Life Storage Inc (LSI) 2007 Q4 法說會逐字稿

Good morning. My name is May and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter earnings release conference call for Sovran Self Storage. (OPERATOR INSTRUCTIONS). Thank you. I would now like to turn the conference over to Mr. Myszka. Sir, you may begin.

Thank you. 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 3.5% and 5.7%, respectively, over the fourth quarter of 2006. Dave Rogers, our Chief Financial Officer, will provide details in a moment.

Overall, I am pleased with our Company's performance last year. Despite turbulent economic conditions, we had a good year both operationally and strategically. I would like to mention some of our accomplishments. After experiencing relatively lower same-store NOI gains in the first half of the year, we once again generated same-store NOI gains of better than 5% in each of the third and fourth quarters of 2007. We purchased 31 stores for approximately $137 million at relatively attractive cap rates. Most of the new stores are in existing markets.

However, we also entered the Huntsville, Alabama market with four stores as part of a 14-property acquisition. 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 also continued the rollout of Uncle Bob's trucks and Dri-guard humidity control system at select stores.

In addition, we increased our dividend for the 13th consecutive year. So we are proud of our achievements and we are excited about our Company's future. Now, I'd like to provide a brief update on our fourth-quarter results.

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 Q4 '07 was nearly 4% higher than Q4 '06 on a same-store basis. And several other metrics showed positive results. Similarly, our truck program continues to roll along. The free use of a truck makes it easier for our customers to select Uncle Bob's and then move into their spaces. We currently have trucks operating at 261 stores.

Our humidity control system, Dri-guard, has been installed in 92 Uncle Bob's stores. The rates we collect on Dri-guard treated units are running between 26 and 28% higher than non-treated units, and we expect to continue this conversion process at select stores throughout this year.

Our Internet sales program continues to generate excellent results. Rentals generated this quarter, last quarter '07, exceeded Q4 '06 by nearly 5% and our cost per rental decreased by approximately 2%. We completed climate control conversions or expansions at 12 stores in the fourth quarter at a cost of $9.3 million. For the year, we completed 31 projects at a total cost of $26 million. We currently have 14 projects underway at an expected cost of $17 million and also have 15 additional projects under evaluation with more in the queue.

On the acquisition front, we purchased four additional stores in the fourth quarter for a total of $10 million. Two are located in Jackson, Mississippi; one in Houston, Texas; and the other in Mobile, Alabama, all existing markets. And although we closed on these four stores, I think it's important to point out we terminated contracts to purchase nine other stores due to concerns discovered during our due diligence process. As we have mentioned many times before, we remain disciplined buyers. And with that, I would like to ask Dave Rogers to give some details on our financial performance.

Thank you, Ken. With regard to operations for the quarter, total revenues increased by $6.9 million or 16.1% over 2006's fourth quarter, and property operating expenses increased by $1.5 million. These increases, resulting in an overall NOI increase of 13%, were primarily due to improvements in the same-store results I will get to in a minute and the addition of the 40 stores we purchased since the third quarter of last year.

Average overall occupancy was 82.2% for the quarter ended December 31 and average rent roll per square foot was $10.42.

Same-store revenues increased by 3.5% over those in the fourth quarter of 2006. This was purely rate driven, as our same-store weighted average occupancy for the quarter declined from that of 2006's fourth quarter by 170 basis points to 82.8%. Other income decreased by about $140,000, primarily as a result of reduced insurance sales.

At quarter end date, same-store occupancy was 82%, down 180 basis points from last December 31, but rental rates were higher at $10.66 per square foot as compared to the same-store rate of $10.16 last year.

Operating expenses on a same-store basis decreased by 50 basis points this period. As we discussed on our last couple calls, our property insurance costs declined on a quarter-over-quarter basis by almost $300,000. And again, I would like to emphasize our risk profile has remained constant with that of 2005 and 2006. We paid up for good coverage last year. This year, we have retained the coverage, but we have enjoyed a premium reduction of about 30%.

Landscaping and property maintenance costs are the only categories in which costs have increased by a significant amount, growing by about 5% over those of last year's fourth quarter. We trued up our property tax expense this quarter, as our Florida and Texas invoices came in, and we enjoyed a bit of a benefit as our accrual through the first nine months of the year was a little bit high. For the year, property taxes increased by about 2%. That's a little bit misleading because Texas changed the game on us. Overall property taxes in Texas were reduced, but a business franchise tax was imposed in an almost equal amount. So this had the effect of reducing our property operating costs, but increasing our G&A expense to the tune of about $250,000 this year.

Personnel, advertising and most other costs remained flat or decreased a little bit over last year.

So growing the top line by 3.5% and adding to that the benefit of a 50 basis point reduction in expenses resulted in a same-store NOI growth for the quarter of 5.7%. Our G&A costs for the period came in at about $4 million, which was pretty much as expected. It's about 13% higher than last year's fourth quarter, but we're operating about 40 more stores and we've also included that above-mentioned franchise tax in G&A.

With regard to our capital picture, we acquired two stores this period at a cost of a little over $10 million and continue to finish work on quite a number of E&E projects, which required an additional $12 million. Further, as Ken mentioned, we've accelerated our painting, landscaping and roofing projects and spent about $5 million this quarter on such, what we call lightening and brightening projects.

We borrowed $9 million on our line this quarter and another $6 million on the term note that we put in place, and that's what we used to fund the purchases and improvements that I just mentioned. In the coming months, we expect to term out our line of credit by selling long-term fixed-rate unsecured notes. Our line expires in September of this year and we have begun discussions to renew and recast that deal, and don't really foresee any difficulties in doing so at least a rate in terms consistent with that that we already have.

Our overall outstanding debt is now $567 million and except for the line and the short term debt totaling $106 million, all is long-term or fixed-rate and hedged to maturity. About 20% of our borrowings are secured.

Debt service coverage in the fourth quarter was about 3.2 times EBITDA fixed charge because we don't have any preferred stock anymore, was likewise, 3.2 times EBITDA. Our debt to enterprise value is about 40% at December 31. We remain conservatively capitalized with sufficient flexibility and capacity to fund the plans we have.

With regard to guidance, as we mentioned in the previous few calls, our recent concept provided us with a bit of a challenge, and overall, the storage sector has become a bit more competitive. But for the most part, supply growth, in most of our markets anyway, remains constrained so we continue to have opportunities to increase rents. We expect same-store net operating income next year to grow at about 3 to 3.5% based on revenue growth of 2.5 to 3% and expense increases of about 4 to 4.5%. G&A costs are targeted at about $4.2 million per quarter, and we don't plan on an increase in those unless we have greater than forecasted external growth.

The acquisition environment is pretty much unchanged. There are many properties and portfolios either on the market or owned by folks who can be coerced into selling. Unfortunately, though, despite recent jolts to the capital and the debt markets, seller expectations have not been appreciably reduced. While we closed on $125 million of acquisitions this year, the vast majority was in the first half. We've been selected and disciplined, and in addition to a solid initial yield, we're looking for some substantial upside improvement in the purchases we make. For purposes of guidance, we are forecasting $50 million of accretive acquisitions with much of that expected to occur later in the year. So in essence, what we're doing is we're taking a wait and see approach until we see market conditions and seller expectations settle out a little bit.

Our expansion program will continue and we expect to make expenditures in excess of $40 million in 2008 to enhance revenue capabilities at our existing properties. In 2007, we spent almost $25 million on such improvements, some of which are just beginning to come online and bear fruit. We continued our program of accelerating the painting, paving, and fencing projects at many of our stores in an effort to improve curb appeal sooner. We expect to spend about $12 million on our same-store pool in 2008 and an additional $5 million or so on the 2007 and late 2006 acquisitions.

To give you a better handle on our interest costs, we're now obligated on $462 million of long-term fixed-rate or hedge loans. Our annual interest costs to carry this debt, including the amortization of financing costs, is about $30.6 million, and this part of our debt structure won't change in 2008. The only variable component in our debt structure is related to the $100 million outstanding on our line of credit, which carries a floating rate of LIBOR plus 90 and $6 million on a term note, which is priced at LIBOR plus 120.

We do expect to issue shares through our DRIP program but continue to restrict the stock purchase plan sales. We are projecting about $10 million in equity issuance this year via the DRIP. So to put numbers to our plans and give a little bit more clarity on the press release, we expect to refinance our short-term LIBOR $100 million debt with a ten-year fixed-rate note. And we're paying right now about 4.3% or thereabouts; I have looked at the latest rate; but about 4.3% on the short-term rate. We would hope at current conditions to pay something on the order of 6.25 to 6.5% on a ten-year fixed unsecured note. That's going to cost us, depending on when we pull the trigger, $0.05 to $0.07 this year in extra interest costs.

We're not counting on any external pop in the forecast that we gave as we don't really expect to do any acquisitions until it's too late in the year to have any significant impact on our results. We do expect to experience a bit of drag on our earnings resulting from the $40 million we'll be putting into our E&E program. We think this will cost us about $0.04 this year in carry costs.

The fact that we haven't included any external growth in our forecast doesn't mean we don't plan to have some. At this time, though, we don't have significant numbers of acquisitions in negotiations and in the interest of adding value as opposed to size, we're comfortable waiting things out for a couple quarters. We think making the physical improvements to our existing portfolio and redoubling our efforts on marketing, pricing, strategies and service should better serve us in these times. Other opportunities such as joint venture programs and third-party management are being discussed and explored, but we're not far along with these to include them in guidance or a forecast.

So given all of the above, we estimate funds from operations in 2008 to come in at between 350 and 356 and between $0.80 and $0.83 for the first quarter of this year. At this point I'll turn the program back to Ken.

Thanks, Dave. Well that concludes our prepared remarks and we would be pleased to field any questions anybody might have.

(OPERATOR INSTRUCTIONS). Christeen Kim, Deutsche Bank.

Could you maybe talk a little bit about the demand side and what you're seeing in terms of traffic and call center volume year over year and kind of versus your expectations?

Yes, in the fourth quarter, we saw actually on a same-store basis, somewhat of a decline in calls in our call center in the markets that we expected it to be based on the results we've had, which is primarily in Florida and South Carolina, where we had some issues, as well as the capital district. The rest of the portfolio, we had actually a little bit better call volume and our closing rate in those areas was a little bit above what we anticipated, some improvement over the year before.

What I can say too is January was -- gave us a little bit of cheerfulness, if you will, because comparing this January to last January on an in and out basis, we were far better than what we did in January of '07. So we are cautiously optimistic that in particular in Florida, we saw about flat with respect to the move-ins but significantly less move-outs than we had in January of last year. So we think the worst is behind us in that area anyway.

Is that difference really just attributable to the change in Florida then? The net move-outs or --?

Yes, a big part of it was there. The rest of the markets that we are in, we're pretty much in line with what we anticipated. We saw a little bit of -- we don't have a ton of stores in these markets in Tennessee and South Carolina, but we saw an improvement in those markets as well. But Florida because we have such a concentration of stores, so that's what we are looking at, and we felt pretty good about the results in that state, if you will.

And just in terms of your '08 guidance, you are looking for 3 to 3.5 NOI growth. What are you looking for in terms of top line?

We're thinking in the range of 2.5 to 3. We think we will get back a little bit of occupancy; but again, what we're finding is most of our customers are absorbing the rate increases. There's a little bit less pop in occupants, but we've slipped now to - for the last eight quarters or so, our quarter-over-quarter occupancy has dropped a little bit more than we thought. So we think we have a little room for occupancy, but most of it will be rate.

Obviously, 2008 is a much more turbulent year economically, so what would it really take to really throw you off at 2.5 to 3% top-line growth?

Well, we think we've been pretty conservative in our forecast here. We feel pretty comfortable with that. But very honestly, after what happened in '07, and as you say, the things that are going on in the housing market, sub-prime and the capital markets, we are reluctant to be any more aggressive than we have. And we're out first month on a positive note, but our crystal ball is still a little foggy. So we will just take it one month at a time and hopefully we can exceed what we've forecasted.

Great. Thanks, guys.

[Craig Nocher], Z.I.T.I.

In terms of the repaying the line of credit, how far down the road have you gone to getting the rates and the availability of that unsecured financing? Just since we haven't seen much go on in that market recently.

We're fortunate to have a long-term and pretty solid syndicate in our line of credit. So we have a dialogue with almost all the people in that on a pretty regular basis, actually. We just talked about sparking and turning over the line. As I said, we've got until September to do it, but we -- I don't have any indication that things are going to be tighter. The pricing on LIBOR, the spread we're paying now, we are rated at BBB-. That helps us quite a bit I think. But all of the discussions we've had in the last three months or so have pointed to the fact that okay, we will just roll this thing and maybe we can use a couple of and maybe shave 10 to 15 basis points off the spread. So that's -- I'm not ready to pull the trigger on this probably until summer, but that's the discussions we've had over the past couple months.

Okay. And in terms of the economic outlook, if it turns out that we are in a recession now, how do you think that would impact that revenue growth? Does your guidance assume that we don't enter a recession or does it matter?

One thing we're not are economists. What we have experienced in our 20 something years in this industry, is when we do go through a recession, we're not immune from them, but we do have some resiliency. We, because we have short-term leases, people generally will stay with us a little bit longer than people have -- or have to renew a five or ten-year office lease or a retail lease, they might cut back there and come to us because we are a little bit less expensive on a per square foot basis and we don't have a long-term commitment.

But as a recession continues longer and deeper, we suffer along with the rest of the country and industries. The nice thing though, too, is as we start coming out of a recession, once again, because we don't have long-term commitments, people will generally start coming to us a little bit sooner, so I guess what I would say is if there is a recession, our experience has told us that our experience with recessions is that we are -- they're a little bit shorter and a little bit shallower than other industries.

In terms of G&A for '08, is the run rate in 4Q good? Or are there any other items that may impact?

Unless we have some significant external growth, we're forecasting about $4.2 million per quarter. And that should be at our present level of operations.

Thank you.

Christine McElroy, Banc of America Securities.

Confirmed. This is actually Samit Parikh here with Christy. Just wanted to know about same-store expense growth in 2008. Could you break down the drivers of that?

Mostly, Samit, we are looking at pretty stable. We're forecasting about 5% property tax growth. We are forecasting about 3.5 to 4% personnel benefits and health care costs. Insurance, we are flat, fortunately, maybe even a tad less than we've had this year. We had a significant decrease, as you know, from '06 to '07 and presumably we're negotiating, and I think we're going to be in pretty good shape in '08.

Utilities -- we are -- actually we have been pleasantly surprised. We've got some controls that we put in; that's not a big component in our expense load. But we've been fearing the worst the last couple years and we've been doing okay with it. So I think the big numbers that are going to be over 4 to 4.5% are probably property taxes, maintenance contracts and bank charges, of all things. Our credit card charges, we're able to negotiate better and better rates every year, but more and more of our customers are paying with credit or debit cards, so the service fees on those are actually becoming a fairly meaningful number now. But overall I would say expenses are not an issue in our sector that we can see in the coming 12 months.

Okay. And you talked about South Carolina and D.C. seeing slower than expected growth. Is that more demand or supply related?

I think it's more demand. We haven't seen a substantial increase, I think as Dave had mentioned, in supply. In the capital district, in the Maryland and Virginia areas, we are seeing more of the military coming back. And when they are deployed outside the states, we have an increase in usage, so as more come back, their need for storage decreases. So I think that's part of the reason for the decrease there.

Okay. And I guess lastly, in the press release, you talked about entering new markets and possible high-growth acquisitions. Could you just elaborate a little bit more on that comment?

Well, it's sort of a catchall in the sense that when we do enter new markets, we like to do so in a manner of some scale. And the high growth acquisitions, it's more opportunistic. When we go in and we see something at a 7 cap, that's really only the first part of the equation.

We may hate a property in a 7 cap because it doesn't have any real significant growth opportunity or we might love one at a 7 cap because we can see perhaps popping occupancy 5 or 6% and getting some efficiencies in the expense load and so forth by sharing the burden with sister stores in that same market. So that's really our approach I guess to acquisitions, is we want them to be strategic in a way that we're either going to go into our existing markets so that we can improve scale on the new acquisition or go into a new market with a bunch of stores.

And when you said the new markets, is there any in specific that you're targeting besides, I guess what you already did in the first quarter?

We didn't go into new markets in the first quarter. We've been in our existing markets. We are always looking, but we don't have anything we can talk about or anything really on the boards right now as far as a new city or a new metro area.

All right. Okay. Thank you.

Paul Adornato, BMO Capital Markets.

You mentioned that nine properties fell out of the acquisition pipeline or you terminated the contracts rather. Was that one transaction? And, was wondering if you can provide a little color as to why you passed on those.

It was a number of -- a couple of one-offs, somewhere we had -- one was a five-property portfolio. And it was different reasons and different situations. But in some cases, we, on our due diligence, they weren't performing as we thought they would. Others, we checked out and we saw there was some new competition that would be coming on. In other instances, it was a multiple package and we decided after due diligence that we weren't interested in all of them, so instead of buying five of them, we bought two. Some, they couldn't get some changes in some easement laws that we are still keeping an eye on; if they can change it, we will do it.

So we said before for every ten we look at, we might buy two or three. And this was a case where we liked the properties when we entered into the contract, but we do very intense due diligence. It's time-consuming; it's expensive. But we've found many times the best decisions we've made have been to not buy something as opposed to buying it.

Okay. And looking at Florida, was wondering if you could give us the sequential picture in terms of occupancy and overall profitability of Florida.

Well, our occupancy let's say from 2006 was probably in the mid 90s, high 90s, generally speaking. Last year, we experienced it going down; in 2007, was down to about 86%. Right now it's in that range, about 84 to 86% throughout the market. So it's not awful. I mean in fact, generally speaking, that wouldn't be [tough] -- wouldn't be anything to sneeze at. But in comparison to what we've had, it does hurt.

As I mentioned earlier though, we think the bleeding, so to speak, has stopped in Florida. The ins are a little bit better than they were last January, but the biggest thing is the people moving out; that has stopped; started in December, also in January, so it's a good trend for us.

But the other thing we're doing too is we are offering more concessions to get people in there. We keep our street rates where they are so that we give them a onetime concession to move in. But then after that first month or the second month, their rates go back up to what the street level would be. So we're trying to entice people to come in, and our salespeople here at our call center are doing a wonderful job in trying to convert every call that we get into a sale.

Just (multiple speakers) a little bit, Paul. The Florida operating business, top line of Florida shrunk by 4% even though occupancy from peak to valley I guess shrunk 10 or 11% from '06 to '07. Revenues dropped by just under 4%.

And the valley -- was that fourth quarter? Is it the first quarter of this year or do you think you still might have another quarter -- another down quarter in Florida?

We hope the valley was early fourth quarter. We think, as Ken said, things are improving there with significantly less move-outs and the same number of move-ins. So I think we should be -- again, that's a really hard stake, in the sense that there's so much going on there with housing, with construction, with the state all of a sudden becoming a net move-out state, it's hard to say. But it looks from our portfolio anyway that the bottom was a few months ago.

Okay. Thanks very much.

Michael Salinsky, RBC Capital Markets.

Dave, in your comments, you had mentioned that you were basically going to take a wait-and-see approach on acquisitions in terms of pricing. Can you talk about what you've seen so far in cap rates and where you need to see cap rates go before you become a big player again?

Well, the cap rates on A-quality properties, either irrespective of market size, the better properties in every market have not changed much. We've looked at something in the order of a little over $1 billion worth of assets in the past five or six months and had looked at some of those even in the middle of '06 and they came back on the market or whatever. And the better properties, I can say for certain, are not going for any less than they did two years ago.

I think what we are seeing is a large number of Class C or B properties that are coming on the market, and there has been some degradation in pricing there. We are looking at -- we're not, but we've seen properties come out at 8.5 cap, especially, for example, in some parts of the higher stressed areas, Vegas, the outlying areas. A lot of properties that were built three and four years ago that haven't leased up, their sellers are or their owners are looking to sell because of liquidity constraints and so forth. But I think it's a real bifurcation of a nice institutional grade assets holding firm on pricing in the very, very tight around the 7. And the stand-alones and the further out type stuff being in the 8-plus range.

So it's fairly safe to say that up until this point, the financing hasn't had a significant impact on cap rates?

It has not. And we thought it might. We were seeing the CMBS market in the early fourth quarter just dry up completely. And what that does is that takes out of the game one of our biggest competitors, which is refinancing, an existing seller refinancing his existing property with a new mortgage.

We thought if that was going to dry up, we might be in a position to take advantage of some of that. But it seems like the window opened right back up again. And while it's not as aggressive as it was, it looks like for our property type established and mature property, it's not too hard to get 75% loan to value on a non-recourse basis, which is important to a lot of these sellers. So I would say, short answer is, no change in cap rates right now.

Okay. You moved your insurance up I believe earlier this year to a renewal. Is that already embedded in your guidance?

Yes, it is.

Okay. And was that pretty comparable to the previous rate?

Yes, pretty good with the year that we just ended. Yes. (multiple speakers)

And then with your capital projects, can you refresh us on what the returns you are looking for on those are?

What we've been experiencing, Mike, is what we are anticipating, in the range of -- once they are fully operational, in the range of 11 to 13% return on investment. And we go -- essentially, we go through all of our stores each year, look at changing market conditions and inventory demand, and then put them in a queue as far as evaluations. And we don't really go through with these expansions and/or enhancements unless we can anticipate a double-digit return.

Okay. Then finally, on your revenue guidance of 2.5 to 3%, you did 3.7% in the fourth quarter and you sound like the Florida -- you mentioned that Florida had finally bottomed. I would have anticipated that revenue growth would be a little bit stronger than that. What's the biggest drivers pulling that down essentially for '08?

We're pretty concerned about the housing market, in the sense that that's a pretty significant part of our business, people who list their houses for sale, we'll work with. We have a network of realtors who our managers work with to -- when a house gets listed, the realtor calls our manager and says I got a customer for you. We're going to have them clean a bunch of junk out of their house, make their house look bigger and better. That's one part of it. Obviously, the transitional part, people moving out of a house, waiting to move in a new one, waiting to move out of town, we'll store their goods.

The more we hear about the housing slowdown, that's about 19 or 20% of our business, so we are expecting an impact there. Another fairly decent chunk of our business comes from subcontractors -- the guys who do -- that work out of their pickup trucks and vans and do drywall and electrical and plumbing. If the housing construction slowdown is as significant in especially the areas of Arizona and Florida that we expect, that will have a bit of a trimming on our sales.

So you see -- as says Ken said, it's pretty foggy right now. This is as hard a time to forecast as I think as we've ever seen in our 22 or 23 years in the business. And I can't pick a specific reason why we're talking 2.5% to 3%, but it seems given -- we've been chugging down a little bit the last couple quarters, I think we're in pretty good shape. But nonetheless, I think it's better to err a little bit on the side of caution.

And finally, in the fourth quarter there, on the other rental income line, you had a fairly sizable drop, over 9%, where trucking revenue and packaging and all that stuff falls in. Was there any major driver for that?

Yes, there was one; it was primarily insurance. The biggest components of our other income are truck rentals, sale of lots and boxes, sell tower checks that we get as royalties and sale of insurance. We sell a third-party carrier's insurance and earn a commission on that. And they had a big push in 2006 at the end of the third quarter going right into the first of the year, and it was very successful. We sold a lot of insurance and got a premium commission on that. In this quarter, that program wasn't there. We didn't realize how much it was in '06 until we saw the drop-off in '07. So it was a one -- I'm pretty sure a onetime thing. It was a nice little bubble we had in 4Q of '06.

But as far as the sale of ancillary merchandise, as far as the truck rental program, those are solid. And the insurance is something we actually don't do so much for the money or the commissions earned, but rather to protect ourselves and point out to our customers that you are not insured by us. Here, if you want, if your homeowners or your business insurance doesn't cover it, take advantage of this third-party plan and we will do the paperwork for you. So we just had a nice pop in '06 and didn't get the same in '07.

Great. Thanks, guys.

Alan Calderon, European Investors.

First question, the fourth-quarter occupancy level -- was that anticipated by you when you were on the third-quarter call?

Pretty much. It's down from last year by about 180 basis points, which is about where the third-quarter over third-quarter drop came in. We've had some slippage in occupancy and it's been made up in rates through the year. But yes, we did not expect to see great things with occupancy. And the year-over-year is pretty big, but the drop from second quarter to second quarter, third quarter to third quarter, and fourth quarter to fourth quarter are all pretty similar.

And if you said Florida is in the 84, 86% range, where was it that was really bringing that average down to that 82% range?

We have a lot of stores in Texas that are -- they may never be better than 80 or 81% only because they are so large and we bought them on a cap rate basis. We carry a bunch of space that had we built these stores ourselves, or bought purely on a square foot basis, we wouldn't have.

But we have some fairly large stores in parts of Texas and also here in western New York and Ohio that we bought not too long ago, where again, buying on a cap rate, you are not so concerned as to your occupancy. But some of those stores we bought at 68, 70, 72% occupancy. So it's a little bit alarming, especially if you are in the, across the board looking at real estate, and you see a sector that only has 80 or 82% occupancy.

But we are more concerned with the overall revenue stream and how we can grow it, and a lot of it comes from rate. But we're -- I guess, the answer is we're not alarmed by this, partly because it's inventory that we purchased knowing we probably wouldn't be able to fill it up.

Okay. If I calculate your average occupancy for the year, it was about 84%. In '08, relative to '07, it sounds like your guidance is guiding to approximately flattish. Am I reading that correctly?

I think -- yes, you are, and I don't know how hard we will stick to that, because as we've said on prior calls, we pretty much let our rate management team, which consists of our area managers and some people here at the home office, we let them pretty much determine where they are going to get their rent or their overall top-line growth from. And it's done on a -- not only on a store-by-store basis within a market, but on a unit-size by unit-size basis within the market. And we're pushing and pulling against our competition and what our demand is. So we feel pretty confident with our revenue growth numbers, but we could be off by 150 basis points or so, as to whether we get it from revenue rates or raising rates or from occupancy.

All right. Finally, on the fourth-quarter acquisitions you did, it sounds like they were at pretty low price per facility levels. Is there anything specific there or am I missing something there?

Well, it was a cap -- typically we buy on a cap rate basis. And in those markets, cap rates weren't too brutal. We did some infills right in stores that we had, in a market that we had in Jackson, Mississippi, so they were pretty good there. I think the Houston store was a little bit older, but the four stores on balance fit in with the properties that we have right around them.

Okay. Did you say what the cap rate was on those acquisitions?

No we didn't, but they were well over 7, let's just put it that -- in each case, well over 7.

And is there potential to increase that over the next year or so?

Yes. Our track record is generally within 12 to 18 months when we buy a facility, especially on a one-off situation. We generally experience about 100 to 150 basis point increase in net operating income. That's what our goal is for these four.

Okay. Thank you very much for your time.

Christeen Kim, Deutsche Bank.

Just one quick follow-up, guys. In terms of bracing for a tougher environment in '08, are you guys telling your call center people or your on-site staff to do anything differently -- kind of brace yourself for what may be a tougher year?

Really the -- what our call center people, they are trained to answer the phone to, as Dave said, we have revenue management techniques put in place. And so in the situation where, whether it's Texas or Florida, a particular store for a particular unit size, they know what their variance is as to what they can offer a person. Let's say it's a 10 by 10, and we've got a lot of vacancy, they may -- we have a position price, A, B or C, and if it's B, that might be $90 for that month, and the possibility to perhaps give them a pre-administrative fee. So they're trained to do their job regardless of what the market is telling us. We tell them what price they can charge to anybody who's calling them.

And likewise with managers, when they have a walk-in customer, the manager knows what he or she can charge and what kind of a concession they might be able to give that person to get them as a customer.

So they may be aware of what's going on generally speaking, but they have certain boundaries within which they must try to get the sale. And our goal is to train our people to do that on a regular basis, and then the revenue management is designed to try to take advantage of a situation where we have supply and demand considerations.

I guess I mean are you then telling your call center staff and your on-site staff to do anything differently? Are you increasing that variance of that concession at all just to maybe keep your occupancy a little bit safer for what might be a rougher summer season?

I guess the answer would be yes. We are giving more concessions to get people in, in parts here, let's say, Florida. In the last quarter -- fourth quarter of last year, the concessions we gave there were more frequent and larger than we gave in other parts of the country for that fourth quarter. So depending upon occupancy and what we're seeing as demand, we will either have them give greater concessions in Florida, for instance, but in areas that we're doing well, let's say in parts of Texas, we won't give as many concessions because we have the occupancy there. I don't know if I'm answering your question.

Yes, pretty much. Thank you.

There are no further questions at this time.

Well thank you very much for your interest in our Company and your participation in our call, and we look forward to seeing you, hearing from you anyways, in the next three months. Have a great day.

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