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

Annual report pursuant to Section 13 and 15(d)

EQUITY-BASED AWARDS

EQUITY-BASED AWARDS

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

The Company grants awards in the form of LTIP units and restricted common shares to provide equity based incentive compensation to members of its senior management team, independent trustees, advisers, consultants, other personnel, and as consideration for self storage property acquisitions.

LTIP units were first granted under the 2013 Long-Term Incentive Plan (the "2013 Plan"), which authorized up to 2.5 million LTIP units for issuance. In connection with the Company's initial public offering, the Company terminated the 2013 Plan but the awards granted thereunder remained outstanding after its termination. Restricted common shares were first granted under the 2015 National Storage Affiliates Trust Equity Incentive Plan (the "2015 Plan"), which authorizes the Company's compensation, nominating, and corporate governance committee to grant share options, restricted common shares, phantom shares, dividend equivalent rights, LTIP units and other restricted limited partnership units issued by its operating partnership and other equity-based awards up to an aggregate of 5% of the common shares issued and outstanding from time to time on a fully diluted basis (assuming, if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible securities, including OP units and LTIP units, into common shares).

As of December 31, 2021, the Company did not have outstanding under its equity compensation plan, any options, warrants or rights to purchase the Company's common shares.

LTIP Units

Through December 31, 2021, an aggregate of 2,474,710 LTIP units have been issued under the 2013 Plan, 1,193,979 LTIP units have been issued under the 2015 Plan, and 373,353 LTIP units have been issued under the LP Agreement. Some of the granted LTIP units vested immediately or upon completion of the Company's initial public offering. Others vest upon the contribution of self storage properties or along a schedule at certain times through June 10, 2025.

Compensatory Grants

The Company grants two types of compensatory LTIP units, time-based LTIP unit awards that are subject to time-based vesting typically over a period of one to four years from the grant date, so long as such person remains an employee or trustee, and performance-based LTIP unit awards, which are designed to align the interests of the Company's executive officers with those of the Company's shareholders in a pay-for-performance structure. The performance-based LTIP unit awards vest contingent upon the achievement of performance criteria measured over a period of three years from the grant date, which is based on the Company's total shareholder return ("TSR") relative to the TSR of the companies in the Morgan Stanley Capital International US REIT Index and the Company's TSR relative to the TSR of its peers in the self storage industry. The value of the performance-based LTIP unit awards takes into consideration the probability that the awards will ultimately vest; therefore previously recorded compensation expense is not adjusted in the event that the performance criteria is not achieved.

Compensation expense related to compensatory LTIP units granted to members of the Company's senior management team, the Company's independent trustees, advisers, consultants and other personnel is included in general and administrative expense in the accompanying consolidated statements of operations. Total compensation cost recognized for the compensatory LTIP unit awards was $5.1 million, $3.9 million and $4.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021, total unvested compensation cost not yet recognized was $5.2 million. The Company expects to recognize this compensation cost over a period of approximately 3.4 years. If the grantee has a termination of service for any reason during the vesting period, the unvested LTIP units will be forfeited subject to certain limited exceptions.

Time-based LTIP unit awards are granted with a fair value equal to the closing market price of the Company's common shares on the date of grant. The following table summarizes activity for the time-based LTIP unit awards for the years ended December 31, 2021, 2020 and 2019:


	Time-Based LTIP Unit Awards
	2021			2020			2019
	Number of LTIP units	Weighted Average Grant-Date Fair Value		Number of LTIP units	Weighted Average Grant-Date Fair Value		Number of LTIP units	Weighted Average Grant-Date Fair Value
Outstanding unvested at beginning of year	170,265	$	28.93	181,937	$	26.55	223,812	$	23.54
Granted	98,376	41.02		111,898	30.14		101,167	27.80
Vested	(105,561)	27.61		(115,935)	26.52		(138,028)	22.59
Forfeited	(4,104)	41.84		(7,635)	26.72		(5,014)	26.25
Unvested at end of year	158,976	$	36.95	170,265	$	28.93	181,937	$	26.55

The aggregate fair value of the time-based LTIP unit awards that vested during the years ended December 31, 2021, 2020 and 2019 was $2.9 million, $3.1 million and $3.1 million, respectively.

The following table summarizes activity for the performance-based LTIP unit awards granted during the year ended December 31, 2021, 2020 and 2019, including the minimum, target and maximum number of LTIP units that may be earned upon the achievement of the performance criteria measured over the period of three years from the grant date.


	Performance-Based LTIP Unit Awards
	Minimum	Target	Maximum	Weighted Average Grant-Date Fair Value
Outstanding unvested at December 31, 2018	—	86,407	159,899	$	26.35
Granted	—	53,128	106,252	29.76


Outstanding unvested at December 31, 2019	—	139,535	266,151	$	27.71
Granted	—	53,835	107,667	35.67
Vested	—	(40,390)	(90,874)	27.63
Forfeited	—	(18,493)	(32,930)	27.53
Outstanding unvested at December 31, 2020	—	134,487	250,014	$	30.69
Granted	—	49,522	99,041	41.68
Vested	—	(37,908)	(47,206)	24.76
Forfeited	—	—	(9,656)	24.21
Outstanding unvested at December 31, 2021	—	146,101	292,193	$	35.98

The aggregate fair value of the performance-based LTIP unit awards that vested during the year ended December 31, 2021 and 2020 was $0.9 million and $1.1 million, respectively. The fair value of the performance-based LTIP unit awards, which have a market condition, is estimated on the date of grant using a Monte Carlo simulation. The simulation requires assumptions for expected volatility, risk-free rate of return, and dividend yield.

The following table summarizes the assumptions used to value the performance-based LTIP unit awards granted during the years ended December 31, 2021, 2020 and 2019:


	2021		2020		2019
Risk-free interest rate	0.18	%	1.37	%	2.51	%
Dividend yield	3.89	%	4.13	%	4.54	%
Expected volatility	34.17	%	24.43	%	25.40	%

Acquisition Consideration Grants

On December 31, 2013, the Company granted 1,683,560 LTIP units under the 2013 Plan and on January 23, 2020 the Company granted 28,894 LTIP units under the LP Agreement as part of the consideration for self storage property acquisitions and contributions. The following table summarizes activity for acquisition grants during the years ended December 31, 2021, 2020 and 2019:


			Total LTIP units
Total unvested units, December 31, 2018			224,000
Units vested in 2018			—

Total unvested units, December 31, 2019			224,000

Units vested in 2019			—
Units forfeited			28,894
Total unvested units, December 31, 2020			252,894
Units vested in 2021			—

Total unvested units, December 31, 2021			252,894

As of December 31, 2021, the remaining unvested LTIP units will vest as additional self storage properties are contributed or sourced. The fair value of such LTIP units will be recorded as additional acquisition consideration based on the fair value in the period such acquisitions are completed.

Grants to Consultants

During the years ended December 31, 2020 and 2019, the Company issued 28,892 and 5,714 LTIP units, respectively, that were immediately vested to consultants that provided acquisition services. During the years ended December 31, 2020 and 2019, the self storage properties acquired were accounted for as asset acquisitions and accordingly, the acquisition costs related to the LTIP units granted to consultants were capitalized as part of the basis of the acquired properties. The aggregate fair value of the LTIP units was $1.0 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

Restricted Common Shares

Through December 31, 2021, an aggregate of 123,463 restricted common shares have been issued under the 2015 Plan. These restricted common shares vest over a period of approximately 3.4 years. Restricted common shares are granted with a fair value equal to the closing market price of the Company's common shares on the date of grant.

The following table summarizes activity for restricted common shares for the years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021			2020			2019
	Number of Restricted Common Shares	Weighted Average Grant-Date Fair Value		Number of Restricted Common Shares	Weighted Average Grant-Date Fair Value		Number of Restricted Common Shares	Weighted Average Grant-Date Fair Value
Outstanding at beginning of year	29,929	$	32.68	25,779	$	26.26	22,589	$	24.83
Granted	29,248	43.80		21,861	36.19		18,218	26.46
Vested	(12,763)	31.14		(12,471)	25.85		(10,734)	23.54
Forfeited	(15,755)	39.52		(5,240)	32.00		(4,294)	25.61
Unvested at end of year	30,659	$	40.41	29,929	$	32.68	25,779	$	26.26

The aggregate fair value of restricted common shares that vested during the years ended December 31, 2021, 2020 and 2019 was $0.4 million, $0.3 million and $0.3 million respectively. Total compensation cost recognized for restricted common shares during the years ended December 31, 2021, 2020 and 2019 was $0.4 million, $0.4 million and $0.3 million, respectively. At December 31, 2021, total unvested compensation cost not yet recognized was $0.9 million. The Company expects to recognize this compensation cost over a period of approximately 3.4 years. If the grantee has a termination of service for any reason during the vesting period, the unvested restricted common shares will be forfeited. Compensation expense related to restricted common shares is included in general and administrative expense in the accompanying consolidated statements of operations.