Life Storage Inc (LSI) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Sovran Self Storage Fourth Quarter and Year End 2011 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, Mr. Kenneth Myszka, President and COO for Sovran Self Storage. Thank you. Mr. Myszka, you may begin.

Thank you, Melissa.

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, and copies of these filings may be obtained by contacting the Company or the SEC.

Well, once again, we delivered strong operating results in a quarter which proved to be very active and productive. Even with strong comparables from the fourth quarter of last year, same-store revenues were up by 3.4% and same-store NOI was up by 4.1%. During the quarter, we closed on two stores for a total purchase price of $10.3 million -- one in suburban Philadelphia -- it was acquired on behalf of our joint venture with Heitman. The other, in Pensacola, Florida, was acquired on our own account, which brings the number of stores there to eight.

The favorable operational trends that we saw before continued during the quarter, throughout most of our portfolio, with positive same-store NOI achieved in 20 of the 24 states we operate in. Looking at the bigger picture, if you will, we are much more optimistic than we have been in recent years. Occupancy is rising. And even though we're still a little below our historic average occupancy, we're about 150 to 160 basis points higher than last year at this time.

And the fourth quarter is usually our slowest move-in period. But last year was the first time in our history that each of October, November and December had more move-ins than vacates. And, fortunately, that trend continued into the new year.

Short-term users have exited the market. So people renting with us absolutely need storage, and they are willing to pay more for it up-front. And they're staying longer. Evidenced by that, too, is we gave out much less in concessions last year than we did in any of the previous three years.

Every state we do business in had positive same-store NOI growth for the full year versus only 15 or -- I think it was 15 last year. Also, our extensive Internet advertising campaign is enabling us to gain market share from our main competitors -- those who own one or two stores. Along with that Web advertising, our revenue-management system is proving to be a very strong attraction for our third-party management program.

Externally, although competition for acquisitions had become stronger than in recent years, we continue to uncover attractive candidates at reasonable prices; and with our conservative balance sheet, we have ample access to capital to finance this activity. We also have a large number of expansions and enhancements lined up for this -- for completion for this year.

Finally, with little new construction going on in our industry, we are very optimistic about our company's and the self-storage industry's prospects.

And with that, let me turn the conversation over to Dave, who will provide some details for our quarter's activities.

Thank you, Ken. Good morning.

Regarding operations, total revenues increased $7.8 million, which was a 16% increase over 2010's fourth quarter. And property-operating expenses increased by about $2.7 million, resulting in an overall NOI increase of 16.2%. These total Company results reflect the impact of the store we opened in Richmond a couple years ago; the seven North Carolina stores we acquired late in 2010; the 29 stores we acquired this year; and also 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 December 31, and average rent per square foot was $10.54. The overall occupancy rate at the end of the quarter was also 81.2%, which is 110 basis points higher than that at 2010's year end.

Same-store results include 344 of our 381 Company-owned stores. As Ken mentioned, same-store revenues increased by 3.4% over those of the fourth quarter of 2010; and this was primarily the result of an increase in occupancy of 60 basis points; rate increases of 1.5%; and an increase in commissions received primarily from tenant insurance.

Property, operating and maintenance costs on a same-store basis decreased by 2.1% as we realized pretty nice reductions in Yellow Page costs, credit-card fees and utilities. Property taxes increased by what looked like a whopping 17.4% this quarter, but as we've described on prior calls, we over-accrued during the first three quarters of last year -- that being 2010 -- to such an extent that we had a big catch-up decrease in 4Q of 2010. As a result, even a normal quarterly tax expense in 4Q of 2011 would look huge year over year, as it did.

Probably the most important point when looking at this line item is the year-to-date increase, which was surprisingly low at 1.7%. And I don't think we'll have this rather confusing situation in 2012.

So overall, then, with same-store revenues coming in at a plus 3.4% and a total same-store expense increase of 2.3%, same-store net operating income improved 4.1% over that of 2010's fourth quarter.

For the full year 2011, on a same-store basis, we enjoyed revenue increases of 4.2% and kept operating expenses to just a 50-basis-point increase. These, combined with the above-mentioned 1.7% property-tax increase, allowed us to post a 6.2% increase in our same-store net operating income over that of the full year 2010.

G&A costs were $1.66 million higher this quarter over that of last year. The main reasons for the increase were costs associated with our revenue management group, and for Uncle Bob's third-party management service; higher Internet-advertising costs; start-up travel and training costs for the late third-quarter acquisitions and ongoing expense due to increased home-office personnel required to run the properties acquired since December of 2010. We operated 65 more stores this fourth quarter than during the prior year's fourth quarter.

Turning to capital matters, purchases -- regarding purchases -- after a very busy third quarter, during which we acquired 27 stores for our own portfolio, 19 stores for our joint-venture entity, and then added another nine stores via our Uncle Bob's management platform, the fourth quarter was pretty quiet. We acquired a big store in Pensacola, Florida at a cost of $4.6 million for our own account, and a store near Philadelphia for the joint venture in October.

In early February of 2012, we completed the acquisition of 10 stores in the Dallas-Fort Worth market on behalf of our joint venture.

Summarizing the acquisition activities for the year, we acquired 29 stores, comprising 2.0 million square feet of rental space, at a cost of $155.1 million. Twenty stores, comprising 1.6 million feet were acquired by the joint venture, and 10 more stores were added, as I mentioned, just earlier this month. Additionally, nine stores were added via the third-party management program. So, in total, 68 stores have been added to the Uncle Bob's platform since January of 2011.

Concerning dispositions, we have 13 stores up for sale right now -- nine in Houston and four -- all four of our remaining Michigan properties. And we're expecting to realize somewhere north of $40 million on these sales. We've had many parties showing interest, and we're in final negotiations on the Houston package, but nothing is certain as of today.

Concerning debt financing -- as we previously reported, we completed a $500 million financing package in August -- $400 million of that was put in place last quarter, and we described the impact of that part of the transaction on our last call. The balance of $100 million was committed by the bank-lending syndicate for a delayed-draw note to provide funding for the repayment of our obligations that were maturing in late 2011 and early 2012.

The transaction occurred in December with proceeds from that note used to repay approximately $74 million in mortgage debt and $26 million of outstanding line debt. This $100 million term note matures in August of 2018. It's unsecured. And we entered into an interest-rate-swap contract that fixed the rate of interest on this note at 3.61% through December of 2017.

So at December 31, we had $575 million of unsecured long-term debt outstanding; $46 million of line debt; and about $4 million in mortgage loans. Except for the draw on the line, all of our debt is either fixed-rate or hedged to maturity, and the next due date we have to worry about is $100 million term note that matures in the middle of 2013.

At present, we have about $7 million in cash on hand, and $129 million of credit available, plus an accordion feature that could add another $75 million to our capacity.

I'll just take a quick moment to review a summary of our key debt ratios at December 31. Our debt-to-enterprise value, using the share price at that date of $42.67 was 33.4%; debt-to-book cost -- 39.2%; debt-to-EBITDA ratio -- 5.3%; and our debt service coverage at that point was 3.3 times.

We did announce third-quarter and after-market] offering. During the fourth quarter, we issued 1,034,000 shares at an average price of $40.75 per share. And absent a significant uptick in the pace of acquisitions, we don't expect to go back to the market to utilize this program in the near term.

Concerning guidance for 2012, we remain pretty optimistic concerning demand and pricing potential in most of our markets. We expect to garner significant benefit from our revenue-management platform this year. And we'll augment it with more advertising and marketing programs in our efforts to improve occupancy.

We expect an increase in same-store revenue of 3.5% to 4.5% over that of 2011, driven primarily by occupancy and rate because, in 2011, we've realized most of the benefit we can expect from reduced front-end concessions.

Property operating costs are projected to increase by 3% to 4%, and property taxes are budgeted at a 4% growth rate. So we're projecting same-store NOI from a same-store pool of 351 properties to come in at between 3.5% and 4.5% over 2011's level.

We're putting some $20 million to work this year into expanding and enhancing our existing portfolio, and we've also budgeted $14 million to provide for recurring capitalized expenditures, including roofing, painting, paving, and office renovations.

We have not assumed the purchase of any properties in our guidance. So any such acquisitions we may make are expected to be funded by our line of credit. Likewise, we haven't factored in any dispositions into guidance. Should we sell any stores, the proceeds would be used to reduce that line balance, as virtually all of our assets are mortgage-free.

Core general-and-administrative expenses are projected at $29 million for 2012. The increase over 2011 is primarily due to the need for additional personnel required for the 68 acquired stores; income taxes on our taxable REIT subsidiary; and our plans to continue expanding our Internet marketing presence and revenue-management program.

So as a result of the above assumptions, we're forecasting funds from operations for the full year of 2012 at $3.05 to $3.09 per share, and between $0.70 and $0.72 for the first quarter of 2012.

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

All right. Thanks, Dave.

Before we entertain your questions, I'd just like to make one more comment. As I'm sure you noted, last week our Board approved some title changes. Those of you who have been following us for some time know that Bob, Dave and I operated as a partnership when we were private. And we've continued to function essentially in that manner over the 17 years we've been a public company, and that will not change.

Bob will continue to work with Paul Powell, overseeing our acquisition, disposition and expansion and enhancement efforts. I will continue working with Ed Killeen, supervising our operations in the field and all that entails. And although his title changes, Dave will continue to work closely with Andy Gregoire, our new Chief Financial Officer, as well as continue representing Sovran to the people on this call, as well as the rest of the investment community.

As we stated in our press release, we want to familiarize everyone with the three men I just mentioned, since they've been working together here at Sovran for the last 14 or so years, and they've earned our respect for their efforts over that time. In many ways, they represent the future of our Company. And you will be hearing from them on future earnings calls, as well as select business with Dave.

With that, now, Melissa, we'll turn it over to you to bring in some questions.

Thank you. (Operator Instructions). Gentlemen, our first question comes from the line of Christy McElroy with UBS. Please proceed with your question.

Hi. Good morning, guys.

Hi, Christy.

Morning.

Just wanted to follow up on your comments about move-ins being higher than move-outs in Q4 for the first time in your history. How were you able to reduce that seasonal impact? So can you kind of walk through what you did with street rates, discounting and advertising during the fourth quarter? It seems like something kind of changed with your pricing since your year-over-year growth in realized rents per square foot slowed a bit from Q3.

Yes, well, first of all, on a general basis, we do see markets stabilizing somewhat. So that's kind of a general macro-statement. As far as what we did -- with respect to outs being down, we -- over the last several quarters, we've been working hard to get the better caliber customers who are willing to pay us more up front, and they stay longer.

As far as move-ins are concerned, we did selectively reduce street rates at a lot of places; drove in a lot more people than we have in the past. But the other thing is, just about everybody who moved in paid us something up front, which was different from what the practice was quarters ago, when people were moving in without much down -- moving out after a couple of months.

So I think a combination of the economy improving a little bit, us getting better quality customers staying longer, and the fact that we did reduce street rates at some of our locations where we had the vacancies -- I think all of those things contributed to the positive ins for the fourth quarter versus outs.

What was the year-over-year change in street rates in Q4?

Declined about less than 1%, but declined (inaudible).

And then can you also say what the year-over-year move-ins and move-outs were -- the change in year-over-year move-ins and move-outs?

Well, for the quarter, I can tell you we had a little over 4% more ins -- move-ins than vacates; and just about 9% fewer outs. And, Dave, you've got that information for the year?

For the year --

On a same-store basis now? Right?

Yes. On a same-store basis, we had net move-ins for the year of 343. And for 2010, we had net move-ins for the year of 116. So it was almost the same. The difference on the trend was we had a lot fewer move-outs; so customers came in and stayed.

The net was almost identical on a base of 12,000 units -- or 190,000 units, the change was de minimums. The difference was we had less volatility, I guess, this year -- more people staying longer so there were less move-ins; less move-outs. The difference was almost identical.

And you're attributing the lower move-outs to better-quality customers in terms of the change in how you've been discounting and --?

Yes. See, what used to happen is I think things are normalizing a little bit more now. And the economy has improved. People who come with us -- they see what the price is going to be instead of just trying to game the system and stay -- pay nothing up front and then move out after two or three months when they have to start paying full price. We've gotten better people coming in. They need storage. They're staying and they're absorbing rent increases as we go along as well.

Okay. And just lastly -- I know you manage for overall revenue growth, as you mentioned in your comments. But as you were sort of going through the process of looking at guidance for 2012 and thinking about the drivers of that 3.5% to 4.5% revenue growth, can you provide a -- sort of a general sense of where you want to be by year end in terms of occupancy gains and growth in realized rents?

Well, I'll talk about the occupancy. Even though we're up about 150 basis points over where we were this time last year, we'd like to be, by early part of the third quarter, in the range of 85% to 87% occupancy. And we've got the ability to do that. We obviously have the units there.

We're going to be price-sensitive as far as what the asking price is going to be. We're also going to be pretty aggressive, we think, as far as in-place customers are concerned; because a little over 40% of our current customers are either at or below our current street rates. So we have an opportunity there to increase rents on those people without fearing that they move out. We're going to have people moving in who are going to be paying more than they were.

So I think we've got a -- we're in a good track right now. In fact, even beginning of this year, we continued with the positive movements that we had in the fourth quarter of last year. So -- do you have any other?

Christy, I just want to correct what I said on the move-ins and move-outs. I thought that was low. I gave you the average monthly move in. Our move-ins for the year -- our net was plus 4,118 for 2011 plus 1,387 for 2010. So we actually picked up almost 3,000 additional tenants. That's why our occupancy rose by 1.5%.

So the numbers I gave you before were the monthly average. The same reasons apply, but it was 4,118 versus 1,397 year over year.

Okay. So just to follow up on the occupancy comment -- so sort of a focus on occupancy this year -- a focus on raising rents on existing customers. But in terms of the occupancy, you're probably going to keep street rents probably at flattish? Is that fair?

That's really tough to say. We -- because in markets we're -- obviously where we -- you drill down to the store, and there'll be some stores where we're going to have the increasing rates substantially -- others, we're going to be -- they're reducing. Overall, I'd say it might be a little flat or may have a little bit -- perhaps a couple percent higher than last year, but not -- the focus is going to be on occupancy growth.

Okay. Thanks so much, guys.

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

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

Good morning.

Good morning. In terms of acquisitions -- so I realize guidance doesn't include any impact from any activity. But just based on what you're seeing today, I was just wondering if you could talk about what type of acquisition volume you sense is realistic for the year, and maybe you could just break out what your sense is for both stabilized properties and for lease-up properties?

Yes, I think it's gotten quite -- we had a good year last year for acquisitions, and it's gotten markedly tougher starting probably in late summer and moving forward. There's a lot of competition for properties -- an awful lot. Quality properties are going to be -- mature, stabilized, quality properties in good markets are going to be probably sub seven cap. We're in negotiations on between $60 million and $70 million. But it's tough, and we know there's other people nipping at our heels, so we're not forecasting anything, as we said in the prepared remarks.

I think there's quite a bit of activity even in the lesser-quality stores. And there's just buyers out with either private capital -- and there's still mortgage funding at -- if you put some skin in the game, you're going to be able to find mortgage financing. So it's a competitive acquisition environment, especially when it comes to quality stores.

The turnaround stuff -- now there's a new thing -- I've just heard about it. I'm sure Paul and our acquisition group have heard about it before. But there's now people packaging up distressed notes in terms of a database service. I mean the notes have always been packaged, and we've been pitched for three years running now on notes for distressed properties. But now there's actually database services -- big names attached to them selling that service. So that's just going to probably put out even further the depth of people who are looking to buy properties.

We don't see any great opportunities on the turnaround or distressed-property basis. It just -- that's probably our biggest disappointment over the last three years -- is we thought we were going to be able to really scoop up a lot of that stuff. We've kept our balance sheet fully loaded and our credit lines fully open just for that reason. And I don't know that we have anything on our radar right now that's -- I mean, there's tons of it. But I don't think there's anything that's attractive enough for us to get going on it.

Okay. And then -- I may have missed it in the prepared remarks -- but did you provide a gross value on the 10 joint-venture properties that you're acquiring with Heitman in the joint venture? And then are you expecting any acquisition expenses, or is there anything in your first-quarter forecast related to acquisition expenses or in acquisition fee related to those properties?

We keep the -- there is an acquisition fee. It was a little bit north of $30 million -- the gross purchase price was a little bit north of $30 million. The fees we keep out of FFO, though. We don't consider it fair to put those in FFO, so -- and there were really -- our share of the acquisition cost is de minimis on that.

So, no -- absent a late rush at March 30, I don't see any acquisition activity to either add to the property base or to impact FFO.

Okay. And then just following up on one of Christy's questions -- you mentioned that you're targeting a higher-caliber renter that pays more, stays longer. Can you talk about how you're targeting those customers? Is there anything that you're doing specifically that you can point to?

Well, I guess -- I really can't say that except maybe on the Internet the -- how the page appears to people, and maybe how you can navigate through it. But really what it is is when somebody calls or walks into the store, if you find out -- you try to have the manager or the call-center operator get as much information as they can as to how long they're going to stay, what they're going to be storing; are they in a business; if they're commercial, we're more interested in them because they stay longer.

So it's nothing I can really point my finger to and say, we do this specifically. It's just a lot of little things -- a lot of training that goes in with our call-center operators and our managers that helps bring these people in. And the key, though, is if somebody is willing to pay something up front -- or they're -- if they're unwilling to pay something up-front, we're not interested because we've seen what's -- what happens there.

People have -- if they're willing to -- if they know they have a need, they're going to be staying; they'll pay a little bit up-front -- the admin fee and maybe a pro rate -- maybe we'll give them a little bit of a discount the second month. But that's the key -- if people are willing to have some skin in the game before they move in.

Hey, it's Jordan Sadler. I just had a quick one. It's been a very mild winter. Any comment on the impact that that may have had on the better-than-typical occupancy trend for the -- going into the fourth quarter, and maybe as we head into the first quarter of this year?

I don't know. That's a tough one because many times, in the winter time, we would -- if it's snowing and it's cold up in the North, we might have had a propensity to increase rates because people would be less likely to move out because they don't want to be bothered.

They're stuck. Right.

So I'm not sure I can point my finger on that one, Jordan. I don't know.

Okay. That's helpful.

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

Hey, thanks. I wanted to touch on the G&A for a moment. I guess I just don't understand why personnel and Internet-advertising costs aren't included in operating expenses? I would think that these are potentially recurring expenses that benefit your property-level revenues. So just wondering how you sort of allocate between G&A versus operating expenses.

Yes, we're -- we've been doing it the same way, Eric, for 26 years. And I think what we're going to do, starting Q1 of 2012, is break it out more, primarily because, with the shift in our business -- the way it has -- going more toward third-party management -- it's making a bigger impact.

Well, first of all -- the first part of your question is -- Internet advertising we've always considered corporate mainly because it started out small and it wasn't allocated to any one store. It was allocated to the pool of stores. Now that's taken on a life of its own and it's really growing. But we still keep it in G&A.

The personnel that we referred to -- obviously, store personnel are all attached to the store. That is a property operating expense. What we have done is we've beefed up to take on these new stores -- and has been to add -- as we've talked about on prior calls -- additional call-center folks; additional auditors; additional property-maintenance folks; additional computer-support-desk people; area managers and so forth.

So it's grown our overhead team here that administers to the pool of stores pretty heavily. And I'm -- the model is changing with us just in virtue of the fact that, in July, we had 25 stores that we managed on a third-party basis. Now, we have 64. So we're taking in management revenue on that. Our management revenue should grow to about $3.3 million in 2012. The problem with that is it's not like store revenue. Our store -- we're earning about a 65% on the margin. The management-fee revenue, right now, at the level we're at, is only generating about 15% to 18% on the margin.

So we're -- it's sort of skewing our numbers, and that's why we want to make it a point -- especially with Andy Gregoire, our new CFO, next quarter -- laying out some of this so that you can read it a little bit better and see it. But essentially, it's skewing our margin. We're now geared, except for the very granular folks, to run about 500 stores at our capacity for senior management, for marketing, for revenue management, for I.T. support and so forth. So we've taken a step that we know we're going to grow. We actually started taking that step at the beginning of 2011. So our G&A has bumped up.

Just a couple quick figures -- 2012 budget versus 2010 -- we've got about $600,000 in Uncle Bob's management, marketing and distribution costs. We've got about close to $1 million we expect in 2012 to run our revenue-management program versus zero in 2010. Internet advertising will grow to $4 million in 2012, from $1.5 million in 2010, and the associated costs.

So we've kept it consistent. We think it's important to keep it consistent. But I can tell by your research report and some of the other questions that we've gotten that it's -- because our model is changing a little bit, it's skewing the numbers and causing some confusion. So we'll be breaking it out sort of on a detailed, compartmentalized basis starting in Q1.

Got you. That's helpful. So you're essentially saying you're not going to necessarily allocate any portion of it to operating expenses, but you are going to break it out to let people know exactly what the composition of G&A is?

Yes.

Okay, great. And then just right now -- I mean what percentage of your -- I guess your total advertising spend is included in G&A versus operating expenses?

We have Yellow Pages and site-marketing costs and so forth in the field that totaled, last year -- just give me one second -- a little over $4.1 million. And our Internet advertising and in-house G&A was about $2.4 million. So I guess it's about a little more than a third in G&A.

Got you. That's helpful. And then, just last question -- you referenced this in your remarks and in the release last night -- just on the -- I guess the aggressive and increased advertising -- I just wanted to get more color on what that means. Are you paying more to Google to get higher on the search? Are you redesigning your site? Is it the training that you spoke about at the call center or sort of just all of the above? I just want to know where you're focusing your advertising dollars right now.

Most of it -- most of the increase will be Internet-based -- targeted ads, organic -- we've got some social media -- actually, some pretty slick stuff, but I guess everybody can talk to that. So it'll primarily be in the stuff that goes out the door.

We have had, and will continue pretty extensive training in the call-center marketing and our manager training at the sites. But that shouldn't increase. That'll stay at the level it's been at. But we do have a very -- we call it e-Bob and it's a set up on computer modules that allow our folks in the field to be trained; our folks here to be trained. And so that's an important part of marketing, but should not increase.

The big dollars that are going to -- and not only are we going to save on Yellow Pages and apply that to Internet, we're going to actually increase the dollars -- total dollars on spend -- primarily Internet.

Got you. All right. Thank you for the detail.

Okay.

Thank you. Our next question comes from the line of Jana Galan with BofA Merrill Lynch. Please proceed with your question.

Thank you. Good morning.

Morning.

If we could just touch on -- are you seeing any regional trends in your portfolio? I know that the kind of Northeast has been pretty strong for you. Do you expect that to continue through 2012?

Yes, we are very pleased with what's going on up in this part of the world, if you will -- strong demand -- Western New York -- Buffalo, our hometown -- has really been very strong. What's driven some of it, though, is our expansion-and-enhancement program. We've been able to anticipate what the market needs are going to be and they've been filling up nicely with more quality space, more amenities.

As far as other areas -- I'm trying to think -- Florida has really rebounded nicely. I think we feel pretty confident in what's going on over there. The only area that we're a little concerned with there is Jacksonville -- Fort Meyers, a little bit, too. But Florida, overall, is coming in very nicely as well. I hope that gives you a little bit of flavor.

That's helpful. And then just anything in particular with Virginia in the fourth quarter?

Yes, Virginia was primarily military. There was -- a number of military personnel came back to the states. They got their stuff out. So I mean that hurt. And the other -- another positive is Tennessee. In our stores in Chattanooga, we've been voted the "Best of the Best," I think, for three years in a row -- and very good growth there.

So as I said, all 24 states we do business in had positive same-store NOI growth for the year. So we're pretty pleased and optimistic about where we're going this year.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of [Garav Mado] with Cantor Fitzgerald. Please proceed with your question.

Thank you. Good morning, guys.

Morning.

You mentioned on your press released about reduced use of move-in incentives. I was wondering if you could provide some color and details on discounts in the fourth quarter. And what are your expectations in 2012?

Well, the discounting is down considerably from where we've been. Many times what we'll do is we'll have the person pay the admin fee, and then pro rate the month. And then, depending upon occupancy of that particular unit at that particular store, for the second month, they may get half off or a third off. Or sometimes, if it's really -- we need the people -- it might even be a full month off.

But then after that -- after that second month -- they go to the normal, regular rent that they've been -- agreed to sign up with. And we see that continuing. We see -- the number of times we're going to do it may not decrease that much over this past year, but the dollar amount is going to be less than what it was in 2011 -- but not nearly the same discount or reduction as what we had from '11 to '10 because we really did a good job in 2011 reducing the amount of dollars we gave away. So I hope that gives you a little bit of flavor of where we're going with this.

That's helpful. And secondly -- I apologize if you already covered this before -- but could you provide more color on the impairment of storage-facility charge that you had in the fourth quarter?

Yes. We had a store down in Texas that was basically -- we've owned it now for about, gosh, 16 years. And there was a big building there -- a couple of buildings -- that were made out of concrete. The concrete essentially deteriorated to the point that we had to replace it. And we determined that the cost of replacement was greater than the worth of that store.

We were able to basically say, we're going to knock down these buildings. We're going to rebuild them with climate-controlled, state-of-the-art-type product. In the meantime, we have to vacate the tenants. We were able to put a lot of them in other stores in the area. But, essentially, the building, I think, was 10 years old when we bought it. It's 26 years old now. And we said, "it's cheaper to tear it down and rebuild it than it is to fix it.

So it doesn't happen very often. As a matter of fact, this is only the second time in our history. But we just decided, let's tear this down. It was worth about $1 million on our books. And we're just going to replace it with a bigger, better store.

Fine. And, lastly, I just wanted to touch upon your third-party management. I mean you guys have added quite a lot of stores this year. And I was just wondering if you -- how you look at your third-party-management platform. Do you -- like your peers, do you think of that as an acquisition pipeline as well, or have you tried to sort any other acquisitions through your third-party management?

Yes -- and for no other reason, it's good to be out in a deep way in the self-storage community. And I think we've mentioned on the last couple of calls how we -- two of the acquisitions we made this year went direct from almost management contracts to sales contracts.

But a lot of owners who are interested in having their properties managed are now sort of waving the white flag a little bit to the tide of big company scale. And I think they look at us as an exit strategy.

There's always the argument about, we're growing the value of these stores just to pay more four or five years down the road. But there's a lot of benefits to that in terms of having a captive seller and so forth. So it's a combination of things -- presence in the self-storage community; certainly, scale for the corporation -- our Company and our brand; and then eventual buyout.

Thanks. That's all I had.

Thank you.

Thank you.

Our next question comes from the line of Paula Poskon with Robert W. Baird. Please proceed with your question.

Thanks very much. Can you give a little color on what, if any, potential for improved operating performance exists in the assets you acquired last year?

Sure. Yes, the -- we acquired a big pool for the joint venture that we've talked about. The $155 million that we put to work off our own balance sheet was a big portfolio in Texas that we do see upside. We had it in in about a [7-1] cap. I think it was about 79% occupied. So there was a professional management company operating that portfolio. We, obviously, think we're quite a bit better, so, yes, we see some upside. That was one of the more traditional buys -- the sweet spot of what we look to do when we're acquiring properties.

It was at a decent cap rate, good locations. And we think we had the potential to increase the upside of that portfolio by about 125 basis points on a run-rate basis by the end of this year. So that was the other -- there's a little room for expense efficiencies -- although it was run very well in that regard; but also some top-line growth because there wasn't a big Internet presence and there certainly wasn't a revenue-management program.

So on the $111 million that represented the purchase price of that portfolio, we see the traditional 120 -- 125 basis point -- run up in the first 15, 18 months.

The other stuff we bought -- the one we just closed in Pensacola -- the stuff we bought in Virginia -- pretty much similar to that. That was a stabilized store. It was bought at a decent cap rate in a good market. So I guess I'd expect the same from that.

The other part that is just now coming into our same-store pool -- the properties we bought in December of 2010 in Charlotte and Raleigh -- that was a little different story. We bought those at about 55% occupancy. I think the purchase price on those was about $34 million. Those, we expect bigger growth, faster growth. And we're getting it.

We went from about the mid 50%'s to about 11% increase in occupancy over the 12 months that we've had them in the system so far. So those are at a little bit better pay -- a little bit more risk going in, a little bit better payoff. And so far, anyway, we seem to be enjoying the payoff.

That's very helpful. Thank you. And just given how much higher your guidance range was relative to where most of the street expectations were, where do you think the street has missed? What were we not fully appreciating?

The bang on the interest-rate savings that we got -- we had a really nice refinancing that we did -- I forget what crisis was going on -- I think it was the budget crisis. So everybody's focus was on that. We slipped that press release out and got almost no comments. So I think our interest expense for next year is -- now that we put it out there -- is considerably lower.

And probably, if I had to guess -- I haven't looked at everybody's model yet. But I would say that management-fee income that we're getting -- if you're plugging in our $29 million G&A and wondering how we're getting there -- there is $3.5 million of management-fee income coming in this year. That's certainly causing our G&A increase, but it's also helping.

I would have to say everybody, from the models I looked at, had it right, except for maybe save those two points.

Thank you very much. And then I apologize if you already commented on this -- did you talk about the January trends yet?

Just referred -- January was positive again. We had more move-ins than vacates, which, once again, is counter to what we've experienced in the past. And February -- I think, as of February 20th, we're still positive -- move-ins versus move-outs for the year.

Thank you. That's all I have -- appreciate it.

Thanks.

Thank you. Our next question comes from the line of Michael Salinsky with RBC Capital Markets.

Please proceed with your question.

Good morning, guys.

Hey, Mike.

Morning.

Most of my questions have been answered. I just had a couple follow-ups. When you were answering Christy's questions -- can you talk just -- just can you talk a little bit about the in-place discounts? I know that had been a big driver of revenue growth -- just burning off those concessions. How much are still in place? And when you look ahead to the revenue strategy of picking up occupancy, how should we think about discounting in 2012 in terms of your occupancy-pickup strategy, as well as managing street rates and pushing renewals?

Well, with regard to the incentive burn-offs -- we were at a level, Mike, back in, gosh -- 2009, we gave away -- just a quick history here -- $8.7 million in free rent. In 2010, it was $15 million in free rent. In 2011, we brought it back down to $10 million in free rent. That's going to be probably tough to get much lower than, on an annualized basis.

Everybody expects something -- at least in most units. So I would hope we could bring it down. The second, third and fourth-quarter concessions we granted were each in a range of about $2.3 million. First quarter of last year was $3 million. So we might have a little bit to get burn-off from the $3 million we gave in '11's first quarter. We'll probably stay at the same level of around $2.4 million -- $2.5 million.

After that, I'd be surprised if we're able to, on a same-store base we have -- the 351 stores -- if we're going to be able to get away without granting much less than $10 million given our move-in volume of staying the same and so forth. So I think, for the most part, it's burned off.

Okay. That's helpful. No significant changes to policies for street rates or renewal increases in conjunction with the occupancy push, correct?

No. We might be a little bit more aggressive on in-place customers, but not substantially.

Okay. Fair enough. Dave, I think you touched a little bit upon the Houston portfolio. I think you mentioned some of the -- a number of assets in Texas you were looking to sell in last quarter. Can you give us a little bit more of an update -- just the marketing process -- kind of pricing that you expect -- timing on those -- just because it wasn't -- it didn't appear that that was in your guidance for 2012? That's why I asked.

Yes. It is not, but -- because we don't have anything signed up; although, there are nine properties in Houston.

When we bought the group I just talked about with Paula -- the WEDGE group -- 20-some stores -- most of those were in Houston. And we had some overlap. And we were basically trading out very good stores for some of our older, less desirable. So we've had them on the market now for about four months. We've had considerable interests. We are in negotiations with one buyer who's got a pretty serious interest. I think his financing is lining up. But we're not there yet.

So we hope, between the Michigan stores and the Houston stores, to realize about $40 million -- $41 million. I believe the breakdown is right around $30 million for Houston; right around $10 million for Michigan. And we'll -- it won't happen in the first quarter, I don't think. But it'd be nice. We would not mind moving those off and just recycling, essentially.

Okay. Third question -- just coming back to Eric's question on G&A -- can you break out for us what you expect to spend on taxes in 2012, as well as what the call-center expense is? I think you gave the number for advertising, but I'd be curious to get the other two components.

Yes, the taxes -- we're doing some work on our taxable REIT subsidiary right now. We've got some -- and we're actually bumping up against the income limits -- the good income. So we've got some playing around. I would expect, though, that our budget for taxes will be in the $1.7 million to $2 million range.

And I'm sorry -- the other category?

Call center -- and I think you gave advertising before. If you didn't, I'd appreciate that as well.

Yes, the advertising -- the Internet advertising -- we're planning on spending a little over $4 million at the G&A level. So that'll be about $4 million.

And the call center is -- let's see real quick here -- that is typically, in terms of just personnel and supervision, about $1.6 million. I don't know exactly what the technology costs are, but that won't probably grow too much in the near future. That $1.6 million -- it was a little over $1.45 million last year. It should be about $1.6 million in the coming year.

Okay. Then, finally, in light of the healthy guidance there, I'm just curious to get your thoughts on the dividend.

Well, we're always looking at that, trying to see what's in the best interest of our shareholders. The next Board meeting, I know we're going to be talking about it. Obviously, we're not going to say -- we're not sure what's going to happen with that, but we are going to be looking at it.

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

Thank you. Our next question comes from the line of Shahzeb Zakaria with Macquarie. Please proceed with your question.

Good morning, guys -- just a couple of quick questions.

Morning.

Would you be able to give us the cap rate on the ten assets that you bought in Dallas-Fort Worth?

We'd prefer not to only because it's our J.V. partner's request. But it's in line with normal.

Okay. Got it. Thank you. And the other question is regarding the demand from end users. You mentioned that in Virginia you experienced a modest decline as military professionals came back and they vacated their units. How do you see the demand from different customer segments -- between residential, commercial and students?

How do we see it as far -- I think as far as --?

Is any one segment stronger than the other?

Well, right now, the residential is more -- is standing out more than anything. I'd say about 80% of our customers are residential. Students are seasonal. Military -- they're -- it all depends on when they're going to be deployed. So we have no control over that. What -- probably the biggest -- what we're looking forward to is -- when the housing industry picks up -- start getting more and more of those subcontractors that used to rent with us.

I think that's all up to the economy. I guess the short answer is it's primarily residential -- is the biggest demand.

Hi. This is Ki Bin -- just one quick follow-up. And I'm sorry if you already answered this, but could you talk about the trends you're seeing in -- whether it be year-over-year occupancy or just revenue -- in January and February? And also can you give some color on your new -- I know you hired somebody to handle your revenue management system going forward -- what kind of additional NOI growth we can expect from that?

Well the -- as far as move-in activity -- through the middle part of February, it's positive -- more move-ins than vacates, which is counter to what our historical experience has been. With respect to revenue management, we are -- we have some internal thoughts as to what we think it can do to our revenues.

I guess, at this point, I'm a little hesitant to say it out loud right now. Just rest assure that the investment we're making -- we're seeing a big return on it right now, and I think the best is yet to come. I think you'll see some really good things coming out of us in the second and third quarters.

Okay. And just to clarify one thing you said -- you said in January and February, net move-ins are higher than the fourth quarter?

No. They were positive. There were more move-ins in January and through February than move-outs, which is not -- normally there's more outs in January than there are move-ins. So the trend is positive.

Okay. All right. Thank you.

Sure.

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

Hi, thanks. Just a quick follow-up -- Ken, I just want to make sure I heard you right. I think -- did you say that you expect occupancy in the third quarter to be in the 85% to 87% range this year? Is that right?

Our goal -- I mean that's -- before the recession hit, we were generally in that range. And our goal would be to be in the 85%, 86% range by the -- sometime in the third quarter. Now, whether we're going to be able to hit it or not, I'm not sure. But that's what our goal is.

Okay. All right, great.

Now, that's not what's embedded in your guidance, though, right? In your same-store guidance, which seems much more conservative than that kind of ramp, you don't necessarily have an 85% --?

No, that's not put into our figures there. But I'm just saying what our internal goal is -- is to get back up close to where we were before the recession hit.

Okay. That's the audacious, optimistic scenario?

Right. Yes, don't put that in --

As the outgoing CFO, I'm -- yes, that is the audacious --

All right. Thanks, guys.

You're welcome.

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

Thanks. I just want to appreciate everybody's interest and participation on the call. Have a great day and we'll see you in a few months. Take care.

Thanks.

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