GLOBAL SELF STORAGE, INC. 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 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 that owns, operates,
manages, acquires, 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 December 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 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.
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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 continue to 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 of our wholly owned subsidiaries ("Term Loan Secured Subsidiaries") entered into a loan agreement and certain other related agreements (collectively, the "Term Loan Agreement") between theTerm Loan Secured Subsidiaries and Insurance Strategy Funding IV, LLC (the "Term Loan Lender"). Under the Term Loan Agreement, the Term Loan Secured Subsidiaries borrowed from Term Loan Lender the principal amount of$20 million pursuant to a promissory note (the "Term Loan Promissory Note"). The Term Loan Promissory Note bears interest at a 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. We entered into a non-recourse guaranty (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") onJune 24, 2016 to guarantee the payment to the Term Loan Lender of certain obligations of the Term Loan Secured Subsidiaries under the Term Loan Agreement. We have used some of the proceeds from the Term Loan Agreement to acquire four additional self storage properties. OnDecember 20, 2018 , certain of our wholly owned subsidiaries ("Credit Facility Secured Subsidiaries") entered into a revolving credit loan agreement (collectively, the "Credit Facility Loan Agreement") between theCredit Facility Secured Subsidiaries andTCF National Bank ("Credit Facility Lender"). Under the Credit Facility Loan Agreement, the Credit Facility Secured Subsidiaries may borrow from the Credit Facility Lender in the principal amount of up to$10 million pursuant to a promissory note (the "Credit Facility Promissory Note"). The Credit Facility Promissory Note bears an interest rate equal to 3.00% over the One MonthU.S. Dollar London Inter-Bank Offered Rate and was due to mature onDecember 20, 2021 . The obligations under the Credit Facility Loan Agreement are secured by certain real estate assets owned by the Credit Facility Secured Subsidiaries. We entered into a guaranty of payment onDecember 20, 2018 (the "Credit Facility Guaranty," and together with the Credit Facility Loan Agreement, the Credit Facility Promissory Note and related instruments, the "Credit Facility Loan Documents") to guarantee the payment to the Credit Facility Lender of certain obligations of the Credit Facility Secured Subsidiaries under the Credit Facility Loan Agreement. As described in more detail below, the Credit Facility Loan Agreement has been replaced in its entirety by the Amended Credit Facility Loan Agreement onJuly 6, 2021 . OnDecember 18, 2019 , we completed a rights offering whereby we sold and issued an aggregate of 1,601,291 shares of our common stock ("common stock") at the subscription price of$4.18 per whole share of common stock, pursuant to the exercise of subscriptions and oversubscriptions from our stockholders. We raised aggregate gross proceeds of approximately$6.7 million in the rights offering. 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 ("CARES Act") administered by theU.S. Small Business Administration (the "SBA"). The Borrower received total proceeds of$486,602 from the PPP Note. OnApril 5, 2022 , the Borrower was granted forgiveness of the entire PPP Note and any accrued interest. Upon forgiveness, the Company received$307,210 in cash from the Borrower, which was the amount attributable to the Company under the SBA's loan determination formula, and recorded a gain for such amount in its consolidated statements of operations and comprehensive income. 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 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. 35
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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 0.25% and is due to mature onJuly 6, 2024 . As ofDecember 31, 2022 , the effective interest rate was 4.12%. The publication of LIBOR will cease immediately afterJune 30, 2023 . The Amended Credit Facility Loan Agreement provides for a replacement index based on the Secured Overnight Financing Rate ("SOFR"). The interest rate on the Amended Credit Facility Promissory Note subsequent toJune 30, 2023 , is equal to 3% plus the greater of SOFR plus 0.11448% or 0.25%. 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 ofDecember 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 the Company's common stock, par value$0.01 per share, having an aggregate offering price of up to$15,000,000 , through the Agent. During the twelve months endedDecember 31, 2022 , under the Sales Agreement, the Company has sold and issued an aggregate of 373,833 shares of common stock and raised aggregate gross proceeds of approximately$2,272,628 , less sales commissions of approximately$45,491 and other offering costs resulting in net proceeds of$2,008,436 . 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 make any acquisitions in the year endedDecember 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 ofDecember 31, 2022 , we managed one third-party owned property, which was previously 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 . 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. In 2022, the Company began reviewing plans to convert certain commercially-leased space to approximately 2,500 leasable square feet of all-climate-controlled units at theLima, OH property. InJanuary 2023 , the Company completed such conversion, resulting in a new total of 767 units and 94,928 leasable square feet at theLima, OH property. Upon completion, total area occupancy was approximately 91.1%. This conversion did not constitute a significant renovation or expansion because it only added approximately 2,500 leasable square feet of self storage to the property. As such, ourLima, OH property will remain a same store property. 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 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. 36
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As ofDecember 31, 2022 , we had capital resources totaling approximately$23.9 million , comprised of$6.5 million of cash, cash equivalents, and restricted cash,$2.4 million of marketable securities, and$15.0 million available for withdrawal under the Amended 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, among other things, public health crises, including the novel coronavirus ("COVID-19") and its variants, natural disasters and geopolitical events, including the ongoing conflict betweenRussia ,Belarus andUkraine , financial and credit market volatility and disruptions, inflationary pressures, rising interest rates, supply chain issues, labor shortages and recessionary concerns.
Results of Operations for the Year Ended
Revenues
Total revenues increased from$10,508,830 during the year endedDecember 31, 2021 to$11,944,850 during the year endedDecember 31, 2022 , an increase of 13.7% or $?1,436,020?. Rental income increased from$10,051,371 during the year endedDecember 31, 2021 to$11,485,511 during the year endedDecember 31, 2022 , an increase of 14.3% or $?1,434,140?. The increase in total revenues was due primarily to increased rental rates, and the results of our revenue rate management program of raising existing tenant rates. ????????????????????????????????????????????????????????????????Other store related income consists of customer insurance fees, sales of storage supplies, and other ancillary revenues. Other store related income decreased from$381,534 in the year endedDecember 31, 2021 to$375,571 in the year endedDecember 31, 2022 , a decrease of 1.6% or$5,963 ?. The decrease was primarily attributable to lower occupancy at our wholly-owned properties.???????????????????????????????????????????????????????????????????????????
Operating Expenses
Total expenses increased from$7,823,870 during the year endedDecember 31, 2021 to$8,417,660 during the year endedDecember 31, 2022 , an increase of 7.6% or$593,790 , which was primarily due to an increase in certain general and administrative expenses and store operating expenses. Store operating expenses increased from$3,776,770 in the year endedDecember 31, 2021 to$4,169,182 in the year endedDecember 31, 2022 , an increase of 10.4% or $?392,412, which was primarily due to increased employment and real estate tax expenses.?????????????????
????????????????????????????????????????????????????????????Depreciation
and
amortization decreased from
????????????????????General and administrative expenses increased 8.9% or
?????????????????????Business development, capital raising, and store acquisition expenses increased from$45,531 to$48,340 during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . These costs primarily consisted of consulting costs in connection with business development, capital raising, and future potential store acquisitions, and expenses related to our third party management platform marketing initiatives. The majority of these expenses are non-recurring and fluctuate based on business development activity during the time period. 37
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Operating Income
Operating income increased from$2,684,960 during the year endedDecember 31, 2021 to$3,527,190 during the year endedDecember 31, 2022 , an increase of 31.4% or $?842,230, which was primarily due to increased total revenues.???????????
Other income (expense)
Interest expense on loans decreased from$1,046,461 during the year endedDecember 31, 2021 to$780,223 during the year endedDecember 31, 2022 , a decrease of 25.4% or$266,238 . This decrease was attributable to decreased borrowings under our Amended Credit Facility Loan Agreement, lower amortization of loan procurement costs, and the unrealized gain on the mark-to-market of the interest rate cap.
Dividend and interest income was
The Company recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income and, as such, recorded an unrealized loss of$1,117,029 for the year endedDecember 31, 2022 compared to an unrealized gain of$1,566,731 during the year endedDecember 31, 2021 .
During the year ended
Net income (loss)
For the year ended
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. The
Company also excludes unrealized gains on marketable equity securities and gains
relating to PPP loan forgiveness. 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 represent
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 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.
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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.
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. As ofDecember 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, 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 as of the end of the three months and year endedDecember 31, 2022 decreased by 350 basis points to 89.6% from 93.1% for the same period in 2021. We grew our top-line results by increasing same-store revenues by 10.8% for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and by 13.7% for the year endedDecember 31, 2022 versus the year endedDecember 31, 2021 . Same-store cost of operations increased by 18.1% for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased by 10.4% for the twelve months endedDecember 31, 2022 versus the twelve months endedDecember 31, 2021 . Same-store NOI increased by 6.9% for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 15.6% for the twelve months endedDecember 31, 2022 versus the twelve months endedDecember 31, 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 maintain our overall average same-store occupancy of approximately 90% as ofDecember 31, 2022 . 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 success in controlling store-level cost of operations and maximizing tenant occupancy. 39
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These results are summarized as follows:
SAME - STORE PROPERTIES
Twelve Months Ended December 31, 2022 2021 Variance % Change
Revenues $ 11,861,082 $ 10,432,905 $ 1,428,177 13.7 %
Cost of operations $ 4,169,182 $ 3,776,770 $ 392,412 10.4 %
Net operating income $ 7,691,900 $ 6,656,135 $ 1,035,765 15.6 %
Depreciation and amortization
(10,846 ) -0.8 % Net leasable square footage at period end* 829,448 831,190 (1,742 ) -0.2 % Net leased square footage at period end 743,476 773,593 (30,117 ) -3.9 % Overall square foot occupancy at period end 89.6 % 93.1 % -3.5 % -3.7 % Total annualized revenue per leased square foot$ 15.95 $ 13.49 $ 2.47 18.3 % Total available leasable storage units* 6,404 6,393 11 0.2 % Number of leased storage units 5,673 5,889 (216 ) -3.7 % SAME - STORE PROPERTIES
Three Months Ended December 31, 2022 2021 Variance % Change Revenues$ 3,037,160 $ 2,742,085 $ 295,075 10.8 % Cost of operations$ 1,115,702 $ 945,079 $ 170,623 18.1 % Net operating income$ 1,921,458 $ 1,797,006 $ 124,452 6.9 % Depreciation and amortization$ 358,847 $ 362,743 $ (3,896 ) -1.1 % Net leasable square footage at period end* 829,448 831,190 (1,742 ) -0.2 % Net leased square footage at period end* 743,476 773,593 (30,117 ) -3.9 % Overall square foot occupancy at period end 89.6 % 93.1 % -3.5 % -3.8 % Total annualized revenue per leased square foot$ 16.34 $ 14.18 $ 2.16 15.2 % Total available leasable storage units* 6,404 6,393 11 0.2 % Number of leased storage units 5,673 5,889 (216 ) -3.7 %
* From time to time, as guided by market conditions, net leasable square footage, net leased square footage and total available 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.
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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 For the Twelve Months Ended
December 31, December 31,
2022 2021 2022 2021
Net income $ 440,451 $ 1,379,643 $ 2,057,723 $ 3,281,251
Adjustments:
Management fees and other income (21,550 ) (19,518 ) (83,768 ) (75,925 )
General and administrative 688,516 569,589 2,580,899 2,369,960
Depreciation and amortization 404,897 409,669 1,619,239 1,631,609
Business development 1,632 34,896 48,340 45,531
Dividend and interest income (27,681 ) (19,625 ) (120,575 ) (76,021 )
Unrealized loss (gain) on
marketable equity securities 227,144 (775,542 ) 1,117,029 (1,566,731 )
Interest expense 208,049 217,894 780,223 1,046,461
Gain on Paycheck Protection
Program (PPP) loan forgiveness - - (307,210 ) -
Total same-store net operating
income $ 1,921,458 $ 1,797,006 $
7,691,900
For the Three Months Ended For the Twelve Months Ended
December 31, December 31,
2022 2021 2022 2021
Same-store revenues $ 3,037,160 $ 2,742,085 $ 11,861,082 $ 10,432,905
Same-store cost of operations $ 1,115,702 $ 945,079 $ 4,169,182 $ 3,776,770
Total same-store net operating
income $ 1,921,458 $ 1,797,006 $ 7,691,900 $ 6,656,135 Analysis of Same-Store Revenue
For the three and twelve months endedDecember 31, 2022 , revenue increased 10.8% and 13.7%, respectively, as compared to the same periods in 2021. These increases were attributable to, among other things, increased rental rates, and the results of our revenue rate management program of raising existing tenant rates. Same store average overall square foot occupancy for all of the Company's same-stores combined decreased by 350 basis points to 89.6% in the twelve months endedDecember 31, 2022 from 93.1% in the twelve months endedDecember 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. As ofDecember 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 (such as inflation, COVID-19, recession fears, etc.) 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. This could lead to lower occupancies and rent "roll down" as long-term customers are replaced with new customers at lower rates. 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 41
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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 2023, if any, to be lower than those for the year endedDecember 31, 2022 . 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 ofDecember 31, 2022 , our average tenant duration of stay was approximately 3.3 years, up from approximately 3.0 years as ofDecember 31, 2021 .
Analysis of Same-Store Cost of Operations
Same-store cost of operations increased 18.1% or$170,622 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 10.4% or$392,412 for the twelve months endedDecember 31, 2022 versus the twelve months endedDecember 31, 2021 . This increase in same-store cost of operations for the twelve months endedDecember 31, 2022 was due primarily to increased expenses for employment and real estate taxes. Employment. On-site store manager, regional manager and district payroll expense increased 21.7% or$58,387 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 8.4% or$93,810 for the twelve months endedDecember 31, 2022 as compared to the same period in 2021. This increase was due primarily to routine employee additions and inflationary increases in compensation rates for existing employees. 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, regional, and store managers. Real Estate Property Tax. Store property tax expense increased 21.2% or$73,093 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 12.3% or$161,085 for the twelve months endedDecember 31, 2022 as compared to the same period in 2021. The increase in property tax expense during the year endedDecember 31, 2022 is primarily due to increased property assessment valuations and the loss of our Class 8 tax incentive granted toSSG Dolton LLC . See the section titled "Property Tax Expenses atDolton, IL " for additional detail. We currently expect same-store property tax expenses to increase during 2023, primarily due to an expected phaseout of the Class 8 tax incentive granted toSSG Dolton LLC and increased property assessment valuations. Administrative. 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. Administrative expenses increased 3.7% or$6,926 in the three months endedDecember 31, 2022 as compared to the same period in 2021, and increased 11.2% or$86,240 in the twelve months endedDecember 31, 2022 as compared to the same period in 2021. We experienced an increase in administrative expenses for the year endedDecember 31, 2022 due primarily to increased repairs and maintenance, utilities, credit card fees, and landscaping expense. Credit card fees increased for the year endedDecember 31, 2022 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 2023. Repairs and maintenance expense decreased 16.7% or$8,308 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 8.3% or$11,845 for the twelve months endedDecember 31, 2022 as compared to the same period in 2021. 42
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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. Utility expense increased 0.7% or$384 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 13.0% or$31,077 for the twelve months endedDecember 31, 2022 as compared to the same period in 2021, primarily due to rising costs for energy during the three and twelve months endedDecember 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 in 2023. Landscaping expenses, which include snow removal costs, increased 32.0% or$7,170 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 5.9% or$9,694 in the twelve months endedDecember 31, 2022 compared to the same period in 2021. The increase in landscaping expense in the twelve months endedDecember 31, 2022 versus the same period in 2021 is primarily due to inflationary increases in rates. 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 2023, excluding snow removal expense, which is primarily weather dependent and unpredictable. Marketing. 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 22.0% or$15,982 for the three months endedDecember 31, 2022 versus the three months endedDecember 31, 2021 , and increased 15.4% or$39,355 for the twelve months endedDecember 31, 2022 as compared to the same period in 2021. The increase in marketing expense in the twelve months endedDecember 31, 2022 versus the same period in 2021 is primarily due to increased marketing costs and internet advertising expenses during the year ended 2022. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to increase in 2023. General. Other direct store costs include general 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. General expenses increased 23.8% or$15,852 in the three months endedDecember 31, 2022 as compared to the same period in 2021, and increased 10.4% or$29,783 in the twelve months endedDecember 31, 2022 as compared to the same period in 2021, primarily due to increased expenses for travel.Lien Administration . Lien administration expenses increased 13.2% or$382 in the three months endedDecember 31, 2022 as compared to the same period in 2021, and increased 0.1% or$7 in the twelve months endedDecember 31, 2022 as compared to the same period in 2021. We currently expect moderate increases in other direct store costs in 2023.
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 . Property tax expenses have increased to$399,000 during 2020,$417,000 during 2021, and$532,000 during 2022. The Class 8 tax incentive phased out over the years 2017, 2018, 2019, 2020, and 2021. 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
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The following tables present a 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):
Three Months Three Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
Net income $ 440,451 $ 1,379,643 $ 2,057,723 $ 3,281,251
Eliminate items excluded from FFO:
Unrealized loss (gain) on
marketable equity securities 227,144 (775,542 ) 1,117,029 (1,566,731 )
Depreciation and amortization 404,897 409,669 1,619,239 1,631,609
Gain on Paycheck Protection
Program (PPP) loan forgiveness - - (307,210 ) -
FFO attributable to common
stockholders 1,072,492 1,013,770 4,486,781 3,346,129
Adjustments:
Compensation expense related to stock-based awards 42,809 54,098 173,921 194,372 Business development, capital raising, and property acquisition costs 1,632 34,896 48,340 45,531 AFFO attributable to common stockholders $ 1,116,933 $
1,102,764 $ 4,709,042 $ 3,586,032
Earnings per share attributable to common stockholders - basic $ 0.04 $ 0.13 $ 0.19 $ 0.33 Earnings per share attributable to common stockholders - diluted $ 0.04 $ 0.13 $ 0.19 $ 0.33 FFO per share - diluted $ 0.10 $ 0.10 $ 0.41 $ 0.33 AFFO per share - diluted $ 0.10 $ 0.10 $ 0.43 $ 0.36 Weighted average shares outstanding - basic 11,025,477 10,613,044 10,845,884 9,973,113 Weighted average shares outstanding - diluted 11,071,042 10,646,806 10,900,041 10,004,061
Analysis of Global Self Storage Store Expansions
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. In 2020, we completed three expansion / conversion projects at our properties located inMillbrook, NY ,McCordsville, IN , andWest Henrietta, NY . In 2021 and 2023, we completed conversion projects 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 ofDecember 31, 2022 , theMillbrook, NY store's total area occupancy stood at 94.1%. 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 ofDecember 31, 2022 , theMcCordsville, IN store's total area occupancy stood at 89.4%. 44
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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's total area occupancy dropped from approximately 89.6% to approximately 77.9%. As ofDecember 31, 2022 , theWest Henrietta, NY store's total area occupancy stood at 79.6%. In 2021, the Company began reviewing plans to convert certain commercially-leased spaces to approximately 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 ofDecember 31, 2022 , theLima, OH store's total area occupancy was approximately 91.8%. 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. In 2022, the Company began reviewing plans to convert certain commercially-leased spaces to approximately 2,500 leasable square feet of all-climate-controlled units at theLima, OH property. InJanuary 2023 , the Company completed such conversion, resulting in a new total of 767 units and 94,928 leasable square feet at theLima, OH property. Upon completion, total area occupancy was approximately 91.1%. This conversion did not constitute a significant renovation or expansion because it only added approximately 2,500 leasable square feet of self storage to the property. As such, ourLima, OH property will remain a same store property.
Analysis of Realized and Unrealized Gains (Losses)
Unrealized gains/(losses) on the Company's investment in marketable equity securities for the three and twelve months endedDecember 31, 2022 were (227,144) and ($1,117,029 ), respectively, and for the three and twelve months endedDecember 31, 2021 were$775,542 and$1,566,731 , respectively. In accordance with the adoption of ASU 2016-01, as ofJanuary 1, 2018 , the Company recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income. Previously, changes in fair value of the Company's investments in equity securities were recognized in accumulated other comprehensive income on the Company's consolidated balance sheets. As we continue to acquire and/or develop additional stores, as part of the funding for such activities, we plan to liquidate our investment in marketable equity securities and potentially realize gains or losses. As ofDecember 31, 2022 , our cumulative unrealized gain on marketable equity securities was$1,610,666 . There were no realized gains or losses for the twelve months endedDecember 31, 2022 andDecember 31, 2021 .
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