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Executives

Kenneth F. Myszka - President & Chief Operating Officer

David L. Rogers - Chief Financial Officer

Michael Salinsky - RBC Capital Markets

Analysts

David Tody - Citigroup

Michael Bilerman - Citigroup

Mark Biffert - Oppenheimer & Co.

Todd Thomas - KeyBanc Capital Markets

Jordan Sadler - KeyBanc Capital Markets

Mark Lutenski - BMO Capital Markets

Sovran Self Storage Inc. (SSS) Q1 2009 Earnings Call May 7, 2009 ET

Operator

Good morning and thank you for holding. My name is David and I will be your conference operator toady. At this time, I would like to welcome everyone to the Sovran Self Storage Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

I will now turn the call over to Mr. Myszka. Sir, if you may begin your conference.

Kenneth F. Myszka

Thank you, David. And good morning and welcome to our first quarter conference call. As a reminder, the following discussion will include forward-looking statements. Sovran's actual results may differ materially from projected results. Additional information concerning the factors that may cause such differences is included in our company's SEC filings. Copies of these filings may be obtained by contacting the company or the SEC.

Well, market conditions continue to be extremely challenging. Nonetheless, our results of operations were well within our guidance. Same store revenues and net operating incomes increased ... decreased by 1.35% and 2.1% respectively. Our efforts to control cost is benefiting us with same store operating expenses decreasing by 0.1%. And that decrease would have been nearly 3% except for property tax increases of over 8%.

Due to our aggressive promotions, we had quite a few more movements for the quarter ... for the last quarter than we did in Q1, 2008. Unfortunately, our last quarter also exceeded '08's first quarter. A bright spot, though, is that April resulted in positive net movements, and that's the first time we've experienced this since July of last year.

From an operations standpoint, in mid-January, we introduced our enhanced website to include rates and inventory availability, as well as some other useful features such as space and store bookmarking and a fully automated size estimator. And we're pleased with the results so far with unique business increasing by nearly 20% Q1 over Q1 '08.

During the quarter, we made no acquisitions for our own account or the joint venture, and we also expanded approximately $5 million to complete three expansions that had begun in '08 and further the expansion of five other stores.

If you've read our press release, you're aware that we plan to reduce our dividend by approximately 30% beginning with the dividend payable in July.

Our view is that with the turbulence in the economy and capital markets, it's prudent to err on the side of caution and conserve cash and maintain liquidity. This will increase the strength of our already conservative balance sheet.

And with that, I would like to turn it over to Dave Rogers, our Chief Financial Officer, who will provide details of our quarter's activities.

David L. Rogers

Thank you, Ken. Regarding operations, total revenues decreased by $73,000 or 0.1% from 2008 first quarter, and property expenses increased by $47,000 resulting in an overall NOI decrease of about 40 basis points.

These overall results reflect the positive impact of the one store we've acquired post first quarter of last year, offset by a decline in the same store result I'll get to in a minute, and the sale of one store last summer. Average overall occupancy was 79.3% for the quarter ended March 31st, and average rent per square foot was $10.57.

Same store revenues decreased by 140 basis points over those of the first quarter of 2008. This was the result of same store weighted average occupancy declining from that of 2008's first quarter by 150 basis points to 79.5%. Rental rates were slightly higher at $10.45 per square foot compared to the same store rate of $10.43 last year.

Again, this quarter we treated many of our customers to the first month's rent free. This time, to the tune of $2.7 million on a same store basis, which is a 75% increase over last year's first quarter. The leasing environment remains as tough as we've seen and we are, in effect, buying occupancy.

We've been able to hold the line regarding our rate structure except for some of the Florida markets in-place rent have, for the most part, been maintained. Operating expense on a same store basis decreased by a total of 10 basis points this period, despite the inclusion of a property tax increase of 8.3%. Except for utility, cost and advertising pretty much all other operating expenses declined.

The 140 basis point decline in revenues combined with a slight drop in operating costs resulted in a decrease of same store NOI of 2.1%. G&A cost for the period came in at 4.4 million, pretty much as expected. The 6% increase over that of last year's first quarter is primarily the result of increased costs associated with running the joint venture.

With regard to capital matters, our balance sheet remained pretty much unchanged during the quarter. We funded a little over $5 million of previously committed expansions and enhancements and put another $2 million toward normal recurring CapEx.

There were no acquisitions or further contributions to joint ventures. Our total outstanding debt is 632 million. At March 31st, all but the $23 million drawn on the line as long-term and fixed rate are hedged to maturity. Approximately 17% of our borrowings are secured.

Debt service coverage in the first quarter was 2.7 times EBITDA as was, since we have no preferred shares remaining, our fixed charge ratio. We remain conservatively capitalized and have little in the way of near-term maturities. Having said that, however, we did trip a covenant as of March 31.

Our line of credit and term notes require us to meet certain conditions and levels, including prescribed leverage ratios, fixed charge coverage, minimum network, limitations on additional indebtedness and limitations on dividend payouts.

One of these covenants limits our total consolidated liabilities to 55% of our gross asset value. At March 31, we reported a leverage ratio of 55.4%, exceeding by 40 basis points, the allowable level. And what I'd like to do is just run you through real quick, what our capitalized ... what our gross asset value is.

Essentially, when we compute the covenant, we take our last two quarters, in this case, the quarter ended March 31, and the quarter ended December 31, we take that property NOI, subtract from that a 5% imputed management fee and also $0.10 per square foot recurring CapEx. Net adjusted ... net operating income number is then capitalized at 9.25, and we come up with a gross asset value. From that, we divide that into our total consolidated liabilities as of the quarter end date.

What happened this quarter is two things; one, this is typically our nadir of operations, as the fourth quarter and the first quarter are throughout the industry, probably the two slowest quarters, certainly the case this time and every year, March 31 is the date when we come closest to this rather restrictive covenant.

What tripped us this time and I'm embarrassed about is the fact that we have a liability that moves around quite a bit. In the press release, on the balance sheet, it's noted as fair value of interest rate swap agreements, and you can see that is about $25 million. That swap agreement through January and February, that liability had been shrinking and I took my eye off the ball and didn't see how at the end of March it had grown pretty substantially, especially in the last 10 days.

That liability is, in our mind, the phantom liability. It's the price we pay or the obligation we have to fix the rate on all the floating debt rate we have. We've locked our floating rate debt pretty much perfectly day-to-day and had fixed our rate at about something on the order of 6%.

With LIBOR being what it is, this liability grows and at the end of March it grew rapidly, so that when we did the computation in actually later April, when we did that computation, we found that we had tripped the covenant. So what we did was, we went to our lenders in the process of obtaining waivers for that violation; we may also attempt to negotiate an amendment to the unsecured line of credit and term note agreements so as to remove, to see if we can remove this phantom liability from the computation. We're not sure we can achieve that, but we're going go back and ask for that. You should know that at April 30, we were back in compliance with the original covenants and we don't think that we're going to have any issues with it going forward.

With regard to guidance, we plan to continue with leasing incentives and aggressive marketing programs to maintain, and then as we move into the busy season, grow our occupancy. Nonetheless, we expect same store sales to drop from 2008 levels by 2 to 3%.

As evidenced by this quarter's results, we've been successful in cutting property operating costs, but will maintain or even increase marketing, advertising and probate deal (ph) budgets.

Overall expense growth is projected at 1 to 2%, which result in a forecast and NOI decline of 2 to 4%. G&A costs are targeted at between 4.3 and $4.6 million for quarter. We don't plan to acquire properties in the near-term as we wait for the debt and capital markets to stabilize and for cap rates to settle down.

We're looking to sell a few properties in non-strategic markets, but have not factored such sales into guidance. We've put on hold our expansion and enhancement program, working only on those projects that were well under way in 2008. $5 million was expended in Q1 and we have about $8 million in process to be wrapped up over the course of 2009.

To give you a better handle on our interest costs, we're now obligated on $610 million of long-term fixed rate or hedged loans. Our annual interest cost to carry this debt, including amortization of financing costs, is 40.4 million. This is not expected to change materially for the next three plus years. The only variable component in our debt structure is related to our line of credit, which carries a floating rate of LIBOR plus 137.5 basis points. At March 31, there was 23 million outstanding on the line.

Assuming the above forecast, we expect second quarter FFO to come in at between 73 and $0.75 per share, and we reiterate previously issued guidance of between 3 and $3.08 per share for the full year of 2009.

And Ken, I'll turn it back to you.

Kenneth F. Myszka

Okay, thanks Dave. Well, that concludes our prepared remarks. We'll be pleased to field any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Tody with Citigroup. Your line is open.

David Tody - Citigroup

Good morning, everyone. Michael Bilerman is here with me as well. Thanks for your explanation on the line of credit. Just a couple of other questions, are there covenants that are close to limitations at this point or were during the quarter?

David Rogers

No. We're in good shape. That's always been the one that's limited us.

David Tody - Citigroup

And then can you tell us who the banks are on the line?

Kenneth Myszka

Well, there's two group, there is a bank lending group commercial bank, and there's a good group M&T Bank, Wells Fargo, HSBC, PMC, SunTrust. M&T Bank is the lead agent. We have BB&T, we have U.S. Bank, Bank of America and I'm going to be embarrassed by forgetting a couple, but I don't have the list. That's the commercial side.

On the long-term notes, we've typically done that with a group insurance companies, AIG, Principal, Prudential, MetLife and a host of a lot of agents and several others. So, there's two pools; the insurance notes are grouped into three distinct issues, one that expires in 2016 and two that expire on 2013.

Michael Bilerman - Citigroup

David, Michael Bilerman speaking, I guess if you don't get the waiver, what are you ... are you going to go ahead and try to raise other capital? It means the 25 million is stent ... don't you ... isn't there an eventual payout when the swap matures?

Kenneth Myszka

We pay it, David, as we go via the interest rate. So it's actually last I think March, a year ago, that was a $4 million asset. At September 30, for example, there was a $6 million liability. It grows ... we would only pay it off if we had to unwind.

Michael Bilerman - Citigroup

Right. But I guess I'm thinking about it from the perspective of, let's say, you can't get the waiver on it. And right now, it's about 200 basis points on that leverage ... where you're basically at the math. At what point will you say I need to put some more equity in or sell assets in order to get more comfort on that level?

David Rogers

Well, we were pretty confident we were going to get the waiver. We've been talking to ... unfortunately I put it to them quite late in the game because we really didn't realize the growth of the swap contract until last week. But I'm pretty confident we're going to get the waiver. We've had good discussions and that's in process right now.

And then, as I mentioned, as of April, we're already in compliance because we had a little bit come in via our drip. We had cash flow; some of our other liabilities were paid down. So, I think we're in pretty good shape and we will ... we may take some steps. It really boils down to, Michael and David, as we have less drive power than we thought we did. Our gross asset value is shrinking a bit. And as a result, we're getting tighter.

But, again this was at the nadir of our operating systems, so we think our gross asset value is at the low point, both swap liability one of the lenders told that you can grow much more than it already is. And we are indeed, as of April, it's about $3 million less. So, we're back in the zone already and only expect going forward to, dividend cut will help a little bit both in terms of cash generated and in one of the liabilities that's counted against those at quarter end date. So, I don't think we're in any kind of ... I know we're not in a position to have to raise a lot of capital to pay down existing debt.

David Tody - Citigroup

Okay. This is David ... again. Sorry to keep switching back and forth. Just moving over to operations, is your sense that there could be additional pressure on NOI in the second and third quarter or are you expecting some leveling of the trend that we say through the winter?

Kenneth Myszka

Well, the on encouraging things I mentioned in my prepared remarks is April move-ins were net positive for us, which is the first time we've realized that since last summer. And we are anticipating that that will continue the first, literally, first five days, I was just told this month was a continuation of that, a lot of move-ins, so much so that we're relaxing some of the concessions that we're giving throughout the system. So, we ... I don't there is going to be a pressure on us from that standpoint.

David Tody - Citigroup

And are you seeing any, I know everybody is sort of desperate for signs of stabilization or strength, are there any markets in particular that have been weak that are improving or have stabilized?

Kenneth Myszka

Well, surprisingly, I mean, we've done pretty well in the State of Michigan. I mean, I don't expect that to continue but that has improved somewhat, New York State has done fairly well for us, particularly the western New York area. Texas, we were pleased with the occupancy there. One thing we mentioned last call, we were concerned there were going to be a lot of move-outs after Ike and what we're finding is that in the eastern part of Texas and Latvia, Louisiana, there's a fair amount of homebuilding going on in reaction to the problems that were there. So, I guess those would be the areas that we feel best about. The weakest part still remains in Florida.

David Tody - Citigroup

Great. I'll get back in the queue. Thanks for the detail.

Operator

Your next question comes from the line of Mark Biffert with Oppenheimer & Co. Your line is open.

Mark Biffert - Oppenheimer & Co.

Hi, good morning guys. I guess adding to David's question on what your view for guidance, I mean you've guided $3 to 3.08 and you look at kind of your run rate for ... if you consider your first quarter run rate. And I'm just wondering what gets you over that bottom end if the market doesn't improve?

David Rogers

Well, one thing Mark that we have is, we're suffering a little bit on a same store comparison because we didn't begin this the free rents giveaway and so forth until Labor Day of last year. So, our quarter tramps up until that point are going to, on revenue growth side, are going to look pretty rough. But I do expect that even if things remain the way they are, on a same store growth basis, for the last four quarters of the year to be pretty significant because we took a pounding those four months of last year.

So, our overall comps aren't so tough and the expense cutting program that we put in really didn't take traction until early into mid-February. I think we've got some opportunities there. One thing we put in this was we're being pretty conservative because we got nastily surprised in the fourth quarter with regard to property taxes. We had a 21% jump in property taxes fourth quarter when we trued up all the invoices that we got for most of our properties. So we're being, I think, I'm hoping pretty conservative what property tax is this year, and we won't have that nasty jump either at the end.

Mark Biffert - Oppenheimer & Co.

Okay. And then I am just wondering if you can talk a little bit about reasons from about and maybe in both the business and residential portfolios?

Kenneth Myszka

Well. You're right on with both. Business wise, what we found is the construction industry has really crimped us in a lot of areas while homebuilding and commercial construction is on, we have these contractors who use us as their base of operation. A lot of that has dried up in a lot of different areas, in particular, Florida. Residential, we have a number of people who have been with us for a period of time. They are moving out. They're cutting cost. What we're trying to do in those situations is if they've been occupying a 10 by 20, and they say they're going to be moving out, our managers are instructed to try to avail them of a smaller unit size and hopefully maintain them as customers, but with a little less revenue.

But, it's a difficult situation out there. I was out visiting stores in last quarter, and managers are saying, it's ... we really have to work hard to keep these people and to bring new people in.

Mark Biffert - Oppenheimer & Co.

So, is one month of free rent usually a pretty good incentive, or you're finding people just surpassing that out as well?

Kenneth Myszka

People are very, very price conscious. They are all looking for deals. A lot of it is salesmanship on the part of the manager. So, we're trying to do the best we can without giving away the store. And it's on a real case-by-case basis, if somebody comes into a store looking for a 10 by 10, and we've got 90% occupancy, they're not going to get the deal. But if it's low occupancy and they come in there, we're going to do what we can to get them in.

Mark Biffert - Oppenheimer & Co.

Okay. Thanks.

Kenneth Myszka

Sure.

Operator

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Your line is open.

Todd Thomas - KeyBanc Capital Markets

Hi, this is Todd Thomas along with Jordan. Do you the occupancy update at the end of April?

David Rogers

Yes, we were at seven ... we actually gained 700 tenants, so we were at about just over 80%.

Todd Thomas - KeyBanc Capital Markets

And that's in the same store or overall?

David Rogers

It's virtually the same now, Jordan and Todd, we've only got a couple at around 4.

Todd Thomas - KeyBanc Capital Markets

Great. Okay, regarding the joint venture, what's the status of that investment, do you expect that extended, has anything changed with your partners interest level?

David Rogers

They've ... they're good partner. They ... well, I say that because they share the same view as we do. And we're pretty cautious right now. We don't know what's going on with the overall markets, both capital and debt, we don't really have any good data points for cap rates. We're not anxious to go into a property at even an 8.5, and maybe a year from now, we'd be able to get that for 9.5. So they're good partner. They have capital that they are prudent with. We have capital we're prudent with.

So, I think technically, the joint venture agreement for funding expired at some time in March, but we've agreed that there's opportunities; we'll take advantage of them. The call for limit was a total of $125 million, 100 million from them, 25 from us. They put in 80, we put in 20. So we're about 80% of the way there. And I think if opportunities were there, we were both upsized. I don't see that happening in the near future. But it's a good relationship and it's formed with 25 properties, $100 million of capital and we're on hold, I guess is the answer.

Todd Thomas - KeyBanc Capital Markets

Okay.

Jordan Sadler - KeyBanc Capital Markets

It's Jordan. I just had a question regarding the one of Ken's comments on concessions, it sounded like in April, maybe early May, you started to relax the concessions, I think. And I'm curious what the trigger might be for that, given that occupancy still sounds like it's down at 80%, which seems like a pretty low level to me relative to your guys' history.

Kenneth Myszka

In reaction to the April and the first five days of May, we are just doing that at this point. We've got ... we've had about three different specials that we've been running simultaneously. And we've removed the most aggressive concession from our offering because we're seeing a huge increase in the number of people taking these. So, we'll monitor it very quickly ... very closely; we've got the ability to monitor it that way and react very quickly. So, if it turns out that we may be a little bit too aggressive, we can change it immediately.

Jordan Sadler - KeyBanc Capital Markets

What's the nature of the concession? It's not just a month free, there's some other types of deals you're offering?

Kenneth Myszka

Yeah, we've got one that essentially involves the customer in determining what rate he or she is going to pay for the succeeding month. Basically saying if somebody comes in, it's a $100 space; here is what you're paying this month and what do you want to pay next month. And generally the reaction you get is, I don't understand. And manager then says, well, most people are paying 50, 60%, what would you like to pay? So it involves them in it, it's an explanation, it's kind an empathetic outreach by Uncle Bob to the people who're going through some difficult times. And it's working very well for us.

Jordan Sadler - KeyBanc Capital Markets

And is that for in-place tenants or new tenants?

Kenneth Myszka

No, no, these are just for new tenants, new customers.

Jordan Sadler - KeyBanc Capital Markets

And so you get like, see, you get the first month for $1 kind of move-in and then it's name your price for...

Kenneth Myszka

No. Generally, what'll happen is, we'll have them pay half price for the first month or half of whatever the remaining month is, and then the next month, name your own price and then the following month it goes to the normal price.

Jordan Sadler - KeyBanc Capital Markets

Okay. And that's still going on? Did that promotion accelerate in the first quarter at some point?

Kenneth Myszka

We introduced that in the, it was mid-February or late January like that. And it's worked quite well for us. But we have to be cautious too, because we are going to the busy season; we're going to monitor occupancy. And as unit spaces sizes lease up, we'll control that as a special.

Jordan Sadler - KeyBanc Capital Markets

Okay. And then I just wanted to circle up you, Dave, on the amendment that may come up here. What's the expected level of the fee? And will there be a waiver and an amendment?

David Rogers

Waiver first. And that's what we're working on right now. And then in the interest of ... I did ask for an amendment to the group and it was probably unfair of me to do that on such short notice. So we settled on to get a waiver now and then I'll go back. If you, basically, the amendment would say, we would like to remove this liability from the computation. And I would expect there to be fee and I guess we've worked our way out of it and typically we forecasted and have ourselves in pretty good shape. So I would love to have it. And I'm just not sure, just to give a cushion and to give room so that we don't have this issue again, because I can't control their liability.

Like I said, it's gone all over the boards in last 15 months from positive to huge liability. So, I would expect there to be a fee for an amendment, and I guess we just have to step back and say, okay, can we live with this the way we are, or should we pay up and then see. It's very possible, Jordan, that this thing could vaporize in a year's time. If LIBOR rates tick up not too much, the function of it is such that the liability goes away. So, we haven't made that decision yet and we haven't even actually been offered it from the lending group we've asked. We said, let's talk about it later when there's more time, we'll take it from there.

Jordan Sadler - KeyBanc Capital Markets

And then in terms of the rate, do you expect the rate to be intact?

David Rogers

Yes.

Jordan Sadler - KeyBanc Capital Markets

Okay. Thank you.

Operator

Your next question comes from the line of Mark Lutenski with BMO Capital Markets. Your line is open.

Mark Lutenski - BMO Capital Markets

Good morning.

Kenneth Myszka

Hi, Mark.

Mark Lutenski - BMO Capital Markets

With that ratio, what was it historically, I guess, the last time that you guys calculated it?

Kenneth Myszka

At December 31, it was 53.7.

Mark Lutenski - BMO Capital Markets

Okay. And, just curious with the name of your price promotion, I mean, what if the tenant says, zero? I mean, what's the flexibility, the measures you have for that?

Kenneth Myszka

Well, if the customer comes in and says zero, what the manager essentially is instructed to do is just try to get a little friendly with him and say, listen, we are trying to help you out as best we can. Can you spare something for Uncle Bob? And generally what happens is, if it's a $100 space, the customer will come in, yeah, I guess we'll play 20 bucks for this month or 25. I think it's averaging around 30 some dollars per customer.

So, it's better than the free month. Get the customer engaged and frankly, we're getting a lot of word of mouth from the move-in customers; people are coming to us, asking us about the deal?

Mark Lutenski - BMO Capital Markets

And is the plan with the proceeds, I guess, to retain capital from the cut dividends? That's just to paid down debt?

David Rogers

Well, it's partially to ... we've lost some cushion. We've had a pretty good ... even though it hasn't looked like a good AFFO ratio the last few quarters, much of the capital improvements we've spent have been to lighten and brighten our stores.

But what we typically have is about a $14 million budget as what we put in place this year for our CapEx. We wanted to do the normal stuff which would take about $9 million and the lightning and brightening, which will be another 5 or 6. So, we saw what was going on operations are available, FFO has shrunk a bit. We wanted to take care of the properties; we've got to keep it fuelled up. So, we would actually not borrow and keep the old dividend. We would only have about seven or $8 million to work with.

So, that one thing is to lighten and brighten. We've got $8 million of commitments going forward with regard to projects in the hopper. So it's basically doing capital improvements and expansions committed to without having to borrow. That's the first job. And then later on in the year, we've got a $25 million set of mortgages that are due to roll. We've got three options on that, roll them with the present lender and they seem to be applicable (ph) to that. We had initially thought we put them on the line of credit; we can still do that, because that doesn't have any impact on our debt ratio, it's just one type of debt for another or knock some of it down with the proceeds or with the savings on the dividend.

Mark Lutenski - BMO Capital Markets

Okay. And you've done a larger quarter in the past, any chance to maybe switch it up any plans to switch up and maybe become a seller?

David Rogers

We do have about $40 million worth of properties that we're considering in, primarily, non-strategic markets. There is activity out there. Now, we're looking at a neat cap probably, actually we've got 200 contracts in the early stages that are in bottom 8 cap. So, yes, we are ... it's a being sold for small mom-and-pop operators, who are using, I think, for the most part local banks and old style mortgages 25% down, 30% down type of thing. So, yeah, we do have consideration to sell some, not many, but some.

Mark Lutenski - BMO Capital Markets

And, I'm just curious is the pleating on the drip change store during the quarter?

David Rogers

We do have ... we are active with the drip in April, not so much in the first quarter, we won't be doing much. I don't think in the next ... for the balance of the quarter.

Mark Lutenski - BMO Capital Markets

Okay, thank you.

Operator

Your next question comes from the line of Michael Salinsky with RBC Capital Markets. Your line is open.

Michael Salinsky

Good morning.

David Rogers

Hi, Mike.

Michael Salinsky

Ken, I think in your comments you mentioned move-in April, is that on a sequential or you think that are more on a year-over-year basis?

Kenneth Myszka

That's year-over-year.

Michael Salinsky

Okay. Can you give a sense of the magnitude of how much they are up?

Kenneth Myszka

Up about 5%.

Michael Salinsky

Okay. That's hopeful. Second, look, just looking at the overall asset pricing environment right now, I know you guys aren't actively looking for acquisitions with any really aggression. But can you give us a sense of where pricing is right now?

David Rogers

Well, Mike, it is ... I think some people are trying to drive a meaningful number out of a very wide range. And you're seeing stuff, not so very good stuff pricing at 9.5 to 10. In small markets, you're seeing some transaction, I guess, getting down around the 8 level, not many.

You're seeing a lot of spread between bid and ask. I know the guys at public stores, they say, they're not buying below 10. We just had the convention in Dallas and most operators are sitting there pretty happy where they are. And they've been tuned in condition to the price that their properties are worth low 7s and they're operating, I mean, most of them are pretty well capitalized and financed; they don't have issues; they're suffering comparatively probably worse than the four larger players because they don't have the Internet advertising, the call centers, the systems in place. So, their revenues are probably as a group falling a bit more than the REITs. But they're still in a pretty good position. So, the spread between bid and ask is probably higher than ever. And most owners of quality properties are sitting and saying, I'm not selling. And most people like us are saying, we're not buying at anything near what old cap rates were. So if I had to put a number on it, I'd say probably 8. But there's not a lot of deals getting done.

Michael Salinsky

Next, with the promotions that you're offering, I mean, obviously given the significant amount of discounts there. Have you seen any change in the rate of move-out, maybe people taking a promotion and then jumping out a month, two months out? Or are they sticking pretty well and you're being able to hold those customers pretty well?

Kenneth Myszka

We've been checking that. It's a good question, Mike. And so far, we're pleased that we did a comparison the year before from the time when we started this 12 months before that to the 12 months ensuing, and fortunately we've seen very little change; in fact in a couple months, there were more people staying with these move-in special than the preceding 12 months. So, no problem with that so far.

Michael Salinsky

Okay ... with regards to length of stay overall, there isn't many a significant change?

Kenneth Myszka

No. I mean, the thing is though that we, as Dave said, we started this last September. So we don't have that much time to go on. But as far as when we trace those people who've moved in the prior years under this without the special and comparing them with the special, there has been no appreciable difference one way or the other.

Michael Salinsky

Okay. And just given the pressure we've seen on rates and promotions and everything, can you give us a sense on what the dearth is right now between in-place rents and street rents?

Kenneth Myszka

About the same.

Michael Salinsky

It's about the same; you haven't pulled back at all?

Kenneth Myszka

We tried pretty hard to manage that, and I know it's ... and probably the one place, it's Florida, I think that's where our rate structures had a little bit of difficulty holding up. But in most markets we're in, it's pretty tight.

Michael Salinsky

Okay. So, thanks.

Kenneth Myszka

Thanks.

Operator

At this time there are no further questions in queue, sir.

Kenneth Myszka

Well, thank you. Thank you everybody for your participation and your interest in our company. We appreciate it and we look forward to speaking to you in the next quarter. Have a good day.

Operator

This concludes today's conference. You may now disconnect.

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Source: Sovran Self Storage Q1 2009 Earnings Call Transcript
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