Global Self Storage, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018, with fourth-quarter comparisons where disclosed. The filing was signed April 1, 2019. This is an annual report, not a standalone quarterly filing.
Business context
Global Self Storage is a self-managed REIT operating 11 self-storage properties across seven states. At year-end, the portfolio comprised 765,508 net leasable square feet and 5,624 units; overall occupancy was 92.5%. Leases are generally month-to-month. The company focuses on revenue management, marketing, acquisitions, and property expansions.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $8.111 million | $7.473 million |
| Operating income | $1.426 million | $0.677 million |
| Net income (loss) | $0.619 million | ($0.146 million) |
| Diluted earnings per share | $0.08 | ($0.02) |
| Operating cash flow | $2.281 million | $1.925 million |
| Cash dividends paid | $1.992 million | $1.981 million |
- Revenue increased 8.5%, led by higher rents, revenue-management initiatives, and the contribution from the Merrillville expansion. Rental income rose 8.5% to $7.851 million.
- Total expenses declined 1.6% to $6.685 million. Store operating expenses rose 3.4%, while depreciation and amortization fell 17.7% and general and administrative expenses fell 5.2%. Business-development and capital-raising costs increased to $198,000 from $14,295.
- Operating margin was approximately 17.6%, compared with 9.1% in 2017. Same-store NOI grew 11.7% for the year; same-store occupancy increased to 92.5% from 91.9%, and annualized revenue per leased square foot rose 6.5% to $11.49.
- Year-end cash and cash equivalents were $1.526 million; marketable securities were $1.568 million, for approximately $3.1 million in combined cash and securities. Restricted cash was $186,063.
- At year-end, the balance sheet reported $19.269 million of net note payable and total liabilities of $21.382 million. The secured term loan had $19.810 million principal outstanding, a 4.192% stated rate, and a July 2036 maturity. A secured revolving facility provides up to $10 million at one-month U.S. dollar LIBOR plus 3.00%, maturing December 2021; no amount had been drawn by year-end.
- Distributions were $0.26 per share for 2018. The filing reports operating cash flow above dividends and cash capital spending; cash and cash equivalents nevertheless declined by $621,000 year over year.
- FFO was $2.002 million, or $0.26 per diluted share; AFFO was $2.281 million, or $0.30 per diluted share. These are non-GAAP measures and should be considered alongside GAAP results and cash flows.
Material changes and unusual items
- Net results turned positive from a 2017 loss. Operating income more than doubled, while interest expense increased modestly to $898,000.
- The Merrillville, Indiana expansion added 13,300 leasable square feet and was completed in January 2018. The company made no property acquisitions during 2018.
- Fourth-quarter same-store NOI increased 28.4%, but the comparison was affected by a $105,000 Dolton property-tax increase recorded in fourth-quarter 2017 following reassessment and loss of a tax incentive.
- Adoption of ASU 2016-01 moved changes in the fair value of marketable equity securities into net income. The company recorded a $15,517 unrealized gain in 2018; year-end securities had an unrealized gain of $812,120 over cost.
- Cash dividends were funded alongside operating cash flow and capital spending; the company also paid $478,000 in revolving-credit issuance costs and $190,000 of note principal during the year.
Outlook, risks, and contingencies
- Management expects 2019 existing-tenant rent increases to be about the same as, or lower than, 2018. It cites possible revenue growth from rent increases, new-tenant pricing, reduced promotions, and occupancy, while noting that demand, competition, seasonality, and tenant turnover make results uncertain.
- The company expects to begin a Millbrook, New York expansion in 2019, adding approximately 16,500 gross square feet of climate-controlled units. Construction timing and completion are not assured. A $900,000 payment to Tuxis is due upon commencement of construction under the relevant agreement.
- Management expects Dolton property taxes to rise approximately 20% in 2019 as the Class 8 incentive phases out. The tax reassessment and incentive status are under appeal, with no assurance of a favorable outcome. Higher assessments related to the Merrillville expansion may also increase property taxes.
- Principal risks include local economic weakness, competition and oversupply, short-term leases, acquisition and development execution, rising operating costs and interest rates, access to capital, debt covenant compliance, cybersecurity, and maintaining REIT qualification and distributions.
- The company reported no material pending legal proceedings. Its independent auditor gave an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective. The auditor was not engaged to audit internal controls.
Most important facts for investors to verify
- Whether operating cash flow can continue to support dividends, maintenance capital spending, and debt service, particularly given the modest cash-flow cushion in 2018.
- The outcome and timing of the Dolton tax appeals, the tax-incentive phaseout, and the resulting property-tax expense.
- The Millbrook expansion’s construction cost, timing, expected returns, and triggering terms for the $900,000 payment.
- Terms, covenants, collateral, and effective borrowing capacity of the undrawn floating-rate revolver; also monitor compliance with term-loan covenants.
- The sustainability of rent growth and occupancy, including the effects of competition, seasonal demand, and tenant responses to rate increases.