My first Annual General Meeting (AGM) was several years ago for CML HealthCare (CLC). *Sigh* At least this time around it was for one of my big winners: StorageVault Canada Inc (TSX Venture Exchange: SVI). Admittedly, my knowledge of the self-storage industry is limited and maybe there's a superficial understanding of this self-storage company. My original interest and reasoning for buying SVI is because they are only Canadian publicly listed self-storage real estate company. There were good questions and answers at the AGM that helped bring some points together and gave me some additional understanding of the business.
I don't want to say this is advertising the stock, but by nature of posting these details it is inadvertently advertising a stock of mine and of which may be acquiring more. I will list out in point form what I picked up. Some numbers may not be accurate/misheard and the notes have not been reorganized to avoid potentially messing up the details.
Q: Who are the top players in Canada? (Answered by Steve)
- Main ones:
- StorageMart US company has 65 stores in Canada.
- Public Storage (Canada) 56 stores in Canada. Goal of building 1 and acquire 1 each year.
- Real Storage - Calgary, 31 stores. Used to be Mobile Home Manufacturer.
- Apple Self Storage 26 stores. Partnered with a US REIT.
- Maple Leaf Self Storage - Calgary/Vancouver. Family owned.
- No need to affiliate with US players.
- Also, REIT structure in the USA makes it harder for US REITs to own Canadian assets.
Q: $21 Million loss/Earnings per share loss? (Answered by Steve)
- These are accounting losses via depreciation.
- Storage business has a tax feature that allows for accelerated/increased depreciation, which quickly creates a tax shelter with Carry Forward Losses.
- When using shares to acquire a property IFRS accounting rule (#19?) applies. This registers the stock price difference between the acquisition announcement date vs the closure date. Example: $1.35 announce date vs $2.00 closure date. Record increased amount... ... ... add Goodwill to balance sheet and increase write off. (Steve joked around a bit about accounting and also gave an example in the reverse if share price dropped instead of went up since announce/closure)
- Noted: Steve brought up $2.50 as an example number a couple times. Is this a theoretical issue price?
- Focus on Free Cash Flow / Funds From Operations
- Depreciation acceleration = increased tax shelter.
Q: How do you come up with the issue share price for the acquisitions? (Answered by Steve)
- Issuing shares "is a privilege, not a right."
- 3-4 month lag in deal closure due to approvals.
- No calculation. It is a deal by deal basis.
- Impact on purchase price due to tax considerations.
- Expect less use of stock and more use of cash <-- Due to increasing bargaining power.
- 20 years in storage business. Problem with acquirees is they are savvy and their accountants tell them of tax implications + Estate & Tax Planning.
- Distribution - they prefer to reinvest into company, but acquirees' tax plan/retire want cashflow.
- NOI increase 4-6%? tgt 6-10%? ???
- US vs Canada saturation: CBRE report currently 2.2 to 2.5 sq ft per capita. Typical is 4? sq ft per capita.
- Room for more, but tough to build in Canada.
- 85% of customers are within 5km radius. Supply not meeting demand.
- Population driven business.
- 2,500 to 3,000 stores in Canada? SVI 84-86 stores + Access Storage 50 stores = ~140 stores
- Largest 10 have 12%
- Attractive business due to: High Margin, 0 Bad Debt, and Low employee.
Q: How much is spent to acquire each customer? (Answered by Steve)
- Spend per customer: $70-80
- New customers cost more.
- Discounts, advertising, referrals, advertising signs, local events, Google.
- GOOG = 50-60% of spend "Google-flation"
- Customers usually expect to use services for 3-4 months. Usually 11 months? Their customers stay for 16 months?
- People also rarely visit their units.
- PODs business competes with moving companies (DIY).
- September 2016 became a "Vendor Member of Costco" meaning exclusive supplier of storage services for Costco members.
- Excess land allows them to store PODs.
- Biggest cost of PODs = land for storage with SVI.
- However, 50% of POD users end up storing it at home.
- Redevelopment/rezoning opportunities?
- 750,000 sq ft of expansion opportunity.
- BC expansion coming online... ? 40K
- Montreal 10K expansion in summer.
- Target 50k build out per year that is demand driven.
Q: How do you get your information? (Answered by Steve)
- Canadian Self Storage Association + US large owners group
- Bought stuff via "direct drive" they have never bought anything listed.
- (Info asymmetry = benefit them)
- Fill funnel for 10-15 years? (Does this mean they want to have a list of acquisitions for that period of time?)
Q: Debt maturities? (Answered by Iqbal)
- Renewals this year, some.
- Maturity over 5 years.
- Good reception from lenders for refinance.
- Major lenders are in this industry now compared to decades? ago.
- Default rate close to 0% industry-wide
- 2021-2022? staggered debt maturities
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