Global Self Storage, Inc. — Q3 2019 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and nine months ended September 30, 2019. Global Self Storage is a self-managed REIT focused on owning, operating, acquiring, and developing self-storage properties. At quarter-end it owned 11 stores in the Northeast, Mid-Atlantic, and Midwest; its first third-party managed property was added after quarter-end.
Financial and operating performance
| Metric | Three months ended Sept. 30, 2019 | Three months ended Sept. 30, 2018 | Nine months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2018 |
|---|---|---|---|---|
| Revenue | $2.187 million | $2.058 million | $6.442 million | $6.040 million |
| Operating income | $360,196 | $471,516 | $940,207 | $1.150 million |
| Net income | $249,233 | $89,368 | $573,901 | $543,969 |
| Diluted EPS | $0.03 | $0.01 | $0.08 | $0.07 |
| Operating cash flow | Not separately presented for the quarter | $1.599 million | $1.469 million |
- Revenue growth was driven primarily by higher rental rates, the Merrillville expansion, and increased tenant insurance participation. Nine-month same-store revenue rose 6.7%; same-store NOI increased 4.3% to $3.736 million.
- Same-store occupancy was 92.8% at quarter-end, versus 93.1% a year earlier. Annualized revenue per leased square foot increased 6.6% for the nine-month comparison.
- For the first nine months, construction and improvements used $478,092; dividends paid were $1.502 million. Cash, cash equivalents, and restricted cash declined by $352,207 to $1.360 million.
- At September 30, cash and cash equivalents were $1.116 million, marketable securities were $1.923 million, and restricted cash was $244,059. Management described approximately $3.0 million of capital resources, comprising cash and marketable securities.
- Debt included a $19.458 million term-loan principal balance and $380,000 drawn on a revolving facility with up to $10 million available. The term loan has a 4.192% stated rate and matures in 2036; the revolver’s rate was 6.46% and it matures in 2021. The term loan is secured by certain properties, and both arrangements include covenants.
Material changes versus the prior comparable period
- For Q3, revenue increased 6.3%, while operating expenses increased 15.2%; operating income consequently fell 23.6%. For the nine months, revenue rose 6.7%, expenses rose 12.5%, and operating income declined 18.2%.
- Higher property taxes and general and administrative costs were principal expense pressures. Nine-month property operating expenses rose 10.0%, and G&A rose 21.1%.
- Net income increased in Q3, partly reflecting a $127,820 unrealized securities gain compared with a $180,021 unrealized loss in Q3 2018. For the nine months, the unrealized gain was $355,102, compared with a $4,579 loss in 2018. Nine-month FFO per diluted share decreased to $0.17 from $0.21; AFFO per diluted share was $0.20 versus $0.22.
- Interest expense increased to $773,234 for the nine months, from $660,209, reflecting revolver interest and amortization of its issuance costs. The company drew $380,000 on the revolver during 2019.
Outlook, risks, contingencies, and unusual items
- Management expected existing-tenant rent increases in the remainder of 2019 to be slightly lower than the prior year, while anticipating continued revenue growth from rent increases, new-tenant rates, promotions, and occupancy. It cautioned that demand and short-term rental trends are volatile and seasonal.
- Property taxes at the Dolton, Illinois store increased following a reassessment and the loss of a tax incentive; both matters were under appeal, with no assurance of a favorable outcome. Management expected 2019 Dolton property-tax expense to increase approximately 25% from 2018.
- The Millbrook, New York expansion began in Q2 2019 and is expected to add approximately 16,500 gross square feet of climate-controlled units. Completion was anticipated nine to twelve months after commencement, but is not assured. A $900,000 contingent payment to Tuxis is associated with the project and is recorded in accrued expenses; payment is subject to specified conditions.
- After quarter-end, the company agreed to acquire the West Henrietta, New York property for approximately $6.2 million, subject to due diligence and customary closing conditions. It also signed its first third-party management client in Edmond, Oklahoma, on October 23, 2019.
- On October 25, the company announced a planned rights offering of up to approximately $11.6 million. Proceeds were intended primarily to help fund the West Henrietta purchase and related costs and/or repay revolver borrowings, with remaining proceeds available for acquisitions, expansions, and general purposes. Final subscription terms had not been set in the filing.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Key risks include property-tax and regulatory changes, competition, acquisition and development execution, financing availability and interest rates, REIT qualification, and real-estate market conditions.
Important facts for investors to verify
- Whether the West Henrietta acquisition closed, at what final price, and how it was financed.
- The final terms, completion, and proceeds of the planned rights offering, including resulting share dilution.
- Progress, total cost, and timing of the Millbrook expansion, and the conditions and timing for the $900,000 contingent payment.
- Outcomes of the Dolton property-tax reassessment and tax-incentive appeals, and the effect on future operating expenses.
- Whether same-store rent growth can continue to offset rising property taxes and other operating costs, and whether marketable-securities gains recur.
- Reconcile reported dividend amounts: the filing reports $1.502 million of cash dividends paid for the nine months, while the equity and dividend note reports $1.508 million of dividends for the period.