StorageVault Canada Inc.
Consolidated Financial Statements
For the Years ended December 31, 2015 and 2014
9
Management’s Responsibility
To the Shareholders of StorageVault Canada Inc.:
Management is responsible for the preparation and presentation of the accompanying consolidated financial
statements, including responsibility for significant accounting judgments and estimates in accordance with
International Financial Reporting Standards. This responsibility includes selecting appropriate accounting principles
and methods, and making decisions affecting the measurement of transactions in which objective judgment is
required.
In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management
designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance
that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide
reliable information for the preparation of financial statements.
The Board of Directors, acting through an Audit Committee composed primarily of directors who are neither
management nor employees of the Corporation, is responsible for overseeing management in the performance of its
financial reporting responsibilities, and for approving the financial information included in the annual report. The
Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing
relevant matters with management and external auditors. The Board is also responsible for recommending the
appointment of the Corporation’s external auditors.
MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the shareholders to audit the
financial statements and report directly to them. Their report follows. The external auditors have full and free access
to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit
findings.
April 27, 2016
“signed” Steven Scott
Chief Executive Officer
“signed” Iqbal Khan _
Chief Financial Officer
10
Independent Auditors’ Report
To the Shareholders of StorageVault Canada Inc.
We have audited the accompanying consolidated financial statements of StorageVault Canada Inc., which comprise
the consolidated statements of financial position as at December 31, 2015 and December 31, 2014, the consolidated
statements of comprehensive loss and comprehensive loss, changes in equity and cash flows for the years then ended,
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial
position of StorageVault Canada Inc. as at December 31, 2015 and December 31, 2014, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards.
April 27, 2016
Regina, Saskatchewan
Chartered Professional Accountants
Accounting › consulting › tAxSuite 900, royal bank building, 2010 - 11th aVenue, regina Sk, S4P 0J31.877.500.0780 P: 306.790.7900 F: 306.790.7990 MnP.ca 11
StorageVault Canada Inc.
Consolidated Statements of Financial Position
As at December 31
2015
2014
$
$
2,381,390
1,384,253
560,828
270,590
4,597,061
454,468
106,710
181,185
324,088
1,066,451
$
$
‐
165,284,002
1,605,414
1,394,759
24,535,168
1,607,814
$
171,486,477
$
28,604,192
$
982,551
320,884
3,942,906
‐
5,246,341
$
284,663
82,956
1,655,266
4,470,205
6,493,090
107,676,218
18,879,519
112,922,559
25,372,609
66,867,412
1,034,865
(9,338,359)
58,563,918
7,421,324
573,408
(4,763,149)
3,231,583
$
171,486,477
$
28,604,192
Assets
Current
Cash and short term deposits (Note 4)
Short term investments
Accounts receivable
Prepaid expenses and other current assets
Long term investments
Property and equipment (Note 6)
Goodwill and intangible assets (Note 7)
Liabilities and Shareholdersʹ Equity
Current
Accounts payable and accrued liabilities
Unearned revenue
Current portion of long term debt (Note 8)
Preferred shares (Note 9)
Long term debt (Note 8)
Shareholdersʹ Equity
Share capital (Note 10)
Contributed surplus (Note 10)
Deficit
Commitments and Contingencies (Note 16)
Subsequent Events (Note 17)
Approved on behalf of the Board:
ʺsignedʺ Steven Scott
Director
ʺsignedʺ Iqbal Khan
Director
The accompanying notes are an integral part of these consolidated financial statements.
12
StorageVault Canada Inc.
Consolidated Statements of Changes in Equity
For the Years Ended December 31
Common Share Capital
Balance, beginning of the period
Common shares issued, net of issuance costs
Balance, end of the period
Contributed Surplus
Balance, beginning of the period
Stock based compensation (Note 10)
Balance, end of the period
Deficit
Balance, beginning of the period
Net loss
Balance, end of the period
2015
2014
$
7,421,324
59,446,088
66,867,412
$
6,444,600
976,724
7,421,324
$
573,408
461,457
1,034,865
$
470,208
103,200
573,408
$
(4,763,149)
(4,575,210)
(9,338,359)
$
(3,531,273)
(1,231,876)
(4,763,149)
The accompanying notes are an integral part of these consolidated financial statements.
13
StorageVault Canada Inc.
Consolidated Statements of Income (Loss) & Comprehensive Income (Loss)
For the Years Ended December 31
Revenue
Storage and related services
Expenses
Property operating costs
Acquisition and integration costs
Selling, general and administrative
Stock based compensation (Note 10)
Depreciation and amortization (Notes 6, 7)
Interest
2015
2014
$
11,140,587
$
5,236,220
5,302,289
1,266,635
1,052,121
461,457
5,485,940
2,147,355
15,715,797
2,755,705
‐
900,105
103,200
1,544,908
1,164,178
6,468,096
Net income (loss) and Comprehensive income (loss)
$
(4,575,210)
$
(1,231,876)
Net income (loss) per common share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
$
$
(0.060)
(0.060)
$
$
(0.034)
(0.034)
75,781,610
75,781,610
36,177,629
36,177,629
The accompanying notes are an integral part of these consolidated financial statements.
14
StorageVault Canada Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31
Cash provided by (used for) the following activities:
Operating activities
Net income (loss)
Adjustment for non‐cash items:
Depreciation and amortization (Notes 6, 7)
Amortization of deferred financing costs
Amortization of bond premiums
Stock based compensation (Note 10)
Stock dividend classified as interest (Note 9)
Cash flow from operations before non‐cash working capital balances
Net change in non‐cash working capital balances
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Unearned revenue
Financing activities
Common shares issued, net of issuance costs (Note 10)
Advances from long term debt
Repayment of long term debt
Debt issuance costs
Investing activities
Maturity of short term investments
Acquisition 1 (Note 5)
Acquisition 2 (Note 5)
Acquisition 3 (Note 5)
Acquisition 4 (Note 5)
Acquisition 5 and 6 (Note 5)
Acquisition 7 (Note 5)
Additions to property and equipment (Note 6)
Additions to intangible assets (Note 7)
Proceeds on disposal of property and equipment
Increase in cash and short term deposits
Cash and short term deposits balance, beginning of period
Cash and short term deposits balance, end of period
The accompanying notes are an integral part of these consolidated financial statements.
2015
2014
$
(4,575,210)
$
(1,231,876)
5,485,940
98,687
11,216
461,457
90,892
1,572,982
(379,643)
53,498
697,888
237,928
2,182,653
1,544,908
75,999
12,863
103,200
110,030
615,124
(38,666)
(162,949)
(87,031)
(13,803)
312,675
16,489,709
116,484,509
(24,747,897)
(750,960)
107,475,361
976,724
10,421,216
(7,445,235)
(19,760)
3,932,945
106,000
(14,994,619)
(42,466,000)
(14,840,099)
(7,650,000)
(19,925,000)
(5,600,000)
(2,382,149)
‐
20,775
(107,731,092)
102,000
‐
‐
‐
‐
‐
‐
(4,159,005)
(1,339)
49,250
(4,009,094)
1,926,922
236,526
454,468
2,381,390
217,942
454,468
15
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
1. Description of Business
The consolidated financial statements of StorageVault Canada Inc. and its subsidiary (the “Corporation”)
as at and for the year ended December 31, 2015 were authorized for issuance by the Board of Directors of
the Corporation on April 27, 2016. The Corporation is incorporated under the Business Corporations Act
of Alberta and is domiciled in Canada. Its shares are publicly traded on the TSX Venture Exchange
(“Exchange”). The address of its registered office is 1000 – 250 2nd Street SW, Calgary, AB, T2P 0C1.
The Corporation’s primary business is owning, operating and renting self storage and portable storage to
individual and commercial customers across Canada.
2. Basis of Presentation
These consolidated financial statements and the notes thereto present the Corporation’s financial results
of operations and financial position under International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”) in effect at January 1, 2015.
The consolidated financial statements have been prepared under the historical cost method, except for the
revaluation of certain financial assets and financial liabilities to fair value. The consolidated financial
statements were prepared on a going concern basis, and are presented in Canadian dollars, which is the
Corporation’s functional currency.
3. Accounting policies
Basis of Consolidation
The consolidated financial statements include the accounts of StorageVault Canada Inc. and the
consolidated entity 1712066 Alberta Ltd. (“1712066”), both of which are headquartered in Regina, SK.
The financial statements for the consolidated entity are prepared for the same reporting period as
StorageVault Canada Inc. using consistent accounting policies. All intercompany transactions and
balances have been eliminated in the preparation of these consolidated financial statements.
Consolidated Entity
StorageVault Canada Inc. established 1712066 for the purpose of refinancing a mortgage on its Regina, SK
property using a defeasance process. StorageVault Canada Inc. does not have any direct or indirect
shareholdings in 1712066. An entity is consolidated if, based on an evaluation of the substance of its
relationship with StorageVault Canada Inc. it is determined that StorageVault Canada Inc. has rights,
either directly through ownership or indirectly through contractual arrangements, to direct the relevant
activities of the other entity. 1712066 was established under terms that impose strict limitations on the
decision making powers of its management and that result in StorageVault Canada Inc. receiving the
majority of the benefits related to its operations and net assets, being exposed to the majority of the risks
incident to its activities, and retaining the majority of the residual or ownership risks related to its assets.
16
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
Revenue Recognition
Revenue comprises all rendering of services and sales of goods at the fair value of consideration received
or receivable after the deduction of any trade discounts and excluding sales taxes. Revenue is recognized
when it can be measured reliably and the significant risks and rewards of ownership are transferred to
the customer.
Storage units are rented to customers pursuant to rental agreements which provide for weekly or
monthly rental terms with non-refundable rental payments. The rental agreements may be terminated by
the customer without further obligation or cost upon vacating the storage unit. Revenue from rental
agreements is recognized over the rental term pursuant to the rental agreement. Non-refundable
customer deposits, which are received to hold a unit for rent at a future date, are deferred and recognized
as revenue upon commencement of the rental agreement. Receipts of rental fees for future periods are
deferred and recognized as revenue when each respective monthly period commences. Provision is
made for expected allowances as necessary.
Revenue from the sale of merchandise, including locks, boxes, packing supplies and equipment, is
recognized when the merchandise is delivered to the customer. Revenue from investments is recognized
when earned.
Business Combinations
All business combinations are accounted for by applying the acquisition method. On acquisition, the
assets (including intangible assets), liabilities and contingent liabilities of an acquired entity are measured
at their fair value. The Corporation recognizes intangible assets as part of business combinations at fair
value at the date of acquisition. The determination of these fair values is based upon management’s
judgment and includes assumptions on the timing and amount of future incremental cash flows
generated by the assets acquired and the selection of an appropriate cost of capital. Acquisition costs are
recognized in profit or loss as incurred.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Corporation's share
of the net assets/net liabilities of the acquired entity at the date of acquisition. If the cost of acquisition is
less than the fair value of the Corporation's share of the net assets/net liabilities of the acquired entity (i.e.
a discount on acquisition) the difference is credited to the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) in the period of acquisition. At the acquisition date, goodwill acquired is
recognized as an asset and is allocated to each cash-generating unit (“CGU”) expected to benefit from the
business combination’s synergies and to the lowest level at which management monitors the goodwill.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Corporation reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted retrospectively during the
measurement period, or additional assets or liabilities are recognized, to reflect new information obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have affected
the amounts recognized as of that date. The measurement period is the period from the date of
17
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
acquisition to the date the Corporation obtains complete information about facts and circumstances that
existed as of the acquisition date up to a maximum of one year.
Significant Accounting Estimates and Judgments
The preparation of the consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both current and future periods.
Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year include, but are not necessarily limited to:
- Property and equipment – The Corporation determines the carrying value of its property and
equipment based on policies that incorporate estimates, assumptions and judgments relative to the
useful lives and residual values of the assets. Estimates of future cash flows are based on the most
recent available market and operating data at the time the estimate is made.
- Purchase price allocations – Estimates are made in determining the fair value of assets and liabilities,
including the valuation of separately identifiable intangibles acquired as part of an acquisition. These
estimates may be further based on management’s best assessment of the related inputs used in
valuation models, such as future cash flows and discount rates.
- Bad debts – The Corporation estimates potential bad debts based on an analysis of historical
collection activity and specific identification of overdue accounts. Actual bad debts may differ from
estimates made.
Income taxes - Income taxes are subject to measurement uncertainty due to the possibility of changes
in tax legislation or changes in the characterization of income sources.
-
- Compound financial instruments – Certain compound financial instruments contain both a liability
component and an equity component pursuant to IFRS. The determination of the amount attributable
to each component is subject to assumptions made, and valuation models used, at the time the
financial instrument is issued.
Stock based compensation – Compensation costs accrued for stock based compensation plans are
subject to the estimation of the ultimate payout using pricing models such as the Black-Scholes model
which is based on significant assumptions such as volatility, dividend yield and expected term.
-
Management judgments that may affect reported amounts of assets and liabilities, income and expenses
include but are not necessarily limited to:
-
For the purpose of assessing impairment of tangible and intangible assets, assets are grouped at the
lowest level of separately identified cash inflows which make up the CGU. Determination of what
constitutes a CGU is subject to management judgment. The asset composition of the CGU can
directly impact the recoverability of the assets included within the CGU.
18
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
- The determination of which entities require consolidation is subject to management judgment
regarding levels of control, assumptions of risk and other factors that may ultimately include or
exclude an entity from the classification of a subsidiary or other entity requiring consolidation.
For the purpose of recording asset acquisitions, management must exercise judgment to determine if
the acquisition meets the definition of a Business Combination. Such determination may affect the
recorded amounts of specific assets and liabilities, goodwill and/or transaction costs.
-
Cash and Short Term Deposits
Cash and short term deposits on the Consolidated Statements of Financial Position is comprised of cash
at bank and on hand, and short term, highly liquid deposits with an original maturity of 3 months or less.
For the purpose of the Consolidated Statements of Cash Flows, cash and short term deposits are defined
as above, net of outstanding bank overdrafts, except where no right of set-off exists.
Short Term Investments and Long Term Investments
Short term investments and long term investments consist of Government of Canada bonds with
maturities greater than three months.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and any impairment
in value. Historical cost includes expenditures that are directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Corporation and the cost of the item can be measured reliably. The carrying amount of the replaced
part is derecognized. All other repairs and maintenance are charged to the Consolidated Statements of
Income (Loss) and Comprehensive Income (Loss) during the financial period in which they are incurred.
Once an asset is available for use in the location and condition intended by management, it is depreciated
to its residual value using the appropriate depreciation rate set forth by management. Land is not
depreciated. Depreciation is calculated using the declining balance method to depreciate the cost of
property and equipment to their residual values over their estimated useful lives, as follows:
Land, Yards, Buildings & Improvements -
4%
Buildings
Leasehold improvements
20%
Business operating equipment 10%
8%
Fences and parking lots
Storage Containers –
Storage containers
10%
Vehicles -
Vehicles
Truck decks and cranes
30% to 40%
20%
Office and Computer Equipment -
Furniture and equipment
Computer equipment
20%
45%
19
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
On April 28, 2015, the Corporation changed the estimated declining balance rate at which storage
containers are depreciated from 30% to 10%. This change in estimate is recognized prospectively. The
change reduced depreciation expense by $476,969 for the year. The effect of the change in future periods
cannot be determined given the nature of the assets involved.
The residual value and useful lives of property and equipment are reviewed, and adjusted if appropriate,
at each Consolidated Statement of Financial Position date. An asset’s carrying value is written down to its
recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. These
impairment losses are recognized in the Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss). Following the recognition of an impairment loss, the depreciation charge applicable to the
asset is adjusted prospectively in order to systematically allocate the revised carrying amount, net of any
residual value, over the remaining useful life.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable assets
and liabilities of the acquiree at the date of acquisition. Goodwill is carried at cost less accumulated
impairment losses. Goodwill is reviewed for impairment at least annually by assessing the recoverable
amount of each CGU to which the goodwill relates. The recoverable amount is the higher of fair value
less costs to sell, and value in use. When the recoverable amount of the CGU is less than the carrying
amount, an impairment loss is recognized. Any impairment is recognized immediately in the
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) and is not subsequently
reversed.
Other intangible assets are carried at cost less accumulated amortization and accumulated impairment
losses. Amortization begins when an asset is available for use and is calculated on a straight-line basis to
allocate the cost of assets over their estimated useful lives as follows: Franchise Agreements - 10 years;
Tenant Relationships - 15 months; Website Development Costs – 12 months. The cost of intangible assets
acquired in a business combination is the fair value at acquisition date.
Leases
A lease is defined as an agreement whereby the lessor conveys to the lessee, in return for a payment or a
series of payments, the right to use a specific asset for an agreed period of time. Where the Corporation is
a lessee and has substantially all the risks and rewards of ownership of an asset, the arrangement is
considered a finance lease. Assets held under a finance lease are recognized as assets of the Corporation
within property and equipment at the inception of the lease at the lower of fair value and the present
value of the minimum lease payments. Assets held under finance leases are amortized on a basis
consistent with similar owned assets. Payments made under finance leases are apportioned between
capital repayments and interest expense charged to the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss). Other leases where the Corporation is a lessee are treated as operating
leases. Payments made under operating leases are recognized in the Consolidated Statements of Income
(Loss) and Comprehensive Income (Loss) on a straight-line basis over the term of the lease.
20
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
Where the Corporation is a lessor and has transferred substantially all the risks and rewards of
ownership of an asset to a lessee, the arrangement is considered a finance lease. For finance leases, capital
amounts due from lessees are recognized as financial assets of the Corporation within trade and other
receivables at the inception of the lease at the amount of the net investment in the lease after making
provision for bad and doubtful debts. Payments received under finance leases are apportioned between
capital repayments and interest income credited to the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss). Other leases where the Corporation is a lessor are treated as operating
leases. For operating leases, the asset is capitalized within property and equipment and amortized over
its useful economic life. Payments received under operating leases are recognized in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss) on a straight-line basis over the term of
the lease.
Impairment of Non-Financial Assets
The carrying values of all non-current assets are reviewed for impairment when events or changes in
circumstances indicate that their carrying amounts may not be recoverable. Additionally, goodwill and
intangible assets with indefinite useful lives are tested for impairment annually. An impairment loss is
recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is defined as the higher of fair value less costs of disposal or the present value of
future cash flows expected to be derived from the asset. Any provision for impairment is charged to the
Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) in the year concerned.
Impairments of goodwill are not reversed. Impairment losses on other non-current assets are only
reversed if there has been a change in estimates used to determine recoverable amounts and only to the
extent that the revised recoverable amounts do not exceed the carrying values that would have existed,
net of depreciation or amortization, had no impairments been recognized.
Income Taxes
Income tax is comprised of current tax and deferred tax. Income tax is recognized in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss) except to the extent that it relates to items
recognized directly in equity, in which case it is recognized in equity.
Current tax is the tax expected to be payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized using the liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a
transaction that is not a business combination. In addition, deferred tax is not recognized for taxable
temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax
rates that are expected to be applied to temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are
offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax
21
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
authority on the same taxable entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be
available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realized.
Stock Based Compensation
The fair value of stock options issued to directors and consultants under the Corporation’s stock option
plan is estimated at the date of issue using the Black-Scholes option pricing model, and charged to
operations and contributed surplus. Each tranche in an award is considered a separate award with its
own vesting period and grant date fair value. On the exercise of options, the cash consideration received
and the fair value of the option previously credited to contributed surplus are credited to share capital.
The fair value of agent options issued to advisors in conjunction with financing transactions is estimated
at the date of issue using the fair value of the goods and services received first, if determinable, then by
the Black-Scholes option pricing model, and charged to share capital and contributed surplus over the
vesting period. On the exercise of agent options, the cash consideration received and the fair value of the
option previously credited to contributed surplus are credited to share capital.
Where stock options are cancelled, it is treated as if the stock options had vested on the date of
cancellation and any expense not yet recognized for the award is recognized immediately. However, if a
new option is substituted for the cancelled option and is designated as a replacement option on the date
that it is granted, the cancelled and the new options are treated as if they were a modification of the
original option.
Option pricing models require the input of highly subjective assumptions, including the expected price
volatility. Changes in these assumptions can materially affect the fair value estimate and, therefore, the
existing models do not necessarily provide a reliable single measure of the fair value of the Corporation’s
share purchase options. Forfeitures are estimated for each reporting period and adjusted as required to
reflect actual forfeitures that have occurred in the period.
Income (Loss) per Share
Basic income (loss) per common share is computed by dividing the net income (loss) by the weighted
average number of common shares outstanding during the period. Diluted net income (loss) per share is
calculated by dividing the net earnings by the weighted average number of shares outstanding as
adjusted for the potential dilution that would occur if outstanding stock options, subordinated
debentures, preferred shares or other potentially dilutive financial instruments were exercised or
converted to common shares. The weighted average number of diluted shares is calculated in accordance
with the treasury stock method. The treasury stock method assumes that the proceeds received from the
exercise of all potentially dilutive instruments are used to repurchase common shares at the average
market price.
22
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of shares are
shown in equity as a deduction from the proceeds received.
Segment Reporting
An operating segment is a component of the Corporation that engages in business activities from which it
may earn revenues and incur expenses. All operating segments’ operating results are reviewed regularly
by the Corporation’s CEO in order to make decisions regarding the allocation of resources to the segment.
Segment results include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
Financial Instruments
Financial assets can be classified as “fair value through profit or loss” (“FVTPL”), “loans and
receivables”, “available-for-sale” or “held-to-maturity”. Financial liabilities can be classified as FVTPL or
“other financial liabilities”.
All financial instruments are initially measured at fair value plus transaction costs on initial recognition
of the instrument with the exception of financial instruments classified at FVTPL, which are measured at
fair value and any associated transaction costs are expensed as incurred.
Financial assets and liabilities are offset and the net amount is presented in the Consolidated Statements
of Financial Position when, and only when, the Corporation has a legal right to offset the amounts and
intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The effective interest method is used for financial instruments measured at amortized cost and allocates
interest over the relevant period. The effective interest rate is the rate that discounts estimated future
cash flows (including all fees paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums and discounts) through the expected life of the instrument, to the
net carrying amount on initial recognition.
Financial assets at FVTPL
Financial assets are classified as FVTPL when acquired principally for the purpose of trading, if so
designated by management, or if they are derivative assets. Financial assets classified as FVTPL are
measured at fair value, with changes recognized in the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss).
The Corporation’s FVTPL assets consist of cash and short term deposits.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not
quoted in an active market are classified as loans and receivables. Such assets are recognized initially at
fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and
23
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
receivables are measured at amortized cost using the effective interest method, less any impairment
losses.
The Corporation’s loans and receivables consist of accounts receivable.
Available for sale financial assets
Available for sale financial assets are non-derivative financial assets that are designated as available for
sale and that are not classified in any other category. Subsequent to initial recognition, they are measured
at fair value and changes therein, other than impairment losses, are recognized in other comprehensive
income and presented within equity in the fair value reserve. When an available for sale financial asset is
derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.
The Corporation currently has no assets which are designated as available for sale.
Held to maturity financial assets
If the Corporation has the positive intent and ability to hold certain financial assets to maturity, then such
financial assets are classified as held to maturity. Held to maturity financial assets are recognized initially
at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are
measured at amortized cost using the effective interest method, less any impairment losses.
The Corporation’s held to maturity financial assets consist of short term investments and long term
investments. These investments are comprised of Government of Canada bonds and cash substituted for
mortgage security under defeasance arrangements.
Financial liabilities at FVTPL
Financial assets are classified as FVTPL if they are designated as such by management, or they are
derivatives. Financial liabilities classified as FVTPL are measured at fair value, with changes recognized
in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
The Corporation does not have any financial liabilities at FVTPL at the end of year.
Other financial liabilities
Other financial liabilities are financial liabilities that are not classified as FVTPL. Such financial liabilities
are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, other financial liabilities are measured at amortized cost using the effective interest method.
Financing fees and other costs incurred in connection with debt financing are deducted from the cost of
the debt and amortized using the effective interest method.
The Corporation‘s other financial liabilities consist of accounts payable and accrued liabilities, and long
term debt.
24
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 3 – Continued
Recent Accounting Pronouncements
The Corporation adopted amendments to IFRS 8 and IAS 24 on January 1, 2015. There was no material
impact to the Corporation’s consolidated financial statements as a result of the adoption of these
amendments.
Future Accounting Pronouncements
The Corporation has reviewed new and revised accounting pronouncements that have been issued but
are not yet effective and determined that the following may have an impact on the Corporation:
IFRS 15, "Revenue from contracts with customers"
On May 28, 2014 the IASB issued IFRS 15, "Revenue from contracts with customers". IFRS 15 will replace
existing standards and interpretations on revenue recognition. The standard is effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. The standard outlines a
single comprehensive model for entities for revenue recognition arising from contracts with customers.
The Corporation has not yet considered the impact of IFRS 15 on its consolidated financial statements.
IFRS 9, "Financial instruments"
On November 12, 2009, the IASB issued IFRS 9, "Financial instruments" ("IFRS 9"), which will replace IAS
39 "Financial Instruments: Recognition and Measurement" ("IAS 39"). The standard is effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 9 applies to
classification and measurement of financial assets as defined in IAS 39. It uses a single approach to
determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple
classification options in IAS 39. The Corporation has not yet considered the impact of IFRS 9 on its
consolidated financial statements.
IFRS 16, "Leases"
On January 13, 2016, the IASB published a new standard, IFRS 16, "Leases". The new standard brings
most leases on-balance sheet for lessees under a single model, eliminating the distinction between
operating and finance leases. The standard is effective for annual periods beginning on or after January 1,
2019, with early application permitted but only if the entity is also applying IFRS 15, "Revenue from
contracts with customers". Under the new standard, a lessee recognizes a right-of-use asset and a lease
liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated
accordingly. The liability accrues interest. The Corporation has not yet considered the impact of IFRS 16
on its consolidated financial statements.
4. Cash and Short Term Deposits
Cash represents balances on deposit at a Canadian Chartered Bank. Term deposits, when used, are short
term, highly liquid deposits with an original maturity of 3 months or less.
25
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
5. Acquisitions
During the year, the Corporation completed the below transactions that all met the definition of business
combination under IFRS 3 – Business Combinations. Each acquisition has been accounted based on our
Business Combinations policy (Note 3) and by using the acquisition method with the results of the
operations being included in the consolidated financial statements of the Corporation since the date of
acquisition. The acquisitions are:
Acquisition 1:
On April 28, 2015, the Corporation acquired four self storage locations, portable storage containers,
vehicles and chattels for $26,475,000 (subjected to customary adjustments). The acquisition was an arm's
length transaction. The purchase price was paid for by the issuance of 30,211,529 Common Shares
(valued at $11,480,381), with the balance satisfied in cash on hand and first mortgage financing.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Portable storage containers, vehicles and chattels
Net Assets Acquired
$
2,468,100
13,061,900
10,945,000
26,475,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
11,480,381
14,994,619
26,475,000
3,618,648
2,046,999
1,571,649
1,194,389
354,222
23,038
$
26
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 5 – Continued
Acquisition 2:
On September 11, 2015 the Corporation completed the acquisition of four self storage locations. The
acquisition was an arm's length transaction. The purchase price was $52,466,000 (subjected to customary
adjustments), of which $10,000,000 was paid by the issuance of 20,000,000 Common Shares (valued at
$10,000,000), with the balance satisfied in cash on hand and first mortgage financing.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Vehicles and equipment
Net Assets Acquired
$
22,947,100
29,247,700
271,200
52,466,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
10,000,000
42,466,000
52,466,000
2,066,682
543,546
1,523,136
1,084,934
545,742
(107,540)
$
27
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 5 – Continued
Acquisition 3:
On October 7, 2015 the Corporation completed the acquisition of three self storage locations for
$27,155,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the issuance of 32,407,635 Common Shares (valued at $12,314,901), with
the balance satisfied by the assumption of a mortgage in the amount of $4,730,964, first mortgage
financing and cash on hand.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Vehicles and equipment
Net Assets Acquired
$
8,602,500
18,537,500
15,000
27,155,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
12,314,901
14,840,099
27,155,000
678,373
198,992
479,381
742,179
122,161
(384,959)
$
28
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 5 – Continued
Acquisition 4:
On December 9, 2015 the Corporation completed the acquisition of three self storage locations for
$7,800,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the issuance of 230,769 Common Shares (valued at $150,000), with the
balance satisfied in cash on hand and first mortgage financing.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Vehicles and equipment
Net Assets Acquired
-
$
7,670,000
130,000
7,800,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
150,000
7,650,000
7,800,000
30,251
53,792
(23,541)
280,340
7,237
(311,118)
$
29
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 5 – Continued
Acquisition 5 and 6:
On December 16 and 30, 2015 the Corporation completed the acquisitions of four self storage locations for
$24,375,000 (subjected to customary adjustments). The acquisitions were a related party transaction. The
purchase price was paid for by the issuance of 6,846,153 Common Shares (valued at $4,450,000), with the
balance satisfied in cash on hand and first mortgage financing.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Vehicles and equipment
Net Assets Acquired
$
5,426,000
18,939,000
10,000
24,375,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
4,450,000
19,925,000
24,375,000
23,229
17,066
6,163
803,783
4,599
(802,219)
$
30
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 5 – Continued
Acquisition 7:
On December 31, 2015 the Corporation completed the acquisition of one self storage location for
$5,600,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the assumption of a mortgage in the amount of $3,075,000 and the balance
by cash on hand.
A summary of the assets and liabilities acquired are as follows:
Land
Buildings and related business operating equipment
Net Assets Acquired
$
816,000
4,784,000
5,600,000
Consideration paid for the net assets acquired was obtained from the following:
Issuance of common shares
Cash and advances of long term debt
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
-
5,600,000
5,600,000
-
4,873
(4,873)
209,467
-
$
(214,340)
Summary:
Selected consolidated information for the acquisitions, based upon information available to management
as of the date of this report and the preparation of these consolidated financial statements, as if the assets
were acquired as of January 1, 2015 is as follows:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
$
18,381,793
7,017,992
11,363,801
4,315,092
3,695,727
3,352,982
$
31
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
6. Property and Equipment
Land, Yards,
Buildings &
Storage
Office &
Computer
Improvements
Containers
Vehicles
Equipment
Total
COST
December 31, 2013
Additions
Disposals
December 31, 2014
Additions
Business acquisitions
December 31, 2015
21,900,122
2,539,418
-
24,439,540
703,271
132,557,800
157,700,611
3,240,164
722,266
(8,000)
3,954,430
1,264,781
8,950,000
14,169,211
1,551,815
864,038
(41,250)
2,374,603
221,751
1,975,000
4,571,354
ACCUMULATED DEPRECIATION
2,188,237
633,646
2,821,883
4,289,281
7,111,164
1,754,646
552,450
2,307,096
502,845
2,809,941
863,485
327,745
1,191,230
604,396
1,795,626
December 31, 2013
Depreciation
December 31, 2014
Depreciation
December 31, 2015
NET BOOK VALUE
December 31, 2014
December 31, 2015
202,033
33,283
-
235,316
171,571
388,200
795,087
121,184
27,328
148,512
87,018
235,530
26,894,134
4,159,005
(49,250)
31,003,889
2,361,374
143,871,000
177,236,263
4,927,552
1,541,169
6,468,721
5,483,540
11,952,261
21,617,657
1,647,334
150,589,447
11,359,270
1,183,373
2,775,728
86,804
24,535,168
559,557
165,284,002
Included in Land, Yards, Buildings & Improvements is Land at a value of $47,348,171 (December 31, 2014
- $6,450,893).
32
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
7. Intangible Assets
Other Intangible Assets
Franchise
Tenant
Website
Goodw ill
Agreements Relationships Development
Total
COST
December 31, 2013
Capital expenditures
December 31, 2014
Capital expenditures
December 31, 2015
ACCUMULATED AMORTIZATION
December 31, 2013
Amortization
December 31, 2014
Amortization
December 31, 2015
NET BOOK VALUE
December 31, 2014
December 31, 2015
1,601,414
-
1,601,414
-
1,601,414
-
-
-
-
-
20,000
-
20,000
-
20,000
11,200
2,400
13,600
2,400
16,000
606,000
-
606,000
-
606,000
606,000
-
606,000
-
21,833
1,339
23,172
-
23,172
21,833
1,339
23,172
-
606,000
23,172
2,249,247
1,339
2,250,586
-
2,250,586
639,033
3,739
642,772
2,400
645,172
1,601,414
1,601,414
6,400
4,000
-
-
-
-
1,607,814
1,605,414
The goodwill asset relates to properties purchased in the prior year by the Corporation and allocated to
the individual properties. The value of goodwill was tested by means of comparing the recoverable
amount of the asset to its carrying value. The recoverable amount is the greater of its value in use or its
fair value less costs of disposal. Recoverable amount was estimated from the present value of future cash
flows expected from the properties and capitalization rates observed for comparable assets. Values
assigned to the key assumptions represent management's best estimates and have been based on data
from both external and internal sources.
No impairment has been identified on goodwill, and management considers reasonably foreseeable
changes in key assumptions are unlikely to produce a goodwill impairment.
33
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
8. Long Term Debt
December 31, 2015
December 31, 2014
Rate
Range
Weighted
Average
Balance
Rate
Range
Weighted
Average
Balance
Term Debt
Variable Rate
-
-
-
Prime plus 1.00%
or BA plus 2.75% 4.00%
Maturity: November 2017
1,896,531
Mortgages
Fixed Rate
3.81% to 5.05%
4.21%
48,269,282
5.00%
5.00%
1,272,496
Maturity: March 2018 to August 2020
Maturity: November 2015
Prime plus 1.00%
Variable Rate or BA plus 2.75% 4.34%
62,999,553
Prime plus 1.00%
or BA plus 2.75% 4.00%
16,244,988
Maturity: October 2017 to November 2020
Maturity: November 2017
Other
Defeasance
Obligation
1.09%
1.09%
1,438,991
1.09%
1.09%
1,557,200
Maturity: August 2016
Maturity: August 2016
Deferred financing costs net of accretion
of $259,813 (December 31, 2014 - $161,125)
Less current portion
(1,088,702)
111,619,124
3,942,906
107,676,218
(436,430)
20,534,785
1,655,266
18,879,519
The bank Prime rate at December 31, 2015 was 2.70% (December 31, 2014 - 3.00%).
Mortgages are secured by a first mortgage charge on the property and equipment of the Corporation,
general security agreements covering all assets of the Corporation, general assignment of rents and
leases and assignments of insurance coverage over all assets of the Corporation. The Corporation must
maintain certain financial ratios to comply with the facilities. These covenants include a fixed charge
coverage ratio, a tangible net worth ratio, and a loan to value ratio. Throughout the year and as of
December 31, 2015, the Corporation is in compliance with all covenants.
34
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 8 – Continued
The defeasance obligation is secured by Government of Canada bonds recorded as Short Term
Investments.
In the fiscal year 2012, the Corporation completed the defeasance of a mortgage on one of its’ property
(the “Defeasance Obligation”). The result was a defeasance obligation (liability) of $1,789,785 at December
31, 2012 being the present value of the remaining payments under the original mortgage at an effective
interest rate of 1.09%. The payments will be fully funded by the principal and interest earnings of Short
and Long Term Investments of $1,764,247 in Government of Canada Bonds bearing interest rates ranging
from 1.75% and 3.50% and maturities ranging from March 2013 to June 2016. Both the defeasance
obligation and the Short and Long Term Investments are held within 1712066 Alberta Ltd.
The deferred financing costs are made up of fees and costs incurred to obtain the related mortgage
financing, less accumulated amortization.
Principal repayments on long term debt in each of the next five years are estimated as follows:
2016
2017
2018
2019
2020
$
$
$
$
$
3,942,906
56,430,614
15,808,593
1,135,883
35,389,831
9. Preferred Shares
Balance, December 31, 2013
Dividends paid
Balance, December 31, 2014
Dividends paid
Converted to common shares
Balance, December 31, 2015
Number of Shares
Amount
4,360,175
110,030
4,470,205
90,892
(4,561,097)
$
$
4,360,175
110,030
4,470,205
90,892
(4,561,097)
-
$
-
The preferred shares paid a fixed-rate cumulative dividend of 5% per year payable as follows: i) 2.5% in
cash payable quarterly, in arrears, from each respective drawdown date, calculated for the immediately
preceding period, and; ii) 2.5% in preferred shares, credited quarterly, in arrears from each respective
drawdown date, calculated for the immediately preceding period.
By the rights provided to the investors, the preferred shares were converted at $0.30 into 15,203,657
common shares on October 6, 2015.
35
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
10. Share Capital
Authorized: Unlimited number of common, voting shares of no par value
Authorized: Unlimited number of preferred non-voting shares issuable in series at an issuance price of $1
per share
Common shares issued:
Number of Shares
Amount
Balance, December 31, 2013
33,355,711
$
6,444,600
Issued
Share issuance costs
3,333,333
-
1,000,000
(23,276)
Balance, December 31, 2014
36,689,044
$
7,421,324
Issued on asset acquisitions
Conversion of preferred shares (note 9)
Private placement
Share issuance costs
89,696,085
15,203,657
26,337,034
-
38,395,282
4,561,097
17,119,072
(629,363)
Balance, December 31, 2015
167,925,820
$
66,867,412
Contributed surplus:
Opening balance
Stock based compensation
Ending balance
December 31, 2015
December 31, 2014
573,408
461,457
1,034,865
470,208
103,200
573,408
36
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 10 - Continued
Stock Options and Warrants
The Board of Directors of the Corporation may from time to time, in its discretion, and in accordance with
the Exchange requirements, grant to directors, officers, employees and technical consultants of the
Corporation, non-transferable options to purchase common shares provided that i) the number of
common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares;
ii) the options are exercisable for a period of up to 10 years from the date of grant; iii) the number of
common shares reserved for issuance to any individual director or officer will not exceed 5% of the issued
and outstanding common shares; and iv) the number of common shares reserved for issuance to all
technical consultants, if any, will not exceed 2% of the issued and outstanding shares. The exercise price
for purchasing these shares cannot be less than the minimum exercise price as provided by Exchange
rules. The following table summarizes information about stock options outstanding and exercisable as at:
Opening
Granted
Closing and Exercisable
December 31, 2015
December 31, 2014
Options
3,600,000
4,961,000
8,561,000
Weighted Average
Exercise Price
$0.23
$0.45
$0.36
Options
3,200,000
400,000
3,600,000
Weighted Average
Exercise Price
$0.22
$0.33
$0.23
On January 27, 2015, the Corporation granted 60,000 stock options to employees, which vested
immediately, have an exercise price of $0.40 per share, and will expire on January 27, 2025. The stock
options have no further vesting requirements. A value of $19,320 was recorded to the Statement of
Income (Loss) and Comprehensive Income (Loss) related to these options. The fair value of stock options
was estimated at the date of the grant using the Black-Scholes Option Pricing Model using the following
significant assumptions: risk-free interest rate – 1.57%; expected volatility – 79%; expected life in years –
10; and dividend yield – 0.00%. The resultant award fair value was $0.322 per option.
On April 28, 2015, the Corporation granted 2,901,000 stock options to directors, officers, employees and
technical consultants, which vested immediately, have an exercise price of $0.41 per share, and will expire
on April 28, 2025. The stock options have no further vesting requirements. A value of $240,194 was
recorded to the Statement of Income (Loss) and Comprehensive Income (Loss) related to these options.
The fair value of stock options was estimated at the date of the grant using the Black-Scholes Option
Pricing Model using the following significant assumptions: risk-free interest rate – 0.99%; expected
volatility – 23%; expected life in years – 4 and dividend yield – 0.00%. The resultant award fair value was
$0.083 per option.
On September 14, 2015, the Corporation granted 2,000,000 stock options to directors, officers, employees
and technical consultants, which vested immediately, have an exercise price of $0.50 per share, and will
expire on September 14, 2025. The stock options have no further vesting requirements. A value of
$201,944 was recorded to the Statement of Income (Loss) and Comprehensive Income (Loss) related to
these options. The fair value of stock options was estimated at the date of the grant using the Black-
37
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 10 - Continued
Scholes Option Pricing Model using the following significant assumptions: risk-free interest rate – 0.99%;
expected volatility – 23%; expected life in years – 4 and dividend yield – 0.00%. The resultant award fair
value was $0.101 per option.
Stock options exercisable and outstanding are as follows:
Exercise Vesting
Price
Date
$0.20
$0.23
$0.33
$0.40
$0.41
$0.50
Nov 5, 2007
May 6, 2009
June 19, 2014
Jan 27, 2015
April 28, 2015
Sept 14, 2015
Expiry
Date
Outstanding
December 31, 2015
Outstanding
December 31, 2014
1,000,000
Nov 5, 2017
2,200,000
May 6, 2019
June 19, 2024
400,000
Jan 27, 2025 60,000
2,901,000
April 28, 2025
2,000,000
Sept 14, 2025
8,561,000
1,000,000
2,200,000
400,000
nil
nil
nil
3,600,000
Warrants exercisable and outstanding are as follows:
Exercise
Price
Expiry
Date
$0.35
$0.37
Feb 25, 2018
Feb 25, 2018
Outstanding
December 31, 2015
Outstanding
December 31, 2014
249,999
2,833,334
3,083,333
249,999
2,833,334
3,083,333
38
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
11. Income Taxes
The reconciliation of the Corporation's effective tax expense is as follows:
Loss before taxes
Combined federal and provincial statutory income tax rate
Income tax recovery calculated at statutory rate
Non-deductible items
Change in deferred tax assets not realized
Income tax expense (recovery)
Details of deferred tax assets (liabilities) are as follows:
Deferred tax assets (liabilities):
Property and equipment
Goodwill
Long term debt
Non-capital loss carry forwards
Deferred tax asset
2015
(4,575,210)
27.00%
(1,235,307)
151,786
1,083,521
2014
(1,231,876)
27.00%
(332,607)
59,048
273,559
$
-
$
-
2015
2014
(969,160)
(132,344)
(293,950)
1,395,454
-
(117,897)
(117,836)
235,733
$
-
$
-
Details of the unrecognized deductible temporary differences are as follows:
Property and equipment
Intangible assets
Deferred financing costs and other
Non-capital loss carryforwards
2015
-
282,096
1,344,695
7,154,405
8,781,196
$
2014
417,928
302,425
417,627
3,000,824
4,138,804
$
The Corporation has non-capital losses at December 31, 2015 that expire as follows:
2027
2028
2029
2030
2031 and thereafter
63,854
296,264
272,049
512,169
11,178,416
$
12,322,752
39
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
12. Financial Risk Management and Fair Value
The Corporation is required to disclose certain information concerning its financial instruments, which
are defined as contractual rights to receive or deliver cash or other financial assets. The fair values of the
Corporation’s cash and short term deposits, accounts receivable, and accounts payable and accrued
liabilities approximate their carrying amount because of short period to scheduled receipt or payment of
cash. The fair value of the Corporation’s debt obligations is estimated based on discounted future cash
flows using discount rates that reflect current market conditions for instruments with similar terms and
risks. Such fair value estimates are not necessarily indicative of the amounts the Corporation might pay
or receive in actual market transactions. The fair value of financial assets and liabilities were as follows:
As at December 31, 2015
Carrying
Amount
Fair
Value
As at December 31, 2014
Carrying
Amount
Fair
Value
2,381,390
2,381,390
454,468
454,468
560,828
560,828
181,185
181,185
1,384,253
1,384,253
-
-
106,710
1,394,759
106,710
1,394,759
Financial Assets
Fair Value through Profit or Loss
Cash and short term deposits
Loans and Receivables
Accounts receivable
Held to Maturity
Short term investments
Long term investments
Financial Liabilities
Other Financial Liabilities
Accounts payable & accrued liabilities
Long term debt
982,551
111,619,124
982,551
112,584,218
284,663
20,534,785
284,663
21,150,000
Fair Value through Profit or Loss
Preferred shares
-
-
4,470,205
4,470,205
IFRS establishes a three tier fair value hierarchy to reflect the significance of the inputs used in measuring
the fair value of the Corporation’s financial instruments. The three levels are:
Level 1 – This level includes assets and liabilities measured at fair market value based on
unadjusted quoted prices for identical assets and liabilities in active markets that the
Corporation can access on the measurement date.
Level 2 – This level includes measurements based on directly or indirectly observable inputs
other than quoted prices included in Level 1. Financial instruments in this category are
measured using valuation models or other standard valuation techniques that rely on
observable market inputs.
Level 3 – The measurements used in this level rest on inputs that are unobservable,
unavailable, or whose observable inputs do not justify the largest part of the fair value
instrument.
40
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 12 - Continued
The following table presents information on the Corporation’s assets and liabilities measured at fair value
and indicates the fair value hierarchy of the valuation techniques used to determine this fair value.
At December 31, 2015
Assets
Cash and short term deposits
At December 31, 2014
Assets
Cash and short term deposits
Preferred shares
Level 1
Level 2
Level 3
Total
$2,381,390
454,468
-
-
-
$2,381,390
$4,470,205
$454,468
$4,470,205
The following table provides a summary of the changes in the fair value of Level 3 financial liabilities:
Balance December 31, 2013
Gains or losses recognized in profit or loss
Gains or losses recognized in other comprehensive income
Issuance of additional preferred shares (see Note 9)
Balance December 31, 2014
Gains or losses recognized in profit or loss
Gains or losses recognized in other comprehensive income
Issuance of additional preferred shares (see Note 9)
Converted to common shares (see Note 9)
Balance December 31, 2015
Preferred Shares
$4,360,175
-
-
$ 110,030
$4,470,205
-
-
$ 90,892
($4,561,097)
$ -
Financial instruments may expose the Corporation to a number of financial risks including interest rate
risk, credit risk and environmental risk.
a)
Interest rate risk – Interest rate risk arises from changes in market interest rates that may
affect the fair value of future cash flows from the Corporation’s financial assets or liabilities.
Interest rate risk may be partially mitigated by holding both fixed and floating rate debt, or
by staggering the maturities of fixed rate debt. The Corporation is exposed to interest rate
risk primarily relating to its long term debt. The Corporation will manage interest rate risk
by utilizing fixed interest rates on its mortgages where possible, staggering maturities over a
number of years to mitigate exposure to any single year, and by attempting to ensure access
to diverse sources of funding.
There is interest rate risk associated with variable rate mortgages as interest expense is
impacted by changes in the prime rate. The impact on net income (loss) and comprehensive
income (loss) if interest rates on variable rate debt had been 1% higher or lower for the year
ended December 31, 2015 would be approximately $322,200, respectively (December 31, 2014
- $161,200).
41
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 12 – Continued
b) Credit risk - Credit risk arises from the possibility that customers may experience financial
difficulty and be unable to fulfill their financial obligations to the Corporation. The risk of
incurring bad debts often arises if storage customers relocate and cannot be found to enforce
payment, or if storage customers abandon their possessions. The extent of bad debts can be
mitigated by quickly following up on any unpaid amounts shortly after the due date,
enforcing late fees, denying access to any customers with delinquent accounts, and ultimately
seizing the possessions of the customer. Additionally the Corporation typically rents to
numerous customers, each of which constitutes significantly less than 5% of the
Corporation’s monthly revenue. This diversification in the customer base reduces credit risk
from any given tenant.
The following table sets forth details of accounts receivable and related allowance for
doubtful accounts:
Accounts receivable under 30 days aged
Accounts receivable over 30 days aged
Allowance for doubtful accounts
December 31, 2015
$324,335
298,612
(62,119)
$560,828
December 31, 2014
$175,904
59,938
(54,657)
$181,185
Change in the Corporation’s allowance for doubtful accounts is as follows:
Balance December 31, 2013
Charges or adjustments during the year
Receivables written off during the year as uncollectible
Balance December 31, 2014
Charges or adjustments during the year
Receivables written off during the year as uncollectible
Balance December 31, 2015
$27,294
86,513
(59,150)
$54,657
7,462
-
$62,119
The creation and release of the allowance for doubtful accounts has been included in property
operating costs in the Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss). Amounts charged to the allowance account are generally written off when there is no
expectation of recovering additional cash.
c) Liquidity risk – Liquidity risk is the risk that the Corporation will be unable to meet its
financial obligations as they fall due. The Corporation manages liquidity risk through cash
flow forecasting and regular monitoring of cash requirements including anticipated investing
and financing activities. Typically the Corporation ensures that it has sufficient cash or liquid
investments available to meet expected operating expenses for a period of 30 days, excluding
the potential impact of extreme circumstances that cannot reasonably be predicted, such as
natural disasters. For the foreseeable future, the Corporation anticipates that cash flows from
42
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 12 – Continued
operations, working capital, and other sources of financing will be sufficient to meet its
operating requirements, debt repayment obligations and will provide sufficient funding for
anticipated capital expenditures. Maturities of long term financial liabilities are summarized
in Note 8.
d) Environmental risk – Environmental risk is inherent in the ownership of property. Various
municipal, provincial and federal regulations can result in penalties or potential liability for
remediation should hazardous materials enter the environment. The presence of hazardous
substances could also impair the Corporation’s ability to finance or sell the property, or it
might expose the Corporation to civil law suits. To mitigate such risk, the Corporation will
procure recent or updated environmental reports for all acquisitions. It also prohibits the
storage of hazardous substances as a condition of the rental contract signed by customers.
Unless otherwise noted, it is management’s opinion that the Corporation is not exposed to
significant currency risk.
13. Related Party Transactions
During the year ended December 31, 2015, the Corporation paid total management fees of $160,414
(December 31, 2014 - $280,927) to Detteson Management Inc. (“Detteson”), a corporation controlled by
Alan A. Simpson and Glenn E. Fradette, who were directors and officers of the Corporation to April 28,
2015. Pursuant to a management agreement, Detteson was entitled to a base management fee of $168,000
per year commencing May 1, 2011, subject to an annual increase of 3% on May 1 of each subsequent year
as well as an annual performance fee of 4% of net operating income, defined as storage and related
services revenue less property operating costs, if the Corporation attains 85% or greater of its annual
board-approved budgeted net operating income for that fiscal year. The portion of management fees
paid in the year ended December 31, 2015, for performance fee relating to the prior fiscal year was $99,221
(December 31, 2014 - $99,131). On April 28, 2015, this management agreement was acquired by Access
Results Management Services Inc. (“ARMS”). At that time, Alan A. Simpson ceased to be an officer of the
Corporation and Glenn E. Fradette ceased to be an officer and director of the Corporation. Concurrently,
Steven Scott and Iqbal Khan, who control ARMS, became officers and directors of the Corporation.
During the year ended December 31, 2015, the Corporation incurred total management fees of $376,057
(December 31, 2014 - $nil) to ARMS.
During the year ended December 31, 2015, the Corporation reimbursed travel and related expenses of
$36,625 (December 31, 2014 - $52,724) to Detteson. These expenses, which were reimbursed at cost, were
undertaken exclusively for the benefit of the Corporation. Prior to April 28, 2015, the operational wages
were paid directly by the Corporation. After, the operational wages were paid by ARMS and reimbursed
by the Corporation at cost. During the year ended December 31, 2015, the Corporation reimbursed
operational wages of $1,840,941 and travel and related expenses of $59,819 (December 31, 2014 - $nil and
$nil, respectively) to ARMS. These expenses were undertaken exclusively for the benefit of the
Corporation.
43
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 13 – Continued
During the year ended December 31, 2015, the Corporation paid loan guarantee fees of $8,712 (December
31, 2014 - $8,712) to Alan A. Simpson and loan guarantee fees of $8,712 (December 31, 2014 - $8,712) to
Glenn E. Fradette, both of whom were directors and officers of the Corporation. As a condition of the
assumption of a mortgage, both Alan A. Simpson and Glenn E. Fradette were required to provide
personal guarantees for the entire outstanding principal balance of the mortgage. The loan guarantee
fees are compensation for the provision of these guarantees and are paid on a monthly basis at the annual
rate of 0.5% of the original mortgage principal, per person.
During the year ended December 31, 2015, the Corporation purchased $24,375,000 of self storage assets
from Corporations affiliated with directors and officers of the Corporation. See Note 5, Acquisition 5 & 6
for further information on this transaction.
The Corporation holds a Master Franchise from Canadian PUPS Franchises Inc. (CPFI) which provides
the Corporation with the exclusive Canadian franchise rights for the development and operation of
portable storage throughout Canada. CPFI is a corporation related to Steven Scott and Iqbal Khan, who
are directors and officers of the Corporation. The Corporation pays a monthly royalty of 3.5% on the
gross sales. During the year ended December 31, 2015, the Corporation paid $145,664 (December 31, 2014
- $105,071) for royalties and $1,472,143 (December 31, 2014 - $1,914,016) for storage containers and other
equipment under the Master Franchise Agreement.
Included in accounts payable and accrued liabilities, relating to the previously noted transactions, at
December 31, 2015 was $44,502 (December 31, 2014 - $61,262) payable to CPFI; $nil (December 31, 2014 -
$3,299) payable to Detteson; and $365,483 (December 31, 2014 - $nil) payable to ARMS.
Key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the Corporation, directly and indirectly, and include directors. The
remuneration of key management personnel for employment services rendered are as follows:
Wages, salaries, management fees, bonuses, directors
fees and benefits
Stock based compensation
Year ended
December 31, 2015
Year ended
December 31, 2014
$ 628,834
___406,292
$ 1,035,126
$ 305,980
___103,200
$ 409,180
14. Capital Risk Management
The Corporation’s objectives when managing capital are to safeguard the Corporation’s ability to
continue as a going concern in order to provide returns for shareholders and benefits for other
44
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 14 – Continued
stakeholders. The Corporation defines capital as shareholders’ equity excluding contributed surplus, and
long term debt. The Corporation manages the capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying assets. To maintain or
adjust the capital structure, the Corporation may attempt to issue new shares, issue new debt, acquire or
dispose of assets, and adjust the amount of cash and short term deposits. The Board of Directors does not
establish a quantitative return on capital criteria, but rather promotes year over year sustainable growth.
On an ongoing basis, the Corporation reviews and assesses its capital structure. The Corporation
determines the appropriate mortgage debt to be placed on properties at the time a particular property is
acquired or when an existing mortgage financing matures. Consideration is given to various factors
including, but not limited to, interest rates, financing costs, the term of the mortgage and the strength of
cash flow arising from the underlying asset. Mortgage debt is usually only secured by the underlying
asset. The Corporation monitors its capital using a debt to fair value ratio.
Except for the debt covenants described in Note 8, the Corporation is not subject to any externally
imposed capital requirements.
15. Segmented Information
The Corporation operates two reportable business segments. Each segment is a component of the
Corporation for which separate discrete financial information is available for evaluation by the chief
decision makers of the Corporation.
•
Self Storage – involves the customer renting space at the Corporation’s property for short or long
term storage. Self storage may also include space for storing vehicles and use for small commercial
operations.
• Portable Storage – this segment involves delivering a portable storage unit to the customer. The
customer can opt to keep the portable storage unit at their location or have it moved to another
location for further storage.
The Corporation evaluates performance and allocates resources based on earnings before interest, taxes,
depreciation, amortization and stock based compensation. The accounting policies for the business
segments are the same as those described in Note 3. Corporate costs are not allocated to the segments
and are shown separately below.
45
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 15 – Continued
For the Year Ended December 31, 2015
Self
Storage
Portable
Storage
Corporate
Total
Revenue
$
6,689,506
$
4,451,081
$
-
$
11,140,587
Operating expenses
2,335,967
2,966,322
-
Selling, general & admin.
Acquisition and integration
-
-
-
-
Interest expense
1,543,929
286,720
Stock based compensation
-
-
Depreciation & amortization
4,206,855
1,234,203
1,052,121
1,266,635
316,706
461,457
44,882
5,302,289
1,052,121
1,266,635
2,147,355
461,457
5,485,940
Net income/(loss)
(1,397,245)
(36,164)
(3,141,801)
(4,575,210)
Additions:
Property & equip.
133,261,071
12,411,532
559,771
146,232,374
For the Year Ended December 31, 2014
Self
Storage
Portable
Storage
Corporate
Total
Revenue
$
2,824,553
$
2,411,667
$
-
$
5,236,220
Operating expenses
1,298,776
1,456,929
Selling, general & admin.
Acquisition and integration
-
-
-
-
Interest expense
634,906
193,789
Stock based compensation
Depreciation & amortization
Net income/(loss)
-
578,473
312,398
-
958,049
-
900,105
-
335,483
103,200
8,386
2,755,705
900,105
-
1,164,178
103,200
1,544,908
(197,100)
(1,347,174)
(1,231,876)
Additions:
Property & equip.
Intangible Assets
36,845
4,121,950
-
-
210
1,339
4,159,005
1,339
46
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 15 – Continued
Total Assets
Self
Storage
Portable
Storage
Corporate
Total
As at December 31, 2015
$
151,443,965
$
15,105,555
$
4,936,957
$
171,486,477
As at December 31, 2014
$
22,472,175
$
3,654,302
$
2,477,715
$
28,604,192
16. Commitments and Contingencies
Operating Lease Commitments
The Corporation leases lands in Winnipeg, MB and Kamloops, BC on which its buildings are situated.
The lease does not contain any contingent rent clauses. It does not include any provisions for transfer of
title, nor does the Corporation participate in the residual value of the land. Therefore, these leases are
considered operating leases as the risk and reward of ownership of the lands remain with the landlords.
The leases expire between 2027 and 2054, with the lease that is expiring in 2027 having up to 20 years of
renewals at the option of the Corporation after that time.
The future minimum lease payments, excluding incidental costs for which the Corporation is responsible,
are as follows:
Less than one year
Between one and five years
More than five years
$ 149,882
605,167
2,308,009
$ 3,063,058
During the year ended December 31, 2015, the Corporation recognized as an expense $67,072 (December
31, 2014 - $59,535) in operating lease payments.
Contingency
The Corporation has no legal contingency provisions at either December 31, 2015 or December 31, 2014.
17. Subsequent Events
On March 18, 2016, the Corporation issued 8,333,331 Common Shares at a price of $0.66 per Common
Share for gross proceeds of $5,499,998.
On March 18, 2016, the Corporation acquired the leasehold interest of one self storage location for
$978,000 (subjected to customary adjustments). The acquisition was arm’s length transaction. The
purchase price was paid for by cash on hand.
47
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
StorageVault Canada Inc.
OFFICERS
Steven Scott
Chief Executive Officer
Iqbal Khan
Chief Financial Officer
DIRECTORS
Steven Scott
Toronto, ON
Iqbal Khan
Toronto, ON
Rob Duguid
Regina, SK
Alan Simpson
Regina, SK
Blair Tamblyn
Toronto, ON
LEGAL COUNSEL
AUDITORS
DLA Piper (Canada LLP)
Livingston Place
1000 – 250 2nd St S.W.
Calgary, AB T2P 0C1
Telephone 403-296-4470
Facsimile 403-296-4474
MNP LLP
Royal Bank Building
Suite 900, 2010 – 11th Avenue
Regina, SK S4P 0J3
Telephone 306-790-7900
Facsimile 306-790-7990
HEAD OFFICE
REGISTRAR & TRANSFER AGENT
StorageVault Canada Inc.
6050 Diefenbaker Avenue
P.O Box 32062
Regina, SK S4N 7L2
Telephone 1-877-622-0205
Email: ir@storagevaultcanada.com
TSX VENTURE EXCHANGE LISTING
SVI
TMX Equity Transfer Services
300-5th Avenue S.W., 10th Floor
Calgary, AB T2P 3C4
Telephone 403-218-2800
Facsimile 403-265-0232
48
StorageVault Canada Inc.
(the “Corporation”)
Form 51-102F1
Management’s Discussion and Analysis
For Year Ended December 31, 2015
The following Management’s Discussion and Analysis (“MD&A”) provides a review of corporate and
market developments, results of operations and the financial position of StorageVault Canada Inc. (“SVI”
or “the Corporation”) for the year ended December 31, 2015. This MD&A should be read in conjunction
with the December 31, 2015 consolidated financial statements and accompanying notes contained therein,
which have been prepared in Canadian dollars and in accordance with Canadian generally accepted
accounting principles. This MD&A is based on information available to Management as of April 27, 2016.
FORWARD LOOKING STATEMENTS
This MD&A and the accompanying Letter to Shareholders contains forward-looking information. All
statements, other than statements of historical fact, included in this MD&A and the accompanying Letter
to Shareholders may be forward-looking information. Generally, forward-looking information may be
identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”,
“proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or
“does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or
phrases which state that certain actions, events or results may, could, would, or might occur or be
achieved. In particular, forward-looking information included in this MD&A and the accompanying
Letter to Shareholders includes statements with respect to: the Corporation’s outlook as to the market for
self storage and portable storage; economic conditions; the availability of credit; the expectation of cash
flows; the Corporation’s strategic objectives, growth strategies, goals and plans; potential sources of
financing including issuing additional common shares as a source financing, generally, and as a source of
financing for potential acquisitions; future expansion of existing SVI Stores; the size of potential future
acquisitions the Corporation may make in 2016; the annualized NOI and annualized FFO assuming
previous acquisitions that occurred in Fiscal 2015 were purchased on January 1, 2015; and the general
outlook for the Corporation. This forward-looking information is contained in “Highlights”, “Nature of
Business”, “Business and General Corporate Strategy”, “Outlook”, “Financial Results Overview” and
“Working Capital, Long Term Debt and Share Capital” and other sections of this MD&A.
Forward-looking information is subject to known and unknown risks, uncertainties and other factors that
may cause the actual results, level of activity, performance or achievements of the Corporation to be
materially different from those expressed or implied by such forward-looking information. Certain of
such risks are discussed in the “Risks and Uncertainties” section of this MD&A.
Although the Corporation has attempted to identify important factors that could cause actual actions,
events or results to differ materially from those described in forward-looking information, there may be
other factors that cause actions, events or results not to be as anticipated, estimated or intended. There
can be no assurance that forward-looking information will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such information. Accordingly, readers
should not place undue reliance on forward-looking information. The factors identified above are not
intended to represent a complete list of the factors that could affect the Corporation.
49
The forward-looking information in this MD&A and the accompanying Letter to Shareholders should not
be relied upon as representing the Corporation’s views as of any date subsequent to the date of this
MD&A. Such forward-looking information is based on a number of assumptions which may prove to be
incorrect, including, but not limited to: the ability of the Corporation to obtain sufficient or necessary
financing, satisfy conditions under previously announced acquisition agreements, or satisfy any
requirements of the TSX Venture Exchange with respect to these acquisitions and any related private
placement; the level of activity in the storage business and the economy generally; consumer interest in
the Corporation’s services and products; competition and SVI’s competitive advantages; trends in the
storage industry, including, increased growth and growth in the portable storage business; the
availability of attractive and financially competitive asset acquisitions in the future; the revenue from
acquisitions conducted in Fiscal 2015 being extrapolated to the entire period for 2015 and being consistent
with, and reproducible as, revenue in future periods; and anticipated and unanticipated costs. A
description of additional assumptions used to develop such forward-looking information and a
description of additional risk factors that may cause actual results to differ materially from forward-
looking information can be found in the Corporation’s disclosure documents on the SEDAR website at
www.sedar.com. The Corporation undertakes no obligation to publicly update or review any forward-
looking information, except in accordance with applicable securities laws. Historical results of operations
and trends that may be inferred from this MD&A may not necessarily indicate future results from
operations.
The amount of potential future acquisitions by the Corporations in fiscal 2016 and revenue and NOI
growth for 2016 may be considered a financial outlook, as defined by applicable securities legislation,
contained in this MD&A and the accompanying Letter to Shareholders. Such information and any other
financial outlooks or future-oriented financial information has been approved by management of the
Corporation as of the date hereof. Such financial outlook or future-oriented financial information is
provided for the purpose of presenting information about management's current expectations and goals
relating to the future business of the Corporation. Readers are cautioned that reliance on such
information may not be appropriate for other purposes.
Additional information relating to StorageVault Canada Inc. can be found at www.sedar.com.
50
TABLE OF CONTENTS
GLOSSARY OF TERMS
HIGHLIGHTS
NATURE OF OUR BUSINESS
BUSINESS AND GENERAL CORPORATE STRATEGY
OUTLOOK
DESCRIPTION OF OUR OPERATIONS
FINANCIAL RESULTS OVERVIEW
WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL
ACQUISITIONS IN FISCAL 2015
52
53
53
55
56
57
59
65
69
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
70
RELATED PARTY TRANSACTIONS
ACQUISITION COMMITTEE AND ACQUISITION COMMITTEE MANDATE
ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
CORPORATE CONTACT INFORMATION
70
72
72
74
77
51 GLOSSARY OF TERMS
The following abbreviated terms are used in the Management Discussion & Analysis and have the
following respective meanings:
“Costco” means Costco Wholesale Canada Ltd.;
“Existing Self Storage” means store that the Corporation has owned or leased since the beginning of the
previous fiscal year;
“Fiscal 2015” means the twelve month period ending December 31, 2015;
“FFO” means net income (loss) excluding gains or losses from the sale of depreciable real estate, plus
depreciation and amortization, stock based compensation expenses, and deferred income taxes; and after
adjustments for equity accounted entities and non-controlling interests.
“IFRS” means international financial reporting standards;
“MD & A” means this management discussion and analysis disclosure document;
“New Self Storage” means store that have not been owned or leased continuously since the beginning of
the previous fiscal year;
“NOI”, means net operating income, calculated as revenue from storage and related services less related
property operating costs;
“Non-IFRS Measures” means operating and performance metrics that are not always calculated with
reference to IFRS, but are used commonly in the storage industry to measure operating results for assets
owned or leased;
“Q1, Q2, Q3 or Q4” means a three month fiscal quarter of the Company, ending on March 31, June 30,
September 30 and December 31 respectively;
“Revenue Management” means the operating principle of achieving optimal revenue through a
combination of rental rate increases on existing customers (increases the existing revenue base and rent
per square foot) and dynamic pricing of available inventory;
“Store” means self storage property or location or facility or site;
“Subsequent Events” means material transactions that have occurred from January 1, 2016 to April 27,
2016.
“SVI” means StorageVault Canada Inc.;
“The Company” or “The Corporation” or “We” or “Our” means StorageVault Canada Inc;
52
HIGHLIGHTS
During the 2015 fiscal year, the Company achieved the following significant milestones:
Assets and Share Capital
Total rentable square feet increased 391% to 1,501,705 square feet
$146.2 million of acquisitions and additions to property and equipment
Increased SVI’s share capital by $59.4 million and shareholder base
Financial Operating Results
Revenue growth of 113% to $11.1 million
NOI growth to $5.8 million from $2.5 million in 2014
Annualizing the results of the assets acquired in 2015 to account for a full year of results would
result in an NOI of $13.6 million
Increased share capital by $5.5 million through share issuance
Subsequent Event
Closed the acquisition of a 66,000 square feet self storage asset in Winnipeg, MB in March 2016
Signed purchase agreement to acquire additional self storage in British Columbia for $8.4 million
Announced the implementation of a Dividend Policy, Dividend Reinvestment Plan and Normal
Course Issuer Bid in April 2016.
NATURE OF OUR BUSINESS
Business Overview
The Corporation was incorporated on May 31, 2007, under the Business Corporations Act of Alberta, and
is domiciled in Canada. The common shares of the Company are publicly traded on the TSX Venture
Exchange, under the symbol ‘SVI’. The Corporation’s primary business is owning, operating and renting
self storage and portable storage space to individual and commercial customers.
SVI acquired nineteen properties in the final eight months of fiscal 2015, bringing our total to twenty nine
locations across Canada for the year ending December 31, 2015. These twenty‐nine stores, operating
under the Access Storage and Storage For Your Life brands, total 1,501,705 million square feet of rentable
storage space comprised of 14,016 rental units. The majority of these acquisitions were in British
Columbia and Ontario, widely considered the top two storage markets in Canada.
Our portable storage business is also across Canada and operate under Cubeit and PUPS brands,. As at
December 31, 2015, we had 3,704 portable storage units in service throughout Canada (480 of these units
are operated under third party licensing agreements in British Columbia and the Maritimes and a
Franchise Agreement in Ottawa).
SVI’s strategic objective is to own and operate self storage and portable storage in the top markets in
Canada. The Corporation will focus on acquiring storage assets with strong existing cash flows, in
strategic markets, preferably with under‐developed land to allow for future development and expansion
of our portable storage business. Financing for this growth is intended to come from a combination of
free cash flow from operations, mortgage financing and the issuance of additional debt or equity
securities.
53
The Storage Landscape
Demand for storage is driven by population growth, change of circumstances and smaller living areas
and work spaces. Business incubation, immigration, death, divorce, downsizing, renovations, moving,
etc. have contributed to the significant growth in demand for storage space in Canada over the past 10
years and statistics show that this trend is expected to continue.
Market Size
The Canadian storage market is estimated to be 60 million square feet across 2,500 stores, with the top 10
operators owning approximately 15% of these stores; by comparison, the US market is estimated at over
2.5 billion square feet across over 52,500 stores. This translates into approximately 7 square feet per capita
in the US versus only 2 square feet per capita in Canada suggesting that Canada is an under-stored
nation.
The market fragmentation of the Canadian storage industry combined with the low square foot per capita
provides significant consolidation, expansion and development opportunities. Our existing platform,
relationships, presence in and knowledge of the storage industry allows us to identify accretive and
strategic purchasing opportunities to take advantage of these opportunities.
Pricing and Occupancy
A store’s rental rates and level of occupancy are dependent upon factors such as population density and
growth (approximately 80% of customers live or work within 8 kms of the store location), the local
economy, pricing, customer service, curb appeal, etc. We believe in managing our inventory (units)
availability through pricing elasticity (if pricing is too low then occupancy is too high and we have no
inventory available to rent, and vice versa). Since our rentals are either weekly or monthly, we are able to
react to market demand very quickly. Our objective is to maximize revenue and NOI, by increasing
achieved rent per square foot first and then through increased occupancy.
Competition
New development in a market impacts the occupancy and the ability to raise rates at existing stores until
the market absorbs the new space. New entrants tend to offer significant move-in specials to achieve
more rapid occupancy gains. Once the space has leased up, these promotions burn off and the focus
switches to maximizing revenue through price increases. This can result in short term fluctuations in
occupancy and revenue per square foot at existing stores.
Seasonality
The storage business is subject to seasonality. There is naturally more activity in the warmer months and
less activity in the colder months. As a result occupancies and revenue per square foot tend to be highest
in Q2 and Q3 and lowest in Q1 and Q4. This trend is consistent with what is experienced in the Northern
US. This seasonality is more significant in the portable storage business as all of our portable units are
non-climate controlled. Also, operating costs tend to be higher during the winter months in Canada due
to heating and snow removal costs resulting in lower NOI margins in Q1 and Q4 versus Q2 and Q3.
54
BUSINESS AND GENERAL CORPORATE STRATEGY
SVI owns and operates storage locations offering both self storage and portable storage for rent on a
weekly or monthly basis, for personal and business use. As of December 31, 2015 we were the fourth
largest storage company in Canada with 29 locations and 1,501,705 rentable square feet.
We are focused on owning and operating locations in the top markets in Canada with a plan to have
multiple stores, where possible, in each market we operate. Our goal is to “own our geography” so we
can take advantage of economies of scale.
Growth Strategies
Our growth strategy is described in the following four segments: acquisitions, organic growth through
improved performance of existing stores, expansion of our existing stores to meet pent up demand and
expansion of our portable storage business.
Acquisitions
In fiscal 2015, SVI acquired $146.2 million of storage assets (19 stores, 10,232 units and 1,117,600 rentable
square feet) and we expect 2016 to be another good year for acquisitions. The combination of our
corporate platform, our industry relationships and our storage experience provide StorageVault with a
unique advantage in the Canadian market place. This advantage allows us to identify accretive and
strategic purchasing opportunities at attractive prices that provide synergies in operations, marketing
and revenue maximization.
We intend to be disciplined purchasers in 2016, with a focus on Canada’s top markets being consistent
with our “own our geography” philosophy. However, as there is more competition to acquire existing
stores, especially from US purchasers, we may not be able to find acquisitions that meet our criteria.
Organic Growth
Scale has become increasingly important in the storage business and the increase in the size of SVI
provides a significant advantage in negotiating better rates on: insurance, software, office supplies, resale
retail products, merchant services, technical support and long distance transport of portable units. These
economies translate into improved margins and better results.
Efficiencies are also gained through cross promotion and marketing of the self storage and portable
storage platforms due to a larger national footprint, offering different but complementary product choices
at various price points to our customers.
The most significant evolution in the storage industry over the last three years has been in the area of
revenue management. Revenue management is the principle of achieving optimal revenue through a
combination of rental rate increases on existing customers (increases the existing revenue base and rent
per square foot) and dynamic pricing of available inventory so we are selling the right product, to the
right customer at the right time, for the right price. With a focus on revenue management, stores are able
to achieve significant top and bottom line growth even when occupancies are stable.
Existing Store Expansion
There is over 500,000 square feet of development potential on the land currently owned and operated by
SVI. When the market conditions are suitable and high occupancies indicate pent up demand, we expect
to expand a number of our existing locations.
55
Expansion of Portable Storage Business
The portable storage business is where the self storage business was 20 years ago and has significant
growth potential. This belief is supported by Canada’s largest pension plan purchase of the world’s
largest portable storage business for one of their long-term funds in February 2015. While margins in the
portable storage business are not as high as they are in the self storage business, they are still very
attractive. With a larger geographic and operating footprint achieved through our growth strategy, we
believe the margins will continue to grow.
Financing Strategy
We anticipate funding the capital requirements of our growth strategy through excess operating cash
flow, utilization of suitable leverage and from the issuance of common shares.
Financing With Secured Debt and Lines of Credit
The Corporation will partially fund the purchase of storage assets by the use of leverage. A number of
factors are considered when evaluating level of debt in our capital structure, as well as the amount of
leverage that will either be fixed or variable rate. In making financing decisions, the factors that we
consider include, but are not limited to interest rate, amortization period, covenants and restrictions,
security requirements, prepayment rights and costs, overall debt level, maturity date in relation to
existing debt, overall percentage of fixed and variable rate debt and expected store performance.
Issuance of Common Shares
The Corporation will, from time to time, issue common shares to the public or to vendors to fund the
purchase of storage assets. In fiscal 2015, SVI issued 26,337,034 common shares through a non-brokered
private placement, raising $17.1 million at a share price of 65 cents before costs of issue. In addition,
89,696,085 common shares were issued to vendors on asset acquisitions. In Q1 of fiscal 2016, SVI closed a
further non-brokered private placement raising $5.5 million at 66 cents bringing the total proceeds raised
since November 1, 2015 to date of this MD & A via private placement to $22.6 million. SVI will consider
further issuances of additional common shares as consideration in the purchase of storage assets in the
upcoming fiscal year if accretive to shareholders. Future issuances will be dependent upon financing
needs, acquisitions and expansion, equity market conditions at the time and transaction pricing.
OUTLOOK
The Corporation’s outlook for acquisitions, share capital, results from operations and subsequent events
are:
Acquisitions
In 2016 we expect to purchase approximately $50 million of acquisitions. However, as there is more
competition to acquire existing stores, especially from US purchasers, we may not be able to find
acquisitions that meet our criteria.
Share Capital
The Corporation will from time to time issue common shares to the public or to vendors to fund the
purchase of storage assets. Future issuances will be dependent upon financing needs, acquisition
opportunities, expansion plans, equity market conditions at the time and transaction pricing.
56
Results from Operations
We expect significant growth in revenue and net operating income in 2016 as we streamline and integrate
operations, increase rates through our revenue management systems and continue to reduce costs on
assets purchased in 2015.
New competitors often try to jump‐start their lease up periods by offering significant move‐in discounts
to new customers. This can result in short term fluctuations occupancy and rent per square foot at
existing stores. The Corporation may provide discounts in select markets to match competitive forces
and retain its customer base. The effect on overall revenues is not expected to be significant, but it may
be enough to slow the rate of growth in revenues experienced in past years.
Subsequent Events
The following subsequent events have occurred or have been announced by the Corporation:
On March 18, 2016, SVI raised $5.5 million at 66 cents non‐brokered private placement
On March 18, 2016 closed the acquisition of a 66,000 square feet self storage asset in Winnipeg
On April 14, 2016 announced entering a purchase agreement to acquire additional self storage
store in British Columbia for $8.4 million
On April 18, 2016 announced the implementation of a Dividend Policy, Dividend Reinvestment
Plan and Normal Course Issuer Bid
DESCRIPTION OF OUR OPERATIONS
As at December 31, 2015, the Corporation had the following self storage and portable storage operations:
Location
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Portable Storage Units
Total
Acres
Number of
Stores
Units
Rentable Square
Feet
18.2
9.4
10.8
4.7
45.2
8
4
2
3
12
4,065
817
342
1,021
4,547
3,224
424,058
86,537
39,217
96,838
500,758
354,297
88.3
29
14,016
1,501,705
Management is focused on increasing value by increasing NOI through the following:
Professional Management
SVI’s stores are managed by Access Results Management Services Inc. (ARMS) who acquired the third
party management contract from Detteson Management Inc. on April 28, 2015. The management team at
ARMS has extensive experience in all aspects of the storage industry including:
management of over 100 storage locations throughout Canada
over 100 years of combined experience in the storage industry by senior management
acquisition and development of over 5 million square feet of storage space
57
Revenue Management
In today’s competitive climate, revenue per square foot is the greatest driver in creating value. Our
management platform has dedicated revenue managers who understand the nuances of each local
market. Their in-depth knowledge of our customer base and competition allows us to implement
strategic rate increases and optimize proven promotions to attract clientele that will be long-term
customers, repeat renters and strong referral sources.
Marketing
We implement specific marketing plans for the different stages and seasons of our business with
emphasis on maximizing return on investment for every dollar spent. Our strategies to attract customers
include strong search engine marketing, user friendly online presence, community connection programs
and development of large national accounts. We conduct specific store and market studies to determine
how, when and where to focus our marketing dollars with the goal of efficiently and consistently
increasing the value of our stores.
Costco Supplier
Our portable storage business is the exclusive supplier of portable storage services to Costco members
across Canada. This relationship provides us access to Costco’s vast membership base as a marketing
channel.
We are currently working with Costco on a pilot program to expand our offering in Canada to provide
self storage services to Costco members nationally.
Storage Solution Centre
The ARMS’s platform has a Storage Solution Centre (call center) that provides call management services
designed to increase reservations and move-ins, increase productivity at the store level and improve
corporate image through professionalism, consistency of messaging and willingness to resolve issues.
Our Storage Solution Centre Experts have worked in the storage business and understand the need to (i)
introduce and greet professionally; (ii) establish rapport with customers; (iii) build trust; (iv) ask the right
questions; (v) listen; (vi) ask for the business and (vii) close the sale. The overall result is an increased
close rate leading to improved financial performance.
Technology and Software
SVI stores utilize modern and updated software, technology and security systems. We work with vendors
and developers, who have knowledge of the storage business, to take advantage of developing trends,
including: (1) exception reports that allow management to monitor key performance and fraud indicators
ensuring that management time is more effectively spent preventing and resolving issues than
identifying them; and (2) web-based software reporting that allows authorized individuals to view
specific store information in real time. The user can choose to see daily rental rates achieved and the
number of customers moving-in or moving-out. This tool allows us to adjust quickly to opportunities and
competitive threats in each marketplace.
Economies of Scale
The size and scope of our management platform, combined with the growing size of our operations
translates into higher gross margins through the centralization of many functions such as revenue
management, property management, employee compensation and benefits programs, as well as the
development and documentation of standardized operating procedures and best practices.
58
FINANCIAL RESULTS OVERVIEW
Fiscal 2015 was a year of significant growth for StorageVault, with the addition 19 stores, at a cost of
$146.2 million in acquisitions, the majority of which, $111.8 million, taking place in the last 4 months of
the year. See “Acquisitions in Fiscal 2015”. When reviewing our results, it is important to consider the
timing of the acquisitions. As a result, we do not believe that the historical results of operations are
comparable or necessarily indicative of future results. See “Annualized Net Operating Income and Funds
from Operations”, a non-IFRS statement, prepared by management that annualizes the operational
results as if the Corporation owned the assets for a full year.
Selected Financial Information
For the Years Ended December 31
Year over Year Change
2015
2014
$
%
Storage revenue and related services
Property operating costs
Net operating income
$
11,140,587
5,302,289
5,838,298
$
5,236,220
2,755,705
2,480,515
Less:
Acquisition and integration costs
Selling, general and administrative
Interest
Stock based compensation
Depreciation and amortization
1,266,635
1,052,121
2,147,355
461,457
5,485,940
10,413,508
-
900,105
1,164,178
103,200
1,544,908
3,712,391
5,904,367
2,546,584
3,357,783
1,266,635
152,016
983,177
358,257
3,941,032
6,701,117
Net Income (Loss)
$
(4,575,210)
$
(1,231,876)
(3,343,334)
112.8%
92.4%
135.4%
N/A
16.9%
84.5%
347.1%
255.1%
180.5%
271.4%
Weighted average number of common shares outstanding
Basic
Diluted
Net income (loss) per common share
Basic
Diluted
$
$
(0.060)
(0.060)
$
$
(0.034)
(0.034)
75,781,610
75,781,610
36,177,629
36,177,629
39,603,981
39,603,981
109.5%
109.5%
Storage revenue and related services
Revenues increased by $5.9 million, or 112.8%, for the year ended December 31, 2015, as compared to the
prior year. This increase is primarily attributable to incremental revenue from the properties acquired in
2015. Included in revenues are revenues from self storage and portable storage operations. See
“Segmented, Existing and New Self Storage and Portable Storage Results.”
Property operating costs
Property operating costs for the year ended December 31, 2015 were $5.3 million (December 31, 2014 -
$2.8 million), an increase of 92.4%. The increase in property operating cost relates to the acquisitions
completed in 2015.
59
Net operating income
For the year ended December 31, 2015, the Corporation had a NOI, a non-IFRS measure, of $5.8 million
(December 31, 2014 - $2.5 million), an increase of 135.4% The increase was primarily due to the storage
assets purchased in fiscal 2015.
Acquisition and integration costs
Acquisition and integration costs include professional fees incurred to identify, qualify, close and
integrate the $146.2 million assets purchased in fiscal 2015.
Selling, general and administrative
Selling, general and administrative expenses include all expenses not related to the stores including
corporate office overheads and payroll, travel and professional fees. These costs have increased as a
result of increased activity associated with the growth of the business and of the Corporation and the
management of additional stores.
Interest
Interest expense increased as the total amount of debt outstanding increase with the 2015 acquisitions.
This increase was moderately offset by a decrease in the average interest rate. At December 31, 2015, our
total debt was $111.6 million compared to $20.5 million at December 31, 2014.
Stock based compensation
The Corporation granted 4,961,000 options in fiscal 2015 to directors, officers, management, employees
and consultants of SVI. The fair value of the resulting non-cash charge was estimated at the date of the
grant using the Black-Scholes Option Pricing Model.
Depreciation and amortization
The increase in depreciation and amortization expense of $3.9 million is primarily due to the assets
acquired in 2015. The majority of acquisitions in 2015 closed in the latter part of 2015 and under our
accounting policies for depreciation and amortization, resulted in a substantially higher expense item
recognized for the year versus the realized amount of revenue received on the acquired assets.
Net Income
The increase in net loss by $3.3 million, year over year is a result of:
i) An increase in depreciation and amortization expense of $3.9 million relating to assets acquired
in 2015. While the majority of acquisitions in 2015 closed in the latter part of 2015, including
acquisitions closing in the last week of December, our accounting policies on depreciation and
amortization resulted in a relatively higher expense item than might be expected for the time the
assets were held;
ii) Acquisition and integration costs of $1.3 million;
iii) An increase in selling, general and administrative expenses due to the increased corporate
activity; and
iv) An increase in stock based compensation
60
Funds from Operations (FFO)
FFO is a non-IFRS measure. It allows management and investors to evaluate the financial results of an
entity without taking into consideration the impact of non-cash items on the Consolidated Statement of
Income (Loss). Net income (loss) assumes that the values of our assets diminish over time as through
depreciation and amortization, irrespective of the value of our real estate assets in the open market.
Other non-cash items accounted for are stock based compensation costs and deferred income tax
expenses (recoveries), if any.
FFO for the year ended December 31, 2015 was $1.4 million versus $416,232 for 2014. This increase is the
result of contribution from the assets purchased in fiscal 2015. The increase was partially offset by
onetime acquisition and integration costs of $1.3 million related to the purchase of the $146.2 million of
assets in 2015.
The FFO for the years ended December 31, 2015 and 2014 is:
Net Income (loss)
Adjustments:
Stock based compensation
Depreciation and amortization
For the Years Ended December 31
2015
2014
$
(4,575,210)
$
(1,231,876)
461,457
5,485,940
5,947,397
103,200
1,544,908
1,648,108
FFO
$
1,372,187
$
416,232
61
Annualized Net Operating Income and Funds from Operations
The Company purchased 19 properties during fiscal 2015 and the revenues and operating expenses from
each acquisition are reflected in the statements from the date of acquisition forward for these properties.
In order to understand a full year of operations with the acquired assets, we have prepared an
Annualized NOI and FFO statement annualizing the revenues and expenses as if the properties were
purchased as of January 1, 2015 and owned for the entire 12 month period.
The results of this annualized statement show that NOI and FFO would be higher by $7.8 and $5.2
million, respectively. NOI would have been $13.6 million and the FFO would be $6.5 million. The
Corporation expects to realize the full impact of all the acquisitions in fiscal 2016.
Actual
Annualized Results
Notes
Storage revenue and related services
$
11,140,587
$
23,105,195
Property operating costs
Net operating income
Less:
Acquisition and integration costs
Selling, general and administrative
Interest
5,302,289
5,838,298
1,266,635
1,052,121
2,147,355
4,466,111
9,473,103
13,632,092
1,266,635
1,052,121
4,790,941
7,109,697
1
1
2
3
4
Funds from Operations
$
1,372,187
$
6,522,395
Note 1 - the results from all stores acquired in fiscal 2015, have been adjusted as if the purchase occurred
on January 1, 2015. For revenues, we assumed achieved occupancies and rent per square foot were
repeated for the period prior to acquisition. Information regarding expenses incurred during 2015 and
prior to acquisition, has been sourced from due diligence materials received during the acquisition
process to determine a full year of operating costs.
Note 2 – these costs are one time in nature and do not change based on acquisition date.
Note 3 – these costs do not change based on the acquisition dates as we incurred the costs in anticipation
of our growth
Note 4 – annualized amount determined based on interest rate and debt outstanding at December 31,
2015.
62
Segmented, Existing and New Self Storage and Portable Storage Results
The Corporation operates two reportable business segments - self storage and portable storage. Self
storage involves the customer renting space at the Corporation’s property for short or long term storage.
Self storage may also include space for storing vehicles and use for small commercial operations.
Portable storage involves delivering a storage unit to the customer. The customer can opt to keep the
portable storage unit at their location or have it moved to another location for further storage.
Revenue, property operating costs and net operating income
Year Ended December 31
Year over Year Change
2015
2014
$
%
Revenue
Existing Self Storage
$
2,787,506
$
2,500,087
New Self Storage
Total Self Storage
Portable Storage
Combined
Property Operating Costs
Existing Self Storage
New Self Storage
Total Self Storage
Portable Storage
Combined
Net Operating Income
Existing Self Storage
New Self Storage
Total Self Storage
Portable Storage
Combined
3,901,998
6,689,504
4,451,083
11,140,587
1,149,202
1,186,765
2,335,967
2,966,322
5,302,289
324,466
2,824,553
2,411,667
5,236,220
1,121,721
177,055
1,298,776
1,456,929
2,755,705
1,638,304
2,715,233
4,353,537
1,378,366
147,411
1,525,777
1,484,761
954,738
$
5,838,298
$
2,480,515
287,419
3,577,532
3,864,951
2,039,416
5,904,367
27,481
1,009,710
1,037,191
1,509,393
2,546,584
259,938
2,567,822
2,827,760
530,023
3,357,783
11.5%
1102.6%
136.8%
84.6%
112.8%
2.4%
570.3%
79.9%
103.6%
92.4%
18.9%
1741.9%
185.3%
55.5%
135.4%
Existing Self Storage
The 11.5% increase in revenue is the result of increased occupancy and rental rates, while the growth in
expenses of only 2.4% was a result of realizing cost savings from economies of scale. The combination of
these factors resulted in an 18.9% increase in NOI ($259,938), year over year.
New Self Storage
The Corporation purchased 19 properties throughout fiscal 2015. The results experienced this year are
impacted by the timing of the acquisitions, the full effect of owning these stores will only be realized in
fiscal 2016.
Portable Storage
The 55.5% increase in NOI is the result of the Corporation acquiring a portable storage business through a
business acquisition on April 28, 2015. The full effect of the portable storage business purchased during
the year will be realized in fiscal 2016.
63
Quarterly net operating income
The Corporation’s quarterly results are affected by the timing of acquisitions. SVI also incurs non-
recurring startup expenses when a new location is opened or acquired. These costs may include labor,
severance, training, travel, advertising or office expenses.
The storage business is subject to seasonality. There is naturally more activity in the warmer months and
less activity in the colder months. As a result occupancies and revenue per square foot tend to be highest
in Q2 and Q3 and lowest in Q1 and Q4. This trend is consistent with that experienced in the Northern
US. This seasonality is more significant in the portable storage business as all portable units are non-
climate controlled. Also, operating costs tend to be higher during the winter months in Canada due to
heating and snow removal costs resulting in lower NOI margins in Q1 and Q4, versus Q2 and Q3.
Year Ended December 31
Fiscal 2015 ($`000) Fiscal 2014
2015
2014
Q4
Q3
Q2 Q1
Q4 Q3 Q2 Q1
Net Operating Income
Existing Self Storage
$
1,638,304
$
1,378,366
New Self Storage
Total Self Storage
2,715,233
147,411
4,353,537
1,525,777
2,399
1,021
Portable Storage
1,484,761
954,738
199
731
$
5,838,298
$
2,480,515
2,598
1,752
522
1,877
408
613
341
225
566
400
966
368
-
368
154
522
332
343
364
340
48
36
32
31
380
379
396
371
207
587
378
757
222
618
148
519
Existing Self Storage
The increase in each fiscal quarter and over the prior year is a result of revenue management and savings
on expenses due to economies of scale.
New Self Storage
The Corporation purchased 19 properties throughout fiscal 2015. The results experienced this year are
skewed by the timing of the acquisitions and the full effect of owning these stores will be realized in fiscal
2016.
Portable Storage
Most of the increase is the result of the Corporation acquiring additional portable storage units through a
business acquisition on April 28, 2015. The full effect of the portable storage business purchased during
the year will be realized in fiscal 2016. The portable storage business is subject to seasonality as all
portable units are non-climate controlled resulting in lower results in Q1 and Q4. In addition, there were
streamlining expenses realized in fiscal 2015 impacting the net operating income for portable storage.
64
Summary of Quarterly Results (unaudited)
Revenue
$4,769,462
$3,146,945
$2,119,586
$1,104,594
$11,140,587
Net Income /
(Loss)
($2,702,281)
($821,330)
($677,127)
($374,472)
($4,575,210)
Net Income
/ (Loss) per
share
($0.026)
($0.012)
($0.012)
($0.010)
($0.060)
Fully diluted
Net Income /
(Loss) per share
($0.026)
($0.012)
($0.012)
($0.010)
($0.060)
Total Long
Term
Total Assets
$171,486,477
$108,865,822
$54,449,748
$27,910,360
N/A
Liabilities Dividends
$107,251,525
$77,070,939
$32,755,226
$18,483,161
N/A
-
-
-
-
-
$1,229,934
$1,483,755
$1,404,725
$1,117,806
$5,236,220
$1,263,287
$1,425,081
$1,258,459
$ 949,332
$4,896,159
($424,349)
($159,355)
($316,946)
($331,226)
($1,231,876)
($120,230)
($109,614)
($287,862)
($271,018)
($788,724)
($0.012)
($0.004)
($0.009)
($0.009)
($0.034)
($0.004)
($0.003)
($0.009)
($0.008)
($0.024)
($0.012)
($0.004)
($0.009)
($0.009)
($0.034)
($0.004)
($0.003)
($0.009)
($0.008)
($0.024)
$28,604,192
$28,445,226
$28,753,424
$26,097,965
N/A
$25,714,728
$25,921,487
$26,116,230
$26,503,400
N/A
$18,879,519
$22,859,246
$22,905,741
$20,567,212
N/A
$20,818,777
$20,803,719
$20,558,286
$20,985,405
N/A
-
-
-
-
-
-
-
-
-
-
Period
2015- Q4
2015- Q3
2015- Q2
2015- Q1
Total 2015
2014- Q4
2014- Q3
2014- Q2
2014- Q1
Total 2014
2013- Q4
2013- Q3
2013- Q2
2013- Q1
Total 2013
WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL
Working Capital
Cash provided by operating activities was $2.2 million for the year ended December 31, 2015 and
$312,675 for the year ended December 31, 2014. The increase was primarily due to results from
operations of assets acquired in fiscal 2015. This increase was partially offset by the incurrence of one-
time acquisition and integration costs charged to net income related to the assets purchased in fiscal 2015.
As at December 31, 2015, the Corporation had $2.4 million of cash and short term deposits compared to
$454,468 at December 31, 2014.
65
Long Term Debt
As at December 31, 2015 and 2014, the Corporation held the following debt:
December 31, 2015
December 31, 2014
Rate
Range
Weighted
Average
Balance
Rate
Range
Weighted
Average
Balance
Term Debt
Variable Rate
-
-
-
Prime plus 1.00%
or BA plus 2.75% 4.00%
Maturity: November 2017
1,896,531
Mortgages
Fixed Rate
3.81% to 5.05%
4.21%
48,269,282
5.00%
5.00%
1,272,496
Maturity: March 2018 to August 2020
Maturity: November 2015
Prime plus 1.00%
Variable Rate or BA plus 2.75% 4.34%
62,999,553
Prime plus 1.00%
or BA plus 2.75% 4.00%
16,244,988
Maturity: October 2017 to November 2020
Maturity: November 2017
Other
Defeasance
Obligation
1.09%
1.09%
1,438,991
1.09%
1.09%
1,557,200
Maturity: August 2016
Maturity: August 2016
Deferred financing costs net of accretion
of $259,813 (December 31, 2014 - $161,125)
Less current portion
(1,088,702)
111,619,124
3,942,906
107,676,218
(436,430)
20,534,785
1,655,266
18,879,519
The increase of $91 million is a direct result of the Corporation placing mortgages on properties acquired
during fiscal 2015. Mortgages are secured by a first mortgage charge on the properties of the
Corporation, general security agreements covering all assets of the Corporation, general assignment of
rents and leases and assignments of insurance coverage over all assets of the Corporation. The
Corporation must maintain certain financial ratios to comply with the facilities. These covenants include a
fixed charge coverage ratio, a tangible net worth ratio and a loan to value ratio. Throughout the year and
as of December 31, 2015, the Corporation is in compliance with all covenants.
The defeasance obligation was created in fiscal year 2012, when the Corporation completed the
defeasance of a mortgage on one of its’ property. The result was a defeasance obligation (liability) of
$1,789,785 at December 31, 2012 being the present value of the remaining payments under the original
mortgage at an effective interest rate of 1.09%. The payments made against this obligation were by the
principal and interest earnings of Short and Long Term Investments of initially $1,764,247 in Government
of Canada Bonds bearing interest rates ranging from 1.75% and 3.50% and maturities ranging from March
2013 to June 2016. Both the defeasance obligation and the Short and Long Term Investments are held
66
within 1712066 Alberta Ltd, an entity whose financial statements are consolidated with those of
StorageVault Canada Inc. The defeasance obligation matures in August 2016 and will be fully funded
with the proceeds of the Short Term Investments of $1,384,253 as at December 31, 2015.
The deferred financing costs are made up of fees and costs incurred to obtain the related mortgage
financing, less accumulated amortization.
Principal repayments on long term debt in each of the next five years are estimated as follows:
2016
2017
2018
2019
2020
$
$
$
$
$
3,942,906
56,430,614
15,808,593
1,135,883
35,389,831
Share Capital
In fiscal 2015, the Corporation issued a total of 131,236,776 common shares for $59,446,088 (fiscal 2014,
3,333,333 common shares valued at $1,000,000 were issued) mainly to fund the acquisitions. The common
shares issued are:
Balance, December 31, 2013
33,355,711
$
6,444,600
Number of Shares
Amount
Issued
Share issuance costs
Balance, December 31, 2014
Issued on asset acquisitions
Conversion of preferred shares
Private placement
Share issuance costs
Balance, December 31, 2015
3,333,333
-
1,000,000
(23,276)
36,689,044
$
7,421,324
89,696,085
15,203,657
26,337,034
-
38,395,282
4,561,097
17,119,072
(629,363)
167,925,820
$
66,867,412
67
Stock Options and Warrants
A total of 8,561,000 options were outstanding as at December 31, 2015 (December 31, 2014 – 3,600,000). Of
the outstanding amount, 8,561,000 options were exercisable (December 31, 2014 – 3,600,000). The details
are as follows:
Exercise Vesting
Price
Date
$0.20
$0.23
$0.33
$0.40
$0.41
$0.50
Nov 5, 2007
May 6, 2009
June 19, 2014
Jan 27, 2015
April 28, 2015
Sept 14, 2015
Expiry
Date
Outstanding
December 31, 2015 December 31, 2014
Outstanding
1,000,000
Nov 5, 2017
2,200,000
May 6, 2019
June 19, 2024
400,000
Jan 27, 2025 60,000
2,901,000
April 28, 2025
2,000,000
Sept 14, 2025
8,561,000
1,000,000
2,200,000
400,000
nil
nil
nil
3,600,000
Warrants outstanding are as follows:
Exercise
Price
Expiry
Date
$0.35
$0.37
Feb 25, 2018
Feb 25, 2018
Outstanding
December 31, 2015
Outstanding
December 31, 2014
249,999
2,833,334
3,083,333
249,999
2,833,334
3,083,333
The Board of Directors of the Corporation may from time to time, at its discretion, and in accordance with
the Exchange requirements, grant to directors, officers, employees and technical consultants of the
Corporation, non-transferable options to purchase common shares.
Preferred Shares
By the rights provided to the investors, the preferred shares were converted at $0.30 for 15,203,657
common shares on October 6, 2015. The preferred shares paid a fixed-rate cumulative dividend of 5% per
year payable as follows: i) 2.5% in cash payable quarterly, in arrears, from each respective drawdown
date, calculated for the immediately preceding period, and; ii) 2.5% in preferred shares, credited
quarterly, in arrears from each respective drawdown date, calculated for the immediately preceding
period.
Number of Shares
Amount
Balance, December 31, 2013
Dividends paid
Balance, December 31, 2014
Dividends paid
Converted to common shares
Balance, December 31, 2015
4,360,175
110,030
4,470,205
90,892
(4,561,097)
$
$
4,360,175
110,030
4,470,205
90,892
(4,561,097)
-
$
-
68
ACQUISITIONS IN FISCAL 2015
During the year, the Corporation completed the below transactions that all met the definition of business
combination under IFRS 3 – Business Combinations. Each acquisition was accounted for using the
acquisition method with the results of the operations being included in the financial statements of the
Corporation since the date of acquisition. The acquisitions are:
Acquisition 1
On April 28, 2015, the Corporation acquired four self storage locations, portable storage units, vehicles
and chattels for $26,475,000 (subjected to customary adjustments). The acquisition was an arm's length
transaction. The purchase price was paid for by the issuance of 30,211,529 Common Shares (valued at
$11,480,381), with the balance satisfied in cash on hand or first mortgage financing.
Acquisition 2
On September 11, 2015 the Corporation completed the acquisition of four self storage locations. The
acquisition was an arm's length transaction. The purchase price was $52,466,000 (subjected to customary
adjustments), of which $10,000,000 was paid by the issuance of 20,000,000 Common Shares (valued at
$10,000,000), with the balance satisfied in cash on hand or first mortgage financing.
Acquisition 3
On October 7, 2015 the Corporation completed the acquisition of three self storage locations for
$27,155,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the issuance of 32,407,635 Common Shares (valued at $12,314,901), with
the balance satisfied by the assumption of a mortgage in the amount of $4,730,964, first mortgage
financing and cash on hand.
Acquisition 4
On December 9, 2015 the Corporation completed the acquisition of three self storage locations for
$7,800,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the issuance of 230,769 Common Shares (valued at $150,000), with the
balance satisfied in cash on hand or first mortgage financing.
Acquisition 5 and 6
On December 16 and 30, 2015 the Corporation completed the acquisitions of four self storage locations for
$24,375,000 (subjected to customary adjustments). The acquisitions were a related party transaction. The
purchase price was paid for by the issuance of 6,846,153 Common Shares (valued at $4,450,000), with the
balance satisfied in cash on hand or first mortgage financing.
Acquisition 7
On December 31, 2015 the Corporation completed the acquisition of one self storage location for
$5,600,000 (subjected to customary adjustments). The acquisition was an arm's length transaction. The
purchase price was paid for by the assumption of a mortgage in the amount of $3,075,000 and the balance
by cash on hand.
69
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Operating Lease Commitments
The Corporation leases lands in Winnipeg, MB and Kamloops, BC on which its buildings are situated.
The lease does not contain any contingent rent clauses. It does not include any provisions for transfer of
title, nor does the Corporation participate in the residual value of the land. Therefore, these leases are
considered operating leases as the risk and reward of ownership of the lands remain with the landlords.
The leases expire between 2027 and 2054, with the lease that is expiring in 2027 having up to 20 years of
renewals at the option of the Corporation after that time.
The future minimum lease payments, excluding incidental costs for which the Corporation is responsible,
are as follows:
Less than one year
Between one and five years
More than five years
$ 149,882
605,167
2,308,009
$ 3,063,058
Contingency
The Corporation has no legal contingency provisions at either December 31, 2015 or December 31, 2014.
Off-Balance Sheet Arrangements
The Corporation is not party to any industry contracts or arrangements other than the contractual
arrangement noted in “Related Party Transactions” below.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2015, the Corporation paid total management fees of $160,414
(December 31, 2014 - $280,927) to Detteson Management Inc. (“Detteson”), a corporation controlled by
Alan A. Simpson and Glenn E. Fradette, who were directors and officers of the Corporation to April 28,
2015. Pursuant to a management agreement, Detteson was entitled to a base management fee of $168,000
per year commencing May 1, 2011, subject to an annual increase of 3% on May 1 of each subsequent year
as well as an annual performance fee of 4% of Net Operating Income if the Corporation attains 85% or
greater of its annual board-approved budgeted Net Operating Income for that fiscal year. The portion of
management fees paid in the year ended December 31, 2015, for performance fee relating to the prior
fiscal year was $99,221 (December 31, 2014 - $99,131). During the year ended December 31, 2015, the
Corporation reimbursed travel and related expenses of $36,625 (December 31, 2014 - $52,724) to Detteson.
These expenses, which were reimbursed at cost, were undertaken exclusively for the benefit of the
Corporation.
On April 28, 2015, this management agreement was acquired by Access Results Management Services
Inc. (“ARMS”). At that time, Alan A. Simpson ceased to be an officer of the Corporation and Glenn E.
Fradette ceased to be an officer and director of the Corporation. Concurrently, Steven Scott and Iqbal
Khan, who control ARMS, became officers and directors of the Corporation. During the year ended
December 31, 2015, the Corporation incurred total management fees of $376,057 (December 31, 2014 -
$nil) to ARMS. Prior to April 28, 2015, operational wages were paid directly by the Corporation. After,
the operational wages were paid by ARMS and reimbursed by the Corporation at cost. During the year
ended December 31, 2015, the Corporation reimbursed operational wages of $1,840,941 and travel and
70
related expenses of $59,819 (December 31, 2014 - $nil and $nil, respectively) to ARMS. These expenses
were undertaken exclusively for the benefit of the Corporation.
During the year ended December 31, 2015, the Corporation paid loan guarantee fees of $8,712 (December
31, 2014 - $8,712) to Alan A. Simpson and loan guarantee fees of $8,712 (December 31, 2014 - $8,712) to
Glenn E. Fradette, both of whom were directors and officers of the Corporation. As a condition of the
assumption of a mortgage, both Alan A. Simpson and Glenn E. Fradette were required to provide
personal guarantees for the entire outstanding principal balance of the mortgage. The loan guarantee
fees are compensation for the provision of these guarantees and are paid on a monthly basis at the annual
rate of 0.5% of the original mortgage principal, per person.
During the year ended December 31, 2015, the Corporation purchased $24,375,000 of self storage assets
from Corporations affiliated with directors and officers of the Corporation. See Acquisition in Fiscal
2015, Acquisition 5 & 6 for further information on this transaction. See Governance section for the
Corporation’s Acquisition Committee and Acquisition Committee Mandate for related party asset
transactions.
The Corporation holds a Master Franchise from Canadian PUPS Franchises Inc. (CPFI) which provides
the Corporation with the exclusive Canadian franchise rights for the development and operation of
portable storage throughout Canada. CPFI is a corporation related to Steven Scott and Iqbal Khan, who
are directors and officers of the Corporation. The Corporation pays a monthly royalty of 3.5% on the
gross sales. During the year ended December 31, 2015, the Corporation paid $145,664 (December 31, 2014
- $105,071) for royalties and $1,472,143 (December 31, 2014 - $1,914,016) for storage units and other
equipment under the Master Franchise Agreement.
Included in accounts payable and accrued liabilities, relating to the previously noted transactions, at
December 31, 2015 was $44,502 (December 31, 2014 - $61,262) payable to CPFI; $nil (December 31, 2014 -
$3,299) payable to Detteson; and $365,483 (December 31, 2014 - $nil) payable to ARMS.
Key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the Corporation, directly and indirectly, and include directors. The
remuneration of key management personnel for employment services rendered are as follows:
Wages, salaries, management fees, bonuses, directors
fees and benefits
Stock based compensation
Year ended
December 31, 2015
Year ended
December 31, 2014
$ 628,834
___406,292
$ 1,035,126
$ 305,980
___103,200
$ 409,180
71
ACQUISITION COMMITTEE AND ACQUISITION COMMITTEE MANDATE
The Corporation may, from time to time, purchase assets from parties related to the Corporation, and in
particular, assets or shares owned or controlled by management of the Corporation or Access Self Storage
Inc. (Access) or any of its subsidiaries or affiliates. To govern such potential related party transactions the
Corporation has established an Acquisition Committee and an Acquisition Committee Mandate.
As at December 31, 2015, the Acquisition Committee is comprised of eight voting members, six members
being independently appointed and independent of management and two of which are appointed by
Access. Acquisition Committee members who are deemed to be in a conflict of interest position with
respect to related party transactions are required to abstain from voting on such related party
transactions.
The mandate of the Corporation’s Acquisition Committee is to review, evaluate, and approve the terms of
all acquisition transactions proposed in the context of the current strategic direction of the Corporation. In
particular, and with respect to all related party transactions, the Acquisition Committee has the authority
to appoint appraisers, environmental consultants, and professional advisors to evaluate and report to the
Acquisition Committee on the suitability of such transactions. Thereafter, the Acquisition Committee
provides its recommendation as to whether the Board of Directors should approve an acquisition.
The Board of Directors of the Corporation must accept the recommendations that the Acquisition
Committee may make with respect to any related party transaction, and in particular, an acquisition that
includes the acquisition of assets or shares of Access or any of its subsidiaries or affiliates.
ACCOUNTING POLICIES
The Corporation’s significant accounting policies are summarized in Note 3 to the consolidated annual
financial statements. There has been no change in significant accounting policies from the Corporation’s
audited consolidated annual financial statements from December 31, 2014. In addition, there has been no
change in the Company’s financial instrument risks.
Non-IFRS Financial Measures
Management uses both IFRS and Non-IFRS Measures to assess the operating performance of the
Company’s operations. In this MD&A, management uses the following terms and ratios which do not
have a standardized meaning under IFRS and are unlikely to be comparable to similar measures
presented by other companies:
i. Net Operating Income (“NOI”) – NOI is defined as storage and related services less related
property operating costs. NOI does not include interest expense or income, depreciation and
amortization, corporate administrative costs, stock based compensation costs or taxes. NOI
assists management in assessing profitability and valuation from principal business activities.
ii.
Funds from Operations (“FFO”) – FFO is defined as net income (loss) excluding gains or losses
from the sale of depreciable real estate, plus depreciation and amortization, stock based
compensation expenses, and deferred income taxes; and after adjustments for equity accounted
entities and non-controlling interests. FFO should not be viewed as an alternative to cash from
operating activities, net income, or other measures calculated in accordance with IFRS. The
Corporation believes that FFO can be a beneficial measure, when combined with primary IFRS
72
measures, to assist in the evaluation of the Corporation’s ability to generate cash and evaluate its
return on investments as it excludes the effects of real estate amortization and gains and losses
from the sale of real estate, all of which are based on historical cost accounting and which may be
of limited significance in evaluating current performance.
iii.
Existing Self Storage and New Self Storage performance – “Existing Self Storage” are defined as
those that the Corporation has owned or leased for the entirety of the 2015 and 2014 fiscal years.
“New Self Storage” are those that have not been owned or leased continuously since the
beginning of the previous fiscal year. We believe the use of this metric combined with primary
IFRS measures is beneficial in understanding the full operating performance of our operations
during a growth period. Comparative figures for the New Self Storage and Existing Self Storage
categories may differ from amounts reported in previous MD&A reports.
Recent and Future Accounting Pronouncements
The Corporation adopted amendments to IFRS 8 and IAS 24 on January 1, 2015. There was no material
impact to the Corporation’s consolidated annual financial statements as a result of the adoption of those
standards.
Future Accounting Pronouncements
The Corporation has reviewed new and revised accounting pronouncements that have been issued but
are not yet effective and determined that the following may have an impact on the Corporation:
IFRS 15, "Revenue from contracts with customers"
On May 28, 2014 the IASB issued IFRS 15, "Revenue from contracts with customers". IFRS 15 will replace
existing standards and interpretations on revenue recognition. The standard is effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. The standard outlines a
single comprehensive model for entities for revenue recognition arising from contracts with customers.
The Corporation has not yet considered the impact of IFRS 15 on its consolidated financial statements.
IFRS 9, "Financial instruments"
On November 12, 2009, the IASB issued IFRS 9, "Financial instruments" ("IFRS 9"), which will replace IAS
39 "Financial Instruments: Recognition and Measurement" ("IAS 39"). The standard is effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 9 applies to
classification and measurement of financial assets as defined in IAS 39. It uses a single approach to
determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple
classification options in IAS 39. The Corporation has not yet considered the impact of IFRS 9 on its
consolidated financial statements.
IFRS 16, "Leases"
On January 13, 2016, the IASB published a new standard, IFRS 16, "Leases". The new standard brings
most leases on-balance sheet for lessees under a single model, eliminating the distinction between
operating and finance leases. The standard is effective for annual periods beginning on or after January 1,
2019, with early application permitted but only if the entity is also applying IFRS 15, "Revenue from
contracts with customers". Under the new standard, a lessee recognizes a right-of-use asset and a lease
liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated
accordingly. The liability accrues interest. The Corporation has not yet considered the impact of IFRS 16
on its consolidated financial statements.
73
Disclosure Controls and Procedures
Pursuant to National Instrument 52-109, which requires certification of disclosure in an issuer’s annual
and interim filings, the Chief Executive Officer and the Chief Financial Officer have evaluated the
effectiveness of the Corporation’s internal disclosure controls and procedures for the year ended
December 31, 2015, including the design of internal controls over financial reporting, to provide
reasonable assurance regarding the reliability of financial reporting in accordance with IFRS. These
officers have concluded that the Corporation’s disclosure controls and procedures are designed
effectively to ensure that information required to be disclosed in reports that are filed or submitted under
Canadian securities legislation are recorded, processed and reported within the time specified in those
rules.
There have been no changes in the Corporation’s internal controls over financial reporting that have
materially affected or are reasonably likely to affect the Coproration’s internal controls over financial
reporting for the year ending December 31, 2015.
RISKS AND UNCERTAINTIES
As our primary business consists of owning and operating storage real estate, we are exposed to risks
related to such ownership and operations that can adversely impact our business and financial position.
The following is a brief review of some of the potential risks and the potential impacts these risks and
uncertainties may have on the operations of the Corporation:
Real Estate Industry
Real estate investments are subject to varying degrees of risk depending on the nature of each property.
Such investments are affected by general economic conditions, local real estate markets, supply and
demand for rental space, competition from others with similar developments, the perceived
“attractiveness” of a given property and various other factors.
Liquidity Risk
Liquidity risk is the risk that the Corporation will be unable to meet its financial obligations as they fall
due. The Corporation manages liquidity risk through cash flow forecasting and regular monitoring of
cash requirements including anticipated investing and financing activities. Typically the Corporation
ensures that it has sufficient cash or liquid investments available to meet expected operating expenses for
a period of 30 days, excluding the potential impact of extreme circumstances that cannot reasonably be
predicted, such as natural disasters. For the foreseeable future, the Corporation anticipates that cash
flows from operations, working capital, and other sources of financing will be sufficient to meet its
operating requirements, debt repayment obligations and will provide sufficient funding for anticipated
capital expenditures.
Refinancing Risk
There is no certainty that financing will be available upon the maturity of any existing mortgage at terms
that are as favorable as the expiring mortgage, or at all. If the Corporation is unable to refinance an
existing indebtedness on favorable terms, the Corporation may need to dispose of one or more properties
on disadvantageous terms. Prevailing interest rates, limited availability of credit or other factors at the
time of refinancing could increase interest expense and ultimately decrease the return to investors.
74
Economic Conditions
Even though storage is less susceptible to changes in the local economy, as storage space is often needed
during times of both growth and recession, downturns in a local economy could negatively affect our
revenues and NOI. A significant portion of storage customers use storage during periods of moving from
one residence to another or when a residence is being renovated. In times of economic downturn, the
level of activity in housing sales and housing renovation could decrease, thereby decreasing storage
rental demand.
Environmental Risk
Environmental risk is inherent in the ownership of property. Various municipal, provincial and federal
regulations can result in penalties or potential liability for remediation, to the extent that hazardous
materials enter the environment. The presence of hazardous substances could also impair the
Corporation’s ability to finance or sell the property, and might expose the Corporation to civil law suits.
To mitigate such risk, the Corporation procures recent or updated environmental reports for all
acquisitions to ascertain the risk, if any, that exist at a property. It also prohibits the storage of hazardous
substances as a condition of the rental contract signed by customers.
Credit Risk
Credit risk arises from the possibility that customers may experience financial difficulty and be unable to
fulfill their financial obligations to the Corporation. The risk of incurring bad debts often arises if storage
customers relocate and cannot be found to enforce payment, or if storage customers abandon their
possessions. The extent of bad debts can be mitigated by quickly following up on any unpaid amounts
shortly after the due date, enforcing late fees, denying access to any customers with delinquent accounts,
and ultimately seizing the possessions of the customer. Additionally the Corporation typically rents to
numerous customers, each of which constitutes significantly less than 5% of the Corporation’s monthly
revenue. This diversification in the customer base reduces credit risk from any given customer.
Other Self Storage Operators or Storage Alternatives
The Corporation competes with other individuals, corporations and institutions which currently own, or
are anticipating owning a similar property in a given region. Competitive forces could have a negative
effect on occupancy levels, rental rates or operating costs such as marketing.
Acquisition of Future Locations
Competition also exists when the Corporation attempts to grow through acquisitions of storage locations.
An increase in the availability of investment funds in the general market, and a subsequent increase in
demand for storage locations would have a tendency to increase the price for future acquisitions of
storage locations and reduce the yields thereon.
Anticipated Results from New Acquisitions
The realization of anticipated results and value from acquisitions can be jeopardized from unexpected
circumstances in integrating new stores into our existing operations, from situations we did not detect
during our due diligence or from increased property tax following reassessment of newly acquired
locations.
Increase in Operating Costs
Our operating margins can be negatively impacted from increases in operating costs such as property tax,
staffing costs, insurance premiums, repairs and maintenances costs, utility costs and others due to
various factors such as the need for governments to raise funds, natural disasters, commodity and energy
prices.
75
Climate and Natural Disasters
The storage industry in Canada can be cyclical. Due to the climate, demand for storage is generally
weaker in winter months with an increase in operating costs resulting in potentially lower NOI during
Q1 and Q4.
Natural disasters, such as floods, earthquakes or severe winter storms may result in damage and business
interruption losses that are greater than the aggregate limits of our insurance coverage. We maintain a
comprehensive insurance policy to cover such events, however some insurance coverage may be or
become unavailable or cost prohibitive.
Litigation
Legal claims may arise from the ordinary course of our business. Resolution of these claims would divert
resources from the Corporation such cash to pay expenses and damages and the diversion of
management’s time and attention from the Corporation’s business. The impact and results from
litigation cannot be predicted with certainty and can have a material adverse effect on the business.
Use and Dependency on Information Technology Systems
Our business is heavily dependent on the use of information technology, with the majority of our new
customers communicating and transacting with us electronically or over the phone. Commerce over the
internet and the nature of our business requires us to retain private information about our customers.
Significant aspects of these systems are centrally managed, such as our financial information and some
are managed by third party vendors. These systems may be subject to telecommunication failures,
cyber-attack, computer worms and viruses and other disruptive security breaches. All of which could
materially impact our operations, resulting in additional costs and or in legal action either by
governments agencies or private individuals.
76
StorageVault Canada Inc.
OFFICERS
Steven Scott
Chief Executive Officer
Iqbal Khan
Chief Financial Officer
DIRECTORS
Steven Scott
Toronto, ON
Iqbal Khan
Toronto, ON
Rob Duguid
Regina, SK
Alan Simpson
Regina, SK
Blair Tamblyn
Toronto, ON
LEGAL COUNSEL
AUDITORS
DLA Piper (Canada LLP)
Livingston Place
1000 – 250 2nd St S.W.
Calgary, AB T2P 0C1
Telephone 403-296-4470
Facsimile 403-296-4474
MNP LLP
Royal Bank Building
Suite 900, 2010 – 11th Avenue
Regina, SK S4P 0J3
Telephone 306-790-7900
Facsimile 306-790-7990
HEAD OFFICE
REGISTRAR & TRANSFER AGENT
StorageVault Canada Inc.
6050 Diefenbaker Avenue
P.O Box 32062
Regina, SK S4N 7L2
Telephone 1-877-622-0205
Email: ir@storagevaultcanada.com
TSX VENTURE EXCHANGE LISTING
SVI
TMX Equity Transfer Services
300-5th Avenue S.W., 10th Floor
Calgary, AB T2P 3C4
Telephone 403-218-2800
Facsimile 403-265-0232
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