Global Self Storage, Inc. annual report, FY2021

Business context and reporting period

Global Self Storage, Inc. is a self-managed U.S. self-storage REIT. This Form 10-K covers the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter filing. At year-end, the company owned or managed 13 stores across eight states, with approximately 968,000 leasable square feet and 7,011 units. It completed no property acquisitions in 2021.

Financial and operating performance

• Rental income rose 14.4% to $10.05 million, primarily from higher rental rates and existing-tenant rate increases. Other property-related income increased 13.2% to $381,534.
• Total expenses declined 1.9% to $7.82 million, as lower depreciation and amortization and slightly lower general and administrative costs more than offset higher property operating costs. Property operating expenses increased 5.3% to $3.78 million.
• Operating margin was approximately 25.5%, versus 13.3% in 2020. Net income included a $1.57 million unrealized gain on marketable equity securities, compared with $155,139 in 2020; this noncash valuation gain materially boosted reported earnings. Excluding that gain, net income was approximately $1.71 million.
• Same-store revenue increased 11.2% and same-store NOI increased 15.5% for the year. Same-store occupancy fell to 94.1% from 95.1%, while annualized revenue per leased square foot rose 12.6% to $13.01.
• Year-end total assets were $66.55 million and stockholders’ equity was $47.12 million. Mortgage principal outstanding was $18.34 million; the $15 million revolving facility was undrawn. The mortgage bears 4.192% interest and matures in 2036; the revolving facility’s effective rate was 3.25% at year-end and it matures in 2024.
• Year-end cash, cash equivalents and restricted cash totaled $3.06 million; marketable securities were $3.48 million. Management reported approximately $21.5 million of capital resources, including $15 million of undrawn revolver capacity.
• Capital expenditures were $253,142. Cash dividends paid were $2.61 million; declared dividends totaled $0.26 per share for 2021, unchanged per share from 2020. FFO was $3.35 million ($0.33 diluted per share) and AFFO was $3.59 million ($0.36 per diluted share); both are non-GAAP measures.

Material changes versus 2020

• Revenue growth and lower depreciation drove operating income higher. Interest expense declined 11.3% to $1.05 million, primarily reflecting lower revolving borrowings; the revolver balance was paid off during 2021.
• Net cash from operations increased to $3.64 million. Financing cash flow included $6.22 million of net proceeds from a common-stock offering, repayment of $5.14 million on the line of credit, and $2.61 million of dividends paid. Shares outstanding rose to 10.71 million from 9.34 million at year-end 2020.
• Combined same- and non-same-store occupancy decreased one percentage point to 93.1%, even as annual combined revenue grew 14.3% and NOI grew 20.1%.
• The company completed a small conversion adding approximately 3,000 square feet of climate-controlled units at its Lima, Ohio property. No acquisitions or major expansion projects were completed in 2021.

Outlook, risks and unusual items

• Management stated that current capital resources were expected to cover liquidity needs for the next 12 months. It may use prudent borrowings for acquisitions, property expansions or joint ventures. No specific earnings or revenue guidance was provided.
• Management expected 2022 existing-tenant rent increases, if any, to be similar to 2021, while anticipating higher property taxes, compensation, utilities, landscaping and marketing costs. The Dolton, Illinois property’s taxes were $417,000 in 2021; management expected an approximately 20% increase in 2022. The assessment and tax-incentive status remain under appeal, with no assurance of a favorable outcome.
• The affiliate-borrowed PPP loan included approximately $300,000 attributed to the company. The SBA denied forgiveness in 2021; in January 2022 the appeal was dismissed without prejudice and the matter remanded for further review. Forgiveness is uncertain, and the company may owe its proportionate interest or other amounts if forgiveness is denied.
• COVID-19 effects remain uncertain. The company reported no material degradation in rent collections at year-end, but warned of potential weaker demand, higher bad debts, tenant move-outs and reduced rental rates. Other risks include competition, short month-to-month leases, interest-rate and financing exposure, property-tax and operating-cost increases, REIT qualification, environmental and climate risks, and cyber incidents.
• On January 14, 2022, the company established an at-the-market equity program for up to $15 million. By the filing date it had sold 65,843 shares for approximately $403,364 gross proceeds, less commissions. This provides financing capacity but may dilute existing shareholders.
• The company reported no material pending legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021; the auditor issued an unqualified opinion on the financial statements.

Important facts for investors to verify

• Review the financial statements and FFO/AFFO reconciliation to distinguish operating performance from the $1.57 million unrealized securities gain.
• Track same-store occupancy, achieved rental rates, tenant turnover and collections, particularly as rate increases and post-pandemic demand normalize.
• Confirm the outcome of the Dolton property-tax appeals and the resulting 2022 tax expense.
• Follow the SBA’s further review of PPP forgiveness and the company’s ultimate repayment obligation.
• Assess the revolving facility’s variable-rate terms, covenants and LIBOR transition provisions, and verify available liquidity and future borrowing use.
• Monitor share issuance under the ATM program, dividend coverage by operating cash flow, and the company’s ability to fund growth without excessive dilution or leverage.