Global Self Storage, Inc. quarterly report, Q3 FY2020

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Global Self Storage, Inc. — Q3 2020 Form 10-Q

Reporting period: Three and nine months ended September 30, 2020; unaudited. The company is a self-managed Maryland REIT operating self-storage properties. It reported 12 owned properties and one managed third-party property across eight states.

Financial performance and position

  • Third-quarter revenue: $2.346 million, up 7.3% year over year. Rental income rose 5.8% to $2.237 million; management fees and other income were $17,496, compared with none a year earlier.
  • Third-quarter earnings: Operating income was $364,707, up 1.3%; net income was $337,124, or $0.04 per diluted share, versus $249,233, or $0.03 per share. The quarter included a $245,571 unrealized gain on marketable equity securities.
  • Nine-month results: Revenue increased 5.9% to $6.820 million, while operating income fell 19.1% to $760,244. The company recorded a net loss of $41,444, compared with net income of $573,901 in 2019, as the unrealized securities gain declined to $27,402 from $355,102. Diluted EPS was approximately breakeven versus $0.08.
  • Operating trends: Same-store occupancy was 93.5% at quarter-end versus 92.6% a year earlier. Same-store NOI rose 5.4% for the quarter and 8.2% for the nine months, mainly due to lower operating costs. Across same- and non-same-store properties, nine-month NOI rose 8.9% to $4.069 million; combined occupancy was 91.9%, down from 92.8%.
  • Cash flow and distributions: Nine-month operating cash flow was $1.218 million, down from $1.599 million. Investing used $1.597 million, principally for construction and property improvements. Financing used $1.956 million, including $1.820 million of dividends paid. Cash, cash equivalents and restricted cash ended at $1.918 million, down from $4.254 million at year-end 2019. Dividends were $0.065 per share for Q3 and $0.195 per share for the nine months.
  • Debt and liquidity: At September 30, total note and revolver balances were approximately $24.116 million before debt issuance costs: $18.972 million of term-loan principal and $5.144 million drawn on a $10 million revolver. The term loan bears 4.192% interest and matures in 2036; the revolver rate was reported as 3% over one-month USD LIBOR (effective rate 6.46%) and matures in December 2021. Management reported approximately $8.6 million in capital resources, including $1.9 million of cash and restricted cash, $1.8 million of securities, and $4.9 million available on the revolver.
  • Assets and equity: Total assets were $65.5 million versus $67.7 million at December 2019; equity was $40.3 million versus $42.1 million. Marketable equity securities were valued at $1.789 million and included $1.033 million of unrealized gains.
  • REIT measures: Nine-month FFO was $1.459 million ($0.16 per diluted share) and AFFO was $1.569 million ($0.17 per diluted share), compared with $1.275 million ($0.17) and $1.506 million ($0.20), respectively, in 2019. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.

Material changes and operating developments

  • Revenue growth reflected the West Henrietta acquisition, rent increases, ancillary income and expansions. Total expenses rose 10.1% for the nine months; depreciation and amortization increased 44.7%, while general and administrative expense rose 10.8%. Higher depreciation and interest expense contributed to lower operating income.
  • The company completed expansions at Millbrook, New York, and West Henrietta, New York, and converted commercial space to climate-controlled storage at McCordsville, Indiana. These projects added leasable space but reduced occupancy immediately after completion; lease-up progress differed by property.
  • In late March through May, management experienced fewer move-ins and move-outs and some requests for late-fee waivers. It temporarily paused existing-tenant rent increases, restarting them at all properties in July. Management reported no material rent-collection deterioration through September 30.
  • Management continued to pursue acquisitions and third-party management opportunities but completed no acquisition in Q3. It said acquisition activity could be lower near term because of COVID-19 uncertainty.

Outlook, risks and contingencies

  • Management expected available cash resources to meet liquidity needs for the next 12 months, while monitoring liquidity and operating performance amid COVID-19 uncertainty. No formal earnings or revenue guidance was provided.
  • Management identified risks to occupancy, rental rates, collections, bad debts and expansion lease-up from the pandemic, economic conditions, unemployment, potential tenant move-outs and delayed lien-sale auctions. It noted that self-storage remained open as an essential business in its operating states.
  • Management expected any existing-tenant rent increases for the remainder of 2020 to be consistent with or slightly below the prior year. It cautioned that pandemic-driven demand trends might be temporary and that future results were difficult to predict.
  • The company’s share of a $486,602 PPP loan obtained by an affiliate was not clearly stated. The company expected to contribute to repayment in proportion to its share of eligible payroll and costs; forgiveness was uncertain and could be subject to government review or audit.
  • Property-tax reassessment and loss of a tax incentive at the Dolton, Illinois property were under appeal. Management warned that neither a reduction in assessment nor reinstatement of the incentive was assured.
  • The filing disclosed no material pending legal proceedings. Management reported effective disclosure controls and no material changes in internal control during the quarter.

Important facts for investors to verify

  1. Whether rent collections, bad debt, move-outs and occupancy remained resilient after September 30, particularly as pandemic conditions evolved.
  2. Lease-up performance and returns on the Millbrook, McCordsville and West Henrietta projects, including the effect of added capacity on occupancy and cash flow.
  3. Revolver availability, borrowing cost, maturity and covenant compliance, along with liquidity after dividends and capital spending.
  4. The company’s allocation of the affiliate PPP loan, its forgiveness status and any resulting repayment obligation or audit exposure.
  5. The status and potential financial impact of the Dolton property-tax appeals and the market value and disposition plans for the securities portfolio.