Global Self Storage, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Global Self Storage is a self-managed REIT operating 11 self-storage properties across the Northeast, Mid-Atlantic, and Midwest. The interim financial statements are unaudited.
Financial results and position
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Total revenue | $2.107 million | $1.962 million; up 7.4% |
| Operating expenses | $1.829 million | $1.664 million; up 9.9% |
| Operating income | $277,340 | $297,896; down 6.9% |
| Net income | $187,823; $0.02 diluted EPS | $59,126; $0.01 diluted EPS |
| Operating cash flow | $613,347 | $567,609 |
| Cash, cash equivalents, and restricted cash | $1.681 million | $1.712 million at December 31, 2018 |
| Marketable equity securities | $1.722 million | $1.568 million at December 31, 2018 |
| Note payable, net | $19.164 million | $19.269 million at December 31, 2018 |
| Total assets / total liabilities | $58.393 million / $21.449 million | $58.588 million / $21.382 million at December 31, 2018 |
Operating margin was approximately 13.2%, compared with 15.2% a year earlier. The reported net-income increase was supported by a $154,449 unrealized gain on marketable equity securities, versus a $41,907 unrealized loss in Q1 2018. Interest expense increased to $261,166, primarily because revolving-credit issuance costs began to be amortized.
Operating cash flow exceeded investing outflows of $29,791; financing outflows were $614,942, including $499,044 of dividends paid and $115,898 of debt principal payments. The quarterly dividend was $0.065 per share. Cash and cash equivalents plus marketable securities totaled approximately $3.2 million at quarter-end. A $10 million revolving facility was available, with no borrowings outstanding.
Management reported same-store NOI of $1.193 million, up 7.0%, and same-store revenue growth of 7.4%. FFO was $385,018 ($0.05 per diluted share) and AFFO was $447,428 ($0.06 per diluted share); these are company-presented non-GAAP measures.
Changes and operating performance
- Rental income increased 7.2%, attributed to the Merrillville expansion and higher rental and occupancy rates; ancillary income increased 13.5%.
- Quarter-end portfolio occupancy rose to 92.9% from 92.4% a year earlier. Annualized revenue per leased square foot increased to $11.84 from $11.14.
- Operating expenses grew faster than revenue. Property operating costs increased 7.5%, with higher property taxes among the main contributors. General and administrative expense rose 19.4%, reflecting compensation, stock-based compensation, and a taxable REIT subsidiary tax provision.
- Management cited successful lease-up of the 13,300-square-foot Merrillville expansion: 93.6% of its expansion space was leased at quarter-end.
Outlook, risks, and unusual items
- Management expects existing-tenant rent increases for the remainder of 2019 to be slightly lower than in 2018, while it expects continued revenue growth based on rent increases, new-tenant pricing, promotions, and occupancy. Management cautioned that short-term leasing trends are volatile and not necessarily predictive.
- The company expected to begin the Millbrook, New York expansion in Q2 2019, adding approximately 16,500 gross square feet of climate-controlled units, with construction anticipated to take six to nine months. A $900,000 payment to Tuxis is due upon breaking ground under the 2016 purchase agreement.
- Dolton, Illinois property-tax assessment and loss of a tax incentive remain under appeal. Management expected 2019 Dolton property taxes to increase approximately 25% versus 2018; there is no assurance the appeal will succeed.
- Debt is secured by certain properties and subject to financial and other covenants. The term loan bears a stated 4.192% rate and matures in 2036; the revolving facility bears interest at one-month U.S. dollar LIBOR plus 3.00% and matures in 2021. Interest-rate exposure is partly managed with a $7.5 million interest-rate cap.
- The company identified REIT qualification, local economic conditions, competition, property taxes, financing availability and costs, development execution, and interest-rate movements among its risks. No material pending legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether revenue and occupancy gains continue while property taxes and other operating costs rise.
- The contribution of unrealized securities gains to reported net income and the value and potential liquidation of the remaining securities portfolio.
- Progress, cost, timing, and the related $900,000 payment for the Millbrook expansion.
- The outcome of the Dolton tax appeals and the resulting property-tax burden.
- Liquidity and covenant capacity after dividends, debt service, and planned development spending; confirm the terms and availability of the undrawn revolver.
- The filing’s same-store comparison table lists 2018 revenue as $1,961,805, while the consolidated statement reports $1,961,885; verify the intended comparative figure.