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

Annual report pursuant to Section 13 and 15(d)

EARNINGS PER SHARE

EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2016

The following table sets forth the computation of basic and diluted earnings (loss) per common share for the years ended December 31, 2016, 2015 and 2014 (in thousands, except per share amounts):



	Year Ended December 31,
	2016			2015			2014
Earnings (loss) per common share - basic and diluted
Numerator
Net income (loss)	$	24,866		$	4,796		$	(16,357	)
Net (income) loss attributable to noncontrolling interests	(6,901		)	7,644			16,357
Net income (loss) attributable to National Storage Affiliates Trust	17,965			12,440			—
Distributed and undistributed earnings allocated to participating securities	(18		)	(9		)	—
Net income (loss) attributable to common shareholders - basic	17,947			12,431			—
Effect of assumed conversion of dilutive securities	6,783			(4,919		)	—
Net income (loss) attributable to common shareholders - diluted	$	24,730		$	7,512		$	—

Denominator
Weighted average shares outstanding - basic	29,887			15,463			1
Effect of dilutive securities:
Weighted average OP units outstanding	24,262			15,697			—
Weighted average DownREIT OP unit equivalents outstanding	1,835			1,171			—
Weighted average LTIP units outstanding	1,846			1,272			—
Weighted average subordinated performance units and DownREIT subordinated performance unit equivalents	20,917			11,806			—
Weighted average shares outstanding - diluted	78,747			45,409			1

Earnings (loss) per share - basic	$	0.60		$	0.80		$	—
Earnings (loss) per share - diluted	$	0.31		$	0.17		$	—
Dividends declared per common share	$	0.88		$	0.54		$	—

As discussed in Note 2, the Company allocates GAAP income (loss) utilizing the HLBV method, in which the Company allocates income or loss based on the change in each unitholders' claim on the net assets of its operating partnership at period end after adjusting for any distributions or contributions made during such period. Due to the stated liquidation priorities and because the HLBV method incorporates non-cash items such as depreciation expense, in any given period, income or loss may be allocated disproportionately to National Storage Affiliates Trust and noncontrolling interests, resulting in volatile fluctuations of basic and diluted earnings (loss) per share. Additionally, the Company did not have an ownership interest or share in its operating partnership's profits and losses prior to the completion of the Company's initial public offering. As a result, all of the operating partnership's profits and losses for the year ended December 31, 2014 and the period from January 1, 2015 to April 28, 2015 were allocated to noncontrolling interests.

Outstanding equity interests of the Company's operating partnership and DownREIT partnerships are considered potential common shares for purposes of calculating diluted earnings (loss) per share as the unitholders may, through the exercise of redemption rights, obtain common shares, subject to various restrictions. Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by further adjusting for the dilutive impact using the treasury stock method for unvested LTIP units subject to a service condition outstanding during the period and the if-converted method for any convertible securities outstanding during the period.

Generally, following certain lock-out periods, OP units in the Company's operating partnership are redeemable for cash or, at the Company's option, exchangeable for common shares on a one-for-one basis, subject to certain adjustments and DownREIT OP units are redeemable for cash or, at the Company's option, exchangeable for OP units in its operating partnership on a one-for-one basis, subject to certain adjustments in each case.

LTIP units may also, under certain circumstances, be convertible into OP units on a one-for-one basis, which are then exchangeable for common shares as described above. Certain LTIP units vested prior to or upon the completion of the Company's initial public offering and certain LTIP units have vested upon the satisfaction of a service condition or will vest upon the satisfaction of a future service condition. Vested LTIP units and unvested LTIP units that vest based on a service condition are allocated income or loss in a similar manner as OP units. Unvested LTIP units subject to a service condition are evaluated for dilution using the treasury stock method. For the year ended December 31, 2016, 294,529 unvested LTIP units that vest based on a service condition are excluded from the calculation of diluted earnings (loss) per share as they are not dilutive to earnings (loss) per share. In addition, certain LTIP units vest upon the future acquisition of properties sourced by PROs. For the year ended December 31, 2016, 260,400 unvested LTIP units that vest upon the future acquisition of properties are excluded from the calculation of diluted earnings (loss) per share because the contingency for the units to vest has not been attained as of the end of the reported periods.

Subordinated performance units may also, under certain circumstances, be convertible into OP units which are exchangeable for common shares as described above, and DownREIT subordinated performance units may, under certain circumstances, be exchangeable for subordinated performance units on a one-for-one basis. Subordinated performance units are only convertible into OP units, after a two year lock-out period and then generally (i) at the holder’s election only upon the achievement of certain performance thresholds relating to the properties to which such subordinated performance units relate or (ii) at the Company's election upon a retirement event of a PRO that holds such subordinated performance units or upon certain qualifying terminations. Although subordinated performance units may only be convertible after a two year lock-out period, the Company assumes a hypothetical conversion of each subordinated performance unit (including each DownREIT subordinated performance unit) into OP units (with subsequently assumed redemption into common shares) for the purposes of calculating diluted weighted average common shares. This hypothetical conversion is calculated using historical financial information, and as a result, is not necessarily indicative of the results of operations, cash flows or financial position of the Company upon expiration of the two-year lock out period on conversions.

Participating securities, which consist of unvested restricted common shares, receive dividends equal to those received by common shares. The effect of participating securities for the periods presented above is calculated using the two-class method of allocating distributed and undistributed earnings.