Stockchase Insights StorageVault Canada SVI-T BUY ON WEAKNESS Sep 18, 2023

Great sector, recession resilient, flourishes with life's disasters. Largest operator in Canada. Internal growth 4-6% range, which he thinks is pretty good for a defensive asset class, but the market's less excited. Underperformed this year. Growing cashflow environment.

Weak last quarter, but recovering on renewed guidance for double-digit growth. Unique because of high barriers to entry. Very good at acquiring. Should do well in a recession. Cheap. Falls between industrial and multi-residential.

An essential service, and SVI is the only public storage company in Canada. Not a REIT. Have strong organic growth, but also buy companies with a good track record in a fragmented industry in Canada. So there are lots of opportunities to buy smaller companies. They target 4-6% same property growth. Lease terms are typically 1.5-2 years, so prices can be reset. They keep capital costs very low, and are diversified geographically. Defensive. Is 16% below February 2023, so there's room to run.

Declined because US comps are down, and rental rates are pressuring them. But in Canada, there's less density and a better dynamic. Company is run well, and he likes their M&A a lot. This dip is good to buy.

Shares have declined because US storage companies have been pressured, but Canada is different--a lot of less density and it's harder to get storage places approved. No debt problems as SVI continues to buy mom-and-pop shops at good prices.

Demand endures and it's a low capex business. It trades at only a 5.5% cap rate and 3-4% net operating income growth, down from double-digit but seems to be troughing. Will benefit from lower interest rates as more people move homes and need storage space.

Both sides of the border, self-storage is in a more difficult operating environment. Less needed with less housing activity, so pricing power is elusive. Income growth has fallen, more expenses. Getting interesting at these levels. If you own, you could hold and hope for a recovery in 2025.

A more bullish outlook on housing would be a catalyst.

In late October SVI did miss estimates, and then saw some broker downgrades. It then made two acquisitions ($10.5M) in early November but there has been no other news of any note. We think it is an OK company but it has a very significant debt load, so we think buyers have some time here to wait. 
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Condo sales falling has reduced demand for storage. Overall, company is fairly small. Debt levels are high, but manageable. Would recommend holding. 

Likes the company and what they're doing. National presence. He sold because US counterparts were struggling, and he feared those struggles would bleed into the Canadian market. A big pending IPO in the US could take some of the lustre out of this name. CEO fears seasonal trends may not develop as usual this year.

At these levels, definitely hold. Might be a 2026 story. Be patient.

Disclaimer:  He's pretty close with the CEO.