Putting the pieces together
ANNUAL
REPORT 2018
EXECUTE, EXECUTE, EXECUTE!
2
Annual Report 2018 Table
of Contents
Financial Highlights
Letter to Our Shareholders
Our National Footprint
Our Board Members
Financial Statements
Management Discussion and Analysis
5
6
8
11
12
51
Corporate Information
Phone:
1-877-622-0205
Website:
storagevaultcanada.com
Email:
ir@storagevaultcanada.com
Address:
100 Canadian Road
Toronto, ON
M1R 4Z5
3
Annual Report 2018
SVI IS NOW CREATING ITS OWN
DEAL FLOW AS OWNERS NOW
UNDERSTAND THE BENEFITS OF OUR
STRUCTURE AND SCALE
80 MM
4
Annual Report 2018 100
80
60
40
20
0
Financial Highlights
ASSET OVERVIEW - GROWTH
New Management
10 STORES
Q4/2014
14 STORES
Q2/2015
29 STORES
Q4/2015
49 STORES
Q4/2016
90 STORES
Q4/2017
105 STORES
Q4/2018
35
30
REVENUE
NOI
AFFO
20
56%
62%
100
80
60
40
NOI AND AFFO
20
25
15
10
5
0
AFFO
45%
AFFO
LET’S TALK GROWTH:
NOI
NOI
80 MM
80
70
70 MM
60
60 MM
50
50 MM
40
40 MM
30
30 MM
20 MM
20
10 MM
10
0
$ 0
2014
2015
2016
2017
2018
0
35 MM
35
30
30
30 MM
25
25
25 MM
20
20
20 MM
15
15 MM
15
10
10 MM
10
5 MM
5
5
$ 0
0
0
Q1
80
70
60
50
40
30
20
10
0
AFFO
NOI
Q3 Q4
Q2
2014
Q1
Q3 Q4 Q1
Q2
2015
Q3 Q4 Q1
Q2
2016
Q3 Q4 Q1
Q2
2017
Q3 Q4
Q2
2018
5
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4 Q1
Q2
Q3 Q4 Q1
Q2
Q3 Q4 Q1
Q2
Q3 Q4
100
80
60
40
20
0
100
80
60
40
20
0
30
25
20
15
10
5
0
Annual Report 2018 Letter to Our Shareholders
Dear Fellow Shareholders,
2018 was a very strong year for SVI as we more than doubled
One of the advantages of our size and scale has been our ac-
our target for acquisitions, exceeded our revenue and NOI
cess to significantly improved debt terms. We have been able
growth goals and locked in the majority of our debt at very
to de-risk the balance sheet by entering into $275 million of 10
favourable rates for a ten year term.
year fixed rate debt at attractive interest rates below 4.25%.
On the acquisition front, we announced $171.9 million of
To date, we have closed $10.5 million in assets and we expect
acquisitions, $161.4 million of which closed in 2018 and $10.5
to acquire $50 million of assets in addition to the $275 million
million closed in Q1 2019. The jewel was acquiring the Canadian
Real Storage portfolio. Real Storage is our second whale in as
Self Storage portfolio for $66.2 million (a mini whale) with core
many years and is a transformational deal taking SVI close to
Toronto locations at Yonge & Steeles and York Mills & Leslie.
200 stores owned and managed throughout Canada.
Acquisitions have continued to be stronger than expected
We continue to solidify our status as the storage leader in
as owners now understand the benefits of our structure and
Canada and remain committed to growing cash flows and
scale. We are confident in our acquisition funnel for 2019 and
creating long term wealth for our shareholders.
into 2020.
Operationally we have been able to execute on our integra-
tion plan more quickly than budgeted, allowing us to reap the
benefits of synergies and scale from the Sentinel portfolio
which has resulted in an improvement in NOI margin by over
2.5% to over 67%. Revenues grew 56% to over $96.4 million
and NOI grew 62% to $65.9 million. Same store NOI grew 8.8%
in 2018, well in excess of our 4 to 6% long term average target
and AFFO grew 45% to $30.8 million which allows us to fund
growth through internal cash flow.
We continue to build the best storage portfolio and platform
in Canada by focusing on technology and innovation. We
have developed best in class revenue management systems,
digital marketing platforms, automation efficiencies and data
analytics techniques that focus on enhancing revenues,
acquiring customers, reducing expenses and providing the
highest quality customer experience.
We believe that we have the best team in the country and this
provides us a tremendous competitive advantage. Through
the combination of our great people and our best in class
systems, we are now approaching $2 billion in enterprise
value. This size and scale provides a significant competitive
advantage that we will continue to leverage.
6
Thank you for your continued support.
Sincerely,
Steven Scott
Chief Executive Officer
February 27, 2019
WE GREW TO OVER
6 MILLION SQFT OF
RENTABLE SPACE IN
55,000 STORAGE UNITS
$171.9 MILLION IN
ACQUISITIONS RESULTING
IN 15 STORES BEING
ADDED IN 2018
Annual Report 2018 WE CONTINUE TO
EXECUTE ON OUR
PLAN AND DELIVER
STRONG RESULTS
REVENUE GROWTH OF
56% TO $96.4 MILLION
FROM $61.9 MILLION
ANNOUNCED THE
ACQUISITION OF THE
38 STORE REAL STORAGE
PORTFOLIO FOR $275 MILLION
EXPECTING TO CLOSE IN Q2 2019
NOI GROWTH OF
62% TO $65.9 MILLION
FROM $40.6 MILLION
EXPECTING AN ADDITIONAL
$50 MILLION IN
ACQUISITIONS FOR
THE BALANCE OF 2019
7
Annual Report 2018 Our National Footprint
160+ locations owned and managed across Canada
and growing!
Proudly Canadian
17
30
8
8
28
66
4
OUR SELF STORAGE AND PORTABLE STORAGE BRANDS
8
9
Annual Report 2018Annual Report 2018 OUR SIZE AND SCALE PROVIDES A
SIGNIFICANT COMPETITIVE ADVANTAGE
THAT WE WILL CONTINUE TO LEVERAGE
10
Annual Report 2018 Our Board Members
MEET OUR
BOARD
MEMBERS
STEVEN SCOTT
Director
CEO
Mr. Simpson is a co-founder
and former president and
CEO of the corporation, 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
President and CEO of CVL
Investments Ltd., and founder
of Storage for Your Life, which
she sold to StorageVault in
2015. Ms. Fleming currently
serves as Chairperson of the
Corporation’s Governance
Committee and also serves on
the Acquisition Committee.
ALAN SIMPSON
Director
BLAIR TAMBLYN
Director
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 and other real
estate assets.
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 as well
as records management.
JAY LYNNE FLEMING
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 have solidified our
status as the storage
leader in Canada and
will continue to focus
on growing cash flows
and creating long
term wealth for our
shareholders.
11
Annual Report 2018 StorageVault Canada Inc.
Consolidated Financial Statements
For the Years ended December 31, 2018 and 2017
12
Annual Report 2018 Independent Auditor's Report
To the Shareholders of StorageVault Canada Inc.:
Opinion
We have audited the consolidated financial statements of StorageVault Canada Inc. and its subsidiaries (the "Company"), which
comprise the consolidated statements of financial position as at December 31, 2018 and December 31, 2017, and the consolidated
statements of income (loss) and other comprehensive income (loss), changes in equity and cash flows for the years then ended, and
notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2018 and December 31, 2017, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises Management's Discussion and Analysis and the
Annual Report (but does not include the consolidated financial statements and our auditor's report thereon).
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audits or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on
the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on
this other information, we conclude that there is a material misstatement therein, we are required to communicate the matter to those
charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
13
Annual Report 2018 Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Sean Du Plessis.
Calgary, Alberta
February 27, 2019
Chartered Professional Accountants
14
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 Shareholders' Equity
Long term debt (Note 7)
Lines of credit (Note 7)
Deferred tax liability (Note 10)
Accounts payable and accrued liabilities
Unearned revenue
Shareholders' Equity
Share capital (Note 8)
Dividends paid (Note 8)
Contributed surplus (Note 8)
Deficit
Commitments and Contingencies (Note 15)
Subsequent Events (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
2018
2017
$
915,442,044
77,526,826
19,695,873
-
5,191,801
4,934,873
$
780,024,751
72,060,892
16,152,428
14,635,305
8,710,680
3,912,325
$
1,022,791,417
$
895,496,381
$
552,677,822
149,733,334
47,026,009
7,394,616
5,033,079
761,864,860
$
230,945,255
332,153,083
49,156,628
10,784,409
4,381,889
627,421,264
338,552,701
(8,726,868)
5,218,589
(74,117,865)
260,926,557
319,571,781
(5,070,304)
3,540,210
(49,966,570)
268,075,117
$
1,022,791,417
$
895,496,381
Approved on behalf of the Board:
"signed" Steven Scott
Director
"signed" Iqbal Khan
Director
__________________________________________________________________________________________
15
Annual Report 2018
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
Redemption 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.
2018
2017
$
319,571,781
18,980,920
-
338,552,701
$
185,768,388
134,303,177
(499,784)
319,571,781
3,540,210
(223,252)
1,901,631
5,218,589
2,243,239
(237,315)
1,534,286
3,540,210
(49,966,570)
(30,527,795)
-
(5,586,143)
(24,151,295)
(13,852,632)
$
(74,117,865)
$
(49,966,570)
__________________________________________________________________________________________
16
Annual Report 2018
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
Redemption 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
StorageVault Canada Inc.
Consolidated Statements of Income (Loss) & Comprehensive Income (Loss)
For the Years Ended December 31
2018
2017
$
319,571,781
$
185,768,388
18,980,920
134,303,177
-
(499,784)
338,552,701
319,571,781
3,540,210
(223,252)
1,901,631
5,218,589
2,243,239
(237,315)
1,534,286
3,540,210
(49,966,570)
(30,527,795)
-
(5,586,143)
(24,151,295)
(13,852,632)
$
(74,117,865)
$
(49,966,570)
Revenue
Storage and related services
Management fees
Expenses
Operating costs
Acquisition and integration costs
Selling, general and administrative
Share of net loss in joint venture (Note 14)
Stock based compensation (Note 8)
Depreciation, amortization and goodwill (Note 5, 6)
Interest
Net income (loss) and comprehensive income (loss) before tax
Deferred tax recovery (Note 10)
2018
2017
$
94,666,809
1,716,790
96,383,599
$
60,671,031
1,217,483
61,888,514
30,523,949
21,294,478
2,248,751
6,192,383
-
1,901,631
58,857,132
28,875,906
128,599,752
5,373,955
4,038,559
157,278
1,534,286
38,608,471
15,639,157
86,646,184
(32,216,153)
(24,757,670)
8,064,858
10,905,038
The accompanying notes are an integral part of these consolidated financial statements.
Net income (loss) and comprehensive income (loss) after tax
$
(24,151,295)
$
(13,852,632)
Net income (loss) per common share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
$
(0.069)
$
(0.044)
$
(0.069)
$
(0.044)
351,893,667
351,893,667
317,487,007
317,487,007
__________________________________________________________________________________________
__________________________________________________________________________________________
17
Annual Report 2018
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 (Note 10)
Depreciation, amortization and goodwill adjustment (Notes 5, 6)
Amortization of deferred financing costs
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
Repayment of long term debt
Cancellation of share options and warrants
Investing activities
Cash paid in business combinations (Note 4)
Additions to real estate and equipment (Note 5, 6)
Proceeds on disposal of real estate and equipment
2018
2017
$
(24,151,295)
$
(13,852,632)
(8,064,858)
58,857,132
1,137,473
1,901,631
(352,184)
29,327,899
(1,022,548)
3,518,879
(7,752,575)
651,190
24,722,845
1,598,020
-
(2,113,765)
419,443,038
(281,267,693)
-
137,659,600
(140,263,193)
(18,611,830)
36,023
(158,839,000)
(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
83,471,772
(499,785)
(2,394,337)
483,553,119
(103,702,241)
(5,823,458)
454,605,070
(457,532,033)
(5,185,319)
1,794,020
(460,923,332)
Increase in cash and short term deposits
Cash and short term deposits balance, beginning of period
3,543,445
4,282,536
16,152,428
11,869,892
Cash and short term deposits balance, end of period
$
19,695,873
$
16,152,428
The accompanying notes are an integral part of these consolidated financial statements.
__________________________________________________________________________________________
18
Annual Report 2018
Net income (loss) and comprehensive income (loss) after tax
$
(24,151,295)
$
(13,852,632)
Cash flow from operations before non-cash working capital balances
29,327,899
15,978,043
StorageVault Canada Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31
Cash provided by (used for) the following activities:
Operating activities
Adjustment for non-cash items:
Deferred tax recovery (Note 10)
Depreciation, amortization and goodwill adjustment (Notes 5, 6)
Amortization of deferred financing costs
Stock based compensation (Note 8)
Gain on disposal of real estate and equipment
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
Repayment of long term debt
Cancellation of share options and warrants
Investing activities
Cash paid in business combinations (Note 4)
Additions to real estate and equipment (Note 5, 6)
Proceeds on disposal of real estate and equipment
Increase in cash and short term deposits
Cash and short term deposits balance, beginning of period
2018
2017
(8,064,858)
58,857,132
1,137,473
1,901,631
(352,184)
(10,905,038)
38,608,471
740,866
1,534,286
(147,910)
(1,664,429)
(6,871,244)
3,066,967
91,461
10,600,798
83,471,772
(499,785)
(2,394,337)
(1,022,548)
3,518,879
(7,752,575)
651,190
24,722,845
1,598,020
(2,113,765)
-
-
419,443,038
483,553,119
(281,267,693)
(103,702,241)
137,659,600
454,605,070
(5,823,458)
(140,263,193)
(457,532,033)
(18,611,830)
36,023
(5,185,319)
1,794,020
(158,839,000)
(460,923,332)
3,543,445
4,282,536
16,152,428
11,869,892
Cash and short term deposits balance, end of period
$
19,695,873
$
16,152,428
The accompanying notes are an integral part of these consolidated financial statements.
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
1. Description of Business
The consolidated financial statements of StorageVault Canada Inc. and its subsidiaries (the “Corporation”)
as at and for the year ended December 31, 2018, were authorized for issuance by the Board of Directors of
the Corporation on February 26, 2019. 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, managing and renting self storage and portable storage
space to individual and commercial customers.
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”) as at January 1, 2018.
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
subsidiaries, Sentinel Self-Storage Corporation and Spyhill Ltd., 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. The entity was dissolved on January 19, 2017. StorageVault Canada
Inc. did 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.
__________________________________________________________________________________________
Notes: 1
19
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
Interest in Joint Venture
The Corporation had an interest in a joint venture, through its wholly owned subsidiary Sentinel Self-
Storage Corporation, Spyhill Ltd. (“JV”), which was a jointly controlled entity. The Corporation recognized
its interest in the JV using the equity method of accounting. As at February 1, 2018, the Corporation wholly
owned the JV through the purchase of the remaining 50% of its shares (Note 4).
Revenue Recognition
Revenue from the rendering of services and sales of goods are recognized at the fair value of consideration
received or receivable after the deduction of any trade discounts and excluding sales taxes.
The Corporations revenue comprises the renting of storage units to customers, managing storage facilities
on behalf of third parties and sale of merchandise, including locks, boxes, packing supplies and equipment.
Revenue earned from the renting of storage units is accounted for under IAS17 – Leases. Storage units are
rented to customers pursuant to rental agreements which provide for weekly or monthly rental terms with
non-refundable rental payments. The rental agreements may be terminated by the customer without
further obligation or cost upon vacating the storage unit. Revenue from rental agreements is recognized
over the rental term pursuant to the rental agreement. Non-refundable customer deposits, which are
received to hold a unit for rent at a future date, are deferred and recognized as revenue upon
commencement of the rental agreement. Receipts of rental fees for future periods are deferred and
recognized as revenue when each respective monthly period commences. Provision is made for expected
allowances as necessary.
The Corporation earns a management fee based on a percentage of gross revenues of the operations for
managing storage facilities for third parties. Revenue is recognized over time when the services are
rendered.
Revenue from the sale of merchandise, including locks, boxes, packing supplies and equipment, is
recognized at a point in time when the merchandise is delivered to the customer.
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.
20
Notes: 2
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
Goodwill represents the excess of the identifiable cost of an acquisition over the fair value of the
Corporation's 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 Corporation's 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 allocated to each cash-generating unit (“CGU”) expected to benefit from the
business combination’s synergies and to the lowest level at which management monitors the goodwill.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Corporation reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement
period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognized as of that date. The measurement period is the period from the date of 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 CGU
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 the disposal 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 CGU 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.
Notes: 3
21
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
- Purchase price allocations - Estimates are made in determining the fair value of assets and liabilities,
including the valuation of separately identifiable intangibles acquired as part of an acquisition. These
estimates may be further based on management’s best assessment of the related inputs used in
valuation models, such as future cash flows and discount rates.
-
- Bad debts - The Corporation estimates potential bad debts based on an analysis of historical collection
activity and specific identification of overdue accounts. Actual bad debts may differ from estimates
made.
Income taxes - Income taxes are subject to measurement uncertainty due to the possibility of changes
in tax legislation or changes in the characterization of income sources.
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 applied judgment in determining control over the JV where the Corporation held 50%
equity ownership. The judgment was 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 was guaranteed 50% of seats on the board of the
JV and participated in all significant financial and operating decisions. Joint control was established by
the shareholder arrangement that required 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.
22
Notes: 4
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
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 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.
Notes: 5
23
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
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.
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.
24
Notes: 6
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
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 taxable entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Stock Based Compensation
The fair value of stock options issued to directors, 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
the 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.
When 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.
Notes: 7
25
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
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.
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.
Changes in Accounting Policies
The Corporation has adopted the following new and revised standards effective January 1, 2018:
IFRS 9 - Financial Instruments
The International Accounting Standards Board issued IFRS 9 – Financial Instruments that introduces new
requirements for classifying and measuring financial instruments. The standard is effective for fiscal years
beginning on or after January 1, 2018. IFRS 9 affects the classification and measurement of financial assets
and financial liabilities and the recognition of expected credit losses. The Corporation adopted IFRS 9
effective January 1, 2018 on a retrospective basis. The prior year comparative information has not been
adjusted with respect to the adoption of IFRS 9’s classification and measurement requirements as the
adoption of IFRS 9 did not result in material changes to the determination of the Corporation’s anticipated
credit losses and associated allowance for doubtful accounts.
There were no adjustments to the carrying amounts of financial instruments as a result of the measurement
classification category changes from IAS 39 to IFRS 9.
Consistent with the requirements of IFRS 9, the Corporation assesses the lifetime expected credit losses on
an ongoing basis and updates its assumptions, if and when required.
26
Notes: 8
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
a) Financial assets - Pursuant to IFRS 9, the classification of financial assets is based on the Corporation’s
assessment of its business model for holding financial assets. The classification categories are as
follows:
-
-
-
Financial assets measured at amortized cost: assets that are held within a business model
whose objective is to hold assets to collect contractual cash flows and its contractual terms give
rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets at fair value through other comprehensive income: assets that are held within
a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets and its contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through profit or loss: assets that do not meet the criteria for
amortized cost or fair value through other comprehensive income.
Financial assets measured at amortized cost are measured at cost using the effective interest method.
Impairment of financial assets are recognized in accordance with IFRS 9’s three stage process and credit
losses expected to occur over the first 12 months of the life of the instrument are recognized immediately.
The life time credit losses are recognized when the credit risk has increased significantly since the initial
recognition. Loss allowances for financial assets measured at amortized cost are deducted from the gross
carrying amounts of the assets and the loss is recognized in the Consolidated Statements of Income (Loss)
and Comprehensive Income (Loss). When a trade receivable is uncollectible, it is written off against the
allowance for doubtful accounts.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset
expire or when the contractual rights to those assets are transferred.
b) Financial liabilities - The classification of financial liabilities is determined by the Corporation at initial
recognition. The classification categories are as follows:
-
-
Financial liabilities measured at amortized cost: financial liabilities initially measured at fair
value less directly attributable transaction costs and are subsequently measured at amortized
cost using the effective interest method. Interest expense is recognized in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss).
Financial liabilities measured at fair value through profit or loss: financial liabilities measured
at fair value with changes in fair value and interest expense recognized in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss).
Financial liabilities are derecognized when the obligation is discharged, cancelled or expired.
Notes: 9
27
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 3 – Continued
The following table summarizes the classification impacts of the adoption of IFRS 9:
Financial instrument
Financial asset:
Previous classification
New classification
under IAS 39
under IFRS 9
Accounts receivable and other receivables
Loans and receivables
Cash and short term deposits
Loans and receivables
Amortized cost
Amortized cost
Financial liabilities:
Long term debt and lines of credit
Accounts payable and other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
IFRS 15 - Revenue from contracts with customers
On May 28, 2014 the IASB issued IFRS 15, "Revenue from contracts with customers". IFRS 15 replaced
existing standards and interpretations on revenue recognition. The standard is effective for annual periods
beginning on or after January 1, 2018. The standard outlines a single comprehensive model for entities for
revenue recognition arising from contracts with customers.
The Corporation has completed its evaluation of the impact of IFRS 15 on its consolidated financial
statements. The Corporation’s practices of revenue recognition are unchanged upon adoption of this
standard, therefore, the adoption of IFRS 15 did not result in a material impact to the consolidated financial
statements. The Corporation has elected to apply the standard on a modified retrospective basis. Under
this approach, the 2017 comparative period was not restated. There was no cumulative transitional
adjustment to the opening retained earnings balance required.
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 16, "Leases"
On January 13, 2016, the IASB published a new standard, IFRS 16, "Leases". The new standard brings most
leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and
finance leases. The standard is effective for annual periods beginning on or after January 1, 2019, with early
application permitted, but only if the entity is also applying IFRS 15, "Revenue from contracts with
customers". Under the new standard, a lessee recognizes a right-of-use asset and a lease liability. The right-
of-use asset is treated similarly to other non-financial assets and depreciated accordingly. The liability
accrues interest. The Corporation is still evaluating the impact the adoption of this standard will have on
its consolidated financial statements. The Corporation expects to apply the standard by its mandatory
effective date.
28
Notes: 10
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
4. Acquisitions
During the year ended December 31, 2018, 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. Details of the acquisitions are:
First Quarter Acquisition:
On February 1, 2018, the Corporation acquired the remaining 50% interest in the JV for a stated purchase
price of $14,460,181. The acquisition was an arm’s length transaction. At the date of the acquisition, the
Corporation had a 50% interest in the JV, which was accounted for using the equity method (Note 14). The
Corporation accounted for this acquisition as a business combination achieved in stages, which required a
re-measurement of the previously held interest in the JV to fair value as of the acquisition date. There was
no gain or loss on the step acquisition. This fair value amount is added to the consideration transferred in
determining the amount of goodwill.
A summary of the assets acquired are as follows:
Land, Yards, Buildings & Improvements
Tenant Relationships
Working Capital Adjustment
Deferred Tax
Goodwill
Net Assets Acquired
$
31,344,842
3,005,158
34,350,000
(4,786,209)
(5,934,239)
5,465,934
29,095,486
Consideration paid for the net assets acquired was obtained from the following:
Cash
Fair Value of 50% equity interest
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
14,460,181
14,635,305
29,095,486
2,634,314
887,970
1,746,344
2,470,026
985,030
$
(1,708,712)
Notes: 11
29
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 4 – Continued
Second Quarter Acquisitions:
During the second quarter, the Corporation completed the acquisition of four self storage locations in
Ontario for $69,400,000 (subjected to customary adjustments). These acquisitions were arm’s length
transactions. The purchases were paid for by advances from long term debt, issuance of common shares
and cash on hand.
A summary of the acquisitions are as follows:
Two Self
One Self
One Self
Storage
Storage
Storage
Locations
Location
Location
Total
Acquisition date:
May 22, 2018 June 22, 2018 June 28, 2018
Land, Yards, Buildings & Improvements
$
61,888,079
$
1,826,939
$
700,000
$
64,415,018
Tenant Relationships
Net Assets Acquired
4,611,921
373,061
-
4,984,982
66,500,000
2,200,000
700,000
69,400,000
Consideration paid for the net assets acquired was obtained from the following:
Cash
Debt
Common Shares
12,838,273
1,197,164
700,000
14,735,437
42,000,000
11,661,727
66,500,000
-
1,002,836
2,200,000
-
-
42,000,000
12,664,563
700,000
69,400,000
Selected information for the acquisition, since its acquisition date:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
2,684,274
575,291
2,108,983
1,944,228
1,103,400
173,277
19,043
2,876,594
75,575
97,702
98,558
-
716
18,327
17,368
-
651,582
2,225,012
2,060,154
1,103,400
$
(938,645)
$
(856)
$
959
$
(938,542)
30
Notes: 12
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 4 – Continued
Third Quarter Acquisitions:
During the third quarter, the Corporation completed the acquisition of six self storage locations for
$42,650,000 (subjected to customary adjustments). The acquisitions were arm’s length transactions. The
purchases were paid for by advances from long term debt and cash on hand.
A summary of the acquisitions are as follows:
One Self
Four Self
One Self
Storage
Storage
Storage
Location
Location
Location
Total
Acquisition Date:
July 24, 2018 Sept. 21, 2018 Sept. 24, 2018
Land, Yards, Buildings & Improvements
$
14,012,870
$
19,017,113
$
4,469,538
$
37,499,521
Tenant Relationships
Net Assets Acquired
987,130
3,382,887
780,462
5,150,479
15,000,000
22,400,000
5,250,000
42,650,000
Consideration paid for the net assets acquired was obtained from the following:
Cash
Debt
15,000,000
5,600,000
-
20,600,000
-
16,800,000
5,250,000
22,050,000
15,000,000
22,400,000
5,250,000
42,650,000
Selected information for the acquisitions, since their acquisition dates:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
526,632
123,389
403,243
341,088
494,649
713,215
268,673
444,542
472,211
218,511
191,311
67,503
123,808
116,063
11,100
1,431,158
459,564
971,594
929,362
724,261
$
(432,494)
$
(246,180)
$
(3,355)
$
(682,029)
Notes: 13
31
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 4 – Continued
Fourth Quarter Acquisitions:
During the fourth quarter, the Corporation completed the acquisition of five self storage locations for
$29,300,000 (subjected to customary adjustments). The acquisitions consisted of both arm’s length and non-
arm’s length transactions. The purchases were paid for by cash on hand, the issuance of common shares,
and first mortgage financing.
A summary of the acquisitions are as follows:
Two Self
One Self
Two Self
Storage
Storage
Storage
Location
Location
Location
Total
Acquisition date:
Oct. 10, 2018 Oct. 15, 2018 Oct. 24, 2018
Land, Yards, Buildings & Improvements
$
10,473,554
$
4,250,000
$
12,116,595
$
26,840,149
Tenant Relationships
Net Assets Acquired
1,326,446
-
1,133,405
2,459,851
11,800,000
4,250,000
13,250,000
29,300,000
Consideration paid for the net assets acquired was obtained from the following:
Cash
Debt
Common Shares
2,950,000
8,850,000
-
1,062,500
3,187,500
4,250,000
8,262,500
5,000,000
17,037,500
-
4,000,000
4,000,000
11,800,000
4,250,000
13,250,000
29,300,000
Selected information for the acquisitions, since their acquisition dates:
Revenue
Operating costs
Amortization
Interest
Net income (loss)
353,414
109,868
243,547
237,776
99,400
76,023
11,778
64,245
25,385
33,693
288,146
88,083
200,063
202,905
2,081
717,583
209,729
507,855
466,066
135,173
$
(93,629)
$
5,167
$
(4,923)
$
(93,384)
32
Notes: 14
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
5.
Real Estate and Equipment
Land, Yards,
Buildings &
Storage
Intangible
Tenant
Office &
Computer
Improvements
Containers
Relationships
Vehicles
Equipment
Total
COST
December 31, 2016
294,499,978
12,338,478
40,038,735
4,541,960
1,181,155
352,600,306
Additions
Disposals
3,932,281
(1,687,946)
Business acquisitions
447,252,899
364,712
-
-
December 31, 2017
743,997,212
12,703,190
Additions
Disposals
11,524,966
6,026,887
(10,648)
(17,500)
Business acquisitions
160,099,529
-
December 31, 2018
915,611,059
18,712,577
-
-
42,222,792
82,261,527
-
-
15,600,471
97,861,998
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
205,573
(28,159)
-
854,404
18,611,830
-
-
(56,307)
175,700,000
5,070,494
2,662,999
1,039,919,127
ACCUMULATED DEPRECIATION
December 31, 2016
Depreciation
Disposals
December 31, 2017
Depreciation
Disposals
3,190,978
8,895,222
2,353,712
12,284,387
21,912,620
(43,482)
34,153,525
34,427,544
928,054
14,778,113
-
4,119,032
1,257,998
-
23,673,335
22,178,673
(213)
(271)
-
738,781
(33,097)
3,059,396
581,547
(18,418)
384,284
249,303
27,108,583
38,606,871
(22)
(76,601)
633,565
411,370
-
65,638,853
58,857,132
(18,902)
December 31, 2018
68,580,856
5,376,759
45,852,008
3,622,525
1,044,935
124,477,083
NET BOOK VALUE
December 31, 2017
December 31, 2018
709,843,687
8,584,158
847,030,203
13,335,818
58,588,192
52,009,990
1,833,684
1,447,969
1,175,030
1,618,064
780,024,751
915,442,044
Included in Land, Yards, Buildings & Improvements is Land at a value of $298,882,932 (December 31, 2017
- $245,377,231).
Included in Land, Yards, Buildings & Improvements is $7,770,200 (December 31, 2017 - $1,189,411) of
construction in process that is not being depreciated.
Notes: 15
33
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
6. Goodwill and Intangible Assets
Other Intangible Assets
Management
Franchise
Website
Goodwill
Contracts
Agreements Development
Total
COST
December 31, 2016
Additions
Business acquisitions
December 31, 2017
Additions
3,423,490
-
52,337,402
55,760,892
5,465,934
-
20,000
23,172
3,466,662
300,000
16,000,000
16,300,000
-
-
-
-
300,000
68,337,402
20,000
23,172
72,104,064
-
-
-
5,465,934
December 31, 2018
61,226,826
16,300,000
20,000
23,172
77,569,998
ACCUMULATED AMORTIZATION
December 31, 2016
Amortization
December 31, 2017
December 31, 2018
NET BOOK VALUE
December 31, 2017
December 31, 2018
-
-
-
-
-
-
-
-
18,400
1,600
20,000
20,000
23,172
-
23,172
23,172
41,572
1,600
43,172
43,172
55,760,892
61,226,826
16,300,000
16,300,000
-
-
-
-
72,060,892
77,526,826
At December 31, 2018 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.
34
Notes: 16
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 6 – Continued
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 6.08% 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 8.45% 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 Self-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, and is consistent with the CGU’s historical growth rate.
- Cash flows were discounted at a pre-tax rate of 5.05% based on management’s experience and the
superior quality and location of these properties.
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.
Notes: 17
35
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 6 – Continued
Management Division 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 group of CGU’s are the growth rate and
the discount rate:
- A 1% increase or decrease in the growth rate would not result in an impairment of these groups of
CGU’s.
- A 1% increase or decrease in the discount rate would not result in an impairment of these groups
of CGU’s.
Group of CGU's
Goodwill
Carrying Value
Re cove rable
Amount
Manitoba and Saskatche wan
Kamloops, BC
London, ON
Se ntine l Se lf-Storage
Portable Storage
Manage me nt Division
2,621,716
76,470
142,807
28,416,958
7,982,147
2,196,481
39,838,803
14,222,890
5,058,611
52,442,159
410,798,799
550,966,506
2,578,968
3,364,706
17,832,236
16,000,000
21,859,603
23,718,250
61,226,826
483,226,621
655,664,663
36
Notes: 18
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
7. Long Term Debt and Lines of Credit
December 31, 2018
Weighted
Average
Balance
Rate
Range
December 31, 2017
Weighted
Average
Balance
Rate
Range
Mortgages
Fixed/Variable
3.18% to 5.20%
4.24%
555,183,118
3.18% to 5.50% 4.21%
233,190,726
Maturity: January 2019 to December 2028
Maturity: March 2018 to March 2025
Deferred financing costs net of accretion
of $2,514,319 (Dec 31, 2017 - $1,376,845)
Lines of Credit
(2,505,296)
552,677,822
(2,245,471)
230,945,255
Prime plus 1.00%
Prime plus 1.00%
Variable Rate or BA plus 2.35% 4.47%
149,733,334
or BA plus 2.75% 4.21%
332,153,083
Maturity: July 2019 to April 2021
Maturity: March 2018 to August 2020
702,411,156
563,098,338
The bank prime rate at December 31, 2018 was 3.95% (December 31, 2017 – 3.20%).
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 debt service coverage ratios,
a fixed charge coverage ratio, a tangible net worth ratio, and a loan to value ratio. As of December 31, 2018,
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
$
$
$
$
$
$
170,685,310 (includes $149.7 million lines of credit)
97,527,172
76,538,824
83,784,306
34,109,775
242,271,065
Notes: 19
37
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
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, 2016
Bought deal
Issued on asset acquisitions
Dividend reinvestment plan
Share option redemption
Share issuance costs
Common shares repurchased
Balance, December 31, 2017
Issued on acquisitions (Note 4)
Dividend reinvestment plan
Share option and warrant redemption
Share issuance costs
Number of Shares
Amount
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
6,313,955
613,694
3,568,391
-
15,661,727
1,497,892
1,906,263
(84,962)
Balance, December 31, 2018
355,722,974
$
338,552,701
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 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, up
to 17,198,962 of the common shares. The NCIB has been renewed to allow the Corporation to purchase for
cancellation, during the 12-month period starting September 7, 2018, up to 17,704,359 of the common
shares.
38
Notes: 20
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 8 - Continued
Contributed surplus:
December 31, 2018
December 31, 2017
Opening balance
Stock based compensation
Redemption of stock options and warrants
Ending balance
3,540,210
1,901,631
(223,252)
5,218,589
2,243,239
1,534,286
(237,315)
3,540,210
Stock Options and Warrants
The Board of Directors of the Corporation may from time to time, in its discretion, and in accordance with
the Exchange requirements, grant to directors, officers, employees and technical consultants of the
Corporation, non-transferable options to purchase common shares provided that: i) the number of common
shares reserved for issuance will not exceed 10% of the issued and outstanding common shares; ii) the
options are exercisable for a period of up to 10 years from the date of grant; iii) the number of common
shares reserved for issuance to any individual director or officer will not exceed 5% of the issued and
outstanding common shares; and iv) the number of common shares reserved for issuance to all technical
consultants, if any, will not exceed 2% of the issued and outstanding shares. The exercise price for
purchasing these shares cannot be less than the minimum exercise price as provided by Exchange rules.
The following table summarizes information about stock options outstanding and exercisable as at:
December 31, 2018
December 31, 2017
Weighted Average
Exercise Price
Options
Weighted Average
Exercise Price
Options
Opening
Exercised/Expired
Granted
Closing and Exercisable
11,555,850
(1,018,400)
3,000,000
13,537,450
$1.01
$0.73
$2.52
$1.36
11,501,000
(2,945,150)
3,000,000
11,555,850
$0.62
$0.29
$1.78
$1.01
The fair value of options granted in 2018 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 Corporation's Common Shares
0.11%
2.05%
4 Years
30.97%
Notes: 21
39
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 8 – Continued
Stock options exercisable and outstanding are as follows:
Exercise Price
$
0.23
$
0.33
$
0.41
$
0.50
$
1.36
$
1.78
$
2.52
Options exercisable and outstanding
Vesting Date
May 6, 2009
June 19, 2014
April 28, 2015
Sept 14, 2015
Dec 21, 2016
Mar 16,2017
May 4, 2018
Expiry Date
May 6, 2019
June 19, 2024
April 28, 2025
Sept 14, 2025
Dec 21, 2026
Mar 15, 2027
May 3, 2028
December 31, 2018
990,000
180,000
2,122,450
1,570,000
2,825,000
2,850,000
3,000,000
13,537,450
December 31, 2017
1,210,000
220,000
2,390,850
1,760,000
2,975,000
3,000,000
-
11,555,850
Warrants exercisable and outstanding are as follows:
Exercise Price
$
0.35
$
0.37
Warrants exercisable and outstanding
Expiry Date
Feb 25, 2018
Feb 25, 2018
December 31, 2018
-
-
-
December 31, 2017
16,666
2,533,334
2,550,000
Equity Incentive Plan
Under the Corporation’s Equity Incentive Plan passed on May 30, 2018 (the “Plan”), directors, employees
and consultants are eligible to receive awards, in the form of Restricted Share Units (“RSU’s”), Deferred
Share Units (“DSU’s”) and Named Executive Officer Restricted Share Units (“Neo RSU’s”), as and when
granted by the Board, in its sole discretion. The maximum number of awards that may be issued under the
Plan is 17,545,677. The maximum number of shares that may be reserved for issuance under the Plan,
together with any of the Corporation’s other share-based compensation arrangements, may not exceed 10%
of the issued shares of the Corporation.
The RSU’s and DSU’s that are granted vest in equal annual amounts over 3 years. The Neo RSU’s vest 3
years after the date of grant. RSU’s, DSU’s and Neo RSU’s are entitled to be credited with dividend
equivalents in the form of additional RSU’s, DSU’s and Neo RSU’s, respectively.
With certain exceptions, the Plan provides that (i) the maximum number of awards that may be granted to
any one participant together with any other share-based compensation arrangements, in any 12 month
period, may not exceed 5% of the issued shares, and, in the case of any consultant, may not exceed 2% of
the issued shares; and (ii) the total value of all securities that may be issued to any non-employee director
under all of the Corporation’s security based compensation arrangements may not exceed $150,000.00 per
annum.
There has been no issuance of any Awards under the Plan as at December 31, 2018.
40
Notes: 22
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 8 – Continued
Dividends
A cash dividend of $0.00255 per common share was declared on March 20, 2018 and paid to shareholders
of record on March 30, 2018.
A cash dividend of $0.002601 per common share was declared on June 15, 2018 and paid to shareholders
of record on June 29, 2018.
A cash dividend of $0.002601 per common share was declared on September 14, 2018 and paid to
shareholders of record on September 28, 2018.
A cash dividend of $0.002601 per common share was declared on December 14, 2018 and payable to
shareholders of record on December 31, 2018.
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 and accounts payable and
accrued liabilities approximate their carrying amount due to the relatively short periods to maturity of
these financial instruments. 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.
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.
Notes: 23
41
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 9 – Continued
The fair value of financial liabilities was as follows:
As at December 31, 2018
As at De ce mbe r 31, 2017
Fair Value
Carrying
Hie rarchy
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial Liabilitie s:
Long te rm de bt and line s of cre dit
Le ve l 2
702,411,156
686,639,088
563,098,338
561,867,534
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. The impact on
the statement of 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, 2018 would be
approximately $1,539,550 (December 31, 2017 - $4,215,097).
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.
42
Notes: 24
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
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, 2018
December 31, 2017
$3,166,196
$2,835,508
545,270
705,821
271,666
(250,658)
366,639
125,111
295,486
(298,178)
496,578
$4,934,873
587,759
$3,912,325
Change in the Corporation’s allowance for doubtful accounts is as follows:
Balance December 31, 2016
Charges or adjustments during the year
Balance December 31, 2017
Charges or adjustments during the year
Balance December 31, 2018
$120,000
178,178
$298,178
(47,520)
$250,658
The creation and release of the allowance for doubtful accounts has been included in operating
costs in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Amounts charged to the allowance account are generally written off when there is no expectation
of recovering additional cash.
c) Liquidity risk – Liquidity risk is the risk that the Corporation will be unable to meet its financial
obligations as they fall due. The Corporation manages liquidity risk through cash flow
forecasting and regular monitoring of cash requirements including anticipated investing and
financing activities. Typically the Corporation ensures that it has sufficient cash or liquid
investments available to meet expected operating expenses for a period of 30 days, excluding
the potential impact of extreme circumstances that cannot reasonably be predicted, such as
natural disasters. For the foreseeable future, the Corporation anticipates that cash flows from
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.
Notes: 25
43
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
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 Tax
2018
2017
Loss before taxes
(32,216,153)
(24,757,670)
Combined federal and provincial statutory income tax rate
26.75%
26.75%
Income tax recovery calculated at statutory rate
(8,617,821)
(6,622,677)
Non-deductible items
Change in tax rate and other items
Change in deferred tax assets not recognized
Income tax expense (recovery)
502,554
50,409
-
(43,954)
(1,548,737)
(2,689,670)
(8,064,858)
(10,905,038)
Movements in deferred tax assets (liabilities) related to temporary differences during the year are as
follows:
Property, plant and equipment
(57,038,288)
(5,122,846)
2,392,599
(59,768,535)
December 31,
Recognized on
Recognized in
December 31,
2017
acquisitions
earnings
2018
Goodwill
Intangible assets
Long term debt
Deferred tax assets not recognized
(360,064)
-
-
(360,064)
(6,390,995)
(811,393)
2,694,369
(4,508,019)
(600,926)
1,832,915
-
-
-
(40,913)
(246,964)
(641,839)
1,585,951
3,265,767
16,666,497
Non-capital loss carry forwards
13,400,730
Deferred tax asset (liability)
(49,156,628)
(5,934,239)
8,064,858
(47,026,009)
44
Notes: 26
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
11. Related Party Transactions
During the year ended December 31, 2018, the Corporation paid total management fees of $nil (December
31, 2017 - $293,321) to Access Results Management Services Inc. (“ARMS”), a corporation controlled by
Steven Scott and Iqbal Khan. On March 31, 2017, the Corporation purchased all management contracts
from ARMS and therefore, the management agreement has ceased. Pursuant to a management agreement,
ARMS was 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 attained 85% or greater of its annual board-approved budgeted NOI for
that fiscal year.
During the year ended December 31, 2018, the Corporation reimbursed operational wages of $nil
(December 31, 2017 - $1,545,892) and training, travel and related expenses of $nil (December 31, 2017 -
$16,804) to ARMS. These expenses, reimbursed at cost, were undertaken exclusively for the benefit of the
Corporation.
During the year ended December 31, 2018, the Corporation paid loan guarantee fees of $nil (December 31,
2017 - $127,500) to Access Self Storage Inc., a large shareholder of the Corporation, related to Steven Scott
and Iqbal Khan. The loan guarantee payments ceased in 2017. 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 was compensation for the provision of this
guarantee and was paid on a monthly basis at the annual rate of 0.5% and 0.4% of the original mortgage
principal balances.
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, 2018, the Corporation paid $237,725 (December 31, 2017 - $216,710) for royalties and
$920,071 (December 31, 2017 - $1,535,160) 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, 2018 was $22,461 (December 31, 2017 - $33,808) payable to CPFI.
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, 2018
December 31, 2017
390,194
1,625,895
2,016,089
129,800
1,293,914
1,423,714
Notes: 27
45
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
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.
13. Segmented Information
The Corporation operates three 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.
46
Notes: 28
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 13 – Continued
For the Year Ended December 31, 2018
Se lf
Portable
Manage me nt
Storage
Storage
Division
Corporate
Total
Re ve nue
$
88,202,008
$
6,464,800
$
1,716,791
$
-
$
96,383,599
Ope rating e xpe nse s
Ne t ope rating income
26,269,735
61,932,273
4,254,214
2,210,586
-
1,716,791
Acquisition and inte gration
Se lling, ge ne ral & admin.
-
-
Inte re st e xpe nse
28,875,906
Stock base d compe nsation
-
-
-
-
-
De pre ciation and amortization
56,755,567
1,953,230
De fe rre d tax re cove ry
-
-
-
-
-
-
-
-
-
-
2,248,751
6,192,383
30,523,949
65,859,650
2,248,751
6,192,383
-
28,875,906
1,901,631
1,901,631
148,335
58,857,132
(8,064,858)
(8,064,858)
Ne t income (loss)
(23,699,200)
257,356
1,716,791
(2,426,242)
(24,151,295)
Additions:
Re al e state and e quipme nt
187,602,427
6,232,460
476,943
194,311,830
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
$
-
$
61,888,514
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
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
Notes: 29
47
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 13 – Continued
Total Assets
Se lf
Storage
Portable
Storage
Manage me nt
Division
Corporate
Total
As at De ce mbe r 31, 2017
$
837,350,008
$
24,770,062
$
19,353,316
$
14,022,995
$
895,496,381
As at De ce mbe r 31, 2018
$
967,246,443
$
19,827,440
$
17,795,589
$
17,921,945
$
1,022,791,417
14. Investment in Joint Venture
On February 1, 2018, the Corporation purchased the remaining 50% interest in the JV (Note 4). The
investment in the JV prior to the purchase was 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
January 31, 2018
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
Income (Loss) for the period
Proportion of ownership interest held by the Corporation
January 1 to
August 1 to
January 31, 2018
December 31, 2017
$
220,440
$
1,123,703
114,905
5,086
100,449
220,440
-
50%
493,960
46,672
897,627
1,438,259
(314,556)
50%
Corporation's share of income (loss) for the period
$
-
$
(157,278)
48
Notes: 30
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
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 2023 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
$ 1,235,449
4,986,119
20,028,285
$ 26,249,853
During the year ended December 31, 2018, the Corporation recognized as an expense $1,255,333 (December
31, 2017 - $1,101,757) in operating lease payments.
Contingency
The Corporation has no legal contingency provisions at either December 31, 2018 or December 31, 2017.
16. Subsequent Events
On February 6, 2019, the Corporation announced the approval by its board of directors to execute a
purchase agreement of 38 self storage locations operating under the brand of “Real Storage” for $275
million (subjected to customary adjustments). This will be an arm’s length transaction and the purchase
price will be paid with funds on hand, assumption of debt and mortgage financing.
On February 13, 2019, the Corporation announced that, based on strong quarterly and year over year
results, that it is increasing its quarterly dividend for Q1 2019 by 0.5%.
On February 20, 2019, the Corporation announced the completion of the purchase of two stores in Ontario
for an aggregate purchase price of $10,460,000.
Notes: 31
49
Annual Report 2018
StorageVault Canada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2018 and 2017
StorageVault Canada Inc.
OFFICERS
Steven Scott
Chief Executive Officer
Iqbal Khan
Chief Financial Officer
DIRECTORS
Steven Scott
Toronto, ON
Iqbal Khan
Toronto, ON
Jay Lynne Fleming
Vancouver, BC
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
300-5th Avenue S.W., 10th Floor
Calgary, AB T2P 3C4
Telephone 403-218-2800
Facsimile 403-265-0232
TSX VENTURE EXCHANGE LISTING:
SVI
50
Notes: 32
Annual Report 2018
StorageVault Canada Inc.
(the “Corporation”)
Form 51‐102F1
Management’s Discussion and Analysis
For Three Months Ended and Fiscal Year Ended December 31, 2018
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, 2018. This MD&A should
be read in conjunction with the audited fiscal 2018 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 February 27, 2019.
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, portable storage and third party management fees; 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 2019; 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 2018 were purchased on January 1, 2018; 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
51
Annual Report 2018
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 2018 being extrapolated to the entire period for 2018 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 2019 and revenue and NOI
growth for 2019 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.
52
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Annual Report 2018
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
54
55
56
58
59
61
68
CONTRACTUAL OBLIGATIONS AND OFF‐BALANCE SHEET ARRANGEMENTS
72
RELATED PARTY TRANSACTIONS
ACQUISITION COMMITTEE AND ACQUISITION COMMITTEE MANDATE
ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
CORPORATE CONTACT INFORMATION
72
73
74
75
78
‐ 3 ‐
53
Annual Report 2018
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, 2019 to February
27, 2019;
“SVI” means StorageVault Canada Inc.;
“The Company” or “The Corporation” or “We” or “Our” means StorageVault Canada Inc.
54
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Annual Report 2018
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, managing and renting
self storage and portable storage space to individual and commercial customers.
As of December 31, 2018, SVI owned 105 stores and 4,613 portable storage units across Canada, for a total
of 6,036,763 square feet of rentable storage space in 55,575 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 our owned stores, SVI manages 54 stores that are owned by third parties for a management
fee, bringing the total number of stores under management to 159.
SVI’s strategic objective is to own and manage 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, the last mile storage and distribution, 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 90 million square feet across 3,000 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 and knowledge of the storage industry allows us to identify and take advantage
of accretive and strategic acquisition opportunities.
Pricing and Occupancy
A store’s rental rates and level of occupancy are dependent upon factors such as population density and
growth, the local economy, pricing, customer service and curb appeal. 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 NOI through revenue, by increasing rent per
square foot first and maximizing occupancy second.
- 5 -
55
Annual Report 2018
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 manages 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 track record of closing transactions, our industry
relationships and our storage experience provides SVI 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. 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: marketing, 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 our national footprint, offering different but complementary product choices at
various price points to our customers.
56
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Annual Report 2018
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. In 2018, we completed 73,500 square feet of expansion and
currently have another 50,000 square feet under construction expected to be completed in 2019.
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.
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57
Annual Report 2018
OUTLOOK
The Corporation’s outlook for acquisitions, share capital, results from operations and subsequent events
are:
Acquisitions
In 2019 we expect to acquire approximately $50 million of assets, in addition to the $275 million portfolio
acquisition announced on February 6, 2019.
To date, 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 2019 resulting from the timing of
2018 and 2019 acquisitions and as we continue to streamline and integrate operations, implement our
revenue management systems and continue to control costs on the $971.5 million of assets purchased in
past 4 years.
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 6, 2019 announced that it has entered into a purchase agreement to acquire all of the
issued and outstanding trust units and limited partnership units of Real Storage, a 38 store
portfolio located in ON, MB, AB and BC, for $275 million.
• On February 13, 2019 announced that, based on strong quarterly and year over year results, that
it is increasing its quarterly dividend for Q1 2019 by 0.5%.
• On February 20, 2019 announced the completion of the purchase of two stores in Ontario for an
aggregate purchase price of $10,460,000.
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Annual Report 2018
DESCRIPTION OF OUR OPERATIONS
As at December 31, 2018, the Corporation owned the following self storage and portable storage
operations:
Number of
Stores
Units
Rentable Square
Feet
Location
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Nova Scotia
Portable Storage Units
Acres
31.7
69.2
26.3
19.6
130.0
29.8
15.0
16
19
8
8
36
14
4
Total
321.6
105
8,447
11,371
1,766
3,728
16,972
7,110
1,568
4,613
55,575
779,525
1,232,842
238,201
364,893
2,023,472
674,784
157,483
565,563
6,036,763
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 increasing NOI and
creating value. Our management platform has sophisticated software, supported by dedicated personnel,
that understands the nuances of each local market. Our 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
The management team at SVI has extensive experience in all aspects of the storage industry including:
• management of over 160 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
delivering results
Marketing
We implement specific marketing plans for the different localities, 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 to fulfill their last mile storage needs. 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.
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59
Annual Report 2018
Reservation Centre
Our management platform includes a Reservation Centre (call center) that provides call management
services designed to increase reservations and move-ins, increase productivity at the store level and
improve our corporate image through professionalism, consistency of messaging and willingness to
resolve issues. Our Reservation Centre agents have worked in the storage business and understand the
need to introduce and greet professionally, establish rapport with customers, build trust, ask the right
questions, listen, ask for the business and 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.
60
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Annual Report 2018
FINANCIAL RESULTS OVERVIEW
In fiscal 2018, SVI completed $161.4 million of acquisitions with an additional $10.5 million announced
that closed in Q1 2019. In fiscal 2017, SVI added 42 stores for $485.4 million (two through a joint venture)
and disposed of one land asset. Therefore, the comparative results are impacted by the timing of these
acquisitions.
Selected Financial Information
(unaudited)
Three Months Ended December 31
(audited)
Fiscal
2018
2017
$
%
2018
2017
$
%
Change
Change
Storage revenue and related services
$
26,094,031
$
20,366,043
$
5,727,988
Management fees
Operating costs
Net operating income 1
Less:
468,398
378,067
26,562,429
20,744,110
8,272,355
6,760,316
90,331
5,818,319
1,512,039
18,290,074
13,983,794
4,306,280
28.1%
23.9%
28.0%
22.4%
30.8%
$
94,666,808
$
60,671,031
$
33,995,777
1,716,791
1,217,483
499,308
96,383,599
61,888,514
34,495,085
30,523,949
21,294,478
9,229,471
65,859,650
40,594,036
25,265,614
56.0%
41.0%
55.7%
43.3%
62.2%
Acquisition and integration costs
Selling, general and administrative
Interest
Share of net loss from joint venture
Stock based compensation
877,302
2,054,325
8,233,488
-
-
886,499
1,929,613
5,873,705
(9,197)
-1.0%
124,712
6.5%
2,248,751
6,192,383
5,373,955
4,038,559
(3,125,204)
-58.2%
2,153,824
2,359,783
40.2%
28,875,906
15,639,157
13,236,749
117,242
(117,242)
-
-
-
-
-
157,278
1,901,631
1,534,286
(157,278)
367,345
Depreciation and amortization
16,033,627
13,158,268
2,875,359
21.9%
58,857,132
38,608,471
20,248,661
Goodwill impairment reversal
-
(12,420,000)
12,420,000
-100.0%
-
-
-
53.3%
84.6%
-
23.9%
52.4%
-
27,198,742
9,545,327
17,653,415
184.9%
98,075,803
65,351,706
32,724,097
50.1%
Net Income (Loss) before taxes
(8,908,668)
4,438,467
(13,347,135)
-300.7%
(32,216,153)
(24,757,670)
(7,458,483)
30.1%
Deferred tax recovery
8,064,858
10,905,038
(2,840,180)
-26.0%
8,064,858
10,905,038
(2,840,180)
-26.0%
Net Income (Loss)
$
(843,810)
$
15,343,505
$
(16,187,315)
-105.5%
$
(24,151,295)
$
(13,852,632)
$
(10,298,663)
74.3%
Weighted average number of common shares outstanding
Basic
Diluted
355,429,257
317,487,007
37,942,250
355,429,257
317,487,007
37,942,250
12.0%
12.0%
351,893,667
317,487,007
34,406,660
351,893,667
317,487,007
34,406,660
10.8%
10.8%
Net income (loss) per common share
Basic
Diluted
$
(0.002)
$
0.048
$
(0.002)
$
0.048
$
(0.069)
$
(0.044)
$
(0.069)
$
(0.044)
1 Non-IFRS Measure.
Storage revenue and related services
Revenues increased by $5.8 million, or 28.1%, for the three months ended December 31, 2018, as
compared to the same period in 2017. This results in a year to date increase over the prior year of $34.0
million or 56.0%. This increase is attributable to incremental revenue from the stores acquired in the
current and prior fiscal years and from organic revenue growth. For additional information, see
“Segmented, Existing and New Self Storage and Portable Storage Results.”
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61
Annual Report 2018
Management fees
A stream of revenue from management contracts was acquired from Access Results Management
Services on March 31, 2017. The three months ended December 31, 2018 results were up 23.9% compared
to the same prior year period. The increase in management fees is a direct result of increased revenues
from the stores managed by the Corporation.
Operating costs
Operating costs for the three months and fiscal year ended December 31, 2018 were $8.3 million and $30.5
million (December 31, 2017 - $6.7 million and $21.3 million), an increase of 22.4% and 43.3%, respectively.
The increase in property operating cost relates to the stores acquired in 2017 and in the current fiscal year.
Net income (loss)
Our net loss of $24.2 million for the fiscal year ended December 31, 2018 is a result of $58.9 million of
depreciation and amortization, which was offset by a deferred tax recovery of $8.1 million, both non-cash
items.
In Q4 2017, the Corporation reversed $12.4 million of goodwill impairment recorded in the published Q1
2017 and Q3 2017 – see Summary of Quarterly Results for the impact on the 2017 quarterly results.
Net operating income
For the three months ended December 31, 2018, the Corporation had net operating income (NOI), a non-
IFRS measure, of $18.3 million (December 31, 2017 - $14.0 million), an increase of 30.8%. The NOI for the
fiscal year ended December 31, 2018, increased by $25.3 million or 62.2%, to $65.9 million. The increase
was primarily due to the NOI from storage assets purchased in fiscal 2017 and 2018, streamlining and
integration of operations, increased rates through our revenue management systems, 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. SVI has closed or announced a total of $171.9 million of
acquisitions in fiscal 2018, following $485.4 million of acquisitions in fiscal 2017.
Selling, general and administrative
Selling, general and administrative expenses include all expenses not related to the stores including
corporate office overhead and payroll, travel and professional fees. These costs have increased as a result
of increased activity associated with the growth and anticipated future growth of the business.
Interest
Interest expense increased as the total amount of debt outstanding increased with current and prior year
acquisitions. As at December 31, 2018, our total debt was $702.4 million compared to $563.1 million at
December 31, 2017.
Depreciation and amortization and goodwill adjustment
The increase in depreciation and amortization expense is primarily due to depreciating the additional
assets acquired throughout fiscal 2017 and 2018.
In Q4 2017, the Corporation reversed $12.4 million of goodwill impairment recorded in the published Q1
2017 and Q3 2017 – see Summary of Quarterly Results for the impact on the 2017 quarterly results.
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Annual Report 2018
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,
adjusted for in our AFFO, are one time in nature to the specific assets purchased 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, 2018 was $7.1 million and $28.5 million
versus $5.4 million and $15.8 million, respectively for the same period in 2017. These increases are the
result of contributions from the assets purchased in fiscal 2017 and organic growth.
AFFO for the three months and fiscal year ended December 31, 2018 was $8.0 million and $30.8 million
versus $6.3 million and $21.2 million, respectively for the same period in 2017. These increases are the
result of contributions from the assets purchased in fiscal 2017 and organic growth.
Compared to Q3 2018, the FFO and AFFO in Q4 2018 is lower due to seasonality of the storage industry
and higher corporate costs in anticipation of fiscal 2019 acquisitions.
The FFO and AFFO for the three months and fiscal year ended December 31, 2018 and 2017 are:
(unaudited)
Three Months Ended December 31
(audited)
Fiscal
2018
2017
Change
2018
2017
Change
$
%
$
%
Net Income (loss)
$
(843,810)
$
15,343,505
$
(16,187,315)
-105.5%
$
(24,151,295)
$
(13,852,632)
$
(10,298,663)
74.3%
Adjustments:
Stock based compensation
-
-
-
-
1,901,631
1,534,286
367,345
23.9%
Deferred tax recovery
(8,064,858)
(10,905,038)
2,840,180
-26.0%
(8,064,858)
(10,905,038)
2,840,180
-26.0%
Depreciation and amortization from
joint venture
Depreciation, amortization and
goodwill adjustment
-
267,340
(267,340)
-
-
448,813
(448,813)
-
16,033,627
738,268
15,295,359
2071.8%
58,857,132
38,608,471
20,248,661
52.4%
7,968,769
(9,899,430)
17,868,199
-180.5%
52,693,905
29,686,532
23,007,373
77.5%
FFO 1
Adjustments:
$
7,124,959
$
5,444,075
$
1,680,884
30.9%
$
28,542,610
$
15,833,900
$
12,708,710
80.3%
Acquisition and integrations costs
877,302
886,499
(9,197)
-1.0%
2,248,751
5,373,955
(3,125,204)
-58.2%
AFFO 1
1 Non-IFRS Measure.
$
8,002,261
$
6,330,574
$
1,671,687
26.4%
$
30,791,361
$
21,207,855
$
9,583,506
45.2%
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63
Annual Report 2018
Annualized Net Operating Income and Funds from Operations
The Company completed the purchase of 15 (plus the balance in two joint ventures) stores during fiscal
2018 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, utilizing historical data, 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 2018,
were purchased as of January 1, 2018 and owned for the entire 12 month period.
The results of this annualized statement show that NOI, FFO and AFFO would be higher by $5.4 million,
$3.7 million and $3.7 million, respectively. NOI would have been $71.2 million, FFO would be $32.3
million and the AFFO would be $34.5 million. The Corporation expects to realize the full benefit of these
acquisitions in fiscal 2019.
For the Year Ended December 31, 2018
Actual
Annualized Results
Incremental
Notes
Storage revenue and related services
$
94,666,808
$
102,361,025
$
7,694,217
Management fees
Property operating costs
Net operating income
Adjustments:
Acquisition and integration costs
Selling, general and administrative
Interest
Funds from Operations
Adjustment:
Acquisition and integration costs
Adjusted Funds from Operations
1,716,791
96,383,599
30,523,949
65,859,650
2,248,751
6,192,383
28,875,906
37,317,040
28,542,610
2,248,751
30,791,361
1,716,791
104,077,816
32,847,902
71,229,914
2,248,751
6,192,383
30,531,935
38,973,069
32,256,845
2,248,751
34,505,596
-
7,694,217
2,323,953
5,370,264
-
-
1,656,029
1,656,029
3,714,235
-
3,714,235
1
1
2
3
4
Note 1 - the results from all stores acquired in fiscal 2018, have been adjusted as if the purchase occurred
on January 1, 2018. For revenues, we assumed achieved occupancies and rent per square foot were
repeated for the period prior to acquisition. Information regarding expenses incurred during 2018 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 continually incur the costs in
anticipation of our growth.
Note 4 – annualized amount determined based on experienced interest rate and debt outstanding at
December 31, 2018.
64
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Annual Report 2018
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 customers 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
2018
2017
Change
2018
2017
Change
$
%
$
%
$
9,695,142
$
9,056,519
$
638,623
7.1%
$
38,001,418
$
35,883,490
2,117,928
5.9%
Revenue
Existing Self Storage 1
New Self Storage 1
14,844,433
9,939,625
4,904,808
Total Self Storage
24,539,575
18,996,144
5,543,431
Portable Storage
Management fees
1,554,456
1,369,899
468,398
378,067
184,557
90,331
Combined
26,562,429
20,744,110
5,818,319
Operating Costs
Existing Self Storage
2,876,437
2,827,774
48,663
New Self Storage
Total Self Storage
Portable Storage
Combined
4,287,078
7,163,515
1,108,840
8,272,355
2,979,586
1,307,492
5,807,360
1,356,155
952,956
155,884
6,760,316
1,512,039
Net Operating Income 1
Existing Self Storage
6,818,705
6,228,745
589,960
New Self Storage
10,557,355
6,960,039
3,597,316
Total Self Storage
17,376,060
13,188,784
4,187,276
Portable Storage
Management fees
445,616
468,398
416,943
378,067
28,673
90,331
49.3%
29.2%
13.5%
23.9%
28.0%
1.7%
43.9%
23.4%
16.4%
22.4%
9.5%
51.7%
31.7%
6.9%
23.9%
50,200,590
18,769,734
31,430,856
167.5%
88,202,008
54,653,224
33,548,784
61.4%
6,464,800
1,716,791
6,017,807
1,217,483
446,993
499,308
96,383,599
61,888,514
34,495,085
7.4%
41.0%
55.7%
11,740,535
11,744,003
(3,468)
0.0%
14,529,200
5,659,932
8,869,268
156.7%
26,269,735
17,403,935
8,865,800
50.9%
4,254,214
3,890,543
363,671
9.3%
30,523,949
21,294,478
9,229,471
43.3%
26,260,883
24,139,487
2,121,396
8.8%
35,671,390
13,109,802
22,561,588
172.1%
61,932,273
37,249,289
24,682,984
66.3%
2,210,586
1,716,791
2,127,264
83,322
1,217,483
499,308
Combined
$
18,290,074
$
13,983,794
$
4,306,280
30.8%
$
65,859,650
$
40,594,036
25,265,614
1 Non -IFRS Measure.
Existing Self Storage
For the three months ended December 31, 2018, Revenue and NOI increased by 7.1% and 9.5%,
respectively, over the same prior year period. The strong finish to the year resulted in Revenue and NOI
increasing by 5.9% and 8.8% for the full year. The revenue increase was substantially driven from
continued execution of our revenue management program, controlling costs through operational
efficiencies and with the balance coming from a slight increase in occupancy.
New Self Storage
Increase is a result of acquiring 42 stores throughout 2017 and 15 (plus the balance in two joint ventures)
in 2018, resulting in NOI growth quarter over quarter as we commenced reporting results.
Portable Storage
Slight increase in occupancy resulted in revenue and NOI growth over the same prior year period.
- 15 -
3.9%
41.0%
62.2%
65
Annual Report 2018
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 2018 ('000)
Fiscal 2017 ('000)
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
Total
NOI 1
Existing Self Storage
$
6,819
$
7,126
$
6,520
$
5,796
$
26,261
$
6,229
$
6,537
$
6,019
$
5,355
$
24,139
New Self Storage
10,557
9,675
8,363
7,076
Total Self Storage
17,376
16,802
14,883
12,872
Portable Storage
Management fees
446
468
760
442
627
417
377
389
35,671
61,932
2,211
1,716
6,960
4,829
874
446
13,189
11,366
6,893
5,801
417
378
748
423
612
416
350
-
13,109
37,249
2,127
1,217
$
18,290
$
18,004
$
15,927
$
13,638
$
65,859
$
13,984
$
12,537
$
7,922
$
6,151
$
40,594
1 Non-IFRS Measure
Existing Self Storage
The increase in Q4 2018 over Q4 2017 was substantially driven from continued execution of our revenue
management program, controlling costs through operational efficiencies and with the balance coming
from a slight increase in occupancy.
New Self Storage
SVI added 42 stores in 2017 and 15 (plus the balance in two joint ventures) in 2018. These additions have
resulted in NOI growth quarter over quarter as we commenced reporting results.
Portable Storage
Slight increase in occupancy resulted in revenue and NOI growth over the same prior year period. 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, when compared to Q2 and Q3.
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Annual Report 2018
Summary of Quarterly Results (unaudited)
Period
2018- Q4
2018- Q3
2018- Q2
2018- Q1
Total 2018
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
Revenue
$26,562,429
$25,733,852
$23,173,856
$20,913,462
$96,383,599
$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)
($843,810)
($6,355,654)
($9,158,368)
($7,793,463)
($24,151,295)
Net Income /
(Loss) per
share
($0.002)
($0.018)
($0.026)
($0.022)
N/A
Fully diluted
Net Income /
(Loss) per
share
($0.002)
($0.018)
($0.026)
($0.022)
N/A
$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)
$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
$0.044
($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
Total
Total Assets
$1,022,791,417
$990,262,630
$959,256,102
$922,656,903
N/A
Liabilities Dividends
$761,864,860
$731,939,098
$694,025,713
$661,214,665
N/A
$925,235
$920,981
$920,562
$889,786
$3,656,564
$895,496,381
$839,525,204
$400,216,946
$404,743,767
N/A
$627,421,264
$585,777,091
$237,005,503
$238,025,850
N/A
$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
$880,328
$879,376
$765,016
$749,946
$3,274,666
$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
-
-
-
-
-
Note 1:
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.
- 17 -
67
Annual Report 2018
WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL
Working Capital
Cash provided by operating activities was $29.3 million for the fiscal year ended December 31, 2018,
compared to $16.0 million for the prior year. The increase was primarily due to the operational results
from stores purchased in fiscal 2017 and 2018, increased rates through our revenue management systems,
continued streamlining and integration of operations and controlling costs.
As at December 31, 2018, the Corporation had $19.7 million of cash compared to $16.2 million at
December 31, 2017. The cash will be used to fund acquisitions. The Corporation expects its cash flow
from operations to continue to increase as the full benefit of the stores purchased in fiscal 2017 and 2018
are realized. In addition, the Corporation will borrow against low levered assets to fund acquisitions and
its expansion plans.
Long Term Debt and Lines of Credit
As at December 31, 2018 and December 31, 2017, the Corporation held the following debt:
December 31, 2018
December 31, 2017
Rate
Range
Weighted
Average
Balance
Rate
Range
Weighted
Average
Balance
Mortgages
Fixed/Variable
3.18% to 5.20%
4.24%
555,183,118
3.18% to 5.50% 4.21%
233,190,726
Maturity: January 2019 to December 2028
Maturity: March 2018 to March 2025
Deferred financing costs net of accretion
of $2,514,319 (Dec 31, 2017 - $1,376,845)
Lines of Credit
(2,505,296)
552,677,822
(2,245,471)
230,945,255
Variable Rate
Prime plus 1.00%
or BA plus 2.35% 4.47%
149,733,334
Prime plus 1.00%
or BA plus 2.75% 4.21%
332,153,083
Maturity: July 2019 to April 2021
Maturity: March 2018 to August 2020
702,411,156
563,098,338
The bank prime rate at December 31, 2018 was 3.95% (December 31, 2017 - 3.20%). The weighted average
cost of debt at December 31, 2018 is 4.29% (December 31, 2017 - 4.21%). The increase is due to increases
in the BA, bond and prime rates. The Corporation has reduced its variable interest rate exposure by
entering into additional fixed interest rate term debt to paydown lines of credit. In the fiscal year, the
Corporation entered into over $270 million of 10 year term fixed interest rate debt.
The weighted years to maturity, excluding lines of credit, at December 31, 2018 is 6.18 years (December
31, 2017 – 3.31 years).
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
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Annual Report 2018
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 debt service coverage ratios,
a tangible net worth ratio, and a loan to value ratio. As of December 31, 2018 and December 31, 2017, 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 into income of these costs.
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
$
$
$
$
$
$
170,685,310 (includes $149.7 million lines of credit)
97,527,172
76,538,824
83,784,306
34,109,775
242,271,064
Of the repayments shown in Year 1, $12.4 million are required under our amortizing term debt
mortgages, $8.5 million relates to loans due in the upcoming twelve months that are expected to be
refinanced and $149.7 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, 2018 and December 31, 2017, 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 systems to increase the value of the assets and to ensure that the Corporation has
an appropriate mix of assets under our lines of credit.
The Corporation’s detailed debt maturity profile are as follows:
Year of debt
maturity
Mortgages
Payable
2019
2020
2021
2022
2023
Thereafter
8,549,192
88,276,678
68,672,576
81,974,244
28,756,776
278,953,652
555,183,118
Weighted
Average
Interest
Rate
Contractural Mortgage Maturities and Interest Rates
Weighted
Average
Interest
Rate
4.68%
4.18%
4.43%
4.04%
4.74%
4.21%
4.24%
Lines of Credit
136,750,000
7,983,334
5,000,000
Total Debt
145,299,192
96,260,011
73,672,576
81,974,244
28,756,776
278,953,652
704,916,452
4.41%
5.20%
4.95%
-
-
-
4.47%
149,733,334
-
-
-
Weighted
Average
Interest
Rate
4.42%
4.27%
4.46%
4.04%
4.74%
4.21%
4.29%
Deferred financing costs net of accretion
Balance
(2,505,296)
702,411,156
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69
Annual Report 2018
Share Capital
The common shares issued are:
Balance, December 31, 2016
Bought deal
Issued on asset acquisitions
Dividend reinvestment plan
Share option redemption
Share issuance costs
Common shares repurchased
Balance, December 31, 2017
Issued on asset acquisitions
Dividend reinvestment plan
Share option and warrant redemption
Share issuance costs
Number of Shares
Amount
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
6,313,955
613,694
3,568,391
-
15,661,727
1,497,892
1,906,263
(84,962)
Balance, December 31, 2018
355,722,974
$
338,552,701
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
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
In fiscal 2017, 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. The NCIB has been renewed
to allow the Corporation to purchase for cancellation, during the 12-month period starting
September 7, 2018, of up to 17,704,359 of the common shares.
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Annual Report 2018
Stock Options and Warrants
A total of 13,537,450 options were outstanding as at December 31, 2018 (December 31, 2017 – 11,555,850).
Of the outstanding amount, 13,537,450 options were exercisable (December 31, 2017 – 11,555,850). The
details are as follows:
Exercise Price
Vesting Date Expiry Date
December 31, 2018 December 31, 2017
$0.23
$0.33
$0.41
$0.50
$1.36
$1.78
$2.52
May 6, 2009 May 6, 2019
June 19, 2014
June 19, 2024
April 28, 2015 April 28, 2025
Sept 14, 2015
Sept 14, 2025
Dec 21, 2016 Dec 21, 2026
Mar 16, 2017 Mar 15, 2027
May 4, 2018 May 3, 2028
990,000
180,000
2,122,450
1,570,000
2,825,000
2,850,000
3,000,000
1,210,000
220,000
2,390,850
1,760,000
2,975,000
3,000,000
-
Options exercisable and outstanding
13,537,450
11,555,850
Warrants exercisable and outstanding are as follows:
Exercise Price
Expiry Date
December 31, 2018 December 31, 2017
$0.35
$0.37
Feb 25, 2018
Feb 25, 2018
Warrants exercisable and outstanding
-
-
-
16,666
2,533,334
2,550,000
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.
Equity Incentive Plan
Under the Corporation’s Equity Incentive Plan passed on May 30, 2018 (the “Plan”), directors, employees
and consultants are eligible to receive awards, in the form of Restricted Share Units (“RSU’s”), Deferred
Share Units (“DSU’s”) and Named Executive Officer Restricted Share Units (“Neo RSU’s”), as and when
granted by the Board, in its sole discretion. The maximum number of awards that may be issued under
the Plan is 17,545,677. The maximum number of shares that may be reserved for issuance under the
Plan, together with any of the Corporation’s other share-based compensation arrangements, may not
exceed 10% of the issued shares of the Corporation.
The RSU’s and DSU’s that are granted vest in equal annual amounts over 3 years. The Neo RSU’s vest 3
years after the date of grant. RSU’s, DSU’s and Neo RSU’s are entitled to be credited with dividend
equivalents in the form of additional RSU’s, DSU’s and Neo RSU’s, respectively.
With certain exceptions, the Plan provides that (i) the maximum number of awards that may be granted
to any one participant together with any other share-based compensation arrangements, in any 12 month
period, may not exceed 5% of the issued shares, and, in the case of any consultant, may not exceed 2% of
the issued shares; and (ii) the total value of all securities that may be issued to any non-employee director
under all of the Corporation’s security based compensation arrangements may not exceed $150,000.00 per
annum.
There has been no issuance of any Awards under the Plan as at December 31, 2018.
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71
Annual Report 2018
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.
The leases expire between 2023 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
$ 1,235,449
4,986,119
___20,028,285
$ 26,249,853
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, 2018 or December 31, 2017.
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, 2018, the Corporation paid total management fees of $nil (December
31, 2017 - $293,321) to Access Results Management Services Inc. (“ARMS”), a corporation controlled by
Steven Scott and Iqbal Khan. On March 31, 2017, the Corporation purchased all management contracts
from ARMS and therefore, the management agreement has ceased. Pursuant to a management
agreement, ARMS was 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 attained 85% or greater of its annual board-approved
budgeted NOI for that fiscal year.
During the year ended December 31, 2018, the Corporation reimbursed operational wages of $nil
(December 31, 2017 - $1,545,892) and training, travel and related expenses of $nil (December 31, 2017 -
$16,804) to ARMS. These expenses, reimbursed at cost, were undertaken exclusively for the benefit of the
Corporation.
During the year ended December 31, 2018, the Corporation paid loan guarantee fees of $nil (December 31,
2017 - $127,500) to Access Self Storage Inc., a large shareholder of the Corporation, related to Steven Scott
and Iqbal Khan. The loan guarantees payments ceased in 2017. As a condition of the assumption of two
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Annual Report 2018
mortgages, the director and corporation were required to provide a guarantee for the entire outstanding
principal balance of the mortgages. The loan guarantee fee was compensation for the provision of this
guarantee and was paid on a monthly basis at the annual rate of 0.5% and 0.4% of the original mortgage
principal balances.
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, 2018, the Corporation paid $237,725 (December 31, 2017 - $216,710)
for royalties and $920,071 (December 31, 2017 - $1,535,160) 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, 2018 was $22,461 (December 31, 2017 - $33,808) payable to CPFI.
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, 2018
December 31, 2017
Wages, management fees, bonuses and directors fees
Stock based compensation
$
$
390,194
1,625,895
2,016,089
129,800
1,293,914
1,423,714
$
$
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 related party property acquisitions, 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.
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73
Annual Report 2018
ACCOUNTING POLICIES
The Corporation’s significant accounting policies are summarized in Note 3 to the December 31, 2018
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,
2017. In addition, there has been no change in the Company’s financial instrument risks.
Non-IFRS Financial Measures
Management uses both IFRS and Non-IFRS Measures to assess the 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.
“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, 2018 annual audited consolidated financial statements.
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Annual Report 2018
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, 2018, including the design of internal controls over financial reporting, to
provide reasonable assurance regarding the reliability of financial reporting in accordance with IFRS.
These officers have concluded that the Corporation’s disclosure controls and procedures are designed
effectively to ensure that information required to be disclosed in reports that are filed or submitted under
Canadian securities legislation are recorded, processed and reported within the time specified in those
rules.
There have been no changes in the Corporation’s internal controls over financial reporting that have
materially affected or are reasonably likely to affect the Coproration’s internal controls over financial
reporting for the three months and fiscal year ended December 31, 2018.
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.
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75
Annual Report 2018
Economic Conditions
Even though storage is less susceptible to changes in the local economy, as storage space is often needed
during times of both growth and recession, downturns in a local economy could negatively affect our
revenues and NOI. A significant portion of storage customers use storage during periods of moving from
one residence to another or when a residence is being renovated. In times of economic downturn, the
level of activity in housing sales and housing renovation could decrease, thereby decreasing storage
rental demand.
Environmental Risk
Environmental risk is inherent in the ownership of property. Various municipal, provincial and federal
regulations can result in penalties or potential liability for remediation, to the extent that hazardous
materials enter the environment. The presence of hazardous substances could also impair the
Corporation’s ability to finance or sell the property, and might expose the Corporation to civil law suits.
To mitigate such risk, the Corporation procures recent or updated environmental reports for all
acquisitions to ascertain the risk, if any, that exist at a property. It also prohibits the storage of hazardous
substances as a condition of the rental contract signed by customers.
Credit Risk
Credit risk arises from the possibility that customers may experience financial difficulty and be unable to
fulfill their financial obligations to the Corporation. The risk of incurring bad debts often arises if storage
customers relocate and cannot be found to enforce payment, or if storage customers abandon their
possessions. The extent of bad debts can be mitigated by quickly following up on any unpaid amounts
shortly after the due date, enforcing late fees, denying access to any customers with delinquent accounts,
and ultimately seizing the possessions of the customer. Additionally the Corporation typically rents to
numerous customers, each of which constitutes significantly less than 5% of the Corporation’s monthly
revenue. This diversification in the customer base reduces credit risk from any given customer.
Other Self Storage Operators or Storage Alternatives
The Corporation competes with other individuals, corporations and institutions which currently own, or
are anticipating owning a similar property in a given region. Competitive forces could have a negative
effect on occupancy levels, rental rates or operating costs such as marketing.
Acquisition of Future Locations
Competition also exists when the Corporation attempts to grow through acquisitions of storage locations.
An increase in the availability of investment funds in the general market, and a subsequent increase in
demand for storage locations would have a tendency to increase the price for future acquisitions of
storage locations and reduce the yields thereon.
Anticipated Results from New Acquisitions
The realization of anticipated results and value from acquisitions can be jeopardized from unexpected
circumstances in integrating new stores into our existing operations, from situations we did not detect
during our due diligence or from increased property tax following reassessment of newly acquired
locations.
Increase in Operating Costs
Our operating margins can be negatively impacted from increases in operating costs such as property tax,
staffing costs, insurance premiums, repairs and maintenances costs, utility costs and others due to
various factors such as the need for governments to raise funds, natural disasters, commodity and energy
prices.
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Annual Report 2018
Climate and Natural Disasters
The storage industry in Canada can be cyclical. Due to the climate, demand for storage is generally
weaker in winter months with an increase in operating costs resulting in potentially lower NOI during
Q1 and Q4.
Natural disasters, such as floods, earthquakes or severe winter storms may result in damage and business
interruption losses that are greater than the aggregate limits of our insurance coverage. We maintain a
comprehensive insurance policy to cover such events, however some insurance coverage may be or
become unavailable or cost prohibitive.
Litigation
Legal claims may arise from the ordinary course of our business. Resolution of these claims would divert
resources from the Corporation such cash to pay expenses and damages and the diversion of
management’s time and attention from the Corporation’s business. The impact and results from
litigation cannot be predicted with certainty and can have a material adverse effect on the business.
Use and Dependency on Information Technology Systems
Our business is heavily dependent on the use of information technology, with the majority of our new
customers communicating and transacting with us electronically or over the phone. Commerce over the
internet and the nature of our business requires us to retain private information about our customers.
Significant aspects of these systems are centrally managed, such as our financial information and some
are managed by third party vendors. These systems may be subject to telecommunication failures,
cyber-attack, computer worms and viruses and other disruptive security breaches. All of which could
materially impact our operations, resulting in additional costs and or in legal action either by
governments agencies or private individuals.
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77
Annual Report 2018
StorageVault Canada Inc.
OFFICERS
Steven Scott
Chief Executive Officer
Iqbal Khan
Chief Financial Officer
DIRECTORS
Steven Scott
Toronto, ON
Iqbal Khan
Toronto, ON
Jay Lynne Fleming
Vancouver, BC
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
300-5th Avenue S.W., 10th Floor
Calgary, AB T2P 3C4
Telephone 403-218-2800
Facsimile 403-265-0232
TSX VENTURE EXCHANGE LISTING
SVI
78
- 28 -
Annual Report 2018
Corporate Information
Phone:
1-877-622-0205
Website: storagevaultcanada.com
Email:
Address: 100 Canadian Road, Toronto, Ontario, M1R 4Z5
ir@storagevaultcanada.com