Global Self Storage, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017. Global Self Storage is a self-managed REIT operating 11 self-storage properties in the Northeast, Mid-Atlantic and Midwest. The filing was signed May 15, 2018.
Financial results
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $1.962 million | $1.750 million | +12.1% |
| Operating income | $297,896 | $194,521 | +53.1% |
| Net income (loss) | $59,126 | $(14,266) | Turned profitable |
| Diluted EPS | $0.01 | $(0.00) | — |
| Operating cash flow | $567,609 | $604,760 | −6.1% |
| Investing cash flow | $(52,179) | $(121,890) | — |
| Dividends paid | $495,266 | $495,266 | Unchanged |
Operating margin was approximately 15.2%, versus 11.1% a year earlier; net margin was approximately 3.0%, versus a loss. Same-store revenue rose 12.4%, while same-store operating costs increased 21.2%; same-store NOI increased 6.5% to $1.007 million. For all stores, occupancy was 92.4%, up from 89.9%, and combined-store NOI increased 4.9% to $1.115 million.
Q1 cash and cash equivalents were $2.148 million, restricted cash $128,208, and marketable equity securities $1.510 million. Management described total capital resources as approximately $3.6 million. Cash, cash equivalents and restricted cash increased $20,164 during the quarter. Operating cash flow less investing outlays and dividends was approximately $20,000.
At March 31, total assets were $59.574 million and total liabilities $21.509 million. The note payable had $20.0 million principal outstanding and a $19.428 million net carrying value after unamortized loan costs. The loan bears 4.192% stated interest, is secured by certain stores, and matures July 1, 2036. The filing estimates its fair value at $18.403 million. Interest-only payments run through June 30, 2018; management said monthly interest and amortization payments were expected to rise from $69,867 to $107,699 beginning in July 2018.
FFO was $407,999, or $0.05 per diluted share; AFFO was $450,790, or $0.06 per diluted share. These are non-GAAP measures and are not substitutes for net income or cash flow.
Changes, outlook and risks
- Revenue growth reflected rental-rate and occupancy gains and the lease-up of the Bolingbrook expansion. Rental income increased 12.1%; management attributed ancillary-income growth to increased insurance participation and higher average occupancy.
- Operating costs rose 7.0% overall. Property operating costs increased 23.2%, including higher property taxes, snow removal and utilities. General and administrative costs rose 13.4%, primarily on legal, reporting, incentive-plan and payroll costs. Depreciation and amortization declined 22.3%, mainly as acquired in-place leases amortized.
- Q1 included a $41,907 unrealized loss on marketable equity securities in earnings under newly adopted ASU 2016-01. The accounting change moved fair-value changes from other comprehensive income to net income; it also reclassified $796,603 of opening accumulated other comprehensive income to retained earnings. Dividend, interest and other income included a nonrecurring $6,396 class-action recovery.
- The Merrillville expansion was completed in January, adding 13,300 leasable square feet; the new space was 65.2% leased by March 31. Management expected the added capacity to support revenue during the rest of 2018. The Bolingbrook expansion was 93.3% leased at quarter-end.
- Management expected existing-tenant rent increases for the remainder of 2018 to be slightly below the prior year for same-store properties, and slightly above the prior year for the combined portfolio. It cited seasonality, local demand, competition and volatile short-term leasing trends; no formal full-year financial guidance was provided.
- The company expected to break ground on a roughly 16,500-square-foot climate-controlled Millbrook, NY expansion in 2018, but construction had not started. A $900,000 contingent payment to Tuxis is due upon commencement of construction. Timing and completion are not assured.
- At Dolton, IL, a reassessment and nonrenewal of a Class 8 tax incentive increased property-tax expense; both matters were under appeal. Management expected Dolton property taxes to rise approximately 20% annually in 2018 and 2019 as the incentive phases out, with no assurance of a favorable appeal.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. Key stated risks include real-estate and local economic conditions, competition, acquisition and development execution, financing availability and cost, REIT qualification, interest rates, taxes, and technology or cybersecurity issues.
Important facts for investors to verify
- Whether occupancy and rental-rate growth can continue while property operating costs, particularly taxes and weather-related expenses, rise.
- Progress and funding for the Millbrook expansion, including the timing of construction and the contingent $900,000 payment.
- Results of the Dolton property-tax assessment and incentive appeals, and the expected ongoing tax burden.
- Liquidity and dividend coverage after the July 2018 increase in required loan payments; Q1 operating cash flow only modestly exceeded investing outlays and dividends combined.
- Marketable-securities exposure and the effect of fair-value changes on reported earnings under ASU 2016-01.
- Potential dilution from the 73,155 restricted shares granted in March 2018, including performance-based awards tied to 2018 AFFO and same-store revenue goals.