Life Storage Inc (LSI) 2010 Q3 法說會逐字稿

Greetings, and welcome to the Sovran Self Storage third 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 for Sovran Self Storage. Thank you. Mr. Myszka, you may begin.

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

Despite continued challenging market conditions, our results of operations were well within our guidance for the quarter. Same-store revenues were marginally positive, with a 0.02% increase over Q3 2009. Expenses increased by 0.8%, which resulted in a decrease in same-store NOI of 0.43%. We also achieved our quarterly FFO guidance of $0.63 per share.

Although we didn't acquire any stores last quarter, we are encouraged by the fact that the acquisitions environment finally seems to be improving with more quality stores being shopped. Prices seem to have moderated a bit. However, this moderation in price appears to have attracted more interested buyers.

We completed two expansions and one climate-control conversion at a total cost of $2.4 million, and we have six more projects underway, which we expect will be completed before the end of the year.

We did see some encouraging signs continuing from the second quarter into the third. We achieved positive same-store revenues for the second consecutive quarter, and we were able to attract substantially more new customers for the quarter than in the corresponding third quarter of last year. In addition, the number of vacancies was much lower than last year, which continued the trend from the second quarter of this year.

Further, we saw some encouraging signs in Florida. Yes, you heard that right, some encouraging signs in Florida. For the first time in about nine quarters, we had positive net rental activity in that state, with the number of vacancies down year over year coupled with an increase in new tenants. We're very encouraged by that.

We're confident our team is generating every rental dollar available, and we're working very hard to continue our business on this upward spiral. And we're looking for your questions in a minute, but right now I'd like to turn the call over to Dave Rogers, our Chief Financial Officer.

Thank you, Ken. With regard to operations, total revenues increased $109,000, or 23 basis points, from '09's third quarter, and property operating expenses increased by about $190,000, resulting in an overall NOI decrease of 27 basis points. These overall results reflect the impact of the store we opened in Richmond last fall and the slight decline in same-store NOI I'll get to in a minute, net of the operating results of the 10 stores we sold earlier this year.

Average overall occupancy was 82.6% for the quarter ended September 30, and average rent per square foot was $10.09. The overall occupancy rate at the end of the quarter was 82.3%, 70 basis points higher than that of last September's end.

Same-store results now include 345 of our 346 Company-owned stores. Only the development store in Richmond and the 25 Heitman JV stores are excluded from the pool.

As Ken mentioned, same-store revenues increased by 3 basis points over those of the third quarter of 2009. This was primarily the result of occupancy improving by 60 basis points to 82.8%, offset by a decline in the same-store rent on occupied space from $10.21 to $10.10. Other income, especially commissions on tenant insurance, increased by about $300,000. The quarter-end occupancy rate for the same-store pool was 82.5%, about 110 basis points higher than that of last September 30.

We continue to buy occupancy in this environment, and reversing the trend of the past two quarters, our move-in incentives increased this quarter on a year-over-year basis. Last year's third quarter saw us granting $4.5 million worth of move-in specials. This year, we gave up $4.7 million. As a result of adjustments implemented by our revenue management team, we're utilizing the incentives less frequently, but when we do, the benefit to the customer is a little bit greater. 87% of our third-quarter move-ins were given incentives of some sort, averaging $125 this year, as opposed to over 96% of move ins averaging $110 this quarter last year. The approach is having the desired impact. For the first time in 15 quarters, our year-over-year occupancy has increased.

Operating expenses on a same-store basis increased by a total of 80 basis points, with modest increases in personnel costs and curb appeal expenses offset by a net decrease in property taxes. We were able to record the benefit of some assessment protest victories, notably those in Atlanta and Stamford, Connecticut, this quarter. We're still projecting about a 5% increase in property tax expense for the year, most of which will be trued up in the next quarter. Most other costs remain in line with 2009 suppressed levels.

So overall, then, same-store net operating income dropped 40 basis points from that of 2009's third quarter.

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

Turning to capital matters, we didn't acquire any properties during the quarter for our own portfolio or for that of the joint venture. We continue to expand and enhance our stores. As Ken mentioned, we're in the process of adding some 500,000 feet of additional space and climate-controlled space at 20 properties. The estimated cost of that is about $20 million. Even in a tough leasing environment, we're finding that the premium space really sells pretty good.

At September 30, we had $400 million of unsecured term note debt and $80 million of mortgage debt outstanding. The next significant maturities aren't until mid-2012. Until we draw on our lines, all of our debt is either fixed rate or hedged to maturity.

At present, we have over $30 million in cash on hand and up to $175 million of credit available. Our capital position is such that our needs are discretionary. We have forward commitments concerning JV contributions or buyouts, no construction programs except for the expansion program to fund, and no properties to acquire until we decide the time is right and the price is right to buy them.

A quick review of our key debt ratios at September 30 -- debt-to-enterprise value at $36 a share is 31.1%; debt-to-book cost, 34.8%; debt-to-EBITDA ratio, 4.7 times; and debt service coverage, 3.2 times.

Concerning guidance for the coming quarter and the balance of the year, the primary leasing is behind us now, but we remain pretty optimistic concerning demands and pricing potential in most of our markets. We anticipate the continued use of leasing incentives, as well as increased advertising and aggressive marketing to improve occupancy. And year to date and for the balance of the year, we expect a decline in same-store revenue of 0% to 1%.

Property operating costs are projected to increase by 2% to 3%, including a budgeted 5% increase in property taxes. Accordingly, we anticipate a decline of 2% to 3% in same-store net operating income for the full year of 2010.

As mentioned above, we're putting $20 million to work this year expanding and improving our stores, and we've also set aside $12 million to provide for recurring capitalized expenditures, primarily roofing, painting, paving and office renovations.

We continue to selectively evaluate acquisition opportunities, but at present have no properties under contract. We will remain prudent while the capital and real estates remain unstable, but we are seeing more opportunity than we have in the past.

As noted earlier, we have sold 10 properties this year, and because we don't have a home for the $25 million of net proceeds, the transactions are, for the short term, dilutive, but that impact's been included in our guidance.

G&A costs are expected to increase by about $1.5 million this year to about $20 million, primarily as a result of increased Web advertising and the effective income taxes on our TRS activities.

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

At September 30, we had 27.6 million shares outstanding and 342,000 operating partnership units.

So as a result of the above, we're reiterating our forecast of expected funds from operation for the full year 2010 to be about $2.44 to $2.48 per share and between $0.62 and $0.64 a share for the fourth quarter of 2010.

And Ken, I'll turn it back to you.

Thanks, Dave. At this point, we'd be pleased to welcome any questions you might have out there. Melissa?

Thank you. We will now be conducting a question-and-answer session. (Operator instructions). One moment, please, while we poll for questions. Our first question comes from David Toti with FBR Capital Markets.

Good morning, guys.

Good morning.

I want to explore a little bit the capital deployment. It seems that in the absence of any acquisition activity, your focus is really on existing assets. And maybe if you could just describe a little bit more about the types of assets that you put into focus for the spending and if you would characterize any of that spending as more sort of maintenance oriented CapEx. And how do you actually define the difference from your view relative to the construction spending?

Well, not to say that we're not doing any activity on the acquisition front. We've been very active, and we are seeing opportunities. We just don't have anything under contract yet. But to your point, we draw a pretty broad line between what we consider revenue enhancing and CapEx. CapEx is pretty much what we said -- the painting, the paving, roofing, and office improvement. So if it doesn't enhance revenue, it's a capitalized expenditure for deferred maintenance.

The enhancements and expansion program is essentially that. We are either building new space, which is primarily the mode we do it. And actually, what we really like to do is take a footprint of a 10,000-foot building and drop it in on land that we already own or that we may have recently acquired. But it's essentially anything that we're putting in the expansion and enhancement program, as we've dubbed it, is exactly that. We're adding revenue capabilities to the portfolio. Otherwise, it goes into CapEx or into just regular maintenance expense.

Okay. So typically, then, you'll identify sites where you have some space capacity or additional pads and drop this sort of essentially prefabricated additional space on the site.

Yes.

Okay, great. And then if you can just speak a little bit about the acquisition pipeline. I know you're looking at deals. Some of your peers have already started pulling the trigger on acquisitions. What are some of the specific hurdles that you're looking for relative to what you're looking at? Specifically, is it geographic? Is it -- what's the investment hurdle that you're using to bench?

Well, we've got -- we really haven't changed the overall strategy, I guess. We would love to buy one-off or small portfolios in markets where we already have a presence. I think we've pruned the portfolio in the past year to get rid of almost all the markets we don't want to be in. So for the most part, where we have stores, we'd like to add more stores. We're also looking to buy stores in new markets if we can get a bit of a footprint, say five or six stores or more, in that market.

As far as the investment hurdles go, what we're seeing an awful lot of is still stuff that's on the rise, stuff that was built recently or has been in a long lease up period. So we're seeing an awful lot of property in the 60% to 80% occupancy range. The cap rates on that might be anywhere from 5% to 7%. You look for a stabilized cap at somewhere in the range of -- if you're going to take that lease up risk from 60 on up, we'd be looking for a stabilized at the mid-8's, I would say.

Existing mature property or property that's pretty well established we would be looking to pay somewhere in the mid-7's, especially in markets where we already have a presence and we can do some work to increase the yield via scale and Internet and call center type marketing programs.

That's helpful. And then my last question just has to do with maybe some anecdotal color on what you're seeing in the private market. Typically, they've been pretty slow to adjust pricing or ramp up or cut back on discounting. If you had to aggregate what you're seeing relative to your competitors on the private side, how would you describe that, their activities?

They're very aggressive as far as specials are concerned, Dave. And so that's a big part of the reason why we responded in kind this past quarter, and we achieved some pretty good success as far as move-in activity. And an encouraging sign too is there was a big decrease in the number of move-outs. So hope that gives you a little flavor as far as what the other people are doing, but they're very aggressive with their specials.

Yes, that's helpful. Thanks for the detail.

You're welcome.

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

Hey. Good morning, guys.

Hey, Christy.

Having made progress on occupancy, and you talked about move -uts being down heavily and move-ins creeping up a bit, what moves your revenue growth into positive territory here going forward? And with rents still putting up negative comps year over year, can you talk about what you've been able to do with in-place and street rent?

Sure. That is the next area or an area that we continue to focus on. This past quarter, we increased the rates on I'd say about 10%, 11% of our current customers, which, on a year-over-year basis, is almost double the number we did the year before. The amount of increase is in range around 5% to 5.5%, and what's encouraging is, once again, because of the prudence we're exercising in those places, we haven't seen much pushback as far as move-outs in response to that.

So the 5% to 5.5%, that's on in-place?

That's correct.

And then on street, can you put some numbers around that?

Well, street -- we're maintaining where we've been as far as the rates are concerned, generally speaking. There are some areas where, in a particular store where we have fairly high occupancy on particular unit sizes, we may increase that by a few points. But generally speaking, we're staying the course with in-place rates, trying to attract -- the only thing we'll do is discount as far as concessions and bring people in the first month or maybe even to the second month. But street rates are pretty firm. Not too much as far as discounting there. The goal really is to try to get the people in and not givetoo much revenue the first month, maybe month and a half, but then hopefully they'll stay the usual nine to eleven months.

So over the next six months or so, is it fair to say that you're more focused on sort of maintaining or raising that occupancy gap, the year-over-year occupancy gap, and then once we hit sort of the spring leasing season, you'll try to be a little bit more aggressive on street rents?

Yes, I think that's true. Remember, usually what -- we do this every year. When you're going into the slow season, you're trying to build up occupancy, and so you'll suffer a little bit for the current month. So we're anticipating the next quarter to realize some of the benefits from the increase in move-ins we just experienced this past quarter.

Okay. And then on property taxes, you talked about a true-up in Q4. I'm just trying to back into what could be the sequential impact. I'm coming up with about a $340,000 sort of sequential increase in property taxes in the fourth quarter. Is that about right?

Yes, that's very good.

It's right. Okay.

Do you work here?

I just wanted to make sure I had the right numbers. And then G&A -- how much in advertising expense was in G&A in Q3?

In Q3, it was about $550,000.

Okay. And that's sort of seasonally above average, I would assume.

Yes. We are putting more into the Web base. We probably aren't the clearest when it comes to our advertising accounting in the sense that the Yellow Page and site specific marketing is all part of NOI and accounted for at the store level, but the overall Internet advertising is accounted for at the G&A level. So that is only Internet advertising that I'm talking about when I say $550,000.

Okay. And then just lastly, more strategic, in some of the areas of the country which have been a little bit slower, any plans to -- or maybe just thinking about non-core assets in general, any plans to pare your portfolio over the next year?

Well, we've been pretty aggressive in that, Christy, over the past 18 months. And it might be counterintuitive, but in those areas where we're not doing too well -- Florida and parts of Houston and Arizona -- things may turn out that over the next year or so, because we think they're good growing areas, we may be aggressive in buying there. So you just don't know. We like the areas we're in for the most part. As Dave said earlier, we have pared those, for the most part, those places that we don't want to be in. The places we're in now, we may be aggressive in buying there.

Okay. Thank you.

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

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

Good morning, Todd and Jordan.

Hi. I just had a -- we saw the top-line decelerate or sort of flatten out a little bit this quarter. And I think you said you granted $4.7 million of free rent in the quarter and last quarter you granted, I believe, $4.1 million. So I was just wondering is this a function of -- mostly a function of the higher move-in activity this quarter versus last quarter?

Yes, I think that's a big part of it, sure. It wasn't reflected in the revenues because of the concessions we had to give. But as I said earlier, the street rates are staying pretty much where they have been. So you give up some rents currently, maybe the first month, month and a half. The expectation, though, is after the second month, we'll start getting full rent from these people.

Okay. So at what point in the year does your portfolio typically begin to see net move-outs, I guess? I know everyone's portfolio sort of differs by one or two months perhaps.

Yes, usually it's around this time, October, November, sometime -- well, in areas where you have a lot of college activity, September is generally a big move-out area -- time period. But usually October, November is when you start seeing more move outs. Fortunately, in the third quarter we saw a decrease in our move-out activity quarter over quarter. So we're encouraged by that, which -- in addition to the big increase we had in move-ins. So looking forward, we're pretty optimistic about where we stand at this point.

Okay. And where's occupancy at the end of October?

A little bit down from where we were at the end of the quarter. It's pretty much in line as far as move-ins are concerned. Over the last several years, a similar amount of move-ins. Move-outs, once again, though, were down this October over last year's, so that trend is continuing.

So did the year-over-year occupancy gap widen further than it was at the end of the quarter?

Yes. To the good, you mean?

Yes.

Yes.

Okay. All right, and then just switching gears, over on the expansion and enhancement program, can you remind us first what your target yields are on the incremental capital that you spend? And then, also, I was wondering if you could talk about what happens to the yield at the existing property overall where the redevelopment is taking place as lease-up is taking place at the new square footage.

Good points, yes. We typically and then have looked for a 10 to 12 yield on the new dollars that we're putting in. And the reason that's achievable is primarily because in most of the cases, we own the land. We did acquire some contiguous parcels back in 2006 and 2007 in anticipation of some expansions that we didn't do. But in many cases -- I think about 80 or 85 places -- we have available acreage that we can develop on. So we don't have to worry about land costs, and obviously the soft costs are quite a bit easier in putting up an expansion than they would be to zone a facility brand new.

So coming in, we're really pretty much just worried about the cost of the construction of the building. And they're nice buildings. They're state-of-the-art, but they're still only going to cost us about $50 or $52 a foot. So you put the building up, you -- we anticipate a lease up in about 12 months of these buildings. And we build them --we anticipate the shorter lease-up because we already know what the demand is for the unit type that we're bringing in. If we've got a 50,000-square-foot facility and we're going to add 10,000 or 12,000 feet to it, we pretty much know the mix we have to put in place, so a lot of the guesswork is taken out as opposed to developing from scratch.

Again, with this property type, the costs are primarily fixed. So when we add a building, our payroll, our advertising and a lot of our overhead stays the same. And all we're really doing -- we're looking to increase the property tax budget, obviously, a bit, and the insurance budget, and that's pretty much it. So a 10 to 12 yield is definitely achievable, has been achieved, and we look to see that yield 12 months post turning the key on the expansion.

Okay. Just a follow up to that, though. Is the lease-up that takes place in the 12 months -- is there a portion of that that you can speak to that stems from tenants at the existing site --

(Inaudible - multiple speakers.) Right.

-- where they're looking move to in to climate-controlled units or something of that sort?

I'm sorry, I forgot that part of the question. The poaching has not been too bad, primarily because we're adding climate control to either a place that doesn't have enough or may not even have any. And so we do experience it a little bit, but not material. I'm not going to say it's all free to get 90% of that 10,000-square-foot building at no poach to the existing, but it's pretty good. We're not doing it just to move tenants from one building to the other and get the up-tick in premium on climate-controlled space. The buildings and the stores that we do it at are pretty hot, in pretty good markets. That's why we stopped it entirely 15 months ago. We probably shouldn't have, because even in these times, we're short on premium space. So I don't think the poaching impact has been too bad, and we don't expect it to be.

Okay. Great. Thanks.

You're welcome.

Thank you. Our next question comes from Michael Bilerman with Citigroup. Please proceed with your question.

Thanks. It's Eric Wolfe. Good morning.

Good morning.

Morning.

Could you give us a sense for the level of acquisitions you looked at during the third quarter, how much you bid on, and what the pricing looked like on the eventual sales in terms of cap rate or price per foot?

Yes. It's pretty broad-based. It ranges from -- I don't know that we looked at any of the notes this quarter. I think that was primarily a function of late first and then second quarter, but I think everybody on the call probably knows the story of the notes that are being circulated around, so I won't bore you with that. But as far as the properties we've seen, it runs the gamut from a lot of properties that troubled developers have that are 30% or 40% occupied. Notes are being extended and extended again at low interest rates, so they're hanging on looking to do anything ranging from a short sale to recover their capital. And pretty much I would say we looked at -- well, to the committee that considers it, there's probably been about 30 that came to the -- 30 packages or properties that came to the top. And we, for the most part, concluded that almost all of those are not for us. They may never get past 40% occupancy given the areas that they were built in and so forth.

There are a number of properties and packages that we looked at more seriously. I think we're -- and we don't usually say this, but we're probably in letter of intent in between $35 million and $40 million worth of property, primarily in markets that we are already in. We expect the going-in yields on those to probably be between 6% and 6.5%, but the occupancy levels are just over 50%, so there's an opportunity play there.

I think that's what we're seeing more of. The standard deals that are going, the mature properties in good areas, B-plus or better, are probably pricing between 7 and 7.25 cap. The onus is not really on those owners to sell. They really don't feel the pressure, so they feel that the cap rates in the low 7's are what the properties are worth, and I think we would agree with that. The trickier part is evaluating those opportunistic or new opportunistic opportunities that have been built, that aren't there yet. And we want to -- we're obviously focusing on the ones that we think we can bring to maturity, bring up over the next couple years to the mid-80% occupancy range. And for that, the cap rate is on a sliding scale all over the place. I would say the cost, if you're buying it on a square-foot construction cost base or replacing it, we're looking at something around $100 -- $95 to $105 -- for decent facilities in good markets.

More is coming on. I think we feel more encouraged every quarter, and we're actually doing real negotiations as opposed to looking at the bid packages and sending them back. There's a more reasonable expectation on, I guess, both parts, buyer and seller. But I think I danced around your question and probably hit on it in some parts.

No, no, that was great. I think reading through your release last night and seeing that you were increasing your spend on enhancing your properties to $50 million, I kind of got the sense that you weren't seeing much in the acquisition market. But it sounds like you're pretty active and you're hopeful that some things are going to close out in the fourth quarter or early next year.

Early next year.

Okay. And just as far as the increased discounting you saw from your competitors during the third quarter over the second quarter, was there anything in particular in the environment you can point to that you believe led them to increase their discounts, or was this simply what you expected as your sort of stronger seasonal period winds down?

I think it was just, frankly, a continuation of what they have been doing. I don't want to say pejoratively, but the mom-and-pops, they're really sensitive to occupancy much more so than, say, the larger companies. And we look more at the revenue stream if we can. But it's a continuation of what we've seen from a lot of the local competitors.

And so you would say -- would it be just more the mom-and-pops, or do you think it's more regionally focused and that it's like Texas and Florida where you're seeing that continued trend, but it's kind of lifting in the stronger Northeast and Mid-Atlantic markets?

Yes, parts of Texas. As we said, Houston -- it's difficult there. Florida is still difficult, but we did see the rate of decline there lessened. And that's maybe a double negative there, but we were encouraged by what we saw in Florida. I think it's the first time, as I mentioned, in a long time that we saw move-ins increase. We still had to do a lot of discounting, but we'd been doing discounting for all these last few quarters with not much success. It seems, generally speaking, that our industry -- the discretionary users of self storage have moved out, and what we're seeing now are those people who have an absolute need for storage and, for the most part, can afford it.

All right. Got you. Thank you.

You're welcome.

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

Good morning, guys.

Morning, Mike.

Morning, Mike.

Great color on the acquisition front there. Just curious one additional detail, what you're seeing in terms of portfolio opportunities. I think you mentioned $35 million to $45 million under contract. Are those one-off properties, or are there some portfolios in there? I'm just curious as to what you're seeing on that front.

We're jumping the gun a little bit. They're not under contract yet, but we do have them in letter of intent. And like I said, we usually don't comment on stuff until we're actually done with our due diligence on the property, so we're a little ways from that. But of that pool, there's about seven -- one of four, one of three, and then a couple one-offs, so they're very small packages. There are some portfolios out there -- very large out West, the remnants of one that was bought, and then there are some smaller packages in the Midwest, and it changes too. They're either being marketed heavily by brokers, they're under the radar pre-marketing. But I think there's a lot more volume certainly from last October to this October and even from May to now. There's a lot more opportunities on the market.

Thanks. That's helpful. Second of all, Ken, you mentioned an improvement in Florida. I'm just curious if you're seeing it throughout Florida, or is it more regional specific at this point?

I would say there's more throughout Florida, but still a couple -- the Tampa area was difficult for us this last quarter, which was a change from before. Central is still a little bit difficult, but generally speaking, most of the rest of the regions were favorable as far as occupancy gains and retention of customers.

Any similar improvement in Houston, or is that still going to be a challenging one for quite some time?

We still see that as challenging. It seems like the economic malaise hit that area a little bit later than other areas, so we're still struggling in a lot of parts of Houston at this point still.

In any of your markets, have you guys seen an ability to begin dialing back on some of the promotional activity with any success, or is it pretty much necessary to drive traffic at this point in time?

Well, I won't say areas, but at specific stores, we might have various unit sizes -- premium, believe it or not, in certain unit sizes, because the occupancy is high -- and have aggressive specials on other units. So I won't say any particular area. One that does come to mind, New England overall was pretty solid for us this quarter and I think continued from the quarter before. Other than that, it's just each store is a separate entity, and that's how we treat it with our revenue management system.

And then, finally, I think you had like two or three properties you were still marketing for sale at the end of last quarter. Any update on those?

Yes, we had a couple failed buyers. We're still marketing them. We had a couple guys who we knew it going in. We figured we'd take a chance anyway. Their financing was suspect, and indeed it was -- we were right to be skeptical. So we'll -- I think we're going to hold off the balance of the year and re-energize it the first part of next year. They're small. They're only a total of about $4 million between the two of them, and we may just re-kick it in January.

Okay. That's all for me.

Thanks, Mike.

Thanks.

Thank you. Our next question is from Paul Adornato with BMO Capital Markets. Please proceed with your question.

Thanks. Good morning.

Morning, Paul.

(Inaudible - multiple speakers) the discussion on move-ins and move-out activity, but I was wondering if you could comment on the length of stay that you're seeing these days versus a year ago and versus what might be considered normal times.

Yes. Overall, the length of stay has decreased over the past couple of years from around 11.5 months down to about 10 or so. One thing we've been very concerned with and tracking was when you offer these aggressive specials, are people going to scam you essentially. And overall, there's about maybe a 2% to 3% difference in occupancy levels or retention levels for those people who come in on the aggressive specials versus less aggressive over their length of stay. So it's -- we're encouraged by that. And part of it is just good management, where you're checking on the people, you're in constant discussion with them when they come to the store, the manager is greeting them and treating them well.

So I guess the short answer is we're not seeing much decrease in the length of stay overall, maybe a month or so over the last three years, and very little difference in the length of stay of those people coming on the aggressive specials versus non.

Okay. And could you comment on the presence of business customers and how they're doing in your portfolio?

Well, I think down in Florida, that's a big reason why we've seen the decrease in the number of move outs, is those people -- the contractors who used us, people running their small businesses, they have moved out. And until things improve, we're not going to see them coming back. Overall, the overall portfolio, though, it's very -- I think most of it -- as I mentioned earlier, the discretionary users, they've moved out. The only time where I think we're going to start seeing them coming back is when the overall economic climate improves throughout the country and particularly in Florida.

Okay. And finally, with respect to tenant insurance, what's your penetration, and what do you consider to be a goal or maximum penetration with some of the products?

At this point, we're in the range of around 43% to 44% of our existing customers have insurance. The new people coming in -- the enrollment has been increasing this year for us. It's almost three out of four customers who come in now take our insurance. We've really made a big effort with training of our managers, to have them do it. I think a reasonable goal is somewhere in the range of maybe 60%, 65% of our customers having insurance.

Okay. Thank you.

You're welcome.

Thank you. Mr. Myszka, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Thanks, Melissa. I want to thank everybody for your participation on the call, and we hope you have a great holiday season. We'll speak to you next year.

Thanks.

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