TSX:SVI - Post Discussion
Post by
retiredcf on Jul 29, 2022 9:29am
RBC 2 (Raise Targets)
Their upside scenario target is also raised to $10.00. GLTA
July 28, 2022
StorageVault Canada Inc.
Strong Q2; Raising target; Compounding continues
Our view: StorageVault Canada Inc. (“SVI”) reported a strong quarter with FFO/share beating our estimate by 14%, representing 29% y/y growth against a tough comp a year ago. The growth was driven primarily by 14% SP NOI growth, consistently one of the highest in our coverage universe. Our expectation is that this pace of growth will eventually slow to mid- to-high single digit. Investors looking for names that can outpace inflation should be looking at SVI. Reiterate our OP; Raising target to $9 from $8.
Key points:
Operating performance: SP-NOI growth (self storage) was +13.6% (SP-rev +13.4%, SP-exp +12.7%). Growth is being driven by continued revenue management and higher occupancy, in particular with Alberta occupancy pushing close to 90% where there is now pricing power. Opex pressures came from advertising, property taxes and wages. While the pace of growth has decelerated from 18% in Q1, the quarter is lapping a tough comp a year ago (Q2/21 NOI +25%). SP NOI margin (self storage) was 72% (flat y/y). New stores NOI margin was 60%, where we see upside as they are integrated into the SVI platform and revenue management program.
Outlook: We believe the outsized SP NOI growth (partly covid-induced) should normalize to the mid to high single digit level at some point. Inflation eating away at consumers’ wallet and slowing housing resale activity should start to impact the rate of growth. That said, by no means scientific, google trend search of the term ‘storage near me’ which somewhat tracks SP NOI growth suggests that elevated demand may continue for a while (exhibit 2).
Capital allocation: SVI completed the acquisition of 6 stores for $169m, funded with $5m shares (at ~$6.14 per share), and the remainder with a promissory note and mortgage financing. YTD acquisitions total $214m. Acquisitions are hard to predict, but management indicated that pipeline remains relatively healthy and pricing has not changed materially. There may be opportunities down the road in newer assets or assets under development from vendors potentially over-levered. SVI remains active on the NCIB having acquired $6.4m at an average price of $5.75/share YTD. Current cash sits at $18m. Net debt/annualized EBITDA was 10.5x vs. 11x last year. Average cost of debt moved higher to 4.2%.
Estimate, Target & Rating: Our 22/23 FFO estimates are increased to $0.22/ $0.25 from $0.20/$0.24, reflecting higher NOI. We are introducing our 2024E FFO at $0.28. We recently launched coverage of SVI – please see our initiation report. We are increasing our target to $9, based on a 15% premium (vs. 5 year avg of 18%) to one year forward NAV of $7.75. We believe the premium is warranted given its dominance in a difficult-to- aggregate asset class, its operating platform and its sector-leading growth (FFO/share CAGR of 30% since 2015) both relative to US self storage REITs and the Canadian REIT market.
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