Global Self Storage, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Global Self Storage is a self-managed REIT operating primarily in self-storage rental operations. It owned or managed 13 properties across eight states, including one third-party-managed property.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $3.086 million | $2.979 million | $6.124 million | $5.800 million |
| Operating income | $778 thousand | $899 thousand | $1.603 million | $1.574 million |
| Net income | $578 thousand | $404 thousand | $1.571 million | $687 thousand |
| Diluted EPS | $0.05 | $0.04 | $0.14 | $0.06 |
| Operating margin | 25.2% | 30.2% | 26.2% | 27.1% |
Q2 revenue grew 3.6%, primarily from higher rental rates, while operating expenses rose 11.0%, including higher property operations and general and administrative costs; operating income consequently fell 13.5%. For the first half, revenue increased 5.6% and operating income increased 1.9%. Net income comparisons were also affected by marketable-securities valuation changes and the $307,210 PPP forgiveness gain recorded in first-half 2022.
- Cash flow: Six-month operating cash flow was $2.310 million, versus $2.408 million a year earlier. Investing outflow was $154 thousand, primarily for improvements and equipment. Financing outflow was $1.886 million, including $1.610 million in dividends and $275 thousand of debt principal payments.
- Liquidity: At June 30, cash, cash equivalents, and restricted cash totaled $6.786 million; marketable securities were $2.613 million. Management reported total capital resources of approximately $24.4 million, including $15.0 million available under an undrawn revolving credit facility, and expects resources to cover liquidity needs for the next 12 months.
- Debt: Term-loan principal was $17.526 million ($17.164 million net of financing costs), compared with $17.801 million principal at year-end 2022. The term loan carries a 4.192% rate and matures in 2036. The $15 million revolver had no balance outstanding; its effective rate was 8.17% at quarter-end and approximately 8.3% after the LIBOR-to-SOFR transition. The company reported compliance with term-loan covenants.
- Dividends: Q2 dividends were $0.0725 per share, up from $0.065; first-half dividends were $0.145 per share, up from $0.13. Distributions exceeded reported net income in both first-half periods.
Operations and changes versus prior period
- Same-store revenue increased 3.6% in Q2 and 5.6% in the first half; same-store NOI increased 0.2% and 4.1%, respectively. Same-store operating costs rose 10.2% in Q2 and 8.2% in the first half.
- Same-store occupancy was 90.5% at June 30, down from 93.1% a year earlier; management reported 91.9% at July 31. Annualized revenue per leased square foot increased, while leased square footage declined 2.9% year over year.
- Management attributed revenue growth to rent increases and revenue-management efforts. It cited increased property taxes, marketing, and employment costs among the expense pressures. No acquisitions were completed in the quarter or first half.
- Marketable securities generated a $115 thousand unrealized loss in Q2 2023, compared with a $605 thousand loss in Q2 2022. For the first half, they produced a $247 thousand unrealized gain versus an $830 thousand loss in 2022. These changes affect net income but are noncash unless securities are sold.
Outlook, risks, and contingencies
- No specific full-year financial guidance was provided. Management expects any existing-tenant rent increases in the remainder of 2023 to be lower than the prior year and expects property-tax and certain operating-cost increases. It plans to pursue acquisitions, existing-property expansions, and potential joint ventures, and may use available credit.
- Management cited inflation, rising interest rates, economic uncertainty, labor and supply pressures, competition, local demand and occupancy changes, and possible higher bad-debt losses as risks. It noted that long-term tenants moving out could lead to lower occupancy or rent roll-down.
- Property-tax assessments and the prior loss of a Class 8 tax incentive at the Dolton, Illinois property remain under appeal; there is no assurance of a favorable result. The filing reports no material pending legal proceedings and no material changes to previously disclosed risk factors.
- The company reported no impairment charges or impairment indicators for real estate, goodwill, or in-place lease intangibles. It intends over time to divest remaining investment securities and use proceeds toward storage properties.
Important facts for investors to verify
- Whether occupancy and same-store NOI trends improve, and whether rent increases can offset rising property taxes and operating costs.
- The outcome and potential financial impact of the Dolton property-tax and incentive appeals.
- How the company funds dividends, acquisitions, and expansions, given first-half distributions exceeded net income and retained operating cash flow was described as negligible.
- The revolver’s post-SOFR borrowing cost, July 2024 maturity, and covenant requirements if management draws on the facility.
- The effect of marketable-securities volatility on reported earnings and the timing or amount of any planned sales.