Global Self Storage: Great Big Name For A Tiny Company

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the man , breaking the ceiling

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I previously identified Storage as one of 7 REIT sectors likely to outperform in 2022. This prediction was based primarily on:

  • strong tailwinds from the housing shortage,
  • trailing 3-year and 5-year FFO growth and
  • projected 1-year FFO per share growth.

That prediction has not worked out well thus far. There has been a huge rotation out of growth and into value this year, due to inflation and rising interest rates. But one Storage REIT is handily beating the REIT average.

As you can see from the chart below, The Vanguard Real Estate ETF (VNQ) has lost (-16.11)% since January 1. Four Storage REITs have done even worse. Only two REITs in this sector have outperformed the VNQ thus far: Public Storage (PSA) at (-14.48)%, and Global Self Storage (NASDAQ:SELF), which has held its own rather well, losing only (-0.91)%.

Chart
Data by YCharts

What is going on with this company? Is it a good investment going forward?

Meet the company

company logo

Global Self Storage

Founded in 1996, Global Self Storage is headquartered in Millbrook, New York. Although its name implies a large international operation, the company is just the opposite: Very small and regional.

When I say small, I mean microscopic, with a market cap of just $60 million. “Global” Self Storage owns 12 facilities, with total net lsf (leasable square feet) of about 831,000, and manages one facility with an additional 137,000 lsf.

map of eastern U.S., showing SELF properties concentrated in the Great Lakes region, with two outliers in South Carolina, and a managed facility in Oklahoma

Global Self Storage investor presentation

Occupancy at the end of 2021 was 93.2%, down slightly from 94.5% YoY (year-over-year), according to the company’s 10-K for 2021.

SELF seeks to avoid competition with larger REITs, by avoiding the top 25 MSA’s (metropolitan statistical areas), and instead focuses on secondary and tertiary markets with dramatically lower supply growth and high barriers to entry, usually in the form of difficult permitting. The average population of cities where SELF has a presence is about 45,000. Rochester, New York (206,000) is the largest city; Millbrook, New York (1,400) is the smallest; and Lima, Ohio (36,000) is the most typical. Locations have high visibility from the roadways, with an emphasis on buildings that are secure, clean, and well-maintained.

SELF seeks to build its brand through internet and digital marketing, and good old-fashioned customer service, generating word-of-mouth referral. All SELF facilities include customer service call centers and self-service kiosks, as they seek to make the customer experience pleasant and “hassle-free”, and attract customers who pay by credit card. They have found that these customers stay longer and accept more rent increases. Management reports an average same-store tenant duration of 3.2 years.

panel of 3 pictures, showing 59% is traditional drive-up storage, 33% is climate controlled, and 8% is outdoor storage in boats, cars, and RVs

SELF Property Type mix (Investor presentation)

Although the company is small and funds are limited, there is no shortage of opportunities. The vast majority of the highly fragmented self-storage facilities in the U.S. are mom and pop operations. Only about 20% are owned by REITs.

Pie chart showing only 20% of U.S. storage facilities are owned by REITs, and 71% are owned by mom and pop operators. U-Haul is the 3rd-largest owner, at 5.8%, and the only one of the top 6 that is not a REIT

Fragmentation of U.S. Self-Storage Market (SELF investor presentation)

Total revenues for 2021 came in at $10.5 million, an increase of 14.3% YoY. Rental revenues of $10.1 million constitute 96% of the company’s total. The increase in income was primarily due to raising the monthly rental rates on new and existing customers. The 4% of income from ancillary sources, such as insurance and storage supply sales, also increased 13% YoY. All these results were achieved with virtually no change in square footage, as the company made no major acquisitions or disposals in 2021.

Below is a quick summary of the company’s full-year financial results. (Results for Q1 2022 are not out yet.)

2021 Metric Total YoY change
Revenues $10.5 m +14.3%
Rental income $10.1 m +14.4%
Expenses $7.8 m (-1.9)%
Store operating expenses $3.8 m +5.3%
G & A expenses $0.02 m (-0.8)%
Operating income $2.7 m +120.0%
Net income $3.3 m +1096.0%
FFO per share – diluted $0.33 +43.5%

Source: SELF 10-K for 2021

As you can see, the totals are small, but the results are all in the right direction. Revenues were up, and expenses were down, so income and FFO were up strongly on a percentage basis.

Here are the Same-Store metrics reported by the company for Q4 2021.

Metric vs 2020 vs Q4 2020
Same-store revenue +11.2% +15.0%
Same-store operating cost +4.4% +6.4%
Same-store net operating income +15.5% +20.1%

Source: SELF 10-K for 2021

Insiders hold about 8% of SELF’s 10.8 million shares.

Growth metrics

Here are the 3-year growth figures for FFO (funds from operations) and TCFO (total cash from operations).

Metric 2018 2019 2020 2021 3-year CAGR
FFO (millions) $2.28 $1.84 $2.11 $3.35
FFO Growth % (-19.3) 14.7 58.8 13.69
TCFO (millions) $2.28 $1.71 $2.0 $3.64
TCFO Growth % (-25.0) 17.0 82.0 16.89

Source: TD Ameritrade, CompaniesMarketCap.com, and author calculations

Unlike most REITs, SELF was struggling badly in 2019. Pandemic-stricken 2020 was a good year for this tiny company, and in 2021, they rode the hot streak in self-storage quite effectively.

Here is how SELF’s share price has performed, relative to the REIT average.

Metric 2019 2020 2021 2022 3-yr CAGR
SELF closing price May 13 $3.75 $3.55 $5.02 $5.58
SELF share price Gain % (-5.3) 41.4 11.2 14.17
VNQ closing price May 13 $86.77 $68.83 $95.94 $96.78
VNQ share price Gain % (-20.7) 39.4 0.9 3.71

Source: MarketWatch.com and author calculations

This teensy REIT has outperformed Goliath-sized VNQ each of the past three trailing 12-month periods, putting the market cap-weighted ETF to shame in 3-year CAGR.

Balance sheet metrics

The company’s Liquidity and Debt/EBITDA ratios are excellent, and the Debt Ratio is about average. Though not bond-rated, the company is showing strong financial discipline. Coupled with its double-digit revenue and cash growth rates, this company would be a FROG (Fast Rate of Growth REIT) if it weren’t so small. But it can definitely be viewed as a Hatchling tadpole, with no legs as yet.

Company Liquidity Ratio Debt Ratio Debt/EBITDA Bond Rating
SELF 3.42 24% 3.5
Storage REIT average 2.12 14% 3.9 BBB
Overall REIT average 1.90 25% 6.4

Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations

As of December 31, 2021, SELF had approximately $21.5 million in liquidity, including $3.0 million of cash, $3.5 million in securities, and $15.0 million in available credit.

Dividend metrics

SELF is a strong payer. Although its dividend is unchanged for the past five years, it will probably still be paying a higher Yield three years from now than the average REIT, and higher than Storage REITs in general.

Company Div. Yield Div. Growth Div. Score Payout Ratio Div. Safety
SELF 4.66% 0.0% 4.66 72% B+
Storage REITs 3.01% 7.6% 3.75 59% C
REITs overall 3.20% 5.2% 3.73 58% C

Source: Hoya Capital Income Builder, TD Ameritrade, Seeking Alpha Premium

Dividend Score projects the Yield three years from now, on shares bought today, assuming the Dividend Growth rate remains unchanged.

Valuation metrics

Growth like this usually comes at a premium price, but SELF is “bargain” priced at just 14.4x FFO. This valuation probably reflects the company’s small size and relatively high risk.

Company Div. Score Price/FFO Premium to NAV
SELF 4.66 14.4 0.0%
Storage REIT average 3.75 20.6 (-6.7)%
Overall REIT average 3.73 19.7 (-5.0)%

Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations

The above combination of above-average Yield and below-average Price/FFO usually signals a buy for value investors.

What could go wrong?

“Global” Self Storage is a tiny company, and thus vulnerable to being crushed by unexpected changes in business conditions. Research by Hoya Capital indicates that small-cap REITs deliver the poorest performance on the whole, and SELF is about as small as a REIT can get.

Since the company operates mostly in small to mid-size towns, changes that affect the local economies can have an outsized impact on revenues. Most smaller towns have economies that are dependent on a few large employers. If one or more of those large employers closes or downsizes, all the businesses in the area tend to suffer badly.

All self-storage REITs are vulnerable when mortgage rates are increasing, as this tends to slow the rate of housing turnover.

Investor’s bottom line

Current analyst ratings on Global Self Storage are very optimistic, but the sample size is small (only one author and two Wall Street analysts in the past 90 days). The average price target is $7.00, implying 25.4% upside. Add in the 4.665 Yield, and you have a hypothesized total return of 30%.

Factor grades for SELF: Valuation B+, Growth A-, Profitability C, Momentum A, Revisions B+

Seeking Alpha Premium

TipRanks is Neutral on SELF, while The Street maintains a Buy rating.

As for me, Global Self Storage seems like a reasonable proposition for both growth and value, but I am not excited about it. I can comfortably call this a Buy, but only if the allocation is very small, in keeping with the company’s size.



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