Global Self Storage, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 30, 2020. The company is a self-managed U.S. self-storage REIT. At year-end it owned 12 stores and managed one third-party store, totaling approximately 953,851 leasable square feet across eight states.
Financial and operating highlights
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | $8.668 million | $8.111 million | Up 6.9%; rental income rose 6.6% to $8.371 million. |
| Operating income | $1.401 million | $1.426 million | Down 1.7%; operating margin was approximately 16.2%, versus 17.6%. |
| Net income | $590,619 | $619,448 | Down 4.7%; diluted EPS was $0.08 in both years. |
| Operating cash flow | $1.707 million | $2.281 million | Down approximately 25%; cash dividends paid were $2.107 million. |
| Combined store NOI | $5.078 million | $4.849 million | Up 4.7%; NOI margin on combined store revenue was approximately 58.7%. |
| Same-store occupancy | 91.4% | 92.5% | Down 1.1 percentage points; same-store revenue grew 6.0% and NOI 4.2%. |
| Year-end assets and equity | $67.661 million; $42.066 million | $58.588 million; $37.206 million | Real estate assets, net, were $59.752 million. |
Debt and liquidity: At December 31, 2019, the company reported a $19.339 million term-loan principal balance and $4.914 million drawn on a revolving facility with a $10 million limit. The term loan bears 4.192% interest and matures in 2036; the revolver bears interest at one-month U.S. dollar LIBOR plus 3.00% and matures in December 2021. Cash and cash equivalents were $3.990 million, restricted cash $263,405, marketable securities $1.761 million, and remaining revolver availability approximately $5.1 million. Management cited total capital resources of approximately $11.1 million. The company reported compliance with term-loan covenants.
Material changes versus 2018
- Revenue growth reflected existing-tenant rate increases, lower move-in discounts, and the November acquisition of West Henrietta, New York, for approximately $6.2 million. The acquired store contributed $60,244 of 2019 revenue from the acquisition date.
- Expenses rose 8.7% to $7.267 million, faster than revenue. Store operating costs increased 9.6%, substantially driven by higher property taxes at the Dolton, Illinois property after loss of its Class 8 tax incentive. General and administrative costs rose 16.4%.
- Interest expense increased to $1.076 million from $898,000, including higher amortization of revolving-credit issuance costs. A $193,705 unrealized gain on marketable securities was recognized in 2019, versus $15,517 in 2018.
- The company raised approximately $6.3 million net through a rights offering, issuing 1,601,291 shares at $4.18 each. Shares outstanding increased to 9,330,297 at year-end from 7,692,624.
- Millbrook, New York expansion construction temporarily reduced occupancy at that property; the approximately 16,500-square-foot climate-controlled expansion was completed in February 2020.
Outlook, commentary, and risks
- Management expected continued rental-income growth from tenant rate increases, new-tenant pricing, reduced promotions, and occupancy, while noting that 2020 existing-tenant increases might be about the same as or lower than 2019. It expected higher Dolton property taxes in 2020 as the incentive phases out and assessments rise; the tax matters were under appeal, with no assurance of a favorable outcome.
- Management identified competition, seasonality, local economic conditions, property taxes, interest rates, financing access, acquisition execution, and REIT qualification as important risks. The company’s small, single-sector portfolio increases exposure to property-level and self-storage market weakness.
- The filing describes COVID-19 as a material uncertainty that could affect occupancy, tenants’ ability to pay, operating costs, financing access, and operations. Management said the impact could not then be predicted.
- The company launched third-party management in 2019 with one client in Edmond, Oklahoma, viewing the platform as a potential source of fees, insurance income, brand reach, and acquisition opportunities.
- No material pending legal proceedings were reported. Management stated that disclosure controls and internal control over financial reporting were effective as of year-end.
Important facts for investors to verify
- Subsequent disclosures on COVID-19’s effects on occupancy, collections, expenses, financing, and liquidity.
- Whether the Dolton tax appeals succeed and the actual 2020 property-tax impact.
- Lease-up performance and returns for the West Henrietta acquisition and Millbrook expansion.
- Revolver interest-rate exposure, covenant headroom, available liquidity, and refinancing needs before its 2021 maturity.
- Cash-flow coverage of distributions: 2019 operating cash flow was below cash dividends paid.
- Performance of marketable securities and the sustainability of reported earnings excluding unrealized investment gains.