CubeSmart (CUBE) 2008 Q1 法說會逐字稿

Hello, and welcome to the U-Store-It Trust conference call. All participants will be in a listen only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS) Please note this conference is being recorded. Now, I would like to turn the conference over to Mr. Dean Jernigan. Sir, you may begin.

Good morning to all of you. Thanks for joining us. The company's remarks will include certain forward-looking statements regarding earnings and strategies that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risk factors that would cause our actual results to differ materially from forward-looking statements provided in documents the company files with the SEC, specifically, the form 8-K being filed today together with our earnings release, filed with the form 8-K and the Business Risk Factors section of the company's annual report on form 10-K. In addition, the company's remarks including reference to non-GAAP measures or reconciliation between GAAP and non-GAAP measures can be found on the company's website at www.ustoreit.com. Thanks for joining us, as I said. I will let Chris Marr, CFO, lead off this morning and talk about our numbers. I'll come back around with a few comments before Q & A. Chris?

Thanks, Dean.

First quarter was a very positive quarter for us on all fronts. We met or exceeded our stated goals for same-store physical occupancy and net operating income growth. Our general and administrative expenses were lower than the low end of our expectations. We have smoothly integrated the assets we acquired in the first quarter and our non-same-store assets exceeded our internal goals. All of this contributed to our funds from operations per share exceeding our guidance and producing 15% FFO per share growth over the first quarter of last year. With the right size dividend, our FFO pay out ratio for the quarter was 75%, and we were, for the first time since I joined the company, able to cover our dividend and capital expenditures from cash flow.

As I said on our last conference call, while the improvements and enhancements we have made are clearly bearing fruit, we have plenty of hard work to do over the balance of this year. We have made investments during the first quarter on our assets insuring that the curb appeal is at its peak going into the prime rental months with a particular focus in San Bernardino where we invested approximately 85% of our total 2008 budgeted CapEx for those assets invested during the first quarter. With our operating platform stabilized and our dividend covered, we believe we have a good match between our sources and uses of capital. However, we do believe that our shareholders will benefit from the company having greater liquidity and increased balance sheet capacity. Achieving these objectives will position us to take advantage of external growth opportunities that may evolve in 2009 and out into the future. So we clearly have hard work to do in 2008 to grow our occupancy, control our expenses, and shore up our balance sheet. We are committed to achieving our objectives and will continue to be appropriately conservative in our forecasts to allow us flexibility to meet and exceed our operating, financing and earnings expectations over both the near term and the long term.

Touching on the quarter specifically, at the end of the first quarter, we had total portfolio debt of $1.42 billion at a weighted average rate of 4.89%. Our fixed rate debt has $2.3 million maturing in 2008 and $88 million maturing in late 2009. Our floating rate debt consists primarily of borrowings under our unsecured term loan and credit facility which is a stated maturity of November of 2009 but provide for a one year extension at the company's option with the payment of a 15 basis point fee. We have an interest coverage ratio of 2.43 and a debt to gross assets ratio of 53% at quarter end. Of our total debt, 42% or $435 million is unsecured. At March 31, we have approximately $488 million of debt that floats its spreads to LIBOR. That spread was 130 basis points for the first quarter and will be 150 basis points for the second quarter. We have swapped LIBOR for fixed rate on $100 million of that debt with the swaps in place through November 2009. The credit markets remain challenging and we will continue to monitor our opportunities to refinance and be prepared to access the refinancing market or utilize our extension option when conditions present themselves. We continue to forecast covering our dividend and capital Investments in 2008 from cash flow. As an update to our dispositions program, we now have closed on the sale of three assets in Florida, so far in 2008 for proceeds of approximately $6.6 million representing a 6.8 cap on 2007 NOI.

We currently have is eight properties under contract for estimated proceeds of $21.6 million and closing expected during the second and third quarters. One of the 12 assets under contract when we discussed dispositions on our last call has fallen out of contract and we were unable to reach agreement on the 10 assets that were described on the last call as being under advanced contract negotiations. Six of the eight properties currently under contract have hard earnest money deposits. We remain very encouraged by the process. While the current financing environment has not had an impact on our pricing expectations, it has resulted in a more cautious approach by investors interested our assets and a longer period from contract to closing. We do have an effort underway to explore raising capital through a joint venture program with institutional investors. We are analyzing the concept of a venture that would be seeded through a contribution of existing company assets. In concept, we would consider contributing assets encumbered by existing CMBS debt. In addition, we are desiring a partner who would be interested growing the venture through acquisitions, potentially the purchases of distressed debt along with other potential sources of external growth. Clearly, we're in an unusual period in the real estate capital markets and there is no guarantee we will be able to source a partner and/or find venture terms that meet our objectives at this time.

Moving on to our operating results. We generated a 6.6% increase in same-store rental income through 100 basis point increase in average occupancy, a $1 million reduction in write-offs, a 190 basis point increase in street rates and the impact of systematic rate increases to our existing tenants. Comparing that growth to the self-storage data service national average, they showed rental rates unchanged from Q1 of '07 versus our 6.6% increase and occupancies down 0.3% versus our 100 basis point average increase. We did give back some of that rent growth as our other property related income declined $570,000 from the first quarter of '07. This primarily relates to a reduction in fee income as we have done such a great job in reducing our receivables, we are assessing less late charges than we did last year. Overall, we experienced a 5% increase in same-store revenues Q1 '08 compared to Q1 '07.

Revenue per occupied square foot grew 5.3% on the same-store pool. Again, this compares to the SSDS national average of negative 1.2% first quarter of '08 over the same quarter of '07 for the assets that that survey looks at. Same-store operating expenses grew 6.2% in the first quarter of '08. Advertising is down slightly, primarily due to timing. We had promotions and give aways in Q1 of '07 that we did not have in the first quarter of this year and we continue to eliminate legacy programs to advertise in multiple small yellow page directories in many markets. We are focusing our spending on the internet and on other more direct marketing programs. R&M is up, and that reflects our continued catch up on deferred maintenance items and investing in our assets to drive occupancy; however, we believe we are nearing the end of these programs. Other expense variances largely reflect timing differences on the occurrence of expenditures and a dramatic increase in snow removal costs in the first quarter of '08 compared to the same quarter of 2007.

Same-store NOI growth for the quarter at 4.3%. From a market perspective, same-store revenue grew in all of our top 10 states with the exception of Florida, where we saw very modest 1.2% decline in our same-store revenue growth. If you were to remove the Florida assets from the same-store pool results, our revenue growth moves from 5 to 6.4 and our same-store NOI growth move from 4.3 to 6.5. Our best performing states were Texas with 10.9% revenue and 17.7% NOI growth and Colorado with 12.1% revenue and 30.5% NOI growth. Illinois was our best performing state from an occupancy growth perspective with a 6.4% increase in ending physical occupancy creating a 9% growth in revenue. The gap between physical and economic occupancy on the same-store pool improved 290 basis points from the first quarter of '07 to the first quarter of 08. Again, this reflects the the reduction in write-offs, the reduction in non-standard rents as we pass along rent increases to existing tenants, offset by a slight increase in promotional discounting. G&A at $5.495 million was slightly below the low end of our expectations. We had an average LIBOR rate on our unhedged floating rate debt of 3.7% during the first quarter which resulted in lower interest costs compared to our internal forecasts. Our FFO per share at $0.24 came in $0.03 above the upper end of our stated range. Internally, we attribute $0.01 to out performance on the same-store pool, out performance on the non-same-store pool, lower G&A and cost of manage expenses and approximately $0.02 per share of our incremental FFO above the high end of our range was related to lower levels of interest expense. We are continuing -- I'm sorry, we are increasing our full year 2008 guidance to 93 to 97 per share. We continue to be appropriately cautious and conservative in our expectations for the balance of the year. Looking at the risks and opportunities in our increased guidance, we believe that the opportunities outweigh the risks.

On the opportunity side of the ledger, our expectation for same-store revenue and NOI growth does assume that the softness the industry has seen in the Florida markets thus far in '08 continues. We have made some changes over the last few months and our district manager ranks in Florida and believe we have an opportunity for future improvement. We have focused on increasing our tenant insurance revenues and that focus is beginning to demonstrate results. We have moved our new renter penetration from 34% in January to 57% in April, and believe we can continue that trend up to 80% new renter penetration. This should translate into upside other revenue growth for us throughout the balance of '08 and particularly going into 2009. We've been experiencing good results under our program to contain our costs. Our same-store expense growth on a percentage basis will peak in the second quarter as compared to the prior year and move back in line with CPI type increases for the latter half of the year.

As I mentioned earlier, we are focused on improving our liquidity and we continue our focus on disposing of non-core assets and our guidance continues to reflect asset sales between $85 million and $105 million. As I said, we're also pursuing other sources of capital including investigating the possibility of a JV, and our guidance provides for an execution of this strategy and considers proceeds being used to reduce short-term debt to increase liquidity. There are opportunities to our forecast to the extent we are unable to find an acceptable transaction, the execution timing is longer than anticipated or as well if we allocate capital to executing under our share repurchase program or accretive external growth opportunities. Our second quarter guidance contemplates FFO of 24 to 26 per share. The timing of our marketing expenditures was a contributor to some lower same-store expense growth in Q1, and we do expect to have a significant ramp up of or our marketing cost in Q2 as we are investing our dollars to generate the highest ROI heading into our busiest season.

As we roll forward into April, our rentals were 6% above April '07 and net rental increase was plus 30% -- 29% over April of last year, a very good month of April, so we're feeling great going into the bulk of the second quarter. As we mentioned, we did acquire an asset in DC during the quarter, a very well located facility and has been performing in line with our expectations. In summary, a very nice quarter. We are energized by our progress and ready to tackle the challenges for the rest of the year, and we think we have a healthy balance to our expectations for the remainder of this year. At this point, I'd like to turn the call back over to Dean.

Okay, thanks, Chris.

It was about 18 months ago that we were on a call like this with you and I tell the story about the little boy playing right field and his team was down 15 runs, but he wasn't concerned because his team hadn't been up to bat yet, and when I reflect on this company 18 months ago, that's exactly where I think we were. We -- the ownership had seen the wisdom to change the team, to invest in a new team, change the manager, change the coaches, and invest in that team. Saw the wisdom in investing in technology to better perform, and I am happy to say that with the results that you're seeing in this quarter, the previous quarter, and also all the way back to Q3 in '07, you could start to see some results with improved occupancy in Q3 '07 and of course, Q4 '07 some good numbers, and of course, these numbers we're reporting to you today. So, we're chipping away. We're still down. We're not -- we haven't made up those 15 runs yet, but we're putting some good numbers up on the board and we are pleased with the progress.

Someone invariably will ask what inning are we in, and so I will tell you, I think -- it feels like we're probably in about the fourth inning. We've got plenty of work to do going forward, plenty of opportunity. We are improving the company at the margin in every respect. I hope some of you have had the opportunity to visit our website in the last 30 days. We have a new website that we've rolled out, we're very proud of that we are taking reservations with payments, taking payments from existing customers and doing many things that we could not do in the past. We are pleased with where we are today, but not satisfied. Where do we go from here and what can go wrong? You've heard me speak consistently quarter in and quarter out that I have been unconcerned about the level of supply growth. That continues today. We have the disruption in the credit markets to thank somewhat for that, I believe, as the small entrepreneurs are -- very difficult for them to find debt to develop storage facilities with at this point in time.

If those credit markets turned around today, I can clearly see all the way through 2009 that new supply would not be a factor, because it will take 18 months for people to find their sights, get the properties developed, get them built and online and where they would start to impact us in a negative way, so from a supply standpoint, we should have clear sailing through the balance of 08 and through 09, and as I've said many times, the crystal ball gets somewhat hazy at that point past 18 months, but I'll continue to update that as quarters go by. The economy, of course, is a concern that everyone has, in this day and time, but I can happily report to you that we still are not feeling it. We still are not feeling the negative effects of the economy. We continue to have rentals exceeding our expectations, exceeding our last year results, and the dislocation of people from their houses through foreclosure is unfortunate, but we can never forget the fact that we are a solution, we are a benefit, we are a service to those people who are in transition. So anything that causes transition is a positive for us, so we're excited about entering the rental season. Early results are good as far as April and the first few days of May, and we're looking forward to better results as the quarter goes on and as the year goes on. So back to my right fielder, we're enjoying being at bat now, we're enjoying putting some numbers up on the board. We've got a ways to go, we're not there yet. We look to improve it at every opportunity and I think we are, in fact, taking advantage of most of those opportunities.

With that, Camille, I will stop and we can take some questions.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from David Toti from Lehman Brothers. Please go ahead.

Hi, everybody. Just wanted to ask, assuming that you make some progress on your capital plans reducing your leverage, increasing liquidity, at what point do you foresee an increased appetite in resuming an acquisition strategy?

Good morning, David. It's interesting times out there as far as the acquisition market is concerned. There is still no bargains, as far as I'm concerned. We would hope to maintain our posture and wait for bargains to come our way. The properties owned by the small entrepreneurs today who would typically be sellers are performing very well, and so a compelling reason, I guess there are two that I've always talked about. One is their financing coming to an end and secondly, if we do have a move in the capital gains rate, that could have some opportunity for us, but still no great bargains out there, and I think that we're really more moving into a development market, a development cycle, so we don't anticipate big ramp ups, but we would take advantage of an opportunity if we saw it.

The second question with regard to your revenue growth. Would you say that's largely driven by your pushing on prices through internal systems or do you think it's more demand driven at this point?

I really think it's a nice balance. We are clearly chipping away, as Dean mentioned, at the occupancy and increasing our ability to convert customers to renters by the enhancements of our website. We're seeing more and more people find us through the web, reserve units online, and then ultimately rent. We are seeing the marketing efforts that we've had in place, and continue to put in place, paying off. We're also using systems to price more intelligently with better data and to pass along rate increases to the existing tenants in a very systematic way, so I think it's actually a very nice blend of both of those items.

Great. Thank you.

Our next question comes from Christeen Kim from Deutsche Bank. Please go ahead.

Hey, good morning. Chris, on the dispositions, the ones that had been in advanced contract and then fell out, could you provide a little bit more color in terms of what happened there?

Sure. It was one specific buyer who was engaged in discussions with us on those assets, and I think for financing reasons, timing reasons, they were unable to, we were unable to come to agreement on timing and what made sense and it was kind of a mutual decision that we were better off kind of stopping and moving forward.

And just to clarify, you mentioned the potential JV and that is in your guidance or is not?

We are contemplating that in our guidance as we look at the balance of the year, giving ourselves the flexibility to execute on that and use the proceeds to reduce floating rate debt.

So would the CD in that JV, would that number be encompassed in the total asset sales you have projecting for the year, or is that separate?

It is not encompassed in that. Those asset sale figures that I used are directly related to the pure disposition of assets, not through a venture format.

My last question is just since the same-store pool has changed, could you tell us what the sequential change was in the occupancy for the new same-store pool?

The assets from Q4 into Q1?

No, no, the Q1 same-store pool, what the sequential change in occupancy was.

From Q4?

Right.

Yes, you know what, that's a great question, and I don't have that answer for you right here, but I will get you that answer.

Okay, great. Thanks.

Our next question comes from Christine McElroy from Banc of America. Please go ahead.

Hey, good morning. Last quarter you mentioned that it looked like Florida was stabilizing and you were seeing signs of net in migration,but it looks like you're still seeing some weakness there. And this quarter, Ray Wilson talked a little bit about signs of deterioration kind of beyond hurricane impact that may reflect the weakness in housing or the local economy. Can you comment on what you're seeing there?

Sure. Good morning, Christine. Yes, we did have 400 basis point drop in physical occupancy there, but as Chris said in his remarks, our income only dropped 1.2% so we have been able to pass along rate increases to our existing customers. The migration as far as the state is concerned is balanced now. The last numbers I saw about 90 days ago showed that 2007, just over 50% of their migration trends were in migration versus out migration which is a change from the previous two years. That said though, Florida customarily has been -- had in migration up closer to 60%, more like 60/40 in migration versus out migration, and there has been just a little bit of construction as there always is in Florida, specifically, some up in the Jacksonville area, but I will tell you, part of Florida is our problem. A little bit, we've had some DM turnover down there as Chris mentioned, and so we, I think we have our personnel situation better in hand in Florida. I'm not at all concerned about Florida on a long term basis. I do think from a migration standpoint it is stabilizing, if we can get through another hurricane season without a bad hurricane, I see -- Florida is always going to be a good opportunity, a good state for us, I'm happy with the assets that we have down there, so I'm not at all concerned right now with Florida.

Okay, and then kind of in a broader portfolio, as you've moved more toward a strategy of using concessions more as a tool to drive occupancy and try to gain some pricing power, have you found that the strategy has worked for you in terms of improving your internal growth, and Dean, I know that you haven't always favored using concessions, but have your views changed at all?

Well that's putting it nicely. You're right, I do not like giving away all of the free rent that our sector tends to do. It's absolutely unnecessary in my opinion, but we have met the market, we are competing head up with them in those regards, and it is achieving, as you see in our numbers that we reported this quarter, we are having some success with it, but I would still like to see it diminish or go away, but we are using it as a tool and it's working for us.

Okay, and then lastly, Chris, I may have missed this, but regarding the increase in your full year guidance, did a lower LIBOR assumption have an impact and if so, what kind of LIBOR forecasts are in there today?

Yes, there's a lot, an awful lot of moving pieces here as we go into the full year. Our full year LIBOR assumption at this point is 3.2%, down from where we had it before, and again, we've provided ourselves an opportunity to offset some of that with the potential dilution to the extent that we are able to execute on a capital raise along the lines that we've discussed and giving ourselves the flexibility to use that capital in the near term to reduce floating rate debt.

Thank you.

Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Thank you, good morning. I'm here with Todd Thomas as well. I just wanted to follow-up on Christy's last question. So, if you reduce the LIBOR assumption by 200 plus basis points, and that is across, call it $380 million of floating rate debt-ish, that would be roughly, call it somewhere between $0.10 and $0.13 of savings and you raised guidance by $0.04 so, implicit is that you've got extra dilution possibly of $0.07 to $0.09, is that the right way to think about it?

Yes, it is.

Okay, and is that purely from the changed cap rate assumption on the dispositions?

No. It's allowing us the flexibility to do the 80 to 185 to 105 that we talked about plus the ability to focus on institutional capital, and again, if we were to execute on something giving us the opportunity to use those proceeds in the near term to reduce that floating rate debt, but obviously, as I said in my comments earlier, we would look at other uses of proceeds including the potential of executing under the share repurchase program that the board has authorized as well as external growth opportunities, but to the extent that those external opportunities don't make sense to us this year but may in 09, we're giving ourselves the flexibility to essentially use that money in the near term to simply pay down floating rate debt.

But the 85 to 105 use of proceeds would be to pay down some floating rate debt, okay.

That would as well, yes, but that marginal dilution giving where we're seeing cap rates is nowhere to the extreme that we just talked about.

Okay, did you mention the cap rate on the 21.6 under contract?

I did not, but the 21.6 that are currently under contract on trailing, those are looking at about a 7.69 cap rate.

And markets?

Those are kind of in that Gulf Coast market between the panhandle of Florida and New Orleans.

That's helpful. And then lastly, just on dry powder. Can you maybe just sum it up for us in terms of your access to liquidity today?

Today, if you look at just pure known access, pick up the phone, we have $15 million available under our credit facility. Should we want to move in the direction outside of dispositions or institutional capital, we would have an opportunity given the unincumbered pool to put some secured debt on and raise capital in that fashion, but we currently have no plans to do that.

How big would that be?

Boy, I think conceptually, we could do $50 million to $100 million in that market.

That's helpful. I think Todd has one as well.

Yes, what did occupancy look like through April?

We had net rentals in April of plus 900 units.

Alright, what is that percent --

On an average unit size, is about 100 square feet.

Okay, and on a percent basis though? In terms of occupancy?

24 million, 500 thousand same-store square feet, 900 units times 100 would be the mass.

Okay, and it seems like on your same-store portfolio, your full year guidance for occupancy is 82% to 84%, but given the 79% in the first quarter, you would need to do 84% to 85% through the rest of the year to get to that mid point. Can you just elaborate on how you expect occupancy to trend through the rest of the year?

Sure. The 79% was right in line, actually, 79.3% is a little bit higher than where we had hoped to get during the first quarter, and while we did have a bit of a dip down at the end of March, April came back strong and we're moving right into the prime rental season here in May, June, July, and to the extent that we're able to repeat the trend that we saw last year, that gets us back into that range that you -- that we always talk about on average.

Okay.

I think -- let me jump in for a second, Jordan, I think you were the one that noticed that 10 basis point dip at the end of March there, and the last day of March was on a Monday, which was actually the worst day of the week to experience move-outs, and so what happens, people do tend to move out on those last three days of the month with the last day being on Monday, 10 basis points is easily explained by just the day of the month which we found that we were -- that money being the last day of the month.

Okay. Alright, thank you.

I'm sorry, while I have you, to go back to Christine's question, we have that answer. The ending occupancy at the end of December on the same-store or the current same-store pool was 80.08, so that was about a 78 basis point change to March 31 of 2008.

Our next question comes from Michael Bilerman from Citi. Please go ahead.

Hi, it's Craig Melcher here with Michael. Chris, what size of a contribution of existing assets do you consider in your guidance for this joint venture?

Yes, we're really at a point where I'd hate to be too specific at this stage. As I said, we're right into this. We're talking to a variety of different folks. The markets are very disjointed right now, no guarantee that we are going to get something done, and so we want to leave ourselves the flexibility to really look at what's out there in the market and be able to execute, if possible, on something that makes sense for us and would make sense for a partner. Could it be as small as $100 million? I think it could. Could it be as large as $300 million? I think it could be as large as $300 million.

Okay, and the cap rate they used set in on the sales under contract, that 7.7. Is that reflective of an average for the portfolio, or where do you think the portfolio would be relative --?

No, I think -- I mean again, you look at -- we sold these assets, the first three went out at a 6.7. These are -- this next batch is an average of around 7.7. We've said all along that this group of assets that we're looking to dispose of in the Gulf Coast aren't core for us long term, and we had expected to get a range between 7 and 8 on those, and everything from a pricing perspective is staying within that range. They are not indicative of arguably the top 65% of our portfolio.

Okay, and if you could just remind us on those cap rates, how you quote them, whether there's any CapEx deduction?

There is no CapEx deduction and those numbers I was throwing out include only a 4% management fee, so if you took it to a market 6% and then wanted to look at it in that term, obviously the cap rates would move down a little bit.

Okay, and on your full year same-store NOI guidance, for the quarter, your NOI beat the numbers, but for the full year guidance the top end came down by 50. Is that just being conservative, or --?

Yes,mathematically, no one liked my art and science comment last quarter so I won't repeat that one, but mathematically, if you looked at the top end of the revenue and low end of the expenses, we could do a little bit better than where we brought the NOI growth down to, but I think we're trying to be conservative. We are trying to be conservative and cautious as we move forward here. We had two great quarters, but there's plenty of work left to be done.

Thank you.

Our next question comes from Michael Knott from Green State Advisors, please go ahead -- excuse me, Green Street Advisors. Please go ahead.

Hi, guys. I'm just curious if you can comment on the Ansels current state of mind. I know the last they've been in the press saying they favored a sale of the company. What's the current status of their influence on the company and the pending expiration of their lock up, I believe later this summer?

Good morning, Michael.

Amsels, excuse me.

You know, I have no conversations with Amsels family, and the only thing I can suggest you do is just pick up the telephone and call them and ask them. I really don't have any direct conversation with them, and if you -- it's hard to guess what their thoughts are at this point in time, but they might be willing to share that with you.

Okay, and then Chris, can you just comment on the one year option you have on the line of credit and the term loan that expires in 2009? Is that -- should we think of that as a 2010 maturity?

Yes, I think that's fair to say. It was structured back in '06 when life was a lot different and more borrower friendly, and simply provided us the option, assuming we're in line with our covenants, which we would be, to extend it And again, we're looking at life between now and then and seeing where things are. If the credit markets begin to move back into our favor and it would make any sense to do something earlier, then November of '09, or even at November of '09 to take the deal out to market, then obviously, we would do so. If not, we would look to extend the $200 million term loan and the $250 million credit facility to November of 2010. Clearly, today, our deal is well below market in terms of what it would look like if we went out and tried to redo that deal today.

And then I may have is missed this, I apologize if so, but on the same-store pool, the other property income was down pretty sharply. Can you just help me understand what was driving that ,and just remind us of that box sales and administrative fees?

It's exactly that, Michael and I touched on that in my comments a little bit earlier. The drop was primarily related to fee income, and that drop was primarily related to the fact that we've done such a great job of collecting our rents, keeping our tenants current that the past due fees or the late fees that we assess to our tenants dropped significantly from Q1 '07 to Q1 08.

Thank you.

(OPERATOR INSTRUCTIONS). Our next question comes from Paula Poskon from Robert W. Baird. Please go ahead.

Thank you. Two questions for you. One, could you provide a little bit of color on what you're seeing from potential buyers in terms of their appetite, any changes there as you're out marketing assets. And two, in keeping with your baseball analogy, in what inning do you think YSI's turnaround story is? Thanks.

I'll take both of those, Paula, although Chris handles our dispositions for us. Our sense is that the pool of borrowers out there today is a fairly shallow pool. A lot of people without capital and those with capital tend to be sitting on the sidelines, so we were very pleased with the interest that we stirred up, if you will, for the -- this pool of properties that we are presently marketing, but it is a shallow pool, and so that's what I see going forward as well. As far as the inning, I think fourth inning feels about right to me.

Thanks very much.

We show no further questions at this time. I would like to turn the conference back over to Mr. Jernigan for any closing remarks.

Thanks, if you're still listening let me just clarify the fourth inning.

Paula mentioned in the turnaround, I am really talking about the whole gain. We are -- we have made dramatic improvements in all aspects of the company from people to systems to procedures and policies and now results as you're starting to see. So, from a turnaround standpoint, the improvements we're making really are at the margin now with an improved call center that 12 months ago, we had an abandoned call rate of about 34% and today it is about 1%, to the website that I mentioned, how much improved our website is to simple things like new screening program we have for hiring general managers out there that we do personality testing to make sure we're getting a good sales person to answer that telephone for us and cut down our turnover which we have dramatically year-over-year. And so, from a turnaround standpoint, I hate to characterize it in innings because it's hard to do, but we really do have the major part of the work accomplished from that perspective, but the fun part of it is that we really do have a lot of opportunity going forward, and my baseball analogy is that we haven't gotten back to surpassing those 15 runs that we got ourselves down early on, but we're making really good progress. So to paraphrase the international electronics firm, life is maybe not great for us in the self-storage sector right now, but life is very good. No new supply to speak of, no headwinds from the economy, and we're doing a lot of things right. So we're excited for our company on a go forward basis.

With that, I know we'll see many of you next month at NAREIT, and we look forward to that, and others if you have any questions or comments between now and then, give us a call. We look forward to speaking to the rest of you at the end of the next quarter. Good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.