Life Storage Inc (LSI) 2008 Q4 法說會逐字稿

Good morning, my name is Debbie 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you. Mr. Myszka, you may begin your conference.

Thank you, Debbie. 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 factors that may causes 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.

Well, in a continuing difficult operating environment, our stores achieved a same-store revenue increase of 0.5%. However, our same-store expenses, impacted primarily by several one-time charges, increased by 4.7%, resulting in same-store NOI of a negative 1.8%.

Looking back at 2008, I am pleased with our Company's performance, particularly from a strategic point of view. Let me mention some of our accomplishments. We negotiated and closed on a $375 million term note and revolving credit facility, which maintained our conservatively leveraged balance sheet and will enable us to weather the current economic crisis.

We entered into a joint venture agreement with an affiliate of Heitman LLC and purchased 25 stores into the joint venture at a total cost of $171 million.

And, although we curtailed our expansion and enhancement program on a going forward basis, we did complete improvements at 20 stores at a total cost of just under $26 million.

In addition, we increased our dividend for the 14th consecutive year, no small achievement considering today's troubling economy.

So we are proud of our achievements and look forward to the challenges that we're facing. And now for a brief review of the fourth quarter, Florida remains a drag on our portfolio's performance. However, the numbers there are improving and move-ins for the quarter outpaced those of the fourth quarter in 2007, continuing a trend that began in Q3 of '08. We have experienced similar move-in activity Company-wide, so that's good news for us. But this positive trend did not come without a cost. We were quite aggressive in granting concessions to spur this activity, granting nearly $2 million more in first three-month incentives than we did in Q4 '07.

On the acquisition front, in December we acquired four stores at a total cost of $27 million into the joint venture, and one store for our own portfolio at a cost of about $4.4 million. With the high volatility in the capital markets, our balance sheet remains strong and conservative, and we believe the comfort of having this long-term fixed-rate debt extending out nearly four years is well worth the substantial hit in interest expense that we're taking to current earnings.

With that, let me turn it over to Dave Rogers, Chief Financial Officer, who can provide some details on the quarter's activities.

Thank you, Ken. Regarding operations, total revenues increased $917,000 or 1.8% over 2007's fourth quarter, while property operating expenses increased by $1.1 million. This activity, resulting in an overall NOI decrease of 50 basis points, was primarily due to the addition of the six stores we purchased since October of last year and the impact of the joint venture properties acquired during the quarter, all of this offset by a decline in same-store results that we will talk about in a second.

Average overall occupancy was 81.6% for the quarter ended December 31, and average rent of per square foot was $10.54. Our same-store revenues increased by 50 basis points over those of the fourth quarter of 2007. This gain was, for the most part, rate driven, as our same-store weighted average occupancy for the quarter declined from that of 2007's fourth quarter by 50 basis points to 81.8%. At the quarter-end date, same-store occupancy was 80.6%, down 90 basis points from last December 31, but rental rates were slightly higher at $10.47 per square foot compared to the same-store rate of $10.42 last year.

While these results appear a bit underwhelming, they have taken considerable effort to achieve. Again, this quarter we've treated many of our customers to the first month's rent-free, to the tune of almost $2 million on a same-store basis, compared to less than half that during last year's fourth quarter. The leasing environment is as tough as we've seen and we are, in effect, buying occupancy. Exacerbating the situation further was the fact that we took a charge against tenant receivable of (technical difficulty) delinquencies from our military customers. Our controls and systems to manage receivables are excellent, but certain provisions of the Soldiers and Sailors Act preclude us from utilizing the vigorous enforcement techniques we typically employ at our stores. We really don't usually have such concern with this segment of our customer base; but, with the overall economic picture being what it is and the sensitivity to our customers in the armed services, we are taking a prudent approach.

Operating expenses on a same-store basis increased by 4.7% this period, virtually all of it due to a property tax jump of 21%, which gives a rather distorted picture. Our fourth-quarter 2007 property tax was artificially low because we had over-accrued for the first three quarters of that year, and we were pleasantly surprised when the actual bills came in. Municipalities in Florida, Texas and several other states don't send out the current-year tax invoices until late November, so we're estimating the expense for the majority of our stores for the first three quarters. This year we estimated a 6.5% property tax increase. The actual number came in at 6.9%. So we were pretty close.

But batting against '07's fourth quarter with that big benefit knocked the comparison out of whack. Other operating expenses averaged negligible growth, although snow removal and repair and maintenance costs were higher than last year and insurance expense was considerably lower.

So growing the top line by 50 basis points and absorbing a 4.7% increase in operating costs resulted in a same-store NOI decrease of 1.8% for the quarter. G&A costs for the period came in at $4.8 million, which is about $300,000 more than we expected. We took a charge relating to the settlement of a long-standing lawsuit and wrote off about $65,000 in dead deal costs. We also incurred increased overhead to operate the 25 joint venture stores we took on in the second half of this year, which is, of course, offset by the management fee income we earned from the JV.

Regarding capital matters, our balance sheet remained pretty much unchanged during the quarter. We contribute about $3 million as our 20% share of the JV purchase of a four-store portfolio. We funded a little over $10 million of expansions and enhancements, and we put another $5 million toward our accelerated lightening and brightening program and office renovation program. This total of $18 million of expenditures was funded with $1 million from the DRIP program, $11 million borrowed on the line and the balance coming from operating cash flow.

As mentioned in the last call, in June we were able to refinance all of our 2008 and 2009 unsecured obligations via a four-year term note. As such, we have little in the way of debt maturities or commitments through 2012. At the same time, we also arranged for a new $125 million line of credit, which, at the Company' option, can be expanded to $175 million and can be extended through 2012.

Our total outstanding debt is now $623 million. At December 31, all but $14 million of that which is drawn on the line is long-term and fixed-rate or hedged to maturity. Interest on the line of credit floats at LIBOR plus 1.375%. We have entered into interest rate swap contracts which fix the rate payable on the four-year term loan at 5.97% through maturity.

While our FFO was reduced a bit by missing out on low interest costs associated with floating rates, we feel the stability and certainty associated with our debt is a fair trade off. Right now, approximately 17% of our borrowings are secured, our debt service coverage in the fourth quarter was 2.7 times EBITDA, as was our fixed charge ratio because we don't have any preferred outstanding. And our debt-to-enterprise value was about 41% at December 31.

Regarding guidance, given what we saw in the fourth quarter and the first six weeks of the new year, we're anticipating flat consumer demand in many of our markets and for conditions to become increasingly more competitive. We expect to continue to utilize leasing incentives as well as increased advertising and aggressive marketing strategies to maintain or improve our occupancies. Despite these efforts, we're forecasting a decline in same-store revenue of 1% to 2% from that of 2008.

We look for property operating costs to grow by 3% to 3.5%, resulting in a forecasted drop in same-store NOI of 2% to 4%. G&A costs are targeted at between $4.3 million and $4.5 million per quarter, which is pretty much on par with 2008 levels.

At present, we don't have any properties under contract and don't expect to actively pursue the purchase of additional facilities with the capital markets so unstable and storage properties difficult to value. We have approximately $5 million of additional capital committed to our remaining share of the equity portion of the JV formed in 2008.

We have curtailed our expansion and enhancement program, and until market conditions significantly improve we will defer most of our planned 2009 expenditures of $50 million. We do have an estimated total of about $9.5 million of commitments outstanding on construction projects that we expect to wrap up as the year goes on.

We will continue to maintain our properties in good order, but we will scale back both our lightening and brightening and office renovation programs. We expect to spend about $8 million on the basics this year -- painting, roofing, paving and those sort of things.

Regarding our interest cost, we are now obligated on $609 million of long-term fixed-rate or hedged loans. Our annual interest cost to carry this debt, including amortization of financing costs, is $40.4 million. This is not expected to change materially for the next four years. The only variable component in our debt structure is related to our line of credit, which carries a floating rate of LIBOR plus 137.5. As I said previously, at December 31 there was $14 million outstanding on the line.

Accordingly, and primarily because of a difficult economic environment and our ongoing incentive program and its effect on our top line, we project our FFO in 2009 to come in at between $3.00 and $3.08 per share and between $0.72 and $0.74 per share for the first quarter.

Kind of as a way to sum up where we think the Company stands, at this point in this cycle we are focused on operating results and value preservation more so than growth. We have a stable, cash flowing portfolio operating under a good brand in good markets. We have maintained a conservative balance sheet. We don't have any significant debt maturities until 2012. We have less than $50 million of forward capital commitments, and we have preserved sufficient liquidity to enable us to navigate these difficult capital market and operating environments.

We expect opportunities will come available in the coming quarters, and we are poised to take advantage of them when the right time comes. In the meantime, we will continue to focus on improving operating results at our 385 stores and protect shareholder value. Ken, at this point I will turn it back to you.

Well, that concludes our prepared remarks and we would be pleased to answer any questions you may have.

(OPERATOR INSTRUCTIONS) Jordan Sadler.

Hi, this is [Todd Thomas], along with Jordan. First, do you guys have an updated occupancy figure through mid-February?

It dropped about net 410 -- about 80 points, I would say, 2% to 3%. Not significantly changed from December 31.

That's year over year, the drop?

No, from end of December.

And then, can you provide some color on the overall trend that you're seeing in move-outs versus move-ins?

Yes. Move-outs are still accelerating, from what we've seen year over year. Beginning of February -- January was a tough month for us as far as move-outs. February seems to be slowing down a little bit. The pace of move-ins, though, fortunately, is greater than what we're seeing -- than we were in the preceding quarters. Like in the fourth quarter of last year we had more move-ins than we did in the fourth quarter of '07. Correspondingly, we had more move-outs in Q4 '08 than we did '07. But net, we were positive move-in.

And that's kind of the trend we are seeing even in the first six weeks of this year.

I think we are seeing a lot of traffic. The call volume is as high, maybe a little higher. We are seeing a lot of people shopping, just shopping for rate, calling back again. So there's activity. I guess, if that was the question, there's certainly activity, both good and bad, and a lot of sharpening of pencils.

How well do you think the concessions are working? Do you to measure your close rate?

Yes, and that's what's very gratifying. The close rate that we have experienced in the fourth quarter of last year was nearly 17% higher than it was for the corresponding period last quarter. And we see that continuing now. But, as we said earlier, it doesn't come without a cost. Later this year, we think we will be able to see the benefits of that. When we started this program in September, we think starting then, we will begin to see some appreciable improvement in the revenues, not just occupancy.

Can you just give us a little bit more color on what happened in Texas, maybe take us through that market? During the quarter, we saw same-store revenues look like they were up 6%, which seemed like a pretty good improvement.

Yes. A lot of it was attributable to the hurricane Ike. We had a lot of people moving in, in October. And that's pretty much the story in Texas.

We are not sure that is sustainable. Even the bump that we got in Florida lasted for a couple of years before people started moving out. We are not expecting that to carry us. Those move-ins are in, but we're already seeing some erosion of that.

So do you think it will sustain you? In your numbers for 2009, are you expecting Texas to remain relatively buoyant?

I would say relative to some of our other markets, yes. But I don't see it being as strong as it was in the fourth quarter of '08.

And, directionally, it looked like a handful of other markets just deteriorated a little bit more than we had seen in prior cores. I'm just curious if that direction is going to persist as well -- like Virginia and Maryland, for instance, maybe Georgia, and Connecticut just seeing greater weakness than previously.

Yes, the capital district -- those happen to be, most of those that you mentioned, where we have military installations and a lot of military personnel coming back. When they come back, they are vacating their units, obviously. So we are watching that very closely, and we enjoyed it when they were gone. Now they are coming back, which is good news for the country and for them, bad news for our business. But that's the explanation for the capital district.

Mark Biffert.

I was wondering if you can talk a little bit about the type of tenants that were moving out. Specifically, can you discuss the percentage of move-outs that were from your longer-term tenant base?

Actually, it really is very similar to what we experienced before. It's just we're experiencing more people moving out. Anecdotally, when I have been visiting the stores, managers are telling me that the customers, when they are vacating, many of them are saying they just simply can't afford to make the payments to keep the self storage units. It's a question between a mortgage, a car payment, utilities and self storage. So that's what we're up against as far as the move-outs are concerned.

What are your expectations in terms of incentive spending for 2009? Can we expect to see the amount of spending you spent in the last two quarters to continue through the year?

Unless things improve with the economy, I don't see an appreciable difference in what we're going to be doing the rest of this year as from what we did last year. But as I said, we started this program in September, so on a comparable basis the last four months of this year should be a lot stronger than the last four months of last year.

What assumptions are you making in terms of bad debt in 2009, given the rise in delinquencies in the fourth quarter?

This was sort of just a catch-up charge or a true-up charge. We really stopped accruing revenue after 60 to 90 days, depending on the state. So we really don't let our bad debts or even our receivables run away from us. So we typically -- this is the first time we have ever actually taken a deliberate charge, and it's only because these delinquencies have grown by several months because we are precluded from taking any action with our military customers. We just can't go in and auction stuff off, if it's a soldier or a sailor or anybody connected with the military.

So it's not a very big part of our business, it's just that this segment has grown with it. So I don't think you'll see much of a change. We flush people out pretty quick. So we never record the revenue, so as a result there's no bad debt to take.

Lastly, I was wondering if you could address your dividend in terms of your expectations for maintaining it at current levels. Or would you anticipate cutting that dividend to try to maintain cash through '09?

At this point we have no intention of doing anything like that. We're positioned very well, as Dave pointed out in his opening remarks, very solid balance sheet, and we see the revenues that we're going to be generating be sufficient to certainly carry our debt, our expenses and the dividend.

Michael Bilerman.

This is David Toti on the line. Relative to the curtailing of the redevelopment pipeline, were there any costs being capitalized on those projects?

There wasn't that much, but a little bit of interest, why we're carrying it, but it wasn't a very big program to begin with. We topped out at $25 million this year. So there was probably a few hundred thousand dollars of internal travel and interest cost and some internal people, but not significant.

So relatively small. And then, just moving over to the discounting topic, I know you have spent some time on it. Are you guys trying any programs that are extending discounts beyond a month?

I guess the answer is yes, but it may be another month, it may be 10 days or 15 days. I prefer not to go into specifics of it, but it's working quite well. We just started this year, and we are going to track it. If it continues the way it is, we offer a little bit more than that, but we wind up getting more revenue than giving a full month off, if that makes any sense.

So it's something that locks a tenant in for a longer period of time, potentially?

It could.

And are these being rolled out at specific weak markets, or are you just testing across the portfolio?

We started testing it, and it worked so well we have it going in all markets. Certainly, we have our revenue management program in place. So if we have high occupancy at specific units in particular stores, we won't be doing that. But unfortunately, that's not the preponderance of our portfolio right now.

Okay. And then, I think there was a big storage convention fairly recently in Dallas. Did you guys participate in that?

There is one coming up on April 1 that we'll be on a panel with the other public companies.

Alright, so it's upcoming. Can you talk a little bit about your expectations for transaction activity or indications of transaction activity? I would assume there's quite a bit of marketing of assets for sale at these things.

No, sad to say. It's hard finding data points, it really is. I think -- that's why I mentioned, we are not sure. We are looking at a lot of properties, but there's no gun to the seller's head to sell them. There's a few that are out there on a distressed basis. There's one company that's marketing some of its debt or its lenders are marketing some debt, and there's a couple one-off transactions here and there. But there's an awful lot of stuff for sale but not at any kind of a bargain price. So we are looking, especially on behalf of our joint venture, we are looking at a lot of properties. But a lot of the sellers are sticking in the low seven's and they are not stressed, they are not in any kind of trouble. They've got good debt and they've got long-term debt and the operations are decent.

So I guess we would expect in the next few quarters, I would think, more properties for sale and perhaps more reasonable prices, given the capital environment. But to this point, we have looked at a lot of deals, we have talked to a lot of potential sellers, and we have struck very few deals.

This is Michael Bilerman speaking. Just coming back to the occupancy, so the year end was 80.6 in the same-store pool. Where is that trending current?

Nominally lower, by tenths.

And has the incentives ramped up from the fourth quarter, or have those stayed at similar levels to maintain that occupancy?

From the fourth quarter, similar. From last year's first quarter, they're more aggressive.

But from the fourth quarter, not a substantial increase?

Correct.

Lou Taylor.

Just to continue on the concession theme a little bit, as you look at '09, do you expect the concessions to be offered more broadly across the portfolio, or just larger concessions in certain markets?

Well, we have been offering the concessions, frankly, throughout our portfolio. The only times we are not offering it is where we have particular stores with some particular units of higher occupancy. So there's not going to be any change with respect to that.

As far as the magnitude of the particular concession, I don't see it going much beyond one to maybe 1.5 months, which is what we're doing right now. But the way it's being presented, we're actually getting more than we were getting when we were offering only one free month. So I hope that answers your question.

I guess, on a year-over-year basis, the concessions in the first and second quarter will look larger than last year's because we really weren't that aggressive last year first and second quarter. In real broad terms, we pretty much offered incentives to people last year if our particular unit size was less than 85% occupied. We have pretty much bumped that level up to 95% occupied now. So there are more units having concessions offered than there were last first and second quarter. But this game started pretty much in September, and we have been consistent now for the last 5.5 months.

In terms of your same-store NOI guidance or revenue guidance, you have it slipping. But you have also indicated that you might, or are possibly expecting some occupancy improvement. So in terms of that revenue decline, can you give us a little bit of color in terms of the composition, in terms of occupancy up 50 basis points versus rents being down by some percentage? Can you just give a little detail on that, please?

It's pretty much the cost of the incentives. You're giving away a couple million dollars plus a quarter. That's pretty much where is. Our rate structure is holding. We haven't slipped back on rate except in very rare cases, so rate holds once you get tenants in the door and you absorb that first month free. So if we can hold occupancy, we are still going to pay for it with about $4 million to $5 million worth of more free rent, we think, this year than we did last year, through the first couple of quarters in a month or so.

Michael Salinsky.

A couple of quick bookkeeping questions here. First, what was the amount of abandoned pursuit cost included in G&A in the fourth quarter?

About $65,000.

Second, in your guidance for 2009 here, what is the amount of management fees you have baked into that? Also, what are your assumptions with regards to real estate taxes?

Management fees that we see with the properties in place at the joint venture right now are about $1.3 million for the year, and the property tax increase we forecast right about 6%, a shade higher than 6%.

Okay, that's helpful. The cap rates on your 4Q '08 transactions, both on balance sheet and in your joint venture?

The single property in Cincinnati was a pretty good cap rate. It was a little over 8.2%. The joint venture properties came in at 7.7%. The Cincinnati deal was a little strange; we typically weren't -- I mean, it's a nice match for us because we've had a couple of lone rangers out in Cincinnati. We got in the contract on this one way back and the seller dragged his feet in getting his stuff together to close it.

But we put it together. As you can see, I think we only bought three all year, and we don't have any in the pipeline now. But that was a nice one at a very attractive price. So I think that's an outlier in the 8's. We don't see many properties in the 8 cap range. We negotiated that right at the very end to get that price. So the 7.7 cap rate for the stores, for the joint venture in Miami and Columbus and Atlanta -- I think that was pretty fair. There is some upside to it, but not a lot, so they are pretty stabilized, high-class properties. And we think we got a pretty good deal at 7.7. Again, we don't see a lot of that out there.

There was no debt assumed on any of those; correct?

There was, on the joint venture, yes. It was a $27 million package. I think we assumed about $13 million of mortgage debt. (multiple speakers).

What was the rate on it?

In the 6's. I don't remember exactly.

And a couple of bigger-picture questions here. You talked about not seeing a lot of distressed opportunities right now. Your balance sheet is in great shape overall. And you can do the stock dividend and various other things. Would you look at a portfolio transaction at this point, if the pricing came in right, would be something you would consider?

What do you mean by right? I think what we want to do, Mike, and sort of the -- and we had a big session with our Board of Directors last month, a couple-day session. And the idea right now, being what things are, let's keep our powder dry, let's let some dust settle. There's going to be some pain in the industry; you can see it. There's a bunch of maturity that's coming due, but nobody has priced their properties based on that.

So to go out and buy something now at a 7.5% cap and work your tail off to get it to an 8.5% yield or sit six, nine months and pick it up at an 8.5% or 9% yield, that's kind of where we are sitting right now. There isn't a whole lot of upside to external growth, we don't think right now, with the picture being what it is, especially after a day like yesterday. We do have always in mind the idea of reloading the debt with something, and it sure isn't going to be common at a price of ours in the low 20's. And if you could find some attractive preferred for us, maybe we could match it up. But that doesn't seem to be anywhere on the horizon, either.

So we think it's sort of just smarter right now to huddle up and focus on internal. We've got 385 stores, everyone of which could use -- I'm sure can benefit from some effort and improvement. So that's pretty much we are looking inward and -- with an eye out the window but not ready to pull the trigger on anything yet.

Let me maybe ask it a different way. At what cap rate would you look at a transaction? Where do cap rates have to rise before you would start looking more aggressively at the acquisition markets?

I think it's more the capital markets, Mike. It isn't the cap rates of the properties. We love the ones we bought for the JV at 7.7%. We like the stuff we bought for ourselves last year at 7.25%, 7%, because the markets were right. But we just don't know where we are going to load with. To go in right now and load up on our line of credit, we don't want to spend our way into trouble like a lot of other REIT's are. We sleep okay now, and I don't want to have us as a group here say, geez, we loaded this thing up, great buy, we are doing great on the FFO front. But holy cow, how are we going to reload this thing?

That's the hold back. It's not the cap rates, it's the capital rates.

That's fair. Finally, just more of a bigger-picture, macro question here. You compete with a number of the REIT's in your markets, but you also compete against a number of smaller guys here in some of your markets who have lost a great deal of occupancy over the past, call it the past 18 months. Are you seeing the smaller guys becoming more desperate, offering more promotions? What does the overall landscape look like from the smaller perspective?

We are seeing them offer -- historically, what they're looking for is, most of the time they want occupancy. And so they offer concessions throughout their whole history, trying to maintain higher occupancy than revenue. I think we said before, we'd much rather be competing against the larger companies because, like us, what they are trying to do is maintain your rates.

With this environment, we are seeing them redoubling their efforts to try to increase their occupancy. So it's a real battle out there. Fortunately, with this dollar movement special that we have, our close rate is up, but customer service is huge. You've got to be careful when you are raising rates, whether they be in-place customers or your street rates. That gives you a color for it, and every market is unique unto itself.

You know what is nice, Mike, is to have the power of scale and to have the call center and to have the Internet capability. The Internet sales have picked up logarithmically over the last couple of years. It's hard for a mom-and-pop to get the word out. So you have companies like the REIT's and a couple of the other larger ones with that call center, with the various ways of being able to advertise and aside from just the Yellow Pages, it makes a big difference.

So you feel confident you can continue to take market share just from the value-added services alone at this point? It's not really -- it's not a price issue?

We think, yes.

Paul Adornato.

Could you talk about pushing through rent increases to existing customers? What do you think this strategy will be for the remainder of this year? Do you think you will be able to achieve rent increases? And how aggressive will you be compared to last year?

Well, we will be putting some rent increases into effect for current customers, but on a very judicious basis. It will be on a case-by-case, where the area manager will be talking with the regional and indicating we have specific unit sizes that we have high occupancy on and we have some demand. In those situations, we will put in a rent increase. We will be cautious and watch it very carefully, not nearly as aggressive as we might have been in 2007 and before that. But we're going to try to get the maximum revenue we can.

Could you compare this operating environment to that of, I think, about three years ago, when there was an industry-wide price war in effect?

It was 2003, and it started with a lot of advertising by the folks at Public Storage, which then encouraged a lot of mom and pops to do the dollar move-in special. So in that regard, with everybody being pretty heavy loaded with the incentives, it's similar. I think the overall market was stronger, certainly. In our 26 years, this is really the first consumer-led pullback, I think. And I don't know if pullback is too strong a word, but certainly the traffic is there, but they are really shopping hard.

I think that was more or less a short-lived problem, the '03 issue. The one that was greater was the late '90's, when there was an oversupply problem. And [Pat] and I were talking yesterday, and essentially the issue was the same. You had a battle for customers, but there it was because there were so many more stores coming up new, and the demand grew through that whole period, the late '90's and early 2000's, but the effect was the same. You still had to be very heavy incented, offer a lot of specials and keep your rates in check.

So the end result is the same, but I think for varying differences. The late '90's, a lot of construction. 2003, the advertising and the idea that the customer could get a month free. And now that same thing coupled with the fact that consumers are less inclined to drop $100 or $125 a month.

Jordan Sadler.

Just going back to cap rates in the investment market, I know you guys don't have a very healthy appetite with the capital markets being in the state they are in. What about on the other side, on asset sales? Any interest there? Are there any bidders out there for assets at these levels that you guys bought assets in the quarter, like at an 8% cap?

Yes, there are quite a number, actually, especially local players and we entertain suggestions and we have had offers that we've stepped away from. It was actually pretty busy in the fourth quarter. We had a few that we thought we would sell, and their financing fell through. Now we've got a few more where there's a couple of buyers.

So we haven't seen any big buyers. There is a REIT out there; I can't remember the name of it, I'm embarrassed. But it's not a REIT so much as a private placement type of deal. They threatened, but they really have not bought a whole lot.

Most of the activity we are seeing is local mom and pops, well-financed. They are getting mortgage financing, but it's the way it used to be, which is 55%, 60% loan to value on five to seven-year bank loans, probably not going CMBS type of thing.

So it's there, but I don't know that we're all that interested in selling it at 8 caps. So we didn't bake anything into the forecast. We may do some, especially if they are a couple of our outline properties.

What is the thought process? If the stock is at an 11.5, 12 cap, you can sell assets in the market at an 8 cap, and maybe they're non-core assets. Is there any sort of incentive there for you, or you don't want to buy back stock, period?

I don't know that we would buy back stock even at these -- well, maybe at these prices, but I don't think so. Liquidity is pretty dear and we wouldn't have thought this, even on our November call. We were pretty bullish on growing our expansions and -- but it has been a pretty sobering three, four months, and at least for the short-term we don't see a whole lot to gain by making a move and sacrificing the liquidity.

I guess I'm more focused on the sale -- I'm not saying just outright, buy stock right now. But if there's an arbitrage where your stock is trading at a tremendous discount to where you can actually sell assets in the open market, there will be an opportunity for you, unless you think there's going to be a point at which you will be able to buy assets at a 12 cap?

Yes; I don't think that will happen. I think you are right. If we are -- we do have non-core, not too many because we purged before we went public, and then we've got rid of a few in between. There's still a few left. If we were fortunate enough to be able to sell those, and we are open to offers and we do talk about it, that's -- you are right; that would be a highest and best use of that capital, would be to recycle it through a share buyback.

Okay, and then is the DRIP still on?

It's on, but nobody is availing themselves of it. We had a record low in January of, I don't know, $150,000 of redemptions. Obviously, we are not thrilled about it, selling the stock at that price. It's not going to be a significant component this year, I don't think.

Our shareholders, I guess, are much the same in terms of preserving liquidity.

Lastly, just coming back to occupancy, what is the occupancy expectation that is embedded in your guidance?

Just about where we were at each quarter end last year, so the low -- very low 80's.

Flat year over year?

Yes.

So, no decline. And you are saying year over year, year to date, so through today, that you are just down a couple of tenths off of the year-end number?

Yes.

But, year over year, is that flat?

It's down from last January 31st.

So we are trending a little bit below what is in your current expectation (multiple speakers)?

Occupancy-wise, but we do have higher revenue rates.

There are no more questions in the queue.

Well, that concludes our conference call for this quarter. We appreciate your participation and interest in our Company and we look forward to speaking to you three, four months from now. Have a great day.

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