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Executives

Clint Halverson – IR

Spencer Kirk – President

Karl Haas – EVP & COO

Kent Christensen – EVP & CFO

Analysts

Eric Wolf – Citigroup

Ki Bin Kim – Macquarie

Todd Thomas – KeyBanc Capital Markets

Paula Poskon – Robert W. Baird

Smedes Rose – KBW

Michael Knott – Green Street Advisors

Extra Space Storage Inc. (EXR) Q1 2010 Earnings Conference Call May 4, 2010 1:00 PM ET

Operator

Greetings and welcome to the Extra Space Storage First Quarter 2010 Earnings Conference call. (Operator Instructions) It is now my pleasure to introduce your host, Clint Halverson with Extra Space Storage. Thank you Mr. Halverson, you may begin.

Clint Halverson

Thank you, Rob. Welcome to Extra Space Storage’s first quarter 2010 conference call. In addition to our press release we’ve also furnished unaudited supplemental financial information on our website. Please remember that managements’ prepared remarks and answers 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 those related to Extra Space Storage’s development and acquisition programs, revenues and 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. Forward-looking statements represent management’s estimates as of today, Tuesday, May 4, 2010.

Extra Space Storage assumes no obligation to update these forward-looking statements in the future because of changing market conditions or other circumstances. I would now like to turn the call over to Spencer Kirk, Chairman and Chief Executive Officer.

Spencer Kirk

Hello everyone. Thank you for joining us today. With me are Kent Christensen, our Chief Financial Officer and Karl Haas, our Chief Operating Officer. Since we spoke in late February economic recovery appears to be gaining more stem as does our property performance. As I noted in both the second and third quarters of last year, we began to see concerns of bottoming out, what we were reluctant to call an inflection point.

Expense did not indicate a V shape rebound and given our (inaudible) visibility we were not ready to found the all clear bell. Several quarters later improving operating as business fundamentals have persisted and must be acknowledge. In the first quarter we report a net $0.19 of FFO per share, street rates are up, occupancy is up and that again shows income is up. We’ve improved our balance sheet and occupancy and use of cash. It is worth to note that during this quarter we completed and brought online one state of the art development project which property along the remainder of the development pipeline and existing lease of assets combined to add an incremental $0.24 to $0.27 of FFO to our earnings over the next 45 years.

I made it clear during the downturn the storages recessionary symptom not recession proof. We see further evidence of this hypothesis based on the performance of our portfolio. The storage in the first quarter help us the economy concerns. We are eager to see the boost in sub stores demand from improvements in job growth, the (inaudible) in housing markets and continually rising consumer settlement. This is why (inaudible) recovery is back to recession level. However we are confident that our high quality portfolio of advanced operating platforms and better development pro have lack of new self-storage of supply will provide a base for solid results going forward.

Let me now turn the call over to Karl Haas to set operations.

Karl Haas

Thanks Spence. Overall we are pleased with the way our platform has performed in the first quarter. Our same store performance was solid given the operating conditions with same store net operating income down just 0.3% from the same time last year compared to down 4% in the fourth quarter of 2009. Revenues were down only 1% year-over-year versus minus 6.9% in the fourth quarter.

Our same store expenses were down 2% driven by lower utilities, property taxes and insurance. Receivables continued to try under historic lows. We gained 1.8% in same store occupancy delta mostly from the impact of lower vacates which were down 8.5% from the first quarter of 2009. This compares very favorably to the 1.1% delta in December 2009. This has been the trend we have observed over that last 12 months are we are watching carefully as we enter a busy season.

New rentals were down a bit year-over-year, mostly due to a slow February which was driven by bad weather in East Coast. In April, we have seen a welcome pickup with a 6% increase in rentals over 2009. Revenues have improved significantly from our year-over-year low your down on this 5% in September ‘09 and we have increased positive year-over-year revenue delta improvement, we’ve seen increase year-over-year revenue delta improvement each month since and street were asking rates are now up 7% over last year.

We continue to find the tools and analytics that allow us to test pricing and optimizer yield. We are achieving growth in rates and occupancy while offering price and flexibility to our customers, meaning that we are pricing based on the channel. Additionally, we’ve continued to implement our existing customer rate increase program. We are still seeing no material increase in move out through due to these rate increases. At our national sales centers which is now been employees over a year, we continue to meet or exceed our initial performance or expectation.

We continue to improve our personnel and approach to handling call which is resulting in improved conversion rates month after month. We don’t mean to drag but our NSC sales people do an excellent job and I want to invite of you to call them and put them to the test. Just make sure you have a credit card ready when you call, you’ll find a knowledgeable and aggressive sales team in place as good if not better than the call centers of any of our competitors.

We believe that our call center is a competitive advantage that will help Extra Space drive our performance over time and will continue to get even better. As Spencer said, the turnaround of our business is promising as the economy continues to stabilize, but we strongly believe that it results to a function of our robust operating platform, our technology, our scale, our superior location and our driving of the basics of the business.

As you know we emphasize the revenue management program, the quality and training of our people and constant focus on technological innovation to make the business even more efficient. And now I’d like to turn it over to Kent.

Kent Christensen

Thanks. Last night, we reported FFO including the diluted impact of our development program of $0.19. This was $0.02 ahead of the top end of our guidance range. Property performance, tenant insurance, interest costs and G&A all contributed to our earnings coming at ahead of our estimate. During the quarter, we close in our previously announced 19 property Harrison Street joint venture which assumed a $101 million of debt.

We also paid off $45.5 million of secured mortgages during the quarter. We have a $100 million of debt that is maturing in August and we will be using our cash on hand to retire this debt. We are also analyzing the balance of our maturities to identify loans with minimal prepayment penalties to further reduce our outstanding debt. Despite the short term dilutive nature of carrying a $100 million in our balance sheet, it affords us security and flexibility.

We clearly have term sheets for an additional $106 million in secured financing. As of today, we have a $108 million of cash and $50 million of capacity on our undrawn line of credit, for a total of $158 million. We will continue to put loans on our unencumbered properties to address our remaining 2012 maturities and beyond. We currently have 61 unencumbered fully owned properties on which we can place loans.

Out of 70% loan to value in our 7.5 cap rate, we believe we could receive loans in the amount of $236 million on these properties. The acquisitions environment remains stagnant, those very little activity we are looking a potential deals in remain diligent in keeping our pulse on the market. We do continue to see some of the same properties over and over again being marketed.

Most of our acquisition discussions involved new lease up type assets. We are seeing good traction in our third party management business. We’ve increased our properties under management by 18 and have a 142 properties in our pipeline. Given the incremental improvement in our business, we are increasing our annual guidance range for FFO to $0.78 to $0.84 per share. The increase is driven by an improved outlook in our same store performance including a higher tenant insurance and lower than expected interest rates.

Including tenant insurance, our annual same store range is now negative five to positive one. We also adjusted our same store expense assumption to flat to up to 2%. These changes result in a change in our annual same store analytic items to negative two to a positive 1.5. As visibility for this calendar year continues to improve, we will adjust our forecast accordingly. With that I’d like to turn the call back to Spencer.

Spencer Kirk

Thanks Kent. Before we go up for a Q&A. First I want to thank you for your interest in Extra Space. We can certainly appreciate it. Secondly, I want thank and complement our excellent team under focused and execution in the first quarter. And confidence they were continued to perform well for the rest of the year. The improvement in our business is that that we believe that the pace of improvement will be steady. Going back to last year, I spoke very clearly about our lack of visibility into the future given the unprecedented financial and economic (inaudible). Up until several weeks ago we remained reluctant to translate the improving trends since more optimistic guidance.

Current economic growth from the recent deep recession is approximately one half the growth rates compared to previous recessions. Therefore our internal prognostication tells easy recovery is a decent or more as a (inaudible). Incremental improvement with the broader rate positive slow. Clearly a healthier economic environment will be good for Extra Space and the industry as a whole. Our sizing strategy, our ability to improve occupancy and the lease up of our development properties will provide significant opportunities for growth.

We believe our balance sheet, capital flexibility and our joint venture in third-party relationship position us to capitalize on potential growth opportunities. Self-storage business has been a good place to be during the downturn and we are encouraged by our future prospects.

We now welcome your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is Michael Bilerman with Citigroup. Please proceed with your question.

Eric Wolf – Citigroup

Hey guys, it’s actually Eric Wolf here with Michael. And just looking at your guidance now versus when you issued in late February, pretty much every region seems the result and the positive impact effort besides in the increased development dilution you’re expecting, is that simply just I mean you’re pushing that completion dates or are you expecting a slower lease up as well there?

Spencer Kirk

This is Spencer, Eric. The assumption that we’ve used on that is that the lease up is continuing but we are seeing that somewhat softer pricing and the market is healing and we hope that the pricing will return to more normal level, but I think the basic assumption as yes it might be slightly slower but the primary reason is the rates are off a bit.

Eric Wolf – Citigroup

Okay, I guess what do you think you’re seeing at given in the positive momentum you’re just seeing on the operation side right now, is it just the simple fact that you need to fill up the space and --

Spencer Kirk

Yes, we’d like to fill up the space and start covering some of the expenses. So we can get to a breakeven point. We believe that occupancy is a good thing in storage and the faster we can fill up a unit and start patching along, just in customer rate increases as to our settlement.

Eric Wolf – Citigroup

Okay. And it seems like in North East markets are performing better than your West Coast and South Eastern. Just wondering if there is anything from a macro perspective that will explain these and if you think those trends are going to continue?

Spencer Kirk

I think there are a few things that I might offer, number one, the North East with its population, density with the governmental spending with a lot of things that drive the demand for our product. It’s to be expected. What’s interesting for us is as you look at the challenged markets like Phoenix, Las Vegas, Los Angeles, The England Empire, other places, there is lot of speculative buildings and not a lot of people to put things and store it a good case in point would be Las Vegas where a lot of homes were built, those homes were never occupied with individuals with real possessions or belongings. When the bus came along, there was no driver for storage. So we like where population is for the real people with real assets and real-life changing events, not the empty homes that don’t drive the demand.

Eric Wolf – Citigroup

Alright, thanks for the detail. And just lastly, and you saw the changes – the underwriting standards for banks or like companies over the last quarter, it seems like the other sectors are seeing a narrowing of spreads, just give an increased competition to make new loans. I am just curious whether you are seeing this as well.

Kent Christensen

This is Kent. We are still getting quotes for new loans. But I would have to say that as a whole, those that spreads and things have not tightened, we are still seeing similar kinds of quotes as to what we were seeing six to nine months ago.

Eric Wolf – Citigroup

Okay, thank you.

Operator

Thank you. Our next question is coming from the line of Ki Bin Kim with Macquarie. Please proceed with your question.

Ki Bin Kim – Macquarie

Thank you. So with the backdrop of further improving operations, and I guess continuing open debt markets, how does that impact your comfort with your current leverage and the possible future equity assurances?

Spencer Kirk

Excellent question Ki Bin, this is Spencer. We have anticipated this question. If I could talk about equity issuance, I would simply offer a little perspective from our philosophy. First of all, as a shareholder and a fiduciary for shareholders, I am really glad that a year-ago when there was intense pressure to issue equity, so we did do so at $6. I also have to say under intense pressure, I was glad that we as a team decided not to issue equity at $10 or $12. And today the fundamental vexing question is this, where would we put that capital to work to the benefit of the shareholders?

The acquisitions market as Kent indicated is stagnant and we have been able to in the most difficult economic environment in decades in just 2009 of paying $341 million worth of new financing. And I think Kent talked about a $106 million in new term sheets alone during the quarter on top of the $158 million of capacity in cash and credit that we have today.

So for us, if there is an opportunity to put the capital to work, we are interested in issuing equity. But given that the environment is not clear for acquisitions and it’s not compelling, we consider it daily, we discuss it as management team, it’s a topic that the Board visits frequently. But we have not been compelled to action and that’s kind of how we are looking at it.

Ki Bin Kim – Macquarie

So when you make that decision, would it be driven more by stock price or like you said just now more by possible opportunity, full event?

Spencer Kirk

Being able to put the capital to work.

Ki Bin Kim – Macquarie

That’s the primary decision maker?

Spencer Kirk

Yes.

Ki Bin Kim – Macquarie

And I guess would it be safe to assume that given your estimated loan value from unencumbered properties and cash on hand and credit availability, it looks like you got an okay for a couple of years. Is that a reasonable assumption to make that it’s short of acquisition markets opening up guess probably don’t need to issue equity?

Spencer Kirk

We never say never. What I would say Ki Bin is that as we look at storage, we think that storage is a business that can’t support a higher leverage ratio. We have a very diversified portfolio, so regionally we are not going to be challenged with operations in 33 states and Washington DC. We have got good geographic diversity. We have over $400,000 customers. In the last 12 months, 275,000 new customers have come to us and we don’t subscribe that one debt-to-equity ratio supports all types of real estate product types, storage is not the same as retail, and hospitality is not the same as apartments.

Every sector has its own need. And for us, we think that storage can interest and should support a higher leverage ratio. So for us today, given the fact that we are able to get financing on our stabilized assets and we have done so to the tune of hundreds of millions of dollars and banks are willing to lend to us, and we have cash on hand. What we would like to do is really see an opportunity materialize or opportunities present themselves that would compel us to say yes, now it’s the time to go out and issue equity.

Ki Bin Kim – Macquarie

Okay. And two very quick questions. What was your total CapEx spend last year and what is it projected to go forward? And second part, what is your delta on your same-store occupancy you put today versus end of the quarter?

Spencer Kirk

I don’t have the exact CapEx number. We can provide that to you. But we spend in the range of about $0.35 a square foot on the owned portfolio. We continue to probably spend a little bit more than many of our competitors, because we continue to try to operate our portfolio. And as far as the square foot occupancy delta, I believe we –

Kent Christensen

At the end of the month.

Spencer Kirk

At the end of the month, I believe it was 1.8%.

Ki Bin Kim – Macquarie

Alright. Thank you guys.

Spencer Kirk

Thank you.

Operator

Thank you. Our next question is coming from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Todd Thomas – KeyBanc Capital Markets

Hi, good afternoon, Jordan Sadler is with me as well. First, with regard to the same-store forecast, did last quarter’s initial guidance include tenant reinsurance income, because I just noticed this quarter in the release that the forecast for same-store revenue expenses in NOI includes tenant reinsurance operations. But could it just be a language change, can you just clarify that?

Kent Christensen

This is Kent, Todd. In our press release, from the first quarter, we did not include the tenant insurance and the guidance numbers and this quarter we are. As we are going to review reporting throughout the calendar year, our numbers including in tenant insurance, we wanted to make sure that the guidance that we give at the beginning of the quarter matches what we are going to report at the end of the quarter. And in the first quarter, we did not do that. So you have seen a change in what we have reported in the – as guidance for the rest of the year now.

Todd Thomas – KeyBanc Capital Markets

Okay. Is most of the change in revenue growth or in the core or what portion of that is related to the increase in your expectation for tenant reinsurance income?

Kent Christensen

In the current numbers, the difference between the with and without is about 50 basis points on the revenue side. So, for example, our current estimate is a negative 0.5 to 1, without our tenant insurance, it would be a negative 1 to a positive 0.5 or effectively 50 basis points on both the top and bottom end of that range.

Todd Thomas – KeyBanc Capital Markets

Okay. So essentially on an apples-to-apples basis from last quarter, you brought up the bottom end of revenue growth about 50 basis points.

Kent Christensen

That is correct.

Todd Thomas – KeyBanc Capital Markets

Okay, alright, thanks. And then also with regard to the change in guidance, storage is such a short-term business and we spoke just about two months ago or so. And so, I was just wondering what it is in this recovery that makes you feel so confident that the business is recovering. Is there anything that stands out more, any indicators, is it the commercial segment, is it just traffic levels in general or your ability to increase rents right now, what sort of stands out in your mind?

Kent Christensen

All of the above, Todd. If I could put a little color onto that. As I said in my opening remarks, occupancy is up, rates are up, our ability to target the customers improve. And we have in our existing customer rate increases, in the last quarter we passed along our 126,000 rate increases and saw no material move out of those customers. And once again it just points back to the fact that storage is a need based product. And I think general consumer’s sentiment is improving and people are coming back.

I would also say, although the business has bottomed down and is getting better I am not going to say that it’s robust. We think that we had a great April and we are hoping that May and June will follow the suit, that remains to be seen. So if there is further improvement when we do our Q2 call in late July, we may again revise guidance depending on what we see. But today, I would say operating fundamentals in every sector, in every division of our company have improved. 51 out of 53 divisions reported improved results for Q1, positive results for Q1. 51 out of 53 gives me a lot of comfort that it’s not isolated. It’s a general improvement across all state lines and there are just a couple of cities where we have been challenged.

Todd Thomas – KeyBanc Capital Markets

Okay, that’s helpful. And then just lastly, I think in your opening remarks, you mentioned that with regard to the three plus management program, you gained I think 18 properties in the quarter. Can you just quantify some of the different elements of the three plus management program or platform and then just talk about your expectations for growing that?

Kent Christensen

Let me just clarify a couple of things. Here to date, we have added 18 new properties. We have got a 142 currently in the system and a pipeline with 90 prospects. Our expectations are high for the three plus program, because most mom and pop operators in this highly fragmented business can benefit from the scale of our programs on the web with national accounts, with a call center that’s firing on all 12 cylinders and from our revenue management. And as we have gone out, one of the best things that we have sold is our own property performance and you have seen simple averages for the last 16 quarters.

For the last four years on average, Extra Space amongst its peers has turned in the best revenue growth rate and the best net operating income growth rate. And our own performance actually has become one of our best selling tools. And as we look forward to the future, interest is growing and people are becoming more and more convinced that we offer up a solution that they need and want if they are going to optimize the value of their asset.

Todd Thomas – KeyBanc Capital Markets

Okay. Some of the services that you provide though, as you add properties, is there a way that you can quantify sort of for us to think about how it can impact your bottom line?

Kent Christensen

It depends, Todd, if I could be honest with you. On one end of the spectrum, if we have one property in the Southern California, it’s a very profitable business for us, because all of our fixed expenses are largely covered. If we have to add a 100 properties into the system, obviously we need to add a Divisional Vice President, we need to add five or six District Managers, you have got Human Resource, you’ve got Property Accounts, you have got a lot of overheads that needs to come in.

Whether it’s one property or a 100, however, we believe that it is a profitable business for us. It’s a business that we want to be in, it’s a business that we add value to the customer, and it’s a business that increases our national footprint and helps us build the brand, so that we can really be effective and efficient on the main marketing channels that drive this business.

Todd Thomas – KeyBanc Capital Markets

Okay, thank you.

Kent Christensen

Thank you.

Operator

Our next question is from the line of Paula Poskon with Robert W. Baird. Please proceed with your question.

Paula Poskon – Robert W. Baird

Thank you and good afternoon. The bigger picture question for you. We have been listening to several of the apartment rates report, better than expected earnings and part of a characterization around the improved demand fundamentals is the anecdotal thesis anyway that while we are not seeing job growth per se there is certainly an abatement of the fear of job loss and it’s causing young people who are camping out on friends couches or in a mom and dad’s basement to actually get out and create their own households. Do you think that? Should that be true? Is that a good thing or a bad thing for storage or does it not matter?

Spencer Kirk

I think it’s a factor Paula. And what I would offer is I think as we have looked at our own property performance and how the vacates that were so prominent announced a year-ago how that has largely abated, I would say that thesis holds some true. But once again, it’s just not the younger population, our product which is about 80% individuals and 20% business, and that’s remained constant for the last decade, here at Extra Space anyway.

Our business cuts across all age classes and across all social economic strata and so life changing events for people that are young, middle aged, and even aged. And it’s those elements that drive our business. Yes, the apartment thesis from those folks, yes, it’s an element, but I would say that it’s the primary driver. Ours is a need based product with life changing events being the core component of why people check into storage units.

Paula Poskon – Robert W. Baird

And what you are you hearing from your small business tenants? Are they more inclined to want to stay or are you getting more – are you see more demand from new businesses coming in? What’s happening on that piece of the business?

Karl Haas

This is Karl. I am yet to say it’s stabilized early in the recession. We would talk to our field people, we would hear constantly about small businesses, closing our shop, giving up their storage units. We hear much less of that now. I don’t know that we have a great influx but the departures they happen probably early in the recession have now abated.

Operator

(Operator Instructions) Our next question is from the line of Christy McElroy with UBS. Please proceed with your question.

Unidentified Analyst

Hi, (inaudible) here with Christy. A couple of clarifications first. In the first quarter, you raised renewal rent on existing customer’s site by how much?

Spencer Kirk

Somewhere in the range of 5% to 8%.

Unidentified Analyst

5% to 8% was what went out to stores in terms of renewals and street rents you are saying were up about 7%?

Spencer Kirk

Yes.

Unidentified Analyst

Okay. And did that number accelerate throughout the quarter or did you lead what those kinds of numbers from the GetGo in January?

Spencer Kirk

Pretty much consistent through the quarter. Remembering that in February the prior year we had done a large rate increase. So the percentage kind of fluctuated a little bit in February.

Unidentified Analyst

And geographically where are you pushing rents the most and where are you getting – where are you the most conservative right now?

Spencer Kirk

Well, in general, the stronger markets get – the way our system works is the stronger the market the stronger the occupancy, the higher rates are going to be pushed. So it really follows where the markets the strongest. And Maryland, the northeast are the very strong and are getting probably the highest street rate increases. And California, Las Vegas, Phoenix, Florida are at the other end of the spectrum.

Unidentified Analyst

And what you are doing on concession activity, is it still generally a month dollar (inaudible) the first month across the board?

Spencer Kirk

Yes, more first month for it.

Unidentified Analyst

Right, have you started --

Spencer Kirk

No, we don’t collect that dollar, which probably hurts us but –

Unidentified Analyst

Have you started pulling that away or do you think that’s just a (inaudible).

Spencer Kirk

I think it’s a (inaudible). We really have not – we adjusted a little bit seasonally but very little.

Unidentified Analyst

And I thought I heard, Spencer, I thought you said quote, “We had a great April in 51 out of 53 districts that post positive Q1 results.” What are you referring to when you say positive? What was positive in those 51 of the 53 districts?

Karl Haas

Let me clarify because that came from – this is Karl, it came from me. It’s 51 of the 53 districts, company for the first quarter; their delta in net rental income improved in the first quarter over the fourth quarter of 2009. So we saw movement in the right direction. It does not mean that we had positive growth in 51 of the 53 districts.

Unidentified Analyst

Okay, so lot of that was seasonality?

Karl Hass

No, that’s year-over-year delta.

Unidentified Analyst

Oh, that was a year-over-year. Okay, so you saying you had positive same-store revenue growth year-over-year in 51 out of 53 districts?

Karl Haas

No. We punish you to gawk here. No –

Unidentified Analyst

That’s why I am asking.

Karl Haas

Let’s pick a market. If the delta in any market, let’s say Boston was minus 1.6 in the fourth quarter of 2009, in the first quarter of ‘10, it was positive 0.3. So we had an improvement from minus 1.6 to positive plus 0.3.

Unidentified Analyst

All right, I am listening now I think. Let me turn to the financing side real quick. I was a little surprised to hear that you are not seeing better spread growth versus where you were six months because that is certainly not the case in the major property type trust commercial real estate, and would suggest that lenders are not in romance with self storage as they are with the property type. What are you seeing on the CMBS front, now that we are seeing some new CMBS lending, are you getting term sheet from Wall Street?

Kent Christensen

Yes, this is Kent. I guess I would – in that this product type was able to get loans throughout the whole period of the last 12 to 18 months. I would think that our property type was been a little more consistent and so the fact that you are not seeing spreads come down is more a reflection of that they didn’t go way up a year ago and it’s more in line with where the market has been over a longer term basis. So that’s my guess as to why I was always a little – I didn’t understand how come a year ago we were not getting much higher spreads on the quotes we were getting from our banks than we were getting. So the fact that they are still similar where they are today is not too surprising to me. On the CMBS side, we haven’t had contacts with a number of banks. To deal with CMBS loan, we are actually working through a process of getting some properties through some CMBS lenders to find out exactly what the exact terms and conditions would be.

About the quotes that we have been given from the people that we are talking to and these are the sales people, these are not actual term sheets yet, we would be in the high fives to the low sixes based on what the length of time is that we would want to lock in the loans, if they were 5, 7, or 10 years. It would be some kind of a spread over the applicable treasuries. But the total (OEM) interest, fixed interest rate would be for that period of time like I said in the rounds – high fives, low sixes.

Unidentified Analyst

What kind of spreads you are seeing, are we talking what 250 over?

Kent Christensen

Yes.

Unidentified Analyst

Generally speaking, okay. And then, finally, Spencer, I was frankly a little stunned to hear some of your comments on the balance sheet in response to Ki Bin’s question about equity. And I think what caught me off guard are a couple of things. Number one, your stock is now trading give or take around 20 times AFFO multiple, which is a 5% AFFO yield. You could take new equity issuance, pay down debt maturities, add 5% to 6%, you got plenty of them sitting on your balance sheet and it would actually be neutral to accretive to FFO and delever the company. So I am a little surprised to hear you say you wouldn’t put it work and once you had opportunities but I am staring your balance sheet and see a world of opportunities.

Kent Christensen

This is Kent. Your question is very good. That assumes that the investment banks that we would do businesses wouldn’t charge us any fees for doing the transaction. So your bank is willing to help go down that path and that would be an accretive transaction for so. So those are – what you have describe are the kind of discussions that we have here, and with the stock spiking in the last two weeks, it has had a little more interesting scenarios for what it is we might be able to do. But the discussion that Spencer had was and what he was proposing was over the last 18 months, most of our discussions have been about doing the equity to pay down debt. Where we are today it’s a little more opportunistic (period) for us to be able to do other things with where the stock is at.

So this was always on the table. It’s always an option, it’s things we are constantly discussing.

Spencer Kirk

Just one another comment. One of the things we need to look at on debt and some of the things that we have got out there is (the fees), look at commissions, underwriting cost, the fees and a lot of other things, and it’s just not simple black and white. I think I probably can provide a more clear answer on that but a spike or a recent surge over the last two weeks makes things interesting but we need to see some real stability before we pull a level on something like that.

Operator

Our next question is from the line of Smedes Rose with KBW.

Smedes Rose – KBW

Hi, have answered most of mine. But I just wanted to ask you on the tenant reinsurance, what is the penetration now I guess of customers paying that and kind of where do you think it can go over the next couple of years?

Spencer Kirk

It’s currently in the mid-to-high 50s. We are on 57%. We are hoping that it will top out around 100%. We don’t know we are at 50 – it’s certainly the rate of growth has slowed. We are still making though every month increases in our overall penetration.

Smedes Rose – KBW

Where was it about a year ago then?

Spencer Kirk

It was probably – I don’t remember, it was probably below. I think our goal for 2009 was to hit 50, and we exceeded it sometime in the – I think in the latter half of the year.

Operator

Our next question is coming from the line of Michael Knott with Green Street Advisors.

Michael Knott – Green Street Advisors

Hey, Spencer, I heard a lot of commentary today about appraising occupancy in the storage business and you guys have also always been very focused on increasing rates of existing customers. I am just curious, I think about what’s the right trade off of those two items when it comes to sort of an average target occupancies, say it for a full year. I think you guys were maybe 85% for the full year of ‘08. I am just curious if you think 85% is the right number to maximize revenues or is it higher? Curious your thoughts on that.

Spencer Kirk

My thoughts are these. Number one, our goal is to maximize revenue and there are several theories how to do that. For us here at Extra Space, I would simply suggest that we believe and we are testing using data for the last decade plus the data that we are generating daily here, that occupancy rates at the property is somewhere between 85% and 90% likely will yield maximum revenue. And we just gone through a severe upheaval economic lay in the industry and we are going to rebuild a database and compare it against older information that we have got data and hopefully come up a conclusion to the thesis that we have been studying here at Extra Space. But overall the goal is to figure out where we need to be to maximize revenue. It’s not pick an occupancy and manage to that necessarily today or to pick some price point, manage that. What we want to do is maximize revenue, that’s the bottom line for us and the top line.

Michael Knott – Green Street Advisors

And also, you said street rates were up 7%. I just want to make sure that that – is that a year-over-year figure?

Karl Haas

This is Karl, yes it is.

Michael Knott – Green Street Advisors

And would you happen to have the comparison of street rates versus in place rents, both at 3.31 – 2010 and the year prior?

Karl Haas

We don’t go into the details of that but I will tell you that the gap has dramatically closely. Last year we were concerned about that gap, right now it’s more at historical levels and we really don’t – we are not concerned about it anymore.

Michael Knott – Green Street Advisors

To be clear on the rental activity, February was bad enough to drag down the entire quarter. So I guess another way of saying it was January and March similar to April?

Karl Haas

January was slightly down, but March was flat and April was up.

Michael Knott – Green Street Advisors

Okay, so it’s really kind of March and April is kind of the period where rental activity has improved?

Karl Haas

Yes.

Michael Knott – Green Street Advisors

Or was it just factor –

Karl Haas

Sales last year was especially in April.

Michael Knott – Green Street Advisors

Is that a fact just of easy comps or do you expect that trend to continue as you go through the year?

Karl Haas

April last year was a very, very bad month. So I have to admit that April was probably an easier comp.

Operator

There are no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Spencer Kirk

This is Spencer. Thank you for your participation today. We will look forward to our next quarterly conference call with you, and again we appreciate your support and interest in Extra Space.

Operator

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

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: Extra Space Storage Inc. Q1 2010 Earnings Call Transcript
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