CubeSmart (CUBE) 2010 Q3 法說會逐字稿

Good morning, and welcome to the U-Store-It Trust third quarter 2010 earnings release conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Dean Jernigan, U-Store-It Chief Executive Officer. Please go ahead.

Good morning. The Company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks and uncertainties and other factors that may cause the actual result to differ materially from these forward-looking statements. The risk and factors that would cause the actual results to differ materially from these statements are provided in the documents the Company files with the SEC specifically Form 8-K together with our earnings release filed with Form 8-K in the business risk factors section of the Company's annual report on form 10-K. In addition, the Company's remarks include reference to non-GAAP measures, reconciliation between GAAP and non-GAAP measures can be found on the Company's website.

Good morning, again to everyone. Thanks for joining us. Happy to be with you. With me as usual this morning is Chris Marr, our President and Chief Investment Officer and Tim Martin our Chief Financial Officer. I will kick it off by giving you some views that I have from kind of the 30,000-foot level. We'll let Tim go into quarterly results and Chris then will talk about the exciting stuff that we're seeing on the acquisitions front.

So back to the 30,000-foot level, it's hard to talk these days very long into a conversation without talking about the economy, so I'm just going to jump right into the economy and start talking about it. We had a good jobs report this morning, which is a glimmer of hope, but clearly the economy is a mess, in my opinion, and people try to use a letter of the alphabet to describe what the economy looks like, and quite frankly, I don't think any of them work. We certainly didn't have a V shaped recovery or U shaped recovery is not in the cards in my opinion. We're looking kind of like an L shape. Of course, that is not a recovery but we did have a little bounce when we came out the recession last year, so I think if you want to put a symbol on what the economy looks like, I think it really looks like the square root symbol.

We were straight down there after the Leeman bankruptcy in Q4 of 2008 into 2009. Then we had a recovery with a little bit of a bounce, but then it's been flat lying since then. So it's a draw that square root symbol, I think that really is how the economy looks today. That is different, I think, from the way the self-storage sector looks. I think we clearly are in a recovery in the self-storage sector and, again, it's not a letter, but it's a symbol and I think it looks like a check Mark. I think we were straight down there again and in 2009, and I think we reached an inflection point in the first quarter of this year, and I think we have a recovery, clearly a recovery, in the process, but I think it's going to be long and slow and gradual.

If you use same storage revenue as the peers number that we all report, it is clear that in Q1 we start performing better than the previous quarter on a sequential basis, all four companies. We have continued that throughout this year, and if you look at the guidance that the companies are giving from Q4, it appears to me that that gradual recovery continues. And as we get through Q4 and get into next year we will seal that next year, but I'm cautiously optimistic that the check mark recovery will continue. We certainly had plenty of bad news in the sector though from our typical demand drivers. We have fewer movers today than we have had in the past. Our contractors still are not coming back to rent storage from us and, our discretionary customers are nowhere in site.

The good news is, as I have mentioned in the past, we are, our length of stay is strong, better than it's been in normal times. So people who have the need are staying with us longer and are paying their rent, but the biggest part of the good news the story, if you will in my opinion, is our platform as a public company with the normal access to capital that public companies enjoy, and how that puts us in a position to out-compete going forward versus the fragmentation of the ownership group in the self-storage sector. And re remind me the old joke with the two guys out hunting, and they run into a bear and the bear starts chasing them. You know, you don't have to out run the bear, you just got to out run your hunting partner. Well, that's the way I look at the situation we're in today with the economy being the bear. We are out running the bear here at U-Store-It and, unfortunately, we had a lot of folks out there who are having trouble because they don't have the platform, they don't have the marketing department, they don't have the marketing spend that the public companies have.

So a consolidation that I've been talking about now for about at least two quarters, if not three quarters, is starting to take place and I'm real excited to get around to Chris's comments today to talk about the acquisition opportunities that we see ahead of us. But that is where we are today. Let' talk about the future just for a little bit. We have caught back up to 2008 with net rentals. The first ten months of 2010 are flat with the first ten months of 2008 on net rentals. That's a very good sign, very good trend. Our rentals are down roughly 20%, our vacates are down roughly 20% over 2008, but, of course, that would indicate that our net rentals are flat.

If I am right on my guess that we are, most of the bad news if not all the bad news is out there for the self-storage sector, and we do see gradual improvement, especially with the public companies, the great news ahead of us consolidation. The great news is growing this Company through good acquisitions in markets that we want to be in with those markets being markets where we can grow rents, expect to have good fiscal occupancy and, of course, Chris I'm sure will talk some about moving out of markets that are less than desirable that we are in right now. So that's a little bits of the future. We'll talk more in question-and-answer I am sure, with that I'll turn it over to Tim and let him talk some about the highlights of the quarter.

Thanks, Dean, and as always, thanks to everyone for joining us for today's call. And for your continued interest and support of U-Store-It Trust. The third quarter was very productive on three important fronts, internal growth, external growth, and balance sheet flexibility. Operationally, we have continued to control costs and are experiencing year-over-year revenue growth. We acquired three high quality properties and have an active pipeline of additional opportunities. And from a balance sheet and liquidity perspective, we made tremendous progress during the quarter. On September 29th, we closed on an amendment to our credit facility. This amendment accomplished three important objectives.

Our first objective was to extend the maturity of the facility, which we did by one year to December 2013, this results in an extended, more balanced maturity profile as we shift a large portion of our 2012 maturities to 2013, a year that previously only had $23 million dollars of maturing debt. The second objective was to reduce our borrowing cost, which we it by eliminating the libeler floor of 1.5%. And our third objective was to convert the facility from secured to unsecured. This provides us with greater financial flexibility and ultimately access to additional sources of capital over time.

We ended the quarter with an unencumbered property pool valued at $733 million. Also during the quarter, we continued to utilize our available cash to repay mortgage debt as it matures. We repaid a $7.9 million dollars loan during the quarter and we have repaid $106.7 million of maturing loans year-to-date.

Also year to date, we have reduced our outstanding debt by 15% from $769 million to $656 million. We ended the quarter with $23 million of cash on hand, and had no amounts drawn on our $250 million revolver. We acquired three great properties during the quarter for a total investment of $33.4 million. Chris will discuss the details in a few minutes, but from a sources and uses standpoint, we funded the acquisition using a combination of cash on hand as well as from $20.5 million of proceed raised during the quarter from sales of shares under our at the market equity program. So our third quarter growth was funded with zero leverage consistent with our goal of growing on a leverage neutral basis or bets sister. Our third quarter results reflect a clean solid operating quarter.

Our report of $0.13 of FFO per share was at the high end of our guidance range and in line with consensus expectations. We discussed during last quarter's call our expectation for positive same store revenue growth during the second half the year and that trend is reflected in our third quarter same store revenue growth of 1.4%. Revenue growth was impacted by a 1.1% decrease on realized represent per occupied square foot offset by occupancy gains of 170 basis point quarter-over-quarter. Property management fee income increased to her a million dollars in the third quarter reflecting a full quarter impact of managing the contracts acquired from United Store All, as well as the expansion of our third quarter third party management platform to total 122 properties under management at quarter end.

Our operating expense growth of 2.9% for the quarter was impacted by the timing of our advertising spend compared to last year. Property expenses, excluding advertising expense, decreased 1% quarter-over-quarter successful appeals and refunds of real estate taxes were the primary drivers of the expense reductions. Switching gears to guidance. We have introduced fourth quarter FFO per share guidance of $0.14 to $0.15 ashare, and moved up the low end of our annual guidance range of $0.49 to $0.51.

Throughout the year, we have steadily increased our FFO per share guidance at the mid-point, primarily reflecting steady progress by our core operating performance turning to the high end of our initial expectations, but also a result of platform reduces borrowing costs and a modest positive impact from our acquisition activity. FFO has been negatively impacted by acquisition related cost of about half a million dollars during the year. We moved each component of our same store guidance in a positive direction relative to prior guidance. At the mid-point, we expect same store revenue for 2010 to be flat compared to 2009 levels, implicit in that range I think our expectation that revenues continue to trend upward in the fourth quarter this year, compared to last year. Expenses for the year are expected to be up a modest 1% for the year at the mid-point , translating into an expectation for flat NOI in 2010, compared to 2009 at the mid-point. Due to timing of closings the additional acquisition activity during the balance of the year has no impact on our FFO per share guidance. Overall, it was a very productive third quarter on several fronts. Our team is energized to finish off a productive and successful 2010 and we are excited for the prospects, for an even more successful 2011. Thanks again for joining us this morning and at this point Chris I will turn the call over to you.

Okay. Thanks, Tim. As you all can tell from the enthusiastic tone of Dean and Tim's voice, we are tremendously excited here at the Company about our future prospects on all fronts. You know, looking back to the beginning of the year, the management team here entered the year with a strategic plan and a detailed set of objectives that were designed to meet and exceed the expectations embedded in that plan. Obviously, with the ultimate objective of maximizing shareholder value. As Tim discussed in his comments, one of those objectives was to continue to improve the balance sheet and our liquidity with the ultimate outcome being to expand on our existing sources of capital.

Our primary objective going into the year was to begin to create a profile that would ultimately open the rated unsecured debt markets for our company. A major step in reaching our long-term goal was to unsecure our term loan and revolving credit facility and on September 29th we fully met that 2010 strategic objective. On the investment side of the business we had several objectives entering the year. First being the deal flow. We had been an active seller in 2008 and 2009, and we wanted to re-establish our Company as an acquirer both within the broker communities and with the sellers.

Second, begin to manifest the acquisition side of the strategy we laid out in late 2007 of disposing of assets in markets where we may wish to reduce our exposure, or in lower barrier entry markets and cycle that capital into those markets where we believe we do not have sufficient exposure, and that possess higher rents and higher berriers to entry.

Third, improve the quality of our cash flow by increasing the NOI coming from those long-term core markets such as the greater Boston area, greater New York City, metro Washington, D.C., Dallas, et cetera. These markets being characterized by those higher rents, strong operating margins. Next stick to a disciplined underwriting. We also wanted to create our own pipeline of acquisition opportunities by rapidly expanding our third-party management business, as well as continuing to expand our network affiliate program and leveraging our long-term relationships, as a result of our years in the business, and finally continue to prune the existing portfolio by identifying opportunities to select and resell assets. With two months left in the year, we've nailed each one of these objectives and have tremendous momentum heading into 2011.

We are clearly in the deal flow and have developed a reputation as a straight shooter who does their homework on the front end of a deal and will treat the seller fairly. The transactions we have closed and the deals we have under contract are in our target markets. Dallas, the Burroughs of New York City and in New Jersey and the Metro Washington DC area. Of these 12 transactions, eight have been created through our third-party management program and one through a lender relationship that grew out of our 2009 capital raising initiatives. The remaining three transactions were sourced through the broker community. On the disposition side, we announced the sale of one asset and that was located in California's Inland Empire, an area where we do have a focus on reducing some of our exposure. Looking forward we will most likely end the year at the $87.5 million of acquisition referenced in our earnings release, as the additional transactions we are currently working on will most likely lapse over into the beginning of next year.

From a cap rate perspective on acquisitions, we look at deals as we always have on in place rents with our operating expenses less a capital expenditures charge, and we're transacting between a 7 and 8 cap rate on assets that have occupancies in the 70% to 80% range. On lease up deals assets, within in place occupancy, in the 40 % to 50% range, we are buying more on a price per pound price per square foot basis. Through September 30, as I have done for each quarter just an update of the transaction volumes that we're seeing and kind of globally what's going on out in the marketplace. We've evaluated opportunities to acquire roughly 350 facilities, almost half of those, about 43%, we sourced on a direct basis through lenders, owners, or through the managed properties or our network facility owners coming directly to us to discuss a deal. Of that population of 350, about 72% were what we would describe as either owners or assets in some form of financial distress. So in summary, as you can tell, I'm fired up and we are really looking forward to 2011 being an even more positive year with higher transaction volumes and continued opportunities to enhance our balance sheet and our portfolio. With that, operator, we would like to turn the call over for questions.

We will now begin the question-and-answer session. (Operator Instructions). At this time we will pause momentarily to assemble our roster. First question comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Hi. Good morning, I'm on with Jordan Sadler as well. As you think about sourcing capital, could you provide us with an update on what your plans will be once you take out the January CMBS material? I know you have discussed plans to move forward in an unsecured capital structure and that your intent initially would be to take that out with the line, but what are your plans to permanently finance that debt?

Todd, good morning. It's Tim. You're exactly on point and we are progressing down the path that we have been telegraphing for quite some time I think closing on the credit facility is a great step down the path as Chris had mentioned in his commentary of moving down towards what we believe to be a rated balance sheet and we likely, well, we will, use the line to repay that January maturity and really we enter 2011 then with a lot of option in front of us, as far as how ultimately to further improve our maturity profile to extend out our average maturity to find a good blend of having that flexibility that comes with an unsecured strategy with a desire to term out on a fixed rate basis, and the most cost effective manner. So we start 2011 with, certainly, a lot more apps options available to us than we have had in the past and continue through and would envision working through with the rating agencies with an objective of having the ultimate outcome that we have within discussing for a few quarters.

Okay. So it sounds like your preference would be to, like you said, term that out, versus even with mortgage rates where they are today just financing a small portion of individual properties for seven or ten years?

Yes. Well, the, having a lot of options is great. On the short term we are focused on unsecuring assets, so putting additional mortgage financing on those assets would be contrary to our objectives in the short term.

Okay. And just switching gears then the acquisitions in the New York City Burroughs, what was the square footage of those two properties and I know you discussed the range on the cap rates, I guess 7% to 8%, but there's deals specifically could you just provide a little commentary on those?

Sure. Between the two, one of the assets is in the Bronx and one in Brooklyn, and they were from a square footage perspective about 114.5, 114,500 square feet and from a cap rate prescriptive, just given individual deals one at a time we really don't like to go down that path, but I think to say that, in general, everything we have either closed or under contract will blend together on the stabilized assets in that kind of seven and three quarters kind of range for that portion of that $87.5 million that we would think about on a cap rate basis.

Okay. The 114,000 square feet, that was combined for both properties?

That's correct.

Okay. And then just lastly on your management platform, you added couple new contracts. It seems like things are going pretty well there. The income seems like it's already trending ahead of expectations for the balance of the year. I just wondering if you comment on that and whether we should expect some upside. I think you had previously mentioned that you would expect around $0.2 per share for 2011?

Yes. I think the trend is going to be pretty consistent here at least into the fourth quarter. We are adding contracts as you mentioned, and we have a nice pipeline of deals that will come on in the fourth quarter. The offset to that is as you know we're managing assets for Wells Fargo, and that process going into it was one where the ultimate objective was to return the capital to the bank, and so the timing of how those assets are ultimately sold will impact and so fort right now I see clearly the fourth quarter, but then we will have to give you an update after that as to how that evolves into 2011.

But the integration of the platform itself, and maybe some of the other ancillary or indirect benefits that you're seeing I guess either the acquisitions or just the increase in the Company's overall footprint, how is all of that sort of stacking up against your expectations at this point.

Yes. If you went back to the blueprint on what it was that we wanted to accomplish, it could not be any more pleased than we are with how that execution has gone. It was designed to, again, have us expand the footprint, have us expand the relationships on an EBITDA accretive way, an FFO accretive way, and create that internal pipeline of opportunities, and on each one of those objectives we've struck the nail right on the head.

Okay. Alright. Thank you.

Thanks, Todd.

The next question comes from Gaurav Mehta of FBR Capital Markets.

Hi. Good morning guys, I just wondering it if you could provide some color on specific markets including Florida and California , if you have seen any kind of improvements in those markets in the third quarter.

Hi, it's Dean. Yes. We right now feel pretty good about all the markets that we're in across the country. They're performing about as we expect. We don't have any markets that are on a watch list. We break our markets down and we have about 20 markets, but we only had four of those 20 that had decreases in year-over-year revenue this last quarter, and we only had four of those 20 that had small losses in occupancy and we had 16 of those 20 that had increases in pricing and so Florida, we bounced offer the bottom in Florida about two quarters ago, as I have said on calls.

I mean we're still struggling a little bit in Orlando, Daytona Beach, Lakelands Mall markets for us, but Florida generally is coming be back okay. We're in the green in Miami and Naples and Sarasota. We're flat kind of in West Palm Beach. The Inland Empire area is back to flat, which of course is a good thing. Phoenix is flat. And so as it actually Tucson is up just a little bit now year-over-year, and so when I look at the heat map I have in front of me it is mostly green all over the country. Even in the Midwest, Chicago, Cleveland, you know, tough markets in Ohio like Canton, Columbus, Dayton, Youngstown, all those are in the green, which means is relatively speaking about 2.5% to 10% increases in year-over-year revenue, so I'm encouraged by what we're seeing notice markets we're in around the country.

And could you comment on the trends you have seen in October in terms of share occupancy and compared to end of the third quarter of 2010?

You mean the trend for the third quarter sequential trend over second quarter or year-over-year.

Into October.

No in October compared to third quarter of 2010.

I'm sorry. I missed the October part. Sure. We'll give you a little visibility into October. Revenue trends are good. Net rentals are positive. October is traditionally a net move out month, which we of course experienced, but I would say October was a little different from September, which is also a net move out month. So on plan as far as October is concerned.

Okay. And switching gears here a little bit, how do you guys think about your dividend distribution going forward?

This is Chris. That's something that the board and management spend an awful lot of time on in our December planning meeting and that's really the foundation then for our first declaration in 2011 and, again, the factors that we look at continue to be consistent with what we've been talking about for the last five or six quarters. We clearly over a long-term want to share our increases in cash flow as our properties come out of the recession, as our acquisitions and management opportunities add to the bottom line we want to share that with the shareholders, but we also want to be cognizant of the longer term objective of making sure our leverage and liquidity positions are good, and that we do have some free cash flow to take advantage of these oppertunities that we see in the market. So we will evaluate all of those factors from a retax perspective. We do not have any pressure to increase the dividend because of tax implications, but certainly is something that we will take a long look at here in December.

Thank you, guys.

Thank you.

The next question comes from Paul Adornato of BMO Capital Markets. Please go ahead.

Thanks, good morning. Could you talk about the strategy for price increases to the existing customer base during the winter season here? How much pricing power do you think you have with that customer base?

Good morning, Paul. You know, it's been the same year in, year out. I have never slowed down on passing along rate increases to existing customers. They're not going to stay with you if they don't is have a need and these $5 rate increases you pass along to them, they don't move out because of that, and sure you wake some up, but if it's dead winter, they're even less inclined to move out in the dead of winter. So we continue with our rate increase to our existing customers right through the winter season.

And what% do you normally put through?

It's all over the board. It's market by market. Sometimes property by property even sometimes tenant by tenant, but I think what the other companies are reporting in that 5% to 6% range is certainly achievable.

Okay. And just stepping back, Dean, you and your team have been in place for a couple of years now, and it's been kind of a winding road at some times in terms of the turnaround. Can we finally close the chapter of the turnaround efforts? That is, do you feel like the systems and the people that are in place now have had a chance to have their impact on the Company and is that kind of noise from a turnaround in the rear view mirror?

Well, just for the record, Paul, I felt like and may have said so at the end of Q2 2008, that we had completed the turnaround and then the market fell apart. So we have been, this last two years has been more about the economy than it has been about any kind of turnaround. We had systems in place, people on place, the properties brought up to standards really by the summer of 2008 and that was, it's been four years, Paul, and we are having a good time when time flies, but the first two years we spent bringing the properties up to standards we thought were appropriate, getting the right people in place and getting the systems in place , and we more or less had that accomplished by the summer of 2008, only to have Leeman turn the world upside down two months later.

Okay. Great. Thank you.

Thanks.

The next question comes from Michael Bilerman of Citi. Please go ahead.

Hi. It's Mark Montana here with Michael and Eric Wolfe. First question, just regarding the third-party management business. What percent of those assets are located in the Boston, sort of New York City, Metro DC , and Dallas markets that you mention the targeting?

An exact percentage is going to be tough for me to give you off the top of my head. If I had to kind of make an educated percentage on it, I would say that there is about 75%, to maybe as much as 80% of assets are located in those markets if you include Chicago in there as a core market for us.

Okay. That's helpful. Thank you. And then, Dean, you mentioned in the prepared remarks that we're in a recovery in the self-storage sector and that gives you more confidence. That the recovery in the self-storage sector gives you more confidence in the overall economy. I'm just wondering what in particular gives that you stance given that you mention there's fewer movers, contractors or out, discretionary customers arrangements around? Any comments you can provide on the drivers that you are seeing within the sector would be very helpful.

Yes. Our consumer really hasn't changed very much with their action. We just completed our October survey again, and we asked the same 12 questions every year and the same answers keep coming back generally. Have you ever used self-storage before? It's still 50/50. 51% exactly this time said yes, 49% said no. The interesting question that we started asking three years ago was, is the housing market decline causing you to down size an, therefore, need storage? 32.2% in 2008 said yes to that. It dropped to 20.3 in 2009 and 20.2% in 2010, so it basically went flat year-over-year with that.

So there's system a lot of stress with our customers out there. There's still a lot of downsizing, although less in 2008, still 20% of our customers say that they are storing with us because they're having to down size and have stress in their dislocation. The other thing that's changed a little bit, which is really interesting, is historically the answer to what is your primary reason for choosing U-Store-It for yourself storage needs? Historically locations has been number one, helpful manager has been number two, and best value or pricing has been number three, and, again, historically location has been like 37%, 38%. Your manager has been in that 27%, be 28% range, and your best value was down around 12% and those were exactly the numbers in 2007. 37% location, 27% helpful manager, 12% best value, but then with when we got to 2009, it really changed things around in that the location dropped to 28% and the best value peaked at 37.5%. So that was of course as a result of the recession.

Everybody understanding we were in a recession, everybody is re-evaluating how they're spending their money they had, and the helpful manager dropped to 12%. Well, this year location is back on top at 37%, closely followed behind best value at 36.7%. So you can say basically location has caught back up to best value. Best value is still very important and helpful manager comes in at a very distance third at 10%. So if you look at the behavior of our customer, they still need storage because they're moving. They're still in need storage, and many of them, half of then, are waking up to storage and using it for the first time. The best value is equal this year in importance to location, and sot hose are some of the things that I'm seeing that are interesting as far as it relates to the overall economy. I mean, and back to my bear story, I think the bear is getting a lot of our smaller players who can't compete in a marketplace with the large marketing budgets that the public companies have, and so it is unfortunate for them that's a good opportunity for us from a consolidation standpoint, but I hope that's help. Those are some of my thought.

Very help. Thank you very much.

Next question comes from Paula Poskon of Robert W. Baird. Please go ahead.

Thank you. Good morning, everyone. What are you hearing from your small business customers?

Paula, they are still pretty quiet. I get a weekly report from all the district managers that I read very carefully, and I will say there is a glimmer of hope that they're aren't starting to come back slowly, but, I don't think this will be much between now and next spring, but I think next spring will be the answer to that question if we're going to get them back at all for 2011, but right now it's only a trickle.

Thanks. That's helpful Dean, and to turn back to the acquisition environment, is the pace of deal flow continuing to increase or is it leveling off?

Hi Paula. It's Chris. Continuing to increase. I really would have though we would have seen a big rush here going into the end the year for people looking to take advantage of potential tax consequences, and I would say that we really haven't seen. I think we'll see a continuation into next year of what we saw in the latter half of this year and I'm hopeful that's going to be a real positive year for us next year.

And of the marketed deals that you're looking at, what portion would you say you have walked away from simply because the bidding was too heated, or is that just not a phenomenon in storage.

You know what's interest is that the discipline from the folks has been very, very good in terms of the pricing. I guess, let me compare it to 2004, 2005, where you clearly would have had deals that it just became a bid up in price in order to get it done. It's really moved now to where the discipline on the pricing has been good and consistent, and so you're differentiating yourself as a buyer more so on terms. So, who may be willing to do 30 day due diligence rather than 45 days, and then the quality of the capital. I think sellers are looking at people who have to raise money in order to do the deal with a jaundiced eye and transactions are flowing more to those who have the capital and the reputation for kind of doing what they say.

And then finally of the deals that you are seeing whether they're marketed or directly sourced, what portion would you say are at a quality level that you simply wouldn't be interested in?

Yes. They would be the ones that are kind of above and beyond the 350 that I referenced. You know, that we looked at in that pool had met some minimum thresholds for us. If you go to any number of, some I guess I will call them nonspecific self-storage broker websites, you will see an awful lot of $4 million or $5 million deals in part of the country that just don't make a who lot of sense for us.

Okay. Thanks and then just one final question. Last year we talked a lot about the huge spikes in the cost of internet advertising. Is there any moderating in the phenomenon or is that continuing to skyrocket?

I think it's interesting that this is really kind of first time in my career that you had the opportunity to push a button and have a marketing spin that directly brings you results. So I don't think we have such a large spike as far as what we're spending with Google on a bid basis, but we are bidding on so many more keywords on a daily basis, and we're willing to spend more money because you get known results on a cost per acquisition basis, and so I think you're going to see more dollars spent going forward on the internet relative to what, I'm not sure how you want to look at it, relative to your overall budget other relative tip what you spend an yellow pages, or whatnot, but I think the Internet is a very effective way to spend your advertising dollars, and I think you will see more dollars spent going forwards.

That's all I have. Thank you very much.

Thanks.

The next question comes from Todd Stender of Wells Fargo Securities. Please go ahead.

Hi. Thanks. For your amended facilities, you said it freed up $733 million of unencumbered assets. How many facilities does that come to?

Well, good morning Todd. It's Tim. I don't have that number right off the top, but I think it's approximately 150.

Okay. And specifically, can you just go in some of the key data points that the lenders focused on to move from secured to unsecured in.

Yes. If you think about the three prongs that we talked about, the flipping from secured to unsecured was really a trade-off in the discussions with the bank group, who were extremely supportive, by the way, it was really a trade-off switch between switching from the covenant package that we had, which was based on the fact that we had mortgages on the assets, and then by releasing a collateral we switched to a covenants package that was market appropriate for an unsecured facility. So we added back to what we would have had in beginning of 2009, we added back an unsecured leverage covenants an unsecured coverage covenant. The only covenants that really moved was the overall leverage covenants reduced from 65% down to 60% which of course, at the leverage levels that we're operating at we're very couldn't you believe with. On the flip side of that the cap rate that is used in the facility to value the income stream improved to 8.75% as the cap rate. So it was really a trade-off from the bank's perspective to release the collateral in exchange for a market appropriate covenants package.

Okay. That's helpful. And just looking at the acquisitions you made in the quarter, the Dallas and then the two facilities in New York City, what were the occupancies this time last year?

The occupancies at this time last year in those assets?

Yes.

Fairly consistent to where we referred to them at September 30.

Okay. Thanks. And last question. Just by looking at the markets if you were to kind of group , and I don't know if this is fair or not, just grouping Florida, Arizona, Nevada, you put those against New Jersey, New York, and Connecticut, you are seeing increases in your same store pool for the first three, and then it's been more of a challenge in the latter. Any peoples that you are seeing what's working in Florida, Arizona and Nevada, and then what's kind of your challenge around the New York Metro area?

Well, I don't know that there's much of a challenge around the New York metro area. It is, there is a fair amounts of competition and all the competition in markets like that is very sophisticated, or almost all of it, but we're not really, we're kind of pushing the same rate opportunities across the board at this point in time. We're not, I think Florida your year-over-year comparisons of much easier in Florida than that you have in New Jersy, for example. Last year we were experiencing year over year revenue growth in New Jersey, whereas Florida, of course, we were down a fair amount. So it might be your comps as much as anything.

Hey Todd. Tim. Just back to the question you asked previously. I systemed 150. The number of unsecured assets at quarter end was 162.

Okay. Thanks, guys.

Thank you.

(Operator Instructions). The next question comes from Michael Knott of Green Street Advisors. Please go ahead.

Hey guys. Dean, just curious to your thoughts if you think about a couple years from now and think about NOI growth between occupancy growth and growth in your realized rents, do you think we will look back and say there was more growth than the average 77% occupancy so far for this year, or are the $11 per foot realized rents?

When did you say, next year, year after? How far out?

I don't know. Just generally next two or three years.

Yes. Yes. I think the next couple of years we're certainly going to have the opportunity to have better gains in occupancy than in rents growth. I think the rents growth will be helped by the fact that we have got no headwinds from new supply, but it will continue to be a struggle if you in fact agree with me that the economy is going to continue to be a big problem for the next two or three years. So I think the occupancy opportunity is huge for us and that's where we'll have the most opportunity.

Okay. And then what's kind of a normalized expense growth for you guys over that sort of time frame as well? So far this year you're down a little bit, this quarter was up. What do you think we should expect in terms of the space case expense growth over the next couple years?

Good morning, Michael. It's Tim. I think over a continuum, I would think you would expect inflationary type expense growth and depending on what your macro assumption is there I would think that over a two, three year time frame somewhere in the 1.5% to 3% expense growth would be likely.

Again okay and last question is for questions Chris. Chris, I think last quarter you mentioned on the call some pretty high unlevered IRR expectations for some of your acquisitions, I'm just curious if you are still seeing that and if that applies to some of the deals that you have most recently put under contracts or acquired?

Hey Michael. Yes and yes. When you think about some of the deals that are embedded in that total for this year, where we are finding opportunities to take advantage of distress, acquire at very low per square foot and big discounts to replacements costs with those assets, as I said, we're kind of looking on a price per pound basis in the 40% type occupancy. I think you can over a 36 month period really, really knock the ball out of the park on those if you can find them and we found a couple.

Okay. And then generally you think you're buying at double-digit type expected unlevered returns?

Across the entire group low double-digit.

Okay. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Dean Jernigan, U-Store-It Chief Executive Officer for any closing remarks.

Okay. Thanks. I'm always frustrated a little bill at the end of these calls that we have more answers than you guys had questions for and so today I thought I would just go ahead an put out there some answers that the questions weren't asked for those of you still listening. Sometimes we get asked the question what's the spread between street rates and in place rates and this quarters our street rates nudged ahead of our in place rates, so we're pleased with the pricing power that we are exercising. Insurance penetrations up to 53% total penetration for us. The marketing departments, our unique visitors to our website is up 44% year-over-year. Our reservations are up just about an equal amount. So we're pleased with the marketing effort.

Sales center volume, on a sequential basis, Q3 over Q2 this year was down 8% , but that's seasonality but the good news on that our rentals are actually up slightly over Q2 through the sales center, which means that we are experiencing better results out of our very good sales center that we're excited to have. Only one new opening this quarter. A property down in Lakeland, Florida. That is great news for all of us, of course and the last lilted bit to throw out there is on discounting, we had 22% full price rentals for the quarter meaning that 78% of all of our customers got some kind of discount. With that I'll conclude. Thank you for your interest, thank you for being interested in our Company. We look forward so seeing some you at Naireit, and talking to the rest of you next quarter. Good day.

That concludes the U-Store-It trust third quarter 2010 earnings release conference call. Thank you for attending today's presentation. You may now disconnect.