Storagevault Canada Inc T.SVI

RBC Initiate Coverage

[retiredcf]

Their upside scenario target is $9.25. GLTA

June 24, 2022

StorageVault Canada Inc.
The Storage Compounder; Initiating at Outperform

Our view: We are initiating coverage of StorageVault (“SVI”) with an Outperform rating and an $8.00 price target. SVI is the largest self storage owner/operator in Canada and the top performing real estate stock in the last 7 years. Going forward, we believe that SVI’s business model can compound earnings growth at a double digit pace given the long term proven outperformance of the sector, its dominance and operating expertise and its ability to consolidate and drive margin on acquisitions.

Key points:

• Why SVI is a compounder. 1) Self storage is a ‘great business’, characterized by needs-based demand, low capex, high margins, high rent/sf, and price inelasticity once customers are acquired, in a relatively under supplied Canadian industry; 2) SVI is a corporation with a low dividend payout which allows excess earnings to be redeployed into acquisitions and thus is less reliant on capital markets; 3) Acquisitions drive NAV growth because SVI’s scale, dominance, & operating expertise allow it to drive margin on acquired assets in a less sophisticated industry, and; 4) Management has significant ownership interest and proven prudence with capital.

• Numbers speak for themselves: SVI has Canadian real estate sector leading metrics. From 2015 to 2021 (management took over late 2014), SVI has delivered an average annual SP NOI growth of 12% and FFO/share CAGR of 30%. This compares with 1.6% and 0.4%, respectively, for the CDN REIT sector. Lowest SP NOI growth achieved by SVI was during 2020 at +5%.

• We believe double-digit FFO/share growth is sustainable. SVI achieved outsized SP NOI growth recently (+20% in 2021, +18% YTD 2022) which was partly Covid-induced. We think this normalizes to mid-to-high single digit levels, which combined with ~$150-175M of acquisitions per year (funded with retained cash flow) can drive FFO/share growth in the 20% range. If one is worried about a recession, the resilience of the sector can be demonstrated by the relatively modest 2-4% SP NOI decline the US self storage REITs experienced during the Global Financial Crisis.

• Premium growth, premium multiple. SVI trades at 27x 2023E AFFO and a 7% discount to our NAV of $6.00. Given SVI’s superior growth, these multiples are at a premium spread to Canadian REIT sector (22% disc. to NAV) and US self storage REITs (19% disc. to NAV), the spread largely consistent with avg. Our target of $8.00 is based on a 15% premium (vs. 5 year avg of 18%) to one year forward NAV of $7.00. We believe the premium is warranted given its dominance in a difficult-to-aggregate asset class, its operating platform and its sector-leading growth both relative to US self storage REITs and the Canadian REIT market. The target premium applied is consistent with names with outsized NAV growth in the REIT sector and is partly based on the sector reverting to historical trading multiples.

• Key risks. Rising rates, consumer demand slowdown, obsolescence & supply..