Global Self Storage, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and six months ended June 30, 2021. Global Self Storage is a self-managed REIT operating primarily in self-storage rental operations. At quarter-end, it owned or operated 12 properties and managed one third-party property across eight states.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 |
|---|---|---|
| Total revenue | $2.575 million | $2.234 million |
| Operating income | $635,000 | $280,000 |
| Net income (loss) | $861,000 | ($22,000) |
| Diluted EPS | $0.09 | Approximately $0.00 loss |
| Operating margin | 24.6% | 12.5% |
Revenue rose 15.2%, primarily from higher rents and occupancy at wholly owned properties and contributions from expansions. Net income included a $494,000 unrealized gain on marketable equity securities; that investment gain makes reported profit less representative of property operations. Interest expense was $287,000, down from $295,000.
For the six months, revenue was $5.017 million, up 12.1%; operating income was $1.099 million versus $396,000; and net income was $1.273 million versus a $379,000 loss. The six-month unrealized securities gain was $709,000, compared with a $218,000 loss in 2020.
- Property operating indicators: Same-store occupancy was 96.3%, up from 92.9%. Same-store revenue increased 11.1% for Q2 and 7.9% for the half-year; same-store NOI rose 17.9% and 10.3%, respectively. Combined same- and non-same-store occupancy was 95.7%, up from 90.5%.
- Cash flow: Six-month operating cash flow was $1.895 million, compared with $1.034 million. Investing activities used $171,000, primarily for improvements and equipment. Financing provided $4.713 million, including $6.185 million net proceeds from the stock offering; dividends paid were $1.218 million.
- Liquidity: At June 30, cash, cash equivalents and restricted cash totaled $8.392 million; marketable securities were $2.626 million. Management reported approximately $15.9 million of capital resources, including $4.9 million available on the revolver, and expected available cash to meet needs for the next 12 months.
- Debt: Note principal was $18.594 million and revolver borrowings were $5.144 million; the note’s net carrying value was $18.156 million. The term note bears 4.192% interest and matures in 2036. The revolver was amended after quarter-end, increasing capacity from $10 million to $15 million.
- Equity and distributions: The June public offering issued 1,289,720 shares at $5.35 per share and raised approximately $6.9 million gross. Q2 dividends were $0.065 per share, unchanged year over year. Shares outstanding were 10,708,613 at June 30.
Material changes versus the prior period
- Q2 operating income more than doubled, supported by higher rental revenue and lower depreciation and amortization. The latter largely reflects the run-off of acquired in-place lease amortization.
- Store operating expenses increased 2.5% in Q2 and 5.6% for the half-year; management attributed half-year pressure in part to payroll and snow-removal costs.
- Occupancy and same-store NOI improved materially. Expansions and conversion projects at Millbrook, McCordsville and West Henrietta continued to lease up.
- The stock issuance increased outstanding shares. Cash rose to $8.179 million on the balance sheet from $1.615 million at year-end, principally reflecting the offering proceeds.
Outlook, risks and unusual items
- No formal earnings or revenue guidance was provided. Management said it expected existing-tenant rent increases, if any, in the remainder of 2021 to be higher than the prior year, while noting uncertainty around occupancy, customer move-outs and pricing.
- Management cited COVID-19 uncertainty, potential customer financial stress, delayed lien auctions and possible higher bad debts. It reported no material degradation in rent collections through June 30.
- Management expected inflationary pressure in employee compensation, utilities and landscaping costs; Dolton, Illinois property taxes were expected to rise approximately 20% in 2021. The reassessment and tax-incentive status were under appeal, with no assurance of a favorable result.
- The company had applied for forgiveness of its proportionate share of an affiliate’s PPP loan; forgiveness was not assured. Any gain would be recognized only after forgiveness and legal release.
- The company held marketable equities with $1.870 million of unrealized gains at quarter-end, exposing earnings to market-price fluctuations. Management said it may sell these holdings to help fund growth.
- The July 6, 2021 revolver amendment increased the facility to $15 million, with a stated three-year maturity. The filing’s MD&A also states a July 6, 2021 maturity date for the amended facility, which appears inconsistent with the three-year term and should be checked against the amendment.
- Management reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Reconcile the amended revolver’s maturity date and confirm current borrowing availability, rate and covenant status.
- Assess how much reported earnings growth came from self-storage operations versus unrealized securities gains and lower amortization.
- Track occupancy, rent increases, same-store NOI, bad debt and tenant move-outs as pandemic-related effects and seasonality evolve.
- Verify the status and amount of any PPP forgiveness and the outcome of the Dolton property-tax appeals.
- Evaluate the impact of the share offering and dividends on per-share results, liquidity and funding for acquisitions or expansions.