Global Self Storage, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Global Self Storage is a self-managed and self-administered REIT operating self-storage properties. At quarter-end, it owned 12 stores and managed one third-party store across eight states.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $2.821 million | $2.442 million; up 15.5% |
| Operating income | $675,000 | $464,000; up 45.4% |
| Net income | $283,000; $0.03 diluted EPS | $411,000; $0.04 diluted EPS |
| Operating cash flow | $1.107 million | $676,000 |
| Cash, cash equivalents and restricted cash | $3.509 million | $3.064 million at Dec. 31, 2021 |
| Note payable | $18.204 million principal; $17.795 million net of costs | $18.335 million principal at Dec. 31, 2021 |
Rental income rose 16.1%, primarily from higher rental rates. Operating expenses increased 8.5% to $2.146 million: property operations rose 6.0%, general and administrative costs rose 17.9%, and depreciation and amortization was nearly unchanged. Operating margin was approximately 23.9%, compared with 19.0% a year earlier.
Net income declined despite stronger operations, largely reflecting a $226,000 unrealized loss on marketable securities versus a $215,000 unrealized gain in Q1 2021. Interest expense fell to $189,000 from $285,000. FFO increased 51.8% to $914,000 and AFFO increased 53.3% to $972,000; diluted FFO and AFFO were each $0.09 per share in Q1 2022. These are non-GAAP measures and are not substitutes for net income or operating cash flow.
Same-store revenue rose 15.6% to $2.801 million and same-store NOI rose 22.2% to $1.748 million. Same-store occupancy declined to 92.6% from 94.8%; annualized revenue per leased square foot increased 18.3% to $14.55. Dividends were $0.065 per share in both quarters. Operating cash flow exceeded the quarter’s $29,000 of property improvements and equipment additions; dividends paid were approximately $699,000.
At March 31, total assets were $66.362 million and stockholders’ equity was $46.952 million. The company reported $3.257 million in marketable securities. It had no borrowings outstanding on its revolving credit facility, which provides up to $15 million and matures July 6, 2024; the facility’s effective rate was 3.25%. The $20 million term loan bears 4.192% interest and matures July 1, 2036. The company also had an interest-rate cap on $7.5 million of notional principal, with a 3.75% strike and July 2024 maturity.
Material changes, outlook and risks
- Management reported approximately $21.8 million of capital resources: $3.5 million of cash and restricted cash, $3.3 million of marketable securities, and $15 million available under the revolver. It expects resources to meet liquidity needs for the next 12 months and may use debt or equity to fund acquisitions, expansions or joint ventures.
- No acquisitions were completed in Q1. Management continues to review acquisition opportunities, pursue expansions and develop its third-party management platform. It expects to continue existing-tenant rent increases during 2022, if any, at levels similar to the prior year, but did not provide numerical earnings or revenue guidance.
- Management attributed same-store revenue and NOI growth to higher rents, revenue management, digital marketing and customer service. It cited inflationary pressure on utilities, property taxes, compensation, maintenance and landscaping costs; utility costs are expected to remain elevated for the rest of 2022.
- Occupancy was lower year over year, although management said it was pursuing a target of at least 90%. It reported no material degradation in rent collections but warned of potential higher bad debts, tenant move-outs and rent roll-down amid economic uncertainty.
- Dolton, Illinois property taxes increased after a reassessment and nonrenewal of a tax incentive. The assessment and incentive status remain under appeal; management expected Dolton taxes to increase approximately 20% in 2022, with no assurance the appeals will succeed.
- COVID-19 effects remain uncertain and could adversely affect operations, customers and credit conditions. Other disclosed risks include real-estate and local-market conditions, competition, financing and interest-rate exposure, development and acquisition execution, regulation and maintaining REIT status.
- On April 5, 2022, the SBA approved forgiveness of the affiliate borrower’s entire PPP loan and accrued interest; the filing says the company had no Q1 operating or cash-flow impact from the loan. After quarter-end, the company issued 58,701 additional shares under its at-the-market offering, generating approximately $355,000 gross, less commissions.
- The company disclosed no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether rental-rate increases can sustain revenue and NOI growth despite the year-over-year occupancy decline.
- How much of the net-income comparison reflects volatile unrealized securities gains and losses, and how the investment portfolio may be used or reduced.
- Whether operating cash generation can support dividends, capital spending and growth plans, particularly given limited retained cash flow after distributions and maintenance spending.
- Actual borrowing costs and covenant headroom if the floating-rate revolver is drawn, and the potential effect of interest-rate movements beyond the interest-rate cap’s coverage.
- Outcomes of the Dolton tax appeals and the actual 2022 property-tax increase.
- Progress and returns from property expansions, acquisition opportunities and the at-the-market share issuance program.