Item 7.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
|
CAUTIONARY LANGUAGE
The following discussion and analysis should be read in conjunction with our selected consolidated historical financial data together with the consolidated pro forma financial data and historical financial statements and related notes thereto included elsewhere in this annual 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 annual report entitled “Statement on Forward Looking Information.”
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements contained elsewhere in this annual report, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). Our notes to the condensed consolidated financial statements contained elsewhere in this annual report describe the significant accounting policies essential to our 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. See the notes to the condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
Management’s Discussion and Analysis Overview
The Company is a self-administered and self-managed REIT focused on the ownership, operation, acquisition, development and redevelopment of self storage facilities in the United States. Our stores are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. The Company currently owns and operates, through its wholly owned subsidiaries, eleven stores located in Connecticut, Illinois, Indiana, New York, Ohio, Pennsylvania, and South Carolina. As previously reported in our press release on January 19, 2016, on that day, 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 Exchange Act, and uplisted to NASDAQ.
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 and 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
On June 24, 2016, certain wholly owned subsidiaries (“Secured Subsidiaries”) of the Company entered into a loan agreement and certain other related agreements (collectively, the “Loan Agreement”) between the Secured Subsidiaries and Insurance Strategy Funding IV, LLC (the “Lender”). Under the Loan Agreement, the Secured Subsidiaries are borrowing from Lender in the principal amount of $20 million pursuant to a promissory note (the “Promissory Note”). The Promissory Note bears an interest rate equal to 4.192% per annum and is due to mature on July 1, 2036. Pursuant to a security agreement (the “Security Agreement”), the obligations under the Loan
11
Agreement are secured by certain real estate assets owned by the Secured Subsidiaries.
J.P. Morgan Investment Management, Inc. acted as Special Purpose Vehicle Agent of the Lender. The Company entered into a non-recourse guaranty on June 24, 2016 (the “Guaranty,” and together with the Loan Agreement, the Promissory Note and the Security Agre
ement, the “Loan Documents”) to guarantee the payment to Lender of certain obligations of the Secured Subsidiaries under the Loan Agreement. The Loan Documents require the Secured Subsidiaries and the Company to comply with certain covenants, including, am
ong others, a minimum net worth test and other customary covenants. The Lender may accelerate amounts outstanding under the Loan Documents upon the occurrence of an Event of Default (as defined in the Loan Agreement) including, but not limited to, the fail
ure to pay amounts due or commencement of bankruptcy proceedings. The Company and the Secured Subsidiaries paid customary fees and expenses in connection with their entry into the Loan Documents. There is no material relationship between the Company, its S
ecured Subsidiaries, or its affiliates and the Lender, other than in respect of the Loan Documents. The foregoing description is qualified in its entirety by the full terms and conditions of the Loan Documents, filed as Exhibits 10.1, 10.2, 10.3 and 10.4 t
o the Current Report on Form 8-K filed on June 30, 2016. We intend to use the proceeds of such debt financing primarily in connection with future potential store acquisitions and development.
As of December 31, 2016, we had capital resources totaling approximately $4.4 million comprised of $2.9 million of cash and cash equivalents and $1.5 million of marketable securities. 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.
We have been actively reviewing a number of store and store portfolio acquisition candidates and have been working to further develop and expand our current stores. On May 9, 2016, one of our wholly owned subsidiaries entered into an agreement with Gray Eagle Development, LLP (the “Indiana Seller”) to acquire a store located in Fishers, Indiana (the “Indiana Property”) for the sum of $7,700,000. On September 26, 2016, the Company completed the acquisition of the Indiana Property for approximately $7,700,000 in cash.
On June 27, 2016, another one of our wholly owned subsidiaries entered into an agreement with West Robb Ave., LLC, Wall & Ceiling Systems, Inc. and Victoria L. Strickland (collectively, the “Ohio Seller”) to acquire a store located in Lima, Ohio (the “Ohio Property”) for the sum of $5,300,000. On August 29, 2016, the Company completed the acquisition of the Ohio Property for $5,300,000 in cash.
Additionally, on November 23, 2016, the Company entered into an agreement (the “Purchase Agreement”) with Tuxis, a Company affiliate, to acquire all of the membership interests of each of Tuxis Self Storage I LLC (“TSS I”), Tuxis Self Storage II LLC (“TSS II”), and Tuxis Real Estate II LLC (“TRE II”), each a wholly owned Tuxis subsidiary (collectively, the “Tuxis Subsidiaries”), for the aggregate purchase price of $7,800,000 (the “Purchase Price”), comprised of $5,925,000 payable in cash, $975,000 in shares of the Company’s common stock, and, contingent upon the satisfaction of certain conditions described in the Purchase Agreement, an additional $900,000 cash payment. TSS I is the owner and operator of a 185 unit, 31,059 square foot store located in Clinton, Connecticut. TSS II is the owner and operator of a 142 unit, 13,391 square foot store located in Millbrook, New York. TRE II owns a 1,875 square foot commercial property located in Millbrook, New York which adjoins the property held by TSS II. TSS II and TRE II together have applied to the local municipality for permission to re-develop the parcels and properties to expand TSS II’s existing store.
On December 30, 2016, the Company completed the acquisition of the Tuxis Subsidiaries for $5,925,000 in cash and 202,703 unregistered and restricted shares of the Company’s common stock. Upon the satisfaction of certain conditions described in the Purchase Agreement in connection with expanding TSS II’s existing store, an additional $900,000 cash payment is expected to be made by the Company to Tuxis.
Revenues
Rental income increased from $4,141,472 during 2015 to $4,867,414 during 2016, an increase of $725,942, or 17.53%. The increase in same-store revenue was due primarily to an increase in rental and occupancy rates. Realized annual rent per square foot on our same-store portfolio increased 4.2% as a result of higher asking rates for new and existing customers during 2016 as compared to 2015. The remaining increase was primarily attributable to the additional income from the stores acquired in 2016, included in our non-same store portfolio.
12
Other store related income consists of late fees, administrative charges, customer insurance fees, sales of storage
supplies, and other ancillary revenues. Other store related income increased from $297,825 in 2015 to $377,959 in 2016, an increase of $80,134, or 21.2%. This increase was primarily attributable to increased fee revenue and insurance fees on the stores acq
uired in 2016 and a smaller increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy.
Operating Expenses
Store operating expenses increased from $1,793,319 in 2015 to $2,155,492 in 2016, an increase of $362,173, or 20.2%, which was primarily attributable to the increased expenses associated with newly acquired stores.
Depreciation and amortization increased from $635,226 in 2015 to $813,796 in 2016, an increase of $178,570, or 28.1%. This increase was primarily attributable to depreciation and amortization expense related to the 2016 acquisitions.
General and administrative expenses increased from $1,191,768 in 2015 to $1,406,441 in 2016, an increase of $214,673, or 18%. The change was primarily attributable to $264,254 of increased legal, consultant, and payroll expenses resulting from additional and new expenses incurred to support our growth.
Business development and store acquisition related costs increased from $0 during 2015 to $449,738 during 2016. Business development and store acquisition-related costs are non-recurring and fluctuate based on periodic investment activity.
Other income (expense)
Interest expense on loans increased from $0 during the year ended December 31, 2015 to $456,719 during the year ended December 31, 2016. The increase is primarily attributable to a higher amount of outstanding debt during 2016 as compared to 2015. The debt balance during the year ended December 31, 2016 increased to $19,600,000 from $0 for the same period during 2015 as a result of the Loan Agreement. For the year ended December 31, 2016, realized gain from the sale of investment securities was $602,428 and dividend and interest income was $172,724.
Net income (loss)
For the period January 19, 2016 to December 31, 2016, the net income was $384,135 or $0.05 per share. For the period January 1, 2016 to January 18, 2016, the Company was a registered investment company and applied the accounting guidance in ASC 946.
Non-GAAP 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”) represents FFO excluding the effects of business development and acquisition related costs and non-recurring items, which we believe are not indicative of the Company’s operating results. 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
13
using different terminology) when evaluating us. Because other REITs or real estate companies may not compute AFFO in the same manner 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.
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.
GLOBAL SELF STORAGE STORES
(As of December 31, 2016)
|
|
|
|
Year Store
|
|
Number
|
|
|
Net Leasable
|
|
|
December
31, 2016
Square Foot
|
|
|
December 31, 2015
Square Foot
|
|
Property
|
|
Address
|
|
Opened / Opened
|
|
of Units
|
|
|
Square Feet
|
|
|
Occupancy %
|
|
|
Occupancy %
|
|
SSG BOLINGBROOK LLC
|
|
296 North Weber Road, Bolingbrook, IL 60440
|
|
1997 / 2013
|
|
|
801
|
|
|
|
110,600
|
|
|
|
62.2
|
%
|
|
|
93.9
|
%
|
SSG DOLTON LLC
|
|
14900 Woodlawn Avenue,
Dolton, IL 60419
|
|
2007 / 2013
|
|
|
649
|
|
|
|
86,725
|
|
|
|
94.8
|
%
|
|
|
93.2
|
%
|
SSG MERRILLVILLE LLC
|
|
6590 Broadway, Merrillville, IN 46410
|
|
2005 / 2013
|
|
|
508
|
|
|
|
71,720
|
|
|
|
91.3
|
%
|
|
|
95.6
|
%
|
SSG ROCHESTER LLC
|
|
2255 Buffalo Road, Rochester, NY 14624
|
|
2010 / 2012
|
|
|
650
|
|
|
|
68,017
|
|
|
|
92.8
|
%
|
|
|
87.1
|
%
|
SSG SADSBURY LLC
|
|
21 Aim Boulevard, Sadsburyville, PA 19369
|
|
2006 / 2012
|
|
|
699
|
|
|
|
79,004
|
|
|
|
86.9
|
%
|
|
|
80.2
|
%
|
SSG SUMMERVILLE I LLC
|
|
1713 Old Trolley Road, Summerville, SC 29485
|
|
1990 / 2013
|
|
|
557
|
|
|
|
72,700
|
|
|
|
89.9
|
%
|
|
|
77.9
|
%
|
SSG SUMMERVILLE II LLC
|
|
900 North Gum Street, Summerville, SC 29483
|
|
1997 / 2013
|
|
|
254
|
|
|
|
41,608
|
|
|
|
87.6
|
%
|
|
|
88.2
|
%
|
TOTAL/AVERAGE SAME STORES
|
|
|
|
|
|
|
4,118
|
|
|
|
530,374
|
|
|
|
84.9
|
%
|
|
|
87.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SSG FISHERS LLC
|
|
13942 East 96th Street, McCordsville, IN 46055
|
|
2007 / 2016
|
|
|
419
|
|
|
|
81,471
|
|
|
|
85.9
|
%
|
|
|
77.3
|
%
|
SSG LIMA LLC
|
|
1910 West Robb Avenue, Lima, OH 60419
|
|
1996 / 2016
|
|
|
761
|
|
|
|
97,801
|
|
|
|
94.9
|
%
|
|
|
97.6
|
%
|
TUXIS
SELF STORAGE I LLC
|
|
6 Heritage Park Road, Clinton, CT 06413
|
|
1996 / 2016
|
|
|
185
|
|
|
|
31,059
|
|
|
|
80.8
|
%
|
|
|
86.4
|
%
|
TUXIS
SELF STORAGE II LLC
|
|
3814 Route 44, Millbrook, NY 12545
|
|
2008 / 2016
|
|
|
142
|
|
|
|
13,391
|
|
|
|
88.9
|
%
|
|
|
88.4
|
%
|
TOTAL/AVERAGE NON-SAME STORES
|
|
|
|
|
|
|
1,507
|
|
|
|
223,722
|
|
|
|
89.3
|
%
|
|
|
87.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL/AVERAGE ALL STORES
|
|
|
|
|
|
|
5,625
|
|
|
|
754,096
|
|
|
|
86.2
|
%
|
|
|
87.9
|
%
|
(1)
Each store is directly owned by the Company’s wholly owned subsidiary listed in the table.
During the second quarter of 2015, SSG Bolingbrook LLC eliminated 98 parking spaces (32,700 square feet) to accommodate its new five building expansion construction project. This expansion project was completed during mid-November 2016 and added 304 climate-controlled and traditional storage units totaling 44,260 leasable square feet to the facility bringing the total to 801 storage units and 110,600 leasable square feet. Same-store occupancy includes the impact from expansion and redevelopment projects at our stores. As SSG Bolingbrook LLC’s newly-
14
cons
tructed leasable square feet were added last November, its area occupancy dropped from mid-90% to approximately 60%. Also during 2015, upon completion of its expansion project, SSG Sadsbury LLC added 219 climate-controlled storage units comprising 16,756 l
easable square feet. Certain stores’ leasable square feet in the chart above includes outside auto/RV/boat storage space: approximately 13,000 square feet at SSG Sadsbury LLC; 11,300 square feet at SSG Bolingbrook LLC; 9,900 square feet at SSG Dolton LLC;
11,170 square feet at SSG Merrillville LLC; 5,300 square feet at SSG Summerville II LLC; and 9,270 square feet at Tuxis Self Storage I LLC. For SSG Lima LLC, included is approximately 12,683 square feet of non-storage commercial and student housing space.
Approximately 34% of our total available units are climate-controlled, 58% are traditional, and 8% are parking.
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 recent January 1 and has not been significantly damaged by natural disaster or undergone significant renovation. Same-store occupancy includes the impact from expansion projects at those stores. 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. At December 31, 2016, we owned 7 same-store facilities and 4 non-same-store facilities. 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, NOI, etc., 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 for the three months and year ended December 31, 2016 decreased by 3.0% to 84.9% from 87.9% for the same period in 2015. This includes the impact from the Bolingbrook expansion project completed during the quarter.
Excluding the additional vacancy created in this store, ending occupancy would have been 90.6%, an increase of 2.7% compared to the same period in 2015.
We grew our top-line results by increasing same-store revenues by 10.7% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 8.4% for the year ended December 31, 2016 versus the year ended December 31, 2015. Same-store cost of operations increased by 12.0% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 9.3% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. Same-store NOI increased by 9.9% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 7.8% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. General and administrative expenses increased by 13.2% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 18.0% for the period January 19, 2016 to December 31, 2016 versus the twelve months ended December 31, 2015. The change is primarily attributable to $264,254 of increased legal, accounting, compliance, NASDAQ listing fees, and investor relations and capital market consulting expenses. Going forward, although we currently expect some general and administrative expense reductions associated with our discontinued registration as an investment company, we are incurring and expect to incur a number of new expenses related to, among other things, the Company’s new reporting and regulatory requirements.
We believe that our results were driven by, among other things, our internet and digital marketing initiatives which helped our overall average occupancy maintain in the mid-to-high 80% range as of December 31, 2016. Also, contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty resulting in powerful referral and word-of-mouth market demand for our storage units and services. Another significant contributing factor to our results was our revenue rate management program which helped increase our total annualized revenue per leased square foot by 5.0% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 2.8% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015.
15
These results are summarized as follows:
SAME - STORE PROPERTIES
|
|
YTD 2016
|
|
|
YTD 2015
|
|
|
Variance
|
|
|
% Change
|
|
Revenues
|
|
$
|
4,812,318
|
|
|
$
|
4,439,297
|
|
|
$
|
373,021
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
1,960,438
|
|
|
$
|
1,793,319
|
|
|
$
|
167,119
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
$
|
2,851,880
|
|
|
$
|
2,645,978
|
|
|
$
|
205,902
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
651,680
|
|
|
$
|
635,226
|
|
|
$
|
16,454
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leasable square footage at period end
|
|
|
530,374
|
|
|
|
485,578
|
|
|
|
44,796
|
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leased square footage at period end
|
|
|
450,131
|
|
|
|
427,064
|
|
|
|
23,067
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall square foot occupancy at period end
|
|
|
84.9
|
%
|
|
|
87.9
|
%
|
|
|
-3.1
|
%
|
|
|
-3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annualized revenue per leased square foot
|
|
$
|
10.69
|
|
|
$
|
10.39
|
|
|
$
|
0.30
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of leased storage units
|
|
|
3,418
|
|
|
|
3,220
|
|
|
|
198
|
|
|
|
6.1
|
%
|
SAME - STORE PROPERTIES
|
|
Q4 2016
|
|
|
Q4 2015
|
|
|
Variance
|
|
|
% Change
|
|
Revenues
|
|
$
|
1,230,266
|
|
|
$
|
1,110,983
|
|
|
$
|
119,283
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
500,799
|
|
|
$
|
447,015
|
|
|
$
|
53,784
|
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
$
|
729,467
|
|
|
$
|
663,968
|
|
|
$
|
65,499
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
168,837
|
|
|
$
|
161,601
|
|
|
$
|
7,236
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leasable square footage at period end
|
|
|
530,374
|
|
|
|
485,578
|
|
|
|
44,796
|
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leased square footage at period end
|
|
|
450,131
|
|
|
|
427,064
|
|
|
|
23,067
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall square foot occupancy at period end
|
|
|
84.9
|
%
|
|
|
87.9
|
%
|
|
|
-3.0
|
%
|
|
|
-3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annualized revenue per leased square foot
|
|
$
|
10.93
|
|
|
$
|
10.41
|
|
|
$
|
0.52
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of leased storage units
|
|
|
3,418
|
|
|
|
3,220
|
|
|
|
198
|
|
|
|
6.1
|
%
|
16
Analysis of Same-Store Revenue
For the three months ended December 31, 2016, the 10.7% revenue increase was due primarily to a 4.9% increase in total annualized revenue per leased square foot, a 5.4% increase in net leased square footage. For the twelve months ended December 31, 2016, the 8.4% revenue increase was due primarily to a 4.5% increase in total annualized revenue per leased square foot and a 5.4% increase in net leased square footage. The increase in total annualized revenue per leased square foot was due primarily to annual existing tenant rent increases, an increase in available climate-controlled leasable square feet compared to available leasable parking square feet, and, to a lesser extent, increased move-in rental rates and decreased move-in rent “specials” discounting. Same store average overall square foot occupancy for all of the Company’s stores combined decreased to 84.9% in the twelve months ended December 31, 2016 from 87.9% in the twelve months ended December 31, 2015 primarily due to the vacancy added by the addition of the 44,260 leasable square feet expansion at our Bolingbrook store during November 2016.
We believe that high occupancies help maximize our rental income. We seek to maintain an average square foot occupancy level at about 90% by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our online marketing efforts in order to generate sufficient move-in volume to replace tenants that vacate. Demand fluctuates 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.
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 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 in 2017 to be slightly less than the prior year.
We believe that the current trends in move-in, move-out, in place contractual rents, and occupancy levels are consistent with our current expectation of continued revenue growth. However, such 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, initial move-in rates, seasonal factors, the 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 management program which includes regular internet data scraping of local competitors’ prices. We do this in order to maintain our competitive market price advantage for our various sized storage units at our stores. This program helps us 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. Currently, our average tenant duration of stay is approximately three years, up from approximately two years for the same period in 2015.
Analysis of Same-Store Cost of Operations
Same-store cost of operations increased 12.0% or $53,784 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 9.3% or $167,119 for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. This increase in same-store cost of operations was due primarily to increased store level employment costs, store property tax expense, repair and maintenance, and marketing expense, which were partially offset by decreases in professional, utilities, administrative, and lien administration costs.
17
On-site store manager, regional manager and district payroll expense increased 12.0% or $15,585 for the three months ended December 31, 2016
versus the three months ended December 31, 2015, and increased 14.5% or $69,251 for the twelve months ended December 31, 2016 as compared to the same period in 2015. This increase was due primarily to an increase in the number of store manager, regional an
d district manager level employees, wage increases, and higher employee health plan expenses. We currently expect inflationary increases in compensation rates for existing employees and other increases in compensation costs as we potentially add new stores
as well as District and Regional Managers.
Store property tax expense increased 0.03% or $51 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 5.1% or $28,818 for the twelve months ended December 31, 2016 as compared to the same period in 2015, due primarily to higher assessed store property values and tax rates, in particular for our Sadsburyville, PA store. We currently expect store property tax expense growth of approximately the same amount in 2017.
Repairs and maintenance expense increased 109.6% or $25,417 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 35.6% or $35,443 for the twelve months ended December 31, 2016 as compared to the same period in 2015 due primarily to performing certain mandatory repairs as part of our mortgage loan covenants and requirements in accordance with the Loan Documents. As of December 31, 2016, the majority of these repairs have been completed. Also contributing to the increase in repair and maintenance expense is our ongoing LED light replacement program expenses in 2016 as compared to 2015. We anticipate continued focus on our LED light replacement program throughout 2017. At our stores fully converted to LED lighting, we have realized utilities expense savings year-over-year of approximately 10% to 40%, depending on the store, due to lower kilowatt per hour usage.
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 aforementioned ongoing LED light replacement program at all of our stores which has already resulted in lower electricity usage. Utility expense increased 21.7% or $5,068 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and decreased 4.8% or $6,233 for the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to 2016’s milder winter in most of our stores’ areas and the benefit of lower electricity usage due to our LED light replacement program. 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 net lower utility costs in 2017.
Landscaping expenses, which include snow removal costs, increased 37.9% or $5,726 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 6.3% or $4,697 in the twelve months ended December 31, 2016 compared to the same period in 2015. 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 in 2017, 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 15.9% or $6,198 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 28.8% or $48,847 for the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to the increased internet advertising expenses and the one-time costs associated with the production and addition of size estimator and locations videos to our stores’ website, www.GlobalSelfStorage.us. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to increase at a somewhat lesser rate in 2017.
Other direct store costs include general and administrative expenses incurred at the stores, such as store insurance, business license costs, bank charges related to processing the stores’ cash receipts, credit card fees, and the cost of operating each store’s rental office including supplies and telephone data communication lines. These costs decreased 8.2% or $3,343 in the three months ended December 31, 2016 as compared to the same period in
18
2015, and decreased 1.1% or $1,648 in the twelve months ended December 31, 2016 as compared to the same period in 2015. Lien administration expenses decreas
ed 25.7% or $1,158 in the three months ended December 31, 2016 as compared to the same period in 2015, and decreased 28.5% or $5,220 in the twelve months ended December 31, 2016 as compared to the same period in 2015. Increased store level cost efficiencie
s and fewer tenants’ stored items auctions contributed to the decreased expenses, which were partially offset by increases in our credit card or merchant fees. Credit card fees increased due to a higher proportion of rental payments being received through
credit cards, which is one of the results of our initiatives in building a higher quality overall tenant base. We currently expect moderate increases in other direct store costs in 2017.
Combined Same-Store and Non Same-Store Self Storage Operations
At December 31, 2016, we owned 7 same-store facilities and 4 non same-store facilities. The non same-store facilities are SSG Fishers LLC, SSG Lima LLC, Tuxis Self Storage I LLC, and Tuxis Self Storage II LLC.
Combined same-store and non same-store average overall square foot occupancy for the three months and year ended December 31, 2016 decreased by 1.7% to 86.2% from 87.9% for the same period in 2015. This includes the impact from the Bolingbrook expansion project completed during the fourth quarter of 2016. Excluding the additional vacancy created in this store, ending occupancy would have been 90.2%, an increase of 2.3% compared to the same period in 2015.
We grew our top-line results by increasing combined same-store and non same-store (“Combined store”) revenues by 40.1% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 18.2% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. Combined store cost of operations increased by 45.9% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 20.2% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. Combined store NOI increased by 36.2% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 16.8% for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. General and administrative expense increased by 13.2% for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and by 18.0% for the period January 19, 2016 to December 31, 2016 versus the twelve months ended December 31, 2015. The increase in the general and administrative expense during the most recent quarter can be primarily attributed to an increase in legal, accounting, compliance, NASDAQ listing fees, and investor relations and capital market consulting expenses. Going forward, although we currently expect some general and administrative expense reductions associated with our discontinued registration as an investment company, we are incurring and expect to incur a number of new expenses related to, among other things, the Company’s new reporting and regulatory requirements.
We believe that our results were driven by, among other things, our internet and digital marketing initiatives which helped our overall average occupancy maintain in the mid-to-high 80% range as of December 31, 2016. Also, contributing to our strong results were our customer service efforts which we believe were essential in building local brand loyalty resulting in referral and word-of-mouth market demand for our storage units and services.
19
These results are summarized as follows:
COMBINED SAME - STORE AND NON SAME - STORE PROPERTIES
|
|
YTD 2016
|
|
|
YTD 2015
|
|
|
Variance
|
|
|
% Change
|
|
Revenues
|
|
$
|
5,245,373
|
|
|
$
|
4,439,297
|
|
|
$
|
806,076
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
2,155,492
|
|
|
$
|
1,793,319
|
|
|
$
|
362,173
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
$
|
3,089,881
|
|
|
$
|
2,645,978
|
|
|
$
|
443,903
|
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
813,796
|
|
|
$
|
635,226
|
|
|
$
|
178,570
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leasable square footage at period end
|
|
|
754,095
|
|
|
|
485,578
|
|
|
|
268,517
|
|
|
|
55.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leased square footage at period end
|
|
|
649,897
|
|
|
|
427,064
|
|
|
|
222,833
|
|
|
|
52.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall square foot occupancy at period end
|
|
|
86.2
|
%
|
|
|
87.9
|
%
|
|
|
-1.7
|
%
|
|
|
-1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available leasable storage units
|
|
|
5,625
|
|
|
|
3,813
|
|
|
|
1,812
|
|
|
|
47.5
|
%
|
COMBINED SAME - STORE AND NON SAME - STORE PROPERTIES
|
|
Q4 2016
|
|
|
Q4 2015
|
|
|
Variance
|
|
|
% Change
|
|
Revenues
|
|
$
|
1,556,214
|
|
|
$
|
1,110,983
|
|
|
$
|
445,231
|
|
|
|
40.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
652,069
|
|
|
$
|
447,015
|
|
|
$
|
205,054
|
|
|
|
45.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
$
|
904,145
|
|
|
$
|
663,968
|
|
|
$
|
240,177
|
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
306,177
|
|
|
$
|
161,601
|
|
|
$
|
144,576
|
|
|
|
89.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leasable square footage at period end
|
|
|
754,095
|
|
|
|
485,578
|
|
|
|
268,517
|
|
|
|
55.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net leased square footage at period end
|
|
|
649,897
|
|
|
|
427,064
|
|
|
|
222,833
|
|
|
|
52.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall square foot occupancy at period end
|
|
|
86.2
|
%
|
|
|
87.9
|
%
|
|
|
-1.7
|
%
|
|
|
-1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available leasable storage units
|
|
|
5,625
|
|
|
|
3,813
|
|
|
|
1,812
|
|
|
|
47.5
|
%
|
Analysis of Combined Same-Store and Non Same-Store Revenue
Combined same-store and non same-store average overall square foot occupancy for the three months and year ended December 31, 2016 decreased by 1.7% to 86.2% from 87.9% for the same period in 2015. This includes the impact from the Bolingbrook expansion project completed during the fourth quarter of 2016. Excluding the additional vacancy created in this store, ending occupancy would have been 90.2%, an increase of 2.3% compared to the same period in 2015.
For the three months ended December 31, 2016, the 40.1% revenue increase was due primarily to a 52.1% increase in net leased square footage and the results of our revenue rate management program of raising existing tenant rates. This increase in net leased square feet, as a result of our Fishers, IN, Lima, OH, Clinton, CT, and Millbrook, NY acquisitions, is expected to positively affect combined revenues in 2017. For the twelve months ended December 31, 2016, the 18.2% revenue increase was due primarily to a 52.1% increase in net leased square
20
footage and the results of our revenue rate management program of raising existing tenant rates. Combined revenues benefited from existing tenant rent increases, an increas
e in available climate-controlled leasable square feet compared to available leasable parking square feet, and, to a lesser extent, increased move-in rental rates, and decreased move-in rent “specials” discounting.
We believe that high occupancies help maximize our rental income. 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 marketing efforts on the internet in order to generate sufficient move-in volume to replace tenants that vacate. Demand fluctuates due to various local and regional factors, including the overall economy. Demand is typically 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.
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 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 in 2017 to be slightly less than the prior year.
We believe that the current trends in move-in, move-out, in place contractual rents and occupancy levels are consistent with our current expectation of continued revenue growth. However, such trends, when viewed in the short-term, are volatile and not necessarily be predictive of our revenues going forward because they are subject to many short-term factors. Such factors include, among others, initial move-in rates, seasonal factors, the 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 management program which includes regular internet data scraping of local competitors’ prices. We do this in order to maintain our competitive market price advantage for our various sized storage units at our stores. This program helps us seek to maximize each store’s occupancies and our self storage revenue and NOI. We believe that through our various marketing initiatives, we can seek to continue to attract high quality, long term tenants who we expect will be storing with us for years. Currently, our average tenant duration of stay is approximately three years, up from approximately two years for the same period in 2015.
Analysis of Combined Same-Store and Non Same-Store Cost of Operations
Combined same-store and non same-store cost of operations increased 45.9% or $205,054 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 20.2% or $362,173 for the twelve months ended December 31, 2016 versus the twelve months ended December 31, 2015. This increase in combined same-store and non same-store cost of operations was due primarily to increased store level employment costs including rising employee health plan expenses, store property tax expense, repair and maintenance, and marketing expense due to our new store acquisitions, which were partially offset by decreases in professional, administrative, and lien administration costs.
On-site store manager payroll expense increased 40.3% or $52,294 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 24.0% or $114,108 for the twelve months ended December 31, 2016 as compared to the same period in 2015. This increase was due primarily to an increase in the number of store level employees due to our new store acquisitions, wage increases, and higher employee health plan expenses. We currently expect inflationary increases in compensation rates for existing employees and other increases in compensation costs as we potentially add new stores as well as District and Regional Managers.
21
Store property tax expense in
creased 37.9% or $56,305 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 18.3% or $104,045 in the twelve months ended December 31, 2016 as compared to the same period in 2015, primarily due to inc
reased such costs associated with our new store acquisitions and to higher assessed store property values and tax rates, in particular for our Sadsburyville, PA store. We currently expect store property tax expense growth of approximately the same amount i
n 2017.
Repairs and maintenance expense increased 126.5% or $29,344 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 41.2% or $40,962 for the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to increased such costs associated with our new store acquisitions and to performing certain mandatory repairs as part of our mortgage loan covenants and requirements in accordance with the Loan Documents. As of December 31, 2016, the majority of these repairs have been completed. Also contributing to the increase in repair and maintenance expense is our ongoing LED light replacement program expenses in 2016 as compared to 2015. We anticipate continued focus on our LED light replacement program throughout 2017. At our stores fully converted to LED lighting, we have realized utilities expense savings year-over-year of approximately 10% to 40% depending on the store due to lower kilowatt per hour usage.
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 aforementioned ongoing LED light replacement program at all of our stores which has already resulted in lower electricity usage. Utility expense increased 97.5% or $22,779 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 11.7% or $15,289 for the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to increased such costs associated with our new store acquisitions. 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 net lower utility costs in 2017.
Landscaping expenses, which include snow removal costs, increased 45.3% or $6,854 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 7.8% or $5,824 in the twelve months ended December 31, 2016 compared to the same period in 2015 primarily due to increased such costs associated with our new store acquisitions. 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 in 2017, 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 54.8% or $21,392 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 40.4% or $68,589 for the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to increased such costs associated with our new store acquisitions and to the increased internet advertising expenses and the one-time costs associated with the production and addition of size estimator and locations videos to our stores’ website, www.GlobalSelfStorage.us. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to increase at a somewhat lesser rate in 2017.
Other direct store costs include general and administrative expenses incurred at the stores, such as store insurance, business license costs, bank charges related to processing the stores’ cash receipts, credit card fees, and the cost of operating each store’s rental office including supplies and telephone data communication lines. These costs increased 27.1% or $11,052 in the three months ended December 31, 2016 as compared to the same period in 2015, and increased 10.9% or $17,001 in the twelve months ended December 31, 2016 as compared to the same period in 2015 primarily due to increased such costs associated with our new store acquisitions. Increased store level costs efficiencies and fewer tenants’ stored items auctions contributed to the decreased expenses, which were partially offset by increases in our credit card or merchant fees. Credit card fees increased due to a higher proportion of rental payments being received through credit cards, which is one of the results of our initiatives in building a higher quality overall tenant base. We currently expect moderate increases in other direct store costs in 2017.
22
Analysis of General and Administrative Expenses
General and administrative expenses represent direct and allocated expenses for shared general corporate functions, which are allocated to store operations to the extent they are related to store operations. Such functions include, among other things, data processing, human resources, legal, corporate and operational accounting and finance, marketing, and compensation of senior executives.
Three Months Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
Variance
|
|
|
% Change
|
General and administrative
|
|
$
|
351,426
|
|
|
$
|
310,378
|
|
|
$
|
41,048
|
|
|
+13.2%
|
For the Period January 19, 2016 to December 31, 2016 compared to the year ended December 31, 2015
|
|
2016
|
|
|
2015
|
|
|
Variance
|
|
|
% Change
|
General and administrative
|
|
$
|
1,406,441
|
|
|
$
|
1,191,768
|
|
|
$
|
214,673
|
|
|
+18.0%
|
General and administrative expenses increased 13.2% or $41,048 for the three months ended December 31, 2016 versus the three months ended December 31, 2015, and increased 18.0% or $214,673 for the period January 19, 2016 to December 31, 2016 as compared to the twelve months ended December 31, 2015. Most of the increase in the general and administrative expense during the most recent quarter is attributable to an increase in legal, accounting, compliance, NASDAQ listing fees, and investor relations and capital market consulting expenses. We experienced certain cost reductions due to our transition from an investment company to an operating company, such as costs associated with fund accounting, custodian, registration, and quarterly appraisals. Concomitantly, we experienced increased legal, accounting, regulatory compliance, and investor relations expenses. Going forward, although we currently expect some general and administrative expense reductions associated with our discontinued registration as an investment company, we are incurring and expect to incur a number of new expenses related to, among other things, the Company’s new reporting and regulatory requirements.
The Company incurred fees and expenses of approximately $646,000 associated with the Loan Documents, the of which were capitalized and are amortized over the term of the loan.
Analysis of Business Development and Store Acquisition Expenses
Business development and store acquisition expenses increased from $0 during the three and twelve months ended December 31, 2015 to $52,167 and $449,738 during the three and twelve months ended December 31, 2016, respectively. These costs primarily consisted of legal and consulting costs in connection with business development activities and future potential store acquisitions. The majority of these expenses are non-recurring and fluctuate based on business development activity during the time period.
Analysis of Loan Interest and Amortization Expense
Loan interest expense payments relating to the aforementioned $20 million loan increased from $0 for the three and twelve months ended December 31, 2015 to $220,209 and $456,719 for the three and twelve months ended December 31, 2016. Going forward the cash payments for this expense will be $69,867 per month until June 2018 at which point the monthly interest and amortization payment due will increase to $107,699 where it will remain payable every month until June 2036.
23
Analysis of Global Self Storage Funds from Operations (“FFO”)
and Funds from Operations
as Adjusted (“AFFO”)
The following tables present a reconciliation and computation of net income to FFO and AFFO and earnings per share to FFO and AFFO per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
Three Months
|
|
|
January 19, 2016
|
|
|
|
Ended
|
|
|
to
|
|
|
|
December 31, 2016
|
|
|
December 31, 2016
|
|
Net income
|
|
$
|
564,687
|
|
|
$
|
384,135
|
|
Eliminate items excluded from FFO:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
357,567
|
|
|
|
952,507
|
|
Realized gain on investment securities
|
|
|
(602,428
|
)
|
|
|
(602,428
|
)
|
|
|
|
|
|
|
|
|
|
FFO attributable to common stockholders
|
|
|
319,826
|
|
|
|
734,214
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Business development and property acquisition costs
|
|
|
52,167
|
|
|
|
449,738
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
371,993
|
|
|
$
|
1,183,952
|
|
|
|
|
|
|
|
|
|
|
FFO and FFO as adjusted per weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.08
|
|
|
$
|
0.05
|
|
Eliminate items excluded from FFO:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
0.05
|
|
|
|
0.13
|
|
Realized gain on investment securities
|
|
|
(0.08
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
FFO per share attributable to common stockholders
|
|
|
0.04
|
|
|
|
0.10
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Business development and property acquisition costs
|
|
|
0.01
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
AFFO per share attributable to common stockholders
|
|
$
|
0.05
|
|
|
$
|
0.16
|
|
Analysis of Global Self Storage Store Operations
In addition to actively reviewing a number of store and portfolio acquisition candidates, we have been working to further develop and expand our current stores.
At our Sadsburyville, PA store in 2015, we completed construction of a state-of-the-art, all climate-controlled two story storage building, adding 16,756 leasable square feet featuring a number of unique drive-up, climate-controlled units. This expansion appears to have been well received by the local market. As of December 31, 2016, approximately 18 months after construction was completed and lease-up commenced, 100% of the first floor and 82% of the entire building have been leased.
At our Bolingbrook, IL store in 2016, all site work, construction, and final inspections and approvals of the expansion project in Bolingbrook, IL were completed. This expansion has added approximately 44,260 leasable square feet and 304 of climate-controlled and traditional storage units bringing the total to 110,600 leasable square feet and 801 storage units. The project cost approximately $2,600,000, which equates to an all-in cost of approximately $59 per square foot. As of December 31, 2016, 21.3% or 9,360 square feet of the five building expansion leasable square feet had been leased. This lease-up has been faster than expected.
We are currently reviewing our Merrillville, IN store for the possible expansion construction of three new traditional drive-up storage unit buildings totaling 13,300 square feet.
24
Analysis of Realized and Unrealized Gains (Losses)
Realized gains for the period ended December 31, 2016 were $602,428 compared to $900,368 for the period ended December 31, 2015. As we continue to acquire and/or develop additional stores, as part of the funding for such activities, we plan to liquidate our investment securities holdings and potentially realize gains or losses. As of December 31, 2016, our unrealized gain on investment securities available-for-sale was $718,463.
Distributions and Closing Market Prices
Distributions for the three months ended December 31, 2016 totaled $0.065 per share and for the twelve months ended December 31, 2016 totaled $0.26 per share. The Company’s closing market price as of December 31, 2016 was $4.77 and as of December 31, 2015 was $3.92. Past performance does not guarantee future results.