Global Self Storage, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and nine months ended September 30, 2023. Global Self Storage is a self-managed REIT focused on self-storage properties. At quarter-end, it owned and/or managed 13 properties across eight states, including one third-party-managed property. Its principal business segment is rental operations.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $3.09 million | $3.09 million | $9.21 million | $8.89 million |
| Operating income | $829,000 | $1.11 million | $2.43 million | $2.68 million |
| Net income | $271,000 | $930,000 | $1.84 million | $1.62 million |
| Diluted EPS | $0.02 | $0.08 | $0.16 | $0.15 |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $3.41 million | $3.81 million |
- Margins: Operating margin was approximately 26.8% in Q3 versus 35.8% a year earlier, and 26.4% for the first nine months versus 30.1%. Net margin was approximately 8.8% in Q3 versus 30.1%, and 20.0% for the nine months versus 18.2%.
- Cash flow and distributions: Nine-month operating cash flow was $3.41 million. Capital improvements and equipment additions used $197,000; dividends paid were $2.42 million. Quarterly dividends were $0.0725 per share; nine-month dividends were $0.22 per share.
- Balance sheet at September 30: Cash, cash equivalents and restricted cash totaled $6.91 million; marketable equity securities were $2.20 million. Total assets were $66.88 million, total liabilities $18.99 million and stockholders’ equity $47.88 million.
- Debt and liquidity: Note principal outstanding was $17.39 million ($17.03 million net of costs), down from $17.80 million principal at year-end 2022. The term loan has a 4.192% rate and matures in 2036. The $15 million revolving facility had no balance outstanding, was available to draw, and carried an effective rate of approximately 8.44% under its SOFR-based terms. Management said capital resources totaled approximately $24.1 million, including cash and restricted cash, securities and available revolver capacity, and expected resources to meet liquidity needs for the next 12 months.
- Property operations: Same-store occupancy was 89.8% at quarter-end, compared with 89.6% a year earlier; it was 90.4% as of October 31. Same-store revenue rose 0.2% in Q3 and 3.7% for the nine months. Same-store operating costs rose 15.1% and 10.5%, respectively; same-store NOI fell 7.1% in Q3 and increased 0.1% for the nine months.
Material changes versus comparable periods
- Q3 revenue was essentially flat year over year. Rental income edged down 0.1%, as lower new-tenant move-in rates offset increases to existing tenants.
- Q3 expenses rose 14.2%, driven by property operating costs and general and administrative expenses. Operating income fell 25.1% and net income fell 70.9% year over year.
- The Q3 net-income comparison was affected by a $412,000 unrealized loss on marketable equity securities, versus a $60,000 loss in Q3 2022. Interest expense also increased to $213,000 from $163,000.
- For the first nine months, revenue rose 3.7%, but expenses rose 9.3% and operating income declined 9.3%. Net income increased 13.9%, helped by a smaller securities valuation loss and higher dividend and interest income; 2022 results included a $307,000 gain from PPP loan forgiveness.
- Nine-month FFO was $3.23 million, down 5.4%; AFFO was $3.37 million, down 6.2%. Diluted FFO per share declined to $0.29 from $0.31 and diluted AFFO per share to $0.30 from $0.33. These are non-GAAP measures.
Outlook, commentary and risks
- Management said it expected existing-tenant rent increases, if any, for the remainder of 2023 to be lower than in the prior year. It cited rate management, occupancy, marketing and potential acquisitions or property expansions as business priorities; no quantified earnings or revenue guidance was provided.
- Management attributed higher costs to employment, property taxes, repairs and maintenance, and marketing. It expected inflationary compensation and property-tax pressures to continue, and noted potential increases in utilities and other direct property costs.
- Management reported no material degradation in rent collections, but warned that tenant financial stress, economic uncertainty and lower recovery from auctioned units could increase bad debts, move-outs or rent roll-down.
- The Dolton, Illinois property’s assessment and loss of its Class 8 tax incentive remain under appeal. The filing states there is no assurance of a lower assessment or reinstatement of the incentive.
- The interest-rate cap covers $7.5 million at a 3.75% strike and expires July 6, 2024. The company identifies inflation, rising rates, local economic conditions, competition, property taxes, natural disasters and securities-market volatility among relevant risks.
- The company reported compliance with term-loan covenants, effective disclosure controls, no material pending legal proceedings, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether property-level revenue and occupancy trends can offset continued increases in operating costs, particularly property taxes and labor.
- The Dolton tax appeal’s status, potential financial exposure and timing of any resolution.
- The revolving facility’s July 2024 maturity, future borrowing cost and refinancing or renewal plans; it was undrawn at quarter-end.
- The composition and future valuation of the marketable equity securities portfolio, which caused substantial quarter-to-quarter earnings volatility.
- Dividend coverage using GAAP cash flow and capital needs, noting that FFO and AFFO are non-GAAP measures and do not substitute for cash flow.
- Acquisition and expansion plans, which remain subject to financing availability, pricing and execution; no acquisitions were completed in the first nine months of 2023.