 )   (11,734 )   (3,452 )

Loss attributable to noncontrolling interests(3)

                8,961     (4,604 )   10,481      
                           

Net income (loss) attributable to the Company and our predecessor

  $     $     $   $ (1,253 ) $ (1,253 ) $ (3,452 )
                           
                           

Earnings (loss) per share (basic and diluted)(4)

  $     $     $   $   $        

Weighted average shares outstanding (basic and diluted)(4)

                1,000     253     753        

Non-GAAP Financial Measures(5)

                                     

NOI

  $     $     $ 18,421   $ 9,652   $ 25,352   $ 17,551  

Adjusted EBITDA

  $     $     $ 15,968   $ 8,465   $ 21,783   $ 15,701  

FFO (excluding specified items)

  $     $     $ 4,779   $ (357 ) $ 2,178   $ (1,353 )

Cash Flow Data

                                     

Cash provided by operating activities

              $ 5,944   $ 3,013   $ 7,134   $ 4,926  

Cash provided by (used in) investing activities

              $ (100,761 ) $ (58,510 ) $ (102,326 ) $ 2,818  

Cash provided by (used in) financing activities

              $ 97,961   $ 70,990   $ 107,147   $ (8,730 )

Balance Sheet Data (at end of period)

                                     

Self-storage properties, net

  $           $ 506,584         $ 346,319   $ 172,304  

Cash and equivalents

  $           $ 14,340         $ 11,196   $ 2,769  

Mortgages and notes payable

  $           $ 405,391         $ 298,748   $ 187,610  

Equity (deficit)

                                     

NSA / Predecessor

  $           $         $   $ (12,151 )

Noncontrolling interests(3)

                124,342           55,197      
                               

Total

  $           $ 124,342         $ 55,197   $ (12,151 )
                               
                               

Other Data (at end of period)

                                     

Number of properties(6)

                173     122     137     88  

Rentable square feet (in thousands)(7)

                8,674     5,669     6,626     3,976  

Occupancy percentage(8)

                87%     85%     83%     80%  

(1)
Combined in the table above are (i) for the six months ended June 30, 2013, our predecessor's historical results for the three months ended March 31, 2013 and our company's historical results for the three months ended June 30, 2013, and (ii) for the year ended December 31, 2013, our predecessor's historical results for the three months ended March 31, 2013 and our company's historical results for the nine months ended December 31, 2013. For a discussion of our predecessor's and our company's historical results for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(2)
Other property-related revenue represents ancillary income from our self-storage properties, such as tenant insurance-related access fees and commissions and storage supplies.

(3)
While we control our operating partnership, we will not have an ownership interest or share in our operating partnership's profits and losses prior to the completion of this offering. As a result, all of our operating partnership's profits and losses for the periods presented were allocated to owners other than us. Upon the completion of this offering and the formation transactions, our operating partnership's outstanding equity interests will consist of                OP units,                 subordinated performance units, and                 LTIP units.

 

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(4)
Earnings per share for the six months ended June 30, 2013 and the year ended December 31, 2013 has been computed by excluding our predecessor's net loss for the three months ended March 31, 2013. In addition, the weighted average shares outstanding has been computed for the period beginning on April 1, 2013, the date our company commenced its operations.

(5)
The reconciliations of our Non-GAAP Financial Measures are set forth below.

The following table presents a reconciliation of net income (loss) to NOI for the periods presented (dollars in thousands):

 
  Pro Forma   Historical  
 
   
   
  Six Months
Ended June 30,
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
   
  NSA   Combined(a)   Combined(a)   Predecessor  
 
  Year Ended
December 31,
2013
 
 
  2014   2013   2013   2012  

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add (subtract)

                                     

General and administrative expense

                3,134     1,166     4,660     1,889  

Depreciation and amortization

                8,534     2,665     9,375     3,826  

Interest expense

                11,189     8,822     19,605     17,054  

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs

                677     50     50      

Gain on sale of properties

                (1,426 )           (218 )

Gain on debt forgiveness

                            (1,509 )

Non-operating expense (income), net

                3     21     13     (39 )
                           

Net Operating Income

  $     $     $ 18,421   $ 9,652   $ 25,352   $ 17,551  
                           
                           

(a)
Our NOI for the year ended December 31, 2013 reflects the NOI of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our NOI for the six months ended June 30, 2013 reflects the NOI of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating NOI for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

 
  Pro Forma   Historical  
 
   
   
  Six Months
Ended June 30,
   
   
 
 
   
   
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
   
 
 
  Year Ended
December 31,
2013
  NSA
2014
  Combined(a)
2013
  Combined(a)
2013
  Predecessor
2012
 

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add

                                     

Depreciation and amortization            

                8,534     2,665     9,375     3,826  

Interest expense            

                11,189     8,822     19,605     17,054  
                           

EBITDA

  $     $     $ 10,762   $ 5,630   $ 17,246   $ 17,428  

Add (subtract)

                                     

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs            

                677     50     50      

Gain on sale of properties            

                (1,426 )           (218 )

Gain on debt forgiveness

                            (1,509 )

Equity-based compensation expense(b)

                684         1,104        
                           

Adjusted EBITDA            

  $     $     $ 15,968   $ 8,465   $ 21,783   $ 15,701  
                           
                           

(a)
Our EBITDA and Adjusted EBITDA for the year ended December 31, 2013 reflect the EBITDA and Adjusted EBITDA of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our EBITDA and Adjusted EBITDA for the six months ended June 30, 2013 reflect the EBITDA and Adjusted EBITDA of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating EBITDA and Adjusted EBITDA for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

 

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(b)
Equity-based compensation expense is a non-cash compensation item that is included in our general and administrative expenses in our statements of operations.

 
  Pro Forma   Historical  
 
   
   
  Six Months
Ended June 30,
   
   
 
 
   
   
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
   
 
 
  Year Ended
December 31,
2013
  NSA
2014
  Combined(a)
2013
  Combined(a)
2013
  Predecessor
2012
 

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add (subtract):

                                     

Real estate depreciation and amortization

                8,534     2,665     9,375     3,826  

Gains from sale of self-storage properties

                (1,426 )           (218 )
                           

FFO            

  $     $     $ (1,853 ) $ (3,192 ) $ (2,359 ) $ 156  

Add (subtract)

                                     

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs

                677     50     50      

Gain on debt forgiveness

                            (1,509 )

Equity-based compensation expense(b)

                684         1,104      
                           

FFO (excluding specified items)                   

  $     $     $ 4,779   $ (357 ) $ 2,178   $ (1,353 )
                           
                           

(a)
Our FFO and FFO (excluding specified items) for the year ended December 31, 2013 reflect the FFO and FFO (excluding specified items) of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our FFO and FFO (excluding specified items) for the six months ended June 30, 2013 reflect the FFO and FFO (excluding specified items) of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating FFO and FFO (excluding specified items) for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

(b)
Equity-based compensation expense is a non-cash compensation item that is included in our general and administrative expenses in our statements of operations.
(6)
For more information about our properties in each period, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(7)
Rentable square feet includes all enclosed self-storage units but excludes commercial, residential, and covered parking space.

(8)
Represents total occupied rentable square feet divided by total rentable square feet.

 

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RISK FACTORS

        An investment in our common shares involves a high degree of risk. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this prospectus. If any of the risks discussed in this prospectus occurs, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the price of our common shares could decline significantly and you could lose a part or all of your investment.

Risks Related to Our Business

Adverse economic or other conditions in the markets in which we do business and more broadly could negatively affect our occupancy levels and rental rates and therefore our operating results.

        Our operating results are dependent upon our ability to achieve optimal occupancy levels and rental rates at our self-storage properties. Adverse economic or other conditions in the markets in which we do business, particularly in Colorado, North Carolina, Oklahoma, Oregon and Texas, which accounted for approximately 7%, 11%, 18%, 25% and 17%, respectively, of our combined revenues for the three months ended June 30, 2014, may lower our occupancy levels and limit our ability to maintain or increase rents or require us to offer rental discounts. The following adverse developments, among others, in the markets in which we do business may adversely affect the operating performance of our properties:

        We are also susceptible to the effects of adverse macro-economic events and business conditions that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.

We may not be successful in identifying and consummating suitable acquisitions, adding suitable new PROs, or integrating and operating such acquisitions, including integrating them into our financial and operational reporting infrastructure and internal control framework in a timely manner, which may impede our growth.

        Our ability to expand through acquisitions is integral to our business strategy and requires us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in identifying suitable properties or other assets that meet our acquisition criteria or in consummating acquisitions on satisfactory terms or at all. Failure to identify or consummate acquisitions will slow our growth, which could in turn adversely affect our share price.

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        Our ability to acquire properties on favorable terms and successfully integrate and operate them, including integrating them into our financial and operational reporting infrastructure in a timely manner, may be constrained by the following significant risks:

We face competition for tenants and the acquisition of self-storage properties, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.

        We compete with many other entities engaged in real estate investment activities for tenants and acquisitions of self-storage properties, including national, regional and local owners, operators and developers of self-storage properties. Our primary national competitors for both tenants in many of our markets and for acquisition opportunities are the large public and private self-storage companies, institutional investors, and private equity funds. Actions by our competitors may decrease or prevent increases in the occupancy and rental rates, while increasing the operating expenses of our properties. These competitors may also drive up the price we pay for self-storage properties or other assets we seek to acquire or may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive bidders because they may have greater resources, may be willing to pay more or may have a more compatible operating philosophy. The number of entities and the amount of funds competing for suitable investment properties may increase in the future. This competition may result in higher property acquisition prices and reduced yields.

Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.

        Because our portfolio of properties consists primarily of self-storage properties, we are subject to risks inherent in investments in a single industry. A decrease in the demand for self-storage space would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage properties in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental revenue. Any such decrease could impair

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our operating results, ability to satisfy debt service obligations and ability to make cash distributions to our shareholders.

Increases in taxes and regulatory compliance costs may reduce our income and adversely impact our cash flows.

        Increases in income, property or other taxes generally are not passed through to tenants under leases and may reduce our net income, FFO, cash flow, financial condition, ability to pay or refinance our debt obligations, ability to make cash distributions to shareholders, and the trading price of our securities. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures, which could result in similar adverse effects.

        Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. The amount of property taxes we pay in the future may increase substantially from what we have paid in the past. If the property taxes we pay increase, our cash flow would be adversely impacted, and our ability to pay any expected dividends to our shareholders could be adversely affected.

        Many states and jurisdictions are facing severe budgetary problems. Action that may be taken in response to these problems, such as increases in property taxes on commercial properties, changes to sales taxes or other governmental efforts, including mandating medical insurance for employees, could adversely impact our business and results of operations.

Our storage leases are relatively short-term in nature, which exposes us to the risk that we may have to re-lease our units and we may be unable to do so on attractive terms, on a timely basis or at all.

        Our storage leases are relatively short-term in nature, typically month-to-month, which exposes us to the risk that we may have to re-lease our units frequently and we may be unable to do so on attractive terms, on a timely basis or at all. Because these leases generally permit the tenant to leave at the end of the month without penalty, our revenues and operating results may be impacted by declines in market rental rates more quickly than if our leases were for longer terms. In addition, any delay in re-leasing units as vacancies arise would reduce our revenues and harm our operating results.

We face system security risks as we depend upon automated processes and the Internet.

        We are increasingly dependent upon automated information technology processes and Internet commerce, and some of our new tenants come from the telephone or over the Internet. Moreover, the nature of our business involves the receipt and retention of personal information about our tenants. We also rely extensively on third-party vendors to retain data, process transactions and provide other systems services. These systems and our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer worms, viruses and other destructive or disruptive security breaches and catastrophic events, such as a natural disaster or a terrorist event or cyber-attack. In addition, experienced computer programmers may be able to penetrate our network security and misappropriate our confidential information, create system disruptions or cause shutdowns.

We may become subject to litigation or threatened litigation that may divert management's time and attention, require us to pay damages and expenses or restrict the operation of our business.

        We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business. Any such dispute could result in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management's ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant.

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In addition, any such resolution could involve our agreement with terms that restrict the operation of our business.

        There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights to use brand names and other intellectual property that they consider to be similar to ours. Any such commercial dispute and related resolution would involve all of the risks described above, including, in particular, our agreement to restrict the use of our brand name or other intellectual property.

        We also could be sued for personal injuries and/or property damage occurring on our properties. The liability insurance we maintain may not cover all costs and expenses arising from such lawsuits.

The acquisition of new properties that lack operating history with us will make it more difficult to predict our operating results.

        We intend to continue to acquire additional properties, including those committed to be contributed to us. These acquisitions could fail to perform in accordance with our expectations. If we fail to accurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired property up to the standards established for our intended market position, the performance of the property may be below expectations. Acquired properties may have characteristics or deficiencies affecting their valuation or profitability potential that we have not yet discovered. We cannot assure that the performance of properties acquired by us will increase or be maintained following our acquisition.

A material weakness has been identified in our internal control over financial reporting. If we fail to implement and maintain effective internal control over financial reporting, investors could lose confidence in our reported financial information, the trading price of our common shares could decline and our access to the capital markets or other financing sources could become limited.

        In connection with the audit of our financial statements as of and for the period ended December 31, 2013, our independent registered public accounting firm identified a deficiency in our system of internal control over financial reporting that it considered to be a material weakness. The Public Company Accounting Oversight Board's Auditing Standard No. 5 defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness related to our lack of sufficient and competent resources within our accounting department necessary to analyze and account for routine and complex transactions in a timely manner and inadequate formal processes for adequate review of accounting for routine and complex transactions, including financial reporting disclosures.

        Although we are working to remedy this material weakness by (i) hiring adequate accounting resources with the appropriate level of technical experience and training in the application of technical accounting guidance to routine and complex transactions, (ii) implementing a policy of enhanced review and approval of relevant and sufficient data to support our assumptions and judgments in routine and complex transactions and documenting that review and approval, and (iii) hiring a third-party consultant to assist us in highly complex, non-routine accounting determinations and developing control procedures and policies, among other related duties, there is no assurance that these actions, as well as our plans to continue to add additional resources during the second half of 2014, will allow us to remediate this material weakness and provide a solid foundation to meet the ongoing requirements of being a public company. If we fail to implement and maintain effective internal control over financial reporting (including promptly and effectively remediating this material weakness), investors could lose confidence in our reported financial information and the trading price of our common shares could be adversely affected.

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We do not always obtain third-party appraisals of our properties, and thus the consideration paid for these properties may exceed the value that may be indicated by third-party appraisals.

        We do not always obtain third-party appraisals in connection with our acquisition of properties. As a result, the consideration we pay in exchange for such properties may exceed the value a third-party appraiser would estimate for the property.

Costs associated with complying with the Americans with Disabilities Act of 1990, or the ADA, may result in unanticipated expenses.

        Under the ADA, places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other legislation, then we would be required to incur additional costs to bring the property into compliance. If we incur substantial costs to comply with the ADA or other legislation, our financial condition, results of operations, cash flow, per share trading price of our common shares and our ability to satisfy our debt service obligations and to make cash distributions to our shareholders could be adversely affected.

Environmental compliance costs and liabilities associated with operating our properties may affect our results of operations.

        Under various U.S. federal, state and local laws, ordinances and regulations, owners and operators of real estate may be liable for the costs of investigating and remediating certain hazardous substances or other regulated materials on or in such property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances or materials. The presence of such substances or materials, or the failure to properly remediate such substances, may adversely affect the owner's or operator's ability to lease, sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous substances or other regulated materials may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials into the air and third-parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials.

        Certain environmental laws also impose liability, without regard to knowledge or fault, for removal or remediation of hazardous substances or other regulated materials upon owners and operators of contaminated property even after they no longer own or operate the property. Moreover, the past or present owner or operator from which a release emanates could be liable for any personal injuries or property damages that may result from such releases, as well as any damages to natural resources that may arise from such releases.

        Certain environmental laws impose compliance obligations on owners and operators of real property with respect to the management of hazardous materials and other regulated substances. For example, environmental laws govern the management of asbestos-containing materials and lead-based paint. Failure to comply with these laws can result in penalties or other sanctions.

        No assurances can be given that existing environmental studies with respect to any of our properties reveal all environmental liabilities, that any prior owner or operator of our properties did

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not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any one or more of our properties. There also exists the risk that material environmental conditions, liabilities or compliance concerns may have arisen after the review was completed or may arise in the future. Finally, future laws, ordinances or regulations and future interpretations of existing laws, ordinances or regulations may impose additional material environmental liability.

Rising operating expenses could adversely impact our operating results and ability to make cash distributions to our shareholders.

        Our properties and any other properties we acquire in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. Our properties are subject to increases in operating expenses such as real estate and other taxes, personnel costs including the cost of providing specific medical coverage to our employees, utilities, insurance, administrative expenses and costs for repairs and maintenance. If operating expenses increase without a corresponding increase in revenues, our operating results and ability to make cash distributions to our shareholders could be adversely affected.

We rely on our PROs' on-site personnel to maximize tenant satisfaction at each of our properties, and any difficulties they encounter in hiring, training and maintaining skilled on-site personnel may harm our operating performance.

        Our PROs had over 550 personnel in the management and operation of our in-place portfolio as of June 30, 2014. The general professionalism of site managers and staff are contributing factors to a site's ability to successfully secure rentals and retain tenants. We rely on our PROs' on-site personnel to maintain clean and secure self-storage properties. If our PROs are unable to successfully recruit, train and retain qualified on-site personnel, the quality of service we and our PROs strive to provide at our properties could be adversely affected, which could lead to decreased occupancy levels and reduced operating performance of our properties.

Our PROs have tenant insurance-related arrangements that are subject to state-specific governmental regulation, which may adversely affect our results.

        Our PROs have tenant insurance-related arrangements with regulated insurance companies who pay our PROs access fees and commissions to help them procure business at our properties. These arrangements are managed by certain of our PROs who have developed marketing programs and management procedures to navigate the regulatory environment. The tenant insurance business, including the fees associated with these arrangements, is subject to state specific governmental regulation. The regulatory authorities generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate, interpret and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits and investigations of the affairs of insurance providers. As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our insurance-related activities, or otherwise fined or penalized or suffer an adverse judgment, which could adversely affect our business and results of operations.

Privacy concerns could result in regulatory changes that may harm our business.

        Personal privacy has become a significant issue in the jurisdictions in which we operate. Many jurisdictions in which we operate have imposed restrictions and requirements on the use of personal information by those collecting such information. Changes to law or regulations affecting privacy, if applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information.

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Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition, operating results and cash flow.

        We maintain comprehensive liability, fire, flood, earthquake, wind (as deemed necessary or as required by our lenders), extended coverage and rental loss insurance with respect to our properties. Certain types of losses, however, may be either uninsurable or not economically insurable, such as losses due to earthquakes, hurricanes, tornadoes, riots, acts of war or terrorism. Should an uninsured loss occur, we could lose both our investment in and anticipated profits and cash flow from a property. In addition, if any such loss is insured, we may be required to pay significant amounts on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount of the loss may exceed our coverage for the loss. As a result, our operating results may be adversely affected.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties.

        Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements.

        In acquiring a property, we may agree to transfer restrictions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. For example, we are party to certain agreements with our PROs that provide that, until March 31, 2023, our operating partnership shall not, and shall cause its subsidiaries not to, sell, dispose or otherwise transfer any property that is a part of the applicable self-storage property portfolio relating to a series of subordinated performance units without the consent of the partners (including us) holding at least 50% of the then outstanding OP units and the partners holding at least 50% of the then outstanding series of subordinated performance units that relate to the applicable property, except for sales, dispositions or other transfers of a property to wholly owned subsidiaries of our operating partnership. These restrictions may require us to keep certain properties that we would otherwise sell, which could have an adverse effect on our results of operations, financial condition, cash flow and ability to execute our business plan.

Our performance and the value of our self-storage properties are subject to risks associated with the real estate industry.

        Our rental revenues and operating costs and the value of our real estate assets, are subject to the risk that if our properties do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include but are not limited to:

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        In addition, prolonged periods of economic slowdown or recession, rising interest rates or declining demand for self-storage space, or the public perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy our debt service obligations and to make distributions to our shareholders.

We may assume unknown liabilities in connection with the acquisition of self-storage properties in the formation transactions, which, if significant, could materially and adversely affect our operating results, financial condition and business.

        Our company has acquired and plans to further acquire, through our operating partnership, additional self-storage properties, or legal entities owning self-storage properties, from third-party contributors that are subject to existing liabilities, some of which may be unknown at the time the contribution is consummated. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants, vendors or other persons dealing with such entities, tax liabilities and accrued but unpaid liabilities incurred in the ordinary course of business. As part of such transactions, these contributors make and have made limited representations and warranties to us regarding the entities, properties and other assets to be acquired by our operating partnership and generally agree to indemnify our operating partnership for 12 months after the closing of the consolidation for breaches of such representations. Because many liabilities may not be identified within such period, we may have no recourse against the contributors for such liabilities. Moreover, to the extent the contributors are or become PROs, we may choose not to enforce, or to enforce less vigorously, our rights against them due to our desire to maintain our ongoing relationship with our PROs, which could adversely affect our operating results and business. Any unknown or unquantifiable liability that we assume in connection with the formation transactions for which we have no or limited recourse could materially and adversely affect our operating results, financial condition and business.

Our business could be harmed if key personnel terminate their employment with us.

        Our success depends, to a significant extent, on the continued services of Arlen D. Nordhagen and Tamara D. Fischer and the other members of our senior management team. Mr. Nordhagen and Ms. Fischer will enter into new employment agreements with us to be effective as of the completion of this offering. These employment agreements provide for an initial three-year term of employment for these executives. Notwithstanding these agreements, there can be no assurance that any of them will remain employed by us. The loss of services of one or more members of our senior management team could harm our business and our prospects.

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Pursuant to the JOBS Act, we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies for so long as we are an "emerging growth company."

        We are an "emerging growth company" as defined in the JOBS Act and we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an "emerging growth company." We would cease to be an "emerging growth company" if we have more than $1 billion in annual gross revenues, we have more than $700 million in market value of our shares held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. If we take advantage of any or all of these exceptions, we cannot predict if some investors will find our common shares less attractive. As a result, there may be a less active trading market for our common shares and our share price may be more volatile.

Risks Related to Our Structure and Our Relationships with Our PROs

Our management and PROs have limited experience operating under our company's capital structure, and we may not be able to achieve the desired outcomes that the structure is intended to produce.

        Our management and PROs have conducted their business under different capital structures and have limited experience operating under our capital structure. As a means of incentivizing our PROs to drive operating performance and support the sustainability of the operating cash flow from their contributed properties that they continue to manage on our behalf, we issued each PRO subordinated performance units aimed at aligning the interests of our PROs with our interests and those of our shareholders. The subordinated performance units are entitled to distributions exclusively tied to the performance of each PRO's contributed portfolios but only after minimum performance thresholds are satisfied. Our issuance of such units, however, could be based on inaccurate valuations and thus misallocated, which would limit or eliminate the effectiveness of our intended incentive-based program. Moreover, difficulties in aligning incentives and implementing our structure could allow a PRO to underperform without triggering our right to terminate the applicable facilities portfolio and asset management agreements and transfer management rights of the PRO to us (or a designee) or cause our management to be distracted from other aspects of our business, which could adversely affect our operating results and business.

We are restricted in making property sales on account of agreements with our PROs that may require us to keep certain properties that we would otherwise sell.

        The partnership unit designations related to our subordinated performance units provide that, until March 31, 2023, our operating partnership may not sell, dispose or otherwise transfer any property that is a part of the applicable self-storage property portfolio relating to a series of subordinated performance units without the consent of the partners (including us) holding at least 50% of the then outstanding OP units and the partners holding at least 50% of the then outstanding series of subordinated performance units that relate to the applicable property, except for sales, dispositions or other transfers of a property to wholly owned subsidiaries of our operating partnership. This restriction may require us to keep certain properties that we would otherwise sell, which could have an adverse effect on our results of operations, financial condition, cash flow and ability to execute our business plan. In addition, we may enter into agreements with future PROs that contain the same or similar restrictions or that impose such restrictions for different periods.

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Our ability to terminate our facilities portfolio management agreements and asset management agreements with a PRO is limited, which may adversely affect our ability to execute our business plan.

        We may elect to terminate our facilities portfolio management agreements and asset management agreements with a PRO and transfer property management responsibilities over the properties managed by such PRO to us (or our designee), only if a PRO breaches its non-competition covenants or "Key Person Standards" or if one or more of the PRO's properties fails to meet certain pre-determined performance thresholds for more than two consecutive calendar years or if the operating cash flow generated by the properties of the PRO for any calendar year falls below a level that will enable us to fund minimum levels of distributions, debt service payments attributable to the properties, and fund the properties' actual and allocable operating expenses. Consequently, to the extent a PRO complies with these covenants, standards, and minimum requirements, we may not be able to terminate the applicable facilities portfolio management agreements and asset management agreements and transfer property management responsibilities over such properties even if our board of trustees believes that such PRO is not properly executing our business plan and/or is failing to operate its properties to their full potential. Moreover, transferring the management responsibilities over the properties managed by a PRO may be costly or difficult to implement or may be delayed, even if we are able to and believe that such a change in portfolio and property management would be beneficial to us and our shareholders.

We may less vigorously pursue enforcement of terms of agreements entered into with our PROs because of conflicts of interest with our PROs.

        Our PROs are entities that have contributed or will contribute through contribution agreements, self-storage properties, or legal entities owning self-storage properties, to our operating partnership or DownREIT partnerships in exchange for ownership interests in our operating partnership or DownREIT partnerships. As part of each transaction, our PROs make and have made limited representations and warranties to our operating partnership regarding the entities, properties and other assets to be acquired by our operating partnership or DownREIT partnerships in the contribution and generally agree to indemnify our operating partnership for 12 months after the closing of the contribution for breaches of such representations. Such indemnification is limited, however, and our operating partnership is not entitled to any other indemnification in connection with the contributions. In addition, following each contribution, the day-to-day operations of each of the contributed properties will be managed by the PROs who were the principals of the applicable self-storage property portfolios prior to the contribution. In addition, certain of our PROs are members of our board of trustees, members of our PRO advisory committee, or are executive officers of our company. Consequently, we may choose not to enforce, or to enforce less vigorously, our rights under these agreements and any other agreements with our PROs due to our desire to maintain our ongoing relationship with our PROs, which could adversely affect our operating results and business.

We own self-storage properties in some of the same geographic regions as our PROs and may compete for tenants with other properties managed by our PROs.

        Pursuant to the facilities portfolio management agreements with our PROs, each PRO has agreed that, without our consent, the PRO will not, and it will cause its affiliates not to, enter into any new agreements or arrangements for the management of additional self-storage properties, other than the properties we are not acquiring and the properties each PRO contributes to our operating partnership. Although our PROs have collectively contributed the vast majority of their properties to our company as part of the formation transactions and may contribute or sell additional properties to us in the future, we have not and will not acquire all of the self-storage properties of our PROs. We will therefore own self-storage properties in some of the same geographic regions as our PROs, and, as a result, we may compete for tenants with our PROs. This competition may affect our ability to attract and retain tenants and may reduce the rental rates we are able to charge, which could adversely affect our operating results and business.

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Our PROs have limited experience with our technology and best practices programs, and such programs may not be able to achieve the desired outcomes they are intended to produce.

        Before contributing their portfolios to our company, our PROs operated their portfolios under independent, regional property management companies. In order to take advantage of the scale and operational efficiencies afforded a large national operator while benefiting from the local expertise and relationships of our experienced PROs, we developed our technology and best practices programs, which use a number of methods, tools and platforms, including: (1) a common data platform for financial, operational and marketing data collection, reporting, analysis and dissemination, (2) a common online marketing platform to deliver economies of scale for Internet search rankings and customer lead generation, (3) a centralized call center supporting property operations, (4) economies of scale for purchasing products such as property insurance, retail merchandise, office supplies, merchant credit and debit card processing and online auction services and (5) a forum for sharing management techniques with the power of high-level collaboration across decentralized operations. We believe that the successful implementation of our technology and best practices programs across our portfolio will allow us to more effectively achieve optimal rental and occupancy rates and increase margins, which will drive cash flow growth across our portfolio. However, our PROs have limited experience with the methods, tools and platforms of our technology and best practices programs and may not be able to implement them on a timely basis or at all, which could adversely impact the effectiveness of the programs. In addition, as we acquire additional self-storage properties from third-party sellers, we will attempt to implement our technology and best practices programs at such properties. There can be no assurance that we will be able to do so effectively or on a timely basis. Moreover, even if these programs are fully implemented, there can be no assurance that they will achieve the desired outcomes they are intended to produce.

Our PROs may engage in other activities, diverting their attention from the management of our properties, which could adversely affect the execution of our business plan and our operating results.

        Our PROs and their employees and personnel are in the business of managing self-storage properties. As of June 30, 2014, our PROs managed more than 150 self-storage properties which are not included in our in-place portfolio. We have agreed that our PROs may continue to manage such properties, and our PROs are not obligated to dedicate any specific employees or personnel exclusively to the management of our properties. As a result, their time and efforts may be diverted from the management of our properties, which could adversely affect the execution of our business plan and our operating results.

When a PRO elects or is required to "retire" we may become exposed to new and additional costs and risks.

        Under the facilities portfolio management agreements, after a two year period following the later of completion of this offering or the initial contribution of their properties to us, a PRO may elect, or be required, to "retire" from the self-storage business. Upon a retirement event, management of the properties will be transferred to us (or our designee) in exchange for OP units with a value equal to four times the average of the normalized annual EBITDA from the management contracts related to such PRO's contributed portfolio over the immediately preceding 24-month period. As a result of this transfer, we may become exposed to new and additional costs and risks. Accordingly, the retirement of a PRO may adversely affect our financial condition and operating results.

The formation transactions and related agreements were not negotiated on an arm's-length basis and may not be as favorable to us as if they had been negotiated with unaffiliated third-parties.

        We did not conduct arm's-length negotiations with certain of the parties involved regarding the terms of the formation transactions and related agreements, including the contribution agreements, facilities portfolio management agreements, asset management agreements and registration rights agreements. In the course of structuring the formation transactions and related agreements, certain members of our senior management team and other contributors had the ability to influence the type

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and level of benefits that they received from us. Accordingly, the terms of the formation transactions and related agreements may not solely reflect the best interests of us or our shareholders and may be overly favorable to the other party to such transactions and agreements.

Our management has limited experience operating a REIT and operating a public company and therefore may have difficulty in successfully and profitably operating our business, or complying with regulatory requirements.

        Prior to the closing of this offering, our management has had limited experience operating a REIT and operating a public company. As a result, we cannot assure you that we will be able to successfully operate as a REIT, execute our business strategies as a public company, or comply with regulatory requirements applicable to public companies.

Conflicts of interest could arise with respect to certain transactions between the holders of OP units (including subordinated performance units), on the one hand, and us and our shareholders, on the other.

        Following completion of this offering and the formation transactions, conflicts of interest could arise with respect to the interests of holders of OP units (including subordinated performance units), on the one hand, which include members of our senior management team, PROs, trustees and trustee nominees (including Arlen D. Nordhagen, our chief executive officer, president and expected chairman of the board of trustees) and us and our shareholders, on the other. In particular, the consummation of certain business combinations, the sale, disposition or transfer of certain of our assets or the repayment of certain indebtedness that may be desirable to us and our shareholders could have adverse tax consequences to such unit holders. In addition, our trustees and officers have duties to our company under applicable Maryland law in connection with their management of our company. At the same time, we have fiduciary duties, as a general partner, to our operating partnership and to the limited partners under Delaware law in connection with the management of our operating partnership. Our duties as a general partner to our operating partnership and its partners may come into conflict with the duties of our trustees and officers to our company and our shareholders. The partnership agreement of our operating partnership does not require us to resolve such conflicts in favor of either our company or the limited partners in our operating partnership. Further, there can be no assurance that any procedural protections we implement to address these or other conflicts of interest will result in optimal outcomes for us and our shareholders.

The partnership agreement of our operating partnership contains provisions that may delay, defer or prevent a change in control.

        The partnership agreement of our operating partnership provides that subordinated performance unit holders holding more than 50% of the voting power of the subordinated performance units (other than those held by our company or its subsidiaries) must approve certain change of control transactions involving our operating partnership unless, as a result of such transactions, the holders of subordinated performance units are offered an opportunity (1) to allow their subordinated performance units to remain outstanding without the terms thereof being materially and adversely changed or the subordinated performance units are converted into or exchanged for equity securities of the surviving entity having terms and conditions that are substantially similar to those of the subordinated performance units (it being understood that we may not be the surviving entity and that the parent of the surviving entity or the surviving entity may not be publicly traded) and (2) to receive for each subordinated performance unit an amount of cash, securities or other property payable to a holder of OP units had such holder exercised its right to exchange its subordinated performance units for OP units taking into consideration a specified conversion penalty associated with such an exchange. These approval rights could delay, deter, or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.

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We may change our investment and financing strategies and enter into new lines of business without shareholder consent, which may subject us to different risks.

        We may change our business and financing strategies and enter into new lines of business at any time without the consent of our shareholders, which could result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this document. A change in our strategy or our entry into new lines of business may increase our exposure to other risks or real estate market fluctuations.

Certain provisions of Maryland law could inhibit a change in our control.

        Certain provisions of the Maryland General Corporation Law, or the MGCL, applicable to a Maryland real estate investment trust, may have the effect of inhibiting a third-party from making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then prevailing market price of such shares. We are subject to the "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested shareholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our then outstanding voting shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of our then outstanding voting shares) or an affiliate thereof for five years after the most recent date on which the shareholder becomes an interested shareholder and, thereafter, imposes special appraisal rights and special shareholder voting requirements on these combinations. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of a REIT prior to the time that the interested shareholder becomes an interested shareholder. Pursuant to the statute, our board of trustees has by resolution exempted business combinations between us and (1) any other person, provided that the business combination is first approved by our board of trustees (including a majority of trustees who are not affiliates or associates of such person), (2) Arlen D. Nordhagen and any of his affiliates and associates and (3) any person acting in concert with the foregoing, from these provisions of the MGCL. As a result, such persons may be able to enter into business combinations with us that may not be in the best interests of our shareholders without compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or our board of trustees does not otherwise approve a business combination, this statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. See "Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws—Business Combinations."

        The "control share" provisions of the MGCL provide that holders of "control shares" of a Maryland real estate investment trust (defined as voting shares which, when aggregated with all other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in the election of trustees) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares," subject to certain exceptions) have no voting rights with respect to such shares except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our trustees who are also our employees. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our shares. There can be no assurance that this provision will not be amended or eliminated at any time in the future. See "Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws—Control Share Acquisitions."

        The "unsolicited takeover" provisions of the MGCL (Subtitle 8 of Title 3) permit our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain provisions (including a classified board) if we have a class of

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equity securities registered under the Exchange Act (which we will have upon the completion of this offering and the formation transactions), and at least three independent trustees. These provisions may have the effect of inhibiting a third-party from making an acquisition proposal for us or of delaying, deferring or preventing a change in our control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then current market price. See "Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws—Subtitle 8."

Our authorized but unissued common and preferred shares may prevent a change in our control.

        Our declaration of trust authorizes us to issue additional authorized but unissued common shares and preferred shares. In addition, our board of trustees may, without common shareholder approval, increase the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue and classify or reclassify any unissued common shares or preferred shares, and may set or change the preferences, rights and other terms of any unissued classified or reclassified shares. As a result, among other things, our board may establish a class or series of common shares or preferred shares that could delay or prevent a transaction or a change in our control that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions not in your best interest.

        Our declaration of trust limits the liability of our present and former trustees and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our present and former trustees and officers will not have any liability to us or our shareholders for money damages other than liability resulting from:

        Our declaration of trust authorizes us to indemnify our present and former trustees and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each present and former trustee or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our shareholders may have more limited rights against our present and former trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies, which could limit your recourse in the event of actions not in your best interest.

Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.

        Our declaration of trust provides that, subject to the rights of holders of one or more classes or series of preferred shares, a trustee may be removed with or without cause, by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. Vacancies generally may be filled only by a majority of the remaining trustees in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing trustees and may prevent a change in our control that is in the best interests of our shareholders.

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Restrictions on ownership and transfer of our shares may restrict change of control or business combination opportunities in which our shareholders might receive a premium for their shares.

        In order for us to qualify as a REIT for each taxable year after 2015, no more than 50% in value of our outstanding shares may be owned, directly or constructively, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own our shares during at least 335 days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year. "Individuals" for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. To assist us in preserving our REIT qualification, among other purposes, our declaration of trust generally prohibits, among other limitations, any person from beneficially or constructively owning more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of all classes and series, the outstanding shares of any class or series of our preferred shares or our outstanding common shares. These ownership limits and the other restrictions on ownership and transfer of our shares contained in our declaration of trust could have the effect of discouraging a takeover or other transaction in which holders of our common shares might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.

Risks Related to Our Debt Financings

There are risks associated with our indebtedness.

        Upon the completion of this offering and the formation transactions, our existing credit facility will automatically convert to a $425 million unsecured credit facility with a syndicate of lenders led by KeyBank National Association, comprised of a revolving line of credit of approximately $             million and a term loan of approximately $             million. At such time, we expect to have the entire term loan amount drawn and approximately $             million drawn on our revolving line of credit. In addition, we expect to have approximately $             million in mortgage debt outstanding upon the completion of this offering and the formation transactions. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

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Disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms or at all and have other adverse effects on us.

        Uncertainty in the credit markets may negatively impact our ability to access additional debt financing or to refinance existing debt maturities on favorable terms (or at all), which may negatively affect our ability to make acquisitions. A downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plans accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing.

We depend on external sources of capital that are outside of our control, which could adversely affect our ability to acquire or develop properties, satisfy our debt obligations and/or make distributions to shareholders.

        We depend on external sources of capital to acquire properties, to satisfy our debt obligations and to make distributions to our shareholders required to maintain our qualification as a REIT, and these sources of capital may not be available on favorable terms, or at all. Our access to external sources of capital depends on a number of factors, including the market's perception of our growth potential and our current and potential future earnings and our ability to continue to qualify as a REIT for U.S. federal income tax purposes. If we are unable to obtain external sources of capital, we may not be able to acquire properties when strategic opportunities exist, satisfy our debt obligations or make cash distributions to our shareholders that would permit us to qualify as a REIT or avoid paying tax on all of our net taxable income.

Increases in interest rates may increase our interest expense and adversely affect our cash flow and our ability to service our indebtedness and make cash distributions to our shareholders.

        Upon the completion of this offering and the formation transactions, we expect to have approximately $             million of debt outstanding, approximately $             million, or        %, of which is subject to variable interest rates (excluding debt with interest rate swaps). Upon the completion of this offering and the formation transactions, this variable-rate debt will have a weighted average interest rate of approximately 1.73% per annum (based on one-month London InterBank Offered Rate, or LIBOR, rates in effect as of June 30, 2014 and giving effect to our expected corporate leverage ratio, which determines future pricing under the credit facility). The credit markets have recently experienced historic lows in interest rates. As the overall economy strengthens, it is possible that monetary policy will continue to tighten further, resulting in higher interest rates. Interest rates on variable-rate debt could be higher than current levels, which could increase our financing costs and decrease our cash flow and our ability to pay cash distributions to our shareholders. For example, if market rates of interest on this variable-rate debt increased by 100 basis points (excluding variable-rate debt with interest rate floors), the increase in interest expense would decrease future earnings and cash flows by approximately $             million annually.

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Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

        We have historically sought, and may in the future seek, to manage our exposure to interest rate volatility by using interest rate hedging arrangements. These arrangements may not be effective in reducing our exposure to interest rate changes and involve risks, such as the risk that the counterparty may fail to honor its obligations under an arrangement. There is no assurance that a potential counterparty will perform its obligations under a hedging arrangement or that we will be able to enforce such an arrangement. Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations and ability to make cash distributions to our shareholders.

We could become more highly leveraged in the future because our organizational documents contain no limitation on the amount of debt we may incur.

        Our organizational documents contain no limitations on the amount of indebtedness that we or our operating partnership may incur. We could alter the balance between our total outstanding indebtedness and the value of our portfolio at any time. If we become more highly leveraged, the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated cash distributions and/or to continue to make cash distributions to maintain our REIT qualification, and could harm our financial condition.

The terms and covenants relating to our indebtedness could adversely impact our economic performance.

        Our credit facility contains (and any new or amended facility we may enter into from time to time will likely contain) customary affirmative and negative covenants, including financial covenants that, among other things, cap our total leverage at 70% of our gross asset value, which will decrease to 60% upon the completion of this offering, require us to have a minimum fixed charge coverage ratio of 1.5 to 1, and require us to have a minimum net worth (as defined in our credit facility) of approximately $133 million plus 75% of the net proceeds of equity issuances. In the event that we fail to satisfy our covenants, we would be in default under our credit agreement and may be required to repay such debt with capital from other sources. Under such circumstances, other sources of debt or equity capital may not be available to us, or may be available only on unattractive terms. Moreover, the presence of such covenants could cause us to operate our business with a view toward compliance with such covenants, which might not produce optimal returns for shareholders.

Risks Related to Our Qualification as a REIT

Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of operating cash flow to our shareholders.

        We believe that we have been organized and intend to operate in a manner that will enable us to qualify as a REIT for U.S. federal income tax purposes commencing with our short taxable year ending December 31, 2015. We have not requested, and do not intend to request a ruling from the IRS, that we qualify as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions and Treasury Regulations promulgated thereunder for which there are limited judicial and administrative interpretations. The complexity of these provisions and of applicable Treasury Regulations is greater in the case of a REIT that, like us, holds its assets through partnerships, and judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited. To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding shares and the amount of our distributions. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of the

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characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Moreover, new legislation, court decisions or administrative guidance may, in each case possibly with retroactive effect, make it more difficult or impossible for us to qualify as a REIT. Thus, while we believe that we have been organized and intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in our circumstances, no assurance can be given that we have qualified or will so qualify for any particular year. These considerations also might restrict the types of assets that we can acquire or services that we can provide in the future.

        If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to our shareholders would not be deductible by us in determining our taxable income. In such a case, we might need to borrow money, sell assets, or reduce or even cease making distributions in order to pay our taxes. Our payment of income tax would reduce significantly the amount of operating cash flow to our shareholders. Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to make distributions to our shareholders. In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to be taxed as a REIT until the fifth calendar year following the year in which we failed to qualify.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.

        Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, alternative minimum taxes, state or local income and property and transfer taxes, including real property transfer taxes. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. See "U.S. Federal Income Tax Considerations—Taxation of REITs in General." Any of these taxes would decrease operating cash flow to our shareholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets or provide certain services to our tenants through one or more taxable REIT subsidiaries, or TRSs, or other subsidiary corporations that will be subject to corporate-level income tax at regular corporate rates. Any TRSs or other taxable corporations in which we invest will be subject to U.S. federal, state and local corporate taxes. Furthermore, if we acquire appreciated assets from a corporation that is or has been a subchapter C corporation in a transaction in which the adjusted tax basis of such assets in our hands is less than the fair market value of the assets, determined at the time we acquired such assets, and if we subsequently dispose of any such assets during the 10-year period following the acquisition of the assets from the C corporation, we will be subject to tax at the highest corporate tax rates on any gain from the disposition of such assets to the extent of the excess of the fair market value of the assets on the date that we acquired such assets over the basis of such assets on such date, which we refer to as built-in gains. Payment of these taxes generally could materially and adversely affect our income, cash flow, results of operations, financial condition, liquidity and prospects, and could adversely affect the value of our common shares and our ability to make distributions to our shareholders.

Failure to make required distributions would subject us to tax, which would reduce the operating cash flow to our shareholders.

        In order to qualify as a REIT, we must distribute to our shareholders each calendar year at least 90% of our net taxable income (excluding net capital gain). To the extent that we satisfy the 90%

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distribution requirement, but distribute less than 100% of our net taxable income (including net capital gain), we would be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will incur a 4% non-deductible excise tax on the amount, if any, by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. Although we intend to distribute our net taxable income to our shareholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid the 4% non-deductible excise tax, it is possible that we, from time to time, may not have sufficient cash to distribute 100% of our net taxable income. There may be timing differences of our actual receipt of cash and the inclusion of items in our income for U.S. federal income tax purposes. Accordingly, there can be no assurance that we will be able to distribute net taxable income to shareholders in a manner that satisfies the REIT distribution requirements and avoids the 4% non-deductible excise tax.

To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions.

        In order to maintain our REIT qualification and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things, timing differences between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market's perception of our growth potential, our current debt levels, the per share trading price of our common shares, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common shares.

Complying with the REIT requirements may cause us to forgo and/or liquidate otherwise attractive investments.

        To qualify as a REIT, we must ensure that at least 75% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources, and at least 95% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources and passive income such as dividends and interest. In addition, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, U.S. government securities and qualified real estate assets. The remainder of our investment in securities generally cannot include more than 10% of the outstanding voting securities of any one issuer (other than U.S. government securities, securities of corporations that are treated as TRSs and qualified real estate assets) or more than 10% of the total value of the outstanding securities of any one issuer (other than government securities, securities of corporations that are treated as TRSs and qualified real estate assets). In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than U.S. government securities, securities of corporations that are treated as TRSs and qualified real estate assets), and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. See "U.S. Federal Income Tax Considerations—Requirements for Qualification—General—Asset Tests." If we fail to comply with these asset requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

        To meet these tests, we may be required to take or forgo taking actions that we would otherwise consider advantageous. For instance, in order to satisfy the gross income or asset tests applicable to

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REITs under the Code, we may be required to forgo investments that we otherwise would make. Furthermore, we may be required to liquidate from our portfolio otherwise attractive investments. In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could reduce our income and amounts available for distribution to our shareholders. Thus, compliance with the REIT requirements may hinder our investment performance.

We may be subject to a 100% tax on income from "prohibited transactions," and this tax may limit our ability to sell assets or require us to restructure certain of our activities in order to avoid being subject to the tax.

        We will be subject to a 100% tax on any income from a prohibited transaction. "Prohibited transactions" generally include sales or other dispositions of property (other than property treated as foreclosure property under the Code) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business by a REIT, either directly or indirectly through certain pass-through subsidiaries. Although we do not intend to hold a significant amount of assets as inventory or primarily for sale to customers in the ordinary course of our business, the characterization of an asset sale as a prohibited transaction depends on the particular facts and circumstances.

        The 100% tax will not apply to gains from the sale of inventory that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate income tax rates.

Our TRSs will be subject to federal income tax and will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our TRSs are not conducted on arm's length terms.

        We may conduct certain activities (such as facilitating sales of tenant insurance, selling packing supplies and locks and renting trucks or other moving equipment) through one or more TRSs.

        A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care properties, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to U.S. federal income tax as a regular C corporation.

        No more than 25% of the value of a REIT's total assets may consist of stock or securities of one or more TRSs. This requirement limits the extent to which we can conduct our activities through TRSs. The values of some of our assets, including assets that we hold through TRSs, may not be subject to precise determination, and values are subject to change in the future. Furthermore, if a REIT lends money to a TRS, the TRS may be unable to deduct all or a portion of the interest paid to the REIT, which could increase the tax liability of the TRS. In addition, the Code imposes a 100% tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's length basis. We intend to structure transactions with any TRS on terms that we believe are arm's length to avoid incurring the 100% excise tax described above. There can be no assurances, however, that we will be able to avoid application of the 100% tax.

If our operating partnership is treated as a corporation for U.S. federal income tax purposes, we will cease to qualify as a REIT.

        We believe our operating partnership qualifies as a partnership for U.S. federal income tax purposes. As a partnership for U.S. federal income tax purposes, our operating partnership will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including us, will be

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required to pay tax on its allocable share of our operating partnership's income. No assurance can be provided, however, that the IRS will not challenge our operating partnership's status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs. As a result, we would cease to qualify as a REIT and our operating partnership would become subject to U.S. federal, state and local income tax. The payment by our operating partnership of income tax would reduce significantly the amount of cash available to our operating partnership to satisfy obligations to make principal and interest payments on its debt and to make distribution to its partners, including us.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common shares.

        The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. shareholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced rates and therefore may be subject to up to a 39.6% maximum U.S. federal income tax rate on ordinary income. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

        The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate risk will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges interest rate risk on liabilities used to carry or acquire real estate assets, and such instrument is properly identified under applicable Treasury regulations. Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. See "U.S. Federal Income Tax Considerations—Requirements for Qualification—General—Gross Income Tests" and "U.S. Federal Income Tax Considerations—Requirements for Qualification—General—Hedging Transactions." As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except for being carried back or forward against past or future taxable income in the TRS.

The ability of our board of trustees to revoke our REIT election without shareholder approval may cause adverse consequences to our shareholders.

        Our declaration of trust provides that the board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if the board determines that it is no longer in our best interest to attempt to, or continue to, qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our net taxable income and we generally would no longer be required to distribute any of our net taxable income to our shareholders, which may have adverse consequences on our total return to our shareholders.

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Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.

        At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

Your investment has various tax risks.

        Although provisions of the Code generally relevant to an investment in our common shares are described in "U.S. Federal Income Tax Considerations," you should consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in our common shares.

Risks Related to Our Common Shares

If you purchase common shares in this offering, you will experience immediate and significant dilution in the net tangible book value per share.

        We expect the initial public offering price of our common shares to be substantially higher than the tangible book value per share of our outstanding common shares immediately after this offering. If you purchase our common shares in this offering, you will incur immediate dilution of approximately $            in the tangible book value per share of common shares from the price you pay for our common shares in this offering.

        From time to time we also may issue common shares in connection with property, portfolio or business acquisitions. We may grant registration rights in connection with these issuances. Sales of substantial amounts of our common shares, or the perception that these sales could occur, may adversely affect the prevailing market price for our common shares or may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities.

There is no public market for our common shares and a market may never develop, which could cause our common shares to trade at a discount and make it difficult for holders of our common shares to sell their shares.

        Our common shares are newly-issued securities for which there is no established trading market. We expect that our common shares will be approved for listing on the NYSE. However, there can be no assurance that an active trading market for our common shares will develop, or if one develops, be maintained. Accordingly, no assurance can be given as to the ability of our shareholders to sell their common shares or the price that our shareholders may obtain for their common shares.

        Some of the factors that could negatively affect the market price of our common shares include:

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        Market factors unrelated to our performance could also negatively impact the market price of our common shares. One of the factors that investors may consider in deciding whether to buy or sell our common shares is our distribution rate as a percentage of our share price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in capital markets can affect the market value of our common shares.

Common shares and preferred shares eligible for future sale may have adverse effects on our share price.

        Subject to applicable law, our board of trustees, without common shareholder approval, may authorize us to issue additional authorized and unissued common shares and preferred shares on the terms and for the consideration it deems appropriate and may amend our declaration of trust to increase the total number of shares, or the number of shares of any class or series, that we are authorized to issue. In addition, in connection with the formation transactions, our operating partnership issued or will issue a total of                     OP units, which are exchangeable on a one-for-one basis into common shares after an agreed period of time and certain other conditions, which does not include the subordinated performance units that we issued as part of our formation transactions, which are convertible into OP units as specified in the applicable partnership unit designation. See "Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units." We have granted registration rights to those persons who will be eligible to receive common shares issuable upon exchange of OP units issued in our formation transactions.

        The registration rights agreement requires that as soon as practicable after the date on which we first become eligible to register the resale of securities of our company pursuant to Form S-3 under the Securities Act, but in no event later than 60 calendar days thereafter, we file a shelf registration statement registering the offer and resale of the common shares issuable upon exchange of OP units (or securities exchangeable for OP units) issued in our formation transactions on a delayed or

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continuous basis. We have the right to include common shares to be sold for our own account or other holders in the shelf registration statement. We are required to use all commercially reasonable efforts to cause the shelf registration statement to be declared effective by the SEC as promptly as reasonably practicable after the filing thereof, and to keep such shelf registration statement continuously effective for a period ending when all common shares covered by the shelf registration statement are no longer Registrable Shares, as defined in the shelf registration statement.

        We intend to bear the expenses incident to these registration requirements except that we will not bear the costs of (i) any underwriting fees, discounts or commissions, (ii) out-of-pocket expenses of the persons exercising the registration rights or (iii) transfer taxes.

        We cannot predict the effect, if any, of future sales of our common shares or the availability of shares for future sales, on the market price of our common shares. The market price of our common shares may decline significantly when the restrictions on resale by certain of our shareholders lapse. Sales of substantial amounts of common shares or the perception that such sales could occur may adversely affect the prevailing market price for our common shares.

We cannot assure our ability to pay dividends in the future.

        Historically, we have paid quarterly distributions to the limited partners of our operating partnership, and we intend to continue to pay quarterly dividends and to make distributions to our shareholders in amounts such that all or substantially all of our net taxable income in each year is distributed. This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT under the Code. We have not established a minimum dividends payment level, and all future distributions will be made at the discretion of our board of trustees. Our ability to pay dividends will depend upon, among other factors:

        Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cash flow and our ability to make distributions to shareholders.

Future offerings of debt or equity securities, which may rank senior to our common shares, may adversely affect the market price of our common shares.

        If we decide to issue debt securities in the future, which would rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may result in dilution to owners of our common shares. We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common shares will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their share holdings in us.

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FORWARD-LOOKING STATEMENTS

        We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements.

        The forward-looking statements contained in this prospectus reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement.

        Statements regarding the following subjects, among others, may be forward-looking:

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        The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in this prospectus under the headings "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately $             million, or approximately $             million if the underwriters' option to purchase additional shares is exercised in full, assuming an initial public offering price of $            per share, which is the mid-point of the initial public offering price range shown on the cover page of this prospectus, and, after deducting the underwriting discount, and estimated expenses of this offering. We intend to contribute the net proceeds of this offering to our operating partnership, which we expect will subsequently use the net proceeds as follows:

        The net proceeds remaining after the uses described above will be used for general corporate and working capital purposes.

        If the public offering price is below the mid-point of the initial public offering price range shown on the cover page of this prospectus, or if we sell fewer shares than are set forth on the cover page of this prospectus, repayment of our existing revolving line of credit will be correspondingly reduced.

        As of June 30, 2014, the two U.S. Bank senior term loans we intend to repay with the net proceeds from this offering had outstanding balances of $             million and $             million, respectively, bearing interest at one-month LIBOR plus margins of 2.10% and 2.25%, respectively (effective rates of 2.27% and 2.42% per annum, respectively, as of June 30, 2014), and were scheduled to mature in June 2015 and October 2014, respectively. As of June 30, 2014, the unsecured term loan we intend to repay had an outstanding balance of $             million, bearing interest at one-month LIBOR plus a margin of 5.00% (an effective rate of 5.16% per annum, as of June 30, 2014) and was scheduled to mature in April 1, 2015. As of June 30, 2014, the mezzanine loan we intend to repay had an outstanding balance of $             million, bearing interest at 9.65% per annum and was scheduled to mature in June 2015.

        As of June 30, 2014, our credit facility consisted of a term loan with an outstanding balance of $             million and a revolving line of credit with an outstanding balance of $             million. The term loan bears interest at one-month LIBOR plus 2.75% (an effective rate of 2.91% per annum as of June 30, 2014) and the revolving line of credit bears interest at one-month LIBOR plus 2.85% (an effective rate of 3.01% per annum as of June 30, 2014). The term loan matures in March 2018 and the revolving line of credit matures in March 2017. On July 21, 2014, our credit facility was amended to provide for total borrowings of approximately $             million under the term loan and approximately $             million under the revolving line of credit for a total credit facility of $425 million. Upon the completion of this offering and the formation transactions, this credit facility, which was secured, will become an unsecured credit facility. We expect to have the entire term loan amount outstanding and $             million drawn on our credit facility upon the completion of this offering and the formation transactions. For further description of our indebtedness, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness Outstanding Upon the Completion of this Offering and the Formation Transactions."

        Until appropriate investments can be identified, we may invest the net proceeds from this offering in interest-bearing short-term investments, including money market accounts and/or U.S. treasury securities which are consistent with our intention to qualify as a REIT. These investments are expected to provide a lower net return than we will seek to achieve from our self-storage properties. We currently expect to use substantially all of the net proceeds from this offering within        to        months from the completion of this offering and the formation transactions.

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DISTRIBUTION POLICY

        U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We currently do not intend to use the proceeds of this offering to make distributions to our shareholders.

        To date, we have declared and paid five distributions with respect to our OP units. For the period from April 1, 2013 (commencement of operations) through December 31, 2013, we paid aggregate distributions on our OP units equal to $0.578 per unit. With respect to the first quarter of 2014, we paid distributions on our OP units equal to $0.180 per unit. With respect to the second quarter of 2014, we paid distributions on our OP units equal to $0.190 per unit. Subject to the terms of our operating partnership's partnership agreement, our OP units are redeemable for cash or, at our election, common shares. See "Limited Partnership Agreement of our Operating Partnership—Redemption of OP Units."

        To the extent that in respect of any calendar year, cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions or make a portion of the required distribution in the form of a taxable share distribution or distribution of debt securities. We currently do not intend to use the proceeds of this offering to make distributions to our shareholders. We will generally not be required to make distributions with respect to activities conducted through our TRSs. For more information, see "U.S. Federal Income Tax Considerations—Taxation of Our Company."

        To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all or substantially all of our taxable income to holders of our common shares out of assets legally available therefor. Any distributions we make will be at the discretion of our board of trustees and will depend upon our earnings and financial condition, any debt covenants, funding or margin requirements under secured debt agreements or other borrowings, maintenance of our REIT qualification, applicable provisions of Maryland law and such other factors as our board of trustees deems relevant. Our earnings and financial condition will be affected by various factors, including the revenue generated by our properties, our operating expenses and any other expenditures. For more information regarding risk factors that could materially and adversely affect our earnings and financial condition, see "Risk Factors."

        If we pay a taxable share distribution, our shareholders would be sent a form that would allow each shareholder to elect to receive its proportionate share of such distribution in all cash or in all shares, and the distribution will be made in accordance with such elections, provided that if our shareholders' elections, in the aggregate, would result in the payment of cash in excess of the maximum amount of cash to be distributed, then cash payments to shareholders who elected to receive cash will be prorated, and the excess of each such shareholder's entitlement in the distribution, less such prorated cash payment, would be paid to such shareholder in common shares.

        We anticipate that our distributions generally will be taxable as ordinary income to our shareholders, although a portion of the distributions may be designated by us as qualified dividend income or capital gain or may constitute a return of capital. In addition, a portion of such distributions may be taxable share dividends payable in our shares. We intend to furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. For more information, see "U.S. Federal Income Tax Considerations—Taxation of Shareholders—Taxation of Taxable U.S. Shareholders."

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CAPITALIZATION

        The following table presents our capitalization as of June 30, 2014 on a (1) historical basis for our company, and (2) pro forma basis taking into account this offering and the formation transactions (assuming an offering price at the mid-point of the initial public offering price range shown on the cover page of this prospectus). The pro forma adjustments give effect to this offering and the formation transactions as if they had occurred on June 30, 2014 and the application of the net proceeds as described in "Use of Proceeds." You should read this table in conjunction with "Use of Proceeds," "Selected Pro Forma and Historical Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the more detailed information contained in the unaudited pro forma condensed consolidated financials and the consolidated and combined financial statements and notes thereto included elsewhere in this prospectus (dollars in thousands, except share data).

 
  As of June 30, 2014
(unaudited)
 
 
  Historical   Pro Forma  

Cash and cash equivalents

  $ 14,340        
           
           

Mortgage and notes payable

             

Fixed-rate mortgages

  $ 72,591        

Variable-rate mortgages

    83,500        

Variable-rate unsecured term loan

    35,525        

Variable-rate credit facilities

    213,775        
           

Total mortgages and notes payable

  $ 405,391        
           

Shareholders' equity

             

Preferred shares of beneficial interest, $0.01 par value per share, no shares authorized, no shares issued and outstanding on a historical basis; 50,000,000 shares authorized, no shares issued and outstanding on a pro forma basis

           

Common shares of beneficial interest, $0.01 par value per share, 1,000 shares authorized, 1,000 shares issued and outstanding on a historical basis; 250,000,000 shares authorized,                shares issued and outstanding on a pro forma basis(1)

           

Additional paid in capital

           

Retained earnings

           

Accumulated other comprehensive income (loss)

           

Noncontrolling interests(2)

    124,342        
           

Total shareholders' equity

  $ 124,342        
           

Total capitalization

  $ 529,733        
           
           

(1)
Our outstanding common shares exclude (i) up to            common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares, (ii)             common shares available for future issuance under our 2014 Equity Incentive Plan, as described under "Our Management—2014 Equity Incentive Plan" (iii)             common shares issuable upon exchange of            OP units (including            OP units issuable upon conversion of             outstanding LTIP units) and (iv) OP units issuable upon conversion of outstanding subordinated performance units.

(2)
While we control our operating partnership, we will not have an ownership interest or share in our operating partnership's profits and losses prior to the completion of this offering. As a result, all of our operating partnership's profits and losses for the historical periods presented were allocated to owners other than us. As of June 30, 2014, (A) on a historical basis, outstanding equity interests of our operating partnership consisted of            OP Units,             subordinated performance units, and             LTIP units (of which            LTIP units were vested as of June 30, 2014), and (B) on a pro forma basis, outstanding equity interests of our operating partnership consisted of             OP Units,            subordinated performance units, and            LTIP units (of which            LTIP units were vested as of June 30, 2014). For a description of the conversion of subordinated performance units into OP units, see "The Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units."

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DILUTION

        Purchasers of our common shares will experience an immediate and significant dilution of the net tangible book value of our common shares from the initial public offering price. On a pro forma basis at                  2014, after giving effect to the formation transactions, but before giving effect to the offering, the net tangible book value of our company was $             million or $            per share, assuming the exchange of OP units into common shares on a one-for-one basis but excluding the conversion of subordinated performance units into OP units on an as-converted basis applying a specified conversion penalty on the terms described herein under "Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units." After giving effect to the sale of common shares in the offering, the receipt by us of the net proceeds from the offering, the deduction of underwriting discounts and estimated offering expenses payable by us, the pro forma net tangible book value of our company at                2014 would have been $             million or $          per share or an increase in pro forma net tangible book value attributable to the sale of common shares to new investors of $             million or $          per share. This amount represents an immediate dilution in pro forma net tangible book value of $          per share from the assumed initial public offering price of $          per share, which is the mid-point of the initial public offering price range shown on the cover page of this prospectus of common shares to new public shareholders. The following table illustrates this per share dilution:

Initial public offering price per share

       

Pro forma net tangible book value per share of our company as of                   2014, after giving effect to the formation transactions, but before this offering(1)

       

Increase in pro forma net tangible book value per share attributable to the offering(2)

       

Pro forma net tangible book value per share after giving effect to this offering and the formation transactions(3)

       

Dilution in pro forma net tangible book value per share to new investors(4)

       

(1)
Determined by dividing the pro forma net tangible book value after giving effect to the formation transactions, but before this offering, by the number of         .

(2)
Determined by dividing the difference between (a) the pro forma net tangible book value after giving effect to the formation transactions, but before the offering, and (b) the pro forma net tangible book value after giving effect to the formation transactions and the offering, by                .

(3)
Determined by dividing pro forma net tangible book value of approximately $            by              common shares, which amount excludes (i) up to              common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares, (ii)                common shares available for future issuance under our 2014 Equity Incentive Plan as described under "Our Management—2014 Equity Incentive Plan", (iii)             OP units issuable upon exchange of            OP units issuable upon conversion of            outstanding LTIP units and (iv) OP units issuable upon conversion of outstanding subordinated performance units.

(4)
Determined by subtracting pro forma net tangible book value per share of common shares after giving effect to this offering and the formation transactions from the assumed initial public offering price paid by a new investor for a common share.

Differences Between New Investors and Partners of Our Operating Partnership in Number of Shares / OP Units and Amount Paid

        The table below summarizes, as of                2014, on a pro forma basis after giving effect to this offering and the formation transactions, the differences between (A) the number of common shares and OP units issued by us, the total consideration paid and the average price per share/OP unit paid in

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connection with the formation transactions and (B) cash paid by the new investors purchasing shares in this offering.

 
  Shares/OP Units Issued
Assuming No
Exercise of
Underwriters' Option
to Purchase
Additional Shares
   
   
   
 
 
  Net Tangible/Book
Value of
Contribution/Cash
   
 
 
  Average
Price per
Share/OP Unit
 
 
  Number   Percentage   Amount   Percentage  

OP units issued in connection with the formation transactions

                               

New investors(1)

                               
                       

Total

                               
                       
                       

(1)
We used a price of $            per share, which is the midpoint of the price range on the cover of this prospectus, and we have not deducted estimated underwriting discount and estimated offering expenses in our calculations.

        This table excludes (i) up to                common shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares, (ii)                 common shares available for future issuance under our 2014 Equity Incentive Plan, as described under "Our Management—2014 Equity Incentive Plan, (iii) OP units issuable upon conversion of outstanding subordinated performance units, (iv)              OP units issuable upon conversion of             outstanding LTIP units in our operating partnership, and (v)             OP units held by us. The table above does not give effect to the conversion of subordinated performance units into OP units. For a description of this calculation, see "The Limited Partnership Agreement of our Operating Partnership—Conversion of Subordinated Performance Units into OP Units."

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SELECTED PRO FORMA AND HISTORICAL FINANCIAL AND OPERATING DATA

        The following table sets forth our selected pro forma and historical financial and operating data as of and for the periods indicated. You should read the information below in conjunction with the unaudited pro forma condensed and consolidated financial statements and the consolidated and combined financial statements and related notes included elsewhere in this prospectus, and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        In order to present certain of our selected pro forma and historical financial and operating data in a way that offers investors a period to period comparison, the historical results of operations, cash flows, and certain other information for the year ended December 31, 2013 and the six months ended June 30, 2013 are presented on a basis that combines the results of operations, cash flows, and certain other information of National Storage Affiliates Trust and its consolidated subsidiaries for the nine months ended December 31, 2013 with those of our predecessor for the three months ended March 31, 2013, and for National Storage Affiliates Trust and its consolidated subsidiaries for the three months ended June 30, 2013 with those of our predecessor for the three months ended March 31, 2013. The stand-alone historical financial data used to derive the combined amounts are presented in respective tables under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." The combination of our historical financial data with the historical financial data of our predecessor does not comply with U.S. GAAP and is not intended to represent what our consolidated results of operations and cash flows would have been if our company had commenced operations as of January 1, 2013. We have not included or excluded revenues or expenses that would have resulted if we had commenced operations on January 1, 2013.

        The historical statements of operations and cash flows data (i) for the six months ended June 30, 2014 has been derived from the historical unaudited consolidated statement of operations and statement of cash flows of our company for such period, and (ii) for the six months ended June 30, 2013 is presented on a combined basis and has been derived by combining the historical unaudited consolidated statement of operations and statement of cash flows of our company for the three months ended June 30, 2013 with the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor for the three months ended March 31, 2013, in each case included elsewhere in this prospectus. The historical statements of operations and cash flows data (i) for the year ended December 31, 2013 is presented on a combined basis and is derived by combining the historical audited consolidated statement of operations and statement of cash flows of our company for the nine months ended December 31, 2013 with the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor for the three months ended March 31, 2013, in each case included elsewhere in this prospectus. The historical statements of operations and cash flows data for the year ended December 31, 2012 has been derived from the historical audited consolidated and combined statement of operations and statement of cash flows of our predecessor included elsewhere in this prospectus. The consolidated balance sheet data (i) as of June 30, 2014 has been derived from the historical unaudited consolidated balance sheet of our company as of such date, (ii) as of December 31, 2013 has been derived from the historical audited consolidated balance sheet of our company as of such date, and (iii) as of December 31, 2012 has been derived from the historical audited consolidated and combined balance sheet of our predecessor as of such date, in each case included elsewhere in this prospectus. Our financial statements have been prepared in accordance with GAAP. Dollars in the table below are in thousands, except per share amounts.

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  Pro Forma   Historical  
 
   
   
  Six Months Ended
June 30,
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
  Year
Ended
December 31,
2013
  NSA   Combined(1)   Combined(1)   Predecessor  
 
  2014   2013   2013   2012  

Revenue

                                     

Rental revenue

  $     $     $ 28,649   $ 15,422   $ 39,235   $ 28,671  

Other property-related revenue(2)

                727     312     929     608  
                           

Total revenue

                29,376     15,734     40,164     29,279  
                           

Operating Expenses

                                     

Property operating expenses

                10,955     6,082     14,812     11,728  

General and administrative

                3,134     1,166     4,660     1,889  

Depreciation and amortization

                8,534     2,665     9,375     3,826  
                           

Total operating expenses

                22,623     9,913     28,847     17,443  
                           

Income from operations

                6,753     5,821     11,317     11,836  

Other Income (Expense)

                                     

Interest expense

                (11,189 )   (8,822 )   (19,605 )   (17,054 )

Acquisition costs

                (5,271 )   (2,785 )   (3,383 )    

Organizational and offering costs

                (677 )   (50 )   (50 )    

Gains on

                                 

Sale of properties

                1,426             218  

Debt forgiveness

                            1,509  

Non-operating income (expense), net

                (3 )   (21 )   (13 )   39  
                           

Net income (loss)

                (8,961 )   (5,857 )   (11,734 )   (3,452 )

Loss attributable to noncontrolling interests(3)

                8,961     (4,604 )   10,481      
                           

Net income (loss) attributable to the Company and our predecessor

  $     $     $   $ (1,253 ) $ (1,253 ) $ (3,452 )
                           
                           

Earnings (loss) per share (basic and diluted)(4)

  $     $     $   $   $        

Weighted average shares outstanding (basic and diluted)(4)

                1,000     253     753        

Non-GAAP Financial Measures(5)

                                     

NOI

  $     $     $ 18,421   $ 9,652   $ 25,352   $ 17,551  

Adjusted EBITDA

  $     $     $ 15,968   $ 8,465   $ 21,783   $ 15,701  

FFO (excluding specified items)

  $     $     $ 4,779   $ (357 ) $ 2,178   $ (1,353 )

Cash Flow Data

                                     

Cash provided by operating activities

              $ 5,944   $ 3,013   $ 7,134   $ 4,926  

Cash provided by (used in) investing activities

              $ (100,761 ) $ (58,510 ) $ (102,326 ) $ 2,818  

Cash provided by (used in) financing activities

              $ 97,961   $ 70,990   $ 107,147   $ (8,730 )

Balance Sheet Data (at end of period)

                                     

Self-storage properties, net

  $           $ 506,584         $ 346,319   $ 172,304  

Cash and equivalents

  $           $ 14,340         $ 11,196   $ 2,769  

Mortgages and notes payable

  $           $ 405,391         $ 298,748   $ 187,610  

Equity (deficit)

                                     

NSA / Predecessor

  $           $         $   $ (12,151 )

Noncontrolling interests(3)

                124,342           55,197      
                               

Total

  $           $ 124,342         $ 55,197   $ (12,151 )
                               
                               

Other Data (at end of period)

                                     

Number of properties(6)

                173     122     137     88  

Rentable square feet (in thousands)(7)

                8,674     5,669     6,626     3,976  

Occupancy percentage(8)

                87%     85%     83%     80%  

(1)
Combined in the table above are (i) for the six months ended June 30, 2013, our predecessor's historical results for the three months ended March 31, 2013 and our company's historical results for the three months ended June 30, 2013, and (ii) for the year ended December 31, 2013, our predecessor's historical results for the three months ended March 31, 2013 and our company's historical results for the nine months ended December 31, 2013. For a discussion of our predecessor's and our company's historical results for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(2)
Other property-related revenue represents ancillary income from our self-storage properties, such as tenant insurance-related access fees and commissions and storage supplies.

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(3)
While we control our operating partnership, we will not have an ownership interest or share in our operating partnership's profits and losses prior to the completion of this offering. As a result, all of our operating partnership's profits and losses for the periods presented were allocated to owners other than us. Upon the completion of this offering and the formation transactions, our operating partnership's outstanding equity interests will consist of                OP units,                       subordinated performance units, and                 LTIP units.

(4)
Earnings per share for the six months ended June 30, 2013 and the year ended December 31, 2013 has been computed by excluding our predecessor's net loss for the three months ended March 31, 2013. In addition, the weighted average shares outstanding has been computed for the period beginning on April 1, 2013, the date our company commenced its operations.

(5)
The reconciliations of our Non-GAAP Financial Measures are set forth below.

The following table presents a reconciliation of net income (loss) to NOI for the periods presented (dollars in thousands):

 
  Pro Forma   Historical  
 
   
   
  Six Months Ended
June 30,
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
  Year
Ended
December 31,
2013
  NSA   Combined(a)   Combined(a)   Predecessor  
 
  2014   2013   2013   2012  

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add (subtract)

                                     

General and administrative expense            

                3,134     1,166     4,660     1,889  

Depreciation and amortization

                8,534     2,665     9,375     3,826  

Interest expense

                11,189     8,822     19,605     17,054  

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs

                677     50     50      

Gain on sale of properties

                (1,426 )           (218 )

Gain on debt forgiveness

                            (1,509 )

Non-operating expense (income), net

                3     21     13     (39 )
                           

Net Operating Income

  $     $     $ 18,421   $ 9,652   $ 25,352   $ 17,551  
                           
                           

(a)
Our NOI for the year ended December 31, 2013 reflects the NOI of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our NOI for the six months ended June 30, 2013 reflects the NOI of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating NOI for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

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  Pro Forma   Historical  
 
   
   
  Six Months Ended June 30,    
   
 
 
   
   
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
  Year
Ended
December 31,
2013
 
 
  NSA 2014   Combined(a)
2013
  Combined(a)
2013
  Predecessor
2012
 

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add

                                     

Depreciation and amortization

                8,534     2,665     9,375     3,826  

Interest expense

                11,189     8,822     19,605     17,054  
                           

EBITDA

  $     $     $ 10,762   $ 5,630   $ 17,246   $ 17,428  

Add (subtract)

                                     

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs

                677     50     50      

Gain on sale of properties

                (1,426 )           (218 )

Gain on debt forgiveness

                            (1,509 )

Equity-based compensation expense(b)

                684         1,104        
                           

Adjusted EBITDA

  $     $     $ 15,968   $ 8,465   $ 21,783   $ 15,701  
                           
                           

(a)
Our EBITDA and Adjusted EBITDA for the year ended December 31, 2013 reflect the EBITDA and Adjusted EBITDA of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our EBITDA and Adjusted EBITDA for the six months ended June 30, 2013 reflect the EBITDA and Adjusted EBITDA of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating EBITDA and Adjusted EBITDA for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

(b)
Equity-based compensation expense is a non-cash compensation item that is included in our general and administrative expenses in our statements of operations.

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  Pro Forma   Historical  
 
   
   
  Six Months Ended June 30,    
   
 
 
   
   
  Year Ended December 31,  
 
  Six Months
Ended
June 30,
2014
  Year
Ended
December 31,
2013
 
 
  NSA
2014
  Combined(a)
2013
  Combined(a)
2013
  Predecessor
2012
 

Net income (loss)

  $     $     $ (8,961 ) $ (5,857 ) $ (11,734 ) $ (3,452 )

Add (subtract)

                                     

Real estate depreciation and amortization

                8,534     2,665     9,375     3,826  

Gains from sale of self-storage properties

                (1,426 )           (218 )
                           

FFO            

  $     $     $ (1,853 ) $ (3,192 ) $ (2,359 ) $ 156  

Add (subtract)

                                     

Acquisition costs

                5,271     2,785     3,383      

Organizational and offering costs

                677     50     50      

Gain on debt forgiveness

                            (1,509 )

Equity-based compensation expense(b)

                684         1,104      
                           

FFO (excluding specified items)            

  $     $     $ 4,779   $ (357 ) $ 2,178   $ (1,353 )
                           
                           

(a)
Our FFO and FFO (excluding specified items) for the year ended December 31, 2013 reflect the FFO and FFO (excluding specified items) of NSA and our predecessor for the nine months ended December 31, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. In addition, our FFO and FFO (excluding specified items) for the six months ended June 30, 2013 reflect the FFO and FFO (excluding specified items) of NSA and our predecessor for the three months ended June 30, 2013 and the three months ended March 31, 2013, respectively, which are presented on a combined basis for this period. For additional information regarding net income (loss) and the items used in calculating FFO and FFO (excluding specified items) for NSA and our predecessor on a stand-alone basis for these periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.

(b)
Equity-based compensation expense is a non-cash compensation item that is included in our general and administrative expenses in our statements of operations.
(6)
For more information about our properties in each period, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(7)
Rentable square feet includes all enclosed self-storage units but excludes commercial, residential, and covered parking space.

(8)
Represents total occupied rentable square feet divided by total rentable square feet.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with "Selected Pro Forma and Historical Financial and Operating Data," "Business and Properties" and the historical and pro forma financial statements and related notes included elsewhere in this prospectus.

        The historical financial statements included in this prospectus reflect the financial position, results of operations and cash flows of National Storage Affiliates Trust and its consolidated subsidiaries as of and for the six months ended June 30, 2014, for the three months ended June 30, 2013, and as of and for the nine months ended December 31, 2013, and of our predecessor for the three months ended March 31, 2013 and as of and for the year ended December 31, 2012. The consolidated and combined financial statements are presented in this manner because our operating partnership commenced its substantive operations on April 1, 2013. In order to present this discussion and analysis in a way that offers investors a period to period comparison, the historical results of operations, cash flows, and certain other information for the year ended December 31, 2013 and the six months ended June 30, 2013 are presented and discussed on a basis that combines the results of operations, cash flows, and certain other information of National Storage Affiliates Trust and its consolidated subsidiaries for the nine months ended December 31, 2013 with those of our predecessor for the three months ended March 31, 2013 and for National Storage Affiliates Trust and its consolidated subsidiaries for the three months ended June 30, 2013 with those of our predecessor for the three months ended March 31, 2013. The stand-alone historical financial data used to derive the combined amounts are presented in respective tables under "Results of Operations" set forth below. As a result, any reference to "NSA," "our," "we," and "us" in this discussion and analysis and in "Summary Pro Forma and Historical Financial and Operating Data" and "Selected Pro Forma and Historical Financial and Operating Data" refers to National Storage Affiliates Trust and its consolidated subsidiaries as of and for the six months ended June 30, 2014, for the three months ended June 30, 2013, and as of and for the nine months ended December 31, 2013, and any reference to our predecessor refers to our predecessor for the three months ended March 31, 2013 and as of and for the year ended December 31, 2012. The combination of our historical financial information with the historical financial information of our predecessor does not comply with U.S. GAAP and is not intended to represent what our consolidated results of operations and cash flows would have been if our company had commenced operations as of January 1, 2013. We have not included or excluded revenues or expenses that would have resulted if we had commenced operations on January 1, 2013.

        Where appropriate, the following discussion and analysis includes the effects of the formation transactions and this offering. These effects are reflected in the pro forma financial statements and related notes included elsewhere in this prospectus.

Overview

        Our Company.    National Storage Affiliates Trust is a Maryland real estate investment trust focused on the ownership, operation, and acquisition of self-storage properties located within the top 100 MSAs throughout the United States. According to the 2014 Self-Storage Almanac, we are the sixth largest owner and operator of self-storage properties and the largest privately-owned operator of self-storage properties in the United States based on number of properties, self-storage units, and rentable square footage.

        Our chief executive officer, Arlen D. Nordhagen, co-founded SecurCare Self Storage, Inc. in 1988 to invest in and manage self-storage properties. While growing SecurCare to over 150 self-storage properties, Mr. Nordhagen recognized a market opportunity for a differentiated public self-storage REIT that would leverage the benefits of national scale by integrating multiple experienced regional self-storage operators with local operational focus and expertise. We believe that his vision, which is the

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foundation of our company, aligns the interests of regional self-storage operators with those of public shareholders by allowing the operators to participate alongside shareholders in our financial performance and their contributed portfolios.

        Formation and Structure.    We operate our business through, and are the sole general partner of, our operating partnership, NSA OP,  LP, a Delaware limited partnership. Our operating partnership commenced its substantive operations on April 1, 2013 following the contribution of 12 properties from our initial PROs to our operating partnership.

        Upon the completion of this offering and the formation transactions, our in-place portfolio will consist of 235 self-storage properties, located in 14 states, comprising approximately 13.2 million rentable square feet, configured in over 100,000 storage units. Of these properties, 204 were or will be acquired by us from our PROs and 31 will have been acquired by us from independent sellers. In addition, we have a pipeline of 125 properties (13 of which we have under contract to acquire), comprising approximately 8.1 million rentable square feet.

        In-Place Portfolio.    For our in-place portfolio, pursuant to separate contribution agreements described under "The Formation and Structure of our Company—Contribution Agreements," we have issued or expect to issue prior to or concurrently with the completion of this offering an aggregate of              units of limited partner interest in our operating partnership or in DownREIT partnerships in which our operating partnership owns a significant investment, consisting of              OP units in our operating partnership,               OP units in our DownREIT partnerships,                subordinated performance units in our operating partnership, and                subordinated performance units in our DownREIT partnerships. The properties included in our in-place portfolio by our PROs were contributed pursuant to a policy adopted by our board of trustees that standardizes the methodology that we use for valuing self-storage properties that are contributed to us by our PROs. See "The Formation and Structure of our Company—Valuation Methodology for Contributed Portfolios." In connection with these transactions, we assumed or will assume an aggregate of approximately $                 million of mortgage indebtedness. In addition, we have acquired an aggregate of              properties, which were sourced by our PROs, pursuant to purchase and sale agreements with certain third-party owners for a combination of cash and OP units totaling approximately $                 million. As of June 30, 2014, our operating partnership had also granted an additional                LTIP units to a third-party consultant and                 LTIP units to our PROs under the Prior Incentive Plan. See "Our Management—Prior Incentive Plan."

        We believe that our in-place properties are primarily located in high quality growth markets in the top 100 MSAs with attractive supply and demand characteristics and are less sensitive to the fluctuations of the general economy. Our top 10 states are expected to grow over 50% faster than the national average for population and job growth, as projected by the U.S. Department of Labor's Bureau of Labor Statistics. These 10 states accounted for over 95% of our second quarter 2014 NOI. Many of these markets tend to have multiple barriers to entry against increased supply, including zoning restrictions against new construction and new construction costs that we believe are higher than our properties' fair market value. We seek to own properties that are well located in high quality sub-markets with highly accessible street access, providing our properties with strong and defensible cash flows. Furthermore, we believe that our significant size and the overall geographic diversification of our portfolio reduces risks associated with specific local economic downturns or natural disasters.

Factors that May Influence Our Operating Results

        Our approach to the management and operations of our properties combines centralized marketing and call center support, revenue management and other operational support with local operations teams that provide market-level oversight and control. We believe this approach allows us to maximize revenues by managing occupancy levels and rental rates and responding quickly and

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effectively to changes in general economic and regional market conditions and the competitive landscape. The following describes various factors that may influence our operating results.

        Growth Strategy.    We plan to focus our growth strategy on acquiring mature self-storage properties. As of June 30, 2014, we had a pipeline of 125 self-storage properties. Of these, 13 are properties we have under contract to acquire, 29 are properties in which our PROs have a controlling ownership interest and we have a right to acquire such interest (i) in the event that our PRO seeks to transfer such interest or (ii) upon maturity of outstanding indebtedness encumbering such property so long as the occupancy of such property is consistent with average local market levels at such time, 20 are properties in which our PROs currently have an ownership interest but do not control, and 63 are properties that our PROs manage without an ownership interest. In addition, our PROs' "on-the-ground" personnel have established an extensive network of industry relationships and contacts in our markets. Our PROs have already sourced 31 acquisitions since our inception, comprising approximately 2.3 million rentable square feet.

        General Economic and Regional Market Conditions.    The United States continues to recover from an economic downturn that resulted in higher unemployment, stagnant employment growth, shrinking demand for products, large-scale business failures and tight credit markets. Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to higher levels of bad debt expense due to recessionary pressures. A continuation of, or slow recovery from, ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services. Furthermore, our 10 largest states account for over 95% of our second quarter 2014 NOI. Positive or negative changes in economic or other conditions in these states, including the state budgetary shortfall, employment levels, natural hazards and other factors, may impact our overall performance.

        Competition.    We operate in competitive markets, often where tenants have multiple self-storage properties from which to choose. Actions by our competitors, such as increased development, may decrease or prevent increases in our occupancy and rental rates, while increasing the operating expenses of our properties. These competitors may also drive up the price we pay for self-storage properties or other assets we seek to acquire or may succeed in acquiring those properties or assets themselves.

        Rental Revenue.    We derive revenues principally from rents received from tenants who rent units at our self-storage properties under month-to-month leases. Therefore, our operating results substantially depend on our ability to retain our existing tenants and lease our available self-storage units to new tenants. As of June 30, 2014, our occupancy rate across our in-place portfolio was approximately 87%. Existing public self-storage REITs are operating with a weighted average occupancy level of approximately 93% as of June 30, 2014. We experience minor seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. We anticipate that a 1% improvement in the average occupancy for our in-place portfolio would translate to a $             million improvement in revenue. We would expect a similar increase in NOI, subject to marginal increases in operating expenses. The amount of rental revenue generated by us also depends on our ability to maintain or increase rental rates at our properties. We believe that the average realized rental rates for our properties generally are slightly below the current average realized market rates of our public company competitors in most of our markets. Negative trends in our occupancy levels or rental rates could adversely affect our rental revenue in future periods. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.

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        Operating Expenses.    Our operating expenses consist of the following:

        Interest Expense.    Since we have relied heavily on debt to finance our activities to date, interest expense has a significant impact on our results of operations. The majority of our debt financing provides for interest at variable rates based on LIBOR. Historically, we have limited our exposure to variable rates through the use of derivatives and we intend to hedge the vast majority of our variable-rate debt in the future, but we will remain subject to interest rate risk on the unhedged portion.

        Acquisition Costs.    We incur title, legal and consulting fees, and other costs associated with the completion of self-storage property acquisitions. Such costs are charged to acquisition costs in the period in which they are incurred. Accordingly, certain acquisition costs may be incurred in periods prior to the date in which an acquisition is completed and we begin reflecting its performance in our operating results.

        Organizational and Offering Costs.    Certain costs related to equity offerings, such as audit fees associated with the operations of our properties for periods preceding the related contribution and formation transactions, are charged to expense in the period incurred. We expect to continue to incur organizational and offering costs that will be charged to expense as we prepare for the completion of this offering and the formation transactions.

Critical Accounting Policies and Use of Estimates

        Our financial statements have been prepared on the accrual basis of accounting in accordance with principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates. We believe the following are our most critical accounting policies.

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Principles of Consolidation, Combination and Presentation of Noncontrolling Interests

        Our consolidated financial statements include the accounts of our operating partnership and its controlled subsidiaries. The combined financial statements of our predecessor include the accounts of our predecessor and all entities which were under its common control. All significant intercompany balances and transactions have been eliminated in the consolidation and combination of entities.

        The limited partner ownership interests in our operating partnership that are held by owners other than us are referred to as noncontrolling interests. Such noncontrolling interests in a subsidiary are generally reported as a separate component of equity in our consolidated balance sheets. In our statements of operations, the revenues, expenses and net income or loss related to noncontrolling interests in our operating partnership are included in the consolidated amounts, with the impact on loss attributable to the noncontrolling interests deducted separately to arrive at the net loss solely attributable to us.

        When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity is deemed a variable interest entity, or a VIE, and if we are deemed to be the primary beneficiary, in accordance with authoritative guidance issued on the consolidation of VIEs. When an entity is not deemed to be a VIE, we consider the provisions of additional guidance to determine whether the applicable general partner controls a limited partnership or similar entity when the limited partners have certain rights. We consolidate (i) entities that are VIEs and of which we are deemed to be the primary beneficiary, and (ii) entities that are non-VIEs which we control and which the limited partners do not have the ability to dissolve or remove us without cause or substantive participating rights.

Self-Storage Properties and Customer In-place Leases

        Self-storage properties are carried at historical cost less accumulated depreciation and any impairment losses. Expenditures for ordinary repairs and maintenance are expensed as incurred. Major replacements and betterments that improve or extend the life of an asset are capitalized. Estimated depreciable lives of self-storage properties are determined by considering the age and other indicators about the condition of the assets at the respective dates of acquisition, resulting in a range of estimated useful lives for assets within each category. All storage properties are depreciated using the straight-line method. Buildings and improvements are generally depreciated over estimated useful lives between seven and 40 years. Furniture and equipment are generally depreciated over estimated useful lives between three and 10 years.

        When self-storage properties are acquired in business combinations, the purchase price (including any equity-based consideration issued in connection with the acquisition) is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. The purchase price is allocated to the individual properties based on the fair value determined using an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual properties along with current and projected occupancy and relative rental rates or appraised values, if available. Tangible assets are allocated to land, buildings and related improvements, and furniture and equipment.

        In allocating the purchase price for an acquisition accounted for as a business combination, we determine whether the acquisition includes intangible assets. We allocate a portion of the purchase price to an intangible asset attributed to the value of customer in-place leases. Because the majority of tenant leases are on a month-to-month basis, this intangible asset represents the estimated value of the leases in effect on the acquisition date. This intangible asset is amortized to expense using the straight-line method over a period of 12 months after the acquisition date, which is the average time period that the lease relationships are expected to remain.

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        We evaluate long-lived assets for impairment when events and circumstances indicate that there may be impairment. When events or changes in circumstances indicate that our long-lived assets may not be recoverable, the carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value attributable to the assets. If an asset's carrying value is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.

Revenue Recognition

        We have determined that all of our leases are operating leases. Substantially all leases may be terminated on a month-to-month basis and rental income is recognized ratably over the lease term using the straight-line method. Rents received in advance are deferred and recognized on a straight-line basis over the related lease term associated with the prepayment. Promotional discounts and other incentives are recognized as a reduction to rental income over the applicable lease term. Other property-related income consists of late fees, administrative charges, tenant insurance-related access fees and commissions, sales of storage supplies and other ancillary revenues which are recognized in the period earned.

        We recognize gains from disposition of facilities only upon closing in accordance with the guidance on sales of real estate. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and we are not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance.

Income Taxes

        We intend to elect to be taxed as a REIT under sections 856 through 860 of the Code commencing with our short taxable year ending December 31, 2015. To qualify as a REIT, among other things, we are required to distribute at least 90% of our net taxable income (excluding net capital gains) to our shareholders and meet certain tests regarding the nature of our income and assets. So long as we qualify as a REIT, we are not subject to U.S. federal income tax on our earnings distributed currently to our shareholders. If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain provisions set forth in the Code, all of our taxable income would be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax.

        We will not be required to make distributions with respect to income derived from the activities conducted through subsidiaries that we elect to treat as TRSs for U.S. federal income tax purposes, including NSA TRS, LLC which we formed in June 2014. Certain activities that we undertake must be conducted by a TRS, such as performing non-customary services for our customers and holding assets that we are not permitted to hold directly, including personal property held as inventory. A TRS is subject to U.S. federal, state and local income taxes.

        Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes.

Recent Accounting Pronouncements

        In April 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," or ASU 2014-08. ASU 2014-08 changes the criteria for determining which disposals can

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be presented as discontinued operations and modifies related disclosure requirements. Effective January 1, 2014, we adopted ASU 2014-08, which will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the adoption date. Under this standard, we anticipate that dispositions of properties, as well as the classification of properties held for sale, will generally be classified within continuing operations.

        In May 2014, the FASB issued Accounting Standard Update No. 2014-09, "Revenue from Contracts with Customers," or ASU 2014-09, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for us on January 1, 2017, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

Material Weakness in Internal Control Over Financial Reporting

        In connection with the audit of our financial statements for the period from April 1, 2013 through December 31, 2013, our independent registered public accounting firm identified certain deficiencies in our system of internal control over financial reporting that it considered to be a material weakness. The Public Company Accounting Oversight Board's Auditing Standard No. 5 defines a material weakness as a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness related to our lack of sufficient and competent resources within our accounting department necessary to analyze and account for routine and complex transactions in a timely manner and inadequate formal processes for adequate review of accounting for routine and complex transactions, including financial reporting disclosures.

        We are working to remedy this material weakness by hiring adequate accounting resources with the appropriate level of technical experience and training in the application of technical accounting guidance to routine and complex transactions; implementing a policy of enhanced review and approval of relevant and sufficient data to support our assumptions and judgments in routine and complex transactions and documenting that review and approval; and hiring a third-party consultant to assist us in highly complex, non-routine accounting determinations and developing control procedures and policies, among other related duties. We believe these actions, as well as our plans to add additional resources during the second half of 2014, will allow us to remediate this material weakness and provide a solid foundation to meet the ongoing requirements of being a public company. If we are not successful in promptly and effectively remediating this material weakness, investors could lose confidence in our reported financial information and the trading price of our common shares could be adversely affected.

REIT Qualification and Distribution Requirements

        We will be subject to a number of operational and organizational requirements to qualify and maintain our qualification as a REIT. If we are subject to audit and if the Internal Revenue Service determines that we failed to meet one or more of these requirements, we could lose our REIT qualification. If we did not qualify as a REIT, our net income would become subject to federal, state and local income taxes, which would be substantial, and the resulting adverse effects on our results of operations, liquidity and amounts distributable to our shareholders would be material.

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        As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest, dividends and certain other real estate related or passive sources. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of trustees to authorize us to revoke our REIT election.

Results of Operations

        Our predecessor's financial statements for the year ended December 31, 2012 and for the three months ended March 31, 2013 include all self-storage properties controlled by our predecessor as of and for the periods presented, including 22 self-storage properties that have not been and will not be contributed to our operating partnership or any DownREIT partnership in the formation transactions. We expect to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ending December 31, 2015. Further, during the year ended December 31, 2013 and for the six months ended June 30, 2014, we acquired 49 and 37 self-storage properties, respectively, and we expect to acquire 62 additional self-storage properties through the completion of this offering and the formation transactions. We also disposed of one property in May 2014. As a result of these and other factors, we do not believe that our historical results of operations or our predecessor's discussed and analyzed below are comparable or necessarily indicative of our future results of operations or cash flows.

        To help analyze the operating performance of our self-storage properties, we also discuss and analyze operating results relating to our same store portfolio.

        Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

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Comparison of our Statement of Operations for the Six Months Ended June 30, 2014 to our Combined Statement of Operations for the Six Months Ended June 30, 2013

        Presented below is our statement of operations for the six months ended June 30, 2014 and our combined statement of operations for the six months ended June 30, 2013 (dollars in thousands):

 
  Six Months Ended June 30,  
 
  2014 NSA   2013 Combined(1)  

Revenue

             

Rental revenue

  $ 28,649   $ 15,422  

Other property-related revenue(2)

    727     312