Montreal Mini Storage is insulating itself against higher interest rates with a $185 million revolving facility, a financial tool similar to a line of credit that's designed to give it wiggle room to withstand mortgage refinancing costs as well as acquire properties and handle general corporate needs.
Scotiabank, HSBC Bank Canada and the Canadian Western Bank have underwritten $150 million of the sum, while Roynat Capital, affiliated with Scotiabank, is putting up a separate revolving facility financing of $35 million, the company confirmed in a statement.
The privately held company co-founded two decades ago by Simon Berman has grown to 23 sites and over 10,000 self storage units after finding an underserved appetite for self storage in Quebec.
Like many other companies, it has had to brace against higher interest rates, which exploded in Canada over 15 months, rising from 0.5% in March 2022, to the current 5%, set in July 2023.
“Interest rates impact debt servicing and impact cap rates, which are then going to impact valuations,” said Berman in an interview. “It used to be that we could safely assume that if our valuation per square foot made sense we would be able to finance at a reasonable amount. Now we are subject to a debt service coverage ratio that is much more difficult to achieve considering the banks want to see principal repaid.”
Igor Bernadski, who serves as chief financial officer of Montreal Mini Storge aimed to create some breathing space by striking the financing deal.
“The objective is to use the funds both for growth as well as for restructuring our capital to allow us to be in a strong position to weather the high interest rates that we are seeing now,” he said. “The facility provides flexibility for the business and provides us two years of interest-only financing for some strong assets and additional liquidity that stays within the business that we can keep and recapitalize by ourselves.”
Berman has noted that his self storage business has thrived in a market that was relatively unfamiliar with the concept.
“Canada is quite far behind for consumer awareness and adoption of the product,” he said. “Many people in Canada and here in Quebec do not understand that you can rent a little extra room and put your stuff in there. The concept is still novel here.”
Earlier this year Montreal Mini Storage acquired a property in the East End of the city and is busy converting it into self-storage units but the company is not necessarily on the hunt for new acquisitions.
“We are taking a pause, buying less often,” said Berman, who notes that the landscape might nonetheless see some deals that might prove too tempting. “We are seeing a few types of sellers, some are looking a little nervous, or they might want to retire or they are going out to refinance and are not happy with what they see. A second type has to get out, they’re in severe distress and this is all coupled with the fact that there are fewer buyers in the market.”