Life Storage Inc (LSI) 2011 Q3 法說會逐字稿

Greetings and welcome to the Sovran Self Storage third quarter 2011 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kenneth Myszka, President and Chief Operating Officer 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 and 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 and copies of these filings may be obtained by contacting the company or the SEC.

Well, we had an excellent quarter on just about every front and we're optimistic that this positive trend will continue. Same-store revenues were up by 5.3% over Q3 2010. We controlled expenses again. They increased by 0.8%, which resulted in an increase of 7.9% in same-store NOI. In addition, for the third consecutive quarter FFO per share exceeded consensus estimates.

For the quarter we had total acquisitions of about $310 million so we were quite busy. As previously announced, we acquired 19 stores on behalf of our joint venture at a cost of $164 million. We also purchased 27 stores for our own account for a total purchase price there of $146 million. Most of the stores are located in New Jersey, a new market for us, and Texas, and all are Class A properties. Further continuing our efforts to prune our portfolio, we are in negotiations to sell as many as 15 existing stores.

Regarding operations, we continue to be encouraged by the performance in just about all of our markets, including the largest ones, Florida and Texas. And although occupancy is a little below our seasonal average, with the use of less aggressive specials and discounts we have attracted better quality customers who are staying longer and are better able to absorb rent increases.

In addition, despite continuing the process of assessing substantial rent increases in a large number of our current customers, our move-outs were once again down considerably year-over-year.

And with respect to our balance sheet, we completed a refinancing of much of our debt extending maturity dates while reducing rates, and Dave will offer some details on that in a moment.

But in summary, we achieved outstanding operating results. We added a substantial number of quality properties to our portfolio while at the same time strengthening our financial position. So we're pretty pleased and proud of our performance this quarter. And with that, I'd like to turn it over to Dave Rogers, our Chief Financial Officer.

Thank you, Ken. Regarding operations, total revenues increased $5.7 million, which was an 11.6% increase over 2010's third quarter, and property operating expenses increased by about $1 million resulting in an overall NOI increase of 15.2%. These total company results reflect the impact of the store we opened in Richmond a year and a half ago, the seven North Carolina stores we acquired late in 2010, the 27 stores we acquired this quarter, and the increase in same-store NOI that we'll get to in a minute.

Overall weighted average occupancy was 81.2% for the quarter ended September 30 and average rent per square foot was $10.71. The overall occupancy rate at the end of the quarter at September 30 was 81% even.

Same-store results include 344 of our 373 company-owned stores. As Ken mentioned, same-store revenues increased by 5.3% over those of the third quarter of 2010. This was primarily the result of raising rates to in place customers, an increase in commissions received on tenant insurance, and a decrease in upfront incentives given to new tenants.

Property operating costs on a same-store basis increased by a pretty negligible 50 basis points with modest increases in personnel costs and curb appeal expenses, again a little bit higher than the other categories.

Property taxes increased by 1.6% this quarter, but by the time the year is done we still expect a 3% to 4% increase. We overaccrued during the first three quarters of last year to such an extent that we've had to record a net benefit in each of the first three quarters of this year, but this will go the other way in the fourth quarter.

Overall then with same-store revenues coming in at a plus 5% and total same-store expense increasing 80 basis points, same-store net operating improved -- net operating income improved 7.9% over that of 2010's third quarter.

G&A costs were broken out into two components this quarter. A net of $2.9 million was expensed in conjunction with the 27 properties we acquired for our own account plus our share of the acquisition costs on the 19 stores acquired for the JV. The regular G&A costs were $6.6 million, which was higher than last year by about $1.7 million.

The main reason for this increase were higher Internet advertising costs, costs associated with our revenue management group and for the Uncle Bob's third party management service, startup and travel training costs for the 52 stores we brought on this quarter, and then ongoing expense due to increased home office personnel required to operate these newly acquired stores.

Regarding the purchases we made, we completed several transactions during the quarter. By far the largest was the acquisition of the 22 Stor-A-Way properties that we bought from the Wedge Group at a cost of $111 million. All of the stores are located in our existing Texas markets, 18 in Houston, three in Austin and one in Dallas/Fort Worth. This package comprises a total of 1.3 million square feet and the stores have already been rebranded as Uncle Bob's.

We also acquired five other properties in separate transactions. One is in Decatur, Georgia at a cost of $9.5 million. The store has 70,000 square feet of rentable space and this is now the 16th Uncle Bob's located in the Atlanta market. Two stores were in Newark, New Jersey encompassing 121,000 square feet at a combined price of $14.5 million.

We made an opportunistic purchase in St. Louis acquiring a 73,000 square foot store for $2.4 million. And at the very end of the quarter we bought a nice facility in Newport News, Virginia for $8.9 million. Funding for all 27 of these properties totaling $146 million plus about $3 million in acquisition costs was provided by proceeds drawn on our line of credit and from cash flow from operations.

As we previously reported, we formed a second joint venture with our partners at Heitman and funded our portion of about $11 million for a 15% equity share. The 19 properties were acquired between July 14 and August 1 at a total cost of $164 million and are located primarily in the bedroom communities of New York, New York City and Philadelphia.

We are also looking to put some stores up for sale. We put 13 of them on the market this month, nine are in Houston. They're some of our stores that we've owned now for upwards of 15 years, and we're also selling all four of our remaining stores in the state of Michigan.

We hope to realize somewhere north of $40 million on the sales. And as all the assets will be unencumbered at the time of sale, 100% of the proceeds should be available to pay down our line of credit. We don't have any contracts in place yet, we just put them on the market and we don't expect to close until sometime in the first or second quarter of 2012.

With regard to our financing, as we previously reported we completed a $500 million financing package on August 5. We used the proceeds from $100 million 10-year note and $125 million seven-year note to repay $150 million note that was due to mature next year and we cleared what was on our line at the time.

We also arranged $100 million seven-year note which we will drawdown early next month and will pay off the $75 million we have of mortgages that are maturing in December and we'll take the remaining $25 million to pay down some of our line balance.

And then lastly we negotiated $175 million line of credit with a $75 million accordion feature and a five-year term. We have the option to extend the line for two one-year periods. And all the debt I just talked about is on an unsecured basis. So the refinancing resulted in a charge-off of unamortized loan costs of about $88,000. And then in the process of unwinding the interest swap associated with the $150 million term note, we had to pay a $5.5 million fee to unwind the swap.

The $100 million 10-year notes bear interest at a fixed rate of 5.54%. And then we entered into swap agreements to fix the rate of the $125 million seven-year note at 4.37%. And then we entered into a forward start swap to fix the rate on the $100 million we'll be borrowing next month at a rate of 3.61%. The line of credit that we put in place requires interest at LIBOR plus 2%.

So then at September 30 we had $475 million of unsecured term note debt, $74 million of mortgage debt outstanding and $114 million of line debt. Next month we'll convert the mortgage debt and about $25 million of our line debt to seven-year unsecured notes and we'll then have about approximately $80 million left on our base line.

Except for the draw -- I'm sorry, except for the line debt, all of our debt is either fixed rate or hedged to maturity and the next due date we have to worry about is a $100 million term note maturing in late 2013.

At present we have about $6 million in cash on hand and $95 million of credit available and I'll just take a quick moment to review the summary of our key debt ratios at September 30. Our debt to enterprise value at the share price then of $39.55 a share was 37%, debt to book cost 41.9%, debt to EBITDA ratio 5.9 times, and debt service coverage 3.6 times.

We also put in place near the end of the quarter an aftermarket offering. We didn't do much with it. We wanted to have it ready to go in case something were to happen. We announced I think the program September 14 we issued about 131,000 shares during the quarter at an average price of $39.35.

With regard to guidance, we remain pretty optimistic, as Ken said, concerning demand and pricing potential in most of our markets. We do anticipate the use of leasing incentives and some more aggressive marketing, especially on the Internet and the Web, to improve our occupancy.

For the fourth quarter we expect an increase in same-store revenue of about 3.5% to 4.5% over that of 2010, which would put us at a 4% to 5% increase for the full year. Property operating costs are projected to increase by 1% to 2%, but property taxes are budgeted at a 4% increase for the whole year. This will presumably result in a double-digit increase for Q4 as we had a large credit last year in the last quarter.

We're putting some $30 million to work this year into next expanding and enhancing our existing portfolio. We've also spent about $10 million so far this year to provide for recurring CapEx, including roofing, painting, paving and office renovations. We think we have about $2 million left to go before we're done this year, 2010 -- or 2011. We continue to selectively evaluate acquisition opportunities but we're not expecting any significant opportunities or activity through the balance of this year.

Core general and administrative expenses are expected to be about $6.5 million for the balance of the year, a bit more than the normal run rate as there are some charges in October relating to the store takeovers that we acquired in September. Any third party costs relating to last minute acquisitions would, of course, be added to this total.

So as a result of the above assumptions, we're forecasting funds from operation for the full year 2011 net of the $0.31 per share of non-recurring charges we took this quarter to be approximately $2.41 to $2.43 per share and between $0.71 and $0.73 for the fourth quarter of 2011.

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

Thanks, Dave, for that report. And that concludes our prepared remarks and we'd be pleased to field any questions you might have.

(Operator Instructions) Our first 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.

Morning, guys.

Last quarter you noted that discounts were down as well but it sounded like you weren't completely satisfied with the level of move-ins and that you were planning to increase incentives a bit to try to generate some move-in demand. I'm just trying to balance that out with your comments this quarter that you've reduced free rent and move-in specials again to attract a more stable customer base and discourage sort of short term price shoppers.

Right. So your question is what.

I'm just trying to understand your strategy here in terms of generating move-in demand and your use of concessions.

Okay, got you. Well, let me just take you through a little bit of what we've been doing. In the years that we've been managing storage for the most part we've really never concentrated much on either occupancy or rates; it's always been all about raising revenues. And when the recession hit, it got pretty severe. We kind of digressed from that core philosophy and we worried more about maintaining and/or building occupancy.

So the end of '09 beginning '10 we began to offer extremely aggressive move-in specials, left street rates pretty much intact, maybe a little bit lower and predictably we built or at least maintained occupancy, physical occupancy through the worst of the recession. The problem with that turned out to be is that revenues didn't follow because what happened is many of our new let's say customers, they either never intended to stay after they used the truck or they never intended to stay once the free rent period ended so many of these people really never paid us much, if anything.

Now, fortunately our revenue management division tracks these transactions very, very carefully and after a couple of quarters the trend was obvious. So by the end of last year we decided to go back more to our traditional revenue maximization philosophy, if you will. And we slashed our upfront specials so that now just about everybody -- every customer that moves in pays something upfront, admin fees and a prorate for the current month and predictably move-in went down.

But, as our revenue management division forecasted, revenues have increased. And let me just explain give you a perfect example what just happened. We had about 5,000 fewer move-ins this third quarter of this year than we did in the third quarter of last year and yet we collected more than $1.3 million more from these 2011 customers. And then on top of that we have more than 1,000 additional customers still with us at the end of this quarter than we did last quarter. So with fewer move-ins we collected more revenue and we still had more people in our -- as customers who continue to pay us rents and we'll be able to increase rents as time goes on.

So we know we're headed in the right direction. Economic occupancy is trending upwards. And the beauty of it too is just looking at this past October this last month historically October we generally realize about 1,400 to 1,500 fewer -- or more outs than ins, if you will. Last month for the first time since 2005, and I checked it because we were so amazed, we had more move-ins than move-outs. And compared to the activity in October of 2010 we had about 1,000 more move-ins this year than last year.

So once again we're worried more about revenues as opposed to rates and occupancy and we think we're in a great position now because our occupancy -- we do have room for growth in occupancy, but we're still going to concentrate on revenues, whether it's rates, occupancy or a combination we know we're heading in the right direction.

Hey, Ken, it's Jordan. I'm just curious about how do margins fit in with that, with revenues? I mean, revenues I understand being important and you're trying to maximize them, but I'm just -- we're scratching our heads a little bit trying to figure out the occupancy decline and maybe the shift in strategy going into the off-peak season.

Well, a big part of the revenue, its increase, came from -- first of all, everybody is paying something, but also we were pretty aggressive in raising in place customers. So we've got that going for us. We increased rates on about 22,000 to 23,000 of our customers, average increase of about 6%, 6.5% and we still have room there because about -- my recollection is about 45% of our current customer base is either at or below our current asking rates, and they change all the time. So that's another part of the equation that we have to fit in there.

Okay, great. Thank you.

Our next question comes from the line of Christy McElroy with UBS. Please proceed with your question.

Hey, guys, just for the follow-up on that line of questioning. Can you quantify the percentage change in move-ins and move-outs in Q3? And also what did you do with street rents year-over-year?

The ins were down percentage wise about a little over 11%, as I mentioned, about 5,200 fewer. The outs were down a little over 10%, about 4,500 fewer. And what was the second question?

The street rates.

Street rates pretty much stayed pretty flat. The problem is they change -- we change them so often at every store it's almost you have to pick a particular time of the day to come up with what the street rate is.

But just sort of more generally, is it -- I think last quarter you mentioned it was flattish year-over-year. Is it sort of the same?

Yes, pretty much. Pretty much flat, yes.

Okay. And then with regard to your G&A, you mentioned that your regular G&A I think was about $6.6 million in Q3. It seems like some of that is still sort of non-recurring, I think you mentioned some startup and travel expenses. As you look into sort of Q4 and then into 2012, what would you anticipate being more of a normalized run rate?

We had about 400 extra -- $400,000 extra paid out for the stores that we took on in September and August. So I would say it would probably be somewhere right around the six on a quarterly run rate.

Around six.

$6 million.

And the 5.9 times debt to EBITDA that you mentioned, is that pro forma for the acquisitions that you did in Q3?

No, that was a good catch. It is not, and I thought of that as I was going over my remarks this morning. That was year end -- or I'm sorry, quarter end debt with only the actual. So it'll improve considerably if we were to pro forma the new acquisitions.

To about what would you expect?

It would drop to I think about right around the five I think. I didn't do the math all the way through but somewhere around the five.

Okay, got you. And then just lastly, can you comment on what you're seeing in terms of the future acquisition pipeline out there and is your intention -- sorry if I missed this. Is your intention to use the new ATM to fund equity portions of acquisitions going forward?

We actually put the ATM in place because we thought we had a couple sizeable deals for Q4 and Q1 so we wanted to be ready and sort of match fund it a little bit, especially if we hit both of them. So, yes, the idea would be we're going to generate hopefully some cash with the sale of the properties that we just put on the market.

And we have a history, I guess, of ramping up our line debt and then going to market for a big slug every time and we're about as predictable as you can get. So we just thought if we've got decent sized acquisitions we'll try to fund it a little bit as we go, so that was the intent. We don't have the big acquisitions we thought, at least right now in hand, although the market is very good. But that was the idea that if we get them we'd like to bleed out a little bit of equity to go along with the debt we're putting on.

So you're not really expecting much in terms of sizeable acquisitions through year end but given what's in the pipeline could you potentially ramp that up sort of going into 2012?

We hope so. We'll definitely buy if we see opportunities we just don't have anything signed up.

Great. Thank you.

Thank you.

Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.

Thanks. Ken, you mentioned some of the benefits of having a more stable customer base. But could you just provide us with some of the statistics around the changes in turnover and lengths of stay to help us understand how much things have changed over the last year or the last two years, and also tell us where you think those statistics could go if that's even possible?

Well, length of stay, we track that. At the end of the third quarter -- this was surprising to me when I saw it. Our length of stay went up nearly a month. Now, that doesn't sound like a heck of a lot. It went from 12.2 to 13.1 a month, but when you factor that in at 250,000 customers that's a big number, so we're really pleased with that. As we had mentioned, the quality customers they pay something upfront, they're committed to storage, they're not shoppers and they absorb the rent increases.

The other thing we did increase rates, I think I mentioned earlier, on existing customers and saw very little pushback as far as move-outs. Now as we're getting into the slower season we'll be a little bit more judicious on those things, but what we have is we have the ability where we have some vacancies particular unit sizes at particular stores, we'll be aggressive as far as reducing rates on those and start filling those up. Where we have the higher occupancy unit sizes we'll be a little bit more aggressive as far as the pricing is concerned. So I'm hoping that answers some -- gives you a little picture of where we're at.

Yes, it does. And you mentioned that your revenue growth has been much more driven by rate increases and, obviously, if you look at your peers it's been much more driven by occupancy. But just maybe thinking beyond the seasonally slow period coming up and looking out to next year, do you think you're going to have to take on much more of an occupancy strategy? I would think just with the advantages you have in terms of advertising that there's probably an opportunity to steal market share and I would also think there's a limit to how much you can push rates on your existing customers.

Yes, you're right it's a push and pull. You don't want to leave much on the table but you don't want to drive customers out as far as increases are concerned. We do think we're in a real sweet spot. We're generating good revenues and our occupancy is at a seasonally low average from what we normally are, probably about maybe 300 basis points or so. So we have a great opportunity to be really let's say generous with our asking rates for particular unit sizes.

So I think the revenue -- once again, I'm concentrating on revenues but part of that equation certainly is occupancy and we certainly are going to be looking at trying to fill those units that we have at particular stores. And if it requires to go a little bit lower than where we have been and then obviously tracking that as we -- if we have 10 units available as we get to four or three or two whatever it is the next one that moves in you charge more.

So it's somewhat of a science but is also somewhat of an art, but you're right on hitting on the occupancy. We will be working hard to raise revenues and part of it will be through occupancy growth, there's no question.

That's helpful. And just last question on the ATM, based on your lower trading volume on your stock why go this route versus just raising equity once you feel you need to and how heavily can we expect you to utilize the ATM going forward?

The last question first. If we see stuff -- I mean if it's a real big deal we'll do a traditional offering. We feel to do a deal right we need at least $100 million type of a raise and that sort of dwarfs any deals we do so then all of a sudden our leverage goes from 37% down to 23% or something like that. So it's something we put in place. We have it there now it didn't take much to do it.

As I said, if we have a $30 million or $40 million acquisition we might raise $15 million over the course of a couple months and borrow $20 million, that was just a thought and we'll have to see. If we have another acquisition like we did in Texas in September at $110 million we'd probably do a more traditional raise and it'll all fit according to circumstance.

That's helpful. Thank you.

Our next question comes from the line of Jana Galan with Bank of America Merrill Lynch. Please proceed with your question.

Thank you, good morning.

Morning, Jana.

Can you tell us how you're reaching your customers, how much is call center versus Internet versus walk-ins, and if you're noticing any changes in the traffic?

Well, Internet is becoming, and has been for the last couple of years, much more of a draw for us. We're reducing substantially the expenses we make on Yellow Pages and allocating much more to Internet. In fact, I think Dave mentioned that was part of the reason for our G&A to be up a fair amount this past quarter. Walk-ins still do comprise a good share of our tenant base and so therefore, obviously, you have to maintain a good quality looking facility, manager is very important.

The call center, the number of calls over the last say couple of years are down from what they used to be -- what they were before. But many of them were shoppers so the people who -- they come in it's very important that you have good people at a call center and we have excellent people that are well trained dedicated and the close rate that they have was higher last year because we were offering more incentives, this year it's a little bit less than it was because of the lack of incentives but we're getting better quality customers.

So it's a combination. There are still some people using Yellow Pages but that is going down drastically, a big part is Internet. And from the Internet another big part that's really increasing is mobile and we're spending a lot of time -- that's a whole different platform -- attracting those types of people.

And I think as I mentioned last time, our call center operators when they are talking to somebody and they can sense -- they know that they're on the mobile apps they're a little less likely to give big discounts because they know those people are really interested, they have the GPS, they know where the store is, they're ready to rent. So it's a whole combination of those things, but walk-ins are still very important too.

Maybe to put real gross numbers to it I think about 40% to 45% of our customers we think are walk-in, about 10% to 12% on the phone and the other 40% to 45% is Internet. And as Ken said, Internet advertise will get people either through the call center or on the phone, through an email, through the call center or, as Ken mentioned, the platform with the mobile app. So that's just a rough estimate plus or minus probably three or four percentage points in each category.

Thank you. That's very helpful. And can you tell us what October occupancy was?

It was up I think like maybe 25 basis points something like that.

81.33 I think it was.

Thank you very much.

Our next question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed with your question.

Good morning, guys. Just a follow-up on that last question, the occupancy you gave how does that compare on a year-over-year basis?

It's up a little bit. Last October we slipped about 80 basis points from September and this one we're up just a touch. So it's probably -- I think we are close to even now because we were down, and I'm talking same-store now, we were down 100 basis points at September 30 I think we closed the gap to about 10 basis points.

Okay, and then October traffic overall is that -- just something we've seen over in multifamily where traffic has slowed a bit at the property. Have you guys seen that as well in the storage space?

Well, actually our activity was about the same as it was as far as calls and things of that nature. As I mentioned earlier though, the move-in activity for us was positive, more ins this October than it was last year. That's remarkable for us. This is historically the slow season for us so we're real pleased.

And length of stay is up, as well as with free rent I think we haven't even talked about that. For the quarter this year versus last year we offered less than just about half I think it was the quarter of Q3 last year was about 4.8 million and this year it was about 2.5 million or 2.4 million. So I hope that gives you a little bit of flavor of what we're up with.

That's helpful. Dave, I think you touched upon putting the ATM in place for a couple large portfolios you guys were looking at potentially closing in the fourth quarter, what happened with those portfolios? Was it a pricing issue, the seller pulled the property off the market or something else?

I won't say we got re-traded we just got sort of surprised that -- we met a price and they came back for more and it just tipped it too high. It may come back in but I know he's marketing it and we'll see where it goes. And then another one we -- the property got fragmented or the group got fragmented amongst general partners and limited partners so I guess in essence it got pulled off the market.

Okay. The assets you acquired, how are those from a CapEx standpoint? If you look at some of the prior acquisitions you've had to put a decent amount of CapEx into them in terms of rebranding and kind of bringing them up to standard. And also could you just comment in terms of the expansion and redevelopment opportunities on that as that's been a big driver of growth over the last couple years.

The properties we bought, both the Lackland portfolio in New Jersey on behalf of a JV, and then the Texas stores we bought and the other five, I think all of them, as Ken mentioned, were of significant quality, very, very nice properties, A, the worst maybe a B+.

I think the only one we have any kind of CapEx to renovate it is the St. Louis property. The others are just basically as-is ready to go, put $20,000 in it, we changed the sign and let it roll. So those have no significant CapEx coming in. And actually to the extent there is any, it is built into our purchase price. So really there's nothing there to worry about. The properties we're selling are the ones that actually need some CapEx; that's part of the reason we may be looking to move those.

As far as our E&E program expansion and enhancement program, we'll have locked down a little less than we thought by the end of the year 12 million. But the key to that program is to have them ready for the busy season in April so we're hopeful to have about $20 million to $25 million put on line by the end of Q1. It works great.

Mostly, as we've talked about before, we're adding climate control and enhanced spaces to stores where we don't have enough of it, and that's a lot of our stores. So the typical building is a 10,000 square foot state of the art all the bells and whistles drop down into acreage that we have and we'll have 12 million turnkey by the end of the year, 12 million to 14 million turnkey and hopefully the balance by mid-April.

Okay, that's helpful. Final question just in terms of renewals, any change in renewal pricing during the quarter? As you've dialed back on concessions have you gotten more aggressive on renewals as well or no?

As far as in place customers?

Yes.

Oh, yes. We increased the rates on in place customers about 9% of those about 22,000, 23,000 of our customers at about a 6.3% average rate increase. Saw little pushback, couple areas we backed off a little bit and that's the key. You don't want to lose many people by being too aggressive, especially in this economic time. But we feel last quarter I think the second quarter we increased about 15% of the people but it was a less rate, this time about 9%, 10% at about a 6.5% rate.

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

Our next question comes from the line of [Shahzad Zakaria] with Macquarie. Please proceed with your question. Mr. Zakaria, your line is open.

First of all, thank you for taking my question and congratulations on a strong quarter.

Thank you.

My question is regarding your pricing strategy. We saw that you introduced some new promotions during the quarter, for example, the 50% off next month promotion. Could you talk a little bit about how you think about new promotions? Are you able to measure how well a promotion is doing? How long does that measurement take and do you have more promotions in the pipeline that you plan to rollout?

Yes. Well, that's part of our revenue management system. I think earlier this year we announced and put in -- David Paolini as the head of our revenue management division and shortly after that we partnered with a company by the name of Veritec Solutions. They're a leading price optimization and revenue management consulting firm. They've got an impressive client list. I mean, Yahoo, Delta Air Lines, Avis, Disney Cruise Lines, Hyatt, you name it.

So together they're employing advanced pricing analytics, which I have to admit the algorithms I don't begin to understand. But what they're working on is improving our ability to anticipate the business conditions at each store, helping us determine what rates to offer to new customers, what promotions that you talked about that will best attract and retain customers, and try to better understand and really anticipate what our customers behavior is going to be so that we know how much and when to increase rates.

So we've tried a lot of things, as you know, over the past year and a half or so. We did the name your price, had some degrees of success. What we found, though, is when you attract people who are willing to make a commitment upfront, and that is paying an admin fee and a prorate for the first month, if they're thinking about staying long-term they're not only going to look at what the upfront discount is, but what is the rent you're going to be paying over the next 6, 8, 10 months.

So you have to factor those things in as well. And that's where we think we have a great opportunity with our occupancy level that we can build revenues by maybe being a little bit more aggressive as far as the rates, reducing the rates going forward and attract people, build occupancy and also build revenue. So I hope that gives you a little sense of where we are.

Got it. That is helpful. And just a follow-up on that, could you talk a little bit about the mix of customers that you saw move in during the quarter between discretionary and non-discretionary, and what is the current mix of your overall portfolio?

We didn't really see much of a change. What we think now people who are moving into places, they need storage and they're staying and they're proving it by making payments upfront and continuing. As far as our mix, not much of a change between residential and commercial, pretty steady around low 20% commercial and the balance residential.

Got it. Thank you.

You're welcome.

Our next question comes from the line of Mark Lutenski with BMO Capital Markets. Please proceed with your question.

Hi, good morning. Just a quick one here on the management platform, given the market uncertainties have you seen the potential pool of properties that you think could go under that management platform increase, decrease, what's your sense for that?

It's really ramped up I would say since we started putting our team out there. We've got a team of people who go to the shows, who are on the phone. A lot of interest typically from smaller operators who are seeing their phone calls dry up a little bit. They realize that -- I think probably the biggest selling point for any of us with a management platform is the scale we bring to the table, especially in the Internet and Web-based advertising.

So from March to September I would say we probably have about 8 to 10 times the inquiries and calls. Quite frankly a lot of them aren't too much to our liking. There's a bunch of stores that we don't want to put our -- the only way we're going to manage these is if we brand them with our Uncle Bob's trademark and there's a lot of stores that we see coming through that perhaps wouldn't be a good fit. But there's interest, I think it's only going to continue to grow.

As we mentioned on the last call, one of the biggest benefits from this is the fact that you get acquisition opportunities coming through right off the bat. That's how we bought the Virginia Beach property, that's how the Texas portfolio negotiations started was through the portal of Uncle Bob's management. But as a platform, we've now got 57 stores total between our JVs and our straight-out third party management and we expect that to grow pretty considerably over the course of the next 12 to 24 months.

Okay, that's helpful. And to follow-up on that, how many properties do you think you could add without having to increase your current infrastructure?

Well, it is scalable but it's to a point. For example, we have sort of a set formula here that, for example, for every 12 stores we bring in we need a call center operator because it's really 24 per store but we run two shifts. For every 20 stores we bring on we need an area manager. For every 20 stores we bring on we need an accountant, account rep. We need a project manager to handle the repairs and maintenance one per 40 stores, an internal auditor one for 50 stores, those kinds of things.

So overall the big G&A, the overhead, the being public company costs, the rent and so forth are pretty set. But the people cost, we figure are somewhere in the range of about $12,000 to $14,000 per store. The average store is probably going to be in the range of $400,000 to $500,000 in sales. We'll get somewhere in the range of $30,000 per store.

So on the margin we're making about 50% but you can't just throw it in without doing something to your G&A because you don't do it for one store you don't do it for ten stores, but by the time you add a block of 20 then you need to put on a group of people. So it depends where we are, what area it's in and so forth. So the G&A will creep, certainly, but the revenues should go and we should be in the range of 35% to 50% margin on those revenues.

Great. Thank you very much.

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

Okay, thank you. Well, thank you very much for your interest and participating in our call. We're very pleased and proud of what happened this past quarter and this quarter is starting off on the same foot. Hope you all have a great holiday season and we look forward to speaking to you next year. Take care.

Thank you.

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