Life Storage Inc (LSI) 2010 Q4 法說會逐字稿

Greetings and welcome to the Sovran Self Storage Fourth Quarter and Full Year 2010 Earnings Release Conference Call. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ken Myszka, President of Sovran Self Storage. Thank you, sir. You may begin.

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

Sovran delivered a strong operating result in the quarter, was proved to be very active and quite productive. Same store revenues were up by 2.6% year over year and with expenses falling by 1.9%, our same store NOI increased 5.2%. We also achieved our quarterly FFO guidance of $0.62 per share.

Last call we noted that we were encouraged by the fact that the acquisitions environment seemed to be improving with more quality stores being shopped. I'm pleased to announce that in December we acquired a portfolio of seven stores in Charlotte and Raleigh, North Carolina at a total cost of just under $35 million, these Class A properties bring the number of stores we operate in those markets to 13.

Also, we completed three expansions during the quarter at a total cost of $4.6 million and we have nine additional projects underway. The favorable trends which we saw beginning in the second quarter last year continued through the third and into the fourth with positive net operating income achieved in 20 of the 24 states in which we operate. And the news too is that Florida continued its slow but upward climb with overall occupancy up over fourth quarter 2009 and same store net operating income 4.1% higher as well.

Just reflecting briefly on last year and looking forward, our results are very encouraging -- however, we don't expect to return to what I would call more normal operations until the general economy demonstrates a more sustained growth pattern. And by normal operations, what I mean is an environment as in most of the stiff discounting of the past couple of years. Despite that last word of caution we are quite optimistic about our companies and the industry prospects for a number of reasons.

First, opportunities for external growth are improving. Second, we're seeing little new construction in our markets. Next, on our own basis, we have the ability to grow revenue in our existing portfolio two ways -- through occupancy gains because we're averaging about 3% below historical levels, and also through rent increases on in place customers. Finally, as I mentioned before, the discretionary storage users vacated well over a year ago and as a result move outs are back to normal.

So, we feel pretty good about where we are right now and the future for 2011. With that I'd like to turn the call over to Dave Rogers, our Chief Financial Officer.

Thanks, Ken. With regard to operations, total revenues increased $1.3 million, a 2.8% increase over 2009's fourth quarter while property operating expenses decreased by about $310,000, resulting in an overall NOI increase of 5.5%. These overall results reflect the impact of the store we opened in Richmond last fall, the seven stores we acquired during the last week of the year, and the increase in same store NOI, 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 $10.33. The overall occupancy rate at the end of the quarter was 80% even which was 10 basis points higher than that of last December's end.

Same store results now include 344 of our 352 Company-owned stores. As Ken mentioned, same store revenues increased by 2.6% over those of the fourth quarter of 2009. This is primarily the result of a 1% increase in same store rent on occupied space which went from $10.24 to $10.33 per square foot and other income, especially commissions on tenant insurance which increased by over $500,000. Average weighted occupancy for the quarter remained at 81%. Quarter end occupancy rate for the same store full was 80.2%, about 20 basis points higher than last year's December 31 level.

We bought occupancy to a significantly lesser extent this quarter. 85% of our fourth quarter move-ins were given incentives this year as opposed to over 96% of move-ins last year. The average incentive per customer each year remains the same at $114 but because 5,000 fewer tenants were covered by the program, over $540,000 was retained. Operating expenses on a same store basis decreased by almost 2% with modest increases in personal costs and curb appeal expenses, offset by a large decrease in property taxes.

We were able to record the benefit of some more successful assessment reductions this quarter plus a big impact came from a year's worth of accruing taxes at an expected 6% increase over 2009 levels and then having the invoices come in at the end with an actual increase of only about 1%. The benefit of the over accruals made in the first three quarters favorably impacted this quarter's expense. For 2011 we're estimating a property tax increase of 4% and hopefully again that will be too high. Overall then, same store net operating income improved 5.2% over that of 2009's fourth quarter.

For the full year 2010 our rental revenues on a same store basis were essentially flat while other income, primarily commissions on insurance policies grew by $1.2 million. Operating costs for the most part were held in check rising 1.9%. Property taxes, including refunds due to assessment protests declined 1.7%. So, property, operating income, on a same store basis then increased a hard fought $55,000 or 5 basis points. Not a lot. But it's a start.

G&A costs for the period came in at $6.8 million, about $1.4 million higher than last year's fourth quarter. The main reason for the increase over last year was the anticipated ramp up of internet advertising costs. A jump in our state and federal income taxes as a result of stronger profits in the taxable re-subsidiary, and about $800,000 plus expended in the acquisition of the seven Carolina stores.

Turning to capital matters, we acquired as Ken noted seven stores in Charlotte and Raleigh for a total cost of almost $35 million during the last week of December. Six of those were purchased at a discount to mortgage debt outstanding and involved pretty considerable negotiations with the lending group. About 495,000 square feet of rentable space is included in the total.

So, the price per foot averaged just over $70. This is far below replacement costs as these are beautiful modern properties ranging in age from one to four years old. A cap rate came in at just over five, but with occupancies at 55% we see considerable upside in the coming two years. We use cash generated from the sale of stores earlier this year and a $10 million draw on the line of credit to fund the purchase of these stores.

In a few weeks we'll finish the work on the 2010 batch of improvements to 12 stores totaling $18 million. This year, later this year, we plan on starting about 27 projects which will add about 700,000 square feet of primarily climate controlled space to our portfolio. As we said before we find that even in a tough leasing environment, premium space does sell. At December 31 we had $400 million of unsecured term note debt, $10 million of line debt, and $79 million of mortgage debt outstanding. The next significant maturities are not until mid 2012 and except for the draw on the line, all of our debt is either fixed rate or hedged to maturity.

At present we have $5 million of cash on hand and $115 million available on our credit line. So, our capital position is such that our needs are discretionary. We don't have any forward commitments concerning JV contributions or buy outs, no construction programs to fund, and no properties to acquire until we decide the time is right to buy them.

I'll quickly review a summary of some of our key debt ratios at the end of the year. Debt to enterprise value was 31.5%, debt to book costs, 34.4%, debt to EBITDA ratio 4.8 times, and debt service coverage, 3.2 times. So, very healthy. Real good position.

Turning to guidance for 2011, as Ken mentioned, we're becoming more optimistic concerning demand and pricing potential in many of our markets. We do anticipate the continued use of leasing incentives as well as increased advertising and aggressive marketing campaigns to improve occupancy. We expect the same store revenue jump of 2% to 3% from that of 2010. Property operating costs are projected to increase also by 2% to 3% including a budgeted 4% increase in property taxes. So, accordingly, we anticipate an increase of 2% to 3% in same store net operating income, an increase for the full year of 2011.

As mentioned, we're putting $32 million to work this year expanding and enhancing the existing portfolio or revenue growth projects. We've also set aside $10 million to $11 million to provide for our recurrent CapEx including roofing, painting, paving, and office renovations.

We're continuing to selectively evaluate our acquisition opportunities. Right now we don't have any properties under contract. But we do expect to be buyers this year. Some of our purchases will probably be of the opportunistic, yet to mature facilities, similar to those we bought at the end of the year in North Carolina. Others might be of a more stabilized nature, with room for our marketing programs and operating systems to grow them farther. We don't have a set dollar target in mind. We're looking at a lot of properties and we have the capacity to buy what we feel will be good additions to our portfolio.

Cost and G&A expenses, our core G&A expenses are expected to remain at about $20 million, $21 million this year. But that will increase if we're successful in acquiring properties because if that occurs we'll have to expense the associated third-party closing costs.

At December 31, all of our debt, with the exception of $10 million on the line is either fixed rate or covered by swap contracts that essentially fix the rates. Subsequent borrowings that may occur pursuant to the line are at a floating LIBOR plus 1.375%. December 31 we had 27.7 million shares of common outstanding about 340,000 OP units.

As a result of the above assumptions and inflate situations, we're forecasting funds from operations for the full year 2011 to be approximately $2.59 to $2.62 per share and between $0.60 and $0.62 a share for the first quarter of 2011.

Ken, with that I'll turn it back to you.

Thanks, Dave. We'd be pleased to field any questions you might have. That concludes our remarks. Dan? If you could take over now please?

(Operator Instructions) Our first question is from Todd Thomas of KeyBanc Capital Markets. Caller, please proceed with your question.

Good morning. I'm on with Jordan Sadler. First, I was just wondering if you've got an update on occupancy and operations through I guess January and into February and also can you give a little detail on your move-ins and move-outs for the quarter versus a year ago.

Yes. As far as where we are currently, we've got good news. Move-ins are up over last year by just about 2% for the same -- through February 15. And move-outs are down by about 3.5%. So, we're encouraged by that. What's the second question? I'm sorry.

I was just looking for occupancy in general. You gave the information on the move-ins and move-outs a little bit.

Yes. As far as occupancy, last quarter we didn't have much movement there. What we were working on for the most part is, as Dave mentioned in his remarks, we're less aggressive with our specials. What we're doing is a little bit less of a closing rate for our people but what we're getting is more money up front. We think a little bit better caliber customers who will pay us when it's due and also probably stay a little bit longer. So, we sacrificed a little bit of occupancy gain, but we're gaining more on the revenue side.

Okay. And then as you head into the stronger leasing season here. Can you give us an update on your strategy? The increase ranks of customers? I think in the past you've quantified a portion of the portfolio that would be eligible for rent increases and then what percent of that eligible renter base. You expected the send increases along too? I was just if you could give us an update there?

Sure. As of the end of last quarter, we had about -- a little over 50% of our customers were either at or below our current asking rate. So, is that a good opportunity there to generate some revenues if we increase the rates of people and they stay, that's great. That's what we expect. If they move out we've got the opportunity to replace them with new customers at higher rates. To give you a little flavor for last quarter, we increased in place rates for our customers, about 10%, 11% of them, the rate of increase was about 6.5%.

Okay. That's helpful. Is that what you expect through this year? Strong leasing season?

Yes. We feel pretty comfortable with where we are. We're going to be quite aggressive going forward. We haven't seen the pushback. We were nervous about that during the slow -- the recessionary period. The economy seems to be improving. Demand seems to be improving. And we intend to be more aggressive than we have been in the past three to four quarters.

Okay. Great. Then, Dave, just lastly, you mentioned core G&A at about $21 million for the year. I was just wondering if you could clarify real quick, does that include the expected internet advertising increases or will that be in addition to the $21 million? It's sort of a big swing factor, I guess.

Yes. It is a big swing factor. And by core I meant the non-G&A costs will have to -- all the costs except for the acquisition costs, it will be variable. But that does include a pretty significant internet increase. It includes our expected TRS taxes. Those are going to probably jump fairly significantly. And also our initiatives into our third-party management. Those costs. So, it's basically set save for the increases that may occur because of acquisitions.

Okay. Thank you.

You're welcome.

Our next question is from David Toti of FBR Capital Markets. Caller, please proceed with your question.

Good morning, guys.

Hi, David.

Did you mention, Dave, did you mention your expected stabilized yields on the recent acquisitions?

A little over a five cap is what we bought them at in place at the end of the year. They're really great properties. We've been in both of those markets for years. When they came on, we felt they were going to hurt the market a little bit. It turns out they actually kind of hurt themselves. They were I think six of the seven properties were either for sale or heavily guided by the lenders but we're looking for a two year growth to get the properties up to about 70%, 75%. When they reach maturity and through the 3.5 years we think we'll be somewhere North of a 9.5 cap. So, there's a lot of potential in these even though the initial cap rate is only about 5.1%.

Okay. That's helpful. And can you tell us a little bit how they were sourced. Were they just put on the market and you went through a typical auction?

No. It wasn't a typical auction. There were other players involved. We had some folks who had been looking at those properties for awhile and knew they were troubled. We this time used our usual folks at the Locke Group who knew the seller, knew the lenders, knew a group of people and there was a flurry involved where the banks needed to clean the books of these loans by year end. So, it was kind of a rushed transaction. But there were others involved. I don't know how many. But I do know at least those two and it was -- it wasn't even really price that drove our success in winning the deal. It was our sureness of close by December 31.

Okay. That's helpful. Is there any takeaway we can read into such a large investment essentially in the Sunbelt and the Southeast? Are you more comfortable deploying investment dollars in that market or was this really just a specific opportunity?

We're looking all over the country, Dave. North Carolina, even though it was one of our poorer performers this last quarter, we liked the market. We got good properties there. But we're not married to any particular region at this point.

Okay. That's helpful. My final question is did you disclose your total concessions for the quarter? Can you disclose that dollar amount?

Yes. I can tell you that. It was about $3.2 million. So, net range, think down from about $3.785 million same time last quarter.

And that's still running the same sort of specials, no major change in the format?

It's similar but it's different. I won't go through the nuances. Let's put it this way. It's much less aggressive than we have been before.

Great. Thanks for the detail.

You're welcome.

Our next question is from Eric Wolfe of Citi. Caller, please proceed with your question.

Thanks. Good morning.

Good morning, Eric.

Could you just tell us what level of acquisitions you'd be comfortable with doing in 2011 and how you would fund those acquisitions if they do occur?

We're looking at a lot, an awful lot. Big portfolios. A lot of one-offs. We almost -- we don't want to be pegged to an amount because we have the capacity to pretty much do a lot for a Company our size. We're looking at potential JVs. We're looking at using our balance sheet to a certain degree, ramping up some more debt. We feel we have that. We've got a lot of room to do that. We're also exploring the preferred market if we get there pretty far, in the range of $150 million, we're kind of a Company well equipped to handle preferred because our coverage ratios are still very strong.

So, we're in the position we wanted to be in last year. We didn't pull the trigger too much because we thought we would see more of the distressed nature of properties. But we pretty much kept our powder dry, kept our balance sheet solid just for opportunities like this. So, I'm hoping we're going to do major plays. We're not going to do anything stupid.

We've passed on two very competitive -- not passed. We've lost on two very competitively bid packages. We're not going to sacrifice what we think is a good risk-reward mix but we're hopeful in the high hundreds certainly if you're looking for some kind of number. But as I said, it's not a target. It's not a goal. We may do more. If the opportunities -- we don't like what we see, we won't do them. But we're there. We've got the room and we've got the appetite and we've got the attitude.

The high hundreds? I know you don't want to get pegged to a number but that's the level you'd be comfortable with doing? That's capacity? Or is that sort of a reasonable sort of midrange to think about?

That's probably -- we certainly have the capacity and it is a good range to think about.

Along those same lines, could you tell us where you'd be comfortable taking your leverage just in terms of net debt to EBITDA or fixed coverage?

We're pretty conservative compared to most REITs I think. We're down now in that debt to enterprise value of 31.5%. We'd probably be in the 40% range tops. Our coverage probably wouldn't go below 2.5 times. And that would be at the point prior to a reload. So, we might be at 2.5. We might be at 40%. But we be sure thinking of doing something right at that point equity wise.

And then just lastly, since these acquisitions aren't expected to impact your guidance, can we assume that you'll be purchasing them also are the 5% initial yields on average? You'll be looking more towards the turnaround opportunities?

No. We don't know. We don't have -- again, either that in my mind. But we'll tweak guidance certainly if we get some of the high yield stuff. But if we do it high yield and we match it with some preferred, that spread is going to kind of diminish anyway. And then of course we've got the issue with the expecting of the acquisition costs. It could be the more we do, the more we hurt FFO. But we'll be very clear on how that all fits.

Where do you think you could do a preferred today?

7.75? 7.8? I haven't looked in probably three or four weeks. It may have inched up a little bit. We wouldn't do it North of eight. That's for sure.

That's helpful. Thank you.

Our next question is from Michael Salinsky of RBC Capital Markets. Caller, please proceed with your question.

Good morning, guys. First question relates to your 2012 maturities. Are there any plans to refinance them early in 2011?

Yes. We're looking at it. We're probing it. It probably makes sense to do it. The interesting thing about that is even though the rates have gone up since we did those deals back in 2007, our in place rate might actually be lower despite the rate increases because we swapped those. So, we would have to take a charge to the swap contract but the interest rate going forward would probably be somewhat less than the effective rate we're paying right now. But, yes, we are considering it.

That's not contemplated in what you set forth?

The hit to the swaps? No.

Okay. Can you go ahead and break out the tenant reinsurance out of other income, tell us what that amount was as well as in G&A, obviously G&A was up with the TRS tax expense. Can you break that number out as well?

The tenant reinsurance isn't exactly that. It's actually a commission we earn on placing third-party insurance. So, we don't have our own Company. We basically earn a pretty healthy commission on the policies we place for a third-party carrier. So, that was -- one second. Insurance income for the year was $2.6 million this year as compared to $1.7 million last year. And our TRS and administrative fees this year was $1.1 million compared to about $600,000 last year.

That's helpful there. Third, just looking at your plans for step up expansion and redevelopment essentially. Obviously you've worked through the highest yielding projects. Do you expect the 10% to 12% returns you've kind of been targeting on the additional incremental investment or has that come down as you kind of work through the pipeline?

Yes. We do expect it. That's sort of our number to hit before we authorize it. We were pretty hopeful about these things back in 2008. Then we knee-jerked and pulled the plug and shut it down completely in 2009. So, it took us a little while to crank it up such that we'll only have done about $18 million or $19 million of what we call the 2010 basket of projects. And $32 million in 2011's basket. So, that's really what we expected to do in 2009. So, that's still there. Hopefully as we progress, the climate control, we are underserved I think as far as climate control goes. We only have about 17% of our portfolio in premium spaces. We think that should probably be in a rough sense in the low 20s. So, we've got room I think to expand with space that we're pretty confident is going to sell.

That's all for me, guys. Thanks, guys.

Thanks, Mike.

Our next question is from Ki Kim of Macquarie. Caller, please proceed with your question.

Thank you. Just going back to your leverage ratios and what you think your entity's worth. Why not buy debenture?

No. We won't do that. That's -- we do think we're undervalued of course but we're just not going to do that.

Fair enough. Where are Street rates today versus where they were last year?

They're about the same. Maybe a tad lower than they were in the first quarter of last year. Just a tad lower. We expect as this year goes on they'll be rising.

Is this unchanged because you're trying to gain occupancy? If that's so, what's the timing you expect? Where does occupancy have to go for a serious increase?

Well, it's tough to say on a portfolio because we do this on a micro market specific basis. Literally going to each store, looking at each unit size. If something is 90% occupied, we're going to increase the rate substantially. If it's in the 70%s, obviously we're not going to do it. It's very difficult for me to quantify that for you. Just know that we're analyzing this on a daily basis at every store and when we feel that the occupancy is in the high 80s, we're going to increase the rate for the next person. Certainly if it's in the 90s, we're going to. But I really couldn't give you a timing or percentage at this point. Sorry.

That's alright. Last question. What is your current thinking on rent increase letter and could you provide some more color on how much you're going to do this year at what percent and to what percent of customers and how that compares to what you did last year?

I'll tell you, we were somewhat timid last year. Starting last quarter we've begun to be a little bit more aggressive. You can count on us being much more aggressive this year. Generally what our practice has been is nobody will get a rent increase letter from us if they've been with us for less than eight or nine months. After that period of time we will send out rent increase letters to those people and the rate will depend upon what the occupancy is of that particular unit size at that particular store. My expectation would be the rent increases would be somewhere in the range as far as in place customers, in a range I would say of say 6% to 8%, something like that.

Okay. Thank you.

You're welcome.

Our next question is from [Shanna Galan] of Bank of America-Merrill Lynch. Caller, please proceed with your question.

Hi. Good morning.

Good morning.

Good morning.

I was wondering kind of bigger picture what do you think it's going to take to get the more discretionary partner to come back. Are there any kind of economic indicators that you're looking out for or customer confidence?

Really a big part of it is the economy itself, how well that's -- you know, jobs, housing market, a combination of things. We are a need driven industry and I think as you probably -- the basis of your question is we've got now people who need storage. How do we get the other people back? There's not too much that we can do to create that need. As jobs become more available and people are taking them and moving, as people are building more homes, and contractors are renting and needing space to rent, people are moving from one home to another, people -- different things that are happening in their lives, that's what creates more need for self-storage.

To some extent, that discretionary user is something we have very little control over. What our goal is while those people are not there at this point, our goal is to convert everybody who is shopping in our stores into a customer, giving them the best service we can so that when they're done using it the first time they'll come back and tell other people about it. So, the answer that I have for you -- I'm sorry, it may be a little bit of a cop out, but it's a lot dependent upon the economy which we do see some improvement in most of our markets, but hopefully it continues.

Then I guess going back to the incentives, your concessions, I'm sure it varies by occupancy and market but you're kind of meeting what's going on in that market or are you being a little more aggressive or less aggressive?

We're being less aggressive with our specials. There's no question about it. We think it's the right time to do it and so far experience has been positive. Our length of stay of people is still where it should be and we think we're responding -- our revenue management department is analyzing that on a constant basis and as they see opportunities at various stores and various markets, they're increasing rates of in place customers and suggesting increases for new customers. I hope that gives you a little bit of color.

Yes. Thank you very much.

Our next question is from Mark Lutenski of BMO Capital Markets. Caller, please proceed with your question.

Hi. Good morning there. Just a quick question on the mom and pops. Can you guys comment on what sort of pricing trends you're seeing there as well as discounting?

The mom and pops for the most part what they -- what a lot of them do is they look at their vacancies and if they have a lot of vacancies they do a lot more discounting than the larger operations. We've seen it throughout our history. What we have going for us is the fact that we've got the internet, we've got the call center. Remember way back when we didn't have the call center we would miss many times between 25% and 30% of the calls coming in. Now we answer about 98% of the calls coming in. That's our answer is we're going to continue to be leaders as far as price is concerned in our markets and with the advantages we have -- Dave was talking about expansions of enhancements and the various things we have. That's how we compete to try to get more customers to us and get the higher rates than the mom and pops do.

I think they're competing more on price than the larger operators who have the benefit of scale and the presence on web advertising and stuff. So, there is going to be, I think -- won't call it panic but certainly there's going to be some desperation in the sense that their rates are going to I think fall and be behind the larger operators. And the gap is going to continue to widen between the haves and have-nots. The ten or 12 larger operators that have the ability to put big dollars into internet advertising and afford a call center and things like that.

I guess in terms of the comment you made about the call center. I'm just wondering if there's an opportunity there perhaps for you guys to access sort of the management Company for those mom and pops that don't have those kind of resources?

As a matter of fact we are. We are launching a third-party management program. We'll be at the various expositions over the next couple of months and we have been sending out some information. So, yes, we are entering that market. Truth be known, we have been managing on behalf of third-parties for quite a number of years with our joint ventures but we are embarking on that.

Thank you.

You're welcome.

Our next question is from Todd Thomas of KeyBanc Capital Markets. Caller, please proceed with your question.

Hi. Just a quick follow-up. Bigger picture question on occupancy. Looking back, your portfolio's occupancy was in the 86% to 87% range or so. You've pulled back a little bit of occupancy from the downturn but I was just wondering if you think the portfolio can get back to those higher occupancy levels and what it might take to get back there again?

There's no question in our minds that we're going to get there. It's going to take a lot of hard work. We've got the right people in place. As I mentioned, our specials are less aggressive but in areas where we have particular unit sizes that haven't been rented for a period of time, a long period of time, we'll offer a big special there and we've been doing that and been very successful in getting people to occupy units that have never been occupied or haven't been occupied in a year or so. You'd say -- why don't you convert them to a different size? Many times you can't reconfigure them for various reasons structurally speaking.

We are very confident that we are going to get back to where we were. Part of it though is, as I was saying earlier, is the general economy and where we've made some improvements too is down in Florida. This was the first quarter in quite awhile that we had top line same store revenue growth. It wasn't much. It was about 1%. But it's turning around. Things will continue to improve there. You know we have quite a few stores. Our other markets are working well. We're going to get there.

Okay. That's helpful. Thank you.

Our next question is from Eric Wolfe of Citi. Caller, please proceed with your question.

Just a follow-up on Mike's question. For the $32 million of enhancement spend you've identified for 2011, you would expect that investment to generate a little over $3 million in NOI once stabilized?

Yes. Once stabilized which we would expect to be the beginning of 2013.

So, a year to 1.5 years time period?

Right. We build them in such a way that we're talking here about 12,000 or 13,000 square feet per project and that's maybe an addition of 15% for the property's overall state but it is climate controlled and it is larger so once we finish construction we give it a 12 month period to lease up to 85%, 90%. That occupancy generates 11% to 12% return on cash.

For the $10 million you spent in 2010 have you started to see the NOI increases that you've pro forma? Has everything been coming in as you expected?

That will primarily kick with this next leasing season. But, yes, it's not there yet because they've only been out of the ground for three, five months, there about. But leasing season really gives you the big boost. The reason it works so good, Eric, just so you don't think we're pulling numbers out of the air, we put this up and because it's such a fixed cost business, the rental that we achieve on this new space pretty much flow to the bottom line save for a little bit of extra insurance and property taxes we have to put on. But the advertising and the payroll and for the most part the maintenance and everything are taken care of. So, it's on the margin, it's great if you can do it this way.

Will you capitalize the interest on the redevelopment spend?

We usually don't because it's a pretty insignificant amount. It's only -- it takes a long time to get the planning process done and get the permits and so forth. But once we actually spend real dollars on it, it's only three to four months before we turn the keys over to the manager.

Right. And then just thinking about any lost revenue at the asset. Is this like you have a dip in the asset while you're doing the renovations and enhancing the projects and then getting a bigger pop on the other end as that NOI redevelopment comes in and then the asset itself recovers?

Once in a great while we'll impair the properties, we'll tear down a building. But out of the 30 some projects we have in mind I think that's going to happen at two. That's not typical. We're careful not to disrupt operations. So, we do have a little bit of cannibalization sometimes on the existing properties, say 60,000 square feet. Some tenants might be satisfied with a regular space are going to see climate control and take that instead. But it hasn't been enough to move much of any needles.

As you think about the guidance for this year is there any sort of negative FFO that's holding you back from doing these renovations?

I don't think it would amount to $0.01 a share, Eric. I don't think it would even be that much. A little bit of drag on interest but not much. Especially at the rate we're paying. The tear down of the two buildings, we've already been moving that through and we try real hard to put those customers in other places or other stores. So, I'd like to say yes, but it's really not much.

Lastly, on the stock repurchase. It sounds, taking away from the capital is not something you'd want to do but I guess as you look forward the next 24 months as the acquisition accretion kicks in and you get that upside, as the same store NOI and the core portfolio increases. You're coming in at eight and five cap today. That only has what is presumably upside from everything that's happened. Arguably your view is probably the stock shouldn't be higher 12 to 24 months out. Why wouldn't you have buy-in and just reissue at a higher price. Why is that a good capital management decision?

It is I guess. In theory. But I think we've got stuff going right now, stuff we want to put to work. I'm not sure that -- a lot of players haven't been very good at that game and I'm not sure that we think we're better than a lot of the players who have tried it. It's something we've talked about. It's something we've done actually a couple times in the past. We have program in place but it's not on our radar right now. I don't want to give anybody that impression.

I guess management can just go out and buy some stock, right?

Sure.

Thanks, guys.

Thanks, Eric.

There are no further questions at this time.

Thank you very much for participating in our call. We appreciate your interest in our Company and we'll look forward to seeing you next quarter. Have a great day.

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

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