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Executives

Diane Piegza – VP, Corporate Communications

Dave Rogers – CEO

Andy Gregoire – CFO

Paul Powell – EVP, Real Estate Investment

Ed Killeen – EVP, Real Estate Management

Analysts

Nick Joseph – Citi

Todd Thomas - KeyBanc Capital Markets

Christy McElroy - UBS

Jana Galan - Bank of America-Merrill Lynch

Todd Stender - Wells Fargo Securities

Jeremy Metz - Deutsche Bank

Paula Poskon - Robert W. Baird

Jordan Sadler - KeyBanc Capital Markets

Josh Patinkin - BMO Capital Markets

Sovran Self Storage Inc. (SSS) Q1 2013 Earnings Call May 2, 2013 9:00 AM ET

Operator

Greetings, and welcome to the Sovran Self Storage first quarter 2013 earnings release conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Diane Piegza, Vice President of Corporate Communications for Sovran Self Storage. Thank you. Ms. Piegza, you may begin.

Diane Piegza

Thank you, Melissa and good morning. Welcome to our first quarter 2013 conference call. Leading today’s call will be David Rogers, our Chief Executive Officer. Also participating are Andy Gregoire, Chief Financial Officer; Ed Killeen, Executive Vice President of Real Estate Management, and Paul Powell, Executive Vice President of Real Estate Investment.

As a reminder, the following discussion and answers to your questions contain 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.

At this time, I’ll turn the call over to Dave Rogers.

Dave Rogers

Thanks, Diane. Good morning everyone. Q1 started our year in fine fashion. For the third straight quarter, we achieved same store revenue growth in excess of 8% and same-store NOI in excess of 10%. Occupancy grew again from December to March surprising us this year. Last year was the first time that happened in our 29-year history and we thought it was a one-time anomaly. Our internet marketing team, revenue management group, customer care reps and store personnel are all doing a terrific job and their efforts are reflected in our results. I will let Andy provide the details on the quarter in a minute but it was another good one and such an optimistic tone for the balance of 2013.

We bought three stores so far this year, all in markets where we have a significant presence. In mid-February we acquired our 14th store in San Antonio and in late March we acquired a 6th store on Long Island and our fourth facility in Boston market. The first two are fairly stabilized properties with occupancies in the low 80 while the Boston store is considerably more optimistic. It was only 68% fall when we took it over.

The property totalled 131,000 square feet and comps of $22 million. We have been digging pretty deep to acquire more properties of this type and we do see some opportunities but it’s more of a solid market and the competition for quality asset is pretty fierce. We did bring seven more properties of the Uncle Bob's brand via third-party management contracts this quarter and we’re working that segment of our business pretty hard as well.

Our balance sheet and liquidity position are solid. Debt to EBITDA and debt service coverage ratios are strong. And our maturities are for the most part far-out and well staggered and we have also plenty of dry powder available. So we’re well positioned to capitalize on the opportunities as they arise.

So, with that, I am going to turn the call over to Andy Gregoire.

Andy Gregoire

Thanks Dave. Regarding operation, same store revenues were strong again, increasing 8.1% over those of the first quarter of 2012. This was our third consecutive quarter of 8% or greater same-store revenue growth. This was primarily the result of a 530 basis point increase in average occupancy and a modest increase in rates.

Same store occupancy at March 31 was 87.6%, a record for our company for the month of March. We also continued to see meaningful increases in tenant insurance commissions on a year-over-year basis. Total property operating expenses on a same-store basis increased by 3.3% as a result of unexpected increase in snow removal costs, credit card fees and real estate taxes. Partially offsetting these increases was the continued decrease in real estate tax.

As a result of the continued strong revenue gains and more normal expense growth, same store net operating income increased a very nice 7.6%. This was our third consecutive quarter with over 10% same store NOI growth. G&A costs were $1.2 million, higher this quarter over that of the previous year. Aside from the $200,000 increase in internet advertising, the main reason for the increase is the fact that we operated 21 more stores at the end of this quarter compared to January 1, 2012 and our continued investment in revenue management and training programs. Offsetting a portion of the overhead costs is an increase of almost $170,000 ain third party management fee on this quarter.

Regarding properties, Dave mentioned the three stores we purchased during the quarter for approximately 22 million. These purchases were funded by our ATM issuances. During the quarter, we also sold one source facility that was part of a consolidated joint venture for net proceeds of approximately $4 million resulting in a gain of $400,000. We may prune additional mature properties in 2013 although none are under contract for sale at this time.

From a balance sheet perspective, as was anticipated we issued 822,000 common shares under our ATM program resulting in net proceeds of approximately $50 million. We used the proceeds to purchase the three properties in the quarter and to reduce the outstanding balance on our line of credit. This is part of our strategy to continue our conservative and flexible balance sheet by limiting floating interest rate exposure, staggering our debt maturity and keeping our assets almost entirely encumbered.

At March 31, we had $6.9 million of cash on hand and $174 million available on our line of credit, plus an accordion feature.

With regard to guidance, we have included in our release the expected ranges of revenue and expenses for the second quarter and the entire year. Same store revenue for Q2 should be in the 6.5% to 7.5% range and NOI growth around 8 to 9% for the quarter. For the year, we have increased our same-store revenue as meant to between 5.25 and 6.25% and increase our NOI growth is a 6 to 7% range.

Core G&A expenses are projected at $34 million including $4.4 million of internet advertising. We have not assumed any additional purchases or sales of properties in our guidance nor have we included the related acquisition costs incurred to date or that could incur in the future. Our guidance assumes a weighted average diluted share count of 31.4 million common shares for the remainder of 2013, which includes the 822,000 common shares issued during Q1 through the ATM.

As a result of the above assumptions, we are increasing guidance and are forecasting funds from operations for the full year 2013 at between $3.54 and $3.58 per share and between $0.88 and $0.90 per share for the second quarter of 2013.

With that Melissa, we will open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Nick Joseph with Citi.

Nick Joseph – Citi

What were the cap rates on the two stabilized assets acquired in the first quarter?

Paul Powell

The two stabilized was 6.5 in place cap rate and the San Antonio property was 5.1 for the property on Long Island.

Nick Joseph – Citi

And then you mentioned there's fierce competition for acquisitions and you might prune additional properties in 2013. Can you give us a sense of maybe the size of potential disposition?

Paul Powell

We have six properties now that we are trying to market for about 30 million.

Nick Joseph – Citi

I guess last question, for the $100 million of debt coming due in September, do you still plan to turn that out? What sort of rates are you seeing in the market today?

Andy Gregoire

We didn’t plan to term that out, we are talking with – we are looking at two different options right now. It's not pre-payable until September. So we can’t do it early but we have a lot of options to term that out and rates are 200+ lower than it’s currently at.

Operator

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

So in terms of acquisitions, only the $22 million are currently in the guidance. It sounds like the competition is sort of intensifying. But there were also a couple of conferences I guess early in April and I was wondering what you think might be a reasonable assumption to assume for this year based on what you're seeing, whether or not the pipeline is starting to build a bit?

Dave Rogers

Yes, during the conferences we did hear some other portfolios or probably some of the market. Again there is a lot of money taking those deals, we feel that we will certainly be in the game but we do better with off-market deals that we are starting to see a little more activity. So hopefully going into the second half of the year our activity should pick up. We are still – our guidance is still about 100 million so far in this year, maybe 150, yeah it’s going to be fierce. So we are looking at off-market deals.

Todd Thomas - KeyBanc Capital Markets

The $100 million or $150 million though that you think is reasonable, that's not included in the guidance, that's just what you think would be a reasonable assumption for the year?

Dave Rogers

That’s correct.

Todd Thomas - KeyBanc Capital Markets

I was wondering if you could share with us where occupancy was at the end of April and what that spread looked like year over year?

Andy Gregoire

End of April we were at 88.2, spread over the prior April was 430 basis points, so it’s still increasing nicely. Our revenue management team, it’s a little bit too high at this time of the year but we are happy with that.

Todd Thomas - KeyBanc Capital Markets

Does that mean that you might get a little more aggressive with rate or maybe your use of concessions at this point given that you're a little bit ahead in terms of occupancy to where your revenue management system would be telling you?

Dave Rogers

Yeah that is exactly what I mean this quarter and looking at Q2 we certainly have to do with the summer season but we can see concessions or incentives being depressed a bit and our asking rates continue plying.

Todd Thomas - KeyBanc Capital Markets

And just lastly I was just looking at the two New Jersey properties that you have listed in the consolidated portfolio. I was just wondering what the decline in occupancy and also revenue and NOI was at those two properties and I was wondering if that performance was also consistent with the properties that are on in the joint venture, I think the Lackland properties that were acquired several quarters ago.

Andy Gregoire

That’s unusual, one of two stores had a fire and that’s what caused the decline. We had closed the store for a few days, get some negative press. Everything is back up and running but that hurt that store for the quarter, the Lackland portfolio is performing very well.

Operator

Our next question comes from the line of Christy McElroy with UBS.

Christy McElroy - UBS

Just to follow-up on Todd's question. In the guidance discussion in your release you talked about increasing rental rates. Just with regard to the same store realized rent growth which is up slightly at about 0.4% I think in Q1, can you quantify some of those drivers behind that number? What was your year over year growth in asking rents and discounts and by what degree are you raising existing customer rents?

Paul Powell

Right now our asking rates are up 5.9%, we will see what happens as we head into summer season, and by end of Q2 we see that maybe the cap declining a little bit. But we will see what happens, they are still very strong. The incentive also are significantly – the number of incentives offered to our customers are down from 82% to 73% this year and the value of those incentives are also down 60% to 55 – just over $65 a month. We see the ability to continue to grow rent incentive a bit.

Christy McElroy - UBS

And then existing customer rents, I think in the fourth quarter you were up about 3% to 5% if I'm recalling correctly? Is that about how much you're raising rents on existing customers?

Paul Powell

The value of those in-place is up quite a bit, for those customers that are receiving incentives were at 7%. The value built in kind of the rate increase, at 7.5% right now for those folks that are receiving rate increases.

Christy McElroy - UBS

And you said that asking rents were up 5.9% in Q1 but you expect that gap to decline in Q2? Is there a reason for that?

Andy Gregoire

Well, I think what you have Christy is 5.9 that would be end of March as – with our occupancy where it is I think that will hold, at some point we’re going to be pushing up against some tougher comps later in the year. So that will decline, just the delta in occupancy will decline but some of that will be made up in rate but rate delta will also decreased later in the year.

Christy McElroy - UBS

And if I just think about sort of by year end, so if I think about your occupancy delta declining and your rents hopefully rising -- your realized rents hopefully rising, where do you think logically by year end do you think you will be? I know you don't guide to this specifically but in terms of year over year rent spread and where you hope to be with realized rent growth by year end?

Andy Gregoire

Christy, we are maximizing revenue, so there is couple triggers there. Last year was mostly occupancy, this year that occupancy delta will shrink. Rates will come back if they hold the second half of the year we’re going to see some pretty but right now we are assuming that it potentially won’t hold second half of the year. We were 5.9 at the end of April – 5.9 at end of March, 6.8% increase in rent at the end of April compared to last April. So it’s on in the right direction, if it keeps going in that direction our guidance will be a little conservative.

Christy McElroy - UBS

In the release you also commented about web marketing initiatives helping to reduce some of the seasonality. Can you talk about how your web marketing has evolved over the last year or two?

Dave Rogers

It’s about quite a bit – I mean it really – web marketing as a whole is very dynamic, things change very quickly. There is plethora of analytics to review throughout the quarter and throughout the year and Google succeeds quite a bit of that because their algorithms are continually changing and we have to keep up with exactly what Google is doing. And as we have adjusted over the last year or so it’s one of those items that suffer, the reason the larger operators from the rest of the field out there, just having the ability, the technology, the people and resources to properly manage all the web initiatives, whether it be the organic growth or the sponsored search, the target mobile marketing. I can’t tell you that in regards to mobile alone, that is becoming the real driver.

Mobile traffic alone unique visits is up 138% versus overall traffic of 40 some percent and the desktop is virtually flat at really under 1% growth. So things are beginning to fit that mobile application software (inaudible) to advertise on, so we will see what happens over the next year. Every quarter, every year is a different picture when it comes to web initiative.

Operator

Our next question comes from the line of Jana Galan, Bank of America-Merrill Lynch.

Jana Galan - Bank of America-Merrill Lynch

I just had a quick question on the credit card fees. I think that so much of last year you and your peers saw a little bit of benefit from the credit card companies. Is that now reversed?

Andy Gregoire

Yes, that has reversed, the Visa, the MasterCard, new keys are put in place, we took some of that, so it won’t go up to the level that was before but they are two pins, so that’s going to look on. Don’t look high until Q4 of this year and then it should level out.

Operator

Our next question comes from the line of Todd Stender with Wells Fargo Securities.

Todd Stender - Wells Fargo Securities

Any further details on the Boston asset you acquired? It sounds like it had the biggest lease up opportunity. Just wanted to see how old the property was and what the in place rents are and how do they compare with the market rents?

Dave Rogers

Yeah the Boston property was developed about three and three and half years ago. It’s a conversion, it was kind of a mom and pop operation. It had very core result on the internet as far as search results. So its in place rents were I think about 13, $14, their asking rates are quite a bit higher. So they were given a lot of discounts. So we expect to actually do a lot better, forum, the building with our site, it’s a great location that’s very visible and we just really felt it was under manage, so we’re going to placing – the occupancy was around 68% when we bought it. So we’re expecting growth of 150, 200 basis points year one. And we will be cushion in place rents or trying to get in place rents closer to ask rents.

Todd Stender - Wells Fargo Securities

And you also added seven properties to your third-party management platform. What's that number up to now and can you describe in general what you're doing differently to land more of these opportunities than when you really first entered the space?

Andy Gregoire

From the number point of view, Todd, we have 55 in joint-ventures and 21 straight managed stores at the end of the quarter. so we are up to 21 strictly managed third party stores.

Dave Rogers

Given it’s down for about a year and a quarter and as we said before we really want to make sure that we bring the right stores in the mix, the stores that we want to put our Uncle Bob brand on, presumably to own them down the road. We want to make sure that the owners that we team up with and that we try the services is to have the necessary I guess financial, that is something else that make sure that we can bring to the deferred management up to speed that they can be there to support the store.

We are aggressive in our search, we’re aggressive in leading with people, we’re probably not as aggressive and not taking it right to the closing table and signing up, I don’t know exactly what the ratio is, but I got to believe it’s something on the order of 4, or 5 to one opportunity that we look at and have interest in an actual close.

Todd Stender - Wells Fargo Securities

Any geographical area that you're focusing on or just in general where you have the scale with your existing portfolio?

Dave Rogers

Certainly for both the acquisitions and third party management, everywhere we are have the priority, the market we are in. we are exploring new markets all the time and if there is any scale at all that could be had, in the first year that really implies us. So I am not going to say we would do a one or two off-management contracts in a market where we don’t exist but we would look at the acquisition opportunities combined with the management opportunities in new market and if we can get to a reasonable base within a year or 18 months they bought 10 properties we would go that.

Operator

Our next question comes from the line of Jeremy Metz with Deutsche Bank.

Jeremy Metz - Deutsche Bank

I was just wondering you were talking about occupancy bucking some of that typically seasonal trend this quarter being stronger maybe that you'd expected. Looking at the rest of the year I think on the last call you said there was about 250 to 300 basis points of upside of growth baked into guidance. Has that changed at all given they shrunk first quarter and what you're seeing so far in Q2?

Andy Gregoire

No, we are still looking at in the peak in the July probably the 250 to 300, we will be pushing high 90, maybe 91 at a time. It’s really going to be a mixed, so it’s maximizing that revenue, the mix of that occupancy growth is less but the rate push now is can be more of a factor this year.

Jeremy Metz - Deutsche Bank

And just given some of this strong growth in occupancy, have you seen any noticeable increase in your length of stay of the customers you have and along that same line, where are you sending out renewals on existing customers?

Dave Rogers

Well our length of stay actually Jeremy is quite strong for those customers that stay with us over a year were up about I believe 2%.

Andy Gregoire

Maybe 5.3% of our customers who are with us for more than a year.

Dave Rogers

As Andy suggested, what revenue management is coming up now as opposed to last year we used to be looking at in place and asking rate and we will certainly be pushing in place recent of quite a bit of it, as I suggested earlier. They are pretty strong at 7.5% and while we didn’t push many rent increases in place for the quarter, the number of increases we put in April double will be this for the quarter and we see that trend continuing throughout the second and part of the third quarter.

Jeremy Metz - Deutsche Bank

How does that, the 55.3% how does that compare to the year ago period?

Andy Gregoire

About – almost 2% higher.

Jeremy Metz - Deutsche Bank

You talked about some benefits from reducing Yellow Page spend and I think one of your peers is completely moving away from it. Have you given any thought to doing away with Yellow Page spend and focusing on internet and mobile advertising?

Paul Powell

Jeremy, we have done that with the exception of line with things. The benefits of reduced Yellow Page funding is a going up. There will be I believe – I am not sure exactly what the number is but you got to spend just a little bit to maintain listings and in a few of the weaker markets where we see that internet use is extremely low, we have a very few ads out there that the large full page, quarter page has they drive. So that might equal 10 at the end of the day. So Yellow Page is pretty much that.

Dave Rogers

We think Jeremy we will level off the amount 600, 650,000 a year, down from 4.5 million four years ago.

Operator

Our next question comes from the line of Paula Poskon with Robert W. Baird.

Paula Poskon - Robert W. Baird

You talked in the press release that some of the revenue growth was driven by strong growth in insurance commissions. What's your insurance penetration rate right now?

Paul Powell

It’s up slightly at 52% and our capital rate is also up just a bit, current capital rate is something 9.6%.

Paula Poskon - Robert W. Baird

And then, Dave, just a big picture question for you. There's obviously been a lot of discussion in the investment world about the valuations of the storage space and being at historically low implied cap rates, do you think there's been a permanent repricing of the assets broadly in the sector or do you think that's just true for the REITs given the power of the technology platform? How are you thinking about that going forward?

Dave Rogers

Yeah I do think it’s across the board pretty much, Paula. We put a lot of emphasis on to the technology, on the platform and I think lot of investors see that value to be had. To the extent now that we are hearing about development pocket and most of it certainly this year at the trade shows than there was last year, a lot of those developers even have seen that (inaudible) and are talking to, I would imagine the other bigger players, just to see what’s involved in laying out the store the way we might want it playing out a marketing plan, how many was before they have even a permit filed or approval, entitlements are granted to see if we are interested in managing those stores.

So I think the idea of these stores being managed professionally and with pretty good degree of technology involved, has brought to the people in the business, the fact that these stores can be valued higher with a platform in place. So I think that you certainly can see it in the evaluation of our company and you can measure it every day but I think it’s penetrated into these larger operators at every level. It’s a pretty big, not as big as it was say crossing with that combo or everything did in the late – from the ‘80s right through the late ‘90 into 2000s, these assets were priced at 9.5, 10 cap. That was applied mix shift then certainly through the 2000 down to the present, let’s call it 6, 6.5. So little worthy but I do think it’s across the across the industry, it’s not just the big guy.

Operator

Our next question is a follow up from Todd Thomas with KeyBanc Capital Markets.

Jordan Sadler - KeyBanc Capital Markets

Hey guys. It's Jordan Sadler here with Todd. I just wanted to sort of focus in on that cost of capital question a little bit. What's embedded in the guidance in terms of taking out the term debt that matures in September and maybe even cleaning up the line balance? What are you thinking given that interest rates are falling to these levels?

Andy Gregoire

During the September renewal or the debt due in September we’ve got lot of options. What’s baked into the guidance is a 200 basis point decrease in that rate on that. We want to push that out for numerous years, so that’s our plan. That’s pushing out long-term, we don’t intend to take that down with equity.

Jordan Sadler - KeyBanc Capital Markets

Could a bond offering be in the cards? It seems like you're closing in on 250 if you potentially get line up a few more of these acquisitions.

Dave Rogers

That would be. The idea of 250, 300 million being the index eligible level, I am sure we wouldn’t do a bond offering if we didn’t have that. We would have heck a lot of press of it or index level. But so we are looking at that, I got to say even on our acquisition volume prior to September 4, we’re not counting on it. we are looking at 10 year term notes, we are looking at bank lines. As Andy said, we’ve got a lot of options right now. We have positioned our balance sheet really well by sort of maybe accelerating our ATM offering and put see dollars more equity into the mix and a little less. So we got – I got couple months I guess but really we’re working through. We would love to do a public deal, we’re not just sure that we’re going to have the mass as of September due date.

Andy Gregoire

I think Jordan, it’s more likely that 2016 note when that comes due would be our initial public debt offering but it’s kind of on acquisition volume issue.

Jordan Sadler - KeyBanc Capital Markets

The other question is regarding the equity. The ATM issuance, during the quarter was a bigger than we had. When we plug in your number it brings our numbers down a couple pennies. I would imagine your guidance reflects at least obviously the $50 million you did in the quarter. So, that's dragging the guidance down by a couple pennies or so at the midpoint. Is there anything else? Are you expecting that you'll continue to tap the ATM incrementally either in guidance or conceptually?

Andy Gregoire

It really depends on acquisition volume. Right now we don’t see tapping the ATM but acquisition volume is significant. We think for the year – we have significant acquisitions in December, we caught up some of that by paying down the debt with the ATM. We don’t – there is nothing in guidance right now that we would issue more under the ATM, pretty much the share count is what it is today, with some like slight uptick from dividend reinvestment.

Jordan Sadler - KeyBanc Capital Markets

What's left on the ATM at this point?

Andy Gregoire

It was $175 million, so 125 million are remaining.

Operator

Our next question comes from the line of Josh Patinkin with BMO Capital Markets.

Josh Patinkin - BMO Capital Markets

Thinking more long-term in terms of yellow book advertising spend, does it make sense to hone in on one operational aspect, that is the internet, and cycle capital out of the lower internet penetration markets that you're in?

Paul Powell

Josh, we pretty much are out of all the yellow book with the exception of listings and just a like I said just 10, 12 books out there among our old portfolio. The lion share of our ad spending is in – well I am not sure of that, answer to your question. But that’s where we are spending the money.

Josh Patinkin - BMO Capital Markets

And in the markets where there really isn't that much internet penetration for your customer base, is it then -- how do you square the advertising spend on yellow book versus internet or --

Paul Powell

That is a good question. It’s not as if in those markets we reduce our ad spend. You have to be there no matter what. It’s just we augment that with a little bit of yellow page spending for those customers that just have not yet migrated over to web. But it’s not as if in those markets, those very few markets, primarily Gulf area, that people are not using the web and we really have not reduced spending there. We need to do a little just a bit of ad spend.

Josh Patinkin - BMO Capital Markets

On the third-party business, generally speaking, where does occupancy come in at when you get control of the assets?

Dave Rogers

Oh boy, it ranges from zero on a new development to – we have taken over some decently run properties that are receiving a little bit maybe or – with that I would say zero to 90 and I will point in between –

Josh Patinkin - BMO Capital Markets

So suffice to say that when you do get control of them there's significant impact, you see in restoring occupancy?

Dave Rogers

Most of the time but sometimes it’s just a question of ownership is a concern that there are new heads, there are move-ins are decelerating significantly and they are looking for us to secretly prop them up on the web. In some cases are the hold on to revenue management but yeah, I would say probably two thirds or three quarters of what we bring in is an occupancy issue but it does not leave the other stuff off.

Josh Patinkin - BMO Capital Markets

Do you operate any off of the Uncle Bob's brand?

Dave Rogers

No, that’s a requirement that we, we’ve had on Uncle Bob’s right away.

Josh Patinkin - BMO Capital Markets

And lastly, in terms of scalability I think last time we spoke you said you need 100 stores or more to really scale this business today. Where do you fall on that question now?

Dave Rogers

I think I am not sure how that got to interpret that way, it’s joint on a big scale. I think what we are talking about with regard to scalability was the margins on managed store are significantly less the fee – the fee income that we bring in, we are only probably making somewhere in the range of 15 to 20% margin on that versus 65% of margin that we own for it. So I am not quite sure –

Josh Patinkin - BMO Capital Markets

I'm sorry. I mean just not for your third-party business but for the storage business in general, about how many stores do you need and how much AUM?

Dave Rogers

I think it’s lot more than that’s under that – I think it’s – to do what we do, even if you are willing to expand on average of say 10,000 or $12,000 first store, on the web and you can then spend 250 stores, you’re spending 2.5 million, that’s only part of the puzzle on a scale game. Certainly the fact that we actively manage the process of knowing where to buy on the web, when to buy and what time of today and there is a lot of – that have to be in addition to the media buy and the web buy that you are doing, you got to have people to manage it.

Like with revenue management, we’ve got a team of four pretty sharp guys that are running the web land throughout the system. So we pay big for the basic process, the software and the way to do it. But we also have an ongoing cost. So I think on your cost of scale, you are easily in the 250 to 300 store range and make it work in terms of the technology and it used to be 200 225 for a call center, that’s probably the one piece of technology that a number of units have come down with, the advance of that is the Mason, in the 15 years that we’ve had our call center of 13 years have been pretty significant. So you’re just doing a call center to be able like we did over a decade ago. That’s come down. But the other two platforms are take some, I am sure some in the range of 250 plus.

Operator

Thank you. Mr. Rogers, there are no further questions at this time. I’d like to turn the call back over to you for closing comments.

Dave Rogers

We thank everyone for their interest. We look forward to seeing you maybe on our next call. Have a good spring.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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