Life Storage Inc (LSI) 2002 Q3 法說會逐字稿

Good morning. My name is , and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the third quarter earnings conference call for Sovran Self Storage.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. Mr. Myszka, you may begin your conference.

Thanks, . Good morning, everyone, and welcome to our third quarter conference call.

As a reminder, the following discussion will include forward-looking statements, and Sovran's results may differ materially from projected results. Additional information concerning the factors that may cause such differences is included in our company's SEC filings, and copies of these filings may be obtained by contacting the company or the SEC.

I would like to announce Sovran's delivery of another quarter of stable performance in what's become a challenging economic environment. Same-store revenues were essentially flat, however, same-store expenses increased by 3.7 percent, resulting in a slightly negative same-store of 1.6 percent.

Now, relative to a number of other REITs we've been monitoring and to the broader economy, Sovran's performance does continue to be impressive. But, with the results of operations essentially flat for this year -- not only for Sovran, but essentially for our entire industry -- I'd like to comment on our industry's behavior during prior economic downturns, and offer some perspective here.

This certainly is not the first downturn that we've experienced in our 20-plus years in the storage business. Typically, early in a recession, storage continues to outperform the economy. However, at some point we are unable to push any further without eroding physical .

Sovran reached that point earlier this year, and in order to maintain occupancies we instituted incentives on particular units at various store in our systems.

Fortunately, storage begins to feel the effects of an improving economy before most other industries -- is in part why we continue to allocate funds to outfit our company with the tools necessary to distinguish our stores from the competition. Now, we do this so that when the economy begins its upward cycle -- and typically the upturn will be so subtle we won't even know it until after it occurs -- but we do this so that Sovran will be positioned to respond to increased demand.

Things like our Uncle Bob's Trucks, which in addition to offering incentives to prospective customers to rent with us, serves as an excellent mobile advertising venue. Or, our proprietary humidity control system, Dri-Guard, which enables us to obtain rents at rates 25 percent higher than non-treated spaces. Or our Customer Care Center, which all storage inquiries throughout the country to a specially trained customer care representative here in Buffalo. These are all the types of initiatives which will ensure Sovran's long-term success.

The Customer Care Center, in particular, enables us to maximize our sales efforts during this slow period, but also positions us to capitalize on the eventual increase in storage inquiries when the economy improves.

Despite the short-term diluted impact which the cost of these initiatives has on earnings, we choose to stay the course for the long-term with a confidence in the results of actions taken during similar prior downturns.

Now at the same time, we have taken steps to strengthen our balance sheet. We knew these actions would adversely impact our short-term earnings; however, they do increase our flexibility to pursue various alternatives over the long-term, and will help us increase shareholder value.

In summary, although our nation's prolonged economic slump has impacted our growth this year, Sovran remains in excellent financial shape. Its dividend is safe and strong, and it is poised to answer the bell when the economy improves. Nonetheless, the cost of battling the downturn with marketing incentives, coupled with the added cost of strengthening our balance sheet, lead us to revise earnings guidance for 2002 FFO per share of between $2.88 and $2.90.

What I'd like to do now is ask Dave Rogers, our Chief Financial Officer, to offer some details on our financial performance and position.

Thanks, Ken.

Hopefully you've all received a copy of the press release and the accompanying charts depicting our third quarter operating results. If not, let us know and we'll get one to you.

With regard to operations -- total revenues increased by $2.8 million, or 12 percent of 2001's third quarter. This was primarily due to the addition of eight stores in late 2001, and 19 stores earlier this year. Operating expenses increased by $1.3 million as a result of adding the new stores. Total increased by $1.5 million.

Overall occupancy was 84.2 percent at September 30th, and average rent per square foot for the third quarter was $8.61. This is almost exactly where we were at the end of the June quarter, so we held steady through the summer.

Same-store revenues were essentially the same of those in the same quarter of 2001. We arrived at this kind of equilibrium by affecting a 4.6 percent increase in our pricing structure -- giving 2.2 percent of it back in discounted incentives, netting 2.4 percent in rate growth. Our occupancy fell 2.4 percent, so for all of our hard work we wound up even on the top line this quarter.

Operating expenses on a same-store basis increased 3.7 percent, resulting in a setback to same-store of 1.6 percent. Payroll with related benefits and insurance premiums experienced significant increases over last year's levels.

costs for the third quarter came in at 2.2 million -- about 175,000 more than we expected. Virtually all of this increase is attributed to call center configuration and startup costs. We were forced to beef up our staffing to get greater call coverage at peak times earlier this summer.

Interest costs were $530,000 higher than for the comparable period last year. Our average interest rate for 3Q of 2002 was 5.64 percent. Virtually all of this increase in interest expense is due to the fact that at the end of 3Q last year we hedged a big part of our , which effectively added about 110 basis points to our rate. In addition to the $50 million of 10-year fixed-rate mortgages, we presently have agreements fixing $130 million of our line debt. We've elected to leave the remaining balance of $71 million on a floating rate basis.

It's important to note that these all associated with our credit line are effective only for the life of those agreements, which expire near the end of 2003. While we've protected against LIBOR fluctuations, we still have a certain degree of exposure on the credit spread negotiated at renewal, or on extension of those lines.

Overall, at September 30th, we have $250 million of total debt on our consolidated balance sheet, of which over 70 percent is either fixed or hedged for periods ranging from three to 10 years.

With regard to our capital structure, as most of you know, on July 3rd, we entered into an agreement with a group of investors lead by Prudential Real Estate to issue $70 million of preferred stock to a private placement. We immediately issued 40 million of those shares and paid down our line debt. We'll draw down the balance later on this month, and pay off an additional 30 million in debt.

The shares were issued with a coupon rate of eight and three eighths, and they're convertible to common shares within five years at a price of 32.60. In lieu of a syndication fee, we also issued warrants to the investors to purchase shares at the same $32.60 price.

So, now our capital structure is a lot more solid. Prior to the preferred issuance, we had less than 10 million at capacity on our credit line, and we were bumping up against several of our bank loan covenant limits. We obviously needed an equity infusion of some type, and for several months we explored various options.

We feel the issuance of this convertible preferred was the least dilutive and most effective means to shore up our balance sheet and provide us with the capacity and flexibility we need. And we're very happy to have Prudential and GE as investors.

Our liquidity situation has improved considerably. At the end of this month, we'll have over $50 million of capacity on our line, and expect to generate six to $8 million in free cash flow after dividends and cap ex this year.

During the quarter, we also sold 202,000 shares through our DRIP and direct purchase plans, leaving $6.1 million at an average price of $30.40 per share. Obviously, the situation has changed since August, and at this time we don't plan to issue additional shares through the direct purchase plan. To the contrary, given our current share price, we share repurchase plan and judiciously acquire shares in the open market, subject to covenant restrictions and investment alternatives.

With regard to guidance -- it's been more difficult this summer and fall to forecast top line results than probably any time since we've been a publicly traded company. Just to put it into a little bit of perspective -- we experienced an annual lease turnover rate of about 96 percent our 132,000 storage units. If we fluctuate by even one percent of that, it has an FFO impact of over eight cents per share.

Given the competitive climate and the continued need for incentives and discounts, we're forecasting zero percent top line growth for 4Q of this year. Operating expenses -- while we've got them under control -- are still expected to rise about three percent, so we're projecting negative growth for the balance of 2002.

This combined with the dilution caused by paying down our low-cost floating rate debt with the proceeds of a series C preferred, to lower guidance on our fourth quarter FFO estimates to 69 to 71 cents per share.

As far 2003 is concerned, we're not comfortable at this time in giving a projection for revenues and without that component of the model in place, we have to hold on FFO guidance until our February call.

Once again, I'd encouraged all of you who are interested to visit our Web site at sovranss.com for SEC filings and the press release.

At this point, I'll conclude my prepared remarks and turn the discussion back to Ken.

Thanks Dave. That does conclude our prepared remarks. As Dave mentioned, we would be pleased to answer any questions that you might have.

At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Your first question comes from of Salomon Smith Barney.

Good morning.

Morning.

Morning .

Just had a, on guidance for 4Q, you said there was some dilution related to the preferred, obviously, if you're drawing down later this month, at eight and three-eights. What will you, or what are you assuming you're paying down, is it a line?

We will be paying, actually what we did earlier this month was we used our line to pay down $39 turn note that expired on November 7. So we basically upped our line, decreased our turn note balance and the proceeds of the preferred will go to reduce the line.

What's the rate on the line right now?

It's LIBOR plus 137.

OK. Could you guys talk about maybe your occupancy experience during the quarter and I know, did you say it was 84.2 percent at September 30th, or was that the average for the quarter.

That was at September 30th, but it actually didn't fluctuate by more than a few basis points throughout the whole quarter?

OK, so that would also be a good average, pretty much. Could you also just, I guess, qualitatively speak to I guess occupancy, compared to last year, throughout this year and then what you're expecting for the fourth quarter, in your assumptions.

In the assumptions, we're expecting it to hold at about 84 percent. We had started out the year, at the end of last year, we were at 84 percent. We dipped to 82, which was our all-time low, public or private, in the first few of '02. We were at 84.5 percent at the end of June. We were at 84.2 percent at the end of September, and pretty much those numbers held through the quarter. We expect to remain pretty constant through the balance of the year, at about 84 percent.

Now, I guess could you also then quantify discounts for the quarter versus 2Q, '02, and then versus the prior year period, 3Q, '01?

Discounting as far as we were concerned really didn't start in earnest until August. We have often times given a partial month free or a few days rent, but we've worked hard to maintain the rate structure. We built the rates over the years and we haven't changed the street rate, but we have, the discounts are really incentives for anywhere from a month to 45 days free rent, which we basically took a hit on in August and September. Prior to that, we had very little of it.

So essentially what we were doing was building our rate. We have increased rates even through this. We're evaluating that strategy right now, but essentially we've, , stable and as a result, that's why revenue growth is essentially flat.

OK, I mean, do you feel that, I mean, that said, that the actual discounts are helping you. I mean, would it be better maybe if you just quit raising rates or moved, adjusted rates back to previous levels, a market level, let's say, and then just didn't offer as much of a discount?

, it's, what you're getting into now is kind of an art, not a science, and it's, you know, it's push and pull as far as rates and occupancy is concerned. The specials that we ran for the third quarter did have the desired effect that we were looking for, and that we had 2200 more net move-ins in the third quarter of this year versus the third quarter of last year. We did have an upfront cost, as Dave alluded to, but what, part of our goal was was when we have a lot of activity going on, which was still occurring in July and August and mostly of September, is when you're going to get the people in and what the expectation is, all I have is customers stays between seven to nine months, we're anticipating that those people will stay through the slower months. So untimely, we expect this will be a positive for us, obviously, otherwise we wouldn't have done it.

Has the average stay, as you measure it, remain completely flat throughout the last year or 12 months or whatever?

I'd say it's, I'll tell you, yes, it's in the range that you know, the commercial customers stay upwards of 22 or 24, 26 months. Residential customers will stay anywhere from say three to six months, in that range, but the average for us is probably in the range around nine to 10, 11 months is what the average customer stays.

Not the seven to nine months you just mentioned?

Well we get, for these purposes, is we're being a little bit more conservative and saying if they stay, only for those period of time, we'll be making, we'll do well with the special.

OK. And what would the structure be for, let's say, a one-month, 45-day discount. Would that be on the front end, or backend loaded?

Yes, it's on the front end. What you're trying to do is get people in, so they incentive is if you can get them in without having to pay anything, than that's a great deal for them. And what we were able to determine, through the end of last month is, most people we offer that incentive to, we had over 65 percent who are still with us from July and over 70 percent was still with us who moved in in August. So we feel pretty confident that we're going, it's going to be a net positive for us.

OK. And how do you guys recognize the, I assumer you recognize the concessions up front?

Yes, that's really what hurt us in August and September, , was basically we had our occupancy there, and we had some 6,000 tenants not paying rent for that month. So it's basically hit first day, zero revenue first month and then as they say, they pay.

What I just want to add to that is the way we implemented this, wasn't, you know, a shotgun approach. We went to each, had each scorer study their inventory, and those stores that had certain unit sizes with an occupancy level of 85 percent, those unit sizes were eligible for the incentive. But it wasn't uncommon for many stores, who were at the same time, were offering specials for low occupancy units, so you're getting a premium for those that were in high demand. So it's classic letting the management techniques that we've been played here.

And is it certain unit size wise that are typically more vacant than others, or is it just completely?

It varies from market to market, but a lot of times, you'll see smaller unit sizes, maybe in many markets, but then again, small markets, small unit sizes in college towns and military places, they generally will get used at various times of the year as well.

And then just on the G&A, is that, is this quarter's G&A a good normalized base or is that 175,000, should I knock off 175,000 for the fourth quarter for my modeling purposes or?

I'd split the difference. I'd knock off about 80,000.

OK. And lastly, I guess with regard to the call center. Is most of the spending done for the year on the call center, with regard to implementation?

Yes, we're, we think it's a real good system, we think the team that we hired in training, the initial way, it was obviously the most expensive, because you're bringing on a couple dozen people all at once, got the training program in place, the technology's in place, so now it's just, there's an add-on to, obviously our overall overhead, but the initial start-up costs are done in the system. I think it's running the way we want it to and the way it will be for the coming year.

Last question. Same store, on a sequential basis, from 2Q, '01, do you have that?

Same store ...

NOI.

NOI? I don't have it here, but I'll fax it to you.

That'd be great. Thanks guys.

You're welcome.

Your next question comes from Paul Adornado of Mercury Partners.

Hello Paul.

Good morning. Hi.

Morning

I was wondering if you could talk a little bit about what you're seeing in the marketplace in terms of new supply coming on, either by region or it's on a national basis? Have there been substantial increased in construction over the last year or so as some, sort of anecdotal sources might indicate?

Paul, we have not noticed in the last, actually I think in the last year-and-a-half, maybe even eight quarters, we've seen, in our markets, for the most part, a reduction in the amount of new construction over what we saw for probably 12 to 16 quarters before that. Doesn't mean that there's no construction, but it's less than what we had seen in that three to four year period, prior to that last, let's say four to eight quarter.

So I don't see that as a huge, I mean, there's some markets where we have it, but overall, I think the answer will be, there's probably been a little bit less increase in the amount of new construction, in the past, say four to six quarters.

And what about the financing sources for construction?

I'm sorry.

What about, could you comment on where the construction dollars are coming from?

For the most part, we still see it coming from relatively well-healed developers. It isn't it, our business is obviously a spec build, but the lending has gotten away from that horror story of the early 90's of spec lending. So typically you see the commercial banks come in with a decent loan to cost as opposed to a loan to appraise value, it's been to real cost, but that doesn't mean there aren't people who have it and who are looking to build. I think you're seeing now the more build-for-own account type stuff, as opposed to build to flip to a REIT, especially the last, probably good two plus years, there's been a lot less, we've had much fewer conversations with people who are looking to unload their 30 percent leased property to us or turn a tee over to us for a property they just built and expect it all along to flip to one of the, at the time, five REITs in place. But I do think, you know, the construction line certainly is available for people who have a decent balance sheet and who are willing to sign on the dotted line and are willing to put up 20 or 25 percent of the initial cost as real hard equity.

OK, great. Thanks for the color.

Thanks.

Your next question comes from of .

Hello gentlemen, how are you today?

Good , how are you?

Morning.

I remembered my very nice visit up in Buffalo a few years ago. Excuse me, I'm hoarse, and I was very impressed by and Dave and the rest of your fellows in talking to you several times. You seem to know what you're doing. I've been in the business so I know a lot about it, and it's very nice to be associated with you as a stockholder.

Thank you.

Secondly, I'd like to ask you, I notice you have two companies, and , I was wondering why you didn't incorporate them into the REIT, as you did my facilities when I, when I went into your company?

Essentially , those are joint ventures that we formed back when the time when our stock price was very low, when our ability to borrow was somewhat constrained. We basically had an opportunity from some sellers who were looking to get out of the business who were not looking for much in the way of ongoing return, but essentially looked through how much we, essentially have rolled one of those partnership, is rolled into our company as a consolidated joint venture. What essentially it had to do with capital conditions at the time, debt conditions at the time, the opportunity to acquire good property in a structure that made the most sense for us on a non-diluted and cash-flow basis. So it all depends on the timing and where the market is at that point in time.

Are the directors of Sovran independently involved in these companies?

Not at all. They're totally on the bank transactions. They have their own boards of directors. We do own, in both cases a 40, in one case, a 49 percent interest and a 45 percent interest, so we have representation on the board of both and , but it's as a corporation that we have that and the directors of this corporation will serve on those boards as well, but it's as a member of Sovran that we serve.

Thank you very much for answering my question. It's a pleasure to be working with you fellows, and we're all cheering for the future.

Thanks .

Bye now.

Your next question comes from of AG Edwards.

Morning guys.

Morning .

Hi .

Just a couple quick questions for you. Can you comment a little bit on the acquisition market? You didn't complete any acquisitions this quarter. What are you guys seeing in terms of deal flow, cap rates, et cetera?

, there's not a lot. I mean we have a number of things in the pipeline, number of properties, but at various stages of negotiations and pretty close to contract on some things, but even there, when you go through your final due diligence, quite a number fall out. Cap rates are still pretty rigid. We're seeing quite a bit in the non-areas, so we're looking very, very closely and guarding our capital carefully. It's difficult at this point to say whether we'll be closing anything for the rest of this year at this point.

Dave, does the guidance of 69 to 71 cents incorporate any acquisitions or are you assuming no additional incremental acquisitions for the rest of the year?

None, and you know, even if we had any, it would be so late that they wouldn't make an impact, but yes, we're not forecasting anything to have an impact on guidance.

OK, Dave, if you do, as you except to draw down the remaining 30 million in the preferred and pay the line off, given where LIBOR is today, what are you guys projecting for your average debt cost for the fourth quarter?

If you include the preferred dividends?

No, just on the debt alone.

We're pretty much stuck at this 5.6, because so much of it pays, so we'd be about 5.6, five-and-a-half.

OK. Can you talk a little bit about how is going now? I mean I don't know if you have any anecdotal evidence to discuss what its impact has been, and if, in general if you continue to be pleased with the program?

Yes, it's really been fully integrated as a normal part of our operations and has been really for most of this year. What we, it's not as dramatic as we had anticipated as it would be initially, as far as the number of stores and a number of units that we would have converted, or felt we were going to convert, initially. However, it had the intended effect of getting people's interest in bringing more and more people to the store, which ultimately resulted in more occupancies we believe. But we wound up spending a lot less money than we originally anticipated, wound up converting fewer units.

I would say it was a positive for us overall, but not nearly the homerun that we had hoped it would be originally, but still we're pleased that we did pursue it.

OK. Last question, I was wondering if you could maybe, now that you've had the customer care center really up and running for the balance of a couple of quarters now, if you could talk a little bit about the number of calls you're receiving on an incoming basis, and if that's sort of in line with your expectations, and maybe what percentage of those, you know, true rental inquiries are actually being converted into leases, and sort of how that balances out relative to your expectations as well?

Right. Well, we have good solid information now that's being generated from the call center as of the beginning of April. So starting next April, we're going to have very, very good numbers where we can act on and I think have the best control of our business from a marketing standpoint that we've ever had.

During the third quarter, our call center fielded approximately 85,000 calls. We had approximately 32,000 move-ins, which would bring us, you know, close ratio 37 percent. Now, that I have to say is inexact, because it doesn't account for, you know, walk-ins and things of that nature. So we're going to continue to refine what that close ratio is. Let's say as far as the calls that were place directly here and resulted directly from, only from the call center here, we couldn't give you the honest number, other than to say it's less than 36 percent. The important thing from our standpoint internally, is to manage it consistently, so that we're judged on a consistent basis from week to week and quarter to quarter.

When we can get to the point where we can isolate move-ins directly related to the call center. We'll begin reporting on that basis.

OK, great. Thanks. Thanks guys.

OK, , thanks.

Your next question comes from Rich Moore of McDonald Investments.

Good morning, guys.

Good morning, Rich.

I'm a little -- I'm trying to get my hands around -- you know, you guys had the second quarter call in August, and, you know, at the time you gave us guidance of three to , and I'm trying to piece together a little bit what you couldn't tell was coming at that time that has materialized over the third quarter.

A rate , essentially. Public Storage, with the big push that they had with advertising with giving away the one month free, we were -- at the time of our call and at the time of our board meeting in August, we were rolling along with the typical placement structure, and we started to feel an awful lot of pressure right at the beginning of August from not just Public, but their ripple effect, I think, plus with their advertising with what a lot of the mom and pops do in a lot of markets -- basically put us into a situation of either reducing rates, or offering incentives. And reducing rates -- you probably would feel less in the sense that you're not gonna be getting zero dollars from every new customer. But, we wanted to make sure that we had a decent level of occupancy going into the slow season.

So, we basically, on one Saturday morning, did what Ken said; we looked at all of our inventory, and fortunately we were centralized and we had the technology to do this -- we looked all of our spaces across 260 stores, saw which of our unit sizes were below 85 percent occupancy, trained our customer care staff in a four-hour session and said, "OK. Here's how we're doing this. If we've got space and there's units available in such and such a size, we're red-flagging it on your screen. When the call comes in and you see a red flag on your screen, you can offer the discount -- one month free with a move-in today."

So, it was basically a very quick reaction to market conditions that we saw. I mean, we obviously had some anecdotal evidence. We saw some field evidence. But essentially, it was a -- but a lot of Public's idea to go full- on their advertising and their giveaways.

OK. OK. Thanks, Dave. So, you're really -- the surprise in your mind was on the revenue side almost entirely, and not so much on the expense side?

Oh, yes. Definitely.

And Rich, what I might add is, actually, we feel -- you know, we're not happy that we had to essentially give away that much in revenues. But, we are pleased that we're positioned to be able to react as quickly as we did. What we do is we use the local knowledge of our managers and our regional team leaders to give us the information of what's happening there. We can centralize things here, as Dave said, and then make informed decisions, and then roll it out very, very quickly. So, I think that portends very, very well for us in the future of managing our business.

OK. OK. Great, Ken. That's a good point.

When you guys look at occupancies -- I mean, usually in the fourth quarter and in the first quarter of the following year, the occupancies tend to shrink by 100 to 200 basis points. But, I kind of understood that your guidance for the fourth quarter assumes it will stay relatively flat. I mean, how much confidence do you have? And I guess, why should we expect that the usual sort of trend of down fourth quarter and first quarter doesn't continue?

Well, I can't predict the future, obviously. But, what we did find, as I mentioned earlier -- we had 2,200 more net move-ins in the third quarter than we did in the third quarter of last year, which, if the people stay -- as the average indicates that they should -- we should have a pretty good fourth quarter going into the first quarter of next year.

October of this year -- we had about 1,400 more net move-ins than we did last October, which speaks very well for us. In fairness, though, I have to admit, we didn't, fortunately, have the tragedy of 9/11 this year, which we did last year.

So, there's so many moving parts, Rich. We'd like to be able to say, "here's what's gonna happen," and then feel 95 percent it does. But, we do have a fair degree of confidence that going into the fourth quarter we are going to have stable occupancy going into next year. And that's really kind of the best I can do for you.

OK. No, that's a good answer. Thank you.

And then, on the expense side, you mentioned payroll expenses. Why would those go up? And also, if you could comment briefly on what you're seeing with insurance costs, now that we've been a year past the big insurance increases?

Actually, the payroll is more the benefit side than it is the actual wages. Our bonuses are down. Obviously, our people aren't hitting the numbers we expected, so we can't share what isn't there. And our base pay has historically been at inflation or thereabouts.

So, that payroll is as much the benefit costs, which -- we implemented a program at the beginning of -- at the end of 2000, and it has really been a real to ride. We're not alone, I'm sure, in trying to manage healthcare costs and benefits, but it's something for us to really up in. We've seen 18 and 22 percent increases over the last -- in this year especially -- in the healthcare costs. So, that's really where that part of it is.

Insurance has been certainly very difficult -- not as bad for us as it has been in many industries. We don't have people gathering at our places. I understand that's a very different public places. We don't have the office . But we do have -- after many years of riding; actually, steadily declining premiums, we had a pretty big jump this year. Our year went effective on July 1, and so we took the bulk of an increase this quarter, and we'll do another one in 4Q. But essentially, we are paying now for insurance on an apples to apples basis what we paying in 1994. It's been -- we manage our insurance costs down, and it hasn't been all up. Obviously, a great thing for the industry -- for people buying insurance, right up until 2002, 2001, you can buy it cheap. But, we have seen about a 40 percent increase in premiums this year over last year.

OK. Is that insurance, too, Dave?

insurance hasn't been too bad. We experienced a mild increase, but that's not a real big factor, and that's in our , whereas the other casualty, property and liability is all shown in our operating expenses.

But, -- we carry pretty healthy coverage, and that part .

OK. And now that you guys have a much improved balance sheet -- it looks great -- what's the plan? Are you looking at more ? Or are you -- you know, is there anything that you're targeting?

At this phase of the game right now, we'd love to just go out and buy for the portfolio. I mean, we've got a lot of power on our line. We think we've got the ratios in line. We've got the debt coverage OK. So, I would like to now go out and buy properties for cash on the , and see -- you know, we've -- as Ken said, the cap rates are down pretty low. We do see a little bit of seller interest coming back and a more realistic approach. But, you know, can work sometimes if you've got the right seller who's motivated tax-wise and otherwise. But, right now we've got the fire power, and the cleanest and easiest way to do it is to buy it for cash.

OK. And on the truck rental program, is that pretty much on the schedule, Ken, that you mentioned in the second quarter call.

Yes. We added 30 trucks at the end of the quarter. We have 93, now, stores outfitted with it. Twenty of the 30 were put in the Florida markets to take advantage of the, you know, less climatic events there for the next say, six months or so. And during the third quarter, we had a little over 2000 cutomers move into our stores using the truck. Year to date, about 3500. We have certain assumptions as far as how long they stayed, and what number of the people who use the truck indicated to us they might not have rented it as the truck.

For the third quarter, we were operationally in a cash flow break even with the truck program. So we're very pleased with the effects of it, and the beauty of it is, in addition getting more customers, in addition to providing more convenience and value to them, when they're driving trucks around it's a moving billboard for us.

OK, great. Last thing for me is, Dave, do have the weighted average, number of common shares and C-shares?

Yes. Loose shares for the quarter, 13,124,000. Actual shares outstanding at the end of the quarter were 13,055,000 shares. And units remain constant at 557,000 units outstanding.

OK, and the C-shares were 1.6 at the end of the quarter, I assume.

Sorry, right.

OK, great. Thanks very much, guys.

OK, .

There are no further questions at this time.

OK, thank you, . And I want to thank everybody for participating on our call. We appreciate your confidence and interest, and we look forward to seeing you on our next year's call and hope that all of you have a happy and healthy holiday season. So, goodbye.

This concludes today's conference call. You may now disconnect.