Global Self Storage, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. The filing covers the unaudited quarter ended March 31, 2020, compared with Q1 2019. Global Self Storage is a Maryland REIT focused on owning, operating, managing, acquiring, and developing self-storage properties. It owned and/or managed 13 properties across eight states and operated primarily in one segment: rental operations.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $2.240 million | $2.107 million | Up 6.3% |
| Operating expenses | $2.124 million | $1.829 million | Up 16.1% |
| Operating income | $116 thousand | $277 thousand | Down 58.3% |
| Net income (loss) | $(356) thousand | $188 thousand | Shifted to a loss |
| Basic and diluted EPS | $(0.04) | $0.02 | — |
| Cash provided by operations | $625 thousand | $613 thousand | Up $12 thousand |
| Cash used in investing | $800 thousand | $30 thousand | Higher, mainly construction |
| Cash, cash equivalents, and restricted cash at quarter-end | $3.352 million | $1.681 million | — |
Revenue growth reflected the West Henrietta acquisition, higher rents at existing owned stores, and increased ancillary income. The net loss reflected a $190 thousand unrealized loss on marketable securities, compared with a $154 thousand unrealized gain in Q1 2019, alongside higher depreciation, general and administrative costs, and interest expense. Operating margin was approximately 5.2%, versus 13.2% a year earlier.
Same-store revenue increased 2.1% and same-store net operating income (NOI) rose 10.4%; same-store operating costs fell 8.1%. Same-store occupancy was 91.4%, down from 92.3%. Across same-store and non-same-store properties, revenue increased 5.5% and NOI increased 9.5%, while occupancy was 87.6%, compared with 92.8%. The Millbrook expansion increased available space and weighed on occupancy during lease-up.
Financial position, cash flow, and distributions
- At March 31, 2020, total assets were $66.8 million, total liabilities $25.7 million, and equity $41.1 million. Cash and cash equivalents were $3.070 million; restricted cash was $283 thousand.
- Debt consisted of a $19.218 million term-loan principal balance and $4.914 million drawn on a revolving facility. The term loan carries a 4.192% rate and matures in 2036; the revolver is priced at 3% over one-month LIBOR, with a reported effective rate of 6.46%, and matures in December 2021. The revolver has a $10 million limit. Management reported approximately $5.1 million available to draw and total capital resources of approximately $10.1 million, including cash and marketable securities.
- Operating cash flow was $625 thousand. Construction and improvements used $800 thousand, debt principal payments were $121 thousand, and cash dividends paid were $605 thousand. Cash, cash equivalents, and restricted cash decreased by $901 thousand during the quarter.
- Quarterly dividends were $0.065 per share in both periods. The company reported Q1 2020 FFO of $350 thousand and AFFO of $388 thousand, or $0.04 per diluted share for each measure, versus FFO of $385 thousand and AFFO of $447 thousand, or $0.05 and $0.06 per diluted share, respectively, in Q1 2019. FFO and AFFO are non-GAAP measures.
Material changes and operating developments
- General and administrative expense rose 22.8%, primarily due to higher accounting costs associated with a new independent auditor and increased state and federal tax expense at the taxable REIT subsidiary. Depreciation and amortization increased 46.7%, mainly reflecting the West Henrietta acquisition.
- Interest expense increased to $306 thousand from $261 thousand, attributed by management to borrowing under the revolver.
- The Millbrook, New York expansion was completed in February 2020, adding approximately 11,800 leasable square feet of climate-controlled space. Management said occupancy at the property fell from about 88.6% to 45.5% after completion.
- Management began converting commercially leased space at McCordsville, Indiana, to climate-controlled storage in April 2020 and anticipated completion in Q3 2020. Completion timing and lease-up are not assured.
- No acquisitions were completed in Q1. Management continued to review acquisition opportunities and market its third-party management platform; one third-party property was managed at quarter-end.
Outlook, risks, and contingencies
- COVID-19 created material uncertainty. Self-storage was deemed an essential business in the company’s operating states, and management expected to remain operational while implementing social-distancing and enhanced cleaning measures.
- Management reported no material deterioration in rent collections as of March 31, but warned that customer financial stress, delayed auctions, and reduced recoveries could increase bad debt. Since late March, the company had seen fewer move-ins and move-outs and temporarily suspended existing-tenant rent increases. It expected any such increases during the remainder of 2020 to be substantially below the prior year.
- Management expected sufficient cash from current sources to meet liquidity needs for the next 12 months, while closely monitoring liquidity and business performance. It anticipated potentially lower acquisition activity amid pandemic-related uncertainty.
- Management reported that an interim impairment test prompted by COVID-19 found no impairment at March 31. Actual outcomes may differ materially from estimates, including estimates of asset values and expected credit losses.
- The Dolton, Illinois property’s tax reassessment and loss of a tax incentive remained under appeal; management anticipated property-tax expense at that property could rise about 20% in 2020 versus 2019. There is no assurance the appeal will succeed.
- The debt agreements contain financial and other covenants and allow acceleration following specified defaults. The filing reported no material pending legal proceedings. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent rent collections, delinquencies, bad-debt losses, move-in and move-out activity, and occupancy trends, particularly after the temporary rent-increase suspension.
- Revolver availability, borrowing costs, covenant compliance, and the company’s ability to maintain liquidity and distributions if operating cash flow weakens.
- Millbrook and McCordsville construction and lease-up progress, including actual occupancy and returns on added capacity.
- Outcome of the Dolton property-tax appeals and the resulting effect on property expenses.
- Whether reported FFO and AFFO, which declined year over year, support the ongoing dividend when considered alongside cash flow and capital expenditures.
- Marketable-securities valuation and the impact of future gains or losses on reported earnings; the filing reported a $815 thousand unrealized gain over cost basis at quarter-end.