# Global Self Storage, Inc.: Form 10-Q for the period ended Sep 30, 2018

- Company: [Global Self Storage, Inc.](/companies/self.md) (CIK 1031235)
- Form: 10-Q
- Filed: 2018-11-14
- Accepted by EDGAR: Nov 14, 2018, 16:01 ET
- Period: 2018-09-30
- Accession: 0001564590-18-029554
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1031235/000156459018029554/self-10q_20180930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1031235/000156459018029554/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $2.1m | us-gaap:Revenues |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $6.0m | us-gaap:Revenues |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $471.5k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $1.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-01 to 2018-09-30 | $219.8k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $660.2k | us-gaap:InterestExpense |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $89.4k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $544.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 7,626,286 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 7,621,769 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $1.5m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2018-09-30 | $1.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2018-09-30 | $58.9m | us-gaap:Assets |
| Total liabilities | at 2018-09-30 | $21.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-09-30 | $37.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 62,797 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. Please refer to the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our critical accounting policies and other disclosures.

### Management’s Discussion and Analysis Overview

The Company is a self-administered and self-managed REIT that owns, operates, manages, acquires, develops and redevelops self storage properties (“stores” or “properties”) in the United States. Our stores are designed to offer affordable, easily accessible, and secure storage space for residential and commercial customers. 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. On January 19, 2016, the Company changed its name to Global Self Storage, Inc. from Self Storage Group, Inc., changed its SEC registration from an investment company to an operating company reporting under the Exchange Act, and listed its common stock on NASDAQ under the symbol “SELF”.

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 net income from its store operations as its current store operations continue to develop and as it makes additional store acquisitions. Over time, the Company expects to divest its remaining portfolio of investment securities and use the proceeds to acquire, develop, redevelop, and/or operate additional stores. The Company expects its income from investment securities to continue to decrease as it continues to divest its holdings of investment securities.

#### Financial Condition and Results of Operations

Our financing strategy is to minimize the cost of our capital in order to maximize the returns generated for our stockholders. For future acquisitions, the Company may use various financing and capital raising alternatives including, but not limited to, debt and/or equity offerings, credit facilities, mortgage financing, and joint ventures with third parties.

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 of September 30, 2018, we had capital resources totaling approximately $3.5 million, comprised of $2.0 million of cash and cash equivalents and $1.5 million of marketable securities. Capital resources derived from retained cash flow have been and are currently expected to continue to be negligible. Retained operating cash flow represents our expected cash flow provided by operating activities, less stockholder distributions and capital expenditures to maintain stores.

We have been actively reviewing a number of store and store portfolio acquisition opportunities and have been working to further develop and expand our current stores. We did not make any acquisitions in the three months ended September 30, 2018.

### Results of Operations for the Three Months Ended September 30, 2018 Compared with the Three Months Ended September 30, 2017

#### Revenues

Total revenues increased from $1,933,157 during the three months ended September 30, 2017 to $2,058,153 during the three months ended September 30, 2018, an increase of $124,996, or 6.5%. Rental income increased from $1,871,642 during the three months ended September 30, 2017 to $1,988,133 during the three months ended September 30, 2018, an increase of $116,491, or 6.2%. The increase was primarily attributable to the additional income from the Merrillville expansion and increases in rental and occupancy rates across almost all of our stores.

Other store related income consists of customer insurance fees, sales of storage supplies, and other ancillary revenues. Other store related income increased from $61,515 during the three months ended September 30, 2017 to $70,020 during the three months ended September 30, 2018, an increase of $8,505, or 13.8%. This increase was primarily attributable to increased insurance participation and higher average occupancy.

#### Operating Expenses

Total operating expenses decreased from $1,857,885 during the three months ended September 30, 2017 to $1,586,637 during the three months ended September 30, 2018, a decrease of $271,248, or 14.6%. Store operating expenses increased from $777,872 during the three months ended September 30, 2017 to $785,795 during the three months ended September 30, 2018, an increase of $7,923, or 1.0%, which was primarily attributable to the increased expenses associated with increased property tax expenses.

Depreciation and amortization decreased from $439,342 during the three months ended September 30, 2017 to $349,507 during the three months ended September 30, 2018, a decrease of $89,835, or 20.4%. The decrease is primarily attributable to the amortization during 2017 of the in-place leases related to the stores acquired in 2016.

General and administrative expenses decreased from $640,566 during the three months ended September 30, 2017 to $436,335 during the three months ended September 30, 2018, a decrease of $204,231, or 31.9%. The change was primarily attributable to decreased expenses in various professional fees, employee acquisition and stockholder communications.

Business development costs increased from $105 during the three months ended September 30, 2017 to $15,000 during the three months ended September 30, 2018. Business development costs are typically non-recurring and fluctuate based on periodic business development and acquisition activity.

#### Operating Income

Operating income increased from $75,272 during the three months ended September 30, 2017 to $471,516 during the three months ended September 30, 2018, an increase of $396,244, or 526.4%.

#### Other income (expense)

Interest expense on loans decreased from $220,209 during the three months ended September 30, 2017 to $219,792 during the three months ended September 30, 2018.

Dividend, interest, and other income was $15,591 during the three months ended September 30, 2017 and $17,665 during the three months ended September 30, 2018. The increase was primarily attributable to higher dividend payments received from investments in equity securities and increased interest rates for cash deposits held in interest paying bank accounts.

In accordance with the adoption of ASU 2016-01, the Company now recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income and as such recorded an unrealized loss of $180,021 for the three months ended September 30, 2018. Previously, changes in fair value of the Company’s investments in equity securities were recognized in accumulated other comprehensive income on the Company’s consolidated balance sheets. As such, the Company included an unrealized gain on its investments in equity securities of $70,812 in accumulated other comprehensive income at September 30, 2017.

#### Net income (loss)

For the three months ended September 30, 2017, net loss was $129,346, or $0.02 per fully diluted share. For the three months ended September 30, 2018, net income was $89,368, or $0.01 per fully diluted share.

### Results of Operations for the Nine Months Ended September 30, 2018 Compared with the Nine Months Ended September 30, 2017

#### Revenues

Total revenues increased from $5,529,077 during the nine months ended September 30, 2017 to $6,039,768 during the nine months ended September 30, 2018, an increase of $510,691, or 9.2%. Rental income increased from $5,357,521 during the nine months ended September 30, 2017 to $5,844,286 during the nine months ended September 30, 2018, an increase of $486,765, or 9.1%. The increase was primarily attributable to the additional income from the Merrillville expansion and increases in rental and occupancy rates across almost all of our stores.

Other store related income consists of customer insurance fees, sales of storage supplies, and other ancillary revenues. Other store related income increased from $171,556 during the nine months ended September 30, 2017 to $195,482 during the nine months ended September 30, 2018, an increase of $23,926, or 14.0%. This increase was primarily attributable to increased insurance participation and higher average occupancy.

#### Operating Expenses

Total operating expenses decreased from $5,035,940 during the nine months ended September 30, 2017 to $4,889,801 during the nine months ended September 30, 2018, a decrease of $146,139, or 2.9%. Store operating expenses increased from $2,190,818 during the nine months ended September 30, 2017 to $2,459,160 during the nine months ended September 30, 2018, an increase of $268,342, or 12.3%, which was primarily attributable to the increased expenses associated with increased property tax expenses.

Depreciation and amortization decreased from $1,341,261 during the nine months ended September 30, 2017 to $1,047,553 during the nine months ended September 30, 2018, a decrease of $293,708, or 21.9%. The decrease is primarily attributable to the amortization during 2017 of the in-place leases related to the stores acquired in 2016.

General and administrative expenses decreased from $1,489,566 during the nine months ended September 30, 2017 to $1,358,088 during the nine months ended September 30, 2018, a decrease of $131,478, or 8.8%. The change was primarily attributable to decreases in various professional fees, and expenses related to employee acquisition and stockholder communications.

Business development and store acquisition related costs increased from $14,295 during the nine months ended September 30, 2017 to $25,000 during the nine months ended September 30, 2018. Business development and store acquisition-related costs are typically non-recurring and fluctuate based on periodic business development and acquisition activity.

#### Operating Income

Operating income increased from $493,137 during the nine months ended September 30, 2017 to $1,149,967 during the nine months ended September 30, 2018, an increase of $656,830, or 133.2%.

#### Other income (expense)

Interest expense on loans decreased from $660,626 during the nine months ended September 30, 2017 to $660,209 during the nine months ended September 30, 2018.

Dividend, interest, and other income was $41,965 during the nine months ended September 30, 2017 and $58,790 during the nine months ended September 30, 2018. The increase was primarily attributable to higher dividend payments received from investments in equity securities and increased interest rates for cash deposits held in interest paying bank accounts, and a nonrecurring receipt of $6,396 relating to a class action claim originating prior to the Company deregistering as an investment company.

In accordance with the adoption of ASU 2016-01, the Company now recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income and as such recorded an unrealized loss of $4,579 for the nine months ended September 30, 2018. Previously, changes in fair value of the Company’s investments in equity securities were recognized in accumulated other comprehensive income on the Company’s consolidated balance sheets. As such, the Company included an unrealized loss on its investments in equity securities of $21,777 in accumulated other comprehensive income at September 30, 2017.

#### Net income (loss)

For the nine months ended September 30, 2017, net loss was $125,524, or $0.02 per fully diluted share. For the nine months ended September 30, 2018, net income was $543,969, or $0.07 per fully diluted 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 investment 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 (“Combined store”) self storage operations are presented on a comparative basis for the three and nine months ended September 30, 2018 and September 30, 2017, respectively.

### GLOBAL SELF STORAGE STORES

| Property | Address | Year Store Opened / Acquired | Number of Units | Net Leasable Square Feet | September 30, 2018 Square Foot Occupancy % | September 30, 2017 Square Foot Occupancy % |
| --- | --- | --- | ---: | ---: | ---: | ---: |
| SSG BOLINGBROOK LLC | 296 North Weber Road, Bolingbrook, IL 60440 | 1997 / 2013 | 796 | 113,700 | 92.9% | 91.8% |
| SSG CLINTON LLC | 6 Heritage Park Road, Clinton, CT 06413 | 1996 / 2016 | 182 | 30,338 | 93.7% | 84.5% |
| SSG DOLTON LLC | 14900 Woodlawn Avenue, Dolton, IL 60419 | 2007 / 2013 | 652 | 86,590 | 92.2% | 92.7% |
| SSG FISHERS LLC | 13942 East 96th Street, McCordsville, IN 46055 | 2007 / 2016 | 410 | 81,646 | 94.1% | 92.5% |
| SSG LIMA LLC | 1910 West Robb Avenue, Lima, OH 60419 | 1996 / 2016 | 732 | 97,610 | 94.7% | 93.9% |
| SSG MILLBROOK LLC | 3814 Route 44, Millbrook, NY 12545 | 2008 / 2016 | 140 | 12,480 | 96.0% | 86.9% |
| SSG ROCHESTER LLC | 2255 Buffalo Road, Rochester, NY 14624 | 2010 / 2012 | 642 | 68,076 | 93.4% | 88.2% |
| SSG SADSBURY LLC | 21 Aim Boulevard, Sadsburyville, PA 19369 | 2006 / 2012 | 697 | 78,842 | 92.7% | 90.5% |
| SSG SUMMERVILLE I LLC | 1713 Old Trolley Road, Summerville, SC 29485 | 1990 / 2013 | 557 | 72,700 | 92.0% | 91.5% |
| SSG SUMMERVILLE II LLC | 900 North Gum Street, Summerville, SC 29483 | 1997 / 2013 | 249 | 42,910 | 89.4% | 90.9% |
| **TOTAL/AVERAGE SAME-STORES** |  |  | **5,057** | **684,892** | 93.0% | 91.3% |
| SSG MERRILLVILLE LLC | 6590 Broadway, Merrillville, IN 46410 | 2005 / 2013 | 566 | 80,170 | 94.8% | 98.1% |
| **TOTAL/AVERAGE NON SAME-STORES** |  |  | **566** | **80,170** | 94.8% | 98.1% |
| **TOTAL/AVERAGE ALL STORES** |  |  | **5,623** | **765,062** | 93.2% | 91.9% |

Each store is directly owned by the Company’s wholly owned subsidiary listed in the table.

Same-store occupancy does not include properties that have recently undergone significant expansion or redevelopment, such as our property in Merrillville, IN.

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; 15,700 square feet at SSG Bolingbrook LLC; 9,000 square feet at SSG Dolton LLC; 1,000 square feet at SSG Merrillville LLC; 7,200 square feet at SSG Summerville II LLC and 8,750 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 33% of our total available units are climate-controlled, 59% 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 or expansion. We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, dispositions, or new ground-up developments. At September 30, 2018, we owned ten same-store properties and one non same-store property. The Company believes that, by providing same-store results from a stabilized pool of stores, with accompanying operating metrics including, but not limited to, variances in occupancy, rental revenue, operating expenses, NOI, etc., stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels, rent levels, expense levels, acquisitions, or completed developments. Same-store results should not be used as a basis for future same-store performance or for the performance of the Company’s stores as a whole.

Same-store occupancy at September 30, 2018 increased by 1.7% to 93.0% from 91.3% at September 30, 2017. This does not include the impact from the Merrillville, IN expansion project completed in January 2018.

We grew our top-line results by increasing same-store revenues by 5.1% and 8.6% for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. Same-store cost of operations increased by 0.7% and 11.1% for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. Same-store NOI increased by 8.3% and 6.8% for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. The increase in same-store NOI was due primarily to an increase in rental and occupancy rates.

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 93% as of September 30, 2018. Also, contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty, resulting in strong referral and word-of-mouth market demand for our storage units and services. Another contributing factor to our results was our competitor move-in rate metrics analysis which employs internet data scraping and other methods to help keep our storage unit move-in rates “in the market,” and our revenue rate management program which helped increase existing tenant rates while maintaining or building store occupancy.

These results are summarized as follows:

*SAME - STORE PROPERTIES*

| Three Months Ended September 30, | 2018 | 2017 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $1,842,555 | $1,752,628 | $89,927 | 5.1% |
| Cost of operations | $727,023 | $722,283 | $4,740 | 0.7% |
| Net operating income | $1,115,532 | $1,030,345 | $85,187 | 8.3% |
| Depreciation and amortization | $267,930 | $353,255 | $(85,325) | -24.2% |
| Net leasable square footage at period end\* | 684,892 | 683,343 | 1,549 | 0.2% |
| Net leased square footage at period end | 637,130 | 623,612 | 13,518 | 2.2% |
| Overall square foot occupancy at period end | 93.0% | 91.3% | 1.7% | 1.9% |
| Total annualized revenue per leased square foot | $11.57 | $11.24 | $0.33 | 2.9% |
| Total available leasable storage units\* | 5,057 | 5,051 | 6 | 0.1% |
| Number of leased storage units | 4,574 | 4,542 | 32 | 0.7% |

*SAME - STORE PROPERTIES*

| Nine Months Ended September 30, | 2018 | 2017 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $5,428,288 | $4,999,807 | $428,481 | 8.6% |
| Cost of operations | $2,257,408 | $2,031,644 | $225,764 | 11.1% |
| Net operating income | $3,170,880 | $2,968,163 | $202,717 | 6.8% |
| Depreciation and amortization | $802,948 | $1,079,197 | $(276,249) | -25.6% |
| Net leasable square footage at period end\* | 684,892 | 683,343 | 1,549 | 0.2% |
| Net leased square footage at period end | 637,130 | 623,612 | 13,518 | 2.2% |
| Overall square foot occupancy at period end | 93.0% | 91.3% | 1.7% | 1.9% |
| Total annualized revenue per leased square foot | $11.36 | $10.69 | $0.67 | 6.3% |
| Total available leasable storage units\* | 5,057 | 5,051 | 6 | 0.1% |
| Number of leased storage units | 4,574 | 4,542 | 32 | 0.7% |

24

\* From time to time, as guided by market conditions, net leasable square footage and total available leasable storage units at our properties may increase or decrease as a result of consolidation, division or reconfiguration of storage units. Similarly, leasable square footage may increase or decrease due to expansion or redevelopment of our properties.

The following table presents a reconciliation of same-store net operating income to net income (loss) as presented on our consolidated statements of operations for the periods indicated:

|  | For the Three Months Ended September 30, 2018 2017 | For the Nine Months Ended September 30, 2018 2017 |
| --- | ---: | ---: |
| Net income (loss) | $89,368 $(129,346) | $543,969 $(125,524) |
| Adjustments: |  |  |
| General and administrative | 436,335 640,566 | 1,358,088 1,489,566 |
| Depreciation and amortization | 349,507 439,342 | 1,047,553 1,341,261 |
| Business development | 15,000 105 | 25,000 14,295 |
| Dividend, interest, and other income | (17,665) (15,591) | (58,790) (41,965) |
| Unrealized loss on marketable equity securities | 180,021 — | 4,579 — |
| Interest expense | 219,792 220,209 | 660,209 660,626 |
| Non same-store revenues | (215,069) (180,179) | (610,578) (528,048) |
| Non same-store cost of operations | 55,855 50,257 | 193,101 148,045 |
| Other real estate expenses | 2,388 4,982 | 7,749 9,907 |
| Total same-store net operating income | $1,115,532 $1,030,345 | $3,170,880 $2,968,163 |
|  | **For the Three Months Ended September 30,** | **For the Nine Months Ended September 30,** |
|  | **2018** **2017** | **2018** **2017** |
| Same-store revenues | $1,842,555 $1,752,628 | $5,428,288 $4,999,807 |
| Same-store cost of operations | 727,023 722,283 | 2,257,408 2,031,644 |
| Total same-store net operating income | $1,115,532 $1,030,345 | $3,170,880 $2,968,163 |

#### Analysis of Same-Store Revenue

For the three and nine months ended September 30, 2018, the 5.1%, or $89,927, and 8.6%, or $428,481, revenue increases for those periods, respectively, were attributable to, among other things, additional income from rental income growth and increased insurance participation. Same-store average overall square foot occupancy for all of the Company’s stores combined increased to 93.0% at September 30, 2018, up from 91.3% at September 30, 2017.

We believe that high occupancies help maximize our rental income. We seek to maintain an average square foot occupancy level at or above 90% by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our 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 the remainder of 2018 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, 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 September 30, 2018, our average tenant duration of stay was approximately 2.9 years, up from approximately 2.8 years as of September 30, 2017.

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

For the three and nine months ended September 30, 2018, same-store cost of operations increased 0.7%, or $4,740, and 11.1%, or $225,764, respectively, compared to the same periods in 2017. These increases in same-store cost of operations was due primarily to increased store level employment costs including rising employee health plan expenses and increased property taxes and administrative expenses, which were partially offset by reduced advertising and marketing costs.

On-site store manager, regional manager, and district manager payroll expense increased 0.6%, or $1,427, for the three months ended September 30, 2018 versus the same period in 2017, and 5.9%, or $39,978, for the nine months ended September 30, 2018 versus the same period in 2017. This increase was due primarily to 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.

Store property tax expense increased 9.1%, or $19,332, and 21.4%, or $123,120, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to higher assessed values and the loss of our Class 8 tax incentive and subsequent property tax increase at SSG Dolton LLC. See the section titled “Property Tax Expenses at Dolton, IL” for additional detail. When compared to store property tax expense for the three months ended September 30, 2018, we currently expect store property tax expense to remain consistent for the remainder of 2018.

Repairs and maintenance expense decreased 24.7%, or $9,501, and increased 10.1%, or $8,068, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. These expenses were comprised mostly of our ongoing LED lighting replacement program, which continues into 2018 at a somewhat lesser rate as our stores become fully converted to LED. Going forward into the remainder of 2018, we anticipate continued focus on our LED light replacement program and other property and energy efficiency conversions as applicable. At our stores fully converted to LED lighting, we have realized utilities expense savings of 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. Utilities expense decreased 3.3%, or $1,627, and increased 16.8%, or $24,095, for the three and nine months ended September 30, 2018 versus the same periods in 2017, primarily due to increased energy usage during 2018’s harsher winter compared to 2017’s milder winter in most of our stores’ areas which was partially offset by 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 slightly higher net utility costs in the remainder of 2018.

Landscaping expenses, which include snow removal costs, decreased 0.0%, or $1, and increased 32.7%, or $21,462, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to higher 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 the remainder of 2018, 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 3.8%, or $2,222, and 9.0%, or $16,198, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to decreased marketing costs and internet advertising expenses. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to increase at a nominal rate in the remainder of 2018.

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) decreased 5.4%, or $7,909, and increased 20.7%, or $81,387, for the three and nine months ended September 30, 2018, versus the same periods in 2017. Increased credit card or merchant fees, landscaping, repairs and maintenance, and utilities contributed to the increased expenses. 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 the remainder of 2018.

Depreciation and amortization decreased 24.2%, or $85,325, and 25.6%, or $276,249 for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. The difference is primarily attributable to depreciation of the building and fixtures related to the 2016 store acquisitions, the expansion of the Bolingbrook store, and amortization of the in-place leases related to the 2016 store acquisitions.

#### Property Tax Expenses at Dolton, IL

Late in the third quarter of 2017, our Dolton, IL property was reassessed by the municipality and separately, our Class 8 tax incentive renewal hearing was held. As a result of those two events, our Dolton, IL property was reassessed at approximately 52% higher and the Class 8 tax incentive was not renewed. These events were applied retroactively to take effect on January 1, 2017. The combined impact was an increase in property tax expenses from $105,000 during 2016 to $210,000 during 2017. Due to the timing and retroactive effect of these events, we recorded the entire $105,000 increase, which is an atypical increase of property tax expense, during the fourth quarter of calendar year 2017. The Class 8 tax incentive phases out over the years 2017, 2018 and 2019, and during such 2018 and 2019 periods we currently expect the property tax expenses at our Dolton, IL property to increase by approximately 20% per year. Both the property tax reassessment and our Class 8 tax incentive renewal status is currently under appeal. However, there is no guarantee that either the assessment will be reduced or our Class 8 tax incentive status will be reinstated.

### Combined Same-Store and Non Same-Store Self Storage Operations

At September 30, 2018, we owned ten same-store properties and one non same-store property. The non same-store property is SSG Merrillville LLC.

Combined store average overall square foot occupancy at September 30, 2018 increased by 1.3% to 93.2% from 91.9% at September 30, 2017. This includes the impact from our Merrillville, IN store expansion project completed during January 2018. Our Merrillville store expansion project added approximately 13,300 leasable square feet of traditional drive-up storage units. Upon completion in January 2018 of the Merrillville store expansion project, its area occupancy dropped from approximately 92.6% to approximately 78.1%. As of September 30, 2018, 94.7%, or 12,600 square feet, of the three-building expansion leasable square feet had been leased and total entire store occupancy as of September 30, 2018 was 94.8%.

We grew our top-line results by increasing Combined store revenues by 6.5% and 9.2%, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. Combined store cost of operations increased by 1.3% and 12.4%, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. Combined store NOI increased by 9.9% and 7.2%, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017.

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 above 90% as of September 30, 2018. 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*

| Three Months Ended September 30, | 2018 | 2017 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $2,057,624 | $1,932,807 | $124,817 | 6.5% |
| Cost of operations | $782,876 | $772,540 | $10,336 | 1.3% |
| Net operating income | $1,274,748 | $1,160,267 | $114,481 | 9.9% |
| Depreciation and amortization | $298,364 | $381,269 | $(82,905) | -21.7% |
| Net leasable square footage at period end\* | 765,062 | 750,163 | 14,899 | 2.0% |
| Net leased square footage at period end | 713,165 | 689,132 | 24,033 | 3.5% |
| Overall square foot occupancy at period end | 93.2% | 91.9% | 1.3% | 1.4% |
| Total available leasable storage units | 5,623 | 5,542 | 81 | 1.5% |
| Number of leased storage units\* | 5,117 | 5,022 | 95 | 1.9% |

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

| Nine Months Ended September 30, | 2018 | 2017 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $6,038,866 | $5,527,855 | $511,011 | 9.2% |
| Cost of operations | $2,450,508 | $2,179,689 | $270,819 | 12.4% |
| Net operating income | $3,588,358 | $3,348,166 | $240,192 | 7.2% |
| Depreciation and amortization | $894,125 | $1,167,476 | $(273,351) | -23.4% |
| Net leasable square footage at period end\* | 765,062 | 750,163 | 14,899 | 2.0% |
| Net leased square footage at period end | 713,165 | 689,132 | 24,033 | 3.5% |
| Overall square foot occupancy at period end | 93.2% | 91.9% | 1.3% | 1.4% |
| Total available leasable storage units | 5,623 | 5,542 | 81 | 1.5% |
| Number of leased storage units\* | 5,117 | 5,022 | 95 | 1.9% |

\* From time to time, as guided by market conditions, net leasable square footage and total available leasable storage units at our properties may increase or decrease as a result of consolidation, division or reconfiguration of storage units. Similarly, leasable square footage may increase or decrease due to expansion or redevelopment of our properties.

The following table presents a reconciliation of combined same-store and non same-store net operating income to net income (loss) as presented on our consolidated statements of operations for the periods indicated:

|  | For the Three Months Ended September 30, 2018 2017 | For the Nine Months Ended September 30, 2018 2017 |
| --- | ---: | ---: |
| Net income (loss) | $89,368 $(129,346) | $543,969 $(125,524) |
| Adjustments: |  |  |
| General and administrative | 436,335 640,566 | 1,358,088 1,489,566 |
| Depreciation and amortization | 349,507 439,342 | 1,047,553 1,341,261 |
| Business development and property acquisition costs | 15,000 105 | 25,000 14,295 |
| Dividend and interest income | (17,665) (15,591) | (58,790) (41,965) |
| Unrealized loss on marketable equity securities | 180,021 — | 4,579 — |
| Interest expense | 219,792 220,209 | 660,209 660,626 |
| Other real estate expenses | 2,390 4,982 | 7,750 9,907 |
| Total combined same-store and non same-store net operating income | $1,274,748 $1,160,267 | $3,588,358 $3,348,166 |
|  | **For the Three Months Ended September 30,** | **For the Nine Months Ended September 30,** |
|  | **2018** **2017** | **2018** **2017** |
| Combined same-store and non same-store revenues | $2,057,624 $1,932,807 | $6,038,866 $5,527,855 |
| Combined same-store and non same-store cost of operations | 782,876 772,540 | 2,450,508 2,179,689 |
| Total combined same-store and non same-store net operating income | $1,274,748 $1,160,267 | $3,588,358 $3,348,166 |

28

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

For the three and nine months ended September 30, 2018, the 6.5%, or $124,817, and 9.2%, or $511,011, revenue increases for those periods, respectively, versus the same periods in 2017, were attributable to, among other things, a 3.5% increase in net leased square footage and to 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 successful lease-up of the expansion at our Merrillville, IN store, is currently expected to positively affect Combined store revenues for the remainder of 2018.

We believe that high occupancies help maximize our rental income. We seek to maintain an average square foot occupancy level at or above 90% by regularly adjusting the rental rates and promotions offered to attract new tenants as well as adjusting our marketing efforts on the internet in 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 the remainder of 2018 to be slightly more 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, 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 September 30, 2018, our average tenant duration of stay was approximately 2.9 years, up from approximately 2.8 years as of September 30, 2017.

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

Combined store cost of operations increased 1.3%, or $10,336, and 12.4%, or $270,819, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017.

This increase in Combined store cost of operations was due primarily to increased store level employment costs including rising employee health plan expenses and increased property taxes and administrative expenses, which were partially offset by reduced advertising and marketing costs.

On-site store manager and supervisory payroll expense increased 2.5%, or $6,381, and 8.2%, or $58,009, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. This increase was due primarily to 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 store, district, and regional managers.

Store property tax expense increased 9.2%, or $20,832, and 21.6%, or $132,368, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to higher assessed values and the loss of our Class 8 tax incentive and subsequent property tax increase at SSG Dolton LLC. See the section titled “Property Tax Expenses at Dolton, IL” for additional detail. When compared to store property tax expense for the three months ended September 30, 2018, we currently expect store property tax expense to remain consistent for the remainder of 2018.

Repairs and maintenance expense decreased 29.5%, or $12,214, and increased 6.7%, or $5,801, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. These expenses were comprised mostly of our ongoing

LED lighting replacement program, which continues in 2018 at a somewhat lesser rate as our stores become fully converted to LED. Going forward into the remainder of 2018, we anticipate continued focus on our LED light replacement program and other property and energy efficiency conversions as applicable. At our stores fully converted to LED lighting, we have realized utilities expense savings of 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. Utilities expense decreased 5.2%, or $2,850, and increased 12.7%, or $20,944, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to increased energy usage during 2018’s harsher winter compared to 2017’s milder winter in most of our stores’ areas which was partially offset by 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 slightly higher net utility costs in the remainder of 2018.

Landscaping expenses, which include snow removal costs, decreased 1.0%, or $212, and increased 44.7%, or $29,991, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to higher 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 the remainder of 2018, 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 0.6%, or $376, and decreased 3.7%, or $7,229, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017, primarily due to decreased marketing costs and internet advertising expenses. Based upon current trends in move-ins, move-outs, and occupancies, we currently expect marketing expense to remain the same in the remainder of 2018.

Other direct store costs include general and administrative expenses incurred at the stores, such as store insurance, business license costs, bank charges related to processing the stores’ cash receipts, credit card fees, and the cost of operating each store’s rental office including supplies and telephone data communication lines. These costs decreased 7.0%, or $10,971, and increased 20.5%, or $88,442, for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. Increased credit card or merchant fees, repairs and maintenance, and utilities contributed to the increased expenses. 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 the remainder of 2018.

Depreciation and amortization decreased 21.7%, or $82,905, and 23.4%, or $273,351 for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017. The difference is primarily attributable to depreciation of the building and fixtures related to the 2016 store acquisitions, the expansion of the Bolingbrook store, and amortization of the in-place leases related to the 2016 store 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 September 30, | 2018 | 2017 | Variance | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $436,335 | $640,566 | $(204,231) | -31.9% |
| **Nine Months Ended September 30,** | **2018** | **2017** | **Variance** | **% Change** |
| General and administrative | $1,358,088 | $1,489,566 | $(131,478) | -8.8% |

30

General and administrative expenses decreased 31.9%, or $204,231, and 8.8%, or $131,478, for the three and nine months ended September 30, 2018 versus the same periods in 2017. The decreases in the general and administrative expense during the three and nine months ended September 30, 2018 are primarily attributable to decreased expenses in various professional fees, employee acquisition and stockholder communications.

#### Analysis of Business Development Expenses

Business development expenses increased $14,895 to $15,000 from $105 for the three months ended September 30, 2018 versus the same period in 2017 and increased 74.9% or $10,705 for the nine months ended September 30, 2018 versus the same period in 2017. These costs primarily consist of legal and consulting costs in connection with business development activities, investment banking and future potential store acquisitions. The majority of these expenses are non-recurring and may fluctuate based on periodic business development and acquisition activities.

#### Analysis of Loan Interest and Amortization Expenses

Loan interest expense payments relating to the aforementioned $20 million loan decreased 0.2% or $417 for the three months ended September 30, 2018 versus the same period in 2017 and decreased 0.1% for the nine months ended September 30, 2018 versus the same period in 2017. The cash payments for this expense were $69,867 per month until July 2018, at which point the monthly interest and amortization payment due increased 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:

|  | For the Three Months Ended September 30, 2018 | 2017 | For the Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (loss)** | $89,368 | $(129,346) | $543,969 | $(125,524) |
| Eliminate items excluded from FFO: |  |  |  |  |
| Unrealized loss on marketable equity securities | 180,021 | — | 4,579 | — |
| Depreciation and amortization | 349,507 | 439,342 | 1,047,553 | 1,341,261 |
| **FFO attributable to common stockholders** | **618,896** | **309,996** | **1,596,101** | **1,215,737** |
| Adjustments: |  |  |  |  |
| Compensation expense related to stock-based awards | 26,729 | — | 54,041 | — |
| Business development expenses | 15,000 | 105 | 25,000 | 14,295 |
| Severance related to the departure of a company officer | — | 66,347 | — | 66,347 |
| **AFFO attributable to common stockholders** | **$660,625** | **$376,448** | **$1,675,142** | **$1,296,379** |
| Earnings per share attributable to common stockholders - basic | $0.01 | $(0.02) | $0.07 | $(0.02) |
| Earnings per share attributable to common stockholders - diluted | $0.01 | $(0.02) | $0.07 | $(0.02) |
| FFO per share - diluted | $0.08 | $0.04 | $0.21 | $0.16 |
| AFFO per share - diluted | $0.09 | $0.05 | $0.22 | $0.17 |
| Weighted average shares outstanding - basic (1) | 7,623,182 | 7,619,469 | 7,620,747 | 7,619,469 |
| Weighted average shares outstanding - diluted | 7,626,286 | 7,619,469 | 7,621,769 | 7,619,469 |

(1) For purposes of calculating FFO and AFFO per share, unvested restricted stock is not included.

#### 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 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 113,700 leasable square feet and 796 storage units. The project cost approximately $2,600,000, which equates to an all-in cost of approximately $59 per square foot. As of September 30, 2018,

95.3%, or 42,000 square feet, of the five-building expansion leasable square feet had been leased and total entire store occupancy as of September 30, 2018 was 92.9%.

At our Merrillville, IN store in January 2018, all site work, construction, and final inspections and approvals of the expansion project in Merrillville, IN were completed. This expansion has added three new traditional drive-up storage unit buildings totaling 13,300 leasable square feet. The project cost approximately $400,000, which equates to $30 per square foot. After the construction was completed, taking into account the additional leasable square feet, total entire store occupancy dropped from 92.6% to 78.1%. As of September 30, 2018, 94.7%, or 12,600 square feet, of the three-building expansion leasable square feet had been leased and total entire store occupancy as of September 30, 2018 was 94.8%.

In 2018, the Company expects to break ground on the Millbrook, NY expansion, which, when completed, will add approximately 16,500 of gross square feet of all-climate-controlled units. The planning for the Millbrook, NY expansion is under development and the Company is actively evaluating proposals for its construction. 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 commence or complete this project in this timeframe or at all.

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

Unrealized losses on the Company’s investment in marketable equity securities for the nine months ended September 30, 2018 and 2017 were $4,579 and $21,777, respectively. In accordance with the adoption of ASU 2016-01, as of January 1, 2018, the Company recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income. Previously, changes in fair value of the Company’s investments in equity securities were recognized in accumulated other comprehensive income on the Company’s consolidated balance sheets. As we continue to acquire and/or develop additional stores, as part of the funding for such activities, we plan to liquidate our investment in marketable equity securities and potentially realize gains or losses. As of September 30, 2018, our unrealized gain on marketable equity securities was $792,024. There were no realized gains or losses for the nine months ended September 30, 2018 and 2017, respectively.

#### Distributions and Closing Market Prices

Distributions for the three months ended September 30, 2018 and 2017 each totaled $0.065 per share, respectively. The Company’s closing market price as of September 30, 2018 and September 30, 2017 were $4.19 and $4.83, respectively. 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.

## Risk factors

As filed, 379 characters.

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our annual report on Form 10-K for the fiscal year ended December 31, 2017. There are no material changes to the risk factors previously disclosed, nor have we identified any previously undisclosed risks that could materially adversely affect our business and financial results.

Filed Nov 14, 2018.
Source: SEC EDGAR, the filing index for accession 0001564590-18-029554. Last ingested by Listed: Nov 13, 2026, 15:40 ET. No prices; not investment advice.