Global Self Storage, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. The company is a self-managed and self-administered REIT operating 11 self-storage facilities in the Northeast, Mid-Atlantic and Midwest. Comparisons with 2016 require care: the company converted from an investment company to an operating company on January 19, 2016, and acquired four facilities during 2016.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | 2016 comparison period |
|---|---|---|---|---|
| Total revenue | $1.93 million | $1.35 million | $5.53 million | $3.42 million* |
| Operating income (loss) | $75,272 | ($44,418) | $493,137 | ($77,605)* |
| Net loss | ($129,346) | ($217,372) | ($125,524) | ($180,557)* |
| Basic and diluted loss per share | ($0.02) | ($0.03) | ($0.02) | ($0.02)* |
| Cash flow from operations | — | — | $1.39 million | $1.07 million* |
*The nine-month 2016 financial-statement comparison covers January 19–September 30, not the full nine months; accounting-basis and period differences limit comparability.
- Q3 revenue increased 43.3%, largely from 2016 acquisitions; rental income rose 43.2%. Same-store revenue grew 11.8%, while same-store NOI increased 7.5%.
- For the nine months, revenue rose 61.7% from the presented 2016 period. Same-store revenue grew 11.1% and same-store NOI 13.1%. Company-wide growth also reflects acquired facilities and the longer 2017 reporting period.
- Q3 operating income was positive, but interest expense of $220,209 resulted in a net loss. General and administrative expense rose 62.8% to $640,566, mainly due to legal, compliance, payroll and corporate-transition costs. Depreciation and amortization also increased following acquisitions and expansion.
- At September 30, cash and cash equivalents were $2.51 million, restricted cash $90,000, and marketable securities $1.45 million; management reported capital resources of approximately $4.0 million. Operating cash flow was $1.39 million, compared with $313,000 of investing outflows and $1.49 million of dividends paid.
- Total assets were $60.23 million and total liabilities $21.31 million. Debt principal was $20.0 million, reported net of loan costs at $19.41 million. The secured loan bears 4.192% stated interest (4.40% effective), matures in 2036, and is interest-only through June 2018. The filing states monthly payments are expected to rise from about $69,867 to $107,699 starting in July 2018.
- Quarterly and nine-month dividends were $0.065 and $0.195 per share, respectively. Management estimated that the 2017 nine-month dividends were substantially return of capital; final tax characterization was pending.
- Same-store occupancy was 92.0% at quarter-end versus 91.4% a year earlier. Overall portfolio occupancy was also 92.0%; average tenant duration was approximately 2.8 years.
Outlook, developments and risks
- Management expected continued revenue growth, potentially from tenant rent increases, new-tenant rates, lower promotions and occupancy. It expected existing-tenant increases for the remainder of 2017 to be slightly below the prior year. Management cautioned that short-term demand and occupancy trends are volatile and seasonal; no formal earnings guidance was provided.
- The Merrillville, Indiana expansion, begun in October 2017, is planned to add about 13,300 gross square feet at an estimated $400,000 cost, with completion anticipated in three to six months. The Millbrook, New York project is planned to add about 16,500 gross square feet; final construction costs were not yet determined, and completion was estimated six to nine months after commencement. A further $900,000 payment to affiliate Tuxis is due upon specified conditions, including commencement of Millbrook construction.
- The company cited expected pressure from compensation, property taxes, utilities and other operating costs. It expected property-tax expense to rise further due to higher assessments and the anticipated phaseout of a tax incentive at its Dolton property. Utility costs are sensitive to weather, energy prices and usage.
- Key risks include local economic and storage-demand conditions, competition, acquisition and development execution, financing access and interest-rate movements, real-estate and environmental risks, REIT qualification and tax matters, regulation, litigation, and cybersecurity. Debt is secured by certain properties and subject to financial and other covenants.
- After quarter-end, stockholders approved an amended charter increasing authorized shares and a 2017 equity incentive plan. The stockholder rights plan was terminated on October 20, 2017. Management reported effective disclosure controls and no material pending legal proceedings.
Most important facts for investors to verify
- How much of revenue and NOI growth is organic same-store performance versus acquisitions and the Bolingbrook expansion; assess the non-GAAP NOI, FFO and AFFO reconciliations.
- Whether operating cash flow can sustainably cover dividends, maintenance capital expenditures and planned expansion spending, given the reported net losses and limited liquidity.
- The timing, final cost and expected lease-up of the Merrillville and Millbrook projects, including the $900,000 contingent affiliate payment.
- Debt covenants, collateral, and the cash-payment increase expected in 2018; confirm the company’s capacity to fund obligations and growth.
- Future property-tax, payroll and utility expense trends, and the final tax treatment of 2017 dividends.