Extra Space Storage Inc (EXR) 2005 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Third Quarter 2005 Extra Space Storage Earnings Conference Call. My name is Colby (ph) and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question and answer session towards the end of this conference.

[Operator instructions]

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. James Overturf. Please proceed, sir.

Thank you, Colby. Good afternoon and welcome to Extra Space Storage's Third Quarter 2005 Conference Call. With us today are Extra Space Storage's CEO and Chairman of the Board Ken Woolley, Senior Vice President and CFO Kent Christensen, Senior Vice President of Operations Karl Haas, and Scott Stubbs, our Senior Vice President of Accounting.

A couple of items to mention before management begins their remarks. In addition to our third quarter press release and 10Q, we have also furnished additional unaudited financial information about the operating results for the company's property portfolio. This supplemental information can be found in the Investor Info section of Extra Space Storage's Web site at www.extraspace.com. Click on Financial Reports and the document entitled Third Quarter 2005 Supplemental Financial Information. You will also find our Third Quarter Press Release.

The financial information that we released earlier this morning includes our GAAP results for both this year and last year, as well as non-GAAP information that we believe is useful in evaluating the company's operating performance. As required by Regulation G, we have in our earnings release provided reconciliations of the non-GAAP information we will be discussing today to the closest GAAP equivalent. These reconciliations can be found in the press release schedules included with the presentation material provided.

Please remember that management's prepared remarks and answers to your questions contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks, uncertainties that may cause actual results to differ materially from those discussed today. Examples of forward-looking statements include statements related to Extra Space Storage's development and acquisition programs, revenues, net operating income and FFO. We encourage all of our listeners to review a more detailed discussion of the risks and uncertainties related to these forward-looking statements that is contained in the company's filings at the Securities and Exchange Commission and in particular, the 10K for the year ended December 31, 2004, and the company's most recent 10Q filing.

These forward-looking statements represent management's estimates as of today, November 14, 2005. Extra Space Storage assumes no obligation to update these forward-looking statements in the future because of changing market conditions or other circumstances. As a last bit of business, we will not be commenting or answering any questions regarding Shurguard's status.

I'd now like to turn the call over to Extra Space Storage's CEO, Kenneth M. Woolley.

Thank you, James. Welcome to this Third Quarter Conference Call. It's been a busy and productive three months since we last spoke to you. As you know, we closed on the purchase of Storage USA from GE Commercial Finance with our partner, Prudential Real Estate Investors for a price of $2.3 billion on July 14, 2005. Since then, we've spent most of our efforts on the integration of the two companies.

We have solid operating performance in the third quarter. Kent will provide fuller details in a moment. However, our FFO per share was $0.24 after adjustment to exclude one-time transaction costs. This compares with $0.16 per share in the same quarter of last year and $0.14 per share during the second quarter. The accretive effect of the Storage USA transaction was $0.04 per share in the quarter, and the balance of the $0.20 per share comes from the legacy Extra Space business.

A tremendous amount of progress has been made with the integration of the two companies. Karl Haas will address this later in the call. I am even more positive now regarding the acquisition especially after having had the chance to see many of the properties and meet most of the people. The past few months have reinforced the fact that the Storage USA portfolio consists of well-located, quality properties, the majority of which are in our targeted core markets of California, Chicago, Florida, New England, New York, New Jersey, and the Mid-Atlantic States. The Storage USA properties were already experiencing excellent growth before the acquisition. And that growth has continued since the closing.

Just to remind you of the size of our company today, we finished the third quarter with 191 wholly-owned properties, 355 joint-venture properties located in 34 states and Washington, D.C. The Storage USA acquisition added 61 properties to our wholly-owned portfolio, 337 properties to our jointly-owned portfolio, and we also manage an additional 74 properties of which 59 were part of the Storage USA franchise and management program.

To understand the company better, let's discuss the operating performance of the various groups of properties. The first group is 123 stabilized properties, which were owned before the Storage USA acquisition and can be compared on a year-on-year basis. This group represents 110 wholly-owned properties and 13 joint-venture properties. For the quarter ended September 30, occupancy was 88.3% versus 88.0% last year. Revenues were up 7.1%, and net operating income was up 8.3%. For the nine months ended September 30, revenues were up 5.1%, and NOI was up 6.7%. This showed an accelerating pace of revenue growth in the third quarter over previous quarters, on a year-on-year basis. Of the 61 wholly owned properties we acquired from Storage USA, 51 we consider to be stabilized. For the quarter ended September 30, the average square foot occupancy of those properties rose to 87.3% from 84.7% the year before. For the quarter, revenues were up 7.2% and net operating income up 8.0%. And for the nine months ending September 30, revenues were up 7.5% and NOI was up 9.2%.

The other 221 stabilized properties acquired from Storage USA, and owned by Extra Space and Prudential Real Estate Investors in joint venture, performed in a similar fashion. Our legacy pre-Storage USA lease-up properties, which include 20 wholly owned properties and five joint venture properties, also realized solid results. As of September 30, the average square foot occupancy on these properties was 76.1% versus 66.5% the year before. Revenues for the quarter are up 22.6% and NOI up 33.4%. For the nine months ended September 30, revenues were up 29.4% and NOI was up 61.3%.

Finally, a smaller subset of the lease-up properties are the 14 CCS properties. As of September 30, the occupancy of this portfolio was 69.5% versus 54.4% the year before. Revenues were up 34% and net operating income up 65.6%. For the quarter, the annualized NOI was $2.9 million, and for the month of September, the annualized NOI was $4.9 million. The benchmark NOI needed before CCS shares are converted is $5.1 million for a backward-looking 12 months. Based upon our current performance and our projections for the future, we believe that despite the continued progress of these properties, we do not expect any conversion of CCS shares until the end of the third quarter next year.

The 10 wholly owned lease-up properties that we acquired from Storage USA are also doing well. As of September 30, the average square foot occupancy on these properties was 76.4% versus 62.9% the year before. Revenues for the quarter were up 23.4% and NOI up 27.9%, and for the nine months ended September 30, revenues were up 35.1% and NOI was up 44.2%. With these strong operating results, it's clear that our acquisition of Storage USA is off to a good start. The integration of the two companies is doing well, but there is plenty left to be accomplished.

On the development front, we completed two acquisitions in the quarter -- two expansions in the quarter, which added 24,000 net rentable square feet to the existing facilities. This brings the total number of development projects completed this year to six. We plan on opening three more projects by the end of the year, representing a cost of $31 million and a further 213,000 square feet. Our 2006 development pipeline includes 13 new properties and two expansions for a total development cost of approximately $90 million. Eleven of these projects, with a total value of $67 million, will be owned by the REIT in a joint venture format. The construction of most of these projects has already begun.

With respect to acquisitions, we are only just getting back into making offers on properties. Our primary focus during the past quarter has been the integration of the two companies. We do, however, have four properties from our managed and franchised group, which are under contract or letter of intent to be acquired in the next few months for a price of approximately $20 million. We also have three other properties under letter of intent for a price of $17.9 million. During the coming year, we expect to become more active again in acquiring properties which meet our quality, price, and location objectives. We have a goal next year to acquire 160 to $200 million worth of properties.

Our other growth area is through our franchise and management business. We're in the process of wrapping up this program. The primary benefit of the franchise program for us is a future acquisition pipeline. The fact that we are acquiring approximately nine franchise properties is an indication of the benefits of this franchise program. We will be giving you more information in future quarters as we further develop the franchise effort.

With that, I'd like to turn the call over to Kent Christensen, our CFO, who will comment on our financial results in more detail.

Thanks, Ken. Our financial statements covered in this report include the three and nine months ended September 30, 2005 and are compared to the three and nine months ended September 30, 2004. The results for the three months ended September 30 of this year include the operations of 546 properties, 191 of which were consolidated, and 355 of which were in joint ventures compared to the results of the three months ended last year, which included the operations of 142 properties, 124 of which were consolidated, and 18 were in joint ventures. Revenues for the entire portfolio for the quarter were $43.1 million compared to $18.2 million in the third quarter of 2004. The net loss for this quarter was $2.9 million compared to $5.1 million for the same quarter last year.

For the nine months ended September 30, 2005, our revenues were $90.7 million and a net loss was $4.7 million compared to $43 million in revenues and $18.1 million in net loss for the same period 2004. The $24.9 million increase in revenues for this quarter due to the following: First, the acquisition of the 61 wholly owned properties from Storage USA; the addition of these properties increased revenues approximately $11.4 million during the quarter. The second reason for the increase is the acquisition of 52 stabilized properties during 2004 and the first quarter of 2005, which contributed $5.8 million in revenues. And, the purchase of our joint venture interests out of our partners' joint venture interest in 66 properties during the same period last year. In addition to the acquisitions of these properties, our revenues have increased by occupancy gains, rental increases in our existing and our lease-up properties. Finally, we received management and franchise fees from these properties that we managed from third parties, franchisees that are either owned or in joint venture. The 6% of revenues we receive from managing these properties has increased by $4.2 million compared to the same quarter last year due to the Storage USA acquisition.

Our G&A expenses for the quarter, after netting development fees, was $9.2 million. This level of G&A was expected given our assumption of the Storage USA's $38 million in annual overhead on the day we made the acquisition. We have made significant progress in reducing that number since July. Our estimated run-rate on Storage USA G&A was expected to be $23 million, a reduction of $15 million. With the ongoing progress of integration and continued focus on overlaps and efficiencies, we expect to be able to reduce firm-wide G&A even further in the next quarters. We currently are on track for an annual run-rate of between $33 million and $34 million of G&A. Interest expense for the quarter was $14.6 million. The increase from the quarter was due mainly to the financing for us to be able to complete the Storage USA acquisition, including the trust-preferred debt and our bridge loan. Included in this increase is $865,000 in fees related specifically to the bridge loan.

As to our balance sheet as of September 30, 2005, our outstanding debt was $1 billion for '05 including notes payable to trust under the trust-preferred financing. Currently, the fixed rate debt to total debt is approximately 74%. The weighted average interest rate is 5.3% for the fixed-rate loans, and 5.9% for the variable-rate loans. The total weighted average interest rate of all fixed and variable-rate loans is 5.4%. Our debt-to-market cap ratio at the end of the quarter was 62.2, and our debt service coverage was 1.49. Excluding one-time costs, that would have been 1.69. As of September 30, we had capacity on our line-of-credit of $75 million, of which 42 was drawn. Our $61 million bridge loan used for the Storage USA transaction is due on January 15. The current rate on the bridge is LIBOR + 2%. As of September 30, the rate was 5.86%. During the quarter ended September 30, we closed one separate trust-preferred financing for net proceeds to the company of $40 million. In total, we have raised nearly $120 million in three separate trust-preferred offerings. These amounts are preferred stock, but are recorded as debt for our financial statements due to the required repayment of these securities in 30 years. These preferred payments of approximately $1.9 million will be included in our interest expense.

We are looking at options in regard to our current capital structure. The S3 registration and other registration statements which we have filed with the SEC, we believe will be effective today. We have not yet decided on timing or the amount of any potential offerings. Proceeds from an offering, however, could be used to reduce our variable rate debt, our total debt, and to help with our debt-to-equity ratio, and to fund future growth.

A quick update on our financial procedures. We are continuing the documentation and testing of our internal control processes as required by Sarbanes-Oxley. Our initial testing has been completed, and we currently have our auditors in our office performing the tests of our systems and controls. As of today, no material weaknesses have been found or brought to our attention. We are expecting to be in compliance with these rules by the end of the year. Our current estimate for Sarbanes-Oxley costs for 2005 is about $800,000, of which $300,000 will be incurred in the fourth quarter. In October, we hired a Director of Internal Audit who has helped us with these complicated issues and reports to our Board of Directors.

In terms of the Storage USA financial integration, all of the accounting functions that were once performed at Storage USA's Columbia, Maryland facility have now been consolidated to Salt Lake City.

Moving on to our outlook and guidance, as reported in our press release and our 10Q, our third quarter FFO per share was $0.18. Our adjusted FFO per share after taking out $0.06 in one-time charges related to the Storage USA acquisition, was $0.24. This was in line with our third quarter guidance given on our second quarter conference call. This guidance included the Storage USA acquisition and the $0.08 to $0.10 accretion that we expected from the increased revenues and fees, and the increased interest expense from our three trust-preferred offerings. It did not include the $2 million to $4 million in anticipated uncapitalized transaction costs. These costs came in at $2.5 million for the quarter, and included severance pay retention bonuses and a majority of the integration costs. This had a one-time $0.06 impact on our third quarter FFO.

As reported in this morning's press release and 10Q, our properties in Florida and New Orleans had sustained some damage from hurricanes Katrina and Wilma. The estimated costs to repair the damage from these hurricanes is expected to be up to $1 million. However, certain of these amounts will be capitalized and not affect our FFO. These amounts that I've given are net of expected insurance reimbursements.

Our guidance for the fourth quarter, excluding one-time Storage USA acquisition costs and costs related to hurricanes Katrina and Wilma will be in the range of $0.23 to $0.24. This puts us in line with our yearly guidance that we gave on the third quarter call of between $0.77 and $0.80 without including the Storage USA transaction costs. We expect one-time charges in the fourth quarter of between $0.04 and $0.05 from the Storage USA transaction, and possibly, up to $0.01 to $0.02 cents in hurricane-related costs. This should bring our yearly unadjusted number to between $0.64 and $0.68. With that, I'd like to turn the call over to Karl Haas, our Senior Vice President of Operations, who will give you some more insight on the operational performance of our properties.

Thanks, Ken. Before I go on to the property performance, I want to give you an integration update from an operations viewpoint. First, we've completed the conversion of Storage USA's site management software. This was critical, getting everybody on the same system. This conversion was finished in mid-September, with the exception of some speed issues, where DSL and cable modem technology is not available; it's gone better than we could have hoped. This conversion has been very well received by the Storage USA sites, and calls to our in-house help desk have dropped dramatically since earlier in the conversion process.

On October 1, we implemented our new operations management structure that will enable us to leverage our new size and gain efficiency. We kicked this off in October with a national meeting here in Salt Lake City where we brought in all of our field management team, and we focused on our key mission of increasing revenues and maximizing our customer storage experience. Our new structure now consists of six divisional vice presidents and 48 district managers. We've had very little turnover in the field during this integration process. Most importantly, the attitude of the field remains very positive. As we talked about in last quarter's call, the executive team traveled around the country doing town hall meetings with approximately 90% of the 1,500 field employees. The feedback from these meetings was very positive. And our field employees are committed to working together to create the best storage company in the industry.

As Ken mentioned earlier, the performance of our facilities remains solid. The newly acquired Storage USA facilities have continued to perform very well. The legacy Extra Space Storage sites also have had excellent year-over-year growth. Arizona, Florida, California and Nevada are the top-performing markets, while New Jersey and Pennsylvania are slightly below the portfolio average.

This year's hurricanes have had an effect on the properties located in Florida and New Orleans. Our two facilities in New Orleans which were damaged by Hurricane Katrina have reopened on a limited basis, and repairs are being made. Neither of the two facilities experienced flooding, but did experience wind damage. Rents have been turned back on at both sites effective November 1, and we are in the process of submitting claims for business interruption insurance. Both sites are over 90% full. However, these sites only make up less than 1% of Extra Space's revenues. Hurricane Wilma affected over 40 stores on the East and West Coast of Florida. Seventeen wholly-owned, 21 joint -venture, and three franchise properties were damaged. For the most part, the damage to the properties was not substantial, but it was widespread. All the properties are now open, and we believe this event actually will boost our occupancy and revenues in the coming months in the impacted markets.

Looking forward to quarter four and beyond, we are planning to continue to build industry leading processes and practices across the Extra Space operations. In particular, we will be improving the look and feel of the facilities to make sure that an Extra Space Storage customer receives the same standard of cleanliness, maintenance and operational excellence wherever he or she uses Extra Space. Our rebranding efforts to convert the Storage USA brand to Extra Space Storage brand is already underway and will continue for the next year. Extra Space has set a very high maintenance and cleanliness standard. We call it "Clean & Green." We plan to challenge our managers across the entire portfolio to reach and maintain that standard. We are also working on a new site manager certification training program that will ensure Extra Space managers have the sales, customer service, and technical skills to excel and to exceed our customers' expectations. Along this line, we are developing a customer satisfaction monitoring initiative that will enable us to measure the customer satisfaction at the site level, allowing us to get a better read on how we are doing in the field currently, and in comparison to prior periods. Overall, we are very excited about where we stand four months after the close of the Storage USA acquisition. With that, let me turn it back to Ken.

Thanks, Karl and Kent. We've come a long way this quarter, but we still have a great deal more to do in order to maximize the benefits of the Storage USA/Extra Space merger. For example, we need to do more to maximize revenues. The Storage USA revenue management team is now part of the Extra Space Storage team, and this is really going to help us achieve that goal. We also want to take more advantage of our scale. We have already seen tangible evidence of this in areas such as Yellow Pages and the Internet. Our increased scale will also be able to be used to create more visible marketing efforts that will target the more valuable customers.

As Karl mentioned, we've begun our capital improvement program and rebranding efforts. Over 50% of the Storage USA properties will be completely repainted and 100% will be re-signed. This will be completed by the end of 2006. On the technology side, our goal is to have industry leading solutions. We already have a head start in this area, and we aim to capitalize on it. Our accounting and financial reporting team will be working on streamlining and speeding up our reporting cycle. These last few months have been a huge challenge for them as they've worked to integrate all the Storage USA data and reporting protocols. With the bulk of that work out of the way, we look forward to providing you additional information during upcoming quarters, and also doing it in an earlier point in the reporting cycle.

We expect the benefits of scale will also manifest itself in our ability to do more for less in many areas of the organization. We are always looking for ways to reduce costs while maintaining and improving our effectiveness. We will continue to grow through both acquisition and development. We believe that a consistent pipeline of development properties is important to the growth and profitability of our company. The same is true for an acquisition pipeline. The fundamentals of self-storage remain strong. We continue to see the ability to raise rents particularly in southern California and Florida. Our centralized, real-time technology system, combined with our revenue management team proactively managing rates makes us confident in our ability to increase revenues.

At a macro level, personal incomes remain high and Americans have a seemingly unquenchable demand to possess, and maintain and retain their material possessions. There seems to be an addiction -- I call it "packrat-ides." At any rate, storage is a great business today, and I think it's going to be a great business for many, many years in the future. With that, Ken, Karl, and I are now ready for any questions that you might have.

[Operator instructions] Your first question comes from the line of Brett Johnson. Please proceed.

Hi. It's Jay Leupp here with Brett Johnson, RBC Capital Markets, and an avowed pack rat. I wanted to follow up on your acquisition comments, in addition to what you've done with the Storage USA portfolio. You've got some pretty aggressive goals for the next year or so. What do you anticipate in terms of cap rates on those acquisitions? And, what are you seeing in terms of competition? And where will these acquisitions fit into your overall national portfolio geographically?

Well, first of all, geographically, we're continuing to look at and focus on the efforts that we consider our core markets, which I mentioned were basically the East Coast, the West Coast, and Chicago, to make it simple. West Coast/East Coast, it's Mid-Atlantic. So, those are the areas we're going to be focusing on for acquisitions.

With respect to cap rates, there's a definitional problem here. We look at a cap rate, after taking a management fee out of it, because everybody in the business has management costs. So, you can look at pre-management fee or post-management fee costs. We look at it after assigning it a management fee. Secondly, we also look at cap rates on an as-is basis as opposed to a pro forma, in the future, basis. So, based upon that, we're looking at cap rates in the range of 7. We'd like to wish they were 7.5 or 8, but the reality is the higher quality properties tend to have a lower cap rate. So, we'll probably be looking in that 7 range.

Also, let me say that we have looked at a lot of properties. We actually have made offers on a couple hundred million dollars worth of properties, which we have not been able to win. We have no guarantee that, even though our goal is for $160 million to $200 million, that we'll in fact achieve that, because we're trying to be careful with quality and with return to make sure we don't delude ourselves in the process of doing too many acquisitions.

And in terms of competition driving those cap rates down, what are you seeing in terms of competing capital for various acquisitions across the country?

Well, we're seeing Public Storage is a very strong competitor. U Store is a very strong competitor. And, we're also seeing private institutional, or institutional capital for the portfolios, to be a strong competitor, in addition to continuing to see 1031-type buyers and just private buyers. They're all over the map. For example, in California one-off deals are tending to trade with 1031 buyers at cap rates down closer to 6%.

Okay. Just a last question to follow-up just on your branding strategy and marketing strategy -- can you give us some color as to brand consistency and how you're going to leverage the marketing costs in each of these core markets?

Well, let me first talk about color and that sort of thing. Extra Space has always sort of been green and sort of tan. Storage USA has been blue and gray. An issue is how do you integrate that? First of all, we brought in through the Extra Space logo; we have a slightly changed logo. We've brought some blue into that logo. Where a property needs to be completely repainted, it will be repainted with the Extra Space colors. Where it doesn't need to be repainted, we have now got the logo as such that we can leave the doors blue, and so we can use the Storage USA blue.

Many of the Storage USA properties, the gray color starts looking very dingy after a few years, and this is one of the observations we've made as we've gone around and looked at the properties. So, the repainting is an effort to freshen things up. So, there will become a more consistent look and feel with signage and color.

With respect to other branding initiatives, for the next year we're going to be operating with Yellow Pages ads that say both Extra Space and Storage USA because this is going to be a process not an event. So, we're going to be integrating the two Web sites, and all of the Yellow Pages will have two brands, many of the other advertising that we do will have both brands on it. And it probably won't be until 2007 before the Storage USA brand pretty well goes away.

Thank you.

[Operator instructions] At this time, there are no further questions. Correction, your next question comes from the line of Rick Murray with Raymond James. Please proceed.

Hi. Good afternoon, guys.

Hello.

Can you hear me?

Yes, we can hear you.

Okay. I guess I was just curious with regard to your acquisition targets and any potential capital markets activity that you're anticipating along with that.

First of all, in order to do $200 million of acquisitions, if we're to achieve that, we can't do that all with debt. So, that implies that we're going to have to do some equity transactions. We do not yet have a firm plan as to how much equity we might issue, because it depends on what we get under contract and what's going to happen in the future. Right now, we don't have that much under contract. We're sort of going to be watching the capital markets to see how reception of an equity market would be and if the capital markets would, one, allow us to raise equity. We don't want to raise equity in a way that dilutes the existing shareholders. So, we're going to be fairly careful on being over-aggressive in raising equity, particularly at the current price where the stock is right now.

Okay. Great. The other question I had was with regard to the G&A run-rate. Your expectations for $33 million to $34 million next year, does that incorporate also -- I wasn't clear from my understanding -- all Sarbanes-Oxley costs and any other type of costs that you've discussed earlier?

Yes, it does, with the exception of that would be any hurricane-related costs. We would expect to have that completed by the end of this year, to have that included in our quarterly numbers for the fourth quarter, unless there's hurricanes next year.

We're hoping no more hurricanes will happen. It's been a long time since we've had hurricanes that would damage self-storage. Hopefully it won't happen in the next year either.

We're in Florida and we hope so, too. Thanks guys.

Did you get hit very hard?

No, we were actually very fortunate this time around.

You're a little far north.

Yeah. All right. Thanks.

Okay.

Your next question comes from the line of Ross Nussbaum with Banc of America Securities. Please proceed.

Good afternoon guys, it's Christy McElroy here with Ross. Your management fee income came in a little bit above our forecast in the quarter. Is Q3 a good run-rate for the incremental impact from the SUSA acquisition, or do you expect it to rise further from here?

It would be pretty close to where we think it would be Christy. We came in about where we had thought it would be. It will be slightly higher because the properties were acquired on the 15th of July. But, it'll be just incrementally different because of that. Otherwise, it should be pretty close to the number that's in the third quarter.

Great. And Kent, did I hear you right the $865,000 in fees associated with the bridge loan, was that included in interest expense?

Yes, it was. It was a one-time cost.

And was that part of the $2.5 million of one-time charges associated with --

Yes, it was.

Okay, great.

Yes it was.

And it looks like you introduced a tenant insurance income as a new line item in the third quarter. You mentioned in the past that you expect to bring some or all of this business in-house. Is this a sign that you've begun the process? And how much do you expect this income to grow over time?

Yes, we have begun the process of part of acquiring Storage USA, they had a captive insurance program, which we were able to, what we call, piggyback on their program until such time that we're able to convert that to a program that is Extra Space owned, which is the plan that we have is to bring to go forward and move in a more forward direction along those lines. The number that we have in the third quarter right now was the number that we're projecting to go forward since we don't have good numbers yet, for how this program's going to be. But the numbers that we have are kind of an annualized -- if you took the numbers that are in the third quarter and annualized them, that's numbers that we think will be good for next year.

Okay. And my last question, the $0.04 to $0.05 of one-time costs that you refer to in the fourth quarter, what's included in those costs? And, where will that show up in the P&L?

What's included is additional costs of the transition from the Storage USA additional retention bonuses, additional duplicate salaries; it'll almost all exclusively be in the G&A line item.

Okay. Thank you.

[Operator instructions] At this time, there are no further questions appearing in the queue.

Thank you very much. We appreciate all of you attending and listening to this conference call, and we look forward to talking to you in the future, and appreciate the time you spent. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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