TD's Flash Notes Look for an upcoming rating change to follow Glta
SVI Announces Agreements to Acquire 10 Stores for $130MM
Event
StorageVault announced that it has entered into separate agreements with seven
vendor groups to acquire 10 stores for $130mm (~4% of asset base).
Impact: SLIGHTLY POSITIVE
Despite increasing competition for the asset class, SVI continues to source
acquisitions in its core markets, including Ontario and Quebec. The company
has agreed to acquire four assets in GTA/southern Ontario, four in the Greater
Montreal Area, one in Calgary, and one in Moose Jaw, Saskatchewan. We note that
two of the acquisitions (aggregating five stores) totaling $72.0mm are related party
transactions with Access Storage. These five stores are currently managed by SVI.
We see earnings upside for the five stores not currently managed by the company
as they are onboarded onto its revenue management system. The stores are all
stabilized and the acquisitions are expected to close in Q4/21.
We had included $60mm of unannounced acquisitions in our H2/21 forecast,
although we are not surprised that the company surpassed this given SVI's track
record of exceeding its internal acquisition forecasts (2021: $200mm, revised up
from $100mm initially). With this announcement, 2021 acquisition activity now totals
$270mm+ for 29 stores. Pro forma SVI will own 196 stores and manage 230.
The $130mm purchase price will be funded by $20mm in SVI shares to the related
parties based on an agreed upon VWAP ending three days prior closing, with
the remainder to be satisfied with cash on hand, new mortgage financing and
the assumption of existing mortgages. We estimate a going-in cap rate in the
5.25%-5.50% range for these acquisitions.
As noted above, the majority (90%+ of asset value) of the stores are in the GTA/
southern Ontario and the Greater Montreal area, which we view favourably given the
strength of the fundamentals in those markets.
SVI is currently trading at a 5.5 multiple point premium to its U.S. storage peers on
2022E AFFO but only 2.8 points ahead on 2023E AFFO. We believe the current
premium is justified given SVI's superior earnings growth potential. On P/NAV, SVI
trades at a 37% premium, versus the U.S. peers at an average premium of 10%.
Recommendation: HOLD
Risk: HIGH
12-Month Target Price: C$6.50
12-Month Dividend (Est.): C$0.01
12-Month Total Return: 10.5%