Life Storage Inc (LSI) 2009 Q4 法說會逐字稿

Greetings, and welcome to the Sovran Self Storage fourth quarter 2009 earnings-release conference call. (Operator instructions.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kenneth Myszka, President and Chief Operating Officer for Sovran Self Storage. Thank you. Mr. Myszka, you may begin.

Thank you, Melissa. And let me too also welcome you to our conference call. First, though, as a reminder, the following discussion will include forward-looking statements. And our actual results may differ materially from the projected results. Additional information concerning the factors that may cause such differences is included in our Company's SEC filings and copies of these filings may be obtained by contacting the Company or the SEC.

Well, last year was as challenging an environment as we've experienced in our 25, 26 years in the storage business. Fortunately, from a -- both a strategic and tactical view our Company was positioned to withstand the difficulties it faced in the capital markets and in operations. And just a little history. Throughout our history we've been very conservative in our use of leverage. And while this strategy, by its very structure and nature, has limited our year-over-year FFO growth, it's served us well in times of difficult capital markets, whether the high interest rate environment of the late 80s, the credit crunch of '97 and '99, or the current crisis.

However, despite our cautious approach, in early 2009 we ran into an unexpected issue with one of our loan covenants. Fortunately we were able to remedy the situation with the issuance of a little over 4 million shares on a non-diluted basis and paid off over $100 million of bank notes to regain our investment grade rating. From a tactical standpoint our revenue management system enabled us to, what I would say, nimbly introduce many and varied pricing structures at our stores. We were able to track the results and then modify them as we deemed appropriate.

Furthermore, we were able to quickly change our tactics from growth orientation through acquisitions to managing and controlling costs. On a same-store basis we reduced our controllable expenses by over 5% from 2008 to 2009. And as a result of the actions we took, the total debt on our balance sheet is $170 million less than at the same time last year. And with about $150 million available on our line of credit, we're positioned extremely well to take advantage of the inevitable accretive acquisitions we expect to see in the next, say, four to six quarters.

Now briefly I'd like to talk a little bit about the fourth quarter results. On a same-store basis, our stores achieved a decrease in revenues, expenses and NOI of 3.6%, 4% and 3.4% respectively. We made no acquisitions during the quarter. However, we did sell two non-core properties for a little over $6 million, and we have 12 additional stores which we're willing to sell for a total price in the range of $27 million to $30 million. With that said let me turn the call over to Dave Rogers, our Chief Financial Officer. He'll provide a little bit more details on our quarter's activities.

Thanks, Ken. Regarding operations, total revenues decreased $1.6 million or 3.1% from 2008's fourth quarter, while operating expenses decreased by about $540,000, resulting in an overall NOI decrease of 3.2%. These overall results reflect the positive impact of the one store we acquired at the very end of 2008, offset by a decline in same store results that we'll get to in a minute. Average overall occupancy was 80.9% for the quarter ended December 31, and average rent per square foot was $10.18. The overall occupancy rate at the end of the quarter was 79.9%, which is a 70 basis point drop from 12/31/08. Not good but certainly less of a drop than we've experienced in recent year-over-year comparisons.

Same-store revenues decreased by 3.6% from those of the fourth quarter of 2008. This was as a result of same-store weighted average occupancy declining from that of 2008's Q4 by 80 basis points to 81.1% and the rent on occupied space dropping 2.8% to $10.18 per square foot. The quarter-end occupancy rate for the same store pool of 354 properties was 80.1%, about 70 basis points lower than last year's December 31st level. Again, nothing to be really happy about, but nonetheless a significantly smaller drop than that experienced in most recent quarters.

Again we treated many of our customers to the first month's rent free and/or incentives under the Uncle Bob's' Name Your Price program, to the tune of $3.6 million this quarter. The leasing environment remains as competitive as we've seen, and we continue to buy occupancy. In some markets we've been pricing new rentals just to get the sale, especially in Florida and Phoenix, but for the most part in-place rents have been maintained or even modestly increased.

Operating expenses on a same store basis decreased by a total of 4% this period, including a decline in property-tax expenses of 6.4%. The property-tax matter reflects the impact of a year's worth of accruing taxes at an expected 6% increase over 2008 levels and then having the bills come in at the end of the year with an actual increase of only 4.1%. The benefit of the over-accruals made in the first three-quarters favorably impacted this quarter's expense. For 2010 we're again estimating a property tax increase of 6%. Hopefully that again will be too high. Other operating costs were 3.2% less than those of 2008's fourth quarter. Almost all expense areas showed reductions except for marketing costs.

Overall then, same-store net operating income dropped 3.4% from that of 2008's fourth quarter. G&A costs for the period came in at $5.4 million, a little higher than we thought, but it included almost $300,000 of charge-offs relating to some expansion and enhancement projects that we terminated. Looking at the entire year on a NOI basis, we saw a drop in same-store revenues of 3.1%, expense savings of 3.2%, and a net decline in year-over-year NOI of 3.1%. In our 25 years of operating self-storage facilities, this is the first time we've recorded a decline in same-store top line.

With regard to properties, we didn't acquire any during the quarter for our own portfolio or for that of the joint venture. We did, however, sell two stores located near Pittsburgh, Pennsylvania, thereby exiting that market. The stores were sold for $5.4 million. And that brings the total to five stores sold during the year for a combined sales price of $16.3 million.

On October 2nd we opened our second store in Richmond, Virginia. The 78,000 square foot facility was built at a cost of $7 million, including land. And we sort of did a pay as we went on that deal, funding the construction costs out of working capital through the 18 month build period.

As previously announced, we curtailed our program of expanding and enhancing existing stores. However, 10 projects that were started in 2008 were completed this year at a cost of $11 million, providing 239,000 square feet of additional and/or improved space to existing stores.

Concerning capital matters, as we discussed on our last call, we raised $114 million net of equity via the issuance of 4.025 million shares on October 5. That same day we terminated an interest swap contract and paid off $100 million of our bank term notes. As a result we incurred one-time charges totaling just over $9 million, or $0.33 per share, this quarter to terminate this swap rate contract and to write off the unamortized financing fees associated with the notes that were repaid.

On December 1st we used the remaining proceeds of the stock issuance and the proceeds of the sale of the Pittsburgh properties to repay $26 million of outstanding mortgage debt. At December 31st we had $400 million of unsecured term note debt and $81 million of mortgage debt outstanding. The next significant maturities are not until mid-2012. Until we draw on our line, all of our debt is either fixed rate or hedged to maturity.

Our capital position is such that our needs are discretionary. We have no forward commitments concerning JV contributions or buyouts, no construction programs to fund, and no properties to acquire until we decide the time is right to buy them. Just a quick review of certain of our debt ratios. Debt to enterprise value at December 31st, using the $36 share price that was then, 32.3%. Debt to book cost, 34.7%. Debt to EBITDA ratio, 4.6 times. Debt service coverage, 3.4 times.

Turning to guidance, we're continuing to experience soft consumer demand in many markets and anticipate the continuation of leasing incentives as well as increased advertising and aggressive marketing to improve occupancy. We're estimating decline in same-store revenue anywhere from 0% to minus 2% from that of 2009, primarily resulting from the granting of incentives and a little bit of rate erosion. It's expected that the first and second quarters will show the steepest declines, with the latter half of 2010 perhaps performing a bit stronger. Property operating costs are projected to increase by 3% to 4%, including a budgeted 6% increase in property taxes. Accordingly, we're anticipating a decline of 3% to 4% in same store net operating income for 2010.

We've curtailed our three-year $150 million program of expanding and enhancing our existing properties, but we have identified some 21 stores at which we want to add or improve approximately 500,000 square feet of storage space during 2010 at a cost we estimate to be about $20 million. We've also set aside $12 million to provide for recurring capitalized expenditures, including roofing, painting, paving and office renovations.

We continue to selectively evaluate acquisition opportunities, but at present have no properties under contract and expect to remain prudent while the capital and real estate markets remain unstable. We're negotiating the sale of several non-core stores and have plans to sell up to a dozen in 2010. Neither the effect of these potential dispositions nor the impact of any acquisitions have been factored into projected FFO results for 2010.

G&A expenses are expected to increase by 2% to 3%, primarily because we have plans to expand our web-based marketing programs. At December 31st and expected for the balance of this year, all of our debt is either fixed rate or covered by swap rate contracts that essentially fix the rate, and any subsequent borrowings that may occur will be pursuant to our line of credit agreement at a floating rate of LIBOR plus 137. At December 31st, we had 27.5 million shares of common stock outstanding and 420,000 OP units.

So putting it all together and as a result of the above assumptions, we expect funds from operations for the full year of 2010 to be in the range of $2.41 to $2.45 per share, and between $0.56 and $0.58 per share for the first quarter of 2010. And at this point, Ken, I'll turn it back to you.

Thanks a lot, Dave. That concludes our prepared remarks, and we'd be pleased to field any questions you might have out there.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Gentlemen, our first question is from Christy McElroy of UBS. Please proceed with your question.

Hi. Good morning, guys.

Hi, Christy.

Good morning.

Ken, you talked about inevitable accretive acquisition opportunities over the next four to six quarters. What gives you the confidence that these opportunities will materialize, and what are you seeing in the transaction markets currently?

In answer to the second part, we're not seeing much of anything. I guess what I -- just reasonably looking at things, what we've seen in our acquisition area is over the last three, four, five years, people buying or building storage facilities at pretty high loan-to-value rates, the lease-up not being as what they expected it to be. At some point the term of their notes will come due, and the banks will be forced to stop pretending and extending -- or extending and pretending. And we're tracking that very closely. When that's going to happen, we're not sure. But we think it's got to be coming up -- we've been saying this now for the last couple of quarters. We just think that over the next, maybe, four to six quarters, we're going to start seeing some -- more of that occurring, and we're ready to take advantage of it.

And as you look at acquisition opportunities, can you give us a sense for your strategy in terms of geographical location and required yield?

Well, I'll have Dave answer the required yield part. But what we'll be looking for, two things, one, in-fill areas where we already have a presence. And if we're going to go into a new market, we generally won't go in without some substance, so maybe four to five stores with an idea of acquiring additional stores within the next 12 months or so. As far as yield --

I think, Christy, the bar has certainly been set a little higher than it has been. We would be looking for more opportunities to grow properties than necessarily they'd be going in yield. That's something that we've sort of built our Company on, especially prior to the mid-2000s. The 20 years before that we were almost always going in, looking at a store, seeing what we could do to improve the efficiencies, use some of our scale and then of course grow the top line. So what we would love, and I guess a lot of people would, would be something in the sweet spot of a 65% to 80% occupied store in a market that we know that we could come in and in year one improve the yield by 100 to 150 basis points, just sort of for putting Uncle Bob's' recipe in place. I would not expect us to see much under eight initially, with that opportunity on top of it.

Okay. And then you talked about increasing advertising and aggressive marketing. How do you expect your strategy in that regard to differ from last year? Would you characterize it as less about occupancy preservation and more about making a push to build occupancy? So has the improved or stabilized environment allowed you to take more of an offensive stance rather than defensive?

Well, we're still going to be very careful as far as pricing concerned. Later this -- at the end of this -- sometime this quarter, the beginning of next quarter, we'll be introducing an improved website. And have pricing associated with us and also trying to differentiate us from other people, trying to encourage people to call us. And once they call us, we have the people well-trained to field them, to try to convert them to customers. But as far as the pricing is concerned, our customers, the shoppers are still very, very cost conscious. And we're going to -- we think we're on the right track as far as building occupancy. Our move-ins last year were up over the year before. Same thing with the fourth quarter. And first 45 days of this year, move-ins are up considerably over what they were the first 45 days of last year. And significantly move-outs are down quite a bit from the year before. So I hope that kind of gives you a little flavor for where we're going.

And then just lastly, I know you think about it more in terms of overall revenue growth, but what is your year-end occupancy target?

We continually say that we match to revenue as opposed to a set occupancy. I would certainly expect though, this year, at the end of 2010, we will be working to grow it from the 80.1% that it was at the end of 2009. So we're looking at 0% to negative 2% revenue. We're hoping to see better results in Qs three and four, which would entail growing occupancy. So I guess north of 80.1%. How is that?

Thanks, guys.

Thank you. Our next question is from Paul Adornato of BMO Capital Markets.

Hi, good morning.

Good morning, Paul.

I was wondering -- I guess this is related to the potential for acquisitions. But can you comment on the appetite of small lenders to finance the self-storage products?

I think from what we've seen, new construction hardly at all. We are selling stores. We sold five. We hopefully will sell another five to 12 in the coming months. Those stores, which are in markets that we've considered more or less tertiary, we're seeing lenders finance 60%, 65% loan-to-value to qualified buyers on a cap rate valuation of about 8.5. So lenders are out there the way it used to be, the way we built our Company, which was basically we would raise a third, we would borrow two-thirds and go forward. The difference is in many cases we're seeing these loans as recourse as opposed to non-recourse. So I think money is out there on a very careful basis to qualified buyers who are willing to put some money up and in many cases put their signature on the line, too. That's on the mom-and-pop one-offs. That's the kind of financing we're seeing our buyers get.

Right. Okay. That's helpful. And can you comment on January activity?

Well, as I mentioned earlier, move-ins were up this January over last by a little, about 3.5%. And significantly, move-outs were down just under 2%. And that trend continued into February.

And bad debts in January?

Our bad debts, really as strange as it may seem with this economy, we have experienced almost no change in our bad debt experience over the last like three or four years.

The only difference is we're being more careful, as we have talked about previously on some calls, with regard to military exposure, where we don't want to be in a position to force sale or evict those folks in the military who are overseas. So what happens there is they'll be there and their receivable grows to four, five, six, seven months, which normally we don't stand for. But in this case we just set it aside. And we've basically taken a reserve of 50% against those military receivables that we're not enforcing in our usual way. But that's turned out to be -- we're talking there, I think our allowance for bad debts on the military side was $160,000 last year. I think we added a little bit to it this year. So we're still talking around $200,000 of reserve for bad debt, and I think that's pretty conservative. So -- but other than that, as Ken said, no change.

Okay. Thanks, guys.

You're welcome.

Thank you. Our next question is from Todd Thomas of KeyBanc Capital Markets. Please proceed with your question.

Hi. Good morning. I'm on with Jordan Sadler as well.

Hi.

Hi. Can you just talk about how asking rents have trended through the fourth quarter and through January, and how that compares year-over-year?

Asking rents have been pretty much similar to what we've had over the first -- or the last six months of last year. Where we think we have some opportunity going forward, Todd, is with our in-place customers. We were very, very conservative with respect to rent increases for them last year. And I'm not going to say we're going to be aggressive, but we'll be more aggressive than we were before. And it's a ground-up effort. We have the manager talking with the area manager about specific accounts. And before anything is determined to increase rates, it's determined -- discussed with people here in our home office. So we're doing a lot of that. We have some -- we think we're going to have some opportunities there. But we're going to take it very slowly.

What kind of rent increases are you projecting internally for existing customers?

Well, what we're hoping we can do is things in the range of 3% to 6% for people. And we're hoping we can get as many as 40% to 50% of our existing customers. We're going to start off slow, we're going to [see] monitor it before we start going into en masse. We've done that -- we started that procedure now. Probably by the time we're on the next conference call, we'll be able to give you some -- a little bit more information as to how successful we are.

Okay, great. Regarding Texas, and I guess it seems like mostly Houston, can you talk about what you're seeing there, and why that market is underperforming now? And could you also maybe provide some general details about your Houston portfolio?

Yes. Basically Houston is a pretty solid market for us. Actually all of -- most of Texas is. What we're faced with, though, are difficult comps. If you recall in the third quarter of '08 we had Hurricane Gustav, maybe even Hurricane Ike, but I know Gustav. That had a positive impact in '08 in two ways. One we had a lot more move-ins in '08 and a lot fewer move-outs. Last year, no hurricanes. So we didn't have the influx of people. And we had the normal move-outs of people, plus people who don't need the storage anymore because of the hurricane. So that's pretty much the reason for Houston's poor performance or Texas' poor performance relatively speaking.

Louisiana, we had a -- I think you saw in our financial statements, we had a fire there. We lost upwards of maybe 275, 300 customers in the fourth quarter due to that fire. That's a one-time situation. So we're not overly concerned with Texas or Louisiana. Florida is still an issue. In the Tampa, Clearwater, St. Petersburg area, unemployment at the end of last year was just about 11.7%. And it's expected that it's probably going to go up a little bit higher before it starts coming down. Our hope is that by mid-year Florida will have bottomed out and will start going the other way. I'm not sure --

From a positive standpoint, I can tell you a couple of good things. Maryland, as you saw in our press release, we -- part of the reason we've re-energized our expansion enhancement program is we had two new -- two stores that were outfitted and opened up with new climate control and expanded space. And that led to higher returns for the fourth quarter. Michigan, not sure if it's a long-term thing, but a lot of activity going on there. People changing jobs, selling their house, downsizing, using storage. Hopefully it will be a permanent thing, but we're just not quite sure about that. And then Virginia, we did some different things with the military than we did in the past. And the marketing efforts paid off by giving us a little bit better return. So I hope that gives you a little bit of a flavor for our markets.

Sure. Sure. That's helpful. And then lastly, I don't know if you mentioned it or not, but do you have a same-store occupancy update through maybe the end of January?

No, we've --

Through January, I think it's just under 80%, I think. We'll have to get back to you on that. I'm not 100% sure about that, okay?

Okay. All right. Thank you.

Thank you. Our next question is from David Toti of Citigroup. Please proceed with your question.

Good morning, guys.

Hi, David.

A big-picture question. You touched on this a little bit in your guidance. What kind of landscape are you underwriting in terms of housing, the consumer, maybe the economy in projecting a second half strengthening? And what do you specifically need to see in that respect to really start to see some pricing power on the street?

Well, we try to stay away from the big-picture items when we're building our budgets. And basically our budgets are a ground up deal done by our store managers and our area managers, looking at what they've got as a customer base, what they're seeing in relating to competition and what they're seeing employment-wise and so forth in their three to five mile radius. So it's very much a ground up budget that we get. We don't require those folks to step back and take a look at the big picture. So our 0% to 2% decline in top line was basically built on last year rolling into this year, where we stood at the end of December, what kind of rate increases we can put in absent external forces.

And the main reason we're a little bit more hopeful about Q3 and Q4 is not so much what we're expecting from the economy but rather we think our comps will be easier to beat. So that's -- now we do factor in a little bit, but we never saw what was coming in the fourth quarter or third quarter of '08. We never saw that. That upsets apple carts all over the place. But I don't know that we have baked in much of a macro force into our budgets. It's more ground up, just seeing what's going on in the communities and the stores.

Okay. That's helpful. Then along those lines, maybe you can provide a little bit of detail on what you're seeing -- what kind of behavior you're seeing in the private market, competition in some of your [attachment] areas?

A lot of discounting. And depending on where we are. Florida especially, which is one that we look at all the time and just shake our heads at. We're seeing -- Ken was talking with our regional guy last week. And you look at places like Tampa and Orlando and you see -- I forget what the number was -- well in excess of 50% of the homeowners there are under water with regard to their mortgages. And there are big layoffs coming throughout the state. The state's program is cutting upwards of 18,000 jobs. Fortunately we're not too enmeshed in the Space Coast side of things. But it's just a constant flow in Florida.

So we're seeing, to get to your question, more, I guess, of a panic with Florida operators in terms of slashing rates and really just giving away three months free for a two-month lease and things like that. That's probably the only market where we've seen that. I understand there's some of that in Vegas and in parts of California. But -- so that's one extreme, where you have basic fear from the operators. And unfortunately as we've talked about before, in '05 and '06 there was a real push to build in Florida. So there's a lot of space there that never was leased.

Yes, just -- I was out visiting some stores and shopping some of the competition last month, and there were a couple of places. One where they -- I was a mystery shopper. And they said, how long do you plan on staying? Maybe four months or six months, whatever. And she said, well, if you pay the first two months, the next two months are free. I said, what if I want to stay a year? She said you pay six months and the next six months are free. So it's very aggressive. People are very price conscious. And it's a tough environment. Now that's Florida.

Anyway. But most markets, I think, we're probably as aggressive as anybody with regard to our Uncle Bob's Name Your Price. That's probably -- I'm hoping, and I think in most markets we're seeing, that should be about the extent of the giveaways. We're in a market, we'll say okay here we are on February 18th? If you call us now, and most stores if the unit size is available, we'll probably say you can move into our store for February for free, and name your price for March. And there'll be something in the range of probably $0 to $50 that we'll get for March. And then starting April 1, rent will be there. We are probably as incentive oriented as any. I don't think anybody is undercutting us on incentive, except for Florida and, as I said, probably out west. That's the nadir, I hope, as far as discounting and incentives go.

Great. And then just along those lines, the concessions fell sequentially. Was that more volume driven or are you pulling back in some markets?

More volume driven I'm thinking. You're talking the 3.6?

Yes.

Oh, from four. Yes, that's volume driven. It's third quarter to fourth quarter, absolutely that was volume driven. The calls sort of dry up in November and December, definitely.

Okay. Then my last question is just related to the $20 million you're planning to spend on expansion and rehab. Is there an area of focus, or is that pretty widespread spending throughout the portfolio?

Very widespread. We did -- basically we just looked at stores, primarily stores that could use climate control or Dri-guard. That sells. Even in this environment we're seeing, if we can provide that upscale service, it sells. So we're -- those are -- we're considering these the lay-ups, stuff that can get done pretty much within a 12-month period and be lined up and leased within six to eight months after that.

Great. Thanks for all the detail.

Okay.

Thank you. Our next question is from Ki Bin Kim with Macquarie Group. Please proceed with your question.

Thank you. So, just to follow up on that last question, so the $20 million capital spending is to retrofit the existing space, not necessarily new square footage?

Ordinarily it is new square footage on land that we own. So if we have a 45,000 square-foot facility and see a need for climate control or additional climate control, we'll typically build a new building that is totally Dri-guarded and climate controlled. There's not too much retrofitting in this one, in this package of $20 million.

Okay, and -- Okay, got you. So do you need certain occupancy hurdles to commit capital spending on a certain location?

You would think so, but in this case we've got a couple that are at 70% occupancy, but their climate control is full. So it's sort of a different market we're hitting with this stuff, a higher-end higher-margin market. But for the most part, though, the healthier stores are the ones that are getting this. But I won't say that there aren't a couple that are low occupancy and yet we're adding space rather than retrofitting. We just made the decision it's too hard to retrofit some of what we call dry space, so we're just outright building new premium space.

Got you. And just as a general question, given that the fourth quarter is generally a net move-out month, how would you say that the unusually cold weather we've had in this country has impacted your operations, whether it be on maybe less people moving out because it's just too cold to go through the hassle or with regards to snow removal costs?

Well, we really didn't see much of an impact as far as the weather is concerned. The only thing we did see is that there were fewer net outs for the fourth quarter than we had in '08, which are positive things. Snow removal costs were up quite a bit for us, which will hurt us. But as far as the weather, many times during regular business times, without this recession that we're going through, we would generally in the northern states try to put in rent increases during the wintertime, because it's a little bit more -- not as pleasant for people to move out. But in this environment we're very, very careful when we're going to be putting rent increases in.

And --

For the most part, Ki, we -- most of our stores are not -- have not been impact -- you're talking primarily the mid-Atlantic as being a cold spot or abnormally weather adverse. But Texas, Florida, they're cold but they're not certainly impairing anybody moving, or even in New York, Pennsylvania and Michigan the weather hasn't been too severe. It's basically I think the mid-Atlantic region that has had weather severe enough to impact our business. And we don't have that many stores there.

Got you. And on just a quick fact check. What is the average Name Your Price price?

Well, we've -- our collections last year averaged just about 30%. I think it was like 30%, 31%. So if it was $100 rent for the month we averaged about $30, $31 for that collection.

So no one goes for that one dollar simply?

Well, the managers are trained. They kind of fool around with them and say, listen, Uncle Bob's is trying to help out in this tough times. Name your own price. And if the customer says, you mean I can pay zero? And the manager will say, well, yes, you can. But how about maybe give a little love to Uncle Bob and see what you can do as far as trying to give us a little something? So they kind of work it back and forth and joke around a little bit. In the final analysis there are people who pay zero the second month but on average it's about 30%.

That's interesting. Thank you guys.

You're welcome.

Thank you. Our next question is from Michael Salinsky of RBC Capital Markets. Please proceed with your question.

Good morning, guys.

Hi, Mike.

The $3.6 million of concessions in the quarter. How does that compare year-over-year? I know you guys had started rolling out the concessions in the third quarter of last year. I was just curious as to how that relates on a year-over-year basis.

On a same-store basis it was about $600,000 more this quarter than last.

Okay. That's helpful then. Secondly, with regard to the markets, have you seen the ability to pull back on that kind of activity in any market thus far? And what has been the result?

Well, we haven't -- I mean, we will not offer that for a particular unit size perhaps. If a person goes in there and we've got full occupancy -- or 90% occupancy on a certain unit size, we review this on a daily basis. So we'll say on this particular unit size this is what the price is. But we don't -- unfortunately we don't have a lot of those situations right now. So I would say probably 90% of the time we're going to have the three-month special. Now, we'll tweak it as well as far as maybe an admin fee or prorating depending upon the occupancy and the time of the month. But for the most part we'll have the first month free and the second month Name Your Price.

Okay. That's helpful. Switching gears to the dispositions. I know you talked about the $27 million, $30 million. The stuff you sold so far, I was kind of surprised that it's continued to be at a loss. Can you give us a sense what you're selling maybe on a price per square-foot basis and where cap rates are coming out on that?

A couple things. It is -- it looks funny on our P&L that it is still on a loss. Most of these properties, Mike, have come into our portfolio as a throw-in. We bought a bunch of stores in Florida and we had one in Danville and Lynchburg. We had some in Charlotte that we bought that we had to sell one out of Spartan. They came as packages. So the allocation of the price to begin with was probably a little sketchy. We didn't really care too much because we were booking a portfolio. And then the allocation selling out has been a little rough. You won't see that so much in the stores going forward because some of these that we are selling are one-offs.

Further I guess what we're seeing for the most part is stuff in the mid-8 cap range. That's what we've been selling and pricing at, is mid-8 cap. And for the type of property we're selling, this is sort of the property type we've been [gigged] for these past dozen years or so, in third-tier suburbs and smaller stores and that kind of thing. These are definitely the stuff -- if you owned a portfolio like ours, you'd probably say right off the bat these are the ones you should sell. So we're pretty happy with the price on the 8.5, 8.6 cap range. It does look funny when you see the impact rolling through our P&L as a loss. But we basically booked them higher than they probably should have been as part of these portfolio transactions. I think if we're successful in selling what we're thinking of selling the first half of this year, it will go the other way pretty handily.

That's helpful. Third, can you touch a little bit on the performance of the Heitman portfolio? That was your last big portfolio purchased there essentially.

This year it was actually -- it outperformed our Company portfolio, primarily because it was the first year we had -- as I mentioned before, we had the Uncle Bob's' recipe going in, so we were able to apply that. The markets I wouldn't say are necessarily better. They are in many of our markets, Florida, Texas. The new market that we had was Denver, and that market is decent. But I would say it's outperformed the Company portfolio by just a little bit. We're happy with it certainly. Hopefully our partners -- it's tough times, and we bought when things were a little bit richer than they are now. But the markets are good, the stores are excellent.

Okay. And finally just on the expansion/reshape expansion renovation program. Just curious as to what kind of yield you guys are expecting on the $20 million of projects you've got planned for '10.

We still shoot for a 12 yield 12 months after the key is turned. So that's been our benchmark. And essentially it's not that -- it sounds like a great yield. It should be hit, though, because our expenses are shared by the rest of the stores. So we go in basically and invest half a million dollars on one project. Basically all we have to do is pay a little bit more in property taxes and a little bit more on margin for insurance. And the rest of the income from that expansion falls to the bottom line. So typically we look for 12, and we've been pretty successful, unfortunately on a limited basis, in achieving that.

Thanks, guys.

Thank you. Our next question is from Craig Schmidt of Bank of America Corporation. Please proceed with your question.

Hi. This is Andrew Ryu. I'm here with Craig Schmidt. Just had a question regarding your disposition. Regarding the sale of your 12 assets you've identified. Can you talk about which markets? And would that mean exiting any particular market completely?

We would rather not talk about it now while the offers are pending. Suffice to say, we won't be exiting any big markets. These are, as I mentioned, smaller markets and one-off type properties that we have hanging out there.

Got you. And also as you approach the peak leasing season, just wanted to get a sense of what's your expectation and will you be doing anything differently in terms of strategy from last year, let's say?

Well, one thing we will be is a little bit more aggressive in increasing rents of our customers that are in place right now. We, as I also mentioned, we're going to introduce our new website, which we hope will direct more inquiries, give us more hits with that. We're going to continue to emphasize our cost controls that we had before. Probably won't be as dramatic an impact. But we hope to control those pretty well. And I guess what we see, too, is the -- we think the "discretionary" storage user has kind of been flushed out, evidenced by the fact that the last year we had 10,000 more people moving in than we did the year before. Admittedly we had to give a lot of concessions for them, but there are still people out there, there's still demand.

And the other thing frankly is we did complete I think it was about eight [E&Es] from last year coming in this year. We think we'll be able to utilize those and complete some of the ones we just started. So I think a combination of those things makes us feel comfortable that the trend is going our way. More move-ins overall last year versus the year before, more move-ins in the fourth quarter than the year before, more moves-ins in the first 45 days of this year, and more -- just as importantly -- fewer move-outs. So I guess that's kind of where we stand with this. The big bugaboo, frankly though, is the economy. And nobody can predict that.

Great. Thank you. All my other questions have been answered.

Thanks.

Thank you. Our next question is from [Mark Lutenski] with BMO Capital Markets. Please proceed with your question.

Hey, guys. Just a quick one for you. Now that your Name Your Own Price program has been in place for a while, I'm wondering, have you noticed any trends in those tenants, tenants that have taken that up, and in terms of retention and how they might compare to tenants that didn't go in on that Name Your Price program?

Yes, that's a good question, because we've tracked that very, very carefully. And it's interesting, because what we found is tracking back in '07 before we put this into place --- or '08, we tracked like 16 months of retention. And the first let's say four or five months of occupancy, there's people stay -- we retain the people longer who had been coming on Name Your Price. Maybe like maybe 2% more. Over the next 10 months or so it's about 1% to 1.5% less retention. So overall statistically speaking it's really no change, which is great for us. And so that's why it encourages us to continue doing it, because the average stay for our customers is a little over 12 months. So you pay a little bit upfront to get them, but then you've got them on average for another 10 months or so.

Okay. Thank you.

You're welcome.

Gentlemen, our final question is a follow-up from Christy McElroy with UBS. Please proceed with your question.

Hey, guys. It's Ross Nussbaum here with Christy.

Hi, Ross.

I joined the call late, so I apologize if you answered this already. But you're planning on spending $12 million in recurring CapEx this year. That's about 10% of your NOI? Help me understand how it's possible that Self Storage CapEx is 10% of NOI?

Well, part of this is, Ross, basically we consider these -- the CapEx part the non-revenue enhancing expenses. And what we have this year is a bunch of office renovations that we've -- we've tried a few of them over the past couple of years, where we've taken a tired little old office and -- first I should go back. We're still pretty comfortable with the $0.40 a foot type of thing on the recurring CapEx, which would give us about $8 million or so, $7.5 million to $8 million of true recurring CapEx. The other $3.5 million or so we're throwing in, aside from one big project, is this office renovation stuff. And we think what it's doing is it's, we still have 45% to 50% of our customers coming in for walk-up business that we don't see anywhere else in our system, via the call center or Internet-based contact. So that impression is very important. More so probably than the store itself is the office. And it also helps just give a better presence retail-wise and so forth. So we're tipping a little bit more towards that basic front-door office approach. So you're right. That is high on a true CapEx for paving, painting, reworking doors and such. That's pretty much the reason this year that that's happening.

So how much of that $12 million is going towards those office lightening-and-brightening renovations?

A little over $3 million.

A little over $3 million. Okay. And then I know you discussed taxes earlier. What would make you believe that your tax increases in 2010 would be essentially 50% larger than what you experienced in 2009?

We're fighting the increases in valuation. And we're doing okay there. But we just feel that we are an easy target. The storage business. We talk to other operators. And it would be millage rate. It wouldn't be assessed value that would be increasing. But there are so many municipalities, especially in Florida, especially even now in Texas, where it's a relatively healthy state, but they're still crying the blues as far as budget. And we don't want to get in the same places as the counties in Texas and California and New York type of thing.

So I just think that we are nonvoting members of these communities, and that we're a lot easier to tax than the residents. And I think commercial real estate across the board, not just self storage, is going to get hit. I hope we're wrong. And it would be -- I don't want to go there. We've had two years where we've underestimated and only projected 4.5%, and they came in at -- we had an ugly fourth quarter because of it. So it's the best we can do. I wish we had a different way of doing it. But almost 63% of our tax bills come in between November 15th and December 31st. So we really don't know what that last millage rate is going to be until that late in the year.

Yes, I just got mine. Last question, if I think about your occupancy rate, it's obviously been on a year-over-year basis, the decline's been narrowing. What states or areas has that not been the case?

Florida is one. I mean, the move-outs are still going on in that area. Arizona is another one, too, where we've -- the economy there is pretty tough, and we don't expect that to bottom out until probably Q3 of this year. I'd be hard-pressed to --

I guess Texas is -- we're not concerned about Texas like we are about Florida or Arizona, but Texas, because of the nice pop we had in 2008, showed a reversal in 2009 with hurricane tenants and so forth moving out. Louisiana and Texas, both, I would say that would be.

So it looks like the weaker the housing market, the weaker the fundamentals in self storage at this point?

I think that's huge, yes.

Yes, I think that's a fair connection. I think you guys try to make that, and I can't argue with that. I think that is a true statement.

Thanks, guys.

Gentlemen, there are no further questions at this time. Mr. Myszka, I'd like to turn the conference back over to you for closing comments.

Okay, thanks. Just want to thank everybody for your participation in the call and your interest in our Company. And we look forward to speaking to you in the next quarter. Have a great day.

Thanks.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.