Life Storage Inc (LSI) 2010 Q2 法說會逐字稿

Greetings and welcome to the Sovran Self Storage Second Quarter 2010 Earnings Release Conference Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Myszka, President and Chief Operating Officer for Sovran Self Storage. Thank you Mr. Myszka, you may begin.

Thanks Devon. Good morning and welcome to our second quarter conference call. As a reminder, the following discussion will include forward-looking statements and our actual results may differ materially from these 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, although market conditions continue to be challenging, we do see some positive trends developing in many of our markets. And I think that is an important point to keep in mind, especially during these difficult economic times. We shouldn't lose sight of the big picture. The questions I think we need to keep in mind are -- as a whole, where is this industry headed, up or down? And within that industry, how has any particular company performed over the last, say, four to six quarters, and is the trend up or down for that company?

For the first time in five quarters, our portfolio generated positive same store revenue growth. Now, through most of our 26 years in the business, a same store revenue growth of less than 1% would not be much cause for celebration, honestly. However, this continues a positive trend which began in the third quarter of last year.

Unfortunately we were unable to match the 3.6% decrease in same store operating expenses of last year's second quarter.

We initiated intense cost control efforts as far back as Q4 2008. In fact, each quarter last year reflected negative same store operating expenses year-over-year. And now it is impossible to maintain a quality portfolio without spending the dollars necessary to keep the stores in A-1 condition. So essentially we are up against some difficult comps on the operating expense side of the ledger.

So, summarizing the results of our quarter, we generated a positive same store revenue growth of 0.24%, operating expense growth of 3.8% and negative NOI of 1.8%.

To offer just a couple of specifics for the quarter, although we had fewer traditional telephone inquiries year-over-year, total inquiries to our company increased by 7% as our web optimization efforts continue to be successful with 66% more web inquiries this quarter of 2010 versus last year's second quarter.

We also continued our practice of selectively increasing rates on an increasing number of in-place customers and observed little pushback. In other matters, we made no acquisitions for our accounts or on behalf of our joint venture, however, we do see more candidates on the market than in prior periods. Unfortunately, overall sellers are still regarding the value of their properties at numbers more reflective of, say, two or three years ago.

We sold eight properties in May at a total price of $22.1 million, realizing a gain of $7.5 million on that sale. And with that, let me know turn the call over to Dave Rogers, our Chief Financial Officer, who will provide more details on the quarter's activities.

Thank you, Ken. With regard to operations for the quarter, total revenues increased $182,000, up 40 basis points from 2009's second quarter, while property operating expenses increased by about $700,000, resulting in an overall NOI increase of 1.7%. These overall results reflect the impact of the store we opened in Richmond last fall and the decline in same store NOI I will get to in a minute, net of the operating results of the eight stores we sold in the period.

Average overall occupancy was 80.5% for the quarter ended June 30. And average rent per square foot was $10.16. The overall occupancy rate at the end of the quarter was 81.8%, 90 basis points lower than that of last June's end. This level was less than we anticipated at the end of our first busy season quarter. It was negatively impacted by an aggressive pricing strategy we put in place beginning Memorial Day weekend.

Same store results now include 353 of our 354 Company-owned stores, only the development store in Richmond and the 25 JV stores are excluded from the pool. As Ken mentioned, same store revenues increased by 20 basis points over those of the second quarter of 2009. This was primarily as a result of same store rent on occupied space improving by 40 basis points, offset by a decline in weighted average occupancy of 20 basis points to 80.7%.

Other income, especially commissions on tenant insurance increased by over $200,000.

The quarter end occupancy rate for the same store pool was 82%, about 50 basis lower than last June 30th's level.

We continue to buy occupancy in this highly competitive environment, but for the second quarter in a row our move-in incentives declined on a year-over-year basis. Last year's second quarter saw us granting $4.9 million worth of move-in specials. This year we gave up $4.1 million. Primarily as a result of June's aggressive pricing push, our frequency of incentives offered declined to less than 89% of move-in customers as opposed to more than 95% in 2009's second quarter.

Operating expense on a same-store basis increased by a total of 3.8%, primarily as a result of increased worker's comp, healthcare and curb appeal costs. Other than a 2.4% increase on property taxes, most other costs remained in line with 2009 suppressed levels.

Overall then, same store net operating income dropped 1.8% from that of 2009's second quarter.

G&A costs for the period came in at $5 million, about as expected. The main reasons for the increase over last year's rates were the anticipated ramp up of internet advertising cost and a jump in state and federal income taxes as a result of stronger profits in our taxable REIT subsidiary.

With regard to capital matters, we didn't acquire any properties during the quarter for own portfolio or for that of the joint ventures. We did, however, sell 8 stores, three in Jacksonville, North Carolina, two each in Macon and Augusta, Georgia, and one in Dansville, Virginia. The combined sales price of these eight stores was $22 million and we recorded a gain of about $7.5 million. Of the 17 properties we were looking to divest at the beginning of 2009, only the Salisbury, Maryland and Christiansburg, Virginia properties remain.

We continue to expand and enhance our stores. We are in the process of adding some 500,000 feet of additional and climate controlled space at 20 properties at an estimated cost of $20 million. Even in a tough leasing environment we find that premium space sells. We are also priming the pump for $30 million plus worth of projects to get going early into next year.

At June 30 we have $400 million of unsecured term note debt and $80 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. We have almost $30 million of cash on hand and up to $175 million of credit available as of June 30. 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.

And a quick snapshot of our key debt ratios at June 30. Debt to enterprise value, assuming a $36 share price was 32.3%. Debt to booked costs, 34.9%. Debt to EBITDA ratio, 4.9 times. And debt service coverage, 3.1 times.

Concerning guidance, we are feeling that as the busy season grinds on we are remaining fairly optimistic concerning demand and pricing potential in many of our markets. We anticipate the continued use of leasing incentives as well as advertising and aggressive marketing to improve occupancy. But we remain comfortable with the guidance increases presented last quarter. As we said then, we expect a decline in same-store revenue of 0% to 1% from that of 2009. Property operating costs are projected to increase by 2% to 3%, including a budgeted 6% increase in property taxes. Accordingly, we anticipate a decline of 2% to 3% in same store and net operating income for 2010.

We have curtailed our three-year, $150 million program of expanding and enhancing our existing properties, but we are spending up to $20 million this year on the revised program and priming the pump for $30 million next year. We have 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. As noted earlier, we have sold ten properties this year. Because we don't have the home for the $25 million plus of proceeds, the transactions will be for the short-term dilutive but the impact has been included in guidance.

General and administrative expenses are expected to increase by about $1.5 million this year, primarily as a result of increased web advertising and the effective income taxes on our TRS activities.

At June 30, all of our debt is either fixed rate or covered by swap contracts. Subsequent borrowings that may occur will be pursuant to our line of credit agreement at a floating rate of LIBOR plus 1.375.

At June 30 we had 27.6 million shares of common stock outstanding and 342,000 OP units outstanding.

So, as a result of the above facts and assumptions, we are reiterating our forecast of expected funds from operations for the full year of 2010 of approximately $2.44 to $2.48 per share, and between $0.62 and $0.64 per share for the third quarter of 2010.

And, Ken, at this point I will turn it back to you.

Thanks Dave. That concludes our prepared remarks and we would 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)

Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

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

Good morning guys.

Do you guys have an occupancy update as of the end of July for the same store?

Yes, we are at 83.2% same store occupancy at the end of July. So we increased about 120 basis points from the end of June number.

Okay, and how does that sort of stack up historically to what you see on a seasonal basis?

Well, July was a really good month for us. Just to maybe give you a little bit of background how this whole thing unfolded, second quarter we had really good performance in the first April and May as far as move-ins were concerned. And as Dave mentioned in his prepared remarks, at the end of May we started offering less aggressive specials into June. And by the end of June we saw that the number of move-ins was down considerably compared to the year before. So, we immediately reinstituted the more aggressive specials and in July we had a little over 1,000 more move-ins on a same store basis this July than we did in the last July. And frankly it is really what we are trying to do, we saw things moving pretty well with our revenue management system; we are going to be testing the market to see what the pricing potential is. And we saw that we still need to have some aggressive specials in some of the markets.

Okay, so you saw net absorption of 1,000 units in July. Is that correct?

Right, over last year.

And what do you attribute the strength that you saw in the back half of the quarter and in July, too?

Well, actually, the back end of the quarter was the poor part for us. The earlier part when we took away the specials there was less move-in activity. And, frankly, I think that people are still shopping very vigorously. We don't have as much pricing power as we like at this point, even though as Dave alluded to we have about $800,000 less of concessions, we are easing off slowly. People, I think, are still accustomed to the specials that we have been offering and it is going to be awhile before we cease being as aggressive as we have.

Okay, and then on your existing customers, the rate increases that you implemented throughout the quarter, it sounded like last quarter you were still going to be cautious and selective. Did that change at all throughout the quarter and into July, as you saw an increase in move-in demand here?

Yes, we were more aggressive this past quarter as far as raising rates. I would say we probably raised maybe rates on probably two to three times more people than we did in the first quarter. The amount of the raise was a little bit less, this quarter was around 5%. I think the first quarter was maybe in the 6% to 7% rate increase. But the good thing is we haven't had much pushback as far as people moving out and challenging us on that.

Okay, great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of David Tody with FBR Capital Markets. Please proceed with your question.

Good morning guys.

Hi David.

Question, relative to you are basically saying that you still have to offer concessions even in a seasonally strong period, what are your expectations for the fall and the winter if conditions don't really change, do you think concessions would have to tick back up? Do you think there is some risk to occupancy and demand side? How do you see the rest of the year shaping up?

Well I think if things don't get better it is going to be similar to what we had in the third quarter and fourth quarter of last year. We will be fighting for every customer that we can get and what we try to do is we will have a price online and that will be a lower price than if somebody walks into the store. So we just have to work very, very hard. Salesmanship is very important. Everybody knows every call that we get we have to do our best to convert them to a customer. And really, I think we are in no different position than any other business person if the general economy begins to improve we are going to show some strength. So, I think we are all in the same boat.

Okay, and then relative to the portfolio, could you just give us a little bit of an update as to what you are seeing in Florida in the last couple of months, if you could possibly generalize?

Actually, if I were to say Florida, probably the strongest of the weak is the Tampa/St. Petersburg area. Southwest Florida is the weakest for us there. And the other ones are still kind of stagnant as to where they have been for the last, oh, four to six quarters. We don't see any increase in employment, still a lot of businesses that were there before aren't opening. Right now it is still a battle down in Florida. And ultimately we think it is going to be a strong market. With the baby boomers, they are looking for places as they retire to go where it is going to be warm and sunny, and so ultimately over a period of time it is going to rebound. Just right now I can't say that I see a light at the end of the tunnel there.

Okay, thank you. And on dispositions. Did you mention the aggregate cap rate on the sales that you completed?

We talked about it on the last call a little bit, but the contact that we went into and basically closed was for about just under 8.5% cap on trailing 12 on the eight stores we sold in mid-May. Basically it was a cap rate that we weren't thrilled with but a lot of those stores needed a significant amount of repair and more importantly they were just in markets that weren't fitting with us. We don't have additional stores in any of those markets. So we gave up a little yield but I think it was a good move to move them off the balance sheet and made our operations guys' lives a lot easier and also saved us upwards of a couple of million dollars in some serious improvements we were going to have to make do to the configurations on road and so forth with these properties.

So, we weren't thrilled but it was about 8.5%.

Okay, thanks. And then my last question is relative to concessions. And have you changed the mix of concessions? You were doing the second month "Name your price," the first month free. Have you shifted the way you are [concessing]?

Well we still have the "Name your price" in the second month. A lot will vary as far as occupancy as to what we will be charging the first month. We may, depending upon occupancy, say you pay, you prorate the first month in, if occupancy is low we may have to be a little bit more aggressive there; may not charge the administrative fee. So, there are so many different facets of it. We have about five different specials that managers and the call center people are able to offer depending upon what the demand is and how sensitive the shopper is to the pricing.

So, there are just a lot of different kinds of concessions and they will vary based on store and also on unit size.

Okay, that's helpful. Thanks for the detail today.

Sure.

Thank you. Our next question comes from the line of Eric Wolf with Citi. Pleased proceed with your question.

Thanks, good morning guys.

Good morning Eric.

You mentioned in your earnings release last night that the peak season got off to a bit of a bumpy start. I'm just wondering what specifically fell short of your expectations earlier in the quarter and what made this up potentially later in the quarter in July to allow you to keep your guidance the same?

Well, maybe it is a little bit of a misnomer. April and May, April maybe kind of the beginning of the busy season. Actually were doing okay in April and most of May as far as move-in activity. And what happened then is we got a little aggressive as far as reducing the amount of specials or maybe we were less aggressive with our specials and we saw the drop off in move-ins in June. So, as we measured that we went back to the more aggressive specials and the result was astounding.

In fact, I will give you a little context. For the year so far we have about 2,900 fewer move-ins for the year on a same store basis. During that period of time I just mentioned, the end of May through June we had about 2,500 fewer move-in during that time period than the year before. When we went back to the more aggressive specials we realized over 1,000 more move-ins in July than we did the year before. So, what it told us is they are still going to be challenging as we go along; we are still going to be testing the market, but at this point, even in a busy season, we still have to resort to fairly aggressive specials to attract the move-in.

Sounds like you are, I guess the consumer is pretty price-sensitive right now in sort of the strong elasticity of demand. Have you actually thought about increasing your discounts more? It sounds like July really saw a ramp in occupancies, so I am just wondering if you can increase your discounts and push up occupancy with the benefits of revenue, why not continue to do that. Or do you just not want to give away too much rate at this point?

Well, keep in mind, even though we had fewer move-ins, the top line was a positive same store revenue growth. So it is not just discounts. You have to make sure you manage the pricing up on top as well. And that is where the art comes in as far as how high to go, how low to go. We did have positive same store revenue growth even though we had fewer move-ins the quarter before in 2009. So it will be going back and forth between concessions, aggressive concessions, different types of concessions.

And Eric we should point out that we are still trying and pretty well succeeding for the most part in keeping the rate structure pretty much the same. It is still a key and we learned it again for about the hundredth time in our career that customers don't like to part with money moving in. So, the idea is we want to get them in at less cost. And the incentive that we dropped off in June required a lot more of our customers to pay some dollars on move in. If you can keep that low, that's the reason for the $1 move-in special, that's the reason for the "Name your own Price" type of thing. They move in for practically nothing or nothing. And that is the goal. Ongoing, we can get the rates, I think. It seems like we can. But that is where we fell back in June was we looked for more dollars up front and we got rebuffed.

And along the same lines, your revenue went down by about $1.1 million from the first quarter to the second. Could you just break out how much was loss from the $22 million in dispositions versus what you maybe lost from the sequential rate decline?

We didn't lose anything, I don't think, in the sequential rate decline. It was all --

It was all from the $22 million in dispositions?

Correct.

And then you would expect, I guess, maybe about another half of that to hit the third quarter since you sold in early May?

We did have a little bit of a miss there. When we were on the conference call last time we were expecting a mid-June disposition of those assets and shortly after the call we got calls from the buyers, or two groups, that wanted to accelerate the pace. So, we actually sold, I think, by May 16 I think everything was gone. I really didn't expect that to happen until mid to later June. So, essentially we got nipped for about $0.0125 based on the quick disposition of those properties that's why we thought we were pretty good -- I didn't talk to anybody about guidance at $0.62; I felt okay about it. And then all of a sudden we dump all of that real quick. So it is a meaningful amount to us and I figure there was about six weeks of activity in the period but it is all taken through the gain on disposition and the part on the P&L statement that talks about the disposition of properties. But we owned them for six weeks this quarter and we didn't have them for seven.

Got you. And then just last question. You mentioned that you were planning to spend about $20 million to expand and enhance your properties and then you also said that there is about $30 million earmarked for next year. Do you think we could see you expand upon this given that the acquisition market really isn't picking up too much right now and what type of returns are you targeting on this investment?

We may be more aggressive with it as we see some markets come up. Primarily we are still looking for an 11% to 12% return a year after we turn the key on these properties. And, again, it's small bites. A lot of the projects are $500,000 or $700,000 a piece. It is adding a building. It is adding climate control over many, many properties. The reason the return is so good is that in many cases we own the land already and the revenue that we achieve on this which is about 20% higher than our average rate per square foot, than our dry storage rate per square foot, number one.

Number two, most of the expenses on the property are already accounted for, except for maybe a little bit of extra insurance and a little bit of kick in property taxes. So we are looking for about 11% to 12% yield. We are hoping to have $50 million in the ground by the end of next year and it may be more than that.

Got you. And I apologize if you mentioned this in the past, but is there a regional focus at all to the investment or is it just kind of spread across your portfolio?

Every region has some. I think right now at this moment the mid-Atlantic has a little bit more than anywhere else but it is pretty much across the board.

Okay. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Christine McElroy with UBS. Please proceed with your question.

Hi, good morning, guys. I just wanted to be clear. Would you attribute the changes in your move-ins sort of throughout the quarter, the move-in activity strictly to the changes in your specials or do you think that there were any broader economic factors that play as well, such as some of the lower housing transactions that we saw lower moving activity.

I would say a good part of it was the change in the concessions. But also the Houston market has gone down a fair amount over the past three to five quarters for us. I think unemployment is tough there. Not all of Houston. Northern Houston is fairly strong. But the Central and Southern Houston markets. And one other thing; even though the hurricane occurred back in the end of '08, we still had some tough comps from last year where some people have moved out who used it for those reasons and not having people come in to replace it. So, I would say probably two-thirds was the specials and the other part was various markets, but particularly in Houston.

And then just following up on Florida and maybe including Phoenix in there as well because I know it has been a tough market for you. What were the differences in move-out trends in Florida specifically following any in-place rent increases that you had implemented?

Well, first of all in Florida there weren't too many in-place rate increases and the area managers were instructed. The only time you are going to be doing it down there is if you have relatively full unit sizes and the people who occupy those are well under street rates. So, we didn't really see much in the way of push back in the Florida markets because we want that aggressive there. Other markets we were much more aggressive and frankly we were pretty successful.

Okay, and then can you expand on your comments on the acquisition environment and what you are sort of seeing in the market? How you are thinking about underwriting potential deals? And just elaborate a little bit on what gives you any encouragement, if at all, that acquisition opportunities will begin to surface over the next year?

Two things. We have talked before about different categories of sales. There are some that a lot of properties that were built in 2005-2007 range that shouldn't have been built and here we are three to five years later and those properties are still in the 30% to 40% occupancy range. From our standpoint I think those are pretty much off the table and I would assume most of the larger player's tables.

What we have been seeing over the past five to eight weeks has been a lot of lenders who have brought to us packages or individual notes, either in default or about to go into default or that the bank just wanted to unload. There was, I would say, somewhere on the order of about $700 million of notes on self storage property that different lenders put up for sale. Most of them were connected to borrowers that even if you were able to take the deed and start foreclosure proceedings you wouldn't want to deal with. We looked at a lot and we passed at all of them, primarily because it is a pretty sticky situation, in most cases, to take the notes. And we are not in the business of foreclosing to begin with, but also the borrowers in those cases are just going to be tough people.

Well now we are seeing a lot of those lenders do the foreclosure actions on themselves. I don't know, except for one note package, I don't know of any that sold. I think a lot of them went up for bid and a lot of them got pulled back. Now those lenders are working though to take the properties into foreclosure and actually get the deeds. So those properties will come up, and some of those are pretty good. And I think they will be, I mean there is going to be some competition for them, obviously, but they are things that as a note we didn't want but as a deed we did.

And now more importantly, and probably more likely is a lot of the properties that we have looked at, and we are a little early on the curve in the 50% to 60% occupancy range, that a lot of owners wanted to price at 80% or 90% occupancy are now getting more realistic. So, I think if -- we are certainly not going to play to tune of $200 million on our balance sheet, but I think we will selectively buy some use some fire power to hopefully partner up with somebody to buy some of these opportune properties that are in the 60%, 65%, 70% occupancy range and we can get comfortable with some room to grow in the next couple of years and the cap rates are in the 7's let's say, but we are not having to pay for that increase in value. What we have been seeing a lot is a lot of owners are seeing 70% occupancy and actual pricing the property at a 7.5 cap assuming a pro forma 85%. That is the stuff that was driving us crazy. We are seeing a lot of sellers come off that a bit. And that is what gives us some optimism for certainly not this quarter, maybe not next, but some deals working through. We have to, much later part of this year, early part of next.

Okay and then just one final question if I could. You have spoken about expectations for higher taxes this year. I think you have a 6% expected increase in your guidance. It seems like taxes are running up about 3% year to date. Do you expect to start seeing higher tax bills between now and year-end or is it possible that the 6% could end up being conservative?

It could be conservative, but the main reason for the disparity is we had a real low number last year that came in the fourth quarter. So we are going to make up a lot of that in 4Q. And it is already in guidance and everything. But I think we had a net benefit last year of about 2.5% negative increase in taxes. So, if we flow the whole 6% through the way we should, it will catch itself up in the fourth quarter and if it is 5% we will get a little bit of benefit. If it is 6% it will work out just right.

Thank you.

Okay.

Thank you. Our next question comes from the line of Ki Bin Kim with Macquarie. Please proceed with your question.

Thanks, this is Ki Bin. To follow up on the previous question on expenses, could you give a little bit more breakdown on your expense line items and to what extent are these more controllable ?

The operating expenses? We did mention that we were up unfortunately this quarter about 9% in healthcare costs and we had some worker's comp premium increases that bumped us about 5%. Curb appeal in summertime, a busy season of maintenance was up about 4% and property taxes were up 2.4%. The rest were pretty much in-line with last year and payroll was flat. G&A costs were pretty much flat. A little bit of an increase in credit card costs, but that is negligible. Our insurance was a tad down. Most other operating expenses were right on with last year. And last year we had done a pretty good job of pairing expenses. Most of the larger operators, I think most REITs did a good job with expenses last year so the comps as Ken mentioned on beating last year's expenses are a little tough because we really cut them back pretty severely, especially starting in the beginning of the second quarter and through the third.

And how much are you spending on internet advertising this quarter compared to last year? And, also, what are your thoughts behind putting those expenses in the corporate G&A line item versus operating expense?

With us it has always been, we have put more to the corporate G&A line item because our stores have all been wholly-owned. It is a pain to allocate over 358 stores, the various internet bills that we pay. So, it is the way that we do it; I'm not sure it is the best way but it is the way we do it and it works for us. We are spending about $450,000 a quarter on internet advertising. That is up about 22%, I believe, from last year at this time.

Okay, thank you.

Thank you. Our next question comes from Michael Salinsky with RBC. Please proceed with your question.

It's Salinsky, but close enough. Good morning, guys.

Good morning, Mike.

First question guys. You give some good detail on the renewals, just on new leases, how does that compare on a year-over-year basis at this point in terms of rate?

Rate as far as year-over-year? The asking price is about 3% than what it was at the end of the second quarter of last year. Up a little bit sequentially from the end of this past quarter, like maybe a point or a little less than a point from the end of first quarter this year.

Okay, that's helpful. Second question. If you look at the same store numbers you guys gave there was a nice spike there in other operating income. What was the driver of that?

Primarily insurance to the people coming in. We are really pursuing that. We had really good increase in that. I think for new customers coming in we have about a 70% success rate for those people and for existing customers I think the average is right around 40%. So, that is primarily the biggest reason for the increase.

Okay, how much of other income is insurance there?

Boy, I would say --

About 60%. The rest is truck income and the sale of locks and boxes and such.

Okay, helpful. Third, since your same store includes all but one property, I'm just curious what the performance of the joint venture portfolio was this quarter, compared to your existing portfolio?

It was a tad better. The Denver market was pretty good. I think our same store revenues actually grew about almost 2% for the second quarter. Now, those properties are still benefiting sort of, they are not quite in our system two years so they are benefiting from our ability to go in and pop those, offset tremendously by the overall impact. They are not performing as we had planned them to two years ago but they are performing pretty well in light of or in comparison to the broader self storage market.

I think there are a couple of Florida stores that are giving us a tough time there as they are in the portfolio, but for the most part the Columbus stores, the Denver stores, and are doing a little bit better and the Texas stores are about on par.

Helpful again. With the two remaining asset sales, is that something you expect in the third quarter, or is that a little further out at this point?

We have had two misfires. So I would have like to have said they were all done this quarter, but the lenders gave our potential buyer some trouble. So we reloaded but we don't have anything firm right now. We are hoping to get it done this year; I'm not positive it will work that way, but we are pushing for it.

Finally, a bigger picture question. We have seen two of your peers jump into third party management pretty aggressively here in the past couple of quarters. Just curious what your thoughts are on third party management and whether that is an area you expect to get into going forward?

Well, we are looking at it. The point of fact is we have been in the business now for almost nine years because we have had two joint ventures that we did it for about 40 properties and more recently with the [Heitman] people. So we have experience with it. We are studying it. We may go into it. At this point it is not 100% sure but we are studying it very carefully.

Great. Thanks guys.

Our next question comes from the line of Ross Nussbaum with UBS. Please proceed with your question.

Hi guys, good morning. We are tag teaming here at UBS.

Good morning.

Hi Ross.

A couple of follow-up questions. Dave, I know you talked about marketing and internet costs as one of the reasons why G&A was up year-over-year. I think you said internet is about $450,000 per quarter. What are the marketing costs within G&A?

Other than that? None. We used to have more involvement with our corporate sales, but we have now pushed that off to the stores. That is about it.

Okay, so really $450,000 is the amount of G&A that you would ascribe to marketing and internet?

Yes, the rest is telephone advertising, the point-of-sale advertising, billboards and all of that are directly charged to the stores.

Got it. Okay. I thought one of the other reasons you mentioned G&A was up was it taxes in the TRS?

Yes, we have been pretty fortunate in years past with our other income in terms of truck rental income, insurance sales and so forth. We have not had to pay much of anything in the way of taxes because all of the activity in our TRS, the income was sheltered by the depreciation on the trucks. We have close to 300 trucks in the fleet and the depreciation on those covered most of our operating profits in the taxable REIT subsidiary.

Unfortunately, they are old enough now that virtually all of the depreciation is burned off by the trucks, so we are paying a corporate rate on some of that bad income.

So how much was that TRS tax in the quarter?

This quarter I think was about $290,000.

And you would expect that that would be a recurring number then?

Correct.

Can you remind me at what point did you begin passing through rent increases on existing customers, I guess was it last year? Or had you never stopped?

We never really stopped. It was done very carefully and not many times last year. We were a little bit more aggressive this first quarter because we did start doing it towards the end of January. And we became much more aggressive this quarter. I would say we probably raised rates on about 20% of the people who were eligible just in this quarter alone.

Because what I am trying to get at, I am trying to figure out as you get into the second half of this year and hopefully the first half of next year you will be showing, knock on wood, positive occupancy costs. And now that you have rental rate growth both on existing and new customers, I am just trying to get a sense of how quickly that same store revenue number is going to ramp here.

We are too.

On the real estate taxes, do you specifically have any personnel Dave that spend 100% of their time fighting them?

We have two people who do a lot with it and then we use a service out of Maryland who protests virtually all of our taxes. And then I have to say, it was a tough job in '07 and '08 when we go to protest our property that we had just bought, but it is getting a little easier now. We are having more success and I am hoping that we will be doing better on assessments.

But I think we have talked about this before, as have most REITs, is we are probably going to be successful in the coming years knocking down assessed valuations because of the performance of the property is declining. But what I think is going to happen in a lot of municipalities is their total spend isn't going to go down so you are going to see increases in (inaudible).

So, whatever you gain in the reduced assessment you are going to get back in the payment. But we do have a fairly involved process about, we look at all of our properties ever year on a performance, we get the assessments, and then we fight some on our own and the more challenging ones or the ones that we think have a little bit more convoluted story we work with the tax service on and they are pretty renowned and they do a good job for us. And lately we are getting more success. It was almost impossible three years ago to win. But, now with declining prices and so forth, we are winning assessment battles, but I bet maybe this year we will keep the win but in '011 and 2012 I think we will be -- I'm really nervous about property taxes.

Okay, and then finally, I'm going to try to ask this question as delicately and respectfully as I can because I don't think you are going to like it. I'm trying to really figure out what Bob Attea does at Sovran Self Storage. He's not on the conference calls, he doesn't come to conferences. So, we know what he doesn't do. I'm just trying to figure out what Bob does do to earn a $1.1 million total salary.

He's the guy who drives the properties. He's the guy who has always been a real estate guy. He has had 20+ years at Forest City Enterprises before he came to us as a developer and an operator of properties. He is the one who set the management company in place, who put together the whole strategy of how we do acquisitions. And basically he is the guy who works with and signs off the property takings, the $150 million wave of expansions in the Hamptons that we backed off on. The properties with regard to the joint venture. We haven't had a lot of acquisition opportunity, but on the disposition side he was there on the negotiations.

So, he is basically the property guy and always has been.

And on top of that, Ross, the expansion enhancement program in repairs and maintenance people, those are people that all report to Bob. And as Dave was saying earlier, the return we get on those things is in the range of 11% to 12% to 13%. So, there is no question in our minds, or there shouldn't be any question on anybody's mind how valuable Bob is to the success of our company.

I think that is the disconnect because obviously we have been supportive of you but when we speak to investors one of the big pushback's we get is Sovran is the only company they know of where they don't know who the CEO is because he is not on the phone and he is not meeting with investors at conferences or going around and meeting with them.

So, one thing I would strongly suggest is I think the market needs to see Bob because they are struggling to understand who the missing third member of this management team is.

So noted.

Thanks guys.

Our next question is a follow-up question from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi, just one quick follow-up. On the expansion and enhancement projects, the $20 million for this year and $30 million you mentioned for 2011, what is the lag time for completion, I guess? When will the units start renting the $20 million, for example, that you are starting this year? When will those units start renting?

The goal there, Todd, is to get them ready for the busy season next year. They will probably be renting in December and January but we want to be well ahead of the busy season and hopefully a little bit of that $30 million will kick in there too. But certainly the $20 million we are putting together this year has to be ready for next April. And they will be ready but they won't be leasing much in December, January and February.

Alright, thank you.

We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you. Well I just want to thank everybody for their participation and their interest in our company. We look forward to a good quarter and discussing the results with you at the end of next quarter. Have a good day, guys.

Thanks you.

This concludes today's teleconference. You may disconnect your lines at this time.