# Global Self Storage, Inc.: Form 10-Q for the period ended Mar 31, 2017

- Company: [Global Self Storage, Inc.](/companies/self.md) (CIK 1031235)
- Form: 10-Q
- Filed: 2017-05-15
- Accepted by EDGAR: May 15, 2017, 11:07 ET
- Period: 2017-03-31
- Accession: 0001564590-17-010923
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1031235/000156459017010923/self-10q_20170331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1031235/000156459017010923/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-01-01 to 2017-03-31 | $1.7m | us-gaap:Revenues |
| Operating income | 3 months, 2017-01-01 to 2017-03-31 | $194.5k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-01-01 to 2017-03-31 | $220.2k | us-gaap:InterestExpense |
| Net income | 3 months, 2017-01-01 to 2017-03-31 | −$14.3k | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2017-01-01 to 2017-03-31 | $607.6k | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Dividends paid | 3 months, 2017-01-01 to 2017-03-31 | $495.3k | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2017-03-31 | $2.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2017-03-31 | $61.2m | us-gaap:Assets |
| Total liabilities | at 2017-03-31 | $21.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2017-03-31 | $40.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,147 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 report entitled “Statement on Forward Looking Information.” References to the “Company,” “we,” “us,” or “our company” refer to Global Self Storage, Inc., a Maryland corporation, including, as the context requires, its direct and indirect subsidiaries.

### CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our critical accounting policies and other disclosures.

### Management’s Discussion and Analysis Overview

The Company is a self-administered and self-managed REIT 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 the 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 used the proceeds of such debt financing primarily in connection with store acquisitions in 2016 as described below.

As of March 31, 2017, we had capital resources totaling approximately $4.3 million comprised of $2.9 million of cash and cash equivalents and $1.4 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 opportunities 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 Corporation (“Tuxis”), a Company affiliate, to acquire all of the membership interests of each of SSG Clinton LLC (“SSG Clinton”), formerly known as Tuxis Self Storage I LLC, SSG Millbrook LLC (“SSG Millbrook”), formerly known as Tuxis Self Storage II LLC, and Tuxis Real Estate II LLC (“TRE II”), (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. SSG Clinton is the owner and operator of a 185 unit, 31,059 square foot store located in Clinton, Connecticut. SSG Millbrook 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 SSG Millbrook. SSG Millbrook and TRE II together applied to the local municipality and recently received permission to redevelop the parcels and properties to expand SSG Millbrook’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 SSG Millbrook’s existing store, an additional $900,000 cash payment is expected to be made by the Company to Tuxis. On May 2, 2017, the Company received approval from the local municipality for the expansion project and, upon commencement of construction, the additional cash payment is expected to be made by the Company to Tuxis.

### Results of Operations for the Three Months Ended March 31, 2017 Compared with the Period January 19, 2016 to March 31, 2016

The Company’s results of operations for the period subsequent to its change in status from an investment company to an operating company on January 19, 2016 are presented on a consolidated basis to include the Company and its wholly owned subsidiaries, rather than using the investment company fair valuation approach. 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 and such period is not reflected in the following discussion. The change in status and related accounting policies affect the direct comparability of the results of operations for the first quarter of 2017 with the first quarter of 2016. As such, for the first quarter of 2016, the presentation of the results of operations is limited to the period during which the Company has applied operating company accounting policies (January 19, 2016 through March 31, 2016) and relates to the unaudited consolidated financial statements presented for such period in this report.

#### Revenues

Rental income increased from $893,936 during the period January 19, 2016 to March 31, 2016 to $1,696,998 during the first quarter of 2017, an increase of $803,062, or 89.8%. The increase was primarily attributable to the additional income from the stores acquired in 2016, included in our non-same store portfolio. The increase in same-store revenue was due primarily to an increase in rental and occupancy rates and net leased square footage. Our stores in Pennsylvania, New York, and South Carolina were our strongest market performers as far as occupancy, revenue, and net operating income growth.

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 $31,292 during the period January 19, 2016 to March 31, 2016 to $52,628 during the first quarter of 2017, an increase of $21,336, or 68,2%. This increase was primarily attributable to increased fee revenue and insurance fees on the stores acquired in 2016 and an increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy.

#### Operating Expenses

Store operating expenses increased from $434,797 during the period January 19, 2016 to March 31, 2016 to $689,484 during the first quarter of 2017, an increase of $254,687, or 58.6%, which was primarily attributable to the increased expenses associated with our newly acquired stores.

Depreciation and amortization increased from $169,967 during the period January 19, 2016 to March 31, 2016 to $449,234 during the first quarter of 2017, an increase of $279,267, or 164.3%. The difference is primarily attributable to (i) the shorter 2016 comparable period commencing on January 19, 2016, the effective date of the Company’s deregistration as an investment company, versus the full three month period in 2017, (ii) depreciation of the building and fixtures related to the 2016 acquisitions, (iii) the expansion of the Bolingbrook store, (iv) and amortization of the in-place leases related to the 2016 acquisitions. General and administrative expenses increased from $311,481 during the period January 19, 2016 to March 31, 2016 to $410,555 during the first quarter of 2017, an increase of $99,074, or 31.8%. The change was primarily attributable to 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 the period January 19, 2016 to March 31, 2016 to $5,832 during the first quarter of 2017. Business development and store acquisition-related costs are typically non-recurring and fluctuate based on periodic investment activity.

#### Other income (expense)

Interest expense on loans increased from $0 during the period from January 19, 2016 to March 31, 2016 to $220,209 during the first quarter of 2017. The increase is primarily attributable to a higher amount of outstanding debt during the first quarter of 2017 as compared to the period from January 19, 2016 to March 31, 2016. The debt balance during the first quarter of 2017 increased to $19,600,000 from $0 during the period January 19, 2016 to March 31, 2016 as a result of the Loan Agreement. Dividend and interest income was $40,138 for the period from January 19, 2016 to March 31, 2016 and $11,422 for the first quarter of 2017. The decrease is primarily attributable to the sale of certain investment securities held by the Company.

#### Net income (loss)

For the period January 19, 2016 to December 31, 2016, the net income was $49,121 or $0.01 per share. For the first quarter of 2017, the net loss was $14,266 or $0.00 per share.

### Non-GAAP Financial Measures

Funds from Operations (“FFO”) and FFO per share are non-GAAP measures defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and are considered helpful measures of REIT performance by REITs and many REIT analysts. NAREIT defines FFO as a REIT’s net income, excluding gains or losses from sales of property, and adding back real estate depreciation and amortization. FFO and FFO per share are not a substitute for net income or earnings per share. FFO is not a substitute for GAAP net cash flow in evaluating our liquidity or ability to pay dividends, because it excludes financing activities presented on our statements of cash flows. In addition, other REITs may compute these measures differently, so comparisons among REITs may not be helpful. However, the Company believes that to further understand the performance of its stores, FFO should be considered along with the net income and cash flows reported in accordance with GAAP and as presented in the Company’s financial statements.

Adjusted FFO (“AFFO”) 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 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.

### Self Storage Portfolio

The following discussion and analysis of our same-store self storage operations and our combined same-store and non same-store self storage operations are presented on a comparative basis for the first quarters of 2017 and 2016, respectively.

### GLOBAL SELF STORAGE STORES

| Property | Address | Year Store Opened / Opened | Number of Units | Net Leasable Square Feet | March 31, 2017 Square Foot Occupancy % | March 31, 2016 Square Foot Occupancy % |
| --- | --- | --- | ---: | ---: | ---: | ---: |
| SSG BOLINGBROOK LLC | 296 North Weber Road, Bolingbrook, IL 60440 | 1997 / 2013 | 801 | 110,600 | 73.3% | 96.7% |
| SSG DOLTON LLC | 14900 Woodlawn Avenue, Dolton, IL 60419 | 2007 / 2013 | 649 | 86,725 | 95.1% | 95.5% |
| SSG MERRILLVILLE LLC | 6590 Broadway, Merrillville, IN 46410 | 2005 / 2013 | 508 | 71,720 | 97.6% | 94.2% |
| SSG ROCHESTER LLC | 2255 Buffalo Road, Rochester, NY 14624 | 2010 / 2012 | 650 | 68,017 | 94.0% | 84.2% |
| SSG SADSBURY LLC | 21 Aim Boulevard, Sadsburyville, PA 19369 | 2006 / 2012 | 699 | 79,004 | 90.0% | 85.5% |
| SSG SUMMERVILLE I LLC | 1713 Old Trolley Road, Summerville, SC 29485 | 1990 / 2013 | 557 | 72,700 | 93.6% | 74.1% |
| SSG SUMMERVILLE II LLC | 900 North Gum Street, Summerville, SC 29483 | 1997 / 2013 | 254 | 41,808 | 89.0% | 83.5% |
| **TOTAL/AVERAGE SAME STORES** |  |  | **4,118** | **530,574** | 89.3% | 88.1% |
| SSG FISHERS LLC | 13942 East 96th Street, McCordsville, IN 46055 | 2007 / 2016 | 413 | 81,471 | 90.3% | 80.1% |
| SSG LIMA LLC | 1910 West Robb Avenue, Lima, OH 60419 | 1996 / 2016 | 761 | 97,801 | 95.0% | 97.5% |
| SSG CLINTON LLC | 6 Heritage Park Road, Clinton, CT 06413 | 1996 / 2016 | 185 | 31,059 | 83.5% | 89.9% |
| SSG MILLBROOK LLC | 3814 Route 44, Millbrook, NY 12545 | 2008 / 2016 | 142 | 13,391 | 89.6% | 86.6% |
| **TOTAL/AVERAGE NON-SAME STORES** |  |  | **1,501** | **223,722** | 91.4% | 89.2% |
| **TOTAL/AVERAGE ALL STORES** |  |  | **5,619** | **754,296** | 89.9% | 88.4% |

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 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 stores. As SSG Bolingbrook LLC’s newly- constructed 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 leasable 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 SSG Clinton 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 March 31, 2017, we owned seven same-store facilities and four 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.

For comparability purposes, the same-store information presented for the period from January 1, 2016 to January 18, 2016 under investment company accounting and for the period from January 19, 2016 through March 31, 2016 under operating company accounting are presented combined for the first quarter of 2016 in the discussion that follows. Management believes this presentation is more meaningful to readers as there was no significant change in same-store revenue streams and other financial metrics or the same-store non-financial statistical information as a result of our change in status from an investment company to an operating company.

Same-store occupancy for the three months ended March 31, 2017 increased by 1.2% to 89.3% from 88.1% for the same period in of 2016. This includes the impact from the Bolingbrook expansion project completed in November 2016. Excluding the additional vacancy created in this store, ending occupancy would have been 93.1% at March 31, 2017, an increase of 5.0% compared to March 31, 2016.

We grew our top-line results by increasing same-store revenues by 9.9% for the first quarter of 2017 versus the first quarter of 2016. Same-store cost of operations decreased by 0.4% for the first quarter of 2017 versus the first quarter of 2016. Same-store NOI increased by 17.8% for the first quarter of 2017 versus the first quarter of 2016. The increase in same-store NOI was due primarily to an increase in rental and occupancy rates and net leased square footage. Our stores in Pennsylvania, New York, and South Carolina were our strongest market performers as far as occupancy, revenue, and NOI growth.

We believe that our results were driven by, among other things, our internet and digital marketing initiatives which helped our same-store overall average occupancy maintain at or around 90% as of March 31, 2017. Also, contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty, resulting in strong referral and word-of-mouth market demand for our storage units and services. Another contributing factor to our results was our competitor move-in rate metrics analysis which employs internet data scraping and other methods to help keep our storage unit move-in rates “in the market,” and our revenue rate management program which helped increase existing tenant rates while maintaining or building store occupancy.

These results are summarized as follows:

*SAME - STORE PROPERTIES*

| First Quarter | 2017 | 2016 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $1,256,473 | $1,143,354 | $113,119 | 9.9% |
| Cost of operations | $494,816 | $496,884 | $(2,068) | -0.4% |
| Net operating income | $761,657 | $646,470 | $115,187 | 17.8% |
| Depreciation and amortization | $179,578 | $160,883 | $18,695 | 11.6% |
| Net leasable square footage at period end | 531,574 | 485,574 | 46,000 | 9.5% |
| Net leased square footage at period end | 474,777 | 427,554 | 47,223 | 11.0% |
| Overall square foot occupancy at period end | 89.3% | 88.1% | 1.2% | 1.4% |
| Total annualized revenue per leased square foot | $10.59 | $10.70 | $(0.11) | -1.0% |
| Total available leasable storage units | 4,118 | 3,813 | 305 | 8.0% |
| Number of leased storage units | 3,574 | 3,251 | 323 | 9.9% |

#### Analysis of Same-Store Revenue

For the first quarter of 2017, the 9.9% revenue increase was attributable to, among other things, an 11.1% increase in net leased square footage. The increase in net leased square footage was due primarily to a successful lease-up of our Bolingbrook IL expansion, and to the continuing successful lease-up of our available storage units in our Pennsylvania, New York, and South Carolina stores. Same store average overall square foot occupancy for all of the Company’s stores combined increased to 89.3% in the first quarter of 2017 from 88.1% in the first quarter of 2016, primarily due to the aforementioned successful lease-up activity at those stores.

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 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.

We currently expect rental income growth, if any, to come from a combination of the following: (i) continued existing tenant rent increases, (ii) higher rental rates charged to new tenants, (iii) lower promotional discounts, and (iv) higher occupancies. Our future rental income growth will likely also be dependent upon many factors for each market that we operate in including, among other things, demand for self storage space, the level of competitor supply of self storage space, and the average length of stay of our tenants. Increasing existing tenant rental rates, generally on an annual basis, is a key component of our revenue growth. We typically determine the level of rental increases based upon our expectations regarding the impact of existing tenant rate increases on incremental move-outs. We currently expect existing tenant rent increases 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 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 of March 31, 2017, our average tenant duration of stay is approximately three years, up from approximately two years as of March 31, 2015.

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

Same-store cost of operations decreased 0.4% or $2,068 for the first quarter of 2017 versus the first quarter of 2016. This decrease in same-store cost of operations was due primarily to reduced marketing and administrative expense which was partially offset by increased store level employment costs, utilities, and repair and maintenance expense.

On-site store manager, regional manager, and district payroll expense increased 17.3%, or $22,449, for the first quarter 2017 versus the first quarter of 2016. This increase was due primarily to an increase in the number of store, regional, and 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 supervisory customer operations personnel.

Store property tax expense decreased 1.2% or $1,838 for the first quarter of 2017 versus the first quarter of 2016. We currently expect store property tax expense decline of approximately the same amount for the remainder of 2017.

Repairs and maintenance expense decreased 47.2%, or $15,342, for the first quarter of 2017 versus the first quarter of 2016. Due primarily to performing certain mandatory repairs during 2016 in connection with certain requirements of the Loan Documents, there were fewer items of repair and maintenance to perform during the first quarter of 2017. Going forward, 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 for the first quarter of 2017 versus the first quarter of 2016 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 10.3% or $4,062 for the first quarter of 2017 versus the first quarter of 2016, 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, decreased 50.0%, or $14,120, for the first quarter of 2017 versus the first quarter of 2016, primarily due to lower snow removal costs. 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 decreased 15.1%, or $7,621, for the first quarter of 2017 versus the first quarter of 2016, primarily due to the decreased internet advertising expenses and the one-time costs during 2016 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 nominal 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 (primarily store property insurance) increased 23.4%, or $9,207, in the first quarter of 2017 as compared to the first quarter of 2016. Increased store level cost 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 seeking to build 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 March 31, 2017, we owned seven same-store facilities and four non same-store facilities. The non same-store facilities are SSG Fishers LLC, SSG Lima LLC, SSG Clinton LLC, and SSG Millbrook LLC.

For comparability purposes, the combined same-store and non same-store information presented for the period from January 1, 2016 to January 18, 2016 under investment company accounting and for the period from January 19, 2016 through March 31, 2016 under operating company accounting are presented combined for the first quarter of 2016 in the discussion that follows. Management believes this presentation is more meaningful to readers as there was no significant change in combined same-store and non same-store revenue streams and other financial metrics or the combined same-store and non same-store non-financial statistical information as a result of our change in status from an investment company to an operating company

Combined same-store and non same-store average overall square foot occupancy for the first quarter of 2017 increased by 1.5% to 89.9% from 88.4% for the first quarter of 2016. 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 92.6% at March 31, 2017, an increase of 4.2% compared to March 31, 2016.

We grew our top-line results by increasing combined same-store and non same-store (“Combined store”) revenues by 53.0% for the first quarter of 2017 versus the first quarter of 2016. Combined store cost of operations increased by 38.1% for the first quarter of 2017 versus the first quarter of 2016. Combined store NOI increased by 64.4% for the first quarter of 2017 versus the first quarter of 2016.

We believe that our results were driven by, among other things, our internet and digital marketing initiatives, drive-by curb appeal, and superior roadside signage which helped deliver new tenant inquiries and enabled our Combined store overall average occupancy to maintain at or around 90% as of March 31, 2017. 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.

These results are summarized as follows:

*COMBINED SAME - STORE AND NON SAME - STORE PROPERTIES*

| First Quarter | 2017 | 2016 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $1,749,247 | $1,143,354 | $605,893 | 53.0% |
| Cost of operations | $686,232 | $496,884 | $189,348 | 38.1% |
| Net operating income | $1,063,015 | $646,470 | $416,545 | 64.4% |
| Depreciation and amortization | $391,473 | $160,883 | $230,590 | 143.3% |
| Net leasable square footage at period end | 755,295 | 485,574 | 269,721 | 55.5% |
| Net leased square footage at period end | 679,228 | 427,554 | 251,674 | 58.9% |
| Overall square foot occupancy at period end | 89.9% | 88.1% | 1.8% | 2.0% |
| Total annualized revenue per leased square foot | $10.30 | $10.70 | $(0.40) | -3.7% |
| Total available leasable storage units | 5,619 | 3,813 | 1,806 | 47.4% |

#### Analysis of Combined Same-Store and Non Same-Store Revenue

For the first quarter of 2017, the 53.0% revenue increase was due primarily to a 58.9% 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 currently expected to positively affect combined revenues for the remainder of 2017. Our lower year-over-year total annualized revenue per leased square foot number was primarily due to some of the larger new acquisitions offering much lower cost non-climate-controlled square feet (for example, our Lima acquisition) versus the rest of our store portfolio.

We believe that high occupancies help maximize our rental income. We seek to maintain an average square foot occupancy level at or around 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 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 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, the 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 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. As of March 31, 2017, our average tenant duration of stay is approximately three years, up from approximately two years as of March 31, 2015.

#### Analysis of Combined Same-Store and Non Same-Store Cost of Operations

Combined same-store and non same-store cost of operations increased 38.1%, or $189,348, for the first quarter of 2017 versus the first quarter of 2016.

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 and supervisory payroll expense increased 65.8%, or $85,143, for the first quarter of 2017 versus the first quarter of 2016. This increase was due primarily to an increase in the number of store level and supervisory 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.

Store property tax expense increased 29.0%, or $43,152, for the first quarter of 2017 versus the first quarter of 2016, primarily due to increased such costs associated with our new store acquisitions. We currently expect store property tax expense growth of approximately the same amount in 2017.

Repairs and maintenance expense decreased 37.7%, or $12,256, for the first quarter of 2017 versus the first quarter of 2016, primarily due to decreased such costs associated with our new store acquisitions and to performing certain mandatory repairs during 2016 in connection with certain requirements of the Loan Documents. As of March 31, 2017, 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. 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 for the first quarter of 2017 versus the first quarter of 2016 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 first quarter of 2017 versus the first quarter of 2016, 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 first quarter of 2017 versus the first quarter of 2016, 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 first quarter of 2017 versus the first quarter of 2016, 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 first quarter of 2017 as compared to the first quarter of 2016, 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 seeking to build a higher quality overall tenant base. We currently expect moderate increases in other direct store costs in 2017.

Depreciation and amortization increased from $160,883 in the first quarter of 2016 to $391,473 in the first quarter of 2017, an increase of $230,590, or 143.3%. The difference is primarily attributable to the shorter 2016 comparable period commencing on January 19, 2016, the effective date of the Company’s deregistration as an investment company, versus a full three month period in 2017, depreciation of the building and fixtures related to the 2016 acquisitions, the expansion of the Bolingbrook store, and amortization of the in-place leases related to the 2016 acquisitions.

#### 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 March 31, 2017 | For the Period January 19, 2016 through March 31, 2016 | Variance | % Change |
| --- | ---: | ---: | ---: | --- |
| General and administrative | $410,555 | $311,481 | $99,074 | +31.8% |

General and administrative expenses increased 31.8%, or $99,074, for the first quarter of 2017 versus the period January 19, 2016 to March 31, 2016. The increase in the general and administrative expense during the most recent quarter is primarily 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. In 2016, the Company incurred fees and expenses of approximately $646,000 associated with the Loan Documents, the majority 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 period January 19, 2016 to March 31, 2016 to $5,832 during the first quarter of 2017, 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 may 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 period January 19, 2016 to March 31, 2016 to $220,209 for the first quarter of 2017. Going forward, the cash payments for this expense are expected to be $69,867 per month until June 2018 at which point the monthly interest and amortization payment due is expected to increase to $107,699 where it will remain payable every month until June 2036.

#### Analysis of Global Self Storage FFO and AFFO

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

|  | Three Months Ended March 31, 2017 | For the Period January 19, 2016 through March 31, 2016 |
| --- | ---: | ---: |
| **Net income (loss)** | **$(14,266)** | **$49,121** |
| Eliminate items excluded from FFO: |  |  |
| Depreciation and amortization | 449,234 | 169,967 |
| **FFO attributable to common stockholders** | **434,968** | **219,088** |
| Adjustments: |  |  |
| Business development and property acquisition costs | 5,832 | — |
| **AFFO** | **$440,800** | **$219,088** |
| **FFO and FFO as adjusted per weighted average shares outstanding** |  |  |
| Net income | $(0.00) | $0.01 |
| Eliminate items excluded from FFO: |  |  |
| Depreciation and amortization | 0.06 | 0.02 |
| **FFO per share attributable to common stockholders** | **0.06** | **0.03** |
| Adjustments: |  |  |
| Business development and property acquisition costs | 0.00 | — |
| **AFFO per share attributable to common stockholders** | **$0.06** | **$0.03** |

#### Analysis of Global Self Storage Store Expansions and Redevelopment Operations

In addition to actively reviewing a number of store and portfolio acquisition opportunities, we have been working to further develop and expand our current stores.

At our Sadsburyville, PA store in May 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 March 31, 2017, approximately 21 months after construction was completed and lease-up commenced, 96% of the first floor and 81% of the entire building have been leased. Total entire store occupancy as of March 31, 2017 was 90.0%, up from 86.9% as of December 31, 2016.

At our Bolingbrook, IL store in November 2016, all site work, construction, and final inspections and approvals of the expansion project in Bolingbrook, IL were completed. This expansion has added approximately 44,050 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 March 31, 2017, 47.1%, or 20,750 square feet, of the five building expansion leasable square feet had been leased. This lease-up has been faster than expected. Total entire store occupancy as of March 31, 2017 was 73.3%, up from 62.2% as of December 31, 2016.

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 gross square feet.

On May 2, 2017, at the Millbrook, NY store, we received all final entitlement approvals from the local planning and zoning boards for construction of a 16,500 gross square feet, two story, all-climate-controlled expansion of the existing store. We currently anticipate that the construction project will proceed accordingly, with construction completion approximately six to nine months from project commencement. However, there is no guarantee that we will complete this project in this timeframe or at all.

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

Realized gains for the periods ended March 31, 2017 and 2016 were $0 and $0, respectively. 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 March 31, 2017, our unrealized gain on investment securities available-for-sale was $672,800.

#### Distributions and Closing Market Prices

Distributions for the three months ended March 31, 2017 totaled $0.065 per share. The Company’s closing market price as of March 31, 2017 was $4.77, as of December 31, 2016 was $4.77, and as of March 31, 2016 was $4.87. Past performance does not guarantee future results.

## Controls and procedures

As filed, 2,127 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 SEC, 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 on 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 May 15, 2017.
Source: SEC EDGAR, the filing index for accession 0001564590-17-010923. Last ingested by Listed: Nov 13, 2026, 15:40 ET. No prices; not investment advice.