Global Self Storage, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Global Self Storage is a self-managed REIT operating 11 self-storage properties in seven states.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $2.149 million | $2.020 million | $4.255 million | $3.982 million |
| Operating income | $303,000 | $381,000 | $580,000 | $678,000 |
| Net income | $137,000 | $395,000 | $325,000 | $455,000 |
| Diluted EPS | $0.02 | $0.05 | $0.04 | $0.06 |
- Q2 revenue grew 6.4%, but expenses rose 12.6%; operating income fell 20.5%. Net income declined mainly alongside a smaller unrealized securities gain ($73,000 versus $217,000 in Q2 2018), as well as higher operating and interest expenses.
- For the first half, same-store revenue increased 6.9% and same-store NOI increased 4.5%; same-store operating costs rose 10.1%. Q2 same-store NOI increased 2.2%.
- Same-store occupancy was 94.2% at June 30, up from 93.1% a year earlier. Annualized revenue per leased square foot increased 4.9% in Q2.
- First-half operating cash flow was $1.104 million, compared with $1.193 million. Investing cash outflow was $267,000; dividends paid were $1.000 million and principal payments were $233,000. Cash, cash equivalents and restricted cash declined by $396,000 to $1.316 million.
- At quarter-end, cash and cash equivalents were $1.092 million and marketable securities were $1.795 million, or approximately $2.9 million of capital resources combined. The $10 million revolving facility had no outstanding borrowings.
- Debt principal was $19.576 million ($19.057 million net of unamortized loan costs on the balance sheet). The term loan bears 4.192% interest and matures in 2036; the revolving facility bears one-month U.S. dollar LIBOR plus 3% and matures in 2021. The company also reported a $7.5 million interest-rate cap.
- Quarterly dividend was $0.065 per share. Total assets were $57.976 million and equity was $36.631 million at June 30, 2019.
Changes, outlook and notable items
- Management attributed revenue growth to the Merrillville expansion, higher rental and occupancy rates, and greater insurance participation. Merrillville’s 2018 expansion was 93.6% leased by June 30, 2019.
- Management said 2019 existing-tenant rent increases were expected to be slightly below the prior year. It expected Dolton property tax expense to remain consistent with Q2 levels for the rest of 2019, and anticipated modest increases in several other cost categories. No quantified full-year financial guidance was provided.
- Construction began in Q2 on a Millbrook, New York expansion expected to add approximately 16,500 gross square feet of climate-controlled units. Completion was anticipated in nine to twelve months, with no assurance of timing or completion. The filing states a $900,000 payment is due to Tuxis upon breaking ground; it also reports that a $900,000 contingent property-purchase payment was included in accounts payable and accrued expenses.
- Dolton’s property assessment was approximately 52% higher after reassessment, and its Class 8 tax incentive was not renewed. The assessment and incentive status were under appeal, with no assurance of a favorable result; management expected 2019 Dolton property taxes to be approximately 25% above 2018.
- Unrealized gains on marketable securities were $73,000 in Q2 and $227,000 for the first half. Management expects to continue divesting securities over time to help fund acquisitions and development; no securities were sold for a realized gain or loss in the first half.
- The company completed no acquisitions in Q2. It cited property taxes, compensation and other G&A costs as pressures on earnings. Management reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the Dolton tax appeals succeed and how the resulting assessments affect future property expenses.
- The Millbrook project’s remaining cost, timing, funding, and status of the $900,000 contingent payment, including its relationship to Tuxis.
- Whether same-store revenue and occupancy growth can continue to outpace property-tax, payroll, and other operating-cost increases.
- Liquidity and dividend coverage after capital expenditures, given first-half operating cash flow of $1.104 million, dividends paid of $1.000 million, and investing outflows of $267,000.
- The effect of securities-price volatility on reported earnings, and the availability and cost of borrowing under the floating-rate revolver and its covenants.