Life Storage Inc (LSI) 2006 Q4 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Sovran Self Storage fourth-quarter earnings conference call. All lines have been placed on a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

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

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

Well, Sovran experienced another period of strong operating results in the fourth quarter last year, with same-store revenues and net operating income increasing by 4% and 3.6%, respectively, over the fourth quarter last year. Dave Rogers, our Chief Financial Officer, will provide details in a moment.

Overall, I'm quite pleased with our company's performance last year. We had a good year, both operationally and strategically. Let me mention some of our accomplishments. First, we generated annual same-store revenue and net operating income gains of 5.5% and 5.3%, respectively. This marks the fourth consecutive year that same-store revenues have exceeded 5%.

Also, in an improving acquisition environment, we purchased 42 stores for $163 million, at relatively attractive cap rates. Most of the new stores are in existing markets; however, we also entered two new markets with seven stores in St. Louis, Missouri and six in the Columbus, Georgia area.

We continued our ambitious multi-year expansion and enhancement program, expected to generate up to 600,000 square feet of additional storage space and conversion of as much as 250,000 square feet of climate or humidity-controlled space. We successfully executed a common stock offering of 2.3 million shares, raising $122.4 million, and continued the rollout of our Uncle Bob's trucks and Dri-guard humidity control systems at select stores.

In addition, we increased our dividend for the 12th consecutive year and achieved a total return to our shareholders of just over 27%. Over the last five years, we have delivered a total return to our shareholders of 168%.

So we're proud of our achievements and quite excited about our Company's future. Now, let me provide just a brief update on our fourth-quarter.

A major contributor to our performance continues to be our customer care call center. The rigorous training exercises our call center representatives participate in are paying off. Our closing rate for the fourth quarter last year was 14% higher than Q4 2005. Also, several other metrics showed positive results and trends.

Similarly, our truck program continues to roll along. The free use of the truck makes it easier for our customers to select Uncle Bob's and then move into their spaces. We currently have trucks operating at 248 stores.

Our humidity control system, Dri-guard, has been installed in 81 of our Uncle Bob's stores. The rates we collect on Dri-guard-treated units are running about 28% higher than non-treated units. We expect to continue this conversion process at select stores through this year.

Our Internet sales program continues to generate excellent results. Leads generated for the fourth quarter 2006 exceeded Q4 2005 by about 23%, 24%. We completed climate control conversions or expansions at eight stores in the fourth quarter, at a cost of a little over $5 million. For the year, we have completed 27 projects for a total cost of just over $15 million. We expect to complete between $20 million and $25 million of additional [unit] expansions and enhancements during 2007.

In November, we acquired our fourth store in the Concord, New Hampshire area. This mature property cost $4.8 million, and comes with vacant land able to accommodate a 40,000-square foot expansion, which is already underway.

Overall, we're pleased with Sovran's performance last quarter and 2006 as a whole, and look forward with confidence to continued positive results. At this time, I would like to ask Dave Rogers to offer some details on our financial performance and position.

Thanks, Ken. Total revenues increased by $8.4 million or 23% over 2005's fourth quarter, and property operating expenses increased by $3.4 million. These increases, resulting in an overall NOI increase of 21%, were primarily due to improvements in same-store results, the addition of 43 stores we purchased since fall of last year and the effect of consolidating our Locke Sovran I joint venture into the financial statement. Average overall occupancy was 84.5% for the quarter ended December 31st, and average rent per square foot was $10.16.

Same-store revenues increased by 4% over those of the fourth quarter of 2005. This was purely rate-driven, as our same-store weighted occupancy for the quarter declined from that of 2005's fourth quarter by 150 basis points to 84.8%. Other income, which is primarily truck and cell tower-related, increased by 11%. At the quarter end date, same-store occupancy was 84.2%, down 170 basis points from last December 31st, but rental rates were higher at $10.22 per square foot compared to the same-store rate of $9.83 last year.

Total operating expenses on a same-store basis increased 4.7% this quarter, but actually the devil is in the details on this. On the one side, property insurance costs increased by 175% over those of last year's Q4, and advertising increased by 28%. Offsetting these were a lower-than-expected 0.6% increase in property taxes and a reduction in our telephone costs of 26%.

Property tax costs benefited from our usual fourth-quarter adjustments. For those of you who have been following our stock for a while, you know that we estimate our property tax expense for the first three quarters of the year and we're only able to record the actual cost in the fourth quarter. This is because we don't receive the invoices for over 50% of our stores until October and November.

So this year, we estimated a 6% increase in property taxes through the first nine months. As it turned out, the actual increase was 5.4%, so we took the benefit of nine months of overaccrual in the fourth quarter, hence the seemingly low increase in taxes this period.

Our other operating costs were pretty much in line, with increases of 2% to 4% across most categories. So taking same-store operating cost increases of 4.7% away from the 4% top-line growth, we achieved same-store NOI improvement of 3.6% for the fourth quarter.

G&A costs for the period came in at$3.6 million, which is about $450,000 less than last year's comparable period. We had increased staffing and facilities costs that we incurred to operate the stores we have added since mid-2005, and these were offset by lower legal fees, lower state franchise taxes and lower officer and executive bonuses in 2006.

With regard to our capital structure, during the quarter, we sold 2.3 million shares of our common stock at a price of $56.25, netting $122 million in the process. The proceeds were used to repay the entire outstanding balance of $80 million on our credit line, and the remainder is held to fund first-quarter 2007 acquisitions.

We also issued 53,000 shares via our DRIP plan and as a result of employees exercising options. A total of $2.9 million was raised via these issuances, the proceeds of which helped fund the New Hampshire acquisition.

Our outstanding debt now totals $462 million, all of which is long-term and fixed-rate or hedged to maturity. A little over 24% of our borrowings are secured.

At December 31st, we had $42 million of investable cash. We also have in place an undrawn $100 million line of credit facility, which is priced at LIBOR plus 90. This line has an accordion feature that allows us to expand capacity to $200 million. While the facility expires in September of 2007, we have an option to extend that agreement for an additional year.

Debt service coverage in the fourth quarter was 2.9 times EBITDA. Fixed charge coverage for the quarter was 2.7 times EBITDA. As a result of the stock offering in November, our debt-to-enterprise value fell to 27% at December 31st, but we remain conservatively capitalized with plenty of room to fund our further growth plans.

With regard to guidance for the coming year, the operating fundamentals of our business continue to show strength, and we see competition in many markets, but nothing to the extent that we expect it to hurt us. Demand is good.

Counter to this, though, are two factors that impact our company specifically. The first is something we have been expecting for several quarters, that of a falloff in occupancy at many of our Florida and Louisiana stores. We achieved record occupancies in 2005 and early 2006, as a result of serving customers with hurricane-related needs. But starting this quarter, many of those folks have been able to regain a sense of normalcy, and they are taking their stuff back to their new or repaired homes. This coming quarter as well as the next two are going to prove to be tough comps, because even though we expect Florida to show 90% or so occupancy, we had been at 95% or better.

Along those same lines, we're battling tough comps across the board. As Ken mentioned, 2006 was our fourth consecutive year of showing same-store sales growth in excess of 5%. While we're happy with our stores and our markets, we're hesitant to forecast such growth into yet a fifth year, and are guiding at between 4% and 4.5% top-line growth.

For the most part, expenses have moderated but, as described earlier, we're absorbing a considerable hit to provide proper insurance coverage. The additional annual charge of almost $2 million will shrink margins and deduct about 175 basis points from same-store NOI growth. We expect some further pressure on margins as a result of increasing utility costs, especially in Florida and Texas. So, putting all this together, we're forecasting an approximate 4% to 4.5% same-store NOI growth for 2007.

The acquisition environment has proven to be steady, with more individual properties and portfolios up for sale. We're very pleased with the stores we have acquired in the past year. Cap rates remain challenging, and we'll certainly remain prudent.

We're looking at a number of properties and portfolios, and are hopeful of closing on some $40 million of properties this quarter and another $75 million to $100 million the rest of the way. We expect some of these, perhaps as much as $50 million worth, to be opportunistic purchases, which we define as early in the lease-up cycle, not accretive and perhaps even mildly dilutive.

As Ken mentioned, we're undertaking a pretty extensive expansion program. We expect expenditures of up to $25 million in 2007 to enhance revenue capabilities at our existing properties. We have also continued our program of accelerating the painting, paving and fencing projects at many of our stores in an effort to improve curb appeal sooner. Accordingly, we will be spending as much as $10 million this year on non-revenue-enhancing programs.

To give you a better handle on our interest costs, as I mentioned, we're obligated on $462 million of long-term fixed-rate debt. Our annual cost to carry this debt is $29.5 million, and this will not change until late 2008. The only variable component in our debt structure right now is related to the line of credit, which, as I mentioned, carries a floating rate of LIBOR plus 90 and is currently at zero.

We expect to issue shares through our DRIP program, but continue to restrict the stock purchase plan sales. We're projecting about $12 million to $15 million in equity issuance this year via these programs. Financing of property acquisitions and the revenue enhancement projects will be with these DRIP proceeds, borrowings on the line of credit and/or possible equity offerings.

So, given all the above, and offsetting some of the tougher news with some of the better, we estimate funds from operations to come in at between $3.40 and $3.45 per share for the full year 2007, and between $0.76 and $0.78 per share for the first quarter.

At this point, I will turn the program back to Ken.

Well, that concludes our prepared remarks. We would be pleased to answer any questions you folks might have.

(OPERATOR INSTRUCTIONS). Jon Litt, Citigroup.

Its Craig Melcher here with Jon. Can you just comment on your guidance assumptions for the same-store, if you were to break out between what your revenue growth assumptions are, versus the expense growth, to get to your NOI growth of 4% to 4.5%?

Yes. We expect top-line growth to be between 4% and 4.5%, and we expect expense growth to be somewhere on the order of about 5%.

If you were to look at Florida specifically, what do you think the same-store results were in 2006, and what you are expecting them to be in 2007?

We were up about 3%, 3.5%, 2006 over 2005, but we felt [a flat] in the fourth quarter. So I think we were at about 4.5% for the first nine months, and then we fell to about 3% year to date.

For the coming year, I think we're forecasting about 1% same-store NOI growth. So basically, what we're doing is we're making up for lost occupancy with improved rates and some efficiencies in costs.

You mentioned that G&A was going to be up in 2007, but on like a year-over-year growth, how much of an increase should we expect for the full year?

We're budgeting about $15 million for next year.

The last question is just on the cash balances during the quarter. What rate did you receive on the interest that you held and the excess cash from the proceeds, just to get a better idea on the interest and other income?

It came in -- we received the cash December 3rd, and we have earned in several short-term vehicles between 5% and 5.25% on it.

Christy McElroy, Banc of America Securities.

I am here with Ross Nussbaum as well. What leverage levels are you comfortable with before you feel the need to raise equity outside of your DRIP and stock purchase plan?

We have been as high as 40%, 42%; we have been as low as 25%. It sort of depends on the market conditions. I would think we have the capacity to run up $200 million before we even have to make arrangements anywhere else. If things are right, we will do that, but if the share price is right and we see a chance to issue some equity, I guess we're not going to not do that, if the timing is right.

So it depends on the market. We definitely have worked with our Board over the years, and our top level is somewhere, I guess, in the low 40's, if that is the question.

Do you have a common equity issuance embedded in your guidance?

No.

Can you talk a little bit about New England? Why do you think growth is slower in those markets versus what you previously expected?

Well, it has been historically -- the last, say, three to four years, they have been kind of laggards for us. From what I understand, the surveys we do of our competition -- they are not doing particularly well, either.

We mentioned last year, we made some management changes, and we're projecting much better results this year than we have experienced over the last two to three years. I'm hoping we are not shooting ourselves in the foot by saying that. But we are thinking of New England providing us some decent same-store sales growth this year, compared to what we have experienced.

A lot of it, in our case, we think is going to be management changes. But also, our business is somewhat cyclical. About eight years ago, for a period of two to three years, New England was doing quite well. In the last three to four years, it has not. Part of it is we think, cyclically, we are in store for something good. New competition has not come in too much over the last couple of years, so that should help us as well. So I guess the answer is we think we're going to do much better in 2007 and 2008 than we have over the past two to three years.

So it hasn't gotten worse at all? It's just -- your comment in the press release that growth in the quarter was slower than expected there --

In New England.

In New England, yes.

As I said, what we did, though, is when you make some changes, you get rid of some customers who have been there who haven't been paying, you have a number of [auctions]. So you clean out some of the dead wood, if you will, and get yourself set up. That's what we did in the second half of 2006. So we think we're primed for pretty good performance there in 2007 and 2008.

Lastly, given the pull-back in occupancy, would you say that after you run through all the Florida soft, would you say the key focus this year is to [level it] back up? What levels are you forecasting in your guidance?

Well, first of all, if our entire portfolio occupancy was at the level of Florida, we would be ecstatic. 90% occupancy is almost unheard of. So we're not disappointed with a 90% occupancy; we only are disappointed when we compare it with 95%. So Florida is not a weak market, by any means.

The other market, though, that hurt us, too, in this last quarter and will be a tough comp for us is Louisiana. Baton Rouge and Lafayette have gone down from an occupancy standpoint, but they are still strong. So we still have some pricing power there. We are not discounting disproportionately from what we have done before. As far as occupancy is concerned in Florida, we're forecasting in the high 80's, between 88% and 90%.

The last part of your question was with regard to how much we're going to get from rate and how much from occupancy gains. That's something that we really kind of leave a little loose and in our area managers' and regional vice presidents' hands, in terms of growing the rate the best way they can, whether it be pushing rates a little bit and sacrificing maybe the top of that occupancy or letting rates fall a little bit. It's a market-by-market, almost store-by-store, unit-by-unit type of pricing decision.

We have never given guidance in that direction, and we have never really been able to figure it out ourselves exactly. So we are counting on a 4% to 4.5% overall. I would expect a little bit more will come from occupancy this year than last, but we will know at the end of the year.

Michael Salinsky, RBC Capital Markets.

A quick question on your internal renovation and expansion program. I noticed that the overall budget was increased about $10 million, yet the overall size remained unchanged on a per-square-foot basis. Can you kind of provide a little bit of color as to what you're looking at for that program this year?

Well, we did identify a few more stores that were eligible for expansion and/or enhancement. That really is what we attribute most of the increase, as far as the cost is concerned. The square footage will still be somewhere in the range of -- I think we said 600,000 we said as far as expansion and 400 million square feet climate-control conversion. It would still be within plus or minus say 10% of those numbers.

I think Dave had mentioned in his comments $10 million of additional non-recurring CapEx related to normal property upgrades. In the press release, though, it mentions some $25 million of additional CapEx. Can you kind of talk about the difference between the two numbers there?

The $25 million in the press release relates to the program Ken just talked about, which is essentially [revenue-enhancing]. The $10 million I just mentioned has to do with our normal deferred maintenance, which at -- you would normally expect a portfolio of our size to do between $5 million and $6 million this year, I think, with regard to upgrades. But we are accelerating, primarily, some painting jobs and some paving jobs to -- we have got some stuff that may be five or six years old. We would normally wait until eight years to do the painting on that. We're going to do some more this year.

So perhaps the confusion comes in -- we are talking about two different categories. The $25 million is the expansion and enhancement program. The $10 million is our normal deferred maintenance, which at $0.25 to $0.26 a foot, you would expect to come in at about $5 million or $6 million. We are saying we're going to put a little more into that this year.

Lastly, could you talk about the performance of the cornerstone portfolio relative to your expectations during the fourth quarter and basically the second half of the year?

Yes. It's actually performing pretty much where we expected it to be. The transition was very smooth. It was 20 stores, which was our largest portfolio acquisition. But I'm pleased to say we assimilated that into our portfolio quite seamlessly, retained a fair number of existing managers at the stores. We brought in one of our more seasoned area managers to manage the stores at those, particularly in St. Louis. At this point, even though it's still early, we're pleased with the results, and they are tracking where we originally projected them to be.

Paul Adornato, BMO Capital Markets.

You mentioned an improvement in closing rates from the call center and from Internet inquiries. Could you tell us what the actual closing rates were?

In the call center, our closing rate was just about 17% of all calls that come in. With respect to the Internet, I don't know if I have that right handy here. I don't have it handy here, but I assume it's going to be a little bit less than that, because you have a lot of shoppers on the Internet. But I would say it's probably a percentage or two lower than that.

Looking at insurance expense growth going forward, do you think insurance expenses might return to normal growth levels, or do you think the insurers are still trying to play catch-up?

I think we will have an opportunity, when our policy here changes, to see somewhat of a reduction starting July 1st, although it will never be back to normal. Like I said, we have doubled our costs this year. We're looking at something in the range of, I would say, splitting the difference, although the latest -- the things that got us goofed up last year were the horrific weather forecasts that were coming in, in May and June, when the dire forecast for a record year for coastal storms was predicted. Then, of course, nothing happened.

Because we have been trying to renegotiate this year, we're already hearing talks from our carriers and the competing carriers of, again, a dire 2007, and a record storm year. We didn't do much with regard to guidance on that. We have left things the way they were. We're hopeful that we're going to see some reduction in costs, but I don't know.

When you say you left things the way they were, you mean you predicted kind of flat insurance expense from this year?

Yes.

In terms of advertising and concessions, you indicated a little bit of an uptick, I think, in the same-store comparison. Do you expect that concessions in advertising might increase even more, given that you have some occupancy points to win back?

Yes and no, I guess, really. We said in Florida -- and in fact, in Baton Rouge and Lafayette, which are the areas that are affected by the hurricanes, we still have strong occupancy. So, although ostensibly it may look like we're doing some discounting, when we get to a level of, say, 90% occupancy, we go up a position price one or two, and we might discount from that higher position price. But it would still be higher than what our base rate will be. So I don't think we're going to see much in the way of an increase in concessions, due to the reduction in occupancy in the Florida or Louisiana market.

The key that we try to make sure that our managers and our call center operators realize is that we don't offer a gift that keeps on giving, so to speak. We will offer a one-time concession when they move in, maybe half off the month or a $20 reduction as far as their admin fee is concerned. But the second month, they are paying the full rate that was the street rate before the position [tide].

Alan Calderon, European Investors.

Can you please walk us through how your interest expense went up this quarter on a sequential basis? After you reduced your balance on your debt outstanding, you paid off the line of credit, a month left in the quarter.

Well, we did pay off our line of credit during the quarter, Alan. But we also, in April, had borrowed an additional $150 million to fund primarily the Cornerstone acquisition and so forth. So our total debt at the end of December was $462 million this year. Last year, it was $339 million.

How about sequentially, from the third quarter to the fourth quarter?

Oh, third? I'm sorry.

The interest expense went up sequentially. I think I and others expected it to be coming down sequentially.

Part of it was due to the fact that we had the borrowings outstanding of $90 million or $80 million on our line of credit for two months and a day or so, at a considerably higher rate. That's really the only difference. Everything else was fixed. I don't think that it had gone up that significantly.

It went up versus going down, I guess. Okay. Another question was, I guess in your same-store revenue number, you include other income?

[Property and] other income.

What was that again?

If it's related to the property, yes.

Do you separate out what your same-store revenue growth would have been for the quarter, and maybe what your same-store revenue growth for 2007 would be, not including other income?

Yes. We have that on one of the back pages of the press release. The same-store rental income this quarter grew 3.7% out of the 4% total. So 3.7% rental income, and 10.9% other income growth.

Right, okay, I didn't see that. Can you just talk about Texas, what you're seeing in Texas?

Yes, sure. Texas overall is a pretty strong market for us -- in fact, probably the strongest markets we have right now. San Antonio and Austin are doing particularly well. Most of Houston is doing quite well. Beaumont, a little tough there, a little bit of competition and a little bit of move-outs from people recovering from the hurricane; that certainly affected that area as well. So overall, we're pleased with our performance, and Texas is one of our strongest markets.

What is about your occupancy level there right now?

About 86%, I'd say.

What would you see as a stabilized occupancy level for the portfolio?

You mean on an annual basis?

What is your goal? What kind of occupancy level should we be looking for, and say that's a good level, what you guys are looking for in the portfolio?

I'll give you a rule of thumb, first of all. You really should never expect us to have a portfolio occupancy of higher than 90%, because if we are, we're not doing our job as far as revenue management is concerned. But having said that, I would say 87%, 88% would be a reasonable number to look for us.

Christy McElroy, Banc of America Securities.

It's actually Ross Nussbaum here. I'm just trying to reconcile -- and I apologize if you covered this; I dropped off for a bit. What was the actual rental rate growth in the fourth quarter? It was exactly 4%?

Yes, 4.0%. Yes, it was.

So I guess maybe I'm trying to understand -- I guess you're expecting you're going to maintain or accelerate that level, because I guess there's a disconnect in my mind. How do you generate 4% or 4.5% top-line revenue growth if you have got year-over-year occupancy declines in at least the first half of the year? Wouldn't that cause same-store revenues to come in under 4%, at least in the first half of the year?

Well, we're declining in Florida. But overall, I guess if -- we're going to get some of it back, I think, from other regions. We have suffered in 3Q and 4Q a bit of a year-over-year occupancy decline, and our rates have only grown 4%. But our budgets call for a combination of both moving forward to see that 4% to 4.5% top -- I guess I'm missing a little bit where the --

Well, let me see if I can ask it this way. In the fourth quarter, you generated 4% revenue growth, and yet I thought I was hearing comments that Florida is slowing. While New England may be getting a little better, that's a much smaller piece of the portfolio. So I guess, in my mind, I've heard that you're expecting at least Florida to be trimming the NOI growth a bit, yet you're giving guidance that is consistent with or higher than what you did in the fourth quarter. So I guess I'm trying to reconcile that.

You're right about all those things. We are not just looking at New England, though, to carry the rest of the -- we expect pretty good things out of Texas in 2007.

Also, a place like Phoenix, where it's not a huge market, but we maybe got ahead of ourselves in the last few years. We have had great growth there the last three to four years. Maybe we think we priced ourselves a little bit above where the market is. So we retrenched a little bit at the end of last year. Now we're seeing momentum building up again.

Atlanta has been a tough performer for us. What we're anticipating there is probably same-store sales growth in the range of 7% to 8%.

So the beauty of having 330 stores or a larger portfolio is you may have an area like Florida, which may be close to flat, or Louisiana the same way. But we have other places -- New England, Atlanta, Carolinas, Texas, Phoenix -- that will help carry the ship, where Florida was doing it for the last couple of years. I hope that gives you a little bit of flavor.

No, it's helpful. It was just hard to reconcile the Florida slowing with the guidance a little bit.

Michael Salinsky, RBC Capital Markets.

Just on a big picture, kind of looking at your portfolio as a whole, when you look at acquisitions, do you look at replacement costs? If so, where do you estimate the replacement costs in the portfolio to be, given current construction costs?

We don't really look at replacement costs. We look at the market, the cap rate, the potential. Primarily, I think our number-one point of acquisition is, what can we do with this store to make it better? How much embedded opportunity is there?

So we know what replacement costs are. We take a look at the cost per square foot, obviously. But if you look at our last three years of acquisition, we've ranged somewhere in the range of $45 to $120 per square foot of acquisition costs.

So that is not a big factor -- it counts, but it's not a big factor in our overall acquisition decision. Now, certainly it's a big factor when we are looking to expand and enhance, as we have. A big part of the variable in that is the land cost. If we don't already own the piece of property that we're going to build on, how much is (technical difficulty) to acquire that contiguous parcel?

Once that's in, though, and we've got the site worked on, the cost of construction we're finding to be somewhere between $45 and $55 per foot for the new builds, the way we build them, with climate control and Dri-guard and all tricked out in that regard.

If you had to add land into that, what do you think that would be on a square foot basis?

It's a wide swing. We go anywhere from we have been able to pluck a couple pieces for on the order of $50,000 to $60,000 an acre, if it's behind our property and sort of land-locked. Or if we are looking for frontage, we have paid as much as $400,000 an acre. So that's where the real trade-off comes in, and that's where, when you have to look at cost per square foot, and what the rental rates are in the market and how fast you can lease up and so forth.

A perfect example is Cleveland, actually. A few years ago, we paid $140,000 an acre for one property, and then we paid about $55,000 for another one not too far away. It's a real wildcard in our business, the land costs.

Given the amount of snowfall we've had in the Northeast and the Midwest over the past couple weeks here, as well as January, I would imagine the snow removal costs are going to be up for the first quarter. Can you give us a sense of how you're looking at the first quarter shaping up at this point?

Well, until this week, pretty good, actually. A lot of our stuff is done on contract, after some of the tough stuff we took two and three years ago. What is not on contract is bringing in the high lift to get rid of snow if there's no longer any room to push it. Fortunately, it hasn't been a bad year. There hasn't been a lot of accumulation up to this date, but I don't think we're in a position to say we are going to warn on guidance because of snow push costs.

Ralph Davies, BMO Capital Markets.

I just had a quick question regarding incremental decline in FFO. I wanted to know, are you looking at that coming out of continued decreasing occupancy? I just wanted to get a little more color on that.

[Decreasing] FFO, I'm sorry, from where?

From your fourth quarter 2006 going into 2007.

Typically, our first quarter is our worst quarter in terms of occupancy, in terms of the ability to generate new customers. Even though we have a wide-ranging geographic portfolio, it's standard, I guess, in our industry to expect lower than average occupancies in this quarter.

Further, we're hampered a little bit this quarter because we're carrying more cash than we expected. We had hoped to invest the remaining proceeds of our offering by early January. The one deal that we're working on is taking quite a bit longer than we thought, with regard to some title and some proper conveyance issues. So we have a drag on the $42 million of extra proceeds and the typical slowdown in seasonality.

There no further questions at this time, sir.

Well, once again, thank you very much for your participation in the call and your interest in our company. We will look forward to speaking to you in three months or so. Have a great day.

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