10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 8, 2024
su
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ____________________ to ____________________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
Global Self Storage, Inc.
(
(Address, including zip code, and telephone number, including area code, of Company’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of the registrant’s Common Stock, $0.01 par value per share, as of October 31, 2024 was
Table of Contents
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Item 1. |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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36 |
2
STATEMENT ON FORWARD LOOKING INFORMATION
Certain information presented in this report may contain “forward-looking statements” within the meaning of the federal securities laws including the Private Securities Litigation Reform Act of 1995. Forward looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward looking statements can be identified by terminology such as “believes,” “plans,” “intends,” “expects,” “estimates,” “may,” “will,” “should,” or “anticipates” or the negative of such terms or other comparable terminology, or by discussions of strategy. All forward-looking statements made by the Company involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Company, which may cause the Company’s actual results to be materially different from those expressed or implied by such statements. We may also make additional forward looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. All forward-looking statements, including without limitation, management’s examination of historical operating trends and estimates of future earnings, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will result or be achieved.
All forward looking statements apply only as of the date made. Except as required by law, we undertake no obligation to publicly update or revise forward looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks referenced in “Item 1A. Risk Factors” included in our most recent annual report on Form 10-K and in other subsequent filings with the Securities and Exchange Commission (the “SEC”). Such factors include, but are not limited to:
3
4
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
GLOBAL SELF STORAGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, 2024 |
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December 31, 2023 |
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Assets |
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Real estate assets, net |
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$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Investments in securities |
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Accounts receivable |
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Prepaid expenses and other assets |
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Line of credit issuance costs, net |
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Interest rate cap |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and equity |
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Note payable, net |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Total liabilities |
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and contingencies |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See notes to unaudited consolidated financial statements.
5
GLOBAL SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME
(Unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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Rental income |
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$ |
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$ |
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$ |
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$ |
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Other property related income |
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Management fees and other income |
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Total revenues |
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Expenses |
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Property operations |
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General and administrative |
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Depreciation and amortization |
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Business development |
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Total expenses |
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Operating income |
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Other income (expense) |
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Dividend and interest income |
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Unrealized gain (loss) on marketable equity securities |
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( |
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( |
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Interest expense |
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( |
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( |
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( |
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( |
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Total other expense, net |
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( |
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( |
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( |
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Net income and comprehensive income |
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$ |
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$ |
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$ |
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$ |
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Earnings per share |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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See notes to unaudited consolidated financial statements.
6
GLOBAL SELF STORAGE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
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Total |
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Common stock |
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Additional paid in |
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Accumulated |
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stockholders' |
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Shares |
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Par value |
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capital |
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deficit |
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equity |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Restricted stock grants issued |
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( |
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— |
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— |
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Restricted stock grant forfeiture |
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( |
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( |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2024 |
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( |
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Restricted stock grants issued |
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( |
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— |
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— |
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Restricted stock grant forfeiture |
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( |
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( |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at June 30, 2024 |
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( |
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Restricted stock grants issued |
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( |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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See notes to unaudited consolidated financial statements.
7
GLOBAL SELF STORAGE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
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Total |
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Common stock |
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Additional paid in |
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Accumulated |
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stockholders' |
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Shares |
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Par Value |
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capital |
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deficit |
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equity |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Restricted stock grants issued |
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( |
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— |
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— |
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Restricted stock grant forfeiture |
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( |
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( |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at March 31, 2023 |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at June 30, 2023 |
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( |
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Restricted stock grant forfeiture |
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( |
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( |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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( |
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( |
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Balances at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See notes to unaudited consolidated financial statements.
8
GLOBAL SELF STORAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Nine Months Ended September 30, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
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Unrealized (gain) loss on marketable equity securities |
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( |
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Unrealized loss on interest rate cap premium |
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Amortization of loan procurement costs |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable and accrued expenses |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Improvements and equipment additions |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Principal payments on note payable |
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( |
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( |
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Issuance costs on renewal of revolving line of credit |
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( |
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— |
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Dividends paid |
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( |
) |
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( |
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Net cash used in financing activities |
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( |
) |
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( |
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Net (decrease) increase in cash, cash equivalents, and restricted cash |
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( |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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Supplemental cash flow and noncash information |
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Cash paid for interest |
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$ |
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$ |
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Supplemental disclosure of noncash activities: |
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Dividends payable |
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$ |
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$ |
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See notes to unaudited consolidated financial statements.
9
GLOBAL SELF STORAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. ORGANIZATION
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company are presented on the accrual basis of accounting in accordance with accounting standards generally accepted in the United States of America ("GAAP") for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The consolidated balance sheet as of December 31, 2023 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
Cash, Cash Equivalents, and Restricted Cash
The Company’s cash is deposited with financial institutions located throughout the United States and at times may exceed federally insured limits. Cash equivalents may consist of money market fund shares and may include, among other things, highly liquid investments purchased with an original maturity of three months or less. Restricted cash is comprised of escrowed funds deposited with a bank relating to capital expenditures.
The carrying amount reported on the balance sheet for cash, cash equivalents, and restricted cash approximates fair value.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash in our unaudited consolidated balance sheets to the total amount shown in our consolidated statements of cash flows:
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September 30, 2024 |
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December 31, 2023 |
|
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents, and restricted cash as shown in our unaudited consolidated statements of cash flows |
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$ |
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$ |
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10
Income Taxes
The Company has elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain its qualification as a REIT, among other things, the Company is required to distribute at least
The Company has elected to treat its corporate subsidiary, SSG TRS LLC, as a taxable REIT subsidiary (“TRS”). In general, the Company’s TRS may perform additional services for tenants and may engage in any real estate or non-real estate related business. A TRS is subject to federal corporate income tax.
The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Company has reviewed its tax positions and has concluded that
Marketable Equity Securities
Investments in equity securities that have readily determinable fair values are measured at fair value. Gains or losses from changes in the fair value of equity securities are recorded in net income, until the investment is sold or otherwise disposed. The specific identification method is used to determine the realized gain or loss on investments sold or otherwise disposed.
Fair value is determined using a valuation hierarchy generally by reference to an active trading market, using quoted closing or bid prices. Judgment is used to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.
Real Estate Assets
Real estate assets are carried at cost, less accumulated depreciation. Direct and allowable internal costs associated with the development, construction, renovation, and improvement of real estate assets are capitalized. Property taxes and other costs associated with development incurred during a construction period are capitalized. A construction period begins when expenditures for a real estate asset have been made and activities that are necessary to prepare the asset for its intended use are in progress. A construction period ends when an asset is substantially complete and ready for its intended use.
Acquisition costs are generally capitalized for acquisitions that qualify as asset acquisitions. When properties are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. Allocations to land, building and improvements, and equipment are recorded based upon their respective fair values as estimated by management.
In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocates a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are month-to-month contracts.
Repairs and maintenance costs are charged to expense as incurred. Major replacements and betterments that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and improvements, which are generally between
Derivative Financial Instruments
The Company carries all derivative financial instruments on the balance sheet at fair value. Fair value of derivatives is determined by reference to observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship. The Company’s use of derivative instruments has been limited to an interest rate cap agreement. For derivative instruments not designated as cash flow hedges, the unrealized gains and losses are included in interest expense in the accompanying statements of operations. For derivatives designated as cash flow hedges, the effective portion of the changes in the fair value of the derivatives is initially reported in accumulated other comprehensive income in the Company’s balance sheets and subsequently
11
reclassified into earnings when the hedged transaction affects earnings. The valuation analysis of the interest rate cap reflects the contractual terms of derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses generally consist of property tax accruals, unearned rental income, and trade payables.
Revenue and Expense Recognition
Revenues from stores, which are primarily composed of rental income earned pursuant to month-to-month leases for storage space, as well as associated late charges and administrative fees, are recognized as earned in accordance with ASC Topic 842, Leases. Promotional discounts reduce rental income over the promotional period. Ancillary revenues from sales of merchandise and tenant insurance and other income are recognized as earned in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").
The Company's management fees are earned subject to the terms of the related property management services agreements (“PSAs”). These PSAs provide that the Company will perform management services, which include leasing and operating the property and providing accounting, marketing, banking, maintenance and other services. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from stores owned by third parties. PSAs generally have original terms of
The Company accounts for the management services provided to a customer as a single performance obligation which are rendered over time each month in accordance with ASC 606. The total amount of consideration from the contract is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company's control. No disaggregated information relating to PSAs is presented as the Company currently has only
General and administrative expenses and property operations expenses, which may include among other expenses, property taxes, utilities, repairs and maintenance, and other expenses, are expensed as incurred. The Company accrues for property tax expense based upon actual amounts billed and, in some circumstances, estimates and historical trends when bills or assessments have not been received from the taxing authorities or such bills and assessments are in dispute.
Evaluation of Asset Impairment
The Company evaluates its real estate assets and intangible assets, if any, for indicators of impairment. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal.
The Company evaluates goodwill for impairment annually and whenever relevant events, circumstances, and other related factors indicate that fair value may be less that carrying amounts. If it is determined that the carrying amount of goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value, an impairment charge is recorded. There were no indicators of impairment to goodwill and real estate assets as of September 30, 2024, and
Stock-based Compensation
The measurement and recognition of compensation expense for all stock-based compensation awards to employees and independent directors are based on estimated fair values. Awards granted are measured at fair value and any compensation expense is recognized over the service periods of each award. For awards granted which contain a graded vesting schedule and the only condition for vesting is a service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award was, in substance, a single award. For awards granted for which vesting is subject to a performance condition, compensation cost is recognized over the requisite service period if and when the Company concludes it is probable that the performance condition will be achieved. The estimated number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.
Loan Procurement Costs
Loan procurement costs on the Company's term loan note payable are presented as a direct deduction from the carrying amount of the related debt liability. The loan procurement costs related to the term loan note payable are amortized using the effective interest
12
method over the life of the loan. Loan procurement costs associated with the Company's revolving line of credit remain in line of credit issuance costs, net of amortization on the Company's consolidated balance sheets. The costs related to the revolving line of credit are amortized using the straight-line method, which approximates the effective interest method, over the estimated life of the related debt.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from management's estimates.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires the disclosure of incremental segment information, including significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and a reconciliation of segment profit or loss to net income. The title and position of the CODM must also be disclosed, along with how the CODM uses the reported measures to assess segment performance and to allocate resources. Entities with a single reportable segment (such as the Company) will be required to provide the disclosures required by Topic 280, as amended. The standard became effective for the Company on
3. REAL ESTATE ASSETS
The carrying value of the Company’s real estate assets is summarized as follows
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|
September 30, 2024 |
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|
December 31, 2023 |
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||
Land |
|
$ |
|
|
$ |
|
||
Buildings, improvements, and equipment |
|
|
|
|
|
|
||
Self storage properties |
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|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Real estate assets, net |
|
$ |
|
|
$ |
|
4. MARKETABLE EQUITY SECURITIES
Investments in marketable equity securities consisted of the following:
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Gross Unrealized |
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|||||||
September 30, 2024 |
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Cost Basis |
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Gains |
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Losses |
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Value |
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||||
Investment in marketable equity securities |
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|
|
|
|
|
|
|
|
|
||||
Common stocks |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Total investment in marketable equity securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
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|
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|
||||
|
|
|
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|
Gross Unrealized |
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|||||||
December 31, 2023 |
|
Cost Basis |
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|
Gains |
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|
Losses |
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|
Value |
|
||||
Investment in marketable equity securities |
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|
|
|
|
|
|
|
|
|
|
|
||||
Common stocks |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Total investment in marketable equity securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
5. FAIR VALUE MEASUREMENTS
The Company applies the methods of determining fair value to value its financial assets and liabilities. The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value.
13
The hierarchy of valuation techniques is based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices in active markets for identical instruments or liabilities.
Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, and market-corroborated inputs.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s own assumptions about the factors that market participants use in pricing an asset or liability and are based on the best information available in the circumstances.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value. The valuation method used to estimate fair value may produce a fair value measurement that may not be indicative of ultimate realizable value. Furthermore, while management believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such loans or investments existed, or had such loans or investments been liquidated, and those differences could be material to the financial statements.
Fair valued assets consist of shares of marketable equity securities and an interest rate cap. The value of the equity securities is based on a traded market price and is considered to be a level 1 measurement, and the value of the interest rate cap is based on its maturity and observable market-based inputs including interest rate curves and is considered to be a level 2 measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2024 and December 31, 2023:
September 30, 2024 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable equity securities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Interest rate cap derivative |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2023 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable equity securities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Interest rate cap derivative |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
There were
The fair values of financial instruments including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximated their respective carrying values as of September 30, 2024. The estimated fair value of the Company’s outstanding debt was approximately $
6. DERIVATIVES
The Company’s objective in using an interest rate derivative is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses an interest rate cap to manage interest rate risk. The Company carries the initial premium paid for the interest rate cap as an asset on the balance sheet at fair value. The change in the unrealized gain or loss of the initial premium is recorded as an increase or decrease to interest expense.
The following table summarizes the terms of the Company’s derivative financial instrument:
14
|
|
Notional Amount |
|
|
|
|
|
Effective |
|
Maturity |
|
Product |
|
September 30, 2024 |
|
|
|
Strike |
|
Date |
|
Date |
|
Cap Agreement |
|
$ |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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Notional Amount |
|
|
|
|
|
Effective |
|
Maturity |
|
Product |
|
December 31, 2023 |
|
|
|
Strike |
|
Date |
|
Date |
|
Cap Agreement |
|
$ |
|
|
|
|
|
The Company is potentially exposed to credit loss in the event of non-performance by the counterparty. The Company does not anticipate the counterparty to fail to meet its obligations as they become due.
7. NOTE PAYABLE AND REVOLVING LINE OF CREDIT
Note Payable
On June 24, 2016, certain wholly owned subsidiaries (“Term Loan Secured Subsidiaries”) of the Company entered into a loan agreement and certain other related agreements (collectively, the “Term Loan Agreement”) between the Term Loan Secured Subsidiaries and Insurance Strategy Funding IV, LLC (the “Lender”). Under the Term Loan Agreement, the Term Loan Secured Subsidiaries borrowed from the Lender in the principal amount of $
The Company entered into a non-recourse guaranty on June 24, 2016 (the “Term Loan Guaranty,” and together with the Term Loan Agreement, the Term Loan Promissory Note and the Term Loan Security Agreement, the “Term Loan Documents”) to guarantee the payment to the Lender of certain obligations of the Term Loan Secured Subsidiaries under the Term Loan Agreement.
The Term Loan Documents require the Term Loan 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 Term Loan Documents upon the occurrence of an event of default (as defined in the Term Loan Agreement) including, but not limited to, the failure to pay amounts due or commencement of bankruptcy proceedings. As of September 30, 2024, the Company was in compliance with these covenants.
The Company incurred loan procurement costs of $
As of September 30, 2024 and December 31, 2023, the carrying value of the Company’s note payable is summarized as follows:
Note Payable |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Principal balance outstanding |
|
$ |
|
|
$ |
|
||
Less: Loan procurement costs, net |
|
|
( |
) |
|
|
( |
) |
Total note payable, net |
|
$ |
|
|
$ |
|
As of September 30, 2024, the note payable was secured by certain of the Company’s self storage properties with an aggregate net book value of approximately $
2024 (3 months) |
|
$ |
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2025 |
|
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2026 |
|
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2027 |
|
|
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2028 |
|
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2029 and thereafter |
|
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|
Total principal payments |
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$ |
|
15
Revolving Line of Credit
On July 6, 2024, certain wholly owned subsidiaries (“Second Amended Credit Facility Secured Subsidiaries”) of the Company entered into a second amendment to the Credit Facility Loan Agreement (collectively, the “Second Amended Credit Facility Loan Agreement”) between the Second Amended Credit Facility Secured Subsidiaries and The Huntington National Bank ("Huntington"), successor by merger to TCF National Bank (“Second Amended Credit Facility Lender”). Under the Second Amended Credit Facility Loan Agreement, the Second Amended Credit Facility Secured Subsidiaries may borrow from the Second Amended Credit Facility Lender in the principal amount of up to $
The Second Amended Credit Facility Loan Agreement requires the Second Amended Credit Facility Secured Subsidiaries and the Company to comply with certain covenants, including, among others, customary financial covenants. The Lender may accelerate amounts outstanding under the Loan Documents upon the occurrence of an Event of Default (as defined in the Agreement) including, but not limited to, the failure to pay amounts due the Lender or commencement of bankruptcy proceedings.
On July 8, 2024, in connection with the Second Amended Credit Facility Loan Agreement, the Company entered into a swap transaction for an interest rate derivative with Huntington (the "Cap Rate Agreement") effective
The Company incurred issuance costs of $
8. LEASES
Global Self Storage as Lessor
The Company's property rental revenue is primarily related to rents received from tenants at its operating stores. The Company's leases with its self storage tenants are generally on month-to-month terms, include automatic monthly renewals, allow flexibility to increase rental rates over time as market conditions permit, and provide for the collection of contingent fees such as late fees. These leases do not include any terms or conditions that allow the tenants to purchase the leased space. All self-storage leases for which the Company acts as lessor have been classified as operating leases. The real estate assets related to the Company's stores are included in "Real estate assets, net" on the Company's consolidated balance sheets and are presented at historical cost less accumulated depreciation and impairment, if any. Rental income related to these operating leases is included in property rental revenue on the Company's consolidated statements of operations, and is recognized each month during the month-to-month terms at the rental rate in place during each month.
Global Self Storage as Lessee
16
The Company is a lessee in a lease agreement for an automobile entered into November 2022 with a lease term of three years. The lease agreement does not contain any material residual value guarantees or material restrictive covenants. The Company’s lease agreement has been classified as an operating lease. Lease expense for payments related to the Company’s operating lease is recognized on a straight-line basis over the lease term.
Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s secured borrowing rates and implied secured spread at the lease commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made at or before lease commencement less any lease incentives. The Company had right-of-use assets and lease liabilities related to its operating leases of $
The remaining future minimum lease payments under the automobile lease are $
9. EARNINGS PER SHARE
Earnings per share is calculated under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation programs, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of the Company's common stock, $
The following table sets forth the computation of basic and diluted earnings per share:
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|
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For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
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|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Earnings and dividends allocated to participating securities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted average common shares outstanding: |
|
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|
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|
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|
||||
Average number of common shares outstanding - basic |
|
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|
||||
Net effect of dilutive unvested restricted stock awards included for treasury stock method |
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|
||||
Average number of common shares outstanding - diluted |
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|
||||
Earnings per common share |
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|
|
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|
|
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|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Common stock dividends totaled $