BAYVIEW ADVISORS SELF STORAGE INDUSTRY AND REIT REPORT Q4 2015 AND END OF YEAR 2015 JAY J. CROTTY Managing Partner O 813.579.6363 D: 813.347.9007 jcrotty@bayviewadv.com FL RE Lic. No. CQ1047426 THOMAS A. DOYLE Senior Vice President O 813.579.6363 D 813.400.2372 tdoyle@bayviewadv.com FL RE Lic. No. CQ1047426 RYAN N. CLARK Senior Vice President O 813.579.6363 D 216.302.3661 rclark@bayviewadv.com OH RE Lic. No. SAL.2015001542 NOEL P. CAIN Capital Markets Group, Managing Partner O 813.579.6363 D 414.306.6999 ncain@bayviewadv.com bayviewadv.com
In Thousands SELF STORAGE INDUSTRY AND REIT REPORT Q4 2015 REIT Comparison CubeSmart Highlights Extra Space RENTAL REVENUE $500,000,000 $450,000,000 $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 DIVIDEND PER SHARE $3.00 Public Storage Amerco Sovran Self Storage National Storage Affiliates 2014 Q4 2015 Q4 $3.00 HISTORICAL QUARTERLY OCCUPANCY 96.0% 91.0% 86.0% 81.0% 76.0% 1Q 2012 2Q 2012 TOP 6 U.S. SELF STORAGE FACILITY OWNERS Company Name 3Q 2012 CubeSmart 4Q 2012 Public Storage Amerco 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 Extra Space 4Q 2014 1Q 2015 Sovran Self Storage # of Stock Price Total SF Facilities 1 1 12/31/15 2Q 2015 3Q 2015 National Storage Affiliates 4Q 2015 Market Cap 2/29/16 $2.50 1 Public Storage 2,277 148,000,000 $247.70 $43.04 B $2.00 $1.50 $1.70 2 Extra Space Storage 999 101,000,000 $88.21 $10.06 B 3 U-Haul International - 23,178,000 $389.50 $6.674 B 4 CubeSmart 445 30,357,000 $30.62 $5.211 B $1.00 $0.50 $0.00 $0.21 $0.59 $1.00 $0.85 $0.20 5 Sovran Self Storage - 36,952,039 $107.31 $4.18 B 6 National Storage Affiliates 292 17,000,000 $17.13 $418.22 M 1. Approximate based on data provided by the REITs 22 2
CubeSmart Highlights CUBESMART (NYSE: CUBE) Reported funds from operations ( FFO ) per share, as adjusted, of $0.33, representing a year-over-year increase of 17.9%. Increased same-store (353 facilities) net operating income ( NOI ) 11.1% year over year, driven by 8.0% revenue growth and a 0.9% increase in property operating expenses Same-store occupancy averaged 92.0% during the quarter, ending the quarter with same-store occupancy of 91.7%, a 160 basis point increase year over year Closed on 13 facility acquisitions totaling $124.2 million. These acquisitions are located in Massachusetts (3), Georgia (2), North Carolina (2), Texas (2), Arizona (1), New Jersey (1), New York (1) and Tennessee (1). For the full year, the Company acquired 29 properties for $292.4 million, including one acquisition of a property at C/O in the second quarter of 2015 Closed on nine property dispositions totaling $47.7 million. During the three months ended December 31, 2015, the Company sold all seven of its owned assets in the El Paso, Texas area, one asset in Jacksonville, Florida, and its remaining asset in London, England Established a 10% ownership position in a newly formed joint venture that acquired 30 properties for an aggregate purchase price of $193.7 million. These facilities contain an aggregate of 1.8 million rentable square feet and are located in Michigan (16), Massachusetts (6), Tennessee (5) and Florida (3). To fund a portion of the purchase price, HVP entered into a $112.7 million loan that bears interest at LIBOR plus 2.0% and matures December 2018, with options to extend until December 2020 FFO, as adjusted, was $58.1 million for the fourth quarter of 2015, compared with $46.8 million for the fourth quarter of 2014. FFO, as adjusted, for the year ended December 31, 2015 was $216.0 million, compared with $165.4 million for the year ended December 31, 2014. FFO per share, as adjusted, increased 15.7% to $1.25 for the year ended December 31, 2015, compared with $1.08 for the year ended December 31, 2014 During the fourth quarter of 2015, the Company opened for operation two joint venture development properties located in Brooklyn and Queens, New York for a total investment of $32.2 million. For the full year, the Company opened for operation or acquired at C/O four new self-storage facilities in New York (2), Virginia (1) and Texas (1), for a total cost of $65.1 million For the year ended December 31, 2015, the Company reported net income attributable to the Company s common shareholders of $71.7 million, or $0.43 per common share, compared with net income attributable to the Company s common shareholders of $20.4 million, or $0.14 per common share for the year ended December 31, 2014 The Company estimates that its fully diluted FFO per share, as adjusted, for 2016 will be between $1.35 and $1.40, and that its fully diluted net income per share for the period will be between $0.45 and $0.50. The Company s estimates are based on the following key operating assumptions: For 2016, a same-store pool consisting of 407 assets totaling 27.8 million square feet Same-store net operating income ( NOI ) growth of 7.5% to 8.5% over 2015, driven by revenue 22 3
Extra Space Highlights EXTRA SPACE (NYSE: EXR) Achieved funds from operations attributable to common stockholders ( FFO ) of $0.38 per diluted share. Excluding costs associated with acquisitions and non-cash interest, FFO as adjusted was $0.87 per diluted share, representing a 27.9% increase compared to the same period in 2014 Increased same-store revenue by 9.6% and same-store net operating income ( NOI ) by 11.5% compared to the same period in 2014 Increased same-store occupancy by 150 basis points to 92.9% as of December 31, 2015, compared to 91.4% as of December 31, 2014 Acquired SmartStop Self Storage, Inc. including 122 wholly-owned stores and the third-party management of 43 stores for a total of approximately $1.3 billion Paid a quarterly dividend of $0.59 per share Acquired six additional operating stores and three stores at completion of construction for a total of approximately $75.4 million Major markets with revenue growth above the Company s portfolio average for the year ended December 31, 2015 included Denver, Los Angeles, Orlando, Sacramento, San Francisco and Tampa/St. Petersburg. Major markets performing below the Company s portfolio average included Chicago, Memphis, Philadelphia and Washington D.C./Baltimore There are 16 operating stores under contract including buying out a JV partner s interest in 6 stores for $165,036,000. As well as 13 additional stores to be purchase upon completion for $208,450,000 Achieved FFO of $2.58 per diluted share for the year end Dec 31, 2015. Excluding costs associated with acquisitions and non-cash interest, FFO as adjusted was $3.13 per diluted share, representing a 19.9% increase compared to the same period in 2014. Increased same-store revenue by 9.3% and same-store NOI by 11.9% for the year 2015 compared to the same period in 2014. Acquired 166 operating stores and five stores at completion of construction for a total of approximately $1.75 billion in all of 2015 Same-store revenues for the three months and year ended December 31, 2015 increased due to gains in occupancy, higher rental rates for both new and existing customers and reduced customer discounts. Expenses were higher for the three months ended December 31, 2015 due to increases in tenant reinsurance expense, credit card merchant fees and property taxes 22 4
Public Storage Highlights PUBLIC STORAGE (NYSE: PSA) For the three months ended December 31, 2015, net income allocable to our common shareholders was $303.0 million or $1.74 per diluted common share, compared to $284.0 million or $1.64 in 2014 representing an increase of $19.0 million or $0.10 The increase is primarily due to (i) a $39.5 million increase in selfstorage net operating income offset partially by (ii) a $30.3 million reduction in equity in earnings of unconsolidated real estate entities, primarily due to a $36.5 million gain recognized from our investment in PS Business Parks, Inc. ( PSB ) in the quarter ended December 31, 2014 The $39.5 million increase in self-storage net operating income is a result of a $29.5 million increase in our Same Store Facilities and a $9.9 million increase in our Non Same Store Facilities. Revenues for the Same Store Facilities increased 6.6% or $31.3 million in the three months ended December 31, 2015 as compared to 2014, due primarily to higher realized annual rent per occupied square foot During the three months ended December 31, 2015, we acquired seven self-storage facilities (three located in Florida and two each in Texas and California), with 0.5 million net rentable square feet, for $71 million During the three months ended December 31, 2015, we completed four newly developed facilities and various expansion projects (0.4 million net rentable square feet) costing $34 million On February 15, 2016, our Board of Trustees declared a regular common quarterly dividend of $1.70 per common share For the year ended December 31, 2015, net income allocable to our common shareholders was $1,053.1 million or $6.07 per diluted common share, compared to $908.2 million or $5.25 in 2014 representing an increase of $144.9 million or $0.82 per diluted common share. The increase is primarily due to (i) a $165.8 million increase in self-storage net operating income and (ii) a $16.0 million increase in gains on sale of real estate, offset partially by (iii) a $22.1 million reduction in equity in earnings of PSB due primarily to reduced gains on disposition in 2015 as compared to 2014 and (iv) a $15.6 million reduction in equity in earnings of Shurgard Europe due primarily to a 16% reduction in the average value of the Euro relative to the dollar For the year ended December 31, 2015, FFO was $8.79 per diluted common share, as compared to $7.98 in 2014, representing an increase of $0.81 per share For the year ended December 31, 2015, we acquired 17 self-storage facilities with an aggregate of 1.3 million net rentable square feet for approximately $169 million. Subsequent to December 31, 2015, we acquired or were under contract to acquire 17 self-storage facilities (seven in Florida, eight in Ohio, one each in South Carolina and Tennessee), with 1.2 million net rentable square feet, for $149 million For the year ended December 31, 2015, we completed 13 newly developed facilities (1.2 million net rentable square feet) at an aggregate cost of $119 million, and various expansion projects with an aggregate cost of $5 million which added 0.1 million net rentable square feet 22 5
Sovran Storage Highlights SOVRAN SELF STORAGE (NYSE: SSS) Achieved adjusted funds from operations per fully diluted common share of $1.28, representing a 13.3% increase over the same period last year Net income available to common shareholders for the fourth quarter of 2015 was $30.0 million or $0.83 per fully diluted common share. For the same period in 2014, net income available to common shareholders was $25.7 million or $0.76 per fully diluted common share Total revenues increased 11.9% over last year s fourth quarter while operating costs increased 10.6%, resulting in an NOI increase of 12.5%. Overall occupancy averaged 89.8% for the period, and rental rates averaged $12.83 per sq. ft Grew same store average occupancy for the quarter by 120 basis points to 90.5% compared to the same period in 2014. Same store occupancy at December 31, 2015, was 90.1%; a full 120 basis points over December 31, 2014 Revenues for the 399 stores wholly owned by the Company since January 1, 2014 increased 6.7% from those of the fourth quarter of 2014, the result of a 120 basis point increase in average occupancy, a 5.0% increase in rental rates and increases in tenant insurance administrative fees and other income During the quarter, the Company acquired one store near Philadelphia, PA at a cost of approximately $6.6 million. It also sold two non-strategic facilities in South Carolina for approximately $4.0 million. Both were acquired as part of a portfolio purchased in September, 2015 As described in its prospectus filed January 19, 2016, the Company entered into contracts to acquire 30 self storage facilities in ten different states for a total purchase price of approximately $398 million (including the Philadelphia store referenced above). The facilities include five single store acquisitions and four portfolio acquisitions; one comprised of 13 stores, and three comprised of four properties each. In aggregate, the newly announced transactions include 21 stabilized properties in the Company s existing markets of Boston/SE New Hampshire (6), Central/Southern Florida (5), Connecticut (2), Dallas (3), Denver (1), New York City metro area (2) and Philadelphia (2). A contract to acquire a recently developed facility in Phoenix, AZ, another market in which the Company has a presence, was also executed. The balance of the acquisitions includes eight properties in the Los Angeles, CA metro area, a new market for the Company. Seven of these properties are stabilized while the eighth property is a newly developed store in North Los Angeles County In addition to the transactions described above, the Company is also under contract to purchase three Certificate of Occupancy properties; two in Chicago, one in Charleston, SC and one in Miami, FL. The Miami property was acquired at a cost of approximately $11 million in February 2016. The Company expects to execute the purchase of the three remaining properties upon completion of construction at various dates later in 2016 for total consideration of approximately $27 million Achieved full year adjusted funds from operations per fully diluted common share of $4.94, representing a 13.3% increase over full year 2014 results. This is the Company s fifth consecutive year of double digit percentage adjusted FFO growth Paid a quarterly dividend of $0.85 per share of common stock 22 6
AMERCO and National Storage Affiliates Highlights AMERCO (NYSE: UHAL) Net earnings available to shareholders for its third quarter ended December 31, 2015, of $81.8 million, or $4.17 per share, compared with net earnings of $66.5 million, or $3.40 per share, for the same period last year Self-storage revenues increased $9.1 million during the second quarter of fiscal 2016, compared with the second quarter of fiscal 2015. We are increasing both the number of rooms rented through acquisitions and by improving occupancy at existing locations Self-storage revenues increased $9.7 million during the third quarter of fiscal 2016, compared with the third quarter of fiscal 2015. We are increasing both the number of rooms rented through acquisitions and by improving occupancy at existing locations. Over the last twelve months we have added approximately 3.6 million net rentable square feet to our owned self-storage portfolio with over 1.2 million of that coming on during the third quarter As of December 31, 2015, Amerco owns 23,178,000 square feet of storage with an occupancy rate of 78.4% NATIONAL STORAGE AFFILIATES (NYSE: NAS) Core funds from operations ( Core FFO ) was $11.6 million, or $0.24 per share for the fourth quarter of 2015, an increase of 14.3% per share compared to Core FFO of $4.2 million, or $0.21 per share, for the fourth quarter of 2014. Core FFO was $35.8 million, or $0.92 per share, for the full year 2015, an increase of 22.7% per share compared to Core FFO of $10.4 million, or $0.75 per share, for the full year 2014 Net operating income ( NOI ) was $25.6 million for the fourth quarter of 2015, an increase of 46.2% compared to NOI of $17.5 million for the fourth quarter of 2014. NOI was $88.5 million for the full year 2015, an increase of 80.4% compared to NOI of $49.1 million for the full year 2014 Acquired 16 self storage properties during the fourth quarter of 2015 for approximately $70.4 million Net income was $5.4 million for the fourth quarter of 2015, compared to a net loss of $2.4 million for the fourth quarter of 2014. This increase was also primarily the result of integrating new property acquisitions and same store NOI growth, combined with reductions in interest expense and acquisition costs, partially offset by an increase in depreciation and amortization Total revenues were $38.3 million for the fourth quarter of 2015, an increase of 43.3% compared to total revenues of $26.7 million for the fourth quarter of 2014. Revenue increases were predominately driven by incremental rental revenue from the integration of multiple acquisitions during 2015, combined with a 320 basis point increase in average total portfolio occupancy for the fourth quarter of 2015 compared to the fourth quarter of 2014, and a 4.5% increase in average annualized rental revenue per occupied square foot for the fourth quarter of 2015 compared to the fourth quarter of 2014 22 7
Financing Update The 4th quarter is always a frantic time for lenders and borrowers, and this year was no different. What did set 4th quarter 2015 apart from past years is a fair amount of uncertainty as interest rates fluctuated significantly from the quarter s beginning to the end. CMBS bond spreads also rose significantly during the quarter causing those rates to widen versus traditional bank loans. This trend will be something to watch heading through 2016 as CMBS had taken a significant amount of the lending business since the recession. CMBS lenders have seen a sharp decline in business largely due to uncertainty in rates and changing requirements with the B-piece buyers. What does this mean for storage owners looking to refinance? If you are in need of non-recourse long-term financing, you will need to accept higher interest rates and more conservative underwriting; however, you might also consider life insurance companies as a viable alternative. Additionally, there are a few specialized banks that offer a long-term, non-recourse product that is currently a cheaper alternative to CMBS in the near term. CMBS does continue to have its place for those who are looking for maximum leverage, non-recourse, long-term loans, and while rates are comparatively higher from other lending options, they are still very low historically. NOEL P. CAIN Managing Partner, Financing Group O: 813.579.6363 D: 414.306.6999 ncain@bayviewadv.com FOURTH QUARTER INTEREST RATE INDEX REPORT 4th quarter was a fairly stable period for long-term interest rates when compared to previous quarters. The 10-year Treasury Rate started the quarter at 2.05% with a high water mark of 2.36% and a closing the month toward at 2.27%. The fourth quarter variance was 37 basis points (0.37%) which was fairly stable when looking back on 2015 which had a high water mark of 2.50% and a low point of 1.68%. 22 8
Industry News MARCH 4, 2016 Blackstone s Gray Sees Lower Real Estate Returns as CMBS Falters: Returns from U.S. commercial real estate are likely to moderate amid capital-market volatility and muted economic growth, said Jon Gray, global head of real estate at Blackstone Group LP. (Bloomberg) MARCH 4, 2016 Tightening U.S. Job Market Keeps Hope Alive Wages Will Grow: Americans are joining the labor force in droves and finding work, casting a vote of confidence in the world s largest economy even as wages continue to lag behind. (Bloomberg) MARCH 4, 2016 Fed: Economy expanded in most districts: The economy expanded in most regions over the past six weeks but activity slowed in some areas as the manufacturing industry continued to struggle, offsetting the recovering housing market and growth in consumer spending, the Federal Reserve said in a report Wednesday. (USA Today) MARCH 4, 2016 Jim Rogers: There s a 100% Probability of a U.S. Recession Within a Year: Rogers Holdings Chairman Jim Rogers is certain that the U.S. economy will be in recession in the next 12 months. (Bloomberg) FEBRUARY 26, 2016 Extra Space soars on acquisitions and lack of development: As the company enters 2016, Extra Space Storage CEO said new industry supply won t affect their performance any time soon but softness in at least one market could partially be to blame on new supply. (Sparefoot) FEBRUARY 23, 2016 Morgan Stanley Says U.S. Commercial Real Estate Price Growth Will Be Flat: Morgan Stanley analysts last week predicted U.S. commercial real estate prices would grow by a big fat zero percent in 2016 (Bloomberg) FEBRUARY 23, 2016 CubeSmart CEO: Development impact modest at best : CubeSmart CEO Chris Marr said he isn t concerned about new self-storage development affecting the company s performance anytime soon. (Sparefoot) FEBRUARY 18, 2015 Public Storage CEO: We are the big dogs : Public Storage CEO Ron Havner said he doesn t know when the amount of new self-storage development will start to impact rental rates but he knows it will happen. (Sparefoot) 22 9
BAYVIEW ADVISORS TEAM CONTACTS JAY J. CROTTY Managing Partner O 813.579.6363 D 813.347.9007 jcrotty@bayviewadv.com FL RE Broker FL RE Lic. No. CQ1047426 THOMAS A. DOYLE Senior Vice President O 813.579.6363 D 813.400.2372 tdoyle@bayviewadv.com FL RE Salesperson FL RE Lic. No. CQ1047426 RYAN N. CLARK Senior Vice President O 813.579.6363 D 216.302.3661 rclark@bayviewadv.com OH RE Salesperson OH RE Lic. No. SAL.2015001542 NOEL P. CAIN Financing Group, Managing Partner O 813.579.6363 D 414.306.6999 ncain@bayviewadv.com bayviewadv.com