Global Self Storage, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter ended June 30, 2016. Effective January 19, 2016, the Company deregistered as an investment company, became an operating REIT, changed its name from Self Storage Group, Inc., and listed on Nasdaq as SELF. It owned and operated seven self-storage facilities. Because accounting and business status changed, 2016 and 2015 reported results are not directly comparable.
Financial performance and position
- Q2 revenue: $1.145 million, including $1.105 million rental income. Expenses were $1.187 million; operating loss was $42,170 and net loss was $12,306 (reported EPS rounded to $(0.00)).
- Successor-period results, January 19–June 30: Revenue was $2.071 million, operating loss was $33,187, and net income was $36,815 (EPS rounded to $0.00). These figures exclude the predecessor-period loss of $73,227 for January 1–18.
- Same-store operating trends: Q2 revenue rose 8.9% year over year to $1.198 million, property operating costs rose 7.8% to $484,133, and NOI increased 9.7% to $713,416. For the six-month comparison, revenue rose 7.6%, costs 6.1%, and NOI 8.8%. Average occupancy was 92.1%, versus 90.1% a year earlier; annualized revenue per leased square foot increased 6.7% in Q2.
- FFO: $176,702 for Q2, or $0.02 per share; $395,790 for January 19–June 30, or $0.05 per share. FFO is a non-GAAP measure and is not a substitute for net income or cash flow.
- Cash flow: Successor-period operating cash flow was $1.010 million; investing cash flow provided $2.264 million, including $3.430 million of investment-sale proceeds and $1.142 million of construction spending. Financing cash flow provided $18.303 million, reflecting the loan and $964,180 in dividends. Cash and cash equivalents ended at $21.607 million.
- Balance sheet and liquidity: Total assets were $61.404 million, including self-storage facilities of $35.162 million and securities of $4.348 million. Total liabilities were $20.031 million and equity was $41.373 million. The filing reports $20 million principal debt, carried net of loan costs at $19.267 million. Cash plus securities totaled approximately $25.954 million.
- Distributions: $0.065 per share in Q2 and $0.13 per share for the six months ended June 30.
Material changes and management commentary
- Same-store growth was attributed to rent increases, higher move-in rates, fewer promotional discounts, increased leased area, and occupancy gains. Management said customer-service and digital-marketing initiatives supported demand; average tenant stay was just under three years, up from about two years in the comparable 2015 period.
- Q2 general and administrative expense increased 146.5% to $354,207. Management attributed the increase to legal, accounting, compliance, Nasdaq listing, investor-relations, and capital-markets consulting costs. The 2015 quarter included a favorable $77,252 expense-accrual reversal. Business-development and acquisition costs were $154,798 in Q2 and were described as largely non-recurring.
- The Company secured a $20 million loan on June 24 at 4.192%, maturing July 1, 2036, secured by certain properties and subject to customary covenants, including a minimum-net-worth test. It is interest-only through June 2018; management stated monthly payments of about $69,867 until then, increasing to $107,699 thereafter. Proceeds were intended primarily for potential acquisitions.
- Two acquisitions were under agreement at quarter-end, subject to due diligence and other closing conditions: Fishers, Indiana, for $7.7 million and Lima, Ohio, for $5.3 million. Neither was reported as closed in the filing.
- The Bolingbrook, Illinois, expansion was budgeted at approximately $2.4 million for about 44,260 leasable square feet, with completion anticipated in September 2016. Capitalized project costs were $1.286 million at June 30. The Sadsburyville expansion had leased 72% of the new building about 12 months after leasing began.
- Management expected continued rental-income growth in the remainder of 2016, but noted rent increases to existing tenants were expected to be slightly below the prior year. It anticipated ongoing regulatory and reporting costs, inflationary compensation and property costs, and continued development spending. Results are seasonal and sensitive to local demand, competition, tenant turnover, weather, and energy prices; the filing gives no quantified earnings or revenue guidance.
Risks, contingencies, and unusual items
- Key risks include real-estate and local economic conditions, competition and new supply, acquisition and development execution, capital availability, environmental and regulatory matters, and maintaining REIT qualification. Failure to satisfy REIT requirements could result in federal income tax.
- The loan permits acceleration following specified defaults and is subject to financial and other covenants. The Company reported no material pending legal proceedings.
- A stockholder rights plan adopted in January 2016 generally becomes exercisable if a non-exempt person or group acquires or commences a tender offer for 9.8% or more of common stock; it expires January 29, 2026, unless earlier redeemed or terminated.
- Management concluded disclosure controls were effective at quarter-end and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the status, final terms, funding, and expected returns of the Indiana and Ohio acquisitions, and whether related amendments changed the Indiana transaction timeline or conditions.
- Review the full loan documents for collateral, covenant thresholds, guaranty scope, and the post-June 2018 payment schedule.
- Track Bolingbrook construction costs, completion, lease-up, and the funding required for planned acquisitions and other development.
- Assess whether same-store revenue and NOI growth can continue as occupancy, rental rates, costs, and tenant turnover change.
- Account for the change in company status and accounting basis when comparing 2016 results with 2015; the filing does not provide a directly comparable consolidated operating-company result for the prior period.