Life Storage
Annual Report 2017

Plain-text annual report

2 0 1 7 A N N U A L R E P O R T LIFE STORAGE TRANSFORMATION LIFE STORAGE: AT A GLANCE* *As of 12/31/17 2015 25 years as Sovran/ Uncle Bob’s Self Storage Jul. 2016 Sovran acquires LifeStorage Aug. 2016 Sovran begins trading as Life Storage (LSI) on NYSE Sep. 2016 Brand transformation begins Mar. 2017 Brand transformation complete Dec. 2017 706 Life Storage locations 5.6xDebt to EBITDAInvestment Grade Rated Moody’s: Baa2S&P: BBB91% Same StoreOccupancy32 Years inSelf-StorageBusiness390,000+Customers$4.2 BillionMarket Cap$2.4 BillionOf AcquisitionsIn Past 2 Years122% DividendIncreaseOver Past 5 Years253% 10 YearTotal Return Dear Fellow Shareholders: In 2017 our Company assimilated its tremendous new brand, fully integrated the 122 stores we acquired in 2016. and added another 47 stores to our portfolio. At the end of 2017, we owned 566 high quality self-storage facilities in 28 states, comprising 40 million rentable square feet of storage space. In addition. we managed 140 stores for 3rd parties. bringing the total number of stores carrying the Life Storage brand to 706. comprising 50 mi[ion square feet and servicing almost 400.000 customers. We realized strong growth in our Life Storage Solutions division. with management fee income increasing 75% and ourjoint venture revenues growing by 31% year over year. respectively. The benefits of leveraging the Life Storage name across a broader store base is very powerful - these initiatives provide increased brand penetration on a national and local level and allow us to spread our marketing costs over a growing platform with limited capital commitment from the company. The Life Storage brand resonates with businesses as well evidenced by strong growth in our corporate customer base since we changed our name. The year was not without challenges. The introduction of significant new supply heavily impacted some of our largest markets: notably Houston. Dallas. and Austin. TX: this. combined with rising real estate taxes and internet marketing challenges. put pressure on our operating margins. The impact was reflected in the year's same store revenue growth of 17% and same store NOi increase of o.6%. which. after the tremendous growth exhibited over the past four years. was notably subdued. However. we achieved record high year end occupancy of g1% for our same store portfolio. which puts us in excellent position to defend our market share and improve operating results for 2018 and beyond The Life Storage brand. our talented team of real estate. operations and marketing experts, and our sophisticated operating platforms are the drivers of our ongoing growth and success. These are supported by one of the strongest balance sheets in the sector. We have considerable Liquidity and fire power to act opportunistically. maintain an investment grade rating of BBB. and remain conservatively financed with a debt to enterprise value ofjust 29.5%, a virtually unencumbered asset base. and a net debt to recurring annualized EBITDA ratio of 5.6 times. Several important changes have been made to our Board of Directors and to our senior management team Two of the founders of our Company. RobertAttea. Executive Chairman of the Board. and Kenneth Myszka. President are now stepping down and retiring from the Board after having led Life Storage for over 35 years. Bob. Ken. and I. along with our other co-founder. Chuck Lannon. have worked together since acquiring our very first storage facility in 1985, and we thank them for their outstanding leadership and guidance in building this Company. With their retirement. Dana Hamilton and Edward Pettinella. two seasoned and highly respected REIT veterans. and I. have been appointed to the Board. We join Carol Hansell a corporate governance expert who was added to the Board in 2017. and our four incumbent independent directors in continuing to guide the growth and improvement of our Company. Joseph Saffire was added to our executive management team in 2017, appointed as Chief Investment Officer. Joe brings strong leadership and deal making experience from his former roles as a senior commercial banker at Wells Fargo. HSBC and First Niagara. Looking forward to 2018. we see an industry that. despite temporary headwinds stemming from new supply. remains one of the best cash flow generators in the REIT universe. Our ongoing focus and efforts wm be to leverage our advantage as one of the sector's largest operators to deliver strong organic growth at our 700-plus properties. to use the power of our dominant brand to expand our 3rd party management and joint venture opportunities. and to responsibly grow the value of our Company. Thank you for the confidence you've placed in us. and for your continued support David Rogers. CEO THIS PAGE LEFT BLANK INTENTIONALLY UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 Commission File Number: 1-13820 (Life Storage, Inc.) 0-24071 (Life Storage LP) LIFE STORAGE, INC. LIFE STORAGE LP (Exact name of Registrant as specified in its charter) Maryland (Life Storage, Inc.) Delaware (Life Storage LP) (State of incorporation or organization) 16-1194043 (Life Storage, Inc.) 16-1481551 (Life Storage LP) (I.R.S. Employer Identification No.) 6467 Main Street Williamsville, NY 14221 (Address of principal executive offices) (Zip code) (716) 633-1850 (Registrant’s telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Securities Common Stock, $.01 Par Value Exchanges on which Registered New York Stock Exchange Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Life Storage, Inc. Life Storage LP Life Storage, Inc. Life Storage LP Life Storage, Inc. Life Storage LP Life Storage, Inc. Life Storage LP Yes ☒ Yes ☒ No ☐ No ☐ Yes ☐ Yes ☐ No ☒ No ☒ Yes ☒ Yes ☒ No ☐ No ☐ ☒ ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Life Storage, Inc. Life Storage LP Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted No ☐ No ☐ Yes ☒ Yes ☒ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Life Storage, Inc.: Large accelerated filer Non-accelerated filer Emerging growth company Life Storage LP: Large accelerated filer Non-accelerated filer Emerging growth company ☒ ☐ (Do not check if a small reporting company) ☐ ☒ ☐ (Do not check if a small reporting company) ☐ Accelerated filer Smaller reporting company Accelerated filer Smaller reporting company ☐ ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Life Storage, Inc. Life Storage LP Yes ☐ Yes ☐ No ☒ No ☒ As of June 30, 2017, 46,565,213 shares of Life Storage, Inc.’s Common Stock, $.01 par value per share, were outstanding, and the aggregate market value of the Common Stock held by non-affiliates of Life Storage, Inc. was approximately $3,450,482,283 (based on the closing price of the Common Stock on the New York Stock Exchange on June 30, 2017). As of February 12, 2018, 46,515,831 shares of Common Stock, $.01 par value per share, were outstanding. As of June 30, 2017, the aggregate market value of the 217,481 units of limited partnership (the “OP Units”) held by non-affiliates of Life Storage LP was $16,115,342 (based on the closing price of the Common Stock of Life Storage, Inc. on the New York Stock Exchange on June 30, 2017). (For this calculation, the market value of all OP Units beneficially owned by Life Storage, Inc. has been excluded.) Portions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrants’ fiscal year ended December 31, 2017. DOCUMENTS INCORPORATED BY REFERENCE EXPLANATORY NOTE This report combines the annual reports on Form 10-K for the year ended December 31, 2017 of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”). The Parent Company is a real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership. Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership, and through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 99.5% ownership interest therein as of December 31, 2017. The remaining ownership interests in the Operating Partnership are held by certain former owners of assets acquired by the Operating Partnership. As the owner of the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management. Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical. There are few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the owner of the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership. The substantive difference between the Parent Company’s filings and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or capital for the Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of shareholders’ equity (or partners’ capital). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical. The Company believes that combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into a single report will: • • • facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business; remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and create time and cost efficiencies through the preparation of one combined report instead of two separate reports. In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership. 2 As the owner of the general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company. This report also includes separate Item 9A - Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended and 18 U.S.C. §1350. 3 TABLE OF CONTENTS Part I......................................................................................................................................................................................................... Item 1. Business .................................................................................................................................................................................. Item 1A. Risk Factors ......................................................................................................................................................................... Item 1B. Unresolved Staff Comments ................................................................................................................................................ Item 2. Properties ................................................................................................................................................................................ Item 3. Legal Proceedings................................................................................................................................................................... Item 4. Mine Safety Disclosures ......................................................................................................................................................... Part II .................................................................................................................................................................................................. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.............. Item 6. Selected Financial Data........................................................................................................................................................... Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.................................................. Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................................................. Item 8. Financial Statements and Supplementary Data ....................................................................................................................... Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................. Item 9A. Controls and Procedures ...................................................................................................................................................... Item 9B. Other Information................................................................................................................................................................. Part III ................................................................................................................................................................................................. Item 10. Directors, Executive Officers and Corporate Governance .................................................................................................... Item 11. Executive Compensation....................................................................................................................................................... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............................. Item 13. Certain Relationships and Related Transactions, and Director Independence ...................................................................... Item 14. Principal Accountant Fees and Services ............................................................................................................................... Part IV................................................................................................................................................................................................. Item 15. Exhibits, Financial Statement Schedules .............................................................................................................................. Item 16. Form 10-K Summary ............................................................................................................................................................ SIGNATURES......................................................................................................................................................................................... 5 5 10 15 16 17 17 18 18 20 23 33 33 66 66 70 70 70 70 70 70 70 71 71 76 77 EX-3.1 EX-10.19 EX-10.24 EX-10.25 EX-10.27 EX-12.1 EX-21.1 EX-23.1 EX-23.2 EX-31.1 EX-31.2 EX-31.3 EX-31.4 EX-32.1 EX-32.2 EX-101 4 Part I When used in this discussion and elsewhere in this document, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self- storage facilities, which would cause rents and occupancy rates to decline; the Company’s ability to evaluate, finance and integrate acquired businesses into the Company’s existing business and operations; the Company’s ability to effectively compete in the industry in which it does business; the Company’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company’s outstanding floating rate debt; the Company’s ability to comply with debt covenants; any future ratings on the Company’s debt instruments; regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and tax law changes that may change the taxability of future income. Item 1. Business The Company is a self-administered and self-managed real estate company that acquires, owns and manages self-storage properties. We refer to the self-storage properties in which we have an ownership interest, lease, and/or are managed by us as “Properties.” We began operations on June 26, 1995. We were formed to continue the business of our predecessor company, which had engaged in the self-storage business since 1985. At December 31, 2017, we had an ownership interest in and/or managed 706 self-storage properties in 28 states under the name Life Storage ®. Among our 706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures, 42 properties that we manage and have no ownership interest, and two properties that we lease. We believe we are the fifth largest operator of self-storage properties in the United States based on square feet owned and managed. Our Properties conduct business under the customer-friendly name Life Storage ®. At December 31, 2017, the Parent Company owned a direct or indirect interest in 662 of the Properties through the Operating Partnership, which includes 564 wholly-owned properties and 98 properties owned by unconsolidated joint ventures. In total, we own a 99.5% economic interest in the Operating Partnership and unaffiliated third parties collectively own a 0.5% limited partnership interest at December 31, 2017. We believe that this structure, commonly known as an umbrella partnership real estate investment trust (“UPREIT”), facilitates our ability to acquire properties by using units of the Operating Partnership as currency. By utilizing interests in the Operating Partnership as currency in facility acquisitions, we may partially defer the seller’s income tax liability which in turn may allow us to obtain more favorable pricing. The Parent Company was incorporated on April 19, 1995 under Maryland law. The Operating Partnership was formed on June 1, 1995 as a Delaware limited partnership and has engaged in virtually all aspects of the self-storage business, including the development, acquisition, management, ownership and operation of self-storage facilities. Our principal executive offices are located at 6467 Main Street, Williamsville, New York 14221, our telephone number is (716) 633-1850 and our website is www.lifestorage.com. We seek to enhance shareholder value through internal growth and acquisition of additional storage properties. Internal growth is achieved through aggressive property management: optimizing rental rates, increasing occupancy levels, controlling costs, maximizing collections, and strategically expanding and enhancing the Properties. Should demographic and economic conditions warrant, we may develop new properties. We believe that there continues to be opportunities for growth through acquisitions, including acquisitions through unconsolidated joint ventures of the Company. We seek to acquire self-storage properties that are susceptible to realization of increased economies of scale and improved performance through application of our expertise. Industry Overview We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Modern facilities, such as those owned and/or managed by the Company, are usually fenced and well lighted with automated access systems, surveillance cameras, and have a full-time manager. Our customers rent space on a month-to-month basis and typically have access to their storage space up to 15 hours a day and in certain circumstances are provided with 24-hour access. Individual storage spaces are secured by the customer’s lock, and the customer has control of access to the space. According to the 2018 Self-Storage Almanac, of the estimated 44,000 core self-storage facilities in the United States (those properties identified as having self-storage operated as the core business at the address), approximately 19.2% are managed by the ten largest operators. This results in a highly fragmented industry as the remainder of the industry is characterized by numerous small, local operators. The scarcity of capital available to small operators for acquisitions and expansions, internet marketing, call centers, and the potential for savings through economies of scale are factors that are leading to consolidation in the industry. We believe that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources to grow either through acquisitions or third- party management platforms. 5 Property Management We have over 30 years of experience acquiring and managing self-storage facilities, and the combined experience of our key personnel makes us one of the leaders in the industry. We employ the following strategies with respect to our property management: Our People: We recognize the importance of quality people to the success of an organization. Accordingly, we hire and train to ensure that associates can reach their full potential. We strive to ensure that each associate conducts themselves in accordance with our core values: Teamwork, Respect, Accountability, Integrity, and Innovation. In turn, we support them with state of the art training tools including an online learning management system, a company intranet and a network of certified training personnel. Every store team also has frequent, and sometimes daily, interaction with an Area Manager, a Regional Vice President, an Accounting Representative, and other support personnel. As such, our store associates are held to high standards for customer service, store appearance, financial performance, and overall operations. Training & Development: Our employees benefit from a wide array of training and development opportunities. New store employees undergo a comprehensive, proprietary training program designed to drive sales and operational results while ensuring the delivery of quality customer service. To supplement their initial training, employees enjoy continuing edification, coaching, and performance feedback, including customer satisfaction surveying, throughout their tenure. All learning and development activities are facilitated through our online training and development portal. This portal delivers and tracks hundreds of computer-based training and compliance courses; it also administers tests, surveys, and the employee appraisal process. The Company’s training and development program encompasses the tools and support we deem essential to the success of our employees and business. Marketing and Advertising: The digital age has changed consumer behavior – the way people shop, their expectations, and the way we communicate with them. As such, we utilize the following strategies to market our properties and products: • We employ a Customer Care Center (call center) that services an average of 43,000 rental inquiries per month. Our Sales Representatives answer incoming sales calls for all of our locations, 364 days a year, 24 hours a day. In addition, they respond to email inquiries and serve as overnight customer service agents to assist customers outside of regular office hours. The team undergoes continuous training and coaching in effective storage sales techniques and best practices in customer service, which we believe results in higher conversions of inquiries to rentals. • We maintain a website and involve internal and external expertise to manage our internet presence and leverage a search engine and social media marketing strategy to attract customers and gain rentals online, through our call center and at our stores. Precise targeting and tracking through campaign management and analysis allows us to attract the right customers, at the right time, for reasonable costs of acquisition. • • Since the need for storage is largely based on timing, the goal is to create positive brand recognition through a variety of channels, both digital and traditional. When the time comes for a customer to select a storage company, we want the Life Storage brand to be on the top of their mind. We employ a variety of different strategies to create brand awareness; this includes our Life Storage rental trucks, branded merchandise such as moving and packing supplies, extensive regional marketing in the communities in which we operate, and digital targeting using search, social media and remarketing campaigns. We strive to introduce storage solutions early and often to gain the most exposure as possible for the longest amount of time. Approximately 47% of our self-storage space is comprised of units with temperature and/or humidity control capabilities which we market to corporate, retail and residential customers seeking storage solutions for valuable, sentimental, or otherwise sensitive items. • We also have a fleet of rental trucks that serve as an added incentive to choose our storage facilities. We waive the truck rental charge for new move-in customers, and we believe it provides a valuable service and added incentive to choose Life Storage. Further, the prominent display of our logo turns each truck into a moving billboard. Ancillary Income: We know that our 393,000 customers require more than just a storage space. Knowing this, we offer a wide range of other products and services that fulfill their needs while providing us with ancillary income. Whereas our Life Storage trucks are available with no rental charge for new move-in customers, they are available for rent to non-customers and existing customers. We also rent moving dollies and blankets, and we carry a wide assortment of moving and packing supplies including boxes, tape, locks, and other essential items. For those customers who do not carry storage insurance, we make available renters insurance through a third party carrier, on which we earn an administrative fee. We also receive incidental income from billboards and cell towers. 6 Information Systems: Each of our primary business functions is linked to our customized computer applications, many of which are proprietary. These systems provide for consistent, timely and accurate flow of information throughout our critical platforms: • • • • Our proprietary operating software (“ubOS”) is installed at all locations and performs the functions necessary for field personnel to efficiently and effectively run a property. This includes customer account management, automatic imposition of late fees, move-in and move-out analysis, generation of essential legal notices, and marketing reports to aid in regional marketing efforts. Financial reports are automatically transmitted to our Corporate Offices overnight to allow for strict accounting oversight. ubOS is linked with each of our primary sales channels (customer care center, internet, store) allowing for real-time access to space type and inventory, pricing, promotions, and other pertinent store information. This robust flow of information facilitates our commitment to capturing prospective customers from all channels. ubOS provides our revenue management team with raw data on historical pricing, move-in and move-out activity, specials and occupancies, etc. This data is utilized in the various algorithms that form the foundation of our revenue management program. Changes to pricing and specials are “pushed out” to all sales channels instantaneously. ubOS generates financial reports for each property that provide our accounting and audit departments with the necessary oversight of transactions; this allows us to maintain proper control of receipts. Revenue Management: Our proprietary revenue management system is constantly evolving through the efforts of our revenue management team comprised of a group of analysts. We have the ability to change pricing instantaneously for any single unit type, at any single location, based on the occupancy, competition, and forecasted changes in demand. By analyzing current customer rent tenures, we can implement rental rate increases at optimal times to increase revenues. Advanced pricing analytics enables us to reduce the amount of concessions, attracting a more stable customer base and discouraging short-term price shoppers. This system continues to drive revenue stability and/or growth throughout our portfolio. Property Maintenance: We take great pride in the appearance and structural integrity of our Properties. All of our Properties go through a thorough annual inspection performed by experienced project managers. These inspections provide the basis for short and long term planned projects that are all performed under a standardized set of specifications. Routine maintenance such as landscaping, pest control, and snowplowing is contracted to local providers to whom we clearly communicate our standards. Further, our software tracks repairs, monitors contractor performance and measures the useful life of assets. As with many other aspects of our Company, our size has allowed us to enjoy relatively low maintenance costs because we have the benefit of economies of scale in purchasing, travel, and overhead absorption. In addition, we continually look to green alternatives and implement energy saving alternatives as new technology becomes available. This includes the installation of solar panels, LED lighting, energy efficient air conditioning units, and cool roofs which are all environmentally friendly and have the potential to reduce energy consumption (thereby reducing costs) in the buildings in which they are installed. We continue to implement and expand the Company’s solar panel initiative which has reduced energy consumption and costs at those installed locations. Environmental and Other Regulations We are subject to federal, state, and local environmental regulations that apply generally to the ownership of real property. We have not received notice from any governmental authority or private party of any material environmental noncompliance, claim, or liability in connection with any of the Properties, and are not aware of any environmental condition with respect to any of the Properties that could have a material adverse effect on our financial condition or results of operations. The Properties are also generally subject to the same types of local regulations governing other real property, including zoning ordinances. We believe that the Properties are in substantial compliance with all such regulations. Insurance Each of the Properties is covered by fire and property insurance (including comprehensive liability and business interruption), and all- risk property insurance policies, which are provided by reputable companies and on commercially reasonable terms. In addition, we maintain a policy insuring against environmental liabilities resulting from tenant storage on terms customary for the industry, and title insurance insuring fee title to the Company-owned Properties in an amount that we believe to be adequate. 7 Federal Income Tax We operate, and we intend to continue to operate, in such a manner as to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. We have elected to treat one of our subsidiaries as a taxable REIT subsidiary. In general, our taxable REIT subsidiary may perform additional services for customers and generally may engage in certain real estate or non-real estate related business. Our taxable REIT subsidiary is subject to corporate federal and state income taxes. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - REIT Qualification and Distribution Requirements.” The Tax Cuts and Jobs Act The Tax Cuts and Jobs Act (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on December 22, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time. We cannot predict the long-term effect of the TCJA or any future law changes on us or our shareholders. A brief summary of the key changes from the TCJA that directly impact us and, potentially, our shareholders is set forth below. The changes described are effective for taxable years beginning after December 31, 2017, unless otherwise noted. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, will apply to income earned by our taxable REIT subsidiary. This reduced rate also applies to the amount that we must withhold from our distributions to non-U.S. shareholders that are designated as capital gain dividends (or that could have been designated as capital gain dividends). The TCJA also repeals the alternative minimum tax imposed on C corporations. The TCJA reduces the highest marginal income tax rate applicable to U.S. individuals from 39.6% to 37% (excluding the 3.8% Medicare tax on net investment income). Domestic non-corporate taxpayers continue to pay a maximum 20% rate on long-term capital gains and qualified dividend income. However, the TCJA also will allow domestic non-corporate taxpayers to deduct 20% of their dividends from REITs, excluding capital gain dividends and qualified dividend income (which continue to be subject to the 20% rate). As a result, dividend income received by our domestic non-corporate shareholders will be subject to a maximum effective federal income tax rate of 29.6% (plus the 3.8% Medicare tax on net investment income). The cumulative amount that a domestic non-corporate taxpayer may deduct for any taxable year with respect to ordinary REIT dividends from all sources (together with certain other categories of income that are eligible for such 20% deduction) may not exceed 20% of such person’s total taxable income (excluding any net capital gain). The income tax rate changes applicable to domestic non-corporate taxpayers and the 20% deduction for ordinary REIT dividends apply for taxable years beginning after December 31, 2017 and before January 1, 2026. The TCJA generally limits the deduction for net business interest to 30% of adjusted taxable income (excluding non-business income, net operating losses, business interest income, and, for taxable years beginning before January 1, 2022, computed without regard to depreciation and amortization). This limitation on the deductibility of net business interest could result in additional taxable income for us and our taxable REIT subsidiary. Competition The primary factors upon which competition in the self-storage industry is based are location, rental rates, suitability of the property’s design to prospective customers’ needs, and how the property is operated and marketed. We believe we compete successfully on these factors. The extent of competition depends significantly on local market conditions. We seek to locate where we can increase market share while not adversely affecting any of our existing locations in that market. However, the number of self-storage facilities in a particular area could have a material adverse effect on the performance of any of the Properties. Several of our competitors are larger and have substantially greater financial resources than we do. These larger operators may, among other possible advantages, be capable of greater leverage and the payment of higher prices for acquisitions. Investment Policy While we emphasize equity real estate investments, we may, at our discretion, invest in mortgage and other real estate interests related to self-storage properties in a manner consistent with our qualification as a REIT. We may also retain a purchase money mortgage for a portion of the sale price in connection with the disposition of Properties from time to time. Should investment opportunities become available, we may look to acquire additional self-storage properties via new or existing joint-venture partnerships or similar entities. We may or may not elect to have a significant investment in such a venture, but would use such an opportunity to expand our portfolio of branded and managed properties. Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, we also may invest in securities of entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities. 8 Disposition Policy Any disposition decision of our Properties is based on a variety of factors, including, but not limited to, the (i) potential to continue to increase cash flow and value, (ii) sale price, (iii) strategic fit with the rest of our portfolio, (iv) potential for, or existence of, environmental or regulatory issues, (v) alternative uses of capital, and (vi) maintaining qualification as a REIT. During 2017, the Company sold two non-strategic properties and received net cash proceeds of $16.9 million, resulting in a loss of a approximately $3.5 million. The Company has subsequently leased one of the properties sold during 2017 and will continue to operate the property through March 2020. Due to the Company’s continuing involvement in this property, the related gain on the sale of this property has been deferred and will be recognized by the Company upon termination of this lease. During 2016, we sold eight non-strategic properties in Alabama, Georgia, Mississippi, Texas and Virginia for net proceeds of approximately $34.1 million, resulting in a gain of approximately $15.3 million. During 2015, we sold three non-strategic storage facilities in Missouri and South Carolina for net proceeds of approximately $4.6 million, resulting in a loss of approximately $0.5 million. Distribution Policy We intend to pay regular quarterly distributions to our shareholders. However, future distributions by us will be at the discretion of the Board of Directors and will depend on the actual cash available for distribution, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our REIT taxable income (which does not include capital gains or losses). Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the minimum requirements. Financing Policy Our Board of Directors currently limits the amount of debt that may be incurred by us to less than 50% of the sum of the market value of our issued and outstanding Common and Preferred Stock plus our debt. We, however, may from time to time re-evaluate and modify our borrowing policy considering current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors. In addition to our Board of Directors’ debt limits, our most restrictive debt covenants limit our leverage. However, we believe cash flow from operations, access to the capital markets and access to our credit facility, as described below, are adequate to execute our current business plan and remain in compliance with our debt covenants. The following sets forth certain financing activities during the year ended December 31, 2017. On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal of 3.875% unsecured senior notes due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027 Senior Notes is payable semi-annually on June 15 and December 15, beginning on June 15, 2018. The 2027 Senior Notes are fully and unconditionally guaranteed by the Parent Company. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting and other offering expenses totaling $4.0 million, totaled $443.9 million. The proceeds were primarily used to repay $225.0 million of the Company’s then existing variable rate term notes and to repay $210.0 million of the then outstanding balance on the Company’s line of credit. Amounts outstanding on the Company’s line of credit at December 31, 2017 totaled $105.0 million. To the extent that we desire to obtain additional capital to pay distributions, to provide working capital, to pay existing indebtedness or to finance acquisitions, expansions or development of new properties, we may utilize amounts available under the line of credit, common or preferred stock offerings, floating or fixed rate debt financing, retention of cash flow (subject to satisfying our distribution requirements under the REIT rules) or a combination of these methods. Additional debt financing may also be obtained through mortgages on our Properties, which may be recourse, non-recourse, or cross-collateralized and may contain cross-default provisions. We have not established any limit on the number or amount of mortgages that may be placed on any single Property or on our portfolio as a whole, although certain of our existing term loans contain limits on overall mortgage indebtedness. For additional information regarding borrowings and equity activities, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Notes 5 and 6 to the Consolidated Financial Statements filed herewith. Employees We currently employ a total of 1,792 employees, including 706 property managers, 47 area managers, and 785 associate managers and part-time employees. At our headquarters, in addition to our five senior executive officers, we employ 249 people engaged in various support activities, including accounting, human resources, customer care, and management information systems. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be excellent. 9 Available Information We file with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively, current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. We file this information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our web site at http://www.lifestorage.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, our Codes of Ethics and Charters of our Governance Committee, Audit Committee, and Compensation Committee are available free of charge on our website at http://www.lifestorage.com . Also, copies of our annual report and Charters of our Governance Committee, Audit Committee, and Compensation Committee will be made available, free of charge, upon written request to Life Storage, Inc., Attn: Investor Relations, 6467 Main Street, Williamsville, NY 14221. Item 1A. Risk Factors You should carefully consider the risks described below, together with all of the other information included in or incorporated by reference into our Form 10-K, as part of your evaluation of the Company. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline, and you may lose all or part of your investment. Our Acquisitions May Not Perform as Anticipated We have completed hundreds of acquisitions of self-storage facilities since our initial public offering of common stock in June 1995. One of our strategies is to continue to grow by acquiring additional self-storage facilities. Acquisitions entail risks that investments will fail to perform in accordance with our expectations. Our judgments with respect to the prices paid for acquired self-storage facilities and the costs of any improvements required to bring an acquired property up to our standards may prove to be inaccurate. Acquisitions also involve general investment risks associated with any new real estate investment. We May Incur Problems with Our Real Estate Financing Unsecured Credit Facility, Term Notes and Senior Notes. We have a line of credit and term note agreements with a syndicate of financial institutions and other lenders, along with senior debt of $1,050 million. This indebtedness is recourse to us and the required payments are not reduced if the economic performance of any of the properties declines. The facilities limit our ability to make distributions to our shareholders, except in limited circumstances. Rising Interest Rates. Indebtedness that we incur under the unsecured credit facility and bank term notes bears interest at a variable rate. Accordingly, increases in interest rates could increase our interest expense, which would reduce our cash available for distribution and our ability to pay expected distributions to our shareholders. We manage our exposure to rising interest rates using interest rate swaps and other available mechanisms. If the amount of our indebtedness bearing interest at a variable rate increases, our unsecured credit facility may require us to enter into additional interest rate swaps. Refinancing May Not Be Available. It may be necessary for us to refinance our indebtedness through additional debt financing or equity offerings. If we were unable to refinance this indebtedness on acceptable terms, we might be forced to dispose of some of our self-storage facilities upon disadvantageous terms, which might result in losses to us and might adversely affect the cash available for distribution. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on any refinancings, our interest expense would increase, which would adversely affect our cash available for distribution and our ability to pay expected distributions to shareholders. Covenants and Risk of Default. Our loan instruments require us to operate within certain covenants, including financial covenants with respect to leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and dividend limitations. If we violate any of these covenants or otherwise default under these instruments, then our lenders could declare all indebtedness under these facilities to be immediately due and payable which would have a material adverse effect on our business and could require us to sell self-storage facilities under distressed conditions and seek replacement financing on substantially more expensive terms. Reduction in or Loss of Credit Rating. Certain of our debt instruments require us to maintain an investment grade rating from at least one and in some cases two debt ratings agencies. Should we receive a reduction in our credit rating from the agencies, the interest rate on our line of credit would increase by up to 0.50% and the interest rate on $100 million of our bank term notes would increase by up to 0.65%. Should we fail to attain an investment grade rating from the agencies, the interest rates on our $100 million term note due 2021 and our $175 million term note due 2024 would each increase by 1.750%. 10 Our Debt Levels May Increase Our Board of Directors currently has a policy of limiting the amount of our debt at the time of incurrence to less than 50% of the sum of the market value of our issued and outstanding common stock and preferred stock plus the amount of our debt at the time that debt is incurred. However, our organizational documents do not contain any limitation on the amount of indebtedness we might incur. Accordingly, our Board of Directors could alter or eliminate the current policy limitation on borrowing without a vote of our shareholders. We could become highly leveraged if this policy were changed. However, our ability to incur debt is limited by covenants in our debt instruments. We Are Subject to the Risks Posed by Fluctuating Demand and Significant Competition in the Self-Storage Industry Our self-storage facilities are subject to all operating risks common to the self-storage industry. These risks include but are not limited to the following: • • • • Decreases in demand for rental spaces in a particular locale; Changes in supply of similar or competing self-storage facilities in an area; Changes in market rental rates; and Inability to collect rents from customers. Our current strategy is to acquire interests only in self-storage facilities. Consequently, we are subject to risks inherent in investments in a single industry. Our self-storage facilities compete with other self-storage facilities in their geographic markets. Due to competition, the self- storage facilities could experience a decrease in occupancy levels and rental rates, which would decrease our cash available for distribution. We compete in operations and for acquisition opportunities with companies that have substantial financial resources. Competition may reduce the number of suitable acquisition opportunities offered to us and increase the bargaining power of property owners seeking to sell. The self- storage industry has at times experienced overbuilding in response to perceived increases in demand. A recurrence of overbuilding might cause us to experience a decrease in occupancy levels, limit our ability to increase rents, and compel us to offer discounted rents. Our Real Estate Investments Are Illiquid and Are Subject to Uninsurable Risks and Government Regulation General Risks. Our investments are subject to varying degrees of risk generally related to the ownership of real property. The underlying value of our real estate investments and our income and ability to make distributions to our shareholders are dependent upon our ability to operate the self-storage facilities in a manner sufficient to maintain or increase cash available for distribution. Income from our self-storage facilities may be adversely affected by the following factors: • • • • • • • • • • • Changes in national economic conditions; Changes in general or local economic conditions and neighborhood characteristics; Competition from other self-storage facilities; Changes in interest rates and in the availability, cost and terms of financing; The impact of present or future environmental legislation and compliance with environmental laws; The ongoing need for capital improvements, particularly in older facilities; Changes in real estate tax rates and other operating expenses; Adverse changes in governmental rules and fiscal policies; Uninsured losses resulting from casualties associated with civil unrest, acts of God, including natural disasters, and acts of war; Adverse changes in zoning laws; and Other factors that are beyond our control. Illiquidity of Real Estate May Limit its Value. Real estate investments are relatively illiquid. Our ability to vary our portfolio of self- storage facilities in response to changes in economic and other conditions is limited. In addition, provisions of the Code may limit our ability to profit on the sale of self-storage facilities held for fewer than two years. We may be unable to dispose of a facility when we find disposition advantageous or necessary and the sale price of any disposition may not equal or exceed the amount of our investment. 11 Uninsured and Underinsured Losses Could Reduce the Value of our Self Storage Facilities. Some losses, generally of a catastrophic nature, that we potentially face with respect to our self-storage facilities may be uninsurable or not insurable at an acceptable cost. Our management uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to acquiring appropriate insurance on our investments at a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to a particular property. Possible Liability Relating to Environmental Matters. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in that property. Those laws often impose liability even if the owner or operator did not cause or know of the presence of hazardous or toxic substances and even if the storage of those substances was in violation of a customer’s lease. In addition, the presence of hazardous or toxic substances, or the failure of the owner to address their presence on the property, may adversely affect the owner’s ability to borrow using that real property as collateral. In connection with the ownership of the self-storage facilities, we may be potentially liable for any of those costs. Americans with Disabilities Act. The Americans with Disabilities Act of 1990, or ADA, generally requires that buildings be made accessible to persons with disabilities. A determination that we are not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. If we were required to make modifications to comply with the ADA, our results of operations and ability to make expected distributions to our shareholders could be adversely affected. There Are Limitations on the Ability to Change Control of the Company Limitation on Ownership and Transfer of Shares. To maintain our qualification as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code. To limit the possibility that we will fail to qualify as a REIT under this test, our Amended and Restated Articles of Incorporation (“Articles of Incorporation”) include ownership limits and transfer restrictions on shares of our stock. Our Articles of Incorporation limit ownership of our issued and outstanding stock by any single shareholder to 9.8% of the aggregate value of our outstanding stock, except that the ownership by some of our shareholders is limited to 15%. These ownership limits may: • • Have the effect of precluding an acquisition of control of the Company by a third party without consent of our Board of Directors even if the change in control would be in the interest of shareholders; and Limit the opportunity for shareholders to receive a premium for shares of our common stock they hold that might otherwise exist if an investor were attempting to assemble a block of common stock in excess of 9.8% or 15%, as the case may be, of the outstanding shares of our stock or to otherwise effect a change in control of the Company. Our Board of Directors may waive the ownership limits if it is satisfied that ownership by those shareholders in excess of those limits will not jeopardize our status as a REIT under the Code or in the event it determines that it is no longer in our best interests to be a REIT. Waivers have been granted to the former holders of our Series C preferred stock, FMR Corporation, Cohen & Steers, Inc. and Invesco Advisers, Inc. A transfer of our common stock and/or preferred stock to a person who, as a result of the transfer, violates the ownership limits may not be effective under some circumstances. Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of our outstanding common stock might receive a premium for their shares of our common stock that exceeds the then prevailing market price or that those holders might believe to be otherwise in their best interest. The issuance of shares of preferred stock could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the shareholders’ interest. In addition, the Maryland General Corporation Law, or MGCL, imposes restrictions and requires specific procedures with respect to the acquisition of stated levels of share ownership and business combinations, including combinations with interested shareholders. These provisions of the MGCL could have the effect of delaying or preventing a change in control of Life Storage even if a change in control were in the shareholders’ interest. Our bylaws contain a provision exempting from the MGCL control share acquisition statute any and all acquisitions by any person of shares of our stock. However, this provision may be amended or eliminated at any time. In addition, under the Operating Partnership’s agreement of limited partnership, in general, we may not merge, consolidate or engage in any combination with another person or sell all or substantially all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the Operating Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof. If we were to own less than 75% of the limited partnership interests in the Operating Partnership, this provision of the limited partnership agreement could have the effect of delaying or preventing us from engaging in some change of control transactions. 12 Our Failure to Qualify as a REIT Would Have Adverse Consequences We intend to continue to operate in a manner that will permit us to qualify as a REIT under the Code. We have not requested and do not plan to request a ruling from the Internal Revenue Service (“IRS”) that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Continued qualification as a REIT depends upon our continuing ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders. The fact that we hold substantially all of our assets through our Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts and the IRS might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT. If we were to fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to federal income tax (including possibly increased state and local taxes) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, we also would be ineligible for qualification as a REIT for the four taxable years following the year during which our qualification was lost. As a result, distributions to the shareholders would be reduced for each of the years involved. Although we currently intend to continue 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 Directors to revoke our REIT election. If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure. We Will Pay Some Taxes Even if We Qualify as a REIT, Reducing Cash Available for Shareholders Even if we qualify as a REIT for federal income tax purposes, we are required to pay some federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we will undertake sales of assets if those assets become inconsistent with our long-term strategic or return objectives, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise. The need to avoid prohibited transactions could cause us to forego or defer sales of properties that might otherwise be in our best interest to sell. One of our subsidiaries has elected to be treated as a “taxable REIT subsidiary” of the Company for federal income tax purposes. A taxable REIT subsidiary is taxed as a regular corporation and is limited in its ability to deduct interest payments made to us in excess of a certain amount, in addition to other limitations imposed on the deductibility of interest under the TCJA. In addition, if we receive or accrue certain amounts and the underlying economic arrangements between our taxable REIT subsidiary and us are not comparable to similar arrangements among unrelated parties, we will be subject to a 100% penalty tax on those payments in excess of amounts deemed reasonable between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we are or any taxable REIT subsidiary is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to shareholders. 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 or manages the risk of certain currency fluctuations, 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. 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 taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiary 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 taxable REIT subsidiary arising after December 31, 2017 will generally not provide any tax benefit, except for being carried forward against future taxable income in the taxable REIT subsidiary. 13 Complying with the REIT Requirements May Cause Us to Forgo and/or Liquidate Otherwise Attractive Investments To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our shareholders and the ownership of our shares. 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 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. If the Operating Partnership Fails to Qualify as a Partnership for Federal Income Tax Purposes, We Could Fail to Qualify as a REIT and Suffer Other Adverse Consequences We believe that the Operating Partnership is organized and operated in a manner so as to be treated as a partnership and not an association or a publicly traded partnership taxable as a corporation, for federal income tax purposes. As a partnership, the Operating Partnership is not subject to federal income tax on its income. Instead, each of the partners is allocated its share of the Operating Partnership’s income. No assurance can be provided, however, that the IRS will not challenge the Operating Partnership’s status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership as an association or publicly traded partnership taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT. Also, the failure of the Operating Partnership to qualify as a partnership would cause it to become subject to federal corporate income tax, which would reduce significantly the amount of its cash available for distribution to its partners, including us. The Tax Cuts and Jobs Act May Impact the Attractiveness of an Investment in our Stock in Ways Difficult to Anticipate The Tax Cuts and Jobs Act (the “TCJA”), signed into law in late 2017, significantly changed the U.S. federal income tax law applicable, and is generally for taxable years beginning after December 31, 2017. The TCJA reduced corporate and non-corporate income tax rates and changed numerous other provisions of the Code that may affect the taxation of REITs and their shareholders. These changes generally appear favorable to REITs; however, certain changes to the U.S. federal income tax laws pursuant to the TCJA could have a material and adverse effect on us. Some of these changes could reduce the relative competitive advantage of companies operating as REITs as opposed to companies not operating as REITs, including: • • • the reduction in tax rates applicable to individuals and C corporations, which could reduce the relative attractiveness of the generally single-level of taxation on REIT distributions; the immediate expensing of capital expenditures, which could likewise reduce the relative attractiveness of the REIT structure; and the limit on the deductibility of interest expense, which could increase the distribution requirement of REITs. Many changes applicable to individual taxpayers are temporary – applying to taxable years beginning after December 31, 2017 and before January 1, 2026. The TCJA makes numerous other changes to the tax law that do not affect REITs directly, but these changes could impact our shareholders and, therefore, could indirectly affect us. Furthermore, the TCJA was adopted in a short period of time without hearings. It is likely that Congress will have to review, and possibly modify, provisions of the TCJA in subsequent tax legislation. It is not possible to predict if or when Congress will address changes to the TCJA or when the Internal Revenue Service will issue administrative guidance on the changes made by the TCJA or how any such changes will impact us or an investment in our stock. It is possible that future changes to tax law or guidance promulgated thereunder could adversely impact us. Shareholders are urged to consult with their tax advisors about the TCJA and any other regulatory or administrative developments and proposals with respect to taxes and their potential effect on investment in our stock. U.S. Federal Income Tax Treatment of REITs and Investments in REITs May Change, Which May Result in the Loss of Our Tax Benefits of Operating as a REIT Current U.S. federal income tax treatment of a REIT and an investment in a REIT may be modified by legislative, judicial or administrative action at any time, and we cannot predict when such action may occur. We cannot predict how changes in U.S. federal income tax law will affect us or our investors nor can we predict the long-term impact of tax reforms on REITs. We May Change the Dividend Policy for Our Common Stock in the Future In 2017, our Board of Directors authorized and we declared quarterly common stock dividends of $0.95 per share in January, and $1.00 per share for April, July and October, for a total 2017 dividend per share annual rate of $3.95 per share. In addition, our Board of Directors authorized and we declared a quarterly common stock dividend of $1.00 per share in January 2018. We can provide no assurance that our Board of Directors will not reduce or eliminate entirely dividend distributions on our common stock in the future. 14 Our Board of Directors will continue to evaluate our distribution policy on a quarterly basis as they monitor the capital markets and the impact of the economy on our operations. The decisions to authorize and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Directors given conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. Any change in our dividend policy could have a material adverse effect on the market price of our common stock. Market Interest Rates May Influence the Price of Our Common Stock One of the factors that may influence the price of our common stock in public trading markets or in private transactions is the annual yield on our common stock as compared to yields on other financial instruments. An increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the price of our common stock. Regional Concentration of Our Business May Subject Us to Economic Downturns in the States of Texas and Florida As of December 31, 2017, 254 of our 706 self-storage facilities are located in the states of Texas and Florida. For the year ended December 31, 2017, these facilities accounted for approximately 36% of store revenues. This concentration of business in Texas and Florida exposes us to potential losses resulting from a downturn in the economies of those states. If economic conditions in those states deteriorate, we may experience a reduction in existing and new business, which may have an adverse effect on our business, financial condition and results of operations. When We Acquire Properties in New Markets, We Will Be Subject to Increased Operational Risks We may acquire self-storage properties in markets where we have little or no operational experience. When we enter into new markets, we will be subject to increased risks resulting from our lack of experience and infrastructure in these markets and may need to incur additional costs, both expected and unexpected, to develop our operating capabilities in these markets. These risks could materially and adversely affect us, including our growth prospects, financial condition and results of operations. Changes in Taxation of Corporate Dividends May Adversely Affect the Value of Our Common Stock The maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received from a regular “C” corporation under current federal law generally is 20%, as opposed to higher ordinary income rates. The reduced tax rate, however, does not apply to distributions paid to domestic noncorporate taxpayers by a REIT on its stock, except for certain limited amounts. The earnings of a REIT that are distributed to its stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation that are distributed to its stockholders net of corporate-level income tax. However, the lower rate of taxation to dividends paid by regular “C” corporations could cause domestic noncorporate investors to view the stock of regular “C” corporations as more attractive relative to the stock of a REIT, because the dividends from regular “C” corporations continue to be taxed at a lower rate while distributions from REITs (other than distributions designated as capital gain dividends) are generally taxed at the same rate as other ordinary income for domestic noncorporate taxpayers. We are heavily dependent on computer systems, telecommunications and the Internet to process transactions, summarize results and manage our business. Security breaches or a failure of such networks, systems or technology could adversely impact our business and customer relationships. We are heavily dependent upon automated information technology and Internet commerce, with many of our new customers coming from the Internet or the telephone, and the nature of our business involves the receipt and retention of personal information about them. We centrally manage significant components of our operations with our computer systems, including our financial information, and we also rely extensively on third-party vendors to retain data, process transactions and provide other systems services. These 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. As a result, our operations could be severely impacted by a natural disaster, terrorist attack or other circumstance that resulted in a significant outage of our systems or those of our third-party providers, despite our use of back up and redundancy measures. Further, viruses and other related risks could negatively impact our information technology processes. We could also be subject to a “cyber-attack” or other data security breach which would penetrate our network security, resulting in misappropriation of our confidential information, including customer personal information. System disruptions and shutdowns could also result in additional costs to repair or replace such networks or information systems and possible legal liability, including government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to move out of rented storage spaces. Such events could lead to lost future sales and adversely affect our results of operations. Item 1B. Unresolved Staff Comments None. 15 Item 2. Properties At December 31, 2017, we held ownership interests in, leased, and/or managed a total of 706 Properties situated in 28 states. Among our 706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures of which we have varying percentage ownership interests. For additional information regarding unconsolidated joint ventures, see Note 11 to the Consolidated Financial Statements filed herewith. Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to­ month basis. Most of our Properties are fenced and well lighted with automated access systems and surveillance cameras. A majority of the Properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage spaces. Our stores range in size from 18,000 to 195,000 net rentable square feet, with an average of approximately 70,000 net rentable square feet. The Properties generally are constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. All Properties have a property manager on-site during business hours. Generally, customers have access to their storage space up to 15 hours a day, and some customers are provided 24-hour access. Individual storage spaces are secured by a lock furnished by the customer to provide the customer with control of access to the space. The following table provides certain information regarding the Properties in which we have an ownership interest, lease, and/or manage as of December 31, 2017: Alabama Arizona California Colorado Connecticut Florida Georgia Illinois Kentucky Louisiana Maine Maryland Massachusetts Mississippi Missouri Nevada New Hampshire New Jersey New York North Carolina Ohio Pennsylvania Rhode Island South Carolina Tennessee Texas Virginia Wisconsin Total Number of Stores at December 31, 2017 21 25 28 11 11 95 34 45 2 16 5 3 15 12 14 22 10 29 46 22 25 11 4 14 7 159 18 2 706 Square Feet 1,581,503 1,741,275 2,538,426 769,437 834,952 6,422,451 2,355,069 3,348,867 142,764 954,965 233,136 138,839 817,298 885,381 948,066 1,633,278 725,123 2,091,277 2,827,529 1,361,090 1,656,927 688,019 205,871 901,444 510,619 11,745,044 1,382,818 169,595 49,611,063 Number of Spaces Percentage of Store Revenue 12,157 15,743 22,751 6,828 8,705 63,243 20,193 33,810 1,322 8,088 2,295 1,619 8,244 6,614 8,498 13,708 6,222 21,891 28,684 12,632 13,940 5,961 1,922 7,974 4,231 97,320 12,576 1,726 448,897 2.35% 3.00% 6.28% 1.80% 2.16% 13.49% 4.23% 7.40% 0.28% 1.66% 0.61% 0.36% 2.06% 1.48% 1.86% 2.81% 1.40% 5.79% 6.77% 2.20% 2.72% 1.37% 0.49% 1.67% 0.85% 22.51% 2.21% 0.19% 100.0% At December 31, 2017, the Properties had an average occupancy of 88.7% and an annualized rent per occupied square foot of $14.07. 16 Item 3. Legal Proceedings On or about August 25, 2014, a putative class action was filed against the Company in the Superior Court of New Jersey Law Division Burlington County. The action seeks to obtain declaratory, injunctive and monetary relief for a class of consumers based upon alleged violations by the Company of various statutory laws. On October 17, 2014, the action was removed from the Superior Court of New Jersey Law Division Burlington County to the United States District Court for the District of New Jersey. The Company brought a motion to partially dismiss the complaint for failure to state a claim, and on July 16, 2015, the Company’s motion was granted in part and denied in part. On October 20, 2016, the complaint was amended to add additional claims. The parties have entered into a memorandum of understanding to settle all claims for an aggregate amount of $8.0 million. In February 2018, the motion for the preliminary approval of the proposed class action settlement was granted. The aggregate settlement amount of $8.0 million ($6.0 million after considering income tax impact) has been recorded as a liability of in the Company’s consolidated balance sheet. A portion of the settlement expense relates to self-storage facilities that are managed by the Company through its taxable REIT subsidiary. There is an income tax impact to the Company on that portion of the settlement expense as a result. The settlement is subject to final approval by the court, a decision which is expected in 2018. Item 4. Mine Safety Disclosures Not Applicable 17 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is traded on the New York Stock Exchange under the symbol “LSI”. Set forth below are the high and low sales prices for our Common Stock for each full quarterly period within the two most recent fiscal years. Part II Quarter 2016 1st 2nd 3rd 4th Quarter 2017 1st 2nd 3rd 4th High Low 118.18 $ 117.81 $ 107.71 $ 88.89 $ 98.80 98.93 86.45 77.00 High Low 89.24 $ 87.87 $ 83.90 $ 91.75 $ 79.38 72.08 69.00 77.88 $ $ $ $ $ $ $ $ As of February 12, 2018, there were approximately 590 holders of record of our Common Stock. These figures do not include common shares held by brokers and other institutions on behalf of shareholders. We have paid quarterly dividends to our shareholders since our inception. Reflected in the table below are the dividends paid in the last two years. For federal income tax purposes, distributions to shareholders are treated as ordinary income, capital gain, return of capital or a combination thereof. Distributions to shareholders for 2017 represent 83% ordinary income and 17% return of capital. History of Dividends Declared on Common Stock January 2016 April 2016 July 2016 October 2016 January 2017 April 2017 July 2017 October 2017 $ $ $ $ $ $ $ $ 0.85 per share 0.95 per share 0.95 per share 0.95 per share 0.95 per share 1.00 per share 1.00 per share 1.00 per share For each quarter in 2016 and 2017, the Operating Partnership paid a cash distribution per unit in an amount equal to the dividend paid on a share of common stock for such quarter. The following table summarizes our purchases of our common stock for the year ended December 31, 2017. 18 Issuer Purchases of Equity Securities Period August 1, 2017 - August 31, 2017 September 1, 2017 - September 30, 2017 October 1, 2017 - December 31, 2017 Total (a) Total number of (b) Average price announced plans or paid per share shares purchased programs (1) (d) Approx. dollar (c) Total number of value of shares that shares purchased as part of publicly may yet be purchased under the plans or programs (1) 92,150 $ 20,404 — 112,554 72.98 73.94 — 73.16 92,150 $ 193,274,647 191,765,955 20,404 — — 112,554 $ 191,765,955 (1) On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s common stock. The program does not have an expiration date but may be suspended or discontinued at any time. EQUITY COMPENSATION PLAN INFORMATION The following table sets forth certain information as of December 31, 2017, with respect to equity compensation plans under which shares of the Company’s Common Stock may be issued. Plan Category Equity compensation plans approved by shareholders: 2005 Award and Option Plan 2015 Award and Option Plan (2) 2009 Outside Directors’ Stock Option and Award Plan Deferred Compensation Plan for Directors (1) Equity compensation plans not approved by shareholders: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance 76,106 $ 124,402 $ 18,500 $ 21,540 N/A 45.59 — 79.58 N/A N/A — 345,383 67,871 22,598 N/A (1) Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are otherwise payable in cash. Directors’ fees that are deferred under the Plan will be credited to each Directors’ account under the Plan in the form of Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of the Company’s Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees otherwise would be paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock represented by Units in such Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the Director or in quarterly or annual installments over a specified period and commencing on a specified date. Includes the maximum number of shares (124,402) that could be issued as part of 2015, 2016 and 2017 performance-based awards. The actual number of shares to be issued will be determined at the end of the three-year performance periods in 2018, 2019 and 2020. See Note 9 to our consolidated financial statements filed herewith. (2) 19 CORPORATE PERFORMANCE GRAPH The following chart and line-graph presentation compares (i) the Company’s shareholder return on an indexed basis since December 31, 2012 with (ii) the S&P Stock Index and (iii) the National Association of Real Estate Investment Trusts Equity Index. CUMULATIVE TOTAL SHAREHOLDER RETURN LIFE STORAGE, INC. DECEMBER 31, 2012 - DECEMBER 31, 2017 S&P NAREIT LSI Dec. 31, 2012 100.00 100.00 100.00 Dec. 31, 2013 132.39 102.47 108.13 Dec. 31, 2014 150.51 133.35 150.19 Dec. 31, 2015 152.59 137.61 191.34 Dec. 31, 2016 170.84 149.33 157.66 Dec. 31, 2017 208.14 157.14 173.11 The foregoing item assumes $100.00 invested on December 31, 2012, with dividends reinvested. Item 6. Selected Financial Data LIFE STORAGE, INC. The following table sets forth selected financial and operating data on an historical consolidated basis for the Parent Company. The selected historical financial data as of and for the five-year period ended December 31, 2017 are derived from the Parent Company’s consolidated financial statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, and their report thereon, are included herein. The other data presented below is not derived from the financial statements. 20 The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto of the Parent Company included elsewhere in this Annual Report on Form 10-K: (dollars in thousands, except per share data) Operating Data Operating revenues Income from continuing operations Income from discontinued operations (1) Net income Net income attributable to common shareholders Income from continuing operations per common share attributable to common shareholders – diluted Net income per common share attributable to common shareholders – basic Net income per common share attributable to common shareholders – diluted Dividends declared per common share (2) Balance Sheet Data Investment in storage facilities at cost Total assets Total debt Total liabilities Other Data Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities $ 2017 529,750 96,809 — 96,809 96,365 At or For Year Ended December 31, 2015 2014 2016 $ $ 462,608 84,956 — 84,956 85,225 $ $ 366,602 113,077 — 113,077 112,524 326,080 89,057 — 89,057 88,531 2.07 2.08 2.07 3.95 1.96 1.97 1.96 3.70 3.16 3.18 3.16 3.20 2.67 2.68 2.67 2.72 2013 273,507 71,472 3,123 74,595 74,126 2.26 2.37 2.36 2.02 $ 4,321,410 3,876,774 1,726,763 1,829,078 $ 4,243,308 3,857,984 1,653,552 1,751,399 $ 2,491,702 2,118,822 827,643 898,336 $ 2,177,983 1,850,727 797,054 861,236 $ 1,864,637 1,558,894 623,273 675,245 $ 248,580 (156,510) (106,588) $ 225,550 (1,796,069) 1,587,184 $ $ 186,198 (328,689) 140,968 146,068 (334,993) 187,944 $ 120,646 (114,345) (4,032) (1) (2) In 2013 we sold four stores whose results of operations and gain on disposal are classified as discontinued operations for all previous years presented. In 2013 we declared regular quarterly dividends of $0.48 in January and April, and $0.53 in July and October. In 2014 we declared regular quarterly dividends of $0.68 in January, April, July and October. In 2015 we declared regular quarterly dividends of $0.75 in January and April, and $0.85 in July and October. In 2016 we declared regular quarterly dividends of $0.85 in January and $0.95 in April, July and October. In 2017 we declared regular quarterly dividends of $0.95 in January and $1.00 in April, July and October. 21 LIFE STORAGE LP The following table sets forth selected financial and operating data on an historical consolidated basis for the Operating Partnership. The selected historical financial data as of and for the five-year period ended December 31, 2017 are derived from the Operating Partnership’s consolidated financial statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, and their report thereon, are included herein. The other data presented below is not derived from the financial statements. The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto of the Operating Partnership included elsewhere in this Annual Report on Form 10-K: (dollars in thousands, except per unit data) Operating Data Operating revenues Income from continuing operations Income from discontinued operations (1) Net income Net income attributable to common unitholders Income from continuing operations per common unit attributable to common unitholders – diluted Net income per common unit attributable to common unitholders – basic Net income per common unit attributable to common unitholders – diluted Distributions declared per common unit (2) Balance Sheet Data Investment in storage facilities at cost Total assets Total debt Total liabilities Other Data Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities $ 2017 529,750 96,809 — 96,809 96,365 At or For Year Ended December 31, 2015 2014 2016 $ $ 462,608 84,956 — 84,956 85,225 $ $ 366,602 113,077 — 113,077 112,524 326,080 89,057 — 89,057 88,531 2.07 2.08 2.07 3.95 1.96 1.97 1.96 3.70 3.16 3.18 3.16 3.20 2.67 2.68 2.67 2.72 2013 273,507 71,472 3,123 74,595 74,126 2.26 2.37 2.36 2.02 $ 4,321,410 3,876,774 1,726,763 1,829,078 $ 4,243,308 3,857,984 1,653,552 1,751,399 $ 2,491,702 2,118,822 827,643 898,336 $ 2,177,983 1,850,727 797,054 861,236 $ 1,864,637 1,558,894 623,273 675,245 $ 248,580 (156,510) (106,588) $ 225,550 (1,796,069) 1,587,184 $ $ 186,198 (328,689) 140,968 $ 146,068 (334,993) 187,944 120,646 (114,345) (4,032) (1) (2) In 2013 we sold four stores whose results of operations and gain on disposal are classified as discontinued operations for all previous years presented. In 2013 we declared regular quarterly distributions of $0.48 in January and April, and $0.53 in July and October. In 2014 we declared regular quarterly distributions of $0.68 in January, April, July and October. In 2015 we declared regular quarterly distributions of $0.75 in January and April, and $0.85 in July and October. In 2016 we declared regular quarterly distributions of $0.85 in January and $0.95 in April, July and October. In 2017 we declared regular quarterly distributions of $0.95 in January and $1.00 in April, July and October. 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. Disclosure Regarding Forward-Looking Statements When used in this discussion and elsewhere in this document, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which would cause rents and occupancy rates to decline; the Company’s ability to evaluate, finance and integrate acquired businesses into the Company’s existing business and operations; the Company’s ability to effectively compete in the industry in which it does business; the Company’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Company’s outstanding floating rate debt; the Company’s ability to comply with debt covenants; any future ratings on the Company’s debt instruments; the regional concentration of the Company’s business may subject it to economic downturns in the states of Florida and Texas; the Company’s reliance on its call center; the Company’s cash flow may be insufficient to meet required payments of operating expenses, principal, interest and dividends; and tax law changes that may change the taxability of future income. We believe we are the fifth largest operator of self-storage properties in the United States based on square feet owned and managed. All our stores conduct business under the customer-friendly name Life Storage ®. Business and Overview Operating Strategy Our operating strategy is designed to generate growth and enhance value by: A. Increasing operating performance and cash flow through aggressive management of our stores: • We seek to differentiate our self-storage facilities from our competition through innovative marketing and value-added product offerings including: o Strategic and efficient Web and Mobile marketing that places Life Storage in front of customers in search engines at the right time for conversion; o o o o Regional marketing which creates effective brand awareness in the cities where we do business; Our Customer Care Center, established in 2000, answers sales inquiries and makes reservations for all of our Properties on a centralized basis. Further, our call center and customer contact software was developed in-house and is 100% supported by our in-house experts; Our truck move-in program, under which, at present, 396 of our stores offer a free Life Storage truck to assist our customers moving into their spaces, and also serve as a moving billboard further supporting our branding efforts; Our dehumidification system, which provides our customers with a better environment to store their goods and improves yields on our Properties; • • Our customized computer applications link each of our primary sales channels (customer care center, web, and store) allowing for real time access to space type and inventory, pricing, promotions, and other pertinent store information. This also provides us with raw data on historical and current pricing, move-in and move-out activity, specials and occupancies, etc. This data is then used within the advanced pricing analytics programs employed by our revenue management team; All of our store employees receive a high level of training. New store associates are assigned a Certified Training Manager as a mentor during their initial training period. In addition, all employees have access to our online training and development portal for initial training as well as continuing education. Finally, we have a company intranet that acts as a communications portal for company policy and procedures, online ordering, incentive rankings, etc. B. Acquiring additional stores: • Our objective is to acquire new stores in markets in which we currently operate. This is a proven strategy we have employed over the years as it facilitates our branding efforts, grows market share, and allows us to achieve improved economies of scale through shared advertising, payroll, and other services. 23 • We also look to enter new markets that are in the top 50 Metropolitan Statistical Area (MSA) by acquiring established multi- property portfolios. With this strategy we are then able to seek out additional acquisition or third party management opportunities to continue to grow market share, branding and enhance economies of scale. C. Expanding our management business: • We see our management business as a source of future acquisitions. We hold a minority interest in multiple joint ventures which hold a total of 98 properties that we manage. In addition, we manage 42 self-storage facilities for which we have no ownership. We may enter into additional management agreements and develop additional joint ventures in the future. D. Expanding and enhancing our existing stores: • Over the past five years we have undertaken a program of expanding and enhancing our Properties. In 2013, we added 295,000 square feet to existing Properties and converted 9,000 square feet to premium storage for a total cost of approximately $17.9 million; in 2014, we added 272,000 square feet to existing Properties and converted 9,000 square feet to premium storage for a total cost of approximately $18.3 million; in 2015, we added 256,000 square feet to existing Properties and converted 5,000 square feet to premium storage for a total cost of approximately $14.1 million; in 2016, we added 343,000 square feet to existing Properties and converted 55,000 square feet to premium storage for a total cost of approximately $22.4 million; and in 2017, we added 382,000 square feet to existing Properties and converted 122,000 square feet to premium storage for a total cost of approximately $35.2 million. From 2012 through 2017 we also installed solar panels on 23 buildings for a total cost of approximately $7.7 million. Our solar panel initiative, which began in 2011, has reduced energy consumption at those installed locations. Supply and Demand / Operating Trends We believe the supply and demand model in the self-storage industry is micro market specific in that a majority of our business comes from within a five mile radius of our stores. Suppressed economic conditions and a tight credit market environment resulted in a decrease in new supply on a national basis from 2010-2015, but the out-performance of the sector compared to other real estate asset classes has drawn new capital to self-storage. The Company experienced significant new competition beginning in 2016, especially in its Texas markets, and expects noticeable growth in new supply at least through 2019. Despite the inflow of additional properties, we have seen capitalization rates on quality acquisitions in the top fifty major metropolitan markets (expected annual return on investment) remain stable at approximately 5.00% to 5.50%. Beginning in 2010, subsequent to the economic recession in 2009, we have experienced annual same store sales increases up to and including the current year. We feel our recent performance further supports the notion that the self-storage industry holds up well regardless of the prevailing economic landscape. We believe our same-store move-ins in 2017 were lower than 2016 due to the fact that our stores had higher occupancy in 2017, resulting in less space to rent. We believe the reduction in same store move-outs is a result of customers renting with us for longer periods. Same store move ins Same store move outs Difference 2017 162,980 160,007 2,973 2016 167,856 165,193 2,663 Change (4,876) (5,186) 310 Elevated property tax increases is a trend that we experienced from 2014 through 2017. We expect same store expense growth resulting from increases in wages, health costs, property insurance and property tax increases in 2018, partially offset by decreased internet marketing costs. We believe the same store expense increases will be at manageable levels. 24 Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our financial statements and the accompanying notes. On an on-going basis, we evaluate our estimates and judgments, including those related to carrying values of storage facilities, bad debts, and contingencies and litigation. We base these estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Assigning purchase price to assets acquired: Upon adoption of Accounting Standards Update 2017-01, most of our self-storage facility acquisitions are not considered business combinations and are treated as asset acquisitions. As a result, the cost of acquired storage facilities is assigned primarily to land, land improvements, building, equipment, and in-place customer leases based on the relative fair values of these assets as of the date of acquisition. We use significant unobservable inputs in our determination of the fair values of these assets. The determination of these inputs involves judgments and estimates that can vary for each individual property based on various factors specific to the properties and the functional, economic and other factors affecting each property. To determine the fair value of land, we use prices per acre derived from observed transactions involving comparable land in similar locations. To determine the fair value of buildings, equipment and improvements, we use financial projections and applicable discount rates to estimate the fair values of properties acquired, as well as current replacement cost estimates based on information derived from construction industry data by geographic region as adjusted for the age, condition, and economic obsolescence associated with these assets. The fair values of in-place customer leases are based on the rent that would be lost due to the amount of time required to replace existing customers which is based on our historical experience with market demand and turnover in our facilities. Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a critical accounting policy. Our policy is to assess the carrying value of our storage facilities for impairment whenever events or circumstances indicate that the carrying value of a storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow, significant declining revenue per storage facility, significant damage sustained from accidents or natural disasters, or an expectation that, more likely than not, a property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When indicators of impairment exist, impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the storage facility, on a property by property basis. If the sum of the undiscounted cash flows is less than the carrying value of the storage facility, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset group. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable, impairment charges may be required at that time and could materially affect our operating results and financial position. Estimates of undiscounted cash flows could change based upon changes in market conditions, expected occupancy rates, etc. No assets had been determined to be impaired under this policy in 2017. Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical accounting policy. We periodically evaluate the estimated useful lives of our long-lived assets to determine if any changes are warranted based upon various factors, including changes in the planned usage of the assets, customer demand, etc. Changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations. In 2017, the Company changed the useful lives of certain assets at self-storage facilities that were identified for replacement as part of the Company’s capital improvement efforts in 2017. Additionally, in 2016, the Company changed the useful lives of existing Uncle Bob’s Self Storage ® signs as a result of the change in the name of the Company’s storage facilities from Uncle Bob’s Self Storage ® to Life Storage ® which required replacement of the existing signage. These changes resulted in a combined increase in depreciation expense of approximately $4.4 million in 2017 as depreciation was accelerated over the new useful lives. The Company estimates that the change related to storage-facility asset replacement will result in an additional increase in depreciation expense of approximately $0.3 million in 2018. We have not made any other significant changes to the estimated useful lives of our long-lived assets and we do not have any current expectation of making significant changes in 2018 other than potentially on any assets identified for replacement in 2018. Consolidation and investment in joint ventures: We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity or have the power to direct the activities most significant to the economic performance of the entity. Investments in joint ventures that we do not control but over which we have significant influence are reported using the equity method. Under the equity method, our investment in joint ventures are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of each of the unconsolidated real estate ventures. Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue. Qualification as a REIT: We operate, and intend to continue to operate, as a REIT under the Code, but no assurance can be given that we will at all times so qualify. To the extent that we continue to qualify as a REIT, we will not be taxed, with certain limited exceptions, on the taxable income that is distributed to our shareholders. If we fail to qualify as a REIT, any requirement to pay federal income taxes could have a material adverse impact on our financial condition and results of operations. 25 See Note 2 to the financial statements. Recent Accounting Pronouncements YEAR ENDED DECEMBER 31, 2017 COMPARED TO YEAR ENDED DECEMBER 31, 2016 We recorded rental revenues of $485.3 million for the year ended December 31, 2017, an increase of $57.2 million or 13.4% when compared to 2016 rental revenues of $428.1 million. Of the increase in rental revenue, $5.6 million resulted from a 1.6% increase in rental revenues at the 430 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2016, excluding stores not yet stabilized, the properties we sold in 2016 and 2017, six stores significantly impacted by flooding in 2016 and 2017, and two stores that the Company began to fully replace in 2017). The increase in same store rental revenues was a result of a 30 basis point increase in average occupancy and a 0.8% increase in rental income per square foot. The remaining increase in rental revenue of $51.6 million resulted from the stores not included in the same store pool. Other operating income, which includes merchandise sales, insurance administrative fees, truck rentals, management fees and acquisition fees, increased by $9.9 million for the year ended December 31, 2017 compared to 2016 primarily due to increased administrative fees earned on customer insurance, increased management fees earned on managed properties, and increased acquisition fees earned on properties acquired by unconsolidated joint ventures. Property operations and maintenance expenses increased $19.4 million or 18.8% in 2017 compared to 2016. The 430 core properties considered in the same store pool experienced a $2.3 million or 2.9% increase in such expenses as a result of increases in payroll and higher internet marketing costs in an effort to drive more traffic to the Company’s website as a result of our name change to Life Storage. In addition to the same store increase, property operations and maintenance expenses increased $17.1 million due to the net activity from the stores not included in the same store pool. Real estate tax expense increased $9.8 million or 20.4% in 2017 compared to 2016. The 430 core properties considered in the same store pool experienced a $2.5 million or 6.6% increase which is reflective of a net increase in property tax levies on those properties. In addition to the same store real estate expense increase, real estate taxes increased $7.3 million from the stores not included in the same store pool. Our 2017 same store results consist of only those properties that have been owned by the Company and included in our consolidated results since January 1, 2016, excluding the stores not yet stabilized, the properties we sold in 2016 and 2017, six stores significantly impacted by flooding in 2016 and 2017, and two stores that the Company began to fully replace in 2017. We believe that same store results is a meaningful measure to investors in evaluating our operating performance because, given the acquisitive nature of the industry, same store results provide information about the overall business after removing the results from those properties that were not consistent from year-to­ year. Additionally, same store results are widely used in the real estate industry and the self-storage industry to measure performance. Same store results should be considered in addition to, but not as a substitute for, consolidated results in accordance with GAAP. The following table sets forth operating data for our 430 same store properties. These results provide information relating to property operating changes without the effects of acquisitions. Same Store Summary (dollars in thousands) Same store rental income Same store other operating income Total same store operating income Payroll and benefits Real estate taxes Utilities Repairs and maintenance Office and other operating expenses Insurance Advertising Internet marketing Total same store operating expenses Same store net operating income Year ended December 31, 2017 357,428 $ 20,063 377,491 32,112 40,459 11,686 13,613 12,140 4,380 1,070 8,250 123,710 253,781 $ 2016 351,818 19,361 371,179 30,857 37,960 11,710 14,236 12,113 4,257 1,146 6,609 118,888 252,291 $ $ Percentage Change 1.6% 3.6% 1.7% 4.1% 6.6% (0.2)% (4.4)% 0.2% 2.9% (6.6)% 24.8% 4.1% 0.6% 26 Net operating income increased $37.9 million or 12.2%% as a result of a 0.6% increase in our same store net operating income and the acquisitions completed since January 1, 2016. Net operating income or “NOI” is a non-GAAP (generally accepted accounting principles) financial measure that we define as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income: interest expense, impairment and casualty losses, operating lease expense, depreciation and amortization expense, loss on sale of real estate, acquisition related costs, general and administrative expense, and deducting from net income: income from discontinued operations, interest income, gain on sale of real estate, and equity in income of joint ventures. We believe that NOI is a meaningful measure to investors in evaluating our operating performance because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, and in comparing period-to-period and market-to-market property operating results. Additionally, NOI is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending on accounting methods and the book value of assets. NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income. There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income. The following table reconciles NOI generated by our self-storage facilities to our net income presented in the 2017 and 2016 consolidated financial statements. (dollars in thousands) Net income General and administrative Acquisition related costs Write-off of acquired property deposits Operating leases of storage facilities Depreciation and amortization Interest expense Interest income Loss (gain) on sale of storage facilities Gain on sale of real estate Equity in income of joint ventures Net operating income Net operating income Same store Other stores and management fee income Total net operating income Year ended December 31, 2016 2017 $ $ 96,809 $ 50,031 — — 424 127,485 74,362 (7) 3,503 — (3,314) 349,293 $ 253,781 95,512 $ 349,293 $ 84,956 43,103 29,542 1,783 — 117,081 54,504 (67) (15,270) (623) (3,665) 311,344 252,291 59,053 311,344 General and administrative expenses increased $6.9 million or 16.1% from 2016 to 2017. The key drivers of the increase were the New Jersey lawsuit settlement discussed in Note 14 to the consolidated financial statements and $0.9 million in officer severance recorded in 2017. There were no acquisition related costs recorded in 2017 as no 2017 acquisitions were considered business combinations. Acquisition related costs were $29.5 million in 2016 related to the acquisition of 122 stores during that period, including the acquisition of LifeStorage, LP. Depreciation and amortization expense increased to $127.5 million in 2017 from $117.1 million in 2016, primarily due to depreciation related to the properties acquired in 2016 and 2017 and accelerated depreciation on storage facility assets identified for replacement in 2017. Interest expense increased from $54.5 million in 2016 to $74.4 million in 2017. The increase was primarily due to a full year of interest in 2017 on the $600 million 3.5% senior notes issued in June 2016 and the $200 million 3.67% term loan entered into in July 2016, and $9.6 million of interest expense recorded in 2017 related to interest rate swaps settled in 2017 and the termination of the related hedging relationships. 27 During 2017, we sold two non-strategic storage facilities in Utah (1) and Texas (1) for net proceeds of approximately $16.9 million, resulting in a $3.5 million loss on sale. The Company has subsequently leased one of these properties and has deferred the related gain until the termination of the lease which is scheduled in 2020. During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1), Mississippi (1), Texas (1), and Virginia (4) for net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. These dispositions were not classified as discontinued operations since they did not meet the criteria for such classification under ASU 2014-08 guidance. YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015 We recorded rental revenues of $428.1 million for the year ended December 31, 2016, an increase of $89.7 million or 26.5% when compared to 2015 rental revenues of $338.4 million. Of the increase in rental revenue, $16.1 million resulted from a 5.0% increase in rental revenues at the 417 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2015, excluding the properties we sold in 2016 and 2015, three properties purchased prior to January 1, 2015 that have not yet stabilized and three properties significantly impacted by flooding in 2016). The increase in same store rental revenues was a result of a 50 basis point increase in average occupancy and a 4.3% increase in rental income per square foot. The remaining increase in rental revenue of $73.6 million resulted from the revenues from the acquisition of 145 properties completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and are included in the same store pool), slightly offset with the revenue decrease as a result of eight self-storage properties sold in 2016 and three self-storage properties sold in 2015. Other operating income, which includes merchandise sales, insurance administrative fees, truck rentals, management fees and acquisition fees, increased by $6.3 million for the year ended December 31, 2016 compared to 2015 primarily due to increased administrative fees earned on customer insurance. Property operations and maintenance expenses increased $21.4 million or 26.2% in 2016 compared to 2015. The 417 core properties considered in the same store pool experienced a $1.0 million or 1.3% increase in such expenses due to increases in payroll and internet marketing costs. The same store pool benefited from reduced utilities, snow removal costs, insurance and yellow page advertising expense. In addition to the same store increase, property operations and maintenance expenses increased $20.4 million from the acquisition of 145 properties completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and are included in the same store pool), slightly offset with the operating expense decrease as a result of eight self-storage properties sold in 2016 and three self-storage properties sold in 2015. Real estate tax expense increased $11.3 million or 30.9% in 2016 compared to 2015. The 417 core properties considered in the same store pool experienced a $1.9 million or 5.3% increase which is reflective of a net increase in property tax levies on those properties. In addition to the same store real estate expense increase, real estate taxes increased $9.4 million from the acquisition of 145 properties completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and are included in the same store pool), slightly offset with the real estate tax expense decrease as a result of eight self- storage properties sold in 2016 and three self-storage properties sold in 2015. Our 2016 same store results consist of only those properties that were included in our consolidated results since January 1, 2015, excluding the properties we sold in 2016 and 2015, three properties purchased prior to January 1, 2015 that have not yet stabilized and three properties significantly impacted by flooding in 2016. We believe that same store results is a meaningful measure to investors in evaluating our operating performance because, given the acquisitive nature of the industry, same store results provide information about the overall business after removing the results from those properties that were not consistent from year-to-year. Additionally, same store results are widely used in the real estate industry and the self-storage industry to measure performance. Same store results should be considered in addition to, but not as a substitute for, consolidated results in accordance with GAAP. 28 The following table sets forth operating data for our 417 same store properties. These results provide information relating to property operating changes without the effects of acquisition. Same Store Summary (dollars in thousands) Same store rental income Same store other operating income Total same store operating income Payroll and benefits Real estate taxes Utilities Repairs and maintenance Office and other operating expenses Insurance Advertising and yellow pages Internet marketing Total same store operating expenses Same store net operating income Year ended December 31, 2016 339,773 $ 18,693 358,466 29,754 36,707 11,217 13,516 11,703 4,035 1,114 6,409 114,455 244,011 $ 2015 323,664 17,085 340,749 28,843 34,847 11,789 13,412 11,373 4,414 1,352 5,557 111,587 229,162 $ $ Percentage Change 5.0% 9.4% 5.2% 3.2% 5.3% (4.9)% 0.8% 2.9% (8.6)% (17.6)% 15.3% 2.6% 6.5% Net operating income increased $63.2 million or 25.5% as a result of a 6.5% increase in our same store net operating income and the acquisitions completed since January 1, 2015 (excluding the four properties purchased in 2015 that had been leased since November 2013 and are included in the same store pool). The following table reconciles NOI generated by our self-storage facilities to our net income presented in the 2016 and 2015 consolidated financial statements. (dollars in thousands) Net income General and administrative Acquisition related costs Write-off of acquired property deposits Operating leases of storage facilities Depreciation and amortization Interest expense Interest income (Gain) loss on sale of storage facilities Gain on sale of real estate Equity in income of joint ventures Net operating income Net operating income $ $ Same store Other stores and management fee income Total net operating income 244,011 67,333 $ 311,344 $ Year ended December 31, 2015 2016 113,077 38,659 2,991 — 683 58,506 37,124 (5) 494 — 84,956 $ 43,103 29,542 1,783 — 117,081 54,504 (67) (15,270) (623) (3,665) 311,344 $ (3,405) 248,124 229,162 18,962 248,124 General and administrative expenses increased $4.4 million or 11.5% from 2015 to 2016. The key drivers of the increase were $0.9 million in expenses recorded in 2016 related to the Company’s name change, and a $1.7 million increase in professional fees mainly stemming from an increase in accounting fees related to the acquisition of LifeStorage, LP and an increase in legal fees related to the lawsuit in New Jersey. The remaining $1.8 million increase is the result of various other administrative costs, including increased travel expenses and software charges, related to managing the increased number of stores in our portfolio as a result of the LifeStorage, LP acquisition and other smaller acquisitions in 2016. Acquisition related costs were $29.5 million in 2016 related to the acquisition of 122 stores, including the acquisition of LifeStorage, LP. Acquisition related costs for 2015 were $3.0 million related to the acquisition of 27 stores. The operating lease expense for storage facilities in 2015 relates to leases which commenced in November 2013 with respect to four self- storage facilities in New York (2) and Connecticut (2). Such leases had annual lease payments of $6 million with a provision for 4% annual increases, and an exclusive option to purchase the facilities for $120 million. We completed the purchase of these four facilities on February 2, 2015, thus eliminating the lease payments thereafter. 29 Depreciation and amortization expense increased to $117.1 million in 2016 from $58.5 million in 2015, primarily as a result of amortization and depreciation related to the properties acquired in 2015 and 2016 and accelerated depreciation on existing signage was replaced as a result of the change in name of the Company’s storage facilities in 2016 to Life Storage ®. Interest expense increased from $37.1 million in 2015 to $54.5 million in 2016. The increase was primarily due to interest on bridge loan financing entered into to facilitate the LifeStorage, LP acquisition as well as interest on the $600 million 3.5% senior notes issued in June 2016 and the $200 million 3.67% term loan entered into in July 2016, partially offset by reduced interest costs as a result of the payoff of the $150 million 6.38% term loan in April 2016 with a draw on our line of credit which carries a lower interest rate. During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1), Mississippi (1), Texas (1), and Virginia (4) for net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. During 2015, we sold three non-strategic storage facilities purchased during 2014 and 2015 in Missouri and South Carolina for net proceeds of approximately $4.6 million, resulting in a loss of approximately $0.5 million. These dispositions were not classified as discontinued operations since they did not meet the criteria for such classification under ASU 2014-08 guidance. FUNDS FROM OPERATIONS We believe that Funds from Operations (“FFO”) provides relevant and meaningful information about our operating performance that is necessary, along with net earnings and cash flows, for an understanding of our operating results. FFO adds back historical cost depreciation, which assumes the value of real estate assets diminishes predictably in the future. In fact, real estate asset values increase or decrease with market conditions. Consequently, we believe FFO is a useful supplemental measure in evaluating our operating performance by disregarding (or adding back) historical cost depreciation. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income available to common shareholders computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of properties, plus impairment of real estate assets, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements. In October and November of 2011, NAREIT issued guidance for reporting FFO that reaffirmed NAREIT’s view that impairment write- downs of depreciable real estate should be excluded from the computation of FFO. This view is because impairment write-downs are akin to and effectively reflect the early recognition of losses on prospective sales of depreciable property or represent adjustments of previously charged depreciation. Since depreciation of real estate and gains/losses from sales are excluded from FFO, it is NAREIT’s view that it is consistent and appropriate for write-downs of depreciable real estate to also be excluded. Our calculation of FFO excludes impairment write- downs of investments in storage facilities. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions. Reconciliation of Net Income to Funds From Operations (dollars in thousands) Net income attributable to common shareholders Net income attributable to noncontrolling interests in the Operating Partnership Depreciation of real estate and amortization of intangible assets exclusive of debt issuance costs Depreciation of real estate included in discontinued operations Depreciation and amortization from unconsolidated joint ventures Loss (gain) on sale of real estate Funds from operations allocable to noncontrolling interest in the Operating Partnership Funds from operations available to common shareholders $ 2017 2016 $ 96,365 $ For Year Ended December 31, 2015 112,524 $ $ 85,225 2014 2013 88,531 $ 74,126 444 398 553 526 469 125,580 — 115,531 — 4,296 3,503 2,595 (15,270) 57,429 — 2,435 494 50,827 — 1,666 (5,176) 44,369 313 1,496 (2,852) (1,045) 229,143 $ (857) 187,622 $ (848) 172,587 $ (806) 135,568 $ (742) 117,179 30 LIQUIDITY AND CAPITAL RESOURCES Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness, and limitations on dividend payouts. At December 31, 2017, the Company was in compliance with all debt covenants. In the event that the Company violates its debt covenants in the future, the amounts due under the agreements could be callable by the lenders and could adversely affect our credit rating requiring us to pay higher interest and other debt-related costs. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at December 31, 2017, the entire availability under our line of credit could be drawn without violating our debt covenants. Our ability to retain cash flow is limited because we operate as a REIT. To maintain our REIT status, a substantial portion of our operating cash flow must be used to pay dividends to our shareholders. We believe that our internally generated net cash provided by operating activities and the availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, dividends and debt service requirements. Cash flows from operating activities were $248.6 million, $225.6 million, and $186.2 million for the years ended December 31, 2017, 2016, and 2015, respectively. The increases in operating cash flows from 2016 to 2017 and from 2015 to 2016 were primarily due to an increase in net income as adjusted for non-cash depreciation and amortization expenses and other non-cash items during these periods. Cash used in investing activities was $156.5 million, $1,796.1 million, and $328.7 million for the years ended December 31, 2017, 2016, and 2015 respectively. The decrease in cash used from 2016 to 2017 was primarily a result of the acquisition of LifeStorage, LP and other acquisitions made in 2016, partially offset by an increase in the Company’s investment in unconsolidated joint ventures in 2017. The increase in cash used in investing activities from 2015 to 2016 was primarily a result of the acquisition of LifeStorage, LP and other acquisitions made in 2016, partially offset by increased proceeds on the sale of storage facilities in 2016. Cash used in financing activities was $106.6 million in 2017 compared to cash provided by financing activities of $1,587.2 million in 2016. In 2017, the Company increased its dividends paid on its common stock from $156.2 million in 2016 to $183.7 million in 2017. On December 7, 2017, the Operating Partnership issued $450 million in senior notes, the proceeds of which were used primarily to repay $225 million of then outstanding term notes and to pay down the Company’s revolving line of credit. Also, during 2017, the Company repurchased 112,554 of the Company’s outstanding common shares for $8.2 million under the Company’s Buyback Program discussed further below. In 2016, the Company received net proceeds from the sale of common stock through public offerings of $935.1 million. The Company also received net proceeds from the issuance of term notes of $796.7 million and net proceeds from the Company’s revolving credit line of $174.0 million in 2016. Further, the Company settled pre-issuance interest rate swaps on the 2026 Notes (discussed further below) for $9.2 million in 2016. Cash provided by financing activities was $1,587.2 million in 2016 compared to $141.0 million in 2015. The increase from 2015 to 2016 was primarily a result of the previously mentioned 2016 activity and a $43.2 million increase in dividends paid. For the years 2015, 2016 and 2017, see Note 5 to the consolidated financial statements for details of the Company’s unsecured line of credit and term note activity, Note 6 to the consolidated financial statements for the Company’s mortgage activity and related details, and Note 12 to the consolidated financial statements for the Company’s equity activity. Our line of credit facility and term notes have an investment grade rating from Standard and Poor’s (BBB) and Moody’s (Baa2). Future acquisitions, our expansion and enhancement program, and share repurchases are expected to be funded with future cash flows from operations, draws on our line of credit, issuance of common and preferred stock, the issuance of unsecured term notes, sale of properties, and private placement solicitation of joint venture equity. Should the capital markets deteriorate, we may have to curtail acquisitions, our expansion and enhancement program, and share repurchases. 31 The following table summarizes our future contractual obligations: CONTRACTUAL OBLIGATIONS Contractual obligations Line of credit Term notes Mortgages payable Interest payments Land leases Expansion and enhancement contracts Building leases Total Payments due by period (in thousands) Total $ 105,000 1,625,000 12,674 514,859 9,103 32,807 14,676 $ 2,314,119 2018 $ — — 372 65,912 566 32,807 2,328 $ 101,985 2019-2020 $ 105,000 100,000 806 126,483 1,135 — 4,068 $ 337,492 2021-2022 $ — 100,000 3,516 111,481 1,137 — 3,431 $ 219,565 2023 and thereafter — 1,425,000 7,980 210,983 6,265 — 4,849 1,655,077 $ $ Interest payments include actual interest on fixed rate debt and estimated interest for floating-rate debt based on December 31, 2017 rates. ACQUISITION OF PROPERTIES In 2017, we acquired two self-storage facilities comprising 148,000 square feet in Illinois (1) and North Carolina (1) for a total purchase price of $22.6 million. As both of these acquisitions were of newly constructed facilities, the weighted average capitalization rate for each acquisition was 0%. In 2016, we acquired 122 self-storage facilities comprising 9.4 million square feet in Arizona (1), California (22), Colorado (6), Connecticut (2), Florida (11), Illinois (25), Massachusetts (1), Mississippi (1), New Hampshire (5), Nevada (17), New York (4), Pennsylvania (1), South Carolina (1), Texas (23), Utah (1), and Wisconsin (1) for a total purchase price of $1,783.9 million. Based on the trailing financial information of the entities from which the properties were acquired, the weighted average capitalization rate was 3.6% on these purchases and ranged from 0% on recently constructed facilities to 6.7% on mature facilities. In 2015, we acquired 27 self-storage facilities comprising 2.0 million square feet in Arizona (1), Connecticut (2), Florida (6), Illinois (2), Massachusetts (1), New York (6), North Carolina (1), Pennsylvania (1), South Carolina (6) and Texas (1) for a total purchase price of $281.2 million. Based on the trailing financial information of the entities from which the properties were acquired, the weighted average capitalization rate was 5.3% on these purchases and ranged from 0% on recently constructed facilities to 6.4% on mature facilities. Four facilities acquired in Connecticut and New York in 2015 had been leased by the Company since November 1, 2013 and the operating results of these four facilities have been included in the Company’s operations since that date. FUTURE ACQUISITION AND DEVELOPMENT PLANS Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand into new markets by acquiring several facilities at once in those new markets. In 2017, we added 382,000 square feet to existing Properties and converted 122,000 square feet to premium storage for a total cost of approximately $35.2 million. In 2017 we also installed solar panels on two buildings for a total cost of approximately $0.4 million. Although we do not expect to construct any new facilities in 2018, we do plan to complete $40 million to $50 million in expansions and enhancements to existing facilities of which $12.1 million was paid prior to December 31, 2017. In 2017, the Company spent approximately $47.8 million for recurring capitalized expenditures including roofing, paving, office renovations, and new signs related to our rebranding. We expect to spend $20 million to $25 million in 2018 on similar capital expenditures as we do not expect significant sign related expenditures in 2018. DISPOSITION OF PROPERTIES During 2017, we sold two non-strategic storage facilities in Utah (1) and Texas (1) for net proceeds of approximately $16.9 million, resulting in a $3.5 million loss on sale. The Company has subsequently leased one of these properties and has deferred the related gain until the termination of the lease which is scheduled in 2020. During 2016, we sold eight non-strategic storage facilities in Alabama (1), Georgia (1), Mississippi (1), Texas (1), and Virginia (4) for net proceeds of approximately $34.1 million, resulting in a $15.3 million gain on sale. During 2015, we sold three non-strategic storage facilities purchased during 2014 and 2015 in Missouri and South Carolina for net proceeds of approximately $4.6 million, resulting in a loss of approximately $0.5 million. As part of our ongoing strategy to improve overall operating efficiencies and portfolio quality, we may seek to sell additional Properties to third parties or joint venture partners in 2018. 32 OFF-BALANCE SHEET ARRANGEMENTS Our off-balance sheet arrangements consist of our investment in nine self-storage joint ventures in which we have ownership interests ranging from 5% to 85%, as well as our investment in the entity that owns the building that houses our corporate office in which we have a 49% ownership. We account for these real estate entities under the equity method. The debt held by the unconsolidated real estate entities is secured by the real estate owned by these entities and is non-recourse to us. See Note 11 to our consolidated financial statements for additional details. REIT QUALIFICATION AND DISTRIBUTION REQUIREMENTS As a REIT, we are not required to pay federal income tax on income that we distribute to our shareholders, provided that we satisfy certain requirements, including distributing at least 90% of our REIT taxable income for a taxable year. These distributions must be made in the year to which they relate, or in the following year if declared before we file our federal income tax return, and if they are paid not later than the date of the first regular dividend of the following year. As a REIT, we must derive at least 95% of our total gross income from income related to real property, interest and dividends. In 2016, our percentage of revenue from such sources was approximately 97%, thereby passing the 95% test, and no special measures are expected to be required to enable us to maintain our REIT designation. 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 Directors to revoke our REIT election. INTEREST RATE RISK The primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including government monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control. We have entered into an interest rate swap agreement to help mitigate the effects of fluctuations in interest rates on our variable rate debt. Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $100 million of our floating rate bank debt through the interest rate swap termination date. Forward starting interest rate swaps have also been used by the Company to hedge the risk of changes in the interest-related cash outflows associated with the potential issuance of long-term debt. See Note 7 to our consolidated financial statements for additional detail related to interest rate swaps. Through September 2018, $100 million of our $205 million of floating rate unsecured debt is on a fixed rate basis after taking into account our interest rate swap agreements. Based on our outstanding unsecured floating rate debt of $205 million at December 31, 2017, a 100 basis point increase in interest rates would have a $1.1 million effect on our interest expense. This amount was determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate hedge agreements in effect on December 31, 2017. This analysis does not consider the impact of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure. INFLATION We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at the facilities are on a month-to-month basis which provides us with the opportunity to increase rental rates as each lease matures. SEASONALITY Our revenues typically have been higher in the third and fourth quarters, primarily because self-storage facilities tend to experience greater occupancy during the late spring, summer and early fall months due to the greater incidence of residential moves and college student activity during these periods. However, we believe that our customer mix, diverse geographic locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to materially affect distributions to shareholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required is incorporated by reference to the information appearing under the caption “Interest Rate Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” above. Item 8. Financial Statements and Supplementary Data 33 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Life Storage, Inc. Opinion on the Financial Statement We have audited the accompanying consolidated balance sheets of Life Storage, Inc. (the Parent Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Parent Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Parent Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Parent Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Parent Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Parent Company’s auditor since 1994. Buffalo, New York February 27, 2018 34 Report of Independent Registered Public Accounting Firm To the Partners and the Board of Directors of Life Storage LP Opinion on the Financial Statement We have audited the accompanying consolidated balance sheets of Life Storage LP (the Operating Partnership) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Operating Partnership’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Operating Partnership’s auditor since 2016. Buffalo, New York February 27, 2018 35 LIFE STORAGE, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data) Assets Investment in storage facilities: Land Building, equipment, and construction in progress Less: accumulated depreciation Investment in storage facilities, net Cash and cash equivalents Accounts receivable Receivable from unconsolidated joint ventures Investment in unconsolidated joint ventures Prepaid expenses Fair value of interest rate swap agreements Trade name Other assets Total Assets Liabilities Line of credit Term notes, net Accounts payable and accrued liabilities Deferred revenue Fair value of interest rate swap agreements Mortgages payable Total Liabilities Noncontrolling redeemable Operating Partnership Units at redemption value Shareholders’ Equity Common stock $.01 par value, 100,000,000 shares authorized, 46,552,222 shares outstanding at December 31, 2017 (46,454,606 at December 31, 2016) Additional paid-in capital Dividends in excess of net income Accumulated other comprehensive loss Total Shareholders’ Equity Noncontrolling interest in consolidated subsidiary Total Equity Total Liabilities and Shareholders’ Equity See notes to consolidated financial statements. December 31, 2017 2016 786,628 3,534,782 4,321,410 (624,314) 3,697,096 9,167 7,331 1,397 133,458 6,757 205 16,500 4,863 3,876,774 105,000 1,609,089 92,941 9,374 — 12,674 1,829,078 19,373 466 2,363,171 (327,727) (7,587) 2,028,323 — 2,028,323 3,876,774 $ $ $ $ 786,764 3,456,544 4,243,308 (535,704) 3,707,604 23,685 5,469 1,223 67,300 6,649 — 16,500 29,554 3,857,984 253,000 1,387,525 75,132 9,700 13,015 13,027 1,751,399 18,091 464 2,348,567 (239,062) (21,475) 2,088,494 — 2,088,494 3,857,984 $ $ $ $ 36 LIFE STORAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS $ (dollars in thousands, except per share data) Revenues Rental income Other operating income Total operating revenues Expenses Property operations and maintenance Real estate taxes General and administrative Acquisition costs Write-off of acquired property deposits Operating leases of storage facilities Depreciation and amortization Total operating expenses Income from operations Other income (expenses) Interest expense Interest expense – bridge financing commitment fee Interest income (Loss) gain on sale of storage facilities Gain on sale of real estate Equity in income of joint ventures Net income Net income attributable to noncontrolling interest in the Operating Partnership Net loss attributable to noncontrolling interest in consolidated subsidiary Net income attributable to common shareholders Earnings per common share attributable to common shareholders - basic Earnings per common share attributable to common shareholders - diluted $ $ $ See notes to consolidated financial statements. 2017 Year Ended December 31, 2016 2015 485,303 44,447 529,750 122,794 57,663 50,031 — — 424 127,485 358,397 171,353 (74,362) — 7 (3,503) — 3,314 96,809 (444) — 96,365 2.08 2.07 $ $ $ $ 428,121 34,487 462,608 103,388 47,876 43,103 29,542 1,783 — 117,081 342,773 119,835 (47,175) (7,329) 67 15,270 623 3,665 84,956 (398) 667 85,225 1.97 1.96 $ $ $ $ 338,435 28,167 366,602 81,915 36,563 38,659 2,991 — 683 58,506 219,317 147,285 (37,124) — 5 (494) — 3,405 113,077 (553) — 112,524 3.18 3.16 37 LIFE STORAGE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Net income Other comprehensive income: 2017 Year Ended December 31, 2016 2015 $ 96,809 $ 84,956 $ 113,077 Effective portion of gain (loss) on derivatives net of reclassification to interest expense Total comprehensive income Comprehensive income attributable to noncontrolling interest in the Operating Partnership Comprehensive loss attributable to noncontrolling interest in consolidated subsidiary Comprehensive income attributable to common shareholders 13,888 110,697 (508) (7,060) 77,896 (365) (1,410) 111,667 (546) — 110,189 $ $ 667 78,198 $ — 111,121 See notes to consolidated financial statements. 38 LIFE STORAGE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common Stock Shares 34,105,955 2,329,911 Common Stock 341 23 Additional Paid-in Capital 1,156,225 210,119 Dividends in Excess of Net Income (167,692) — 1 1 1 — — — — — — — — 367 96 1 — — — — — — — — — — 464 Accumulated Other Comprehensive Income (loss) (13,005) — — — — — — — — Total Shareholders’ Equity 975,869 210,142 13,926 1,633 — 6,254 210 59 (80) — — — — — — — (3,328) 112,524 — (113,484) (171,980) — — — (1,410) — (14,415) — (3,328) 112,524 (1,410) (113,484) 1,202,315 934,963 — — — — — — — — — — — — 13,166 4,795 — 7,216 89 92 13,925 1,632 (1) 6,254 210 59 (80) — — — — 1,388,343 934,867 13,165 4,795 — 7,216 89 92 — — — — — 2,348,567 4,457 85,225 — — (156,764) (239,062) — — 458 (7,518) — (21,475) 4,457 85,225 458 (7,518) (156,764) 2,088,494 2 — (1) 1 — — — 15,632 43 (8,233) (1) — 7,148 15 — — — — — — — — — — — — — — — — — 466 $2,363,171 $ (327,727) $ (1,697) 96,365 — — (183,333) — — — — — — — 15,634 43 (8,234) — — 7,148 15 — — 917 12,971 — (1,697) 96,365 917 12,971 (183,333) (7,587) $ 2,028,323 (dollars in thousands, except share data) Balance January 1, 2015 Net proceeds from the issuance of common stock Net proceeds from the issuance of common stock through Dividend Reinvestment Plan Exercise of stock options Issuance of non-vested stock Earned portion of non-vested stock Stock option expense Deferred compensation outside directors Carrying value less than redemption value on redeemed noncontrolling interest Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common shareholders Change in fair value of derivatives Dividends Balance December 31, 2015 Net proceeds from the issuance of common stock Net proceeds from the issuance of common stock through Dividend Reinvestment Plan Conversion of operating partnership units to common shares Issuance of non-vested stock Earned portion of non-vested stock Stock option expense Deferred compensation outside directors Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common shareholders Amortization of terminated hedge included in AOCI Change in fair value of derivatives Dividends Balance December 31, 2016 Net proceeds from the issuance of common stock through Dividend Reinvestment Plan Exercise of stock options Purchase of outstanding shares Issuance of non-vested stock Forfeiture of non-vested stock Earned portion of non-vested stock Stock option expense Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common shareholders Amortization of terminated hedge included in AOCI Change in fair value of derivatives, net of reclassifications Dividends Balance December 31, 2017 See notes to consolidated financial statements 151,246 30,900 64,244 — — 28,417 — — — — — 36,710,673 9,545,000 133,666 41,862 23,405 — — — — — — — — 46,454,606 199,809 1,100 (112,554) 51,276 (42,015) — — — — — — — 46,552,222 $ 39 LIFE STORAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 2017 Year Ended December 31, 2016 2015 $ 96,809 $ 84,956 $ 113,077 (dollars in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of debt issuance costs and bond discount Loss (gain) on sale of storage facilities Gain on sale of real estate Write-off of acquired property deposits Equity in income of joint ventures Distributions from unconsolidated joint venture Non-vested stock earned Stock option expense Deferred income taxes Changes in assets and liabilities (excluding the effects of acquisitions): Accounts receivable Prepaid expenses Advances to joint ventures Accounts payable and other liabilities Deferred revenue Net cash provided by operating activities Investing Activities Acquisition of storage facilities, net of cash acquired Improvements, equipment additions, and construction in progress Net proceeds from the sale of real estate Investment in unconsolidated joint ventures Property deposits Net cash used in investing activities Financing Activities Net proceeds from sale of common stock Purchase of outstanding shares Proceeds from line of credit Repayment of line of credit Proceeds from term notes, net of discount Repayment of term notes Debt issuance costs Settlement of forward starting interest rate swaps Dividends paid - common stock Distributions to noncontrolling interest holders Redemption of operating partnership units Mortgage principal payments Net cash (used in) provided by financing activities Net (decrease) increase in cash Cash at beginning of period Cash at end of period Supplemental cash flow information Cash paid for interest, net of interest capitalized Cash paid for income taxes, net of refunds See notes to consolidated financial statements. $ $ $ 40 127,485 4,289 3,503 — — (3,314) 7,055 7,148 15 (2,578) (1,862) (162) (174) 10,692 (326) 248,580 (21,880) (83,657) 18,872 (69,911) 66 (156,510) 15,677 (8,234) 276,000 (424,000) 447,853 (225,000) (3,961) — (183,711) (859) — (353) (106,588) (14,518) 23,685 9,167 70,924 1,180 $ $ $ 117,081 9,688 (15,270) (623) 1,783 (3,665) 5,207 7,308 89 — 4,814 (230) (294) 18,494 (3,788) 225,550 (1,750,267) (72,852) 34,697 (6,438) (1,209) (1,796,069) 948,129 — 1,102,000 (928,000) 796,682 (150,000) (15,273) (9,166) (156,249) (742) — (197) 1,587,184 16,665 7,020 23,685 39,856 981 $ $ $ 58,506 1,184 494 — — (3,405) 4,821 6,313 210 — (1,038) 1,132 (346) 5,847 (597) 186,198 (280,010) (41,739) 4,646 (6,151) (5,435) (328,689) 225,701 — 330,000 (300,000) — — — — (113,039) (555) (1,005) (134) 140,968 (1,523) 8,543 7,020 35,926 1,084 LIFE STORAGE LP CONSOLIDATED BALANCE SHEETS (dollars in thousands, except unit data) Assets Investment in storage facilities: Land Building, equipment, and construction in progress Less: accumulated depreciation Investment in storage facilities, net Cash and cash equivalents Accounts receivable Receivable from unconsolidated joint ventures Investment in unconsolidated joint ventures Prepaid expenses Fair value of interest rate swap agreements Trade name Other assets Total Assets Liabilities Line of credit Term notes, net Accounts payable and accrued liabilities Deferred revenue Fair value of interest rate swap agreements Mortgages payable Total Liabilities Limited partners’ redeemable capital interest at redemption value (217,481 units outstanding at December 31, 2017 and December 31, 2016) Partners’ Capital General partner (467,697 and 466,721 units outstanding at December 31, 2017 and December 31, 2016, respectively) Limited partners (46,084,525 and 45,987,885 units outstanding at December 31, 2017 and December 31, 2016, respectively) Accumulated other comprehensive loss Total Controlling Partners’ Capital Noncontrolling interest in consolidated subsidiary Total Partners’ Capital Total Liabilities and Partners’ Capital See notes to consolidated financial statements. December 31, 2017 2016 $ $ $ 786,628 3,534,782 4,321,410 (624,314) 3,697,096 9,167 7,331 1,397 133,458 6,757 205 16,500 4,863 3,876,774 105,000 1,609,089 92,941 9,374 - 12,674 1,829,078 786,764 3,456,544 4,243,308 (535,704) 3,707,604 23,685 5,469 1,223 67,300 6,649 - 16,500 29,554 3,857,984 253,000 1,387,525 75,132 9,700 13,015 13,027 1,751,399 19,373 18,091 20,478 21,065 2,015,432 (7,587) 2,028,323 — 2,028,323 3,876,774 $ 2,088,904 (21,475) 2,088,494 — 2,088,494 3,857,984 $ $ $ $ 41 LIFE STORAGE LP CONSOLIDATED STATEMENTS OF OPERATIONS $ (dollars in thousands, except per unit data) Revenues Rental income Other operating income Total operating revenues Expenses Property operations and maintenance Real estate taxes General and administrative Acquisition costs Write-off of acquired property deposits Operating leases of storage facilities Depreciation and amortization Total operating expenses Income from operations Other income (expenses) Interest expense Interest expense – bridge financing commitment fee Interest income (Loss) gain on sale of storage facilities Gain on sale of real estate Equity in income of joint ventures Net income Net income attributable to noncontrolling interest in the Operating Partnership Net loss attributable to noncontrolling interest in consolidated subsidiary Net income attributable to common unitholders Earnings per common unit attributable to common unitholders - basic Earnings per common unit attributable to common unitholders - diluted Net income attributable to general partner Net income attributable to limited partners $ $ $ $ See notes to consolidated financial statements. 2017 Year Ended December 31, 2016 2015 485,303 44,447 529,750 122,794 57,663 50,031 - - 424 127,485 358,397 171,353 (74,362) - 7 (3,503) - 3,314 96,809 (444) - 96,365 2.08 2.07 968 95,397 $ $ $ $ $ 428,121 34,487 462,608 103,388 47,876 43,103 29,542 1,783 - 117,081 342,773 119,835 (47,175) (7,329) 67 15,270 623 3,665 84,956 (398) 667 85,225 1.97 1.96 856 84,369 $ $ $ $ $ 338,435 28,167 366,602 81,915 36,563 38,659 2,991 - 683 58,506 219,317 147,285 (37,124) - 5 (494) - 3,405 113,077 (553) - 112,524 3.18 3.16 1,131 111,393 42 LIFE STORAGE LP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Net income Other comprehensive income: Effective portion of gain (loss) on derivatives net of reclassification to interest expense Total comprehensive income Comprehensive income attributable to noncontrolling interest in the Operating Partnership Comprehensive loss attributable to noncontrolling interest in consolidated subsidiary Comprehensive income attributable to common unitholders See notes to consolidated financial statements. 2017 Year Ended December 31, 2016 2015 $ 96,809 $ 84,956 $ 113,077 13,888 110,697 (508) (7,060) 77,896 (365) (1,410) 111,667 (546) — 110,189 $ $ 667 78,198 $ — 111,121 43 LIFE STORAGE LP CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (dollars in thousands) Balance January 1, 2015 Net proceeds from the issuance of Partnership Units Net proceeds from the issuance of Partnership Units through Dividend Reinvestment Plan Exercise of stock options Earned portion of non-vested stock Stock option expense Deferred compensation outside directors Carrying value less than redemption value on redeemed noncontrolling interest Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common unitholders Change in fair value of derivatives Distributions Balance December 31, 2015 Net proceeds from the issuance of Partnership Units Net proceeds from the issuance of Partnership Units through Dividend Reinvestment Plan Conversion of operating partnership units to common shares Issuance of operating partnership units Earned portion of non-vested stock Stock option expense Deferred compensation outside directors Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common unitholders Amortization of terminated hedge included in AOCI Change in fair value of derivatives Distributions Balance December 31, 2016 Net proceeds from the issuance of Partnership Units through Dividend Reinvestment Plan Exercise of stock options Purchase of outstanding units Issuance of non-vested stock Forfeiture of non-vested stock Earned portion of non-vested stock Stock option expense Adjustment to redemption value of noncontrolling redeemable Operating Partnership Units Net income attributable to common unitholders Amortization of terminated hedge included in AOCI Change in fair value of derivatives, net of reclassifications Distributions Balance December 31, 2017 See notes to consolidated financial statements Life Storage Holdings, Inc. General Partner 9,895 2,123 139 16 63 2 — (10) — 1,131 (14) (1,140) 12,205 9,349 132 — 95 72 1 1 — 856 4 (75) (1,575) 21,065 157 1 (82) 1 — 71 — Life Storage, Inc. Limited Partner 978,979 208,019 13,787 1,617 6,191 208 59 (70) (3,328) 111,393 14 (112,344) 1,204,525 925,614 13,034 4,795 (95) 7,144 88 91 4,457 84,369 (4) 75 (155,189) 2,088,904 15,477 42 (8,152) (1) — 7,077 15 Accumulated Other Comprehensive Income (loss) (13,005) — — — — — — — — — (1,410) — (14,415) — — — — — — — — — 458 (7,518) — (21,475) — — — — — — Total Controlling Partners’ Capital 975,869 210,142 13,926 1,633 6,254 210 59 (80) (3,328) 112,524 (1,410) (113,484) 1,202,315 934,963 13,166 4,795 — 7,216 89 92 4,457 85,225 458 (7,518) (156,764) 2,088,494 15,634 43 (8,234) — — 7,148 15 — 968 9 130 (1,842) 20,478 $ (1,697) 95,397 (9) (130) (181,491) 2,015,432 $ — — 917 12,971 — (1,697) 96,365 917 12,971 (183,333) (7,587) $ 2,028,323 $ 44 LIFE STORAGE LP CONSOLIDATED STATEMENTS OF CASH FLOWS 2017 Year Ended December 31, 2016 2015 $ 96,809 $ 84,956 $ 113,077 (dollars in thousands) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of debt issuance costs and bond discount Loss (gain) on sale of storage facilities Gain on sale of real estate Write-off of acquired property deposits Equity in income of joint ventures Distributions from unconsolidated joint venture Non-vested stock earned Stock option expense Deferred income taxes Changes in assets and liabilities (excluding the effects of acquisitions): Accounts receivable Prepaid expenses Advances to joint ventures Accounts payable and other liabilities Deferred revenue Net cash provided by operating activities Investing Activities Acquisition of storage facilities, net of cash acquired Improvements, equipment additions, and construction in progress Net proceeds from the sale of real estate Investment in unconsolidated joint ventures Property deposits Net cash used in investing activities Financing Activities Net proceeds from sale of partnership units Purchase of outstanding units Proceeds from line of credit Repayment of line of credit Proceeds from term notes, net of discount Repayment of term notes Debt issuance costs Settlement of forward starting interest rate swaps Distributions to unitholders Distributions to noncontrolling interest holders Redemption of operating partnership units Mortgage principal payments Net cash (used in) provided by financing activities Net (decrease) increase in cash Cash at beginning of period Cash at end of period Supplemental cash flow information Cash paid for interest, net of interest capitalized Cash paid for income taxes, net of refunds See notes to consolidated financial statements. $ $ $ 45 127,485 4,289 3,503 - - (3,314) 7,055 7,148 15 (2,578) (1,862) (162) (174) 10,692 (326) 248,580 (21,880) (83,657) 18,872 (69,911) 66 (156,510) 15,677 (8,234) 276,000 (424,000) 447,853 (225,000) (3,961) — (183,711) (859) — (353) (106,588) (14,518) 23,685 9,167 70,924 1,180 $ $ $ 117,081 9,688 (15,270) (623) 1,783 (3,665) 5,207 7,308 89 — 4,814 (230) (294) 18,494 (3,788) 225,550 (1,750,267) (72,852) 34,697 (6,438) (1,209) (1,796,069) 948,129 — 1,102,000 (928,000) 796,682 (150,000) (15,273) (9,166) (156,249) (742) — (197) 1,587,184 16,665 7,020 23,685 39,856 981 $ $ $ 58,506 1,184 494 — — (3,405) 4,821 6,313 210 — (1,038) 1,132 (346) 5,847 (597) 186,198 (280,010) (41,739) 4,646 (6,151) (5,435) (328,689) 225,701 — 330,000 (300,000) — — — — (113,039) (555) (1,005) (134) 140,968 (1,523) 8,543 7,020 35,926 1,084 LIFE STORAGE, INC. AND LIFE STORAGE LP DECEMBER 31, 2017 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION The Parent Company, which operates as a self-administered and self-managed real estate investment trust (a “REIT”), was formed on April 19, 1995 to own and operate self-storage facilities throughout the United States. On June 26, 1995, the Parent Company commenced operations effective with the completion of its initial public offering. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership. At December 31, 2017, we had an ownership interest in, and/or managed 706 self-storage properties in 28 states under the name Life Storage ®. Among our 706 self-storage properties are 98 properties that we manage for unconsolidated joint ventures (See Note 11), 42 properties that we manage and have no ownership interest, and two properties that we lease. During 2017, approximately 23% and 13% of the Company’s revenue was derived from stores in the states of Texas and Florida, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation : All of the Company’s assets are owned by, and all its operations are conducted through the Operating Partnership. Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership, and, through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 99.5% ownership interest therein as of December 31, 2017. The remaining ownership interests in the Operating Partnership (the “Units”) are held by certain former owners of assets acquired by the Operating Partnership. We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, Life Storage Solutions, LLC (the Parent Company’s taxable REIT subsidiary), Warehouse Anywhere LLC (an entity owned 60% by Life Storage Solutions, LLC), and all other wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but for which we have significant influence over are accounted for using the equity method. Included in the Parent Company’s consolidated balance sheets are noncontrolling redeemable Operating Partnership Units and included in the Operating Partnership’s consolidated balance sheets are limited partners’ redeemable capital interest at redemption value. These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership. At December 31, 2017 and December 31, 2016, there were 217,481 noncontrolling redeemable Operating Partnership Units outstanding. These unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock. The Operating Partnership is obligated to redeem each of these limited partnership Units in the Operating Partnership at the request of the holder thereof for cash equal to the fair market value of a share of the Parent Company’s common stock based on a 10-day average of the daily market price, at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit presented for redemption for one common share or cash. The Company accounts for these noncontrolling redeemable Operating Partnership Units under the provisions of Accounting Standards Codification (ASC) Topic 480-10-S99. The application of the ASC Topic 480-10-S99 accounting model requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount). The offset to the adjustment to the carrying amount of the noncontrolling interests is reflected in the Parent Company’s dividends in excess of net income and in the Operating Partnership’s general partner and limited partners capital balances. Accordingly, in the accompanying consolidated balance sheets, noncontrolling interests are reflected at redemption value at December 31, 2017 and 2016, equal to the number of noncontrolling interest units outstanding multiplied by the fair market value of the Parent Company’s common stock at that date. Redemption value exceeded the value determined under the Company’s historical basis of accounting at those dates. 46 The following is a reconciliation of the Parent Company’s noncontrolling redeemable Operating Partnership Units and the Operating Parnership’s limited partners’ redeemable capital interest for the year ending December 31: (Dollars in thousands) Beginning balance Redemption of units Issuance of units Net income attributable to noncontrolling interests in Operating Partnership Distributions Adjustment to redemption value Ending balance 2017 2016 $ $ 18,091 $ — — 444 (859) 1,697 19,373 $ 18,171 (4,795) 9,516 398 (742) (4,457) 18,091 In 2016 the Operating Partnership issued 90,477 Units with a fair value of $9.5 million to acquire self-storage properties. The fair value of the Units on the dates of issuance was determined based upon the fair market value of the Company’s common stock on those dates. Operating Partnership Units redeemed in 2016 were redeemed for a total of 41,862 shares of the Parent Company. Cash and Cash Equivalents : The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Accounts Receivable : Accounts receivable are composed of trade and other receivables recorded at billed amounts and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable uncollectible amounts in the Company’s existing accounts receivable. The Company determines the allowance based on a number of factors, including experience, credit worthiness of customers, and current market and economic conditions. The Company reviews the allowance for doubtful accounts on a regular basis. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts is recorded as a reduction of accounts receivable and amounted to $0.7 million and $1.0 million at December 31, 2017 and 2016, respectively. Revenue and Expense Recognition : Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue. Equity in earnings of real estate joint ventures that we have significant influence over is recognized based on our ownership interest in the earnings of these entities. Cost of operations, general and administrative expense, interest expense and advertising costs are expensed as incurred. For the years ended December 31, 2017, 2016, and 2015, advertising costs were $12.3 million, $9.5 million, and $7.3 million, respectively. The Company accrues property taxes based on estimates and historical trends. If these estimates are incorrect, the timing and amount of expense recognition would be affected. Other Operating Income : Other operating income consists primarily of sales of storage-related merchandise (locks and packing supplies), insurance administrative fees, incidental truck rentals, and management and acquisition fees from unconsolidated joint ventures. Investment in Storage Facilities : Storage facilities are recorded at cost. The purchase price of acquired facilities is allocated to land, land improvements, building, equipment, and in-place customer leases based on the relative fair value of each component or based on the fair value of each component if accounted for as a business combination. The fair values of land are determined based upon comparable market sales information. The fair values of buildings are determined based upon estimates of current replacement costs adjusted for depreciation on the properties. For the years ended December 31, 2016 and 2015, $29.5 million and $3.0 million of acquisition related costs were incurred and expensed, respectively. There were no acquisition related costs expensed in 2017. Depreciation is computed using the straight-line method over estimated useful lives of forty years for buildings and improvements, and five to twenty years for furniture, fixtures and equipment. Estimated useful lives are reevaluated when facts and circumstances indicate that the economic lives of assets do not extend to their currently assigned useful lives. Expenditures for significant renovations or improvements that extend the useful life of assets are capitalized. Depreciation expense was $102.7 million, $87.2 million and $55.1 million for the years ending December 31, 2017, 2016, and 2015, respectively. Interest and other costs incurred during the construction period of major expansions are capitalized. Capitalized interest during the years ended December 31, 2017, 2016, and 2015 was $0.3 million, $0.1 million and $0.1 million, respectively. Repair and maintenance costs are expensed as incurred. 47 Whenever events or changes in circumstances indicate that the carrying value of the Company’s property may not be recoverable, the Company’s policy is to complete an assessment of impairment. Impairment is evaluated based upon comparing the sum of the property’s expected undiscounted future cash flows to the carrying value of the property. If the sum of the undiscounted cash flows is less than the carrying amount of the property, an impairment loss is recognized for any amount by which the carrying amount of the asset exceeds the fair value of the asset. For the years ended December 31, 2017, 2016, and 2015, no assets have been determined to be impaired under this policy. In general, sales of real estate and related profits / losses are recognized when all consideration has changed hands and risks and rewards of ownership have been transferred. Trade Name : The Company’s trade name, which was acquired in 2016, has an indefinite life and is not amortized but is reviewed for impairment annually or more frequently when facts and circumstances indicate that the carrying value of the Company’s trade name may not be recoverable. We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors as part of our annual test. If, after completing this assessment, it is determined that it is more likely than not that the fair value of the trade name is less than its carrying value, we proceed to a quantitative test. We did not elect to perform a qualitative assessment in 2017. Quantitative testing requires a comparison of the fair value of the trade name to its carrying value. We use a discounted cash flow analysis under the relief-from-royalty method to estimate the fair value of the trade name. This method incorporates various assumptions, including projected revenue growth rates, the terminal growth rate, the royalty rate to be applied, and the discount rate utilized. If the carrying value exceeds the fair value, the trade name is considered impaired to the extent that the carrying value exceeds the fair value. We did not record any impairment in 2017. Other Assets : Included in other assets are cash balances held in escrow for encumbered properties, property deposits and the value placed on in-place customer leases at the time of acquisition. Cash held in escrow for encumbered properties at December 31, 2017 and 2016, totaled $292,000 and $238,000, respectively. Property deposits at December 31, 2017 and 2016 were $0.9 million and $2.4 million, respectively. In 2016, a decision was made to not proceed with the acquisition of two properties on which the Company had previously made property deposits totaling $1.8 million. As a result, these property deposits were abandoned and are included in write-off of acquired property deposits on the accompanying consolidated statements of operations. No such expenses were incurred in 2017 or 2015. The Company allocates a portion of the purchase price of acquisitions to in-place customer leases. The methodology used to determine the fair value of in-place customer leases is described in Note 8. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). Investment in Unconsolidated Joint Ventures : The Company’s investment in unconsolidated joint ventures where the Company has significant influence but not control, and joint ventures which are variable interest entities in which the Company is not the primary beneficiary, are recorded under the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the Company’s investment in unconsolidated joint ventures is stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of unconsolidated joint ventures is generally recognized based on the Company’s ownership interest in the earnings of each of the unconsolidated joint ventures. For the purposes of presentation in the statement of cash flows, the Company follows the “look through” approach for classification of distributions from joint ventures. Under this approach, distributions are reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital (e.g., a liquidating dividend or distribution of the proceeds from the joint venture’s sale of assets), in which case it is reported as an investing activity. Accounts Payable and Accrued Liabilities : Accounts payable and accrued liabilities consists primarily of trade payables, accrued interest, and property tax accruals. Income Taxes : The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements. The Company has elected to treat one of its subsidiaries as a taxable REIT subsidiary. In general, the Company’s taxable REIT subsidiary may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. 48 The Company recorded federal and state income tax benefit of $1.0 million in the year ended December 31, 2017 and federal and state income tax expense of $0.4 million and $1.3 million during the years ended December 31, 2016 and 2015, respectively, which are included in general and administrative expenses in the consolidated statements of operations. The 2017 income tax benefit includes current tax expense of $1.5 million and deferred tax benefit of $2.5 million. At December 31, 2017 and 2016, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2017 and 2016, the Company had no interest or penalties related to uncertain tax provisions. Income taxes payable at December 31, 2017 and 2016 and the net deferred tax liability of our taxable REIT subsidiary at December 31, 2016 are classified within accounts payable and accrued liabilities in the consolidated balance sheets. Prepaid income taxes at December 31, 2017 and 2016 are classified within prepaid expenses, while the net deferred tax asset of our taxable REIT subsidiary at December 31, 2017 is classified within other assets in the consolidated balance sheets. As of December 31, 2017, the Company’s taxable REIT subsidiary has prepaid taxes of $0.1 million, deferred tax assets of $3.6 million and a deferred tax liability of $1.7 million. As of December 31, 2016, the Company’s taxable REIT subsidiary has prepaid taxes of $0.4 million, deferred tax assets of $1.5 million and a deferred tax liability of $2.2 million. The Tax Cuts and Jobs Act (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on December 22, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, will apply to income earned by our taxable REIT subsidiary. As a result, the deferred tax assets and deferred tax liabilities of our taxable REIT subsidiary are remeasured at December 31, 2017 using the 21% corporate income tax rate. The impact of the remeasurement is not material to the Company. Derivative Financial Instruments : The Company accounts for derivatives in accordance with ASC Topic 815 “ Derivatives and Hedging” , which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives using an income approach. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments is limited to cash flow hedges of certain interest rate risks. Recent Accounting Pronouncements : In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the new guidance recognized at the date of initial application (the modified retrospective transition method). The Company has adopted the standard using the retrospective transition method as of January 1, 2018. Leases are specifically excluded from the scope of ASU 2014-09, therefore, upon analysis, the Company concluded that the adoption of the new standard did not have any impact on the timing or amounts of the Company’s rental revenue from customers which represents over 90% of the Company’s total operating revenues. We have evaluated the other revenue streams material to the Company and have concluded that the adoption of the new standard did not have any material impact on the timing or amounts of the Company’s material revenue streams and no cumulative effect adjustment is required as of the date of initial application. Also, as part of the Company’s adoption of ASU 2014-09, the Company has elected to apply the guidance only to contracts that are not completed contracts at the date of initial application. Further, related to the Company’s management fee revenue stream, the Company has elected to apply a practical expedient provided in the new standard which allows the Company to recognize revenue in the amount of management fees to which the Company has a right to invoice as that amount corresponds directly with the value to the customer of the entity’s performance completed to date. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. This guidance revises existing practice related to accounting for leases under ASC 840 Leases for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). While the new standard maintains similar accounting for lessors as under ASC 840, the new standard reflects updates to, among other things, align with certain changes to the lessee model. ASU 2016-02 is effective for fiscal years and interim periods, within those years, beginning after December 15, 2018. Early adoption is permitted for all entities, thought the Company does not expect to adopt ASU 2016-02 early. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements. In March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments”. ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. ASU 2016-06 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2016. The implementation of this update did not result in any changes to our consolidated financial statements. 49 In March 2016, the FASB issued ASU 2016-07, “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting”. ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2016. The implementation of this update did not result in any changes to our consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance in ASU 2016-09 effective January 1, 2017 and has elected to recognize forfeitures of share-based payments as they occur beginning in 2017. The implementation of this update did not result in any material changes to our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a Consensus of the Emerging Issues Task Force)” in an effort to reduce existing diversity in practice related to the classification of certain cash receipts and cash payments on the statements of cash flows. The guidance addresses the classification of cash flows related to, among other things, distributions received from equity method investees. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The implementation of this update as of January 1, 2018 did not have a material impact on the Company’s financial statements. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a Consensus of the Emerging Issues Task Force)” which requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption of this update is permitted. Other than modifications to the statement of cash flows, the adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” which is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. The amendments in this update are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption of this update is permitted and the Company adopted this update effective January 1, 2017. The adoption of ASU 2017-01 has potential impact on the accounting treatment of properties acquired subsequent to the date of adoption. Property acquisitions treated as business combinations under previous guidance may no longer be treated as business combinations subsequent to the adoption of ASU 2017-01. To the extent that properties that we acquire do not meet the definition of a “business” under ASU 2017-01, future acquisitions of properties may be accounted for as asset acquisitions resulting in the capitalization of acquisition costs incurred in connection with these transactions and the allocation of the purchase price and related acquisition costs to the assets acquired based on their relative fair values. There were no properties acquired in 2017 that would have been accounted for as business combinations prior to the adoption of ASU 2017-01. In February 2017, the FASB issued ASU 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” which clarifies the scope and application of ASC 610-20 on the sale or transfer of nonfinancial assets, including real estate, and in substance nonfinancial assets to noncustomers, including partial sales. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The implementation of this update as of January 1, 2018 could potentially impact the accounting treatment of future real estate sales of the Company if such sales are to parties who are also customers of the Company. In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The implementation of this update as of January 1, 2018 did not have a material impact on the Company’s financial statements, however, all future changes to the terms or conditions of any of the Company’s share-based payment awards are subject to the guidance in ASU 2017-09 and could potentially be accounted for differently than under the previous guidance concerning such changes. Stock-Based Compensation : The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “ Compensation - Stock Compensation ”. The Company recognizes compensation cost in its financial statements for all share based payments granted, modified, or settled during the period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the related vesting period. 50 The Company recorded compensation expense (included in general and administrative expense) of $15,000, $89,000, and $210,000, respectively, related to stock options and $7.1 million, $7.2 million, and $6.3 million, respectively, related to amortization of non-vested stock grants for the years ended December 31, 2017, 2016, and 2015. The Company uses the Black-Scholes Merton option pricing model to estimate the fair value of stock options granted subsequent to the adoption of ASC Topic 718. The application of this pricing model involves assumptions that are judgmental and sensitive in the determination of compensation expense. The weighted-average fair value of options granted during the year ended December 31, 2015 was $9.90. There were no options granted during the years ended December 31, 2017 and 2016. To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods that correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the expected life of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected life of stock options is based on the midpoint between the vesting date and the end of the contractual term. The Company recognizes any forfeitures as they occur. During 2017, 2016, and 2015, the Company issued performance based non-vested stock awards to certain executives. The fair value for the performance based awards in 2017, 2016 and 2015 was estimated at the time the awards were granted using a Monte Carlo pricing model applying the following weighted-average assumptions: Expected life (years) Risk free interest rate Expected volatility Fair value 2017 2016 2015 3.0 1.79% 19.92% 82.06 $ 3.0 1.53% 19.37% 80.24 $ 3.0 1.33% 18.88% 101.43 $ The Monte Carlo pricing model was not used to value any other 2017, 2016, and 2015 non-vested shares granted as no market conditions were present in these awards. The value of these other non-vested shares was equal to the stock price on the date of grant. Use of Estimates : The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. EARNINGS PER SHARE AND EARNINGS PER UNIT The Company reports earnings per share and earnings per unit data in accordance with ASC Topic 260, “Earnings Per Share .” Under ASC Topic 260-10, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The Parent Company and the Operating Partnership have calculated their basic and diluted earnings per share/unit using the two-class method. The following table sets forth the computation of basic and diluted earnings per common share utilizing the two-class method. (Amounts in thousands, except per share data) Numerator: Net income attributable to common shareholders Denominator: Denominator for basic earnings per share - weighted average shares Effect of Dilutive Securities: Stock options and non-vested stock Denominator for diluted earnings per share - adjusted weighted Year Ended December 31, 2016 2015 2017 $ 96,365 $ 85,225 $ 112,524 46,373 43,184 35,379 117 223 222 average shares and assumed conversion 46,490 43,407 35,601 Basic Earnings per common share attributable to common shareholders Diluted Earnings per common share attributable to common shareholders $ $ 2.08 $ 1.97 $ 2.07 $ 1.96 $ 3.18 3.16 51 The following table sets forth the computation of basic and diluted earnings per common unit utilizing the two-class method. (Amounts in thousands, except per unit data) Numerator: Net income attributable to common unitholders Denominator: Denominator for basic earnings per unit - weighted average units Effect of Dilutive Securities: Stock options and non-vested stock Denominator for diluted earnings per unit - adjusted weighted average units and assumed conversion Basic Earnings per common unit attributable to common Year Ended December 31, 2016 2015 2017 $ 96,365 $ 85,225 $ 112,524 46,373 43,184 35,379 117 223 222 46,490 43,407 35,601 unitholders Diluted Earnings per common unit attributable to common unitholders $ $ 2.08 $ 1.97 $ 2.07 $ 1.96 $ 3.18 3.16 Not included in the effect of dilutive securities above are 13,750 stock options and 133,512 unvested restricted shares for the year ended December 31, 2017; 107,283 unvested restricted shares for the year ended December 31, 2016; and 5,500 stock options and 152,835 unvested restricted shares for the year ended December 31, 2015. The effects of including these securities would have been anti-dilutive. 4. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS The following summarizes activity in storage facilities during the years ended December 31, 2017 and December 31, 2016. (Dollars in thousands) Cost: Beginning balance Acquisition of storage facilities Improvements and equipment additions Net (decrease) increase in construction in progress Dispositions Ending balance Accumulated Depreciation: Beginning balance Additions during the year Dispositions Ending balance 2017 2016 $ 4,243,308 $ 2,491,702 1,714,029 65,860 7,525 (35,808) 4,243,308 22,638 84,332 (141) (28,727) 4,321,410 $ $ $ $ 535,704 $ 102,674 (14,064) 624,314 $ 465,195 87,219 (16,710) 535,704 The Company acquired two self-storage facilities during 2017. The acquisition of these facilities were accounted for as asset acquisitions (See Note 2 for further discussion of the Company’s adoption of the accounting guidance under ASU 2017-01 as of January 1, 2017). The cost of these facilities, including closing costs, were assigned to land, buildings, equipment and improvements based upon their relative fair values. On July 15, 2016, the Company acquired all of the outstanding partnership interests in LifeStorage, LP, a Delaware limited partnership (“LS”). Pursuant to the acquisition, the Company acquired 83 self-storage properties throughout the country, including the following markets: Chicago, Illinois; Las Vegas, Nevada; Sacramento, California; Austin, Texas; and Los Angeles, California. Pursuant to the terms of the Agreement and Plan of Merger dated as of May 18, 2016 by and among LS, the Operating Partnership, Solar Lunar Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Operating Partnership, and Fortis Advisors LLC, a Delaware limited liability company, as Sellers’ Representative, the Company paid aggregate consideration of approximately $1.3 billion, of which $482 million was paid to discharge existing indebtedness of LS (including prepayment penalties and defeasance costs totaling $15.5 million). Including the LS acquisition, the Company acquired 122 facilities during 2016. The acquisition of three stores that were acquired at certificate of occupancy were accounted for as asset acquisitions. The cost of these stores, including closing costs, was assigned to land, building, equipment and improvements components based upon their relative fair values. The assets and liabilities of the other 119 storage facilities acquired in 2016, which primarily consist of tangible and intangible assets, were measured at fair value on the date of acquisition in accordance with the principles of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and were accounted for as business combinations in accordance with the principles of FASB ASC Topic 805 “Business Combinations.” 52 The purchase price of the two facilities acquired in 2017 and the 122 facilities acquired in 2016 has been assigned as follows: (dollars in thousands) Consideration paid Acquisition Date Fair Value Number of Properties Date of Acquisition Purchase Price Cash Paid Net Other Liabilities Assumed (Assets Acquired) Building, Equipment, and Improvements Closing Costs Expensed Land 1 1 2 2/23/2017 $ 12/14/2017 $ 10,089 12,549 22,638 $ $ 10,076 12,550 22,626 $ $ 13 (1) 12 $ $ 771 1,110 1,881 $ $ 9,318 11,439 20,757 $ $ — — — Number of Properties Date of Acquisition Purchase Price Cash Paid Consideration paid Value of Operating Partnership Units Issued Mortgage Assumed Net Other Liabilities Assumed (Assets Acquired) $ $ 4 4 5 1 3 1 1 1 1 3 1 1 2 2 1 1 2 1/6/2016 $ 1/21/2016 1/21/2016 1/21/2016 1/21/2016 2/1/2016 2/12/2016 2/17/2016 2/29/2016 3/16/2016 3/17/2016 4/11/2016 4/14/2016 4/26/2016 5/2/2016 5/5/2016 5/19/2016 20,350 80,603 55,435 11,387 38,975 9,275 11,274 5,750 12,600 68,832 17,320 36,750 17,313 24,312 8,100 10,800 8,400 20,246 80,415 55,151 11,362 38,819 9,261 11,270 5,732 12,549 63,965 17,278 33,346 17,152 20,143 4,006 10,708 8,366 $ — — — — — — — — — 4,472 — 3,294 — — — — — $ — — — — — — — — — — — — — 4,249 4,036 — — 104 188 284 25 156 14 4 18 51 395 42 110 161 (80) 58 92 34 Acquisition Date Fair Value Building, Equipment, and Improvements In-Place Customer Leases Trade Name Closing Costs Expensed $ $ 13,339 51,145 41,237 6,341 18,598 8,224 8,980 3,879 7,915 45,371 10,339 18,840 10,904 18,201 4,922 8,302 7,521 $ 365 1,038 917 166 581 63 — 103 157 814 253 465 267 401 160 165 165 $ — — — — — — — — — — — — — — — — — 437 397 657 81 299 136 — 164 188 313 132 141 204 372 161 133 213 Land $ 6,646 28,420 13,281 4,880 19,796 988 2,294 1,768 4,528 22,647 6,728 17,445 6,142 5,710 3,018 2,333 714 83 1 1 1 1 1 122 7/15/2016 7/29/2016 8/4/2016 9/27/2016 11/17/2016 12/20/2016 1,299,740 8,620 8,900 10,500 8,884 9,800 $ 1,783,920 1,335,274 8,617 8,831 10,407 7,125 6,900 $ 1,796,923 — — — — 1,750 — $ 9,516 — — — — — 2,966 $ 11,251 (35,534) 3 69 93 9 (66) 150,660 920 5,062 2,809 371 3,268 $ (33,770) $ 310,428 1,085,750 7,700 3,679 7,523 8,513 6,378 $ 1,403,601 46,830 — 159 168 — 154 $ 53,391 16,500 — — — — — $ 16,500 25,398 — 119 244 — 98 $ 29,887 State 2017 IL NC Total acquired 2017 (dollars in thousands) States 2016 FL CA NH MA TX AZ FL PA CO CA CA CA CT NY FL TX NY CA, CO, FL, IL, MS, NV, TX, UT, WI SC CO FL IL FL Total acquired 2016 All properties acquired were purchased from unrelated third parties. The operating results of the facilities acquired have been included in the Company’s operations since the respective acquisition dates. The $22.6 million of cash paid for the facilities acquired in 2017 includes $0.5 million of deposits that were paid in 2015 and $0.6 million of deposits that were paid in 2016, when these facilities originally went under contract. The $1,796.9 million of cash paid for the properties acquired during 2016 includes payment for cash acquired of $40.9 million and $5.3 million of deposits that were paid in 2015 when certain of these properties originally went under contract. Closing costs totaling $345,000 were incurred and expensed in 2015 related to facilities acquired in 2016 and are reflected in totals for the respective 2016 acquisitions in the chart above. Non-cash investing activities during 2017 include the assumption of net other liabilities totaling $12,000. Non-cash investing activities during 2016 include the issuance of $9.5 million in Operating Partnership Units valued based on the market price of the Company’s common stock at the date of acquisition, the assumption of three mortgages with acquisition-date fair values of $11.3 million, and the assumption of net other liabilities of $7.2 million. Non-cash investing activities during 2015 include the issuance of $2.1 million in Operating Partnership Units, the assumption of $1.3 million of other net liabilities and $2.5 million for the settlement of a straight-line rent liability in connection with the acquisition of self-storage facilities. The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the estimated cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). The Company measures the value of trade names, which have an indefinite life and are not amortized, by calculating discounted cash flows utilizing the relief from royalty method. 53 In-place customer leases are included in other assets on the Company’s consolidated balance sheets at December 31 as follows: (dollars in thousands) In-place customer leases Accumulated amortization Net carrying value at the end of period 2017 2016 $ $ 75,241 $ (75,241) ­ $ 75,611 (50,782) 24,829 Amortization expense related to in-place customer leases was $24.8 million, $29.9 million, and $3.4 million, for the years ended December 31, 2017, 2016, and 2015, respectively. No amortization expense is expected in 2018. Property Dispositions During 2017 the Company sold two non-strategic properties and received net cash proceeds of $16.9 million. The Company has subsequently leased one of the properties sold during 2017 and will continue to operate the property through March 2020. Due to the Company’s continuing involvement in this property, the related gain on the sale of this property has been deferred and will be recognized by the Company upon termination of this lease. During 2016 the Company sold eight non-strategic properties and received net cash proceeds of $34.1 million. During 2015 the Company sold three non-strategic properties and received cash proceeds of $4.6 million. Change in Useful Life Estimates The change in name of the Company’s storage facilities from Uncle Bob’s Self Storage ® to Life Storage ® required replacement of signage at all existing storage facilities which are currently included in investment in storage facilities, net on the consolidated balance sheets. The replacement of this signage has been completed as of December 31, 2017. As a result of this replacement of signage, the Company reassessed the estimated useful lives of the then existing signage in 2016. This useful life reassessment resulted in an increase in depreciation expense of approximately $0.5 million in 2017 and $8.2 million in 2016 as depreciation was accelerated over the new remaining useful lives. The Company does not estimate any further impact on depreciation expense as a result of the replacement of the Uncle Bob’s Self Storage ® signage which is now fully depreciated. As part of the Company’s capital improvement efforts during 2017, buildings at certain self-storage facilities were identified for replacement. As a result of the decision to replace these buildings, the Company reassessed the estimated useful lives of the then existing buildings. This useful life reassessment resulted in an increase in depreciation expense of approximately $3.9 million in 2017. The Company estimates that the change in estimated useful lives of buildings identified for replacement as of December 31, 2017 will result in an increase in depreciation expense of approximately $0.3 million in 2018. The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.09 and approximately $0.19 per share/unit in 2017 and 2016, respectively. 5. UNSECURED LINE OF CREDIT AND TERM NOTES Borrowings outstanding on our unsecured line of credit and term notes are as follows: ( Dollars in thousands ) Revolving line of credit borrowings Dec. 31, 2017 Dec. 31, 2016 $ 105,000 $ 253,000 100,000 100,000 175,000 600,000 450,000 200,000 325,000 100,000 175,000 600,000 — 200,000 $ 1,625,000 $ 1,400,000 (9,323) (3,152) $ 1,609,089 $ 1,387,525 (10,962) (4,949) Term note due June 4, 2020 Term note due August 5, 2021 Term note due April 8, 2024 Senior term note due July 1, 2026 Senior term note due December 15, 2027 Term note due July 21, 2028 Total term note principal balance outstanding Less: unamortized debt issuance costs Less: unamortized senior term note discount Term notes payable 54 In January 2016, the Company exercised the expansion feature on its existing amended unsecured credit agreement and increased the revolving credit limit from $300 million to $500 million. The interest rate on the revolving credit facility bears interest at a variable annual rate equal to LIBOR plus a margin based on the Company’s credit rating (at December 31, 2017 the margin is 1.10%), and requires an annual 0.15% facility fee. The Company’s unsecured credit agreement also includes a $325 million unsecured term note maturing June 4, 2020. In 2017, the Company repaid $225 million under this term note, resulting in $100 million outstanding at December 31, 2017, with the term note bearing interest at LIBOR plus a margin based on the Company’s credit rating (at December 31, 2017 the margin is 1.15%). The interest rate at December 31, 2017 on the Company’s line of credit was approximately 2.63% (1.79% at December 31, 2016). At December 31, 2017, there was $395 million available on the unsecured line of credit. The revolving line of credit has a maturity date of December 10, 2019. On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal amount of 3.875% unsecured senior notes due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027 Senior Notes is payable semi-annually on June 15 and December 15, beginning on June 15, 2018. The 2027 Senior Notes are fully and unconditionally guaranteed by the Parent Company. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting discount and other offering expenses totaling $4.0 million, totaled $443.9 million. On June 20, 2016, the Operating Partnership issued $600 million in aggregate principal amount of 3.50% unsecured senior notes due July 1, 2026 (the “2026 Senior Notes”). The 2026 Senior Notes were issued at a 0.553% discount to par value. Interest on the 2026 Senior Notes is payable semi-annually in arrears on January 1 and July 1. The 2026 Senior Notes are fully and unconditionally guaranteed by the Parent Company. Proceeds received upon issuance, net of discount to par of $3.3 million and underwriting discount and other offering expenses of $5.5 million, totaled $591.2 million. The indenture under which the 2027 Senior Notes and the 2026 Senior Notes were issued restricts the ability of the Company and its subsidiaries to incur debt unless the Company and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 on all outstanding debt, after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Company and its subsidiaries to incur secured debt unless the Company and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Company and its consolidated subsidiaries. At December 31, 2017, the Company was in compliance with such covenants. On May 17, 2016, the Company entered into two senior unsecured acquisition bridge facilities (the “Bridge Facilities”) totaling $1,675 million with the Company’s third-party advisors to the LS acquisition (see Note 4). In consideration for the bridge financing commitments, the Company paid fees totaling $7.3 million which are included as interest expense – bridge financing commitment fee in the 2016 consolidated statement of operations. The Bridge Facilities commitments were not drawn upon and were terminated on June 29, 2016. On July 21, 2016, the Company entered into a $200 million term note maturing July 21, 2028 bearing interest at a fixed rate of 3.67%. On April 8, 2014, the Company entered into a $175 million term note maturing April 2024 bearing interest at a fixed rate of 4.533%. The interest rate on the term note increases to 6.283% if the Company is not rated by at least one rating agency or if the Company’s credit rating is downgraded. In 2011, the Company entered into a $100 million term note maturing August 5, 2021 bearing interest at a fixed rate of 5.54%. The interest rate on the term note increases to 7.29% if the notes are not rated by at least one rating agency, the credit rating on the notes is downgraded or if the Company’s credit rating is downgraded. The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At December 31, 2017, the Company was in compliance with such covenants. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at December 31, 2017, the entire availability on the line of credit could be drawn without violating our debt covenants. The Company’s fixed rate term notes contain a provision that allows for the noteholders to call the debt upon a change of control of the Company at an amount that includes a make whole premium based on rates in effect on the date of the change of control. Deferred debt issuance costs and the discount on the outstanding term notes are both presented as reductions of term notes in the accompanying consolidated balance sheets at December 31, 2017 and December 31, 2016. Amortization expense related to these deferred debt issuance costs, which exclude costs related to the Bridge Facilities, was $3.0 million, $1.7 million and $1.2 million for the periods ended December 31, 2017, 2016 and 2015, respectively, and is included in interest expense in the consolidated statements of operations. 55 6. MORTGAGES PAYABLE AND DEBT MATURITIES Mortgages payable at December 31, 2017 and 2016 consist of the following: (dollars in thousands) 4.98% mortgage note due January 1, 2021 secured by one self- storage facility with an aggregate net book value of $9.6 million, principal and interest paid monthly (effective interest rate 5.22%) 4.065% mortgage note due April 1, 2023, secured by one self- storage facility with an aggregate net book value of $7.6 million, principal and interest paid monthly (effective interest rate 4.30%) 5.26% mortgage note due November 1, 2023, secured by one self- storage facility with an aggregate net book value of $8.0 million, principal and interest paid monthly (effective interest rate 5.56%) 5.99% mortgage note due May 1, 2026, secured by one self- storage facility with an aggregate net book value of $6.6 million, principal and interest paid monthly (effective interest rate 6.23%) Total mortgages payable December 31, 2017 December 31, 2016 $ 2,916 $ 2,966 4,119 4,207 3,939 4,002 $ 1,700 12,674 $ 1,852 13,027 The table below summarizes the Company’s debt obligations and interest rate derivatives at December 31, 2017. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term notes and mortgage notes were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. These assumptions are considered Level 2 inputs within the fair value hierarchy as described in Note 8. The carrying values of our variable rate debt instruments approximate their fair values as these debt instruments bear interest at current market rates that approximate market participant rates. This is considered a Level 2 input within the fair value hierarchy. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange. (dollars in thousands) Line of credit—variable rate LIBOR + 2018 2019 Expected Maturity Date Including Discount Thereafter 2020 2022 2021 Total Fair Value 1.10% (2.63% at December 31, 2017) — $105,000 — — — — $ 105,000 $105,000 Notes Payable: Term note—variable rate LIBOR+1.15% (2.53% at December 31, 2017) Term note—fixed rate 5.54% Term note—fixed rate 4.533% Term note—fixed rate 3.50% Term note—fixed rate 3.875% Term note—fixed rate 3.67% Mortgage note—fixed rate 4.98% Mortgage note—fixed rate 4.065% Mortgage note—fixed rate 5.26% Mortgage note—fixed rate 5.99% Total — — — — — — 53 $ $ 92 $ $ $ 67 $ $ 160 $ $ 372 $105,393 — — $100,000 — — $100,000 — — — — — — — — — — — — 59 $ 2,748 56 $ 99 $ 96 $ 74 $ 71 $ 181 $ 170 $ — — — — — — — 104 $ 108 83 78 $ 192 $ 203 $ 394 $100,413 $103,122 — $ 100,000 $100,000 — $ 100,000 $109,192 $ 175,000 $ 175,000 $181,510 $ 600,000 $ 600,000 $585,092 $ 450,000 $ 450,000 $449,076 $ 200,000 $ 200,000 $192,447 2,916 $ 3,007 4,119 $ 4,112 3,939 $ 4,169 1,700 $ 1,822 $ $ $ $1,432,980 $1,742,674 — $ 3,620 $ 3,566 $ 794 $ 7. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swaps are used to adjust the proportion of total debt that is subject to variable interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. Forward starting interest rate swaps have also been used by the Company to hedge the risk of changes in the interest-related cash outflows associated with the potential issuance of long-term debt. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters into interest rate swaps with a number of major financial institutions to minimize counterparty credit risk. 56 Interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, interest rate swaps are recorded in the consolidated balance sheets at fair value and the related gains or losses are deferred in shareholders’ equity or partners’ capital as Accumulated Other Comprehensive Loss (“AOCL”). These deferred gains and losses are recognized in interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was de minimis in 2017, 2016, and 2015. The Company has one interest rate swap agreement in effect at December 31, 2017 as detailed below to effectively convert $100 million of variable-rate debt to fixed-rate debt. Notional Amount $100 Million Effective Date 9/4/13 Expiration Date 9/4/18 Fixed Rate Paid 1.3710% Floating Rate Received 1 month LIBOR In the fourth quarter of 2017, the Company terminated hedges and settled the interest rate swap agreements on $225 million of the Company’s variable rate debt in connection with repayment of the related variable rate term notes. The Company settled these interest rate swap agreements for a total of $9.6 million which is included in interest expense in the 2017 consolidated statement of operations. As a result of the termination, no gains or losses related to the terminated interest rate swaps are included in AOCL at December 31, 2017. In the fourth quarter of 2015, the Company entered into forward starting interest rate swap agreements with a total notional value of $50 million. In the first quarter of 2016, the Company entered into additional forward starting interest rate swap agreements with a total notional value of $100 million. These forward starting interest rate swap agreements were entered into to hedge the risk of changes in the interest- related cash flows associated with the potential issuance of fixed rate long-term debt. In conjunction with the issuance of the 2026 Senior Notes (see Note 5), the Company terminated these hedges and settled the forward starting swap agreements for approximately $9.2 million. The $9.2 million has been deferred in AOCL and is being amortized as additional interest expense over the ten-year term of the 2026 Senior Notes or until such time as interest payments on the 2026 Senior Notes are no longer probable. Consistent with the Company’s accounting policy, the cash outflow related to the settlement of the forward starting swap agreements is reflected as a financing activity in the 2016 consolidated statement of cash flows. The remaining interest rate swap agreement is the only derivative instrument, as defined by FASB ASC Topic 815 “ Derivatives and Hedging ”, held by the Company at December 31, 2017. During 2017, 2016, and 2015, the net reclassification from AOCL to interest expense was $12.3 million, $4.6 million, and $5.2 million, respectively, based on payments made under the swap agreements. Based on current interest rates, the Company estimates that payments received under the interest rate swaps in 2018 would be de minimis. Payments made or received under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements, including accrued interest, was an asset of $0.2 million at December 31, 2017 and a liability of $13.0 million at December 31, 2016. The Company’s agreement with its interest rate swap counterparty contains provisions pursuant to which the Company could be declared in default of its derivative obligation, if any, if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender. The interest rate swap agreement also incorporates other loan covenants of the Company. Failure to comply with the loan covenant provisions would result in the Company being in default on the interest rate swap agreement. As of December 31, 2017, the Company had not posted any collateral related to the interest rate swap agreements. The changes in AOCL for the years ended December 31, 2017, 2016, and 2015 are summarized as follows: Jan. 1, 2017 to Dec. 31, 2017 $ Jan. 1, 2016 to Dec. 31, 2016 Jan. 1, 2015 to Dec. 31, 2015 (21,475) $ (14,415) $ (13,005) 13,185 5,044 5,229 703 13,888 (7,587) $ (12,104) (7,060) (21,475) $ (6,639) (1,410) (14,415) $ (dollars in thousands) Accumulated other comprehensive loss beginning of period Realized loss reclassified from accumulated other comprehensive loss to interest expense Unrealized gain (loss) from changes in the fair value of the effective portion of the interest rate swaps Gain (loss) included in other comprehensive loss Accumulated other comprehensive loss end of period 57 8. FAIR VALUE MEASUREMENTS The Company applies the provisions of ASC Topic 820 “ Fair Value Measurements and Disclosures ” in determining the fair value of its financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Refer to Note 6 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis. The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2017 and December 31, 2016 (dollars in thousands): December 31, 2017 Interest rate swaps December 31, 2016 Interest rate swaps Asset (Liability) Level 1 Level 2 Level 3 $ $ 205 — $ 205 (13,015) — $ (13,015) — — Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using the income approach. During 2016, assets and liabilities measured at fair value on a non-recurring basis included the assets acquired and liabilities assumed in connection with the acquisition of storage facilities accounted for as business combinations (see note 4), including the LS acquisition. To determine the fair value of land, the Company used prices per acre derived from observed transactions involving comparable land in similar locations, which is considered a Level 2 input. To determine the fair value of buildings, equipment and improvements, the Company used current replacement cost based on information derived from construction industry data by geographic region which is considered a Level 2 input. The replacement cost is then adjusted for the age, condition, and economic obsolescence associated with these assets, which are considered Level 3 inputs. The fair value of in-place customer leases is based on the rent lost due to the amount of time required to replace existing customers and the cost to replace in-place tenants which are based on the Company’s historical experience with turnover at its facilities and on market rental rates and estimated downtime required to replace the in-place leases, all of which are Level 3 inputs. The average downtime is based upon estimated demand information including the number of potential customers exhibited in historical property interest data. The fair value of trade names is based on royalty payments avoided had the trade name been owned by a third party which is determined using market royalty rates. Other assets acquired and liabilities assumed in the acquisitions consist primarily of prepaid or accrued real estate taxes and deferred revenues from advance monthly rentals paid by customers. The fair values of these assets and liabilities are based on their carrying values as they typically turn over within one year from the acquisition date and these are Level 3 inputs. There were no acquisitions made in 2017 that were accounted for as business combinations. 9. STOCK BASED COMPENSATION The Company established the 2015 Award and Option Plan (the “2015 Plan”) which replaced the expired 2005 Award and Option Plan for the purpose of attracting and retaining the Company’s executive officers and other key employees, such plans being the “Plans”. There were 561,000 shares authorized for issuance under the 2015 Plan. Options granted under the Plans vest ratably over four and eight years, and must be exercised within ten years from the date of grant. The exercise price for qualified incentive stock options must be at least equal to the fair market value of the common shares at the date of grant. As of December 31, 2017, options for 76,106 shares were outstanding under the Plans and options for 345,383 shares of common stock were available for future issuance. The Company may also grant other stock-based awards under the 2015 Plan, including restricted stock and performance-based awards. The Company also established the 2009 Outside Directors’ Stock Option and Award Plan (the “Non-employee Plan”) which replaced the 1995 Outside Directors’ Stock Option Plan for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors. Prior to 2016, the Non-employee Plan provided for the initial granting of options to purchase 3,500 shares of common stock and for the annual granting of options to purchase 2,000 shares of common stock to each eligible director. Such options vest over a one-year period for initial awards and immediately upon subsequent grants. The issuance of stock options to directors was discontinued in 2016. In addition, each outside director receives non-vested shares annually equal to 80% of the annual fees paid to them. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. During 2017, 3,145 non-vested shares were issued to outside directors. Such non-vested shares vest over a one-year period. The total shares reserved under the Non-employee Plan is 150,000. The exercise price for options granted under the Non-employee Plan is equal to the fair market value at the date of grant. As of December 31, 2017, options for 18,500 common shares and 3,145 of non-vested shares were outstanding under the Non-employee Plans. As of December 31, 2017 options for 67,871 shares of common stock were available for future issuance. 58 A summary of the Company’s stock option activity and related information for the years ended December 31 follows: 2017 2016 2015 Outstanding at beginning of year: Granted Exercised Adjusted / (forfeited) Outstanding at end of year Exercisable at end of year Weighted average exercise price Weighted average exercise price Options Options 95,706 $ — (1,100) — 94,606 $ 93,106 $ 52.08 — 39.00 — 52.24 51.85 95,706 $ — — — 95,706 $ 92,706 $ 52.08 — — — 52.08 51.31 Weighted average exercise price Options 115,606 $ 11,000 (30,900) — 95,706 $ 63,815 $ 48.54 91.58 52.87 — 52.08 48.73 A summary of the Company’s stock options outstanding at December 31, 2017 follows: Exercise Price Range $30.00 – 39.99 $40.00 – 69.99 $70.00 – 91.58 Total Intrinsic value of outstanding stock options at December 31, 2017 Intrinsic value of exercisable stock options at December 31, 2017 Outstanding Exercisable Weighted average exercise price 35.73 44.68 85.78 52.24 Options 500 $ 76,606 $ 17,500 $ 94,606 $ Weighted average exercise price 35.73 44.68 86.71 51.85 Options 500 $ 76,606 $ 16,000 $ 93,106 $ $ 3,512,314 $ 3,492,589 The intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $0.1 million, $0, and $1.4 million, respectively. Proceeds from stock options exercised during the years ended December 31, 2017, 2016, and 2015 amounted to $0.1 million, $0, and $1.6 million, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock at December 31, 2017, or the price on the date of exercise for those exercised during the year. As of December 31, 2017, there was approximately $7,000 of total unrecognized compensation cost related to stock option compensation arrangements granted under our stock award plans. That cost is expected to be recognized over a weighted-average period of approximately 0.5 years. The weighted average remaining contractual life of all options is 1.9 years, and for exercisable options is 1.8 years. Non-vested stock The Company has also issued shares of non-vested stock to employees which vest over one to nine year periods. During the restriction period, the non-vested shares may not be sold, transferred, or otherwise encumbered. The holder of the non-vested shares has all rights of a holder of common shares, including the right to vote and receive dividends. For issuances of non-vested stock during the year ended December 31, 2017, the fair market value of the non-vested stock on the date of grant ranged from $74.36 to $89.07. During 2017, 51,276 shares of non-vested stock were issued to employees and directors with an aggregate fair value of $4.4 million. The Company charges the fair value ratably to expense over the vesting period. The Company uses the average of the high and low price of its common stock on the date the award is granted as the fair value for non-vested stock awards that do not have a market condition. 59 A summary of the status of unvested shares of stock issued to employees and directors as of and during the years ended December 31 follows: 2017 2016 2015 Unvested at beginning of year: Granted Vested Forfeited Unvested at end of year Non-vested Shares 258,163 $ 51,276 (96,615) (42,015) 170,809 $ Weighted average grant date fair value 58.89 85.17 58.95 38.53 71.75 Non-vested Shares 305,520 $ 23,405 (70,762) — 258,163 $ Weighted average grant date fair value 59.09 89.30 69.82 — 58.89 Non-vested Shares 310,463 $ 64,665 (69,187) (421) 305,520 $ Weighted average grant date fair value 51.93 94.74 60.28 76.07 59.09 Compensation expense of $7.1 million, $7.2 million, and $6.3 million was recognized for the vested portion of non-vested stock grants in 2017, 2016, and 2015, respectively. The fair value of non-vested stock that vested during 2017, 2016, and 2015 was $5.7 million, $4.9 million, and $4.2 million, respectively. The total unrecognized compensation cost related to non-vested stock was $8.2 million at December 31, 2017, and the remaining weighted-average period over which this expense will be recognized was 4.2 years. Performance-based awards During 2017, 2016 and 2015, the Company granted performance-based awards that entitle the recipients to earn up to 48,762, 37,082 and 42,538 shares, respectively, if certain performance criteria are achieved over a three-year period. The actual number of shares to be issued will be determined at the end of a three year period, and no performance-based shares were issued in 2017, 2016 or 2015. The performance-based awards granted are based upon the Company’s performance over a three-year period depending on the Company’s total shareholder return relative to a group of peer companies. Performance based awards are recognized as compensation expense based on the fair value on the date of grant, the number of shares ultimately expected to vest and the vesting period. For accounting purposes, the performance shares are considered to have a market condition. The effect of the market condition is reflected in the grant date fair value of the award and thus, compensation expense is recognized on this type of award provided that the requisite service is rendered (regardless of whether the market condition is achieved). The Company estimated the fair value of each performance-based award granted under the Plans on the date of grant using a Monte Carlo simulation that uses the assumptions noted in Note 2. During 2017, compensation expense of $2.6 million (included in the $7.1 million discussed above) was recognized for performance awards granted in 2017 and prior. The total unrecognized compensation cost related to non-vested performance awards was $3.0 million at December 31, 2017 and the weighted-average period over which this expense will be recognized is 1.9 years. Deferred compensation plan for directors Under the Deferred Compensation Plan for Directors, non-employee Directors may defer all or part of their Directors’ fees that are otherwise payable in cash. Directors’ fees that are deferred under this plan are credited to each Directors’ account under the plan in the form of Units. The number of Units credited is determined by dividing the amount of Directors’ fees deferred by the closing price of the Company’s Common Stock on the New York Stock Exchange on the day immediately preceding the day upon which Directors’ fees otherwise would be paid by the Company. A Director is credited with additional Units for dividends on the shares of Common Stock represented by Units in such Directors’ Account. A Director may elect to receive the shares in a lump sum on a date specified by the Director or in quarterly or annual installments over a specified period and commencing on a specified date. The Directors may not elect to receive cash in lieu of shares. Under this plan there were a total of 21,540 units outstanding at December 31, 2017. Fees that were earned and credited to Directors’ accounts are recorded as compensation expense and totaled $0.1 million annually in each of 2016 and 2015. No fees were elected to be deferred by any non- employee Directors in 2017. 10. RETIREMENT PLAN Employees of the Company qualifying under certain age and service requirements are eligible to be a participant in a 401(k) Plan. In 2015, the Company contributed to the Plan at the rate of 25% of the first 4% of gross wages that the employee contributes. Beginning on January 1, 2016, the Company contributes to the Plan at the rate of 33% of the first 5% of gross wages that the employee contributes. Total expense to the Company was approximately $703,000, $505,000, and $276,000 for the years ended December 31, 2017, 2016, and 2015, respectively. 60 11. INVESTMENT IN JOINT VENTURES A summary of the Company’s unconsolidated joint ventures is as follows: Venture Sovran HHF Storage Holdings LLC (“Sovran HHF”)1 Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2 191 III Holdings LLC (“191 III”)3 Life Storage-SERS Storage LLC (“SERS”)4 Iskalo Office Holdings, LLC (“Iskalo”)5 Urban Box Coralway Storage, LLC (“Urban Box”)6 SNL/Orix 1200 McDonald Ave., LLC (“McDonald”)7 SNL Orix Merrick, LLC (“Merrick”)8 Review Avenue Partners, LLC (“RAP”)9 N 32nd Street Self Storage, LLC (“N32”)10 Number of Properties 57 30 6 3 N/A 1 1 1 1 1 Company common ownership interest 20% 15% 20% 20% 49% 85% 5% 5% 40% 46% Carrying value of investment at Dec. 31, 2017 $85.1 million $13.3 million $9.4 million $3.6 million ($0.4 million) $4.1 million $2.7 million $2.5 million $11.5 million $1.3 million Carrying value of investment at Dec. 31, 2016 $43.8 million $13.5 million $0.7 million N/A ($0.4 million) $4.1 million $2.7 million $2.5 million N/A N/A 1 2 3 4 5 6 7 8 9 Sovran HHF owns self-storage facilities in Arizona (11), Colorado (4), Florida (3), Georgia (1), Kentucky (2), Nevada (5), New Jersey (2), Ohio (6), Pennsylvania (1), Tennessee (2) and Texas (20). In June 2017, Sovran HHF acquired 18 self-storage facilities for $330 million in Arizona, Nevada and Tennessee. In connection with this acquisition, Sovran HHF entered into $135 million of mortgage debt which is secured by 16 of the self-storage facilities acquired. During the year ended December 31, 2017, the Company contributed $39.6 million as its share of capital to fund the acquisition, $3.6 million to fund the repayment of certain mortgages held by the joint venture, and an additional $0.1 million to fund capital projects. During the year ended December 31, 2017, the Company received $4.5 million of distributions from Sovran HHF. As of December 31, 2017, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs in 2008. This difference is included in the carrying value of the investment. Sovran HHF II owns self-storage facilities in New Jersey (17), Pennsylvania (3), and Texas (10). During the year ended December 31, 2017, the Company received $1.7 million of distributions from Sovran HHF II. 191 III owns six self-storage facilities in California. During 2017, 191 III acquired these six self-storage facilities for a total of $104.1 million. In connection with the acquisition of these self-storage facilities, 191 III entered into $57.2 million of mortgage debt which is secured by the self-storage facilities acquired. During 2017 and 2016, the Company contributed $9.3 million and $0.7 million, respectively, as its share of capital to fund these acquisitions. During the year ended December 31, 2017, the Company received $0.5 million of distributions from 191 III. In May 2017, the Company executed a joint venture agreement, Life Storage-SERS Storage LLC (“SERS”), with an unrelated third party with the purpose of acquiring and operating self-storage facilities. SERS owns three self-storage facilities in Georgia. During 2017, SERS acquired these three self-storage facilities for a total of $39.1 million. In connection with the acquisition of these self-storage facilities, SERS entered into $22.0 million of mortgage debt which is secured by the self-storage facilities acquired. During 2017, the Company contributed $3.6 million as its share of capital to fund these acquisitions. Iskalo owns the building that houses the Company’s headquarters and other tenants. The Company paid rent to Iskalo of $1.2 million, $1.2 million and $1.1 million during the years ended December 31, 2017, 2016, and 2015, respectively. During the year ended December 31, 2017, the Company received $0.2 million of distributions from Iskalo. Urban Box is currently developing a self-storage facility in Florida. McDonald is currently developing a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common capital and $2.3 million of preferred capital to McDonald as its share of capital to develop the property. McDonald entered into a non- recourse mortgage loan in order to finance the future development costs, with $6.4 million of principal outstanding at December 31, 2017. Merrick owns a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common capital and $2.1 million of preferred capital to Merrick as its share of capital to develop the property. Merrick has entered into a non-recourse mortgage loan with $9.3 million of principal outstanding at December 31, 2017. In January 2017, the Company executed a joint venture agreement, Review Avenue Partners, LLC (“RAP”), with an unrelated third party. The Company contributed $12.5 million of common capital to RAP during the year ended December 31, 2017. RAP is currently operating a self-storage property in New York. 10 In April 2017, the Company executed a joint venture agreement, N 32nd Street Self Storage, LLC (“N32”), with an unrelated third party. The Company contributed $1.3 million of common capital to N32 during the year ended December 31, 2017. N32 is currently developing a self-storage property in Arizona. 61 Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint ventures are a variable interest entity (VIE) in accordance with ASC 810, Consolidation. As a result, the Company used the voting model under ASC 810 to determine whether or not to consolidate the joint ventures. Based upon each member’s substantive participation rights over the activities as stipulated in the joint venture agreements, none of the joint ventures are consolidated by the Company. Due to the Company’s significant influence over the operations of each of the joint ventures, all joint ventures are accounted for under the equity method of accounting. The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on any of the Company’s investments in joint ventures. The Company earns management and/or call center fees ranging from 6% to 7% of joint venture gross revenues as manager of HHF, HHF II, 191 III, SERS, RAP and Merrick. These fees, which are included in other operating income in the consolidated statements of operations, totaled $6.6 million, $4.9 million and $4.9 million in 2017, 2016 and 2015 respectively. The Company will also earn management fees upon commencement of the operation of storage facilities owned by Urban Box, McDonald, and N32. The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows: (dollars in thousands) Venture Sovran HHF Sovran HHF II 191 III SERS Urban Box RAP Iskalo Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015 $ $ 2,517 1,530 13 (12) — (967) 233 3,314 $ $ 2,033 1,403 — — 15 — 214 3,665 $ $ 1,953 1,263 — — — — 189 3,405 A summary of the combined unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2017 is as follows: (dollars in thousands) Balance Sheet Data: Investment in storage facilities, net Investment in office building, net Other assets Total Assets Due to the Company Mortgages payable Other liabilities Total Liabilities Unaffiliated partners’ equity Company equity Total Partners’ Equity Total Liabilities and Partners’ Equity Income Statement Data: Total revenues Property operating expenses Administrative, management and call center fees Depreciation and amortization of customer list Amortization of financing fees Income tax expense Interest expense Net income $ $ $ $ $ $ $ 1,075,101 4,810 16,622 1,096,533 1,397 459,028 10,721 471,146 492,332 133,055 625,387 1,096,533 96,301 (31,008) (7,668) (21,165) (810) (252) (14,571) 20,827 The Company does not guarantee the debt of any of its equity method investees. 62 We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties. A summary of our revenues, expenses and cash flows arising from the off-balance sheet arrangements with unconsolidated joint ventures for the three years ended December 31, 2017 are as follows: (dollars in thousands) Operating activities Other operating income (management fees and acquisition fee income) General and administrative expenses (corporate office rent) Equity in income of joint ventures Distributions from unconsolidated joint ventures Advances to joint ventures Investing activities Investment in unconsolidated joint ventures Year ended December 31, 2016 2015 2017 $ 8,090 $ 4,891 $ 4,889 1,192 3,314 7,055 (174) 1,214 3,665 5,207 (294) 1,053 3,405 4,821 (346) (69,911) (6,438) (6,151) 12. SHAREHOLDERS’ EQUITY On March 3, 2015, the Company completed the public offering of 1,380,000 shares of its common stock at $90.40 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $119.5 million. On January 20, 2016, the Company completed the public offering of 2,645,000 shares of its common stock at $105.75 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $269.7 million. On May 25, 2016, the Company completed the public offering of 6,900,000 shares of its common stock at $100.00 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $665.4 million. Until May 2017, the Company had maintained a continuous equity offering program (“Equity Program”) with Wells Fargo Securities, LLC, Jefferies LLC (“Jeffries”), SunTrust Robinson Humphrey, Inc., Piper Jaffray & Co. (“Piper”), HSBC Securities (USA) Inc. (“HSBC”), and BB&T Capital Markets, a division of BB&T Securities, LLC, pursuant to which the Company could sell up to $225 million in aggregate offering price of shares of the Company’s common stock. The Equity Program expired in May 2017. During 2017 and 2016, the Company did not issue any shares of common stock under the Equity Program. During 2015, the Company issued 949,911 shares of common stock under the Equity Program at a weighted average issue price of $96.80 per share, generating net proceeds of $90.6 million after deducting $1.1 million of sales commissions paid to Jefferies, Piper, and HSBC, as well as other expenses of $0.2 million. On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding common shares (“Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market, through privately negotiated transactions, or through other methods of acquiring shares. The Buyback Program may be suspended or discontinued at any time. During 2017, the Company repurchased 112,554 of the Company’s outstanding common shares for $8.2 million under the Buyback Program, resulting in a weighted average purchase price of $73.16 per share. In 2013, the Company implemented a Dividend Reinvestment Plan. The Company issued 199,809, 133,666 and 151,246 shares under the plan in 2017, 2016, and 2015, respectively. On August 2, 2017, the Company’s Board of Directors suspended the Dividend Reinvestment Plan. 63 13. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of quarterly results of Life Storage, Inc. operations for the years ended December 31, 2017 and 2016 (dollars in thousands, except per share data): Operating revenue Net income Net income attributable to common shareholders Net income per share attributable to common shareholders Basic Diluted Operating revenue Net income (loss) Net income (loss) attributable to common shareholders Net income (loss) per share attributable to common shareholders Basic Diluted 2017 Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 $ 128,320 $ 132,784 $ 135,568 $ 20,525 20,429 19,432 19,355 35,667 35,496 133,078 21,185 21,085 $ $ $ $ $ 0.44 $ 0.44 $ 0.42 $ 0.42 $ 0.76 $ 0.76 $ 0.45 0.45 2016 Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 $ 99,124 28,230 28,339 107,005 43,504 43,456 $ $ 127,801 (4,969) (4,738) 128,678 18,191 18,168 0.74 $ 0.73 $ 1.04 $ 1.03 $ (0.10) $ (0.10) $ 0.39 0.39 The following is a summary of quarterly results of Life Storage LP operations for the years ended December 31, 2017 and 2016 (dollars in thousands, except per unit data): Operating revenue Net income Net income attributable to common unitholders Net income per unit attributable to common unitholders Basic Diluted Operating revenue Net income Net income attributable to common unitholders Net income per unit attributable to common unitholders Basic Diluted 2017 Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 $ 128,320 $ 132,784 $ 135,568 $ 20,525 20,429 19,432 19,355 35,667 35,496 133,078 21,185 21,085 $ $ $ $ $ 0.44 $ 0.44 $ 0.42 $ 0.42 $ 0.76 $ 0.76 $ 0.45 0.45 2016 Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 $ 99,124 28,230 28,339 107,005 43,504 43,456 $ $ 127,801 (4,969) (4,738) 128,678 18,191 18,168 0.74 $ 0.73 $ 1.04 $ 1.03 $ (0.10) $ (0.10) $ 0.39 0.39 See note 4 for a discussion of property acquisitions made during 2016 and the depreciation resulting from the change in estimated useful lives of Uncle Bob’s Self Storage ® signage and buildings identified for replacement at certain of the Company’s self-storage facilities. See note 5 for financing transactions entered into in 2017 and 2016. 64 14. COMMITMENTS AND CONTINGENCIES The Company’s current practice is to conduct environmental investigations in connection with property acquisitions. At this time, the Company is not aware of any environmental contamination of any of its facilities that individually or in the aggregate would be material to the Company’s overall business, financial condition, or results of operations. Future minimum lease payments on a building lease, the lease of the Company’s headquarters and the lease of a self-storage facility are as follows (dollars in thousands): Year ending December 31: 2018 2019 2020 2021 2022 Thereafter Total $ $ 2,894 2,788 2,415 2,284 2,284 11,114 23,779 At December 31, 2017, the Company has signed contracts in place with third party contractors for expansion and enhancements at its existing facilities. The Company expects to pay $32.8 million under these contracts in 2018. On or about August 25, 2014, a putative class action was filed against the Company in the Superior Court of New Jersey Law Division Burlington County. The action seeks to obtain declaratory, injunctive and monetary relief for a class of consumers based upon alleged violations by the Company of various statutory laws. On October 17, 2014, the action was removed from the Superior Court of New Jersey Law Division Burlington County to the United States District Court for the District of New Jersey. The Company brought a motion to partially dismiss the complaint for failure to state a claim, and on July 16, 2015, the Company’s motion was granted in part and denied in part. On October 20, 2016, the complaint was amended to add additional claims. The parties have entered into a memorandum of understanding to settle all claims for an aggregate amount of $8.0 million. In February 2018, the motion for the preliminary approval of the proposed class action settlement was granted. The aggregate settlement amount of $8.0 million ($6.0 million after considering income tax impact) has been recorded as a liability in the Company’s consolidated balance sheet. A portion of the settlement expense relates to self-storage facilities that are managed by the Company through its taxable REIT subsidiary. There is an income tax impact to the Company on that portion of the settlement expense as a result. The settlement is subject to final approval by the court, a decision which is expected in 2018. 15. SUBSEQUENT EVENTS On January 3, 2018, the Company declared a quarterly dividend of $1.00 per common share. The dividend was paid on January 26, 2018 to shareholders of record on January 16, 2018. The total dividend paid amounted to $46.5 million. 65 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Controls and Procedures (Parent Company) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Parent Company’s management conducted an evaluation of the effectiveness of the design and operation of the Parent Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of the Parent Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Parent Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Parent Company’s disclosure controls and procedures were effective at December 31, 2017. There have not been changes in the Parent Company’s internal controls or in other factors that could significantly affect these controls during the quarter ended December 31, 2017. Management’s Report on Life Storage, Inc. Internal Control Over Financial Reporting Management of Life Storage, Inc. (the “Parent Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. The Parent Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Parent Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Parent Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Parent Company are being made only in accordance with authorizations of management and directors of the Parent Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Parent Company’s assets that could have a material effect on the financial statements. The Parent Company’s management performed an assessment of the effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2017 based upon criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based on our assessment, management determined that the Parent Company’s internal control over financial reporting was effective as of December 31, 2017 based on the criteria in Internal Control- Integrated Framework issued by COSO. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein. /S/ David L. Rogers Chief Executive Officer /S/ Andrew J. Gregoire Chief Financial Officer 66 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Life Storage, Inc. Opinion on Internal Control over Financial Reporting We have audited Life Storage, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Life Storage, Inc. (the Parent Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Parent Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule and our report dated February 27, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Parent Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Life Storage, Inc. Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Parent Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Parent Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Buffalo, New York February 27, 2018 /s/ Ernst & Young LLP 67 Controls and Procedures (Operating Partnership) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Operating Partnership’s management conducted an evaluation of the effectiveness of the design and operation of the Operating Partnership’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Operating Partnership’s disclosure controls and procedures were effective at December 31, 2017. There have not been changes in the Operating Partnership’s internal controls or in other factors that could significantly affect these controls during the quarter ended December 31, 2017. Management’s Report on Life Storage LP Internal Control Over Financial Reporting Management of Life Storage LP (the “Operating Partnership”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. The Operating Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Operating Partnership’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Operating Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Operating Partnership are being made only in accordance with authorizations of management and directors of the Operating Partnership; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Operating Partnership’s assets that could have a material effect on the financial statements. The Operating Partnership’s management performed an assessment of the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2017 based upon criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based on our assessment, management determined that the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2017 based on the criteria in Internal Control-Integrated Framework issued by COSO. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 9A herein. /S/ David L. Rogers Chief Executive Officer /S/ Andrew J. Gregoire Chief Financial Officer 68 Report of Independent Registered Public Accounting Firm To the Partners and the Board of Directors of Life Storage LP Opinion on Internal Control over Financial Reporting We have audited Life Storage LP’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Life Storage LP (the Operating Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Operating Partnership as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule and our report dated February 27, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Life Storage LP Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Buffalo, New York February 27, 2018 /s/ Ernst & Young LLP 69 Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance Part III The information contained in the Parent Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017 (“2018 Proxy Statement”), with respect to directors, executive officers, audit committee, and audit committee financial experts of the Company and Section 16(a) beneficial ownership reporting compliance, is incorporated herein by reference in response to this item. The Company has adopted a code of ethics that applies to all of its directors, officers, and employees. The Company has made the Code of Ethics available on its website at http://www.lifestorage.com. Item 11. Executive Compensation The information required is incorporated by reference to “Executive Compensation” and “Director Compensation” in the 2018 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required herein is incorporated by reference to “Stock Ownership By Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” in the 2018 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required herein is incorporated by reference to “Certain Transactions” and “Election of Directors—Director Independence” in the 2018 Proxy Statement and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required herein is incorporated by reference to “Appointment of Independent Registered Public Accounting Firm” in the 2018 Proxy Statement and is incorporated herein by reference. 70 Part IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this Annual Report on Form 10-K: 1. The following consolidated financial statements of Life Storage, Inc. are included in Item 8. (i) Consolidated Balance Sheets as of December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements. The following consolidated financial statements of Life Storage LP are included in Item 8. (i) Consolidated Balance Sheets as of December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Partners’ Capital for the Years Ended December 31, 2017, 2016 and 2015;. (v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements. 2. The following financial statement Schedule as of the period ended December 31, 2017 is included in this Annual Report on Form 10-K. Schedule III Real Estate and Accumulated Depreciation at December 31, 2017. All other Consolidated financial schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or the notes thereto. 71 3. Exhibits The exhibits required to be filed as part of this Annual Report on Form 10-K have been included as follows: 3.1* Amended and Restated Articles of Incorporation of the Parent Company. 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the Series A Junior Participating Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Parent Company’s Form 8-A filed December 3, 1996). Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the 9.85% Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 1.6 to the Parent Company’s Form 8-A filed July 29, 1999). Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company classifying and designating the 8.375% Series C Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 4.1 to the Parent Company’s Current Report on Form 8-K filed July 12, 2002). Articles Supplementary to the Amended and Restated Articles of Incorporation of the Parent Company reclassifying shares of Series B Cumulative Redeemable Preferred Stock into Preferred Stock. (incorporated by reference to Exhibit 3.1 to the Parent Company’s Current Report on Form 8-K filed May 31, 2011). Articles of Amendment of the Parent Company (incorporated by reference to Exhibit 3.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed August 11, 2016). Bylaws, as amended, of the Parent Company (incorporated by reference to Exhibit 3.2 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed August 11, 2016). Amendment to Bylaws (incorporated by reference to Exhibit 3.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed May 19, 2017). Amended and Restated Certificate of Limited Partnership (incorporated by reference to Exhibit 3.3 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed August 11, 2016). 3.10 Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to Exhibit 3.1 on Form 10 filed April 22, 1998). 3.11 Amendments to the Agreement of Limited Partnership of the Operating Partnership dated July 30, 1999 and July 3, 2002 (incorporated by reference to Exhibit 10.13 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009). 3.12 Amendment to Agreement of Limited Partnership of the Operating Partnership (incorporated by reference to Exhibit 3.4 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed August 11, 2016). 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Parent Company’s Registration Statement on Form S-11 (File No. 33-91422) filed June 19, 1995). P Base Indenture, dated as of June 20, 2016, among the Company, the Operating Partnership and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed June 20, 2016). First Supplemental Indenture, dated as of June 20, 2016, among the Parent Company, the Operating Partnership and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed June 20, 2016). Form of Note representing the Notes (incorporated by reference to Exhibit 4.3 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed June 20, 2016). Form of Guarantee (included in Exhibit 4.4). Second Supplemental Indenture, dated as of December 7, 2017, among the Parent Company, the Operating Partnership and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed December 7, 2017). Form of Note representing the Notes (incorporated by reference to Exhibit 4.2 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed December 7, 2017). Form of Guarantee (included in Exhibit 4.7). 10.1+ 2015 Award and Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27, 2017). 10.2+ 2005 Award and Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Parent Company’s Report on Form 10-K filed February 28, 2012). 72 10.3+ Employment Agreement between the Parent Company, the Operating Partnership, and Robert J. Attea (incorporated by reference to Exhibit 10.3 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009). 10.4+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Robert J. Attea (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015). 10.5+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Robert J Attea (incorporated by reference to Exhibit 10.5 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27, 2017). 10.6+ Employment Agreement between the Parent Company, the Operating Partnership, and Kenneth F. Myszka (incorporated by reference to Exhibit 10.4 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009). 10.7+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership, and Kenneth F. Myszka (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015). 10.8+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and Kenneth J. Myszka (incorporated by reference to Exhibit 10.8 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27, 2017). 10.9+ Employment Agreement between the Parent Company, the Operating Partnership, and David L. Rogers (incorporated by reference to Exhibit 10.5 to the Parent Company’s Annual Report on Form 10-K filed February 27, 2009). 10.10+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and David L. Rogers (incorporated by reference to Exhibit 10.3 to the Parent Company’s Current Report on Form 8-K filed January 21, 2015). 10.11+ Amendment to Employment Agreement between the Parent Company, the Operating Partnership and David L. Rogers (incorporated by reference to Exhibit 10.11 to the Parent Company and the Operating Partnership’s Annual Report on Form 10-K filed February 27, 2017). 10.12+ Form of restricted stock grant pursuant to the 2005 Award and Option Plan (incorporated by reference to Exhibit 10.6 to the Parent Company’s Report on Form 10-K filed February 28, 2012). 10.13+ Form of stock option grant pursuant to 2005 Award and Option Plan (incorporated by reference to Exhibit 10.7 to the Parent Company’s Report on Form 10-K filed February 28, 2012). 10.14+ Deferred Compensation Plan for Directors (incorporated by reference to the Parent Company’s Schedule 14A Proxy Statement filed April 8, 2015). 10.15 Amended Indemnification Agreements with members of the Board of Directors (incorporated by reference to Exhibit 10.35 to the Parent Company’s Current Report on Form 8-K filed July 20, 2006). 10.16 Amended Indemnification Agreements with Executive Officers (incorporated by reference to Exhibit 10.36 to the Parent Company’s Current Report on Form 8-K filed July 20, 2006). 10.17 Sixth Amended and Restated Revolving Credit and Term Loan Agreement dated as of December 10, 2014 among the Parent Company, the Operating Partnership, Wells Fargo Bank, National Association, Manufacturers and Traders Trust Company and certain other lenders a party thereto or which may become a party thereto (collectively, the “Lenders”), Manufacturers and Traders Trust Company, as administrative agent for itself and the other Lenders, Wells Fargo Bank, National Association, as syndication agent, and U.S. Bank National Association, HSBC Bank USA, National Association, PNC Bank, National Association, and SunTrust Bank as co- documentation agents, for themselves and the other Lenders (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed December 15, 2014). 10.18 Agreement Regarding Revolving Credit Commitment Increases and First Amendment to Credit Agreement dated January 4, 2016 among the Parent Company, the Operating Partnership, Manufacturers & Traders Trust Company, as Administrative Agent, and various other financial institutions (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed January 4, 2016). 10.19* Amendments to Sixth Amended and Restated Revolving Credit and Term Loan Agreement. 10.20 Note Purchase Agreement dated as of August 5, 2011 among the Parent Company, the Operating Partnership and the institutions named in Schedule A thereto as purchasers of $100 million, 5.54% Senior Guaranteed Notes, Series D due August 5, 2021 (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed August 8, 2011). 10.21 Note Purchase Agreement dated as of April 8, 2014 among the Parent Company, the Operating Partnership and the institutions named in Schedule A thereto as purchasers of $175 million, 4.533% Senior Guaranteed Notes, Series E due April 8, 2024 (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed April 9, 2014). 10.22 Amendment No. 2 to Note Purchase Agreement (2011) dated June 29, 2016 by and among the Parent Company, and the Operating Partnership and the Required Holders (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed July 6, 2016). 73 10.23 Amendment No. 2 to Note Purchase Agreement (2014) dated June 29, 2016 by and among the Parent Company and the Operating Partnership and the Required Holders (incorporated by reference to Exhibit 10.2 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed July 6, 2016). 10.24* Amendments to Note Purchase Agreement (2011). 10.25* Amendments to Note Purchase Agreement (2014). 10.26 Note Purchase Agreement dated as of July 21, 2016 among the Parent Company and the Operating Partnership and the institutions named in Schedule A thereto as purchasers (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed July 26, 2016). 10.27* Amendment to Note Purchase Agreement (2016). 10.28+ 2009 Outside Directors Stock Option and Award Plan, as amended (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed April 6, 2016). 10.29+ Outside Director Fee Schedule (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed April 6, 2016). 10.30+ Annual Incentive Compensation Plan for Executive Officers (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed February 21, 2012). 10.31+ Amended and Restated Employment Agreement between the Parent Company, the Operating Partnership and Andrew J. Gregoire dated November 1, 2017 (incorporated by reference to Exhibit 10.5 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.32+ Employment Agreement between the Parent Company, the Operating Partnership and Paul Powell amended and restated effective January 1, 2009 (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed February 14, 2012). 10.33+ Separation Agreement between the Parent Company, the Operating Partnership and Paul Powell dated November 1, 2017 (incorporated by reference to Exhibit 10.3 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.34+ Amended and Restated Employment Agreement between the Parent Company, the Operating Partnership and Edward F. Killeen dated November 1, 2017 (incorporaterd by reference to Exhibit 10.6 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.35+ Employment Agreement between the Parent Company, the Operating Partnership and Joseph Saffire dated November 1, 2017 (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.36+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.37 10.38 10.39 10.40 Indemnification Agreement dated July 16, 2012 between the Parent Company, the Operating Partnership and Stephen R. Rusmisel, a director of the Company (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed July 17, 2012). Indemnification Agreement dated January 30, 2015 between the Parent Company, the Operating Partnership and Arthur L. Havener, Jr., a director of the Parent Company (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed February 3, 2015). Indemnification Agreement dated January 30, 2015 between the Parent Company, the Operating Partnership and Mark G. Barberio, a director of the Parent Company (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed February 3, 2015). Indemnification Agreement dated as of November 1, 2017, by and among the Parent Company, the Operating Partnership and Carol Hansell, a director of the Parent Company (incorporated by reference to Exhibit 10.4 to the Parent Company and the Operating Partnership’s Quarterly Report on Form 10-Q filed November 3, 2017). 10.41+ Form of Long Term Incentive Restricted Stock Award Notice pursuant to 2005 Award and Option Plan (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed December 29, 2014). 10.42+ Form of Performance-Based Vesting Restricted Stock Award Notice pursuant to 2005 Award and Option Plan (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed December 29, 2014). 10.43+ Form of Long Term Incentive Restricted Stock Award Notice pursuant to 2015 Award and Option Plan (incorporated by reference to Exhibit 10.1 to the Parent Company’s Current Report on Form 8-K filed December 22, 2015). 10.44+ Form of Performance-Based Award Notice pursuant to 2015 Award and Option Plan (incorporated by reference to Exhibit 10.2 to the Parent Company’s Current Report on Form 8-K filed December 22, 2015). 74 10.45+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed December 28, 2016). 10.46+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and the Operating Partnership’s Current Report on Form 8-K filed December 28, 2016). 10.47 Agreement and Plan of Merger, by and among LifeStorage, LP, the Operating Partnership, Solar Lunar Sub, LLC, and Fortis Advisors LLC, as Sellers’ Representative dated as of May 18, 2016 (incorporated by reference to Exhibit 2.1 to the Parent Company’s Current Report on Form 8-K filed May 19, 2016). 10.48+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and Operating Partnership’s Current Report on Form 8-K filed February 27, 2017). 10.49+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and Operating Partnership’s Current Report on Form 8-K filed February 27, 2017). 10.50+ Form of Long Term Incentive Restricted Stock Award Notice (incorporated by reference to Exhibit 10.1 to the Parent Company and Operating Partnership’s Current Report on Form 8-K filed January 4, 2018). 10.51+ Form of Performance-Based Award Notice (incorporated by reference to Exhibit 10.2 to the Parent Company and Operating Partnership’s Current Report on Form 8-K filed January 4, 2018). 12.1* Statement Re: Computation of Earnings to Fixed Charges of Life Storage, Inc. and Life Storage LP 21.1* Subsidiaries of the Company. 23.1* Consent of Independent Registered Public Accounting Firm 23.2* Consent of Independent Registered Public Accounting Firm 24.1* Powers of Attorney (included on signature pages). 31.1* Certification of Chief Executive Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2* Certification of Chief Financial Officer of Life Storage, Inc. pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.3* Certification of Chief Executive Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.4* Certification of Chief Financial Officer of Life Storage LP pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1* Certification of Chief Executive Officer and Chief Financial Officer of Life Storage, Inc. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Chief Executive Officer and Chief Financial Officer of Life Storage LP Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101* The following financial statements from the Life Storage, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL, as follows: (i) Consolidated Balance Sheets at December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Shareholders’ Equity for Years Ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements The following financial statements from the Life Storage LP’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL, as follows: (i) Consolidated Balance Sheets at December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for Years Ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for Years Ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Partners’ Capital for Years Ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for Years Ended December 31, 2017, 2016 and 2015; and 75 (vi) Notes to Consolidated Financial Statements Filed herewith. Management contract or compensatory plan or arrangement. * + Item 16. Form 10-K Summary Not applicable. 76 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES February 27, 2018 February 27, 2018 LIFE STORAGE, INC. By: /s/ Andrew J. Gregoire Andrew J. Gregoire Chief Financial Officer (Principal Accounting Officer) LIFE STORAGE LP By: /s/ Andrew J. Gregoire Andrew J. Gregoire Chief Financial Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature /s/ Robert J. Attea Robert J. Attea /s/ Kenneth F. Myszka Kenneth F. Myszka /s/ David L. Rogers David L. Rogers /s/ Andrew J. Gregoire Andrew J. Gregoire /s/ Charles E. Lannon Charles E. Lannon /s/ Stephen R. Rusmisel Stephen R. Rusmisel /s/ Arthur L. Havener, Jr. Arthur L. Havener, Jr. /s/ Mark G. Barberio Mark G. Barberio /s/ Carol Hansell Carol Hansell Title Chairman of Board and Director of Life Storage, Inc. and Life Storage Holdings, Inc., general partner of Life Storage LP Date February 27, 2018 President and Director of Life Storage, Inc. and Life Storage Holdings, Inc., general partner of Life Storage LP February 27, 2018 Chief Executive Officer (Principal Executive Officer) of Life Storage, Inc. and Life Storage Holdings, Inc., general partner of Life Storage LP February 27, 2018 Chief Financial Officer (Principal Financial and Accounting Officer) of Life Storage, Inc. and Life Storage Holdings, Inc., general partner of Life Storage LP February 27, 2018 Director of Life Storage, Inc. February 27, 2018 Director of Life Storage, Inc. February 27, 2018 Director of Life Storage, Inc. February 27, 2018 Director of Life Storage, Inc. February 27, 2018 Director of Life Storage, Inc. February 27, 2018 77 Life Storage, Inc. Schedule III Combined Real Estate and Accumulated Depreciation (in thousands) December 31, 2017 Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. $ 416 $ 397 308 239 701 395 483 224 423 395 152 268 363 230 680 463 444 649 387 844 302 315 321 361 189 488 430 513 194 1,503 398 423 483 308 170 413 154 479 883 316 632 715 304 1,375 244 834 1,516 $ 1,424 1,102 1,110 1,659 1,501 1,752 808 1,531 1,404 728 1,248 1,679 847 1,616 1,684 1,613 2,329 1,402 2,021 1,103 745 1,150 1,331 719 1,188 1,579 1,930 912 3,619 1,035 1,015 1,166 1,116 786 999 555 1,742 2,104 1,471 2,962 1,695 1,118 3,220 901 2,066 2,370 $ 1,704 3,534 2,582 3,825 1,054 2,324 4,442 3,620 (141 ) 3,883 775 885 2,322 878 4,925 3,444 1,487 4,020 1,009 698 4,040 3,468 917 1,200 2,081 2,343 856 586 1,302 500 606 1,271 833 906 853 1,492 3,018 1,932 1,045 1,669 1,420 2,906 2,894 692 3,528 416 $ 397 747 239 1,036 779 483 224 497 395 687 268 363 234 680 1,445 444 649 387 844 303 517 321 374 189 488 602 513 194 1,503 398 424 483 308 174 413 306 479 883 316 651 715 619 1,376 244 1,591 78 3,886 $ 3,128 4,197 3,692 5,149 2,171 4,076 5,250 5,077 1,263 4,076 2,023 2,564 3,165 2,494 5,627 5,057 3,816 5,422 3,030 1,800 4,583 4,618 2,235 1,919 3,269 3,750 2,786 1,498 4,921 1,535 1,620 2,437 1,949 1,688 1,852 1,895 4,760 4,036 2,516 4,612 3,115 3,709 6,113 1,593 4,837 4,302 $ 3,525 4,944 3,931 6,185 2,950 4,559 5,474 5,574 1,658 4,763 2,291 2,927 3,399 3,174 7,072 5,501 4,465 5,809 3,874 2,103 5,100 4,939 2,609 2,108 3,757 4,352 3,299 1,692 6,424 1,933 2,044 2,920 2,257 1,862 2,265 2,201 5,239 4,919 2,832 5,263 3,830 4,328 7,489 1,837 6,428 1,683 1,375 1,357 1,379 1,538 1,259 1,875 996 2,080 731 1,189 1,051 1,341 939 1,262 2,433 1,822 1,892 1,594 1,588 950 1,433 1,110 1,203 1,408 1,228 1,605 1,536 818 2,387 875 776 1,140 1,075 860 1,077 874 2,007 2,181 1,346 2,560 1,541 1,607 3,083 860 1,626 New Description Charleston Lakeland Charlotte Youngstown Cleveland Pt. St. Lucie Orlando - Deltona NY Metro-Middletown Buffalo Rochester Jacksonville Columbia Boston Rochester Boston Savannah Greensboro Raleigh-Durham Hartford-New Haven Atlanta Atlanta Buffalo Raleigh-Durham Columbia Columbia Columbia Atlanta Orlando Sharon Ft. Lauderdale West Palm Atlanta Atlanta Atlanta Atlanta Atlanta Baltimore Baltimore Melbourne Newport News Pensacola Hartford Atlanta Alexandria Pensacola Melbourne ST SC FL NC OH OH FL FL NY NY NY FL SC MA NY MA GA NC NC CT GA GA NY NC SC SC SC GA FL PA FL FL GA GA GA GA GA MD MD FL VA FL CT GA VA FL FL Life on which depreciation in latest income statement is computed Date Acquired 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1985 1985 1986 1980 1987/15 1985 1984 1988/17 1981 1981 1985 1985 1980 1980 1986 1981 1986 1985 1985 1988 1988 1984 1985 1987 1989 1986 1988 1988 1975 1985 1985 1989 1988 1986 1981 1975 1984 1988 1986 1988 1983 1988 1988 1984 1986 1986/15 New Description Hartford Atlanta Norfolk Birmingham Birmingham Montgomery Jacksonville Pensacola Pensacola Pensacola Tampa Clearwater Clearwater-Largo Jackson Jackson Providence Norfolk - Virginia Beach Richmond Orlando Syracuse Ft. Myers Ft. Myers Harrisburg Harrisburg Newport News Montgomery Charleston Tampa Dallas-Ft.Worth Dallas-Ft.Worth Dallas-Ft.Worth San Antonio San Antonio Montgomery West Palm Ft. Myers Syracuse Lakeland Boston - Springfield Ft. Myers Cincinnati Baltimore Jacksonville Jacksonville Jacksonville Charlotte ST CT GA VA AL AL AL FL FL FL FL FL FL FL MS MS RI VA VA FL NY FL FL PA PA VA AL SC FL TX TX TX TX TX AL FL FL NY FL MA FL OH MD FL FL FL NC Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. Life on which depreciation in latest income statement is computed Date Acquired 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 6/26/1995 8/25/1995 9/29/1995 12/27/1995 12/28/1995 12/28/1995 12/29/1995 12/29/1995 1/5/1996 1/23/1996 3/1/1996 3/28/1996 3/29/1996 3/29/1996 3/29/1996 3/29/1996 3/29/1996 5/21/1996 5/29/1996 5/29/1996 6/5/1996 6/26/1996 6/28/1996 6/28/1996 7/23/1996 7/26/1996 8/23/1996 8/26/1996 8/30/1996 9/16/1996 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1992 1988 1984 1990 1990 1982 1987 1986 1990 1990 1989 1985 1988 1990 1990 1984 1,311 1,584 1,573 1,496 1,639 1,694 1,253 2,014 1,282 1,007 2,100 1,729 1,824 1,553 1,009 1,265 3,428 1989/93/95/16 1,434 2,296 1,604 837 1,455 1,027 2,213 1,454 1,086 936 1,392 1,209 1,499 1,739 1,598 457 1,053 931 939 1,871 1,370 1,638 1,011 976 1,847 1,800 1,316 1,477 1,248 1987 1986/15 1987 1988 1991/94 1983 1985 1988/93 1984 1985 1985 1987 1986 1986 1986 2012 1988 1986 1986 1983 1988 1986 1987 1988 1990 1987 1985 1987/92 1995 234 256 313 307 730 863 326 369 244 226 1,088 526 672 343 209 345 1,142 443 1,161 470 205 412 360 627 442 353 237 766 442 408 328 436 289 279 345 229 481 359 251 344 557 777 568 436 535 487 861 1,244 1,462 1,415 1,725 2,041 1,515 1,358 1,128 1,046 2,597 1,958 2,439 1,580 964 1,268 4,998 1,602 2,755 1,712 912 1,703 1,641 2,224 1,592 1,299 858 1,800 1,767 1,662 1,324 1,759 1,161 1,014 1,262 884 1,559 1,287 917 1,254 1,988 2,770 2,028 1,635 2,033 1,754 3,561 2,325 2,718 1,918 2,992 1,491 1,432 3,249 2,828 896 1,038 1,581 1,218 2,643 1,070 2,078 3,585 1,111 2,311 1,685 567 767 133 4,080 1,434 1,138 1,062 1,060 471 1,312 448 1,548 2,484 1,515 653 2,855 2,656 1,335 2,554 657 996 791 1,903 1,191 638 701 612 256 313 385 730 863 326 369 720 226 1,088 526 672 796 209 486 1,142 443 1,162 472 206 412 360 692 442 353 245 766 442 408 328 436 289 433 345 383 671 359 297 310 688 777 568 436 538 487 79 4,044 3,569 4,180 3,255 4,717 3,532 2,947 4,607 3,480 1,942 3,635 3,539 3,657 3,770 2,034 3,205 8,583 2,713 5,065 3,395 1,478 2,470 1,774 6,239 3,026 2,437 1,912 2,860 2,238 2,974 1,772 3,307 3,645 2,375 1,915 3,585 4,025 2,622 3,425 1,945 2,853 3,561 3,931 2,826 2,668 2,455 4,656 3,825 4,493 3,640 5,447 4,395 3,273 4,976 4,200 2,168 4,723 4,065 4,329 4,566 2,243 3,691 9,725 3,156 6,227 3,867 1,684 2,882 2,134 6,931 3,468 2,790 2,157 3,626 2,680 3,382 2,100 3,743 3,934 2,808 2,260 3,968 4,696 2,981 3,722 2,255 3,541 4,338 4,499 3,262 3,206 2,942 New Description Charlotte Orlando Rochester Youngstown Cleveland Cleveland Cleveland Cleveland Cleveland Cleveland Cleveland San Antonio San Antonio San Antonio Houston-Beaumont Houston-Beaumont Houston-Beaumont Chesapeake Orlando-W 25th St Delray Savannah Delray Cleveland-Avon Dallas-Fort Worth Atlanta-Alpharetta Atlanta-Marietta Atlanta-Doraville Greensboro-Hilltop Greensboro-StgCch Baton Rouge-Airline Baton Rouge-Airline2 Harrisburg-Peiffers Tampa-E. Hillsborough NY Metro-Middletown Chesapeake-Military Chesapeake-Volvo Virginia Beach-Shell Norfolk-Naval Base Boston-Northbridge Greensboro-High Point Titusville Boston-Salem Providence Chattanooga-Lee Hwy Chattanooga-Hwy 58 Ft. Oglethorpe ST NC FL NY OH OH OH OH OH OH OH OH TX TX TX TX TX TX VA FL FL GA FL OH TX GA GA GA NC NC LA LA PA FL NY VA VA VA VA MA NC FL MA RI TN TN GA Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment and Impvmts. Land Total Accum. Deprec. 315 314 704 600 751 725 637 495 761 418 606 474 346 432 634 566 293 260 289 491 296 921 301 965 1,033 769 735 268 89 396 282 635 709 843 542 620 540 1,243 441 397 492 733 702 384 296 349 1,131 1,113 2,496 2,142 2,676 2,586 2,918 1,781 2,714 1,921 2,164 1,686 1,236 1,560 2,565 2,279 1,357 1,043 1,160 1,756 1,196 3,282 1,214 3,864 3,753 2,788 3,429 1,097 376 1,831 1,303 2,550 3,235 3,394 2,210 2,532 2,211 5,019 1,788 1,834 1,990 2,941 2,821 1,371 1,198 1,250 524 1,417 2,975 2,773 4,465 2,524 2,082 4,140 1,829 2,944 1,533 814 652 2,134 4,625 577 702 4,760 2,486 805 586 940 2,344 1,773 797 724 517 911 1,947 1,234 564 777 1,030 1,113 542 1,561 569 1,039 1,203 1,109 1,282 2,000 4,269 652 2,333 1,871 315 314 707 693 751 725 701 495 761 418 606 504 346 432 634 566 293 260 616 491 296 921 304 943 1,033 825 735 231 89 421 282 637 709 843 542 620 540 1,243 694 397 688 733 702 384 414 464 80 1,655 2,530 5,468 4,822 7,141 5,110 4,936 5,921 4,543 4,865 3,697 2,470 1,888 3,694 7,190 2,856 2,059 5,803 3,319 2,561 1,782 4,222 3,555 5,659 4,550 3,456 3,946 2,045 2,323 3,040 1,867 3,325 4,265 4,507 2,752 4,093 2,780 6,058 2,738 2,943 3,076 4,941 7,090 2,023 3,413 3,006 1,970 2,844 6,175 5,515 7,892 5,835 5,637 6,416 5,304 5,283 4,303 2,974 2,234 4,126 7,824 3,422 2,352 6,063 3,935 3,052 2,078 5,143 3,859 6,602 5,583 4,281 4,681 2,276 2,412 3,461 2,149 3,962 4,974 5,350 3,294 4,713 3,320 7,301 3,432 3,340 3,764 5,674 7,792 2,407 3,827 3,470 890 1,223 2,118 1,874 2,578 2,268 2,765 1,571 2,315 2,071 1,691 1,119 918 1,739 2,081 1,423 960 1,650 1,024 1,371 912 2,118 1,534 2,806 2,303 1,733 2,039 863 988 1,425 923 1,680 2,145 2,168 1,370 1,839 1,370 2,993 895 1,313 1,047 2,308 2,310 1,063 1,354 1,137 Life on which depreciation in latest income statement is computed Date Acquired 9/16/1996 10/30/1996 12/20/1996 1/10/1997 1/10/1997 1/10/1997 1/10/1997 1/10/1997 1/10/1997 1/10/1997 1/10/1997 1/30/1997 1/30/1997 1/30/1997 3/26/1997 3/26/1997 3/26/1997 3/31/1997 3/31/1997 4/11/1997 5/8/1997 5/21/1997 6/4/1997 6/30/1997 7/24/1997 7/24/1997 8/21/1997 9/25/1997 9/25/1997 10/9/1997 11/21/1997 12/3/1997 2/4/1998 2/4/1998 2/5/1998 2/5/1998 2/5/1998 2/5/1998 2/9/1998 2/10/1998 2/25/1998 3/3/1998 3/26/1998 3/27/1998 3/27/1998 3/27/1998 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1995 1975 1990 1988 1986 1978 1979 1979/17 1977 1970 1982 1981 1985 1995 1993/95/16 1995 1995 1988/95 1984 1969 1988 1980 1989 1977 1994 1996 1995 1995 1997 1982 1985 1984 1985 1989/95 1996 1995 1991 1975 1988 1993 1986/90 1979 1984/88 1987 1985 1989 New Description Birmingham-Walt Salem-Policy Raleigh-Durham Raleigh-Durham Youngstown-Warren Youngstown-Warren Jackson Houston-Katy Melbourne Vero Beach Houston-Humble Houston-Webster Dallas-Fort Worth San Marcos Austin-McNeil Austin-FM Hollywood-Sheridan Pompano Beach-Atlantic Pompano Beach-Sample Boca Raton-18th St Hollywood-N.21st Dallas-Fort Worth Dallas-Fort Worth Cincinnati-Batavia Jackson-N.West Houston-Katy Providence Lafayette-Pinhook 1 Lafayette-Pinhook2 Lafayette-Ambassador Lafayette-Evangeline Lafayette-Guilbeau Phoenix-Gilbert Phoenix-Glendale Phoenix-Mesa Phoenix-Mesa Phoenix-Mesa Phoenix-Mesa Phoenix-Camelback Phoenix-Bell Phoenix-35th Ave Portland Space Coast-Cocoa Dallas-Fort Worth NY Metro-Middletown Boston-N. Andover ST AL NH NC NC OH OH MS TX FL FL TX TX TX TX TX TX FL FL FL FL FL TX TX OH MS TX RI LA LA LA LA LA AZ AZ AZ AZ AZ AZ AZ AZ AZ ME FL TX NY MA Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 544 742 775 940 522 512 744 419 662 489 447 635 548 324 492 484 1,208 944 903 1,503 840 550 670 390 460 507 447 556 708 314 188 963 651 565 330 339 291 354 453 872 849 410 667 335 276 633 1,942 2,977 3,103 3,763 1,864 1,829 3,021 1,524 2,654 1,813 1,790 2,302 1,988 1,493 1,995 1,951 4,854 3,803 3,643 6,059 3,373 1,998 2,407 1,570 1,642 2,058 1,776 1,951 2,860 1,095 652 3,896 2,600 2,596 1,309 1,346 1,026 1,405 1,610 3,476 3,401 1,626 2,373 1,521 1,312 2,573 1,335 655 973 1,087 1,414 2,831 280 4,101 3,705 1,783 2,588 634 442 2,233 2,646 1,044 701 876 650 (1,767 ) 651 872 1,865 1,462 797 1,843 1,041 1,465 1,331 (1,091 ) 1,671 1,192 1,339 783 2,606 816 1,160 723 1,101 3,659 972 2,031 1,009 946 1,333 1,083 544 742 775 940 569 633 744 419 662 584 740 635 548 324 510 481 1,208 944 903 851 840 550 670 390 460 507 447 556 708 314 188 963 772 565 733 339 291 354 453 872 849 410 667 335 276 633 81 3,277 3,632 4,076 4,850 3,231 4,539 3,301 5,625 6,359 3,501 4,085 2,936 2,430 3,726 4,623 2,998 5,555 4,679 4,293 4,944 4,024 2,870 4,272 3,032 2,439 3,901 2,817 3,416 4,191 4 2,323 5,088 3,818 3,379 3,512 2,162 2,186 2,128 2,711 7,135 4,373 3,657 3,382 2,467 2,645 3,656 3,821 4,374 4,851 5,790 3,800 5,172 4,045 6,044 7,021 4,085 4,825 3,571 2,978 4,050 5,133 3,479 6,763 5,623 5,196 5,795 4,864 3,420 4,942 3,422 2,899 4,408 3,264 3,972 4,899 318 2,511 6,051 4,590 3,944 4,245 2,501 2,477 2,482 3,164 8,007 5,222 4,067 4,049 2,802 2,921 4,289 1,635 1,766 1,978 2,353 1,543 1,662 1,632 1,759 1,687 1,186 1,631 1,284 1,163 1,451 1,633 1,269 2,744 2,277 2,075 2,414 2,003 1,276 1,813 1,205 1,191 1,564 1,320 1,674 1,675 97 1,078 2,218 1,688 1,571 1,262 940 881 948 1,281 2,538 2,060 1,517 1,564 987 1,076 1,543 Life on which depreciation in latest income statement is computed Date Acquired 3/27/1998 4/7/1998 4/9/1998 4/9/1998 4/22/1998 4/22/1998 5/13/1998 5/20/1998 6/2/1998 6/12/1998 6/16/1998 6/19/1998 6/19/1998 6/30/1998 6/30/1998 6/30/1998 7/1/1998 7/1/1998 7/1/1998 7/1/1998 8/3/1998 9/29/1998 10/9/1998 11/19/1998 12/1/1998 12/15/1998 2/2/1999 2/17/1999 2/17/1999 2/17/1999 2/17/1999 2/17/1999 5/18/1999 5/18/1999 5/18/1999 5/18/1999 5/18/1999 5/18/1999 5/18/1999 5/18/1999 5/21/1999 8/2/1999 9/29/1999 11/9/1999 2/2/2000 2/15/2000 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1984 1980 1988/91 1990/96 1986 1986/16 1995 1994 1985/07/15 1997 1986 1997 1997 1994 1994 1996 1988 1985 1988 1991 1987 1996 1996 1988 1984 1993 1986/94 1980 1992/94 1975 1977 1994 1995 1997 1986 1986 1976 1986 1984 1984 1996 1988 1982 1985 1998 1989 New Description Houston-Seabrook Ft. Lauderdale Birmingham-Bessemer NY Metro-Brewster Austin-Lamar Houston Ft.Myers Boston-Dracut Boston-Methuen Columbia Myrtle Beach Maine-Saco Boston-Plymouth Boston-Sandwich Syracuse Dallas-Fort Worth Dallas-Fort Worth San Antonio-Hunt Houston-Humble Houston-Pasadena Houston-League City Houston-Montgomery Houston-S. Hwy 6 Houston-Beaumont The Hamptons The Hamptons The Hamptons The Hamptons Dallas-Fort Worth Dallas-Fort Worth Stamford Houston-Tomball Houston-Conroe Houston-Spring Houston-Bissonnet Houston-Alvin Clearwater Houston-Missouri City Chattanooga-Hixson Austin-Round Rock Long Island-Bayshore Syracuse - Cicero Boston-Springfield Stamford Montgomery-Richard Houston-Jones ST TX FL AL NY TX TX FL MA MA SC SC ME MA MA NY TX TX TX TX TX TX TX TX TX NY NY NY NY TX TX CT TX TX TX TX TX FL TX TN TX NY NY MA CT AL TX Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 633 384 254 1,716 837 733 787 1,035 1,024 883 552 534 1,004 670 294 734 394 381 919 612 689 817 407 817 2,207 1,131 635 1,251 1,039 827 2,713 773 1,195 1,103 1,061 388 1,720 1,167 1,365 2,047 1,131 527 612 1,612 1,906 1,214 2,617 1,422 1,059 6,920 2,977 3,392 3,249 3,737 3,649 3,139 1,970 1,914 4,584 3,060 1,203 2,956 1,595 1,545 3,696 2,468 3,159 3,286 1,650 3,287 8,866 4,564 2,918 5,744 4,201 3,776 11,013 3,170 4,877 4,550 4,427 1,640 6,986 4,744 5,569 5,857 4,609 2,121 2,501 6,585 7,726 4,949 572 874 2,165 1,805 3,643 1,360 762 772 849 1,496 1,181 997 2,401 631 1,217 967 562 6,688 724 478 824 2,231 856 3,517 914 629 442 789 349 551 764 1,876 463 529 2,920 1,052 323 3,620 1,882 951 284 3,309 646 408 499 372 633 384 332 1,981 966 841 902 1,104 1,091 942 589 938 1,004 714 327 784 421 618 919 612 688 1,119 407 817 2,207 1,131 635 1,252 1,039 827 2,713 773 1,195 1,103 1,061 388 1,720 1,566 1,365 1,976 1,131 527 612 1,612 1,906 1,215 82 3,189 2,296 3,146 8,460 6,491 4,644 3,896 4,440 4,431 4,576 3,114 2,507 6,985 3,647 2,387 3,873 2,130 7,996 4,420 2,946 3,984 5,215 2,506 6,804 9,780 5,193 3,360 6,532 4,550 4,327 11,777 5,046 5,340 5,079 7,347 2,692 7,309 7,965 7,451 6,879 4,893 5,430 3,147 6,993 8,225 5,320 3,822 2,680 3,478 10,441 7,457 5,485 4,798 5,544 5,522 5,518 3,703 3,445 7,989 4,361 2,714 4,657 2,551 8,614 5,339 3,558 4,672 6,334 2,913 7,621 11,987 6,324 3,995 7,784 5,589 5,154 14,490 5,819 6,535 6,182 8,408 3,080 9,029 9,531 8,816 8,855 6,024 5,957 3,759 8,605 10,131 6,535 1,435 949 990 2,358 1,450 1,432 1,339 1,821 1,770 1,726 1,258 967 2,465 1,448 819 1,480 823 1,369 1,682 1,136 1,444 1,838 793 1,495 3,718 1,953 1,270 2,361 1,643 1,537 4,200 1,727 1,817 1,832 2,382 883 2,563 2,379 2,519 2,366 1,584 1,133 934 2,324 2,646 1,747 Life on which depreciation in latest income statement is computed Date Acquired 3/1/2000 5/2/2000 11/15/2000 12/27/2000 2/22/2001 3/2/2001 3/13/2001 12/1/2001 12/1/2001 12/1/2001 12/1/2001 12/3/2001 12/19/2001 12/19/2001 2/5/2002 2/13/2002 2/13/2002 2/13/2002 6/19/2002 6/19/2002 6/19/2002 6/19/2002 6/19/2002 6/19/2002 12/16/2002 12/16/2002 12/16/2002 12/16/2002 8/26/2003 10/1/2003 3/17/2004 5/19/2004 5/19/2004 5/19/2004 5/19/2004 5/19/2004 6/3/2004 6/23/2004 8/4/2004 8/5/2004 3/15/2005 3/16/2005 4/12/2005 4/14/2005 6/1/2005 6/6/2005 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1996 1994 1998 1991/97 1996/99 1993/97 1997 1986 1984 1985 1984 1988 1996 1984 1987 1984 1985 1980/17 1998/02 1999 1994/97 1998 1997 1996/17 1989/95 1998 1997 1994/98 1995/99 1998/01 1998 2000 2001 2001 2003 2003 2001 1998 1998/02 2000 2003 1988/02/16 1965/75 2002 1997 1997/99 New Description Boston-Oxford Austin-290E San Antonio-Marbach Austin-South 1st Houston-Pinehurst Atlanta-Marietta Baton Rouge San Marcos-Hwy 35S Houston-Baytown Houston-Cypress Rochester Houston-Jones Rd 2 Lafayette Lafayette Lafayette Lafayette Manchester Clearwater-Largo Clearwater-Pinellas Park Clearwater-Tarpon Spring New Orleans St Louis-Meramec St Louis-Charles Rock St Louis-Shackelford St Louis-W.Washington St Louis-Howdershell St Louis-Lemay Ferry St Louis-Manchester Dallas-Fort Worth Dallas-Fort Worth Dallas-Fort Worth Dallas-Fort Worth Dallas-Fort Worth Dallas-Fort Worth San Antonio-Blanco San Antonio-Broadway San Antonio-Huebner Nashua Lafayette Chattanooga-Lee Hwy II Montgomery-E.S.Blvd Auburn-Pepperell Pkwy Auburn-Gatewood Dr Columbus-Williams Rd Columbus-Miller Rd Columbus-Armour Rd ST MA TX TX TX TX GA LA TX TX TX NY TX LA LA LA LA NH FL FL FL LA MO MO MO MO MO MO MO TX TX TX TX TX TX TX TX TX NH LA TN AL AL AL GA GA GA Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 470 537 556 754 484 811 719 628 596 721 937 707 411 463 601 542 832 1,270 929 696 1,220 1,113 766 828 734 899 890 697 1,256 605 607 1,073 549 644 963 773 1,175 617 699 619 1,158 590 694 736 975 - 1,902 2,183 2,265 3,065 1,977 3,397 2,927 2,532 2,411 2,994 3,779 2,933 1,621 1,831 2,406 1,319 3,268 5,037 3,676 2,739 4,805 4,359 3,040 3,290 2,867 3,596 3,552 2,711 4,946 2,434 2,428 4,276 2,180 2,542 3,836 3,060 4,624 2,422 2,784 2,471 4,639 2,361 2,758 2,905 3,854 3,680 1,521 6,061 591 330 1,565 578 2,669 3,431 329 2,340 230 2,884 270 198 1,480 2,229 184 455 344 267 332 479 1,500 222 2,520 356 475 224 572 215 241 134 1,184 169 233 2,200 396 619 3,836 208 1,283 600 403 406 1,394 337 470 491 556 754 484 811 719 982 596 721 937 707 411 463 601 542 832 1,270 929 696 1,220 1,113 766 828 734 899 890 697 1,256 605 607 1,073 549 644 963 773 1,175 617 699 619 1,158 590 694 736 975 - 83 3,423 8,290 2,856 3,395 3,542 3,975 5,596 5,609 2,740 5,334 4,009 5,817 1,891 2,029 3,886 3,548 3,452 5,492 4,020 3,006 5,137 4,838 4,540 3,512 5,387 3,952 4,027 2,935 5,518 2,649 2,669 4,410 3,364 2,711 4,069 5,260 5,020 3,041 6,620 2,679 5,922 2,961 3,161 3,311 5,248 4,017 3,893 8,781 3,412 4,149 4,026 4,786 6,315 6,591 3,336 6,055 4,946 6,524 2,302 2,492 4,487 4,090 4,284 6,762 4,949 3,702 6,357 5,951 5,306 4,340 6,121 4,851 4,917 3,632 6,774 3,254 3,276 5,483 3,913 3,355 5,032 6,033 6,195 3,658 7,319 3,298 7,080 3,551 3,855 4,047 6,223 4,017 1,046 744 959 1,114 1,056 1,297 1,392 922 814 1,455 1,246 1,666 608 644 1,154 986 1,055 1,625 1,166 889 1,548 1,427 1,105 1,055 1,255 1,166 1,186 868 1,601 771 793 1,298 889 809 1,237 1,287 1,454 905 1,435 785 1,673 858 882 947 1,219 1,153 Life on which depreciation in latest income statement is computed Date Acquired 6/23/2005 7/12/2005 7/12/2005 7/12/2005 7/12/2005 9/15/2005 11/15/2005 1/10/2006 1/10/2006 1/13/2006 2/1/2006 3/9/2006 4/13/2006 4/13/2006 4/13/2006 4/13/2006 4/26/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/22/2006 6/29/2006 8/1/2006 8/7/2006 9/28/2006 9/28/2006 9/28/2006 9/28/2006 9/28/2006 9/28/2006 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 2002 2003/17 2003 2003 2002/04 2003 1984/94 2001/16 2002 2003 2002/06 2000 1997 2001/04 2002 1997/99 2000 1998 2000 1999 2000 1999 1999 1999 1980/01/15 2000 1999 2000 1998/03 2004 2004 2003 1998 1999 2004 2000 1998 1989 1995/99/16 2002 1996/97 1998 2002/03 2002/04/06 1995 2004/05 New Description Columbus-Amber Dr Concord Houston-Beaumont Houston-Beaumont Buffalo-Langner Rd Buffalo-Transit Rd Buffalo-Lake Ave Buffalo-Union Rd Buffalo-NF Blvd Buffalo-Young St Buffalo-Sheridan Dr Bufrfalo-Transit Rd Rochester-Phillips Rd San Antonio-Foster Huntsville-Memorial Pkwy Huntsville-Madison 1 Bilox-Gulfport Huntsville-Hwy 72 Mobile-Airport Blvd Bilox-Gulfport Huntsville-Madison 2 Foley-Hwy 59 Pensacola 6-Nine Mile Auburn-College St Biloxi-Gulfport Pensacola 7-Hwy 98 Montgomery-Arrowhead Montgomery-McLemore Houston-Beaumont Hattiesburg-Clasic Biloxi-Ginger Foley-7905 St Hwy 59 Jackson-Ridgeland Jackson-5111 Cincinnati-Robertson Richmond-Bridge Rd Raleigh-Durham Charlotte-Wallace Raleigh-Durham Charlotte-Westmoreland Charlotte-Matthews Raleigh-Durham Charlotte-Zeb Morris Fair Lawn Elizabeth Saint Louis-High Ridge ST GA NH TX TX NY NY NY NY NY NY NY NY NY TX AL AL MS AL AL MS AL AL FL AL MS FL AL AL TX MS MS AL MS MS OH VA NC NC NC NC NC NC NC NJ NJ MO Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 439 813 929 1,537 532 437 638 348 323 315 961 375 1,003 676 1,607 1,016 1,423 1,206 1,216 1,345 1,164 1,346 1,029 686 1,811 732 1,075 885 742 444 384 437 1,479 1,337 852 1,047 846 961 574 513 1,129 381 965 796 885 197 1,745 3,213 3,647 6,018 2,119 1,794 2,531 1,344 1,331 2,185 3,827 1,498 4,002 2,685 6,338 4,013 5,624 4,775 4,819 5,325 4,624 5,474 4,180 2,732 7,152 3,015 4,333 3,586 3,024 1,799 1,548 1,757 5,965 5,377 3,409 5,981 4,095 3,702 3,975 5,317 4,767 3,575 3,355 9,467 3,073 2,132 394 2,072 453 642 3,600 702 2,964 529 249 1,206 2,638 749 145 466 1,113 467 222 401 391 159 330 1,592 213 245 163 118 347 286 373 212 159 198 596 279 281 2,722 229 1,272 268 47 156 107 133 417 755 90 439 813 930 1,537 532 437 638 348 323 316 961 375 1,003 676 1,677 1,017 1,423 1,206 1,216 1,301 1,164 1,347 1,029 686 1,811 732 1,075 885 742 444 384 437 1,479 1,337 852 1,047 846 961 575 513 1,129 381 965 796 885 197 84 2,139 5,285 4,099 6,660 5,719 2,496 5,495 1,873 1,580 3,390 6,465 2,247 4,147 3,151 7,381 4,479 5,846 5,176 5,210 5,528 4,954 7,065 4,393 2,977 7,315 3,133 4,680 3,872 3,397 2,011 1,707 1,955 6,561 5,656 3,690 8,703 4,324 4,974 4,242 5,364 4,923 3,682 3,488 9,884 3,828 2,222 2,578 6,098 5,029 8,197 6,251 2,933 6,133 2,221 1,903 3,706 7,426 2,622 5,150 3,827 9,058 5,496 7,269 6,382 6,426 6,829 6,118 8,412 5,422 3,663 9,126 3,865 5,755 4,757 4,139 2,455 2,091 2,392 8,040 6,993 4,542 9,750 5,170 5,935 4,817 5,877 6,052 4,063 4,453 10,680 4,713 2,419 637 1,413 1,098 1,858 1,060 672 1,007 502 464 868 1,472 570 1,143 915 1,927 1,241 1,615 1,408 1,454 1,493 1,344 1,683 1,289 838 1,960 900 1,263 1,028 876 526 423 495 1,700 1,425 845 1,528 809 788 763 964 913 672 635 1,648 575 444 Life on which depreciation in latest income statement is computed Date Acquired 9/28/2006 10/31/2006 3/8/2007 3/8/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 3/30/2007 5/21/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 6/1/2007 11/14/2007 12/19/2007 12/19/2007 12/19/2007 1/17/2008 1/17/2008 12/31/2008 10/1/2009 12/28/2010 12/29/2010 12/29/2010 12/29/2010 12/29/2010 12/29/2010 12/29/2010 7/14/2011 7/14/2011 7/28/2011 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1998 2000 2002/04 2003/06 1993/07/15 1998 1997/06 1998 1998 1999/00 1999 1990/95 1999 2003/06 1989/06 1993/07 1998/05 1998/06 2000/07 2002/04 2002/06 2003/06/15 2003/06 2003 2004/06 2006 2006 2006 2002/05 1998 2000 2000 1997/00 2003 2003/04 2009/16 2000 2008/16 2008 2009 2009 2008 2007 1999 1988 2007 New Description Atlanta-Decatur Houston-Humble Dallas-Fort Worth Houston-Hwy 6N Austin-Cedar Park Houston-Katy Houston-Deer Park Houston-W.Little York Houston-Pasadena Houston-Friendswood Houston-Spring Houston-W.Sam Houston Austin-Pond Springs Rd Houston-Spring Austin-Round Rock Houston-Silverado Dr Houston-Sugarland Houston-Westheimer Rd Houston-Wilcrest Dr Houston-Woodlands Houston-Woodlands Houston-Katy Freeway Houston-Webster Newport News-Brick Kiln Penasacola-Palafox Miami Chicago - Lake Forest Chicago - Schaumburg Norfolk - E. Little Creek Atlanta-14th St. Jacksonville - Middleburg Jacksonville - Orange Park Jacksonville - St. Augustine Atlanta - NE Expressway Atlanta - Kennesaw Atlanta - Lawrenceville Atlanta - Woodstock Raleigh-Durham Chicago - Lindenhurst Chicago - Orland Park Phoenix-83rd Chicago-North Austin Chicago-North Western Chicago-West Pershing Chicago - North Broadway Brandenton ST GA TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX VA FL FL IL IL VA GA FL FL FL GA GA GA GA NC IL IL AZ IL IL IL IL FL Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 1,700 1,043 825 693 1,243 1,559 691 1,012 575 705 1,168 2,152 402 1,653 1,474 177 1,438 272 536 1,478 1,315 3,189 1,049 2,054 2,848 197 2,960 1,932 1,940 911 1,560 644 772 739 1,384 856 855 1,342 2,337 1,213 1,050 910 2,593 1,718 395 2,373 1,501 8,252 4,201 3,552 3,106 2,727 4,435 3,312 3,557 4,223 2,315 3,027 3,602 4,947 4,500 3,223 4,583 3,236 2,687 4,145 6,142 3,974 5,175 2,138 5,892 4,281 12,077 11,606 4,880 5,862 6,766 5,719 3,882 3,858 9,266 4,315 3,838 4,692 4,901 3,129 5,894 3,656 5,029 6,466 3,226 9,869 3,775 111 567 169 175 100 2,488 257 209 234 289 339 271 479 138 190 178 199 276 219 298 216 530 2,895 108 696 329 203 295 75 77 92 84 93 80 111 123 110 256 219 174 224 348 710 185 147 187 8,363 4,768 3,721 3,281 2,827 6,923 3,569 3,766 4,457 2,604 3,366 3,873 5,426 4,656 3,413 4,761 3,435 2,963 4,364 6,440 4,190 5,705 5,033 6,000 4,977 12,406 11,809 5,175 5,937 6,843 5,811 3,966 3,951 9,346 4,426 3,961 4,802 5,157 3,348 6,068 3,880 5,377 7,096 3,411 10,016 3,962 9,406 5,593 4,414 4,524 4,386 7,614 4,581 4,341 5,162 3,772 5,518 4,275 7,079 6,112 3,590 6,199 3,707 3,499 5,842 7,755 7,379 6,754 7,087 8,848 5,174 15,366 13,741 7,115 6,848 8,403 6,455 4,738 4,690 10,730 5,282 4,816 6,144 7,494 4,561 7,118 4,790 7,970 8,894 3,806 12,389 5,463 1,366 810 656 603 527 1,009 617 705 784 467 638 660 904 813 595 814 632 525 733 1,055 702 971 508 1,021 754 1,743 1,679 763 871 982 800 556 567 1,293 610 553 676 731 481 818 535 693 882 432 1,267 530 1,043 825 693 1,243 1,559 691 1,012 575 705 1,168 2,152 402 1,653 1,456 177 1,438 272 536 1,478 1,315 3,189 1,049 2,054 2,848 197 2,960 1,932 1,940 911 1,560 644 772 739 1,384 856 855 1,342 2,337 1,213 1,050 910 2,593 1,798 395 2,373 1,501 85 Life on which depreciation in latest income statement is computed Date Acquired 8/17/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/22/2011 9/29/2011 11/15/2011 5/16/2012 6/6/2012 6/6/2012 6/20/2012 7/18/2012 9/18/2012 9/18/2012 9/18/2012 9/18/2012 9/18/2012 9/18/2012 9/18/2012 9/19/2012 9/27/2012 12/10/2012 12/18/2012 12/20/2012 12/20/2012 12/20/2012 12/20/2012 12/21/2012 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 2006 1993 2001 2000 1998 2000/15 1998 1998 2000 1994 1993 1999 1984 2006 1999 2000 2001 1997 1999 1997 2000 1999 1982/17 2004 1996 2005 1996/04 1998 2007 2009 2008 2007 2007 2009 2008 2007 2009 2002 1999/06 2007 2008 2005 2005 2008 2011 1997 New Description Ft. Myers-Cleveland Clearwater-Drew St. Clearwater-N. Myrtle Austin-Cedar Park Austin-Round Rock Austin-Round Rock Chicago-Aurora San Antonio - Marbach Long Island - Lindenhurst Boston - Somerville Long Island - Deer Park Long Island - Amityville Colorado Springs - Scarlet Toms River - Route 37 W Lake Worth - S Military Austin-Round Rock Hartford-Bristol Piscataway - New Brunswick Fort Lauderdale - 3rd Ave West Palm - Mercer Austin - Manchaca San Antonio Portland Portland-Topsham Chicago - St. Charles Chicago - Ashland San Antonio - Walzem St. Louis - Woodson St. Louis - Mexico St. Louis - Vogel St. Louis - Manchester St. Louis - North Highway St. Louis - Dunn Trenton-Hamilton Twnship NY Metro-Fishkill Atlanta-Peachtree City Wayne - Willowbrook Asbury Park - 1st Ave Farmingdale - Tinton Falls Lakewood - Route 70 Matawan - Highway 34 St. Petersburg - Gandy Chesapeake - Campostella San Antonio-Castle Hills Chattanooga - Broad St New Orleans-Kenner ST FL FL FL TX TX TX IL TX NY MA NY NY CO NJ FL TX CT NJ FL FL TX TX ME ME IL IL TX MO MO MO MO MO MO NJ NY GA NJ NJ NJ NJ NJ FL VA TX TN LA Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 515 1,234 1,555 1,246 774 632 269 337 2,122 1,553 1,096 2,224 629 1,843 868 1,547 1,174 1,639 7,629 15,680 3,999 2,235 2,146 493 1,837 598 2,000 2,444 638 2,010 508 1,989 1,538 5,161 1,741 2,263 - 819 1,097 626 1,512 2,958 2,349 2,658 759 5,771 2,280 4,018 5,978 5,740 3,327 1,985 3,126 2,005 8,735 7,186 8,276 10,102 5,201 6,544 5,306 5,226 8,816 10,946 11,918 17,520 4,297 6,269 6,418 5,234 6,301 4,789 3,749 5,966 3,518 3,544 2,042 4,045 4,510 7,063 6,006 4,931 2,292 4,734 5,618 4,549 9,707 6,904 3,875 8,190 5,608 10,375 154 230 172 227 178 127 337 229 546 186 109 107 221 140 700 183 124 113 374 825 722 358 254 108 556 231 512 1,593 1,800 306 393 2,429 2,803 1,082 388 501 269 655 361 243 806 256 295 444 256 472 515 1,234 1,555 1,246 774 632 269 337 2,122 1,506 1,096 2,224 629 1,843 868 1,547 1,174 1,639 7,629 15,680 3,999 2,235 2,146 493 1,837 598 2,000 2,444 638 2,010 508 1,989 1,538 5,161 1,741 2,263 - 819 1,097 626 1,512 2,958 2,349 4,544 759 5,771 86 2,434 4,248 6,150 5,967 3,505 2,112 3,463 2,234 9,281 7,419 8,385 10,209 5,422 6,684 6,006 5,409 8,940 11,059 12,292 18,345 5,019 6,627 6,672 5,342 6,857 5,020 4,261 7,559 5,318 3,850 2,435 6,474 7,313 8,145 6,394 5,432 2,561 5,389 5,979 4,792 10,513 7,160 4,170 6,748 5,864 10,847 2,949 5,482 7,705 7,213 4,279 2,744 3,732 2,571 11,403 8,925 9,481 12,433 6,051 8,527 6,874 6,956 10,114 12,698 19,921 34,025 9,018 8,862 8,818 5,835 8,694 5,618 6,261 10,003 5,956 5,860 2,943 8,463 8,851 13,306 8,135 7,695 2,561 6,208 7,076 5,418 12,025 10,118 6,519 11,292 6,623 16,618 330 553 806 777 466 310 431 305 1,102 885 953 1,145 582 707 624 610 901 1,112 1,236 1,864 553 691 670 530 691 494 444 711 451 373 246 484 508 743 599 547 576 490 551 445 955 617 363 608 493 922 Life on which depreciation in latest income statement is computed Date Acquired 12/21/2012 12/21/2012 12/21/2012 12/27/2012 12/27/2012 12/27/2012 12/31/2012 2/11/2013 3/22/2013 3/22/2013 8/29/2013 8/29/2013 9/30/2013 11/26/2013 12/4/2013 12/27/2013 12/30/2013 12/30/2013 1/9/2014 1/9/2014 1/17/2014 2/10/2014 2/11/2014 2/11/2014 3/31/2014 5/5/2014 5/13/2014 5/22/2014 5/22/2014 5/22/2014 5/22/2014 5/22/2014 5/22/2014 6/5/2014 6/11/2014 6/12/2014 6/12/2014 6/18/2014 6/18/2014 6/18/2014 7/10/2014 8/28/2014 9/5/2014 9/10/2014 9/18/2014 10/10/2014 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 1998 2000 2000 2006 2004 2007 2010 2005 2002 2008 2009 2009 2006 2007 2000 2008 2004 2006 1998 2000 1998/02 2012 2000 2006 2004/13 2014 1997 1998 1998/16 2000 1996 1997 2000 1980 2005 2007 2000 2003 2004 2003 2005 2007 2000 2002 2014 2008 New Description Orlando-Celebration Austin-Cedar Park Chicago - Pulaski Houston - Gessner New England - Danbury New England - Milford Long Island - Hicksville Long Island - Farmingdale Chicago - Alsip Chicago - N. Pulaski Fort Myers - Tamiami Trail Dallas - Allen Jacksonville - Beach Blvd. Space Coast - Vero Beach Port St. Lucie - Federal Hwy. West Palm - N. Military Ft. Myers - Bonita Springs Phoenix - Tatum Blvd. Boston - Lynn Syracuse - Ainsely Dr. Syracuse - Cicero Syracuse - Camillus Syracuse - Manlius Charlotte - Brookshire Blvd. Charleston III Myrtle Beach II Columbia VI Hilton Head - Bluffton Philadelphia - Eagleville Orlando - University Orlando - N. Powers Sarasota - North Port Los Angeles - E. Commercial Los Angeles - E. Slauson Los Angeles - Westminster Los Angeles - Calabasas Portsmouth - Kingston Portsmouth - Danville Portsmouth - Hampton Falls Portsmouth - Lee Portsmouth - Heritage Boston - Salisbury Dallas - Frisco Dallas - McKinney Dallas - McKinney Phoenix - 48th ST FL TX IL TX CT CT NY NY IL IL FL TX FL FL FL FL FL AZ MA NY NY NY NY NC SC SC SC SC PA FL FL FL CA CA CA CA NH NH NH NH NH MA TX TX TX AZ Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 6,091 4,196 889 1,599 9,747 9,642 5,153 4,931 2,579 1,719 1,793 3,864 2,118 1,169 4,957 3,372 2,687 852 2,110 2,711 668 473 834 718 7,604 2,511 3,640 3,084 1,926 882 2,567 4,884 6,512 3,998 4,636 13,274 1,713 1,615 2,445 3,078 4,430 4,880 6,191 8,097 5,508 988 4,641 8,374 4,700 5,813 18,374 23,352 27,401 20,415 4,066 6,971 4,382 4,777 6,501 4,409 6,045 4,206 5,012 7,052 8,182 3,795 1,957 5,368 1,705 2,977 9,086 6,147 3,452 3,192 4,498 5,756 2,838 10,014 12,352 13,547 14,826 10,419 2,709 3,333 6,295 2,861 26,040 6,342 5,088 7,047 6,462 8,224 423 626 1,051 3,490 201 147 121 278 3,331 396 180 290 65 319 229 143 208 184 119 125 91 95 1,038 890 287 298 127 158 1,250 290 83 (344 ) 409 254 175 455 47 70 107 76 183 163 157 100 76 69 6,091 4,196 889 1,599 9,747 9,642 5,153 4,931 2,579 1,719 1,793 3,864 2,118 1,169 4,957 3,372 2,687 852 2,110 2,711 668 473 834 718 7,604 2,511 3,640 3,084 1,926 882 2,567 4,278 6,512 3,998 4,636 13,274 1,713 1,615 2,445 3,078 4,430 4,880 6,191 8,097 5,508 988 87 5,064 9,000 5,751 9,303 18,575 23,499 27,522 20,693 7,397 7,367 4,562 5,067 6,566 4,728 6,274 4,349 5,220 7,236 8,301 3,920 2,048 5,463 2,743 3,867 9,373 6,445 3,579 3,350 5,748 6,046 2,921 10,276 12,761 13,801 15,001 10,874 2,756 3,403 6,402 2,937 26,223 6,505 5,245 7,147 6,538 8,293 11,155 13,196 6,640 10,902 28,322 33,141 32,675 25,624 9,976 9,086 6,355 8,931 8,684 5,897 11,231 7,721 7,907 8,088 10,411 6,631 2,716 5,936 3,577 4,585 16,977 8,956 7,219 6,434 7,674 6,928 5,488 14,554 19,273 17,799 19,637 24,148 4,469 5,018 8,847 6,015 30,653 11,385 11,436 15,244 12,046 9,281 430 750 439 532 1,367 1,737 2,032 1,518 336 540 328 374 456 328 437 300 370 509 548 250 135 333 120 232 576 410 228 213 258 308 157 386 680 681 733 572 141 171 309 148 1,272 320 271 367 328 424 Life on which depreciation in latest income statement is computed Date Acquired 10/21/2014 10/28/2014 11/14/2014 12/18/2014 2/2/2015 2/2/2015 2/2/2015 2/2/2015 2/5/2015 3/9/2015 4/1/2015 4/16/2015 4/21/2015 5/1/2015 5/1/2015 5/1/2015 5/1/2015 6/16/2015 6/16/2015 8/25/2015 8/25/2015 8/25/2015 8/25/2015 9/1/2015 9/1/2015 9/1/2015 9/1/2015 9/1/2015 12/30/2015 1/6/2016 1/6/2016 1/6/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 1/21/2016 2/1/2016 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 2006 2003 2014 2006/17 1999 1999 2002 2000 1986/17 2015 2004 2002 2013 1997 2001 1985 2000 2015 2015 2000 2002 2005/11 2000/17 2000 2005 1999 2004/08 1998 2010 2001 1997 2001/06 2004 2012 2006 2004/14 2003 2003 2005 2000 1985/99 2003 2003 2003 2002 2015 New Description Miami Philadelphia - Glenolden Denver - Thornton Los Angeles - Costa Mesa Los Angeles - Irving Los Angeles - Durante Los Angeles - Wildomar Los Angeles - Torrance New Haven - Wallingford New Haven - Waterbury New York - Mahopac New York - Mount Vernon Pt. St. Lucie Dallas - Lewisville Buffalo - Cayuga Buffalo - Lackawanna Austin - S. Congress Austin - W Braker Austin - Highway 290 Austin - Killeen Austin - Round Rock Austin - Georgetown Austin - Pflugerville Chicago - Algonquin Chicago - Carpentersville Chicago - W. Addison Chicago - State St. Chicago -W. Grand Chicago - Libertyville Chicago - Aurora Chicago - Morton Grove Chicago - Bridgeview Chicago - Addison Chicago - W Diversey Chicago - Elmhurst Chicago - Elgin Chicago - N. Paulina St., Chicago - Matteson Chicago - S. Heights Chicago - W. Grand Chicago - W 30th St Chicago - Mokena Chicago - Barrington Chicago - Naperville Chicago - Forest Park Chicago - La Grange ST FL PA CO CA CA CA CA CA CT CT NY NY FL TX NY NY TX TX TX TX TX TX TX IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL IL Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 4,119 3,939 2,294 1,768 4,528 17,976 - 4,671 6,728 17,445 3,618 2,524 2,373 3,337 4,140 2,333 499 215 1,030 1,210 930 3,070 830 1,530 750 1,430 350 2,770 1,190 1,720 3,670 1,090 1,610 3,770 1,340 1,670 670 1,130 5,600 1,590 1,050 1,780 600 3,230 1,890 2,620 1,100 960 8,980 3,879 7,915 25,145 6,318 13,908 10,340 18,839 5,286 5,618 5,089 13,112 7,176 8,302 5,198 2,323 8,163 14,833 12,269 20,782 6,129 10,647 9,238 14,958 4,710 25,112 19,159 10,628 26,660 20,033 14,914 19,990 11,881 10,811 18,729 12,584 12,721 12,053 4,960 8,928 15,574 18,623 9,395 11,933 10,087 13,019 9,162 4,191 8,038 25,709 7,002 14,022 10,661 19,283 5,544 5,772 5,428 13,240 7,460 8,521 4,402 2,591 8,246 14,935 12,342 20,963 6,200 10,739 9,348 15,004 4,736 25,245 19,322 10,752 26,914 20,130 15,580 20,142 12,267 10,865 18,796 12,736 12,795 12,129 5,049 9,060 15,723 18,838 10,076 12,034 10,794 13,072 11,456 5,959 12,566 43,685 7,002 18,693 17,389 36,728 9,162 8,296 7,801 16,577 11,600 10,854 4,901 2,806 9,276 16,145 13,272 24,033 7,030 12,269 10,098 16,434 5,086 28,015 20,512 12,472 30,584 21,220 17,190 23,912 13,607 12,535 19,466 13,866 18,395 13,719 6,099 10,840 16,323 22,068 11,966 14,654 11,894 14,032 467 199 388 1,161 629 631 502 885 251 261 227 568 370 378 183 109 320 571 478 862 244 437 362 580 183 965 729 408 1,020 775 581 792 466 412 712 492 491 488 206 348 596 737 383 484 407 505 182 312 123 564 684 114 321 444 258 154 339 128 284 219 (796 ) 268 83 102 73 181 71 92 110 46 26 133 163 124 254 97 666 152 386 54 67 152 74 76 89 132 149 215 681 101 707 53 2,294 1,768 4,528 17,976 - 4,671 6,728 17,445 3,618 2,524 2,373 3,337 4,140 2,333 499 215 1,030 1,210 930 3,070 830 1,530 750 1,430 350 2,770 1,190 1,720 3,670 1,090 1,610 3,770 1,340 1,670 670 1,130 5,600 1,590 1,050 1,780 600 3,230 1,890 2,620 1,100 960 88 Life on which depreciation in latest income statement is computed Date Acquired 2/12/2016 2/17/2016 2/29/2016 3/16/2016 3/16/2016 3/16/2016 3/17/2016 4/11/2016 4/14/2016 4/14/2016 4/26/2016 4/26/2016 5/2/2016 5/5/2016 5/19/2016 5/19/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 2016 1970 2011 2005 1985 2015 2005 2003 2000 2001 1991/94 2013 2002 2007 2006 2006 1984 2003 1999 2005 1986 2001/15 2005 2006 2004 2007 2009 2007 2009 2009 2009 2008 2008 2010 2008 2003 2006 2007 2006 2007 2008 2008 2015 2015 2015 2015 New Description Chicago - Glenview Dallas - Richardson Dallas - Arlington Dallas - Plano Dallas - Mesquite Dallas - S Good Latimer Boulder - Arapahoe Boulder - Odell Boulder - Arapahoe Boulder - Broadway Houston - Westpark Houston - C. Jester Houston - Bay Pointe Houston - FM 529 Houston - Jones Jackson - Flowood Las Vegas - Spencer Las Vegas - Maule Las Vegas - Wigwam Las Vegas - Stufflebeam Las Vegas - Ft. Apache Las Vegas - North Las Vegas - Warm Springs Las Vegas - Conestoga Las Vegas - Warm Springs Las Vegas - Nellis Las Vegas - Cheyenne Las Vegas - Dean Martin Las Vegas - Flamingo Las Vegas - North Las Vegas - Henderson Las Vegas - North Las Vegas - Farm Los Angeles - Torrance Los Angeles - Irvine Los Angeles - Palm Desert Milwaukee - Green Bay Orlando - Winter Garden Orlando - Longwood Orlando - Overland Sacramento - Calvine Sacramento - Folsom Sacremento - Pell Sacremento - Goldenland Sacremento - Woodland Sacremento - El Camino ST IL TX TX TX TX TX CO CO CO CO TX TX TX TX TX MS NV NV NV NV NV NV NV NV NV NV NV NV NV NV NV NV NV CA CA CA WI FL FL FL CA CA CA CA CA CA Life Storage, Inc. Schedule III Initial Cost to Company Encum brance Land Building, Equipment and Impvmts. Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. Gross Amount at Which Carried at Close of Period Building, Equipment Land and Impvmts. Total Accum. Deprec. 3,210 630 790 1,370 620 4,030 3,690 2,650 11,540 2,670 2,760 8,080 1,960 680 1,260 680 1,020 2,510 590 350 1,470 390 1,340 1,420 1,080 790 1,470 3,050 980 330 570 520 1,510 5,250 2,520 2,660 750 640 1,230 1,080 2,280 1,200 540 2,010 860 1,450 8,519 10,282 12,785 10,166 8,771 8,029 12,074 15,304 15,571 5,623 8,288 10,114 9,585 3,951 2,382 20,066 25,152 11,822 16,838 6,977 11,047 7,042 5,141 10,295 16,436 5,233 17,366 23,333 13,451 15,651 12,676 10,105 9,388 32,363 18,402 16,589 14,720 6,688 9,586 3,713 17,069 22,150 8,874 8,944 10,569 12,239 11,791 10,969 13,656 11,606 9,432 12,174 15,836 17,993 27,282 8,357 11,206 18,351 11,645 4,757 3,735 20,861 26,271 13,468 17,524 7,556 12,679 7,553 6,584 11,847 17,628 6,154 18,923 26,474 14,575 16,056 13,374 10,706 10,977 37,810 21,174 19,408 15,499 7,386 10,913 4,909 19,424 23,394 9,465 11,014 11,485 13,767 344 410 496 394 340 319 474 603 616 229 342 404 380 163 109 786 964 457 642 280 437 278 260 417 631 225 698 985 519 602 505 399 365 1,243 721 654 569 265 371 153 661 839 347 367 407 475 8,581 10,339 12,866 10,236 8,812 8,144 12,146 15,343 15,742 5,687 8,446 10,271 9,685 4,077 2,475 20,181 25,251 11,958 16,934 7,206 11,209 7,163 5,244 10,427 16,548 5,364 17,453 23,424 13,595 15,726 12,804 10,186 9,467 32,560 18,654 16,748 14,749 6,746 9,683 3,829 17,144 22,194 8,925 9,004 10,625 12,317 62 57 81 70 41 115 72 39 171 64 158 157 100 126 93 115 99 (864 ) 96 229 162 121 103 132 112 131 87 91 144 75 128 81 79 197 252 159 29 58 97 116 75 44 51 60 56 78 3,210 630 790 1,370 620 4,030 3,690 2,650 11,540 2,670 2,760 8,080 1,960 680 1,260 680 1,020 1,510 590 350 1,470 390 1,340 1,420 1,080 790 1,470 3,050 980 330 570 520 1,510 5,250 2,520 2,660 750 640 1,230 1,080 2,280 1,200 540 2,010 860 1,450 89 Life on which depreciation in latest income statement is computed Date Acquired 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date of Const. 2014/15 2001 2007 1998 2016 2016 1992 1998 1984 1992 1996 2008 1972 2005 1994 2000 2000 2005 2008 1996 2004 2005 2004 2007 2007 1995 2004 2005 2007 2007 2005 2002 2008 2004 2002 2002 2005 2006 2000 2000 2004 2005 2004 2005 2003 2002 Life Storage, Inc. Schedule III Initial Cost to Company New Description Sacremento - Bayou Sacremento - Calvine Sacremento - El Dorado Hills Sacramento - Fruitridge San Antonio - US 281 Austin - San Marcos Charleston Denver - Westminster Chicago - Arlington Hgts. Orlando - Curry Ford Chicago - Lombard Austin - Mary St. Charlotte - Morehead St.. Construction in Progress Corporate Office ST CA CA CA CA TX TX SC CO IL FL IL TX NC NY Encum brance Land 1,640 2,120 1,610 1,480 1,380 990 920 5,062 370 3,268 771 0 1,110 0 0 773,702 2,916 $ 12,674 $ Building, Equipment and Impvmts. 21,603 24,650 24,829 15,695 8,457 7,323 7,700 3,679 8,513 6,378 9,318 0 11,439 0 68 2,974,075 $ Cost Capitalized Subsequent to Acquisition Building, Equipment and Impvmts. 88 59 48 176 139 56 57 307 104 114 0 6 1 14,383 38,947 573,633 $ Gross Amount at Which Carried at Close of Period Building, Equipment and Impvmts. 21,691 24,709 24,877 15,871 8,596 7,379 7,757 3,986 8,617 6,492 9,318 6 11,440 14,383 37,382 3,534,782 $ Land 1,640 2,120 1,610 1,480 1,380 990 920 5,062 370 3,268 771 0 1,110 0 1,633 786,628 $ Total 23,331 26,829 26,487 17,351 9,976 8,369 8,677 9,048 8,987 9,760 10,089 6 12,550 14,383 39,015 4,321,410 $ Accum. Deprec. 833 957 958 623 329 292 296 141 242 180 199 0 24 0 20,892 624,314 $ Date of Const. 2005 2003 2007 2007 2003 2016 2016 2000 2016 2016 2017 2017 2017 2017 2000 Life on which depreciation in latest income statement is computed 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years 5 to 40 years Date Acquired 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/15/2016 7/29/2016 8/4/2016 11/17/2016 12/20/2016 2/23/2017 4/3/2017 12/14/2017 5/1/2000 5 to 40 years 90 (dollars in thousands) Cost: Balance at beginning of period Additions during period: Acquisitions through foreclosure Other acquisitions Improvements, etc. Deductions during period: Cost of assets disposed Impairment write-down Casualty loss Balance at close of period Accumulated Depreciation: Balance at beginning of period Additions during period: Depreciation expense Deductions during period: Accumulated depreciation of assets disposed Accumulated depreciation on impaired asset Accumulated depreciation on casualty loss Balance at close of period Life Storage, Inc. Schedule III December 31, 2017 December 31, 2016 December 31, 2015 $ 4,243,308 $ 2,491,702 $ 2,177,983 — 22,638 84,191 106,829 (28,727) — — (28,727) 4,321,410 $ — 1,714,029 73,385 1,787,414 (35,808) — — (35,808) 4,243,308 — 278,572 42,046 320,618 (6,899) — — (6,899) 2,491,702 $ 535,704 $ 465,195 $ 411,701 102,674 102,674 (14,064) — — (14,064) 624,314 $ 87,219 87,219 (16,710) — — (16,710) 535,704 $ 55,101 55,101 (1,607) — — (1,607) 465,195 $ $ $ The aggregate cost of real estate for U.S. federal income tax purposes is $4,388,101 at December 31, 2017. 91 THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY OFFICERS AND DIRECTORS CORPORATE INFORMATION Robert J. Attea Director Executive Chairman of the Board Kenneth F. Myszka Director President Charles E. Lannon Director President - Strategic Advisory, Inc Stephen R. Rusmisel Director Partner (Retired) - Pillsbury, Winthrop, Shaw, Pittman LLC. Arthur L. Havener, Jr. Director Principal - Stampede Capital LLC Mark G. Barberio Director Principal - Markapital, LLC Carol Hansell Director Founder - Hansell LLP David Rogers Chief Executive Officer Andrew J. Gregoire Chief Financial Officer and Corporate Secretary Edward F. Killeen Chief Operating Officer Joseph V. Saffire Chief Investment Officer Investor Relations Diane Piegza (716) 650-6115 • invest.lifestorage.com Independent Auditors Ernst & Young LLP 1500 Key Tower • Buffalo, New York 14202 Corporate Counsel Phillips Lytle LLP One Canalside 125 Main Street • Buffalo, New York 14203 Registrar and Transfer Agent American Stock Transfer & Trust Company LLC 6201 15th Avenue • Brooklyn, New York 11219 (800) 937-5449 Annual Meeting May 31, 2018 • Life Storage, Inc. • Home Office 6467 Main Street Williamsville • New York 14221 9:00 a.m. (e.d.t.) Exchange New York Stock Exchange Listing Symbol: LSI Average Daily Volume in 2017: 480,133 The Chief Executive Officer has previously filed with the New York Stock Exchange (NYSE) the annual CEO certification for 2017 as required by section 303A.12(a) of the NYSE listed company manual. As of December 31, 2017, there were approximately 590 shareholders of record of the common stock. 

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