Global Self Storage, Inc. quarterly report, Q3 FY2021

Global Self Storage, Inc. — Q3 2021 Form 10-Q

Business and period: Unaudited results for the quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The Maryland REIT owned and operated or managed 13 self-storage properties across eight states; rental operations are its primary business.

Financial performance

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Total revenue	$2.73 million	$2.35 million	$7.75 million	$6.82 million
Operating income	$784,039	$364,707	$1.88 million	$760,244
Net income (loss)	$629,062	$337,124	$1.90 million	($41,444)
Diluted EPS	$0.06	$0.04	$0.19	($0.00)
Operating cash flow	Not provided for quarter	Not provided for quarter	$2.53 million	$1.22 million

Q3 revenue rose 16.4%, led by higher rental rates and occupancy and contributions from expansions. Nine-month revenue increased 13.6%; management also cited the West Henrietta acquisition in 2019.
Q3 operating margin was approximately 28.7%, versus 15.5% a year earlier; nine-month operating margin was approximately 24.3%, versus 11.1%. Lower depreciation and amortization contributed to the improvement. Margins are calculated from reported revenue and operating income.
Net income included unrealized gains on marketable equity securities of $81,992 in Q3 and $791,189 for the nine months, versus $245,571 and $27,402, respectively, in 2020. Thus, investment valuation changes materially affected earnings comparisons.
For the nine months, investing cash outflow was $243,626, financing cash outflow was $1.49 million, and cash, cash equivalents and restricted cash increased by $803,381 to $2.76 million.

Balance sheet, debt and liquidity

At September 30, 2021, total assets were $65.83 million and total liabilities were $19.48 million. Real estate assets, net, were $58.79 million.
Term-loan principal was $18.47 million (carrying amount, net of costs, $18.04 million); it bears 4.192% interest and matures July 2036. The loan is secured by certain properties. No borrowings were outstanding on the revolving facility; up to $15 million was available, at an effective 3.25% rate as of quarter-end, with maturity July 2024.
Management reported approximately $20.5 million of capital resources: $2.8 million cash and restricted cash, $2.7 million marketable securities and $15.0 million of revolver availability. It expected available resources to meet liquidity needs for the next 12 months.
In June, the company issued 1,289,720 shares at $5.35 per share, raising approximately $6.9 million gross. Shares outstanding increased to 10,708,613 from 9,343,118 at year-end 2020. Dividends were $0.065 per share for Q3 and $0.13 per share for the first nine months.

Operating trends and material changes

Same-store occupancy reached 94.3%, up from 93.5%. Same-store revenue increased 13.8% for Q3 and 9.9% for the nine months; same-store NOI increased 20.5% and 13.8%, respectively. Combined owned-property occupancy was 93.3%, versus 91.9%.
FFO per diluted share, a non-GAAP measure, was $0.09 in Q3 and $0.24 for nine months, compared with $0.06 and $0.16. AFFO per diluted share was $0.10 and $0.25, compared with $0.07 and $0.17.
Operating expense declined overall, largely because depreciation and amortization fell as acquisition-related lease amortization ran off. Store operating costs rose 3.6% in Q3 and 4.9% for nine months, with management citing, among other items, higher maintenance, property costs and snow removal.
No acquisitions were completed during the reported nine-month period. The company completed a small conversion at its Lima, Ohio property in July. The Millbrook expansion was 97.1% occupied, while the West Henrietta expansion was 78.8% occupied at quarter-end; management cautioned that successful lease-up at West Henrietta is not assured.

Outlook, risks and unusual items

Management said it was reviewing acquisition and expansion opportunities and may use the revolver for acquisitions, existing-property expansions or joint ventures. It gave no numerical earnings or revenue guidance.
Management expected existing-tenant rent increases for the remainder of 2021, if any, to be higher than the prior year. It also anticipated inflationary pressure on compensation, utilities, landscaping and other costs. Self-storage demand, rents and occupancy remain subject to seasonality, competition and local economic conditions.
COVID-19 effects remained uncertain. The company reported no material degradation in rent collections as of September 30, 2021, but warned of possible higher bad debts, customer move-outs and lower rent recoveries. It also noted that pandemic trends may reverse.
An affiliate’s PPP loan, of which approximately $300,000 was attributed to the company, was denied forgiveness by the SBA on October 8, 2021. An appeal was filed November 4; its outcome is uncertain, and amounts not forgiven may require repayment with 1% interest. The filing reported no material operating or cash-flow impact through September 30.
The company’s appeal of the Dolton, Illinois property tax assessment and incentive status remained unresolved; there is no assurance of a reduction or reinstatement. No material pending legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.

Important facts for investors to verify

Whether the SBA appeal results in forgiveness of the company’s PPP-loan share and what repayment exposure remains.
Whether elevated rental revenue and occupancy can be sustained, particularly as rent increases affect move-outs and as the West Henrietta expansion leases up.
How marketable-security valuation gains affect reported earnings, and the company’s plans for those investments.
Progress on acquisitions and expansions, use of the available revolver, and compliance with debt covenants and maturity terms.
Outcomes of the Dolton property-tax appeals and the potential impact of inflation and operating-cost increases on property-level NOI.