StorageVault Canada Inc.
Annual Report 2017

Plain-text annual report

2017 ANNUAL REPORT TABLE of Contents Financial Highlights Letter to the Shareholders Our Stores Board of Directors Financial Statements Management Discussion and Analysis 3 4 6 7 8 53 Corporate Information Phone: 1-877-622-0205 Web site: storagevaultcanada.com Email: ir@storagevaultcanada.com Address: 100 Canadian Road, Toronto, Ontario, M1R 4Z5 2 Annual reportFINANCIAL Highlights ASSET OVERVIEW - GROWTH 10 STORES Q4/2014 14 STORES* 29 STORES 49 STORES 90 STORES Q2/2015 *New Management Q4/2015 Q4/2016 Q4/2017 REVENUE NOI AFFO 122% 138% 129% 83% SHARE PRICE INCREASE YOY 3.0 2.0 1.0 $0 2015 2016 2017 2018 STORAGEVAULT WAS RECOGNIZED AS A TSX VENTURE 50TM COMPANY IN 2018 FOR 2ND YEAR TSX Venture 50 is a trademark of TSX Inc. and is used under license. 3 Annual reportWE GREW TO OVER 5.0 MILLION SQFT OF RENTABLE SPACE IN 46,000 STORAGE UNITS $485M IN ACQUISITIONS DURING 2017 LETTER to our Shareholders Dear Fellow Shareholders, We achieved a number of important milestones in 2017. Even though the market for acquisitions has tightened, we Revenues exceeded $60 million, net operating income were able to acquire $485 million of assets (42 stores) in increased to over $40 million and AFFO grew to $21 million, all 2017, widely eclipsing our projection of $50 to $90 million more than double 2016 results. Net operating income grew in acquisitions. We now own 90 stores and manage an by over $23 million, with same store net operating income additional 58 stores, for a total of 148 stores across Canada, growing by 10.1%, which was well in excess of our 2017 target more than double the size of the country’s next largest of 4 to 6 % growth. competitor. 4 Annual reportWhile we are pleased with our 2017 share price performance, us to acquire assets at good value and realize upside through an increase of 83%, our focus remains on increasing free cash our operating platform. We expect to continue to take flow and long term wealth creation. We are also proud to advantage of these opportunities as they present themselves be recognized as one of the Top 50 performers on the TSX going forward. Venture Exchange for the second year in a row. Over the past 3 year years, we have exceeded our 10 year putting us in position to achieve our goal of $70 to $90 plan. This has been achieved through a combination of over million in acquisitions in 2018. Operationally, we are off to a 10% annual organic growth and closing over $800 million of solid start, building on last year’s successes. We have acquired $20 million in assets already in 2018, accretive acquisitions. We have built a best in class portfolio and platform with an with a continued focus on increasing cash flows on a per enterprise value well in excess of $1 billion. share basis and creating sustainable long term growth. We are committed to being the leader in storage in Canada We continue to find opportunities despite a competitive Sincerely, market due to our advantages of size, industry relationships and our operating platform. These advantages have allowed Steven Scott Chief Executive Officer$___MILLION REVENUE GROWTH OF 122% TO $61.9 MILLION FROM $27.8 MILLION NOI GROWTH OF 138% TO $40.6 MILLION FROM $17.0 MILLION ACQUIRED 24 STORES WITH SENTINEL PORTFOLIO ACQUISITION EXPECTING $70 TO $90 MILLION IN ACQUISITIONS FOR 2018 50,000 SQFT OF EXISTING STORE EXPANSION EXPECTED TO COME ONLINE IN 2018 5 Annual report148 STORES (OWNED AND MANAGED) 17 30 8 7 55 27 4 OUR BRANDS 6 Annual reportOur Board Members MEET OUR BOARD MEMBERS STEVEN SCOTT Director CEO Mr. Simpson is a co-founder and former president and CEO of StorageVault Canada, and currently serves as Executive Vice Chairman of the Board. He was vital in transitioning StorageVault to a publically traded company on the TSX Venture Exchange. IQBAL KHAN Director CFO Chairman and CEO of the Corporation, Mr. Scott has been a Principal and Chief Executive Officer of The Access Group of Companies focusing on the ownership, acquisition, development and management of self storage The CFO of the Corporation, Mr. Khan, has been a Principal and Chief Financial Officer of The Access Group of Companies focusing on the ownership, acquisition, development and management of self storage and other real estate assets. ALAN SIMPSON Director Partner in PFM Capital entities; Mr. Duguid holds the positions of Vice President, Investments and Chief Financial Officer for the general partner of Prairie Ventures Fund Limited Partnership. ROB DUGUID Director BLAIR TAMBLYN Director Managing Director, CEO and Co-Founder of Timbercreek Asset Management. Chairman of the Board for Timbercreek Mortgage Investment Corporation and Timbercreek Senior Mortgage Investment Corporation. We are committed to being the leader in storage in Canada with a continued focus on increasing cash flows on a per share basis and creating sustainable long term growth. 7 Annual reportStorageVault Canada Inc. Consolidated Financial Statements For the Years ended December 31, 2017 and 2016 8 Annual report 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. March 31, 2018 “signed” Steven Scott Chief Executive Officer “signed” Iqbal Khan _ Chief Financial Officer 9 Annual report 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 statement of financial position as at December 31, 2017 and December 31, 2016, and the consolidated statements of income (loss) and comprehensive income (loss) and cash flows for the years then ended, and 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 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 financial position of StorageVault Canada Inc. as at December 31, 2017, December 31, 2016 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Calgary, Alberta March 31, 2018 Chartered Professional Accountants 10 Annual reportStorageVault Canada Inc. Consolidated Statements of Financial Position As at December 31 Assets Real estate and equipment, net (Note 5) Goodwill and intangible assets, net (Note 6) Cash and short term deposits Investment in Joint Venture (Note 14) Prepaid expenses and other current assets Accounts receivable Liabilities and Shareholdersʹ Equity Long term debt (Note 7) Lines of credit (Note 7) Deferred tax liability (Note 10) Accounts payable and accrued liabilities Unearned revenue Shareholdersʹ Equity Share capital (Note 8) Dividends paid (Note 8) Contributed surplus (Note 8) Deficit Commitments and Contingencies (Note 15) Subsequent Events (Note 16) 2017 2016 $     780,024,751 72,060,892 16,152,428 14,635,305 8,710,680 3,912,325 $      325,491,723 3,425,090 11,869,892 ‐ 662,080 1,354,796 $     895,496,381 $      342,803,581 $     230,945,255 332,153,083 49,156,628 10,784,409 4,381,889 627,421,264 $      164,023,513 18,483,081 ‐ 3,406,008 1,202,785 187,115,387 319,571,781 (5,070,304) 3,540,210 (49,966,570) 268,075,117 185,768,388 (1,795,638) 2,243,239 (30,527,795) 155,688,194 $     895,496,381 $      342,803,581 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. 11 Annual report                                                                                                                                                                                                                                                                                2017 2016 $     185,768,388 134,303,177 (499,784) 319,571,781 $        66,867,412 118,973,026 (72,050) 185,768,388 $         2,243,239 (237,315) 1,534,286 3,540,210 $          1,034,865 ‐ 1,208,374 2,243,239 $      (30,527,795) (5,586,143) (13,852,632) (49,966,570) $        (9,338,359) ‐ (21,189,436) (30,527,795) $         $         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 (Note 8) Common shares repurchased (Note 8) Balance, end of the period Contributed Surplus Balance, beginning of the period Retirement of stock options and warrants (Note 8) Stock based compensation (Note 8) Balance, end of the period Deficit Balance, beginning of the period Retirement of stock options and warrants Net income (loss) and Comprehensive income (loss) Balance, end of the period The accompanying notes are an integral part of these consolidated financial statements. 12 Annual report                                                                                                                                                  StorageVault Canada Inc. Consolidated Statements of Income (Loss) & Comprehensive Income (Loss) For the Years Ended December 31 Revenue Storage and related services Management fees Expenses Operating costs Acquisition and integration costs Selling, general and administrative Stock based compensation (Note 8) Share of loss in joint venture (Note 14) Depreciation, amortization and goodwill Interest  2017 2016 $       60,671,031 1,217,483 61,888,514 $        27,824,544 ‐ 27,824,544 21,294,478 5,373,955 4,038,559 1,534,286 157,278 38,608,471 15,639,157 86,646,184 10,800,018 1,928,429 2,240,692 1,208,374 ‐ 27,328,122 5,508,345 49,013,980 Net income (loss) and Comprehensive income (loss) before tax Deferred tax recovery (Note 10) $      (24,757,670)         10,905,038 $      (21,189,436) ‐ Net income (loss) and Comprehensive income (loss) after tax $      (13,852,632) $      (21,189,436) Net income (loss) per common share Basic Diluted Weighted average number of common shares outstanding Basic Diluted $               $               (0.044) (0.044) $               $               (0.104) (0.104) 317,487,007 317,487,007 204,660,864 204,660,864 The accompanying notes are an integral part of these consolidated financial statements. 13 Annual report                                                                                                                                                                                                                             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) and comprehensive income (loss) after tax Adjustment for non‐cash items: Deferred tax recovery (Notes 10) Depreciation, amortization and goodwill adjustment (Notes 5, 6) Amortization of deferred financing costs Amortization of bond premiums Stock based compensation (Note 8) Gain on disposal of real estate and equipment 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 8) Repurchase of common shares (Note 8) Dividends paid Advances from long term debt and lines of credit Repayment of long term debt and lines of credit Cancellation of share options and warrants Investing activities Cash paid in business combinations (Note 4) Additions to real estate and equipment (Note 5, 6) Non‐operating accounts receivable Proceeds on disposal of real estate and equipment Increase in cash and short term deposits Cash and short term deposits balance, beginning of period 2017 2016 $      (13,852,632) $      (21,189,436) (10,905,038) 38,608,471 740,866 ‐ 1,534,286 (147,910) 15,978,043 (1,664,429) (6,871,244) 3,066,967 91,461 10,600,798 ‐ 27,328,122 376,164 5,253 1,208,374 (221,675) 7,506,802 (113,330) (391,490) 1,699,526 881,901 9,583,409 83,471,772 (499,785) (2,394,337) 483,553,119 (103,702,241) (5,823,458) 454,605,070 59,841,873 (72,050) (743,342) 81,454,290 (10,736,723) 1,373,074 131,117,122 (457,532,033) (5,185,319) ‐ 1,794,020 (460,923,332) (127,903,000) (2,952,792) (675,712) 319,475 (131,212,029) 4,282,536 9,488,502 11,869,892 2,381,390 Cash and short term deposits balance, end of period $               16,152,428 $               11,869,892 The accompanying notes are an integral part of these consolidated financial statements. 14 Annual report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  1. Description of Business The consolidated financial statements of StorageVault Canada Inc. and its subsidiary (the “Corporation”) as  at  December  31,  2017  were  authorized  for  issuance  by  the  Board  of  Directors  of  the  Corporation  on March 31, 2018.  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  leasing  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”) effective as at January 1, 2017. 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., its wholly owned subsidiary,  Sentinel  Self‐Storage  Corporation,  and  the  consolidated  entity  1712066  Alberta Ltd.(“1712066”), all of which are headquartered in Toronto, ON. The financial statements for the consolidated entities  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  results 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. The entity was dissolved on January 19, 2017. 15 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  Interest in Joint Venture  The  Corporation  has  an  interest  in  a  joint  venture,  through  its  wholly  owned  subsidiary  Sentinel  Self‐ Storage Corporation, Spyhill Ltd. (“JV”), which is a jointly controlled entity. The Corporation recognizes  its interest in the JV using the equity method of accounting.  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.  A  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. Upon acquisition, the  assets (including intangible assets), liabilities and contingent liabilities acquired 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  and  integration  costs  are  recognized in profit or loss as incurred.  Goodwill  represents  the  excess  of  the  identifiable  cost  of  an  acquisition  over  the  fair  value  of  the  Corporationʹs share of the net assets/net liabilities acquired at the date of acquisition.  If the identifiable  cost  of  acquisition  is  less  than  the  fair  value  of  the  Corporationʹs  share  of  the  net  assets/net  liabilities  acquired  (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.   16 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  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  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:  ‐ Real  estate  and  equipment  –  The  Corporation  determines  the  carrying  value  of  its  real  estate  and  equipment  based  on  policies  that  incorporate  estimates,  assumptions  and  judgments  relative  to  the  useful lives and residual values of the assets.    Impairment of  non‐financial  assets ‐  Impairment  exists  when  the  carrying  value  of  an asset  or  cash  generating  unit  exceeds  its  recoverable  amount,  which  is  the  higher  of  its  fair  value  less  costs  of  disposal  and  its  value  in  use.  The  fair  value  less  costs  of  disposal  calculation  is  based  on  available  data  from  binding  sales  transactions  in  an  arm’s  length  transaction  of  similar  assets  or  observable  market prices less incremental costs for disposing of the asset. The value in use calculation is based  on  a  discounted  cash  flow  model.  The  estimated  future  cash  flows  are  derived  from  management  estimates, budgets and past performance and do not include activities that the Corporation is not yet  committed to or significant future investments that will enhance the asset’s performance of the cash  generating  unit  being  tested.  The  recoverable  amount  is  sensitive  to  the  discount  rate  used  for  the  discounted cash flow model as well as the expected future cash flows and the growth rate used for  extrapolation purposes.  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.   ‐ ‐ ‐ 17 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  ‐ ‐ 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.   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.    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.  Such  determination  may  affect  the  recorded  amounts of specific assets and liabilities, goodwill and/or transaction costs.   The Corporation applies judgment in determining control over the JV where the Corporation holds  50% equity ownership. The judgment is based on a review of all contractual agreements to determine  if the Corporation has control over the activities, projects, financial and operating policies of the JV.  Through a shareholder agreement, the Corporation is guaranteed 50% of seats on the board of the JV  and participates in all significant financial and operating decisions. Joint control is established by the  shareholder  arrangement  that  requires  unanimous  agreement  on  decisions  made  on  relevant  activities.  ‐ Management  has  applied  judgment  in  assessing  that  the  management  contracts  acquired  have  an  indefinite useful life because the Corporation purchased a complete system to operationally manage  its own business and that of other self storage businesses. The Corporation has acquired substantial  know  how  and  expertise  in  managing  stores  owned  by  third  parties,  including  long  term  relationships,  which  the  Corporation  will  have  the  benefit  of  for  an  indefinite  period  of  time.  The  management contracts have therefore been deemed to have an indefinite useful life.   Cash and Short Term Deposits  Cash  and  short  term  deposits  on  these  Consolidated  Statements  of  Financial  Position  are  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 these 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.  Real Estate and Equipment  Real  Estate  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   18 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  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  real  estate  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%  The  residual  value  and  useful  lives  of  real  estate  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 Intangible Assets  Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable assets  and liabilities acquired at the date of acquisition. Goodwill is carried at cost less accumulated impairment  losses.   Infinite  life  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 – 22 to 48 months; Website Development Costs – 12 months.    19 Annual report    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  Indefinite  life  intangible  assets,  consisting  of  management  contracts,  are  carried  at  cost  and  are  not  amortized.  Goodwill  and  indefinite  life  intangibles  are  reviewed  for  impairment  annually  by  assessing  the  recoverable  amount  of  each  CGU  to  which  it  relates,  where  applicable.  The  recoverable  amount  is  the  higher of fair value less costs of disposal, 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.  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 real estate 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.   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  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.  20 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  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, officers 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  Consolidated  Statement  of  Income  (Loss)  and  Comprehensive  Income  (Loss)  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 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.  21 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  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 and or CFO 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.  22 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  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. Subsequent to initial recognition loans  and 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  the  consolidated statement of income (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. Subsequent to initial recognition they are measured at  amortized cost using the effective interest method, less any impairment losses.    The Corporation currently has no assets which are designated as held‐to‐maturity.  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.  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,  lines  of  credit, and long term debt.  23 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 3 – Continued  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, ʺRevenue from contracts with customersʺ  On May 28, 2014 the IASB issued IFRS 15, ʺRevenue from contracts with customersʺ. 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 completed its assessment of the impact of IFRS 15. The assessment indicates that the  revenue recognition for the Corporation will remain unchanged.  IFRS 9, ʺFinancial instrumentsʺ  On November 12, 2009, the IASB issued IFRS 9, ʺFinancial instrumentsʺ (ʺIFRS 9ʺ), which will replace IAS  39 ʺFinancial Instruments: Recognition and Measurementʺ (ʺIAS 39ʺ). 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 completed its assessment of the impact of IFRS 9 on  its financial statements and is not expecting any reclassifications to occur during the transition to IFRS 9,  or  thereafter.  The  Corporation  will  assess  on  a  case  by  case  basis,  as  needed,  in  the  future.  The  corporation will adopt this standard as of January 1, 2018.  IFRS 16, ʺLeasesʺ  On  January  13,  2016,  the  IASB  published  a  new  standard,  IFRS  16,  ʺLeasesʺ.  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,  ʺRevenue  from  contracts  with  customersʺ.  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 is still evaluating the impact the adoption of  this  standard  will  have  on  its  consolidated  financial  statements.  The  Corporation  expects  to  apply  the  standard with its mandatory effective date.  24 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  4. Acquisitions During the year ended December 31, 2017, the Corporation completed the below transactions that met the definition of a business under IFRS 3 – Business Combinations. These acquisitions have been accounted for  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. At the time the financial statements were authorized for issue, the Corporation had not yet completed the accounting for the acquisitions 5 to 9. In particular, the purchase allocations of the fair values of the assets acquired and consideration paid disclosed  below  have  only  been  determined  provisionally  as  the  valuations  have  not  been  finalized. Details of the acquisitions are: Acquisition 1:  On March 21, 2017 the Corporation completed the acquisition of one self storage location for $7,400,000.  The acquisition was an armʹs length transaction. The purchase price was paid for by cash on hand.    A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Net Assets Acquired $    5,892,916 1,507,084 7,400,000 Consideration paid for the net assets acquired was obtained from the following: Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 7,400,000 798,892 299,558 499,334 546,883 130,803 (178,352) 25 Annual report                                                                       StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 2:  On March 31, 2017 the Corporation completed the acquisition of one self storage location for $2,800,000.  The acquisition was an armʹs length transaction. The purchase price was paid for by advances from long  term debt, issuance of common shares and cash on hand.  A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Goodwill Net Assets Acquired $    2,190,961 609,039 2,800,000 76,470 2,876,470 Consideration paid for the net assets acquired was obtained from the following: Advances from long term debt Issuance of common shares (147,058 shares) Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 1,539,488 326,470 1,010,512 2,876,470 237,388 100,678 136,710 241,452 32,938 $       (137,680) 26 Annual report                                             StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 3:  On March 31, 2017 the Corporation completed the acquisition of five self storage locations for $22,000,000.  The acquisition was an armʹs length transaction. The purchase price was paid for by advances from long  term debt, issuance of common shares and cash on hand.  A summary of the assets and liabilities acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Goodw ill Net Assets Acquired $  18,809,012 3,190,988 22,000,000 1,920,000 23,920,000 Consideration paid for the net assets acquired w as obtained from the following: Advances from long term debt Issuance of common shares (2,666,667 shares) Cash Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 12,969,242 5,920,000 5,030,758 23,920,000 1,563,179 727,870 835,309 1,482,342 465,652 $   (1,112,685) 27 Annual report                                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 4:  On  March  31,  2017  the  Corporation  completed  an  acquisition  to  internalize  management  of  the  Corporation’s  stores  and  acquired  third  party  management  contracts  for  over  55  stores  for  $16,000,000.  The acquisition was a non‐armʹs length transaction. The purchase price was paid for by the  issuance of common shares and a promissory note.  A summary of the assets acquired are as follows:  Management Contracts Goodwill Net Assets Acquired $  16,000,000 3,364,706 19,364,706 Consideration paid for the net assets acquired was obtained from the following: Issuance of common shares (6,470,588 shares) Promissory note Selected information for the acquisition, since its acquisition date: Revenue Operating costs Net income (loss) 14,364,706 5,000,000 19,364,706 1,217,483 ‐   $     1,217,483 The promissory note of $5,000,000 was repaid during the year.  28 Annual report                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 5:  On  June  22,  2017  the  Corporation  completed  the  acquisition  of  one  self  storage  location  for  $8,000,000.  The acquisition was an armʹs length transaction. The purchase price was paid for by cash on  hand.    A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Net Assets Acquired $    7,339,387 660,613 8,000,000 Consideration paid for the net assets acquired was obtained from the following: Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 8,000,000 293,898 175,061 118,837 331,575 10,946 $       (223,684) 29 Annual report                                                                     StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016   Note 4 – Continued  Acquisition 6:  On  July  31,  2017  the  Corporation  completed  a  share  acquisition  of  Sentinel  Self‐Storage  Corporation  which included 24 self‐storage locations for a stated purchase price of $396,600,000 adjusted for working  capital and deferred tax assumed and inherent in the transaction, for a total consideration of $395,495,190.  The acquisition was an arm’s length transaction. The purchase was paid for by cash, issuance of shares,  credit line and mortgage financing.  A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Investment in Joint Venture Working capital adjustment Deferred tax Goodwill Net Assets Acquired $   370,806,259 29,944,436 12,058,338 412,809,033 (4,228,403) (60,061,685) 46,976,245 395,495,190 Consideration paid for the net assets acquired was obtained from the following: Cash advances from long term debt Issuance of common shares (11,764,706 shares) Additional payments Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 367,330,269 27,058,824 1,106,097 395,495,190 12,206,800 3,164,421 9,042,379 8,640,387 5,141,590 $       (4,739,598) 30 Annual report                                                                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 7:  On  August  11,  2017  the  Corporation  completed  the  acquisition  of  six  self  storage  locations  for  $34,225,000.  The acquisition was a non‐armʹs length transaction. The purchase price was paid for by the  issuance of common shares, long term debt and cash on hand.    A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Net Assets Acquired $  29,664,911 4,560,089 34,225,000 Consideration paid for the net assets acquired was obtained from the following: Advances from long term debt Issuance of common shares (714,286 shares) Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 4,461,565 2,000,000 27,763,435 34,225,000 1,234,030 457,517 776,513 1,115,862 101,858 $       (441,207) 31 Annual report                                    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 4 – Continued  Acquisition 8:  On August 31, 2017 the Corporation completed the acquisition of one self storage location for $ 8,600,000.  The acquisition was an armʹs length transaction paid for by the issuance of common shares and cash on  hand.    A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Net Assets Acquired $    7,740,405 859,595 8,600,000 Consideration paid for the net assets acquired was obtained from the following: Issuance of common shares (200,000 shares) Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 500,000 8,100,000 8,600,000 302,364 121,871 180,493 253,132 131,132 $       (203,771) 32 Annual report                                     StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016   Note 4 – Continued  Acquisition 9:  On  November  16,  2017  the  Corporation  completed  the  acquisition  of  one  self  storage  location  for  $5,825,000 (subjected to customary adjustments). The acquisition was an armʹs length transaction paid for  by the issuance of common shares and cash on hand.    A summary of the assets acquired are as follows:  Land, Yards, Buildings & Improvements Tenant Relationships Net Assets Acquired $    4,934,052 890,948 5,825,000 Consideration paid for the net assets acquired was obtained from the following: Issuance of common shares (394,191 shares) Cash  Selected information for the acquisition, since its acquisition date: Revenue Operating costs Amortization Interest Net income (loss) 950,000 4,875,000 5,825,000 63,728 32,532 31,196 45,575 ‐   $         (14,379) 33 Annual report                             StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  5. Real Estate and Equipment Land, Yards, Buildings & Storage Intangible Tenant  Office & Computer Improvements Containers Relationships Vehicles Equipment Total COST De ce mbe r 31, 2015 138,559,676 10,862,211 21,231,859 4,571,354 Additions Disposals 459,618 1,905,663 ‐    Busine ss acquisitions 158,490,067 (3,009,383) (724,396) 295,000 De ce mbe r 31, 2016 294,499,978 12,338,478 Additions Disposals 3,932,281 (1,687,946) Busine ss acquisitions 447,252,899 364,712 ‐ ‐ De ce mbe r 31, 2017 743,997,212 12,703,190 (569,390) 19,376,266 40,038,735 ‐    ‐    42,222,792 82,261,527 420,813 (450,207) 795,087 166,698 176,020,187 2,952,792 (5,630) (4,759,006) ‐ 225,000 178,386,333 4,541,960 1,181,155 352,600,306 385,443 (34,323) 502,883 5,185,319 (443) (1,722,712) ‐ 125,000 489,600,691 4,893,080 1,808,595 845,663,604 ACCUMULATED DEPRECIATION De ce mbe r 31, 2015 De pre ciation Disposals De ce mbe r 31, 2016 De pre ciation Disposals 5,178,496 7,175,565 (69,674) 12,284,387 21,912,620 (43,482) 2,944,204 697,484 (450,710) 3,190,978 2,404,405 6,711,976 (221,159) 8,895,222 928,054 14,778,113 ‐ ‐    1,795,626 920,348 (362,262) 2,353,712 738,781 (33,097) 235,530 149,895 12,558,261 15,655,268 (1,141) (1,104,946) 384,284 249,303 27,108,583 38,606,871 (22) (76,601) De ce mbe r 31, 2017 34,153,525 4,119,032 23,673,335 3,059,396 633,565 65,638,853 NET BOOK VALUE De ce mbe r 31, 2016 De ce mbe r 31, 2017 282,215,591 709,843,687 9,147,500 8,584,158 31,143,513 58,588,192 2,188,248 1,833,684 796,871 325,491,723 1,175,030 780,024,751 Included in Land, Yards, Buildings & Improvements is Land at a value of $245,377,231 (December 31,  2016 ‐ $89,613,407).  34 Annual report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  6. Goodwill and Intangible Assets Other Intangible Assets Management Franchise Website Goodwill Contracts Agreements Development Total COST Decembe r 31, 2015 Additions Write down Decembe r 31, 2016 Additions Business acquisitions (Note  4) Decembe r 31, 2017 3,423,490 11,670,454 (11,670,454) 3,423,490 ‐   52,337,402 55,760,892 ‐ ‐ ‐ ‐ 300,000 16,000,000 16,300,000 20,000 23,172 3,466,662 ‐ ‐ ‐ ‐ 11,670,454 (11,670,454) 20,000 23,172 3,466,662 ‐ ‐ ‐ ‐ 300,000 68,337,402 20,000 23,172 72,104,064 ACCUMULATED AMORTIZATION Decembe r 31, 2015 Amortization Decembe r 31, 2016 Amortization Decembe r 31, 2017 NET BOOK VALUE Decembe r 31, 2016 Decembe r 31, 2017 ‐   ‐   ‐   ‐   ‐   3,423,490 ‐ ‐ ‐ ‐ ‐ ‐ 55,760,892 16,300,000 16,000 2,400 18,400 1,600 20,000 23,172 ‐ 23,172 ‐ 23,172 39,172 2,400 41,572 1,600 43,172 1,600 ‐ ‐ ‐ 3,425,090 72,060,892 The  goodwill  of  $52,337,402  recognized  during  the  year  ended  December  31,  2017  relates  to  the  acquisitions completed during the year (see Note 4).    In  the  Corporation’s  nine  month  interim  financial  statements,  the  Corporation  incorrectly  determined  that  the  goodwill  impairment  test  was  triggered  at  the  acquisition  dates  and  recorded  a  $12,420,000  impairment. The goodwill impairment test that was performed at the acquisition dates should have been  performed at the year end. The goodwill impairment originally taken was not as a result of IFRS as had  been previously stated.  The impact of this reversal of the $12,420,000 goodwill impairment on the 2017  financial  statements  is  to  reinstate  the  previously  recognized  goodwill  of  $12,420,000  and  reduce  the  cumulative loss by $12,420,000 from what was previously recorded.  35 Annual report                                                                                                                                                                                                                                                                                                                                                                                     StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 6 – Continued  As  at  December  31,  2017,  the  Corporation  performed  its  annual  impairment  test  on  goodwill  and  its  indefinite‐life  intangible  assets.  Goodwill  is  allocated  to  the  group  of  CGU’s  that  benefited  from  the  synergies of the business combination on which the goodwill arose. The Corporation used the fair value  less  costs  of  disposal  method  to  determine  the  recoverable  amount  of  the  CGUs.  Based  on  the  impairment  test  performed,  the  Corporation  concluded  that  no  impairment  exists  on  its  goodwill  and  indefinite‐life intangible assets.   Information regarding each impairment test is as follows:  Manitoba and Saskatchewan group of CGU’s  ‐ ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a growth rate of 2% which is consistent with management’s knowledge of the local market  and is lower than the CGU’s recent historical growth rate.  Cash flows were discounted at a pre‐tax rate of 6.73% based on management’s experience in this  geographic region.  Kamloops, BC group of CGU’s  ‐ ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a growth rate of 4%. The Corporation has seven stores in the region and is able to disburse  costs and operate more efficiently.   Cash flows were discounted at a pre‐tax rate of 8.78% based on management’s experience in this  geographic region and the fact that the properties are on leased land.  London, ON group of CGU’s  ‐ ‐ The  cash  flow  projection  includes  specific  estimates  based  on  the  expected  life  of  the  property,  with a growth rate of 2% which is consistent with management’s knowledge of the local market.  Cash flows were discounted at a pre‐tax rate of 6.73% based on management’s experience in this  geographic region.  Sentinel Storage group of CGU’s  ‐ ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a growth rate of 4%. Given the location of the stores in this portfolio, over 20 stores in major  markets and highly desirable locations in Canada, management believes that this growth rate is  sustainable.  Cash flows were discounted at a pre‐tax rate of 6.38% based on management’s experience and the  superior quality and location of these properties.  36 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 6 – Continued  Portable Storage group of CGU’s  ‐ ‐ The  cash  flow  projection  includes  specific  estimates  based  on  the  expected  life  of  storage  containers,  with  a  growth  rate  of  7%  based  on  management’s  experience  and  the  exclusive  marketing channels the Corporation has for this product type.  Cash  flows  were  discounted  at  a  pre‐tax  rate  of  6.89%  based  on  management’s  experience  in  these markets.  Management Division group of CGU  ‐ ‐ The cash flow projection includes specific estimates for five years with a terminal growth rate of  4%,  which  management  feels  would  be  representative  of  the  future  indefinite  cash  flows  from  this asset.  Cash  flows  were  discounted  at  a  pre‐tax  rate  of  20%  based  on  what  management  deemed  appropriate for the nature of this type of revenue stream.  The most sensitive inputs to the value in use model used for these groups of CGU’s are the growth rate  and the discount rate:  ‐ A  1%  decrease  in  the  growth  rate  would  only  result  in  an  impairment  of  the  Sentinel  Storage  group of CGU’s of $14,427,448.  ‐ A  1%  decrease  in  the  discount  rate  would  only  result  in  an  impairment  of  the  Sentinel  Storage  group of CGU’s of $12,002,417.  Group of CGUʹs Goodwill Carrying Value Re cove rable   Amount Manitoba and Saskatche wan  Kamloops, BC  London, ON  Se ntine l Storage  Portable  Storage   Manage me nt Division  2,621,716 76,470 142,807 30,450,978 8,928,408 2,280,789 34,373,217 11,553,794 4,049,697 46,976,225 415,765,343 456,747,448 2,578,968 3,364,706 13,241,924 16,000,000 21,390,000 20,042,610 55,760,892 486,667,442 548,156,767 37 Annual report                                                                                                                                StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  7. Long Term Debt and Lines of Credit December 31, 2017 Weighted Average Balance Rate Range December 31, 2016 Weighted Average Balance Rate Range Mortgages Fixed/Variable 3.18% to 5.5% 4.21% 233,190,726 3.46% to 5.50% 4.09% 164,942,311 Maturity:  March 2018 to March 2025 Maturity:  October 2017 to January 2022 Deferred financing costs net of accretion of $1,376,845 (December 31, 2016 ‐ $635,977) (2,245,471) 230,945,255 Lines of Credit  (918,798) 164,023,513 Prime plus 1.00% Prime plus 1.00% Variable Rate or BA plus 2.75% 4.21% 332,153,083 or BA plus 2.75% 4.38% 18,483,081 Maturity:  March 2018 to August 2020 Maturity:  April 2017 to August 2020 563,098,338 182,506,594 The bank Prime rate at December 31, 2017 was 3.20% (December 31, 2016 ‐ 2.70%).  Mortgages are secured by a first mortgage charge on the real estate 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  debt  service  ratio,  fixed  charge coverage ratio, a tangible net worth ratio, and a loan to value ratio. As of December 31, 2017 and  2016, the Corporation is in compliance with all covenants.  The deferred financing costs consist of fees and costs incurred to obtain the related mortgage financing,  less accumulated amortization.  Principal repayments on long term debt and lines of credit in each of the next five years are estimated as  follows:  Year 1  Year 2  Year 3  Year 4  Year 5  Thereafter $  $  $  $  $  $  341,601,721 (includes lines of credit)    18,528,294    44,305,118      8,181,180    22,455,273  130,272,223  38 Annual report                                                           StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  8. 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: Balance, December 31, 2015 Bought deal Issued on asset acquisitions Private placement Dividend reinvestment plan Share option redemption Share issuance costs Common shares repurchased Balance, December 31, 2016 Bought deal Issued on asset acquisitions  Dividend reinvestment plan Stock option redemption Share issuance costs Common shares repurchased Balance, December 31, 2017 Number of Shares Amount 167,925,820 $      66,867,412 67,647,600 45,621,212 8,333,332 345,704 36,000 ‐   (100,000) 57,500,460 58,803,787 5,499,999 327,365 14,400 (3,172,985) (72,050) 289,809,668 $    185,768,388 32,076,000 22,520,098 529,268 526,000 ‐   (234,100) 85,001,400 51,320,000 1,055,801 197,750 (3,271,774) (499,784) 345,226,934 $    319,571,781 Bought Deal  On July 19, 2017, the Corporation issued 32,076,000 common shares at a price of $2.65 per common share  for gross proceeds of $85,001,400.  On  August  19,  2016,  the  Corporation  issued  67,647,600  common  shares  at  a  price  of  $0.85  per  common  share for gross proceeds of $57,500,460.  Private Placement  On March 18, 2016, the Corporation issued 8,333,332 common shares at a price of $0.66 per common share  for gross proceeds of $5,499,999.  39 Annual report                                                                                         StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 8 ‐ Continued  Dividend Reinvestment Plan  Represents  common  shares  issued  under  the  Corporation’s  dividend  reinvestment  plan  (“DRIPʺ)  for  holders of common shares approved on April 18, 2016. Under the terms of the DRIP, eligible registered  holders of a minimum of 10,000 Common Shares (the ʺShareholdersʺ) may elect to automatically reinvest  their  cash  dividends,  payable  in  respect  to  the  common  shares,  to  acquire  additional  common  shares,  which will be issued from treasury or purchased on the open market. The Corporation may initially issue  up  to  5,000,000  common  shares  under  the  DRIP,  which  may  be  increased  upon  Board  of  Directors  approval, acceptance of the increase by the Exchange, and upon public disclosure of the increase.  Common Shares Repurchased  Represents  common  shares  repurchased  under  the  Corporation’s  Normal  Course  Issuer  Bid  (ʺNCIBʺ)  policy allowing for the purchase for cancellation, during the 12‐month period starting August 18, 2017,  up to 17,198,962 of the common shares.   Contributed surplus:  December 31, 2017 December 31, 2016 Opening balance Stock based compensation Retirement of stock options and warrants Ending balance 2,243,239 1,534,286 (237,315) 3,540,210 1,034,865 1,208,374 ‐   2,243,239 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. 40 Annual report                           StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 8 – Continued  The following table summarizes information about stock options outstanding and exercisable as at:  December 31, 2017 December 31, 2016 Options Weighted Average Exercise Price Weighted Average Exercise Price Options Opening Exercised/Expired Granted Closing and Exercisable 11,501,000 (2,945,150) 3,000,000 11,555,850 $0.62 $0.29 $1.78 $1.01 8,561,000 (60,000) 3,000,000 11,501,000 $0.36 $0.40 $1.36 $0.62 The fair value of options granted in 2017 was estimated on the date of the grant, as determined by using  the Black‐Scholes option pricing model with the following assumptions:  Dividend Yield Risk‐Free Interest Rate Expected Life of Options Expected Volatility of the Corporationʹs Common Shares 0.6% 1.1% 4 Years 37.1% Stock options exercisable and outstanding are as follows:  Exercise Price   Vesting Date  Expiry Date   December 31, 2017  December 31, 2016  $0.20  $0.23  $0.33  $0.41  $0.50  $1.36  $1.78   May 5, 2007     May 6, 2009     June 19, 2014    April 28, 2015   Sept 14, 2015    Dec 21, 2016      Mar 16, 2017    Nov 5, 2017  May 6, 2019  June 19, 2024  April 28, 2025  Sept 14, 2025  Dec 21, 2026   Mar 15, 2027     ‐   1,210,000   220,000   2,390,850   1,760,000   2,975,000   3,000,000   1,000,000   2,200,000   400,000   2,901,000   2,000,000   3,000,000   ‐  Options exercisable and outstanding   11,555,850   11,501,000  Warrants exercisable and outstanding are as follows:  Exercise Price        Expiry Date         December 31, 2017  December 31, 2016  $0.35  $0.37   Feb 25, 2018   Feb 25, 2018   Warrants exercisable and outstanding   16,666   2,533,334   2,550,000   249,999   2,833,334   3,083,333  Dividends  A cash dividend of $0.00255 per share was declared on December 15, 2017 and payable to shareholders of  record on December 29, 2017.  41 Annual report                                        StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  9. Financial Risk Management and Fair Value The Corporation is required to disclose certain information concerning its financial instruments. The fair values  of  the  Corporation’s  cash  and  short  term  deposits,  accounts  receivable,  promissory  note  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, 2017 As at December 31, 2016 Carrying Amount Fair Value Carrying Amount Fair Value Financial Assets Fair Value through Profit or Loss Cash and short term deposits 16,152,428 16,152,428 11,869,892 11,869,892 Loans and Receivables Accounts receivable Financial Liabilities Other Financial Liabilities 3,912,325 3,912,325 1,354,796 1,354,796 Accounts payable & accrued liabilities 10,784,409 10,784,409 3,406,008 3,406,008 Long term debt 563,098,338 561,867,534 182,506,594 182,600,607 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.  42 Annual report                                                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 9 – 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, 2017  Assets  Level 1  Level 2  Level 3  Total   Cash and short term deposits  $16,152,428  At December 31, 2016  Assets  Cash and short term deposits  $11,869,892  ‐  ‐  ‐  $16,152,428  $11,869,892  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  and  lines  of  credit  as interest expense is impacted by changes in the prime rate and bankers’ acceptance rate.  The impact on the  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,  2017  would  be approximately $4,215,097 (December 31, 2016 ‐ $661,276). 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. 43 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 9 ‐ Continued  The  following  table  sets  forth  details  of  accounts  receivable  and  related  allowance  for  doubtful accounts:  Trade Receivables  Under 60 days aged Between  60  and  90  days  (past  due  but  not impaired)  Over 90 days (not impaired)  Over 90 days (impaired) Allowance for doubtful accounts Non‐Trade Receivables  Over 30 days aged (not impaired) December 31, 2017  December 31, 2016  $   2,835,508  $625,446  366,639  125,111  295,486  (298,178)  587,759  $3,912,325   46,625   ‐  127,013  (120,000)  675,712  $1,354,796  Change in the Corporation’s allowance for doubtful accounts is as follows:  Balance December 31, 2015     Charges or adjustments during the year  Balance December 31, 2016     Charges or adjustments during the year  Balance December 31, 2017  $62,119   57,881  $120,000    178,178  $298,178  The creation and release of the allowance for doubtful accounts has been included in operating  costs  in  these  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 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 7. 44 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 9 – Continued  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.  10. Income Taxes The reconciliation of the Corporationʹs effective tax expense is as follows: 2017 2016 Loss before taxes (24,757,670) (21,189,436) Combined federal and provincial statutory income tax rate 26.75% 27.00% Income  tax re cove ry calculate d at statutory rate Non‐de ductible  ite ms Change  in tax rate  and othe r ite ms Change  in de fe rre d tax asse ts not re cognize d (6,622,677) (5,721,148) (43,954) 3,480,508 (1,548,737)  ‐  (2,689,670) 2,240,640 Income  tax e xpe nse  (re cove ry) (10,905,038)  ‐  Movements in deferred tax assets (liabilities) related to temporary differences during the year are as  follows:  De ce mbe r 31,  2016 Re cognize d on  acquisitions  (Note  4) Re cognize d in  De ce mbe r 31,  e arnings 2017 Prope rty, plant and e quipme nt (1,249,765) (52,006,613) (3,781,910) (57,038,288) Goodwill  Intangible  asse ts Long te rm de bt Non‐capital loss carry forwards (129,893) (584,809) (243,481)     ‐   De fe rre d tax asse t not re cognise d 2,207,948     ‐    (8,055,053)     ‐        ‐        ‐    (230,171) 2,248,867 (357,445) 1,832,915 (360,064) (6,390,995) (600,926) 1,832,915 11,192,782 13,400,730 De fe rre d tax asse t (liabilitie s)     ‐    (60,061,666) 10,905,038 (49,156,628) 45 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  11. Related Party Transactions During  the  year  ended  December  31,  2017,  the  Corporation  paid  total  management  fees  of  $293,321 (December  31,  2016  ‐  $819,666)  to  Access  Results  Management  Services  Inc.  (“ARMS”),  a  corporation controlled by Steven Scott and Iqbal Khan.  Pursuant to a management agreement, ARMS is entitled to a base  management  fee  of  $194,758  for  fiscal  2017,  as  well  as  an  annual  performance  fee  of  4%  of  net operating income (“NOI”), defined as storage and related services revenue less property operating costs, if the Corporation attains 85% or greater of its annual board‐approved budgeted NOI for that fiscal year. On  March 31,  2017,  the  Corporation  purchased  all management contracts from  ARMS  (see  Note 4) and therefore, the management agreement has ceased. During the year ended December 31, 2017, the Corporation reimbursed operational wages of $1,545,892 (December 31, 2016 ‐ $4,736,700) and training, travel and related expenses of $16,804 (December 31, 2016 ‐ $319,895) to ARMS.  These expenses, reimbursed at cost, were undertaken exclusively for the benefit of the Corporation. During  the  year  ended  December  31,  2017,  the  Corporation  paid  loan  guarantee  fees  of  $127,500 (December 31, 2016 ‐ $181,616) to Access Self Storage Inc., a large shareholder of the Corporation, related to  Steven  Scott  and  Iqbal  Khan.  As  a  condition  of  the  assumption  of  two  mortgages,  the  director  and corporation  were  required  to  provide  a  guarantee  for  the  entire  outstanding  principal  balance  of  the mortgages. The loan guarantee fee is compensation for the provision of this guarantee and is paid on a monthly basis at the annual rate of 0.5% and 0.4% of the original mortgage principal balances. A portion of the loan guarantee payments ceased in August 2016, while the remainder ceased in September 2017. 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  of  the  Corporation.  The  Corporation  pays  a  monthly  royalty  of  3.5%  on  the  gross  sales. During the year ended December 31, 2017, the Corporation paid $216,710 (December 31, 2016 ‐ $182,022) for royalties and $1,535,160 (December 31, 2016‐ $1,329,326) 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,  2017  was  $33,808  (December  31,  2016  ‐  $13,797)  payable  to  CPFI  and  $nil  (December  31, 2016 ‐ $1,191,647) payable to ARMS. On  March  31,  2017  the  Corporation  completed  an  acquisition  to  internalize  management  of  the Corporation’s  stores  and  acquired  third  party  management  contracts  for  over  55  stores  for  $16,000,000 from  Access  Results  Management  Services  Inc.,  a  corporation  related  to  Steven  Scott,  Iqbal  Khan,  and Access Self Storage Inc. (Note 4). On August 11, 2017 the Corporation completed the acquisition of six self storage locations for $34,225,000 from Access Self Storage Inc., a corporation related to Steven Scott and Iqbal Khan (Note 4). 46 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 11 – Continued  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,  management fees, bonuses and directors fees Stock based compensation December 31, 2017 December 31, 2016 129,800 1,293,914 1,423,714 135,608 1,013,021 1,148,629 12. 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 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  7,  the  Corporation  is  not  subject  to  any  externally imposed capital requirements. 47 Annual report                                             StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  13. 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  leasing  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.  Management Division – involves revenues generated from the management of stores owned by third parties. The Corporation evaluates performance and allocates resources based on earnings before interest, taxes,  depreciation,  amortization  and  stock  based  compensation.  Corporate  costs  are  not  allocated  to  the  segments and are shown separately below.    For the Year Ended December 31, 2017 Se lf Portable Manage me nt Storage Storage Division Corporate Total Re ve nue $       54,653,224 $         6,017,807 $         1,217,483 $      Ope rating e xpe nse s Ne t ope rating income 17,403,935 37,249,289 3,890,543 2,127,264 ‐ 1,217,483 Acquisition and inte gration Se lling, ge ne ral & admin. ‐    ‐    ‐ ‐ Inte re st e xpe nse 15,300,178 338,979 Stock base d compe nsation ‐    ‐ De pre ciation, amortization 36,628,061 1,908,597 Share  of loss in joint ve nture 157,278 De fe rre d tax re cove ry ‐    ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐    ‐    5,373,955 4,038,559 $       61,888,514 21,294,478 40,594,036 5,373,955 4,038,559 ‐    15,639,157 1,534,286 1,534,286 71,813 38,608,471 ‐    157,278 (10,905,038) (10,905,038) Ne t income /(loss) (14,836,228) (120,312) 1,217,483 (113,575) (13,852,632) Additions: Re al e state  and e quipme nt 493,782,394 887,953 ‐ 115,663 494,786,010 48 Annual report                                                                                                                                                                                                                                                                      StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  Note 13 – Continued  For the Year Ended December 31, 2016 Se lf Portable Manage me nt Storage Storage Division Corporate Total Re ve nue $       22,462,245 $         5,362,299 $  Ope rating e xpe nse s Ne t ope rating income 7,444,352 15,017,893 3,355,666 2,006,633 Acquisition and inte gration Se lling, ge ne ral & admin. ‐     ‐     ‐    ‐    Inte re st e xpe nse 5,218,966 289,379 Stock base d compe nsation ‐     ‐    De preciation, amortization  and goodwill adjustme nt 24,563,310 2,690,032 Share  of loss in joint ve nture ‐     ‐    Ne t income /(loss) (14,764,383) (972,778) Additions: Re al estate  and e quipment 179,135,513 2,200,663 ‐ ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   $   ‐ ‐ ‐ $       27,824,544 10,800,018 17,024,526 1,928,429 2,240,692 ‐ 1,208,374 1,928,429 2,240,692 5,508,345 1,208,374 74,780 27,328,122 ‐ ‐     (5,452,275) (21,189,436) 2,949 181,339,125 Total Assets Se lf Storage Portable Storage Manage me nt Division Corporate Total As at De ce mbe r 31, 2016 $     316,524,663 $       15,457,428 $     ‐ $       10,821,490 $     342,803,581 As at De ce mbe r 31, 2017 $     837,350,008 $       24,770,062 $       19,353,316 $       14,022,995 $     895,496,381 49 Annual report                                                                                                                                                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  14. Investment in Joint Venture As at December 31, 2017 the Corporation has a 50% interest in a joint venture. The investment in the JV is accounted for using the equity method in accordance with IAS 28. Financial statements for the JV are as follows: Assets Liabilities Total net assets Proportion of ownership interest held by the Corporation December 31, 2017 $   37,720,440 (8,449,831) 29,270,609 50% Carrying amount of investment in joint venture $   14,635,305 Revenues Expenses Operating costs Interest  Depreciation and amortization Total Expenses  Loss for the period Proportion of ownership interest held by the Corporation August 1, 2017 to  December 31, 2017 $   1,123,703 493,960 46,672 897,627 1,438,259 (314,556) 50% Corporationʹs share of loss for the period $   (157,278) 50 Annual report                                                StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  15. Commitments and Contingencies Operating Lease Commitments The  Corporation  leases  buildings  and  lands  in  Winnipeg,  MB,  Kamloops,  BC  and  Montreal,  QC.  The leases do not contain any contingent rent clauses. They do 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 2018 and 2054, with the leases expiring in 2027 and 2032 having up to 20 years and 25 years of renewals, respectively, 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  $      1,227,614    4,658,483       21,213,005  $    27,099,102  During  the  year  ended  December  31,  2017,  the  Corporation  recognized  as  an  expense  $1,101,757  (December 31, 2016 ‐ $441,251) in operating lease payments.  Bank Letter of Guarantee  The  Corporation  has  various  letters  of  guarantee  in  the  amount  of  $474,691  which  are  due  within  one  year.   Contingency  The Corporation has no legal contingency provisions at either December 31, 2017 or December 31, 2016.  16. Subsequent Events On  February  1,  2018  the  Corporation  completed  the  acquisition  of  the  remaining  50%  interest  in  two Calgary stores from its joint venture partner for $17.2 million. On  February  1,  2018  the  Corporation  completed  the  purchase  of  400  portable  storage  units,  equipment and repurchased the license to operate our Cubeit brand in British Columbia for $2,290,000. 51 Annual reportStorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2017 and 2016  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  1500, 640 – 5th Avenue   Calgary, AB T2P 3G4  Telephone 403‐263‐3385  Facsimile 403‐269‐8450  HEAD OFFICE  REGISTRAR & TRANSFER AGENT  StorageVault Canada Inc.  100 Canadian Rd  Toronto, ON  M1R 4Z5  Telephone 1‐877‐622‐0205  Email:  ir@storagevaultcanada.com TMX Equity Transfer Services  300‐5th Avenue S.W., 10th Floor  Calgary, AB  T2P 3C4  Telephone 403‐218‐2800  Facsimile 403‐265‐0232  TSX VENTURE EXCHANGE LISTING:  SVI  52 Annual report StorageVault Canada Inc. (the “Corporation”) Form 51-102F1 Management’s Discussion and Analysis For Three Months Ended and Fiscal Year Ended December 31, 2017 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 three months and fiscal year ended December 31, 2017. This MD&A should be read in conjunction with the audited fiscal 2017 consolidated financial statements and accompanying notes contained therein, which have been prepared in Canadian dollars and in accordance with International Financial Reporting Standards (“IFRS”). This MD&A is based on information available to Management as of March 31, 2018. 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 2018; the annualized net operating income (NOI), a non-IFRS measure, and annualized funds from operations (FFO), a non-IFRS measure, assumes acquisitions that occurred in Fiscal 2017 were purchased on January 1, 2017; 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 53 Annual report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. 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 financing; 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 2017 being extrapolated to the entire period for 2017 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 2018 and revenue and NOI growth for 2018 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. 54 Annual reportTABLE OF CONTENTS GLOSSARY OF TERMS 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 CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS RELATED PARTY TRANSACTIONS USE OF PROCEEDS FROM JULY 2017 BOUGHT DEAL FINANCING ACQUISITION COMMITTEE AND ACQUISITION COMMITTEE MANDATE ACCOUNTING POLICIES RISKS AND UNCERTAINTIES CORPORATE CONTACT INFORMATION 56 57 58 60 61 63 70 73 74 76 76 76 78 81 55 Annual reportGLOSSARY OF TERMS The following abbreviated terms are used in the Management Discussion & Analysis and have the following respective meanings: “AFFO” means FFO plus acquisition and integration costs. Acquisition and integration costs are one time in nature to the specific assets purchased in the current period or pending and are expensed under IFRS. AFFO is a non-IFRS measure – see Accounting Policies Non-IFRS Measures. “Costco” means Costco Wholesale Canada Ltd.; “Existing Self Storage” means stores that the Corporation has owned or leased since the beginning of the previous fiscal year; Existing Self Storage is a non-IFRS measure – see Accounting Policies Non-IFRS Measures. “FFO” means net income (loss) excluding gains or losses from the sale of depreciable real estate, plus depreciation, amortization and goodwill adjustment, 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 stores that have not been owned or leased continuously since the beginning of the previous fiscal year; New Self Storage is a non-IFRS measure – see Accounting Policies Non-IFRS Measures. “NOI”, means net operating income, calculated as revenue from storage and related services less related property operating costs; NOI is a non-IFRS measure – see Accounting Policies Non-IFRS Measures. “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, 2018 to March 31, 2018. “SVI” means StorageVault Canada Inc.; “The Company” or “The Corporation” or “We” or “Our” means StorageVault Canada Inc; 56 Annual report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 owns 90 stores and 3,586 portable storage units across Canada, for a total of 5,007,419 square feet of rentable storage space and 46,377 rental units. The stores operate under the Access Storage, Depotium Mini-Entrepots, Sentinel Storage and Storage For Your Life brands. Our portable storage business operates under the Cubeit and PUPS brands. In addition to the stores owned, SVI manages an additional 58 stores that are owned by third parties and operated by us in exchange for a management fee, bringing the total number of operating stores which we own and or manage to 148. SVI’s strategic objective is to own and operate self storage and portable storage in Canada’s top markets. The Corporation will focus on acquiring storage assets with strong existing cash flows, in strategic markets, preferably with excess land allowing for future development and expansion of our self and portable storage businesses. 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. The Storage Landscape Demand for storage is driven by population growth, change of circumstances and smaller living areas and work spaces. Business incubation, immigration, downsizing, renovations, moving, death, divorce, insurance, 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 less than 15% of these stores; by comparison, the US market is estimated at over 2.5 billion square feet across over 51,475 stores. This translates into approximately 8.3 square feet per capita in the US versus only 2.5 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, reputation, presence in and knowledge of the storage industry allows us to identify accretive and strategic acquisitions and 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 km’s of the store location), the local economy, pricing, customer service, curb appeal, etc. We believe in managing our inventory (units) through pricing. 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 rent per square foot first and maximizing occupancy second. 57 Annual report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, promotions are reduced or eliminated 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. 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. 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. 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 The combination of our corporate platform, our industry relationships and our storage experience provides 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 a disciplined purchaser, with a focus on Canada’s top markets. 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 increased 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. 58 Annual reportThe most significant evolution in the storage industry 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 800,000 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 and currently have 50,000 square feet under construction. 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 purchasing the world’s largest portable storage business in one of their long-term funds in February 2015 for over $1 billion. 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 improve. 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 equity and debt securities. Financing With Secured Debt and Lines of Credit The Corporation will partially fund the purchase of storage assets with debt. A number of factors are considered when evaluating the level of debt in our capital structure, as well as the amount of debt that will 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 or pay down debt. SVI will consider issuances of additional common shares for cash proceeds or 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. 59 Annual reportOUTLOOK The Corporation’s outlook for acquisitions, share capital, results from operations and subsequent events are: Acquisitions In 2018 we expect to acquire $70 to $90 million of assets. In the past, we have been successful in meeting or exceeding our acquisition targets; however, as there is more competition to acquire existing stores, especially from foreign 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. Results from Operations We expect significant growth in revenue and net operating income in 2018 resulting from the timing of 2017 and 2018 acquisitions and as we continue to streamline and integrate operations, implement our revenue management systems and continue to control costs on the $663.8 million of assets purchased in 2016 and 2017. The Corporation may use discounts in select markets to match competitive forces and retain its customer base as a result of new competitors trying to jump-start their lease up periods by offering significant discounts to new customers. This can result in short term fluctuations in occupancy and rent per square foot at existing stores. 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 items have been announced or purchased by the Corporation: • On February 1, 2018 the Corporation completed the acquisition of the remaining 50% interest in two Calgary stores from its joint venture partner for $17.2 million. • On February 1, 2018 the Corporation completed the purchase of 400 portable storage units, equipment and repurchased the license to operate our Cubeit brand in British Columbia for $2,290,000. 60 Annual reportDESCRIPTION OF OUR OPERATIONS As at December 31, 2017, the Corporation owned the following self storage and portable storage operations: Acres Number of Stores Units Rentable Square Feet Location British Columbia Alberta Saskatchewan Manitoba Ontario Quebec Nova Scotia Portable Storage Units 31.7 67.5 21.4 19.6 94.1 24.3 15.0 Total 273.6 16 19 7 8 24 12 4 90 8,007 10,746 1,453 3,728 11,091 6,198 1,568 3,586 46,377 741,787 1,167,861 207,508 354,596 1,394,756 573,032 156,764 411,115 5,007,419 Management is focused on increasing value and increasing NOI as follows: Revenue Management In today’s competitive climate, revenue per square foot is the greatest driver in creating value. Our management platform has dedicated managers who understand the nuances of each local market. Their in-depth knowledge of our customer base and the 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. Professional Management On March 31, 2017, SVI internalized management of StorageVault’s stores and acquired third party management contracts for over 55 stores from Access Results Management Services (ARMS). The management team at SVI has extensive experience in all aspects of the storage industry including: • management of over 140 storage locations throughout Canada • • acquisition, development and management of over 8 million square feet of storage space over 100 years of combined experience in the storage industry by senior management 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 storage business is the exclusive supplier to Costco members across Canada. This relationship provides exclusive access to Costco’s vast membership base as a marketing channel. 61 Annual reportStorage Solution Centre Our management 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 threats in each marketplace. Economies of Scale The size and scope of our management platform, combined with the growing size of our own 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. 62 Annual reportFINANCIAL RESULTS OVERVIEW In the current fiscal year, SVI added 42 stores for $485.4 million (two through a joint venture) and disposed of one land asset in fiscal 2017 for $1.8 million. In the prior fiscal year, SVI added 21 stores for $178.4 million (one through an asset swap valued at $3.4 million), the majority of which closed in the last 4 months of 2016. In fiscal 2015, SVI added 19 stores, for $146.2 million, with the majority also taking place in the last 4 months. Therefore, the comparative results are significantly impacted by the timing of these acquisitions. Selected Financial Information (unaudited) Three Months Ended December 31 (audited) Fiscal 2017 2016 $ % 2017 2016 $ % Change Change Storage revenue and related services $ 20,366,043 $ 8,900,182 $ 11,465,861 128.8% $ 60,671,031 $ 27,824,544 $ 32,846,487 118.0% Management fees 378,067 $ - 378,067 - 1,217,483 $ - 1,217,483 - Operating costs Net operating income 1 Less: Acquisition and integration costs Selling, general and administrative Interest Share of net loss from joint venture Stock based compensation Depreciation, amortization and goodwill adjustment 20,744,110 8,900,182 11,843,928 6,760,316 3,187,851 3,572,465 133.1% 112.1% 61,888,514 27,824,544 34,063,970 122.4% 21,294,478 10,800,018 10,494,460 97.2% 13,983,794 5,712,331 8,271,463 144.8% 40,594,036 17,024,526 23,569,510 138.4% 979,121 815,340 886,499 1,929,613 5,873,705 117,242 (92,622) -9.5% 5,373,955 1,928,429 3,445,526 178.7% 1,598,201 4,275,504 1,114,273 136.7% 267.5% 4,038,559 2,240,692 1,797,867 80.2% 15,639,157 5,508,345 10,130,812 183.9% - 117,242 - 157,278 - - 1,208,374 (1,208,374) -100.0% 1,534,286 1,208,374 157,278 325,912 - 27.0% 13,158,268 19,768,583 (6,610,315) -33.4% 38,608,471 27,328,122 11,280,349 41.3% Goodwill impairment reversal (12,420,000) - (12,420,000) 9,545,327 24,369,619 (14,824,292) - -60.8% - - - 65,351,706 38,213,962 27,137,744 - 71.0% Net Income (Loss) before taxes 4,438,467 (18,657,288) 23,095,755 -123.8% (24,757,670) (21,189,436) (3,568,234) 16.8% Deferred tax recovery 10,905,038 - 10,905,038 - 10,905,038 - 10,905,038 - Net Income (Loss) $ 15,343,505 $ (18,657,288) $ 34,000,793 -182.2% $ (13,852,632) $ (21,189,436) $ 7,336,804 -34.6% Weighted average number of common shares outstanding Basic Diluted 345,003,901 264,910,015 80,093,886 345,003,901 264,910,015 80,093,886 30.2% 30.2% 317,487,007 204,660,864 112,826,143 317,487,007 204,660,864 112,826,143 55.1% 55.1% Net income (loss) per common share Basic Diluted 1 Non-IFRS Measure. $ $ 0.044 $ (0.070) 0.044 $ (0.070) $ (0.044) $ (0.104) $ (0.044) $ (0.104) 63 Annual report Storage revenue and related services Revenues increased by $11.5 million, or 128.8%, for the three months ended December 31, 2017, as compared to the same period in 2016. This results in a year to date increase over the prior year of $32.8 million. This increase is primarily attributable to incremental revenue from the 63 stores acquired in 2017 and 2016. For additional information, see “Segmented, Existing and New Self Storage and Portable Storage Results.” Management fees New stream of revenue from management contracts acquired from Access Results Management Services on March 31, 2017. Operating costs Operating costs for the three months and fiscal year ended December 31, 2017 were $6.7 million and $21.3 million (December 31, 2016 - $3.2 million and $10.8 million), an increase of 112.1% and 97.2%, respectively. The increase in property operating cost relates to the stores acquired in 2017 and 2016. Net Income Our net loss of $13.9 million for the current fiscal year is a result of $38.6 million of depreciation, amortization and which was offset by a deferred tax recovery of $10.9 million. Net operating income For the three months ended December 31, 2017, the Corporation had net operating income (NOI), a non- IFRS measure, of $14.0 million (December 31, 2016 - $5.7 million), an increase of 144.8%. The NOI for the fiscal year ended December 31, 2017, increased by $23.6 million or 138.4%, to $40.6 million. The increase was primarily due to the NOI from storage assets purchased in fiscal 2017 and 2016, streamlining and integration of operations, increased rates through our revenue management systems, new management fee revenue stream and control of costs on assets purchased. Acquisition and integration costs Acquisition and integration costs include professional fees incurred to identify, qualify, close and integrate the assets purchased and pending. In fiscal 2017, SVI closed $485.4 million of acquisitions, with an additional $17.2 million of acquisitions closed subsequent to the year end. 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. Interest Interest expense increased as the total amount of debt outstanding increased with the 2017 and 2016 acquisitions. As at December 31, 2017, our total debt was $563.1 million compared to $182.5 million at December 31, 2016. Depreciation, amortization and goodwill impairment reversal The increase in depreciation and amortization expense is primarily due to depreciating the additional assets that were acquired. The goodwill impairment reversal represents the reversal of $12.4 million of goodwill impairment taken in Q1 2017 and Q3 2017. The Corporation incorrectly determined that the goodwill impairment test was 64 Annual reporttriggered at the acquisition dates. The goodwill impairment test that was performed at the acquisition dates should have been performed at the year end. The goodwill impairment originally taken was not as a result of IFRS as had been previously stated. Had the goodwill impairment testing been conducted at the year end instead of on the acquisition dates, no goodwill impairment would have resulted. The impact of this reversal of the $12.4 million goodwill impairment on the 2017 annual financial statements is to reinstate the previously recognized goodwill of $12.4 million and reduce the cumulative loss by $12.4 million from what was previously recorded. The Q1 2017 goodwill impairment that was recorded was $5.4 million, and as a result, Q1 2017 net loss would have been $5.4 million without such goodwill impairment. The Q3 2017 goodwill impairment that was recorded was $7.0 million, and as a result, Q3 2017 net income would have been $8.3 million without such goodwill impairment. The result is that there is no goodwill impairment recorded in the 2017 annual financial statements. There were no changes to previously reported NOI, FFO and AFFO figures resulting from these reversals. 65 Annual reportFunds from Operations (FFO) and Adjusted Funds from Operations (AFFO) FFO and AFFO are non-IFRS measures. It allows management and investors to evaluate the financial results of an entity without taking into consideration the impact of non-cash items and non-recurring acquisition and integrations costs on the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss). Net income (loss) assumes that the values of our assets diminish over time through depreciation and amortization, irrespective of the value of our real estate assets in the open market. Other non-cash and non-recurring capital items include stock based compensation costs, deferred income tax expenses (recoveries) and acquisition and integration costs, if any. Acquisition and integration costs, included in our AFFO, are one time in nature to the specific assets purchased in the current period or pending. While the specific acquisition and integration costs may vary from period to period, given that the Corporation is planning to continue to complete acquisitions as part of its growth strategy, these costs will continue to be included as an adjustment in determining AFFO (i.e. the amount of the costs are "non- recurring" but the actual adjustment for these type of costs is "recurring"). FFO for the three months and fiscal year ended December 31, 2017 was $5.4 million and $15.8 million versus $2.3 million and $7.3 million, respectively for the same period in 2016. These increases are the result of contributions from the assets purchased in fiscal 2017 and 2016 and improvements in operational results. AFFO for the three months and fiscal year ended December 31, 2017 was $6.3 million and $21.2 million versus $3.3 million and $9.3 million, respectively for the same period in 2016. The FFO and AFFO for the three months and fiscal year ended December 31, 2017 and 2016 are: (unaudited) Three Months Ended December 31 (audited) Fiscal 2017 2016 Change 2017 2016 Change $ % $ % Net Income (loss) $ 15,343,505 $ (18,657,288) $ 34,000,793 -182.2% $ (13,852,632) $ (21,189,436) $ 7,336,804 -34.6% Adjustments: Stock based compensation - 1,208,374 (1,208,374) Deferred tax recovery (10,905,038) - - (10,905,038) 267,340 - - - 1,534,286 1,208,374 325,912 27.0% (10,905,038) 448,813 - - (10,905,038) 448,813 - - 267,340 738,268 19,768,583 (19,030,315) -96.3% 38,608,471 27,328,122 11,280,349 41.3% (9,899,430) 20,976,957 (30,876,387) -147.2% 29,686,532 28,536,496 1,150,036 4.0% $ 5,444,075 $ 2,319,669 $ 3,124,406 134.7% $ 15,833,900 $ 7,347,060 $ 8,486,840 115.5% 886,499 979,121 (92,622) -9.5% 5,373,955 1,928,429 3,445,526 178.7% $ 6,330,574 $ 3,298,790 $ 3,031,784 91.9% $ 21,207,855 $ 9,275,489 $ 11,932,366 128.6% Depreciation and amortization from joint venture Depreciation, amortization and goodwill adjustment FFO 1 Adjustments: Acquisition and integrations costs AFFO 1 1 Non-IFRS Measure. 66 Annual report Annualized Net Operating Income and Funds from Operations The Company purchased 42 stores during fiscal 2017 and the revenues and operating expenses from each acquisition are reflected in the statements from the date of acquisition forward for these stores. In order to understand a full year of operations with the acquired assets, we have prepared an annualized NOI, FFO and AFFO (all non-IFRS measures) statement annualizing the revenues and expenses as if the stores purchased in fiscal 2017, were purchased as of January 1, 2017 and owned for the entire 12 month period. The results of this annualized statement show that NOI, FFO and AFFO would be higher by $16.0, $8.2 million and $8.2 million, respectively. NOI would have been $56.6 million, FFO would be $24.0 million and the AFFO would be $29.4 million. The Corporation expects to realize the full benefit of these acquisitions in fiscal 2018. For the Year Ended December 31, 2017 Actual Annualized Results Incremental Notes Storage revenue and related services $ 60,671,031 $ 84,583,806 $ 23,912,775 Management fees 1,217,483 $ 1,623,310 Property operating costs Net operating income Adjustments: NOI less interest from joint venture Acquisition and integration costs Selling, general and administrative Interest Funds from Operations Adjustment: Acquisition and integration costs Adjusted Funds from Operations 61,888,514 21,294,478 40,594,036 (291,535) 5,373,955 4,038,559 15,639,157 24,760,136 15,833,900 5,373,955 21,207,855 86,207,116 29,635,381 56,571,735 (720,675) 5,373,955 4,038,559 23,833,294 32,525,133 24,046,602 5,373,955 29,420,557 405,827 24,318,602 8,340,903 15,977,699 (429,140) - - 8,194,137 7,764,997 8,212,702 - 8,212,702 1 1 2 3 4 Note 1 - the results from all stores acquired in fiscal 2017, have been adjusted as if the purchase occurred on January 1, 2017. For revenues, we assumed achieved occupancies and rent per square foot were repeated for the period prior to acquisition. Information regarding expenses incurred during 2017 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, 2017. 67 Annual report Segmented, Existing and New Self Storage and Portable Storage Results The Corporation operates three reportable business segments - self storage, portable storage and management fees. Self storage involves the customer renting space at the Corporation’s property for short or long term storage. Portable storage involves delivering a storage unit to the customer. The customer can choose to keep the portable storage unit at their location or have it moved to another location. Management fees are revenues generated from the management of stores owned by third parties. Revenue, property operating costs and net operating income (unaudited) Three Months Ended December 31 (audited) Fiscal 2017 2016 Change 2017 2016 Change $ % $ % Revenue Existing Self Storage 1 New Self Storage 1 $ 5,286,771 $ 4,924,934 361,837 7.3% $ 20,702,923 $ 18,968,663 1,734,260 9.1% 13,709,373 2,537,026 11,172,347 440.4% 33,950,301 3,493,582 30,456,719 871.8% Total Self Storage 18,996,144 7,461,960 11,534,184 154.6% 54,653,224 22,462,245 32,190,979 143.3% Portable Storage 1,369,899 1,438,222 (68,323) -4.8% 6,017,807 5,362,299 655,508 12.2% Management fees 378,067 - 378,067 - 1,217,483 - 1,217,483 - Combined 20,744,110 8,900,182 11,843,928 133.1% 61,888,514 27,824,544 34,063,970 122.4% Operating Costs Existing Self Storage 1,496,176 1,381,842 114,334 8.3% 6,537,387 6,105,260 432,127 7.1% New Self Storage Total Self Storage 4,311,184 821,093 3,490,091 425.1% 10,866,548 1,339,092 9,527,456 711.5% 5,807,360 2,202,935 3,604,425 163.6% 17,403,935 7,444,352 9,959,583 133.8% Portable Storage 952,956 984,916 (31,960) -3.2% 3,890,543 3,355,666 534,877 Combined 6,760,316 3,187,851 3,572,465 112.1% 21,294,478 10,800,018 10,494,460 15.9% 97.2% Net Operating Income 1 Existing Self Storage 3,790,595 3,543,092 247,503 7.0% 14,165,536 12,863,403 1,302,133 10.1% New Self Storage 9,398,189 1,715,933 7,682,256 447.7% 23,083,753 2,154,490 20,929,263 971.4% Total Self Storage 13,188,784 5,259,025 7,929,759 150.8% 37,249,289 15,017,893 22,231,396 148.0% Portable Storage Management fees 416,943 378,067 453,306 (36,363) -8.0% 2,127,264 2,006,633 120,631 6.0% - 378,067 - 1,217,483 - 1,217,483 - Combined $ 13,983,794 $ 5,712,331 8,271,463 144.8% $ 40,594,036 $ 17,024,526 23,569,510 138.4% 1 Non -IFRS Measure. Existing Self Storage For the three months ended December 31, 2017, Revenue and NOI increased by 7.3% and 7.0%, respectively, over the same prior year period. The revenue increase was substantially driven from continued execution of our revenue management program, as occupancy remained stable. We were able to control advertising and staffing costs, but there were increases to utilities and snow clearing costs resulting from a colder winter. New Self Storage Increases are the result of acquiring 63 stores in 2017 (42 stores) and 2016 (21 stores). Portable Storage Produced stable results, both in occupancy and revenue. Q4 was impacted by a colder winter. 68 Annual report Quarterly net operating income The Corporation’s quarterly results are affected by the timing of acquisitions, both in the current year and prior year. SVI also incurs non-recurring initial expenses when a new location is acquired. These costs may include labor, severance, training, travel, advertising and 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. Operating costs are 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. This is consistent with that experienced in the Northern US. Fiscal 2017 ('000) Fiscal 2016 ('000) Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total 1 NOI Existing Self Storage $ 3,791 $ 3,801 $ 3,466 $ 3,108 $ 14,166 $ 3,543 $ 3,427 $ 3,091 $ 2,802 $ 12,863 New Self Storage Total Self Storage Portable Storage Management fees 9,398 13,189 417 378 7,565 3,427 2,693 11,366 6,893 5,801 748 423 612 416 350 - 23,083 37,249 2,127 1,217 1,716 314 90 34 5,259 3,741 3,181 2,837 2,154 15,018 453 739 582 233 2,007 $ 13,984 $ 12,537 $ 7,922 $ 6,151 $ 40,594 $ 5,712 $ 4,480 $ 3,763 $ 3,069 $ 17,025 1 Non-IFRS Measure Existing Self Storage The increase in Q4 2017 over Q4 2016 was substantially driven from continued execution of our revenue management program, while occupancy remained stable. While being able to control costs such as advertising and staffing costs, there were increases to utilities and snow clearing costs resulting from the winter weather experienced. New Self Storage SVI added 42 stores in 2017 and 21 stores in fiscal 2016. These additions have resulted in NOI growth quarter over quarter as we commenced reporting results. Portable Storage NOI was lower in Q4 compared to 2016, both in occupancy and revenue, the result of a colder winter. Even with a slower Q4 we achieved a 6.0% NOI year over year growth in 2017. The portable storage business is subject to seasonality as all portable units are non-climate controlled generally resulting in lower results in Q1 and Q4. 69 Annual report Summary of Quarterly Results (unaudited) Revenue $20,744,110 $18,453,960 $12,557,306 $10,133,138 $61,888,514 $8,900,182 $7,307,070 $6,320,322 $5,296,970 $27,824,544 $4,795,266 $3,137,527 $2,111,281 $1,096,513 $11,140,587 Net Income / (Loss) $15,343,505 ($15,402,377) ($2,995,895) ($10,797,865) ($13,852,632) ($18,657,288) ($537,379) ($663,764) ($1,331,005) ($21,189,436) ($2,702,281) ($821,330) ($677,127) ($374,472) ($4,575,210) Net Income / (Loss) per share $0.044 ($0.046) ($0.010) ($0.037) N/A Fully diluted Net Income / (Loss) per share $0.044 ($0.046) ($0.010) ($0.037) N/A ($0.070) ($0.022) ($0.004) ($0.008) N/A ($0.026) ($0.012) ($0.012) ($0.010) N/A ($0.070) ($0.022) ($0.004) ($0.008) N/A ($0.026) ($0.012) ($0.012) ($0.010) N/A Total Total Assets $895,496,381 $839,525,204 $400,216,946 $404,743,767 N/A Liabilities Dividends $627,421,264 $585,777,091 $237,005,503 $238,025,850 N/A $880,328 $879,376 $765,016 $749,946 $3,274,666 $342,803,581 $253,955,856 $179,885,223 $176,728,097 N/A $187,115,587 $131,931,530 $118,343,352 $114,010,014 N/A $724,931 $630,309 $440,398 - $1,795,638 $171,486,477 $108,865,822 $54,449,748 $27,910,360 N/A $112,922,559 $85,594,955 $25,372,609 $25,033,929 N/A - - - - - Period 2017- Q4 2017- Q3 1 2017- Q2 2017- Q1 1 Total 2017 2016- Q4 2016- Q3 2016- Q2 2016- Q1 Total 2016 2015- Q4 2015- Q3 2015- Q2 2015- Q1 Total 2015 Note 1: As discussed in the Depreciation, amortization and goodwill impairment reversal section in the Financial Results Overview, the Corporation reversed $12,420,000 of goodwill impairment taken in Q1 2017 and Q3 2017. The Q1 2017 goodwill impairment that was recorded was $5,361,176, and as a result, Q1 2017 previously reported net loss of $10,797,865, would have been $5,436,689 without such goodwill impairment. The Q3 2017 goodwill impairment that was recorded was $7,058,823 million, and as a result, Q3 2017 reported net loss of $15,402,377 would have been $8,343,553 without such goodwill impairment. The previously reported Total Assets for Q1 2017 of $404,743,767 would have been $410,104,943. The previously reported Total Assets for Q2 2017 of $400,216,946 would have been $405,578,122. The previously reported Total Assets for Q3 2017 of $839,525,204 would have been $851,945,204. WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL Working Capital Cash provided by operating activities was $16.0 million for fiscal 2017 compared to $7.5 million for fiscal 2016. The increase was primarily due to the operational results from stores purchased in fiscal 2016 and 2017, increased rates through our revenue management systems, continued streamlining and integration of operations and controlling costs on assets purchased. As at December 31, 2017, the Corporation had $16.0 million of cash compared to $11.9 million at December 31, 2016. The increase is due to increase in cash generated through the Corporation’s operating activities and allows the Corporation to meet its obligations and growth strategies. The Corporation expects its cash flow from operations to improve as the full benefit of the stores purchased in the year are realized. In addition, the Corporation, to fund acquisitions and its expansion plans, the Corporation will borrow against low levered assets. 70 Annual reportLong Term Debt and Lines of Credit As at December 31, 2017 and December 31, 2016, the Corporation held the following debt: December 31, 2017 Weighted Average Balance Rate Range December 31, 2016 Weighted Average Balance Rate Range Mortgages Fixed/Variable 3.18% to 5.5% 4.21% 233,190,726 3.46% to 5.50% 4.09% 164,942,311 Maturity: March 2018 to March 2025 Maturity: October 2017 to January 2022 Deferred financing costs net of accretion of $1,376,845 (December 31, 2016 - $635,977) (2,245,471) 230,945,255 Lines of Credit (918,798) 164,023,513 Prime plus 1.00% Prime plus 1.00% Variable Rate or BA plus 2.75% 4.21% 332,153,083 or BA plus 2.75% 4.38% 18,483,081 Maturity: March 2018 to August 2020 Maturity: April 2017 to August 2020 563,098,338 182,506,594 The bank prime rate at December 31, 2017 was 3.20% (December 31, 2016 - 2.70%). The weighted average cost of debt at December 31, 2017 is 4.21% (December 31, 2016 - 4.12%). The increase is due to increase the prime rate. The Corporation will look to reduce its variable interest rate exposure by entering into additional fixed interest rate term debt to replace lines of credit. Mortgages are secured by a first mortgage charge on the real estate 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 debt service coverage ratios, a tangible net worth ratio, and a loan to value ratio. As of December 31, 2017 and 2016, the Corporation is in compliance with all covenants. 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 and lines of credit in each of the next five years are estimated as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter $ $ $ $ $ $ 341,601,721 (includes lines of credit) 18,528,294 44,305,118 8,181,180 22,455,273 130,272,223 71 Annual report Of the principal repayments shown in Year 1, $6.5 million are required under our amortizing term debt mortgages, $3.0 million relates to a loan due in the upcoming year that is expected to be refinanced and $332.2 million relates to our lines of credit. Our lines of credit are covenant based (debt service coverage ratios, tangible net worth ratios, and loan to value ratios) and do not require repayment as long as the covenants are met. As of December 31, 2017 and 2016, the Corporation is in compliance with all covenants. Given that our lines of credit are short term in nature, the Corporation will term out assets supporting the lines when deemed appropriate, which includes determination that the Corporation has been able to implement its operating system to increase the value of the assets and to ensure that the Corporation has an appropriate mix of assets under our lines of credit and term mortgages. Share Capital For the fiscal year ended December 31, 2017, the Corporation issued a total of 55,417,266 common shares for $133.6 million, net of share issuance costs, (121,883,848 common shares valued at $118.9 million were issued in fiscal 2016). The common shares issued are: Balance, December 31, 2015 Bought deal Issued on asset acquisitions Private placement Dividend reinvestment plan Share option redemption Share issuance costs Common shares repurchased Balance, December 31, 2016 Bought deal Issued on asset acquisitions Dividend reinvestment plan Stock option redemption Share issuance costs Common shares repurchased Balance, December 31, 2017 Number of Shares Amount 167,925,820 $ 66,867,412 67,647,600 45,621,212 8,333,332 345,704 36,000 - (100,000) 57,500,460 58,803,787 5,499,999 327,365 14,400 (3,172,985) (72,050) 289,809,668 $ 185,768,388 32,076,000 22,520,098 529,268 526,000 - (234,100) 85,001,400 51,320,000 1,055,801 197,750 (3,271,774) (499,784) 345,226,934 $ 319,571,781 Bought Deal On July 19, 2017, the Corporation issued 32,076,000 common shares at a price of $2.65 per common share for gross proceeds of $85,001,400. Dividend Reinvestment Plan Represents common shares issued under the Corporation’s dividend reinvestment plan (“DRIP") for holders of common shares approved on April 18, 2016. Under the terms of the DRIP, eligible registered holders of a minimum of 10,000 Common Shares (the "Shareholders") may elect to 72 Annual report automatically reinvest their cash dividends, payable in respect to the common shares, to acquire additional common shares, which will be issued from treasury or purchased on the open market. The Corporation may initially issue up to 5,000,000 common shares under the DRIP, which may be increased upon Board of Directors approval, acceptance of the increase by the Exchange, and upon public disclosure of the increase. Common Shares Repurchased Represents common shares repurchased under the Corporation’s Normal Course Issuer Bid ("NCIB") policy allowing for the purchase for cancellation, during the 12-month period starting August 18, 2017, of up to 17,198,962 of the common shares. Stock Options and Warrants A total of 11,555,850 options were outstanding as at December 31, 2017 (December 31, 2016 – 11,501,000). Of the outstanding amount, 11,555,850 options were exercisable (December 31, 2016 – 11,501,000). The details are as follows: Exercise Price Vesting Date Expiry Date December 31, 2017 December 31, 2016 May 5, 2007 May 6, 2009 June 19, 2014 April 28, 2015 Sept 14, 2015 Dec 21, 2016 $0.20 $0.23 $0.33 $0.41 $0.50 $1.36 $1.78 Mar 16, 2017 Nov 5, 2017 May 6, 2019 June 19, 2024 April 28, 2025 Sept 14, 2025 Dec 21, 2026 Mar 15, 2027 Options exercisable and outstanding Warrants exercisable and outstanding are as follows: - 1,210,000 220,000 2,390,850 1,760,000 2,975,000 3,000,000 11,555,850 1,000,000 2,200,000 400,000 2,901,000 2,000,000 3,000,000 - 11,501,000 Exercise Price Expiry Date December 31, 2017 December 31, 2016 $0.35 $0.37 Feb 25, 2018 Feb 25, 2018 16,666 2,533,334 Warrants exercisable and outstanding 2,550,000 249,999 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 consultants of the Corporation, non-transferable options to purchase common shares. CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS Operating Lease Commitments The Corporation leases buildings and lands in Winnipeg, MB, Kamloops, BC and Montreal, QC. The leases do not contain any contingent rent clauses. They do 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. 73 Annual reportThe leases expire between 2018 and 2054, with the leases expiring in 2027 and 2032 having up to 20 years and 25 years of renewals, respectively, 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 $ 1,227,614 4,658,483 ____1,213,005 $ 27,099,102 Bank Letter of Guarantee The Corporation has various letters of guarantee in the amount of $474,691 which are due within one year. Contingency The Corporation has no legal contingency provisions at either December 31, 2017 or December 31, 2016. 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, 2017, the Corporation paid total management fees of $293,321 (December 31, 2016 - $819,666) to Access Results Management Services Inc. (“ARMS”), a corporation controlled by Steven Scott and Iqbal Khan. Pursuant to a management agreement, ARMS is entitled to a base management fee of $194,758 for fiscal 2017, as well as an annual performance fee of 4% of net operating income (“NOI”), defined as storage and related services revenue less property operating costs, if the Corporation attains 85% or greater of its annual board-approved budgeted NOI for that fiscal year. On March 31, 2017, the Corporation purchased all management contracts from ARMS (see note 4 of audited fiscal 2017 consolidated financial statements) and therefore, the management agreement has ceased. During the year ended December 31, 2017, the Corporation reimbursed operational wages of $1,545,892 (December 31, 2016 - $4,736,700) and training, travel and related expenses of $16,804 (December 31, 2016 - $319,895) to ARMS. These expenses, reimbursed at cost, were undertaken exclusively for the benefit of the Corporation. During the year ended December 31, 2017, the Corporation paid loan guarantee fees of $127,500 (December 31, 2016 - $181,616) to Access Self Storage Inc., a large shareholder of the Corporation and a corporation related to Steven Scott and Iqbal Khan (see note 4 of audited fiscal 2017 consolidated financial statements). As a condition of the assumption of two mortgages, the director and corporation were required to provide a guarantee for the entire outstanding principal balance of the mortgages. The loan guarantee fee is compensation for the provision of this guarantee and is paid on a monthly basis at the annual rate of 0.5% and 0.4% of the original mortgage principal balances. A portion of the loan guarantee payments ceased in August 2016, while the remainder ceased in September 2017. 74 Annual report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 of the Corporation. The Corporation pays a monthly royalty of 3.5% on the gross sales. During the year ended December 31, 2017, the Corporation paid $216,710 (December 31, 2016 - $182,022) for royalties and $1,535,160 (December 31, 2016- $1,329,326) 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, 2017 was $33,808 (December 31, 2016 - $13,797) payable to CPFI and $nil (December 31, 2016 - $1,191,647) payable to ARMS. On March 31, 2017 the Corporation completed an acquisition to internalize management of the Corporation’s stores and acquired third party management contracts for over 55 stores for $16,000,000 from Access Results Management Services Inc., a corporation related to Steven Scott, Iqbal Khan, and Access Self Storage Inc. (see note 4 of audited fiscal 2017 consolidated financial statements). On August 11, 2017 the Corporation completed the acquisition of six self storage locations for $34,225,000 from Access Self Storage Inc., a corporation related to Steven Scott and Iqbal Khan (see note 4 of audited fiscal 2017 consolidated financial statements). 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: December 31, 2017 December 31, 2016 Wages, management fees, bonuses and directors fees Stock based compensation $ 129,800 1,293,914 1,423,714 $ $ 135,608 1,013,021 1,148,629 $ 75 Annual report USE OF PROCEEDS FROM JULY 2017 BOUGHT DEAL FINANCING On July 19, 2017, the Corporation completed a bought deal financing from which the Corporation issued 32,076,000 common shares at a price of $2.65 per common share for gross proceeds of $85,001,400. The Corporation used the net proceeds of $81,729,625 from the financing as follows: Repayment of debt incurred under lines of credit Fund cash portion of previously announced acquisitions Potential future acquisition opportunities Use of Proceeds (as Disclosed) Use of Proceeds (Actual) $ 19,752,594 49,598,750 11,180,000 $ 80,531,344 $ 9,000,000 64,179,942 8,549,683 $ 81,729,625 Net proceeds were higher than expected due to lower share issuance costs. 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. The Acquisition Committee is comprised of nine voting members, seven 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 proposed acquisitions 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 makes with respect to any related party transaction, and in particular, an acquisition involving 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 December 31, 2017 annual audited consolidated financial statements. There has been no change in significant accounting policies from the Corporation’s audited consolidated annual financial statements from December 31, 2016. In addition, there has been no change in the Company’s financial instrument risks. 76 Annual report Non-IFRS Financial Measures Management uses both IFRS and Non-IFRS Measures to assess the Corporation’s operating performance. 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. ii. iii. iv. Net Operating Income (“NOI”) – NOI is defined as storage and related services less operating costs. NOI does not include interest expense or income, depreciation and amortization, selling, general and administrative costs, acquisition and integration costs, stock based compensation costs or taxes. NOI assists management in assessing profitability and valuation from principal business activities. Funds from Operations (“FFO”) – FFO is defined as net income (loss) excluding gains or losses from the sale of depreciable real estate, plus depreciation, amortization and goodwill adjustment, 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 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. Adjusted Funds from Operations (“AFFO”) – AFFO is defined as FFO plus acquisition and integration costs. Acquisition and integration costs are one time in nature to the specific assets purchased in the current period or pending and are expensed under IFRS. Existing Self Storage and New Self Storage performance – “Existing Self Storage” are defined as those that the Corporation has owned or leased since the beginning of the previous fiscal year or as of January 1, 2016. “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 IASB and the International Financial Reporting Interpretations Committee have issued a number of new or revised standards or interpretations that will become effective for future periods and have a potential implication for the Corporation. There have been no pronouncements in addition to those disclosed in the December 31, 2017 annual audited consolidated financial statements. 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 three months and fiscal year ended December 31, 2017, 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 77 Annual report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 three months and fiscal year ended December 31, 2017. 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. 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. 78 Annual report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. 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 79 Annual report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. 80 Annual report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 1500, 640 – 5th Avenue Calgary, AB T2P 3G4 Telephone 403-263-3385 Facsimile 403-269-8450 HEAD OFFICE REGISTRAR & TRANSFER AGENT StorageVault Canada Inc. 100 Canadian Rd Toronto, ON M1R 4Z5 Telephone 1-877-622-0205 Email: ir@storagevaultcanada.com TSX Trust Company 300-5th Avenue S.W., 10th Floor Calgary, AB T2P 3C4 Telephone 403-218-2800 Facsimile 403-265-0232 TSX VENTURE EXCHANGE LISTING SVI 81 Annual report Corporate Information Phone: 1-877-622-0205 Web site: storagevaultcanada.com Email: ir@storagevaultcanada.com Address: 100 Canadian Road, Toronto, Ontario, M1R 4Z5 

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