GLOBAL SELF STORAGE, INC. CAUTIONARY LANGUAGE
The following discussion and analysis should be read in conjunction with our unaudited "Condensed Consolidated Financial Statements" and the "Notes to Condensed Consolidated Financial Statements (unaudited)" appearing elsewhere in this report. We make statements in this section that may be forward looking statements within the meaning of the federal securities laws. For a complete discussion of forward looking statements, see the section in this report entitled "Statement on Forward Looking Information." References to the "Company," "we," "us," or "our company" refer toGlobal Self Storage, Inc. , aMaryland corporation, including, as the context requires, its direct and indirect subsidiaries.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments, and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments, and assumptions and actual facts, our financial statements may be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. Please refer to the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our critical accounting policies and other disclosures.
Management's Discussion and Analysis Overview
The Company is a self-administered and self-managed REIT that owns, operates,
manages, acquires, develops and redevelops self storage properties ("stores" or
"properties") in the United States . Our stores are designed to offer affordable,
easily accessible, and secure storage space for residential and commercial
customers. As of March 31, 2022 , the Company owned and operated, or managed,
through its wholly owned subsidiaries, thirteen stores located in Connecticut ,
Illinois , Indiana , New York, Ohio , Pennsylvania , South Carolina , and Oklahoma .
The Company was formerly registered under the Investment Company Act of 1940, as
amended (the "1940 Act") as a non-diversified, closed end management investment
company. The Securities and Exchange Commission's ("SEC") order approving the
Company's application to deregister from the 1940 Act was granted on January 19,
2016 . On January 19, 2016 , the Company changed its name to Global Self Storage,
Inc. from Self Storage Group, Inc. , changed its SEC registration from an
investment company to an operating company reporting under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and listed its common
stock on NASDAQ under the symbol "SELF".
The Company was incorporated on December 12, 1996 under the laws of the state of
Maryland . The Company has elected to be treated as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). To the extent the Company
continues to qualify as a REIT, it will not generally be subject to U.S. federal
income tax, with certain limited exceptions, on its taxable income that is
distributed to its stockholders.
Our store operations generated most of our net income for all periods presented
herein. Accordingly, a significant portion of management's time is devoted to
seeking to maximize cash flows from our existing stores, as well as seeking
investments in additional stores. The Company expects to continue to earn a
majority of its gross income from its store operations as its current store
operations continue to develop and as it makes additional store acquisitions.
Over time, the Company expects to divest its remaining portfolio of investment
securities and use the proceeds to acquire, develop, redevelop, and/or operate
additional stores. The Company expects its income from investment securities to
continue to decrease as it continues to divest its holdings of investment
securities.
Financial Condition and Results of Operations
Our financing strategy is to minimize the cost of our capital in order to maximize the returns generated for our stockholders. For future acquisitions, the Company may use various financing and capital raising alternatives including, but not limited to, debt and/or equity offerings, credit facilities, mortgage financing, and joint ventures with third parties. OnJune 24, 2016 , certain wholly owned subsidiaries of the Company ("Term Loan Secured Subsidiaries") entered into a loan agreement and certain other related agreements (collectively, the "Term Loan Agreement") between the Term Loan Secured Subsidiaries 21
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andInsurance Strategy Funding IV, LLC (the "Term Loan Lender"). Under the Term Loan Agreement, the Term Loan Secured Subsidiaries are borrowing from Term Loan Lender in the principal amount of$20 million pursuant to a promissory note (the "Term Loan Promissory Note"). The Term Loan Promissory Note bears an interest rate equal to 4.192% per annum and is due to mature onJuly 1, 2036 . Pursuant to a security agreement (the "Term Loan Security Agreement"), the obligations under the Term Loan Agreement are secured by certain real estate assets owned by the Term Loan Secured Subsidiaries.J.P. Morgan Investment Management, Inc. acted as Special Purpose Vehicle Agent of the Term Loan Lender. The Company entered into a non-recourse guaranty onJune 24, 2016 (the "Term Loan Guaranty," and together with the Term Loan Agreement, the Term Loan Promissory Note and the Term Loan Security Agreement, the "Term Loan Documents") to guarantee the payment to Lender of certain obligations of the Term Loan Secured Subsidiaries under the Term Loan Agreement. OnMay 19, 2020 , an affiliate of the Company (the "Borrower") entered into a Paycheck Protection Program Term Note ("PPP Note") with Customers Bank on behalf of itself, the Company, and certain other affiliates, under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by theU.S. Small Business Administration (the "SBA"). The Borrower received total proceeds of$486,602 from the PPP Note of which$307,210 was attributable to the Company under the SBA's loan determination formula. The Borrower thereafter applied for forgiveness of the amount due on the PPP Note. OnApril 5, 2022 , the SBA completed its review of the Borrower's PPP loan forgiveness application and approved loan forgiveness of the entire PPP Note. Accordingly, the Company will not be required to repay its proportionate share of interest on its portion of the PPP Note. OnJune 25, 2021 , we completed an underwritten public offering whereby we sold and issued an aggregate of 1,121,496 shares of our common stock at the price of$5.35 per share. Subsequently, the over-allotment option was exercised, and sale completed onJune 29, 2021 , increasing the total number of shares sold and issued to 1,289,720. We raised aggregate gross proceeds of approximately$6.9 million in the public offering after giving effect to the exercise of the over-allotment option. OnJuly 6, 2021 , certain wholly owned subsidiaries ("Amended Credit Facility Secured Subsidiaries") of the Company entered into a first amendment to the Credit Facility Loan Agreement (collectively, the "Amended Credit Facility Loan Agreement") between theAmended Credit Facility Secured Subsidiaries andThe Huntington National Bank , successor by merger toTCF National Bank ("Amended Credit Facility Lender"). Under the Amended Credit Facility Loan Agreement, the Amended Credit Facility Secured Subsidiaries may borrow from the Amended Credit Facility Lender in the principal amount of up to$15 million pursuant to a promissory note (the "Amended Credit Facility Promissory Note"). The Amended Credit Facility Promissory Note bears an interest rate equal to 3% plus the greater of the One MonthU.S. Dollar London Inter-Bank Offered Rate or one-quarter of one percent (0.25%) and is due to mature onJuly 6, 2024 . As ofMarch 31, 2022 , the effective interest rate was 3.25%. The obligations under the Amended Credit Facility Loan Agreement are secured by certain real estate assets owned by the Amended Credit Facility Secured Subsidiaries. The Company entered into an amended and restated guaranty of payment onJuly 6, 2021 ("Amended Credit Facility Guaranty," and together with the Amended Credit Facility Loan Agreement, the Amended Credit Facility Promissory Note and related instruments, the "Amended Credit Facility Loan Documents") to guarantee the payment to the Amended Credit Facility Lender of certain obligations of the Amended Credit Facility Secured Subsidiaries under the Amended Credit Facility Loan Agreement. The Company and the Amended Credit Facility Secured Subsidiaries paid customary fees and expenses in connection with their entry into the Amended Credit Facility Loan Documents. The Company also maintains a bank account at the Amended Credit Facility Lender. As ofMarch 31, 2022 , we have no withdrawn proceeds under the Amended Credit Facility Loan Agreement. We currently intend to strategically withdraw proceeds available under the Amended Credit Facility Loan Agreement to fund: (i) the acquisition of additional self storage properties, (ii) expansions at existing self storage properties in our portfolio, and/or (iii) joint ventures with third parties for the acquisition and expansion of self storage properties. OnJanuary 14, 2022 , the Company entered into an At Market Offering Sales Agreement (the "Sales Agreement") withB. Riley Securities, Inc. (the "Agent") pursuant to which the Company may sell, from time to time, shares of common stock having an aggregate offering price of up to$15,000,000 , through the Agent. As ofMarch 31, 2022 , under the Sales Agreement, the Company has sold and issued an aggregate of 65,843 shares of common stock and raised aggregate gross proceeds of approximately$403,364 , less sales commissions of approximately$8,069 and other offering costs resulting in net proceeds of$198,370 . We continue to actively review a number of store and store portfolio acquisition opportunities and have been working to further develop and expand our current stores. We did not complete any acquisitions in the three months endedMarch 31, 2022 . In addition, we may pursue third-party management opportunities of properties owned by certain affiliates or joint venture partners for a fee, and utilize such relationships with third-party owners as a source for future acquisitions and investment opportunities. As ofMarch 31, 2022 , under our third-party management platform, Global MaxManagementSM, we managed one third-party owned property, which was rebranded as "Global Self Storage ," had 137,318-leasable square feet and was comprised of 619 climate-controlled and non-climate-controlled units located inEdmond, Oklahoma .
We expect we will have sufficient cash from current sources to meet our liquidity needs for the next twelve months because our capital resources currently exceed our projected expenses for the next twelve months. However, we may opt to supplement our equity
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capital and increase potential returns to our stockholders through the use of
prudent levels of borrowings. We may use debt when the available terms and
conditions are favorable to long-term investing and well-aligned with our
business plan. In light of the novel coronavirus ("COVID-19") pandemic and its
impact on the global economy, we are closely monitoring overall liquidity levels
and changes in our business performance (including our properties) to be in a
position to enact changes to ensure adequate liquidity going forward.
As of March 31, 2022 , we had capital resources totaling approximately $21.8
million , comprised of $3.5 million of cash, cash equivalents, and restricted
cash, $3.3 million of marketable securities, and $15.0 million available for
withdrawal under the Credit Facility Loan Agreement. Capital resources derived
from retained cash flow have been and are currently expected to continue to be
negligible. Retained operating cash flow represents our expected cash flow
provided by operating activities, less stockholder distributions and capital
expenditures to maintain stores. These capital resources allow us to continue to
execute our strategic business plan, which includes funding acquisitions, either
directly or through joint ventures; expansion projects at our existing
properties; and broadening our revenue base and pipeline of potential
acquisitions through developing Global MaxManagementSM, our third-party
management platform. Our board of directors regularly reviews our strategic
business plan, including topics and metrices like capital formation, debt versus
equity ratios, dividend policy, use of capital and debt, funds from operations
("FFO") and adjusted funds from operations ("AFFO") performance, and optimal
cash levels.
We expect that the results of our operations will be affected by a number of
factors. Many of the factors that will affect our operating results are beyond
our control. The Company and its properties could be materially and adversely
affected by the risks, or the public perception of the risks, related to an
epidemic, pandemic, outbreak, or other public health crisis, such as the
COVID-19 pandemic. The COVID-19 pandemic has continued to impact the U.S. and
global economies. The U.S. financial markets have experienced disruption and
constrained credit conditions within certain sectors. Although more normalized
activities have resumed, at this time the Company cannot predict the full extent
of the impacts of the COVID-19 pandemic on the Company and the COVID-19 pandemic
could have a delayed adverse impact on the Company's financial results. The
Company will continue to monitor the pandemic's effects and will adjust its
operations as necessary.
As of the date of this annual report, our properties continue to operate and we
are in compliance with federal, state and local COVID-19 guidelines and
mandates. In addition, we continue practicing social distancing and enhanced
cleaning and disinfectant activities to protect our employees and tenants. We
have long provided online leasing and payment options, as well as on-site
contactless solutions using kiosks that can facilitate rentals and even
automatically dispense locks. Our kiosks are available 24/7 at each of our
stores where prospective tenants can select and rent a unit, or current tenants
can pay their rent.
Results of Operations for the Three Months Ended
Revenues
Total revenues increased from$2,442,188 during the three months endedMarch 31, 2021 to$2,820,813 during the three months endedMarch 31, 2022 , an increase of 15.5%, or$378,625 . Rental income increased from$2,333,238 during the three months endedMarch 31, 2021 to$2,708,784 during the three months endedMarch 31, 2022 , an increase of 16.1%, or$375,546 . The increase was primarily attributable to increases in rental rates. Other store related income consists of customer insurance fees, sales of storage supplies, and other ancillary revenues. Other store related income increased from$90,753 during the three months endedMarch 31, 2021 to$92,531 during the three months endedMarch 31, 2022 , an increase of 2.0%, or$1,778 . Income from our third-party management platform consists of management fees and customer insurance fees. Management fees and other income increased from$18,197 during the three months endedMarch 31, 2021 to$19,498 during the three months endedMarch 31, 2022 . Operating Expenses Total operating expenses increased from$1,978,255 during the three months endedMarch 31, 2021 to$2,146,108 during the three months endedMarch 31, 2022 , an increase of 8.5%, or$167,853 , which was primarily attributable to an increase in general and administrative expenses. Store operating expenses increased from$994,023 during the three months endedMarch 31, 2021 to$1,053,734 during the three months endedMarch 31, 2022 , an increase of 6.0%, or$59,711 . The increase in store operating expenses was due primarily to increased expenses for utilities and real estate property taxes. Depreciation and amortization decreased from$405,615 during the three months endedMarch 31, 2021 to$404,921 during the three months endedMarch 31, 2022 , a decrease of 0.2%, or$694 . 23
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General and administrative expenses increased from$578,617 during the three months endedMarch 31, 2021 to$682,153 during the three months endedMarch 31, 2022 , an increase of 17.9%, or$103,536 . The increase in general and administrative expenses during this period are primarily attributable to increased professional fees. Business development, capital raising, store acquisition, and third-party management marketing expenses increased from$0 during the three months endedMarch 31, 2021 to$5,300 during the three months endedMarch 31, 2022 . These costs primarily consist of costs incurred in connection with business development, capital raising, and future potential store acquisitions, and third-party management marketing expenses. Business development costs are typically non-recurring and fluctuate based on periodic business development and acquisition activity. Operating Income As a result of the operating effects noted above, operating income increased from$463,933 during the three months endedMarch 31, 2021 to$674,705 ?? during the three months endedMarch 31, 2022 , an increase of 45.4%, or$210,772 . ????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????
Other income (expense)
Interest expense on loans decreased from$285,492 during the three months endedMarch 31, 2021 to$188,766 during the three months endedMarch 31, 2022 . This decrease was attributable to a lower amount of funds drawn and fluctuating interest expense on funds drawn on the Credit Facility Loan Agreement and to the change in fair value of the interest rate cap. The cash payments for the$20 million loan remain the same every month untilJune 2036 .
Dividend, interest, and other income was
Unrealized gain on marketable equity securities was
Net income (loss)
For the three months endedMarch 31, 2021 , net income was$411,247 , or$0.04 per fully diluted share. For the three months endedMarch 31, 2022 , net income was$283,207 , or$0.03 per fully diluted share.
Distributions and Closing Market Prices
Distributions for each of the three months endedMarch 31, 2022 and 2021 were$0.065 per share. The Company's closing market price as ofMarch 31, 2022 andMarch 31, 2021 was$5.60 and$4.76 , respectively. Past market price performance and distribution levels do not guarantee similar results in the future.
Non-GAAP Financial Measures
Funds from Operations ("FFO") and FFO per share are non-GAAP measures defined by
the National Association of Real Estate Investment Trusts ("NAREIT") and are
considered helpful measures of REIT performance by REITs and many REIT analysts.
NAREIT defines FFO as a REIT's net income, excluding gains or losses from sales
of property, and adding back real estate depreciation and amortization. FFO and
FFO per share are not a substitute for net income or earnings per share. FFO is
not a substitute for GAAP net cash flow in evaluating our liquidity or ability
to pay dividends, because it excludes financing activities presented on our
statements of cash flows. In addition, other REITs may compute these measures
differently, so comparisons among REITs may not be helpful. However, the Company
believes that to further understand the performance of its stores, FFO should be
considered along with the net income and cash flows reported in accordance with
GAAP and as presented in the Company's financial statements.
Adjusted FFO ("AFFO") and AFFO per share are non-GAAP measures that represents
FFO and FFO per share excluding the effects of business development, capital
raising, and acquisition related costs and non-recurring items, which we believe
are not indicative of the Company's operating results. AFFO and AFFO per share
are not a substitute for net income or earnings per share. AFFO is not a
substitute for GAAP net cash flow in evaluating our liquidity or ability to pay
dividends, because it excludes financing activities presented on our statements
of cash flows. We present AFFO because we believe it is a helpful measure in
understanding our results of operations insofar as we believe that the items
noted above that are included in FFO, but excluded from AFFO, are not indicative
of our ongoing operating results. We also believe that the analyst community
considers our AFFO (or similar measures using different terminology) when
evaluating us. Because other REITs or real estate companies may not compute AFFO
in the same manner
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as we do, and may use different terminology, our computation of AFFO may not be comparable to AFFO reported by other REITs or real estate companies. However, the Company believes that to further understand the performance of its stores, AFFO should be considered along with the net income and cash flows reported in accordance with GAAP and as presented in the Company's financial statements. We believe net operating income or "NOI" is a meaningful measure of operating performance because we utilize NOI in making decisions with respect to, among other things, capital allocations, determining current store values, evaluating store performance, and in comparing period-to-period and market-to-market store operating results. In addition, we believe the investment community utilizes NOI in determining operating performance and real estate values and does not consider depreciation expense because it is based upon historical cost. NOI is defined as net store earnings before general and administrative expenses, interest, taxes, depreciation, and amortization.
NOI is not a substitute for net income, net operating cash flow, or other related GAAP financial measures, in evaluating our operating results.
Self Storage Portfolio
The following discussion and analysis of our same-store self storage operations are presented on a comparative basis for the three months endedMarch 31, 2022 . GLOBAL SELF STORAGE STORES March 31, March 31, Year 2022 Square 2021 Square Store Number Net Leasable Foot Foot Opened / Property(1) Address Acquired of Units Square Feet Occupancy % Occupancy % OWNED STORES SSG BOLINGBROOK 296 North LLC Weber Road, Bolingbrook, 1997 / IL 60440 2013 807 113,700 97.2 % 98.2 % SSG CLINTON LLC 6 Heritage Park Road, Clinton, CT 1996 / 06413 2016 182 30,408 89.7 % 95.5 % SSG DOLTON LLC 14900 Woodlawn Avenue, Dolton, IL 2007 / 60419 2013 652 86,590 93.4 % 96.2 % SSG FISHERS LLC 13942 East 96th Street, McCordsville, 2007 / IN 46055 2016 541 76,360 87.4 % 89.5 % SSG LIMA LLC 1910 West Robb Avenue, Lima, 1996 / OH 60419 2016 756 96,883 94.7 % 94.4 % SSG MERRILLVILLE 6590 Broadway, LLC Merrillville, 2005 / IN 46410 2013 568 80,970 95.4 % 95.6 % SSG MILLBROOK LLC 3814 Route 44, Millbrook, NY 2008 / 12545 2016 260 24,492 96.3 % 95.6 % SSG ROCHESTER LLC 2255 Buffalo Road, Rochester, NY 2010 / 14624 2012 643 68,131 93.5 % 96.4 % SSG SADSBURY LLC 21 Aim Boulevard, Sadsburyville, 2006 / PA 19369 2012 694 78,857 93.2 % 96.2 % SSG SUMMERVILLE I 1713 Old LLC Trolley Road, Summerville, 1990 / SC 29485 2013 569 76,410 91.2 % 96.0 % SSG SUMMERVILLE 900 North Gum II LLC Street, Summerville, 1997 / SC 29483 2013 246 42,860 90.2 % 95.6 % SSG WEST 70 Erie HENRIETTA LLC Station Road, West Henrietta, NY 2016 / 14586 2019 477 55,550 83.4 % 84.8 % TOTAL/AVERAGE SAME-STORES 6,395 831,210 92.6 % 94.8 % MANAGED STORES TPM EDMOND LLC 14000 N I 35 Service Rd, Edmond, OK 2015 / 73013 2019 619 137,318 97.4 % 97.8 % TOTAL/AVERAGE MANAGED STORES 619 137,318 97.4 % 97.8 % TOTAL/AVERAGE ALL OWNED/MANAGED STORES 7,014 968,528 93.3 % 95.2 % 25
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(1)
Each store is directly owned or managed by the Company's wholly owned subsidiary listed in the table.
Certain stores' leasable square feet in the chart above includes outside auto/RV/boat storage space: approximately 13,000 square feet atSSG Sadsbury LLC ; 15,700 square feet atSSG Bolingbrook LLC ; 9,000 square feet atSSG Dolton LLC ; 1,000 square feet atSSG Merrillville LLC ; 7,200 square feet atSSG Summerville II LLC and 8,750 square feet atSSG Clinton LLC . ForSSG Lima LLC , included is approximately 7,700 square feet of non-storage commercial and student housing space. Approximately 33% of our total available units are climate-controlled, 59% are traditional drive-up storage, and 8% are outdoor parking storage for boats, cars and recreational vehicles.
Same-Store Self Storage Operations
We consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable periods presented. We consider a store to be stabilized once it has achieved an occupancy rate that we believe, based on our assessment of market-specific data, is representative of similar self storage assets in the applicable market for a full year measured as of the most recentJanuary 1 and has not been significantly damaged by natural disaster or undergone significant renovation or expansion. We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, dispositions, or new ground-up developments. AtMarch 31, 2022 , we owned twelve same-store properties and zero non same-store properties. The Company believes that, by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to, variances in occupancy, rental revenue, operating expenses, and NOI, stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions, or completed developments. Same-store results should not be used as a basis for future same-store performance or for the performance of the Company's stores as a whole.
Same-store occupancy at
Same-store revenues increased by 15.6% for the three months endedMarch 31, 2022 versus the same period in 2021. Same-store cost of operations increased by 6.0% for the three months endedMarch 31, 2022 versus the same period in 2021. Same-store NOI increased by 22.2% for the three months endedMarch 31, 2022 versus the same period in 2021. The increase in same-store NOI was due primarily to an increase in revenues. We believe that our results were driven by, among other things, our internet and digital marketing initiatives which helped our same-store overall average occupancy maintain at or around 92% as ofMarch 31, 2022 . Also, contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty, resulting in strong referral and word-of-mouth market demand for our storage units and services. Another contributing factor to our results was our competitor move-in rate metrics analysis which employs internet data scraping and other methods to help keep our storage unit move-in rates "in the market," and our revenue rate management program which helped increase existing tenant rates while maintaining or building store occupancy.
These results are summarized as follows:
SAME - STORE PROPERTIES
Three Months Ended March 31, 2022 2021 Variance % Change
Revenues $ 2,801,316 $ 2,423,992 $ 377,324 15.6 %
Cost of operations $ 1,053,735 $ 994,024 $ 59,711 6.0 %
Net operating income $ 1,747,581 $ 1,429,968 $ 317,613 22.2 %
Depreciation and amortization $ 358,048 $ 358,689 $ (641 ) -0.2 %
Net leasable square footage at period
end* 831,210 831,982 (772 ) -0.1 %
Net leased square footage at period end 769,954 788,356 (18,402 ) -2.3 %
Overall square foot occupancy at period
end 92.6 % 94.8 % -2.2 % -2.3 %
Total annualized revenue per leased
square foot $ 14.55 $ 12.30 $ 2.25 18.3 %
Total available leasable storage units* 6,395 6,352 43 0.7 %
Number of leased storage units 5,856 5,998 (142 ) -2.4 %
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* From time to time, as guided by market conditions, net leasable square footage
and total available leasable storage units at our properties may increase or
decrease as a result of consolidation, division or reconfiguration of storage
units. Similarly, leasable square footage may increase or decrease due to
expansion or redevelopment of our properties.
The following table presents a reconciliation of same-store net operating income
to net income as presented on our consolidated statements of operations for the
periods indicated (unaudited):
For the Three Months Ended March 31,
2022 2021
Net income $ 283,207 $ 411,247
Adjustments:
Management fees and other income (19,498 ) (18,197 )
General and administrative 682,153 578,617
Depreciation and amortization 404,921 405,615
Business development 5,300 -
Dividend and interest (23,019 ) (18,070 )
Unrealized loss (gain) on marketable equity securities 225,751 (214,736 )
Interest expense 188,766 285,492
Total same-store net operating income $ 1,747,581 $ 1,429,968
For the Three Months Ended March 31,
2022 2021
Same-store revenues $ 2,801,316 $ 2,423,992
Same-store cost of operations 1,053,735 994,024
Total same-store net operating income $ 1,747,581 Analysis of Same-Store Revenue
For the three months endedMarch 31, 2022 , same-store revenue increased 15.6%, or$377,324 , versus the same period in 2021, which was attributable to, among other things, consistent rent collections, despite the COVID-19 pandemic, and increased rental rates. Same-store average overall square foot occupancy for all of the Company's same-store properties decreased to 92.6% atMarch 31, 2022 , down from 94.8% atMarch 31, 2021 . We believe that our focus on maintaining high occupancy helps us to maximize rental income at our properties. We seek to maintain an average square foot occupancy level at or above 90% by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our online marketing efforts in seeking to generate sufficient move-in volume to replace tenants that vacate. Demand may fluctuate due to various local and regional factors, including the overall economy. Demand is generally higher in the summer months than in the winter months and, as a result, rental rates charged to new tenants are typically higher in the summer months than in the winter months. During the period from lateMarch 2020 throughMay 2020 , we experienced reduced activity with fewer move-ins and move-outs, and received periodic tenant requests for the waiver of late fees due to COVID-19 related hardships. However, we have seen increased demand for self storage sinceJune 2020 , as various areas ofthe United States emerged from stay at home orders. These trends may be temporary or even reverse, to the extent they are driven by short-term factors such as stay at home orders and delays in our auction process. We temporarily suspended our existing tenant rental rate increase program, but have since restarted it at all of our properties as ofJuly 2020 . Because existing tenant rental rate increases have contributed significantly to increases in rental income in recent years, suspension of these increases may have a material adverse impact on our revenue growth. This temporary suspension has impacted our revenue. It is possible that the COVID-19 pandemic could change consumer behavior, either due to economic recession, uncertainty, or dislocation, as well as other factors, which could increase customer sensitivity and propensity to move-out in response to rate increases, either in the short or longer term. Other effects of the COVID-19 pandemic, such as movement from urban areas to more suburban and rural areas, has driven increased demand for self storage in the secondary and tertiary markets that we operate. As ofMarch 31, 2022 , we observed no material degradation in rent collections. However, we believe that our bad debt losses could increase from historical levels, due to (i) cumulative stress on our customers' financial capacity and (ii) reduced rent recoveries from auctioned units. We may experience a change in the move-out patterns of our long-term customers due to economic uncertainty and the significant increase in unemployment recently. This could lead to lower occupancies and rent "roll down" as long-term customers are replaced with new customers at lower rates. 27
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If and when the COVID-19 pandemic subsides, we currently expect rental income growth, if any, to come from a combination of the following: (i) continued existing tenant rent increases, (ii) higher rental rates charged to new tenants, (iii) lower promotional discounts, and (iv) higher occupancies. Our future rental income growth will likely also be dependent upon many factors for each market that we operate in, including, among other things, demand for self storage space, the level of competitor supply of self storage space, and the average length of stay of our tenants. Increasing existing tenant rental rates, generally on an annual basis, is a key component of our revenue growth. We typically determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs. We currently expect existing tenant rent increases for the remainder of 2022, if any, to be similar to the prior year. Due to the uncertainty of the COVID-19 pandemic, it is difficult to predict trends in move-in, move-out, in place contractual rents, and occupancy levels. Current trends, when viewed in the short-term, are volatile and not necessarily predictive of our revenues going forward because they may be subject to many short-term factors. Such factors include, among others, the impact of the COVID-19 pandemic, initial move-in rates, seasonal factors, unit size and geographical mix of the specific tenants moving in or moving out, the length of stay of the tenants moving in or moving out, changes in our pricing strategies, and the degree and timing of rate increases previously passed to existing tenants. Importantly, we continue to refine our ongoing revenue rate management program which includes regular internet data scraping of local competitors' prices. We do this in seeking to maintain our competitive market price advantage for our various sized storage units at our stores. This program helps us in seeking to maximize each store's occupancies and our self storage revenue and NOI. We believe that, through our various marketing initiatives, we can continue to attract high quality, long term tenants who we expect will be storing with us for years. As ofMarch 31, 2022 , our average tenant duration of stay was approximately 3.2 years, up from approximately 2.8 years as ofMarch 31, 2021 .
Analysis of Same-Store Cost of Operations
For the three months endedMarch 31, 2022 , same-store cost of operations increased 6.0%, or$59,711 , versus the same period in 2021. This increase in same-store cost of operations for the three months endedMarch 31, 2021 was due primarily to increased expenses for utilities and real estate property taxes. On-site store manager, regional manager, and district manager payroll expense decreased 4.3%, or$5,209 , for the three months endedMarch 31, 2022 versus the same period in 2021. The decrease for the three months endedMarch 31, 2022 was due primarily to routine employee departures. We currently expect inflationary increases in compensation rates for existing employees and other increases in compensation costs as we potentially add new stores. Store property tax expense increased 10.8%, or$33,562 , for the three months endedMarch 31, 2022 versus the same period in 2021. When compared to store property tax expense for the three months endedMarch 31, 2022 , we currently expect store property tax expense to remain consistent for the remainder of 2022. See the section titled "Property Tax Expenses atDolton, IL " for additional detail.
Repairs and maintenance expense increased 41.4%, or
Our utility expenses are currently comprised of electricity, oil, and gas costs, which vary by store and are dependent upon energy prices and usage levels. Changes in usage levels are driven primarily by weather and temperature. Also, affecting our utilities expenses over time is our ongoing LED light replacement program at all of our stores which has already resulted in lower electricity usage. Utilities expense increased 23.6%, or$19,585 , for the three months endedMarch 31, 2022 versus the same period in 2021, primarily due to rising costs for energy and higher energy usage at most of our stores during the three months endedMarch 31, 2022 versus the same periods in 2021. It is difficult to estimate future utility costs because weather, temperature, and energy prices are volatile and unpredictable. However, based upon current trends and expectations regarding commercial electricity rates, we currently expect inflationary increases in rates combined with lower usage resulting in higher net utility costs for the remainder of 2022. 28
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Landscaping expenses, which include snow removal costs, decreased 6.8%, or$6,290 , for the three months endedMarch 31, 2022 versus the same period in 2021. The decrease in landscaping expense in the three months endedMarch 31, 2021 versus the same period in 2021 was primarily due to lower snow removal expenses. Landscaping expense levels are dependent upon many factors such as weather conditions, which can impact landscaping needs including, among other things, snow removal, inflation in material and labor costs, and random events. We currently expect inflationary increases in landscaping expense for the remainder of 2022, excluding snow removal expense, which is primarily weather dependent and unpredictable. Marketing expense is comprised principally of internet advertising and the operating costs of our 24/7 kiosk and telephone call and reservation center. Marketing expense varies based upon demand, occupancy levels, and other factors. Internet advertising, in particular, can increase or decrease significantly in the short term in response to these factors. Marketing expense increased 8.6%, or$5,209 , for the three months endedMarch 31, 2022 versus the same period in 2021, primarily due to increased marketing costs and internet advertising expenses. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to increase at a nominal rate for the remainder of 2022. Other direct store costs include general and administrative expenses incurred at the stores. General expenses include items such as store insurance, business license costs, and the cost of operating each store's rental office including supplies and telephone and data communication lines. We classify administrative expenses as bank charges related to processing the stores' cash receipts, credit card fees, repairs and maintenance, utilities, landscaping, alarm monitoring and trash removal. General expenses increased 1.3%, or$979 , for the three months endedMarch 31, 2022 versus the same period in 2021. Administrative expenses increased 13.1%, or$32,742 , for the three months endedMarch 31, 2022 versus the same period in 2021. We experienced an increase in administrative expenses in the three months endedMarch 31, 2021 versus the same period in 2021 due primarily to higher utilities expenses. We currently expect moderate increases in direct store costs during the remainder of 2022.
Depreciation and amortization decreased 0.2%, or
Property Tax Expenses at
Late in the third quarter of 2017, ourDolton, IL property was reassessed by the municipality and separately, our Class 8 tax incentive renewal hearing was held. As a result of those two events, ourDolton, IL property was reassessed at approximately 52% higher and the Class 8 tax incentive was not renewed. These events were applied retroactively to take effect onJanuary 1, 2017 . The combined impact was an increase in property tax expenses from$105,000 during 2016 to$210,000 during 2017,$240,000 during 2018,$395,000 during 2019,$399,000 during 2020, and$417,000 during 2021. The Class 8 tax incentive phased out over the years 2017, 2018, 2019, 2020 and 2021. We currently expect the property tax expenses at ourDolton, IL property to increase by approximately 20% in 2022. Both the property tax reassessment and our Class 8 tax incentive renewal status are currently under appeal. However, there is no guarantee that either the assessment will be reduced or our Class 8 tax incentive status will be reinstated.
Analysis of Global Self Storage FFO and AFFO
The following tables present reconciliation and computation of net income to
funds from operations ("FFO") and adjusted funds from operations ("AFFO") and
earnings per share to FFO and AFFO per share (unaudited):
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For the Three Months Ended March 31,
2022 2021
Net income $ 283,207 $ 411,247
Eliminate items excluded from FFO:
Unrealized loss (gain) on marketable equity
securities 225,751 (214,736 )
Depreciation and amortization 404,921 405,615
FFO attributable to common stockholders 913,879 602,126
Adjustments:
Compensation expense related to stock-based awards 52,604 31,706 Business development, capital raising, store acquisition, and third-party management marketing expenses 5,300 - AFFO attributable to common stockholders$ 971,783
$ 633,832
Earnings per share attributable to common stockholders - basic$ 0.03 $ 0.04 Earnings per share attributable to common stockholders - diluted$ 0.03 $ 0.04 FFO per share - diluted$ 0.09 $ 0.06 AFFO per share - diluted$ 0.09 $ 0.07 Weighted average shares outstanding - basic 10,660,921
9,292,488
Weighted average shares outstanding - diluted 10,722,063
9,309,287
FFO increased 51.8%, or$311,753 , for the three months endedMarch 31, 2022 , versus the same period in 2021. FFO per diluted share increased from$0.06 per share to$0.09 per share for the three months endedMarch 31, 2022 , versus the same period in 2021. AFFO increased 53.3%, or$337,951 , for the three months endedMarch 31, 2022 , versus the same period in 2021. AFFO per diluted share increased from$0.07 per share to$0.09 per share for the three months endedMarch 31, 2022 versus the same period in 2021.
Analysis of Global Self Storage Store Expansions and Redevelopment Operations
In addition to actively reviewing a number of store and portfolio acquisition opportunities, we have been working to further develop and expand our current stores. During the year endedDecember 31, 2020 , we completed three expansion / conversion projects at our properties located inMillbrook, NY ,McCordsville, IN , andWest Henrietta, NY . In the year endingDecember 31, 2021 , we completed a conversion project at our property located inLima, OH . In 2019, the Company broke ground on theMillbrook, NY expansion, which added approximately 11,800 leasable square feet of all-climate-controlled units. Upon completion inFebruary 2020 , theMillbrook, NY store's area occupancy dropped from approximately 88.6% to approximately 45.5%. As ofMarch 31, 2022 , theMillbrook, NY store's total area occupancy was approximately 96.3%. In the first quarter of 2020, the Company began reviewing plans to convert certain commercially-leased space to all-climate-controlled units at theMcCordsville, IN property. InApril 2020 , the Company commenced such conversion, which resulted in a new total of 535 units and 76,360 leasable square feet at theMcCordsville, IN property. Upon completion inJune 2020 , theMcCordsville, IN store's total area occupancy dropped from what would have been approximately 97.4% to approximately 79.1%. As ofMarch 31, 2022 , theMcCordsville, IN store's total area occupancy was approximately 87.4%. There is no guarantee that we will experience demand for theMcCordsville, IN conversion or that we will be able to successfully lease-up the conversion to the occupancy level of our other properties. OurWest Henrietta, NY store expansion project, completed inAugust 2020 , added approximately 7,300 leasable square feet of drive-up storage units. Upon completion of the expansion project,West Henrietta, NY store's total area occupancy dropped from approximately 89.6% to approximately 77.9%. As ofMarch 31, 2022 , theWest Henrietta, NY store's total area occupancy was approximately 83.4%. There is no guarantee that we will experience demand for theWest Henrietta, NY expansion or that we will be able to successfully lease-up the expansion to the occupancy level of our other properties. In 2021, the Company began reviewing plans to convert certain commercially-leased space to 3,000 leasable square feet of all-climate-controlled units at theLima, OH property. InJuly 2021 , the Company completed such conversion, resulting in a new total of 756 units and 96,883 leasable square feet at theLima, OH property. Upon completion, total area occupancy was approximately 94.8%. As ofMarch 31, 2022 , theLima, OH store's total area occupancy was approximately 94.7%. This conversion did not constitute a significant renovation or expansion because it only added approximately 3,000 leasable square feet of self storage to the property. As such, ourLima, OH property remained a same store property. 30
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Analysis of Realized and Unrealized Gains (Losses)
Unrealized gains and losses on the Company's investment in marketable equity securities for the three months endedMarch 31, 2022 and 2021 were a loss of$225,751 and gain of$214,736 , respectively. As we continue to acquire and/or develop additional stores, as part of the funding for such activities, we may liquidate our investment in marketable equity securities and potentially realize gains or losses. As ofMarch 31, 2022 , our cumulative unrealized gain on marketable equity securities was$2,501,944 . There were no realized gains or losses for the three months endedMarch 31, 2022 .
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