# Global Self Storage, Inc.: Form 10-Q for the period ended Jun 30, 2016

- Company: [Global Self Storage, Inc.](/companies/self.md) (CIK 1031235)
- Form: 10-Q
- Filed: 2016-08-15
- Accepted by EDGAR: Aug 15, 2016, 16:16 ET
- Period: 2016-06-30
- Accession: 0001564590-16-024352
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1031235/000156459016024352/self-10q_20160630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1031235/000156459016024352/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $1.1m | us-gaap:Revenues |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | −$42.2k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $16.7k | us-gaap:InterestExpense |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | −$12.3k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.00 | us-gaap:EarningsPerShareBasicAndDiluted |
| Cash and equivalents | at 2016-06-30 | $21.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2016-06-30 | $61.4m | us-gaap:Assets |
| Total liabilities | at 2016-06-30 | $20.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-06-30 | $41.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,013 characters.

### CAUTIONARY LANGUAGE

The following discussion and analysis should be read in conjunction with our unaudited “Condensed Consolidated Financial Statements” and the “Notes to Condensed Consolidated Financial Statements (unaudited)” appearing elsewhere in this report. We make statements in this section that may be forward looking statements within the meaning of the federal securities laws. For a complete discussion of forward looking statements, see the section in this Form 10-Q 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 unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited 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 (“stores”). Our stores are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. The Company currently owns and operates seven stores located in New York, Pennsylvania, Illinois, Indiana, 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, and uplisted to NASDAQ.

Our store operations generated most of our net income for all periods presented. Accordingly, a significant portion of management’s time is devoted to maximizing cash flows from our existing stores, as well as seeking additional investments in stores.

Most of our stores compete with other well-managed and well-located competitors and we are subject to general economic conditions, particularly those that affect the spending habits of consumers and moving trends. We believe that our centralized information networks, national telephone and online reservation system, the brand name “Global Self Storage,” and our economies of scale help enable us to meet such challenges effectively.

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 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 Agreement, 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, among 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 failure 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 Secured 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 to 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.

As of June 30, 2016, we had capital resources totaling $25 million, well in excess of our current planned capital needs over the next year. Our capital resources include: (i) $5.9 million of cash and marketable securities as of June 30, 2016, and (ii) $20 million of net proceeds from the aforementioned loan agreement dated June 24, 2016. Capital resources derived from retained cash flow has been and is expected to be negligible. Retained operating cash flow represents our expected cash flow provided by operating activities, less shareholder distributions and capital expenditures to maintain real estate facilities.

We have been actively reviewing a number of property and portfolio acquisition candidates and have been working to further develop and expand our current properties. On May 9, 2016, one of our wholly owned subsidiaries entered into an agreement with the Indiana Seller to acquire the Indiana Property for the sum of $7,700,000. Our obligation to close under the Purchase Agreement is expressly conditioned upon (i) the Indiana Property being satisfactory to us in all respects upon completion of our due diligence review and inspection of the Indiana Property and (ii) the occurrence or fulfillment of other conditions precedent to closing under the Indiana Purchase Agreement. If certain of the conditions precedent to closing under the Indiana Purchase Agreement are not satisfied, we, in addition to its other remedies set forth in the Indiana Purchase Agreement, will be entitled to (A) terminate the Indiana Purchase Agreement and the Indiana Purchase Agreement will be deemed null and void, (B) pursue specific performance of the Indiana Purchase Agreement and/or (C) pursue any other remedies at law or in equity.

Additionally, on June 27, 2016, the Company, through another of our wholly owned subsidiaries, entered into an agreement with the Ohio Seller to acquire a self storage facility located in Lima, Ohio the Ohio Property for the sum of $5,300,000. The Company's obligation to close under the Ohio Agreement is expressly conditioned upon (i) the Ohio Property being satisfactory to the Company in all respects upon completion of the Company's due diligence review and inspection of the Ohio Property and (ii) the occurrence or fulfillment of other conditions precedent to closing under the Ohio Agreement. If certain of the conditions precedent to closing under the Ohio Agreement are not satisfied, the Company, in addition to its other remedies set forth in the Ohio Agreement, shall be entitled to (A) terminate the Ohio Agreement and the Ohio Agreement shall be deemed null and void, (B) pursue specific performance of the Ohio Agreement and/or (C) pursue any other remedies at law or in equity. There is no material relationship between the Company, its Subsidiary or its affiliates and the Ohio Seller, other than in respect of the Ohio Agreement.

For the three months ended June 30, 2016, the net loss was $12,306 or less the $(0.01) per share and for the period January 19, 2016 to June 30, 2016, net income was $ 36,815 or less than $0.01 per share.

#### 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 self-storage properties, FFO should be considered along with the reported net income and cash flows in accordance with GAAP, as presented in the Company’s financial statements.

We believe net operating income or “NOI” is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, determining current property values, evaluating property performance and in comparing period-to-period and market-to-market property 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 property 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.

The following tables present a reconciliation and computation of net income to FFO and earnings per share to FFO per share:

| Computation and Reconciliation of FFO | Three Months Ended June 30, 2016 | For the Period January 19, 2016 through June 30, 2016 |
| --- | ---: | ---: |
| Net income (loss) | $(12,306) | $36,815 |
| Eliminate items excluded from FFO: |  |  |
| Depreciation and amortization | 189,008 | 358,975 |
| FFO | $176,702 | $395,790 |
| **Computation and Reconciliation of FFO per Share** |  |  |
| Net income (loss) | $(0.00) | $0.00 |
| Eliminate items excluded from FFO: |  |  |
| Depreciation and amortization | 0.03 | 0.05 |
| FFO per Share | $0.02 | $0.05 |

### Same-Store Self Storage Operations

We grew our top-line results by increasing same-store revenues by 8.9% for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and by 7.6% for the six months ended June 30, 2016 versus the six months ended June 30, 2015. Same-store cost of operations increased by 7.8% for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and by 6.1% for the six months ended June 30, 2016 versus the six months ended June 30, 2015. Same-store net operating income increased by 9.7% for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and by 8.8% for the six months ended June 30, 2016 versus the six months ended June 30, 2015. This growth rate of net operating income was the result of an increase in year over year revenues at a rate higher than growth rate of operating expenses. General and administrative expense increased by 146.5% for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and by 4.9% for the period ended June 30, 2016 versus the six months ended June 30, 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 expect some general and administrative expense reductions associated with our discontinued registration as an investment company, we expect to incur a number of new expenses related to, among other things, the Company’s new reporting and regulatory requirements.

Our results were driven by, among other things, our internet and digital marketing initiatives which helped our overall average occupancy approach and maintain the 90% mark. Also contributing to our strong results were our customer service efforts which 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 6.6% for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and by 5.4% for the six months ended June 30, 2016 versus the six months ended June 30, 2015.

These results are summarized as follows:

*SAME - STORE PROPERTIES*

| Three Months ended June 30 | 2016 | 2015 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $1,197,549 | $1,099,336 | $98,213 | 8.9% |
| Cost of operations | $484,133 | $449,020 | $35,113 | 7.8% |
| Net operating income | $713,416 | $650,316 | $63,100 | 9.7% |
| Depreciation and amortization | $211,689 | $159,124 | $52,565 | 33.0% |
| Net leasable square footage at period end | 485,574 | 486,168 | (594) | -0.1% |
| Net leased square footage at period end | 447,363 | 438,118 | 9,245 | 2.1% |
| Average overall square foot occupancy | 92.1% | 90.1% | 2.0% | 2.2% |
| Total annualized revenue per leased square foot | $10.71 | $10.04 | $0.67 | 6.7% |
| Number of leased storage units | 3,467 | 3,359 | 108 | 3.2% |

*SAME - STORE PROPERTIES*

| Six Months ended June 30 | 2016 | 2015 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $2,341,273 | $2,175,097 | $166,176 | 7.6% |
| Cost of operations | $981,919 | $925,187 | $56,732 | 6.1% |
| Net operating income | $1,359,354 | $1,249,910 | $109,444 | 8.8% |
| Depreciation and amortization | $413,059 | $312,230 | $100,829 | 32.3% |
| Net leasable square footage at period end | 485,574 | 486,168 | (594) | -0.1% |
| Net leased square footage at period end | 447,363 | 438,118 | 9,245 | 2.1% |
| Average overall square foot occupancy | 92.1% | 90.1% | 2.0% | 2.2% |
| Total annualized revenue per leased square foot | $10.47 | $9.93 | $0.54 | 5.4% |
| Number of leased storage units | 3,467 | 3,359 | 108 | 3.2% |

26

#### Analysis of Same-Store Revenue

For the three months ended June 30, 2016, the 8.9% revenue increase was due primarily to a 6.7% increase in total annualized revenue per leased square foot, a 2.1% increase in net leased square footage and a 2.2% increase in same store average overall square foot occupancy. For the six months ended June 30, 2016, the 7.6% revenue increase was due primarily to a 5.4% increase in total annualized revenue per leased square foot, 2.1% increase in net leased square footage and a 2.2% increase in same store average overall square foot occupancy. The increase in total annualized revenue per leased square foot was due primarily to annual rent increases given to existing tenants, 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 facilities combined increased to 92.1% in the six months ended June 30, 2016 from 90.1% in the six months ended June 30, 2015, representing an increase of 2.2%.

We believe that high occupancies help maximize our rental income. We seek to maintain an average square foot occupancy level of about 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 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, in the remainder of 2016 to come from a combination of the following: (i) continued annual rent increases to tenants, (ii) higher rental rates charged to new tenants, (iii) lower promotional discounts and, to a lesser extent, and (iv) higher occupancies. Our future rental income growth will 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 rental rates to existing tenants, generally on an annual basis is a key component of our revenue growth. We 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 rent increases to existing tenants for the remainder of 2016 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 in the remainder of 2016. 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 maximize each store’s occupancies and our self storage revenue and net operating income. 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 a little under three years, up from about two years for the same period in 2015.

### GLOBAL SELF STORAGE STORES

### (As of June 30, 2016)

| Property | Address | Year Store Opened | Number of Units | Net Leasable Square Feet(1) | June 30, 2016 Square Foot Occupancy % | March 31, 2016 Square Foot Occupancy % | June 30, 2015 Square Foot Occupancy % |
| --- | --- | --- | ---: | ---: | ---: | ---: | ---: |
| SSG BOLINGBROOK LLC | 296 North Weber Road, Bolingbrook, IL 60440 | 1997 | 497 | 66,250 | 97.4% | 96.7% | 96.4% |
| SSG DOLTON LLC | 14900 Woodlawn Avenue, Dolton, IL 60419 | 2007 | 649 | 86,725 | 95.5% | 95.5% | 96.4% |
| SSG MERRILLVILLE LLC | 6590 Broadway, Merrillville, IN 46410 | 2005 | 507 | 71,420 | 96.2% | 94.2% | 95.4% |
| SSG ROCHESTER LLC | 2255 Buffalo Road, Rochester, NY 14624 | 2010 | 650 | 68,017 | 90.0% | 88.2% | 95.1% |
| SSG SADSBURY LLC | 21 Aim Boulevard, Sadsburyville, PA 19369 | 2006 | 699 | 79,004 | 90.6% | 85.5% | 78.4% |
| SSG SUMMERVILLE I LLC | 1713 Old Trolley Road, Summerville, SC 29485 | 1990 | 557 | 72,700 | 84.2% | 74.1% | 80.1% |
| SSG SUMMERVILLE II LLC | 900 North Gum Street, Summerville, SC 29483 | 1997 | 254 | 41,458 | 90.6% | 83.5% | 89.6% |
| **TOTAL/AVERAGE** |  |  | **3,813** | **485,574** | 92.1% | 88.1% | 90.1% |

1\) Includes outside auto/RV/boat storage space of 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; and 5,300 square feet at SSG Summerville II LLC. During 2015, upon completion of its new construction project SSG Sadsbury LLC added 219 climate-controlled storage units comprising 16,756 leasable square feet. Also during 2015, SSG Bolingbrook LLC eliminated 98 parking spaces (32,700 square feet) to accommodate its new buildings construction project which, when complete, will add some 306 climate-controlled and traditional storage units totaling approximately 44,260 leasable square feet to the facility. Approximately 42% of our total available units are climate-controlled, 54% are traditional and 4% are parking. The six months average annualized revenue per leased square foot was $10.47 and $9.93 for the periods ended June 30, 2016 and June 30, 2015, respectively.

#### Analysis of Same-Store Cost of Operations

Same-store cost of operations increased 7.8% or $35,113 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 6.1% or $56,732 for the six months ended June 30, 2016 versus the six months ended June 30, 2015. This increase in same-store cost of operations was due primarily to increased property tax expense, employment costs, repair and maintenance and marketing expense, which were partially offset by decreases in professional, utilities, administrative, and lien administration costs.

Property tax expense increased 1.0% or $922 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 3.9% or $10,882 in the six months ended June 30, 2016 as compared to the same period in 2015, due primarily to higher assessed values and tax rates, in particular for our Sadsburyville, PA store. We expect property tax expense growth of approximately the same amount in the remainder of 2016.

On-site property manager payroll expense increased 14.2% or $16,309 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 9.8% or $23,267 in the six months ended June 30, 2016 as compared to the same period in 2015. This increase was due primarily to wage increases and higher employee health plan expenses. We expect inflationary increases in compensation rates for existing employees and other increases in compensation costs as we add new properties as well as District and Regional Managers in the remainder of 2016.

Repairs and maintenance expense increased 27.4% or $6,519 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 32.9% or $15,589 in the six months ended June 30, 2016 as compared to the same period in 2015 due primarily to our ongoing LED light replacement program expenses in the 2016 period compared to the 2015 period. We anticipate continued focus on our LED light replacement program throughout 2016. At our stores fully converted to LED lighting, we have realized utilities expense savings year-over-year of approximately 40% due to lower kilowatt per hour usage.

Our utility expenses are 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 decreased 12.7% or $3,714 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and decreased 20.1% or $16,330 in the six months ended June 30, 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 for the remainder of 2016.

Landscaping expenses, which include snow removal costs, increased 28.4% or $3,267 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 8.0% or $3,193 in the six months ended June 30, 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 snow removal, inflation in material and labor costs, and random events. We currently expect inflationary increases in landscaping expense in the remainder of 2016, 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 48.0% or $22,730 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 34.5% or $30,938 in the six months ended June 30, 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 facilities’ 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 during the remainder of 2016.

Other direct property costs include administrative expenses incurred at the stores, such as property 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 a negligible amount in the three months ended June 30, 2016 as compared to the same period in 2015, and increased a similar negligible amount in the six months ended June 30, 2016 as compared to the same period in 2015. The small increase in this six-month period was due primarily to higher credit card fees. Credit card fees increased due to a higher proportion of collections being received from 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 property costs in the remainder of 2016.

#### 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 data processing, human resources, legal, corporate and operational accounting and finance, marketing, and compensation of senior executives.

| Three months ended June 30, | 2016 | 2015 | Variance | % Change |
| --- | ---: | ---: | ---: | --- |
| General and administrative | $354,207 | $143,687 | $210,520 | +146.5% |
| **For the Period January 19, 2016 to June 30, 2016 compared to the Six months ended June 30, 2015** |  |  |  |  |
|  | **2016** | **2015** | **Variance** | **% Change** |
| General and administrative | $661,453 | $630,512 | $30,941 | +4.9% |

General and administrative expenses increased 146.5% or $210,520 for the three months ended June 30, 2016 versus the three months ended June 30, 2015, and increased 4.9% or $30,941 for the period January 19, 2016 to June 30, 2016 as compared to the six months ended June 30, 2015. Most of the significant 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. During the three months ended June 30, 2015, general and administrative expenses were decreased by $77,252 due to a favorable reversal of an expense accrual. 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 expect some general and administrative expense reductions associated with our discontinued registration as an investment company, we expect to incur a number of new expenses related to, among other things, the Company’s new reporting and regulatory requirements.

The Company incurred substantial fees and expenses associated with the Loan Documents, the majority of which were capitalized and we would consider non-recurring.

#### Analysis of Business Development and Property Acquisition Expenses

Business development and property acquisition expenses increased from $0 during the three and six months ended June 30, 2015 to $154,798 and $159,033 during the three and six months ended June 30, 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 six months ended June 30, 2015 to $16,302 for the three and six months ended June 30, 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.

#### Analysis of Global Self Storage Property 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 facility 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 has been well received by the local market. As of June 30, 2016, approximately 12 months after construction was completed and lease-up commenced, 94% of the first floor and 72% of the entire building have been leased. As previously reported, we are moving forward with site work and construction of the expansion project in Bolingbrook, IL which, when completed, will add approximately 44,260 leasable square feet of climate-controlled and traditional storage units. The project features a final budget of $2,400,000, which equates to an all-in projected cost of approximately $53 per square foot and currently an anticipated completion date of September 2016. Next up for expansion review is the Merrillville, IN store.

Our stores in the Northeast, Mid-Atlantic and Mid-West are located in densely populated and high traffic areas near major roads and highways. All of our stores display prominent road signage and most feature LED marquee boards describing the store features and move-in rent specials. Our stores are generally located in areas with strict zoning laws and attentive planning boards which make it difficult for our competition to develop new facilities near ours. As we evaluate potential stores, we seek properties in areas with these high barriers to entry.

From a marketing perspective, we have developed the brand, “Global Self Storage,” and now use it in all of our on-site signage, internet advertising and other marketing materials. During 2015, we launched our new re-designed stores’ website www.GlobalSelfStorage.us, where prospective tenants can learn about the features of each store and view high resolution images and videos. The site also allows tenants to pay their rent online.

We continue to develop the Global Self Storage internet presence through advertising and search engine optimization. We solicit tenant reviews for posting to the “Testimonials” section of our website and encourage others to view these testimonials, as we frequently receive the top rating of 5 stars. We have found that our most reliable source of new tenants is through referrals of current tenants.

Attracting high quality, long-term tenants is the top priority for the Company, and we strongly believe in tenant quality over tenant quantity. In our marketing efforts, we have seen tremendous success in our referral marketing program, as nothing seems to be as productive as asking our satisfied tenants to recommend Global Self Storage to their family, friends, and colleagues. We also believe our store managers’ attention to detail – maintaining security, cleanliness and attentive customer service – is essential to attracting high quality tenants.

Each of our stores features a rental and payment center kiosk available 24 hours a day, seven days a week, where prospective tenants can rent a unit and current tenants can pay their rent. All of our stores have on-site property managers who are committed to delivering the finest customer service. Our customer call center handles telephone inquiries from current and prospective tenants whenever our store managers are not available. They can respond to questions about our stores and storage features, and book reservations. Our top priorities are delivering convenience and high quality customer service to our tenants, as well as maintaining clean and secure stores at all times.

All of our tenant leases at all of our stores are “month-to-month” leases. We deliver at least 30 days’ written notice of any rental rate change. Lease rates at each store may be set monthly, semi-annually, annually, or at any time on a case-by-case basis as determined in the discretion of management. Tenants may be assessed late, administrative, and/or other fees. To date, none of the Company’s stores have experienced any material delinquencies.

#### Analysis of Realized and Unrealized Gains (Losses)

Realized gains for the three and six months ended June 30, 2016 were $0 and $0 compared to $0 and $900,368 for the three and six months ended June 30, 2015. As we continue to acquire and/or develop additional self storage properties, as part of the funding for such activities, we plan to liquidate our securities holdings, thereby realizing gains if applicable. As of June 30, 2016, our unrealized gain on investment securities available-for-sale was $1,899,658.

#### Distributions and Closing Market Prices

Distributions for the three months ended June 30, 2016 were $0.065 per share and for the six months ended June 30, 2016 totaled $0.13 per share. The Company’s closing market price as of June 30, 2016 was $5.39, as of March 31, 2016 was $4.87, as of December 31, 2015 was $3.75, and as of June 30, 2015 was $3.54. Past performance does not guarantee future results.

## Controls and procedures

As filed, 2,155 characters.

#### Disclosure Controls and Procedures.

We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports we file pursuant to the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have a disclosure controls and procedures committee, comprised of the Chief Executive Officer and Chief Financial Officer, which meets as necessary and is responsible for considering the materiality of information and determining our disclosure obligations a timely basis.

The disclosure controls and procedures committee carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

#### Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Aug 15, 2016.
Source: SEC EDGAR, the filing index for accession 0001564590-16-024352. Last ingested by Listed: Nov 13, 2026, 15:40 ET. No prices; not investment advice.