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Executive

Kenneth Woolley - Chief Executive Officer and Chairman of the Board

Spencer Kirk - President

Kent Christensen - Chief Financial Officer

Karl Haas - Chief Operating Officer

James Overturf - Investor Relations

Analyst

Christie McElroy - Bank of America

Michael Salinsky - RBC Capital Markets

Paul Adornato - BMO Capital Markets

Jordan Sadler - Keybanc Capital Markets

Todd Thomas - KeyBanc Capital Markets

Michael Knott - Green Street Advisors

Lou Taylor - Deutsche Bank

Omotayo Okusanya - UBS

Chris Pike - Merrill Lynch

Paula Poskon - Robert W. Baird

Extra Space Storage Inc (EXR) Q3 2008 Earnings Call October 29, 2008 1:00 PM ET

Operator

Good day ladies and gentlemen and welcome to the third quarter 2008 Extra Space Storage earnings conference call. My name is Carissa and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. James Overturf; please proceed.

James Overturf

Thank you, Carissa and welcome to Extra Space Storage’s third quarter 2008 conference call. With us today are CEO and Chairman of the Board, Kenneth Woolley; President, Spencer Kirk; CFO, Kent Christensen; and COO Karl Haas.

In addition to our press release we have also furnished unaudited supplemental financial information on our website. Please remember that management’s prepared remarks and answer to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Examples of forward-looking statements include statements related to Extra Space Storage’s development acquisition programs, revenues, net operating income, FFO and guidance. We encourage all of our listeners to review a more detailed discussion related to these forward-looking statements contained in the company’s filings with the SEC.

These forward-looking statements represent management’s estimates as of today, October 29, 2008. Extra Space Storage assumes no obligation to update these forward-looking statements in the future because of changing market conditions or other circumstances.

I’d now like to turn the call over to Extra Space Storage’s Chairman and CEO, Kenneth Woolley.

Kenneth Woolley

Hello, everyone. Thank you for joining us on our conference call today. As mentioned, joining me are Spencer, Kent and Karl who will all be talking on the conference call.

Our stores turned in solid performance in the third quarter. Same store NOI increased 3.3% and revenues were up 2.1% and expenses were down 0.1% showing that we had good expense control. Solid demand was evident each month of the quarter and our stores performed better compared with the second quarter with slightly higher rental activity to this time last year.

So far in October we’re holding our own with rental activity slightly higher and vacates also slightly higher. We generated $0.32 of FFO before approximately $0.01 in development dilution and $0.02 from our $252 million offering in mid-may and in line with our internal estimates. The $0.29 bottom line number after these adjustments was also in line with our own internal estimates.

I don’t need to tell you that these are highly volatile times in the capital markets. Right now and during the coming year, our management focus is not only to concentrate on maximizing the income from our properties, but also to proactively manage the liquidity on our balance sheet. We have enough funds and undrawn lines in place to satisfy our upcoming debt maturities through early 2010.

In addition, the secured property level debt markets are still open to us from a number of banks in loan amounts up to $60 million. We are currently pursuing a number of loans which in aggregate will provide enough capital to repay all of our debt maturities through the end of 2010. We are also having discussions with a number of our joint venture partners about providing additional capital for growth.

We have continued to be active in the acquisition of quality properties during the past few months. We closed on the acquisition of one property in Maryland for approximately $5 million as well as our previously announced acquisition of an additional 40% interest in an existing joint venture with Prudential Real Estate Investors in the amount of $44.1 million. Subsequent to the end of the quarter, we acquired six properties located in Indiana and New York for $45.8 million.

Given the need to be more conservative in our balance sheet, after the purchase of two more assets totaling $13.5 million we will be curtailing our wholly owned acquisition activity until we have enough capital definitely committed to satisfy all loan maturities through 2010. Through September 30 our development department completed six projects located in California, Florida, Illinois and New Jersey for a total cost of approximately $53.2 million.

During the fourth quarter we will complete two more projects bringing the year total to approximately $67.9 million. We are currently anticipate continuing our development efforts as planned; however, our hurdles for development yields have been increased.

I would now like to turn the call over to Karl Haas, our Chief Operating Officer and Executive Vice President of our operations, to give you more detail on our performance.

Karl Haas

Thanks, Ken. We had positive revenue and net operating income growth in the third quarter. Including tenant insurance income, revenue and net operating income for the quarter were up 2.1% and 3.3% respectively compared to last year. Excluding tenant reinsurance income revenue was up 1.7% and net operating income was up 2.7%. Year-to-date, the same store revenue was up 2.4% and net operating income is up 3.2% including tenant reinsurance and 1.9% and 2.6% without tenant reinsurance income.

Same store rental activity for the quarter was similar to last year with move-ins up 1.3% and move-outs up even a little bit more at 3.8%. During the third quarter our pricing was still maximizing revenue by tolerating small reduction in occupancy for a larger increase in pricing for existing customers; hence, the move-out to move-in gap.

For the nine months, same store rental activity is essentially flat compared to 2007. Rental activity is holding up in October with new rentals up over last year, move-outs are also up and slightly more than the move-ins, so our net move-in activity is down slightly. Our delinquency and bad debt, an indicator of tenant financial stress continue to run at historically low levels which we consider a very good sign.

We are detecting slightly softer pricing for new customers. Pricing power for them is limited with asking rates finishing the end of the quarter down 2.4% when compared to last year. We’ve been proactive with rates and they move quite a bit given the automatic triggering based on the unit occupancy and availability.

We were discounting more this year than last year as a result of removing thresholds for units qualifying for discounts. As a result, discounts were up 8% compared to last year. Starting in November, we will be going back to thresholds since we did not see the impact from this more aggressive discounting that we expected. In short we were giving more away to get similar rental volume compared to last year.

We want to be competitive in our markets and be priced favorable to the competition and we’ll continue to be aggressive in pricing and discounts; however, we will not be giving away as much on highly occupied unit types.

Our top performing markets for the quarter were Chicago, Dallas, Houston, Sacramento and San Francisco, Oakland, with increases in revenues between 7.5 and 9%. Houston may become our leading market for a while given the displacement that Hurricane Ike caused. Since the hurricane, occupancy is up 93% from 88%. Ike did cause some damage to three of our eight properties there; however, the damage was minimal. Given the size of the storm repair costs are likewise minimal.

Our four largest markets, Boston, Los Angeles, New York, New Jersey and the Baltimore, Virginia, DC area had revenue increases between 2% and 3% in this quarter. Florida continues to dilute the results for the overall portfolio. Though we’re seeing increased rental activity in West Palm Beach and improvement over the overall performance in the Tampa Saint Pete market, the state continues to struggle as a whole.

If we were to remove Florida, which they won’t let us do from our same store pool of properties, sane store revenue and net operating income growth with reinsurance income would have been 2.9% and 4.1% respectively and occupancy would be up 100 basis points.

Today is a milestone day for Extra Space Storage as our new internal call center is finally coming online and has begun to take calls in Salt Lake City for 22 of our properties. The rollout will continue to 50 by next week. We expect to have all of our stores on our new internal call center by the end of the first quarter of 2009. We’re very excited about the team we’ve assembled at the call center as well as the technology systems we’ve put into place.

We’ve combined call center experts with operational and training personnel to create an outstanding team. We’ve trained the core group of representatives who are now becoming the trainers for future reps. The technology portion of the call center is essentially complete and as always with Extra Space, it is best in class technology, which provides us with real time centralized data with very little on-site hardware.

In conjunction with the call centre technology implementation, we are implementing our CRM, Customer Relationship Management tool, which will enable us to track our customers and prospects from first contact to the signing of the lease to move in, to move out, to thereafter. In time, we believe our CRM technology when combined with our marketing experience and expertise we already have in place will give us further competitive advantage over the majority of our competitors and allow us to close more sales opportunities.

The internet continues to be a focus area for us. It is becoming increasingly more important to our customers and we’re responding in kind. Our research shows that 40% of our customers are utilizing extraspace.com at some time in their buying process. This is up from 18% in 2006.

We’re doing a much better job of getting people to commit as our reservations and/or holds are up 31% year-on-year to nearly 25,000. Total hits this year are also up 31% to $1.5 million. We have diverted about $1 million of yellow page advertising to the web in 2008 and we’ll divert another $1million in 2009 to enhance the efficiency and effectiveness of our web presence.

Last weak Ken, Spencer and some of the other key executives of our management team and I went on a town hall tour, met with 350 of our people in ten meetings in ten cities in four days. Though the trip had been scheduled for a while, the timing was good to gauge the morale of our people and I’d like to report that the morale of our team in the field is excellent.

Our team is seeing firsthand that there is still demand for self-storage. Despite all the negative news in the media regarding Wall Street and the economy, people are still renting self-storage units, paying their rent and valuing the service we provide them. Our people are also seeing the commitment from Extra Space to provide them with the best tools in the form of technology, pricing, specials, capital expenditures and human resources to give them a leg up on the competition.

Our field people left those meetings invigorated, confident in the company and ready to focus on what they should be focused on and can control; closing rentals and taking care of our customers.

With that I’d like to turn the call over to Kent, our Chief Financial Officer.

Kent Christensen

Thanks, Karl. For once, this quarter someone might actually listen to this section of the call given the state of our credit markets. Before I get to our funding, I want to talk about our FFO. FFO per share for the third quarter was $0.30 before approximately $0.01 of development dilution and third quarter of last year our FFO was also $0.30 before our $0.01 of development dilution. After taking development and shared dilution into account, our third quarter FFO was $0.29 compared to $0.29 last year.

I'd like to give you as much as I can some information and transparency about our balance sheet and where we ended up the quarter. As of the end of the third quarter, our funding requirements consist of $227 million of debt maturities in 2009 and $146 million of debt maturities in 2010. We have a loan in 2008 coming due of $23 million with GE that can be extended until 2009 and we have an additional one year extension on that loan after that.

In 2009, we have a $62 million loan due in April which can be extended for five years. This loan has been taken out of the maturities that I will be talking about. We also have an approximately $72 million in acquisitions through the end of this year. These acquisitions represent contractual obligations we entered into prior to the credit market volatility we have seen.

As of the end of the quarter, we have $112 million in cash, approximately $100 million in un-drawn term loans and $100 million of availability on our line of credit with GE Capital, for a total of $312 million. After the acquisitions under contract, the repurchase of our bonds, the October sale of the stock, we have approximately $250 million to pay the $227 million of obligations coming due in 2009.

In today’s lending environment, self-storage is a very good product type due to the small size of the individual assets and our consistent cash flow. We have contacted 62 banks and have received positive responses from eight banks that are interested in doing term loans and five banks for a total of 10 of our construction projects that are interested in doing construction loans. We have not proceeded with these banks to get term sheets from them, but we have ongoing meaningful discussions with them.

We currently have a pool of 50 un-leveraged properties. These properties have an in place NOI of $25 million. Utilizing a 7.5 cap and a 75% loan-to-value, these properties should generate $250 million in loans. The final rate and loan-to-value of these loans are yet to be determined; however, we estimate the loan-to-values of between 70% and 75% and spreads of between 250 and 350 basis points over LIBOR. We are discussing loan amounts of between $5 million and $50 million with each of these banks. As you can see, we're being very proactive in funding our 2010 obligations.

The properties that were used to create the CMBS loans coming due in 2009 and 2010 will also have significant value upon which we can place leverage at the time of repayment. The properties that will become unsecured in 2009 currently have a combined NOI of $35 million and our 2010 properties have a combined NOI of $17 million. Using a 7.5 cap and a 75% loan-to-value on these properties would produce an additional $520 million of potential borrowing capacity.

An important point regarding our current debt is that none of our debt carries REIT or corporate level covenants. Subsequent to the end of the quarter, we repurchased $40 million worth of exchangeable notes for approximately $32 million. This will impact our fourth quarter FFO by approximately $0.10 per share, due to the gain on early extinguishment of debt. Though accretive, the primary strategic reason behind the bond repurchase was to further de-lever our balance sheet.

Our net G&A for the quarter came in at $4.9 million. Net G&A is calculated by subtracting the $5.4 million in management fees from the gross G&A of $10.3 million.

This year we have acquired nine properties for $69 million. With the exception of one portfolio that we have seen, there still does not seem to be much distress in the self-storage acquisition market. This speaks to the stability of our product type.

Given our balance sheet and the current scarcity of credit, we will be taking a very conservative approach to acquisitions until we can get a better sense of where the cost and the availability of various forms of capital is heading. In addition to our outreach to the debt market I mentioned, we are speaking to several large institutional investors who have the ability to be a primary financing source, should we decide to make a move on acquisitions.

Our 2009 development pipeline is expected to be 17 properties for approximately $184 million in total cost. The funding requirements for our development program from this point forward will be minimal because the equity for these properties has already been funded and we anticipate being able to place construction loans on these properties. As with our acquisitions we are taking a conservative stand on potential new projects.

Now, let me move on to our outlook. At this time we believe our fully diluted FFO for the year to be in the range of $1.11 to $1.12 before the $0.04 in development dilution and before a $0.10 one-time gain from the repurchase of our exchangeable senior notes. After deducting the development dilution and excluding the one-time gain, we expect our FFO to be in the $1.07 to $1.08 per share.

Our fourth quarter has been impacted by approximately $0.01 of dilution from our direct sale of common stock which added 3 million shares. We will be giving guidance for 2009 early next year; however one thing to be aware is that we will be impacted by the new accounting standard APB14-1 which will force us to mark-to-market our $250 million of convertible debt.

Our FFO impact will be diluted by an estimated $0.04 per share for 2009. This will be a non-cash adjustment. That $250 million obviously was reduced by the $40 million that we purchased early this quarter.

With that, I’d like to turn the call back over to Ken.

Kenneth Woolley

Thank you, Kent; appreciate it. Well, as you saw in the third quarter, we’re still renting units and our portfolio continues to perform comparatively well compared to other real estate types and I’d like to outline four reasons why.

First, self-storage demand is based primarily on life changes. It is not as some say completely discretionary. Most life changes that drive self-storage demand are wholly separate from the ebb and flow of the economy. Marriage, birth, divorce, death and even natural disasters, graduation, job changes and normal moves, those factors don’t have a lot to do. Slowing economies can increase demand for storage; however through job loss, foreclosure and savings being lost or greatly diminished. So, there are positive things about the negative aspects of the economy that help our business.

Second, Americans have an attachment to their possessions. We are a nation of accumulators and keepers. In this time of economic uncertainty, we believe that people will hold close to this trade and continue to use storage as a repository for valued personal and business items.

Third, is the internet. As Karl mentioned, the internet has become a game changer in our industry. It gives greater advantage to companies that are able to spread advertising expenses over a large number of properties. This is increasing awareness of our properties over a larger area for a lower cost.

Our research shows that the average internet customer drives 20% further than those who rent from other sources of advertising. Across the country, large operators are beginning to gain market share over the smaller operators because of this factor.

In their conference call last week, Self Storage Data Services reported that occupancies across the country for self-storage as a whole were down 1.9% on a year-on-year basis as of the end of the third quarter. As you can see, this is not what we’ve experienced. We suspect our other publicly traded peers are in the same position. That indicates to us that the quality of our systems and possibly the internet are helping keep our occupancies higher.

Lastly, I believe our industry leading property portfolio and best in class operational and revenue management systems are providing a better product and better customer experience than that of any of our competitors, especially the smaller ones. They are helping us to take market share and I believe will continue to do so.

Over 70% of our properties are in the best self-storage markets and most of our properties are located in very good sites and our portfolio on average is the newest amongst our public peers. Condition and location of our properties gives us an advantage in most markets.

Well, there are two big positives on the going forward front for self-storage. One relates to the economy. Unfortunately, there are going to be a lot more foreclosures and a lot of the foreclosures taking place are real people having to move out of their houses. Many of the early foreclosures taking place in places like Las Vegas and Phoenix and the Inland Empire of California were for vacant houses.

When houses are vacant it doesn’t give demand for self-storage, but when a house is occupied and someone gets foreclosed on, it often gives demand for self-storage. Hence, we’ve seen increased demand and good revenue increases in Detroit, where there’s been a high level of foreclosures. We believe that if there are going to be more foreclosures in the future, that in fact most of those will be real people having to lose their houses which are a very unfortunate thing, but on the positive side for us, it does give us some demand.

The second big deposit for our self-storage business is demographic. The Baby Boomers of which there are 75 million are now reaching retirement age and this is just happening. In fact as your CEO I’m on the front end of the Baby Boomers since I was born in June of 1946, nine months after the end of the war; you can all do your math on that one.

Like my fellow Baby Boomers we’re approaching retirement and retired people use self-storage because they tend to move out of their larger homes into smaller places, but they don’t want to give up their personal possessions and we find many of our customers are retired people who use self-storage as part of their lifestyle. We believe that this is a positive demographic thing for the future.

As a final consideration, the most important thing in my mind is that Extra Space itself is well set up for whatever economic conditions are ahead. We continue to bear down on cost and are successful on our efforts last quarter. I think that you can see that on management of costs, we’re doing a good job; our balance sheet is strong; we have some of the best systems in the industry in a track record of leading innovation.

Our revenue management team has set the standard for proactive rate and promotion adjustments based on primary data research. In fact, even though Karl mentioned that we have lower asking rates today than we did back a year ago, we’re actually continuing to see revenue increases because we are able to raise existing customers.

We have a very experienced management team that has proven with the integration of the storage USA operation and subsequent acquisitions that it can manage change and we expect to continue to be managing change in the future.

We thank you very much for listening on this conference call and we’re now ready to take your questions.

Question and Answer Session

Operator

(Operator instructions) Your first question comes from Christie McElroy - Bank of America.

Christie McElroy - Bank of America

Ken, just following up on your comments, one of the biggest questions that people have, especially now that the outlook for consumer spending is so much in question, is the extent to which storage is needs-based versus discretionary and given the dramatic shift that we’ve seen over the last month or so in consumer psychology, do you think there’s a potential for the demand dynamic and storage to change over the next couple of months?

Ken Woolley

Well, I think if you would look at our rentals through the day in October, we have more rentals in our properties today in October than we did a year ago and so we have seen no impact yet and as I mentioned on the call, so many of the self storage demand factors are positive, not positive, but they don’t relate to the economy, so I can’t predict that, I would not say that’s true.

Christie McElroy - Bank of America

How did traffic trend throughout Q3? I mean, did you guys see any change in people walking into your stores in September versus July and August as we’ve seen a little bit on the retail side?

Ken Woolley

No, we haven’t, but what I could say, the one big trend that was really up was, Karl mentioned that our internet reservations were up 30% for the year, but they were up 50% in the month of September over a year ago September. So, there’s definitely a stronger trend towards internet rentals.

Christie McElroy - Bank of America

And then can you talk about, Kent, how your borrowing costs have changed kind of basically trended over the last three months and have you seen lenders ease up unavailability and pricing at all since the government has pumped more liquidity into the system. I guess as you’ve been kind of pulling out there as you’ve been looking to secure term loan?

Kent Christensen

To answer your second question, we still have yet to see from my perspective the lenders easing up. As I stated, we’ve contacted many banks and essentially eight out of ten of them are saying they’re not lending right now or not lending to us, but we’re still finding enough banks that are interested in lending to us that we think we’re going to be able to take care of the loan obligations that we have, but in the discussions that we’re having, there haven’t been anybody that’s said to us “we now have money because of what the government is doing,” and so if it’s going on, it’s going on behind the scenes with us.

The second part of your question is as I stated as far as the yields and the spreads we’re seeing, we closed on a construction loan just last week on Thursday. It was 275 over LIBOR, 75% loan to cost and that was a loan with a bank that we’ve been working on and it was now retreated, it didn’t change and we actually closed on two loans that week, that was the one that’s the most recent, the other one was similar to that.

So we’re still seeing pricing that’s bringing the interest rate, obviously depending on what LIBOR is at because LIBOR is bouncing all around, but somewhere between 5.5% and 7% obviously depending on where LIBOR is.

Christy McElroy - Banc of America

And then lastly, can you just talk about your thought process behind buying the converts on the market versus using that capital to address debt that’s maturing more near-term. I mean was it to reduce kind of the negative FFO impact, given the accounting changes next year, does it have to with where the securities were trading in the market or was it just part of your overall delivering process?

Kent Christensen

I think it was both of what you said. First of all, we feel very confident, based upon our discussions with banks, that we will be able to have enough capital to pay all our debts when they come due. Even as we are right now, we have enough capital through the end of 2009 and since we’re very confident about that, the purchase of the bonds was something that we felt was (a) accretive and (b) de-leveraging and beneficial to our shareholders, all of us as shareholders.

Operator

Your next question comes from Michael Salinsky - RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Kent, in your prepared remarks you talked about development pipeline raising hurdle rates; where are those hurdle rates right now and obviously the pipeline for 2009 is in place, but as you lookout to 2010 should we expect that pipeline will be down slightly just given what you’re seeing with asset pricing right now with the relative basis?

Kent Christensen

Probably, yes. We did raise our hurdle rates to between 10.5 and 11 on cash on cost development. In order for those hurdle rates to be achieved, two things have to happen. One is land prices have to go down and two is construction costs have gone down.

We are seeing construction costs go down right now, that’s happening. Land prices however, this is a very long process, getting a development done and we would expect now with the capital markets how they are, the land prices to start going down, but right now we haven’t seen it. So, our guys in the field who are looking for development opportunities have a bigger challenge right now, which I suspect will reduce what we’re doing for 2010.

Michael Salinsky - RBC Capital Markets

Secondly, where is asset pricing at right now? I mean, maybe the best way to look at it, what is the spread between buyer and seller expectations and where do you kind of expect that to play out over the next 12 months?

Kent Christensen

I’m not sure I completely have the answer to that. We have not yet seen a huge surge of deal flow in terms of people selling properties. The properties that we have purchased in the last few weeks, one was a portfolio in Indianapolis that was a flat 8 cap on actual numbers going in. The other was a portfolio in New York, one being in Brooklyn, which is very high quality which was in the mid-sevens.

Now so, what I would guess is that the reality is that the real pricing of self-storage in the best markets today is between 7 and 7.5, not 8. I think the 8 cap was a particularly opportunistic opportunity for us. On the other hand, we’re not bidding on hardly anything right now because we’ve decided not to. So, it’s not really a matter of price, we’re just not in the market.

Michael Salinsky - RBC Capital Markets

Okay. Third, you talked about going out to your existing pipeline for partners or new joint venture partners. Just looking at the market, where are the IRR’s being targeted right now? I mean, obviously cost of capital has gone up significantly, but where is the hurdle rates right now?

Kent Christensen

I don’t have an answer for you on that. We have had significant conversations with two of our existing partners about it, but I have not been given new hurdle rates. So, I don’t know the answer.

Michael Salinsky - RBC Capital Markets

Okay. Final question, probably for you, Karl; you talked about traffic patterns and what you’re seen on a month-to-month basis. Have you seen any people maybe down sizing their smaller units or maybe switching payment methods or any discernable trends in traffic pattern significantly?

Karl Haas

No, actually before I answer your question, I calculated Ken’s age, he’s 52, he’s old by the way and he barely looks that old, but no we get a lot of feedback and this is the problem and I think you will get this from other operators, especially annual Extra Space Storage magazines and things like that because most of the information comes from ad hoc feedback from their managers and if you talk to managers, you will hear that all the time that all our big tenants are vacating and everybody is down sizing.

We actually have done a couple different analyses looking at our occupancy by small, medium, large units and the mix has not changed. So we’re not seeing a down sizing of customers.

Michael Salinsky - RBC Capital Markets

Are you seeing a shift in maybe payment methods?

Karl Haas

No. We really aren’t. I mean, it’s surprising and I mentioned it, our bad debt is not up, it’s actually down year-to-date from the prior year and our accounts receivables are actually down from the prior year. Some of that is active management of it, but I don’t really feel at least to date and does mean it won’t change and it doesn’t mean that certain markets its a little bit worse, but we’ve really haven’t seen anything that would match kind of everything you hear in the media so far.

Operator

Your next question comes from Paul Adornato - BMO Capital Markets. Please proceed.

Paul Adornato - BMO Capital Markets

Kent, you talked a little bit about de-leveraging the balance sheet. I we was wondering if you could tell us what the optimal level of debt is in this environment and what are the metrics that you look at to measure that?

Kent Christensen

Well, at Extra Space we still feel like the level of debt that were at is an appropriate level. Obviously with the credit markets where they are at, the ability to obtained loans to pay-off the loans that we have coming due is where the real stress is.

As I discussed, I think because of our product type and the size of the assets and the kinds of loans and the cash flow these assets produce that there is a level of debt that should be applied to the self storage product type and that is something that we feel is appropriate and is something that we feel that the level that we are at today is an appropriate level.

The metrics that we use to do that are more governed by the public markets and, the discussions that we have with our investors and other organizations that we talk with about what they feel like we as a public company should be leveraged at and in those discussions we’ve had we feel like this is the level that’s appropriate.

Paul Adornato - BMO Capital Markets

Okay. So the overall leverage level we should expect to remain the same as it is today?

Kent Christensen

Well if we can find ways that make sense for us to de-levered like we did in buying the bonds back that seems like it’s a very good opportunity for us, then yes, we’ll be de-levering slightly, but I don’t think you’re going to see us coming to the market at the current stock price in raising equity and paying down our debt, that doesn’t make a lot of sense.

Paul Adornato - BMO Capital Markets

Okay and what metrics do you look at to measure your coverage?

Kent Christensen

Well, that means there is debt-to-asset value. You could put cap rate on NOI, there is debt to what the market value is of our company, so those are all items that we look at and are constantly comparing and looking at other comparables, but the one that’s the most important to us is what is the debt to, what the value is that’s being placed on the self storage asset loan to value so-to-speak.

Paul Adornato - BMO Capital Markets

Okay and moving over to tenant reinsurance, you recently made a search to further pay have insurance across [Inaudible] reinsurance.

Karl Haas

We really couldn’t hear you.

Paul Adornato - BMO Capital Markets

Are we getting new tenants to sign up?

Karl Haas

Okay. We continue to make good progress our penetration of new renters is astoundingly high; were about 95% to 96% and our overall penetration is closing in on 50%, were at about 45% to 46% right now, but our goal and we expect to get there is to around 50%. The rate of growth is not going to be as great as it has been over the last year and a half because we really are getting to a maturity level, but we don’t see any deterioration of it and it’s actually continuing to grow slightly.

Paul Adornato - BMO Capital Markets

Okay and finally, just looking at the State of Florida, we would have expected that the effect of the hurricanes would have anniversaried out by now. Is it still the hurricanes or is it the overall economy that’s kind of trading Florida at this point?

Karl Haas

It’s not the hurricanes any more, it’s the economy there. You still have a lot of stress, you have stressed consumers there, you have some real real-estate issues, property taxes are a problem for a lot of people, insurance and probably the biggest negative impact on the individuals is insurance. Home insurance has in a lot of cases doubled for people and that certainly is especially on the West Coast you hear that a lot, that people are really strained because you have so many people on fixed incomes. Ken could maybe add some color to that.

Operator

Your next question comes from Jordan Sadler - Keybanc Capital Markets.

Jordan Sadler - Keybanc Capital Markets

Thank you. I’m here with Thomas as well. My first question relates to the vacates. Ken, I think in your commentary you said they were up slightly and Karl you addressed them a little bit more, but could you give us a little bit more detail on them and then what happened during the quarter? From what I’m seeing they’re up pretty substantially relative to at least where you were on a year-to-date basis last quarter and I’m just curious what drives that or if it’s a change in direction and with your net rentals on the 570 stabilized properties now negative 3,000 versus last year’s comparable period.

Karl Haas

They are running higher and we are concerned about it from the standpoint that we are very aggressive in our existing customer rate increases and as a matter of fact, we are doing some changes really for two reasons; one, because our managers, how they feel about it and we feel like that longer-term customers in this current environment may react more negatively than they have in the past and so we are backing off a little bit as far as the frequency and the rate or the percentage increase on some of the longer-term staying customers and we’re continuing to monitor it very closely.

There is a lot of things going on out there and we have a real hard time getting a real hard fix on what would be increasing the vacates, but the good news is the rentals are continuing to come in at a healthy rate and we feel like we can have an impact on vacates by being a little bit less aggressive on the existing customer rate increases.

Jordan Sadler - Keybanc Capital Markets

You think you’re going to pull back the rate increases on the existing customers as well as the new customers?

Karl Haas

On the longer-term existing customers. The shorter-term, because the customers that are in their first year and half to two years, we probably won’t, but on the longer term, customers we’ve been hitting for a good while with pretty aggressive rate increases, those will be softened a little bit.

Kent Christensen

If I could add some color to that Jordan, we are probably the most aggressive company in our industry in raising existing tenants and in the past year we’ve probably been more aggressive than our other competitors and based on our own statistics, we believe partly a tick-up in the vacancy rate is due to that, but when you say there’s been a huge tick-up in vacancy rate, I think the tick-up is like 3% or 4% in the quarter and I don’t have the exact percentage in front of me.

It’s not a huge pickup in vacates because you have such an ebb and flow of these customers anyway. Also, the third quarter’s always the largest vacate quarter, because of students moving in, in May and moving out in September, a lot of people are doing that. It was up 3.8% for the quarter, I do not think that’s a dramatic increase in vacates.

Jordan Sadler - Keybanc Capital Markets

Okay, I guess what I was talking about is on a year-to-date basis, like through June it looked like you were actually going the other way and it seemed to have reversed course in the third quarter completely.

Kent Christensen

I just don’t see on a statistical basis that 1% or 2% up or 1% or 2% or 3% up or down is statistically meaningful, because that is not what determines the overall increase in income. Also, it’s important you can recognize that there’s levers we can pull the increase rentals too. We’re not seeing like a wholesale vacation of the property.

Now, our pricing policies do in the long run determine what our occupancy is and as you can see, our occupancy slipped just a little bit over the previous year and right now we don’t want to let it decrease too much, although we could increase the occupancy tomorrow.

Jordan Sadler - Keybanc Capital Markets

I understand what you’re saying. Maybe I’m honing in on the wrong number here. Your net rentals on a year-to-date basis, I’m seeing on page eight were down 34% this year, year-to-date versus last year year-to-date. I guess that could be considered statistically insignificant, but through June of this year versus June of last year you were really maybe just down 5% or so and so I see that as a deterioration. Does that ebb and flow that dramatically throughout your portfolio? I mean, I know we haven’t had these statistics forever; this is kind of the first year.

Kent Christensen

And I guess nobody else gives you these statistics, by the way.

Kenneth Woolley

Let me jump in. I hate to focus on rentals only and net rentals and especially when you’re talking about percentage change in net rentals, because I mean the percentages can get really out of line. We focus more on where we are on square footage occupancy, because it’s really that times rate that gives you the numbers that you really ultimately calculate revenue on and we have had a slight deterioration in same store occupancy percentage, but it’s still only down. I mean, we were down to minus 0.8%, we’re still no more than we’re less than 1% less in overall occupancy than we were a year ago.

Considering all the things going on in the marketplace, most of that loss relates to vacancies being up. We still have plenty of rentals coming in. When you look at the change in net rentals of 34% that does sound like a scary number, but when you look at where we are and overall occupancy delta year-over-year, the decrease has been pretty minor.

Jordan Sadler - Keybanc Capital Markets

Coming back to Christie’s question a little bit, can you maybe just walk us through what you’ve seen in sort of tenant psyche through sort of the operating performance throughout the quarter and then into October. I’m specifically interested in kind of what happened in September to October to your traffic and then I guess to your rentals and vacates?

Kenneth Woolley

Well, from a traffic standpoint, the increase in September was actually worse. I mean the rentals in September were actually slightly down, whereas the rentals in October are slightly up. So, as far as new renters, we actually are doing better in October than we did in September.

Jordan Sadler - Keybanc Capital Markets

And what about vacates in those same months?

Kenneth Woolley

Vacates were up in both months, really our increase in vacates in October is lower than our increase in vacates. Well actually they’re pretty comparable; it’s actually relatively comparable to both periods. So, we really haven’t seen any significant deterioration.

Jordan Sadler - Keybanc Capital Markets

Okay, that’s helpful. I think Todd has one as well.

Todd Thomas - KeyBanc Capital Markets

You mentioned there was an additional portfolio that you’re contractually obligated to purchase; can you just give us some color on that?

Karl Hass

Its two properties, one is in Colorado Springs and the other one is in Washington DC area. One is $7.5 million and the other is $5.4 million.

Todd Thomas - KeyBanc Capital Markets

Okay, are they stabilized properties?

Karl Hass

Yes, they’re stabilized cash flowing properties that we already manage.

Todd Thomas - KeyBanc Capital Markets

And then also you mentioned that there was one portfolio that you saw in the market that was distressed. Can you --?

Karl Hass

Yes, there was a loan that one of the banks had. They were in the process of foreclosing on a portfolio, that’s a very high-levered deal that we took look at and it was distressed in that way, but we did not do anything about it.

Todd Thomas - KeyBanc Capital Markets

How long ago was that?

Karl Hass

Six weeks ago, eight weeks ago.

Operator

Your next question comes from Michael Knott - Green Street Advisors.

Michael Knott - Green Street Advisors

Kent, if we could just take a look at page 20 and just sort of tie in your earlier comments on the balance sheet to your debt maturities schedule and sort of ignoring the extensions, a sense of what the LTVs are today on these, how likely it is you can refinance these existing maturities without having to tap into much of your $300 million of availability that you mentioned.

Kent Christensen

Well as I stated, the discussions that we’re having with people, the banks that we are talking with have a substantial interest in financing stabilized self-storage properties. I know the page that you’re talking about and the loans that are on there that tie back to the numbers that I gave. Are all the loans that are showing on here is 2009 and 2010 for both the fixed rate and the variable rate components. These loans are all backed up for the most part by stabilized self-storage properties.

The average of all of the loans that are on here in 2009 and 2010, if you used a 7.5 cap on the last 12 months trailing NOI, it puts these properties at a 60% loan to value today. So, we believe because of the discussions that we’re having, that we would be able to refinance these loans in today’s market, but what we’re doing is making sure that we have the availability today or as soon as we can to have the cash that we need to pay these loans off and are not waiting until these loans come due, but we know for sure that we can repay them.

So that’s why we’re going to the market, getting loans lined up, so that we can have the availability on lines or cash to be able to pay the loans, but we will be going to the market to try and refinance these and today we still think that’s a real possibility.

Kenneth Woolley

Just to add more color though, our plan is right now to put loans on properties that are un-leveraged, because we have properties that are completely un-leveraged that will have a value of how much, Kent?

Kent Christensen

$250 million.

Kenneth Woolley

No, that’s how much we could borrow?

Kent Christensen

That’s how much we could borrow.

Kenneth Woolley

We can borrow $250 million against properties and additional $250 against properties that are completely un-leveraged, which would then allow us to pay these debts and then have these completely freed up if we needed further leverage.

Kent Christensen

The value is 330 at a 75% loan to value, is the $250 million.

Kenneth Woolley

So, what we’re going to do is have the loans already in place and closed before these debt maturities come up. So, there’s no question about whether we have it or don’t have it.

Michael Knott - Green Street Advisors

Third quarter retain most of the availability you talked about because you’ll be able to either refinance these or take proceeds from encumbering other assets and then the other...

Kenneth Woolley

One point on that Mike is that we’re being very pessimistic on trying to figure out how we’re going to pay these loans back. Our feeling however is that these markets are going to turn and that by looking at the worst case scenario here and planning for that worst case scenario, we will be very well-positioned so that when the credit markets do open back up in more of a way than they are today and we know that we can go out and refinance these loans, that this capacity that we’re talking about will be used to take advantage of the real accretive and opportunistic acquisition opportunities that might be coming up.

So, on the down side we’re going to be protected in that we’ll know that we compare loans back on the upside we’ll have capacity to be able to execute on some real opportunities that could come our way.

Operator

Your next question comes from the line of Lou Taylor - Deutsche Bank.

Lou Taylor - Deutsche Bank

Can you talk a little bit about Sacramento? It looks like, your properties in the weak housing markets have struggled a little bit in the quarter, but Sacramento seem to do okay, whereas on your list of one of your better performers. Can you talk about that market what happened that during the quarter?

Kenneth Woolley

Some of it probably relates to and I don’t have the exact details right now in front of me, but some of it relates to we had a management change and so it wasn’t all market and sort of our rental properties have done well there, but I wouldn’t react to that particular market.

Lou Taylor - Deutsche Bank

Okay and then second question, in terms of the people that have terminated their leases and left, do you track the reason for leaving and has the reason for leaving changed over the last three to six months?

Kenneth Woolley

What we do, and we do get surveys of customers vacating, but we place more reliance on we have a program called pulse, where we have an automated system and we use an outside service to survey our customers on both when they’re renting with us and after they vacate and we have not seen any significant change in the reason that they’re vacating.

Operator

Your next question comes from the line of Omotayo Okusanya - UBS.

Omotayo Okusanya - UBS

A couple of follow-up questions; in regards to the development pipeline, we notice that the budget had costs, so most of those developments have all gone up. Just wondering, are you expecting as a result of that, that the development yields will be coming down and since you have new hurdles for development, what does that mean in regards to the pipeline; would it be shrinking on a going forward basis if some of those developments no longer make that new hurdle rate?

Kenneth Woolley

The answer of your first question, we’ve realized in the completion of our statements that we’ve done this quarter that some of our previously disclosed costs for doing development needed to be slightly amended, meaning that we put a number out and subsequent to that number being put out we’ve reevaluated some construction projects and determined that it was a construction project we still wanted to build and we were still going to go forward and approve the slightly higher increase in construction cost, but did not demand our public filings for those decisions that management had made.

If you look on all of the projects that have been opened so far this year, we came in within $400,000 of the estimated budget that we had on those eight projects. So our previously disclosed numbers were low because of what I described, but in completing our projects, we’re coming in very close to what we had expected.

As Ken described, because of the lack of development going on, we’re finding construction, general contractors and the cost of construction coming down. There is more competition and we’re finding that we’re getting better pricing on the construction cost side and as Ken stated, we would expect to see the price of land to come down that would allow for your yields to be higher.

Omotayo Okusanya - UBS

So, you’re actually expecting development yields to go up, not come down?

Kenneth Woolley

Yes, we would expect that. Well, the projects that we’re going to be opening next year will be what it is that we previously decided to do which will be in the range of 8.5% to 9.5%, because those projects are all under way and there’s nothing that we can do today to change that. The projects that we’re approving today would have higher yield expectations.

Omotayo Okusanya - UBS

Okay, great and then just going back to the overall; sources and uses of cash in 2009 and 2010, just kind of as part of your sources of cash you’re talking about drawing down the line of credit and also the un-drawn as I believe is either a term loan or construction loan that you have. I mean, just kind of given everything that’s going on in the credit markets right now, how confident are you that you will have access to those two sources of funding and if you’re not confident about having access to it going forward, why don’t you try to draw down on those lines right now to just have the cash on hand?

Kenneth Woolley

First of all, we are confident, but secondarily, we have already instituted a program of doing what it is you’ve described. Two of the banks that are the un-drawn construction loans our banks that are a little more concerning to us and so we’ve put in the request and drawn down on the loans on those two banks. To ensure that our GE line of credit was in good condition, we put in a request and drew down a pretty good chunk of the line of credit on the GE loan, to do what it is you’ve described. We will be actively monitoring each one of those loans.

The last point is that our construction loans are with major organization and major banks that have had a lot of government intervention, like Wells Fargo, Bank of America; those are the banks that we have our construction loans with. So, we’re monitoring that, we’re watching that and if we get a hint that anything is possibly of a concern to us, we will be doing what you suggested, will be drawing down the money so that we’re sitting on the cash.

Omotayo Okusanya - UBS

Okay, but so far you’re in the process, you’re monitoring, but you actually haven’t gotten any of that cash in hand sitting on the shelf?

Kenneth Woolley

We have. We’ve actually gotten the cash from two banks that we’ve draw down and we’ve actually gotten cash from GE.

Omotayo Okusanya - UBS

Got it and this was all subsequent to the third quarter ending I’m assuming.

Kenneth Woolley

That is correct. It’s all been done in October.

Omotayo Okusanya - UBS

Okay, great. Question in regards to concessions; I mean, within my neighborhood where I live in the past one month I’ve seen, you storage put out promotion saying you get 50% free for the first three months, which is basically free rent for one and half months.

I’ve seen you all kind of follow-up just last week in my neighborhood with 50% off for four months and I’m just generally wondering what you’re seeing out there right now in regards to concessions and if that’s the general trend in regards to trying to maintain occupancy. What you’re expectations are going forward in regard to what you think rental rates will look like or effective rental rates will looks like.

Karl Haas

Well, this is Karl. We have seen some of that, not a lot of that. Used storage specifically is doing, I’ve seen it in Florida. However, what we’ve seen in the past is one-month free works better than two months half price and actually three months half price.

We have tried many different things and the three month half price special is a special we’ve used in the past before there was any strain and stress and we didn’t see it work any better than one month free. So we’re continuing, like I said.

We feel like we are as aggressive as anybody but using the one-month free and I don’t think that in general when I travel around and I have traveled around a lot of markets, I haven’t really seen much of a change. Most peoples are sticking with the one-month free. We were probably the most aggressive and since April, we were doing that with all units, one month free and actually we are planning on backing off from that and using thresholds.

Operator

Your next question comes from Chris Pike - Merrill Lynch.

Chris Pike - Merrill Lynch

I guess I just wanted to circle back to some of the comments both Ken and Kent had regarding I guess the encumbered assets and your abilities to term those out. I think Kent, you said you guys are thinking about a 7.5 caps at a 75% LTV?

Kent Christensen

Well, that’s just for everyone to be able to get a point of reference. I’m going to make arguments so we get lower cap rates and higher loan to values, but just using a point of reference, so people can have a gauge for what the kind of availability of the amount of money that we have.

Chris Pike - Merrill Lynch

Okay. Then I guess just going back and thinking about our previous conversations. I always thought cap rates, as you guys were underwriting them had at least a seven handle on them, moving from 725 to 75 and now here after a couple of bankruptcies, major investment banks, an economic storm that people haven’t seen in quite some time, blowing out of your development yields, I guess I’m just a little curious as to why you haven’t gotten a little more conservative on that number?

Kent Christensen

Well, when it comes to getting a loan on these properties, all of the banks have to use appraisers and the appraisers are going to be going out to the market and determining about that cap rate is going to be. Since there have been very few transactions, the cap rate is going to be based on data from last year. So, I would expect that the loans that are going to be done in the next six months will have 7.5 cap will be on the high side of what the appraisers are going to be finding in the marketplace.

If your question is, where our cap rate is going, that’s Ken already addressed. I’m not sure we’re in a position to be able to determine right now today, what we think that’s going to be. What I’ve done is determined based on the process that we’ll follow in getting the loans, what I think the appraisers are going to come up with.

Chris Pike - Merrill Lynch

What’s the historic spread been between your development and your acquisitions?

Kent Christensen

It’s between 200 and 300 basis points.

Chris Pike - Merrill Lynch

Okay and can you remind me, where is the development yields going to; is it going to 10 to 11 now?

Kent Christensen

Yes.

Chris Pike - Merrill Lynch

So, that would imply caps if the historical spread remains in fact somewhere between 7 and 8?

Kent Christensen

Correct.

Chris Pike - Merrill Lynch

I guess with respect to concessions, I just wanted to be clear. So, you’re pulling off the concessions for existing customers, correct?

Kent Christensen

No.

Chris Pike - Merrill Lynch

You’re pushing off that?

Kent Christensen

No, our rate increases to existing customers, longer-term customers will be a little bit less than what we’ve been doing in the past. The frequency is slightly less.

Chris Pike - Merrill Lynch

Okay, so concessions sequentially going from 2Q to 3Q, can you help me understand what the effective cost of that concession is?

Kent Christensen

I think we can give you those numbers.

Chris Pike - Merrill Lynch

Maybe that’s not the right way to look at it. I know our friends at SSDS pointed out let’s say almost a dime per square foot and sequentially it hasn’t moved that much, but I think if you look at that data, year-over-year those numbers continually just trend higher. So…

Kent Christensen

Yes, I mean our discounts have trended higher than the prior year and part of the reason for us, at least and I can’t speak to everybody’s, but is that starting in April, we changed our policy and we offered all units at one month free. We didn’t really feel like we got as much from that and it was actually my idea and it was the bad one, but we thought that it would result in us being able to push rates higher on highly occupied properties and at the same time gain occupancy.

We were able to push rates higher at those higher occupied properties, but we didn’t see again in occupancy and we felt like we gave away more than we needed to on highly occupied properties. So, we will be making that adjustment and backing off on that, but we’re going to be as aggressive as we need to be on both pricing and on specials to keep rentals at a healthy level and so far, we’re seeing that that’s working for us.

Chris Pike - Merrill Lynch

I guess Ken, in your 30 year history in this business, have you ever seen such a aggressive use of concessions to maintain occupancy in operating self-storage portfolios?

Kenneth Woolley

Well, I’m the one that’s probably more closer to this and I’ve not been doing if it 20 years and I think specials, the one month free is something that public has been using forever. The rest of the industry really has been forced to follow it. I think at one point, You Store It was trying to not do it and we can listen to their call, but I think they got more aggressive and now even to the three months half price, but it really isn’t that much different than what was going on.

I don’t think that it’s changed dramatically. I think it’s difficult to push street rates and that’s what is probably a little bit more concerning right now than specials being more aggressive than they have been in the past.

Chris Pike - Merrill Lynch

So, you’re having trouble pushing street rates. You’re not pushing renewals as high as you could and the trend in net rentals is flat to modestly down. Is that fair?

Kenneth Woolley

Yes. Well, let me clarify. We are continuing to push existing customers; we’re just not pushing them as hard as we have in the past year, because we are a little concerned with vacates and what we’re looking at is what delta in occupancy is and trying to not lose occupancy.

Chris Pike - Merrill Lynch

Okay. I guess the last question and congratulations on the call center. I’m sure it was a tremendous network put together. Are there any changes from a structural perspective on how the field is staffed or compensation associated with that?

I know some of your peers may put a little more emphasis on the call center and maybe the funding of that, maybe the staffing of that. I know you guys were always very forth right and making sure that you had the best people on the ground in the field, but does higher resource utilization or capacity at the home office with the call center, does that structurally change the way you think about your field staff or the way in which the field’s going to operate going forward?

Karl Haas

No, because we look at the call center as nothing more than taking that the first part of the sales process and we feel the call center can do a better job on the phone call with a cold call than our existing managers can, but we feel it’s critical and we think it’s going to be our competitive advantage on a go forward basis to have the same high quality managers that are going to be doing that follow-up call, which is a warm call because it’s no longer the first time somebody’s talked to us. It’s the follow-up call. The customer already said they have a need.

Our managers are going to be following up very quickly on that and then as I travel around I ask managers what percentage of the people come in and haven’t checked on the web, haven’t called us and they’re just walking in the door shopping, I’m getting answers anywhere from 10% to 50%.

So, it is critical to us to keep the same high quality people, highly motivated people at our sites. Will we continue to challenge ourselves to make sure we’ve got the right staffing at properties? Yes and so in some cases it will result in adjustments both up and down, but we’re not tying in with our call center a change in what we do at our facilities.

Chris Pike - Merrill Lynch

I guess, I have one other follow-up question. I think some one asked Ken before about IR hurdles with respect to some of your institutional partners and I think you said he didn’t have the new hurdle rates. What were the old hurdle rates?

Kenneth Woolley

This is Ken. Most of our joint venture partners depending on the level of debt that they wanted in the funds what we did with them.

Chris Pike - Merrill Lynch

Let’s talk un-levered.

Kenneth Woolley

Un-levered would have been in the low teens.

Chris Pike - Merrill Lynch

Un-levered in the low teens IRS?

Kenneth Woolley

Correct, 10, 11, 12.

Operator

Your next question comes from Paula Poskon - Robert W. Baird.

Paula Poskon - Robert W. Baird

Just one question. We speak a lot and particularly in your closing prepared remarks about the drivers of the business that really are pertaining to the majority of the tenants that are residential customers. Can you talk a little bit about what you’re seeing among your commercial tenants and particularly small business?

Kenneth Woolley

You have it going both ways. Once again, if you talk to our storage managers, ad hoc comments, you hear about a lot of businesses going out of business and closing up and moving out, but what we actually see when you really look at the data is you got that happening and so we lose some tenants as a result of a guy that has a small business and may be going out of business.

On the other side what we see happening and in good times what happens is a lot of companies, they grow, they get to the point where they were using self storage, Joe the plumber and he has a business and he’s operating it out of the self storage facility. His business grows much, John McCain’s thrill and he then finds a warehouse and he moves into a warehouse.

While things slow down and things are slowing down right now and Joe the plumber decides, “You know something, I can’t afford a warehouse but I’ve still got to run my business.” So, he moves back into a self-storage facility and so you have kind of both dynamics going on and as far as the result that I think why we can see some positives coming from businesses that are stressed, because they do contract.

Self-storage is a very cost effective way to operate your business. You’re on a month-to-month basis, if one month you need a 20 by 40, you can rent a 20 by 40. If two months later you only need a 10 by 30, you just come in, you change unit sizes and you’ve just cut your costs in half.

Paula Poskon - Robert W. Baird

So, how do you think about the strategy of pushing rents for those tenants are not relative to what your strategy is around residential tenants?

Kenneth Woolley

Well, I think what we’ve seen is in the past at least the commercial tenants are more open and easier to push rates on than residential. There’s less resistance to it, so in the past our overall rate increasing were higher to commercial than they were to residential and so far we’re continuing to operate in that same vein and we haven’t seen much impact from that.

Operator

And there are no further questions at this time. I would like to turn the call over to management for closing remarks.

Kenneth Woolley

Well, this has been a long call, we had a lot of questions; I hope it wasn’t too boring to too many people, but I think the basic tenor is our business is doing well and we do thank you all for listening and we look forward to talking to you at NAREIT. Thank you. Bye, bye.

Operator

Thank you for your participation on today’s conference. This concludes the presentation. You may now disconnect. Good day.

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Source: Extra Space Storage Inc Q3 2008 Earnings Call Transcript
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