StorageVault Canada Inc.
Annual Report 2019

Plain-text annual report

PERFORMANCE THROUGH INTEGRATION CANADA SELF STORAGE CENTRES ANNUAL REPORT 2019 STORAGEVAULT WAS RECOGNIZED AS A TSX VENTURE 50™ COMPANY IN 2020 FOR THE 3RD TIME 2 Annual Report 2019CANADA SELF STORAGE CENTRESTABLE OF CONTENTS Highlights Letter to Our Shareholders Our National Footprint Our Board Members Financial Statements Management Discussion and Analysis 5 6 8 10 11 47 CORPORATE INFORMATION Phone: 1.877.622.0205 Web: storagevaultcanada.com Email: ir@storagevaultcanada.com Address: 100 Canadian Road Toronto, ON M1R 4Z5 3 Annual Report 2019CANADA SELF STORAGE CENTRES SVI‘S MANAGEMENT TEAM IS KNOWN FOR ITS EXECUTION AND DISCIPLINE RESULTING IN PERFORMANCE 4 Annual Report 2019CANADA SELF STORAGE CENTRESHIGHLIGHTS New Management 10 STORES Q4/2014 29 STORES Q4/2015 49 STORES Q4/2016 90 STORES Q4/2017 105 STORES Q4/2018 151 STORES Q4/2019 REVENUE NOI AFFO 19% AFFO 37% 40% NOI AND AFFO LET’S TALK GROWTH: NOI 90 MM 80 MM 70 MM 60 MM 50 MM 40 MM 30 MM 20 MM 10 MM $ 0 40 MM 35 MM 30 MM 25 MM 20 MM 15 MM 10 MM 5 MM $ 0 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 5 Annual Report 2019CANADA SELF STORAGE CENTRESLETTER TO OUR SHAREHOLDERS Dear Fellow Shareholders, StorageVault continued its strong performance in 2019 with portfolio and operating platform in Canada. Combine this with over $373 million in acquisitions and over 7% same store our disciplined operating team, and the result is a tremendous revenue and NOI growth. competitive advantage that we will continue to leverage. SVI landed its second whale in as many years with the acquisition of Real Storage, the fourth largest operator in Other notable accomplishments include: • Recognition as one of the Top 50TM performing companies Canada, for $275 million. Real Storage owned and operated on the TSX-V (3rd time in last 4 years). 38 stores throughout Ontario, Manitoba, Alberta and • A diversity leader in gender, ethnicity and experience. British Columbia and had been one of SVI’s most significant • Philanthropically, we supported more than 150 competitors in the acquisition market. Of the 27 markets Real organizations in communities from coast to coast, Storage operated in, SVI had existing operations in many of partnering in initiatives related to health care, education, them and as a result we expect significant synergies to be sport and quality of life. realized over the next 24 months. SVI also acquired $98 million • Commitment to environmental responsibility through of additional assets in the year with a focus on infilling our initiatives such as roof top solar, solar walls, motion-sensor current markets. LED lighting, low-flow plumbing fixtures, in-floor radiant heating and an upgrade program for older stores to install While we are now almost triple the size of our next closest light sensors, LED lighting, efficient doors and more. competitors with over 200 stores across Canada, we are still confident that we can acquire an additional $50 to $75 million As with last year, we continue to capitalize on historically low of assets in 2020 and beyond. interest rates by moving to fixed rate debt; 93% of our debt is Operationally, we have had an equally successful year achieving now fixed. over 7% same store revenue and NOI growth and a 19% AFFO We are committed to growing cash flow and creating long growth for the year. These strong results stem from our term wealth for our shareholders. performance driven culture, a dynamic revenue management platform, the successful integration of acquisitions and We appreciate your ongoing support. exceeding our acquisition targets. Sincerely, Steven Scott Chief Executive Officer February 27, 2020 Our commitment to innovation and investment in intelligent software has allowed us to achieve a best in class reservation centre and revenue management system. Through automation and data analytics, these initiatives have allowed us to enhance revenues, control customer acquisition costs and other operating expenses while improving the customer experience. As a result, we have built the best storage 6 Annual Report 2019CANADA SELF STORAGE CENTRESWE GREW TO OVER 8 MILLION SQFT OF RENTABLE SPACE IN 73,000 STORAGE UNITS $372.7 MILLION IN ACQUISITIONS RESULTING IN 46 STORES BEING ADDED IN 2019 REVENUE GROWTH OF 40% TO $135.0 MILLION FROM $96.4 MILLION NOI GROWTH OF 37% TO $90.1 MILLION FROM $65.9 MILLION EXPECTING $50 TO $75 MILLION IN ACQUISITIONS IN 2020 756% 5 YEAR TOTAL SHAREHOLDER RETURN 7 Annual Report 2019CANADA SELF STORAGE CENTRESOUR NATIONAL FOOTPRINT 41 8 9 18 OUR BRANDS 8 Annual Report 2019CANADA SELF STORAGE CENTRES200+ locations owned and managed across Canada and growing! Proudly Canadian 97 24 4 9 Annual Report 2019CANADA SELF STORAGE CENTRESOUR BOARD MEMBERS MEET OUR BOARD MEMBERS JAY LYNNE FLEMING 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. 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 Chair of the Corporation’s Governance Committee and also serves on both the Audit and Acquisition Committees. 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. STEVEN SCOTT Director CEO Mr. Simpson is a co-founder and former president and CEO of the Corporation, and currently serves as a director and as Chair of the Acquisition Committee. He was vital in transitioning StorageVault to a publically traded company on the TSX Venture Exchange. ALAN SIMPSON Director BLAIR TAMBLYN Director Mr. Tamblyn is the Co- Founder, Chief Executive Officer of Timbercreek Asset Management, and Chairman of the Board for Timbercreek Financial. Mr. Tamblyn serves as Chair of the Corporation’s Audit Committee. We will continue to increase our cash flow through integration and revenue management. 10 Annual Report 2019CANADA SELF STORAGE CENTRESStorageVault Canada Inc. Consolidated Financial Statements For the Years Ended December 31, 2019 and 2018 11 Annual Report 2019CANADA SELF STORAGE CENTRES 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, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, 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. 12 Annual Report 2019CANADA SELF STORAGE CENTRES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 26, 2020 Chartered Professional Accountants 13 Annual Report 2019CANADA SELF STORAGE CENTRES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 Prepaid expenses and other current assets Accounts receivable (Note 9) Liabilities and Shareholdersʹ Equity Debt (Note 7) Interest rate swaps (Note 7) Lease liability (Note 14) Deferred tax liability (Note 10) Accounts payable and accrued liabilities Unearned revenue Shareholdersʹ Equity Share capital (Note 8) Dividends paid (Note 8) Contributed surplus (Note 8) Deficit Commitments and Contingencies (Note 14) The accompanying notes are an integral part of these consolidated financial statements. 2019 2018 $      1,246,187,751 113,827,924 24,460,186 2,985,805 5,404,296 $          915,442,044 77,526,826 19,695,873 5,191,801 4,934,873 $      1,392,865,962 $       1,022,791,417 $      1,043,788,392 9,291,210 25,491,060 64,063,076 12,458,892 7,025,354 1,162,117,984 355,585,663 (12,529,361) 8,812,227 (121,120,551) 230,747,978 $          702,411,156 ‐ ‐ 47,026,009 7,394,616 5,033,079 761,864,860 338,552,701 (8,726,868) 5,218,589 (74,117,865) 260,926,557 $      1,392,865,962 $       1,022,791,417 Approved on behalf of the Board: ʺsignedʺ Steven Scott Director ʺsignedʺ Iqbal Khan Director __________________________________________________________________________________________ 14 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                          StorageVault Canada Inc. Consolidated Statements of Changes in Equity For the Years Ended December 31 Share Capital Balance, beginning of the period Common shares issued, net of issuance costs (Note 8) Balance, end of the period Dividends Paid Balance, beginning of the period Dividends paid in the year Balance, end of the period Contributed Surplus Balance, beginning of the period Redemption of stock options and warrants Stock based compensation (Note 8) Balance, end of the period Deficit Balance, beginning of the period IFRS 16 equity adjustment (Note 3) Deferred tax recognized on adoption of IFRS 16 (Note 10) Net income (loss) and comprehensive income (loss) Balance, end of the period The accompanying notes are an integral part of these consolidated financial statements. 2019 2018 $         338,552,701 17,032,962 355,585,663 $          319,571,781 18,980,920 338,552,701 (8,726,868) (3,802,493) (12,529,361) (5,070,304) (3,656,564) (8,726,868) 5,218,589 ‐ 3,593,638 8,812,227 3,540,210 (223,252) 1,901,631 5,218,589 (74,117,865) (49,966,570) (1,207,122) 322,905 ‐ ‐ (46,118,469) (24,151,295) $       (121,120,551) $          (74,117,865) __________________________________________________________________________________________ 15 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                         StorageVault Canada Inc. Consolidated Statements of Income (Loss) & Comprehensive Income (Loss) For the Years Ended December 31 Revenue Storage and related services Management fees Expenses Operating costs Acquisition and integration costs Selling, general and administrative Stock based compensation (Note 8) Depreciation and amortization (Note 5) Interest  Unrealized loss on interest rate swap contracts (Note 7) Net income (loss) and comprehensive income (loss) before tax Deferred tax recovery (Note 10) 2019 2018 $         133,212,736 1,750,304 134,963,040 $            94,666,809 1,716,790 96,383,599 44,865,099 6,982,983 11,214,718 3,593,638 79,206,355 42,189,684 9,291,210 30,523,949 2,248,751 6,192,383 1,901,631 58,857,132 28,875,906 ‐ 197,343,687 128,599,752 (62,380,647) (32,216,153) 16,262,178 8,064,858 Net income (loss) and comprehensive income (loss) $         (46,118,469) $          (24,151,295) 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. $                  (0.128) $                   (0.069) $                  (0.128) $                   (0.069) 360,468,060 360,468,060 351,893,667 351,893,667 __________________________________________________________________________________________ 16 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                      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) Adjustment for non‐cash items: Deferred tax recovery (Note 10) Depreciation, amortization (Note 5) Amortization of deferred financing costs Stock based compensation (Note 8) Unrealized loss on interest rate swap contracts (Note 7) (Gain) loss 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) Dividends paid (Note 8) Principal lease payments (Note 14) Debt issuance costs Advances from long term debt (Note 7) Repayment of long term debt (Note 7) 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 2019 2018 $         (46,118,469) $          (24,151,295) (16,262,178) 79,206,355 1,142,637 3,593,638 9,291,210 4,436 30,857,629 (469,424) 2,205,996 5,064,278 1,992,275 39,650,754 285,684 (2,317,974) (311,830) (2,504,247) 536,106,032 (193,377,587) 337,880,078 (335,246,364) (37,530,977) 10,822 (372,766,519) (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) ‐ (1,397,298) 420,840,336 (281,267,693) 137,659,600 (140,263,193) (18,611,830) 36,023 (158,839,000) Increase in cash and short term deposits Cash and short term deposits balance, beginning of period 4,764,313 3,543,445 19,695,873 16,152,428 Cash and short term deposits balance, end of period $           24,460,186 $            19,695,873 The accompanying notes are an integral part of these consolidated financial statements. __________________________________________________________________________________________ 17 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  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, 2019, were authorized for issuance by the Board of Directors of  the Corporation on February 26, 2020. 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.  The  Corporation  also  stores,  shreds,  and  manages  documents and records for 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, 2019.   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., all of which are headquartered in Toronto,  Ontario. 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.  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.  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 Corporation’s revenue comprises the renting of storage units to customers, information and records  management,  managing  storage  facilities  on  behalf  of  third  parties  and  sale  of  merchandise,  including  locks, boxes, packing supplies and equipment.  18 Notes: 1  Annual Report 2019CANADA SELF STORAGE CENTRES                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   Revenue earned from the renting of storage units is accounted for under IFRS 16 – 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.    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  for  other  storage  related  services  is  recognized  in  the  month  the  respective  services  are  provided. Receipts of fees for other storage related services for future periods are deferred and recognized  as  revenue  when  each  respective  monthly  period  commences.  A  provision  is  made  for  expected  allowances as necessary.  Revenue  from  the  sale  of  merchandise,  including  locks,  boxes,  packing  supplies  and  equipment,  is  recognized 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 cash flows generated by the assets acquired and  the selection of an appropriate discount rate. Acquisition and integration costs are recognized in profit or  loss as incurred.  Goodwill  represents  the  excess  of  the  identifiable  cost  of  an  acquisition  over  the  fair  value  of  the  Corporationʹs share of the net assets and net liabilities acquired at the date of acquisition.  If the identifiable  cost  of  acquisition  is  less  than  the  fair  value  of  the  Corporationʹs  share  of  the  net  assets/net  liabilities  acquired (i.e. a discount on acquisition) the difference is credited to the Consolidated Statements of Income  (Loss) and Comprehensive Income (Loss) in the period of acquisition. At the acquisition date, goodwill  acquired is recognized as an asset and 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  Notes: 2  19 Annual Report 2019CANADA SELF STORAGE CENTRES                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued  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.  Cash and Short Term Deposits  Cash and short term deposits on the 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 three months or  less.  For  the  purpose  of  the  Consolidated  Statements  of  Cash  Flows,  cash  and  short  term  deposits  are  defined as above, net of outstanding bank overdrafts, except where no right of set‐off exists.  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 ‐      Buildings   Leasehold  Business  Fences  improvements  4%   20%    operating equipment  10%  8%    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%  20 Notes: 3  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                              StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued  The residual value and useful lives of real estate and equipment are reviewed, and adjusted if appropriate,  at each Consolidated Statement of Financial Position date. An asset’s carrying value is written down to its  recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. These  impairment losses are recognized in the Consolidated Statements of Income (Loss) and Comprehensive  Income (Loss). Following the recognition of an impairment loss, the depreciation charge applicable to the  asset is adjusted prospectively in order to systematically allocate the revised carrying amount, net of any  residual value, over the remaining useful life.   Goodwill and Intangible Assets  Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable assets and  liabilities acquired at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses.   Finite 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:  Tenant  Relationships  ‐  22  to  180  months.  Indefinite  life  intangible  assets,  consisting  of  management  contracts,  are  carried  at  cost  and  are  not  amortized. The useful life of indefinite life intangible assets are reviewed at each Consolidated Statements  of Financial Position date.  Goodwill and indefinite life intangibles are reviewed for impairment annually by assessing the recoverable  amount of each CGU to which it relates. 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).  Any  impairment  recognized  on  goodwill  is  not  subsequently reversed.  Income Taxes  Income  tax  is  comprised  of  current  tax  and  deferred  tax.  Income  tax  is  recognized  in  the  Consolidated  Statements of Income (Loss) and Comprehensive Income (Loss) except to the extent that it relates to items  recognized directly in equity, in which case it is recognized in equity.    Current tax is the tax expected to be payable on the taxable income for the year, using tax rates enacted or  substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.    Deferred  tax  is  recognized  using  the  liability  method,  providing  for  temporary  differences  between  the  carrying  amounts  of  assets  and  liabilities  for  financial  reporting  purposes  and  the  amounts  used  for  taxation  purposes.  Deferred  tax  is  not  recognized  on  the  initial  recognition  of  assets  or  liabilities  in  a  transaction  that  is  not  a  business  combination.  In  addition,  deferred  tax  is  not  recognized  for  taxable  temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax  rates that are expected to be applied to temporary differences when they reverse, based on the laws that  have been enacted or substantively enacted by the reporting date.   Notes: 4  21 Annual Report 2019CANADA SELF STORAGE CENTRES                    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   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 Statements 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.  Income (Loss) per Share  Basic  income  (loss)  per  common  share  is  computed  by  dividing  the  net  income  (loss)  by  the  weighted  average number of common shares outstanding during the period.  Diluted net income (loss) per share is   calculated by dividing the net earnings by the weighted average number of shares outstanding as adjusted  for the potential dilution that would occur if outstanding stock options, subordinated debentures, preferred  shares or other potentially dilutive financial instruments were exercised or converted to common shares.    The weighted average number of diluted shares is calculated in accordance with the treasury stock method.   The treasury stock method assumes that the proceeds received from the exercise of all potentially dilutive  instruments are used to repurchase common shares at the average market price.  22 Notes: 5  Annual Report 2019CANADA SELF STORAGE CENTRES                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   Share Capital  Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of shares are  shown in equity as a deduction from the proceeds received.  Segment Reporting  An operating segment is a component of the Corporation that engages in business activities from which it  may earn revenues and incur expenses. All operating segments’ operating results are reviewed regularly  by the Corporation’s CEO and/or CFO in order to make decisions regarding the allocation of resources to  the segment. Segment results include items directly attributable to a segment as well as those that can be  allocated on a reasonable basis.  Financial Instruments  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.    The  Corporation  classifies  the  following  financial  assets  as  measured at amortized cost: cash and short term deposits and accounts receivable.  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.  The  Corporation has no financial assets classified in this category.  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.  The  Corporation  has  no  financial assets classified in this category.  ‐ ‐ Financial assets measured at amortized cost are measured at cost using the effective interest method.    For assessing impairment of financial assets measure at amortized cost the Corporation applied the  simplified approach and has calculated expected credit losses based on lifetime expected credit losses.  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 expected credit losses.  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:  Notes: 6  23 Annual Report 2019CANADA SELF STORAGE CENTRES                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   ‐ ‐ 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). The Corporation classifies the   following financial liabilities as measured at amortized cost: debt and accounts payable and  accrued liabilities.  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). The Corporation classifies the  following financial liabilities as measured at amortized cost: interest rate swap liability.  Financial liabilities are derecognized when the obligation is discharged, cancelled or expired.  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.  ‐ 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  a  business  combination.  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.    24 Notes: 7  Annual Report 2019CANADA SELF STORAGE CENTRES            StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   ‐ ‐ ‐  Expected credit losses – Financial assets measured at amortized cost are stated after evaluation as to  their  collectability  and  an  appropriate  allowance  for  expected  credit  losses  is  provided  where  considered necessary. The Corporation uses a provision matrix to calculate expected credit losses for  accounts receivable which is based on the Corporation’s historical credit loss experience adjusted for  forward‐looking factors specific to the debtors and the economic environment. Actual losses 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. Management has identified each location as a  separate CGU. 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.   Notes: 8  25 Annual Report 2019CANADA SELF STORAGE CENTRES                  StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 3 – Continued   Changes in Accounting Policies  The Corporation has adopted the following new and revised standards effective January 1, 2019:  IFRS 16 – Leases  The Corporation adopted the requirements of IFRS 16 ‐ Leases as of January 1, 2019. IFRS 16 replaces IAS  17 ‐ Leases and results in almost all leases, where the Corporation is the lessee, being recognized on the  Consolidated Statement of Financial Position, as the distinction between operating and finance leases is  removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay   rentals are recognized. The lease liability is measured at present value of the lease payments that are not  paid at the balance date and is unwound over time using the interest rate implicit in the lease repayments  where  available,  or  the  Corporationʹs  incremental  borrowing  rate.  Accounting  for  the  lessors  remains  unchanged under the new standard.  The right‐of‐use asset comprises the initial lease liability amount, initial direct costs incurred when entering  into the lease less any lease incentives received. The asset is depreciated over the term of the lease. The new  standard replaces the Corporation’s operating lease expense with an interest and depreciation expense.  The Corporation applied the new standard IFRS 16 using the “Modified Retrospective” approach which  recognizes the cumulative effect of initial application as an adjustment to the opening balance of retained  earnings  at  January  1,  2019,  without  having  to  adjust  comparatives  in  the  current  year  reporting.  The  Corporation  recognized  the  right‐of‐use  assets  based  on  the  value  they  would  have  been  at  the  commencement date and the lease liabilities based on their value at the date of initial application, resulting  in an adjustment to the retained earnings of $1,207,122.  The Corporation elected to use the practical expedient to not recognize a right‐of‐use asset or a lease liability  for leases for which the lease term ends within 12 months of the date of initial application. The Corporation  has also elected not to recognize right‐of‐use assets and lease liabilities for short‐term leases and leases of  low‐value assets. Options (extension/termination) on lease contracts are assessed on a case by case basis.  The weighted average incremental borrowing rate at the date of initial application was 4.33%. This has been  applied to the liabilities recognized at the date of initial application where there is no implicit rate.  As of January 1, 2019, the Corporation had $18,174,269 of right‐of‐use leased assets and $19,381,391 in lease  liabilities.   A reconciliation of the operating lease commitments as of December 31, 2018 to the opening balance of lease  liabilities at the date of adoption is as follows:  Operating lease commitments as of December 31, 2018 $          26,249,853      Lease liabilities recognized as of January 1, 2019 ‐      Effect of discounting using the incremental borrowing rate (6,868,462) Lease liabilities recognized as of January 1, 2019 $          19,381,391 26 Notes: 9  Annual Report 2019CANADA SELF STORAGE CENTRES                                                StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  4. Acquisitions  During the year ended December 31, 2019, 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 dates of acquisition. Details of the acquisitions are:  First Quarter Acquisitions:  During the first quarter, the Corporation completed the acquisition of two self storage locations in Ontario  for $10,460,000 (subjected to customary adjustments). These acquisitions were arm’s length transactions  and have been accounted for as business combinations.  The purchases were paid for by cash on hand.  A summary of the acquisitions are as follows:  Acquisition date : Land, Yards, Buildings & Improve me nts Tenant Re lationships Ne t assets acquire d Conside ration paid for the  ne t asse ts acquired was obtaine d from the  following: Cash Se le cte d information for the  acquisitions, since  the ir acquisition date s: Re ve nue Ope rating costs Amortization Inte rest Net income (loss)  Two Self Storage  Locations  Fe bruary 20, 2019 $              9,192,522 1,267,478 10,460,000 10,460,000 1,197,635 430,200 767,435 709,939 307,718 $                (250,222) Notes: 10  27 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                      StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 4 – Continued  Second Quarter Acquisitions:  During the second quarter, the Corporation completed the acquisition of 42 self storage locations and an  information  and  records  management  business  for  $336,000,000  (subjected  to  customary  adjustments).  These acquisitions consisted of both arm’s length and non ‐ arm’s length transactions.  The purchases were  paid for by advances from long term debt, issuance of common shares, promissory notes and cash on hand.  A summary of the acquisitions are as follows:   Three Self   One Self  Storage Locations   38 Self Storage  Storage  and RecordXpress  Locations  Location   Total  Acquisition date : April 12, 2019 April 15, 2019 May 29, 2019 Land, Yards, Buildings & Improve me nts $             24,339,429 $          252,446,366 $   25,827,893 $      302,613,688 Te nant Re lationships De fe rre d tax Goodwill Ne t asse ts acquire d 5,481,623 29,821,052 ‐ 2,678,948 32,500,000 22,553,634 2,672,107 30,707,364 275,000,000 28,500,000 333,321,052 (33,622,150) 33,622,150 ‐ ‐ (33,622,150) 36,301,098 275,000,000 28,500,000 336,000,000 Conside ration paid for the  ne t asse ts acquire d was obtaine d from the  following: Issuance  of common share s 8,300,000 ‐ Cash De bt Promissory note ‐ 38,000,000 7,000,000 500,000 15,300,000 38,500,000 7,086,364 17,113,636 32,500,000 237,000,000 16,000,000 260,086,364 ‐ 5,000,000 22,113,636 275,000,000 28,500,000 336,000,000 Se le cte d information for the  acquisitions, since  the ir acquisition date s: Re ve nue Ope rating costs Amortization Inte re st Ne t income  (loss) 3,499,397 2,316,143 1,183,254 2,165,429 1,091,016 15,237,951 1,350,274 5,906,083 9,331,868 14,739,720 6,386,195 457,182 893,092 777,739 678,054 20,087,622 8,679,408 11,408,214 17,682,888 8,155,265 $              (2,073,191) $           (11,794,047) $       (562,701) $       (14,429,939) 28 Notes: 11  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 4 – Continued   Fourth Quarter Acquisitions:  During  the  fourth  quarter,  the  Corporation  completed  the  acquisition  of  two  self  storage  locations  for  $26,200,000 (subjected to customary adjustments). These acquisitions were both 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:  Acquisition date : Land, Yards, Buildings & Improve me nts Te nant Re lationships Ne t asse ts acquire d Conside ration paid for the  ne t asse ts acquire d was obtaine d from the  following: Cash De bt Se le cte d information for the  acquisitions, since  the ir acquisition date s: Re ve nue Ope rating costs Amortization Inte re st Ne t income (loss)  Two Self Storage  Locations  Octobe r 1, 2019 $             23,950,624 2,249,376 26,200,000 24,200,000 2,000,000 26,200,000 436,678 184,263 252,415 539,223 196,711 $                 (483,519) Notes: 12  29 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                         StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  5. Real Estate and Equipment  Land, Yards, Buildings & Storage Intangible Tenant  Office & Computer Improvements Containers Relationships Vehicles Equipment Total COST De ce mber 31, 2017 $            743,997,212 $       12,703,190 $       82,261,527 $         4,893,080 $         1,808,595 $            845,663,604 Additions Disposals 11,524,966 6,026,887 (10,648) (17,500) Busine ss acquisitions 160,099,529 ‐ De ce mber 31, 2018 915,611,059 18,712,577 Additions Disposals Busine ss acquisitions 38,542,148 (46,200) 335,756,834 49,157 (5,000) ‐ ‐ 15,600,471 97,861,998 ‐ ‐ 205,573 (28,159) ‐ 5,070,494 166,721 (275,627) ‐ 34,224,218 ‐ 854,404 ‐ ‐ 2,662,999 1,273,869 ‐ ‐ 18,611,830 (56,307) 175,700,000 1,039,919,127 40,031,895 (326,827) 369,981,052 De ce mber 31, 2019 $         1,289,863,841 $       18,756,734 $     132,086,216 $         4,961,588 $         3,936,868 $         1,449,605,247 ACCUMULATED DEPRECIATION De ce mber 31, 2017 $              34,153,525 $         4,119,032 $       23,673,335 $         3,059,396 $            633,565 $              65,638,853 De pre ciation Disposals De ce mber 31, 2018 De pre ciation Disposals 34,427,544 1,257,998 22,178,673 (213) (271) ‐ 68,580,856 49,445,309 (12,941) 5,376,759 1,315,008 (118) 45,852,008 27,435,403 ‐ 581,547 (18,418) 3,622,525 441,761 (252,883) 411,370 ‐ 1,044,935 568,874 ‐ 58,857,132 (18,902) 124,477,083 79,206,355 (265,942) De ce mber 31, 2019 $            118,013,224 $         6,691,649 $       73,287,411 $         3,811,403 $         1,613,809 $            203,417,496 NET BOOK VALUE De ce mber 31, 2018 De ce mber 31, 2019 847,030,203 1,171,850,617 13,335,818 12,065,085 52,009,990 58,798,805 1,447,969 1,150,185 1,618,064 2,323,059 915,442,044 1,246,187,751 Included in Land, Yards, Buildings & Improvements is Land at a value of $412,304,800 (December 31, 2018  ‐ $298,882,932; December 31, 2017 – $245,377,231).  Included  in  Land,  Yards,  Buildings  &  Improvements  is  $16,102,351  (December  31,  2018  ‐  $7,770,200;  December 31, 2017 ‐ $1,189,411) of construction in process that is not being depreciated.  Included  in  Land,  Yards,  Buildings  &  Improvements  are  right‐of‐use  assets  at  a  value  of  $23,772,865  (December 31, 2018 ‐ $nil; December 31, 2017 ‐ $nil), net of accumulated depreciation of $910,371 (December  31, 2018 ‐ $nil; December 31, 2017 ‐ $nil). The continuity of the right‐of‐use assets is as follows:  Self Storage Properties Balance, January 1, 2019 $          18,174,269 Additions Depreciation charge for the year 6,508,967 (910,371) Balance, December 31, 2019 $          23,772,865 30 Notes: 13  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  6.     Goodwill and Intangible Assets  Management Goodwill Contracts Total COST December 31, 2017 $        55,760,892 $     16,300,000 $    72,060,892 Business acquisitions 5,465,934 ‐ 5,465,934 December 31, 2018 61,226,826 16,300,000 77,526,826 Business acquisitions 36,301,098 ‐ 36,301,098 December 31, 2019 $        97,527,924 $     16,300,000 $  113,827,924 ACCUMULATED AMORTIZATION December 31, 2017 $                     ‐ $                  ‐ $                 ‐ Amortization December 31, 2018 Amortization ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ December 31, 2019 $                     ‐ $                  ‐ $                 ‐ NET BOOK VALUE December 31, 2018 61,226,826 16,300,000 77,526,826 December 31, 2019 97,527,924 16,300,000 113,827,924 At December 31, 2019, the Corporation performed its annual impairment test on goodwill and its indefinite‐ life intangible assets. Goodwill is allocated to the group of CGU’s that benefited from the synergies of the  business  combination  on  which  the  goodwill  arose.  The  Corporation  used  the  fair  value  less  costs  of  disposal  method  to  determine  the  recoverable  amount  of  the  CGUs.  Based  on  the  impairment  test  performed,  the  Corporation  concluded  that  no  impairment  exists  on  its  goodwill  and  indefinite‐life  intangible assets.  Information regarding each impairment test is as follows:  Manitoba and Saskatchewan group of CGU’s  ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a net operating income 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 5.98% based on management’s judgement in this  geographic region.  Notes: 14  31 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                 StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 6 – Continued  Kamloops, BC group of CGU’s  ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a net operating income 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 6.89% 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 net operating income 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 5.98% 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 net operating income 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 4.80% 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  net  operating  income  growth  rate  of  4.6%  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 6.39% based on management’s experience in these  markets.  Real Storage group of CGU’s  ‐ The cash flow projection includes specific estimates based on the expected life of the properties,  with a net operating income growth rate of 5% during the first three years and 4% thereafter.  Given the location of the stores in this portfolio and with SVI already operating in many of the 27  markets that the stores are located in, management believes that this growth rate is sustainable.  ‐ Cash  flows  were  discounted  at  a  pre‐tax  rate  of  5.00%  based  on  management’s  experience  and  location of these properties.  32 Notes: 15  Annual Report 2019CANADA SELF STORAGE CENTRES                      StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  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.  RecordXpress Division CGU  ‐ The cash flow projection includes specific estimates for five years with a growth rate of 1%, which  management feels would be representative of the future cash flows from these assets.  ‐ Cash flows were discounted at a pre‐tax rate of 7.5% based on management’s experience in the  records management business.  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 CGUʹs Goodwill Carrying Value Manitoba and Saskatche wan  $                  2,621,716 $                26,759,487 Kamloops, BC  London, ON  Se ntine l Se lf‐Storage   Portable  Storage   Re al Storage Manage me nt Division  Re cordXpre ss Division 76,470 142,807 52,442,159 2,578,968 33,622,150 3,364,706 2,678,948 7,844,970 2,113,312 435,047,242 14,502,185 260,260,280 16,300,000 7,934,692 $                97,527,924 $              770,762,168 Notes: 16  33 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  7. Debt  Mortgages December 31, 2019 Weighted Average Balance Rate Range December 31, 2018 Weighted Average Balance Rate Range Fixed/Variable 3.18% to 5.00% 4.21% 662,333,188 3.18% to 5.20% 4.24% 555,183,118 Maturity:  Jul 2020 to Nov 2029 Maturity:  Jan 2019 to Dec 2028 Deferred financing costs, net of accretion of $3,656,956 (Dec 31, 2018 ‐ $2,514,319) Lines of Credit and Promissory Notes (3,856,505) 658,476,683 (2,505,296) 552,677,822 Variable Fixed Maturity:  Aug 2020 to Dec 2022 Maturity:  Jul 2019 to Apr 2021 4.78% 72,413,656 4.47% 149,733,334 Maturity:  Feb 2020 to Apr 2022 4.00% 312,898,053 ‐ 4.12% 385,311,709 4.47% 149,733,334 4.18% 1,043,788,392 4.29% 702,411,156 Reconciliation of Debt The following table reconciles the changes in cash flows from financing activities for the  Corporationʹs debt: Debt, beginning of period Advances from debt Repayment of debt Total cash flow from debt financing activities December 31,  December 31,  2019 2018 $       702,411,156 $ 563,975,987 536,106,032 (193,377,587) 342,728,445 420,840,336 (281,267,693) 139,572,643 Change in deferred financing costs (1,351,209) (1,137,474) Debt, end of period $    1,043,788,392 $ 702,411,156 The bank prime rate at December 31, 2019 was 3.95% (December 31, 2018 – 3.95%).   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, 2019,  the Corporation is in compliance with all covenants.  34 Notes: 17  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                             StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 7 – Continued  The deferred financing costs consist of fees and costs incurred to obtain the related mortgage financing,  less accumulated amortization.  Principal repayments on mortgages 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  $  $  $  $  $  $   455,965,637 (includes lines of credit of $372.4 million)     81,662,231   141,284,984     43,444,435     14,603,686   310,683,924  The Corporation entered into interest rate swap contracts during the year in order to fix the interest rate on  $600  million  of  debt  at  a  weighted  average  rate  of  4.07%.  The  swaps  mature  between  April  2026  and  November 2029.   As at December 31, 2019, the swap had an unrealized fair value loss of $9,291,210 (December 31, 2018 ‐ $nil)  and a total fair value of $9,291,210.  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, 2017 345,226,934 $    319,571,781 Number of Shares Amount Issued on asset acquisitions Dividend reinvestment plan Share option and warrant redemption Share issuance costs Balance, December 31, 2018 Issued on acquisitions  Dividend reinvestment plan Share option redemption Share issuance costs Balance, December 31, 2019 6,313,955 613,694 3,568,391 ‐ 15,661,727 1,497,892 1,906,263 (84,962) 355,722,974 338,552,701 5,464,286 537,795 1,080,000 ‐ 15,300,000 1,447,278 350,350 (64,666) 362,805,055 $    355,585,663 Notes: 18  35 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                         StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 8 – Continued  Dividend Reinvestment Plan  Represents  common  shares  issued  under  the  Corporation’s  dividend  reinvestment  plan  (“DRIPʺ)  for  holders of common shares approved on April 18, 2016. Under the terms of the DRIP, eligible registered  holders of a minimum of 10,000 Common Shares (the ʺShareholdersʺ) may elect to automatically reinvest  their cash dividends, payable in respect to the common shares, to acquire additional common shares, which  will be issued from treasury or purchased on the open market. The Corporation may initially issue up to  5,000,000  common  shares  under  the  DRIP,  which  may  be  increased  upon  Board  of  Directors  approval,  acceptance of the increase by the Exchange, and upon public disclosure of the increase.  Contributed surplus:  December 31, 2019 December 31, 2018 Opening balance Stock based compensation Redemption of stock options and warrants Ending balance $        5,218,589 3,593,638 ‐ $        8,812,227 $        $        3,540,210 1,901,631 (223,252) 5,218,589 Stock Options  The Board of Directors of the Corporation may from time to time, at its discretion, and in accordance with  the  Exchange  requirements,  grant  to  directors,  officers,  employees  and  technical  consultants  of  the  Corporation, non‐transferable options to purchase common shares 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, 2019  December 31, 2018 Weighted Average Exercise Price Options Options Weighted Average Exercise Price Opening Exercised/Expired Granted Closing and Exercisable 13,537,450 (1,095,000)     6,000,000  18,442,450  $1.36     0.37     2.90  $1.92 11,555,850 (1,018,400) 3,000,000 13,537,450 $1.01   0.73   2.52 $1.36 36 Notes: 19  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                           StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 8 – Continued  The fair value of options granted in 2019 was estimated on the date of the grant, as determined by using  the Black‐Scholes option pricing model with the following assumptions:  Dividend Yield Risk‐Free Interest Rate Expected Life of Options Expected Volatility of the Corporationʹs Common Shares 0.10% 1.49% 4 Years 19.20%   Stock options exercisable and outstanding are as follows:  Exercise Price 0.23 $                 $                 0.33 0.41 $                 $                 0.50 $                 1.36 $                 1.78 $                 2.52 $                 2.90 Options exercisable and outstanding Vesting Date May 6, 2009 Jun. 19, 2014 Apr. 28, 2015 Sep. 14, 2015 Dec. 21, 2016 Mar. 16, 2017 May 4, 2018 May 28, 2019 Expiry Date May 6, 2019 Jun. 19, 2024 Apr. 28, 2025 Sep. 14, 2025 Dec. 21, 2026 Mar. 16, 2027 May 4, 2028 May 28, 2029 December 31, 2019 ‐ 140,000 2,122,450 1,570,000 2,810,000 2,850,000 3,000,000 5,950,000 18,442,450 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 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, at 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 three years.  The Neo RSU’s vest  three 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  per  annum.  Notes: 20  37 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                         StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 8 – Continued  The Corporation entered into total return swaps (“TRS”) as economic hedges of the Corporation’s DSUs  and RSUs. Under the terms of the TRS, a bank has the right to purchase the Corporation’s shares in the  marketplace as a hedge against the returns in the TRS. At December 31, 2019, 618,652 TRS units were  outstanding.   At  December  31,  2019,  100%  of  the  combined  DSU  and  RSU  exposures  were  economically  hedged  (December 31, 2018 ‐ nil%). Hedge accounting is not applied for the DSU/RSU hedging program.  Under the Plan, 240,980 common shares at a value of $894,038 have been issued as at December 31, 2019.  Dividends  A cash dividend of $0.002614 per common share was declared on March 15, 2019 and paid to shareholders  of record on March 29, 2019.  A cash dividend of $0.002627 per common share was declared on June 21, 2019 and paid to shareholders  of record on June 28, 2019.  A  cash  dividend  of  $0.002640  per  common  share  was  declared  on  September  16,  2019  and  paid  to  shareholders of record on September 30, 2019.  A  cash  dividend  of  $0.002653  per  common  share  was  declared  on  December  17,  2019  and  payable  to  shareholders of record on December 31, 2019.  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.  38 Notes: 21  Annual Report 2019CANADA SELF STORAGE CENTRES                          StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 9 – Continued  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.  The fair value of financial liabilities was as follows:  As at December 31, 2019 As at De ce mbe r 31, 2018 Fair Value Carrying Hie rarchy Amount Fair Value Carrying Amount Fair Value Financial Liabilitie s: De bt Le ve l 2 1,043,788,392 1,049,023,737 702,411,156 686,639,088 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, entering into interest rate swap  contracts, 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 Statements 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,  2019  would  have  been  approximately  $1,369,745 (December 31, 2018 ‐ $1,539,550).  b) Credit  risk – Credit  risk arises from  the  possibility that  customers  may  experience financial  difficulty  and  be  unable  to  fulfill  their  financial  obligations  to  the  Corporation.  The  risk  of  incurring bad debts often arises if storage customers relocate and cannot be found to enforce  payment, or if storage customers abandon their possessions. The extent of bad debts can be  mitigated by quickly following up on any unpaid amounts shortly after the due date, enforcing  late fees, denying access to any customers with delinquent accounts, and ultimately seizing the  possessions  of  the  customer.  Additionally,  the  Corporation  typically  rents  to  numerous  customers, each of which constitutes significantly less than 5% of the Corporation’s monthly  revenue. This diversification in the customer base reduces credit risk from any given tenant.  The Corporation has approximately $670,000 of receivables from related parties at December  31,  2019.  Management  believes  there  is  low  credit  risk  associated  with  these  related  party  balances due to the nature of the relationship and the historical loss rates.  Notes: 22  39 Annual Report 2019CANADA SELF STORAGE CENTRES                                        StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 9 – Continued  Change in the Corporation’s allowance for expected credit losses is as follows:  Balance December 31, 2017     Charges or adjustments during the year  Balance December 31, 2018     Charges or adjustments during the year  Balance December 31, 2019    $298,178  (47,520)       250,658      98,968    $349,626  The creation and release of the allowance for expected credit losses 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. It is the Corporation’s intention to renew any debt coming  due in the next fiscal year. The maturities of long term financial liabilities are summarized in  Note 7.  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 may  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.  40 Notes: 23  Annual Report 2019CANADA SELF STORAGE CENTRES                                                    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  10. Income Tax  2019 2018 Loss before taxes (62,380,647) (32,216,153) Combined federal and provincial statutory income tax rate 26.75% 26.75% Income tax recovery calculated at statutory rate Non‐deductible items Change in tax rate and other items Income tax expense (recovery) (16,686,823) (8,617,821)  2,325,303 (1,900,658) 502,554 50,409 (16,262,178) (8,064,858) Movements in deferred tax assets (liabilities) related to temporary differences during the year are as  follows: December 31,  Recognized on  2018 acquisitions IFRS 16  Transition  Adjustment Recognized in  December 31,  earnings 2019 Property, plant and equipment (59,768,535)  (27,607,095)  (4,861,617)  (4,078,485)  (96,315,732)  Goodwill and intangible assets (4,868,083)  (6,015,055)  Long term debt Interest rate swaps Lease liability (641,839)  ‐ ‐ Deferred tax assets not recognized 1,585,951 Non‐capital loss carry forwards 16,666,497 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 5,184,522 ‐ ‐ 9,483,698 (362,210)  2,456,596 1,555,314 (77,904)  7,285,169 (1,399,440)  (1,004,049)  2,456,596 6,739,836 1,508,047 23,951,666 Deferred tax asset (liability) (47,026,009)  (33,622,150)  322,905 16,262,178 (64,063,076)  Notes: 24  41 Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                    StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  11. Related Party Transactions  The Corporation holds a Master Franchise from Canadian PUPS Franchises Inc. (CPFI) which provides the  Corporation with the exclusive Canadian franchise rights for the development and operation of portable  storage throughout Canada. CPFI is a corporation related to Steven Scott and Iqbal Khan who are directors  of the Corporation.  The Corporation pays a monthly royalty of 3.5% on the gross sales.  During the year  ended December 31, 2019, the Corporation paid $291,152 (December 31, 2018 ‐ $237,725) for royalties and  $82,585  (December  31,  2018  ‐  $920,071)  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, 2019 was $73,783 (December 31, 2018 ‐ $22,461) payable to CPFI.  The  Corporation  has  management  agreements  with  Access  Self  Storage  Inc.  and  related  companies  (“Access Group”). These companies are related to Steven Scott and Iqbal Khan who are directors of the  Corporation.  The  Corporation  invoices  the  Access  Group  for  management  fees  as  well  as  additional  services it provides as part of the management agreements. During the year ended December 31, 2019, the  Corporation received $7,559,825 (December 31, 2018 – $6,103,873) in payments and reimbursements related  to the management agreement.  Included in accounts payable and accrued liabilities was $292,132 (December 31, 2018 ‐ $517,993) payable  to  the  Access  Group.  Included  in  accounts  receivable  was  $671,452  (December  31,  2018  ‐  $1,206,855)  receivable from the Access Group.  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, 2019 December 31, 2018 Wages,  management fees, bonuses and directors fees Stock based compensation 12.  Capital Risk Management  $          539,196 2,220,877 2,760,073 $        $          390,194 1,625,895 2,016,089 $        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.  42 Notes: 25  Annual Report 2019CANADA SELF STORAGE CENTRES                                            StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 12 – Continued  The  Corporation  reviews  and  assesses  its  capital  structure  on  an  ongoing  basis.  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 boxes, 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.    Notes: 26  43 Annual Report 2019CANADA SELF STORAGE CENTRES                                                StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 13 – Continued  For the Year Ended December 31, 2019 Se lf Portable Manage me nt Storage Storage Division Corporate Total Re ve nue $     125,764,839 $         7,447,897 $         1,750,304 $                   ‐ $     134,963,040 Ope rating e xpe nse s Ne t ope rating income 39,730,109 86,034,730 5,134,990 2,312,907 ‐ 1,750,304 ‐ ‐ 44,865,099 90,097,941 Acquisition and inte gration  Se lling, ge ne ral & admin. ‐ ‐ Inte re st e xpe nse 42,189,684 Unre alize d loss on swaps Stock base d compe nsation ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,982,983 6,982,983 11,214,718 11,214,718 ‐ 42,189,684 9,291,210 3,593,638 9,291,210 3,593,638 De pre ciation & amortization 76,804,172 1,867,949 365,308 168,926 79,206,355 De fe rre d tax re cove ry ‐ ‐ ‐ (16,262,178) (16,262,178) Ne t income  (loss) $     (32,959,126) $            444,958 $         1,384,996 $     (14,989,297) $     (46,118,469) Additions: Re al e state  and e quipme nt 409,430,685 334,753 ‐ 247,509 410,012,947 For the Year Ended December 31, 2018 Se lf Portable Manage ment Storage Storage Division Corporate Total Re ve nue $       88,202,008 $         6,464,800 $         1,716,791 $                   ‐ $       96,383,599 Ope rating e xpense 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 xpense 28,875,906 Stock base d compe nsation ‐ ‐ ‐ ‐ ‐ De pre ciation & amortization   56,755,567 1,953,230 De ferre 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 44 Notes: 27  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  Note 13 – Continued  Total Assets Se lf Storage Portable Storage Manage me nt Division Corporate Total As at De ce mbe r 31, 2018 $       967,246,443 $       19,827,440 $       17,795,589 $       17,921,945 $   1,022,791,417 As at De ce mbe r 31, 2019 $    1,334,810,756 $       17,946,452 $       17,408,039 $       22,700,715 $   1,392,865,962 14. Commitments and Contingencies  Lease Liabilities  The Corporation leases buildings and lands in Kamloops, BC, Montreal, QC, Toronto, ON and Winnipeg,  MB.  The leases expire between 2023 and 2054, with the leases expiring in 2023 and 2027 having up to 15  years and 20 years of renewals, respectively, which are expected to be exercised by the Corporation.   The lease liabilities are measured at the present value of the lease payments that are not paid at the balance  sheet date.  Lease payments are apportioned between interest expense and a reduction of the lease liability   using the Corporation’s incremental borrowing rate to achieve a constant rate of interest on the remaining  balances of the liability.  For the year ended December 31, 2019, the Corporation recognized $1,019,236 (December 31, 2018 ‐ $nil) in  interest expense related to its lease liabilities. As a result of the adoption of IFRS 16, for the year ended  December 31, 2019, the Corporation recognized $nil (December 31, 2018 ‐ $1,255,333) in operating lease  payments.  A  reconciliation  of  the  lease  liabilities  from  the  date  of  adoption  of  IFRS  16  to  December  31,  2019  is  as  follows:  Self Storage Properties Balance, January 1, 2019 $          19,381,391 Additions Cash Payments Interest 6,508,967 (1,418,534) 1,019,236 Balance, December 31, 2019 $          25,491,060 Contingency  The Corporation has no legal contingency provisions at either December 31, 2019 or December 31, 2018.  Notes: 28  45 Annual Report 2019CANADA SELF STORAGE CENTRES                                                      StorageVault Canada Inc.  Notes to the Consolidated Financial Statements  For the Years Ended December 31, 2019 and 2018  StorageVault Canada Inc.  DIRECTORS   OFFICERS  Steven  Chief   Iqbal  Chief   Scott  Executive Officer   Khan  Financial Officer  Jay Lynne Fleming  Vancouver, BC    Iqbal Khan  Toronto, ON  Steven Scott  Toronto, ON  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  1500,  Calgary,  Telephone  Facsimile   LLP   640 – 5th Avenue    AB T2P 3G4   403‐263‐3385  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  300‐  Calgary,  Telephone  Trust  5th Avenue S.W., 10th Floor   AB T2P 3C4   403‐218‐2800  Facsimile 403‐265‐0232  TSX VENTURE EXCHANGE LISTING:   SVI  46 Notes: 29  Annual Report 2019CANADA SELF STORAGE CENTRES                                                                                                                                                 StorageVault Canada Inc. (the “Corporation”) Form 51-102F1 Management’s Discussion and Analysis For Three Months Ended and Fiscal Year Ended December 31, 2019 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, 2019. This MD&A should be read in conjunction with the audited fiscal 2019 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, 2020. 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 2020; 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 2019 were purchased on January 1, 2019; and the general outlook for the Corporation. This forward-looking information is contained in “Highlights”, “Nature of Business”, “Business and General Corporate Strategy”, “Outlook”, “Financial Results Overview” and “Working Capital, Long Term Debt and Share Capital” and other sections of this MD&A. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Corporation to be materially different from those expressed or implied by such forward-looking information. Certain of such risks are discussed in the “Risks and Uncertainties” section of this MD&A. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not 47 Annual Report 2019CANADA SELF STORAGE CENTRES 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 completed in Fiscal 2019 being extrapolated to the entire period for 2019 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 Corporation in fiscal 2020 and revenue and NOI growth for 2020 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. 48 - 2 - Annual Report 2019CANADA SELF STORAGE CENTRES TABLE OF CONTENTS GLOSSARY OF TERMS NATURE OF OUR BUSINESS BUSINESS AND GENERAL CORPORATE STRATEGY OUTLOOK DESCRIPTION OF OUR OPERATIONS FINANCIAL RESULTS OVERVIEW WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS RELATED PARTY TRANSACTIONS ACQUISITION COMMITTEE AND ACQUISITION COMMITTEE MANDATE ACCOUNTING POLICIES RISKS AND UNCERTAINTIES CORPORATE CONTACT INFORMATION 50 51 52 54 55 57 64 68 68 69 70 71 74 - 3 - 49 Annual Report 2019CANADA SELF STORAGE CENTRES 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; “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 and amortization, stock based compensation expenses, unrealized gains or losses on interest rate swaps, 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, 2020 to February 27, 2020 “SVI” means StorageVault Canada Inc.; “The Company” or “The Corporation” or “We” or “Our” means StorageVault Canada Inc. 50 - 4 - Annual Report 2019CANADA SELF STORAGE CENTRES GLOSSARY OF TERMS following respective meanings: The following abbreviated terms are used in the Management Discussion & Analysis and have the “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; “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 and amortization, stock based compensation expenses, unrealized gains or losses on interest rate swaps, 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, 2020 to February 27, 2020 “SVI” means StorageVault Canada Inc.; “The Company” or “The Corporation” or “We” or “Our” means StorageVault Canada Inc. NATURE OF OUR BUSINESS Business Overview The Corporation’s primary business is owning, managing and renting self storage and portable storage space to individual, governments and commercial customers. The Corporation also stores, shreds, and manages documents and records for customers. The common shares of the Company are publicly traded on the TSX Venture Exchange, under the symbol ‘SVI’. As of December 31, 2019, SVI owned 151 stores and 4,613 portable storage units across Canada, for a total of 8,177,060 square feet of rentable storage space in 73,632 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. Our records management business operates under the RecordXpress brand. In addition to our owned stores, SVI manages 50 stores that are owned by third parties for a management fee, bringing the total number of stores owned and managed to 201. SVI’s objective is to own and manage storage assets in Canada’s top markets. The Corporation will focus on acquiring storage assets with strong existing cash flows, in strategic markets, preferably with excess capacity and land allowing for future development and expansion of our self, portable and information and records management 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, 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 2.7 billion square feet across over 51,000 plus 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. - 4 - - 5 - 51 Annual Report 2019CANADA SELF STORAGE CENTRES 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 commercial 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 is important 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. 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 52 - 6 - Annual Report 2019CANADA SELF STORAGE CENTRES 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 1,000,000 square feet of development potential on excess land currently owned and operated by SVI. When the market conditions are suitable and high occupancies and leads 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 2020. 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. Expansion of Information and Records Management Business The records management business is a complementary vertical in the storage space, much like portable storage, and fills up excess space, and delivers strong "sticky" cash flows. By virtue of consolidation in the records management industry, RecordXpress has become one of the largest Canadian records management companies in Canada and as part of SVI, it is the only company that can provide a national platform. This is a significant competitive advantage as government organizations such as hospitals and charities do not want their confidential information in foreign hands. 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. - 7 - 53 Annual Report 2019CANADA SELF STORAGE CENTRES OUTLOOK The Corporation’s outlook for acquisitions, share capital, results from operations and subsequent events are: Acquisitions In 2020 we expect to acquire $50 to $75 million of assets. 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 growth in revenue and NOI in 2020 resulting from the timing of 2019 and 2020 acquisitions and as we continue to streamline and integrate operations, implement our revenue management systems and continue to control costs on the $1.3 billion of assets purchased in the past five 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. 54 - 8 - Annual Report 2019CANADA SELF STORAGE CENTRES DESCRIPTION OF OUR OPERATIONS As at December 31, 2019, the Corporation owned the following self storage and portable storage operations: Acres Number of Stores Units Rentable Square Feet Location British Columbia Alberta Saskatchewan Manitoba Ontario Quebec Nova Scotia Portable Storage Units 43 109 26 25 232 30 15 18 30 8 9 68 14 4 Total 480 151 9,514 15,939 1,766 4,145 28,977 7,110 1,568 4,613 73,632 935,574 1,847,990 238,201 408,248 3,349,217 674,784 157,483 565,563 8,177,060 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 intelligent 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: • delivering results • management of over 200 storage locations throughout Canada • • over 200 years of combined experience in the storage industry by senior management acquisition, development and management of over 15 million square feet of storage space 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 analysis 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 Wholesale Canada Ltd. (Costco) members across Canada. This relationship provides exclusive access to Costco’s vast membership base as a marketing channel. - 9 - 55 Annual Report 2019CANADA SELF STORAGE CENTRES Reservation Centre Our management platform includes a Reservation Centre (call centre) 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 training 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 intelligent 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: (i) 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 (ii) 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. 56 - 10 - Annual Report 2019CANADA SELF STORAGE CENTRES FINANCIAL RESULTS OVERVIEW In fiscal 2019, SVI acquired 46 stores and an information and records management business for $372.7 million. In fiscal 2018, SVI completed $161.4 million of acquisitions. The comparative results are impacted by the timing of these acquisitions. Selected Financial Information (unaudited) Three Months Ended December 31 (audited) Fiscal 2019 2018 $ % 2019 2018 $ % Change Change Storage revenue and related services $ 36,712,435 $ 26,094,031 $ 10,618,404 40.7% $ 133,212,736 $ 94,666,808 $ 38,545,928 40.7% Management fees 461,930 468,398 (6,468) -1.4% 1,750,304 1,716,791 33,513 Operating costs Net operating income 1 Less: 37,174,365 26,562,429 10,611,936 12,493,978 8,272,355 4,221,623 24,680,387 18,290,074 6,390,313 40.0% 51.0% 34.9% 134,963,040 96,383,599 38,579,441 44,865,099 30,523,949 14,341,150 90,097,941 65,859,650 24,238,291 2.0% 40.0% 47.0% 36.8% Acquisition and integration costs 687,286 877,302 (190,016) -21.7% 6,982,983 2,248,751 4,734,232 210.5% Selling, general and administrative 3,788,657 2,054,325 1,734,332 Interest 11,502,474 8,233,488 3,268,986 Stock based compensation Unrealized loss on interest rate swap contracts - 9,291,210 - - - 9,291,210 84.4% 39.7% - - 11,214,718 6,192,383 5,022,335 42,189,684 28,875,906 13,313,778 3,593,638 1,901,631 1,692,007 81.1% 46.1% 89.0% 9,291,210 - 9,291,210 - Depreciation and amortization 22,602,353 16,033,627 6,568,726 41.0% 79,206,355 58,857,132 20,349,223 34.6% 47,871,980 27,198,742 20,673,238 76.0% 152,478,588 98,075,803 54,402,785 55.5% Net Income (Loss) before taxes (23,191,593) (8,908,668) (14,282,925) 160.3% (62,380,647) (32,216,153) (30,164,494) 93.6% Deferred tax recovery 11,627,715 8,064,858 3,562,857 44.2% 16,262,178 8,064,858 8,197,320 101.6% Net Income (Loss) $ (11,563,878) $ (843,810) $ (10,720,068) 1270.4% $ (46,118,469) $ (24,151,295) $ (21,967,174) 91.0% Weighted average number of common shares outstanding Basic Diluted 362,759,780 355,429,257 7,330,523 362,759,780 355,429,257 7,330,523 2.1% 2.1% 360,468,060 351,893,667 8,574,393 360,468,060 351,893,667 8,574,393 2.4% 2.4% Net income (loss) per common share Basic Diluted 1 Non-IFRS Measure. $ (0.032) $ (0.002) $ (0.128) $ (0.069) $ (0.032) $ (0.002) $ (0.128) $ (0.069) Storage revenue and related services For the three months ended December 31, 2019, the Corporation had revenues of $36.7 million (December 31, 2018 - $26.1 million), an increase of 40.7%. The revenues for the fiscal year ended December 31, 2019, increased by $38.6 million or 40.7%, to $133.2 million. 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.” - 11 - 57 Annual Report 2019CANADA SELF STORAGE CENTRES Management fees The three months ended December 31, 2019 results changed by 1.4% compared to the same prior year period as a result of the Corporation acquiring managed stores reducing the number of stores in our third party management platform. Operating costs Operating costs for the three months and fiscal year ended December 31, 2019 were $12.5 million and $44.9 million (December 31, 2018 - $8.3 million and $30.5 million). The increase relates to stores acquired in 2018 and 2019 and increases in advertising, property taxes and wages. These increases were slightly muted by the adoption of IFRS 16 - Leases for leasing costs. The Corporation has elected to apply the modified retrospective approach where comparative figures were not restated. For the three months and fiscal year ended December 31, 2018, leasing expense included in operating costs equaled $270,727 and $1,102,024, respectively. Net income (loss) Our net loss of $46.1 million for fiscal year ended December 31, 2019 results from non-cash items of $79.2 million of depreciation and amortization, $9.3 million of unrealized loss on interest rate swap contracts and $3.6 million in stock based compensation, and which are offset by deferred tax recovery of $16.3 million. Net operating income For the three months ended December 31, 2019, the Corporation had net operating income (NOI), a non- IFRS measure, of $24.7 million (December 31, 2018 - $18.3 million), an increase of 34.9%. The NOI for the fiscal year ended December 31, 2019, increased by $24.2 million or 36.8%, to $90.1 million. The increase was due to the NOI from assets purchased throughout fiscal 2018 and 2019, streamlining and integration of operations, increased occupancy, increased rates through our revenue management systems and controlling costs. Acquisition and integration costs Acquisition and integration costs include costs and professional fees incurred to identify, qualify, close and integrate the assets purchased and pending. SVI has closed $372.7 million of acquisitions in fiscal 2019, following closing $161.4 million of acquisitions in fiscal 2018 and $485.4 million 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, operational management platform development 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, 2019, our total debt was $1.0 billion compared to $702.4 million at December 31, 2018. Unrealized loss on interest rate swap contracts The Corporation entered into interest rate swap contracts to fix the interest rate on its debt. Based on market rates as at December 31, 2019, the interest rate swaps had unrealized losses of $9.3 million. Of this, $8.5 million relates to fixed long term debt with a weighted years to maturity of 9.24. Depreciation and amortization The increase in depreciation and amortization expense is primarily due to depreciating the additional assets acquired throughout fiscal 2018 and 2019. 58 - 12 - Annual Report 2019CANADA SELF STORAGE CENTRES 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 integration 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), unrealized loss on swap contracts 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, 2019 was $8.7 million and $29.7 million versus $7.1 million and $28.5 million, respectively for the same period in 2018. The FFO increase has been impacted by the acquisition and integration costs incurred ($7.0 million for the fiscal year ended December 31, 2019 versus $2.2 million for the same period in 2018) for the $372.7 million of acquisitions closed in fiscal 2019 ($161.4 million in 2018). AFFO for the three months and fiscal year ended December 31, 2019 was $9.4 million and $36.7 million versus $8.0 million and $30.8 million, respectively for the same period in 2018. These increases are the result of contributions from the assets purchased and strong operational performance. The FFO and AFFO for the three months and fiscal year ended December 31, 2019 and 2018 are: (unaudited) Three Months Ended December 31 (audited) Fiscal 2019 2018 Change 2019 2018 Change $ % $ % Net Income (loss) $ (11,563,878) $ (843,810) $ (10,720,068) 1270.4% $ (46,118,469) $ (24,151,295) $ (21,967,174) 91.0% Adjustments: Stock based compensation - Unrealized loss on interest rate swap contracts 9,291,210 - - - 9,291,210 - - 3,593,638 1,901,631 1,692,007 89.0% 9,291,210 - 9,291,210 - Deferred tax recovery (11,627,715) (8,064,858) (3,562,857) 44.2% (16,262,178) (8,064,858) (8,197,320) 101.6% Depreciation and amortization 22,602,353 16,033,627 6,568,726 41.0% 79,206,355 58,857,132 20,349,223 34.6% FFO 1 Adjustments: 20,265,848 7,968,769 12,297,079 154.3% 75,829,025 52,693,905 23,135,120 43.9% $ 8,701,970 $ 7,124,959 $ 1,577,011 22.1% $ 29,710,556 $ 28,542,610 $ 1,167,946 4.1% Acquisition and integrations costs 687,286 877,302 (190,016) -21.7% 6,982,983 2,248,751 4,734,232 210.5% AFFO 1 1 Non-IFRS Measure. $ 9,389,256 $ 8,002,261 $ 1,386,995 17.3% $ 36,693,539 $ 30,791,361 $ 5,902,178 19.2% - 13 - 59 Annual Report 2019CANADA SELF STORAGE CENTRES Annualized Net Operating Income and Funds from Operations The Company completed the purchase of 46 stores and an information and records management business during fiscal 2019 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 2019, were purchased as of January 1, 2019 and owned for the entire 12 month period. The results of this annualized statement show that NOI, FFO and AFFO would be higher by $6.7 million, $3.6 million and $3.6 million, respectively. NOI would have been $96.8 million, FFO would be $33.3 million and the AFFO would be $40.3 million. The Corporation expects to realize the full benefit of these acquisitions in fiscal 2019. For the Year Ended December 31, 2019 Actual Annualized Results Incremental Notes Storage revenue and related services 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 $ 133,212,736 1,750,304 134,963,040 44,865,099 90,097,941 $ 141,106,483 1,750,304 142,856,787 46,030,057 96,826,730 6,982,983 11,214,718 42,189,684 60,387,385 29,710,556 6,982,983 36,693,539 6,982,983 12,004,093 44,524,908 63,511,984 33,314,746 6,982,983 40,297,729 $ 7,893,747 - 7,893,747 1,164,958 6,728,789 - 789,375 2,335,224 3,124,599 3,604,190 - 3,604,190 1 1 2 3 4 2 Note 1 - the results from all stores acquired in fiscal 2019, have been adjusted as if the purchase occurred on January 1, 2019. For revenues, we assumed achieved occupancies and rent per square foot were repeated from the period prior to acquisition. Information regarding expenses incurred during 2019 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 – based on existing scale and management infrastructure. Note 4 – annualized amount determined based on interest rate and debt outstanding at December 31, 2019. 60 - 14 - Annual Report 2019CANADA SELF STORAGE CENTRES 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 one of our location. Management fees are revenues generated from the management of stores owned by third parties. Revenue, operating costs and net operating income (unaudited) Three Months Ended December 31 (audited) Fiscal 2019 2018 Change 2019 2018 Change $ % $ % Revenue Existing Self Storage 1 New Self Storage 1 $ 22,114,626 $ 20,721,821 $ 1,392,805 6.7% $ 86,351,490 $ 80,614,463 $ 5,737,027 7.1% 12,803,869 3,817,754 8,986,115 235.4% 39,413,349 7,587,545 31,825,804 419.4% Total Self Storage 34,918,495 24,539,575 10,378,920 42.3% 125,764,839 88,202,008 37,562,831 42.6% Portable Storage Management fees Combined 1,793,940 1,554,456 239,484 461,930 468,398 (6,468) 37,174,365 26,562,429 10,611,936 15.4% -1.4% 40.0% 5.8% - 7,447,897 6,464,800 983,097 15.2% 1,750,304 1,716,791 33,513 2.0% 134,963,040 96,383,599 38,579,441 40.0% 24,160,064 22,662,188 1,497,876 6.6% - 1,102,024 (1,102,024) - 6,036,315 5,704,129 332,186 - 270,727 (270,727) 5,168,539 1,188,659 3,979,880 334.8% 15,570,045 2,505,523 13,064,522 521.4% 11,204,854 7,163,515 4,041,339 56.4% 39,730,109 26,269,735 13,460,374 51.2% 16.3% 51.0% 7.1% - 5,134,990 4,254,214 880,776 44,865,099 30,523,949 14,341,150 20.7% 47.0% 62,191,426 57,952,275 4,239,151 7.3% - (1,102,024) 1,102,024 - 16,078,311 15,017,692 1,060,619 - (270,727) 270,727 7,635,330 2,629,095 5,006,235 190.4% 23,843,304 5,082,022 18,761,282 369.2% 23,713,641 17,376,060 6,337,581 36.5% 86,034,730 61,932,273 24,102,457 38.9% 504,816 461,930 445,616 468,398 59,200 (6,468) 13.3% -1.4% 2,312,907 2,210,586 1,750,304 1,716,791 102,321 33,513 4.6% 2.0% Operating Costs Existing Self Storage Impact of IFRS 16 on Costs 2 New Self Storage Total Self Storage Net Operating Income 1 Existing Self Storage Impact of IFRS 16 on NOI 2 New Self Storage Total Self Storage Portable Storage Management fees Portable Storage 1,289,124 1,108,840 180,284 Combined 12,493,978 8,272,355 4,221,623 Combined $ 24,680,387 $ 18,290,074 $ 6,390,313 34.9% $ 90,097,941 $ 65,859,650 $ 24,238,291 36.8% 1 Non -IFRS Measure. 2 For comparative purposes, due to the Corporation applying IFRS 16 - Leases on a modified retrospective basis where the Corporation will not restate comparative figures, the Corporation has separated out the leasing expense incurred for the three months and fiscal year ended December 31, 2018. Existing Self Storage For the three months ended December 31, 2019, revenue and NOI increased by 6.7% and 7.1%, respectively, over the same prior year period, resulting in revenue and NOI increasing by 7.1% and 7.3% for the full year. The revenue increase was driven by continued execution of our revenue management program and increased occupancy. While controlling costs through operational efficiencies continues to be a priority, we experienced increases in advertising, property taxes and wages. - 15 - 61 Annual Report 2019CANADA SELF STORAGE CENTRES New Self Storage Increase is a result of acquiring stores throughout 2018 and 2019 resulting in NOI growth quarter over quarter as we commenced reporting results. Portable Storage Increase in revenue per unit rented and occupancy resulted in revenue and NOI growth over the same prior year period. 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 due to heating and snow removal costs resulting in lower NOI margins in Q1 and Q4, versus Q2 and Q3. This is consistent with results experienced in the Northern US. Fiscal 2019 ('000) Fiscal 2018 ('000) Q4 Q3 Q2 Q1 Total Q4 Q3 Q2 Q1 Total NOI 1 Existing Self Storage $ 16,078 $ 16,561 $ 15,718 $ 13,835 $ 62,191 $ 14,747 $ 15,193 $ 14,378 $ 12,532 $ 56,850 New Self Storage 7,635 7,019 6,389 2,800 23,843 2,629 1,608 505 340 5,082 Total Self Storage 23,714 23,580 22,106 16,635 86,035 17,376 16,802 14,883 12,872 61,932 Portable Storage Management Fees 505 462 779 469 642 400 387 419 2,313 1,750 446 468 760 442 627 417 377 389 2,211 1,716 $ 24,680 $ 24,828 $ 23,148 $ 17,441 $ 90,098 $ 18,290 $ 18,004 $ 15,927 $ 13,638 $ 65,859 1 Non-IFRS Measure Existing Self Storage The increase in Q4 2019 over Q4 2018 was substantially driven from continued execution of our revenue management program, occupancy increase and controlling costs through operational efficiencies. New Self Storage SVI acquired 15 stores in 2018 and 46 stores in 2019. These additions have resulted in NOI growth quarter over quarter as we commenced reporting results. Portable Storage Increase in revenue per unit and occupancy resulted in revenue and NOI growth over the same prior year period. 62 - 16 - Annual Report 2019CANADA SELF STORAGE CENTRES Summary of Quarterly Results (unaudited) Revenue $37,174,365 $37,310,765 $34,255,855 $26,222,055 $134,963,040 Net Income / (Loss) ($11,563,878) ($9,399,776) ($16,310,988) ($8,843,827) ($46,118,469) Net Income / (Loss) per share ($0.032) ($0.026) ($0.045) ($0.025) N/A $26,562,429 $25,733,852 $23,173,856 $20,913,462 $96,383,599 ($843,810) ($6,355,654) ($9,158,368) ($7,793,463) ($24,151,295) $20,744,110 $18,453,960 $12,557,306 $10,133,138 $61,888,514 $15,343,505 ($15,402,377) ($2,995,895) ($10,797,865) ($13,852,632) $8,900,182 $7,307,070 $6,320,322 $5,296,970 $27,824,544 ($18,657,288) ($537,379) ($663,764) ($1,331,005) ($21,189,436) $4,795,266 $3,137,527 $2,111,281 $1,096,513 $11,140,587 ($2,702,281) ($821,330) ($677,127) ($374,472) ($4,575,210) ($0.002) ($0.018) ($0.026) ($0.022) 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 Period 2019- Q4 2019- Q3 2019- Q2 2019- Q1 Total 2019 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 Fully diluted Net Income / (Loss) per share ($0.032) ($0.026) ($0.045) ($0.025) N/A ($0.002) ($0.018) ($0.026) ($0.022) 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 Assets $1,392,865,962 $1,377,237,690 $1,385,491,977 $1,044,914,091 N/A $1,022,791,417 $990,262,630 $959,256,102 $922,656,903 N/A $895,496,381 $839,525,204 $400,216,946 $404,743,767 N/A $342,803,581 $253,955,856 $179,885,223 $176,728,097 N/A $171,486,477 $108,865,822 $54,449,748 $27,910,360 N/A Total Liabilities $1,162,117,984 $1,134,721,033 $1,132,963,923 $794,584,280 N/A $761,864,860 $731,939,098 $694,025,713 $661,214,665 N/A $627,421,264 $585,777,091 $237,005,503 $238,025,850 N/A $187,115,587 $131,931,530 $118,343,352 $114,010,014 N/A $112,922,559 $85,594,955 $25,372,609 $25,033,929 N/A Dividends $961,654 $958,230 $952,321 $930,288 $3,802,493 $925,235 $920,981 $920,562 $889,786 $3,656,564 $880,328 $879,376 $765,016 $749,946 $3,274,666 $724,931 $630,309 $440,398 - $1,795,638 - - - - - 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 - 63 Annual Report 2019CANADA SELF STORAGE CENTRES WORKING CAPITAL, LONG TERM DEBT AND SHARE CAPITAL Working Capital Cash provided by operating activities was $30.9 million for the fiscal year ended December 31, 2019, compared to $29.3 million for the same prior year period. The current year’s balance is muted as a result of acquisition and integration costs incurred ($7.0 million for the fiscal year ended December 31, 2019 versus $2.2 million for the same period in 2018) for the $372.7 million of acquisitions closed in fiscal 2019 ($161.4 million in fiscal 2018). These costs offset the increases in operational results achieved from increased rates through our revenue management systems, increased occupancy, controlling costs and continued streamlining and integration of operations. As at December 31, 2019, the Corporation had $24.4 million of cash compared to $19.7 million at December 31, 2018. The cash will be used to pay down debt and fund future acquisitions. The Corporation expects its cash flow from operations to continue to increase as the full benefit of stores purchased are realized. In addition, the Corporation will borrow against existing assets to fund acquisitions and its expansion plans. Debt As at December 31, 2019 and December 31, 2018, the Corporation held the following debt: December 31, 2019 Rate Range Weighted Average Balance Rate Range December 31, 2018 Weighted Average Balance Mortgages Fixed/Variable 3.18% to 5.00% 4.21% $ 662,333,188 3.18% to 5.20% 4.24% $ 555,183,118 Maturity: Jul 2020 to Nov 2029 Maturity: Jan 2019 to Dec 2028 Deferred financing costs net of accretion of $3,656,956 (Dec 31, 2018 - $2,514,319) Lines of Credit and Promissory Note (3,856,505) 658,476,683 (2,505,296) 552,677,822 Variable Fixed Maturity: Aug 2020 to Dec 2022 Maturity: Jul 2019 to Apr 2021 4.78% 72,413,656 4.47% 149,733,334 Maturity: Feb 2020 to Apr 2022 4.00% 312,898,053 - 4.12% 385,311,709 4.47% 149,733,334 4.18% $ 1,043,788,392 4.29% $ 702,411,156 64 - 18 - Annual Report 2019CANADA SELF STORAGE CENTRES Reconciliation of Debt The following table reconciles the changes in cash flows from financing activities for the Corporation's debt: Debt, beginning of period Advances from debt Repayment of debt Total cash flow from debt financing activities December 31, 2019 December 31, 2018 $ 702,411,156 $ 563,975,987 536,106,032 (193,377,587) 342,728,445 420,840,336 (281,267,693) 139,572,643 Change in deferred financing costs (1,351,209) (1,137,474) Debt, end of period $ 1,043,788,392 $ 702,411,156 The bank prime rate at December 31, 2019 was 3.95% (December 31, 2018 - 3.95%). The weighted average cost of debt at December 31, 2019 is 4.18% (December 31, 2018 - 4.29%). The Corporation reduced its variable interest rate exposure by entering into fixed interest rate debt. The Corporation entered into interest rate swap contracts during the year in order to fix the interest rate on $600 million of debt. The debt matures between April 2026 and November 2029. As at December 31, 2019, the swap had an unrealized fair value loss of $9,291,210 (December 31, 2018 - $nil). The weighted years to maturity, excluding lines of credit, at December 31, 2019 is 5.72 years (December 31, 2018 – 6.18 years). Mortgages are secured by a first mortgage charge on the real estate and equipment of the Corporation, general security agreements, assignment of rents and leases and assignments of insurance coverages. 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, 2019 and December 31, 2018, 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 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 $ $ $ $ $ $ 455,965,637 (includes $372.4 million lines of credit) 81,662,231 141,284,984 43,444,435 14,603,686 310,683,924 Of the repayments shown in Year 1, $14.0 million are required under our amortizing term debt mortgages, $69.5 million relates to loans due in the upcoming twelve months that are expected to be refinanced and $372.4 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, 2019 and December 31, 2018, the Corporation is in compliance with all covenants. - 19 - 65 Annual Report 2019CANADA SELF STORAGE CENTRES The Corporation terms out assets on our lines of credit 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 that the Corporation has an appropriate mix of assets supporting our lines of credit. The Corporation’s detailed debt maturity profile as at December 31, 2019 is: Year of debt maturity Mortgages Payable 2020 $ 69,509,937 2021 2022 2023 2024 69,498,730 134,138,768 34,868,081 4,060,804 Thereafter 363,154,923 $ 675,231,242 Contractural Mortgage Maturities and Interest Rates Weighted Average Interest Rate 4.48% 4.31% 4.07% 4.74% 4.95% 4.14% 4.21% Weighted Average Interest Rate Total Debt Lines of Credit $ 9,733,333 5.20% $ 79,243,270 - - 69,498,730 362,680,324 4.09% 496,819,092 - - - - - - 34,868,081 4,060,804 363,154,923 $ 372,413,657 4.12% 1,047,644,899 Weighted Average Interest Rate 4.57% 4.31% 4.09% 4.74% 4.95% 4.14% 4.18% Deferred financing costs net of accretion Balance (3,856,505) $ 1,043,788,394 Share Capital The common shares issued are: Balance, December 31, 2017 345,226,934 $ 319,571,781 Number of Shares Amount Issued on asset acquisitions Dividend reinvestment plan Share option and warrant redemption Share issuance costs Balance, December 31, 2018 Issued on acquisitions Dividend reinvestment plan Share option redemption Share issuance costs Balance, December 31, 2019 6,313,955 613,694 3,568,391 - 15,661,727 1,497,892 1,906,263 (84,962) 355,722,974 338,552,701 5,464,286 537,795 1,080,000 - 15,300,000 1,447,278 350,350 (64,666) 362,805,055 $ 355,585,663 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 66 - 20 - Annual Report 2019CANADA SELF STORAGE CENTRES The Corporation terms out assets on our lines of credit 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 that the Corporation has an appropriate mix of assets supporting our lines of credit. The Corporation’s detailed debt maturity profile as at December 31, 2019 is: Contractural Mortgage Maturities and Interest Rates maturity Payable Rate Lines of Credit Interest Rate Total Debt 2020 $ 69,509,937 $ 9,733,333 5.20% $ 79,243,270 Weighted Average 362,680,324 4.09% 496,819,092 - - - - - - - - 69,498,730 34,868,081 4,060,804 363,154,923 (3,856,505) $ 1,043,788,394 Weighted Average Interest Rate 4.57% 4.31% 4.09% 4.74% 4.95% 4.14% 4.18% $ 675,231,242 $ 372,413,657 4.12% 1,047,644,899 Year of debt Mortgages 2021 2022 2023 2024 69,498,730 134,138,768 34,868,081 4,060,804 Thereafter 363,154,923 Weighted Average Interest 4.48% 4.31% 4.07% 4.74% 4.95% 4.14% 4.21% Deferred financing costs net of accretion Balance Share Capital The common shares issued are: Balance, December 31, 2017 Issued on asset acquisitions Dividend reinvestment plan Share option and warrant redemption Share issuance costs Balance, December 31, 2018 Issued on acquisitions Dividend reinvestment plan Share option redemption Share issuance costs Balance, December 31, 2019 Number of Shares Amount 345,226,934 $ 319,571,781 355,722,974 338,552,701 6,313,955 613,694 3,568,391 5,464,286 537,795 1,080,000 - - 15,661,727 1,497,892 1,906,263 (84,962) 15,300,000 1,447,278 350,350 (64,666) 362,805,055 $ 355,585,663 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. Stock Options A total of 18,442,450 options were outstanding as at December 31, 2019 (December 31, 2018 – 13,537,450). Of the outstanding amount, 18,442,450 options were exercisable (December 31, 2018 – 13,537,450). The details are as follows: Exercise Price $ 0.23 $ 0.33 $ 0.41 $ 0.50 $ 1.36 $ 1.78 $ 2.52 $ 2.90 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 May 28, 2019 Expiry Date May 6, 2019 June 19, 2024 April 28, 2025 Sept 14, 2025 Dec 21, 2026 Mar 16, 2027 May 4, 2028 May 28, 2029 December 31, 2019 - 140,000 2,122,450 1,570,000 2,810,000 2,850,000 3,000,000 5,950,000 18,442,450 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 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 three years. The Neo RSU’s vest three 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. The Corporation entered into total return swaps (“TRS”) as economic hedges of the Corporation’s DSUs and RSUs. Under the terms of the TRS, a bank has the right to purchase the Corporation’s shares in the marketplace as a hedge against the returns in the TRS. At December 31, 2019, 618,652 TRS units were outstanding. At December 31, 2019, 100% of the combined DSU and RSU exposures were economically hedged (December 31, 2018 - nil%). Hedge accounting is not applied for the DSU/RSU hedging program. Under the Plan, 240,980 common shares at a value of $894,038 have been issued as at December 31, 2019. - 20 - - 21 - 67 Annual Report 2019CANADA SELF STORAGE CENTRES CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS Lease Liabilities The Corporation leases buildings and lands in Kamloops, BC, Montreal, QC, Toronto, ON and Winnipeg, MB. The leases expire between 2023 and 2054, with the leases expiring in 2023 and 2027 having up to 15 years and 20 years of renewals, respectively, which are expected to be exercised by the Corporation. The lease liabilities are measured at the present value of the lease payments that are not paid at the balance sheet date. Lease payments are apportioned between interest expense and a reduction of the lease liability using the Corporation’s incremental borrowing rate to achieve a constant rate of interest on the remaining balances of the liability. For the year ended December 31, 2019, the Corporation recognized $1,019,236 (December 31, 2018 - $nil) in interest expense related to its lease liabilities. As a result of the adoption of IFRS 16, the Corporation recognized $nil and $nil (December 31, 2018 - $1,255,333) in operating lease payments. A reconciliation of the lease liabilities from the date of adoption of IFRS 16 to December 31, 2019 is as follows: Self Storage Properties Balance, January 1, 2019 $ 19,381,391 Additions Cash Payments Interest 6,508,967 (1,418,534) 1,019,236 Balance, December 31, 2019 $ 25,491,060 Contingency The Corporation has no legal contingency provisions at either December 31, 2019 or December 31, 2018. Off-Balance Sheet Arrangements The Corporation is not party to any industry contracts or arrangements other than those disclosed in the consolidated financial statements. RELATED PARTY TRANSACTIONS The Corporation holds a Master Franchise from Canadian PUPS Franchises Inc. (CPFI) which provides the Corporation with the exclusive Canadian franchise rights for the development and operation of portable storage throughout Canada. CPFI is a corporation related to Steven Scott and Iqbal Khan who are directors of the Corporation. The Corporation pays a monthly royalty of 3.5% on the gross sales. During the year ended December 31, 2019, the Corporation paid $291,152 (December 31, 2018 - $237,725) for royalties and $82,585 (December 31, 2018 - $920,071) for storage containers and other equipment under the Master Franchise Agreement. 68 - 22 - Annual Report 2019CANADA SELF STORAGE CENTRES Included in accounts payable and accrued liabilities, relating to the previously noted transactions, at December 31, 2019 was $73,783 (December 31, 2018 - $22,461) payable to CPFI. The Corporation has management agreements with Access Self Storage Inc. and related companies (“Access Group”). These companies are related to Steven Scott and Iqbal Khan who are directors of the Corporation. The Corporation invoices the Access Group for management fees as well as additional services it provides as part of the management agreements. During the year ended December 31, 2019, the Corporation received $7,559,825 (December 31, 2018 – $6,103,873) in payments and reimbursements related to the management agreement. Included in accounts payable and accrued liabilities was $292,132 (December 31, 2018 - $517,993) payable to the Access Group. Included in accounts receivable was $671,452 (December 31, 2018 - $1,206,855) receivable from the Access Group. 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: Year Ended December 31, 2019 Year Ended December 31, 2018 Wages, management fees, bonuses and directors fees Stock based compensation $ 539,196 2,220,877 2,760,073 $ $ 390,194 1,625,895 2,016,089 $ 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 eight voting members, six members being independently appointed and independent of management and two of which are appointed by Access. Acquisition Committee members who are deemed to be in a conflict of interest position with respect to related party transactions are required to abstain from voting on such related party transactions. The mandate of the Corporation’s Acquisition Committee is to review, evaluate, and approve the terms of 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. - 23 - 69 Annual Report 2019CANADA SELF STORAGE CENTRES ACCOUNTING POLICIES The Corporation’s significant accounting policies are summarized in Note 3 to the December 31, 2019 annual audited consolidated financial statements. Except for the adoption of IFRS 16 – Leases, there has been no change in significant accounting policies from the Corporation’s audited consolidated annual financial statements from December 31, 2018. 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. 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. ii. Funds from Operations (“FFO”) – FFO is defined as net income (loss) excluding gains or losses from the sale of depreciable real estate, plus depreciation and amortization, unrealized gains or losses from interest rate swaps, 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. iii. 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. iv. 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, 2019 annual audited consolidated financial statements. 70 - 24 - Annual Report 2019CANADA SELF STORAGE CENTRES 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, 2019, 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 Corporation’s internal controls over financial reporting for the three months and fiscal year ended December 31, 2019. 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. 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 - 25 - 71 Annual Report 2019CANADA SELF STORAGE CENTRES 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, entering into floating-to-fixed interest rate swaps, 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. 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 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. 72 - 26 - Annual Report 2019CANADA SELF STORAGE CENTRES 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, and energy prices. Climate and Natural Disasters The storage industry in Canada can be cyclical. Due to the climate, demand for storage is generally weaker in winter months with an increase in operating costs resulting in potentially lower NOI during Q1 and Q4. Natural disasters, such as floods, earthquakes or severe winter storms may result in damage and business interruption losses that are greater than the aggregate limits of our insurance coverage. We maintain a 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. - 27 - 73 Annual Report 2019CANADA SELF STORAGE CENTRES StorageVault Canada Inc. OFFICERS Steven Scott Chief Executive Officer Iqbal Khan Chief Financial Officer DIRECTORS Jay Lynne Fleming Vancouver, BC Iqbal Khan Toronto, ON Steven Scott Toronto, ON 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 74 - 28 - Annual Report 2019CANADA SELF STORAGE CENTRES Corporate Information Phone: 1.877.622.0205 Web: Email: storagevaultcanada.com ir@storagevaultcanada.com Address: 100 Canadian Road, Toronto, ON, M1R 4Z5 

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