Global Self Storage, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. The company is a self-managed REIT operating self-storage properties. At quarter-end it owned or managed 13 properties across eight states, including one third-party-managed store.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $3.09 million | $2.73 million | $8.89 million | $7.75 million |
| Operating income | $1.11 million | $0.78 million | $2.68 million | $1.88 million |
| Net income | $0.93 million | $0.63 million | $1.62 million | $1.90 million |
| Diluted EPS | $0.08 | $0.06 | $0.15 | $0.19 |
| Operating margin | 35.8% | 28.7% | 30.1% | 24.3% |
- Revenue and operations: Q3 revenue rose 13.0%, principally from higher rental rates. Nine-month revenue rose 14.7%. Same-store NOI increased 16.0% in Q3 and 18.8% for nine months. Property costs rose 7.5% and 7.8%, respectively.
- Occupancy: Same-store occupancy was 89.6% at September 30, down from 93.3% a year earlier; management reported 90.6% as of November 8. Annualized revenue per leased square foot increased 17.6% in Q3 and 19.4% for nine months.
- Cash flow: Nine-month operating cash flow was $3.81 million, versus $2.53 million. Investing activities used $82,000, financing activities used $319,000, and cash, cash equivalents and restricted cash totaled $6.47 million at period-end.
- Debt and liquidity: Note principal was $17.94 million ($17.55 million net of unamortized costs); the $15 million revolving facility had no borrowings outstanding. Term debt bears 4.192% and matures in 2036; the revolving facility’s effective rate was 5.56% and matures in 2024. Management reported approximately $24.1 million of capital resources, including cash, securities and undrawn revolver availability, and expects resources to cover needs for the next 12 months.
- Distributions and equity: Q3 dividends were $0.0725 per share, compared with $0.065 a year earlier. The company raised $1.98 million net through its at-the-market share program during the first nine months; shares outstanding increased to 11.10 million from 10.71 million at year-end 2021.
Changes versus prior periods and unusual items
- Q3 net income improved year over year, while nine-month net income declined 15.0%. The nine-month comparison reflects an $889,885 unrealized loss on marketable equity securities in 2022 versus a $791,189 unrealized gain in 2021.
- Q3 interest expense fell to $163,153 from $256,502; nine-month interest expense fell to $572,174 from $828,567. Management attributed the decrease to lower debt principal, lower loan-cost amortization and the interest-rate cap’s fair-value effect.
- Q1 2022 included a $307,210 gain from forgiveness of the company’s share of an affiliate’s PPP loan; there was no comparable gain in 2021.
- The marketable securities portfolio was valued at $2.59 million at September 30, down from $3.48 million at December 31, 2021. No securities were sold during the first nine months of 2022.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management plans to pursue acquisitions, existing-property expansions and third-party management opportunities; no acquisitions were completed in the first nine months of 2022. Management expects rental growth, if any, to depend on tenant rate increases, new-tenant pricing, promotions and occupancy.
- Management cited inflation, rising interest rates, energy and labor costs, recession concerns, supply constraints and geopolitical events as uncertainties. It expected further inflation-related cost pressure, including compensation, utilities, landscaping and direct store costs.
- Occupancy and leased square footage declined year over year despite higher revenue per leased square foot. Management warned that customer financial stress could increase bad debts, and economic uncertainty could change move-out patterns and reduce occupancy or rents.
- Property-tax reassessment and loss of the Class 8 incentive at the Dolton, Illinois property remain under appeal. Management expected Dolton property taxes to increase approximately 20% in 2022; there is no assurance of a favorable appeal outcome.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. It stated that it believes it continues to meet REIT qualification requirements.
Investor verification priorities
- Track same-store occupancy and leased area against continued rent growth, including the reported November occupancy update.
- Assess whether rental-rate increases can offset higher operating costs without weakening occupancy, collections or tenant retention.
- Review the Dolton tax appeals and the realized or unrealized performance of the marketable securities portfolio.
- Confirm the availability, cost and covenant terms of the undrawn revolver as interest rates change, and evaluate debt service alongside dividends and planned investment.
- Distinguish recurring operating performance from securities fair-value movements and the one-time PPP forgiveness gain; FFO and AFFO are non-GAAP measures and do not replace cash-flow analysis.