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National Storage Affiliates TrustSUSTAINABLE GROWTH 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SHareHolDerS letter 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K Hamid r. Moghadam Chairman and Chief Executive Officer SHareHolDerS letter 2013 annual report Dear FelloW SHareHolDerS, Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K In 2013, we completed a plan that advanced our aspirations to be the leading global company in the real estate industry, measured by customer service, employee engagement and financial strength, and that paved the way for meaningful growth—growth supported by the strongest market conditions we have witnessed in a decade. early CoMpletion oF a poWerFul plan At completion of our merger in 2011, we established five strategic priorities to strengthen and simplify the new company. Our objectives were designed to make it easier for customers to do business with us and for our team to grow the company, both in profitability and in scale. We gave ourselves 10 quarters to reach our goals. We reached them in eight. AlIgnIng thE POrtFOlIO Our plan was to refine the combined portfolio, aligning it with our investment strategy of increased allocation to global markets. We targeted “regional” properties for disposition and worked to exit “other” markets entirely in an orderly, measured approach. At the time of the merger, 79% of the portfolio was allocated to global markets. By year-end 2013, we increased that allocation to 85%, through a series of transactions focused on profitable sales of assets in non-strategic locations with proceeds redeployed into developments and acquisitions in target markets. to provide a sense of scale and profitability, in 2013, we: • sold or contributed $8.4 billion in assets at an average capitalization rate of 6.4%; • started $1.8 billion of new developments at an estimated profit margin of more than 19%; and • invested $2.4 billion in new properties and equity in six of our ventures. together, our 2013 transactions provided a more focused portfolio and grew our assets under management by 7.8%. SHareHolDerS letter 2013 annual report ImPrOvIng AssEt utIlIzAtIOn Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K to maximize the productivity of our assets, we needed to increase the occupancy of our portfolio, and put our land bank to work. Our global operations teams delivered outstanding results, leasing a record 152 million square feet of space in 2013. their efforts drove global occupancy to 95.1% by year-end, with positive rent growth across all continents. During the year, we monetized $450 million of land through development starts and third-party sales. We stabilized $1.4 billion of development projects with an estimated value creation margin of more than 30%. While development margins at this level are not sustainable, they do highlight the value of our land bank. today we estimate the market value of our land is at least 20% greater than its book value. strEAmlInIng InvEstmEnt mAnAgEmEnt At the time of the merger, our combined private capital business was well regarded, but frankly, too complex. Our goal was to reduce the number of investment vehicles, each with a distinct focus, and to increase profitability. specifically, we worked to create long-duration ventures, open-end funds and geographically focused public entities. these types of vehicles now represent approximately 90% of our investment management revenues, versus 68% at the merger. Our approach enables us to tap capital in private markets as well as in public entities. 2013 examples include: • our Japan-focused J-rEIt, which completed its successful IPO and two secondary offerings; • the launch of our $1 billion China Fund II with hIP China logistics Investments; and • the signed $1 billion joint venture with norges Bank Investment management for investment in Prologis assets in u.s. markets. these successful ventures underscore the strength of our platform and partnerships. today we have $17.9 billion of third-party assets under management—a number we expect to grow from private and public sources across our global platform. SHareHolDerS letter 2013 annual report strEngthEnIng Our FInAnCIAl POsItIOn Shareholders Letter Chairman’s Video Leadership the realignment of our assets played a pivotal role in our ability to build a strong balance sheet. We reduced our look-through leverage, including preferreds, from 50% at the merger to approximately 37% at year end. looking forward, we expect this metric to further decline. During 2013, our capital markets activity focused on refinancing our unsecured bonds. Our activity lowered our average interest rate by more than 100 basis points to 4.5%, and extended our weighted average maturity to more than six years. We reduced our exposure to foreign currency risk by increasing our u.s. net equity from 45% at the time of the merger to 77% at year-end. this strong financial position enhances our ability to fund Sustainable Growth our future growth. News Financial Highlights DoWnloaD Form 10-K BuIlDIng OrgAnIzAtIOnAl ExCEllEnCE Our fifth objective was to build a highly effective and efficient organization, largely through systems implementations and the elimination of redundancies. soon after the merger, we reduced our annual operating expenses by $115 million. general and administrative (g&A) expenses as a percentage of assets under management have decreased from 113 basis points at the plan’s inception to 69 basis points at year-end 2013. a neW CoMpany WortH a FreSH look Our team has built a strong foundation with the successful completion of our post-merger plan. We have an operating platform of unequaled scale and quality and an inspiring plan for future growth based on the following key elements: First, we expect significant rent growth over the next four years. We have entered the “sweet spot” of the market cycle. the synchronized improvement we are seeing throughout our portfolio provides real visibility into market conditions. Demand is outpacing supply and is driving vacancy rates below historical lows. market rents have substantial room to increase, as they remain significantly below replacement-cost-justified rents. 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SHareHolDerS letter For example, in 2013, u.s. markets had net absorption of 233 million square feet of industrial space—the highest level since 2005. Despite this high level of demand, supply remains quite low. new deliveries totaled just 67 million square feet in 2013—significantly short of the 100 million square feet required each year just to replace obsolete stock. the gap between supply and demand for space is the widest in history. this imbalance has pushed u.s. market vacancy below prior-cycle lows to 7.2%—well below the long-run historical market norm of 8%. market conditions are also very strong in latin America. mexico continues to see growth both from domestic consumption and export activity. Brazil’s largest markets continue to demonstrate strong demand for modern logistics space, given the lack of supply. Europe is building on an early-stage recovery with improved year-over-year occupancy and higher effective rents. It is in Asia, however, where we see some of the strongest market conditions. In China, new space requirements from domestic retailers and e-commerce customers pushed portfolio occupancy to 98%. Japan continues to see tightening of vacancy rates and upward pressure on rents, with significant constraints on new development. second, we want to use our land bank, development expertise and global customer relationships to create substantial value through development. the key to a successful development program is having strategic land control. In this regard, we are in an excellent position. We have the potential to build approximately 200 million square feet of additional space, or about $10 billion in new development, at high incremental returns on capital. We will be prudent with our development, with starts averaging in the $2.5 billion range annually. We expect the value creation potential on this level of starts will average between $300 million and $400 million a year, across the cycle. third, our scale in existing markets allows us to grow with little incremental investment in overhead. Our platform is scaled for profitability, and our assets can grow by at least $10 billion with very small additions to g&A. Our acquisition pipeline is beginning to grow through proprietary opportunities, such as investing in our funds, and as more third-party transactions come to market. We see several years of favorable market conditions, across our regions, pushing occupancies to levels last seen in the ’90s, supporting our thesis of an extended period of rental and earnings growth. SHareHolDerS letter 2013 annual report aCknoWleDgMentS Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K On a closing note, I want to acknowledge and thank two remarkable executives who completed their planned transitions and took well-deserved retirements in 2013. guy Jaquier joined us at AmB 13 years ago, playing a critical role in establishing and expanding our business outside the united states. he developed and mentored our global acquisition teams and helped to build a logistics real estate portfolio of unparalleled quality. In guy’s most recent role as chief executive officer, Private Capital, he re-energized our investment management business, enhancing its appeal to investors and its benefit to Prologis shareholders. nancy hemmenway joined AmB 13 years ago as a key member of our senior management team. she retired from Prologis as chief human resources officer, where she established herself as one of our most trusted advisors. nancy’s contributions and insights have been invaluable, whether guiding the human resources function or navigating our complex merger. she has put a lasting mark on our corporate culture. As we look to the future, Prologis has a very straightforward plan—a plan for growth that capitalizes rental recovery, value creation and scale. Our planned growth is supported by a strong balance sheet, ample liquidity and the best logistics real estate fundamentals in more than a decade. We are energized by our prospects and are grateful for your support and confidence. thank you, Hamid r. Moghadam Chairman and Chief executive officer march 14, 2014 CHairMan’S ViDeo 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K hamid r. moghadam, chairman and CEO, talks about the major accomplishments of 2013 and what is driving the company’s plan for sustainable growth. Senior leaDerSHip (left to right) Hamid r. Moghadam thomas S. olinger edward S. nekritz eugene F. reilly Chairman and Chief Financial Officer Chief legal Officer & Chief Executive Officer, Chief Executive Officer general Counsel the Americas Michael S. Curless Chief Investment Officer Diana l. Scott gary e. anderson Chief human resources Officer Chief Executive Officer, Europe & Asia 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SuStainaBle groWtH RISING RENTS 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SuStainaBle groWtH RISING RENTS We expect significant rent growth over the next four years. We have entered the “sweet spot” of the market cycle. the synchronized improvement we are seeing throughout our portfolio provides real visibility into market conditions. Demand is outpacing supply and is driving vacancy rates below historical lows. market rents have substantial room to increase, as they remain significantly below replacement-cost-justified rents. 95.1% occupied 152m square feet leased in 2013 FFO growth all organic SuStainaBle groWtH CREATING VALUE THROUGH DEVELOPMENT 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SuStainaBle groWtH CREATING VALUE THROUGH DEVELOPMENT $1.8B of development starts in 2013 We want to use our land bank, development expertise and global customer relationships to create substantial value through development. the key to a successful development program is having strategic land control. In this regard, we are in an excellent position. We have the potential to build approximately 200 million square feet of additional space, or about $10 billion in new development, at high incremental returns on capital. We will be prudent with our development, with starts averaging in the $2.5 billion range annually. We expect the value creation potential on this level of starts will average between $300 million and $400 million a year, across the cycle. $450m of land monetized in 2013 30% margin on development stabilizations SuStainaBle groWtH EFFICIENCIES FROM EXPANDING SCALE 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K SuStainaBle groWtH EFFICIENCIES FROM EXPANDING SCALE 21 operating countries Our scale in existing markets allows us to grow with little incremental investment in overhead. Our platform is scaled for profitability, and our assets can grow by at least $10 billion with 4,500 very small additions to g&A. Our acquisition pipeline is beginning to grow through proprietary opportunities, such as investing in our funds, and as more third-party transactions come to market. customers across the globe $4.1B of third-party equity raised in 2013 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 1983 marked the earliest foundations of Prologis 30 years ago. the company has become a global leader in real estate built for sustainable growth. Watch the above video and learn more about significant moments in our history at the 30th anniversary website. neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS ESTABLISHES REAL ESTATE INVESTMENT TRUST IN JAPAN read More 9.6m $2B square feet (890,000 sQm) (JPY 173B) in appraised 3.4 Years average weighted age of of total space value of assets properties neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS SIGNS ONE MILLION SQUARE FOOT BUILD-TO-SUIT WITH AMAZON.COM read More 90 Acre development project 1m+ 8th square feet fulfillment global market served center for Amazon neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS AND NORGES BANK INVESTMENT MAN- AGEMENT CLOSE €2.4 BILLION JOINT VENTURE IN EUROPE read More 195 Class-A logistics facilities 49m square feet (4.5 msm) stabilized portfolio 50/50 partnership neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS CONCLUDES PROLOGIS NORTH AMERICAN INDUSTRIAL FUND III read More 82 8.1m 95.4% property funds across the square feet of the portfolio occupancy at Prologis united states acquired by Prologis acquired properties neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS TO DEVELOP 700,000 SQUARE FEET IN THE UNITED KINGDOM read More 165,000 535,000 square foot build-to-suit square feet of speculative agreement with hi logistics development 3 properities designed to achieve BrEEAm accreditation neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS SIGNS 576,000 SQUARE FOOT BUILD-TO- SUIT IN BRAZIL read More Bts agreement with Walmart.com Brazil 576,000 square foot (535,000 sQm) distribution center 4.9m square feet (455,220 sQm) total capacity at Cajamar I and II neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS RAISES €450 MILLION ($610 MILLION) FOR PROLOGIS EUROPEAN PROPERTIES FUND II read More 220+ 5.2m properties owned by PEPF II square meters (55.5 msF) as of June 30, 2013 of total space 12 European countries with properties owned by PEPF II neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS ANNOUNCES NIPPON PROLOGIS REIT’S ISSUANCE OF NEW INVESTMENT UNITS read More JPY 32B 2.6m 4 ($324 million) in investment square feet (242,000 sQm) Class-A properties to units issued of total space be acquired neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS LAUNCHES CHINA JOINT VENTURE WITH CAPACITY OVER USD $1 BILLION read More $588m of committed equity $1B+ potential investment capacity neWS 30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K PROLOGIS FORMS $1 BILLION JOINT VENTURE WITH NORGES BANK INVESTMENT MAN- AGEMENT IN THE UNITED STATES read More 66 logistics facilities in stabilized portfolio 12.8m square feet of space across the u.s. 55/45 joint venture (55% Prologis, 45% nBIm) 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K FinanCial HigHligHtS reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS REVENUE SUMMARY (In thOusAnDs) 2013 2012 2011 $1,750,486 $1,960,518 $1,421,771 AmB and Prologis completed the merger (the “merger”) on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the date of the merger going forward. relative to the financial information, please see Prologis’ Annual report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K FinanCial HigHligHtS reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS FFO PER SHARE/UNIT (BAsIC) 2013 2012 2011 $1.76 $1.20 $1.11 AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K. FFO per share/unit (basic) is a non-gAAP measure- ment. Please see the 2013 Form 10-K for a discussion of FFO and a reconciliation of FFO to net earnings (loss). 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K FinanCial HigHligHtS reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS FFO PER SHARE/UNIT (DIlutED) 2013 2012 2011 $1.73 $1.19 $1.10 AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K. FFO per share/unit (diluted) is a non-gAAP measurement. Please see the 2013 Form 10-K for a discussion of FFO and a reconciliation of FFO to net earnings (loss). 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K FinanCial HigHligHtS reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS EARNINGS PER SHARE (BAsIC) 2013 $0.65 2012 ($0.18) 2011 ($0.51) AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K. 2013 annual report Shareholders Letter Chairman’s Video Leadership Sustainable Growth News Financial Highlights DoWnloaD Form 10-K FinanCial HigHligHtS reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS DIVIDENDS PER COMMON SHARE/UNIT 2013 2012 2011 $1.12 $1.12 $1.06 AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share, earnings per share and dividends per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the com- bined company from the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K.
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