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Sovran Self Storage, Inc. (NYSE:SSS)

Q1 2008 Earnings Call Transcript

May 1, 2008 9:00 am ET

Executives

Kenneth Myszka – President and COO

Dave Rogers – CFO and Secretary

Analysts

Craig Melcher – Citigroup

Christeen Kim – Deutsche Bank

Samir Parikh [ph]

Jordan Sadler – KeyBanc Capital Markets

Todd Thomas – KeyBanc Capital Markets

Paul Adornato – BMO Capital Markets

Michael Salinsky – RBC Capital Markets

Operator

Good morning. My name is Yazi and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter earnings release conference call. (Operator instructions)

Mr. Myszka, you may begin your conference.

Kenneth Myszka

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

We experienced another strong quarter as we began increased revenues in a lot of our properties. Despite some continued drag from many of our Florida stores, our same store revenues and net operating income increased by 2.9% and 3.7% respectively over the first quarter of 2007. Dave Rogers, our CFO, will provide some details in a moment.

During the quarter, we completed only one expansion at a cost of just under $1 million. Since the end of the first quarter, however, we have completed seven climate control conversions or expansions at a cost of just under $9 million and we expect to complete as many as ten additional projects before the end of this quarter at a cost of approximately $10 million.

We acquired two stores last quarter for a total purchase price of $14.3 million. Both stores are in Jackson, Mississippi, bringing the total of our Uncle Bob's stores in that area to 10 – or to 8, excuse me. We have a large number of acquisition candidates currently under consideration and we hope to close some of these later this quarter or later this year.

With that, I'd like to ask Dave Rogers to offer some details on our financial performance.

Dave Rogers

Thank you, Ken. With regard to operations, our total revenues increased by $5.2 million or 11.7% over 2007's first quarter and our property operating expenses increased by $1.8 million. These increases resulting in an overall NOI increase of about 12% were primarily due to improvements in the same store results we'll talk about and the addition of 33 stores we have purchased since first Q of last year.

Our average overall occupancy was 81% for the quarter ended March 31 and average rent per square foot was $10.50. Our same store revenues increased by 2.9% over those of the first quarter of 2007. This was again purely rate driven as our same store weighted average occupancy for the quarter declined from that of 2007's first quarter by 170 basis points to 81.3%. At the quarter-end date, same store occupancy was 81% and our rental rates were higher at $10.63 per square foot this year compared to $10.23 last year. Our total operating expenses on a same store basis increased by 1.6% this period.

As discussed on the last couple of calls, our property insurance cost declined on a quarter-over-quarter basis by almost $400,000. Again, we want to emphasize that our risk profile has remained constant with that of 2006 and 2007. We absorbed a cost increase last year. This year we'll enjoy a premium reduction of about 30%. But throughout the volatile cycle of insurance premiums, our coverage and deductibles have remained consistent and sufficient.

Landscaping and curb appeal costs have increased by a pretty substantial amount, growing by over $100,000 over last year's first quarter. Other than that, only snow removal costs were out of line. We have begun to garner some meaningful savings in our technology costs. Telephone and transmission expenses were reduced by 8% at the property level and software licensing and upgrade expenses were down considerably at the G&A level.

So growing the top line by 2.9% and increasing operating costs by 1.6% resulted in same store NOI growth of 3.7%. Our G&A cost for the period came in at $4.1 million, which was pretty much as expected. And while this is higher than last year's first quarter, we are also operating 33 more stores this period.

With regard to capital matters, we have acquired two stores this period, as Ken mentioned, at a cost of $14.3 million and started or continued to work on quite a number of E&E projects, which required an extra – or an additional $5.5 million this quarter. Further, as we previously mentioned on prior calls, we have accelerated our painting, landscaping, and roofing project, so we spent about $4 million this quarter on such lightening and brightening projects. We borrowed $26 million during the quarter to fund these purchases and improvements.

As our credit line expires in September of this year, we are in discussions to renew and recap that instrument. We expect in the near future to term out the line and as well as our recent short-term note borrowings by issuing unsecured fixed rate notes. We are confident we can do so at the rate and terms consistent with our other existing long-term debt and in as much as we have $100 million bank note due late in 2009, we most likely will repay this concurrent with the line refinancing.

Our total outstanding debt is now $600 million and except for the line and short-term notes totaling $132 million, all is long-term and fixed rate or hedged to maturity. Approximately 18% of our borrowings are secured. Our debt service coverage in the first quarter was 3.1 times EBITDA as was, since we have no preferred shares remaining, our fixed charge ratio. Debt to enterprise value was 37% at March 31. So, we remain conservatively capitalized with sufficient flexibility and capacity to fund our needs.

With regard to guidance and looking forward into the next quarter and balance of the year, as we have mentioned the last couple of calls anyway, our recent comps have provided us with a pretty good challenge and overall the storage sector has become a little bit tougher. Fortunately, supply growth for most of our markets anyway remains constrained, so we continue to have opportunities to increase rents.

We expect same store net operating income to grow at about 3% to 3.5% throughout the balance of this year, based on revenue growth of 2.5% to 3% and expense increases of about 2% to 3.5%. G&A costs we are targeting at about $4.2 million per quarter at current levels.

The acquisition environment remains pretty much unchanged. There's a lot of properties and portfolios that have been on the market. They are owned by people who we think can be coerced into selling, but unfortunately despite recent jolts to capital markets, debt markets, credit constraints and so forth, seller expectations on good properties anyway have not been appreciably reduced. We have been selective and disciplined, and we are looking for substantial upside to the NOI after we buy it. So, those are the criteria we have when we are looking for acquisitions.

For purposes of guidance, we are forecasting about $50 million of accretive acquisitions throughout the year, much of it to occur later in the year. So in essence, we are taking a wait and see approach until we can see what market conditions and seller expectations are going to do.

Our expansion program will continue. We expect to make expenditures in excess of $40 million in 2008 to enhance revenue capabilities at our existing properties. Last year, we spent almost $25 million on these improvements, some of which are just now beginning to come online and bear fruit.

We are continuing the program of accelerating the painting, paving, and fencing projects at many of our stores in an effort to improve curb appeal sooner. We expect to spend about $12 million on our same store pool in 2008 and another $4.5 million to $5 million on our late 2006 and 2007 acquisitions.

To help give you a little bit better handle on our interest costs, we are now obligated on $462 million of long-term fixed rate or hedged rate loans. Our annual interest cost to carry this debt, including the amortization of financing costs, is $31 million and this shouldn't change for the balance of the year. So, the only variable component in our debt structure is related to the $100 million outstanding on our line of credit and carries a floating rate of LIBOR plus 90, and $32 million on our term notes which is priced at LIBOR plus 120. This obviously will change as we refinance later in the quarter or later in the year.

We expect to issue shares through our DRIP program, but continue to restrict the stock purchase plan sales [ph]. We are projecting about $12 million in equity issuance this year via the program. To put numbers to the above and to our plans, the refinancing of our $132 million short-term LIBOR debt to a long-term fixed rate note will cost us about $0.06 to $0.08 per share over present levels.

We are not counting on any external pop from acquisitions, as we don't expect to do any for our own accounts until later in the year. We will experience a bit of drag on earnings resulting from the $40 million we will be putting into our E&E program. We are expecting this to cost us about $0.04 to $0.06 per year.

We should say again that the fact that we haven't included any external growth of any significance in our forecast doesn't mean we aren't planning to do so. At this time though, we don't have significant numbers of acquisitions in negotiations, and in the interest of adding value as opposed to size, we are waiting things out for a couple of quarters. We think the improvements to our existing portfolio and the redoubling of our efforts on marketing, pricing, and service will better serve us in these times.

Other opportunities, such as a joint venture program, third party management and such are being explored, but we are not far enough along with such plans to include them in the forecast. So, given all the above, we estimate funds from operations to come in at between $3.50 and $3.56 for the whole of 2008 and between $0.86 and $0.88 in the second quarter.

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

Kenneth Myszka

Thanks, Dave. Well, that concludes our prepared remarks and we'd be pleased to answer any questions you might have out there.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Michael Bilerman. Your line is open.

Craig Melcher – Citigroup

Hi, it's Craig Melcher here with Michael.

Kenneth Myszka

Hi, Craig.

Craig Melcher – Citigroup

Dave, what's the assumption on the interest rate you are assuming on that unsecured note offering to get you to that $0.06 to $0.08 dilution figure?

Dave Rogers

Well, right now, we are paying at floating LIBOR plus 90, which is about 2.9 or so. We are looking perhaps to go as high as 6%, if we do it with the ten-year notes. Five-year notes would put us in the range of probably a $0.03 to $0.04 dilution, because we'd be locking – we would plan to lock in at LIBOR of about 3 with a spread of probably about 160 to 180 over that.

Craig Melcher – Citigroup

Okay. And does that assume you also repay that $100 million maturing in late '09, that $0.06 to $0.08, or is that incremental to that $0.06 to $0.08?

Dave Rogers

That actually won't have any effect, because no matter what we do with the '09 note, we are hedged. So, whatever instrument we use to take that note out would keep the same rate. So it would only be on the $132 million that we have outstanding.

Craig Melcher – Citigroup

Okay. But you have spoken to the lenders and you think you can get a spread of 160 to 180 over?

Dave Rogers

We think.

Craig Melcher – Citigroup

Okay. On the occupancy data for the quarter, it looks like at the end of the quarter the occupancy dipped a little bit. If you look at the quarterly average, occupancy was down 170 basis points. But at the end of the quarter year-over-year it was down 240. Is there anything specific going on there?

Dave Rogers

This has always been our nadir, the middle of March to the middle of April has been – if you look back historically, our nadir. So, we have slid a little bit. We are sliding a little more than we like, perhaps a little bit more than we expected, but nonetheless, this is – you draw the curve year after year after year and you see us dipping to the low point right at March 31. So, we are not thrilled, but it's not unexpected.

Craig Melcher – Citigroup

Is it impacting your rental rate decisions so far in the second quarter?

Dave Rogers

Not really. We ran some specials in the first quarter in Florida especially for those units that we have an excess of. We do have a couple of target programs in various pockets, but we are pretty much – it's not a global strategy, because there's a lot of parts of the country that are doing pretty well and we wouldn't want to mess with. But certainly in those pockets where we have decline in occupancy and softness in – especially inquiries, we are working specials and it is affecting our going in rate.

Craig Melcher – Citigroup

Was there any regional differences in terms of the slip that you had in the back half of the quarter?

Kenneth Myszka

Primarily, it was our Florida markets. We saw a little bit of it in Alabama as well. Frankly, we don't have much of a presence in Michigan, but we saw some there as well.

Craig Melcher – Citigroup

And then, how much of this occupancy decrease, you say it's a recurring theme year-over-year, was it in line with what's been occurring over the years or a little bit more?

Dave Rogers

Yes. With regard to the cycle and the period, the March 31 has been dropping by 70 basis points or so from the quarter average. That is in line with prior years. The fact that we are at a little bit lower base than we want to be, that is not what we are happy about.

Craig Melcher – Citigroup

Great, thank you.

Operator

Your next question comes from Christeen Kim. Your line is open.

Christeen Kim – Deutsche Bank

Thanks. Just to follow-up on the occupancy question. How has occupancy been trending following the end of the quarter?

Kenneth Myszka

It's up a little bit so far. We did run some specials, as Dave said, down in the Florida markets in some of the markets that we have some issues. So it's trending upwards, but it's still not where we want it to be in those markets that we are having the difficulties. Overall, as Dave mentioned though, we have got pretty good performance with most of our portfolio. Unfortunately, or fortunately, about three or four years ago, we were really happy that we had as many stores in Florida as we did as we wrote up. Now, with the business not doing as well, we are suffering along with the rest of the storage industry. But I do want to point out, overall, we are pleased with our portfolio. In fact, we did a little bit of a calculation that said what would our same-store numbers be, let's say, without Florida. And just for your information, our same store revenue numbers for the first quarter would have been a 5% increase over the last first quarter of '07 and same store NOI at 6.3%. So, our industry is still strong. Our portfolio is doing well. But, we are addressing the needs where we have to looking particularly in Florida.

Christeen Kim – Deutsche Bank

So, for the rest of the year in terms of your overall same store assumptions, are you assuming that Florida continues to be a drag or that it flattens out at some point this year?

Kenneth Myszka

Well, unfortunately, I think two quarters ago, we said we thought we were at the bottom of Florida. And then, last quarter, I think we said we were at the bottom of Florida. And I think we are not comfortable, but we are going to say we think we are at the bottom of Florida. So we are assuming Florida holds where it is for the balance of the year. That's what's baked into the assumptions. We have been in this business a long time and we have seen an awful lot, but this is a real tough one to predict, and it's really not even a part of Florida. For the most part – there's little pockets that are a little stronger than others, but for the most part it's in a state of flux and it's perplexing us a bit.

Christeen Kim – Deutsche Bank

Okay, thank you. And my final question is just, Dave, you mentioned that supply growth is really not an issue in most of your markets. Are there any markets where you are concerned about new supply?

Dave Rogers

Some crept up on us in Florida right after the hurricanes. That was – we are pretty stabilized. So now that's sort of exacerbated parts of Orlando and Tampa and Fort Lauderdale. I know Phoenix has seen quite a bit. We are inflated from that because we are pretty close to the core central market. So, it being such a micro market business, we see cities that are being impacted by development, like Houston and Phoenix, but our particular stores we don't have much concern about.

Christeen Kim – Deutsche Bank

Great. Thanks, guys.

Operator

Your next question comes from Samir Parikh [ph]. Your line is open.

Samir Parikh

Hi, good morning.

Kenneth Myszka

Good morning.

Samir Parikh

Could you provide some color on institutional interest in the market to partner in a joint venture with storage operators? And maybe are you considering this as maybe an attractive way to access capital to fund the external growth?

Dave Rogers

Yes, to your last question. We have talked about it a bit. We have talked with people. I do think there is some. I don't want to comment too specifically, because we have been active since October in talking to people. And I think both on a joint venture basis there's interest. I think there is also institutional interest in the sector, perhaps as wholly owned. But, yes, there's been quite a bit of institutional interest, both in partnering with companies and in taking down deals on their own.

Samir Parikh

Okay. And then, also, could you provide an update of – maybe a little bit more color on the state of the transaction market, how reasonable you think pricing is on cap rates?

Dave Rogers

Well, I think, as I said in our prepared remarks, we have seen very little movement in quality asset pricing. It just seems that there have not been a lot of transactions done and I think some of the bigger players have sort of been concerned about capital constraints. The financing market for mom and pop's and for most – the way it's usually done in the private sector with secured debt and CMBS, obviously the CMBS pipeline has dried up, there's a lot of other mortgage capital available at I would say rather reduced loan to value ratios, but attractive interest rates. So it's taken people with real equity to buy. But for the most part, the owners of quality properties will sell for their price and if they don't get their price, they won't sell. And it just comes up – we thought maybe we could have some – not necessarily bargain hunting, but at least some haircuts off previously asked prices from people in '07 and late '06, and they are happy. They are happy running their businesses. Their businesses are doing well. If they don't get the price they want, which is I think for the most part stabilized mature properties in good areas. You are looking at seven caps. If you are not willing to pay a seven cap, you are not going to get the property. So it's a stalled market I think. I know there's a lot of deals being talked about, but there's not a lot of budge on our side or the other larger players. There's not a lot of leverage that can be used by the private guys and the owners are happy. So, I think cap rates have stayed the same, deal volume us down, how I guess I would put it.

Samir Parikh

Thanks for that. And I guess my last question is beyond the DRIP, are you expecting to issue any equity?

Dave Rogers

No, not at these prices – not at this share price.

Samir Parikh

Okay, thanks a lot.

Operator

Your next question comes from Jordan Sadler. Your line is open.

Jordan Sadler – KeyBanc Capital Markets

Thank you. I'm here with Todd Thomas. First question is just – not to beat a dead horse on the occupancy, but I'm trying to ascertain what the trend is here. And I looked back over the last few years, 2005 through 2007 most notably, and it looks like your ending quarter or your March 31 occupancy in each of those years was somewhere between 20 to 40 basis points above your average occupancy for the first quarter. And so, this quarter seems to be a little bit of a reversal of that trend. I know, Dave, you mentioned that March is typically your nadir, but this seems to be a little bit different than the last few years, which were a little bit more robust. Now, do you think that's Florida or are you seeing this sort of overall throughout the portfolio? Just a little more color would be helpful.

Dave Rogers

Two things that occurred. In 2007 and 2006, we bought some 65 stores and I think the average occupancy of the total of those 65 stores was something on the order of about 74%, 75%. We bought a whole bunch of big stores on a cap rate that we liked with space that wasn't filled and probably won't be for quite a while. We bought into that knowing that. So, our overall occupancy is I guess artificially suppressed by the fact that we bought bigger stores that weren't full and paid the right amount for them and looked at that for future upside. So, what happened was a lot of developers had their storage running and thought what they could do was expand them prior to sale, and if a cap rate can measure with a pro forma 90% occupancy, that sort of was the game when times were good. And last year especially we plucked a lot of those, the western New York portfolio, the Huntsville portfolio, the bunch of stores that we bought in Texas, the St. Louis portfolio, all had sub 80% occupancy, still do, and we don't care about that because we bought them that way and we expected it. So that's impacting both the – especially the overall occupancy number, but even the '06 stores that we bought, it's impacting the same store pool. So, that's probably the biggest single factor we have for a lower than historical occupancy, that plus the Florida drag, which is sort of counterintuitive. It's higher than our portfolio average, but it's significantly lower than the Florida historical average.

Jordan Sadler – KeyBanc Capital Markets

And that makes sense for why the overall portfolio occupancy would be lower than it has been in previous quarters. But I'm just thinking about the trend, weighted average of the quarter versus the quarter-end. Your quarter end is lower versus the weighted average and that doesn't seem to sort of fit necessarily with what's happened previously. I don't know that would change by buying bigger stores. I would think the trend would still be the same. I'm curious to why that would change.

Dave Rogers

I'm differing with your assumptions. I'll have to look into it and I can talk to you about it.

Jordan Sadler – KeyBanc Capital Markets

Yes, offline would be great. Separately, on the potential capital rate – excuse me, debt rates here, I think you were deciding between five-year and ten-year money. Did you say what the spreads were on ten-year money?

Dave Rogers

The spreads on ten-year are pretty considerable. And I think we are looking more at a shorter term because the – we are going to go around once more. But the spreads were high and a lot of the windows were closed. A typical group of lenders when we went to them in the first quarter were I guess less than – they failed to get us excited I guess is how I might put it. The spreads were high and the windows in all cases weren't open. So, we are going to go around one more time. But I think we are probably going to do a commercial bank deal as opposed to institutional, because the spreads are a lot higher on the institutional side.

Jordan Sadler – KeyBanc Capital Markets

Sort of a term loan. And order of magnitude in terms of size, 100 million, 150 million?

Dave Rogers

The debt?

Jordan Sadler – KeyBanc Capital Markets

Yes.

Dave Rogers

As much as 250 million to take out next year's 100 million, as well as the 132 million we have presently maturing in 2008. So, it could be a total of 250 million new – or to replace what's there now as well as a new line of credit.

Jordan Sadler – KeyBanc Capital Markets

Okay, perfect. That's helpful. And I think Todd has one or two.

Todd Thomas – KeyBanc Capital Markets

Yes. Hey, guys. What was the cap rate on the Detroit sale?

Dave Rogers

About a 7.4 cap.

Todd Thomas – KeyBanc Capital Markets

Okay. And then, what markets are you looking at for the remaining dispositions this year, is that also Michigan or is it scattered or …

Dave Rogers

We are looking at some, but we actually don't want to talk about it on the call. It's due [ph] with markets we are looking to get out of.

Todd Thomas – KeyBanc Capital Markets

Okay. And then finally, on the JVs, can you just give a little bit more color on what you are thinking or are they going to be one-offs or would that be for portfolios that are in the market or ..

Dave Rogers

All of the above, I guess, depending on who we partner with and how it works, what their investment goals would be. Obviously, our plan is to get into quality properties in quality markets and use our platform to help grow those properties on both our behalf and the partner's behalf, as well as spread some of the scale and cost here at the home office.

Todd Thomas – KeyBanc Capital Markets

Okay, thank you.

Operator

Your next question comes from Paul Adornato. Your line is open.

Paul Adornato – BMO Capital Markets

Thanks. Good morning. My questions have mostly been answered. But, given that you guys touch retail customers more so than almost any other REIT sector, I was wondering if you could provide some insights on your sense of the economy and how much pain there is out there among retail customers? There's kind of a lot of debate from among those of us who sit in offices about just what's happening on Main Street. I was wondering if you could share some insights.

Kenneth Myszka

Yes. Sure, Paul. We are seeing it. People coming in, they are negotiating, price is much more important to them than convenience, perhaps even how the store might look. Price is much more important to them. We are also seeing somewhat of a decrease in our other income, which is the sale of insurance or locks and boxes and things of that nature, which indicates to us that people are watching their dollars a lot more closely than they were before. So, we're seeing it in our business. We started seeing it a little bit later than perhaps other types of businesses, but we're feeling the effects of it.

Paul Adornato – BMO Capital Markets

Are you still getting customer traffic drive [ph] from "negative" economic events, like a job loss?

Kenneth Myszka

I don't think we've seen much of an uptick in that. What we are seeing more of though are people with a housing situation where they are selling or they are maybe being foreclosed on. But we are not seeing it throughout the country. We are seeing a fair amount of it down in the Florida market, a little bit in Texas, certainly up in Michigan. But, I wouldn't say it's throughout the country.

Paul Adornato – BMO Capital Markets

Okay, thank you.

Operator

Your next question comes from Michael Salinsky. Your line is open.

Michael Salinsky – RBC Capital Markets

Good morning, guys.

Kenneth Myszka

Good morning.

Michael Salinsky – RBC Capital Markets

Real quickly, in terms of your actual same-store results that you reported and then if you exclude Florida, the results were actually a lot stronger than I would have anticipated. Can you break out your same-store performance maybe by markets like Texas, the northeast, mid-Atlantic and Florida specifically, just to kind of give us a better picture of what you are seeing overall?

Kenneth Myszka

Yes. I'd say, Texas, we are in the range of around 14%; New England is about 7.5% plus; New York State, in particular western New York, we are about 10%; Missouri around 7%; Louisiana, around 6%. From a negative standpoint, Florida is minus 7%; capital district minus 5%; Michigan minus 4%; Alabama was in that same area too from a negative standpoint. So, you can see there are pockets, even Arizona where there's a lot of competition, we have pretty good same-store sale growth.

Michael Salinsky – RBC Capital Markets

That's very helpful. Second question, in terms of your insurance. You had moved that up to February and you are saying now that it's going to be down 30% for the year. Did you get an actual benefit on the renewal increase in February as well?

Kenneth Myszka

We were able to sustain the one that we had last year. So we have another quarter's worth of lower insurance and then we'll be pretty much giving up that year-over-year benefit.

Michael Salinsky – RBC Capital Markets

Okay. Then just looking at the first quarter, there's obviously a seasonal component to that. How did snow removal come in versus your expectations in the first quarter?

Kenneth Myszka

It was a little bit high – it was 17% higher. We paid about $560,000 instead of the budgeted $470,000. So it was about $84,000 high or about $0.003.

Michael Salinsky – RBC Capital Markets

Okay. Then, Dave, in your comments, you laid out about $16 million of essentially recurring CapEx this year in term of curb appeals, non-revenue generating CapEx. What is a good run rate going forward beyond that once those are completely essentially for recurring CapEx?

Dave Rogers

I think we'll be in pretty good shape come the end of this year. I would say then we'd be looking at – it used to be not too long ago $0.22 to $0.25. The last two years, we have used $0.30. I think starting in '09, we are probably going to be in the range $0.35 to $0.36. It just seems that all the stuff that we use to do that has gotten pretty pricey – the steel, the paving stuff. So I would say going forward from '09, $0.35 a foot is a decent allocation.

Michael Salinsky – RBC Capital Markets

Then finally, in terms of occupancy right now, just given that you have seen occupancy pull back, what is your comfort level with pushing rates as opposed to trying to retrench some of that occupancy we've seen [ph] loss over the past year to two years essentially?

Kenneth Myszka

Well, in areas that we are suffering, we are going to be very aggressive and have been for most of this year. Offering specials – we offered a super special, if you will, in 40 of our stores in Florida starting in late March. So we'll be very aggressive trying to bring people in with specials and hopefully like one-time thing where maybe it's a one-month or two-month free moving special, but then, in the second or third month, they'll pay their full rate. But I do want to point out it's not across the board. We still have a revenue management system in place. And there are areas, believe it or not, where we have high occupancy in particular unit sizes and we'll try to get the maximum dollars we can there, as well as making sure that our current customers – that we are giving them annual rent increases, so we can continue to get increases in our revenues. So it will be selective, but we will be aggressive where we need to.

Michael Salinsky – RBC Capital Markets

Okay. And a final question, in terms of renewal increases, what kind of increases are you passing along?

Kenneth Myszka

It depends on the market, but it could be as low as $3 to $5 a month rent increase. Percentage-wise, it's all over the board, frankly.

Michael Salinsky – RBC Capital Markets

Okay. Thanks, guys.

Operator

At this time, there are no further questions.

Kenneth Myszka

Okay. Thank you. Thanks everybody for participating. We appreciate your confidence and we look forward to speaking to you next quarter. Have a great day.

Dave Rogers

Bye-bye.

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