Entering text into the input field will update the search result below

Global Self Storage: Buying Properties At A Steep Discount

Jun. 11, 2019 11:00 AM ETGlobal Self Storage (SELF)31 Comments
Paul Claussen profile picture
Paul Claussen


  • Global Self Storage's portfolio of 11 storage properties is 30% undervalued to the market.
  • The deep discount plus a 7% dividend yield funded from operations will keep a floor under the share price and limit the downside risk.
  • Until the stubborn discount begins to close, management can best deploy capital on share repurchases vs. buying additional properties.

Editor's note: Seeking Alpha is proud to welcome Paul Claussen as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Essential. Click here to find out more »

Global Self Storage (NASDAQ:SELF) is an owner and operator of 11 self storage facilities located in the US with a total of 766K net leasable square feet. This article explores the valuation of SELF's 11 physical properties might command in a liquidation scenario where the properties are sold, SELF's corporate debt is retired and all remaining assets are distributed to SELF's shareholders. A second question contemplated in this article is what is the best use of cash by SELF's management at this time. It is this author's view that the physical assets of SELF are trapped in the current structure and are materially undervalued. An argument follows that until the deep discount is partially closed, SELF's excess cash would be best deployed by management in repurchasing shares vs. buying additional properties. Finally, I will close with some related thoughts on building a self storage retirement income.

The first question is what are the 11 properties in the portfolio worth? There are a number of ways to arrive at a self-storage property valuation. For the purposes of this article, I will use two simple methods. First, a very simple multiple of leasable sq. ft. And, second, a simple income method based on multiple of net operating income (NOI). According to the 2019 Self Storage Investment Forecast by Marcus and Millichap, quality Class A properties have generally been transacting at an average cap-rate of about 6.5%. Yes, there are outliers. But, most are transacting in a range between 6% and 9%.

In the first method, according to

This article was written by

Paul Claussen profile picture
Paul Claussen is a private investor, asset manager, property manager and small business owner. Business experience in Intl Business Development, Business Management, Product Management, Engineering, Software Development. Inventor. 30+ years of investment and trading experience in equities/options/commodities/real estate.

Analyst’s Disclosure: I am/we are long SELF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (31)

Charlie's Munger profile picture
People that like this should take look at "WNMLA" ~$2, prob trading 35% value
sgm8g profile picture
@Charlie's Munger . Much appreciate the tip. I have a Robinhood acct. It won't allow it. Will keep it in mind for future though.
Charlie's Munger profile picture
Sounds like you need another account - i have 4. TD Ameritrade or Fidelity best for pinks
sgm8g profile picture
I have to say that I am new to this type of investment. I really dig it though. My mentor partnered some 40 years ago with a group in California and each of them put in money to buy storage facilities in the best places in southern CA. It's a pain on our taxes...but we now see somewhere bet 20-50k every quarter. So I know that money can be made in this space. As a new investor...I don't have that kind of cash to dumb into a facility...so this share price is something I can dig. The model is good...seems to have worked for my mentor for years. Just need to pick the right place to invest. Thanks for your article...great stuff for me to review and keep for future reference. I have started a position...and will keep my avg share price under $4.
Paul Claussen profile picture
@sgm8g Thanks for the feedback. I've been a real estate investor for years and unfortunately only invested in self storage businesses in recent years. Self Storage differs from multi-family in that the law tends to favor the self storage landlord and that there are no carpets to clean or sinks/toilets to unclog. I also accumulated a position in SELF below $4. Tomorrow, 14-June, SELF trades Ex-Div so don't be surprised to see SELF trade below $4 / share again between now and Q2 earnings. Good luck to you.
sgm8g profile picture
@paul ..... Thanks so much for the info on the Ex-Div. Yes...I think you are correct on it going down a bit. I'm running a $3.75 avg. I'll try to stay with that avg or avg down if needed. All great points. Thanks again for all your work and time investigating this company.
Paul Claussen profile picture
Looks like there will be opportunities to accumulate at or near your target price between now and the next news event. Yesterday's low was $3.77. Last FY, Q2 earnings were not announced until 14-August. This is a fairly simple business, but I gather it takes 6 weeks for SELF's CFO to consolidate a quarterly report. In the mean time, I suspect there are some long term holders of this stock that have simply lost patience and want to liquidate their position. A couple of them have chimed in on the various postings on SELF. On Friday, a seller dropped 20K shares at market near the close. A limit order at $3.80 picked up some of those shares. As I look at the Level II quotes this afternoon, there are 10K share blocks being offered at an ASK price of $4.09 and $4.14 respectively which represents a level of resistance or constipation which ever way you choose to look at it. The average daily volume on SELF is only about 23K shares. The undervalued thesis still holds. SELF below $4 is an opportunity to quietly accumulate for a patient investor and get paid 6.8% dividend while you wait for the thesis to play out. One other nice thing about this one is that it has zero exposure to China or the crude market. GLTU.
Darn. Nothing worse than false hope.
Steve Harris profile picture
The reason for SELF's persistent discount is due to the reputation of the current management team, their lack of credibility and previous history. Unfortunately, the only way SELF's discount to NAV will narrow is if the company is acquired or a new management team is installed, and I believe that the current management team instituted a poison pill in order to make sure that shareholders will not ever receive fair value for their investment.
If you want to better understand the reasons for the distrust of the management team, then review the Tuxis transaction that took place in January of 2017. Mark Winmill looted SELF to enrich himself. SELF purchased Tuxis for $7.87 million, which was more than a 400% premium to where the stock was trading prior to the announcement of the transaction. Tuxis was a money-losing operation that was 41% owned by Mark Winmill. The transaction was essentially a $6 million dollar transfer of wealth from SELF's shareholders to Mr. Winmill, his family, and associates who were the owners of Tuxis. Sadly the company is not managed in the best interest of shareholders and it is too small to garner the attention of regulatory agencies who could protect shareholders from similar occurrences in the future. I would be interested to hear your feedback if you have time to evaluate the Tuxis transaction.
SELF did not purchase Tuxis.

SELF purchased a storage property in Millbrook from Tuxis.

What evidence do you have that the purchase price was unfair?
Paul Claussen profile picture
@Steve Harris: The Tuxis transaction was before my time and I don't have a useful perspective to offer on it. My main message was that the physical assets are significantly undervalued to the market. There could be a number of reasons for the discount. Maybe this is one of them. I'm not a lawyer nor am I an expert in securities law. But, given the discount, if an offer were submitted, management has a lawful fiduciary duty to faithfully consider it and act in the best interest of all shareholders regardless of any poison pill provisions that may exist. I would also think that a material event like this would be required to be publicly disclosed. Finally, given this is a REIT, ownership is limited to 10% per individual. Management may "control" several aligned blocks, but I remain hopeful that enlightened self interest of investors will result in them voting their wallet. A discount this steep will not survive indefinitely.
discounts on Winmill family related stocks have endured for generations.
Boards also have considerable leeway in deciding whether to disclose acquisition indications. Making an public announcement every time a tire kicker shows up can impact employee morale and retention.

Potential buyers looking to pick a fight with the Winmill's are actually likely few and far between.

A discount yes. Probabliity of discount closing? Low, unfortunately.
airlarr profile picture
I took a look: Mr Winmill's annual compensation is a tad over $ 500,000. SELF annual revenues are about $ 8 million. So the CEO takes out about 6% of the company's revenues. By any comparison, this is high and unattractive to investors.
The company is just too small to compete in the real estate industry. I'm surprised SELF hasn't added assets in the past year. This suggests inability to grow and achieve scale.
I believe these are the reasons the stock has been very weak for the past two years.
Paul Claussen profile picture
@airlarr Thanks for taking a look. If you look at the as a potential buyer, there was $1.8M in General and Administrative expenses reported by SELF in 2018. To mgt's credit, this was decreased from 2017 level. There was also $900K in interest expense in 2018. These are both opportunities for synergy that if anything add to the attractiveness of the physical properties especially to an existing operator. Think about it this way: if a buyer could instantly increase NOI by just $500K, the amount you identified, before any rental rates were raised, what would this do to valuation for that buyer? At a 7.5% Cap-Rate, that's $6.7M in valuation added. An investment fund manager would love to be able to report that kind of "Value-Add" for their clients. And it's in a business with zero exposure to China or tariffs. Thoughts?
"Sometime during the next 12 to 18 months, an offer will likely be made to either acquire all shares of SELF or to acquire the physical assets."

How do you conclude that an offer is likely? Why won't this tiny company continue to be ignored?
Paul Claussen profile picture
Hi @valuecat. Fair question. You're right. SELF has been ignored and has been flying below the radar for a while. It is part of the reason I wrote this article. If you read the Marcus and Millichap report that is linked in the article, one of the things it says is that investors from other commercial property types are bringing new capital to the Self Storage segment. It also shows a graph of declining Cap-Rates and increasing $$$/SQFT on properties sold in 2018. Economics says that Capital should flow to where it will earn the best return. I have been unable to find storage properties offered at a steeper discount than SELF. So for that reason, I think it is inevitable that either the discount will be closed, or someone out there will make an offer. We're only talking about $30.8M in market cap here so it does not take one of the big boys to make this happen. A family office or a $50M investment fund llc could do the job.
I wish an unsolicited bid would show up. Wouldn't bet on it, though.
Rob G. in Vegas profile picture
Interesting article. From reading their first quarter 10Q, it appears the cash flow to pay the dividend and interest payments is very tight. All of the company's 1Q operating cash flow ($613K) was eaten up by $500K in dividend payments and $116K in interest payments on their $19 million in debt.

In 2018, a large portion of the dividend was a return of capital. Do you believe the current $.065 quarterly common dividend is safe from a dividend cut?

Also, it appears the company has a $2 million portfolio of stock investments, as they had a $154K unrealized gain during the first quarter. I could not determine what this portfolio is invested in - is it other self storage REITs like PSA?

Paul Claussen profile picture
@Rob Grande Thanks for the feedback. WRT: the securities, the 10K simply says "marketable securities". It goes on to say, "Over time, the Company expects to divest its remaining portfolio of investment securities and use the proceeds to acquire and operate additional stores. The Company expects its income from investment securities to continue to decrease as it continues to divest its holdings of investment securities". Some of that securities portfolio may be required to complete the scheduled Millbrook, NY expansion project. WRT: the dividend, there are risks. However, there is also a track record of paying $0.065 quarterly. My expectation is that when Q2 earnings are announced, barring any material announcement, adjusted funds from operations ("AFFO") will be sufficient to cover the dividend payment. Also keep in mind that operating as a REIT imposes certain requirements. One of those requirements is that SELF is required to distribute 90% of their net taxable income.
The idea of paying rent to store household junk has got to be the brainchild of some marketing wizard. If you didn't want the stuff in your garage or basement or attic, you really feel it's necessary to pay rent to store it somewhere else? JUST GET RID OF IT. Tag sale, flea market, Craigslist, ebay, just get rid of it and put some money into YOUR pocket, instead of paying someone else to hold onto it.

Believe me, your kids won't want the stuff. You're holding onto a future that will never exist. Lose the storage room and go out to dinner once a month instead. You'll be much happier.
Paul Claussen profile picture
David: Thanks for the feedback and for the advice. You may want to take a look at the Marcus and Millichap report that is linked in the article. A couple of points you will find in the summary are 1.) that long term demographic factors are leading to increased demand for self storage and 2.) that private businesses are also a major source of demand. So it's not just empty nesters driving demand. However, the main point here is that the underlying physical assets for SELF are trading on the stock market at a discounted valuation lower than the industry is seeing on the US open market.
Some of us live in places that don't have a basement, attic, or garage. We find rented storage useful.
Good point!
Welcome to SA, thanks for an informed perspective on SELF, which I just read about on another analysis on SA. An intriguing micro-cap.

As someone who follows REITs I have avoided the self-storage sector thinking it was overbuilt and out of favor - travel from New England to NYC by rail and the number of storage sites is crazy! But I have numerous friends who use them in my rural area and millennials who rent and move around are frequent users. Owning tier-2-3. storage facilities is very different from owning malls like that, IMO, and an interesting biz model since the need for storage is universal.

A buyout or merger is definitely a possibility. As for buying its own stock, I think wisely adding facilities at a decent cap rate might still be more valuable, both to add size and FFO, which will enhance awareness of SELF. eREITs aren't often buyers of their own stock in my experience.
11 Jun. 2019
Winmill has implemented a poison pill...yes they should merge or sell since they are way to small to ever create any economies of scale but they won’t.
Paul Claussen profile picture
@RealRural thank you for the feedback. Agree with you that this management will be unlikely to do a buyback. Was simply making the point that today at the current steep discount, buying back the stock would represent a better return for SELF's shareholders than buying a facility. The report that is linked above indicates that the rate of building has declined in 2019 but remains at a high level. It also indicates that new buyers are entering the space, "A new cadre of buyers are entering the self-storage market from other commercial property types for the limited management needs and positive yield arbitrage". My main point here is that if you're an investor looking for good value in Self Storage properties, SELF's shares are much better value than any Mom and Pop storage facility you will find listed on loopnet, bizbuysell, or Marcus and Millichap.
Rob G. in Vegas profile picture
A stock buyback would reduce the 7.7 million shares outstanding by even more - making the stock even more of a micro cap. This management team wants to grow the company. It was a smart move to give an informative presentation at the recent NAREIT conference.

I would like to see them sell their $2 million portfolio of marketable securities - which has a gain of nearly $1 million. If that portfolio is invested in REITs, it has advanced even more since 3/31/19.

Plow the proceeds into paying down the $19 million promissory note or acquiring another self storage facility.
Charlie's Munger profile picture
The Winmill family gets my vote for one of the worst managements in the country - and if you dont want to take my word for it feel free to read the Ravenswood / Robotti lawsuit againt WNMLA in Delaware.

I will never ever put another .05 in any of their businesses even if they offer me free money. They will take all value for themselves - Phil Goldstein is another investor badly burned by them. AVOID
Can you provide a link. Thank you.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.