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Sovran Self Storage Inc. (NYSE:SSS)

Q3 2010 Earnings Call

November 04, 2010 09:00 am ET

Executives

Ken Myszka - President and COO

Dave Rogers - CFO

Analysts

David Toti - FBR Capital Markets

Christy McElroy - UBS

Todd Thomas - KeyBanc Capital Market

Michael Bilerman - Citigroup

Mike Salinsky - RBC Capital Markets

Paul Adornato - BMO Capital Markets

Operator

Greetings and welcome to the Sovran Self Storage Third Quarter 2010 Earnings Release Conference Call. (Operator Instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ken Myszka, for Sovran Self Storage. Thank you. Mr. Myszka, you may begin.

Kenneth Myszka

Good morning and welcome to our third quarter conference call. As a reminder, the following discussions 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. The copies of these filings may be obtained by contacting the company or the SEC.

Despite continued challenging market conditions our results of operations, where well within our guidance for the quarter. Same store revenues were marginally positive with 0.32% increase over Q3 2009. Expenses increased by 0.8%, which resulted in a decrease in same store NOI of 0.43%.

We also achieved our quarterly FFO guidance of $0.63 per share. Although we didn’t acquire any stores last quarter, we are encouraged by the fact that the acquisitions environment finally seems to be improving with more quality stores being shop. Prices seem to have moderated a bit, however, this moderation in price appears to attracted more interest in buyers.

We completed two expansions in one climate control conversion at a total cost of $2.4 million and we have six more projects underway, which we expect will be completed before the end of the year.

We did see some encouraging signs continuing from the second quarter and to the third. We achieved positive same store revenues for the second consecutive quarter and we were able to attract substantially more new customers for the quarter and in the corresponding third quarter of last year.

In addition, the number of vacancies was much lower than last year, which continued the trend from the second quarter of this year. Further, we saw some encouraging signs in Florida. Yes, you did hear that right, some encouraging signs in Florida.

For the first time in about nine quarters, we had positive net rental activity in that state with the number of vacancies down year-over-year coupled with an increase in new tenants. We are very encouraged by that.

We are confident. Our team is generating every rental dollar available and we are working very hard to continue our business on this upward spiral and we are looking for your questions in a minute, but right now I would like to turn the call over to Dave Rogers, our Chief Financial Officer.

Dave Rogers

With regard to operations, total revenues increased $109,000 or 23 basis points from 09’s third quarter and property operating expenses increased by about $190,000 resulting in an overall NOI decrease of 27 basis points.

These overall results reflect the impact of the store we opened in Richmond last fall and the slight decline in same store NOI; I will get to in a minute, net of the operating results of the ten stores we sold earlier this year.

Average overall occupancy was 82.6% for the quarter ended September 30th, and average rent per square foot was $10.09. The overall occupancy rate at the end of the quarter was 82.3%, 70 basis points higher than that of last September end.

Same store results now include 345 of our 346 company-owned stores. Only the development store in Richmond and the 252 Heitman JV stores are excluded from the pool. As Ken mentioned, same store revenues increased by 3 basis points over those of the third quarter of 2009, this was primarily the result of occupancy improving by 60 basis points to 82.2% offset by a decline in the same store rent and occupied space from $10.21 to $10.10.

Other income especially commissions on tenant insurance increased by about $300,000. The quarter end occupancy rate for the same store pool was 82.5% about 110 basis points higher than that of last December 30th.

We continue to buy occupancy in this environment and reversing the trend of the past two quarters, our move-in incentives increased this quarter to on year-over-year basis.

Last year’s third quarter saw us granting $4.5 million worth of move-in specials, this year we gave up $4.7 million. As a result of adjusted and implemented by our revenue management team were utilized in the incentives less frequently, but when we do with the benefit to the customers a little bit greater.

87% of our third quarter move-ins were given incentive of some sort averaging $125 this year as opposed to over 95% of move-ins average $110 this quarter last year. The approach is having the desired impact. For the first time in 15 quarters, our year-over-year occupancy has increased.

Operating expenses on a same store basis increased by a total of 80 basis points, with modest increases in personnel costs and curb appeal expenses offset by a net decrease in property taxes. We were able to record the benefit of some assessment protest victories notably those in Atlanta and Stanford, Connecticut, this quarter.

We are still projecting about a 5% increase in property tax expense for the year most of which will be trued up in the next quarter. Most of the cost remained inline with 2009 suppressed levels. Overall then same store net operating income dropped 40 basis points from that of 2009 third quarter.

G&A costs for the period came in at $5 million, as expected. The main reasons for the increase over last year was the anticipated ramp-up of Internet advertising costs and a jump in state and federal income taxes as a result of stronger profits in our taxable REIT subsidiary.

Turning to capital matters, we didn’t acquire any properties during the quarter for our owned portfolio or for that with the joint venture. We continue to expand and enhance our stores, as Ken mentioned when the process of adding some 500,000 feet of additional space and climate control space at 20 properties. The estimated cost is added about $20 million. Even in a tough leasing environment, we are finding that the premium space really excels pretty good.

At September 30th, we have $400 million of unsecured term note debt and $80 million of mortgage debt outstanding. The next significant maturities are until mid-2012, until we drawn our line all of our debt is either fixed rate or hedged maturity.

At present we have over $30 million in cash on hand and up to $175 million of credit available. Our capital position is such that our needs are discretionary. We have no forward commitments concerning JV contributions or buyout, no construction program except for the expansion program to fund and no properties to acquire until we decide the time is right and the price is right to buy them.

A quick review of our key debt ratios at September 30th, debt to enterprise value at $36 a share was 31.1%, debt to book cost 34.8%, debt to EBITDA 4.7 times and debt service coverage 3.2 times.

Concerning guidance for the coming quarter and the balance of the year, the primary leasing is behind us now but we remain pretty optimistic concerning demand and pricing potential in most of our markets. We anticipate the continued use of leasing incentives as well as the advertising and aggressive marketing to improve occupancy. Year-to-date and then for the balance of the year, we expect a decline in same store revenue of 0% to 1%.

Property operating costs are projected to increase by 2% to 3%, including a budgeted 5% increase in property taxes. Accordingly, we anticipate a decline of 2% to 3% in same store net operating income for the full year 2010.

As mentioned above, we are putting $20 million to work this year expanding and improving our stores and we have also set aside $12 million to provide for recurring capitalized expenditures, primarily roofing, painting, paving, and office renovations.

We continue to selectively evaluate acquisition opportunities, but at present have no properties under contract. We will remain prudent while the capital and real estate markets remain unstable, but we are seeing more opportunity than we have in the past. As noted earlier, we have sold 10 properties this year and because we don't have a home for the $25 million of net proceeds, the transactions are for a short term dilutive, but that impact has been included in the guidance.

G&A costs are expected to increase by about $1.5 million this year to about $20 million primarily as a result of increased web advertising and the effective income taxes on our TRS activities.

At September 30, all of our debt is either fixed rate or covered by swap contracts. Subsequent borrowings that may occur would be pursuant to our line of credit agreement at a floating rate of LIBOR plus 1.375. At September 30, we had 27.6 million shares outstanding and 342,000 operating partnership units.

As a result of the above facts and assumptions, we're reiterating our forecast of expected funds from operations for the full year 2010 to be about $2.44 to $2.48 per share, and between $0.62 and $.64 a share for the fourth quarter of 2010.

Ken, I'll turn it back to you.

Ken Myszka

Thanks Dave. At this point, we would be pleased to welcome any questions that you might have out there.

Question-and-Answer Session

Operator

We will now be conducting a question-and-answer session. (Operator Instructions).

Our next question comes from the line of David Toti with FBR Capital Markets. Please proceed with your question.

David Toti - FBR Capital Markets

I wanted to explore a little bit the capital deployment. It seems that in the absence of any acquisition activity your focus is really on existing assets. Maybe could you just describe a little bit more about the types of assets that you put in into focus for the spending?

If you would characterize any of that spending as more sort of maintenance oriented CapEx and how do you actually define the difference from your view relative to the construction spending?

Ken Myszka

Not to say that we are not doing any activity on the acquisition front. We've been very active and we're seeing opportunities; we just don’t have anything on the contract yet. To your point, we draw a pretty between what we consider revenue enhancing and CapEx. CapEx is pretty much what we said, the painting, the paving, roofing and office improvement.

If it doesn’t enhance revenue, it’s a capitalized expenditure for deferred maintenance. The expansion program is essentially that. We're either building new space which is primarily the more we do it, and actually what we really like to do it is take a footprint of a 10,000 foot building and drop it in on land that we already own or that we may have recently required.

It is essentially we are putting in the expansion or enhancement program as we love it is exactly that. We are adding revenue capability to the portfolio. Otherwise, it goes into CapEx or into just (inaudible) maintenance aspects.

David Toti - FBR Capital Markets

Typically then you will identify sites where you have some space capacity or additional pads and drop this essentially prefabricated additional space on the site?

Ken Myszka

Yes.

David Toti - FBR Capital Markets

Maybe you can speak a little bit about the acquisition pipeline, I know you are looking at deals. Some of your peers have already started pulling the trigger on acquisitions. What are some of the specific hurdles that you are looking for relative to what you are looking at? Specifically is it geographic, or what's the investment hurdle that you are using to bench?

Ken Myszka

We really haven’t changed the overall strategy. We would love to buy one off or small portfolios in markets where we already have a presence. We pruned the portfolio in the past year to get rid of almost all the markets we don’t want to be in. for the most part, where we have stores we'd like to add more stores. We're also looking to buy stores in new markets if we can get a bit of a footprint say 5 or 6 stores or more in that market.

As far as the investment hurdles go, what we are seeing an awful lot of is still stuff that’s on the rise, stuff that was built recently or had been in a long lease-up period. We are seeing an awful lot of property in the 60 to 80% occupancy range. The cap rates on that might be anywhere from 5% to 7%. You look for a stabilized cap rate at somewhere in the range -- if we had to take that lease-up risk from 60 on up we'd be looking for a stabilized at the mid 8s, I would say.

Existing mature property or a property that's pretty well established we'd be looking to pay somewhere in the mid 7s especially in markets where we already have a presence and we can do some work to increase the yield via scale and internet and call center type marketing programs.

David Toti - FBR Capital Markets

The last question just has to do with maybe some anecdotal color on what you are seeing in the private market. Typically they have been pretty slow to adjust pricing or ramp up or cut back on discounting. Would you like in aggregate what you are seeing relative to your competitors in the private side? How would you describe that, their activities?

Ken Myszka

They're very aggressive as far as specials are concern, Dave and that’s a big part of the reason, why we responded in kind this past quarter and we achieved some pretty good successes as far as move-in activity and encouraging sign to is that they were big decrease in the number of move-out. Hope that it gives you a little flavor as far as what the other people are doing, but they are very aggressive with their specials.

Operator

Our next question comes from Christy McElroy with UBS.

Christy McElroy - UBS

Having made progress on occupancy and you talked about move-outs being down heavily and move-ins cribbing up a bit. What moves the revenue growth into positive territory here going forward and with rents still putting up negative comp year-over-year, can you talk about what you have been able to do with in place and street runs.

Ken Myszka

Sure. That is the next area or an area that we continue to focus on this. This past quarter, we increased rate, I say about 10%, 11% of our current customers, which on a year-over-year basis is almost doubled the number we did the year before.

The amount of increases in range around 5% to 5.5% and what’s encouraging is once again because of the prudent we are exercising in those prices, we haven’t seen much push back as far as move-outs in response to that.

Christy McElroy - UBS

To the 5% to 5.5% that’s on in- place.

Ken Myszka

That’s correct.

Christy McElroy - UBS

Then on street can you put the numbers around that?

Ken Myszka

Well, the street we are maintaining where we have been as far as the rates are concerned. John was speaking, there are some areas, where in a particular store, where we have fairly high occupancy on particular unit sizes we may increase that by a few points, but generally speaking we are staying the course with in-place rates trying to attract. The only thing we do discount as far as concessions and bring people in the first month and maybe even to the second month.

Street rates are pretty firm, not too much as far as discounting there. The goal really is, try to get the people in, not get too much revenue the first month maybe month and half, but then hopefully they will stay the usual 9 or 11 months.

Christy McElroy - UBS

Over the next 6 months or so is it fair to say that you are more focused on maintaining or raising that occupancy gap, the year-over-year occupancy gap, and then once we hit spring leasing season you will try to be a little bit more aggressive on street rent.

Ken Myszka

Yes, that’s true. Remember we usually what we do is every year, when you are going into the slow season, you are trying to build up occupancy and so you will suffer a little bit for the current month, so we are anticipating the next quarter to realize some of the benefits from the increase in move-ins we just experienced this past quarter.

Christy McElroy - UBS

On property taxes you talked about a cheer up in Q4. I’m just trying to back into what could be the sequential impact, coming up with about $340,000 sequential increase in property taxes in fourth quarter is that about right?

Dave Rogers

Yes, very good.

Christy McElroy - UBS

I want to make sure are the right numbers. G&A how much in advertising expense was in G&A in Q3?

Dave Rogers

In Q3 it was about $550,000.

Christy McElroy - UBS

Okay, and that’s seasonally above the average I assume?

Dave Rogers

Yes, we are putting more into the [web] base weeks. We probably aren’t clear, when it comes to our advertising accounting in the sense that the yellow page and slight specific marketing is all part of NOI and accounted for the store level, but the overall internet advertising is accounted for at the G&A level. That is only internet advertising that I’m talking about when I say $550,000.

Christy McElroy - UBS

Lastly, more strategic in some of the areas of the country, which have been a little bit slower any plans to or maybe just thinking about non-core assets in general, any plans to pair your portfolio over the next year?

Ken Myszka

We have been pretty aggressive in that, Christy, over the past 18 months. It might be counterintuitive, but in those areas, where we are not doing too well, Florida and in part of Houston, Arizona, things may turn out that over the next year or so because we think they are good growing areas.

We may be aggressive in buying there. We just don’t know. We like the areas, where in for the most part as Dave said earlier. We have paired those for the most plateau places that we don’t want to be in. Places where we are in now we maybe aggressive in buying there.

Operator

Our next question comes from Todd Thomas with KeyBanc Capital Market.

Todd Thomas - KeyBanc Capital Market

I’m on with Jordan Sadler as well. We saw the top line decelerator flatten out a little bit this quarter and you said you granted $4.7 million of free rent in the quarter and last quarter you granted I believe $4.1 million. I was just wondering is this a function of mostly a function of the higher move-in activity this quarter versus last quarter?

Ken Myszka

Yes, that’s a big part of that share. It wasn’t reflected in the revenues because of the concessions that we had to give, but as said earlier the street rates are staying pretty much where they have been. You give up some rents currently, maybe the first month, month and a half the expectation though was after the second month will start getting full rents on these people.

Todd Thomas - KeyBanc Capital Market

At what point in the year does your portfolio typically begin to see net move-outs I guess. I know everyone’s portfolio is differs by one or two months perhaps?

Ken Myszka

Yes, usually it’s around this time October or November. In the areas, where you have a lot of college activity, September is generally a big move-out area of time period, but usually October-November, when you start seeing more move-outs.

We fortunately in this third quarter, we saw a decrease in our move-out activity quarter-over-quarter, so we are encouraged by that in addition to the big increase we had in move-in. Looking forward we are pretty optimistic about, where we stand at this point.

Todd Thomas - KeyBanc Capital Market

Where is occupancy at the end of October?

Ken Myszka

A little bit down from where we were at the end of the quarter. Its pretty much inline as far as move-ins are concerned over the last several year, similar amount of move-ins. Move-outs once again though were down this October over last year’s, so that trend is continuing.

Todd Thomas - KeyBanc Capital Market

Did the year-over-year occupancy gap widened further than it was at the end of the quarter?

Dave Rogers

Yes, to the good, you mean.

Todd Thomas - KeyBanc Capital Market

Yes.

Dave Rogers

Yes.

Todd Thomas - KeyBanc Capital Market

Just switching gears on the expansion and enhancement program, can you remind us first what your target yields are on the incremental capital that you spent and also I was wondering if you could talk about what happened to the yield at the existing property overall, where the redevelopment take place as we saw this taking place at the new square footage.

Ken Myszka

It’s a good point, yes. We typically and then have look for 10 to 12 yield on the new dollars that we are putting in and the reason that’s achievable is primarily because in most of the cases we owned the land. We did acquire some contiguous parcels back in 2006 and 2007 and anticipation of some expanses that we didn’t do but in many case it’s about 80 or 85 places we have available acreage that we can develop that.

We don’t have to worry about land cost, and obviously the soft cost are quite a bit easier in putting up on expansion and they would be to zone a facility brand new. Coming in we are really pretty much just worried about the cost of construction of the building and they are nice buildings. They are state-of-the-art, but they are still only going to cost us about $50 or $52 a foot.

You put the building up. We anticipate a lease up in about 12 months of these buildings and we build them. We anticipate the shorter lease up because we already know what’s the demand is for the unit type that we are bringing in. If we got a 50,000 square foot facility we are going to add 10,000 or 12,000 feet to it. We pretty much know the mix we have to put in place. A lot of the guest work is taking out as opposed to developing from scratch.

Again, with this property type the costs are primarily fixed, so when we add a building, our payroll, our advertising and lot of our overheads stay the same and that we are looking to increase the property tax budget obviously a bit, the insurance budget and that’s pretty much of it. A 10 to 12 yield is definitely achievable. It has been achieved and we look to see that yield 12 months post turning the key on the expansion.

Todd Thomas - KeyBanc Capital Market

Just follow-up to that, is the lease up that takes place in the 12 months, is there portion of that you can speak to that stems from tenants at the existing sites, where I’m thinking to move-in to climate control units or something of that sort.

Ken Myszka

I’m sorry I forgot that part of the question. You the poaching has not been too bad, primarily because we are adding climate control to either a place that doesn’t have enough or may not even have any. We do experience a little bit but not material, I’m not going to say it's all three to get 90% of that 10,000 sq ft building at no poach to the existing, but it's pretty good. We are not doing it just to move tenants from villa to the other and get the uptick in premium on climate-controlled space.

The buildings and the stores that we do it out are pretty hot, pretty good markets. That’s why we stopped it entirely 15 months ago; we probably shouldn’t have, because even in these times we are short on premium space. I don’t think the poaching impact has been too bad and we don’t expect it to be.

Operator

Our next question comes from Michael Bilerman with Citigroup. Please proceed with your question.

Michael Bilerman - Citigroup

Could you us a sense for the levels of acquisitions you looked at during the third quarter, how much did on and what the pricing looked like on the venture sale in terms of cap rates or price per foot?

Dave Rogers

Yes. It's pretty broad based. I don’t know that we looked at any of the notes this quarter, I think I would primarily function of late first and then second quarter, but I think everybody on the call probably know the story of the notes that have been circulated around, so I wont bore you with that. As far as the properties we've seen it runs the gamut from a lot of properties that troubled developers have that our 30% or 40% occupy, notes are being extended and extended again at low interest rates. They are hanging on looking to do any thing ranging from a short playout to recover that capital.

I would say, we looked at, to the committee that considers that, there is probably been about 30 that came to the 30 packages or properties that came to the top. We, for the most part, concluded that almost all of those are not for us; they may never get past 40% occupancy given the areas that they were built in and so forth.

There are a number of properties and packages that we looked at more seriously. We don’t usually say this but we're probably in letter of intent in between $35 million to $40 million worth of properties primarily in markets that we're already in. We expect to going in yields on those that probably will be between 6% and 6.5% but the occupancy levels are just over 50%. There is an opportunity play there. That’s we are seeing more of this.

The standard deal that are going, the mature properties in good areas, B+ or better are probably pricing between 7 and 7.25 cap. The onus is not really unknown owners to sell. They really don’t feel the pressure so they feel that the cap rates in the low 7s are what properties are worth and we would agree with that.

The trickier part is evaluating those opportunistic or new opportunistic opportunity that have been built that aren’t there yet and we are obviously focusing on the ones that we think we can bring the maturity, bring up over next couple of years to the mid 80% occupancy range. For that the cap rate is on a sliding scale all over the place.

I would say that the cost, if you are buying it on a square foot construction cost base or replace it, we are looking at something around $100, $95 to $105 for decent facilities in good market. More is coming on.

We feel more encouraged every quarter and we're actually doing real negotiations as opposed to looking at the bid packages and sending them back. There’s more reasonable expectation on both buyer and the seller. I danced again your question and probably hit on it in some parts.

Michael Bilerman - Citigroup

No that was great. Reading through your release last night and seeing that you are increasing your spend on enhancing your properties to 50 million I got the sense that you weren't seeing much in the acquisition market, but it sounds like you are pretty active and you’re hopeful that some things are going to close up in the fourth quarter, or early next year?

Dave Rogers

Early next year.

Michael Bilerman - Citigroup

Just as far as the increased discounting you saw from your competitors during the third quarter over the second quarter, was there anything particular in the environment that you can point to that you believe led them to increase their discounts or was this simply what you expected as your strongest seasonal period wind down?

Ken Myszka

It was just frankly a continuation of what they have been doing, I don’t want to say pejoratively, but demand perhaps they’re really sensitive to occupancy much more so than say the larger companies. We look more at the revenue stream if we can, but it’s a continuation of what we have seen a lot of local competitors.

Michael Bilerman - Citigroup

Would it be just more than mom-and-pops or do you think its more regionally focused and that as in Texas and Florida where you are seeing just continued trend but its kind of lifting in the stronger northeast and Mid Atlantic markets?

Ken Myszka

Yes, parts of the Texas, as we said Houston, it’s difficult there. Florida is still difficult but we did see the rate of decline there lessened and may be of total negative there, but we were encouraged by what we saw in Florida. This is first time, as I mentioned, in a long time that we saw move-ins increase, and we still had to do lot of discounting, but we have been doing discounting for all these last few quarters with not much success.

It seems, generally speaking, that our industry the discretionary users of self storage have moved out and what we are seeing are those people who have an absolute need for storage and for the most part can afford it.

Operator

Our next question comes from Mike Salinsky with RBC Capital Markets. Please proceed with your question.

Mike Salinsky - RBC Capital Markets

On the acquisition front there, just curious one more additional detail, what you are seeing in terms of portfolio opportunities? You mentioned $35 million to $45 million under contracts. Are those one off properties or there's some portfolios in there? I'm just curious what you're seeing on that front?

Dave Rogers

We're jumping the gun a little bit. They're not under contract yet but we do have letter of intent. Like I said, we usually don’t comment on stuff until we're actually done with our due diligence on the property. We're a little away from that. Of that pool, there is about one of four, one of three and then a couple one offs. They are very small packages.

There are some portfolios out there, very large out west with the remnants of one that was bought and then there is some smaller packages in the mid-west. It changes too. They're either being marketed heavily by brokers. They are under the radar free marketing. There is a lot more volume certainly from last October to this October and even from May to now, there is a lot more opportunities on the market.

Mike Salinsky - RBC Capital Markets

Second of all, Ken, you mentioned an improvement in Florida; I am just curious of your saying throughout Florida or is it more regions specific at this point.

Ken Myszka

I would say there is more throughout Florida, there is a still a couple. Tampa area was difficult for us this last quarter which was a change from before. Central still a little bit difficult, but generally speaking most of the rest of the regions were favorable as far as occupancy gains and retention of customers.

Mike Salinsky - RBC Capital Markets

Any similar improvement in Houston or is that still going to be a challenging one for quite sometime.

Ken Myszka

We still see that as challenging it seems like the economic malaise hit that area a little bit later than and other areas, but we are still struggling in large parts of Houston at this point.

Mike Salinsky - RBC Capital Markets

In any of your markets you have guys seen an inability to begin dialing back on some of the promotional activity with any success or is it pretty much necessary to attract (inaudible) at this point in time?

Ken Myszka

I won't say areas, but at specific stores we might have a various unit sizes premium, believe it or not, in certain unites either because the occupancy is high and have aggressive specials on other unit. I won't say any particular area. The one that does come to mind New England, overall was pretty solid for this quarter and it continues from a quarter before. Other than just each store is separate entity and it probably treat it with a revenue management system.

Mike Salinsky - RBC Capital Markets

Finally, you had two or three properties you are still marketing for sale in the last quarter, any update on those?

Ken Myszka

We had a couple of failed buyers. We are still marketing them. We knew it coming in; we figured we take a chance. Anyway, their financing with suspect and deal was we were right to be skeptical. We are in a hold off the balance of the year and re-energize it first part of next year. They're small. They're only a total of about $4 million between the two of them and we may just recheck in January.

Operator

Our next question is from Paul Adornato with BMO Capital Markets. Please proceed with your question.

Paul Adornato - BMO Capital Markets

The discussion on move-ins and move-out activity, I was wandering if you could comment on the length of stay that you are seeing these days versus a year ago and versus what might be considered in normal times?

Ken Myszka

Yes. Overall, the length of stay has decreased over the past couple of years from around in 11.5 months down to about 10 or so. One thing we have been very concerned with and tracking was when you offer at these aggressive specials people are going to scam you essentially.

Overall, there is a about maybe a 2% to 3% difference in occupancy levels, the retention levels for those people coming on the aggressive specials versus less aggressive over their length of stay. We are encouraged by that.

Part of it is just good management where you are checking on the people, you are in constant discussion with them, when they come to the store the manager is greeting them and treating them well. The short answer is we are not seeing much decrease in the length of stay overall, maybe a month or so over the last three years and very little difference in the length of stay of those people coming on the aggressive specials versus non.

Paul Adornato - BMO Capital Markets

Could you comment on the presence of business customers and how they are doing in your portfolio?

Ken Myszka

Down in Florida that is a big reason why we have seeing the decrease in the number of move-outs is those people, the contractors who used us, people running their small business, they have moved out. Until things improve we are not going to see them coming back.

Overall, the overall portfolio though, as I mentioned earlier, the discretionary users they moved out. The only time where I think we are going to start seeing them coming back is when the overall economic climate improves throughout the country and particularly in Florida.

Paul Adornato - BMO Capital Markets

Finally, with respect to tenant insurance, what is your penetration and what you consider to be a goal of maximum penetration with some of the (inaudible)?

Dave Rogers

At this point, we are in the range of around 43% to 44% of our existing customers have insurance. The new people coming in, the enrolment has been increasing this year for us. It is almost three out of four customers’ who come in now take our insurance.

We have really made a big effort with training of our managers to have them do it. A reasonable goal with somewhere in the range of may be 60% to 65% of our customers having insurance.

Operator

Mr. Myszka, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Ken Myszka

Thanks Melissa. I want to thank everybody for your participation on the call and we hope you have a great holiday season. We will speak to you next year.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. 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.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

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